Remedies for Misappropriation By Attorney
1. Introduction
Sadly, it happens frequently enough that an attorney of property misappropriates money or other property from the grantor. Since the attorney is a fiduciary, this amounts to a breach of fiduciary duty and he will be held liable. But others may have received some of the property as well and the question may arise on what basis they can be held liable. These issues arose in the recent case, Doherty v Doherty.[1]
2. Facts
Mrs. Molly Doherty died a widow in 2019, aged 84. She was survived by her two children, Kathleen and Terrence. Kathleen had been estranged from her family for a number of years. Mrs. Doherty lived in the family residence until 2018. Terence and his wife, Sylvia lived in the residence from time to time or in their trailer but during the winter they lived on their sailboat in Florida. In 2017 Mrs. Doherty executed a power of attorney for property in which she appointed Terrence as her attorney. In the spring of 2018 Mrs. Doherty was not doing well and the residence had fallen into a state of disrepair. In the same year, with the assistance of a lawyer, Mrs Doherty executed both a new power of attorney appointing Terrence as her attorney and a will in which she left the residue of her estate to Terence and to Sylvia if he should predecease her. Terence and Sylvia undertook repairs to the residence, the costs of which were paid by Mrs Doherty out of her CIBC bank account to which Terrence had access as attorney.
Mrs. Doherty entered into an agreement of purchase and sale of the residence and as demanded by the listing agent Terrence also signed it as attorney. The transaction closed in October 2018 and the 2018 power of attorney was registered on title. The net proceeds were paid into Mrs Doherty’s CIBC account. Meanwhile she moved into an assisted-living facility. Terrence and Sylvia then left for Florida. While there they learnt that Kathleen and her daughter were visiting Mrs. Doherty. Kathleen made inquiries about the sale of the residence and about her mother’s property and personal care. In 2020 she contacted the OPP alleging that Terrence had stolen some $400,000 from his mother while acting as her attorney. The OPP investigated the matter but laid no criminal charges, having concluded that the matter was a civil matter between family members.
Kathleen arranged for a capacity assessment of her mother by Ms Kay concerning Mrs. Doherty’s capacity to grant or revoke powers of attorney and whether she had testamentary capacity. Ms Kay concluded that Mrs Doherty did have the requisite capacity for both purposes. Soon thereafter Mrs Doherty executed new powers of attorney for property and for personal care, naming Kathleen as her attorney. She also made a new will in which she appointed Kathleen as executor and left her estate equally to Kathleen and her daughter Meaghan.
Between 1 June 2018 and 14 August 2019 more than $370,000 had been withdrawn from Mrs. Doherty’s CIBC account (the ‘Transferred Amount’). Terrence did not dispute that within 20 days of the deposit of the proceeds of sale he arranged for a total of $230,000 to be transferred to Sylvia and their son Liam. At her death Mrs. Doherty’s estate was worth only $46,682.78.
Terrence, supported by Liam alleged Mrs. Doherty intended to make a gift of the transferred amount to him and Liam. He alleged that $23,000 of the Transferred Amount was a gift by Mrs. Doherty to Liam to pay off a loan on a truck, and another amount was allegedly either a gift or a loan to Liam to allow him to purchase a house. Terence paid most of the balance into Sylvia’s bank accounts.
Kathleen then brought this application for an accounting from Terrence for the moneys that were missing from Mrs. Doherty’s bank account. She also alleged that Terrence committed fraud in dissipating his mother’s assets and breached his fiduciary duties to her. Further, she submitted that Sylvia and Liam were aware of and participated in a conspiracy to defraud Mrs Doherty and should be held jointly and severally liable with Terrence. The court earlier granted her a tracing order. The main focus of this blog is on the appropriate remedies.
3. Analysis and Judgment
Justice Dietrich applied the well-known tripartite test for an inter vivos gift: (a) an intention by the donor to make a gift; (b) acceptance of the gift by the donee; and (c) a sufficient act of delivery of the property by the donor to the donee.[2]
It is not necessary to recount the application of the test to the facts. Let it suffice to note that after a very careful and detailed examination of the facts Justice Dietrich concluded that the evidence presented by Terrence and Liam was contradictory and that they failed to prove that Mrs Doherty intended to make the alleged gifts to Liam or to Terrence. Thus, the $23,000 and the $55,000 alleged to have been gifts to Liam had to be returned to Mrs Doherty’s estate. Similarly, the balance of the Transferred Amount of $246,745.02, most of which had been transferred into Sylvia’s bank accounts, had to be returned to Mrs. Doherty’s estate.
Her Honour noted that a distinction can be drawn between the case of a person who has been appointed attorney but for the nonce acts as agent when conducting business on the donor’s behalf, and then acts as attorney once the grantor ceases to have capacity. However, she also noted that the distinction is less significant when abuse of a power of attorney is alleged, since the named attorney will have a fiduciary duty to the grantor regardless. In any event, if the attorney exceeds his authority, he will be liable for any breach of fiduciary duty. Whether as agent or attorney, Terrence was not allowed to withdraw funds from Mrs. Doherty’s account for his personal use or the use of his spouse and son. Since Terrence did not meet the burden of proving that the transfers were inter vivos gifts, her Honour found that Terrence breached his fiduciary duty and was liable for the damages that flowed from the breach.
A stranger to the fiduciary relationship may also be liable jointly and severally with the fiduciary in one of two ways: (a) when the stranger knowingly assisted the fiduciary in the breach of duty, which is known as ‘accessory liability’; and (b) when the stranger received trust property with actual or constructive knowledge of the breach, which is known as ‘knowing receipt’. Justice Dietrich, citing Citadel General Assurance Co v Lloyds Bank Canada,[3] concluded that Sylvia was liable for knowing receipt and that, though her tracing efforts, Kathleen could demonstrate that Sylvia received the bulk of the Transferred Amount. Her Honour found that Liam was also liable for knowing receipt. She also found that Sylvia could also be held liable for knowing assistance in Terrence’s breach of duty and, citing Air Canada v ML Travel Ltd,[4] that made her personally liable jointly and severally with him for damages arising from the breach.
4. Costs
Kathleen asked for full indemnity costs on the application, as well as an adjustment to full indemnity costs on an earlier motion in which Gilmore J denied her request for full indemnity costs. Justice Dietrich refused to increase the costs on the earlier motion but held that costs on a full indemnity basis on the application were appropriate. In her opinion Terrence’s conduct rose to the level of reprehensible, scandalous, and especially egregious. All three of Terrence, Sylvia, and Liam were jointly and severally liable for the costs but her Honour provided that Liam’s share should not exceed one-third of the total.
—
[1] 2023 ONSC 1536.
[2] Teixeira v Markgraf Estate, 2017 ONCA 819.
[3][1997] 3 SCR 805.
[4] [1993] 3 SCR 787.
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Written by: Albert Oosterhoff
Posted on: June 19, 2023
Categories: Commentary, WEL Newsletter
1. Introduction
Sadly, it happens frequently enough that an attorney of property misappropriates money or other property from the grantor. Since the attorney is a fiduciary, this amounts to a breach of fiduciary duty and he will be held liable. But others may have received some of the property as well and the question may arise on what basis they can be held liable. These issues arose in the recent case, Doherty v Doherty.[1]
2. Facts
Mrs. Molly Doherty died a widow in 2019, aged 84. She was survived by her two children, Kathleen and Terrence. Kathleen had been estranged from her family for a number of years. Mrs. Doherty lived in the family residence until 2018. Terence and his wife, Sylvia lived in the residence from time to time or in their trailer but during the winter they lived on their sailboat in Florida. In 2017 Mrs. Doherty executed a power of attorney for property in which she appointed Terrence as her attorney. In the spring of 2018 Mrs. Doherty was not doing well and the residence had fallen into a state of disrepair. In the same year, with the assistance of a lawyer, Mrs Doherty executed both a new power of attorney appointing Terrence as her attorney and a will in which she left the residue of her estate to Terence and to Sylvia if he should predecease her. Terence and Sylvia undertook repairs to the residence, the costs of which were paid by Mrs Doherty out of her CIBC bank account to which Terrence had access as attorney.
Mrs. Doherty entered into an agreement of purchase and sale of the residence and as demanded by the listing agent Terrence also signed it as attorney. The transaction closed in October 2018 and the 2018 power of attorney was registered on title. The net proceeds were paid into Mrs Doherty’s CIBC account. Meanwhile she moved into an assisted-living facility. Terrence and Sylvia then left for Florida. While there they learnt that Kathleen and her daughter were visiting Mrs. Doherty. Kathleen made inquiries about the sale of the residence and about her mother’s property and personal care. In 2020 she contacted the OPP alleging that Terrence had stolen some $400,000 from his mother while acting as her attorney. The OPP investigated the matter but laid no criminal charges, having concluded that the matter was a civil matter between family members.
Kathleen arranged for a capacity assessment of her mother by Ms Kay concerning Mrs. Doherty’s capacity to grant or revoke powers of attorney and whether she had testamentary capacity. Ms Kay concluded that Mrs Doherty did have the requisite capacity for both purposes. Soon thereafter Mrs Doherty executed new powers of attorney for property and for personal care, naming Kathleen as her attorney. She also made a new will in which she appointed Kathleen as executor and left her estate equally to Kathleen and her daughter Meaghan.
Between 1 June 2018 and 14 August 2019 more than $370,000 had been withdrawn from Mrs. Doherty’s CIBC account (the ‘Transferred Amount’). Terrence did not dispute that within 20 days of the deposit of the proceeds of sale he arranged for a total of $230,000 to be transferred to Sylvia and their son Liam. At her death Mrs. Doherty’s estate was worth only $46,682.78.
Terrence, supported by Liam alleged Mrs. Doherty intended to make a gift of the transferred amount to him and Liam. He alleged that $23,000 of the Transferred Amount was a gift by Mrs. Doherty to Liam to pay off a loan on a truck, and another amount was allegedly either a gift or a loan to Liam to allow him to purchase a house. Terence paid most of the balance into Sylvia’s bank accounts.
Kathleen then brought this application for an accounting from Terrence for the moneys that were missing from Mrs. Doherty’s bank account. She also alleged that Terrence committed fraud in dissipating his mother’s assets and breached his fiduciary duties to her. Further, she submitted that Sylvia and Liam were aware of and participated in a conspiracy to defraud Mrs Doherty and should be held jointly and severally liable with Terrence. The court earlier granted her a tracing order. The main focus of this blog is on the appropriate remedies.
3. Analysis and Judgment
Justice Dietrich applied the well-known tripartite test for an inter vivos gift: (a) an intention by the donor to make a gift; (b) acceptance of the gift by the donee; and (c) a sufficient act of delivery of the property by the donor to the donee.[2]
It is not necessary to recount the application of the test to the facts. Let it suffice to note that after a very careful and detailed examination of the facts Justice Dietrich concluded that the evidence presented by Terrence and Liam was contradictory and that they failed to prove that Mrs Doherty intended to make the alleged gifts to Liam or to Terrence. Thus, the $23,000 and the $55,000 alleged to have been gifts to Liam had to be returned to Mrs Doherty’s estate. Similarly, the balance of the Transferred Amount of $246,745.02, most of which had been transferred into Sylvia’s bank accounts, had to be returned to Mrs. Doherty’s estate.
Her Honour noted that a distinction can be drawn between the case of a person who has been appointed attorney but for the nonce acts as agent when conducting business on the donor’s behalf, and then acts as attorney once the grantor ceases to have capacity. However, she also noted that the distinction is less significant when abuse of a power of attorney is alleged, since the named attorney will have a fiduciary duty to the grantor regardless. In any event, if the attorney exceeds his authority, he will be liable for any breach of fiduciary duty. Whether as agent or attorney, Terrence was not allowed to withdraw funds from Mrs. Doherty’s account for his personal use or the use of his spouse and son. Since Terrence did not meet the burden of proving that the transfers were inter vivos gifts, her Honour found that Terrence breached his fiduciary duty and was liable for the damages that flowed from the breach.
A stranger to the fiduciary relationship may also be liable jointly and severally with the fiduciary in one of two ways: (a) when the stranger knowingly assisted the fiduciary in the breach of duty, which is known as ‘accessory liability’; and (b) when the stranger received trust property with actual or constructive knowledge of the breach, which is known as ‘knowing receipt’. Justice Dietrich, citing Citadel General Assurance Co v Lloyds Bank Canada,[3] concluded that Sylvia was liable for knowing receipt and that, though her tracing efforts, Kathleen could demonstrate that Sylvia received the bulk of the Transferred Amount. Her Honour found that Liam was also liable for knowing receipt. She also found that Sylvia could also be held liable for knowing assistance in Terrence’s breach of duty and, citing Air Canada v ML Travel Ltd,[4] that made her personally liable jointly and severally with him for damages arising from the breach.
4. Costs
Kathleen asked for full indemnity costs on the application, as well as an adjustment to full indemnity costs on an earlier motion in which Gilmore J denied her request for full indemnity costs. Justice Dietrich refused to increase the costs on the earlier motion but held that costs on a full indemnity basis on the application were appropriate. In her opinion Terrence’s conduct rose to the level of reprehensible, scandalous, and especially egregious. All three of Terrence, Sylvia, and Liam were jointly and severally liable for the costs but her Honour provided that Liam’s share should not exceed one-third of the total.
—
[1] 2023 ONSC 1536.
[2] Teixeira v Markgraf Estate, 2017 ONCA 819.
[3][1997] 3 SCR 805.
[4] [1993] 3 SCR 787.
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