COURT FILE NO.: CV-14-64 DATE: 2019-07-02

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

HELENE PAULINE LEYDIER Plaintiff

• and -

525400 ONTARIO INC. and NYKOLA MARIA DUBENSKI Defendants

Before: Mr. Justice W. D. Newton

Counsel: J. Aiello, for the Plaintiff K. Desjardine, for the Defendants

Heard: April 4, 2019, at Kenora, Ontario

Decision On Motion

Overview

[1] The plaintiff, Ms. Leydier, seeks a declaration that the transfer of certain shares in a mining claim from her mother, Helene Dubenski (“Helene’), to her sister, Ms. Nykola Dubenski (“Nykola”), was not a gift and that the shares, therefore, form part of their Helene’s estate.

[2] The shares were transferred to Nykola in 2007. Shortly thereafter, Nykola entered into an option agreement with a mining company which provided for, among other things, payment of $100,000 per year.

[3] Helene died in October 2013. Her will provided that, if both the plaintiff and Nykola were alive, each child would inherit equally. An objection to the estate was filed in December 2013 by the plaintiff.

[4] In November 2018, Nykola sold the mining claim for $700,000 plus royalties.

[5] Ms. Leydier brings this motion for summary judgment arguing that, based on the facts, both the presumptions of resulting trust and undue influence apply and that the evidence does not meet the evidentiary onus on Nykola to establish that the transfer of shares was a gift.

The Evidence

[6] Rule 20.01(1) provides that a plaintiff may move for summary judgment “with supporting material or other evidence.” The responding party “may not rest solely on the allegations or denials in the parties’ pleadings, but must set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial”: 20.02(2).

[7] A respondent is required to “put their best evidentiary foot forward”: (see for example Sanzone v. Schechter, 2016 ONCA 566, 267 A.C.W.S. (3d) 830, at para 24.)

[8] The evidentiary record consists of:

(a) three affidavits from the defendant, Nykola; (b) an affidavit from the solicitor who documented the share transfer, Mr. Ormiston; (c) an affidavit from Nykola’s and Helene’s accountant, Mr. Schellenberg; (d) documents produced by either party; (e) responses to requests to admit; and (f) transcripts of cross examinations of Nykola, Mr. Ormiston, Mr. Schellenberg and exhibits to those cross examinations.

The Facts

[9] The following chronology, adopted from the defendant’s factum, is not in dispute:

(a) October 18, 1982 – 525400 Ontario Inc. (“525”) was incorporated, with Helene and her sons Paul James Dubenski (“Paul Jr.”) and Peter Stewart Dubenski (“Peter”) as equal shareholders; (b) At all materials times, one-third interest in 525 lay with a non-party, the Van Walleghem family; (c) March 17, 1990 – Peter died unexpectedly, intestate; (d) October 28, 1991 – Peter’s 1001 shares of 525 were transferred to Helene through intestacy. Helene held 2002 (2/3) shares in 525 after this transfer; (e) October 29, 1991 - Helene transfers 1001 shares of 525 to her daughter Nykola. Nykola is elected a director and officer of 525; (f) October 29, 1993 – Helene executes her Last Will and Testament (the “Will”), appointing Paul Jr. and Nykola as executors. The residue of the Estate is to be divided equally between Paul Jr., Nykola, and the plaintiff. Paul Jr’s share is to be given to Nykola if Paul Jr. predeceases Helene; (g) 2005 – The plaintiff moves back to Kenora after being away and lives in a house owned by Helene; (h) November 20, 2006 – Helene executes a Power of Attorney naming Nykola as attorney, and the Plaintiff as alternate; (i) November 28, 2006 – Helene executes a codicil to her Will (the “Codicil”), indicating that the gift to the Plaintiff should go to Nykola in the event that the Plaintiff predeceases Helene; (j) March 9, 2007 – Paul Jr. executes a will before Bruce Ormiston (“Ormiston”), leaving his shares in 525 to Helene. Specific bequests were also made to the plaintiff and Nykola; (k) March 12, 2007 – Handwritten notes were executed by Helene, setting out life interest in the House for the plaintiff and Nykola as executor; (l) March 18, 2007 – Paul Jr. dies after a lengthy illness; (m) March 18, 2007 – Paul Jr.’s 1001 shares of 525 are transferred from Paul Jr. to Helene pursuant to Paul Jr.’s will. Helene now holds 2002 shares of 525; (n) March 20, 2007- Helene agrees to transfer her 2002 shares of 525 to Nykola for $66,666.60, secured by a promissory note; (o) April 20, 2007 – Helene forgives the promissory note and executes a deed of gift to Nykola; (p) April 23, 2007 – Helene and Nykola meet with Ormiston to sign the share transfer documentation; (q) October 2011 – Nykola begins to exercise her duties as Power of Attorney for Helene; (r) Helene died on October 14, 2013; (s) December 11, 2013 – The plaintiff files a Notice of Objection; (t) December 1, 2014 – The Statement of Claim herein is filed. (u) May 10, 2014 – The plaintiff files a Notice of Appearance.

[10] Other events of note are:

(a) Offer to purchase option for shares of 525 made to Nykola April 17, 2007; (b) Option offer accepted by Nykola May 1, 2007; and (c) Nykola sold 525 mining claims in November 2017 for $700,000 plus royalties.

The Documentation Regarding the Share Transfer

[11] Although dated on different dates I am satisfied that all documents relating to the share transfer were signed on April 23, 2007. This is consistent with the evidence of Mr. Ormiston and Nykola Dubenski:

(a) directors’ resolution dated March 18, 2007, authorizing the transfer of Paul’s shares to Nykola as estate trustee and then transferring those shares to Helene; (b) transfer dated March 20, 2007 – sale of shares from Helene to Nykola in exchange for promissory note payable on demand in the amount of $66,666.60 signed by both Helene and Nykola; (c) promissory note dated March 20, 2007, signed by Nykola for $66,666.60; (d) directors’ resolution dated March 20, 2007, transferring shares from Helene to Nykola signed by Helene and Nykola; (e) deed of gift dated April 20, 2007, forgiving the promissory note signed by Helene; and (f) promissory note dated March 20, 2007, bearing the hand-written notation: “April 20 – 2007 – I forgive this note and it is paid in full. Helene Dubenski.”

[12] The parties do not dispute that the handwriting and signatures are those of the persons who purported to sign.

Nykola Dubenski

[13] Nykola, deposed that she met with the accountant, Mr. Schellenberg, on March 26, 2007, and discussed 525. She said that Mr. Schellenberg said that the shares “might be worth something.” As a result, she contacted a representative of a mining company on March 28, 2007, who had communicated with her brother and was told that that company was prepared to pay $100,000 for the mining leases. Nykola stated that she told Mr. Schellenberg about this offer, and he suggested that she might wish to talk to other interested parties.

[14] She said that she met with Mr. Ormiston on Friday, April 20, 2007, and provided Mr. Schellenberg’s instructions about the share transfers to Mr. Ormiston. Nykola and her mother met with Mr. Ormiston on April 23, 2007, to sign the transfer documents.

[15] Nykola deposed:

22. Subsequent to that date I made further inquiries with other mining developers regarding the mining leases held by 525. An option was ultimately agreed to with Houston Lake Mining Inc. on May 1, 2007, which included the annual payment of $100,000 to 525.

[16] On cross-examination, Ms. Dubenski said this about the timing of the offer:

Q. When your mother and you attended Mr. Ormiston’s office, all the documents were ready? A. They were. Q. They were all ready and they were before you and your mother when you got there; correct? A. Correct. Q. Did you tell Mr. Ormiston about the Houston Lake mining offer at that meeting or before the share transfer? A. No, I don’t believe so. Q. Why not? A. Because it hadn’t happened yet. Q. Okay. That’s what I thought. I thought that was your position by reading your affidavit. I get that. So you hadn’t received the offer yet so you couldn’t have given it to Mr. Ormiston? A. Right. Q. Likewise, you hadn’t received the offer yet so you couldn’t tell your mother about the Houston Lake mining offer before the share transfer? A. Correct. Q. So before the share transfer neither Mr. Ormiston nor your mother knew about the Houston Lake mining offer? A. Because it hadn’t happened. Q. Perfect. Okay. There was no rush too; right, to get these documents completed? A. No.

The Option Agreement

[17] Nykola contacted Houston Lake Mining who contacted her by letter dated April 17, 2007, and offered an option agreement which included paying 525 $100,000 annually for 10 years. The offer was open until 5:00 p.m. May 1, 2007. Nykola acknowledged receipt of the offer by email the same day, April 17, 2007. A formal offer was delivered on April 30, 2007 and accepted by Nykola on May 1, 2007.

Mr. Schellenberg – the Accountant

[18] Mr. Schellenberg deposed that he had prepared tax returns for Helene and Nykola Dubenski since 2001.

[19] He stated that, on March 26, 2007, he met with Nykola who told him that Helene wanted her shares and the shares she had inherited from Paul to go to Nykola. He deposed that he spoke to Helene by telephone after this meeting who confirmed that she wanted all of the shares of 525 to go to Nykola. There was no discussion of value. Helene did not ask about value. He was not aware of any current offers, and he did not discuss any offers with Helene. He believed that the mining leases “could potentially hold value.” His valuation was based on an old balance sheet.

[20] Mr. Schellenberg prepared a one page handwritten note outlining how the share transfer was to be documented: On March 18, 2007, Paul’s shares were to be transferred to Helene. On March 20 Helene’s shares were to be sold to Nykola in consideration of the promissory note payable on demand in the amount of $66,666.60. On April 20, 2007, by “deed of gift,” Helene forgave the promissory note from Nykola and “thereafter the promissory note was extinguished.”

[21] Mr. Schellenberg, along with Helene and Nykola, felt that the shares were not worth much, “have little value.” He describes it as a “lottery value.”

Mr. Ormiston – the Lawyer

[22] After Paul’s death, as estate lawyer for Paul’s estate, Mr. Ormiston wrote to Nykola suggesting that the share transfer from Paul’s estate to Helene be dealt with by 525’s corporate counsel in Winnipeg.

[23] Mr. Ormiston deposed that he met with Nykola on Friday, April 20, 2007, and she told him that Helene wished to transfer her shares in 525 to Nykola. He assumed that Mr. Schellenberg’s instructions regarding the transaction were delivered to him by Nykola at this meeting.

[24] Mr. Ormiston further deposed that he met with Nykola and Helene on April 23, 2007, and “confirmed with Helene that she wished to transfer her 2002 common shares in 525 to Nykola. I would not have proceeded with the transfer documents if I had any reason to believe that Helene was being pressured to gift the shares to Nykola. … It is my understanding that the transfer of the 2002 common shares in 525 would result in Nykola having full control of 525. Helene confirmed to me at that time that she wished to gift these shares to Nykola.”

[25] He knew Helene well. They served together on town council. Helene was a former deputy mayor. According to Mr. Ormiston, Helene was a woman of “firm resolve and conviction” who was “not easily swayed or influenced by others.”

[26] Notwithstanding the assertions regarding discussions with Helene in Mr. Ormiston’s affidavit, when he was cross-examined, Mr. Ormiston confirmed that he had no recollection of speaking to Helene regarding the share transfer (see Questions 200 – 208), but said that his standard practice was not to allow anyone to sign anything unless he believed that the person was signing voluntarily (see Questions 272- 277).

[27] Although Mr. Ormiston deposed that he did “not recall any instructions of urgency,” his reporting letter of April 23, 2007, begins: “We have been asked to proceed on very short notice to prepare documentation with respect to the above matters pursuant to instructions received from you” and the accountant. The letter goes on to “strongly recommend” that both Helene and Nykola should receive independent legal advice. An acknowledgment that Mr. Ormiston is to proceed in accordance with the accountant’s instruction is on the bottom of that letter dated April 23, 2007, and signed by both Helene and Nykola on separate letters.

Positions of the Parties

The Plaintiff

[28] The plaintiff argues that these facts trigger a presumption of resulting trust and that Nykola cannot satisfy the onus placed upon her to prove that the transfer of shares was a gift.

[29] The plaintiff also argues that these facts trigger a presumption of undue influence because of the relationship between Nykola and her elderly mother and because Helene was not fully informed of the value of the mining shares by Nykola.

[30] Because Helene has died, the plaintiff argues that corroboration is required to rebut both presumptions.

[31] The plaintiff argues that these facts are key. They describe Nykola as a “domineering” individual who had a personal relationship with the lawyer, Mr. Ormiston. Nykola was Helene’s attorney under a power of attorney. Instructions to the lawyer and the accountant on the share transfer emanated directly from Nykola initially. Helene and the accountant believed that the shares had little or “lottery” value. Nykola was in negotiations and had received an offer to purchase before the transfer of shares occurred but did not tell the accountant or the lawyer and likely did not tell her mother. At the time that the share transfer documents were signed, Helene was 90 years old and was brought to the lawyer’s office by Nykola.

The Defendant

[32] The defendant concedes that the presumption of resulting trust applies, but argues that the evidence, which is corroborated, clearly supports the contention that Helene intended to gift the shares to Nykola.

[33] The defendant argues that the presumption of undue influence is not triggered on these facts, but even if triggered, the defendant argues that the evidence shows that Helene entered into the gift with “free, full, and informed thought.”

[34] The defendants further argue that the plaintiff’s claim is statute barred in that the plaintiff is attacking a transaction that occurred in 2007. In response, the plaintiff counters that the triggering event is the failure to account to the estate for the value of the shares which were not gifted to Nykola or, alternatively, were obtained by Nykola through undue influence.

The Law

Resulting Trust

[35] The presumption of resulting trust is the general rule for gratuitous transfers: Pecore v Pecore, 2007 SCC 17 [2007] 1 S.C.R. 795, at para. 27. Pecore involved bank accounts jointly held by an elderly parent and an adult child.

[36] Foley v McIntyre, 2015 ONCA 382, 125 O.R. (3d) 721, involved transfers of money from an elderly parent to an adult child pursuant to written direction. In Foley the court stated:

[26] Equity presumes bargains, not gifts. Thus, when a parent gratuitously transfers property to an adult child, the law presumes that the child holds the property on a resulting trust for the parent: Pecore v. Pecore, [2007] 1 S.C.R. 795, [2007] S.C.J. No. 17, 2007 SCC 17, at para. 36. The onus shifts to the adult child to rebut the presumption by proving the contrary intent on a balance of probabilities: Sawdon Estate v. Watch Tower Bible and Tract Society of Canada (2014), 119 O.R. (3d) 81, [2014] O.J. No. 573, 2014 ONCA 101, at paras. 56-57; Mroz (Litigation guardian of) v. Mroz (2015), 125 O.R. (3d) 105, [2015] O.J. No. 1284, 2015 ONCA 171, at para. 72. The trial judge must begin her inquiry with the presumption and then weigh all the evidence in an attempt to determine the parent's actual intent at the time of the transfer: Pecore, at para. 44; Sawdon, at para. 57; Mroz, at para. 72.

Undue Influence

[37] The equitable doctrine of undue influence developed to save people from being victimized by other people. Gifts procured by undue influence will be set aside: (Geffen v. Goodman Estate, [1991] 2 S.C.R. 353, at para. 23)

[38] There are two potentially overlapping situations where undue influence may arise. One involves unfair and improper conduct, “some form of cheating,” and, generally, “some personal advantage obtained” by the recipient in “some close and confidential relation to the donor”: Geffen, at para. 27. The other occurs when the recipient has a duty to advise the donor or manages the donor’s property. In those cases, the law imposed upon the recipient the onus of proving that the gift is not made as result of undue influence: (Geffen, at para. 27)

[39] Foley also considered undue influence, at para 28:

[28] Where the potential for domination inheres in the relationship between the transferor and transferee, the presumption of undue influence applies: Goodman Estate v. Geffen, [1991] 2 S.C.R. 353, [1991] S.C.J. No. 53, at p. 378 S.C.R. The transferee must establish on a balance of probabilities that the gift was the result of the transferor's "full, free and informed thought": Goodman Estate, at p. 379 S.C.R. Evidence that the transferor received qualified, independent advice can be used to rebut the presumption: Goodman Estate, at p. 379 S.C.R. However, this is not to say that evidence of independent advice is required in every case: Laird v. Mulholland, [1998] O.J. No. 855, 21 E.T.R. (2d) 204 (Gen. Div.), at paras. 36-37; [page728] Bank of Montreal v. Duguid (2000), 47 O.R. (3d) 737, [2000] O.J. No. 1356 (C.A.), at paras. 26-27, leave to appeal to S.C.C. allowed [2000] S.C.C.A. No. 298, appeal discontinued August 2, 2001.

Corroboration

[40] Foley also considered corroboration, at paras 29-30:

[29] The common law requires corroborating evidence to rebut the presumptions. The corroborating evidence can be direct or circumstantial, and it can consist of a single piece or evidence or several pieces considered cumulatively: Burns Estate v. Mellon (2000), 48 O.R. (3d) 641, [2000] O.J. No. 2130 (C.A.), at para. 29.

[30] In addition, where the donor is deceased, the Evidence Act, R.S.O. 1990, c. E.23 requires corroborative evidence. Section 13 provides:

13. In an action by or against the heirs, next of kin, executors, administrators or assigns of a deceased person, an opposite or interested party shall not obtain a verdict, judgment or decision on his or her own evidence in respect of any matter occurring before the death of the deceased person, unless such evidence is corroborated by some other material evidence.

Limitation Defence

[41] Section 4 of the Limitations Act, 2002, S.O. 2002, C. 24, Sched. B provides for a basic limitation period of two years from the day the claim was discovered. Discovery is governed by s. 5:

Discovery

5 (1) A claim is discovered on the earlier of, (a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a). 2002, c. 24, Sched. B, s. 5 (1).

Presumption

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved. 2002, c. 24, Sched. B, s. 5 (2).

[42] Section 15 provides for an ultimate limitation period of 15 years after the day on which the act or omission on which the claim is based took place.

Analysis

Resulting Trust

[43] I am satisfied that Nykola has met the onus of establishing, on a balance of probabilities, that Helene intended to gift the shares to Nykola, subject to the latter part of the reasons regarding undue influence.

[44] There is no evidence contradicting Mr. Ormiston’s assessment that Helene was “not easily swayed or influenced by others”. I acknowledge that preliminary instructions both to the accountant and the lawyer came from Nykola and that Nykola brought her mother to the lawyers to sign the documents and was likely present when the documents were signed. However, there is no dispute that Helene signed the transfer documents, including the deed of gift forgiving the promissory note, and wrote on the promissory note: “I forgive this note and it is paid in full.” These two documents, executed by Helene, and the acknowledgement, signed by Helene on the April 21, 2007, letter from Mr. Ormiston, expressly corroborate the intention to gift the shares to Nykola.

Undue Influence

[45] I am satisfied that the presumption of undue influence arises in the circumstances of this case, and I am unable to conclude, on this motion, whether Nykola has satisfied her evidentiary burden of disproving undue influence.

[46] The presumption of undue influence arises because Nykola had a close and confidential relationship with her mother, and I am not satisfied, at this stage, that the transfer was because of Helene’s "full, free and informed thought." The spectre of unfair and improper conduct, “some form of cheating” is raised by the evidence of, or lack of evidence of, what Helene knew to be the value of the shares.

[47] Mr. Ormiston knew nothing about the value of the shares. He “strongly” recommended that both Helene and Nykola receive independent legal advice. Helene did not receive independent legal advice. The accountant, Mr. Schellenberg, thought the shares had little value, was not aware of any current offers, and he believed that Helene and Nykola believed the shares to be of “little value.” His evidence was that the value of the shares and any offers were never discussed with Helene and that the value of the shares for the purposes of the promissory note came from an old balance sheet.

[48] However, the evidence establishes that prior, to the transfer of the shares, Nykola had an offer to purchase the shares, contrary to her cross-examination evidence, and that, contrary to her cross-examination evidence, there was urgency to the transaction since there was a deadline for accepting the option offer. Mr. Ormiston’s letter of April 23, 2007, confirms that he had been “asked to proceed on very short notice.”

[49] The offer, which Nykola accepted, clearly indicated that the shares were not “of little value” and far exceeded the valuation used by the accountant to document the share transfer. The evidence appears to be that Nykola has received about $1.4 million as result of receiving the shares, including $100,000 on signing, plus shares, plus $100,000 annually thereafter for 10 years.

The Limitation Period

[50] The plaintiff’s right to share in Helene’s estate was triggered at Helene’s death. Proceedings were commenced within two years of that date, and the action is not statute barred.

Disposition

[51] Therefore, pursuant to r. 20.04(4), I have determined that the action is not statute barred and that Nykola has met her onus of satisfying me, on a balance of probabilities, that the presumption of resulting trust has been rebutted. These determinations are binding on the parties.

[52] I have also determined that the presumption of undue influence applies and direct that, pursuant to r. 20.04(2.2), the issue of whether Nykola has rebutted the presumption of undue influence proceed to a Mini-Trial before me.

[53] The evidence on this Mini-Trial will consist of the evidence on this motion only and further, since issues of credibility arise, the testimony of Nykola, which shall be heard first since she bears the onus of rebutting the presumption of undue influence.

[54] Within 30 days of the release of this decision, the parties shall contact the trial coordinator to arrange an appearance before me to discuss scheduling of this Mini-Trial and to make submissions on what further witnesses, if any, are required. For greater clarity, the evidence from Mr. Schellenberg and Mr. Ormiston will consist of only the evidence submitted on this motion.

[55] I will determine costs of this motion after the hearing of the Mini-Trial.

“Original signed by”

The Hon. Mr. Justice W.D. Newton

Released: July 2, 2019