As you know, we are now in the middle of the hot, humid days of summer that we often refer to as the ‘dog days of summer’. They begin in early July and last until late August. But why do we call them the ‘dog days’? Because they are named after the star Sirius in the constellation Orion and the first visible sighting of Sirius in the northern hemisphere happens early in July. Sirius is called the hound of the hunter Orion in that constellation. Hence, another name for the star is canicula, which means small dog (it is the diminutive of canis, the Latin word for dog). And therefore, the Romans referred to these days as dies caniculares, i.e., the dog days, a literal translation of the Latin term. We’ve adopted the Latin adjective canicular in English as well, and therefore we can also refer to the dog days as the canicular days.

Congratulations to:

TD Wealth Private Trust, Tax Services

Accountancy Team of the Year (midsize firm)

Your Digital Undertaker®

Digital Assets Practice of the Year

NIKA LAW LLP

RBC Wealth Management, Royal Trust

Employer of the Year

KPMG Private Enterprise

Family Business Advisory Practice of the Year

KPMG Family Office

Multi-Family Office Team of the Year

Lesley Donsky TEP, RBC Royal Trust

Young Practitioner of the Year

Our team has been shortlisted for the award of Vulnerable Client Advisory Practice of the Year amongst the distinguished finalists of: Kith & Kin Law, Penningtons Manches Cooper, Renaissance Legal, and Thomson Snell & Passmore.

Congratulations to our friend Jeff Kehoe, Director, Enforcement at Ontario Securities Commission, on the completion of his Kilimanjaro CODE charity climb. Together with the support of his guides, porters and team of climbers, they were able to summit Kilimanjaro and impressively raise almost $250,000 for a critical literacy project in Tanzania. Well done!

As all my readers will recall, I am a lover of biographies and autobiographies. This one, Sammi picked for me because I also like Marvel Avenger Movies. Lots of lessons learned in this story of resilience and an immigrant families’ fight for a happy ending. This Avenger was born in China, moved to Canada as a young boy to be reunited with his parents who had arrived sometime before him in hopes of creating a prosperous life together.

Simu Liu tells the story of his success driven parents, their own metrics for success and expectation, as well as the challenges faced through cultural incongruities, family, and his perfectly imperfect journey to fulfilling his own dreams.

This is a great read!

Chevron Canada Resources v Canada^[1] is a most interesting case that explores issues of trust law, unjust enrichment, payment under mistake, and the change of position defence. The courts have not previously addressed some of these issues, so the case is particularly significant for that reason.

The reserves of four Indian Bands near Pigeon Lake in Alberta included oil and gas reserves. Oil and gas producers extracted hydrocarbons from those reserves. Chevron and Fletcher Challenge held an equal 50% interest in 12.16% of one gas unit. Others owned the other 87.84%. The producers had to pay royalties to Her Majesty in Right of Canada in trust for the bands concerned, pursuant to section 4 of the Indian Oil and Gas Act.^[2] For a period of more than six years, from January 1991 until August 1996, Chevron overpaid the royalties it owed. Instead of calculating them by reference to the 12.16%, Chevron calculated them on 100% of the interest in the gas unit in question. Consequently, it paid about eight times more than required.

The trial judge^[3] found that it should been immediately obvious to Chevron that there was a problem and concluded that it was grossly negligent in making the error. His Honour also found that the error should have obvious to Indian Oil and Gas Canada and found that the Crown’s failure to identify the errors was negligent and in breach of the duties it had taken upon itself. He did not specifically find that the Bands were negligent in failing to notice the error. However, he drew the logical inference that, with proper attention, it would have been clear to the Bands that Chevron was paying eight times more than Fletcher Challenge, the party that held the other 50% in the 12.16% interest of the gas unit in question.

The trial judge found that the payments were made by mistake but held that as a matter of law Chevron’s negligence did not disentitle it from recovering the overpayments. His Honour held that, on a straight economic approach both Canada and the Bands were enriched by the overpayments and Chevron suffered a corresponding deprivation. The fact that the overpayments were made under a lease did not mean that there was a juristic reason for the overpayments because the overpayments were not required to be paid under the lease. Nor did the contractual relationship between Chevron and Canada and the Crown’s fiduciary obligations provide a juristic reason for the overpayments. Further, the trial judge held that the Bands’ argument of a ‘residual defence’^[4] based on public policy was more properly dealt with as a change of position defence. His Honour also held that Chevron had established its parallel claim for ‘monies had and received’ and therefore it was not necessary to decide whether such a claim is now part of the law of unjust enrichment.

There does not appear to be a reported case on a mistaken payment to a trustee.^[5] However, since Chevron was always required to deal with the trustee, the law of unjust enrichment cannot look through the trust to the ultimate beneficiaries. Such ‘leapfrogging’ would infringe that principle. The court distinguished the case of Moore v Sweet^[6] in which the claimant was allowed to reach beyond her ex-spouse to the new beneficiary of an insurance policy after he changed the beneficiary designation on the policy. That is different from the question whether a claimant can follow an enrichment from the original recipient to third parties.

This was also not a case of mistaken payments made out of a trust, as was the case in Minister of Health v Simpson.^[7] In that case the House of Lords held that the claimant must first exhaust its remedies against the executor before proceeding against the recipients of the mistaken payments. In those circumstances the recipients have opportunity raise a change of position defence.

Since in this case the funds remaining in the trusts were more than sufficient to pay Chevron’s claim, Canada as trustee could have paid the judgment out of the trust funds. Canada apparently paid the judgment out of other sources, but it would be entitled to indemnify itself out of the trusts.^[8]

The court also considered the public policy consideration, referred to in Garland,^[9] when it addressed the existence of a juristic reason for retaining an enrichment The appellants argued on its basis that as a matter of public policy Canada, as a trustee, ought to bear the loss. However, the court held that since the Bands had not changed their position, this would be excessive.

The court then considered the issue of indemnification. A trustee has the implied power to revise trust accounts to correct any errors. And prima facie a trustee is entitled to indemnify itself from trust funds. Can Canada be barred from doing so? The fact that Canada was negligent in not identifying the error did not matter, since Canada gained nothing from the overpayments. In contrast, the Bands were enriched and liability for unjust enrichment is strict. Thus, unless the Bands could demonstrate that they changed their position as a result of Canada’s passing on the overpayments to them, there was no reason why Canada could not indemnify itself. It was a fiduciary toward the Bands, but its negligence did not amount to a breach of fiduciary duty that might otherwise prevent it from indemnifying itself.

The test for change of position is that it would be inequitable to require the benefit to be returned.^[10] The trial judge rightly placed the burden of proof on the Bands, and he found that the Bands had not changed their position sufficiently to prevent either Chevron or Canada from recovering the funds. All that they had done was to spend the funds and that is insufficient to establish the defence. They must show that when they received the payments, they spent them on a special project or made a special financial commitment, such as a donation to a charity, or going on an expensive vacation in reliance on the payment they have received.^[11] Moreover, while the Bands did spend some of the funds because they believed that the royalties had been calculated properly, they derived some lasting value from those expenditures. Thus, the Bands failed to establish the change of position defence.

[1] 2022 ABCA 108.

[2] RSC 1985, c I-7.

[3] 2019 ABQB 418.

[4] A defence recognized in Garland v Consumers’ Gas Co, 2004 SCC 25.

[5] The court did mention Baylis v Bishop of London, [1913] 1 Ch 127 (CA), but it was a different case, since there were no identifiable beneficiaries and it was decided before the change of position defence was established.

[6] 2018 SCC 52.

[7] [1951] AC 251.

[8] Citing In Re Robinson, [1911] 1 Ch 502 at 513.

[9] Footnote 4,  supra, para 46.

[10] Citing Lipkin Gorman v Karpnale Ltd, [1991] 2 AC 548 at 579, per Lord Goff of Chieveley.

[11] Citing Lipkin Gorman, ibid.; Shortoaks (Rural Municipality) v Mobil Oil Canada Ltd, [1976] 2 SCR 147; International Longshore & Warehouse Union Local 502 v Ford, 2016 BCCA 226 at para 48; and International Longshore & Warehouse Union Local 502 v Ford, 2016 BCCA 226.

In the last couple of decades Canadian courts have had to decide a large number of cases in which taxpayers have sought to undo tax plans because, as it turned out, the plans failed to achieve what was intended, namely, a reduction or avoidance of tax liability. The legal vehicles to achieve this result have been generally the equitable remedies of rectification and rescission. In the latest case to come before the courts, Canada (Attorney General) v Collins Family Trust,^[1] the majority of the Supreme Court of Canada has limited greatly the availability of these equitable remedies.

In 2008, two companies (independently of each other) used the same tax advisor to devise a plan to protect corporate assets from creditors without incurring tax liability. The plans took advantage of the attribution rules in s 75(2) and the inter-corporate dividend deduction in s 112(1) of the Income Tax Act.^[2] This was done by incorporating a holding company in each case. It subscribed for shares in the operating company for a nominal amount. The holding company was the settlor and beneficiary of a newly created family trust. Funds were lent to the trust to purchase at the nominal fair market value from the holding company its new shares in the operating company. The latter then paid dividends to the trust and the dividends were attributed to the holding company under s. 75(2). The holding company in turn claimed a deduction in respect of the dividends under s. 112(1). The plan resulted in moving large sums of money to the family trust without paying income tax.

The plans were based on the interpretation of these sections published by the Canada Revenue Agency (CRA”) at the time. However, in Sommerer v The Queen,^[3] the courts held that the attribution rules in s. 75(2) did not apply when the property was sold to the trust, as distinct from being given to the trust. The CRA then began to reassess a number of trusts that had taken advantage of the pre-Sommerer understanding of the attribution rules.

The first case was Re Pallen Trust,^[4] which involved a similar set of transactions as those in the present case. When the CRA reassessed the taxpayer, it applied to rescind the dividends. The courts applied the test for rescission stated in Pitt v Holt^[5] and granted the application. Newbury JA said that the case did not involve ‘aggressive’ tax planning but applied a rule that the CRA had consistently stated applied to the dividends.

Then, in Canada (Attorney General) v Fairmont Hotels Inc^[6] and its companion case, Jean Coutu Group (PJC) Inc v Canada (Attorney General)^[7] the Supreme Court of Canada held that the equitable remedy of rectification is not available when a taxpayer seeks to engage in retroactive tax planning. It held that taxpayers should be taxed based on what they agreed to do and did, not on what they could have done or later wished they had done.^[8]

In Collins the CRA reassessed the taxpayers and they, relying on Pallen, brought an application to rescind the dividends paid by their operating companies to the trusts. The chambers judge expressed concern that the Fairmont and Coutu cases had significantly undermined Pallen but held that he was bound by it and granted the applications. The Court of Appeal affirmed that decision but held that the chamber judge’s concern about Pallen having been undermined was misplaced. The Court of Appeal held that Fairmont and Coutu had a narrow application, that rectification was still available in appropriate situations even if it saved tax, that they did not hold that other equitable remedies are precluded, and that they did not undermine Pallen. The Attorney General appealed on two grounds: (1) that the courts below erred in adopting the test for equitable rescission stated in Pitt; and (2) if Pitt governed, the courts below erred in applying it.

… a limiting principle of equity and, relatedly, principles of tax law stated in Fairmont Hotels and Jean Coutu are irreconcilable with the conclusion in Pitt v. Holt. Equity has no place here, there being nothing unconscionable or otherwise unfair about the operation of a tax statute on transactions freely undertaken. It follows that the prohibition against retroactive tax planning, as stated in Fairmont Hotels and Jean Coutu, should be understood broadly, precluding any equitable remedy by which it might be achieved, including rescission.

He stated that the Court of Appeal should not have imported the reasoning of Pitt, which concluded that equity can relieve a tax mistake. The importation was incompatible with Canadian law, because it was barred by a limiting principle of equity, as well as by principles of Canadian tax law.

With respect to the limiting principle of equity, Brown J took into account the origins of equity. It was developed to grant relief from the restrictions of common law when relief was called for as a matter of conscience, fairness, and unconscionable conduct. That definition of equity limits equity’s scope at the same time. If there is no unconscionability or unfairness, the court cannot resort to equity. And that is the case with tax laws: ‘there is nothing unconscionable or unfair in the ordinary operation of tax statutes to transactions freely agreed upon’ (para 11). Justice Brown therefore concluded, ‘On this ground alone Pitt v Holt and Re Pallen Trust cannot … be taken as stating the law of British Columbia’ (para 11).^[9] He also followed Fairmont, where the Supreme Court stated, ‘Tax consequences flow from freely chosen legal arrangements, not from the intended or united effects of those arrangements, whether upon the taxpayer or upon the public treasury’.^[10]

Thus, Brown J drew the following principles from Fairmont and Coutu:

(a) tax consequences do not flow from contracting parties’ motivations or objectives. Rather, they flow from the freely chosen legal relationships, as established by their transactions (Jean Coutu , at para. 41; Fairmont Hotels, at para. 24);

(b) while a taxpayer should not be denied a sought-after fiscal objective which they should achieve on the ordinary operation of a tax statute, this proposition also cuts the other way: taxpayers should not be judicially accorded a benefit denied by that same ordinary statutory operation, based solely on what they would have done had they known better (Fairmont Hotels, at para. 23, citing Shell Canada , at para. 45; Jean Coutu, at para. 41);

(c) the proper inquiry is no more into the “windfall” for the public treasury when a taxpayer loses a benefit than it is into the “windfall” for a taxpayer when it secures a benefit. The inquiry, rather, is into what the taxpayer agreed to do (Fairmont Hotels, at para. 24);

(d) a court may not modify an instrument merely because a party discovered that its operation generates an adverse and unplanned tax liability (Fairmont Hotels, at para. 3; Jean Coutu, at para. 41).

Justice Brown then went on to hold that these principles are of general application and are not restricted to denying requests for rectification. He relied on certain cases in which Courts of Appeal followed Fairmont and Coutu that came to the same conclusion.^[11] He therefore summarized his conclusion on the point of the limiting principle of equity as follows:

22    I agree with the conclusion in Canada Life that Fairmont Hotels and Jean Coutu bar a taxpayer from resorting to equity in order to undo or alter or in any way modify a concluded transaction or its documentation to avoid a tax liability arising from the ordinary operation of a tax statute. The statements of principle in those judgments — that tax consequences flow from legal relationships, that taxpayers’ liabilities should be governed by the ordinary operation of tax statutes and on what the taxpayer agreed to do, and that legal instruments cannot be modified merely because they generated an adverse tax liability — are categorical, and not restricted to cases where rectification is sought. To be clear: they are of general application, precluding equitable relief altogether when sought to avoid an unintended tax liability that has arisen by the ordinary application of tax statutes to freely agreed upon transactions. There is no room for distinguishing Fairmont Hotels or Jean Coutu based upon the particular remedy sought. While a court may exercise its equitable jurisdiction to grant relief against mistakes in appropriate cases, it simply cannot do so to achieve the objective of avoiding an unintended tax liability.

On this point Justice Brown stated (para 24) that that the Court of Appeal should not have relied on the conclusion in Pitt that equity can grant relief from a tax mistake, and that tax consequences are relevant in determining whether a taxpayer is able to satisfy the test for rescission. According to Pitt a taxpayer can do so if there is ‘a causative mistake of sufficient gravity … either as to the legal character or nature of a transaction, or as to some matter of fact or law which is basic to the transaction’.^[12] However, according to Brown J, that contradicts the principles he just stated that the Minister is bound to apply the Act and a court cannot override that by resorting equity.

He then went on to point out that Pitt did not account for Canadian law, which requires the Minister of National Revenue to apply the ITA to the transactions in question. Section 220(1) of the Act imposes a duty on the Minister to administer and enforce the Act and does not confer any discretion on the Minister.

By implication, therefore, if not in fact, Brown J refers to differences between UK and Canadian tax law to distinguish Pitt. The distinction is not impossible, but with great respect, it requires a sounder basis. Foreign law is a question of fact, not law, and therefore it must be proved if the domestic court is to place reliance on it. I understand that the Attorney General stated in its written argument (for the first time at any of the three levels of court) that there are such differences. Justice Brown apparently accepted that as fact. Since the UK law was not proved, Justice Brown should have applied the well-known principle that, in the absence of evidence to the contrary, the foreign law is assumed to be the same as the domestic (Canadian) law.^[13] In that case, it seems to me, the Supreme Court should have concluded that Pitt allowed the equitable remedy of rescission to reverse a transaction despite the lack of a discretion on the part of the tax authorities. Thus, Pitt would have to be treated as valid law.

Regardless, although Brown J did not use this precise language, the effect of the decision was to overrule Pallen.

Justice Côté disagreed that Fairmont and Coutu disposed of the appeal. As she stated in summary (para 30):

She stated (para 35) that the majority in Fairmont did not say that equitable remedies can never be granted in a tax context. Rather, as the majority stated of the remedy of rectification in Fairmont, ‘it is to be applied in a tax context just as it is in a non-tax context’.^[14] She went on to state that neither Fairmont nor Coutu preclude the availability of equitable remedies in a tax context (para 39). Nor did they specifically address the availability of rescission in such a context (para 40).

Justice Côté disagreed with the view of Brown J. that the test for equitable rescission for mistake stated in Pitt, namely, that tax consequences are relevant when deciding whether a party to a voluntary disposition of property can satisfy the test for rescission, cannot be adopted in Canada. That test is compatible with Canadian law, in her view (paras 44-45).

Justice Côté also addressed the unfairness caused by the CRA’s reassessing the taxpayers in Pallen and in this case after Sommerer on the basis of a retroactive application of s. 75(2) after it had previously taken the view that the actions of the taxpayers complied with that section. In her view, the Minister was not bound to reassess the taxpayers in these cases. It had discretion to do so, and unfairness resulted when the CRA reversed its long-standing interpretation of the section.

[1] 2022 SCC 26, reversing Collins Family Trust v Canada (Attorney General), 2020 BCCA 196, 59 ETR 4th 1, which affirmed the decision of Giachi J, 2019 BCSC 1030, 48 ETR 4th 101 (‘Collins’).

[2]RSC 1985, c 1 (5th Supp) (‘ITA’).

[3] 2011 TCC 212, affirmed 2012 FCA 207 (‘Sommerer’).

[4] 2015 BCCA 22 (‘Pallen’).

[5] 2013] UKSC 26, [2013] 2 AC 108 (‘Pitt’).

[6] 2016 SCC 56, [2016] 2 SCR 720 (‘Fairmont’).

[7]2016 SCC 55, [2016] 2 SCR 670 (‘Coutu’).

[8] Fairmont, paras 23-24, citing Shell Canada Ltd v Canada, [1999] 3 SCR 622, para 45 (‘Shell’)

[9] On this point Justice Brown also cited the point made by Shell, previously adopted by Fairmont, and summarized in the text at footnote 8, supra.

[10] Fairmont, para 24.

[11] Canada Life Insurance Company of Canada v Canada (Attorney General), 2018 ONCA 562; Harvest Operations Corp v Attorney General of Canada, 2017 ABCA 393.

[12] Pitt, paras 122, 132.

[13] For an example of the application of this principle, see Baker v Archer-Shee, [1927] AC 844 (HL). See also the more recent cases, Lear v Lear, 1974 CarswellOnt 167, 5 OR 2d 572 (CA), and Royal Bank v Neher, 1985 CarswellAlta 137, [1985] 5 WWR 667 (QB). The principle can only be waived by statute. See, e.g., Children’s Law Act, RSN 1990, c C-13, s 53.

[14] Fairmont, para 25.

The Practice Direction for the Estates List in Toronto has provided a few notices to clarify procedures for passing of accounts recently, particularly in February, April and June, 2022.  The notice has provided new Confirmation and Request forms and confirmed the email address (toronto.estateslist@ontario.ca), as well as, confirmed that the confirmation form is now to be submitted at least five (5) days in advance of the hearing.

The latest Direction (effective June 14, 2022) amended paragraph 16 and added 17, 18 and 19 to clarify that parties may schedule a case conference as opposed to a 9:30 scheduling appointment for a passing of accounts to deal with matters beyond scheduling.

Regulation 393/22, which came into force on July 1, 2022, now specifies that individuals have the right to their health records to be provided to them in a pdf file or other electronic form as agreed upon, including through a portal.  Hopefully this amendment will now make it easier for individuals to access their records in a timely and cost-effective manner.

In Re (M), 2022 ONCMT 13, https://canlii.ca/t/jptp1, a panel of the Capital Markets Tribunal held that a mutual fund registrant who was named the sole beneficiary of a client’s estate, who accepted an appointment as the client’s power of attorney for property (POAP), and who failed to renounce an appointment as the client’s alternate executor, had:

(b)    breached their obligation under subsection 2.1(2) of OSC Rule 31-505 to deal with clients fairly, honestly and in good faith.^[1]

The duty of a registrant to act fairly, honestly, and in good faith to their client is (1) a fundamental obligation under Ontario securities law and (2) a cornerstone of the registrant-client relationship.^[2] This duty is engaged when an actual or a potential conflict of interest is present and is of even greater importance when a client is vulnerable.^[3]

In this matter, the respondent M was a mutual fund registrant and responsible for the accounts of client MU at an MFDA member firm.^[4] MU was “an elderly widow, inexperienced and unsophisticated financially, and she was dying of pancreatic cancer”.^[5]

The respondent M was named as the sole beneficiary of MU’s estate 10 days before MU passed away.^[6] The respondent also accepted appointments as MU’s powers of attorney for personal care and property. The will and powers of attorney were executed at MU’s bedside in a palliative care unit.^[7] MU’s estate was valued at more than $2 million, including approximately $1.7 million in investments that were managed by the respondent.^[8]

The panel noted that while they would not be deciding the issue of MU’s capacity to make a will, evidence relating to the making of the will and the powers of attorney may be relevant in the determination of MU’s vulnerability as a client.^[9] 

The respondent was an “Approved Person” as defined in MFDA By-law No. 1 and was required to comply with the MFDA Rules.^[10] Approved Persons may only engage in transactions on behalf of clients based on express instructions for each transaction and are similarly prohibited from having any control or authority over a client’s account, even with the client’s consent.^[11] This prohibition specifically includes powers of attorney for property and executorships.^[12] The panel noted that the MFDA Rules do not have restrictions around Approved Persons acting as a power of attorney for personal care for clients.^[13]

(iii) acting as a trustee or executor in respect of the estate of a client.^[14]

The panel held that the respondent breached MFDA Rule 2.3.1 (a) by accepting a power of attorney for property from his client MU and by failing to renounce an appointment to act as alternate executor in the will.^[15]

The prohibition in MFDA Rule 2.3.1(a)(i) on POAPs is unambiguous and absolute, subject to a limited exception for family members.^[16] It bars any Approved Person from accepting or acting on any POAP that would give them full or partial control or authority over the financial affairs of a client.^[17] The panel held that not actually exercising the POAP to conduct trades on the client’s behalf was not relevant.^[18] The prohibition applied to the acceptance of the power of attorney from a client.^[19]

The panel further held that the respondent’s submissions that the conduct amounted to a technical non-compliance with MFDA Rules for a period of ten days (between the execution of the power of attorney and MU’s death) and did not cause any harm was not relevant.^[20] Those submissions were held to be more properly reserved for a sanctions and costs hearing panel.^[21]

By knowing about and accepting the POAP from a client, the respondent breached MFDA Rule 2.3.1(a)(i).^[22]

MFDA Rule 2.3.1(a)(ii) prohibits an Approved Person from accepting an appointment to act as a trustee or executor of a client.^[23] Similarly, this prohibition is on the acceptance of the position, regardless of whether it was acted upon.^[24] MFDA Rule 2.3.1(a)(iii) also prohibits an Approved Person from acting as executor or trustee for a client’s estate.^[25] The panel noted that the prohibition includes acceptance of “backup” or “alternate” executorships.^[26] The panel rejected the respondent’s submission that they never had the opportunity to act as an alternate executor because the primary executor took up the role.^[27] The panel held that the respondent took no steps to report or to renounce the appointment.^[28]

MFDA Rule 2.1.4 deals with conflicts of interest and sets out a tripartite test that requires a registrant to engage as soon as they know or reasonably ought to know that there is an actual or potential conflict of interest.^[29] The panel noted that the steps required by this Rule are clear:

c. Disclose the conflict or potential conflict to the client.^[30]

The panel held that the respondent breached MFDA Rule 2.1.4 by failing to report three sources of actual or potential conflicts of interest relating to MU’s estate, namely: (i) the respondent’s acceptance of a POAP for MU; (ii) the respondent’s awareness and acceptance of the role of alternate executor for MU’s estate; and (iii) the respondent’s awareness and acceptance of being named sole beneficiary under MU’s will.^[31]

The panel held that the acceptance of a POAP for a client that authorizes an Approved Person to conduct trades in the client’s account on the client’s behalf is an actual or potential conflict of interest.^[32] The conflict arises when the POAP is accepted and remains for as long as it is held, regardless of whether it was acted upon.^[33] The fact that the respondent did not act on the POAP was not a defence to the breach.^[34] The panel noted that the role of executor for a client raises similar conflicts of interest.^[35]

The panel further held that an Approved Person who is named as a beneficiary of a client’s estate or on a client’s account is in an actual or potential conflict of interest, particularly when the beneficial entitlement includes investments managed by the Approved Person.^[36] On this issue, reference was made to the MFA Member Regulation Notice issued on October 3, 2005 which states, among other things:

All monetary and non-monetary benefits provided directly or indirectly to or from clients must flow through the Member. The Member must be notified of any such arrangements, so that the Member is in a position to determine the significance of the benefit and to monitor the activity.^[37]

The panel rejected the respondent’s submission that being a beneficiary was not a breach because they had not yet received any monetary benefit from MU’s estate, and held that becoming aware of the testamentary gift and failing to report it to the Member firm was a breach of MFDA Rule 2.1.4.^[38]

Issue #2 - OSC Rule 31-505 and the duty to act fairly, honestly, and in good faith

Section 2.1 of OSC Rule 31-505 provides that every registered dealer or adviser, or a representative of such, has a statutory obligation to deal fairly, honestly, and in good faith with clients.^[39]

As an MFDA registrant, the panel held that the respondent was at all material times bound by the statutory obligation under OSC Rule 31-505 to deal fairly, honestly and in good faith with clients.^[40] Breaches of the MFDA Rules alone were also not sufficient to amount to a breach of OSC Rule 31-505, and the circumstances of any particular non-compliance must be considered.^[41]

In considering the vulnerability of MU, the materiality of the amounts at stake, the respondent’s failure to place the client’s interests above their own, and the seriousness of the breaches of the MFDA Rules and Member firm policies and procedures, the panel found that the respondent had failed to act fairly, honestly, and in good faith in their actions towards MU.^[42]

In assessing MU’s vulnerability, the panel considered the evidence of: MU’s terminal cancer, MU’s inconsistent memory, MU’s inability to identity or quantify investments, MU’s reliance on their late spouse to mange their financial affairs, MU’s reliance on the respondent to assist with finances and other tasks (booking travel and driving to the airport), MU’s age (70s), MU’s lack of formal education, the fact that an involved lawyer wanted a capacity assessment (never obtained), and that the conduct at issue occurred during the last few weeks of MU’s life when MU was bedridden and in palliative care.^[43]

The panel held that the respondent acted unfairly, dishonestly and in bad faith towards a vulnerable client by failing to follow the required procedures for dealing with conflicts of interest, which was a significant breach of the MFDA Rules and the Member firm’s policies and procedures, and this constituted a breach of OSC Rule 31-505.^[44]

The panel ordered the parties to arrange an attendance for a hearing regarding sanctions and costs.^[45]

[1] Re (M) 2022 ONCMT 13 at para 8.

[2] Re (M) 2022 ONCMT 13 at para 1.

[3] Re (M) 2022 ONCMT 13 at para 1.

[4] Re (M) 2022 ONCMT 13 at para 9.

[5] Re (M) 2022 ONCMT 13 at para 4.

[6] Re (M) 2022 ONCMT 13 at para 5.

[7] Re (M) 2022 ONCMT 13 at para 5.

[8] Re (M) 2022 ONCMT 13 at para 6.

[9] Re (M) 2022 ONCMT 13 at para 21.

[10] Re (M) 2022 ONCMT 13 at para 119.

[11] Re (M) 2022 ONCMT 13 at para 120.

[12] Re (M) 2022 ONCMT 13 at para 120.

[13] Re (M) 2022 ONCMT 13 at para 120.

[14] Re (M) 2022 ONCMT 13 at para 77.

[15] Re (M) 2022 ONCMT 13 at para 78.

[16] Re (M) 2022 ONCMT 13 at para 121.

[17] Re (M) 2022 ONCMT 13 at para 121.

[18] Re (M) 2022 ONCMT 13 at para 124.

[19] Re (M) 2022 ONCMT 13 at para 124.

[20] Re (M) 2022 ONCMT 13 at para 129.

[21] Re (M) 2022 ONCMT 13 at para 129.

[22] Re (M) 2022 ONCMT 13 at para 130.

[23] Re (M) 2022 ONCMT 13 at para 131.

[24] Re (M) 2022 ONCMT 13 at para 131.

[25] Re (M) 2022 ONCMT 13 at para 131.

[26] Re (M) 2022 ONCMT 13 at para 132.

[27] Re (M) 2022 ONCMT 13 at para 136.

[28] Re (M) 2022 ONCMT 13 at para 136.

[29] Re (M) 2022 ONCMT 13 at para 2.

[30] Re (M) 2022 ONCMT 13 at paras 139 - 140.

[31] Re (M) 2022 ONCMT 13 at paras 143-144.

[32] Re (M) 2022 ONCMT 13 at para 145.

[33] Re (M) 2022 ONCMT 13 at para 147.

[34] Re (M) 2022 ONCMT 13 at para 149.

[35] Re (M) 2022 ONCMT 13 at para 150.

[36] Re (M) 2022 ONCMT 13 at para 153.

[37] Re (M) 2022 ONCMT 13 at para 153.

[38] Re (M) 2022 ONCMT 13 at para 159.

[39] Re (M) 2022 ONCMT 13 at para 180.

[40] Re (M) 2022 ONCMT 13 at para 169.

[41] Re (M) 2022 ONCMT 13 at para 170.

[42] Re (M) 2022 ONCMT 13 at para 171.

[43] Re (M) 2022 ONCMT 13 at paras 173-175.

[44] Re (M) 2022 ONCMT 13 at para 195.

[45] Re (M) 2022 ONCMT 13 at para 199.

Issues surrounding Real Estate Transactions through Powers of Attorney

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