Tag: Bad Faith

19 Jan

PGT vs. Cherneyko, Part 2: Breaches of Fiduciary Duty in the Time of Covid

Doreen So Capacity, Ethical Issues, Executors and Trustees, Guardianship, Litigation, Power of Attorney Tags: , , , , , 0 Comments

Yesterday, I blogged on Public Guardian and Trustee v. Cherneyko et al, 2021 ONSC 107.  Today’s blog will focus on some of the breaches of fiduciary duty that were found by the Court.  For those who have not read yesterday’s blog, this is a case that involves Jean, a 90 year old woman, and Tina, the attorney for property, who was purportedly given a gift of $250,000.00 just days before Jean was hospitalized for acute delirium and progressive cognitive decline.

While the purported gift of $250,000.00 to Tina was found to be invalid, the Court went on to find that Tina was in breach of her fiduciary duty to Jean by accepting the money.  Tina was in breach because she knew that Jean was exhibiting signs of cognitive decline when they went to the bank.  In the Court’s view,

“a person acting in a fiduciary capacity for a person actively demonstrating moments of irrationality should be very cautious about any big financial moves that person claims they want to make in and around such periods of demonstrated incapacity. Even if Jean was clearly acting in a competent manner during the few hours she attended the CIBC with Tina on August 27, 2019, I agree with the submissions of the PGT it is no answer to an accusation of breach of duty to assert that an attorney was simply acting in accordance with the wishes of the grantor of the attorney. Tina should have proceeded with caution at that time. I find she did not exercise the appropriate degree of caution and good judgment given the circumstances about which she knew.” (para 42)

The Court also reiterated Justice Penny’s comments in Ontario (Public Guardian and Trustee) v. Harkins, [2011] O.J. No. 3313,  that a fiduciary’s first duty is to see to the best interest of the person regardless of what their stated wishes may be.  The Court was very critical of how a $250,000.00 gift to Tina could possibly benefit Jean, and expressed disapproval on how there was no evidence of any effort on Tina’s part in considering whether this money would better serve Jean if it was applied towards Jean’s in-home care instead of admitting Jean to a long term care home.

Of relevance to the unique circumstances that surround the care of others during Covid-19, the Court commented that,

“since March 2020 more than at any time in the past, any genuinely concerned person charged with caring for an elderly person in long term care would have at least considered the issue of taking whatever steps could be taken to remove the person from this situation if it was in any way possible.” (para. 47)

Instead, Tina allowed her adult son to move into Jean’s home, and she was found to be actively misusing Jean’s assets for her own and her family’s benefit which were additional breaches of her duties as fiduciary.  The Court also disapproved of how Tina did not take any steps to sell Jean’s house in order to maximize or preserve its value which, reading between the lines, seem to be a concern for the uncertainty in today’s markets.

Thanks for reading!  Stay safe!

Doreen So

 

07 Jan

Overturning a trustee’s discretionary decision – What is “bad faith”?

Stuart Clark Estate & Trust Tags: , , , , , , , , , , , , , 0 Comments

Yesterday I blogged about the limited circumstances in which the court will interfere with a trustee’s discretionary decisions while administering a trust. Simply put, as confirmed by the Ontario Court of Appeal in Fox v. Fox Estate in citing to the old English decision of Gisborne v. Gisborne, although generally speaking the court will not interfere with a trustee’s decisions while administering a trust, they may do so under limited circumstances and intervene if the trustee’s decision was made with what is known as “mala fides” which roughly translates as “bad faith”.

While Gisborne v. Gisborne makes it clear that the court will not interfere with a trustee’s discretion unless there is “mala fides“, it does not provide much guidance regarding what would constitute “mala fides” or “bad faith” on the part of the trustee. In Fox v. Fox Estate, in recognizing that there is little guidance with respect to what constitutes “bad faith”, the Court of Appeal cites to the article “Judicial Control of Trustees’ Discretions” by Professor Maurice Cullity (as he then was) in trying to provide some guidance for what will constitute “bad faith”. In summarizing his position with respect to what will constitute “mala fides” on the part of a trustee in exercising their discretionary authority, Prof. Cullity provides the following summary:

Yet, it seems clear that the mala fides which will justify the intervention of the court must extend a considerable distance beyond the requirement of personal honesty. If the doctrine of fraud on a power permits the courts to intervene to strike down attempts to exercise a power which is vested in a person who is not a trustee, the jurisdiction over trustees must be at least as extensive. In very broad terms, that doctrine invalidates any attempt to exercise a power which is intended to achieve a purpose other than that for which the power was conferred. It is unquestionable that fraud in this sense is within the concept of mala fides.” [emphasis added]

Prof. Cullity’s definition of “mala fides“, whereby he advises that the court’s utilization of such a doctrine is intended to invalidate “any attempt to exercise a power which is intended to achieve a purpose other than that for which the power was conferred“, could offer some guidance on the kind of circumstances in which the court will interfere with a trustee’s discretion. It would appear that the fundamental question to be considered by the court in determining whether a decision was made in “bad faith” is in effect whether the decision is in keeping with the original intention of the trust. If the answer is “yes”, the court will not interfere with the discretionary decision by the trustee. If the answer is “no”, the circumstances may be such that the court will interfere with the decision on the grounds that it was made in “bad faith”.

Thank you for reading.

Stuart Clark

06 Jan

Discretionary Trusts – Can a trustee’s discretion be challenged?

Stuart Clark Estate & Trust Tags: , , , , , , , , , , , 0 Comments

The use of a “discretionary trust” that grants the trustee with the absolute discretion to determine when and if a distribution is made to a beneficiary, and in what amount, is a fairly common estate planning tool. If you are a beneficiary of a trust which provides the trustee with such broad discretion you may question whether there is anything that you can do prior to the final distribution to question the discretionary decisions that have been made by a trustee, and whether there are circumstances in which the court will intervene to overturn a trustee’s discretionary decision. The short answer is that while the court is generally reluctant to interfere with a trustee’s discretionary decisions, there are certain limited circumstances in which they will intervene and overturn a trustee’s decision.

The leading decision in Ontario concerning when the court will interfere with a trustee’s discretion is Fox v. Fox Estate. In considering when the court may interfere with a trustee’s discretion, the Court of Appeal provides the following commentary:

The entire question of the degree of control which the courts can and should exercise over a trustee who holds an absolute discretion is filled with difficulty. The leading case, or at least the case to which reference is almost always made, is Gisborne v. Gisborne (1877), 2 App. Cas. 300 (H.L.). It stands for the proposition that so long as there is no ‘mala fides’ on the part of a trustee the exercise of an absolute discretion is to be without any check or control by the courts.” [emphasis added]

Fox v. Fox Estate cites to the English authority of Gisborne v. Gisborne for the proposition that, so long as there is no “mala fides” on the part of the trustees in exercising their discretion, the court will not interfere with a trustee’s discretion. In Gisborne v. Gisborne, Lord Cairns provides the following commentary with respect to when the court may interfere with any discretionary decision undertaken by a trustee:

My Lords, larger words than those, it appears to me, it would be impossible to introduce into a will. The trustees are not merely to have discretion, but they are to have “uncontrollable”, that is, uncontrolled, “authority”. Their discretion and authority, always supposing that there is not mala fides with regard to its exercise, is to be without any check or control from any superior tribunal.” [emphasis added]

Simply put, the court will generally not interfere with a trustee’s discretionary decisions unless they were exercised with “mala fides“. “Mala fides” roughly translates as “bad faith”, such that the principle from Gisborne v. Gisborne can be summarized as providing that so long as there is no “bad faith” on the part of the trustee in making a discretionary decision the court will not interfere with such a decision.

Thank you for reading.

Stuart Clark

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