Geffen v. Goodman Estate

Geffen v. Goodman Estate
Collection
Supreme Court Judgments
Date
1991-06-27
Report
[1991] 2 SCR 353
Case number
21613
Judges
Wilson, Bertha; La Forest, Gérard V.; Sopinka, John; Cory, Peter deCarteret; McLachlin, Beverley
On appeal from
Alberta
Subjects
Civil procedure
Trust
Notes
SCC Case Information: 21613
Decision Content
Geffen v. Goodman Estate, [1991] 2 S.C.R. 353
Ted M. Geffen, Sam E. Geffen and William A. Geffen Appellants
v.
Stacy Randall Goodman, Executor of the Estate
of Tzina Burnette Goodman (otherwise known as
Zinna Burnette Goodman), and the said Stacy
Randall Goodman Respondents
Indexed as: Geffen v. Goodman Estate
File No.: 21613.
1990: October 10; 1991: June 27.
Present: Wilson, La Forest, Sopinka, Cory and McLachlin JJ.
on appeal from the court of appeal for alberta
Trusts and trustees ‑‑ Undue influence ‑‑ Woman placing property in trust ‑‑ Step to create trust initiated by settlor's brothers ‑‑ Settlor suffering mental problem and at times dependant on brothers ‑‑ Trust directing how property to be disposed of on settlor's death ‑‑ Settlor bequeathing property other than as provided by trust ‑‑ Whether presumption of undue influence applicable.
Costs ‑‑ Trustees ‑‑ Action started to defend against allegation of fraud on part of trustees ‑‑ Action successful ‑‑ Whether trustees entitled to costs out of the trust property.
The deceased, a woman with a history of mental problems, inherited the family home from her mother as well as a life interest in the residue of her mother's estate which was to pass on her death to her children. Her brothers were given cash bequests. An earlier will had given the deceased a life estate and directed that on the mother's death the estate was to be divided among all the mother's grandchildren. The brothers sought legal advice as to whether the later will was valid and arranged a meeting between the lawyer, their sister and themselves to canvass the options. One of their concerns was that their sister would sell the house and they would ultimately be financially responsible for her care. The meeting disbanded with no agreement being reached and the sister from then on had only casual contact with her brothers. She continued to seek the lawyer's advice, however, and a trust deed was executed. The house was conveyed to trustees on terms that the deceased retained a life interest in it and that on her request the trustees would consider a sale of the property so long as the sale was in her best interests. The trust deed further provided that upon her death the trust property would be divided equally among the surviving grandchildren of the deceased's mother. The deceased's will left her entire estate to her own children.
This appeal concerns the validity of the trust agreement. It was found to be valid at trial but invalid on appeal because of the operation of the presumption of undue influence. Costs were denied. At issue here was (1) whether the presumption of undue influence was properly applied by the Court of Appeal; and, (2) whether the trustees were entitled to costs out of the trust property.
Held: The appeal should be allowed.
Per Wilson and Cory JJ.: Neither the result nor process focused approach to the doctrine of undue influence fully captures its true purport because the doctrine applies to such a wide variety of transactions from pure gifts to classic contracts. In the case of gifts, the process leading up to the gifting should be subject to judicial scrutiny because there is something completely repugnant about the judicial enforcement of coerced or fraudulently induced generosity. With respect to contractual relations, however, it has long been the view of the courts that the sanctity of bargains should be protected unless they are patently unfair. Something more than a tainted process, e.g., detrimental reliance, must be shown.
"Influence" refers to the ability of one person to dominate the will of another, whether through manipulation, coercion, or outright but subtle abuse of power. To dominate the will of another simply means to exercise a persuasive influence over him or her. The ability to exercise such influence may arise from a relationship of trust or confidence but it may arise from other relationships as well. There is nothing per se reprehensible about persons in a relationship of trust or confidence exerting influence, even undue influence, over their beneficiaries. It depends on their motivation and the objective they seek to achieve thereby.
The requirement of "manifest disadvantage", while perhaps appropriate in a purely commercial setting, limits the doctrine of undue influence too much. In the case of gifts or bequests, it makes no sense to insist that the donor or testator prove that their generosity placed them at a disadvantage.
The inquiry should begin with an examination of the relationship between the parties. The first question to be addressed in all cases is whether the potential for domination inheres in the nature of the relationship itself. This test embraces those relationships which equity has already recognized as giving rise to the presumption as well as other relationships of dependency which defy easy categorization.
Given the requisite type of relationship to support the presumption, the inquiry must next involve an examination of the nature of the transaction. When dealing with commercial transactions a plaintiff must show in addition to the required relationship between the parties that the contract worked unfairness either in the sense that he or she was unduly disadvantaged by it or that the defendant was unduly benefited by it. This added requirement is justified when dealing with commercial transactions because a court of equity, even while tempering the harshness of the common law, must accord some degree of deference to the principle of freedom of contract and the inviolability of bargains. Moreover, it can be assumed in the vast majority of commercial transactions that parties act in pursuance of their own self‑interest. The mere fact, therefore, that the plaintiff seems to be giving more than he is getting is insufficient to trigger the presumption.
By way of contrast, in situations where consideration is not an issue, eg., gifts and bequests, it is quite inappropriate to put a plaintiff to the proof of undue disadvantage or benefit in the result. The court is concerned that such acts of beneficence not be tainted and it is enough that the presence of a dominant relationship be established.
Once the plaintiff has established that the circumstances triggering the presumption, the onus moves to the defendant to rebut it.
A review of the circumstances between the deceased and her brothers at the relevant time disclosed a potential for the brothers to exercise a persuasive influence on their sister. The trust instrument was more akin to a gift or bequest than a commercial transaction and the existence of the required relationship without more was sufficient to trigger the presumption. It therefore had to be determined whether the presumption had been rebutted. A meticulous examination of the facts was necessary to make that determination.
The solicitor/client privilege belongs to the client alone. Confidential communications between them can only be divulged in certain circumscribed situations. The client may choose to disclose the contents of those communications and thereby waive the privilege or may authorize the solicitor to reveal them. The courts have assumed the role of ensuring that without the client's express consent a solicitor may not testify. An exception has developed, however, to permit a solicitor to give evidence in wills cases.
The considerations which support the admissibility of communications between solicitor and client in the wills context apply with equal force here. The general policy which supports privileging such communications is not violated. The interests of the now deceased client are furthered in that the purpose of allowing the evidence to be admitted is to ascertain her true intentions. And the principle of extending the privilege to the heirs or successors in title of the deceased is promoted by focusing the inquiry on who those heirs or successors properly are.
Appellate review should be limited to those instances where a manifest error has been made. Here there was no indication either from the reasons for judgment or from the record that the trial judge misapprehended the evidence or otherwise erred in the process of making his findings of fact. Accordingly, the Court of Appeal erred in overturning such findings.
Appellants successfully rebutted the presumption of undue influence given that there was very little contact between the brothers and the deceased at the relevant time, that the deceased was not in fact relying on her brothers to advise her, and that the prime motivation of the brothers was to advance their sister's welfare. It is also relevant that the deceased received some independent legal advice and that the agreement ultimately concluded was in accord with her wishes. In other situations the fact that the brothers took a leading role in the initial meeting with the lawyer might militate against a finding of independent advice.
The solicitor's advice was flawed in that he unfortunately did not inquire into the deceased's financial situation in any depth and did not ensure that she fully understood the agreement. The potentially adverse consequences of not having an asset which she could liquidate if necessary were offset by two important considerations. First, it was her express, and perhaps her primary, objective to put the sale of the house beyond her reach so that she could be assured of always having a home of her own. Second, it was also her wish that all her mother's grandchildren share equally in the estate. Given that the terms of the trust instrument reflected her wishes in those two fundamental respects, any imperfection in the legal advice obtained was not fatal to the appellant's case.
Trustees are entitled to be indemnified for all costs, including legal costs reasonably incurred. The trustees in this action acted reasonably. They were initially accused of having perpetrated a fraud against the deceased ‑‑ an allegation that did not win the approval of any of the courts that have heard the matter ‑‑ and were obliged to defend the action. The co‑existing interest of trustee and beneficiary is not a valid basis for denying costs. The fact that the brothers were acting in the interests of their children, nephews and nieces did not cast doubt upon the propriety of their actions.
Respondents had a tenable case. It was appropriate that they simply bear their own costs and not have to bear the appellants' costs as well.
Per La Forest and McLachlin JJ.: A presumption of undue influence will arise only when the parties are in a relationship of "influence", where one person is in a position to dominate the will of another. The requirement of manifest disadvantage does not make sense in the context of this case, where the challenged transaction concerns a gift. A gift is by its nature inherently disadvantageous, at least in a material sense, so the requirement is superfluous. It becomes unnecessary to discuss the issue of manifest disadvantage further on the facts of this case.
A showing of undue disadvantage or benefit may be appropriate before a presumption of undue influence will be applied to a commercial transaction. Since the effect of the presumption is to shift the burden of proof to the defendant, it may not be unreasonable to require some showing of undue disadvantage or benefit in a commercial transaction before the presumption will arise. It is a substantially different question, however, whether undue influence itself must always involve undue disadvantage or benefit. It was unnecessary here to choose between opposing positions as to whether manifest disadvantage should be a required element of undue influence in a commercial transaction.
The relevant question here was whether the relationship of Mrs. Goodman to her brothers was such that they had the ability to dominate her. Mrs. Goodman's relationship with her brothers was not a close one and the trial judge found that it was such that the three brothers had no influence on their sister at all. She did not rely upon her brothers for assistance even during the troubled time following her mother's death and there could accordingly be no presumption of undue influence at that time. The facts were even stronger as they related to the subsequent period. The trust agreement was not entered into until several months after her mother's death and then only after numerous independent consultations with her solicitor and periods of independent thought by her when contact between herself and her three brothers no longer existed.
Per Sopinka J.: The trial judge made a positive finding of fact, supported by the evidence, that there was no undue influence exerted in this case. The operation of any presumption is therefore immaterial as it is not necessary to decide whether something already found not to exist should be presumed.
Text writers and courts are divided on whether presumptions affect only the evidential burden or both the evidential burden and legal burden. An evidential burden casts on the burdened party the obligation of going forward with some evidence while the legal burden is applied against the burdened party if the evidence, after being weighed, fails to persuade. Given the positive finding of fact made by the trial judge it is not necessary to resolve which view of presumptions is correct, as on either view, the presumption of undue influence played no role in this case.
Cases Cited
By Wilson J.
Considered: National Westminster Bank Plc. v. Morgan, [1985] 1 A.C. 686; Allcard v. Skinner (1887), 36 Ch. D. 145; Lloyds Bank Ltd. v. Bundy, [1974] 3 All E.R. 757; disapproved: Goldsworthy v. Brickell, [1987] 2 W.L.R. 133; referred to: Ellis v. Barker (1871), 7 Ch. App. 104; Wright v. Carter, [1903] 1 Ch. 27; Mitchell v. Homfray (1881), 8 Q.B.D. 587; Lancashire Loans, Ltd. v. Black, [1934] 1 K.B. 380; Hylton v. Hylton (1754), 2 Ves. Sen. 547, 28 E.R. 349; In re Lloyds Bank, Ltd., [1931] 1 Ch. 289; Zamet v. Hyman, [1961] 3 All E.R. 933; Midland Bank plc v. Shephard, [1988] 3 All E.R. 17; Simpson v. Simpson, [1989] Fam. L. 20; Bank of Credit & Commerce International S.A. v. Aboody, [1989] 2 W.L.R. 759; Re Brocklehurst, [1978] 1 All E.R. 767; Huguenin v. Baseley (1807), 14 Ves. Jun. 273, 33 E.R. 526; Csada v. Csada, [1985] 2 W.W.R. 265; Johnson v. Buttress (1936), 56 C.L.R. 113; Greenough v. Gaskell (1833), 1 My. & K. 98, 39 E.R. 618; Solosky v. The Queen, [1980] 1 S.C.R. 821; Bell v. Smith, [1968] S.C.R. 664; Bullivant v. Attorney-General for Victoria, [1901] A.C. 196; Stewart v. Walker (1903), 6 O.L.R. 495; Langworthy v. McVicar (1913), 25 O.W.R. 297; Re Ott, [1972] 2 O.R. 5; Ares v. Venner, [1970] S.C.R. 608; R. v. Khan, [1990] 2 S.C.R. 531; Director of Public Prosecutions v. Boardman, [1975] A.C. 421; Lensen v. Lensen, [1987] 2 S.C.R. 672; Harper v. The Queen, [1982] 1 S.C.R. 2; Schreiber Brothers Ltd. v. Currie Products Ltd., [1980] 2 S.C.R. 78; Métivier v. Cadorette, [1977] 1 S.C.R. 371; Re Dingman (1915), 35 O.L.R. 51; Re Dallaway, [1982] 3 All E.R. 118.
By La Forest J.
Referred to: National Westminster Bank Plc. v. Morgan, [1985] A.C. 686.
By Sopinka J.
Referred to: S v. S, [1972] A.C. 24; Circle Film Enterprises Inc. v. Canadian Broadcasting Corp., [1959] S.C.R. 602; Powell v. Cockburn, [1977] 2 S.C.R. 218; Robins v. National Trust Co., [1927] 2 D.L.R. 97; Allcard v. Skinner (1887), 36 Ch. D. 145; Blyth v. Blyth, [1966] A.C. 643; Hornal v. Neuberger Products Ltd., [1957] 1 Q.B. 247; New York Life Insurance Co. v. Schlitt, [1945] S.C.R. 289.
Authors Cited
Andrews, Neil. "Undue Influence and Contracts of Loan", [1985] Cambridge L.J. 192.
"Bank securities allegedly obtained by undue influence", [1985] J. Bus. Law 191.
15 C.E.D. (West. 3rd) Title 67, Fraud and Misrepresentation.
Cope, Malcolm. Duress, Undue Influence and Unconscientious Bargains. North Ryde, N.S.W.: Law Book Co., 1985.
Cope, Malcolm. "Undue Influence and Alleged Manifestly Disadvantageous Transactions: National Westminster Bank plc v. Morgan" (1986), 60 A.L.J. 87.
Dale, Brenda. "Undue Influence and Manifest Disadvantage" (1988), 52 Conv. & Prop. Law. 441.
Dale, Brenda. "Undue Influence: Recent Developments" (1989), 53 Conv. & Prop. Law. 63.
Dixon, M. J. "The Limits of Undue Influence Explained", [1989] Cambridge L.J. 359.
Halsbury's Laws of England, vol. 18, 4th ed. London: Butterworths, 1977.
Ogilvie, M. H. "Undue Influence in the House of Lords" (1986), 11 Can. Bus. L.J. 503.
Phipson, Sidney Lovell. Phipson on Evidence, 13th ed. By John Huxley Buzzard, Richard May and M. N. Howard. London: Sweet & Maxwell, 1982.
Reed, Charles P. "Comment" (1984), 18 Law Teacher 132.
Reed, Charles P. "Commentary" (1985), 19 Law Teacher 106.
Snell, Edmund Henry Turner. Snell's Principles of Equity, 28th ed. By P. V. Baker and P. St. J. Langan. London: Sweet & Maxwell, 1982.
Sopinka, John and Sidney N. Lederman. The Law of Evidence in Civil Cases. Toronto: Butterworths, 1974.
Taylor, R. D. "Commentary" (1985), 19 Law Teacher 105.
Tiplady, David. "The Limits of Undue Influence" (1985), 48 Mod. L. Rev. 579.
Wigmore, John Henry. Wigmore on Evidence, vol. 8, 3rd ed. Boston: Little, Brown & Co., 1940.
APPEAL from a judgment of the Alberta Court of Appeal (1989), 68 Alta. L.R. (2d) 289, [1989] 6 W.W.R. 625, allowing an appeal from judgment of Hutchinson J. (1987), 52 Alta. L.R. (2d) 210, [1987] 4 W.W.R. 730. Appeal allowed.
J. D. Bruce McDonald, for the appellants.
R. H. Barron, Q.C., and P. A. Ferner, Q.C., for the respondents.
//Wilson J.//
The judgment of Wilson and Cory JJ. was delivered by
Wilson J. -- The respondent, Stacy Randall Goodman, as executor of his mother's estate and on his own behalf, commenced an action claiming that he and his siblings were entitled to certain property left to his mother, Tzina Goodman, by his grandmother, Annie Sanofsky. The appellants, Sam, William and Ted Geffen are the brothers and nephew of Stacy's mother. They are the trustees of a certain trust agreement in which Stacy's mother is named as the settlor and under which the trust property is to be distributed amongst all of Annie Sanofsky's grandchildren. This appeal concerns the validity of the trust agreement.
1. The Facts
Annie Sanofsky had four children, Sam, Ted, Jack and Tzina. Sam and Ted Geffen are both successful businessmen currently living in the United States. Their brother Jack is an insurance underwriter who lives in Edmonton. Their sister Tzina, (Mrs. Goodman) now deceased, had a less than trouble‑free life. She first came under the care of a psychiatrist while a teenager. Psychiatric intervention became a common feature of her existence. She was hospitalized many times over the years and was eventually diagnosed as suffering from bipolar affective disorder, formerly known as manic depressive disorder, and immature personality. Tzina's illness caused strain in her family relationships. Her disorder tended to drive people away from her. Although she married and had children she did not have much contact with her children after her separation from her husband. Her contact with them was purely casual.
In 1968, with the help of her son Jack, Annie Sanofsky executed a will providing for a life estate to her daughter Tzina and directing that on Tzina's death her estate should be distributed to all of her (Annie's) grandchildren. At the time of their mother's death the four children were surprised to learn that a new will had been executed in 1975 which superseded the 1968 will. Under the new will Annie Sanofsky left the property which had been her home outright to her daughter Tzina, provided bequests of $1000 each to her sons, and directed that the residue of her estate be held in trust for Tzina during her lifetime and pass on Tzina's death to her (Tzina's) children.
The three Geffen brothers, not surprisingly, were unhappy with the way in which their mother had disposed of her estate. They thought it unfair that their children had been cut out of the will. Their sister agreed. They were especially concerned, however, with their mother's decision to bequeath her home in Calgary outright to their sister. Tzina had a history of mental illness and they feared that her disability would interfere with her capacity to act responsibly in relation to the property she had inherited. They were particularly concerned that Tzina might divest herself of the assets she needed for her own support. If this happened they might be called upon to contribute to her support. They, along with their sister, decided to seek legal advice as to whether or not the second will was valid.
They retained the services of Mr. Pearce, a Calgary lawyer, and explained the situation to him. Jack Geffen acted as spokesman for the family. The options open to Tzina were canvassed. It was suggested that the house be transferred by Tzina to her brothers' children. A disagreement ensued between Tzina and her brother Jack. She did not like the idea of transferring title to the house immediately, leaving herself with only a life interest in it. Mr. Pearce suggested that she take some time to think things over. The meeting disbanded, the brothers paid for the consultation and all concerned returned to their respective homes.
Mrs. Goodman thereafter had only casual contact with her brothers but continued to seek the advice of counsel and communicated with Mr. Pearce on several occasions. As a result of these consultations it was suggested to Mrs. Goodman that the Calgary residence be put into a trust for her for life with her brothers as trustees but that she would retain the right to dispose of the property by will. This suggestion was vehemently rejected by Jack but accepted by Ted and Sam Geffen. Jack indicated that he would have nothing further to do with the trust and it was agreed that Ted's son William would replace him as a trustee.
Mr. Pearce then went ahead and prepared the trust deed. The trust property was conveyed to the trustees on terms that Mrs. Goodman retained a life interest in the Calgary residence and that on her request the trustees would consider a sale of the property so long as the sale was in Mrs. Goodman's best interests. The trust deed further provided that upon Mrs. Goodman's death the trust property would be divided equally among her surviving children, nephews and nieces, i.e., all Annie Sanofsky's grandchildren.
After the deed was executed Mrs. Goodman was apparently not too sure of the effect of what she had done. She attempted twice to put the property on the market. Her attempts were thwarted by Mr. Pearce. Mrs. Goodman died in May of 1984, leaving a last will and testament in which she left her entire estate to her children.
2. The Courts Below
Alberta Queen's Bench (1987), 52 Alta. L.R. (2d) 210 (per Hutchinson J.)
At trial the plaintiffs submitted that the trust agreement was entered into by Mrs. Goodman as a result of the undue influence of the defendants and Jack Geffen. Hutchinson J. first dealt with the admissibility of Mr. Pearce's evidence and in particular the argument that it should not have been received since it was privileged. Having concluded that Mr. Pearce's testimony was properly admitted the trial judge turned to its import. He said at pp. 220‑21:
I accept Mr. Pearce's testimony that during his initial dealings with Mrs. Goodman during the period of his initial interview up to at least 7th February 1980 Mrs. Goodman fully understood the nature and effect of the arrangements evidenced by the trust agreement. I am satisfied that Mrs. Goodman was the initiator of the instructions to Mr. Pearce, following periods of independent thought by her, to draw the trust agreement in accordance with his suggestion that this would be an alternate method of holding the Calgary residential property so as to ensure that she had a place to live during her lifetime and that she intended to include all of the ultimate beneficiaries of the trust named therein, including her own children.
Based on the testimony of the solicitor as well as the other witnesses, Hutchinson J. found on the evidence that the Geffen brothers did not in fact influence their sister into signing the trust agreement. In doing so he placed particular emphasis on the fact that the agreement in substance reflected the true wishes of the settlor. Alternatively, Hutchinson J. found that any presumption of undue influence was rebutted by the fact that Mrs. Goodman consulted Mr. Pearce independently and after her brothers had left Calgary. The trial judge concluded at pp. 228‑29:
If anything, the evidence which I have heard and which was read in by counsel for the plaintiff persuades me that the relationship between Mrs. Goodman and her three brothers was such that they had no influence on their sister at all . . . . Apart from the brief interval of time when they were together as a result of their mother's last illness and death, there was hardly any contact between the three brothers and Mrs. Goodman. She did not rely on them for assistance and they were only concerned that their mother's estate be available for her maintenance without the need on their part to assume any personal responsibility for their sister's care.
Alberta Court of Appeal (1989), 68 Alta. L.R. (2d) 289
Stevenson J.A. (Stratton J.A. concurring)
On appeal the respondents submitted that the trial judge had failed to recognize and address the presumption of undue influence. Stevenson J.A. agreed. He noted the deceased's history of mental health problems and the brothers' testimony that the deceased reposed trust and confidence in them. Stevenson J.A. added that when her older brothers took a leading role in obtaining legal advice, one of the objects of which was to secure benefits for their own children, a court of equity would intervene to the extent of presuming influence.
Stevenson J.A. then turned to the question whether the transaction was so disadvantageous to Mrs. Goodman as to indicate that she was or could have been victimized. After expressing some uneasiness with the propriety of this test, Stevenson J.A. concluded that the trust agreement was not simply unwise, it was "manifest folly". It was his opinion that for Mrs. Goodman to reduce her interest in the Calgary property which had been bequeathed to her outright by her mother to a mere life interest and place the remainder beyond her reach was clearly disadvantageous. He said at p. 297:
Assuming that she should have been protected from the consequences of an improvident business transaction entered into when she was behaving irrationally, that protection could easily have been provided by far less drastic means. Protection against that possibility did not suggest, let alone reasonably require, that she convert a fee simple estate to a mere life interest. Even the most tightly drawn spendthrift trust would not have put the remainder beyond the control or disposition of the trustees for the advantage of the beneficiary.
It was accordingly his view that no reasonable person in the position of the settlor would have entered into this arrangement on the basis that it was reasonably necessary in order to protect herself or that it was unfair not to do so.
Stevenson J.A. then went on to consider whether the presumption of undue influence had been rebutted on the evidence. It was his opinion that Mrs. Goodman did not receive adequate independent advice. He expressed the view that an independent advisor must be in a position to satisfy himself that a proposed gift is right and proper. The evidence did not disclose that Mr. Pearce ever purported to satisfy himself as to this. Indeed, he could not have done so since he did not know the value of the property or the circumstances of Mrs. Goodman or her brothers.
Hetherington J.A. (dissenting)
Hetherington J.A. noted the settlor's illness but concluded that her competence to enter into the trust agreement was not and never had been in issue. She also noted that one had to assume that Mrs. Goodman was neither more nor less open to influence than other people.
Hetherington J.A. held, citing National Westminster Bank Plc. v. Morgan, [1985] 1 A.C. 686 (H.L.), as authority, that no consideration of undue influence was necessary unless the transaction was so disadvantageous to the settlor as to suggest that she was or could have been victimized. It was her view that Mrs. Goodman's entry into the trust agreement could be explained on two grounds. First, it served the purpose of protecting Mrs. Goodman in the event her illness led her to behave irrationally. Second, it was her wish that her nephews and nieces share equally with her own children in their grandmother's estate. While acknowledging that the trust agreement may have been somewhat unwise having regard to her own financial circumstances, Hetherington J.A. was of the view that it was not so disadvantageous to the settlor that the court needed to consider whether or not it was the product of undue influence. However, in case she was in error in this, Hetherington J.A. went on to consider the applicability of the doctrine of undue influence, actual or presumed.
Hetherington J.A. did not believe that the relationship of brother and sister gave rise automatically to a presumption of undue influence. Nor did it follow that simply because the settlor reposed trust and confidence in her brothers they were in a position to exercise such influence over her. On the question whether there had been actual undue influence Hetherington J.A. concluded at p. 322:
In these circumstances the trial judge found that Mrs. Goodman's brothers did not influence her to sign the trust agreement. Can it be said that he made any palpable and overriding error in his assessment of the facts? In my view it cannot. There is certainly evidence to support his finding. Indeed, I do not know how he could have come to any other conclusion. I would, therefore, not disturb his finding that the trust agrement in question in this case did not result from actual undue influence.
Alberta Court of Appeal (1990), 72 Alta. L.R. (2d) 414 (Calgary No. 19362, February 9, 1990)
Following release of the reasons for judgment, the unsuccessful respondents sought an order that they receive costs instead of having to pay costs as provided in the original judgment. Stevenson and Stratton JJ.A. held that the conduct of the brothers in securing the transfer from the settlor had been found wanting and that they were defending an interest which they themselves had been instrumental in creating for the benefit of persons nominated by them. Since the litigation had been for their own benefit the request for costs was denied.
Hetherington J.A. dissented on this point as well. In her view the trustees acted reasonably and properly in defending the action and in responding to the appeal. It was never established that the brothers had acted improperly in relation to their sister. They were obliged to defend the interests of the beneficiaries and to respond to the serious allegations contained in the statement of claim. She would have allowed the trustees their costs out of the trust property.
3. The Issues
1.Was the presumption of undue influence properly applied by the Court of Appeal?
2.Are the trustees entitled to costs out of the trust property?
4. Analysis
The Presumption of Undue Influence
This appeal raises important questions concerning the doctrine of undue influence and, in particular, the application of the presumption of undue influence. It was over this issue that the trial judge and the Court of Appeal parted company. As well, the scope of the doctrine of undue influence and its evidentiary companion, the presumption of undue influence, has recently been addressed by the House of Lords in Morgan. Not surprisingly, the parties to this appeal devoted the bulk of their argument both on the leave application and the appeal itself to the question whether or not we should follow the House of Lords in Canada. Indeed, the primary ground of appeal advanced by the appellant was whether there could be a presumption of undue influence where the trust agreement was not found by the trial judge to be "manifestly disadvantageous" to the party seeking to have it set aside. The respondent's response was that the doctrine of "manifest disadvantage" applies only to commercial transactions and does not apply to gifts. The Court has thus been called upon not only to resolve the dispute between the parties to this appeal but to clarify the law and provide some guidance to our courts in this area.
The appellants submit that the Court of Appeal erred in two ways. First, they say that the facts did not give rise to a presumption of undue influence because the trust agreement did not work a "manifest disadvantage" to the settlor. Second, they say that even if this were an appropriate case for the application of the presumption, it was rebutted when the trial judge found as a fact that no actual undue influence was exercised on Mrs. Goodman to enter into the trust agreement. Accordingly, they say that the Court of Appeal committed an error of law when they overturned this finding of fact.
The respondents argue that the Court of Appeal was correct in finding that the presumption of undue influence applied in this case. They say that the doctrine of "manifest disadvantage" has no relevance in situations involving gifts as opposed to commercial transactions but that, if it does, the bequest of the Calgary home by Mrs. Goodman to her children, nephews and nieces was manifestly disadvantageous to her. The respondents contend that the evidence does not establish that the presumption was rebutted.
The equitable doctrine of undue influence was developed, as was pointed out by Lindley L.J. in Allcard v. Skinner (1887), 36 Ch. D. 145, not to save people from the consequences of their own folly but to save them from being victimized by other people (at pp. 182-83). In the context of gifts and other transactions, equity will intervene and set aside such arrangements if procured by undue influence. Over the years it became accepted that equitable protection could be invoked in two ways.
In Allcard v. Skinner, supra, the plaintiff joined a sisterhood devoted to charitable works under the auspices of a clergyman of the Church of England. Upon becoming a full member of the sisterhood she made the requisite vows of poverty, chastity and obedience. In accordance with these vows she from time to time handed over to the mother superior income and capital to which she was entitled under her father's will. Several years later the plaintiff left the sisterhood and joined the Roman Catholic Church. She then sued for the return of the stock she had given away, claiming that she had been induced by undue influence to turn the property over to the mother superior.
Cotton L.J. began by setting out the doctrine of undue influence in broad terms. At page 171 he said:
Does the case fall within the principles laid down by the decisions of the Court of Chancery in setting aside voluntary gifts executed by parties who at the time were under such influence as, in the opinion of the Court, enabled the donor afterwards to set the gift aside? These decisions may be divided into two classes ‑‑ First, where the court has been satisfied that the gift was the result of influence expressly used by the donee for the purpose; second, where the relations between the donor and donee have at or shortly before the execution of the gift been such as to raise a presumption that the donee had influence over the donor.
Lindley L.J. commented to similar effect on the state of the law at that time. He said at p. 181:
The doctrine relied upon by the Appellant is the doctrine of undue influence expounded and enforced in Huguenin v. Baseley, and other cases of that class. These cases may be subdivided into two groups, which, however, often overlap.
First, there are the cases in which there has been some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating, and generally, though not always, some personal advantage obtained by a donee placed in some close and confidential relation to the donor . . . .
The second group consists of cases in which the position of the donor to the donee has been such that it has been the duty of the donee to advise the donor, or even to manage his property for him. In such cases the Court throws upon the donee the burden of proving that he has not abused his position, and of proving that the gift made to him has not been brought about by any undue influence on his part. In this class of cases it has been considered necessary to shew that the donor had independent advice, and was removed from the influence of the donee when the gift to him was made.
In the present case there was no evidence of undue influence as such and it therefore remains to consider whether the relationship between the parties gave rise to a presumption of undue influence.
What are the factors that go to establishing a presumption of undue influence? This question has been the focus of much debate in recent years. Equity has recognized that transactions between persons standing in certain relationships with one another will be presumed to be relationships of influence until the contrary is shown. These include the relationship between trustee and beneficiary (Ellis v. Barker (1871), 7 Ch. App. 104); solicitor and client (Wright v. Carter, [1903] 1 Ch. 27); doctor and patient (Mitchell v. Homfray (1881), 8 Q.B.D. 587); parent and child (Lancashire Loans, Ltd. v. Black, [1934] 1 K.B. 380); guardian and ward (Hylton v. Hylton (1754), 2 Ves. Sen. 547, 28 E.R. 349); and future husband and fiancee (In re Lloyds Bank, Ltd., [1931] 1 Ch. 289). Beginning, however, with Zamet v. Hyman, [1961] 3 All E.R. 933, it came to be accepted that the relationships in which undue influence will be presumed are not confined to fixed categories and that each case must be considered on its own facts. Since then it has been generally agreed that the existence of some "special" relationship must be shown in order to support the presumption although what constitutes such a "special" relationship is a matter of some doubt. In Snell's Principles of Equity (1982), for instance, it is stated at p. 540 that the presumption applies when the transaction has been effected between parties in a fiduciary relationship to one another. Others suggest that influence flows naturally from confidential relationships: see Canadian Encyclopedic Digest (Western), Title 67, para. 94. In Lloyds Bank Ltd. v. Bundy, [1974] 3 All E.R. 757, this issue was canvassed in some detail by Sir Eric Sachs who indicated that the existence of an advisory relationship is relevant to the determination. He went on to say at p. 767:
Such cases tend to arise where someone relies on the guidance or advice of another, where the other is aware of that reliance and where the person on whom reliance is placed obtains, or may well obtain, a benefit from the transaction or has some other interest in it being concluded.
Sir Eric's comments were approved in National Westminster Bank Plc. v. Morgan, supra, a case raising the propriety of a bank's involvement in securing a transaction with one of its customers. Lord Scarman explained his difficulty with the existing state of the law at p. 703. To him, words and phrases such as "confidence", "confidentiality" and "fiduciary duty" were inadequate concepts to guide the inquiry and often led justices into a misinterpretation of facts:
There are plenty of confidential relationships which do not give rise to the