Reyhani v. Karimov[1] is about a motion to amend a Statement of Claim. The court dismissed the motion, but the reasons that led to dismissing the motion require comment. They include a discussion of the applicability of the Rule Against Perpetuities. Discussing and applying that rule is not for the fainthearted and, with respect, was not necessary and was indeed irrelevant in this case
The Defendant/Appellant, K, financed the purchase of a house in July of 2013, but title was taken in the name of the Plaintiff/Respondent, R. K and R entered into a Trust Agreement that said that K holds the full beneficial title and that R holds the legal title as trustee for K.
R sued K in 2014, and in his amended Statement of Claim alleged that legal title was to be transferred to K within 6 months of the Trust Agreement and, once transferred, K would then also have the legal title.
In July 2015 K defended and counterclaimed, alleging that the legal title was not to be transferred to him automatically. Rather, since the Trust Agreement did not specify a time, he was entitled to have the legal title transferred to him within 6 months of his serving a demand for the transfer on R. In the counterclaim he demanded that legal title be transferred to him.
In February 2019, R moved to amend the Statement of Claim once more. Effectively, he thereby agreed with K’s position that legal title was to be transferred only within 6 months of K’s demand. But R now claimed that the Trust Agreement was void for failing to specify a time within which the legal title was to vest. R argued that K’s right to demand a transfer of the legal title amounted to a contingent interest and, since the Trust Agreement failed to specify a time for vesting, the interest violated the common law Rule Against Perpetuities. Master Sugunasiri allowed the amendment.
K appealed and the matter was heard by E.M. Morgan J. K analogized his right to demand a transfer of the legal interest to an option to purchase, which creates a specifically enforceable interest in land. Such an interest is contingent and must be exercised within the perpetuity period, as modified by the Perpetuities Act.[2] As Justice Morgan mentioned, that period is, absent a life in being, 21 years from the creation of the interest, i.e., 2034 in this case. Since K made a demand for the transfer in his defence and counterclaim in 2015, the interest vested at that time, or alternatively will vest when the court makes its order effecting the transfer. Thus, argued K, actual events have established that the interest is incapable of vesting beyond the perpetuity period and is therefore a valid interest under the Act.
R argued that the Act did not apply to the interest, but the common law rule did and the interest was invalid under that rule. Morgan J rightly rejected that argument.
But then Justice Morgan went on to note in para. 14 that with a trust you have both a legal and a beneficial interest and either or both can be contingent. Here the beneficial interest was vested, but the legal interest was contingent and is subject to the Rule Against Perpetuities, citing 2123201 Ontario Inc. v. Israel Estate, 2016 ONCA 409, para. 24. Justice Morgan stated in para. 26: “There is no reason that I can see that this should be altered because the legal title is accompanied by an equitable interest as well.” Earlier, in para. 15, Justice Morgan stated that the right to demand a transfer of the legal title creates an immediate equitable interest. This is passing strange, as it would mean that there would be a contingent equitable interest, as well as a vested one in the same property.
In the end Justice Morgan allowed the appeal because the second amendment to the Statement of Claim was untenable, since R could not possibly prove that K’s legal interest was void for perpetuities.
I’ve no quarrel with the actual decision. The second amendment was untenable.
But I have concerns about the reasons. Let us suppose that K’s right to demand a transfer of the legal title was the equivalent of an option to purchase. When A, the owner of land, gives B an option to purchase, A retains the legal title, while B acquires an immediate equitable interest in the land. That interest is contingent, because its vesting depends upon when B exercises the option. B must do so within the perpetuity period.[3] When B does exercise the option within that period, B acquires the legal title, or more correctly, since there is no longer occasion to distinguish between the legal and equitable interests, B acquires the full, indivisible title. In those circumstances we would not say that B also has a contingent legal interest in the land.
However, the facts are different in this case. K’s equitable interest is vested. Since the creation of the Trust, he is the undisputed beneficial owner of the property. And he has the accompanying right to demand that the legal title be transferred to him. This must surely mean that the Trust was a bare trust, which entitles the beneficiary to demand a transfer of the legal title at any time. I fail to see how the right to demand a transfer should be treated as an option. The sole, capable beneficiary under a trust can always collapse the trust under the Rule in Saunders v. Vautier.[4] That is not a matter of exercising an option, but simply of her saying: “The property is mine: hand it over”. And the Trustee has no right to refuse. Nor for that matter can the Trustee raise a limitation defence.
Consequently, in my respectful opinion, the discussion about an option to acquire the legal title was misplaced. So was the entire discussion about the Rule Against Perpetuities. And the fact that the Trust Agreement apparently gave K an express right to demand a transfer of the legal title (see para. 15) makes no difference. That simply confirmed the right he already had under the law of trusts.
Of course, quite apart from the Trust Agreement, K could have sued R to retrieve the legal title on the basis that R held the title under a purchase money resulting trust for K.
—
[1] 2019 ONSC 5290, 49 E.T.R. (4th) 216.
[2] R.S.O. 1990, c. P.9.
[3] See, e.g., Canadian Long Island Petroleums Ltd. v. Irving Wire Products, [1975] 2 S.C.R. 415.
[4] (1841), 4 Beav. 115, 49 E.R. 282, affirmed (1841), 1 Cr. & Ph. 240, 41 E.R. 482.
—
This paper is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This paper is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
Menu
Written by: Albert Oosterhoff
Posted on: November 27, 2019
Categories: Commentary
Reyhani v. Karimov[1] is about a motion to amend a Statement of Claim. The court dismissed the motion, but the reasons that led to dismissing the motion require comment. They include a discussion of the applicability of the Rule Against Perpetuities. Discussing and applying that rule is not for the fainthearted and, with respect, was not necessary and was indeed irrelevant in this case
The Defendant/Appellant, K, financed the purchase of a house in July of 2013, but title was taken in the name of the Plaintiff/Respondent, R. K and R entered into a Trust Agreement that said that K holds the full beneficial title and that R holds the legal title as trustee for K.
R sued K in 2014, and in his amended Statement of Claim alleged that legal title was to be transferred to K within 6 months of the Trust Agreement and, once transferred, K would then also have the legal title.
In July 2015 K defended and counterclaimed, alleging that the legal title was not to be transferred to him automatically. Rather, since the Trust Agreement did not specify a time, he was entitled to have the legal title transferred to him within 6 months of his serving a demand for the transfer on R. In the counterclaim he demanded that legal title be transferred to him.
In February 2019, R moved to amend the Statement of Claim once more. Effectively, he thereby agreed with K’s position that legal title was to be transferred only within 6 months of K’s demand. But R now claimed that the Trust Agreement was void for failing to specify a time within which the legal title was to vest. R argued that K’s right to demand a transfer of the legal title amounted to a contingent interest and, since the Trust Agreement failed to specify a time for vesting, the interest violated the common law Rule Against Perpetuities. Master Sugunasiri allowed the amendment.
K appealed and the matter was heard by E.M. Morgan J. K analogized his right to demand a transfer of the legal interest to an option to purchase, which creates a specifically enforceable interest in land. Such an interest is contingent and must be exercised within the perpetuity period, as modified by the Perpetuities Act.[2] As Justice Morgan mentioned, that period is, absent a life in being, 21 years from the creation of the interest, i.e., 2034 in this case. Since K made a demand for the transfer in his defence and counterclaim in 2015, the interest vested at that time, or alternatively will vest when the court makes its order effecting the transfer. Thus, argued K, actual events have established that the interest is incapable of vesting beyond the perpetuity period and is therefore a valid interest under the Act.
R argued that the Act did not apply to the interest, but the common law rule did and the interest was invalid under that rule. Morgan J rightly rejected that argument.
But then Justice Morgan went on to note in para. 14 that with a trust you have both a legal and a beneficial interest and either or both can be contingent. Here the beneficial interest was vested, but the legal interest was contingent and is subject to the Rule Against Perpetuities, citing 2123201 Ontario Inc. v. Israel Estate, 2016 ONCA 409, para. 24. Justice Morgan stated in para. 26: “There is no reason that I can see that this should be altered because the legal title is accompanied by an equitable interest as well.” Earlier, in para. 15, Justice Morgan stated that the right to demand a transfer of the legal title creates an immediate equitable interest. This is passing strange, as it would mean that there would be a contingent equitable interest, as well as a vested one in the same property.
In the end Justice Morgan allowed the appeal because the second amendment to the Statement of Claim was untenable, since R could not possibly prove that K’s legal interest was void for perpetuities.
I’ve no quarrel with the actual decision. The second amendment was untenable.
But I have concerns about the reasons. Let us suppose that K’s right to demand a transfer of the legal title was the equivalent of an option to purchase. When A, the owner of land, gives B an option to purchase, A retains the legal title, while B acquires an immediate equitable interest in the land. That interest is contingent, because its vesting depends upon when B exercises the option. B must do so within the perpetuity period.[3] When B does exercise the option within that period, B acquires the legal title, or more correctly, since there is no longer occasion to distinguish between the legal and equitable interests, B acquires the full, indivisible title. In those circumstances we would not say that B also has a contingent legal interest in the land.
However, the facts are different in this case. K’s equitable interest is vested. Since the creation of the Trust, he is the undisputed beneficial owner of the property. And he has the accompanying right to demand that the legal title be transferred to him. This must surely mean that the Trust was a bare trust, which entitles the beneficiary to demand a transfer of the legal title at any time. I fail to see how the right to demand a transfer should be treated as an option. The sole, capable beneficiary under a trust can always collapse the trust under the Rule in Saunders v. Vautier.[4] That is not a matter of exercising an option, but simply of her saying: “The property is mine: hand it over”. And the Trustee has no right to refuse. Nor for that matter can the Trustee raise a limitation defence.
Consequently, in my respectful opinion, the discussion about an option to acquire the legal title was misplaced. So was the entire discussion about the Rule Against Perpetuities. And the fact that the Trust Agreement apparently gave K an express right to demand a transfer of the legal title (see para. 15) makes no difference. That simply confirmed the right he already had under the law of trusts.
Of course, quite apart from the Trust Agreement, K could have sued R to retrieve the legal title on the basis that R held the title under a purchase money resulting trust for K.
—
[1] 2019 ONSC 5290, 49 E.T.R. (4th) 216.
[2] R.S.O. 1990, c. P.9.
[3] See, e.g., Canadian Long Island Petroleums Ltd. v. Irving Wire Products, [1975] 2 S.C.R. 415.
[4] (1841), 4 Beav. 115, 49 E.R. 282, affirmed (1841), 1 Cr. & Ph. 240, 41 E.R. 482.
—
This paper is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This paper is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
Author
View all posts