Category: Fiduciaries

Fiduciary Obligations of Attorney Increase If Donor Incompetent

In Zeligs v Janes 2015 BCSC 525 the court examined the breach of fiduciary duty of two powers of attorney for a mentally incompetent donor who both personally financially profited with the use of the power of attorney by taking two mortgages out on jointly owned property with the donor, selling the property and keeping the net funds for themselves.

The fiduciary obligations of an attorney become elevated once the donor of the power becomes incapable.

This is described by the Ontario Court of Appeal as follows (Richardson Estate v. Mew, 2009 ONCA 403):

48. In Banton [Banton v. Banton (1998), 164 D.L.R. (4th) 176 (Ont. Sup. Ct.)], Cullity J. held that while an attorney acting under a continuing power of attorney is always a fiduciary, the scope of the attorney’s fiduciary duties depends on whether the donor of the power is incapable at the time of the transaction. If the donor is mentally incapable, the attorney’s position approaches that of a trustee. …

49. As a fiduciary, Ms. Ferguson was obliged to act only for the benefit of Mr. Richardson, putting her own interests aside: see Ermineskin Indian Band and Nation v. Canada, [2009] 1 S.C.R. 222, at para. 125.

In British Columbia (Public Guardian and Trustee of) v. Elgi, 2004 B.C.J. No. 796, 28 B.C.L.R. (4th) 375 (S.C.) aff’d [2005] B.C.J. No. 2741, 262 D.L.R. (4th) 208 (C.A.), Garson J. described the prohibition against using a power for the attorney’s profit, benefit or advantage, at para. 82, in the following way:

It is the attorney’s duty to use the power only for the benefit of the donor and not for the attorney’s own profit, benefit or advantage. The attorney can only use the power for his or her own benefit when it is done with the full knowledge and consent of the donor. I am not aware of any authority that detracts from this principle in circumstances where the benefit is conferred on family members.
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The Power of Attorney Act

Sazarynick v Skwardchuk 2021 BCSC 443 reviewed how much of the common law re Power of Attorney cases was codified and strengthened in the modern BC Power of Attorney Act of 2008.

The fiduciary obligations that an ad hoc fiduciary attorney would owe in equity have largely been codified in the modern version of the Power of Attorney Act:

For example, s. 19(1) of the PAA now mandates that an attorney must “act honestly and in good faith” and “exercise the care, diligence and skill of a reasonably prudent person”.

Moreover, s. 19(1)(d) requires that an attorney “keep prescribed records and produce the prescribed records for inspection and copying at the request of the adult.”

An attorney is required to act in the “adult’s best interest’s” when managing and making decisions about the adult’s financial affairs: PAA, s. 19(2).

Finally, pursuant to s. 19(4) of the PAA, an attorney must keep their own property separate from the donor’s property.

In a similar vein, the Power of Attorney Regulation, B.C. Reg. 20/2011 (“Regulation”) imposes further obligations on attorneys.

Section 2(1) mandates that an attorney acting under an enduring power “must make a reasonable effort to determine the adult’s property and liabilities as of the date on which the attorney first exercises authority on the adult’s behalf” and “maintain a list of that property and those liabilities.”

Further record keeping obligations are imposed under s. 2(2) of the Regulation, which provides as follows:

(2) An attorney acting under an enduring power of attorney must keep the following records in relation to the period for which the attorney is acting:
(a) a current list of the adult’s property and liabilities, including an estimate of their value if it is reasonable to do so;
(b) accounts and other records respecting the exercise of the attorney’s authority under the enduring power of attorney;
(c) all invoices, bank statements and other records necessary to create full accounts respecting the receipt or disbursement, on behalf of the adult, of capital or income.

In short, the Regulation imposes fairly robust record keeping obligations on those acting under an enduring power of attorney.

The equitable obligations of a fiduciary at common law were well-established by 2008 and it is unnecessary to grapple with the modern statutory regime that has largely codified the common law, or the law of Manitoba, which was neither plead or argued.

The standard of care for an attorney, which has now been codified under s. 19(1) of PAA, was well-established in the case law by 2008.

For example, in Andreasen v. Daniels-Ferrie, 2001 BCSC 1503 at para. 27, the requisite standard of care for a fiduciary acting under a power of attorney was described as follows:
even where the attorney acts gratuitously he or she has a duty to account, to exercise reasonable care as would a typically prudent person managing his or her own affairs, and not act contrary to the interests of the donor.

In sum, the requisite standard of care was already well-established in the case law by 2008.

The Test For a Fiduciary Relationship

At the highest level of generality, a fiduciary must act with utmost loyalty, good faith, and in the best interests of the person over whom they exercise discretion or control: Galambos v. Perez, 2009 SCC 48 at para. 69; Can. Aero, at 606; Sull v Pengelly 2019 BCSC 575at para. 129.

As a result of these obligations, a fiduciary exercising a power of attorney cannot act for their own personal benefit or use property under their power for their own gain: Zeligs v. Janes, 2016 BCCA 280 at para. 86; .

The existence of a fiduciary relationship can arise in one of two ways.

First, there are per se fiduciaries that come from certain established classes of relationships. As Justice Rothstein reaffirmed in Professional Institute of the Public Service of Canada v. Canada (Attorney General), 2012 SCC 71 at para. 115, the list of per se fiduciary relationships include: trustee-cestui que trust, executor-beneficiary, solicitor-client, agent-principal, director-corporation, guardian-ward, and parent-child.

Second, there are ad hoc fiduciary relationships that, while not falling within the established categories of per se fiduciaries, nevertheless give rise to fiduciary obligations in the circumstances.

The test for establishing an ad hoc fiduciary relationship has gone through several iterations over the years. It was most recently reformulated in Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24 at para. 36 and clarified in Professional Institute, at para. 128.

The party seeking to establish the existence of an ad hoc fiduciary relationship must show:

(i) An undertaking by the alleged fiduciary to act in the best interest of the alleged beneficiary or beneficiaries;

(ii) A defined person or class of persons who is/are vulnerable to the fiduciary in that the fiduciary has a discretionary power over them; and

(iii) A legal or substantial practical interest of the beneficiary or beneficiaries that stands to be adversely affected by the alleged fiduciary’s exercise of discretion or control.

An executor-beneficiary relationship is a defined per se fiduciary relationship

In Wang v. Wang, 2020 BCCA 15 at para. 32, Justice Saunders noted that the historical indicia of a fiduciary relationship “will always exist” in an attorney-donor relationship, thereby hinting at a per sae fiduciary relationship.

As noted in Egli v. Egli, 2004 BCSC 529 at para. 76, aff’d 2005 BCCA 627, “[i]n most cases involving alleged breach of fiduciary duty by an attorney, it is taken as a given that where there is a power of attorney, there exists a fiduciary relationship between the attorney and the donor

Nevertheless, both Egli and Wang ultimately viewed an attorney-donor relationship through the ad hoc fiduciary framework. agent-principal relationship

However in Houston v. Houston, 2012 BCCA 300 at paras. 26–30, a donor-attorney relationship could arguably fall within the ambit of a per se fiduciary.

The Equitable Principle of Disgorgement

Disgorgement is the giving up of funds by a fiduciary where a breach of fiduciary duty was involved. They typically involve the restitution remedy of recovering ill-gotten profits made by the fiduciary.

There is a large degree of discretion in ordering disgorgement: Strother v. 3464920 Canada Ltd., 2007 SCC 24 at para. 74; Wang v. Wang, 2020 BCCA 15 at para. 59.

As Justice Cromwell notes in Kerr v. Baranow, 2011 SCC 10, all equitable remedies are characterized by the necessity of designing them to be responsive to the particular facts of each case:

This public interest aspect is served by the prophylactic purpose of disgorgement.

Disgorgement of a gain obtained in a breach of a fiduciary duty, irrespective of the plaintiff’s loss, “teaches faithless fiduciaries that conflicts of interest do not pay. The prophylactic purpose thereby advances the policy of equity, even at the expense of a windfall to the wronged beneficiary”: Strother at para. 77 [emphasis in original].

However, there are limits to prophylactic disgorgement -Pirani v Pirani, [2021] BCJ No 1725, 2021 BCSC 1530

Sarzynick v Skwarchuk 2021 BCSC 443 reviewed the remedies available for a breach of fiduciary duty including the equitable principle of disgorgement.

The equitable remedy of disgorgement serves two purposes:

One is restitutionary and the other prophylactic: Strother, at paras. 75–77. The restitutionary component of disgorgement aims to restore to the aggrieved party the benefits that they otherwise would have enjoyed, such as when a fiduciary usurps a business opportunity or purchases a property that otherwise would have gone to the beneficiary

Two- The prophylactic rationale aims to deter faithless behaviour and preserve the sanctity of fiduciary relationships by forcing the fiduciary to disgorge all profits obtained from their breach.

Prophylactic disgorgement arises even in circumstances where the beneficiary has suffered no loss. This can often result in a windfall for the plaintiff.

Where a fiduciary has retained profits by breaching their fiduciary obligations, they can be disgorged of their profits in one of two ways:

(1) by imposing a personal debt on the fiduciary, thereby requiring them to repay the unjustified gain; or
(2) by imposing a constructive trust requiring the fiduciary to transfer the gain to the aggrieved party (Kyle Estate v. Kyle, 2017 BCCA 329 at para. 37).

The use of remedial constructive trusts for disgorgement in the breach of fiduciary duty context is well-established:
in The Law of Restitution, loose-leaf (Toronto: Tomson Reuters, 2020) at 27:500, “a principal may assert a proprietary claim not only for misappropriated assets, but for property…and opportunities which the fiduciary has deflected and captured for personal benefit.”

Fraudulent Executor Ordered to Pay Costs

Kyle estate 2017 BCSC 752 held that an executor who misappropriated trust funds was denied the legal costs of defending the pursuit of those assets and either double costs or special costs were awarded against the executor on the basis of public policy, rather than the costs be borne by the estate.

The executor had been removed by court order, and it was determined that approximately $450,000 had been misappropriated from estate funds by him.

He was not forthright with his mother and siblings regarding what appeared by them to be sums missing from the estate of the deceased, had obtained a grant of probate of the will of the deceased without disclosing the joint account, and had failed to meet the onus of showing that it was the intention of the deceased to make an absolute gift of the monies in the joint account to himself.

The court also found that the former executor undertook almost 2 years of misdirection and deceit to knowingly permit inaccurate information to be conveyed by the estate lawyer and was not honest, complete or neutral in disclosing the benefits he had received from the deceased.

The other beneficiary was awarded full indemnification for his legal costs and expenses as a result of pursuing a claim against the former executor.

In a proceeding involving the misconduct of an executor or trustee, including where the executor has acted dishonestly and in breach of fiduciary obligations, the beneficiary may obtain an award of special costs against the executor personally and, if the executor is a beneficiary under the estate, these costs can come out of the executor share of the estate. Szpradowski v Szpradowski Estate (1992) 44 ETR 89

Szpradowski at para. 227 stated ” there is no reason why the estate of the legatee, should bear the cost of which the executor put the estate “-

Fiduciary Relationships: Ad Hoc and Per Se

At the highest level of generality, a fiduciary must act with utmost loyalty, good faith, and in the best interests of the person over whom they exercise discretion or control: Galambos v. Perez, 2009 SCC 48 at para. 69.

As a result of these obligations, a fiduciary exercising a power of attorney cannot act for their own personal benefit or use property under their power for their own gain: Zeligs v. Janes, 2016 BCCA 280 at para. 86; S

A fiduciary attorney must account for assets under their power and all proceeds generated from those assets.

Sarzynick v Skwarchuk 2021 BCSC 443 discussed how the existence of a fiduciary relationship can arise in one of two ways:

First, there are per se fiduciaries that come from certain established classes of relationships. In Public Service of Canada v. Canada (Attorney General), 2012 SCC 71 at para. 115, the list of per se fiduciary relationships include: trustee-cestui que trust, executor-beneficiary, solicitor-client, agent-principal, director-corporation, guardian-ward, and parent-child.

Second, there are ad hoc fiduciary relationships that, while not falling within the established categories of per se fiduciaries, nevertheless give rise to fiduciary obligations in the circumstances.

The test for establishing an ad hoc fiduciary relationship has gone through several iterations over the years. It was most recently reformulated in Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24 at para. 36 and clarified in Professional Institute, at para. 128.

The party seeking to establish the existence of an ad hoc fiduciary relationship must show:

(i) An undertaking by the alleged fiduciary to act in the best interest of the alleged beneficiary or beneficiaries;
(ii) A defined person or class of persons who is/are vulnerable to the fiduciary in that the fiduciary has a discretionary power over them; and
(iii) A legal or substantial practical interest of the beneficiary or beneficiaries that stands to be adversely affected by the alleged fiduciary’s exercise of discretion or control.

Not every breach of duty equates with a breach of a fiduciary duty: Girardet v. Crease & Co. (1987), 11 B.C.L.R. (2d) 361 at 362 (S.C.). As Justice Harris aptly summarized, a breach of fiduciary duty typically “captures circumstances in which there is a breach of the duty of loyalty owed by the fiduciary and includes circumstances involving acting in the face of a conflict, preferring a personal interest, taking a secret profit, acting dishonestly or in bad faith, or a variety of similar or related circumstances”: Meng Estate v. Liem, 2019 BCCA 127 at para. 35.

Lawyer-Client Relationships and Fiduciary Obligations

Certain categories of relationships such as the lawyer-client are considered to possibly give rise to fiduciary obligations because of their inherent purpose or their presumed factual or legal incidents.

It is well-established that not all obligations existing between the parties to a well recognized fiduciary relationship, such as lawyer and client, will be fiduciary in nature, and in the context of a solicitor client relationship, not every breach of duty will be a breach of fiduciary duty. Strother v 346-4920 Canada Inc. 2007 SCC 24 at paragraph 34.

Thus a failure on the part of a lawyer to use reasonable care and skill on behalf of a client may result in the lawyer been found to be negligent, but not necessarily in breach of the lawyers fiduciary duties to the client.

Huang v Li 20202 BCSC 1727 examined the lawyer client relationship and when a breach of fiduciary duty may arise.

Acts of professional misconduct and a failure on the part of the lawyer to comply with the professional standards described in the document, such as a professional code of conduct may result in the lawyer being disciplined by the lawyer’s governing body, but not necessarily constitute a breach of the lawyers fiduciary duties to the lawyer’s client.

In the Strother decision, the Supreme Court of Canada stated that” a fundamental duty of a lawyer is to act in the best interest of his or her client to the exclusion of all other adverse interests, except those duly disclosed by the lawyer and willingly accepted by the client.

The solicitor client relationship was described at paragraphs 34-35 as:

“ when a lawyer is retained by a client, the scope of the retainer is governed by contract. It is for the parties to determine how many, or a few, services, the lawyer is to perform, and the contractual terms of the engagement . The solicitor- client relationship thus created is, however, overlaid with certain fiduciary responsibilities, which are imposed as a matter of law.
The source of the fiduciary duty is not the retainer itself, but all the circumstances, including the retainer, creating a relationship of trust and confidence from which flow obligations of loyalty and transparency. Not every breach of the contract of retainer is a breach of a fiduciary duty.

On the other hand, fiduciary duties provide a framework within which the lawyer performs the work and may include obligations that go beyond what the parties expressly bargain for. The foundation of this branch of the law is the need to protect the integrity of the administration of justice. MacDonald Estate v . Martin (1990) 3 SCR 1235 at paragraphs 1243 and 1265.

Fiduciary responsibilities include the duty of loyalty of which an element is the avoidance of conflicts of interest.
Two points must be made with respect to the rule of professional conduct for a lawyer:

Two Points about Professional Conduct:

1.There is an important distinction between the rules of professional conduct and the law of negligence. Breach of one does not necessarily involve breach of the other. Conduct may be negligent, but not breach rules of professional conduct, and breaching the rules of professional conduct is not necessary negligence. Codes of professional conduct while they are important statements of public policy with respect to the conduct of lawyers, are designed to serve as a guide to lawyers and are typically enforced and disciplinary proceedings.

2. The second point relates to the concerns underlying the rules of conduct in relation to borrowing from clients. The rule is a specific application of the general rules about conflict of interest. There is concern the lawyers legal skill and training, coupled with the relationship of trust arises between the solicitor and client, creates the possibility of overreaching by the lawyer. A further concern is that the lawyers in a position during the form of the transaction and may therefore further his or her own interests instead of those of the client.

Certain categories of relationships are considered to give rise to fiduciary obligations because of the inherent purpose of their presumed factual or legal incidents. These categories are sometimes called per se fiduciary relationships.

A claim for breach of fiduciary duty may only be founded on breaches of the specific obligations imposed because the relationship is one characterized as fiduciary.

BC Contested Estates-Fiduciary Duties

Trevor Todd and Jackson Todd have handled contested estate disputes for over sixty combined years including breach of fiduciary duties.

An essential feature of a fiduciary relationship is the fiduciary’s duty to the beneficiary who is entitled to expect that the fiduciary will be concerned solely for the beneficiaries interests, and never for the fiduciary’s own.

It has been said that the hallmark of a fiduciary relationship is that the relative legal positions are such that one party is at the mercy of the others discretion.

Where there is a fiduciary obligation there is a relation in which the principles interest can be affected by, and are therefore dependent on the manner in which the fiduciary uses the discretion which has been delegated to him or her. The fiduciary obligation is the law’s blunt tool for the control of this discretion.

Typically, a breach of fiduciary duty captures circumstances in which there is a breach of the duty of loyalty owed by the fiduciary and include circumstances involving acting in the face of a conflict, preferring a personal interest, taking a secret profit, acting dishonestly or in bad faith, or a Friday of similar or related circumstances.

The term fiduciary, however, has been described as one of the most ill-defined, if not altogether misleading terms and are law.

Despite the fiduciary nature of the trustee beneficiary relationship, not every failure of a fiduciary is a breach of a fiduciary duty. Giradet v Crease & Co. (1987) 11 BCLR (2d) 361 at 362.

In Louie v Louie 2015 BCCA 247 at paragraph 23, the court stated” I start with the two most fundamental and long-standing obligations of fiduciary’s the “no conflict” rule and the “no profit” rule.

With respect to the no conflict rule, the the objective is to preclude the fiduciary from being swayed by considerations of personal interest.

The no profit rule requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of the fiduciary position or of opportunity or knowledge resulting from it. The objective is to preclude the fiduciary from actually misusing his or her position for his or her personal advantage.

Thus, not only as a trustee, not to profit from his or her position, equity has an inflexible rule that he is not allowed to put himself in a position where his interest in duty conflict. Bray v Ford (1896) AC 44 at 51

Obligation of Disclosure Between Partners/Fiduciaries

McNight v Hutchinson 2019 BCSC 944 discussed the obligation of disclosure between partners and other relationships characterized by a duty of utmost fairness and good faith ( fiduciary) . ( see also Aero Services Ltd v O’Mally (1973) 4 DLR 371 ).

The authorities emphasize that the purpose served by the requirement of disclosure is to allow the informed party to exercise an independent will and take any position that party might adopt as appropriate, and to be aware of any risk that the other might be tempted to fall short of the requisite duty. Hitchcock v Sykes (1914) SCR 403.

In the case of partnerships, the institution requires there be trust. In the usual case, the firm enterprise requires contribution from each partner and proportionate division is made of the profits or losses. There is no limitation from firm liability, and each partner potentially has the power to expose the full worth of every other partner.

Where relationships are marked by the obligation of utmost fairness and good faith, the remedy for breach extends beyond damage where there has been a breach of the fiduciary duty.

The law calls on the defendants to account to the plaintiff for any profit made or benefit received is result of the breach of duty. This is not the same as damages, which are compensatory in nature. The purpose of damages is to put the plaintiff in the same position it would’ve been if not for the wrongdoing.

Secret profits can be an issue that arises between partners. The remedy for breach of a fiduciary duty by the realization of secret profits or benefits requires that the fiduciary be prevented from retaining any gain from the activity which arose from the breach of duty. The assessment for such a breach focuses on the wrongdoers gain and not the beneficiaries loss.

fiduciaries Obligation of Disclosure

BC Estate Lawyer-Power of Attorney is a Fiduciary

Power of Attorney is a Fiduciary - Disinherited

Trevor Todd and Jackson todd have handled contested estates for over sixty combined years, including breach of fiduciary duties of powers of attorney.

Meng Estate v Liem 2019 BCCA 127 confirmed that a person acting under a power of attorney is an agent held to the standard of conduct to which equity holds a fiduciary.

Those obligations involved, at least, that even where the attorney asked gratuitously, he or she has a duty to account, to exercise reasonable care, as would a typically prudent person managing his or her own affairs, and not to act contrary to the interests of the donor McMullen v Webber 2006 BCSC 1656 at para.52.

A claim for breach of fiduciary duty carries with it the staunch of dishonesty, if not of deceit, then of constructive fraud. Nocton v Lord Ashburton (1914) AC 932(HL)

The appeal court overturned a finding of a breach of fiduciary duty by the acting attorney and stated that even though Mr.Liem was in a fiduciary relationship with the opposing party, not every potential breach of duty is a breach of fiduciary duty. The court found

A fiduciary may breach duties owed in contract or negligence without those breaches being transformed into breaches of fiduciary duty. Girardet v Crease & Co. (1987) 11 BCLR (2d) 361 .

At paragraph 35 the appeal court stated “typically, a breach of fiduciary duty captures circumstances in which there is a breach of the duty of loyalty owed by the fiduciary and include circumstances involving acting in the face of a conflict, preferring a personal interest, taking a secret profit, acting dishonestly or in bad faith, or a variety of similar or related circumstances. This is not an exhaustive list.”
But there are criteria for distinguishing a breach of fiduciary duty from negligence by the attorney .
The court found that there was no basis in evidence to find that the appellant acted dishonestly or in the face of a conflict of interest, forwarded the wishes of the opposing party, preferred his interest to theirs, or in any way benefited from signing the contract. The court found that he attempted to fulfill his duty of loyalty.

The court determined that the real complaint was that the attorney failed to exercise the care, diligence and skill of a reasonably prudent person by negligently failing to ascertain and thereby take into account the opposing parties current wishes, resulting in the sale that was not in their best interest because they changed their minds and then disagreed with the price.

The claim was really one of negligence, not of breach of fiduciary duty.

The duties of an attorney are codified in section 19 of the Power of Attorney act:

1) an attorney must:
a) act honestly and in good faith
b) exercise the care, diligence and skill of a reasonably prudent person,
c) act within the authority given in the enduring power of attorney and under any an enactment, and
d) keep prescribed records and produce the prescribed records for inspection and copying at the request of the adult.

2) When managing and making decisions about the adults financial affairs, an attorney must act in the adult’s best interests, taking into account the adults current wishes, no one beliefs and values, and any directions to the attorney said out in the enduring power of attorney.

Fiduciary power of attorney