The Solicitor's Journey on the Road to Estate Litigation

Transcription

1 The Solicitor's Journey on the Road to Estate Litigation Prepared for: Legal Education Society of Alberta Estate Litigation Prepared by: Barbara J. Kimmitt Bennett Jones LLP Edmonton, February 20, 2014 Calgary, February 24, 2014 WSLegal\057007\00048\ v1

2 INTRODUCTION Unlike other countries, such as England, in Canada there is no bright line between the types of matters which fall within the scope of practice of barristers and that of solicitors. Rather, Canadian lawyers are permitted and often required to handle both office and trial work. This is frequently the case for the general or sole practitioner. In the field of wills and estates, the scope of practice of litigators and solicitors contains considerable overlap and largely depends upon the scope of practice of individual counsel. The difficulty for solicitors who practice in the area of wills and estates is deciding where along the road the matter has morphed from a purely administrative matter to a litigious matter. In what circumstances should the lawyer for the personal representative remain involved? What exactly is his or her role, and more accurately, what is the role of the personal representative in moving the matter forward? At what point should the lawyer refer the matter to another lawyer better versed in litigation matters? At what point must he or she refer it out? Finally, when should the personal representative and her lawyer be involved in the litigation at all? THE LAWYER'S ROLE Imagine that you are a wills and estates solicitor. Your practice includes the preparation of wills and estate planning, and you regularly assist clients who have been appointed personal representatives. From time to time you attend Chambers, generally to make ex parte applications, uncontested applications for advice and directions, or to formally pass estate accounts. Further imagine that you have been retained by the surviving spouse of a gentleman who recently died. The client is in fact the second wife of the deceased, and she presents you with an original Will which purports to appoint her as the personal representative, and leaves certain property to her in trust for her lifetime. The residual beneficiaries are the deceased's two children from a prior marriage. The client retains you to assist with the application for a grant of probate and, in general, with administrative matters. So far so good. Now imagine that you receive a call from counsel who has been retained on behalf of one of the adult children, who tells you that his client believes he is a dependent within the meaning of the family maintenance and support provisions of the Wills and Succession Act (the "WSA"). When you advise your client of this new twist, she tells you that she heard that as the surviving spouse she has a right to the entire estate, and what can she do about that? Clearly some flags have WSLegal\057007\00048\ v1

3 been raised that may put you the road to litigation, but what do you do while you're still en route? And when should you get off the road? To answer these questions, it is necessary to consider two issues: 1. Competence, and 2. Conflicts. COMPETENCE The solicitor who travels too far down the road of estate litigation may have moved outside his or her scope of professional competence. This creates a potential problem on two levels: first on the level of professional conduct obligations pursuant to the Law Society of Alberta Code of Conduct 1 (the "Code"), and second on the level of an action in negligence or breach of fiduciary duty against the lawyer. The Alberta Code of Conduct The Code imposes on all lawyers a general duty of competence. "Competence" is defined to mean "a lawyer who has and applies relevant knowledge, skills and attributes in a manner appropriate to each matter undertaken on behalf of a client " including several listed considerations. The first consideration listed is, "knowing general legal principles and procedures and the substantive law and procedure for the areas of law in which the lawyer practices" 2. Another relevant consideration for our discussion is "recognizing limitations in one's ability to handle a matter or some aspect of it and taking steps accordingly to ensure the client is appropriately served." 3 Therefore, the Code requires that a solicitor who is not familiar with the "general procedures and the substantive law" relating to estate litigation has an ethical duty to recognize that he or she is outside the realm of professional competence and must take steps to ensure the client is properly served. In other words, the lawyer should either pass the matter over to a litigator, or at least enlist the assistance of a litigator. This may be a lawyer with litigation expertise who works within the same firm, or outside of it. In my view, it is helpful to be proactive with the client about the possibility of enlisting other counsel, or indeed, any other experts or professionals. In the example set out above (setting 1 Section 2.01(1) and Commentary. 2 Ibid. 3 Ibid

4 aside considerations relating to conflicts which will be discussed below), when the lawyer representing the personal representative is advised by opposing counsel that there may be a claim against the estate, that lawyer would do well to at that point start the discussion about a transition to other counsel, or the involvement of colleagues as necessary. If the idea of referring the matter to litigation counsel is mentioned early on, then the client will have a clear understanding of the lawyer's scope of practice, and will not be confused by the involvement of other counsel at a later stage. Lawyers should not be afraid to be candid with clients about the scope of their own knowledge. There is much value in being the "quarterback": the person who can compile a team for the client and be the go-to person throughout the process. The commentary to Rule 2.01 says: A lawyer should not undertake a matter without honestly feeling competent to handle it, or being able to become competent with undue delay, risk or exposure to the client. The lawyer who proceeds on any other basis is not being honest with the client. This is an ethical consideration and is distinct from the standard of care that a tribunal would invoke for purposes of determining negligence. 4 In other words, even if the lawyer's decision to continue to act beyond his or her scope of competence may not be enough to establish negligence, it may be enough to breach the Code. Of course, professional sanctions would flow from such a finding. Tort law Professional Negligence and Breach of Fiduciary Duty Looking again at the example set out above, imagine that matters progress such that the adult son files his claim for support. Your client, the widow with a support claim herself, does not obtain independent advice and does not file a claim for support. Instead, you continue to represent her as the personal representative and, on your advice, she aggressively defends against the son's claim for support. You take the position that the personal representative must uphold the will by taking an active role in the litigation. You continue to have sole conduct of the file as the litigation progresses including various questioning meetings, and case management meetings. Despite your best efforts, the matter drags on resulting in delays and mounting legal fees. In the end, all parties are dissatisfied, not least of all, your client, who claims that you acted outside your scope of competence (she reports you to the Law Society), that you breached your fiduciary duty, and that you were negligent in your handling of the matter. To 4 Ibid

5 make matters worse, the adult children allege that your client should not have taken an active role in the litigation. In defending yourself in the civil action, you should consider the distinction between allegations of breach of fiduciary duty, versus negligence. As La Forest J stated in Hodgkinson v Simms 5 "while both negligent misrepresentation and breach of fiduciary duty arise in reliance-based relationships, the presence of loyalty, trust, and confidence distinguishes the fiduciary relationship from a relationship that simply gives rise to tortious liability." 6 The case law and text authority consistently support the premise that the lawyer-client relationship gives rise to a fiduciary duty. However, not every error will amount to a breach of this duty, as was colorfully explained by Southin J in Girardet v. Crease & Co. 7 : The word "fiduciary" is flung around now as if it is applied to all breaches of duty by solicitors, directors of companies and so forth. But "fiduciary" comes from the Latin "fiducia" meaning "trust". Thus, the adjective, "fiduciary" means of or pertaining to a trustee or trusteeship. That a lawyer can commit a breach of the special duty of a trustee, e.g., by stealing his client's money, by entering into a contract with the client without full disclosure, by sending a client a bill claiming disbursements never made and so forth is clear. But to say that simple carelessness in giving advice is such a breach is a perversion of words. 8 On this basis, it would appear that generally where a lawyer acts outside his or her scope of competence, or in the case of a conflict, the more likely cause of action is in negligence. The Supreme Court has held that in discharging his or her duty of care in a claim of professional negligence, a lawyer must exercise a reasonable standard in order to avoid liability. The standard of care has been explained as follows: A solicitor is required to bring reasonable care, skill and knowledge to the performance of the professional service which he has undertaken.the requisite standard of care 5 (1994), 117 D.L.R. (4 th ) 161 (SCC) 6 Ibid at p (1987), 11 B.C.L.R. (2d) 361 (B.C.S.C.) 8 Ibid at p

6 has been variously referred to as that of the reasonably competent solicitor, the ordinary competent solicitor and the ordinary prudent solicitor. 9 In assessing whether a solicitor was competent to handle the file or whether he should have referred the matter to a litigator, it follows that a lawyer is not required to know all law applicable to a retainer that he or she has undertaken, but must have sufficient knowledge of the issues and procedures associated with the matter. 10 The 2001 Saskatchewan Court of Queen s Bench decision Hatch v Cooper, 11 involved a senior estates solicitor who was ultimately found to be negligent because he failed to properly advise his client of her statutory rights, and because he failed to properly advise her regarding what he identified as an error in the Will. The case contains a good discussion of the concepts of professional competence, and the conflicts that arise when an estates lawyer represents someone who is wearing more than one hat. Hatch v. Cooper In Hatch, the solicitor, Mr. Cooper, was a senior member of the Bar with many years of experience in the area of wills and estates and the law applicable thereto 12. Mr. Cooper had acted for Mr. and Mrs. Hatch for many years, and had prepared Mr. Hatch s Will. The Will appointed Mrs. Hatch and the deceased's brother, Ronald Hatch, as executors. It gave Mrs. Hatch a life interest in Mr. Hatch s farmlands including the income, and provided that she was to receive the residue of the estate. Mr. Hatch died in 1983, some 18 years prior to the Court's decision. The gift of farmland involved a condition subsequent, namely that if Mrs. Hatch remarried then the farmland would pass to the deceased's and Mrs. Hatch's brothers. It did not say what would happen to the farmland on Mrs. Hatch's death. Mr. Cooper identified this as a deficiency in the Will. In an attempt to correct this deficiency, he prepared a Remedial Agreement between all the beneficiaries which confirmed that on Mrs. Hatch's death, the farmland would go to the same beneficiaries who would have inherited the land if she had remarried. As it turned out, some of the farmland was sold by Court Order because various expenses required payment, including income tax triggered by Mr. Hatch's death. This decreased the 9 Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147, at p (2001), 214 Sask R 1 (QB), at para Ibid. 12 Ibid. at para 2-5 -

7 farm income which ultimately eroded Mrs. Hatch's financial position. She met with a financial advisor 15 years later to discuss how she could make ends meet. He told her that she should get independent advice regarding the disposition of her husband's estate and her rights as his surviving spouse. Negligence due to lack of professional competence Mrs. Hatch had signed the Remedial Agreement without Mr. Cooper advising her on the full implications of doing so. Note that the Court found that if the Agreement had not been implemented, then the farmland would pass to Mrs. Hatch as the residual beneficiary. She would necessarily be dead in that instance, and the Court held it would have devolved as part of her estate. Ultimately, the Court found that Mr. Cooper had breached the standard of care he owed to Mrs. Hatch because he failed to properly advise her that by signing the Agreement she would forego her remainder interest in the farmlands. While this would have given her something less than a fee simple interest, it would have been a more valuable interest than simply a life interest. The damages as a result of this breach were assessed at $126,567. Mr. Cooper did not advise Mrs. Hatch of her rights under the Matrimonial Property Act (the "MPA") or the Dependents Relief Act (the "DRA"). In his view, the Will made proper provision for her care and he did not believe she had a viable claim. Nor did he advise her of potential conflicts between her interests and those of the Estate or those between her interests and those of himself (as solicitor who drew the Will) or his firm. In finding the lawyer did not meet the requisite standard of care, the Court states: I am satisfied that a reasonably prudent general practitioner in Saskatchewan would have been aware of the principles addressed in the aforementioned cases I am further satisfied that a lawyer practicing in the area of wills and estates would be familiar with the consequences of capital gains tax, the benefit of rolling over assets to the surviving spouse, the provisions of the MPA and the DRA 13 Damages relating to the loss of matrimonial property were assessed at $120,000. Mrs. Hatch was urged to apply for an extension of time to make her DRA claim, and damages would be assessed based on the outcome of that application. 13 Ibid. at para

8 Applying the decision in Hatch to the facts suggested at the beginning of this paper, it is clear that a competent lawyer would have at the very least advised the widow that she has a claim pursuant to the family maintenance and support provisions of the Wills and Succession Act (the "WSA"). In Hatch, the Court found: I am satisfied that a lawyer acting for the executors of an estate and standing in reasonable proximity to a surviving spouse need not refer the surviving spouse to an independent lawyer for advice regarding the spouse's rights vis-à-vis the estate, provided the lawyer discharges his or her obligation in the same manner he or she would have had if the surviving spouse were his or her sole client. Of particular import would be the disclosure of all potential conflicts and the potential results thereof. 14 In my view, you should advise your client that she has these rights, but remind her that as the personal representative her duty is to uphold the Will, and to act impartially as between the beneficiaries. Therefore, although you can advise her of the nature of the claim, again in my view you should be very cautious about opining about the viability and extent of her claim, and you should take great pains to explain your conflict as well as hers in acting as the personal representative as well as a potential claimant against the estate. It is my practice in these circumstances to advise the client that he or she should seek independent counsel to better assess his or her claim, and to represent him or her if a claim is made. As well, I would suggest to the client that if she does make a claim, she will likely be required to step aside as the personal representative. As can be readily seen, a discussion of professional competence is intertwined with considerations of conflicts, which will be discussed next. CONFLICTS The foregoing discussion regarding competence is nuanced whereas a discussion of conflicts is more black and white. Any honest lawyer will admit that many client matters require the lawyer to expand his or her knowledge of the law and procedures. Basically, lawyers are continuously assessing whether they are dealing with a matter for which they have competence, or whether the matter has at some point travelled outside the sphere of mere anxiety to actual exposure in negligence. It is arguably easier to come up with some clear principles regarding conflicts. 14 Ibid at para

9 Where the client plays multiple roles One such clear case is set out in the fact pattern described above. Again, looking to the Code is instructive: 2.04(1) A lawyer must not act or continue to act for a client where there is a conflict of interest, except as permitted under this Code. 2.04(3) Before a lawyer acts in a matter for more than one client, the lawyer must: (a) obtain the consent of the clients following full disclosure of the advantages and disadvantages of a multiple retainer; (b) ensure the multiple retainer is in the best interests of each client; (c) advise each client that no information received in connection with the matter from one client can be treated as confidential so far as any of the others are concerned; and, (d) advise each client that, if a conflict develops that cannot be resolved, the lawyer cannot continue to act for both or all of them and may have to withdraw completely. An exception to this rule is when the client has provided his or her informed consent in relation to the conflict. However, the commentary below confirms that this exception is less applicable when the conflict arises because the client fills two roles. The commentary to Rule 2.04 specifically contemplates our fact scenario and clearly indicates that in most cases, the lawyer is in a conflict situation if he represents the executor who is also a beneficiary or potential claimant under family maintenance and support provisions: Special considerations apply when a lawyer is representing one client acting in two possibly conflicting roles. The consent of the client recedes in importance and the lawyer's independent assessment of the best interests of the client becomes more important. For example, a lawyer acting for an estate when the executor is also a beneficiary must be sensitive to divergence of the interests of the client in those two capacities. Such divergence could occur if the client is a surviving spouse who is the beneficiary of only part of the estate. It is obviously in the spouse's interests to apply to the court to receive a greater share of the estate; however, this course of action is detrimental to the other beneficiaries and therefore inconsistent with the neutral role of - 8 -

10 executor. The lawyer would likely be obliged to refer the client elsewhere with respect to the application for relief since, despite the client's consent, the lack of independent representation would not operate in the client's best interests. The decision in Hatch is not on all fours with the above commentary insofar as the Court seems to say that if the lawyer has disclosed the conflict then he can continue to advise the client of her rights under the MPA and DRA (in Alberta, the family maintenance and support provisions of the WSA.) In other words, the Saskatchewan Court allows the client to consent to the lawyer continuing to act even in the face of conflict. However, the case does not go so far as to say that the lawyer can continue to represent the spouse in actually making her claim. In my view, that would be a patent and untenable conflict. The take away from a combined reading of the Saskatchewan case, and the Code is that a lawyer must tread lightly when he or she represents a party to an estate administration who fills multiple roles. The lawyer should advise the client that he or she wears different hats, and what the inherent rights, duties and obligations of those roles are. Perhaps the lawyer can even go so far as to speculate as to the viability of the claim that will no doubt depend on the circumstances. Where the lawyer drafted the will The facts in Hatch disclose a second kind of conflict of which the estate solicitor should be mindful: the conflict that exists when the lawyer who drafted the will is eventually called upon to represent the personal representative. Of course, in not every case will the lawyer in this position be required to recuse himself from representing the personal representative. In fact, usual estate practice regularly sees the lawyer who drafted the will ultimately rewarded with the estate administration work. However, in those cases where the will is challenged on the basis of lack of capacity or undue influence, or where there has been a drafting error, the lawyer will likely be required to recuse himself. In the case of a challenge to the validity of a will, the lawyer may be called as a witness. As a general rule, the Code states that a lawyer cannot act as counsel and be a witness in the same matter. 15 The rationale for this rule is that a lawyer cannot serve two masters at the same time. 15 Code of Conduct, s. 4.02(1)

11 In the case of an error in drafting, there will at the very least be the perception of bias that the lawyer will put his own interests ahead of the client's interests, possibly to the detriment of the client. This sort of conflict arose in Hatch and several interesting considerations were explored in the judgment. The Court in Hatch obtained input from a variety of legal experts (that is, other senior estate practitioners in Saskatchewan). The first expert opined that where the lawyer has made an error in drafting a will, it would be inappropriate to ask the surviving spouse to execute a remedial agreement which has the effect of giving up potential rights. Implicit in the expert s opinion is that the solicitor who drafted the will cannot be objective in advising on matters relating to deficiencies in the will; and that when such deficiencies are identified, the file should be referred to alternate counsel. The second expert opined that a reasonably prudent lawyer could advise both executors of the estate and the surviving spouse, provided that he or she disclosed the personal conflict. Ultimately, the court preferred the first expert s opinion as to the standard of care, stating that while a lawyer acting for the executors of an estate and standing in reasonable proximity to a surviving spouse need not refer the surviving spouse to an independent lawyer for advice regarding the spouse s rights vis-à-vis the estate "a far more onerous standard applies where an obvious conflict exists between the interests of the client and the lawyer, such as potential liability for professional negligence on the part of the lawyer." In the result, the Court found the defendant solicitor did not meet the requisite standard when counseling Mrs. Hatch regarding the alleged deficiency in the Will, in breach of the standard of care due to her, and was found liable for consequential damages. What emerges from an analysis of this case is that at the moment the solicitor who drew the will identified what he perceived to be a deficiency in the will. Mr. Cooper he should have handed the file over to another lawyer to provide advice to the client vis-à-vis her rights. While the solicitor acted honestly, openly and without any intent of escaping his potential liability, he failed to meet the requisite standard of care. Rather than attempting to remedy his drafting error by having his client sign a remedial agreement, he should have had Mrs. Hatch consult with independent counsel who could have advised her accordingly

12 TO LITIGATE OR NOT Putting aside the issues of whether a solicitor representing the personal representative is competent to act, or whether he has a conflict in acting, another issue is the proper role of the personal representative in case of litigation? By extension, what is the role of the lawyer for the personal representative? It seems trite to point out that the personal representative is a trustee, which by definition means he is a fiduciary vis-à-vis the beneficiaries. Except as the will may otherwise direct, the personal representative is obligated to treat the beneficiaries evenly, to act neutrally in the face of dispute, and generally to uphold and enforce the Will. Indeed this was mentioned as a given in the commentary to Rule 2.04(3). On a practical level, however, there seems to be a difference of opinion among members of the Alberta Bar as to the proper role of the personal representative in the face of litigation. This difference of opinion is understandable given what one writer has referred to as "a shift in the law in Alberta with respect to determining properly executed and predictably compensable actions of a personal representative." 16 In particular, in Boje v. Boje 17, the deceased appointed three friends to be the personal representatives of his will. He made a specific bequest to one of his five children, and then left the residue to a corporation which in turn was owned primarily by the same three people appointed as his personal representatives. One of the deceased's remaining children made a successful application for support pursuant to the Dependents Relief Act (the "DRA"). The personal representatives strenuously opposed that application, and also went on to appeal the trial decision. Justice Graesser found that in doing so they were essentially acting in their capacity as beneficiaries of the estate because they were defending what they would personally receive from the estate but for the DRA application. The deceased in Boje died in December, The decision of Justice Graesser was rendered in 2009, some 10 years later, and directs that the compensation awarded to the personal representatives in earlier applications should be paid and as well the estate solicitors should be 16 See "Roles, Responsibilities and Wrist-Slapping: The Personal Representative in Estate Litigation", Nancy L. Golding Q.C., prepared for Legal Education Society of Alberta, 44 th Annual Refresher Court Wills & Estates, April 30 May 3, Ms. Golding's paper represents a very thorough and helpful analysis of case law relating to personal representatives in the face of estate litigation. The cases cited in her paper have been noted up as the date of the within paper and those papers continue to represent current law in Alberta ABQB

13 paid out of the estate for services provided before December, However, compensation and legal costs for the period were not treated in the same way. The primary reason given for a finding of decreased compensation, and an award of less than solicitor and client costs was that the personal representatives had vigorously defended litigation which would serve to protect their own, personal interests. In the end, the personal representatives received 1/3 of the compensation claimed. As well, they were found to be "personally liable to the solicitors for any additional fees charged by the solicitors with respect to the 2005 and 2006 applications and [the application to pass accounts] which are not recoverable through party and party costs." 19 They were also personally responsible to pay the dependent adult daughter's solicitor and client costs relating to the settling of compensation. In his closing words of advice, Justice Graesser said: The obtaining of advice or directions from the Court at an early stage of any contentious business would not exonerate any subsequent misconduct in the litigation, but it would remove any suggestion that the executors were not acting in the best interests of the estate by commencing proceedings or defending proceedings brought against the estate. Where the executors and the beneficiaries do not act as one, either through agreement or indemnifications, seeking advice or directions is a prudent course, before the estate is depleted by incurring legal costs, or by becoming liable for the other party's legal costs, or both. 20 A few observations can be made from the case and the shift that has been identified. Firstly, one has to wonder what is happening to personal representative's discretion. If the personal representative must always obtain the approval of the beneficiaries prior to taking any position in litigation matters, and failing that, the approval of the Court, perhaps the testator should have simply appointed the beneficiaries themselves to be the personal representatives. Secondly, as an extension of this observation, perhaps the problems encountered in Boje can best be avoided by ensuring that where personal representatives are also residual beneficiaries, 18 Ibid at para Ibid at para Ibid at para 169 and

14 they should retain separate litigation counsel specifically to represent them in defending the litigation. This could possibly keep the roles of the parties clear, and eliminate any assumption that the litigation expenses will necessarily be paid by the estate as part of the personal representative's obligation to uphold the will. Indeed, Justice Graesser recognized that the "Executors [were] in a somewhat different position than are executors who have no interest in the Estate itself." 21 Perhaps a personal representative who does not have a beneficial interest in the estate is on better footing to have his litigation costs paid from the estate. In my view, even an independent personal representative of this sort should be wary about mounting any sort of defense this is better left to the beneficiaries to do. If the beneficiaries, for whatever reason, are unwilling to defend a claim, then the cautious personal representative should consider first applying for the Court's blessing in defending the claim. A good example of where this might be necessary is if the residual beneficiary is a charity. Imagine that a testator, after careful consideration of the needs of his surviving spouse, makes a specific gift to her, with the residue passing to a charity he holds near and dear to his heart. The surviving spouse commences a claim for family maintenance and support pursuant to the WSA. The charity, in an effort to maintain a positive image in the community, does not defend the action. The personal representative knew the deceased very well and knows that the he thought carefully about his will. He knows that the deceased wanted to leave a lasting legacy by making a gift to this particular charity. The personal representative feels morally compelled to defend the claim even though the beneficiary, the charity, will not. Arguably, a personal representative in this position has a duty to uphold the wishes of the testator by defending the will. If he does not do so, the testator's voice will not be heard and his planning will be for naught. However, given the most recent case authority on the matter, the solicitor would do well to caution his or her client to be cautious about proceeding with any litigation without first obtaining direction from the Court. CONCLUSION The solicitor representing the personal representative should be cautious about embarking on the road to litigation. He must be mindful of his professional obligations that require him to be honest about his own skill set. In those cases where his litigation expertise is limited, he should 21 Ibid at para

15 be sure to involve a colleague to assist. With that in mind, the solicitor should, as always, be scrupulous about note taking and limitation dates. As well, he should be mindful of who he includes in conversations with his client, as those conversations will not qualify for protection from solicitor and client privilege. Beyond that, he must be ever mindful of conflicts that may arise, particularly where the client wears more than one hat. In those circumstances, he must refer his client to independent counsel. This will permit him to act in keeping with parameters of the Code, and as well will clarify in the parties' minds in what capacity they take particular roles in the litgation. Finally, the solicitor should counsel his personal representative client to be cautious prior to defending, not to mention commencing, litigation on behalf of the estate. Based on current case law, the prudent course is to have concurrence from the beneficiaries, and barring that, the advice and direction of the Court. The personal representative who does not proceed in the fashion risks personal liability for the litigation expense