May 11, 2018

Authors: Melissa Rico and Eleanor Carlson

Rule of Convenience

Agreeing to take on the role of personal representative (aka an executor) of an estate can be a big decision and in many circumstances, one that should not be taken lightly. This is particularly so as a personal representative has many legal responsibilities with respect to the estate he or she administers. A personal representative may also face personal liability if he or she acts negligently in the administration of the estate, or as the recent decision of Rivard v Morris, 2018 ONCA 181 from the Ontario Court of Appeal suggests, do not move promptly to ensure that the estate is finalized as expeditiously as possible.

Although this case review provides some insights into estate administration, if you have been appointed the personal representative of an estate or if you have any questions about the processes and procedures of estate administration, please contact Carbert Waite LLP. We have proven legal experience in this area, and would be pleased to assist you.

In Rivard, the testator Alex Rivard had accumulated appreciable farm property during his life. While alive, he gave his son Stephen a large tract of land. Alex Rivard executed his will on August 1, 2013, instructing that similar sized parcels of land be given to each of his two daughters, with the balance of the estate to be divided equally between all three of his children. On August 24, 2013 he executed another, different will that did not leave the daughters any property, but instead gave them legacies of $530,000 each. The son was to take the residue of the estate, which consisted of significant farmland. Alex Rivard died on October 24, 2013.

The daughters challenged the second will, alleging undue influence and their challenge delayed the division of the estate. The dispute was settled on August 8, 2016 with a finding that the second will was valid. By consent, on October 18, 2016 the court ordered that the lands be conveyed to the brother on the condition he paid the legacies to his sisters. However, the sisters claimed that they were entitled to interest on the legacies, payable out of the brother’s residuary, commencing from one year after their father’s death. The brother refused to pay the interest. The application judge sided with the brother and held that no interest should be paid on the legacies.

The sisters cited the “rule of convenience”, a common law rule of equity that 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 one year after the death of a testator.

The sisters appealed the application judge’s decision on three grounds[1]:

1. Did the application judge err in holding that rule 65.02 of the Ontario Rules of Civil Procedure, did not apply?
2. Did he err in exercising discretion to deny interest on the sisters’ specific legacies?
3. And, if interest should have been paid, what rate of interest should have been applied?

Justice David Paciocco, with Justices Rouleau and Trotter in agreement, allowed the appeal and ordered the brother to pay the sisters 5% interest on their legacies. Justice Paciocco cited the “executor’s year”, a reference to the practice dating from the Ecclesiastical courts in England of giving a personal representative one year after the death of the deceased to finalize an estate.

The “rule of convenience” is a related rule from the law of equity. Essentially, the rule of convenience holds that where no special time is fixed for the payment of a legacy, it carries interest from the expiration of a year from the testator’s death.[2] Equity takes steps to put the legatee in the position they would have been in had the legacy been distributed when the testator is presumed to have intended: the beneficiaries would have been enjoying the earning power of their legacies by at least the anniversary date of the testator’s death if the distribution of the estate had taken place within the “executor’s year.”[3]

Justice Paciocco clarified the legal principles of the rule of convenience: “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.”[4]

The rule of convenience allows for the payment of interest even in the following situation[5]s:

1. payment within the first year was never expected,
2. payment within the executor’s year is impractical or impossible, whether or not the legacy has vested, whether or not the assets have been productive, or
3. where the property is incapable of earning income during the period when interest is accumulating.

The Ontario Court of Appeal stated that the rule of convenience is harsh, blunt, and is intended to exact “rough justice” as its purpose is to let specific legatees more fully enjoy the gifts that were bestowed upon them where distribution of the estate has been delayed beyond the executor’s year.[6] Justice Paciocco stated: “In my view, relying on the reasonable expectation of payment within the executor’s 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 executor’s 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 executor’s 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 executor’s year as a driving consideration in exercising a discretion whether to deny interest”.[7]

In the result, the brother was ordered to pay the sisters 5% simple interest per annum from the first anniversary of the father’s death, in the amount of $53,000 to each sister.

Jurisprudence dealing with the effect of the rule of convenience is scant throughout Canada. In the Alberta case Czaban v Plamondon, 2005 ABQB 917[8] Justice Clarke cites the “executor’s year” in discussion as a common law rule that allows the personal representative a one year period, starting at the date of the testator’s death, to administer the estate and transfer the assets without any interest accruing to the beneficiaries. If the personal representative fails to realize any property within a year, the onus is on the personal representative to provide valid reasons for the delay.[9] In his decision, Justice Clarke held that the personal representative did not have a valid reason for the delay in administering the estate and thus the estate was entitled to the value of the unrealized property, along with interest on that amount. However, although the Court declared interest was owed, the specific application of the rule of convenience was not discussed.

It is difficult to know what impact, if any, the Rivard decision will have on Alberta courts considering estate administration and the duties of personal representatives. In the decision, even though it was the legatees who commenced the litigation that delayed the final distribution of the estate, the Ontario Court of Appeal held that interest was payable on their unpaid legacies after the expiration of the executor’s year. No matter how the Alberta courts choose to interpret the reasoning in Rivard, the case demonstrates the risks involved in estate administration. A prudent personal representative must move promptly to ensure that the estate is finalized as expeditiously as possible.

[1] Ibid. at paras. 15-18.

[2] Ibid. at para. 23.

[3] Ibid. at para. 24.

[4] Ibid. at para. 40.

[5] Ibid. at para. 42.

[6] Ibid. at para. 45.

[7] Ibid. at para. 62.

[8] Czaban v Plamondon, 2005 ABQB 917.

[9] Ibid. at para. 21.