Attorneys for property are being found in breach of their fiduciary duties with increasing frequency. Often, it is the case that the attorney has misappropriated funds entrusted to them and used them for their own personal benefit.
The remedies for such breaches are discretionary and based in equity and often include a monetary damages award and/or restitution.[1] But can an attorney found in breach also be disgorged of their beneficial entitlement in the estate? That was the question raised in Philbin v. Orford,[2] and answered in the negative by the Honourable Madam Justice Narissa Somji of the Ontario Superior Court of Justice. The following article will take a closer look at that decision.
Background
In Philbin, the Applicant was seeking a finding that her sister, the Respondent breached her fiduciary duty as co-attorney for the property of their late mother Octavia (the “Deceased”). It was alleged that between the years of 2004 and 2020, the Respondent spent the Deceased’s money for her own personal benefit. As such, the Applicant requested that upon finding a breach of fiduciary duty, the court order the Respondent be removed as co-estate trustee of the Deceased’s estate (the “Estate”) and that she either lose her beneficial entitlement under the Estate or, alternatively, pay restitution and damages for her unauthorized expenditures.
The Applicant and Respondent are sisters who were named co-attorneys for property and personal care by the Deceased on March 12, 1997. They were also named co-estate trustees and equal beneficiaries of the Estate.
In 2004, the Deceased was diagnosed with Alzheimer’s and moved to a Long-Term Care facility in Windsor in 2007. Sadly, the Deceased passed away on October 3, 2020. At all material times, the Applicant lived in Belleville while the Respondent lived in Windsor. As such, the Respondent made substitute decisions, managed finances, and attended to daily needs as required by the Deceased.[3]
After the death of the Deceased, the Applicant began to administer the Estate as co-trustee. When she examined her mother’s bank statements, she discovered a large number of withdrawals made by the Respondent.[4]
Breach of Fiduciary Duties
An attorney for property under a valid Power of Attorney (“POA”) has a fiduciary obligation to make substitute decisions which are in the best interests of the grantor. Pursuant to section 32 (1) of the Substitute Decisions Act, 1992,[5] an attorney for property “is a fiduciary whose powers and duties shall be exercised and performed diligently, with honesty and integrity and in good faith, for the incapable person’s benefit.”
A misappropriation of funds entrusted to an attorney for property constitutes a breach of this fiduciary duty.[6] In Philbin, Somji J. found that the Respondent failed to exercise her POA powers diligently, honestly, and in good faith for her mother’s benefit for the following reasons:
- Cash withdrawals and incurred expenses for personal benefit:
- The Respondent was made a joint account holder with the Deceased’s CIBC account in November of 2004. Between 2011 and 2020, the Respondent admitted to making bank withdrawals totaling $130,571.68.[7]
- Failure to keep accounts of all transactions in accordance with the regulations:
- The Respondent failed to keep proper accounts, including a number of expenditures made between 2004 and 2011 which were difficult to discern without corresponding banking records.[8]
- Residing in the Deceased’s condominium rent-free and depleting the Deceased’s assets to pay for the maintenance, fees, and property taxes:
- In 2007, the Applicant agreed to allow the Respondent and her husband to move into the Deceased’s condominium. After the death of their mother, the Applicant discovered that the Respondent had been using the Deceased’s accounts for a period of 13 years to pay approximately $7,500 per year for condo fees, maintenance, and property taxes.[9]
- Failing to manage the Deceased’s investment funds diligently and honestly:
- The Respondent failed to account for $42,072.45 in withdrawals from the Deceased’s CIBC Wood Gundy investments between April 2007 and July 2010 (the “Wood Gundy Funds”).[10]
In total, it was determined that the Respondent owed the Estate $280,154.23 for her unauthorized withdrawals. The court, however, determined that this amount does not reflect the loss of growth to the Estate had the Wood Gundy Funds remained invested. As such, the court applied a modest rate of two percent interest and concluded that the Respondent owed the Estate restitution in the amount of $320,154.23.[11]
Determining the appropriate remedy
The court in Philbin was of the view that the Respondent’s conduct, along with her lack of cooperation in the accounting and tracing of funds back to 2004 warranted not only remedy by way of restitution, but also deterrence.
Position of the Parties
The Applicant argued that a monetary damages award would not be sufficient in achieving either restitution or deterrence and requested that the Respondent be disentitled to her beneficial interest in the Estate.[12] In the Applicant’s view “if the ultimate purpose of a remedy is to make the injured party whole its loss, then disgorging [the Respondent] of her beneficial entitlement has the same practical effect as those cases in which the courts have ordered monetary damages.”[13]
The Respondent argued that because the two are sisters and the only beneficiaries, the appropriate remedy is for the court to engage in an accounting exercise where each sister returns the advancements received from the Estate and an Order is made to divide the residue of the Estate equally to the sisters.[14]
The Court’s Analysis
The court found that neither of the proposed remedies would lead to a just result. Somji J. was of the view that the Respondent’s proposed remedy does not consider the need for both restitution and deterrence for breach of duty but also, required the court to engage in the administration of the Estate to calculate what each beneficiary should receive.
Her Honour also found the remedy proposed by the Applicant, that the Respondent be disentitled to her beneficial share in the Estate, is unprecedented in law and would not result in a just remedy. To that end, counsel for the Applicant could not identify any cases where such a remedy was ordered for breach of fiduciary duty. The court noted that this remedy was canvassed in Deacon v. Deacon,[15] but not granted as precedents were equally unavailable at that time.[16]
Disposition
In Philbin, Somji J. concluded that the appropriate remedy is a monetary award for damages for restitution, loss of growth to the Estate, pre- and post-judgment interest, along with full recovery of costs for the litigation.
Considering all factors, the judgment against the Respondent was in the amount of $324,195.52 plus post-judgment interest. After the payments of all debts and bequests, the court also ordered that the Respondent’s distributive share will be set-off against the judgment and she will be entitled to any excess amount remaining.
The court also determined that the Respondent can not act honestly and diligently in her role as co-trustee for the Estate and that such a continued role risks hampering the administration of the Estate.[17] As such, there was also an order which named the Applicant as sole trustee of the Estate upon filing an application to be so appointed.
The Respondent was found to have unnecessarily complicated the proceedings because of failing to present proper accounts. The court concluded that a full-indemnity award was therefore fair and reasonable, and ordered the Respondent to pay full recovery costs to the Applicant in the amount of $60,430.11.
Conclusion
When a breach of fiduciary duty occurs, the plaintiff is entitled to be put in the same position they would have been in had the breach not occurred. In determining the appropriate remedy for said breach, the court is generally looking to ensure that restitution and deterrence are achieved.
While it may seem just to disentitle a fiduciary found to be in breach of their distributive share of an Estate, there is simply no caselaw to support this proposed remedy. As was the case in Philbin, the court can, however, set off the fiduciary’s distributive share against the judgment ordered against them.
—
[1] See Angeloni v. Estate of Francesco Angeloni, 2021 ONSC 3084, at para. 44 [Angeloni].
[2] 2023 ONSC 6949 [Philbin].
[3] Ibid., at paras. 10-12.
[4] Ibid., at para. 15 where it is observed that the Respondent used the Deceased’s funds to pay for: her own personal residency; loans and gifts to her son; vacations and corresponding foreign currency purchases; retail, restaurant, alcohol, and hairdresser costs; dental expenses; and other miscellaneous items.
[5] S.O. 1992, c. 30 [SDA].
[6] See Testa v. Testa, 2015 ONSC 2381, 10 E.T.R. (4th) 192, at para. 93 [Testa].
[7] Philbin, supra at para. 47.
[8] The court in Philbin, noted at para. 48 that all of the accounting presented in the litigation was the result of the Respondent’s own tracing efforts and that the Applicant did not present and documents to assist in determining the extent of the pre-2011 expenditures.
[9] Ibid., at paras. 50-52 where it was noted that the Respondent withdrew a total of $107,510.10 from her mother’s bank account to pay for condo costs between mid-2007 and 2020.
[10] Ibid., at para. 61.
[11] Ibid., at paras. 63-64 and 68.
[12] Ibid., at para. 74.
[13] Ibid., at para. 77.
[14] Ibid., at para. 78.
[15] 2004 BCSC 497, 7 E.T.R. (3d) 254 [Deacon].
[16] Philbin, supra at para. 89.
[17] Philbin, supra at para. 96 where the court cites Kasanda v. Sartarelli, 2023 ONSC 4400 at para. 77 and Radford v. Radford Estate, 43 E.T.R. (3d) 74, at paras. 97-121.
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Written by: WEL Partners
Posted on: December 23, 2023
Categories: Commentary, WEL Newsletter
Attorneys for property are being found in breach of their fiduciary duties with increasing frequency. Often, it is the case that the attorney has misappropriated funds entrusted to them and used them for their own personal benefit.
The remedies for such breaches are discretionary and based in equity and often include a monetary damages award and/or restitution.[1] But can an attorney found in breach also be disgorged of their beneficial entitlement in the estate? That was the question raised in Philbin v. Orford,[2] and answered in the negative by the Honourable Madam Justice Narissa Somji of the Ontario Superior Court of Justice. The following article will take a closer look at that decision.
Background
In Philbin, the Applicant was seeking a finding that her sister, the Respondent breached her fiduciary duty as co-attorney for the property of their late mother Octavia (the “Deceased”). It was alleged that between the years of 2004 and 2020, the Respondent spent the Deceased’s money for her own personal benefit. As such, the Applicant requested that upon finding a breach of fiduciary duty, the court order the Respondent be removed as co-estate trustee of the Deceased’s estate (the “Estate”) and that she either lose her beneficial entitlement under the Estate or, alternatively, pay restitution and damages for her unauthorized expenditures.
The Applicant and Respondent are sisters who were named co-attorneys for property and personal care by the Deceased on March 12, 1997. They were also named co-estate trustees and equal beneficiaries of the Estate.
In 2004, the Deceased was diagnosed with Alzheimer’s and moved to a Long-Term Care facility in Windsor in 2007. Sadly, the Deceased passed away on October 3, 2020. At all material times, the Applicant lived in Belleville while the Respondent lived in Windsor. As such, the Respondent made substitute decisions, managed finances, and attended to daily needs as required by the Deceased.[3]
After the death of the Deceased, the Applicant began to administer the Estate as co-trustee. When she examined her mother’s bank statements, she discovered a large number of withdrawals made by the Respondent.[4]
Breach of Fiduciary Duties
An attorney for property under a valid Power of Attorney (“POA”) has a fiduciary obligation to make substitute decisions which are in the best interests of the grantor. Pursuant to section 32 (1) of the Substitute Decisions Act, 1992,[5] an attorney for property “is a fiduciary whose powers and duties shall be exercised and performed diligently, with honesty and integrity and in good faith, for the incapable person’s benefit.”
A misappropriation of funds entrusted to an attorney for property constitutes a breach of this fiduciary duty.[6] In Philbin, Somji J. found that the Respondent failed to exercise her POA powers diligently, honestly, and in good faith for her mother’s benefit for the following reasons:
In total, it was determined that the Respondent owed the Estate $280,154.23 for her unauthorized withdrawals. The court, however, determined that this amount does not reflect the loss of growth to the Estate had the Wood Gundy Funds remained invested. As such, the court applied a modest rate of two percent interest and concluded that the Respondent owed the Estate restitution in the amount of $320,154.23.[11]
Determining the appropriate remedy
The court in Philbin was of the view that the Respondent’s conduct, along with her lack of cooperation in the accounting and tracing of funds back to 2004 warranted not only remedy by way of restitution, but also deterrence.
Position of the Parties
The Applicant argued that a monetary damages award would not be sufficient in achieving either restitution or deterrence and requested that the Respondent be disentitled to her beneficial interest in the Estate.[12] In the Applicant’s view “if the ultimate purpose of a remedy is to make the injured party whole its loss, then disgorging [the Respondent] of her beneficial entitlement has the same practical effect as those cases in which the courts have ordered monetary damages.”[13]
The Respondent argued that because the two are sisters and the only beneficiaries, the appropriate remedy is for the court to engage in an accounting exercise where each sister returns the advancements received from the Estate and an Order is made to divide the residue of the Estate equally to the sisters.[14]
The Court’s Analysis
The court found that neither of the proposed remedies would lead to a just result. Somji J. was of the view that the Respondent’s proposed remedy does not consider the need for both restitution and deterrence for breach of duty but also, required the court to engage in the administration of the Estate to calculate what each beneficiary should receive.
Her Honour also found the remedy proposed by the Applicant, that the Respondent be disentitled to her beneficial share in the Estate, is unprecedented in law and would not result in a just remedy. To that end, counsel for the Applicant could not identify any cases where such a remedy was ordered for breach of fiduciary duty. The court noted that this remedy was canvassed in Deacon v. Deacon,[15] but not granted as precedents were equally unavailable at that time.[16]
Disposition
In Philbin, Somji J. concluded that the appropriate remedy is a monetary award for damages for restitution, loss of growth to the Estate, pre- and post-judgment interest, along with full recovery of costs for the litigation.
Considering all factors, the judgment against the Respondent was in the amount of $324,195.52 plus post-judgment interest. After the payments of all debts and bequests, the court also ordered that the Respondent’s distributive share will be set-off against the judgment and she will be entitled to any excess amount remaining.
The court also determined that the Respondent can not act honestly and diligently in her role as co-trustee for the Estate and that such a continued role risks hampering the administration of the Estate.[17] As such, there was also an order which named the Applicant as sole trustee of the Estate upon filing an application to be so appointed.
The Respondent was found to have unnecessarily complicated the proceedings because of failing to present proper accounts. The court concluded that a full-indemnity award was therefore fair and reasonable, and ordered the Respondent to pay full recovery costs to the Applicant in the amount of $60,430.11.
Conclusion
When a breach of fiduciary duty occurs, the plaintiff is entitled to be put in the same position they would have been in had the breach not occurred. In determining the appropriate remedy for said breach, the court is generally looking to ensure that restitution and deterrence are achieved.
While it may seem just to disentitle a fiduciary found to be in breach of their distributive share of an Estate, there is simply no caselaw to support this proposed remedy. As was the case in Philbin, the court can, however, set off the fiduciary’s distributive share against the judgment ordered against them.
—
[1] See Angeloni v. Estate of Francesco Angeloni, 2021 ONSC 3084, at para. 44 [Angeloni].
[2] 2023 ONSC 6949 [Philbin].
[3] Ibid., at paras. 10-12.
[4] Ibid., at para. 15 where it is observed that the Respondent used the Deceased’s funds to pay for: her own personal residency; loans and gifts to her son; vacations and corresponding foreign currency purchases; retail, restaurant, alcohol, and hairdresser costs; dental expenses; and other miscellaneous items.
[5] S.O. 1992, c. 30 [SDA].
[6] See Testa v. Testa, 2015 ONSC 2381, 10 E.T.R. (4th) 192, at para. 93 [Testa].
[7] Philbin, supra at para. 47.
[8] The court in Philbin, noted at para. 48 that all of the accounting presented in the litigation was the result of the Respondent’s own tracing efforts and that the Applicant did not present and documents to assist in determining the extent of the pre-2011 expenditures.
[9] Ibid., at paras. 50-52 where it was noted that the Respondent withdrew a total of $107,510.10 from her mother’s bank account to pay for condo costs between mid-2007 and 2020.
[10] Ibid., at para. 61.
[11] Ibid., at paras. 63-64 and 68.
[12] Ibid., at para. 74.
[13] Ibid., at para. 77.
[14] Ibid., at para. 78.
[15] 2004 BCSC 497, 7 E.T.R. (3d) 254 [Deacon].
[16] Philbin, supra at para. 89.
[17] Philbin, supra at para. 96 where the court cites Kasanda v. Sartarelli, 2023 ONSC 4400 at para. 77 and Radford v. Radford Estate, 43 E.T.R. (3d) 74, at paras. 97-121.
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