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PROCEEDINGS - Practice and procedure - Interest

Thursday, March 22, 2018 @ 6:27 AM  

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Appeal by two children of the deceased from the denial of interest on their legacies. The parties were the children of the deceased. In his will, the deceased left the appellants legacies of $530,000 each. The respondent was to have the residue of the estate, which consisted of significant farmland. All three children were appointed executors. In a previous will, executed approximately three weeks earlier, the deceased instructed that farm properties similar in size to that which he had already given the respondent be given to each of the appellants and that the balance of the estate be divided equally among the three children. The appellants challenged the will, alleging undue influence. The challenge, which was ultimately unsuccessful, held up the distribution of the estate. The appellants claimed that they were entitled to interest, in addition to the face amount of their legacies. The application judge sided with the respondent, finding that no interest should be paid. He recognized that there was a rule which provided for the payment of interest on legacies in a will if the legacies were payable but payment had been delayed for more than a year. However, he declined to apply the rule on the grounds that the appellants had been estate trustees during much of the administration of the estate, and the delay in payment was caused by their challenge to the will. The appellants appealed on the grounds that the judge erred in finding Rule 65.02 did not apply and in exercising discretion to deny interest.

HELD: Appeal allowed. Rule 65.02 did not apply as the court was not administering the estate. However, the rule of convenience applied in this case. The appellants were provided with legacies in the amount of $530,000. Those legacies were payable as there were no conditions delaying payment or contingencies assigned by the deceased. Since the testator had not provided for any other time of payment, it was presumed that he wanted the legacies to be distributed within a year. None of the fixed exceptions to the rule of convenience applied. It was not necessary to decide whether there was judicial discretion to deny the payment of interest provided for under the rule of convenience. Even if such discretion existed, the judge did not exercise his discretion in accordance with proper principles. In exercising his discretion, the judge relied on the reasonableness of expecting the appellants' legacies to be distributed within a year given that the distribution was delayed by their challenge to the will. It was fundamentally inconsistent with the rule of convenience to use the reasonableness of the expectation of payment within the year as a driving consideration in exercising discretion whether to deny interest. It was also contrary to the principle to deny the appellants interest on their legacies because they started the litigation that caused the delay as doing so would discourage even meritorious litigation. Moreover, it was wrong to consider the payment of interest from the residue of the estate to be a penalty. The loss to the residual beneficiary resulting from the payment of interest was a function of their status as a residuary beneficiary. Moreover, if interest was not paid to the legatees, the residual beneficiary would get the benefit of any income or interest earned. Finally, the status of the appellants as estate trustees had no bearing on the interest issue given that there was no suggestion that they misused their position. The rate of interest to be applied was five per cent.

Morris v. Rivard, [2018] O.J. No. 1016, Ontario Court of Appeal, P.S. Rouleau, G.T. Trotter and D. Paciocco JJ.A., February 26, 2018. Digest No. TLD-March192018009