The tort of civil fraud (as opposed to criminal fraud) was reviewed by the Supreme Court of Canada in Bruno Appliance and Furniture Inc. v Hyrniak 2014 SCC 8 and concluded there are four elements .
18 The classic statement of the elements of civil fraud stems from an 1889 decision of the House of Lords, Peek v. Derry(1889), L.R. 14 App. Cas. 337 (U.K. H.L.), where Lord Herschell conducted a thorough review of the history of the tort of deceit and put forward the following three propositions, at p. 374:
First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false…. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.
19 This Court adopted Lord Herschell’s formulation in Parna v. G. & S. Properties Ltd.(1970), [1971] S.C.R. 306 (S.C.C.), adding that the false statement must “actually [induce the plaintiff] to act upon it” (p. 316, quoting Anson on Contract). Requiring the plaintiff to prove inducement is consistent with this Court’s later recognition in Snell v. Farrell [1990] 2 S.C.R. 311 (S.C.C.), at pp. 319-20, that tort law requires proof that “but for the tortious conduct of the defendant, the plaintiff would not have sustained the injury complained of”.
20 Finally, this Court has recognized that proof of loss is also required. As Taschereau C.J. held in Angers v. Mutual Reserve Fund Life Assn. (1904), 35 S.C.R. 330 (S.C.C.) “fraud without damage gives … no cause of action” (p. 340).
21 From this jurisprudential history, I summarize the following four elements of the tort of civil fraud:
(1) a false representation made by the defendant;
(2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness);
(3) the false representation caused the plaintiff to act; and
Rubin Estate v Rubin Estate 2017 ONSC 1404 dealt with an application of prohibiting Lawyer from acting for her siblings and mother who were being sued by one daughter.
The lawyer in question had previously given US tax advise on a ” no names basis” and the court found that this did not warrant sufficient grounds to prohibit the lawyer from acting as counsel.
2. Lawyers can be prohibited from acting against a person where:
a. the lawyer has received relevant confidential information from the person attributable to a lawyer client relationship; and
b. there is a risk that the lawyer will use the person’s confidential information to the prejudice of the person.
Ontario v. Chartis Insurance Co. of Canada, 2017 ONCA 59 (Ont. C.A.) (CanLII) at para.33.
In the leading Supreme Court of Canada case on this topic, MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235 (S.C.C.), Mr. Justice Sopinka adverted to this very issue.
In discussing the need to protect the client’s confidentiality during a motion to remove opposing counsel, Sopinka J. held that clients cannot be required to prove that their former lawyer had confidential information because “[i]n order to explore the matter in depth may require the very confidential information for which protection is sought to be revealed.”
To avoid this conundrum, the Supreme Court of Canada created a rule under which all that a former client needs to do is to show that there was a previous relationship between the client and the lawyer related to the lawyer’s current, adverse retainer, and the court will then infer that confidential information was imparted to the lawyer by the former client unless the lawyer proves otherwise.
Moreover, if the lawyer wants to try to prove that no confidential information was disclosed to him or her, the lawyer’s burden “must be discharged without revealing the specifics of the privileged communication.” See MacDonald Estate at pp. 1260 and 1261.
Accordingly, I do not have to assess whether a lawyer who receives information on a “no names” basis has a duty akin to a law firm marketing its services to a potential client as discussed in Ainsworth Electric Co. v. Alcatel Canada Wire Inc., 1998 CarswellOnt 2162 (Ont. Master).
Nor do I have to try to balance the applicant’s right to a lawyer of her choosing against the respondents’ right to protection of their confidences in a solicitor client relationship. In light of the disclosure of the email, there is no more confidential information in the hands of the applicant’s firm and therefore there is no risk of the applicant’s lawyer illicitly using any confidential information in his firm’s possession.
It occasionally occurs in estate litigation that parties conspire with others to defeat the claims of a party that give rise to a court pleading of the tort of conspiracy.
For example, I recently had a situation where the executor attempted to sell the property to a third party for about 2/3 of the fair market price and in effect cheat the beneficiary of the rightful amount of the sale.
It was clear that the executor conspired with the phony purchaser to buy the property and then resell it at it’s fair market value then spit the substantial ill gained “profit”.
Norkum v Fletcher 2017 BCSC 382 involved the requirements of pleading the tort of conspiracy. the plaintiff sought leave of the court to amend his claim that:
The plaintiff alleged he was deceived by Ms. Fletcher throughout their relationship. He alleged he was induced by Ms. Fletcher to believe that their relationship was exclusive; and that he intended, and understood Ms. Fletcher to have intended, that they would make a life together as a couple. He further alleged that he was led to believe by Ms. Fletcher that the two of them would ultimately occupy Lot 9 together, and that he provided her with expensive gifts, loans, and other forms of support; and, that he caused MAN to hire her as a human resources manager, paying her a salary, in respect of which he seeks to add MAN as a plaintiff.
18 As a matter of general pleading, R. 3-1(2)(a) clearly states that a notice of civil claim must “set out a concise statement of the material facts giving rise to the claim”.
19 Further, the requirements at common law for the particularization of all material facts said to underlie a claim for conspiracy are as summarized by Saunders J.A. in Watson v. Bank of America Corporation, 2015 BCCA 362[Watson]:
(i) an agreement or concerted action between two or more persons;
(ii) with the predominant purpose of causing injury to the plaintiff; and
(iii) overt acts committed that cause damage to the plaintiff.
[126] The standard for pleading a conspiracy is well-recognized as strict. In Can-Dive, Chief Justice McEachern adopted the meticulous judgment of Mr. Justice Esson in Thompson v. Coquitlam (District) (1979), 15 B.C.L.R. 59 at 63 (C.A.):
It is well settled that the gist of the tort of conspiracy is not the conspiratorial agreement alone, but that agreement plus the overt acts causing damage.
[127] Chief Justice McEachern added:
[8] Esson J. also cited Bullen, Leake & Jacob’s Precedents of Pleadings, 12th ed. (1975), p. 341. The current edition of Bullen, Leake & Jacob’s Precedents of Pleadings, 13th ed. (1990), states at p. 221-22:
The statement of claim should describe who the several parties to the conspiracy are and their relationship with each other. It should allege the conspiracy between the defendants giving the best particulars it can of the dates when or dates between which the unlawful conspiracy was entered into or continued, and the intent to injure . . . It should state precisely the objects and means of the alleged conspiracy to injure and the overt acts which are alleged to have been done by each of the alleged conspirators in pursuance of the conspiracy, and lastly, the injury and damage occasioned to the plaintiff . . .
[Emphasis added.]
20 Saunders J.A. went on to state:
[132] I agree with the defendants that the import of Can-Dive, based as it is in Thompson and Bullen, Leake & Jacob, extends beyond a stay to the requirements for pleading conspiracy to injure. I also agree that Can-Dive does more than describe an aspirational standard, it addresses the requirements of a valid pleading of conspiracy to injure. The standard, at the end, is the one stated by Chief Justice McEachern: “pleadings alleging conspiracy must be as specific as possible”.
The Ontario Court of Appeal in Moore v Sweet 2017 ONCA 182 discussed the concept of constructive trusts that had been pronounced by the Supreme Court of Canada in the decision Soulos v. Korkontzillas 1997 2 SCR 217 in rejecting the claim of a named beneficiary of an insurance policy during her 20 year marriage to the deceased, who after separating from her, irrevocably named his new partner of 13 years as the beneficiary of the same insurance policy.
The wife argued on appeal that she should remain the beneficiary of the insurance policy under the equitable principle of ” good conscience”, but the appeal court reversed the trial decision and held that she should be the beneficiary of the policy stating :
“There is nothing in the circumstances of this case that would provide the basis for a “good conscience” constructive trust when the facts do not support such a trust based on unjust enrichment or wrongful act, and it is therefore unnecessary to determine whether such a third category of remedial constructive trust continues to be available in view of the Supreme Court of Canada’s decision in Soulos v. Korkontzilas, [1997] 2 S.C.R. 217.”
The wife had not been made an irrevocable beneficiary designate which the insurance act treats as basically airtight and difficult to set aside.
Good Conscience” Constructive Trusts
100 There has been considerable debate in the jurisprudence and in academia about whether resort to the remedial constructive trust in Canada is now limited to two categories since the Supreme Court of Canada’s decision in Soulos — unjust enrichment and wrongful acts — thereby eliminating resort to a more elastic “good conscience” trust, i.e., one based on no more than a sense of fairness to the effect that it would be “against all good conscience” to deny a plaintiff recovery in the circumstances of a particular case. At the end of the day, Ms. Moore submits that good conscience is satisfied by giving effect to the oral agreement without which the Policy would not have continued to exist.1
101 It has long been accepted that equity is quintessential never-say-never terrain, and that concepts respecting its application develop with the times and to meet the needs of particular circumstances. This long-standing principle may work against establishing a completely closed set of categories as the foundation for imposing a remedial constructive trust.
102 At the same time, McLachlin J. was pretty clear in Soulos that, while a constructive trust “may be imposed where good conscience so requires” (para. 34), “[t]he situations which the judge may consider in deciding whether good conscience requires imposition of a constructive trust may be seen as falling into two general categories” (unjust enrichment and situations where property had been obtained by a wrongful act) (para. 36). It was her view that “[w]ithin these two broad categories, there is room for the law of constructive trust to develop and for greater precision to be attained, as time and experience may dictate” (para. 43). Rothstein J. re-affirmed this view in Professional Institute of the Public Service of Canada v. Canada (Attorney General), 2012 SCC 71, [2012] 3 S.C.R. 660, at paras. 144-145.
103 I do not think it is necessary to resolve this debate for purposes of this appeal.
104 Most of the authorities in which courts have been willing to override a beneficiary designation can be explained on the basis of an agreement between one of the claimants and the insured that removed the insured’s ability to designate a later beneficiary.2 As noted earlier, Shannon involved a separation agreement in which the insured undertook to name his first spouse as a beneficiary irrevocably. In Bielny, the separation agreement required the insured to name the children of the first marriage as irrevocable beneficiaries. In Fraser v. Fraser, the trial judge found on the facts that the terms of the separation agreement requiring the insured to maintain the plaintiff as beneficiary were tantamount to an irrevocable designation.
105 Whether these authorities need to be re-examined in light of Soulos, as suggested in some authorities — see, for example, Love v. Love, 2013 SKCA 31, 359 D.L.R. (4th) 504 — is not something that need be determined here. As I have concluded above, it was not open to the application judge on this record to hold that the oral agreement between the Moores constituted an equitable assignment, or that it was tantamount to an irrevocable beneficiary designation.
106 Absent those considerations, I do not see anything in the circumstances of this case that would place it in some other “good conscience” category not caught with the rubric of either wrongful act (not asserted here) or unjust enrichment. For that reason, I do not see the need to resolve the foregoing debate about whether Soulos has restricted the categories for imposing a remedial constructive trust to unjust enrichment or wrongful act or whether there remains some additional “good conscience” basis.
107 Simply because wrongful act is not asserted, and unjust enrichment is unsuccessful, does not mean that some other “good conscience” basis must exist on the facts. To engage in such an exercise, on this record at least, it seems to me, would undermine the rationale for creation of the juristic reason element in the first place.
The Ontario Court of Appeal in Reiter v Hollub 2017 ONCA 186 reviewed the law of unjust enrichment and dismissed a 6 year common law spouse’s claim that she should share in the increase in the property value of the matrimonial home owned by her male spouse .
The appeal Court reviewed the law of unjust enrichment and in particular the Supreme Court of Canada’s decision in Kerr v Barranow 2011 SCC 10.
The appellant, Jessica Reiter, appeals from the dismissal of her application for an interest in the increase in equity of a home owned by the respondent, Tiar Hollub, which she shared during their six year common law relationship.
Ms. Reiter advanced her claim on the basis of unjust enrichment. She argued that she had contributed to the $410,000 increase in the net value of the home over the course of the relationship. She relied on contributions she made to common living expenses and to the maintenance and repair of the residence. She also relied on the fact that she had given Mr. Hollub a one-time payment of $5,000 toward the mortgage.
Ms. Reiter also took the position that her relationship with Mr. Hollub amounted to a joint family venture as defined in Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269.
The application judge held that Ms. Reiter was unable to establish a joint family venture to support the requested remedy. She found no evidence that would support a conclusion that Ms. Reiter’s contributions had led to an increase in the value of the property. The application judge also found that the evidence did not support a joint family venture as defined in Kerr v. Baranow. As to Ms. Reiter’s $5,000 payment toward the mortgage, the application judge held that although Mr. Hollub had been enriched to Ms. Reiter’s detriment as a result of this contribution, his retention of the payment was justified by the parties’ agreement to share living expenses.
I see no reason to interfere with the application judge’s rejection of Ms. Reiter’s claim for a proprietary interest in the house. The application judge’s conclusions about the circumstances of Ms. Reiter’s contribution to expenses and about the nature of the relationship are entitled to deference. I would therefore dismiss that aspect of Ms. Reiter’s appeal. However, I would allow the appeal on the treatment of the $5,000 lump sum payment to Mr. Hollub.
In Kerr v. Baranow, at para. 31, Cromwell J. recognized that “[a]t the heart of the doctrine of unjust enrichment lies the notion of restoring a benefit which justice does not permit one to retain”. Since the Supreme Court’s 1980 decision in Pettkus v. Becker, [1980] 2 S.C.R. 834, unjust enrichment principles have been available to support claims made by domestic partners upon the breakdown of their relationship.
17 The test for unjust enrichment is well-settled. To establish unjust enrichment, the person advancing the claim must prove three things:
An enrichment of or benefit to the defendant;
A corresponding deprivation of the plaintiff; and
The absence of a juristic reason for the enrichment.
18 There are two steps to identifying whether there is a juristic reason for the responding party to retain the benefit incurred. First, the court must consider whether the case falls within a pre-existing category of juristic reason, including a contract, a disposition of law, donative intent, and other valid common law, equitable or statutory obligations: Kerr, at para. 43. If a case falls outside one of these established categories, the reasonable expectations of the parties and public policy considerations become relevant in assessing whether recovery should be denied: Kerr, at para. 44.
19 In Kerr v. Baranow, at para. 46, the Supreme Court outlined two possible remedies where unjust enrichment is established — a monetary award or a proprietary award. The court counselled, at para. 47, that the first remedy to consider is always the monetary award and that, in most cases, a monetary award is sufficient to remedy the unjust enrichment.
20 To obtain a proprietary award, the person advancing the claim based on unjust enrichment must demonstrate that monetary damages are insufficient and that there is a sufficiently substantial and direct causal connection between his or her contributions and the acquisition, preservation, maintenance or improvement of the disputed property: Kerr, at paras. 50-51. A minor or indirect contribution will not suffice.
21 The court held that there are two different approaches to valuation for a monetary award: Kerr, at para. 55. First, a monetary award may be based on a quantum meruit, value received or fee-for-services basis. Second, a monetary award may be based on a value survived basis. This is where the joint family venture analysis becomes relevant.
22 To receive a monetary award on a value survived basis, the claimant must show that there was a joint family venture and that there was a link between his or her contributions to the joint family venture and the accumulation of assets and/or wealth: Kerr, at para. 100. Whether there is a joint family venture is a question of fact to be assessed in light of all of the relevant circumstances, including the four factors noted above — mutual effort, economic integration, actual intent and priority of the family: Kerr, at para. 100.
23 Justice Cromwell was careful to note that cohabiting couples are not a homogenous group: Kerr, at para. 88. The analysis must therefore take into account the particular circumstances of each relationship. The emphasis should be on how the parties actually lived their lives, not on their ex post facto assertions or the court’s view of how they ought to have done so: Kerr, at para. 88.
24 While the four factors identified above are helpful to determine whether the parties were engaged in a joint family venture, there is no closed list of relevant factors: Kerr, at para. 89. The factors Cromwell J. suggested were not a checklist of conditions, but a useful approach to a global analysis of the evidence and examples of relevant factors that a court may take into account: Kerr, at para. 89.
In order to create a valid trust the “three certainties” must be present- the certainty of the intention to impose enforceable trust obligations on the trustee, the certainty of the subject matter to be included in the trust and the certainty of objects, a clearly identifiable group of persons entitled to benefit from the trust.
Dusanjh v Wright Estate 2017 BCSC 340 involved a discussion of the three certainties, but primarily dealt with the certainty of intention.
The deceased was a sophisticated businessman and the argument advanced by the plaintiffs was that certain documents such as the articles of association of a company of which the deceased was the principal shareholder created a trust in favour of his children.
The court dismissed the claim finding inter alia that there was no certainty of intention on the part of the deceased to create a trust.
THE LAW
(a) Certainty of Intention
[63]With respect to the first certainty, what must be shown is “an intention on the part of the settlor to impose enforceable trust obligations on the trustee. The language used by the settlor is critical and must show a clear intention that the recipient of the trust property holds that property on trust”: Mordo v Nitting 2006 BCSC 765at para. 293.
[64]While it may be useful for the settlor to use such words as “trust” or “trustee”, no such wording is required to create a trust: Donovan W.M. Waters, Mark R. Gillen and Lionel D. Smith, Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012) at 204; Re Kayford, [1975] 1 All E.R. 604 at 607. Even conduct may suffice. The question is one of fact: McInerney v. Laass, 2015 BCSC 1708 at para. 40:
… In the absence of formal documentation creating a trust, the court may infer an intention to create a trust from the surrounding circumstances. Evidence of what the parties intended, what they actually agreed upon and how they conducted themselves will be considered (Elliott at paras. 26 and 28).
[65]The petitioners rely on a series of cases, primarily involving laypeople and more informal circumstances, whereby the courts held trusts to exist without formal documentation or wording: Union Bank of Chicago v. Wormser, 256 Ill. App. 291; Re Kayford, supra. In Paul v. Constance, [1977] 1 All E.R. 195 (Eng. C.A.), the alleged settlor was described as a man of unsophisticated character and the trust was created by him telling his girlfriend that the money in a particular account was as much his as it was hers.
[66]The executors do not disagree that courts are capable of inferring a trust in a document without express language. However, they contend that a court should be less willing to do so when documents prepared by a lawyer do not contain specific and clear declarations of trust: Daley, Kero, Morgan and Wong v. OHR Whistler Management Ltd., 2007 BCSC 383 at para. 14:
[14] I find no trust is created by the terms of the Hotel Management and Rental Pool Agreement. This is a sophisticated legal document prepared by lawyers to create a very specific and defined bundle of legal rights. If it was intended that a trust be created, I would expect a trust would have been expressly stipulated.
[67]Further, the following principles may weigh against an inference of the establishment of the certainty of intention:
·the parties to the agreement may alter the terms of the agreement without reference to the alleged beneficiaries: Mohr v. C.J.A., [1989] B.C.J. No. 2083 (S.C.), aff’d [1991] B.C.J. No. 209 (C.A.);
·the parties to the agreement may cancel the agreement without reference to the alleged beneficiaries: Mohr;
·the agreement is not in the form of a declaration of trust; there is no settlor, no disposition of trust property from a settlor to a trustee and no express declaration of trust by a trustee: Khavari v. Mizrahi, 2016 ONSC 101 at para. 48;
·the parties to an agreement do not treat the agreement as a trust in their dealings with third parties: Khavari, supra at para. 55; and
·it is possible for certainty of intention to be found even where the settlor retains legal title to the item, provided the beneficial ownership is transferred: Elliott (Litigation Guardian of) v. Elliott Estate, 2008 CarswellOnt 7448 (S.C.J.) at para. 37.
[68]I do not find that the Articles established a trust in favour of the petitioners. While a court may infer a trust in a document that does not contain express language to that effect, I am not satisfied that it is appropriate to do so here. I base this conclusion on the following:
·Mr. Wright was familiar with the legal requirements of a trust and had previously set up the Alter Ego Trust and was in the process of setting up the Joint Partner Trust;
·the fact that Mr. Wright chose to create the trusts through formal trust documents prepared by his lawyer suggests that, if he wished to set up a trust for the petitioners, he would have done so in a similar manner, or, if he chose to do so through the Articles, he would have made it expressly clear that he was setting up a trust;
·Mr. Wright was a highly sophisticated businessman and the Articles were drafted by a lawyer based on instructions from him. It is doubtful that a sophisticated businessman working with a lawyer for many years would not have inserted express language to set up a trust if that had been the intention. The majority of cases put forward by the petitioners considered laypeople who set up trust situations without knowing it or using express words. Mr. Jamieson and Mr. Wright were fully aware of how to effect a trust and the lack of express language, while not fatal to the existence of a trust, points away from a trust existing;
·the fact that Mr. Wright chose to give the shares to his children in his Will and clearly considered he had provided for them by his Will, supports the conclusion that there is no trust. If Mr. Wright had set up a trust, there would have been no need to distribute the shares through his Will;
·if subsequent conduct may be considered pursuant to a finding of ambiguity, the fact that Mr. Wright issued the contested Preferred Shares to himself personally and issued the Yun Preferred Shares to himself as trustee for the Joint Partner Trust is helpful in demonstrating his intention. If Mr. Wright had considered himself a trustee, it is likely that he would have issued the shares to himself in that capacity, as he did with the Yun Preferred Shares; and
·the Articles could have been amended at any time without the knowledge or consent of the petitioners, which is inconsistent with a trust. The shares could also have been revoked at any time.
[69]I conclude that the requisite certainty of intention does not exist.
Reprinted with the kind permission of the following presenters who are experts in Disability law.
PRESENTED BY: KEN M. KRAMER, Q.C., PRINCIPAL & SENIOR ASSOCIATE COUNSEL KMK LAW CORPORATION & HALLDOR K. BJARNASON, BARRISTER & SOLICITOR ACCESS LAW GROUP
TRENDS IN BC’S DISABILITY LANDSCAPE
As of August 2015, there were approximately 96,000 people receiving disability assistance in BC.
The Ministry (SDSI) will provide about $976 million in disability assistance in 2015-16, an increase of 162% since 2001–02.
Funding of more than $5 billion a year is being allocated towards programs and services for people with disabilities.
Government has set a goal of making B.C. the most progressive place in Canada for people with disabilities with the Accessibility 2024 plan.
DISABILITY AND ESTATE PLANNING
When an estate plan needs to include a beneficiary with a disability, many practical, tax and disability benefit issues must be considered.
SDSI provides disability assistance to Persons with Disabilities (PWD) who require financial or health support and are unable to fully participate in the workforce.
Proper planning will ensure that beneficiaries with disabilities continue to receive disability assistance
TRUSTS AND DISABILITY
To achieve a greater level of certainty, estate planning will often involve the use of Trusts.
Notwithstanding recent legislative and policy changes, Trusts continue to be a very effective vehicle in planning for individuals with disabilities.
In particular, they offer great value where the person with a disability is unable to manage money for themselves due to capacity issues and/or has a higher level of susceptibility to exploitation
Trusts also preserve access to provincial disability benefits.
WHY A DISABILITY TRUST?
Funds in a trust are not treated as an asset of a person receiving disability assistance. The beneficiary continues to qualify for assistance.
Trusts provide a way for a person on PWD or their family to transfer and safeguard assets. The trust can cover disability-related costs now and in the future while the beneficiary remains eligible for disability assistance
QUALIFIED DISABILITY TRUSTS
Changes in Federal Income Tax Act (effective January 1st, 2016)• Bill C-43, which received Royal Assent on December 16, 2014, introduced a new type of trust to benefit individuals with disabilities: the Qualified Disability Trusts (“QDT”).
• QDT:one of two exceptions where a testamentary trust, during its lifetime, will be taxed at a graduated rate instead of at the highest marginal rate (47%) on income generated in the trust.
• The other exception is known as a “Graduated Rate Estate” (GRE) which only have graduated tax rates for a maximum of 36 months
QDT CRITERIA
“Electing Beneficiary”
Defined in subsection 122 (3) as a beneficiary of the trust that qualifies for the disability tax credit in their taxation year that ends within the trust’s taxation year; and
Does not make a QDT election with any other trust.
Electing beneficiaries must be a “named” beneficiaries
FURTHER QDT QUALIFICATIONS
The trust must be resident in Canada for the tax year.
The trust must make a joint election with a “qualifying beneficiary” to be a QDT.
At the end of the taxation year, the trust must have arisen on, and as a consequence of, a particular individual’s death.
OTHER PLANNING NOTES FOR QDT
Late Filled Election
One of the pitfalls of the QDT election is that there is no relief for a late filed election. This means that if your client does not elect to have the trust treated as a QDT on time, the trust will be taxed at the highest marginal rate for the year.
Must be named beneficiaries
The QDT definition specifically requires that electing beneficiaries be named beneficiaries in the instrument under which the trust was created. This may not always be true with a testamentary trust.
Recovery Tax
A QDT may be subject to a recovery tax under subsection 122(2) of the ITA in respect to a previous year.
A QDT recovery tax will be triggered if any of the following occur:
a) None of the beneficiaries at year- end is an electing beneficiary for the previous year.
b) The trust ceases to be resident in Canada.
A capital distribution is made to a non-electing beneficiary.
When a trust does not qualify as a QDT tax-efficient investing becomes important.
Strategies to consider when planning for the use of a QDT:
Have the person with the disability as the only beneficiary to ensure the recovery tax will not apply.
Be mindful that an electing beneficiary may only make the election with one trust for each taxation year. As examples, planning can be done to benefit from the QDT election by:
Having the insurance proceeds paid to the estate instead of a trust.
With multiple trusts, choosing the trust with the highest income the QDT.
Ensure that an electing beneficiary has the capacity to make a joint election to be QDT.
Such in election may be difficult to make in the case where an electing beneficiary does not have the capacity to make such an election. In such a case, a court appointed guardian may be required in order to successfully make the election.
Life insurance trusts may be QDTs. As proceeds of life insurance may be significant, it would be prudent to consider whether such trust should be designated as the QDT.
If a spouse is eligible for the DTC, it is possible for a testamentary spousal trust to qualify as a QDT.
Dusanjh v Wright Estate 2017 BCSC 340 sets out the law relating to interpreting contracts when there is an ambiguity as to it’s meaning.
The children of the deceased brought a petition that argued the deceased had established a trust in their favour and the court in dismissing their petition set out the principles for the interpretation of the documents that were before the court. The children argued that the documents established a trust in their favour but the court disagreed , found no trust was established and dismissed the petition.
THE PRINCIPLES OF CONTRACTUAL INTERPRETATION
38 The most current law in British Columbia on the principles of contractual interpretation is British Columbia (Minister of Technology Innovation and Citizens’ Services) v. Columbus Real Estate Inc., 2016 BCCA 283 at paras. 41-47 citing Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 [Sattva]:
[41] The goal of interpreting an agreement is to discover the objective intent of the parties at the time the contract was made. In Sattva, the Supreme Court of Canada affirmed the “modern approach” to contractual interpretation. It held that the interpretive process involves reading the agreement in question “as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract” Paras. 47, 50 [emphasis added in British Columbia (Minister of Technology Innovation and Citizens’ Services)].
[42] Sattva confirmed that the surrounding circumstances are relevant to contractual interpretation regardless of whether there is ambiguity in the contract. In this regard, Whitmore J.A.’s observations in Directcash Management Inc. v. Seven Oaks Inn Partnership, 2014 SKCA 106 at para. 13 are apposite:
Prior to the Supreme Court’s decision in Sattva, it was not clear that the surrounding circumstances or the “factual matrix” of the contract had to be taken into account when interpreting a contract. The Supreme Court had earlier suggested in Eli Lilly & Co. v. Novopharm Ltd. [1998] 2 S.C.R. 129at para 55 — 56 that the surrounding circumstances only had to be considered when the contract was ambiguous. Sattva has made it clear that the surrounding circumstances are relevant, whether or not there is an ambiguity in the contract.
[43] The principle that surrounding circumstances must be considered represents the longstanding law in British Columbia: see 0930032 B.C. Ltd. v. 3 Oaks Dairy Farms Ltd. 2015 BCCA 332 at paras. 3 — 5 [Oaks Dairy]. In Oaks Dairy, Newbury J.A., writing for the court, commented that, “[i]t may be that the Supreme Court in Sattva was only encouraging courts to be even more receptive to considering evidence of “factual matrix” to elucidate the interpretation of contracts” (Emphasis in original; para. 6). See also the decision of Lambert J.A. in Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 49 B.C.L.R. (3d) 317 (C.A.) at paras. 19-20.
[44] I would add that in Sattva, the Court discussed the difficulty of discerning objective intentions by reading the bare words of a contract in absence of a consideration of the surrounding circumstances, and that consideration of them is part of the interpretive process at paras. 47-48:
[47] . . . the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:
No contracts are made in a vacuum: there is always a setting in which they have to be placed . . . In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.
(Reardon Smith Line, at p. 574, per Lord Wilberforce)
[48] The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement . . . .
[45] The Court then discussed the role and nature of the “surrounding circumstances” in contractual interpretation at para. 57:
While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62).
[46] The Court discussed what kind of evidence may be considered under the “rubric” of surrounding circumstances at para. 58:
The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann, “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man” (Investors Compensation Scheme, at p. 114). Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact.
39 Any determination of whether the Articles are ambiguous cannot be determined unless the factual matrix is first considered. It is therefore necessary to determine whether the two letters of September 21, 2005 are included in the factual matrix, or, as Randy argues, are inadmissible.
40 In Sattva at paras. 59 to 61, Rothstein J. stated:
[59] It is necessary to say a word about consideration of the surrounding circumstances and the parol evidence rule. The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing (King, at para. 35; and Hall, at p. 53). To this end, the rule precludes, among other things, evidence of the subjective intentions of the parties (Hall, at pp. 64-65; and Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129, at paras. 54-59, per Iacobucci J. [Eli Lilly]). The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack a written contract (United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316, at pp. 341-42, per Sopinka J.).
[60] The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.
[61] Some authorities and commentators suggest that the parol evidence rule is an anachronism, or, at the very least, of limited application in view of the myriad of exceptions to it (see for example Gutierrez v. Tropic International Ltd. (2002), 63 O.R. (3d) 63 (C.A.), at paras. 19-20; and Hall, at pp. 53-64). For the purposes of this appeal, it is sufficient to say that the parol evidence rule does not apply to preclude evidence of surrounding circumstances when interpreting the words of a written contract.
The plaintiff’s claim was dismissed with costs and the defendant sought double costs under Rule 9-1(5) on the basis that the defendant made an offer to settle that should have been accepted by the plaintiff.
The application for double costs was dismissed as the court stated:
15 However, I do not consider the defendants’ offer to have been one that ought reasonably to have been accepted by the plaintiffs. In assessing reasonableness, I cannot consider the ultimate decision in the case. At the time of the defendants’ offer they were essentially asking the plaintiffs to give up their claim entirely and, in addition, pay the future premiums for the life insurance policy. Accepting the offer would have required the plaintiffs to completely accept the defendants’ position. Furthermore, no rationale was provided by the defendants to the plaintiffs for the terms of the offer.
In Hartshorne v. Hartshorne, 2011 BCCA 29, our Court of Appeal offered some guidance when a trial court is asked to award double costs.
11 At para. 25 the Court of Appeal states:
[25] An award of double costs is a punitive measure against a litigant for that party’s failure, in all of the circumstances, to have accepted an offer to settle that should have been accepted. Litigants are to be reminded that costs rules are in place “to encourage the early settlement of disputes by rewarding the party who makes a reasonable settlement offer and penalizing the party who declines to accept such an offer. (Authorities are cited)
12 The Court goes on to state, at para. 27:
[27] The first factor — whether the offer to settle was one that ought reasonably to have been accepted — is not determined by reference to the award that was ultimately made. Rather, in considering that factor, the court must determine whether, at the time that offer was open for acceptance, it would have been reasonable for it to have been accepted . . . the reasonableness is to be assessed by considering such factors as the timing of the offer, whether it had some relationship to the claim (as opposed to simply being a “nuisance offer”), whether it could be easily evaluated, and whether some rationale for the offer was provided.
Forbes v Millard Estate 2017 BCSC 361 discusses and gives effect to S. 48 WESA , known as the anti-ademption provision, when property is disposed of by a nominee such as a power of attorney prior to death that under common law the bequest would have failed.
In McDougald Estate v. Gooderham (2005), 255 D.L.R. (4th) 435, 17 E.T.R. (3d) 36 (Ont. C.A.) [McDougald Estate], the Ontario Court of Appeal explained the concept of ademption: ” [1] Wills often contain bequests, which are directions that specific items of property are to be given to named recipients upon the testator’s death. Sometimes the specified item cannot be found among the testator’s assets at the time of death. This can happen because the item is lost, destroyed, sold or given away before the testator dies. At common law, in such a situation, the bequest is held to have adeemed and the gift fails. If there are proceeds from the disposition of the item of property, the proceeds fall into residue and are distributed accordingly. The proceeds are not given to the named beneficiary.”
Section 48 WESA was enacted to deal with ademption and applies to a will, whenever it was executed, if the will maker dies on or after March 31, 2014 when WESA came into effect.
S. 48 WESA states:
48 (1) In this section, “proceeds” means the gross proceeds at the time of disposition, and includes
(a) non-monetary consideration, and
(b) in the case of a gift, the fair market value of the gift.
(2) If property that is the subject of a gift in a will is disposed of by a nominee, the beneficiary of the gift is entitled to receive from the will-maker’s estate an amount equivalent to the proceeds of the gift as if the will had contained a specific gift to the beneficiary of that amount.
(3) Subsection (2) does not apply if
(a) the disposition is made to carry out instructions given by the will-maker at a time when the will-maker was legally capable of giving instructions, or
(b) a contrary intention appears in the will.
THE FACTS:
The deceased executed a will in September 2000 where she left her daughter “any property which I may own and be using as a home at the date of my death”.
The deceased became mentally incompetent and five years later, her attorneys appointed under an enduring power of attorney sold her only property for $185,000″
The deceased died In February 2015.
Accordingly, the deceased did not own property at the time of her death, and that common-law such a bequest would have adeemed since it no longer existed.
The petitioner successfully argued that because the property was sold by a nominee, namely an attorney under a power of attorney, S 48 ( 2) of WESA applied and that her daughter should accordingly receive the sale proceeds of the property, just as if the will had contained a specific gift of the proceeds of the sale.
The court also relied on S. 186, of WESA stating that the transitional provisions of WESA contained in Section 4 applied to a will, whenever executed, if the will maker dies on or after the date of March 31, 2014 which was the case.
The court concluded that S 48 is not retrospective in its general nature and that it did not operate retrospectively in this particular case.
Moreover, even if section 48 is retrospective in nature it does not interfere with vested rights. There were no vested rights in this fact pattern because the respondent’s rights were only vested on the death of the deceased.
The deceased had expressed clear intentions in her will as to the reasons that she wished her daughter to receive the bequest of the property, and it was only because she was incapable that the attorneys sold the property after she went into a rest home.
To fail to give effect to the anti-ademption provision in such circumstances would in the courts view inappropriately frustrate the deceased’s clear intentions.
