Tuesday, July 16, 2013

Court of Appeal Varies Trial Decision in Chinn v. Hanrieder

The Court of Appeal, in reasons for judgment released on June 27, 2013, in Chinn v. Hanrieder, 2013 BCCA 310 (CanLII), reversed the trial judge’s holding that Ingrid Hanrieder held her interest in a family trust that held mineral rights on a secret trust for her late husband’s two children, Bette Chinn and Dennis Hanrieder. But the Court of Appeal upheld the trial judge’s decision that Ms. Hanrieder was contractually bound to give them interest in the trust.

I will repeat the facts as I set them out in my previous post on the trial decision.

Hugo Hanrieder wanted to leave some mineral rights in Saskatchewan to his two children, Bette Chinn and Dennis Hanrieder, who were the children from his first marriage.

He also wanted to his interest in his house, Registered Retirement Savings Plans and life insurance, and personal effects to go to his wife, Ingrid Hanrieder. He wanted his other assets to be held in trust for the benefit of his wife, and two children. This was his second marriage.

In April, 1989, Hugo Hanrieder instructed his lawyer to draft a will reflecting his intentions.

But, as his lawyer discovered, Hugo Hanrieder did not then have the legal right to leave his interest in the mineral rights to his children. Those mineral rights were held by him as a trustee of a trust settled by his mother in 1973 for the benefit of him and his siblings. The terms of the trust provided that on his death, his interest in the mineral rights would go to his spouse. He would need to get all of the beneficiaries of the trust to agree to change the trust agreement in order to obtain the right leave the mineral rights to his children, something that would be costly and inconvenient.

After he found out that he could not leave the mineral rights to his children, he told each of them in his wife’s presence of his intention that they, his children, would receive the mineral rights on his death. According to Dennis Hanrieder, when his father told him about what he wanted to do with the mineral rights, Ingrid Hanrieder said “I have no interest in them. I have money of my own.” Bette Chinn said that after her father told her of his intentions concerning the mineral rights, she asked Ingrid Hanrieder if that was okay. Ingrid Hanrieder said it was.

When Hugo Hanrieder and Ingrid Hanrieder bought a condominium in 1993, and instructed the lawyer handing the purchase to register the condominium in both of their names as joint tenants.

After Hugo Hanrieder’s death on December 8, 1997, Ingrid Hanrieder found out that their condominium had been registered in their names as tenants in common rather than as joint tenants. As a surviving joint tenant, Ingrid Hanrieder would have been entitled to transfer the title of the house into her sole name. But if the house were held as tenants in common, Hugo Hanrieder’s interest would fall into his estate to be dealt with under his will, in which case the children would have an interest in the house.

In May, 1998, Ingrid Hanrieder’s lawyer asked Hugo Hanrieder’s children to release any interest they might have in the house to allow it to go into Ingrid Hanrieder’s sold name. They agreed, but asked in return, for Ingrid Hanrieder to transfer her interest in the mineral rights to them. She agreed.

Until then, the mineral rights generated very little income.

After agreeing to transfer the mineral rights, Ingrid Hanrieder received a letter from Chevron Canada Resources advising that the mineral rights were now producing. Chevron advised that they would be paying back royalties of $43,500.

Ingrid Hanrieder refused to transfer the mineral rights to the children, and denied that she ever agreed to do so.

The children sued, alleging that Ingrid Hanrieder held the mineral rights in a secret trust for them, and that she had breached her agreement to transfer the rights to them. The trial judge agreed.

Ingrid Hanrieder appealed to the B.C. Court of Appeal.

Much of the case law on secret trusts arise out of wills. The will-maker provides a gift in the will to person A, intending that she hold it or give it to person B. The will-maker communicates his intention to A, and A accepts the obligation to hold or give it to B. On the face of the will, person A is entitled to the gift. There is no mention of person B in the will. Therefore, the trust is said to be a “secret trust.”

Court of Appeal held that the trial judge erred in her finding of a secret trust. 

The problem with the secret trust argument is that Hugo Hanrieder had no control over who would receive the mineral rights on his death, and he could not impose trust conditions on his wife. If Ingrid Hanrieder refused to give the mineral rights to his children, he couldn't  do anything to change the fact that she would be entitled to the mineral rights on his death, which was a provision of the original trust settled by his mother. He did not rely on a promise by her to leave the mineral rights to his children to make her a beneficiary as might be the case if he had the ability to make or change the beneficiary of the mineral rights in his own will.

Madam Justice Ryan wrote at paragraphs 66 and 67:

[66]        Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012) (“Waters”) describes a secret trust as this at p. 288:
Whenever a person takes property beneficially under a will or on an intestacy, and it is shown that during the testator’s, or the intestate’s, lifetime the devisee, legatee, or intestate successor undertook to hold the property on trust for specified objects, he will be held to that obligation on the death of the testate or intestate.  What must be shown is that there was a communication to the devisee, legatee, or interstate heir of the deceased’s intentions, and an acceptance by that person of the request that he hold the property on trust for the enumerated persons or purposes.  The communication is the most essential factor. Once it is established, acceptance, though vital, can be spelled out of the silence of the devisee, legatee, or heir.  The courts take the view that any person having received a request of this nature would be bound to say something if he rejected the idea that he himself should not enjoy the property beneficially.  The crucial requirements therefore being of communication and acceptance of trust obligation and trust objects, it is of secondary importance whether the deceased made his will on the strength of the acceptance, left his will unchanged on that basis, or allowed himself to die intestate relying on the fact that his intestate heir had accepted the trust.  [Emphasis added by CA.]
[67]        In my view this passage correctly states the law.  A secret trust is grounded on the fact that the testator has an interest in property which he or she can devise under a will or leave on an intestacy.  Mr. Hanrieder did not hold such property.  The trust agreement provided him with only a life interest.  On his death his interest was to go to his surviving wife.   Mr. Hanrieder was therefore in no position to extract promises or to create a trust with respect to property which, on his death, was no longer his to control.
But the Court of Appeal upheld the trial judge’s finding that Ingrid Hanrieder had a agreed to give her husband’s children the mineral rights in exchange for them releasing her from any claim to the condominium.

As a result, although the children receive the mineral rights, Mrs. Hanrieder only has to account to them for royalties she received in respect of the period after her agreement to transfer the rights to the children. Secondly, she may proceed with her claim against her former lawyer on the basis of her allegation that he did not have her instructions to agree on her behalf to give the children the mineral rights.

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