Docket: 1884 Fred V. Wernicke v. Morris Wernicke, 2011 SKCA 95

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2011 SKCA 95 Date: 20110816 Between: Docket: 1884 Fred V. Wernicke and Morris Wernicke Appellant - and - Clara Marie Quirk, Julie Elaine Oster, Frederick Allan Wernicke, Sharon Dale Baumann, Richard Charles Wernicke, Randall Thomas Wernicke, Deanna Baker (Wernicke), Fred V. Nicklaus Wernicke, Michelle Wernicke, Margaret Yvonne Brooks (Wernicke), Morris Nicholas Wernicke, and Mennonite Trust Ltd. Respondent Coram: Lane, Ottenbreit and Caldwell JJ.A. Counsel: Anderson & Company for the appellants Murray Walter, Q.C. for Frederick Allan Wernicke and Sharon Dale Baumann; MacBean Tessem for Mennonite Trust Ltd. Appeal: From: SUR 177 of 2001

Heard: Determined on the basis of facta pursuant to Rule 40 ( The Court of Appeal Rules ) Disposition: Dismissed Written Reasons: August 16, 2011 By: The Honourable Mr. Justice Ottenbreit In Concurrence: The Honourable Mr. Justice Lane The Honourable Mr. Justice Caldwell Ottenbreit J.A. I. Introduction [ 1 ] Fred V. Wernicke and Morris Wernicke (“the appellants”) brought an application on behalf of Fred V. Wernicke and Mennonite Trust Ltd., the executors of the will of the late Frederick J. Wernicke (“Mr.

Wernicke”), made November 2, 2000 and probated on January 3, 2002 (“the Will”), to have the Will interpreted insofar as it pertained to the disposition of “oil well rights” (“the phrase”). The Chambers judge in an oral ruling determined that the words “oil well rights” as set forth in paras. 6 and 7 of the Will meant freehold mineral titles. The appellants appeal that decision. By agreement this appeal proceeded on the facta and written material filed by the parties without oral argument. For the reasons hereafter set forth, the appeal is dismissed. II.

Facts and Background [ 2 ] The disputed phrase is contained in the following provisions of the Will: 6) To convey the following assets to my son, Fred V. Wernicke, whose receipt shall be sufficient discharge to my Executors and Trustees:

a) The sum of Fifty thousand ($50,000.00) dollars.

b) One-half (½) of all my oil well rights . 7) To convey the following assets to my son, Morris Wernicke, whose receipt shall be sufficient discharge to my Executors and Trustees:

a) The sum of Fifty thousand ($50,000.00) dollars.

b) One- half (½) of all my oil well rights . [emphasis added] [ 3 ] Mr. Wernicke at his death owned SE 1-53-1 W5M, an undeveloped freehold mineral title of nominal value in Alberta (the “Alberta property”). The executors of the Will, including the appellant Fred V. Wernicke, transferred this mineral title to the appellants as the beneficiaries of “oil well rights” pursuant to paras. 6 and 7 of the Will. Mr. Wernicke had no interest in oil wells at his death.

He did, however, have the right as owner of surface titles and lessor of surface rights to receive the surface rentals on five quarters of farm land in Saskatchewan on which there were gas wells (“the surface rentals”). [ 4 ] To assist in the

interpretation of the phrase, the appellants filed the affidavit of Todd Loeppky before the Chambers Judge. Mr. Loeppky had been the accountant for Mr. Wernicke from 1992 to his death in 2001 and he had spent a significant amount of time meeting with Mr. Wernicke about estate planning. Loeppky stated that at one such meeting at an unspecified date, they went over the terms of the Will. Mr. Loeppky asked Mr. Wernicke what was meant by the phrase because the phrase did not readily describe any of Mr. Wernicke’s assets that Mr. Loeppky knew of. Mr. Loeppky stated that in response to this question Mr.

Wernicke advised him that his surface rental gas wells were to be distributed to his sons Fred V. Wernicke and Morris Wernicke. [ 5 ] The appellants also filed the affidavit of Douglas Dueck, an employee of Mennonite Trust Ltd. He initially took instructions for the Will from Mr. Wernicke, drafted the Will in the form in which it was executed and was a witness to its execution. Dueck swore that it was the intention of Mr. Wernicke to give the surface rentals to Fred V. Wernicke and Morris Wernicke. He stated that the gifts in the Will to the appellants were to be significant.

He stated that the phrase was not used by Mr. Wernicke; but it was a phrase used by Mennonite Trust Ltd. at the time when he prepared the Will, on the understanding that it included the surface rentals. Dueck also indicated that, to his knowledge, at no time did Mr. Wernicke have an interest whatsoever in anything that could be strictly categorized as an oil well.

[6] The respondents filed the affidavit of Clifford Michael Nimegeers (“Nimegeers”), a lawyer. He stated that he had relevant expertisein the area of mineral rights law and surface lease rentals. His expertise was not disputed. Nimegeers swore that surface leases do notpurport to grant, nor could they grant, rights in respect of the exploitation of mines and minerals under the land, and any rights grantedunder such leases are restricted to rights over and on the surface of the land.

Nimegeers stated that the surface leases are not a royalty orother profit à prendre but merely an agreed-on reimbursement for damages.

He indicated that ownership of mines and minerals under theland would give the owner the right to exploit all mines and minerals except coal, and that this would include “oil well rights”.Nimegeers stated that surface rent compensates owners and occupants for increased costs of farming around the leases and lease roadsand for loss of crops, and that it is unusual to grant surface compensation to someone other than the owner or occupant of the surface ofthe land as it is the owner or occupant who incurs the loss. [7] The Chambers judge did not make a written ruling other than in regard to costs.

His verbal ruling was that the words “oil wellrights” meant freehold mines and minerals on the Alberta property. Apart from this, there were no further reasons given by the Chambersjudge for his decision. The consent order which issued consequent on the verbal ruling stated that the phrase should be read to mean allmines and minerals, except coal, within or upon or under the Alberta property, and that the phrase should not include the surface rentals. III.

Position of the Parties [8] The appellants argue that the ordinary meaning of “oil well rights” could not be mines and minerals, because that term refers to allsorts of additional interests that could not ordinarily be described as “oil well rights” and bestow a greater gift than “oil well rights”. Theappellants argue that the phrase “oil well rights” must itself be at least ambiguous in relation to the assets actually held by Mr. Wernicke,and extraneous evidence must therefore be looked at to determine its meaning.

They argue that the phrase actually amounts to anequivocation, as the phrase is equally ambiguous in relation to both the freehold mineral titles as well as the surface rentals, and thereforethe Court can utilize both direct and indirect evidence to aid in the determination of testamentary intent. The testimony of Loeppy andDueck would therefore be highly significant and would result in the meaning of the disputed phrase including the surface rentals. [9] The respondents argue that the expressed intentions of the testator are clear, unambiguous and without equivocation. They arguethat Mr.

Wernicke stated that he wished to leave his “oil well rights” to the Appellants and did so by way of the mineral title in Alberta,which included oil well rights. They argue that because surface leases do not grant rights in respect of mines and minerals and thereforeoil under the land, they could not be “oil well rights”. IV. Jurisdiction and Standard of Review [10] The standard of review in this case is governed by Alberta Giftwares Ltd. v. The Queen, (SCC), [1974] S.C.R.584. The Supreme Court in that case in relation to the

interpretation of wills stated the following (at p. 588): ... [I]n construing a will, deed, contract, prospectus or other commercial document, the legal effect to be given to the languageemployed, is a question of law and in the construction of such a document, it is an error in law to attribute a fixed meaning to a word ofvariable connotation by selecting one of alternative dictionary

definitions without regard to the context of the paragraph or sentence inwhich the word is used. This conclusion has since been elaborated upon by the Nova Scotia Court of Appeal in MacDonald v. McCormick, 2009 NSCA 12, 274N.S.R. (2d) 258: [61] While construction of a deed is a question of law, to the extent that a deed must be interpreted in the context of facts and factualinferences, its review may also raise questions of mixed fact and law.

If a trial judge fails to consider relevant evidence, or makespalpable and overriding errors in finding the facts, or drawing inferences from those facts, this court will intervene. As Hallett, J.A.observed in speaking for this court in Metlin v. Kolstee, 2002 NSCA 81 (N.S.C.A.): [70] The

interpretation of a deed is a question of law. If a trial judge has incorrectly interpreted a deed a court of appeal shouldinterfere. [71] If findings of fact made by a trial judge are clearly unfounded or result from a misunderstanding of the evidence or afailure to consider relevant evidence an appeal court will interfere (MacDonald at para. 61). The standard of review in this case is one of correctness. There are no findings of fact made by the Chambers judge. This Court cantherefore determine what facts can be used in the construction of the Will. V. Analysis [11] The principles to be applied to the

interpretation of a will have been set forth in a number of cases. In Re Konanz Estate (1978), (SK CA), 88 D.L.R. (3d) 82 (Sask. C.A.), Culliton C.J.S. reiterated the interpretative principles to be applied to a willas stated in McDougall v. Neale, an unreported judgment of this Court, at p. 85 thereof: In that judgment delivered on January 8, 1976, but unreported, the principles to be followed in interpreting a will so as to give effect as to

the testator’s intention were set out as follows: “In construing a will so as to give effect to the testator’s intention, the Court must be guided by the principles stated by Lamont, J. in ReTyhurst: Smith v. The Trustees of the Home of the Friendless, (SCC), [1932] S.C.R. 713 when at page 719 he said: ‘In construing a will the duty of the court is to ascertain the Intention of the testator, which intention is to be collected from the wholewill, taken together.

Every word is to be given its natural and ordinary meaning and, if technical words are used, they are to be construedin their technical sense, unless from a consideration of the whole will it is evident that the testator Intended otherwise.... In construing thelanguage of the testator where it is ambiguous, we are entitled to consider not only the provisions of the will, but also the circumstancessurrounding and known to the testator at the time when he made the will, and adopt the meaning most intelligible and reasonable asbeing his intention.’ See also Perrin v.

Mbrgau, [1943] A.C. 399 and in Re Browne, (SCC), [1934] S.C.R. 324. Again in construing a will recourse should not be had to rules of law or canons of construction if the testator’s intention can beascertained from the words of the will. In Hauck v. Schmaltz, (SCC), [1935] S.C.R. 478 at page 481, Laront, J. statedthis proposition as follows: ‘For the purpose of ascertaining the intention of a testator the will is to be read in the first place without reference to or regard to theconsequences of any rule of law or canon of construction.

The words are to be given their usual and ordinary meaning, the particularpassage concerned being taken together with whatever is relevant in the rest of the will to explain it.’ In construing a will, drawn by a layman, I agree with the views expressed by Sedgewick, J. in Re Duncan, 41 O.W.N. 175 at page 176: ‘First it should be observed that the will was drawn by a layman.

Therefore, that he must take the words employed not in any strict legalsense, but in the sense in which they would be employed by such a person as the testator, that is, with their ordinary or colloquialmeaning.’ See also the observation of Tritscliler, J. (as he then was) in Re Kemp (MB KB), 11 W.W. R.N.S. 624.” [12] In Haidl (next friend of) v. Sacher, (SK CA), [1980] 1 W.W.R. 293, 106 D.L.R. (3d) 360, Bayda J.A. (as he thenwas) grappled with the question of when surrounding circumstances could be looked at to help construe a will.

At pp. 296 and 302 hestates: The circumstances of this case and the issues addressed to us on appeal call for a consideration, at the outset, of this question: Does the law require the "ordinary meaning" rule of construction to be applied to subparagraph (

h) without admitting and taking intoaccount any surrounding circumstances at all and that the meaning so ascertained shall prevail unless it is found that such an applicationproduces a meaning which is unclear and ambiguous in which event such surrounding circumstances may then be admitted and looked at(procedure "A")? Or, does the law require those surrounding circumstances to be admitted at the start and that the "ordinary meaning"rule of construction be applied in the light of those surrounding circumstances (procedure "B")? . . .

In the end, it must be said that the Canadian authorities tend to put forward procedure "B" as the proper approach. In myrespectful view, it is the approach most likely to elicit the testator's intention and for that reason the more desirable approach. After all,ascertaining the testator's true intention is the real and only purpose of the whole exercise. Hence, the learned Chambers Judge, in thematter before us, did not err in admitting evidence of the testator's relationship to the beneficiaries named in his will, and particularlythose mentioned in sub-paragraph (

h) as part of the surrounding circumstances, in the light of which he then sought to interpret thetestator's language by applying the "ordinary meaning" rule. This approach has more recently been affirmed in Ratzlaff Estate v. Ratzlaff, 2002 SKCA 53, 212 D.L.R. (4th) 258 by Vancise J.A. atparas. 35-36: [35] . . . [T]he court has a right to ascertain all the facts which were known to the testator at the time he made the will and thus toplace itself in the testator's position in order to ascertain the meaning and application of the language he uses.

A probate judge is entitledto take into account the surrounding circumstances which existed at the time of the execution of the will in order to determine the properconstruction of the will. . . [36] . . . This approach is also consistent with what this Court stated in Haidl v. Sacher. The correct approach in Saskatchewan is therefore to admit evidence of the surrounding circumstances at the start and to apply the“ordinary meaning” rule of construction in that context. Generally, only indirect evidence is admissible because the primary evidence ofthe testator’s intention is the will itself.

Courts will not give effect to direct declarations of intent, the effect of which would be to allow an oral will to override the probated will: James MacKenzie, Feeney’s Canadian Law of Wills, looseleaf, 4th ed. (Markham, Ont.:LexisNexis Canada, 2000). [13] The starting point in interpreting the phrase is “plain and ordinary meaning.” A straightforward reading suggests that it means“rights” concerning “oil” and a “well” or wells in relation to those rights and that oil. However, it is common ground that Mr.

Wernickehad no rights in any oil wells and it is therefore not clear to what the phrase refers in that context.

[ 14 ] An initial issue in this case is what evidence can be used to assist in the

interpretation of the phrase in the context of the Will and what was known to Mr. Wernicke. Some of the affidavit evidence proffered by the appellants consists of declarations of the intention of Mr. Wernicke or an explanation of his lack of intention respecting the phrase.

The appellants argue that this direct evidence must be considered to properly interpret the phrase because there is an equivocation in the Will because the phrase applies equally well to the Alberta property and the surface rentals. [ 15 ] There is equivocation only where the words of the will, either when read in the light of the whole will or more usually when construed in the light of surrounding circumstances, apply equally well to two or more persons or things.

In such a case, extrinsic evidence of the testator’s actual intention may be admitted to resolve the equivocation: Feeney’s Canadian Law of Wills , supra at para. 11.86. Put another way, the phrase in this case must be equally ambiguous respecting the two possible assets it could denote. [ 16 ] When looked at in this light, there is no equivocation. The meaning of mines and minerals as an asset is well established in law. The meaning of surface lease rentals is perhaps less so and more technical in nature.

Resort can be had to the testimony of Nimegeers so as to assist the court in determining the characteristics of each asset. With this testimony in mind, of the two possible assets which “oil well rights” could denote ( i.e. the mines and minerals in the Alberta property and the surface rentals in Saskatchewan), the term is more aptly encompassed by the mines and minerals because these indeed include oil (well) rights whereas surface leases do not. The phrase is therefore not equally ambiguous with respect to mines and minerals and the surface rentals.

That this term clearly more aptly applies to the mines and minerals is underlined by the actions of the executors, who transferred to the appellants the Alberta property as part of the “oil well rights” gift in paras. 6 and 7 of the Will. Thus there is at most a mere ambiguity in the use of the phrase and only indirect evidence can be used to clarify the meaning of the phrase as used in the Will and to determine if it denotes the surface rentals too. [ 17 ] The ambiguity of the phrase can be resolved by reference to the admissible evidence of what Mr.

Wernicke knew at the time he made the Will, the terms of the Will and the phrase in its context in the Will. From the indirect evidence admissible, the following is apparent or can be inferred about the circumstances of execution of the Will and what Mr. Wernicke knew:

(1) The term “oil well rights” was not used by Mr. Wernicke.

(2) Mr. Wernicke had mines and minerals in Alberta which had not been exploited but which generally included oil rights.

(3) The mineral rights on the Alberta property were of nominal value.

(4) Mr. Wernicke was receiving surface rentals for the gas wells beneath his farmland.

(5) Mr. Wernicke did not own any oil wells and was not receiving compensation from the production of oil. [ 18 ] Also relevant is the following evidence of Nimegeers regarding the nature of surface rentals, although this by itself is not determinative of the meaning of the phrase:

(1) Surface rent compensates surface owners and occupants for increased costs of farming around the leases and lease roads and for loss of crops.

(2) It is unusual to grant surface compensation to someone other than the owner or occupant of the surface parcel of the land as it is the owner or occupant who incurs the loss. [ 19 ] Mr. Wernicke can also be taken to have known at least the first foregoing point of Nimegeers’ evidence since he was the owner of the land and had executed the surface leases which clearly refer to compensation for capital damage to the land. It is clear from the structure of the Will that Mr. Wernicke took some care in determining the nature and extent of the various gifts and the individuals who would receive them.

When one looks at the Will, it is significant that para. 10 of the Will provides that the farmland, which generates the surface rentals, the farm machinery and some non-farm assets will be held in trust for a minimum of ten years with a direction that the farmland be farmed by Fred V. Wernicke and a grandson of Mr. Wernicke, Frederick Allen Wernicke. This suggests that it was the intention of Mr. Wernicke to keep the farm intact as a unit very much as when he was alive. Also of significance is that both appellants are beneficiaries of this trust along with others.

Under the Will, each appellant will annually receive 25% of the profits from the farm, and on termination of the trust, each will receive 1/14 of the capital in the trust. Therefore the gifts in the Will to the appellants, in addition to the $50,000 each receives by virtue of paras. 6 and 7, are not so insubstantial as the appellants argue. [ 20 ] If “oil well rights” does not include the surface rentals then the rentals run with the land and become part of the farm which is held in trust under the Will. Mr.

Wernicke would have been clearly aware that he had no “oil well rights” in the farmland because there was no oil being produced therefrom and he did not own the gas wells. Given the fact that the use of the farmland is generally diminished by the gas well installations, a fact known to Mr. Wernicke, and given that the farm was to be kept intact for a period of time, it is a reasonable conclusion that the surface rentals were to be part of the farm unit so as to use the surface rentals to compensate for that

diminution. This, together with the fact that Mr. Wernicke must have known generally that the Alberta property contained unexploited “oil well rights” and that surface rentals conceptually cannot be “oil well rights,” confirms that in the context of the Will the phrase properly interpreted based on the admissible evidence must refer to the Alberta property and not the surface rentals. VI. Conclusion [ 21 ] The Chambers judge therefore made no error in coming to the conclusion that he did. Accordingly, the appeal is dismissed. The respondents shall have their costs.

DATED at the City of Regina, in the Province of Saskatchewan, this 16 th day of August, A.D. 2011. “Ottenbreit J.A.” OTTENBREIT J.A. I concur “Lane J.A.” LANE J.A. I concur “Caldwell J.A.” CALDWELL J.A.