Preservation of Rights in Pending Litigation - Hull on Estates #217
Listen to: Preservation of Rights in Pending Litigation
This week on Hull on Estates, David Smith and Rick Bickhram discuss rules 40 through 45 of the rules of Civil Procedures, which deal with the preservation of rights in pending litigation and the nature of these remedies in the estates context.
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Rick Bickhram: Hello and welcome to Hull on Estates. You’re listening to episode 217 on Tuesday, August 10, 2010.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of
David Smith: Hi, welcome to another episode of Hull on Estates. I’m David Smith.
Rick Bickhram: And I’m Rick Bickhram.
David Smith: If you want to be heard on Hull on Estates, you can participate by leaving us a comment. Email us at hull.lawyers@gmail.com or you can visit our blog at estatelaw.hullandhull.com.
Good morning, Rick.
Rick Bickhram: Good morning, Dave. How is it going?
David Smith: It’s going great, Rick. I thought today we would discuss a sort of general topic which is Rules 40 through 45 of the Rules of Civil Procedure. And those are the rules that deal with preservation of rights in pending litigation. But rather than allow this to be too dry and procedural, and given the fact that of course we’re estate litigation lawyers, we thought we would discuss the nature of these remedies in the estates context. Do you find in practice there’s much need for preserving your rights pending trial, Rick?
Rick Bickhram: Absolutely. I find that someone once told me that if you let the bulls out of the barn too early, it’s gonna be tough to get them and put them back into the barn. And that’s exactly what I think these rules do, pretty much. It keeps the bulls in the barn. It preserves certain rights pending the conclusion of the litigation or as agreed between the parties.
David Smith: Right, and to put it in a nutshell, it’s all about money, isn’t it? It’s about assets, real estate, money and sometimes personal property. And all of those different types of assets come into play in estate litigation because more often than not, we’re either defending executors against claims made by beneficiaries or third parties or we’re acting for those beneficiaries or third party creditors or claimants who are seeking to get something out of the estate, be it money or real estate or personal property. So I think those are the three general classes of property that we’re talking about. Certainly in the Will challenge context, Rick, what’s the vehicle that we typically see in a Will challenge to preserve the estate?
Rick Bickhram: Well, based on my experience, what I’ve noticed is the order which…and this order is normally included in our Order giving Directions…I find that we often use a provision that freezes the estate assets. So from the date that Order is granted, it pretty much…whatever the assets are, there’s a photo snapshot of it. That is the assets of the estate and they’re frozen. They can’t be intermeddled with unless there are provisions for an ETDL to be appointed, etc.
David Smith: Right, and so if we’re talking about an ETDL, of course, that’s an estate trustee during litigation for those of our listeners who aren’t familiar with that acronym. The Rules of Civil Procedure, Rule 41 talks about the appointment of a Receiver in certain cases. That would apply, perhaps, in an estate where there is some question as to whether the liabilities exceed the assets. But, you know, an estate trustee during litigation is in some ways analogous to a Receiver. Of course, if there are plenty of assets, it’s not a receivership type situation. But certainly on the death of the deceased, all of the assets vest in the executor. And if there’s a dispute about the validity of the Will or some other litigation relating to the estate, we typically see the Courts appoint a neutral estate trustee during litigation, right Rick?
Rick Bickhram: Absolutely. And it could be a person or it also could be a corporate entity who assumes the role as the estate trustee during litigation.
David Smith: Right, and you know the key…what I always tell the clients is the key or the paramount characteristic, if you will, of an estate trustee during litigation is that they don’t have any authority to distribute without Order of the Court. They are an officer of the Court. They’re under the supervision of the Court more properly. And so what that means is typically…occasionally you might see an Order that says with the consent of the parties, the estate trustee during litigation may distribute, but technically that’s not correct. I mean you need a Court Order to distribute and so there’s a real safeguard in place there that permits the beneficiaries the comfort of knowing that the estate assets will not be distributed pending the litigation. And, of course, being an executor, there’s a duty to account, isn’t there?
Rick Bickhram: Yeah, there is a duty to account. And again, from my experience, what I’ve noticed is when the ETDL is appointed and they’ve taken into their, I guess, they’ve taken in the assets of the estate, what they tend to do is provide some sort of accounting to the parties which reflects the assets of the estate.
David Smith: That’s right. And so that gives complete protection. So in an ideal world, and certainly in most of the cases we see, there’s a nice, organized process where there’s this entity appointed who cannot distribute. And all the parties have the comfort of knowing that only that entity or that person has the ability to bring in the assets of the estate and can only distribute with a Court Order. Let’s think now a little bit about how the rules that we’re talking about in the Rules of Civil Procedure that apply in general litigation, how those may apply where there is not an estate trustee during litigation appointed. And, you know, first of all I’m thinking of a Certificate of Pending Litigation. For those of our listeners who aren’t familiar with that, Rick, can you just tell us what a Certificate of Pending Litigation is?
Rick Bickhram: Well, a Certificate of Pending Litigation is pretty much a Certificate that’s registered on title of real property. And what that Certificate pretty much says is it’s notice to all potential buyers out there that this real property is the subject of litigation. So pretty much buyer beware.
David Smith: Right, and you know in the estate context, you may have a situation where a house was jointly owned between the deceased and a third party. So on that person’s death, it passes by right of survivorship to the surviving owner. In that sense, in the absence of any evidence to the contrary, and if it seems that we’re not talking about a resulting trust situation, then the joint holder of that property, in the absence of a Certificate of Pending Litigation, may be free to sell that property, dispose of that asset. If a beneficiary of an estate, for example, believes that that jointly held property properly belongs in the estate and needs to move quickly, one remedy is for the beneficiary or…well, probably the beneficiary because they’ve got a financial interest, to move to the Court, move before the Court to get an Order registering a CPL on title. And that will prevent that property from being sold. Of course, it’s arguable whether that ‘s the obligation of the executor of the estate typically. And every case is gonna turn on its own facts, isn’t it?
Rick Bickhram: Absolutely. Now Dave, if I could pick your brain for a quick second. Earlier on in the podcast we talked about an Order freezing assets.
David Smith: Right.
Rick Bickhram: And now we’re visiting the issue of a CPL. Presuming we had an Order freezing assets, what would be the benefit of putting in that Order giving Directions or any subsequent Order, another provision that requires a CPL be awarded on some sort of real property?
David Smith: Yeah, it’s an interesting question, Rick. I think it depends on the wording of the Order and the nature of the assets. If the title to the property was in the name of the estate, then it’s tempting to think that an Order freezing all estate assets would be sufficient and you could register that on title. Or, you know, you could prevent any sale from taking place. I think the benefit of a CPL is that it has the effect of telling the world that there’s a claim against this estate and providing really sort of ironclad security to anyone that there is this cloud on title and any potential purchaser simply will not be able to purchase the property. So I think it’s just a different level of comfort. But the problem with Certificates of Pending Litigation…let’s talk about this for a moment…is when litigation is concluded, you got to discharge them, don’t you?
Rick Bickhram: Absolutely.
David Smith: And how do you do that?
Rick Bickhram: Based again on my knowledge, you would have to bring back another motion to the Court where the Court would grant you an Order discharging the Certificate of Pending Litigation. And then presumably you would contact your real estate lawyer who would then…you would provide them with a Court Order which discharges the CPL and subsequently the CPL is discharged from title of the property.
David Smith: Right, so that’s the problem with these things. Once they’re on title, they’re not as easy to get off as you might think. The easiest thing might be is if you have a judgment concluding the litigation, the judgment itself ought to speak to a Certificate of Pending Litigation and one of the Orders in the judgment should be an Order discharging any Certificate of Pending Litigation against the property. The problem on occasion is the parties may settle the proceeding without all of them being aware that this is even on title and then when one of the parties goes to sell the property, low and behold, there’s a Certificate of Pending Litigation on title. And I’ve run into that situation myself on occasion. So always something you have to think about is if these things go on, you have to get them off. Now, Rick, I see we’re kind of running quick on time. I wanted to talk very quickly about interim recovery of personal property. You and I, Rick, have clearly seen that one characteristic of estate fights is perhaps more often than in usual litigation, there’s a lot of emotional attachment to personal property, isn’t there?
Rick Bickhram: Absolutely. And I think it’s the sentimental value of certain things, whether it be something such as a photo album or a precious collectable doll, there always is this sentimental attachment to personal property.
David Smith: Right, and so you know we won’t go into any detail with the rule, but Rule 44 speaks of interim recovery of personal property. Much like
injunctions, I think the sort of warning to anyone is that it’s a very expensive process, isn’t it, to bring any kind of injunctive relief or seeking an Order preserving interim property. Certainly I think we go back to what we said at the beginning which is in the estates context, the most cost-efficient way of proceeding is just to get an estate trustee during litigation appointed and they are then charged with the ability to bring in all of the assets which would include personal property.
Rick Bickhram: Absolutely.
David Smith: Yeah. Okay, well look Rick, it’s been great having this chat. I really enjoyed talking about the remedies available to litigants in estate proceedings when it comes to preserving their rights pending the adjudication. Thanks to all of our listeners for joining us today.
Rick Bickhram: It was a pleasure, Dave, to podcast with you today. And I look forward to podcasting with you again soon.
David Smith: And again, we look forward again to hearing from our listeners. And just again we’ll remind you that you can email us at hull.lawyers@gmail.com. We also have a blog at estatelaw.hullandhull.com where everyday one of our lawyers or guest bloggers blogs on various estate issues or issues in the news that are of interest to estate practitioners and the public at large. And so we certainly hope you enjoyed the show. I’m David Smith.
Rick Bickhram: And I’m Rick Bickhram. Until next week, so long.
This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
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