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Accounting Under the Powers of Attorney - Hull on Estates Podcast #113

Posted on June 3^rd, 2008 by Hull & Hull LLP

Paul Trudelle: Hi and welcome to Hull on Estates. You’re listening to Episode #113 on Tuesday, June 3, 2008.

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.

Diane Vieira: Hi Paul, how are you?

Paul Trudelle: Oh hi, Diane, very good, how are you today?

Diane Vieira: I’m good.

Paul Trudelle: We are podcasting together again and today we thought we’d talk about the issue of accounting under Powers of Attorney and the duty to account after the grantor of the Power of Attorney passed away.

Diane Vieira: So we’re going to discuss a 2008 Ontario decision, De Zorzi Estate v. Read.

Paul Trudelle: And we’ll have a link to that on our website. This is an interesting case that just came to our attention. It was released just recently, in March of 2008. Megan Connolly blogged on it earlier last week and we thought we’d go into a little more detail in our podcast today.

Diane Vieira: So this is a case which discusses the duty of an attorney to disclose financial records for the grantor of a Power of Attorney.

Paul Trudelle: Right, and it’s an interesting case because there, there was a Power of Attorney that was granted. The grantor passed away and the beneficiaries sought to get an accounting from the attorney after the death of the grantor.

Diane Vieira: Why don’t I just give a bit of the background to the case and the different parties?

Paul Trudelle: Sure, that’d be great.

Diane Vieira: The respondents in this case were the residual beneficiaries of the estate. And the other side was a person who was both attorney and estate trustee.

Paul Trudelle: I think that’s pretty important and we’ll talk a bit about how important that is down the road.

Diane Vieira: And the beneficiaries had the question with respect to what happened to some bank accounts, prior to the death of the grantor.

Paul Trudelle: Right, and that would be relevant because the question was, what assets fell within the estate at the time of death? So the actions of the Power of Attorney prior to that would be very relevant to the size and nature of the estate.

Diane Vieira: And in this case, the grantor, there was no question that she was competent and that she never became incapable and actually there was evidence before the Court that she was the one making the financial decisions prior to her death.

Paul Trudelle: Right, and I think that’s an important factor as well. This was not the case where there was an incapable grantor who wasn’t able to look after her affairs.  I think that would be a much easier case for getting disclosure in accounting down the road. But here she was capable throughout and was able to consent and in fact, directed the transactions and that was something that the attorney appears to have relied upon in trying to avoid an accounting.

Diane Vieira: Yeah, the attorney had argued that she doesn’t have to disclose this financial information. The only person she had to account to would have been the grantor who was capable.

Paul Trudelle: Right.

Diane Vieira: So the beneficiaries had a few questions with respect to the administration of the estate but the sticking point was these bank accounts as we discussed, which would require the attorney to provide disclosure of financial information predating the death of the grantor.

Paul Trudelle: That’s right. So the application was before the Court. The question was whether the attorney had to account to these beneficiaries. The attorney took the position that they didn’t have to account and the Court then considered whether the beneficiaries would have a right to compel an accounting. 

I think the important sections of the legislation which is the Substitute Decisions Act in Ontario, is Section 42. Section 42 provides for an attorney to pass their accounts and sets out or enumerates who can apply to have accounts passed. Clearly, the grantor, if alive and capable, can request that the accounts be passed. There’s a number of other parties that are listed as being able to compel an accounting: the grantor, the attorney themselves, the Public Guardian and Trustee and the Children’s Lawyer have an automatic right to apply for an accounting, a judgment creditor of the grantor or the incapable person.  And at the end of Section 42(4) there is a catch-all: any other person with leave of the Court, and that’s the key there. If you’re falling into that ‘any other person’ category, you have to apply to the Court to get leave to get permission from the Court to compel the passing. And the question here was whether beneficiaries of an estate fell within the ‘any other person’ category who could then apply to the Court to compel a passing.

Diane Vieira: That’s right. Justice Herman looked at case law but with reference to this Section. She did find the beneficiaries within the Court were allowed to ask for an accounting.

Paul Trudelle: Right, and I think the cases, the Court identified the unusual or probably it’s usual, it happens a lot, the factor is that here, the attorney under the Power of Attorney was the same person as the estate trustee. So whereas normally an estate trustee would step into the shoes of the grantor and be entitled to compel an accounting from an attorney, here that estate trustee was one and the same as the attorney.  And the Court felt that it wasn’t likely that that person would compel an accounting from themselves and, therefore, opened the door to allow the beneficiaries of the estate to ask for this accounting. 

So, having qualified as a person or other person entitled to apply for leave to pass the accounts, the Court then turned their mind to whether the beneficiaries should be granted leave in this case.  And the Court considered a number of factors and looked at the issue of whether the fact that the grantor was capable throughout had an impact on whether leave should be granted.

Diane Vieira: Well in the Stickles Estate v. Fuller, the Justice based her decision on Section 42(1) of the Act which provides that the Court can order the accounts of the attorney to be passed and it doesn’t depend on whether the grantor became incapable or not.

Paul Trudelle: Right, and I think there’s a very broad and clear requirement that attorneys keep their accounts and pass them or produce them when asked for.  And the fact that the person was capable is not going to be seen as something that negates the requirement to pass accounts. The Stickles case was one where the grantor was capable and yet the Court still required the passing. 

Another factor is, another issue that the Court looked at in this decision is, how far back you have to go when passing your accounts. In this case, there was a Power of Attorney granted in September of ‘04 before death, and the person died in December ‘04. The beneficiaries sought an accounting that went back well before that, back to January ’04.  And the Court found that the duty or requirement to pass accounts will only go back as far as the Power of Attorney itself. And in fact, the Court looked at other cases and those cases dealt with attorneyships that predated the Substitute Decisions Act and in those other cases, the obligation to account only went back as far as the passing or the effective date of the Substitute Decisions Act. So in most cases then, the duty to account will start from when the Power of Attorney is actually granted.

So just to wrap up then on this topic, first of all I’d like to refer you to a very helpful article by Kim Whaley in the 2008 issue of Deadbeat that discusses this case and a number of the cases that are referred to in the De Zorzi Estate decision.  And it summarizes the applicable law and concludes by saying that the case is very helpful in clarifying the law with respect to the duty to account. Generally speaking, there is a heavy onus on an attorney to keep records and to pass those accounts when required and it clarifies who can request the passing of accounts after the death of the grantor. And you may be required to account to beneficiaries of the estate, even though the grantor was capable while you were acting as attorney and even though you are the estate trustee for that person’s estate as well.

Diane Vieira: Thanks, Paul.

Paul Trudelle: Well thanks, Diane. And before we leave, we’d just like to refer you to our contact information.

Diane Vieira: You can reach us by e-mail at hull.lawyers@gmail.com or you can call us on our telephone line which is 206-350-6636.

Paul Trudelle: We also invite you to visit our webpage where we have daily blogs and links to our podcasts on Hull and Estates and also our podcasts on Hull and Estate and Succession Planning. That can be found at estatelaw.hullandhull.com.

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.

To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.

Our theme music is Upper Structure by DJ AKid  and is courtesy of the Podsafe Music Network.

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The Deemed Undertaking Rule - Hull on Estates Podcast #102

Posted on March 18^th, 2008 by Hull & Hull LLP

Paul Trudelle: Hello and welcome to Hull on Estates. You’re listening to Episode #102 on Tuesday, March 18^th, 2008.

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.

Paul Trudelle:  Hi, I’m Paul Trudelle.

Allan Socken: Hi, and I’m Allan Socken.

Paul Trudelle:  Hi Allen, how are you today?

Allan Socken:  I’m good, thank you. How are you Paul?

Paul Trudelle: Good, withstanding the winter?

Allan Socken: Yeah, hopefully it’s close to an end.

Paul Trudelle:  The end is in sight, we’re almost there. With respect to our podcast today and we’re now up into the triple digits, we thought we’d talk a bit about the deemed undertaking rule. The deemed undertaking rule is a rule that applies in litigation, it’s a common law rule, that talks about the use of evidence, and it’s now codified in the Rules of Civil Procedure.

Allan Socken:  I think it’s also just important to make mention that while this appears to be standard practice in all jurisdictions in Canada, it’s interesting to note that only P.E.I. and Ontario have this codified within our Rules of Practice.

Paul Trudelle:  Yeah, that is a bit strange, but we have it codified in Ontario and that’s the system that we’re working under, so we’re going to talk a bit about the rule as it applies in Ontario.  However, it should be noted that it probably applies to the same effect in other jurisdictions as well, being a common law rule that is now codified.

With respect to the purpose of the rule, it basically… the rule is set to limit the use that one can make use of when obtaining evidence in the litigation process.  And there’s a very good quote from the Ontario Court of Appeal decision of Goodman v. Rosi that talks about the basis upon which the rule exists or why it exists.

Allan Socken:  It basically says the principle is based on recognition of the general right of privacy which a person has with respect to his or her documents. The discovery process represents an intrusion on this right under the compulsory processes of the Court. The necessary corollary is that this intrusion should not be allowed for any purpose, other than that of securing justice in the proceeding in which the discovery takes place.

Paul Trudelle:  Right, and I think that’s a great quote and I think it summarizes the purpose of the rule quite well and quite succinctly … I guess, put another way or restated, if you’re going to be forced to the litigation table by someone and you’re forced to disclose your documents, the documents only need to be disclosed for that limited purpose and they shouldn’t be disclosed for the whole world to see or they shouldn’t be used in some other proceeding and come back to bite you that way.

Allan Socken:  I think also to point out, I think the purpose of the deemed undertaking rule as is set out in Rule 30.1.01 sub 1, is that you can only use evidentiary documents that relate to the discovery and inspection of property, medical examination and the like. That’s what the rule tries to capture. So, for example, if you are in Court and there’s evidence given, then that probably isn’t captured under the deemed undertaking rule.

Paul Trudelle:  That’s right. The principle of the rule is if you’re forced to disclose information in the litigation process before it gets to open Court, it’s that information that’s going to be protected by the deemed undertaking rule. And the rule sets out that the rule applies to evidence obtained under the rules relating to documentary discovery, Examination for Discovery, that’s of the parties and of witnesses as well, inspection of property, medical examination, written interrogatories if they are used, and even as far as examinations in aid of execution after judgment is obtained. So it is of limited application, however, in the context of litigation, it seems to protect most evidence that you are able to obtain from the other party or from the witnesses.

Allan Socken:  For example, for Will challenges, a lot of the time, it’s very standard to ask for complete disclosure of medical, financial and legal information.  And especially in the case of legal materials, when you do a Will challenge, it may be necessary or it may be an option for the client subsequent to the Will challenge or during the Will challenge, to want to pursue a negligence claim against the solicitor in certain circumstances.

Paul Trudelle:  That’s right, Allen. And I think that that’s very important from an estate point of view. The only way we are able to obtain evidence, usually from medical practitioners, and perhaps more importantly from solicitors, is through the litigation process. If that evidence is protected by the deemed undertaking rule, that’s going to have a significant impact on the rights of the parties to pursue those types of claims, and we’ll talk about that in a minute.

The substance of the rule, I think we should mention briefly, we talked about what evidence it applies to. With respect to the substance, that’s set out in the rule itself.  And the rule states that all parties and their counsel are deemed to undertake not to use evidence or information to which the rule applies, and we talked about that, for any purposes other than those of the proceeding in which the evidence was obtained. So that’s very limiting.  You can’t use it for any other purpose other than the purpose of the very litigation that’s before the Court. And that’s quite restrictive. Having said that, there are exceptions to that rule and perhaps we can talk about some of the exceptions that are set out in the rule itself.

Allan Socken:  Sure. Some of the exceptions are that the deemed undertaking rule does not apply to evidence that is filed with the Court. Similarly, it doesn’t apply to evidence that is given or referred to during the hearing, as well as information obtained from evidence regarding the evidence filed within the Court, or evidence that is given or referred to in the hearing.

Paul Trudelle:  That’s right. So once the material is aired in an open Court, then its open game and the parties are able to … the protection no longer applies. Similarly, if you obtain some information and it’s disclosed in open Court that leads to other information, that information isn’t protected either. There’s another exception that deals with using evidence to which the parties consent. So if you get the consent of the person with respect to the evidence that’s disclosed, then it can be used for another purpose.  Although if you’re going to be suing that person, it’s probably not likely you’re going to be getting their consent.

Allan Socken:  And I think another exception is the deemed undertaking rule doesn’t apply when the interests of justice outweigh the prejudices of the parties. I think that’s kind of an interesting exception, simply because it’s such a broad exception and it could probably capture a number of situations.

Paul Trudelle:  That’s right.  And to deal with that exception, you’d need to get an order of the Court allowing you to use that evidence for the ulterior purpose or for the purpose of the other proceeding. What you would need to do is show the Court that, just as the rule states, that the interests of justice outweigh any prejudice that would result to a party. That is often a sort of a way of saving yourself or allowing you to proceed with the action after the fact. If you obtain evidence through the examination process or the discovery process and there is no other way to get that, you may be able to argue that you have a legitimate interest in using that evidence for the purpose of the subsequent proceeding.

Allan Socken:  From your experience, Paul, is it easy to get that kind of order?

Paul Trudelle:  I think that that’s a very tough thing to do because I think that we have to look at the overriding purpose and the intrusive nature of the disclosure process. People are dragged to the table and forced to disclose their evidence, their documents.  And to allow that sort of fishing expedition to be used to commence another proceeding against another party, I think, is something that the Courts are not going to do lightly. Having said that, if there was no other way to get that evidence, or it’s clear that the evidence ought not to be protected, then the Court, I think, will make that type of an order and allow it to proceed. I think that’s still a very tough order to get, though.

Allan Socken:  Absolutely. I mean, because, I think, in most matters, certainly a Court would be very careful before it goes ahead and grants a rule or grants an order which basically prejudices a party in a certain way.

Paul Trudelle:  That’s right. With respect to the exceptions, there’s another exception.  You can use that evidence to impeach someone’s testimony in another proceeding. So the evidence, if it’s... documents are given in one proceeding, they can be used in another proceeding to impeach testimony. And that’s another exception as set out in the rules.

We were talking, or you mentioned before, the estates context and I think that’s what we should maybe touch on before we wrap up. In the estates context, we usually get an order in a Will challenge, that would allow the parties to obtain evidence on examination or through witnesses. That may be, for example, the evidence of a solicitor who prepared the Will and the instructions that were given to that solicitor. That information may be protected by the rule and it may preclude a party from bringing an action as against a solicitor. There was a case back in 1998 that’s an unreported decision of Giamanco and Zahora that dealt with that very issue. And there, the Court was faced with a motion to consolidate proceedings. There was a Will challenge, there was an action against a solicitor and there was a motion to consolidate.  The solicitor resisted that, as did the parties to the other lawsuit, on the basis that the deemed undertaking rule was breached.  And the Court there dealt with the issue of the deemed undertaking rule.

Allan Socken:  And what’s also interesting about that case was, it cited a decision known as Orfis Realty and D.J. Jewellery of Canada Ltd., which basically says that if you try to use evidence from one proceeding to another, notwithstanding the deemed undertaking rule, that a contempt order can be issued against the party who tries to do that. And notwithstanding that ruling, Justice Mossep in the Giamanco decision did not proceed to make a contempt order in the Giamanco decision.  But the Justice did make mention of the fact that the solicitor, the defendant, could go ahead and try to stay the proceedings. But what’s interesting about it is Justice Mossep didn’t, on its on volition, try to stay the proceeding.

Paul Trudelle:  That’s right.  I think she left it open to the party to bring the appropriate motion in the second proceeding to have it stayed. And I think that’s maybe something we can touch on before we wrap up, which is the remedies where there is a breach of the deemed undertaking rule. You mentioned that contempt was one of them.  And the other was a motion or a staying of the second proceeding or perhaps even a dismissal of that. You think that might be a fair conclusion?

Allan Socken:  Absolutely.

Paul Trudelle:  Okay.  Now how do we, as parties to a litigation, when we’re going to be getting evidence from solicitors, how do we protect the right to pursue an action, if one is advisable, as against the third parties or those people who are giving evidence?

Allan Socken:  Well generally, when we do a Will challenge, in that kind of situation, when we proceed with the order giving direction, which basically sets out the procedure for the litigation, we’ll specifically ask the Court within that order to ensure that this rule, the deemed undertaking rule, doesn’t apply for that litigation.

Paul Trudelle:  And the Court can make an order that the deemed undertaking rule doesn’t apply. Often, in estate matters, we seek that in the order giving directions, usually on the basis that there’s no other way to get that information. The solicitor is…the information that he has can only be produced on a Court order in this proceeding because the person who gave the instructions is deceased. In effect, the parties are stepping into the shoes of that deceased person to get the information.  And on that reasoning, we would argue that the deemed undertaking rule shouldn’t apply and that evidence shouldn’t be protected from an action, if it turns out that such an action is warranted.

Okay, well I think that’s a good, initial discussion with respect to the deemed undertaking rule, and when it can be invoked and the considerations to be taken into account. Thank you very much, Allan.

Allan Socken:  Thanks Paul.

Paul Trudelle:  And just before we go, we welcome your comments and we ask for your comments. You can send us an e-mail at hull.lawyers@gmail.com and send in any comments, your questions or suggestions that you might have.

Allan Socken:  And 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.

Paul Trudelle:  And we also have a comment line.  You can call us at 206-350-6636, and give us your comments and you might even end up on the air, on our podcast, if you leave a comment.

Well, thanks a lot Allan, that was very good.  It was a pleasure blogging with you this week.

Allan Socken:  Likewise, Paul.

Paul Trudelle:  Podcasting with you, and I look forward to doing this again, thank you.

Allan Socken:  Thanks.

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.

To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.

Our theme music is Upper Structure by DJ AKid  and is courtesy of the Podsafe Music Network.

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