Do Conflicts of Interest Preclude a Party from Acting as Litigation Guardian?

A case review of Shemesh v. Goldlist and Rule 7.03(10)

Rule 7 of the Rules of Civil Procedure – R.R.O. 1990, Reg. 194 was designed to protect vulnerable incapable persons involved in litigation.¹ Under that rule, when a party is under a disability and thereby incapable of advocating for him/herself, someone shall step into the incapable person’s shoes and become their litigation guardian to make decisions on their behalf.²

In deference to a person’s entitlement to make their own choices, the Rules provide that if an incapable person, at a time when they were capable, signed a power of attorney appointing an attorney for property,³ then the attorney for property shall act as the litigation guardian unless the court orders otherwise. The last five words are key – under what circumstances might a court order otherwise?

Pursuant to Rule 7.03(10), the proposed litigation guardian must file an affidavit containing certain information including a declaration that they have  “no interest in the proceeding adverse to that of the party under disability.” For some clarity on the type of interest that would disqualify an attorney for property from being the litigation guardian, let’s look at what happened in Shemesh v. Goldlist⁴ [Shemesh].

In Shemesh,  831045 Ontario Limited agreed to pay Nathan Goldlist $1,000,000. Of that amount, Mr. Goldlist paid the first $70,000 to 988237 Ontario Limited (“988”) and then he passed away before paying the balance of the $1,000,000 to 988. The shareholders of 988 were the respondent, Hindy Shemesh, along with the three appellants: Mr. Goldlist’s widow, Annie Goldlist, and their two children, Mori and Shirley.

Annie, however, was also the sole beneficiary of her husband ’s estate (the “Estate”). The dispute was whether the balance of the $1M paid by 831045 Ontario Limited belonged to the Estate, and therefore to Annie alone, or whether it was owed to 988, with its value split between shareholders. Despite being shareholders in 988, Mori and Shirley supported the position that the money belonged to the Estate and thus their mother.

But if that was not complicated enough, Annie was incapable, so Mori and Shirley brought a motion to be appointed as Annie’s litigation guardians. The master refused and appointed the PGT instead. The master cited the high level of distrust and anger between the parties, which gave rise to a concern that the litigation guardian’s feelings would colour their actions and motivate them not to conduct the litigation in Annie’s best interest.

Mori and Shirley appealed the decision. On appeal, the respondent Shemesh argued that Mori and Shirly were not indifferent to the outcome of the proceeding, because (i) they were shareholders of 988 and stood to benefit if it received the $1M; and (ii) they were residual beneficiaries under Annie’s will, and would benefit from her receiving the $1M. But the court found that these suggested conflicts actually neutralize each other, because “either way, the Appellants will benefit.” The court went on to find that “more than a perception of ‘conflict of interest’ is required to disqualify or remove a person from being litigation guardian. Some actual conduct or misconduct is required.” Mori and Shirley were therefore reinstated as Annie’s litigation guardian.

There are a number of key legal points that came up in this case:

1. The best interests of the party under disability is the key. It is true that Rule  7.03 (10) appears to require a litigation guardian to have “no interest in the proceeding adverse to that of the party under disability” (emphasis added). But the courts’ power to prevent an attorney for property from acting as litigation guardian derives from Rule 7.06(2), which only allows the court to substitute a litigation guardian if it is apparent that they are “not acting in the best interests of the party under disability”. The Shemesh court predicates its reasons on the latter, not the former. As stated at paragraph 22:

“The issue that has to be determined is whether the circumstances are such that the court can make a determination that the Appellants are not acting in the best interests of Ms. Goldlist. In the absence of such a finding the Appellants are properly the Litigation Guardians of Ms. Goldlist.”

And given this, “it is not in every case where a litigation guardian has an interest that justifies his or her non-appointment or removal.”

2. The issue of best interests governs even if there was a proper appointment of an attorney for property and notwithstanding the the Rules provide a presumptive right for that person to be litigation guardian the court may substitute the PGT or any other person as litigation guardian.⁵
    
3. The court acknowledged that there was a perception of conflict. However, in the court’s view the perception of a conflict does not disqualify an attorney for property from being a litigation guardian.⁶
    
4. Paragraph 35 is key here because it underscored that the mission statement for these cases is always what is in the best interests of the party under disability.  The court said,

“In my view it is also significant to reference certain submissions of counsel to the PG and T. Counsel submitted that both Appellants have knowledge of the facts that would be required for their incapable mother to pursue her interests in the action and that the Appellants apparently have the trust of the parent for whom they are seeking to be litigation guardian and are therefore the best persons to undertake this responsibility”.

Conclusions and Takeaways

The presumptive right of an attorney for property to be the litigation guardian for a defendant is not absolute. Both the rules and the inherent jurisdiction of the court permit a judge to remove and replace a litigation guardian when it is in the best interests of the person under disability.  As Justice Morawitz said in paragraph 37 of Shemesh, “….Counsel further submitted that more than a perception of “conflict of interest” is required to disqualify or remove a person from being litigation guardian.  Some actual conduct or misconduct is required.  I agree and accept these submissions.”

We also understand this decision to stand for the proposition that even if there is a conflict of interest, the decision to remove a litigation guardian is not automatic. The judge will ask whether it is in the best interest of the person under disability to have their appointed attorney take on the role as litigation guardian. The best interests of the incapable person is paramount and always the determinative factor.