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Trusts CAN – SMITHCondensed and restructured for Apr 2019

FRAMEWORK .................................................................................................................................................................................................................. 2 CREATION OF EXPRESS TRUSTS .............................................................................................................................................................................. 4 CONSTITUTION OF TRUST.................................................................................................................................................................................................. 4REQUIRED CERTAINTIES ........................................................................................................................................................................................... 5 CERTAINTY OF INTENTION AND SUBJECT MATTER.........................................................................................................................................................5

SELF-DECLARATION AS TRUSTEE...........................................................................................................................................................................5PRECATORY WORDS................................................................................................................................................................................................. 6OUTRIGHT GIFTS VS. LIMITED (LIFE) INTEREST.....................................................................................................................................................6CERTAINTY OF SUBJECT MATTER...........................................................................................................................................................................7

CERTAINTY OF OBJECT...................................................................................................................................................................................................... 7FORMALITIES...................................................................................................................................................................................................................... 8TRUSTEE’S DUTIES ....................................................................................................................................................................................................... 9 BASIC DUTIES – WHAT MUST A TRUSTEE DO?...............................................................................................................................................................9

1. DUTY TO ADHERE TO TRUST INSTRUMENT....................................................................................................................................................92. DUTY TO SAFEGUARD AND PRESERVE TRUST PROPERTY...............................................................................................................................93. DUTY TO INVEST..........................................................................................................................................................................................104. DUTY TO PROVIDE INFORMATION TO BENEFICIARIES..................................................................................................................................115. DUTY TO ACCOUNT......................................................................................................................................................................................12

PERFORMANCE DUTIES – WHAT SHOULD A TRUSTEE DO?..........................................................................................................................................121. DUTY TO ACT PERSONALLY.........................................................................................................................................................................122. DUTY TO EXERCISE APPROPRIATE SKILL, PRUDENCE AND CARE.................................................................................................................123. DUTY OF LOYALTY......................................................................................................................................................................................134. SELF-DEALING.............................................................................................................................................................................................145. ACQUISITION OF BENEFICIARY’S INTEREST.................................................................................................................................................156. DUTY OF IMPARTIALITY– SUCCESSIVE INTERESTS.......................................................................................................................................157. DUTY OF APPORTIONMENT..........................................................................................................................................................................16

JURISDICTION OF COURTS ...................................................................................................................................................................................... 16 APPLICATION BY TRUSTEES.............................................................................................................................................................................................17BREAKING DEADLOCK (RE BILLES; KORDYBAN)............................................................................................................................................................17OTHER GROUNDS FOR INTERVENTION............................................................................................................................................................................19MISCELLANEOUS EPRESS TRUST ISSUES ........................................................................................................................................................... 20 CHANGE OF TRUSTEES..................................................................................................................................................................................................... 20REMUNERATION OF TRUSTEES........................................................................................................................................................................................20RULE IN SAUNDERS V VAUTIER.......................................................................................................................................................................................20VARIATION OF TRUSTS..................................................................................................................................................................................................... 20REMEDIES ...................................................................................................................................................................................................................... 21 DECLARATION................................................................................................................................................................................................................... 21REMOVAL OF TRUSTEE.................................................................................................................................................................................................... 21RESTORATION AND EQUITABLE COMPENSATION...........................................................................................................................................................22PUNITIVE/OTHER DAMAGES............................................................................................................................................................................................23FOLLOWING TRUST PROPERTY.......................................................................................................................................................................................23

RECOVERY OF SPECIFIC PROPERTY.......................................................................................................................................................................231) TRUSTEE DE SON TORT................................................................................................................................................................................242) KNOWING ASSISTANCE OR PARTICIPATION..................................................................................................................................................243) KNOWING RECEIPT.......................................................................................................................................................................................24

THIRD PARTY LIABILITY................................................................................................................................................................................................. 24INDEMNITY AND EXCULPATION.......................................................................................................................................................................................25

BY TRUST INSTRUMENT...............................................................................................................................................................................26RESULTING TRUSTS ................................................................................................................................................................................................... 26 AUTOMATIC RESULTING TRUSTS....................................................................................................................................................................................26

1) FAILURE OF EXPRESS TRUST........................................................................................................................................................................26PRESUMED OR INTENDED RESULTING TRUSTS..............................................................................................................................................................27

1) PRESUMPTION OF RESULTING TRUST...........................................................................................................................................................272) PRESUMPTION OF ADVANCEMENT................................................................................................................................................................27

EVIDENCE DISCLOSES ILLEGAL INTENTION...................................................................................................................................................................28FIDUCIARY RELATIONSHIPS, UNJUST ENRICHMENT, CONSTRUCTIVE TRUSTS ................................................................................. 29 FIDUCIARY RELATIONSHIPS AND OBLIGATIONS............................................................................................................................................................29UNJUST ENRICHMENT......................................................................................................................................................................................................31IMPOSITION OF A CONSTRUCTIVE TRUST.......................................................................................................................................................................32

Cathy Lee – Modified by Charlie Shi for 2019

Framework

1. Creation of Trust: Is there a trust?o Express trust

i. Constitution (legal vesting of property in trustee):1) Transfer of property from settlor to trustee(s):

Rule (Milroy; Re Rose): Must have done everything in power to effect transfer. - Court will not complete an incomplete gift (Milroy)- Transfer effective when settlor has done everything to effect transfer and it would be unconscionable for

transferor to revoke the transfer (Pennington)(Rose), - or when transferor has relinquished control of property and put transferee in position to complete transfer

(Mordo). Once done so, transferor holds legal interest in trust for transferee until such transfer is complete.

2) Self-declaration: Constituted through declaration of self as trustee (no formalities required). Main issue is intention. (Elliott)ii. Certainty of (all 3 necessary for Trust to be valid):

1) Intention: Did the settlor intend to create a trust? a) Issue– Self-declaration:

- Whether manifestation of sufficient intention of settlor to become trustee– i.e. from that point on, assume duties of trustee, act in best interests of beneficiary, endorsements (Jones; Re Elliott Estate, Paul v Constance)

- Was there intention to deprive him/herself of all property in the good? (Jones)- Relinquish beneficial interest + give beneficiary enforceable beneficiary interest self-declared trust

b) Issue– Precatory words: - Whether imperative words imposed an obligation on the beneficiary that was accepted by the beneficiary under

the will (Hayman; Ottaway). - Cannot gift absolutely and create a gift over: give effect to predominant intention and reject subordinate intention

as repugnant (Re Walker)- Communication + acceptance/undertaking trust

2) Subject matter: Trust property must be defined with sufficient precision. iii. May use “formula” to determine beneficial interest if it will produce a definite result (Re Golay). iv. Ambiguity can mean no subject matter, but can argue highest monetary value (Boyce)

1) Object: - Class of beneficiaries or objects of trust powers must be able to be established with certainty (Re Baden). - Not necessary to define limits of class from outset. Valid as long as some objective criteria can be used to

determine membership in that class. (Re Coates)v. Timing of disposition: Inter vivos or testamentary disposition? When is the trust intended to take effect?

Test (Carson): Whether testator intended inter vivos or testamentary disposition: intention to part with control and beneficial interest. So long as property in settlor’s control and subject to his authority, it confers no title to grantee (Carson).

If unclear, look at effect of document to determine whether it is in effect (Mordo)

FORMALITIES: vi. Land: Disposition must be evidenced in writing nad signed by the parties (Law and Equity Act s59(3))

vii. Will: Must be in writing and signed by will-maker and 2 witnesses (WESA s37(1)) o Court may order will to be valid under s58 even if not signed properly

If not a validly constituted trust (i.e. failure of any of the above), then automatic resulting trust back to settlor.Resulting trust

viii. Automatic resulting trust (property will be held in trust for settlor’s estate) Failure of express of trust

a) Invalid trust provisions due to uncertainty (Re Baden) or vitiating trust, or unclear binding legal obligations (Hayman v Nicoll)b) Failure to dispose of entire beneficial interest (eg. Beneficiary dies before distribution and no alternate)

Surplus funds (Abbott; Barrett): Whether settlor intended an outright gift subject to condition or a gift to affect a purpose ( surplus held on trust). Issue of resulting trust only arises if trust was intended at all.

ix. Presumption of resulting trust vs. presumption of advancement Presumption of advancement for gratuitous transfers between spouses or from parent to minor child. (Pecore)

- Rebut by demonstrating no intention to gift beneficial interest. (Success: Tribe, Failed: VJF) Presumption of resulting trust for all other gratuitous transfers or purchase in recipient’s name. (Pecore)

- Rebut by demonstrating intention to gift beneficial interest. (Success: Pecore, Nishi, Failed: Niles)

- Evidence of illegal intention/scheme is generally inadmissible to rebut presumption of advancement (Goodfriend; Tribe, Hu v Li).Exception: For illegal intention to bar recovery, 2 things are required (Tribe):

1) Disposition was not illegal or fraudulent/ illegal scheme not carried out (no creditor was hurt), 2) Evidence of illegality not central to claimant’s case (e.g. other sufficient evidence to rebut presumption)

YES NO

Powers and duties of a trustee (10 Commandments): Was there a fiduciary relationship


- Basic duties: What must the trustee do? Was there a breach of the trustee’s duties? 1) Adhere to trust instrument (The Land Conservancy v UBC)2) Safeguard and preserve trust property(Fales)3) Invest (Miles; Cowan)4) Comply with the law5) Provide information to beneficiaries (Re Martin; Valard; Breakspear)6) Account (s 99 of Trustee Act)

- Performance duties: What should the trustee do? Did the trustees meet the standard when performing their basic duties?

1) Duty to act personally (Fales)– power to delegate (s 15.5 TA; Speight)2) Duty to exercise appropriate skill, prudence and care (Fales, s 15.2)3) Duty of loyalty: put beneficiaries’ interests first! (Keech, Sun Indalex)

a. Cannot profit from office (Boardman), further own interests, or act in CoIb. No self-dealing – cannot purchase trust property or usurp opportunities

(Breakspear; Molchan)c. Trustee may purchase beneficial interest to end fiduciary rel. (Crighton)

4) Duty of impartiality/ even-handedness (successive interests) (Royal Trust)5) Implied duty to convert if property will waste (Howe v Earl of Dartmouth)

nonetheless?1) Per se fiduciary relationships:

Trustee-beneficiary; director-corporation; solicitor-client; Crown-Aboriginal (Guerin); uniformed officer-office (Reading); statutory

2) Ad hoc fiduciary relationship (Elder Advocates): 1. Reasonable Undertaking, express

or implied, by fiduciary to act in best interest of “beneficiary”

2. Power/discretion to unilaterally affect legal/practical interests of beneficiary (vulnerability)

3. Exercised in a way to affect legal/practical interest of beneficiary

Is a constructive trust appropriate? Soulos:1) Breach of legal obligation enforceable by

a court of equity2) Acquired asset as a result or because of

breach of equitable obligations3) Personal or legitimate reason

(deterrence) for imposing constructive trust4) Would not be unjust in all circumstances

of the case (3rd party/ creditors would not be affected)

Does the court have jurisdiction to intervene? And to what extent?

Trustee: can apply to court to seek advice (s 86 of TA)Trustee or any interested party: question arising from execution of trust (Rule 2-1(2)(c) and (d) of the Civil Rules)

Principle (Gisborne): Court will advise on courses of actions but will not direct which one to take. Is trustee asking for direction on how to exercise discretion? Exceptions:

1) Binary choice (Re Fleming)– alt. choice would be a breach of trust2) Breaking deadlock (Re Billes; Kordyban)– trustees failing to carry out duties by not

being able to act + testator’s intentions will be frustrated + hurt beneficiaries’ interests 3) Improper motive, dishonesty, not prudent, failed to balance beneficial interests

(Boe, Fox, Land Conservancy v UBC)What remedies are available?

a) Equitable compensation/Restoration (Guerin; Canson): Put beneficiary back in original position had breach not occurred– liable for all losses caused from breach, regardless of foreseeability or remoteness

b) Removal of trustee (Miles; Parker): Necessary to protect beneficiaries’ interests b/c continuation of trustee jeopardizes proper and efficient administration

c) Punitive or other damages? Probably notd) Following trust property (Foskett v McKeown) unless bona fide purchaser.

If no fiduciary relationship, is there unjust enrichment? Pettkus, Kerr

1) Enrichment;2) Corresponding deprivation;3) No juristic reason

i. Onus on plaintiff to show no established juristic reasons: contract, gift or legal obligation

ii. Onus shifts to defendant to show other juristic reasons: reasonable expectations, policy/moral considerations

Is a constructive trust appropriate? Kerr 1) Must consider monetary award first

(can calculate damages on quantum meruit or even beyond that);

2) If monetary award not sufficient/appropriate, must show causal link between contribution and acquisition, preservation, maintenance or improvement of property subject to the constructive trust

Holding third parties liable: What if trust property is now in the hands of a third party?

a) Default: If holding property, must return property if not bona fide purchaser for value with notice. (Bank of China, Citadel)

b) If not holding property anymore, may still be liable for whole loss if (Air Canada):i. Trustee de son tort (Boardman): Person not appointed trustee but takes it

upon himself to possess and administer trust property for the beneficiariesii. Knowing receipt (if once held property): Requires 1) receipt and application

of trust property for own use and benefit; and 2) constructive knowledge: reasonable person would have been put on inquiry as to the possible breach of trust

iii. Knowing assistance (if never held property): Requires 1) dishonest and fraudulent breach of trust by trustee; 2) participation or assistance in the breach; and 3) actual knowledge, including wilful blindness or recklessness

- Protections for trustees/defences:a) Indemnification (s 95 of Trustee Act): All expenses and costs reasonably and properly incurred in administration of trustb) Exculpation by trust instrument: Exceptions– fraud, dishonesty, deliberately acting against beneficiaries’ interests, gross negligencec) Consent/acquiescence by beneficiary (Boardman): Full and informed consent; if conflict of interest, advise to seek ILAd) Exoneration by the court (s 96 of Trustee Act): If trustee acted honestly and reasonably


CREATION OF EXPRESS TRUSTSA valid and enforceable express trust requires:

1) Constitution: Trust property must be legally vested in trustee2) Certainty of:

a. Intentionb. Subject matterc. Object

Constitution Of Trust2 ways a trust can be constituted (Milroy):

1) Transfer of property from settlor to trustee(s): Proper mechanism for vesting title depends on nature of property Will: WESA– on person’s death, all property vests in personal representatives (executors/administrators). Executor assumes duties

of trusteeo Issue: Whether there was sufficient intention to create trust in the will.

Land: LTA– registration through the Land Title Registryo Issue : Unregistered transfers of title, execution and delivery of transfer formso S 20 : Unregistered transfer is valid as against the person that made it

2) Self-declaration as trustee: Owner of property determines they will no longer be the beneficial owner thereof, and hold the property for the beneficiaries as trustee

Issue: Incomplete transfer: When settlor has taken steps required to fully vest legal title in intended done or trustee, but transfer remained, or was at a critical time, incomplete

Rule (Milroy): Court will not complete an incomplete gift or perfect an imperfectly constituted trust. Court is also reluctant to treat an intended (but incomplete) outright gift or transfer to trustees as a self-declaration of trust.

Exception (Rose; Pennington; Mordo): Where the settlor/transferor has done all in their power to effect transfer, equity may treat as effective disposition of beneficial interest pending completion of transfer of legal interest

Mordo v Nitting: Transferor’s intention is crucial– transfer would be effective where transferor has relinquished control of the property and put transferee in a position to complete transfer.

Pennington v Waine: Transfer effective in equity where settlor has done everything necessary to effect transfer and it would be unconscionable for settlor to revoke transfer

Re Rose: Transferor must have done everything necessary in his power (according to nature of property) to effect transfer for beneficial interest to pass to transferee Transfer effective in equity; transferor becomes trustee of legal interest for transferee pending registration.

Mordo v Nitting (2006)(BCSC)

F: Mordo family ran a successful business importing skis from Europe. Parents began making plans to see that A was disinherited– transferred most of assets and accounts into joint ownership with sister, Viviane. Planned to move as much property out of estate as possible so that there would not be any property in estate for A to claim (made sure A could not apply for wills variation, set out reasons for disinheriting him). Mother, Eida, created a trust to hold warehouse property until her death, and named herself and V as beneficiaries. E executed a transfer (Form A) in transfer of the trustee, Mr. Wilson, which was not registered until after E's death. A claimed that trust was not validly constituted.H: Warehouse Trust was validly constituted. E did everything necessary to create a valid trust by completing Form A and giving it to the trustee to register (put trustee in a position to complete the transfer). Intention to transfer legal title to trustee is underscored by execution of Declaration of Trust that although transfer had not been transferred, held legal title to Warehouse only as trustee on behalf of the Trust.R:

Affirmed Re Rose and Pennington: If intention is clear and transferor had done everything in power to effect transfer, holds legal title to

property in trust for trustee until such transfer of ownership was complete. Pennington v Wane (2002)(UKCA)

F: Aunt intended to make gift of shares to nephew, but share register not updated and aunt kept the completed share transfer forms rather than handing them to the nephew. Relied on accountant to register the transfer in the company's records, which the accountant did not do. Transfer incomplete, but accountant told nephew that transfer was complete.H: Transfer was effective and aunt held shares in trust for nephew. Once the share certificates have been placed in the hands of the accountant, and the accountant has told the donee that everything has been done to complete the transfer, at that point, would be unconscionable for the transferor to change their mind. Aunt had made the gift of her own free will, told nephew about the gift and signed a transfer form, which was delivered to her accountant. Reliance: Nephew assumed role as director of Company, which he could not do w/o the shares being transferred to him, and accountant also told nephew.R:

Delivery might not be necessary to effect transfer. Affirmed Re Rose: transferor must have done everything in his power to effect the transfer. An incomplete gift is to be treated as completely constituted where it would be unconscionable for donor to be

permitted to change his/her mind. o Timing: Point at which it would be unconscionable for transferor to revoke transfer.

Re Rose (1952)(UKCA)

F: R executed 2 transfers of shares to be held in trust for wife and son on March 30, 1943. Transfers not registered in the company's books until 3 months after they were transferred b/c required board of directors to approve the transfer. R died on April 10, 1948 and became liable to pay estate tax on gifts made by him within 5 years of his death.


I: Whether estate tax is payable depending on when the beneficial interest in the shares passed to the beneficiariesH: Transfers were effective to pass the beneficial interest in the shares (at the time R signed transfer documents), and even pending registration, R was the legal trustee of the shares. Shares not subject to estate tax. Company was obligated to register the shares once the share transfers had been executed.R:

If transferor has taken all the steps, which according to the nature of the property comprised in the settlement, was necessary (in his/her power) to be done by him in order to transfer the property, then beneficial interest passes to transferee (transfer effective in equity).

Pending registration, the settlor is a trustee of the legal interest for the transferee. Generally there is no hardship for settlor to assume duties of trustee while waiting for shares to be registered

REQUIRED CERTAINTIES

In order for a Trust to be valid, there must be certainty of:1. Intention2. Subject Matter3. Object (Terms)

Certainty of Intention and Subject Matter

Issues:a. Alleged self-declaration as trustee: Whether self-declaration as trustee or whether intention to make gift in the future that was never carried

outb. “Precatory” words in will: Whether outright gift was intended or whether limited interest where recipient is obligated to hold remaining

interest on trust for others

Self-Declaration As Trustee

Rule (Re Elliott Estate): For self-declaration as trustee, must have sufficient evidence of manifestation of intention to become trustee: intention for settlor to give up beneficial interest; intention to transfer to beneficiary an enforceable beneficial interest in property,

But no formalities required, unlike transfer of legal title to trustee (words alone may be sufficient to constitute self-declaration). Re Elliott Estate (2008)(ONSC)

F: Mother made provision for children in will but left out disabled daughter, B, who was an adult dependant. Intended to provide for B by separate agreement, which she arranged between her other children wherein they would contribute amounts from their inheritance into a trust fund for B. G, son and executor, claimed that one of the GIC accounts that was part of the estate was intended by mother to be set aside for the benefit of B.I: Whether GIC was an inter vivos trust (not subject to probate fee) created for B or whether it was part of estateH: GIC was a discretionary inter vivos trust for the benefit of B. Evident that though parents held legal title to GICs during lifetimes, beneficial interest in GICs was B's. Intention to create express trust and not gift: Aware of B's mental limitations and aware of impact gift might have on B's disability payments. Simple gift not intended b/c GICs not delivered to her.R:

For a declaration of self as trustee, there must be sufficient evidence of manifestation of intention to become trustee, but no technical words are required (from Paul v Constance).

Paul v Constance (1977)(UKCA)

F: Man received damage payments and went with girlfriend, with whom he was living, to deposit the money into the bank. After discussions with bank manager, decided to open account in man's name only, but man told girlfriend many times that "this money is as much yours as mine". Further deposits were made into account including joint bingo winnings. One withdrawal from account before man died, which was shared by man and girlfriend.H: Express trust was created. Words of the man conveyed a present declaration that fund was as much girlfriend's as it was the man's.R:

For a declaration of self as trustee, there must be sufficient evidence of manifestation of intention to become trustee, but no technical words are required.

Re Mellen (1933)(UKCA)

F: Deceased held 15 $1,000 bonds in 4 separate envelopes, which were deposited in safety deposit box. Bonds were all registered in her name with her handwritten endorsements on each of the envelopes that the contents of the envelope are to be used solely for the benefit of her son.H: Express trust was created by deceased and held in trust by her for her son.

Endorsements were evidence that deceased constituted herself as trustee by the language used in the endorsements on the envelopes.

Jones v Lock (1865)(UKCA in Chancery)

F: Father brought a cheque for £900 and said: "I give this to baby… for himself, and I am going to put it away for him", then placed the cheque in his baby's hand, took it away and locked it in a safe. Expressed to his lawyer of his intention of adding £100 to it and investing the total sum for the benefit of the infant. Next morning, met his lawyer and said that he would attend his office on Monday to alter his will to take care of his baby, but died that day. Lawyer found cheque in the safe and included it in the estate. Father's will before the birth of the infant left annuity to wife and gave rest of property for the benefit of his other children from a previous marriage.H: No gift or valid declaration of trust for baby. Could not have said that at the point of the alleged declaration, the money was the child’s and the child’s alone. Words were only “loose conversation”.


R: Issue is whether the settlor had intention to make a self-declaration of trust.

o Although had the intention of settling something on the child, and his giving the cheque to the child was symbolic of what he meant to do, it was not his meaning to transfer beneficial interest (or enforceable legal right to cheque).

Cannot say that every incomplete intended gift was a declaration of trust. Words alone can be sufficient to constitute a self-declaration of trust, but those words must amount to more

than "loose conversation". He did not intend to deprive himself of all property in the cheque or declare himself as trustee of the money for

the child.

Precatory words

Precatory words: Words that express a hope, wish or expectation that the recipient of the property will pass some or all of it on to others, but does not impose mandatory obligation to do so.

Limited interest (trust) versus precatory words (outright gift)?

Rule (Hayman): In considering whether the words in a will impose an imperative direction, courts must consider whether they were made in circumstances in which such an obligation was imposed on and accepted by the beneficiary under the will.

Need to determine what testator’s predominant intentions were (Re Walker). If court determines that it is an outright gift, cannot create a gift over (would be repugnant) (Re Walker).

Hayman v Nicoll (1944)(SCC)

F: Lydia left sum of money in will to daughter, Ina, "in full confidence that she will dispose of the same in accordance with the wishes which I have expressed to her." I died 3 years later w/o distributing the sum to anyone and the "wishes" L purportedly expressed are unknown. Heirs to residue of L's estate claimed that money was not properly part of I's estate but part of L's estate.I: Whether words used by Lydia ("in full confidence") impressed a trust over the funds (in which case they belonged to L’s estate) or whether they were merely precatory (in which case they would remain in I’s estate). H: Words were merely precatory. No trust imposed on I by the words in the codicil. Funds belong to I’s estate. No evidence of communication of wishes or what they were, and no evidence of acceptance by daughter of an obligation to carry them out.R:

Mere communication of the testator's wishes does create an prima facie obligatory trust. In considering whether the words in a will impose an imperative direction, courts must consider whether they were

made in circumstances in which such an obligation was imposed on and accepted by the beneficiary under the will.

Trust can arise if : 1. On the face of the will, legal interest is in the beneficiary but it can be shown that an agreement outside of

the will was made by which the beneficiary undertook an absolute obligation to carry out the testator’s wishes; or

2. Will expressly created a fiduciary obligation and oral communication was made either before or at the time of the making of the will

Outright Gifts vs. Limited (Life) Interest

Re Walker (1925)(ONCA)

F: Testator's will gave all of his property to wife but continued "should any portion of my estate still remain in the hands of my said wife at the time of her decease undisposed of by her such remainder shall be divided as follows…". Wife's will left property to different people than those designated in husband's will.H: Absolute gift to the widow. Wife had power to dispose of property in lifetime – clear indication of intention as outright gift. Attaching a provision for the later disposition of whatever remained was repugnant to that gift and therefore void.R:

Courts cannot give effect to a testator’s intention to gift property absolutely and create a gift over. Court needs to give effect to testator’s wishes in a way that is legally possible: determine and give effect to

predominant intention, and reject subordinate intention as being repugnant. A testator's attempt to gift property absolutely and create a gift over is an endeavour to do that which is

impossible. 2 possible outcomes:1) Gift to the first person named prevails and gift over fails as repugnant2) First named takes a life-estate only, so gift over prevails

O: Third possible outcome: Life tenant may have the power of sale and possibly power to encroach on proceeds of saleOttaway v Norman (1972)(UK Ch. Div.)

Secret trust: Property left outright to someone in will with clear understanding

F: By will, Harry left his home, £1,500, and half of residue of estate to common law partner, Eva. Agreement that E would leave the home and contents to H's son, William, if she happened to survive Harry. William and his wife knew about the agreement. After H's death, E drew up a will in which she left the home and its contents to W and his wife, but she revoked the will shortly before her death and executed a new will, leaving the property to Mr. and Mrs. Norman. W and wife sued the Normans claiming property was held on trust for them.H: Only home was held in trust for W and his wife, subject to normal wastage, fair wear and tear.H communicated intention to her, and she accepted the obligation. Other assets, e.g. money, not held in trust for W and his wife. No trust over the money due to uncertainty of subject matter– no ascertainable property to be held in trust.R:

If the property is given to the primary donee on the understanding that the primary donee will dispose by his


between the two to deal with property in a certain way

will of such assets, if any, as he may have at his command at his death, in favour of the secondary donee, then a valid trust is created in favour of the secondary donee, which is suspended during the lifetime of the primary donee, but attaches to the estate of the primary donee at the moment of his death.

Money (uncertain in subject matter): Not H's intention that E would leave all her money, from whatever source derived, to W and his wife. No evidence that E accepted such obligation either.

o Obligation is confined to money derived from H's will, but it is meaningless and unworkable unless it includes the requirement that she keep the money separate and distinct from her own money. No such requirement was every discussed or intended.

Certainty of Subject Matter

Rule: Trust property must be defined with sufficient precision. Determining beneficial interest by use of a “formula” is acceptable as long as it will produce a definite result (Re Golay – provision to pay a “reasonable income” was sufficiently certain)Ottaway v Norman (1972)(UK Ch. Div.)

H: Money not held in trust for W and wife. Even if there was an obligation to give the money to W and wife, there is no trust due to uncertainty of subject matter. No ascertainable property to be held in trust. No requirement that E held money separate and distinct from own money; was allowed to spend it, so cannot determine which portion of the money was to be held in trust for W and wife.

Boyce v Boyce (1849)(Vice Chancellor’s Court)

F: Testator gave 4 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.H: Gift to B also failed b/c of uncertainty as to which 3 houses she would take.

Comment: B could have argued that there was certainty of subject. Economically rational outcome: if A had been in position to choose, would have chosen house with highest value and B would get the remaining 3.

Re Beardmore Trusts (1951)(Ont. HCJ)

F: B and wife entered into separation agreement to make provision for wife and 2 children. Agreement created an express trust to settle 3/5 of the husband’s net estate in trust, to take effect upon B’s death. H: Lack of certainty of subject matter. Subject matter of trust is not described with sufficient exactness to permit that such matter be ascertained at the time the trust was created. Cannot ascertain at time of trust what 3/5 of net assets equals.

Certainty of Object

Rule: Beneficiaries of a trust must be defined with sufficient precision. Must know to whom a trustee’s duties are owed.

Test (Re Baden): Whether it can be said with certainty that any given individual is or is not a member of the class/ object of the power. May make application to court for direction if issues with criteria in defining class.

Requires only conceptual certainty: Must be able to establish with certainty the class of persons to be benefited (valid if able to establish objective criteria for membership in that class). Once able to do so, then it becomes a question of fact whether any candidate has proven to be within it; if unable to prove, then is not in it.

Not a “complete list” test– no need to be possible for trustee to prepare a complete list of all beneficiaries (Re Baden (No. 1); Re Bethel)

Powers to select recipients of property (4 types):1) Discretionary Trust (aka Trust Power): Mandatory obligation to distribute, but within that mandatory distribution, trustee has a choice

of whom to distribute to and in what proportion “Trustee shall distribute […] to such of my children in such proportions as the Trustee shall in his discretion determine.”

2) Power of Appointment: Empowered to distribute property in a certain way but not required to “Trustee may distribute […] to such of my children in such proportions as the Trustee determines”

3) Power may be given to third party (aka “Bare” power of appointment): “Trustee shall distribute […] to such of my children in such proportions as X may from time to time direct”

4) Intermediate power: Power to appoint anyone as beneficiary except for a particular class. Re Baden (No. 2) (1973)(UKCA)

F: Trust provided that distributions could be made to employees and ex-employees of a company and their relatives and dependants. Administrator argued that trust was invalid on the basis that the term “relatives” and “dependants” did not satisfy the test for certainty. H: Deed created a valid discretionary trust with a duty to distribute. Certainty of objects satisfied.

Dependants: Trustees or court (if necessary) are quite capable of coming to a conclusion in any given case whether or not a particular candidate could properly be described as a dependant.

Relatives: Taken literally, could mean ability to trace legal descent from a common ancestor, which could be considered too broad and make trust administratively unworkable. However, practically speaking, settlor using the word “relatives” in the context of his deed would assume that the trustees would in the exercise of their discretion make their selection in a sensible way from the field, however wide. In practice, would presumably select those whom a reasonable and honest employee or ex-employee would introduce as a relative, rather than “distant relative”.

R: Test for certainty of object : Whether it can be said with certainty that any given individual is or is not a

member of the class of beneficiaries. o Requires conceptual certainty: objective criteria to establish membership in that class of beneficiaries.

Evidential uncertainty will not render trust void. May apply to court if issues in establishing criteria. Is the qualification clear enough that the trustee can know what evidence a person must present to prove

membership of a class?Re Coates (1954) F: Will directed that “if my wife feels that I have forgotten any friend I direct my executors to pay to such friend or friends


(UK) as are nominated by my wife a sum not exceeding £25 per friend with a maximum aggregate payment of £250.”H: Power of selection did not fail for uncertainty.

Power of appointment given to third party (wife), not a duty. Limit to the aggregate amount of the gift shows that the class of beneficiaries is a small one. Not necessary to define the limits of the class from the outset; it is sufficient if it can be seen that any

individual satisfies the test. Re Connor (1970)(ABCA)

F: Residue to be “divided among my close friends in such a way and at such time as my trustee in her discretion should determine.”H:

Too indefinite and the ascertainment of the class so difficult, if not impossible, that it is invalid. Nothing in the context of the will to further restrict or define the word “friends”.

To make gift valid, trustee must be able to ascertain the whole class of “close friends”. Gift must be divided amongst all of the close friends– not sufficient to run an ad in the newspaper seeking out close friends, for if a close friend missed or hearing about the ad then such person would be excluded from a gift to which she is entitled.

D: Deceased lived in a small town for 42 years. Should be possible w/o great difficulty to ascertain who the close friends were.

Note: Applied “complete list” test. Decided before Re Baden, so might not be good law anymore. Jones v T Eaton Co (1973)(SCC)

H: Trust for “needy or deserving Toronto members of the Eaton Quarter Century Club” was a valid charitable trust.A:

Word “deserving” had a sufficiently clear meaning; did not enlarge class of potential recipients beyond those who might constitute a proper class for relief of poverty.

Limited to Quarter Century Club, which was comprised of employees and former employees of Eaton’s who had served for 25 years or more.

Formalities

Self-declaration of trust No formal requirements. Does not need to be in writingInter vivos transfer of land Law and Equity Act S 59(3): Disposition must be evidenced in writing and signed by the parties Testamentary disposition WESA S 37(1): A valid will must be in writing and signed at its end by the will-maker in the presence of 2

witnesses. S 37(2): A will that does not comply with subsection (1) is invalid unless (a) the court orders it to be

effective as a will under section 58 [court order curing deficiencies]

Issue: Whether inter vivos transfer or testamentary disposition may trigger different formalities

Rule: Whether a trust is inter vivos or testamentary depends on intention of settlor (Mordo). An intended gift/ disposition that would only become operative on the death of the settlor cannot be given effect as an inter vivos

trust (Carson; Mordo) If settlor’s intention is clear from the trust instrument/ will, then it is determinative. If unclear, then look at effect of document

to determine whether testamentary in effect (Mordo). o Factors (Carson): Intention of grantor to part with control and beneficial interest over the deed, which may be inferred from acts or

declarations at time of delivery or from all the circumstances surrounding the transaction. Settlor may reserve any power (e.g. power to transfer legal title or revoke trust) to itself provided that the reservation is made at the time

the trust is created (Mordo)Carson v Wilson (1960)(ONCA)

F: Deceased executed deeds to transfer parcels and assignments of the mortgages to named persons while he was alive. Deeds were given to solicitor with instructions to deliver them to the donee but not until the time of his death. While he was living, he continued to manage properties and collect mortgage payments.H: Intended testamentary disposition, not IV trust. Not a valid testamentary trust b/c did not comply with formalities of Wills Act.

1) For a deed to be effective, must be delivered. Testator, at any point, could have gone to solicitor and demanded that the deeds be returned to him. Did not part with control over property, so no delivery.

2) Not a testamentary disposition : Improper instrument. Did not comply with formalities.3) Not a self-declared trust : Equity cannot complete an imperfect gift (Milroy v Lord). Cannot treat as declaration of

trust b/c did not relinquish beneficial interest to act as trustee.

R: o It is a rule, essential to the validity of a deed that there should be a delivery of the instrument.

o The test of delivery is: whether or not the grantor intended to reserve to himself the opportunity to withdraw. (this does not necessarily make a deed testamentary)

o So long as the property is in the settlor’s control and subject to his authority (ability to recall at any time), it confers no title on the grantee.

Re Beardmore Trusts (Above)

H: o Express trust created in Separation Agreement not intended to take effect until settlor’s death. Besides failing

for lack of certainty of subject, also failed b/c did not comply with formalities of the Wills Act.Mordo v Nitting F: E could call for Warehouse Trust as a beneficiary. Entitled to income from Trust. A argued that trust was testamentary


(2006)(BCSC) in nature, did not comply with formalities of the Wills Act and therefore would form part of E’s estate.H: Valid inter vivos trust . Clear from trust instrument that E intended for trust to be effective immediately. Entitlement to income as a beneficiary was only possible if Trust came into effect immediately. Trustee understood he was holding property in trust for her during her lifetime. Retention by settlor of a power to revoke a trust does not, by itself, render a trust testamentary.R:

o Whether a trust is inter vivos or testamentary depends on intention of settlor. o If settlor’s intention is clear from the trust instrument/ will, then it is determinative. o If unclear, then look at effect of document to determine whether testamentary in effect.

o Settlor may reserve any power (e.g. power to transfer legal title or revoke trust) to itself provided that the reservation is made at the time the trust is created.

Trustee’s Duties

Source of duties: Trust instrument or Trustee Act (if trust instrument is restrictive or silent– ancillary powers and duties) Note: Trust is not a separate legal person (unlike corporations)– do not have all the powers and capacities of a natural person of full capacity

in the management and administration of trust property. Powers come solely from trust document or Trustee Act.

Basic Duties – What Must a Trustee Do?

A trustee has the basic duty to:1. Adhere to trust instrument2. Safeguard and preserve trust assets3. Invest4. Provide information to beneficiaries5. Account for the trust6. Duty of apportionment?

1. Duty to adhere to trust instrument

Starting point: Is it a power or a duty? Any specific mandatory duty must be carried out as and when directed, and any prohibition must be obeyed (LC v UBC).Failure to comply= Breach or possibly fraud on power (good faith/ best interests/ testator’s intentions not a justification)Defence/relief from liability: 1) Full and informed knowledge and consent by beneficiaries, 2) exculpation under s 96 of Trustee Act (good faith and reasonableness of actions is relevant)The Land Conservancy v UBC (2014)(BCCA)

F: Will left provision for trustee (CCAA) to dispose of historic property (Binning House) either by 1) creating a society for the preservation of the property and transferring it to the society, or 2) selling the house and giving the net proceeds of sale to a fellowship fund with UBC. Not feasible to create a society for preservation of the Binning House– estate didn’t have much left over. The Land Conservancy entered into talks with trustee to transfer property to them. Trustee received legal advice that trust instrument did not permit the transfer to TLC, so created a new society and transferred property to it. Society then immediately transferred property to TLC. TLC faced financial difficulties and sought to sell property. UBC challenged transfer as fraud on the power granted to them by will.H: Though trustees acted in good faith, deliberately exercised power for ulterior purpose of benefitting a non-object of the power. While testator’s intention was to preserve the Binning House, did not give trustee unfettered discretion to accomplish that goal.R:

Testator's intentions do not override clear words of limitation to the trustee's powers "Fraud on power": Onus on party claiming fraud to prove

1. Disposition beyond scope of power by the donee, whose position is referable to the terms, express or implied, of the instrument creating the power, and

2. Deliberate breach of implied obligation not to exercise that power for an ulterior purpose

2. Duty to safeguard and preserve trust property

Rule : 1. Must preserve trust assets (Fales)– e.g. real property must be insured and kept in reasonable repair); chattels must be secured and

insuredo Issue of permissible delegation : Property deposited with third parties, e.g. bankers

2. Powers under the Trustee Act:o S 7: authorize receipt of money by banker or solicitor (unless forbidden to do so)o S 8: authorize power to insure property against loss or damage (unless forbidden to do so)o S 9: Power to compound; can accept composition for security or debt, can allow time for payment, and compromise,

compound, abandon, or submit to arbitration a debt or claim relating to estateo S 11: Power to spend money on repairs and improvements

Failure to preserve= breach (good faith/ best interests not a justification)


Remedy= accounting and equitable compensation, possibly recovery from third party

Fales v Wohlleben Estate(1977)(SCC)

"However wide the discretionary powers contained in the will, a trustee's primary duty is preservation of the trust assets, and the enlargement of recognized powers does not relieve him of the duty of using ordinary skill and prudence, nor from the application of common sense"

Speight v Gaunt Trustees are entitled to gain assistance of bankers, brokers, etc. to help with administration of trust if it is in the regular course of business or out of a moral necessity.

o See s 7 of TA.

3. Duty to invest

Rule : Must invest trust assets. Standard – s 15.1 of Trustee Act limited (if at all) by trust instrument: May invest property in any form of property or security in

which a prudent investor would invest. (s 15.2).o Prudent investment= invest in the best interests of beneficiaries = assess level of appropriate risk and consider whether

diversification is required (Miles) + yield best return for beneficiaries if purpose of trust is to provide financial benefit (Cowan).

Permissible delegation (s 15.5) : May delegate authority to invest trust property to an agent, but only to the degree that a prudent investor might delegate in accordance with ordinary business practice. See “Duty to act personally”

Failure to invest Failure to meet standard of a prudent investor? (see “8) Duty to Exercise Appropriate Skill”)

No Trustee not liable for losses if overall investment strategy is prudent, including a reasonable assessment of risk and return where prudent investor would adopt in similar circumstances. (s 15.3 of Trustee Act)

Yes Breach (good faith/ settlor’s intentions not a justification) Remedy= accounting and equitable compensation (overall losses may be offset by overall gains– s 15.4 of Trustee Act), removal as trustee

Cowan v Scargill (1985)(UK Ch. Div.)

F: Joint-trustee pension plan for coal miners. Trust arrangement: Half of trustees nominated by management and half nominated by union. Union proposed rather limited investment strategy, which management opposed. Neither side wanted to agree on anything. Management sought declaration that union trustees were in breach of trust by trying to impose an investment strategy that was overly restrictive.H: Union trustees in breach of trust. Inappropriate in trying to limit investments. In doing so, limiting ability to make financial gains.R:

Duty of trustees towards their beneficiaries is paramount. Subject to the law, must put interests of beneficiaries first.

When the purpose of a trust is to provide financial benefits for the beneficiaries (often the case), the best interests of the beneficiaries are normally their financial interests. In the case of power of investment, power must be exercised so as to yield the best return for the beneficiaries.

Trust investments cannot be motivated purely by personal views. Trustee may consider social, economic and political factors in deciding where to invest if investment made is equally beneficial to beneficiaries.

If a trustee chooses the less financially beneficial option, burden rests on him to justify that it is for the benefit of the beneficiaries as a whole to receive less by reason of the exclusion of some of the possibly more profitable forms of investment.

Implications: Trustees’ ability to practice “ethical investment” and “socially responsible investment” or “investment with reference to environmental, social and governance (ESG) factors”. Not prohibited per se, b/c a company that does not practice ethical or environmental awareness might not be a worthwhile investment. Acceptable to have a “negative screen” as long as trustee believes, based on material analysis, that screening out certain investments will not erode the purpose of the trust.

Miles v Vince (2014)(BCCA)

F: Housing and Insurance Trusts both created by the deceased. Housing Trust held 3 properties on Main Street ("Main Street Properties")– Plan was to develop affordable housing in the DTES. Deceased knew he was terminally ill, so purchased life insurance policy, which was paid into the Insurance Trust. Widow and his three children were income and capital beneficiaries of the Insurance Trust. Children were income and capital beneficiaries of the housing trust. Made his sister the trustee for both trusts. Trustees loaned money from insurance trust to housing trust at an interest rate, which was never paid (the "Loan"). Eventually, all the capital in the insurance trust was moved into housing trust.

H: Trustee was in breach of trust: conflict of interest + failure to invest prudently. Ordered removal and replacement of trustee– breach too egregious. Investment of all of the Insurance Trust's assets through the Loan in the Main Street Properties was not a prudent investment. No evidence that Trustee assessed the appropriate level of risk for the insurance trust and then sought to maximize return within that constraint. While no express statutory requirement to diversify investments, should have at least assessed whether diversification is required to preserve trust assets.

R: No duty to diversify per se, but prudent investor standard requires the trustee to assess the level of

appropriate risk and whether diversification is required. o Trustee must seek to maximize return within that level of appropriate risk.


4. Duty to provide information to beneficiaries

Subjects of disclosure/enquiry (Waters):1) Information concerning existence of trust and interests/terms under it: No per se obligation to seek out beneficiaries and inform

them that they are holding assets in trust for them, but if beneficiaries ask or could suffer potential disadvantage due to non-disclosure, should disclose. (Waters)(Valard)

2) Information about trust accounts , including property, receipts and disbursements (Waters)3) Information concerning trustee’s reasons for making decisions: Not required to disclose (Waters) (Breakspear)4) Content of letters of wishes : Not required to disclose (Breakspear)5) Legal opinions received by trustees: If legal advice sought out by trustee and paid for by trust fund, then legal advice becomes trust

asset and must be disclosed to beneficiaries (Waters) (Re Londonderry Settlement)6) Information of corporations in which trust holds shares: Balancing exercise (Re Martin)

General rule (Re Martin): Proprietary right of beneficiary (or other person interested in trust) is neither necessary nor sufficient to compel disclosure (Re Martin). Court must balance competing interests of various parties (beneficiaries, trustees and third parties)– consider commercial confidentiality/sensitivity of information. Beneficiaries are not limited to a shareholder’s disclosure.Waters Three types general of information which beneficiary may seek:

(1) Existence of trust – Trustee has duty to locate beneficiary and volunteer information regarding beneficiary interests

(2) Trust accounts – Every trustee has an obligation to account, including a statement of assets held at beginning and close of accounting periods, sales and purchases, liabilities, and credits/debits

(3) No duty to share - Information concerning exercise by trustee of dispositive or administrative discretion – how discretion is exercised, minutes, legal opinions, memoranda, background papers, correspondence, etc…

a. PRIMA facie case must be shown before pre-litigation disclosure can be had.Valard Construction Ltd v Bird Construction Co. (2018) SSC

F: Bird was general contractor for construction project, subcontracts Langford. Langford obtains a labour and material payment bond naming Bird as trustee. Bond allowed provider of work who has not received payment to sue a company acting as surety for that unpaid sum. Langford ran out of business, Valard never knew about bond until it expired after 120 days. Insurance agent says outside of claim period. Valard sues Bird for breach.R: Bond created an express trust. Beneficiary of a trust has a right to hold trustee to account for its administration of trust property and to

enforce terms of the trust. In general, if beneficiary will suffer unreasonable disadvantage due to not being informed of trusts’

existence, trustee holds a fiduciary duty to disclose the existence of the trust. Bird’s failure to disclose existence of trust prevented beneficiary from making a claim within the prescribed

notice period, that duty was breached. Re Martin Estate (2009)(BCSC)

F: Deceased was a land developer, operating through a wholly-owned company. Made bequest that shares were to be divided into 3 trusts, one for each daughter, with income from the trusts to be paid to the daughters for their respective lifetimes, and upon the death of a daughter, the corresponding trust was to be divided 75% in favour of 4 charities in stated proportions, and 25% in favour of the deceased's daughter's children, or in the absence of any children, to the other grandchildren of the deceased. Charities had potential proprietary interest in shares and requested trustees to provide information on company. Trustees denied request on grounds that information sought is within their knowledge or possession only in their capacity as directors of the company and not as executors and trustees. Argued that in capacity of trustee or executors, access to information was limited to that of shareholders.

H: Trustees must disclose information requested by the Charities. Beneficiaries are similar to shareholders of a company but are not automatically limited to the

disclosure that a shareholder would receive from a company. To hold otherwise might invite mischief that it was open to trustees to incorporate companies to carry on estate business in order to shield themselves from scrutiny by beneficiaries.

No evidence that information sought was commercially sensitive. No unmanageable prejudice to the company in answering questions as that relating to payments from the trust to the Charities. Charities offered confidentiality agreements, which would adequately manage risks to commercial interests.

R: A proprietary right of the beneficiary (or other person interested in the trust) to information of which

disclosure is sought is neither necessary nor sufficient to compel disclosure. Questions of disclosure had to be answered by balancing the interests of various parties– complete

ownership of company by estate militates in favour of greater disclosure towards beneficiaries in this balancing exercise. Beneficiaries not limited to shareholder’s right of information.

Breakspear v Ackland (2008)(UK Ch. Div.)

Trustees and the court should approach a request for disclosure of a wish letter (or of any other trust document) as an exercise of discretion rather than the adjudication of a proprietary right (followed in Re Martin)

Affirmed Londonderry: it is in the interests of beneficiaries of family discretionary trusts, and advantageous to the due administration of such trusts, that the exercise by trustees of their dispositive discretionary powers be regarded, from start to finish, as an essentially confidential process.

5. Duty to account (relates to equitable compensation– see “Remedies”)


Rule: Must be ready to “account for” assets to beneficiary– accountable to compensate beneficiaries for lost capital from improper investments, wrongful distributions or misappropriation of funds.

S 99 of Trustee Act requires trustees to “pass” their accounts in court, in accordance with the timing set out in that section. May be waived if consent in writing by all beneficiaries.

Performance Duties – What Should a Trustee Do?

1. Duty to act personally

Power to delegate ( Speight ) : Trustee cannot delegate to others the confidence reposed in himself but may in the administration of the trust fund avail himself of the agency of third parties if does so from a “moral necessity” or “in the regular course of business”.

Default rule (s 15.5 of Trustee Act ): Trustees may delegate only in relation to investment and only the degree of authority that a prudent investor might delegate in accordance with ordinary business practice. In performing a delegated function, an agent owes a duty to the trust to exercise reasonable care to comply with terms of delegation.

May be altered by trust instrument or will containing a provision permitting general power to delegate functions and indemnity for trustees against default of any agents so employed in good faith (i.e. breadth of Manitoba Trustee Act)

Exercising duty to act personally:1) Use appropriate skill and care2) Each trustee must participate in any discretionary decision made by the trustees and must exercise own judgment with respect to the

matter at hand. Must make own independent assessment of appropriate course of action, bearing in mind best interests of the beneficiaries. Cannot acquiesce unthinkingly in decisions made by other trustees, nor simply follow the wishes of the settlor (unless specifically directed to do so by trust instrument), third party or beneficiary (Fales).

Correspondingly, trustee has a duty to keep co-trustee informed, especially where asset is comprised of securities in a company (Fales).

Speight v Gaunt (1883)(UKHL)

F: Stockbroker scammed trustee. No suggestion that trustee was not bona fide and honestly doing what he thought was right. Beneficiaries sued trustee for breach of duty to act personally.H: Not a breach of duty to act personally. In the ordinary course of business for Trustee to trust and rely on broker, to think that he had indeed bought stock on the London Stock Exchange and to pay broker.

R: Trustees are entitled to gain assistance of bankers, brokers, etc. to help with administration of

trust if it is in the regular course of business or out of a moral necessity. (s 15.5 TA) Trustee is not liable unless own negligence or default has led to the beneficiaries’ loss.

Fales v Wohlleben Estate (1976)(SCC)

F: W and Canada Permanent were joint trustees. Purchased shares and held on to the shares for 2.5 years. Shares comprised of over 60% of assets of a substantial estate and were shares in a speculative venture that were not intended to have a long holding period. Company eventually went bankrupt and shares became worth nothing. Complaint against trustee W for failure to invest and act personally.H: W breached duty to act personally by doing nothing and letting CP sit on the shares for 2.5 years.

R: Each trustee must participate in any discretionary decision made by the trustees and must

exercise their own judgment with respect to the matter at hand. Must make own independent assessment of the appropriate course of action, bearing in mind the best

interests of the beneficiaries. Re Smith (1971)(ONCA)(also below)

F: Shares in Imperial Oil Limited were the initial and only assets of trust fund. Mother was an income beneficiary. Son was both settlor and residuary beneficiary of the trust. Mother received a very low interest rate from the shares. Trustees refused to sell shares for a much higher dollar income for benefit of mother. Trustees were following directions of only the son, and not paying the mother sufficient income from the trust.

H: Breached duty to act impartially by only following instructions from the residuary beneficiary.

2. Duty to exercise appropriate skill, prudence and care

Rule (Fales): No higher degree of diligence required of trustee than a man of ordinary prudence in the management of his own affairs, but a trustee must confine himself to a class of investments which are permitted by the trust and avoid all investments of that class which are risky or speculative.

S 15.2 of Trustee Act : In investing trust property, trustee must exercise care, skill, diligence and judgment that a prudent investor might exercise in making investments.

Failure to meet standard of a prudent investor? No Not liable for losses on investments that met standard of care. S 15.3 of Trustee Act : Trustee is not liable for loss arising

from investment of trust property if conduct that led to loss conformed to a plan/strategy for investment of trust property, comprising of reasonable assessments of risk and return, that a prudent investor would adopt under comparable circumstances.

Yes Breach (good faith/ settlor’s intentions not a justification) Remedy= accounting and equitable compensation (overall


losses may be offset by overall gains– s 15.4 of Trustee Act), removal as trusteeo Exoneration under s 96 of Trustee Act: Good faith, honesty and reasonableness of trustee’s conduct may exonerate a trustee

from liability at court’s discretion. Paid professional trustees less likely to be exonerated (held to a higher standard when considering exoneration by the court).

Fales v Wohlleben Estate (1976)(SCC)

F: W and Canada Permanent were joint trustees. Purchased shares and held on to the shares for 2.5 years. Shares comprised of over 60% of assets of a substantial estate and were shares in a speculative venture that were not intended to have a long holding period. Company eventually went bankrupt and shares became worth nothing. Complaint against trustee that a duty rested upon it to sell the shares received on exchange and use the proceeds for the purchase of trust investments as soon as could reasonably and advantageously be done, and that such duty was breached.H: W and CP jointly liable for breach of duty to exercise appropriate skill, prudence and care in administration of trust, but W was granted relief under s 96. CP was solely responsible for damages. CP was wrong to sit by and do nothing while shares declined in value. CP should have informed W. Even if after recommendation and proper explanation to co-trustee and co-trustee refuses to sell, proper course would have been to have applied to Court for advice and directions.R: Where there is a basic duty to convert and invest, what is a reasonable delay in selling will depend upon

the particular circumstances, and a heavy burden rests upon a trustee, where loss is suffered by reason of retention of speculative non-trustee securities, to show that the delay in selling was reasonable and proper in all the circumstances. Trustee must be alert to changes in the fortunes of companies represented in the portfolio of the trust estate.

No higher standard of care imposed on paid professional trustees A co-trustee with greater information and skill should provide an informed and proper explanation to the

other co-trustee(s) with inferior financial/investing knowledge

3. Duty of loyalty

Rule: Must act in best interests of beneficiaries to the exclusion of trustee’s interests – put beneficiaries’ interests ahead of own interests. Prohibitions: Trustees must not

1) Profit from office: Trustee must never benefit from any transactions into which he has entered with trust property (Boardman). Cannot acquire trust property made by purchase or make use of an opportunity that is only available as a result of his trusteeship (Keech; Boardman).

a) Self-Dealing Rule: Trustee is not allowed deal with trust property on both sides of the transaction– cannot purchase trust property for himself, cannot usurp opportunities.

E.g. Appointing self as beneficiary; appointing self as director of company controlled by trust and benefiting from position– using trustee position to obtain directorship

Breach (good faith, denial of benefits to beneficiary not a justification) Remedy = Account of profits Exception/defence: If beneficiaries give full and informed consent (Boardman)

2) Attempt to further own interests3) Otherwise place himself in a conflict of interest (self-interest or interest of another party): A conflict of interest occurs when there is

a substantial risk that the trustee’s representation of beneficiaries would be materially and adversely affected by the trustee’s duties to himself/someone else (Cromwell J. in Sun Indalex).

Does not merely arise b/c individual serves 2 roles, which could possibly conflict, or makes decision in non-trustee role. If serving 2 roles, must act in a manner that fairly balances the different interests (Sun Indalex)

Remedies: Conflict of interest does not automatically lead to remedy (Sun Indalex): Depends on consequences of the conflict, not its nature.

Beneficiaries’ loss must have been caused by the conflict or trustee’s failure to protect their interest b/c of conflicting duties/interests. If there had been no conflict, would there have been a different outcome?

Resignation/removal of trustee and appointment of new trustee (Sun Indalex, Miles)

Exceptions/Relaxation of the Rule:1. Exceptions to Self-Dealing Rule:

a) Self-dealing rule disapplied by trust instrument (Breakspear)b) Court authorized sale of trust assets to trustee (Molchan): Best interests of trust + transaction is voidable

2. Fair-Dealing Rule: Allowed to acquire beneficiary’s interest if: a) No fraud or concealment or advantage taken by trustee of information acquired by him in the position of trustee; b) Beneficiary received ILA and every kind of protection + fullest information with respect to property; and c) Adequate consideration. If purchase the beneficial interest, fiduciary relationship is terminated.


Keech v Sanford (1726)(UK Lord Chancellor’s Court)

F: Testator devised estate to a trustee in trust for his infant, which included the lease of a marketplace. Before expiration of the lease, trustee applied to landlord for lease renewal for the benefit of the infant, which the landlord refused. Trustee obtained a lease made to himself. Infant came of age and sought to have the lease assigned to him and for an account of profits.H: Lease should be assigned to the infant, and the trustee should be indemnified from any covenants comprised in the lease, and an account of profits since the renewal should be made. Trustee should have let lease run out rather than to have had it to himself.R:

Trustee cannot profit from position as trustee, even if that means the beneficiary couldn't have the benefit.

If trustee deals in any way with the trust property and propose to act for own benefit, in taking over trust property, will require an account of profits for the beneficiary.

Boardman v Phipps (1967)(UKHL)

F: Testator dies, leaving estate to 3 sons and a daughter. Trustees were his widow, daughter and Mr. Fox (accountant). Boardman was solicitor to the trust and for Tom, one of the sons of the testator. Estate held 27% shares in Lester & Harris. Company was not run well, but Boardman and Tom believed they could turn company around if they bought majority share. Fox did not agree to this, so B + T bought shares with their own money. Value of stocks of company went up and B+P both made money, estate also made money. One of the sons sued B + T for profits, alleging conflict of interest.

H: Boardman and Tom were constructive trustees of the shares. Breached fiduciary duties to the trust. A profit was made by Boardman and Tom, and they are accountable accordingly (disgorgement of profits). Should be given liberal compensation for doing a wonderful job in increasing the value of the estate.R: Law has strict regard for principle in ensuring that a person in a fiduciary capacity is not allowed to

benefit from any transactions into which he has entered with trust property. No trustee shall be allowed to enter into engagements in which he has or can have a personal interest

conflicting, or which may possibly conflict with the interests of those whom he is bound to protect. Possibility of conflict: Reasonable man looking at relevant facts and circumstances of the particular case would

think that there was a real sensible possibility of conflict. Does not mean any imaginable situation which could result in a conflict

Conflict of interest: There is a clear possibility of conflict. Only way to avoid this is to obtain full informed consent of the trustees.

Sun Indalex v United Steelworkers (2013)(SCC)

F: Indalex became insolvent and sought protection from creditors under CCAA reorganization to avoid bankruptcy. Indalex was the employer and administrator of 2 employee pension plans. CCAA court approved agreement for debtor in possession financing to maintain operations. Did not notify pension plan members of this. Plan members brought action alleging that Indalex breached fiduciary obligation towards them by making arrangements while in a conflict of interest. Reorganization was directly adverse to plan members' interest in seeing that the money owed to pension deficits were fully paid. Statutorily imposed fiduciary duty as administrator of pension plan, and statutory prohibition of conflict of interest.

H: Reorganization was not a breach of Indalex's fiduciary duty, but a breach arose from I's failure to ensure that pension plan beneficiaries had the opportunity to have their interests effectively represented in the insolvency proceedings. While there was conflict of interest, consequences of breach not material since court would have granted DIP financing priority– with or without pension’s approval of CCAA proceedings, would have resulted in the same loss. No constructive trust.

R: Where interests conflict, not an issue of whether a trustee is capable of wearing two hats, and which hat he

wears when he makes decisions. What is important is to consider the consequences of the decision, not its nature. Cromwell J: A conflict of interest occurs when there is a substantial risk that the employer-

administrator's representation of the plan beneficiaries would be materially and adversely affected by the employer-administrator's duties to the corporation.

o To respond to this conflict, the employer-administrator must bring the conflict to the attention of the CCAA judge. It is not enough to include the beneficiaries in the list of creditors; the judge must be made aware that the debtor is or may be in a conflict of interest.

Although the employer in this case breached a fiduciary duty, the harm suffered by the pension plans’ beneficiaries results not from that breach, but from the employer’s insolvency.

4. Self-Dealing

Molchan v Omega Oil & Gas Ltd. (1988)(SCC)

F: Partnership– assumption that GP holds assets in trust from LPs. GP purchased land that was trust property b/c trust was struggling financially and having trouble selling the land due to encumbrances.H: Circumstances of this cases are such that approval should be given. At the time of its approval of the sale, the Court of Appeal was not in a position that it had no alternative but to approve, and there was no evidence of subsequent disposition by the transferee (the Trustee) of the lands in question. No evidence of any significant alteration of market price of the non-producing lands.R:


In special circumstances, a court of equity may authorize a sale of trust assets to a trustee, including ex post facto approval, if it appears that the sale is for the best interests of the trust estate.

Power to confirm (ex post facto approval) must be exercised only when there is a corresponding power to refuse to sanction the sale– must be able to set aside the transaction (i.e. trust asset must not have been disposed of).

o Beneficiary must bring action to void transaction within "reasonable time"– laches.

Breakspear v Ackland (2008)(UK Ch. Div.)

F: Discretionary trust– settlor communicated to trustee that he wished for the defendant to be provided for if she survived him. Trustee appointed widow as an additional trustee and added her as a beneficiary. Turned around and made large distribution to the widow.H: Self-dealing rule was disapplied by the terms of the Settlement in relation to the second and third appointment. Settlor intended the self-dealing rule not to have effect in respect of wide areas of the trustees' powers, provided that an independent trustee approved the relevant transactions. Turned on clause: "Trustee can engage with a transaction with the trust if approved by the other trustees".R:

A trustee who appoints herself as a beneficiary of the trust, or who, separately or together with other trustees, exercises a dispositive power in her own favour commits a breach of the self-dealing rule unless either:a) The rule is disapplied by the terms of settlement (instrument specifically states that you can do that); orb) The trustee is placed by the settlor in a position of necessary conflict, by being given a power which is

expressed to be capable of being exercised in one’s own favour

5. Acquisition of Beneficiary’s Interest

Crighton v Roman (1960)(SCC)

F: Trustee purchased beneficiary’s beneficial interest in trust property but did not disclose material facts, e.g. planning on trading shares rather than parting with his shares altogether, which was the impression he gave the beneficiary. Obtained shares in exchange for forgiveness of beneficiary’s debt. H: R did not obtain a valid release or transfer of C's beneficial interest in the shares. R: Trustee may purchase beneficial interest in property from beneficiary. If he does, fiduciary relationship between them is terminated. Trustee must show that:

1) No fraud or concealment or advantage taken by him of information acquired by him in the position of trustee;

2) Beneficiary received independent advice and every kind of protection, and the fullest information with respect to the property; and

3) Consideration was adequate .A: At the lowest, R had a duty to make full disclosure to beneficiary the true nature of the transaction. Gave C the impression that trustee would be parting with his shares altogether, and that the shares obtained by the trustee had little value.

6. Duty of impartiality– successive interests

Principle of even-handedness (Royal Trust): If not given overt discretion to discriminate among beneficiaries, should not be using management/administrative power to

produce a disproportionate result to the 2 classes of beneficiaries. Should not benefit one to the undue effect of the other. Within trustee’s powers conferred by trust instrument, balance between keeping capital interests for capital beneficiaries

(protecting capital for secondary beneficiaries) and generating reasonable income for income beneficiaries (cannot settle for minimal income).

Questions to consider: Dispositive powers? If discretionary trust with obligation to distribute, then there is an obligation to distribute with a power to

select. If power of appointment, barring mala fides, trustees can choose not to distribute to primary beneficiaries. Income or capital? Settlor intentions override considerations of form of the transaction or the substance (Re Welsh). Interpretation

of what settlor meant by income, not what the CRA defines as income.

Breach Remedy= removal of trustee (Re Smith)Royal Trust v Crawford (1955)(SCC)

F: Bulk of estate consisted of shares in a company with few assets. Testator left estate to widow for life, and nieces and nephews in remainder. Left as a trust for sale with instructions to convert the residue of his property into money, but with wide powers of postponement and retention (even of unauthorized investments). Issued $450,000 dividend to widow, reducing value of company by 75%.H: Dividend to be treated as “capital” (despite tax treatment). Direction to pay widow the “income” of the residue does not require the special dividend, representing the bulk of the estate to go to her. Only a notional amount should be paid to the widow, and the rest reinvested as capital, on which return on capital goes to the widow and the capital remains capital for the nieces and nephews. R:

In the absence of clear authorization to prefer one interest over another, duty of a trustee is to act impartially. When property is to be enjoyed successively, the testator normally contemplates its preservation


for that purpose. Re Smith (1971)(ONCA)

F: Deceased left shares in Imperial Oil Limited in will to son with wishes for son to make provisions for mother. Son settled ¼ of the shares in trust: with mother as income beneficiary during her lifetime and son as residual capital beneficiary. Mother received a very low interest rate from the shares. Had an opportunity to sell some of the shares for a much higher dollar income for the benefit of the life tenant, which was what the mother (life tenant) had suggested to the son (trustee). Trustee had power to sell Imperial shares. Trustees interpreted trust document to mean that it was required by the terms to retain the shares, so did not sell the shares for the benefit of the life tenant. Trustees were following directions of only the son, and not paying the mother sufficient income from the trust.H: Breached duty of impartiality. Should have reinvested the unproductive shares to produce a reasonable income for the mother while preserving capital for the son. No evidence that trustee put its mind to question of what it should do to carry out those obligations. Did not seek legal advice nor direction from court even when life tenant's solicitors said such interpretation was erroneous. R:

Where there are interests for life and interests in remainder: must maintain an even hand between the respective interests of both classes of beneficiaries.

Must consider and weigh interests of both classes of beneficiaries. No reason to think that trustee was capable of acting impartially as trustee Removed trustee.

Re Welsh (1980)(ONCA)

F: Testator’s only asset was shares in Welsh Lumber Company Limited. Wished to provide for 2 successive interests: life interest to wife and on her death, interests to his children from first marriage. Power to sell, sell and retain any investments notwithstanding that such may not be trustee-authorized investments. Company was sold and income was given to shareholders by cash dividend. Widow received the portion as capital and re-invested to generate income. Wife died and her estate sued the trust for the dividend amount. H: Was the cash income or part of the capital? Clearly intended that the assets of his estate at the time of death would be capital from which income would be derived. Dividends were capital which were to be distributed to his children.R:

Court must determine testator's intentions as expressed in the will as a whole and in light of the circumstances. Testator's intentions override considerations of form of the transaction or the substance.

The fact that the capital was issued as a cash dividend does not mean it can be treated as income.

7. Duty of Apportionment

Howe v Earl of Dartmouth (1802)

1. If in a will, if there is a residual interest which is of a speculative, wasting or hazardous character, then there is an implied duty to sell those assets and convert them into a property of a more permanent nature, unless will expressly provides for retention and maintenance.

2. If there is a duty to convert (express or implied), the income beneficiary gets notional income (duty to apportion)

This rule is almost always excluded in modern, professionally drafted wills. Both branches of the test is subject to contrary intention in the will.

Jurisdiction of Courts

Powers of the court1) Remedial jurisdiction: Award compensation or other remedies after breach of trust2) Intervention in administration of trusts: Provide guidance so as to avoid, or act to prevent, or put an end to improper conduct.

Procedure:1) Application to the court

a) By a trustee (s 86 of Trustee Act): Seek advice or direction of the court to guide their conduct. Can be brought in adversarial or non-adversarial context. Limits to jurisdiction.

b) By a trustee or other interested party (Rule 2-1(2)(c) and (d) of the Civil Rules): Question arising in the execution of a trust or an issue relating to the performance of an act by a trustee.

c) WESA: Probate proceeding if trust arises under will or matter relates to administration of estate2) Petition to the court (affidavit evidence): Usual course of action if trustee or other interested person seeking guidance or declaration as to

entitlement, matters of interpretation or otherwise. 3) Notice of Civil Claim (full or summary trial w/ viva voce evidence): Seek compensation for breach of trust or claim for constructive trust

Limits to jurisdictionPermitted scope of discretion: Court will advise as to courses of action trustees are properly required or permitted to take but will not advise or direct trustees as to how to exercise that discretion (Gisborne).

Application by Trustees


Gisborne v Gisborne (1877)(UKHL)

F: A fund (the "Subject Fund") was left to trustees with provision that trustees "in their discretion, and of their uncontrollable authority" might pay and apply all or part of annual income for maintenance and support "or otherwise for the personal and peculiar benefit and comfort of my dear wife" for her life. Widow also entitled to receive income from another settlement. Trustees declined to pay full costs required for her maintenance and support out of Subject Fund, and only paid amounts required in excess of her necessities of life, which they considered should be paid out of the other settlement. H: Trustees had uncontrollable power to exercise discretion as to what amounts were paid out to widow from the Subject Fund. Court of Appeal erred in ordering that the Court approve the exercise of discretion by the trustees to pay a specified amount.R:

Court should not express any opinion as to whether exercise of the discretion by the trustees is a wise or an unwise exercise of that discretion.

Courts should not intervene in trustee’s discretionary decision-making, unless there has been a breach of duty.

Tempest v Lord Camoys (1882)(UK Ch. Div.)

F: Disagreement about exercise of discretion with respect to purchase of assets with trust monies and power to borrow for purpose of such purchase. Beneficiaries wanted to acquire a piece of property with which the family had historical association. Estate had on hand half the proposed purchase price and were therefore required to be reinvested in real estate. Would have to raise the other half by mortgage. One trustee approved this course of action but the other did not. Willing trustee and one of the beneficiaries asked court to compel the other trustee to concur.H: Duty to reinvest in real property the proceeds of sale of certain properties, but trustees could choose which real property. Trustee has power to borrow money. Declined to compel other trustee to concur. 2nd trustee was perfectly entitled to disapprove of the investment in that property and to borrow funds for that investment.R:

If there is a duty or only a power to do the act in question, then courts may compel trustee to do that act, but if trustees have absolute discretion as to how that power is to be exercised, then courts cannot compel trustee to act in a certain manner.

If trustee had refused to invest the money in the land at all, the Court would have no difficulty in interfering. It is a different thing from saying that the Court ought to take from the trustees their uncontrolled discretion as to the particular time for the investment and the particular property which should be purchased.

Power to raise money by mortgage is at the absolute discretion of the trustees.

Exceptions: Binary choice (Re Fleming): Of 2 possible courses of action, if court views one course of action as improper, more likely to direct the other course of action.

Re Fleming (1973)(OHCJ) F: Testator gave wide discretion to executors with regard to sale, retention and reinvestment of assets. Directed to keep invested residue of estate, pay net income to widow, with power of encroachment on capital of estate. Widow renounced right to encroachment for purpose of preventing bankruptcy of estate. Estate contained shares representing 1/2 interest in a corporation. Trustees faced with issue of deciding how to distribute surplus of income, in consideration of 1) tax consequences, 2) prospect of further income enhancements, and 3) need to be even-handed. Trustees applied to court for direction as to how they should structure a distribution from a wholly-owned company.H: Shares should be redeemed rather than distribute dividend to widow. A: If there is only 1 legitimate action, and the other action would be a breach of trust, then the Court will tell them to do the right thing. Option 1– dividends: If money paid out as dividend, will constitute income in the hands of the trustees

under s 196(1) of the ITA. 15% tax on amount, which would be a diminution of estate's assets and would substantially reduce future income (to the detriment of residuary beneficiaries) inevitable breach of duty to act even-handedly

Option 2– redeem shares: If redeemed shares, then $118,000 (redemption amount) would be capital payable on death of life tenant to residuary beneficiaries.

Re Toigo Estate (BCSC)(936) F: Toigo passes and grants life estate to wife, Elizabeth, and remainder to children. The trustees (including Elizabeth) applied to court to seek approval of a resolution to allow encroachment of the estate in favour of Elizabeth Toigo. Trustees have discretionary power to do so. She wishes to do so as to better distribute the estate among the Toigo children, who she plans to make her beneficiary.H: Decision to encroach is appropriate.R:

Court made clear that the decision was not an exercise of Court discretion, but a recognition that the trustee’s exercise of power was lawful, made in good faith, and reasonable with regard to factual circumstances.

Breaking Deadlock (Re Billes; Kordyban)

Starting point: Trustees must act unanimously in the exercise of their discretion and powers. May be displaced by trust term allowing decision of majority to prevail.

Issue: Failure to act unanimously means failure to act trust duty not carried out breach of trust


Analysis:1) Whether trustees are under duty to do something, e.g. sell (or purchase– Tempest) an asset. 2) Is there a deadlock? Whether trustees’ disagreement over how the act must be carried out, (e.g. how sale should be conducted, what price

to obtain or pay) is a failure to perform that duty, or as relating to a discretionary aspect of execution of the duty or exercise of the power.

If failure to perform (deadlock), court may intervene. Basis for intervention : Frustration of testator’s intentions + beneficiaries’ interest (as a whole) may suffer as a result (Re

Billes; Kordyban) If relating to discretionary aspect of execution of duty/ power, courts will decline jurisdiction

Discretionary Aspect– Declined JurisdictionRe Wright (1976)(OHCJ)

F: Application by Canada Permanent for advice and direction with respect to disposition by estate of 400,000 shares of Crown Life Insurance Company to another company. Power to sell and equal power to retain. Application opposed by 3 individual executors and trustees and all the beneficiaries, they thought the price was too low. Three categories of case:

1. There is an obligation to sell, and a power to retain. (Must sell)2. Obligation to retain, and a power to sell. (Must retain)3. Equal power to sell or retain, without either being predominant.

H: Court should not intervene to force the sale of the shares considered to be too low by the majority of the executors.R: The Court has no power, save in the case of mala fides or a refusal to discharge the duty undertaken , to put a control on the exercise of discretion which the testator has left to the trustees.

Failure to Perform Duty– IntervenedRe Billes (1983)(OHCJ)

F: By will, testator directed that specific annual annuities and other payments be paid from the capital of estate to widow and each of his 3 children during their lifetime. Will also directed executors and trustees to pay income annually to 23 charities in specific parts, and at the date of distribution to pay the capital of the estate to specified charitable institutions that are then in existence. Estate consisted largely of shares in Canadian Tire. Half the trustees wanted to sell the shares (National Trust Company), the other half wanted to retain (Aldamar Group). Charities (beneficiaries) strongly supported National Trust's application for conferred sale.H: Court will intervene. Course of action proposed by National Trust is the prudent and correct one. Trustees are ordered to sell the common shares of Canadian Tire when the opportunity for an advantageous and beneficial sale of them arises, and trustees are ordered to actively seek such opportunity. R:

Courts may intervene in a deadlock if, as long as the trustees continue to fail to discharge their duty, the intention of the testator will be frustrated with the result that the beneficiaries may suffer.

Prudent not to continue holding 95% of the estate’s assets in one corporation (should diversify), and market value of shares in Canadian Tire have been volatile in the past (further retention involves unwarranted speculation and risk-taking).

Distinguished from Re Wright on the facts.

Kordyban v Kordyban (2003)(BCCA)

F: Testator was very successful in forestry industry. Survived by 2 children, Bill and Valerie. Before he died, gathered his children and told them they would run the company together. Bill already had some shares, but father left controlling shares with direction that 40% of shares would go to V and 60% to B (intention that B would have majority control). Secondly, he will be provided trustees with power to vote the shares held by the trust. Trustees could not agree on how the shares held by the testamentary trust should be voted at either the annual general meeting or the special meeting requisitioned by Valerie. V argued she should be on the board of directors, but B opposed it.R: Court has equitable jurisdiction, statutory and inherent, to intervene to break a deadlock of trustees where necessary to carry out the terms of the trust in the interests of the beneficiaries. To determine whether the court should intervene, must first determine what the intentions of the testator are.

1) In context of the will as a whole, are the trustees not carrying out the testator’s intentions at all? Are the trustees’ failure or consequence of the failure to exercise their discretionary powers or choosing a course of action consistent with or do they frustrate the testator’s intentions?

2) If testator’s intentions are being frustrated, should the court make the order? Factors: Are (1) Testator’s intentions frustrated and (2) are the interests of the beneficiaries being harmed?

H: Court will not intervene to break the deadlock in this case. Will not appoint V to the board.A:

1) Are the trustees carrying out the testator’s intentions? Trustees have a discretionary power here to vote the shares in the company, but not duty. B/c cannot agree on how to exercise their discretionary power, failed to exercise it at all. Court has no grounds to intervene.

2) Factors for making order:a) Testator's intentions: Give Bill majority control. Requirement of unanimity of directors in voting the

shares should frustrate that intention. Valerie did not have to be a director to discharge her duties as trustee. B/c co-trustee owned majority of the shares outside the trust and the other beneficiaries objected to her becoming a director, no practical risk she could be exposed to any liability for breach of her duties as trustee for failing to become a director.

b) Interests of beneficiaries: Appointment of Valerie to board of directors would lead to discord and harm to the company, and therefore to the beneficiaries as well.


Other grounds for intervention

a) Action based on improper motiveb) Action to secure a result other than the best interests of the beneficiariesc) Fraud on a power: Deliberately subverts terms of will/trust to benefit non-object

Boe v Alexander (1987)(BCCA)

F: Trust clause to a pension trust stated "Subject to the provisions of this agreement the Trustees shall have full authority to determine all questions of coverage, eligibility and methods of providing or arranging for provision of benefits and all other related matters. The Trustees shall have the power to construe the provisions of this agreement and the terms used herein. Any such determination and any such construction adopted by the Trustees in good faith shall be binding upon all parties hereto and the beneficiaries hereof".

H: Private clause cannot bar judicial review in certain cases.

R: A privative clause protecting the exercise of a trustee's discretion will not be effective to prevent judicial review whenever the trustees:

1. have failed to exercise the discretion at all (Re Floyd, Re Blow, and Re Sayers and Philip); 2. have acted dishonestly (Gisborne, Re Sayers and Philip, Cowan v. Scargill, Re Floyd); 3. have failed to exercise the level of prudence to be expected from a reasonable businessman (Re Sayers and

Philip, Cowan v. Scargill); and4. have failed to hold the balance evenly between beneficiaries, or have acted in a manner prejudicial to the

interests of a beneficiary (Re Jeffery, Re Sayers and Philip).

Fox v Fox Estate (1996)(ONCA)

F: By will, testator gave wife 75% life interest in income of the estate and son 25% life interest in residue of estate. Upon wife’s death, estate goes to son if alive, if not then grandchildren. Wife, as executrix, had power to encroach on capital for benefit of son and son's children. Used power by giving all of residue to son's children. Motivated primarily by disapproval of son's second marriage outside of Jewish faith. Some evidence that wife was concerned about son's children's welfare too.H: Wife dealt with residue of estate improperly and should be removed as executrix.A: Unclear whether widow was motivated only by religious bias b/c did want to benefit grandchildren (mala fides not decisive), but breach of trust in failing to exercise discretion. Obvious that widow in no way considered the terms of the will when she made the encroachments she did– did not understand duties as executrix and acted in firm belief that she was dealing with her own property. R:

Court may interfere if trustee's decision is influenced by extraneous matters (may intervene if improper ulterior motive).

o Fact that son intended to marry outside of Jewish faith was extraneous to duty which the will imposed on the wife.

Extraneous consideration demonstrated sufficient mala fides to bring wife's conduct within any reasonable interpretation of that term.

Would be contrary to public policy to allow for a trustee to effectively disinherit the residual beneficiary because he married outside her religious faith.

Implications: If mixed motives (including improper motive), perhaps that’s alright. The Land Conservancy v UBC (2014)(BCCA)

F: Trustees had received legal advice that the Binning House could not be transferred directly to TLC, i.e. TLC was not a proper object of the power given to the trustees under the will. Trustees then set out to do indirectly that which they knew could not be done directly. Transferred Binning House to the New Society with intention that the New Society would immediately transfer it to a non-object, TLC. Acted in good faith, trying to fulfill testatrix' hope that the Binning House would be preserved for historical purposes. Did not act with unfettered discretion, as Binning House could only be transferred to TLC with prior agreement. Not a "hope" that the New Society would transfer the Binning House to TLC– it was a certainty.H: Trustees acted improperly in deliberately subverting the terms of the will to benefit a non-object.

R: Good faith is not a defence to a claim of fraud on a power. A trustee commits fraud on a power where s/he deliberately, in a pre-conceived course of action to subvert the terms of the will/trust, to benefit a non-object.

Miscellaneous Express Trust Issues


Change of Trustees

The original trustees are appointed in the document creating the trust, whether inter vivos or by will. (As discussed earlier, in the case of self-declaration, the “settlor” is the trustee.) An inter vivos trust will often contain a provision for the appointment of replacement trustees. Such provisions can take various forms, including: authorizing a retiring trustee to appoint their successor;

authorizing the continuing trustee(s) to appoint a replacement; or giving the power to appoint trustees to a person who is not a trustee, which may include the settlor.

Trustees Act Section 27 of the Trustee Act confirms the efficacy of designating in the trust instrument a person to

appoint replacement trustees. In instances where the provisions of the trust document do not cover replacement, section 27 of the Act

provides that the surviving or continuing trustees, or the personal representatives of a last surviving trustee, may appoint one or more replacements.

Section 31 of the Act provides a further fallback that, if it is not possible to appoint a new trustee by any other means, the court may make an order appointing trustees, who may be in place of, or be in addition to, the existing trustees.

Section 29 of the Act provides for vesting of the trust property in new trustees, and section 27(3) provides for the rights and powers of the new trustees.

Section 28 allows retirement from trusts by trustees if there are more than 2 trustees and all trustees consent. Sole trustees cannot retire until title to the trust property is vested in someone else as truess.

Remuneration of Trustees

Section 88 of the Trustee Act gives the court jurisdiction to approve within limits remuneration for trustees and executors.

Section 90 provides that the application of Section 88 is excluded if the matter is dealt with in the instrument that creates the trust.

Application to court for approval of remuneration will not be necessary if the trustee can secure the consent of the beneficiaries.

Rule in Saunders v Vautier

Rule in Saunders v Vautier: If a beneficiary has been given the full beneficial interest in trust property but trustee if directed to hold it for a period of time, then notwithstanding the trust provisions, beneficiary can immediately demand distribution of the trust property to him outright and trustee must comply with that demand if:

1) Beneficiary reaches age of majority2) Any conditions precedent to vesting the interest have been satisfied3) Any prior interests have been terminated

Rule also applies to discretionary trusts with multiple beneficiaries. All beneficiaries have to agree and satisfy above conditions.

Inquiry: Is the gift vested or contingent? Vested= Enjoyment of which is merely postponed; may be subject to subsequent divestment. Condition subsequent. Contingent= Subject to the happening of an event that may never occur. Condition precedent.

Ward v Roberts (2017)(BCSC)

F: Will provided that residue of estate was to be divided into 2 equal shares: one for William Sr., his son, and one for Barbara Laurel, his daughter– Laurie's Trust. Will directed executor to invest Laurie's Trust, pay the annual income of Laurie's Trust to Laurie for 10 consecutive years, and on expiration of the 10 years, pay the balance of the Trust to Laurie for her own use absolutely. Will provided that if Laurie were to die before the testator, or within the 10-year period, then $10,000 would go to Laurie's husband, and the balance would go to the testator's grandchildren, and if any of the grandchildren were to die before the 10-year period expired, the survivor would receive the balance. Laurie demanded termination of trust and immediate distribution. H: Vested interest subjected to divesting. Trust must be terminated and Laurie is entitled to assets.A: Laurie is the only person with a vested interest in Laurie's Trust. Testator's son-in-law, son and grandchildren all have contingent interests (contingent upon B dying before 10-year period expired). All concerned are over 19, none are under any disability and all consent to the termination of trust.

1) Either Laurie is entitled to entire beneficial interest and can terminate Trust on her own; or2) Trust can be terminated b/c all those with successive interests have full capacity and all consent to the

terminationEither way, same outcome: trust must be terminated.

Variation of Trusts

Trusts and Settlement Variation Act s1 Court may order approval of variation on behalf of

o anyone with an interesto anyone ascertained or not who is entitled


o any person unborno any person in respect of an interest

s2 Court must carry out in the best interest of the person s3 If the person is a minor or mentally disordered, can file for public guardian or trustee s4 Court may exercise powers to deem trusts for property held in life interest, and/or beneficiaries incapable of consening to arrangements

Russ v BC (1994)(BCCA)

H: Exercise of discretion by a judge acting under s1 or s2 of the TSVA should not be subject to reconsideration.R:

Chambers judge was advised of a theory that the last party to a deal might extract a better arrangement for himself.

o Future contingencies are of necessity undefinable, and incapable of precise evaluation. o Court may assess any proposal to see whether is for the benefit (s2 requirement) of those who

cannot consent themselves. It does not require that the court act as a negotiator in maximizing any benefit that may be made to appear.

Remedies

Declaration

BC Supreme Court Civil Rules(2) To start a proceeding in the following circumstances, a person must file a petition or, if Rule 17-1 applies, a requisition:

(c)the sole or principal question at issue is alleged to be one of construction of an enactment, will, deed, oral or written contract or other document;(d)the relief, advice or direction sought relates to a question arising in the execution of a trust, or the performance of an act by a person in the person's capacity as trustee, or the determination of the persons entitled as creditors or otherwise to the trust property;

Removal of Trusteea) By the beneficiary (s 30 of Trustee Act):

On application by any beneficiary eitheri) With consent and approval of majority of trust beneficiaries; orii) By court’s inherent jurisdiction to removal trustees when the circumstances require, regardless of majority’s wishes

Fox v Fox Estate H: Removed widow as trustee, though grandchildren (majority of beneficiaries) were probably content with widow remaining as trustee, since she encroached on the entire capital of the estate and gave it to the grandchildren, leaving nothing for her son who brought the application.

Re Smith H: Removed trust company as trustee. Breach of duty of impartiality benefited son to detriment of mother. Son probably would've been happy keeping trustee (1/2 beneficiaries).

b) By a trustee (s 86 of Trustee Act or s 2.1(2)(d) of Civil Rules)Principle (Parker): Court will not lightly interfere with testator’s choice of trustee. Clear evidence of necessity is required.Test (Miles; Parker): To justify removal of trustee, petitioner must first establish that removal is necessary and expedient to protect interests of beneficiaries b/c continuation of trustee jeopardizes proper and efficient administration of trust, factors include:

Main concern is the collective welfare of beneficiaries (Parker) Jeopardize proper/efficient administration of trust Endangerment of trust property in the past or present, whether through lack of honesty, lack of capacity or lack of

reasonable fidelity cannot agree on anything (Consiglio Trusts)

Insufficient grounds alone: Mere dissension between one of the beneficiaries and the trustee (Conroy)

Unnecessary factors for removal: Trustee misconduct – unnecessary but usually sufficient for removal if jeopardizes proper and efficient administration of trust (Miles)

Miles v Vince (2014)(BCCA)

H: Removed sister as trustee. Trustee of Insurance Trust failed to protect interests of all the beneficiaries of that trust. By investing all of the trust property in the Housing Trust, put trust property at risk, put herself in a conflict of interest and failed to act with an even hand among the beneficiaries. Continuation as trustee jeopardizes the proper and efficient administration of the trust.R:

Petitioner must first establish that removal of present trustee is necessary and expedient to protect interests of beneficiaries b/c continuation of trustee jeopardizes the proper and efficient administration of the trust.

Actual misconduct will usually be cause to remove a trustee, but not every neglect of duty or mistake will result in removal.

Parker v F: Application to remove trustee from Family Trust by children from deceased's previous marriage. Alleged Cathy Lee – Modified by Charlie Shi for 2019

Thompson (Trustee) (2014)(BCSC)

failure of trustee to exercise any discretion with respect to the Trust, failure to exercise level of prudence expected from a reasonable businessman by failing to engage in any substantive participation in Parker's affairs, acted in a manner prejudicial to the interest of the beneficiaries, failed to ensure that the petitioner's interests were protected, acted in a conflict of interest by acting as solicitor for the Dealership and holding himself out as Janet Parker's solicitor, allowed J and C to receive unreasonable salaries, refusing appointment of co-trustee.

Background: Deceased-settlor operated Parker 46 (holding co.) and Parker's Chrysler (car dealership). Transferred shares in Parker 46 to the Family Trust with children (2 from previous marriage, 1 from second marriage) as beneficiaries. When trust was created, deceased appointed 3 trustees: himself, T (his corporate solicitor) and his corporate accountant. Accountant later resigned, leaving T to be the sole trustee. Terms of trust fully protected trustees in exercising any discretion granted to them in the Trust deed and are not liable to any beneficiary by reason of the exercise of their discretion. Trust terms also expressly waived the "even hand rule" by allowing trustees to pay income to one or more beneficiaries in his uncontrolled discretion. Upon termination of trust (December 2015), assets of Trust were to be divided in equal shares between the 3 beneficiaries. Financial welfare of Parker 46 and Trust were dependent on financial performance of dealership. Dealership was not particularly profitable at time of settlement of the Trust.

H: No grounds for removal of trustee. T actually did a great job administering the trust. Exercise of discretion: T did consider the issue of payment of dividends but determined that given

the financial condition of the Dealership, dividends could not be paid until 2013. Exercise of prudence: T was involved in the operations of the Companies and was consulted by the

director and vice president regarding its affairs. Was aware of business operations and approved of them as being prudent business practices.

Actions prejudicial to interest of beneficiaries: T continuously reported to beneficiaries on the Companies' financial circumstances.

Conflict of interest: While T's role as trustee and role as solicitor offered the potential for conflicts of interest, which the settlor knew when he appointed him as trustee, T has not acted in any way that could be said to be a conflict of interest.

Dealt with potential breaches of trust efficiently. J bought a boat from Parker's Chrysler and sold it at a profit. T advised her that she needed to return the profit to the company, which she did.

No need to appoint a co-trustee. Within T's discretion to continue as sole trustee, pursuant to Trust Deed.R: Guiding principles in deciding whether court should remove trustee:

1. Court will not lightly interfere with testator's choice of trustees2. Clear evidence of necessity is required (but not to extent that removal must be the only course to

follow)3. Court's main consideration is the welfare of beneficiaries; and4. Estate trustee's acts or omissions must be of such a nature as to endanger the administration of the

trust Includes actual dishonesty, lack of proper capacity to execute duties or lack of reasonable

fidelity May also include inability to act impartially Length of trust term remaining is irrelevant. Does not matter if future administration of

trust is limited or that trust will terminate by its own terms soon. 5. Removal is not intended to punish past misconduct, but past misconduct that is likely to continue

will often be sufficient to justify removal

Restoration and Equitable CompensationTrustee liable to account for/ restore the trust assets where trustee has improperly parted with trust property (breach of duty to preserve trust assets)

Mechanism of accounting (duty to account) : Factual inquiry into what has been done with trust property. If accounting process reveals improper transaction, beneficiary has choice to adopt or reject transaction. By rejecting transaction,

trustee will have to make reality match account (restore account out of own resources). Liability is personal. Trustees are liable for personal acts and no his co-trustees. (Waters)

Valuation: Value of property at time trustee is called to account for the property. Internal limit– trustees will not be made liable for more than the value of that property.

Fales: Damages valued at average price of shares (not highest intermediate value) over the 2.5-year period in which shares could have been sold.

Standard/liability ( Guerin ; Canson ): If a breach has been committed, a trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed. Considerations of causation, foreseeability and remoteness do not readily enter into the matter .

Canson: Liability is not unlimited– compensation must be limited to loss flowing from trustee's acts in relation to interest he undertook to protect.

When should equitable compensation apply? (Canson) Certainly where fiduciary was entrusted with and misuses or loses property. Less


certain in other circumstances where trustee breaches performance (majority says no, but minority says yes)

Relief (s 15.4 of Trustee Act ): Allows increase to be netted off against the loss if trustee made 2 unauthorized investments, one of which increased in value and the other declined

Guerin v The Queen (1985)(SCC)

H: Breach of fiduciary duty. Equitable compensation: Loss of property leased to Golf Club lost opportunity for residential development Crown liable to compensate the whole amountValuation of loss from breach of fiduciary duty: Compensation should be based on cost and profit of leasing for residential development. But for the

breach, the Band would have eventually leased the land for residential development. Damages ≠ difference between lease entered into and lease that Band was prepared to authorize b/c Golf Club

would not have entered into any lease on the terms sought by the Band. Could not be said that breach caused Band to lose opportunity to enter into lease on those terms.

Damages ≠ difference between value of lease actually entered into and the amount the land was worth at the time of trial. Does not take causation into issue.

Canson v Boughton & Co. (1991)(SCC)

F: Canson and Peregrine Ventures entered into agreement to purchase property and enter into joint venture to develop it. Agreed to pay Treit a commission of 15% of the profit of resale. Unknown to Canson, Treit had arranged for an intermediate company, Sun-Mark, to share in the profit from the sale, a profit from which Treit would share equally. Sun-Mark entered into an interim agreement to buy the land from the vendors for $410,000, though the purchasers paid $525,000, and thus Peregrine and Treit made a profit of $115,000 from the "flip". Solicitor for the purchasers, Boughton & Co., knew of this secret arrangement, but did not disclose to Canson that the property was not being purchased directly from the vendors. Solicitor prepared different statements of adjustments and did not disclose the secret profit paid to Sun-Mark. Property development was not successful and was foreclosed on and the purchasers suffered a loss. Boughton breached fiduciary duty in failing to disclose the secret profits. Plaintiff sought compensation for losses from construction project beyond contractual damages.

H: No equitable compensation. Regardless of whether equitable compensation applies here, causation was not made out. The breach did not cause the losses from the construction project.A: Breach of fiduciary duty: A fiduciary duty may be breached when the solicitor fails to inform a client of a fact of

which he should have informed him, or that he should seek independent advice. Application of equitable compensation should be restricted to fiduciaries who are entrusted with and misuse

property. Compensation for other breaches of fiduciary duty should be assessed by reference to common law

principles applicable to tort and contract, where foreseeability and remoteness are relevant.Hodgkinson v Simms (1994)(SCC)

Proper approach to damages in this case was the monetary equivalent of a recessionary remedy (put plaintiff back in the position they would have been in).

Remedy of disgorgement (of commission) is not sufficient to guard against the type of abusive behaviour engaged in by the fiduciary. Not required to mediate– should not suffer from fact that he did not discover the breach until the market has already taken its toll on his investments.

Punitive/Other Damages

Rare and only recently have the courts begun to order damages for non-pecuniary loss and punitive damagesIn tort:

Punitive damages are the clearest example of pure deterrence in the law of negligence The test thus limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour (Whiten

v Pilot Insurance Co)

Two trusts cases that have issued: Walling v Walling 2012 ONSC 6580 (CanLII) – breach of trust Mulligan v. Stephenson 2016 BCSC 1941 (CanLII) – Breach of fiduciary duty, no pecuniary loss

Following Trust Property

Recovery of Specific Property

If trust property is transferred improperly by a trustee to a third party, the trustee will be liable for breach of trust, and the “restitutionary” award will be determined on the basis discussed above.

If the third party remains in possession of the trust property, the beneficiary is entitled to demand transfer of the property by the third party to a new trustee, or perhaps to the beneficiary directly, unless the third party is able to establish the defence of bona fide purchaser for value without notice.

Why? Foskett v McKeown: Beneficiary’s claim against trustee for breach of trust is a personal claim (unsecured). Does not entitle him to priority over trustee’s creditors unless he can trace the trust property into its product and establish a proprietary interest in the proceeds.


3 ways to hold 3rd party liable for breach of trust (Air Canada):1) Trustee de Son Tort (Boardman): Person who is not appointed a trustee but takes it upon himself to possess and administer trust property

for the beneficiaries– treated as a trustee2) Knowing assistance or participation (aka accessory liability) (Air Canada): Elements of liability

1. Dishonest/fraudulent breach of trust: “Dishonesty” on the part of the trustee– Taking of a risk to the prejudice of another's rights, which risk is known to be one which there is no right to take;

2. Participated or assisted in breach of trust 3. Degree of knowledge by third party : Actual knowledge, wilful blindness or recklessness as to fact that trustee’s action was a breach of

trust.3) Knowing receipt (Citadel): Elements of liability

1. Receipt by third party: Third party/ stranger to the trust receives or applies trust property for own use and benefit (third party is enriched at beneficiary’s expense).

2. Property obtained from breach of trust : Property was subject to trust in favour of plaintiff and was taken from the plaintiff in a breach of trust

3. Degree of knowledge by third party : Constructive– Had knowledge of facts which would put a reasonable person on inquiry and fails to inquire as to the possible misapplication of trust property.

Remedy (Bank of China)– “Tracing”:1) If trust property in third party’s hands, and defence of bona fide purchaser for value w/o notice does not apply return property to trust2) If knowing assistance liable for losses resulting from trustee’s breach (liability not reduced by contributory negligence). Assistance must

have had some causative impact in facilitating trustee's breach of duty. May be tempered by principle that a fiduciary's liability should not exceed what s/he gained in consequence of the breach of duty (Bank of China).

3) If knowing receipt but disposed of trust property could be made a “constructive trustee”, and liable for the full amount received. Following co-mingled trust property (Oatway): Treat remaining funds as most advantageous to beneficiaries and least advantageous to creditors.Re Oatway (1903)(UK Ch. Div.)

F: Trustee sold property for 7000£, of which 3000£ was trust property. Deposits whole amount in own account, instead of investing the 3000£ trust money. Purchased shares in a company for 2000£. Trustee died, and shares were later sold. Accounts emptied after death.H:

Trust money may be followed into land or any other property in which it has been invested. When a trustee has, in making any purchase or investment, applied trust money together with his own,

the beneficiary of the trust is entitled to a charge on the property purchased for the amount of the trust money laid out in the purchase.

Third Party Liability

Waters:Third parties can be liable if they are culpably involved in a breach of trust or fiduciary obligation:

1. Trustee de Son Tort: A person who was not appointed as 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. Knowing assistance: “accessory liability”, 3rd party knowing assists or participates in a breach of trust by a trustee. 3. Knowing receipt: 3rd party knowingly receives property in breach of trust and applies it for his own use and benefits. (Citadel)

a. Elements of liability: (Air Canada)i. Dishonestly on part of trustee

ii. 3rd party needs to have knowledge or wilful blindness to the fact that the trustee’s action was a breach of trust4. Liability without express trust: Knowing assistance in the breach of fiduciary obligations (eg. As an agent, partner, or director, or

constructive trust).

Air Canada v M & L Travel Ltd. (1993)(SCC)

F: Guy borrowed money on a personal loan and invested it in the travel agency. Became one of two directors, and both had signing authority for the corporate bank account. Agency entered into agreement with Air Canada for ticket sales to forward receipts less commission to the airline. Though company had a separate trust account for money from ticket sales, money was placed in the travel agency’s general operating account. Directors also obtained an operating LOC from the bank. Dispute arose between the 2 directors and issued contradictory instructions to bank as to operating LOC, resulting in bank refusing to transfer funds out of the account. Bank continued to withdraw amount owing from LOC. Travel agency became indebted to Air Canada for money owing from ticket sales. Air Canada sued company and directors personally for money owed.H: Trust relationship between Air Canada and Agency. Directors were personally liable as well as corporation.A:

1) Trustee de son tort: N/A b/c directors did not personally take possession of trust property or assume office or function of trustees

2) Knowing receipt: N/A b/c money was taken by the bank.3) Knowing participation:

1. Dishonest/Fraudulent breach of trust : Knowingly took wrongful risk resulting in prejudice to beneficiary. Knew funds were held in trust for Air Canada and not for general use of travel agency, set up trust account for that money but never used it. Knew that any positive balances in general account was subject to Bank’s demand, and by placing trust monies in general account, travel agency took risk to


the prejudice of rights of Air Canada as the beneficiary.2. Participated and assisted in breach : Dealt with funds in question. Actions protected own self-interest to

the detriment of Air Canada’s interest.3. Knowledge of breach of trust : Knowledge requirement usually not a difficult hurdle in cases

involving directors of closely held corporations. Active directors usually have knowledge of all the actions of the corporate trustee. While director was not the managing director, did have knowledge of the agreement between the travel agency and Air Canada b/c signed the agreement and knew that trust funds were being deposited in the general account, which was subject to a demand loan from the bank.

Citadel General Assurance Co v Lloyds Bank Canada (1997)(SCC)

F: Drive On sold insurance to auto dealers. After collecting premiums, paid commissions and settled any current claims under the policies. Balance of premiums was remitted on a monthly basis to Citadel insurance companies, the underwriters. D started banking with Lloyds Bank and used one bank account for all its transactions. Through its senior officers, bank was aware that insurance premiums were being deposited into that account. Knew that D was reluctant to establish a trust account for the premiums but would do so if necessary. Bank received instructions to transfer funds from D's account to parent company's account to reduce overdraft. A couple months later, D advised C that the July and August premiums could not be remitted. Agreed to pay these outstanding receipts by way of promissory note. D and parent company ceased carrying on business, and C brought action against Bank for the outstanding insurance premiums.H: There was a statutory trust under Alberta’s Insurance Act. Bank is liable as a third party for D’s breach of trust.A: Trust? Statutory trust. Promissory note confirmed amounts owed by D to C, and was not a revocation of trust.

Arrangement between C and D met the characteristics of trust: certainty of intent, certainty of subject-matter and certainty of object. Fact that trust funds were co-mingled with other funds does not undermine the trust relationship.

1) Trustee de son tort: N/A b/c Bank never assumed office or function of a trustee2) Knowing participation/assistance: N/A b/c Bank only had constructive knowledge. 3) Knowing receipt:

1. Receipt and application of trust property for own use and benefit : By applying deposit of insurance premiums to offset parent company's overdraft, bank received a benefit and thus received the trust funds for own use and benefit. Deposit of trust monies in D's account was "property" not "debt obligation".

2. Knowledge : Bank was aware of the nature of funds being deposited into and transferred out of D's account. Knew that D's sole source of revenue was sale of insurance policies and premiums collected by D were payable to C. In light of knowledge, the daily emptying of D's account was very suspicious. Under these circumstances, a reasonable person would have been put on inquiry as to the possible misapplication of trust funds. Bank should have inquired whether the use of the premiums to reduce the account overdrafts constituted a breach of trust. By failing to make such inquiries, had constructive knowledge of the breach of trust.

Bank of China v Fan (2015 BCSC 590)

H: Money laundering case by (X) with wife (K) and mom (T). Knowing participation/assistance: Satisfied that Tan had requisite degree of knowledge concerning the breach of trust and her participation in or assistance thereof.

The responsibility of a trustee may no doubt be extended in equity to others who are not properly trustees, if they are found…actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But…strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a court of equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.

Remedy: Kuang: Liable for entirety of bank's loss, including pre-judgment interest. Sufficient link between conduct

and bank's loss due to the fraud perpetuated by the principal fraudsters. Was involved extensively in efforts to conceal the fraud and to disperse and launder funds obtained by way of the fraud. Clear that assistance was not limited to a few discrete transactions, but rather was engaged in assisting the overall pattern of fraud.

Tan: Not involved to the same degree or in the larger pattern of fraud that led to bank's loss. Involvement was more limited and directed towards specific transactions. Ordered disgorgement of profits. Also knowingly received $350,000, and judgment against Tan for that amount.

Indemnity and Exculpation

TA provides implied indemnity for trustee’s costs:

S 95 of the Act: Trustees are indemnified against fees, securities, and reasonable expenses that are not through trustee’s own wilfull default. If found to be liable due to breach of trust, there is no implied indemnity, but they may be exculpated by the trust instrument or by the

court (s96). By trust instrument: Cannot exclude liability for gross negligence (Poche), dishonesty/fraud or conscious decision to act contrary to best

interests of beneficiaries (Armitage). Cathy Lee – Modified by Charlie Shi for 2019

S 96 of the Act: Court may relieve liability against trustee if finding trustee acted honestly and reasonably in breach of trust case

Beneficiary may give fully-informed consent to the course of action which constituted a breach of trust, may act as defence. (See Boardman)

Waters’ Law of Trusts: o Not necessary for trustee to show that beneficiary knew the proposed or perpetrated action or omission constituted a breach of

trusto Concurrence: Must fully understand what he is concurring ino Acquiescence: Must be fully informed of his rights and of all material facts and circumstances of the caseo Whether alleged approval comes before or after the breach, there must be no question of concealment of information by the

trustee or the omission to tell the beneficiary facts concerning the matter. It is irrelevant that the trustee himself was ignorant of any particular fact b/c it is the state of mind of the beneficiary that is in question.

o If trustee who is in a conflict of interest seeks concurrence from beneficiaries on the basis of full disclosure, beneficiaries may very well need to receive ILA

Re Poche (1984)(ABQB)

F: Will contained clause that exonerated trustees from liability for any loss not attributable to her own dishonesty or to a wilful commission by her of any act known to her to be a breach of trust. Loss in question was due to trustee's omission, not commission. No dishonesty on part of trustee nor wilful commission of any act in breach of trust.H: Clause exempting liability for "gross negligence" was ineffective. Clause cannot relieve trustee from liability for a loss resulting from own gross negligence.

Fales v Wohlleben Estate(1977)(SCC)

H: Exonerated W, but not CP. R: S [96] is a remedial legislation allowing relief where standard of conduct that courts have expected of trustees, at certain times and in certain circumstances, have been unduly harsh or inflexible. Considerations:

1) Whether breach was merely technical or minor error in judgment2) Whether decline in value of trust asset was attributable to general economic conditions3) Whether trustee was a person who accepted position as a friend/relative, or whether trustee was a professional

trustee (company organized for purpose of administering estates and presumably chosen b/c it will have specialized departments and experienced officials)

A: CP had not given W an intelligent analysis and she hadn't received annual reports that revealed the grave financial situation of the company. Acts were not greatly less nor more than one might expect of a person in her position: housewife with young children who used to be a school teacher. Extent of business exposure was a 3 months' night school course on "How to Invest your Money". Made all the decisions she was asked to make within the limits of her experience and knowledge.

Boardman v Phipps (1967)(UKHL)

H: Boardman and Tom were constructive trustees of the shares (trustees de son tort). R: No fixed rules concerning beneficiary, what the beneficiary knows is a question of fact in each case.

However, it is a matter of law as to what the beneficiary is required to know. He may know what the trustees are proposing to do or have done.

It is not necessary for the trustee to show that the beneficiary knew the proposed or perpetrated action or omission constituted a breach of trust.

he must “fully understand what he is concurring in”; as to acquiescence, he must be “fully informed of his rights and of all material facts and circumstances of the case.” In other words, whether the alleged approval comes before or after the breach, there must be no question of the concealment of information by the trustee or the omission to tell the beneficiary facts concerning the matter.

Resulting Trusts

A resulting trust arises when legal title to property has been vested in person who is required to hold all or part of beneficial interest as trustee for the settlor or transferor for reasons other than the settlor being specifically designated as beneficiary.

Automatic Resulting TrustsWhen an automatic resulting trust may arise:

1) Failure of express trust

a) Invalidity of trust provisions (e.g. uncertainty or vitiating trust)i) Could occur due to lack of certainty of objects (Re Baden), or precatory words create unclear binding legal obligations

(Hayman v Nicoll)ii) Property will be held on resulting trust for settlor’s estate

b) Settlor’s intended dispositions do not fully dispose of entire beneficial interest (e.g. beneficiary dies before distribution date and no alternate is appointed)

i) E.g. Capital to be divided into equal shares between number of living children at the time of testator’s death but the shares would only vest when the child turns 30 share of any child who survives the testator but dies before turning 30 would be held on resulting trust

Presumed or Intended Resulting Trusts1) Presumption of resulting trust: Gratuitously transfer of legal title to another or provision of funds for the purchase of an asset registered

in the name of another who provides no value, without explicit evidence of intention to make a gift.


To rebut : Must demonstrate intention of gift/ transfer of beneficial interest (Successful: Pecore, Nishi; Unsuccessful: Niles)2) Presumption of advancement: Gratuitous transfer of legal title or funds between spouses or from parent to minor child (Pecore; VJF)

To rebut : Must demonstrate no intention of gift/ transfer of beneficial interest (Successful: Tribe (even with evidence of illegal intention); Unsuccessful: VJF)

Test ( Pecore ) :1) Which presumption applies? Presumption of advancement applies to transfers between spouses or from parent (father/mother) to

minor child (excludes dependent adult children).2) Rebutting the presumption– weigh all evidence relating to actual intention of the transferor. Whether named person (“beneficiary”)

is intended to have beneficial and legal ownership. May include evidence subsequent to transfer. Joint bank account does not necessarily mean intention to confer beneficial interest (Pecore; Niles)– management and control

is not by itself determinative (Pecore); bank agreement not conclusive (Niles) Parties must come with clean hands! Doctrine ( Goodfriend ; Tribe ) : Evidence of illegal contract or scheme will not be

admitted to rebut presumption of advancement. o Exception (Goodfriend; Tribe): Illegal intention bars recovery where: 1) disposition itself was illegal or fraudulent

(i.e. illegal scheme was carried out), or 2) evidence of illegality seeking to rebut presumption of advancement was central to case of claimant does not bar recovery 1) if no harm done or illegal scheme not carried out or 2) if other sufficient evidence to rebut presumption of advancement

Presumption of Resulting Trust CasesNiles v Lake (1947)(SCC)

F: Mrs. A and sister opened joint bank account and signed agreement with the bank that provided a right of survivorship to the joint account and made each sister an authorized signatory of the account. Mrs. A deposited $10,000 into account without sister's knowledge and died shortly thereafter. Beneficiaries of estate claimed that money should pass by will rather than by right of survivorship to the sister.H: The $10,000 was held on resulting trust for Mrs. A. Money should go to estate. Not rebutted.R: Equity raises an equitable interest in the transferor by virtue of the doctrine of resulting trusts, and there is nothing in the bank agreement to cut down that equitable interest. Parties' intentions: Parties intended to create a relationship to the bank in such terms that would preclude any challenge to the irrevocable authority of either of the depositors to deal with the account in unqualified fashion as if she were sole owner of the funds.

Mrs. A did not intend the language of the account creation to touch any interest in the money as between her and sister. What she wanted was a joint account and the form was something required by the bank.

Contractual documents had nothing to do with beneficial interest in the money– no explanation to rebut presumption of resulting trust.

Pecore v Pecore (2007)(SCC)

F: Deceased had joint bank account with defendant adult daughter, in which he made regular deposits. Upon his death, the balance remained in the accounts and it was not written into his will. Out of the deceased’s 3 daughters, the defendant was the closest to her father, and he often helped her and her family out financially. For tax purposes, deceased wrote letters to banks stating that he was the “100% owner of the assets and the funds were not being gifted.”H: The father intended a gift and the daughter may retain the assets in the accounts. A: Evidence considered:

Bank documents of evidence to suggest transferor’s intent regarding beneficial interest in account: Father retained control of account while alive. Can infer intent that he did not intend to give daughter beneficial interest in account during his lifetime, but father can intend to give right of survivorship to daughter. If intention was simply that daughter would, by right of survivorship, have the full benefit of the account, is not a testamentary disposition.

Control and use of funds in account– but only of marginal assistance w/o more: A parent can retain management control simply b/c more experienced, or child can have control over account simply to assist parents. Using or not using the funds doesn’t say much: a child could have refrained from using the account to leave parents with enough money, and a parent’s use of the account is not necessarily inconsistent with an intention to leave the remainder to the child.

Granting of POA Tax treatment of joint accounts Conferring survivorship interest in joint bank account held not to be a testamentary disposition

Nishi v Rascal Trucking (2013)(SCC)

F: Rascal leased lands and tried to purchase them when property went into foreclosure. When unsuccessful, R offered to assist Nishi in acquiring the property for $237,000. Provided $85,000 in cash and assumed responsibility for paying $25,000 on mortgage. Requested an interest in the property once the sale was complete, but N refused. After N's refusal, R's principal, Mr. Heringa, indicated that funds would be advanced "without any conditions or requirements". After completion, R claimed 1/2 undivided interest in property on ground that he was beneficially entitled to an interest in the property since he had paid the purchase money.H: Presumption of resulting trust was rebutted. R intended for funds to be a gift. Advanced "without any conditions or requirements".R: Affirmed Kerr and Pecore: Contribution to purchase property made without consideration between unrelated individuals gives rise to presumption of resulting trust.

In context of purchase money resulting trust, presumption is that the person who advanced purchase money intended to assume the beneficial interest in property in proportion to contribution to purchase price. Presumption of resulting trust can be rebutted if recipient of property proves, on a BOP that the person who advanced the funds intended a gift.

In the case of a gratuitous transfer, there is a gift at law when evidence demonstrates that, at the time of the Cathy Lee – Modified by Charlie Shi for 2019

transfer, the transferor intended the transferee to hold the beneficial interest in the property being purchased/transferred.

Presumption of Advancement CasesVJF v SKW (2016)(BCCA)

F: $2 million gift from third party to husband, which was subsequently used to buy property put in the sole name of the wife for creditor protection.

Excluded property under Family Law Act: With respect to property acquired by a spouse before marriage, only the increase in value that accrues during cohabitation is presumptively divisible under the Act. Rest is excluded property that is presumptively indivisible.

H: Presumption of advancement applies, and no evidence raised to rebut intention of gift. Husband lost exclusion when he voluntarily and unreservedly directed that the property be transferred to the wife. Property is marital property, to be divided under FLA. R: New FLA scheme does not constitute a complete code that eliminates common law and equitable principles relating to property. Scheme builds on those principles, preserving concepts such as gifts and trusts.

Eisener v Baker (2007)(BCSC)

F: B and E began common law relationship in 2002. Moved to Salmon Arm and B used money he had inherited to buy a residence in Salmon Arm for he, E and her child from a previous relationship. B signed interim agreement for purchasing the house and asked E to fax it to the realtor. E placed her signature below B's on the agreement without his knowledge and without a witness before faxing it. E was listed as co-purchaser on subsequent purchase documents and B and E ended up with joint title to the house. On dissolution of their relationship, E claimed share in the increase in value of the house.H: No need to resort to presumptions in this case. Regardless of whether presumption of advancement applies, intention was clear from evidence that B did not intend to benefit E by placing her name on title. A: No intention of gift: E inserted her name on interim agreement, and though B acquiesced in not removing her name from title and though it gave E right of survivorship, B did not intend at the time that she would receive a beneficial interest in the property.Implications: Presumption of advancement between spouses no longer has the significance it once enjoyed. Losing persuasiveness in courts.

Evidence Discloses Illegal Intention

Goodfriend v Goodfriend (1972)(SCC)

F: Husband and another couple entered into an arrangement to exchange spouses from time to time for sexual purposes. Friend threatened to sue him for "alienation of affections". Husband transferred property to wife at her suggestion to avoid a possible judgment creditor who never materialized. H: Presumption of advancement may be rebutted by husband's intentions. No harm done: Husband not barred from recovering lands transferred to wife to escape a feared judgment in a cause of action that does not exist in law. If he had actually transferred to escape liability (dirty-hands), then he would be barred.R:

Doctrine : Evidence of an illegal contract or scheme cannot be used to rebut the presumption of advancement. Plaintiff must come into Court with clean hands.

Exception : May raise evidence of illegal intention to rebut presumption of advancement if there was no proof the claimant had creditors or that any creditor was defeated, hindered or delayed by the transfer.

Comment: Disposition was not illegal – the creditor he was trying to escape never existedTribe v Soiseth (2006)(BCSC)*

Note: Pre-Pecore

F: T and S married and moved into a condo purchased by T's parents. On closing, title was registered under T's name and granted parents 2nd mortgage and option to purchase for $10, which was registered but never exercised. On dissolution of marriage, T sought declaration that she had no beneficial interest in the condo in order to exclude it from her assets. Claimed that property had been registered in her name to avoid tax on capital gains on disposition of property as T could claim condo as principal residence and qualify for exemption. Key fact: Illegal scheme never carried out: condo was never sold and PRE never claimed.H: House was held on resulting trust for parents. No intention to make gift of such magnitude to daughter. Presumption of advancement (b/c transfer from parent to child pre-Pecore) rebutted by evidence of intentions (albeit illegal). Illegal scheme not carried out. Daughter to whose benefit the presumption operates and parent claiming beneficial interest are not adverse parties, and daughter has given evidence as to parent's true intention. May rely on illegal intention b/c illegal scheme not carried out.R: For illegal intention to bar recovery, 2 things must be established:

1) Disposition itself must be illegal or fraudulent (illegal scheme must be carried out)2) Evidence of illegality seeking to rebut the presumption of advancement must be central to case of claimant

Hu v Li (2016)(BCSC)

F: Hu and Li separated after 14 years of marriage. Li’s parents bought house but transferred to Li’s name for removing residency status to save on taxes. However, parents repeated took out mortgages against Li (payable upon demand) to keep beneficial interest. Hu wishes to find out if parents had relinquished beneficial interest so she can get half the value of the home. Whether Li’s parents illegal tax scheme is evidence of intention to give entire interest to Li. H: Thomas and Anita confirmed intention was to use mortgage to protect interests. Scheme was recommended to Thomas and Anita to transfer legal title to assist them in obtaining non-resident status. Does not evidence that they had no interest in title. R:

Court will not find presumption of transfer or defeat evidence based on unfounded illegal intentions. If cannot prove the intention to transfer beneficial interest, presumption for resulting trust.


Fiduciary Relationships, Unjust Enrichment, Constructive Trusts

Remedy: Grants successful applicant a proprietary interest in the asset subject to the constructive trust

When can a constructive trust be imposed as a remedy?1) Breach of fiduciary duty

a) There has been a breach of a fiduciary duty; andb) The fiduciary has acquired some asset subject to the constructive trust

2) Unjust enrichment

Why seek constructive trust over monetary award?1) No other legal avenues available to claimant: e.g. defendant might have obtained a gain through breach, but plaintiff did not suffer

deprivation or loss seek to have defendant’s gain and any interim profits held on constructive trust. See Boardman (Increased share value).

2) Property worth more than contribution: Claimant may have contributed to acquisition of property by another which has gone up in value; proprietary interest > monetary judgment for amount contributed

3) Property has indeterminate or arguable value: May be preferable to going through property appraisal leading to an award of damages, which might prove to be a less valuable remedy. See Lac Minerals.

4) Priority over creditors: If defendant is in financial difficulties, constructive trust could give claimant priority over defendant’s creditors– takes the property out of the bankruptcy estate. See Indalex.

5) Recovery of property from third parties: Remedies against third parties may not be available if claimant only has personal claim against defendant. Restitution, specific performance.

6) Special significance of property to claimant: See Soulos.7) Longer limitation period for trusts (BNSF Railway v Teck Metals)

Fiduciary Relationships and Obligations

Analysis1) Is there a fiduciary duty?

a) Is there a “per se” fiduciary duty? Well established categories of fiduciary relationships:

i. Trustee-beneficiaryii. Director-corporation

iii. Solicitor-clientiv. Uniformed person-Crown (Reading)v. Crown-Aboriginal people (Guerin)

vi. Fiduciary duties imposed by the law (Guerin)*Note: “Per se” categories of fiduciary relationships only establish a rebuttable presumption (Hodgkinson)

b) If not, is there an “ad hoc” fiduciary duty? Test (Elder Advocates): In establishing new categories of fiduciary duties, must have:

i. Reasonable implication of an undertaking by the fiduciary to act in the best interest of the “beneficiary”. Agreement, express or implied (reasonable expectation), to forsake own interests for beneficiary’s interest.

Consider scope of undertaking – undertaking to do what? ii. Vulnerability (as defined by Wilson J. in Frame):

1. Duty is owed to a defined person or class of persons; cannot be an amorphous class2. Fiduciary has the scope for exercise of some discretion or power to affect the legal/practical interests of the

beneficiary 3. Fiduciary can unilaterally exercise that power or discretion

*Note: Galambos: Power-dependency relationship is neither necessary nor sufficient to impose fiduciary obligations.

2) Was there a breach of the fiduciary duty? Relates to scope of fiduciary’s undertaking.

3) Is a constructive trust appropriate? Soulos: Four conditions for constructive trust based on wrongful conduct: duty + causation + personal/ deterrence factor in seeking remedy + third party/ creditor’s interests would not be affected

1. Defendant must have been under an equitable obligation (enforceable by court of equity) in relation to activities giving rise to assets in his hands. (If already established breach of fiduciary duty, then this ground is met).

2. Must have acquired asset b/c of breach of equitable obligation, or as a result of that breach3. Claimant must show legitimate reason for seeking proprietary remedy, either personal or related to need to ensure others like the

defendant remain faithful to their duties (monetary claim is not enough); and4. There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case–

interests of intervening creditors must be protected

Per se Fiduciary RelationshipReading v The F: English soldier, serving in Egypt in 1944, had made a practice of wearing his uniform to sit in a conspicuous place in


King (1951)(UKHL)

trucks trafficking goods (presumably illegal or smuggled) to enable the trucks to pass unchallenged through police checkpoints. Found in possession of a large sum of money, which was seized on the assumption that they were payment for his services. Brought proceedings to recover the money from the Crown.H: R was in breach of his fiduciary duty to the Crown and therefore not entitled to recover his profits.R: A fiduciary relationship exists in 2 types of situations:

1) Whenever the plaintiff entrusts to the defendant property, including intangible property, e.g. confidential information, and relies on the defendant to deal with such property for the benefit of the plaintiff or for purposes authorized by him, and not otherwise.

2) Whenever the plaintiff entrusts to the defendant a job to be performed, e.g. negotiation of a contract on or for his behalf and relies on the defendant to procure for the plaintiff the best terms available.

A: Falls within 1st category: R used the uniform and the opportunities and facilities attached to it to obtain the sums. Obtained the sums by acting in breach of the duties imposed by that relation.

Guerin v The Queen (1984)(SCC)

F: Dispute over lease to Shaughnessy Golf Club of Aboriginal lands. Crown signed lease with golf club on terms not agreed to by the Band. H: Crown owes a fiduciary duty to the Aboriginal people in dealing with Aboriginal land. Crown failed in fulfilling fiduciary obligations.A: Royal Proclamation and Indian Act provide for the general inalienability of Indian reserve land except upon surrender to the Crown. Purpose of this surrender is clearly to interpose Crown between Aboriginal people and prospective buyers or lessees of the land, so as to prevent the Aboriginals from being exploited. By the historic responsibility which Crown has undertaken, to act on behalf of the First Nations so as to protect their interests in transactions with third parties, Parliament has conferred upon Crown a discretion to decide for itself where the Aboriginals' best interests really lie. This discretion has the effect of transforming the Crown's obligations into a fiduciary one.

Ad hoc Fiduciary RelationshipElder Advocates of Alberta (2011)(SCC)

F: Class action against the Province of Alberta and Regional Health Authorities alleging that charges to elderly residents of long-term care facilities for food and accommodation were excessive and were not used for those purposes but were instead used to cover some of the cost of medical expenses.H: No breach of fiduciary duty b/c no duty–government cannot be held to have undertaken to act solely in the interests of one group of citizens.R: Test for fiduciary duty is essentially: Reasonable implication of undertaking + Vulnerability (incl. power by alleged fiduciary to affect legal/ practical interests that can be unilaterally applied)A: Upheld and applied Galambos’s introduction of “undertaking” in the test for fiduciary duty.

Comment: Most cases in which claimants seek to fix government with a fiduciary duty have failed. Very difficult to establish that government undertook to act solely in the interests of one group of citizens. Exception– Guerin: Fiduciary duty imposed by the law. When Crown chose to utilize specific powers granted under the Indian Act to deal with reserve lands, it undertook to act in the best interests of the relevant Band.

Lac Minerals Ltd. v International Corona Resources Ltd. (1989)(SCC)

F: Claimant, International Corona, a junior mining company, was assembling rights and information concerning an ore body in Ontario. Entered into discussions with a much larger company, Lac Minerals, with a view of establishing a joint venture. In the course of discussions, Corona provided information to Lac about a particular property– the Williams property, which was owned by a third party. W/o concluding the joint venture or notifying Corona, Lac acquired the Williams property and then embarked on the successful development of a mine at a cost of about $150 million. Corona claimed that Lac held the mine, estimated to be worth over $1 billion, on constructive trust for Corona, with Lac being entitled only to recover the value of tis expenditures.

Trial: Damages assessed at $300 million, b/c Corona was a junior company and probably could not have acquired entire property independently.

CA: Imposed constructive trust over the mine. No need to assess value of the mine.R: Guide to imposing new fiduciary relationships (pre-Galambos: did not include requirement of undertaking)

1. Fiduciary has scope for exercise of some discretion or power2. Fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical

interests3. Beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power (relevant,

but not necessary factor). Vulnerability of beneficiary not limited to particular individual, can include class of beneficiaries.

H (3:2): No breach of fiduciary duty, but liable for breach of confidence. But for Lac acquiring the property, Corona would have acquired it. Mine held on constructive trust for Corona. Fiduciary duty:

M (Sopinka, Lamer, McIntyre): Fiduciary relationship not established. No vulnerability. In commercial context, parties are expected to protect own interest.

Dependency cannot exist when dealings are between experienced mining promoters who have ready access to geologists, engineers and lawyers. If Corona placed itself in a vulnerable position to give Lac confidential information, did so gratuitously. Could have required Lac to undertake not to acquire Williams property unilaterally but didn't do that.

Constructive trust:M (La Forest, Wilson & Lamer): Constructive trust was the only appropriate remedy here given uniqueness of Williams property, fact that Corona would have acquired the property but for Lac’s breach of confidence, and virtual impossibility of accurately valuing the property.

Hodgkinson v Simms (1994)

F: Stock broker who was inexperienced in tax planning relied on accountant who specialized in real estate tax sheltering advice. Relationship had developed to point that H would invest in anything S advised him to invest. Accountant advised


(SCC) him to invest in some real estate investment projects, which, by conventional wisdom, were safe and conservative. Accountant did not disclose that he was also involved in structuring these projects. H bought 4 properties and suffered heavy losses when their value fell during a decline in the real estate market. H would not have invested in properties had he known that S would obtain a commission.H: Breach of (ad hoc) fiduciary duty. There is a relationship of dependence that gave rise to ad hoc fiduciary relationship. S acted inappropriately within ad hoc fiduciary relationship. Key findings of fact: relationship between H and S was one of trust to the extent that H would invest in anything S advised him to invest in, and H would not have invested had he known of S’s conflict of interest.A (by LaForest):

Professional advisory relationship is not a per se fiduciary relationship (no per se fiduciary relationship between accountants/financial advisors and clients, unlike solicitor-client).

Ad hoc fiduciary relationship: Must have elements of trust, confidence and reliance on skill, knowledge and advice. Reliance was found by trial judge here.

Galambos v Perez (2009)(SCC)

F: P made voluntary sizeable advances of cash (~$200,000) to her employer, a law firm founded by G, often without informing G beforehand. P was a part-time bookkeeper, who oversaw firm's finances and accounting. Firm provided free legal services for her and her husband's will and two mortgage transactions. Firm was failing financially, and P made various voluntary cash advances to firm during her employment. Firm went into receivership and G went bankrupt. P found herself an unsecured creditor. Recovered nothing. Sued G and firm for negligence, breach of contract and breach of fiduciary duty (if able to establish breach, then can claim under lawyer insurance fund, otherwise, just a creditor). H: No fiduciary duty owed by G or the firm to P. Power-dependency relationship not sufficient to establish fiduciary relationship. P was vulnerable in terms of her relationship with G; essentially subbed own findings of fact for trial judge's findings of fact.R: Fiduciary relationship requires (introduced undertaking):

1) Undertaking by a fiduciary, express or implied, that the fiduciary will act in the best interests of the other party, in accordance with the duty of loyalty reposed on him/her.

2) Discretionary power held by fiduciary to affect the other party's legal or important practical interests. Transfer of discretionary power (necessary but not sufficient factor).

Power-dependency relationship is neither necessary nor sufficient to impose fiduciary obligations. A: No per se fiduciary duty– no solicitor-client relationship re cash advances, which were independent of the retainers for the wills and mortgages. No ad hoc fiduciary duty– evidence did not establish that P relinquished her decision-making power over the loans, and G had no discretionary power over P’s interest that he could exercise unilaterally or otherwise. No vulnerability either: no express requests for loans, which makes it illogical to conclude that P could not refuse G’s requests, for there were none.

Unjust Enrichment

Analysis:1) Is there unjust enrichment?

Test (Pettkus) (Kerr): Elements of unjust enrichment:1. Enrichment by the defendant2. Corresponding deprivation suffered by plaintiff3. Absence of any juristic reason for enrichment (Kerr).

A) Onus on plaintiff to show no juristic reasons exist within established categories: contract, gift, legal obligation (statutory, common law or equitable).

B) If no juristic reasons within established categories, onus shifts to defendant to show other reason for enrichment. Court should consider 2 factors:

a. reasonable expectations of the parties (mutual or legitimate reasons, cannot be one-sided expectations) and b. public policy considerations

2) Remedies for unjust enrichment (Kerr)1. Monetary award: Must first consider monetary award, which will be sufficient in most cases.

Mutual conferral of benefits and quantum meruit can still be quantified and remedied through damages. Also consider equitable compensation – monetary award not limited to quantum meruit.

2. Proprietary award (constructive trust): If monetary award not appropriate, then may turn to proprietary award. Plaintiff must demonstrate link or causal connection between contributions and acquisition, preservation, maintenance or improvement of the disputed property.

Share of property proportionate to unjust enrichment can be impressed with a constructive trust in plaintiff's favour

Pettkus v Becker (1980)(SCC)

F: P and B were in a common law relationship from 1955 to 1974, except for a brief separation in 1972. P developed a successful beekeeping business over the years, and came to own 2 rural Ontario properties and the proceeds from sale of a third property in Quebec. Success was not attributed to his efforts alone. B, through labour and earnings, contributed substantially to the good fortune of the common enterprise. However, B's earnings were deposited directly into P's account and lands were under P's name alone. After leaving P, B commenced action seeking declaration of entitlement to one-half interest in the lands and a share in the beekeeping business.

TJ: Awarded B 40 beehives, without bees and $1,500, representing earning from those hives for 1973 and 1974. CA: Awarded B one-half interest in the lands and in the beekeeping business

H: Constructive trust applies here. P was unjustly enriched by B's unpaid contribution. Constructive trust may apply to common-law relationships.


A: Resulting trust? No common intention. P and B did not have express arrangement for sharing economic gain. Unjust enrichment? 1) Enrichment: Had the benefit of 19 years of B's unpaid labour; 2) Corresponding

deprivation: B received little or nothing in return for her labour; 3) Reasonable expectation of acquiring interest in property: P knew or should've known of B's reasonable expectation of interest in property. No juristic reason for enrichment.

Kerr v Baranow (2011)(SCC)

R: Unjust enrichment claims may be applied to common-law relationships, notwithstanding property division legislation.Elements of an unjust enrichment claim:

1) Defendant has been enriched by plaintiff Must be a tangible benefit May be positive or negative (i.e. saves defendant money s/he otherwise would have needed to spend) Need not be a permanent benefit. Must be benefit which can be restored to plaintiff in specie or by money

2) Plaintiff has suffered corresponding deprivation3) No juristic reason for defendant's enrichment (2 step analysis)

B) Plaintiff must show that no juristic reasons exist within established categories: contract, disposition of law, gift, other valid common law, equitable or statutory obligations

C) If no juristic reason from established categories exist, plaintiff has made prima facie case under this step of the analysis. Onus shifts to defendant to show there is another reason to deny recovery. Court should consider 2 factors: reasonable expectations of the parties and public policy considerations. o Reasonable expectations: Mutual or legitimate reasons, not simply expectations of either the

claimant or the defendant.Entitlement to remedy (family law context): Must show joint family venture + link between joint family venture and accumulation of assets and/or wealth. Factors:

1) Mutual effort: Whether parties worked collaboratively towards common goals2) Economic integration: Degree of economic interdependence and integration (e.g. joint bank account)3) Actual intent: Could be intent to share in wealth, or intent to not have lives economically intertwined.

Express or implied (from parties' conduct). E.g. Parties accept relationship was "equivalent to marriage" or presented themselves as being married to the public.

4) Priority of the family (i.e. detrimental reliance on the relationship, by one or both of the parties, for the sake of the family or relationship)

Haigh v Kent (2016)(BCSC)

F: H seeking a vesting order of his 25% interest in the property and an order for partition and sale of property. H: Ordered undivided 25% interest in property vest in H in fee simple. Not entitled to interest in any of the profits of the business earned b/c order granted 25% interest in property (not business) held on constructive trust. Declined to order partition b/c K had > 70% interest in property so was entitled to buy H’s interest. Directed H to sell his 25% interest to K.

Imposition of a Constructive Trust

Constructive trust grants a proprietary interest to do anything with the proprietary interest, must apply for partition and sale of property. Otherwise, cannot register judgment against defendant (not a monetary award). Soulos v Korkontzilas (1997)(SCC)

F: K was a real estate broker for S. In 1984, K found a commercial building which he thought might interest S. Negotiated the purchase of the building for S. When Vendor and K had agreed on a price, instead of conveying this to S, K arranged for his wife to purchase property under her name. Wife then transferred property to herself and K as joint tenants. K told S that Vendor had changed his mind and no longer wanted to sell. Later, S learned that K had purchased property for himself. Brought action to have property conveyed to him, alleging breach of fiduciary duty giving rise to constructive trust. S asserted that property held special value to him b/c of the tenant (held great prestige for him in the community if his bank was his tenant), and abandoned claim for damages b/c market value of property had decreased from time of K's purchase (S suffered no real loss).H: Constructive trust is an appropriate remedy. Does not require unjust enrichment. Constructive trust may be applied for breach of equitable obligation or unjust enrichment. A:

1) Failure to pass on to his client the information he obtained on his client's behalf as to price vendor would accept on the property and use of that information to purchase property for himself constituted breach of equitable duty of loyalty.

2) Assets in K's hands resulted from agency activities in breach of duty of loyalty to S.3) K was not monetarily enriched by acquisition of property, but S suffered deprivation b/c of continuing desire to

own that property. Personal reasons were sufficient to justify imposition of constructive trust to return parties to the position they would have been in had the breach not occurred.

a) Policy reasons: Constructive trust required to ensure agents and others in position of trust remain faithful to duty of loyalty. If real estate agents are permitted to retain properties which they acquired for themselves in breach of duty of loyalty provided they pay market value, trust and confidence which underpin institution of real estate brokerage will be undermined.

No third parties would suffer from order requiring K to convey property to S, nor would K be treated unfairly.Kerr v Baranow (2011)(SCC)

R: Unjust enrichment claims may be applied to common-law relationships, notwithstanding property division legislation.Elements of an unjust enrichment claim:

1) Defendant has been enriched by plaintiff Must be a tangible benefit


May be positive or negative (i.e. saves defendant money s/he otherwise would have needed to spend) Need not be a permanent benefit. Must be benefit which can be restored to plaintiff in specie or by money

2) Plaintiff has suffered corresponding deprivation3) No juristic reason for defendant's enrichment (2 step analysis)

1) Plaintiff must show that no juristic reasons exist within established categories: contract, disposition of law, gift, other valid common law, equitable or statutory obligations

2) If no juristic reason from established categories exist, plaintiff has made prima facie case under this step of the analysis. Onus shifts to defendant to show there is another reason to deny recovery. Court should consider 2 factors: reasonable expectations of the parties and public policy considerations. o Reasonable expectations: Mutual or legitimate reasons, not simply expectations of either the

claimant or the defendant.Entitlement to remedy (family law context): Must show joint family venture + link between joint family venture and accumulation of assets and/or wealth. Factors:

5) Mutual effort: Whether parties worked collaboratively towards common goals6) Economic integration: Degree of economic interdependence and integration (e.g. joint bank account)7) Actual intent: Could be intent to share in wealth, or intent to not have lives economically intertwined.

Express or implied (from parties' conduct). E.g. Parties accept relationship was "equivalent to marriage" or presented themselves as being married to the public.

Priority of the family (i.e. detrimental reliance on the relationship, by one or both of the parties, for the sake of the family or relationship)

Sun Indalex LLC v United Steelworkers (2013)(SCC)

H: Constructive trust ordered by ONCA was not an appropriate remedy for the breach of fiduciary duty in this case.A: Did not find that property (pension funds) was directly related to the breach of fiduciary duty or that the breach could be traced to the property.

Haigh v Kent (2013)(BCCA)

F: H and wife moved onto K's land at K's invitation, and contributed over 20 years to K's informal, undocumented family resort business, which K later ran as a sole proprietorship. Alleged promise by K to give H one-acre parcel of the property when H first moved there. Legal ownership of property was transferred to K many years after H and wife had already moved onto land. In 2000, parties' relationship soured, and H stopped being involved in the business, but continued to live on property.H: Dismissed appeal. Trial judge did not err in finding unjust enrichment, nor in ordering constructive trust. Deference to trial judge's findings of fact and determination of appropriate remedy.A: Unjust enrichment?

1. Enrichment: K had been enriched by the free labour and improvements that H provided over the 20 years. H contributed significantly to increase the value of the resort business.

2. Deprivation: Rejected K's argument that H's contributions were a form of investment in a business venture that ultimately did not produce profitable return. Resort was not a failed business, but H never got any repayment of the loan or share of the profits H did not enjoy fruits of contributions.

3. No juristic reason: A) Reasonable expectations of parties: Given promises made by K to H when they first moved onto

property, K could not reasonably expect H's occupation of his cottage to serve as compensation for his years of efforts. K had offered "partnership" in business of resort. Fruits of venture included share in the enhanced value of the land on which business was conducted, and without which it could not exist.

B) Does not fall within established category of partnership as a juristic reason: No enforceable partnership. No clear demarcation between K's interest as owner of the property and business interests of K and H.

Constructive trust? 3) Causal link: Distinction between legal and beneficial ownership of business and property was unclear and never

properly formalized. Contributions to resort business also contributed to property, and directly and significantly enhanced value of both. Contributions were so direct and significant that H is entitled to share of any profits if land were to be sold, either independently of business or together with it.

o Parties' expectations may be a factor in deciding to grant proprietary remedy but are not determinative. Proprietary remedy may be granted even where contribution is made w/o expectation of interest in particular property. Not significant that H did not expect proprietary interest

D: Claim of unjust enrichment was made out, but the appropriate remedy should have been monetary award not constructive trust. TJ failed to first address whether monetary award was sufficient, and it was.

McInerney v Laass (2015)(BCSC)

F: M and L lived in a common law relationship, but later separated. Property had been jointly purchased, and on separation date, M moved out and commenced family law action seeking petition and sale of property. Parties ended up agreeing that in exchange for L releasing any claims she may have against the Company and L's pension, she would be entitled to sole ownership of the property. Did not sign formal Separation Agreement but conducted themselves in accordance with informal agreement. L paid all of the Property's expenses. M's Company went bankrupt and creditors registered judgment against M's interest in the Property. Debts were incurred after parties agreed that L would have sole ownership of property.H: Property held on constructive trust for L.A: No intentional trust b/c no certainty of intention to create a trust. M did not do everything necessary to create a valid

trust by completing a Form A transfer and either registering it or delivering it to L. No self-declaration of trust either. Cites Mordo v Nitting.


Unjust enrichment? Yes. 1. Enrichment: L paid all of Property's expenses since agreement. M would be unjustly enriched b/c he wouldn't

have had to pay his share of expenses2. Corresponding deprivation: Yes. For same reason as above.3. Juristic reason: No. Separation Agreement suggests no intention of gift or benefit.

Constructive trust? Yes. Counsel of HSBC referred judge to Soulos as authority that a constructive trust should not be imposed if it would

disrupt interests of creditors. Conditions outlined in Soulos are limited to where a constructive trust is ordered based on wrongful conduct.

Pettkus is the proper authority for prerequisites of constructive trusts based on unjust enrichment. Will consider creditors' interests, but the balance of fairness favours L.

MacKinnon v Donauer (2017)(BCCA)

F: Mother gives $150,000 to daughter and son-in-law to purchase a home. Understanding is that mother and father would move into the basement suite. Father dies and not long afterwards, the mother's son moves in with them. Daughter and son-in-law asked her when the son would be moving out. Mother and son feel insulted and move out. Daughter said mother is free to return any time– alone. Mother starts legal action claiming proprietary interest, either a resulting trust or constructive trust on the basis of unjust enrichment.H: No resulting trust, but there was unjust enrichment. No constructive trust b/c monetary judgment was sufficient. A: No resulting trust (Nishi): No intention on part of mother to retain proprietary interest at the time she

transferred the $150K, which was sufficient to rebut presumption of resulting trust. (Note: Could also argue $150K was not a gratuitous transfer, so presumptions do not even apply.)

Unjust enrichment: Prima facie would be entitled to return of money. Enrichment, deprivation and no juristic reason (no contract and no intention of gift).o Mutually beneficial family arrangements does not bar recovery for plaintiffs who could prove other

elements of unjust enrichment. Considering objectively what the parties could have reasonably expected in light of all the circumstances when they entered into the family arrangement (e.g. the benefit of the funds and their appreciation in the real estate market), no juristic reason.

Constructive trust? No. Proprietary remedy should not be granted unless monetary judgment would be inadequate. No indication that defendants would be unable to satisfy a monetary judgment.


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