What Happens When Estate Funds Are Gambled Away?

The Ontario Court of Appeal made a decision on June 10, 2016 that has important legal implications and a significant lesson for all Ontarians. They concern the relationship between lawyers and their clients, and between the executors of estates, also called estate trustees, and third parties who receive trust moneys that are recklessly spent. The decision was released in the Ontario Reports on September 28, 2016.

Facts

In Paton Estate, S defrauded an estate and lost close to a million dollars of estate money at casinos operated by the OLG while holding herself out to be a lawyer. It is not clear whether she was in fact a lawyer or the estate trustee, but she reportedly said she was a lawyer. The plaintiff estate sued the defendant OLG for damages, asserting negligence, unjust enrichment and knowingly receiving trust funds.

The motion judge who heard the case agreed with the defendant OLG that the plaintiff didn’t have a case, so the case was struck down.

Arguments

The plaintiffs appealed to the Ontario Court of Appeal, and a majority of the judges allowed the appeal. As a result, the case will be permitted to go to trial. While this is not necessarily a victory for the plaintiff, the case will now be heard and case law will be permitted to develop in this area of the law.

In short, a couple of arguments won the day.[/vc_column_text]

  1. There was an arguable case that the plaintiff estate could recover damages because the OLG knowingly received trust funds. Money obtained by fraud can sometimes be recovered. If a person sells a stolen vehicle to someone who doesn’t know it is a stolen vehicle, the law will generally side with the innocent buyer. But the defendant OLG arguably had sufficient notice to reasonably ask questions about whether S was lawfully spending money, when S was holding herself out to be a lawyer. The court reasoned that the claim for knowingly receiving trust funds should therefore be allowed to proceed to trial.
  2. There is an arguable case that the defendant OLG received an “unconscionable benefit”. Any lawful and technical reasons for receiving the trust funds might be vitiated or “cancelled out” because receiving those funds was unconscionable. In short, if the defendant knew that S was addicted to gambling and was unable to refrain from losing money, but allowed her nevertheless to continue gambling, it might be found that the OLG was unjustly enriched, and a remedy for the plaintiff estate might be available. So again, the court reasoned that this issue should be allowed to go to trial.

Legal implications

We do not know whether S was an estate trustee, but the implications and lessons drawn from this case apply to estate trustees who defraud estates. Two implications can be drawn from Paton Estate:

  1. If you receive money from an estate trustee who spends it recklessly, you may have to pay it back to the beneficiaries, so do not turn a blind eye. Stay tuned for the result of this trial.
  2. If you are a beneficiary of an estate who has lost all or part of an inheritance because the estate trustee recklessly spent estate moneys, you may be able to recover your losses. This may be an obvious point to some, but in law, it’s not always straightforward.

Lesson

Lastly, a lesson that can be learned from Paton Estate is that we should all hold high in our minds the importance of relationships that are built on trust and good faith. If we don’t, then our system of laws will quickly fray and break down under the erosion of carelessness; carelessness by those who breach the trust that is placed within them, and carelessness by onlookers who remain indifferent and don’t speak up. If you suspect that a lawyer, estate trustee, legal attorney or another person in a position of authority is abusing his or her power, speak up! Do so not only to protect those who are vulnerable; but also because you may in fact be responsible for harm that arises if you don’t speak up, especially if you have decision-making power for a company or a public body that benefits from a breach of trust.