A successful application for leave to appeal to the Supreme Court of Canada (“SCC”) is an uncommon occurrence. It is therefore of considerable interest to the estates bar that leave to appeal from a decision of the British Columbia Court of Appeal (“BCCA”) has been granted in the case of Cowper-Smith v. Morgan.
The case touches on important aspects of both undue influence and proprietary estoppel. It was in respect of the BCCA’s decision finding against the availability of proprietary estoppel as a remedy that leave was granted and we will all eagerly await the pronouncement of the SCC in due course. While the issue of proprietary estoppel in the case will be the subject of next week’s blog, the analysis of the BCCA as it relates to undue influence makes for interesting reading.
Elizabeth Cowper-Smith had three children, a daughter, Gloria, and two sons, Max and Nathan.
2001 – Upon obtaining legal advice, Elizabeth transferred her home and investments into joint tenancy with Gloria and executed a Declaration of Trust providing for Gloria to receive the assets “absolutely” upon her death. This transfer left her estate devoid of any significant assets.
2002 – Notwithstanding the Declaration of Trust, Elizabeth executed a Will leaving 1/3 of her estate to each of her children.
2007 – Gloria asked Max to return home from England in order to care for Elizabeth. Gloria offered Max the right to purchase a 1/3 interest in the home as an incentive.
Gloria reassured her brothers that the property transfer into joint tenancy with her was done simply to help manage the mother’s affairs. Upon Elizabeth’s death, however, Gloria said the transferred assets were hers.
British Columbia Superior Court Decision (2015 BCSC 1170)
Max and Nathan brought an action against Gloria alleging that Gloria exerted undue influence on Elizabeth. Max also sought a declaration that, on the basis of proprietary estoppel, he was entitled to purchase Gloria’s 1/3 interest in the house. At trial, the judge found that Gloria’s true intentions were located in her 2002 will.
British Columbia Court of Appeal Decision (2016 BCCA 200)
Gloria submitted on appeal that independent legal advice provided to Elizabeth was adequate to rebut the undue influence.
The appeal was allowed in part. The legal advice given to Elizabeth was inadequate to rebut the presumption of undue influence; however, Max did not acquire a right to purchase Gloria’s 1/3 share by promissory estoppel (again, the SCC has granted leave to appeal this latter finding).
Issue 1: Undue Influence
The trial judge, upheld by the BCCA, ruled in favour of Max and Nathan, and set held that the property was impressed with a trust for the benefit of the estate: the presumption of Gloria’s undue influence was not rebutted. This is an interesting finding, as Elizabeth obtained her own legal advice prior to executing the transfers to Gloria. Independent legal advice can be used to rebut presumptions of undue influence, if the independent legal advice qualifies as “informed advice”.
In applying Geffen v Goodman Estate,  2 SCR 353, the trial judge found a potential for domination inherent in the relationship between Gloria and Elizabeth, that gave rise to the presumption of undue influence.
The test for Gloria to rebut the presumption of undue influence was established in Geffen:
- An “examination of the nature of the transaction[s]”;
- A finding of whether the donor entered into the transactions as a result of her “own full free and informed thought”; and
- A “meticulous examination of the facts.”
The BCCA agreed with the trial judge’s conclusion that, based on this test, Gloria was not able to rebut the presumption of undue influence. Despite the fact that Elizabeth went to two lawyers, the court found that Gloria and her husband had advised the lawyers that Max and Nathan were trying to take Elizabeth’s property. Moreover, Gloria was present at some of the meetings with the lawyers. Lastly, the lawyers relied on the false information from Gloria and failed to adequately provide “informed advice” and otherwise probe for the existence of undue influence.
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Yesterday we discussed Modonese v. Delac Estate, 2011 BCSC 82 (CanLII), which considered when there is a presumption of undue influence and the factors that tend to rebut that presumption.
One important factor is the presence of independent legal advice. But what are the considerations that come into play in assessing the kind of legal advice required to rebut the presumption?
The function of independent legal advice is to remove a taint that, if not removed, might invalidate a transaction. There are two types of independent legal advice (See Cope v. Hill, 2005 ABQB 625):
a) Advice as to understanding and voluntariness; and
b) Advice as to the merits of a transaction.
Some of the factors to be considered in determining whether legal advice given to the granting party is sufficient to rebut the presumption include:
a) Whether the person benefiting is present at the time the advice is given and/or at the time the documents are executed;
b) Whether the lawyer was engaged by and took instructions from the person alleged to be exercising the influence;
c) 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 discussed the financial implications with the grantor;
d) Whether the lawyer enquired as to whether the donor discussed the proposed transaction with other family members who might otherwise have benefited if the transaction did not take place; and
e) Whether the solicitor discussed with the grantor other options whereby she could achieve her objective with less risk to her.
Ultimately, the adequacy of independent legal advice will always be a situation-specific inquiry and so it is important to consider all the surrounding circumstances in relation to one another.
Sharon Davis – Click here for more information on Sharon Davis.