Tuesday, January 17, 2017

K.L.W v. Genesis Fertility Centre

Mr. A.B. had serious medical problems throughout his life. He and his wife, K.L.W., wished to have children. He arranged to have his sperm stored by Genesis Fertility Centre, so that his wife could use his reproductive material to conceive a child. He wanted her to be able to do so after his death.

A.B. died without a will, and K.L.W. sought to have his sperm released so that she could conceive his child.

Unfortunately, no one advised the couple of the requirement in s. 8(1) of the Assisted Human Reproduction Act, S.C. 204, c. 2 (“AHRA”) and ss. 3(1) and 4(1) of the Assisted Human Reproduction (Section 8 Consent) Regulations, SOR/2007-137 (the “Regulations”) that A.B. consent in writing to K.L.W.’s use of his sperm to create embryos after his death. A.B. did not sign a written consent, but there was clear evidence from several witnesses that he had said that he had wanted his wife to be able to conceive his child even if he died.

Without the written consent, Genesis Fertility Centre, would not release the reproductive material to K.L.W.

In K. L.W. v. Genesis Fertility Centre, 2016 BCSC 1621, K.L.W. asked the Supreme Court of British Columbia to declare that her late husband’s reproductive material was her is her legal property, and for an order that the Genesis Fertility Centre release the reproductive material to her for her use to create embryos for her reproductive use.

Is reproductive material property?

After considering several cases both in British Columbia and other jurisdictions, Mr. Justice Pearlman held that the reproductive material was property in the context of this case. Although there are legislative restrictions based on public policy that do not apply to other types of property, including prohibitions on the sale of reproductive material, the courts have held that reproductive material is property in the context of claims in which it has not been properly stored and in division of family property.

Mr. Justice Pearlman  quoted from Madam Justice Bennett’s reasons for judgment in Lam v. University of British Columbia,  2015 BCCA 2, a case in which the Court of Appeal affirmed that sperm damaged when a freezer malfunctioned was property to which the provisions of the Warehouse Receipt Act (“WRA”) applied. Mr. Justice Pearlman wrote:
[75]    At paras. 113 and 114, Bennett J.A. stated:
[113] The nature and scope of property interests that a person can have in human sperm need not be decided on the facts of this case. This case, unlike for example, J.C.M. v. A.N.A., 2012 BCSC 584, does not deal with competing property interests in human sperm. This case considers whether Mr. Lam, a cancer patient, has ownership of the sperm he produced, such that he can contract for its storage to enable his personal use of the sperm at a later date. If so, the sperm is property, as something must be property if it is capable of being owned. There may also exist things that are property that cannot be owned, but that is not something that needs to be decided in the context of this case.
[114] Not all of Professor HonorĂ©’s 11 incidents of ownership need to be present for ownership to arise (Yearworth [v. North Bristol NHS Trust, [2009] EWCA Civ 37] at para. 28). Ownership of body parts must be contextual, and often limited by legislation because of public policy reasons. No one would argue that if a cancer patient cut her hair and stored it for the purpose of later making a wig after treatment that she did not “own” her hair in that context. On the other hand, legislation prevents the selling of sperm and organs such as kidneys, but does not prevent their donation. The prohibition on sale does not necessarily mean the legislation is inconsistent with ownership. It has provided limits to ownership in some contexts.
[76]         In concluding that each of the sperm donors had sufficient ownership of their stored sperm for it to be “property” and thus “goods” within the meaning of the WRA, Bennett J.A. applied the same analytical framework as the Court had adopted in Yearworth. The donors had ejaculated the sperm; contracted to store the sperm for their own future use; paid a fee for storage; and could consent to the sperm being tested. Further, they could terminate the storage agreement; could consent to the release of the sperm to their physician to be used by their spouse; and could exclude all others from using the sperm.  Although legislation or the storage agreement precluded the donors from disposing of the sperm by leaving it to someone in their will or from selling the sperm, they nonetheless had sufficient rights in relation to their own sperm for it to be defined as property.
Because A.B. died without a will, and did not leave any descendants, K.L.W. as his surviving spouse is the sole beneficiary of his estate. Accordingly, pursuant to section 20 of the Wills, Estates and Succession Act, she is entitled to the reproductive material.

This leaves the fundamental question in this case: may K.L.W. use her husband’s sperm to conceive a child despite the fact that he did not provide consent in writing?

Mr. Justice Pearlman held that A.B. had consented to his wife’s use of the reproductive material, and that it is consistent with the underlying principles of the legislation to allow her to do so. He wrote:
[131]     The circumstances of this case are extraordinary. [A.B.] freely and repeatedly expressed his consent to the petitioner’s use, following his death, of the Reproductive Material. He communicated his agreement to the petitioner's use of his stored sperm to the petitioner, to his social worker, to a nurse at the [content redacted] hospital where his [content redacted] was performed, to his family doctor, and to Genesis.
[132]     [A.B.] fully understood that the Reproductive Material would be used in accordance with his wishes to create an embryo, and would be used, following his death, by the petitioner to attempt to conceive a child.
[133]     One of the guiding principles of the AHRA is the promotion and application of free and informed consent as a fundamental condition for the use of human reproductive technologies. Another guiding principle, set out in s. 2(b), is that the benefits of the technology for individuals, families and society can be most effectively secured by appropriate measures for the protection and promotion of human health, safety and dignity. Here, [A.B.] and the petitioner sought to use the technology in order to have a child of their own. They took appropriate steps to ensure that the [content redacted] would not be passed to any child they conceived through in-vitro fertilization.  They consulted with medical specialists about the safe use of the technology.
[134]     To deny the petitioner the use of the Reproductive Material intended by [A.B.] would be both unfair and an affront to her dignity.
[135]     [A.B.] expressed his consent to the petitioner's use of the Reproductive Material after he had the benefit of professional counselling from his [content redacted] social worker, a nurse trained in [content redacted] fertility issues and his family doctor.
[136]     I conclude that in the circumstances of this case, [A.B.]'s consent, although not in writing, specifically contemplated the petitioner’s reproductive use of his stored sperm after his death, and was sufficient to satisfy the fundamental objective of the AHRA that the donor’s consent must be both free and informed.  Accordingly, the Court may order the release of the Reproductive Material to the petitioner to enable her use of that material for the purpose of creating an embryo.

Sunday, January 08, 2017

Sabey Rule LLP Welcomes Taeya Fitzpatrick

I am pleased to announce that Taeya Fitzpatrick joined our firm last week, on January 1, 2017. 

Before joining Sabey Rule LLP, Taeya practiced condominium and strata law with a boutique firm here in Kelowna, and recently successfully appealed a condominium law decision to the Court of Appeal, Terry v. The Owners, Strata Plan NW 309, 2016 BCCA 449, thereby assisting her client in having significant fines that a strata corporation had improperly levied rescinded. 

While continuing her condominium and strata law practice, Taeya is also working in the areas of wills, estate planning, estate administration and estate dispute resolution, as well as business law at our firm. 

Monday, January 02, 2017

Supreme Court of Canada Decision Takes a Narrow Approach to Rectification

The majority of the Supreme Court of Canada has construed the equitable power of the court to rectify a contract or other document relatively narrowly in a recent decision, Canada (Attorney General) v. FairmontHotels Inc. 2016 SCC 56.  

Fairmont Hotels Inc. and two subsidiaries sought to rectify a directors’ resolution in which the directors had redeemed certain shares, triggering a tax liability. The redemption was part of a number of transactions by the companies to finance the acquisition of two hotels. Both the Ontario Superior Court of Justice and the Ontario Court of Appeal had allowed rectification, finding that the parties had from the outset a continuing intention to structure the transactions in a tax neutral way. Those two Ontario Courts had applied a previous leading authority from the Ontario Court of Appeal, Juliar v. Canada (Attorney General),    46 O.R. (3d) 104, aff’d (2000), 50 O.R. (3d) 728. In Juliar the Ontario Court of Appeal held that a transfer of shares for a promissory note that triggered a tax liability could be rectified so that the transaction would be an exchange of shares for shares, with the effect of deferring tax, on the bases that the parties had a common continuing intention to avoid an immediate tax liability.

Canada appealed the decision allowing rectification in Fairmont, and Mr. Justice Brown for the majority of the Supreme Court of Canada, allowed the appeal, holding that Fairmont Hotels Inc. had not met the criteria for rectification. The majority found that the parties had not established that they had “reached a prior agreement with definite and ascertainable terms. “ It was insufficient for the parties to intend to structure their affairs in a tax neutral manner in order to rectify the transaction. The court may rectify a document that incorrectly sets out a specific agreement.

Mr. Justice Brown summarized the law on rectification as follows:

[38]                          To summarize, rectification is an equitable remedy designed to correct errors in the recording of terms in written legal instruments. Where the error is said to result from a mistake common to both or all parties to the agreement, rectification is available upon the court being satisfied that, on a balance of probabilities, there was a prior agreement whose terms are definite and ascertainable; that the agreement was still in effect at the time the instrument was executed; that the instrument fails to accurately record the agreement; and that the instrument, if rectified, would carry out the parties’ prior agreement. In the case of a unilateral mistake, the party seeking rectification must also show that the other party knew or ought to have known about the mistake and that permitting the defendant to take advantage of the erroneously drafted agreement would amount to fraud or the equivalent of fraud.
In this case, in the majority’s view, the facts did not permit rectification. As set out in paragraph 40,

The error in the courts below is of a piece with the principal flaw I have identified in the Court of Appeal’s earlier reasoning in Juliar. Rectification is not equity’s version of a mulligan. Courts rectify instruments which do not correctly record agreements. Courts do not “rectify” agreements where their faithful recording in an instrument has led to an undesirable or otherwise unexpected outcome. 

In dissent, Madam Justice Abella, for herself and Madam Justice Cote, would have dismissed the appeal, and upheld the orders allowing rectification. They considered that the majority applied rectification too narrowly, and that Canada Revenue Agency would be unjustly enriched if the parties were not allowed to rectify their mistake. 

Wednesday, November 30, 2016

Counting the Days: How to Calculate the Five-Day Survival Period in Section 10 of the Wills, Estates and Succession Act

Section 10 of the Wills, Estates and Succession Act provides for a 5-day survival before a person may inherit from another. For example, if in your will you leave your estate to your spouse, then she must survive you for a period of at least five days (although you may specify a longer survival period in your will).  Similarly, if you and your spouse hold your residence as joint tenants, then for either of you to acquire the whole of the property by right-of-survivorship, the survivor must outlive the other by at least five days. Otherwise, in the case of a joint tenancy, if both joint tenants die within five days of each other, then one-half interest passes through the estate of each co-owner.

Section 10 (1) and (2) read as follows:

10  (1) A person who does not survive a deceased person by 5 days, or a longer period provided in an instrument, is conclusively deemed to have died before the deceased person for all purposes affecting the estate of the deceased person or property of which the deceased person was competent to give by will to another.
(2) If 2 or more persons hold property as joint tenants, or hold a joint account, and
(a) in the case of 2 persons, it cannot be established that one of them survived the other by 5 days,
(i) one half of the property passes as if one person survived the other person by 5 days, and
(ii) one half of the property passes as if the other person referred to in subparagraph (i) had survived the first person referred to in subparagraph (i) by 5 days, and
(b) in the case of more than 2 persons, it cannot be established that at least one of them survived the others by 5 days, the property must be divided into as many equal shares as there are joint tenants or persons holding the joint account, and the shares must be distributed respectively to those persons who would have been entitled to a share in the event that each of the persons had survived.
How are the five days calculated?

The calculation of the five days was considered in reasons for judgment on November 1, 2016, in Todoruk v. British Columbia (Land Titleand Survey Authority), 2016 BCSC 2241. Mrs. Grant died without a will on January 12, 2016 at 4:12 am. She did not have a will. Her husband, Mr. Grant died on January 17 at 1:40 p.m. If he survived her for 5 days, then Mrs. Grant’s estate forms part of Mr. Grant’s estate, and will be distributed in accordance with his will. If not, then Mr. Grant would be considered to have died before her for the purpose of succession of her wealth, and would go to some of her relatives in accordance with the provisions for person’s dying without a will.

Mr. Justice Dley considered three different methods of calculating the time between their deaths as follows:

[7]            Mr. Lund [counsel for the executor of Mr. Grant’s will] submits that there are three ways to calculate the time between the respective deaths:
i) First is by counting the hours. That would result in five days nine hours 28 minutes;
 ii) Second, if clear days are counted, as expressed in s. 25(4) of the [Interpretation] Act, then January 13 becomes the first day and only four days had passed when Mr. Grant died; or
 iii) Third, if the calculation is not to be expressed in clear days, then s. 25(5) applies, with the exclusion of the first day but inclusion of the last day, resulting in an interval of five days.
Mr. Justice Dley rejected both the first method, involving counting hours, and the third method, requiring five clear days between the two deaths, and held that the second method applied. Accordingly, the date of Mrs. Smith’s death (January 12) is excluded in the calculation of the five days, but the date of death of Mr. Smith (January 17) is included on the basis that he was still alive on the fifth day.

In the result, Mr. Smith survived Mrs. Smith by necessary five days, and her estate will form part of her husband’s estate to be distributed in accordance with his will. 

Monday, November 28, 2016

British Columbia's New Societies Act Came into Effect Today

The Societies Act came into effect today, November 28, 2016. The new legislation has made significant changes to the governance of non-profit societies incorporated in British Columbia It replaces the Society Act (the "Old Act"), which is now repealed.

Over the next two years, societies are required to transition to the new Act. This will involve filing a non-profit society's constitution and consolidated bylaws. The constitution will now only include the society's name and purposes. Other provisions that used to be common in constitutions under the Old Act, such as provisions requiring that a society's assets be distributed to a charitable organization if the society is wound up, will be moved to the bylaws.

The Province of British Columbia has published a helpful guide to the transitions available here.

Tuesday, November 22, 2016

B.C. Supreme Court Considers Criteria for Section 151 Application in Bunn v. Bunn Estate

In a reasons for judgment issued on November 18, 2016, Madam Justice Gray considered the tests set out in section 151 of the Wills, Estates and Succession Act for allowing a beneficiary of an estate to bring a claim on behalf of the estate, and in the name of the deceased’s personal representative. The case is Bunn v. Bunn Estate, 2016 BCSC 2146, and the decision provides an indication that a successful application under this section may require the applicant to provide a significant amount of information concerning the merits of a claim, and sufficient evidence for the court to weigh the costs of proceeding with the potential benefits to the estate of doing so.  Although this is not the first reported decision on section 151, in the other case of which I am aware, Werner v. McLean, 2016 BCSC 1510, the application for an order under section 151 was not opposed, and, accordingly, the court did not need to consider the tests in depth.

Section 151 is a new provision that came into effect with the Wills, Estates and Succession Act, and I am not aware of any similar provisions in other Canadian provinces. Accordingly, this case may very well lay the foundations for future decisions in British Columbia.
This section provides as follows:

151  (1) Despite section 136 [effect of representation grant], a beneficiary or an intestate successor may, with leave of the court, commence proceedings in the name and on behalf of the personal representative of the deceased person
(a) to recover property or to enforce a right, duty or obligation owed to the deceased person that could be recovered or enforced by the personal representative, or
(b) to obtain damages for breach of a right, duty or obligation owed to the deceased person.
(2) A beneficiary or an intestate successor may, with leave of the court, defend in the name and on behalf of the personal representative of a deceased person, a proceeding brought against the deceased person or the personal representative.
(3) The court may grant leave under this section if 
(a) the court determines the beneficiary or intestate successor seeking leave
(i) has made reasonable efforts to cause the personal representative to commence or defend the proceeding,
(ii) has given notice of the application for leave to
(A) the personal representative,
(B) any other beneficiaries or intestate successors, and
(C) any additional person the court directs that notice is to be given, and
(iii) is acting in good faith, and
(b) it appears to the court that it is necessary or expedient for the protection of the estate or the interests of a beneficiary or an intestate successor for the proceeding to be brought or defended.
(4) On application by a beneficiary, an intestate successor or a personal representative, the court may authorize a person to control the conduct of a proceeding under this section or may give other directions for the conduct of the proceeding.
In Bunn, Jennifer Bunn, one of the beneficiaries of her mother’s estate, wished to bring a claim against her brother challenging a number of gifts and transactions made by their mother during the mother’s lifetime. The beneficiary alleged, among other things, that her brother obtained benefits by exercising undue influence over their mother.

She requested that her cousin, who was her mother’s executor, bring the claim on behalf of the estate, but he refused to do so. The executor reviewed the transactions and in his view, the transactions were done with the mother’s knowledge, and were not induced by the exercise of undue influence.

In this case,  Madam Justice Gray found that the applicant had made reasonable efforts to cause the executor to bring the claim, that she had given proper notice of the application to the executor and the beneficiaries, and that she was acting in good faith.

Madam Justice Gray considered the further requirements of the section, and looked at by analogy the jurisprudence in respect of derivative actions by shareholders on behalf of a company under the Business Corporations Act. She addressed the criteria for exercising her discretion as follows:

[48]         Both s. 151 of WESA and s. 233 of BCA give the court discretion as to whether to make the order sought by using the words that the court “may” grant leave.
[49]         As set out in Primex [Investments Ltd. v. Northwest Sports Enterprises Ltd. (1995), 13 B.C.L.R. (3d) 300 (S.C.), aff’d (1997), 26 B.C.L.R. (3d) 357 (C.A.)], an applicant for derivative leave must establish not only an arguable case, but also that the potential relief in the proposed action is sufficient to justify the inconvenience to the company of being involved in the action.
[50]         In my view, a proceeding may be “necessary” under s. 151 of WESA if the personal representative is unwilling or unable to proceed. It may be “expedient” if it is in the best interests of the estate.
[51]         In this case, the applicant is a beneficiary of the Estate and seeks the order under s. 151 of WESA on the basis that the claim, if successful, will increase the value of the Estate. In such a case, in my view, to satisfy the court that it should exercise its discretion to grant leave to commence litigation on behalf of the estate, the applicant must show not only that there is an arguable case, but also that the potential relief in the action is sufficient to justify the inconvenience to the estate of being involved in the action, and that proceeding is overall in the best interests of the estate. In my view, that must involve a consideration of the costs of proceeding, including the potential of a costs award against the estate if it fails. Further, in my view, in determining whether the proposed lawsuit appears to be in the best interests of the estate, the court can consider the strength of the proposed claim based on a limited weighing of the evidence.
[52]         I reject the argument made by the Proposed Defendants to the effect that the court should show deference to the views of the executor, and grant leave only if the executor is in a conflict of interest. The views of the executor and the basis of those views are simply a factor for consideration.
Madam Justice Gray then analyzed the evidence before her and the law in some depth (the analysis of undue influence provides a very clear treatment of the subject, but for the purpose of this post, I am focused on section 151).  She concluded that the applicant did not have an arguable case in respect of any of her claims.

But even if the applicant had persuaded the Court that she had an arguable case, Madam Justice Gray wrote that she would have required more information concerning the economic s of the litigation, including costs and potential benefit to the estate, before exercising her discretion to allow the applicant to bring the claim on behalf of the estate. She wrote,

[232]     Jennifer’s evidence does not set out a plan for the litigation. She has not provided an estimate of how much the litigation would cost to prosecute, or explained who she proposes would pay the prosecution costs initially and ultimately, or detailed what funds would be available from her or in the Estate to satisfy an award of costs in favour of Chris or Charters or both of them. In my view, the court should be provided with such evidence by an applicant for leave to commence an action on behalf of an estate.
[233]     If Jennifer had established an arguable case to challenge any of the transactions, and the Court were to consider whether the proposed litigation was in the best interests of Joyce’s Estate, the Court would require further information to determine whether the potential relief in the action would be sufficient to justify the inconvenience to the Estate of being involved in the action.
Madam Justice Gray dismissed the application.

This case indicates that to successfully make an application under section 151 a beneficiary will need to provide the court with ample materials to show that there is an arguable case, and to allow the court to weigh the costs and the benefits of allowing the beneficiary to bring a claim on behalf of the estate. 

Sunday, November 20, 2016

Finance Minster Morneau's Changes to Principal Residence Exemptions Create More Impediments to Good Estate Planning

On October 3, 2016, Finance Minster Morneau announced changes to the principal residence exemption which will in some circumstances create hardship for beneficiaries of trusts. The principal residence exemption allows you to shelter your principal residence from capital gains on the sale, provided you and the residence meet the necessary criteria under the Income Tax Act, Canada.

The change to the principal residence exemption that has garnered the most publicity, and which does not particularly concern me, is the requirement that the sale of a principal residence be reported on the seller’s tax return.

The changes that do concern me from an estate-planning perspective are the new restrictions on the ability to claim the principal residence exemption in a trust where a beneficiary is using the residence as a principal residence. It will only be available in certain circumstances for certain kinds of trusts, such as  an alter ego or joint partner trust, a testamentary trust that qualifies as a disability trust for a disabled beneficiary, and a trust created for a minor child if both of the minor child’s parents have died.

Here is part of the explanatory notes from the Department of Finance:

In the case where the taxpayer is a personal trust, a property does not qualify as the trust's principal residence for a taxation year unless the requirements in paragraph (c.1) of the definition are met. That paragraph includes the requirements that the trust designate, in prescribed form, the property as the trust's principal residence for the taxation year and that the designation identify each individual who in the taxation year is a specified beneficiary of the trust for the year. For this purpose, a specified beneficiary of a trust for a taxation year is an individual who in the taxation year is beneficially interested in the trust and who (or whose spouse or common-law partner, former spouse or common-law partner or child) ordinarily inhabits the housing unit in the taxation year.
Paragraph (c.1) is amended to introduce additional requirements in order for a property to qualify as a trust's principal residence for a taxation year that begins after 2016.  In general terms, these requirements are that the trust be an eligible trust one of whose beneficiaries (the "eligible beneficiary") is resident in Canada in the year and a specified beneficiary of the trust for the year. In addition, where the trust acquires the property on or after Announcement Date, the trust's terms must provide the eligible beneficiary with a right to use and enjoy the housing unit as a residence throughout the period in the year that the trust owns the property. Eligible trusts fall into three categories, although a trust may qualify as an eligible trust under more than one of the categories:

In the first case, an eligible trust is an alter ego trust, spousal or common-law partner trust, joint spousal or common-law partner trust, or certain trusts for the exclusive benefit of the settlor during the settlor's lifetime. In this case, the eligible beneficiary is the individual whose death (at any time after the start of the year) determines a day for the trust under subsection 104(4).  In effect, the eligible beneficiary must be, depending upon the type of trust, the trust's settlor, or the spouse or common-law partner or former spouse or common-law partner of the settlor. A joint spousal or common-law partner trust may have more than one eligible beneficiary for a taxation year.
In the second case, an eligible trust is a testamentary trust that is a qualified disability trust for the taxation year. In this case, the trust's eligible beneficiary must be an electing beneficiary under the trust for the year who is a spouse or common-law partner, former spouse or common-law partner or a child of the trust's settlor. The trust may have more than one eligible beneficiary for a taxation year.
In the final case, an eligible trust is a trust (inter vivos or testamentary) the settlor of which died before the start of the year. In this case, the eligible beneficiary must be a minor child of the settlor whose parents (i.e., the settlor and the other parent) are deceased before the start of the year. The trust may have more than one eligible beneficiary for a taxation year.
Here are a few examples of situations where the trust will not be able to claim a principal residence exemption.
  1. A parent creates a trust during the parent’s lifetime for a child with a disability, and the trust holds the child’s residence. Because the trust is not testamentary (not created by a will, or otherwise arising as a consequence of the parent’s death), the residence will not be eligible for the principal residence exemption. Worst, because of the deemed disposition of assets in a trust every 21 years, the child could lose her residence if there are no other funds available to pay the tax.
  2. Even if a trust described above were created by a will, it might not qualify if there is another trust in respect of the child that has already been designated as a qualified disability trust.
  3. A parent creates a trust in his or her will for a child who has had drug addiction problems in order to provide for the child, but also protect the child in case of a relapse. The trustee purchases a residence for the child but holds it in the trust in order to retain control. The residence will not qualify for the principal residence exemption.
  4. A parent, who was divorce from the other parent, leaves her residence to her minor child. The other parent lives with the minor child in the residence, thereby allowing the child who has lost a parent to remain in the same home. The residence will not qualify.

As far as I am aware the Minister of Finance did not consult with estate-planning professional organizations.  In previous posts, I criticized the Harper Government for some of its tax changes relating to estates and trusts, but it seems the assault on trusts, and good estate planning continue under the Liberal Government.