Not every breach of duty by an attorney under a POA is a fiduciary breach of duty

Originally published in our June Newsletter

In Meng Estate v. Liem, 2019 BCCA 127 (CanLII),  https://canlii.ca/t/hzs87,  the British Columbia Court of Appeal overturned a lower court’s decision which found that an attorney had breached a fiduciary duty owed to the grantors of the power of attorney when executing a contract of sale for the elderly couple’s home. The Court of Appeal found that the lower court judge erred by founding her judgment on the “unstated assumption that any breach of duty was a breach of fiduciary duty.”[1]

Background 

The elderly Mengs granted a power of attorney to two individuals, Mr. Liem and Mr. Truan, in 2011. The attorneys were friends of the Mengs. Acting under the power of attorney, the two attorneys executed a contract of purchase and sale of the Mengs’ home for $1.4 million which was substantially lower than the listing price of $1.9 million. The joint power of attorney was revoked in 2012.

The Mengs attempted to stop the sale of their home and refused to complete it. The purchaser sued for specific performance. This lawsuit was eventually settled.

The Mengs also commenced proceedings against the attorneys arguing that they breached their fiduciary duty when they used the power of attorney to execute the contract since they failed to ascertain the current wishes of the Mengs and as a result acted contrary to their best interests in executing the contract. Mrs. Meng died in 2014 and Mr. Meng died in 2017, however Mrs. Meng’s evidence was preserved.

Mr. Truan advised the court he was bankrupt and took no part in the trial.

Mr. Liem represented himself at trial. The judge found that Mr. Liem was in a fiduciary relationship with the Mengs, and, as such, was found liable for breaching a fiduciary duty.

Court of Appeal

The Court noted it was important to highlight some aspects of the evidence to set the issues into context. First, Mr. Liem was asked to accept the attorney appointed as a friend and volunteered to do so. There was no evidence that he benefitted from any breach of duty or that he was in a conflict of interest, or that he intentionally, or in bad faith failed to protect the interests of the Mengs. There was nothing to suggest he knowingly breached his duty of loyalty to the Mengs.

The ability to communicate with the Mengs was limited as he did not speak Mandarin and needed an interpreter when they spoke. Mr. Liem testified that he relied on the advice of the real estate agent when pricing the home and regarding accepting the sale price. He relied on the real estate agent, and Mr. Truan (the other attorney), to confirm that the Mengs’ agreed to the sale price. As a result of Chinese custom, there were cultural reasons why Mr. Liem could not, at that time, accompany the real estate agent, and Mr. Truan to visit the Mengs personally to confirm the sale price.

There was no evidence at trial of fair market value and no evidence that the sale was improvident. The case was not advanced on an allegation of improvident sale, but that the contract, with which Mrs. Meng later disagreed, was signed without determining her current wishes at the time. However, there was no admissible evidence that the Mengs agreed or disagreed with the price. The Court of Appeal found that there was no basis in the evidence to find that the contract was inconsistent with the Mengs’ current wishes.

The Court of Appeal observed that: “[e]ven though Mr. Liem was in a fiduciary relationship with the Mengs, not every potential breach of duty is a breach of fiduciary duty. . .a fiduciary may breach duties owed in contract or negligence without those breaches being transformed into breach of fiduciary duty.”[2]

Typically, a breach of fiduciary duty captures circumstances in which there is a breach of the duty of loyalty owed by the fiduciary and includes acting in the face of conflict, preferring a personal interest, taking a secret profit, acting dishonestly or in bad faith, or a variety of similar or related circumstances. Justice Harris concluded, writing on behalf of the Court, that, I am satisfied that the undisputed facts in this case do not permit treating Mr. Liem’s breach as anything other than negligence. I can see no proper basis on which it can be said that Mr. Liem failed to discharge his duty of loyalty; the problem is that he was negligent in how he attempted to fulfil it.[3]

The Court concluded that the trial judge was, “led into error in analysing the breach as a breach of fiduciary duty, rather than a breach of a duty of care sounding in negligence” [emphasis in original].[4]

As a result, the cause of action was negligence, and the plaintiffs carried the burden of proving that breach of duty caused the loss. The Mengs did not lead any evidence from which their then current wishes could be determined. Absent evidence establishing that the Mengs did not agree with the sale, rather than subsequently changing their minds about it, the action should have been dismissed.

Takeaway

This case is an example of why it is important to frame a claim around the correct cause of action, or otherwise risk losing a lawsuit. While many may jump to the conclusion that all breaches of duty by an attorney under a power of attorney must be breaches of a fiduciary duty, this is not always true. The breach must be accompanied by “something more,” such as for example: failing to honour the duty of loyalty; acting in bad faith; acting in the face of a conflict; self-dealing; preferring personal interest.

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[1] Meng Estate v Liem, 2019 BCCA 127 at para 3.

[2] Meng Estate v Liem, 2019 BCCA 127 at para 33

[3] Meng Estate v Liem, 2019 BCCA 127 at para 35.

[4] Meng Estate v Liem, 2019 BCCA 127 at para 7.