Link: Case Summary Document
Citation:  ONCA 101 (Ontario Court of Appeal, Hoy ACLO, Gillese, Strathy JJA.)
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.
This was an appeal from the decision of Richetti J in Sawdon Estate, 2012 ONSC 4024. In that decision, the question was one of the validity of dispositions in a will. The recipient of the residuary under the will of Arthur Sawdon (the deceased) was The Watch Tower Bible and Tract Society of Canada (Watch Tower), a charity and the corporate entity which acts as the legal arm of the religious community of Jehovah’s Witnesses in Canada. However, the Watch Tower attempted to obtain further amounts from the estate in the 2012 case.
The deceased had formed a company in the Cayman Islands for tax reasons, of which he had held a 75% interest and his five children the remaining 25% interest. The assets in the company were administered by a trust company, CIBC. The case turned on the fate of joint bank accounts, amounting to $1,075,872.83, which had been held jointly by the deceased and two of his sons.
The deceased’s lawyer was Mr Pole, who set up the company in the Cayman Islands for the deceased, and prepared his will documents. Two wills were prepared, one in 2004 and one in 2006. The 2004 will provided that the estate was to be divided into five parts, one part for each of his children or their issue. If one of the deceased’s children died without issue that the particular child’s share was to go to the Watch Tower. The 2006 will was prepared on 5 July 2006 along with a purported Transfer and Assignment to the Watch Tower of the deceased’s 75% share in the Cayman Islands company. The will left substantially more of the deceased’s assets to the Watch Tower by not acknowledging the fact that joint bank accounts existed. Joint bank accounts would not have formed part of the deceased’s estate.
Although by this stage Pole had been the family’s lawyer for more than 12 years, he had not disclosed to the deceased that he was an Elder of the Jehovah’s Witnesses, and that he had acted as counsel for the Watch Tower in the past. After the signing of the Transfer and Assignment document, Pole travelled to the Cayman Islands with the document to effect the transfer of the assets to the Watch Tower, but the trustee refused to recognise or act upon the document. Pole informed the deceased that, notwithstanding this refusal, the residue of the estate would include his share of the Cayman Islands company.
Some weeks after the 2006 will was executed, the deceased transferred more of his assets (about a further 60% in total) from the Cayman Islands company into joint accounts with his sons. His Honour had already pointed to the plethora of evidence that indicated that the deceased clearly intended to excise the joint accounts from his estate, and said that this late change further illustrated that the deceased did not want the assets transferred included in his estate.
The deceased died on 27 March 2007. After his death, Pole wrote to the executor (the eldest of the deceased’s sons) to the effect that the Watch Tower was now the majority holder of the Cayman Islands company shares, on the basis that the 75% share had been transferred to the Watch Tower inter vivos (while the deceased was still alive). This was based on the Transfer and Assignment document which had been refused by the Cayman Islands’ trustee. He also wrote to the trustee threatening legal action if the transfer was not accomplished immediately.
His Honour took a predictably dim view of Pole’s actions. As a lawyer, he should have disclosed the very clear conflict of interest which existed in his dealings with the deceased. His Honour found that his actions were biased towards the interests of the Jehovah’s Witnesses. His Honour went on the find that the deceased had the clear intention of creating joint bank accounts with his sons, and that he did not intend to make any inter vivos gift to the Watch Tower. Nor did the deceased make any gift of the interest on the accounts (as opposed to the accounts themselves) to the Watch Tower. As the ‘gift’ of the joint accounts to his sons was not a testamentary disposition, they were not included in the assets of the estate. Therefore, the Watch Tower failed in its bid to obtain the benefit of the joint accounts. They were entitled to the residuary of the estate under the will, but as most of the assets had been transferred to joint accounts, very little remained to be distributed.
On appeal, there were two issues to be resolved. These were:
- Did the trial judge err in failing to find that the bank accounts were held on resulting trust for the estate; and
- Did the trial judge err in failing to apply the legal principles applicable to secret trusts?
The trial judge had referred extensively on the Supreme Court of Canada’s decision in Pecore v. Pecore, 2007 SCC 17 (CanLII) (Pecore). Pecore established that gratuitous transfers between a parent and an adult child are subject to the presumption of a resulting trust in favour of the deceased parent’s estate. As there had been a gratuitous transfer of the bank accounts in this case from the deceased into joint accounts with two of his sons, the trial judge then considered whether the presumption had been rebutted. He concluded that it had, saying that the deceased had intended to make an inter vivos gift of the beneficial interest in the bank accounts when they were opened.
The trial judge made a key factual finding when concluding that the presumption had been rebutted, namely, that the deceased had transferred the bank accounts into joint names, with a right of survivorship, knowing, as was shown by the evidence, how the right of survivorship would operate on his death. This meant that there was no money to be returned to the estate which the Watch Tower could obtain.
Were the bank accounts held on a resulting trust for the estate?
The Court of Appeal held that the bank accounts were not held on trust for the estate (and ultimately for the Watch Tower). However, the Court arrived at that conclusion in a different way from the trial judge (at ). When the deceased transferred the bank accounts into joint names with two of his sons, he created a trust. Legal title to the bank accounts vested in the deceased and his two sons jointly, immediately upon transfer into their joint names. Based on the trial judge’s unassailable findings of fact, when the deceased and his two sons jointly became the legal owners of the bank accounts, they did so on the understanding that on the deceased’s death, they were to distribute the contents of the bank accounts to the five children of the deceased in equal shares. In legal terms, when the bank accounts were opened the deceased made an immediate inter vivos gift of the beneficial right of survivorship to the five children. Thus, from the time that the bank accounts were opened, those holding the legal title to the bank accounts held the beneficial right of survivorship in trust for the children in equal shares. The Court added that this change in emphasis in no way detracted from the correctness of the trial judge’s decision (at ).
Did the principles of secret trusts apply?
The Court made short work of this contention on appeal (at -, ):
Watch Tower says that Arthur [the deceased] created a secret trust when he asked Wayne and Stephen [his two sons] to distribute the funds in the Bank Accounts to the Children equally, upon his death. Thus, Watch Tower submits, the trial judge erred by failing to apply the legal principles relating to secret trusts. Based on this premise, it argues that: (1) the secret trust fails for lack of certainty of objects and the funds in the Bank Accounts must revert to the Estate, or (2) the beneficiaries of the secret trust are the beneficiaries of Arthur’s 2006 will. This is a new issue, raised for the first time on appeal. Accordingly, I would decline to entertain it…In any event, without deciding the matter, it seems to me that the secret trusts argument is doomed to fail. Even if the secret trusts doctrine could apply to a situation such as this, where a parent makes an inter vivos gratuitous transfer to an adult child, there can be no problem with the certainty of objects requirement because, on the findings of the trial judge, the objects of the “secret trust” are indisputably the Children.
There was also an appeal issue relating to costs which was resolved against the Watch Tower (in part) to the extent of $30,000.
The 2012 decision may be viewed at: http://www.canlii.org/en/on/onsc/doc/2012/2012onsc4042/2012onsc4042.html
This case may be viewed at: http://www.canlii.org/en/on/onca/doc/2014/2014onca101/2014onca101.html
Implications of this case
This case has been in the courts since 2010, when there was an initial attempt by one of the sons of the deceased to have the 2006 will declared invalid on the ground of the medical condition of the deceased when he made the will. This application was denied as the evidence pointed to the deceased’s good health at the time. In the same application, the Watch Tower attempted to stop distributions from the estate, and payment of various fees. This was in order to preserve the amount to which they might have been entitled under the will. The trial decision of 2012 attempted to dispose of any attempt by the charity to have other than the residuary from the will (reduced to almost nil at that point), which had been the deceased’s intention from the beginning. However, the charity continued to seek the money left to the five children of the deceased by this appeal, and again failed, with costs awarded against it.