The issues in Janicek v Janicek, a case with decisions released at both the lower court (2018 ONSC 681) and court of appeal (2018 ONCA 679) in 2018, surrounded a provision in a testatrix’s will permitting her children to buy the family farm from her estate at a reduced price and whether the estate trustees’ conduct frustrated a sale. The will provided that:
“As soon as possible after the date of my death, my Trustee shall obtain from a licensed farm appraiser, an appraisal of the home farm at 7534 Courtright Line, Alvinston, Ontario, as to its fair market value at the date of my death. It is my wish that this home farm be kept within the Janicek family if possible. In accordance with that wish if any of my children, or a combination of the same, shall wish to purchase the said farm, they may do so at 75% of the appraised fair market value provided that they enter into an Agreement of Purchase and Sale with my Trustee within one year from my date of death with a closing date no longer than 60 days from the date of the Agreement of Purchase and Sale. In the event that none of my children, or combination of same, have agreed to purchase the said farm, within the prescribed time, the same shall be sold by my Trustee at a price to be determined by my Trustee in his sole and unfettered discretion. The proceeds from the sale of the said home farm, whether to a child(ren) or on the open market, after deduction of the cost of the same (legal fees and disbursements and real estate commission) if any, and any capital gains tax which may be attributed to the said farm shall be paid to the following beneficiaries in the following percentages: The net proceeds from the sale of the farm, whether to a child(ren) or on the open market shall be paid to my children in unequal shares…”
The two children named as estate trustees, Steven and Frank, obtained an appraisal which assessed the farm’s fair market value as approximately $1,300,000 as of December 7, 2012, a date two months after the testatrix’s death. They felt the valuation was too low, so they obtained another appraisal in April 2013, which assessed the farm’s fair market value as $1,700,000 as at October 11, 2012, the testatrix’s date of death.
On April 17, 2013, John, the only one among the testatrix’s children who farmed full time for a living, made an offer for the farm and the farm equipment for $986,250.00, 75 per cent of the value of the first appraisal.
The estate trustees rejected John’s offer because it included chattels, which wasn’t contemplated by the will, and because they believed the other children should have a chance to present offers.
On October 8, 2013, three days before the one-year deadline was up, the estate trustees and their brother Andrew jointly submitted an offer to purchase the farm at the same price as John’s offer, $986,250.00, minus the chattels. John followed by also making an offer to purchase the farm at $986,250.00, minus the chattels.
The estate trustees eventually brought an application for advice and directions regarding the sale of the farm and other related issues.
Lower court decision
After reviewing the facts, the application judge stated that, while not raised in argument, the first appraisal dated December 7, which all four brothers, including the estate trustees, relied on in making their offers, was invalid because it did not value the farm as at the date of death. He stated that the will said “at the date of my death” not “on or about” or “near”, and because no one made an offer based on a proper appraisal, the farm should be sold on the open market.
The application judge then proceeded with an analysis that assumed all the competing offers were validly made.
The will was clear that the testatrix wanted the farm to stay in the family, but the will provided a deadline for its purchase by her children, after which the farm is to be sold and the proceeds unequally divided between them.
The application judge held that, from reading the will alone, he could not ascertain the testatrix’s intention as to what should happen if, as here, there were competing offers. He held that there was no extrinsic evidence of the testatrix’s intention, and neither statutory nor general principles of construction helped.
The application judge held that, although there was uncertainty about what the estate trustees were to do within the first-year option period (e.g. if there were competing offers for the farm), there was no ambiguity about what was to happen if the farm could not be sold for any reason at all within that time. And if the farm was not sold within a year, which it had not been, then it was to be sold on the open market and the proceeds distributed unequally.
The application judge directed that the estate trustees were at liberty to sell the property to whomever they choose, at a price they determine, in their sole and unfettered discretion and the net proceeds of sale were to be divided unequally pursuant to the will.
Court of appeal decision
John appealed. He advanced three arguments, of which his main argument was that the application judge erred because the estate trustees frustrated the sale of the farm to him and the trustees acted improperly by consulting with his other siblings to determine if they also wanted to make offers after John had made an offer.
The court of appeal, with a 2-1 split, dismissed John’s appeal.
Justice Hoy agreed with the application court judge that the testatrix’s will did not require the estate trustees to sell the farm to John. Justice Hoy also agreed that it was John’s conduct in insisting he alone should be able to purchase the farm that was the reason no agreement was reached. She noted that John did not assert a claim that the trustees breached their fiduciary duty at the lower court, and she stated that she was not persuaded that the trustees consulted with their other siblings for the purpose of frustrating John’s objective of buying the farm.
Dissent
Justice van Rensburg disagreed with Justice Hoy’s analysis and conclusions with respect to the principal issue on appeal - did the application judge err by failing to give effect to John’s arguments that his attempt to purchase the farm had been frustrated by the actions of the estate trustees.
Justice van Rensburg found two reversible errors:
- The application judge failed to resolve whether the estate trustees attempted to frustrate John’s purchase and whether there were in fact “competing offers” for the estate trustees to consider.
- The application judge also failed to apply the “armchair rule”, though he did refer to it, and instead concluded there was no extrinsic evidence of the testatrix’s intention.
Justice van Rensburg reviewed the parties’ evidence, including affidavits attaching emails and letters which showed that, although they told John his offer was premature, the estate trustees were actually intent on a sale to four or more of the siblings.
It was only on the eve of the expiry of the one-year period that the estate trustees and a third brother, Andrew, submitted individual offers to purchase the farm at the 75% discounted price. The estate trustees had also obtained a second appraisal for the farm for a significantly higher price, which they did not disclose to John.
The application judge did not properly consider John’s argument that the individual “competing offers” were advanced at the final hour only to frustrate his attempt to purchase the farm, and should not have been considered by the estate trustees, acting in accordance with their fiduciary duties.
The application judge proceeded on the explicit assumption that there were competing offers that were validly made and in accordance with the will, effectively ignoring John’s argument that it was only because of the estate trustees’ own actions that they were able to argue that there were competing offers. Instead, the application judge identified the issue to be decided as: “what did the testatrix intend if there were competing offers within a year of her death”.
Justice van Rensburg believed there was evidence in the record which spoke to the testatrix’s intention. All of the parties put forward extrinsic evidence of the testatrix’s intention, including the testatrix’s children’s occupations at the time the will was made and their respective dealings with the farm. The application judge had means at his disposal, including evidence of surrounding circumstances, that he could use in order to interpret the paragraph at issue, but he failed to do so. Her Honour stated that it was especially important given the testatrix’s wish that the farm remain the family.
Justice van Rensburg also pointed out other errors in the application judge’s recitation of the facts and analysis that cast doubt on how he decided the application.
Justice van Rensburg noted that she believed it was an error for the application judge to decide the application based on an argument not raised by any party, namely that the first appraisal (for $1.3 million) was “invalid”. She stated that the estate trustees obtained a second appraisal (for $1.7 million) because they thought the first price was too low, not because the date of appraisal was wrong, and in fact the estate trustees’ own offers had been based on the first appraisal. There was nothing to suggest the different appraisals depended on their effective dates two months apart; the application judge’s reasoning on the issue favoured form over substance and could not be correct.
The estate trustees’ conduct
John’s arguments did not ultimately succeed. However, this case raises some interesting questions, namely, in a situation like this, where a testator’s will permits a beneficiary to purchase an asset from the estate at a reduced price, particularly when coupled with an expressed wish that the asset be kept in the family, what conduct by an estate trustee will amount to frustrating the sale and what conduct will rise to a breach of fiduciary duty?
Although the court of appeal held that it is reasonable and appropriate for an estate trustee to consult with all of the beneficiaries entitled to make an offer to purchase an estate asset and not simply invite one to make an offer and conclude an agreement with him, Justice van Rensburg’s comments in dissent demonstrate the importance of considering the full circumstances surrounding an estate trustee’s conduct when evaluating whether they did in fact satisfy their fiduciary duties to the beneficiaries.
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