Amendment to Family Law Act Enhances Protection for Inheritances

 

A recent change to British Columbia’s Family Law Act provides greater protection for inheritances from claims of spouses on the breakdown of a marriage or marriage-like relationship. The basic structure of our Family Law Act provides that some assets are “included property” in the division of property and other assets are “excluded property.” In most cases, included assets are divided equally between spouses following the breakdown of the marriage or marriage-like relationship, and excluded property is, well, generally excluded from the division. The court may in some circumstances deviate from this scheme of division, but for the purpose of this blog, lets keep it simple.

When one spouse receives and inheritance or gift, that property is excluded. However, if the property appreciates in value during the marriage or relationship, then the gain is included, and divided equally. Say, for example, one spouse inherits a house worth $800,000 from her mother (probably not in Vancouver), and on separation from her spouse, the house is worth $1 million, then she keeps $800,000, but shares the $200,000 gain with her ex-spouse.

This seems simple enough, and strikes me as fair. The mother intended to benefit her daughter, rather than her daughter’s spouse, but on the other hand, the appreciation in value occurred during the marriage. Where things get murkier is if the daughter transfers the house into her spouse’s name during the marriage. Perhaps she transfers title into a joint tenancy with her spouse, so that if she dies before him, he will receive the house by right-of-survivorship. In that case, does the house remain excluded property? 

The British Columbia Court of Appeal, answered that if excluded property is gifted by one spouse to the other, it is no longer excluded. I wrote about the case of V.J.F v. S.K.W., 2016 BCCA 186 here. In that case, the husband inherited $2 million from his employer, and used most of the funds to buy land, the title to which he and his wife registered in her sole name. On the breakdown of the relationship, both the trial judge and the Court of Appeal held that the residence was no longer excluded property.

The British Columbia Government published a discussion paper in August 2016 discussing this issue and invited comments for potential legislative change.

Now, the legislation has been changed, effective May 11, 2023. The following provision has been added to section 85:

(3)          If property is excluded from family property under subsection (1), the exclusion applies despite any transfer of legal or beneficial ownership of the property from a spouse to the other spouse.

85 (1) excludes from family property inheritances as well as certain other categories of property such as assets brought into the relationship, and any property derived from the sale of excluded property.

If this new subsection 85(3) had been in effect when the proceeding in  V.J.F. was commenced, it is likely that the $2 million would have been excluded, rather than shared between the spouses.  

Estates Disputes in British Columbia: A Litigator's Guide

The Continue Legal Education Society of British Columbia has published a new manual entitled Estates Disputes in British Columbia: A Litigator's Guide. The Chapters are:

1.  Initial Considerations in Estate Disputes

2.  Conflict of Laws in Estate Disputes

3.  Resolving Estate Disputes through Mediation

4.  Proceeding with Estate Litigation

5.  Validity of Wills Disputes

6.  Interpretation, Rectification, and Construction of Wills Disputes

7.  Curing a Defective Will

8.  Wills Variation Claims

9.  Disputes Regarding Attorneys

10.  Disputes Regarding Personal Representatives and Trustees

11.  Committeeship Applications and Claims Against Committees

12.  Inter Vivos Trust Disputes

13.  Inter Vivos Transfer Disputes

14.  Life Insurance, Registered Account, and Benefit Plan Beneficiary Designation Disputes

15.  Resulting Trusts, Unjust Enrichment, Constructive Trusts, and Secret Trusts

16.  Issues of Spousal Status in Estate Disputes

17.  Administration of Intestate Estates Disputes

18.  Passing of Accounts and Trustee Remuneration Disputes

Shahdin Farsai of our firm authored the chapter, Passing Accounts and Trustee Remuneration Disputes. I am one of the co-editors of the book. 

 

Canfield v. Bronze Wines Ltd.

 

Madam Justice Horsman’s decision in Canfield v. Bronze Wines Ltd., 2022 BCSC 546, additional reasons at 2022 BCSC 1435, illustrates the application of unconscionability to improvident transfers of wealth. The doctrine may apply where value is given for the transfer, it does not require a finding that the transferor did not have capacity, nor evidence of undue influence.

This case also illustrates the responsibilities of lawyers and notaries public in witnessing transfer documents. On this point, the trial judge’s finding of liability of the notary public was overturned in Engman v.Canfield, 2023 BCCA 56, although the Court Appel agreed with her analysis of the notary’s responsibilities.

Jean Canfield signed an agreement to sell her home on an acreage in Grand Forks B.C. in January, 2012, to Bronze Wines Ltd. for 465,000. Pursuant to the agreement, Bronze Wines was not required to make a down payment or any payments for two years, after which Bronze Wines was required to make monthly payment to her of $2,500 until she was paid in full. Bronze Wines was required to pay interest at the “Bank of Canada Prime rate + 1%.” The agreement provided that she could foreclose and reclaim the property if Bronze Wines missed three consecutive payments. 

When she made the agreement, she was in her 70s, recovering in an assisted-living residence in Langley, B.C. from hip surgery. In 2010, she found it too difficult to manage the acreage and she moved in with one of her children in Langley, and then into the assisted living residence. She listed the property in 2010 and then in 2011, but had no success in selling.

The principal of Bronze Wines was Scot Stewart, who was a friend of Mrs. Canfield’s son-in-law Max Bottoni. Mr. Stewart wanted to start a winery. He had no training or experience making wines, was unemployed, and did not have substantial assets. Mr. Bottoni negotiated the agreement with Mr. Stewart, who wrote up the agreement using a self-counsel precedent. Mrs. Canfield met Mr. Stewart for the first time when he took the agreement to her residence, and they both signed it. She did not request any changes and did not receive any legal advice before signing. It should also be noted that the trial judge found that Mr. Bottoni had an interest in Bronze Wines, and was not acting as an agent for his mother-in-law.

In order to transfer title to the acreage, Mrs., Canfield need to sign a Form A transfer in the presence of an “Officer,” under the Land Title Act, which include a lawyer or notary public. Mr. Stewart scheduled an appointment for Mrs. Canfield with a notary public, Mr. Engman, in New Westminster. Mr. Stewart and Mr. Bottoni attended the notary’s office with her. Mr. Stewart brought a Form A transfer document with him and the notary witnessed Mrs. Canfield’s signature, and gave the Form A transfer back to Mr. Stewart, who later arranged for registration of the change in title to Bronze Wines.

The meeting between Mrs. Canfield and the notary took about 10 to 15 minutes, for which the notary charged $50. Mr. Stewart paid the fee. Madam Justice Horseman found that the notary did not take any steps to ensure that Mrs. Canfield understood the document, had capacity to sign it and was not subject to undue influence. Mrs. Canfield did not receive and legal advice nor did she confirm to the notary that she had received legal advice in respect of the transfer.

Mr. Stewart and Bronze Wines needed to arrange financing to carry out repairs and renovations to the property. Bronze Wines granted mortgages of the property to secure the financing, and at trial there were tow mortgages: one for the principal amount of $335,000 and the other for $69,440. Sadly, Bronze Wines’ business failed, and the property went into foreclosure. It was sold sale proceeds of $338,000 were paid into court.

Mrs. Canfield never received a payment for the sale of her home. At the time of trial, she was living in a subsidized residence in Nelson, B.C. She has no significant assets.

Several claims were advanced on Mrs. Canfield’s behalf, including:

1.     A claim seeking rescission of the agreement with Bronze Wines and damages on the  basis of unconscionability;

2.      A claim for damages against Mr. Stewart personally;

3.      A claim that the limitation period for one of the lenders to enforce its mortgage had expired;

4.      A claim for damages against the notary for negligence.

Mrs. Canfield had settled with one of the lenders. Madam Justice Horsman dismissed the claim that the other creditor’s right to enforce its mortgage was out of time, and also dismissed the claim against Mr. Stewart personally. I will focus on unconscionability and the claim against the notary.

The leading recent case on unconscionability is the Supreme Court of Canada decision in Uber Technologies Inc. v. Heller, 2020 SCC 16, decided in the very different context of the enforceability of an arbitration clause in Uber contracts (the Court held that it was not).

Unconscionability provides an equitable exception to the enforceability of contracts when the agreement is both unfair and resulted from an inequality of bargaining power between the parties to the agreement. As set out in Madam Justice Horsman’s reasons in paragraph 72:

Through the doctrine of unconscionability, equity provides relief where the traditional presumptions underlying freedom of contract—the “freely negotiated bargain or exchange” between “autonomous and self-interested parties”—lose their justificatory authority due to the vulnerability of one party to the contracting process: Uber at paras. 56-60. Courts will not ignore serious flaws in the contracting process where those flaws challenge the traditional paradigms of the common law of contract. As explained by the Supreme Court of Canada in Uber:

[58]      …The elderly person with cognitive impairment who sells assets for a fraction of their value (Ayres v. Hazelgrove, Q.B. England, February 9, 1984); the ship captain stranded at sea who pays an extortionate price for rescue (The Mark Lane (1890), 15 P.D. 135); the vulnerable couple who signs an improvident mortgage with no understanding of its terms or financial implications (Commercial Bank of Australia Ltd. v. Amadio, [1983] HCA 14, 151 C.L.R. 447) — these and similar scenarios bear little resemblance to the operative assumptions on which the classic contract model is constructed.

To succeed in an allegation that the agreement is unconscionable, the weaker party must by “unduly disadvantaged.” But it is not necessary to show that the stronger party knowingly took advantage of the weaker party.

Applying the analysis in Uber to the facts, Madam Justice Horsman found that Mrs. Canfield established that she was in a position of an inequality of bargaining power:

[92]         There was an inequality of bargaining power as a result of Mrs. Canfield’s inability to adequately protect her own interests. I accept the defendants’ submission that there is no basis in the evidence for a finding that Mrs. Canfield lacked capacity to contract. However, as Uber makes clear, the doctrine of unconscionability is not restricted to cases where a party lacks capacity. In this case, Mrs. Canfield had situational vulnerability as a result of the circumstances she found herself in at the time of the Agreement. She was an elderly widow with health problems who felt pressure to sell a Property she could no longer manage. She was deprived of information that was critical to her exercise of autonomous decision-making in the contracting process. She did not know that Mr. Bottoni had aligned himself with Bronze Wines, and thus could not be relied on to protect her interests. She had no information about Mr. Stewart’s limited income and assets, nor was she told of his lack of experience in the wine-making business. She did not know of Mr. Stewart’s plan to mortgage the Property as soon as it was transferred to Bronze Wines. She was not provided with full information about the nature of the risks inherent in the Agreement that Mr. Bottoni and Mr. Stewart wished her to sign.

[93]         This contracting process did not take place on a level playing field. As a practical matter, only Mr. Stewart and Mr. Bottoni could understand and appreciate the full import of the contractual terms, as well as the extent to which the bargain imperilled Mrs. Canfield’s interests. Unbeknownst to her, she was agreeing to transfer her only asset of any significant value to Bronze Wines in return for an unsecured stream of future income that was dependent on the financial success of a wine-making business operated by someone with no income, assets, or wine-making experience.

Madam Justice Horsman agreed with Mr. Stewart that there was no evidence that Bronze Wines deliberately took advantage of Mrs. Canfield, but it is not necessary to show that he intended to do so for unconscionability to apply.

Madam Justice Horsman also found that Mrs. Canfield met the criteria of an improvident transaction:

[98]          Turning to the second requirement for a finding of unconscionability, I have no difficulty in concluding that this was an improvident transaction. A substantively improvident bargain was struck as a result of Mrs. Canfield’s inequality of bargaining power. The terms of the Agreement, which are more favourable to Bronze Wines than to Mrs. Canfield, offered Bronze Wines, a corporation with no assets, a generous two-year payment holiday as well as a 20 to 40-year amortization period to repay the purchase price without providing any real security or an agreed interest rate. In the context of Mrs. Canfield’s situational vulnerability and the informational asymmetry that characterized this contracting process, she could not have understood or appreciated the meaning or significance of the contractual terms, as well as how they unduly disadvantaged her position.

Ideally, when an agreement is set aside as unconscionable, the weaker party is restored to the position they were in before the agreement was made. The contract is rescinded. In this case, because the acreage was mortgaged and sold, Mrs. Canfield could not have the acreage, nor the full proceeds of sale, returned to her. Madam Justice Horsman ordered rescission, but it was limited to restoring the portion of sale proceeds remaining after the lender was paid. She also ordered that Bronze Wines compensate Mrs. Canfield for the difference between the fair market value of the acreage of $465,000 less the amount she receives from the proceeds of sale.

In view of the fact that the sale price does not appear to be significantly higher than the amount of the loans, and that Bronze Wines has no assets, Mrs. Canfield would likely receive little or no compensation, unless she succeeded in her claim against the notary in negligence. 

In determining the standard of care required of the notary, Madam Justice Horsman considered the requirements of the Land Title Act for an officer witnessing a transfer, and the standards set in the Notaries Guideline form the Society of Notaries Public of British Columbia. The Land Title Act provides that the signature of a transferor is proof that they know the contents of the document, has signed it voluntarily and has capacity to execute it. Accordingly, it is necessary that the notary witnessing the signature establish those facts. The Notaries Guideline also contained the following provision:

2-G6  Unrepresented Persons – A Member should not advise an unrepresented person in a transaction, but should urge such a person to obtain independent advice and, if the unrepresented person does not do so, the Member should take care to see that such person is not proceeding under the impression that his or her interests will be protected by the Member.

Madam Justice Horsman found the standard of care to be as follows:

[215]     For these reasons, I conclude that the standard of conduct expected of Mr. Engman as a reasonable and prudent notary witnessing Mrs. Canfield’s execution of a Form A included:

(1)  Confirming Mrs. Canfield’s identity;

(2)  Advising Mrs. Canfield that Mr. Engman was not providing her with legal advice on the transaction;

(3)  Confirming that Mrs. Canfield had received independent legal advice, or at least that she had made an informed decision not to seek legal advice;

(4)  Making inquiries that were sufficient to satisfy himself that Mrs. Canfield had the capacity to sign the Form A; and

(5)  Making inquiries that were sufficient to satisfy himself that Mrs. Canfield understood the content and legal effect of the Form A, and was signing it voluntarily.

The notary did not meet that standard of care, Madam Justice Horsman finding that he did not take steps to determine Mrs. Canfield’s capacity, her understanding of the transaction, whether she received independent legal advise and whether she was acting voluntarily.

The next question in determining negligence is whether the notary’s conduct caused Mrs. Canfield loss. The first test Is cause in fact: but for his conduct, would she have gone ahead with the transfer? The second is cause in law :is the relationship between his conduct and the loss too remote?

Madam Justice Horsman found that Mrs. Canfield had established that the notary’s conduct caused her loss:

[229]     If Mr. Engman had insisted that Mrs. Canfield receive independent legal advice before he witnessed her signature on the Form A, then she would have had the opportunity to have the unconscionable Agreement rescinded before the transfer of the Property had occurred. But for Mr. Engman’s breach of duty, Mrs. Canfield would have avoided the loss of her Property to Bronze Wines. She could have sold it in the ordinary course for its full market value. I find, therefore, that the evidence establishes that Mr. Engman’s breach of his standard of care was a factual cause of Mrs. Canfield’s injury.

[230]     The loss for which Mrs. Canfield seeks compensation—the value of her Property at the time of its transfer to Bronze Wines—is not too remote to be recoverable. Mrs. Canfield’s actual loss is a reasonably foreseeable consequence of Mr. Engman’s breach of duty. It was reasonably foreseeable that if Mr. Engman failed in his duty to make the inquiries necessary to satisfy himself that the transfer was voluntary, its effect was understood by Mrs. Canfield, and that she had received legal advice about the transaction, then Mrs. Canfield risked losing the Property without adequate compensation. I find, therefore, that the evidence also establishes that Mr. Engman’s breach of his standard of care was a legal cause of Mrs. Canfield’s injury.

The Notary appealed the finding of liability against him to the B.C Court of Appeal.

The Court of Appeal agreed with Madam Justice Horseman’s analysis of the duty of care owed by the notary to Mrs. Canfield, rejecting the notary’s argument that his obligations in witnessing the transfer were more limited.

However, the Court of Appeal allowed the appeal on the basis that the Mrs. Canfield failed to prove that the notary’s negligence caused her loss. To establish causation, she would have had to show that if he had confirmed that she had legal advice or refused to proceed with witnessing the transfer that she would not have proceeded with the transfer. The evidence did not establish that she would not have proceeded with the transaction. There were too many unknowns and a finding that she would not have proceeded with the transfer was, in the Court of Appeal’s view, speculative.

Accordingly, although Mrs. Canfield established her case that the agreement to sell her acreage to Bronze Wines was unconscionable, her claim against the notary failed, and sadly she will not likely be compensated for her loss.

Remote Witnessing of Powers of Attorney

 

Recent amendments to the Power of Attorney Act and Power of Attorney Regulation permit remote witnessing of signatures in British Columbia. These amendments came into affect on January 1, 2023.

The donor (referred to as the “adult” in the legislation) may sign a power of attorney in the electronic presence of a witness who is a British Columbia lawyer or notary public. Similarly, the attorney may also sign in the electronic presence of the witness, provided that the witness is a British Columbia lawyer or notary public. Accordingly, it is no longer necessary for the donor or attorney to sign in front of a lawyer or notary public in person, but may be witnessed using audiovisual technology.

The Regulation includes the following definitions in 2.1(1):

“communicate” means communicate using audiovisual technology, including assistive technology for individuals who are hearing impaired or visually impaired, that enables individuals to communicate with each other by hearing and seeing each other;

“electronic presence” or “electronically present” means the circumstances in which 2 or more individuals in different locations communicate simultaneously to an extent that is similar to communication that would occur if all the individuals were physically present in the same location.

Both the donor (or attorney) and the lawyer or notary public acting as witness sign and date complete and identical copies of the power of attorney in counterparts. Although the copies must be substantively identical, a non-substantive formatting difference will not affect the validity of the power of attorney.

I continue to prefer witnessing and signing documents in person, but there are circumstances, such as isolation that occurred during Covid-19, as well as when the donor or attorney is in a remote location or outside of British Columbia, when the ability to witness remotely is welcome.

British Columbia Law Institute: Undue Influence Recognition

The British Columbia Law Institute has recently publish Undue Influence Recognition and Prevention: A Guide for Legal Practitioners together with A Reference Aid. 

In 2011, the BCLI published Recommended Practices for Wills Practitioners Relating to Potential Undue Influence: A Guide in contemplation of changes to our succession law that would in some cases make it easier to challenge wills on the grounds of undue influence. The purpose was to assist lawyers and notaries in recognizing indicia of undue influence and forestalling the exercise of undue influence in respect of wills.

This new publication is an important update, and expands the purview of the Guide in two ways. First, it considers the risks of undue influence when wills and other documents may now be signed electronically or in the virtual presence of the witnesses. Secondly, the Guide is broader than will-making and considers undue influence relative to other planning such as powers of attorney and gifts made during one's lifetime.

As with the earlier guide, the new publication was put together by a muli-disiplinary committee comprising of  people with legal, medical, psychiatric, social work and psychological backgrounds. Most of the committee changed from the earlier Guide, with the important exception of BCLI lawyer Greg Blue. 

I encourage all lawyers and notaries public who practice in the area of estate planning to read the Guide and to use the Reference Aid. 

Shamim Aidun Joins Sabey Rule

I am pleased to write that Shamim Aidun has recently joined our firm as an associate. 

Shamim has his law degree from the University of Birmingham in England. He articled and began a broad-range law practice in the Cariboo, but decided to return to his home town of Kelowna.

He is practicing with us primarily in estate planning, including drafting wills, powers of attorney and representation agreements: estate administration, including applications for probate;  and estate litigation, including negotiation and litigation of disputes relating to wills, incapable adults and trusts. 

Shamim also speaks Farsi fluently. 

The Taciturn and Undemonstrative Men of Somerset

 

A mere promise to leave property to someone in the will is not enforceable. But, like so much in law, there are exceptions. One exception that sometimes arises occurs when the person who is promised property reasonably relies on the promise, making sacrifices as a result. The type of claim I am writing about has the rather inscrutable label “proprietary estoppel.” I have written about it before, including a Supreme Court of Canada case, Cowper-Smith v.Morgan, 2017 SCC 61.

The principle, as set out by Chief Justice McLachlin in Cowper-Smith, is as follows:

[15] An equity arises when (1) a representation or assurance is made to the claimant, on the basis of which the claimant expects that he will enjoy some right or 2017 SCC 61 (CanLII) benefit over property; (2) the claimant relies on that expectation by doing or refraining from doing something, and his reliance is reasonable in all the circumstances; and (3) the claimant suffers a detriment as a result of his reasonable reliance, such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on her word [citations omitted].

My favourite case is an English case predating Cowper-Smith. The name of the case is Thorner v. Majors, [2009] UKHL 18, but I refer to it as the “Taciturn and Undemonstrative Men of Somerset” case.  

Perhaps what’s most interesting about Thorner is how far the trial judge and ultimately the House of Lords were prepared to go to find that the farm owner made a representation that the claimant would receive his farm.

The plaintiff, David Thorner was a farmer who did substantial work for almost 30 years on his father’s cousin’s farm. He did so without pay. The farm was in Somerset, a seemingly irrelevant fact.

The cousin, Peter Thorner, did not ever expressly say he would leave David Thorner the farm.  There was, rather, some indirect statements and conduct that led the plaintiff to believe he would inherit the farm.  In 1990, for example, Peter handed over an insurance policy bonus notice to David, and said “that’s for my death duties.” There were other oblique statements implying that Peter would leave David the farm.

Peter did not leave David the farm, but died without a will.

The trial judge found that Peter was “a man of few words.” He also “was not given to direct talking. The simplest example…is that when Peter said ‘What are you doing tomorrow?’ he generally meant ‘Would you come and help me tomorrow.’”

In awarding to David the land, buildings live stock and other farm assets, the judge found that David had established the elements of proprietary estoppel. As quoted by Lord Walker of Gestingthorpe at paragraph  47, the judge  wrote:

With regard to all that David did at Steart Farm, and in looking after Peter, for the further fifteen or so years up to his death, there is again no need for me here to repeat the various relevant findings I have already made earlier in my judgment. David’s contribution was not only unremunerated, but also far in excess of that made by any of the others who helped at Steart Farm, whose roles I have reviewed in paras 74-80 above. He was encouraged to continue with his considerable and unremunerated commitment to this work by what was said and done by Peter on the various occasions I have already identified. There is a clear and sufficient link between that encouragement from Peter and what David did for him and on his farm.

The Court of Appeal reversed primarily on the grounds that Peter’s assurances were insufficiently clear and unambiguous to be reasonably relied upon. They were consistent with Peter expressing a current intention to leave David the farm, rather than as an assurance that he would leave the farm.

In the House of Lords, there are five separate judgments restoring the trial judge’s decision. The nub of the reasons in the House of Lords is that the trial judge considered the circumstances of Peter’s words and conduct, and the decision is entitled to deference. The trial judge considered Peter’s words and conduct in the context of the relationship between him and David and also in the context of the community in which they lived. Lord Walker of Gestingthorpe wrote:

59. In this case the context, or surrounding circumstances, must be regarded as quite unusual. The deputy judge heard a lot of evidence about two countrymen leading lives that it may be difficult for many city-dwellers to imagine—taciturn and undemonstrative men committed to a life of hard and unrelenting physical work, by day and sometimes by night, largely unrelieved by recreation or female company. The deputy judge seems to have listened carefully to this evidence and to have been sensitive to the unusual circumstances of the case.