IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20150728

Docket: 1037667

Registry:
Prince George

Between:

Karin
Irene Dayton

Plaintiff

And

Kristie
Trudeau,
Administrator of the Estate of Donald Garry Dayton

Defendant

Before:
The Honourable Mr. Justice Meiklem

Reasons for Judgment

Introduction

[1]            
The plaintiff is the separated wife of Mr. Dayton, who died intestate in
a motor vehicle accident on April 20, 2007.

[2]            
The plaintiff and Mr. Dayton were married on July 12, 1969 and separated
on April 22, 2005. After five sessions of mediation in October and November of 2005,
they executed a separation agreement on December 19, 2005. No divorce
proceedings had been commenced prior to Mr. Dayton’s death.

[3]            
Prior to their separation Mr. and Mrs. Dayton had been partners in a
business known as Don Dayton Grading (the “Business”). They were joint owners
of a rural residence on approximately 20 acres on the Fraser River near Prince
George (the “Farm”).

[4]            
The basic structure of their 24-page separation agreement was that the
Business would be the separate property of Mr. Dayton and the Farm would be the
separate property of Mrs. Dayton, but until she actually requested a transfer
of his interest in the Farm, he would maintain the mortgage payments (approximately
$1,200 monthly according to other evidence). He would purchase a new vehicle
for her not exceeding $25,000 in value (“which price shall not include any
trade-in allowance”), and would pay spousal support of $1,800 per month. He was
to designate her as the irrevocable beneficiary on a Sun Life policy of
disability and life insurance, which carried a $100,000 death benefit in the
event that Mr. Dayton died before reaching age 65.

[5]            
As of the date of Mr. Dayton’s death, he and Mrs. Dayton remained as the
owners of two joint bank accounts at HSBC Bank Canada, one of which was
referred to by the bank as the “Partnership Account”, and the other simply as
the “Joint Account”. Mrs. Dayton had not exercised any rights in respect of
either of them since the separation agreement, although neither is specifically
referenced in the separation agreement.

[6]            
The separation agreement provided that each party retain the RRSP
accounts at HSBC Bank Canada that were in their respective names. As of Mr.
Dayton’s demise, Mrs. Dayton was still designated as the beneficiary of Mr.
Dayton’s RRSP account, which had been valued at $15,000 in the separation
agreement.

The Claims

[7]            
The present action was originally commenced to enforce the separation
agreement, but the recently amended pleadings in this action seek to set aside
the separation agreement as unfair and contrary to the objectives of applicable
legislation, signed under duress or undue influence and without independent
legal advice, and in the alternative seeks a declaration that Mr. Dayton
breached the terms of the separation agreement and a determination of damages.

[8]            
In the event that the court sets the separation agreement aside, Mrs.
Dayton seeks a declaration that all the property of the parties devolves
according to the common law rights of survivorship, and the assets of the
business devolve in accordance with the common law right of survivorship and
the provisions of the Partnership Act, R.S.B.C. 1996, c. 348.

[9]            
Mrs. Dayton claims the balance of funds in both joint bank accounts and
Mr. Dayton’s RRSP, even if the separation agreement is ruled valid.

[10]        
The position of the administrator of Mr. Dayton’s estate is that the
separation agreement is valid, fair, and enforceable, and that Mrs. Dayton’s
claim is limited to a modest balance due in connection with the agreement to
purchase a new car for Mrs. Dayton.

[11]        
The defendant argues that Mrs. Dayton holds any interest acquired by
survivorship in the joint bank accounts and the RRSP in trust for the estate,
pursuant to the contractual provisions of the separation agreement or the
principles of resulting or constructive trust.

[12]        
The defendant’s pleadings point out that Mrs. Dayton filed a Small
Claims action against Mr. Dayton on April 13, 2007 seeking to enforce paragraph
1301 of the separation agreement, relating to the new car purchase, thus
affirming the contract, and filed no other action against him prior to his
death.

Discussion – the Validity of the Separation Agreement

[13]        
Mrs. Dayton testified about abusive and intimidating behaviour by Mr.
Dayton following the separation and around the mediation sessions. She said
that after the first mediation session he shoved her while they were riding in
the elevator and told her not to take his name off the Farm and that she would
not be able to afford to stay there if she did. On the second occasion, she
said she went into the bathroom to avoid him. On another occasion, she says
that he was following her vehicle closely in order to intimidate her.

[14]        
While the estate is at an obvious disadvantage in not being able to
refute her version of events which allegedly occurred in private, there is some
limited corroboration of abusive behaviour, or at least evidence tending to
negate the suggestion of recent fabrication, from the testimony of Mrs. Dayton’s
sister, Ms. Kuepper, who, in August 2005, directly witnessed Mr. Dayton in a
boat on the Fraser River overtly viewing them on Mrs. Dayton’s deck through
binoculars. She received many complaints from Mrs. Dayton about Mr. Dayton’s
behaviour which had made Mrs. Dayton anxious and afraid.

[15]        
A letter from a counsellor confirms that Mrs. Dayton sought counselling
in September and October 2005 regarding emotional and psychological issues
related to the ending of her marriage and dealing with telephone conversations
with Mr. Dayton that Mrs. Dayton found frightening. Interestingly, the
counsellor commented that “[Mrs. Dayton] thought that for her best recovery it
was best to act in ways that most quickly removed Don from her life”.

[16]        
It is reasonable to infer from this evidence that Mrs. Dayton was
emotionally vulnerable to undue influence in the months leading up to the
signing of the separation agreement. However, I note that the mediator
testified that if he had perceived any power imbalance he would have discontinued
the mediation. He said that both parties expressed a wish for a fair division
of assets and he recalled that Mrs. Dayton thought the Farm and the Business
were of equal value. He believed that she was fully familiar with the financial
side of the Business as the bookkeeper, and there was no dispute over the value
of the Farm.

[17]        
In regard to spousal support, the mediator did not recall that it was
particularly contentious and his notes suggested there was a discussion of the
net cost and benefit after tax and, while $1,500.00 per month was initially
discussed, the agreement settled on $1,800.00. He recalled back and forth
discussion over the duration of spousal support. Paragraph 401of the separation
agreement provided that spousal support would continue for as long as Mr.
Dayton operated the Business, or another business, or until the first death of
the parties.

[18]        
The separation agreement provided Mr. Dayton with a right of first
refusal over the Farm in the event that Mrs. Dayton wished to sell it, with
provisions essentially limiting the price to an appraised value. This might be
a somewhat unusual provision in a separation agreement, but I do not see it as
prejudicial or unfair to Mrs. Dayton.

[19]        
The agreement in paragraph 801 provides that if Mrs. Dayton takes up
permanent residence on a parcel of land adjacent to the Farm, Mr. Dayton shall
not occupy the Farm in the event he exercises the right of first refusal on the
Farm. This provision significantly limits the benefit of the right of first
refusal and suggests to me that Mrs. Dayton’s will and bargaining power was
intact and not overborne by undue influence.

[20]        
I note that Mrs. Dayton was not able to point to any provision of the
separation agreement that she considered unfair or the result of any imbalance
of power or undue influence. If the discussion in the elevator occurred as she
described it, it could not have been intended to coerce her into agreeing to
the provisions relating to the Farm, but rather to influence her to not quickly
exercise the rights granted by the agreement. If she had been independently
advised, she might have been cautioned about leaving Mr. Dayton’s name on title
and his interest potentially vulnerable to business creditors prior to her
requesting the transfer, but she was obviously receiving a financial
compensation for that risk, and there was no evidence as to what role the
mediator played on that point.

[21]        
Mrs. Dayton’s submissions at trial imply that perhaps she feels the
agreement was unfair in that he retained a right of survivorship to the Farm,
whereas she did not in respect of the Business assets, but even if she felt
financially constrained to not request a transfer of his interest immediately,
the agreement did not restrain her from severing the joint tenancy unilaterally
if that was a concern to her.

[22]        
The actual values set out in the separation agreement in the schedules
of assets to be retained are weighted heavily in favour of Mrs. Dayton. The
Farm is shown at a value of $200,000, whereas the Business is shown at $13,268,
which is the total equity indicated on a September 30, 2005 balance sheet. Of
course the balance sheet sets out book value after depreciation of the fixed
equipment assets, and does not value good will. Mrs. Dayton was not misled by
those schedules into thinking she was getting a greater share of the family
assets.

[23]        
There is no evidence that there was any lack of disclosure or
misrepresentation in connection with valuations. Mrs. Dayton was in at least as
strong a position as Mr. Dayton in respect of being able to value the Business,
since by her evidence she effectively started the business and was wholly
involved in its operation. At trial, Mrs. Dayton agreed that at the time of
separation, a value of $180,000 for the Farm was agreeable.

[24]        
One might look to the present values of the Farm (now transmitted to
Mrs. Dayton) and the liquidated values of the Business assets for a rough
assessment of the fairness of the property division set out in the separation
agreement. The Farm was appraised in March 2015 at $263,000 (with a
retrospective value of 180,000 as of April 30, 2005). It is now mortgage-free
as the mortgage was life insured. The estate administration statement of assets
assigned gross values of equipment of the Business at approximately $290,000.
The estate bank balance, after the sale and auction of equipment, was
approximately $240,000 at its highest (not including the disputed joint
accounts and RRSP balances). The estate has estimated tax liabilities of
$80,000 to $100,000, mainly in respect of recaptured depreciation.

Decision on Separation Agreement

[25]        
In my view the separation agreement was not manifestly unfair, and I see
no evidence that lack of disclosure, coercion or undue influence played any
role in effecting the agreement. There may well have been some minor negotiated
modifications if the parties had been independently advised following
preparation of the draft, but on the evidence available to me, I would not
replace the agreement with an order that is substantially different from the
terms set out in the agreement with regard to property division or spousal
support. There is an ambiguity in para. 1301 relating to the new car purchase that
I would have clarified (discussed later in these reasons), but I cannot
determine whether either of the two possible interpretations would constitute
unfairness without evidence of intention. In any event, Mrs. Dayton signed a
memo in or about June 2006 which resolved the ambiguity.

[26]        
I find that the separation agreement complies with the statutory
objectives of the Family Relations Act, R.S.B.C. 1996, c. 128 and the Family
Law Act, S.B.C. 2011, c. 25 and is valid and enforceable.

Discussion – Did Mr. Dayton Breach the Separation Agreement?

[27]        
The alleged breach of the agreement relates to the following provisions:

[28]        
The phrase “which price shall not include any trade-in allowance” is
unclear and ambiguous and can be taken to mean the price after trade-in
allowance, or the price without regard to trade-in allowance.

[29]        
In or about June 2006, Mrs. Dayton signed the following memo which was
drafted by Mr. Dayton and delivered to her for signing by their younger
daughter:

Karin’s newer vehicle.

[30]        
Mrs. Dayton acknowledges that she agreed to these new terms of payment
as amendments to the original separation agreement.

[31]        
On June 26, 2006, Mr. Dayton paid a joint credit card balance of $3,341.88
and paid Mrs. Dayton $62.12 rather than pay her the $1,704 due in spousal
support and the agreed $1,700 car payment due on July 1, 2006.

[32]        
In August 2006, Mr. Dayton paid the $1,700 car payment directly to Mrs.
Dayton, but for the months of September 2006 through to February 2007 he
directed the $1,700 per month payments to Mrs. Dayton’s account with Canada
Revenue Agency (“CRA”). In March 2007, Mr. Dayton deducted a payment of $806.03
to Mrs. Dayton’s account at CRA and payment of Mrs. Dayton’s utility bill of
$474.62, and remitted a balance of $419.35 to Mrs. Dayton.

[33]        
Mr. Dayton did not have Mrs. Dayton’s prior authority to redirect the
car payments that he owed her in the manner that he did, but there is no
evidence that she took exception to him doing so, and she undoubtedly received
credit for the payments to CRA, her credit card indebtedness, and her
utilities.

[34]        
Mrs. Dayton testified that she did not receive one specific spousal
support payment, even though the evidence is clear that the cheque cleared the
bank. If she is not mistaken, the only inference is that a third person
obtained the cheque and fraudulently obtained the funds. In any event, Mr.
Dayton was debited for the payment, and there is no evidence that would support
making him or his estate liable on account of negligent handling of the cheque
or on any other basis.

Decision on Breach of the Separation Agreement

[35]        
I find that there remained one $1,700 car payment unpaid and due to Mrs.
Dayton as of April 1, 2007.

[36]        
The defendant suggests that the estate should also receive credit for
payments made by the Business to Mrs. Dayton’s CRA account between January and
June 2006, which consisted of three payments of $1,500 in January, March and
April of 2006, one payment of $3,428.74 in May 2006 and $42.32 on June 13,
2006. I infer from the date of the payments and the specific amounts of the
last two of these payments that these payments related to an assessed tax
liability predating the 2005 tax year. Mr. Dayton was obviously not shy about
claiming and documenting offsets for any payments he unilaterally made on Mrs.
Dayton’s behalf against either her spousal support or the car payments, and I
infer from him not doing so in respect of these historic taxes that he did not
consider pre-2005 income taxes to be Mrs. Dayton’s personal obligation under
the separation agreement.

Discussion – Is Mrs. Dayton entitled to any portion of the joint bank
accounts or to the benefit of Mr. Dayton’s RRSP as his designated beneficiary?

[37]        
The separation agreement provided that Mr. Dayton shall retain the
Business and all its assets as his sole property.

[38]        
The Business only ever operated with a joint account, that being Account
10400-011042-010, described by the bank as the Partnership Account. Schedule E
to the separation agreement sets out a balance sheet for the Business
describing a Hong Kong Bank of Canada bank balance of $26,268.79 on September
30, 2005, which I infer was the balance of the Partnership Account. The balance
in this account as of November 2009 was approximately $21,600.

[39]        
The other joint account was Account 10400-149737-150, which the bank
described simply as the Joint Account. Prior to separation, this was a family
account, which I understand would only infrequently be used for business
purposes. At the time of separation, this account was overdrawn by
approximately $5,000. As of the date of Mr. Dayton’s death the account balance
was approximately $9,000.

[40]        
Mrs. Dayton’s evidence is that she repeatedly asked Mr. Dayton to remove
her name from the Partnership Account and the second joint account at the same
bank, which he continued to use as his personal account after the separation. I
do not think that his failure to do so was due to procrastination,
inadvertence, or lack of a business-like approach. According to Mrs. Dayton,
Mr. Dayton did not want the bank to know about their separation. The company
indebtedness was partly secured by the mortgage on the Farm, and he had until
December 1, 2008 to have Mrs. Dayton removed as a party to any debt connected
to the Business. Reciprocally, she had until December 1, 2008 to have his
liability removed as a party to her Royal Bank overdraft.

[41]        
In my view, it is a reasonable inference that Mr. Dayton deliberately
did not remove Mrs. Dayton from the joint bank accounts, because he was not yet
ready to negotiate with the bank for her release from the Business loan
obligations, and did not want to alert the bank to the fact of their
separation. He probably did not change the designation of her as the
beneficiary of the RRSP account at the same bank for the same reason. He
probably knew that he could trust her not to abuse the joint bank accounts, and
she certainly did not give him any cause for concern before or after the
signing of the separation agreement.

[42]        
Ms. Elson has provided me with a line of cases dealing with situations
where designated beneficiaries of financial assets and estates of former
spouses have made competing claims.

[43]        
In Martindale Estate v. Martindale (1998), 162 D.L.R. (4^th)
475 (B.C.C.A.), a constructive remedial trust was imposed where a former
husband had been designated beneficiary of a life insurance policy, and the
wife had erroneously thought she had done what was necessary to revoke the
designation after the divorce. The Court of Appeal found that the surviving
husband had surrendered any right he might have to the property of the deceased
and it would be against good conscience for him to keep the insurance proceeds.

[44]        
In Hemmerling v. Hemmerling, 2000 ABQB 808, the court followed Martindale
in respect of an RRSP, holding that the surviving beneficiary must be held to
the terms of an agreement contained in minutes of settlement where she had been
paid a compensation payment in lieu of a spousal transfer from the deceased’s
RRSP and had agreed not to make a claim for any interest in the RRSP.

[45]        
In Tarr Estate v. Tarr, 2013 B.C.S.C. 1994, there were two
different assets involved. The court followed Martindale in respect of
pension survivorship benefits, based on a construction of the separation
agreement involved, but distinguished Martindale and Hemmerling
in respect of RRSP benefits. Paragraphs 33-34 of the decision explain the
reason for the distinction in that case:

[33]      Each party was entitled to dispose of their RRSPs
as they wished. There is no evidence Mr. Tarr was under the mistaken belief he
had revoked Ms. Tarr’s beneficiary designation. Mr. Tarr was the CEO of the
Price Rupert Northern Credit Union, and familiar with RRSP designations. He
would have known how to change beneficiaries. There is no evidence before the
court as to why he left the beneficiary designation as it was. Pursuant to
paragraph 30 of the Separation Agreement, the parties were required to execute
all documentation to give effect to the terms of the Separation Agreement.
Unlike the pension designation, an RRSP designation is easily changed and does
not require any act on the part of Ms. Tarr. Given that Mr. Tarr failed to
change the RRSP designation, I cannot find that he did not intend to leave
those funds to Ms. Tarr.

[34]      In contrast to the
circumstances surrounding the survivor benefits, the acceptance of the funds by
Ms. Tarr is not a breach of the Separation Agreement. Ms. Tarr retained the
survivor benefits in breach of her agreement to relinquish those benefits.
While Mr. Tarr could have brought the Plan administrator to court to change the
beneficiary, he presumably did not believe this was required given the
Separation Agreement. Ms. Tarr as the irrevocable beneficiary of the survivor
benefits must hold them in trust to fulfill her agreement. However, after the
Separation Agreement was signed, the RRSP in question belonged to Mr. Tarr
absolutely. He could have withdrawn the funds or changed the beneficiary. The
fact that he did neither and chose to leave Ms. Tarr as the beneficiary is not
because of any breach by Ms. Tarr. There is no evidence to support a conclusion
that he intended to effect a change of beneficiary.

[46]        
The separation agreement in Tarr provided that Mr. Tarr would
retain for his own use absolutely, free of any claim by Ms. Tarr, his own
pension and benefits under the pension plan. The court placed the significance
on the fact that the language of the agreement referred to his pension and
benefits, noting that survivorship rights are clearly a benefit under a
pension plan.

[47]        
I note that the separation agreement between Mr. and Mrs. Dayton
mentions Mr. Dayton’s RRSP in the recitals and schedule C includes in the list
of assets to be retained by Mr. Dayton: “H.S.B.C. Bank of Canada RRSPs in Don’s
name…$15,000”. There are no other provisions mentioning his RRSP.

[48]        
Wilson v. Wysoski, 2014 BCSC 675 involved a lump sum pension
benefit. The parties had lived in a marriage-like relationship and a settlement
was reached in the defendant’s family law action and documented in a consent
order filed on June 29, 2011. The order dealt specifically with transfer of an
RRSP and the transfer of a manufactured home and provided that “all claims
between the parties in this proceeding, except as provided in this Order, are
dismissed.” The defendant’s claims in the family action had included a claim for
an interest in her spouse’s PPWC pension, so the order dismissed that claim.
However, the defendant had been designated as beneficiary under the pension
plan and the designation had not been revoked. The defendant had advised the
deceased on several occasions to change his beneficiary in keeping with the
terms of settlement, but she learned a few days after his death by suicide on
July 6, 2011 that he had not done so. She applied for and received the
survivor’s benefits.

[49]        
The court held that the defendant was not unjustly enriched because the
beneficiary designation was a juristic reason for her enrichment. The consent
order did not specifically waive entitlements to the death benefits.

Decisions Regarding the Joint Accounts and the RRSP

The Partnership Account

[50]        
I conclude that the separation agreement is clear and specific enough
that the funds in the Partnership Account are one of the assets of the Business
that Mrs. Dayton agreed would be Mr. Dayton’s to retain and operate in the
manner he wished. Notwithstanding Mr. Dayton’s continued use of the joint
account, and her continuing liability on the bank loans of the business, I find
that it would be unconscionable for her to retain the funds in that account,
effectively in breach of her agreement. The funds in the Partnership Account
shall belong to the estate.

The Other Joint Account

[51]        
In respect of the joint account (Account 10400-149737-150), the
defendant argues that the presumption of a resulting trust should apply and has
not been rebutted. The defendant cites Pecore v. Pecore, 2007 SCC 17 as
the most recent authoritative case on applying the presumption of resulting
trust to joint accounts.

[52]        
The facts surrounding the operation of this account pre and post-separation
are not analogous to the facts in Pecore, where the Supreme Court of
Canada wrestled with the application of the competing presumptions of resulting
trust and advancement in connection with joint accounts held by parents and
children. However, in Pecore, at para. 45, under the heading “How Should
Courts Treat Survivorship in the Context of a Joint Account?”, the court began
an analysis in very general terms:

[45]      In cases where the
transferor’s proven intention in opening the joint account was to gift
withdrawal rights to the transferee during his or her lifetime (regardless of
whether or not the transferee chose to exercise that right) and also to gift
the balance of the account to the transferee alone on his or her death through
survivorship, courts have had no difficulty finding that the presumption of a
resulting trust has been rebutted and the transferee alone is entitled to the
balance of the account on the transferor’s death.

[53]        
Where a joint account is opened jointly by spouses and both make
deposits and withdrawals during their cohabitation, it is wholly artificial to
consider each spouse’s subsequent deposit as gratuitous gifts to the other
spouse which raises a presumption of resulting trust. It is clear from the
discussion in paras. 48-49 of Pecore that the rights of survivorship
vest from the moment that the joint account is opened, even in cases where a
transferor may retain exclusive control over the account. In para. 50, the
court said:

[50]      … The nature of a joint
account is that the balance will fluctuate over time. The gift in these
circumstances is the transferee’s survivorship interest in the account balance
– whatever it may be – at the time of the transferor’s death, not to any
particular amount.

[54]        
In my view, it is not appropriate to apply the presumption of resulting
trust to the spousal joint accounts in this case.

[55]        
The question that arises in this case is whether the separation
agreement terminated or revoked the mutual gifts of withdrawal rights and a
survivorship interest in the balance in joint account #10400-149737-150.

[56]        
The separation agreement is silent regarding this account, unless one
stretches the meaning of “bank accounts in Don’s name” to include that joint
account, which is untenable. Mrs. Dayton is not in breach of any legal or
equitable obligation arising out of the separation agreement. Mr. Dayton was
fully aware from Mrs. Dayton’s reminders that she remained an owner of the
account, and his bank statements included her name. He could have made it his
own account at any time, thereby severing the right of survivorship, but did
not do so.

[57]        
I see no sound basis for imposing a remedial constructive trust in
respect of the funds in Account #10400-149737-150. The funds from that account
belong to Mrs. Dayton.

The RRSP

[58]        
As I mentioned above, the separation agreement between Mr. and Mrs.
Dayton mentions Mr. Dayton’s RRSP in the recitals and schedule C to the
agreement includes in the list of assets to be retained by Mr. Dayton: “H.S.B.C.
Bank of Canada RRSPs in Don’s name…$15,000”. There are no other provisions
mentioning his RRSP and no other provisions which can be construed as a
relinquishment of survivorship rights.

[59]        
In my view, the analysis respecting the RRSP in Tarr is correct in
distinguishing ownership of the RRSP asset from rights to benefits. There is no
significant factual distinction between that case and this one. The fact that
Mr. Tarr was an officer of a financial institution and would have known how to
change the beneficiary was not a fact necessary to the decision. On my reading,
the important factors were that there was no evidence about why Mr. Tarr did
not change the beneficiary and no evidence to support a conclusion that he
intended to effect a change of beneficiary. The case at bar is actually
stronger in that here we have evidence that suggests that Mr. Dayton purposely
avoided changing the beneficiary on his RRSP, so as to not alert the bank to
his separation.

[60]        
The Wilson case also supports Mrs. Dayton’s position and casts
some doubt on the applicability of the reasoning in Martindale in light
of subsequent cases from the Supreme Court of Canada.

[61]        
I find that Mrs. Dayton is entitled to the survivorship benefits of Mr.
Dayton’s HSBC Bank Canada RRSP #400-122685-520.

Costs

[62]        
Success appears to be mixed. I will contingently order that each party
bear their own costs. In the event that there were events relevant to costs
that I should be made aware of, the parties are at liberty to seek a hearing by
filing a requisition.

“I.C.
MEIKLEM J.”

MEIKLEM J.