Canada: Legal Title Ain't What It Used To Be - The Importance Of Estate Planning And Documenting Intentions

Last Updated: September 11 2017
Article by Ari Wormeli

The case of Warde v. Slatter, 2017 BCSC 274 involves a company, started by the parents of the husband.  The husband and his spouse were both involved in running the company.  The company had become quite successful, and then, apparently, became mired in litigation and its value was significantly reduced.  The legal title to the shares was held by the husband's mother.  The dispute was about whether or not the beneficial interest in the shares belonged to the husband's mother, the husband, or both the wife and the husband.

The judgment also contains, at paragraphs 7-15, and again at paragraphs 58-61, an excellent summary of some of the basic principles of trust law which can sometimes get muddied.

There are two paragraphs that are particularly pertinent in the judgment.  The first is this:

[2] Before their separation, Elaine and Brian ran Slatter Holdings Ltd and its predecessor, PeeJay Contracting Ltd.  They treated it as though they owned it, and no one challenged that position until they separated.  At that point, Brian's mother, the respondent Fern Slatter, asserted ownership and dismissed them both from their positions as officers and directors of the company.

While the judgment itself goes into a lot of details of the evidence, the point is that the evidence essentially boiled down to the company always being intended to go to the husband, but the actual transfer, for a variety of reasons, never actually happened.  The husband and his mother, after a marital separation from the wife, appeared to seize on this as a clear indicator that it was, in fact, never intended to go to him at all.

Nevertheless, in the face of the parties treating the company like their own, to the extent that the husband actually felt comfortable using the shareholder's loans which contained capital not injected into the company by him, this failure to complete was insufficient to make the husband and his mother's case.

There are two important principles to be derived from this case.  The first, as a matter of law, is that you can't allow people to just casually take over a business in all but name and expect that the "all but name" portion will save you or your family's investment.  It's hard to conduct business and everyday life very casually one day and then expect technicalities to save you the next, particularly in family law litigation, which is a very different beast.  If someone is going to be given control of a company and the ability to both use it and keep the profits as they see fit, there needs to be very strong documentation and explanations of just how it is that someone else retains an interest in that company to avoid a result similar to the one in this case.

The second is that , when faced with a problematic position such as the one the husband and the mother were in, fighting to the bitter end can be counterproductive (though, of course, we don't know what settlement offers may have been exchanged).  The  other paragraph from the judgment, which is a warning to litigants, is this one:

[5] The story is not a happy one.  The business that became PeeJay Contracting Ltd was started by the late Grant Slatter–Brian's father and Fern's husband.  Over the years, it was built into a business that was ultimately sold for a handsome sum, which proceeds became the principal asset of Slatter Holdings.  All of the parties contributed at different times to the building of the business.  It was not easy.  They built it through the sweat and effort of long, cold, hard hours.  Now, years of litigation have significantly reduced the value of the company's assets. 

As a result of the finding that the son is essentially the 100% beneficial owner, the wife will almost certainly have some type of share, and it may be significant (though there may be interesting arguments about excluded property and perhaps no increase in value to share, depending upon when it went downhill and what the circumstances were).  The bottom line, however, assuming a 50/50 split, is that both parties are worse off.  Indeed, if there are issues of exclusion, such that the husband is, say, entitled to 75%, that means he's actually lost more fighting this because he's got 75% of something significantly less than it was.  In other words, the company over which the parties were fighting has essentially been significantly depleted by the fighting, rather than the parties being able to share in the more valuable company before litigation.

These kinds of reactions, where people dig their heels in, are not uncommon in family law.  What is tragic is when people allow themselves to be so guided by it that they end up, essentially, shooting themselves in the foot. The fact that, as indicated in the judgment, the husband thought he could actually sell the business himself because he owned it; the fact that he didn't sell it came as a "revelation" to the lawyer assisting with the sale, was an indication about the degree to which he assumed ownership (though not determinative of the question, as the judge rightly points out—that stems, essentially, from his mother's intention in letting him do everything that he was doing).

It should be noted that while there are several of these types of cases reported which occurred under the former Family Relations Act (FRA), this is one of a few that's been reported on this point since the new Family Law Act came in.  While hopefully the parties can resolve their differences out of court, it would be interesting to see the next steps play out if it continues to be litigated.

The big takeaway, though, is that better estate planning or a cohabitation agreement (sometimes called a prenup) could have helped significantly here.  For example, if the intention truly was to keep it for the benefit of the mother, a discussion could have been had about the husband doing work and running the company for a fair remuneration, but with the notion clearly spelled out that the husband's mother was to be the beneficiary, along with a discussion about what that looks like (i.e., dividends paid out to her).  A cohabitation agreement might also have been signed between the husband and wife in which the wife acknowledged this.

Alternatively, if the company was to be transferred to the husband, a cohabitation agreement could have been signed indicating the value of the company, that it was an excluded asset, and that the increase in value would all go to the husband (in the modern era).  When the parties got together, it was under the FRA, and some different rules applied, and there are issues about the duration of the relationship and how much it would have held up, it could have left the husband in a better position.  It would have also meant that the parties would have talked to each other and to legal counsel about their expectations, and could have received advice about how to behave to increase the chances that those expectations would be upheld.

About Mackrell International – Canada - Lindsay Kenney LLP is a full service business law firm with offices in Vancouver and Langley, BC and a member of Mackrell International. Mackrell International – Canada is comprised of four independent law firms in Alberta, British Columbia, Ontario and Quebec. Each firm is regionally based and well-connected in our communities, an advantage shared with our clients. With close relations amongst our Canadian member firms, we are committed to working with clients who have legal needs in multiple jurisdictions within Canada.

This article is intended to be an overview and is for informational purposes only.

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