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Supreme Court of Canada on Proprietary Estoppel

Cowper-Smith v Morgan , 2017 SCC 61

In this case, the Supreme Court of Canada considers that equity enforces promises that the law does not and clarifies that the fact that a party does not own the property at the time of making a representation does not preclude a claim for proprietary estoppel.

Here the parties’ parents, Elizabeth and Arthur, shortly before Arthur’s death in 1992, explained to their 3 children, Gloria, Max, and Nathan, that they were leaving everything to be divided equally between the 3 children. Their intent was to avoid family discord. After Arthur passed away, however, Elizabeth’s estate planning changed dramatically. She transferred title to the home property and all of her investments into joint ownership with Gloria. Pursuant to a “Declaration of Trust”, Gloria was to hold Elizabeth’s interest in the home and investments as a bare trustee with Elizabeth as a sole beneficiary. Gloria was further entitled absolutely to both the property and investments upon her mother’s death. Elizabeth also executed a new Will which was changed to appoint Gloria as her executor, but which continued to provide that the estate was to be divided equally between the 3 children.

When the children realized that their mother could no longer care for herself, Gloria made it clear to Max that if he agreed to give up his life in England, to move back to care for their mother in the family home, she would reimburse him for his various expenses, he would have the use of their mother’s car, and crucially, he would be able to live in the house permanently and to eventually inquire Gloria’s one-third interest in the house. All the while, Gloria assured her brothers that the arrangement to have her jointly on her mother’s assets was done to simplify the administration of the mother’s estate only, and that Max and Nathan would still receive a one-third share. She gave these same assurances until such time after Elizabeth’s death as she changed her position and announced her plans to put the house, in which Max was still living, on the market.

At this point, the brothers commenced proceedings. They succeeded in convincing the Trial Judge, Justice Brown (see the decision at 2015 BCSC 115), that Gloria had not rebutted the presumptions of undue influence and resulting trust. Justice Brown also held that the elements of proprietary estoppel had been made out. The British Columbia Court of Appeal in their decision reported at 2016 BCCA 200, unanimously upheld Justice Brown’s conclusion with respect to undue influence and resulting trust, but split on the issue of proprietary estoppel. The majority held that, since Gloria owned no interest in the property, proprietary estoppel could not arise.

Max’s appeal to the Supreme Court of Canada addresses only the issue of proprietary estoppel. The Supreme Court considered in their analysis that the doctrine of proprietary estoppel avoids the unfairness or injustice that would result to one party if the other party were permitted to break their word and insist on their strict legal rights. The 3 part test for proprietary estoppel, found to be made out in this case, is as follows:

  1. 1.    A representation or assurance is made to the claimant, on the basis of which the claimant expects that they will enjoy some right or benefit over property;

    2.    The claimant relies on that expectation by doing and refraining from doing something, and their reliance is reasonable in all the circumstances; and

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

  2.  

  3. While the Court of Appeal held that Max’s reliance could not have been reasonable because Gloria did not own an interest in the property at the time that she made the promise, the Supreme Court disagreed. Chief Justice McLachlin, writing for the majority, found that it was sufficiently certain that Gloria would inherit a one-third interest in the property for her assurance to be taken seriously as one on which Max could rely. Therefore Max’s reliance was found to be reasonable.

Chief Justice McLachlin next turned to consider that proprietary estoppel may not protect the equity immediately, it may not protect the equity until considerable time has passed, and if the party responsible for the expectation never acquires a sufficient interest in the property, proprietary estoppel may not arise at all. However, she was clear in her analysis that once the party responsible for the expectation has or acquires a sufficient interest in the property, proprietary estoppel attaches to that interest and protects the equity.

Very significantly, this cases establishes that ownership at the time that the representation or assurance was relied on is not a requirement for a proprietary estoppel claim. An equity arose in Max’s favour when he reasonably relied to his detriment on the expectation that he would be able to acquire Gloria’s one-third interest in their mother’s home. That equity could not have been protected by proprietary estoppel at the time it arose because Gloria did not then own an interest in the property, but that did not prevent proprietary estoppel from attaching to Gloria’s share of the house once she received it.

The majority concluded that courts may interfere where a conflicted executor uses their discretion to convert estate property into cash without a compelling reason and against the expressed wishes of the beneficiaries. This was in response to Gloria’s argument that, as an executor, she could not be bound to transfer a one-third interest in the property to each of the estate beneficiaries so that her promise to Max was fulfilled. As a beneficiary, Gloria could only be made to fulfill her equitable obligation to Max if the elements of proprietary estoppel were established, that is, if an in specie distribution of property was not made.

Finally, the Court considered the appropriate remedy. A claimant who establishes the need for proprietary estoppel is entitled only to the minimum relief necessary to satisfy the equity in their favour. Based on this principle, the Court found that it would not be fair or just for Gloria’s share to be valued at the current market price, which was significantly higher than it was in 2011. Rather, Max was entitled to purchase from Gloria her share at a value that reflected the market value in 2011, that is, the value as it would have been had Gloria not engaged in litigation. Vindicating Max’s expectation that he would receive the property at the time of their mother’s death was held to satisfy the equity in his favour which arose at the time of his reliance.