Court Resurrects Long-Ignored Equitable Doctrine to Deal with Inter Vivos Estate Gifts
Everything old, is new again. In a recent decision an Ontario court has considered – and ultimately applied – an equitable legal doctrine that has been around for more than 100 years.
It’s the doctrine of “unconscionable procurement”, and it was last applied by Canadian courts more than a century ago – and even then, only rarely. Since then it seemed to drop off the judicial landscape, until recently when it was resurrected in a case called Gefen v. Gaertner.
The doctrine of “unconscionable procurement” can be used to challenge gifts made to a person by another person who is still alive (also known as inter vivos gifts, as distinct from gifts made by a deceased person under a Will). In Gefen it was raised as part of a bid by two sons to set aside a substantial monetary gift made inter vivos by an elderly mother to her third son.
At the time of the intended gift, the three sons’ father had already died. Despite the existence of mirror Wills made in 2007, in which the mother and father left everything to each other and then to each of their three sons in equal shares, after the father died the mother gave a significant $25 million gift to one son and his family. That gift was made while the mother was alive, and represented more than one-half of her entire estate.
The other two sons objected, and challenged the gift on the basis that the doctrine of “unconscionable procurement” applied. In equity, if there has been a significant wealth transfer in favour of a person who had an active hand in procuring it, then there is a presumption that the gift is unconscionable and should be set aside, unless it can be shown that the donor fully understood the gift’s effect, nature and consequence.
In this case, the mother’s $25 million wealth transfer certainly met the “significant” threshold; the court also confirmed the recipient son had been “actively involved in the arrangements for and documentation of” the transactions benefiting him and children, by bringing his mother the necessary typed or handwritten documents to sign. The presumption therefore arose that the mother did not appreciate the nature, effect and consequences of the transactions to the point where they were fair and reasonable. It was up to the recipient son to demonstrate otherwise, on a balance of probabilities.
The court concluded that the two prerequisites for applying the doctrine had been met in this case; however, the presumption was rebutted on the evidence by the recipient son, who had succeeded in showing that his mother’s donation to him had been voluntary and deliberate, and had been made with her knowing full well what she was doing. A psychiatrist’s testimony to this effect was put forward.
What makes the doctrine of “unconscionable procurement” noteworthy, is it distinction from other more commonly-used methods for challenging an inter vivos gift, which involve either looking at the mental capacity of the gift-giver, or looking at whether he or she was being unduly influenced at the time it was made.
Instead, as the court in Gefen explained, “The court is to look at the impugned transactions with its moral sense awakened and with a view to determining whether it would be unconscionable to allow the transaction to stand.”
For the full text of the decisions, see:
Gefen v. Gaertner, 2019 ONSC 6015 (CanLII)
Gefen v. Gaertner, 2019 ONCA 233 (CanLII)