Wednesday, July 19, 2017

Johnson v. North Shore Yacht Works Corp.

In British Columbia, a trustee acting in the administration of a trust is generally entitled to be reimbursed for his or her reasonable expenses out of the trust assets. But what if the trustee makes a contract in respect of the trust assets, and there are insufficient assets in the trust to pay the amount owing? Might the trustee have to pay the shortfall out of his or her own pocket?

The answer is that unless the trustee has limited the trustee’s liability in the contact, he or she will be out of pocket.

This point is illustrated by the recent decision in Johnson v. North Shore Yacht Works Corp., 2017 BCSC 1229.

Garfield Johnson and Robin Macfarlane are the trustees of the Chester Allison Johnson Alter Ego Trust (which I will refer to simply as the trust). They contracted with North Shore Yacht Works Corp. (which I will refer to as North Shore) to repair a yacht which was an asset of the trust. Ultimately, more money was spent on the repairs than what the yacht could sell for. Mr. Johnson and Mr. Macfarlane as trustees sued North Shore, and North Shore made a counter claim against both Mr. Johnson and Mr. Macfarlane as trustees, and against Mr. Johnson personally. Mr. Justice Grauer ultimately found Mr. Johnson and Mr. Macfarlane in their capacity as trustees liable to North Shore for $166,219, but dismissed the counter claim against Mr. Johnson personally. (The contract dispute is reported at 2014 BCSC 2057.)

Some of the judgment debt to North Shore was satisfied by the seizure and sale of the yacht, but there remained a significant shortfall of over $140,000 and there were no assets left in the trust.

Mr. Johnson and Mr. Macfarlane argued that North Shore was not entitled to collect from them personally. Two or the arguments they advanced were that North Shore knew it was dealing with them as trustees, and Mr. Justice Grauer had dismissed the counter claim against Mr. Johnson personally.

Mr. Justice Grauer held that North Shore was entitled to collect from the trustees’ own assets. They had not limited their liability to the trust assets in the contract. The significance of finding that they were liable as trustees is that they are then entitled to be indemnified out of the trust assets for the liabilities, but it does not negate their personal responsibilities to satisfy the judgment. If the judgment had been against Mr. Johnson personally, he would not have been entitled to be indemnified out of the trust assets.

Mr. Justice Grauer wrote at paragraphs 8 through 10 and paragraphs 14 and 15:

[8]             The defendant [North Shore] submits that it is a long-standing principle of trust law that a trustee is personally liable on contracts into which it enters on behalf of the trust.  The trustee’s remedy is to seek indemnity from the trust for that liability.  The only exception to the trustee being personally liable is where he has specifically contracted to limit his liability to the assets of the trust.
[9]             The authorities bear this out: see, for instance, Benett v Wyndham (1862), 4 DeG F & J 259 (CA);  Muir v City of Glasgow Bank (1879), 4 App Cas 337 (HL); Davis v Sawkiw(1983), 38 OR (2d) 466 (H Ct J); Pettit, Equity and the Law of Trusts, 12th ed (2012) at pp 413-414; and Underhill and Hayton, Law Relating to Trusts and Trustees, 18th ed (2010), p. 1066, para 81.5. 
[10]         In Hall v MacIntyre, [1934] 2 WWR 145 (BCCA), Chief Justice Macdonald put it this way:
It is well-understood law that an executor or trustee who makes a contract in relation to his trust is personally liable to the contractor for the price agreed upon.
[14]         The plaintiffs [Mr. Johnson and Mr. Macfarlane] then assert that a trustee should not be liable in his personal capacity where the defendant was aware that it was dealing with him in his capacity as a trustee, relying on Gordon v Roebuck, [1992] OJ No. 1499 (CA) at para 16.  I had dismissed the counterclaim against Garfield Johnson in his personal capacity because of my finding that the defendant was aware, if somewhat vaguely, that the yacht was owned by a trust or an estate, not by Mr. Johnson personally.
[15]         But the conclusion in Gordon was that judgment should not be entered against the trustee in his personal capacity when the other party knew it was dealing with a trustee.  I agree it should not, and that was the basis on which I dismissed the claim against Mr. Johnson personally.  A judgment against the trustee qua trustee permits the trustee to seek indemnity from the trust.  A judgment against the trustee in his personal capacity would deprive him of that ability.  The distinction is therefore important.  Here, the issue is quite different: where the trustee is found liable qua trustee, can the judgment creditor execute against the trustee’s personal assets thereby giving rise to the right to claim indemnity?  In my view, the Gordon case does not address that issue.  The authorities cited above do. 

When acting as a trustee, it is important to keep in mind that a trust is not a separate legal person like a corporation. Usually, directors are not personally liable for contracts made on behalf of a corporation (there are exceptions). In contrast, trustees act personally and as this case demonstrates may end up personally on the hook for commitments they make as trustees. 

Sunday, July 16, 2017

Sabey Rule LLP Welcomes Mark Brade

I am pleased to announce that Mark Brade has joined our firm as an associate.

Mark is currently focused on real estate law, as well as developing his estate planning, estate administration and business law practices.

He is a graduate of Thompson Rivers University Faculty of Law.

Monday, July 03, 2017

Parker v. Felgate

My friend and colleague John Poyser sent these photographs of Upper Gloucester Place, Dorset Square, to me.

This building was the home of Georgina Annie Stephens Compton, who died on September 2, 1882.

Mary Ann Flack, signed Georgina Compton’s will on her behalf, three days earlier on August 29, 1882. Georgina Compton had become ill with Bright’s disease earlier that year. She had met with her solicitor, Mr. Parker, on various occasions to discuss making her will. She instructed him that she wished to leave 500 pounds to her father, and 250 pounds to her brother, with the residue of her estate Hospital for Sick Children in Great Ormond Street.

While Mr. Parker was away on holidays, Georgina Compton’s condition took a turn for the worse. She was in and out of consciousness. Dr. Hickman said that she "was capable of being roused and could speak, and did talk about her will." He also said that he "could hardly say she was perfectly rational."

Mr. Parker’s partner, Mr. Ponsford, drafted Georgina Compton’s will on the basis of Mr. Parker’s notes. The circumstances of the signing of the will were as follows:

On the 29th Dr. Tanner was called in that a fresh opinion might be taken the time when it was proposed to have the will executed. He stated that she opened her eyes, put out her hand, and smiled; that he consulted Dr. Palmer, rustled the will in front of her face, and thus roused her; that he said “This is your will. Do you wish this lady (Mrs. Flack) to sign it?” And that she replied, “Yes” Dr. Tanner added, “I have no doubt about it;” and he further added, “As far as I could judge, she understood what she did.”

The issue to be decided by a jury in Parker v. Felgate (1883), L.R. 8 P. D. 171 (Eng P.D.A.), was whether Georgina Compton was competent to make her will. There was no question that Georgina Compton had capacity to make a will when she gave her instructions to Mr. Parker. In light of her capacity when she gave instructions, what level of functioning was required for her to make a valid will at the time she answered "yes" when asked if she wished Mrs. Flack to sign on her behalf?

Sir J. Hannen, in his charge to the jury, set out the law on this point as follows:

This being the material evidence, the law applicable to the case is this: If a person has given instructions to a solicitor to make a will, and the solicitor prepares it in accordance with those instructions, all that is necessary to make it a goodwill, if executed by the testator, is that he should be able to think thus far, “I gave my solicitor instructions to prepare a will making a certain disposition of my property. I have no doubt that he has given effect to my intention, and I accept the document which is put before me as carrying it out.”
Further in his charge, Sir J Hannen said:

A person might no longer have capacity to go over the whole transaction, and take up the threat of business from beginning to the end, and think it all over again, but if he is able to say to himself, “I have settled that business with my solicitor. I rely upon his having embodied it in proper words, and I accept the paper which is put before me as embodying it;” it is not, of course, necessary that he should use those words, but if he is capable of that train of thought in my judgement that is sufficient.
The jury found that although Georgina Compton did not remember and understand the instruction she gave to Mr. Parker, nor could she have understood each clause of the will if it had been put to her, she was “capable of understanding, and did understand, that she was engaged in executing the will for which he had given instructions to Mr. Parker.”
Accordingly, the will was valid.

Mr. Poyser writes about Parker v. Felgate and the law of capacity to make a will in depth in his textbook Capacity and Undue Influence, published by Carswell in 2014.

Sunday, June 11, 2017

Hiding Assets in Divorce Proceeding Backfires

To some extent, the court process depends on the integrity of the people involved, including the parties to a lawsuit, as well as their lawyers. Of course, some people do lie. The process allows for pre-trial document disclosure and examinations under oath. At a trial, there are usually several witnesses, and lawyers have the opportunity to question opposing parties as well as all of the witnesses. After a full trial, the judge then weighs the evidence, considering such things as the internal consistency of a witness’s own evidence, as well as each witness’s evidence when weighed against the evidence of others.  Finally, is the evidence overall believable, or, to use the language of the courts, does it meet the preponderance of probabilities? My sense is that judges do quite a good job in weeding out fabrications, but they cannot see into the hearts and minds of those who appear before them.

The majority of the cases settle before trial, without the benefit of a judge assessing credibility. It must be tempting for some in a bitter dispute to lie, or in the case of a divorce, to hide assets. Doing so may backfire.

In divorce proceedings, Rosa Donna Este was required to disclose her assets to her former husband. She disclosed some, but apparently not all. She and her former husband settled the proceedings; their assets were divided in accordance with a consent order, and the Court granted the divorce.

Subsequently, after a falling out with her mother, Mina Esteghamat-Ardakan, and her brother, Francis Amir Este, Ms. Este sued them alleging that they held millions of dollars worth of assets in trust for her. She alleged that they held the assets belonging to her to avoid creditors, and in particular, the claim by her former husband.

According to Ms. Este’s own allegations, in her Further Amended Notice of Civil Claim,

11C.    From approximately 1990 to late 2014, the Plaintiff, Mina and Francis regularly engaged in discussions and planning regarding the manner in which properties that they owned or proposed to acquire should be held, including the name or names in which title should be held and trust arrangements or other agreements amongst themselves that should be made related to them. The primary objectives which the Plaintiff, Mina and Francis sought to advance through those discussions and planning measures included maximizing the extent to which the capital gains exemption available for gains realized on the sale properties claimed as their principal residences could be claimed, and protecting those properties from potential claims that their present or potential future spouses, romantic partners or creditors might make against them.
Her claim set out that,
(a)    From approximately late-May of 2013 through to October of 2013, Mina, with Francis’ participation and assistance, counseled and encouraged the Plaintiff to propound a false and concocted story, devised by Mina, that Mina was the true owner of assets that were then owned by the Plaintiff in defending a family law action that the Plaintiff’s (then) husband had commenced against her in May of 2013 (“Family Law Action”).
Other particulars of her claim include signing “fake back-dated trust declarations,” adding her mother as an account holder, and then deleting her own name, and giving false evidence.   
After four weeks of trial, Ms. Este’s mother and brother brought an application to dismiss her claim on the basis that there was no evidence to support her claim, and that her claims were an abuse of the court’s process.

Mr. Justice Funt, in Este v. Esteghamat-Ardakani, 2017 BCSC 878, set out the main issue before him:

[1]             Is it an abuse of process for a plaintiff to claim ownership of Blackacre that the defendant claims to own when that plaintiff, in recent divorce proceedings, swore falsely and pleaded not to own Blackacre, thereby deceiving then spouse, counsel, and the Court? Does it matter that the defendant knew of the deception and participated by preparing false documents? These questions are at issue before the Court.
[2]             It is an abuse of process for a plaintiff to ask the Court to perfect a fraud designed to cheat financially one’s spouse in divorce proceedings. An exception does not exist where the defendant knew of and participated in the deception, even where the defendant will enjoy a windfall.
[3]             The foregoing rule protects the administration of justice from being brought into disrepute. The Court will not help to perfect a fraud.
[4]             In the case at bar, the foregoing rule is engaged. The trial of the action is underway with the plaintiff having closed her case in which she seeks to have her claim to ownership in significant funds and various real estate properties recognized (and a particular mortgage declared invalid). Before proceeding further, the defendants seek to have the plaintiff’s claim dismissed as an abuse of process. They say that the plaintiff’s case is not one that a court would put to a jury.
Mr. Justice Funt, in dismissing Ms. Este’s claim, held that her conduct engaged three aspects of abuse of process: illegality, the pursuit of inconsistent rights, and bringing the administration of justice into disrepute.

It is illegal to transfer assets to defeat, delay or defraud creditors. Mr. Justice Funt noted that had Ms. Este sued her mother and brother for the assets before her divorce, she would not have been precluded from pursuing her claim. But in this case, she was relying on evidence of her own illegal conduct, and was accordingly precluded from recovery of the assets.

Secondly, Ms. Este was assertion of rights was inconsistent with her assertions in her divorce proceedings that she did not own the assets she was seeking to recover from her mother and brother. Mr. Justice Funt wrote at paragraph 33,

A litigant cannot use the Court’s process to state one set of rights in a proceeding and then in a subsequent proceeding assert rights inconsistent with the rights first stated. Otherwise, uncertainty would result and many paths for mischief would be introduced into our law for the avaricious, the malicious, and the vexatious. The litigant must elect at the outset which set of rights the litigant wishes the Court to recognize.
Thirdly, allowing Ms. Este to recover the assets in this context would tend to impair the integrity of, and public confidence in, the administration of justice.

The Court will not assist fraud. Mr. Justice Funt wrote,
[76]         In sum, in the divorce proceedings, the plaintiff chose to take steps to defeat her then husband’s legal rights by representing falsely, including in Court documents and under oath, the properties and funds she now claims she rightfully owns. She now wishes to perfect her fraud in the divorce proceedings — a fraud designed to cheat financially her then husband engaging the past unwitting help of officers and a judge of the Court.
[77]         Bluntly stated, the plaintiff now asks the Court to help her with her illegal artifice because her mother and brother no longer will. Such, the Court will not do.

Sunday, June 04, 2017

Bach Estate

In British Columbia, if you make a gift to one of the two witnesses to your will, or to the spouse of one of the two witnesses to your will, the usual rule is that the gift is invalid. This rule can lead to very harsh results, invalidating significant gifts to close family or friends, thwarting the will maker’s intentions.

Fortunately, the Wills, Estates and Succession Act contains a new provision allowing the court to declare that a gift to a witness, or to the spousal witness, is valid and may take effect, if the court is satisfied that the will maker intended to make the gift.

The relevant provision is section 43 of the Wills, Estates and Succession Act, which says:

Gifts to witnesses
43  (1) Unless a court otherwise declares under subsection (4), a gift in a will is void if it is to

(a) a witness to the will-maker's signature or to the spouse of that witness,
(b) a person signing the will by the will-maker's direction, or the spouse of the person signing, or
(c) a person claiming under a person, other than the will-maker, referred to in paragraph (a) or (b).
(2) For the purposes of subsection (1), the relevant time for determining whether one person is the spouse of another is the time when the will was made.
(3) If a gift is void under subsection (1), the remainder of the will is not affected.
(4) On application, the court may declare that a gift to a person referred to in subsection (1) is not void and is to take effect, if the court is satisfied that the will-maker intended to make the gift to the person even though the person or his or her spouse was a witness to the will.
(5) Extrinsic evidence is admissible for the purposes of establishing the will-maker's intention under subsection (4).

The first reported case of which I’m aware applying section 43 (4) was published in April, 2017. The case is Bach Estate, 2017 BCSC 548.

The evening before he died, Terry Bach signed a paper leaving his estate to his sister Sharon Thibodeau. The document was witnessed by two witnesses, one of whom was Ms. Thibodeau’ s husband. Mr. Bach had earlier seen a notary public to make a new will, but his physician advised him that he needed to go to the hospital because of his deteriorating health, and he was unable to complete his new will with the notary public. Accordingly, he signed the handwritten document expressing his wish to leave his estate to Ms. Thibodeau.

If Mr. Bach had died before the Wills, Estates and Succession Act came into effect, his intended gift of his estate to Ms. Thibodeau would have failed. One of the issues before Mr. Justice Kelleher in this case was whether the gift should be given effect despite the fact that Ms. Thibodeau’s husband the will.

In applying section 43 (4), Mr. Justice Kelleher applied the analysis the courts have used in deciding whether to give effect to a document that does not comply with the formalities of a will pursuant to section 58 of the Wills, Estates and Succession Act. In applying section 58, the court considers whether the non-compliant document records a deliberate or fixed and final expression of the person’s testamentary intentions.

The issue under section 43 (4) is whether the gift to Ms. Thibodeau expressed Mr. Bach’s testamentary intentions despite being witnessed by her husband. On the evidence, Mr. Justice Kelleher was satisfied that it did. Mr. Bach had previously told both a friend, and another of his sisters, that he intended to leave his estate to Ms. Thibodeau. Mr. Bach’s position was the other witness to the will. She gave evidence that the will was read aloud to Mr. Bach, and he said he agreed with the contents of it. It’s

In the result, Mr. Bach’s estate will go to Ms. Thibodeau

Thursday, May 18, 2017

Sabey Rule LLP Seeks Solicitor

[Since writing this post, I am pleased to advise that we have hired Mark Brade]

Our firm, Sabey Rule LLP, is looking for a junior associate lawyer, interested in practicing primarily as a solicitor in the areas of real estate, estate planning and administration, and business law, to join our firm. The ideal candidate will have between two and five years of experience.

We are a six-lawyer firm, based in Kelowna, British Columbia, with a diverse client base, and a practice emphasis on estate planning, administration, and related litigation. We also have practices in the areas of real estate conveyances, business law and strata law.

For those of you who live outside of Kelowna, consider some of the advantages of law practice here. We have a collegial bar, a growing economy and community, significantly more affordable housing than is available in greater Vancouver, the University of British Columbia Okanagan, hiking, boating and skiing.

I encourage interested applicants to send their resume to our firm, care of Keith A. Sabey,

Saturday, May 13, 2017

Forbes v. Millard Estate: Court Applies Anti-Ademption provision of the Wills, Estates and Succession Act

One of the pitfalls of leaving specific property to a beneficiary in your will, is that you might not own that property on your death. You may specify in your will that you are leaving an item of sentimental value to your niece, or you may specify that you are leaving property of substantial value such as your home to a child. But what happens if on your death, you no longer own any property of that description? In many cases, the gift is said to adeem, which means that your beneficiary does not receive the property, or anything in substitution for the property (unless you provided a substitute gift in your will).

There are exceptions. One of those exceptions is set out in section 48 of the Wills, Estates, and Succession Act. The purpose of this provision is to provide for a financial gift to a beneficiary of specific property, when that property has been disposed of by someone acting on behalf of the will-maker, rather than by the will-maker himself. This anti-ademption provision applies when the will-maker becomes mentally incapable of managing his own affairs, and his attorney under an enduring power of attorney, or court-appointed committee, decides to sell the property that was subject to a specific gift in the will. Section 48 reads as follows:
Relief from disposition of property
48  (1) In this section,“proceeds” means the gross proceeds at the time of disposition, and includes
(a) non-monetary consideration, and
(b) in the case of a gift, the fair market value of the gift.
(2) If property that is the subject of a gift in a will is disposed of by a nominee, the beneficiary of the gift is entitled to receive from the will-maker's estate an amount equivalent to the proceeds of the gift as if the will had contained a specific gift to the beneficiary of that amount.
(3) Subsection (2) does not apply if
(a) the disposition is made to carry out instructions given by the will-maker at a time when the will-maker was legally capable of giving instructions, or
(b) a contrary intention appears in the will.

Mr. Justice Blok’s decision in Forbes v. Millard Estate, 2017 BCSC 361, illustrates how section 48 works. Helen Millard made a will on September 5, 2000. In her will, she left her daughter, Cherie Forbes, “any property which I may own and be using as a home at the date of my death.” When she made her will, Ms. Millard owned a home on Hornby Island, British Columbia, which he later sold. She purchased a new home in Courtney, British Columbia. Sadly, her mental functioning deteriorated to the point where she could no longer manage her own financial affairs. In September 2005, her other two children, Maureen Bryce and Richard Millard, acting as her attorneys under an enduring power of attorney sold Ms. Millard’s home in Courtney to pay for her expenses. When she died on February 9, 2015, Ms. Millard no longer owned a home.

Ms. Forbes applied to court for a declaration that she is entitled to the sale proceeds of the Courtney home pursuant to section 48.

Ms. Bryce and Mr. Millard argued that because section 48 did not come into effect until March 31, 2014, after Ms. Millard made her will, and after they sold the Courtney home, the anti-ademption provision does not apply in this case.

Mr. Justice Blok held that section 48 does apply, because under the transition rules of the Wills, Estates and Succession Act, the relevant date for determining whether section 48 applies is the date of the will- maker’s death. Because Ms. Millard died after March 31, 2014, section 48 applies, and Ms. Forbes is entitled to the sale of the Courtney home.