Perfunctory Independent Legal Advice Fails To Rebut The Presumption Of Undue Influence
Often, when a lawyer is working for both parties to a transaction or when a transaction may be disadvantageous to a party, the lawyer suggests that one or both of the parties receive independent legal advice. This means that the person goes to another lawyer who advises him or her of the consequences of following through with a certain course of conduct.
Many people view the use of independent legal advice similarly to insurance in that it works to insure that the transaction can not be easily set aside in the future. However, a recent British Columbia Court of Appeal decision illustrates that the independent legal advice must be fulsome. It cannot be simply going through the motions of visiting another lawyer who will sign off on the transaction.
In Cowper-Smith v Morgan, two brother's sought to set aside a series of transactions by which their late mother transferred title of the family home and her investments to herself and her daughter as joint tenants. Joint tenancy includes a right of survivorship so following the mother's death, the daughter became sole owner and the assets were excluded from the will which allowed a equal division of the estate assets between the three siblings. The daughter defended the transactions relying on the fact that her mother received
independent legal advice prior to the initial transfer. In fact, the mother had received legal advice from three lawyers. Despite what would superficially appear to be a glut of legal advice, the Court of Appeal upheld the trial judge's ruling that the advice was inadequate to allow the mother to make "free and informed consent" regarding the transaction.
Shortly after reaching maturity, the boys had both moved some distance from home with one residing in another province and the second moving to Britain. The daughter remained geographically close to her parents. Following the death of their father, the daughter took on a significant role caring for her mother and as her mother's cognitive functions declined, managing her property. In 2001 the family home was transferred to the daughter as joint tenant with her mother. Following this, approximately $600,000 in investments were also transferred to the daughter as joint tenant. Both the house and the investments were also made the subject to a declaration of trust that the daughter held title to the assets in trust for her mother with the daughter being a residuary beneficiary following the mother's death. The mother executed a will in 2002 which purported to leave her entire estate equally to the three children. However, since most of the assets were held jointly and subject to the trust, they were excluded from the estate property.
The family relations were not without strain and problems. The mother's brother, openly disliked one of the sons who was gay. He confronted the son and told him to stay away from his mother. In early 2001, the uncle interfered further by drafting a new will by which 50% of her assets would go to the daughter with the remaining 50% being split by the sons. The mother executed that will at the house with the neighbours acting as witnesses.
Shortly after, the uncle contacted another lawyer and advised that the mother needed a permanent will. According to the uncle, the earlier will was only intended to be temporary. The lawyer was told that the mother was having problems with the son who "had no decency" and that the uncle was "not sure if he is dangerous." The uncle advised that the son was bringing home unsavory friends and the mother wanted no contact with him.
At trial, the judge found as a fact that this conversation had set the tone for the future interactions between the lawyer and the mother. Effectively, it tainted the lawyer's viewpoint.
In May 2001 the lawyer met with the mother and daughter. Rather than meeting with the mother alone, the daughter was allowed to stay for the entire meeting. The daughter did most of the communicating and told the lawyer that the mother wanted the property put in trust because the sons wanted to take the house away. Before leaving, the mother did confirm that she wanted the property in trust and wanted the estate split equally.
Two weeks later, the daughter called and requested that the investments also be placed in the trust. Another two weeks later, the mother advises that she wants everything to go to the daughter but is afraid that the boys will be cross if this occurs. She adds that she is confident that the daughter is kind enough to do the right thing. The implication suggests that the daughter will be holding the assets with the intent to share them with her brothers following the mother's death.
At this point, the lawyer was becoming concerned about litigation so she contacted another lawyer and requested that independent legal advice be provided. That lawyer was not alerted to any specific concerns. His sparse notes barely cover the content of the conversation but he believed that he would have reviewed the language and effect of the documents including telling the mother that the effect of the documents was to disinherit the sons.
During the meeting, the lawyer placed a call to the daughter but failed to make notes of the length of the call or what was discussed.
In early 2002, the first lawyer drafted a new will for the mother which divided the estate equally between the three siblings. The lawyer failed to discuss with the mother which assets the will was to include.
Both the trial judge and the Court of Appeal were concerned by the inadequacy of the legal advice. Instructions were taken from the daughter and neither lawyer explained to the mother the financial implications of the transactions. Neither lawyer talked to other family members who might have suffered a loss. Additionally, the second lawyer failed to advise the mother of other options including less risky options for restructuring her assets.
The purpose of independent legal advice is to ensure that the person engaged in the transaction is entering into it with free and informed thought. Factors which demonstrate that a person had free and informed thought are:
(i) the lack of actual influence or opportunity to influence the donor;
(ii) the receipt of or opportunity to obtain independent legal advice;
(iii) the donor’s ability to resist any such influence; and
(iv) the donor’s knowledge and appreciation about what she was doing.
When assessing whether the independent legal advice is adequate, courts will consider:
1. Whether the party benefiting from the transaction is also present at the time the advice is given and/or at the time the documents are executed;
2. Whether, though technically acting for the grantor, the lawyer was engaged by and took instructions from the person alleged to be exercising the influence;
3. In a situation where the proposed transaction involves the transfer of all or substantially all of a person’s assets, whether the lawyer was aware of that fact and discussed the financial implications with the grantor;
4. Whether the lawyer enquired as to whether the donor discussed the proposed transaction with other family members who might otherwise have benefited if the transaction did not take place; and
5. Whether the solicitor discussed other options whereby she could achieve her objective with less risk to her.
In this case, the daughter's role in providing background and instruction together with the failure to inform the mother of the implications of the transfer or other options negated any value of the independent legal advice.
The Lesson: Independent legal advice is only as good as the lawyer's understanding of the facts and issues concerning the client. If a lawyer fails to ask questions and discuss the implications of a course of conduct, it is likely the advice is inadequate. Additionally, the lawyer should meet alone with the client without interference from other parties. Any translation services should be independent from family members.
Should you or a member of your family, require independent legal advice, please contact our office. We would be pleased to discuss your circumstances with you.
Cowper-Smith v Morgan, 2016 BCCA 200 http://www.canlii.org/en/bc/bcca/doc/2016/2016bcca200/2016bcca200.pdf
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