Does Independent Legal Advice Rebut Undue Influence?

A presumption of undue influence is established when the nature of the relationship between the parties demonstrates the potential for domination. To rebut the presumption, the donor must be shown to have entered into the transaction of his or her own “full, free and informed thought”. Factors to be considered in determining whether the donor acted of his or her own “full, free and informed thought” in entering the transaction include:

1. the lack of actual influence or opportunity to influence the donor;
2. the receipt of or opportunity to obtain independent legal advice;
3. the donor’s ability to resist any such influence; and
4. the donor’s knowledge and appreciation about what she was doing.

A central issue in Cowper-Smith v. Morgan, 2015 BCSC 1170, aff’d 2016 BCCA 200 was the adequacy of independent legal advice received. The BC Supreme Court and the BC Court of Appeal agreed that on the facts, the presumption of undue influence was not rebutted due to the inadequacy of the legal advice provided to an elderly widow in relation to gratuitous transfers that emptied her estate of all her significant assets.

Assessing the adequacy of the legal advice given

At paragraph 51 of the BC Court of Appeal’s reasons in Cowper-Smith v. Morgan, Smith J.A. identified the following considerations as relevant to the assessment of the legal advice provided to the donor (referred to as the “Coish” factors):

1. Whether the party benefiting from the transaction was also present at the time the advice was given and/or at the time the documents were executed;
2. Whether, though technically acting for the grantor, the lawyer was engaged by and took instructions from the person alleged to be exercising the influence;
3. In a situation where the proposed transaction involves the transfer of all or substantially all of a person’s assets, whether the lawyer was aware of that fact and discussed the financial implications with the grantor;
4. Whether the lawyer enquired as to whether the donor discussed the proposed transaction with other family members who might otherwise have benefited if the transaction did not take place; and
5. Whether the solicitor discussed other options whereby the donor could achieve his or her objective with less risk.

Smith J.A. also noted that assessing the adequacy of legal advice given is a fact-specific inquiry that does not reduce to any precise test. In some circumstances, it may require advice on only the nature and consequences of the transaction. However, where concerns or allegations of undue influence arise, generally there will be a need to give “informed advice” on the merits of the transaction (see para. 53 of the BC Court of Appeal reasons).

Transactions leading to allegation of undue influence

Elizabeth Cowper-Smith had three children – Max, Nathan, and Gloria – all adults at the time of Elizabeth’s death on August 5, 2010 at the age of 86. Elizabeth’s last will and testament distributed her estate equally among her three children and named Gloria as the executor. After Elizabeth’s death, dispute arose over two major assets: (1) Elizabeth’s Victoria residence, valued at $300,000 at the time it was transferred into the joint names of Elizabeth and Gloria; and (2) investments valued at $600,000. Both the residence and the investments were held in trust through a document titled a “Declaration of Trust” in which Elizabeth was the named beneficiary of the assets and Gloria the bare trustee; upon Elizabeth’s death, Gloria was entitled to both assets “absolutely”. The effect of these transactions was to render Elizabeth’s estate devoid of any significant assets, which resulted in the disinheritance of Max and Nathan.

Neither Max nor Nathan was aware of the Declaration of Trust until after Elizabeth’s death. The brothers learned of the transfer of the residence into the joint names of Elizabeth and Gloria before Elizabeth’s death. Max and Nathan expressed concerns about the transfer but were reassured by Gloria that the transfer was simply to provide her with greater ease in the management of their mother’s affairs and eventually her estate. Gloria reassured her brothers that each sibling would receive one-third of Elizabeth’s estate and that Max could buy her one-third share of the property. The latter promise was so contentious that it made its way to the Supreme Court of Canada (reasons indexed 2017 SCC 61), where the McLachlin C.J. (as she then was) determined that proprietary estoppel may prevent the inequity of unrequited detriment where a claimant has reasonably relied on an expectation that he will enjoy a right or benefit over property, even when the party responsible for that expectation does not own an interest in the property at the time of the claimant’s reliance. (In other words, ownership at the time the representation or assurance was relied on is not a requirement of a proprietary estoppel claim – see my discussion of the Supreme Court of Canada’s decision with respect to propriety estoppel here).

Despite Gloria’s repeated reassurances to her brothers that they would share equally, she took the position after their mother’s death that the assets were hers alone based on: (i) the land title transfer that gave her a right of survivorship to the property; and (ii) the Declaration of Trust that gave her the property and investments upon Elizabeth’s death absolutely.

Family conflict and relationships give rise to undue influence

Elizabeth had always a good relationship with all of her children, but in 2000 matters changed. A high level of conflict developed within the family. For example, at times Elizabeth would become upset with Nathan because she thought that he wanted to take the Victoria residence from her, particularly after visits with Gloria. Elizabeth spent a significant amount of time with Gloria, relying on her for advice and information and accepting her judgment on matters. In 2001, Elizabeth began to be anxious about her memory. In 2002, her concerns were becoming increasingly evident to her family. By 2007, she was diagnosed as suffering from Alzheimer’s.

Independent legal advice did not dispel undue influence

Elizabeth’s brother-in-law, David Cowper-Smith was a retired lawyer. On March 31, 2001, David contacted a lawyer, Ms. Iverson, to make an appointment for Elizabeth. David provided Ms. Iverson with the initial instructions. David did not like Nathan’s homosexuality and he made negative comments to Ms. Iverson about Nathan. On May 1, 2001, Ms. Iverson met with Elizabeth and Gloria, who remained for much of the meeting. At that meeting, disparaging and false information about Max was given to Ms. Iverson. On May 15, 2001, Gloria phoned Ms. Iverson and advised her that Elizabeth wanted both the property and the investments to be placed in trust with her. Elizabeth met with Ms. Iverson for the second time on May 30, 2001. Gloria was not at that meeting. Elizabeth told Ms. Iverson that she wanted “all to go to Gloria to do with as she feels proper” as she was “confident Gloria is kind enough that she would do the right thing”.

Ms. Iverson’s concerns about the transactions led her to refer Elizabeth to another lawyer, Mr. Easdon, in order to obtain independent legal advice. She forwarded the documents she had prepared to Mr. Easdon and asked him to review them with Elizabeth. His notes of the June 22, 2001 meeting were sparse. At that meeting, Elizabeth signed the property transfer and Declaration of Trust.

In January 2002 Ms. Iverson prepared a new will for Elizabeth, which appointed Gloria as her executor and divided Elizabeth’s estate equally among her three children. Ms. Iverson did not discuss which assets were to pass through the estate and which would not, and there was no discussion about Elizabeth’s intention with respect to assets that had been transferred into joint names.

Trial decision: Presumption of undue influence and resulting trust not rebutted

After comprehensively reviewing the nature of the relationship between Gloria and Elizabeth, the jurisprudence and the Court’s reasoning in Geffen v. Goodman Estate, [1991] 2 S.C.R. 353, the trial judge found that there was the potential for domination inherent in their relationship that gave rise to a rebuttable presumption of undue influence. The judge then turned to whether Gloria had rebutted the presumption. She noted that the test requires an “examination of the nature of the transaction[s]”, a determination of whether the donor entered into those transactions as a result of her “own ‘full, free and informed thought’”, and a “meticulous examination of the facts” (Geffen at 378-379, 381).

The judge concluded that based on all of the evidence the presumption of undue influence had not been rebutted. Actual undue influence had been exerted over Elizabeth by both Gloria and David. Elizabeth had been unable to resist the strong influence exerted by Gloria, she did not appreciate the true nature and effect of the documents she executed in 2001, and the independent legal advice she received was insufficient to rebut the presumption of undue influence. The June 22, 2001 documents did not reflect Elizabeth’s true intentions. Instead, Elizabeth’s intentions were reflected in her January 2002 will (i.e., Gloria was to hold the assets in a resulting trust for Elizabeth’s estate, which was to be divided equally among the three children). Given the gratuitous nature of the transactions between Elizabeth and Gloria, the judge’s finding that Gloria had exerted undue influence over Elizabeth, and relying on Pecore v. Pecore, 2007 SCC 17, the judge found that Gloria had also failed to rebut the presumption of resulting trust. As such, the disputed assets belonged to Elizabeth’s estate and were to be distributed in accordance with her will.

BC appellate court agrees that undue influence not dispelled by ILA in this case  

Gloria appealed, contending that the trial judge erred in finding that the legal advice received by Elizabeth before executing the land transfer for the property and the Declaration of Trust was insufficient to rebut the presumption. Applying the “Coish” factors, Smith J.A. held that there was evidence to support the finding that the presumption of undue influence was not rebutted by the legal advice obtained by Elizabeth either from Ms. Iverson, Mr. Easdon, or both:

[64]         In my view the evidence accepted by the judge supports her findings that Gloria and David unduly influenced Elizabeth’s decision to sign the June 22, 2001 documents, which influence was not rebutted by the legal advice Elizabeth received from Ms. Iverson, Mr. Easdon, or both. The judge found that both David and Gloria had unduly influenced Elizabeth to believe the allegation that Max and Nathan were trying to take the Property from their mother. Ms. Iverson also relied on information from David firstly, and Gloria secondarily, with respect to the family background and dynamics, much of which the judge found to be “patently untrue”. Further, Mr. Easdon was in communication with Gloria during his meeting with Elizabeth, although the contents of that communication are unclear. In short, both lawyers appeared to take their initial instructions at least partially from David and/or Gloria without questioning the information each of them provided.

[65]         Moreover, neither lawyer reviewed with Elizabeth: (i) any concerns she may have had in giving an equal share of her estate to Max or Nathan; (ii) her reasons for taking such drastic steps that would effectively disinherit her sons (surprisingly neither lawyer recorded any reasons given by Elizabeth for making this decision); and, most significantly, (iii) the merits or wisdom of her doing so when other options might have better alleviated the risk of future litigation if she was intent to give more of her estate to Gloria. It appears neither lawyer gave Elizabeth the type of “informed advice” that is required when there is a concern about undue influence, namely that Elizabeth should have carefully considered proceeding with this course of action, which in the absence of any rationale reasons, might be found after her death not to be just and fair to the respondents.

In the result, the BC Court of Appeal unanimously upheld the trial judge’s conclusions with respect to undue influence and resulting trust.

Take home point: Independent legal advice does not always rebut undue influence

Independent legal advice may not always be sufficient to rebut the presumption of undue influence. Assessing the adequacy of legal advice given is a fact-specific inquiry. In some circumstances, it may require advice on only the nature and consequences of the transaction. However, where concerns or allegations of undue influence arise, there will be a need to give “informed advice” on the merits of the transaction.