Breach of Fiduciary Duty by Executor
1. Introduction
It is of course well-known that executors are fiduciaries and owe fiduciary duties to the estate and the beneficiaries. In the recent case, Spisak v Spisak,[1] Justice Dietrich provides a detailed description of the consequences of a breach of those duties.
2. Facts
The testator died in 2020, survived by his two children, Steven and Karen. In his 2016 will the testator named Karen his executor and directed that the residue of his estate be divided equally between the two children. Karen delayed administration of the estate and failed to respond promptly to Steven’s questions about the estate and his request for a copy of the will. More than 15 months after her father’s death, Karen told Steven that there were no assets in the Estate for distribution to the beneficiaries. She claimed that all the deceased’s assets had been held jointly with her in a joint bank account that passed to her by right of survivorship.
Steven brought an application in which he sought: (a) an order that Karen was in contempt of court for failing to obey court orders; (b) an order for damages for breach of trust, breach of fiduciary duty, and conversion; (c) an order for punitive damages; and (d) an order for costs on a full indemnity basis.
Karen did not file any responding material to the application, although ordered to do so twice. She did send an unsworn 18-page letter on which Steven cross-examined her. She undertook to convert the letter into a sworn affidavit but never did so. She did inform Steven in an email that the deceased’s remaining investments were transferred into the joint account, that it was used to set him up for palliative care, and that the deceased instructed her to use funds in the joint account to assist her with her higher expenses that she incurred, inter alia, to rent a house in which the deceased lived with her until his death. In another email she stated that her dad had capacity to make those decisions and that she could produce a capacity assessment if necessary. The court ordered her to produce the assessment, but she failed to do so and in fact there was no such assessment. Karen did provide Steven with statements for the joint account, as well as a letter in which she admitted to having struggled with her gambling addiction and to withdrawing funds from the joint account for her own purposes. She continued to make withdrawals from the account after the deceased died. At her cross-examination, in addition to undertaking to convert her letter into a sworn affidavit, she also undertook to provide personal bank statements to identify withdrawals from the account. She did ultimately produce the statements.
3. Analysis and Judgment
Justice Dietrich began her analysis by summarizing the law on three points: (a) the presumption of resulting trust that arises when a parent gratuitously transfers property to her adult child and the obligation of the child to rebut the presumption by clear, convincing, and cogent evidence;[2] (b) the nature of a fiduciary duty, which, as the Supreme Court of Canada described in Alberta v Elder Advocates of Alberta Society,[3] requires ‘that the fiduciary act with absolute loyalty toward the beneficiary in managing the beneficiary’s affairs’; and (c) the requirement imposed by section 13 of the Evidence Act[4] that in an action by or against heirs, next of kin, executors, administrators or assigns of a deceased person, an opposite or interested party cannon obtain judgment on his own evidence about a matter that occurred before the death of the deceased person, unless the evidence is corroborated by other material evidence.
Her Honour found that Karen failed to meet the onus on her to rebut the presumption of resulting trust. She led no sworn evidence in support of a gift of the moneys in the joint account or a gift of the right of survivorship. Thus, she held the account on a resulting trust for the estate.
Next, her Honour found that Karen breached her fiduciary duty to the deceased. Although she may not have been her father’s attorney for property (no power of attorney having been produced), she was a joint holder of the joint account and thus had power over it. Further, she was a fiduciary because she held the property under a resulting trust for her father. She breached her fiduciary duty to her father by making significant transfers and withdrawals from the joint account for her own benefit. Her evidence to the effect that her father approved some of the transfers was uncorroborated and thus did not meet the section 13 test. Based on incomplete bank statement, Justice Dietrich found that, as a minimum, Karen converted more than $155,000 of the deceased’s property to her own and that a significant portion of this amount was used to support Karen’s admitted addiction to gambling.
Her Honour then went on to address Karen’s fiduciary duty to Steven. As executor she had a duty to act in the best interests of the beneficiaries. Thus, she had an obligation to look after the property of the estate and to keep proper records. She breached her duty to Steven by failing to respond promptly to his inquiries and give him a copy of the will. She also led him to believe that he could expect a report on her administration as soon as she recovered from her illness, but she did not provide such a report. Instead, as he discovered, she had taken significant amounts out of the joint account for her own benefit.
Justice Dietrich next considered what remedy should be granted for the breaches of Karen’s fiduciary duty to her father and her brother. That remedy in this case is equitable compensation, which the Ontario Court of Appeal described in Waxman v Waxman[5] as: ‘[t]he basic rule of equitable compensation is that the injured party will be reimbursed for all losses flowing directly from the breach’. Thus, the court ‘may remedy the breach’ by putting the ‘beneficiaries in the position they would have been’ in if the breach had not occurred. Her Honour held that it was fair and appropriate to direct that Karen pay Steven one-half of the estimated amount that she converted as damages [compensation], since Steven would have been entitled to that amount as one of the two beneficiaries of the estate. She also ordered that Steven was entitled to additional damages for one-half the amount remaining in the joint account at the time of the deceased’s death.
Justice Dietrich declined to award punitive damages against Karen. She was not indifferent to the use of estate moneys for her own use, but she used the moneys to support her gambling addiction and was aware that that was wrong. She also declined to find Karen in contempt for failing to comply with two court orders. She did ultimately produce bank statements and although she did not file a responding record, there was no longer any useful purpose to have her to do so at this stage.
Nonetheless, her Honour found Karen in contempt and held that it was therefore appropriate to make an order requiring her to pay Steven’s full indemnity costs.
—
[1] 2023 ONSC 122.
[2] Pecore v Pecore, 2007 SCC 17.
[3] 2022 SCC 24 at para 22.
[4] RSO 1990, c E.23.
[5]2024 CarswellOnt 1715 (CA).
Menu
Written by: Albert Oosterhoff
Posted on: April 25, 2024
Categories: Commentary, WEL Newsletter
1. Introduction
It is of course well-known that executors are fiduciaries and owe fiduciary duties to the estate and the beneficiaries. In the recent case, Spisak v Spisak,[1] Justice Dietrich provides a detailed description of the consequences of a breach of those duties.
2. Facts
The testator died in 2020, survived by his two children, Steven and Karen. In his 2016 will the testator named Karen his executor and directed that the residue of his estate be divided equally between the two children. Karen delayed administration of the estate and failed to respond promptly to Steven’s questions about the estate and his request for a copy of the will. More than 15 months after her father’s death, Karen told Steven that there were no assets in the Estate for distribution to the beneficiaries. She claimed that all the deceased’s assets had been held jointly with her in a joint bank account that passed to her by right of survivorship.
Steven brought an application in which he sought: (a) an order that Karen was in contempt of court for failing to obey court orders; (b) an order for damages for breach of trust, breach of fiduciary duty, and conversion; (c) an order for punitive damages; and (d) an order for costs on a full indemnity basis.
Karen did not file any responding material to the application, although ordered to do so twice. She did send an unsworn 18-page letter on which Steven cross-examined her. She undertook to convert the letter into a sworn affidavit but never did so. She did inform Steven in an email that the deceased’s remaining investments were transferred into the joint account, that it was used to set him up for palliative care, and that the deceased instructed her to use funds in the joint account to assist her with her higher expenses that she incurred, inter alia, to rent a house in which the deceased lived with her until his death. In another email she stated that her dad had capacity to make those decisions and that she could produce a capacity assessment if necessary. The court ordered her to produce the assessment, but she failed to do so and in fact there was no such assessment. Karen did provide Steven with statements for the joint account, as well as a letter in which she admitted to having struggled with her gambling addiction and to withdrawing funds from the joint account for her own purposes. She continued to make withdrawals from the account after the deceased died. At her cross-examination, in addition to undertaking to convert her letter into a sworn affidavit, she also undertook to provide personal bank statements to identify withdrawals from the account. She did ultimately produce the statements.
3. Analysis and Judgment
Justice Dietrich began her analysis by summarizing the law on three points: (a) the presumption of resulting trust that arises when a parent gratuitously transfers property to her adult child and the obligation of the child to rebut the presumption by clear, convincing, and cogent evidence;[2] (b) the nature of a fiduciary duty, which, as the Supreme Court of Canada described in Alberta v Elder Advocates of Alberta Society,[3] requires ‘that the fiduciary act with absolute loyalty toward the beneficiary in managing the beneficiary’s affairs’; and (c) the requirement imposed by section 13 of the Evidence Act[4] that in an action by or against heirs, next of kin, executors, administrators or assigns of a deceased person, an opposite or interested party cannon obtain judgment on his own evidence about a matter that occurred before the death of the deceased person, unless the evidence is corroborated by other material evidence.
Her Honour found that Karen failed to meet the onus on her to rebut the presumption of resulting trust. She led no sworn evidence in support of a gift of the moneys in the joint account or a gift of the right of survivorship. Thus, she held the account on a resulting trust for the estate.
Next, her Honour found that Karen breached her fiduciary duty to the deceased. Although she may not have been her father’s attorney for property (no power of attorney having been produced), she was a joint holder of the joint account and thus had power over it. Further, she was a fiduciary because she held the property under a resulting trust for her father. She breached her fiduciary duty to her father by making significant transfers and withdrawals from the joint account for her own benefit. Her evidence to the effect that her father approved some of the transfers was uncorroborated and thus did not meet the section 13 test. Based on incomplete bank statement, Justice Dietrich found that, as a minimum, Karen converted more than $155,000 of the deceased’s property to her own and that a significant portion of this amount was used to support Karen’s admitted addiction to gambling.
Her Honour then went on to address Karen’s fiduciary duty to Steven. As executor she had a duty to act in the best interests of the beneficiaries. Thus, she had an obligation to look after the property of the estate and to keep proper records. She breached her duty to Steven by failing to respond promptly to his inquiries and give him a copy of the will. She also led him to believe that he could expect a report on her administration as soon as she recovered from her illness, but she did not provide such a report. Instead, as he discovered, she had taken significant amounts out of the joint account for her own benefit.
Justice Dietrich next considered what remedy should be granted for the breaches of Karen’s fiduciary duty to her father and her brother. That remedy in this case is equitable compensation, which the Ontario Court of Appeal described in Waxman v Waxman[5] as: ‘[t]he basic rule of equitable compensation is that the injured party will be reimbursed for all losses flowing directly from the breach’. Thus, the court ‘may remedy the breach’ by putting the ‘beneficiaries in the position they would have been’ in if the breach had not occurred. Her Honour held that it was fair and appropriate to direct that Karen pay Steven one-half of the estimated amount that she converted as damages [compensation], since Steven would have been entitled to that amount as one of the two beneficiaries of the estate. She also ordered that Steven was entitled to additional damages for one-half the amount remaining in the joint account at the time of the deceased’s death.
Justice Dietrich declined to award punitive damages against Karen. She was not indifferent to the use of estate moneys for her own use, but she used the moneys to support her gambling addiction and was aware that that was wrong. She also declined to find Karen in contempt for failing to comply with two court orders. She did ultimately produce bank statements and although she did not file a responding record, there was no longer any useful purpose to have her to do so at this stage.
Nonetheless, her Honour found Karen in contempt and held that it was therefore appropriate to make an order requiring her to pay Steven’s full indemnity costs.
—
[1] 2023 ONSC 122.
[2] Pecore v Pecore, 2007 SCC 17.
[3] 2022 SCC 24 at para 22.
[4] RSO 1990, c E.23.
[5]2024 CarswellOnt 1715 (CA).
Author
View all posts