Thursday, January 04, 2018

B.C. Court of Appeal Confirms that Notaries are Not Permitted to Draw Wills with Life Estates

The British Columbia Court of Appeal confirmed that notaries public are not permitted to draw wills that create life estates or trusts in a decision released December 21, 2017. In British Columbia, generally only lawyers may practice law, which includes drawing wills for a fee. However, members of the Society of Notaries Public of British Columbia are also permitted to draw wills for a fee, but there are restrictions on the types of wills they may draw.  Specifically, as set out in section 18 of the Notaries Act, notaries may,

(b)     draw and supervise the execution of wills 
(i)    by which the will-maker directs the will-maker’s estate to be distributed immediately on death,
(ii)    that provide that if the beneficiaries named in the will predecease the will-maker, there is a gift over to alternative beneficiaries vesting immediately on the death of the will-maker, or
(iii)   that provide for the assets of the deceased to vest in the beneficiary or beneficiaries as members of a class not later than the date when the beneficiary or beneficiaries or the youngest of the class attains majority….
In Society of Notaries Public of British Columbia v. Law Societyof British Columbia, 2017 BCCA 448, the Society of Notaries Public sought a declaration that Notaries Public are permitted to draw wills creating a life estate.

Let me give you an example of a life estate. In my will, I might give my spouse the right live in my house during her lifetime, and provide that on her death, the house will then be divided among my children equally. My spouse would have a life estate or life interest, and my children the remainder interest.

The Society of Notaries Public argued that the remainder beneficiaries would have an interest in the property at death of the will-maker, even though they would not have possession of the property until the death of the beneficiary for life. The interest of the remainder beneficiaries vest at the time of the will-maker’s death. According to the Society of Notaries Public, the property can be said to be "distributed immediately on death," in such a case.

The Society of Notaries Public were unsuccessful in the Supreme Court of British Columbia, and appealed to the Court of Appeal.

The Court of Appeal also rejected the Society of Notaries Public’s argument. Although remainder beneficiaries of a life estate may acquire an immediate vested interest, that is not the same thing as a distribution. Mr. Justice Frankel wrote,

[23]         Reduced to its core, the Notaries’ argument is that the words “distributed immediately on death” should be interpreted as “vested immediately on death”.  For example, they say that when a will-maker leaves real property to A subject to B having a life interest in that property, since A’s interest vests immediately, the property has been “distributed immediately” to A, notwithstanding the fact that A is not entitled to possession or use of the property until B dies.  I am unable to accept this argument.

[25]         There are principles of statutory interpretation that assist in determining the meaning of the words a legislature has chosen to use.  As I will explain, those principles lead to the conclusion that the Legislative Assembly used the expression “distributed immediately” in s. 18(b)(i) of the Notaries Act in its ordinary sense, namely, to describe a will in which the will-maker directs the assets of the estate to be immediately given out or delivered to those entitled to receive them; in other words, a will that directs the immediate transfer of both the legal and beneficial interest in the assets of the estate to the beneficiaries.

This decision means that if you wish to have a professionally drawn will in which you provide the right to a beneficiary to enjoy the property for life, but for other beneficiaries to receive the property after the life beneficiary’s death—which is fairly common in second marriages—then you will need to retain a lawyer to draw the will.

Sunday, December 17, 2017

Supreme Court of Canada Decision on Proprietary Estoppel in Cowper-Smith v. Morgan

The Supreme Court of Canada rendered it judgment in Cowper-Smith v. Morgan, 2017 SCC 61, this last Thursday, December 14, 2017. The main legal issue is whether a person who relies on a promise that he will receive property to his detriment may become entitled to the property even if the person who made the promise did not own the property at the time she made the promise. Let me explain.

Elizabeth Flora Cowper-Smith died in 2010. She had three children: Gloria Morgan, Max Cowper-Smith and Nathan Cowper-Smith. In her will, she named her daughter as her executor and she provided that after payment of debts, her estate would be divided equally among her three children. She had investments and her family home in Victoria, British Columbia.

In 2005, Max Cowper-Smith visited Victoria from England, where he had been living and working as a lawyer. Gloria told Max that their mother could no longer care for herself in her own home. Gloria and Max agreed that he would leave England and move in with their mother, and care for her and the family home, after Gloria agreed that he would be able to live in the home permanently, and that he would be able to acquire Gloria’s one-third interest after their mother’s death. On the basis of his sister’s promises, Max moved back to Victoria, and cared for his mother.

After her mother’s death, Gloria said she was going to put the house on the market.

Nathan and Max sued their sister.

As an aside, there is more to this story. Elizabeth Cowper-Smith had transferred title to her house and investments into joint tenancy with Gloria, and they signed a trust declaration pursuant to which Gloria held her interest in the title to the house and investments for her mother during her mother’s lifetime, but would receive these assets on her mother’s death. The Supreme Court of British Columbia trial judge set aside the transfers into joint tenancies and the trust declaration on the basis that Gloria had exercised undue influence over her mother and that Gloria had not rebutted the presumption that the gratuitous transfer is not a gift, but is held on a resulting trust for her mother and her mother’s estate. The Court of Appeal upheld this aspect of the trial judge’s decision, and it was not part of the appeal to the Supreme Court of Canada.

On finding that the family home was part of Elizabeth’s estate, the trial judge, Madam Justice Brown considered Max’s claim to the right to purchase Gloria’s interest in the home from Gloria on the basis of what is known as proprietary estoppel. In her reasons reported at 2015 BCSC 1170, she summarized the law as follows:

[116]     The claim for proprietary estoppel begins with an assurance or representation in relation to an interest in land. The assurance can be made through words or conduct and does not have to be as precise as it would need to be in order to give rise to a binding contract. The claimant's belief in the assurance must be reasonable. A finding of reliance does not necessarily lead to a finding of detriment and the court must be satisfied that there has been detriment because this is what gives rise to an unfairness. Reliance is a change in a person's conduct as a result of the assurance. Detriment does not flow automatically from reliance and detriment must be assessed on a holistic basis, looking at the overall benefits gained and losses suffered by the claimant. Once inequity has been established, the court must determine the extent of the inequity and the relief needed to satisfy it.

Madam Justice Brown found that Max had established the necessary evidence to support his claim. She wrote at paragraph 118 and 119,

[118]     I am satisfied that Max acted to his detriment in moving from England to Victoria, giving up employment income, the long-term lease of a cottage, his contacts with his children, and his social life to look after his aged dementing mother. He did so relying on Gloria’s agreement to his conditions for the move. In doing so, he acted reasonably. His discussions with Gloria were not done in a moment, they covered several months.
[119]     The relief that Max seeks is the right to purchase Gloria’s one-third interest in the house. I consider the relief sought by Max to be the minimum required to satisfy the equity. In a sense it will cost Gloria nothing. That Gloria now would rather not sell to Max for personal reasons has no bearing on the equity, or the reasonableness, of the relief sought.

Gloria appealed. In the British Columbia Court of Appeal, reported at 2016 BCCA 200, the majority held that because Gloria did not own an interest in the family home when she made the promises to Max, and it was uncertain whether she would receive an interest in the family home, Max could not rely on Gloria’s promises to assert a claim based on proprietary estoppel. Mr. Justice Willcock for the majority (Madam Justice D. Smith dissented on this issue) wrote at paragraphs 106 though 108,

[106]     Even assuming there to be some basis for the view that proprietary estoppel might arise as a result of an assurance given by one about to be the owner of property, I would not expand that class of persons so far as to include a potential beneficiary who gives an assurance to another, years before the death of a testator, with respect to what she will do with an inheritance that she merely anticipates receiving, if the person receiving the assurance acts as requested in the meantime. Not only is there uncertainty, in such a case, with respect to the promisor’s ability to deliver a proprietary interest to the promisee at the time the assurance is given, the uncertainty is not resolved when the promisee acts in reliance upon the promise.
[107]     Leaving aside, for the moment, the question whether Gloria was in a position to exert undue influence upon her mother, there was uncertainty with respect to the property interest Max was being promised. First, there was uncertainty whether Gloria would inherit anything from her mother. She might have predeceased her mother. Her mother might have changed her will and left Gloria more or less than a one‑third interest in the property. Her mother might have sold the house and moved into accommodation more suited to her declining health. Simply by liquidating her property Elizabeth Cowper-Smith would have precluded Max from asserting a right to buy anything from Gloria. Certainly it is not suggested that Elizabeth was in any way restricted in her dealings with the property simply because her daughter made assurances to Max about what she would do on Elizabeth’s death.
[108]     Without exerting undue influence upon her mother, Gloria was not in a position to determine what property interest Max would receive in exchange for his move to Victoria. The fulfilment of Gloria’s promise was entirely conditional on her mother’s actions, which were outside her control.
Max appealed to the Supreme Court of Canada.

Writing for the majority, Chief Justice McLachlin held that Max was entitled to require Gloria to sell him her interest in their mother’s home based on the principles of proprietary estoppel. She rejected the majority’s reasoning in the Court of Appeal. Although Max could not have enforced the promise if Gloria had not acquired an interest in the property, it can be enforced if she later does receive an interest in the home. After summarizing the majority decision in the Court of Appeal, the Chief Justice wrote at paragraphs 35 and 36:

[35]                          I cannot agree. With respect, the conclusion reached by the Court of Appeal majority conflates proprietary estoppel with the equity to which it gives effect. That Gloria did not own an interest in her mother’s property at the time of Max’s reliance is not dispositive in itself: see MacDougall, at p. 456; see also Thorner, at para. 61, per Lord Walker; Re Basham (deceased), [1987] 1 All E.R. 405 (Ch.), at p. 415. An equity arises when the claimant reasonably relies to his detriment on the expectation that he will enjoy a right or benefit over property, whether or not the party responsible for that expectation owns an interest in the property at the time of the claimant’s reliance. Proprietary estoppel may not protect that equity immediately. It may not protect the equity until considerable time has passed. If the party responsible for the expectation never acquires a sufficient interest in the property, proprietary estoppel may not arise at all; where there is proprietary estoppel, there must be an equity, but not vice versa. When the party responsible for the expectation has or acquires a sufficient interest in the property, however, proprietary estoppel attaches to that interest and protects the equity: see MacDougall, at p. 458; Wilken and Ghaly, at pp. 265-66; see also Watson v. Goldsbrough, [1986] 1 E.G.L.R. 265 (C.A.), at p. 267. Ownership at the time the representation or assurance was relied on is not a requirement of a proprietary estoppel claim.
[36]                           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 their mother’s house. That equity could not have been protected by proprietary estoppel at the time it arose, because Gloria did not then own an interest in the property. But that does not mean that proprietary estoppel cannot attach to Gloria’s share of the house once she receives it. I conclude that it can.

There were a couple of other important issues remaining. First, Elizabeth Cowper-Smith did not give her children the family home in the will. Rather she gave her children a one-third interest in the residue of the estate. Gloria would only acquire an interest in the home if she distributed the home itself to the three beneficiaries, rather than selling it and distributing the proceeds. As an executor she had discretion to sell the house.

In this case, the Chief Justice held that Gloria had a conflict of interest as executor, on the one hand, and as a beneficiary. The court could order her to distribute the home in order to allow Max to be able to purchase Gloria’s interest in the home, and the majority of the Supreme Court of Canada did just that.

Secondly, the question arose as to when Gloria’s interest would be valued. Elizabeth Cowper-Smith had died in 2010 and this decision came out seven years later. The value of the home has likely increased significantly, given the changes in the Victoria real estate market. Chief Justice McLachlin held that the appropriate time for determining the purchase price was the time Max may have reasonably have expected to have purchased Gloria’s interest. The majority used an appraisal as of February 2, 2011.   The Chief Justice wrote at paragraphs 52 through 54,

[53]                          Neither Max nor Gloria could reasonably have expected to wait the better part of a decade to exchange Max’s cash for Gloria’s interest in the property. It is safe to assume that, had Gloria not sought to escape her promise, Max’s equity would have been satisfied and Gloria’s share of the house sold to him not long after February 2, 2011, which is when, in the course of administering their mother’s estate, the property was in fact appraised for $670,000.00. Rather than sell her interest in the house to Max at that point — that is, roughly when both she and he originally contemplated she would — Gloria took the position that she was under no obligation to do so at all. This litigation was the result. In the years since, Max has had the benefit of the money he would have had to pay Gloria in 2011 for her share of the house, Elizabeth’s estate has incurred expenses associated with the upkeep of the property, and the property, the parties agree, has increased in value.
[54]                          February 2, 2011 is a reasonable approximation of when Max expected to be able to purchase Gloria’s one-third interest in the property. That expectation reflects the defined right that Gloria promised Max in exchange for his returning to Victoria to care for their mother. In these circumstances, the claimant’s expectation must be the court’s guide in exercising its remedial discretion. This is because, as Walker L.J. put it in Jennings, at para. 45:
. . . the consensual element of what has happened suggests that the claimant and the benefactor probably regarded the expected benefit and the accepted detriment as being (in a general, imprecise way) equivalent, or at any rate not obviously disproportionate.

The majority of the Supreme Court of Canada also recognized that because of the delay Max has had the benefit of the use of the funds he would have used to purchase Gloria’s interest in 2011, and that estate assets were used to maintain the property. According, Max is required to pay Gloria interest on the purchase price at post-judgement interest rates from February 2, 2011, and also to account to the estate for any expenses paid out of estate funds to maintain the property since February 2, 2011.

This decision was released the day before Chief Justice McLachlin’s retirement on December 15, 2017. She was the longest serving Chief Justice of Canada. Here is a biography from the Canadian Encyclopedia. 

Saturday, December 02, 2017

Report on Vulnerable Investors

The Canadian Foundation for Advancement of Investor Rights and the Canadian Centre for Elder Law have published their Report on Vulnerable Investors: Elder Abuse, Financial Exploitation, Undue Influence and Diminished Mental Capacity.  The report is co-authored by Marian Passmore and Laura Tamblyn Watts. 

As set out in the Executive Summary:

The report focuses on two main areas of specific challenge for vulnerable investors: 
i. Elder financial abuse and undue influence: A person or persons may be trying to financially exploit the investor through a variety of forms of elder abuse, which can include abuse of a power of attorney or other legal authority, fraud, theft, threats, misuse of funds, coercion, abuse of trust, physical threats or by other means. Additionally, a client may exhibit behaviour or provide instructions to a financial services representative that the representative believes to be unduly influenced by a person close to the client.  
ii. Diminished capacity: A client may lose the capacity to provide instructions to a representative, due to dementia, a psycho-social or developmental disability or health reasons such as episodic delirium or medication use. The representative, staff member or compliance officer may be concerned that trades are radically different than previously, or that the client is exhibiting erratic behaviour or is forgetful. If the client does not have a functioning enduring power of attorney on file, this situation can become very complex and delicate.  
A representative or staff member who observes signs of elder financial abuse or undue influence, or diminished mental capacity, may want to assist and/or take protective action, but be unsure about whom to contact, his or her authority to act, and the legal ramifications of notifying others or not following the client’s disbursement instructions. 
Depending on the circumstances, these situations may warrant protective action. A representative may want to notify a person close to the client, report a suspected abuser to the authorities, or prevent the disbursement of funds from a client’s account. Currently, Canada’s securities regulatory regime does not equip representatives to protect vulnerable investors in these ways. There are many reasons for this, spanning from inadequate training on mental capacity and undue influence, to unclear reporting requirements and processes, to insufficient regulatory guidance and protection for representatives who want to take protective action. As a result, many representatives are unfamiliar with the warning signs of vulnerability, unsure of how to escalate issues when they do notice them, and unclear of their authority to act.
The report comprehensively sets out the problems, practices and in Canada, and other jurisdictions, and sets out several specific recommendations.

Sunday, November 26, 2017

Banton v. Banton (Part 4)

This is my fourth post, on the decision in Banton v. Banton, 1998 CanLII 1496, a case involving Muna Yassin who married George Banton when she was 31 and he, 88. The dispute was between Ms. Yassin in George Banton’s five children. I described in my first post Mr. Justice Cullity’s finding that two wills Mr. Banton made leaving his estate to Ms. Yassin were invalid on the grounds that he did not have the requisite mental capacity to make the wills, and that she exercised undue influence over him. In my second post, I outlined Mr. Justice Cullity’s finding that Mr. Banton’s marriage to Ms. Yassin was nevertheless valid, which had the effect of revoking the will Mr. Banton made before the marriage in which he left the residue of his estate to his five children. Because Mr. Banton died without a valid will, Ms. Yassin was entitled to a large portion of his estate. In my third post, I discussed a trust created for him by his sons using a power of attorney he had granted to them. If the trust had been found valid, then most of Mr. Banton’s assets would have gone to his children on his death, instead of falling into his estate. But, Mr. Justice Cullity set aside the trust.

The “in the past episodes” of my post is getting a little long. So I will conclude this series in this post.

There is one more twist.

In 1992, Mr. Banton and his two sons, George Jr. and Victor Banton, signed an agreement pursuant to which the residence he owned was transferred into his sons’ names to hold in trust. The beneficiaries of the trust were George and his then wife, Lily Banton (who died before he married Ms. Yassin) during their lives, following which the residence or proceeds of sale were to be held in trust for Mr. Banton’s five children. Mr. Banton signed a transfer of the residence to his children as trustees. Mr. Banton told his sons that he did this to protect the residence. Lily was not capable of managing her affairs, and Victor and George Jr. Banton signed a consent to the transfer on her behalf as her attorneys under an enduring power of attorney. I will refer to this trust, as Mr. Justice Cullity did, as the Residence Trust.

After Mr. Banton moved into a retirement home, Victor and George Jr. Banton sold the residence, and gave the proceeds of about $200,000 to their father. It was apparent that they did not understand the significance of the Residence Trust, and considered the residence and the sale proceeds to belong to their father, despite the agreement they had all signed.

Mr. Justice Cullity found from the evidence including the clear language of the trust document that Mr. Banton intended to create a trust. He also found that the trust met the requirements that the trust assets and beneficiaries were certain.

But what about the fact that the trustees, Mr. Banton’s two sons, appear not to have understood the Residence Trust and acted inconsistently with it in transferring the sale proceeds to their father? The fact that the trustees did not understand the Residence Trust was not relevant to the questions of whether it was a valid trust. Mr. Justice Cullity wrote at paragraph 167:

[167]      The effectiveness of the agreement to create a trust of the residence, and its proceeds, does not, of course, depend upon the understanding or intention of Victor and George Jr. as the named trustees. Their failure to understand the responsibilities that the agreement purported to impose upon them might have allowed them to disclaim the trusteeship, but this would not have destroyed the trust, if it was otherwise validly constituted: Mallott v. Wilson, [1903] 2 Ch. 494 (Ch. D). Subject to the effect of section 21 of the Family Law Act, R.S.O. 1990, c. F.3, which I will refer to below, the question whether the trust was validly created depends, in my judgment, entirely upon the intention of George Banton at the time, and not after, the trust instrument was executed.

Further at paragraph 170:

[170]      Quite apart from the restraints imposed by the parol evidence rule, there is nothing to suggest that George Banton did not have the intention expressed in the document at the time it was signed, except the fact that the intended trustees considered him to remain the owner of the property and he subsequently accepted their cheque for the proceeds of sale. Neither of his sons claimed to have any legal knowledge or to understand how the trust would achieve its purpose of protecting the property. They simply accepted what they were told by their father and Mr. Harrington [the lawyer who prepared the documents]. Their evidence that they regarded the property as his is completely consistent with their attitude towards his financial affairs generally. They were prepared to assist him by seeing that the property and the other funds he placed in joint names were used for his benefit and they were not interested in obtaining benefits for themselves or any others of his children and grandchildren during his lifetime. In my judgment, that, by itself, is not enough to justify me in ignoring the unequivocal terms of the document George Banton signed—a document prepared by a solicitor at George Banton’s request for a specific purpose and capable of achieving that purpose only if it reflected his intention to divest himself of his property and create a trust. Although it purported to have, and was capable of having, effect inter vivos, its terms were quite consistent with those of his will dated January 30, 1991, which Mr. Harrington had also prepared. The fact that the trustees did not understand the legal effect of the document and that, as far as they were concerned, the property “belonged” to their father during his lifetime, is not to the point.

When they transferred the proceeds of sale of the residence to their father, Mr. Banton’s sons, George Jr. and Victor Banton, breached the terms of the Residence Trust. Neither they nor George Banton had the power to terminate the trust. Although the trustees had the power to expend trust funds for their father’s benefit, in this case they gave no consideration to whether the funds were required for his maintenance and support. The Residence Trust did not give then authority to hand over the proceeds to them.

Mr. Justice Cullity wrote at paragraph 173,

[173]      When Victor and George Jr. delivered the proceeds of sale to George Banton, this was not because they had determined that he required the funds for his maintenance and support. They did not consider this question. They ignored the terms of the trust agreement and the interests of the beneficiaries in remainder and simply delivered the proceeds of sale to him because they considered them to belong to him and because, probably, he wished to receive them. In so doing, they acted outside the scope of their power, ignored relevant considerations and took irrelevant considerations into account. Accordingly, the payment of the funds to George Banton cannot be justified under the terms of the trust agreement and must be set aside if the provisions of sections 21 and 23 of the Family Law Act on which counsel for Muna relies do not affect the validity of the trust.

Ms. Yassin sought to argue that the Residence Trust was invalid on the grounds that it prejudiced Lily Banton’s rights under Ontario family law. Mr. Justice Cullity rejected these arguments, and held that even if the Residence Trust could have been set aside at Lily Banton’s behest, Ms. Yassin did not have standing to advance a claim on the basis of Lily Banton’s rights.

Mr. Justice Cullity held that, because Mr. Banton’s sons had breached their obligations as trustees by paying the proceeds of sale of the residence to their father, they had an obligation to restore the proceeds to the Residence Trust. This was accomplished by tracing those proceeds into the trust they created in 1994, which was invalid.

The result is that the proceeds from the sale, or investments made with those proceeds, will go Mr. Banton’s five children under the terms of the Resident Trust. They do not form part of Mr. Banton’s estate, and will no portion of them will go to Muna Yassin as an intestate heir.

The outcome of this case is that Ms. Yassin was found entitled to receive some of Mr. Banton’s wealth as his lawful wife as an intestate heir (the amount is not clear from the decision). But by settling the Residence Trust, Mr. Banton had removed about $200,000 from his estate, and those funds went to his children.

Saturday, November 18, 2017

Banton v. Banton (Part 3)

In my two previous posts, I've written about Mr. Justice Cullity’s decision in Bantonv. Banton,1998 CanLII 1496, a case involving Muna Yassin who married George Banton when she was 31 and he, 88. The dispute was between Ms. Yassin in George Banton’s five children. I described in my first post Mr. Justice Cullity’s finding that two wills Mr. Banton made leaving his estate to Ms. Yassin were invalid on the grounds that he did not have the requisite mental capacity to make the wills, and that she exercised undue influence over him. In my second post, I outlined Mr. Justice Cullity’s finding that Mr. Banton’s marriage to Ms. Yassin was nevertheless valid, which had the effect of revoking the will Mr. Banton made before the marriage in which he left the residue of his estate to his five children. Because Mr. Banton died without a valid will, Ms. Yassin was entitled to a large portion of his estate.

Mr. Banton’s children were concerned about his relationship with Ms. Yassin, and they did not stand idly by. In 1987, before Mr. Banton met Ms. Yassin, he made a power attorney, appointing his two sons, George Jr. and Victor Banton, as his attorneys. One step his two sons took was to use their power of attorney to create a trust for their father and transfer his assets to themselves as trustees. The terms of the trust provided that they had discretion to use the income and capital from the trust for their father’s benefit during his lifetime, and then on his death, the trust assets would be divided equally among all five children (except if any died before Mr. Banton, the deceased child’s share would go to his or her own children).

If the trust were valid, then the effect would be that most of Mr. Banton’s assets would go to his children under the terms of the trust, rather than to Ms. Yassin as an intestate beneficiary of his estate. Not surprising, Ms. Yassin challenged the validity of the trust. Mr. Justice Cullity considered two questions concerning the trust. First, were Mr. Banton’s sons authorized to create a trust under the terms of the power of attorney? Second, if they had authority, was the creation of this trust a proper exercise of that authority.

On the first question, Mr. Justice Cullity held that the broad wording of the power of attorney was sufficient to provide authority to Mr. Banton’s sons to use it to create a trust, even without express language in the power of attorney authorizing them to transfer assets to a trust. Mr. Justice Cullity wrote:

[188]      The power of attorney given to George Jr. and Victor contained the standard provision set out in Form 1 under the Powers of Attorney ActUnder this provision the donor authorized the attorney, or attorneys, “to do on my behalf anything that I can lawfully do by an attorney”. It is not unknown for individuals to settle irrevocable inter vivos trusts through attorneys under a power conferred upon them either generally or for the purpose. I do not doubt that the provision in Form 1 is wide enough for this purpose. In consequence, the question is not whether the terms of the power held by George Jr. and Victor were broad enough to authorize the creation of a trust. Rather, the issue is whether the trust should be set aside on the ground that, in so exercising the power, they were in breach of their fiduciary responsibilities.

I should note for British Columbia readers that, although the British Columbia Court of Appeal agreed with Mr. Justice Cullity’s reasoning on this point in Easingwood v. Cockroft, 2013 BCCA 182, and held that the attorneys in that case also had authority to create a trust for their father, amendments to British Columbia's Power of Attorney Act  may limit the attorney’s authority to settle a trust if the power of attorney document does not itself provide express authority. See my commentary in my post on the Court of Appeal decision in Easingwood here.

The second question was perhaps more difficult. On the one hand, Mr. Justice Cullity found that George Jr. and Victor Banton acted in good faith in creating the trust, and they had no ill motives in doing so. He wrote in paragraph 189 of his reasons:

It is implicit in the findings I have made that George Jr. and Victor acted in good faith and with honesty and integrity in connection with the establishment of the 1994 Trust. They attempted to discharge the responsibility their father had requested, and trusted, them to perform by seeking to protect his assets for his benefit in the light of their knowledge of the deterioration in his mental condition and of the fact that he had been found to be incompetent to manage property pursuant to the Mental Health ActThey were concerned, and in my judgment reasonably so, about Muna’s influence and they sought, and acted on, legal advice. I do not believe they should be found to have acted without diligence and I do not think their conduct calls for any criticism from this Court.

The difficulty though was whether this trust was in Mr. Banton’s benefit. The terms of the trust went beyond protecting his assets during his lifetime, and conferred benefits on his descendants. Furthermore, the trust was more intrusive on Mr. Banton’s autonomy than was necessary to protect him. Mr. Justice Cullity wrote:

[191]      In my view, the major weakness in the case for upholding the validity of the 1994 Trust is not that a trust was created but that interests in remainder were given to George Banton’s issue. The purport of the trust agreement was to make irrevocable inter vivos gifts to them of these interests in his property and even if, and this does not seem very likely, attorneys would ever be entitled to make irrevocable inter vivos gifts of remainder interests to persons other than the donor, I do not believe this was so in the circumstances of this case. If such interests were validly created, they would have the effect not only of depriving George Banton of the beneficial ownership of his property: they would defeat his power to revoke his will by marriage—a power that it not dependent on the existence of testamentary capacity to revoke a will—and they would deprive Muna of her potential rights under Part I of the Family Law Act and Parts II and V of the Succession Law Reform Act, R.S.O. 1990, c. S.26. If the 1994 Trust was valid and effective it would also negate George Banton’s power to replace his attorneys—a power that, in the opinion of each of the medical experts, he had capacity to exercise.
[192]      I do not doubt that, from the viewpoint of George Jr. and Victor, there was an urgent need to deal with the situation. Under the Substitute Decisions Act, 1992the appropriate solution in such a case would appear to be to seek the intervention of the Public Guardian and Trustee by way of an application for temporary guardianship pursuant to subsection 27(3.1) of the Act. The procedure under the Substitute Decisions Act, 1992 was not available in December 1994, and I am not aware of any cases in which temporary restraining orders were made pending proceedings under the Mental Incompetency ActHowever, whether or not it might have been reasonable and proper to create a trust of some kind to protect George Banton’s assets pending a determination of his competency, the gift of the remainder interests to George Banton’s issue went beyond what was required for that purpose. A trust under which the trust funds would be payable on his death to his personal representatives in trust for his heirs, testate or intestate, would have done far less violence to his rights while still having the practical effect—that the 1994 Trust did achieve—of freezing his powers of disposition until an application to Court to determine his mental capacity and for the appointment of a committee under the Mental Incompetency Actor statutory guardian under the Substitute Decisions Act, 1992could be heard.

For British Columbia readers, the Court of Appeal in Easingwood did not follow this aspect of Mr. Justice Cullity reasons, although the Court did not expressly reject it, but rather purported to distinguish Banton.

Mr. Justice Cullity set the trust aside. The result is that the trust created by Mr. Banton’s sons did not have the effect of preventing his assets from falling into Mr. Banton’s estate on his death.

But, there was another trust.

Sunday, November 12, 2017

Banton v. Banton (Part 2)

In my post last week, I wrote about Mr. Justice Cullity’s decision in Banton v. Banton, 1998 CanLII 1496 finding that two wills made by George Banton, one dated December 21, 1994 and the other dated May 4, 1995 were invalid. In both wills, Mr. Banton had left his estate to Muna Yassin, whom he met after he moved into a retirement home, disinheriting his five children, who were his beneficiaries under his previous will. He and Ms. Yassin were married on a few days before he made the December 21, 1994 will, when he was 88 years of age, and she, 31. Mr. Justice Cullity found that Mr. Banton was suffering from delusions about his children when he made the wills, and he did not have the requisite capacity to make them, and that Ms. Yassin exercised undue influence to obtain the benefit of the wills. Accordingly, she did not benefit under the wills.

But I indicated that there were some twists. Today I will write about one.

Under Ontario law, when Mr. Banton married Ms. Yassin, a marriage revoked a will unless the will was made in contemplation of the marriage. If the marriage was valid, then the effect of the marriage was to revoke Mr. Banton’s previous will leaving the residue of his estate to his children. Because Mr. Justice Cullity found that the wills he made after his marriage were invalid, then a significant portion of his estate would go to Ms. Yassin as his spouse pursuant to Ontario’s laws governing intestate heirs. On the other hand, if the marriage were not valid then Mr. Banton’s previous will leaving the residue of his estate to his five children would still be in effect.

Mr. Justice Cullity considered two issue in respect of the marriage. First, whether Mr. Banton consented to the marriage. Second, whether Mr. Banton’s had the mental capacity to marry.
With respect to the first issue, Mr. Justice Cullity found that Mr. Banton did consent to the marriage. He wrote:

[134]      Marriage is, of course, a legal contract and, to some extent, it is governed by the laws applicable to contracts in general. I am satisfied, however, that it is not subject to the operation or application of the presumptions and principles which determine whether contracts may be avoided on the ground of undue influence. Fraud, of course, is another matter but the evidence in this case does not support such a finding. To that extent authorities such as Countess of Portsmouth v. Earl of Portsmouth (1828), 1 Hagg. Ecc. 355, 162 E.R. 611, are distinguishable.
[135]      A marriage can be set aside on the ground of duress or coercion of a degree sufficient to negative consent. Although I am in respectful agreement with Mendes da Costa J. in A.S. v. A.S. (1988), 1988 CanLII 4713 (ON SC), 15 R.F.L. (3d) 443 (U.F.C.) at pp. 453-6, that fear need not be proven, the evidence does not warrant a conclusion that there was duress in this case with respect to George Banton’s participation in the marriage.
[136]      In late September and early October 1994 George Banton had tried to resist Muna’s attempts to seduce him into marriage but, in November, he capitulated and consented to it. Although I have also found that marriage was part of Muna’s carefully planned and tenaciously implemented scheme to obtain control and, ultimately, the ownership of his property, as far as the marriage was concerned he was, at the end, a willing victim. Shortly thereafter he told Victor [one of Mr. Banton’s children] that he had wanted “one last fling”.
As noted above, Mr. Justice Cullity found that Mr. Banton did not have capacity to make a will a few days after the marriage. He also found after considering conflicting expert opinions that Mr. Banton did not have capacity to manage his financial affairs at the time of the marriage. But these findings of incapacity are not determinative of Mr. Banton’s capacity to marry. Legal capacity is transaction specific. Someone who might not be able to meet the legal criteria to make a valid will, may still have the capacity to enter into a marriage.

Mr. Justice Cullity found that Mr. Banton did have the ability to understand the nature of a marriage relationship and its obligations. He wrote:

[142]      It is well established that an individual will not have capacity to marry unless he or she is capable of understanding the nature of the relationship and the obligations and responsibilities it involves. The burden of proof on this question is on those attacking the validity of the marriage and, in my judgment, it has not been discharged in this case. There is virtually nothing in the evidence to suggest that George Banton’s mental deterioration had progressed to the extent that he was no longer able to pass this not particularly rigorous test. The medical evidence indicates his acceptance of the marriage and even in the last months of his life when he was at Village Park, he spoke of his wish to return to his wife—albeit along with his then caregiver and companion, Ms. Yolanda Miranda.
[143]      The only matter that raises any doubt in my mind with respect to George Banton’s understanding of the responsibilities of marriage are the fact that he permitted Muna to return him to Lifestyles the day after the marriage, and that he remained there until the beginning of April 1995 when he moved to Muna’s apartment. I do not believe I would be justified in concluding from this that he did not appreciate that the duty to cohabit is inherent in the marriage relationship. I believe it is far more likely that he would have preferred to cohabit with Muna but that this was not part of her plan until the commencement of the guardianship proceedings made it desirable, from her point of view, that he be continuously under her control, and not accessible to his family. We do not know what reason Muna gave him for returning him to Lifestyles on December 18 but, as I have already indicated, I am satisfied that he was, by then, completely under her domination and quite incapable of insisting on his right to cohabit with her.
[144]      George Banton had been married twice before his marriage to Muna and I find that, despite his weakened mental condition, he had sufficient memory and understanding to continue to appreciate the nature and the responsibilities of the relationship to satisfy what I have described as the first requirement of the test of mental capacity to marry.
Mr. Justice Cullity rejected the argument that in order to have capacity to marry, Mr. Banton was also have the capacity to manage his finances. There is a distinction between the capacity to make financial decisions and the capacity to make personal decisions. The fact that someone no longer has the ability to make financial decisions does not preclude them from marrying if he is still capable of making personal decisions. Mr. Justice Cullity wrote:

[157]      While I believe that it may well be the case that a person who is incapable both with respect to personal care and with respect to property may be incapable of contracting marriage, I do not believe that incapacity of the latter kind should, by itself, have this effect. Marriage does, of course, have an effect on property rights and obligations, but to treat the ability to manage property as essential to the relationship would. I believe, be to attribute inordinate weight to the proprietary aspects of marriage and would be unfortunate. Elderly married couples whose property is administered for them under a continuing power of attorney, or by a statutory guardian, may continue to live comfortably together. They may have capacity to make wills and give powers of attorney. I see no reason why this state of affairs should be confined to those who married before incapacity to manage property supervened.
[158]      George Banton was found by Dr. Chung to have capacity as far as personal care was concerned. Moreover, despite his physical problems, his weakened mental condition and his loss of memory, he was able to carry on more or less normal discourse on simple everyday matters. Strangers, like Carol Davis and Mr. Allen, who met him briefly did not notice anything abnormal about his mental state. On the basis of a one-hour examination Dr. Silberfeld concluded that he had capacity to manage his property. Obviously he was still capable of presenting a brave face to the world. The more thorough examination by Dr. Chung revealed what those close to him already knew: that his judgment was severely impaired and his contact with reality tenuous. Despite these problems, I have no doubt that, with care and attention and avoidance of stress, he was capable of coping with the more mundane problems of everyday living and I do not see why the right to marry should be withheld from persons in his position.
Accordingly, the marriage was valid, and Ms. Yassin was entitled to a large share of Mr. Banton’s estate under Ontario law governing the disposition of an estate when someone dies without a will.

But there is still more to this story. 

To be continued. 

Sunday, November 05, 2017

Banton v. Banton (Part 1)

I have recently reread the case of Banton v. Banton, 1998 CanLII 14926, a decision of Mr. Justice Cullity of the Ontario Supreme Court. This case may be referred to as a predatory-marriage case. What interests me most, though, is the interplay of legal issues. Mr. Justice Cullity considers in his decision the capacity to make a will, and the impact of delusions on capacity, undue influence, the capacity to marry, the validity of a residence trust, and the use of a power of attorney to settle a trust. I think this case is well worth a few blog posts. I will start with the challenges to the validity of two wills.

Until a couple years before his death, George Banton had a loving, trusting relationship with his five children. He had made a will in 1991, in which he left the residue of his estate to be divided equally among his children. He had appointed his two sons, Victor and George Jr. as attorneys under an enduring power of attorney.

In 1990, he was diagnosed with prostate cancer, and then had several operations, including surgery to remove his testicles in November 1993, after which his mental functioning deteriorated. He also had significant hearing problems. In 1994, while in a retirement home he met a waitress, somewhat younger than he (she was 31, and he, 88). Her name is Muna Yassin. They married on December 17, 1994. He left his new wife his estate by will dated December 21, 1994, and then he made an identical will on May 4, 1995.

He and Ms Yassin met with a solicitor on December 19, 20 and 21. On the first meeting the solicitor was concerned about the age difference and asked for a marriage certificate, which they brought in the next day. The solicitor testified that his recollection was that on Dec 20, he met with Mr. Banton alone in the boardroom and that was his practice. Mr. Banton instructions were that he wished to leave everything to Ms. Yassin, and if she predeceased him to the Salvation Army.

When he made the 1994 will, in reply to his solicitor’s question about why he was not leaving anything to his children, Mr. Banton said that they were not interested in him, were only interested in his money, and only paid attention to him after he became involved with Muna Yassin. He made similar statements to others, and later in a guardianship proceeding he made allegations of abuse against his sons.

There was little evidence about the 1995 will, which was made in the context of the guardianship proceedings, and was identical to the 1994 will.

The children challenged the wills, alleging that their father did not have capacity to make the wills, and that Ms. Yassin procured the wills by the exercise of undue influence.

Mr. Justice Cullity set out the legal criteria of capacity to make a valid will:
[55]           The principles for determining testamentary capacity were summarized in the celebrated passage from Banks v. Goodfellow (1870), L.R. 5 Q.B. 549 (Q.B.) as follows:
It is essential to the exercise of such a power that a testator shall understand the nature of the act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and, with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties—that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not been made [at p. 565].
Mr. Banton was able to describe his assets to his solicitor, and Mr. Justice Cullity found that he knew the nature and effect of wills and had a sufficient understanding of his assets to make a will.
The validity of the wills turned on the question of whether he was able to “comprehend and appreciate” the claims of his children, or whether he was influenced in making the wills by insane delusions.

Mr. Justice Cullity described insane delusions in the following paragraphs of his decision:

[61]           I have already held that virtually all of these allegations of George Banton about his children’s motives and behaviour were unfounded. The additional statement to Muna about his poor relationship with his children prior to the marriage was quite extraordinary but, given his other allegations and despite my findings with respect to Muna’s credibility which I will refer to later in these reasons, I cannot exclude the possibility that it was made. The question is whether his allegations about his children should be characterized as “insane delusions” in the sense in which that term has been used traditionally in this area of the law. The reported decisions contain many attempts at definition of which the following have often been cited with approval:

Delusion is insanity where one persistently believes supposed facts (which have no real existence except in his perverted imagination) against all evidence and probability and conducts himself however logically upon the assumption of their existence. [Am. & Eng. Cycl., Vol. 9, p. 195, cited by Sedgewick J. in Skinner v. Farquharson (1902), 1902 CanLII 87 (SCC), 32 S.C.R. 58 at p. 76.]

… insane delusions are of two kinds; the belief in things impossible; the belief in things possible, but so improbable, under the surrounding circumstances, that no man of sound mind would give them credit; to which we may add, the carrying to an insane extent impressions not in their nature irrational. [Prinsep v. Dyce Sombre (1856), 10 Moo. P.C. 232 at p. 247, 14 E.R. 480.]
[62]           As the second of these passages indicates, “insane” delusions are not limited to beliefs that are so bizarre that their content, by itself, evidences mental disorder. The precise connotations of the language employed in 19th Century cases—many of them involving instructions to juries—may not be entirely consistent with modern linguistic usage. Such delusions include beliefs whose extreme improbability is apparent only when the surrounding facts are known. These are obviously the more difficult cases. Delusions with respect to the behaviour and attitudes of the deceased’s relatives are relatively common in the reported cases and they often fall into this category. Dr. Silberfeld acknowledged that George Banton’s allegations about his children could be delusions. In all cases where delusions of this kind are alleged to exist there will be a question whether the belief should be characterized merely as quite unreasonable, on the one hand, or as something that, in the particular circumstances, no one “in their senses” could believe: Macdonell, Sheard and Hull on Probate Practice (4th ed., by Rodney Hull, Q.C., and Ian Hull, 1996) at pp. 33-34. Cases on either side of the line include Royal Trust Co. v. Ford (1971), 1971 CanLII 139 (SCC), 20 D.L.R. (3d) 348 (S.C.C.), where the will was upheld, and Harwood v. Baker (1840), 3 Moo. P.C. 282, 13 E.R. 117, and Re Zabudny, [1958] O.W.N. 68 (H.C.), in which wills were set aside. The correct approach to the question is, I believe, accurately stated in Atkinson on Wills (2nd ed. 1953):

The nature of the belief is not necessarily the turning point, or even the apparent lack of a basis for such belief. Rather the question is whether, considering all the facts and circumstances, it is fairly shown that the will proceeded from and on account of a deranged mind [at p. 246].

Mr. Justice Cullity found that Mr. Banton’s beliefs about his children were delusions, and these delusional beliefs were the basis of Mr. Banton’s decision to exclude them. Accordingly, the wills were invalid.  

He also found that Ms. Yassin unduly influence him. This finding was based on circumstantial evidence of her behavior when contrasted with her testimony. Although she portrayed herself as passive, there was evidence of her actively trying to get his bank to allow him to make large withdrawals, of her isolating him from his children and grandchildren during a time period he was living with her, and of providing most of the instructions on his behalf when he was contesting guardianship proceedings by the Public Guardian and Trustee.

Ms. Yassin did not benefit under the wills. But there are twists in this story.