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

Ontario Court of Appeal: No Right to Require Proof of a Will in Solemn Form

In a decision released March 8, 2016 – Neuberger v. York, 2016 ONCA 191 – the Ontario Court of Appeal rejected the argument that Ontario's  Rules of Civil Procedure (“Rules”) give a person the right to require that a will be proved "in solemn form" before it is subject to probate. 

 

Chaim and Sara Neuberger had two daughters – Edie and Myra.  Chaim's long-standing intention was to provide for his daughters equally on his death.  Chaim died on September 25, 2012 at age 86.  Sara predeceased him.  He left a real estate empire estimated to be worth over $100 million.  Edie and Myra survived him.  Each daughter has adult children.

 

Chaim executed primary and secondary wills in 2004 and again in 2010.  Both sets of wills left his estate to his two daughters and their children.  However, the sets of wills differed in one significant way which allegedly resulted in Myra’s share exceeding Edie’s share by approximately $13 million.  As a result of this unequal sharing, which was contrary to Chaim's stated intention, Edie and her son Adam commenced separate actions challenging the 2010 wills. 

 

Justice Susan Greer of the Ontario Superior Court of Justice dismissed the will challenges on a motion on the basis that they were barred by the equitable doctrines of estoppel by representation and estoppel by convention.  Justice Greer held that Edie was estopped from challenging the validity of the 2010 wills because she delayed in bringing her challenge and had no reasonable explanation for the delay.  Justice Greer also held that the actions that Edie had taken as estate trustee and the prejudice that would ensue from having to unwind the estate freeze and that the respondents would suffer as having taken steps on the basis of the 2010 wills. 

 

Justice Greer also held that Adam should not be allowed to challenge the 2010 wills because he had no independent knowledge of the estate, its assets, previous wills and pertinent information about the estate planning nor did he have a close relationship with his grandfather or a real explanation as to why he left it so late to come forward.

 

The Court of Appeal (Justices Gillese, van Rensburg and Miller) disagreed with the conclusion reached by Justice Greer and allowed the appeal.  The decision of the Court of Appeal was written by Justice Gillese.

 

Justice Gillese examined the nature of the court’s role and jurisdiction in probate cases.  She accepted Justice Maurice Cullity’s explanation that the court’s jurisdiction in probate is inquisitorial.  In other words, the court does not simply adjudicate upon a dispute between the parties.  The court’s function and obligation is to ascertain and pronounce what documents constitute the testator’s last will and that are entitled to be admitted to probate.

 

Justice Gillese then looked at rules 74 and 75 of the Rules.  She held that subrule 75.06(3) plays an important role in contentious estate proceedings.  The subrule provides:  “any person who appears to have a financial interest in an estate may apply for directions, or move for directions in another proceeding under this rule, as to the procedure for bringing any matter before the court.” 

 

In addition, rule 75.01 provides:  “…any person appearing to have a financial interest in an estate may make an application under rule 75.06 to have a testamentary instrument that is being put forward as the last will of the deceased proved in such manner as the court directs.” 

 

Justice Gillese did not accept the proposition that as a general principle an interested person is entitled, as of right, to require that a will be proved in solemn form.  Rather the rule provides such a person the ability to make an application to have the will “proved in such manner as the court directs”.   The two rules read together provide that a court has discretion whether to order that a will be proved, as well as discretion over the manner in which the will is proved. 

 

In the Justice Gillese's  view, an “interested person” must meet some minimal evidentiary threshold before a court will accede to a request that a will be proved.  Otherwise, estates would be exposed to needless expense and litigation. She held that the correct approach was that the applicant must adduce "some evidence" which, if accepted, would call into question the validity of the will or testamentary instrument that was being propounded.

 

Justice Gillese accepted that some decisions have indicated that next of kin are entitled as of right to have the will proved in solemn form.  However, such cases are reflective of a presumption that applies in situations where no certificate of appointment of estate trustee has been issued, rather than a hard and fast rule. 

 

The Court of Appeal also rejected Justice Greer's reasoning dealing with the equitable doctrines of estoppel by representation and estoppel by convention.  Justice Greer had relied on three cases as authority for the power to invoke estoppel to bar the will challenge.  However, Justice Gillese held that one of the cases did not offer any authority or support for the notion that the doctrines applied to probate matters.  She found that there is nothing in the jurisprudence to support the extension of the equitable doctrines of estoppel by convention or representation to matters involving validity of a will.   

Regards,

Blair

Hybrid Trials Best Suited For Will Challenges In "Modest" Estates

In a decision dated April 4, 2014, Justice D. M. Brown of the Ontario Superior Court of Justice refused an applicant’s request for a hearing date for a summary judgment motion and instead ordered that the action be resolved by way of a hybrid trial.

 

The case involved a will challenge for a “modest” estate (about $750,000 in total).  Two of the deceased’s four daughters were challenging the will on the basis of lack of testamentary capacity and undue influence, among other grounds.  In refusing one daughter’s request for a summary judgment hearing date, Justice Brown cited the Supreme Court of Canada’s decision in Hryniak v. Mauldin, 2014 SCC 7, in which the Court stated:

 

            “[73]  A motion for summary judgment will not always be the most proportionate way to dispose of an action.  For example, an early date may be available for a short trial, or the parties may be prepared to proceed with a summary trial.  Counsel should always be mindful of the most proportionate procedure for their client in the case.”

 

Justice Brown held that in this case bringing a summary judgment motion would be a grossly disproportionate way to resolve the dispute for two reasons:

 

1. The estate was modest and summary judgment motions are expensive; and
2. Significant credibility issues were at play with conflicting versions of facts between two “antagonistic" daughters.

 

Justice Brown assigned a trial date for the autumn of 2014 and ordered that the matter proceed by way of a “hybrid form of hearing” in which any party who intended to testify at trial must file an affidavit which will serve as his or her evidence-in-chief, and a time-limited oral cross-examinations would be scheduled.  As to the evidence from non-party witnesses (if affidavits could not be obtained), each party must serve a detailed will-say of the anticipated evidence from such witnesses.


Regards,


Blair

Note : Justice Brown held that at the present time in the Toronto Region, trials of five days or less are available "virtually for the asking".  That has not been my recent experience.  I could not get a three day trial heard in Toronto, even though we had been given a trial date of the week of May 10th, on the basis that there were no judges available.  The trial coordinator advised us that we would be put over to a new date between September and December of 2014.

 

Law firm accused of "naked cash grab"

A Report from the Law Times by Tim Shufelt Publication Date: Monday, 23 November 2009

A Toronto litigation boutique possibly will be on the hook for legal costs after its conduct sparked a harsh rebuke by a Superior Court judge in a long-running trusts-and-estates saga. Polten & Hodder, along with lawyer Eric Polten, was the subject of strongly worded condemnation from Justice David Brown, who said the firm ran up “scandalous” legal costs and “attempted to perpetrate a naked cash grab” on two elderly clients. Polten, whose experience includes domestic and international family and estate law matters, also misrepresented himself to the court and was in breach of his professional duties as an officer of the court, Brown said in a judgment in Miksche Estate v. Miksche released this month. According to Sandra Schnurr, counsel for the estate trustee, the legal gossip mill is churning with news of the ruling.“It already seems to be well known. I’ve had numerous lawyers comment to me on it,” she says. On the ruling itself, Schnurr says the judge’s decision speaks for itself. “I’m satisfied but I’m not jubilant. Whenever I see a colleague at the bar being harshly criticized, it makes me uncomfortable,” she says.

In representing Johanna Miksche, a Scarborough woman who died two years ago, and her sister Ursula Lill, Polten racked up more than $1 million in legal fees that he first tried to recover from the Miksche estate and then from the older sister, who was the primary beneficiary, the ruling said.“Having been rebuffed in his effort to have the assets of one vulnerable person satisfy the scandalous costs he ran up, Mr. Polten came before me on this application attempting to poach upon the assets of another vulnerable person. From such conduct, I conclude that Mr. Polten was prepared to use any means to place his financial interests in this proceeding ahead of those of his former clients,” Brown wrote. “Such conduct merits the strongest condemnation by this court.”When reached for comment, Polten would only say that he would be appealing the decision. “The matter will be dealt with in the notice of appeal,” he says in response to questions about specific criticisms in the ruling. “I presently have no other comment.”

Miksche was 78 when she passed away in a long-term care facility in Scarborough. Her husband had died many years prior, and her only living sibling was her sister, who was then 87 and living in Germany.Miksche had previously granted powers of attorney to two friends who were also included as beneficiaries in her will.Then in 2005, Miksche’s three nephews travelled from Germany to visit their aunt in the care facility, accompanied by a member of Polten & Hodder.At that time, Miksche also granted powers of attorney to one of her nephews as well as her sister and signed a retainer for Polten & Hodder. The two groups — Miksche’s two friends on the one hand and her relatives on the other — then filed competing applications for guardianship.Before a decision could be rendered, Miksche died, prompting the parties to submit claims for costs.“The Polten and Hodder firm sought the staggering amount of $1,038,297 . . . against Johanna’s estate,” Brown wrote. Not only did the amount include a success premium but it also exceeded the value of the estate, according to the judgment.

In a separate 2007 ruling on the same matter, Superior Court Justice Nancy Spies called the arguments raised by the law firm “preposterous” and “alarming” and said the legal approach advocated by the firm exploited the elderly woman. The firm had also alleged on behalf of the nephews that Miksche’s two friends had held her as a “prisoner” in the care facility. “I do not understand how Mr. Polten even has the audacity to make this submission,” Spies wrote, adding that the submission demonstrated a “complete detachment from reality and lack of judgment.” The judge awarded the nephews costs of $35,500 but ordered them to first cover $28,000 in legal fees to Miksche’s two friends. Polten & Hodder appealed the ruling on behalf of Lill and the nephews but a few days later made an offer to settle by proposing to drop the matter in return for an agreement on how to distribute the estate to its beneficiaries. The offer, however, “radically changed the flow of estate funds to Ursula Lill,” Brown wrote, noting that all of the residual assets of the estate would be payable to the law firm in trust under the new arrangement.“And it was quite clear from the written and oral submissions made by Mr. Polten what would happen to those funds once in his trust account — there they would stay until he was able to extract from Lill payment of his ‘scandalous’ costs claim.”

Regards,

Blair