Supreme Court of British Columbia Declares Hearing Fees Unconsitutional

In a decision released on May 22, 2012, Mr. Justice McEwan held that hearing fees charged by the Government of British Columbia for trials are unconstitutional.

The fees, which currently do not apply to the first three days of trial, but are $500 for each day for the 4^th through 10^th day of trial, and $800 for each day thereafter are charged to the party who sets a matter down for trial pursuant to Schedule C of the Supreme Court Civil Rules.

Vilardell v. Dunham, 2012 BCSC 748, arose out a custody case in which one of the parties applied to be relieved from the obligation to pay the hearing fees (which were charged at a different rates at the time of the custody case).

Mr. Justice McEwan heard arguments from the Attorney General of British Columbia, the Canadian Bar Association – British Columbia Branch, and the Trial Lawyers Association of British Columbia, as well as the parties. He considered expert economic evidence concerning the effect of the fees on access to the courts.

After an extensive review of the arguments, a careful analysis of the function of our courts, now and historically (going back to the Magna Carta), and a review of the history of the court fees, Mr. Justice McEwan held that the fees were an impermissible barrier to access to the courts.

To summarize and paraphrase his reasoning, the superior provincial courts play a central role in Canada’s constitutional democracy. They are the arbiter of the relative powers of the federal and provincial governments under the Constitution Act, 1867, and between the government and individual under the Canadian Charter of Rights and Freedoms. They also play a central role by providing for resolution of private disputes according to the rule of law.

Assess to the courts underpins our democracy in a manner analogous to the right of free expression and the right to vote. Limitations made by government on access to the courts undermine the rule of law and constitutional democracy.

He wrote at paragraphs 346 and 347:

[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 Sauvé, 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 Sauvé 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.

The hearing fees, in contrast to other more modest fees for services, such as filing fees, do represent a significant barrier to individuals, limiting and rationing access to the courts. The executive branch of government has in imposing the fees impermissibly interfered with functioning of the judicial branch. Mr. Justice McEwan wrote at paragraph 425(3):

(3)   Hearing fees are a barrier to access imposed by one branch of government over another. For the reasons I have set out, this creates a constitutionally untenable appearance of hierarchy. The court cannot fulfill its democratic function as an independent and impartial arbiter between government and the individual, or between individuals, if the government limits those who may come before the court by means of financial or procedural deterrents. In this respect, the AGBC’s position that as long as the government does not interfere with the cases the court is permitted to hear judicial independence is respected, is an inappropriately constricted view of the court’s constitutional place. So is the notion that it may tell the public, whose interests may occasionally be adverse to those of government, that for them the courts are a “valued but last resort.” Courts must be available to the public on precisely the same basis as they are available to government: as a place they are free to attend when they seek an authoritative determination of a right or legal position according to law. Going to law is not a form of failure or an act of deemed unreasonableness: it is better understood as an affirmative act of faith in the authority of the law.

The implications of this decision go beyond the hearing fees at issue. Mr. Justice McEwan was critical of the shift in the manner governments in British Columbia over the last couple of decades have envisioned the court system, from a common good, funded by taxpayers, to a marketplace commodity, funded on a user pay basis. He wrote at paragraphs 429 through 431:

[429]     On the other hand, the courts are, by definition – that is, constitutionally – a common good. They are a first charge on government, not a “service” that competes for what is left over after government organizes its other priorities. It undermines the fundamental values of democracy, federalism and the rule of law informing the Constitution, elaborated in the case law, and evident in our history, to put a “price on justice” or to purport to re-imagine the courts as “services.” The position taken by the AGBC [Attorney General of British Columbia] in this case has shown not merely an error in its approach to an aspect of financing the courts, but a significant misunderstanding by the government of its responsibilities under, and the limitations on, its constitutional mandate under s. 92(14) of the Constitution Act, 1867.

[430]     In What Money Can’t Buy, The Moral Limits of Markets, (Farrar, Straus and Giroux, New York 2012), Michael J. Sandel observes:

At a time of rising inequality, the marketization of everything means that people of affluence and people of modest means lead increasingly separate lives. We live and work and shop and play in different places. Our children go to different schools. You might call it the skyboxification of American life. It’s not good for democracy, nor is it a satisfying way to live. 

 Democracy does not require perfect equality, but it does require that citizens share in a common life. What matters is that people of different backgrounds and social positions encounter one another, and bump up against one another, in the course of everyday life. For this is how we learn to negotiate and abide our differences, and how we come to care for the common good.

 [431]     The Court is an essential forum of that common life, and cannot perform its necessary function if it, like so much else, is subject to the values of the marketplace the government has used to justify the fees. Some things cannot be for sale.

The Attorney General of British Columbia may appeal this decision, and Mr. Justice McEwan’s reasons may not be the last word in the courts. But irrespective of what the British Columbia Court of Appeal or Supreme Court of Canada may ultimate decide, his eloquent discussion of the fundamental role of our courts in civil society would be a good starting point of debate among British Columbians about how the Government of British Columbia funds not only British Columbia courts, but also other programs such as legal aid that are necessary for those who have the greatest need to get meaningful access to the courts. 

Thiemer Estate

What does “money” mean? Is it just cash? Or does it include bank accounts? How about Guaranteed Income Certificates? Mutual funds? Mortgages? Shares of companies traded on stock exchanges? Shares of companies that are not traded on stock exchanges?

Making a gift of “money” in a will can create interpretation problems, even when the will includes a definition of money. This is illustrated by the recent Supreme Court of British Columbia decision in Thiemer Estate, 2012 BCSC 629.

When Randy Thiemer died on August 7, 2008, he left an estate consisting of assets worth over $20 million. The assets included real estate in Vancouver that he left to his common law spouse, Gigi Schlappner, GICs worth about$ 1.4 million, and shares in privately held companies worth over $14 million as well as shareholder loans owing to him of about $900,000.

In addition to the real estate, he left his personal effects and the balance of “any money” he may have at the time of his death to Ms. Schlappner. He also directed his executors to cause the directors of one of the companies to transfer a Cadillac to her.

He left a total of $7 million in cash bequests to his brother, a niece, nephews and friends.

In his will, he directed that his executors and trustees would hold the residue of his estate in trust during Ms. Schlappner’s life. She would receive the income of the trust, and the trustees had discretion to use the capital for her benefit. On her death, the trustees were to distribute the remainder of the trust among Mr. Thiemer’s brother, sister, niece, three nephews and parents.

Mr. Thiemer’s will included a definition of “money”:

For the purposes hereof, the word “money” will include the balance of any monies in any savings and current accounts in my name, any savings certificates, shares and bonds but excluding the proceeds of any insurance policies or registered retirement savings plans.

One of the questions Madam Justice Dardi was asked to consider in this case was whether “money” included Mr. Thiemer’s shares and shareholder loans.

When considering the meaning of words in wills, you can’t just look them up in a dictionary, or even use meanings ascribed to the words in previous court decisions. The approach the courts in British Columbia take is to attempt to determine the will-maker’s subjective meaning by considering the words in the context of the will as a whole, and the will-maker’s circumstances when the will was made.

Madam Justice Dardi described the principles applied by the courts to interpret wills in paragraphs 48 through 51:

[48]         In keeping with contemporary judicial thinking, the courts of this province have favoured the subjective approach to interpreting wills, wherein the objective is to ascertain the actual meaning the testator ascribed to the words he or she used in the will. In determining the testator’s intention the courts have endorsed the analytical approach commonly described as the “armchair rule”. The rule requires that the court put itself in the position of the testator at the point in time when he or she made the will, and from that vantage point construe the language in the will in light of the surrounding facts and circumstances known to the testator.

[49]         In Re: Burke, the Ontario Court of Appeal articulated the guiding principles which were cited with approval by our Court of Appeal in Davis Estate v. Thomas (1990) 40 E.T.R. 107 (B.C.C.A.) and Smith v. Smith Estate, 2010 BCCA 106, at paras. 18 and 28 respectively:

... Each Judge must endeavour to place himself in the position of the testator at the time when the last will and testament was made. He should concentrate his thoughts on the circumstances which then existed and which might reasonably be expected to influence the testator in the disposition of his property. He must give due weight to those circumstances in so far as they bear on the intention of the testator. He should then study the whole contents of the will and, after full consideration of all the provisions and language used therein, try to find what intention was in the mind of the testator. When an opinion has been formed as to that intention, the Court should strive to give effect to it and should do so unless there is some rule or principle of law that prohibits it from doing so.

[50]         Although the primary source of evidence is the “four corners” of the will, the armchair rule entitles the court to look to extrinsic evidence to identify the surrounding circumstances known to the testator at the time the will was made which might reasonably be expected to influence the testator in the disposition of his or her property. The facts and circumstances that a court may consider include the occupation of the testator, the state of his or her property, and the general relationships of the testator to his or her immediate family and other relatives: Kaptyn Estate (Re), 2010 ONSC 4293 at para. 38. The weight of the authorities demonstrates that the modern judicial approach to interpreting a will is to admit all the evidence regarding the surrounding circumstances at the start of the hearing and then to construe the will in the light of those surrounding circumstances. Ambiguities in the will may only become apparent in the light of the surrounding circumstances: Rondel at paras. 23‑24.

[51]         Since the meaning of words in wills can differ so much according to the context and circumstances in which they are used, previously decided cases are of limited assistance except in so far as they may express general principles of construction. This notion has repeatedly been embraced by Canadian courts: Kaptyn Estate (Re) at para. 32; Perrin at 406; Re: Burke at 398.

Applying the “armchair rule,” Madam Justice Dardi found that Mr. Thiemer did not intend to include shares in privately-held companies (as opposed to shares of public companies traded on stock exchanges) in the gift of money to Ms. Schlappner. There were several reasons to conclude that the reference to “shares” in the definition of “money” included only shares in public companies, and not the shares in the private companies held by Mr. Thiemer:

1.                The other things in the list of inclusions as money, such as savings and current accounts, savings certificates and bonds were easily converted into money. Publicly-traded shares are also readily sold for money, but private shares are not.

2.                  If the shares of the companies were included in the gift of money to Ms. Schlappner, she could have arranged to have the Cadillac transferred to her by the directors, and the provision that the trustees require the directors to do so would not have been necessary.

3.                  Mr. Thiemer appointed three trustees, including two legal advisors, and he gave them extensive powers for managing his businesses in his will. These provisions were consistent with the view that he intended for the shares of the company to be held in the trust, and for his trustees to manage the companies, rather than for the trustees to distribute the shares to Ms. Schlappner.

4.                 If the shares of the companies were part of the gift of money to Ms. Sclappner, then substantially all of the estate would be distributed in the specific gifts, and there would be little value that would fall into the spousal trust. The creation of the spousal trust, and the gift of the remainder on Ms. Schlappner’s death to relatives with whom the court found Mr. Thiemer had close relationships, would be an “empty gesture.” A finding that the shares were not comprised in the gift of money to Ms. Schlappner was more consistent with the overall scheme of distribution in the will.

Madam Justice Dardi found that the gift of money did include the GICs, but did not include a mortgage owed to Mr. Thiemer, which was more in the nature of an interest in land than money. She also found that the shareholder’s loans were not generally easily liquidated, and accordingly were not intended in the gift of money. Tax refunds and a CPP death benefit were not money he had at his death, but were payable later. Accordingly she found that they were not included in the gift of money. 

Dhingra v. Dhingra

I have written previously about the public policy rule in Canada that a murderer may not inherit from his victim. Nor may he collect life insurance on the life of the person he has killed. More broadly, the public policy prohibits a criminal from profiting from his crime.

The rule is clear-cut when someone murders another, but what about lesser offenses. If someone drives while driving with more than the permitted alcohol-to-blood ratio in his system and as a result gets into an accident that kills his spouse, may he still recover life insurance proceeds on her life? What if there is no alcohol, but the driver was guilty of careless driving? Or how about speeding? The line isn’t always easy to draw.

What if the husband kills his wife, but is found not criminally responsible for the death on account of a mental disorder?

The question of whether someone who has been found to not be criminally responsible because of a mental disorder (or to use the older language, is not guilty by reason of insanity) of killing another may collect life insurance on the deceased’s life was recently considered by the Ontario Court of Appeal in Dhingra v. Dhingra, 2012 ONCA 261 (CanLII). In that case Ved Dhingra hit is former wife several times with a marble statue causing her death. He was charged with second degree murder, but found not criminally responsible by reason of a mental disorder.

Mr. Dhingra applied for the proceeds of a life insurance policy on his wife’s life of about $50,000. The Ontario Superior Court of Justice denied his claim, and he appealed to the Court of Appeal.

The Court of Appeal held that public policy did not prohibit someone who was not criminally responsible by reason of a mental disorder from recovering the insurance proceeds on the life of the person he killed. In those circumstances, the person receiving the insurance proceeds is not considered criminally or morally blameworthy for the death to fall under the public policy rule.

Justice Rosenberg noted that many other common law countries have similar exemptions from the public policy rule:

[25] The approach in other common law countries is generally to exempt persons with a mental disorder that would give rise to an insanity defence from the effect of the public policy rule. For example, in the United States, those states that have adopted § 2-803 of the Uniform Probate Code would exempt persons who are not “criminally accountable for the felonious and intentional killing of the decedent”. Most so-called “slayer statutes” similarly exempt the insane beneficiary from operation of the public policy rule: see Laurel Sevier, “Kooky Collects: How the Conflict Between Law and Psychiatry Grants Inheritance Rights to California’s Mentally Ill Slayers” (2007) 47 Santa Clara L. Rev. 379; and Gary Schuman, “Life Insurance and the Homicidal Beneficiary: The Insurer’s Responsibilities Under State Slayer Laws and Statutes” (2001) 51 Fed’n Def. & Corp. Counsel Q. 197.

[26] This same approach is generally followed in other common law jurisdictions such as Australia and New Zealand. In the United Kingdom, the common law would seem to exempt from forfeiture someone who was not guilty of “deliberate, intentional and unlawful violence, or threats of violence”: see R. v. National Insurance Commissioner, ex parte Connor, [1981] 1 All E.R. 769 (Div. Ct.), at p. 774. Thus, a person found not guilty by reason of insanity would not be subject to the forfeiture rule: see Chris Triggs, “Against Policy: Homicide and Succession to Property” (2005) 68 Sask. L. Rev. 117, at p. 126. In any event, even if the forfeiture rule did apply to an insane accused, the common law has been varied to give the court discretion not to apply the forfeiture rule where “the justice of the case requires the effect of the rule to be so modified”; the court is to consider “the conduct of the offender and of the deceased and ... such other circumstances as appear to the court to be material”: see the Forfeiture Act 1982 (U.K.), 1982, c. 34, s. 2(2).

The Court of Appeal considered Ontario’s Civil Remedies Act that allows the Attorney General to apply for an order forfeiting property that is the proceeds of an unlawful activity. Under the legislation, the Attorney General may apply for forfeiture even if the person against whom the order is sought was not criminally responsible by reason of a mental disorder. The Court of Appeal held that although the Civil Remedies Act allows the Attorney General to make a forfeiture application, the legislation does not alter the common law public policy rule.

Sabey Rule Website

My law firm, Sabey Rule LLP, has a new website here.

Proposals for a New Society Act

The British Columbia Law Institute has published its Supplementary Report on Proposals for a New Society Act. The Supplementary Report is in response to the Ministry of Finance's Society Act Review Discussion Paper, December 2011, which contains proposals for significant reforms to British Columbia's Society Act which governs not-for-profit organizations incorporated under B.C. legislation.

New Limitation Act Has Passed First Reading

Bill 34, a new Limitation Act has been introduced into the Legislative Assembly of British Columbia on April 16, 2012. It has passed First Reading.

The proposed new legislation simplifies the current Limitation Act to some extent, adopting a limitation period of two years from the date the person suing knew, or should reasonably have known, that he or she had a claim. The current Limitation Act has a variety of different limitaiton periods, including 2 years, 6 years and 10 years for different types of claims.

It should be noted that not all claims will be covered by the two year limitation period under the proposed new legislation, and some types of claims will continue to be governed by limitation periods set out in other statutes, such as the Wills Variation Act.

The new Act will, if passed, reduce the ultimate limitation period for most claims from 30 years to 15 years.

Bill 34 includes many of the recommendations in the B.C. Ministry of the Attorney General's “White Paper on Limitation Act Reform,” which I summarized in this previous post.

Fundy Settlement v. Canada

The Supreme Court of Canada released its decision today in Fundy Settlement v. Canada, 2012 SCC 14 (CanLII), holding that the residence of a trust under the Income Tax Act, Canada is the place where the central management and control of the trust is exercised. This will not always be the same place as where the trustees or the majority of them reside.

In Fundy Settlement two Canadian business persons, Myron Garron and Andrew Dunin, set up trusts, using a corporate trustee, incorporated and resident in Barbados, to hold an interest in their business, through holding companies. I have written about the trusts and the planning in more detail in my post on the decision of the Tax Court of Canada, but suffice it to say, the trustee sold the shares of the holding companies at a substantial profit of about $450 million. The trustee argued that the trust was a resident of Barbados, which did not have capital gains tax. Canada Revenue Agency argued that the trust was resident in Canada, and subject to Canadian income tax.

Judge Woods in the Tax Court found that although the trustee was a resident of Barbados, decisions concerning the trust were made by the Mr. Garron and Mr. Dunin, with the assistance of their advisors in Canada. The trustee deferred to their directions, and did not have a large role in the management of the trust. She held that the residence of the trust for tax purposes was Ontario, Canada, rather than Barbados. The Federal Court of Canada upheld Judge Woods’s decision, and the trustee appealed to the Supreme Court of Canada.

The Supreme Court of Canada also upheld the Tax Court’s decision. The Supreme Court of Canada relied in part on provisions of the Income Tax Act, Canada that treated a trust as a person, and reasoned that for tax purposes the same tests should apply to a trust that apply to a corporation when determining residency. The Court said at paragraphs 14 and 15:

[14] On the other hand, there are many similarities between a trust and corporation that would, in our view, justify application of the central management and control test in determining the residence of a trust, just as it is used in determining the residence of a corporation. Some of these similarities include:

1) Both hold assets that are required to be managed;

2) Both involve the acquisition and disposition of assets;

3) Both may require the management of a business;

4) Both require banking and financial arrangements;

5) Both may require the instruction or advice of lawyers, accountants and other advisors; and

6) Both may distribute income, corporations by way of dividends and trusts by distributions.
As Woods J. noted: “The function of each is, at a basic level, the management of property” (para. 159).

[15] As with corporations, residence of a trust should be determined by the principle that a trust resides for the purposes of the Act where “its real business is carried on” (De Beers, at p. 458), which is where the central management and control of the trust actually takes place. As indicated, the Tax Court judge found as a fact that the main beneficiaries exercised the central management and control of the trusts in Canada. She found that St. Michael had only a limited role ― to provide administrative services ― and little or no responsibility beyond that (paras. 189-90). Therefore, on this test, the trusts must be found to be resident in Canada. This is not to say that the residence of a trust can never be the residence of the trustee. The residence of the trustee will also be the residence of the trust where the trustee carries out the central management and control of the trust, and these duties are performed where the trustee is resident. These, however, were not the facts in this case.

I have a couple of comments on this case. First, this case does not preclude using trusts for planning to minimize taxes. But it is not enough for the legal paperwork to look good it you want the residence of the trust to be in another jurisdiction, whether in a different province of country. If you want the trust to have a different residence than yours for tax purposes, you must give a trustee in that jurisdiction real control and decision-making powers. You won’t be able to continue to call the shots.

Secondly, this decision relies in part on the provisions of the Income Tax Act, Canada that treat a trust as a person, which is different from the common law in Canada. It is possible that a trust can be a resident of Canada for tax purposes, but the law of a different jurisdiction might still govern the interpretation of the trust, or the enforcement of a beneficiary’s claim against a trustee for breach of trust. I don’t read the decision as saying that the central management and control test determines the residency of a trust for all purposes.