On Monday, I blogged about the recent decision of the Court of Appeal for Ontario in Teixeira v. Markgraf Estate where the Court held that delivery of a cheque for funds to be gifted was not sufficient to constitute delivery of the gift itself. The case also raises the issue of whether equity can step in to perfect a gift that might otherwise fail.
In the final portion of the decision, the Court adverted to the seemingly contradictory principles that “equity will not assist a volunteer” and “equity will not strive officiously to defeat a gift”.
The principle that “equity will not assist a volunteer” captures the notion that where a person receives a benefit for no consideration, equity will not impose an obligation in order to ensure the benefit is received. This leads, in the context of gifts, to the well-accepted principle that “equity will not perfect an imperfect gift”. On its face, this seems to indicate a requirement that all three elements of a valid gift be strictly met. Over time, however, case law has provided exceptions to the sometimes onerous third requirement that gifts be delivered to the recipient of the gift.
Exceptions to this rule can be found in cases such as Re Rose where the requirement of delivery of a gift was relaxed such that the requirement would be satisfied where the donor took all steps that could be expected of him to transfer legal title. In that case, the donor intended to transfer shares to the donee. The donor provided share transfer documents and the share certificates to the donee. However, the transfer of the shares required the corporation to consent to the transfer and register the shares, which occurred only after the donor’s death. The English Court of Appeal held that the shares were gifted at the point at which the shares were given to the donee, despite the fact that the transfer of title had not occurred (and could still be refused by the corporation).
In a more recent decision, Pennington v. Waine, the English Court of Appeal considered the exceptions to the rule that equity will not perfect an imperfect gift. The Court, citing the principle that “equity will not strive officiously to defeat a gift”, greatly expanded the situations in which equity may, in fact, perfect imperfect gifts. In that case, the Court held that equity could intervene to give effect to a gift if it would be unconscionable for the donor to change his or her mind.
The Court of Appeal for Ontario, in Teixeira v. Markgraf Estate, did not foreclose the possibility that in some cases, the principle established in Pennington v. Waine may be applied. Any application of the principle, however, would need to be applied on a principled basis and only where it would not conflict with settled law. Where the gift failed for lack of delivery as the gifted cheque was not cashed before death, the Court refused to intervene given the already settled case law that such a gift would fail.
All told, Teixeira v. Markgraf Estate rejects the wide-sweeping changes to the law on gifts set out in Pennington v Waine and affirms that equity will not, generally, step in to perfect an otherwise imperfect gift.
Thanks for reading!
Remedies for breach of trust are commonly sought in estate litigation, most notably in the context of a contested passing of accounts application. An executor who mismanages the estate assets, makes a bad investment, or distributes to a stranger rather than a beneficiary can easily be found to be liable for either breach of trust or breach of fiduciary duty or both.
The remedies available to the disappointed beneficiary can, however, be complex. AIB Group (UK) Plc v. Mark Redler & Co. Solicitors, a 2014 decision of the United Kingdom Supreme Court, provides a comprehensive multi-jurisdictional overview of this interesting area of law.
The case considered the remedies available to a bank when the solicitors it engaged to secure a loan against property failed to adequately secure the bank’s interest. The Court noted that, in considering the remedies available for breach of trust, the Court must consider the different obligations of a trustee in order to evaluate the remedies that may be available for a given breach, such as:
(i) a custodial stewardship duty (to preserve the assets of the trust);
(ii) a management stewardship duty (to manage the property with care), and
(iii) a duty of undivided loyalty (prohibiting a trustee from taking advantage of his or her position without fully informed consent of beneficiaries).
What is interesting from the perspective of an estates litigator is the Court’s observation that, “historically, the remedies for such breaches took the form of orders made after a process of accounting. The basis of the accounting would reflect the nature of the obligation. The operation of the process involved the court having a power, where appropriate, to “falsify” and to “surcharge.”
Falsification is another word for “disallow”; the Court will “falsify” the unauthorized breach of the custodial stewardship duty and require the trustee to make good the loss to the trust.
Although the terms are less commonly referenced in modern practice, surcharge and falsification are great examples of how courts provide remedies for breach of trust in the context of a contested passing of accounts.
Thanks for reading.
It is often the case that a testator may wish to make a significant inter vivos gift to one or more of their children. He or she may intend that such a gift is to be taken as either an advancement or in addition to a later inheritance. If, in preparing a Will and/or estate plan for a testator, a solicitor becomes aware of prior inter vivos gifts to the testator’s children, the solicitor should inquire further into the testator’s intention in this regard in the context of the estate plan.
Sometimes the dynamics in a family are such that any inequality as between siblings can become a serious issue, potentially leading to estate litigation following a testator’s death. If a testator is aware of this possibility, the testator should be alerted to the possible financial consequences of such a dispute. Of course, there is no way to guarantee that estate litigation will be avoided, but there are steps that can be taken in an estate plan to try to make the administration and distribution of an estate as smooth as possible.
One simple way of at least addressing the issue is to include a clear statement of the testator’s intentions in the Will, such as an indication that any gifts given during the testator’s lifetime are to be considered an advance, or should be given in addition to the child’s entitlement under the Will. Unfortunately, this will not necessarily avoid a fight amongst siblings if any of the children who have not received inter vivos gifts are not happy with the outcome, or if the child who did receive a gift expected to also receive an equal share of the parent’s estate.
An option for ensuring a truly equal distribution is a hotchpot clause. This is also an option if the testator does, in fact, intend that inter vivos gifts were to be given as an advancement on the child’s future inheritance, as is often the case.
A “hotchpot” clause will operate to take into account the value of gifts given during the testator’s lifetime in calculating the division of the estate, with any gifts previously given being subtracted from the portion given to the child in question. Effectively, the value of any substantial inter vivos gifts will be clawed back into the estate for the purpose of determining the value of the estate and the ultimate entitlement of the child or children who received such gifts. The end result of a hotchpot calculation will be that each child will receive from their parent, either inter vivos or from the estate, a share of exactly equal value. Hotchpot can be in relation to inter vivos gifts given, or to the forgiveness of outstanding loans given during the testator’s lifetime.
The concept of hotchpot is based on the equitable doctrine of ademption by advancement, also known as the presumption against double portions. This principle presumes that a parent intends equality between his children, such that if he or she leaves the residue to his or her children equally, but also made an inter vivos gift or advancement to one of the children, the rule will apply to bring the gift into hotchpot so that the intention of equality will not be altered.
Hotchpot, or ademption by advancement, also applies in the case of an intestacy. Section 25 of the Estates Administration Act, R.S.O. 1990, c. E.22, provides that if the child on an intestacy has been advanced assets, with such advancement being expressed by the deceased or acknowledged by the child in writing, the value of the advancement will be considered, for the purposes of s. 25, to be part of the estate to be distributed.
Accordingly, the default position when it comes to inter vivos gifts to a testator’s children will likely be equality, and as a consequence, some form of hotchpot calculation. Chances are that parents usually do intend to divide their estate equally amongst their children, so this rule will probably operate in line with the testator’s intentions in most cases. If a testator does wish to treat their children unequally, the estate plan must be carefully prepared with a view towards all possible consequences.
Thanks for reading,
Other blog posts you might enjoy:
The power of the Court to rectify any sort of legal instrument is a potent remedy; Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56 at paras. 12-15 and 57 (S.C.C.). Ultimately, whether the context is a contract or a Will, the rationale is very much an equitable one – it is unfair to take advantage of an innocent mistake. In the context of rectification of drafting error in Wills, the
re are three requirements:
(1) where there is an accidental slip or omission because of a typographical or clerical error;
(2) where the testator’s instructions have been misunderstood; or
(3) where the testator’s instructions have not been carried out.
A recent example is The Bank of Nova Scotia Trust Company v Haugrud, 2016 ONSC 8150 (Ont. S.C.J.). Here an innocent mistake was manifested on the face of the Will in that there was a mistaken reference to the wrong class of shares in a certain corporation owned by the deceased. The Hon. Justice Mesbur held:
 Here, the lawyer who drafted the will unequivocally admits his mistakes. The context for the mistakes is confirmed by the accountant, who sets out the background of how the mistakes occurred. Essentially, the confusion around the class of shares arose because the accountant was referring to the initial reorganization plan for Davwel, instead of the slightly different plan that was ultimately put in place. Although the deceased clearly and accurately set out the shareholdings in his letter to the accountant, neither the accountant nor the lawyer used the correct information, and instead maintained their reference to the earlier plan regarding the class of shares. I conclude it was an accidental slip or omission that resulted in the mistake regarding the class of shares.
 I also conclude the drafting solicitor misunderstood or failed to carry out the testator’s instructions, in that he failed to refer to either the correct class of Davwel shares or to the correct number of shares that would have to be redeemed in order to carry out the testator’s instructions.
 All three criteria in Robinson have been met…
Here the power to rectify allowed the situation to be corrected. One might note that this equitable power is especially useful in that it provides the Court with a greater power than merely correcting a false description. In such cases the maxim demonstratio non nocet, cum de corpore constat (‘a false or mistaken description does not vitiate’) operates such that non-essential or surplus words which are inaccurate may be ignored provided that the remaining true descriptive words are sufficiently certain; Re Beauchamp (1975), 8 OR (2d) 2 (H.C.J.). It does not, however, allow for the addition of of the words that were in fact intended by the deceased.
Have a nice weekend!
Other articles you might enjoy:
Last week, the Supreme Court of Canada released two decisions concerning the equitable doctrine of rectification: Canada (Attorney General) v. Fairmont Hotels Inc. and Jean Coutu Group (PJC) Inc. v. Canada (Attorney General). Fairmont deals with the equitable doctrine while Jean Coutu deals with rectification under Quebec civil law. Together, these decisions materially change the law of rectification by narrowing its scope. Both cases concern rectification for the purpose of tax planning. It remains to be seen what effect, if any, these decisions will have in the estates context.
In Fairmont, Fairmont Hotels and Legacy Hotels entered into a financing agreement that was intended to operate on a tax-neutral basis. When the financing agreement was terminated to allow Legacy Hotels to sell two hotels, there was an unanticipated tax liability for Fairmont. Fairmont applied to the court to rectify their directors’ resolutions to avoid the tax liability. Likewise, in Jean Coutu, a Quebec corporation, the Jean Coutu Group (PJC) made a series of transactions designed to be tax neutral, but were unsuccessful in avoiding tax consequences. After the audit, PJC sought to rectify the documents, arguing the intention of the parties to the transactions was to be tax neutral.
The Doctrine of Rectification Reviewed
In both cases, the court held that a general intention of tax neutrality is insufficient as a basis for rectifying the written documents of an agreement. Instead of looking at the motivation for entering into the agreement, a court must consider what the parties actually agreed to do. In Fairmont, the court stated: “It bears reiterating that rectification is limited solely to cases where a written agreement has incorrectly recorded the parties’ antecedent agreement. […] In short, rectification is unavailable where the basis for seeking it is that one or both of the parties wish to amend not the instrument recording their agreement, but the agreement itself.” In the case of Fairmont, the court held that Fairmont only had a wish to protect its subsidiaries from tax liability, not a plan to do so in concrete and ascertainable terms. Rectification was therefore not available.
The court will grant rectification for two types of error:
(1) where both parties subscribe to a written agreement on the mistaken common understanding that it accurately reflects the terms of their antecedent agreement; and
(2) where there is a unilateral mistake, either in a unilateral act such as the creation of a trust, or where an instrument was created to record an agreement made between parties and one party argues it does not accurately do so.
In the first case, a mutual mistake, the court must be satisfied: “that there was a prior agreement whose terms are definite and ascertainable; that the agreement was still in effect at the time the instrument was executed; that the instrument fails to accurately record the agreement; and that the instrument, if rectified, would carry out the parties’ prior agreement.” In the latter situation, the preconditions to rectify a unilateral mistake are: “the party resisting rectification knew or ought to have known about the mistake” and “permitting that party to take advantage of the mistake would amount to ‘fraud or the equivalent of fraud.’”
Thank you for reading.
Other articles you might enjoy:
Equitable remedies are pushing the boundaries of just what kind of claims may be made against an estate. The most apparent beneficiary of this willingness of the Courts to expand the scope of such relief would appear to be common law spouses (see the recent decision of the Supreme Court of Canada in Kerr v. Baranow and our recent blog on the case).
In the October 2011 issue of Canadian Lawyer there is a good article on this whole issue entitled "Common Law Couples – til death do they part." The author gives, in part, a summary of some of the legislation in other provinces as it has evolved to provide for common law spouses:
- In Alberta, there is the Adult Interdependent Relationships Act and other legislation that "provide surviving spouses and common law partners the same rights to claim support from the estate and share in the deceased estate on intestacy [with the exception of the Dower Act]."
- In Manitoba, "major legislative amendments were proclaimed in 2004 such to create The Common-Law Partners’ Property and Related Amendments Act…Now in Manitoba, a common law partner is able to claim a share of a person’s estate if they’ve died without a will."
- In Saskatchewan, "the Wills Act, 1996, The Administration of Estates Act, The Intestate Succession Act, 1996, The Dependants’ Relief Act, 1996, and The Family Property Act all treat married and common law couples who have cohabited for not less than two years the same,” says Maria Markatos, Crown counsel with the Ministry of Justice’s Public Law Division in Regina.
David M. Smith – Click here for more information on David Smith.
We hear a lot about fiduciary duty in the practice of wills and estates. But what is it exactly? According to this definition in Irwin law’s online dictionary, a fiduciary is “a person occupying a position of trust vis-à-vis another person”.
In the recent case of Hooper (Estate) v. Hooper, 2011 ONSC 4140, the court discusses the concept of fiduciary duty. In Hooper, the estate trustee, who did not defend the proceedings against him, placed himself in a fiduciary relationship with respect to not only the deceased, but also in relation to the other named beneficiaries.
The court commented that when a person in such a fiduciary position fails to pass accounts or otherwise account for his or her actions, he or she can be required to repay the amount unaccounted for to the estate. Breach of such a special relationship gives rise to wide array of equitable remedies. Such equitable remedies are always subject to the discretion of the court, and are designed to address not only fairness between the parties, but also the public concern about the maintenance of the integrity of fiduciary relationships.
In exercising its equitable discretion, the court is concerned not only with compensating a wronged plaintiff, but also with upholding the obligations of good faith and loyalty, which are the cornerstone of the concept of fiduciary duty.
The freedom of the fiduciary is limited by the nature of the obligation he or she undertakes, an obligation which “betokens loyalty, good faith and avoidance of a conflict of duty in self interest.” In short, equity is concerned not only to compensate the plaintiff, but to enforce the trust which is at its heart.
Fiduciary duties are clearly those which should never be entered into lightly or on an uninformed basis.
Sharon Davis – Click here for more information on Sharon Davis.
Yesterday’s blog considered the fact that a common law spouse has no beneficial entitlement to his or her deceased spouse’s estate on an intestacy. There are, however, remedies available to the disappointed spouse.
The first of these is a claim for dependant support found in Part V of the Succession Law Reform Act, whereby a common law spouse (or any other “dependant” of the deceased) can ask for support where no adequate provision has been made for the dependant by the deceased.
The Court has broad discretion to grant relief that, according to section 62(3) of the Act, can take a variety of forms, including the transfer, use or occupation of specified property in satisfaction of the dependant’s need for support.
In many situations involving long-term common law relationships, there may also be an argument for equitable (as opposed to legal) ownership of property by the surviving common law spouse. These rights will be founded on the principles of unjust enrichment and include, for example, resulting or constructive trust, and proprietary estoppel.
The Supreme Court of Canada has recently considered two cases that provide guidance on unjust enrichment in the context of common law relationships. The Court released one decision in the matters of Kerr v. Baranow, and Vanasse v. Seguin, which I will be discussing in the next couple of blogs.
Sharon Davis – Click here for more information on Sharon Davis.
Litigation lawyers live in fear and sober respect of the limitation period. We all know that missing a statutory limitation period can be the kiss of death. Given the right circumstances, however, there is one light in the dark that can overcome the shadow of both statutory limitations and common law laches arguments.
Fraudulent concealment is a common law doctrine that operates in equity to defeat limitations defences where:
1) The defendant and plaintiff are engaged in a special relationship with one another;
2) Given the special or confidential nature of their relationship, the defendant’s conduct amounts to an unconscionable thing for the one to do towards the other; and
3) The defendant conceals the plaintiff’s right of action, either actively, or as a result of the manner in which the act that gave rise to the right of action is performed.
Fraudulent concealment is not a rule of construction like the discoverability rule. It is an equitable principle that prevents a limitation period from operating “as an instrument of injustice”. It is aimed at preventing unscrupulous defendants who stand in a special relationship with the injured party from using a limitation provision as an instrument of fraud. See Giroux Estate v. Trillium Health Centre, 2005 CanLII 1488 (ON C.A.)
The fraudulent concealment necessary to postpone a limitation period need not amount to deceit or common law fraud. It is sufficient if the conduct, having regard to some special relationship between the parties, is an unconscionable thing for the one to do towards the other. See Guerin v. The Queen,  2 S.C.R. 335
For more information on limitation periods and an excellent in-depth analysis of the effect of the Limitations Act, 2002, see Anne Werker, “ Limitation Periods in Ontario and Claims by Beneficiaries” (2008) 34:1 The Advocates Quarterly, 1.
Perhaps now would be a good time to take a minute to check on a few limitation periods – just in case!
Sharon Davis – Click here for more information on Sharon Davis.