http://www.canlii.com/en/on/onsc/doc/2011/2011onsc4202/2011onsc4202.html
This is not an Estate case... but it is an interesting case because the Ontario Superior Court of Justice found that the relationship as between the parties created a trust relationship such that a fiduciary obligation was owed and ultimately that there had been a breach of fiduciary duty.
The Facts
The facts are not really relevant from a perspective of an Estate matter as stated, however, they are relevant particularly in situations where we find that a person has dealt with the property of an elderly or incapable person where there has been no formal relationship established pursuant to, for example, a Power of Attorney document, a Guardianship Order, or a Trust Agreement. Nevertheless, an individual has held property or money for a person and that person has suffered a loss.
In the circumstances of this particular case, the parties were friends. The plaintiff had advanced money to the defendant in cash to be held and invested by the defendant for him. The case dealt with a U.S. dollar account and a Canadian dollar account, whether or not there was a loan and whether or not that loan had been repaid with interest. I want to focus on the significant development which happened subsequent to the initial advance of money on in or about December 1996 where there was a fundamental change in the relationship between the plaintiff and the defendant as highlighted by the Court.
At the time of in or about 1996, the parties signed documents tantamount to a mortgage agreement with terms. The plaintiff had agreed that funds could be advanced by the defendant on a mortgage to his son out of the monies owed to the plaintiff. The relevant questions raised at trial were as follows:<2>
(i) Was the defendant a "trustee" for the plaintiff?
(ii) Did the defendant owe a duty to the plaintiff once the mortgage agreements had been signed?
(iii) If so, did the defendant breach that duty?
(iv) Is there an amount owing by the defendant to the plaintiff, and if so, how much?
(v) If the answer to (iv) is yes, is there interest owing on the amount owed to the plaintiff?
(vi) Is the plaintiff's claim barred by acquiescence or laches?
The Court found at paragraph 93 of the judgment that the relationship as between the plaintiff and defendant bore many of the hallmarks of a classic trust relationship.
At paragraph 94 of the judgment, the Court reviewed the elements necessary to establish a trust.
[94] "The three elements, or certainties, necessary to constitute a trust are: a) certainty of intention, b) certainty of subject matter and c) certainty of object: see Eileen E. Gillese, The Law of Trusts (Concord, Ont.; Irwin Law, 1997) at p. 37; Royal Bank v. Fogler (1991), 5 O.R. (3d) 734 (Ont. C.A.), at p. 741; Henry v. Henry (1999), 30 E.T.R. (2d) 89 (Ont. C.A.), at para. 14; Christian Brothers of Ireland in Canada, Re (2000), 47 O.R. (3d) 674 (Ont. C.A.) at para. 25".
At paragraph 94, the Court reviewed the evidence essential to the establishment of the trust and stated as follows:
[95] "As to intention, the defendant drafted the document acknowledging firstly that he was accepting the plaintiff's money, and secondly that the "purpose" in doing so was for "safekeeping" (see Exhibit 4 and testimony of the witnesses). As to the certainty of subject matter, the parties agree that the original subject matter was $46,000 and that as of December 1, 1996, it had grown to approximately $70,000 (see Exhibit 4 and testimony of the witnesses). With regards to the "certainty of object", there was consensus that both the "entire deposited amount" and any "resulting interest" were to be held for the benefit of Mr. Malitza".
Accordingly the Court found that the defendant was a trustee for the plaintiff.
Having made that finding, the Court then determined that the plaintiff owed a fiduciary duty to the defendant and in doing so, reviewed the hallmarks of a fiduciary relationship in the case of Frame v. Smith:
[97] "In light of this trust relationship it follows that Mr. Iclanzan owed a fiduciary duty to Mr. Malitza. Wilson J. offered some guidance on the subject of fiduciary relationships in Frame v. Smith, [1987] 2 S.C.R. 99 (S.C.C.). At p. 136, she stated:
Relationships in which a fiduciary obligation have been imposed seem to possess three general characteristics:
1) The fiduciary has scope for the exercise of some discretion or power.
2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests.
3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power."
The Court determined that in this case the defendant had physical possession of the plaintiff's money and therefore relied heavily on the defendant's integrity. Accordingly, the Court found that the defendant was a trustee who owed a fiduciary duty to the plaintiff. At paragraphs 102 through 104 of the judgment, the Court analyzed whether or not the defendant breached the fiduciary duty he was found to have had in respect of the plaintiff. The Court stated:
[103] "I reject the assertion of the defendant and John that they did not know what a mortgage was. There are several reasons for this conclusion.
[104] First, with respect to Mr. Iclanzan:
- Mr. Iclanzan admitted to having bought a total of three properties and to having been through the mortgage process himself on several occasions;
- Mr. Iclanzan ran a business for many years. As part of that business he had done banking, maintained a line of credit, and performed other financial functions;
- Mr. Iclanzan's counterclaim requests compensation "for time spent in advising the plaintiff regarding investments". That claim is clearly not that of an individual who is lacking in financial knowledge;
- Mr. Iclanzan acknowledged that he knew that the Mortgage Agreement specifically called for the New Hamburg building to be put up as collateral;
- Mr. Iclanzan acknowledged under cross-examination that during his examination for discovery he had acknowledged Mr. Malitza was to get a mortgage;
- Mr. Iclanzan stated that he did not think he had any obligation to see the Mortgage Agreement through. That statement is consistent with Mr. Iclanzan having some knowledge that something further had to be done;
- Mr. Iclanzan stated in cross-examination something to the effect that he expected the plaintiff to do whatever was necessary. That demonstrates that Mr. Iclanzan knew there was something further to do. Accordingly, I do not accept his evidence to the contrary.
For all of these reasons, the Court concluded that the defendant's obligation was impressed with a fiduciary duty to the plaintiff. From this the Court further concluded that there were overreaching duties arising from the relationship including a duty of loyalty and avoidance of conflict. The Court further stated at paragraph 108 as follows:
[108] "The Supreme Court of Canada considered the concept of loyalty in fiduciary relationships in Hodgkinson v. Simms, [1994] 3 S.C.R. 377 (S.C.C.). At p. 407, Sopinka and McLachlin JJ., writing for the dissent, adopted the language from Keech v. Sandford (1726), 25 E.R. 223 (Eng. Ch. Div.):
At the heart of the fiduciary relationship lie the dual concepts of trust and loyalty. This is first and best illustrated by the fact that the fiduciary duties find their origin in the classic trust where one person, the fiduciary, holds property on behalf of another, the beneficiary. In order to protect the interests of the beneficiary, the express trustee is held to a stringent standard; the trustee is under a duty to act in a completely selfless manner for the sole benefit of the trust and its beneficiaries (Keech v. Sandford (1726), 25 E.R. 223) to whom he owes "the utmost duty of loyalty". (Waters, Law of Trusts in Canada (2nd ed. 1984), at p.31). And while the fiduciary relationship is no longer confined to the classic trustee-beneficiary relationship, the underlying requirements of complete trust and utmost loyalty have never varied.
[109] In Moffat v. Wetstein (1996), 29 O.R. (3d) 371 (Ont. Gen. Div.), Granger J. canvassed the duty to avoid conflicts of interest. At p. 390, he stated:
Subsumed in the fiduciary's duties of good faith and loyalty is the duty to avoid a conflict of interest. The fiduciary must not only avoid a direct conflict of interest but must also avoid the appearance of a possible or potential conflict. The fiduciary is barred from dividing loyalties between competing interests, including self-interest".
The Court also found, therefore, that the defendant breached those duties of loyalty to the plaintiff. At paragraph 128 of the judgment, the Court concluded that the case law is clear and therefore that the defendant was liable to the plaintiff.
[128] "The case law is clear that liability in cases of breach of fiduciary duty is not subject to tort concepts such as causation, foreseeability and remoteness. Once the court finds that the trustee's breach of duty resulted in the property being in a situation to occasion a loss, liability is established: see Canson Enterprises Ltd. v. Boughton & Co, [1991] 3 S.C.R. 534 (S.C.C.); Guerin v. R., [1984] 2 S.C.R. 335 (S.C.C.); Blanco v. Canada Trust Co. (2003), 173 Man. R. (2d) 247 (Man. C.A.). The case law also establishes that in situations where material facts were not disclosed by a fiduciary, speculation as to what may have happened if they had been disclosed is not relevant: see Commerce Capital Trust Co. v. Berk (1989), 68 O.R. (2d) 257 (Ont. C.A.); Jacks v. Davis (1982), 141 D.L.R. (3d) 355 (B.C. C.A.)".
The quantum of damages assessed by the Court was based on the well-established case law of putting the plaintiff into the position that he would have been in, but for the breach of fiduciary duty; and relied on the case of Guerin per above at paragraph 128.
The Court moreover found that interest was owed on the payment at the pre-judgment interest rate as set out in the Courts of Justice Act, Section 128.
The Message from the Court:
The message from this case is important to the application of many Estate-related cases where a fiduciary relationship is established absent the usual formalities we might see from a Power of Attorney relationship, guardianship relationship or formal trustee relationship.
Where money has been held for another and there is a loss, there appears to be a remedy even absent a formal relationship.
1. Malitza v. Iclanzan 2011 CarswellOnt 10946
2. Malitza v. Iclanzan 2011 CarswellOnt 10946, para 87 (e):
The facts and the positions of the parties give rise to the following questions:
i. Was the defendant a "trustee" for the plaintiff?
ii. Did the defendant owe a duty to the plaintiff once the Mortgage Agreements had been signed?
iii. If so, did the defendant breach that duty?
iv. Is there an amount owing by the defendant to the plaintiff, and if so, how much?
v. If the answer to (iv) is yes, is there interest owing on the amount owed to the plaintiff?
vi. Is the plaintiff's claim barred by acquiescence or laches?
