Supreme Court of Canada Orders Estate Trustee to Exercise Discretion to Benefit Beneficiary

The Supreme Court of Canada released its decision in Cowper-Smith v. Morgan, 2017 SCC 61, on December 14, 2017 relating to siblings disputing the entitlement to their mother’s estate.  

As early as 1992, Elizabeth and Arthur Cowper-Smith of Victoria, BC, had made it clear that after their deaths, their property would be divided equally among their three children, Gloria, Max and Nathan.  Shortly before he died in 1992, Arthur explained such intention to his children to avoid family discord.  However, after their father’s death, the children became estranged from each other.  Gloria first fell out with Nathan.  She wrote him letters demanding that he not raise his voice in her mother’s home or entertain “gay males”.  When he went on an overseas trip, Gloria changed the locks to the family home although Nathan’s belongings were still inside.  He broke in but Gloria had the police escort him out.  Nathan eventually moved to Edmonton.

Gloria fell out with Max next.  After his father’s death, Max struggled with financial difficulties and his mental health deteriorated.  He turned to alcohol and drugs.  His marriage fell apart.  Max moved to England.  In 2005, Gloria made it clear to Max that their mother could no longer live on her own.  They began to discuss options for their mother’s care.  Max eventually agreed to give up his life in England and move back to Victoria to care for their mother in the family home.  He only did so after Gloria agreed that Max would be reimbursed for various expenses, have the use of their mother’s car and most importantly be able to live in the house permanently and eventually acquire Gloria’s one-third interest in the house.  That arrangement worked until 2009, when Gloria began to back away from her promises. 

In 2001, when Gloria kicked Nathan out of the property, her mother’s estate planning changed dramatically.  Elizabeth transferred title to the property and all of her investments into joint ownership with Gloria.  Pursuant to a “declaration of trust” Gloria would hold her interest in the house and the investments as bare trustee with Elizabeth as the sole beneficiary and Gloria would be entitled absolutely to both the property and the investments upon her mother’s death.  Elizabeth also executed a new will which appointed Gloria as executor and revoked all previous wills.   Elizabeth revoked this will in 2002 and executed another will, her last.  In this last will, she again named Gloria as executor but this time provided that her estate would be divided equally between her three children.  However, the trust declaration and Gloria’s joint ownership of the property and the investments, if valid, would have assured that Elizabeth’s estate would be virtually devoid of assets.  Those things were not changed.   

Nathan discovered Gloria’s joint ownership of the house in 2005.  Gloria assured him that the arrangement was to simplify the administration of their mother’s estate and that he and Max would still each receive a 1/3 share.  She gave Max the same assurance 4 years later when he learned that Gloria’s name was on title.  Gloria changed her position after their mother’s death when a trust declaration entitling Gloria to Elizabeth’s assets came to light and Gloria announced her plans to put the house, in which Max was still living, on the market.

Max and Nathan sought an order to set aside the trust declaration as a product of Gloria’s undue influence over their mother and declaring that Gloria held the property and the investments in trust for Elizabeth’s estate to be divided equally between the three children in accordance with Elizabeth’s most recent will.  They also claimed on the basis of proprietary estoppel, that Max was entitled to purchase Gloria’s one-third interest in the property.   The brothers succeeded at trial where the trial  judge found that Gloria had not rebutted the presumptions of undue influence and resulting trust, and declared that the property belonged to Elizabeth’s estate.  The British Columbia Court of Appeal unanimous upheld the trial judge’s conclusion with respect to undue influence and resulting trust, but split on proprietary estoppel.  The majority held that since Gloria owned no interest in the property at the time that she made assurances to Max, proprietary estoppel could not arise.  Max appealed on the issue of proprietary estoppel.

The Supreme Court of Canada allowed Max’s appeal.  The majority decision was written by Chief Justice McLachlin, in one of her last decisions as Chief Justice of the Court, Justices Abella, Moldaver, Karakatsanis, Wagner, Gascon and Rowe concurred.  Justices Brown and Cote wrote separate reasons, concurring in the result but dissenting with respect to the remedy.  The Court held that the trial judge did not err in concluding that proprietary estoppel operates to enforce Gloria’s promise. Since ownership at the time the representation or assurance was relied on is not a requirement of proprietary estoppel, the fact that Gloria did not have an interest in the property at the time Max relied on her promise did not negate Gloria’s obligation to keep her promise. 

To establish propriety estoppel, the claimant must establish three things:

1.      a representation or assurance that the claimant expects to enjoy some right or benefit over property;

2.      the claimant must rely on that expectation by doing or refraining from doing something and his reliance must be reasonable in all of the circumstances; and

3.      the claimant must suffer a detriment as a result of his reasonable reliance such that it would be unfair or unjust for the party who made the representation or assurance to go back on her word and insist on her strict legal rights.

In such circumstances, proprietary estoppel attaches to the interest that the claimant has in the property and protects the equity by making the representation or assurance binding.  It is not necessary that the party responsible for the expectation own an interest in the property at the time of the claimant’s reliance.  When that party has or acquires sufficient interest in the property, proprietary estoppel will attached to that interest and protect the equity.

Whether a claimant’s reliance is reasonable in the circumstances, is a question of mixed fact and law.  A trial judge’s determination of that point is, absent, palpable and overriding error, entitled to deference.  However, a claimant who establishes the need for proprietary estoppel is entitled only to the minimum relief necessary to satisfy the equity in his favour and cannot obtain more than he expected.  There must be a proportionality between the remedy and detriment.

The majority held that in this case, both Max and Gloria had clearly understood for well over a decade that Elizabeth’s estate, including the family home, would be divided equally between the three children upon her death.  It was thus sufficiently certain that Gloria would inherit a one-third interest in the property for her assurance to be taken seriously as one on which Max could rely.  There was no basis on which to overturn the trial judge’s conclusion that Max’s reliance was reasonable.  An equity arose in Max’s favour when he reasonably relied to his detriment on the expectation that he would be able to acquire Gloria’s one-third interest in the family home.  That equity could not have been protected by proprietary estoppel at the time it arose because Gloria did not own an interest in the property.  However, proprietary estoppel attached to Gloria’s interest as soon as she obtained it from the estate. 

Gloria as executor could be ordered to transfer a one third interest in the property to each of the estate beneficiaries so that her promise to Max could be fulfilled.  Such a distribution of shares in the property was not contrary to Elizabeth’s intent  and the court had the power to direct Gloria to exercise her discretion as executor in a certain manner.  With respect to remedy, the minimum necessary to satisfy the equity in Max’s favour was an order entitling him to purchase Gloria’s interest in the family home at it fair market value as at the approximate date on which he would reasonably have expected to do so in the first place.

Regards,

Blair