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Testamentary Document Or Secret Trust?

1. Introduction

Gough v Leslie Estate[1] is an interesting case for several reasons. First, there was a problem with the way in which the matter came before the chambers judge in that the parties bifurcated the proceedings. And that caused the chambers judge to reach an aberrant decision. Second, there was a question whether the appellant could raise a ‘different’ issue on appeal, that is, the issue of secret trust that was not raised at first instance. And third, there was a detailed discussion about the nature of a secret trust and when it arises.

2. Facts

Allan Leslie (‘Allan’ or the ‘testator’) lived in a common law relationship with Shannon Gough (‘Shannon’). The testator also had a daughter, Megan Leslie (‘Megan’). In 2014 Allan made a Will in which he appointed Megan his executor, devised his house to Megan, and left his RRSP and pension plan benefits to Shannon. On the same day the three parties entered into a written Agreement, not referred to in the Will. It provided that Shannon could live in the house and enjoy the income from the RRSP, but on her death the capital would pass to Megan. In November 2015, Allan and Shannon had a falling out. He made a new Will in which he revoked ‘all former wills and other Testamentary Dispositions made by me’. The 2015 Will gave all the residue of the estate, including the house, to Megan. It made no mention of the 2014 Agreement and made no provision for Shannon. In 2018 Allan made a codicil to his 2015 Will in which he gave a RRIF to Shannon and the residue of the estate to Megan. After Allan’s death, Shannon remained in the house in accordance with the 2014 Agreement.

Megan then brought a ‘Contentious Matters’ application for a determination whether the Agreement was testamentary and was thus revoked by the 2015 Will. If the court should find that the Agreement was not testamentary, a subsequent hearing was scheduled to determine what effect the Agreement had on the estate. The later hearing was cancelled because the chambers judge concluded that the Agreement was testamentary and was therefore revoked by the 2015 Will. As the Court of Appeal noted, ‘this well-intended economy faltered on an attenuated record unsupported by appropriate jurisprudence’. On his own motion the chambers judge also questioned the enforceability of the Agreement because it seemed to offend the principle against repugnant gifts in that it qualified the absolute gift of the house to Megan in the 2014 Will.

Shannon appealed and for the first time argued that the Agreement created a secret trust. The Court of Appeal invited oral and written submissions on the issue, while Megan argued that it could not be considered because it had not been raised at first instance.

The Court of Appeal allowed the appeal. It held that the Agreement was not testamentary but created a secret trust that did not offend the repugnancy principle. The Court considered a number of issues described below.

3. Should the Court entertain the secret trust argument?

Megan argued that the argument raised a ‘new issue’, and a ‘new issue’ should not be considered on appeal. However, the Court applied a statement by the Supreme Court of Canada in R v Mian,[2] in which the Court said, ‘Issues that form the backdrop of appellate litigation will typically not be “new issues”’. In this case the problem arose because the parties chose to bifurcate the proceedings and confine the issue at first instance to the question whether the Agreement was testamentary in nature. However, Megan acknowledged that the Agreement contained trusts, and Shannon argued on appeal that the chambers judge erred ‘in failing to consider that a beneficiary designation need not be made by will’. As the Court of Appeal notes (para 17), ‘One cannot ask a legal question such as “Is this a testamentary instrument?” but then frustrate the correct reply by avoiding the legal analysis by which that reply can be given’. The Agreement was before the court and legal nature of the obligations it imposed was central to the question whether the Agreement was testamentary.

Moreover, the Court noted (with reference to Mian, para 43), ‘Even if secret trusts were a “new” issue, the Court may have a duty to raise it if an injustice would result’ (para 18). ‘Because the secret trust point decides the testamentary instrument question posed, it would be unjust to ignore it’ so long as the parties have opportunity to address it (ibid). Indeed, the Court went on to quote further from Mian (para 40)” ‘… courts also have the role of ensuring that justice is done’, and quoted from Lord Denning’s judgment in Jones v National Coal Board,[3] about the role of trial judges: ‘a judge is not a mere umpire to answer the question “How’s that?” His object above all is to find out the truth, and to do justice according to law. The Supreme Court in Mian went on to state that this is true also of appellate judges.

4. Is the Agreement a testamentary instrument?

As noted, the chambers judge held the Agreement to be testamentary because, quoting the well-know statement from Cock v Cooke,[4] ‘if the person executing [the instrument in question] intends that it shall not take effect until after his death, and is dependent upon his death for its vigour and effect, it is testamentary’. The Chambers judge held that because the Agreement disposed of Allan’s property on his death and was revocable, it was testamentary.

The Court of Appeal disagreed and quoted from Corlet v Isle of Man Bank Ltd[5] in which the Alberta Court of Appeal noted that the words ‘vigour and effect’ apply ‘not to the result to be obtained by, or to the performance of, the terms of the instrument, but to the instrument itself’. And it went on to state, ‘If the document is “consummate” to create a trust in praesenti, though it be performed after the death of the donor it is not dependent upon his death for its vigour and effect’. Thus in Gough the Court of Appeal held that the Agreement was not testamentary.

5. Secret Trust

The Court of Appeal noted that the issue of secret trusts was relevant to determining whether the Agreement was testamentary. It went on to note that a secret trust arises when a beneficiary under a will undertakes to hold property on trust for specified objects (those terms having been communicated to him and he having accepted them). The beneficiary is then bound to hold the property on trust for the agreed upon objects. Of course, in this case the beneficiary’s undertaking took the form of a written Agreement rather than an oral promise, as is often the case. But that makes no difference. Secret trusts are often explained on the basis that if the secret trustee fails to carry out her undertaking that constitutes fraud. The Court of Appeal quotes from several authorities in which fraud is said to be the basis of the secret trust. I am not convinced that this is the correct analysis, because fraud does not always arise. A better explanation may be that the constructive trust arises to perfect the testator’s intentions and to protect detrimental reliance. In passing, I note that an alternative argument that a secret trust is imposed to reverse unjust enrichment is not plausible, for in that case the property would have to be returned to the estate, since the remedy for unjust enrichment is restitution. But that would frustrate the testator’s intention to benefit the specified objects.[6]

In many respects, a secret trust can be compared to a situation that attracts the mutual wills doctrine, a point raised by Shannon (para 31). It also arises because of the parties’ Agreement and gives rise to a constructive trust. And the Agreement is not revoked when one party revokes his will.

The Court of Appeal went on to dismiss Megan’s argument that the Agreement was not a secret trust because it was not secret. It noted that secret trusts do not have to ‘secret’ and that their secrecy relates to their private character. Megan also argued that the Agreement did not satisfy the three certainties to form a trust and that it was constituted. The Court does not really address these arguments. I believe that they fail to take into account the nature of a secret trust. It arises because of the beneficiary’s undertaking and equity enforces it for that reason. It is not an express trust for which these requirements are necessary. It is true that once the testator dies and the beneficiary acquires the property there is then a trust which satisfies those requirements. But they do not have to be satisfied when the constructive trust arises.

6. Breach of procedural fairness and error on the principle of repugnancy

The Court then went on to hold to consider these issues, because the Chambers judge discussed, of his own motion, whether the Agreement was of dubious enforceability, and because he found that the Agreement breached the principle of repugnancy. On the first point the Court held that the judge’s remarks did not constitute the ratio of the case but agreed that Shannon was right to raise this point. On the second point, the Court took the view that creating a trust that modifies an absolute gift in a will ‘need not engage the principle of repugnancy. It agreed with Shannon’s argument that the principle of repugnancy did not arise in this case. The Agreement created a limited occupation interest and that was not repugnant to the fee simple interest that Megan would eventually enjoy. With respect, it seems to me that, by definition, if a secret trust is acknowledged to exist, then it clearly limits the interest that was given to the beneficiary under the will. If A agrees to hold property that the testator gives to her in the will for B, the principle of repugnancy is irrelevant and is not engaged. A’s interest is solely that of trustee. Similarly, if A agrees to hold Blackacre that the testator devises to her in the will for B for life, with remainder to A, again the principle of repugnancy is irrelevant and is not engaged.

[1] 2022 NSCA 25, 75 ETR 4th 1.

[2] 2014 SCC 54 at para 35.

[3] [1957] 2 All ER 155 (CA), p 159.

[4] (1866), LR 1 Pro & Div 241.

[5] [1937] 3 DLR 163 (Alta CA).

[6] For a discussion of these arguments, see Oosterhoff on Trusts, 9th ed by Albert H Oosterhoff, Robert Chambers, and Mitchell McInnes (Toronto: Thomson Reuters, 2019), §12.4.1(a). In fact the debate whether a secret trust is an express or a constructive trust has never been resolved by a court, but I believe that treating it as a constructive trust is the more principled view. See further Waters’ Law of Trusts in Canada, 5th ed (Toronto: Thomson Rogers, 2021), pp 314-16. 567-68.


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