McLeod Estate v Cole et al, 2022 MBCA 73

Citation: McLeod Estate v Cole et al, 2022 MBCA 73 Date: 20220920 Docket: AI21-30-09616 IN THE COURT OF APPEAL OF MANITOBA Coram: Mr. Justice Christopher J. Mainella Madam Justice Jennifer A. Pfuetzner Madam Justice Lori T. Spivak BETWEEN : ) F. J. Trippier and ) S. Nelko ) for the Appellants ) ) G. M. Fleetwood and ) A. D. Domenco greg mcleod and james mcleod as ) for the Respondents Co-Administrators of the Estate of Edward ) T. Cole, S. J. Cowie c.o.b. as alexander mcleod ) Cowie Real Estate ) (Plaintiffs) Appellants ) S. F. Vincent ) for the Respondents - and - ) J. Kehler, Jarett D.

Kehler ) Law Corporation c.o.b. as terry cole, stuart james cowie ) Donald Legal Services, L.W. carrying on business as cowie real ) Donald Law Corporation Estate, Jarett kehler, Jarett d. ) c.o.b. as Donald Legal kehler law corporation carrying on ) Services and the said Donald business as donald legal services, ) Legal Services L.w. donald law corporation ) carrying on business as DONALD LEGAL ) No appearance SERVICES and the said DONALD LEGAL ) for the Respondents SERVICES, JAYSUKH RUDANI and 5935491 ) J. Rudani and 5935491 MANITOBA LTD. ) Manitoba Ltd. ) ( Defendants) Respondents ) B. R.

Bowley ) as agent for the represented ) Respondents regarding the ) evidence and testimony of ) the witness R. Neufeld ) ) Appeal heard: ) June 3, 2022 ) ) Judgment delivered: ) September 20, 2022 On appeal from 2021 MBQB 24 Pfuetzner JA [ 1 ] The plaintiffs claimed that their estranged father, Edward Alexander (“Bud”) McLeod, an elderly retired farmer with dementia (the deceased), sold the majority of his real estate holdings for much less than their fair market value prior to his death in 2010.

They sought various relief, including damages, from the defendants. [ 2 ] The trial judge dismissed all of the plaintiffs’ claims. The plaintiffs appeal, arguing that the trial judge made numerous errors in how he dealt with the evidence and the applicable law.

[3] As I will explain, the trial judge was entitled to prefer the evidence of the witnesses that he did and he made nopalpable and overriding errors of fact. While he misapplied the doctrine of suspicious circumstances, this legal error had no effect on theoutcome. As a result, I would dismiss the appeal. Background [4] The plaintiffs are the administrators of the deceased’s estate.

In 2009, the deceased sold three parcels of land with theassistance of the defendant real estate professionals, Terry Cole, Stuart James Cowie and their brokerage firm (the real estate agents), andthe services of the defendant lawyer, Jarett Kehler, his law corporations and his law firm (the lawyer). The defendants, Jaysukh Rudaniand 5935491 Manitoba Ltd., purchased one of the parcels of land referred to as the NW quarter.

It is not disputed that the deceased had adiagnosis of “mild to moderate dementia” at the time of the sales. [5] The plaintiffs brought an action against the defendants asserting that the deceased did not have sufficient mentalcapacity to sell the three parcels of land and that the land was sold for less than its fair market value. They sought damages from thelawyer and real estate agents for breaching the standards of care that they owed to the deceased and for failing to act in his best interests,including by not ensuring that he had capacity to enter into the agreements of purchase and sale.

The plaintiffs also claimed that theagreement of purchase and sale for the NW quarter should be set aside under the equitable doctrine of rescission. [6] After a five-week trial, the trial judge issued lengthy reasons. On each of the primary disputed issues—mentalcapacity, the quality of professional advice and the fair market value of the land sold—the trial judge had conflicting lay and expertevidence. In each instance, he preferred the evidence of the defendants over that of the plaintiffs.

He found that the “plaintiffs ha[d]failed to rebut the presumption that [the deceased] had the necessary mental capacity” to enter into the agreements of purchase and salefor the three parcels of land (at para 404). Moreover, he found that there was no evidence that the deceased “was a vulnerable personwho was exploited in some way” (at para 412) and that “[t]he evidence [was] overwhelming that [the deceased]’s knowledge about thethree parcels of [l]and was sound and in no way impaired at the times they were sold” (at para 302).

He also found that the lawyer andreal estate agents adhered to the professional standards of care in their dealings with the deceased. Finally, the trial judge found that theplaintiffs failed to prove that the three parcels of land were “sold significantly below” fair market value (at para 401). Issues [7] The plaintiffs’ notice of appeal lists 17 grounds of appeal. However, their position can be distilled into three mainissues. [8] First, they assert that the trial judge erred in his assessment of the evidence and in the appropriate application of legalprinciples relating to the deceased’s capacity.

Next, they contend that the trial judge erred in his analysis of the standards of careapplicable to the real estate agents and to the lawyer and whether those standards were met. Finally, they maintain that the trial judgeerred in his determination of damages and, in particular, the remedy of rescission. Analysis [9] The primary thrust of the plaintiffs’ arguments is that the trial judge made a litany of palpable and overriding errors inhis assessment of the evidence. In essence, the plaintiffs are seeking to have this Court re-try the case and to substitute its own factualfindings for those of the trial judge.

I am not persuaded that the trial judge made any such errors. He carefully reviewed the evidenceand made factual findings that were amply supported by the record. He provided cogent reasons why he accepted the evidence that hedid. Having said that, I do not endorse certain intemperate language used in rejecting the evidence of the plaintiffs’ expert witness,Rocky Neufeld, which was unnecessary and distracting. [10] As for the plaintiffs’ submissions that the trial judge made legal errors, I am not convinced that he made any error thataffected the outcome of the trial.

As I will explain, in my view, the trial judge erred in his use of the doctrine of suspiciouscircumstances—but not in the way asserted by the plaintiffs. The Doctrine of Suspicious Circumstances [11] While not necessary in order to dispose of this appeal, I will address the trial judge’s application of the doctrine ofsuspicious circumstances to the facts of this case. [12] First, it will be helpful to review the nature and origin of the doctrine itself.

The doctrine arose in the Englishecclesiastical courts that had jurisdiction over testamentary matters, that is, the proof of Wills and the succession of property of deceasedpersons (see Rodney Hull & Ian M Hull, Macdonell, Sheard and Hull on Probate Practice, 4th ed (Toronto: Carswell, 1996) at 2). Forexample, the leading English case on the doctrine, Barry v Butlin (1838), 2 Moo PC 480 (Eng), was an appeal from the PrerogativeCourt of Canterbury, a church court under the authority of the Archbishop of Canterbury.

When English law was adopted in theCanadian common law provinces, jurisdiction over the proof of Wills was exercised by the surrogate courts. In Manitoba, thatjurisdiction is now vested in the Court of King’s Bench. [13] When it is found to apply, the doctrine of suspicious circumstances operates to affect who has the burden of proof of thevarious elements relevant to proving the validity of a Will. As will be seen, the doctrine’s application is quite technical due to its arisingin the context of the ecclesiastical courts’ specific requirements for proof of a Will.

Moreover, the doctrine cannot easily be divorcedfrom that context and exported into other areas of the law, as the trial judge mistakenly did in this case. [14] The leading Canadian case on the doctrine of suspicious circumstances is Vout v Hay, (SCC), [1995]

2 SCR 876, a case that involved the contested validity of a Will. [ 15 ] As explained in Vout (see paras 19-20 ), the propounder of a Will always has the legal burden to prove three requirements: that the Will was duly executed in accordance with the formal rules (see, for example, The Wills Act , CCSM c W150, sections 3 - 11 ); that the testator had knowledge and approval of the contents of the Will; and that the testator had testamentary capacity. [ 16 ] In order to assist the propounder of the Will to prove these three requirements, a rebuttable presumption arises.

If the propounder of the Will can prove due execution of the Will (as described above) and that the Will was read by or to the testator who appeared to understand it, then the last two requirements are presumed—that is, that the testator had knowledge and approval of the contents of the Will and had testamentary capacity (see Vout at para 26 ). [ 17 ] However, if suspicious circumstances are shown to be present, the situation changes. There is no closed category of what may constitute suspicious circumstances. In Vout , Sopinka J stated (at para 25): . . .

The suspicious circumstances may be raised by (1) circumstances surrounding the preparation of the will, (2) circumstances tending to call into question the capacity of the testator, or (3) circumstances tending to show that the free will of the testator was overborne by acts of coercion or fraud. . . . [ 18 ] He continued (at para 27): Where suspicious circumstances are present, then the presumption is spent and the propounder of the will reassumes the legal burden of proving knowledge and approval.

In addition, if the suspicious circumstances relate to mental capacity, the propounder of the will reassumes the legal burden of establishing testamentary capacity. Both of these issues must be proved in accordance with the civil standard. There is nothing mysterious about the role of suspicious circumstances in this respect. The presumption simply casts an evidentiary burden on those attacking the will. This burden can be satisfied by adducing or pointing to some evidence which, if accepted, would tend to negative knowledge and approval or testamentary capacity.

In this event, the legal burden reverts to the propounder. [ 19 ] If the suspicious circumstances raise the spectre of fraud or undue influence, they also have the effect of rebutting the presumption, resulting in the propounder of the Will having to prove both knowledge and approval and testamentary capacity.

However, because fraud and undue influence are treated as affirmative defences to be raised by the party attacking the Will, that party bears the legal burden of proof with respect to fraud and undue influence (see para 28). [ 20 ] To summarize the basic operation of the doctrine, the presumption as to the validity of a Will acts to simplify the process of proving knowledge and approval and testamentary capacity. Effectively, the presumption puts an evidentiary burden on those attacking the Will to show that suspicious circumstances exist.

If suspicious circumstances are shown, the propounder of the Will reacquires the legal burden of proving the validity of the Will. (For an excellent

summary of the principles, see Scott v Cousins , 2001 CarswellOnt 50 at para 39 (Sup Ct J) .) [ 21 ] The trial judge correctly noted that “[t]here is a presumption in the common law that an adult has the mental capacity to enter into a contract” (at para 33; see also Manitoba Law Reform Commission, Informal Assessment of Competence , Report #102 (Winnipeg: MLRC, 1999), ch 2 at 4).

However, the trial judge was of the view that the doctrine of suspicious circumstances applied to the determination of capacity to enter into a contract so that the burden of proof as to capacity shifted upon suspicious circumstances being shown. He stated (at para 31): The party attacking the validity of a contract due to a lack of mental capacity to give consent must overcome the presumption in favour of mental capacity in the same way that a party attacking the validity of a will or power of attorney.

A shifting onus only applies where suspicious circumstances or a breach of fiduciary duty are proven. [ 22 ] After reviewing the evidence and making factual findings, the trial judge concluded that “[t]his [was] not a situation where the onus shift[ed] to the defendants. There [were] no suspicious circumstances” (at para 299). [ 23 ] The plaintiffs argue that the “doctrine of suspicious circumstances and the shifting onus are not limited to testamentary cases” and apply equally in other contexts, such as contracts.

The plaintiffs submit that the trial judge “incorrectly stated the law on suspicious circumstances” and made a palpable and overriding error in finding that there were no suspicious circumstances. [ 24 ] The plaintiffs referred this Court to Lynch Estate v Lynch Estate , 1993 CarswellAlta 301 (QB) , a case involving the capacity to make a gratuitous inter vivos transfer of land, in support of their position. In particular, they rely on the statement that “[a] number of cases point out the need to be sensitive to suspicious circumstances surrounding the execution and preparation of a will.

This caution can be applied where it is the execution of a contract which is at issue or the granting of a gift” (at para 109). [ 25 ] In my view, Lynch Estate does not stand for the proposition put forward by the plaintiffs. Being “sensitive to suspicious circumstances” surrounding the execution of a contract is merely a common-sense instruction on how to assess evidence relevant to capacity. This is a far cry from being a definitive statement that the doctrine of suspicious circumstances and the shifting onus apply outside of contested Will cases.

No other authority was offered by the plaintiffs in support of their argument, nor am I aware of any. [ 26 ] Contract law principles and probate law principles arose from different legal traditions. As I have explained, probate law was developed in the ecclesiastical courts. Contract law came out of two other court systems: the English common law courts and the equitable Court of Chancery (see Prof John D McCamus, The Law of Contracts , 3rd ed (Toronto: Irwin Law, 2020) at 9, 11).

Traditionally, a contract entered into by someone later found to have lacked capacity to do so is not automatically void. Rather, in some circumstances, it will be voidable at the option of the incapacitated person or their personal representative (see Prof GHL Fridman, The Law of Contract in Canada , 6th ed (Toronto: Carswell, 2011) at 158-59; and Prof SM Waddams, The Law of Contracts , 7th ed (Toronto: Thomson Reuters, 2017) at paras 662-63).

On the other hand, as noted by Professor Oosterhoff, “A person of unsound mind cannot make a valid will” (Prof Albert H Oosterhoff et al, Oosterhoff on Wills , 8th ed (Toronto: Thomson Reuters, 2016) at 193). [ 27 ] The difference between the approaches to the validity of contracts and of Wills arises from their distinct legal origins. In addition, there are arguably sound policy reasons for the distinction. A contract that is for the mutual benefit of the parties should not necessarily be invalidated due to one party’s incapacity.

However, as a Will is purely donative, its validity is justifiably subject to a stricter level of scrutiny. [ 28 ] In my view, the trial judge was incorrect to proceed on the basis that the doctrine of suspicious circumstances could apply to the determination of capacity to enter into a contact. However, his approach had no effect on the outcome as he made no error in finding that there were no suspicious circumstances on the facts of the present case relevant to the deceased’s capacity to enter into the agreements of purchase and sale. Disposition [ 29 ] Ultimately, this was a heavily fact-driven case.

It was clearly open to the trial judge to find that the deceased had the capacity to enter into the agreements of purchase and sale despite his dementia diagnosis, that he received competent advice from the real estate agents and the lawyer, and that the three parcels of land were sold for fair market value. [ 30 ] In the result, I would dismiss the appeal with one set of costs in favour of the real estate agents and one set of costs in favour of the lawyer. JA I agree: JA I agree: JA