In power of attorney disputes, one issue which often arises is whether the person appointed as attorney was acting as attorney when they conducted business or effected a transaction on the grantor’s behalf. For example, other interested parties may seek an accounting from the attorney, or seek to hold him or her to an attorney’s fiduciary duty to the grantor, while the attorney maintains that the grantor was not incapable and he or she was not acting pursuant to the power of attorney, but was merely assisting the grantor in conducting her own affairs.

This issue arose recently in Hanson Estate, 2016 ONSC 2382, a case out of Kenora, in the context of a change of beneficiary designation of a life insurance policy, and is thoughtfully considered in the reasons of Justice Pierce.

Facts

The applicant in this case, the estate trustee for Ms. Hanson, sought a declaration that the beneficiary designation naming Ms. Hanson as sole beneficiary of her son’s life insurance policy was a valid designation. Ms. Hanson’s son predeceased his mother in 2010. In 2005, in the advanced stages of multiple sclerosis, he sought to change the beneficiary designation on his life insurance policy, from five other relatives, to his mother alone. At the time, he was mentally competent and had capacity to make such a change, but was physically incapable of doing so as a result of the effects of his illness. He directed his attorney for property, his brother, to do so on his behalf, and his attorney did so.

The applicant framed the issue as whether a change of beneficiary designation is a testamentary disposition, and accordingly whether the attorney had the authority under the Substitute Decisions Act (“SDA”) to make a change on behalf of the grantor, the son. (Section 7(2) of the SDA allows an attorney for property to do anything “on the incapable person’s behalf” that the person “could do if capable, except make a will,” and a “will” is defined to include any testamentary disposition.[1])

Justice Pierce, however, concluded that the issue properly before the court was whether or not the brother was acting as substitute decision maker pursuant to the power of attorney. Her Honour concluded that he was not, given that the grantor was still capable at the time, but merely physically incapacitated and therefore unable to sign the change of beneficiary form himself. The SDA therefore had no application to the facts. As the court explained, “The purpose of having a substitute decision-maker is to protect the rights of incapable individuals, not to thwart the wishes of those who are capable of giving instructions but physically incapacitated from carrying them out.”

The court then went on to consider whether a change of beneficiary effected by an agent is a valid change of designation pursuant to the Insurance Act, R.S.O. 1990, c. I.8. which defines as a valid beneficiary designation as one that is “signed by the insured” (section 171(1)). Justice Pierce concluded from a review of the case law that a formal document, including a change of beneficiary designation, need not be personally signed but can be signed by proxy by another. The person signing the document by proxy is then acting as an agent.

Analysis

The distinction between whether an attorney is acting pursuant to a Continuing Power of Attorney for Property or as agent when he or she conducts some business on the grantor’s behalf is an important one, particularly since the distinction will likely hinge on whether the grantor was capable of directing the action at the time.

Justice Pierce cites the decision of Justice Cullity in Banton v. Banton (1998), 164 D. L. R. (4th) 176 (Ont. Sup. Ct.), in which His Honour considered the difference between an attorney acting for a donor who has mental capacity versus for one who does not:

An attorney for a donor who has mental capacity to deal with property is merely an agent and, notwithstanding the fact that the power may be conferred in general terms, the attorney’s primary responsibility in such a case is to carry out the instructions of the donor as principal. As an agent, such an attorney owes fiduciary duties to the donor but these are pale in comparison with those of an attorney holding a continuing power when the donor has lost capacity to manage property. [2]

However, in cases where abuse of a power of attorney document is alleged, the distinction may not be of primary importance, because in either case the named attorney will be under a fiduciary duty. The agent-principal relationship is one historically recognized as being fiduciary in nature, because of the agent’s power, which the agent can unilaterally exercise over the principal.[3] An attorney for property acting as such is under an even more stringent fiduciary duty to act in the grantor’s best interests, given that the scope of the attorney’s power is considerably more expansive.

Nevertheless, in either situation, the attorney – whether acting as agent or under a power of attorney – cannot exceed the scope of authority granted to him or her, and will be liable for any breach of fiduciary duty.

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[1] See section 1 of the SDA, which refers to the definition of “will” in the Succession Law Reform Act, RSO 1990, c. S.26.

[2] Banton at para 150, quoted in Hanson Estate at para. 37.

[3] See Elder Advocates of Alberta Society v. Alberta, 2011 SCC 24, at para. 33.