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Have Ontario’s Courts dispensed with Strict compliance with the Formalities of Execution?

August 12, 2012 by Charles Wagner

Imagine that Johnny is dying.  The doctors tell him to get his affairs in order.  The patient’s only living relative is an elderly aunt whom he despises.  Johnny wants to give all his money to his Church but, without a Will, by virtue of Ontario’s laws of intestacy that aunt will inherit everything.  A lawyer prepares a Will setting out Johnny’s testamentary wishes.  Johnny walks into the lawyer’s office, reads the will, and says it’s perfect.  There is no doubt as to Johnny’s intent as the lawyer has taken the precaution to videotape the whole process.  Johnny picks up the pen, is about to sign and dies.  Is the Will valid in Ontario?  It is almost certainly not valid [FN1], but there remains some doubt.  If everyone knows Johnny’s true testamentary intentions what rationalization exists for not accepting the unsigned document as a valid Will?

The legislatures, courts and Law Reform Committees in Canada have provided different policy reasons to justify strict compliance with the formalities of execution.  It’s been suggested [FN2] that the formalities of execution:

  1. Ensure that the Will was executed by the person purporting to be the testator and prevents a ne’er-do-well from impersonating the testator or someone from forging the testator’s signature;
  2. Avoid fraud, undue influence and coercion;
  3. Enhance the testator’s appreciation of the importance of the document;
  4. Make the administration easier with respect to granting probate; and
  5. Prevent opening the flood gates to various claims respecting documents that are purportedly wills.

In Ontario the rules with respect to wills, known as the formalities of execution, are set out in the Succession Law Reform Act, R.S.O. 1990, c. S.26 [SLRA].  The formalities of execution require that a will be in writing (s.3) and signed by the testator (or by some other person in the testator’s presence and by the testator’s direction), with the testator acknowledging their signature in the presence of two or more attesting witnesses present at the same time. Further, the will must then be signed by the two or more witnesses in the presence of the testator (s.4).  Section 4(1)(a) of the  SLRA is clear and unambiguous.  A will is not valid unless, at its end, it is signed by the testator or by some other person in his or her presence and by his or her direction [FN3].   Do Ontario courts have discretion to dispense with the formal requirements imposed by the SLRA ?  Several Ontario cases suggest the answer may be yes.

In Sisson v. Park Street Baptist Church [FN 4], the Court upheld a will where two witnesses were present when the testator executed the will, but only one witness signed the will. It is important to note that in Sisson the application was not opposed and the witness that had not signed had failed to do so inadvertently.  In Malichen Estate [FN 5] a husband and wife inadvertently executed each other’s wills. The Court upheld both wills.  Before jumping to any conclusions that these cases are reflective of a trend for Ontario courts to recognize substantial compliance  it is important to note that in both these cases the errors were inadvertent. Moreover, many believe these cases were decided incorrectly.  O’Flynn J. in Sills et al. v. Daley reviewed Sisson, Malichen and declined to follow them.  Instead, he followed Hindmarsh v. Charlton, Ellis v Turner, Bolton v Tartaglia and Re Murphy Estate.

In paragraph 40 of Sisson v. Park Street Baptist Church [FN 6], Justice Murphy of the Ontario Court of Justice stated, “that the absence of legislation on point should not stop the court from developing the common law where, in circumstances like this, there has been substantial compliance, given that the dangers which two witnesses are to guard against does not exist here.”  Justice Murphy’s judicial activism on this issue stands in stark contrast to Justice Cullity’s approach in Etorre [FN 7] where in response to a submission seeking substantial compliance His Honour stated, “….I would be reluctant to apply the principle of substantial compliance in the absence of a legislative mandate, or its endorsement by an appellate court.”[FN 8]  It seems that most other cases in Ontario adopt Justice Cullity’s approach [FN 9]. From Justice Cullity’s perspective courts must comply with the directions of the legislature and are not at liberty to change the law introducing uncertainty.  As the court stated in Hindmarsh v Charlton [FN 9a]  “…we must obey the directions of the legislature, and are not at liberty to introduce nice distinctions which may bring great uncertainty and confusion”

When considering the issues in this debate it is important to remember that the SLRA. provides certain instances where a testamentary disposition is valid without compliance with the formalities of execution.  These include:

  1. Holograph wills which are wills wholly in the testator’s writing, and signed by the testator without the necessity of subscribing witnesses [FN 10];
  2. Wills prepared by member of forces on active duty [FN 11]. Wills prepared by members of the forces, such as the Canadian Forces, on active duty do not need to be witnessed; and
  3. Gifts Mortis Causa [FN 12];

Hillary Laidlaw’s article, “Sills v Daley and the doctrine of substantial compliance:  Is close enough good enough?”[FN 13] provides a very interesting perspective on this debate.  She quotes John Langbeins’ article [FN 14], in support of substantial compliance.  Lanngbein asserts, “The rule of literal compliance… is a snare for the ignorant and the ill-advised, a needless hangover from a time when the law of proof was in its infancy”.

It is clear that the logic of the “substantial compliance” argument has impacted on the Canadian legal landscape.  A number of provinces have enacted legislation specifically giving judges the discretion to dispense with the formalities of execution, as long as the document in question substantially complies with the formalities of execution required by its local provincial legislation and is in accordance with the testator’s wishes. Examples of such legislation include the Saskatchewan Wills Act [FN15], Manitoba Wills Act [FN16], Nova Scotia [FN17] and soon British Colombia [FN18].  Ontario has not amended its legislation to provide for substantial compliance.

Right now, in Ontario, there remains a level of uncertainty because certain judges have appeared to step outside what seems to be the clear intent of the governing legislation.  This issue will be resolved only when either Ontario’s legislature or the Ontario Court of Appeal or legislature eventually deal with the issue.

Our short review of the law should not be taken as legal advice.  Based on our experience in dealing with these cases, they often turn on their specific facts.  If the reader believes this topic to be relevant to a legal matter in which they are involved, nothing replaces retaining a competent lawyer who will do a thorough analysis of the law and the fact situation to provide proper advice.

The authors are Charles B. Wagner and Liliana Ferreira. Liliana is an associate and Charles is certified by the Law Society of Upper Canada as a specialist in Estates &. Trusts Law and is a partner and at Wagner Sidlofsky LLP. This Toronto Law office is a boutique litigation firm whose practice is focused on estate, commercial and tax litigation.

 

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FN 1.     In Ontario, almost all the cases that address this issue stand for the proposition that full compliance with the formalities of execution is required for a will to be valid.  The two exceptions are Sisson v Park Street Baptist Church (1999), 24 E.T.R. (2d) (Ont. Gen Div.) [Sisson] and Malichan Estate 6 E.T.R. (2d) 217, (Ont. Gen. Div.).

FN 2.     Please See the Alberta Law Reform Institute, “Wills and the Legal Effects of Changes Circumstances” Final Report No.98 August 10, 2010 found at http://www.law.ualberta.ca/alri/docs/fr098.pdf   Alberta Law Reform Institute – Wills:  Non-Compliance with Formalities, Formal Report No. 84 June 2000.  Alberta Law Reform Institute, “Wills:  Non-Compliance With Formalities.  December 1999 found at http://www.law.ualberta.ca/alri/docs/cm008.pdf  ; Estate Litigation basics – 2010 Update CLE BC found at http://www.cle.bc.ca/PracticePoints/WILL/11-ProbateActions.pdf .  See Hillary Laidlaw’s article, “Sills v Daley and the doctrine of substantial compliance:  Is close enough good enough?” found at http://www.stepjournal.org/pdf/TQR2004i4p6.pdf .

FN 3.  Brian A. Schnurr, Estate Litigation, 2nd ed., chapter 18.13; Papageorgiou v. Walstaff Estate, [2008] 2620, 42 E.T.R. (3d) (S.C.J.).

FN 4.  Sisson.

FN 5.  6 E.T.R. (2d) 217, (Ont. Gen. Div.).

FN 6.  Sisson.

FN 7.  Ettorre Estate, Re (2004), 2004 CarswellOnt 3618, 11 E.T.R. (3d) 208 (Ont. S.C.J.) [Etorre].

FN 8.  See paragraph 37 of Etorre and Hidmarsh v. Charlton (1861) H.L. Cas. 160.

FN9.   See Sills v. Daley (2002), 3 E.T.R. (3d) 297 (S.C.J.) and  Papageorgiou v. Walstaff Estate, [2008] 2620, 42 E.T.R. (3d) (S.C.J.).

FN 9a.   Hindmarsh v. Charlton (1861), 8 H.L Cas. 160 at 166-167.  For more on the issue of judicial activism in Canada I refer the reader to  “Remarks of the Right Honourable Beverley McLachlin, P.C.” which can be found at http://www.scc-csc.gc.ca/court-cour/ju/spe-dis/bm04-11-12-eng.asp .  In her address she tries to address the following question, “What then of the accusation that courts have gone beyond their proper role? The charge is made that activist judges – politicians cloaked in judicial robes – have gone beyond impartial judging to advocate for special causes and achieve particular political goals, and that this is undemocratic.”

FN 10.  Section 6 of the Succession Law Reform Act, R.S.O. 1990, c. S.26.

FN 11.  Succession Law Reform Act, R.S.O. 1990, c. S.26. , sections 5 and 6;

FN 12.  Section 72(1)(a) the Succession Law Reform Act, R.S.O. 1990, c. S.26;

FN 13.  See pdf copy of the article at http://www.stepjournal.org/pdf/TQR2004i4p6.pdf ;

FN 14.  John H. Langbein “ Substantial Compliance with the Wills Act” (1975) 88 Harv. L. Rev. 489;

FN 15.  The Wills Act, Chapter W-12.1, 1996, section 37.

FN 16.  The Wills Act, C.C.S.M., c. W150, section 23.

FN17.  Wills Act, R.S.N.S., 1989, c. 505, section 8A

FN18.   Wills, Estates and Succession Act, S.B.C. 2009 c. 13 (Bill 4) (not yet in force), section 58(3)

Dependant’s Relief, Support and Gifts Mortis Causa

August 8, 2012 by Charles Wagner

Suppose Jane knew she was dying and gave the keys to her cottage to her favourite niece.  Jane’s lawyer transferred title of the cottage to the niece. After Jane’s death, her husband, Mark started a law suit against the estate for support.  He claimed to be a dependant and sought to have the capital value of the cottage deemed to be part of the net estate for purposes of ascertaining the value of estate.  His lawyers claimed that the gift was invalid.  Let’s take a moment to review Mark’s claim.

In his seminal text, Waters’ Law of Trusts in Canada, 3rd Edition, Professor Waters states,

“For a gift mortis causa to arise there are three requirements: 1. an intention to give immediately, but subject to the condition that absolute title shall vest in the donee only on the donor’s             death; 2. Delivery in the appropriate form, though in this case a chose in action can be given by delivery of the document by which it is represented, and; 3. a contemplation of death at the time of the intent and delivery.”[FN 1]. 

Spouses and children who are disinherited often commence applications for dependant’s relief under Part V of the Succession Law Reform Act, R.S.O. 1990, c. S.26.  Even if a party qualifies as a dependant, it is important to ensure that there is sufficient assets in the estate to fund support.  To that end, section 72 of the Succession Law Reform Act, R.S.O. 1990, c. S.26 includes assets which ordinarily are normally excluded to fund that support.  One such asset is a  “gift mortis causa”.

The first question Mark must ask is whether the “gift” was just a gift or was it a gift mortis causa.  It’s an important distinction because, except under certain circumstances,  Jane is allowed to give her belongings away during her lifetime.  A regular gift is not considered to be a section 72 asset.   Let’s see how the case law understands the meaning of “gift mortis causa”.  The explanation of gifts mortis causa dates back to the late 1800s. In Cain v. Moon [FN2], the court provided the classic definition. The court stated:

 “It is…conceded that for an effectual donatio mortis causa three things must combine: first, the gift or donation must have been made in contemplation, though not necessarily in expectation, of death; secondly, there must have been delivery to the donee of the subject-matter of the gift; and, thirdly, the gift must be made under such circumstances shewing that it is to take effect only if the death of the donor follows…[FN3]“

Although there have been very few Canadian decisions which expand upon this definition, the Court of Appeal has provided some guidance. Whether a donation is made in ‘contemplation, though not necessarily in expectation of death’ can be hard to identify. The Court of Appeal has stated that the donor must be in extremis at the time of making the gift [FN 4]. Essentially, a person must be beyond the hope of recovery and near death to be in extremis.   In our case, Jane knew she was dying.  She knew she had no hope of recovery and was near death, so the first part of the test was met.

The second element of the test relates to the laws of gifts; more specifically, there must either be actual or constructive delivery of the gift by the donor. For example, if the donor handed a Picasso to the donee, that would constitute actual delivery. An example of constructive delivery, on the other hand, would be the donor handing the donee keys to his Ferrari (as opposed to the Ferrari itself).   In our case, not only did Jane give her niece the keys to the cottage – she transferred title. The second prong of the test has been met.

Finally, and perhaps most challenging, is the third element. This part of the test states that the gift can only take effect if the death of the donor follows the gift having been made. Bayoff Estate [FN 5] is an interesting case on point. In that case, the deceased was diagnosed with cancer and his demise was imminent. The keys to a safety deposit box were given to the donee. The first two elements of the test for gifts mortis causa were easily fulfilled.   However, the court had to delve into the difficulties of the third prong of the test. The court noted that the deceased had not indicated that the gift was conditional on death in the required sense. Bayoff did not, either by words or by action, suggest that the gift was to take effect only if he died. The court also noted that the gift was made during the donor’s lifetime, but title would not vest until the donor died. In its conclusion, the court stated:

 Bayoff did not, either by words or actions, suggest that the gift was to take effect only if he died.  He had just finished signing a Will in contemplation of his death.  It is likely that any gifts which he intended to take effect on death were included in his Will.  The gift of the contents of the safety deposit box, in my opinion, was intended to be a gift inter vivos [FN 6].

In this case, the court focused on the timing that the will was made in its determination of whether the gift was indeed a gift mortis causa. Based on this conclusion, the gift in question was not a “gift mortis causa”.  If we apply this test to our fact situation, title to Jane’s cottage was transferred to her niece during Jane’s lifetime.  It was intended to take place when the transfer was made – not on Jane’s death.  Hence – it is not a gift mortis causa and will not be included as a section 72 asset.  Mark , the spouse/dependant,  will not be able to treat the capital value of the cottage as part of his wife’s estate for the purpose of funding his dependant’s relief claim.  The transfer was just an inter vivos gift [FN 7].

Whether the gift in question will be considered a section 72 asset for the purpose of dependant’s support under the Succession Law Reform Act, R.S.O. 1990, c. S.26 is not a simple issue.  Our short review of the law should not be taken as legal advice.  Based on our experience in dealing with these cases, they often turn on their specific facts.  If the reader believes this topic to be relevant to a legal matter in which they are involved, nothing replaces retaining a competent lawyer who will do a thorough analysis of the law and the fact situation to provide proper advice.

 The authors are Charles B. Wagner and Joanna Lindenberg.  Joanna is an associate and Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP.  This Toronto office is a boutique litigation law firm whose practice is focused on estate, commercial and tax litigation.

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FN 1.  Waters’ Law of Trusts in Canada, 3rd Ed., 6 — Constituting or Setting up the Trust, 6.XI — Exceptional Modes whereby the Trust Becomes Completely Constituted [Waters]

FN 2.  [1896] 2 Q.B. 283 at 286.

FN 3.  Ibid.

FN 4.  Thompson v. Mehan [1958] O.R. 357.

FN 5.  Re Bayoff Estate S.K.Q.B. 23. [Bayoff].

FN 6.  Bayoff, supra note  4 at 10.

FN  7.  See Waters whose explanation on this issue is informative.  He states,  “It should be recalled that for a gift inter vivos to be valid at common law there must be an intention to give immediately, and a deed of gift or actual delivery. Delivery passes the donor’s dominion over the property to the donee, and must therefore be in the appropriate form to pass the full title in the property in question. For a gift mortis causa to arise there are three requirements: 1. an intention to give immediately, but subject to the condition that absolute title shall vest in the donee only on the donor’s death……”

Do Mistresses Have a Right to Inheritance?

October 21, 2010 by Charles Wagner

Can you imagine burying a spouse and then being sued for support by his mistress? For those who believe in primacy on marriage and that marriage obligates its partners to fidelity, the idea of rewarding a mistress to a portion of the family’s an inheritance is unjust. Others argue that financial obligations should flow from the intensity and duration of life partner relationships regardless of the partners’ marital status. What do the courts think?

In Nowell v. Town Estate (http://bit.ly/nowell ) the deceased had a 24 year extramarital affair. During the week he lived with his wife, but on the weekends this man spent time with his mistress, gave her gifts worth about $125,000 and promised to support her. The mistress contributed to the man’s work as an artist without compensation. Left nothing in the will she sued the estate. Do you think she deserved any money? The Ontario Court of Appeal did.

The judges recognized that a 24 year relationship was more than casual and for the last 13 years it was quasi-spousal. The judges felt the mistress should be fully compensated because the estate was unjustly enriched. Mr. Town accepted his mistress’ help, did not pay for it, and he benefited financially. The court was influenced by the fact that the mistress made Mr. Town the focal point of her life and that through the years Mr. Town assured his mistress that he would look after her. While this did not create a legal relationship it proved the nature of the relationship. The court still awarded her $300,000.

In Mahoney v. King 1998 CarswellOnt 2348 a mistress successfully sued a married man for support because the court found that she was a common law spouse. Arguably, a mistress suing her paramour’s estate could use this case as a precedent. As a “spouse” the mistress would qualify as a dependant and would be entitled to support under the Succession Law Reform Act, R.S.O. 1990, c. S.26 if her paramour did not provide her with adequate support. There are those like the late law professor James G. McLeod who disagreed with this decision. He took exception to the idea that a woman who had an affair with a married man who lived with his wife may be a “spouse”. While Professor McLeod understood the argument of making an unjustly enriched estate compensate a mistress like in Nowell v. Town Estate he felt that to suggest that a mistress was a spouse for support purposes takes away whatever meaning is in the word “spouse”. 

The different views of a mistress entitlement to support under the law should tell you that this issue is not a simple one. My short review of these cases should not be taken as legal advice. Based on my experience in dealing with these cases they often turn on the specific facts. If you have a legal question relating to something similar, you are best advised to seek out competent legal counsel to determine your best course of action.

Foreign Defendants – Legal issues and Strategies

August 30, 2010 by Charles Wagner

Americans sued in Ontario are at risk. Sometimes these defendants ignore Ontario law suits because they have no assets in Canada. That may be unwise. Ontario courts, under certain circumstances, will assume jurisdiction and grant judgments against American defendants. Such judgments may be enforceable in the US under private international law and the principles of comity. Americans named as defendants in Ontario litigation should contact competent lawyers in both jurisdiction to strategize about how to deal with litigation commenced in a court in Canada.

Why Should Americans Care If They Are Sued In A Foreign Jurisdiction?
Americans who are sued in Ontario sometimes ignore the claim. Perhaps it’s because there is concurrent litigation in the US. Possibly the American defendant feels it advantageous to wait until the Canadian comes to the US to litigate. Failure by the American defendant to respond will result in Default judgment against them. The Canadian Plaintiff will then hire an American Attorney to successfully enforce the Ontario judgment in the appropriate US jurisdiction. Americans who ignore litigation against them in Ontario do so at their own peril.

To appreciate the risks one has to understand that as cross border commerce increased courts and legislatures on both sides of the border had to deal with disputes. Imagine a Ontario manufacturer selling its products to an American distributor located in Texas. The American says the products are flawed and the Canadian wants to get paid. Do they go to a court in Ontario or Texas? Does the law of Texas or Ontario govern? It may be that in accordance with the principles of private international law, comity and forum non conveniens both Texas and Ontario have jurisdiction and the courts have to address which is the most appropriate jurisdiction to deal with the case. In our case scenario outlined above the Texas defendant who ignored the law suit in Ontario may find the Texas court enforcing the Ontario judgment.

First Step – Determine Vulnerability To Assets Being Seized:
Enforceability is the first issue. An American defendant in Ontario should determine if there are assets capable of being seized. Does the defendant have assets in Ontario or in a jurisdiction that will enforce an Ontario Judgement? If not then the defendant has to determine in the US jurisdiction will enforce the judgment where the defendant does have assets which are vulnerable to be seized. For example, the Uniform Foreign-Country money Judgments Recognition Act of California (FN1) provides that if there is judgment from a foreign country that deals with recovery of money, is final, conclusive and enforceable the foreign judgment is enforceable in California(FN2). Each jurisdiction may be different, but a defendant’s first step would be to determine if in accordance with relevant state legislation and the principles of private international law the judgment of the Ontario court would be enforceable in the defendant’s.

Second Step – Consult Competent Lawyer In Your Jurisdiction To Determine If, Given Your Assets, An Ontario Judgment Is Collectable:
The Canadian lawyers who have commenced a lawsuit against out of province defendants may be unaware of the differences in collecting on a judgment in Ontario or another jurisdiction. For example, contrary to Ontario the defendant’s state
1. may not permit collection proceedings against the defendant’s home.
2. may not permit wages to be garnished.
3. May exempt a certain amount of personal property.
In other words an American attorney should be consulted to determine if the defendant is judgment proof. That is why it is prudent to contact both an American attorney and Ontario lawyer to coordinate strategies. Both are necessary because a defendant with assets in Ontario will be subject to collection under the laws of Ontario. As an aside, Canadian lawyers should also address these issues when advising American clients about the utility of proceeding against foreign defendants.

Third Step – Are There Grounds To Dispute Ontario Jurisdiction?
Assuming that, given the right circumstances, an Ontario judgment will be enforceable in the American jurisdiction and there the defendant’s assets are vulnerable to being seized in collection proceedings, then coordination between US and Ontario counsel is a key to success for both the plaintiff and defendant. When our firm commences a law suit against an American Defendant we draft the claim with an eye on both:
1. establishing the foundation for an Ontario Court to exercise jurisdiction; and
2. Endeavouring to frame the claim in such a way that an American court will accept that the Ontario court had jurisdiction. It’s complicated and many states in the US have different criteria.

In Ontario the test for assuming jurisdiction in involving a foreign defendant was addressed in the seminal case of Muscutt v Courceles (2002) 60 O.R. (3d) 20. (FN3). The Muscutt test was adjusted by the Court of Appeal in Van Breda v. Village Resorts Limited, 2010 ONCA 84, (FN4). The exact nature of the test for determining jurisdiction of Ontario courts over an American defendant will hopefully be clarified as the Supreme Court of Canada has granted leave to appeal the Ontario Court of Appeal’s decision on this case. (FN5). As of the writing of this article this case has been judicially considered in Canada 22 times. For a clear review of the evolution of the test used by Ontario Courts for assuming jurisdiction of foreign defendants see Sona Dhawan’s February 17th, 2010 blog “Muscutt Quintet Test Simplified in Van Breda”. (FN6). For the purposes of this article it is unnecessary to review the Van Breda case in detail other than to say the Court of Appeal wanted, in their words, “tune-up” the Muscutt test “after seven years in the trenches”. In summary, under the new test a preliminary analysis is conducted to determine if there is a presumption that a “real and substantial connection” exists between the conflict and Ontario. The court will then look at two main issues
1. the connection between the forum and the plaintiff’s claim and
2. the connection between the forum and the defendant.
The other 6 factors set out under Muscutt are “analytic tools” used to weigh the connection between the forum, claim and defendant.
Until the Supreme Court of Canada rules otherwise the Ontario Court of Appeal test articulated in Van Breda stands. The Supreme Court of Canada will not nullify the principles of comity or forum non conveniens. There is no going back to the time where an Ontario Court will not assume jurisdiction over a foreign defendant. However, what will be addressed is the exact nature and evolution of the test set out in Muscutt. Van Breda has already been followed 12 times by different courts in Canada. In is also important to remember that the Supreme Court of Canada has addressed the issue in four key decisions in the early 1990s (FN7). As set out in paragraph 40 of the Ontario Court of Appeal decision “As Sopinka J. explained in Amchem, supra, at p. 912, “[f]requently there is no single forum that is clearly the most convenient or appropriate for the trial of the action but rather several which are equally suitable alternatives.”

Where more than one forum is capable of assuming jurisdiction, the most appropriate forum is determined through the forum non conveniens doctrine, which allows a court to decline to exercise its jurisdiction on the ground that there is another forum more appropriate to entertain the action.” Those decisions, make it clear that that the Supreme Court of Canada has accepted that while more than one forum may have jurisdiction to hear a case, each jurisdiction should exercise jurisdiction if it identifies its forum as the most appropriate forum for the litigation in accordance with the principles of international comity (FN8).

Fourth Step – Foreign  Defendant to Review Grounds to Dipute Ontario Jurisdiciton.
If it is in the defendant’s interest to not litigate in Ontario the lawyer should review the case law and determine if there are grounds to dispute jurisdiction. For example, did the plaintiff commit fraud? Did  the litigation process result in a denial of natural justice to the defendant? Would assumption of jurisdiction offend public policy? The following additional questions should be addressed:
• the location of the majority of the parties
• the location of key witnesses and evidence
• contractual provisions that specify applicable law or accord jurisdiction
• the avoidance of a multiplicity of proceedings
• the applicable law and its weight in comparison to the factual questions to be decided
• geographical factors suggesting the natural forum
• whether declining jurisdiction would deprive the plaintiff of a legitimate juridical advantage available in the domestic court

Conclusion
Given that the law in every jurisdiction may be different there are often advantages to the litigants in different jurisdictions. For example, if the Ontario limitation period has lapsed and the US jurisdiction limitation period has not lapsed it makes sense for the plaintiff to litigate in the US jurisdiction. Accordingly, disputes about forum are common. For anyone involved in cross border litigation it is prudent to consult with attornies/lawyers on both sides of the border to ensure that the issues of jurisdiction and vulnerability to judgments are addressed.

FN 1. Uniform Foreign-Country Money Judgments Recognition Act. There is similar legislation in 30 other states. For a more comprehensive review of this topic I refer readers to an article written by Stephen Maddex of Lang Michener LLP found at http://www.langmichener.ca/index.cfm?fuseaction=content.contentDetail&ID=10450&tID=244
FN2. The cursory description should not be taken as a detailed review of the act. For example, the California legislation indicates that it will not enforce foreign judgments which are a judgment for taxes, fines, divorce, support or maintenance.

FN3. For on line access to the case please see http://www.ontariocourts.on.ca/decisions/2002/may/muscuttC35934.pdf
FN4. For on line access to this case please see http://www.ontariocourts.on.ca/decisions/2010/february/2010ONCA0084.pdf

FN5. See the Supreme Court of Canada Case Information Summary at http://www.scc-csc.gc.ca/case-dossier/cms-sgd/sum-som-eng.aspx?cas=33692 and Julius Melnitzer’s article in the Financial Post http://business.financialpost.com/2010/07/08/scc-grants-leave-in-van-breda/

FN6. Sona Dhawan reviews the Muscutt case and its treatment in Ontario. In that case the Ontario Court of appeal indicated that there must be a real and substantial connection between the dispute and Ontario before a court can assume jurisdiction over an out of province party. That 8 pronged test was reviewed, revised and simplified by the Ontario Court of Appeal in Van Breda v. Village Resorts Limited. It is an interesting blog and a worthwhile read. It can be found at http://www.thecourt.ca/2010/02/17/muscutt-quintet-test-simplified-in-van-breda/

FN7 Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077 and Hunt v. T&N plc., [1993] 4 S.C.R. 289, Tolofson v. Jensen; Lucas (Litigation Guardian of) v. Gagnon, [1994] 3 S.C.R. 1022, and Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897.

FN 8. See Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897 and paragraph 39 of Mache Products Inc. v. British Columbia (Workers’ Compensation Board) 1993 CarswellBC 47; 77 B.C.L.R. (2d) 62, [1993] 1 S.C.R. 897, [1993] 3 W.W.R. 441, 14 C.P.C. (3d) 1, 150 N.R. 321, 23 B.C.A.C. 1, 39 W.A.C. 1, 102 D.L.R. (4th) 96, J.E. 93-674.

May An Executor Buy Estate Assets?

June 10, 2010 by Charles Wagner | 4 comments

Executors often want to buy assets belonging to an estate. Beneficiaries often suspect the executors of wrong doing. So I often am asked whether it’s legal for an executor to buy an asset from the estate. The short answer is maybe, possibly, but not usually.

To demonstrate the problem let’s imagine that Ben just died. He and his brother Harry owned an apartment building. These brothers loved and trusted one another their whole lives. Ben never married and treated Harry’s wife like his own sister and Harry’s kids like his own children. Ben was appointed as the executor and estate trustee for his late brother’s estate. The beneficiaries of the estate are the deceased’s wife and two children. The only asset of the estate is 50% of the apartment building.

Ben gets two independent appraisals valuing the apartment building at $2 million. He offers the estate $1.5 million dollars for its ½ of the apartment building. Each of the beneficiaries gets independent legal advice approving the sale. So what do you think? Under these circumstances can Ben buy the estate asset eventhough he is the executor and estate trustee? Would you change your opinion if immediately thereafter Ben gets a call and someone offers to buy the apartment building for $4 million?

The general rule of thumb, as articulated by Professor Waters in his book Waters Law of trusts is that “It is a fundamental principle of every developed legal system that one who undertakes a task on behalf of another must act exclusively for the benefit of the other, putting his own interests completely aside. In the common law system this duty may be enforceable by way of an action by the principal upon the contract of agency, but the modes in which the rule can be breached are myriad, many of them in situations other than contract and therefore beyond the control of the law of contract. It was, in part, to meet such situations that Equity fashioned the rule that no one may allow his duty to conflict with his interest”.

Estate Trustees/Executors are considered fiduciaries. The common law is very clear that as fiduciaries have an exclusive duty of loyalty to the beneficiaries. If so, a court will wonder how could Ben negotiate a deal fairly when he represents the buyer (himself) and the seller (the estate)? That is why at common law, the fiduciary is absolutely forbidden from dealing with estate property for his own benefit regardless of how honest or fair the purchase may be. Nonetheless, despite that general rule of thumb, the courts have not always been consistent in how they apply this rule. While there is a consensus that the executor must act in a way that is in the best interests of the estate the courts differ on how strictly to apply the rule.

Some court decisions suggest that Ben could not buy the estate’s interest in the apartment building because even if he was being honest and even if he meant well he cannot possibly give the exclusive loyalty to the beneficiaries when he himself stands to make a profit. Those cases would suggest any such purchase is a breach of fiduciary duty and the deal can later be set aside even if the purchase was reasonable and the beneficiaries were not harmed. For a review of those cases I refer you to CED Trusts VI.4.(c).(ii) and WatersTrusts 18.II.

Other courts have considered the Fiduciary’s duty of loyalty as being intended to prevent actual harm to the beneficiaries. If there is no harm then these cases suggest there may be some flexibility that would permit the purchase. If Ben could show that the sale caused no harm to the beneficiaries and that his actions were reasonable his purchase may be allowed. For example, Ben might argue that he paid over market value because the apartment was worth more to him because he already owned ½ . Ben might say that the beneficiaries would not have gotten a price as high from anyone else. However, a disgruntled beneficiary might suggest that Ben did not disclose that he had an offer for $4 million dollars for the apartment.

While at common law, the fiduciary is absolutely forbidden from dealing with estate property for his own benefit regardless of his honesty and fairness of the purchase, there are infrequent circumstances that courts have allowed fiduciaries to buy trust property. Examples include Re Nathanson (1971), 18 D.L.R. (3de) 495 (N.S.T.D.) and Mochan v. Omega Oil & Gas Ltd, [1988] 1 S.C.R. 348 (S.C.C.). In these cases the courts approved of sales to a fiduciary. In one instance the trustee showed he unsuccessfully tried to find a buyer and the sale was in the best interests of the estate. In the other it was clear the price was fair and those to whom the fiduciary duty was owed consented to the sale with full knowledge.

Fiduciaries who wish to purchase trust property are well advised to make 100% full disclosure to beneficiaries and obtain their consent to the sale of trust property to the trustee. As well, it would be prudent to for all the beneficiaries to obtain independent legal advice. Furthermore, the purchase price should be somewhat more then fair market value. With all these arrows in his/her quiver the trustee might be well advised to seek preapproval of the sale from the court by bringing an application for the opinion, advice and direction of the court under Rule 14.05(3)(d), and under section 60 of the Trustee Act, R.S.O. 1990, c. T.23. It may happen that a judge will decline to hear the application because they might believe that preapproval of a sale is not the advice or opinion contemplated by the legislation. A judge might point out that if this offer to purchase came from a arms length third party no application for directions would have been made. One senior counsel suggested to me that there are other legal paths which might be a better option. But that – is for another time and another blog. The bottom line is that anyone faced with this issue, whether he/she be a trustee or a beneficiary, should not treat this blog as legal advice and is best advised to seek out a competent experienced lawyer to guide them.