Estate litigation cases often impact upon persons who are incapable. In particular, an individual may be incapable of, among other things, managing their property or personal care, of making a will (testamentary capacity) and of retaining and/or instructing counsel. The recent case of Guardian Law Group v. LS, 2021 (“Guardian”) reviews the requirements that must be met by counsel to be validly retained to represent an individual.
In Guardian, the applicant, Guardian Law Group (“GLG”) brought a claim against LS, in her capacity as RL’s guardian and trustee, for payment of legal fees incurred while representing RL. LS maintained that her father, RL, lacked capacity to retain the applicant GLG, and that the retainer agreement can therefore be rendered null and void. The court specifically tackled the following question: at law, what are the requirements that must be met by counsel to be validly retained to represent an individual in the context of that individual’s own capacity hearing?
First, the court noted that determinations of capacity are fact-specific and task-specific; in other words, a finding of capacity or incapacity in one area is not necessarily determinative of capacity in another area. Capacity can also change over time, depending on a person’s circumstances.
Citing the Ontario case of Calvert (Litigation Guardian of) v. Calvert, the court emphasized that capacity to instruct counsel involves the ability to understand financial and legal issues, which puts it higher up on the competency hierarchy (the highest rung is testamentary capacity).
Moreover, capacity to enter into a retainer agreement is very closely connected to capacity to instruct counsel, as noted in Costantino v. Costantino (“Constantino”).
In Constantino, the court set out the test for capacity to instruct counsel. In particular, a person must: (a) understand what they have asked the lawyer to do for them and why; (b) be able to understand and process the information, advice, and options the lawyer presents; and (c) appreciate the advantages and drawbacks and the potential consequences associated with the options they are presented with.
Notably, in Constantino, the court went on to note (as cited in Guardian at paragraph 47): “There are some differences between capacity to instruct and capacity to enter into a retainer agreement. Due to its contractual nature, capacity to enter into a retainer agreement is assessed only at the time the contract is formed. Capacity to instruct counsel must be determined on an ongoing basis with respect to each decision. ” Accordingly, a retainer will be valid if the individual had capacity to enter into it at the time it was created, but if capacity diminishes over time such that the lawyer can no longer accept instructions, the lawyer would be ethically obligated to address that (however, again, the retainer agreement in such a case would not be voidable). Guardian provides a key reminder: as counsel, we are obligated to make the first assessment of capacity when deciding to enter into a retainer. Where that retainer is later challenged, counsel’s finding of capacity can be weighed along with other factors.
Finally, the court clarified the following test for voiding a retainer agreement on the basis of incapacity: (1) did the client, at the time of entering into the retainer agreement, have the capacity to understand its terms and form a rational judgment of its effect on his or her interests? (2) did the lawyer know that the client lacked capacity, and more specifically (a) were there sufficient indicia of incapacity known to the lawyer to establish a suspicion that the client lacked the requisite capacity? (b) if yes, did the lawyer take sufficient steps to rebut a finding of actual or constructive knowledge of incapacity?
Not only is it essential for lawyers to be cognizant of how the rights of incapable parties/beneficiaries may be impacted in a given case, but it is important to remain mindful of one’s own retainer and the ability of a client to understand and appreciate the nature of that retainer, in accordance with the tests above.