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In Cowper-Smith v Morgan, 2017 SCC 61?[Cowper-Smith], the Supreme Court of Canada (“the Court”) brings back painful memories of first-year Contracts and attempts to clarify the complex equitable doctrine of propriety estoppel despite several differing interpretations.
Estoppel is an equitable doctrine which arises when one party acts on the reliance of the promise of another. This promise and reliance creates a quasi-contract, though no formal one was made, with reliance acting as an alternative to consideration usually required in contracts. Proprietary estoppel is different from other equitable estoppels—such as promissory estoppel, which can only act as a defence, or a ‘shield,’ when the promisor insists on his or her legal rights—in that a proprietary estoppel can act as a ‘sword’ and found a cause of action. If all the parts of proprietary estoppel are made out, a court can determine whether a modification or creation of property rights are appropriate to satisfy the equity.
In order for proprietary estoppel to exist, the court must first determine whether equity exists, which requires all of the following elements:
- a person makes a representation or promise, upon which the claimant expects some benefit or right over property;
- relying on that assurance, the claimant does something or refrains from doing something, and that reliance is reasonable in the circumstances; and
- the claimant suffers a detriment as a result of that reliance “such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on her word” (para 15)
Proprietary estoppel protects this equity and works to avoid the unfairness or injustice that would result to the claimant if the promisor were allowed to break her word.
Elizabeth and Arthur Cowper-Smith had three children (Nathan, Max, and Gloria) and owned a house in Victoria, British Columbia. The parents explained to the children shortly before Arthur’s death that they would leave their estate equally divided among the three to avoid animosity. However, in the final years of Elizabeth’s life, discord grew between Gloria and her brothers. As Elizabeth’s health deteriorated, Max left his home in London, England and moved into the Victoria home to take care of his mother. Max did so at the request of Gloria who promised that he would be able to live in the house permanently and acquire Gloria’s one-third interest in it.
Before her death, Elizabeth transferred title of the Victoria property to Gloria in a trust, and executed a new will naming Gloria as the executor, but still dividing the estate equally between the three children. Eight months after Elizabeth’s death, Gloria informed her brothers that she would put the house on the market, although Max was still living there.
Soon after, Nathan and Max sought an order to set aside the trust declaration, arguing that it was the result of Gloria’s undue influence over Elizabeth, and that the estate must be equally divided between the three. The brothers also argued that Max was entitled to purchase Gloria’s one-third interest in the house on the basis of proprietary estoppel. The trial judge found for the brothers, on the grounds that Gloria had not rebutted the presumptions of undue influence that resulted in the trust. The trial judge also held that proprietary estoppel arises to enforce Gloria’s promise to Max.
The British Columbia Court of Appeal (“BCCA”) unanimously upheld the trial judge’s decision on undue influence but split on the issue of proprietary estoppel. The majority found that proprietary estoppel could not arise because Gloria did not own interest in the property when she made the arrangement with Max. Max appealed the BCCA’s decision on proprietary estoppel.
Representation and Detriment
Chief Justice McLachlin, writing for the majority, found that Gloria’s promise and Max’s expectation that he would enjoy a right—Gloria’s eventual one-third interest—over the Victoria home satisfied the first requirement for an equity.
It was not disputed that Max suffered a detriment and the Court agreed with the trail judge’s findings that “Max acted to his detriment in moving from England to Victoria, giving up employment income, the long-term lease of a cottage, his contacts with his children, and his social life to look after his aged dementing mother” (Cowper-Smith,?para 24). This detriment thereby met the third element of an equity.
The main issue on appeal was whether Max reasonably relied on the expectation that he would receive Gloria’s eventual one-third interest. The trial judge found that Max’s reliance was reasonable in the circumstances, but the BCCA agreed with Gloria’s argument that his reliance could not have been reasonable since she did not own an interest in the property when she made the assurance.
The Court, however, disagreed and insisted that in terms of reasonableness “[w]hat matters is what one party induced the other to expect” (Cowper-Smith,?para 26). Rather than the actual interest, reasonable reliance depends on the assurance, which “must be unambiguous and must appear to have been intended to be taken seriously,” and whose meaning “would reasonably have been understood as intended to be taken seriously as an assurance which could be relied upon” (para 26, quoting Thorner v Major,sbobet แจกเครดิตฟรี  UKHL 18 [Thorner]).
To emphasize the importance of the promise, Chief Justice McLachlin compared contract, which is subject to the doctrine of frustration and must be performed “come what may,” with equity which:
“looks backwards from the moment when the promise falls due to be performed and asks whether, in the circumstances which have actually happened, it would be unconscionable for the promise not to be kept” (Cowper-Smith,?para 28, quoting Thorner).
Finally, the Chief Justice rejected the BCCA’s “bright line rule” that reliance on a promise made when the promisor has no present interest in the property can never be reasonable as “out of step with equity’s purpose, which is to temper the harsh effects of strict legal rules” (Cowper-Smith,?para 29).
The majority accepted the trial judge’s findings that the children believed for over a decade that Arthur and Elizabeth desired to leave their estate split equally amongst the three. Since both Gloria and Max had this belief at the time of the promise, Max could take her assurance of one-third interest seriously. Therefore, the majority agreed with the trial judge that Max’s reliance was reasonable.
Proprietary Estoppel vs. Equity
Chief Justice McLachlin found that the BCCA had conflated “proprietary estoppel with the equity to which it gives effect” by holding that there cannot be proprietary estoppel when the promisor does not own an interest in the property at the time of assurance. Instead the Chief Justice insisted that the equity arises at the time of detrimental reliance, and that as soon as the promisor acquires interest in the property, proprietary estoppel attaches to the interest in order to protect the equity (Cowper-Smith,?para 35). In Max’s case, the majority found that an equity arose when Max, relying on Gloria’s promise moved to Victoria, suffering a detriment, but that proprietary estoppel did not protect that equity since she did not yet own an interest in the property. In order to fulfill her promise to Max, the majority ordered Gloria, as executor, to divide the estate into equal one-thirds, and that as soon as she does, proprietary estoppel attaches to her third which she must sell to Max.
The majority further ruled that Max could purchase Gloria’s interest at the fair market value “as of the approximate date on which he would reasonably have expected to be able to do so in the first place,” that is when Gloria should have administered her mother’s estate after her death, rather than the value of her share at the time proprietary estoppel attached to the interest (Cowper-Smith,?para 55). They reasoned that when the assurance and detriment occurred, neither Max nor Gloria would have contemplated waiting over a decade to exchange the interest, and had Gloria fulfilled her promise, Max would have purchased her interest shortly after Elizabeth’s death.
Both Justices Brown and C?té agreed with the majority’s findings on proprietary estoppel, but dissented on the appropriate remedy. They concurred with the Chief Justice that “an equity sufficient to ground a claim in proprietary estoppel may still arise where the promisor does not in fact hold that right or benefit at the time of making the promise” (Cowper-Smith,?para 65). However, Justice Brown disagreed on the time at which equity arises, finding that it does so “only if and when the promisor obtains the right or benefit that was promised to the claimant” (para 65). In Justice Brown’s view, the equity did not arise at the time of Max’s detriment, but only at the moment Gloria obtained the interest she promised Max, which would be at the conclusion of the decision. He therefore would have allowed Max to purchase Gloria’s third interest at the fair market value as of the date of the Court’s order.
Justice C?té parted ways with both the majority and Justice Brown as to the scope of the Court’s remedial power in this case. In her view, despite the presence of equity and proprietary estoppel, “a court cannot order an executor to distribute shares of an estate in a manner that disregards the testator’s express intent” (Cowper-Smith,?para 74). Because Elizabeth’s last will and testament made Gloria the executor with the discretion to administer the estate, Justice C?té viewed the Court’s remedy—an order compelling Gloria to distribute three equal shares—as an improper substitute for Gloria’s determination as executor and Elizabeth’s wishes. Although Elizabeth’s will expressed the desire that the estate be divided equally among the three children, Justice C?té insisted that a court-ordered distribution is not consistent with Elizabeth’s wish that Gloria administer the estate. To illustrate her point, Justice C?té noted that if there were a different executor other than Gloria, the Court would not have the jurisdiction to order the executor to distribute the shares as the majority had.
As much as the Court may have tried to honour Arthur and Elizabeth’s wishes, it is unfortunate that sibling animosity made effecting the wish of maintaining harmony in the family impossible. In this case, the law of equity worked to rightly achieve fairness for Max, despite the lack of an express contractual obligation, but did not prevent contention over the estate. Moreover, the complexity of proprietary estoppel created wide disagreement between the lower courts, the Chief Justice, and Justices Brown and C?té on how and when it arises, demonstrating the difficulty of understanding equitable doctrines and suggesting that students’ struggles to understand estoppel are justified.