The Continuing Saga of Top Line

I live and work in the Okanagan Valley, in British Columbia. There are orchards up and down the valley: apples, pears, peaches and grapes among other fruits. Most of the orchards are small. People buy houses on orchards. Many don’t want to actually farm the orchards. They have jobs in town, or are retired. But they want the rural or semi-rural lifestyle of living among the fruit trees.

What do you do if you want to live on an orchard property, but don’t want to actually farm it? One solution is to lease the orchard portion of your land to someone else to farm it. You can enjoy living on an orchard, while someone who has the knowledge and ability to productively farm the land may do so. The lease will likely need to be long-term to make it worthwhile for the tenant to make the investments required to operate an orchard.

Sounds like a win-win solution, right? I don’t know how many leases of the orchard portion of land there are in the Okanagan, but I am guessing that there are quite a few. I have certainly seen some. It is hard to imagine anything illegal about it.

Now, let’s go from farming to recycling, the business that a company called International Paper Industries Ltd. was in. International Paper Industries Ltd. leased a building and a portion of a parcel of land from Top Line Industries Inc. The lease was for a five year term, and the tenant had the option to renew the lease. A dispute arose between International Paper Industries Ltd and Top Line Industries Inc. The landlord took the position that the lease was invalid, and the case ultimately ended up in the British Columbia Court of Appeal.

In Top Line Industries Ltd. v. International Paper Industries Ltd.(1996), 20 B.C.L.R. (3d) 41 (C.A.), the Court of Appeal held that the lease was invalid. The reason that it was invalid is that it contravened s. 73 of the Land Title Act, the relevant portions of which read as follows:

(1) Except on compliance with this Part, no person shall subdivide land into smaller parcels than those of which he is the owner for the purpose of

(a) transferring it; or

(b) leasing it, or agreeing to lease it for a life, or for a term exceeding three years.

. . . . .

(4) No instrument executed by a person in contravention of this section confers on the party claiming under it a right to registration of the instrument or a part of it.

In other words, you can’t subdivide a property by leasing a portion of it. You have to go through the subdivision process set out in the Land Title Act, getting all of the necessary government approvals, and registering a subdivision plan in the Land Title Office.

The Court of Appeal held that the lease in the Top Line case was void because it purported to lease a portion of the land, thereby subdividing it without complying with the Land Title Act. The Court further held—and this to my mind does not necessarily follow—that the lease could not create contractual rights as between the landlord and the tenant.

It should be noted that Top Line cut both ways. In a subsequent ruling, the British Columbia Court of Appeal held that Top Line Industries Ltd. could not collect rent it claimed was owing to it from International Paper Industries Ltd. under a void lease.

The Top Line decision is not a popular one. In her introduction to the British Columbia Law Institute’s Report on Leases of Unsudivided Land and the Top Line Case, Ann McLean, Chair, wrote of the Top Line decision:

This ruling surprised real estate lawyers. It has also proved to be a continuing source of frustration to persons involved in commercial leasing and agriculture. The Top Line case has imposed additional costs on these persons. In addition, by giving persons a means to escape from their contractual obligations, it has added uncertainty to the law and raised the volume of itigation.

The British Columbia Legislative Assembly tried to fix the problems created by the Top Line decision by amending the Land Title Act in May 2007. The new provision is section 73.1, which says:

73.1 (1) A lease or an agreement for lease of a part of a parcel of land is not unenforceable between the parties to the lease or agreement for lease by reason only that
(a) the lease or agreement for lease does not comply with this Part, or
(b) an application for the registration of the lease or agreement for lease may be refused or rejected.
(2) This section does not apply to an airport lease, as defined in section 41 of the Municipalities Enabling and Validating Act (No. 2).

In other words, you can now lease a portion of your land for more than three years.

I suspect that when the legislators passed 73.1 of the Land Title Act, they thought they had fixed the problems created by the Top Line decision, protecting those who had in good faith entered into long-term leases of portions of land, including orchard properties. But did they?

In a decision released last week, Idle-O Apartments Inc. v. Charlyn Investments Ltd., 2010 BCCA 460, the Court of Appeal held that section 73.1 of the Land Title Act does not apply retrospectively to leases signed before section 73.1 came into effect. In that case the tenant entered into a 99 year lease with Idle-O Apartments Inc. of land near Osoyoos Lake. The lease was of .62 acres of a 3.49 acre lot. The lease was later extended to 998 years. The principals of Charlyn Investments Ltd. used the land for their personal and family use. A dispute arose between the landlord and tenant, and in May 2004, the landlord started a court proceeding asking the court to declare the lease void.

In the Supreme Court of British Columbia, Madam Justice Morrison held that section 73.1 of the Land Title Act (which was passed after the landlord began the lawsuit, but before the date of judgment) applied to the lease, and held that it was valid. She wrote:

[111] In my view, s. 73.1 is clearly remedial legislation. It was passed to bring fairness and equity to a situation like this. The mischief or hardship caused by the Top Line case was so apparent that the BCLI as well as the provincial legislature drafted legislation to ensure that the unfairness would not continue.

[112] This is a situation where the intention of the legislature is before us; the mischief must be corrected.

[113] The rules of statute construction allow the courts to go beyond strict literal interpretation, given certain circumstances. Namely, to avoid unfairness, observe the rule of law, and give full meaning to the intention of the legislature.

Her decision is reported at 2008 BCSC 849.

The Court of Appeal overturned the Supreme Court decision. Madam Justice Levine held that s. 73.1 did not expressly state that it applied retrospectively, nor was it necessary to apply it retrospectively “by necessary implication required by the language of the Act…” She wrote:

[36] The trial judge’s conclusion that s. 73.1 must be given retrospective effect on the basis that it is remedial legislation is not supported by the well-established legal principles that govern the interpretation of statutes and their applicability. It follows that the lease is invalid and unenforceable, as dictated by the decision in Top Line.

[37] There is no question that this result creates what the BCLI referred to in its report on the implications of Top Line: “A Declaration that an agreement is void ab initio can cause a disaster for one party and a windfall for the other.” These parties carried on for 26 years on the basis that they had entered into a valid lease. However, unless and until this Court decides that Top Line was wrongly decided, or the Legislature makes it clear that s. 73.1 is to be given retrospective effect, leases entered into before the enactment of s. 73.1 on May 31, 2007 are invalid and unenforceable.

The other possibility is that one of these cases will go to the Supreme Court of Canada (although unlikely), which could also hold that Top Line was wrongly decided. In the meantime, the validity of possibly thousands of long-term leases covering portions of lots is in doubt, including many leases of orchards, some perhaps in my neighbourhood.

Court of Appeal Decision in Gould v. Royal Trust

The British Columbia Court of Appeal dismissed the plaintiff's appeal in Gould v. Royal Trust Corp. of Canada, 2010 BCCA 424.

As I wrote here, the Supreme Court of British Columbia dismissed Barbara Gould's claim to vary her mother's will under the Wills Variation Act. Ms. Gould's mother, Sylvia Gould, had left the most of her estate to her, Sylvia Gould's, three sons to the exclusion of her daughter. Mr. Justice Pearlman found that Sylvia Gould's reason for leaving most of her estate to her other children -- that she had already given her daughter a cottage property in Ontario--were rational and valid. Accordingly, he dismissed Barbara Gould's claim under the Wills Variation Act, but did award her $75,000 for unjust enrichment to compensate her for her expenditures and labour in providing her mother care.

Barbara Gould appealed the decision to the British Columbia Court of Appeal, which upheld Mr. Justice Pearlman's decision.

Yee v. Yu

Although in British Columbia, the Wills Variation Act allows an independent adult child to apply to vary his or her parent’s will on the grounds that the parent did not make adequate provision for the child, this does not mean that the adult child always succeeds. If the parent leaves his estate to the child’s other parent, the adult child may have an uphill battle convincing the court to vary the will.

This is illustrated by a decision released earlier in the week, Yee v. Yu, 2010 BCSC 1464.

Yung Yu died in January 2007. He had an estate worth almost $1.2 million. In his will, he left his estate to his wife. If she had died before him, his will said that his real estate would go to two of his three sons, and the balance of the estate would be equally among four of his five children. The plaintiff, Tom Yee, did not receive anything under the will, and would not have received anything even if his mother had died before his father.

Tom Yee applied to vary the will under the Wills Variation Act. In his reasons for judgment, Mr. Justice Myers noted that Tom Yee was likely motivated to bring the claim by the provisions in the will leaving gifts to his siblings if his mother had died before his father. But because Tom Yee’s mother survived and was the sole beneficiary, Mr. Justice Myers held that the relative moral claims of the children were not relevant. In dismissing Tom Yee’s claim, Mr. Justice Myers said at paragraphs 17 and 18:

As I have said, the unequal treatment of the children in the gift-over is not an issue in this case because Mrs. Yu survived the father. Likewise, the validity or rationality of the reasons the father gave for that preference is not germane to the case. I therefore do not propose to address the evidence with respect to those issues, particularly since - depending on what Mrs. Yu does with her estate - the matter may be back before the courts in the future.

[18] The question before me is whether this will should be varied when it left everything to the father’s first and only spouse (80 years old at the time of the father’s death) and the child contesting the will is adult, financially secure and thriving, with no special claim against the estate arising from contributions to it. Counsel for the parties have found no case where a will has been varied in similar circumstances. I think the answer to that question is in the negative.

Summary Trials and Wills Variation Act Claims

Not all civil trials in British Columbia are conventional trials in which each of the witnesses testify in person. Rule 9-7 of the Supreme Court Civil Rules (formerly Rule 18A of the Supreme Court Rules) allows the court to hear a case on the basis of affidavit evidence.

Any party can apply to have the trial proceed summarily on affidavit evidence. If an application for a summary trial is made, the court may make a decision based on affidavit and other written evidence such as excerpts from examination for discovery transcripts, but only if the court may make sufficient findings of facts on the evidence to decide the issues of fact and law. The court must also be of the opinion that it is just to make a decision on the basis of the summary trial evidence.

If the court is unable to make sufficient findings of facts, or considers it unjust to decide on the basis of the materials filed, then the judge may dismiss the summary trial application, in which case the parties will have to have the case determined by a full trial. The summary trial rules also permit a judge to order that the witnesses or some of them be cross examined on the affidavits before making a decision. This can result in a hybrid procedure that requires witnesses to testify in court, but is not a full trial.

Summary trials are most effective when many of the facts are not in dispute, or where those facts that are in dispute can be determined by independent evidence such as documents, or evidence of neutral witnesses. A summary trial may reduce court time in costs when used in the right case.

On the other hand, where the case turns on the credibility of certain witnesses, a summary trial may not be effective.

I have noticed that quite a few Wills Variation Act cases are being decided on the basis of affidavit evidence at summary trials. Some Wills Variation Act cases seem to lend themselves well to summary trials.

I was curious as to how often summary trial are used in Wills Variation Act cases. I searched the B.C. Superior Court websites for cases decided in the Supreme Court of British Columbia for 2008, 2009, 2010. I found 27 cases. 12 were summary trials, and 15 were conventional trials (two of which were heard together).

I have listed the cases, and the number of days of trial for each below:

Wills Variation Act cases determined by summary trials during 2008 - 2010:

Hutchison v. Weidman Estate 2010 BCSC 1356 (1 day);
Haegedorn v. Haegedorn, 2010 BCSC 836 (1day);
Smith v. Smith, 2009 BCSC 1737 (1 day);
Gould v. Royal Trust Corp. of Canada, 2009 BCSC 1528 (4 days);
Martinson v. Anniko, 2009 BCSC 1104 (1 day);
Waldman v. Blumes, 2009 BCSC 1012 (4days);
Viberg v. Viberg, 2009 BCSC 27 (2 days);
MacKinlay v. MacKinlay Estate 2008 BCSC 994 (2 days);
Tomlyn v. Kennedy, 2008 BCSC 331 (1 day);
Crowley v. Walkhouse, 2008 BCSC 319 (1 day);
Graham v. Chalmers, 2008 BCSC 1246 (1 day);
Fuller v. Fuller Estate, 2008 BCSC 702 (1 day).

Wills Variation Act determined by conventional trials during 2008-2010:

Atwal v. Atwal , 2010 BCSC 1261 (20 days);
Nightingale v. Hepting, 2010 BCSC 1214 (3 days);
Mawdsley v. Meshen, 2010 BCSC 1099 (8 days);
Schipper v. De Lange, 2010 BCSC 1067 (4 days);
Hall v. Dow, 2010 BCSC 529 and Hall v. Hall, 2010 BCSC 528 (6 days heard together);
McBride v. Voth, 2010 BCSC 443 (6 days);
Rose v. Bloomfield, 2010 BCSC 315 (3 days);
Mazur v. Berg, 2009 BCSC 1770 (5 days);
Lamoureaux v. Kalyk, 2009 BCSC 584 (8 days);
Todd v. Walker, 2009 BCSC 677 (4 days);
Sikora v. Sikora Estate, 2009 BCSC 195 (5 days);
Petrie v. Burnett, 2008 BCSC 1503 (6 days);
K.D.M.B. v. Taylor, 2008 BCSC 1498 (5 days);
Stone v. Campbell, 2008 BCSC 1518 (5 days).

It should be noted that some of these decision involved other issues in addition to a Wills Variation Act claim, which will tend to lengthen the trial.

White Paper on Family Relations Act Reform

The British Columbia Ministry has published a White Paper on Family Relations Act Reform. The White Paper proposes some significant changes to British Columbia’s family law legislation.

A number of proposed changes will, if implemented, have an impact on wills, estates and trusts practices. I will summarize a few of them in this post.

Testamentary and Standby Guardianship

Currently, if you are the parent of a child, you may appoint a guardian in your will. But if you are a guardian, who is not the child’s parent, there is no provision allowing you to appoint a guardian in your will in case you die before the child becomes an adult. Nor is there any provision allowing you as a parent or guardian to appoint a person as the child’s guardian in case you become ill. The proposed new legislation will allow a child’s guardian (including a guardian who is not the child's parent) to appoint a guardian in a will, or to appoint a standby guardian in case he or she becomes unable to continue his or her parental responsibilities. This proposal would implement changes recommended by the British Columbia Law Institute. I wrote about this issue in a previous post here.

Exclusions of Inheritances and Assets held in Trust

The proposed legislation would exclude assets one spouse inherits or receives as a gift from the property divided between the spouses on the breakdown of the marriage or relationship. It would also exclude “property held in trust for the benefit of a spouse, unless the spouse has an immediate and absolute interest in the trust property or has the power to terminate the trust.”

It should be noted that the exclusions would not be absolute. The court would have discretion to divide excluded property if:

“(a) one of more items of family property are not available to effect the division of family property under section 80 [equal division of family property and family debt] or section 81 [unequal division of family property and family debt]; or
(b) it would be clearly unfair not to do so having regard to
(i) the duration of the spousal relationship, or
(ii) a spouse’s direct or indirect contribution to the preservation, maintenance,
improvement, operation, or management of excluded property.”

Division of Property on Breakdown of Common Law Relationships

The White Paper recommends giving common law spouses similar rights to a division of property on a marriage breakdown as married spouses. I note that the definition of spouse in the proposed legislation differs from the definitions in the Estate Administration Act, Wills Variation Act, and the new Wills, Estates and Succession Act (which as at the date of this post is not in effect.) The definition of spouse in the proposed legislation includes a person who:

“(b) lived with another person:
(i) in a marriage-like relationship for a continuous period of at least 2 years, or
(ii) in a marriage-like relationship of some permanence if the persons are together the parents of a child
and, for the purposes of this Act, the marriage-like relationship may be between persons of the same gender, ….”

In contrast, the new Wills, Estates and Succession Act will not treat a person who lived with another “in a marriage-like relationship of some permanence if the persons are together the parents of a child,” as a spouse unless they lived with each other in a marriage-like relationship for at least 2 years. This means that in some cases a person may be considered a spouse of another and have all of the rights of a spouse on separation under the proposed new legislation if they are parents of a child, but have less rights to property on the death of the other parent.

Spousal and Child Support

If the White Paper is implemented the obligation to pay spousal or child support will continue after the payer’s death. Payments would then have to come out of his or her estate. The parties may, however, agree that they will not bind the payer’s estate. The payer’s personal representative would also be able to apply to court to reduce or terminate support.

If you wish to make comments on the White Paper, you only have a few days left. The consultation ends on October 8, 2010.

Comments may be mailed, faxed or emailed to:

FAMILY LAW WHITE PAPER
Civil Policy and Legislation Office
Justice Services Branch
British Columbia Ministry of Attorney General
PO Box 9222 Stn Prov Govt
Victoria, British Columbia V8W 9J1
Facsimile: (250) 387-4525
Email: CPLOFamilyLaw@gov.bc.ca

Court of Appeal Decision in Fuller v. Harper

In an earlier post, I wrote about the decision of the Supreme Court of British Columbia in Fuller v. Fuller Estate, 2008 BCSC 702, in which the court held that the presumption of resulting trust applied to land. Frederick Fuller had gratuitously transferred land into a joint tenancy with his friend Geramy Harper. He also made a will in which he disinherited his only son, Steven Fuller. After Frederick Fuller’s death, Steven Fuller sued claiming that Geramy Harper held the land in a resulting trust for the estate. He also applied to vary his father’s will pursuant to the Wills Variation Act. Steven Fuller was successful at trial.

On appeal, the British Columbia Court of Appeal, in Fuller v. Harper, 2010 BCCA 421, overturned the trial judge’s decision that Mr. Harper held the land in a resulting trust for the estate. In reaching that decision the Court of Appeal did not disturb the trial judge’s holding that resulting trusts applied to land in British Columbia. The appeal proceeded on the assumption that resulting trusts apply to land.

The Court of Appeal held that on the evidence rebutted the presumption of resulting trust. Frederick Fuller intended to make a gift of the right of survivorship to Mr. Harper when he transferred the title into a joint tenancy. The Court of Appeal considered the following:

1. Frederick Fuller was estranged from his son when he made the transfer, and it was not disputed that he did so to keep the land from falling into his son’s hands after his death.
2. Frederick Fuller first wanted to transfer the land solely into Mr. Harper’s name, but the notary who assisted with the transfer advised him to hold it in a joint tenancy incase Mr. Harper died before Frederick Fuller.
3. Frederick Fuller knew that if he kept the land in his name, it would be available to satisfy a Wills Variation Act claim by his son.
4. Frederick Fuller knew he was dying, and would not be able to benefit from the sale of the land during his lifetime.

The Court of Appeal inferred from this evidence that Frederick Fuller intended to make a gift. The presumption of resulting trust only applies if the court is unable to find the transferor’s actual intention.