Case Comment: Buccilli v. Pillitteri – When will a Court Set Aside an Agreement based on Undue Influence, Unconscionability, or Misrepresentation?
In the recent case of Buccilli v. Pillitteri1, Justice Newbould completed a thorough and helpful review of the law surrounding undue influence, unconscionability, misrepresentation and breach of fiduciary duty.
This case involved many parties who were once loving family and friends. The plaintiff was married to the defendant’s brother until his untimely death in an accident in 1998. The brother and sister were extremely close and the sister had looked after all of the brother’s personal and financial records and continued to do so after his death. On June 27, 2001 the wife signed documents in which she transferred all of her interest in her husband’s estate to his sister in trust. This included his one-third share in a very profitable family company. This share was eventually transferred by the sister to the other co-owners (one of whom was the sister’s husband).
The plaintiff brought a claim to have the transfer agreement set aside on four grounds: undue influence, unconscionability, misrepresentation and breach of fiduciary duty.
Undue Influence
Justice Newbould commenced the analysis with the doctrine of undue influence:
“where there is no special relationship such as trustee and beneficiary or solicitor and client, it is open to the weaker party to prove the stronger party was able to take unfair advantage, either by actual pressure or by a general relationship of trust between the parties of which the stronger took advantage. . . Once a confidential relationship has been established the burden shifts to the wrongdoer to prove that the complainant entered into the impugned transaction freely.”2
Justice Newbould found that the plaintiff had established a relationship with her sister-in-law that gave rise to a presumption of undue influence. He based this on the following findings: even when the deceased was alive the sister looked after his books and made investment decisions for the family; the wife was emotionally distraught after her husband’s death so the sister continued to look after the financial affairs; the sister was the one who hired the lawyer to draft the transfer agreement and provided the lawyer with all of the background information; the wife had no knowledge of the financial affairs of the company or the worth of the shares and the sister knew this. The lawyer testified that he knew that the wife was in a “good and trusting relationship” with the sister.
For the second part of the undue influence test, the court did not find that the sister met the onus of establishing that the plaintiff entered into the transfer agreement freely. Justice Newbould found that the sister and her husband “were well aware that [the wife] was giving up far more than she realized in the transfer agreement and yet did nothing about it.” Nor was the wife advised to seek independent legal counsel.
Justice Newbould found that the plaintiff had established sufficient grounds under the doctrine of undue influence to have the transfer agreement set aside, but also went on to analyse the other three grounds of the claim.
Unconscionability
Justice Newbould found that the wife had established an inequality in the positions of the parties (the first step in a claim for unconscionability) based on the same findings set out above. He also found that the plaintiff had established that the transfer agreement was an improvident bargain sufficient to establish unconscionability (the second step in such a claim). Justice Newbould based this on the evidence presented regarding the actual value of the shares that the wife gave up and what little accurate financial information was provided to her.
Misrepresentation
An agreement induced by misrepresentation can be set aside if the representation was as to a material fact and reasonably relied on, whether the representation was innocent, negligent or fraudulent. Justice Newbould found that before the wife signed the transfer agreement, the sister told her that she would be holding the shares of the company in trust for her. However, the sister was quite clear in evidence that from the time of the transfer agreement, she intended to transfer the shares to her husband and the other co-owner of the company. Justice Newbould found this to be a misrepresentation of fact which induced the wife to sign the transfer agreement. This was another ground upon which the transfer agreement could be set aside.
Fiduciary Duty
Finally, Justice Newbould examined the breach of fiduciary duty claim. First, the evidence must show hat the alleged fiduciary gave an undertaking of responsibility to act in the best interests of a beneficiary. The undertaking may be found in the relationship between the parties, in an imposition of responsibility by statute, or under an express agreement. Second the duty must be owed to a defined person or class of persons who must be vulnerable to the fiduciary in the sense that the fiduciary has discretionary power over them. Finally the claimant must show that the alleged fiduciary’s power may affect the legal or substantial practical interests of the beneficiary.
Justice Newbould found that “in this case, I think it is obvious that a fiduciary duty was owed by [the sister] to [the wife]. There was a complete trust by [the wife] in [the sister] and [the sister] was well aware of it and agreed that such a trust existed.” The court found that it was a breach of fiduciary duty for the sister to transfer the shares and to not advise the wife to get independent legal advice. The remedy granted by the court for this breach was to set aside the transfer agreement and an accounting of profits arising after the transfer agreement was ordered, with one-third of the profits to be paid to the wife.
This case provides a thorough overview of these related but separate equitable concepts, the test involves and what evidence is required to meet these tests.
—
1. 2012 ONSC 6624 CanLII.
2. Ibid at para. 139.
Written by: Kimberly A. Whaley
Posted on: February 6, 2013
Categories: Commentary
In the recent case of Buccilli v. Pillitteri1, Justice Newbould completed a thorough and helpful review of the law surrounding undue influence, unconscionability, misrepresentation and breach of fiduciary duty.
This case involved many parties who were once loving family and friends. The plaintiff was married to the defendant’s brother until his untimely death in an accident in 1998. The brother and sister were extremely close and the sister had looked after all of the brother’s personal and financial records and continued to do so after his death. On June 27, 2001 the wife signed documents in which she transferred all of her interest in her husband’s estate to his sister in trust. This included his one-third share in a very profitable family company. This share was eventually transferred by the sister to the other co-owners (one of whom was the sister’s husband).
The plaintiff brought a claim to have the transfer agreement set aside on four grounds: undue influence, unconscionability, misrepresentation and breach of fiduciary duty.
Undue Influence
Justice Newbould commenced the analysis with the doctrine of undue influence:
Justice Newbould found that the plaintiff had established a relationship with her sister-in-law that gave rise to a presumption of undue influence. He based this on the following findings: even when the deceased was alive the sister looked after his books and made investment decisions for the family; the wife was emotionally distraught after her husband’s death so the sister continued to look after the financial affairs; the sister was the one who hired the lawyer to draft the transfer agreement and provided the lawyer with all of the background information; the wife had no knowledge of the financial affairs of the company or the worth of the shares and the sister knew this. The lawyer testified that he knew that the wife was in a “good and trusting relationship” with the sister.
For the second part of the undue influence test, the court did not find that the sister met the onus of establishing that the plaintiff entered into the transfer agreement freely. Justice Newbould found that the sister and her husband “were well aware that [the wife] was giving up far more than she realized in the transfer agreement and yet did nothing about it.” Nor was the wife advised to seek independent legal counsel.
Justice Newbould found that the plaintiff had established sufficient grounds under the doctrine of undue influence to have the transfer agreement set aside, but also went on to analyse the other three grounds of the claim.
Unconscionability
Justice Newbould found that the wife had established an inequality in the positions of the parties (the first step in a claim for unconscionability) based on the same findings set out above. He also found that the plaintiff had established that the transfer agreement was an improvident bargain sufficient to establish unconscionability (the second step in such a claim). Justice Newbould based this on the evidence presented regarding the actual value of the shares that the wife gave up and what little accurate financial information was provided to her.
Misrepresentation
An agreement induced by misrepresentation can be set aside if the representation was as to a material fact and reasonably relied on, whether the representation was innocent, negligent or fraudulent. Justice Newbould found that before the wife signed the transfer agreement, the sister told her that she would be holding the shares of the company in trust for her. However, the sister was quite clear in evidence that from the time of the transfer agreement, she intended to transfer the shares to her husband and the other co-owner of the company. Justice Newbould found this to be a misrepresentation of fact which induced the wife to sign the transfer agreement. This was another ground upon which the transfer agreement could be set aside.
Fiduciary Duty
Finally, Justice Newbould examined the breach of fiduciary duty claim. First, the evidence must show hat the alleged fiduciary gave an undertaking of responsibility to act in the best interests of a beneficiary. The undertaking may be found in the relationship between the parties, in an imposition of responsibility by statute, or under an express agreement. Second the duty must be owed to a defined person or class of persons who must be vulnerable to the fiduciary in the sense that the fiduciary has discretionary power over them. Finally the claimant must show that the alleged fiduciary’s power may affect the legal or substantial practical interests of the beneficiary.
Justice Newbould found that “in this case, I think it is obvious that a fiduciary duty was owed by [the sister] to [the wife]. There was a complete trust by [the wife] in [the sister] and [the sister] was well aware of it and agreed that such a trust existed.” The court found that it was a breach of fiduciary duty for the sister to transfer the shares and to not advise the wife to get independent legal advice. The remedy granted by the court for this breach was to set aside the transfer agreement and an accounting of profits arising after the transfer agreement was ordered, with one-third of the profits to be paid to the wife.
This case provides a thorough overview of these related but separate equitable concepts, the test involves and what evidence is required to meet these tests.
—
1. 2012 ONSC 6624 CanLII.
2. Ibid at para. 139.
Author
View all posts