Sunday, June 07, 2009

Chinn v. Hanrieder

[Since writing this post, the decision in this case was varied by the B.C. Court of Appeal which held that a secret trust did not arise, but upheld the trial judge's finding that there was an enforceable agreement between the Ms. Hanrieder and Mr. Hanrieder's chidlren. See my post on the Court of Appeal decision here]

Hugo Hanrieder wanted to leave some mineral rights in Saskatchewan to his two children, Bette Chinn and Dennis Hanrieder, who were the children from his first marriage.

He also wanted to his interest in his house, Registered Retirement Savings Plans and life insurance, and personal effects to go to his wife, Ingrid Hanrieder. He wanted his other assets to be held in trust for the benefit of his wife, and two children. This was his second marriage.

In April, 1989, Hugo Hanrieder instructed his lawyer to draft a will reflecting his intentions.

But, as his lawyer discovered, Hugo Hanrieder did not then have the legal right to leave his interest in the mineral rights to his children. Those mineral rights were held by him as a trustee of a trust settled by his mother in 1973 for the benefit of him and his siblings. The terms of the trust provided that on his death, his interest in the mineral rights would go to his spouse. He would need to get all of the beneficiaries of the trust to agree to change the trust agreement in order to obtain the right leave the mineral rights to his children, something that would be costly and inconvenient.

After he found out that he could not leave the mineral rights to his children, he told each of them in his wife’s presence of his intention that they, his children, would receive the mineral rights on his death. According to Dennis Hanrieder, when his father told him about what he wanted to do with the mineral rights, Ingrid Hanrieder said “I have no interest in them. I have money of my own.” Bette Chinn said that after her father told her of his intentions concerning the mineral rights, she asked Ingrid Hanrieder if that was okay. Ingrid Hanrieder said it was.

When Hugo Hanrieder and Ingrid Hanrieder bought a condominium in 1993, and instructed the lawyer handing the purchase to register the condominium in both of their names as joint tenants.

After Hugo Hanrieder’s death on December 8, 1997, Ingrid Hanrieder found out that their condominium had been registered in their names as tenants in common rather than as joint tenants. As a surviving joint tenant, Ingrid Hanrieder would have been entitled to transfer the title of the house into her sole name. But if the house were held as tenants in common, Hugo Hanrieder’s interest would fall into his estate to be dealt with under his will, in which case the children would have an interest in the house.

In May, 1998, Ingrid Hanrieder’s lawyer asked Hugo Hanrieder’s children to release any interest they might have in the house to allow it to go into Ingrid Hanrieder’s sold name. They agreed, but asked in return, for Ingrid Hanrieder to transfer her interest in the mineral rights to them. She agreed.

Until then, the mineral rights generated very little income.

After agreeing to transfer the mineral rights, Ingrid Hanrieder received a letter from Chevron Canada Resources advising that the mineral rights were now producing. Chevron advised that they would be paying back royalties of $43,500.

Ingrid Hanrieder refused to transfer the mineral rights to the children, and denied that she ever agreed to do so.

The children sued, alleging that Ingrid Hanrieder held the mineral rights in a secret trust for them, and that she had breached her agreement to transfer the rights to them.

What is a secret trust?

Much of the case law on secret trusts arise out of wills. The testator of the will provides a gift in the will to person A, intending that she hold it or give it to person B. On the face of the will, person A is entitled to the gift. There is no mention of person B in the will. Therefore, the trust is said to be a “secret trust.”

To succeed, the children would have to prove that their father intended for Ingrid Hanrieder to give the mineral rights to his children, that he communicated his intentions to her, and that she accepted the obligation to give the mineral rights to his children.

In Chinn v. Hanrieder, 2009 BCSC 635, Madam Justice Loo held that Hugo Hanrieder created a secret trust for the benefit of his children. She also held that Ingrid Hanrieder had made and broke her agreement with the children to transfer the mineral rights in exchange for their giving up any interest in the house.

Ingrid Hanrieder was required to pay the children damages for the royalties she and a company she incorporated received from the mineral rights, which amounted to at least $225,958.

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