INTRODUCTION TO THE ARCHITECTURE OF THE TRUST AND ITS USESCHARACTERISTICS OF A TRUST Trusts is a concept of property all about the transfer of a thing(s) to two different groups of persons.

(1) Split Ownership: separation of legal title (administration, management, and control) and equitable title (enjoyment, benefits).(2) Fiduciary Duty: through the split of ownership, the T - who holds legal title - is not entitled to enjoy the benefits of the property; the T must act in the upmost good faith towards the B; onerous requirements(3) In Rem Characteristic: with certain exceptions, equitable interests are property with in rem rights

PROPERTY AND OWNERSHIPWhat is Property: Things Relations among people mediated by things Legal interests permitted in things – rights and remedy based aspects of those relations:

Real and personal rights // Powers // Duties // Privileges Ownership The legal significance of the term property is that it is more than just the thing. It is the description of the

social relations that the law recognizes and gives effect to in relations to things

IN PERSONAM AND IN REM Equitable interests held by a beneficiary in a trust are classically described as in personam that is they attached to persons. Thus, even if the affected property is outside a court’s jurisdiction, if the trustee is in the jurisdiction, the court will assume control of the case by its control of him. It is very important to note that despite the “in personam” quality of equitable interests in a beneficiary

emphasizing the personal circumstances and situation of the beneficiary, the holder of an equitable interest in a thing also has many of the characteristics associated with proprietary ownership, the so called “in rem” character. Thus, a beneficiary may, if the right conditions prevail:

Sell or mortgage his or her beneficial interest to another Devise his or her interest in a will B/plaintiff can call for the trust & obtain legal title (Saunders v Vautier) Property can be recovered from the fiduciary - B is preferential creditor in event of trustee insolvency Can also be recovered from a 3rd party - with the exception of a BFPVWN (equity’s sweetheart) B/plaintiff entitled to any increase in value the property may have accumulated

As a general rule, a legal interest will usually take precedence over an equitable interest: if the equities are equal the law will prevail.

MAXIMS OF EQUITY (Maxims based on good conscience and providing the foundational grid for equity law): Equity follows the law

Absent an unconscionable outcome, equity will respect and give effect to common-law rules. Ex. Declaration of a trust /gift is not sufficient to constitute gift, you have to have the legal transfer.

Those who seek equity must do equity “Clean hands” doctrine

Equity assists the vigilant and not the tardy Delays – equitable laches – minimize or negate a claim in equity

Equity is equality There must be proportionality among contributors

Equity looks to intent rather than the form Substance trumps form Equitable remains available despite deficiencies of form (wording, formalities, etc) if the substance / intent is complete; equity is concerned with what parties intended to do Trust can be created without the word trust

Equity looks on that which ought to be done as being done Substance matters Trust constituted through a contractual agreement is enforceable even if there is no transfer of property

Equity does not assist a volunteer

Persons acquiring property subject to a trust as a gift from a fraudulent trustee will not be protected against the claim of a beneficiary

Looks upon gifts with great scrutiny Equity acts in personam

The person is what counts most, equity acts on the conscience of an individual The in rem aspects of the equitable interest in a trust The fiduciary position of the trustee and what that means in general terms Equity will not permit a wrong without remedy

Rules of equity are more concerned with substance and less with form; will provide a remedy where none exists in CL

That which ought to be done, is done Equity may view transactions as complete before they become valid under the CL; ex/buyer of property gains equitable interest after the sale, but before formal registration

Equity will not fail for want of a trustee If no T is in place, one will be appointed by the court

REASONS FOR A TRUST tax avoidance // provisions for family settlements // incapacity // corporate -- JV’s, insolvency //

investments such as mutual funds // pension funds in employment and labour arrangements // RRSP’s // estate administration upon death // charitable purposes // environmental protection (pipelines, natural energy

EXPRESS TRUST An Express Trust is created with intention by a S/T who wishes to gratuitously transfer property to be held by one for the benefit of another. 2-way transfer. LT must vest with trustee and ET must pass to beneficiary

Capacity + Three Certainties + Constitution of Trust + Formalities = a Valid Express Trust

The express trust can be constructed as: Inter vivos: private trusts set up during person’s lifetime Testamentary: transmission of the deceased’s property is effected through a WILL (aided by statutory supplements) or, if there is no will, by intestate succession. In the case of inter vivos express trusts, must distinguish between “completely” and “incompletely”

constituted trusts. Only perfected or completely constituted trusts are effective as property transfers that render a trust effective. In the normal course of events, an express trust involves two stages: The expression of intention by the settlor to create a trust in favour of a beneficiary using a named trustee who is to receive identified trust asset(s) Handing over that identified trust asset(s) to the trustee. Trust is equity’s law of property and so asset transfer lies at the heart of relationships created by it

There is no effective trust until conveyance of trust property to the trustee has been effected. Thus, a completely constituted or “perfected” trust is one where title in the trust asset has been conveyed to the trustee and is under his control and administration, or where the circumstances are such that he can exact that control by law, for example by enforcing a contract through specific performance

In case of a trust created by will, on death, all property vests in the personal representatives (WESA)

VESTING/CONSTITUTION OF TRUST There are 2 ways in which an express trust can be constituted:

(1) the settlor declaring himself to be trustee of property for the beneficiaries; (2) the settlor transferring the trust assets from settlor to trustee.

At that point, the beneficiary can assert rights against the trustee. Without vesting, the beneficiary cannot, subject to some exceptions. This is necessary because the common law does not like to complete gifts. As a result, the common law requires clear proof outside of a document; the settlor must renounce ownership of the trust assets. To be “vested” means to be fully conferred with the rights that have been given to you. This is sometimes

described as a point in which rights have fully devolved upon or assigned to you

FORMS OF TRANSACTION/DEALING WITH THE PROPERTY

To determine which one of these four forms of transacting (or methods of arranging) the trust has been used, one must review the donor/settlor’s intentions in setting up the trust. His intention in this respect is determined by reviewing all relevant evidence: the document(s), the context of the writing with its surrounding circumstances and who is earmarked to serve as the trustee.

(1) Declaration of self as trustee: “I now hold this on trust for X” Owner of the prop must have determined she will no longer be the beneficial owner thereof (Carson v Wilson) If the trust is created by the act of a declaration of trust by the settlor, vesting will occur almost immediately

and an express trust will be created upon the execution of a trust (i.e. simply by the declaration expressed orally or in writing) because the settlor turned trustee usually already holds legal title to the property.

If you make a declaration of trust, then there is a trust, even if the beneficiaries are not aware of the trust

(2) Transfer to another as trustee: Owner of the prop appoints a third person as trustee of the property, directing her to hold the trust asset for

named beneficiary Mechanism to vest title will depend on nature of the property: historically, CL/statute had requirements; now,

be aware that transfers of interests in bank accounts/stocks must comply with formalities of the relevant financial institution

No equitable jurisdiction to complete an incomplete gift, or to “perfect” an imperfectly constituted trust; but Where the settlor has done all in her power to effect transfer, if will be treated as complete

o If an outright gift was intended, it will be considered completed, or the trust will be considered constituted, including in either case by treating the transferor as holding on trust on an interim basis

(3) The settlor transfers the property to the trustee:1. Proper mode of transfer is governed by property in question

a. Land can be transferred by deed or by statutory instrument/transferb. Chattels by deliveryc. Chose in action (ie contractual righs) by assignment d. Negotiable instruments by executing proper form of endorsements

2. The general rule per Milroy and Re Rose is that the settlor must do all that she can do to effect the transfera. Modern rule: is that we are more concerned with clear intention on prt of the settlor

2 lines of cases: Milroy and Carson, where there was found to be no trust; and Re Rose and Mordo v Nitting, where the trust was held to be constituted prior to full transfer.

Milroy v Lord: In order to render a trust binding, the settlor must have done everything necessary in order to transfer the property and to render the settlement binding upon himselfUncle wishing to make provision for niece transferred 50 shares to Lord who was to hold them on trust for her. Deed signed and sealed by both parties but in order to transfer legal title to shares required Lord be listed as legal owner in the co’s register (didn’t happen). Uncle dies, executor gets the shares back, niece brings action against Lord for the shares.

Court held that the trust was never constituted, b/c shares of the bank were not vested in the trustee Therefore, the gift of shares failed In order to render a voluntary settlement valid and effectual, the settlor must have done everything which,

according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding on him

Equity will not perfect an imperfect giftThe settlor has 3 options:

(a) actually transfer the property to the niece(b) transfer the property to a trustee for the purposes of the settlement(c) or, declare that he himself holds it in trust for the purpose of the settlement

BUT if the settlement is intended to be effective by one of these, and it isn’t actually, the court can’t protect it by saying actually it fits into a different one. I.e. if the settlor intended for it to be (a) or (b), the court can’t say actually it was (c) so its fine. If you do otherwise you are “perverting the settlement to a purpose wholly different than what was intended.”

Can’t treat an intended transfer by one means as actually being a different means.Smith: this seems overly mechanistic.

Carson v Wilson: intention of grantorThe deceased executed deeds to transfer portions of his estate do named persons while still alive. He gave them to his solicitor with instructions to deliver them to the recipients, but not until he died. In meantime, continued to manage properties and collect mortgage payments. The deeds were valid as transfers, but didn’t comply w the formalities of the Will Act. Were they valid to pass the interests?

Court determined no. It was not an effective transfer because he could have, at any time, come to his solicitor and ripped them up.

The controlling factor is intention of the grantor, determined by circumstances and his acts or declarations at the time. He must have decided that he would no longer benefit from the property (which wasn’t clear here).

Also, the respondents are asking the court to perfect an imperfect gift which the court DOES NOT DO. To establish a trust has been created, the intention to create one must be established.

Re Rose: if the donor had done everything in his power to effect the transfer, then a trust would be created.Tax case: law that if a deceased gifts property prior to 5 years before date of death, it is non-taxable. Rose dies just over the 5-year mark o him transferring shares, so should be non-taxable. However, the shares were not registered in the books of the co until after the 5-year window. Was the estate tax payable?COURTHe had, at the time of him completing the transfer, done everything in his power to transfer the shares: had signed in proper form, all that was left to do was register them – getting approval was out of his hands. The transfer of legal interest at that point was out of his hands, and so a trust was created. Milroy is too broad and an oversimplification.

Mordo v Nitting: if transferor intends to transfer the property, relinquish control, and put transferee in position to complete the transfer – it will be completeSon had falling out with family. Mother takes steps to disinherit him, but scared of wills variation so she transfers assets to the daughter, gifts her property, and transfers a warehouse in trust to daughter and herself under a joint tenancy (fills out correct forms and everything) However, the trustee (solicitor) did not have the warehouse registered. On her death, son tries to set aside the trust in order to get those assets back into the pool and then make a wills variation claim.COURTAsks what is necessary to transfer real property. Section 20 LTA: except as against the person making it, transfer not complete unless registered.

Intention is crucial: if the transferor intends to transfer the property, the transfer will be complete when the transferor has relinquished control of the property and put the transferee in a position to complete the transfer

Mum by completing the Form A and giving it to her solicitor did everything necessary to create a valid trust. Declaration of Trust confirming that although the Form A was not yet registered, she held the legal title to the

warehouse only as trustee on behalf of the Trust Even in absence of Declaration, the equitable principle in Pennington would apply And, s. 20 applies: the transfer was valid against her “as the person making it” even before registered legal

title passed to solicitor

Ratner v LH Ratner ConstructionThe son (Ratner) had shares in a company and was moving to the US. To avoid income tax, he gave the shares to his mother. For tax purposes, the transfer had to be absolute; however, he extracted from her a promise that when he came back to Vancouver, she would retransfer the shares to him. When he came back, he asked her and she complied with a written document, stating that she would comply with transferring the shares back to her. After convincing from her daughter, the mother does not transfer them back.COURTThe gift of shares (by mother to son) was revoked before it took effect. Relying on Milroy, the court states that an

incomplete gift cannot take effect (because the settlor (mother) didn’t do everything in her power to complete the transfer – in fact, she revoked it. She can keep the shares.

Pennington v WaineAunt intended to gift shares to nephew but share register not updated w name of the new owner (which was necessary). Also necessary that he owned shares to be a director, started acting as director. Donor kept the completed share transfer forms rather than handing them to her nephew.COURTEquity can play a role: on strict application of the principle in Re Rose there was no valid gift. However, it would have been unconscionable for the executors to refuse to hand over the shares relaxed rule in Milroy, imposed a trust on the settlor such that she held legal title to the shares in trust

THE THREE CERTAINTIES

There are certain conditions that must be met to constitute a valid express trust. These conditions are the “three certainties”:

Certainty of intention: did the creator have the intention to create a trust? Certainty of subject matter: the property or assets – must be clear (a) what property is subject to the trust; and

(b) the equitable interest in the property is defined with sufficient clarity Certainty of objects: i.e. the identification of the beneficiaries with sufficient clarity 1. Plus, certainty of terms: on what terms is the trustee holding the trust?

CERTAINTY OF INTENTION2. Intention that the property is held for the benefit of others – either by 3rd person, or self3. Can be oral, written, or construed from conduct4. No specific form necessary – equity looks at intent, not form5. Cases of uncertainty largely arise in wills, b/c deceased’s intention was communicated unclearly 6. Precatory words/language: words of wish, typically not sufficient to impose a trust. Settlor must be very

clear about their intentions

Jones v Locke: trust may be found invalid when disposition made in haste, trust not validly constituted.Guy comes home drunk, gives cheque made out to him in amount of 900 pounds, says that he is giving it to the baby and hands it to baby. Puts cheque away. Next day, expresses intention to solicitor to give this money to the baby; dies; baby left out of his will.COURTTrust not validly constituted. He didn’t properly gift it – in his name, not properly endorsed; disposition made hastily and in response to wife’s scolding (not very deliberate).Even had he taken the steps necessary to create a trust, the baby wouldn’t have had total access to it; also, the man would have been surprised to find he no longer had access to the cheque.

Re Elliott EstateMother made provision for her children but left out disabled daughter - intended to provide for her by separate agreement. Son/executor claimed portion of estate intended to be added to the trust for daughter.COURT

The person creating the trust (settlor) and the trustee must have capacity The three certainties must be met The trust must be constituted, that is, the trust property must be transferred to the trustee; and Any necessary formal requirements must be met

Where there is no instrument, the court looks at the surrounding circumstances, what the settlor said/did, to determine if there was “certainty of intention”. Is a question of fact. As long as intention is clear, trust ought to be valid.

Paul v ConstanceDamage payments received, account opened in man’s name only but he told his gf multiple times “this money is as much yours as mine”. Some joint bingo winnings also added over time. Man died.

Court found that an express trust was created - words constituted a present declaration that the fund was as much hers as his.JS: She probably could have asked for the whole funds, based on a joint tenancy, but probably better to be moderate in your ask.

Re MellenDeceased held bonds in safety deposit box, registered in her name, w handwritten “the contents of this envelope are to be used solely for the benefit of my dearly beloved son”.Court found an express trust created. Contrasted to Carson v Wilson b/c here, she didn’t intend to GIFT them to her son, she only intended to hold them for his benefit.

Precatory WordsExpresses a hope, wish, or expectation that the recipient of the property will pass some or all of it no to others, but no mandatory obligation to do so. 

WESA S. 44If precatory words are used “I wish, I hope, I request” the court will looks to see whether the language used signifies intent to form a trust or an all out gift.

Hayman v NichollMom leaves sum of money to her daughter in will “in full confidence that she will dispose of the same in accordance with the wishes I have expressed to her.” Daughter didn’t know of any wishes. Heirs to residue of moms estate claimed daughter was holding the funds in trust and it should go to them, not the daughter.COURTA unilateral statement like that is not enough to create a trust.

- Term “in full confidence” no longer automatically signals a trust – it may simply signal a moral appealJS: Possibly if they had a conversation before hand that was agreed upon, equity would step in, but otherwise, need to be more clear.

Outright Gift vs. Limited InterestSometimes difficult to determine if the testator intended to give an outright gift to the “first donee”, which would leave that donee free to dispose of the property as they wish, or whether the testator intended only a limited gift to the first donee who is obliged to hold the property in some respect in trust for others.

Re Walker: cannot make absolute gift, then attempt to impose limits on that giftStated that “I give and devise unto my said wife all my real and personal property… should any portion of my estate still remain in the hands of my said wife at the time of her decease undisposed by her, such remainder shall be divided…”COURTYou cannot gift property and then say what you want done with it. The property belonged to the wife, so she could dispose of it how she wanted.

- It was clear that he had intended to make an absolute gift of the property; the other words attempting to impose limits on that gift were merely precatory

JS: the will could have created a life interest saying that she gets the income off the property, but on her death this is what happens to it. Instead the will seemed to give her power to dispose of it how she wanted she had the absolute interest.

Sprange v Barnard: Testator intended outright gift. In order for trust to be valid, property must be certain; “remaining part” [of property] was uncertainWife died, owning 300 pounds of stock. Her will stated: “for my husband, to bewill to him the sum of £300, …, for his sole use; and, at his death, the remaining part of what is left, that he does not want for his own wants and use, to be

divided b/w my [siblings], to be equally divided b/w them”COURTWas an outright gift, not a life interest

1. Trust not validly created b/c uncertain what property the trust would apply to. The trust would apply to the property that remained, and this was uncertain; would be impossible to execute

2. The property and the person to whom it is to be given must be certain

CERTAINTY OF SUBJECT MATTER(1) What specific property is to be held in trust?(2) What are the specific interests (amount or share of trust property) enjoyed by each beneficiary?

a. i.e. income interest, life interest, proportion…

If the trust property is not defined with sufficient precision, how will the trustee know the property in respect of which she owes obligations to her beneficiaries?

- Certainty of SM must be established at the time the trust established - All property is capable of being trust property, including real and personal property; legal and equitable

interests; choses in action such as contractual rights

Ex: a trust of “the bulk of my estate” would be void as too uncertain. In Boyce v Boyce, the testator gave his 4 houses on trust, that A should have one of her choosing, and B the other three. A predeceased B without choosing one, so the Court held the gift failed because of uncertainty as to which three houses she would take.

Determining the beneficial interest by use of a “formula” is acceptable, so long as it will produce a definite result:Re Golay: reasonableness is an appropriate measure, and the courts know what it isTestator instructed executors to let named trustee live on property during her life, and receive a “reasonable income” from other properties. The issue was if that was void for uncertainty.COURTSCourts deal with “reasonable” all day long - the objective yardstick can be applied by the court. Not defeated by uncertainty.

The Rule in Strong v Bird:Hilliard v LostchukThe rule: if you intend to gift property to someone, but do not actually do it, and appoint that person executor, when you die, the transfer of assets to the person as executor operates to perfect that gift and they are then entitled to the property, as long as you have clear intention.

- Fortuitous circumstances determine the outcome – simple luck allows the property to vestFour conditions:

1. the testator made an immediate gift during her lifetime (intended to make an inter vivos gift)2. The testator failed to make a perfect/complete gift (no consideration, not under seal)3. Testator’s intention persisted up to the time of his death (donor didn’t change his mind)4. The donee is appointed as the donor’s executor

Facts in Hilliard: Woman and husband own large farm. Son lived on homestead, worked land, improved buildings. Mom sought to give him subdivision of land, applied to town for zoning etc. Died before the application granted.Although the property as she wanted to give it to her son didn’t exist at the time of her death, she had made a gift of them and had clear intention to make the gift.  His appointment as executor perfected and completed her gift.

JS: This is unsatisfactory - what if the child wasn’t the executor? Seems silly to base it on such an arbitrary set of facts. Now, would probably be made out to be a constructive trust.

Dealings with Equitable Interests

In contract law, A can contract with B for goods, and then assign the debt owed to them to C. When B pays A, A will pay C back. Or, B could owe C directly if C notifies B. What happens if A also assigns B’s debt to D? Equity says that whoever gives notice to B first gets paid back first.

Assignments of debts and choses in action: s. 36(1) Law & Equity Act Assignment needs to be in writing and signed by the assignor Also need express notice in writing given to the debtor, trustee, or other person who the assignor would be

entitled to receive the debt or chose in action Applies to all equitable interests Only applies if the service has been performed and payment is all that is now needed

Application to Trusts If you are a beneficiary, you have property rights that you can assign In that case, if you assign the rights, the person you assign them to (C) should notify the Trustee (B)

Di Guilo v Boland“Chose in action is a known legal expression used to describe all personal rights of property, which can only be claimed or enforced by action, and not in taking physical possession.”

Debt, company shares, negotiable instruments, and rights of actions founded on tort or breach of K A legal assignment is not effective or complete until the debtor is given notice After it becomes effective, the assignor ceases, vis a vis the debtor, to have any interest in the chose

CERTAINTY OF OBJECTS (BENEFICIARIES) On whose behalf are you holding the property in trust for? Aka who are the beneficiaries? TEST from Re Baden 2: can it be said with certainty that a given individual is or is not a member of the class?

Re Baden’s Trusts (No. 2)The class of ben’s was employees, ex-employees, and their relatives and dependents. The trust was held to be valid.COURTThe test: whether it can be said with certainty that any given individual is or is not a member of the class .Previously the English cases said that you needed to be able to make a complete list of all the ben’s. Why? Because(a) if the Trustee didn’t carry out duties, the Court would have to do it (and would do so by splitting everything equally) and(b) that way you can make informed decision how to split it up.

Court says no: splitting it equally is probably the last thing the Trust creator would have wanted; and simply b/c countless people exist shouldn’t mean that people who are clearly a part of the class shouldn’t be entitled to benefit from the trust

Conceptual vs. evidentiary uncertainty: Conceptual uncertainty would render the gift void Whereas the difficult of determining if someone is a member of the class or not does not, it is simply an issue of

evidentiary uncertainty Ex: trust to benefit family members of the army – cannot prove father was member. You still know the test so

there is conceptual certainty; there is just evidentiary uncertainty. That’s fine – the trust still valid.Dependants & Relatives

- Dependants: sufficiently certain – probably means dependent for the ordinary necessaries of life, but is a question of fact

o Any one wholly or partly dependent on the means of another- Relative means next of kin – court can figure it out

Re Manisty’s Settlement: Rule in Re Baden 2 applies to trustee’s discretionary powerSettlement conferred on trustee broad powers to add beneficiaries as objects of the trust. Trustee was empowered to add any person other than a member of the Excepted Class. The Excepted Class was the settlor, his wife, any person who added property to the trust. The trustees added the settlor’s mother, as well as any widow of the settlor to the class of beneficiaries.COURTThe argument was that the trustee had intermediate power exercisable in favour of anyone (with certain exceptions) –

too wide, practically unlimited, and therefore uncertain and invalid. However, the rule in Re Baden doesn’t strike down in intermediate power provided that, having regard to the definition of excepted persons, it can be said with certainty that any given individual is or is not an object of the power.

Some powers give an indication of the expectations of the settlor: it was clear why the settlor did it that way (tax)

Capriciousness- The court may intervene if the trustees act capriciously – irrational, perverse, or irrelevant to any sensible

expectation of the settlor

Discretionary trusts vs. Powers: trustees need to be granted powers to properly administer the state. A power is the authority or right that the legal owner of property gives to another, which gives them the legal right to use the property.

Power = right. Powers, if unexercised, lapse on death Trust = obligation. Trust obligations pass on

Discretionary TrustTrustee has discretion to decide which beneficiaries within a class of beneficiaries will be entitled to the benefits of the trust, or the amount each beneficiary is to receive, or both

Example: The trustee shall no later than X in each year distribute an amount equal to the taxable income of the trust to such of my children in such proportions as the Trustee shall in her discretion determine.

This has ingredients of both you must distribute, but you can decide who/how much.1. What is it you are obligated to do = trust2. What is it you are permitted to do = obligation

Power of Appointment, a Distributive Power Power of appointment - power of person who has it to appoint property to a particular person; (appointment

= transfer in modern language) 1. Power to appoint the objects of the trust, no obligation to exercise (whereas discretionary trust has

obligation) In the context of a discretionary trust, the trustee has a power of appointment, which is the right to choose

who to give to, how much, and when to give. ( a distributive power) Three types of powers of appointment:

o A general power of appointment has an unrestricted class of objects.o A special power of appointment limits the class of objects (e.g. to my children).o A hybrid power is one that excludes certain people from being objects – everyone else may be an

object.

Limits on Power of Appointment The power can be limited to selection from a certain class If the donee receives the power merely in their personal capacity, this is a bare power. They may select anyone

in the class through any process. They may choose whether to exercise the power or not. However, if the donee is given the power in their charge as a fiduciary, they are obligated to honour the

expectation of the donor and exercise their judgment to determine whether they should even exercise the power. When they exercise the power, they have more stringent obligations of loyalty. This obligation comes from their fiduciary duty, not from the mere fact of the power.

1. The fiduciary donee must consider whether the power should be exercised, the range of possible objects, any application made to the donee of the power by objects, and must ensure the appropriateness of any particular appointment.

2. Trustee still has the freedom to choose whether to act or not. It is possible not to exercise the power if the fiduciary deems it to be inappropriate.

Note, powers of appointment are subject to the “individual ascertainability test” (for objects of the trust). They key is that whoever holds the property can’t give it to someone who isn’t the object of the trust or power.

1. If you have a defined class, you’re not allowed to go outside that class of objects. 2. Trustee has liability for this, even if donee says to give it to someone outside the class.3. Donee can decide who within the class receives the property

McPhail: not possible to make a reasonable canvass of who all the objects are, don’t need to create a complete list

Big distinction is if the trust isn’t carried out, the court will compel execution of the trust1. McPhail – court itself carrying out the distribution2. Smith: a Canadian court wouldn’t take this on itself, they would appoint a trustee

Nothing happens if a power isn’t carried out, instrument should say what happens.

McPhail v Doulton (in Re Baden’s Trust): Individual ascertainability test: do not have to make a complete list of bens, just know w/ certainty who is/isn’t a member of the classTrust for current and ex-employees, and their dependents and relatives. Is that too wide a class and uncertain?

Key clause: “trustees shall apply the net income of the fund in making, at their absolute discretion, grants to or for the benefit of any of the officers and employees or ex-officers or ex-employees of the company or to any relatives or dependants of any such persons in such amounts at such times and on such conditions (if any) as they think fit…”

Is that a power or a trust? Is a trust – the intention is clear

Test for bens: should not be using the “complete list” test there is no reason to have a different level of certainty required for discretionary trust wrt objects than wrt discretionary power

Individual ascertainability test: Trust is valid if it can be said with certainty that any given individual is or is not a member of the class

FRIENDS: Re Coates: trust would have failed b/c of uncertainty of object (“any friend”) but saved by fact that testator gave surviving spouse power of appointmentTrust directed if wife feels he forgot a friend, executor directed to pay a sum not exceeding L25 with a maximum aggregate payment of L250 so that they may buy a small memento of friendship.

COURT found that this was a valid power with sufficient containment: must be someone known to the wife as a friend, stated that he had forgotten friends X & Y but wife will put that right, giving her a clue as to what kind of friend he contemplated, the purpose was sentimental, and the friends would buy a memento of friendship considerable degree of intimacy contemplated.

Re Connor: Term in will too uncertain and trust/gift failedWill directed that assets be divided among testatrix’ “close friends in such a way that trustee in her discretion should determine”. CA found this term was too uncertain and trust/gift failed. Would have failed individual ascertainability test, as well as complete list test.

Indefinite, and the ascertainment of the class so difficult, if not impossible, and therefore, rendered it invalid. There was nothing in the context of the will further restricting or defining “friends”.

One judge dissented, saying that where the deceased lived in a small town for 42 years, it should be possible for her trustee (who was also a close friend) to determine who her close friends were.

When determining the meaning of words in an instrument, you need to look at the words used and how the person would have meant it

Better would have been to say “such people as you my executor consider to be my close friends” this would lend certainty because it gives the executor discretion

Purpose Trusts

General rule against validity: trusts for non-charitable purposes are void; and trusts for charitable purposes are valid. Express trusts require certain intention, trust property, and beneficiaries (need someone with a right to compel the performance of the trust). The lack of beneficiary is main reason they are invalid, but can also be conceptually uncertain.

Exception to the rule: Denley rule – indirect beneficiaries A trust established for the purpose of benefitting one or more people, but not to give them the trust funds, is

valid, even though it is for a “purpose” Settlor can promote his targeted goal through the instrumentality of named beneficiaries

o Look at what the settlor/trustee is trying to achieve I.e. if you set aside money under will and direct that it be used to pay for child’s education, with the unused

portion to be given to someone else, that would be a valid and enforceable trustRe DenleyLand invested in trustees to be used as a sports ground for the employee’s of a co (an identified class of objects) and such other persons as the trustees might permit to use the facility. Court held that a purpose trust framed in this way with a defined class of objects was a trust in favour of the beneficiaries, all of whom were persons according compliance with the beneficiary principle.

Must be sufficiently clear who the beneficiaries are to enforce the trust – someone has to be able to enforce the trust and compel the trustee to follow the instructions set out in the instrument.

Re Westar MiningQuistclose Trust: concept arose in the case of a lending transaction. Funds were advanced to a company for the purpose of paying a dividend. Before that specific purpose carried out, the company went into liquidation. Had the money been applied for the intended purpose, the party that advanced the funds would have been a creditor and been in line with all the other creditors. However, they argued that since the money was never applied for its intended purpose, it was still held in trust for them. The Court agreed with the claimant and found that there was sufficient identification of the purpose that the funds were held in trust. As a result, they could claim to be the beneficiary of the trust and therefore rank ahead of the creditors.

Three requirements:1. There is a transfer of property that is:2. Subject to a specific purpose, condition, or limitation,3. Which has not been fulfilled When these conditions are met, a resulting trust is created in favour of the transferor with regards to the

transferred propertyImpact

Provides an exception to the general rule that a lender has no interest in the money once lent and advanced to the borrower or its agent. However, to benefit from this exception, the special purpose for the loan must be specified

The Quistclose trust gives the lender and equitable interest in the money, so a priority claim over the other creditors in the even of the borrower’s insolvency

W had several mines, and owned 80% of one with P owning 20%. The joint venture worked by W paying out the employees and suppliers etc, then telling P how much they owed them. The bank accounts were separate. At the time that W went bankrupt, P owed them money for paying suppliers/employees.

It was clear that had P paid W before the bankruptcy, that money would have been segregated and applied for the purpose of paying off employees/suppliers. The trustee in bankruptcy told P to pay up, which they did, and then the bank claimed the money as W’s money. However, the employees argued that the funds were held in trust for them. Because if the money had been paid before the bankruptcy, there would have been a legitimate trust claim by the employees – the fact that W had gone bankrupt didn’t change that.

ISSUE: do pre-bankruptcy arrangements support a purpose trust?

COURTThe right to call for payment was essentially an asset held in trust and was still owed to the people it was intended for. Therefore, the court found that there was a purpose trust for the benefit of the people who would have received the funds had they been applied for the intended purpose.

FormalitiesFormal requirements for validity/enforceability of transfer of certain types of equitable interest.

Inter vivos transfer:Law and Equity Act section 59: can create a valid trust relating to land w/o a written document (1) In this section, "disposition" does not include

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

Discussion: If the trust is to be constituted by the transfer of property to a trustee, as opposed to by self-declaration, it is

necessary to vest the property in the trustee, and so the necessary legal steps to vest the particular kind of property must be observed

Intention that the transferee takes as trustee doesn’t have to be in writing However, there is a writing requirement for the transfer of equitable estate (a chose in action) from a

beneficiary to a third party (LEA s. 36, absolute assignment must be in writing, signed by assignor; express notice must be given to trustee)

Writing requirement for disposition of legal interest in land still exists (LEA s. 59(3)) therefore a settlor transferring legal interest in land to trustee must do so in writing to properly vest title in the trustee

Self-declaration can be found w/o any written instrument, though issues of proof are then exacerbated

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

Formality: the requirement that the testamentary dispositions be executed in compliance w WESA. 1. What constitutes a “testamentary disposition” that must be executed w the formalities required by WESA?

RULE: If a person executing a document “intends that it shall not take effect until after his death, and is dependent on his death for its vigor and effect, it is testamentary.” (Mordo)

Carson v WilsonPerson executed number of transfers of real property and assignments of mortgages, left them with his lawyer with instructions to distributed them if he didn’t. Continued to collect rents, mortgages payments, treated them as his own, then died. The Will left properties to his brothers. Court found the transfers were not effective.

The were never delivered, so they were not effective on his lifetime If they were meant to take effect on death, they were not effective b/c they were not included in the will

Re Beardmore TrustsBeardmore separated from his wife – separation agreement included provisions intending to create an express trust: an amount equal to 3/5 the husband’s net estate: the estate left by the husband after payment of all debts, funeral and testamentary expenses, succession duties, taxes, probate fees etc. He applied w consent of his children to have the trust declared void.COURT

It was a testamentary disposition – it specifically said that it was only to be constituted on death and therefore, had to be executed as a will

It was also void in that the subject matter not described with sufficient exactness to permit it to be ascertained at the time the trust was created

Catch 22: saying that the estate “as it would exist at time of death” was not sufficiently certain; but, it would be certain at time of death, but then there is the wills problem

Mordo v NittingBad son claimed that the trust was testamentary in nature, and it must fail for want of compliance with the formalities of the Wills Act. Argued that since mum could call for the trust property as a beneficiary, the trust was essentially

inoperative until her death and she intended as much.COURTThe settlor of a trust must comply w the form requirements of the particular property being transferred.

Section 59 Law & Equity Act says writing is required for transfers of lando 59(1)(a) makes an exception for trusts; writing is not required

The trust complied w the formal requirements for inter vivos trusts in BCWas the trust a testamentary disposition?

If it was, the trust must fail b/c it does not meet the req’s of the Wills Act Whether the trust is IV or testamentary depends on the intention of the settlor

o If the settlor intends that it wont take effect until after death, and is dependent on death for vigour and effect, it is testamentary

o If it takes immediate effect, even though it is to be performed after death of settlor, it is not dependent on the settlor’s death for its vigour and effect

The instrument clearly indicated that mum intended the Trust to have immediate effecto Was irrevocable by the settloro Described her as a beneficiary

Reservation of power to call for the transfer of legal title doesn’t necessarily make a trust testamentary: the settlor can reserve any power to itself it wants

Secondly, when the settlor’s intention is clear, it is determinative

Suppose a settlor transfers shares to a trustee pursuant to a trust deed which provides that the trustee must pay all of the income to the settlor (as beneficiary) while she is living, and may distribute capital to the settlor (and only the settlor) as beneficiary while living. Then, when she dies, the trustee required to distribute the property amongst her children.

Does this mean the disposition to the kids doesn’t take effect until after her death, and is dependent on her death for its ‘vigour and effect’?

o NO The trust is created and validly constituted at the outset It creates a beneficial interest of the children at that time, even though the trustee might entirely defeat their

interest by distributing the capital to the settlor during the settlor’s lifetime This is true even if the settlor expressly reserves a power in the trust deed to revoke the trust Unless and until that power is exercised, the trust is validly constituted and remains in force

Secret and Half-Secret TrustsException from full compliance with wills legislation (recognized by laws of equity).In a fully secret trust, the intention to benefit beneficiary with a legacy not disclosed in the will – will would simply have named a “beneficiary” who would know that he is taking under the will as a trustee and not personally as a beneficiary.

From perspective of formality avoidance, the legal recognition accorded secret trusts is problematic: A declaration of trust that is partially “outside” the will should not be permitted, because to do so would

violate WESA; but It would be unjust for a recipient of property under a will to refuse to carry out a trust obligation with respect

to the property of which the recipient was fully aware

Requirements for an Operative Fully Secret Trust1. Testator, A, must intend that the beneficiary named in the will, B, is to hold the legacy on trust for the real

beneficiary, C2. During A’s lifetime, he must communicated to B that A intends B to receive A’s property on A’s death as trustee

for C, the real beneficiary; and 3. B’s acceptance of or acquiescence to this proposal If the named ben, B, has not given the promise to act as trustee (ex: B learns of the testator’s intention) then

that ben will take beneficially (i.e. will own the property for himself) If the named ben has given the promise to act as a trustee before the testator dies, but learns of the real

beneficiary, C’s, identity only after the testator’s death, the named beneficiary will hold the property on a resulting trust for the testator’s estate (Re Boyes)

Re Boyes: secret trusts – must communicate identity of the beneficiary to the trustee prior to deathWhile alive, Boyes asked his solicitor to draw up a will that would leave all his property to the solicitor, to be disposed of according to written directions that would be subsequently given - this was to make provision for some lady and child w/o naming them in the will. He dies w/o giving instructions, but 2 letters were found saying that Nell Brown should have all his property except 25 pounds. Solicitor only learned of them after Boyes had died. Solicitor claimed he held property on trust for Brown, although no mention of a trust in his verbal conversations w Boyes. Boyes family claimed it was invalid since directions had not been communicated.COURTIf a testator does not communicate the identity of the beneficiary of a secret trust to the trustee prior to death, the trust will fail and the trustee will hold the trust assets on a resulting trust for the testator’s estate.

Well known class of cases where no trust appears on the face of the will but the testator has been induced to make the will, on promise made on part of the recipient to deal w the property or some part of it in a specific manner

o In these cases the Court has compelled discovery and performance on ground that otherwise a fraud would be committed b/c it is presumed that if it had not been for such promise, the testator would not have made or would have revoked the gift

Possible that he could be bound if the trust had been put in writing in a sealed envelope, and the trustee promised he would hold it in trust even though he didn’t know the actual terms

So you can leave the provision completely out of the will, but you must have communicated it to the trustee in your lifetime, with the possibility of leaving it in a sealed envelope.

Half-secret trusts:Intention to benefit a beneficiary with a legacy is disclosed in the will, but the identity of that beneficiary is not. The will reveals that a named beneficiary is actually receiving the property as a trustee for the real, but undisclosed beneficiary.

Communication and acceptance of the objects can only be made prior to, or contemporaneous with, the making of the will. Any later communication by the testator in his lifetime, however, though accepted by the trustee, is invalid and the trustee will hold the property on a resulting trust for the testator’s estate.

Requirements for an Operative Half Secret Trust(1) Before the will is made, A must communicate to B that he is to hold the property on trust for C(2) Before the will is made, A must communicate to B the identity of C; and(3) The named trustee in the will must indicate his acceptance before or at the time that the will is made

Why “before the will is made?” If it is really intended to be a trust, it’s almost like an inter vivos trust, and the courts don’t want the testator to change who the beneficiary is a bunch of times w/o changing the will. And we don’t want the testator changing it w/o getting the named beneficiary/trustee’s consent.

Blackwell v Blackwell: half secret trust – must indicate intention at or before you make the will5 Trustees, funds of 12,000 pounds; funds were to be invested as the trustees saw fit, and income and capital paid out of “such persons indicated by me to them” had his verbal instructions written down by his solicitor (one of the trustees) and then delivered to them. It specified that $ was to be left to a lady and child. This is a “half-secret trust."COURTIn case of a half secret, you must indicate what intention is at or before time you made the will. Reason is that the person had already in the will spelled out that it was a trust - persons could in no circumstances keep the property - but in order to make provision for 3rd party valid, they had to specify. Otherwise, too much like a testamentary instrument that was invalid

• Cant open the door too wide in terms of ignoring the wills act• Court says this would have to be a will, but it is in the incorrect form, so it is invalid

Now we have a provision in WESA (58) which permits a court to be a valid will or TD even if it has not been executed in the form required by the Wills Act if they are satisfied that it represents the intention of the will maker etc… Still need a court application and order. 

Ottaway v NormanOttaway leaves his home, half residue, to CL spouse. She agrees that she would leave home and contents to his son William, which she did. William and his wife knew of this. However, she drew up a will in which she left its home and contents to William, but after she revoked it and created a new will leaving it to others.

• More of a restitution type thing• She received it by virtue of a clear undertaking as to how she would pass it on, but only after she enjoyed it• Certainty with the house she was holding it on trust for William and was obliged to pass it on• However, she was entitled to deal w the contents how she wanted during her lifetime• Problematic to say that she had to pass it all on• With regards to the money, she didn’t have to keep it separate and distinct from her own money

o Not ascertainable• Same kind of reasoning as in certainty of subject matter and Re Walker

May well be superseded by section 58 but that is new days and the courts may be concerned about the potential breadth of that section that they narrow it down. 

Vitiating FactorsA number of factors can cause a trust to be set aside.

• Lack of capacity on the part of the settlor• Undue influence practiced by the beneficiary (or someone else)• Trusts for illegal and immoral purposes • Trusts contrary to public policy

If the vitiating factor relates to a will, the offending trust provisions will be invalidated and the property that was to be subject to the provision will form part of the residue of the estate. If the residuary clause itself effected, the residue will be held in trust for the testator’s next of kin as on an intestacy. If the vitiating factor affects an IV trust, but the trust property has been effectively vested in the trustee, the trustee will hold the property on “resulting trust” for the settlor or the settlor’s estate.

Mawdsley v Meshen: in order for Fraudulent Conveyance Act to operate to set aside a trust, the applicant’s claim must exist at time trust constituted. Intent to defeat a claim needs to be an “operating consideration” in the mind of the fraudster. Braydon case stands for: even if there’s no fraudulent intention, but one of the purposes for which you effect the transfer is to put the property out of the hands of creditors (current or future), then FCA applies (and renders it void).Facts: Widow carried on her and dead H’s business w help of her bro-in-law. By time of her death her estate was worth about 10 mill. She had a CL spouse Mr. Mawdsley. She found out she was ill and established a T under which she was beneficiary for life, and on her death, her property would go to her children and bro-in-law – she spoke often about wanting to make provision for them. Most of her wealth went into the T, leaving only $200,000 in her estate. Her will and trust didn’t make provision for Mawdsley – they had established that their money was separate. She was warned he could potentially apply under the Wills Variation Act but she was convinced he wouldn’t do that. After her death, he does, and also brings an application to set aside the T b/c then all the trust assets would be brought back into her estate and he would have a bigger pot to claim against.

Fraudulent Conveyance Act, RSBC 1996, c 163 -Fraudulent conveyance to avoid debt or duty of others1 If made to delay, hinder or defraud creditors and others of their just and lawful remedies

(a) a disposition of property, by writing or otherwise,(b) a bond,(c) a proceeding, or(d) an orderis void and of no effect against a person or the person's assignee or personal representative whose rights and obligations by collusion, guile, malice or fraud are or might be disturbed, hindered, delayed or defrauded, despite a pretence or other matter to the contrary.

2 This Act does not apply to a disposition of property for good consideration and in good faith lawfully transferred to a person who, at the time of the transfer, has no notice or knowledge of collusion or fraud.

Wills Variation Act, BC

If someone makes a will, and fails to make proper provision for their spouse and children, then the court can make an order varying the will, and makes provisions for the spouse and/or children. It permits the court to intervene in a will that someone makes that doesn’t properly deal with spouse and children. It’s clear in BC that this is not restricted to cases of dependent children – adult, capacitated, even well off children can come into court and say they were cut out of will for no good reason.

Key: Common law spouse can bring a claim (Mawdsley was a CL spouse)

COURT: The TJ inferred that she didn’t believe M would challenge their agreement The Fraudulent Conveyance Act says that if the transferor had intention to place the assets out of the reach of a

creditor or other, the FCA is engaged M argued that the TJ was obliged as a matter of law, to find that b/c the settlement had the effect of

“impoverishing” her estate, she intended to defeat or delay M in advancing a claim under the WVAo If your action has a certain effect, you presume that was the intention

This is rejected it was clearly NOT her intent to place her assets out of reach of M, b/c she repeatedly said he wouldn’t go after them anyways

In some cases, the intention of the transferor may be inferred from the effect of the transaction, and a presumption may arise in some circumstances from that effect

o If there is no credible E to the contrary, the FCA may be satisfiedo But there is no rule of law that in every case an intention to defeat creditors must be inferred from the

effect of the transactionWVA

Determining what is “adequate, just, and equitable” under the WVA is done by determining legal obligations (the obligations the law would impose on a person in his lifetime if the question of provision for the claimant were to arise); and the “moral obligations” of what a judicious person would do in the circumstances

Where the estate permits, all claims should be met Otherwise, claims which would have been recognized during testator’s life (ie claims based on moral and legal

obligations) should take precedence over moral claims No case has suggested that creditors and others in the FCA includes a person who has no claim at the time of

the transfer in question or during the transferor’s lifeo The FCA doesn’t extend to someone whose claim arises only post mortem

RESULTING TRUSTS

Form of trust that isn’t really expressly or intentionally put together. Rather, it comes about as a result of an inference that is being drawn.

• Arises when property vested in a person who is required to hold all or part of the beneficial interest as trustee for the settlor, for reasons other than the settlor being specifically designated as a beneficiary

• When beneficial interests in the property haven’t been fully and effectively vested in persons other than the settlor

o Invalidity such as uncertainty or a vitiation factor• Can happen b/c settlor’s intended dispositions don’t fully dispose of the entire beneficial interest in the circs

that have in fact evolved

Automatic Resulting TrustsFailure of Express Trust; Surplus Funds

(1) Transfer of legal title to trustees in a trust that turns out to be wholly or partially invalid: Uncertainty, vitiating factor (including intention to defeat creditor claims); trustee will hold on resulting trust

for the settlor (2) Transfer of legal title in property to a trustee without fully disposing the entire beneficial interest in it:

Ex: a settlor could establish a T for her spouse for life & then for son provided the son reaches age 30, w/o making an alternative provision should he die before reaching 30

o If that happened the capital would be held on resulting trust for the settlor or her estate, if the son dies before reaching 30

“Those of my children who attain the age of 30” 3 kids, 1 dies, entire capital would be shared btwn the 2 living

Provides that capital divided into as many shares as there are living children at settlor’s death, but that the share doesn’t vest until 30, and doesn’t provide gift over, then the share of any child who survives the settlor but dies under 30 would be held on resulting trust

May arise if the holder of a life interest disclaims his interest (3) Transfer of property to another with a specific limitation which has not occurred

The “Quiestclose” trust(4) Surplus of funds after a trust-purpose has been achieved

• When money or property is transferred on an express trust to achieve a certain purpose, but the trust doesn’t exhaust all of the beneficial interest, so there is a surplus law says that money is held on a resulting trust for the people that have contributed the money

Re Abbot: a fund was raised for 2 women who were left destitute by the misappropriation of trust funds from the estate of a relative who had provided for them

Surplus remained in the fund after their deaths C held that there had been no intention that the fund should pass absolutely to them intention was that

those who held the fund would have discretion as to how much of the fund should be applied for their benefit

So the unused money was held on trust for the contributors

The resulting trust arises to hold the property of the trust for the transferor (or his estate) NOTE tendency in courts to avoid finding express trust has failed; especially w a will A failure of express trust can be avoided by finding that a gift, not trust, was intended

The question of resulting trust will only arise if it is first determined that a trust was intended at all. If it was intended to be a gift, the entire amount will pass.

STEP ONE: construe the instrument to determine the intent of the settlor (did he intend X to have a life interest and to hold the assets on resulting trust for the estate? Or is X to hold for someone else?)

Or, was intent of instrument solely to benefit X, therefore the rest of the trust should go to X’s estate, and pursuant to Saunders v Vautier, then X can claim early, prior to death, because no one else has interest in the property

A question of resulting trust will only arise if it is first determined that a T was intended at all. Re Barrett: will provided “I give my daughter whatever money is in my account at time of death for the

purpose of enabling her to meet the immediate current expenses in connection with housekeeping.” The testator had close to $350,000 in his account – more that he anticipated at time of making will? However, court concluded this was an outright gift, w no room for a resulting trust of what wasn’t required for housekeeping expenses.

STEP TWO: consider if the trust has failedSTEP THREE: should resulting trust be applied? Or was gift intended?

EXAMPLE: Question of if the gift was subject to a condition, or a gift to effect a purpose Ex: I give $50,000 to Andrew on condition he pays Lars’ university tuition. Or, I give A $50,000 “for the

purpose of’ paying Lars’ tuition o Are the words merely precatory?o If not, construction could be that A gets the money outright if he satisfies condition of paying tuition o Or, that he holds the money on trust to be applied for that purpose, in which case any surplus would he

held on resulting trust

Presumed or Intended Resulting Trusts(a) A purchase of property paid for by one person but in the name of another(b) A gratuitous/voluntary transfer from one person to another (no consideration)AND there is no clear evidence concerning the transferor’s actual intention

(a) A presumed resulting trust is a rule in evidence, thus it operates as a rebuttable presumption and will only be of relevance when the evidence does not establish if the transferor intended to make a complete gift

If the Court looks and finds that there was intention to make a gift no resulting trust

Nishi v Rascal Trucking: attempt to use resulting trust in commercial contextRascal leased lands, tried to purchase them when property went into foreclosure. When unsuccessful, Rascal provided Nishi with $85,000 in cash and in return, wanted interest in the property ponce the sale was complete. Nishi refused, so Rascal said fine, funds would be advanced “without any conditions or requirements.” Then, Rascal initiated claim for one-half undivided interest in the property – claimed he was beneficially entitled to an interest.SCC

Presumption of resulting trust should not be abandoned But it was rebutted in this case: contribution made “without any conditions or requirements”

o A contribution to the purchase price w/o any intention to impose conditions or requirements is a legal gift

o Further, evidence disclosed that R didn’t attempt to attain a beneficial interest in the propertyo While Rascal argued there was an agreement, the TJ preferred the E of Nishi

Presumption of AdvancementException to the presumed resulting trust. In context of certain rel’ships, if an apparent gift is made, it is presumed that the transferor intended to make a complete gift. The transferee will have full title without the need to rebut the presumed resulting trust.

Presumption of advancement applies to a gift made from:1. Parent to child: if the child is a minor (Pecore); not adult children, even if dependent (Pecore)2. Husband to wife: sometimes court will look at the kind of rel’ship and make a determination as to whether

the presumed resulting trust or presumption of advancement apply. Where it is a “traditional marriage” the presumption of advancement may still apply.

Pecore v Pecore: leading case re: presumption of advancement. Intent only matters at time of transfer. Restricted to parent minor children. (1) Determine which presumption applies, (2) weigh the evidence regarding intention; (3) determine whether the presumption has been rebuttedF: Aging father gratuitously put bulk of assets into joint accounts with daughter P. Father helped P and her family financially and he alone deposited funds into the account. He continued to use and control the accounts, and declared and paid all taxes on the income made from the assets in the accounts. Residue of the estate to be divided equally btwn P and her quadriplegic husband M. He died, and later P and M divorced. M claimed P held the balance in the accounts in trust for the benefit of her father’s estate, and the assets formed part of the residue and should be distributed according to the will.COURT

Presumption of resulting trust continue to play a role – it is the general rule for gratuitous transfers and the onus is placed on the transferee to demonstrate that a gift was intended

Restricted to transfers to minor children, excluding adult children even when “dependent”o Common for ageing parents to transfer their assets into joint accounts with their adult children in

order to have that child help them manage, there should be a rebuttable presumption that the child is holding it in trust

Applicable presumption will only determine the result where there is insufficient E to rebut it on balanceo E required, and relevant, for rebuttal: will depend on the facts, but:

Wording used in bank documents Control and use of the funds in the count Granting of power of attorney Tax treatment of the joint account

o E subsequent to the transfer can be used, but only to determine the transferor’s intent at the time of the transfer

With joint accounts, the right of survivorship vest when the account is opened – therefore the gift of those rights is inter vivos

o The gift is the transferee’s survivorship interest in the account balance at time of the transferor’s death

o Presumption of resulting trust means that it will fall to the surviving account holder to prove the transferor intended to gift the right of survivorship to whatever left in account

Whether conferring a “survivorship” interest in a joint bank account amounts to a testamentary dispositionHere, the TJ applied the presumption of advancement which was wrong, but the TJ also found the evidence clearly demonstrated the intention on part of the father that the balance left was to go to P alone on his death thru survivorship shows actual intention therefore result would be same if he applied the presumption of a resulting trust.

Niles v Lake: when there is no evidence of intention, you can go back to the presumption of advancement.Establishes joint bank account with sister. Sister does nothing but sign the forms. Over next few months, the main sister made deposits to the account from the proceeds of insurance on her late husbands life, then she died. At that point, she had put in around $10,000 in the account and there was $10,000 in her estate. Will said that everything was to be divided equally btw her one bro and numerous sisters. The sister on the joint account claimed the money in it for herself. Not clear what the main sister’s intent was.COURT

The bank documents say that the only person entitled to the money is the person listed on the joint bank account – but that is for the bank’s protection

The form therefore was not enough to show her clear intention, and nothing else pointed to it Therefore, the presumption of resulting trust kicked in (b/c it was her sister, there was no presumption of

advancement) When there is no evidence of intention, you go back to the presumption

o (but this is rare – normally the court will do its hardest to find the intention)

Eisener v Baker: Accords limited utility to the presumptions in resolving a family dispute.Partners – B used money he had inherited to buy a property, he signed the interim agreement, and asked her to fax it to the realtor – she added her name as purchaser and was later listed as co-purchaser; he didn’t attempt to remove her from title. They split up, she claimed a share in the increase in the value of the house. He asserted she held title to the house on resulting trust for him since he had paid the entire purchase price himself in cash.COURT

Here there was ample evidence to determine the intention of the parties, so no need to resort to either presumption

Clear that he didn’t intend to benefit her by placing her name on title Although he didn’t remove her name from title, he didn’t intend at that time that she should receive a

beneficial interest in the property

“Illegal” IntentionIssue arises when assets registered in a particular way to avoid a particular (real or theoretical) legal consequence (i.e. to avoid creditors), but later when the coast is clear, the transferor wishes to allege the registered title is not conclusive, leaving the transferor with the beneficial interest by way of RT

A party cannot rely on intention (to effect transfer solely to avoid a potential legal consequence) as evidence and justification that the legal ownership of the asset is not determinative

Evidence that discloses “illegal” intentionRule set out in Scheuerman that a plaintiff can’t come into court and ask to be relieved of the consequences of his actions done with intent to violate the law.

Goodfriend v Goodfriend: evidence of an illegal scheme will not be considered to rebut the presumption of RT2 couples, G and Cox, swingers. Mr. Cox sues Mr. G for “alienation of affection” – breaking up his marriage. Mrs. G convinces Mr. G to transfer their farm to her in order to protect it from a judgment in favour of Cox. This happens, then she leaves him for Cox. He sought declaration that he was the true and beneficial owner of the property; she argued presumption of advancement applied b/c they were husband and wife.COURT

E of an illegal scheme will not be considered to rebut the presumption does this apply here, so as to bar the

E being adduced that he only transferred it to protect from judgment debtor?o The action doesn’t exist in law (no chance Cox would win)o He had other assets which would be much more easily subject to execution anywayso Basically, he was tricked into transferring the property because wife tricked him, she could not rely

on presumption of advancement So the E was not actually harmful, and he could lead it, and therefore, Mrs. G held the property on resulting

trust for him

Tribe v Soiseth: NOTE this was decided before Pecore. Example of evidence that would otherwise be excluded due to its illegality being used b/c they didn’t actually follow through with the plan (rare case & court being lenient)Married couple moved into condo that his parents had bought. The parents registered title in her name to avoid taxes of capital gains on disposition of the house, since she could claim it as principle residence. They broke up, she sought declaration she had no beneficial interest in the condo in order to exclude it from her assets. Property only in her name to allow parents to avoid taxes. Parents had not been declaring rental income.COURT

It was clear that the beneficial interest was to remain with the parents in these circumstances – lots of E to that affect

While the father might have intended to avoid capital gains, neither he nor daughter had claimed exemption hadn’t followed through with the plan

o Therefore, it was open to him to repent from the scheme, and give E of true intention in registering the property in her name, in order to rebut the presumption of advancement and recover the property

“Repentance”: parties (a) had an illegal scheme, but (b) the scheme not carried out due to repentance. May either be moral, or because matters changed so the scheme became unnecessary. So, the evidence that would normally be excluded due to its illegality, was nevertheless admitted.

Other attempts to use Resulting TrustsA. Subscription Funds

Re Abbot approach used in number of cases w funds raised for disaster relief where funds raised exceeded needs to be met this was totally unworkable

These are now dealt w by donations to recognized charities or establishing a fund dedicated to the surviving dependents

B. Unincorporated Associations (Clubs) Clubs that continue to hold funds when their purposes have been fulfilled or become redundant or

membership dwindled Most organizations are likely to incorporate – the funds then held by a separate legal entity so there is a

statutory process for dissolution w/o need for trust conceptsC. Matrimonial Property Disputes

Resulting trust concept used to be used but in Kerr court concluded that time has come to say the common intention resulting trust has no further role to play in resolution of domestic cases

D. Commentary Significant factor in rejection of resulting trust concept in club cases and pension cases was that party who had

provided funds presumed to have intended to part outright w the beneficial interest However it may be reasonable to think the settlor intended to part fully w her interest in the property

TRUSTEES’ DUTIES AND POWERS

Split into performance duties standards of behaviour/duties that trustees must observe in the performance of their functions, whether they’re carrying out a duty that has inherent discretion, or exercising a power; and basic duties, which are the basic duties of a trustee that they have to complete to do their job.

PERFORMANCE DUTIES BASIC/PRIMARY DUTIES1. Duty to act personally2. Exercise appropriate skill, prudence and care3. Duty of loyalty

Adhere to the trust instrument Safeguard and preserve trust assets Investment duties

4. Avoid conflict of interest5. Purchase of trust property by trustee6. Acquisition of beneficiary’s interest7. Duty of impartiality

Provide information Account for the trust assets

The Trustee Act confers certain powers on trustees and the court, these are mostly ancillary and may be called upon to deal with situations that aren’t adequately covered by the trust instrument

Basic Duties1. Adhere to the trust instrument and law

Most basic duty is to comply w the trust instrument o Failure to follow thru on a mandatory duty is a breach of trust

Cant find the information anywhere except the trust instrument Cannot say that the best interests of the beneficiary require you to ignore the beneficiaries you must follow

the instrument, even if you do not think it will be in the beneficiaries best interest, unless you can get each and every one of them to consent to you breaching it

If the trust is ineffective, the trustee will probably hold the property for different beneficiaries, by way of resulting trust for example

There is an obligation to comply with applicable law, and adherence to the legally applicable trust provisions

Land Conservancy v UBC: adherence the trust instrument is a serious duty – can’t comply with it in only a formalistic way.Historic house on UBC. Testatrix’s will instructed the trustees to either create a society for the preservation of the property and transfer it to that or to sell the house and give net proceeds of the sale to a fellowship fund w UBC. Trustees found it wasn’t practical for them to keep the House so they entered into talks with the Land Conservancy to assume ownership, but the lawyers said no, the will didn’t permit that. So the trustees created a society and transferred the property to it, the society then transferred the property to the R. When the R entered financial difficulties and proposed to sell it, UBC challenged the transfer as fraud on the power granted to them in the will.COURTBy transferring the property to the society then immediately to the LC, there was no meaningful ownership. They complied w the Trust instrument in only the most formalistic way and they had no power to transfer the property that way.

Although the trustees acted in good faith, they deliberately exercised their power under the will for ulterior purpose of benefiting a non-object of the power

Transfer was a fraud on the power given to them Found that there was a resulting trust – the LC held the property in trust for the estate NOTE that whenever the court can go in and correct the situation rather than making the trustee pay for it

they will (as long as the trustee wasn’t acting with bad intention)

2. Preserve the trust assets A trustee holding developed real property is required to insure the property and keep it in reasonable repair –

S. 8 and 11 of the Act Trustee may hold chattels of significant value (sentimental or monetary) and must secure and insure them

Trustee ActS. 7: Power to authorize receipt of moneyTrustee can appoint solicitor or banker as agents to handle money

Trustee needs to have control of the assets, and that is part of safeguarding and preserving the assetsS. 8: Power to insure property

Really, this should be an obligationS. 9: Power to compoundCan accept (a) a composition or a security, real or personal, for a debt or for property claimed, (b) allow time for payment of a debt, and (c) compromise, compound, abandon, submit to arbitration or otherwise settle a debt, account, claim or other thing relating to the will-maker's or intestate's estate or to the trust.

(2) in good faith: the trustee must exercise proper care and diligence, not just be honest

S. 11: Power to spend money on repairs and improvementsPower to go to court, even if trust wouldn’t authorize it, to get authority to use the trust assets or borrow trust assets to do various things i.e. prevent deterioration of land, repair, or increase its productive power

Fales v Wohlleben Estate (SCC)Will provided that the deceased’s young widow and children would get the income from the estate to be paid to her for her lifetime, then distributed to children on her death. Widow, and CP were the 2 trustees. They had shares for some reason, which they held onto for a long time, even thought it was a public co and they could have sold them as securities. Eventually, the co went bankrupt and the shares were worth nothing.COURTTrustee failed by not selling shares during the two and a half years following acquisition, as they steadily declined in value until they became worthless.

The duty of a trustee is to preserve assets

3. Duty to Invest (prudently)Trustee Act s. 15.2: In investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments.

Should take less risks as a trustee than would take with own money

15.1  (1) A trustee may invest property in any form of property or security in which a prudent investor might invest, including a security issued by an investment fund as defined in the Securities Act.(2) Subsection (1) does not authorize a trustee to invest in a manner that is inconsistent with the trust.

If there is a restriction in the trust, that restriction governs.

15.3 A trustee is not liable for a loss to the trust arising from the investment of trust property if the conduct of the trustee that led to the loss conformed to a plan or strategy for the investment of the trust property, comprising reasonable assessments of risk and return, that a prudent investor would adopt under comparable circumstances.

[Trustee’s must exercise skill, care, diligence, judgment that a prudent investor would exercise. Diversification in today’s day and age is almost definitely a must. Trustees mustn’t let their personal views affect their investment decisions. Do not put the trust assets at risk.]

Cowan v Scargill: the duty to invest must be carried out in the financial interests of the beneficiaries. Trustees must look at investments in broadest way (diversity), get best return they can, and protect the capital. Trustees must not let personal views affect their investment decisions.The starting point is that duty of trustees towards their beneficiaries is paramount. Best interests of the beneficiaries are normally their best financial interests, echoing what is stated in s. 15(d)

1. In considering what investments to make Trustees must put aside personal interests and views (i.e. investments in oil companies, etc)

2. Not saying that the benefit of the beneficiaries means their financial benefit, even if the only object of the trust is to provide financial benefits in rare circumstances, if the ben’s are all adults with strictly held moral views, they might think it is far better to receive less than receive more money from “evil” sources

a. BUT these cases would be rare and the burden rests on the trustee who asserts that it is for the benefit of the ben’s as a whole to receive less by reason of the exclusion of some of the possibly more profitable forms of investment

3. Standard required of a trustee is that he must take such care as an ordinary prudent persona. That probably means getting advise on investments, especially in areas he doesn’t understand

4. T has a duty to consider the need for diversification of investmentsSo it is open to trustees, as long as they are adopting a reasonable strategy, to adopt a restrictive investment policy (ie refusing to invest in prostitution rings in countries where it is legal).

Miles v Vince: the modern prudent investor (trustee) should assess whether diversification required to preserve the trust assets (probably is)Settlor established 2 trusts: (1) was the “Housing Trust” – properties he intended to develop into social housing units;

(2) the life insurance trust. His children and widow were the bens of the Insurance trust. Children bens of the Housing trust. His sister was the Trustee of both. There was a Housing Society to develop the properties by getting funding from BC Housing. The trustee loaned money from the Insurance trust to the Housing trust to finance the project, then the Housing trust lent the loan to the Housing Society. This drained the Insurance trust and the widow brought an application to remove the trustee.Widow argued that her husband’s intention in settling the insurance trust was to provide for her and her children. Trustee argued his intention in settling the Insurance trust was to develop social housing.COURT

Trustees legal obligation w respect to investment of the Insurance Trust is to act as a prudent investor (s. 15.2 & 15.3)

o Fales says the duty of a trustee is to preserve trust assets The loan was not a prudent investment

o No evidence that she assets the level of risk then sought to maximize the return The link btwn the prudent investor standard and modern portfolio theory suggests that a trustee must assess

whether diversification is required to preserve the trust assets The prudent investment required her to consider the interests of the beneficiaries in the context of the

settlement of the insurance trust The existence of separate trusts indicates the settlor had separate intentions WRT the use of the proceeds of

his life insurance intended those to support family after death The loan in a single, illiquid set of property put the insurance trust’s assets at risk Also breached her duty of impartiality btwn the trusts beneficiaries

4. Provide Information Trustees have a duty to produce any info the beneficiaries wish to see Trustees are under no obligation to provide info if a request has not been made

o Except when minor reaches age of majority – inform of interest and its natureo Pension trusts have a different regime

Generally, bens should be told they have an interest – number 1 principle is to benefit the ben – if they do not know there is a trust, it will inhibit their ability to enforce the proper performance of the trust

If the trustee seeks and pays for legal advice using the trust funds, the B should be entitled to see that adviceo But if the trustee pays out of pocket, they ought to be able to maintain privilege

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. That means that even if you can prove a proprietary interest, you still might not be able to access the info you seek; and even if you do not have a proprietary interest, you might be entitled to the info.

The beneficiary is entitled to as the T how the funds are invested, how that investment was informed. Issues:

1. If trust holds either 100% ownership of a corporation or a controlling interest, are the beneficiaries entitled to know how the corporation is run?

2. When trustees make discretionary decisions about the distribution of assets, to what extent are they required to disclose their process, or any letters of wishes from the settlor that they may be relying on?

The court has discretion as to what/what not should be produced:1. Do not determine in advance WHO is entitled to disclosure2. Do not determine in advance WHAT documents3. May be necessary to impose restrictions on the way disclosure is done, and might require bens to sign

confidentiality agreements

Additional information the B should probably be allowed: Trustee’s reasons for making decisions Contents of letter of wishes Info of corps in which the trust owns shares Other info tending to show a breach of duty by the trustees (at least, if you are asking the B’s to release you

from liability, the B’s need to be fully informed of what you are asking them to release you from)

Re Martin Estate: as long as no countervailing reasons, ben’s should be able to access corporate info. Countervailing reason may be the trust owns only part of the shares (minority SH’s interests)Trustees appointed themselves directors of the corporation that the trust owned 100% of. They argued that the only info they had to give the B’s was the info that the B’s would be entitled to as shareholders of the corp – the info they had in their capacity as directors they didn’t have to divulge.COURTEnglish decision: Butt - where the C said that since they owned enough shares, they could change the articles so that the SHs were allowed access to more info.Court said that where there is a legitimate reason for the beneficiaries to know what is going on in the co controlled by the trust, and no strong countervailing reason, the trustees will be required to disclose, and if necessary, obtain info relevant and give it to the beneficiaries.

Definitely applies when the co is wholly owned by the trust no good reason not to give all the info to the beneficiaries

In the co controlled by the T but only partially owned, you have to think of the interests of the minority SHs is it fair for the majority SHs to have access to info that the minority SHs do not?

o If the info is truly confidential in this circumstance, could always make the info subject to confidentially constrains

Various kinds of info can be subject to disclosure:o Info concerning the existence of the trust and the interests under ito Info about the trust property, receipts and disbursements;o Info concerning the trustees’ reasons for making decisionso Content of letters of wisheso Legal opinions received by trusteeso Info of corporations in which the trust holds shareso Other info tending to show a breach of duty by the trustee

As long as there is no countervailing reason, beneficiaries should be able to access info.

Breakspear v Ackland: wish letters generally confidential (in England at least) Wish letters: generally don’t fit within an excluded class, and court has discretion to override even the express

imposition by a settlor of an absolute duty of confidence on his trustees WRT the contents of a wish letter It is in the interests of bens of family trust and the administration of the trust that the trustees exercise of their

discretionary powers be confidentialo Enables trustees to make discreet but thorough inquiries as to competing claims for benefit w/o it

coming to the bens knowledgeo And reduces scope for litigation about rationality of the decisions of trusteeso Encourages suitable trustees to accept being a trustee

NOTE: John doesn’t think this is how it would go in Canada – tend towards disclosure, we think bens are strong enough to know on what basis decisions are being made

Waters readingThere are 3 types of info to which the ben may seek access:

1. Existence of the trust2. Trust accounts — statement of assets held at the beginning and close of the accounting period, sales and

purchases of assets, and credits and debits. Does the beneficiary need to request accounting information, or can they expect the trustee w/o request to supply periodic information?

3. Discretion granted to the trustee for administration  Existence and terms of a trustAccountability of trustees to beneficiaries would be meaningless if trustees could choose not to tell the bens of their ben status and their interests. Court has been silent, which has been taken to mean that while trustees must always respond on request by a trust ben, they have no obligation to seek out and supply knowledge of the trust and its terms to persons who only in the future will or may be entitled to benefits from the trust. But courts seem to be moving away from technical positions, towards looking at how reasonable it is that the ben be granted the information they seek.

Trust AccountsBens are allowed the info if they seek it, but now its seeming that trustee should volunteer copies of accounts. It is a core obligation that accounting be made twds the ben — if a ben lacks any right of enforcement of obligation, the trust rel’ship has broken down. C seem to be moving twds view that any person with any kind of interest in the trust ought to be able to ask for account info. Trustee’s exercise of discretionary powers:When a ben challenges trustees exercise of power, they have a right to challenge the bona fides of the trustee in the exercise of his powers, or to assert in courts that the trustee was neglectful of duties. But, if the trustee is guilty of neither the court wont substitute its own decision for that of the trustee.Re Londonderry’s Settlement - no, bens not entitled to see what goes into the T’s discretionary decision. This is unsatisfactory — how can they know if the trustee acted in bad faith? Two lines of reasoning: (1) is that why should a T disclose when doing so would cause “wounding comments and enduring family feuds”. Or, (2) says why should a T not give his reasons? He only has to show he he acted honestly and w/in his powers — if there were not secrecy, the ben would know the reasons, and could decide if they could argue bad faith.What should a T do?With the basic duty in mind of acting in the best interests of all possible objects of the trust, trustees would probably do well to follow a practice of releasing written info to any person with a vested, contingent, or potential interest, on the interested party’s request, except where the interest of the ben is remote in the sense that vesting is most unlikely, or the opportunity for the power or discretion to be exercised equally unlikely. 

Corporation owned wholly or in part by the trustSay the trustee is also the director. They owe a fiduciary duty to the corporation and if the release of info is not in the best interests of the corp, the fact that the director is also a trustee needs to be irrelevant. 

The primary fiduciary obligation – duty of loyalty – is to the corporation

Withholding of infoThe trustee must account to the ben, so it is fundamental that the ben is entitled to the info that allows him to enforce the trust.However, say the settlor wants to keep from the ben the fact that they will receive a great deal of money at some point, b/c they think it will be prejudicial to them while they are still at school etc. Canada will place first in importance the ability of the ben to compel the trustees to act w/in their authority, in good faith, and w attentiveness to their duties — such clauses will therefore be declared invalid.

5. Provide accountingTrustee must always stand ready to account to the beneficiary for trust assets. If they’ve invested improperly and lost part of the capital, or distributed property to wrong person, misappropriated money, etc, the trustee will have to compensate the beneficiaries.

Trustee Act s. 99: requires trustees to “pass” their accounts in court in accordance with the timing set out in that section

Unless the accounts are consented to in writing by all beneficiaries However, many trustees never pass their accounts this way with no particular consequence

o One benefit to doing it that way is that accounts approved by the court are generally treated as final, so that beneficiaries cannot subsequently complain about the activities of the trustee reflected in those accounts

Assessment of fulfillment of obligations Trustee will be held to have complied with the trust instrument, as construed by the court, and w applicable

law, or not Trustee will have provided required info, or not Trustee will have provided appropriate accounting, or not

Other cases, the manner in which the trustee has acted will determine whether he has any liability in the event of an undesirable outcome, depending for example on whether:

In performing the duty to preserve assets or to invest, the trustee has failed to demonstrate an appropriate level of skill and care or has delegated inappropriately

In performing a duty, or exercising a power to sell, or exercising a power to retain assets, the trustee has demonstrate appropriate skill and care and observed the duty of impartiality

Fales: relief under s. 96The widow asked for relief under s. 96: a trustee is not expected to be infallible nor is a trustee the guarantor of the safety of estate assets. Remember that she was joint trustee with the institutional trust.

Considerations, among others:o Was the breach merely technical in nature or a minor error in judgmento Whether decline in value of securities was attributable to general economic conditionso Was the trustee someone who accepted a single trust to oblige a friend or is a company organized of

the purpose of administering estates and presumably chosen that it will have specialized departments and experienced officials

o Above all, whether the conduct of the trustee was reasonable Court decided to grant relief to her under s. 96 Found that CP had not given her an intelligent analysis and she hadn’t received the annual reports that

revealed the grave financial situation of the co Relief is possible where the trustee acted honestly and reasonably and ought fairly to be excused

Where two trustees owe a duty to the beneficiaries and that duty is breached, resulting in loss, the trustee called upon to make good the loss can look to the co-trustee for contribution, subject to s. 96

PERFORMANCE DUTIESHow a trustee should do their job (carry out the basic duties)

1. Act PersonallyTrustee must undertake to perform personally those duties requiring the exercise of his discretion. Trustees must show the applied their mind to the exercise of the discretion.

Sole trustees have discretion – but they have to make a decision. With multiple trustees, one refusing to make a decision does not stop the process – might have to go to court to

force them to act. There is a positive duty to act. A T cannot delegate their discretion to someone else cannot ask the settlor what to do, or ask the beneficiaries. However, it’s fine to consult with them and take their views into account.

They can delegate to an agent, but they are still in charge and must monitor:

Delegation of authority with respect to investment15.5  (1) In this section, "agent" means any person to whom a trustee delegates investment responsibility.(2) A trustee may delegate to an agent the degree of authority with respect to the investment of trust property that a prudent investor might delegate in accordance with ordinary business practice.(3) A trustee who delegates authority under subsection (2) must determine the investment objectives for the trust and exercise prudence in

(a) selecting an agent,(b) establishing the terms and limits of the authority delegated,(c) acquainting the agent with the investment objectives, and(d) monitoring the performance of the agent to ensure compliance with the terms of the delegation.

(4) In performing a delegated function, an agent owes a duty to the trust to exercise reasonable care to comply with the terms of the delegation.

(5) A trustee who complies with the requirements of subsection (3) is not liable to the beneficiaries or to the trust for the decisions or actions of the agents to whom the function was delegated.( little confusing, intent clearly says if the T has done what (3) requires, it absolves them of liability and shifts requirement of reasonable care to the agent)(6) This section does not authorize a trustee to delegate authority under circumstances in which the trust requires the trustee to act personally.(7) Investment in an investment fund referred to in section 15.1 (1) or a common trust fund referred to in section 15.1 (3) is not a delegation of authority with respect to the investment of trust property.

2. Exercise appropriate skill, prudence, and careStandard of care and diligence required of a trustee in administering a trust is that of a man of ordinary prudence in managing his own affairs (Fales).

Prudence: avoid speculative investments Primary duty is to preserve the capital (Fales) Same standard required of all trustees, regardless of specialization, or if a professional trust co, etc (unless

administrator of pension fund)

Speight v Gaunt: Trustees must act in a way that is in accordance with customary business practice.

Now, that means investing with an institution. There is also a requirement set out in section 15(3)(d) that you monitor the performance of the agent. The investment objectives depend on the nature of the trust

Ex: have 3 million, B1 is to live off the interest for life, and the capital goes to B2 on B1s death. You can probably invest in a bank, even though it’s technically riskier than w the Government, because you need to make enough money for B1 to life off of. However, if B1 is 87, you should probably invest with the gov’t b/c its safer, the market doesn’t matter, and they wont need very much to live off of

A trustee is not liable for the loss if the plan conformed with what a prudent investor would adopt.

Fales v Wohlleben Estate: prudent investor standard; professional trustees do not require a higher standard of careF: Canada Permanent 1 of the 2 trustees; 60% residue of the estate was invested in a co that eventually went bankrupt. The trustees sold ½ of the shares, but retained the others, even as it was clear that they were devaluing. Eventually, co went bankrupt and shares worth nothing. The children sued for damages. CP argued that the widow was their co-trustee, and if they were liable, so was she. She argued that CP was supposed to make income for her, and didn’t b/c of poor investments. She claimed against them for lost income.COURT

CP had duty to keep its co-trustee informed due to the speculative nature of the investment, and since it constituted the principle asset of the estate

CP was wrong to sit by and do nothing as the shares declined in value That was clearly a breach of the trustee’s duty Paid professional trusts do not require a higher standard of care

Widow found jointly liable, but relieved under s. 96 (previous)

3. Duty of LoyaltyThe trustee is a fiduciary and must therefore act in a way that is described as the utmost good faith in his dealings with the property as it relates to the beneficiary.

Means trustee must not:1. Profit from office or at the expense of the trust/beneficiary2. Attempt to further own interest3. Put self in position where his interests (or duty to another person) conflict with duty to the beneficiaries

A. Conflict of Interest (part of the duty of loyalty)A trustee cannot place himself in a position where his interests may conflict with the interests of the beneficiary. Any possibility of a conflict of interest will arise in a breach of trust (Keech: conflict of interest rule must be strict to act as deterrent for trustees who may otherwise exploit trust opportunities for themselves; Boardman: dissent – liability depends on the facts, there must be a real substantial possibility of conflict to find breach of FD).

However, a fiduciary will not be found in breach if he acquires the opportunity in question outside of his fiduciary capacity. Liability will only be imposed when the DRs obtain the benefit of the opportunity in question by reason only of the fact that they held those positions and in the course of execution of those offices.

A fiduciary will not be in breach if he acts upon a conflict of interest with the fully informed consent of the beneficiary.

Keech v Sanford: do not profit from position as trustee, EVEN IF the ben’s couldn’t have the benefit. If trustee

breaches FD, trustee must account for profitsEstate left in trust for an infant. Before expiration of term, trustee applied for renewal for the benefit of the infant, but that couldn’t be done. So, the trustee got the lease made to himself. Bill brought by the infant to have the lease assigned to him, and for an account of the profits.COURTThe trustee should have let the lease run out rather than taking the lease for himself. It may seem hard, but the rules must be strictly followed.Basic principle: if as trustee you are dealing in any way w the trust property, and you propose to act for your own benefit, in taking over the trust property, you will be required to account for the beneficiary.

Justification is that a strict preventative approach is necessary to discourage bad behaviour by trustees

Boardman v Phipps: shows how strongly the courts apply the duty of loyalty and the FD of the trustee. If you do breach this duty, any profit made has to be turned over to the B’s, regardless of whether there was a conflict or not.Testator dies, leaving estate to 3 sons and 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. Boardman and Tom started buying stock to increase the value of the company that they all had shares in. They made the trustees aware of it. Eventually, purchased shares in the co in own name. What they did without a doubt benefitted the estate and therefore the beneficiaries. However, they also made a profit in the process. Another beneficiary brings an action for them to account to the bens for the profit and hold the shares they acquired in trust for the estate.COURTThe trustees had made it clear that they wouldn’t put money into the company – would have been a breach of trust b/c no court would support them putting money into a small, badly managed co; and they had no money available to purchase the shares. Nonetheless, they acted improperly and had to account.

1. Bray v Ford: "It is an inflexible rule of a Court of Equity that a person in a fiduciary position, such as the respondent's, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict.”

2. Aberdeen Railway v Blaikie: “it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.”

The one trustee even said that he was glad that they were buying the shares up… so where was the conflict? There is a clear possibility of a conflict (Blaikie): if the T’s had contemplated buying up the shares, they

would have asked Boardman for advice. This would have put him in a conflict The only way that it would have been ok for Boardman to do this would be to get full informed consent of the

trusteesTheir position with the trust allowed them to obtain special knowledge and put them in a special position to deal with the co and make money (co was private, opportunity only arose because of the trust).

Sun Indalex: the consequences, not the nature, of decisions, is really what matters what was the outcome of the breach? Would it have been different had the trustee’s not breached their duties?Indalex became insolvent, sought protection from creditors under the CCAA which because a court supervised reorganization to avoid bankruptcy. At the time it applied under the CCAA, Indalex was the administrator of 2 pension plans. CCAA court approved agreement for DIP financing where the co would get money in exchange for granting the lender priority. They didn’t notify the members of the pension plans of this. PP members brought an action alleging that the co breached a fiduciary obligation twds them by making arrangements while a conflict of interest, since it was a trustee and the plan members were beneficiaries. The reorganization was directly adverse to seeing that the money owed to the pension deficiencies were fully paid.COURT

An employer acting as plan administrator is not permitted to disregard its fiduciary obligations to plan members and favour the competing interests of the corporation on the basis that it is wearing “corporate hat”

o The consequences, not the nature, of the decision is what is important The solution has to fit the problem – may mean putting members of the pension plan on notice; may mean

finding a replacement administrator, appointing representative counsel, etc.However, none of that made a difference the court still would have granted the DIP financing. Ask: what was the outcome of the breach? Would it have made a difference had they not breached?

LeBel dissented, saying that Indalex should have relinquished its admin duties when they started thinking about DIP financing.

Garcia v LIUNAFight btwn 2 unions – one union said that cant be a member of another and still be a beneficiary in the plan.COURT

A conflict doesn’t arise simply b/c the trustee entity/individual makes a decision in its non-trustee role that could potentially affect the rights of the plan beneficiaries

A conflict occurs "when there is a substantial risk that the business manager/trustee's representation of plan beneficiaries would be materially and adversely affected by the business manager/trustee's duties to the union"

Bearing in mind that a trustee's fiduciary obligations to plan members do not exist at large, but arise only in relation to those tasks and duties stemming from the legal framework established by the trust documents and any applicable statutory scheme.

B. Purchase of Trust Property by Trustee

Being on both sides of the buying/selling deal raises difficulties b/c the trustee is trying to get the best deal for the seller (the beneficiary) and the best deal for himself as purchaser – tension. If there are multiple trustees, AND a clause in the instrument that a trustee can buy an asset provided the trustee buying it takes no part in the selling, it should be ok. However even the other trustees would be well advised to get clear evaluation from the independent party as to the value of the property.

English courts tend to apply a strict “self-dealing” rule, as referred to in Breakspear.

Wise to have fully informed consent of the beneficiaries if you are going to buy trust asset.

Molchan v Omega Oil & Gas: possible role for court to approve such transactions, subject to serious restrictionsRule isn’t that trustee must not purchase trust property, it is that purchase of trust property by a trustee is voidable w/in a reasonable time at the instance of any beneficiary.

Court can authorize sale of trust property to trustee personally Or, can approve it after the sale has taken place

However, the court will not later approve the sale if at time approval is sought:1. The property has significantly increased in value, so the sale no longer appears in the best interests of the

beneficiary / trust estate2. If the trustee purchaser has taken action such that it is no longer possible to set aside the transaction: i.e. has

sold the property – will not approve the sale if the asset is no longer thereOverarching theme: was the transaction fair to the beneficiary

C. Acquisition of Beneficiary’s Interest

The trustee owes a fiduciary duty to their beneficiary in relation to the subject matter of the transaction. It is not enough to say that each side should simply look out for themselves.

Slightly more relaxed approach possible than when trustee is purchasing trust property But still a significant risk that the trustee will have an information advantage and benefit from the trust

reposed to him by the beneficiary, and so clear safeguards for such a transaction required

Crighton v Roman: the “fair dealing” ruleWhen trustee purchasing from beneficiary, trustee must show:

No fraud or concealment or advantage taken by the info he acquired in his role as trustee The beneficiary had independent advice, protection, and full information Consideration was adequate

Rules of fair dealing: Self-dealing: the trustee deals with trust property, and is on both sides of the transaction Fair dealing: the trustee deals with trust property, but the agreement is between the trustee and the

beneficiary. Generally, this will be okay, as long as there is full disclosure. Legal title will be in the hands of the trustee, and the trustee negotiates with the beneficiary for equitable title (Crighton v Roman, transaction void for lack of fair dealing)

Duty of Impartiality

The duty to maintain an even hand. Arises when there are different interests in the same trust – ie an income ben and a capital ben. The trustee ought to invest the assets in such a way as produces a reasonable return for the income ben, while preserving the capital for the capital ben to the extent possible.

Usual causes of unequal treatment:(1) The mix of original trust assets transferred by the settlor as trust property, in and of itself, causes unequal treatment between classes of beneficiaries. A high yielding trust asset may be accompanied by a correspondingly greater risk that it will deplete or exhaust itself or seriously erode its value and so of the capital base of the trust fund. This, without adjustment, may well be good news to the life tenant (with obvious limits on the degree or quantum of risk exposure), but it may hurt the remainder beneficiaries;(2) The mix of assets that the trustee has assembled under his investment powers may have inadvertently caused the unequal treatment of the successive beneficiaries;(3) A return from assets that are rapidly exhausting or have become exhausted — both as to income and capital (for instance, a mine); or(4)The trust property could be either capital or income depending on the transferor’s characterization (for instance, certain kinds of shares). A trust portfolio that unduly emphasizes one type of asset over another causes lopsided treatment of the successive beneficiaries.

Converting Assets/Apportionment

The duty to ‘convert’ assets (i.e. sell and turn into cash) and invest the proceeds appropriately, implies a requirement of impartiality by the trustee when apportioning income or capital between successive beneficiaries pending conversion.

“Successive interest” refers to the circumstance where property is held to pay the income to one or more persons, then distribute the capital to another person or group of persons.

Used to be standard provision in a will that the executor was directed to sell, call in and convert into money all the testator’s assets, so as to generate cash to pay debts and taxes and any legacies.

o This would create an express “trust for sale”, giving rise to the duty to convert

If the duty to convert was not explicitly imposed by the will, by reasons of the rule in Howe v Lord Dartmouth, the executor would be required to convert into cash then authorized investments personal property which formed part of the residuary estate and was by its nature “wasting”, speculative or unauthorized.

The Rule in Howe v Lord DartmouthWhen a testator (i.e. in a will, not inter vivos transfer) leaves residuary personalty (so not realty) by way of succession (i.e. there is a life tenant and a remainder person), the contents of which include wasting assets (including unauthorized or reversionary assets), then the trustee MUST sell the wasting assets (or the unauthorized assets or reversionary assets) and invest the proceeds in authorized investments (i.e. in investments that don’t create partiality) and distribute the income of the fund to the life tenants with the capital of the fund accumulating for the benefit of the remainder persons.

That is to say, ones that a prudent investor would invest in and which enable the trustee to meet her obligations of risk management and fair, impartial treatment of the successive beneficiaries, so that there is income and capital growth

o Investments a prudent investor would regard as acceptable from a risk management POV, and which yield and capital growth capabilities enable trustee to meet obligation of impartiality btwn the successive classes of bens, i.e. the life tenants on one hand and the remainder person on the other

Wasting assets benefit income beneficiaries, to the detriment of remainder persons because they depreciate over time (ex. a diamond mine, makes lots of money until the diamonds are gone (capital is depleted); remainder will get nothing). Note: “wasting assets” include those that depreciate in value over time as well as reversionary interests and unauthorized investments

Reversionary assets benefit remainder persons, to the detriment of income beneficiaries because they will be received in the future (ex. royalties, life insurance on another person’s life who hasn’t died yet, debts payable in the future, any interest that will be received in the future; income beneficiary will get nothing)

Unauthorized assets: ex. speculative assets, assets outside the terms of the trust, assets outside the scope of TA s. 15.2 (i.e. that a prudent investor would not invest in and do not have income and capital growth capacity to allow trustee to meet the duty of impartiality)

This duty would be displaced by a contrary intention if the will explicitly stated that property of that category could be retained indefinitely.

The second rule provided that where there was an obligation to convert, either expressed in the will or as a result of the ‘first branch’ of the rule in Howe v Lord D, then pending conversion, the income beneficiary was not necessarily entitled to all of the income. A complementary rule developed in Re Earl of Chesterfield’s Trust provides that the income beneficiary is not restricted to actual income (which may be 0) where personal property subject to a trust is unproductive. Instead, on the principle that “equity regards as done that which ought to have been done”, the receipts (either of income, or of capital on eventual sale) can be apportioned so that income beneficiary receives a set percentage of the capital value, no more, and no less.

From the mid 19th to the mid 20th centuries, this was 4%

NOTE: this rule doesn’t apply to real estate (Lottman v Sanford; but note that in Lauer and Stekl, real estate was included because there was a requirement to sell all assets (trust for sale), so what you look at is the language used in the trust instrument.

This rule does not apply to an inter vivos transfer (because in theory, you can just ask the settlor what his intention was, but note Re Smith, evidence of a settlor’s intention after the fact is immaterial. Only his intention at the time of executing the trust is relevant). Thus a duty to act impartially may be found even in an inter vivos trust, where there is generally a presumption that the gift was intended in specie (rationale: the settlor would have set out different terms if he had wanted to).

For last few decades, common practice has been to draft wills in a way intended to displace the application of these rules.

Empower the executors to determine what assets need to be sold, and when, in order to raise cash to meet the financial obligations of the estate, and otherwise to exercise their powers to maximize the overall value of the assets in circumstances that develop

This leaves the chips to fall where they may if the income produced is excessive or inadequate But, to counteract this outcome, the courts have demonstrated a more flexible approach by stressing a “duty of

impartiality”, the first manifestation being in the majority judgment of Royal Trust v Crawford:

Royal Trust v Crawford: must not use powers of management/discretion to prefer the interests of one beneficiary over another – should manage trust funds for the collective best interest, in a way that does not show favoritism.Bulk of estate in shares in a co with few assets. Testator left his estate to widow for life, and his nieces and nephews in remainder. He left as a trust for sale with wide powers of postponement and retention (even of unauthorized investments). A huge dividend of $450,000 paid to the widow, reducing the value of the co by 75%.COURTIntention of the testator was for his wife to continue living in ‘comfort she was accustomed’, even if that required encroachment on capital. However, court found that that was not was he wanted above all else, because of the clauses that required conservation of capital by the trustees. This indicated the testator didn’t intend in specie enjoyment by the widow.

Duty of a trustee is to act impartially – when property to be enjoyed successively, testator normally contemplates its preservation for that purpose

When there is a trust for sale and a power to retain, the court must ask whether the power is a permanent power, or whether the postponement is only until the trustee can sell advantageously. In the latter case, more is necessary to hold that the life tenant is entitled to income in specie

— We can have powers where the T is given the specific authorization to decide who gets what. In that case, it is fine for the T do make decisions that give more to one that the other. But where you are using powers of management to decide how the money is invested / how money will come out of the co, you must not use those to prefer the interests of one beneficiary over another. You should manage it for the collective best interest, in a way that does not show favour to one over another.

Re Smith: illustrates a clear breach of duty of impartiality. T’s ignored life tenant and listened only to remainderman; failed to adhere to the trust, which gave them the power to sell/vary the trust assets. Where the trust assets are not producing sufficient income, T’s may have to sell the capital.Father dies, leaves to son large # of shares, asked him to give mom ¼ of the income from the shares. Son set up inter vivos trust deed in which he gave life interest to his mom, and a remainder for himself. There was power to retain. Yearly income was insufficient to maintain the widow. The trustee (Canada Trust) ignored her request for variation of the investment portfolio that would yield more income. Son, the remainder beneficiary, was opposed to the trustee moving out of the Imperial shares. The trustee responded by saying they would ask the son; mom never heard back. CT took son’s side, despite any good reason to retain the shares. Mom/her lawyers wrote trustees informing them they received instructions compelling trustees to exercise discretion WRT the investments in the trust… trustee never acknowledged receipt of the letter.COURT

To override the duty of impartiality, there must be clear intention to do so. A mere power to retain is not sufficiently clear

The trustee didn’t put its mind to the question of how to carry out its obligations, because it thought (wrongly) that it was obliged to retain Imperial shares

Despite suggestion from mom’s solicitors that it was incorrect, it didn’t seek legal advice, nor direction of the court instead, asked for views of the settlor

Due to this, plus fact that trustee acted and continued to act as agent for the settlor (who is also the capital beneficiary), the trustee was found to not be maintaining an even hand between the respective interests of both classes of beneficiaries

Obvious that the sale of some of the shares in Imperial would result in much higher income for the mother (life tenant)

Remedy: Removal of trustee quite extreme. But, impossible to restore confidence in this trustee

Smith: if trustees were unsure about the interpretation of the instrument, they should have applied to court to see if it gave them power of sale. Had they done this, and acted on it, the trustees would’ve got costs paid out of the trust fund.

Re Welsh: How to determine income or capital in context of private company investment? Consider entire language of the will and surrounding circumstances at time of execution, in order to determine testator’s intention at the time of the will. Did testator intend that assets of the estate at death would be the capital from which income would be derived? Court may consider form, but overriding consideration is testator’s intentionTestator has 3 children with wife #1. Divorces, and remarries Opal, who has children. He wanted to provide for Opal, and then on her death for his children. The testator & solicitor simply scratch out 1st wife and wrote in Opal. Testator had only 1 asset, shares in Welsh Lumber. There were substantial dividends from the company, held by the estate. They were re-invested in the company. After Opal died, the executors argued that the dividends were withheld and they should go to Opal’s estate (and thus her children).COURTIntention of testator is clear: intended that value of his interest in Welsh Lumber to be capital of his estate, to be held as part of the residue of his estate. Income from interest was to be paid to his wife. No suggestion that during her lifetime Opal asserted a claim to the monies paid out as dividends. [Opal thought it was fine, so even though her interpretation of the will is irrelevant, the judge took it into account.]

Capital in the context of estate problems means the value of the assets of the estate as of the date of the testator’s death. Any increase from that figure would be income.

In determining income or capital, must consider entire language of the will and surrounding circumstances at time of execution, in order to determine testator’s intention at time of the will

Balance should be held for the testator’s children.

Re Fleming: Court directed the trustees as to how to structure a distribution from a wholly-owned company.Testator gave wide discretion to executors wrt sale, retention and reinvestment of assets; directed them to keep invested residue of estate, pay net income to wife with power of encroachment on capital of the state. Widow renounced her right to encroachment, apparently to prevent bankruptcy of estate.Among assets of the estate were shares representing a ½ interest in a corp. The trustees were faced with deciding how to distribute a surplus of income, in consideration of (i) tax consequences; (ii) prospect of future income enhancements, and (iii) the need to be even handed.COURTDespite the general principle that the court will not relieve trustees from their duty to exercise their discretion honestly and intelligently, the court here stepped in to order the trustee to exercise discretion in a particular way that would favour the life tenant who had been previously short-changed.

If money paid out, it would constitute income in the hands of the trustees If shares redeemed, the sum of money would be capital payable on death of the life tenant to the residuary

beneficiaries If it was distributed as a dividend, it would require tax of 15%, which would be bad for the estate So, decided that the shares should be redeemed, rather than pay a dividend

Can the technical rules be applied to real property?

Re Lauer and Stekl: real estate may be lumped together with personal property and treated like personal property, if that appears to be the intention of the testator, upon a fair construction of the will.Testator left realty and personalty to successive beneficiaries: life estate to his daughter, remainder in his grandchildren. There was a trust to convert all of the estate into money and a wide power to postpone and retain. Should the widow be allowed a notional income on the property pending sale? Court said yes.COURTInterpreted the trust to convert as the primary clause in the trust instrument, finding the power to postpone as not a permanent power of postponement. The dominant intent was that the trustee should sell both realty and personalty.1. Where there appears to be a conflict between a trust for sale and a power to retain/postpone, the court should

engage in interpretive exercise to determine the dominant and primary intent of the testator. That should be given effect

2. Real estate may be lumped together with personalty and treated like personalty if that appears to be the intention of the testator, upon a fair construction of the will

Lottman v Stanford: “trusts for sale” – rule compelling trustee to sell wasting, non-income producing personalty was not extended to real propertyThe testator left an estate consisting of mostly real estate and about $65,000 in personalty. He left it for the benefit of his wife for life, remainder to his 4 kids. The trustees were directed to sell all of the personal assets but were given a wide discretion to postpone. All was sold except one parcel of land. One child lived on that land and paid minimal rents that were insufficient to cover taxes. As a result, the widow received no income. The widow sued and was opposed by her kids. Argued that the rule in Howe should apply, and there should be apportionment to the proceeds.COURTRule in Howe does not apply to realty; nor does it apply to personalty that the testator has expressly devised in the will (recall: must be residuary).

No obligation to sell, therefore you cant apply a notional income payable to the widow. Consolation: she could get income on the sale of the property in 20 years.

NOTE: Smith dislikes this decision, but also, this is all dealt with in statute. When you look at the result in this case, very similar to Re Smith, except in one you have shares of oil co and other you have shares of land, and you get diametrical results

JURISDICTION OF COURT IN RELATION TO TRUSTS

Application by trustee and others

Trustee ActApplication for directions86  (1) A trustee, executor or administrator may, without commencing any other proceeding, apply by petition to the court, or by summons on a written statement to a Supreme Court judge in chambers, for the opinion, advice or direction of the court on a question respecting the management or administration of the trust property or the assets of a will-maker or intestate.

Effect and exception87  (1) The trustee, executor or administrator, acting on the opinion, advice or direction given by the court, is deemed, so far as regards his or her own responsibility, to have discharged his or her duty as trustee, executor or administrator in the subject matter of the application.(2) This Act does not extend to indemnify a trustee, executor or administrator in respect of an act done in accordance with the opinion, advice or direction referred to in subsection (1) if the trustee, executor or administrator has been guilty of fraud, willful concealment or misrepresentation in obtaining the opinion, advice or direction.

[if you get the advice of the court and you follow it, you will be protected from liability. Conversely, if you don’t comply with the advice of the court you’re probably in trouble! Could be found in contempt. If there is a massive change in the circumstances, you should probably go to court and explain the situation.]

Supreme Court Civil Rules: 2.1(2)(c) and (d):(2) To start a proceeding in the following circumstances, a person must file a petition:(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

NOTE that you can’t just ask the court anytime you want help. In Fales, the problem had already occurred, and damage caused. However, the SCC said that CP could have applied to court to ask direction, which would have prevented the problem.

Gisborne v Gisborne: does court have any place to interfere depends on the construction of the will. When the trustee is given utmost discretion, the court has no place to interfere.Case of depositive power where the trustee’s have to pay income for the widow, who had been deemed incompetent. Will used words “uncontrollable authority” = utmost discretion to the trustee’s. Trustees said they wouldn’t pay the income; court said that was the trustee’s decision and they were free to make it.RATIOWhen trustees   have made a discretionary decision, as long as they   haven’t breached a duty in doing that, it is completely impossible to review the trustees discretionary decision.

“Uncontrollable authority” = Means the court cannot interfere, unless there is mala fides Testator knew of wife’s condition when he constructed the will Court has no place to opine on whether the exercise of the discretion by the trustee is correct or not.

Remember: as long as they have done their job properly. But, if they have breached any duties along the way, the court is entitled to review their decisionHowever, the courts will not exercise the trustees discretion for them. The court will tell you on application for advice relate to interpretation:

o Ex: does this instrument oblige or give the power to sell? If you ask should we sell, the court will say you have to decide that, not the court. The only time they would

say yes is if that would the only tenable outcome taking into account all the duties   of the trustee  — for example Fales

The court will intervene to prevent the exercise of a dispositive power that is motivated by an improper purpose. If trustee is choosing not to exercise power for improper reason, the court might prefer to change the trustee rather than compel the old trustee to act (Re Smith for example).

Breaking DeadlockMultiple trustees in disagreement with how to execute the trust document. 

1. Trustees must act unanimously. If the T’s are under a duty to do something and one refuses, the C will likely compel him to act or remove him. Other T can commence proceeding under rules of court or section 86 that they are bound to sell (for example) and the court can compel them to do so.

2. If the T’s have a power, generally, all the T’s must agree to act (must be unanimous) or the power remains unexercised. If one T disagrees, the others cannot go forward and do it (unless they are in breach of their duties). However, you can provide otherwise in the trust instrument — i.e. majority rules (see Tempest)

Far more often, the difficulty is with the exercise of discretion - either of power in exercising a duty or in a pure power. 

Basis on which court should intervene: If what is happening is frustrating the testators intentions, or causing harm to the beneficiaries

Tempest v Lord Camoys: if a trustee has pure discretion, court cannot compel trustee to exercise a power contrary to trustee’s wishesRequirement to sell property, and take that cash and invest it in real estate. Clearly that is a duty, but there is power re how to invest/when to invest/ etc.  1 of the T’s and 1 beneficiary wanted to repurchase the ancestral home, but only had 50% of what it would cost to buy, and they had a power to borrow the other 50% (by mortgaging property). The other T said no, doesn’t want to buy that piece of property, and doesn’t want to borrow money. The T who wants to buy the property applies to court to force the other T to go along with the plan.COURTThe court can’t say how the T’s should invest and when. The power is at the T’s absolute discretion; the C can’t force the T to take the view that mortgaging the estate is proper.  Had the T refused to sell / invest the money, the court would intervene. Perfectly legitimate for the T to disagree.

However, we have seen Canadian cases stepping in and breaking the deadlock, telling the T’s which way to decide. NOTE for the exam, this might not be the best thing for you (Your trustee wants to sell, other wants to retain. If you force the court’s hand, it may determine that you should retain and then you’ve fucked over your client). A safer bet may be for your client to go to the court under s. 86 and apply for advise, presenting the case so that the court concludes the reasonable thing to do is what you want.

Re Wright: simple example of the court stepping in to break deadlock.Application by Canada Permanent (CP) who wanted to sell shares; trustees agreed, but couldn’t agree on whether to accept a particular offer. CP applied to court for advice and directionsCOURTPowers and discretion of trustees wrt sale, retention and investment conferred by a will can be divided into 3 categories:

1. Absolute power to sell, subordinate power to retain; basic duty is to sell2. Where there is absolute duty to retain, subordinate power to sell; basic duty is to retain3. Equal powers to sell and retain (most common)

This case falls in scenario 3; the court should not intervene on the facts to force the sale of the shares at a price considered too low by majority of trustees.

Entitled to disagree, cannot compel the 3 that do not think it is a good time to sell They are acting w/in their discretionary judgment that they are allowed

Re Haasz:When you have 2 complementary powers (power to sell; power to retain), you must exercise one of them. When there is deadlock, neither power is being exercised.

As long as they continue to fail to discharge this duty, the intention of the testator will be frustrated with the result that the beneficiaries may suffer. In these circumstances, where its assistance is invoked, the Court must intervene and assume or compel the due execution of the trust…”

So 2 circumstances when the court must intervene:(1) Frustration of the testators intention; and(2) Harm to the beneficiaries.

Re Billes: court can intervene to break deadlock. If disagreement prevents trustees from discharging their duty, frustrating the testators intention and causing harm to the beneficiaries, court must intervene.Canadian Tire founders. Testator conferred absolute power on his executors to convert and subordinate power to retain. Some wanted to sell shares of CT, some wanted to retain.COURTAgrees with Re Haasz. Determines, based on factors, that the stocks should be sold:1. Not prudent to hold in single commercial corp;2. Market value of the shares has been volatile in the past3. Distribution sill provide substantially greater income to the E and the income bens;4. The bens want the sale5. The capital bens may vary w passage of time — executors must maintain an even hand btw the income and

capital bens and sale would best satisfy this obligation6. Billes is franchisee of Can Tire and a director of the co, in conflict w his duty as executorCourt orders the shares be sold when advantageous opportunity arises & trustees are ordered to actively seek these opportunities.

Kordyban v Kordyban: in deciding whether to intervene to break a deadlock, court must consider (1) whether T’s failure to decide frustrates the testator’s intentions, and if if does, (2) decide which side is consistent with the interests of the beneficiaries.Mr. K was very successful in the forest industry; 2 children (V and B); became very ill and died quickly in his 70s. Before he died he got his children together and told them that they had to run the co together. B already had some shares, but father left control shares w directions that 40% of the shares should go to V and 60% to B (intent that he would control). V argued she should be on the board, but B wouldn’t allow it.

1. V, relying on Re Engelman Estate, that the court should intervene to accomplish what is “just and equitable in the circumstances”

2. B argued that the court should not intervene unless it decides it would be necessary to carry out the terms of the trust and avoid frustrating the testator’s intention

COURTThe court has the jurisdiction to intervene and break deadlock where necessary to carry out the terms of the trust in the interests of the beneficiaries (Re Haasz).

What is the testator’s intention?Where T’s fail to exercise discretionary power, the question is if that failure or its consequences is consistent w or frustrates the testator’s intentions. If yes, the court must determine what to do.

Contrary to V’s argument, the factors the court should consider are (1) the testator’s intention and (2) the interests of the ben’s

In all cases the object is to resolve the dispute in a manner that is “just and equitable”Settlor’s intention was clear - son should end up with control. Putting the 2 of them in control wouldn’t solve anything, and the court wouldn’t break deadlock, and that they should distribute the shares which would give the bro the 60% and he would control the co.

Re Engelman: The question was somewhat different. The trustees, who were brothers, had discretion to sell the assets where “necessary or advisable in the administration or distribution of my estate”. The trustees were also the beneficiaries, and each was entitled to one-half of the assets. They had exercised their discretion to sell the family farm, but were deadlocked over whether to sell to a third party or to one of them.

- The question for the Court was not whether to intervene to cause the trustees to act where they had failed to exercise a discretionary power, but whether to intervene in the administration of the trust because difficulties had arisen after the trustees had exercised their discretion and decided to sell. The question was whether it would frustrate the testator’s intention to sell to one of them.

- The Court concluded that it would be “just and equitable...in all the circumstances” to make an order in favour

of the sale to one of the trustees. The factors it considered in making that determination were the testator’s intentions and the interests of the beneficiaries.

Smith: this goes back to situation where you agree but can’t decide the details. This is so fundamental – have they really agreed? But in the end if you have a deadlock, this is contrary to B’s interests so court will break the deadlock.

“Improper Motive"“Mala fide” = “in bad faith.” Gisborne said that the C can only intervene if the T’s decision was made male fide but not otherwise. This is seen as unduly restrictive, but the courts stretch it to justify a particular conclusion. Fox v Fox Estate: T failed to recognize she had a discretion w/in power to encroach – treated property as her own and distributed all of it to grandkids to cut out son, whose marriage she disapproved of. Court cannot interfere in T’s exercise of absolute discretion unless there is mala fides on part of T. MF engaged when T makes a decision influenced by extraneous matters – improper.Deceased left estate in trust for his widow Miryam. 1 son. M to receive 75% of E while living, son to get 25%; after M’s death, everything would go to the son. Miryam had 2 powers to encroach; one in favour of son, one in favour of his children; absolute discretion. She then decided that she wanted to cut him out because he re-married a non-Jew, so she made a new will disinheriting him and gave all of his interest to his children. Clear that her objective was to get property away from him.COURTThis was a clearly improper exercise of discretion. She was removed as trustee and the advances she had made to the grandchildren were set aside (easy to do because she hadn’t actually given the property to the grandchildren yet).

She at no point exercised her discretion — she thought she owned the property and was going to treat it as her own.

Her conduct was mala fides — judge basically avoids giving a definition but this definitely fit into it. He also said that you cannot attach a condition repugnant to public policy — cannot permit a T to disinherit a

ben b/c he married outside of the faith. If the testator could not impose such a condition, then his trustee could not impose it for him.

Any time you can show the T failed to take proper considerations into account OR they took improper consideration into account, you have a good shot at getting the discretionary decision set aside, even though we start from the proposition that discretionary decisions should not be intervened on.

Smith: today if T came to you, you’d first want to look at the will. You would advise her that if she wants to look after the kids, she could do it from time to time, transfer some amounts, but maybe she can’t transfer all of it.Key point: tell the T to understand their obligations. If she understands them and then acts prudently then you’re not likely going to have your decision second-guessed. Prudent decision would not have been to give entire interest to grandchildren, especially if it cut off her interest (income). In this case she had a deal through the back door to make sure she got her income.

Male Fide/In bad faith: expandable judicial concept. If you think what has gone on is inappropriate and argue it is mf, if not you argue it isn’t. JS not a fan of it — kind of nebulous.

Land Conservancy v UBCT’s were plainly acting outside the powers given to them by the will. Issue is the exercise of the power for ulterior purpose = fraud on a power

Exercise of power may be fraudulent if made pursuant to antecedent power or bargain btw the person given the power and person in whose favour the power might be exercised, whereby someone else (a non-object) is to benefit…1) for a corrupt purpose:

Ex: I have no entitlement to the property at all, and I say to one of the bens, I’ll give you a chunk of this but you have to give me some of it back

2) for a purpose foreign to the power: Was the case here – trying to get the property to the LC However, you can simply say that the action was not authorized by the will aka the trustee not taking the

right things into consideration/taking the wrong things into consideration

“Privative" Clause Trust documents cannot oust the courts jurisdiction. Even when “trustee’s discretion” and words such as “absolute” or “uncontrolled” are used, the court will intervene on grounds above.

Boe v AlexanderPension trust. Amount of contribution made on your behalf is defined by the hours you accumulate. Said there were 2 problems: 1) employers not actually party to the collective agreement were allowed to make contributions; and 2) high ups were making contributions on their account.   One clauses stating the “Trustees shall have full authority to determine all questions of coverage… T’s have the power to construe the provisions… Any such determination and any such construction adopted by the T’s in good faith shall be binding upon all parties…”COURTAttempt to shield the T’s from judicial review ineffective. Even if it had stated “may not be reviewed by any court or tribunal.”1) failure to exercise discretion2) they had acted dishonestly3) failed to exercised level of prudence expected from a reasonable business person4) failed to hold an even hand(And JS would add to that (5) have taken into account factors clearly extraneous to what they ought to have been considering).

While stated in context of a privative clause, even that won’t be effective in face of these factors, a discretionary decision could also be attacked in the face of these factors. While C’s say they won’t interfere w exercise of discretion, that is true as long as you didn’t get it really wrong.

APPOINTMENT AND REMOVAL OF TRUSTEES

Appointment

Trustee Act (see appendix)S. 27 Power to appoint new trustees(1) If trustee is dead, remains out of BC for more than 12 months, wishes to be discharged, refuses or is unfit to act in them, or is incapable of actin gin them, then the person nominated for the purpose of appointing new trustees by the trust instrument, or, if there is no such person, then the surviving or continuing trustees, personal representatives of them, may by writing appoint another person to be trustee.S. 29 Vesting of property in trusteesWhen a new trustee is appointed, an automatic vesting takes place. If the property is land, the deed must be registered in the LTO. If the property is shares, they must be registered in the books of the co.S. 31 Power of court to appoint new trusteesIf it is expedient to appoint a new trustee and it is found inexpedient, difficult or impracticable to do so without the assistance of the court, it is lawful for the court to make an order appointing a new trustee or trustees, whether there is an existing trustee or not at the time of making the order, and either in substitution for or in addition to any existing trustees.S. 32 Rights and powers of new trusteesThe persons who, on the making of an order under section 31, are trustees have the same rights and powers as they would have had if appointed by a decree or judgment in a proceeding.

Most of the time provisions to appoint replacement trustees will be provided for in the trust instrument. Common forms:

Authorize retiring trustee to appoint her successor Authorize continuing trustee(s) to appoint replacement; or Give power to remove and appoint trustees to a person who is not a trustee, who may be the settlor

Resignation

Trustee Act s. 28 Retirement of trustee(1) If there are more than 2 trustees, and one wants to be discharged, if the other trustees consent to the vesting in the co-trustees alone of the trust property, the trustee who wishes to be discharged is deemed to have retired from the trust, without a new trustee being appointed in his or her place.

Trustee(s) who wish to resign are unable to do so until they have vested the trustee property in someone else as trustee(s). Otherwise, the “old” trustees remain the legal owners of the property, which remains subject to the trust terms, and therefore they are still trustees.

RemovalThe first place to look for authority to remove a trustee is the trust instrument. Failing a governing provision, the matter should be dealt with according to provisions in trustee legislation, or, general principles of equity. Where the settlor has provided the circumstances under which the trustee removal can occur, the provisions of the instrument govern.

Trustee Act s. 30 Removal of trustees on applicationA trustee or receiver appointed by any court may be removed and a trustee, trustees or receiver substituted in place of him or her, at any time on application to the court by any trust beneficiary who is not under legal disability, with the consent and approval of a majority in interest and number of the trust beneficiaries who are also not under legal disability.

Removal may be initiated per the wishes of a majority of beneficiaries. This may be necessary where differences among the beneficiaries effectively effect termination under Saunders. s. 30 of the BC statute is fairly typical, enabling court sanctioned removal on a request by a majority of beneficiaries.

Where it is clear that their continuances as trustees would be detrimental to the execution of the trust, such as the trustees’ lack of competency or bankruptcy, the beneficiaries can seek removal for reasons that are expedient for the operation of the trust. s. 31 of BC Act

A mere failure to produce accounts or a mere disagreement between the beneficiaries and the trustee is insufficient reason to remove a trustee. Welfare of the beneficiaries/administration of the trust must be impaired before the court will remove a trustee (Conroy v Stokes, court will not remove trustees willy nilly simply because there is friction between beneficiaries and trustees)

On the other hand, “misconduct” is not a necessary requirement for court to order removal. The court is justified and required to act when the continued administration of the trust with due regard for the welfare of the beneficiaries has become impossible or improbable (Re Consiglio Trusts, no misconduct relationship of trustees with each other made administration virtually impossible, trustees unable to work together)

In considering removal of a trustee, the court will consider: (1) whether the trustee is jeopardizing the trust assets/well-being of the trust (2) is the trustee being dishonest? (3) is there appropriate sense of fidelity to the beneficiaries

S. 86 & Supreme Court Civil Rule 2.1(2)(d): one of multiple trustees might make an application.

Conroy v Stokes: disagreement or friction is not a basis for removal of trustee.5 bens, disagreement btwn the bens from one marriage and those from second. Judge removed the trustees on motion of 2 beneficiaries (the court has inherent jurisdiction even without a majority of the bens to remove a trustee).TESTThe court’s main focus is on the welfare of the beneficiaries. As such, applicants seeking to remove a trustee must show:

1. Acts and omissions that endanger the trust property2. Want of honesty, appropriate capacity, or reasonable fidelity

Must be positive misconduct; friction btwn the trustees and the bens is not in and of itself enough to support removal.

Re Consiglio Trusts: misconduct by trustee is not necessary requirement for court to intervene and remove a trustee. Court can remove a trustee when the continued administration of the trust with due regard for the interests of the B’s has become impossible or improbable b/c of dissention, etc.Things had broken down to point where there was wide spread misunderstandings among the three trustees and that

as a result of accusations made, bitterness had developed that would render it virtually impossible for the trustees to agree on policies having to do with the efficient management of the Trust.COURTRemoval of the trustees was upheld by CA.Misconduct on the part of the trustee is not a necessary requirement for the Court to act – court is justified in interfering when the continued admin of the trust w due regard for the interests of the beneficiary has by virtue of the situation arising btwn the trustees become impossible or improbable.

Miles v VinceWhat circumstances justify the removal of a trustee?

1) Continuance of the trustee would prevent the trusts being properly executed2) Acts or omissions endanger the trust property or show want of honestly, proper capacity, or reasonable

fidelity3) Main guide must be the welfare of the beneficiaries4) Where T is asked to resign, and it is clear the continuance of the trustee would be detrimental to the execution

of the trusts, even for no reason than that human infirmity would prevent those beneficially interested from working in harmony with the trustee, and there is no reason to the contrary from the intentions of the framer of the trust to give this trustee a benefit or otherwise, the trustee is always advised by his own counsel to resign

5) The lack of jurisprudence in respect of the removal of a trustee reflects that a trustee when asked to do so, will resign

6) If the trustee refuses to do so, the court may remove him7) Friction or hostility btwn trustees and beneficiary is not in of itself a reason for removal of trustees. But where

hostility is grounded on mode in which the trust has been administered, where it has been caused wholly or partially by substantial overcharges against the trust estate, it is not to be disregarded

Remuneration of Trustees

S. 88: jurisdiction of court to approve remuneration for trustees and executors.S. 90: application of s. 88 is excluded if the matter is dealt w in the instrument that creates the trust.

Trustees can always recover costs of managing from the trust property. The CL position was that the T’s had to act for free; however, legislation allows the court to grant remuneration.

Rule in Saunders v Vautier If a beneficiary has been given the full beneficial interest in trust property, but the trustee is directed to hold it for a period of time, and, for example, only pay the income to the ben during that period, then notwithstanding the provisions of the trust, once

The beneficiary reaches the age of majority (19) Any conditions precedent to vesting of the interest have been satisfied (no contingency, or continency is

intended only to suspend enjoyment) and, Any prior interests have lapsed (aka the beneficiary(ies) is/are the only person(s) entitled to the trust

property) If there are more than 1 beneficiary, the beneficiaries are acting unanimously, THEN:

The ben can immediately demand distribution of the trust property to herself outright, and the trustee must comply. Manifestation of the principle that when property has been given outright to one person beneficially, any

attempt to circumscriber the enjoyment of the property by that person is repugnant to the gift and therefore void

NOTE re: vesting: if there is a contingency (usually an age restriction), that condition can be intended to EITHER suspend vesting of the interest (i.e. beneficiary gest interest plus enjoyment at age 25) OR hold enjoyment in abeyance (i.e. the interest is vested but enjoyment is suspended). The presence of a gift-over means that the testator contemplated that the interest may not vest and is therefore an indication that it is “vesting of interest” that is of concern to the settlor. If there is a contingency and no mention of gift-over, that is an indication that the interest has vested and it is only the enjoyment that is being held in abeyance (Re Chodak). If it is not clear, the policy of the

courts is to presume early vesting (i.e. contingency serves only to delay enjoyment) and rule in Saunders v Vautier will operate (Re Lysiak).To claim termination of the trust, the beneficiary must enjoy an absolute interest. This will not be the case in a discretionary trust, especially of the Baden type – it simply is not feasible where the class is too wide. However, where it is feasible for the beneficiaries to combine, if they act collectively they can call for the trust. To do so, all the beneficiaries in the discretionary trust must be identifiable under the trust.In a discretionary trust, if all the objects entitled to both the income and capital (i.e. beneficiaries in succession) act in unison and are all age of majority, they can terminate the trust/direct the trustee and can acquire/deal with the property for their benefit. The beneficiaries may call for a discretionary trust under the rule in Saunders v Vautier IF (Re Smith v Aspinal):

(a) they unanimously agree to terminate the trust,(b) they are age of majority(c) they are collectively absolutely entitled (i.e. interest is vested).

Ex: property held in trust for A for life then for B; do not distribute to B until she attains age 30; no gift over to another person if B does not reach 30 B has absolute vested entitlement to the trust property, and could after A’s death at any time after attaining the age of majority demand that the T transfer the property to her outright, even before attaining age 30.Providing that B’s interest is contingent on her reaching 30, and if not, the property should go to someone else, would prevent B from demanding outright transfer.Pensions: The rule in Saunders does NOT apply to pensions.The rule has been extended to where all the beneficiaries of a trust agree as to how the property should be distributed.

Re Smith (Public Trustee) v Aspinall: single beneficiary with full beneficial interest; AND multiple beneficiaries, even if interests are successive and discretionary, can invoke the rule in Saunders, as long as they agree btwn them.Testator gave trustee discretion as to how much to distribute to the bens and to whom. Bens were 3 children (1 dead so his estate) and the mother. Mother = income ben; after her death the children get the capital.The children and mother all agree and execute a mortgage out of their interest in the trust to a mortgage co. The co came to the trustees, and wanted the income.COURTThe beneficiaries could override the discretion of the trustees – T obliged to follow their wishes. Multiple objects of the trust (beneficiaries) should be treated as one person if they collectively agree

Re ChodakUse of money for the purposes of buying and sending goods to the USSR (during the cold war), as the trustees decide upon, when the trustees decide. Was that sufficiently discretionary to prevent the bens from getting the funds outright?COURTThe clauses created a full ben entitlement in the funds in the bens, and therefore the funds should be distributed to them.

Variation of trustsThe court can consent to variations of trust provisions on behalf of certain classes of beneficiary, principally, those unable to consent for themselves. Jurisdiction dependent on court determining the arrangement is for the benefit of the person.

Embodied in the Trust Settlement Variation Act:(1) If property is held on trusts arising before or after this Act came into force under a will, settlement orother disposition, the Supreme Court may, if it thinks fit, by order approve on behalf of

(a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting,(b) any person, whether ascertained or not, who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of a specified description or a member of a specified class of persons, (c) any person unborn, or(d) any person in respect of an interest of the person that may arise by reason of a discretionary power given to

anyone on the failure or determination of an existing interest that has not failed or determined,any arrangement proposed by any person, whether or not there is any other person beneficially interested who is capable of assenting to it, varying or revoking all or any of the trusts or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts.(2) The court must not approve an arrangement on behalf of a person coming within section 1 (a), (b) or (c) unless the carrying out of it appears to be for the benefit of that person.(3) requires notice to the public trustee if its on behalf of a person falling under (a) or (c)

The court can approve any arrangement which varies/revokes/enlarges the powers of the trustees.

What is a ‘benefit’? (TSVA s. 2) Tax minimization and the advancement of financial interests are considered to be of benefit to beneficiaries

under the TSVA. However, the court should not consider only the financial benefit for variation under the TSVA, but also the educational and social benefit to the beneficiaries (Re Weston)

In fact, under the TSVA, the meaning of benefit is not confined to financial benefit. It includes any benefit of any other kind, including social benefits such as the prevention of family conflict and increased freedom of marital choice (Re Remnant’s Settlement) – court opted for family cohesion, allowed and consented on behalf of the children to remove the forfeiture clause for daughter who married a Catholic

The court’s proper test in exercising its discretion to consent on behalf of a person without capacity under the TSVA is that of a “prudent advisor”. The court is not bound to preserve the basic intention of the settlor. Indeed, many variations are at odds with that intention. Enhancement of benefits for the beneficiaries is the court’s sole concern (Russ v Public Trustee). However, the court will not give consent if it would be too far against what the testator intended and would go against the purpose of the trust (Re Steeds Settlement, in context of protective trust, this wasn’t a protective trust but effectively was protective).

Social and emotional wellbeing should be considered, but may be outweighed by disproportionate financial disadvantage. Balancing is required.

Re Weston’s Settlement (Denning): there are more factors than simply financial benefit to consider when the court is deciding if they should allow trust to be variedFamily moved to Canada then Jersey, simply for tax avoidance reasons.COURT2 Propositions are clear:

i. In exercising its discretion, the function of the court is to protect those who cannot protext themselvesii. It can give its consent to a scheme to avoid death duties or other taxes

To these, Denning ads a third:iii. The court should not consider merely the financial benefit to the infants or unborn children, but also their

education and social benefitIt was not for the benefit of the children to be uprooted from England and transported to another country simply to avoid tax – court would not vary the trust.

Re Remnant’s SettlementThere was a forfeiture provision that children were to be disinherited if they married into Catholic faith or renounced Protestantism.

1) Entitled to take a broad view of what is meant by “benefit”2) The court is entitled and bound to consider not merely financial benefit, but benefit of any other kind.

The provisions should be taken out.

Russ v BC (Public Trustee): court should act as a prudent advisor. The benefit doesn’t need to be ‘better than the best possible outcome of the trust’ in order to vary the trust.Facts are unclear but there is a possibility that the bens would get nothing, also a possibility that they would get more under the trust. The Chambers J varies the trust to ensure that they get 5% but the public trustee appealed arguing that the bens should get more.COURT

a) The court doesn’t need to consider whether the basic intention of the settlor is preserveda. If that were true, the Court wouldn’t be able to vary a trust in a way that would stray from basic

intention even if it would be of great benefit to the bensb) The “prudent adult” test: is the benefit to be obtained such that a prudent adult looking for their own

interests would be likely to accept?Once the chambers J determined that there was a benefit, it was a matter of discretion for him to decide if that benefit was sufficient.

The argument that unless the benefit is better than the best possible outcome of the trust, you cant argue its for the beneficiaries benefit fails

a. It can still be for the benefit even if the trust could possible result in a better result.

THE CONSTRUCTIVE TRUST IN FIDUCIARY RELATIONSHIPS AND UNJUST ENRICHMENT

The constructive trust differs from other 2 kinds of trusts in that its existence arises “by operation of law” rather than as a transfer by a settlor in furtherance of a personal object.Here, the CT is used as a remedy to an injustice – either by giving a title in defined property to a plaintiff, or as an alternative, used as a basis for the award of equitable compensation.

Advantages of a constructive trust:a) The defendant may have reaped a profit in breach of duty w/o the claimant suffering any

deprivation/compensable loss a. Instead, the claimant seeks to recover the defendant’s gain, which may include interim profits

(Boardman v Phipps)b) The claimant may have contributed to the acquisition of property by other which has increased in value

a. Gaining a proprietary interests in the property thru a constructive trust is more likely to be a better remedy than a monetary judgment

c) The claimant might want to achieve full ownership of a property which has an indeterminate or arguable value (perhaps making allowance for amounts expended by the D in acquiring and developing the property)

a. Might be preferable to going thru a valuation exercise leading to damages, which might be less valuable (Lac Minerals)

d) If the defendant is in financial difficulties, a constructive trust would give the C priority claim over creditors of the D (Indalex)

e) If the initial D has parted w the property, the C might be able to achive remedies against 3rd parties on basis of dealings in ‘trust’ property that might not be available if the C only has a personal claim

f) The property may have a special significance to the C who would rather hold the property rather than receive a monetary judgment (Soulos)

g) Bringing the case w/in the limitation provisions applicable to trusts may be of advantagea. Typically longer period in w/in which you can bring the action, and different rules for discovery

Fiduciary Relships and Obligations

“Per se” FD rel’ships- Well established categories: trustee/ben; director/corporation; principal/agent; solicitor/client - Alludes to the primary character of this form of CT, which is to focus on the duty of loyalty owed by the

defendant as fiduciary arising, normally and ordinary – per se – and so standardized as a judicial category

“Ad hoc” relationshipsCanadian courts have extended this duty of good faith and loyalty to include a second group of miscellaneous one-off, non-standardized situations in which a person, because of special facts prevailing in a relationship, characterize him as an “ad hoc” fiduciary towards the claimant.

The key case in determining if an ad hoc fiduciary rel’ship exists is Elder Advocates of Alberta.

Elder Advocates of Alberta: key test to determine ad hoc FDRelationships in which a fiduciary has been imposed, seem to all have three characteristics (from Frame v Smith)

1. The fiduciary has scope for the exercise of some discretion or power2. The fiduciary can unilaterally exercise that discretion to affect the beneficiaries legal or practical interests;

3. The beneficiary is particularly vulnerable or at the mercy of the fiduciary holding the discretion or powerIt is now clear that vulnerability alone is not enough to support a fiduciary claim (Galambos).As useful as the 3 factors from Frame are, they are not a complete code. Further elements which identify the existence of a fiduciary duty in cases not covered by an existing category:1. E must show that the alleged fiduciary gave an undertaking of responsibility to act in the best interests of a beneficiary – express or implied;

Existence and character of the undertaking is informed by the norms relating to the particular rel;ship Undertaking may be found in rel’ship btwn the parties, an imposition by statute, or an express agreement to

act as trustee of the beneficiary’s interest2. The duty must be owed to a defined person or class of persons who must be vulnerable to the fiduciary’s control (the beneficiary(ies); and3. The claimant must show that the alleged fiduciary’s power may affect the legal or substantial practical interests of the beneficiary

Guerin v The QueenShaunassey Golf Club wanted to get a lease on land that formed part of the Musqueam reserve; had to deal with the federal gov’t to get the lease (re: the Indian Act). The feds give certain assurances as to what would be in the lease and the Band voted to lease the land. Then they go out and lease the land to the golf course but do not include the assurances that were given to the band. Action ultimately commenced.ANALYSIS

a) Did the feds hold the land in trust for the Musqueam people?a. Yes

b) The Crown owes FDs to First Nations in respect of its use of powers conferred on the Crown by statuteTherefore, the feds were obliged to deal with the land in the best interests of the band.

- This discretion on the part of the crown… transformed the crowns obligation into a fiduciary one- “hallmark of a fiduciary relation is that the relative legal positions are such that one party is at the mercy of the

other’s discretion.”- The principal’s interests can be affected by, and are therefore dependent on, the manner in which the fiduciary

uses the discretionWhere a statute, agreement, or perhaps unilateral undertaking, one party has an obligation to act for the benefit of another, and that obligation carries with it a discretionary power, the party thus empowered becomes a fiduciary.

Lac MineralsClaimant – Corona, junior mining co, assembling rights and info concerning an ore body in Ontario. It entered discussions w Lac w view to establishing a joint venture. On course of discussions, Corona provided info to Lac WRT the “Williams property”. W/o concluding the jt venture or notifying Corona, Lac acquired Williams prop, then developed successful mine for about $150 million. Corona claimed Lac held the mine (worth over $1 billion) on constructive trust for Corona, w Lac being entitled to only recover the value of its expenditures. Corona’s claim was upheld by majority of 3 to 2 in the SCC.COURTLa Forest & Wilson: Lac in a FD rel’ship w Corona, and considered that Lac had been unjustly enriched and that the constructive trust was the appropriate remedy.Sopinka & McIntyre: no FD rel’ship, appropriate remedy was damages at about $300 millionLamer: no FD rel’ship, but the constructive trust was the appropriate remedy.On VulnerabilityLa Forest

Vulnerability is NOT a necessary ingredient in every FD rel’shipo Although it is a relevant considerationo Each director of GM owes a FD to that co, however, GM is not vulnerable to the actions of each and

every dr… the FD is owed b/c as a class, co’s are susceptible to harm from the actions of their dr’s The issue should be whether, having regard to all the facts and circumstances, one party stands in relation to

another such that it could reasonably be expected that that other would act or refrain from acting in a way contrary to the interest of that other

Sopinka

Only way in which a fiduciary rel’ship can arise as a matter of generality is where one person is at the mercy (i.e. is vulnerable) to the exercise of discretion that another has

NOTE: subsequent cases did not follow this line of reasoning The lower court stated that in this circumstance, there was an FD rel’ship with responsibilities including

obligation not to benefit at the expense of the other from info received This seems to imply there was physical or psychological dependency here which attracted a FD clearly, a

dependency of this type did not exist hereo While it is perhaps possible to have a dependency of this sort btwn corporations, that cannot be so

when, as here, we are dealing w experienced mining promoters who have access to geologists, engineers, and lawyers

If Corona placed itself in a vulnerable position b/c Lac was given confidential info, then this dependency was gratuitously incurred

Equity should not be used, aka no constructive trust

Hodgkinson v Simms: subsequent approach to the FD relationshipAppellant (H) was stock-broker, inexperienced in tax planning. He hired Simms, accountant, who provided general tax shelter advice. H relied heavily on S’s advice, rel’ship was such that H did not really question him about the advice given. S advised him to invest in real investment projects, then lost heavily when the value of 4 fell. Turns out S was also acting for the developers and did not disclose this. H brought action for breach of FD and breach of K to recover all his losses on the investments recommended by Simms.COURTLa Forest: wrote for the majority, but developed ideas mainly on basis of his reasons in previous cases, which were often in dissent. Found that H was vulnerable due to his reliance on S for guidance.

1. La Forest advances what appear to be competing requirements for the establishment of a FD, including:a. The reasonable expectation of one party that the other would act in the first party’s best interest;b. A mutual understanding that one party has relinquished his own self interest and has agreed to act

solely on behalf of the others;c. A “power-dependency” rel’ship

La Forest elaborates further on approach proposed by Wilson in Frame in Lac Minerals. He identified 3 uses of the term fiduciary:

The reasonable expectation of one party that the other would act in the first party’s best interest; A mutual understanding that one party has relinquished his own self interest and has agreed to act solely on

behalf of the others; A “power-dependency” rel’ship

The problem is that none of this really goes back to Wilson’s test in Frame. Simms was not exercising a power of discretion – he had only the ability to recommend investment, and b/c of their rel’ship, he knew that H would follow his recommendation. That is not the same as power over H.

Dissent analysis (Sopinka, McLachlin, Major): H put trust and confidence in S and relied on S to make business decisions. This

was a fiduciary relationship that S breached in failing to disclose his pecuniary interest in the MURBs. Analytically, they held that vulnerability remained essential.

NOTE that Galambos pretty much pushes La Forest’s reasoning aside.

Galambos v Perez:

P made large advances of cash ($200,000 total) to her employer (law firm), often w/o informing G (the founder) beforehand. Initially to resolve a cash flow problem, she obtained a personal loan and deposited $40,000 to the firm’s bank account. G did not know about it this, instructed P to reimburse herself w interest which she did not do. Firm did some free work for P. Firm went bankrupt, P found herself an unsecured creditor and received nothing. She then sued G for negligence, breach of contract, and breach of FD.The TJ dismissed her claims. The CA reversed and granted P judgement for $200,000, finding ad hoc fiduciary duties owed to her by G and his firm re: the cash advances. Held that there was a power-dependency rel’ship btwn P and G, not necessary that there be any mutual understanding that G had relinquished his self-interest in favour of P’s for the

duty to arise; P was vulnerable; and the evidence supported the conclusion that G took advantage of her trust.COURT: No fiduciary rel’ship here.

Fundamental that there be an undertaking, express or implied, that FD will act in best interests of other party Undertaking may be result of statutory powers, express or implied terms of an agreement, or simply

undertaking to act in this way; may be implied in particular circumstances of the parties rel’ship: professional norms, industry or other common practices, and whether the alleged FD induced the other party into relying on the FD’s loyalty

Not all power-dependency rel’ships are fiduciary. Even if the rel’ship may fit into a fiduciary rel’ship per se, it must relate to the particular transaction at issue

It is fundamental that the fiduciary has a discretionary power to affect the other party’s legal or practical interests nature of this power may be broadly defined: arising from power conferred by statute, agreement, unilateral undertaking, or professional advisory rel’ship, by beneficiary entrusting the FD w info or seeking advice in circumstances that confer a source of power (Lac Minerals, Hodgkinson)

Here, G had no discretionary power over P’s interests that he was able to exercise — fatal to her claim of an ad hoc FD duty on G’s part to act solely in her best interests in relation to the cash advances

The cases suggest that the distinguishing characteristic btw advice simpliciter and advice giving rise to a FD is the ceding by one party of effective power to the other. It is the mutual conferring and acceptance of power to the knowledge of both parties that creates the special and onerous trust obligation. 

Vulnerability connotes a reship of dependency by the ben on the fiduciary — “trust” connotes a state of complete reliance

Where a party retains the power and ability to make his own decisions, the other person may be under a duty of care not to make misrepresentations, but he is not under a duty of loyalty

UNJUST ENRICHMENT

Unjust enrichment arises where 3 elements are present:1. One party (defendant) is enriched;2. The other party (plaintiff) suffers a corresponding deprivation;3. There is no “juristic reason” for the enrichment and deprivation

- Examples: pre-existing obligation (contractual or statutory) or because the “deprived” party intended a gratuitous transfer

For a constructive trust to apply to the actual objects of the alleged enrichment, there must also be some casual connection between the acquisition of the property (in the name of the defendant) and the corresponding deprivation (to the plaintiff). This connection may also help to show the absence of a juristic reason to explain the defendant’s enrichment.

HistoryPrior to Pettkus, in 1973, a landmark decision was reached in Murdock v Murdock - Mrs. M had worked on farm for 35 years, marriage broke up, she claimed partial interest in the farm, arguing that her husband would not have the farm had she not worked on it for years and years. SCC said no. Very strong dissent from Laskin who argued that constructive trust should apply here and whenever conscience requires it - just b/c the legal title was in his name, he shouldn’t be entitled to the whole thing.

Pettkus v Becker is the leading case that opened up constructive trust as a remedial device in cases of unjust enrichment. It did so in the milieu of an increasing number of breakdowns in cohabitations outside matrimony where one party in the relationship was singularly titled to the property arising through the joint efforts of both contributors during the period of cohabitation and is, post breakdown, unconscionably using that legal title to appropriate the property for unilateral benefit.

Remedial Constructive Trust for Unjust Enrichment and FiduciariesA finding that a plaintiff is entitled to a remedy for unjust enrichment does not imply that there is a constructive trust. Four conditions which generally should be satisfied (Soulos):

(1) The defendant must have been under an equitable obligation, that is, an obligation of the type the courts of equity have enforced, in relation to the activities giving rise to the assets in his hands;(2)The assets in the hands of the defendant must be shown to have resulted from deemed or actual activities of the defendant in breach of his equitable obligation to the plaintiff;(3)The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties; and(4)There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., the interests of intervening creditors must be protected.

Pettkus v Becker:Parties not married. In business of raising bees; became quite wealthy. Defendant kept all assets in his name and made it clear that he intended to do so. The Plaintiff contributed her efforts and money to the farm, including her salary and domestic work. The couple split. The defendant kept everything.COURTThere was clearly no common intention for the two to share equally, so the “common intention trust” could not be made out.Dickson: quotes Laskin in he dissent he wrote for Murdock. Laskin:… [The constructive trust] is imposed without reference to intention to create a trust, and its purpose is to remedy a result otherwise unjust. It is a broad and flexible equitable tool which permits courts to gauge all the circumstances of the case, including the respective contributions of the parties, and to determine beneficial entitlement. It was described this way in Rathwell, at p. 455:

     The constructive trust, as so envisaged, comprehends the imposition of trust machinery by the court in order to achieve a result consonant with good conscience. As a matter of principle, the court will not allow any man unjustly to appropriate to himself the value earned by the labours of another. That principle is not defeated by the existence of a matrimonial relationship between the parties; but, for the principle to succeed, the facts must display an enrichment, a corresponding deprivation, and the absence of any juristic reason--such as a contract or disposition of law--for the enrichment.

With that, the court enshrined unjust enrichment, and found the correct remedy was imposition of constructive trust.

Kerr v Barrow: discussion of juristic reasonKerr and Baranow were in their late sixties when their relationship collapsed after 25 years together. Ms. Kerr claimed support and a share of property in Baranow’s name based on principles of unjust enrichment. The court declined as Ms. Kerr, severely physically disabled at all material times, and had not made “in any meaningful sense of the word” an equitable contribution to the acquisition or improvement of the realty registered in Baranow’s name.COURTNot only must the person who claims unjust enrichment prove deprivation and enrichment, he must also prove that those did not occur by reason of the recognized categories of “juristic reason”. If the claimant proves that, the onus moves to the defendant to prove there was a different “juristic reason” for the enrichment/deprivation.

“...the time has come to say that the common intention resulting trust has no further role to play in the resolution of domestic cases."

Absence of juristic reason:Reference to Garland: C set out 2 step analysis for absence of juristic reason. The analysis is not purely subjective (would be too much juridical discretion)

“The first step of the juristic reason analysis applies the established categories of juristic reasons; in their absence, the second step permits consideration of the reasonable expectations of the parties and public policy considerations to assess whether recovery should be denied:

First, the plaintiff must show that no juristic reason from an established category exists to deny recovery... The established categories that can constitute juristic reasons include a contract (Pettkus), a disposition of law (Pettkus), a donative intent (Peter), and other valid common law, equitable or statutory obligations (Peter). If there is no juristic reason from an established category, then the plaintiff has made out a prima facie case under the juristic reason component of the analysis.

The prima facie case is rebuttable, however, where the defendant can show that there is another reason to

deny recovery. As a result, there is a de facto burden of proof placed on the defendant to show the reason why [it is legitimate for]   the enrichment should be retained . This stage of the analysis thus provides for a category of residual defence in which courts can look to all of the circumstances of the transaction in order to determine whether there is another reason to deny recovery.”

As part of the defendant's attempt to rebut, courts should have regard to two factors: the reasonable expectations of the parties, and public policy considerations.

MUST be something you can point to and say that is the trust property. Most you would be able to plead otherwise is unjust enrichment.

Resulting trust was tried out, but w/o common intention, no legal trust would arise so if property registered in husbands name alone, he got to keep it.

Pettkus - we can have a CT based on contribution alone — do not need common intention. Fact that one party has enriched the other, thru their own deprivation, and that it would be unjust to allow one party to keep the property. 

Soulos v KorkontzilasP obtained a realtor; R advised P that property not for sale but in fact it was - bought it himself. However, the R paid fair market value, and the property hadn’t increased in value. So the P had not actually lost anything - had not paid anything. However, P argued that the tenant of the property was Bank, and it would be matter of great prestige for him to be Bank’s landlord. The realtor had a duty to buy the property and he breached that duty.SCC: Awarded the property to the P. However, strong dissent saying no unjust enrichment.McLachlin:

CTs are used not only to remedy unjust enrichment, but where “good conscience” requires CT does not flow from intention of the parties. It flows from the court as a remedy.

o Informed by the situations where constructive trusts have been recognized in the past;o To do justice btwn the parties and maintain the integrity of institutions dependent on trust-like rel’shipso And cannot have an unfair or unjust effect on the defendant or 3rd parties

Two general categories:1. Property obtained by wrongful act of the D, notably, breach of fiduciary obligation or breach of duty of loyalty2. Situations where the D did not act wrongfully in obtaining the property, but where he would be unjustly

enriched to the P’s detriment by being permitted to keep the property for himselfPrerequisites for a constructive trust based on wrongful conduct:(1) The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in his hands; (2) The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff;

o Smith: not quite sure what this means. Easier would be to say assets in hands of the D shown to be obtained by the D as result of the breach of the equitable obligation.

(3) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties (deterrence) and;(4) There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., the interests of intervening creditors must be protected.

o Interests of intervening creditors; third parties, etc.

Sun IndalexIndalex was the sponsor and administrator of 2 pension plans – salaried and executive. In 2009, Indalex became insolvent and sought protection from its creditors under CCAA. At that time, the pension plan for salaried employees was being wound up and had a wind-up deficiency. The plan for executive employees was closed but not wound-up, but also had a solvency deficiency. Indalex authorized to obtain DIP financing to continue it operations; DIP lenders granted priority over claims of all other creditors. Distribution of asset sale proceeds would have left insufficient funds to satisfy the deficiencies in the plans. Plan members objected and claimed they had a Statutory Trust pursuant to pension legislation, as well as a constructive trust arising from Indalex’s breach of FD as administrator of the plans.ONCA:

The deficiencies were subject to a Statutory Trust in case of salaried plan and a constructive trust in case of both plans.Goes through Soulos:(1) Indalex’ FD obligations as admin were engaged in relation to the CCAA proceedings, and those proceedings gave rise to the asset(2) The assets are directly connected to the process in which I committed its breaches of FD— John: this is where the ONCA loses its way: Indalex owned its assets before the CCAA proceedings began — it or its trustee in bankruptcy was entitled to the proceeds of sale which it then was obliged to pay debts. Did not acquire its proceeds only thru breach of FD.(3) no meaningful remedy; must be some incentive to require employers who are also admins of pension plans to remain faithful;(4) Indalex US is not an innocent 3rd party so imposing a CT in favour of the plan’s ben’s is not unjust.JS: 2 issues. While clear that co in breach of duty and in conflict of interest, it is also clear that if they appointed another person in charge of the pensions — however that person could not have gotten the co to do anything. Also, didn’t get the assets as a result of the breach — they had the undertaking already. That is also pretty much what the SCC said:SCCUnanimously found Indalex breached its FD as admin of the pension plans.Majority: determined Indalex breached its FD only by failing to take steps to ensure plan members informed of, and had opportunity to be represented in, the proceedings.

- Despite of this breach of FD, constructive trust not appropriate remedy — only when the breach gave rise to assets which it would be unjust for the “wrongdoer” to retain should a constructive trust be imposed.

- DIP financing had priority; a trust created would give rise to conflicting prioritiesNo connection btw getting the property and the breach. Also the breach was essentially lack of notice. Difficulty to see what gains the plan members could have secured had they received proper notice — count have done anything about it anyways. Therefore, not denied anything that they would otherwise have gotten.

When is Constructive Trust an Appropriate Remedy?In many cases there is no need for a proprietary remedy — can simply grant a money judgment. 

Kerr: Enrichment re contribution to property, the enrichment and deprivation not restricted to the money or value of work they did. Can look at what the result is — what its he product, what does the D have as a result of the course of dealing - and what would the correct amount of money be to rectify that enrichment. Not what was put in, what it has turned into. 

Monetary Award1) Always consider monetary award first — in most cases it will be sufficient to remedy the unjust enrichment 

Difficulties: w mutual conferral of benefits there can be difficulties in determining what is adequate compensation; some courts have held where monetary award is appropriate, it must be calculated on basis of monetary value of unpaid services (“value received”)

Not flexible; difficult to calculate sometimes.

Proprietary Award2) In some cases, money inappropriate and proprietary award must be made.

Where the P can demonstrate a link or casual connection btw his contributions and the acquisition, preservation, maintenance or improvement of the disputed property 

Link must be “sufficiently substantial and direct” - a minor or indirect contribution will not suffice  Even once established, not sufficient. May still feel on facts that the monetary remedy sufficient The P must also establish that monetary award would be insufficient in the circumstances — probability of

recovery; whether there is a reason to grant the P the additional rights that flow from recognition of property rights.

Approach to monetary remedy:   The basis of the unjust enrichment is the retention of an inappropriately disproportionate amount of wealth by one party when the parties have been engaged in a joint family venture and there is a clear link between the claimant's contributions to the joint venture and the accumulation of wealth.

Law that started in Petkus, and at Kerr, the SCC says it will be unusual where a CT will be imposed. Can get to right result on lots of factors in note w/o imposing proprietary remedy. On wrongful act side, have the 4 factors laid out by Mclachlin. Imposing a CT where really no loss to the P shows that you can grant one (Solos). 

On both sides (unjust enrich) and wrongful acts - this is a discretionary remedy. the court has pretty broad discretion re: whether to grant it. 

Haigh v Kent: Proprietary awards appropriate in certain circumstances – doesn’t always have to be monetaryTJ awarded Mr. H a 25% CT in property on which a resort business had been conducted. The business was described as an informal, undocumented family business. Mr. H contributed for more than 20 years to the business in ways that enhanced it and improved the land; in early 2000s he ceased to be involved but continued to live on the property. The JT concluded that he had unjustly enriched the Kents and a CT, rather than a monetary award, was appropriateBCCA: appeal dismissed

Open to the TJ to find unjust enrichment and reject Kent’s argument that there was a juristic reason for the enrichment, namely, Mr. H’s participation in a partnership which would entitled him to a share of the value of the business when the partnership ended

Land and business were intertwined; H substantially and directly contributed to the property thru his contributions to the business

Monetary award considered to be inadequate: Distinction btwn legal and beneficial ownership of the business and property unclear and never

formalized; H made substantial and direct contributions to the property that significantly enhanced its value; They were so substantial and direct that he is entitled to a share of the profits if the land were to be sold; Awarding interest in property kept Mr. K to the promises he made when H first moved to the property

Looks at the value of remedy: matter of assessment, not formulaic

McInerey v Laass: example of a CT being found and the remedy being proprietaryLived in a CL rel’ship; purchased property together; separated in 2003. In 2012 HSBC registered judgements against guys interest in the property. Guy seeks declaration that he holds his interest in the property in trust for woman.

He had agreed to transfer property to her, in exchange for her paying the full mortgage and not enforcing child support etc arrangements

o But these agreements were informalo Evidence is that since 2009 the guy intended his interest in the property to be transferred to hero Failure to hold that he held the prop in trust for her would result in him being unjustly enriched and

her being unjustly deprivedCOURTClear that she did not intend to benefit the petitioner; if it were found to be his property he would be unjustly enriched to the detriment of her, and contrary to their shared expectations.

A constructive trust is the appropriate remedy A monetary award would be inappropriate given the nature of the agreement and the clear causal connection

btwn her contributions and the preservation and maintenance of the property Solous says that a CT cannot be imposed if it would disrupt the interests of creditors – however, that is limited

to where a CT is ordered based on wrongful conduct

BribesEnglish cases have held that when a fiduciary (such as an agent) wrongfully obtains a benefit from his office, he is obliged to account for it to the “principal” thru the award of a monetary remedy. - As soon as a bribe is received, in cash or in kind, the false fiduciary held the bribe on constructive trust for the person involved.

Criminal ActsIf necessary to prevent criminal from profiting from wrongdoing, the courts will impose a constructive trust on property that would otherwise devolve to the murderer to be held in trust for victim’s estate or next of kin.

Crown v Redding Army sergeant smuggling stuff in Egypt, money taken from him and he sued the Crown for the money back. Argument re: whether he was a fiduciary and the court said we don’t care, he’s not getting the money back. C did say that if we need to, he is a fiduciary. 

AG Hong Kong v ReidBribes to slowdown prosecutions. Some of the money invested in New Zealand. The HK gov’t put caveats against them, claiming a proprietary interest on them based on fact that they had been obtained by a ‘wrongful act’ so you can apply a CT. Can apply the Solous principles. 

Proceeds of Crime: Court says you cannot profit from your crime, and if necessary must hold prop you might otherwise receive on trust. Clifford Olsen. 

“Institutional” or “Remedial” Institutional: the trust will arise as soon as the elements are present which are necessary for the trust to arise. The role of the court is to find that those elements have existed and declare that the trust has been operative so long as they have been present. Remedial:The court must:1) determine whether the circumstances are such that a constructive trust might be imposed, and if so2) consider whether a CT should be imposedWe can view the 4 part Soulos test as 1&2 going to the first question, then 3&4 directed at the second.ex: Lac Minerals: institutions analysis would consider the constructive trust to have arisen the moment Lac Minerals acquired the disputed property; remedial would say the trust arises only when the court says it does.

REMEDIES

The Trustee Act and Supreme Court Rules both provide for methods whereby trust issues can be brought before the court to resolve uncertainty, head off problems, put a stop to improper behavior, or even remove the trustee. But what happens when irreversible harm has already been caused, and the ability to put things right in the course of administration has been lost?

Equitable Compensation vs. DamagesWhen, long time ago, courts were fashioning remedies in equity, there were no generalized torts of negligence, etc. and in any case, the equity courts were not to award ‘damages’.

When a trustee loses or misapplies trust property in a breach of his core duty, he can be ordered to restore the trust fund in accordance with the trust terms; be ordered to restore the trust property in specie, or pay a money substitute.

- With a money substitute, the trustee’s liability is a ‘primary’ liability’, to render substitutive performance of his core duty, rather than a wrong-based ‘secondary’ liability to repair harm caused

o In that way it is equitable compensation, not damages- No need for the ben’s to plead or prove a duty nor establish a causal link btwn the breach and any loss which

may be suffered - The measure of liability is the objective value of the property which he should have in his possession when the

beneficiaries called on him to account - Trustee will not be made liable for more than what the trust’s current value is, but may be liable for that, even

if that is substantially more than the value with which he parted or lostNOTE that these only really apply to breaches of ‘core duties’ – failure to observe the standards of conduct behind the performance duties will not cause a trustee to be liable to compensate for every loss that might have been avoided had the breach not occurred.

Not clear when the ‘full rigor’ of these principles will apply Said to require that every presumption be made against the trustee as wrongdoer, so that ben from whom

property has been improperly withheld is entitled to receive highest value of property during the period  But given the general tendency of law to place limits on recovery thru causation, foreseeability, and

remoteness, it would not be surprising to see a J apply these concepts on loss caused, provided the Trustee did act w willful or reckless disregard for ben’s interest 

1. “Restoration” of trust property Primary equitable remedy for a beneficiary whose trustee lost or improperly parted w the trust property or caused damage to it was for the trustee to “account” for the property, and if required, restore it to the trust for the enjoyment of the beneficiaries. This can be by restoring the trust property in specie, or paying a money substitute. Measure of liability is objective value of property which he should have held in trust when the beneficiaries called on him to account. 

Re Dawson (in Guerin): Question is if the loss would have occurred if there had been no breach. Remedy is to put the trust estate in the same position as it would have been if no breach had occurred.

The obligation of a defaulting trustee is essentially one of effecting a restitution to the estate. The obligation is of a personal character and its extent is not to be limited by common law principles governing remoteness of damage… [NOTE not saying restitution based on unjust enrichment. All about restoring property to the trust so that it is there for the beneficiaries. Think of it as restoration, not restitution.]

If a breach has been committed then the 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

Don’t appear to involve inquiry as to whether the loss was caused by or flowed from the breach; rather, the question is if the loss would have happened if there had been no breach

Moreover the distinction between common-law damages and relief against a defaulting trustee is strikingly demonstrated by reference to the actual form of relief granted in equity in respect of breaches of trust.

The form of relief is couched in terms appropriate to require the defaulting trustee to restore to the estate the assets of which he deprived it.

Increases in market values between the date of breach and the date of recoupment are for the trustee's account; [What it would be TODAY, not what the value was at the date of breach] the effect of such increases would, at common law, be excluded from the computation of damages but in equity a defaulting trustee must make good the loss by restoring to the estate the assets of which he deprived it notwithstanding that market values may have increased in the meantime.

Where money to be paid in lieu of restoring assets, compensation to be assessed by reference to value of assets at date of restoration, not at date of deprivation

In neither Canson nor Hodgkinson was the fiduciary dealing with the property of a beneficiary. In each case, the fiduciary had provided a service, Canson as solicitor (per se fiduciary) and Hodgkinson as financial advisor (found to be ad hoc fiduciary). In each case the ben suffered a loss. In Hodgkinson, the SCC differed sharply over the nature of the rel’ship and the proper measure of recovery; in Canson, the SCC was divided over basis for reaching recovery.

HodgkinsonMajority (La Forest writing)

Proper approach to damages for breach of FD is restitutionary Appellant entitled to be put in as good a position as he would have been in had the breach not occurred Result not affected by fact that a court exercising equitable jurisdiction may consider the principles of

remoteness, causation, and intervening act where necessary to reach a just and fair result Equity is flexible; wont punish defendants with harsh damage awards out of all proportion to their actual

behavior Courts should look at the harm suffered from the breach, and apply the appropriate remedy Where a party can show that it wouldn’t have entered into a K but for the breach, that party is freed from the

rest of the K

Canson v Boughton (3 years post Hodgkinson): more ‘generous rules’ are available only where a breach a FD relates to entrusted propertyParties agreed on proposal by solicitor, to purchase a piece of property and enter into joint venture to develop it. Agreed to pay this guy Treit (one of the respondents) a commission of 15% on any profit on resale. Unknown to the

appellants, Treit had arranged for intermediate co (Sun-Mark) to share in the profit from the sale equally. This profit came about because Sun-Mark had entered into interim agreement to buy land from the vendors for $410,000. The purchasers paid $525,000 and the secret profit to the respondent and the solicitor from the “flip” was therefore $115,000.The breach of FD came about because the solicitor acted for the purchasers in preparation of conveyance and joint venture agreement; he also acted for Sun-Mark in its purchase and resale, but didn’t disclose to the appellant purchasers that the property was not being purchased directly from the original sellers. Solicitor then paid the secret 115k to Sun-Mark and didn’t disclose.The sole issue before the court was whether and what damages were recoverable.COURT/Waters interpretation:

The ‘generous rules’ = loss taken to be highest amount it could be; claimant doesn’t have be concerned with remoteness of damage, mitigation, nor proving causation

But-for causation must be limited by considerations of remoteness, to be developed by analogy to those developed in the common law

Even the minority judges, who would have preserved the more generous rules for any breach of fiduciary duty, agreed there are limiting factors on causation, and in this case, the loss in question was not sufficiently causally connected to the breach, even though the breach was agreed to be a but-for cause of the loss

Crucial distinction is whether the claim is framed as a claim for a loss caused by a breach of duty, or as a claim demanding the specific enforcement of an obligation relating to the benefit of property claim framed the first way (had to be)

But where claim can be framed in second way, it follows that she need not be concerned with causation, remoteness, or mitigation

LaForest (+3) Manner of calculating compensation in trust cases do not apply Divide between situation where a person has control of a property in which the view of the court belongs to

another, and one where a person is under a FD to perform an obligation where the duty must be performed honestly and in accordance with the undertaking the fiduciary has taken on

Principles applicable to trusts should not be transported to a breach of FD of the type in question here

McLachlin (+2) Apart from cases where the trustee controls the property of the beneficiary, damages for breach of FD should

not be measured by analogy to tort and contract Proceeding by analogy to tort overlooks not only the unique foundation and goals of equity but also the

differences btwn tort of negligence and K on one hand, and basis of the fiduciary obligation and rationale for equitable compensation on the other

Would require “true trusts” be separated from other fiduciary obligations Compensation is equitable remedy available when restitution and account are not appropriate. Restores the P

what has been lost as a result of the breach.

Stevenson Compensation shouldn’t be determined say way court of equity would determine against a trustee, yet

shouldn’t be defined as merely putting the P in as good a position as before the breach

Removal of a trustee: See breach of trust, Re Smith, Fox; appointment and removal section; Miles v Vince; 

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

Proceedings against third partiesIf the trust property is transferred improperly by a trustee to a 3rd party, the trustee will be liable for breach of trust and the “restitutionary” award against him will be determined on the basis discussed under Part 1 above. If the 3rd party remains in possession of the trust property, the beneficiary is entitled to demand transfer of the property to the beneficiary by the 3rd party, unless the 3rd party is able to establish the defense of bona fide purchaser for value without notice.

Beneficiary’s claim is a personal claim doesn’t entitle him to priority over the trustee’s general creditors unless can trace trust property into its product and establish a proprietary interest in the proceeds

o If unable to do so, still has a personal claim against the trustee, but claim will be unsecured

Knowing assistance and receipt: (a) if the third party “knowingly assists or participates” in a breach of trust by a trustee;(b) if the third party “knowingly receives” trust property in breach of trust and applies it for his own use and

benefit There is authority that the principles extend to breach of fiduciary duty: knowing participation or assistance in a breach of trust is sometimes referred to as “accessory liability”: the elements of liability under this heading involve:

Characgterization of breach of trust = ‘dishonest’ Alleged participant’s state of mind = knowledge or willful blindness, ‘constructive knowledge’ being

insufficient for knowing assistance

Bank of China: 2 distinct kinds of personal liability: “knowing receipt” and “knowing assistance”; canvasses Air Canada and Citadel General which are the leading casesEquitable claims that date way back:

Responsibility of trustee may be extended to others who are not trustees, if they are found actually participating in any fraudulent conduct of the trustee, to the injury of the beneficiary

Knowing receipt: liability of a person as a recipient of trust property, or its traceable proceeds Knowing assistance: liability of an accessory to a trustee’s breach of trust

Air Canada: the SCC held knowing receipt had no application on the facts, given that the Dr. did not receive the funds in their personal capacity.

Must have actual knowledge, or be recklessness or willful blind to the breach of trust Constructive knowledge will not suffice Not necessary to show that the trustee benefitted personally in order to find breach of trust. In Air Canada, quite easy to find liability because the corporation was trustee and DRs the fiduciary

Nature of the underlying breach of trust: is proof of fraud and dishonesty required? A ‘hybrid’ approach is taken: fraud = the taking of a risk to the prejudice of the bens rights, which risk is known

to be one which there is no right to take Namely, whether the stranger’s conscience is sufficiently affected to justify the imposition of personal liability

Knowing Assistance:1. There is a trust2. The named trustee perpetrated a dishonest and fraudulent breach of trust; and3. The defendant participated in and had actual knowledge of the trustee’s dishonest and fraudulent breach of

trust Plaintiff does not need to prove the defendant personally received trust property

Knowing Receipt1. The property in issue was subject to a trust in favour of the plaintiff2. The property which the defendant received was taken from the plaintiff in breach of trust; and3. The defendant did not take the property as a bona fide purchaser for value without notice. The defendant will

be taken to have notice if the circumstances where such as to put a reasonable person on inquiry, and the defendant made none, or if the defendant was put off by an answer which would not have satisfied a reasonable person

Remedy: Knowing assistance – liable for losses resulting from the trustee’s breach Breach of trust remedy is to put the plaintiff in as good a position as it would have been had the breach not

occurred Same measure of damages to assisting party as to trustee who committed the breach Knowing receipt – proper remedy is award of damages equal to the amount improperly received

Following Trust Property

Re Oatway Trustee took trust money, mixed w his own money, then drew out money and spent it for consumption. But, some money taken out and invested in some shares. The action was for recovery of the trust money. If there was enough money left in his account to cover what the trust money was ($3000), then the bens could get a charge on the account for the amount. However here, he account had been completely depleted but he had some shares for ~$2000. ISSUE: Can the bens get the shares? Can they say that the trust money bought those shares, and therefore the shares belong to the trust?COURTThat is reasonable to say. In an equitable case it is wrong to apply mechanistic rules like “first in first out”. Reasonable to assume the trustee was spending his own money on his own consumption; presume the trust money used for investment and therefore the bens are entitled to the shares, before the other creditors.

NOTE that if this case were different and a number of trust funds had been mingled, it would be extremely hard for the people who have been wronged to follow the trust property and claim something as their own.

Trustee Protections: “Exculpation” and Indemnity

Best bet as a trustee to protect yourself is to do your best. When people either get totally confused, start doing stuff for the wrong reasons, etc, you end up with liability. Ex: Fales - widow absolved of all liability and Canada Permanent had all the liability. Remember that when s. 96 was applied in Fales, there was no consequence to the bens because there were 2 trustees. If the consequence of 96 meant that the bens were short changed, would likely have been different.  

If trustee’s are found liable, they should not expect to be indemnified from the trust property – would be taking funds to satisfy judgment from the people in whose favour the judgment had been pronounced.

Trustee Act s. 95 & 96Implied indemnity of trustees95  A trustee, without prejudice to the provisions of any instrument creating the trust, is chargeable only for money and securities actually received by the trustee even though the trustee signed a receipt for the sake of conformity, and is answerable and accountable only for the trustee's own acts, receipts, neglects or defaults, and not for those of other trustees or a banker, broker or other person with whom trust money or securities may be deposited, nor for the insufficiency or deficiency of securities or any other loss, unless it happens through the trustee's own willful default, and may reimburse himself or herself, or pay or discharge out of the trust premises, all expenses incurred in or about the execution of his or her trusts or powers.

Jurisdiction of court to relieve trustee of breach of trust96  If it appears to the court that a trustee, however appointed, is or may be personally liable for a breach of trust, whenever the transaction alleged to be a breach of trust occurred, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach, then the court may relieve the trustee either wholly or partly from that personal liability.

Exculpation: to what extend can settlors/testators determine standard of conduct required of their trustees? Will courts set a baseline below which the conduct of trustees can’t fall?

UK: clause was that “no trustee shall be made liable for any loss or damage which may happen to the trust fund at any time or from any cause whatsoever unless such loss or damage shall be caused by his own actual fraud”.

Court interpreted that as exempting the trustee from liability for loss or damage no matter how indolent, imprudent, lacking in diligence, negligent, or willful he may have been as long as he has not acted dishonestly

Re PocheOne of the few cases in Canada. The clause was almost as strong as the clause in the English case; trustee not liable for any loss not attributable to her own dishonesty or deliberately committed something she knew to be a breach of trust. Essentially, the trustee had done absolutely nothing to administer, for long period of time, and as result harm caused

to the ben.Court does not accept the clause.• T must be held responsible for any loss resulting from her gross negligence regardless of an indemnity clause• Trustee has to at least try