Equitable doctrine back before Ontario court after more than a century

FOCUS ON WILLS, TRUSTS AND ESTATES - Doctrine of unconscionable procurement was used successfully in a recent case

Equitable doctrine back before Ontario court after more than a century
Kimberly Whaley

After more than a century, an equitable doctrine has made a reappearance in an Ontario court — and it was used successfully.

The doctrine of unconscionable procurement was argued, for the first time in 106 years, in a recent case before the Ontario Superior Court.

“I’ve been doing this a long time, but I’ve never seen that doctrine used before. In fact, I’d never heard of it before,” says Kimberly Whaley of Whaley Estate Litigation Partners. “I wanted to analyze it further because I think it could be used as an equitable doctrine in some of the elder abuse files that we’re seeing, including perhaps predatory marriages.”

The doctrine is used to set aside gifts and other inter vivos wealth transfers where the maker did not understand what they were doing, she explains.

It is predicated on the idea that it is unconscionable to allow a significant gift or other inter vivos wealth transfer to stand where the recipient was instrumental in causing it to occur and the maker did not truly appreciate what they were doing. The doctrine can also be referred to as the rule against large donations without proper understanding.

To trigger the doctrine, two standards must be met — that there was a significant benefit obtained by one person from another, and that the receiver had an “active involvement” in procuring or arranging the transfer. It doesn’t look at proof of incapacity or undue influence, two of the more common challenges in these cases.

In Gefen v. Gaertner, which had more than 10 actions and more than 60 pre-trial motions, the court had to determine whether an elderly mother intended to bestow significant benefits — approximately $25.26 million since 2011, almost half of her assets — on one of her three sons and his immediate family and whether she fully appreciated the effect, nature and consequence of what she had done. The woman’s other two sons brought the claim against their brother and his family who benefited from the transactions, using the argument of unconscionable procurement. The two standards to trigger the doctrine were met.

A geriatric psychiatrist testified that the elderly mother was capable of understanding and making these gifts, but the court stated that the opinion of the doctor “goes to the question of whether the gift was valid but does not determine the question of whether it is voidable under the doctrine of unconscionable procurement.” 

The court reviewed existing case law and the relevant sections of John Poysers book Capacity and Undue Influence in considering the case. The psychiatrist’s capacity assessment was accepted where he had been provided with a copy of the documentation relating to the monetary gifts, but where he did not have relevant documentation, the court stated his testimony “could not be relied upon to rebut the presumption of unconscionable procurement that arose under the circumstances where he was missing evidence."

Those transactions without documentation — totalling approximately $8 million — were set aside and declared void, as “the elderly mother did not have a full appreciation of the facts underlying the rationale of the transaction and therefore her intent was flawed,” Whaley states.

Although it was recently announced that the decision is being appealed, it is only on the mutual wills doctrine aspect of it — likely because the mother in the case can simply regift the money to her son that was declared void through use of the doctrine of unconscionable procurement, this time ensuring there is proper documentation.

“It appears on the face of it … the doctrine of unconscionable procurement has been revived — that’s really cool,” Whaley adds. “It’s a new tool to put in our tool box for challenging gifts.”

Poyser, a senior lawyer at WEL, says the lawyers in Gefen got a copy of his book on equitable doctrines, read it over and decided that, “dusty as it was, the doctrine of unconscionable procurement could be dusted off and used as the right tool to set aside those gifts and other transactions.”

The doctrine was popular “100-plus years ago” and was one of the main tools in the Courts of Equity before the fusion of law and equity in the 1870s in England, Poyser says, which was adopted soon after across Canada. It was used approximately 15 to 20 times in Canada around 1890-1910, he says, and it then appeared to drop from judicial vogue.

“It basically disappeared from view — until now,” he says. “And then, boom, it’s back on the legal landscape.”

Equity had about four or five fairness tools, and the Court of Common Law had black-and-white rules, but, after the courts were fused, the judges were tasked with applying both sets of rules. Poyser says the judges began to simplify things, and some of the subtler tools from the Court of Equity were dropped. The judges began to focus on the use of the capacity challenge when determining if a gift was valid, and, on the equity side, equitable undue influence was the tool with the broadest application. They were interested in a simplified toolkit with the most easily applied tools in it, and the more subtle and narrow equitable tools were set aside.

“If you put aside a hammer somewhere, a month later you don’t remember where it is. Certainly, ten years later, you don’t know where it is, and then, 50 years later, it’s really hard for someone to say, ‘There’s a hammer around here somewhere, let’s go find it and use it because it’s actually the right tool to beat this problem.’”

However, once embedded in common law, legal principles do not go bad — the test is if they still apply in modern times, Poyser notes.

In the Gefen case, counsel was able to trigger an equitable presumption using the doctrine of unconscionable procurement, but it couldn’t get to that same spot by using the common current tool, equitable undue influence.

Whaley says that, with predatory marriages, “we are sort of cursed by the common law precedent, which says a long time ago that to marry is but a simple task not requiring a high degree of intelligence, which is what our court has had to deal with when determining predatory marriages and whether or not a person has the requisite capacity to marry.

The difficulty, she explains, is that the case law came out at a time where there were no property rights for spouses — in particular, women didn’t have property rights — and now there’s a “very robust” Family Law Act that provides for married spouses both during a relationship and after death.

Similar to challenging a will, when challenging an alleged predatory marriage, it’s difficult to get evidence of capacity commensurate with the timing of the event.

“We’ve had to look to other remedies, like equitable remedies,” Whaley says, such as the doctrine of unconscionability, lack of independent legal advice, the civil tort of deceit or fraud.

“In this case, I think if you had a predatory marriage where through the marriage property was procured — in other words, the predatory spouse does all the work, does all the documents, gets all the legal advice if it’s necessary and the victim didn’t have the information or had misinformation on the signing of the documents — the same principle could apply, for sure. It’s another great equitable tool.”

In Gefen, a third party — not a party to the actual gift or the giftor — was granted status. Whaley says that’s interesting because, in some cases, especially in predatory marriages, what she’s trying to argue is that the remedy shouldn’t be limited to just the parties to the agreement or to the marriage.

“The nice thing about the revived doctrine is leave can be granted to a person not within the marriage,” Whaley says. “Other parties who are affected by it should have the ability or have standing to make or advance some of these claims.”

There is a slight downside to the doctrine, Whaley notes — even if it helps set aside a transaction, it would be ruled voidable as opposed to being void, which would mean it’s as if it never happened.

“Theres a distinction there,” Whaley says.

It’s still worth exploring the historic application of the doctrine, because since it hasn’t been used for so long, some lawyers may assume it’s the same as bringing a claim for incapacity or undue influence. It may be a similar equitable tool, but it’s not at all the same, Whaley says.

Poyser and Whaley both have the same response about potentially using the doctrine of unconscionable procurement in predatory marriage cases — why not? — although Poyser notes it’s never been used in that way before, but he adds that doesn’t mean it couldn’t be used.

“It would have a perfect application depending on the situation and the unique circumstances of the actual case,” Whaley says.

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