Executive Summary: Key Legal and Evidentiary Issues

• Scope of a life tenant’s entitlement to oil and gas royalties where the will limits payments to amounts “being received … at the time of my death.”
• Characterization of royalties from a post-death petroleum and natural gas lease as capital belonging to remainder beneficiaries rather than income of the life tenant.
• Proper construction of will provisions using the “armchair rule,” surrounding circumstances, and presumptions such as early vesting and rationality.
• Whether executors exceeded their statutory powers by granting a new mineral lease without unanimous beneficiary consent or a court order, and if that amounted to waste.
• Assessment of evidentiary admissibility in affidavit proceedings, including hearsay, opinion, privilege, and the limits on surrounding-circumstances evidence of testamentary intent.
• Application of statutory and inherent powers to remove executors, and whether mistakes and delay justified replacing the testator’s chosen personal representatives.

Factual background and estate structure

William Frederick Krell died in 2016 leaving a sizeable Saskatchewan estate that included eleven quarters of farmland, a home quarter, town lots, and several mineral titles. He was survived by his spouse, Ruth Rose Linda Krell, his son Thom Swanson, his sister Violet Jacob, and 19 nieces and nephews. Ruth and Violet were appointed co-executrices and trustees, with Thom and Violet’s son named as alternates. William’s 2013 will made specific cash and land bequests and then carefully divided his mineral interests between Ruth, Thom, and the nieces and nephews. Critical to this dispute, William gave Ruth a life interest in the mines and minerals under the home quarter, directing his trustees “to pay to her during her lifetime all royalty or other benefits being received by me at the time of my death” from that mineral parcel, with the remainder interest to Thom and all nieces and nephews in equal shares. Elsewhere, he left two other producing mineral parcels outright to Thom and the nieces and nephews, and divided the residue of the estate: 20% to Thom, 25% to Ruth, and the remaining 55% among Violet and the nieces and nephews. An executed original of the 2013 will was never located, but an unsigned copy was admitted to probate and its validity was not challenged.

Oil and gas development and the competing wells

Before making his will, William had entered into a 2004 petroleum and natural gas lease over the mineral parcel underlying the home quarter. Under that lease, the lessee (ultimately Crescent Point Resources Partnership) drilled a vertical well on the eastern half of the quarter in 2006. This “Old Well” produced continuously and generated regular royalties that William was receiving when he signed his will and at all times until shortly before his death. The 2004 lease contained a provision that, after the 24-month primary term, it would terminate as to spacing units and zones with no production. By 2008, Crescent Point no longer had rights under the lease to develop the western half of the home-quarter minerals (LSDs 2 and 7). Despite that, in February 2015 Crescent Point drilled a second “New Well” on those western legal subdivisions, mistakenly assuming the lease still covered them. The New Well came on stream in August 2015 and Crescent Point paid William significant royalties for several months before his lawyer notified the company in November 2015 that the lease had expired for that half of the quarter. After receiving that letter, Crescent Point shut in the New Well and began trying to negotiate a fresh lease. William, assisted by his solicitor, rejected early offers as inadequate and was still pressing for better terms when he died on 1 June 2016. From late 2015 until well after his death no royalties were paid from the New Well and the well remained shut in.

Post-death lease negotiations and the 2017 lease

After William’s death, Ruth and Violet continued dealing with Crescent Point through estate counsel. Crescent Point wished to salvage its unauthorized well and offered new terms including a bonus payment and a 19% royalty. Following negotiations, the estate agreed and in late 2017 Ruth and Violet, acting as personal representatives, executed a new petroleum and natural gas lease over the western half of the mineral parcel. The 2017 lease granted a $50,000 bonus and an ongoing 19% royalty on production. Crescent Point resumed production from the New Well in early 2018 and began paying the bonus and all subsequent royalties to Ruth, based on the executors’ understanding that her life interest extended to this new production. Estate counsel wrote to the beneficiaries explaining that view and sought their consents to the lease. All beneficiaries except one of the Knoch siblings signed consent forms, though some later maintained they had not been adequately informed.

Emerging disputes among the beneficiaries

Over time, serious disagreement developed between the executors and a group of five Knoch siblings, who were among the nephew and niece beneficiaries. They objected to several aspects of the administration: the attempted use of a corporation (WFKL) to hold mineral interests rather than transferring titles directly; the payment of legal and incorporation costs from the estate; delays in finalizing the administration; and, most centrally, the decision to sign the 2017 lease and pay the associated royalties and bonus solely to Ruth. The Knoch siblings argued that the will’s wording limited Ruth’s life interest to royalties and benefits that William was actually receiving at the time of his death, i.e., royalties from the Old Well only. In their view, all economic benefits arising from the New Well after William’s death belonged to the remainder beneficiaries, and directing production from a new well amounted to waste of a finite, non-renewable resource to their detriment. They also took the position that the executors had no statutory authority to grant a new mineral lease without unanimous beneficiary consent or a court order and that Ruth’s personal interest in receiving royalties created a conflict of interest.

Applications for interpretation and for removal of executors

Two streams of litigation followed. First, Ruth and Violet, as executors, brought an originating application asking the court for opinion, advice and directions on the construction of paragraph (h) of the will and on the proper disposition of royalties and other payments from the New Well. They invoked provisions of The Administration of Estates Act, The Trustee Act, 2009 and the procedural rules allowing applications for interpretation of wills and for directions to trustees. They advanced several interpretive alternatives: what they described as the “status quo outcome,” under which Ruth would receive all royalties from both wells during her lifetime; and fallback “residue outcomes,” under which, if Ruth could not receive New Well royalties under the life-interest clause, those receipts would be treated as part of the estate residue under the residuary clauses and shared in the prescribed percentages. Second, the Knoch siblings filed their own originating application seeking to remove Ruth and Violet as executors and replace them with nephew John Knoch. They relied on statutory provisions permitting removal where executors fail to administer an estate prudently or in good faith, and on the court’s inherent jurisdiction, arguing that the executors’ handling of the 2017 lease, royalty payments, delays and corporate structure showed a lack of reasonable fidelity and a conflict between Ruth’s personal interests and her fiduciary duties.

Evidentiary framework and approach to interpreting the will

Because the case was brought by originating application, the court’s evidentiary record consisted largely of affidavits with attached documents. The judge undertook a detailed analysis of admissibility, striking portions that were hearsay, opinion, speculation or privileged “without prejudice” settlement communications, and clarifying that the key facts were largely uncontested and suitable for summary determination. On the interpretive side, the court reaffirmed that the goal in construing a will is to ascertain the testator’s subjective intention from the language of the document, read as a whole and in light of the surrounding circumstances known at the time of execution. The judge endorsed the modern “armchair rule” approach, under which courts consider contextual evidence—such as the nature of the estate, the family structure, the testator’s relationships, and existing property interests—even where the wording appears facially clear, while largely excluding the testator’s oral instructions to the drafting lawyer as direct evidence of intent. The decision also canvassed auxiliary presumptions, including the presumption that every word in a will has meaning, the presumption of rationality (against absurd or capricious outcomes when a reasonable alternative exists), the presumption of disinheritance (preferring closer relatives over more distant ones where language is truly ambiguous), and most importantly here, the presumption of early vesting, which favours the view that remainder interests vest on the testator’s death unless clearly made contingent.

Construction of the life-interest clause and entitlement to royalties

Turning to paragraph (h), the court focused on the phrase granting Ruth a life interest coupled with a direction “to pay to her during her lifetime all royalty or other benefits being received by me at the time of my death.” Viewed against the estate’s structure, William’s age, the way he provided for Ruth elsewhere in the will (including a substantial cash gift, a 25% share of residue, and a right to occupy the home quarter), and the fact that only the Old Well was lawfully in production when he died, the judge concluded that the wording was clear and unambiguous. Its natural meaning was that Ruth’s life interest extended only to those royalty streams William was actually receiving when he died—namely, production from the Old Well under the 2004 lease. The clause did not confer a general right to all future royalties from any new wells or leases on the same mineral parcel. The judge rejected the executors’ characterization of Crescent Point’s earlier drilling as a mere clerical error that could be treated as if the New Well were already part of an ongoing producing operation. Instead, the drilling of the New Well without a valid lease was treated as an act of trespass that was regularized only by the 2017 lease executed after William’s death. Because the well was shut in and no royalties were payable on the date of death, William was not “receiving” any benefits from it at that time, so Ruth’s life interest could not encompass that income.

Remainder interests, capital versus income, and the New Well royalties

Building on that interpretation, the court analyzed who should ultimately benefit from the bonus and royalties under the 2017 lease. Drawing on English and Canadian authorities on life estates in mineral property, the judge accepted the general principle that a life tenant cannot destroy the “corpus” or capital of the estate by opening new mines or authorizing new extraction for personal gain; instead, profits from post-death exploitation of previously unworked minerals are regarded as capital accruing to the remaindermen. However, the judgment distinguished and adapted earlier cases such as Campbell v. Wardlaw and Moffat Estate because the life interest that William granted Ruth was narrower than the typical right to the “rents and profits” of the land. Here, the testator had explicitly limited Ruth to the royalties he was already receiving at death. As a result, the court held that the remainder interest in the mineral parcel had vested in Thom and all nieces and nephews at William’s death, subject only to Ruth’s limited life interest in the Old Well revenue. The New Well royalties and the $50,000 bonus were therefore attributes of the remainder interest rather than part of Ruth’s life estate. Nonetheless, because Ruth remained entitled to Old Well royalties for life and because not all remainder beneficiaries agreed on an immediate payout, the court declined to order that the New Well receipts be presently distributed. Instead, it directed the executors to invest all bonus payments, royalties and other benefits from the 2017 lease in an appropriate fund, with both capital and income from that fund to be paid to the remainder beneficiaries when Ruth’s life interest terminates. Ruth was not given a right to the interim investment income, which would have expanded her life interest beyond what the will allowed.

Statutory authority, waste, and the Saunders v. Vautier argument

The Knoch beneficiaries also alleged that by granting the 2017 lease and authorizing production, the executors had committed waste and acted outside their statutory powers. Under provincial estate legislation, personal representatives may deal with mines and minerals only with court approval or with the concurrence of all adult beneficial owners. The judge accepted that Ruth and Violet had not fully complied with that requirement, because they executed the new lease before obtaining unanimous consents and one Knoch sibling never consented. However, the court noted that the beneficiaries did not seek to set the lease aside, that the terms obtained were commercially favourable compared with the earlier lease and offers, and that the executors had relied throughout on specialized legal advice. While this technical non-compliance informed the analysis of their powers and the structure for holding the new royalty stream, it did not justify wholly invalidating the arrangement. On the question of waste, the judge observed that both William and the Knoch siblings understood that the economic value of the mineral parcel lay in producing its hydrocarbons and that no one seriously wanted the New Well capped and abandoned. The true controversy was about who should receive the proceeds, not whether oil and gas should be produced at all. Finally, the court rejected the Knoch beneficiaries’ attempt to invoke the rule in Saunders v. Vautier to require an immediate distribution of the royalty fund. Because Ruth still held a subsisting life interest in the Old Well royalties and not all remainder beneficiaries were aligned, the statutory and common-law conditions for collapsing the trust and compelling early distribution were not met.

Application to remove the executors

On the parallel application for removal, the court began from the well-established premise that a testator’s choice of executors is not to be lightly disturbed. The governing statutes and the court’s inherent jurisdiction permit removal where an executor refuses to administer the estate, fails to act reasonably and prudently, or demonstrates a lack of honesty, reasonable fidelity, or capacity to carry out fiduciary duties. The Knoch siblings argued that years of delay, the attempted corporate structure, the unauthorized lease, and the ongoing payment of New Well royalties to Ruth showed such a failure and an impermissible conflict of interest. The judge accepted that some steps—especially the incorporation scheme and the failure to hold disputed royalties in trust once the conflict emerged—were misjudged and contributed to delay, but emphasized that Ruth and Violet were elderly laypersons who had consistently relied on legal advice, had made interim distributions and kept beneficiaries informed, and had not taken executor’s fees. Most beneficiaries supported them, and there was no sign of dishonesty or bad faith. Importantly, once the central interpretive dispute crystallized, the executors brought an application for judicial directions rather than entrenching their own view. In these circumstances, the court concluded that the high threshold for removal was not met, dismissed the removal application, and left Ruth and Violet in place as executors, subject to their obligation to administer the royalty trust according to the court’s directions.

Outcome, successful parties, and monetary relief

In the result, the court declared that Ruth’s life interest extends only to the royalties and other benefits William was actually receiving at the time of his death, which were the Old Well payments under the original 2004 lease, and that all royalties, bonuses and other benefits from the 2017 lease and New Well belong in capital to the vested remainder beneficiaries. It ordered that those New Well receipts be invested and held in trust until Ruth’s life interest ends, when the accumulated fund—including both capital and investment income—is to be distributed among Thom and the 19 nieces and nephews in equal shares, share and share alike. The application to remove Ruth and Violet as executors was dismissed, leaving them in office but bound by the court’s guidance on future administration. On the central financial question of who ultimately benefits from New Well production, the successful parties are the remainder beneficiaries (including the Knoch siblings), while on the governance question of who should act as executors, the successful parties are Ruth and Violet. The judgment does not fix or quantify a specific total monetary award, damages figure, or cost amount in favour of any party; instead, it sets a framework for future investment and distribution of royalties and expressly defers the determination of costs to later submissions, so the total amount ordered in favour of the successful parties cannot presently be determined.