This week on Legally Speaking with Michael Mulligan:
When the divorced father of an adult child with learning disabilities was diagnosed with terminal cancer, he established a trust with $750,000 to provide for his son following his death.
As he had been through an acrimonious divorce, the father was concerned that his ex-wife did not get access to the funds for her own purposes. To prevent this the father made his two sisters trustees with broad discretion to use the funds to assist his son.
The ex-wife, with whom the son lived, had the son sign a power of attorney permitting her to commence a lawsuit on behalf of the son seeking to remove the sisters as trustees and to take over the administration of the trust herself.
A trustee has a fiduciary relationship with the beneficiary of a trust. That means that the trustee must make decisions that are in the best interest of the beneficiary and not themselves.
The ex-wife’s complaints included that the trustees were not paying for everything she wanted them to.
The sisters were concerned about the funds lasting long enough to take care of the son for the rest of his life.
For their part, the sisters offered to have the administration of the trust turned over to a trust company if the judge concluded that was best but did not wish the ex-wife to have control over the funds as that would have been contrary to their late brother’s wishes.
The judge concluded that the sisters had been acting responsibly and in the best interests of the son and that there was no basis to have them replaced as trustees.
Also on the show: brevity in legal arguments is not only good advocacy but, in some cases, as rule.
In the Court of Appeal and the Supreme Court of Canada, there is both a written argument, called a factum, as well as an oral argument. There is a size limit for factums. In civil cases, in the BC Court of Appeal, the limit is 30 pages. If someone wants to file a longer factum, they must obtain permission from a judge.
In the case discussed, an appellant attached a draft 82-page factum to an application for more space. The application was denied. The judge reluctantly permitted the appellant to file a 40-page factum but ordered that they would need to pay costs to the other parties who attended the application for more space.
Finally, on the show, a case involving a financial advisor from Victoria who became involved in a multi-year romantic relationship with a wealthy older client is discussed.
After the relationship ended the financial advisor sought the division of property from her former client and romantic partner on the basis that they had a “marriage-like relationship” of more than 2 years.
Under the BC Family Law Act, if someone is in a marriage-like relationship for at least two years they can be entitled to a share of the couple’s property.
A second issue in the case is that the former client and romantic partner asked for repayment of $100,000 he provided to the financial advisor that she used as a down payment on a home.
Ultimately, after considering a range of factors about the relationship, including intimate details of the couple’s sexual practices, living arrangements, and activities, the judge concluded that they were not in a marriage-like relationship.
With respect to the $100,000, when someone claims they received money as a gift, and not a loan, they have the burden of proving this. Because the judge concluded that the financial advisor had not done this she was ordered to repay the money.
The case also raises important questions about the propriety of a financial advisor engaging in a romantic relationship with a paying client, to whom she owed a fiduciary duty.
Automated transcript of the show:
Legally Speaking June 9, 2022
Adam Stirling [00:01:11] It’s time for Legally Speaking, joined is always with Michael Mulligan for Mulligan Defence Lawyers. Morning Michael. How are you doing?
Michael T. Mulligan [00:01:17] Good morning. I’m doing great. Always good to be here.
Adam Stirling [00:01:19] What’s on the agenda for us today?
Michael T. Mulligan [00:01:22] Well, the first case on the agenda deals with the issue of when trustees can be removed from doing their job, essentially.
Adam Stirling [00:01:31] mm-hmm.
Michael T. Mulligan [00:01:31] And the background to this case involves a man who had two adult children, one of whom had pretty severe learning disabilities, such that he was going to require care likely for the rest of his life. And back in 2014, the man, the father of the child, was diagnosed with terminal pancreatic cancer, very sadly. But he decided to put his affairs in order, including setting up a trust which was intended to take care of his adult son, potentially for the rest of his life. And the man was not independently wealthy. He was a part owner of a pub. His primary employment was as a custodian, but he was described by the B.C. Supreme Court as an astute investor. And he had $750,000, which he put into this trust to benefit his son. And one of his primary concerns was his ex-wife, who is described as having an acrimonious divorce prior to that. And so, the man set up this trust and appointed his two sisters as the trustees and gave them pretty broad discretion to pay for things that his son, now aged 36 as of now, might require, and so on it went. The man passed away about a year after that, sadly, and the sisters took over responsibility for this trust. Now, the twist is that the ex-wife of the man, the mother of the adult child with learning disabilities, she got a power of attorney signed by the son and then brought an application in court to try to remove the two sisters as the trustees and replace them with her, so that she could become the trustee and decide how this money should be spent and so that’s how the case wound up in court, and so the judge had to analyze the conduct of the sisters and whether they could, whether the ‘son’, via the power of attorney ex-wife, was able to displace them so that she could take over. And so, the various complaints that the ‘son’ made via the ex-wife included, claimed failures to pay for things and not disbursing money in a free enough fashion, essentially. One of the things that the ex-wife wanted to happen initially was that she wanted the trust to continue paying child support, right, for the adult son.
Adam Stirling [00:04:27] mm-hmm.
Michael T. Mulligan [00:04:27] While the man was alive. He’d been paying money to the ex-wife with whom the disabled son was living as child support, even though he was an adult. And so, she was wanting the trust to keep paying that to her, even though that’s not a legal requirement. Right. The obligation to pay child support doesn’t continue after you’ve passed away.
Adam Stirling [00:04:48] Yeah.
Michael T. Mulligan [00:04:50] And so she made that claim and claimed that various other reasonable expenses weren’t paid for. And so, the trust or the judge had to go through and analyze how the sisters had been doing. And the sister’s position was an interesting one. The sisters who were the trustee their position was the ex-wife should not be the trustee. That would be completely contrary to the wishes of their late brother. But if the judge thought for some reason they weren’t doing a sufficient job, they suggested that the judge should appoint a professional trustee like a trust company. So, the judge analyzes what the sisters were doing and concluded that there was no suggestion they were acting in any improper fashion. They were paying for appropriate things, including travel for the son and the ex-wife to go and meet family and others in Europe and various other places. And that the sisters were concerned about the long-term well-being of the son, including when the ex-wife, the mother, passed away, because the son then might require further and further expenses to be able to live independently. And so, the law is that there are only limited circumstances in which trustees can be removed. Right. If you have trustees that aren’t acting in the best interests of the person for whom the trust was set up, the beneficiaries. Or there were other serious problems with how they’re conducting themselves. Then it’s possible to have trustees removed. But the circumstances are relatively narrow. And the judge who heard the case pointed out that the sister’s position, which was to say, look, we’re happy to continue, but if you think we’re not doing something in the best possible way you can appoint a professional trust company, was an appropriate position based on an earlier case from the Court of Appeal. That stands for the proposition that where there is some, in fact, serious allegation that the trustees may not be doing the best for the trust beneficiary, it would be appropriate for the trustees to, again, act in the best interest of the person for whom the trust was set up, because that’s really the role of a trustee, right?
Adam Stirling [00:07:08] Yes.
Michael T. Mulligan [00:07:09] A trustee has a fiduciary obligation to make decisions which are not in the interest of the trustee or anyone else, but in the interest of the beneficiary. And so that idea of saying, look, if you don’t if there’s some problem is identified with what I’m doing, please feel free to have somebody else do it. It was an appropriate position. But the judge concluded here that the sisters had not fallen short in any way, were genuinely interested in the well-being of the well-being of the trust beneficiary, and so the ex-wife’s application to try to have the sisters removed so that she would have a free hand as the replacement trustee was unsuccessful. And the net result of that is that the late father’s wishes appear to have been honoured here. That being to avoid there being some, for example, challenge to his will or something else that would have permitted his ex-wife to get control over the money, he genuinely wanted to make sure that his disabled son was provided for the rest of his life. And so that’s why he set up the trust in the way that he did. And the provisions of the trust were that whatever money wasn’t spent for the care of the adult son would then go to his adult daughter. And so, it’s an interesting case that sort of points out those things, including the role of a trustee, the circumstances which you can and cannot have somebody just replaced because you don’t like the decisions the trustee is making. And it also makes that, I think, important point about how a trustee should conduct themself where there is some complaint about what they’re doing. Right. That is the position always has to be do whatever would be in the best interest of the beneficiary, right. You shouldn’t be clinging to the job or making decisions to benefit somebody else. And so, their position, which was I think we’re doing fine, but if you’d like a paid professional trust company to take over, fine then, was the appropriate position. So, I think an important thing for people to be aware of and something people may be wanting to be aware of if they find themselves in some similar position, right. If they have a concern about meeting responsibilities that person might have after they passed away, this would be a way to structure your affairs so that those objectives can be met. And it does avoid, well, it’s a little bit complicated to set up. It can avoid some of the things that might otherwise happen, like, you know, challenges to the validity of a will and that kind of thing. Here, the structure was set up and it worked. And so, the net result is that the sisters will carry on paying for things that might help the adult son for as long as he, he needs them.
Adam Stirling [00:10:00] And there we go. It has been said that brevity is the soul of wit. I’m reading in our next story here. Brevity is not just good for advocacy, it’s a requirement. How does it work?
Michael T. Mulligan [00:10:10] Well, that’s true. There are, if you are appealing to the Court of Appeal or indeed to the Supreme Court of Canada, one of the requirements is that you file what’s called a factum, which is a written argument, setting out sort of a summary of what your argument is, but why you say the appeal should be allowed or not allowed. And that comes before what ultimately in those courts would be the oral argument where counsel would show up and make submissions to the judge and answer questions, that kind of thing.
Adam Stirling [00:10:42] Mm hmm.
Michael T. Mulligan [00:10:43] But there are some rules, and one of the rules is how long your factum can be. You can’t just go on and on and on, forever. And so, the way it works is that in the Court of Appeal here, there is a 30-page, page limit on civil appeals. And this case involves somebody who wrote a, what amounted to an 82-page draft factum. And then the way it works, if you want to go over your 30-page limit, you need to go and ask permission of a judge from the court. And so that’s what this appellant did here, saying, I just can’t possibly condense my argument into 30 pages, I need more. They originally asked for a 60-page limit, but then when they showed up in court, they had a test stapled or attached an 82-page draft factum to their application to exceed the limit.
Adam Stirling [00:11:36] hmm.
Michael T. Mulligan [00:11:36] And so the judge hearing it had to look at that and sort of the reasons why we have some limits to these things and pointed out that, look, you know, a factum, it was supposed to be a sort of a summary of what the argument is and listing the, you know, case, as you might be referring to that kind of thing. But there has to be some cap on it. Otherwise, you’re going to just expend all kinds of resources with the court having to fish through your, you know, treatise on whatever your legal point might be, and all the other people involved are going to have to deal with that. And so here, the judge, reluctantly, permitted this long-winded applicant to have 40 pages, but in so doing ordered that whatever the result of the appeal is that the appellants will need to pay the costs of the other parties who had to show up in opposition to this application to run on for 82 pages. And so, brevity, not only is it a good advocacy, as you said, it’s the law and you can’t just go on and on. Also, you should know that there are time limits for things, including oral arguments.
Adam Stirling [00:12:50] mm-hmm.
Michael T. Mulligan [00:12:50] Like, for example, in the Supreme Court of Canada, a light will go on and that’s it.
Adam Stirling [00:12:54] Interesting. I didn’t know that. So, there’s a light that goes on.
Michael T. Mulligan [00:12:58] Stop, sit down, it’s like the hook. You know, it’s a trap door. What’s going on here? You’ve got all the judges here. You just can’t go on and on and on. You know. And so eventually you get the hook. So, they have an idea of in addition to a page limit, they’ve got a system of lights which eventually tell you to just sit down. I don’t know, what happens after that. Maybe they just turn off your microphone and move on. But there’s a limit. So, you just kind of trim that thing down.
Adam Stirling [00:13:27] So. Yeah,.
Michael T. Mulligan [00:13:29] I often see in cases, you know, there’s often like an inverse relationship between how many witnesses and how long you’re going to take to prove something and how compelling your case is. Right.
Adam Stirling [00:13:38] Yeah.
Michael T. Mulligan [00:13:39] It’s going to take you four weeks and 300 witnesses. You probably have less than clear point or a case, right? Yeah. You know, some of the most compelling things don’t take very long to explain. And, you know, it is genuinely good advocacy to trim it down and deal with what’s, in fact, important.
Adam Stirling [00:13:57] Michael Mulligan with Legally Speaking, we’ll take a quick break and continue with our analysis of current affairs from the legal world coming up right after this.
Adam Stirling [00:14:05] All right. Back on the air here at CFAX 1070, Michael Mulligan from Mulligan Defence Lawyers as we continue with Legally Speaking. Up next on the agenda, Michael, I’m seeing an investment adviser. I’m seeing a claim to be a spouse of a wealthy client and it looks like it’s a local angle as well. Help us understand this.
Michael T. Mulligan [00:14:22] Yes, indeed. So, this is a case out of Victoria and the decision just came out and it involves issues of the Family Law Act, gifts, and that concept of being a fiduciary. Right. We just talked about that in the context of somebody who’s a trustee. And the idea of being a fiduciary is you need to make decisions which are in the best interest of the person to whom you owe a fiduciary duty. Right. So, for example, the lawyer acting for somebody is not making decisions in the best interest of the lawyer. They’re making decisions in the best interest of their client. Right. And the same would apply for people like in this case, a financial adviser. Right.
Adam Stirling [00:15:02] mm-hmm.
Michael T. Mulligan [00:15:02] Or financial adviser shouldn’t be making financial decisions to benefit themselves. They should be making decisions which are in the interest of the person they’re acting for. That’s kind of the idea.
Adam Stirling [00:15:12] Okay.
Michael T. Mulligan [00:15:12] And so this case involved a fact pattern of a local financial adviser who at the time was 54, who met a wealthy, retired 70-year-old male client, and struck up a both a professional relationship, accepting and doing work as a financial adviser, but also an intimate relationship with the client, which went on for a number of years. Now, I should pause to say.
Adam Stirling [00:15:44] mm-hmm.
Michael T. Mulligan [00:15:44] That part is not a good idea.
Adam Stirling [00:15:46] No, it wouldn’t seem so.
Michael T. Mulligan [00:15:46] Somebody who’s got a fiduciary obligation to your patient client, whatever it may be, it is very ill advised to be in some kind of a personal relationship. They’re virtually incompatible, but that’s what happened here. And so, the next part of this case involves a claim under the Family Law Act, which deals with the division of property. And the way that works is that, and people should know this before they’re entering into a relationship. If you live with another person in a ” marriage like relationship” for at least two years, you can then be subject to things including division of property if you separate. So let that sink in. Right. I don’t know that everyone is aware of that right.
Adam Stirling [00:16:36] No.
Michael T. Mulligan [00:16:36] It is Pretty clear when you go and get married, sort of what you’re signing up for, right?
Adam Stirling [00:16:40] Yes.
Michael T. Mulligan [00:16:41] But for people that don’t get married, if you sort of slide into a relationship and wind up in a marriage like relationship and that goes on for two years, you can wind up being in a position where there can be division of assets, for example.
Adam Stirling [00:16:55] Wow.
Michael T. Mulligan [00:16:56] And like here, the 70-year-old retired investor.
Adam Stirling [00:17:06] mm-hmm.
Michael T. Mulligan [00:17:06] Had much more money than the younger financial adviser. And so that would really matter potentially. And so, this case involved the, and then the third element of this case is that the wealthy client wound up giving or lending, depending on whose version you accepted $100,000 to the financial adviser.
Adam Stirling [00:17:28] Hmm.
Michael T. Mulligan [00:17:29] Again, it caused me to shake my head in terms of that remembering the fiduciary obligation.
Adam Stirling [00:17:34] yeah.
Michael T. Mulligan [00:17:34] But that’s the fact pattern. And so, the issues here were the financial the relationship went on for a number of years and went on for a period between 2012 and 2018 and then ended. And then the issues between the two involved, the financial adviser making a claim that this was a marriage like relationship. And so, she wanted division of property. And on the other hand, the wealthy client taking the position that, hey, I want my hundred thousand dollars back, that was a loan. And things were muddy because the wealthy client had also showered the investment adviser with gifts, which were acknowledged to be gifts, including things like a Rolex watch and a BMW and various other things were going in that direction.
Adam Stirling [00:18:28] mmm, yeah.
Michael T. Mulligan [00:18:28] And so that became mucky. But this case involves and unfortunately, this as was required by the claim being made, all kinds of evidence, the case went on for ten days in court, and then the judge had to analyze all the various factors that would go into determining was this a, ” marriage like relationship” And sometimes it’s not clear. And here it wasn’t clear because this case involved the fact that it included things like, for example, the wealthy investor client purchased a second condominium in the building in which he lived, where the investment adviser moved into. But then her evidence was, well, I just use that really as a change place. I would come back from work, change my clothes, and then go up and have dinner and spend the night with my she claimed spouse. Right. And I would only go to this other place to keep my belongings. So, she would say we lived together. Right?
Adam Stirling [00:19:31] Yeah.
Michael T. Mulligan [00:19:32] And his position was, well, no, no, we never did that. Our finances were separate, in this kind of thing.
Adam Stirling [00:19:38] Yeah.
Michael T. Mulligan [00:19:39] And so it became very much a muddy, murky water. But what was going on here.
Adam Stirling [00:19:46] Yes.
Michael T. Mulligan [00:19:47] And by choosing to litigate all of this, it also involves things like sort of discussing the intimate details of the, you know, sexual activity of the two individuals. And it involves sort of getting it, the judge having to get into things like, you know, other women that the 70-year-old client was involved with and the break ups and get back together and, you know, the gifts that were being paid. And so, you know, I must also say kind of shook my head as I read the thing again, bearing in mind that context of, you know, what the obligations are of somebody who’s a financial adviser with a fiduciary relationship to a client.
Adam Stirling [00:20:26] Yeah.
Michael T. Mulligan [00:20:27] I’m saying, boy, this just is kind of lacking in good judgement, although she was described as, you know, very well-educated, she has an MBA, she gives financial advice to people, but somehow a blind spot as to the appropriateness of this relationship. And then, of course, litigating it has produced this reasons for a judgement that required this judge to go on and analyze all of the intimate details of these people’s lives and, you know, other girlfriends of the, you know, the wealthy investor and, you know, his position on that and ultimately the judge every analyze all of those things, including things like how did they introduce themselves, right. That’s an actor right there.
Adam Stirling [00:21:15] Yeah.
Michael T. Mulligan [00:21:15] Does somebody think this is my spouse. That’s significant here. The investment adviser would often introduce herself as this is my client or this is my friend. That was an important factor. But on the other hand, when the wealthy client gifted the BMW to the investment adviser, the transfer form was filled out, having her address listed as his address, the same unit in the building, and then listing her as a spouse. What about his evidence to avoid the transfer tax right. And so, he. Well, hold on right here.
Adam Stirling [00:21:50] I’m sorry. I shouldn’t laugh. Yeah, that’s. Yeah. Okay.
Michael T. Mulligan [00:21:54] You know, what do you make of that? And then the ultimately the judge analyses all of this and concluded that this didn’t make it across the line of being a marriage like relationship.
Adam Stirling [00:22:06] Interesting.
Michael T. Mulligan [00:22:06] But that wasn’t the end of the matter because there’s still the judge still had to deal with the issue of what about this $100,000.
Adam Stirling [00:22:13] Yeah.
Michael T. Mulligan [00:22:14] And the fact that her was the the investment advisor found out that the wealthy client had gone off on a vacation with another girlfriend. And then there was a kerfuffle produced by that. And ultimately, it sounds like the reconciliation process included him providing her with $100,000 to use as a down payment to purchase another property.
Adam Stirling [00:22:38] Hmm.
Michael T. Mulligan [00:22:38] But then the dispute became, was that a gift? Was this like the Rolex watch or the BMW or is this a loan>.
Adam Stirling [00:22:44] Hmm. And the law on that point is that when you receive something without consideration, like, I didn’t give you anything for it,.
Adam Stirling [00:22:52] yeah.
Michael T. Mulligan [00:22:52] You just gave me $100,000, the recipient of the money or the whatever it might be, they’ve got the burden of trying to prove that that was a gift. The law is that there is a presumption that when something is given with no consideration, it’s being given as a loan.
Adam Stirling [00:23:10] hmm.
Michael T. Mulligan [00:23:10] And there would be a resulting trust that would flow from that.
Adam Stirling [00:23:14] Interesting.
Michael T. Mulligan [00:23:14] And all money would have to be paid back. And so, the judge here preferred the evidence of the wealthy investor that the money wasn’t a gift, it was a loan, and that he hadn’t registered a mortgage because he trusted her and because the provisions of the mortgage that the investment adviser was getting didn’t allow another form of financing to be there. And so, he accepted his evidence and found that the investment advisor hadn’t met her burden of proving that it was a gift. So, the net result is, by the skin of his teeth, no division of property to the benefit of the investment adviser, and she’s going to be required to pay back the $100,000. And there’s now a 49-page judgement posted describing the intricacies of her personal life. And at the end of all of it, as I turned over to the end of page 49, it caused me to again reflect upon boy who thought this was a good idea. As a sophisticated, well-educated investment advisor. None of this should have happened starting back in 2012.
Adam Stirling [00:24:18] Legally speaking with Michael Mulligan all out the time for this week. But I’ll talk to you next week. Michael, thank you, as always.
Michael T. Mulligan [00:24:23] Thank you so much. Have a great day.
Automatically Transcribed on June 10, 2022 – MULLIGAN DEFENCE LAWYERS