Saturday, November 22, 2014

Milne Estate v. Milne

Separation Agreements or court orders following marriage breakdown may include a clause requiring one former spouse to maintain a life insurance policy on his or her life, naming the other as the beneficiary. Life insurance is a good way to either secure spousal or child support payments, or to replace the payments, in case the former spouse required to pay support dies. But what happens if, contrary to the agreement or court order, the party required to maintain the life insurance cancels the policy or changes the beneficiary?

The Supreme Court of British Columbia recently considered this issue in Milne Estate v. Milne 2014 BCSC 2112. Following the breakdown of their relationship, Scott Milne agreed to maintain his $500,000 life insurance with Sherry Milne as the beneficiary for so long as he was required to pay child or spousal support to Ms. Milne. Mr. and Ms. Milne agreed to include this term in a consent court order. In breach of the order, Mr. Milne changed the beneficiary to his new partner, Albertina Vincente. Mr. Milne died on August 4, 2013, while still obligated to pay child support to Ms. Milne for their son.

Ms. Milne claimed that she was entitled to the insurance proceeds because Mr. Milne was in breach of the consent order. If she wasn’t entitled to the proceeds, then she claimed that she was entitled to the $500,000 she would have received if Mr. Milne had not changed the beneficiary out of his estate.

Madam Justice Fleming held that Ms.Vincente was entitled to retain the insurance proceeds, but that Ms. Milne was entitled to receive the $500,000 from Mr. Milne’s estate.

In denying Ms. Milne’s claim to the insurance proceeds, Madam Justice Fleming rejected her argument that because Mr. Milne was in breach of the consent order when he made Ms. Vincente his beneficiary, it would be against good conscience for Ms. Vincente to retain the proceeds, and that the court may impose a remedial constructive trust on the proceeds in favour of Ms. Milne.

Madam Justice Fleming found that the conditions set out by the Supreme Court of Canada in Soulos v. Korkontzilas, [1997] 2 S.C.R. 217, for a court to impose a constructive trust on the basis that it would be against good conscience to allow a party to retain property were not met. Those conditions are set out by Madam Justice McLachlin (now Chief Justice) at paragraph 45 of the judgment:

(1)   The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in his hands;

(2)   The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff;

(3)   The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties and;

(4)   There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., the interests of intervening creditors must be protected.

Madam Justice Fleming found that Mr. Milne’s relationship with Ms. Milne following the consent order was not of such a nature that the law imposes a high duty of loyalty on Mr. Milne to protect Ms. Milne. He was not a trustee or other fiduciary. That being the case, there was no basis for the Court to impose a good conscience constructive trust on the insurance proceeds.

Ms. Milne was successful in her claim against Mr. Milne’s estate, and Madam Justice Fleming awarded her $500,000 out of the estate to compensate her for Mr. Milne’s breach of the consent court order.

Although the reasons for judgment do not state the value of Mr. Milne’s estate, it appears that there will likely be substantial assets for Ms. Milne to recover the $500,000 judgement. But in other circumstances, a former spouse relying on support payments or life insurance proceeds in lieu of support if the payor former spouse dies, could be left with nothing if the courts will not impose a constructive trust on insurance proceeds. This will happen if the former spouse whose obligation it was to keep the other former spouse as the beneficiary dies leaving little or no estate from which to pay any judgement for failing to maintain the life insurance beneficiary designation. This may occur even if the now deceased had substantial assets, but structured his or her affairs so that they pass outside of the estate, such as by holding a residence and investment accounts in joint tenancies with a new partner.

Madam Justice Fleming was careful to leave open the possibility that the court might find that a separated or divorced spouse may have fiduciary duties to the other, but she found that the facts in this case did not warrant such a finding.

This decision is consistent with the Court of Appeal decision in Ladner v. Wolfson, 2011 BCCA 370, which Madam Justice Fleming applied in reaching her decision. But are British Columbia courts taking too narrow of a view when a constructive trust is available as a remedy?

The context in which the remedy of constructive trust s most often applied is unjust enrichment, which involves one party being enriched to another’s detriment, without any requirement that the enriched party had fiduciary duties to the other. In a case where there are insufficient assets in the estate to compensate the former spouse for the deceased’s wrongful conduct in changing a beneficiary of the life insurance, it seems to me that as between the wronged former spouse and the new beneficiary, the equities favour the former spouse. Settlements are the product of negotiations and trade-offs. Almost invariably the spouse for whose benefit the life insurance is to be maintained has given up something in return, while the proceeds are likely to be a pure gift to the new beneficiary. It may be that the former spouse has a claim in unjust enrichment, but even if not, surely the law is flexible enough for the courts to impose a constructive trust in these cases by analogy to both unjust enrichment and good conscience constructive trusts.

In practice, a separated spouse might own the life insurance on the other’s life and pay the premiums so that she or he can ensure that the life insurance is maintained for her or his benefit. Any spousal support or division of property could be adjusted to reflect the costs of the insurance.

Sunday, November 16, 2014

Uniform Trustee Act Provisions for Remuneration

The British Columbia Government appears to be considering passing new legislation modeled on the Uniform Conference of Canada, Uniform Trustee Act. As I wrote before, the Ministry of Justice was requesting comments on the Uniform Trustee Act.

Among the changes that may be brought by new legislations are changes relating to remuneration for personal representatives of estate, and trustees.

Currently, under section 88 of the Trustee Act, there is a statutory ceiling for the fees that personal representatives (executors of wills and administrators of estates) and trustees may charge of 5 per cent of the aggregate value of an estate or trust, including income and capital and a care and management fee of 0.4% of the average market value of the assets. This is a ceiling and in many cases the courts awards lower percentage based on the Judge’s or Registrar’s assessment of what amount is reasonable in all of the circumstances. It should also be noted that you can allow your personal representative or trustee to charge a higher percentage by sayings so in your will or trust or in a separate contract.

In contrast, the Uniform Trustee Act would not set a statutory ceiling on remuneration that a court may award. Instead, the Uniform Trustee Act sets out the factors that the Judge or Registrar may consider. The Uniform Trustee Act would preserve the right of a will-maker or settlor of a trust to determine the amount of compensation by will, by the trust agreement, or by contract.

The Uniform Trustee Act would permit a personal representative or trustee who is a profession to charge fees for professional services in addition to remuneration for acting as the personal representative or trustee. This would change the law in British Columbia. Currently unless expressly permitted in the will or trust, a lawyer or other professional acting as a personal representative or trustee may not charge professional fees in addition to remuneration for acting as a personal represent or trustee unless the will or trust expressly authorizes professional fees.

Section 64 of the Uniform Trustee Act reads as follows:

64 (1) A person is entitled to fair and reasonable compensation to be paid out of the trust property for services rendered as trustee of the trust.
(2) As part of the compensation to which a trustee is entitled under subsection (1), a trustee who
(a) has professional skills, and
(b) has rendered services to the trust, apart from those generally associated
with the office of trustee, that required the exercise of those professional
is entitled to charge fees at reasonable rates for those services that are reasonably necessary for the purpose of carrying out the trust.
(3) The trustees of a trust are not presumed to be entitled to equal compensation under subsection (1).
(4) On application by a trustee during the administration of the trust or on the passing of accounts, the court may determine the amount of compensation to which the trustee is entitled under subsection (1).
(5) In determining a trustee’s compensation, the court may consider the following:
(a) the gross value of the trust property at the time compensation is claimed;
(b) any change in the gross value of the trust property since compensation was last claimed or the trust was created and the portion of that change attributable to decisions of the trustee;
(c) the amount of revenue received and expenditures incurred in administering the trust;
(d) the complexity of the work involved in administering the trust, including whether or not any difficult or unusual questions were raised;
(e) any unusual difficulties or situations encountered in administering the trust;
(f) whether or not the trustee had to instruct on litigation relating to the trust;
(g) whether or not the trustee was required to manage a business, be the director of a corporation or perform other additional roles in administering the trust;
(h) the amount of skill, labour, responsibility, technological support and specialized knowledge required in administering the trust;
(i) the number and complexity of tasks relating to the administration of the trust that were delegated to others;
(j) the time expended in administering the trust;
(k) the number of trustees.
 (6) A trustee may make an application under subsection (4) even if the trust instrument provides for the determination of the amount of compensation.
(7) Subsection (4) does not authorize the variation of a contract, with respect to compensation between a settlor and a trustee, that is not part of the trust instrument, whether or not the contract is incorporated by reference in the trust instrument.

Section 65 would allow a personal representative or trustee to receive interim remuneration before the amount is approved by the beneficiaries or the court provided that at least one beneficiary is a capacitated adult. The personal representative or trustee must give notice to “qualified beneficiaries,” which means beneficiaries with a vested interest in the estate and trust, and any contingent beneficiaries who have given notice that they wish to be included as qualified beneficiaries. If the Court ultimately approves a lower amount of remuneration, then the personal representative or trustee must repay the difference (section 68).

Saturday, November 08, 2014

Are Future Payments from a Trust Created by Will Available to the Creditors of a Bankrupt?

If you make a will leaving your estate to your child, and after your death, your child is assigned into bankruptcy, then your child’s inheritance from you will be available to his or her creditors. That’s not too surprising.

But what if the will provides that your child is to receive her inheritance in stages, with so much payable when she reaches a certain age, more payable and a later age, and all of it payable at a later age still? After your death, but before she has reached the age to receive the full amount of her inheritance, she is assigned into bankruptcy. Will her trustee in bankruptcy be entitled to the future payments for the benefit of her creditors?

This issue was considered by Master Baker in re Bolt Estate, 2014 BCSC 2095.

Vesta Bolt died in 1994. In her will, which she made in the year of her death, she left most of her estate in trust for her daughter, Jody Bolt. The terms of the trust provided that her daughter would receive income from the trust, one-quarter of the capital when she attained the age of 26, one-quarter at the age of 35 and the balance at the age of 45. If she died before attaining the age of 45, whatever was left in the trust would go to her descendants per stirpes (equally among her children, and if a child died before her, the children of that deceased child would receive the deceased child’s share).

In January 2014, before attaining the age of 45, Ms. Jody Bolt made an assignment in bankruptcy. There remains a little over $96,000 in the trust created by her mother’s will She argued that future payments from the trust were not property available to her creditors.

Her trustee in bankruptcy took the contrary position that the future payments were available to her creditors, pointing to the definition of property in section 2 of the Bankruptcy and Insolvency Act:

“property” means any type of property, whether situated in Canada or elsewhere, and includes …every description of property, whether real or person­al, legal or equitable, as well as …every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property….

Master Baker agreed with the trustee in bankruptcy’s submissions. Ms. Bolt as a beneficiary of her mother’s will has a contingent interest in the remaining assets of the trust, which falls within the above-quoted definition of property available to her creditors.

The future payments were not exempted in either the Bankruptcy and Insolvency Act, or the Court Order Enforcement Act.

However, because her interest in the remaining capital of the trust is contingent on her attaining the age of 45, the trustee in bankruptcy will also have to wait until she attains that age before the trustee in bankruptcy can receive those funds to distribute to the creditors. The trustee in bankruptcy can have no greater right to the funds than she. If she died before attaining the age of 45, the remaining capital of the trust would go to her children pursuant to her mother’s will.

In this case, it is very doubtful that the will-maker would have contemplated her daughter’s bankruptcy twenty years after the will-maker’s death. But what can you do if you have a child, or other person you wish to benefit, who is either in bankruptcy or in such financial difficulty that you can see a significant risk that after your death, he will be bankrupt?

One option is to create a discretionary trust in your will for your child and his family. You select a trustee for your child’s trust, and the terms of the trust provide that your trustee can decide if an when to make payments to your child, his spouse, his children and other descendants, and whoever else you wish to include among the potential beneficiaries. In these circumstances, you would not select your child as the trustee. If, after your death, your child is assigned into bankruptcy, your trustee need not make payments to your child, but instead can assist his family by making payments to or for the benefit of his spouse or children. Even if your child’s interest is considered “property” under the Bankruptcy and Insolvency Act, it is arguably of little or no value, your child’s interest being subject to the exercise of your trustee’s discretion. 

Wednesday, October 29, 2014

Dempsey v. British Columbia

British Columbia's Property Transfer Tax Act is an incoherent, and at times absurd, taxation statute. Apart from the dubious economic and social policy of a tax that adds to the cost of housing in the province with the least affordable housing in Canada, there is little rhyme or reason to the types of transactions that are taxed, and those that are exempt.

In very broad strokes, the Property Transfer Tax Act taxes transfers of real estate based on the value of the property, with the first $200,000 of the fair market value taxed at one per cent and the value above $200,000 at two per cent. In many cases the tax will reflect the sale price of real estate between a buyer and seller of a piece of real estate.

But title to real estate may also be changed in circumstances other than a sale, for example as a gift between family members, or to a trustee as part of an estate plan. The Property Transfer Tax Act does have a variety of exemptions from the tax, including some that facilitate transfers between family members either as gifts or for estate planning. The problem is that these exemptions are tightly pigeon holed, and unless a transfer falls squarely within a pigeon hole, the transferee in a non-market transaction may be caught by a significant tax. The narrowness of the exemptions demonstrates little understanding of the nuances of estate planning on the part of the legislators.

The provisions considered in the recent decision of the Supreme Court of British Columbia in Dempsey v. British Columbia, 2014 BCSC 1977, illustrate my point. I should say at the outset that I do not take issue with the reasoning of the Court in this decision, but rather with the absurdity of the legislation when viewed in light of the facts of this case.

Ms. Rita Dempsey settled a trust, which held title to her residence in Victoria. She was also the trustee and a beneficiary of the trust. She later resigned as trustee, replaced by her daughter. She transferred title to the residence from her name to her daughter’s name as trustee. The transfer was exempt under section 14(4) (q) as a transfer from one trustee to another without a change of beneficiaries. 

Later Ms. Dempsey’s daughter as trustee transferred the residence into Ms. Dempsey’s name as beneficiary of the trust. The decision does not set out the reasons for the transfer, but there are many good reasons why a trustee might transfer the title out of the trust to a beneficiary including perhaps to facilitate a change in the estate plan or to allow the residence to qualify for a deferral of property taxes. Whatever the reason for the transfer in this case, no funds change hands, and Ms. Dempsey continues to live in the residence that is now again in her name, but no longer in trust.

Unfortunately, and unfairly, the Government of British Columbia seized the opportunity to charge Ms. Dempsey $7300 in property transfer tax.

Ms. Dempsey through her lawyer argues that this transaction falls within an exemption, section 14(3)(b) which says:

14 (3) If a taxable transaction entitles the transferee, on compliance with the Land Title Act, to registration in a land title office, that transferee is exempt from the payment of tax if the taxable transaction is a transfer within any of the following descriptions:

(b) a transfer from a transferor who is not a trustee referred to in paragraph (c), (d) or (e), to a transferee who is a related individual, if the land transferred has been the principal residence of either the transferor for a continuous period of at least 6 months immediately before the date of transfer or of the transferee for that period;
If the section appears to you to be confusing, that is because it is.

If the trust had not been registered, and the transfer had simply been from Ms. Dempsey’s daughter to Ms. Dempsey, the transfer would have been exempt as a transfer of a principal residence to a related individual. (As an aside, be careful with these terms, as a principal residence under this statute is not the same thing as a principal residence under the Income Tax Act, Canada.)

But Ms. Dempsey was on title as a trustee, so the question was how to interpret the phrase “not a trustee referred to in paragraph (c), (d) or (e)….” Those subsections are themselves exemptions, with (c) an exemption for certain transfers of property from the trust of an estate or trust to beneficiary who is a related individual to the will maker, (d) an exemption for certain transfers of property from a trustee to a beneficiary if the beneficiary is a related individual to the settlor of the trust, and (e) another exemption for certain transfers from a trustee to a beneficiary of a trust who is a related individual of the settlor.

Section (d), for example, exempts,

(d) a transfer from a transferor who is a trustee of a trust that is settled during the lifetime of the settlor and who is registered in that capacity under the Land Title Act as the trustee of the land transferred, if
(i)     the transferee is a beneficiary of the trust,
(ii)    the transferee beneficiary is a related individual of the settlor of the trust, and
(iii)  the land transferred is a recreational residence or was the principal residence of either the settlor for a continuous period of at least 6 months immediately before the date of transfer or of the transferee beneficiary for that period;

Ms. Dempsey argued that because the transaction did not meet all of the criteria in any of the three subsections (c ), (d) or (e), her daughter was not a trustee referred to in those subsections, and accordingly, the trustee exception to the exemption did not apply. The Province argued that only words in each of those sections describing a trustee applied. For example, in (d) the words “a trustee of a trust that is settled during the lifetime of the settlor and who is registered in that capacity under the Land Title Act as the trustee of the land transferred” are to be read into the definition of trustee in 14(3)(b), but not the rest of the subsection set out in (i), (ii) and (iii).

Madam Justice Gray held that the Province of British Columbia’s interpretation is correct, and accordingly, the transaction is subject to the property transfer tax. 

She wrote at paragraph 46:

[46]         I am left with the lingering question of why this kind of transaction would be taxed, but in my view I must apply the words of the statute if they are clear and unambiguous. In my view, they are clear and unambiguous.
Ms. Dempsey was both the settlor of the trust, and the beneficiary. You might wonder why this transfer is not exempt under subsection 14(3)(d). Very simply, under the Property Transfer Tax Act, Ms. Dempsey is not related to herself.

Thursday, October 16, 2014

Continuing Legal Education Society Presentation on "Reining in the Rogue Trustee/Executor"

I am going to be speaking at the Continuing Legal Education Society course, Estate Litigation Update - 2014, next week on Thursday, October 23, 2014 at the Pan Pacific Hotel, 999 Canada Place, Vancouver, B.C. the course goes from 9:00 am to 4:00 pm, and is part of a two-day wills, estates and trusts conference beginning Wednesday. My topic will be "Reining in the Rogue Trustee/Executor."

Registration is through the Continuing Legal Education Society of British Columbia.

The agenda is as follows:

Welcome and Introduction
Wills Variation Update
  • recent cases
  • recent trends related to awards of costs
  • WESA transition
  • abatement of settlement
Hugh S. McLellan — McLellan Herbert, Vancouver
When Good Planning is not Enough
  • when is a good estate plan no longer “bullet proof”
  • strategies to set aside estate plans to disinherit
  • Mordo, Mawdsley and Easingwood  issues
Peter J. Glowacki — Borden Ladner Gervais LLP, Vancouver  
M. Scott Kerwin — Borden Ladner Gervais LLP, Vancouver
Networking Break
Mediation/Arbitration/Settlement Conferences
  • using the best process in the appropriate case
  • preparation for the proceeding
  • promoting a consent resolution—what works
  • documenting the settlement
The Honourable Marion J. Allan — Clark Wilson LLP, Vancouver
Roger D. Lee — Davis LLP, Vancouver
Solicitor-Client Privilege—What Does that Mean in Estate Litigation
  • how to secure a lawyer’s file in estate litigation
  • who holds the privilege and who can waive it
  • what attack can be made when the file is released
Scott Cordell — Killam Cordell Murray, Vancouver
Networking Lunch 
Rectification of Trusts and Wills
  • how can applications for rectification be made
  • the applicable law—when it works and when it doesn’t
  • other options
Amy D. Francis — Legacy Tax + Trust Lawyers, Vancouver
Ian Worland — Legacy Tax + Trust Lawyers, Vancouver
Reining in the Rogue Trustee/Executor
  • what conduct warrants removal or other relief
Stanley T. Rule — Sabey Rule LLP, Kelowna
Using Unjust Enrichment as a Remedy in Estate Litigation
  • current state of the law
  • when is this remedy most effective to plead
  • elements of unjust enrichment
  • joint family ventures after Kerr v. Baronow 2011 SCC 10
Andrew S. MacKay — Alexander Holburn Beaudin + Lang LLP, Vancouver
Networking Break
The Family Law Act in Trust and Estate Litigation
  • the interplay between the FLA and WESA
    • loss of estate rights upon spousal separation
    • what constitutes separation
  • “family violence” under the FLA: a new tool in relation to vulnerable adults?
Anna Laing — Fasken Martineau DuMoulin LLP, Vancouver
Protecting Vulnerable Adults
  • the PGT’s role
  • the new provisions under the Adult Guardianship Act
  • available community resources
Leanne Dospital — Regional Manager, Services to Adults, Public Guardian and Trustee of BC, Vancouver
Sarah Watson — Solicitor to the Public Guardian and Trustee, Services to Adults, Public Guardian and Trustee of BC, Vancouver

Monday, October 13, 2014

John Poyser’s Capacity and Undue Influence

John E. S. Poyser has written a remarkable textbook, Capacity and Undue Influence, published this year by Thomas Reuters Canada Limited. The book is about gratuitous wealth transfers including by will, beneficiary designations, through jointures, inter vivos trusts and gifts directly to beneficiaries. Mr. Poyser does not deal with (or purport to deal with) capacity for other legal transactions, such as contracts, except peripherally to assist in explaining capacity to make testamentary and inter vivos gifts.

If, by focusing on gratuitous wealth transfers, the topic is narrower than the book’s title might imply, it is also much richer. In addition to discussing the criteria for capacity to make a will, Mr. Poyser also discusses the requirements of knowledge of approval of the contents of a will, including the doctrine of righteousness, in considerable depth. Estate litigators will be familiar with challenges to inter vivos gifts on the basis of undue influence, including claims founded on relationships of dependence or potential dominance, but how about challenges based on unconscionable bargains and unconscionable procurement? Although unconscionable bargains may be more closely associated with contracts, Mr. Poyser explains the principles and their applicability to gratuitous gifts. Unconscionable procurement? I had never heard of it before. Although perhaps the doctrine is a bit dusty, Mr. Poyser makes a good case that unconscionable procurement is applicable in modern times.

Estate disputes are chock-full of presumptions: of capacity, of knowledge and approval, of undue influence. What are they really, and what are their implications? Mr. Poyser offers common-sense explanations that they are usually evidentiary in nature, that they do not change the legal burden, and that they are indeed founded on common sense (I think the expression “common sense” appears more often in the book than any other). To paraphrase, the presumption that a person has capacity to make a will reflects that most people do in fact have that capacity. It is only if there is other evidence that comes to light of suspicious circumstances, such as that the will maker was diagnosed with dementia, that the court needs to look further.

Mr. Poyser articulates a coherent analysis of capacity to make gratuitous wealth transfers, whether by will, beneficiary designation, or inter vivos transfer. In its broadest the test is as set out in Ball v. Mannin, (1829) 4 E.R. 1241, that a person must be “ capable of understanding what he did by executing the deed in question when its general purport was fully explain to him.”

The courts have developed more detailed criteria for making a will, following the famous words of Chief Justice Cockburn, in Banks v. Goodfellow, (1870), L.R. 5 Q.B. 549 at 565:  

It is essential to the exercise of such a power that a testator shall understand the nature of the act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties — that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not been made.

Mr. Poyser neatly dissects the criteria set out in the above-quoted passage. He also makes the case that the level of capacity to make a will or codicil may vary depending on the specific document. A very complex will may require a higher level of functioning than a simple one. Making a codicil that only changes the executors, or that makes a small gift relative to the will-maker’s wealth, might not require that the will maker fully meet the criteria in Banks v. Goodfellow.

In reading the cases, I have always found it difficult to find a clear articulation of the criteria for capacity to make inter vivos gifts. Some courts have said that the level of capacity is lower than the capacity to make a will, which I have never found very satisfactory.

Mr. Poyser’s makes an overwhelming case that the requisite capacity is not related to whether a gift is inter vivos or by will, but rather capacity is transaction specific. Someone who wishes to make a gift of all or most of his assets during his lifetime, effectively depriving the beneficiaries of his will of his estate, needs to meet the full Banks v. Goodfellow criteria. Indeed, the donor would also have to appreciate the effect of giving away his property on his own future financial security to have capacity to make the gift. On the other hand, someone making a trifling gift need only have a limited capacity to understand that she was giving something of small value to the beneficiary. Because of the small impact on the donor and her estate plan, she would not have to have the same level of comprehension as making a will disposing of everything. Intermediate gifts require intermediate levels of mental functioning.

In light of the recent change in legislation in British Columbia affecting challenges to wills in which undue influence is alleged, by creating a presumption of undue influence if it is shown that the person alleged to have exercised undue influence was in a position where the potential for dependence or domination of the will maker was present, I was particularly interested in Mr. Poyser’s discussion of the difference between undue influence in will challenges and undue influence in respect of inter vivos gifts.

Mr. Poyser considers inter vivos undue influence as a separate doctrine from testamentary undue influence. The presumption, which was recently changed in British Columbia, is but one of the differences between challenging a will and challenging an inter vivos gift on the basis of undue influence.

To successfully challenge a will, or gift in a will, on the basis of undue influence, the attacker must prove on a balance of probabilities that someone exercised undue influence over the will maker, the result of which was that the will maker made a will or gift in the will against his or her own true wishes. Undue influence in this context is a form of coercion. It may be proven by circumstantial evidence, but actual undue influence must be shown. If proven, the will or gift in the will is void. 

Mr. Poyser traces the development of inter vivos undue influence, which, in contrast, to undue influence in the wills context, flows out of equity. Where the person who has received a significant inter vivos gift was in a relationship with the donor where he or she was in a position to dominate the donor, then a presumption of undue influence arises. Furthermore, where such a relationship is present, the type of pressure required to set aside the gift on the basis of undue influence may be milder, particularly if the donor is vulnerable.  The underlying premise of inter vivos undue influence is to protect donors from victimization. If the person attacking the transfer succeeds on the basis of equitable undue influence, the transfer is voidable, rather than void, and the person benefiting may raise equitable defences to the claim such as those based on unreasonable delay in pursing a claim.

This may have implications for British Columbia’s new provision in section 52 of the Wills, Estates, and Succession Act, mentioned above, which imports the burden of proof in will challenges from inter vivos undue influence where there is a potential for dependence or domination. However, section 52 does not expressly import the full equitable doctrine. Apart from the burden on the person found to be in a special relationship to show that he or she did not exercise undue influence over the will maker, what relevance will the principles of inter vivos undue influence have in British Columbia to will challenges based on undue influence? Section 52 just came into effect this spring, but perhaps there will be cases considering section 52 to provide fodder for Mr. Poyser’s next edition.

Mr. Poyser thoroughly canvasses the Canadian cases on wealth transfers, including leading appellate and illustrative trial decisions. He also has included analysis of leading English cases, including fairly recent decisions, as well as some leading cases from other common law jurisdictions, particularly Australia and New Zealand. For estate litigation lawyers, the book provides an easy source for broadening research beyond their own jurisdictions.

For solicitors, I particularly recommend Chapters 12 and 13, “Controlling for Capacity During Planning,” and “Controlling for Other Types of Challenges.”  These chapters offer analysis of a solicitor’s role when capacity may be in doubt or there are concerns about possible undue influence or other challenges. Mr. Poyser offers some interesting ideas about what a solicitor ought to do when there may be doubts about capacity. Of course, conduct a thorough interview, without potential beneficiaries present, and make good notes. But Mr. Poyser’s suggestions go well beyond that. He has some suggested questions. Consider a separate retainer to assess capacity. He provides some sample letters to physicians, some of which are quite extensive, requesting opinions on capacity. 

Mr. Poyser has an insightful and provocative discussion about whether the solicitor should go ahead with a will for a client whose capacity is in a grey area, and what further steps the solicitor might take to identify any concerns about capacity.

Great legal textbooks both reflect the law and affect its development. Capacity and Undue Influence reflects the law well. In time it seems quite likely that it will, as my other favourite legal textbook, Waters’ Law of Trusts in Canada (now in its fourth edition) has done, affect the future development of the law as well.

John Poyser is both a partner in the Winnipeg law firm Tradition Law LLP and a principal of the Wealth and Estate Law Group in Calgary. He is also a co-author with Larry H. Frostiak and Grace Chow of Taxation of Trusts and Estates: APractitioner's Guide 2014, Carswell.

Thursday, October 02, 2014

Supreme Court of Canada Strikes down British Columbia’s Court Hearing Fees!

I don’t use exclamation marks often. This may be the first one in my blog. But I am very pleased with the decision of the Supreme Court of Canada released this morning in The Trial Lawyers Association of BritishColumbia v. British Columbia (Attorney General), 2014 SCC 59, holding that British Columbia’s court hearing fees are unconstitutional by effectively denying access to people to superior courts, contrary to section 96 of the Constitution Act, 1867.

Chief Justice McLachlin, writing for the majority, held that although the province may impose hearing fees under section 92 (14) of the Constitution Act, 1867, those fees must not impinge on the core jurisdiction of superior courts by effectively barring access. She wrote at paragraphs 35 and 36:

[35]                          Here, the legislation at issue bars access to the superior courts in yet another way ― by imposing hearing fees that prevent some individuals from having their private and public law disputes resolved by the courts of superior jurisdiction ― the hallmark of what superior courts exist to do. As in MacMillan Bloedel, a segment of society is effectively denied the ability to bring their matter before the superior court.
 [36]                          It follows that the province’s power to impose hearing fees cannot deny people the right to have their disputes resolved in the superior courts.  To do so would be to impermissibly impinge on s. 96  of the Constitution Act, 1867 .  Rather, the province’s powers under s. 92(14)  must be exercised in a manner that is consistent with the right of individuals to bring their cases to the superior courts and have them resolved there.

The Chief Justice of Canada also considered the underlying values implicit in our constitution of the rule of law:

[38]                          While this suffices to resolve the fundamental issue of principle in this appeal, the connection betweens. 96  and access to justice is further supported by considerations relating to the rule of law. This Court affirmed that access to the courts is essential to the rule of law in B.C.G.E.U. v. British Columbia (Attorney General), [1988] 2 S.C.R. 214.  As Dickson C.J. put it, “[t]here cannot be a rule of law without access, otherwise the rule of law is replaced by a rule of men and women who decide who shall and who shall not have access to justice” (p. 230).  The Court adopted, at p. 230, the B.C. Court of Appeal’s statement of the law ((1985), 20 D.L.R. (4th) 399, at p. 406):
   . . . access to the courts is under the rule of law one of the foundational pillars protecting the rights and freedoms of our citizens.  . . . Any action that interferes with such access by any person or groups of persons will rally the court’s powers to ensure the citizen of his or her day in court.  Here, the action causing interference happens to be picketing.  As we have already indicated, interference from whatever source falls into the same category.  [Emphasis added.]
As stated more recently in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, per Karakatsanis J., “without an accessible public forum for the adjudication of disputes, the rule of law is threatened and the development of the common law undermined” (para. 26). 
[39]                          The s. 96  judicial function and the rule of law are inextricably intertwined. As Lamer C.J. stated inMacMillan Bloedel, “[i]n the constitutional arrangements passed on to us by the British and recognized by the preamble to the Constitution Act, 1867 , the provincial superior courts are the foundation of the rule of law itself” (para. 37). The very rationale for the provision is said to be “the maintenance of the rule of law through the protection of the judicial role”: Provincial Judges Reference, at para. 88. As access to justice is fundamental to the rule of law, and the rule of law is fostered by the continued existence of the s. 96  courts, it is only natural that s. 96  provide some degree of constitutional protection for access to justice.
[40]                          In the context of legislation which effectively denies people the right to take their cases to court, concerns about the maintenance of the rule of law are not abstract or theoretical. If people cannot challenge government actions in court, individuals cannot hold the state to account ― the government will be, or be seen to be, above the law.  If people cannot bring legitimate issues to court, the creation and maintenance of positive laws will be hampered, as laws will not be given effect.  And the balance between the state’s power to make and enforce laws and the courts’ responsibility to rule on citizen challenges to them may be skewed: Christie v. British Columbia (Attorney General), 2005 BCCA 631, 262 D.L.R. (4th) 51, at paras. 68-9, per Newbury J.A.
The majority rejected the remedy of the British Columbia Court of Appeal to give discretion to the court to relieve those who are “in need” as well those who are “indigent” or “impoverished” from payment of the fees. The Chief Justice wrote:
[66]                          “Reading in” is a remedy sparingly used, and available only where it is clear that the legislature, faced with a ruling of unconstitutionality, would have made the change proposed:  Schachter v. Canada, [1992] 2 S.C.R. 679.  I am not satisfied that this condition is met here.  The legislature or Lieutenant Governor in Council has a number of options, from abandoning or modifying the hearing fee to changing the exemption provision.  Moreover, any expansion of the exemption provision will be at odds with the legislative objective of deterring use of the courts.  “Reading in” to cure the constitutional defect of the hearing fee scheme would defeat the purpose of the legislation.
[67]                          I would also note that modifying the exemption as suggested by the Court of Appeal might still not cure the problem; it is not clear that the term “or in need” will cover all litigants who cannot afford the hearing fee and other provisions might be required in order to avoid the onerous or undignified process of proving that one falls within the exception.
Mr. Justice Cromwell, while concurring in the result, did so on narrower grounds, holding that the fees exceeding the regulation powers of the Court Rules Act by defeating the common law rights of access to the courts.
Mr. Justice Rothstein dissented, and would have upheld the constitutionality of the fees.
The Supreme Court of Canada restored Mr. Justice McEwan’s decision in the Supreme Court of British Columbia, and the majority decision largely adopted his reasoning. His decision is an eloquent statement of the underlying principles of our democratic society. As I quoted in my previous post on his decision:
[346]     There are several fundamental concepts embedded in these observations. A society that is governed by democratic principles is a society governed by the rule of law, the principle that the law applies to every person including the government and its agents. The right to vote is an incident of citizenship, and the laws consequent upon the exercise of that franchise apply to everyone within the jurisdiction of Parliament or the pertinent legislature. The courts operate in “functional symbiosis” with the legislative branches of government in fulfilling the purposes of democracy. Self-government clearly implies a process that begins with the law as it is or as it has been made by legislatures and includes the elaborations of the courts. Those elaborations, even in mundane matters, inform and enrich the law. As Resnick and Curtis note, the court is a public forum in which individuals may call the powerful, including governments, to account, compelling them to meet as equals. In the courts, cases are determined without regard to the distributions of power or wealth and influence that otherwise prevail in society. For this reason each case must be given the attention it requires, however small it may appear to be. The law is replete with examples of apparently inconsequential disputes which led to major changes or developments in the law, the most famous of which is arguably Donoghue v. Stevenson, [1932] A.C. 562.
 [347]     Seen in this light, a court whose most frequent litigant controls and limits its availability to those who seek its assistance or protection is a court whose essence as a forum within the continuum of democratic lawmaking is compromised. The court is a forum in which minority rights, the values of inclusiveness, equality and citizen participation, and the constitutional commitment to the inherent worth and dignity of the individual, spoken of in SauvĂ©, are publicly advanced and vindicated. To the extent that government imposes limitations to deter or prevent litigants from seeking recourse to the courts, it undermines a fundamental premise of civil society: that there will be a place for everyone for the peaceful resolution of contentious issues according to law. To the extent the government imposes limitations on those who seek redress against government itself, it undermines its own accountability and legitimacy, and the rule of law itself. This is how the court is a core functional attribute of democracy. The Supreme Court’s observation in SauvĂ© that there is “no place” for the theory that elected representatives may disenfranchise a segment of the population in a democracy built on principle of inclusiveness, equality and citizen participation, must logically apply to legislation having the effect of depriving people of the means of vindicating their rights through the courts.

I recommend reading his complete decision here.
I wrote about the Supreme Court of British Columbia decision here, and the Court of Appeal decision here.