Sunday, November 27, 2022

Shamim Aidun Joins Sabey Rule


I am pleased to write that Shamim Aidun has recently joined our firm as an associate. 

Shamim has his law degree from the University of Birmingham in England. He articled and began a broad-range law practice in the Cariboo, but decided to return to his home town of Kelowna.

He is practicing with us primarily in estate planning, including drafting wills, powers of attorney and representation agreements: estate administration, including applications for probate;  and estate litigation, including negotiation and litigation of disputes relating to wills, incapable adults and trusts. 

Shamim also speaks Farsi fluently. 

Sunday, November 20, 2022

The Taciturn and Undemonstrative Men of Somerset

 

A mere promise to leave property to someone in the will is not enforceable. But, like so much in law, there are exceptions. One exception that sometimes arises occurs when the person who is promised property reasonably relies on the promise, making sacrifices as a result. The type of claim I am writing about has the rather inscrutable label “proprietary estoppel.” I have written about it before, including a Supreme Court of Canada case, Cowper-Smith v.Morgan, 2017 SCC 61.

The principle, as set out by Chief Justice McLachlin in Cowper-Smith, is as follows:

[15] An equity arises when (1) a representation or assurance is made to the claimant, on the basis of which the claimant expects that he will enjoy some right or 2017 SCC 61 (CanLII) benefit over property; (2) the claimant relies on that expectation by doing or refraining from doing something, and his reliance is reasonable in all the circumstances; and (3) the claimant suffers a detriment as a result of his reasonable reliance, such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on her word [citations omitted].

My favourite case is an English case predating Cowper-Smith. The name of the case is Thorner v. Majors, [2009] UKHL 18, but I refer to it as the “Taciturn and Undemonstrative Men of Somerset” case.  

Perhaps what’s most interesting about Thorner is how far the trial judge and ultimately the House of Lords were prepared to go to find that the farm owner made a representation that the claimant would receive his farm.

The plaintiff, David Thorner was a farmer who did substantial work for almost 30 years on his father’s cousin’s farm. He did so without pay. The farm was in Somerset, a seemingly irrelevant fact.

The cousin, Peter Thorner, did not ever expressly say he would leave David Thorner the farm.  There was, rather, some indirect statements and conduct that led the plaintiff to believe he would inherit the farm.  In 1990, for example, Peter handed over an insurance policy bonus notice to David, and said “that’s for my death duties.” There were other oblique statements implying that Peter would leave David the farm.

Peter did not leave David the farm, but died without a will.

The trial judge found that Peter was “a man of few words.” He also “was not given to direct talking. The simplest example…is that when Peter said ‘What are you doing tomorrow?’ he generally meant ‘Would you come and help me tomorrow.’”

In awarding to David the land, buildings live stock and other farm assets, the judge found that David had established the elements of proprietary estoppel. As quoted by Lord Walker of Gestingthorpe at paragraph  47, the judge  wrote:

With regard to all that David did at Steart Farm, and in looking after Peter, for the further fifteen or so years up to his death, there is again no need for me here to repeat the various relevant findings I have already made earlier in my judgment. David’s contribution was not only unremunerated, but also far in excess of that made by any of the others who helped at Steart Farm, whose roles I have reviewed in paras 74-80 above. He was encouraged to continue with his considerable and unremunerated commitment to this work by what was said and done by Peter on the various occasions I have already identified. There is a clear and sufficient link between that encouragement from Peter and what David did for him and on his farm.

The Court of Appeal reversed primarily on the grounds that Peter’s assurances were insufficiently clear and unambiguous to be reasonably relied upon. They were consistent with Peter expressing a current intention to leave David the farm, rather than as an assurance that he would leave the farm.

In the House of Lords, there are five separate judgments restoring the trial judge’s decision. The nub of the reasons in the House of Lords is that the trial judge considered the circumstances of Peter’s words and conduct, and the decision is entitled to deference. The trial judge considered Peter’s words and conduct in the context of the relationship between him and David and also in the context of the community in which they lived. Lord Walker of Gestingthorpe wrote:

59. In this case the context, or surrounding circumstances, must be regarded as quite unusual. The deputy judge heard a lot of evidence about two countrymen leading lives that it may be difficult for many city-dwellers to imagine—taciturn and undemonstrative men committed to a life of hard and unrelenting physical work, by day and sometimes by night, largely unrelieved by recreation or female company. The deputy judge seems to have listened carefully to this evidence and to have been sensitive to the unusual circumstances of the case.

Sunday, October 30, 2022

Cottrell v. Cottrell

 When assisting clients in creating trusts to benefit their children, I am sometimes asked about potential claims that a child’s spouse might make to trust assets if there is a breakdown of the child’s marriage or marriage-like relationship. Typically, the parent is concerned that if she puts assets into a trust to benefit her children, the trusts in fact benefit the children and not future ex-spouses of any child. I can’t give a definitive answer to that question, but a recent decision provides some comfort to parents creating trusts for their children, provided that the trust does not give the child the right to distributions or control of the trust. The case is Cottrell v. Cottrell, 2022 BCSC 1607.

Robert and Patricia Muster contributed all of the funds to two trusts: the Robert and Patricia Muster Family Trust and the Muster Joint Partner Trust. They were created in 2010 and 2011 respectively. The beneficiaries were Robert and Patricia Munster, their son, and their daughter Joanne Cottrell. The trusts are described in the decision as discretionary trusts in which the beneficiaries received distributions only at the discretion of the trustees.  (I suspect from the name, that there were restrictions in the Joint Partner Trust such that during the lifetimes of Robert and Patricia, all of the income was payable to them, and no one else would be entitled to capital until the last of them to die.) The Family trust held shares in a company, Muster Management Inc., and the Joint Partner Trust held investments.

When a trust is completely discretionary, no beneficiary has any particular entitlement until the trustees decide, and there is no certainty that the beneficiary will receive anything.

Robert and Patricia Muster were the original trustees of both trusts, but when Patricia Muster died in 2012, Joanne Cottrell and her brother became co-trustees with their father. Decisions required a majority vote. There was evidence that neither Joanne Cottrell or her brother were active in the management of the trusts and trust assets, and that their father considered that the assets of the trusts were his property during his lifetime.

Unfortunately, Mrs.  Cottrell’s marriage to Paul Cottrell broke down. Following their separation, she ceased to be a trustee of the trusts. In the litigation over the division of their property, Paul Cottrell claimed an interest in the trusts.

The way the Family Law Act (the “FLA”) in British Columbia works there is included family property, in which spouses share an interest on separation, and excluded family property, in which they do not. Because all of the funds in the trusts were contributed by Mr. and Mrs. Muster, and not by Joanne, her interest in the trust property is excluded. This is set out in section 85(1)(f):

85(1) The following is excluded from family property:

            …

(f) a spouse’s beneficial interest in property held in a discretionary trust

(i) to which the spouse did not contribute, and

(ii) that is settled by a person other than the spouse....

However, the increase in value of a spouse’s interest in excluded property during the marriage is included property, subject to a claim by the other spouse. This is set out in s. 84(2)(g) of the FLA:

84(2) Without limiting subsection (1), family property includes the following:

(g) the amount by which the value of excluded property has increased since the later of the date

(i) the relationship between the spouses began, or

(ii) the excluded property was acquired.

Paul Cottrell acknowledged that the assets settled on the trusts were not included family property, but he argued that the assets increased in value, and he is entitled to a portion of that increase, reflecting Joanne Cottrell’s interest in the trusts.

The contrary argument is that because the trusts were discretionary, Joanne has no property interest in the trust assets, she cannot compel any distributions to her, and her interest could be defeated such that she might not receive any distributions in the future.

Mr. Justice Brongers held in favour of Joanne Cottrell on this issue. He wrote:

[42]         Accordingly, the fundamental question to be determined is whether Joanne’s beneficial interest in the discretionary Muster Trusts has increased in value since Joanne acquired her interest on September 14, 2010 (in the case of the Family Trust) and on January 5, 2011 (in the case of the Partner Trust). Given that Paul is the party asserting a claim in respect of this alleged family property, which Joanne opposes, it is Paul that bears the burden of establishing that there has been such an increase in value.

[43]         On my assessment of the evidence presented, I am not satisfied that Paul has met this burden. In particular, I agree with the submissions of Joanne’s counsel that the uncertain nature of Joanne’s contingent beneficial interest in the Muster Trusts is such that it cannot be said that, at the time of the trial, there has been an “increase in value” of this interest. This uncertainty stems from the fact that Joanne has never had the actual or even an apparent ability to compel a distribution of the Muster Trusts, and has no reliable assurance regarding the specific extent to which she may receive such a distribution in the future. In these circumstances, the Court cannot find that Joanne’s beneficial interest in the property held in the Muster Trusts is greater now than it was when the trusts were settled. In the absence of such a finding, there is no “increase in value of excluded property” to which a s. 84(2)(g) FLA claim can be asserted. Paul’s request for a remedy in relation to such a claim must therefore be dismissed.

[44]         I have reached this conclusion notwithstanding Paul’s attempt to value Joanne’s interest in the Muster Trusts. Leaving aside my significant concerns about its reliability given the limited scope of the evidence tendered and the lack of a valuation opinion from a qualified expert assessor, Paul’s estimate relates to the property held in the discretionary trusts, not to Joanne’s beneficial interest in that property. As such, even if I had been inclined to accept his estimated values of the trust assets, they do not show that there has been an actual increase in the value of Joanne’s beneficial interest in these assets, which is all that can be claimed pursuant to ss. 84(2)(g) and 85(1)(f) of the FLA.

Doe this mean that a separated spouse will never have a FLA claim to an interest in a discretionary trust? I would not go that far. Key factors in this case were 

  1.  that Joanne Cottrell did not contribute any of the assets to the trusts,
  2. her interest was purely discretionary,
  3. she was never the sole trustee or in a position to require distributions be made to her, and
  4. in practice, she appears to have had little or no influence on the management of the trust and decisions about distribution. 

a.      One can envision cases in which, on reading the trust documents, the beneficiary appears to have no control, but in practice the beneficiary is the one making the decisions. In such circumstances, the outcome may be different if a separated spouse makes a family law claim.  

Mr.  Justice Brongers was careful to qualify his decision:

[47]         Before completing my consideration of this issue, however, I wish to be clear that my finding that Paul has not established that there has been an increase in value of Joanne’s beneficial interest in the Muster Trusts should not be taken as a conclusion of law that it is impossible to make a family property claim in respect of a spouse’s beneficial interest in a discretionary trust under the FLA. My finding is based on the evidence presented in this case, particularly the terms of the Muster Trusts instruments, as well as Mr. Muster and Joanne’s testimony about their intentions and expectations regarding these trusts. That evidence does not justify a conclusion that Paul is entitled to a remedy in relation to Joanne’s beneficial interest in the Muster Trusts. A different conclusion could well be reached in another case involving different trusts, trustees, beneficiaries, and spouses.

Sunday, October 16, 2022

Ghag v. Ghag

Last month, I wrote that the courts in British Columbia are reluctant to interfere with a trustees discretion when the trust instrument gives the trustee a wide discretion to make distributions to beneficiaries.  I used the case of Re Zaleschuk as an illustration of the deference courts often show to the exercise of a discretion. But,  as you will see below, there are limits to a court's deference to trustees, especially when the trustees prefer their own interest.

In Ghag v. Ghag, 2021 BCCA 106, Madam Justice Griffin set out the principles as follows:

[47]         A trustee’s exercise of wide discretion under the express terms of a trust will rarely be interfered with by a court. Nevertheless, there are grounds that may justify the court’s interference in the exercise of a trustee’s discretion. As summarized by Professor Waters, the court may interfere in the exercise of discretion by a trustee where:

a)    the decision is so unreasonable that no honest or fair‑dealing trustee could have come to that decision;

b)    the trustees have taken into account considerations which are irrelevant to the discretionary decision they had to make; or

c)     the trustees, in having done nothing, cannot show that they gave proper consideration to whether they ought to exercise the discretion.

(Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith, Waters’ Law of Trusts in Canada, 4th ed (Toronto: Carswell, 2012))

Sukie Ghag settled a family trust for the benefit of his wife, Charmaine, and his four children, after he was diagnosed with brain cancer. 100 Class A common shares of Abby Pharmacy Ltd. were held in the trust. He appointed his son Brendan as trustee and Charmaine as the alternate trustee. The terms of the trust included the provision:

… The Trustee shall exercise the powers and discretions given to him in what he deems to be the best interests, whether monetary or otherwise, of the Beneficiaries, whether or not such exercise may have the effect of conferring an advantage on any one or more of the Beneficiaries at the expense of the other Beneficiaries ….

 [emphasis in decision.]

Brendan Ghag took $100,000 out of the trust bank account, and he distributed 55 Class A common voting shares to himself, 15 Class A shares to each of the other children, and none to Charmaine. He also caused the company to allot 150 Class B common voting shares, ranking equally with the Class A shares, to himself.

Charmaine Ghag and the other three children brought a petition to remove him as trustee and appoint Charmaine, for an accounting, and for an order voiding the transfer and allotment of shares.

While consenting at the hearing of the petition to his removal as trustee, and to an accounting, Brendan alleged that the share transactions were in furtherance to a secret agreement he had with his father. He claimed that his father intended for him to receive control of the company in a tax-efficient way, and for his mother to receive no interest in the shares or voting rights.

In the Supreme Court, at 2021 BCSC 815, Mr. Justice Tammen heard the petition and granted the relief sought including declaring the transfer and issuance of shares void. He found that by acting in accordance with the alleged secret agreement, Brendan

took into consideration irrelevant and inappropriate considerations in exercising his discretion as trustee.  In addition, his decision to apportion the majority of the trust assets to himself and to exclude entirely one of the named beneficiaries is one that no even‑handed, fair minded trustee could have made in the exercise of his discretion.

The Court of Appeal upheld Mr. Justice Tammen’s decision. 

Saturday, September 24, 2022

Chung v. Chung

When a trustee or other fiduciary profits from a breach of their obligations, the court may award the profits to beneficiaries. This discourages trustees from wrongdoing,  and is referred to as disgorgement. The principle is illustrated by a British Columbia Supreme Court decision earlier this year.

In Chung v. Chung, 2022 BCSC 1592, Mr.  Justice Taylor imposed a constructive trust over the fiduciary’s residence and order him to pay occupational rent to the plaintiff in order to disgorge the benefit the fiduciary received through his breach of trust.

The plaintiff, Jae Chung, and the defendant Won Chung were brothers. They invested in two apartment buildings in the west end of Vancouver. The titles were held in two nominee companies, which were subject to bare trust agreements proportionate to the brothers’ respective interests. Won Chung managed the properties, while the plaintiff was a more passive investor. Won Chung refinanced the apartment buildings, Jae Chung also signing the necessary documents, but Won Chung deposited $1,664,966 in his personal account, without his brother’s knowledge. He later put the proceeds into GICs.

Subsequently, Won Chung cashed in 1,581,860 of the GICs and applied the funds to the purchase of a residence on South West Marine Drive (the “Marine Drive Property”) in 2014.  The total purchase price including GST was a little more $1,682,306, the difference made up in cash. Jae Wong was not aware of the use of funds until later.

After Jae Chung sued, the brothers entered into a partial settlement agreement which required certain accountings, but left open Jae Chung’s disgorgement, tracing and constructive trust claims in respect of the Marine Drive Property.

Jae Chung sought a 45% interest over the Marine Drive Property through a remedial constructive trust, representing his 45% equitable interest in the mortgage proceeds. Won Chung argued that Jae Chung’s remedy was limited to a return of his share of the funds improperly taken plus interest. He argued on the basis of Hallett’s Estate, (1880) 13 Ch D 696 (Eng. C.A.), that because he mixed his own funds with the trust funds the remedy is limited to a lien for the amount of funds taken in breach of trust.

Given the increase in value of Vancouver real estate, the difference is significant. The Marine Drive Property was appraised at $3,600.000 in 2021.

Mr. Justice Taylor rejected the argument that Jae Chung was limited to the amount of funds wrongfully appropriated, noting that Hallett’s Estate has been rejected by courts in both England and British Columbia. An award limited to the amount of funds plus interest would not further the goal of discouraging breaches of fiduciary duties. He wrote:

[77]         Further, it is my view that an award of interest only, as asserted by the defendants, would not serve the necessary prophylactic purpose in this context. If I were to grant the remedy sought by the defendants, it would have the effect of allowing Won to benefit from his breach of trust, since the more than doubling in market value of the Marine Drive Property (of just under $2 million) clearly substantially exceeds the value of any notional interest payments over that same period, with the result that Won would benefit from his breach of trust. Such a result is inconsistent with the policy objective of the disgorgement remedy, which is to deter faithless fiduciaries.

The trial judge applied the reasoning in Soulos v.Korkontzilas, 1997 CanLII 346, in holding that the criteria for a remedial constructive trust had been met imposed a constructive trust to the extent of a 45% interest in the Marine Drive Property.

Wong Chung argued that funds he used for renovations should be taken into consideration, but Mr. Justice Taylor did not find sufficient evidence that the renovations enhanced the value of the Marine Drive Property.

Mr.  Justice Taylor also found that Jae Chung was entitled to occupational rent equal to 45% of the rental value of the house less 45% of Wong Chung’s expenditures on utilities, insurance and property, for a total award of $128,314.


Saturday, September 17, 2022

Re Zaleschuk

 

Discretionary trusts are often drafted broadly permitting the trustees “absolute and uncontrolled discretion.” This may be so, even when the will maker or settlor had in mind creating a benefit for one beneficiary. Courts are reluctant to interfere with the trustee’s discretion in such cases, as long as the trustee is acting reasonably and in good faith.

In a recent case, Re Zaleschuk, 2022 BCSC 943, Justice A. Ross declined to remove trustees who had refused various requests for funds made by a beneficiary’s mother on behalf of the beneficiary. After Kenneth Zaleschuk (“Kenneth Sr.”) was diagnosed with cancer in 2014, he settled a trust for his son, Kenneth Jr., a young adult who had a learning disability and was unable to live independently. Kenneth Sr. was the initial trustee, and named his sisters as his successor trustees. His sisters became the trustees following Kenneth Sr.’s death in 2015.

Kenneth Jr. lived with his mother Marina Zaleschuck. She and Kenneth Sr. and divorced and there was evidence from Kenneth Sr.’s lawyer and financial advisor that in settling the trust, Kenneth Sr. was concerned about protecting the funds from his former spouse, and making sure there were sufficient funds for his son for life.

The trustees refused several requests from Marina for funds for Kenneth Jr. including funds for a motorized scooter, glasses, massage and acupuncture treatments, a new phone, a new laptop, travel expenses for a trip to Europe and a new headboard.

A petition was filed for Kenneth Jr. to remove his aunts as trustees and replace them with his mother. Although the petition was brought in his name, the trustees alleged that the litigation was being driven by his mother who had a power of attorney for him.

The trustees had provided funds totaling about $26,000 for Kenneth Jr. including travel expenses for trips with his sister, Marie, glasses and a helmet. They provided reasons for denying Marina’s requests including that she did not follow the procedure they put in place for requests, that they considered that some expenses were for items he did not need or, in the case of the scooter, potentially dangerous, and that some of the expenses were potentially covered under his disability benefits. They were willing to step aside as trustees provided that a professional trustee was appointed, but opposed Marina becoming the trustee.

In declining to remove the trustees, Justice Ross found that they were acting properly within the scope of their discretion. Justice Ross wrote:

[80]         Despite the criticisms leveled by the petitioner, I note that:

a)    the Trustees have released Trust funds to the benefit of Kenneth Jr. for travel and other items;

b)    they have considered and rejected other expenditures on the basis that they were not in Kenneth Jr.’s best interests (e.g., the motorized scooter) or they were unsure whether the Province may be reimbursing the expense;

c)     their actions have resulted in the capital increasing by more than $200,000 since 2015.

[81]         Although complaints have been leveled regarding the decisions of the current Trustees, I accept their submission that the Trust Deed imbues them with the full discretion to decide whether to pay amounts out of the Trust. On that point I accept this overarching submission of the Trustees:

They are exercising their discretion (as provided in the provisions of the Trust Deed) to make sure that there are sufficient funds to care for Kenneth Jr. for the rest of his life. At present, Kenneth Jr. lives with his mother and his regular expenses are covered by his disability benefits paid by the Province. At some point in the future, he will not be able to rely on living with his mother. The Trustees are administering the Trust in a fashion that will best ensure that there are funds available for his care in his later years. The Trustees submit that the Trust Document provides them with the full discretion to make those decisions.

Sunday, August 21, 2022

Supreme Courts of Scotland and Edinburgh High Court of Justiciary, Edinburgh Scotland



My friend and colleague Braeden Rahn sent me these photographs he took of Parliament House, where the Supreme Courts of Scotland sit, and the High Court of Judiciary, both in Edinburgh, Scotland. Braeden is a law student at the University of Victoria and a paralegal at Geoffrey White Law Corporation in Kelowna. As is evidenced by this photograph he sent me of the Advocate pub, also in Edinburgh, he does find time for dinner.