This article briefly explores the use of powers of attorney in the commercial context (such as in a shareholders agreement) in light of Ontario’s current common law and statutory framework and provides some considerations to be kept in mind when attempting to institute a power of attorney in a commercial agreement.

What is a power of attorney and what governs it?

According to Justice B. R. Warkentin in Daley v. Daley,¹ a power of attorney is a legal document granting the person appointed (the “attorney”) the fiduciary obligation to utilize the power granted on behalf of the grantor of such power solely for the purpose of benefiting such grantor, as the use of the power to provide a benefit to the attorney without authority being a breach of the fiduciary obligation.

Notwithstanding the foregoing, the enactment of the Powers of Attorney Act² and the Substitute Decisions Act³ in Ontario supplanted the common law with respect to powers of attorneys,⁴ including the requirement that a general power of attorney was terminated on the grantor’s mental incapacity or death.⁵  Under these legislative enactments and pursuant to the POA Act, a general power of attorney for property allowed the attorney to do on behalf of the grantor anything that the grantor could lawfully do by an attorney⁶ while the SDA provided comprehensive governance for continuing powers of attorney for property and for powers of attorney for personal care, amongst other things.⁷ The SDA established that (i) under a continuing power of attorney for property (a “CPOA”), an attorney can make financial and property decisions for the grantor, whether the grantor was mentally capable or incapable; and (ii) under a power of attorney for personal care (“POAPC”), an attorney can make substitute decisions about the healthcare, nutrition, care and safety of the mentally incapable grantor.⁸

How does the legislative landscape apply to commercial powers of attorney?

A power of attorney in the commercial context may be caught under the SDA provisions and deemed a CPOA where it expresses the intention that the authority given may be exercised during the grantor’s incapacity to manage property,⁹ which results in several drawbacks which may complicate or defeat such a grant in the commercial context, including that:

• A grantor of a CPOA is capable of revoking a CPOA at any time they are capable of granting a CPOA,¹⁰  and a CPOA is terminated when the grantor executes a new CPOA (unless the grantor provides that there shall be multiple CPOAs), revokes the CPOA or dies,¹¹ which may defeat the intent to have the power of attorney be irrevocable in the commercial context;
• The attorney must account for his or her dealings with the grantor’s property,¹² which often times is not the intent under the commercial context as the power of attorney is granted to be the benefit of the attorney; and
• The attorney must act as “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,”¹³ which would frustrate the power of attorney granted to the benefit of the attorney in a commercial context.

Is there another power of attorney applicable in the commercial context?

According to the Court in Wilkinson v. Young,¹⁴ a power of attorney with respect to the property of a grantor may be exempted from the general limitations respecting termination imposed by the common law on the grantor’s mental incapacity or death and which may also be distinguished from the CPOA identified under the SDA:

Where an agency is created, either for valuable consideration or by deed, and the purpose of the agency is to secure an interest of the agent, the authority normally cannot be revoked, i.e., where the authority is coupled with an interest, the authority is generally irrevocable […] Similarly, where a power of attorney is given to a purchaser for value and is expressed to be irrevocable, the authority is not revocable nor is it revoked by the death or disability of the donor. However, in all cases where the agency is gratuitously created and is created merely for the benefit of the principal, it terminates at law with the latter's death or mental incompetency.¹⁵

Therefore, when drafting a power of attorney in the commercial context, it is recommended that it be made clear that the power of attorney granted is (i) for valuable consideration to secure an interest of the attorney (i.e. that the power of attorney is “coupled with an interest”) and is irrevocable; (ii) not subject to the SDA, even if the power granted may be exercised during the grantor’s incapacity to manage property; and (iii) not subject to the common law requirements that the attorney owes fiduciary obligations to the grantor or that the grant terminates on the death or disability of the grantor.

Furthermore, as under the SDA, a CPOA is to be executed by two witnesses (which cannot be the attorney or their partner, or the grantor’s partner or child),¹⁶ a power of attorney in the commercial context likely need not be witnessed and it is recommended that in such a situation, if witnessed at all, it be by no more than one person (which can be the attorney or their partner, or the grantor’s partner or child) to distinguish such grant from a CPOA. However, this factor is not determinative.

Please note that the information provided in this article does not constitute legal or professional advice or a legal opinion of any kind. If you require any assistance regarding specific legal issues with respect to corporate and commercial transactions, please contact Ahmed Mudathir, Matthew Literovich or another member of Dentons’ corporate group or other legal counsel.

^{1 2015 ONSC 6741 at paras 92-93.}

^{2 R.S.O. 1990, c. P.20 [POA Act].}

^{3 1992, S.O. 1992, c. 30 [SDA].}

^{4 Supra note 5 at para 51.}

^{5 Spar Roofing & Metal Supplies Limited v. Glynn, 2016 ONCA 296 at para 50 [Spar Roofing].}

^{6 Supra note 2, s 2.}

^{7 Supra note 5 at para 51.}

^{8 J.B. v. De Souza, 2018 ONSC 4061 at para 15 [De Souza].}

^{9 Supra note 3, s 7(1).}

^{10 Ibid, s 8(2).}

^{11 Supra note 3, s 12(1).}

^{12 Ibid, s 8(1)(d)}

^{13 Ibid, s 32(1).}

^{14 [1972] 2 O.R. 239.}

^{15 Ibid at p 2.}

^{16 Supra note 3, s 10.}