



COURT OF APPEAL FOR ONTARIO

CITATION: Rivard v. Morris, 2018 ONCA 181

DATE: 20180226

DOCKET: C63487

Rouleau, Trotter and Paciocco JJ.A.

BETWEEN

Steven Duane John Rivard

Applicant (Respondent)

and

Janine Therese Morris and Julianne Phyllis Rivard

Respondents (Appellants)

Evert Van Woudenberg, for the appellants

Myron W. Shulgan, for the respondent

Heard: November 14, 2017

On appeal from the order of Justice Scott K. Campbell of the
    Superior Court of Justice, dated February 15, 2017.

Paciocco J.A.:

OVERVIEW

[1]

Alexander Rivard was survived by a son and two daughters. Sadly, since
    his death the siblings have been fighting amongst themselves over his estate.
    First, the sisters unsuccessfully challenged their fathers will that left most
    of his property to their brother. Now, the siblings are litigating about
    whether the brother, as estate trustee, should be paying the sisters interest
    on the money they were left under that will. If the sisters are entitled to
    interest payments, the money for the interest comes out of the brothers share
    of the estate, since he is the residuary beneficiary.

[2]

The interest dispute came before an application judge. He recognized
    that there is a rule providing for the payment of interest on legacies in a
    will if those legacies are payable but payment has been delayed for more than a
    year. Yet the application judge decided not to apply that rule. He claimed, and
    exercised, a discretion not to do so on the basis that the sisters had been
    estate trustees during the administration of the estate, and the delay in
    payment was caused by their challenge to the will. The sisters have appealed
    that decision.

[3]

I would allow the appeal. The common law rule providing for the payment
    of interest is often called the rule of convenience. In my view we need not
    decide whether there is judicial discretion to deny the payment of interest
    provided for under the rule of convenience. Even if such discretion exists,
    the application judge did not exercise that discretion according to proper
    principles. In my view, interest is payable. I would grant the specific relief
    requested by the sisters and order the payment of $53,000 in interest on each
    of their legacies.

THE FACTS

[4]

Alexander Rivard acquired appreciable farm property during his life. Shortly
    before his death, on October 24, 2013, it appeared that he was going to divide the
    farm property equally between his three children. During his life he had
    already given his son, Steven Duane Rivard (the brother), a significant tract
    of farmland. In a will Alexander Rivard executed on August 1, 2013, he
    instructed that similar size farm properties be given to each of his two daughters,
    Janine Morris and Julianne Rivard (the sisters). That will provided that the
    balance of his estate was to be divided equally between the three children.

[5]

Then things changed. On August 24, 2013, Alexander Rivard executed
    another, different will. In this, the last will he was to execute before he
    died, Alexander Rivard did not leave the sisters farm property. Instead they
    were to receive legacies of money, $530,000 each. The brother would take the
    residuary of the estate, or what was left, which in this case consisted of
    significant farmland. As under the first will, Alexander Rivard appointed all
    three of his children as estate trustees.

[6]

The sisters were disappointed. Suspicious of the second will, they
    decided to challenge it, alleging undue influence.

[7]

Of course, this challenge held up the division of the estate. It was not
    until August 8, 2016, that the dispute was settled with a finding that the
    second will was valid. On consent, on October 18, 2016, the lands held in the
    estate were ordered to be conveyed to the brother on the condition he paid the
    money provided for in the will to the sisters. This finally occurred on October
    24, 2016.

[8]

Unfortunately, another dispute arose. The sisters claimed that they were
    entitled to interest, in addition to the face amount of their legacies. They
    claimed interest at 5% per year, payable out of the brothers residuary estate,
    commencing one year after their fathers death. The brother balked. He agreed
    to retain $63,600 until this dispute could be settled. The issue was referred
    to the application judge. The application judge confirmed the resignation of
    the sisters as estate trustees, and granted the parties leave to make
    submissions on the sisters entitlement to interest on their legacies.

[9]

On February 15, 2017, based on written submissions, the application
    judge sided with the brother, holding that no interest should be paid. The
    sisters would get the face amount of their legacies, and no more.

[10]

The
    application judge reasoned that r. 65.02(2) of the
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194, a provision that, on its face, directs interest to be
    paid, did not apply.

[11]

As
    I interpret his decision, the application judge then went on to recognize that
    a similar common law rule governing the payment of interest on legacies did
    apply. The application judge did not name this common law rule, but in my view
    he was referring to the rule of convenience that developed at equity, and
    that the sisters had cited. This rule provides for the payment of interest out
    of the residuary estate on specific and general legacies that are payable, but
    are delayed for more than a year after the death of the testator.

[12]

After
    recognizing this common law rule, the application judge then claimed, and
    exercised, discretion not to award interest payments to the sisters. He relied primarily
    upon two considerations to deny interest: the sisters had been estate trustees during
    much of the administration period, and the sisters challenge to the will
    delayed the administration and distribution of the estate.

[13]

The
    application judge made clear that he was not assigning blame to the sisters for
    challenging the will. He recognized their right to do so. Given the challenge,
    however, the application judge concluded that it was not reasonable to presume
    that the sisters should have had their property in hand within a year of their
    fathers death. He held, in the circumstances, that neither the sisters nor the
    brother should be rewarded or penalized by the passage of time. He denied
    interest and made no order as to costs.

[14]

The
    sisters have accepted the decision upholding the second will. In these
    proceedings they do, however, appeal the decision denying them interest on
    their legacies.

THE ISSUES

[15]

The
    sisters have launched several attacks on the application judges decision, but
    ultimately three general issues arise.

[16]

First,
    did the application judge err in holding that r. 65.02 does not apply?

[17]

Second,
    did the application judge err in exercising discretion to deny interest on the
    sisters specific legacies?

[18]

Finally,
    if interest should have been paid, what rate of interest should have been
    applied?

[19]

The
    standard of review is clear. If r. 65.02 does apply, the application judge will
    have committed an error of law, reviewable on a correctness standard.
    Similarly, if the application judge claimed a discretion to deny the payment of
    interest that the law does not provide for, he will have erred in law, again
    reviewable for correctness:
Housen v. Nikolaisen
, 2002 SCC 33, [2002]
    2 S.C.R. 235, at para. 8.

[20]

If,
    however, the law grants discretion to withhold interest payments to the
    sisters, the exercise of that discretion is entitled to a high degree of deference.
    An appellate court will not interfere with the exercise of a discretion to
    decide what is fair and equitable unless the judge applied the wrong legal
    standard or based his or her conclusions on irrelevant factors, or on factors
    to which he or she attached inappropriate weight:
Toronto Standard
    Condominium Corporation No. 1908 v. Stefco Plumbing & Mechanical
    Contracting Inc.
, 2014 ONCA 696, 325 O.A.C. 231, at para 32; and
Friends
    of the Oldman River v. Canada
, [1992] 1 S.C.R. 3, at pp. 76-77, quoting
Charles
    Osenton & Co. v. Johnston
, [1942] A.C. 130 (H.L.).

[21]

The
    authority of courts to interfere with discretionary decisions where the wrong
    legal standard has been applied warrants elaboration. As the Supreme Court has
    explained, the criteria for the exercise of a judicial discretion are legal
    criteria, and their definition as well as a failure to apply them or a
    misapplication of them raise questions of law which are subject to appellate
    review:
British Columbia (Minister of Forests) v. Okanagan Indian Band
,
    2003 SCC 71, [2003] 3 S.C.R. 371, at para. 43. See also:
GEA Group AG v.
    Ventura Group Co.
, 2009 ONCA 619, 96 O.R. (3d) 481, at paras. 58-59.

ANALYSIS

A.

should rule 65.02(2) have been applied?

[22]

Centuries
    ago, Ecclesiastical courts in England developed a practice of giving personal
    representatives one year after the death of the deceased to wind up the estate.
    To this day, it is still presumed, including in Ontario, that estates will be
    wrapped up within the executors year: Carmen S. Thériault,

Widdifield
    on Executors and Trustees
, loose-leaf (2016-Rel. 11), 6th ed.
    (Toronto: Carswell, 2016), at pp. 5-6.3 to 5-6.4. This involves calling in the
    assets of the deceased, paying off the estate debts, and converting the
    remaining assets to enable bequests and legacies to be distributed according to
    the will, and then doing so.

[23]

For
    more than two centuries, the law of equity has recognized a related rule, often
    referred to as the rule of convenience. According to this related rule,
    described in more detail below, where no special time is fixed for the payment
    of a legacy, it carries interest ... from the expiration of a year from the
    testators death:
Widdifield
, at p. 5-6.3. See also: James MacKenzie,

Feeneys Canadian Law of Wills
, loose-leaf (2016-Rel. 64-9), 4th
    ed. (Toronto: Lexis-Nexis, 2000), at p. 8.22. This rule was thoroughly reviewed
    in the 1997 article by Rosanne T. Rocchi and Michael W. Kerr
,
Legacies:
    A Matter of some Interest (1997), 16 E. & T.J. 305 (Rocchi and Kerr).

[24]

The
    rule of convenience can be easily explained, in my view. One of the maxims of
    equity is that it presumes as being done that which ought to be done. Since the
    beneficiaries should be enjoying the earning power of their legacies by at
    least the anniversary date of the testators death, where that enjoyment is postponed
    and the testator has not provided an alternative date for payment of the legacy,
    interest is to be paid:
Hutcheon v. Mannington
(1791), 1 Ves. Jr. 366,
    at p. 367, 30 E.R. 338 (Ch.); and
Elwin v. Elwin
(1803), 8 Ves. Jr.
    547, at p. 557, 37 E.R. 467 (Ch.). This does not mean that the interest is
    itself a legacy:
Foster v. Wyles
,

[1938] 1 Ch.  313, at p. 316.
    It does mean that equity takes steps to put the legatee in the position they
    would have been in had the legacy been distributed as the testator, not having
    set a different date for distribution, is presumed to have intended.

[25]

This
    general rule has been adopted in Ontario: see
Re Barton
, [1940] 4
    D.L.R. 115 (Ont. C.A.), affd [1941] S.C.R. 426; and
McDougald Estate v.
    Gooderham

(2003), 2 E.T.R. (3d) 52 (Ont. S.C.), affd (2005), 199
    O.A.C. 203 (C.A.).

[26]

Rule
    65.02(2) is a legislated provision to the same effect. It directs that interest
    is to be paid on legacies from the end of one year after the death of the
    deceased, unless the will directs another time for payment. Some say that r. 65.02(2)
    has codified the rule of convenience: see for e.g. Rocchi and Kerr, at p.
    309. If the point is that r. 65.02(2) is a legislated provision that adopts the
    rule of convenience, I agree. If the point is that r. 65.02(2) has subsumed
    the common law rule, I do not agree. In my view, r. 65.02(2) applies where
    courts administer an estate, while the rule of convenience itself applies where
    personal representatives administer the estate.

[27]

This
    limited sphere of operation for r. 65.02(2) can readily be seen when it is
    situated within rr. 65.01 and 65.02. Those rules provide as follows:

WHERE AVAILABLE

65.01 (1) A proceeding for the administration of the estate of
    a deceased person or for the execution of a trust may be commenced by notice of
    application,

(a) by a person claiming to be a creditor of the estate of the
    deceased person;

(b) by a person claiming to be a beneficiary under the will or
    on the intestacy of the deceased person or under the instrument of trust; or

(c) by an executor or administrator of the estate of the
    deceased person or a trustee.

(2) A judgment for administration of an estate (Form 65A) or
    for execution of a trust shall be granted only if the judge is satisfied that
    the questions between the parties cannot otherwise be properly determined.

(3) Where no accounts or insufficient accounts have been
    rendered, the judge may, instead of granting judgment for administration of the
    estate or for execution of the trust, order that the executors, administrators
    or trustees render to the applicant a proper statement of their accounts and
    may stay the application in the meantime.  R.R.O. 1990, Reg. 194, r. 65.01 (3).

WHERE A REFERENCE IS DIRECTED

65.02 (1) A judgment for administration of an estate or for execution
    of a trust shall direct a reference, and the referee has power to deal with the
    property of the estate or trust, including power to give all necessary
    directions for its realization, and shall finally wind up all matters connected
    with the estate or trust without any further directions, except where the
    special circumstances of the case require interim reports or interlocutory
    orders.

(2) Interest on accounts taken in administration proceedings
    shall be computed on the debts of the deceased from the date of the judgment
    and on legacies from the end of one year after the death of the deceased,
    unless the will directs another time for payment.

(3) All money realized from the estate or trust shall forthwith
    be paid into court, and no money shall be distributed or paid out except by
    order of a judge or, on a reference, by order of the referee.

[28]

It
    is evident from a plain, contextual reading of r. 65.02(2) that, on its own
    terms, it does not apply to all estate administrations. It provides for [i]nterest
    on accounts taken in
administration proceedings
 (emphasis added), a
    term that, in context, describes applications governed by rr. 65.01 and 65.02, and
    where a referee has been appointed to wind up the estate.

[29]

In
    this case, there was no notice of application for a proceeding for the
    administration of an estate, no judgment given for the administration of an
    estate, and no reference.

[30]

This
    litigation began as an application challenging a will. As is appropriate in
    contentious estate proceedings, such applications are brought under r. 75:
Neuberger
    Estate. v. York
, 2016 ONCA 191,
129 O.R. (3d) 721, at para. 1. They are not brought under r. 65.01, and do not
    ordinarily entail requests to have the court administer the estate.

[31]

The
    specific application that led to the impugned interest entitlement ruling in
    this case was initiated by an originating notice of motion by the brother,
    seeking the removal of the sisters as estate trustees, and the distribution of
    the property. As the application judge recognised, the application was brought
    under rr. 14 and 75, not under r. 65.01.

[32]

I
    do not agree with counsel for the sisters that since r. 65.02(2) replicates the
    former r. 435 it should be understood as applying to all applications to direct
    estate trustees to convey property.  The current matter is governed by the
    proper construction of r. 65.02(2), not by former rules.

[33]

In
    any event, in my view the former r. 435 was never a comprehensive mechanism for
    governing the payment of interest on legacies. It, too, was found within a
    series of provisions that applied where estate administration was handed over
    to courts. The only decision that appears to treat the former r. 435 as governing
    the payment of interests on legacies generally is

Spofford Estate (Re)
,

[1942] O.J. No. 164 (H.C.). Other Ontario decisions on this issue rely on the
    common law rule.

[34]

This
    is not to say that the legislated rule cannot influence the application of the
    common law rule, a point I will return to below.

[35]

The
    application judge was therefore correct in finding that r. 65.02(2) does not
    apply. This does not, however, end the matter. As indicated, the parallel
    common law rule of convenience governs.

B.

Was It an error to exercise discretion to deny interest?

(1)

The Rule used by the Application Judge

[36]

The
    application judge did not state directly that the common law rule of
    convenience governed the payment of interest, but I believe that is what he
    concluded before exercising discretion not to order interest. His recognition
    of the rule is evident, in my view, when the ruling is read in light of the
    submissions made.

[37]

As
    recognized in the brothers factum on appeal, during the application the
    sisters relied upon r. 65.05(2)
and
a practice known as the
rule of
    convenience
 (emphasis in original). In opposition, the brother maintained that
    the interest provisions of the
Courts of Justice Act
, R.S.O. 1990, c.
    C.43 would govern the payment of interest by the estate.

[38]

The
    application judge clearly did not rely on the
Courts of Justice Act
,
    for he did not cite it again after describing the brothers position. Instead, the
    application judge rehearsed, without naming, the rule of convenience. He then
    explained why he would not be applying it:

When an estate is not a simple estate, the expectation that the
    administration will be concluded within the executor year may be unreasonable:
    see
Prong Estate
, Re, [sic] 2011 ONSC 632, 64 E.T.R. (3d) 48. In this
    matter the challenge of the Will delayed the administration and distribution of
    the estate for more than three years.

The application undertaken by the respondents was within their
    rights. However, I conclude that neither party should either be rewarded or
    penalized by the passage of time.

It is also worthy of repeating that the respondents became the
    estate trustees along with the applicant on August 19, 2014. They remained
    estate trustees until my order, initially together with the applicant and then
    on their own.

[39]

In
    effect, the application judge recognized the rule of convenience, but
    exercised discretion not to apply it.

(2)

Did the Rule of Convenience Apply?

[40]

Although
    the rule of convenience has been articulated in modestly different ways in
    the case law, and there is disagreement on some points, the principle  is too
    well settled to admit of doubt:
Re Lightfoot
, [1948] 2 D.L.R. 418
    (Ont. H.C.), at p. 420. Pursuant to this general rule, subject to terms in the
    will to the contrary, if a specific legacy of personal property, or a mixed fund
    of land and personal property, is payable under a will but is not paid to the
    beneficiary by the anniversary date of the death of the testator, the beneficiary
    will begin to earn interest on the value of the property from that date until
    they have received that property:
Thompson Estate (Re)
,

[1955] O.J.
    No. 117 (H.C.);
Re Baty
(1958)
,

13 D.L.R. (2d) 594 (Ont. H.C.), revd on other grounds [1959] O.R. 13 (C.A.);
    and
Re Lynchs Estate
(1975)
,

25 N.S.R. (2d) 13 (S.C. (T.D.)). As I explain below, in my view the rule
    goes farther and currently provides for simple interest at the rate of 5% per
    annum.

[41]

The
    rule of convenience is sometimes explained as allowing for the payment of
    damages or compensation for default or delay in payment beyond the executors
    year. This was the view of the Ontario High Courts Smily J.:
Re Barr
,
    [1947] O.R. 96 (H.C.), at pp. 101-2, affd [1947] O.R. 557 (C.A.); and
Merritt
    Estate (Re)
, [1947] O.J. No. 1 (H.C.), at para. 2.

[42]

In
    my opinion, it is neither accurate nor helpful to think of the rule of
    convenience as providing for the payment of damages or compensation for
    delayed payment. Explaining the rule in this way implies that interest is owed
    because something wrongful has occurred that has delayed payment. Yet that is
    not how the rule works. Under the rule of convenience, interest is payable even
    if payment within the executors year is impractical or impossible, and whether
    or not the legacy has vested:
Wood v. Penoyre
(1807), 13 Ves. Jr. 325,
    33 E.R. 316 (Ch.);
Toomey v. Tracey
(1883), 4 O.R. 708 (H.C.); and
Widdifield
,
    at p. 5-6.3. Interest is payable even where payment within the first year was
    never expected:
Walford v. Walford
, [1912] A.C. 658 (H.L.);
Spofford
    Estate
; and
Re Carter
, [1934] O.J. No. 45 (H.C.). Indeed,
    interest is payable under the rule of convenience, whether the assets have
    been productive or not, and even where the property is incapable of earning income
    during the period when interest is accumulating:
Pearson v. Pearson
(1802),
    1 Sch. & Lef. 10 (Ch. Ir.), at p.12;
Sitwell v. Bernard
(1801), 6
    Ves. Jr. 520, 31 E.R. 1174 (Ch.); and
In re Hoey (deceased), Gordon v.
    Russell and Others
,

[1944] NZLR 900 (S.C.), at p. 905.

[43]

The
    rule has also been explained as based on the unfairness in not paying interest and
    thereby giving the residual beneficiary the benefit of money earned by the property
    designated in the legacies:
Re Allen, Lewis v. Vincent
(6 August 2007),
    Auckland, 2006-404-2312, at para. 31 (N.Z.H.C.). It is true that if this were
    to occur it would be unfair:
Foster
, at pp. 315-16. In my view,
    however, this potential unfairness cannot account for the rule of convenience
    since, as indicated, the rule of convenience applies even if the estate has
    not earned income or cannot earn income.

[44]

As
    I have explained, in my view, the most historically accurate and least misleading
    rationale for the rule of convenience is that it is a mechanism for promoting
    the full enjoyment of specific legacies. By imposing interest payment
    obligations at the end of the executors year, specific legatees can more fully
    enjoy the benefits of the gifts that were intended where distribution has been
    delayed beyond the executors year.

[45]

It
    is obvious from the little I have said that the rule of convenience is blunt.
    By design, it is intended to exact rough justice and achieve convenience,
    even though in particular cases both convenience and justice may be
    disappointed:
Sitwell
, at p. 540
;
    and Rocchi and Kerr, at p. 316. It is called a rule of convenience because it
    is a simple, predictable way of achieving the generally fair outcome of
    providing for the payment of interest on specific legacies.

[46]

The
    value in having a simple, predictable rule is evident when it is appreciated
    that the rule of convenience is not a litigation rule. It is a rule that is
    meant to be applied by personal representatives even where courts are not
    called upon to order interest payments. Its rigidity and simplicity are intended
    to ease the administration of estates by saving personal representatives from
    having to predict what an estate could have earned, and courts from endless
    and immeasurable inquiries into the performance of the estate, should a more
    complex rule operate:
Sitwell
, at
    p. 540
.

[47]

It
    is also necessary to consider estate laws priorities, if this rule is to be fully
    understood. The most prevalent consideration in the law of estates is giving
    effect to the testators intention. If the testator does not consider the rule of
    convenience to be fair, the testator is free to oust the rule by postponing or
    eliminating the right to interest, or by providing for a different rate of
    interest, since the will is paramount:
Maxwell v. Wettenhall
(1722), 2
    P. Wms. 26, 24 E.R. 628 (Ch.).

[48]

In
    my view, the rule of convenience applies in the instant case. The appellant
    sisters were provided with legacies of personal property, namely money in the
    amount of $530,000 each. These legacies were payable in the relevant sense;
    there were no conditions delaying payment or contingencies assigned by the
    testator. Since the testator had not provided for any other time of payment, it
    was presumed that the testator wanted the legacies to be distributed within a
    year. Yet payment was delayed beyond the executors year.

[49]

None
    of the fixed exceptions to the rule of convenience operate. Indeed, most of
    those fixed exceptions operate to accelerate the entitlement to interest, such
    as where life estates are granted, the gift is of land, or where it is a legacy
    to an infant beneficiaries or to pay creditors: see
Widdifield
, at pp.
    5-6.5 to 5-8, 5-10 to 5-12. In those cases interest is payable from the date of
    the testators death.

[50]

Counsel
    for the brother argues that the rule does not apply because the general power
    of postponement in the will, authorizing the executors to delay payment of the
    sisters legacies, demonstrates the testators intention not to have the rule
    of convenience apply. I agree that if a discretion to postpone is clear enough
    to show that the testator does not want legacies to be paid within the
    executors year, as in
Planta v. Greenshields
(1932), 45 B.C.R. 228
    (B.C.C.A.), the testators intention will override the rule of convenience.
    However, general powers of postponement are not specific enough to achieve
    this. This is because a general authority to postpone payment does not signal
    an intention by the testator that interest is not to be paid, as there is
    nothing inconsistent between a power to delay distribution and an obligation to
    pay interest pending distribution. As Rocchi and Kerr point out, at p. 345, the
    weight of authority supports this position. In my view, LeBel J. was correct in
Lightfoot (Re)
, [1948] 2 D.L.R. 418 at p. 422 (Ont. H.C.), that where
    a will does not fix a date for payment, personal representatives who exercise a
    power to postpone do so subject to the will. As was recognized in
Varley v.
    Winn
(1856), 2 K & J. 700, at p. 708, 60 E.R. 963 (Ch.), a discretion
    relating to the date of payment is intended to convenience the estate, not
    benefit the residuary legatees.

(3)

Did the Application Judge err in Exercising Discretion not to apply the
    Rule of Convenience?

[51]

No
    authority was produced before this court supporting the discretion of judges to
    deny interest where the rule of convenience applies. The brother relies upon
Prong
    Estate (Re)
, 2011 ONSC 632, 65 E.T.R. (3d) 48, in support of the
    proposition that the rule of convenience should not apply where circumstances
    make the executors year unreasonable. This case did not involve the rule of
    convenience. It was about whether the appointment of the estate trustees should
    be revoked.

[52]

There
    are similar cases considering the reasonableness of insistence on the
    executors year where efforts are made to require accounts to be passed, or to
    limit the compensation of personal representatives: see e.g.
Cornish Estate
    (Re)
, 2016 PESC 14; and
Cormack v. Indergaard
, 2016 ABQB 544, 25
    E.T.R. (4th) 142, but such decisions do not stand as authority for the
    discretionary application of the rule of convenience.

[53]

As
    explained, the rule of convenience is not predicated on the possibility of
    payment within the executors year. The rule of convenience applies even
    where payment within the executors year is impossible. It would involve a
    significant realignment of the rule, in my view, to permit courts to choose
    whether to pay interest based on how reasonable it is to expect the
    distribution of property within the executors year to occur.

[54]

No
    relevant Canadian cases supporting the discretion to deny interest have been
    found. No English cases doing so have been uncovered either.
Re Allen
,
    at para. 32, cites an unreported New Zealand decision,
Cook v. Cook
(20 April 2004), Greymouth, 2001-418-000004, that apparently recognizes a
    discretion to deny interest but
Re Allen
disapproves of
Cook v Cook
on the basis that the
    decision was made without supporting authority. After a close examination of
    the case law, the court in
Re Allen
, at para. 33, held that unless
    the will provides otherwise, a legatee has a right to interest on the legacy as
    from the end of the executors year.

[55]

The
    reason there may be no authority supporting a discretion to deny interest may simply
    be that discretion is seen to be undesirable in this context. In
Re Beech,
    Saint v. Beech
, [1920] 1 Ch. 40, at p. 44, quoted in
Re Parry, Brown v.
    Parry
, [1947] Ch. 23, at p. 47, Eve J. appears to explain why:

[A] departure from a salutary rule in matters of this kind 
    introducing as it does an element of uncertainty in practice and administration
     can only be justified if the changed conditions on which it is founded continue
    at least as constant as those upon which the rule was itself framed.

[56]

Expressing
    the same sentiment in more modern language, certainty is critical to the simplicity
    and the efficacy of a rule that is most often applied, not by courts, but by
    personal representatives. It is one thing to identify fixed exceptions to the rule
    of convenience. It is another to leave the operation of the rule of convenience
    free floating. Doing so would undercut its function as a rule of convenience.

[57]

In
    addition, the rule of convenience is predicated on what a testator, presumed
    to know the law, is presumed to intend where they have not opted out of the
    rule. Denying discretion is arguably a better way of having testators, rather
    than executors or courts, determine how to distribute their property, including
    the payment of interest on legacies.

[58]

On
    the other hand, the rule of convenience is a rule of equity, and discretion
    is a hallmark of equity. Courts should arguably have the authority to adjust a
    rule of equity that produces unfairness.

[59]

Moreover,
    while these provisions do not permit judges to deny interest altogether, in
    both England and New Zealand legislation has been passed conferring express
    discretion on courts to vary the rate of interest that will be paid:
Civil
    Procedure Rules 1998

(U.K.), SI 1998 No. 3132 (L 17),

Practice
    Direction 40A  Accounts, Inquiries etc., at para. 15;
[1]
and
Administration Act 1969

(N.Z.), 1969/52, s. 39.  To this
    extent, situational equity is permitted to trump certainty and simplicity.

[60]

As
    interesting as this debate is, it is not necessary in this case to determine
    whether Canadian judges have legal discretion to refrain from applying the rule.
    In my view, even if such discretion exists, and notwithstanding the significant
    deference that would apply during appellate review, the decision of the
    application judge to deny interest cannot stand. The application judge failed
    to apply the proper principles, and based his conclusions on irrelevant factors
    and factors to which he attached inappropriate weight.

[61]

First,
    in exercising discretion the application judge relied on the reasonableness of
    expecting the sisters legacies to be distributed within the executors year,
    given that distribution was delayed for more than three years by the challenge
    to the will. There are two components to this reasoning: the notion that the
    entitlement of interest is linked to the reasonableness of the expectation
    within the executors year, and the role of the sisters in causing the delay.
    Both components are problematic.

[62]

In
    my view, relying on the reasonable expectation of payment within the executors
    year to determine an entitlement to interest is an error in principle. As
    indicated, the rule of convenience is not predicated on the possibility of
    payment within the executors year. It does not depend on the wrongful failure
    by the personal representatives to distribute the estate within that period.
    The rule has long applied as a matter of routine, even in cases where
    distribution within the executors year was known to be impossible from the get
    go. It is fundamentally inconsistent with the rule of convenience to use the
    reasonableness of the expectation of payment within the executors year as a
    driving consideration in exercising a discretion whether to deny interest.

[63]

To
    be sure, the reasonableness of the expectation of payment within the executors
    year is an appropriate consideration where the legal issue at stake is about
    whether blame for delay or inaction is to be attributed to the personal
    representative, as in
Prong Estate
. The reasonable expectation of
    payment within the executors year is inapt, however, in determining whether a
    legatee will enjoy their right to interest. The principle in
Prong Estate
,
    relied upon by the application judge, should not have been applied.

[64]

It
    is also contrary to principle, in my view, to deny the sisters interest on
    their legacies because they started the litigation that caused the delay. If
    simply commencing litigation against the estate is a ground for denying
    entitlement to interest, even meritorious litigation will be discouraged.

[65]

To
    be sure, it would be appropriate in exercising discretion to consider improper litigation
    conduct causing delay, as occurred in the New Zealand case of
Re Allen
,
    where the interest entitlement of legatees was reduced after they had engaged
    in so much vexatious litigation that an order had to be made barring them from
    bringing other claims. That is not, however, this case.

[66]

As
    the application judge recognized, the sisters were entitled to challenge the
    will. In
Neuberger Estate
, this court recognised broad interests in
    the validity of wills, so much so that a challenge to a will is approached not
    adversarially but inquisitorially, with regard to the special responsibility to
    the testator to ensure that a document is entitled to probate. There is no
    suggestion in this case that the sisters will challenge was frivolous or
    improperly taken, and no intimation that they did not proceed with the litigation
    in an efficient manner. Justice Carey, who upheld the validity of the will, recognized
    that the appellant sisters acted promptly in contesting the will. Moreover, some
    of the delay in distributing the estate was occasioned by the sisters successful
    efforts to remove the brothers counsel from the record for a conflict of
    interest, and they consented to orders to move the litigation along. In my
    view, if there is a discretion to deny interest where the rule of convenience
    applies, the value of certainty and simplicity would require that it is a
    discretion that could be exercised only in the clearest of cases. This is not
    one of those cases.

[67]

The
    second reason offered by the application judge for denying interest, that
    neither party should either be rewarded or penalized by the passage of time,
    is also contrary to the relevant principles. The payment of interest is not a
    reward. The rule of convenience provides it is an entitlement, based on the
    presumed intention of the testator.  Moreover, it is wrong to consider the
    payment of interest from the residuary estate to be a penalty. While all
    beneficiaries are to be treated with an even hand, identified legacies, - be
    they specific, general or demonstrative - take priority over residual legacies.
    A residual legacy is a what is left legacy. It consists of what remains, if
    anything, after debts and identified legacies are paid. It is not a penalty to
    a residuary legatee to use residual funds to ensure that the beneficiaries of
    identified legacies enjoy the full benefit of what they have been left. The
    loss to the residual beneficiary that this entails is a function of their
    status as a residuary beneficiary.

[68]

More
    importantly, if interest is not paid to legatees, the residual beneficiary gets
    the benefit of any income or interest earned on the value of property that the
    testator designated for those legacies. I am aware that no rental income was
    earned on the estate property in this case, but it is important to bear in mind
    that the bulk of the estate consisted of the farmland that the brother
    ultimately received. It would not have been in his interest to sell the
    farmland and convert it into income earning investments. As well, having
    received that farmland, he has the benefit of any increase in its value. The
    prospect of the payment of interest was not, in my view, properly characterized
    as a penalty to be avoided.

[69]

Finally,
    in denying interest the application judge relied on the fact that, during much
    of the material time, the sisters were estate trustees. Their status as estate
    trustees, twice mentioned by the application judge, is of no bearing here. They
    were not disentitled, as estate trustees of the will that was ultimately
    probated, to contest the validity of that will, and there is no suggestion that
    they misused their positions to advantage their challenge.

[70]

Nor
    can there be any suggestion that they waived their right to interest by failing,
    when estate trustees, to convert the contested farm property into income
    earning property. As the application judge who upheld the will found, it was
    the intention of the father to keep the farm property in the family. The
    retention of the farm property and the loss of earned income, was not only true
    to the testators wishes, it ultimately inured to the brothers benefit.

[71]

In
    sum, it is my view that the application judge erred in principle by linking the
    entitlement of the sisters to interest to the reasonableness of the expectation
    that the estate could be distributed within a year; in giving undue weigh to
    the role that an appropriately conducted, non-frivolous will challenge played
    in the delay; in considering the payment of interest to be a reward or a
    penalty; and in relying on the sisters statuses as estate trustees.

[72]

As
    I have said, given the importance of certainty and predictability, if there is
    a discretion available to deny interest to legatees, it must apply only in the
    clearest of cases. A case in which distribution is delayed because legatees
    bring an appropriately conducted, non-frivolous challenge to a will, and where
    the residuary beneficiary ultimately receives the key estate asset along with
    any appreciation in its value, is not one of the clearest of cases, let alone
    the kind of case that warrants recognizing a discretion that has not yet found
    support in the law.

[73]

I
    would therefore allow the appeal and order the payment of interest.

C.

What Amount of Interest is to be paid?

[74]

For
    reasons that I will explain, it is my view that the rate of interest to be
    applied in this case is the 5% simple interest rate that the rule of
    convenience currently carries at common law:
Kirkland (Re)
(1916), 32
    D.L.R. 83, at pp. 84, 87 (S.C. (A.D.));
Re Sharp
,

[1933] O.J.
    No. 158 (H.C.); and
Re Carter
, [1934] O.J. No. 45 (H.C.).

[75]

Although
    the brother did not address the interest rate issue overtly, it is implicit in
    his position that the appropriate rate of interest should be the prejudgment
    interest rate provided for in s. 128 of the
Courts of Justice Act
, currently 0.8%
. I say this because it
    was his contention that the discretion to pay interest on the legacies comes
    from the prejudgment interest provisions, and not the rule of convenience.  I
    do not agree. In my view, the prejudgment interest provisions do not apply, and
    therefore do not direct the rate of interest that should be paid. The rule of
    convenience and the prejudgment interest provisions are distinct.

[76]

First,
    the prejudgment interest provisions provide for the payment of interest from
    the date of the cause of action, whereas the rule of convenience supports
    claims that commence with the entitlement of the receipt of property.

[77]

Second,
    the interest payments are made for different purposes. The rule of
    convenience is meant to enable the legatee to enjoy the earning potential of a
    property right that has arisen but is delayed, even where the delay occurred
    without wrongdoing. In contrast, the prejudgment interest provisions are
    intended to encourage the settlement of claims by those who wrongfully resist
    claims for the payment of money:
Kinbauri Gold Corp. v. Iamgold
    International African Mining Gold Corporation

(2004), 192 O.A.C. 24
    (C.A.).

[78]

Third,
    the prejudgment interest provision in s. 128 of the
Courts of Justice Act
presupposes a claim related to an order for the payment of money, on which the
    interest is added thereon. This means that s. 128 would not apply if the sole
    issue is the payment of interest on a legacy that is not in dispute.

[79]

It
    is possible to go on. The
Courts of Justice Act
provisions do not
    operate to replace the rule of convenience, and there is nothing in the
    decision in
Pizzey v. Crestwood Lake Limited

(2004), 69 O.R.
    (3d) 306 (C.A.), to the contrary. That case simply holds that where no interest
    rate is set after a bank note matures but is not paid, and where a litigated
    claim has been made, a court should use the prejudgment interest regime to
    compensate the claimant for the interest withheld.

[80]

None
    of this is to say that the prejudgment interest provisions never apply where
    there is a delay in paying legacies under a will. In
St. Cyr v. Leitch
,
    [1992] O.J. No. 2778 (C.J. (Gen. Div.)) the prejudgment interest provisions
    operated to require the executor to pay, out of his own pocket, prejudgment interest
    after improperly withholding payment. It is fitting in such circumstances that
    the interest be paid by the executor and not out of estate assets under the
    rule of convenience. The current point is that the prejudgment interest rate
    provisions do not govern interest to be paid under rule of convenience.

[81]

Having
    said this, the 5% common law rate of interest is not, itself, beyond doctrinal
    criticism. Varying explanations for the selection of a fixed 5% simple interest
    rate have been offered.

[82]

As
    Rochi and Kerr explain, at pp. 312-16, early English authority attempted to
    identify applicable rates of interest based on the typical earning potential of
    estates, in a context in which the law requires cautious investment. As a
    matter of convenience, rates were not set based on the earning potential of the
    specific estate, or the rates actually earned by the estate. Litigation was
    discouraged in this way, and things were kept simple. As explained by the Lord
    Chancellor Eldon in
Sitwell
, at pp. 539-40:

[I]t is a general rule, that where no interest is given by will
     it is only to be allowed at 4
per cent
from the end of the year;
    though it may appear to have produced in the period interest at 5
per cent
.
    Particular justice is disappointed in particular cases: but upon this principle
     the inquiry as to the state of the personal estate, when each and every part
    could be got in and made productive, is endless and immeasurable, the Court
    cuts the knot by doing what in general cases is convenient; though in particular
    cases both convenience and justice may be disappointed.

[83]

Initially
    interest amounts varied modestly over time - between 4% and 6% over three
    centuries - but the rates are now set by statute in England. The rates are
    regularly reviewed by the Lord Chancellor with the concurrence of the Treasury
    and are linked to the interest payable on money paid into court. Currently the
    rate of interest is negligible: 0.1%.

[84]

Conversely,
    as Rocchi and Kerr explain, at p. 312: In Ontario, 5% appears to have been the
    accepted rate, but the cases do not demonstrate any suggestion that the rate is
    tied to an anticipated rate of return. Not surprisingly, over the centuries there
    have been anomalous decisions where judges have applied different rates of
    interest close to that amount, but judges in these cases tend not to purport to
    be exercising a case by case consideration. Instead, they appear to have been attempting
    to define an appropriate general rate at the time: see for e.g.
Re
    Nathanson
,

[1946] O.R. 421 (H.C.).

[85]

Some
    Canadian cases that have applied a 5% rate appear simply to have been mimicking
    the English practice of the day, while others tie the rate of interest
    expressly or by implication to the legal interest rate provided for in s. 3 of the
Interest Act
, R.S.C., 1985, c. I-15:
Lynchs Estate
; and
MacIntyre
    Estate, Re

(1989), 92 N.S.R. (2d) 110 (Prob. Ct.). In
Merritt
    Estate
, Smily J. commented, at para. 4, that it is well established that
    [the rate of interest] should be the legal rate, which is 5%. Section 3 of the
Interest Act
provides:

Whenever any interest is payable by the agreement of
    parties or by law, and no rate is fixed by the agreement or by law, the rate of
    interest shall be five per cent per annum.

[86]

It
    can be seen, then, that the 5% interest rate is not grounded in a uniform or
    compelling legal basis.  Moreover, a policy case can be made that courts should
    move away from the 5% rate. Arguably, the current practice of imposing an
    interest rate that is materially out of line with the market interest rate is
    not in keeping with the underlying purpose of the rule of convenience of
    ensuring that legatees enjoy the earning potential of a property right that has
    arisen where enjoyment has been delayed. Perhaps the English example should be
    followed of using a periodically adjusted but fixed statutory interest rate by
    analogy for the rule of convenience, such as the rates provided for in the
    prejudgment interest provisions, the postjudgment interest provisions or the
    rate set under r. 53 of the
Rules of Civil Procedure

for prejudgment
    interest on non- pecuniary damages.

[87]

This,
    however, is not the case for deciding whether such a change should be made. We
    have not been asked to readjust the rate used under the rule of convenience,
    and we have not been presented with argument on this issue. Even though a 5%
    interest rate may seem aggressive relative to the current prime rate, given the
    state of authority and the manner in which this case was presented before us, I
    see no reason to deviate from the established 5% rate in this case.

CONCLUSION

[88]

In
    my view, the sisters are entitled under the rule of convenience to simple
    interest at the rate of 5% per annum from the first anniversary date of their
    fathers death. I would allow the appeal, set aside the application judges
    decision, and order the brother, as estate trustee, to pay interest in the
    amount of $53,000 to each of the sisters.

[89]

As
    agreed between the parties, I would also order costs to be paid to the sisters,
    together, in the amount of $15,000, inclusive of disbursements, plus HST.

Released: February 26, 2018 (P.R.)

David M. Paciocco J.A.

I agree. Paul Rouleau J.A.

I agree. G.T. Trotter J.A.





[1]
While on its face the English statute, not unlike r. 65.02(2), applies solely
    to cases where accounts of legacies are directed in a judgment, the practice is
    apparently commonly followed by analogy by administrators out of court, most
    prudently where the consent of the parties is obtained or the variation is
    confirmed by a court:
John Ross Martyn & Nicholas Caddick,

Williams, Mortimer and
    Sunnucks on Executors, Administrators and Probate
, 20th ed. (London:
    Sweet & Maxwell, 2013), at p. 1395.


