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.

Contact us and read more! We are here to guide you on your journey!