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Undue Influence and ILA    

The recent Superior Court decision of James et al v. James et al, 2019 ONSC 1326 (CanLII) is an interesting illustration of the interplay between the presumption of undue influence and the duty of a lawyer providing independent legal advice.

In this case the parents, Donald and Elsie had six adult children and their primary asset was a small inactive farm which they had owned since 1965. One of their children, Janice and her husband Wesley expressed and demonstrated an interest in working on the farm.  Janice explored an opportunity to have solar equipment installed on the farm which would operate as a revenue stream. In order to implement the solar plan and upgrade the farm financing was required. She made inquiries and with the assistance of a family member in Alberta who was an accountant, an informal agreement was developed which included adding Janice to title as a joint tenant for the purpose of financing as required by the lender.

Based on the informal agreement Janice retained counsel to prepare a formal agreement between the parties which incorporated the financing package. The formal agreement included a non-alienation clause that was not previously discussed and was not included in the informal agreement.

Donald and Elsie were directed to an ILA lawyer by Janice’s lawyer. The ILA lawyer received the draft formal agreement, the transfer, financing and related transactional documents and an ILA Certificate. The ILA lawyer did not receive a copy of the informal agreement. The transaction was completed based on the formal agreement with the ILA.

The relationship quickly broke down causing Donald and Elsie to seek counsel.  At that point they allegedly first became aware that they were prevented from taking any steps to transfer the property, including severing the joint tenancy, due to the non-alienation clause.

As such they commenced proceedings to set aside the formal agreement and a LAWPRO claim against the ILA counsel ensued.  A motion to dismiss was brought by way of summary judgment on behalf of the LAWPRO counsel.

Justice de Sa of the Superior Court dismissed the motion for summary judgment finding “that the issues raised in the solicitor’s negligence claim are too interwoven with the main action” and must be tried together.

The Court referenced the presumption of undue influence by relying on the 1991 Supreme Court of Canada decision Geffen v Goodman Estate 1991 CanLII 69 at paragraphs 42-45:

What then must a plaintiff establish in order to trigger a presumption of undue influence?  In my view, the inquiry should begin with an examination of the relationship between the parties.  The first question to be addressed in all cases is whether the potential for domination inheres in the nature of the relationship itself.  This test embraces those relationships which equity has already recognized as giving rise to the presumption, such as solicitor and client, parent and child, and guardian and ward, as well as other relationships of dependency which defy easy categorization.

Having established the requisite type of relationship to support the presumption, the next phase of the inquiry involves an examination of the nature of the transaction. …

… in situations where consideration is not an issue, e.g., gifts and bequests, it seems to me quite inappropriate to put a plaintiff to the proof of undue disadvantage or benefit in the result.  In these situations the concern of the court is that such acts of beneficence not be tainted.  It is enough, therefore, to establish the presence of a dominant relationship.

Once the plaintiff has established that the circumstances are such as to trigger the application of the presumption, i.e., that apart from the details of the particular impugned transaction the nature of the relationship between the plaintiff and defendant was such that the potential for influence existed, the onus moves to the defendant to rebut it.  As Lord Evershed M.R. stated in Zamet v. Hymansupra, at p. 938, the plaintiff must be shown to have entered into the transaction as a result of his own “full, free and informed thought”.  Substantively, this may entail a showing that no actual influence was deployed in the particular transaction, that the plaintiff had independent advice, and so on.  Additionally, I agree with those authors who suggest that the magnitude of the disadvantage or benefit is cogent evidence going to the issue of whether influence was exercised. [emphasises added]

Justice de Sa then noted what appeared to be a relationship of trust and dependence between Janice and her parents and referenced Ontario case law from 1882:

In my view, Janice’s relationship with her parents (a relationship of trust) may have caused her parents to sign the Agreement against their own interests.  They were becoming more dependent in their lives, and looked to Janice to help them moving forward.  Their trust in their daughter may have led them to enter the Agreement without properly understanding its effects. As explained in Lavin v. Lavin, [1882] O.J. No. 15 at para. 15:

Many Judges both in England and Ontario have said that prima facie a conveyance of all of a man’s property in his old age without power of revocation, and that is the case here, in consideration of a mere promise of maintenance is extremely improvident.  I am quite satisfied that he did not entirely understand the effect of what he did and that their capacity and anxiety for relief, and his mental weakness combined to produce the transaction. 

I do not wish to be understood in what I have said as censuring the solicitor.  In the language of the eminent Judge who decided Chisholm v. Schroeder et al., 20 N.S.R. 9, Mr. Justice Thompson – I may say that I think he did not fully realize perhaps because he was not asked to do so, the effect the transaction would have upon the plaintiff’s future, left practically as he was at the mercy of the defendant and her husband; he was more the defendant’s than the plaintiff’s solicitor.  I say this from the circumstances and because of the little done to guard the old man’s future from want and neglect.

The deed so far as the defendant is concerned cannot be permitted to stand [emphasis added]

Justice de Sa added that “if the matter was before me on the merits, I would have likely set the Agreement aside.”

Lawyers retained to provide ILA must be alive to the doctrine of influence. An extremely helpful summary of the law and checklist for lawyers can be found at our web site:

 http://welpartners.com/resources/WEL_Undue_Influence_Checklist.pdf

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