Estate litigation issues do not just arise as between family members of the deceased (although that is most common). A death may also result in disputes with respect to the deceased’s business dealings and partnership holdings. This is why a fulsome estate plan that addresses all interests, personal and business, is key.
In a previous post found here, I discussed what happens when your business partner dies, in particular when the assets of the business are held jointly. I considered this in the context of the decision of the B.C. Supreme Court in Garland v. Newhouse 2021 BCSC 2021.
A fundamental characteristic of joint tenancy (i.e. registering assets in joint names) is the right of survivorship. When one joint tenant dies, their interest is extinguished, and the surviving joint tenant(s) take full ownership. For example, spouses often register title to their property in joint tenancy, so that the surviving spouse will receive the entirety of the property upon the other spouse’s death. This is accepted as a permissible estate planning tool.
However, where the property at issue is partnership property, there is a presumption that there is no right of survivorship as between partners. The death of a partner in a two-person partnership dissolves the partnership, and on dissolution each partner (including the estate of the deceased’s partner) is entitled to a proportionate share of the partnership assets after payment of debts.
In Garland, the deceased and the spouse of his close friend (“Ms. Newhouse”) purchased an apartment building together in 2003, with the intention of earning a profit from the rental income. They also opened an account to manage the finances associated with the apartment building. The building and the account were both registered in their joint names.
When the deceased died, Ms. Newhouse took the position that the deceased intended for her to receive the apartment building and account through right of survivorship. The deceased’s estate took the position that the deceased intended for the beneficiaries of his estate (his children) to receive his share of the business assets.
The matter proceeded to court by way of summary trial, in which there are no live witnesses, and the court determines the matter based only on affidavit evidence and argument by the parties. The B.C. Supreme Court stated that in order for the right of survivorship to apply to partnership assets, “there must be evidence of a contrary agreement between the parties that is sufficiently clear and compelling to overcome the presumption that beneficial interest in partnership property does not transfer through the right of survivorship.” The Court held that Ms. Newhouse was unable to provide this evidence. The Court concluded that the parties did not intend and agree that on the death of one partner, the partnership property would transfer to the surviving partner for their personal benefit.
Ms. Newhouse failed to rebut the presumption against the right of survivorship in relation to the partnership property, and as a result she held legal title of the apartment building and the bank account in trust for herself and the deceased’s estate.
Ms. Newhouse appealed, and the B.C. Court of Appeal recently provided its decision, which can be found at Newhouse v. Garland 2022 BCCA 276.
A majority of the B.C. Court of Appeal dismissed the appeal, finding that:
- The lower court judge did not apply an incorrect legal test. Ms. Newhouse argued that the lower court judge applied a higher legal burden, but the Court of Appeal disagreed. They held that the lower court judge properly assessed whether the presumption had been rebutted, on a balance of probabilities, which was the appropriate standard;
- The lower court judge did not make a clear and overriding factual error, such as misapprehending the evidence, ignoring material evidence, or drawing inferences unsupported by primary facts. While some judges may have made different findings, it is not the role of the Court of Appeal to reweigh the evidence and substitute their own findings; and
- The lower court judge did not err in exercising her discretion to proceed by way of summary trial instead of requiring a full trial with live witnesses.
The result reflects the role of the Court of Appeal. The Court of Appeal does not simply re-hear cases and substitute their own decision. The Court of Appeal may only interfere if there is a legal error, a clear and material factual error, or an error in the exercise of discretion.
One of the three-judge panel would have allowed the appeal, and delivered lengthy dissent reasons. The judge would have referred the matter back to the B.C. Supreme Court for a full trial. In the dissenting reasons, the judge notes the difficulties in determining these claims. The dispute arises after the death of one of the partners, and so one of the parties to the original agreement will always be unavailable to give first-hand evidence. The surviving partner will have an interest in the result, and so their evidence must be viewed with some caution.
It remains the case (as I noted in my previous post) that it is important to keep in mind business and partnership interests when making your estate plan. Again, this this dispute likely could have been avoided if there was a written agreement reflecting the terms of the arrangement between the parties.