Skip to main content
This website uses cookies. By continuing to use this website you are agreeing to our use of cookies as described in our privacy policy.
Bulletin

The Doctrine of Unconscionable Procurement: A New/Old Weapon for Setting Aside Gifts?

Fasken
Reading Time 4 minute read
Subscribe

Estate Litigation Bulletin

The doctrine of "unconscionable procurement", which had fallen into disuse in Canada[1], was recently invoked by the Ontario Superior Court of Justice to void inter vivos transactions between a mother and her adult son: Gefen v. Gaertner, 2019 ONSC 6015.  This resurrection of an old cause of action affects both estate litigation and estate planning.

Henia Gefen ("Henia"), the widow of Elias Gefen ("Elias"), made significant inter vivos gifts to, and bestowed significant benefits upon, Henry, one of her three sons. These benefits included outright gifts of Henia's assets, agreements to compensate Henry for services in relation to the management of Henia's assets and both past and future debt forgiveness.  These gifts and benefits depleted the mother's net worth by at least 50% since Elias' death, all in favour of one child.

Under Henia's Will, her estate would have otherwise be shared amongst all three children.  Henia was alive but incapable at the time of the challenge made against Henry.

Henia's other two sons challenged these transactions on various grounds of attack, including "unconscionable procurement".  They were largely successful.  While the court did not find that the transactions were as a result of undue influence on Henia nor that lacked capacity to gift, many of the impugned transactions were set aside on the basis that they had been unconscionably procured from Henia by Henry.

The Court defined the doctrine of unconscionable procurement thus:

The doctrine of unconscionable procurement renders a wealth transfer transaction voidable, not void, and normal equitable defences apply. At issue is the donor's "necessary level of understanding to make a transaction conscionable when it takes place in circumstances that suggest, on a prima facie basis, the contrary.  It is a matter of flawed intent": John E.S. Poyser, Capacity and Undue Influence (Toronto: Thomson Reuters Canada, 2014), at p. 571.

The onus is on the party attacking the transaction to prove that it was unconscionably procured from the donor.  Once the attacker proves the basic elements (a significant benefit and the active involvement on the part of the person obtaining the benefit in the procurement or arrangement of the transfer) a presumption arises that the donor of the gift did not truly understand what she was doing in making the transaction.  The Court is then 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. This equitable doctrine does not require proof of incapacity or undue influence or culpable conduct on the part of the procurer. Unconscionable procurement requires that a "person who obtains a benefit from another by voluntary donation must establish that the donor did so voluntarily and deliberately, knowing what he was doing."

The presumption is not determinative. If on the evidence regarding the donor's actual understanding is equally weighted, the attacker will have failed to meet the onus and the transaction will stand.  The attacker must prove through evidence that the donor failed to have a conscionable understanding of what she was doing at the time of completing the transaction - in other words, did the donor appreciate the effect, nature, and consequence of the transaction in a manner sufficient to render it fair, just, and reasonable.

The ground of attack may be mounted by a person who only has a contingent interest in the assets/estate if the transaction were set aside.  This allows for inter vivos transfers to be attacked even where the donor's final estate plans have not come into effect and could be changed.  The doctrine applies only where the wealth transfer is significant or improvident.  However, where the conduct of the procurer is viewed as improper, the doctrine might apply even if the transfer is less a significant amount of the donor's net worth.

The successful use of the doctrine of unconscionable procurement requires the consideration of various factual elements, including:

    (a) the extent of involvement of the procurer in the transfer;

    (b) the degree of significance of the transactions in relation to total net worth;

    (c) the donor's justifications, if any, for the transactions and their reasonability; and

    (d)  the existence of proper capacity assessments of the donor where knowledge ad approval is a concern, including assessments of the donor's understanding and rationale for the transactions.

Overlayed on the assessment of the relevant facts is the court's view regarding the equity in the transaction, when taking all of the factors into account.

The revival of the doctrine of unconscionable procurement will increase the currently used grounds for the attack of both otherwise valid and perfected inter vivos or testamentary gifts and injects another equitable element in the review of challenged transfers.  This doctrine should give a ground for pause and consideration by both estate litigators who are assisting clients in cases where transactions are attacked and estate solicitors who might need to ensure that the evidence is there to meet a future attack on this basis.



[1]  The doctrine was referred to by the Alberta Court of Queen's Bench in a 2018 decision, Wasylynuk v Bouma, 2018 ABQB 159, affd 2019 ABCA 234, but it was not applied. The other two cases referred to by the Ontario Superior Court in relation to this doctrine dated from 1880 and 1913 respectively.

    Subscribe

    Receive email updates from our team

    Subscribe