All About Estates

Don’t Make a Proprietary Estoppel You Don’t Intend to Keep

This article was co-authored with Ronald Neal, student-at-law.

In its recent decision of Cowper-Smith v. Morgan, 2017 SCC 61, the Supreme Court of Canada expanded the application of the doctrine of proprietary estoppel to find that a person can be bound to fulfill a promise she makes in respect of property that she does not have an interest in at the time the promise was made.


Facts

 

The appeal concerned the Cowper-Smiths of Victoria, British Columbia. Elizabeth and Arthur married and raised three children: Gloria, Max and Nathan. Shortly before Arthur’s death in 1992, he explained to his children that he and Elizabeth intended to divide their estate equally among them. After Arthur’s death, Elizabeth made similar statements.

 

In 2005, Elizabeth’s health declined and she could no longer care for herself. Although Gloria lived in Victoria, Max had been living and working in the UK for many years. Despite this distance, Gloria and Max came to an arrangement with respect to Elizabeth’s longterm care: Gloria promised Max that if he moved back into the family home to take care of Elizabeth, he would be able to buy Gloria’s share of the house after Elizabeth passed away. Max agreed and gave up a life across the pond in order to move back to Victoria to take care of Elizabeth.

 

Elizabeth ultimately passed away in 2010. Eight months after her death, it came to light that Elizabeth had made significant changes to her estate plan. In June 2001, Elizabeth (unduly influenced by Gloria, as the trial judge found), transferred not only title of her home but also all of her investments into joint ownership with Gloria. Elizabeth also signed a “Declaration of Trust” that made Gloria a bare trustee of the house and investments, with Elizabeth as the sole beneficiary. Gloria would be “entitled…absolutely” to both the property and the investments upon Elizabeth’s death.

 

In 2002, Elizabeth executed a new and final will naming all three children as joint and equal beneficiaries of her estate, with Gloria acting as executor – however, neither the trust declaration nor Gloria’s joint ownership of the property and investments was ever changed. As such, little remained in Elizabeth’s estate upon her death.

 

In April 2011, Gloria reneged on her promise to Max and decided to list the home for sale, despite the fact that Max was still living there. Litigation ensued, with Max and Nathan claiming on the basis of proprietary estoppel that Max was entitled to hold Gloria to her word and buy her promised one-third interest in the family home.

 

The brothers succeeded at trial, with the trial judge setting aside the transfer into joint tenancy and the Declaration of Trust on the basis of undue influence, and finding that proprietary estoppel applied to bind Gloria to her promise to Max. The British Columbia Court of Appeal did not agree and held that proprietary estoppel could not arise as Gloria did not own an interest in the family home at the time she made her promise to Max. Max and Nathan appealed to the Supreme Court of Canada.

 

Issue

 

The issue before the Supreme Court of Canada was whether the doctrine of proprietary estoppel operated to enforce Gloria’s promise to Max where she lacked an ownership interest in the family home at the time the promise was made.

 

Actual Ownership Is Not Required to Satisfy the Proprietary Estoppel Test, but Reliance Must be “Reasonable”

 

Writing for the majority of the Court, Chief Justice McLachlin confirmed that in order to establish proprietary estoppel, one must first establish an equity of the kind that proprietary estoppel protects. This requires three things:

 

(1) a representation or assurance is made on the basis of which the claimant expects to enjoy some right or benefit over property;

(2) the claimant relies on the expectation by doing or refraining from doing something, and this reliance is reasonable in light of the circumstances; and

(3) the claimant suffers a detriment as a result of this reasonable reliance, such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on their word.

 

In this case, there was no question that Gloria promised Max that if he moved back to Victoria to care for their mother, he would be able to acquire Gloria’s eventual interest in the house. There was also no dispute that Max suffered a detriment by uprooting his life in the UK to move back to Victoria to care for his dementing mother.

 

The Court found that proprietary estoppel may be established where a claimant has reasonably relied on an expectation that he will enjoy a right or benefit over property, even where the party responsible for that expectation does not own an interest in the property at the time of the claimant’s reliance.

 

Key to Max’s success was the Court’s finding that his reliance on Gloria’s promise was “reasonable”. Here, Gloria’s anticipated interest was not speculative, as both she and Max had understood for well over a decade that their mother’s estate, including the house, would be divided equally among the three siblings upon the mother’s death. Moreover, witnesses testified at trial to a conversation with Elizabeth and Arthur, just prior to Arthur’s death in 1992, in which both parents made clear that everything they owned would be divided equally among their three children once Elizabeth passed away. Even Gloria herself had made statements about the same expectation, before she decided that she was entitled to keep all of her mother’s assets for herself.

 

The Court therefore found that proprietary estoppel had been established, such that it would be unjust to permit Gloria to break her word.

 

Equity Arises at the Time of the Reliance, but Proprietary Estoppel as a Remedy is Not Engaged Until the Promisor Acquires the Interest in the Property  

 

The Court found that an equity arose in Max’s favour when he reasonably relied to his detriment on the expectation he would be able to acquire Gloria’s one-third interest in the house. That equity, however, could not have been protected by proprietary estoppel at that time because Gloria did not then own an interest in the house. Propriety estoppel would attach to Gloria’s interest when, and only when, it would be sufficient to satisfy the equity – i.e. as soon as she obtained her interest in the house from the estate.

 

In this case, Gloria had yet to receive any interest in the house as it remained in the residue of Elizabeth’s estate. Gloria, as executor, was therefore ordered to transfer one-third interests in the property to each beneficiary, including herself, before proprietary estoppel could attach to her share and she could satisfy the equity that had arisen in Max’s favour.

 

Timing of the Remedy

 

The Court found that requiring Gloria to sell her interest in the house to Max was the minimum necessary to satisfy the equity in Max’s favour. The question arose as to the price at which he was to buy it – the fair market value as of 2011, when the property was appraised during the estate administration, or the significantly higher current market value. The Court determined that Max was entitled to purchase the home at the 2011 fair market value, as it was the reasonable approximation of when Max expected to be able to purchase the property.

 

Lessons Learned

 

Cowper-Smith v. Morgan tells us that as long as the claimant’s reliance on the promise is reasonable, the courts will hold the promisor to her bargain, even if she does not have an interest in the land at the time the promise was made. However, there may be no remedy for the claimant until the promisor comes into possession of the interest. Query what would have occurred if Gloria never gained possession of her interest in the home. What relief, if any, would have been available for Max? Perhaps Max would have had a claim against the estate for unjust enrichment or quantum meruit to compensate him for the years he cared for his mother. Alternatively, perhaps he could have advanced a breach of contract claim against Gloria. Such scenarios may yet play out in the case law in the future.

About Rebecca Studin
Rebecca Studin was called to the Bar in 2009. Before joining de VRIES LITIGATION LLP, Rebecca practised estates and commercial litigation at a full-service international law firm in Toronto. Rebecca’s estates experience includes will interpretation applications, will rectification applications, solicitor’s negligence actions, and other estates and trusts matters. Rebecca obtained her law degree from Osgoode Hall Law School after earning her honours bachelor of arts degree from Glendon College, York University. Following her call to the Bar, Rebecca was selected as a Fox Scholar and spent a year training as a barrister at the Middle Temple, Inns of Court, in London, UK.

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