In the recent Ontario Superior Court of Justice decision Burwell et al v Wozniak, 2024 ONSC 5851, the Court examined complex trust and proprietary estoppel issues between former partners. The decision in Burwell clarifies the boundaries of proprietary estoppel within Ontario law and emphasizes the importance of consistency between preliminary promises and formal agreements in trust disputes.
The applicant and respondent were involved in a former relationship, during which time the applicant and their business partner launched a subscriber-based billing management software company (the “Company”). The applicant sought to establish a family trust; however, the pair separated. Wishing to reconcile the relationship, the applicant sent the respondent an email purporting to bequeath her fifty (50) percent of the shares of the Company (the “Email”). Later the pair finalized a trust agreement appointing the applicant and respondent as beneficiaries. However, the trust agreement did not clearly define the ownership of the shares.
Unfortunately, the applicant and respondent formally separated. With the sale of the Company pending, the respondent sought to enforce their reported interest in fifty (50) percent of the Company’s shares, arguing that the Email created a valid trust or, alternatively, grounded their claim for the shares in proprietary estoppel.
The parties elected to proceed with resolving the matter through arbitration. They initially resolved the dispute via arbitration in early 2022, with the arbitrator ruling in favour of the respondent, finding the Email constituted an express trust entitling them to half of the company shares. The applicant appealed this ruling, leading the Court to set aside the arbitrator’s trust award and return the proprietary estoppel claim to the arbitrator for further consideration. Ultimately, the arbitrator awarded fifty (50) percent of the shares to the respondent, concluding that they had successfully demonstrated their case for proprietary estoppel based on the Email. The applicant appealed this award.
At the appeal of the arbitrator’s second award, the Court considered whether the arbitrator erred in concluding that the respondent was entitled to fifty (50) percent of the shares of the Company. The Court held that proprietary estoppel, as currently interpreted in Ontario, does not extend beyond land-based property rights, referencing the Supreme Court of Canada’s treatment of the doctrine in Cowper-Smith v Morgan, [2017] 2 SCR 754. Although the arbitrator contended that no court had explicitly confined proprietary estoppel to land, the Court pointed out that earlier decisions from the Ontario Court of Appeal suggested such a restriction. The trial judge found that by broadening the application of proprietary estoppel in this instance, the arbitrator had overstepped their jurisdiction.
In its ruling, the Court held that for proprietary estoppel to apply, the representation must be clear and unambiguous. The Court maintained that the Email was internally inconsistent, contradictory, and ambiguous, noting conflicting statements about the number of shares the respondent would receive. The Court further opined that the Email lacked a definitive promise that could form the basis for proprietary estoppel. The fact that the promise was conditional on executing a formal family trust agreement further complicated the issue, as the Email could not override or modify the formal agreement’s terms.
The Court’s decision in Burwell clarifies the limits of proprietary estoppel, reinforcing the doctrine’s traditional limitations to land interests and not other forms of property such as corporate shares. Furthermore, the decision suggests the importance of formalizing business and trust arrangements through legally binding agreements rather than relying on informal promises. Individuals engaged in share disputes or other contractual disagreements related to property should contemplate obtaining legal counsel to examine any agreements that claim to establish a proprietary interest in property, particularly in situations involving assets other than land.
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