1. CAPACITY TO SEPARATE 

    BABIUK v BABIUK   

    http://canlii.ca/t/gf0p6

Recently the Saskatchewan Court of Queen's Bench reviewed the requisite decisional capacity to separate, among other issues, in the case of Babiuk v. Babiuk. In this case, an older adult (after being admitted to the hospital for injuries to her body) was certified incompetent to manage her estate pursuant to The Mentally Disordered Person's Act, RSS 1978, c M-14 (since repealed by SS 2014, c 24). The PGT became her statutory guardian for property. After being discharged from the hospital the older adult resided in a care home and refused any contact from her husband. During a review hearing for her Certificate of Incompetence the wife stated that she had been physically assaulted and intimidated by her husband during her life and that she was afraid of him. She wanted to remain in her care home, separate and apart from her husband. She said she was happy and safe, although she could not name the care home or its address. She also could not file a tax return on her own and, while she had some knowledge of her financial situation, it was limited.

The PGT brought a petition seeking a division of family property pursuant to The Family Property Act and maintenance pursuant to The Family Maintenance Act. The husband brought a motion seeking an Order prohibiting the PGT from pursuing a property claim on behalf of his wife. The husband argued that his wife would not want the family property to be divided. The wife however testified in an affidavit that while she forgets most things, she does not forget her life with her husband. She also stated that she would like to have half of her family property and have it managed by the PGT.

The Court noted that the wife may not be capable to manage her financial affairs but that does not mean she is not capable of making personal decisions. The Court cited Calvert (Litigation Guardian of) v. Calvert (1997), 32 O.R. (3d) 281 (Div. Ct), at 294, aff'd (1998), 37 O.R. (3d) 221 (CA), leave to appeal ef'd [1998] SCCA No. 161: "Separation is the simplest act, requiring the lowest level of understanding. A person has to know with whom he or she does nor does not want to live."

The Court concluded that "In deciding issues of capacity, insofar as the law is able to, the appropriate approach is to respect the personal autonomy of the individual in making decisions about his or her life. . . There is evidence that [the wife] wants to live in the care home and not with [her husband], and that she wants her half of the family property. . ." The Court dismissed the husband's motion.

2. GAJEWSKI v WIKIE

    http://canlii.ca/t/gfnfs

Notably, Starson v. Swayze, 2001, Canlii 765 (ONCA),  http://canlii.ca/t/1fbw6,  a seminal case on capacity was most recently applied in the Ontario Court of Appeal case of Gajewski v. Wilkie 2014 ONCA 897,  which deals with statutory guidelines for capacity to consent to treatment under the Health Care Consent Act, 1996, S.O. 199, c.2. Sched.A.

3. PROFESSIONAL ADVISOR ROLE WHERE CAPACITY IS AT ISSUE

(i)  Capacity is a complicated concept in that each task or decision has its own standard determining capacity, and often the issues involved where capacity is in question can be less than crystal-clear, indeed downright complex. There is no clear hierarchy of capacity, in fact courts in general have resisted hierarchy and threshold levels of capacity as proper analysis.  Courts are loath to say that one "test" (per se) to establish decisional capacity is higher or lower than another. Though, this does happen.  In Covello v. Sturino [1], Justice Boyko was careful to distinguish the varying capacity standards as not necessarily higher or lower, but rather simply as different, stating: "this approach makes more sense, but inconsistency of treatment underscores the complexity of understanding". The fact that there is no all-encompassing capacity" test" (per se/test is not an appropriate marker or descriptive) to apply or criteria to consider means that a drafting solicitor must at all times be mindful of the client's capacity to complete the specific task at hand.  This in effect means that a lawyer may be able to assist a client with competing one task, but not another - yet advice and discussion of options may suffice.

The message from our common law precedent suggests that the drafting solicitor should be satisfied that the client has capacity to give instructions for and execute the document in question, notwithstanding the presumption. This duty is particularly significant if the client is elderly, infirm, dependent, vulnerable, or if the instructions vary substantially from previous documents (wills, trusts, powers of attorneys, etc.) or where the instructions are not received from the testator directly.  Solicitors are also wise to exercise additional caution in circumstances where the potential beneficiary brings the client to the office, and appears overly involved in the process.

(ii) Walman v. Walman Estate

http://canlii.ca/t/gfz95

A recent case before the Ontario Superior Court of Justice provides some guidance on the proper steps to be taken by drafting solicitors when determining testamentary capacity and probing for indicators of undue influence. In Walman v Walman Estate 2015 ONSC 185 Justice Corbett observed that the drafting solicitor "did several things 'right' in connection with [the] interview" with an older adult client, including interviewing the older adult alone, keeping good notes and asking questions that "facially, comport with the requirement of determining whether the testator understood the extent of his assets."[2] However, Justice Corbett found that in the circumstances of that particular case (the older adult suffered from Parkinson's Disease and Lewy Body Dementia, and he was changing his will so his second wife would receive the majority of his estate and his three sons very little) the solicitor "needed to go further than that". Not only should the solicitor have questioned whether the testator understood what his own assets were, but the testator should have understood what his wife's assets were as well: "Had these issues been explored, [the solicitor] would have discovered what the case law refers to as 'suspicious circumstances' - recent transfers of substantial wealth from [the husband] to [the wife] that had the effect of significantly denuding [the husband's] financial position to the benefit of [the wife]".[3] The Court found that the husband lacked testamentary capacity and that his will and certain transfers of capital to the wife were products of undue influence by the wife.[4]

As issues of capacity can cause complications and significant cost consequences many years after legal services have been rendered, a solicitor is well-advised to maintain careful notes when dealing with clients, and to turn his or her mind to the issue of capacity and assure him or herself that the client has the requisite legal capacity required to complete the task requested.

It is always the obligation of the drafting solicitor, to interview the client for the purpose of determining the requisite legal capacity for the task sought by the client.  If the lawyer is confident that the client meets the standard for capacity, he or she should clearly indicate this in file notes.  Those notes should be thorough and carefully recorded and preserved. 

It is wise for lawyers to take their time in asking the client probing questions, to give the client a chance to answer carefully, to provide the client with as much information as possible about the legal proceedings.  All questions and answers should be carefully recorded in detail.  Lawyers should also consider seeking to corroborate the answers provided by the client, for example, relating to the extent of the client's assets. 

If the solicitor has serious concerns about the client's capacity, it is worth discussing with the client the implications, benefits, or otherwise of having a capacity assessment to protect the planning in question. 

The approach of professionals ought to be direct, yet sensitive.

Requests for capacity assessments should be clear and should concisely outline the legal criteria to be applied in assessing the specific decisional capacity that is to be met for the particular task sought.  A capacity assessment that is not carefully written and that does not apply the evidence to the appropriate legal standard will be deemed deficient and unhelpful should a legal challenge arise in the future.

Lawyers have an important role to play where capacity is at issue.  Solicitors must turn their minds to issues of capacity, undue influence and other red flags, including abuse, when discussing and preparing trusts, gifts, wills, contracts, powers of attorney, domestic contracts, and other legal documents. Capacity assessments should be discussed as well as risks associated therewith together with "rights" advise.   Although the area of capacity is complex, the more information a lawyer has about the issues and interaction of applicable factors, and the state of the client's abilities and understanding, the better protected both the lawyer and the client.

    http://canlii.ca/t/gg0nw

In Schleihauf Estate 2015 ONSC 449 (a costs decision from a contested passing of accounts application) Justice Desotti endorsed and applied certain costs principles set out by the Ontario Court of Appeal in BNS v. Diemer 2014 ONCA 851, http://canlii.ca/t/gffxq,  an insolvency case that dealt with guiding principles on the approval of fees for receiver's counsel in insolvencies.

BNS v. Diemer raised some eyebrows in the legal community when it was released in December, as the Court of Appeal held no punches in its critique of the "billable hour" in general and specifically the legal fees charged by counsel for a Receiver in insolvency proceedings under the Bankruptcy and Insolvency Act. The Receiver in that case had obtained an Appointment Order which provided that the Receiver, and counsel to the Receiver, would be paid their "reasonable fees and disbursements at their standard rates and charges". After two months, the Receiver brought a motion to (among other things) have its fees and disbursements approved and those of its counsel. Counsel fees were at $256,000.00 for 397 hours of work with an average rate of $643.75 per hour for the 10 people involved, including students, clerks and lawyers. On the motion, Justice Goodman reviewed the "Belyea Factors" (from the case of Federal Business Development Bank v. Belyea (1983), N.B.J. No. 41, 46 C.B.R. 244 (NB CA), (cited with approval by the Ontario Court of Appeal in Re Bakemates)) which are taken into consideration when passing a receiver's accounts:

• The nature, extent and value of the assets;
• The complications and difficulties encountered;
• The degree of assistance provided by the debtor;
• The time spent;
• The receiver's knowledge, experience and skill;
• The diligence and thoroughness displayed;
• The responsibilities assumed;
• The results of the receiver's efforts; and
• The cost of comparable services when performed in a prudent and economical manner.

These factors are a useful guideline but are not exhaustive (Re Bakemates at para. 51).

Justice Goodman considered the hourly rates of the Receiver and its counsel, the time spent, and the work done. The main asset of the receivership estate was a family farm (near London, Ontario) worth approximately $8.3 million. Justice Goodman noted that the size of the receivership estate should have some bearing on the hourly rates. After reviewing the above factors, Justice Goodman took issue with the quantity of the fees charged, noting that the debtor had cooperated with the Receiver, and questioned the excessive work done by senior Toronto counsel on routine matters (such as attending on an unopposed motion in London). The motion judge approved only $157,500.00 of the $256,000.00 in legal fees sought.

On appeal, Justice Pepall on behalf of the Court of Appeal, observed that the Receiver is a fiduciary for all creditors of the debtor and does not have a financial stake in the outcome.  As a court officer and appointee, the receiver has a duty of even-handedness that mirrors the Court's own duty of fairness in the administration of justice (at para.31 citing Bankmates).  Justice Pepall also noted that: "In a court-supervised insolvency, stakeholders with little or no influence on the fees may ultimately bear the burden of the largesse of legal expenditures." [1] 

In critiquing the quantity of the legal fees sought, Justice Pepall commented that:

Here the lawyers provided dockets in blocks of time that provide little, if any, insight into the value provided by the time recorded.[2]

In my view, it is not for the court to tell lawyers and law firms how to bill. That said, . . .the court must ensure that the compensation sought is indeed fair and reasonable. In making this assessment, all the Belyea factors, including time spent, should be considered. However, value provided should pre-dominate over the mathematical calculation reflected in the hours times hourly rate equation. Ideally the two should be synonymous, but that should not be the starting assumption. Thus, the factors identified in Belyea require a consideration of the overall value contributed by the receiver's counsel. The focus of the fair and reasonable assessment should be on what was accomplished, not on how much time it took.[3]

The Court of Appeal dismissed the appeal and upheld the motion judge's decision regarding the costs of the Receiver and its counsel.

A month later, BNS v. Diemer was applied in Schleihauf Estate. Schleihauf dealt with costs of a contested passing of accounts application (unfortunately the underlying decision is not reported). The Estate Trustee sought $9,000.00 in legal costs plus disbursements and HST in addition to the $4000.00 in costs awarded at the hearing. The Salvation Army, another party to the application, sought costs of an additional sum of $6, 512.60 to that which had already been claimed of $16,730.00.

In reflecting on what were the appropriate costs to award, Justice Desotti stated:

In considering both a blended cost order as reflected in the decision of Madame Justice Gillese in McDougald Estate v. Gooderham, and the most recent decision on costs in the Ontario Court of Appeal decision in Bank of Nova Scotia v. Daniel A. Diemer o/a Cornacre Cattle Co., I cannot agree that the cost awards must reflect simply the work on a file whether or not the results are excellent.

In this case, I agree with counsel for the Estate Trustee that a total full indemnity recovery on the part of 'The Salvation Army' does not reflect a proportional economic approach to litigation.  In this case, I would discount the nature, extent and value of the assets as a factor as I consider that reality to be fairly straight forward, as reflected in the factum filed by 'The Salvation Army' (See Federal Business Development Bank v. Belyea and those factors endorsed by the Ontario Court of Appeal in Bank of Nova Scotia v. Diemer).

. . .What I do find troubling is the amount of time that is claimed was spent by counsel (two counsel were retained in this file) to discover and present the mismanagement to the court.[4]

Justice Desotti awarded the Salvation Army $16,000.00 of the $23,000.00 in legal fees sought. With respect to the fees of the counsel for the Estate Trustee, Justice Desotti noted that "I have a little more sympathy to the presentation by counsel for the Estate Trustee who marshalled the matter before me and frankly was caught between a rock and hard place in trying to convert mould into cheese".[5] Counsel for the Estate Trustee was awarded $7500.00 of the $9,000.00 sought (not full indemnity as S.23.1 of the Trustee Act and relevant case law supports).

What Does this Mean in the Estates Context?

Justice Pepall in BNS v. Diemer stated that: "[w]hile many of the principles described in these reasons may also be applicable to other areas of legal practice, the focus of this appeal is on legal fees in an insolvency".[6] It will be interesting to see if the principles are applied widely in estates litigation, specifically in the approval of counsel fees for passing of accounts.

While there may be similarities between counsel for court-appointed receivers and counsel for estate trustees there are a few things that set them apart. First, there is no fixed rate or Tariff for determining the amount of compensation to pay a receiver or receiver's counsel. The assessment of fees is at the discretion of the court. This is unlike on an uncontested passing of accounts where Tariff C fees apply. There is also a prescribed process for counsel to seek increased costs (see Rule74.18(11)). Secondly, estate litigation is a complex area where emotions often rule the day. There is a human element that may be lacking in a large corporate receivership. There should not be an arbitrary reduction of legal fees without an analysis of the big picture, and specifically the factors set out in Rule 57 of the Rules of Civil Procedure which the Court may consider in exercising its discretion to award costs under Section 131 of the Courts of Justice Act.

5. IS SPERM PROPERTY?: RELEVANT TO ESTATES LITIGATION

BC Court of Appeal Confirms that Human Sperm is Property under Provincial Legislation: Lam v. University of British Columbia

http://canlii.ca/t/gftcq

The British Columbia Court of Appeal recently confirmed that human sperm is considered 'property' under provincial legislation that governs the storage of goods. While this case is an advancement in property law, it also has the potential of far-reaching effects in family law and estate planning and litigation. However, as is evident from this case, while science, medicine, and reproductive technology are advancing at a fast rate, our legislation is currently lagging behind. Reliance on the common law, and cases such as this one, will continue to provide us with some guidance on this developing area of the law.

The Facts and Trial Decision

This decision was part of a class action brought by men who had cancer and who had deposited their sperm with the andrology lab at the University of British Columbia before they commenced radiation treatment which could render them sterile. Unfortunately, their sperm was either damaged or destroyed when the freezer that it was stored in malfunctioned. The men sought damages in contract and negligence. In its defence, the University attempted to rely on a limitation of liability clause that was part of the "Sperm Bank Facility Agreement" that the men had executed when they deposited their sperm:

Limitation of Our Liability - By signing this Agreement you agree that neither we nor our successors or assigns nor any of our governors, directors, officers, employees or agents will be liable to you or anyone else for any destruction of, damage or alteration to or misuse of your Specimen for any reason whatsoever, including: . . .b) improper freezing of your Specimen; c) improper maintenance and/or storage of your Specimen in a frozen state; . . .

This exclusion of our liability extend to any damage, misuse or impropriety caused by or resulting from any malfunction of our freezing equipment (whether for causes within our control or not). . .[1] [emphasis added]

However, the men argued that this limitation of liability clause was an exclusion clause that contravened section 2(4) and 13 of the Warehouse Receipt Act R.S.B.C. 1996, c.481("WRA") which states:

2(4) A warehouser may insert in a receipt issued by the warehouser any other term or condition that (a) is not contrary to any provision of this Act, and (b) does not impair the warehouser's obligation to exercise the care and diligence in regard to the goods as a careful and vigilant owner of similar goods would exercise in the custody of them in similar circumstances.

13 A warehouse is liable for loss of or injury to goods caused by the warehouser's failure to exercise the care and diligence in regard to them as a careful and vigilant owner of similar good would exercise in the custody of them in similar circumstances.[2] [emphasis added]

The University argued that the WRA was not applicable, as the WRA did not govern the storage of human sperm. The issue before the Court was whether human sperm was "property" for the purposes of the WRA, and specifically whether the University was precluded from relying upon the exclusion clause in the agreement by virtue of the WRA.

The main position of the University at the trial (and on appeal) was that in reviewing the words of the WRA and the related Warehouse Lien Act, R.S.B.C. 1996, c. 480 it was necessary to restrict the meaning of "goods" to property that was the proper object of trade and commerce. And, as the Federal Assisted Human Reproduction Act S.C. 2004, c.2 prohibits the trade or sale of human sperm in Canada, human sperm cannot be considered "goods" under the warehouse legislation.

The trial judge however found no issue in concluding that human sperm fit the definition of "goods" under the WRA which defined "goods" as including "all property other than things in action, money and land". [3]

The trial judge reached this conclusion by first reviewing recent decisions that have "concluded that sperm was property": Yearworth v. North Bristol NHS Trust, [2009] EWCA Civ 37; Kate Jane Bazley v. Wesley Monash IVF Pty Ltd., [2010] QSC 118 (TD); CC v AW 2005 ABQB 290;  and JCM v. ANA 2012 BCSC 584.[4] The trial judge also determined that the definition of "goods" was clear and unequivocal:

The trial judge concluded that: "Applying the current state of the law of property to the definition in the WRA leads to a conclusion that frozen sperm is "goods".  In his view, "whether approached through a textural, purposive or contextual analysis there is no ambiguity in the definition.  .  .  .  The provisions of the WRA apply to the storage of the sperm specimens of the plaintiff and class members and the Agreement is a warehouse receipt. I also conclude that clause 7 of the Agreement is directly contrary to s.13 of the WRA. The answer to the sub-issue posed for determination is thus: Yes, the defendant, [appellant] is precluded from relying upon the exclusion clause in the Agreement as against the Class members by virtue of  the WRA." [6]

The Appeal

On appeal, the University argued that the trial judge erred in his interpretative approach to the statutory language and erred by omitting to distinguish previous cases concluding that sperm constitutes "property", among other arguments.

The British Columbia Court of Appeal found that the trial judge used the correct interpretive approach to the statutory language.  The Court noted that the Supreme Court of Canada in Canada Trustco Mortgage Co. v Canada 2005 SCC 54 stated:

Also, even though human sperm would not have been property at the time the WRA was enacted, the Court noted that legislation may apply "to situations which did not exist when it was enacted" and can "apply to inventions subsequent to its enactment".[8] The Court quoted approvingly from Yearworth (above) an English case with very similar facts, which stated:

Justice Chiasson, on behalf of the Court of Appeal, concluded that: "In my view, the judge concluded correctly that the plain meaning of goods in the WRA includes human sperm".

The Court of Appeal also disagreed with the University's argument that 'goods' only included things that were capable of being sold in the marketplace and as the Assisted Human Reproduction Act prohibits the purchase of human sperm, it cannot be considered a 'good'. Justice Chiasson stated: "In my view, the definition of property in the WRA cannot depend on the vagaries of Federal legislation that may affect rights under another Provincial statute. . . In addition to rejecting the submission that the definition of property in the WRA should be shaped by unrelated legislation, I see nothing in the WRA that would make the definition of property depend on the type of goods bailed for hire.  I am not convinced that historically it was otherwise." [10]

The Court of Appeal also addressed the university's argument that the trial judge erred in distinguishing the case of Harvard College v. Canada (Commissioner of Patents) 2002 SCC 76. That case concerned an 'oncomouse' which was bred to be more susceptible to cancer. It addressed the meaning of 'invention' under the Patent Act. The Court of Appeal concluded that the trial judge was correct in distinguishing it, with Justice Chiasson noting:

The Court of Appeal dismissed the university's appeal.

In her concurring opinion Justice Bennett made some notable observations and cautionary warnings after quoting extensively from the Yearworth case:

It is therefore important to ensure that defining human sperm as property on the facts of this case does not lead to the application of the same definition in very different circumstances. Defining human sperm as property may bring with it a host of other legal rights and issues. Uncertainty exists with respect to the contexts in which human sperm could be considered property, and it is necessary to carefully circumscribe the limitations of the definition in this case. Indeed, defining human sperm as "property" under the WRA in this case may widen the available remedies to Mr. Lam and the class members.

For example, Mr. Lam arranged to freeze his sperm as he was about to receive cancer treatment that could leave him infertile. He froze his sperm as a contingency plan for having children of his genetic make-up should he no longer be able to produce viable sperm. If someone broke into the lab and stole the sperm, could he or she be charged with theft? Theft is a crime against property. Could Mr. Lam have donated his sperm to a sperm bank if he chose not to have his own children? What would happen if Mr. Lam had died? Would he be able to leave his sperm to his family or someone else in a will? Could he leave it to a sperm bank in his will? These are all questions that may arise if human sperm is generally classified as property.

Justice Bennett went on to confirm that "the nature and scope of property interests that a person can have in human sperm need not be decided on the facts of this case."[12] Justice Bennett also went on to note that the men contracted to store the sperm for their future personal use only and that:

The donor [in this case] could not either because of legislation or the storage agreement: i) dispose of the sperm by testamentary document, in other words leave it to someone in his will, ii) remove it from the storage himself; and iii) sell the sperm.[13]

Going Forward

While the Court was clear that sperm is considered property only on the specific facts of this case (exercising caution in limiting the scope of 'sperm as property'), it also shows that the Court was willing to find that human body parts can be 'owned' or defined as 'property' in some situations. Going forward it is clear that each case will turn on its facts and the specific clauses of any contract or legislation involved. However, this case is significant as there are very few cases that deal with human tissue or gametes as property in Canada, and this was the first case at the appellate level.