Breach of Fiduciary Duty Under Power of Attorney

A “power of attorney” is a legal document signed by the donor that appoints an agent (the “attorney”) and gives that agent the authority to carry out certain tasks for the donor. As a fiduciary, an attorney acting under a power of attorney is obliged to act only for the benefit of the donor and not for his or her own profit, benefit, or advantage. Many agents are unaware of their duties and limitations under a power of attorney, which can lead to family disputes and estate litigation arising from mismanagement of funds or a breach of fiduciary duty.

Fiduciary duty elevated once donor becomes incapable

While acting under a continuing power of attorney, the scope of an attorney’s fiduciary duty depends on whether the donor is capable or incapable at the time of the questioned transaction. If the donor is incapable, the attorney’s position is elevated and approaches that of a trustee. The BC courts in Zeligs Estate v. Janes found a breach of the elevated fiduciary duty by a power of attorney for an incapable donor.

Appointment of enduring power of attorney

The focus of the litigation in the Zeligs matter was a home on Knox Road in Vancouver, BC owned by Ms. Burnett. In 2001 Ms. Burnett’s adult daughter, Diana Janes, moved into the Knox Road property with her husband to help care for Ms. Burnett, who at the time was in her 90s. Also, in 2001, Ms. Janes was the donee of an enduring power of attorney from Ms. Burnett. In 2002 Ms. Burnett transferred the Knox Road property to herself and Ms. Janes as joint tenants. Ms. Burnett was competent and acting voluntarily at that time, and it is worth noting that when litigation later arose, the court considered and dismissed the claim that the transfer of the Knox Road property from Ms. Burnett to joint tenancy with Ms. Janes was subject to a presumption of resulting trust and undue influence – the court concluded that those presumptions were applicable but determined that the presumptions had been rebutted. See here for a discussion of both presumptions.

Attorney’s conduct under enduring power of attorney

Between 2006 and 2009, Ms. Janes took mortgages totalling $832,643 out on the Knox Road property for the sole benefit of herself and her husband. On January 26, 2010 the Knox Road property was sold for $2.7 million, the sale being executed by Ms. Janes as a joint tenant and pursuant to the power of attorney she held over the interest of Ms. Burnett, the other joint tenant. At the time of the sale, Ms. Burnett had significant cognitive difficulties and was essentially incompetent. Ms. Janes did not discuss the sale with Ms. Burnett. The mortgages taken out by Ms. Janes for her sole benefit were discharged as part of the conveyance of the Knox Road property. The net proceeds from the sale were then transferred into a joint bank account held by Ms. Burnett and Ms. Janes. Within a few weeks, Ms. Janes had withdrawn the remaining sale proceeds and used them to acquire investments and property for the sole benefit of her and her husband.

Ms. Burnett died at the age of 103 on April 9, 2010 (i.e., after the sale of the property and after the withdrawal of the proceeds from the sale from the joint account). The court found that the joint tenancy had been severed when Ms. Janes withdrew the whole of the sale proceeds before Ms. Burnett’s death and used them for the exclusive benefit of herself and her husband: 2015 BCSC 7, aff’d 2016 BCCA 280. The court ordered that Ms. Burnett’s estate was entitled to one-half of the sale proceeds which interest Ms. Janes held in trust for the estate.

Breach of elevated fiduciary duty by attorney

In supplemental reasons (indexed at 2015 BCSC 525), the court held that when Diana Janes used the jointly-held sale proceeds to discharge mortgage debt assumed for her sole benefit, she put herself in a position of conflict of interest, in breach of her fiduciary duty to Dorothy Burnett:

[28]         In the subject case, there is the additional fact that Diana was a joint tenant with Dorothy – who was incompetent at the time – as well as the donee of Dorothy’s power of attorney. The difficulty, as demonstrated by the facts in this case, is that it is hard to see how Diana could act as attorney without any profit, benefit or advantage to her for a transaction which directly and significantly benefitted her as a joint tenant.

[29]         This is a real conflict and not the appearance of one. Diana’s instructions to the notary were entirely to her benefit with no benefit to Dorothy or the estate of Dorothy. Indeed, there was a loss to Dorothy and her estate and Diana’s instructions preferred her interests over those of Dorothy. In my view, she could not properly exercise the elevated fiduciary duties of attorney – ones akin to trust duties – in the same transaction that benefitted her as a joint tenant. At the point of that conflict, or before, there may have been a role for the public trustee to represent the interests of Dorothy.

The elevated fiduciary duties of Ms. Janes as attorney for Ms. Burnett (who was incompetent at the material time) required Ms. Janes to act in the best interests of Ms. Burnett. Ms. Janes did not do so when she instructed a notary to discharge two mortgages against the Knox Road property that benefitted her. This created a real conflict between her role as attorney and her interest as joint tenant. The court held that the amounts of the mortgages discharged as part of the conveyance of the Knox Road property were subject to a constructive trust and Ms. Janes was ordered to return the amount of the mortgages, totalling $832,643, to her mother’s estate.

Take home point on fiduciary duty and power of attorney

An attorney acting under a power of attorney is bound by a fiduciary duty to act only for the benefit of the donor and not for his or her own profit, benefit, or advantage. The fiduciary duty of an attorney becomes elevated once the donor of the power becomes incapable.