The Importance of Getting Your Own Legal Advice When Assessing A Claim Of Undue Influence

Independent Legal Advice and Claims of Undue Influence

Undue influence is an equitable doctrine to save people from being victimized. There are two classes of cases involving transactions claimed to be induced by undue influence. In cases where the defendant and the supposed victim were in a relationship of dependency involving a potential for domination of the victim by the defendant, and the transaction involved a gift or bequest, undue influence is presumed and the burden lies on the defendant to show that the victim entered into the transaction as a result of his or her own full, free and informed thought. Where there is a possibility of undue influence, effective independent legal advice requires that the lawyer must not confine herself to confirming the client’s understanding of the legal mechanics and voluntary assent to the transaction. The British Columbia Court of Appeal decision in Cowper-Smith approved a list of considerations for evaluating the significance of legal advice received in assessing a claim of undue influence.

Davy v Davy Estate, 2019 BCSC 1826

In this case, the deceased, Darline Davy, died in 2012. She was predeceased by her husband and survived by her four adult children. Mrs. Davy’s youngest son, David, had been living with her since 1995 and caring for her since the death of her husband in the spring of 1996. Mrs. Davy had been suffering from dementia at the time or her death and her principal asset was her ownership interest in her house.

additional funds and transferred the home to herself and David as joint tenants. She also made a new will naming David as the primary executor and providing for the equal division of her estate among her children. Mrs. Davy was provided legal advice by Ms. McGowan, initially introduced as the lawyer acting for BMO Bank during the remortgaging transaction of her home. Ms. McGowan was later retained to complete the transfer of the home and to prepare Mrs. Davy’s new will.

In 2011, Mrs. Davy and David borrowed more money against the security of a second mortgage over the home. David received some of the funds borrowed through the 2007 and 2011 mortgages for his own use and to pay off accumulated personal debts. He used the rest for renovations to the home. The legal effect of the transfer of the home into joint tenancy was that, when Mrs. Davy died, the home passed to David and did not become part of Mrs. Davy’s estate. The remaining assets of the estate are inconsequential. David’s brother and sisters receive nothing.

Undue Influence

[52] Undue influence is an equitable doctrine to save people from being victimized by other people. A transaction induced by undue influence may be set aside. There are two classes of cases. The first class arises where the party seeking to set aside the transaction proves that the defendant engaged in improper conduct that dominated the will of the victim. That is not the plaintiff’s claim in this case.

[53] The second class of case arises where the defendant and the supposed victim were in a relationship of dependency involving a potential for domination of the victim by the defendant. In these cases, if the transaction involved a gift or bequest, as opposed to a commercial transaction, undue influence is presumed and the burden lies on the defendant to show that the victim entered into the transaction as a result of his or her own full, free and informed thought. In the case of a commercial transaction, there is a further requirement: the plaintiff must also show that the contract in question worked unfairness by conferring undue disadvantage on the victim or undue advantage on the defendant.

What is important is whether there is a potential for domination not in general but specifically in relation to the transaction in issue. In Turner at para. 154, Justice Verhoeven found that the defendant’s mother was not dominated by him in all respects but held that “what is relevant is whether their relationship was such that [the defendant’s mother] would be subject to a potential dominating influence by the defendant in relation to the transfer” (emphasis added). Justice Verhoeven found such a relationship existed because the mother was inclined to accept without hesitation the advice of her son (a lawyer) in legal matters, the transfer in question was prompted solely by the son’s suggestion, and the mother sought no advice from anyone else.

[65] In light of Mrs. Davy’s age, lack of financial sophistication, trust in and reliance on David in financial affairs, and in particular his assumption of a critical role in her banking, I find that, so far as financial dealings were concerned, this was a relationship in which Mrs. Davy depended on David and there was a potential for domination.

Presumption of Undue Influence

[69] Ms. McGowan’s role in the transaction was strictly limited. She was asked by a law firm that was working for BMO to witness the mortgage and other documents. BMO was her client. Mrs. Davy and David met her at the branch. They were provided with a letter from BMO advising them to obtain independent legal advice. They did not. Neither had ever met Ms. McGowan before. She was not acting for either of them and did not take notes

[74] First, I do not accept David’s account of the discussion on August 20, 2007 with Ms. McGowan. I accept that he was present. Ms. McGowan and David agree that Mrs. Davy asked Ms. McGowan if she did wills, and Ms. McGowan said that she did. This exchange set up the subsequent consultation with Ms. McGowan on September 17, but Ms. McGowan was not acting for Mrs. Davy or David at this meeting. I find that she made that clear.

[75] I reject David’s assertion that Mrs. Davy raised with Ms. McGowan her intention of leaving David the Home in her will on August 20, 2007, and was advised by Ms. McGowan to transfer 

the property into joint tenancy with David instead. Ms. McGowan was an experienced estates lawyer. Offering non-clients contentious advice, especially without a clear understanding of the circumstances, would have been reckless. I find that Ms. McGowan was clear as to her role and was not reckless.

[76] I find that Mrs. Davy had not yet settled in her own mind what she was going to do with the Home. Regardless of what she might do with it in the future or in her will, she understood that it was her property to dispose of on August 20.

[81] In short, the surrounding circumstances suggest that David instigated the 2007 mortgage transaction for his own benefit. Mrs. Davy entered into the transaction without independent legal or other advice. Ms. McGowan’s evidence concerning this transaction is unhelpful and David’s evidence is not credible. I am left without reasonable evidence of Mrs. Davy’s thinking in August 2007 that satisfies me that she signed the 2007 mortgage as a result of her own full, free and informed thought.

[82] It follows that the presumption of undue influence is not rebutted and, as between David and Mrs. Davy’s estate, the 2007 mortgage transaction must be set aside.

The Significance of Legal Advice in Assessing the Claim of Undue Influence

[115] The fact that a transferor received legal advice is always relevant to an assessment of the transferor’s intentions, but the significance of the advice depends on various considerations. In Cowper-Smith at para. 51, Justice Willcock, speaking for the majority, approved the following list of considerations (from Fowler Estate v. Barnes (1996), 142 Nfld. & P.E.I.R. 223 (Nfld. T.D.) and Coish v. Walsh, 2001 NFCA 41 at para. 23) for evaluating the significance of legal advice received in assessing a claim of undue influence:
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.

[116] In this case, as I have noted, David was present for at least some of Mrs. Davy’s discussions with Ms. McGowan and was treated by her as a client. The proposed transaction involved the transfer of ownership in what was by far Mrs. Davy’s most significant asset. There does not appear to have been any discussion of the financial implications for Mrs. Davy if she and David were to have a falling out. Ms. McGowan inquired as to whether Mrs. Davy had discussed the proposed transaction with other family members and received a false response. There was some discussion as to other options whereby Mrs. Davy could achieve her apparent objective of providing some substantial benefit to David in recognition of his care for her without completely disinheriting her other children, but the evidence of the discussion is incomplete. It is David’s case that, in the end, Mrs. Davy concluded that her other children must be disinherited; if that is so, her discussions with Ms. McGowan shed no light on her reasoning.

[117] The absence of discussion of the potential financial implications of the joint tenancy is particularly important. The cases establish that, where there is a possibility of undue influence, effective independent legal advice requires that the lawyer must not 

confine herself to confirming the client’s understanding of the legal mechanics and voluntary assent to the transaction. In Cowper-Smith at para. 52, Willcock J.A. held that that these are cases in which an independent legal advisor should be:

… satisfied that “the gift is one that is right and proper in all the circumstances of the case, and if he cannot so satisfy himself he should advise his client not to proceed”.

[quoting Halsbury’s Laws of England (4th Ed.), vol. 18, para. 343, at p. 157]

Willcock J.A. added:

[53] Assessing the adequacy of the legal advice given is a fact-specific inquiry. It does not reduce to any precise test. In some circumstances, it may require advice on only the nature and consequences of the transaction. However, where concerns or allegations of undue influence arise, generally there will be a need to give “informed advice” on the merits of the transaction.

[Emphasis added.]

[118] The point is not that the lawyer must refuse to accept instructions that are not substantively right and proper. Instead, the jurisprudence emphasizes that the lawyer’s duty to ensure that her client understands and freely assents to the transaction at hand sometimes requires the lawyer to go well beyond an explanation of the narrow legalities to an assessment of the client’s understanding of the substance of the transaction and its implications. This broader duty is engaged where it should appear to the lawyer, on the facts presented to her, that there is a real possibility of undue influence.

[119] In my view, this was a case that engaged the broader duty to inquire into Mrs. Davy’s understanding of the substance of the transaction and its implications. Ms. McGowan understood that the transfer of the Home into joint tenancy would favour David over his siblings. David had accompanied Mrs. Davy to the appointment. Ms. McGowan’s treatment of Mrs. Davy and David as clients under a joint retainer suggests that Ms. McGowan was looking to both of them for instructions. Ms. McGowan was told that David was taking care of Mrs. Davy. These circumstances raised the possibility of undue influence. Ms. McGowan’s evidence does not suggest that she was alert to this possibility. It may be that part of the reason alarm bells failed to go off for her lies in the misinformation she was provided. For all that Ms. McGowan knew, the transfer into joint tenancy had been discussed with the other children and was not contentious.

Estate Litigation Lawyer Angela Price-Stephens

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