Cowper-Smith v. Morgan, 2017 SCC 61 (CanLII), http://canlii.ca/t/hp9mm
In a recent case, Cowper-Smith v. Morgan, 2017 SCC 61, the Supreme Court of Canada had occasion to reconsider the equitable doctrine of proprietary estoppel. The Supreme Court’s ruling clarifies the test for proprietary estoppel and arguably expands its scope. It is an important decision for all practice areas, and particularly for those who practice in wills and estates.
The Court was unanimous in allowing the appeal and finding that the elements of proprietary estoppel were made out. Justice Côté and Justice Brown differed from the majority opinion, written by Chief Justice McLachlin, as to the appropriate remedy.
Elizabeth Cowper-Smith (the “Deceased”) died in 2010. She was survived by her three children: Gloria, Max and Nathan.
The Deceased’s husband, Arthur, died in 1992. Prior to their deaths, the Deceased and Arthur made it clear to their children that their property, including the family home (the “Home”), would be shared equally among them.
Gloria and Nathan, two of the children, fell out when Nathan moved back home in 2000 after his long-term relationship ended and he quit his job in Edmonton. He did work around the house which satisfied the Deceased. After visits with Gloria however, Nathan noticed that the Deceased would become agitated and concerned that Nathan intended to take her house, among other things. In February and April of 2001, Nathan received two letters in Gloria’s handwriting, indicating that he was no longer welcome to live with his mother and should move out. When he returned from an overseas trip in 2001, he found the locks changed, with his belongings still inside. He broke in and Gloria had the police escort him out. He eventually moved back to Edmonton.
In 2005, the Deceased could no longer live on her own and Max moved back to Victoria from England to care for her. In so doing he gave up his job, cottage lease, contact with his children and his social life. Max did this after Gloria agreed that he would be reimbursed for various expenses, have the use of the Deceased’s car, be able to live in the family home permanently, and would eventually acquire Gloria’s one-third interest in the Home. This arrangement worked until 2009 when Gloria began to back away from her promises. The relationship amongst the siblings deteriorated.
In 2001, the Deceased’s estate planning changed dramatically and she transferred title to the Home and all of her investments into joint ownership with Gloria, indicating in a trust declaration that Gloria would be entitled to those assets on her death. If the trust declaration and joint ownership were valid, the Deceased’s estate (the “Estate”) would not have any significant assets.
In 2005, Nathan discovered Gloria’s joint ownership of the Home and she assured him at the time that the arrangement was to simplify the administration of the Estate and that he and Max would still each receive a one-third share. She gave Max the same assurance four years later when he learned that Gloria’s name was on title.
After the Deceased’s death, the trust declaration was revealed and in 2011 Gloria announced her plans to sell the home, in which Max was still living.
Max and Nathan sought an order setting aside the trust declaration as the product of Gloria’s undue influence on the Deceased and declaring that Gloria held the property and assets in trust for the Estate to be divided equally amongst the three children. They also claimed on the basis of proprietary estoppel that Max was entitled to purchase Gloria’s one-third interest in the Home.
The Courts Below
Max and Nathan were successful at trial. The trial judge found in their favour on all grounds.
The Court of Appeal unanimously upheld the trial judge’s findings with respect to undue influence and resulting trust, but were split on the issue of proprietary estoppel. The majority found that because Gloria held no interest in the property at the time she made assurances to Max, proprietary estoppel could not arise. Max appealed on this issue.
The only issue before the Supreme Court was whether the trial judge erred in concluding that proprietary estoppel operates to enforce Gloria’s promise. Specifically, the Supreme Court was asked to decide whether Gloria’s lack of ownership in the Home defeats Max’s claims and if it did not, the appropriate remedy.
The Supreme Court was unanimous in finding that the trial judge did not err in concluding that proprietary estoppel operates to enforce Gloria’s promise. Chief Justice McLachlin, writing for the majority, held that: “Equity enforces promises that the law does not”. She explained that an equity arises where:
- 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 the property;
- The claimant relies on that expectation by doing or refraining from doing something, and his reliance is reasonable in all the circumstances; and
- The claimant suffers 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.
When the party responsible for the representation or assurance possesses an interest in the property sufficient to fulfill the claimants’ expectation, the Court found that proprietary estoppel may give effect to the equity by making the representation or assurance binding. 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. Moreover, proprietary estoppel can do what other estoppels cannot – it can found a cause of action, meaning it can be used as a sword and not just a shield.
The Supreme Court did not decide whether proprietary estoppel may attach to an interest in property other than land – although by leaving the question open the suggestion is that it may – nor whether equity more broadly enforces non-contractual promises on which claimants have detrimentally relied. Importantly, however, the Court held that proprietary estoppel may prevent an inequity where a claimant has reasonably relied on an expectation that he or she will enjoy a right or benefit over property, even in circumstances where the party responsible for that expectation did not own an interest in the property at the time of the claimant’s reliance.
In so doing the Supreme Court reversed the British Columbia Court of Appeal’s proposition of a bright line rule: that reliance on a promise by a party with not present interest in property can never be reasonable. The Supreme Court found that the bright line rule is out of step with equity’s purpose, which is to lessen the harsh effect of strict legal rules. In the circumstances of this case, it was sufficiently certain that Gloria would eventually obtain a one-third interest in the Home that her assurances would be taken seriously by Max.
With respect to the appropriate remedy, the majority of the Supreme Court found that as executor of the Estate, Gloria was bound to transfer a one-third interest in the Home to each of the three beneficiaries so that her promise to Max could be fulfilled. In short, despite the fact that the siblings only held an interest in the residue of the Estate and not a specific interest in the Home, the Court found that an in specie distribution of shares in the Home was not contrary to the Deceased’s intent as the outcome was contemplated by the Deceased. As a result, the Court ordered an in specie distribution and required Gloria to sell her interest in the property to Max at the fair market value of the property as of early 2011, which was the approximate date on which Gloria could reasonably have expected to be able to transfer her interest in the first place. The majority held that this was the proper remedy as it was the “minimum necessary to satisfy the equity.”
Justice Brown and Justice Côté agreed that the Max’s proprietary estoppel claim should be allowed but disagreed with the majority as to the appropriate remedy. Justice Brown would have allowed the appeal and varied the trial judge’s order as proposed by the majority but permitted Max to purchase Gloria’s one-third interest in the Home at its fair market value as of the date of the Supreme Court’s order.
Justice Côté was of the opinion that the Court had no power to order Gloria to exercise her executorial discretion in a particular manner and that therefore an in specie distribution could not be ordered. Instead, she suggested that the correct solution was to replace Gloria as executor with an unbiased, neutral executor. However, if Gloria was ordered to distribute the property in specie and compelled to sell her share to Max, she concurred with Justice Brown that the sale price should be determined by the value of the property as of the date of the Supreme Court’s order.
The Supreme Court’s guidance in this case with respect to proprietary estoppel has significant implications. First, the decision arguably expands the scope of proprietary estoppel by holding that the fact the promisor does not have an interest in a property at the time a claimant relies on her promise is not fatal to the claim. Here, the equity arose not at the time Gloria received her one-third entitlement to the property but at the time the assurances were made to Max.
Second, the Supreme Court is clear that once the elements of proprietary estoppel are established, the Court has wide discretion to effect an appropriate remedy in the circumstances of the particular case. Here the majority directed Gloria, in her capacity as estate trustee of the Estate, to transfer her one-third interest in the property directly to Max in circumstances where the siblings only held an interest in the residue of the estate, and not a specific interest in the property. This has potential reach with respect to the Court’s role in the exercise of a trustee’s discretion.