Undue Influence and Independent Legal Advice

Legal Advice and Undue Influence

Davy v Davy 2019 BCSC 3128 reviewed inter alia the law relating to independent legal advice and situations where undue influence may arise.

Undue influence is an equitable doctrine to save people from being victimized by other people.

There are two classes of cases:

1) The first arises where the party seeking to set aside the transaction proves that the defendant engaged in improper conduct that dominated the will of the victim to the point of coercion;

2) The second class of cases arise where the defendant and the supposedly victim were in a relationship of dependency involving a potential for domination of the victim by the defendant. In these cases, if the transaction involved a gift or bequest, as opposed to a commercial transaction, undue influence is presumed in the burden lies in the defendant to show that the victim entered into the transaction as a result of his or her own full, free will and informed thought. In the case of a commercial transaction, there is a for the requirement that the plaintiff must also show that the contract in question worked unfairness by conferring undue disadvantage on the victim or undue advantage on the defendant..

The case law establishes that where there is the possibility of undue influence, effective independent legal advice requires that the lawyer must not confine himself or herself to confirming the clients and understanding of the legal mechanics and voluntarily assent to the transaction.

In the BC Court of Appeal decision of Cowper-Smith 2016 BCCA 200 at paragraph 52, the court held that these are cases in which an independent advisor should be satisfied that “ the gift is one that is right and proper, and all the circumstances of the case, and if he or she cannot so satisfy himself or herself then he or she should advise his or her client not to proceed.

The jurisprudence emphasizes that the lawyer’s duties to ensure that his or her client understands and freely assents to the transaction at hand, and sometimes this requires the lawyer to go well beyond an explanation of the narrow legalities to an assessment of the client’s understanding of the substance of the transaction and its implications.

The court found in the Davy decision that the legal advice provided to Mrs. Davy did not offer an assurance that the transfer of the home and in joint tenancy with her son was intended by Mrs. Davy as a result of her own full, free and informed thought.

The BC Court of Appeal decision in Cowper-Smith approved the following list of considerations for evaluating the significance of legal advice received in assessing the claim of undue influence:

1. Whether the party benefiting from the transaction is also present at the time, the advice is given, and were at the time the documents are executed;

2. whether though technically acting for the grantor, the lawyer was engaged by and took instructions from the person alleged to be exercising the influence;

3. in a situation where the proposed transaction involves the transfer of all or substantially all of a person’s assets, whether the lawyer was aware of that fact and discuss the financial implications with the grantor;

4. Whether the lawyer inquired as to whether the donor or discuss the proposed transaction with other family members who might otherwise have benefit of the transaction did not take place; and

5. whether the solicitor discussed other options, whereby she or he could achieve his or her object, and with less risk to him or her.

In the Davy case, the lawyer treated both the son and Mrs. Davy as her client, the proposed transaction involve the transfer of ownership of Mrs. Davies most significant asset. There was no discussion of the financial implications for Mrs. Davy if she and her son had a falling out; Mrs. Davy believed that her son needed to be on title, so as to qualify for a mortgage when that was not true; Mrs. Davy was unsophisticated and somewhat mentally compromised, the transaction was kept secret from others, and Mrs. Davy relied upon her son for financial advice.

Mrs. Davy believed the transfer was necessary in order to keep the home “safe” and several other factors that existed in a situation where David was in a position of domination over Mrs. Davy, who in turn was in a position of reliance upon her son David.

Due to their relationship of potential domination and reliance, there was a presumption of undue influence, and the son David was required to rebut that presumption of both resulting trust and undue influence, both of which he was unable to do.

The Equitable Doctrine of Rectification

The Equitable Doctrine of Rectification | Disinherited Vancouver

Rectification is an equitable remedy that can be granted were a mistake, either mutual or unilateral, has been made a legal document that does not accord with the true intention of the parties.

Rectification is not a do over and like many equitable remedies, is only granted in specific and exceptional cases. It will not substitute a better judgment or proper due diligence, and requires strong evidence in order to for a court to exercise its equitable jurisdiction.

In an often quoted passage of English law stated in Rose v Pim Junior and Co. (1953) 2 QB 450 ( Eng. CA) the court stated:

“ rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly, and in this regard, in order to ascertain the terms of the contract, you do not look into the inner minds of the parties, into their intentions, any more than you do in the formation of any other contract.”

That’s rectification is not a way to retroactively allow one party to change a subsequently recognized error of judgment by one or both parties, nor is it to be used as a substitute for due diligence and the importance of written contracts to commercial activities.
Rectification is typically used to remedy clerical errors such as incorrectly describing the legal description of land.

There are two types of mistakes that can be remedied by rectification- mutual mistake and unilateral.


Mutual Mistake

The legal test for rectification of mutual mistakes was described by the Supreme Court of Canada in Attorney General Canada v Fairmont hotels 2016 SCC 56:

1. rectification is available where it is established that the written agreement, which is purportedly still in effect, does not accurately record the parties agreement;
2. it is not available to rectify the agreement itself such as when the parties say that the agreement is lead to unintended or unexpected results
3. the quality of evidence, must be clear convincing and cogent;

Thus in order for rectification of a mutual mistake is predicated upon the applicant showing that the parties had reached a prior agreement whose terms are definite and ascertainable, that the agreement was still effective when the instrument was executed, that’s the instrument fails to record accurately that prior agreement, and that if rectified as proposed, the instrument would carry out the agreement.


Unilateral Mistake

Rectification may be available where the claimed mistake is only made by one party. This is typically because the instrument in question formalizes a unilateral acts such as a trust, or that the where the instrument was intended to record an agreement between the parties, but one party says that the instrument does not accurately do so, while the other party says that it does.

There are demanding preconditions that are required to rectify a unilateral mistake:

1. that the party resisting rectification knew or ought to of known about the mistake
2. and that permitting the party to take advantage and mistake would amount to fraud or the equivalent of fraud

See Sylvan Lake Golf and Tennis Club v Performance Industries 2012 SCC 19;