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Law 451 – Trusts – John Smith – Rock MINI CAN Spring 2018

The essence of a trust is that the fiduciary (trustee) must put the beneficiary’s interests ahead of their own, and act in the best interests of beneficiary to the exclusion of their own interests.

At one level, the rights of the beneficiaries are the corollary of the trustees’ obligations. The beneficiaries have the right to insist that trustees carry out their obligations and can seek legal redress if they fail to do so.

At another level, the interests of the beneficiaries are a species of property. A vested beneficial interest in a trust can be disposed of, can pass by inheritance, and can be attached by or on behalf of the creditors of the beneficiary. One powerful right of the holder of the entire vested beneficial interest in a trust is to terminate the trust and demand that the trustee transfer the trust property to the beneficiary, notwithstanding any contrary provision in the trust (Saunders).

Creation of Express TrustsIn order to create an express trust:

1. The trust must be legally vested in the trustee (i.e. the trust must be constituted)a. There are two ways in which one can constitute a trust:

i. Transfer the property to the trustee; OR Must vest legal title to the intended trust property in the intended trustee(s). The proper mechanism for

vesting title is the same as for transfer of the property in question for any other purpose (e.g. an outright gift, or performance of a contract), and depends upon the nature of the property.

CL and statute provide specific requirements for effective transfer of title to particular kinds of property, e.g.: o real property: (registration of title, or at a minimum delivery of a registrable instrument of transfer), o shares in a private company (registration in the central securities register or equivalent), o negotiable instruments (endorsement), o chattels (physical delivery) and o choses in action (assignment).

Commercial practice has rendered some of these functionally obsolete. o E.g. most shares are held through depositories and investment accounts with brokers, as opposed to

being registered in the name of the holder. Milroy: classic case of the court holding that no trust was constituted. Re Rose and Mordo: a trust was held to exist prior to full transfer

ii. Self-declare as trustee – the current owner of the property declares that the property they already own is now being held in trust for some beneficiary.

While UNCOMMON, “self-declaration” is an accepted mode of creating a trust. A person wishing to do this becomes trustee by executing a written declaration of trust that leaves no doubt as

to their intention to create a trust, the property subject to the trust, and the beneficial interests. Carson - “– the indispensable thing – I take to be, that the donor … should have absolutely parted with that

interest which has been his …”2. AND there must be the three certainties:

a. Intention to create the trust,i. Certainty of intention is a question of fact, and the Court may examine what a deceased settlor said prior to his or her

death: Jones v. Lock (1865), Paul v. Constance, [1977] ii. Alleged self-declaration as trustee (don’t need doc but need clear statement) (Jones Re Elliot, Paul)

iii. Precatory words in a will (wants recipient to give some/all to another) (Hayman)iv. Outright gift vs. limited interest (hold in trust for others) (Re Walker)

b. Subject matter (trust property), and c. Objects (beneficiaries).

Passing a gift on death: Executor appointed by testator; or appointed by court (if not chosen). Personal representatives w/ same duties and powers as T’s. When testator dies, property vests in personal representatives. There is no “transfer” – but is a “transmission”. The trust declared is therefore properly constituted.

EXPRESS TRUST CONSTITUTION CASE LAW:Milroy v Lord: Settlor must have done everything necessary to transfer the property to make settlement binding upon himselfSettlor executed a settlement in favour of his niece (beneficiary). Lord is the trustee. Trust doc purported to transfer 50 shares to Lord to hold in trust for B. Share certs were given to Lord, but were never registered, so legal title never transferred. B is bringing an action against Lord, as trustee, for giving up trust property to the estate. Court held that Lord’s ability to transfer shares only made him an agent, which is not enough to constitute trust.R2: There are 3 ways to effect a transfer :

1) transfer property to beneficiary directly2) transfer property to trustee for purpose of settlement (MUST DO ALL STEPS REQ’D); or3) declare settlor as trustee, to hold property in trust (as in Carson)

R3: Cannot rely on the law of trusts to fix an imperfect instrument.

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Applications of Milroy : Carson: Deceased has deeds to transfer parcels. He gave the deeds to the lawyer and asked the lawyer to deliver them on his behalf when he

dies. His will left his estate to his brothers, who argue that nothing was done to effect transfer, and deeds should pass to estate.Inter vivos transfer will be invalid for want of delivery: though the deceased gave deeds to his lawyer, he retained control and authority and can therefore not conclusively say that he intended for them to be transferred. No express trust either b/c to establish creation of a trust, must prove settlor’s intention by doing everything necessary to transfer property (Milroy).

Ratner 2010 BCCA: Absent an intention to gift or hold property in trust, no trust will be created. Son sold and assigned shares to his mother when he moved to avoid taxes, assuming she would return them. Mother used income from shares to pay for medical care. When son returned, she signed a document of transfer, delivered it to the lawyer, but did not complete a transfer form, NOR a director’s resolution. She then cancelled the gift of shares. Son claims his mother held the shares on trust for him. Doc signed by mom made no reference of any trust.

Exceptions to the Milroy v Lord rule that “law will not perfect an imperfect gift:” Re Rose: a gift will effectively transfer where the donor has done everything he is obliged to do to make it valid. Settlor wanted to transfer

shares to his wife, in consideration of her love and affection. He completed transfer forms, gave them to his wife, wife gave them to company for registration. Settlor then died. Tax Revenue Agency is seeking to prove that the transfer DID NOT occur before settlor’s death, in which case it could tax the intestate transfer. Wife is instead arguing that they made every effort to effect a valid trust before the death.

T Choithram: the fairness required by equity meant the fact that the trust property was vested in one trustee at the time of the gift was sufficient to make the conveyance to the trust valid. Settlor was dying and wanted to start a foundation. He drew up a trust deed w/ himself as trustee. On deathbed, he said “I now give all my wealth to the Trust." Other people who stood to inherit challenged the foundation's claim.

Pennington: Completion of forms and delivery to a company was enough in Re Rose, but it delivery to the company was not a further essential step. It was enough that the transfer was intended to have immediate effect. Aunt wanted to transfer shares to her nephew. She asked her auditor to prepare a transfer form, which she completed, then returned to the auditor. Auditor failed to give the transfer form to the company. Aunt died. Nephew is now arguing that Re Rose should apply to have effected the transfer before the death. Aunt’s other heirs argue, in the alternative, that the case should be distinguished b/c aunt did not give the transfer form to her nephew or the company.

Mordo v Nitting: “everything necessary” to create a valid trust will be satisfied by completing a transfer form and giving it to a defined trustee. Mordos moved to Vancouver (husband, wife, two kids). Husband set up business. Children became involved in business as they grew up. Family then fell out with son, who bought his father out and fired his sister from the business. The parents amended their wills to ensure the son would get nothing on their deaths; they transferred most assets into joint ownership with their daughter. Mother stated in a statutory declaration that her son did “not need anything from me to look after himself and he does not deserve anything.” Mother also created a trust and named herself and daughter as beneficiaries. Daughter could call for the trust property during her lifetime as a beneficiary. Mother executed a transfer (Form A) in transfer of the trustee, but he did not register the transfer until after Mother’s death. After his parents were dead, son claimed that the trust was not validly constituted. Whether one applies (1) the "everything necessary" test in Re Rose, (2) the equitable principles of Pennington, or (3) the effect of s. 20 of the Land Title Act, the result is the same: there was a valid act of transfer to create an inter vivos trust.

REQUIRED CERTAINTIES CASE LAWCertainty of IntentionAt least two kinds of fact pattern arise that engage an element of “certainty of intention”:

alleged self-declaration as trustee; “precatory” words in a will, which can give rise to ambiguity as to whether

o an outright gift to a person was intended, with a non-binding expression as to what the recipient would do with the property; ORo the person was to receive only a limited interest, being obliged to hold the remaining interest on trust for others.

CERTAINTY OF INTENTION w/r/t SELF-DECLARATION Jones v Lock: Courts are reluctant to conclude that property interest can pass on the basis of ambiguous statement re: intention alone.

Jones was an iron monger and philanderer. He had children by his first wife, and an infant by his second wife. He wrote his infant a cheque for £900 (equivalent to 400k) and advised that he would “lock the cheque in his safe for the benefit of his infant son”, and made an appointment with a solicitor to arrange a trust for his infant son. Jones then died. In his will, infant son got nothing. Second wife is arguing trust. No trust found.

Paul v Constance: for self-declaration, must be sufficient evidence of intention to become a trustee, but technical words are NOT required.BF opened bank account solely in his name but told his GF “this money is as much yours as mine” many times. Some joint winnings were later deposited. Judge allowed GF’s argument that these words conveyed a present declaration and constituted an express trust.

Re Mellen: Official trust documentation is not required if there are other endorsements as evidence that the deceased "constituted herself a trustee by the language she used."

Deceased held fifteen $1k bonds in four separate envelopes in her safety deposit box. All registered in the deceased’s name with a handwritten instruction that the contents of the envelopes should be used solely for the benefit of her son. Express trust found to have been created by deceased.

Re Elliott: inter vivos trust that does not deal w/ land has no formality requirements and may be made orally or in writingMom made will for kids, excluding B, a disabled dependent child. Mother agreed with other children to contribute to a trust for him from their inheritances. The mother successfully created an inter vivos trust before she died. The mother also created a separate account holding GICs.I: Is B entitled to an interest in the GICs? C: Certainty of intention can still arise absent formal trust doc; court must look at surrounding circumstances; in this case, words and conduct show that a simple gift of GICs was not intended for B; the intention was to create an express trust.

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CERTAINTY OF INTENTION W/R/T OUTRIGHT GIFT VS. LIMITED INTEREST (PRECATORY WORDS)It can be difficult to determine whether a testator intended to give (1) an outright gift to the first donee, giving that done the ability to dispose of the property in any way they wish, OR (2) a limited gift to the first donee, who is obliged to hold the remaining interest in the property on trust for others.

Re Walker (LEADING CASE): When testator gives property but adds a gift over, there are 2 possibilities (gift vs. trust test)1. Absolute interest has been transferred, and all subsequent instructions for later use or transfer of the property are repugnant.2. Property transferred to first donee as a life estate, and the gifts-overs after the first donee’s death are valid.In determining whether (1) or (2) should prevail, the court should give effect to the testator’s dominant intention.

F: Testator gave his wife “all of my real and personal property … should any portion of my estate still remain in the hands of my wife at time of her decease … the remainder shall be divided as follows.” C: There was an absolute transfer as there was a dominant intention to benefit his widow.

Hayman v Nicholl: Precatory words generally are held to be insufficient to create a trust. It must be shown that both the communication and the circumstances it was made in imposed an obligation on the alleged trustee and that it was accepted.

F: Mother leaves $ to daughter in will, “in full confidence that she will dispose of the same in accordance with the wishes I have expressed to her.” Daughter died w/o distributing $. The heirs to the mother’s estate claim the funds were held on trust for them and should not be distributed to the daughter’s heirs. C: No trust – words were merely precatory and indicated a desire, not an obligation.

Sprange: Beneficial interests must be certain to raise a trust. To find a limited interest, instrument must be defined w/ precision/certaintyF: Will left husband $300 in joint stock annuities for his “sole use, and all that is remaining that he has no necessary use for to be equally divided between her brothers and sisters.” At the time of wife’s death, stock was vested in trustees. Husband asked for payments, but trustees refused, alleging that he had only an equitable life estate and the testator’s brother and sister had an equitable remainder. C: Husband is entitled to gift absolutely – the will’s wording did not indicate an intention to benefit siblings absolutely.

Ottaway v Norman: The essential elements of a secret trust are:(i) the intention of the testator to subject the primary donee to an obligation in favour of the secondary donee;(ii) communication of that intention to the primary donee; and(iii) the acceptance of that obligation by the primary donee either expressly or by acquiescence.

It is immaterial whether these elements precede or succeed the will of the donor.F: By his will, Harry Ottaway left his home, £1500, and half of the residue of his estate to his common law spouse Hodges. There had been an agreement that she would leave the home and its contents to Harry’s son William if she happened to survive Harry. William and his wife knew of this agreement. After Harry died, his CL spouse drew up a will leaving the home and its contents to William and his wife; however, before she died, she drew up a new will leaving the property to the Normans. William Ottaway thus sued the Normans, claiming that the bequest they received was held on trust for them by operation of a secret trust. Court finds that Harry intended for his CL spouse to be obliged to dispose of the home in favour of the plaintiffs, he communicated that intention, and CL spouse accepted that obligation = bungalow is for plaintiffs. However, there is not sufficient evidence that Harry intended for CL spouse to be compelled to leave all her money, from whatever source derived, to the plaintiffs.

Certainty of Subject Matter/TermsIt is essential that the trust property be defined with sufficient precision. (e.g. a trust of “the bulk of my estate” would be void for uncertainty).An overly mechanical application of the rule, however, can result in seemingly unfair circumstances:

Boyce: a testator gave his four houses on trust that A should have one house “whichever she may think proper to choose or select,” and that B should have the other three. A predeceased the testator and thus could not make the choice. The Court held that the gift to B also failed because of uncertainty as to which three houses she would take.

Re Golay: provision to pay a “reasonable income” was sufficiently certain (Determining the beneficial interest by use of a “formula” is acceptable so long as it will produce a definite result)

Commercial context Re Westar Mining: Quistclose/purpose trust: Where party A gives party B funds to be used only for a specific purpose, the funds are

impressed with a Quistclose trust. They must either be used for that purpose or returned to Party A. Party to a joint venture goes bankrupt. JV account is seized by creditors, and suppliers and employees are now contending that the JV account funds were impressed with a purpose trust to pay them. YES – JV agreement specified that JV account would be used solely to pay operating expenses to employees & suppliers.

Quistclose: gave loan for a particular purpose, and held that until the money can be used for the particular purpose, they retained an equitable interest (resulting trust) in the money. Rolls Razer was going bankrupt but wanted a loan so that it could pay dividends. Rolls Razer got a loan from Quistclose, but QC sent the bank the money, but held that it must be kept in a second account and could only be used to pay dividends. Rolls Razer then goes bankrupt and is barred from distributing dividends. The bank is arguing that this was a loan transaction, and RR’s shareholders must get in line along with all other creditors to determine what they can recover. Quistclose disagreed. HOL: agreed with Quistclose and held that they had a resulting trust and could have their money back.

Certainty of Objects (Beneficiaries) Discretionary trust = mandatory obligation to distribute + power of selection

o T is required to distribute income/capital among Bs, but has discretion as to which B’s will receive, how much, and when. Power of appointment to trustee = power to distribute + power of selection (both aspects within trustee’s discretion)

o E.g. At any time, T may distribute all or any part of the capital of the trust fund to my children in such proportions as T determines. Power given to third party

o Arises when the trust deed grants the power of selection to someone other than the Trusteeo E.g. T shall distribute all or any part of the capital of to such of my children in such proportions as X may from time to time direct.”o Another way to involve someone other than T in decision-making could be require T decisions to be approved by some gatekeeper

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Discretionary trusts have been called: “trust power” and “power in the nature of a trust”Power given to the third party has been referred to as “bare power of appointment”

CASE LAW RE: CERTAINTY OF OBJECTS Re Baden (No 1): The majority stated that a “similar” test for certainty should apply to discretionary trusts as the test for validity of powers,

and returned the case to the Chancery Division.Trust provided that distributions could be made to employees and ex-employees of a company and their relatives and dependants. After the settlor died, his executors sought declarations that the trust was invalid because the expressions “relatives” and “dependants” did not satisfy the test for certainty. HOL: unanimously held that the deed in fact created a discretionary trust with a duty to distribute, but divided sharply over the proper test for certainty of objects in a discretionary trust. Lord Wilberforce OBO the majority discussed role of the court in “executing” a discretionary trust if T fails to do so, and concluded equal division was not only possible outcome. He also held that conceptual uncertainty would invalidate a trust, but evidentiary uncertainty would not (discussed further in Re Baden (No.2); and mused that a very broad class could be administratively unworkable, an idea which was addressed in Re Manisty’s Settlement.

Re Baden (No 2): The HOL in Re Baden said that the test for certainty in a discretionary trust is: is the expression of how you are to determine the beneficiaries sufficiently clear that you can work with it to determine the beneficiaries? IF YES, it becomes a matter of evidence as to whether beneficiaries can bring enough evidence to prove that they fall within the class.

At bar, there are many people w/r/t whom it was not be possible to say with certainty that they either were (not) members. Trust must fail. Re Manisty: You can create powers by exclusion as well as inclusion - “hybrid” or “intermediate” powers can create a class consisting of

anyone in the world except a specific group. The validity of this power depends on the excluded class being defined with sufficient certainty. Trustee held power to add anyone as B except members of excluded class. C: valid, b/c excluded class is certain.

Re Coates: special power of appointment without a duty does not require that the whole class of B’s be ascertained a priori. Can determine from language and context of the will to see if T can ascertain who is an object.

Testator stated in will to provide for my wife, and if my wife feels I have forgotten any friend, I direct my executors to pay such friend(s) $25 as are nominated by my wife. C: power does not fail for uncertainty, esp. because wife has no duty to name friends, simply a power.

Re Conner: Duty to distribute to “close friends” w/discretion as to which and when. Too many meanings of “friends” to be certain. Dissent considers context of small town as helping provide certainty.

Canadian courts tend to follow Re Baden : T. Eaton - Supreme Court of Canada decided that “needy or deserving Toronto members of the Eaton Quarter Century Club” was a valid

charitable trust. Court determined that the word “deserving” had a sufficiently clear meaning that did not enlarge the class of potential recipients beyond those who might constitute a proper class for a valid charitable trust for the relief of poverty.

Re Baden has also been referred to with approval by ONCA (Re Hemerdon) and in BCCA (Lewis)

Formalities and Testamentary Issues1. Formalities

There are few formalities that would be required in connection w/ a declaration of trust. One litigious formality is the requirement that testamentary dispositions be executed in compliance w/ WESA. The normal requirement is that they be under a will, which must be in writing, and the person signing the will must generally do so in the presence of two witnesses at the same time.

Carson/Beardmore: if intended gift cannot take effect until the donor’s death, it amounts to a testamentary disposition. E.g. Settlor transfers shares to a trustee pursuant to a trust deed which provides that the trustee must pay all of the income to the settlor (as

beneficiary) while she is living. Following the settlor’s death, the trust deed requires the trustee to distribute the trust property among the children of the settlor.

It will also be true even where the settlor reserves a power in the trust deed to revoke the trust, because unless and until that power is exercised, the trust is validly constituted and remains in force (e.g. Mordo v Nitting)

The approach in this area is also impacted by the “saving” provision in s. 58 of WESA .

Law and Equity Act, s. 59 – Enforceability of contracts59 (1) In this section, "disposition" does not include

(a) the creation, assignment or renunciation of an interest under a trust, or(b) a testamentary disposition.

(2) This section does not apply to(a) a contract to grant a lease of land for a term of 3 years or less,(b) a grant of a lease of land for a term of 3 years or less, or(c) a guarantee or indemnity arising by operation of law or imposed by statute.

(3) A contract respecting land or a disposition of land is not enforceable unless(a) there is, in a writing signed by the party to be charged or by that party's agent, both an indication that it has been made and a reasonable indication of the subject matter,(b) the party to be charged has done an act, or acquiesced in an act of the party alleging the contract or disposition, that indicates that a

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contract or disposition not inconsistent with that alleged has been made, or(c) the person alleging the contract or disposition has, in reasonable reliance on it, so changed the person's position that an inequitable result, having regard to both parties' interests, can be avoided only by enforcing the contract or disposition.

(4) For the purposes of subsection (3) (b), an act of a party alleging a contract or disposition includes a payment or acceptance by that party or on that party's behalf of a deposit or part payment of a purchase price.(5) If a court decides that an alleged gift or contract cannot be enforced, it may order either or both of

(a) restitution of a benefit received, and(b) compensation for money spent in reliance on the gift or contract.

(6) A guarantee or indemnity is not enforceable unless(a) it is evidenced by writing signed by, or by the agent of, the guarantor or indemnitor, or(b) the alleged guarantor or indemnitor has done an act indicating that a guarantee or indemnity consistent with that alleged has been made.

(7) A writing can be sufficient for the purpose of this section even though a term is left out or is wrongly stated.

WESA, s. 37(1) – How to make a valid will37 (1) To be valid, a will must be(a) in writing,(b) signed at its end by the will-maker, or the signature at the end must be acknowledged by the will-maker as his or hers, in the presence of 2 or more witnesses present at the same time, and(c) signed by 2 or more of the witnesses in the presence of the will-maker.

WESA s. 58 – Court order curing deficiencies58 (1) record includes data that is stored electronically, can be read by a person, and is capable of reproduction in a visible form.(2) On application, the court may order under (3) that a record represents the testamentary intentions of a deceased person.(3) Even though the making of a will does not comply with this Act, the court may order that some document or writing be fully effective as thought it had been made as the will of the deceased person.(4) If an alteration to a will makes a word or provision illegible and the court is satisfied that the alteration was not made in accordance with this Act, the court may reinstate the original word or provision if there is evidence to establish what the original word or provision was.

Estate of Young 2015 BCSC: discussed the limits placed on the court’s curative powers [under WESA s. 58].o “testamentary intention" is a deliberate or fixed and final expression of intention as to the disposal of his/her property on deatho [35] … A deliberate or fixed and final intention is not the equivalent of an irrevocable attention … a will … is revocable until the

death of its maker. Rather, the intention must be fixed and final at the material time, which will vary [with] circumstances.

WESA, s. 59 – Rectification of will59 (1) On application, a court may order that a will be rectified if the court determines that he will fails to carry out the testator’s intentions because of:

(a) an error arising from an accidental slip or omission,(b) a misunderstanding of the testator’s instructions, or(c) a failure to carry out the testator’s instructions.

(2) Extrinsic evidence, including of the testator’s intentions, is admissible to prove (1).(3) An application under this part must be made no later than 180 days from the date the representation grant is issued, unless the court grants exceptional leave.(4) If exceptional leave is granted to rectify a will after 180 days from the date of the representation grant, a personal representative who distributed part of the estate is not liable if, in reasonable reliance on the will, the distribution is made

(a) after 180 days from the date the representation grant is issued, and(b) before the notice of application for rectification is delivered to the personal representative.

(5) Subsection (4) does not affect the right of any person to recover any part of a distributed estate from a beneficiary.

2. Testamentary Dispositions (Will trusts) Carson: true test of delivery is whether the grantor intended to reserve to himself the locus poenitentiae (= opportunity to withdraw).

Deceased executed deeds to transfer parcels to named persons while he was alive. The deeds were then given by the deceased to his solicitor with instructions to deliver them to the donees after his death. In the meantime, the deceased managed the property and collected mortgage payments. The deeds were valid transfers but did not comply with the formalities of the Wills Act. NOT an inter vivos transfer b/c no effective delivery (at any point, the donor could have gone to his solicitor and told him to return them). Did the documents constitute a declaration of trust? Cites Milroy for the “every effort” doctrine. A man may transfer his property, without valuable consideration, in one of two ways:

1) he may completely divest himself of the legal ownership, in which case the person who by those acts acquires the property takes it beneficially, or on trust, as the case may be; or

2) the legal owner of the property may constitute himself a trustee, and, without an actual transfer of the legal title, may deal with the property as to deprive himself of its beneficial ownership, and declare that he will hold it on trust.

He need not use the words, "I declare myself a trustee," but he must do something which is equivalent to it. Court is not at liberty to construe words otherwise than according to their proper meaning.

Re Boardmore: Testamentary dispositions must comply w/ the formalities to be valid.

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Beardmore separated from his wife using a detailed separation agreement, which provided for payment of a separation allowance, custody, education, and maintenance of their children. Para 15 of the agreement was intended to create an express trust: “Husband transfers to Trustee, to take effect on his death and no earlier date, 3/5 of net estate.” Later, Beardmore applied to have the trust declared invalid as he wanted that portion of his estate back. C: Trust is void for want of compliance w/ the Wills Act formalities.

Mordo: Warehouse trust and inter vivos declaration by the mother that her daughter should hold legal title after her death. Was the trust a valid inter vivos transfer? YES. No specific form requirements for inter vivos trusts (Evans). While L&EA s. 59 requires writing for transfers of land, s. 59(1) does not require trusts to be in writing. Was the trust a testamentary disposition?

Whether a trust is inter vivos or testamentary depends on the intention of the settlor. The court finds that the trust here was NOT testamentary for two reasons. Retention by settlor of a power to revoke a trust, does not, alone, make a trust testamentary (Re Evans); and if the settlor’s intention is clear, as it was here, it will be determinative.

Is the trust void for repugnancy? A trust will be void for repugnancy when the settlor purports to give a beneficiary a certain interest, and then (1) retracts from that interest

by attempting to take part of it back, or (2) by giving it to another person. First inquiry: when did the trust vest? The rule from Browne v Moody is that courts prefer early vesting. There is nothing to indicate that the vesting should delay; Browne applies. Daughter got a VALID vested interest in the trust, subject to divesting, w/ possession postponed until mother’s death. C: Trust is not void for repugnancy.

Purpose, secret, and half-secret trusts a. Purpose trusts

Purpose trust = a trust which is for one specific purpose. Purpose trusts ARE NOT trusts requiring money to be applied in a particular way. (e.g. trust for a brother to use for his son’s education is not a purpose trust. The son is still a beneficiary).

The starting proposition is: Re Astor: purpose trust for a non-charitable purpose is invalid. HOWEVER: a trust is established to benefit 1+ people, but not to give them the trust funds, that trust is valid even though it is for a “purpose”. If an attempt is made to create a trust for a true non-charitable purpose, without any human beneficiary, the trust to be void.

o Perpetuity Act s. 24: limited saving provision: a trust for a specific non-charitable purpose that creates no enforceable equitable interest in a specific person must be construed as a power to appoint the income or the capital, but only for a period of 21 years, even if the intention of the disposition creating the trust was for a longer duration.

b. Secret and half-secret trusts Secret trust = when a testator makes what appears to be an outright gift to an individual, but the testator communicates to the recipient that they are to transfer the property to, or use it for the benefit of, another person.

Ottaway v Norman 1972 UK – valid secret trust: Elements of a secret trust: (1) Intention of testator to subject trustee to an obligation in favour of a beneficiary; (2) Communication of this intention to trustee, and (3) Acceptance of the obligation by trustee. F: In will, O left assets to his CL spouse and she agreed to leave the home to O’s son. Son knew of this arrangement. CL spouse later revoked the will, and wrote a new one leaving the house to the Normans. O is claiming the property was held on trust for him. Valid secret trust, H is liable.

Re Boyes 1883 UK – invalid secret trust: If a trust was not declared when will was made, it is essential that the trust is communicated to and accepted by trustee in the testator’s lifetime for it to be binding. Settlor created will leaving property to his lawyer absolutely. He sent two subsequent letters to his lawyer with instructions to provide for a woman and child w/o naming them. Settlor’s family claims that subsequent trust is invalid b/c directions were not communicated. Trust invalid due to informality.

Half-secret trust = when the will states that the recipient is to hold on to the trust, but without specifying the terms, with the testator communicating the terms to the trustee outside the will.

Blackwell: valid half-secret trust Half-secret trust elements : (1) before or at the time of making the will, settlor must communicate to the trustee that they are holding property for intended B; (2) settlor must communicate the identity of the real B to the trustee; and (3) T must accept this responsibility. F: in a will, settlor left $12K to 5 friends to be held on trust – to be invested as they in their uncontrolled discretion shall think fit; income and capital paid out to such persons indicated by me to them with full power as they think fit. Memo then delivered to trustee that specified name and address of the intended B’s (not named in will). Settlor’s family claims trust was invalid and $12K is residue of estate.

Two main concerns arise with half-secret trusts: 1. a declaration of trust that is partially “outside” the will should not be permitted, because to do so would violate WESA; but 2. Would be unjust for a recipient under a will to refuse to carry out a trust obligation w/r/t the property of which the recipient was fully aware.

English courts have developed a number of principles to balance these two concerns: 1. If the will appears to be an outright gift to a specific donee, then so long as the deceased has communicated to the donee, and donee has

accepted, that the donee is to hold the property in trust for a specified third party, the trust will be enforced (“secret trust”) - Ottaway2. If the will makes clear on its face that the property is given in trust, but without specifying the beneficiary, then communication of the

beneficiary’s identity must have occurred before or contemporaneously with will execution to be valid (half-secret trust) – Blackwell Resulting Trusts

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Resulting trust: when property vested in a person who is required to hold all or part of the beneficial interest as trustee for the settlor Parties who will claim a resulting trust: settlor; those claiming through or against settlor (e.g. estate, creditors)

Automatic Resulting TrustsThere are two ways in which automatic resulting trusts may arise: (1) failure of express trust, and (2) surplus funds.

FAILURE OF EXPRESS TRUSTS: property was transferred to intended trustee, but: Trust provisions are wholly/partly invalid

Uncertainty issues, vitiating factor E.g. Re Baden: trust failed for uncertainty, and trust property would be held on resulting trust for the settlor’s estate.

Trust doesn’t effectively dispose of the entire beneficial interest in trust property, OR e.g. settlor establishes trust for spouse for life, then for son provided son attains age 30, no alternate provision

should son die before 30 >> capital held on resulting trust for settlor/settlor’s estate if son dies o Holder of a life interest disclaims interest

tresult may be to accelerate the remainder interest, OR hold the income on resulting trust for the lifetime of that person.

SURPLUS FUNDS1. Trust is settled for the purpose of providing benefits to a particular person, and % of the fund remained when B dies 2. If there is no intent that funds should pass absolutely to the beneficiaries (only to support for their lifetime), then courts will find that

the intention is for the individual who holds fun and has discretion on how much to apply for their benefit.o Surplus is held on resulting trust for the original contributors.

3. If a will provides for absolute benefit for the beneficiary, and depending on the language and context of the case, court may find the disposition to be an outright gift, so there will be no resulting trust for surplus.

4. If settlor intended a gift to effect a purpose, then $ may be held in trust for the purpose; any surplus on resulting trust.

Re Abbott 1900 – automatic resulting trust by virtue of surplus funds – unapplied surplus held on resulting trust for original contributors.Fund was raised for two destitute women who had no money after misappropriation of trust funds from the estate of a relative who had provided for them. A surplus remained in the fund after the two women died. C: There was no intention for the fund to pass absolutely to the two women. The intention was for the trustees who held the fund to have discretion as to how much of the fund should be applied for the women’s benefit. Court also notably paid little mind to the practical difficulties associated w/ finding all of the original contributors

Re Barrett 1914 – no resulting trust found - outright gift left no room for a resulting trust.F: Will stated “I hereby give to my daughter whatever sum of money may be to my credit in any bank or upon my person or in my domicile at the time of my decease for the purpose of enabling her to meet the immediate current housekeeping expenses.” The amount in the testator’s account was more than the testator might have anticipating at the time of making the will. A: Nonetheless, the court concluded this was an outright gift. This is consistent w/ Re Walker’s theory of outright gifts vs. limited interests.

Presumptions of Resulting Trust and Advancement

PRESUMPTION OF RESULTING TRUST: it is presumed that the settlor retains a resulting trust where: (1) one person (settlor) provides funds for the purchase of an asset that is registered in another person’s name; or (2) one person (settlor) gratuitously transfers legal title to another, without explicit evidence of the intention to make a gift. Pecore: Presumption is rebuttable by evidence. Onus on transferee to rebut on a BOP, with proof of settlor’s intention for an absolute gift Dyer: Unless otherwise indicated, beneficial interest is presumed to stay w/ transferor, so that the transferee holds on resulting trust.

Trust of a legal estate; whether taken in the names of the purchaser and others jointly, or in the names of others without that of the purchaser; whether in one name or several; whether jointly or successive, results to the [man] who advances the money.”

PRESUMPTION OF ADVANCEMENT: when husband transfers to wife, or father transfers to child, there is a presumption that transfer absolute VJF v SKW: BC has not yet abolished this presumption – despite it being of limited continuing significance Niles v Lake: There is also NO presumption of advancement as between siblings. Shortly after her husband died, wife opened a joint

account in her own name and her sister’s name. Wife deposited $10k into the account without her sister’s knowledge, then died. Wife’s estate’s beneficiaries claim that the monies should pass by the will to them, rather than by right of survivorship to the sister.

Mailman Case: standard bank form did not rebut the presumption of a resulting trust. Pecore cites Niles v Lake with approval; however, Abella J, concurring thought “bank documents which specifically confirm a survivorship

interest, should be deemed to reflect an intention that what has been signed, is sincerely meant.”

Pecore 2007 SCC: The presumption of advancement should apply equally as between mothers and children and fathers and children. However, it should be severely limited. It should apply only as between parents and non-adult children. Also, does not extend to dependent adult children.This is not a difficult presumption to rebut (w/ evidence that resulting trust instead of gift was intended), but it remains the starting point. The civil BOP standard is required to rebut. F: Before dying, Paula’s dad transferred his money into an investment fund in both his and Paula’s name. Paula was the closest child to her father and was also caring for a disabled husband. When the father died, each other child received a bequest and Paula and her

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husband got the residue. The children took no issue with this arrangement. When Paula and her husband divorced, however, he argued that Paula held the funds on resulting trust for her father’s estate and that they should be distributed according to the will as residue of the estate. Paula argued instead that her father’s pre-death transfer should fall into the presumption of advancement. C: Presumptions of advancement continue in modern times, and indeed, here apply. Paula wins.

Pecore also discussed what evidence can be considered in determining a transferor’s intent w/r/t the presumptions. TJ must begin his or her inquiry by determining the proper presumption to apply and determine if has been rebutted. TJ may consider:

a. Evidence subsequent to the transferi. Shephard established strict rule that subsequent acts/declarations should be viewed w/ mistrustii. Neazor v Hoyle and other cases departed from this restrictive rule: such evidence can now only go to what the

transferor’s intention was at the time of transfer.b. Bank documents

i. Niles: bank documents used to set up a joint account are an agreement between the account and bank about legal title, rather than evidence of an agreement between the account holders as to beneficial title.

ii. Nevertheless, if there is anything in bank docs that specifically suggests the transferor's intent, courts may consider it.c. Control and use of funds in the account

i. However, evidence of use/control will not be determinative b/c:1. Transferor may have made mgmt. decisions, but this does not negate beneficial interests of other account

holders;2. Where there is an aging parent and a child, the transferee may refrain from accessing funds to ensure there are

sufficient funds to care for the parent; AND3. Just b/c transferor controlled/used the funds during his life does not necessarily mean there is no intention for

the transferee to acquire the balance on transferor’s death thru a right of survivorship.d. Granting of power of attorney

i. TJ has the discretion to consider the granting of power of attorney when deciding the transferor's intentionii. Esp. when other evidence suggests that transferor appreciated the distinction between granting that power and gifting

the right of survivorship.e. Tax treatment of joint accounts

i. Weight to be placed on tax-related evidence in determining transferor's intent should be left to discretion of trial judge.ii. Whether a transferor continues to pay taxes on the income earned in the joint accounts during his or her lifetime should

not be determinative of his or her intention in the absence of other evidence.

Nishi: Presumption of resulting trusts indeed still applies in BC. Money was transferred “without any conditions or requirements and these instructions are irrevocable” – rebutted the presumption - there was NO INTENTION AT TIME OF GIFT TO RETAIN A BENEFICIAL INTEREST.F: Kismet held a piece of land and had one shareholder, CP. Rascal was owned by HH, a successful businessman who often worked with CP and her family. Kismet leased the land to Rascal. Rascal then undertook a business to process topsoil on the land, which was permitted by the bylaws. Neighbours complained and petitioned for bylaws to be changed, which they were. Under the lease, it was Rascal’s obligation to remove the topsoil from the land, but Rascal refused. Kismet goes into default and sells the land to Nishi (who was dating CP). HH ultimately paid the necessary costs as a good faith gesture (gift). HH is now claiming a resulting trust and interest in the land equal to this payment. SCC: TJ found that there was "no issue of a gift." Evidence showed there was no intention by settlor (HH) to create for himself a beneficial interest at the time of the gift; NO RESULTING TRUST.

VJF v SKW: New Family Law Act scheme does not constitute a “complete code” that “descends as between the spouses” and eliminates common law and equitable principles relating to property. The presumption of advancement indeed still applies in BC.F: Each company director – including the husband in this case – received $2M from the CEO. The husband registers this in his wife’s name for tax reasons. They subsequently divorce. He now claims that property which he received was excluded. The husband also argued that the presumption of advancement should be abolished as the Family Law Act replaced any common law rules re: marriage. C: Husband not succeed; it was held to be marital property and she was prima facie entitled to ½ of it.

Eisener: ** would be decided differently today as the FLA now provides for provisions for persons in a “marriage-like” relationship**F: BF bought house, signed interim agreement, gave it to GF and asked her to sign also. She added her name as a buyer. As such, property was conveyed into both of their names. BF learned of this and tried to get her name off. When relationship dissolved, GF claimed a ½ interest. BF argued that he put up all the purchase price and accordingly there was a resulting trust in his favour. The evidence clearly establishes that Mr. Baker did not intend to benefit Ms. Eisener by placing her name on title. Did GF get a constructive trust? GF relies on cases in which unmarried women who remained in the home were awarded constructive trusts for their efforts, even when those efforts took place over a relatively short relationship … [59] In this case, I find that the plaintiff has not demonstrated that the defendant has been enriched by her actions. Nor has she demonstrated a corresponding deprivation. C: BF is entitled to a declaration that GF holds title to the house in trust for him, and an order vesting entire legal interest in him.

Where evidence discloses “illegal” intention 8


Issues also arise when the settlor’s intention is tainted with impropriety or illegality. Specific issues which have rec’d attention, include: Tillsey: If “illegal scheme” was not carried out, transferor can adduce evidence thereof to rebut the presumption of advancement.

But, if you must rely on illegal intention to prove the case, the law seems to be that the plaintiff must lose – with some exceptions: (1) if the claim is fanciful (Goodfriend); or (2) if the claimant has NOT repented from the illegal scheme (Tribe)

If the scheme has been carried out, the court LIKELY DOESN’T NEED TO refuse to assist either party, so that if the presumption of resulting trust would otherwise apply, the holder of legal title may nonetheless retain beneficial ownership.

b) Tillsey: the court can determine the outcome without regard to evidence of the scheme or relying on either presumption.

Goodfriend: When the transferee-transferor relationship is husband-wife or father-child, the presumption of advancement applies. Evidence of an illegal scheme will not rebut presumption of advancement; plaintiff must come with clean hands (Gascoigne)

F: The Goodfriends were farmers and swingers w/ their neighbours, the Cox’s. After some years, Mr. Goodfriend’s solicitor sent Mr. Cox a letter threatening to file a suit against him for alienation of affection of Mrs. Goodfriend. Mrs. Goodfriend suggested that her husband transfer the farm into her name to save it from potential creditors arising out of a law suit. The Goodfriends then divorced and Mr. Goodfriend is now seeking a declaration that the property is beneficially his. C: Had Mr. Goodfriend’s true purpose in transferring the property been to avoid potential creditors arising out of a suit with Mr. Cox, he could NOT have recovered the property. However, here, the creditors were “imaginary” as such, so he gets the property back.

Tribe v Soiseth: affirms Tinsley: in the case of an illegal scheme, courts should not get involved to enforce an arrangement that has been tainted by illegality. Barring such involvement, the person with legal title should win. (“where the guilt is equal, the defendant has the higher position”)F: T & S met in law school, married, and moved into a condo that T’s parents bought for her. On closing, title was registered solely in T’s name, with a second mortgage granted to her parents, and an option for her parents to buy the house for $10 at any time. This arrangement was set up solely so that both the daughter and parents could claim the principal residence tax exemption. When T & S’s marriage dissolved, she sought a declaration against her husband stating that she holds the condo only in trust for her parents. He argued this could not be true b/c it would be an illegal purpose trust. C: The intention is quite clear, without having regard to tax issues. The parents retained a second mortgage and option to repurchase the land, both of which they registered. The parents’ intention was to retain beneficial title to the property. B/c the illegal intention had not yet been carried out. As such, the parents’ intent to simply give T & S a place to live rebutted the presumption of advancement.

Trustees’ DutiesBasic duties It is helpful to differentiate between what trustees must do (basic duties), and the obligations that govern how they must carry out their basic duties and exercise their powers and discretions (performance duties).

Summary of basic duties: adhere to trust instrument (UBC v TLC)

o the duty to act in the best interests of the beneficiaries does not justify the trustee ignoring a mandatory provision in the trust deed. The trustee would only be safe in doing that with the informed consent of all beneficiaries.

o Unless trustee acted honestly and reasonably and ought fairly to be excused for breach of trust provisions – discretionary exoneration available from court under Trustee Act, s. 96

safeguard and preserve trust assets (Fales) prudent investment (Miles v Vince, Cowan v Scargill) comply w/ the law provide information (Re Martin) account (Trustee Act, s. 99)

1. Adhere to trust instrumentMost basic obligation of a trustee is to comply with the trust instrument. Failure is a breach and can expose trustee to personal liability. Land Conservancy is an instance of trustees acting in a manner they thought justified, but was held to violate the will in question.

Trustee Act, s. 96 – jurisdiction of court to relieve trustee of breach of trust96 - If it appears to the court that a trustee… is or may be personally liable for a breach of trust … but has acted honestly and reasonably, and ought fairly to be excused for the breach … then the court may relieve the trustee either wholly or partly from that personal liability.

1. Might occur, e.g., where a trustee advances a minor portion of the trust funds to the beneficiary before the beneficiary achieves some required state (e.g. reach age 30), but the beneficiary direly needs such funds (e.g. for life-saving meds)

Land Conservancy v UBC 2014 BCCA : Trustees have a positive obligation to comply with the trust instrument; if they act in a way that is inconsistent with the trust instrument instructions, the action will be ineffective, and if the transfer/action is not reversible, the trustees may be personally liable.F: Will instructed trustees to EITHER (1) create a society for preservation and transfer property to that society, OR (2) sell house and give net proceeds to a fellowship fund w/ UBC. Trustee instead created a new society, transferred the property to it, and then immediately transferred the property to the land conservancy. TLC then wanted to sell the property. UBC challenged the transfer on the basis that the trustee had no power under the will to have done this. Transfer was INVALID. The society wasn’t created to hold the property, but to act as a conduit.

2. Safeguard and preserve trust assets

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Trustee Act, s. 7 – power to authorize receipt of money7(1) Trustee may appoint a solicitor to be the trustee’s agent to receive money (2) Trustee may appoint a solicitor/banker as the trustee’s agent and permit them to have custody of and produce a policy of assurance (3) Trustee is still liable for breach if they permit the trust property to be under solicitor/banker control for longer than necessary (4) This section applies only to money or valuable consideration if property is received after July 1, 1905 (5) This section does not authorize a trustee to do anything that the trust instrument expressly forbids

Trustee Act, s. 8 – power to insure property8(1) A trustee may insure trust property to any amount and pay insurance premiums out of the trust property w/o beneficiary consent (2) This section does not apply to property that a trustee is bound to convey absolutely by the beneficiary if prompted to do so (3) This section does not authorize a trustee to do anything that the trust instrument expressly forbids

Trustee Act, s. 9 – power to compound9(1) An executor, or 2+ trustees, or a sole trustee, may, if they think fit, accept

(a) a composition or security for debt or property claimed,(b) allow times for payment of a debt, and(c) compromise, compound, abandon, submit to arbitration of otherwise settle a debt relating to testator’s estate or trust;

(2) For any purpose described in (1), the trustee/executor will not be responsible for loss caused by an act done in good faith.(3) This section applies if and only as far as no contrary intention is expressed in the instrument creating the trust.

Trustee Act, s. 11 – power to spend money on repairs and improvements11 The trustee can petition the court to make an order authorizing the trustee, executor, or administrator to

(a) spend money of the trust estate, or(b) borrow or raise money by way or mortgage/charge on the trust estate, and to spend that money

For the repair or improvement of the land, or to build something on the land, or to add to improve a building.

Fales: “a trustee’s primary duty is preservation of the trust assets… the enlargement of recognized powers does not relieve … the duty of using ordinary skill and prudence, nor from … application of common sense”F: Settlor held shares in a company on trust to provide income from his estate to his wife. The company then went bankrupt. There are two trustees: the widow and a trust company. Children are suing the trust company for breach of trust, failure to exercise appropriate skill and care by holding the shares for too long and allowing them to depreciate. Trust company is liable to B’s for lost income. Court discretion used to waive widow’s liability.

3. InvestmentNearly all statutes enshrine the “prudent person” standard, embodied in s. 15.1(1) Trustee Act, informed by Miles v. Vince.

Trustee Act, s. 15.1 – investment of trust property15.1 (1) A trustee may invest property in any form of property or security in which a prudent investor might invest, …(2) Subsection (1) does not authorize a trustee to invest in a manner inconsistent with the trust.(3) A trustee may also invest trust property in a trust fund managed by a trust company, regardless of if trust company is a co-trustee.

Cowan v Scargill 1985 ER: Investment decisions by trustees that are not based on purely financial considerations are PROHIBITED, unless provided for by the trust document. (JS thinks this is far too sweeping a proposition). Trustees also have the duty to consider the need to diversify investments.F: Pension scheme in employee benefit plan. There were 10 trustees (5 appointed by employer, 5 appointed by union). The union trustees wanted to restrict investments to local businesses. The mgmt. trustees instead brought an application for declaration that restricting investments is a breach of trust. I: Are trustees permitted limit their investments to “ethical/socially responsible/environmental investment”?

Miles v Vince 2014 BCCA: trustee must meet prudent investor standard, where he must meet skill, diligence and judgment [Trustee Act, s. 15.2], which includes considering interests of all B’s [duty of even-handedness].F: Trust held shares in a company that builds buildings in the downtown eastside (DTES). Settlor has cancer and puts an additional $2M into trust, and makes his wife the income beneficiary. Children are capital beneficiaries. The trustee then transfers shares in exchange for debt to find a building, and she lends money from the insurance trust into the building trust. This diminishes value for the capital beneficiaries, and income also decreases.C: BREACH OF TRUST, failed prudent investor standard (didn’t assess risk or consider diversification to preserve trust assets; not prudent to put all assets in illiquid real estate development). Remove trustee and appoint replacement.

4. Compliance with the lawAs the legal owner of the trust property, the trustee must comply with any legal requirements imposed on owners of that property. Compliance with laws extends to income tax legislation, liability for failure to comply with which may be to a third party (tax authorities) but could result in liability to the beneficiaries for any additional obligation (e.g. penalties and interest) that compliance would have avoided, for which the trustee may be personally liable. The trustee is entitled to be indemnified by the trust property for costs/expenses properly incurred in the mgmt. and preservation of trust property.

1. If trust property = shares: apart from taxation issues, there are unlikely to be any such requirements2. If trust property = real property: trustee will be obliged to pay property taxes, comply with zoning and other bylaws, etc.

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5. Provide informationWhat information trustees are required to provide to beneficiaries is complicated. The duty to provide information has been addressed in:

Re Londonderry: proposed a propriety basis for info disclosure, which many commentators regard as unsatisfactory: Schmidt v. Rosewood Trust 2003 UKPC, more favourably received in Canada, took a different: there may be circumstances (esp. of

confidentiality) in which even a vested and transmissible beneficial (proprietary) interest is not sufficient to require disclosure of trust docsVarious kinds of information can be the subject of disclosure by trustees or enquiry by beneficiaries, including:

information concerning the existence of the trust and interests under it; information about the trust property, receipts and disbursements; information concerning the trustees’ reasons for making decisions; the content of letters of wishes; legal opinions received by the trustees; information of corporations in which the trust holds shares; other information tending to show a breach of duty by the trustee(s).

Re Martin Estate 2009 BCSC: Citing from Schmidt: there may be circumstances (esp. of confidentiality) in which even a vested, transmissible beneficial interest is not a sufficient basis for requiring disclosure. There are three areas where the court may form a discretionary judgment:

(1) whether a discretionary object (or some B with only a remote or wholly defeasible interest) should be granted relief at all;(2) what classes of documents should be disclosed, either completely or in a redacted form; and(3) what safeguards should be imposed (e.g. undertakings to the court, arrangements for professional inspection, etc.) to limit the use which may be made of documents or information disclosed under the order of the court.”

R: B’s do not have any entitlement or right to disclose, particularly if there are personal or commercial confidentiality issues. TEST: court must consider and balance competing interests of B’s, T’s and 3rd parties when ordering disclosure.F: Trust made for settlor’s daughters, holding shares in land development corporation. The B’s asked a number of questions of the trustee, but trustee answered them only in part b/c the information was confidential and commercially sensitive. In this case, trustee had to disclose to B’s.

Breakspear v Ackland 2008 EWHC: self-dealing rule is prima facie breached when a trustee is also a potential object (i.e. beneficiary) of the power, and they exercise the power in their own favour. EXCEPTIONS: 1) if explicitly allowed by trust; 2) if implicitly settlor put T+B in inescapable position.F: Discretionary trust. Settlor wanted to make his partner both a T and a B. trust document included a provision allowing trustees to enter into transactions notwithstanding that the trustees may have a self-interest. T can be B too b/c trust permits it.

6. AccountThe trustee must always stand ready to account to the beneficiary for the trust assets. IMPLICATION: if trustee has invested improperly, or has distributed property to wrong person, or has misappropriated money, or cannot otherwise “account for” trust assets, T must compensate the B’s.

Trustee Act, s. 99 – passing of trustee’s accounts99 (1) Requires trustees to pass their accounts in court in accordance w/ the timing set out as follows (PROCESS NOT REQ’D if the accounts are consented to in writing by all beneficiaries):

(a) Trustee under will must w/in 2 years of probate date, or date of appointment, obtain a court order to pass first accounts(2) If beneficiary serves notice on trustee, trustee must pass accounts annually w/in 1 month of probate/appointment date anniversary(3) If accounts are not passed, are incomplete or inaccurate, trustee may need to attend court to show cause, and risks removal & costs(4) This section does not apply to the Public Guardian and Trustee, or any trustee appointed before May 1, 1949

7. Assessment of fulfilment of obligationsAn ex post facto assessment of compliance w/ trust duties is a binary exercise:

1. Trustee will be held to have complied w/ the trust instrument, as construed by the court, and w/applicable law, or not;2. Trustee will have provided required information, or not;3. Trustee will have provided appropriate accounting, or not.

The way the trustee has acted will determine whether they have any liability in the event of an undesirable outcome, depending on4. If the trustee has failed to demonstrate an appropriate level of skill and care or has delegated inappropriately; and5. If in performing a duty, or exercising a power, to sell, or exercising a power to retain assets, the trustee has demonstrated

appropriate skill and care and observed the duty of impartiality.

Performance and related duties Performance duties = duties that are imposed on trustees when performing their primary/basic duties. They include the duties to:

Act personally (Speight v Gaunt) Exercise appropriate skill, prudence and care, Act with loyalty, Avoid conflicts of interest,

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Behave impartially 1. Act personally (i.e. to NOT delegate)

Some legislative acts contain general power for trustees to delegate their functions and holding that the trustee will not be responsible for the default of any agents employed in good faith. BC Trustee Act has no such provision, but many wills and trust instruments do. Generally, trustee must exercise and undertake his own independent assessment of the best interests of beneficiaries. When exercising the power to delegate, the trustee is subject to the general requirement to use appropriate skill and care.

Speight v Gaunt 1883 UKHL: Trustees may rely on agents if out of moral necessity or in the regular course of business. T will not be at fault for delegating unless there was negligence or fault.F: T delegated authority to investment advisor. Advisor knew the day before account day that investments were ruined. Used false pretences to obtain $ from trustee w/ intent to apply it for his own purposes. Trustee was deceived. C: No negligence or fault on trustee’s part; entitled to rely on agent.

Trustee Act, s. 15.5 – Delegation of authority w/r/t investment15.5 (1) An “agent” is anyone to whom the Trustee delegates investment responsibility(2) Trustee may delegate authority w/r/t investment property that a prudent investor might delegate in ordinary business practice(3) Trustee must determine the investment objectives for the trust and exercise prudence in: selecting agent, establishing terms and limits of authority delegated, acquainting agent w/ investment objectives, monitoring agent’s performance etc. – if T complies w/ 15.5(3), will not be liable.(4) Agent owes a duty to the trust to exercise reasonable care to comply w/ terms of delegation(5) Trustee will not be liable to beneficiary for decisions of agents to whom their own functions were prudently delegated

2. Exercise appropriate skill, prudence and careFales is the starting point to determine if a T has exercised appropriate skill and care in the discharge of their duties. Key elements in the decision were:

• the lack of diligence displayed by the corporate trustee;• whether individual co-trustees should be held to a lesser standard of care, or, whether professional trustee should be held to a higher stnd;• whether either trustee should be exonerated under (now) Trustee Act s. 96

Trustee Act, s. 15.2 – standard of care15.2 Trustee must exercise care, skill, diligence and judgement of a prudent investor

Trustee Act, s. 15.3 – trustee not liable if overall investment strategy is prudent – diversification is implicit in this standard15.3 Trustee will NOT BE LIABLE for a loss to the trust if the trustee’s conduct conformed to a plan or strategy for investment of trust property, compromising reasonable assessments of risk and return, that a prudent investor would adopt under comparable circumstances.

Fales: No different SoC for individual (non-professional) trustee and professional trustee. SoC expected of every T is a person of ordinary prudence in managing his own affairs [don’t distinguish passive vs. active T’s].Dickson J cites Learoyd "the law requires of a trustee no higher degree of diligence in his office than a man of ordinary prudence in the management of his own private affairs >>> outcome will not be determinative; it is far more important to look at how the trustee came to investment decision.

Ermineskin Indian Band: While trustees are obligated to make prudent investment decisions, trustees ARE NOT guarantors of investment returns.

Re Waterman’s Will Trusts; Lloyd’s Bank: In Obiter: a higher standard of diligence and knowledge should be expected from paid trustees.

3. Duty of loyalty Duty of loyalty = the duty to put the interests of the beneficiaries ahead of the trustee’s own interests. While it is a positive duty, the jurisprudence focuses far more on the prohibitory nature of the duty, e.g. that a trustee: (1) must not profit from his office, (2) must not attempt to further his own interest; and (3) must not otherwise place himself in a situation where his interests (or duty to a 3P) conflict w/ his duty to the B’s.

Keech v Sanford 1762 UK: Trustee CANNOT purchase trust property for himself, however fair the terms, or make use of an opportunity that is only available because of his trusteeship. Right to receive profit for trust expired, T applied to renew but lessor refused. T thus obtained lease made to himself. Infant B then became the age of majority and applied to have lease assigned to him and to receive all profits of T obtained in meantime.

Boardman: Trustee is liable to account for profits made from trust property IF THERE IS A POSSIBLE CONFLICT B/W HIS INTEREST AND HIS DUTY TO THE PRINCIPAL (B’S), unless there is full informed consent from B’s (ESP. HARSH APPLICATION OF KEECH)Trust held shares. There were three trustees (widow, daughter, accountant), and four children beneficiaries. The solicitor for the trust found noticed a significant opportunity in the accounts of the company. He used this opportunity, which one of the trustees knew about, to make significant profits for both himself and the trustees. Other B’s are now claiming that the solicitor is liable to account for his personal profits. YES – the solicitor acted on information available to him only by reason of his trusteeship; he used this information to make personal profits, thus breaching fiduciary obligation.

NOTE: Lord Denning in the Court of Appeal advocated a very significant equitable allowance to the solicitor because of his effortsDISSENT –No potential conflict as trust was unable to buy any more shares. Info also wasn’t trust property. TEST: look to circumstances; general rule is T can use information UNLESS 1) it would be a breach of confidence, or 2) when there may be a COI.NOTE: Other cases demonstrate a different approach, that if no apparent harm is done and appropriate safeguards are in place, the transaction made

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by a trustee may be acceptable if it is otherwise honest, fair and reasonable.4. Conflict of interest

Strict approach: if sole Trustee is self-dealing (Breakspear).Relaxed approach: if T is buying B’s beneficiary interest, though risk of info advantage remains (Crighton).

Sun Indalex 2013 SCC: Even where there is a clear COI, you must examine what would have happened if the other side had been represented – would the result have been different? If no, there is no issue. It is insufficient to simply identify a conflict and demand a remedy. Must identify COI and a clear alternate outcome that may have arisen but for the COIF: Indalex was in financial difficulty. Its BOD chose to seek creditor protection. Indalex also administered two pension plans, and under provincial legislation, b/c it had not otherwise appointed a pension plan administrator, Indalex was the administrator and thus owed a statutorily imposed fiduciary relationship to act in the best interests of the pension plan members. On the other hand, corporate legislation statutorily requires the BOD to act in the best interests of the company. A: The SCC concluded that these multiple fiduciary duties put Indalex into a conflict of interest. When Indalex ultimately liquidated, the argument then became whether these new funds should be used (1) to pay off creditors, or (2) pay off a pension plan deficit. C: Court determined that the BOD’s fiduciary duty to the company was paramount over the fiduciary duties owed to the pensioners.

Majority demonstrates a pragmatic approach where a fiduciary owes duty to multiple persons – COI led to an inability for the pensioners to be represented at trial; however, by end of process, a new administrator had been appointed, thus COI was ultimately immaterial.

Breakspear v Ackland 2008 EWHC: The self-dealing rule: if someone is a trustee-beneficiary and has a discretionary power to distribute property to himself, but also potentially to others, then the trustee-beneficiary will have breached the self-dealing rule if they self-distribute unless

(1) the instrument specifically permits it, or(2) you have been placed into the position of needing to self-distribute by the settlor.

Practically: trust doc clause that sanctions, e.g. purchase of the trust property by trustee, could be very helpful (limited utility to a sole trustee)JS: this “rigorous rule” has yet to arise in Canada, would probably not be applied with such rigor in Canada. Most trusts have at least one beneficiary-trustee. Equity is not meant to be rigid and inflexible.

5. Purchase of trust property by trusteeWhen trustee is selling trust property for B’s, but also acting as buyer, problems arise b/c typically buyers and sellers have disparate interests.

Multiple trustees : if trust document provides that a trustee can buy trust ppty, a clause can stipulate that that T does not take part in the selling decision. [T should get clear valuation advice from an independent advice].

Purchase is VOIDABLE unless: court approval; or fully informed consent from B’s. Ex post facto approval: court will consider whether 1) transaction was fair and beneficial to B’s, and 2) if it’s open for court to undo the

transaction.

Molchan - if the beneficiaries are all legally capable, fully informed, (and have obtained independent legal advice), a trustee may sell trust property to himself. “Flexibilization” of the rigorous rule in Breakspear.R2: You can get court approval for a self-sale, and you can even get ex post approval if the court would have given approval beforehand. It must also be open to the court to either approve or disapprove; if there is no such decision (e.g. if the trustee had re-sold the property back onto a BFPV), then the court is unable to provide ex post approval b/c they did not have the option to disapprove the transaction.F: Case of a partnership, but treated the relationship as one of trustee. The general partner was the trustee.C: Despite the general rule is that a trustee may not purchase trust property (Lord Eldon), the court permitted such a sale.

6. Acquisition of beneficiary’s interestThe acquisition of a beneficiary’s interest is different from acquisition of trust property. A slightly more relaxed approach is possible. There is still a significant risk that the trustee will have an information advantage, and so clear safeguards are required. The approach developed by the courts in Crighton v. Roman is sometimes referred to as the “fair dealing” rule.

Crighton v Roman 1960 SCC: The general rule is that a trustee cannot purchase trust property, HOWEVER, the trustee may “self-deal” if he can prove three requirements:

(1) There has been no fraud, concealment or advantage taken by him of information acquired b/c of trusteeship;(2) The cestui que trust had independent advice, and every protection, and the fullest information w/r/t the property; and(3) that the consideration was adequate.”

F: Roman was trustee who also wanted to buy beneficial interest in the trust property. R: ONUS is on the trustee, who must give clear and affirmative proof, with evidence that B’s had information of material facts and they consented. In this case, trustee could not satisfy onus b/c no full disclosure.

7. Duty of impartiality & even-handednessDuty of impartiality = trustees must not maximize income by eroding the capital or putting it at risk, nor must they settle for minimal income for the sake of protecting the capital (must treat income and capital beneficiaries w/ the spirit of even-handedness) (Royal Trust v Crawford).

If asset is “wasting, hazardous or speculative”, trustee has duty to CONVERT assets into cash and to reinvest them (1st rule from Howe v Dartmouth) Trust document can make this an explicit duty, OR trust document can remove this duty expressly. If there is an obligation to convert, then pending conversion, income B is not necessarily entitled to all income (Re Fleming).

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Royal Trust v Crawford 1955 SCC: in the absence of a clear authorization to prefer one interest (income or capital) over another, T has duty to act impartially (general statement of the duty of impartiality).F: Testator gave the residue of his estate on trust to convert w/ a power to postpone conversion. He directed his trustees to pay the income of the residuary estate to his widow for life, and then upon her death to set aside sufficient residue to yield certain annuities to be divided among his nieces and nephews then alive. The majority of the estate was comprised of shares. When the testator died, the company had built up a large surplus, which is distributed to shareholders via dividends.

Cartwright J DISSENTING: the testator intended the residue to be enjoyed by different persons in succession. Applying Howe v. Dartmouth, a duty rested on the trustees to convert. The rule might have been excluded if the will disclosed an intention that the property should be enjoyed in specie, but the onus of showing this had not been met.

Re Smith 1971 ONCA: failure of a trustee to act impartially was *exceptionally* characterized as a breach of trust, leading to significant remedies.F: Testator left all of his shares to his son, expressing his wishes that the son use some of the shares to take care of his mother. If the son died first, the widow would get the capital. If the widow died first, the son would get the capital. The widow felt that she was not getting enough income while her son was still alive. She asked the trustee to sell some of the shares off to make more income while she was still alive. The trustee had a power but not an obligation to dispose of the shares.C: Court held that the T was failing its duty of even-handedness b/c the widow was getting an unduly low interest rate.

T was following the instructions of the son, who was a residual beneficiary. This represents a breach of even-handedness dutyIn this case: will provided trustees with a power to retain AND power to sell shares >>> trigger for duty to maintain even handThe court does not tell the trustee exactly how many shares to sell, b/c would usurp discretion; instead appoints a new trusteeIn circumstances which have clearly become unbalanced b/w income and capital beneficiaries, the court may direct a T w/ power to sell, to do so. The particulars of the sale are up to the trustee’s discretion.

Re Welsh 1980 ONCA: To determine whether distribution is income or capital, must assess the whole will in the circumstances at the time of execution. “The words "capital" and "income" have different meanings according to the context in which they are used.

F: The deceased married once, had some children; then remarried and had more babies. Fight ensues between the children of the first and second marriages. C: The court held that what the deceased meant by “income” was a matter for interpretation: “testator intended that the value of his interest in [the company] as represented by his shareholdings … to be the capital of his estate, and to be held as part of the residue of his estate after payment of specific bequests.” In sum: distribution of surplus capital fact scenario w/r/t dividends.

Neville v Wynne 2005 BCSC: the even-handedness concept has been litigated more recently in the context of pension or benefit trusts.

8. ApportionmentIf trustee does not convert assets into other investments, then trustee must APPORTION receipts of estate among capital and income beneficiaries on an equitable basis (Second rule from Howe v Dartmouth).

Chesterfield’s Trusts: Complementary rule to Howe’s two rules: the beneficiary is not restricted to the actual income where personal property subject to an obligation to convert is unproductive. Instead, the receipts (either of income, or of capital on eventual sale) can be apportioned so that the income beneficiary receives a set percentage of the capital value, no more no less.

Re Lauer & Steckl SCC: apportionment concept applies to real property.

Lottman v. Stanford SCC: the duty to convert does not extend to unproductive real property.

The current standard approach to will drafting is to empower the executors both to sell and to retain original assets, leaving the executors to determine what assets need to be sold and when, to raise cash to meet the financial obligations of the estate, and otherwise to exercise their powers to maximize the overall value of the assets in circumstances that develop. It is also standard to exclude the duty to apportion.

The dissenting judgment in Royal Trust v. Crawford illustrates a willingness to accept that outcome. To counteract this outcome, however, courts have demonstrated a more flexible approach by stressing the overall “duty of impartiality” in the exercise of the relevant powers and discretions, e.g. in the majority judgment of Rand J. in Royal Trust v. Crawford.

Jurisdiction of Court in Relation to TrustsApplication by trustees and others Courts have extensive remedial jurisdiction. Courts can be interventionist rather than simply remedial w/r/t trusts (distinct from other civil litigation)

Trustee Act, s. 86 – Application for directions86 T may apply for opinion, advice or direction of court on a question respecting the mgmt. or administration of trust property, or assets of a will-maker (HOWEVER courts WILL NOT advise or direct trustees as to how to exercise discretion)

Trustee Act, s. 87 – Effect and exception of s. 86 – if you follow court guidance, you are basically safe from action for breach of trust87 (1) Trustee acting on direction of the court is deemed, to the extent of his own responsibility, to have discharged his duties as trustee

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(2) This section will NOT indemnify a trustee who is guilty of fraud, wilful concealment, or misrep when obtaining direction from courtSupreme Court Civil Rules, Rule 2-1(2)(c) and (d) – choosing the correct form of proceedingRule 2-1 (2) To start a proceeding, a person must file a petition, or if Rule 17-1 applies, a requisition, where …(c) the sole or principal question at issue is alleged to be one of construction of an enactment/will/deed/oral or written contract, etc.;(d) the relief, advice, or direction sought relates to a question arising in the execution of a trust. (“relief” includes remedy)

Limits to jurisdiction (dispositive powers & powers of mgmt. and administration) Fulford is the guiding principle (courts cannot tell a trustee how to behave). However, in circumstances where there is a clear-cut breach vs. non-breach course of action, the court may offer some guidance (Re Fleming). Gisborne is a good starting point for discussing the limits of the court’s interventionist jurisdiction: Baden and Gisborne: courts are unwilling to direct trustees how to exercise discretion; HOWEVER:

1. courts may provide a remedy where a trustee’s motivation is suspect, and 2. the court may also intervene where multiple trustees disagree (i.e. breaking deadlock) 3. May also apply for approval of intended course of action where discord w/ some B’s, or a T-B, provided B’s rec’d notice of app.

If the court concludes that the trustee is choosing not to exercise a power for improper reasons, the court may prefer to change the trustee and let a new trustee decide whether and how the power should be exercised (e.g. Miles v. Vince and Re Smith).

Gisborne v Gisborne 1977 HOL: Courts have no jurisdiction to control discretion (provided no breach of duty, courts cannot review the decision). F: T’s had dispositive powers to pay portion or all of trust assets to B for her lifetime. Also, a B under another settlement. Mentally incapable, litigation guardians petitioned to have more income. T refused b/c there was another settlement to pay for her.I: Is a B is entitled to ask for more income under trust? H: No – within T’s discretion to decide not to.

Re Fleming 1973 OHCJ: The court was prepared to direct the trustees as to how to exercise a discretionary power because: One of the trustees stood to benefit from the decision; AND The choice was also binary (there are only two courses of action, and one would breach the trust), unlike power, e.g. Re Wright. If the court views one course of action as improper, it is more likely to direct the other course of action.F: the trustees applied to court for direction as to how they should structure a distribution from a wholly-owned company. The life tenant was receiving an average income of approximately $31,493 per annum on assets which were valued at the last passing of accounts at $800,000. This represents a return of just under 4%. C: trite law that the executors have duty to maintain an even hand between the life tenant and the remaindermen (Re Smith).

Action by multiple trustees The starting point is that in their execution of their powers, absolute and discretionary, executors must be unanimous (Re Wright) . Where executors agree in the exercise of a discretionary power conferred upon them by the will, the Court will not interfere with or overrule

their unanimous decision so long as they act bona fide and fairly as between the beneficiaries (Gisborne). The general proposition is that trustees must act unanimously (Luke), unless otherwise indicated in the will or other trust document. This

does not mean that one T can block a course of action that other trustees feel compelled to take. Once again, duty/power dichotomy arises. If trustees have only a power to take particular action, all trustees must agree to exercise the power, or it remains unexercised. In that case

the starting point is that even one trustee can block the exercise of the power. The rule about unanimous action in the exercise of powers and discretions is displaced if the trust document expresses a contrary intention.

Tempest v Camoys 1882: Where trustees are subject to a specific duty (e.g. to invest trust monies in real property), and trustees disagree about an exercise of discretion in exercising that duty, the court may view the disagreement as either

(1) a failure to perform the duty at all, which the court will correct; OR (2) a rightly discretionary aspect of the execution of duty/power, over which the court will NOT assume jurisdiction (**unless exceptional**)

F: There was (1) a duty to reinvest in real property the proceeds from the sale of other properties; and (2) a power to borrow money. Some beneficiaries wished to acquire a particular property w/ which the family had historical association. The estate had ½ of the proposed purchase price from a relevant sale (which they were notably required to reinvest in real estate). They would have to raise the other ½ of the purchase price via mortgage, which they had the power to arrange. One trustee approved this, the other did not. The willing trustee and the beneficiaries asked the court to compel the declining trustee to concur. C: Both levels of courts refused: “In the present case there was a trust to invest the fund in question in the purchase of land. Ts would not be allowed by the Court to disregard that trust … But that is a very different thing from saying that the Court ought to take from Ts their uncontrolled discretion as to the particular time for the investment and the particular property which should be purchased.”

Breaking deadlock TRUSTEES MUST ACT UNANIMOUSLY (Re Wright 1976 ONHC).

o If trustees are OBLIGED to carry out a duty, but do not agree, can apply to court ( s. 86 ) for declaration ordering T’s to comply o If T’s have POWER, T’s must unanimously exercise it or it will remain unexercised, unless not exercising would = duty breach o In the trust document, settlor can override this CL unanimity requirement and allow “decision of majority to prevail”.o Haasz and Billes emphasize the collective nature of T duties: if T’s fail to exercise duty together, court must break deadlock. o Kordyban = leading BC case on breaking deadlock: having regard to (1) the intentions of the testator, and (2) the risk of frustrating

beneficiaries’ interests, should the court intervene?

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DEADLOCK CASE LAWRe Wright 1976 ONHC: there are 3 possible categories relating to trustees’ powers and discretions for sale, retention and investment of trust property:

(1) Absolute duty to sell or convert (w/ subordinate discretionary power to retain if trustee deems appropriate),(2) Absolute duty to retain (w/ subordinate discretionary power to sell – VERY UNSUAL), or(3) Equal power to sell and retain (the most common).

When exercising POWERS (absolute + discretionary), trustees must be unanimous. Absent bad faith or refusal to discharge DUTY, court won’t interveneF: CP Trust company is one of the trustees for the late Mr. Wright’s estate. CP is applying for advice of the court w/r/t disposition of 400k shares, and an order approving the sale of these shares. The application is opposed by three trustees, and all beneficiaries.The will provides: C: In this case, (3) applies – the trustees have power to convert at sole discretion AND equal power to retain. CP argued #1, but evidence shows trustees have retained for 25 years, dispels power to sell. Same outcome as Tempest. The executors were not failing their duties in reaching different conclusions. Judge concluded “thee the executors agree w/r/t selling the shares, and only disagree w/r/t purchase price.” There was thus no justification to interfere. NO ADVICE, DIRECTION OR ORDER IS GIVEN.

Re Haasz 1959: Discretionary powers must be exercised unanimously and the Court should not interfere with the proper exercise of their discretion.o HOWEVER, the court can compel trustees who are unwilling or opposing to join and agree with the other trustees to exercise their duties in

the best interest of the beneficiaries.o As long as trustees fail to discharge a mandatory duty entrusted unto them, the intention of the testator will be frustrated … and, where

its assistance is invoked, the Court must intervene and compel the due execution of the trust.

Re Billes 1983 ONHC: builds on Haasz, finding that it is a proper case for the court to intervene b/c of deadlock, and(1) It is not prudent to continue holding 95% of assets in a single commercial corporation;(2) the market value of shares is volatile and to continue to hold them would be speculative;(3) Distribution would provide greater income to the estate and income beneficiaries and add stability w/r/t the capital value;(4) the income and capital beneficiaries all urge for early sale;(5) while income and capital beneficiaries (other than family members) named in the will are the same, the capital group may vary with the passage of time. Executors must maintain even handedness and current sale would satisfy this obligation;(6) There is an obvious conflict between Billes’ duties as an executor as a director of Canadian Tire and a franchise operator.

Multiple trustees were intended to be the primary beneficiaries of a will. The charities were unhappy b/c the trustees invested primarily in Canadian Tire. Charities are now demanding that the trustees sell the shares in Canadian Tire, despite their having appreciated in value. The trustees instead argue that the appreciation in value indicates they had done a good job of investing and should not have to change their investment strategy. C: T’s are ordered to sell common shares when the opportunity for an advantageous and beneficial sale arises and T’s must actively seek such opportunity.

Kordyban v Kordyban 2003 BCCA: in breaking deadlocks, courts must look to(1) intention of the testator (is refusing to resolve the deadlock against the testator’s interests?), and(2) welfare of the beneficiaries (would refusing to intervene frustrate and prejudice the B’s interests?).

R: Where trustees fail to exercise a discretionary power the question becomes whether such failure is consistent with or frustrates the testator’s intentions. If failure to act frustrates the testator’s intention, court must then determine, considering the interests of B’s, on whose side to intervene.F: Father had started a company, and his two kids worked there. Father and daughter had many disagreements, she stopped working there. Father retained control of the company until he unexpectedly died. Daughter contends that her father intended for her and her brother to control the company after his death. The will gave 40% of the company to her and 60% to her brother. HOWEVER, b/c mother and son were company directors and collectively had more shares than the daughter, she was unable to get voted in as a Director. She thus applied to court arguing that deadlock should be broken in favour of her. In this case, daughter and son did not get along; would not be in their best interests to work together. Court didn’t intervene.

Re Engelman (cited in Kordyban): the factors the court should consider in deciding whether it will intervene to break a deadlock of trustees are the testator’s intentions and the interests of the beneficiaries. As in all cases where the court exercises its equitable jurisdiction, the objective is to resolve the dispute in a manner that is “just and equitable”.

Grounds for intervention (mala fides and other) Courts will intervene to prevent/invalidate T actions where the T’s seem to be acting improperly. Court previously intervened b/c:

o the trustee misapprehended the scope of its power (Re Smith), and o the trustee was paying attention to someone else’s wishes or instructions (Cowan v. Scargill, Re Smith).

In Gisborne, the court stated that a discretionary decision of a trustee can be reviewed if it was made mala fide, but not otherwise – this proposition has since been viewed as unduly restrictive. Generally, the mala fide concept is not popular in Canada, but it nevertheless appeared in Fox v Fox Estate.

o If the law is that a court can only intervene if the trustee has acted or is acting mala fide, then a court may well expand its conception of mala fide to cover the particular case and justify intervention, or may use its conclusion that there is no mala fides to refuse intervention.

o Re Smith did not rely on mala fides. Finding a trustee which had misapprehended its powers, had given undue weight to the settlor’s views and had ignored its duty of even-handedness, the Court intervened and removed the trustee. The trustee could well say that it had been acting in good faith, but that was not sufficient to avoid its removal.

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COURT INTERVENTION CASE LAWFox v Fox Estate 1996 ONCA – grounds for intervention: mala fides/discrimination on race or religionIf a trustee demonstrates no mala fides, the exercise of an absolute discretion cannot be checked/controlled by court. Conduct which does not amount to fraud may be categorized as mala fides Courts may interfere if a trustee's decision is influenced by extraneous matters.F: By his will, the testator appointed his wife M as his sole executrix and gave her a life interest in 75% of the residue. His son W was given a life interest in the remaining 25%. If W survived M, upon her death he was to receive the residue. The will gave M a wide power to encroach on capital for the benefit of W's children. M exercised that power by giving ALL the residue to W's children. W was thus deprived of any interest in the residue. W is applying to court on the basis that M improperly used her power to encroach b/c she disapproved of his marriage to a non-Jewish woman. The TJ found M’s dislike of W's marriage to be her prime motivation.C: Court rules in favour of son. His marriage to non-Jewish woman is completely extraneous to the duty which the will imposed on M and = mala fides. Moreover, it is against public policy to discriminate on grounds of race or religion (Canada Trust Co. v. OHRC [1990])C: As a result of her improper dealing with the assets of the estate, M should be removed as executrix.

Land Conservancy v UBC 2014 BCCA – grounds for intervention: exercise of a power may be fraudulent (mala fides) in three different circumstances:(1) An antecedent agreement exists b/w donee and object of power, and non-object benefits [e.g. 3rdP gets trust property);(2) For a corrupt purpose [e.g. Trustee has no entitlement to trust property but gets some personal benefit], OR(3) For a purpose foreign to the power [discretionary power is exercised w/ intention of benefiting a non-object]

E.g. Wong: wife lent trust $ to benefit children of deceased daughter who was deliberately excluded from estate Onus on the party seeking to reverse to establish real purpose was to benefit non-object (not necessarily fraud)

C: In this case: the allegation was #3. LTC received land when it had no authorization to do so. T’s used power in will for purpose of benefiting a non-object, and this was an ULTERIOR PURPOSE.

Boe v Alexander: A privative clause barring judicial review will not prevent judicial review whenever the trustees have:1. failed to exercise the discretion at all (Re Floyd, Re Blow, and Re Sayers and Philip);2. acted dishonestly (Gisborne, Re Sayers and Philip, Cowan v. Scargill, Re Floyd);3. failed to exercise the prudence expected of a reasonable businessman (Re Sayers and Philip, Cowan v. Scargill); &4. failed to balance evenly between Bs, or have acted prejudicially to the interests of a B (Re Jeffery, Re Sayers and Philip).5. **Smith** added: acted in direct contrast to the trust document/testator’s intentions.

F: Pension trust contained a privative clause in which stated, inter alia, “trustees have full authority to determine all questions, they have the power to construe the provisions of this agreement, and any such construction of the trustees in good faith shall be binding”The court cites the trial judgment and adopts the following principles: “even the broadest [privative clause] cannot displace the jurisdiction of the Court to review trustee discretion. C: To the extent that this clause attempted to shield the trustees from judicial review, it was ineffective, and the result would have likely been the same even if the clause had concluded “and may not be reviewed by any court or tribunal”.R2: if a trustee’s sole motivation for exercising some trust power is ulterior, then their action can be easily overturned. If they have mixed motivations, this is more muddled.

Miscellaneous Express Trust IssuesChange of Trustees

1. Appointment of Trustee(s) Settlors are technically free to choose any mechanism that seems appropriate to appoint trustees.

Trustee Act, s. 27 – appointment of trustees27 – confirms the efficacy of designating in the trust instrument a person to appoint replacement trustees

2. Resignation Trustee Act, s. 28 – resignation of trustee 28 - provides a mechanism for a trustee to retire and be replaced, which discharges the retiring trustee from their legal obligations.

3. Removal Trustee Act, s. 30 – removal of trustee 30 - A trustee may be removed and substituted, at any time on application to the court by any trust BENEFICIARY who is not under legal disability, with the CONSENT AND APPROVAL OF A MAJORITY in interest and number OF BENEFICIARIES who are also not under legal disability.

Conroy v Stokes 1952 BCCA: Mere dissension (dispute) will not justify removal of trustee.Factors that justify removal of trustee include (Letterstedt 1884)

Endangerment of trust ppty; want of honesty or proper capacity to execute duties; want of reasonable fidelity (continuing loyalty).

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Re Consiglio Trusts 1973 ONCA: Even absent trustee misconduct, court may remove trustee(s) when CONTINUED ADMINISTRATION of trust is impossible/ improbable. In this case: divorce proceedings, accusations and bitterness among T’s rendered it impossible for T’s to agree. Remuneration of Trustees Trustee remuneration is never guaranteed. Practically, it is prudent, if the trustee is not a direct descendant, to set a specific level of remuneration.

Trustee Act, s. 88 – setting remuneration of trustees 88 - gives the court jurisdiction to approve remuneration for trustees and executors(1) A trustee is entitled to, and it is lawful for the Court to direct, a fair and reasonable allowance, not exceeding 5% of the gross aggregative value (including capital and income and all assets), as remuneration for his care and time spent in trusteeship; (2) If directed by court, the order may order under (1) from time to time, and the amount of remuneration must be provided to trustee, in addition to any other allowances for expenses incurred by trustee in management of the trust.(3) A person entitled to an allowance under (1) may apply to the court for a care and management fee, and court may allow it not exceeding 0.4% of the average market value of trust property.

Trustee Act, s. 90 90 - the application of Section 88 is excluded if the matter is dealt with in the instrument that creates the trust.

Rule in Saunders v Vautier: termination of a trust

Saunders v Vautier 1841 UK: if a beneficiary has been given the full beneficial interest in trust property, but the trustee is directed to hold it for a period and only pay, e.g., some income to the beneficiary during that time, then, notwithstanding the provisions of the trust, once:

(1) The beneficiary reaches the age of majority,(2) Any conditions precedent to vesting of the interest have been satisfied, and(3) Any prior interests (e.g. an income interest) have terminated,

The B can immediately demand distribution of trust property to herself outright and T must comply, despite any inconsistencies w/ the trust document. F: Trust for B holding shares. The settlor directed the trustee to “accumulate income from the shares until the B turns 25, then pay the income and transfer the share to B.” When B turned 21 (age of majority), they demanded all income and shares. T refuses to distribute. C: B is entitled to receive the shares and income b/c the trust was an absolute gift.

Ward v Roberts 2017 BCSC: Three situations where the rule from Saunders v Vautier applies: 1. Where the “beneficiary is adult, of sound mind, and entitled to the whole beneficial interest; 2. Where several B’s all adult, of sound mind, and between them entitled to whole beneficial interest collectively compel transfer.” 3. Where several B’s entitled in succession, whether their interests are vested or contingent, combine to require transfer, provided they are all adult, of sound mind, and between them entitled to the whole beneficial interest.”

The rule from Saunders has also been extended to cover discretionary trusts : If a trust is created for the spouse and children of the settlor, with the trustees having discretion as to when and to whom distributions are to be made, and with no gift over,

then if all the beneficiaries have capacity and they agree on how the trust property should be divided among them, they can direct the trustee to distribute on the agreed basis and thus terminate the trustee’s discretion.

SAUNDERS V VAUTIER CASE LAW Re Smith 1928 UK Chancery: if all B’s are absolutely entitled, and all agree, they can override T’s discretion and use the rule in Saunders to demand immediate payment.F: discretionary trust to provide income and capital for mother, residual income to children. Children are absolutely entitled when they turn 21 or when daughter marries. All 3 reached 21 but 1 died (estate was entitled). 4 B’s executed mortgage with their interest, mortgagor asks trustee for money. T is bound to pay the WHOLE of the income to discharge mortgage.

Re Chodak 1975 ONHC: Application of the rule from Saunders v Vautier to discretionary trusts: An interest cannot be given absolutely, yet restricted by awarding a distributive discretion to the trustees. If an interest was wholly dependent upon T discretion, or there is a gift-over, a discretionary power will not violate Saunders v Vautier.

F: Testator left his entire estate to trustees to hold for B’s living in the Soviet Union, w/ wide discretion for distribution. The money was to be spent on sending parcels to the B’s, in the trustees’ sole discretion, though no more than three parcels were to be sent to any B in any given year. C: Absence of a gift-over (i.e. beneficiaries are absolutely entitled) demonstrates the testator’s intent and the trustees’ discretion obstructs this right.

N-Krypt: the rule in Saunders v. Vautier is inapplicable where the settlor beneficiary has contracted to create a voting trust for a set term as a condition of obtaining the shares which form the property of the trust; the rule is not a means of escaping contractual terms under which trust property is held.F: N-Krypt and Cirius entered a subscription agreement whereby N-Krypt purchased Cirius shares on the condition that the shares would be held in a voting trust by Cirius’s CEO and director. As part of the agreement N-Krypt waived its voting and info rights. The relationship between the parties

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deteriorated. N-Krypt petitioned for relief and also sought return of shares under Saunders, or in the alternative, appointment of a new trustee.

Fiduciary Relationships, Unjust Enrichment and Constructive TrustsConstructive trusts: arise by operation of the law, e.g.:

to remedy wrongdoing by fiduciaries, within defined categories of fiduciary relationship (Boardman v Phipps) “where good conscience so requires” (Justice McLachlin in Soulos v Korkontzilas)

Two major instances where constructive trusts can be imposed: 1) Where some fiduciary duty is breached

a. During the breach, the defendant has acquired an asset which will be subject to a constructive trust. The person acquiring the asset during the breach of duty is required to hold the asset in trust for the beneficiary.

2) Unjust enrichment cases

Advantages of a constructive trust: The defendant may have obtained a profit in breach of duty without the claimant suffering any deprivation.

o Under contract or tort principles, the claimant has suffered no compensable loss. The claimant can however seek to have the defendant’s gain, including interim profits, subjected to a constructive trust (Boardman v Phipps)

The claimant may have contributed to another person’s acquisition of property which has since increased in value. Gaining a proprietary interest through a constructive trust might be more valuable than a monetary judgment

o Trust law is decreasingly relevant in matrimonial cases, but VJF v SKW demonstrates that traditional property concepts continue to have some relevance to family property disputes (esp. not “marriage like” relationships)

Claimant may want full ownership of property of imprecise value. Constructive trust may be better than damages (Lac Minerals). If the defendant is in financial difficulties, constructive trust could give them a priority claim over other creditors (Indalex). If the initial defendant has parted with the property, the claimant may be able to achieve remedies against 3Ps The property alleged to be subject to a constructive trust may have a special significance to the claimant, and is more sentimentally

valuable than any damage award (Soulos – but note that in Soulos, the property was extraordinarily unique) Trust law has longer limitation provisions (BNSF Railway v. Teck Metals)

For the court to impose a constructive trust between private parties it is essential that the defendant own property to which the constructive trust can attach. (Statutes can of course override this.)

A constructive trust may be imposed to remedy unjust enrichment as well as breach of fiduciary duty (e.g. Pettkus v. Becker).Unjust enrichment requires three elements:

(1) Enrichment of the defendant; (2) A corresponding deprivation of the plaintiff; and (3) the absence at any “juristic reason” for the enrichment.

Courts have tried to articulate when and why a proprietary remedy should be imposed over a monetary judgment, with the result that the proprietary remedy may be imposed less often (e.g. the constructive trust remedy did not work well in Pettkus v Becker)

Fiduciary relationships and obligations a. Per se fiduciary relationships

There are certain well-established (per se) categories of fiduciary relationship: The trustee-beneficiary relationship; Director and the corporation which they serve; Principal and agent; and Solicitor-client.

b. Ad hoc fiduciary relationships

Ad hoc fiduciary relationships can also arise from specific facts. It is hard to simplify the test for finding an “ad hoc” relationship, but one ingredient is the “undertaking” by one person to act in a matter for the benefit of another (e.g. Reading v The King). The current test for an ad hoc fiduciary relationship is enshrined in Elder Advocates, with reference to Frame v Smith.

Frame v Smith 1987 SCC: Wilson, dissenting, attempted a summation of the factors that may give rise to an “ad hoc” fiduciary relationship: Relationships in which a fiduciary obligation has been imposed seem to possess three general characteristics:

(1) The fiduciary has scope for the exercise of some discretion or power.(2) The fiduciary can unilaterally exercise that power or discretion to affect the beneficiary's legal or practical interests.(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.”

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Elder Advocates 2011 SCC: Frame is not a complete code . Guerin, Hodgkinson, and Galambos, all demonstrate that the elements below identify an ad hoc fiduciary duty:

o FIRST evidence must show that alleged fiduciary gave an undertaking of responsibility to act in the best interests of a beneficiary: Galambos [31] The existence and character of the undertaking is informed by the norms relating to the particular relationship: Galambos. The

party asserting the duty must be able to point to a forsaking by the alleged fiduciary of the interests of all others in favour of those of the beneficiary, in relation to the specific legal interest at stake.

[32] The undertaking may be found in the relationship between the parties, in an imposition of responsibility by statute, or under an express agreement to act as trustee of the beneficiary’s interests.

o SECOND, the duty must be owed to a defined person or class of persons who must be vulnerable to the fiduciary in the sense that the fiduciary has a discretionary power over them. Fiduciary duties … are confined to specific relationships between particular parties.

o THIRD the claimant must show that alleged fiduciary’s power may affect the legal or substantial practical interests of beneficiary: FrameF: Class action by Elder against AB alleging that charges to elderly residents of care facilities were excessive and were inappropriately used to cover some of the cost of medical expenses. Breach of fiduciary duty was one common issue sought to be certified.R2: The government context necessarily refines the elements identified above.

First, the requirement of an undertaking will be lacking where the issue is an exercise of gov’t power or discretion; a FD would conflict with the government's general duty to act in the best interests of society as a whole.

Second, it may be difficult to establish a defined person/class vulnerable to exercise of discretionary power. Where the duty is effectively a private duty being carried out by gov’t, e.g. role of public guardian and trustee, this req’t may be found.

Third, it will be difficult for an individual to establish that gov’t power affected a legal or significant practical interest. It is not enough that a government decision impacts on a person's well-being, property or security; the affected interest must be a specific private law interest to which the person has a pre-existing, distinct, and complete legal entitlement.

Finally, the degree of control that must be exercised by the gov’t as a fiduciary must be equivalent or analogous to a direct administration of the interest. Legal control that arises from the ordinary course of statutory powers is insufficient.

R3: Vulnerability alone is insufficient to support a fiduciary claim.C: In this case: Case dismissed b/c general rule that the Gov’t cannot be held to have undertaken to act solely in interests of one group. Guerin is an exception to this general rule

Reading v The King 1949 UKCA – defines two circumstances where fiduciary relation existsF: English solider wore his uniform to enable trucks to smuggle illegal goods unchallenged through police checkpoints. He made a large sum for these “services,” which was seized by military authorities. He sought to recover the sum. Part of the argument turned on whether Reading was in a fiduciary relationship with the Crown by virtue of his soldier status. The UKCA stated: “a “fiduciary relation” exists(a) whenever plaintiff entrusts to the defendant property and relies on the defendant to deal with such property for the benefit of the plaintiff; and(b) whenever plaintiff entrusts to defendant a job, and relies on the defendant to procure for the plaintiff the best terms available (e.g. Guerin)C: Use of the uniform was in breach.

Guerin v The Queen – established the Crown’s fiduciary duty to FNs via statute (not a trust)Dickson J “It is the nature of the relationship, not the specific category of actor involved that gives rise to the fiduciary duty.”R1: Where a statute, agreement or unilateral undertaking imposes an obligation on one party to act for the benefit of another, and that obligation has a discretionary power, that party becomes a FD.R2: The categories of fiduciary, like those of negligence, should not be considered closed.”

Lac Minerals v International Corona 1989 SCCF: Corona entered discussions w/ Lac, a much larger mining company, w/ a view to establish a joint venture. During these discussions, Corona provided info to Lac w/r/t the Williams property. Lac subsequently acquired the Williams property, w/o partnering w/ Corona, nor informing them. Lac then developed a mine on the Williams property estimated at $1B. Corona applied to court for order that Lac held the mine on constructive trust for Corona.C: All five judges in SCC agreed that Lac was liable for breach of confidence. Where they differed was w/r/t the fiduciary issue.C: A majority: no ad hoc fiduciary duty primarily b/c the case took place in a commercial context, wherein parties should protect themselves.

Hodgkinson v Simms 1994 SCCF: H was a stockbroker w/ lots of $$. He chose to invest in some tax sheltering, so he hired S, an accountant, for investment advice. H relied heavily on S’s advice, and invested in real estate projects, which are traditionally conservative investments. The projects fell in value. H then discovered that S was receiving commissions from the real estate developers. H is bringing an action for breach of fiduciary duty, among other actions.SCC: LaForest for the majority advanced a competing test for requirements of a fiduciary duty from Lac Minerals, including:

(1) The reasonable expectation of one party (beneficiary) that the other party (fiduciary) will act in their best interest;a. “Discretion, influence, vulnerability and trust = non-exhaustive examples of evidential factors to be considered.”

(2) Mutual understanding that one party has relinquished self-interest and agreed to act solely on behalf of the other; anda. “in Dolton: in the banker-customer context, has been found to exist where there is a repose of trust by the customer

along with an acceptance … of such trust [by] the [lender].”(3) A “power-dependency” relationship.

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R: In the context of financial advice, depending on the level of trust and complexity present, there can be a fiduciary relationship. It will be a case-by-case determination.

Galambos v Perez 2009 SCCF: P was hired as a part-time bookkeeper at G’s law firm. Spent all her personal money and loans on the firm (was not told to). The firm went under.R: Power dependency is neither necessary nor sufficient to impose a fiduciary obligation. However, to impose a fiduciary obligation, there must be:

1) An (express or implied) undertaking, and2) A discretionary power on the part of the fiduciary (Guerin),

Lawyers as fiduciaries BC Code of Professional Conduct, Rules 3.4-1 to 3.4-3 – invoke lawyers’ fiduciary duty re: client conflicts3.4-1 Duty to avoid conflicts of interest - A lawyer must not act or continue to act for a client where there is a conflict of interest, except as permitted under this Code.3.4-2 Consent - A lawyer must not represent a client in a matter when there is a conflict of interest unless there is express or implied consent from all clients and the lawyer reasonably believes that he or she is able to represent each client without having a material adverse effect upon the representation of or loyalty to the other client.3.4-3 Dispute - Despite rule 3.4-2, a lawyer must not represent opposing parties in a dispute.

R v Neil 2002 SCC: Binnie J articulated the lawyer’s duty of loyalty, including not only issues of confidentiality, but also three other dimensions: (i) The duty to avoid conflicting interests, (ii) The duty of commitment to the client’s case (“zealous representation) (iii) The duty of candour (i.e. honesty; if a conflict emerges, the client should know ASAP)

Fiduciary obligations of “delegates” Trust documents sometimes provide that certain functions are to be discharged by a party other than the trustee, e.g. investment management or the power to appoint and remove trustees, or require that proposed action by a trustee must be approved by someone.

1. A person to whom any such power is given does not hold the trust property, but does control, or have a power of veto over, one or more significant trust functions.

2. Canadian courts have concluded that their role is fiduciary in nature and have no difficulty with that proposition (e.g. Re Rogers).

S. 15.5(4) of the Trustee Act imposes a duty on a person to whom trustees delegate an investment function.

Unjust enrichment Pettkus v Becker 1980 SCC: “Unjust enrichment” is the heart of the constructive trust. Moses v Macferlan, cited in Pettkus: the gist of unjust enrichment is that the defendant is obliged by the ties of natural justice and equity to

refund the money.

Most of the cases in which a constructive trust was imposed to remedy unjust enrichment have involved family or similar close relationships (e.g. Murdoch v Murdoch 1973 SCC, in which the SCC denied Mrs. Murdoch any interest in family farm).

Pettkus v Becker 1980 SCC: enshrines the CDN unjust enrichment test. F: P and B unmarried, had turbulent relationship and business. Broke up. Had accumulated money together but all was in P’s name. B claims a %. C: Court used unjust enrichment to impose a constructive trust.

Kerr v Baranow 2011 SCC – explains test from Pettkus F: Parties weren’t married; FLA did not apply. Court holds constructive trust is appropriate remedy where presumption of resulting trust does not apply; the “common intentions” resulting trust is no longer around since Pettkus. TEST FOR UNJUST ENRICHMENT 1. Enrichment & Corresponding Deprivation

Enrichment: The plaintiff must show that he gave something to the defendant which the defendant received and retained. The benefit need not be retained permanently, but there must be a benefit which can be restored to the plaintiff in specie or by money. The benefit must be tangible. It may be positive or negative (e.g. the benefit conferred on the defendant spares him an expense).

Deprivation: the plaintiff's loss is material only if the defendant has gained benefit or been enriched. That is why the second requirement obligates the plaintiff to establish not simply that the defendant has been enriched, but also that the enrichment corresponds to a deprivation which the plaintiff has suffered

2. Absent a JURISTIC REASON: there is no reason in law or justice for the defendant’s retention of the benefit conferred by the plaintiff, making its retention “unjust” in the circumstances of the case (Pettkus, Garland)

1. First, plaintiff must show that no established juristic reason exists to deny recovery: i. contract (Pettkus) ii. a disposition of law (Pettkus),

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iii. a donative intent (Peter), and iv. other valid common law, equitable or statutory obligations (Peter).

2. If there is no juristic reason from an established category, then the plaintiff has made out a prima facie case3. The onus then shifts to the defendant to rebut the prima facie case

i. If the case falls outside the existing categories, the court may consider: 1. the legitimate expectations of the parties (Pettkus), 2. moral and policy-based arguments about whether particular enrichments are unjust (Peter) – e.g. in

Peter, the Court rejected the argument that the provision of domestic and childcare services should not give rise to equitable claims against the other spouse in a marital or quasi-marital relationship

4. Overall, the test for juristic reason is flexible, and relevant factors will depend on the situation before the court (Peter). If a person in a relationship contributes w/ reasonable expectation that she will receive an interest, and the other accepts this where he

knew or ought to know of such expectation, it would be unjust to allow him to retain it all Any effect on 3rd parties (e.g. BFPV) is a legitimate consideration but decide on a balance of fairness (McInerney) Examples of juristic reasons include the enrichment occurring pursuant to

(1) a pre-existing obligation (e.g. contractual or statutory) or (2) because the “deprived” party intended a gratuitous transfer (e.g. Rascal v Nishi, had it been analyzed w/r/t UE)

3. REMEDIES i. Remedies for unjust enrichment are restitutionary in nature (the object of the remedy is to require the defendant to repay or reverse the

unjustified enrichment). ii. A successful claim for unjust enrichment may attract either a monetary or proprietary remedy (Lac Minerals).

1. Monetary award : always the first remedy to consider (Peter). In most cases, this will be sufficient; however, calculating monetary awards is not straightforward for two reasons: 1) First , the fact that many domestic claims of unjust enrichment arise out of relationships in which there has been a mutual conferral of

benefits gives rise to “duelling quantum merits” 2) A second difficulty : some courts have read Peter as holding that when a monetary award is appropriate, it must be calculated on the

basis of the monetary value of the unpaid services ( quantum meruit approach). Other appellate courts have assessed more flexibly. 2. Proprietary award: When a monetary award is inappropriate or insufficient, a proprietary remedy may be required. Pettkus developed the

remedial constructive trust - a broad and flexible equitable tool used to determine beneficial entitlement to property (Pettkus). 4. IDENTIFYING UNJUST ENRICHMENT ARISING FROM A JOINT FAMILY VENTURE

o When the parties have been engaged in a joint family venture, a monetary award for unjust enrichment should be calculated according to the share of the accumulated wealth proportionate to the claimant's contributions.

o There is, of course, overlap among factors that may be relevant and the list is not closed: Mutual effort: did the parties work collaboratively towards common goals?

Indicators: pooling of effort, team work, raising children, length of the relationship Economic integration: degree of economic independence and integration in the relationship

The more extensive the integration of the couple's finances, economic interests and economic well-being, the more likely it is that they should be considered as having been engaged in a joint family venture.

Actual intent: Courts may infer from parties' conduct that they intended to share in wealth they jointly created The title to property may also reflect an intent to share wealth equitably

Priority of the family: whether and to what extent they have given priority to the family in their decision making? 5. Summary of quantum meruit vs. constructive trust remedies

o The monetary remedy for unjust enrichment is not restricted to a fee-for-services approach.o Where the unjust enrichment is most realistically characterized as one party retaining a disproportionate share of assets resulting

from a joint family venture, and a monetary award is appropriate, it should be calculated based on assets proportionate to the claimant's contributions.

o To be entitled to a monetary remedy of this nature, the claimant must show both that there was, in fact, a joint family venture, and that there is a link between his contributions to it and the accumulation of assets and/or wealth.

o Whether there was a joint family venture is a question of fact and may be assessed having regard to mutual effort, economic integration, actual intent, and priority of the family.

When is constructive trust the appropriate remedy vs. a monetary remedy Soulos developed the “four step” test to determine whether to provide a proprietary or monetary judgment. Kerr also demonstrates that a monetary judgment may be apt to capture increase in value of an asset acquired by a defendant, without having to resort to a proprietary remedy; however, this case is more useful in the “joint family venture” context than in the commercial or general context.

Soulous 1997 SCC: constructive trust remedy can be imposed in circumstances of (1) unjust enrichment (Pettkus), & (2) wrongful conduct

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FOUR STEP TEST to impose a constructive trust based on wrongful conduct:(1) The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in his hands;(2) The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff;

E.g. Boardman: if D had not been the solicitor, he would not have had knowledge to act against the plaintiff(3) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties and;(4) There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., the interests of intervening creditors must be protected.

F: K was S’s realtor. S was interested in a property, but K bought it for himself. When S found out, the property had increased in value, and S did not lose anything. S sued K, alleging breach of fiduciary duty and claiming remedy of a constructive trust.C: Applying this test, K’s breach of his duty of loyalty sufficed to engage the conscience of the court and support a finding of constructive trust for the following reasons.

Kerr v Baranow 2011 SCCR1: the common intention resulting trust has no further role to play in the resolution of domestic cases. For four reasons…

(1) First, the common intention resulting trust is doctrinally unsound. Where the issue of intention is relevant to the finding of resulting trust, it is the intention of the grantor or contributor alone that counts;

(2) Second, the notion of common intention may be highly artificial, particularly in domestic cases;(3) Third, the "common intention" resulting trust in Canada evolved from a misreading of some imprecise language; and(4) Fourth, as the development of the law since Pettkus has shown, the principles of unjust enrichment, coupled with the possible remedy of a

constructive trust, provide a much less artificial, more comprehensive and more principled basis to address the wide variety of circumstances that lead to claims arising out of domestic partnerships.

R2: Remedies for unjust enrichment are restitutionary in nature.o Monetary award: Calculation should be based on share of assets proportionate to P’s contributions.o Proprietary award : UNCOMMON – plaintiff must establish (1) sufficiently substantial + direct link to contributions; + (2) $$ award insufficient

Sun Indalex: constructive trust was only appropriate if breach of fiduciary duty gave rise to assets which would be unjust for wrongdoer to retainF: Indalex administered two pension plans, which were both properly constituted trusts, and thus Indalex was a statutory fiduciary. Indalex became insolvent and sought CCAA protection and was authorized to obtain debtor-in-possession financing. Lenders got priority rights upon insolvency. Indalex then sought approval to sell assets and distribute sale proceeds to lenders. This would have left insufficient funds to satisfy the pension plans.SCC: Unanimously found that Indalex breached its fiduciary duty as administrator of the Plans by failing to take steps to ensure that the Plan members were informed of, and had the opportunity to be represented in, the CCAA proceedings. Despite this breach of fiduciary duty, the imposition of a constructive trust was not an appropriate remedy.

Haigh v Kent 2013 BCCA; 2016 BCSC – unjust enrichment in which constructive trust was imposedC: A constructive trust was granted over a percentage of property.

o Can be distinguished from cases about a particular subject such as a farm (Kerr) or house (Peter)o Haigh built on Kerr, that where there is no link between the unjust enrichment and a specific property, there may still be a link between

their joint efforts and the accumulation of wealth, or rather, between the “value received” and the “value surviving.”1. The “value surviving” = the entirety of the property, esp. since this property was one with the business, &2. the “value received” was Mr. Haigh’s contribution to the land.3. Direct link was recognized between the parties’ joint venture and the land it had been directed towards.4. Consequently, 25% of the total proprietary assets was the appropriate quantum for the remedy.

F: Two brothers-in-law worked together to get a resort running on the property they jointly lived on. H’s contribution included the construction of extensive upgrades, additions, repairs and maintenance. He also constructed an A-frame house for himself and his wife that doubled as a manager’s office. There was NEVER any formal business agreement and K always ran the resort as a sole proprietorship. In 2004, the two parties fell out and H stopped working at the resort, but he continued to live in the A-frame. Eventually, K sought to have H and his wife removed from the property. H is arguing that K had been unjustly enriched by his years of work, and that he was entitled to a proprietary remedy through a constructive trust.Unjust enrichment: TJ accepted that K had been unjustly enriched by H’s years of work. Considering the reasonable expectations of the parties, he ruled that there could not have been a serious belief by either party that providing living accommodations was compensation.Constructive trust: Becker: existence of a JV, and benefits it would create, was a rationale for granting a proprietary remedy in circumstances where parties did not have a precise expectation of earning an interest in certain properties, but still expected to benefit from their contributions.

McInerney v Laass 2015 BCSC – constructive trust served an “all or nothing” purposeF: In 1994, M and L jointly purchased property and began living together as husband and wife. They separated in 2003 and M moved out. He then commenced a family law action seeking an order for petition and sale of the property. In 2004, the parties informally agreed she would be entitled to sole ownership. From 2004-2009, the parties conducted themselves as such. In 2009, negotiations began to formalize a separation agreement. A completed LTA transfer form to transfer M’s interest in the property to L was attached, but unsigned. In 2012, HSBC commenced a debt action against M for his company debt. HSBC argues that the informal arrangement, while enforceable as between M and L, does not affect its ability to collect, and

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the presumption in LTA s. 23(2) has not been rebutted: LTA s. 23(2) Indefeasible title is conclusive evidence that the person named on title is indefeasibly entitled to an estate in fee simple in the land described thereon.Frame reviewed the authorities w/r/t the presumption in s. 23(2) and determined that it is displaced “where unjust enrichment would otherwise result.

o A remedial constructive trust is then the appropriate remedy in this case (Frame).o Given the agreement, L’s reliance on it, and the nature of these proceedings, a monetary award is inappropriate.o There is also a clear causal connection between L’s contributions and the preservation/maintenance of propertyo HSBC argued that Soulos means a constructive trust could not be imposed if it would disrupt the interests of creditors. Soulos is limited to

where a constructive trust is ordered based on wrongful conduct.o Pettkus addressed prerequisites for constructive trust based on unjust enrichment. Interests of creditors are valid considerations (Ellingson).

C: The balance of fairness, favours L, thus M has no beneficial interest in the property, and HSBC cannot collect therefrom.

McKinnon v Donauer 2017 BCCA – unjust enrichment in family, but not marriage situationF: Plaintiff contributed $150k to her daughter and son-in-law (the defendants) to buy a new home w/ a basement suite. P & D agreed the mother could live there as long as she wished. After 9 years, P moved out and claimed to have invested in the property, seeking a declaration of entitlement to a proportionate equitable interest (29%) in the property, and sale, or similar remedy for unjust enrichment. BCSC dismissed both claims.BCCA: During her nine years in the basement suite, P contributed financially, drove grandchildren to and from school, paid for utilities and hydro.On plaintiff’s resulting trust argument: McLear does not establish that an aging parent who makes a financial contribution to her children to facilitate their purchase of a property in which the parent will reside will always be entitled to an interest in that property on the basis of resulting trust.

o The presumptive trust will arise on a gratuitous transfer; but the question will then be whether the transferee is able to show that the transferor intended to make a gift or an intention “not to hold a beneficial interest” in the transferred property (Nishi)

o Kerr: court “will weigh all of the evidence in an attempt to ascertain, on a balance of probabilities, the transferor’s actual intention.”o Kerr: In the juristic reason stage of analysis, it is the mutual or legitimate expectations of both parties that must be considered. The question

is whether the parties’ expectations show that retention of benefits is just.C: trial judge erred in ruling that it constituted a juristic reason that justified the Donauers’ retaining the entire benefit of Ms. MacKinnon’s funds. At the same time, the fact the Donauers accommodated her in their home for over nine years and thus provided a benefit which must be considered.

o Kerr: ‘mutual benefit conferral’ is generally to be considered at this “remedy stage” of the analysisProprietary remedy should not be granted unless a monetary judgment would be inadequate (Peter). Objectively, it was unreasonable for defendants to retain entire benefit of the plaintiff’s contribution. But proprietary interest and forced sale would be unreasonable. Monetary judgment ordered.

Remedies for Breach of Trust or Fiduciary Duty Through the Supreme Court Rules, a determination may be sought on any “question arising in the execution of a trust”.

o Such process may lead to a declaration. The declaration might address interpretation of a provision, including declaring it invalid, which might lead to a declaration that property is held on resulting trust. Alternatively, might lead to a mandatory order that T’s take particular action.

In many cases, it is too late to prevent harm being caused, and the ability to put things right while the trust continues has been lost. In Fales, a successful action for damages against the trustee by the residuary beneficiaries of the estate.

Equitable compensation vs damages o Equitable remedies

The primary equitable remedy for a beneficiary whose trustee had lost or improperly parted with the trust property was for the trustee to “account” for the property and “restore” property to the trust for the enjoyment of the beneficiaries. The same approach applies to improper retention of an investment, or loss in relation to an investment made by the trustee, that was plainly not authorized by the trust instrument.

Guerin: considerations “of causation, foreseeability and remoteness do not readily enter into the matter”. o Underhill’s Law of Trusts and Trustees: “Where T loses or misapplies trust property in an unauthorised transaction entered into in breach of his

core duty to hold the trust fund in accordance w/ terms, T can be ordered to restore the trust property or to pay a money substitute . o T liability is “primary” liability to substitute performance of his core duty, rather than a wrong-based “secondary” liability to repair harm caused. o B’s don’t need to plead or prove that breach of T duty, nor do they need to establish a causal link between breach and any ensuing loss o Recovery on this basis is sometimes referred to as “equitable compensation”.

Underhill suggests that a trustee has almost strict liability for any loss caused, BUT: 1. The trustee will only be liable for the value of that property - though they may be liable for its full current value, even if more than the

value of the property at the time the trustee parted with or lost it. Trustee cannot consider reasonable foreseeability as defence. 2. Failure to observe performance duties, may not breach the “core duty”. Trustee not liable for every avoidable loss had a breach not

occurred; if an asset is retained but has diminished in value b/c of simple negligence, less strict stnrd applies3. It is not certain when the full rigour of these principles will be applied even to trustees.

i. Rigor requires every presumption to be made against trustee as a wrongdoer, so that a B from whom property has been improperly withheld may receive the highest value of the property during the period of withholding: (McNeil v Fultz 1906)

ii. The onerous “every presumption against the wrongdoer” approach may not be appropriate. In Fales, damages were assessed at the average price over 2½ years in which the court determined the shares could have been sold.

4. Some of the rigour relating to improper investment has been relaxed by statute.

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i. TA s. 15.4 permits “netting off” where T makes two unauthorized transactions, and one adds value and the other goes down. 5. It is unclear whether factors like remoteness and causation apply equally to breaches of fiduciary duty by non-trustees.

Application of equitable compensation principles to other fiduciaries Guerin quotes from Re Dawson: “obligation of a defaulting trustee is essentially one of effecting a restitution to the estate. The obligation is of a personal character and its extent is not to be limited by common law principles governing remoteness.

Considerations of causation, foreseeability and remoteness do not enter into the matter Increases in market values between the date of breach and the date of recoupment, can be required by equity to be made

good by the defaulting trustee by restoring to the estate the assets of which he deprived it.

Canson Enterprises: Guerin’s equitable approach is not unlimited. It is LIMITED to loss flowing from T’s acts w/r/t the interest he undertook to protectF: Purchasers bought land. Lawyer facilitated a scheme for purchasers paid extra $115K, and secret profit went to 3P. Lawyer didn’t disclose. Purchasers built warehouse but engineers were negligent. The warehouse collapsed, damages ensued. Purchasers sue lawyer for breach of FD to recover damages.C: There was a breach of FD but loss from construction did not flow directly from this breach. In this case: the relevant equitable duty was to act honestly/loyally to purchaser. Allowing secret profit is unrelated to engineer negligence.

o Remedy for breach of FD is limited to disgorging secret profits. o Compensation is an equitable remedy available when restitution & account are inappropriate. o Plaintiff’s actual loss from the breach is to be assessed with the full benefit of hindsight. o The losses made good MUST only be those which, common sensibly, were caused by the breach. o Plaintiff need not mitigate, but losses from clearly unreasonable behav’r will be deemed to flow from therefromo If T's breach permits wrongful/negligent acts of 3P’s, resulting loss will be recoverable. Where no such link; loss must be recovered from 3P’s.

Hodgkinson v Simms 1994 SCC: majority ordered the proper remedy is the entire loss H suffered at the downturn in the real estate marketF: Facts above – stock broker consulted w/ accountant about tax shelters. H would have invested in anything S recommend to him. Had S told H about kickbacks (i.e. no breach), H wouldn’t have invested and suffered losses.

o Fluctuations in real estate markets are foreseeable (La Forest J).o Wilson J’s three-step “constructive trust” analysis from Lac Minerals encounters difficulties with fiduciary relationships - the question

becomes: whether, in all surrounding circumstances, one party could reasonably have expected that the other party would act in the former’s best interests with respect to the subject matter at issue? 1. Discretion, influence, vulnerability and trust are non-exhaustive factors to be considered in making this determination; 2. Outside the established categories, need evidence of a mutual understanding that one party has relinquished its own self-interest and

agreed to act solely on behalf of the other party; 3. Relationships characterized by a unilateral discretion (e.g. trustee-beneficiary) are a species of “power-dependency” relationships

(e.g. Norberg– aging physician extorted sexual favours from young female patient in exchange for prescription painkillers to which she was addicted - however, McLachlin CJ characterized Norberg relationship as fiduciary)

4. Law’s response to the plight of vulnerable people in power-dependency relationships results in overlapping duties. Concepts such as FD, undue influence, unconscionability, unjust enrichment, and even DOC are all responses to abuses.

5. The precise legal or equitable duties the law will enforce in any given relationship are tailored to the legal and practical incidents of a particular relationship. Lord Scarman: “[t]here is no substitute ... for a meticulous examination of the facts”

In Canson, a solicitor (per se fiduciary) falsified documents with the deliberate (and successful) intent of misleading the client and was therefore more culpable than the accountant (ad hoc fiduciary) who accepted compensation from another client, yet the remedy in Hodgkinson was more severe, since in Canson the court found a “novus actus.” (does not quite square w/ Guerin, where court held that causation is not an equitable remedy factor)

Removal of trustee Trustee Act, ss. 30 and 31 – removal of trustee (application by beneficiary) 30 - A trustee may be removed and substituted, on application to the court by any trust BENEFICIARY who is not under legal disability, with the CONSENT AND APPROVAL OF A MAJORITY in interest and number OF BENEFICIARIES who are also not under legal disability. 31 - If it is expedient to appoint a new trustee and it would be difficult or impracticable to do so w/o court assistance, the court may make an order appointing a new trustee or trustees, whether there is an existing trustee or not at the time of making the order, and either in substitution for or in addition to any existing trustees.

SCCR Rule 2.1(2)(d), and Trustee Act, s. 86: how ONE TRUSTEE may apply for removal of another trustee. Court may also order another action be taken.

Conroy v Stokes: Mere dissension (dispute) will not justify removal of trustee. Factors that justify removal of trustee include (Letterstedt 1884) Endangerment of trust ppty; want of honesty or proper capacity to execute duties; want of reasonable fidelity (continuing loyalty).

Consiglio Trusts: absent trustee misconduct, court may remove trustee when CONTINUED ADMINISTRATION of trust is impossible/ improbableIn this case: divorce proceedings, accusations and bitterness among T’s rendered it impossible for T’s to agree – justified removal

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Miles v Vince 2014 BCCAMiles, the beneficiary of a trust, claimed that the trustee improperly invested all of the trust property by lending it. Madam Justice Levine, for the Court, considered the bases upon which a court might remove a trustee: In Letterstedt the court established guidelines:

1. If continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed. Trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.

2. The acts or omissions must be such as to endanger the trust property or to show a want of (1) honesty, (2) proper capacity to execute the duties, or (3) reasonable fidelity.

3. The Court’s main guide must be the welfare of the beneficiaries. 4. Where a trustee is asked to resign, and if it appears clear that the continuance of the trustee would be detrimental to the execution of the

trusts, the trustee is always advised by his own counsel to resign. - JS: THIS PRINCIPLE NO LONGER APPLIES5. A trustee when asked to do so, will resign.6. If a trustee refuses to resign w/o reason, the court may remove him.7. Friction or hostility between trustees and the beneficiary is generally not of itself a reason for the removal of the trustees, unless the hostility

has been caused by substantial overcharges against the trust estate. But see Re Smith 1972 ONCA: circumstances had clearly become unbalanced between the income and capital beneficiaries.

The court appointed a new trustee so as not to usurp existing trustee’s discretion to sell/retain. C: The court removed and replaced the trustee for failing to meet “prudent investor” standard in Trustee Act, s. 15.2 and at CL.

Parker v. Thompson (Trustee) 2014 BCSC 196: The standard of conduct to be expected of a trustee in the administration of a trust was set out in Fales: Traditionally, the standard of care and diligence required of a trustee in administering a trust is that of a man of ordinary prudence in managing his own affairs (Learoyd), and traditionally the standard has applied equally to professional and non-professional trustees. There has been discussion of the question whether a corporation which holds itself out, expressly or impliedly, as possessing greater competence should not be held to a higher standard of conduct than individual trustee. Some suggest that higher standard is expected from paid trustees.

I accept the principles pertaining to the removal of an estate trustee set out in Haines: (1) the court will not lightly interfere with the testator’s choice of estate trustee;(2) clear evidence of necessity is required;(3) the court’s main consideration is the welfare of the beneficiaries; and(4) the estate trustee’s acts or omissions must be of such a nature as to endanger the administration of the trust

While actual dishonesty, lack of proper capacity to execute duties, or lack of reasonable fidelity are all bases for removing a trustee (Re Commonwealth Investors Syndicate Ltd. (1986), the lesser basis of a trustee’s inability to act impartially may suffice (Re Shaw). The removal of a trustee should not be lightly entertained (Radford v. Radford Estate (2008)).

Removal must be the only course to follow (Crawford v Jardine 1997, citing Tempest 1866) Removal must be guided by the welfare of beneficiaries (Crawford v Jardine, citing Letterstedt v Broers 1884) Non-removal must likely prevent proper execution of the trust (Crawford v Jardine) Removal is not intended to punish past misconduct, but (likely) continuing misconduct will be sufficient to justify removal (St. Joseph’s)

The remining term of a trust is not a relevant consideration for trustee removal. DeclarationSupreme Court Civil Rules, Rule 2-1(2)(d) – DECLARATORY RELIEFThe applicant must file a petition, for relief, advice, or direction sought relates to execution of a trust, or performance of an act as trustee, or determination of persons entitled as creditors or otherwise to trust property.

Proceedings against third parties Foskett: if trust property is transferred improperly by the trustee to 3P, the trustee will be liable for breach of trust, and the restitutionary award will be launched against him. If 3P remains in possession of the trust property, the beneficiary is entitled to demand transfer of the property to the beneficiary by 3P, UNLESS the 3P can establish the BFPV defence.

A: “A beneficiary’s claim against a trustee for breach is a personal claim. It does not entitle him to priority over general creditors unless he can trace the trust property into its product and establish a proprietary interest in the proceeds. If the beneficiary is unable to trace the trust property into its proceeds, he still has a personal claim against the trustee, but his claim will be unsecured. The beneficiary’s proprietary claims can be maintained against the wrongdoer and anyone who derives title from him except a bona fide purchaser for value.”

In addition to the general rules in Faskett, there are three instances in which a third party may be liable for breach of trust: 1. A trustee de son tort – Waters: “a person who was not appointed a trustee, but who takes it upon himself “to possess and administer trust

property for the beneficiaries”, will be treated as if he were a trustee” 2. If the third party “knowingly assists or participates” in a breach of trust by trustee , or

Knowing participation or assistance in a breach of trust is sometimes referred to as “accessory liability”. The elements of liability under this heading involve (Air Canada v M&L Travel):

the characterization of the breach of trust as “dishonest” on the part of the trustee; AND the alleged (non-trustee) participant’s state of mind, which requires knowledge or wilful blindness.

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3. If the third party “knowingly receives” trust property in breach of trust and applies it for his own use and benefit . Knowing receipt of trust property was canvassed in Citadel General: bank was only liable for knowing receipt because its knowledge was insufficient for knowing assistance. Court held that “constructive knowledge” was sufficient for grounding liability for knowing receipt.

Bank of China v Fan 2015 BCSC – analysis of the development of the third party proceeding rules: There two ways to hold a 3rd party liable:1. KNOWING ASSISTANCE : three elements:

a. There is a trust, b. The named trustee perpetrated a dishonest and fraudulent breach of trust, and

Royal Brunei Airlines: acting dishonestly is an objective standard. If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply b/c he sees nothing wrong w/ behaviour.

c. A 3rd party participated in and had actual knowledge, recklessness or wilful blindness of the trustee’s breach. Bank of China: Short of outright admission, actual knowledge is often difficult to prove.

o Air Canada v M&L 1993 SCC: directors allowed breach by deliberately taking trust $$ and mingling w/ agency’s $$ The taking of a knowingly wrongful risk resulting in prejudice to the B is sufficient to ground personal liability.

[Constructive knowledge is insufficient. Don’t need proof of receiving trust funds.] Remedy : liability of 3rd party is equivalent to liability of a constructive trustee.

Aim is to put parties in pre-wrong position. D is liable for the losses resulting for T’s breach (Canson) Since a D liable for knowing assistance is deemed to be constructive trustee, that defendant is also subject to

the obligation to return the plaintiff to pre-fraud position: Snell’s Equity. Hodgkinson: equitable remedies should be flexible and proportionate to D trustee’s actual behaviour

In this case : Tan was reckless or wilfully blind to fraudulent origins of funds.2. KNOWING RECEIPT : if 3P receives and is charged with trust property (or its traceable proceeds) in breach of trust, and fails to make

reasonable inquiries despite suspect circumstances. a. Must be trust property; taken from the plaintiff in breach of trust; defendant is not BFPV w/o notice; and defendant must have

taken the property for own right/benefit (possession insufficient per Iacobucci J in Gold). Threshold to make an inquiry: whether circumstances would cause a reasonable person to inquire Only constructive knowledge is required [PP: D enriched at P’s expense. CK is knowledge of facts sufficient to put RSB

person on inquiry.]b. If 3rd party still has it, give it back. If 3rd party sold or lost it, liable to reinstate value to B. o [Banks – argue when $ is deposited or

withdrawn, bank should know if it’s trust funds.]c. In this case : 3rd party’s conduct was limited, so remedy limited to actual funds possessed & profits made from breach

Following trust property (i.e. tracing funds post-breach) Re Oatway: Trust $$ may be TRACED into land/other property it was invested in. When trustee makes a purchase/investment, and APPLIES TRUST MONEY W/ HIS OWN PERSONAL MONEY, the B is entitled to a CHARGE on the property, proportionate to the amount of trust $$ laid out

If the personal account had residual funds, B is entitled to ask for funds in account before asserting a charge on assetsF: Two trustees breached trust. Advanced trust money to one trustee and mixed with personal account. Property was sold and mortgage discharged, but trustees retained proceeds in personal account, AND THEN used the proceeds to purchase shares. In this case: no balance in account, and only shares were left. Thus, shares belong to trust and charge on investment remains. (gets tough to trace where trust and personal money is co-mingled, esp. where multiple trustees)

Trustee protections: exculpation and indemnity Trustee Act, ss. 95 & 96 95 – T’s implied indemnity - T is chargeable only for money he rec’d, and is only accountable for his own acts, receipts, neglects, defaults, UNLESS loss results from T’s wilful default. T may reimburse himself for all expenses incurred.96 – jurisdiction of court to relieve T of breach - if T is personally liable for a breach, but has acted honestly and reasonably, and ought fairly to be excused, then court may relieve T wholly or partly from personal liability. [invoked where T tries his best, but a loss results]

Re Poche: Gross negligence on the part of a T will NOT be saved by an exculpation clause. B. What remains unsettled is whether an exculpatory clause for simple negligence will be upheld [JS thinks: yes]

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John Smith’s Course Re-capCreation of a TrustThere are two methods to constitute a trust: (1) transfer to a trustee, or (2) self-declaration (Milroy)

Transfer : equity will not perfect an imperfect gift (Milroy), but a trust will still be constituted in equity when: o Re Rose: a settlor has done everything in her powers to effect transfer (the “every effort” rule). o Pennington: transfer has not completed, but everyone understood it to have been (i.e. clear testator intention) o Mordo v Nitting: Donor (1) executed the transfer and (2) handed it to trustee. Trustee simply hadn’t been registered. Also executed

an interim document that lawyer was holding the trust before it became registered in the trustee’s name. Transfer is effective b/c: (1) did everything in power, (2) s. 20 of LTA, (3) unconscionability.

Self-Declaration o No technical words are required: Elliott. o Main issue is to demonstrate certainty of intention

Also: understand the differences between (1) Dispositive Powers and (2) Management/Administrative Powers Certainties

Intention, Subject matter, Objects (beneficiaries) – usually the most contentious

Resulting Trusts Eisener: If have evidence of transferor’s intention, will give effect to it; presumptions are not req’d Pecore clearly restricted the presumption of advancement: in most cases, will not be required to rely on presumptions. Rosco Trucking: there are only conclusions to reach: (1) the transferor did not intend to retain any interest, i.e. intended to make a “gift” of

sorts; OR (2) the transferor intended to retain an interest, in which case there is a resulting trust. Tribe: if no harm from an illegal/improper intention has arisen, there is no reason not to give effect to an improper intention. Tribe cites a UK

case which takes a far more extreme approach to improper intentions (not CDN law): o Tillsey v Milligan: Minority: the moment anyone mentions an illegal purpose, the case is closed. o Tillsey v Milligan: if, to prove a point, a party has to rely on an illegal intention, that party will be denied a remedy.

Goodfriend: improper intention present, but concern (suit from wife’s lover) was a sham, so no harm could have been done. JS: not sure what the court’s answer would be if there was an improper intention, and some improper result was achieved.

Trustee’s Duties: Account, Act personally, (obligation not to be entirely influenced by someone else’s decision, or to not act at all) Adhere to trust instrument, Act in best interests of the beneficiary, Comply with the law, Maintain an even-hand between beneficiaries, Investment, Loyalty, Safeguard and preserve trust assets, Exercise skill, care and prudence (Fales)

o All trustees are subject to the same standards (professionals and laypeople alike), however, laypeople are more likely to be exonerated for a breach than professionals would be (Fales)

Provide information (always contextual and intensely factual) See also Keech, Boardman – never permissible to take a benefit by virtue of trusteeship.***JS: on the exam, will be examined primarily on performance duties; the things that call for judgment by the trustees*** Court Advice

If a pure question of confirmation (e.g. is this a good exercise of my discretion?), the courts will not weigh in. Exceptions: o Re Fleming: where there are two possible routes of action, and one would constitute a breach, the court will weigh in o Deadlock cases : Re Haasz: the power to retain trust property cannot be simply used as a default for failure to sell; there is a duty to

make a collective decision, and if trustees fail in doing so, the court will intervene. See Tempest, Re Billes

Apportionment – will NOT be on the exam The rule in Saunders v Vautier :

Ward v Roberts – provides basic summary of the rule Fiduciary Relationships*** JS: there WILL BE A FIDUCIARY Q on the test***JOHN Smith: 2017 Exam Review QUESTION 1 Question a) Who is beneficially entitled to the 40% of Opco shares that A intended to go to the Children’s Trusts, and on what basis?

First step: who has legal title to the shares? The estate. BUT significant steps had been taken to effect the intention of transferring 40% of the shares to the children. The question then becomes – has the new trust been properly constituted?

the cases relevant in this context are:

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o Milroy v Lord and Mordo v Nitting – the question is: did A do everything in his power to effect transfer? YES, quite clearly. In addition, E’s failure to carry through, especially when he is potentially a beneficiary, would make the non-transfer unconscionable w/in the meaning of Pennington as adopted in Mordo.

o As such, seems quite clear that C and D are beneficially entitled to the shares under the Children’s Trust. Two basic things to cover here: (1) has everything been done “best efforts” to effect transfer? (2) what about unconscionability?

Question b) Have there been any breaches of trustees’ duties? One issue is how the dividends have been distributed out – the provision of the will was that until C attained the age of 19, income was paid

to B for benefit of C and D, and after C attains 19, income was to be divided equally between C, D and E – however, E has clearly been acting in a way that benefits his own interests as beneficiary

He is also failing to exercise an appropriate level of prudence w/r/t the major investment in this whole puzzle – didn’t seek external advice Would think to be in Fales territory where to simply refuse to even consider a sale would be a breach of duty – however, E may not be liable

for the drop in value to this point, depends on facts – however now, it is clear that E ought to be seriously considering sale and is arguably failing his trustee duties by not doing this

He is seriously risking the value of Opco On top of all of this, we have the business with the Newco – he is using his position to get a free shot at something Turning to the loan, it has clearly been lost on a speculative venture (undoubted breach of trust). The question that arises here is who might

be liable? Might B be liable for this? While B was not a participant in the making of the loan, she was a trustee, had acquiesced to A having sole control over the investments, and when A decided to make a change, she acquiesced in that also – she never took any active role, which gave E the opportunity to go out and make some sneaky profits. By doing nothing, she has thus exposed herself to liability. Not quite like Fales – her failure was allowing E to have complete control over trust assets, which he has now exposed to a 1M loss. This is obviously inappropriate (duty to act personally etc.)

As between B and E, if E has the wherewithal to pay the 1M loss himself, the court might be willing to exonerate B

Question c) What remedies might be available as a consequence of any such breaches, to whom and against whom? C and D might argue that they should be entitled to some income for the period before C turned 19 and E should give up some of the income

that he got from the trust The big issue is also the loan – E should be entitled to make restitution; as between E and B, it would not be unfair to make E pay the whole

loss, but if E cannot, B may also be at risk Liability also for decline in value for Opco shares – harder to push; not enough facts to say over what time the decline took place; whether or

not there was a moment when it was clear sale ought to have occurred At most, E should get 1/3 of 60%, and arguably he should have to cough up more because he should have been paying dividends earlier

Question d) avenues available to B, C and D to change how assets are handled? Question is really: can we change trustee, or is this a deadlock situation? Terms of trust: when C turned 19, the trust fund was to be turned into two shares, when children turn 30, capital to be distributed

o The children are nowhere near 30; Could use discretionary power to distribute everything from will whenever, but have no such discretionary power under will There is a strong argument that trustee should be removed and replaced w/ someone who is more able to make a sale decision Easiest avenue is simply to say that E does not seem to be paying sufficient attention that he has as trustee

o Good case to have a look at removal of trustee No Saunders v Vautier issue here; the terms preclude that

JS: be sure not to spend too much time on any one issue; JS likes you to CANVASS all the issues you see. Usually helps to start out by diagramming out relationships between parties. Time is really important – be sure to answer ALL questions. The fiduciary obligations question is generally the most difficult. QUESTION 2 First issue: is the neighour, G, a fiduciary?

F wants to sell her house, she has been taken into hospital, G has previously helped her with her home, allowed her to keep her home for longer than she otherwise would, in a good neighbourhood

She wants to make him power of attorney, and he declined, but he agrees to do everything else in his power to help her sell She then obtains a realtor It is abundantly clear that G is not a per se fiduciary However, G then goes ahead and does some things that impede the sale that might have occurred for her sale, and in fact goes and sells his

own homeo The question thus becomes: in promising to do whatever he could to help G sell her home, did F become an ad hoc fiduciary?

Start w/ Elder Advocates and refer to prior cases Key point:

Is there an undertaking, and Does F have a power or discretion that he can exercise in a way that would affect G’s practical or legal interests?

Indeed, F gave an assurance – but one of the elements that McLachlin J spoke about in Elder Advocates was the forsaking of all other interests

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However, F gets involved in the sale, speaks w/ realtor, finds out what the bids are, and the realtor warns that the market may crash and that the sale should proceed ASAP

o Think about the test, how it might be applied What was F saying about his own self-interest in the context?

Discuss the facts that relate to the satisfaction of the test, and point against it This is more important than coming to one specific answer

o There is obviously one undertaking, the fundamental question is more: what was the extent of that undertaking? To forsake all interest?

La Forest J: it cannot be what you do that makes you a fiduciary, it must derive from the relationship. Lac Minerals: La Forest J: “[t]here are few legal concepts more frequently invoked but less conceptually certain than that of the fiduciary

relationship.”

JS: after identifying the factors for and against fulfilment of the test, to identify which side you fall on.

Presuming G is found as a fiduciary, what remedies may be available? As a breaching fiduciary, the principles of equitable compensation tell us that we should make our assumptions against the breaching

fiduciary – it is no stretch to say that not very indirectly, F cost G $400k. F also made some money himself – he arguably received a chance to sell his own property that he would have otherwise received – he avoided a loss he would have otherwise incurred. He was also able to purchase his new home more cheaply.

o The gain F has is the difference between what his house would have been worth after the market crash and how much he actually has. His total benefit might be more than the $400k that G loss.

o Assuming so, G’s best claim against F is: Claim a constructive trust against F’s current home (ambitious at best b/c difficult to show how G made any contribution

to the acquisition of that property by F, and in any case, even if the loss exceeded $400k, it would only be a fraction. As Haigh shows, giving a fractional interest in property really isn’t practical)

See also Kerr v Baranow to see if a monetary remedy would be legitimate otherwise Seems a legitimate case for unjust enrichment analysis

o Supposing G’s benefit was only $220k, and G is still out $400k, what avenue would G have to claim the $400k? Equitable compensation territory – have a breaching fiduciary who has caused G harm and she is entitled to be put in the

position she would have been in but for the breach. We hardly have to worry about foreseeability etc. because it all happens rather simultaneously (no need to get into the

Hodgkinson debate) o Disgorgement?

Unlikely to succeed – to the extent G gets compensated, it would be tough to say she has additional losses

What about mitigation? Before all of this happened, G had increased the value of F’s house, and she would have been able to continue living in her home (he enriched F). that enrichment is, however, disproportionate to the deprivation suffered. Was F therefore enriched at G’s loss? Was there a juristic reason? He clearly intended a gift, but they sort of agreed to sort it out later. Similar in some respects to Rascal – to say anything other than he intended a gift of his services would be a hard claim.

G could claim an interest in F’s property This could be a debatable counter-claim

PROBLEM 3

Joint account being used so K can provide financial support for M. the account was established as a joint account, M never read docs, just signed them. K did read them, and knows that survival determines who takes whole account. Prior to K’s death, M had no knowledge of the bank account.

Clearly engages Pecore – is this a resulting trust? Clearly there is no presumption of advancement for the condo Intention is obviously intended to benefit M – if M had died first, there would be no issue w/ K claiming the interest

o In the account itself, all we have is evidence of intention w/r/t the condo – the deal here is that K put up 50% of purchase price, and both signed remaining 50% mortgage and M paid monthly

mortgage payments, although K provided her some income to help do thiso is this a resulting trust? o What about the statement: We may as well have a growing asset rather than have you paying rent.

Does the “we” imply a resulting trust? Was the intention to be 50/50 owners? The second comment “that should help you to get on good financial footing” renders this ambiguous The fact that it was in joint name intends joint ownership But the condo is overall quite complicated

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And then we have the will “I give to M $500 so she can give her son a proper start. Anything not used for that purpose to go to charity” o Is this an outright gift to M? (i.e. all the other words are just additional) OR is a trust created? o Choice: M either holds the property in a purpose trust w/ a human beneficiary w/ a giftover, OR it is an outright gift to her w/ some

words added To argue the latter, must refer to Re Walker – b/c M is given the choice of how to give her son a proper start in life, and

anything not required can be disposed of, this is very vague. For instance, she could clear the mortgage with all of the money and then use her income to help raise the son – the words, one might argue, are purely precatory b/c they are so vague

If you going to argue a limited interest for M (i.e. trust), to examine what money she is spending on her son and how is really stretching the limits of the law of trusts

We have no definition of what she is entitled to distribute If it is a trust, what would the terms of it really mean? JS: thinks the trust argument is super shaky, more likely a gift.

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