1. Introduction
It is now well-known that when a person attacks an inter vivos gift for undue influence, and if the alleged undue influencer occupies a position of influence or dominance over the donor, the attacker will be assisted by the presumption of undue influence. In contrast, if a person attacks a will for undue influence, the attacker cannot rely on the presumption of undue influence, even though the influencer occupies a presumption of undue influence.
Which of these approaches applies when someone attacks a power of attorney for property and alleges that the grantee has unduly influenced the grantor of the power?
The law has been uncertain on this point, but we now have two appellate decisions on point, one from the Ontario Court of Appeal, Vanier v Vanier,[1] and one from the Manitoba Court of Appeal, Drewniak v Smith.[2] I shall discuss these two cases and show that in my view the Manitoba decision is correct, while the Ontario decision is incorrect.
2. The Two Cases
2.1 Vanier v Vanier
2.1.1 Facts
Frank and Rita Vanier operated a successful business, 92780 Canada Ltd (‘92780’). Frank died in 2011 and left his entire estate to Rita. They had three children, a daughter, Patricia, and twin sons, Pierre and Raymond. After her husband died, Rita Vanier granted a continuing power of attorney to Patricia (the ‘2011 CPOAP’). It was alleged that Patricia used the CPOAP to misappropriate a large sum of money from her mother. That led to litigation that was eventually settled. Rita then granted a new CPOAP in 2013 to Pierre and Raymond with power to act jointly and severally. The two sons soon became suspicious about each other’s handling of Rita’s property. This caused Rita to grant another power of attorney in 2015 (the ‘2015 CPOAP’) in which she appointed Pierre as her sole attorney.
Raymond brought an application under the Substitute Decisions Act, 1992 (‘SDA’) for orders removing Pierre as attorney and declaring the 2015 CPOAP void. He also brought a motion for an order removing Pierre as attorney on an interim basis and an order requiring Pierre to pass his accounts. The motion judge granted the order to pass the accounts but otherwise dismissed the motion. Raymond appealed the dismissal on the ground that the motion judge applied the wrong test for undue influence and erred by failing to find suspicious circumstances surrounding Rita’s execution of the 2015 CPOAP.
Rita’s funds were tied up in 92780’s accounts at the Royal Bank of Canada (‘RBC’). They were frozen because of the litigation with Patricia. When that litigation was settled, RBC demanded that the three children, who were the three directors of 92780, sign documents authorizing a new account. Raymond refused, so that the moneys remained frozen. Patricia had been ordered to repay Rita some $300,000, but Raymond told her lawyer to hold those moneys and not to release them. Raymond’s actions meant that Rita had no access to money to pay her basic living expenses. That led her to sign the 2015 CPOAP. Subsequently, by shareholders’ vote, Raymond was removed as director of 92780. Raymond then arranged to have Rita undergo a capacity assessment. The assessor found that Rita was capable of executing and revoking a power of attorney for property. However, she also suggested that undue influence may have been a factor in Rita’s decision to grant the 2015 CPOAP to Pierre. Raymond continued to be suspicious of Pierre and maintained that Pierre’s relationship with Rita was marked by dominance and control for many years.
2.1.2 Decision at First Instance
At first instance, the motion judge, Penny J, held that the burden of proof to establish undue influence rests on the party alleging it, and thus he applied the test for ‘testamentary undue influence’. He held that the evidence did not support a finding of suspicious circumstances and ordered Raymond to pay Rita’s costs fixed at $55,000.
2.1.3 Appeal
Raymond raised four grounds of appeal, namely, that the motion judge:
(a) applied the wrong undue influence test;
(b) wrongly found that the evidence did not establish suspicious undue influence;
(c) failed to consider relevant evidence; and
(d) erred in determining the award of costs.
(a) On the first ground Raymond argued that the motion judge should have used the test for inter vivos equitable undue influence, either actual or presumed. In his view that would shift the onus to Pierre to prove that Rita signed the 2015 CPOAP willingly and without undue influence. He argued that while this test is traditionally applied to improperly taken inter vivos gifts, it also applies to inter vivos transfers of power over a grantor’s assets. Rita disagreed and argued that the testamentary undue influence test applied.
The court did not give effect to this ground of appeal because the application of the inter vivos equitable undue influence test was not argued on the motion. But in any event the equitable undue influence test has no application on the facts. Justice Epstein, who wrote the reasons for the court, applied Royal Bank of Scotland v Etridge.[3] It holds that the evidential shift in the burden of proof from the complainant to the other party happens only when the following two criteria are satisfied: (1) if the complainant (Raymond arguing on behalf of Rita) reposed trust and confidence in the other party (Pierre); and (2) if the transaction is not readily explicable by the parties’ relationship. The House of Lords held that for this second criterion to be satisfied, the evidence must show that the transaction is ’immoderate and irrational’.
It was clear that Rita reposed trust and confidence in Pierre, and he conceded that she did. But there was nothing immoderate or irrational about Rita granting the 2015 CPOAP to Pierre. Besides, the CPOAP conferred little, if any, benefit on Pierre. Further, even if the inter vivos equitable title were applicable, the facts did not support a finding of undue influence.
(b) On the second ground of appeal, the court noted that under section 2 of the SDA a person is presumed to be capable of granting a power of attorney for property. However, section 2(3) provides that a person cannot rely on this presumption if the person ‘has reasonable grounds to believe that the other person is incapable of entering into a contract or of giving or refusing consent’. In the latter case the burden of proving capacity shifts to the grantee of the power.
Justice Epstein did not regard this appeal as an appropriate one to consider the application of the doctrine of suspicious circumstances to powers of attorney as a whole. Besides, this ground of appeal amounted simply to a challenge to the motion judge’s findings of fact that there were no suspicious circumstances. Thus, she gave no effect to this ground of appeal.
Since Justice Epstein did not consider whether the application of the equitable doctrine of suspicious circumstances applies to powers of attorney, this means that lower court decisions in Ontario that have applied the wills doctrine of undue influence to powers of attorney continue to be effective.[4]
(c) On the third ground of appeal the court held that there was no merit to the argument that the motion judge failed to consider relevant evidence.
(d) On the costs issue, the court agreed with the motion judge that the litigation reflected a profound lack of judgment on Raymond’s part, and thus saw no basis to interfere with the costs award.
On the issue regarding the capacity assessor’s finding that undue influence may have been a factor in Rita’s decision to grant the 2015 CPOAP to Pierre, the motion judge had held that it was unreliable and inadmissible because it is outside the powers of a capacity assessor. So, Rita argued that the court should censor the practice of asking capacity assessors to provide opinion evidence on undue influence. While the court agreed that it was inappropriate for the assessor to provide such evidence and that it was unreliable and inadmissible, it left a more in-depth consideration of the issue to another day.
2.2 Drewniak v Smith
2.2.1 Facts
Margaret Smith (the ‘Donor’) has two daughters, Katherine (‘Katherine’) and Margaret (‘Margaret’). In 2003 the Donor granted an enduring power of attorney (the ‘2003 POA’) to Katherine. while naming Margaret as alternative attorney. The Donor began to have some cognitive impairment and memory issues in 2005 when she had a stroke but continued to be actively involved in the management of her financial affairs. Katherine was her investment advisor and accountant. The Donor became frustrated with Katherine’s excessive control over her personal and financial affairs. In 2016 Margaret helped the Donor to meet with her former and her new solicitor and the latter prepared a new power of attorney (the 2016 POA) in which she appointed Margaret as her attorney. When Katherine learnt of the new POA, she brought an application for, inter alia, a declaration that the 2016 POA was invalid.
2.2.2 Decision at First Instance
The application judge dismissed the application. She held that the Donor had capacity and that the equitable evidentiary presumption of undue influence cannot arise in the case of a power of attorney. Thus, she applied the wills doctrine of undue influence to powers of attorney.
2.2.3 Appeal
Katherine appealed on the following grounds:
(1) That the application judge erred in finding that the Donor had the required capacity to grant the 2016 POA, failed to give sufficient weight to the evidence of the Donor’s diminished capacity, and failed to recognize the evidence of suspicious circumstances surrounding the execution of the document.
(2) That the application judge erred in failing to find that the 2016 POA was procured by Margaret through undue influence.
This ground required a consideration of the question whether the application judge was correct in holding that an evidentiary presumption of undue influence cannot arise in respect of an enduring power.
(3) That the application judge made palpable and overriding errors in two findings of fact.
The court held that the third ground lacked merit and dismissed it summarily.
Justice Pfuetzner wrote the reasons for judgment, and Monnin and Cameron JJA concurred.
On the first issue she discussed the common law presumption of capacity and noted that it extends to the granting of a power of attorney. She also noted that section 10(3) of the Powers of Attorney Act[5] states that an enduring power of attorney is void if the donor is mentally incapable of understanding its nature and effect at the time of its execution, and that the application judge had found the Donor to be capable. It is interesting that she does not state that she dismisses the first ground of appeal, although in her conclusion in para 87 she dismisses the appeal in its entirety.
Justice Pfuetzner then launched into a lengthy and learned discussion of the history and jurisdiction of probate courts and noted that powers of attorney were not part of that history. The history and jurisdiction of the probate courts is a topic that the Honourable Maurice Cullity analyzed carefully and in detail in a number of his judgments,[6] and others, following his analysis, have also written about the topic. Justice Pfeutzner noted that the laws and procedure of the probate courts continue even after those courts were merged with the superior courts of justice. Consequently, when a court, sitting as a court of probate, considers the validity of a will, it applies the doctrine of undue influence as developed in the probate courts, without applying the presumption of undue influence. That presumption arose in equity, not in probate, and can be applied in a superior court of justice when considering the validity of other documents that did not traditionally fall within the purview of courts of probate.
Justice Pfuetzner continued with a learned disquisition of the burden of proof in wills proceedings, by reference, inter alia, to Vout v Hay.[7] She distinguished carefully between the ‘persuasive legal burden’ and the ‘evidential burden’. The former is the onus to prove facts on the civil standard of the balance of probabilities, which is governed by substantive law. The latter requires a party to point to a minimum threshold of evidence to satisfy the fact finder (judge or jury). She pointed out that while the two are usually, though nor always, aligned, they diverge on some issues in contested probate proceedings. In common form proceedings, while the propounder has the legal burden to prove due execution, knowledge and approval, and testamentary capacity, the propounder has the benefit of the rebuttable presumption of validity upon proof of due execution. If someone attacks the will. the attacker has the evidential burden to point to some facts that, if accepted, will establish those facts. The attacker can do so by pointing to suspicious circumstances in the making of the will, the capacity of the testator, or undue influence or fraud. If the attacker discharges the evidential burden, the propounder can no longer rely on the evidential presumption but must prove due execution, knowledge and approval, and capacity. However, if the attacker alleges fraud or undue influence, the attacker has the persuasive legal burden of proving the fraud or undue influence on a balance of probabilities. That onus does not shift to the propounder in probate proceedings. Justice Pfuetzner referred to this as probate undue influence, and it was this law that the application judge applied. The application judge did so because: (1) wills and powers of attorney are usually made with the aid of counsel and in the presence of witnesses; (2) powers of attorney impose fiduciary obligations that are similar to those imposed on an executor; (3) as in a will, a donor of a power can change it at will; and (4) as in a will, a donor does not bestow a benefit on the donee of the power.
However, Katherine argued that the approach to undue influence developed in courts of equity (‘equitable undue influence’) should be applied in the context of powers of attorney. Equitable undue influence applies to inter vivos gifts. It takes two forms, a substantive legal principle in which the undue influence is proved on the facts (‘actual undue influence’), and the presumption of undue influence, which is a rule of evidence (‘presumed undue influence’). With equitable undue influence, the attacker has the persuasive legal burden of proving undue influence on a balance of probabilities. But once certain facts are established, the attacker can rely on the presumption to satisfy the persuasive legal burden. Equity raises the presumption in some relationships, such as parent and child, guardian and ward, solicitor and client, trustee and beneficiary, doctor and patient, and others. In English law however, the presumption will not be raised in commercial transactions or transactions made with legal advice. Nor will it be raised for gifts, ‘unless the gift is so large or the transaction so improvident’ that it cannot reasonably be attributed to other innocent motives.[8] In Royal Bank of Scotland v Etridge,[9] Lord Nicholls outlined two prerequisites for the presumption to apply: (1) that ‘the complainant reposed trust and confidence in the other party, or the other party acquired ascendancy over the complainant; and (2) that ‘the transaction is not readily explicable by the relationship of the parties’. He described the second prerequisite as ‘a transaction which calls for explanation’, is ‘immoderate and irrational’, and is ‘explicable only on the basis that undue influence has been exercised to procure it’.[10]
However, as Justice Pfuetzner explained by reference to Goodman v Geffen,[11] in Canada the evidentiary presumption is triggered more readily, not only for gifts but also for contracts. For gifts, a dominant relationship is all that is required, and if that exists, the attacker does not have to establish undue disadvantage for the evidentiary presumption to arise. For contracts the attacker needs to show that there is a relationship with the potential for influence and that it had an unfair consequence.
Justice Pfuetzner acknowledged that a power of attorney can be granted as a result of undue influence over the donor. Then it does not matter whether the probate or equitable rule is applied, since the persuasive legal burden of proving undue influence rests on the attacker.
However, she went on to state that the problem with adopting the probate rule of undue influence to powers of attorney is that ‘doctrinally and historically, powers of attorney were not part of the jurisdiction of the probate courts’ (para 74). Powers of attorney have their origin in the law of agency and contract, areas over which equity has jurisdiction. Therefore, she concluded that powers of attorney are within the various transactions to which equitable (as opposed to probate) principles of undue influence apply (para 76).
That being so, the question becomes when the evidentiary presumption of equitable undue influence will arise when a donor grants an enduring power of attorney. Justice Pfuetzner took the view that there is a clear distinction between a gift and a power of attorney, since a power of attorney does not confer a benefit on the attorney. Indeed, a power of attorney does not confer either legal or beneficial ownership on the attorney. Consequently, she held that for the evidentiary presumption of undue influence to apply to the granting of an enduring power of attorney, there must be a relationship with the potential for domination. In addition, something more must be shown. Not a ‘manifest disadvantage’ as maintained in Geffen for gifts but rather evidence that the granting of the power is ‘immoderate and irrational’ as maintained in Etridge (para 50) for gifts.
Justice Pfuetzner held that the evidentiary presumption of undue influence did not arise on the facts in this case. Even assuming that the Donor and Margaret were in a relationship with the potential for dominance. the granting of the 2016 POA was not in any way ‘immoderate or irrational’. In any event, the resolution of the case did not depend on whether the presumption applied but on whether Katherine had met the persuasive legal burden to prove undue influence on a balance of probabilities. She agreed with the application judge that Katherine had not met that burden.
Justice Pfuetzner concluded with the following helpful comment:
[86] In my view, the granting of an enduring power of attorney to a family member with whom the donor has a positive relationship is not a transaction that should be regarded as prima facie evidence of the exercise of undue influence by the named attorney – even if there is the potential for dominance in the relationship. To do so would throw a wrench into virtually every basic estate plan. Such a transaction does not call for an explanation – it is readily explicable by the relationship of the parties.
Having regard to the different origins of probate law and the law over which equity has jurisdiction, in my opinion, for the reasons given by her, Justice Pfuetzner’s view that the equitable doctrine of undue influence applies to the granting of an enduring power of attorney (and to a continuing power of attorney for property) is accurate. And therefore, with great respect, I believe that Drewniak v Smith is correct and Vanier v Vanier is incorrect.
And, dear readers, I suggest, Tolle lege. That is, take up and read the very well written Drewniak case. You will learn much and be edified.
—
[1] 2017 ONCA 561.
[2] 2024 MBCA 86.
[3] [2001] UKHL 44, paras 21-22.
[4] See, e.g., the decision at first instance, Vanier v Vanier, 2016 ONSC 4620, para 15; Nguyen-Crawford v Nguyen, 2010 ONSC 6836, para 93; Hollinger v Marshall, 2024 ONSC 404, para 56.
[5] CCSM c P97.
[6] See, e.g., Re Ettore Estate, 2004 CarswellOnt 3618; Otis v Otis, 2004 CarswellOnt 1643
[7] 1995 CarswellOnt 528, [1995] 2 SCR 876.
[8] Hanbury and Maudsley Modern Equity, 13th ed (London: Stevens & Sons, 1989), p 4.
[9] Footnote 3, supra, paras 21-22.
[10] Ibid., paras 14, 22, 25.
[11] [1991] 2 SCR 353, 1991 CarswellAlta 91.
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Written by: Albert Oosterhoff
Posted on: December 30, 2024
Categories: Commentary, Powers of Attorney, WEL Newsletter
1. Introduction
It is now well-known that when a person attacks an inter vivos gift for undue influence, and if the alleged undue influencer occupies a position of influence or dominance over the donor, the attacker will be assisted by the presumption of undue influence. In contrast, if a person attacks a will for undue influence, the attacker cannot rely on the presumption of undue influence, even though the influencer occupies a presumption of undue influence.
Which of these approaches applies when someone attacks a power of attorney for property and alleges that the grantee has unduly influenced the grantor of the power?
The law has been uncertain on this point, but we now have two appellate decisions on point, one from the Ontario Court of Appeal, Vanier v Vanier,[1] and one from the Manitoba Court of Appeal, Drewniak v Smith.[2] I shall discuss these two cases and show that in my view the Manitoba decision is correct, while the Ontario decision is incorrect.
2. The Two Cases
2.1 Vanier v Vanier
2.1.1 Facts
Frank and Rita Vanier operated a successful business, 92780 Canada Ltd (‘92780’). Frank died in 2011 and left his entire estate to Rita. They had three children, a daughter, Patricia, and twin sons, Pierre and Raymond. After her husband died, Rita Vanier granted a continuing power of attorney to Patricia (the ‘2011 CPOAP’). It was alleged that Patricia used the CPOAP to misappropriate a large sum of money from her mother. That led to litigation that was eventually settled. Rita then granted a new CPOAP in 2013 to Pierre and Raymond with power to act jointly and severally. The two sons soon became suspicious about each other’s handling of Rita’s property. This caused Rita to grant another power of attorney in 2015 (the ‘2015 CPOAP’) in which she appointed Pierre as her sole attorney.
Raymond brought an application under the Substitute Decisions Act, 1992 (‘SDA’) for orders removing Pierre as attorney and declaring the 2015 CPOAP void. He also brought a motion for an order removing Pierre as attorney on an interim basis and an order requiring Pierre to pass his accounts. The motion judge granted the order to pass the accounts but otherwise dismissed the motion. Raymond appealed the dismissal on the ground that the motion judge applied the wrong test for undue influence and erred by failing to find suspicious circumstances surrounding Rita’s execution of the 2015 CPOAP.
Rita’s funds were tied up in 92780’s accounts at the Royal Bank of Canada (‘RBC’). They were frozen because of the litigation with Patricia. When that litigation was settled, RBC demanded that the three children, who were the three directors of 92780, sign documents authorizing a new account. Raymond refused, so that the moneys remained frozen. Patricia had been ordered to repay Rita some $300,000, but Raymond told her lawyer to hold those moneys and not to release them. Raymond’s actions meant that Rita had no access to money to pay her basic living expenses. That led her to sign the 2015 CPOAP. Subsequently, by shareholders’ vote, Raymond was removed as director of 92780. Raymond then arranged to have Rita undergo a capacity assessment. The assessor found that Rita was capable of executing and revoking a power of attorney for property. However, she also suggested that undue influence may have been a factor in Rita’s decision to grant the 2015 CPOAP to Pierre. Raymond continued to be suspicious of Pierre and maintained that Pierre’s relationship with Rita was marked by dominance and control for many years.
2.1.2 Decision at First Instance
At first instance, the motion judge, Penny J, held that the burden of proof to establish undue influence rests on the party alleging it, and thus he applied the test for ‘testamentary undue influence’. He held that the evidence did not support a finding of suspicious circumstances and ordered Raymond to pay Rita’s costs fixed at $55,000.
2.1.3 Appeal
Raymond raised four grounds of appeal, namely, that the motion judge:
(a) applied the wrong undue influence test;
(b) wrongly found that the evidence did not establish suspicious undue influence;
(c) failed to consider relevant evidence; and
(d) erred in determining the award of costs.
(a) On the first ground Raymond argued that the motion judge should have used the test for inter vivos equitable undue influence, either actual or presumed. In his view that would shift the onus to Pierre to prove that Rita signed the 2015 CPOAP willingly and without undue influence. He argued that while this test is traditionally applied to improperly taken inter vivos gifts, it also applies to inter vivos transfers of power over a grantor’s assets. Rita disagreed and argued that the testamentary undue influence test applied.
The court did not give effect to this ground of appeal because the application of the inter vivos equitable undue influence test was not argued on the motion. But in any event the equitable undue influence test has no application on the facts. Justice Epstein, who wrote the reasons for the court, applied Royal Bank of Scotland v Etridge.[3] It holds that the evidential shift in the burden of proof from the complainant to the other party happens only when the following two criteria are satisfied: (1) if the complainant (Raymond arguing on behalf of Rita) reposed trust and confidence in the other party (Pierre); and (2) if the transaction is not readily explicable by the parties’ relationship. The House of Lords held that for this second criterion to be satisfied, the evidence must show that the transaction is ’immoderate and irrational’.
It was clear that Rita reposed trust and confidence in Pierre, and he conceded that she did. But there was nothing immoderate or irrational about Rita granting the 2015 CPOAP to Pierre. Besides, the CPOAP conferred little, if any, benefit on Pierre. Further, even if the inter vivos equitable title were applicable, the facts did not support a finding of undue influence.
(b) On the second ground of appeal, the court noted that under section 2 of the SDA a person is presumed to be capable of granting a power of attorney for property. However, section 2(3) provides that a person cannot rely on this presumption if the person ‘has reasonable grounds to believe that the other person is incapable of entering into a contract or of giving or refusing consent’. In the latter case the burden of proving capacity shifts to the grantee of the power.
Justice Epstein did not regard this appeal as an appropriate one to consider the application of the doctrine of suspicious circumstances to powers of attorney as a whole. Besides, this ground of appeal amounted simply to a challenge to the motion judge’s findings of fact that there were no suspicious circumstances. Thus, she gave no effect to this ground of appeal.
Since Justice Epstein did not consider whether the application of the equitable doctrine of suspicious circumstances applies to powers of attorney, this means that lower court decisions in Ontario that have applied the wills doctrine of undue influence to powers of attorney continue to be effective.[4]
(c) On the third ground of appeal the court held that there was no merit to the argument that the motion judge failed to consider relevant evidence.
(d) On the costs issue, the court agreed with the motion judge that the litigation reflected a profound lack of judgment on Raymond’s part, and thus saw no basis to interfere with the costs award.
On the issue regarding the capacity assessor’s finding that undue influence may have been a factor in Rita’s decision to grant the 2015 CPOAP to Pierre, the motion judge had held that it was unreliable and inadmissible because it is outside the powers of a capacity assessor. So, Rita argued that the court should censor the practice of asking capacity assessors to provide opinion evidence on undue influence. While the court agreed that it was inappropriate for the assessor to provide such evidence and that it was unreliable and inadmissible, it left a more in-depth consideration of the issue to another day.
2.2 Drewniak v Smith
2.2.1 Facts
Margaret Smith (the ‘Donor’) has two daughters, Katherine (‘Katherine’) and Margaret (‘Margaret’). In 2003 the Donor granted an enduring power of attorney (the ‘2003 POA’) to Katherine. while naming Margaret as alternative attorney. The Donor began to have some cognitive impairment and memory issues in 2005 when she had a stroke but continued to be actively involved in the management of her financial affairs. Katherine was her investment advisor and accountant. The Donor became frustrated with Katherine’s excessive control over her personal and financial affairs. In 2016 Margaret helped the Donor to meet with her former and her new solicitor and the latter prepared a new power of attorney (the 2016 POA) in which she appointed Margaret as her attorney. When Katherine learnt of the new POA, she brought an application for, inter alia, a declaration that the 2016 POA was invalid.
2.2.2 Decision at First Instance
The application judge dismissed the application. She held that the Donor had capacity and that the equitable evidentiary presumption of undue influence cannot arise in the case of a power of attorney. Thus, she applied the wills doctrine of undue influence to powers of attorney.
2.2.3 Appeal
Katherine appealed on the following grounds:
(1) That the application judge erred in finding that the Donor had the required capacity to grant the 2016 POA, failed to give sufficient weight to the evidence of the Donor’s diminished capacity, and failed to recognize the evidence of suspicious circumstances surrounding the execution of the document.
(2) That the application judge erred in failing to find that the 2016 POA was procured by Margaret through undue influence.
This ground required a consideration of the question whether the application judge was correct in holding that an evidentiary presumption of undue influence cannot arise in respect of an enduring power.
(3) That the application judge made palpable and overriding errors in two findings of fact.
The court held that the third ground lacked merit and dismissed it summarily.
Justice Pfuetzner wrote the reasons for judgment, and Monnin and Cameron JJA concurred.
On the first issue she discussed the common law presumption of capacity and noted that it extends to the granting of a power of attorney. She also noted that section 10(3) of the Powers of Attorney Act[5] states that an enduring power of attorney is void if the donor is mentally incapable of understanding its nature and effect at the time of its execution, and that the application judge had found the Donor to be capable. It is interesting that she does not state that she dismisses the first ground of appeal, although in her conclusion in para 87 she dismisses the appeal in its entirety.
Justice Pfuetzner then launched into a lengthy and learned discussion of the history and jurisdiction of probate courts and noted that powers of attorney were not part of that history. The history and jurisdiction of the probate courts is a topic that the Honourable Maurice Cullity analyzed carefully and in detail in a number of his judgments,[6] and others, following his analysis, have also written about the topic. Justice Pfeutzner noted that the laws and procedure of the probate courts continue even after those courts were merged with the superior courts of justice. Consequently, when a court, sitting as a court of probate, considers the validity of a will, it applies the doctrine of undue influence as developed in the probate courts, without applying the presumption of undue influence. That presumption arose in equity, not in probate, and can be applied in a superior court of justice when considering the validity of other documents that did not traditionally fall within the purview of courts of probate.
Justice Pfuetzner continued with a learned disquisition of the burden of proof in wills proceedings, by reference, inter alia, to Vout v Hay.[7] She distinguished carefully between the ‘persuasive legal burden’ and the ‘evidential burden’. The former is the onus to prove facts on the civil standard of the balance of probabilities, which is governed by substantive law. The latter requires a party to point to a minimum threshold of evidence to satisfy the fact finder (judge or jury). She pointed out that while the two are usually, though nor always, aligned, they diverge on some issues in contested probate proceedings. In common form proceedings, while the propounder has the legal burden to prove due execution, knowledge and approval, and testamentary capacity, the propounder has the benefit of the rebuttable presumption of validity upon proof of due execution. If someone attacks the will. the attacker has the evidential burden to point to some facts that, if accepted, will establish those facts. The attacker can do so by pointing to suspicious circumstances in the making of the will, the capacity of the testator, or undue influence or fraud. If the attacker discharges the evidential burden, the propounder can no longer rely on the evidential presumption but must prove due execution, knowledge and approval, and capacity. However, if the attacker alleges fraud or undue influence, the attacker has the persuasive legal burden of proving the fraud or undue influence on a balance of probabilities. That onus does not shift to the propounder in probate proceedings. Justice Pfuetzner referred to this as probate undue influence, and it was this law that the application judge applied. The application judge did so because: (1) wills and powers of attorney are usually made with the aid of counsel and in the presence of witnesses; (2) powers of attorney impose fiduciary obligations that are similar to those imposed on an executor; (3) as in a will, a donor of a power can change it at will; and (4) as in a will, a donor does not bestow a benefit on the donee of the power.
However, Katherine argued that the approach to undue influence developed in courts of equity (‘equitable undue influence’) should be applied in the context of powers of attorney. Equitable undue influence applies to inter vivos gifts. It takes two forms, a substantive legal principle in which the undue influence is proved on the facts (‘actual undue influence’), and the presumption of undue influence, which is a rule of evidence (‘presumed undue influence’). With equitable undue influence, the attacker has the persuasive legal burden of proving undue influence on a balance of probabilities. But once certain facts are established, the attacker can rely on the presumption to satisfy the persuasive legal burden. Equity raises the presumption in some relationships, such as parent and child, guardian and ward, solicitor and client, trustee and beneficiary, doctor and patient, and others. In English law however, the presumption will not be raised in commercial transactions or transactions made with legal advice. Nor will it be raised for gifts, ‘unless the gift is so large or the transaction so improvident’ that it cannot reasonably be attributed to other innocent motives.[8] In Royal Bank of Scotland v Etridge,[9] Lord Nicholls outlined two prerequisites for the presumption to apply: (1) that ‘the complainant reposed trust and confidence in the other party, or the other party acquired ascendancy over the complainant; and (2) that ‘the transaction is not readily explicable by the relationship of the parties’. He described the second prerequisite as ‘a transaction which calls for explanation’, is ‘immoderate and irrational’, and is ‘explicable only on the basis that undue influence has been exercised to procure it’.[10]
However, as Justice Pfuetzner explained by reference to Goodman v Geffen,[11] in Canada the evidentiary presumption is triggered more readily, not only for gifts but also for contracts. For gifts, a dominant relationship is all that is required, and if that exists, the attacker does not have to establish undue disadvantage for the evidentiary presumption to arise. For contracts the attacker needs to show that there is a relationship with the potential for influence and that it had an unfair consequence.
Justice Pfuetzner acknowledged that a power of attorney can be granted as a result of undue influence over the donor. Then it does not matter whether the probate or equitable rule is applied, since the persuasive legal burden of proving undue influence rests on the attacker.
However, she went on to state that the problem with adopting the probate rule of undue influence to powers of attorney is that ‘doctrinally and historically, powers of attorney were not part of the jurisdiction of the probate courts’ (para 74). Powers of attorney have their origin in the law of agency and contract, areas over which equity has jurisdiction. Therefore, she concluded that powers of attorney are within the various transactions to which equitable (as opposed to probate) principles of undue influence apply (para 76).
That being so, the question becomes when the evidentiary presumption of equitable undue influence will arise when a donor grants an enduring power of attorney. Justice Pfuetzner took the view that there is a clear distinction between a gift and a power of attorney, since a power of attorney does not confer a benefit on the attorney. Indeed, a power of attorney does not confer either legal or beneficial ownership on the attorney. Consequently, she held that for the evidentiary presumption of undue influence to apply to the granting of an enduring power of attorney, there must be a relationship with the potential for domination. In addition, something more must be shown. Not a ‘manifest disadvantage’ as maintained in Geffen for gifts but rather evidence that the granting of the power is ‘immoderate and irrational’ as maintained in Etridge (para 50) for gifts.
Justice Pfuetzner held that the evidentiary presumption of undue influence did not arise on the facts in this case. Even assuming that the Donor and Margaret were in a relationship with the potential for dominance. the granting of the 2016 POA was not in any way ‘immoderate or irrational’. In any event, the resolution of the case did not depend on whether the presumption applied but on whether Katherine had met the persuasive legal burden to prove undue influence on a balance of probabilities. She agreed with the application judge that Katherine had not met that burden.
Justice Pfuetzner concluded with the following helpful comment:
[86] In my view, the granting of an enduring power of attorney to a family member with whom the donor has a positive relationship is not a transaction that should be regarded as prima facie evidence of the exercise of undue influence by the named attorney – even if there is the potential for dominance in the relationship. To do so would throw a wrench into virtually every basic estate plan. Such a transaction does not call for an explanation – it is readily explicable by the relationship of the parties.
Having regard to the different origins of probate law and the law over which equity has jurisdiction, in my opinion, for the reasons given by her, Justice Pfuetzner’s view that the equitable doctrine of undue influence applies to the granting of an enduring power of attorney (and to a continuing power of attorney for property) is accurate. And therefore, with great respect, I believe that Drewniak v Smith is correct and Vanier v Vanier is incorrect.
And, dear readers, I suggest, Tolle lege. That is, take up and read the very well written Drewniak case. You will learn much and be edified.
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[1] 2017 ONCA 561.
[2] 2024 MBCA 86.
[3] [2001] UKHL 44, paras 21-22.
[4] See, e.g., the decision at first instance, Vanier v Vanier, 2016 ONSC 4620, para 15; Nguyen-Crawford v Nguyen, 2010 ONSC 6836, para 93; Hollinger v Marshall, 2024 ONSC 404, para 56.
[5] CCSM c P97.
[6] See, e.g., Re Ettore Estate, 2004 CarswellOnt 3618; Otis v Otis, 2004 CarswellOnt 1643
[7] 1995 CarswellOnt 528, [1995] 2 SCR 876.
[8] Hanbury and Maudsley Modern Equity, 13th ed (London: Stevens & Sons, 1989), p 4.
[9] Footnote 3, supra, paras 21-22.
[10] Ibid., paras 14, 22, 25.
[11] [1991] 2 SCR 353, 1991 CarswellAlta 91.
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