[1]               This is an application by the Plaintiff under Rule 7.3 for summary judgment in a claim by an executor for indemnity from the other beneficiaries for the income tax liability of an estate. 

[2]               Ms. Muth held back funds for income tax obligations of the estate and then distributed the balance to herself and the other beneficiaries.  The holdback turned out to be shy of what was owed to CRA, and Ms. Muth seeks reimbursement from the beneficiaries of their proportionate share of the deficiency.

[3]               The statement of claim was filed and served in Alberta in 2014.

[4]               The Applicant originally sought a Special Chambers date for a summary judgment application in Masters Chambers in 2018 and was re-directed to a Justice Special.

[5]               At the September 13, 2019 Justice Special, the lawyer for the Applicant was ill and unable to attend.  The lawyer for the Respondents had consented to an adjournment.  Given that both parties had filed briefs and given the length of time it had already taken to get a hearing, I suggested that they consider proceeding on the strength of their written submissions only.

[6]               Morley Muth signed a will in 1970 in Saskatchewan appointing his wife Freda Muth as executor and leaving everything to her if she survived him for thirty days, failing which his estate would go one-half to his sister, who in fact had predeceased him and whose children are the Respondents, and one-half to three siblings-in-law, ie. Ms. Muth’s siblings, who are not parties to this action.

[7]               Morley and Freda separated.  They signed a separation agreement (Separation Agreement) in 1978 pursuant to which Ms. Muth acknowledged that she

[8]               Mr. Muth gave a reciprocal renunciation and waiver.

[9]               The two never reconciled.  Morley died in 2008, at which time Freda signed a document entitled “Renunciation of Probate and Relinquishment of Entire Interest in Estate” (Renunciation and Relinquishment) in which she did just that:  renounced her right to administration of the estate and acknowledged that she had no claim against any of the property in the estate.

[10]           Eunice Liesch, one of the Respondents, is the daughter of Mr. Muth’s deceased sister, ie. Mr. Muth’s niece.  She applied to the Court of Queen’s Bench of Saskatchewan to be the administrator of the estate and for instructions on whether the estate should be divided among the alternate beneficiaries, as though Ms. Muth had predeceased her husband, or whether it should be divided as an intestacy.

[11]           In his decision (Muth Estate v Bushkowsky, 2009 SKQB 237), Chicoine J held that the matter was not as simple as choosing one of those alternatives.  He referred to a number of cases from other Canadian jurisdictions to the effect that a separation agreement/waiver does not revoke a will.  He noted as well that Ms. Muth represented that she had signed the 2008 Renunciation and Relinquishment based on her belief that the Separation Agreement disentitled her from benefiting under the will, but that it was necessary to ensure that the Respondent nieces and nephews benefited under the will.  Chicoine J therefore directed a trial of the issue where the factual evidence could be reviewed and the effects of the Separation Agreement and the Renunciation and Relinquishment determined.

[12]           Rather than continue to trial, the parties reached a mediated settlement in 2011 pursuant to which Ms. Muth would apply for probate, with the estate to be divided 55% to her and 45% to the Respondent nieces and nephews. 

[13]           Ms. Muth retained an accountant in December 2011 to prepare the final income tax return from the estate and to estimate its tax liability.  That accountant apparently advised that a $25,000 holdback was sufficient.  Ms. Muth then distributed the balance of the estate in the proportions agreed to in the mediated settlement.

[14]           The first accountant, however, did not file the required return.  When a second accountant was retained to do so in November 2012, he determined that the holdback was inadequate. Ms. Muth paid the difference, together with the second accountant’s invoice, and sought repayment of 45% of those amounts from the Respondents:

[15]           In a supplementary affidavit, Ms. Muth deposes that she has since applied to Canada Revenue Agency for discretionary relief which reduced the total income tax due from $57,333.44 to $40,847.85, which should have reduced her claim for reimbursement to about $8000.  But as a result of interest owed which she paid directly, she seeks reimbursement for that $8000 plus about $2600 plus about another $13,000 for a total of about $23,600. It is important to note little information was provided to explain or substantiate these additional amounts.

[16]           Accordingly, the Applicant seeks summary judgment against the Respondents in the approximate amount of $23,600.  For the purposes of this application, I will proceed with a summary judgment analysis, while recognizing that Ms. Muth’s calculation of the actual amount of the claim is difficult to understand.  Rule 7.3(3)(b) permits a reference to a referee if the only issue is quantum.

[17]           The issues for determination are:

[18]           Both counsel rely on the briefs they had filed for the Masters Special which had been scheduled before Weir-Jones Technical Services Incorporated v Purolator Courier Ltd., 2019 ABCA 49, was decided.  They therefore rely on Hryniak v Mauldin, 2014 SCC 7, Windsor v Canadian Pacific Railway, 2014 ABCA 108 (CanLII), 2014 ABCA108, and Stefanyk v Sobeys Capital Incorporated, 2018 ABCA 125. 

[19]           In my view, nothing turns on this.  The Court of Appeal in Weir-Jones clarified some confusion over the standard of proof necessary for a successful summary judgment application, but it did not in any way retreat from its decisions in Windsor and Stefanyk.  And both Alberta cases, of course, are built on the foundational principles enunciated in Hryniak.

[20]           The Applicant Ms. Muth submits that this is a suitable case for summary judgment, based on the established summary judgment principles, including that material facts are not in dispute.

[21]           The Respondents argue that this matter must go to trial to resolve the following factual issues:

[22]           Weir Jones now sets out the test for summary judgment as follows (at para 47):

[23]           As discussed below, this case does not fit neatly into the Weir-Jones framework, but it does fit into the Hryniak framework upon which Weir-Jones is based.

[24]           The facts here are straightforward:

[25]           For the most part, there are no material gaps or uncertainties in the record.

[26]           Are there uncertainties in the law?  Clearly, that is why the parties seek relief again from a court.  But Hryniak does not disqualify such cases from summary judgment and, in fact, encourages them (at para 49):

[27]           The uncertainty in the law referred to in the first part of the Weir-Jones test can only mean that there may be cases, such as those involving the need for good faith in contracts or right-to-die cases or other heavily evidence-based precedent-setting cases, where the evidence must be something more than simple affidavits, since credibility or larger public policy issues may be in play.  I do not read it as precluding summary judgment where the parties simply have different views of the law because it is not trite.

[28]           Ms. Muth is the moving party and accordingly she has the burden to show that there is no merit to the Respondents’ defence and no genuine issue requiring a trial.

[29]           As to the second part of that test, the issue here is a purely legal one:  whether the Respondents are required as a matter of law to indemnify an executor who failed to withhold sufficient funds to pay the income tax liability of an estate.  There are no factual disputes bearing on that issue that require a trial.

[30]           As to the first part of that test, there may well be merit to the Respondents’ defence.   They may be correct as to liability.  As the Respondents point out, the facts presented by the Applicant are incomplete. Her affidavit does not explain the reason for the delay in filing the estate tax return until after distribution of the estate – ie, did the first accountant act on the Applicant’s instructions or was he negligent? Further, there does seem be a live issue concerning the quantum for which the Applicant may be entitled to be reimbursed. In my view, Ms. Muth has clearly failed to meet the burden she bore in bringing this Application.

[31]           To that extent, the moving party will not have met its burden, but under the Hryniak principles, that should not preclude this court from applying the law to the facts and determining this litigation in a summary manner if doing so is a “proportionate, more expeditious, and less expensive means to achieve a just result.”

[32]           Ms. Voss, one of the Respondents, filed an affidavit in opposition to this application.  That affidavit refers to the Respondents’ reliance in 2011 on Ms. Muth’s calculation of the tax liability of the estate and the fact that the Respondents were not then asked to release Ms. Muth in her capacity as executor or otherwise indemnify her.   When they inquired in 2013 about the status of the holdback, they were notified that it was insufficient, and they were asked to reimburse Ms. Muth.  And in any event, they have not been provided with a satisfactory explanation of the amount of the tax payable versus penalties and interest claimed.

[33]           None of these issues contradicts in any material way the evidence of Ms. Muth.

[34]           The Respondents argue, nevertheless, that viva voce evidence is necessary on the three points referred to earlier:

[35]           If Ms. Muth did not provide instructions to the first accountant on a timely basis or indeed instructed acct not to file, then that would relieve the Respondents of any obligation to reimburse her. Of course, it is possible that the evidence at trial could benefit Ms. Muth rather than the Respondents – after all, it may show that she provided instructions to the accountants to file the tax return before she distributed the estate and may therefore be in a better position to argue that she relied on professional advice in coming up with the $25,000 holdback and therefore should not be the only party to bear the cost. Ultimately though, I agree with the Respondents that there is a triable issue – did Ms. Muth exercise her duties as Executrix with reasonable care and diligence? If she did not, then she is personally and solely responsible for the additional costs.

[36]           Nonetheless, I will proceed to the fourth stage.

[37]           What this case shows is that parties facing an unusual estate situation sought the assistance of a court in Saskatchewan.  That court concluded that the issue needed to go to trial to determine the effect of various documents on revocation of a will.

[38]           They decided that instead of going to trial on that issue, they would negotiate a settlement and did so.  It was committed to writing.  It provided that the Applicant would apply for probate, which she did, and that the parties would split the estate, which they did.  But the Applicant underestimated the tax liability of the estate, paid the difference, and relies on the terms of the negotiated settlement to obtain reimbursement from the Respondents.  Her entitlement is a legal issue.

[39]           The record is clear.  The litigation is now dated.  The numbers are small. The parties by their earlier action (when the numbers were larger) have shown that they have no appetite for a trial.

[40]           I referred earlier to this case not fitting neatly into the Weir-Jones framework.  That is only because, while the Applicant may not have shown that there is no merit to the Respondents’ defence, neither is there a genuine factual issue requiring a trial as suggested by the Respondents.

[41]           I conclude that this is a suitable case for summary judgment.  It just may not be in favour of the Applicant.

[42]           The negotiated settlement agreement does not specifically deal with an indemnity.   Three specific costs are identified:

[43]           With those exceptions, probate and administration costs were to be paid from the estate “in the usual course”.

[44]           The Applicant argues that the word “net” should be read into the settlement agreement, which means net of taxes, which means that the beneficiaries should pay their percentage of the taxes due, failing which they will have received more than their entitlement.  I do not accept this argument.  “Net of taxes”, assuming that that term were used, would more logically mean that the estate looks after the taxes.  If not, and some beneficiaries pay tax and others do not, or if they are in different tax brackets, then some beneficiaries benefit more than others and therefore receive a higher percentage.

[45]           The Applicant relies on Podulsky Estate (Re), 2015 ABQB 509, in support of her position that beneficiaries are obligated to indemnify the executor for income tax liability.  I do not read the case that way.  In Podulsky, the executor had received tax planning advice and proposed an interim distribution that would ensure that every beneficiary received sufficient cash to cover his or her tax liability resulting from that capital gain.  The issue raised by certain of the beneficiaries was whether capital gains tax on farmland was to be deducted from the sale of that land before the proceeds were distributed to the beneficiaries.  Yungwirth J held that it was (para 90):

[46]           There is nothing in Podulsky to suggest that the beneficiaries were obligated to indemnify the executor for a tax liability.  Indeed, the executor was ordered to recalculate the capital gains tax payable by the estate which might result in a lower value available for distribution to the beneficiaries unless they all agreed on a particular tax treatment.

[47]           The Applicant relies as well on Wong Joint Partner Trust (Trustee of) v Wong, 2010 BCSC 1331, referred to by Yungwirth J, and in which the Court declared: “(t)he Court also found that the trustee could require satisfactory undertakings from the beneficiaries to pay and satisfy the capital gains tax and to indemnify and save harmless the trustees against all such claims, as a necessary adjunct to their duty.” (para 93).

[48]           Again, this does not assist the Applicant.  Certainly, an executor is entitled to extract such indemnities, but Ms. Muth did not do so.

[49]           Similarly, Fournie v Cromarty Estate (Trustee of), 2011 ONSC 6587, does not assist the Applicant.  It stands only for the proposition that a testator may in a will specify that beneficiaries of particular bequests bear the capital gains tax payable on that bequest.

[50]           The Respondents argue that s 159 of the Income Tax Act supports their position that only the executor is liable for unpaid taxes.

[51]           Section 159 requires that a personal representative obtain a clearance certificate before distribution of an estate and imposes personal liability for the tax liability of the estate on those who do not do so (See Appendix 1).

[52]           The Respondents refer to a number of cases in which s 159 was used to impose personal liability on an executor (eg, Boger Estate v Canada (TD), 1991 CanLII 13617 (FC), 1992 1 FC 152 at para 48, 46 FTR 241 (TD); Debou v Canada, 1999 CanLII 333 (TCC), [1999] 4 CTC 2382 at para 34, [1999] TCJ No 551), which is the plain reading of that section, but none of them deals with whether an executor is entitled to indemnity from the beneficiaries.

[53]           It should be noted that Parliament could have chosen to make all beneficiaries of the estate liable as well but chose not to do so.  On public policy grounds that is sensible – the beneficiaries have no control over when or how much is distributed.

[54]           Presumably for similar reasons, Parliament chose not to deal with whether a legal representative could seek indemnity from beneficiaries.  There may be situations where that would be equitable, but certainly there would be other situations where that would be inequitable.

[55]           There is therefore some support in s 159 of the Income Tax Act for the Respondents’ position that only the personal representative is personally liable and therefore they are not, but I do not find it determinative.  Parliament was concerned with imposing a duty on executors to ensure the payment of tax and a consequence for not doing so but did not take the next step of allocating responsibility among beneficiaries for an executor’s breach of that duty.

[56]           The Respondents refer to the Alberta Surrogate Rules (AR 130/1995, Schedule 1, Part 1, Section 9, Table No 16) as requiring that a personal representative as part of his or her duties pay any tax owing and obtain clearance certificates before distributing estate property.  While not argued by the parties, the estate administration likely is governed by Saskatchewan law, though I note that the layman’s guide to probate in Saskatchewan available online also lists filing tax returns and obtaining a clearance certificate as duties of an executor in Saskatchewan.

[57]           In any event, neither Alberta nor Saskatchewan estate administration legislation deals with the indemnity of an executor by a beneficiary.

[58]           In Oosterhoff, Chambers, and McInnes, Oosterhoff on Trusts, 8^th ed. (Toronto: Carswell, 2014), the authors discuss the definition or lack of definition of a “breach of trust”, concluding that

[59]           To the extent that the term “breach of trust” has connotations of intentional wrongdoing, there is no evidence of that here.  But clearly, Ms. Muth had a statutory obligation to obtain a clearance certificate and failed to do so.

[60]           More typically, it is the beneficiaries seeking relief from a trustee, and thus Oosterhoff continues that beneficiaries have several remedies for breach of trust, including that “(f)irst and foremost, the trustees will be personally liable to pay for any losses caused by the breach, unless they have a defence.” (p 1039)

[61]           That, too, is codified in s 159 of the Income Tax Act as discussed earlier.

[62]           The question then becomes whether, if it is the trustee seeking relief as opposed to a beneficiary, such a trustee is entitled to indemnity from the beneficiaries.  In equity, such an indemnity was only available when the beneficiaries instigated or requested the breach of trust.  That has been codified in The Trustee Act, RSA 2000, c T-8, s 26, which specifically provides that a trustee may be entitled to indemnity by a beneficiary who instigated or requested the breach of trust:

[63]           The natural corollary of that principle is that if the beneficiaries did not instigate or request the breach, they cannot be obligated to indemnify the trustee.  In a fiduciary relationship such as that between a trustee and a beneficiary, the logic of that corollary is that as between the two parties, one who had the obligation to perform a duty and failed and one who had neither the obligation nor the means to satisfy it, it is the former who should bear the consequences of the action or inaction.

[64]           The Applicant argues that by the terms of the settlement agreement which determined the fifty -five percent/forty-five percent split, the Respondents must indemnify the Applicant in order that that ultimate percentage sharing is accomplished.  What that argument fails to recognize is that, following and in accordance with the terms of the settlement agreement, the Applicant as executor undertook certain responsibilities that essentially overlaid the purely contractual settlement agreement relationship with a trust relationship, with its consequent change in the respective rights and obligations of the parties.

[65]           I conclude that the Respondents are under no obligation to indemnify the Applicant for any income tax or penalties imposed on the Applicant as a result of her failure to obtain a clearance certificate before distributing the estate.

[66]           For the reasons given above, I deny the Applicant’s motion for summary judgment.

[67]           Ordinarily, that would mean that the parties proceed to trial.  That is what the Respondents claim to want. Rule 7.3 does not specifically authorize me to deny the application for summary judgment, but to grant summary dismissal when the Respondents have not applied for that remedy. 

[68]           Notwithstanding that it is not the last word from our Court of Appeal on the issue, I find instructive the following passage from Stefanyk (at para 11):

[69]           This Court may have inherent jurisdiction to dismiss the case as though the Respondents had made an application for summary dismissal, particularly given the ABCA’s comment above, but I will not exercise that jurisdiction without hearing from the parties.

[70]           What I will do is to caution the Applicant that if she continues the lawsuit, she may face a significant costs award if another judge comes to the same conclusion at the end of the suit. 

[71]           The parties may speak to me about costs if they are unable to agree within 30 days after the issuance of this decision.