Court File and Parties

COURT FILE NO.: 01-4129/11

DATE: 2012-11-08

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Sonia Lana Berkelhammer, by her attorneys by power of attorney Rachal Rapoport and Max Rapoport, Applicants (Respondents)

AND:

Ava Kerzner and Rebecca Dennis, Estate Trustees for the Estate of Harry Berkelhammer, Respondents (Moving Parties)

BEFORE: Madam Justice S. Chapnik

COUNSEL: Justin W. deVries and Angela Casey, for the Applicants (Respondents on motion)

Erin C. Cowling for Ava Kerzner and Rebecca Dennis, Estate Trustees for the Estate of Harry Berkelhammer

Debra Stephens for Ava Kerzner and Rebecca Dennis personally (and Paula Funt and Dr. Charles Berkelhammer)

Heather Hogan for the Office of the Public Trustee and Guardian

HEARD: October 15, 2012

ENDORSEMENT – MOTION FOR DIRECTIONS

[1] This is a motion for directions in an estates matter involving the Estate of Harry Berkelhammer, deceased (Harry).

[2] The underlying facts relevant to this motion are:

(a) Harry passed away on November 1, 2011 and was survived by his wife of 31 years, Sonia Lana Berkelhammer (Sonia) who married Harry in 1980. At the date of their marriage, Sonia had two children from a previous marriage, namely, Rachal Rapoport (Rachal) and Max Rapoport (Max). Harry had four children, Ava Kerzner (Ava), Paula Funt (Paula), Rebecca Dennis (Rebecca) and Charles Berkelhammer (Charles). All six children are adults and were financially independent at the time of Harry’s death.

(b) The deceased executed primary and secondary wills at a lawyer’s office on February 4, 2007. The respondents, Ava and Rebecca, are the named Estate Trustees pursuant to the deceased’s wills.

(c) On February 23, 2007, Sonia and Harry entered into a marriage contract and on April 25, 2009, Sonia executed an amendment to the marriage contract that included, among other things, a mutual release against the estate of the other.

(d) The notice of application was issued April 26, 2012 by Rachal and Max as Sonia’s appointed attorneys pursuant to a Continuing Power of Attorney for Property (POA) executed by Sonia on November 21, 2011. They seek, among other things, an equalization payment, support for Sonia pursuant to the Succession Law Reform Act, R.S.O. 1990, c. S.26, and a declaration setting aside the marriage contract and amending agreement on the grounds of invalidity due to duress, undue influence, lack of capacity, lack of financial disclosure and unconscionability.

(e) While Sonia’s mental capacity at various times is subject to controversy, all parties agree that she is currently incapable of managing her financial affairs.

THE MOTION

[3] The respondents/moving parties, Ava and Rebecca, as Estate Trustees, seek an order removing Rachal and Max as litigation guardians for Sonia, and precluding them from continuing their claim in their capacity as Sonia’s attorneys pursuant to the POA. They also seek an order appointing the Public Guardian and Trustee (PGT) as Sonia’s litigation guardian and guardian of property.

[4] Max, a practising lawyer in Toronto Ontario, has withdrawn from acting as co-litigation guardian based on an alleged conflict of interest, best explained by Rachal in an affidavit sworn October 11, 2012 as follows:

My brother, Max, who is my co-attorney for property, signed a certificate of independent legal advice in respect of a marriage contract signed by my mother in 2007 and an amending agreement to the marriage contract executed by my mother in 2009, both of which are at issue in this litigation. As such, I have been advised by my lawyers that there is a potential for Max’s interests to conflict with my mother’s interests in the litigation. I intend to seek independent legal advice with respect to Max’s alleged role as my mother’s lawyer. Max has agreed that given the appearance of a possible conflict of interest on his part, I should act alone as Litigation Guardian for my mother in the within application. Max will not be seeking appointment as co-Litigation Guardian.

THE POSITION OF THE PARTIES

[5] The respondents claim that Rachal (now that Max has withdrawn) should be removed as applicant in this proceeding, precluding her from acting as Sonia’s litigation guardian and her attorney by power of attorney for property, on several grounds, namely:

(a) she is a non-resident of Canada;

(b) she has a conflict of interest;

(c) she is a potential witness in the proceedings; and

(d) she has not acted diligently in her mother’s best interests.

[6] The applicants contend that the respondents are only bringing this motion to avoid paying Sonia support and equalization. According to the applicants, the respondents seek to remove Rachal as substitute decision-maker to prevent her from continuing litigation on Sonia’s behalf.

THE RELEVANT STATUTORY PROVISIONS

[7] As Sonia’s attorney for property, Rachal is presumptively entitled to act as litigation guardian for Sonia.

Rules of Civil Procedure, R.R.O. 1990, Reg. 194

[8] The Rules of Civil Procedure that apply in this case are as follows:

Rule 7.02(1.1)(b) of the Rules provides that, unless the court orders otherwise, where a plaintiff or applicant:

(b) is mentally incapable and does not have a guardian with authority to act as litigation guardian in the proceeding, but has an attorney under a power of attorney with that authority, the attorney shall act as litigation guardian;

Rule 7.04(1) Unless there is some other proper person willing and able to act as litigation guardian for a party under disability, the court shall appoint,

(b) the Public Guardian and Trustee, if the party is mentally incapable within the meaning of section 6 or 45 of the Substitute Decisions Act, 1992 in respect of an issue in the proceeding and there is no guardian or attorney under a power of attorney with authority to act as litigation guardian;

Rule 7.05(1) Where a party is under disability, anything that a party in a proceeding is required or authorized to do may be done by the party's litigation guardian.

Rule 7.05(2) A litigation guardian shall diligently attend to the interests of the person under disability and take all steps necessary for the protection of those interests, including the commencement and conduct of a counterclaim, crossclaim or third party claim.

Rule 7.05(3) A litigation guardian other than the Children's Lawyer or the Public Guardian and Trustee shall be represented by a lawyer and shall instruct the lawyer in the conduct of the proceeding.

Rule 7.06(2) Where it appears to the court that a litigation guardian is not acting in the best interests of the party under disability, the court may substitute the Children’s Lawyer, the Public Guardian and Trustee or any other person as litigation guardian.

The Substitute Decisions Act, 1992, S.O. 1992, c.S.30 (SDA)

[9] Section 32(1) of the SDA provides that a guardian of property is a fiduciary whose powers and duties shall be exercised and performed diligently, with honesty and integrity and in good faith, for the incapable person’s benefit.

[10] Pursuant to s. 12(1)(c) of the SDA, a continuing power of attorney is terminated when the court appoints a guardian of property for the grantor under section 22. The other relevant provisions of the SDA read:

22(1) The court may, on any person’s application, appoint a guardian of property for a person who is incapable of managing property if, as a result, it is necessary for decisions to be made on his or her behalf by a person who is authorized to do so.

24(2.1) The court shall not appoint the Public Guardian and Trustee as a guardian under section 22 unless,

(a) the application proposes the Public Guardian and Trustee as guardian;

(b) the application is accompanied by the Public Guardian and Trustee’s written consent to the appointment; and

(c) there is no other suitable person who is available and willing to be appointed.

7(5) If two or more attorneys act jointly under the continuing power of attorney and one of them dies, becomes incapable of managing property or resigns, the remaining attorney or attorneys are authorized to act unless the power of attorney provides otherwise.

9(1) A continuing power of attorney is valid if the grantor at the time of executing it, is capable of giving it, even if he or she is incapable of managing property.

(2) The continuing power of attorney remains valid even if, after executing it, the grantor becomes incapable of giving a continuing power of attorney.

3(1) If the capacity of a person who does not have legal representation is in issue in a proceeding under this Act,

(a) The court may direct that the Public Guardian and Trustee arrange for legal representation to be provided for the person; and

(b) The person shall be deemed to have capacity to retain and instruct counsel.

ANALYSIS

[11] As noted above, the respondents claim that Rachal (now that Max has withdrawn) should be removed as applicant in this proceeding, precluding her from acting as Sonia’s litigation guardian and her attorney by power of attorney for property, on several grounds, namely,

(a) she is a non-resident of Canada;

(b) she has a conflict of interest;

(c) she is a potential witness in the proceedings; and

(d) she has not acted diligently in her mother’s best interests.

[12] In support of their argument, the respondents rely on the holding in Lodge (Guardian in Litigation of) v. Lodge 2003 BCSC 1205; 2003 Carswell BC 1930, that the litigation guardian will be found to have "an interest in the proceedings adverse to the person of disability" where there is a “high level of conflict” between the proposed litigation guardian and a party in the proceeding or when the litigation guardian stands to benefit, either directly or indirectly by the litigation. (see also Gronnerud (Litigation Guardian of) v. Gronnerud Estate, 2002 SCC 38; [2002] S.C.R. 417 .

[13] I will deal with each of the respondents' submissions in support of their motion to remove Rachal as her mother's litigation guardian. In doing so, I refer to some of the relevant case law, noting that these issues are generally fact specific and determined on the particular and unique facts of each case.

[14] First, they rely on the holding in Walma (Litigation Guardian of) v. Cleverly, 1999 CarswellOnt 3221 at para. 8; [1999] O.J. No. 3810 (S.C.J.) to the effect that a litigation guardian must have permanent residence in Ontario. The stated rationale of the court in that case which involved a minor, is:

The primary object in requiring that is that there must be someone before the court to answer for the propriety of the action and through whom the court may compel obedience to its orders.

[15] Rachal currently resides in Chicago, Illinois. However, she travels to Toronto regularly, is in regular contact with her mother and brother and has agreed to pay $25,000 to her counsel in trust as security for any costs award made against her personally. Given this, the applicants contend that any concern that Rachal resides out of the province, has been adequately addressed, and I agree. Moreover, I do not agree that rule 7.02 or the case law requires that a litigation guardian have permanent residence in Ontario. It is only one factor to be considered. See Prince v. Canada, [1994] F.C.J. No. 853 at paras 19-20.

[16] Second, they allege Rachal has a potential conflict of interest. As Max’s sister, if Sonia is found to have suffered ill consequences due to solicitor’s negligence on the part of Max, Rachal would be obliged to commence a negligence action against her brother on Sonia’s behalf. There is a realistic potential of financial, if not social conflict, within Sonia's family in such circumstances.

[17] The respondents also allege that Rachal, as a potential beneficiary in Sonia’s estate, has a further conflict. I agree with the applicants that, based on the case law, an individual who stands to inherit under a person’s estate can often act as litigation guardian, despite having a personal stake in the litigation. See, for example, Chow v. Law (2007), 32 E.T.R. (3d) 142 at paras. 49 and 53.

[18] Further, Rachal should not be precluded from acting as litigation guardian for the sole reason that she is a potential witness in the proceeding. In Slark (Litigation Guardian of) v. Ontario 2010 ONSC 1726; (2010), 6 C.P.C. (7th) 168 , Cullity J. declined to disqualify a litigation guardian on the basis of an alleged likelihood that her own conduct would be at issue in the proceeding. The court noted, at para. 51, that the litigation guardian in that case would be a very important witness in support of the plaintiff’s claims.

[19] However, in addition to the above, there are two matters relating to this motion that support the respondent’s position. First, not only is the validity of the POA in issue on the basis of an allegation of Sonia’s incapacity, but shortly after being granted the POA for property, Rachal and Max sold the matrimonial home which was in Sonia’s name and split the net proceeds of sale equally between them.

[20] Rachal has since repaid the funds to her mother’s account and Max is purportedly in the process of doing so. In her affidavit, Rachal states:

I now understand that, as fiduciaries, Max and I should not have transferred money to ourselves, even if it had been mother’s longstanding wish for us to share in the house proceeds.

[21] It very well may have been an innocent mistake for them to have done what they did. Moreover, as noted in Teffer v. Schaefers (2008), 2008 CanLII 46929 (ON SC), 93 O.R. (3d) 447, at paras. 21-24, there must be strong evidence of misconduct or neglect on the part of someone duly appointed under an enduring power of attorney before a court should ignore the clear wishes of the donor and terminate such power of attorney.

[22] Nevertheless, their actions depleted Sonia’s funds for their own benefit, that is, they did not act “diligently” as fiduciaries in Sonia’s best interests, as required by rule 7.06(2) and s. 32(1) of the SDA. Moreover, it is somewhat inconsistent and troubling that the applicants would sell the house and take the monies personally while, at the same time, initiating a claim for equalization and dependant support for Sonia.

[23] Another compelling matter in this case concerns Sonia’s wishes as outlined in the standard form draft POA. In that document Sonia could have appointed Rachal and Max, jointly and severally, as her attorneys, but she crossed out the words “and severally”. Now that Max has withdrawn, a question arises as to whether she would have approved of Rachal to act on her behalf without Max. Moreover, the POA document repeatedly uses the term “attorney”, possibly referring to Max, who is a barrister and solicitor practising in Ontario and who is now unable to act.

[24] Given this, and the challenge to Sonia’s capacity at the time the POA was executed, it cannot be said to represent the “clear” wishes of Sonia for Rachal to continue as her sole litigation guardian and guardian for property.

[25] Rachal has a personal interest in the outcome of the litigation, will most likely be a witness at trial, resides out of the jurisdiction, and has engaged in conduct that conflicts with the best interests of Sonia. In these circumstances, she is, in my view, incapable of providing a neutral, unbiased assessment of Sonia's legal situation and may well be unable to provide an "unclouded opinion" where this is required. The above factors combined, justify Rachal's removal as litigation guardian for Sonia in these proceedings.

[26] Should the Public Guardian and Trustee be appointed to act as Sonia’s litigation guardian and guardian for property? Although present at this motion, the PGT took no position with respect to this issue. Further, the office of the PGT considers itself the office of “last resort” in these circumstances.

[27] The usual course is to bring a guardianship application to appoint a guardian of property for Sonia pursuant to s. 22 of the SDA. At the same time, under the SDA, the primary responsibility of the PGT is to act as a guardian of last resort for individuals who have been found to be mentally incapable of making their own financial decisions, have no appointed attorney or family member available, capable and willing to step in to make the necessary decisions and who does not have a conflict of interest.

[28] Despite the applicant’s assertion that such a person would be desirable, none has come forward. This matter is relatively complex, involving family law claims, alleged conflicts of interest and assertions of incapacity at various junctures. The PGT is a truly disinterested party whose role it will be to protect Sonia’s financial interests and act in her best interests. In my view, Sonia's interests will be best served by appointing the PGT as her guardian for property to manage her affairs at least until this litigation is terminated.

[29] Even if the POA is proven to be valid, in this situation where its validity is in issue, the court has discretion to appoint the PGT, pursuant to rule 7.06 (2) and s. 3(1) of the SDA. As I am of the view that it is not, in all the circumstances, appropriate for Rachal to act as litigation guardian or guardian for property for Sonia, and Sonia is incapable of managing her financial affairs, it is proper and necessary to appoint the PGT as her litigation guardian and guardian for property (and Sonia be made a party to the application).

[30] The motion is, therefore, granted. An order shall issue in terms of the draft order filed and attached as Schedule “A” to these reasons and as may be amended on consent of the parties.

[31] If the parties are unable to agree on costs, they may contact me in writing within fifteen days of the release of this decision.

Chapnik J.

Date: 2012-11-08