Article | admin | January 17, 2017
Estate Planning & Litigation Update: Promises Do Keep! Equity Prevails Where Strict Legal Rights Fail
Whether now or later, your word will be your bond.
In the opening words of the Supreme Court of Canada’s December 14, 2017 decision in Cowper-Smith v. Morgan,
Chief Justice McLachlan wrote some of her final words to the Canadian
judiciary, lawyers, and the public, before her retirement on December
15.
In her final chapter as Chief Justice of Canada, she turned her mind to what should happen when a someone makes a promise to give someone else rights in specified property —
is a promise enough? Can you promise something you do not yet legally
own? Does it take a contract or written agreement, to become
enforceable?
Well, according to the Chief Justice, the short answer is: “Equity enforces promises that the law does not.” So, what does that mean?
Bleak House? — What this estate fight was all about.
Let me explain what this important new decision in Cowper-Smith is
all about. This decision considers a smattering of several Court of
Appeal decisions across Canada that had confirmed proprietary estoppel
as a principle of Canadian law, but applied it without a consistent
legal test for general guidance.
This new top-court case consolidates the principles of proprietary
estoppel and defines what must be proven, to establish a solid claim. It
also expressly reduced the requirements to prove such a claim. While
this particular fight in Cowper-Smith involved siblings, the
equitable claims addressed apply to any sufficient promise, such as
often occurs between romantic partners, business partners, or even
friends.
A history of sibling discord.
The situation that caused the fight in Cower-Smith was this history:
- Elizabeth was a mother of three, living in Victoria, British
Columbia. Her daughter, Gloria, became a potter and settled in
Victoria. Her son, Max, moved to England and practiced law. Nathan moved
to Edmonton and worked for the Alberta government’s child services
branch.
- When their father died in 1992, he told the children that he and
Elizabeth wanted everything evenly divided between the children, for
family harmony.
- Gloria had a dispute with Nathan. In 2000, Nathan moved back home
with Elizabeth after a relationship failed in Alberta. Nathan did some
house work, which Elizabeth liked. However, Gloria would visit Elizabeth
and she became agitated and concerned that Nathan would take her house
from her. She was troubled by some alleged plans by Nathan to throw “gay
parties” in her house.
- In 2001, Gloria penned a letter to Nathan, demanding that he not
shout or raise his voice in Elizabeth’s home, or “entertain Gay Males”
at home, amongst other grievances. A further letter demanded that he
leave the house and not return. He returned from a trip to discover the
locks were changed and his belongings removed. Nathan moved back to
Edmonton.
- Also in 2001, Elizabeth transferred title to her home and all
investments into joint names of herself and Gloria. In a “Declaration of
Trust” document, Elizabeth confirmed that Gloria held those assets as
bare trustee for Elizabeth, but that Gloria would be “entitled
absolutely” to them upon Elizabeth’s death. She also signed a new Will
appointing Gloria as executor.
- In 2002, Elizabeth revoked the 2001 Will and appointed Gloria as
executor. In this final Will (2002), she decided that all three children
would share evenly in her estate. Yet, all property remained in joint
title with Gloria (which, without the court claims by Max, would mean
the others would receive their even share of nothing).
No good deed goes unpunished — how the dust-up began.
- After their father’s death in 1992, Max suffered financial and
mental health and substance use difficulties. His marriage
concluded. After 2000, his situation improved.
- In 2003 and 2005, Max visited Victoria. He had some discussions with
Gloria. Elizabeth was reaching a stage of life where she needed more
assistance in her daily tasks. Gloria asked Max to return home to live
with Elizabeth and care for her.
- In 2005, Elizabeth also asked Nathan to forgive her for what
occurred earlier when she evicted him. Nathan confirmed he knew it was
Gloria’s doing. That same year, he discovered that Gloria’s name was
jointly on title with Elizabeth. Gloria assured him that he would still
get his 1/3 share of Elizabeth’s estate upon her death.
- The three siblings all eventually came to an agreement that Gloria,
would sell her share of the family home to Max, if Max would move from
England (where he had an established life and successful law practice)
back to British Columbia and care for their mother. Max would also have
expenses covered by Elizabeth, and have use of her car, and be permitted
to live in her house permanently.
- In 2009, Gloria later disputed this agreement. Max then also
discovered the change of title from Elizabeth’s sole name to Elizabeth
and Gloria jointly, which had occurred in 2001. Like Nathan, she assured
Max he would share evenly in their mother’s estate.
- When Elizabeth died in 2011, Gloria became Elizabeth’s executor. She
refused to sell Max her share of the estate house, arguing that she
could not have reached a legally enforceable contract to sell
something she did not own at the time (note: in strict legal senses, as
opposed to in equity, this argument may have succeeded, as the Court of Appeal in British Columbia found before the Supreme Court of Canada heard this appeal).
- Gloria attempted, as executor, to sell the house while Max was still
living in it. He then discovered the “Declaration of Trust” document
from 2001, and commenced legal proceedings to enforce the promise by
Gloria to sell him her 1/3 interest in the house.
- Nathan confirmed that Gloria’s earlier agreement occurred, and supported Max’s claim in court.
What the Court decided: What sort of promise is promising for your claim?
The Supreme Court of Canada confirmed that oral promises can indeed be sufficient to grant rights in property. No contract or legal formality is necessary. Certain requirements must be met.
Once the following 3 principles align in a particular case, a
proprietary estoppel arises to confirm that the claimant’s right exists
(and can create a new right and claim).
- A promise for rights about specific property: “A
representation or assurance is made to the claimant, on the basis of
which the claimant expects that he will enjoy some right or benefit over
property.” This promise can be express or implied from words or conduct. The property over which rights are promised need not actually be owned or held by the person making the promise.
It is sufficient that they hold an interest “sufficient to fulfil the
claimant’s expectation.” The equity will become enforceable when that
interest is later held by the person making the promise.
- Relied on the promise: “The claimant relies on that
expectation by doing or refraining from doing something, and his
reliance is reasonable in all the circumstances.”
- Detriment / inconvenience from relying on promise:
“The claimant suffers a detriment as a result of his reasonable
reliance, such that it would be unfair or unjust for the party
responsible for the representation or assurance to go back on her word.”
Once all 3 factors are advanced with sufficient proof, the courts
will confirm that a proprietary estoppel exists which prevents the
responding party from denying the claimant’s rights. They are
enforceable. The court then issues a remedy which can take various
forms, depending on the needs of the particular case.
In Cowper-Smith, the Supreme Court of Canada confirmed that
the claimant (Max) had shown that the responding party (Gloria) made a
promise to him that was specific enough, and that it was intended to be
relied upon by him, and that he relied upon it, in moving away from his
established life in England to Victoria, British Columbia, to care for
their mother.
It did not matter that Gloria did not yet own the legal
rights she promised to Max (her 1/3 interest in the estate house). That
promise became binding the moment Gloria’s interest in the property (as a
beneficiary) arose when Elizabeth died.
The Court ordered that Gloria must acknowledge Max’s right to
purchase her 1/3 interest in their mother’s home. The Court also
directed that Gloria, wearing her executor hat, must accept this fact
within the Estate also, and give effect to it.
Background on equitable claims in Canadian courts: bridging the gap between strict legal rights and what is “fair.”
Why do the courts possess such powers to enforce promises? It’s
simple: it’s about fairness. A serious promise is enough; it’s about
keeping one’s word and avoiding unfair results based on strict legal
rights.
The Supreme Court of Canada confirmed:
“proprietary estoppel avoids the unfairness or injustice
that would result to one party if the other were permitted to break her
word and insist on her strict legal rights.”
Equitable claims can include proprietary estoppel (like in this Cowper-Smith
case) or unjust enrichment, or other equitable complaints. Such claims
grant Canadian courts very broad discretion to enforce such rights, in
contrast to legal claims which must follow a much narrower and sometimes
more onerous path to victory.
Equity is often said to grant the power to ‘do what ought to be
done’, where narrow legal rights are often too strict. This new case
from our top court certainly reinforces that principle in Canadian law.
We hope you have enjoyed reading this summary! Have other estate litigation or estate planning questions?
Walsh LLP’s Trust, Wills, & Estate Litigation and Dispute Resolution Group and our Wills & Estate Planning Group are here to help.
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