Issue 377
Issues added on the 7th and 21st of every month.
HIGHLIGHTS
The British Columbia Court of Appeal has issued a decision setting limits on when unpaid labour contributed by farm children to their parents may constitute grounds for an unjust enrichment claim. Four farm children had provided significant uncompensated labour to their parents when they worked on their parents' dairy farm in their teenage years, with a vague promise that some day it would be theirs. The parents later gifted their interest in the corporate family dairy farm (now valued at over $12 million) to one of the 4 children and left the remaining 3 children with preferred shares in the dairy farm which had a total estimated value of approximately $900,000.00. The Court concluded that public policy provided a "juristic reason" for denying compensation to children who were required to do chores, unless the chores could be characterized as exploitative. The Court suggested that exploitation might be established by economic benefits provided to parents that are gross disproportionate to the benefits received by children as members of the family, or if the work is manifestly detrimental to the health or well-being of the children. The Court also considered the "value received" and the "value survived" approaches for assessing unjust enrichment damages. The Court of Appeal set aside a trial judgment which awarded each of the 3 children $350,000.00 in damages (less the value of the preferred shares), and concluded that the amount of the damage claim was not warranted, in any event. (McDonald v. McDonald Estate, CALN/2017- 053, [2017] B.C.J. No. 1352, British Columbia Court of Appeal)
NEW CASE LAW
Full text: [2017] B.C.J. No. 1352;
British Columbia Court of Appeal,
Unjust enrichment -- Value of Work Done by Farm Children.
Sylvia McDonald ("Sylvia") and Sylvia McDonald as Executor of the Estate of Samuel
Alexander McDonald ("Samuel" and the "McDonalds") appealed to the British Columbia Court of Appeal from a Supreme Court trial decision which awarded 3 of the McDonalds' children - Brian, Dean and Julie McDonald ("Brian", "Dean" and "Julie") judgments of
$350,000.00 each for work they had done on the McDonalds' dairy farm while they were teenagers.
The McDonald family had operated a dairy farm on Nicomen Island, near Mission, British Columbia since the 1860's. Samuel took over the farm's operations in the 1940's with the hope that he would ultimately acquire title. He made payments to his surviving siblings to compensate them for the loss of an opportunity to acquire the farm. In 1958, Samuel married Sylvia, who had lived on a neighbouring farm.
Between 1959 and 1965 Samuel and Sylvia had 4 children - Julie, Brian, Dean and Robert McDonald.
In 1968, Samuel and Sylvia acquired a nearby 30 acre parcel which had been owned by Sylvia's mother.
In 1974, Samuel's mother transferred title to the dairy farm, which was then 100 acres, to Samuel and Sylvia.
In 1983 Samuel and Sylvia incorporated McDonald Landing Farms Ltd. They transferred all of their assets to the company except for a 15% interest in the 100 acre farm which they continued to own personally. In exchange they received preferred shares with a redemption value of $907,000.00 and indebtedness by way of shareholders' loans of $300,000.00. Samuel and Sylvia continued to hold the common shares in the company.
The dairy farm was modernized by the construction of a new milking parlour in 1987 which was financed, in part, by $35,000.00 loans from Brian, Robert and Dean which they had obtained as an inheritance from Sylvia's mother. These loans were eventually repaid. The farm expanded in 1989, and again in 1996 with the acquisition of the farm on which Sylvia had grown up.
In 1986 Samuel and Sylvia prepared Wills. They wished to ensure that the family farm survived and for this purpose they left it to Robert. Their Wills provided that on the death of the survivor, the preferred shares would be divided equally between Julie, Brian and Dean who could redeem these shares over a period of time. The residue of the Estate (including the common shares and the 15% interest in the 100 acre parcel) were bequeathed to Robert.
In 2000, Samuel and Sylvia's accountant attended a conference with the McDonalds which dealt with Estate planning. He expressed the concern that the Wills could be subject to potential challenges under the British Columbia Wills Variation Act. After this conference, Samuel and Sylvia made a gift of their common shares and their shareholders' loans to Robert in June of 2000 to avoid a potential challenge to their Wills. They then revised their Wills and left their entire Estate first to each other and then equally to Julie, Brian and Dean.
Samuel died on June 9, 2005. His Estate, consisting of the preferred shares in McDonald Landing Farms Ltd. went to Sylvia who also became owner of the 15% interest in the 100 acre parcel which had been held in joint tenancy.
On January 12, 2006, Sylvia transferred her 15% interest in the 100 acre parcel to herself and Robert as joint tenants.
In 2009, Brian, Dean and Julia became aware that the farm assets other than the preferred shares had been given to Robert. They commenced concurrent actions for unjust enrichment against Sylvia and their father's Estate.
The trial Judge found that at the date of trial, the farm had a value of in excess of $12 million and liabilities of approximately $2.4 million which included the redemption value of the preferred shares. By the time of trial in the fall of 2014, Sylvia had been diagnosed with terminal illness, and was too ill to testify.
During their working years, Samuel and Sylvia had operated the dairy farm on their own, without assistance of paid farm hands. The trial Judge found that as soon as their 4 children were able to do so, they helped out on the farm by doing a significant amount of chores which increased as they got older. The trial Judge found that the chores they performed were not economically productive until they reached middle school, but by the time they were teenagers, they were able to do valuable work which added to the value of the farm and provided a measurable benefit to Sylvia and Samuel. They were, from time to time, told that if they worked hard, some day the farm would be theirs.
With respect to the individual Plaintiff children:
- Julie did some part-time work away from the farm in grade 12, but continued with unpaid chores until then. After graduating from grade 12, she took employment away from home, but did return home from time to time to do casual work. When she did so she was paid competitive wages for her work.
She was provided $100,000.00 for a down payment on her ranch which she and her husband purchased, which was described as an advance on her inheritance.
Brian completed 1 year of post-secondary education after graduating from high school. He returned to work on the farm in 1982 and worked there as a full-time paid employee until 1989 when he suffered a very serious injury while working on the farm. He was awarded worker's compensation and could not do significant productive work after the accident. Samuel and Sylvia requested Robert to provide Brian with rent free accommodations on the farm for the rest of his life.
3. After leaving high school in 1984, Dean initially worked part-time for the farm for a year, and was paid a competitive salary for doing so. In 1995, following a disagreement with Robert, Dean went to work on tug boat crews returning from time to time to do casual labour on the farm for which he was paid.
The trial Judge found that the work performed by Brian, Dean and Julie before their teen years was not of real economic value and so could not constitute an unjust enrichment of Sylvia and Dean and that, in addition, there were "public policy reasons" to deny compensation because the childhood efforts of these Plaintiffs, while extraordinary as measured against the majority of Canadian households, were not so extraordinary in the context of a farming household in which all family members are expected to pitch in and perform chores for which strangers would normally have expected compensation.
The trial Judge also denied their claim for compensation for the work they did after they graduated from high school, because he found they were fully compensated for this work.
The trial Judge found that during their teen years, the 3 Plaintiffs did valuable work for the farm which enriched Sylvia and Samuel, for which there was no juristic reason and no policy reason for denying recovery. The trial Judge found that this work significantly increased the value of the original 100 acre farm and that Samuel had either explicitly or implicitly warranted that their reward would come in the form of a share of the farm, which was never denied.
The trial Judge did not assess the enrichment on a "value received basis" - by assessing the value of the work provided, but on a "value survived basis" based on the roughly equivalent value contributed by each of the Plaintiffs to the increased value of the farm as an asset. The trial Judge used the value of the preference shares ($907,000.00) as representing the value of approximately three quarters of the farm's worth and valued each child's share as approximately $300,000.00. He concluded that equity required each of them to be treated equally based on the proportionate contribution each of them had made to the date the Wills were made. He assessed their damage claim at $350,000.00 each.
Recognizing that this might result in a double recovery, the trial Judge directed that each damage claim be reduced by the amount they received for their preferred shares. He declined to reduce Julie's damage award to take into account the $100,000.00 advance on inheritance which was not mentioned in either the 1996 or the 2000 Wills of Samuel and Sylvia.
The trial Judge also made a special order with respect to Brian by giving him liberty to make a court application with respect to the ongoing use of the 40 acre parcel of land on which he currently resided. No appeal was taken from this aspect of the award.
Decision: Groberman, JA (Harris and Fenlon, JJA concurring) allowed the appeal, set aside the claims for damages, and dismissed the claims for unjust enrichment as well as ancillary claims under the Fraudulent Conveyances Act. A cross-appeal brought by Julie was also dismissed [at para. 102].
Groberman, JA summarized the basic requirements for an unjust enrichment claim as follows [at para. 64]:
[64] In Garland v. Consumers' Gas Co., [2004] S.C.J. No. 21,2004 SCC 25 (CanLII), Iacobucci J. summarized the basic requirements for an unjust enrichment claim as follows:
[30] As a general matter, the test for unjust enrichment is well established in Canada. The cause of the action has three elements: (1) an enrichment of the defendant; (2) a correspondening deprivation of the plaintiff; and (3) an absence of juristic reason for the enrichment (Pettkus v. Becker, 1980 CanLII 22 (SCC), [1980] 2 S.C.R. 834, at p. 848; Peel (Regional Municipality) v. Canada, 1992 CanLII 21 (SCC), [1992] 3 S.C.R. 762, at p. 784).
He observed [at para. 65] that all parties accepted the judge's finding that the farm work performed by the Plaintiffs during their teenage years conferred a benefit on Sylvia and Samuel and a corresponding deprivation to the Plaintiffs. The only issue was whether there is a juristic reason for the enrichment.
Groberman, JA quoted the "absence of juristic reason test" from Garland at para. 66 which referred to established categories that can constitute juristic reasons, such as contract, disposition of law and a donative intent, as well as the prima facie case of rebuttable presumption where the Defendant can show there is another reason to deny recovery which results in a de facto burden of proof placed upon Defendants to show why the enrichment should be retained, and which involves two factors, including the reasonable expectations of the parties and public policy considerations.
Sylvia and Samuel's Estate contended that as a matter of public policy, work done by a teenager for a family enterprise should not be accorded a remedy on unjust enrichment absent extraordinary circumstances.
Groberman, JA [at para. 70 and 71] observed that there is a normal societal expectation that children, and particularly older children, will assume responsibility for household tasks, and that they do not have a legal entitlement to be paid every time they perform routine chores, but on the other hand, parental demands on teenagers to perform unpaid chores could, at some point, exceed the level of societal tolerance and may be properly characterized as exploitative, and that there is no public policy in favour of allowing parents to engage in the economic exploitation of their children. He summarized the issue as follows [at para. 72]:
[72] The question, then, is not whether public policy and reasonable societal expectations can provide a juristic reason to deny an unjust enrichment to a teenager in respect of unpaid chores. Clearly they can. Rather, the question is the articulation of the public policy. How far does the juristic
Groberman, JA referred to a number of cases in which courts had considered the unjust enrichment claims for work done by children for their parents: Strudwick v. Strudwick Estate (1996), 1996 CanLII 2240 (BC SC), 21 R.F.L. (4th) 185 (B.C.S.C.); Kreeft v.
Kreeft (2001), 2001 BCSC 893 (CanLII), 39 ETR (2d) 233 (B.C.S.C.); Oliver v. Blais
(November 21, 2014), Winnipeg PR10-01-84749, (Man. Q.B. Gen. Div.), aff'd 2015 MBCA 99 (CanII), leave to appeal ref'd [2015] S.C.C.A. No. 515 and Antrobus v.
Antrobus, 2009 BCSC 1341 (CanLII), rev'd on quantum only, [2010] B.C.J. No. 1433, 2010 BCCA 356 (CanLII). He observed in the Antrobus case was extraordinary, both because of the crushing burden of chores that had been assigned to the Plaintiff, and because the Plaintiff had been promised substantial compensation for doing chores [at para. 76].
Groberman, JA concluded by suggesting that "exploitation" might be characterized by economic benefits to parents that are grossly disportionate to the benefit that the children have as members of the family, or by work by children that is manifestly detrimental to their health or well-being stating at para. 77 to 80:
[77] In general, we see the performance of chores by children in a family as positive. Such work fosters a sense of responsibility and of family. Ideally, in doing chores, children gain valuable work experience in an environment that is not overly competitive or taxing. They can learn and experience the importance of doing tasks for others without expecting monetary compensation.
[78] These public policy considerations mean that the performance of unpaid chores by children in a family setting will not usually raise issues of unjust enrichment. There are, however, limits that must be observed. While unjust enrichment principles should not interfere with the ability of parents to assign routine chores to their children, they will ensure the children do not fall prey to exploitation.
[79] The parties to this appeal have not, in argument, fully explored the issue of what boundaries ought to be applied in deciding when the law will grant unjust enrichment remedies in respect of chores performed by children. In the absence of full argument, it would be unwise for the court to attempt any exhaustive enumeration of what features might make chores "exploitative". I would suggest, however, that exploitation may be characterized by economic benefits to the parents that are grossly disproportionate to the benefits the children have as members of the family, or by work by the children that is manifestly detrimental to their health or wellbeing.
[80] In the present case, the judge specifically found that the work assigned to the plaintiffs was "not so extraordinary in the context of [a] farming household where the social norm [is] that all family members pitch in and perform chores for which strangers would have expected compensation"., the judge noted that the children engaged in leisure and outside social activities. While the family lived frugally, there was no suggestion of economic deprivation, nor was it suggested that the children were treated by the parents as "profit centres".
Groberman, JA also concluded that even if the Judge had been correct in finding that a claim could be brought for unjust enrichment, his damage assessment was erroneous, in that there was no basis for estimating the proportion of farm assets attributable to unpaid labour by examining the Wills of Samuel and Sylvia which were prepared in 1996 or 2000, stating, at para. 84 to 92:
[84]Unjust enrichment claims may be assessed either on a "value received" or a "value survived" basis: Wilson v. Fotsch; Kerr v. Baranow, [2011] S.C.J. No. 10,2011 SCC 10 (CanLII); BCI Bulkhaul Carriers Inc. v. Wallace,2017 BCCA 180,[2017] B.C.J. No. 911 (CanLII). Both bases of assessment begin with a valuation of the benefit conferred on the defendant. For a "value received" assessment, the court must determine the economic value of the benefit conferred by the plaintiff on the defendant at the time of the enrichment. For a "value survived" assessment, the court must determine what proportion of an assets was acquired or preserved as a result of the plaintiff's conferral of a benefit on the defendant.
[85] In this case, the judge considered that a value survived approach was appropriate. The parties do not suggest that the judge erred in his choice of assessment approaches. The McDonald farm was a joint family enterprise, into which the children's labour was invested. Accordingly, the measure of any unjust enrichment is appropriately based on the proportion of farm assets that were acquired or preserved through the children's unpaid work.
[86] The judge, unfortunately, did not assess damages by estimating the proportion of farm assets attributable to the unpaid labour supplied by the plaintiffs. Instead, he treated the 1996 wills of Samuel and Sylvia as fixing the appropriate compensation. There was no basis for doing so.
[88]A brief examination of the evidence and the judge's findings demonstrates that the value of the property bequeathed to the plaintiffs in the 1996 wills (and in the 2000 wills) vastly exceeded any possible benefit conferred by the plaintiffs on the defendants by virtue of unpaid chores performed as teenagers.
[89]The judge found that over a period of approximately seven years, the collective efforts of the four children resulted in the defendants not having to hire a farmhand.
[90] The best evidence of the cost of hiring a farmhand at the relevant period was the evidence of what Julie was paid when she went to work as a milker on another farm...
[92] Using the $750 per month figure, over a period of seven years, the total salary that the defendants saved by not having to hire a farmhand would have amounted to $63,000.00.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
