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Tomorrow, March 1, 2010, is officially my first day at my new firm Sabey Rule LLP.
I will be practicing with Ken Sabey, with whom I practiced at Beairsto and Company, just over eight years ago. Ken handles real estate transactions, business law and estate planning and administration.
I will also be joining Ken’s son Keith Sabey, who is a litigation lawyer. His practice includes family law, commercial and estate litigation and criminal law.
I am moving from downtown Kelowna, to the suburban neighbourhood of North Glenmore, where I live. But, I am not far. My office is about a 15 minute drive from downtown.
Sunday, February 28, 2010
Saturday, February 27, 2010
Bronson v. Hewitt
It is common for trust agreements to provide for the appointment of successor trustees if the first trustee retires as a trustee, or is unable to act. Where the trust documents provide for successor trustees, it is critically important to follow the terms of the trust when a successor trustee takes over. Otherwise the successor trustee may not have authority to act as trustee, and may be liable to the beneficiaries of the trust for his or her actions.
This point is illustrated in a recent decision of the Mr. Justice Goepel of the Supreme Court of British Columbia, in Bronson v. Hewitt, 2010 BCSC 169.
In 1973, two Florida brothers, Harold Lewis and Eugene Lewis, acquired shares in a company, Big Nine Outfitters Ltd, to buy a guide and outfitting business in Northeastern British Columbia.
In 1978, they assigned their shares in the company to a family trust, the “Big Nine Trust” for the benefit of their children. The initial trustee was a guide named Gary Powell. The trust agreement provided that his wife, Olive Powell, and his sister Audrey Tompkins, were successor trustees if Gary Powell were no longer able or willing to act as trustee. If Olive Powell and Audrey Tompkins were unable or unwilling to act or continue to act as Trustee, the trust agreement provided that the two brothers, Eugene and Harold Lewis, would be the successor trustees.
In 1979, Eugene and Harold Lewis signed a letter in which they appointed their brother-in-law Howard Hewitt to act as a successor trustee if Eugene or Harold were unable or unwilling to act or continue to act as trustees.
Gary Powell died in a plane crash, and Olive Powell and Audrey Tompkins became the successor trustees. Olive Powell later resigned as a trustee, leaving Audrey Tompkins as the sole trustee.
In 2002 Audrey’s health was failing and she could not continue her duties as a trustee. By then the Lewis brothers had a falling out and were not speaking to each other. Harold Lewis was living in seclusion in Northern British Columbia, and Eugene Lewis did not want his brother to act as trustee.
Eugene renounced his right to become a successor trustee, and Audrey resigned. Howard Hewitt took over as trustee. Eugene Lewis played a significant role in arranging for Howard Hewitt’s appointment.
After becoming trustee, Mr. Hewitt determined that it was in the best interest of the trust to sell its interest in Big Nine Outfitters. He was concerned about changes in the market for big game hunting, and the business’s dependence on its guide, Barry Tompkins. He arranged the sale of Big Nine Trust’s 55.56 % interest in Big Nine Outfitters Ltd. to Mr. Tompkins for $888,889 based on the assumption that Big Nine Outfitters Ltd. had a value of $1.6 million.
The sale went ahead.
There was though at least one significant problem: Harold Lewis had never renounced his right to become a trustee on Audrey Tompkins’ resignation. Nor was he included in the negotiations to sell the shares.
Mr. Justice Goepel found that Harold Lewis was not aware of his right to be a trustee until after the shares were sold. He had not been involved in the business for years, and no longer had a copy of the trust agreement. Furthermore, Mr. Justice Goepel found that Eugene Lewis and Howard Hewitt concealed from Harold Lewis and his children his right to be a co-trustee.
Harold Lewis and his children opposed the sale. When they found out that Harold Lewis had been named as a successor trustee in the trust agreement, Harold Lewis, his three children, and Thomas Bronson, who had acquired an interest in Big Nine Trust, sued.
Mr. Justice Goepel held that Howard Hewitt did not have the authority to sell the shares. He acted in breach of trust when he acted as sole trustee, knowing that Harold Lewis was entitled to be a co-trustee and had not renounced.
Mr. Justice Goepel found that Mr. Hewitt acted reasonably and in good faith in deciding to sell the shares, but the sale was for an improvident price. Mr. Hewitt neither had an appraisal of the business, nor exposed it to the market before deciding on the price.
After considering the expert evidence on valuation, Mr. Justice Goepel found that the Big Nine Trust’s shares were worth between $1,375,665 and $1,542,345. He assessed damages owed to the plaintiffs for their 60% interest in Big Nine Trust at $350,000.
Mr. Justice Goepel considered whether or not to excuse Howard Hewitt for his breach of trust, either under the terms of the trust agreement or section 96 of the Trustee Act. The trust agreement provided that a trustee would not be liable for loss to the trust property if he acted in good faith, “except for loss caused by his own dishonesty, gross negligence or willful breach of trust.”
Section 96 of the Trustee Act provides that the court may relieve a trustee of liability for breach of trust if the trustee “has acted honestly and reasonably, and ought fairly to be excused for the breach of trust….”
Mr. Justice Goepel said that he might have excused Mr. Hewitt for making the sale at an improvident price if that had been the only breach of trust. But he held that by concealing Harold Lewis’ right to be a co-trustee, Mr. Hewitt had not acted in good faith. Accordingly, Mr. Justice Goepel did not excuse him for breach of trust.
The court held both Mr. Hewitt, for his breach of trust, and Eugene Lewis, for knowingly participating in the breach of trust jointly and severally liable to the plaintiff’s for the damages of $350,000 arising from the sale of the Big Nine Outfitters Ltd. shares. This means the plaintiffs may collect their damages from either Mr. Hewitt or Eugene Lewis (or part of the damages from each).
This point is illustrated in a recent decision of the Mr. Justice Goepel of the Supreme Court of British Columbia, in Bronson v. Hewitt, 2010 BCSC 169.
In 1973, two Florida brothers, Harold Lewis and Eugene Lewis, acquired shares in a company, Big Nine Outfitters Ltd, to buy a guide and outfitting business in Northeastern British Columbia.
In 1978, they assigned their shares in the company to a family trust, the “Big Nine Trust” for the benefit of their children. The initial trustee was a guide named Gary Powell. The trust agreement provided that his wife, Olive Powell, and his sister Audrey Tompkins, were successor trustees if Gary Powell were no longer able or willing to act as trustee. If Olive Powell and Audrey Tompkins were unable or unwilling to act or continue to act as Trustee, the trust agreement provided that the two brothers, Eugene and Harold Lewis, would be the successor trustees.
In 1979, Eugene and Harold Lewis signed a letter in which they appointed their brother-in-law Howard Hewitt to act as a successor trustee if Eugene or Harold were unable or unwilling to act or continue to act as trustees.
Gary Powell died in a plane crash, and Olive Powell and Audrey Tompkins became the successor trustees. Olive Powell later resigned as a trustee, leaving Audrey Tompkins as the sole trustee.
In 2002 Audrey’s health was failing and she could not continue her duties as a trustee. By then the Lewis brothers had a falling out and were not speaking to each other. Harold Lewis was living in seclusion in Northern British Columbia, and Eugene Lewis did not want his brother to act as trustee.
Eugene renounced his right to become a successor trustee, and Audrey resigned. Howard Hewitt took over as trustee. Eugene Lewis played a significant role in arranging for Howard Hewitt’s appointment.
After becoming trustee, Mr. Hewitt determined that it was in the best interest of the trust to sell its interest in Big Nine Outfitters. He was concerned about changes in the market for big game hunting, and the business’s dependence on its guide, Barry Tompkins. He arranged the sale of Big Nine Trust’s 55.56 % interest in Big Nine Outfitters Ltd. to Mr. Tompkins for $888,889 based on the assumption that Big Nine Outfitters Ltd. had a value of $1.6 million.
The sale went ahead.
There was though at least one significant problem: Harold Lewis had never renounced his right to become a trustee on Audrey Tompkins’ resignation. Nor was he included in the negotiations to sell the shares.
Mr. Justice Goepel found that Harold Lewis was not aware of his right to be a trustee until after the shares were sold. He had not been involved in the business for years, and no longer had a copy of the trust agreement. Furthermore, Mr. Justice Goepel found that Eugene Lewis and Howard Hewitt concealed from Harold Lewis and his children his right to be a co-trustee.
Harold Lewis and his children opposed the sale. When they found out that Harold Lewis had been named as a successor trustee in the trust agreement, Harold Lewis, his three children, and Thomas Bronson, who had acquired an interest in Big Nine Trust, sued.
Mr. Justice Goepel held that Howard Hewitt did not have the authority to sell the shares. He acted in breach of trust when he acted as sole trustee, knowing that Harold Lewis was entitled to be a co-trustee and had not renounced.
Mr. Justice Goepel found that Mr. Hewitt acted reasonably and in good faith in deciding to sell the shares, but the sale was for an improvident price. Mr. Hewitt neither had an appraisal of the business, nor exposed it to the market before deciding on the price.
After considering the expert evidence on valuation, Mr. Justice Goepel found that the Big Nine Trust’s shares were worth between $1,375,665 and $1,542,345. He assessed damages owed to the plaintiffs for their 60% interest in Big Nine Trust at $350,000.
Mr. Justice Goepel considered whether or not to excuse Howard Hewitt for his breach of trust, either under the terms of the trust agreement or section 96 of the Trustee Act. The trust agreement provided that a trustee would not be liable for loss to the trust property if he acted in good faith, “except for loss caused by his own dishonesty, gross negligence or willful breach of trust.”
Section 96 of the Trustee Act provides that the court may relieve a trustee of liability for breach of trust if the trustee “has acted honestly and reasonably, and ought fairly to be excused for the breach of trust….”
Mr. Justice Goepel said that he might have excused Mr. Hewitt for making the sale at an improvident price if that had been the only breach of trust. But he held that by concealing Harold Lewis’ right to be a co-trustee, Mr. Hewitt had not acted in good faith. Accordingly, Mr. Justice Goepel did not excuse him for breach of trust.
The court held both Mr. Hewitt, for his breach of trust, and Eugene Lewis, for knowingly participating in the breach of trust jointly and severally liable to the plaintiff’s for the damages of $350,000 arising from the sale of the Big Nine Outfitters Ltd. shares. This means the plaintiffs may collect their damages from either Mr. Hewitt or Eugene Lewis (or part of the damages from each).
Wednesday, February 24, 2010
New British Columbia Supreme Court Civil Rules Concordance
If you want to compare the current Supreme Court of British Columbia Rules of Court with the new Supreme Court Civil Rules, which are coming into effect on July 1, 2010, you can check out the table of concordance available online from the Ministry of the Attorney General here.
Victoria lawyer Erik Magraken has written a nice summary of the new rules on his blog BC Injury Law, here.
Victoria lawyer Erik Magraken has written a nice summary of the new rules on his blog BC Injury Law, here.
Sunday, February 14, 2010
Stewart v. McLean
In British Columbia, if you act as an attorney under a power of attorney, you have a fiduciary duty (or duty of loyalty) to the person who appointed you, and on whose behalf you are acting. But the mere fact that someone makes a power of attorney does not in-and-of-itself make the person named as the attorney a fiduciary.
This issue is discussed in a Supreme Court of British Columbia decision released last January. The case is Stewart v. McLean, 2010 BCSC 64.
Mona Stewart sued her brother, Donald McLean, his wife, and his two children. Her mother, Ellen McLean, had transferred her house into a joint tenancy with her brother, Donald McLean, she had forgiven a $50,000 debt he owed to her, and she had given each of Donald McLean, his wife and two children $70,000.
After Ellen McLean’s death on February 4, 2005, Mona Steward claimed that her brother had unduly influenced their mother to benefit his family. She also argued that he and his family held the benefits on a resulting trust for Ellen McLean’s estate.
Mr. Justice Punnett rejected Mona Stewart’s claims, and held that Ellen Stewart had freely made valid gifts to her son and son’s family.
A key factor in this decision was that when Mona Stewart and Donald McLean’s uncle Hilarious West died, he had left most of his wealth to Mona Stewart and her children. Donald McLean unsuccessfully sought to have his uncle’s will declared invalid in Alberta.
Mr. Justice Punnett found that Ellen McLean had conferred substantial benefits on her son and his family in order to balance the benefits Mona Stewart received from her uncle.
In finding that there was no undue influence, Mr. Justice Punnett first considered whether there was a presumption that arose that Donald McLean unduly influenced his mother, by virtue either that Ellen McLean had appointed her son as an attorney under a power of attorney, or that their relationship was one of dominance.
Ellen McLean had made a power of attorney, in which she named her son as her attorney. But she never delivered it to him, and he did not exercise it. Accordingly, Mr. Justice Punnett found that the power of attorney did not give rise to a fiduciary duty in the circumstances.
Mr. Justice Punnett also found that Donald McLean was not in a position to dominate his mother. He wrote:
Mr. Justice Punnett further held that if a presumption of undue influence arose, it had been rebutted. Ellen McLean had received independent advice from a lawyer when she transferred her house into a joint tenancy with her son, and from her financial advisor when she made the $70,000 gifts to each of her son, his wife and their children.
Mona Stewart also sought to rely on the presumption of resulting trust. She argued that because her mother made the transfer of title to the house into a joint tenancy, the cash to Donald McLean and his family, and the forgiveness of debt were all made gratuitously, there is a presumption the Donald McLean and his family held the assets they received in trust for his mother’s estate.
Mr. Justice Punnett agreed that the presumption of resulting trust arose, but found that it had been rebutted by the evidence that Ellen McLean had intended to make gifts.
Mr. Justice Punnett found that there was no basis for Mona Stewart’s allegations, in particular her allegations of undue influence. He wrote:
The court ordered Mona Stewart to pay the defendant’s costs on a special costs basis. The usually rule in British Columbia lawsuits is that the unsuccessful party must pay costs to the successful party, but these costs generally represent only a portion of the successful party’s legal expenses. The court may award special costs, which approach or equal actual legal expenses, as a way of punishing a party for its conduct in the lawsuit.
This issue is discussed in a Supreme Court of British Columbia decision released last January. The case is Stewart v. McLean, 2010 BCSC 64.
Mona Stewart sued her brother, Donald McLean, his wife, and his two children. Her mother, Ellen McLean, had transferred her house into a joint tenancy with her brother, Donald McLean, she had forgiven a $50,000 debt he owed to her, and she had given each of Donald McLean, his wife and two children $70,000.
After Ellen McLean’s death on February 4, 2005, Mona Steward claimed that her brother had unduly influenced their mother to benefit his family. She also argued that he and his family held the benefits on a resulting trust for Ellen McLean’s estate.
Mr. Justice Punnett rejected Mona Stewart’s claims, and held that Ellen Stewart had freely made valid gifts to her son and son’s family.
A key factor in this decision was that when Mona Stewart and Donald McLean’s uncle Hilarious West died, he had left most of his wealth to Mona Stewart and her children. Donald McLean unsuccessfully sought to have his uncle’s will declared invalid in Alberta.
Mr. Justice Punnett found that Ellen McLean had conferred substantial benefits on her son and his family in order to balance the benefits Mona Stewart received from her uncle.
In finding that there was no undue influence, Mr. Justice Punnett first considered whether there was a presumption that arose that Donald McLean unduly influenced his mother, by virtue either that Ellen McLean had appointed her son as an attorney under a power of attorney, or that their relationship was one of dominance.
Ellen McLean had made a power of attorney, in which she named her son as her attorney. But she never delivered it to him, and he did not exercise it. Accordingly, Mr. Justice Punnett found that the power of attorney did not give rise to a fiduciary duty in the circumstances.
Mr. Justice Punnett also found that Donald McLean was not in a position to dominate his mother. He wrote:
[87] I find that the deceased, up until her death, was mentally acute, independent, and strong-willed. There is no evidence that she was vulnerable in her relationship with her son nor that he controlled her in any way. She was not dependent on him. While she relied upon him to take her to appointments and stores and to assist around her home, had he been unable to do so, she was capable of making alternate arrangements as evidenced by the various third parties she hired to attend to matters that were beyond her abilities.
[88] Because of the Deceased’s independence and strong-will, Donald would have been unable to exercise any power over his mother. Even if he had some discretion or power, he would not have been able to unilaterally exercise it. I find that the relationship between Donald and his mother was not a fiduciary relationship.
Mr. Justice Punnett further held that if a presumption of undue influence arose, it had been rebutted. Ellen McLean had received independent advice from a lawyer when she transferred her house into a joint tenancy with her son, and from her financial advisor when she made the $70,000 gifts to each of her son, his wife and their children.
Mona Stewart also sought to rely on the presumption of resulting trust. She argued that because her mother made the transfer of title to the house into a joint tenancy, the cash to Donald McLean and his family, and the forgiveness of debt were all made gratuitously, there is a presumption the Donald McLean and his family held the assets they received in trust for his mother’s estate.
Mr. Justice Punnett agreed that the presumption of resulting trust arose, but found that it had been rebutted by the evidence that Ellen McLean had intended to make gifts.
Mr. Justice Punnett found that there was no basis for Mona Stewart’s allegations, in particular her allegations of undue influence. He wrote:
[120] The plaintiff’s pursuit of this lawsuit in light of the facts and her complete lack of evidence appears to have been motivated by greed and retaliation directed towards her brother for opposing probate of their late uncle’s will. It is one thing to pursue litigation based on suspicious conduct grounded in facts, which may or may not be accepted by the trier of fact; it is another to pursue it and provide no substantive evidence in support. Her allegations were unfounded and her motive improper.
The court ordered Mona Stewart to pay the defendant’s costs on a special costs basis. The usually rule in British Columbia lawsuits is that the unsuccessful party must pay costs to the successful party, but these costs generally represent only a portion of the successful party’s legal expenses. The court may award special costs, which approach or equal actual legal expenses, as a way of punishing a party for its conduct in the lawsuit.
Friday, February 12, 2010
San Francisco Civic Center Courthouse
This summer, I took my children to San Francisco, where we walked around for hours looking for courthouses, like the San Francisco Civic Center Courthouse, for photographs for this blog. We did do a few other things though.
Sunday, February 07, 2010
Capacity to Make A Gift: Re: Elsie Jones
In British Columbia, if the court finds that someone is incapable of managing their affairs and appoints a committee (in other words, a guardian), there is a presumption that gratuitous transfers made by the incapable person are invalid. This presumption is set out in section 20 of the Patients Property Act. The presumption applies to certain transfers made before the court declares the person incapable.
Section 20 says:
Section 20 creates a presumption, which may be rebutted by evidence of capacity at the time of the transfer.
The Supreme Court of British Columbia recently applied the presumption in section 20 in Re: Elsie Jones, 2009 BCSC 1723.
Elsie Jones has three children: Maureen Ringrose, Ronald Jones and Marvin Jones. In May 2003, Dr. Leslie Sheldon, a geriatric psychiatrist diagnosed her with vascular dementia. In June, 2004, Elsie Jones transferred her home into a joint tenancy with her daughter, Maureen Ringrose. On July 27, 2006, the Supreme Court of British Columbia declared Elsie Jones to be incapable of managing herself or her affairs.
The Canada Trust Company as committee of Elsie Jones’ estate asked the court to decide if the transfer was valid. Elsie Jones’ two sons argued it was not.
Before the transfer, Elsie Jones had made several calls to the police, saying her house had been broken into. She also accused one of her sons of stealing from her, and taking large amounts of money from her investments. The court found that there was no basis for these allegations.
Maureen Ringrose argued if her mother to have understood generally the nature and effect of the transfer, that was sufficient to prove her capacity. Elsie Jones had an experienced lawyer advise her on the transfer. The lawyer believed she had capacity.
Elsie Jones’ sons, on the other hand, argued that Maureen Ringrose needed to prove that their mother had a capacity equivalent to that necessary to make a will. One of the criteria for capacity to make a will is the absence of any delusions that affect the maker’s decisions.
Mr. Justice Savage held that Elsie Jones did not have capacity to make a transfer of her home into a joint tenancy. Maureen Ringrose failed to rebut the presumption of invalidity in section 20 of the Patients Property Act. She transferred the property under delusions that undermined her capacity.
He wrote:
Section 20 says:
Every gift, grant, alienation, conveyance or transfer of property made by a person who is or becomes a patient is deemed to be fraudulent and void as against the committee if
(a) the gift, grant, alienation, conveyance or transfer is not made for full and valuable consideration actually paid or sufficiently secured to the person, or
(b) the donee, grantee, transferee or person to whom the property was alienated or conveyed had notice at the time of the gift, grant, alienation, conveyance or transfer of the mental condition of the person.
Section 20 creates a presumption, which may be rebutted by evidence of capacity at the time of the transfer.
The Supreme Court of British Columbia recently applied the presumption in section 20 in Re: Elsie Jones, 2009 BCSC 1723.
Elsie Jones has three children: Maureen Ringrose, Ronald Jones and Marvin Jones. In May 2003, Dr. Leslie Sheldon, a geriatric psychiatrist diagnosed her with vascular dementia. In June, 2004, Elsie Jones transferred her home into a joint tenancy with her daughter, Maureen Ringrose. On July 27, 2006, the Supreme Court of British Columbia declared Elsie Jones to be incapable of managing herself or her affairs.
The Canada Trust Company as committee of Elsie Jones’ estate asked the court to decide if the transfer was valid. Elsie Jones’ two sons argued it was not.
Before the transfer, Elsie Jones had made several calls to the police, saying her house had been broken into. She also accused one of her sons of stealing from her, and taking large amounts of money from her investments. The court found that there was no basis for these allegations.
Maureen Ringrose argued if her mother to have understood generally the nature and effect of the transfer, that was sufficient to prove her capacity. Elsie Jones had an experienced lawyer advise her on the transfer. The lawyer believed she had capacity.
Elsie Jones’ sons, on the other hand, argued that Maureen Ringrose needed to prove that their mother had a capacity equivalent to that necessary to make a will. One of the criteria for capacity to make a will is the absence of any delusions that affect the maker’s decisions.
Mr. Justice Savage held that Elsie Jones did not have capacity to make a transfer of her home into a joint tenancy. Maureen Ringrose failed to rebut the presumption of invalidity in section 20 of the Patients Property Act. She transferred the property under delusions that undermined her capacity.
He wrote:
[99] In my opinion, in a case such as this, it makes no sense to say that an inter vivos transfer is valid if the donor “understands” the nature and the effect of the transaction but is under an unfounded or insane delusion that influenced or precipitated the transfer. In other words, in a case where there are unfounded or insane delusions, it is not sufficient for a court to find merely that the donor understands the nature and the effect of the transaction in some abstract sense.
[100] The court must also be satisfied that the donor was not operating under the unfounded or insane delusion at the time. This particularly so when a donor acts late in life to dispose of a substantial amount of their estate: Re: Beaney [1979] 2 All E.R. 595 (Ch.) at 601; Halsbury’s Law of England, 4th ed., Vol. 20(1), at 10-11; see also Re Rogers, (1963) 42 W.W.R. 200, 39 D.L.R. (2d) 141, [1963] B.C.J. No. 133 at para. 31 (C.A.).
[101] While I do not think it necessary for this decision, the observation of Wilson J.A., as he then was, concurred in by Davey J.A., as he then was, in Rogers seems apposite:
30 Having concluded that the testamentary test is the right one to apply, I cannot see that, so far as degree of understanding or capacity is concerned, there is any real difference. I do not think that a man requires any higher or lower degree of capacity to consider his own interest than he needs to consider the interests of other persons. Nor do I think that the degree of capacity required differs in respect to any disposition by gift or otherwise.[102] In my opinion the evidence adduced falls short of meeting either standard. Firstly, there was a variety of delusions under which Elsie Jones was operating over an extended period of time, both before and after the Transfer. She was of the view that persons were breaking into her home and stealing things. At various times she accused her own children of doing this. Not only Ronald but also Maureen. There is no evidence at all to support this. At various times she called the police over these allegations who attended at her residence both before and after the Transfer.
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