Posts tagged ‘trustee’

March 24, 2014

Limitations and the Doctrine of Fraudulent Concealment

At common law, an action in negligence or for an intentional wrong is not permitted against or on behalf of a deceased person. The right to sue arises from statute, in Ontario the Trustee Act (s. 38). As a result, compliance with the Act is a must. The Act includes its own limitation period for actions, providing that an action under section 38 “shall not be brought after the expiration of two years from the death of the deceased”. Unlike the Limitations Act, 2002, there is no “discoverability” factor to be considered.  The date is fixed.
However, like most rules, there is an exception. This limitation period can be extended or “tolled” under the equitable doctrine of “fraudulent concealment”.  In other words, where a party has actively concealed wrongdoing, he or she cannot rely on the statutory limitation period to frustrate an action. In order to show fraudulent concealment though, the party asserting concealment must show:
(a) the parties are in a special relationship with one another;
(b) given be nature of this relationship, the conduct complained of amounts to an “unconscionable thing” for one to do to the other;
(c) the person conceals the right of the other (either actively, or as a result of the manner in which the act that gave rise to the right of action is performed)
This doctrine was recently considered in by the Ontario Superior Court of Justice in Rajmohan v. Solomon Family Trust. At issue was whether victims of a mortgage fraud could sue the estate of their lawyer more than two years after his death. The lawyer was not a party to the fraud but did not discover it.  The Court found that the requisite special relationship existed and that there had been concealment because the facts surrounding he lawyer’s actions only became evident after a review of his file. However, while the Court was very critical of the manner by which the lawyer handled the transaction, such actions were at best negligent and did not amount to an “unconscionable thing”.  As a result the doctrine could not be applied to toll the limitation period and the action was dismissed.
Updated:  The Court of Appeal upheld the decision of the Motions Judge
July 30, 2013

A forged will and a fort?

This is an estate dispute for the ages.

January 24, 2013

Bankruptcy’s Effect on Costs Awards Against an Estate Trustee

I have commented previously on the use by courts of costs penalties against estate trustees who breach their fiduciary obligations through the misappropriation of funds under their control. However, a recent Ontario case dealt with one problem that may arise in recovering these costs – bankruptcy of the fiduciary.

In Re Baldwin Estate, the Court dealt with a contested passing of accounts of an attorney for property and later executrix of a deceased. The Court found that the fiduciary had engaged in “massive misappropriation”, failure to produce an accounting and failure to make proper production. While a settlement was reached regarding the misappropriation, the Court was asked to deal with the matter of costs. The Court found that the strict test for awarding costs on a higher, substantial indemnity, basis was met as a result of the fiduciary’s misappropriation of the deceased’s assets, a failure to account and her actions in dragging out the passing of accounts hearing. The Court ordered costs in excess of $87,000 to be paid personally by the fiduciary.

Of note, the Court made a declaration that the costs order is a debt which arises out of misappropriation while the attorney/executrix was acting in a fiduciary capacity and, pursuant to s. 178(1)(d) of the Bankruptcy and Insolvency Act (Canada) (the “BIA”), is a debt that is not capable of release by an order of discharge in bankruptcy. That section states as follows:

178(1) An order of discharge does not release the bankrupt from

(d) any debt or liability arising out of fraud, embezzlement misappropriation or defalcation while acting in a fiduciary capacity or, in the province of Quebec, as a trustee or administrator of the property of others.

The application of section s. 178(1)(d) to the costs ordered in this case provides an additional remedy to the objecting parties in that they will be entitled to pursue the costs even if the fiduciary makes an assignment in bankruptcy. What is particularly interesting here though, is that the declaration was made with respect to a costs order. The Court therefore had to find that the imposition of costs constitutes a “debt or liability arising out of” the fiduciary’s misappropriation of assets. The Court has therefore gone beyond applying s. 178(1)(d) solely to misappropriated funds to find that the section extends to costs consequences arising from legal proceedings instituted for the purpose of remedying the misappropriation – a creative use of the BIA.

January 16, 2013

Solicitor/Client Privilege and the Guardian/Committee/Trustee

An interesting quandry for lawyers and guardians was raised in the recent Alberta case of Wayne v. Wayne. Where, due to mental incapacity, a guardian for property has been appointed for an individual (in Alberta a trustee, in B.C. a committee), does the guardian have a right of access to documentation and communications between the individual and her or his lawyer that would otherwise be subject to solicitor/client privilege? The answer, as is often the case, is “it depends”.

In this case, the guardian, a son of the affected individual (his mother), sought access to a solicitor’s file with respect to certain transfers of land by the mother. On behalf of the mother, the guardian commenced an action in respect of the transfers and on application to the Court sought an order requiring the lawyer to provide his file. The lawyer opposed on grounds of solicitor/client privilege.

In deciding that the son should have access to the lawyer’s file, the Court reviewed Alberta’s Adult Guardian and Trustee Act (“AGTA”), Protection of Personal Information Act (“PIPA”) and the common law on solicitor/client privilege. While recognizing the sanctity of solicitor/client privilege, the Court found that s. 72(4) of the AGTA created a limited legislative exception to the general rule concerning solicitor/client communications, which exception was not overridden by the PIPA. Section 72(4) deals with access to personal information of the affected individual, providing that “[a] trustee is entitled to access, collect or obtain from a public body, custodian or organization personal information about the represented adult that is relevant to the exercise of the authority and the carrying out of the duties and responsibilities of the trustee”. A law firm is an “organization” under that section. The PIPA allows for the release of information where disclosure is “in the interests of the represented individual and consent of the represented individual cannot be obtained in a timely way or the individual would not reasonably be expected to withhold consent”. Given the mental incapacity in this case, consent of the individual was not possible.

The Court found that in interpreting these sections, the legislative scheme “does not grant a trustee full access to the represented adult’s file. Rather, a trustee is entitled to material otherwise protected by solicitor-client privilege that is relevant to the exercise of the trustee’s authority and the carrying out of the trustee’s duties and responsibilities”. In this case, the Court found that the file sought was relevant to the issues raised in the lawsuit commenced on behalf of the mother and therefore disclosure was ordered as relevant to the exercise of the trustee’s authority and the carrying out of the trustee’s duties and responsibilities.

Of note, as part of it analysis, the Court recognized that that in situations where there has been a death, as opposed to a guardianship, the common law recognizes that solicitor/client privilege “survives the death of the client and enures to his or her next of kin, heirs or successors in title”.

Query how this situation might be dealt with in Ontario. The provisions of Ontario’s Substitute Decisions Act (“SDA”) differ from those of the AGTA. Section 31.1 of the SDA states that “[a]ny person who has personal information about an incapable person to which the incapable person would be entitled to have access if capable, including health information and records, shall disclose it to the incapable person’s guardian of property on request”. This section does not include the limitation of the Alberta Act that the disclosure be “relevant to the exercise of the authority and the carrying out of the duties and responsibilities of the trustee”. As for applicable privacy legislation, the commentary included in Schedule 1 of the Personal Information Protection and Electronic Documents Act recognizes that the requirement for consent of the person prior to disclosure of personal information may not be possible (and therefore not always required) in certain circumstances and specifically references the example of mental incapacity. As a result, it is arguable that under the SDA the exception to solicitor/client privilege may be broader in Ontario.