Fraud On a Power
It is a fraud on a power contained in a will to use a society created in accordance with the terms of the will to achieve indirectly the transfer of property to a non-object of that power which could not be done directly as was quoted by the BCCA in The Land Conservancy of BC v UBC 2014 BCCA 473.
The headnote is interesting and reads:
The University of British Columbia (UBC) challenged the transfer of a historic property known as the Binning House by the executors and trustees of the estate of the owner of the property.
The testatrix’s will instructed the trustees to either create a society for the preservation of the property and transfer it to that society or to sell the house and give the net proceeds of the sale to a fellowship fund with UBC.
The trustees entered into talks with the respondent, a society dedicated to historical preservation, about assuming ownership of the property. After receiving legal advice that the will did not permit them to transfer the property directly to the respondent, the trustees created a society and transferred the property to it.
The society immediately transferred the property to the respondent.
When the respondent encountered financial difficulties and proposed to sell the Binning House, UBC challenged the transfer by the trustees as a fraud on the power granted to them in the will.
The application judge dismissed the challenge, finding that the will granted the trustees significant discretion to fulfill the testatrix’s hope that the Binning House would be preserved for historical purposes.
Held: appeal allowed. Although the trustees acted in good faith, they deliberately exercised their power under the will for the ulterior purpose of benefiting a non-object of the power. The transfer of the Binning House by the trustees to the new society constituted a fraud on the power given to them, and the transfer is void.
In order to succeed in having the transfer of the Binning House declared void, UBC had the onus of proving that the transfer was a fraud on the power contained in the Will authorizing the Trustees to transfer it. The phrase “fraud on a power” is a term of art, and it does not connote fraud in the usual sense of dishonesty. This is explained by Geraint Thomas in Thomas on Powers, 2d ed. (Oxford: Oxford University Press, 2012) at para. 9.03:
The doctrine of fraud on a power is not founded upon a state of conscience imputed to the donee in equity. Dishonesty of some kind is often present, but it is not essential. Indeed, the donee’s intention or motive may be perfectly honest. Thus, the doctrine may apply where the donee honestly believes that, by his exercise of the power, he is disposing of the property in a more beneficial manner, or in a way which is consonant with what he believes would have been the real wish of the donor of the power …
[Footnotes omitted.]
[43] The parties are agreed, as they were before the chambers judge, that the two basic elements of a fraud on a power are as set out in Thomas on Powers at para. 9.02:
(a) “a disposition beyond the scope of the power by the donee, whose position is referable to the terms, express or implied, of the instrument creating the power;” and
(b) “a deliberate breach of the implied obligation not to exercise that power for an ulterior purpose”.
[44] The first element involves the interpretation of the Will to determine whether the disposition of the Binning House by the Trustees was beyond the scope of the power given to them in the Will. The second element involves a consideration of the Trustees’ actions.
(a) Scope of the Power
[45] The parties are also agreed as to the general principles governing the interpretation of wills. The basic principle was articulated by the Supreme Court of Canada in National Trust Co. Ltd. v. Fleury, [1965] S.C.R. 817 at 829:
In the construction of wills, the primary purpose is to determine the intention of the testator and it is only when such intention cannot be arrived at with reasonable certainty by giving the natural and ordinary meaning to the words which he has used that resort is to be had to the rules of construction which have been developed by the Courts in the interpretation of other wills.
[46] Other relevant principles include the following statements from James MacKenzie, Feeney’s Canadian Law of Wills, loose-leaf, 4th ed. (Markham, Ont.: LexisNexis, 2000):
§10.43 … the most influential rule of construction is that the court may construe the words used by the testator in their ordinary sense.…
* * *
§10.60 The testator’s intention is to be gathered from a consideration of the will as a whole and not solely from the words used, say, in an unclear portion of the will. The ordinary meaning rule and other rules of construction are entirely subservient to the content of the will. This idea is often expressed by saying that the testator’s intention is to be ascertained, first of all, from the four corners of the will.
* * *
§10.61 It is reasonable to presume that the testator’s intention was that effect be given to every word of his or her will …
[Footnotes omitted.]
[47] It is appropriate to consider surrounding facts and circumstances only if the language of the will is ambiguous: Feeney’s Canadian Law of Wills at §10.51.
