Remedies for Breach of Duty by an Attorney for Property - Hull on Estates #230
Listen to: Remedies for Breach of Duty by an Attorney for Property
This week on Hull on Estates, David Smith and Julia Evans discuss remedies for breach of fiduciary duty by attorneys for property acting on behalf of their incapable grantors.
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David M. Smith - Click here for more information on David Smith.
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David Smith: Hello and welcome to Hull on Estates. You’re listening to episode #230 on Tuesday, November 23, 2010.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.
Julia Evans: Hi and welcome to another episode of Hull on Estates. I’m Julia Evans.
David Smith: And I’m David Smith.
Julia Evans: If you want to be heard on Hull on Estates you can participate by leaving us a comment. Email us at hull.lawyers@gmail.com or you can visit our blog at estatelaw@hullandhull.com.
David Smith: Well Julia, you know, today we thought we’d talk about a topic that was top of mind from our recent mutual attendance at the Estates and Trusts Summit in Toronto put on by the Law Society of Upper Canada. But in addition, we thought that considering the nature of our practice, we certainly run into the issues that we’re going to discuss quite frequently and of course what I’m talking about are Powers of Attorney and the whole idea of what remedies are available where there’s a breach of a Power of Attorney. And in particular we’re talking about Powers of Attorney for property as opposed to personal care, right?
Julia Evans: Yes and of particular note was a paper presented by Professor Freedman from Queens University Law School and he made an important distinction between the kinds of duties that an Attorney for Property owes the grantor of the property where the grantor is capable and the Attorney is acting on their behalf and where the grantor is incapable and the Attorney is acting on their behalf.
David Smith: Okay, well let’s… let’s break this down a little bit. So if I’m a grantor of a Power of Attorney, go to my lawyer’s office, make a Power of Attorney appointing my wife, let’s say, as my attorney for property and I’m out of the country and she uses that Power of Attorney for Property under my authorization. What’s the nature of the legal duty there?
Julia Evans: Well there’s also… I think when everyone looks at a legal relationship, it’s important to appreciate the multiple dimensions that may be at play. So clearly, there’d be a standard of care required, a duty of care to be met. But in addition, if she is a mere order taker, an instruction taker from you, one would think that her duty is that of agency. And therefore, if she were to breach that obligation, that the remedy would be a remedy that reflected the content of the duty breached.
David Smith: Okay, so if we break this down a little more, if I’m the principal… as I understand the principal/agent relationship, the agent is not permitted to act except under my authorization, correct?
Julia Evans: Yes.
David Smith: That’s the essence of an agency relationship, isn’t it?
Julia Evans: Yes.
David Smith: And so, if an agent acts outside of their authority that I grant to them, I’m gonna be, as the grantor, upset first of all, and I’m going to be the one, presumably, who is going to pursue remedies against the agent, correct?
Julia Evans: Yes.
David Smith: Alright. And so what kind of remedies do we talk about in the agency context?
Julia Evans: I think they’re akin to remedies for breach of contact. And the quantums then are akin to the quantum and remedy we find for breach of contract.
David Smith: And presumably the parties to that kind of proceeding would be the principal effectively suing the agent, saying you didn’t do what I authorized you to do. And fairly straight forward, I guess, kind of situation. There’s nobody else who’s gonna have any privity to make that claim on behalf of the principal, right?
Julia Evans: Right.
David Smith: I guess the situation is a lot more complex in the context of an incapable grantor.
Julia Evans: Yes.
David Smith: Alright, so let’s talk a little about that.
Julia Evans: The Substitute Decisions Act, which is the statute that creates the possibility of attorney… Power of Attorney documents, expressly indicates that where the grantor of the power is incapable a fiduciary duty arises in the attorney acting on behalf of the incapable.
David Smith: Let’s talk about fiduciary duties for a minute. So using the same analogy if I’ve made a Power of Attorney, I’ve become incapable and my wife is my named attorney and is acting under that attorney, and under the power of that attorney, I guess the issue there is one of supervision. I’m not any longer able to make sure that she’s doing what I would want her to do with that authority.
Julia Evans: No and hence the reposing of trust in her, and the correlative duty of loyalty that she would owe you as grantor of the power.
David Smith: Right, and so I’m presuming that in the absence of the grantor to watch over the attorney and supervise him or her, there’s a lot more, a lot greater temptation and a lot more opportunity for the attorney to misuse that power to their own benefit.
Julia Evans: Perhaps so. I think that’s why when a solicitor is receiving instructions from a grantor in terms of naming and appointing potential attorneys that the solicitor canvasses that very serious question about trustworthiness in the parties they’re considering appointing.
David Smith: Right. And I mean we’ve seen time and time again in the litigation context disputes between siblings where mom or dad has become incapable, one of the siblings has Power of Attorney on behalf of the parent and another sibling makes allegations that his or her sibling has misused the attorney to their own benefit, whether or not that is, in fact, the case. And let’s talk about the whole idea of procedure. If there’s admittedly a fiduciary duty owed from a grantor to a Power of Attorney.
Julia Evans: Well from a Power of Attorney to the grantor.
David Smith: Oh right, so right, if there’s a fiduciary duty that exists between the two. Thanks…thanks for that clarification. And so if there’s a duty owed to the grantor by the attorney and the grantor is no longer able to enforce that, what’s standing do the siblings have to have the Court look into the actions of the attorney? Do you run into that at all?
Julia Evans: Once obliquely, and I believe that the siblings... one of the duties…lets back up for a second…one of the duties on an attorney acting for an incapable grantor is a duty to go and review the Will because often, when incapacity has moved into the life of the grantor, that will be the last Will. So beneficiaries under that Will may have a kind of interest that would give them some standing to question the attorney acting and dealing with the estate, or the assets of the estate.
David Smith: Yeah, I’m always struck by that, Julia. I mean it’s a little bit… I’m just challenging you here, but it’s a little bit cynical, isn’t it, for a sibling to stand up and say to the Court, I’ve got a financial interest in the estate here and I want to make sure it’s preserved for my benefit. I find that the judges sometimes look askance at a beneficiary under an estate long before mom and dad…mom or dad has passed away. If they too clearly project their motivation as being to protect their inheritance, clearly there’s a contingent financial interest there. But as we know under the Substitute Decisions Act the Court has the authority to grant leave to anyone to seek an accounting, if there’s reason. So presumably if you file an Affidavit as the disgruntled sibling, you’d want to say not only do I have a financial interest on the death of the grantor, but in addition, you know, I’ve seen my brother driving a fancy new car, or taking vacations and I know he doesn’t have the money to do it and I think he’s using mom or dads money to benefit him or herself. Right?
Julia Evans: Right.
David Smith: But it’s ... I think your point is certainly valid. I mean the standing in principle comes from a place that is one of contingent financial interest. I’m always a little weary when I’m in front of a judge of making that pitch too strongly because I think in the present climate, judges are very reluctant to in any way encourage children to think that there’s going to be any estate left for them. The concern always has to be mom or dad. And in these proceedings too, there’s usually Section 3 counsel appointed, right? Well Section 3 counsel, of course, is the counsel that’s appointed by the Public Guardian and Trustee pursuant to Court Order to represent the interests of the incapable person. And in these kinds of disputes they always represent a really important part of the process. But I recognize we’re kind of getting off track and we’re running low on time. So in the remaining time we have, Julia, let’s just talk about this more interesting academic debate, which is, what remedy is available for breach of fiduciary duty in the context of an incapable grantor who has suffered damages because of the actions of the attorney. And this is what Dr. Freedman was talking about, right?
Julia Evans: Yes and it’s ... I think it’s an interesting area to look into and probably requires or cries out for more research. The starting point is usually disgorgement of whatever was inappropriately taken or taken in breach of fiduciary obligation plus all profits associated thereto and it can be quite a hearty restitution. Now Professor Freedman’s suggestion was that this may work most of the time, but often the attorney who has misappropriated funds of the incapable grantor then stands to be beneficiary of the estate of the incapable grantor on his death. And Professor Freedman is suggesting that perhaps the remedy for breach of fiduciary duty during the life of the grantor or even later is not sufficient and in fact suggests that the attorney, if in error under the incapable grantor’s estate, should perhaps forfeit his or her interest in that estate. A couple of questions arise, and that is, you know, what is the impact of this on the other beneficiaries of the estate. Is that a windfall and what is equity’s view of windfalls? Secondarily, if one is concerned with punishment and deterrents and making sure that those kinds of objectives are met, maybe that might be more appropriately located in the legislature, the criminal law.
David Smith: Right. Now how does this... something that comes to mind when you talk about this potential remedy is the whole public policy idea. And, you know, one example is the Supreme Court of Canada case. The name of the case escapes me but a few years back there was someone who murdered his wife who was the named beneficiary of her insurance policy and there’s very clear settled law in the Supreme Court of Canada quite rightly and obviously said, look you can’t benefit from life insurance if you murder the person who named you as beneficiary. Is that in any way analogous to what you’re talking about here?
Julia Evans: It was suggested in the presentation by Professor Freedman, but I think the question can be asked that look, if the fiduciary has breached his or her duty to the incapable grantor and made full restitution, either that remedy is satisfactory for the breach or it’s not. If it is, then what profit is there on the death of the grantor? After all, the grantor presumably was made whole before his death.
David Smith: Right. I mean one thing that sort of, I think, comes through from what Professor Freedman was talking about and which is really highlighted in a lot of the cases is this whole concept of breach of fiduciary duty being the highest standard of care that a trustee can owe to the grantor. And in this case, you know, although the Trustee Act doesn’t specifically apply to attorneys in this context, clearly they’re subject to a fiduciary duty and because of that, you know, there’s very severe remedies available in certain cases. You know, punitive damages, things of that nature do occasionally get rewarded… awarded rather in cases of breach of fiduciary duty. So it sounds to me that what Professor Freedman is really arguing for is a sort of more thorough exploration of remedies available for breach of fiduciary duty. And I think he quite rightly points out that, you know, the Courts historically and recently have been very hard on people who breach fiduciary duty.
Julia Evans: Yeah. I do though still think that we need some more work there rationalizing the basis of remedies for fiduciary duty. And there is a very…well a critical divide in legal theory. One suggests that law actually serves an end and that comes loud in clear in this paper from Professor Freedman, that is, the end of deterrents and enforcement and protection. And some legal theorists are of the view that, no, law doesn’t serve an end, it’s imminently rational in and of itself. And I guess depending on one’s particular point of view, research might reveal useful remedies.
David Smith: Absolutely. Well look, you know, really interesting topic, Julia, and I really appreciate you bringing that paper to my attention and to the attention of our listeners. Unfortunately we’re out of time, and so that brings us to an end of this week’s discussion. Thanks for listening and thanks for joining me today.
Julia Evans: It was a pleasure, David. I look forward to podcasting with you again soon.
David Smith: And we look forward to hearing from our listeners. You can send us an email at hull.lawyers@gmail.com . Be sure to visit our blog at estatelaw@hullandhull.com where you’ll find even more information and discussion on today’s practice of estate law. We do hope that you enjoyed the show. I’m Dave Smith.
Julia Evans: And I’m Julia Evans. Until next week, so long.
This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
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