The Attorney For Property shall act as Litigation Guardian Unless…

A case review of Berkelhammer v. Berkelhammer Estate and Rule 7.02(1.1)(b)

Rule 7.02(1.1)(b) of the RULES OF CIVIL PROCEDURE – R.R.O. 1990, Reg. 194¹ provides that unless a court orders otherwise an attorney for property shall act as litigation guardian² for a person under disability³.  This is understood to be a presumptive, but not conclusive, entitlement. Our review of Berkelhammer v. Berkelhammer Estate⁴ focuses on what, in this case, the court considered in exercising its discretion to remove the attorney for property in favour of the Public Guardian and Trustee.

In Berkelhammer, Sonia and Harry were senior citizens.  They entered into a second marriage and executed primary and secondary wills, and signed a marriage contract.  Sonia’s son, Max, was a family law lawyer and acted as his mum’s lawyer when she signed the marriage contract.  Sonia executed a power of attorney for property and named her son Max and her daughter Rachal to act jointly (not severally) as her attorneys.  Sonia resided outside of Ontario and there was an allegation that when Sonia executed her power of attorney (POA) she lacked capacity.  Soon after Max’s and Rachal’s appointment as attorneys they sold their mother’s house and divided the money between them.  As Harry passed away, Rachal and Max initiated litigation on behalf of their mother Sonia.  They relied on their appointment as Attorneys under the Substitute Decisions Act, 1992, S.O. 1992, c. 30 (SDA) and their presumptive entitlement to be litigation guardians under Rule 7.02(1.1)(b).  They sought an equalization payment under the Family Law Act, R.S.O. 1990, c. F.3 (FLA)⁵ and dependant’s relief⁶ under the Succession Law Reform Act, R.S.O. 1990, c. S.26 (SLRA).

The first question one might raise is whether the domestic contract Sonia and Harry signed purportedly precluded Sonia from making an equalization claim.  The answer was yes.  But, on behalf of their mother, Max and Rachal argued that the marriage contract should be set aside on the grounds of duress, undue influence, lack of capacity, lack of financial disclosure, and unconscionability.⁷If those allegations proved true, the marriage contract could have been set aside and Sonia would have been entitled to a division of net family property.

The second question that should come to mind is whether the marriage contract purportedly precluded Sonia from making a dependant’s relief claim.  The answer was also yes, but one notes that the SLRA specifically provides the court with discretion to award relief notwithstanding the existence of the domestic contract⁸. As well, the SLRA indicates that when determining the quantum of relief, the existence of a marriage contract is only one factor the court considers⁹. So, given these factors, Harry’s estate appeared to be in for a long, expensive, drawn-out legal fight.

Harry had appointed his children Ava and Rebecca as his estate trustees.  They represented the estate and defended the lawsuit that Sonia’s children initiated.  Ava and Rebecca brought a motion to have Max and Rachal removed as Sonia’s litigation guardians.

There were a number of issues the court took into account when rendering its decision.

1. Was Max’s conflict an issue?  Max resigned as litigation guardian citing a conflict of interest.¹⁰  The court didn’t provide much detail about the conflict, but the resignation is likely an indication of how obvious the conflict was such that it wasn’t worth resisting the motion.  Under the SDA, Max, in his capacity as Attorney, was a fiduciary whose actions were required to be in Sonia’s best interest.  The fact that Max took ½ the proceeds of sale and did not return the money to Sonia was likely a factor that weighed upon his decision to resign.  Moreover, the fact that Max was the lawyer advising his mother when she signed the marriage contract made him a witness as did all the allegations of undue influence.  For Max to be both the litigation guardian and a witness may have violated the witness advocate rule.¹¹

2. Did Rachal have a conflict that warranted her removal as litigation guardian? The court cited this as a factor.  Firstly, if Max was negligent in his representation of Sonia then Rachal’s duty would be to sue her brother. The court recognized that this was “…a realistic potential of financial, if not social conflict, within Sonia’s family in such circumstances.”  The court did not believe that Rachal should be precluded because she was a beneficiary under her mother’s estate or because she was a potential witness.

3. Rachal was a non-resident. Harry’s children argued that Rachal not being a resident in Ontario should preclude her from being a litigation guardian.  It’s true that the affidavit to be filed in support of a person becoming a litigation guardian requires a declaration about whether the affiant resided in Ontario.  However, nowhere do the rules require a litigation guardian to reside in Ontario. In paragraph 15 the judge said,

 “Rachal currently resides in Chicago, Illinois. However, she travels to Toronto regularly, is in regular contact with her mother and brother and has agreed to pay $25,000 to her counsel in trust as security for any costs award made against her personally. Given this, the applicants contend that any concern that Rachal resides out of the province, has been adequately addressed, and I agree. Moreover, I do not agree that rule 7.02 or the case law requires that a litigation guardian have permanent residence in Ontario. It is only one factor to be considered. See Prince v. R., [1994] F.C.J. No. 853 (Fed. T.D.) at paras 19-20.”

One should note that a litigation guardian may be required to post security for costs under sub-rule 56.01 of the Rules of Civil Procedure¹² particularly where the litigation guardian is not resident in Ontario.

4. Did Sonia want Rachal by herself to act as attorney for Property? The court viewed it as “compelling” that  Sonia could have appointed Rachal and Max, jointly and severally, as her attorneys, but she crossed out the words “and severally”. In reviewing the text and cross out the judge inferred that Sonia only approved of Rachal acting jointly with Max.  If Max could not or would not act the judge didn’t believe Sonia wanted Rachal to act alone as the attorney.  Then there was the matter of Rachal’s behaviour that inspired a concern.

5. Did the breach of fiduciary duty warrant Rachal’s removal? It’s true Rachal returned the proceeds of her mother’s home, but it is likely that the willingness to take a “gift” in this manner inspired doubt as to Rachal’s compliance with her fiduciary duty to act in Sonia’s best interests. The court held,

 “..  Rachal has since repaid the funds to her mother’s account ….  It very well may have been an innocent mistake for them to have done what they did. Moreover, as noted in Teffer v. Schaefers (2008), 93 O.R. (3d) 447 (Ont. S.C.J.), at paras. 21-24, there must be strong evidence of misconduct or neglect on the part of someone duly appointed under an enduring power of attorney before a court should ignore the clear wishes of the donor and terminate such power of attorney. Nevertheless, their actions depleted Sonia’s funds for their own benefit, that is, they did not act “diligently” as fiduciaries in Sonia’s best interests, as required by rule 7.06(2) and s. 32(1) of the SDA. Moreover, it is somewhat inconsistent and troubling that the applicants would sell the house and take the monies personally while, at the same time, initiating a claim for equalization and dependant support for Sonia.”

In paragraph 25 of the judgment, the court summarized his reasons for granting the motion and removing Rachal as litigation guardian,

“Rachal has a personal interest in the outcome of the litigation, will most likely be a witness at trial, resides out of the jurisdiction, and has engaged in conduct that conflicts with the best interests of Sonia. In these circumstances, she is, in my view, incapable of providing a neutral, unbiased assessment of Sonia’s legal situation and may well be unable to provide an “unclouded opinion” where this is required. The above factors combined, justify Rachal’s removal as litigation guardian for Sonia in these proceedings.”

 Conclusions and takeaways

In the vast majority of cases the attorney exercises his/her presumptive entitlement to be the litigation guardian without challenge. That’s how things normally proceed.  If the grantor appointed the attorney, courts are reluctant to interfere. The key to remember is that while it is normally how this process works,  the presumptive right is not absolute.

Another takeaway that’s important is that the law permits non-Ontario residents to be litigation guardians. Granted, the judge in this case listed Rachal’s non-residency as a factor he considered when making his decision to remove her as litigation guardian.  But, in the body of the decision, it was very clear that non-residency does not disqualify someone from being a litigation guardian. Let’s not confuse the legality of non-residents being appointed as litigation guardians with advice almost always given by estate planners that non-residents should not be an attorney for property.  The estate planner is concerned about regulations which may preclude Canadian Securities dealers from taking instructions from an American attorney or with FBAR and possibly other reporting requirements to the IRS.  Those concerns, no matter how legitimate in the context of appointing an attorney for property, are not relevant or even considered by the courts in the context of appointment as litigation guardians.

An interesting tangential takeaway was that whoever drafted Sonia‘s power of attorney printed out a form and crossed out what they thought should be excluded. Lay people playing estate lawyer because it is less expensive can be making an error of Vesuvian proportions. Trying to save money on lawyers’ fees often plants the seeds for future litigation and exorbitant costs. In this case, one of the key issues for the judge was whether Sonia really contemplated her daughter acting alone, and the judge looked at the form that was used and inferred that she did not. There were no lawyer’s notes to suggest otherwise.  It appears that what was contemplated as being inexpensive turned out to be very expensive.

Ultimately, the key for the judge in this case is rooted in the way the law looks at its role in protecting the vulnerable. As stated on the Government of Canada website,

“….Because of its role of protecting the vulnerable, there is no clearly defined limit to the exercise of parens patriae jurisdiction. The case most frequently referred to regarding this jurisdiction is the unanimous Supreme Court of Canada decision of E. (Mrs.) v. Eve, where the Court reviewed the history and application of parens patriae jurisdiction, explaining: ‘The parens patriae jurisdiction is, as I have said, founded on necessity, namely the need to act for the protection of those who cannot care for themselves. The courts have frequently stated that it is to be exercised in the “best interest” of the protected person, or again, for his or her “benefit” or “welfare”.’¹³

The drive to protect the vulnerable plays an important role in attorney for property issues and in the appointment of litigation guardians.  As stated by Professor Waters, “It is a fundamental principle of every developed legal system that one who undertakes a task on behalf of another must act exclusively for the benefit of the other, putting his own interests aside”¹⁴. It is certainly true that the SDA contemplates circumstances under which an attorney for property may make gifts from the property of the grantor.  Nonetheless, the wording of the judgement makes it clear that Sonia‘s children helping themselves to her money raised red flags for the judge. There was the smell of self interest which is the antithesis of what the court is looking for.  And that’s the bottom line. If the court is persuaded that the vulnerable person is at risk, it will remove or preclude a person from being a litigation guardian even if that person was properly appointed as the attorney for property.