“Remember, Billy my boy, never fritter the estate away on the beneficiaries.” At the opening of the Davis Courthouse, Bill Davis recounted this tongue-in-cheek advice given to him just before he started practising. Unfortunately, the solicitor in Fareed v. Wood  O.J. No. 2610 and  O.J. No. 4106 (S.C.J.) seems to have taken this advice to heart.
POA and Will
The solicitor became the attorney for property of the elderly female grantor in 1992. In her 1987 will, the grantor had appointed the solicitor as the sole executor of the estate. The grantor probably became incompetent about 1995 and died in 1999 at 90 years.
In 1992, the grantor had assets of $338,000 and an income that exceeded her modest expenses. At death, the grantor had assets of $4,000. Accordingly, there were no funds to pay the bequests of the 1987 will.
As early as February 25, 2000, the main beneficiary under the will, and ultimate plaintiff, had requested the solicitor to provide an accounting for his use of the power of attorney. Upon being ignored, she followed up with other requests. In March 2001, the solicitor wrote and informed her that he was assembling the information and would provide it as quickly as possible. He never did so until directed by court order.
Ultimately, the solicitor retained an accountant, as ordered, and the accountant prepared a statement of accounts. The statement showed that there was revenue of $230,000, identified disbursements of $275,000, and unidentified disbursements of $300,000. Some disbursements were unidentified because the solicitor kept no records of the cheques that he had written as attorney and the bank, pursuant to its seven-year record retention rule, had destroyed many cancelled cheques.
There was a trial to pass the accounts. For whatever reason, the plaintiff made no claim against the solicitor for the unidentified disbursements. There was a claim, however, that the solicitor should not be entitled to the legal fees of $130,000 that he had billed to and collected from the estate from 1992 to 1999.
The parties had agreed to put forward their evidence by way of affidavit. The solicitor managed to find cancelled cheques for an additional $140,000, but, aside from that, had to rely on the accountant’s statement. Accordingly, there were unexplained disbursements of $160,000. Further, it seems that much of the explained disbursements went to a third party under suspicious circumstances, at a time when the grantor was still competent and after the solicitor had already begun to exercise the POA powers.
The solicitor produced his legal accounts to the court, but those accounts were devoid of any information as to what exactly he had done. He produced a summary of his time dockets, but, we assume, not the detailed day-by-day version one would expect. He gave no evidence as to why the grantor was giving money to the third party and the instructions that he received from the grantor during his use of the POA.
The judge was not impressed with the solicitor’s evidence. He drew a negative inference, based on the dearth of information, that the solicitor knew that the assets were being depleted, knew that the depletion was improper, and took no steps to prevent the depletion.
The solicitor argued that since he did not write the cheques to the third party, he was absolved of all responsibility. The judge disagreed. He held that when the solicitor accepted some of the duties of an attorney, he became responsible for all financial activities. He held that the solicitor had to account for all financial transactions from 1992 to the date of death, even when the grantor, and not he, handled some of the transactions.
We have some concerns about this statement and suggest that the judge’s rulings may have been inflamed by the singular lack of information that he had before him.
The judge held that the solicitor had a fiduciary duty to the grantor to safeguard her assets and prevent others (e.g. the third party) from taking advantage of her circumstances and depleting her assets. Further, as part of his fiduciary duties, the solicitor was required to keep accurate records of all financial transactions. He was also required to maintain detailed dockets of the duties performed and differentiate the services that he was supplying as solicitor from his services as attorney.
The judge held that:
a) The solicitor did not provide all of his accounts.
b) The time records did not differentiate between attorney’s time and solicitor’s time.
c) The time records and the accounts lacked meaningful detail.
d) He did not keep proper or any financial records of the transactions.
e) He did not retrieve the cancelled cheques, even after the beneficiary under the will requested an accounting.
f) He did not contact the beneficiaries upon the grantor’s death.
f) He ignored the beneficiary’s request for an accounting.
Aside from that, he did a wonderful job.
The judge held that the solicitor breached his fiduciary duty as an attorney and as a solicitor and was negligent in both capacities.
As a starting point, the judge applied the usual percentages based on capital, in and out, and revenues and expenses. He calculated fees of $35,000. He felt that even this amount was not appropriate because the trust was not large, the administration of the estate was straightforward, the time to administer the estate would have been minimal, little investment skill had been involved, and there was no success resulting from the administration.
The judge stated that had the amount of the compensation been the only factor, he would have fixed $35,000 as a generous amount. However, the judge noted: “Fees … are excessive. Indeed, in my view, such are unconscionable. In such a simple and straightforward matter, it is shocking to see fees charged from 1989 to 1999 of approximately $207,000. The billing pattern clearly indicates (the solicitor) took compensation as he wanted, not as he was entitled.”
The judge held that the solicitor, because of his negligence and breach of fiduciary duty, should not have been paid anything, even the $35,000 the judge would otherwise have awarded. Further, the judge would have been inclined to award the estate reimbursement for the payments made to the third party, but that issue was not before him. Accordingly, the judge ordered the solicitor to repay his fees of $130,000 plus interest from 1999.
Bankruptcy and Costs
The beneficiary also requested a ruling that there was a breach of section 178(d) of the Bankruptcy Act such that, if the solicitor went bankrupt, he would not be released from the judgment. The judge held that “misappropriation” or “defalcation” required an element of dishonesty, wrongdoing, or misconduct and that a breach of fiduciary duty alone was insufficient. Accordingly, the judge held that there was insufficient evidence before him to make the requested ruling. That ruling, however, could always be requested in any bankruptcy proceedings.
The solicitor agreed that substantial indemnity costs were appropriate. The judge awarded $30,000, in addition to the $7,400 of costs that had been awarded in prior proceedings.