Report on Proposals for Unfair Contracts Relief published by the British Columbia Law Institute

The British Columbia Law Institute has published its "Report on Proposals for Unfair Contracts Relief," which you may read here.

As set out in today's press release:

The report recommends that British Columbia enact a Contract Fairness Act to consolidate and modernize the leading concepts that contract law deploys against contractual unfairness.

“The current law on contractual unfairness is largely found in court cases and this body of precedent contains needless complexities, gaps, and uncertainties,” noted committee chair Prof. Joost Blom,QC. “The time is ripe to address these issues and make the law more certain and accessible by enacting legislation.”

The proposed Contract Fairness Act will clarify vexing ambiguities in the application of unconscionability, duress, and undue influence, create a framework for integrating those concepts, provide for a duty of good faith in the performance of contracts and supply a definition of “good faith,” and address concerns about remedies for misrepresentation.

Continuing Legal Education: Estate Litigation Updade, 2011

I have the honour of being on the faculty for the upcoming "Estate Litigation Update, 2011" course presented by the Continuing Legal Education Society of British Columbia.

This course will be held on Thursday, November 3, 2011, at 9:00 am – 4:30 pm. The location is the Pan Pacific Hotel, 999 Canada Place, Vancouver, B.C.

I will be speaking about "Delusions and Impact on Capacity."

Registration information is available here.

Here is the course agenda:

Welcome and Introduction

Helen H. Low — Fasken Martineau DuMoulin LLP, Vancouver

Wills, Estates and Succession Act Impact on Litigation

Helen H. Low — Fasken Martineau DuMoulin LLP, Vancouver

Wills Variation Act Update

•recent cases
•inter vivos trust as a WVA avoidance tool
Andrew S. MacKay — Alexander Holburn Beaudin & Lang LLP, Vancouver

Estate Litigation Potpourri: Recent Law

•costs
•common law spouses—who qualifies
•solicitor’s file production
•Pecore issues
Anna Laing — Fasken Martineau DuMoulin LLP, Vancouver

Networking Break

Pleading Estate Claims Under the New Rules

•proof of will in solemn form
•undue influence/coercion
•wills variation claims
•resulting trust and breach of trust claims
•unjust enrichment and quantum meruit
Patrice B. Newman — Horne Coupar, Victoria

Ethical Issues in Estate Litigation: Panel Discussion

This is a groundbreaking interactive session to discuss various ethical issues related to estate matters. You will be able to provide real-time input and interact with a panel as to how you believe particular ethical issues should be addressed. We encourage you to raise scenarios which you would like discussed, and the panel will address those scenarios during the presentation.

Roger D. Lee — Davis LLP, Vancouver
E. Jane Milton, QC — Bull, Housser & Tupper LLP, Vancouver

Networking Lunch

Finding an Amicable Resolution: Judicial Settlement Conferences and Non-Judicial Mediation

•considerations in selecting the appropriate process
•the difference from commercial dispute mediation
•combining mediation and arbitration
•allowing the parties to have their say
•preparing the case for judicial settlement
The Honourable Madam Justice Mary A. Humphries — Supreme Court of British Columbia, Vancouver
Martin R. Taylor, QC — Hunter Litigation Chambers, Vancouver

Contentious Account Passing

•proper account preparation
•preparing for the hearing
•pre-hearing conferences
•minors as beneficiaries
Amy D. Francis — Legacy Tax + Trust Lawyers, Vancouver
Registrar Kathryn S. Sainty — Supreme Court of British Columbia, Vancouver

Settlement of Estate Litigation

•releases, indemnities, and consents
•disclaimers and assignments
•court approval/confirmation of settlement
•costs considerations
M. Scott Kerwin — Borden Ladner Gervais LLP, Vancouver

Networking Break

Delusions and Impact on Capacity

•what constitutes a delusion that affects capacity
•effect of a mistake of fact
•recent developments in the law
Stanley T. Rule — Sabey Rule LLP, Kelowna

Contested Committeeship Applications

•recent case law update
•effect of a nomination of committee
•costs in contested proceedings
•division of responsibility between committee of estate and person
Deidre J. Herbert — McLellan Herbert, Vancouver

Tax Essentials For Estate Litigators

•rules related to deemed disposition and spousal rollovers
•avoiding double tax for corporate interests
•ways to minimize tax in settlement arrangements
James P. Shumka — Legacy Tax + Trust Lawyers, Vancouver

Easingwood v. Cockroft (Part 2)

In Part 1 of my posts on Easingwood v. Cockroft, 2011 BCSC 1154, I wrote that Madam Justice Dillon held that Reginald Henry Easingwood’s children validly settled a trust into which they transferred most of his wealth using their enduring power of attorney, while he was incapable of managing his affairs. After his death, Henry Easingwood’s widow, Kathleen Easingwood, challenged the trust and the transfer, but the Court held that they had the authority under the enduring power of attorney to settle the trust, and they had not misused it in doing so. You may read a summary of the facts in Part 1.

In this Part, I will discuss the second ground on which Mrs. Easingwood challenged the trust. She argued that the transfer was a fraudulent conveyance.

Under British Columbia’s Fraudulent Conveyance Act, if someone transfers assets “to delay, hinder or defraud creditors and others of their just and lawful remedies,” the creditor is entitled to have the transfer set aside. In a simple example, someone is sued, and they transfer their house to a family member or friend so that if they lose the lawsuit, their creditor cannot have the house sold to satisfy the court judgment. That is an example of a fraudulent conveyance, and that transfer is liable to be set aside by the court if the creditor asks the court to do so.

Mrs. Easingwood was making a claim under the Wills Variation Act to vary her late husband’s will. But the Wills Variation Act only gives the court the power to vary a will, and would not give the court any power to vary the provisions of the trust settled for Mr. Easingwood by his children during his lifetime. For this reason, it would be to her advantage if the trust and transfer of assets to it were set aside.

In previous court cases, claims to set aside a transfer as a fraudulent conveyance by someone who is making a claim under the Wills Variation Act have not been successful. A couple of these cases have been claims by children, who have asked the court to set aside transfers made by a parent as part of an estate plan that disinherited the child. The Supreme Court of British Columbia has said that if a child did not have any legal claim against the parent before the parent died, the child was not a “creditor or other,” and could not have the transfer set aside. (I wrote about a previous case, Mordo v. Nitting, 2006 BCSC 1761, in which a child unsuccessfully tried to have a transfer by his parent to a trust to avoid his future Wills Variation Act claim here.)

But, Mrs. Easingwood argued that when her husband’s children settled the trust, she did have a potential legal claim under the Family Relations Act. If there had been a breakdown of their marriage, Mrs. Easingwood could have claimed an interest in her husband’s assets under that Act. Accordingly, her argument went, she was a “creditor or other,” and the transfer should be set aside on the basis that it was intended to put the assets out of her reach.

Madam Justice Dillon rejected Mrs. Easingwood argument that she was “a creditor or other.” She wrote:

[51] In my view, in order to qualify as a potential claimant so to be a creditor or other within the meaning of the FCA [Fraudulent Conveyance Act], a spouse must either have begun an action under the FRA [Family Relations Act] or there must be an evidential basis to reasonably conclude that the claimant has a potential right or claim to have asserted entitlement to family assets on marriage breakup under s. 56 of the FRA. The plaintiff does not qualify under any of these criteria. Kay and Reg were happily married at all material times and there was no likelihood that the marriage was about to break up in November 2008. There were no irreconcilable differences between them, no periods of separation, or indicators of strife except for the stress of Reg’s illness. Kay always knew the terms of Reg’s will and the Trust does not depart from those terms. Kay had never said that the provision for her under the will was inadequate or indicated that she would contest it. She was never involved in decisions about Reg’s business or investments as she had recognized Reg’s desire for Hank and Lauren to manage his affairs in June 2007. She could have had access to the information in Reg’s accounts at the bank and she participated in discussions at the bank where it was clear that she was neither the decision-maker nor the beneficiary. There is no reality to a claim under the FRA when there is no evidence as to the value of any of either Reg's or Kay’s assets at the time of the marriage and no description of Kay’s present needs, notwithstanding the presumption in s. 60 and the provisions of s. 65 of the FRA. The marriage agreement which, I find, was applied by both Reg and Kay, kept Reg’s business and other assets that were transferred to the Trust as separate property of Reg. Kay kept her own property to herself. It is not sufficient for Kay to now maintain that she is a creditor or other because she might have brought a claim under the FRA if she and Reg had separated.

Madam Justice Dillon also rejected Mrs. Easingwood’s argument that she would have had a legal claim in unjust enrichment.

Even if Mrs. Easingwood were a “creditor or other,” Madam Justice Dillon found that Mr. Easingwood’s children settled and transferred the assets into the trust for the legitimate reason of ensuring continued management of Mr. Easingwood’s affairs if his son, Hank Easingwood, died before him. The trust was consistent with Mr. Easingwood’s will, and it was not set up to put the assets out of Mrs. Easingwood’s reach.

This case may narrow the circumstances in which a spouse may successfully have a transfer made by his or her deceased spouse set aside as a fraudulent conveyance on the grounds that the transfer would defeat a claim under the Family Relations Act. It suggests that the surviving spouse’s claim must be more than theoretical. There must be an air of reality to the Family Relations Act claim, such as a breakdown of the marriage, or the likelihood that the surviving spouse would have been successful in making a Family Relations Act claim. But I don’t read this case as precluding a surviving spouse from successfully set aside a transfer, and then pursuing the claim under the Wills Variation Act, in different circumstances than those found by Madam Justice Dillon in Easingwood v. Cockroft.

New Courthouse Libraries BC Practice Portal Blogs

Courthouse Libraries BC has published the Stream, a blog that helps lawyers and others interested in the law keep on top of developments in British Columbia law for quite some time.

Starting today, the Stream is publishing blog posts in five separate practice portals: Civil Litigation, Family Law, Personal Injury, Practice Management & Technology, and Wills & Estates. 

I had the privilege of writing the Forward for the Wills & Estates portal.

Easingwood v. Cockroft (Part 1)

The Supreme Court of British Columbia upheld a trust that was created by two children for their father using a power of attorney in a recent decision, Easingwood v. Cockroft, 2011 BCSC 1154. The trust was challenged by their father’s widow, Kathleen Easingwood, after his death. She argued that the power of attorney did not give them the authority to transfer his assets into a trust, and that the transfer was a fraudulent conveyance intended to defeat her potential claims under the Family Relations Act and the Wills Variation Act. The question of whether the transfer of assets to the trust was valid had important implications for Ms. Easingwood. If not, then the assets would fall into her husband’s estate, and would be subject to her Wills Variation Act claim.

In this post, I will discuss the issue of whether the children could validly set up a trust for their father using an enduring power of attorney. In a later post, I intend to discuss the issue of whether the transfer was a fraudulent conveyance.

Reginald Henry Easingwood was married to Kathleen Easingwood. They were married in 1983. He had four children with his first wife, who died in 1976. Two of his children died before him.

Before their marriage, Reginald Easingwood and Kathleen Easingwood had signed a marriage agreement, in which each gave up any claim to the other’s assets other than in accordance with the agreement or with their wills.

On April 18, 2001, Reginald Easingwood signed an enduring power of attorney, appointing two of his children, Lauren Cockroft and Hank Easingwood as his attorneys. The power of attorney provided that they must act together. This means that if either died, the other could not act under it.

On March 4, 2004, Mr. Easingwood signed his will naming the same two children as his executors. In the will he provided for a fund for his wife of $525,000 plus an adjustment for each year between the date of his will and his death, or 15 percent of his estate (whichever is greater). She would receive the income from the fund during her lifetime, and on her death, the fund would be divided among his then living children, the children of his deceased children, and his wife’s children. In the will, he also gave his wife a life interest in his house, and set aside $100,000 to pay for expenses for his house. He provided that the residue of his estate would go to his children and some of his grandchildren.

In 2007, Lauren Cockroft and Hank Easingwood were managing their father’s financial affairs. He was suffering from dementia and was no longer able to look after his own finances. Hank Easingwood was diagnosed with cancer, and he and Lauren Cockroft were concerned that if Hank Easingwood died before their father, Lauren Cockroft would not be able to act on her own under the terms of the power of attorney. Accordingly, she or someone else would have to apply to court to be appointed his committee (adult guardian). They were concerned that there could be a dispute over who would become their father’s committee.

In order to allow for the continued management of their father’s finances without having to make a court application, Lauren Cockroft and Hank Easingwood, used the power of attorney from their father to settle an alter ego trust on his behalf in 2008. They transferred substantially all of his wealth into the trust, except for his house, which remained in his name, subject to a life estate in favour of his wife. They were appointed as the first trustees, but the trust provided for the appointment of a successor trustee on Hank Easingwood’s death. The assets of the trust could only be used for Reginald Easingwood’s benefit during his lifetime. On his death, the terms of the trust mirrored his will. The trust provided for a fund for his wife, and for the house, and the residue of the trust funds would be divided in the same way as set out in his will.

Reginald Easingwood died September 12, 2009, after his son Hank Easingwood’s death.

The first question is whether an attorney appointed under a general enduring power of attorney had any authority at common law to settle a trust, without specific authorization in the power of attorney. Madam Justice Dillon held that there is no outright prohibition against attorney’s settling a trust. The issue is whether the attorneys were acting in breach of their duties of loyalty to their father in settling the trust in the manner they did. She wrote at paragraphs 36 through 38:

[36] It is undisputed that when the Trust was created in 2008, Reg lacked mental capacity to deal with his property. In this situation, the attorneys under the 2001 Power of Attorney held a continuing power without specific instructions from the donor except as set out in the instrument conferring the power (Banton v. Banton, 1998 CanLII 14926 at para. 183 (Ont.C.J.) [Banton]; Egli v. Egli, 2004 BCSC 529 at paras. 81-82). The power here was stated to “act together to be my attorney in accordance with the Power of Attorney Act and to do on my behalf anything that I can lawfully do by power of attorney”. As attorneys for Reg, Hank and Lauren had fiduciary obligations towards Reg as the donor, but not obligations as a general trustee for the benefit of others (Banton at para. 185). As such, they owed duties of loyalty, prudence, and good faith to Reg (Banton at para. 184). This is similar to the duties that a committee owes to a patient (O’Hagan v. O’Hagan, 2000 BCCA 79; British Columbia (Public Trustee) v. Bradley Estate, 2000 BCCA 78 at para. 16 [Bradley Estate]).

[37] As stated in Bradley Estate at paras. 16-17, there is not a clear rule against certain types of transactions and the question in all cases is whether a reasonable and prudent businessman would think that the proposal in question would be of benefit to the patient and to his family in light of the circumstances known at the time and that might arise in the future. Planning opportunities considered after obtaining tax or other professional advice are not to be denied a committee. There is no prohibition against transactions because they are not necessary. The goal is the proper management and administration of the patient’s estate.

[38] A power of attorney with the generalized power as here includes the power to settle an irrevocable inter vivos trust (Banton at para. 188). It follows that the question is not whether the terms of the power were wide enough for this purpose, but whether the trust should be set aside because, in exercising the power, the trustees were in breach of fiduciary duty to the donor (Banton at para. 188).

Madam Justice Dillon found that Lauren Cockroft and Hank Easingwood were legitimately concerned about the management of their father’s affairs after Hank Easingwood’s death. The trust mirrored his will. Accordingly, it reflected his wishes. The attorneys were entitled to establish a trust as an estate planning tool. She found that “it was reasonable and proper to create the Trust to effectively manage Reg’s affairs because the Trust did not go beyond what Reg himself had contemplated.”

The trust was validly settled.

Commentary
 This decision is a significant decision concerning the authority of an attorney acting under an enduring power of attorney.

But I urge caution to those considering using an enduring power of attorney to settle a trust especially if the power of attorney document does not have an express authorization. I have three main concerns.

First, I don’t know whether this decision will be appealed. Madam Justice Dillon relied to some extent on two decisions of the Court of Appeal, Bradley and O’Hagan, in which the British Columbia Court of Appeal held that in some circumstances a court appointed committee may engage in sophisticated corporate reorganizations to save the patient and his family income tax. (In O’Hagan, the court authorized the proposed transactions; in Bradley the court did not.) Although there are similarities between the duties of a committee and of an attorney under a power of attorney, the analogy is not a perfect one. Section 18 of the Patients Property Act provides that the committee must exercise its powers “for the benefit of the patient and the patient's family.” This may allow a committee greater latitude than an attorney under a power of attorney to consider the interest of other family members in, for example, creating an estate plan to save taxes.

Secondly, this decision considered the duties of an attorney under a power of attorney before the recent amendments to the Power of Attorney Act came into effect on September 1, 2011. The changes will likely have some implications to an attorney’s ability to engage in estate planning. For example, there are provisions which I wrote about here, setting out and limiting an attorney’s authority to use the power of attorney to make gifts. Would a transfer of assets into a trust that provides for beneficiaries on the death of the person who granted the attorney be gifts? If so, they must either come within the limitations of the Power of Attorney Act and Regulation, or be authorized by the power of attorney document.

Thirdly, it’s important to keep in mind that Madam Justice Dillon found that the attorney’s were acting for a valid reason, and that the estate plan perfectly mirrored the will. If the estate plan were designed to benefit some family members over others in a manner inconsistent with the will, I doubt the trust would have been upheld.

If you are giving someone an enduring power of attorney, consider whether you want to give the person you appoint the authority in the power of attorney to settle trusts for you or engage in corporate reorganizations on you behalf. Most powers of attorney don’t have these types of clauses, but you can have one inserted when you have the power of attorney made.

Changes to Incapacity Planning Legislation and new Standard Forms

Amendments to the legislation in British Columbia, including the Power of Attorney Act, and the Representation Agreement Act are now in force. They came into effect on September 1, 2011 (while I was on holidays).

The changes will require some changes in the forms used for enduring powers of attorney and representation agreements in British Columbia. The Ministry of the Attorney General has published some standard forms, which you may access from here.

The forms are not mandatory, and are not appropriate in all circumstances. I am working on modified forms for my clients.