Whether a will is prepared by a lawyer or a layman, it is often the case that the will or a portion thereof is unclear as to its intention or meaning, and when that is the case is referred to the Supreme Court of British Columbia to interpret the will or portion thereof that needs interpretation.
The recent decision of Re Ali Estate 2014 BCSC 340, involved in interpretation of the words” my interest in the company “.
The deceased owned shares of the company operated with his brother, and left an estate valued at $9 million including the company worth approximately 1/2 that amount .
The testator was owed a shareholders loan as well as a debt from the company under a promissory note.
In his will the testator left 70% of my interest in the company to his brother.
On an application to interpret the meaning of that clause, the court found on the proper interpretation of the will as a whole and in light of the circumstances known to the will maker at the date of the will, that the testator intended the shareholders loan and the promissory note to be included in the bequest of his interest in the company.
THE LAW Re INTERPRETATION OF WILLS
The general principles which govern the disposition of this matter are not controversial. In Thiemer Estate, 2012 BCSC 629, I summarized the governing principles as follows:
[45] In construing a will, the objective of the court is to ascertain the intention of the testator as expressed in his or her will when it is read as a whole in light of any properly admissible extrinsic evidence: Rondel v. Robinson Estate, 2011 ONCA 493, at paras. 23-24; Theobald on Wills, 15th ed. (London: Sweet and Maxwell, 1993) at 199. It is a cardinal principle of interpretation that the testator’s intention is to be gathered from the will as a whole and not solely from those provisions which have given rise to the controversy: Perrin v. Morgan,[1943] A.C. 399 at 406 (H.L.); Re: Burke (1960), 20 D.L.R. (2d) 396 at 398-399 (Ont. C.A.).
[46] Another fundamental tenet affirmed by an established line of authorities is that the court is to ascertain the expressed intention of the testator – the meaning of the written words used in the particular case – as opposed to what the testator may have meant to do when he or she made the will: Perrin at 406.
[47] Earlier lines of authority endorsed an objective approach to will interpretation. However, modern jurisprudence recognizes that a strict literal approach can defeat the intention of the testator, thereby leading to unjust results: Law Reform Commission of British Columbia, Report on Interpretation of Wills, LRC 58 (Victoria, MAG, 1982) at 6. The liberal interpretive approach finds its roots in the seminal decision of the House of Lords in Perrin.
[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.
.
[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.
The court will also in its interpretation of the will, look to the ordinary meaning of words as per a reputable dictionary.
The Canadian Oxford Dictionary, 2d ed., defines interest as:
…
5 (a) “A financial stake (in an undertaking, etc.)”.
(b) “A legal concern, title or right (in property)”.
[32] The Dictionary of Canadian Law, 2d ed. defines interest as:
Something which a person has in a thing when that person has advantages, duties, liabilities, losses or rights connected with it, whether ascertained or potential, present or future”
[33] The ordinary meaning of “interest” is expansive and in my view the ordinary meaning of an “interest” in a company is not limited to shareholdings in that company. It follows that in gifting his “interest in the Company”, the Deceased intended to dispose of more than his shares in the Company. It is reasonable to conclude that in the context of the Will, the Deceased intended to bequeath the entirety of his financial stake in the Company, including any indebtedness owing to him by the Company, be it a shareholder’s loan or other debt evinced by a promissory note.
[34] Recourse to the armchair rule and consideration of the circumstances known to the Deceased at the time he made the Will also support the conclusion that he intended that the Shareholder’s Loan and Promissory Note were to be included in the subject bequest.
Special costs , in a nutshell means that the losing party pays all the legal fees of the winning party, and are being awarded on an increasingly frequent basis for reprehensible behavior.
The general public by and large for many decades already thought that was the law, but in fact, it is a relatively new development, especially in estate litigation.
As a matter of trial practice , awards of special costs are actually rare, and the award of costs, while discretionary and based on a number of factors, rarely consists of payment of the entire winning parties costs, but only a significant portion thereof.
There are several other blogs on this website on situation where special costs and other types of court awarded costs are discussed in detail, including:
November 19, 2013
September 1, 2013
August 18, 2013
April 14,2013
May 24, 2012
May 23, 2012
I have recently been blogging about the Panghali case where the ten year old girl was awarded $500,000 damages against the murderer of her mother, pursuant to the Family Compensation Act.
Generally speaking there must be ” reprehensible conduct” of the party at fault, and the Court refused to award special cots against the murderer, as his reprehensible conduct was not directly related to the course of the litigation.
The Court explains its rationale for refusing the winning party special costs against the losing party as follows:
The plaintiffs claim special costs. They say that such costs are available where the conduct giving rise to the liability is reprehensible and criminal in nature. They cite Wiebe v. Gunderson et al, 2003 BCSC 1931, for that principle.
[97] The defendant responds that the “motivation” of the plaintiffs in seeking special costs is based on the defendant’s criminal conduct and that somehow it is really a claim for punitive damages. Therefore, relying on B.(P.) v. B. (W.) (1992), 11 O.R. (3d) 161 (Gen. Div.) at para. 21, he submits he has already been sanctioned and punished and that “to award punitive damages in a civil lawsuit would amount to double jeopardy”.
[98] With respect there are difficulties with both these statements of law. To begin, in Whiten v. Pilot Insurance Co., 2002 SCC 18 at para. 69, the Supreme Court of Canada clearly states that punitive damages may be awarded even where the defendant has already been punished by a criminal court for an offence arising out of substantially the same facts. It is simply another factor to consider in determining whether punitive damages are necessary in the circumstances. There is no “double jeopardy” defence and, as such, no argument that special costs are barred by analogy.
[99] As to the availability of special costs for pre-litigation criminal conduct, I am not convinced that the law is as clear as the plaintiff suggests. In fairness, the plaintiff did acknowledge that there are no cases that directly address similar circumstances. As such, the question of whether special costs are available in a Family Compensation Act claim where the conduct causing death is criminal in nature (and has received a criminal sanction) is, at least in British Columbia, to some extent one of first impression.
[100] The plaintiff is correct to say that special costs are awarded where there has been reprehensible conduct on the part of one of the parties. Reprehensible conduct includes “scandalous or outrageous conduct … [and] milder forms of misconduct deserving of reproof or rebuke” (Garcia v. Crestbrook Forest Industries Ltd. (1994), 119 D.L.R. (4th) 740 at para. 17 (B.C.C.A.)).
[101] The purpose of special costs is to chastise or punish a litigant, and to allow the court to disassociate itself from the litigant’s misconduct: Mayer v. Osborne Contracting Ltd., 2011 BCSC 914 at paras. 8, 10.
[102] Generally speaking, special costs are only available for misconduct in the course of the litigation itself. However, in exceptional circumstances, special costs can be awarded where pre-litigation conduct warrants rebuke: Dockside Brewing Co. Ltd. v. Strata Plan LMS 3837, 2007 BCCA 183 at para. 90. To attract an award of special costs, the pre-litigation conduct must give rise to a compensable legal wrong: Evergreen Building Ltd. v. IBI Leaseholds Ltd., 2009 BCCA 275 at para. 33.
[103] As noted in Elsen v. Elsen, 2011 BCSC 1011 at para. 14, such awards will be “quite rare.” The case law establishes two generally accepted exceptions where special costs may be awarded for reprehensible conduct prior to litigation (see Golden Capital Sec. Ltd. v. Holmes et al., 2003 BCSC 1265 at para. 166). The first was identified in Verleg v. Angeloni (1993), 20 C.P.C. (3d) 132 (B.C.S.C.), where the court said that one exception involved misconduct giving rise to litigation in the nature of fraud or unconscionability (at para. 10). That is the exception relied on in Wiebe. It is not applicable here.
[104] The second exception is identified in Sun Life Assurance Co. v. Ritchie, 2000 BCCA 231 at para. 54:
[54] … However, there may arise circumstances where special costs may be awarded because of the reprehensible conduct giving rise to the litigation, particularly where the fruits of the litigation do not provide any appropriate compensation in relation to the reprehensible conduct. … [Emphasis added]
[105] A number of cases have commented on the Sun Life exception. In Golden Capital the court said that the special costs were suitable where such an order would be “the only method in which the court can demonstrate its disapproval for the misconduct” (para. 167).
[106] In most cases, reprehensible conduct giving rise to the cause of action can be addressed by an award of punitive damages, rather than special costs: D.H. v. L.J.H., [1997] B.C.J. No. 2724 at para. 26 (S.C.). Where the plaintiff receives punitive damages, the fruits of the litigation clearly provide compensation for the reprehensible conduct, and special costs should not be awarded. Awarding both for the same conduct would comprise double compensation: McPhillips v. British Columbia Ferry Corp. (1993), 16 C.P.C. (3d) 284 at para. 18 (B.C.S.C.). In a number of decisions the court has refused to award special costs on the basis that punitive damages have already fulfilled that function: see P.B. v. R.V.E., 2008 BCSC 613 at para. 27; and Manavi v. McDonald, [1993] B.C.J. No. 463 (S.C.) at para. 23.
[107] There are others where the court has found that the fruits of the litigation are sufficient even absent a punitive damages award. In Owners, Strata Plan KAS 3267 v. Smith, 2011 BCSC 387 at para. 27, the court noted that the defendant’s pre-litigation conduct was reprehensible, but pointed out that it gave rise to the (successful) claim for a damages award:
[27] … In my view, the fruits of this litigation, being judgment for money owing, will provide full compensation of the corporation’s loss. This is not one of those unusual circumstances were reprehensible pre-litigation conduct gives rise to a need to add special costs to the claimant’s recovery in order to redress something lacking in the main award. …
[108] In Elsen and Adtronics Signs Ltd. et al. v. Sicon Group Inc., et al. (re costs), 2005 BCSC 440 at para. 23, the misconduct complained of had given rise to the cause of action and the resultant award of damages and had therefore been adequately addressed.
[109] One of the difficulties in this case is that punitive damages are not available in a claim under the FCA: see Allan Estate v. Co-operators Life Insurance Co., 1999 BCCA 35 at para. 71. The FCA is not punitive in nature (see Duncan, para. 48). It is only meant to provide financial recompense for pecuniary losses flowing from the death itself, rather than providing a sanction for the wrongdoer’s role in the death.
[110] I agree with the plaintiffs that Mr. Panghali’s conduct was reprehensible. Indeed it is difficult to envision more reprehensible conduct than that of the defendant in murdering his wife and their child’s mother and burning her body in an effort to escape detection. However, in the circumstances I do not think that this is a proper basis for an award of special costs. First, the court has already demonstrated its disapproval of that misconduct in the criminal proceedings. Mr. Panghali is serving a life sentence for the murder. Second, I have some concerns about awarding special costs with the goal of punishing the conduct giving rise to the cause of action when the statutory basis for the cause does not permit an award of punitive damages. If special costs were claimed for misconduct in the course of the litigation itself the situation would be different; but in these circumstances such an award would essentially do indirectly what the court cannot do directly.
[111] Finally, following Adtronics and Strata Plan KAS, I find that the award of damages in this matter, which flows directly from the conduct complained of, provides full compensation for the pecuniary loss. As a result I decline to award special costs. The plaintiffs have otherwise been successful and will receive costs at Scale B.
Fraud is a deception deliberately practiced in order to secure unfair or unlawful gain (adjectival form fraudulent; to defraud is the verb, and the Badges of Fraud are used by the court s as rough gauge as to whether Fraud exists in the situation or not..
As a legal construct, fraud is both a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud and/or recover monetary compensation) and a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities).
Defrauding people or organizations of money or valuables is the usual purpose of fraud, but it sometimes instead involves obtaining benefits without actually depriving anyone of money or valuables, such as obtaining a drivers license by way of false statements made in an application for the same.
There are a number of articles relating to fraud on this website, most of which deal with Fraudulent Transactions or conveyances to try and hinder creditors such as beneficiaries.
Undue influence is also a civil form of fraud and yesterdays blog discusses in some detail the fraudulent aspect involved in undue influence
The Badges of Fraud
Suspicious circumstances which our courts may characterize as “badges of fraud” include the following:
1) Secrecy surrounding the transaction
2) Cash payments were made
3) No change of possession occurred after the conveyance;
4) Transfer to non-arm’s-length person;
5) The transferor has few remaining assets;
6) The transfer was effected with unusual haste;
7) Grossly inadequate consideration was paid;
8) A benefit was retained by the transferor under the settlement;
9) The transfer was made in the face of potential litigation;
10) Lack of accurate documentation supporting the transaction.
These “badges of fraud” are enumerated in Bank of Montreal v. Vandine (1953) 1 D.L.R. 456;
Prodigy Graphics Group Inc. V. Fitz- Andrews, (2000) O.J. No. 1203 ( Ont. S. C. J.);
Mistakes in wills are frequently made and then subsequently not discovered until typically many years later after the passing of the will maker.
The usual types of mistakes break into two areas- that the will was not properly executed in accordance with established principles ,or the will itself does not make sense, is ambiguous, and needs to be constructed and interpreted.
Section 59 of WESA provides a new section allowing the court to rectify a will if the court determines that the will fails to carry out the will maker’s intentions because of:
1) an error arising from an accidental slip or omission;
2) a misunderstanding of the will maker’s instructions;
3) A failure to carry out the will maker’s instructions.
The court further allows for extrinsic evidence, that is evidence relating to the circumstances under which the will instructions were given and the will executed ,including evidence of the will maker’s intent, in order to prove the existence of the circumstance described in section 1 aforesaid .
For further reading on the construction or interpretation of wills, also see blogs on this site dated September 8,2011
December 9,2011
June 1, 2012
April 20,2013 and
June 2, 2013.
The general guidelines of case law with respect to interpretation and construction of wills is as follows:
The goal in interpreting a will is to give effect to the testamentary intentions of the testatrix for the distribution of her estate: Rondel v. Robinson Estate, 2011 ONCA 493, 337 D.L.R. (4th) 193, at para. 23.
[17] The Ontario Superior Court of Justice in Re Kaptyn Estate, 2010 ONSC 4293, 102 O.R. (3d) 1, (“Kaptyn Estate”) helpfully summarized many of the principles relating to the interpretation and construction of wills:
a) The court will seek to determine the actual intention of the testator, as opposed to an objective intent presumed by law (para. 31).
b) Other cases interpreting words in other wills are of little assistance since the task is to interpret this testator’s subjective intentions (para. 32).
c) There is a distinction between interpretation and construction of a will. Interpretation seeks to determine the testator’s subjective intentions from the words used in light of the surrounding circumstances. Rules of construction are a default process turned to by the courts when the testator’s actual intentions cannot be ascertained (para 34).
d) The starting position of the court is the “armchair rule”, where the court puts itself in the place of the testator at the time when he made his will. This allows consideration of some extrinsic evidence of the surrounding circumstances known to the testator as might bear on his intentions (para. 35).
e) The authorities distinguish between admissible and inadmissible extrinsic evidence in interpreting a will (paras. 35-38):
i. “indirect extrinsic evidence” of the surrounding circumstances known to the testator at the time he made the will is generally admissible. This includes evidence of such things such as the testator’s occupation and property and financial situation; his relationships with family and friends; and natural objects of his grant;
ii. “direct extrinsic evidence” of the testator’s intentions is generally inadmissible. This is so as to preserve the will itself as the primary evidence, and to avoid the situation of an “oral will” displacing the written form. However, there is an exception where there is an “equivocation”, namely, where the will describes two or more persons or things equally well. In that situation, the law will allow evidence of the testator’s intention. Examples of inadmissible direct evidence are such things as notes or statements of the testator as to his intention, or instructions he gave his lawyer in preparing the will;
f) the court will interpret the will viewed as a whole (para. 138);
g) the court will prefer an interpretation that leads to a testacy, not an intestacy (para. 139); and,
h) the court will not hesitate to correct obvious mistakes, including deleting or inserting words, where to do so accords with the testator’s intentions, or where not to do so would lead to an absurd result (para 140).
[18] The proper approach of the court is to consider the language of the will in light of the surrounding circumstances together, rather than one first and then the other: Abram Estate v. Shankoff, 2007 BCSC 1368 at para. 77.
New Probate Rule 25-11 greatly expands the power and effect of issuing a Citation.
The form prescribed in P32 is much more detailed in the information required.
The person cited with the Citation has 14 days of personal service to respond and deliver to the citing party:
1) a copy of the grant;
2) a copy of the filed submission for the grant;
3) if not yet i8ssued, a copy of the materials filed in support of the grant,
4) if no steps have ben taken towards obtaining probate, the disputant must file an Answer under Form P33
Under 25-11(2) the citation must also be personally served on each alternate executor in the event that the first executor fails to comply with the 14 day rule, or file an Answer.
Under Section 25-11 (5) , a person cited is deemed to have renounced executorship if:
a) the person cited refuses to comply with providing the information or filing an Answer under 25-11 (4), is deemed to have renounced executorship.
2) or obtain a grant of probate within 6 months of the date the citation was served
5-11 (6) deals with the effect of failing to answer a Citation or refusing probate:
1) if the person fails to apply for probate , provide an Answer or fails to provide the information, he or she is deemed to have renounced the executorship.
In that event, the citor or another person interested in the estate may apply for:
1) a grant of probate or administration with will annexed;
2) an order under S 58 curing deficiencies in the testamentary document;
3) that the testamentary document be proved in solemn form;
4) if the testamentary document is in the possession of a third party, the issuance of a subpoena under Rule 25-12 to require the cited person to file the testamentary document
RULE 25-11—CITATIONS
Citation to apply for probate
(1) If a testamentary document is or may be in existence, a person interested in the estate may
serve by personal service on each person named as an executor in the testamentary document a citation
in Form P31 fed. note: Form P32] in respect of the testamentary document to require the served person
to apply for a grant of probate in relation to that testamentary document
Alternate executors
(2) A citation under subrule (I) in relation to a grant of probate
(a) must be served by personal service on each alternate executor if an event, including, without limitation, an event referred to in subrule (5), occurs that entitles the alternate executor to assume the office of executor, and
(b) must not be served on an alternate executor until an event referred to in
paragraph (a) occurs that entitles that alternate executor to assume the office of executor.
Citation to be supported
(3) A citation under subrule (I) in relation to a testamentary document must include
(a) an address for service of the citor, which address for service must be an accessible address that complies with Rule 4-1(1), and
(b) a statement of the citor providing ,
(i) the grounds for the citor’s knowledge of or belief as to the existence of the
testamentary document, and (ii) information available to the citor that will allow the testamentary document
to be identified.
Answer to citation
(4) A person who is cited by being served with a citation under subrule (I) must, within 14 days
after being served with the citation,
(a) if the cited person has been issued a grant of probate in respect of the testamentary document in relation to which the citation was issued, serve on the citor, by ordinary service, a copy of the estate grant, or
(b) if the cited person has not yet been issued a grant of probate in respect of the testamentary document in relation to which the citation was issued, serve the citor as follows:
(i) if the cited person has filed a submission for estate grant under Rule 25-3(2) in respect of the testamentary document, serve on the citor, by ordinary service, a copy of the filed submission for estate grant along with copies of the other documents filed under Rule 25-3(2);
(ii) if subparagraph (i) does not apply but the cited person has delivered
documents under Rule 25-2( I) in relation to an application for a grant of probate that the cited person intends to pursue in respect of the testamentary document, serve on the citor, by ordinary service, a copy of those documents;
(iii) if the cited person has not taken any step under this Part in relation to the estate, serve on the citor, by ordinary service, an answer in Form P33 providing an address for service that is an accessible address that complies with Rule 4-1 (I) and stating that the cited person
(A) will apply for a grant of probate in respect of the testamentary document, or
(B) refuses to apply for a grant of probate in respect of the testamentary document
Deemed renunciation of executorship
(5) A person who is cited under subrule (I) to apply for a grant of probate in relation to a
testamentary document is deemed to have renounced executorship in relation to that testamentary
document if
(a) he or she is a person referred to in subrule (4)(b)(i), (ii) or (iii)(A) and does not (i) serve on the citor the document that, under that provision, he or she is required to serve, or
(ii) obtain a grant of probate within 6 months after the date on which the citation was served or within any longer period that the court on the application of the cited person may allow, or (b) he or she is a person who serves on the citor an answer referred to in
subrule (4)(b)(iii)(B).
Effect of failure to answer citation or give reason for refusing probate
(6) If each person who is cited under subrule (I) to apply for a grant of probate in relation to a
testamentary document is deemed under subrule (5) to have renounced executorship in relation to the
testamentary document, the citor or another person interested in the estate may, without limiting any
other right the citor or other person may have, apply for one or more of the following:
(a) a grant of probate or a grant of administration with will annexed in relation to the testamentary document or another testamentary document;
(b) an order under section 58 of the Wills, Estates and Succession Act curing any deficiencies in the testamentary document;
(c) an order that the testamentary document is a will proved in solemn form;
(d) if the testamentary document is in the possession of a cited person, the issuance of a subpoena under Rule 25-12 to require the cited person to file the testamentary document
Affidavit of deemed renunciation for grant of probate
(7) The citor may swear an affidavit of deemed renunciation in Form P34 if the person who has been
served with a citation in respect of a testamentary document is deemed under subrule (5) to have
renounced executorship in relation to the testamentary document.
Sections 58 and 59 of WESA are clearly the most significant differences between the former legislations and the new legislation to be brought into effect on March 31, 2014. These two sections basically allow the court to cure defects in a will and to rectify an error in a valid will and allow it to carry out the will maker’s intentions.
The clear intent of the legislation is to allow the court to focus on what was the testator’s intent rather than on technical deficiencies to the execution of the will.
Much will be written about and litigated for many years concerning these two sections.
Todays blog will include a copy of section 58, that allows the Court to cure deficiencies, with a few comments.
Court order curing deficiencies
58 (I) In this section, “record” includes data that
(a) is recorded or stored electronically,
(b) can be read by a person, and
(c) is capable of reproduction in a visible form.
(2) On application, the court may make an order under subsection (3) if the court determines that a
record, document or writing or marking on a will or document represents
(a) the testamentary intentions of a deceased person,
(b) the intention of a deceased person to revoke, alter or revive a will or testamentary disposition of the deceased person, or
(c) the intention of a deceased person to revoke, alter or revive a testamentary disposition contained in a document other than a will.
(3) Even though the making, revocation, alteration or revival of a will does not comply with this Act,
the court may, as the circumstances require, order that a record or document or writing or marking on a
will or document be fully effective as though it had been made
(a) ■ as the will or part of the will of the deceased person,
(b) as a revocation, alteration or revival of a will of the deceased person, or
(c) as the testamentary intention of the deceased person.
(4) If an alteration to a will makes a word or provision illegible and the court is satisfied that the alteration was not made in accordance with this Act, the court may reinstate the original word or provision if there is evidence to establish what the original word or provision was.
The first paragraph defining “record”to enable electronic wills, which are undoubtedly noncompliant by definition, but can still be accepted for probate by the court under section 58 by virtue of the new definition of “record”.
The court has in effect changed the law after hundreds of years of being relatively “strict compliance”re-the execution of wills, to now about more of an “imperfect compliance”, that can be remedied by the court in its search for what was the true intention of the testator.
Garnett Estate v Garnett Estate 2013 BCSC 1731 is an interesting case where pre WESA, a lawyers questionnaire re will instructions was determined by the court to be a valid will and admitted into probate.
In this case the executrix brought an action to prove the will of the deceased in solemn form.
The deceased was in palliative care and it became apparent that she would not survive long enough to meet with a lawyer to complete a new will. She then had two witnesses sign the lawyers questionnaire left by the lawyer, which the deceased signed in the witnesses presence.
The will questionnaire did not have a residue clause, and in fact the two witnesses to the will were beneficiaries so they could not inherit under that document.
Nevertheless the court determined that the testamentary intention of the deceased was to make “a fixed and final expression as to the disposal of her property on death “( Das Estate 2012 NSSC 441 at para 18).
The court found that despite the unconventional form of the 2008 document and its original generation as a lawyers questionnaire which would ordinarily have led to the finalization of a more sophisticated document, the court found in the circumstances of the deceased demonstrated her obvious intention that the document constituted testamentary disposition.
Proof of a will in solemn form
[35] I quote from Gillis v. Ardies, 2009 BCSC 215 at paras. 19-20 per Parrett J.:
[19] In today’s process, proof in solemn form requires the executor (or the will’s proponents) to meet the evidentiary burden of proving the will before the court. In such a hearing the executor must satisfy the court by adducing evidence –
that the will in question was duly executed;
that the testator had the capacity to appreciate and understand its contents; and
that he had the ability to sign the will.
[20] In the present case, proving the will in solemn form is required to address the issue of whether or not portions of the writing are invalid, and to determine what, in fact, constitutes the will.
[36] I find the above a helpful summary of the steps I must take to deal with the application to prove Ms. Garnett’s will in solemn form.
The doctrine of ademption by conversion — a rule of the law of wills whereby a specific bequest “adeems”, or fails, if at the testator’s death the specified property is not found among his or her assets — either because the testator has parted with it, or because the property has “ceased to conform to the description of it in the will”, or because the property has been wholly or partially destroyed. (J. MacKenzie, ed., Feeney’s Canadian Law of Wills (4th ed., loose-leaf, 2000) at §15.2.)
The doctrine applies as a matter of law, irrespective of the testator’s intentions in the matter, although his or her intentions are clearly relevant to the anterior question of whether the gift in question is a “specific” legacy (and therefore subject to ademption), or a general one (not subject to ademption). The doctrine is also subject to the qualification that even if the gift in question is a specific legacy, it may be saved in some circumstances if the property has changed “in name or form only”, and still forms part of the testator’s property at the date of death.
Being a specific legacy, the gift will be adeemed by conversion if the property has “ceased to exist as part of the testator’s property in his lifetime” (Jarman, at 1065) or has ceased to conform to the description in the will (Feeney, at §15.2).
Whether it was intended for the gift to be adeemed is not relevant: the doctrine applies “irrespective of the testator’s intentions.” (Hurzin v. Neumeyer Estate (1990) 69 D.L.R. (4th) 18 (B.C.C.A.), at 22; Jarman, at 1065
Ademption will not occur where the specific property in question has been changed “in name or form only” so that it “exists as substantially the same thing, although in a different shape.” (Halsbury, supra, vol. 50 at para. 394, citing Oakes v. Oakes (1852) 9 Hare 666 at 672, approved in In re Slater [1907] 1 Ch. 665 at 672 (C.A.).) Whether the change is one in name or form only is a question of fact: In re Jameson [1908] 2 Ch. Ill at 115; Feeney, at §15.27.
Predictably, a body of case-law has developed involving situations in which someone other than the testator has caused the change to occur — e.g., where corporate shares have been forcibly exchanged on an amalgamation or statutory reorganization (see In re Jameson, supra, In re Slater, supra, In re Faris [1911] 1 I.R. 165, In re Leeming [1912] 1 Ch. 828, Re Humphreys (1915) 60 Sol. Jo. 105, In re Kuypers [1925] Ch. 244, and Re Ogilvy (1966) 58 D.L.R. (2d) 385 (Ont. H.C.),
In most of these cases the gift was saved on the basis that the Court found that the change was one in form only.
It is often difficult to determine if a document is testamentary or not when it purportedly takes effect upon death.
Shortly before writing this article, I settled a Wills Variation action on the eve of trial where the deceased had deliberately used an estate planning procedure so as to deliberately disinherit four of her five children from the biggest asset, namely the shares in a company that owned a commercial building. The child that was left the significant share of the deceased estate was realistically unemployable and not very capable. The deceased therefore had wanted to retain as much control as possible of her estate until her demise. Accordingly, the handling solicitor prepared a will, and a year later, just prior to her death, prepared an option to purchase the shares of the company in favor of the incapable son, that became exercisable upon her death and for up to two years thereafter. The assets that remained in her estate were also substantially depleted by the payment of the capital gains taxes due and owing on the deemed disposition of her shares. The four disinherited children argued that the option, because it could only be exercised upon her death, was therefore a testamentary document, and because it had not been duly executed in accordance with the provisions of the Wills Act, was therefore void. Essentially the entire Wills Variation action came down to whether or not the option to purchase was or was not a testamentary document. If it was not testamentary, then the shares passed outside of the estate, and could not be attacked by the claimants.
An inter vivos gift occurs when the donor intends the transfer of the interest to be immediate and irrevocable. The gift is perfected during the lifetime of the donor, and there is said to be a “present passing interest”, even when the donee’s right to actual enjoyment is postponed.
A will is the most common form of a testamentary document. The essential elements of a valid will are:
1)It is intended to have a disposing effect;
2)It is intended not to take effect until after death and to be entirely dependent on death for its operation;
3)It is intended to be revocable;
4) It is executed in accordance with the wills legislation of the relevant jurisdiction.
Many documents in fact have a” testamentary look” because the intended gift may be revocable by the donor and enjoyment of the gift has been postponed until the death of the donor. The fact that a document looks testamentary does not necessary make it so. In many situations the donor is able to enjoy the benefits of the subject matter during his or her life and is still able to avoid the formal requirements of the Wills Act. If the transaction is not testamentary, then the property will not be included as part of the estate, and will not be subject to attack by creditors and Wills Variation claimants.
For example, in Re Walmsley Estate, 2001 SKQB 105, a purported last will was found to not be a testamentary document because the testator’s “will” stated that the executor could divide up the estate as he saw fit. The Court held that the document did not manifest a true testamentary intention , and the Court did not have the power to render a document testamentary in nature when it is otherwise not so.
It is therefore of the utmost importance to the drafting solicitor, when preparing documents that are to carry out a transaction outside of the estate, to ensure that the document is not testamentary, as there is always the likelihood that some potential creditor or claimant will question the validity of the instrument by attempting to show that it is in fact a testamentary document.
Again, the fact that a document describes itself as testamentary and is executed in accordance with the Wills Act, does not necessary make it testamentary. As a general rule, the entire document will be rejected from probate if all of its dispositions are operative before death. There have been situations on the other hand, where a part of a document is found to be testamentary because it has no operation at all until death, and it may be severed and admitted to probate.
Problems typically arise where deeds and similar transfers are prepared, and the grantor retains control over the deed and does not intend that it shall have effect until his or her death. If that is the situation, then the deed is really a will, because it is dependent upon his or her death for its “vigor and effect”, and unless it is executed with the appropriate formalities, it cannot take effect as one.
The problem is illustrated by the case of Carson v. Wilson (1961) O.R. 113, (C.A.).
The deceased Wilson owned certain parcels of land and executed deeds and lodged them with his solicitor with instructions to hold them and not deliver them until after his death. It was always understood that Wilson could demand to documents back at anytime. Wilson managed the properties until his death. The court held that the transactions were ineffective to transfer title as there was no delivery of the documents, and in any event, they were not intended to take effect until his death. The court found that the transfers were testamentary in nature, and since they did not comply with the formalities of the wills act, they failed. It was also found by the court that they could not take effect as inter vivos trusts, because Wilson retained complete control over the properties while he lived, and he did not intend to create an inter vivos trust.
Generally speaking, the law appears to be reasonably well settled that if that the time of its execution, the document is legally effective to pass some immediate interest in the property, no matter how slight, the transaction will not be classified as testamentary. Stated another way, if the document is intended to have, and does have the effect of transferring the property, or of setting up the trust”in praesenti” ( the present), though to be performed after the settlor’s death, it is not testamentary.
Accordingly, in the case that I referred to in the first paragraph of this article, I found a Supreme Court of Canada case to the effect that an option to purchase created an interest as soon as it was executed that could be enforced by the courts. I therefore argued that even though the option could not be exercised until the death of the testator, it’s still created an immediate interest in the property, in favor of the donee, that was not dependent upon the death of the testator for its “vigor and effect”.
2. CASE LAW WHERE THE TRANSACTION IS NOT TESTAMENTARY
A) Wonnacott v Loewen (1990) 37 E. T.R. 244, B.C.C.A.
This is the leading decision in British Columbia on what constitutes a testamentary document.
In Wonnacott, the defendant moved in with the deceased in March 1988 and the two planned to marry when the defendant’s divorce was granted. The deceased wished to give the defendant some financial security, regardless of the outcome of the litigation with her husband, so they consulted a solicitor. Certain documents were prepared and executed, including a transfer of estate in fee simple of the deceased’s residence to the defendant, to be used in the event of the deceased’s death. The terms governing the use of those documents were contained in an “escrow agreement” which gave the defendant an immediate right to live in the residence. It also provided that the deceased could take the transfer back in specified circumstances, in which case he was required to pay the defendant $60,000. The defendant’s divorce was delayed and she was not free to marry before the deceased died in August 1988. She obtained the transfer and had it registered, thereby obtaining title to the residence. The deceased’s executor brought an action to set aside the conveyance on the ground that the agreements were testamentary and invalid because of failure to comply with the Wills Act. The action was dismissed and the executor appealed.
The Court dismissed the appeal and held that whatever the form of a duly executed instrument, if the person making it intends that it not take effect until after his death, and it is dependent on his death for its “vigour and effect”, it is testamentary. However, if the document creates a gift in praesenti, albeit to be performed after the donor’s death, it is not dependent on his death for its “vigour and effect”. The documents here, examined in isolation, appeared to be testamentary, but it was clear that they had life and vigour from the beginning. The documents conferred an interest on the defendant that had real value no matter what happened. They gave her an immediate interest in the property and they were not testamentary.
The court examined the decision of Cock v. Cooke (1866), L.R. 1 P.p. & D. 241 at 243, that held that:
“It is undoubted law that whatever may be the form of a duly executed instrument, if the person executing it intends that it shall not take effect until after his death, and it is dependent upon his death for its vigour and effect, it is testamentary.”
The court then adopted the reasoning of an Alberta Court of Appeal case, Corlet v. Isle of Man Bank Ltd., [1937] 2 W.W.R. 209, 4 I.L.R. 246, [1937] 3 D.L.R. 163 (Alta. C.A.), which states at p.p. 211:
“The fallacy in the argument based upon the “oft quoted words” of Sir J.P.p. Wilde in Cock v. Cooke (1866) L.R. 1 P.p. 241, 36 L.J.P.p. 5, lies in a misunderstanding of what the words “vigour and effect” are applicable to. They are clearly applicable not to the result to be obtained by, or to the performance of, the terms of the instrument, but to the instrument itself. The question is whether the instrument has “vigour and effect”, and does effect, or is “consummate on execution” to effect, a gift or to create a trust. If the document is “consummate” to create a trust in praesenti, though to be performed after the death of donor, it is not dependent upon his death for its vigour and effect.”
The court went on to also adopt another Alberta Court of Appeal case, Anderson (Costello) v. Patton, [1948] 1 W.W.R. 461, [1948] 2 D.L.R. 202 (Alta. C.A.), which stated at p.p. 463:
“The question of whether a document evidencing a voluntary settlement, either by way of gift, in the sense of transferring the property in question, or by way of the creation of a trust, is or is not testamentary, depends upon the intention of the settlor.
If the document is not intended to have any operation until the settlor’s death it is testamentary.
If the document is intended to have and does have the effect of transferring the property or of setting up a trust thereof in praesenti, though to be performed after the settlor’s death, it is not testamentary.
The reservation of a power of revocation is not inconsistent with the creation of a valid trust and does not have the effect of making the document creating it testamentary.”
An important aspect of the Wonnacott decision is that the court did not examine the subject document in isolation, but instead looked at the larger picture as to what was intended by the donor . The court accepted that in determining whether a transaction amounts to a testamentary disposition, the court is not limited to an examination of the document of transfer itself, and may look at extrinsic evidence relating to the creation of the document. The Court of Appeal adopted the rule set out in Riddell v. Johnston, 66 O.L.R. 554, [1931] 2 D.L.R. 479 (H.C.) that [at p. 482, D.L.R.]:
“In determining what was the real transaction and its nature and effect, the other documents which were made concurrently with the conveyance and which set forth important parts of the bargain which were not embodied in the conveyance itself, and which expressed the intention of the parties should not and cannot be disregarded. ”
B) National Trust Co. v Robertshaw (1986) 5 W.W.R. 695
This case involved the issue as to whether or not a previous designation of a beneficiary in an R.R.S.P. was a testamentary disposition which had been revoked by a subsequent will.
In 1967 the deceased, Robertshaw., designated his wife the beneficiary of a R.R.S.P. (R.R.S.P. No. 1). In 1972 Robertshaw and his wife were divorced. In July 1985 Robertshaw transferred funds from three other R.R.S.P.s into R.R.S.P. No. 1. In August 1985 Robertshaw with her executed a will revoking all former testamentary dispositions and leaving his estate to his three children. The will made no mention of any R.R.S.P. The executors of the will took the position that the 1967 designation of a beneficiary in R.R.S.P. No. 1 was a testamentary disposition which had been revoked by the will. They applied pursuant to R. 18A for a declaration that they were beneficially entitled to receive the proceeds of the R.R.S.P.
Judge Boyd held that while any instrument which is entirely dependent for its vigor and effect upon death must be held to be testamentary,the full “vigor and effect” of the designation of the beneficiary contained in the R.R.S.P. was not entirely dependent on the death of the annuitant as the annuitant may well have affected an inter vires transfer of a contingent interest.
Justice Boyd quoted the following passage from Professor Feeney in Canadian Law of Wills:
“As Professor T. G. Feeney has pointed out in the Canadian Law of Wills, 2nd ed. (1982), vol. 1 (Probate), there is no clear dividing line between a revocable trust inter vivos and a testamentary disposition. Rather, a Canadian court will likely base its decision on the degree of control retained by the settlor. As the learned author states at pp. 11-12:
A court will scrutinize each transaction very carefully, asking itself such questions as the following: Does the settlor retain a life interest or the right to the income from the property until his death? Does he have the right to revoke the trust or withdraw from the scheme? (And what is the effect of revocation? Does he get the property back for himself?) Does he have the right to change the beneficiaries? Does he control the investments that are to be made? Does he have the right to encroach on the capital of the fund?
Clearly the retention of a life interest means nothing by itself, but taken together with such indicia of control over the corpus or capital as the right to revoke, particularly if revocation means getting back complete control of the property, the right to change the beneficiaries, the right to control the investments, or some combination of these and especially the right to encroach on the corpus or capital, is very apt to result in a court declaring the transaction testamentary and void for want of due execution. Control is a question of degree, and exactly when a Canadian court will consider that the settlor retains too much control is difficult to say.”
C) Albert v Albert (1982) 13 E.T.R. 149
In this case the court examined an estate that consisted of two term deposits that were held jointly between the deceased and his two daughters which he alone managed and he alone received the interest. An application was brought regarding entitlement two term deposits after his death.
The Court held that although the deceased had exercised sole management of the term deposits before his death, in the absence of evidence to the contrary they constituted a present gift of a joint interest, not a testamentary gift or a donatio mortis causa. The fact that one of the deposits did not contain the words “or survivor” had no effect upon this daughter’s survivorship rights.
The Court went on to state the law re joint interests as follows:
” In my opinion, a correct statement of the law is as follows: Unless the evidence supports a contrary conclusion, in the typical case of a joint account being established by one of the parties, or of money being deposited by one party as an investment with a financial institution in the names of that party and another party jointly with a right of survivorship, there is a present gift of a joint interest, not a testamentary gift or a donatio mortis causa.
As Ferguson J.A. said in Re Reid (1921), 59 O.L.R. 595, 64 D.L.R. 598 at 608 (C.A.):
If there was a present gift of a joint interest, it seems clear that it was neither a testamentary gift nor a donatio mortis causa, because it is an essential of both that no title vests until the death of the donor: White & Tudor’s L.C. 8th ed., p. 425. The title in right of survivorship was an incident of the joint ownership, an accretion to a title already vested — the donee’s absolute title to the fund arose by operation of law, and not, I think, by reason of two separate gifts, i.e., first, a gift of the joint interest, and, second, a gift of a complete and absolute ownership effective only and on and after the death of the donor.”
D) Hutton v Lapka Estate (1991) 44 E.T.R. 231
The decision of our Court of Appeal in Hutton v Lapka illustrates just how far our courts will go to seemingly try and find that a document is not testamentary in nature if it has even a small immediate effect, and is thus not totally dependant on death for its “vigour and effect”.
The case dealt in part with an action brought by the administrator of the deceased estate on a $295,000 interest-free promissory note signed by a third party in favor of the testator before his death. The note was given as security for a loan for a land purchase and was to be forgiven in the event that the testator died. The trial Judge held that the forgiveness provision of the promissory note was ineffective because it was a testamentary disposition which failed because it was not properly executed pursuant to the Wills Act.
The Court of Appeal allowed the appeal on the basis that the promissory note was not a testamentary disposition, but instead was a contract which had immediate effect . The trial judge was found to have erred in considering the forgiveness clause in isolation from the provisions of the note as a whole, and in holding that separate consideration was needed for the forgiveness clause. The Court followed its previous decision of Wonnacott.
E) Hecht v Hecht ( 1993) 7 W.W.R. 295
Here our Court of Appeal dealt with a Wills Variation action that dealt with inter alia an estate planning scheme devised by Mr. Hecht immediately prior to his death whereby he gifted $9 million through the use of promissory notes. No demand could be made on the promissory notes until 60 days after the testator’s death.
The trial judge found that the promissory notes were inter vivos gifts, and the Court of Appeal did not disturb that finding . The trusts were properly constituted and had “vigor and effect” from the time they were settled and funded, which was before the testator’s death. The fact that they were funded by promissory notes that were not payable until 60 days after the death of the deceased did not alter this.
F) Corlet v Isle of Man Bank Ltd. (1937) 3 D.L.R. 163 ( Alberta Court of Appeal)
The Alberta Court of Appeal upheld a lawyer’s scheme to avoid succession duties as a valid injury vivos transfer, even though the trust was totally revocable by the settlor. The scheme involved the transfer of three life insurance policies are on the life of the settlor to a bank as trustee for the named beneficiaries. In lieu of a will, a the trust document provided the disposition of the proceeds of the policies among those named beneficiaries on the settlor’ s death.
The Court held that the beneficiaries obtained in immediate interest, namely the future interest or right to obtain the proceeds of the policies on the settlor’s death, was vested in immediately on the execution of the trust. Because the settlor had a right to revoke the trust during his or her lifetime, the Court held that the gift had vested. Death was not the event that gave rise to the beneficiaries’ interest in or right to the property, it was the execution of the trust. For a transaction to be testamentary, the death must be more than incidental to the enjoyment of the property : it must be the event that gives rise to the right to so that it can be said that there was no right of any extent vested in the beneficiaries before death.
Professor. Feeney in his book Canadian Law of Wills states
“It should be observed that in the Corlet case, the property involved life insurance policies, rather than an existing fund of money, and that my revocation, the settlor could not get the return of the property for himself, which would have been the case of the property were an existing fund . This is an important distinction and, among other matters, casts some doubt on the non testamentary validity of a revocable trust of an existing fund payable only on the settlor’s death and entirely under his or her control during his or her lifetime.
By analogy, and in the absence of applicable legislation, non testamentary designations of beneficiaries under various insurance and retirement benefits scheme may depend, in part, on whether the person making the designation is entitled to receive or to recover any personal benefit if he or she revokes the designation during his or her lifetime.”
3. CASE LAW WHERE THE DOCUMENT IS TESTAMENTARY
A) Carson v Wilson (1961) O.R. 113 (C.A.)
The deceased Wilson owned certain parcels of land and executed deeds and lodged them with his solicitor with instructions to hold them and not deliver them until after his death. It was always understood that Wilson could demand to documents back at anytime. Wilson managed the properties until his death. The court held that the transactions were ineffective to transfer title as there was no delivery of the documents, and in any event, they were not intended to take effect until his death. The court found that the transfers were testamentary in nature, and since they did not comply with the formalities of the wills act, they failed. It was also found by the court that the could not take effect as inter vivos trusts, because Wilson retained complete control over the properties while he lived, and he did not intend to create an inter vivos trust.
B) Re Bottcher Estate ( 1990) 45 E.T.R. 19
In 1980 the testatrix purchased an R.R.S.P. from a trust company, designating her son as beneficiary. The application form was accepted by the trust company over the signature of its agent, although the testatrix’s signature did not appear. The R.R.S.P. was transferred to another trust company in 1984 and the transfer documents recorded that the son had contributed to it. In 1987 the testatrix made her will, which contained a general revocation clause, revoking all former wills and testamentary dispositions.
The administrator applied to the court under s. 88 of the Trustee Act for inter alia directions with respect to the entitlement to the R.R.S.P.,
The court held that the designation was testamentary in nature, but was not affected by the general revocation clause in the will. While s. 46(3) of the Law and Equity Act provides that a designation of a beneficiary may be revoked, it does not indicate a manner of revocation. The legislature has specifically permitted beneficiaries to be designated without complying with the formalities of the Wills Act, not only as regards R.R.S.P.s, but also insurance policies and employee benefit plans. Specific provisions are made for revocation in the case of insurance policies and employee benefit plans. To conclude that only designations under an R.R.S.P. would be caught up by a general revocation clause in a will would be incongruous and defeat the apparent legislative intent. Accordingly, something more than a general revocation clause in a will is required to revoke a designation validly made other than by will. Moreover, it has been held that a general revocation clause in a will does not in every instance revoke previous dispositions made by will or outside a will, at least if the court is satisfied that there was no intention to revoke a particular gift or legacy.
C) Reference Re Pfrimmer estate (1936) 44 Man.R. 96
Pursuant to a plan to avoid probate costs and succession duties with respect to his estate, the deceased executed transfers, duly registered, of his properties to himself, his wife, his son, and his son-in-law, as joint tenants. At the same time an agreement, entitled “Declaration of Trust” , was executed by all four.
The Court held that the conveyances and the writings were intended by the deceased to take the place of a testamentary disposition under The Manitoba Wills Act, in order to avoid probate expense and succession duties, and not to create an irrevocable trust by a binding transfer of the properties. The court cited to following passage:
” The law is clear that, to give validity to a declaration of trust of property, it is necessary that the donor or grantor should have absolutely parted with his interest in the property, and have effectually put such interest beyond his own reach. See Warriner v. Rogers (1873) L.R. 16 Eq. 340, 42 L.J. Ch. 581; Richards v. Delbridge (1874) L.R. 18 Eq. 11, 43 L.J. Ch. 459; In re Shield; Pethybridge v. Burrow (1885) 53 L.T. 5. Whatever may be the form of an instrument, if the person executing it intends that it shall not take effect until after his death, and it is dependent upon his death for its vigour and effect, it is not a trust: In re Cassidy (1832) 4 Hagg. Ecc. 360, 162 E.R. 1477; Cock v. Cooke (1866) L.R. 1 P. 241, 36 L.J.P. 5; Sproule v. Murray (1919) 45 O.L.R. 326. Thus, in Malin v. Keighley (1794) 2 Ves. Jun. 333, 30 E.R. 659, the Master of the Rolls said:
I will lay down the rule as broad as this; whenever any person gives property, and points out the object, the property, and the way it shall go, that does create a trust, unless he shows clearly, that his desire expressed is to be controlled by the party; and that he shall have an option to defeat it.
Hence it is the rule that an instrument even though in the form of a deed which is not to become operative until the maker’s death is testamentary in its character, and its operation depends upon its execution complying with The Manitoba Wills Act: Habergham v. Vincent (1793) 2 Ves Jr. 204, 30 E.R. 595; Shinbane v. Minuk, 36 Man. R. 530, [1927] 2 W.W.R. 121; Hill v. Hill (1905) 8 O.L.R. 710; Towers v. Hogan (1889) 23 L.R. Ir. 53.”
D) MacInnes v MacInnes (1935) S.C.R. 200
This Supreme Court of Canada case involved an insured who was a member of a fund established by his employers in the nature of insurance or provision for the future of such employees who joined. If a participating employee died, an amount was payable to his beneficiary as designated by him, and he might change the beneficiary or revoke the designation. In an instrument called the “Employee’s Acceptance”, the insured directed the trustees of the fund upon his withdrawal therefrom to pay to him the amount to which he was entitled, upon his death to pay such amount to his wife, or otherwise as he might have last designated by writing lodged with the trustees, or by will. The document was witnessed by one witness only, and the Court held that the document was testamentary in nature and was thus ineffective to allow the named beneficiary to take. The insured’s share in the fund became part of his estate as the right of the beneficiary was dependant upon the death of the participating employee for its “vigour and effect”.
4. CONCLUSION
The issue as to whether or not a document is testamentary in nature is an interesting yet somewhat confusing area of the law. The general principle of law is that if at the time of its execution, the document is legally effective to pass some immediate interest in the property, no matter how slight, then the transaction will not be classified as testamentary. In many of the cases the courts have taken a very liberal approach to find that an immediate interest in the property has been created that is not dependent on death for its “vigor and effect”. Nevertheless, estate solicitors should be well aware of the possible pitfalls in the drafting of documents that are not intended to be testamentary in nature, but by reason of estate planning procedures, could very well be deemed to be such by a subsequent Court, if proper care is not applied.
Most of us likely do not give a moment’s notice to the concept of the fiduciary relationships. This concept, however, is an extremely important principle of the common law. It provides a very flexible legal remedy often used used to protect vulnerable individuals who have been wronged by another who holds a position of power over them.
Understanding fiduciary relationships and fiduciary duties is especially important to legal professionals as we are all in fiduciary relationships with our clients.
The focus of this paper will be to explain and give some examples of how fiduciary relationships have been imposed and interpreted by our courts.
Background
As you may know, our common law legal system originally developed from judicial precedents established by English courts beginning almost 1000 years ago. Over the centuries our courts have developed legally recognized rights and duties that arise when persons are in certain relationships with others. For example, the case law developed the principle that a parent has a duty to provide necessaries to his or her child.
A fiduciary duty is the most onerous duty imposed by the common law. It is imposed by the courts whenever they find that a fiduciary relationship exists. The concept originally developed in Roman law and was borrowed by the Courts of Equity who developed the branch of the common law known as equity. These principles of equity are now part of our common law and are used by our modern day courts generally to avoid injustices being perpetrated.
Fiduciary duties originally developed as part of the law of trusts. Thus, fiduciary duties would arise whenever parties made a trust agreement. Under the terms of a trust, the trustee became the legal owner of the property yet owned and managed that property for the benefit of the beneficiary. In such a case, the trustee was said to be in fiduciary relationship with the beneficiary.
Equitable notions of justice demanded that trustees who had undertaken responsibility for the property or affairs of another, should not be permitted to exploit their position for their own benefit at the expense of the beneficiary.
Our courts have expanded this very useful concept of a fiduciary relationship well beyond the law of trusts. Thus, in general terms, modern courts will likely find that a fiduciary relationship exists whenever a relationship of trust or confidence exists between two parties. For example, because clients rely upon the integrity of their lawyer the courts will deem this legal professional to be in a fiduciary relationship with his or her client.
Whenever a fiduciary relationship exists the court will impose fiduciary duties upon the fiduciary who is in a position of trust towards another person.
The essence of a fiduciary relationship is that the fiduciary is in a position of confidence and power over another person and thus must exercise their power or discretion in the other’s best interest.
Simply put where a fiduciary relationship exists, the fiduciary must not make a personal profit from his or her position and must not allow personal interest to conflict with his fiduciary duties. The fiduciary owes a duty of loyalty, a duty to act in good faith and a duty to avoid any conflict of interest or self-interest.
Every fiduciary is required to subordinate his or her own interests to the promotion of the interests of the beneficiary. The law dictates that the fiduciary cannot utilize his or her position of power to their own advantage or to the other’s detriment. Thus, the fiduciary must act solely and selflessly in the interests of the beneficiary.
How do we recognize a fiduciary relationship?
In the decision of Frame v Smith ( 1987) 2 S.C.R. 99 the court set out the following guidelines to help recognize fiduciary relationships, stating as follows :
“Relationships in which a fiduciary obligation has been imposed seem to possess three general characteristics:
(1) The fiduciary has scope for the exercise of some discretion or power.
(2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power. ”
Fiduciary relationships are of many different types and can range from giving money to the errand boy who is bound to bring back the change to the most intimate and confidential of trust. For example all professionals handling the affairs of others are typically in a fiduciary relationship with their clients. This would include partners, agents, directors and legal professionals as previously mentionned.
There is no closed category of cases where the courts will find a fiduciary relationship to exist. Indeed they have recognized fiduciary obligations in a wide variety of situations. Here are some examples
Guerin v. The Queen [1984] 2 S.C.R. 335 involved a lawsuit brought by the Musqueam against the federal government who made an agreement to lease their lands in 1958. These lands were 162 acres of superb green space, much of it waterfront, near UBC. The government rented these lands for 75 years to Shaughnessy Golf & Country Club in a sweetheart deal with a rent of merely $29,000. More troublesome yet was the lack of rent escalation for 15 years. Even then the escalation was capped at a maximum of 15 per cent per annum.
The Supreme Court of Canada found that this was an exploitative bargain which was “unconscionable” and a breach of the Crown’s fiduciary duty to the Musqueam nation whose affairs the Crown was managing. The court thus awarded damages of $ 10 million to the Musqueam.
More recently, in Norberg v Wynrib ( 1992) 92 DLR (4th) 449, at 499. McLachlin J. declared that “fiduciary relationships are capable of protecting not only narrow legal and economic interests, but can also serve to defend fundamental human and personal interests”.
In this case Ms. Norberg was a young woman addicted to painkiller medication. She was obtaining these drugs from an elderly doctor, who suggested that he would supply drugs in return for her giving him sexual favours . This casual arrangement of “sex for drugs” continued for some time. When Ms. Norberg asked Dr. Wynrib for help getting off drugs, he advised her simply “to quit”. He continued supplying drugs to Ms. Norberg until she decided, on her own, to go to a rehabilitation centre to get help with her drug addiction.
When the case reached the Supreme Court of Canada, two of the justices found that a fiduciary relationship existed. They found the doctor to be a fiduciary because he was in a relationship of trust and confidence who had the power to exercise a discretion over his patient. This discretion made her particularly vulnerable to any abuse by him and they ruled that the doctor had breached his fiduciary duties to his patient and awarded damages on that basis.
This case is also a good illustration of the courts’ ability to shape the common law to make it more socially responsive and acceptable to the community.
Similarly other decisions have recognized a fiduciary relationship between parent and child and school boards and students.
Another good example of the scope of fiduciary duties is the recent case of Olive Hospitality Inc. v. Woo 2006 BCSC 1554, appeal decision at 2007 BCSC 355. The facts and trial decision are summarized in the opening paragraphs of the appeal decision :
“Olive Hospitality Inc. was engaged in the development of a specialty restaurant franchise in this province, financed by Asian investors seeking entrepreneurial opportunities to facilitate their immigration to Canada. With an investment of $2,178,500 and financing from HSBC Bank Canada, the company had, through its subsidiaries, opened three restaurants and was about to open a fourth as part of a business plan for the eventual operation of 30 restaurants. Tae Soo Woo was a director of the company. He resigned in acrimonious circumstances. He sent a notice of his resignation to the bank and in so doing maliciously defamed the company in statements he made relating to its financial stability. The fourth restaurant was never opened and the investment was then lost when the company sold its assets for $10 and the assumption of some debt.
On the trial of this action, commenced by the company and its subsidiaries against its former director, Madam Justice Ross awarded general and punitive damages of $60,000 for defamation (plus $6,323.39 in respect of funds improperly taken from the company) and $1,088,995 in damages for breach of fiduciary duty based on the value of a lost opportunity to realize a future financial advantage: 23 B.L.R. (4th) 78, 2006 BCSC 1554.”
In this case, the BCCA overturned the trial decision essentially on the basis that the resultant loss to the company had not been properly established. At trial the loss that was proven was actually the loss to the other individual shareholders rather than to the company who was the plaintiff.
The list continues to expand. As this article goes to press, Madame Justice Wedge has very recently reserved in the case of Canucks dispute involving Francesco Aquilini’s purchase of the team. According to press reports Tom Gaglardi and Ryan Beedie have brought that action alleging that Aquilini was their partner and thus owed them the duties of a fiduciary. They allege that he breached those duties by secretly negotiating to purchase the Canucks while they were still attempting to do so.
Powers of Attorney
A common fiduciary relationship is that of a person holding a power of attorney for another. Many B.C. decisions have made it clear that a holder of a power of attorney owes a fiduciary duty to the donor.
For example Kask Estate v. Welsh 2000 BCSC 791 which involved a daughter who held a POA for her elderly father. She succeeding in depleting his estate in the years before his death after he became mentally incompetent. By the time of his death, little was left in the estate. In finding the daughter liable for breach of fiduciary duty, Lysyk J. said as follows :
[24] In that Ms. Welsh held her father’s power of attorney, she owed to him a fiduciary duty: ” It was her duty not to prefer her interest or that of her family over his in the handling of his money which he had entrusted to her. I do not consider that Ms. Welsh determined she would deplete all of what would be her father’s estate once she held his power of attorney and had the opportunity to spend his money. Rather, it seems more probable that she simply found his money to be a ready resource and, instead of preserving it as apart from the costs of maintaining him she was duty bound to do, she spent it. ”
A similar case, Egli (Committee of) v. Egli 2004 BCSC 529, involved a son who had transferred his father’s home and investment accounts to him and his wife under a power of attorney that the father had given him some years before. By the time of the father’s death, the estate had been completely depleted by these inter vivos transfers.
The trial judge ultimately decided that the transfer of the family home was valid however the transfer of an investment account was in breach of the son’s fiduciary duty. The son was thus ordered to compensate his father’s estate for the amounts transferred.
Garson J. stated at paragraph 82:
“It is the attorney’s duty to use the power only for the benefit of the donor and not for the attorney’s own profit, benefit or advantage (Chapman) The attorney can only use the power for his or her own benefit when it is done with the full knowledge and consent of the donor. I am not aware of any authority that detracts from this principle in circumstances where the benefit is conferred on family members”.
In this case, the judge found the transfer of the house was done with full knowledge and consent however the transfer of the investment account was not.
The principle enunicated in the above case may be somewhat problematic in that, almost invariably, where the holder of the power of attorney executes some transaction which personally benefits the holder, he or she will insist that all was done with the full approval and knowledge of the elderly, frail donor.
In Fraser v Fraser 2000 BCSC 0211, four brothers were assisting their 90 year old mother to manage her financial affairs. One of them, unbeknowst to his three brothers, obtained a power of attorney from their mother without her first obtaining independent legal advice. A few days later he convinced her to take $ 40,000 from her GIC and invest it in Eron Acceptance. This represented 70% of her estate and was clearly a risky investment in which he lost all of her money. Although he did not use the POA to effect the transaction, the judge found that he had obtained the POA specifically for that purpose and would have used it, if necessary.
In finding the defendant liable for the loss, Dillon J. observed as follows :
[26] The defendant breached his fiduciary duty to the plaintiff in conducting himself in this manner when he knew that the plaintiff relied upon him. This fiduciary duty arises in all of the circumstances here, but also arose from the power of attorney whether or not it was actually used in the transaction “… He failed to exercise reasonable care in numerous respects, including: failing to read or understand the investment documents, failing to adequately protect the bulk of the plaintiff’s assets, failing to diversify the investment, failing to obtain independent advice, unreasonably relying on oral representations made at large meetings, investing at high risk in all of the circumstances, failing to obtain the consent and advice of his brothers, and failing to inform the plaintiff or his brothers either before or after the investment. ”
Remedies for Breach of Fiduciary Duties
Whenever a court finds a breach of fiduciary duty, then the fiduciary will be liable to place the beneficiary in that same position as the claimant would have been, had no breach been committed. Equity adopts the position that, where a breach occurs, any gain resulting belongs to the beneficiary whereas any loss is the trustee’s personal loss and full restitution must be made.
A breach of a fiduciary relationship can give rise to a wide range of remedies. Generally speaking, in addition to awarding compensation (damages are the common law remedy, compensation is the equitable remedy) our courts can impose restitutionary remedies such as the constructive trust, rescission, injunctive relief , equitable compensation and tracing and lastly an accounting for profits. Thus a claim of breach of fiduciary duty may open many doors not otherwise available at common law.
Conclusion
Whenever there is an inherent trust relationship between the parties with a corresponding potential for exploitation or damage, our courts are increasingly willing to recognize the existence of a fiduciary relationship and award a remedy for breach of fiduciary duties.
The concept of fiduciary relationships with corresponding fiduciary duties is one of the most sensible and flexible responses of the common law to the modern requirements of justice in individual cases.
How Courts Interpret Unclear Wills?
