Trevor Todd and Jackson Todd have practiced contested estate law for over sixty combined years, including financial abuse by a power of attorney.
This blog is about forcing a power of attorney who subsequently becomes the executor and trustee of an estate to account to the estate for monies handled during the course of acting as power of attorney.
The problem arises in a common scenario when the power of attorney is the same person as the executor trustee.
The courts have held that there cannot be a true accounting as between the attorney and the estate trustee, as they are one and the same person.
In Brown v. Brown , 2011 BCSC 649 at paragraphs 114 – 116 sets out the following:
114) . In Harris v. Rudolph 2004 OJ No.2754 at paragraph 33 summarize the attorney’s duty to account as follows:
Following the grant of a power of attorney, the attorney has a duty to account for all transactions which he or she undertakes for the grantor. The attorney is the one who has the information. An estate trustee stands in the shoes of the grantor for the enforcement of the duty owed by the attorney as agent to the deceased as principal. There is a duty on the attorney to keep accounts and be ready upon request to produce those accounts. It is an ongoing obligation and should not be considered an imposition on the attorney if he or she has failed in that duty over a long period of time.
Also see Roger Estate v . Leung 2001 0J No. 2171 at paragraph 10.
In Ontario, there is a line of jurisprudence, holding that following the death of the grantor, and were the attorney in the estate trustee are one of the same person, there can be no true accounting as between the attorney in the estate trustee. As a result, courts in Ontario have permitted beneficiaries and others in the circumstances to seek leave as any other person under their rules, to apply to the court for a passing of the attorneys accounts for the period the attorney acted prior to the grantor’s death. De Zorzi Estate v Read 2008 ETR (3d) 318 Ont. S.C.
Fiduciaries must account for their handling of trust properties to the trust beneficiaries, and are not allowed to profit from being a fiduciary other than being paid reasonable fees for services rendered.
Equity compels a fiduciary to hold and manage trust property on the terms of the express trust by imposing a trust obligation upon it in favour of the trust beneficiaries.
The typical example of this constructive trust is found as far back as 1726 in the English decision of Keech v. Sandford , 20 E.R. 223, that is authority for the principle that a trustee may not make a profit for himself through his trusteeship. This decision has been adopted many times in Canada.
It is a fundamental duty of a trustee that he not permit his personal interest to conflict with his duty as trustee. This duty extends to any profits which the court may consider to be acquired improperly.
The principle of profiteeship encumbrances any gains made personally by the fiduciary and the law will then impose a constructive trust on the asset on the terms of the express trust, all of which depends on the facts of the particular case.
If the profit remains in the same form in which it was held by the fiduciary, then the beneficiaries can recover it in the same form or trace it into any other form into which it was converted by the trustee. The beneficiaries are entitled to argue that the property in dispute was always theirs and never the trustee/fiduciaries, and if they can identify it among the assets in the trustee’s name, or in mixed funds, they are entitled to recover it.
The nature of the fiduciary relationship arises from the placing of trust and confidence by the claimant in the fiduciary and equity will impose express trust obligations upon the fiduciary who abuses that trust and confidence. Once equity imposes the trust provisions, the fiduciary will become a constructive trustee of the assets.
The rule against profits is a strict one, which is designed to ensure that the fiduciary acts, as equity requires, from the purest motives – the fiduciary must be motivated only by the best interest of his beneficiary.
The Supreme Court of Canada in Soulos v Korkontzilas (1997) 2 SCR 217 held that to establish a constructive trust to be imposed upon a wrongful gain, four conditions must generally be satisfied:
The defendant must of been under an equitable obligation- an obligation of the type that courts of equity have enforced in relation to the activities, giving rise to the assets in his hands;
The assets in the hands of the fiduciary must be shown to have resulted from deemed or actual agency activities of the fiduciary in breach of his equitable obligation to the plaintiff/owner;
The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties;
There must be no factors which would render imposition of a constructive trust unjust in all of the circumstances of the case- for example, the interests of intervening creditors must be protected.
The imposition of constructive trusts in breach of fiduciary obligations have included cases that vary from the crown acquiring land from first nations people in breach of its fiduciary obligations to them, to commercial cases in which one Corporation owes a fiduciary duty to another; to information where the fiduciary has acquired information that is used to acquire a personal gain.
MacKay v. MacKay Estate,2015 ONSC 7429, held that one joint account holder may serve as a fiduciary in relation to the other simply via the traditional indicia of such a relationship as set out in Frame v. Smith, [1987] 2 SCR 99 (i.e., the ability by the fiduciary to exercise unilateral control over the beneficiary’s interests; the vulnerability of the beneficiary).
In MacKay, supra, the defendant daughter-in-law had been added as a joint account holder to her mother-in-law’s account in order to help her with her day-to-day finances; this occurred while the mother-in-law retained capacity. The daughter-in-law did not hold power of attorney. She was her mother-in-law’s main caregiver, emotional support and confidante. In her capacity as joint account holder, in addition to covering the mother-in-law’s expenses, she paid herself a modest weekly sum in compensation for her services. The son (ex-husband of the daughter-in-law at the time of litigation), who held power of attorney for his mother, brought an action against his ex-wife seeking an accounting and repayment of the funds in question.
The court held that the daughter-in-law had a fiduciary obligation to her mother-in-law in her management and operation of the joint bank account, but that she had not breached her duty; her payments to herself were reasonable in the circumstances.
The holding in MacKay underscores the principle that the prima facie nature of a joint account—that is, of its being equally owned and equally subject to the discretion of all account holders—will give way, in some circumstances, before deeper considerations of equity.
In some respects MacKay stands for this proposition more strenuously than Pecore itself, as the former is less reliant on traditional doctrines concerning gifts and donors’ intentions. MacKay does not treat the nature of a joint account as an either/or proposition by which either a gift or trust is created. Rather, MacKay concerns itself solely with the question of fiduciary obligations, specifically as they may arise in the context of a “typical” joint account where one party is vulnerable to the discretion of the other.
It is common in estate disputes to encounter a party attempting to deal inappropriately with the affairs of a limited company whose shares should be an estate asset, and when this occurs, one should look for a breach of the directors fiduciary duty owed to the company.
The fiduciary duty of a director to the company is one of loyalty ,good faith, avoidance of conflict of duty and self-interest.
The leading case in this area is Canadian Aero Services Ltd v O’Malley 1974 SCR 592 where the court found senior management who had left the plaintiff with confidential information were fiduciaries and that duty continued after their employment ceased.
25 An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiduciary duties of directors and senior officers shows the pervasiveness of a strict ethic in this area of the law. In my opinion, this ethic disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.
26 It is this fiduciary duty which is invoked by the appellant in this case and which is resisted by the respondents on the grounds that the duty as formulated is not nor should be part of our law and that, in any event, the facts of the present case do not fall within its scope.
27 This Court considered the issue of fiduciary duty of directors in Zwicker v. Stanbury1, where it found apt for the purposes of that case certain general statements of law by Viscount Sankey and by Lord Russell of Killowen in Regal (Hastings) Ltd. v. Gulliver2, at pp. 381 and 389. These statements, reflecting basic principle which is not challenged in the present case, are represented in the following passages:
28 Per Viscount Sankey:
In my view, the respondents were in a fiduciary position and their liability to account does not depend upon proof of mala fides. The general rule of equity is that no one who has duties of a fiduciary nature to perform is allowed to enter into engagements in which he has or can have a personal interest conflicting with the interests of those whom he is bound to protect. If he holds any property so acquired as trustee, he is bound to account for it to his cestui que trust. The earlier cases are concerned with trusts of specific property: Keech v. Sandford ((1726), Sel. Cas. Ch. 61) per Lord King, L.C. The rule, however, applies to agents, as, for example, solicitors and directors, when acting in a fiduciary capacity.
29 Per Lord Russell of Killowen:
In the result, I am of opinion that the directors standing in a fiduciary relationship to Regal in regard to the exercise of their powers as directors, and having obtained these shares by reason and only by reason of the fact that they were directors of Regal and in the course of the execution of that office, are accountable for the profits which they have made out of them. The equitable rule laid down in Keech v. Sandford [supra] and Ex p. James ((1803), 8 Ves. 337), and similar authorities applies … in full force. It was contended that these cases were distinguishable by reason of the fact that it was impossible for Regal to get the shares owing to lack of funds, and that the directors in taking the shares were really acting as members of the public. I cannot accept this argument. It was impossible for the cestui que trust in Keech v. Sandford to obtain the lease, nevertheless the trustee was accountable. The suggestion that the directors were applying simply as members of the public is a travesty of the facts. They could, had they wished, have protected themselves by a resolution (either antecedent or subsequent) of the Regal shareholders in general meeting. In default of such approval, the liability to account must remain.
Janz v. McIntosh [1999] S.J. No. 121 is an excellent example of a court finding a breach of fiduciary duty where the alleged fiduciary was not a professional .
In fact he was simply a neighbor.
The Plaintiff was 58 years old female with Grade VIII education, who had never worked outside home, and lived at home with her parents until she married. The Plaintiff’s husband asked the defendant neighbour to assist plaintiff after his death.
Soon after the husband’s death, the defendant began to assist plaintiff with financial affairs to prevent the plaintiff squandering her inheritance.
Defendant borrowed $4,400 from plaintiff, then borrowed additional $10,000
Plaintiff received further inheritance after her father’s death, and defendant borrowed substantial sums from that amount to discharge his mortgage.
On her sister’s advice, the plaintiff brought action for repayment and damages from breach of trust, and the action was allowed.
While the relationship was not within recognized classes of fiduciary relationships, but defendant never the less acted in a fiduciary capacity with respect to financial advice.
The Plaintiff was vulnerable, defendant recognized plaintiff’s vulnerability and plaintiff trusted defendant to act in her best interests .
The defendant never disclosed to the plaintiff the benefits he derived from borrowing on her inheritance.
The Defendant never advised plaintiff to seek independent legal advice.
Defendant was in breach of fiduciary obligation
Plaintiff awarded outstanding amount of $58,111.40.
The defendant repaid most of the funds, but ultimately went bankrupt. The court imposed a constructive trust on the defendant’s home to the extent that the money that the neighbor obtained from the plaintiff was used to pay off the mortgage. The court further ordered that the plaintiff was entitled to bring legal action against the neighbor’s pension to the extent of the monetary compensation the court awarded the plaintiff.
A. Fiduciary Relationship
(1) The nature of a fiduciary relationship
20 In Frame v. Smith, [1987] 2 S.C.R. 99 (S.C.C.), at 136, Wilson J. in dissent identified criteria indicative of the existence of fiduciary relationships:
Relationships in which a fiduciary obligation have been imposed seem to possess three general characteristics:
(1) The fiduciary has scope for the exercise of some discretion or power.
(2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.
The criteria were adopted by the majority of the Supreme Court of Canada in International Corona Resources Ltd. v. LAC Minerals Ltd. (1986), 53 O.R. (2d) 737 (Ont. H.C.).
21 In Hodgkinson v. Simms, [1994] 3 S.C.R. 377 (S.C.C.), at 408-09, LaForest J. described the criteria as a useful rough and ready guide, but clearly indicated that the criteria were not definitive. In that case, a stock broker approached an accountant for tax planning advice in what was apparently a commercial arm’s length transaction. The accountant was held to be a fiduciary. Because the accountant was also acting for the developers of a real estate project, the majority found that he breached his fiduciary duty to the appellant when he advised the appellant stock broker to invest in the project and failed to disclose his pecuniary interest in the project. Writing for the majority about fiduciaries and their duties, LaForest J. stated at p. 405:
… From a conceptual standpoint, the fiduciary duty may properly be understood as but one of a species of a more generalized duty by which the law seeks to protect vulnerable people in transactions with others. I wish to emphasize from the outset, then, that the concept of vulnerability is not the hallmark of fiduciary relationship though it is an important indicium of its existence. Vulnerability is common to many relationships in which the law will intervene to protect one of the parties. It is, in fact, the “golden thread” that unites such related causes of action as breach of fiduciary duty, undue influence, unconscionability and negligent misrepresentation.
At p. 406, LaForest J. stated that undue influence and inequality of bargaining power are not elements which must be present to make a finding that a fiduciary relationship exists. He stated:
… Indeed, all three equitable doctrines are designed to protect vulnerable parties in transactions with others. However, whereas undue influence focuses on the sufficiency of consent and unconscionability looks at the reasonableness of a given transaction, the fiduciary principle monitors the abuse of a loyalty reposed. …
With reference to factual situations which fall within the guidelines provided by Wilson J. in Frame, supra, La Forest J. noted that there are three uses of the term fiduciary, only two of which he considers truly fiduciary. He stated at p. 409-10:
… The first is in describing certain relationships that have as their essence discretion, influence over interests, and an inherent vulnerability. In these types of relationships, there is a rebuttable presumption, arising out of the inherent purpose of the relationship, that one party has a duty to act in the best interests of the other party. Two obvious examples of this type of fiduciary relationship are trustee-beneficiary and agent-principal. In seeking to determine whether new classes of relationships are per se fiduciary, Wilson J.’s three-step analysis is a useful guide.
As I noted in Lac Minerals, however, the three-step analysis proposed by Wilson J. encounters difficulties in identifying relationships described by a slightly different use of the term “fiduciary,” viz., situations in which fiduciary obligations, though not innate to a given relationship, arise as a matter of fact out of the specific circumstances of that particular relationship; see at p. 648. In these cases, the question to ask is whether, given all the surrounding circumstances, one party could reasonably have expected that the other party would act in the former’s best interests with respect to the subject matter at issue. Discretion, influence, vulnerability and trust were mentioned as non-exhaustive examples of evidential factors to be considered in making this determination.
Thus, outside the established categories, what is required is evidence of a mutual understanding that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party. This idea was well-stated in the American case of Dolton v. Capitol Federal Sav. & Loan Ass’n, 642 P.2d 21 (Colo. App. 1982), at pp. 23-24, in the banker-customer context, to be a state of affairs
… which impels or induces one party “to relax the care and vigilance it would and should have ordinarily exercised in dealing with a stranger.” … [and] … has been found to exist where there is a repose of trust by the customer along with an acceptance or invitation of such trust on the part of the lending institution.
In relation to the advisor context, then, there must be something more than a simple undertaking by one party to provide information and execute orders for the other for a relationship to be enforced as fiduciary. …
22 The hallmark of a fiduciary duty would appear to be loyalty reasonably reposed in another, abuse of which would constitute a breach of the duty of loyalty or the fiduciary duty. To determine whether loyalty had been reasonably reposed in another one would have to examine the circumstances to see whether “one party could reasonably have expected that the other party would act in the former’s best interests with respect to the subject matter at issue.”
(2) Was Sam in a fiduciary relationship with June Ann?
23 Sam and June Ann’s relationship does not fit into any of the recognized classes of fiduciary relationships such as trustee — beneficiary, agent — principal, or solicitor — client. That, however, does not determine the question. The existence or absence of a fiduciary relationship is a question of fact to be determined by examining the circumstances and characteristics of the relationship.
24 There are several factors which point to the early formation of a fiduciary relationship. These include the following:
a) the request by June Ann’s husband that Sam look after June Ann;
b) June Ann’s request for help in dealing with her affairs;
c) June Ann’s reliance on Sam’s advice;
d) Sam’s knowledge that June Ann had difficulty managing her affairs;
e) Sam’s intervention when he believed June Ann was spending her inheritance recklessly;
f) Sam’s acceptance of an obligation to care for June Ann.
25 June Ann would appear to be vulnerable. This was evident from the manner in which she testified. She had only a grade eight education, had never managed her own affairs and had never taken care of herself until Jake died. Sam recognized her vulnerability. He referred to her as being mentally challenged and also described her as being a dependent adult. He said that on a scale of 1-10, June was a “2” as a financial person. He said he began acting as her advisor — not only on financial matters, but also on emotional matters. Sam knew June Ann trusted him and that she believed he was looking out for her interests.
26 All of these factors support a finding that Sam accepted a fiduciary obligation early on in the relationship and acted in a fiduciary capacity when advising June Ann with respect to the administration of her affairs.
27 June Ann had the right to expect that Sam would act in her best interests, as that appeared to be the basis of their relationship. Sam agreed to intervene for her to manage her financial affairs. Their agreement went beyond Sam simply providing information to June Ann and carrying out her orders. June Ann relied on Sam’s advice and Sam knew that she did and encouraged her to do so. The circumstances support a finding that Sam owed a fiduciary duty to June Ann with respect to the advice he gave regarding the management of her affairs. Sam cannot act as an advisor and expect to receive benefits from his role as advisor (other than any remuneration for his services agreed to by the parties) without risking the scrutiny of the court and possible sanctions for breach of fiduciary duty.
Most of us likely do not give a moment’s notice to the concept of the fiduciary relationships. This concept, however, is an extremely important principle of the common law. It provides a very flexible legal remedy often used used to protect vulnerable individuals who have been wronged by another who holds a position of power over them.
Understanding fiduciary relationships and fiduciary duties is especially important to legal professionals as we are all in fiduciary relationships with our clients.
The focus of this paper will be to explain and give some examples of how fiduciary relationships have been imposed and interpreted by our courts.
Background
As you may know, our common law legal system originally developed from judicial precedents established by English courts beginning almost 1000 years ago. Over the centuries our courts have developed legally recognized rights and duties that arise when persons are in certain relationships with others. For example, the case law developed the principle that a parent has a duty to provide necessaries to his or her child.
A fiduciary duty is the most onerous duty imposed by the common law. It is imposed by the courts whenever they find that a fiduciary relationship exists. The concept originally developed in Roman law and was borrowed by the Courts of Equity who developed the branch of the common law known as equity. These principles of equity are now part of our common law and are used by our modern day courts generally to avoid injustices being perpetrated.
Fiduciary duties originally developed as part of the law of trusts. Thus, fiduciary duties would arise whenever parties made a trust agreement. Under the terms of a trust, the trustee became the legal owner of the property yet owned and managed that property for the benefit of the beneficiary. In such a case, the trustee was said to be in fiduciary relationship with the beneficiary.
Equitable notions of justice demanded that trustees who had undertaken responsibility for the property or affairs of another, should not be permitted to exploit their position for their own benefit at the expense of the beneficiary.
Our courts have expanded this very useful concept of a fiduciary relationship well beyond the law of trusts. Thus, in general terms, modern courts will likely find that a fiduciary relationship exists whenever a relationship of trust or confidence exists between two parties. For example, because clients rely upon the integrity of their lawyer the courts will deem this legal professional to be in a fiduciary relationship with his or her client.
Whenever a fiduciary relationship exists the court will impose fiduciary duties upon the fiduciary who is in a position of trust towards another person.
The essence of a fiduciary relationship is that the fiduciary is in a position of confidence and power over another person and thus must exercise their power or discretion in the other’s best interest.
Simply put where a fiduciary relationship exists, the fiduciary must not make a personal profit from his or her position and must not allow personal interest to conflict with his fiduciary duties. The fiduciary owes a duty of loyalty, a duty to act in good faith and a duty to avoid any conflict of interest or self-interest.
Every fiduciary is required to subordinate his or her own interests to the promotion of the interests of the beneficiary. The law dictates that the fiduciary cannot utilize his or her position of power to their own advantage or to the other’s detriment. Thus, the fiduciary must act solely and selflessly in the interests of the beneficiary.
How do we recognize a fiduciary relationship?
In the decision of Frame v Smith ( 1987) 2 S.C.R. 99 the court set out the following guidelines to help recognize fiduciary relationships, stating as follows :
“Relationships in which a fiduciary obligation has been imposed seem to possess three general characteristics:
(1) The fiduciary has scope for the exercise of some discretion or power.
(2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power. ”
Fiduciary relationships are of many different types and can range from giving money to the errand boy who is bound to bring back the change to the most intimate and confidential of trust. For example all professionals handling the affairs of others are typically in a fiduciary relationship with their clients. This would include partners, agents, directors and legal professionals as previously mentionned.
There is no closed category of cases where the courts will find a fiduciary relationship to exist. Indeed they have recognized fiduciary obligations in a wide variety of situations. Here are some examples
Guerin v. The Queen [1984] 2 S.C.R. 335 involved a lawsuit brought by the Musqueam against the federal government who made an agreement to lease their lands in 1958. These lands were 162 acres of superb green space, much of it waterfront, near UBC. The government rented these lands for 75 years to Shaughnessy Golf & Country Club in a sweetheart deal with a rent of merely $29,000. More troublesome yet was the lack of rent escalation for 15 years. Even then the escalation was capped at a maximum of 15 per cent per annum.
The Supreme Court of Canada found that this was an exploitative bargain which was “unconscionable” and a breach of the Crown’s fiduciary duty to the Musqueam nation whose affairs the Crown was managing. The court thus awarded damages of $ 10 million to the Musqueam.
More recently, in Norberg v Wynrib ( 1992) 92 DLR (4th) 449, at 499. McLachlin J. declared that “fiduciary relationships are capable of protecting not only narrow legal and economic interests, but can also serve to defend fundamental human and personal interests”.
In this case Ms. Norberg was a young woman addicted to painkiller medication. She was obtaining these drugs from an elderly doctor, who suggested that he would supply drugs in return for her giving him sexual favours . This casual arrangement of “sex for drugs” continued for some time. When Ms. Norberg asked Dr. Wynrib for help getting off drugs, he advised her simply “to quit”. He continued supplying drugs to Ms. Norberg until she decided, on her own, to go to a rehabilitation centre to get help with her drug addiction.
When the case reached the Supreme Court of Canada, two of the justices found that a fiduciary relationship existed. They found the doctor to be a fiduciary because he was in a relationship of trust and confidence who had the power to exercise a discretion over his patient. This discretion made her particularly vulnerable to any abuse by him and they ruled that the doctor had breached his fiduciary duties to his patient and awarded damages on that basis.
This case is also a good illustration of the courts’ ability to shape the common law to make it more socially responsive and acceptable to the community.
Similarly other decisions have recognized a fiduciary relationship between parent and child and school boards and students.
Another good example of the scope of fiduciary duties is the recent case of Olive Hospitality Inc. v. Woo 2006 BCSC 1554, appeal decision at 2007 BCSC 355. The facts and trial decision are summarized in the opening paragraphs of the appeal decision :
“Olive Hospitality Inc. was engaged in the development of a specialty restaurant franchise in this province, financed by Asian investors seeking entrepreneurial opportunities to facilitate their immigration to Canada. With an investment of $2,178,500 and financing from HSBC Bank Canada, the company had, through its subsidiaries, opened three restaurants and was about to open a fourth as part of a business plan for the eventual operation of 30 restaurants. Tae Soo Woo was a director of the company. He resigned in acrimonious circumstances. He sent a notice of his resignation to the bank and in so doing maliciously defamed the company in statements he made relating to its financial stability. The fourth restaurant was never opened and the investment was then lost when the company sold its assets for $10 and the assumption of some debt.
On the trial of this action, commenced by the company and its subsidiaries against its former director, Madam Justice Ross awarded general and punitive damages of $60,000 for defamation (plus $6,323.39 in respect of funds improperly taken from the company) and $1,088,995 in damages for breach of fiduciary duty based on the value of a lost opportunity to realize a future financial advantage: 23 B.L.R. (4th) 78, 2006 BCSC 1554.”
In this case, the BCCA overturned the trial decision essentially on the basis that the resultant loss to the company had not been properly established. At trial the loss that was proven was actually the loss to the other individual shareholders rather than to the company who was the plaintiff.
The list continues to expand. As this article goes to press, Madame Justice Wedge has very recently reserved in the case of Canucks dispute involving Francesco Aquilini’s purchase of the team. According to press reports Tom Gaglardi and Ryan Beedie have brought that action alleging that Aquilini was their partner and thus owed them the duties of a fiduciary. They allege that he breached those duties by secretly negotiating to purchase the Canucks while they were still attempting to do so.
Powers of Attorney
A common fiduciary relationship is that of a person holding a power of attorney for another. Many B.C. decisions have made it clear that a holder of a power of attorney owes a fiduciary duty to the donor.
For example Kask Estate v. Welsh 2000 BCSC 791 which involved a daughter who held a POA for her elderly father. She succeeding in depleting his estate in the years before his death after he became mentally incompetent. By the time of his death, little was left in the estate. In finding the daughter liable for breach of fiduciary duty, Lysyk J. said as follows :
[24] In that Ms. Welsh held her father’s power of attorney, she owed to him a fiduciary duty: ” It was her duty not to prefer her interest or that of her family over his in the handling of his money which he had entrusted to her. I do not consider that Ms. Welsh determined she would deplete all of what would be her father’s estate once she held his power of attorney and had the opportunity to spend his money. Rather, it seems more probable that she simply found his money to be a ready resource and, instead of preserving it as apart from the costs of maintaining him she was duty bound to do, she spent it. ”
A similar case, Egli (Committee of) v. Egli 2004 BCSC 529, involved a son who had transferred his father’s home and investment accounts to him and his wife under a power of attorney that the father had given him some years before. By the time of the father’s death, the estate had been completely depleted by these inter vivos transfers.
The trial judge ultimately decided that the transfer of the family home was valid however the transfer of an investment account was in breach of the son’s fiduciary duty. The son was thus ordered to compensate his father’s estate for the amounts transferred.
Garson J. stated at paragraph 82:
“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 (Chapman) 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”.
In this case, the judge found the transfer of the house was done with full knowledge and consent however the transfer of the investment account was not.
The principle enunicated in the above case may be somewhat problematic in that, almost invariably, where the holder of the power of attorney executes some transaction which personally benefits the holder, he or she will insist that all was done with the full approval and knowledge of the elderly, frail donor.
In Fraser v Fraser 2000 BCSC 0211, four brothers were assisting their 90 year old mother to manage her financial affairs. One of them, unbeknowst to his three brothers, obtained a power of attorney from their mother without her first obtaining independent legal advice. A few days later he convinced her to take $ 40,000 from her GIC and invest it in Eron Acceptance. This represented 70% of her estate and was clearly a risky investment in which he lost all of her money. Although he did not use the POA to effect the transaction, the judge found that he had obtained the POA specifically for that purpose and would have used it, if necessary.
In finding the defendant liable for the loss, Dillon J. observed as follows :
[26] The defendant breached his fiduciary duty to the plaintiff in conducting himself in this manner when he knew that the plaintiff relied upon him. This fiduciary duty arises in all of the circumstances here, but also arose from the power of attorney whether or not it was actually used in the transaction “… He failed to exercise reasonable care in numerous respects, including: failing to read or understand the investment documents, failing to adequately protect the bulk of the plaintiff’s assets, failing to diversify the investment, failing to obtain independent advice, unreasonably relying on oral representations made at large meetings, investing at high risk in all of the circumstances, failing to obtain the consent and advice of his brothers, and failing to inform the plaintiff or his brothers either before or after the investment. ”
Remedies for Breach of Fiduciary Duties
Whenever a court finds a breach of fiduciary duty, then the fiduciary will be liable to place the beneficiary in that same position as the claimant would have been, had no breach been committed. Equity adopts the position that, where a breach occurs, any gain resulting belongs to the beneficiary whereas any loss is the trustee’s personal loss and full restitution must be made.
A breach of a fiduciary relationship can give rise to a wide range of remedies. Generally speaking, in addition to awarding compensation (damages are the common law remedy, compensation is the equitable remedy) our courts can impose restitutionary remedies such as the constructive trust, rescission, injunctive relief , equitable compensation and tracing and lastly an accounting for profits. Thus a claim of breach of fiduciary duty may open many doors not otherwise available at common law.
Conclusion
Whenever there is an inherent trust relationship between the parties with a corresponding potential for exploitation or damage, our courts are increasingly willing to recognize the existence of a fiduciary relationship and award a remedy for breach of fiduciary duties.
The concept of fiduciary relationships with corresponding fiduciary duties is one of the most sensible and flexible responses of the common law to the modern requirements of justice in individual cases.
Fiduciaries duty is a persons in a position of trust, ranging from doctors, lawyers, accountants, to financial advisors and many others in between.
“Wilson J. offered some guidance on the subject of fiduciary relationships in the leading case of Frame v. Smith, [1987] 2 S.C.R. 99 (S.C.C.). At p. 136, she stated:
Relationships in which a fiduciary obligation have been imposed seem to possess three general characteristics:
The fiduciary has scope for the exercise of some discretion or power.
The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power”
The Supreme Court of Canada considered the concept of loyalty in fiduciary relationships in Hodgkinson v. Simms, [1994] 3 S.C.R. 377 (S.C.C.). At p. 407, Sopinka and McLachlin JJ., writing for the dissent, adopted the language from Keech v. Sandford (1726), 25 E.R. 223 (Eng. Ch. Div.):
At the heart of the fiduciary relationship lie the dual concepts of trust and loyalty. This is first and best illustrated by the fact that the fiduciary duties find their origin in the classic trust where one person, the fiduciary, holds property on behalf of another, the beneficiary. In order to protect the interests of the beneficiary, the express trustee is held to a stringent standard; the trustee is under a duty to act in a completely selfless manner for the sole benefit of the trust and its beneficiaries (Keech v. Sandford (1726), 25 E.R. 223) to whom he owes “the utmost duty of loyalty”. (Waters, Law of Trusts in Canada (2nd ed. 1984), at p. 31). And while the fiduciary relationship is no longer confined to the classic trustee-beneficiary relationship, the underlying requirements of complete trust and utmost loyalty have never varied.
109 In Moffat v. Wetstein (1996), 29 O.R. (3d) 371 (Ont. Gen. Div.), Granger J. canvassed the
duty to avoid conflicts of interest. At p. 390, he stated:
Subsumed in the fiduciary’s duties of good faith and loyalty is the duty to avoid a conflict of
interest. The fiduciary must not only avoid a direct conflict of interest but must also avoid
the appearance of a possible or potential conflict.
The fiduciary is barred from dividing loyalties between competing interests, including self-interest.
– See more at: http://www.disinherited.com/blog/fiduciaries-duty-trust-and-loyalty#sthash.ODGYjz0U.dpuf
