Trusts Law 451, Pavlich

Cindy Phillips

Table of Contents

ESSENTIAL ELEMENTS OF A TRUST 3

I. EXPRESS TRUSTS 3

1. Vesting 3

2. The Three Certainties 5A. Certainty of Intention 5B. Certainty of Subject Matter 6C. Certainty of Objects 7Kinds of Trusts 7

II. PURPOSE TRUSTS 8

1. Private Purpose Trusts 8

2. Charitable Purpose Trusts 9A. Relief of Poverty 10B. Advancement of Education 10C. Advancement of Religion 10D. Other Purposes Beneficial to the Community 10Public Benefit 11Cy-Pres Powers 12

II. RESULTING TRUSTS 12

1. Automatic Resulting Trust 12A. Transfer of Legal Title in a Void Trust 13B. Transfer of Legal Title without Fully Disposing of the Equitable Interest 13C. The “Quistclose” Trust 13D. Surplus Funds in Trust after Trust Purpose Achieved 14

2. Presumed Intention Resulting Trust 15Presumption of RT Upheld 15Presumption of RT Rebutted 15Timing Issues 16Presumption of Advancement 17Illegality 17

III. THE BENEFICIARY 18

Equitable vs. Beneficial Title: Sub-Trusts 19Protective Trusts: Restraints on Alienation 20Saunders v Vautier: Termination of the Trust 20Varying the Trust 22

IV. THE TRUSTEE 24

1. Appointment, Retirement and Removal 24Trustee Appointment 24Trustee Succession 24Trustee Removal 25

2. Trustee Rights and Responsibilities 26

Trustee’s Responsibilities 26A. Duty to Take Custody of Trust Assets 26B. Duty to Invest 26C. Duty of Loyalty 28D. Duty to be Impartial 29Rule in Howe v Dartmouth 30Apportionment Rules 30Effect of Trust Clauses on Impartiality 30

Trustee’s Rights and Powers 33Trustee’s Rights 33Trustee’s Powers 34

VI. FIDUCIARIES, UNJUST ENRICHMENT, AND CONSTRUCTIVE TRUSTS 35

1. Constructive Trusts 36

2. Fiduciaries 36Per Se (Institutional) Fiduciaries 36Ad Hoc Fiduciaries 37

3. Unjust Enrichment 38

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Essential Elements of a Trust1. Fragmentation: settlor/testator fragments their interest into legal and equitable title

--trustee/executor gets the legal title and utendi rights of control and management--beneficiary gets the equitable title and fruendi rights of enjoyment

2. Fiduciary: trustee/executor has a fiduciary obligation to the beneficiary, because the beneficiary depends on the trustee to properly manage and administer the trust assets

3. Following: trust assets create in rem rights, which are tied to the assets (rather than to a person); the assets can be traced and reclaimed, so long as they are not in the hands of a BFPV w/o notice (“equity follows the law”)

Equitable Maxims Equity follows the law. Those who seek equity must do equity, or the “clean hands” doctrine. Equity assists the vigilant and not the tardy. — Laches are not rewarded. Equity is equality. Equity looks to the intent rather than the form. Equity looks on that which ought to be done as being done. Equity does not assist a volunteer. Equity acts in personam Equity will not permit a wrong without a remedy.

I. Express TrustsOverview-express trust requires (1) expression of intention to create a trust, and (2) complete transfer of the property to the trustee (“vesting”)-can be created inter vivos, or per mortis causa (on death)-usually done in writing, with reference to the subjects (assets), objects (beneficiaries), and administrative powers of the trustee (management powers): trust instrument may transfer the property but may not

1. Vesting

-trustee is “vested” once they are fully conferred with the property rights transferred to them

-fiduciary relationship cannot be imposed on trustee unless they are vested with ownership of the trust assets, because fiduciary duty tied to management of the assets

whether ownership is “vested” depends on: (1) form of transaction, including opportunistic circumstances that complete an imperfect gift, and (2) kind of property transferred

Form of TransactionPersonal Declaration of Trust Settlor who holds legal title to property, declares a

trust in favour of a beneficiary, with themselves as the trustee (“automatic constitution”: advantageous b/c can defer taxes).

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Elliott v Elliott Estate (2008): Mrs. Elliot died, leaving property to her children. She left $50K in a GIC which she said during her lifetime was held in trust for her disabled child.

A: The money was left out of Mrs. Elliot’s estate, and was given directly to that child. A trust had been automatically constituted on declaration.

Third Person Trustee Settlor/testator appoints a third person as trustee; directs them to hold the trust asset for a beneficiary.

Contract Contractual arrangement b/w settlor, trustee, and/or beneficiary, usually with a named beneficiary: where beneficiary is unaware of the contract this does not prevent creation of the trust.

If contract properly constituted and enforceable, trustee can seek specific performance.

Incomplete Gift that Completes Promissor intends to make a gift but fails. So long as they do not withdraw their intention, following rule applies:

Strong v Bird: if a conveyance is incomplete, if it is later completed (even if through unforeseen and unintended circumstances), the transfer can be completed and the trust thus perfected.

Kind of Property Transferred-the kind of conveyance required for vesting will depend on the type of asset

Realty requires registration at the LTO: though providing completed title transfer form and duplicate certificate of title is sufficient even w/o registration (Macleod v Montgomery)

Shares in a company need to be entered in the share register Chattels require actual or symbolic delivery: register the vehicle, hand over the asset, etc Certain kinds of choses in action need to be in writing: assignment of units in a mutual trust

Incomplete Transfers-must show that transferor had no ability to renege on their promise or reclaim ownership of the property

Milroy v Lord (1862)F: Medley (settlor) gave shares to Lord (trustee) to administer for Milroy’s daughter (beneficiary): Medley then died. The shares had not been registered in Lord’s name.L: Imperfect transfer. A trust was not created b/c ownership never vested in Lord. The shares passed to Medley’s estate.

Re Rose (1952)F: In England, person who died within 5 years of transferring property, owed taxes on transfer. Question

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of when deceased had transferred shares to trustee: had been more than 5 years ago, but company delayed in registering the shares until within past 5 years.

L: If settlor has done everything they need to do to show their intention to transfer the property – they have taken all the steps to put the property beyond their control – failure to meet the formal requirements of transfer will not render the transfer void.

A: No taxes owed. Transfer occurred when the deceased first intended to transfer shares: 5+ years ago.

2. The Three Certainties

Overview Certainty of Intention: the settlor/testator intended to make a trust, not merely express a hope Certainty of Subject Matter: what assets are being transferred Certainty of Objects: must be transferring to a person, group, or group of possible people

A. Certainty of Intention

-where a transfer includes words that ask the transferee to help an identified third party: must determine whether it is a trust with equitable title to be held by a beneficiary, or is a gift to the transferee with the mere hope that the transferee looks after the third party

-look at all the circumstances [relationship of parties, words, conduct, kind of transaction], including the imperative/permissive nature of the language, to determine whether the transferee was given the assets in trust or for their own benefit: Royal Bank v Eastern Trust

-there must be a high degree of clarity in words and/or conduct to create a trust

Strong v Bird (1874) [incomplete gift]

F: Mom gave financial assistance to son so he could buy property. Mom then moved into property and paid rent. Son borrowed more money from mom: parties agreed that mom would stop paying rent until loan paid off. Mother then releases son from debt and resumes paying rent. Mother dies.

I: Does the son still owe money to the mom’s estate?

L: The release from debt was not valid b/c did not comply with formal requirements. However, when mom died, son became executor of her estate, thus he got legal title to her assets: he became the owner of the debt. Thus the imperfect gift perfected on her death, even though this was not the original intention.

Hilliard v Lostchuk (1993) [incomplete gift]

F: Parents subdivided their farm into two, left each part to one child. Third child Harry given nothing. Mother decided to further subdivide to transfer land to Harry: she approached the local authorities to effect subdivision, but before division complete, mother dies.

L: Harry became executor upon mother’s death. Thus Strong v Bird applies: Harry has legal title, so the incomplete transfer completes.

Interpreting Precatory Words--question is do the words request care of a third party (no trust) or direct care of a third party (trust)--imperative words like “must, shall” indicate a trust is being created

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--the word “trust” does not need to be used: Re Kayford--if the words are not clear enough to reveal an intention to create a trust, i.e. they are suggestive words that express wishes, they are precatory words and do not create a trust

Hayman v Nicoll (1944, SCC)

F: Testatrix dies leaving property to her daughter, her will contains possible precatory words: “I gift money to my daughter in full confidence that she will hold it in accordance with the wishes I have expressed to her”. Specific beneficiaries named, but not clear what daughter would have to do for them.

L: The words were merely precatory. They were overly unclear and amounted to “she should do what I want her to do”.

A: No trust was created: the transfer was an out-and-out gift to the daughter.

Royal Bank of Canada v Eastern Trust Co (1923, SCC)

F: Mr. Crossman owes a debt to RBC. He got rental income from a property, and assigned those rents to RBC to pay the debt. He then transfers the property to Mr. Stetson, a BFPV: he discloses the debt owing to the bank. Mr. Crossman stops paying RBC: the bank argues a trust was created, and tries to ‘follow’ the asset to Mr. Stetson and seize it.

L: The rental assignment does not mention a trust or indicate that a trust was created. RBC only has in personam rights against Mr. Crossman.

B. Certainty of Subject Matter

Overview-general principle: assets must be described with enough certainty to enable administration of the trust

-need sufficient exactness over (a) the assets, and (b) the beneficiary’s share over those assets

-most things can be held in trust: real estate, insurance policies, chattels, choses in action (shares, bonds)-things that cannot be held in trust: employee salaries, entries in an account (Professional Institute of the Public Service of Canada v Canada)

Assessing Subject Matter trust must either clearly indicate the thing in question, or provide a method that is reasonably

clear for identifying the assets where the language is vague, can use external evidence to clarify the subject matter distribution b/w the beneficiaries must also be described with sufficient certainty, where

“equality is equity” cannot apply because equal distribution would be inequitable consequences of unclear distribution b/w beneficiaries: transferee holds the property on

resulting trust for the settlor

Floating Trusts-where trust asset cannot be identified at the outset, but will become clear over time

Burke v Hudson’s Bay Co (SCC): pension fund is constantly fluctuating, so a beneficiary cannot know what their share is until they draw their share (i.e. cannot know at the time the trust is made).

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L: Floating trusts are permissible, so long as it is clear the asset will become identifiable at a certain point. The trust crystallizes once the asset is identifiable.

C. Certainty of Objects

Kinds of Trusts-need to know what kind of trust it is, to determine whether there is sufficient certainty of objects-so long as a method of naming a beneficiary has been clearly set out, a trust may exist despite no beneficiary being yet named

Fixed Trust: the trustee must distribute to the named object(s), individually or by class Discretionary Trust/Trust Power: the trustee must appoint the objects from a list of potential

beneficiaries, but has discretion over who they choose Power Simpliciter: the trustee must consider whether to appoint a beneficiary from the group of

potential objects, but can choose not to appoint anyone

Tests for Certainty -note that burden of proof is on anyone claiming to be a beneficiary under a trust: Baden (2)

Fixed Trust List-certainty test: must be able to compile a complete list of all beneficiaries Broadway Cottages Trust (1955)

Discretionary Trust Individual ascertainability test: must be able to say for any individual person, whether she is/is not a member of the class of potential beneficiaries1

Baden (1) confirmed in Canada in Timothy Eaton

Baden (2): F: Trust instrument used the phrases “dependents” and “relatives”.L: “Relative”, ordinary meaning “having a common ancestor”, is overly broad. Stamp LJ: “Relative” means “next of kin”.

Sachs LJ: Only conceptual clarity is required. So long as for any person you can say “yes they are a relative” or “I don’t know”, the trust is clear, if you decide “I don’t know” is a no.

Megaw LJ: The terms are sufficiently clear so long as there are not too many “I don’t know”s.

1 Originally the list-certainty test was still used for discretionary trusts: Re Gulbenkian affirming Gestetner. However post-WWII rise of pensions, in light of evolving social attitudes towards taking care of elderly, led judges to uphold discretionary trusts even where list-certainty could not be satisfied. Led to Lord Wilberforce endorsing is/is not test in Baden (1) to stop any intellectual dishonesty.

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A: Terms were sufficiently clear on the individual ascertainability test.

Power Simpliciter Individual ascertainability test: must be able to say for any individual person, whether she is/is not a member of the class of potential beneficiaries

Evidential Uncertainty -evidential uncertainty: where it would be administratively impossible to determine the beneficiaries (unlike conceptual uncertainty which occurs where the words or concepts used are unclear)

--established in Baden (1) by Lord Wilberforce: gives example of “residents of London”-only a problem in fixed/discretionary trusts, not problem for powers simpliciter: Hays Settlement Trusts

II. Purpose TrustsOverview

Form of express trust whose object is a purpose, rather than a person or group of persons Charitable purpose trusts are allowed, so long as they involve an accepted charitable purpose and

have a public benefit Private (non-charitable) purpose trusts are prima facie invalid, subject to exceptions: however

they are often treated as powers, rather than being struck down

1. Private Purpose Trusts

Exceptions to Private Purpose Trusts-generally such trusts fail for want of a beneficiary: they usually require trustee to have broad dispositive powers so Court prefers them to be left to beneficiaries in a will-Court is also concerned about having someone who can enforce the trust: Re Astor’s Settlement Trusts

1. Horses, Dogs, Graves, Monuments-allowed due to historical legacy

2. Denley Rule: Indirect Beneficiary-name a beneficiary or group of beneficiaries intimately involved with the intended trust purpose-indirectly give effect to the intended purpose by leaving property to that person/group

Re Denley’s Trust Deed (1969): settlor gave land to company on trust for company employees, to be used as sports grounds; although this is a private purpose, there were identified beneficiaries so the trust was upheld

Keewatin Tribal Council (1989): land put in trust to avoid property tax (private purpose); Court upheld the trust by finding the beneficiaries under the trust were the members of different FN Bands who had gotten together to use the land

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3. Unincorporated Associations-problematic since these associations do not have legal status and are not “persons”-not good to name the objects as future members: risks being invalid for uncertainty of objects-must ensure settlor does not leave the assets to the club, to advance the club’s purpose

Options can leave money to a society since they have legal status under the Societies Act can leave money in trust, to the treasurer as trustee and the club members as

beneficiaries: the club’s founding documents will determine how that money is distributed, but must be sure the documents do not allow the members to take money with them if they leave the club

can leave money to the club as an out-and-out gift: goes into its general revenue

4. Private Purpose tied to Charitable Purpose-give trust property to a charity for a charitable purpose, and in addition require the charity to perform a private purpose: Dalziel stratagem-if the charity does not perform that purpose, the property is “gifted over” to another charity

-determinable interest: property must contain within it a restriction, rather than property only passing to the charity upon certain conditions being fulfilledE.g. I leave you X property “unless Y”, “but when you do Y it goes to Z”, “provided that”

Consequences Where Private Purpose Invalid-court will construe the trust as a power simpliciter, rather than a purpose trust

Perpetuity Act s.24

(1) A trust for a specific non-charitable purpose that creates no enforceable equitable interest in a specific person must be construed as a power to appoint the income or the capital, as the case may be.

(2) Unless a trust described in sub (1) is created for an illegal purpose or a purpose contrary to public policy, the trust is valid so long as it is exercised either by the original trustee or the original trustee’s successor within a period of 21 years, even if the disposition creating the trust showed an intention (express or implied) that the trust should continue longer than 21 years.

(3) Despite sub (2), if the trust is expressed to be of perpetual duration, the court may declare the disposition to be void if the court is of the opinion that by doing so the result would be closer to the intention of the creator of the trust than the period of validity provided by this section.

2. Charitable Purpose Trusts

Overview-form of express trust enforced by the Attorney General-can only be enforced where either (a) there is sufficient clarity of purpose, or (b) the Court uses it cy-pres

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powers to designate the trust assets for a new charitable purpose-must satisfy the three certainties, be for an accepted charitable purpose, and have a public benefit

Chicester Diocesan Fund: a will left money in trust, to be used “for such charitable institutions or other charitable or benevolent objects in England” that the trustees may selectL: Trust fails for uncertainty: cannot ascertain the settlor’s intention, so the purpose is too uncertain.

Charitable Purposes-where mixed charitable and non-charitable purposes, can carve off the charitable purpose to allow the trust for that purpose only, so long as described with enough clarity: Law and Equity Act s.47

-traditionally set out in the Statute of Charitable Uses (Statute of Elizabeth), to incentivize donations-MacNaghten J organized these into four categories in Commissioner of Income Tax v Pemsel (1891)

A. Relief of Poverty-broad range: not confined to destitute persons-public benefit for such trusts is generally assumed, unless the contrary is shown

Jones/Timothy Eaton: “Quarter Century Club” trust - the purpose of the trust was to improve the welfare of a group of people who were largely middle class (whoever had worked at Eaton’s for a quarter century); the group included impecunious workers as well as executivesL: Fact that executives were included did not undermine the charitable purpose of poverty relief.

Planned Parenthood v Toronto: primary purpose of the trust was to provide reproductive health services, not relieve poverty; Court thus found this was not a charitable purpose, even though it was in fact helping poor people by sex education that would lead to reduced family size.

B. Advancement of Education-broad scope: not confine to universities and schools (Justice Iacobucci)

Vancouver Society of Immigrant and Visible Minority Women: informal teaching of basic life skills constitutes education; expansive view of education endorsed.

Incorporated Council of Law Reporting: production of law reports constitutes charitable purpose for the advancement of education, so long as it is not being done for profit.

C. Advancement of Religion-broad scope: used to mean Anglican only, in 19th century Catholic purposes accepted

Thornton v Howe (1862): Joanna Southcote was a devout Christian who believed she was going to give birth to the new Messiah, charity set up to support her cause; accepted religion.

The Church of the New Faith: scientology is an accepted religion.

Re South Place Ethical Society: religion requires worship – “study of ethical principles and cultivation of rational religious principles” not sufficient. United Grand Lodge: free masonry not an accepted religion.

D. Other Purposes Beneficial to the Community10

-huge category: which purposes are beneficial has evolved based on cultural attitudes-originally largely Judeo-Christian purposes, now shifted towards multiculturalism

common purposes: hospitals, hospices, nursing homes, protection of animals, disaster relief, public works (bridges, ports, havens, causeways: Lecavalier v Sussex)

support of political parties not an accepted purpose (Chicester Diocesan Fund)

Vancouver Society of Immigrant and Visible Minority Women: facilitating employment for minority and immigrant women is accepted purpose.

Re Cotton Trust for Rural Beautification: protection of environment accepted purpose.

Brewer v McCauley: commercial for-profit purposes not acceptable.

Public Benefit-charitable purpose trust must have a benefit for “a significant” portion of the public: numbers matter-cannot simply be a private benefit masquerading as a public benefit-public benefit must be clear

“Significant portion of public”

Gilmour cf. Neville Estates: members of large synagogue, held to be sufficiently public, because the synagogue is open to any Jewish people and there is larger number of Jews in the world.

Re Scarsbrick: “relations” was a large enough group to serve a public benefit.

Oppenheim: education of company employees does not serve a public benefit; group is too confined.

Leahy: contemplative nuns do not serve a public benefit because they merely pray, they do not carry out works; moreover the nuns are a small group. More like a trust to promote private benefit for the nuns. The nuns do not spend their lives in the public world (unlike Neville Estates).

Jones/Timothy Eaton: Timothy Eaton left a trust for the Quarter Century Club (Eatons’ employees who had worked for at least 25 years); Court found this had a sufficient public benefit.

“Private benefit masquerading”

In Re Pinion: testator tried to secure tax benefits by donating private art that he made to the London National Gallery, but the Gallery refused the paintings; testator wanted to set up special gallery that would be available to the publicL: Court found the paintings were “useless junk”, and the gallery had no public benefit.

National Communication Society: trust gave preferential treatment to settlor’s relatives.L: Relatives can get special treatment, so long as the purpose of the trust is broader and it is not confined to settlor’s relatives. The purpose must “address an appreciable section of society who are not relatives”. Purpose must be beneficial to community by coming within the spirit of the Statute of Elizabeth.

“Clear benefit”

National Anti-Vivisection Society: society that aims to prevent the killing of animals does not have a clear public benefit, because most humans eat meat.

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Everywoman’s Health Centre: Centre cared for women’s medical needs, including abortion. Public sentiment at this time would be divided on whether abortion is a public benefit.L: Court decides what is a public benefit: they do not act according to polls. The Centre had a clear public benefit.

Cy-Pres Powers-court has inherent jurisdiction to take trust assets under a charitable purpose trust, and direct those assets to a new charity, where the original trust is “impossible and impracticable”

Canada Trust Company v Ontario Human Rights Commission: money left in trust by Colonel Leonard, at a time when multiculturalism was not a societal value; the trust had racist and anti-multicultural L: Court found the Colonel’s underlying intention was to help impecunious students, which was masked by his social values which were commonly held at the time. Court used its cy-pres powers.

Re Boyd: money left to Morrisburg Grammar School, a small rural grammar school run by a charity. School later became urbanized, got a new name (“Seaway”) and was run by a school board.L: Court found the trust assets could be used towards the Seaway students, since the testator’s charitable intention was clear. Court used its cy-pres powers to direct the trust assets in this way.

Royal Trust v Hospital for Sick Children: money left to organizations that did not exist.L: Court looked at the testator’s will, found that testator’s intention was to help disabled children. Court used its cy-pres powers to assign the trust assets to hospitals that help such children.

Re Tacon: settlor/testator must be reasonably clear in describing the charitable purpose; if the purpose is too unclear, the trust will fail and the Court’s cy-pres powers cannot be used to fix the trust.

Sidney and North Saanich v BC (AG) (2016): trust was set up to hold lands in the Town of Sidney; BC and the Town of Sidney expropriated parts of the land, built facilities and changed the land in different ways. The trustee’s administrative powers under the trust deed created difficulties by requiring trustees to do things that no longer made sense. Trustees asked the Court to vary the deed.

L: Court can use its cy-pres powers to fix flawed administrative powers, where the settlor/testator’s original intent is still workable. “Even absent a finding of impracticability or impossibility…the court has the power to supply administrative terms or to alter the administrative machinery of a charitable trust when necessary for the effective operation of the trust” (Madame Justice Dardi).

II. Resulting TrustsOverview-resulting trusts are “implied trusts” that fall into 2 categories: (1) automatic RT, and (2) presumed RT (Megarry J in Re Vandervell’s Trusts)-three F’s established by presuming the transferor intended them to be present-RTs occur when legal title is transferred to a trustee, and equitable title is impliedly held by the transferor

-competing rationales for RTs: (i) cases fall into the two Re Vandervell’s categories; certainty is maintained b/c RT will arise where trust falls into 1 of the categories, or (ii) unjust enrichment: transferor presumed not to make a voluntary transfer that enriches the transferee at no benefit to the transferor-Vandervell characterization accepted in Canada: Pecore and Nishi (2013)

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1. Automatic Resulting Trust-the parties did not intend to make a trust, but a trust is imposed-arises where legal title is transferred to a trustee, but the trust is not completed for some reason

A. Transfer of Legal Title in a Void Trust-where an express trust is invalid: e.g. because of uncertainty of objects, illegal purpose

IRC v Broadway Cottages Trust (1955): discretionary trust with unclear list of beneficiaries, and at this time the list-certainty test was used to assess certainty of objects; no complete list of beneficiaries could be made.L: Trust void for uncertainty, but the property was found to be held on RT for the settlor/testator.

B. Transfer of Legal Title without Fully Disposing of the Equitable Interest-settlor/testator creates a trust and directs the trust assets to be used for a beneficiary to achieve certain objects (but not a purpose trust): once objects achieved there is money left over

Re West (1900): money left for “debts, funeral expenses, and legacies”; once these things were paid off there was money left over, trustees claimed the money on basis that no beneficiary had been designated for the equitable title over the remaining money.L: Absent a specific contractual or testamentary clause leaving excess equitable title to the trustees, any excess title goes to a beneficiary. Trustees by definition hold legal title only. Beneficiary assigned the residue of the estate entitled to the remaining money.

Schmidt v Air Products (1994): company paid money into a pension fund for its employees, then went out of business; after paying all the employees had a $9 million surplus. Company argued surplus should be held for it on RT, b/c the fund had a specific purpose which was satisfied.

A: Pension fund was a defined contribution plan, where employees contribute a set amount of money, unlike defined benefit plan where employees receive a set amount of money based on age/salary. Employees thus had equitable title over all the money they contributed, rather than only to a specified amount they could take out.

C. The “Quistclose” Trust-transfer of property to achieve a very specific purpose, which is then not fulfilled: transferee holds the property on RT for the transferor-purpose usually set out in contract: these trusts arise often where transferor is making a loan-Quistclose trusts give rise to fiduciary duty, b/c the transferee does not have a free right to dispose of the property: must use it for specific purpose

Barclay’s Bank v Quistclose Investments (1970)F: Company got a loan from Quistclose Investments, for a specific purpose: to be used only when the company declares a dividend. Quistclose transferred the money to Barclays Bank, who held it on behalf of the company. Company never declared a dividend, then went bankrupt. Barclays Bank was one of the company’s creditors.I: Does the money loaned to the company, fall into its estate for all its creditors, or is it held on resulting trust for the transferor (person who made the loan) as a preferred creditor?

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A: Money held on RT for Quistclose, since it was given for a specific purpose that was not fulfilled [even though Quistclose did not take steps to secure its loan, e.g. through mortgage].

Giles v Westminster Savings Credit Union (2006): Quistclose is good law, though clarity of purpose is essential to give rise to an RT in such cases.

Twinsectra v Yardley (2002)F: Building contractor got loan from Twinsectra, for specific purpose of purchasing certain properties. Twinsectra got a solicitor Mr. Sims to ensure the loan will only be used for that purpose. Instead, Mr. Sims makes payments to Yardley who uses it for other purposes; Sims then goes bankrupt.A: Twinsectra holds the loan money on RT, b/c of the specific purpose for which it was given. Thus Twinsectra is the beneficiary with an in rem right to the money, and can get it from Yardley. It traces the money to the bank, who holds it as agent for Yardley’s companies. The corporate veil can be pierced and the money seized from the companies, since Yardley is their directing mind.

Re Westar Mining Ltd (2003)F: Joint mining venture, where Westar had 80% stake and other company had 20% stake in the venture. Funds were put into account separate from Westar’s other accounts. Westar goes bankrupt. Suppliers and employees argued the venture was for the specific purpose of benefitting them, sought the remaining 20% from the account.L: The specific purpose was not met, so the remaining funds (other 80% had already been spent) held on RT for the suppliers and employees.

D. Surplus Funds in Trust after Trust Purpose Achieved-settlor/testator creates a purpose trust (charitable or private), where the purpose is then fully realized but there is money left over in the trust account-legacies and major donations will be held on RT: following British Red Cross-funds leftover from many donors who donated small amounts are bona vacantia: West Sussex-contributions from raffles, sweepstakes, street entertainment belong to the organization involved: if it does not distribute surplus funds to its members, the surplus is bona vacantia

Re British Red Cross: charity created to provide relief for people in the Balkans War, small number of donors who donated large the purpose was accomplished and money was left over.A: The remaining money is held on RT for the donors, since small number of donors.

Gillingham Bus Disaster: charity created to provide relief for victims of bus disaster, many donors donated small amounts of money; purpose was accomplished and money left over.L: Court held registrar would hold the surplus, and donors could come to court and claim $.

Re West Sussex Constabulary Fund: fund created to help local police forces, but became redundant after police forces nationalized; donors were unknown.L: Where RT is not possible (b/c donors unknown), the default position is bona vacantia: vacant goods are left to the Crown.

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Hanchett-Stamford v AG: association protecting performing animals got many donations over years, but then started to go defunct. Eventually one member left only, with ~$2 million surplus left over in the fund.L: Must look at association’s founding contract.A: Members could have dissolved association by agreement. Crown argues remaining member could not ‘agree’ with herself, so funds vacant. Court disagrees: $ held on RT for last member.

2. Presumed Intention Resulting Trust

Overview-we presume the parties intended to make a trust (based on cultural assumption that people are not expected to make voluntary gifts)-arises where there is a voluntary transfer, and absence of clear evidence of the transferor’s intent-presumption of RT and presumption of advancement are factual presumptions, rebuttable by evidence-presumed RT where:(1) A makes straight gift to B -- B holds legal title, A is the beneficiary, or (2) A transfers to C but is paid by B -- C holds legal title, B is the beneficiary

Presumption of RT Upheld

Eisener v Baker: husband gets money from a relative, uses it to buy property in Salmon Arm; husband agrees to put wife on title; couple separates.A: Evidence is that husband put wife on title to maintain the relationship, not b/c he wanted to make a gift to her. Wife’s property interest held on RT for husband.

Niles v Lake (1947): Mrs. Arnott is sick and cannot visit the bank, so makes her sister Ms. Lake a joint bank account holder, and puts $ in the joint account. Signs a standard form bank agreement, that puts the account in joint tenancy and clearly includes legal and equitable title.L: Bank agreement not sufficient to rebut the presumption of RT. Ms. Lake had not put money in the account, and the agreement simply meant to protect bank against legal action by the account holders.

Young v Sealey (1949): elderly woman makes nephew a joint account holder, giving him legal title. But he only gets the $ once the woman dies, at which time he will get equitable title.L: This arrangement violates WESA, by designating an heir (a beneficiary effective upon death) without complying with formal will requirements. However: all case precedents have allowed this, so the law is too settled to be changed.

Re Vinogradoff: grandmother gives stocks to her granddaughter but continues to receive dividends; then leaves the stocks to her heir in her will. Heir argues granddaughter held the stocks on RT for grandmother, thus on death legal and equitable title go to the heir.L: Granddaughter does not adduce sufficient evidence to rebut the presumption of RT.

Presumption of RT Rebutted

Oord v Oord: couple purchases property and puts title under their names and their two adult children’s names. Issue is whether children hold their share on RT for parents.A: Presumption of RT rebutted, b/c parents and children had a good relationship, and evidence that parents had no expectation of being paid. [Cultural assumptions about parents/kids relevant].

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Standing v Bowring: woman transferred shares into her godson’s name without telling him; later tried to revoke the shares, at which point the godson found out about them.A: Presumption of RT rebutted, b/c evidence that woman wanted to be a substantive godmother and loved her godson very much. Her intention was to make an out-and-out gift.

Russell v Scott (1936): Mrs. Russell is elderly/sick, makes her nephew Percy a joint account holder under a bank agreement, but leaves her estate to her heir Scott. Solicitor testifies that when he asked Mrs. Russell what would happen to the $ once she dies, she said “I want Percy to have the account $”.

L: Presumption of RT rebutted, b/c of solicitor’s evidence. Otherwise account would be held by Percy on RT for Scott (who holds equitable title to Mrs. Russell’s estate).

Sawden Estate v Watch Tower Bible & Tract Society (2012): testator makes his two sons joint tenants in his bank account, then dies and names Watch Tower Society as a beneficiary under the will. Society argues sons put no money into the account, so hold legal title on RT for the estate.L: Presumption of RT rebutted, b/c evidence showed that testator wanted to provide for his children. E.g. before testator died he made the sons promise they would share the money with the other kids.

Nishi v Rascal Trucking (2013)F: Woman owns land; subleases part of it to Rascal Trucking (“RT Co”). Lease agreement says fines to be paid by RT Co: City fines the operations for pollution/noise. RT Co does not pay, and woman cannot afford to pay: CIBC forecloses on property. RT Co goes to CIBC to pay outstanding money in exchange for fee simple title, they refuse. It goes to Mr. Nishi (woman’s boyfriend) and offers to pay fines in exchange for co-ownership of land, he refuses. It then gives Mr. Nishi money voluntarily, which he uses to pay the fines and get title: RT Co then claims part of the title is held on RT for it.

A: Presumption of RT rebutted, because (1) RT Co offered the money in exchange for title and was refused, (2) RT Co owed the money anyway under the lease, and (3) RT Co knew Mr. Nishi would get title, before giving the money, and did not dispute it at that time.

Timing Issues

Shepherd v Cartwright: father gave his kids shares when they were young but did not tell them about the transfer. Five years later father made children sign shares over to him, without knowing what they were doing. Father died, children claimed against estate for the proceeds. Estate argued POA rebutted b/c children did not know about transfer, and father later redeemed shares for himself.L: Acts at the time or immediately after the transfer are admissible as evidence, where they form part of the transfer itself. Acts in the years following the transfer are generally not relevant to whether the transfer was a gift, unless those acts are against the interest of the person adducing them.

Griffith v Davidson (2017): couple buys a home as joint tenants, man pays down payment and then mortgage. Couple separates, man claims woman’s interest is held on RT for him. Arbitrator agrees. Evidence that man knew the consequences of joint tenancy, couple together 21 years, woman had no job so could not pay for property, man made woman beneficiary under his will in 1998.L: Arbitrator focused too much on events following the transfer. Arbitrator had relied on evidence adduced by man that in 2002 he took the woman out of his will, which occurred much later.

Chechui v Nieman (2016): husband had wealthy parents, his mother helped the couple buy a home and then paid the mortgage; couple separates, issue is what share should the wife get.

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L: Presumption of RT rebutted, despite subsequent payment of the mortgage by the mother (after the property was bought). Evidence that property was a gift to the couple, not just the husband.

Other Ways of Rebutting RT Presumption

Presumption of Advancement

-objective was to rebut the presumption of RT when transferor was in certain relationship with transferee-applied to transfers from father to children, and husband to wife-now applies in BC from parents to minor dependent children (Pecore) and between spouses: subject to transferor’s intention

Mehta Estate: character of the marriage was traditional, so BCCA applied the POA to ensure the wife was not disadvantaged. Found that property left in the husband’s will, passed to the wife’s estate.

Illegality

Overview-ex turpi causa: from a base cause an action does not arise-jurisprudence leaning in favour of Scheuerman approach (court will not hear evidence of illegal intention, unless locus poenitentiae doctrine applies), based on Tribe v Soiseth -classic estate planning: put assets in one party’s name, when the other party is engaged in risky business, to thwart creditors (even though no indication the business is going to fail)

Allowing Evidence of Illegal Intent: Rebutting POA2

Scheuerman (1916, SCC): man knows a creditor is coming after him so transfers property to his wife; creditor never comes, couple separates and wife wants the property.L: Husband’s intention was to transfer illegally (in violation of Fraudulent Conveyances Act), even if transfer was not actually illegal. Court will not hear evidence about illegal intention. Court applies par delictum rule: parties at equal fault, so property goes to legal title owner (the wife).

Goodfriend v Goodfriend (1971): swinging couple has relationship with another couple; wife convinces husband to transfer property to her b/c other husband is going to sue for “alienation of his wife’s affection”. Couple then divorces.L: Husband’s intention was to transfer illegally, but it was impossible for the transfer to be illegal since there is no cause of action for alienation of affection. Court will hear evidence about illegal intention, where creditors were not actually prejudiced. A: POA rebutted. Property held by wife on RT for husband.

Tribe v Soiseth: couple given a condo from wife’s father, who put the property in his daughter’s name to avoid capital gains tax. Couple separates; husband argues property belongs to daughter (POA applies, transfer was out-and-out gift), daughter argues presumption of RT in favour of her father.

2 Refusing to hear evidence about illegal intent, and applying the par delictum rule, prioritizes the transferee over the transferor in the case of illegally motivated transfers (Scheuerman approach). Problematic b/c transferee is often colluding in the scheme yet gets a windfall. Justification for this is transferor initiates the transaction and has means to control the property, so deterrence should focus on him.

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L: Court combined Scheuerman and Goodfriend and allowed evidence of illegal intention, by invoking locus poenitentiae doctrine: if party who did a wrong is willing to apologize, and never actually carried out the illegal scheme (i.e. creditors were not prejudiced), Court can allow ordinarily excluded evidence.

A: Father apologizes and pays the capital gains tax: then provides evidence that his intention was for the property to be held on RT for him. The condo does not form part of the matrimonial property.

Refusing to Hear Evidence of Illegal Intent: Presumed RT Upheld3

David v Szoke (1959): husband is alcoholic, worried about potential future accidents and creditors; wife suggests transferring shared property into her name, he complies. Couple divorces. L: Court did not hear evidence of fraudulent intent, but presumed an RT on behalf of the husband. Was influenced by fact that no creditors prejudiced by the transfer.

Gorog v Kiss (1977): man transfers property to his sister to avoid seizure by a business associate who had sued him; associate does not seize the property; sister wants to keep the property.A: Presumed RT on behalf of transferor: the only evidence which sister could adduce to rebut presumption was discounted due to illegality.

Transfers to Defraud the StateTinsley v Milligan: couple put property in Milligan’s name, to enable Tinsley to get a government benefit. Couple separates, Tinsley argues property held on RT for her b/c she paid for it. Court agreed.

Nelson v Nelson (1995, Australia HC): mother paid for a home that was registered under her children’s names, so that she could claim a subsidy under legislation. Mother intended to retain equitable title to the property. Property was sold, mother sought the proceeds. Daughter refused, argued POA applied.

L: Court will hear all of the evidence, and look at intent of transferor at time of transfer. Will then apply “proportionate harm” approach: balance the wrong done by the transferor, against the harm that will befall them if no RT presumed. Look at infringed statute to see sanction for that wrong, to assess harm done by transferor.

III. The BeneficiaryOverview-beneficiary has passive role: they have fruendi (enjoyment rights) not utendi (possessory rights)-cannot administer the trust assets: attempts to do so may result in legally invalid acts-beneficiary has in rem right to the trust assets, and in personam rights against the trustees

Schalit v Nadler: trust assets included piece of land, commercial tenant was not paying rent. Beneficiary (corporation) ‘distressed’ the tenant i.e. went and took things off the land to use for paying the rent. L: Normally beneficiaries cannot exercise a right of distress over the trust assets. A: Beneficiary had special skills relating to real estate, so could act as agent of the trustee here.

3 Some courts have chosen to discount the evidence of illegality and simply presume an RT on behalf of the transferor (Gorog approach). They will thus hear the evidence but not give it effect. This prioritizes the transferor, but allows courts to ignore illegality.

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Nature of Beneficiary’s Right-can argue both that beneficiary has right to individual trust assets, and to the corpus of the trust fund

Baker v Archer-Shee: England resident had trust in NY, English tax Act amended to impose tax on people who get income from stock/rents. Taxpayer argued she had no stock/rents: the trust did, and she only had a right to the trust corpus (not individual assets).L: Taxpayer won on conflicts grounds: NY law used to characterize the assets.

Spencer v Riesberry: family trust set up with realty as part of the assets and children as beneficiaries; one of the daughters getting a divorce, her home is one of the trust assets. Husband claims home should be part of matrimonial property b/c owned by daughter as beneficiary.

L: Husband’s argument rejected. Wife has no specific ownership of the home; she only has a right to fiduciary administration of the trust corpus.

Equitable vs. Beneficial Title: Sub-Trusts-beneficiaries can transfer their beneficial title to other people, who then become beneficiaries also-where multiple sub-beneficiaries: first in time, first in right, even where first assignee informed a trustee who dies and new trustee was unaware of assignment (Re Wasdale)-beneficiary must transfer all of their equitable interest: assignment will fail for being incomplete where transferor states “the foregoing payment shall continue to be made unless otherwise directed by me in writing” (Timpson’s Executors v Yerbury)

-under these assignments, the new beneficiary only has the right to sue the original trustee themselves, if the assignment complies with s.36 of the Law and Equity Act

Law and Equity Act s.36(1): an absolute assignment (cannot be simply a charge), in writing signed by assignor, where express notice in writing is given to the trustee, is deemed effectual in law, to pass the legal obligation to the trustee as of the date of the notice, and allows the trustee to discharge the debt/trust without the assignor’s agreement.

Transfer Consequences Kind of TrustB1 assigns his equitable title to B2

Trustee administers equitable title for B1, who administers beneficial title for B2 B2 can only sue T1 through B1

Sub Trust

B1 assigns his equitable title to trustee to administer for a new beneficiary

Trustee 1 has legal titleTrustee 2 has equitable title, administers beneficial title for B2

B2 can only sue T1 through B1

Sub Trust

B1 declares himself the trustee over the equitable title in favour of B2

Trustee 1 has legal titleB1 has equitable title, administers beneficial title for B2

B2 can only sue T1 through B1

Sub Trust

B1 assigns his equitable title to B2, and instructs the trustee to administer the assets for B2, and complies with Law and Equity

Trustee administers equitable title for B2

No Sub Trust

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Act s.36 B2 can sue trustee directlyB1 assigns his equitable title to trustee to administer for a new beneficiary, and complies with Law and Equity Act s.36

Trustee 1 has legal titleTrustee 2 has equitable title, administers beneficial title for B2

B2 can sue T1 directly

No Sub Trust

Protective Trusts: Restraints on Alienation

Overview-aim is to prevent alienation by not allowing the beneficiary to call on the trust under Saunders v Vautier-restraint on alienation acceptable where the interest is transferred but is a limited interest (excludes certain things), but not acceptable where interest is only transferred if certain conditions met

Process(1) Transfer legal title to the trustee

(2) Give the beneficiary an equitable determinable life interest: use words like “until, when, as long as, during, unless” -do not use an equitable estate subject to a condition precedent, nor an equitable estate defeasible upon a condition subsequent: do not use words like “but if, subject to, on condition that”

(3) Determining events (things that destroy the life interest) could be: attempts by the beneficiary to alienate/dispose of their equitable interest, or collapse the trust, or becomes insolvent

(4) If the determining event occurs, automatic disposition of the equitable interest as a gift over to secondary beneficiaries (usually original beneficiary’s siblings or kids)

Saunders v Vautier: Termination of the Trust

The Rule-a beneficiary can call on the trust, and collapse legal title into their equitable title to have full ownership of the assets, if they are sui juris and have a vested interest-sui juris: have reached age of majority and have full legal capacity

-vested interest: can collapse trust if delayed vesting in possession, but not if delayed vesting in interest-beneficiaries must all be in agreement, subject to where their respective interests are clear and the assets are easily divisible

Basis for the Rule1. law promotes freedom of property and idea that person with ownership of property should have

full ownership; person who transfers property cannot excessively limit that interest2. law should recognize autonomy of adults, and 3. law is suspicious of excessive accumulations: where the trust is accumulating wealth that cannot

be accessed by those entitled to it

Saunders v Vautier (1835): testator left a will which left stock to a sole beneficiary, Vautier. Trustee was to accumulate the dividends and give them to Vautier when he turned 25. Vautier called on the trust when he turned 21.

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L: Where there is ambiguity over whether the clause delays vesting in interest or interest in possession, the Court will presume delayed vesting in possession. A: The beneficiary could call on the trust, despite being younger than 25, because he was sui juris and his interest in the assets vested right away.

Fargey v Fargey Estate (2015): testator left property to his 2 children, but property would pass to their kids if they predeceased their father. One son predeceased testator, so property passed to his 2 children (an adult and a minor). The adult tried to call on the trust.Testamentary clause read: “invest…each sub-share and to pay the income…for the grandchild’s maintenance, education or benefit during his or her minority, and upon my grandchild [turning 25] to distribute the capital of the sub-share to him”.

L: Preference in favour of delayed vesting in possession. Use of the word “distribute” indicated the interest had vested right away, b/c “distribution” indicates being given something one already owns.

Re Lysiak: testator left his estate to his wife and son in the Ukraine, but postponed distribution of the residue “until the beneficiaries are free to receive the benefits without interference from the regime under which they reside”. Trustees had discretion to determine manner and timing of the benefits.A: Delayed vesting in possession. Only the timing and manner of distributing the benefits was suspended by the condition of political freedom.

Re Carlson Estate: testator’s will said the income and capital of his estate to be used for the education and maintenance of his youngest son, until he turned 21, at which point the ‘then residue’ was to be distributed to all three of his kids.A: Delayed vesting in interest of the residue, until the youngest son turns 21.

Specific Applications of Saunders v Vautier

Re Smith v Aspinall: testator left part of his estate to Mrs. Aspinall (life tenant) and the remainder to her children. The LT and children combined to assign the beneficial interest to secure a mortgage. Trustees sought to pay Mrs. A directly instead of paying the mortgage.L: Rule can apply to discretionary trusts with successive equitable interests: can call on the trust if all interest holders are in agreement. Can call on the trust for the first equitable interest (e.g. life estate) but retain the trust for the successive interest (e.g. remainder).

Re Sandeman’s Will Trusts: sui juris beneficiaries were entitled to terminate the trust with respect to their shares in the company, even though it meant trustees would no longer have control of the company.L: Where assets are easily divisible, beneficiaries can call on the trust for their share in the property.

Lloyds Bank v Duker: one beneficiary would be majority shareholder if he could call on the trust for his share of the assets, which would be unfair to the other beneficiaries.L: If dividing up the property will cause hardship or unfairness to other beneficiaries, cannot do it.

Re Marshall: group of beneficiaries called for shares in a large company. Evidence was it would take 20-30 years for beneficiaries to all be sui juris.L: No automatic entitlement to division where trust property is land. A: Sui juris beneficiaries could not call for division if the trustees thought that it would cause undue hardship to other beneficiaries.

Re Chodak: all the beneficiaries were identified, but trustees had discretion over dividing the assets between the named beneficiaries. Beneficiaries called on the trust.

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L: Fact that trustee had discretion to divide the assets did not prevent beneficiaries from calling on the trust. Court ordered equal division of the assets.

Limitations on Saunders v Vautier

1. Discretionary trust with wide class of potential beneficiaries: will not be feasible; beneficiary must enjoy an absolute interest in the assets

2. Large pension funds.

Buschau (2004): employees of Rogers Communications Inc had a defined benefit pension plan. The plan had acquired a large surplus. RCI sought to benefit from the surplus by amending the plan so the surplus reverted to RCI on termination, merging the plan with other plans, etc. Plan members sued, disputing rights to the surpluses.

L: Except in very small pensions, cannot call on the trust even if all the beneficiaries in agreement, b/c (a) usually do not know who all the beneficiaries are in a large trust, and (b) most provinces have legislation setting out when a pension will come to an end.

Pensions governed by many interlocking contracts, and members’ rights usually set out in agreement. Provisions of the contract should govern termination or modification. If members could withdraw funds prematurely, could alter the power of collective action that lies at the heart of a large pension fund.

Varying the Trust

Common Law-Court can vary the trust to change/augment trustees’ management powers-would vary on four grounds:

(1) Administrative terms that needed changing due to emergency: e.g. building needs repairs(2) Maintenance jurisdiction allows the court to change beneficiary payments to increase maintenance(3) Conversion of the trust assets from realty to personalty and vice versa(4) Compromise jurisdiction allows court to approve on behalf of non-sui juris beneficiaries, any agreements to settle disputes b/w trustees and beneficiary

Trust and Settlement Variation Act, RSBC 1996-allows court to consent to trust variations on behalf of non-sui juris beneficiaries: the “unborn, unascertained, and incapable” (Fishleigh-Eaton v Eaton Kent)

Section 1: if property is held on trusts arising before or after this Act came into force under a will, settlement or other 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 persons4,

4 Buschau: Madame Justice Newbury points out that s.1(b) contemplates a group of identified beneficiaries where someone in the group will get an interest on the happening of a future event, but the event has not happened yet, and who in the group will get the interest is not yet known (i.e. money left to “the last surviving child”). The group is thus ascertainable (one of the four

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(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 determined5,

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.

Section 2: 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.

“For the Benefit of that Person”Fishleigh Eaton v Eaton Kent (2013): Court will approve variation where:(a) it is for the benefit of the minor, unborn, unascertained, and incapable beneficiaries;(b) a prudent adult motivated by intelligent self-interest, and a sustained consideration of the expectancies and risk of the proposal made, would be likely to accept the benefit to be obtained on behalf of those for whom the Court is acting; and(c) the basic intention of the testator will be kept alive by the proposed variation.

Re Burns: Court varied the trust to provide for investment and winding up powers, to secure tax advantages for unborn child.L: “Benefit to person” can include tax advantages.

Weston’s Settlement: major tax changes proposed in England, led trustees in wealthy family trust to move trust offshore to tax haven. Sought approval on behalf of non-sui juris children beneficiaries.L: “Benefit to person” can include moral and educational factors.A: The move was not a benefit, b/c children should not be moved out of England simply to save tax. “Children are like trees: they grow stronger with firm roots” (Lord Denning).

Re Remnant’s Settlements: trust assets left to children but only to those who were not Catholic; one child married a Catholic; both children sought to remove religious condition.L: Family harmony and increased marital choice (can marry Catholics) are benefits.A: Court allowed the variation since all kids were in agreement, despite disadvantage for Protestant child.

Re Harris: testator had bad relationship with wife and kids, left 5/8 of estate to one child, other two children to share the remaining 3/8. Wife sought to vary, provide equally for children.

L: Clear testator intent to provide different shares to beneficiaries must be upheld.A: Court refuses the variation. Loss to oldest son would be too big. Kids are young so minimal discord.

Re Tweedie Estate: where the unborn beneficiary only has small likelihood of getting financial benefit, “benefit” should be interpreted broadly. Can include psychological and family benefits for the living beneficiaries: these may outweigh the unborn child’s chance of financial gain.

children) but the exact beneficiary is unknown. 1(b) does not include beneficiaries who simply cannot be found, as in pension cases where members want to make an arrangement to deal with a pension fund surplus (Bentall Corp v Canada Trust: 25 beneficiaries missing out of 400).

5 Applies in protective trusts in which beneficiary has discretion to choose new beneficiaries, if the determining event occurs. Under s.1(d) court can decide on behalf of the potential new beneficiaries.

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Russ v BC: in determining whether Court should consent on behalf of person, Court will act as a “prudent advisor”. It is not bound to preserve the basic intention of the settlor. “Benefit” is objective.

IV. The Trustee

1. Appointment, Retirement and Removal

Types of Trustees “Aunt Mabel/Uncle Henry”: responsible character who knows the testator Corporate trustees: e.g. may be an entire division in a Bank Securities investment specialists: trustees in mutual funds Public Guardian: statutory ability to represent legally and physically disabled persons, has

protection over charitable trusts Trustee de son tort: person deemed to be a trustee because they meddled in the trust, who owes

fiduciary duty and can thus be liable in breach of trust Advisors/protectors: not trustees per se, but have power to designate beneficiaries and carry

some administrative responsibilities including power to veto trustee action affecting “asset protection” on tax matters [often close friends of testator]

Trustee Appointment-look first to trust instrument: then look at whether it refers to Trustee Act provisions for appointment-if several trustees appointed, they are joint tenants: must be unanimous in decisions-appointed person becomes trustee once vested with title to assets: either through transfer, or under a will through letters of administration (automatic vesting in executor)

Trustee Succession

(1) Settlor, or person nominated in instrument to appoint trustees (e.g. protector), engages initial trustees and chooses new ones

(2) If instrument has no method of appointing new trustees, but there are co-trustees, surviving trustees can choose new ones

(3) If only one trustee remaining, role passes to their heir(4) By agreement of sui juris beneficiaries under Saunders v Vautier(5) By court order: inherent jurisdiction to do so (“trust will never fail for want of a trustee”)

By court order: (a) trustee should match settlor’s intention in respect of his capabilities and skills, (b) must be fair and independent, and (c) must promote the trust and not impede its execution (Re Tempest)

Trustee Act, RSBC 1996-s.27: (1) [where new appointment allowed] allows for new appointment where the trustee: (a) is dead, (b) remains out of BC for more than 12 months, (c) wishes to be discharged from all or any of their trust powers, (d) refuses or is unfit to act, or (e) is incapable of acting

-allows for new appointment by: (a) person nominated in the trust instrument to appoint new trustees, (b) if no person appointed who is able and willing to act, then the surviving or continuing trustees, or (c) the personal representatives of the last surviving or continuing trustee

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(2) [rights/duties on new appointment] on appointment of a new trustee:

(a) the number of trustees may be increased,

(b) separate set of trustees may be appointed for part of the trust assets held on a distinct trust from the rest of the property, and an existing trustee may be appointed or remain one of the separate set of trustees,

(c) it is not obligatory to appoint more than one new trustee if only one trustee was originally appointed, or to fill up the original number of trustees if more than 2 trustees were originally appointed; but trustee cannot be removed unless there will be at least 2 trustees remaining, unless only one trustee was originally appointed

(d) things required for vesting the assets jointly in the trustees, must be done

(3) [powers of new trustee] new trustee appointed under this section, as well before as after all the trust property becomes vested in them, has the same powers, authorities and discretions, and may act as if she had been originally appointed a trustee

(4) [interpretation of words] (a) dead trustee includes person nominated in a will but who predeceases the testator, (b) continuing trustee includes refusing or retiring trustee, if willing to help execute this Act

(5) [limits on section] s.27 applies only if a contrary intention is not expressed in the trust instrument, and has effect subject to the terms of that instrument

Trustee Retirement-trustee must (a) give notice to other trustees and beneficiaries, and (b) disengage from the assets-once they do this, title to assets automatically vests in other trustees (joint tenancy)-if they fail to do this, will remain a trustee: if they succeed in doing this but then meddle in the trust affairs, may become a trustee de son tort

Trustee Removal

Overview-occurs where someone alleges a trustee should be removed: must be that trustee is unable to comply with their fiduciary obligations (are putting the assets at risk)-first look at trust instrument: does protector/guardian have power to remove trustees-Court can remove a trustee “where it would be expedient do so” (Trustee Act s.31), or on the request of a majority of non-disabled beneficiaries (Trustee Act s.30) or on application by a co-trustee-Court also has inherent power to remove a trustee: can look broader than misconduct, at whether trustee can act in beneficiary’s best interests

“Expedient to Appoint a New Trustee”

Radford v Radford Estate: Court will consider these factors, focus on expediency/beneficiary’s interests

(1) generally will not interfere with settlor/testator’s choice of trustee(2) interference must be necessary and well-justified(3) clear evidence of necessity should be adduced: removal may impair trustee’s reputation(4) welfare of the beneficiaries is primary concern

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(5) must show that non-removal will prevent proper administration of the trust(6) removal is not punishment for past misconduct: single/trivial breaches may not justify removal

Conroy v Stokes: misconduct not required to remove a trustee. Friction b/w beneficiaries and trustees sufficient for removal, since may impair administration of the trust.

Re Consiglio Trusts: serious and enduring disagreement b/w trustees sufficient for removal.

Bunn v Gordon: consistent antipathy towards beneficiary or group of beneficiaries may justify removal.

Re Newton Trust: co-trustees not getting along, seek to remove one long-standing trustee. Alleging trustee had antipathy towards the beneficiary; e.g. beneficiary had fired the president of Army & Navy but trustee kept nominating ex-president to be a new trustee. A: Court removed the impugned trustee.

Residency of the Trust-ordinarily trust resides where the trustees reside (that tax system applies) but not strict rule

Garron Estate (2012): if the central management and control of the trust occurs in Canada, and most of the business is being done in Canada, even if the trustees primarily reside elsewhere, the Court may decide that the residency of the trust is Canada.

2. Trustee Rights and ResponsibilitiesOverview of Trustee’s Role-has legal title to assets, fiduciary duty towards beneficiary, must administer assets in B’s favour-role often determined by kind of trust: express trust (look at instrument), resulting trust or constructive trust (rules of equity), Quistclose trust (role governed by purpose of transfer)-governed by Trustee Act-Court is the ultimate supervisor of the trust: can override the trustee

Trustee’s Responsibilities

A. Duty to Take Custody of Trust Assets-trustee must take custody of assets once vested with title-traditionally could not delegate this power under delegatus non potest delegare maxim: now relaxed

Delegation: trustee can delegate so long as they follow ordinary business practices for that kind of asset.

Speight v Gaunt: trust assets included stocks, which were to be sold and replaced by new stocks; trustee gave money to stockbrokers to purchase stocks. Stockbrokers acted fraudulently and stole the money.L: Delegation from trustee to stockbroker was proper, and not a breach of trust: normal business practice.

Indemnity: trustee has implied indemnity for acts committed by their agents so long as proper delegation

Re Wilson (1937): corporate Board was a trustee, delegated a decision to the General Manager who decided not to sell a piece of property which was consistently losing money.A: Board was in breach of trust b/c not entitled to delegate to the GM.

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Fales v Wohlleben Estate (1976): in modern corporate trusts, person who gives property to a corporate trustee is presumed to accept whatever business practices they have for dealing with the assets, which are set out in the company’s Constitution and their policies. Likely delegate the decisions outside the Board.

B. Duty to Invest (1) first look to trust instrument: active trust (must invest) or bare trust (must only retain assets)

(2) then common law duties: ‘risk and return’ -- must have mixture of risky and safe investments

(3) common law standard of proper investment: must use the ordinary prudence that one would take in the management of their own affairs: Speight v Gaunt (1883), aff’d by Lord Watson in Re Whiteley (1887), confirmed in Canada by Dickson J in Fales (1976)

Fales v Wohlleben Estate (1976): testator left trust fund, consisting mostly of shares in closely-held corporation, to his wife and children. Trustees were Canada Trust and the wife. CT held onto shares for 11 years, then sold for speculative shares: new company went bankrupt. Children sued for breach of trust, CT joined the wife as a co-defendant for her role as trustee.

L: Where assets are shares in closely-held corporation, and are left to beneficiaries with successive interests, and trustee has discretion to retain: must convert assets ASAP. Trustee standard of care is ordinary prudence in managing one’s own affairs, and standard is same for all trustees.

A: CT found liable. Breach of trust to hold 60% of trust assets in risky assets. Argument that CT could not sell the closely-held shares b/c of wife’s attachment, rejected: they should have applied to court to circumvent her.

(4) common law specific rules:

(i) trustee cannot forbid a class of investment based on non-financial criteria

Cowan v Scargill: where beneficiaries have not requested it, trustees cannot do this b/c that class may be the best investment. However trustees can consider non-financial criteria, so long as predominant goal is to secure long-term financial return and trustees act as prudent business people.

(ii) trustee will not in breach for merely failing to capitalize on profitable investments

Nestle v Westminster Bank: Westminster Bank was a conservative trustee, and did not invest in shares even after shareholding became acceptable, because shareholding was originally thought of as very risky. L: No breach of trust, even though Court critical of the trustee’s hesitance to act.

(iii) anti-netting rules abolished: trustees can set-off gains against losses

-these rules held trustees could be in breach of trust if they had big losses, even if these were offset against big gains: conflicted with modern portfolio theory

(5) look to statute: Trustee Act6

-s.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.

6 “Authorized investments”: used to refer to ceilings imposed by the legislature to prevent trustees from investing too much money in any one category. Now those ceilings are abolished, but term still used to refer to investments that satisfy modern test for proper investment.

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(2) Subsection (1) does not authorize a trustee to invest in a manner that is inconsistent with the trust.

(3) Without limiting subsection (1), a trustee may invest trust property in a common trust fund managed by a trust company, whether or not the trust company is a co-trustee.

-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 [objective standard]

(6) look to statutory scheme: “portfolio” management

-Trustee Act cements modern portfolio theory: portfolio managers necessary to manage assets, given massive size and quantity of trust funds -the best balance of assets is complex: trustee may be negligent if they do not obtain portfolio manager

C. Duty of LoyaltyOverview-trustee must act in good faith, and not act for their personal benefit-if trustee wants to acquire equitable title for himself, must do so properly: fair dealing, not self-dealing

Standard of Behavior-used to be absolute: trustee who gets personal benefit from the trust assets must disgorge all profits-now standard has softened: trustee has breached duty where there is “real, sensible” possibility of conflict b/w his own interest and the beneficiaries’ interest

Keech v Sandford: trustee renting out property on behalf of a beneficiary who was a minor; tenant’s lease expired and landlord refused to renew b/c beneficiary underage. Trustee renewed the lease on his own behalf. When beneficiary was older, sued trustee for rental profits for all those years.L: Example of absolute standard. Trustee cannot do anything to divert benefits to himself personally: should have let lease run out instead of taking it himself.

Boardman v Phipps: trust had some shares in a company, sent Mr. Boardman (a solicitor) and Mr. Phipps (a beneficiary) to scrutinize company’s books. The 2 suggested the trust buy all the shares and run company itself. Trustees decided they could not do so under the trust instrument, but allowed the 2 to buy all the shares for themselves personally. One of the beneficiaries later sued Mr. Boardman, alleged he was acting as trustee when he scrutinized the books, and was in COI when bought shares for himself.

L: Majority upheld the absolute standard. Minority proposed new test [now the law in Canada]: for a trustee’s interest to conflict with their trustee duties, must be that a reasonable person looking at all the circumstances would think there is a “real, sensible” possibility of conflict.A: Boardman had to disgorge his profits.

Peso Silver Mines v Cropper: company would assess mining claims and pursue viable ones, but was struggling financially so was not pursuing any; a director (Mr. Cropper) heard about a claim while acting as director, and took the opportunity for himself. Company sued him to disgorge his profits.

L: Endorsed the minority judgement from Boardman. There was no “real, sensible” possibility of conflict b/w Cropper’s interests and the company’s, b/c the company had no $ to pursue the claim.

Canadian Aero Services v O’Malley: CanAero does aerial surveys to find mines, Guyana government taking bids for contract to provide these services. While negotiations ongoing, two directors leave CanAero to join competing company set up by ex-CanAero employee. New company wins bid.

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L: Not only directors owe a duty of loyalty: senior management do as well. Extent of director/officers’ fiduciary duty impacted by:

--position or office held--nature of the corporate opportunity--its ripeness--its specificity--the director’s or managerial officer’s relation to it; the amount of knowledge possessed--the circumstances in which it was obtained--whether it was special or private--how much time passed (does the fiduciary duty continue) where the alleged breach occurs after the termination of the relationship with the company, and --circumstances under which relationship to the company was terminated (e.g. retirement, discharge)

Self-Dealing vs. Fair Dealing-self-dealing rule means that a trustee who purchases trust property for himself, or sells trust property to himself personally, is subject to seizure by the beneficiary-fair dealing rule allows the trustee to take trust property for himself, if the beneficiary signs as vendor

Denton v Donner: where a person is trustee for sale, and he sells the estate to himself, the transaction is void (self-dealing). If a trustee purchases the reversionary interest from the beneficiary, it is not void but the BOP lies on the trustee to show that every possible security/advantage was given to the beneficiary, and as much as possible was gained from the transaction as could have been gained (fair dealing).

Ex Parte Lacy: rule is that trustee cannot buy from himself. A trustee who is entrusted to sell/manage for others, undertakes not to manage for the benefit and advantage of himself (Lord Eldon)

Holder v Holder: testator owns various farms at time of death, assigns his two sons as executors. One son (Holder) renounced his position as executor, then purchased one farm at a public auction for a fair price (was still technically trustee at this time). Holder signs both as buyer and seller.L: Although this is self-dealing, there was no “real” COI b/c Holder’s renunciation as trustee was well known to all, he played no part in negotiations for the land, and he paid a fair price.

Crighton v Roman: trustee (Mr. Roman) got beneficiaries to sign away their corporate shares to him in various transactions, without explaining consequences of the releases. Beneficiaries sue.L: Mr. Roman stood in fiduciary relationship to beneficiaries, such that when the shares were signed over to him he held them as constructive trustee since he did not disclose all relevant info. Crighton’s transfer of his equitable interest in the shares was invalid/ineffective.

D. Duty to be ImpartialOverview-law assumes testator (not settlor) desires impartial treatment of beneficiaries: “equality is equity”-however testator can approve partial treatment, expressly or implicitly, in the trust instrument-duty of impartiality is often removed today as it conflicts with portfolio theory and efficient investment

Sources of Partiality-trust assets: original assets or assets trustee accumulates, may produce high income but value automatically depletes (favors life tenant) or may generate capital but no income (favors remainder)-trust structure

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Miles v Vince: testator left family trust (real estate) and income trust (insurance payments), with his wife as LT and his kids as remainder. Trustee (testator’s sister) took insurance payments from income trust and invested them in family trust. Reduced widow’s income but increased capital left for kids.A: Manipulation of trust structure is breach of trust, since left widow with nothing.

Rule in Howe v Dartmouth7

-where testator leaves an estate with a residue of personalty, and that personalty is left to the heirs in successive interests (i.e. life tenant, with the capital to a remainderman)-and that residue includes a wasting asset (includes reversionary interests and unauthorized investments)8 -then the trustee must sell the personalty that is a wasting asset-they must invest the proceeds, and use the income for the benefit of the life tenant, and preserve the capital for the remainderman

Apportionment Rules-while the trustee sells and manages the trust assets, apportionment rules help determine how much $ goes to the LT and how much is saved for the remainder, to ensure fair treatment-generally LT should get 4% of the estate as income

Non-Reversionary Assets-assets that may currently produce income: have no preceding estate that prevents vesting in enjoyment

Share valuation: if shares are sold within a year of the testator’s death, the value of the shares is assessed at the date of sale: if not sold within a year, they are valued at the first anniversary of the testator’s death

Inter vivos trusts: value of trust assets assessed at date trust was made (only applies where settlor imposes a duty of impartiality)

4% Rule: if the income received pending sale is less than 4% of the value of the property, LT receives all of the income produced. If the income later exceeds 4%, LT is paid the difference, to ensure they receive on average 4% of the estate. If the shortfall is not made up before the sale of the asset, the life tenant can get the difference from the proceeds of the sale of the asset.

Reversionary Assets-assets not producing income: delayed vesting in enjoyment until preceding estate ceases to exist-where duty of impartiality, trustee must sell reversionary assets, since they prioritize the remainder

Earl of Chesterfield Rule: apportionment rule for reversionary interests.What amount of money would have had to be invested, at the time of the testator’s death and assuming the going interest rate, to generate the amount the asset sold for?

--difference b/w the amount that would have had to be invested, and sale price, is paid to beneficiary--amount that would have had to be invested, will be re-invested in the trust: thus annual income that goes to LT will be higher

Effect of Trust Clauses on Impartiality

7 Does not apply to realty or inter vivos transfers.8 Wasting asset: assets that deteriorate over time, e.g. mortgages, cars, ships, copyrights.Unauthorized investments: risky investments e.g. speculative shares.Reversionary interests: e.g. remainders in shares, insurance policy on another’s life, debts payable to testator in the future.

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1. Clauses that require trustee to sell or convert assets: duty of impartiality

Dunn v TD Canada (2017): trust assets included shares, beneficiaries had successive interests. Trust instrument required trustee to retain stocks and bonds, but gave trustee discretion over other investments.

L: The clause said at one point “to retain in the form in which they are at the time of my death, all of my investments in bonds and stocks” (mandatory) but later said “I hereby declare that my said trustee may retain the whole or any portion of my estate in the form in which it may be at my death” (permissive).

A: BCCA held clause as a whole maintained duty of impartiality.

2. Clauses that require trustee to retain assets: no duty of impartiality

3. Clauses authorizing total trustee discretion over investments (including where trustee authorized to maintain risky investments): no duty of impartiality

4. Clauses that direct the LT to be given the income ‘in specie’: no duty of impartiality

5. Clauses that direct trustee to sell an asset but give them power to retain or postpone sale

Royal Trust v Crawford: testator left shares in a closely-held corporation to his wife as LT and his nephews/nieces as remainders; trust directed conversion of assets (trust for sale) but gave trustee power to retain the assets or postpone the sale. A huge dividend on the shares is declared and paid to the wife. Issue is whether dividend should be apportioned.

L: Where there is a trust for sale with a power to retain, question is whether the power is simply allowing trustee to determine a good time to sell. If so, to exclude Howe v Dartmouth there must be some other indication that the LT is entitled to all the income from retention.

A: Trust instrument does not prioritize any of the beneficiaries.

Lottman v Stanford: Testator left personalty and realty to wife as LT and children as remainder. Directed sale of “personal estate” (held to be personalty only), with power to postpone sale. All asset sold except the land, which was leased to one child at rate too low to generate income. Wife sued.

L: SCC held that Howe v Dartmouth does not apply to realty. A: Widow only entitled to income from the realty, which was $0 here. Testator’s express wishes also precluded Howe from applying to the personalty.

Lauer v Stekl: testator left personalty and realty to his daughter as LT and his grandchildren as remainders. Trust required conversion of entire estate into $, but had power to postpone sale or retain assets.L: Have to assess what is the dominant intention in the instrument: conversion or retention.A: Conversion clause applied to entire estate, not just personalty. Duty of impartiality thus covered all the assets in the estate including the land.

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6. Clauses that do not direct sale, but give trustee power to sell and power to retain: possibly duty of impartiality, where no requirement of retention

In re Smith: testator left shares in Imperial Oil to his son. Son created an inter vivos trust, with his mother as LT and himself as remainder. Trust had powers to sell and to retain shares. Shares were not producing enough income, mother wanted them sold. Canada Trust refused b/c son did not want sale.

L: Power to retain is not a requirement to retain: power may give rise to duty of impartiality. Although Howe does not apply to inter vivos trusts, trust may still include duty of impartiality. A: CT in breach of trust for prioritizing remainder over LT.

7. Clauses that give trustee power to retain or require retention, where trust assets are settled shares: “form is substance”

Re Waters Estate: by directors’ resolution, the company profits were distributed to shareholders as preferred shares instead of dividends. Thus the trustee who received the preferred shares in the estate, treated them as capital (not income).

L: Form is substance: whatever form in which corporation gives money to the trust, will determine who that money benefits, subject to testator’s intention (dividends benefit LT, shares benefit the remainder)

Re Welsh: testator left his assets to wife as LT and kids as remainder; assets included shares in closely-held corporation. Corporation is then wound down: assets are liquidated, and returned to shareholders as dividends (favors the widow). Wife then decides, and her new husband/kids claim the money.L: Form is substance rule is subject to testator’s intention.A: The dividends should be treated as capital. If treated as income, they fall to wife’s estate i.e. new husband/kids. But testator’s intention was to care for his widow during her lifetime, then leave to his kids.

E. Duty to Apportion Debts and Disbursements-common law rule: in winding up an estate, trustee must apportion debts and disbursements equally between LT and remainder (Allhusen v Whittel)-WESA s.144 overrides this: trustee has wide discretion to determine who will pay expenses

F. Duty to Provide Information-historically trustees need not volunteer information unless asked; but beneficiaries may seek and are entitled to obtain information concerning the nature of their equitable interest once they are majority age

-however today beneficiary has right to seek information that will enable them to judge whether trust is being properly managed: that right is even broader where they allege breach of trust

Re Londerry’s Settlement: beneficiary cant sought agenda and minutes of a meeting in which the trustees had made a discretionary decision that resulted in her not receiving a benefit.L: Beneficiaries only entitled to small amount of information: financial statements, portfolio of assets, trust instrument [subject to redactions for confidential info], reasonable information regarding management of property.Not entitled to info about how discretionary decisions made, agenda, meeting minutes, communications b/w trustees and other trustees or beneficiaries.

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Schmidt: court may allow more information where beneficiary is closely connected to settlor/testator, or where beneficiary could potentially be invested with very wide power with regards to the trust.

Creighton v Creighton Estate: trustee was holding back information from co-trustees.L: Trustees are entitled to all trust-related information even if beneficiaries are not.

N-Krypt International Corp v Lavasser: “trust-related information” is “any information that is fully responsive, and a comprehensive narrative of the relevant facts under each subject heading, together with any docs or relevant portions of docs that support them”.

Froese v Montreal Trust Co: beneficiaries cannot access legal opinions that relate to a trustee, but can access legal opinions that relate to the trust assets or interpretation of the trust.

G. Duty to Account-trustee must assemble financial statements and publish them regularly, though is not required to provide instant response to beneficiary who asks for them: Sandford v Porter-Trustee Act s.99 provides that in deceased’s estate, trustee has two years from date of appointment to file accounts

Taxation-trusts are separate tax entities: trustee pays the tax on the trust, usually from the trust fund-if trust fund produces insufficient revenue to pay tax, beneficiary must pay the tax (in some jurisdictions trustee must pay in this scenario but is indemnified by beneficiary)

Trustee’s Rights and Powers

Trustee’s Rights

1. Right to Remuneration-common law: no right to remuneration, though Court had inherent power to award it

Trustee Act, RSBC 1996

-s.88(1): trustee entitled to remuneration amounting to 5% of estate, and Court may so award it

-s.88(2): court may make an order under sub (1) from time to time, and the remuneration must be given to the trustee in passing his accounts, in addition to any allowances for expenses incurred by the trustee

-s.88(3): person entitled to an allowance under (1) may apply annually to Court for care and management fee, not exceeding 0.4% of estate

Re Pedlar: to receive a C&M fee the trustee must explain the work they did, with reference to the Re Sproule factors. If successful, not automatically entitled to 0.4%. Relevant factors in deciding the fee include:

--value of the estate--administration costs and time--degree of responsibility imposed on trustee--how much work the trustees actually did, did the trustees meet, how long were the meetings--trustees’ skills and abilities

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--did the trustees succeed or fail in maintaining the assets--did the trustees do some extraordinary work

Re Sproule Estate: trustees applied for C&M fee under s.88(3). Trust assets were valuable shares, so fee would be $25-30K. Beneficiaries opposed b/c supposedly trustees had simply held the shares as a passive custodian.L: “Care and management” is the responsibility of supervision and vigilance over preserving/disposing of the assets, but also decision making in resolving problems that arise in the estate.Amount of remuneration owed based on: value and complexity of the trust, care and responsibility arising from it, time occupied in performing these duties, skill and ability required, trustee’s success.A: Trustees entitled to the fee. Had done more than simply sit on the shares: constantly monitored them.

2. Right to Indemnification-trustee must be indemnified by beneficiaries where there is insufficient $ in trust fund to reimburse them for trust expenses

Re Reid: beneficiary lived in BC, trust assets and trustee were in the UK; trust was taxed in the UK, the trustee paid the taxes and sought indemnification from beneficiary. Beneficiary argued trustee should have let the trust simply owe taxes, since beneficiary lives in BC and is unaffected if trust owes tax.

L: Trustee is owner of assets under UK law, so is bound to pay and is personally at risk for default on taxes. Beneficiary must indemnify trustee.

Trustee’s Powers-stem from common law, trust instrument, and Trustee Act

Administrative Powers under Trustee Act

Trust for sale: automatically grants the power to determine the manner of sale (auction, private solicitations, etc.): ss.5-6

Appointment of solicitors and bankers: s.7 Use of insurance: s.8 Compounding debts: s.23 (person owes money to the trust, trustee can negotiate settlement to

determine how the person will pay) Expenditures for repairs and improvements: s.11 Investment agents: ss.15.5 & 22 Maintenance of persons

Limitations on Trustee’s Powers By the BeneficiariesSaunders v Vautier: beneficiaries’ strongest power is to call on the trust, where they are sui juris.

In Re Brockbank: trustee was retiring, beneficiaries wanted to replace him with a bank trustee, co-trustees opposed.L: Court sided with co-trustees, since they have right to choose successor due to joint tenancy, and trust instrument reflected confidence in trustees’ judgement.

Butt v Kelsen (confirmed in Konig v Hobza): trust had enough shares in a company to vote the trustees in as directors; beneficiaries then sought company info not normally available to shareholders, on basis that

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the trustees-turned-directors only obtained their position through the trust assets.L: Beneficiaries only entitled to documents available to all shareholders, since trustees-turned-directors had duties to the company and minority shareholders.

Re Martin Estate (narrowed Butt v Kelsen): courts must simply balance the interests of all stakeholders when dealing with information disclosure issues. Where corporation has minority shareholders unassociated with the trust, beneficiary’s request for full disclosure more likely to be rejected.

By the CourtFox v Fox Estate: absent bad faith, the Court is reluctant to intervene in trustee powers; but will still intervene where the trustee is clearly mistaken or acting on incorrect information.

Advice and opinion: Court tries to limit the advice it will give. Under Trustee Act s.86 trustee can seek advice on administration and management of trust property from BCSC, and if Court’s advice is wrong, trustee cannot be liable for breach of trust.

Tempest v Lord Comoys: old manor related to a family went up for sale, family trust did not have assets to buy it outright, but family wanted the trust to enter mortgage to buy it. One trustee approved, one trustee did not. Sought advice from Court.L: Court refused to intervene. Settlor appointed co-trustees knowing trust would require unanimous agreement.

Re Wright: offer to buy shares held in trust, trustees disagreed about whether purchase price was adequate.L: Court refused to intervene.

Re Billes: trust assets included high-priced stock, and trustees disagreed over whether the shares should be sold to diversify the trust assets.L: Court intervened, b/c trustees were deadlocked: had divided into camps with strong ideological differences.

Where Trustee Acts Outside Trust Objectives: court will step in.

Schipper v Guaranty Trust: trustees refused widow’s request for encroachment on the assets (for maintenance), trustees had the power to encroach but were not required to do so. Beneficiary applied to Court to force trustees to comply.L: Court ordered the encroachment. Purpose of the trust was primarily to ensure the widow’s wellbeing, and income being generated was inadequate.

Failure to be Even Handed: where trustee not properly apportioning b/w beneficiaries, court may step in.

Re Fleming: testator left life estate to his wife; trustees were directors of a corporation and had a surplus in the corporate trust assets, had to decide whether to distribute it as capital or income.L: Court held the money should come in as shares (prioritize remainder), b/c there was already lots of income/better tax consequences this way.

Ousting Court’s Jurisdiction: Court always has overriding supervisory power.

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In re Wynn: where trust instrument attempts to empower trustee to make “binding and conclusive” decisions, these will be ignored by the Court: no instrument or statute can oust the Court’s inherent jurisdiction

-however trust can give trustees exclusive power to adjudicate on matters of fact (e.g. what is the meaning of the word “reside” in a trust instrument)

Boe v Alexander: Court will always be able to review trustee behaviour where the trustees have acted dishonestly, or failed to exercise discretion, prudence, or act impartially where required

VI. Fiduciaries, Unjust Enrichment, and Constructive Trusts

1. Constructive Trusts

Overview-constructive trust is a remedy imposed where a person is found to be a fiduciary: allows claimant to have equitable title or damages for breach of trust-person found to be a fiduciary holds equitable title in name of claimant: can be per se or ad hoc-often imposed where person holding legal title has received a benefit that someone else should have had

--differs from RT/express trust: in those trusts, intention of transferor is to fragment equitable title and give it to a third party, or hold it for himself--in constructive trust, transferor had no intention to give equitable title to anyone but transferee

-has two components: (1) institutional: is there a fiduciary relationship, and (2) remedial: what consequences flow from that relationship

2. Fiduciaries

Per Se (Institutional) Fiduciaries

Disloyal trustees (Boardman) Faithless directors and seniors officers of companies (Canaero) Delinquent agents in principal-agent relationships Miscreant solicitors who have wronged their clients Overreaching partners Bribers and other corrupt officials Undue influencers; e.g. a doctor who unduly influences a patient Breach of confidence tricksters Intermeddlers in trusts (e.g. trustees de son tort)

Non-Fiduciaries Subject to Constructive Trust Vendors who take all steps to transfer property, but title has not been registered in buyer’s

name: buyer will receive a constructive trust.

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Rich v Krause: the Richs bought property from Krause, who almost completed sale but then disappeared. Court found constructive trust in favour of the Richs.

Equitable Mortgage: mortgagee will receive a constructive trust.

Person deposits duplicate indefeasible certificate of title with lender, which creates an equitable mortgage, and then fails to make payments on the loan; lender can seize the property on basis that mortgagor held legal title on constructive trust for the lender.

Mayo v Leitovski: testator left property to Leitovskis as LT, and Mayo as remainder. Mr. L dies, wife cannot afford property tax payments. City seizes the land. Leitovskis’ daughter buys the land at City auction (free of encumbrances), then gives fee simple estate to Mrs. L.L: Mrs. L holds the legal title on constructive trust for Mayo, the equitable remainderman.

Ad Hoc Fiduciaries-not arguing these relationships are always fiduciary: only in the specific circumstances at hand-ad hoc fiduciary requires (1) undertaking, (2) vulnerability, and (3) B’s interest adversely affected

Guerin v The Queen: federal government negotiating on behalf of the Musqueam, with Shaughnessy Golf Club, who wanted to be a tenant on Musqueam land. Rental price set by Musqueam was too high, so government unilaterally and unbeknownst to the FN, lowered it. 10 years later the FN found out and sued.

L: Categories of fiduciaries are not closed; hallmark of fiduciary relationship is where the relative legal positions are such that one party is at the mercy of another’s discretion (Dickson J).A: Federal Crown was a fiduciary negotiating on behalf of FN, and was in breach of trust. Musqueam awarded equitable compensation based on lost opportunity cost, i.e. lost rental income.

Frame v Smith: fiduciary obligations arise where (1) fiduciary has power to exercise discretion, (2) fiduciary can unilaterally exercise that discretion to affect the beneficiary’s interests, (3) the beneficiary is vulnerable to the fiduciary holding that power (Wilson J, Dissent).

Alberta v Elder Advocates (2011): argument that Alberta government had fiduciary duty towards elderly people, based on various statutory provisions taken together. No express undertaking found.

L: Ad hoc fiduciary relationship requires:

(1) an undertaking by the alleged fiduciary to act in the best interest of the beneficiary (2) a defined person or class of persons vulnerable to a fiduciary’s control, and;(3) a legal or substantial practical interest of the beneficiary that stands to be adversely affected by the alleged fiduciary’s exercise of discretion or control

UndertakingGalambos v Perez (2009): lawyer’s practice often in financial difficulties, his assistant borrows money from the practice (without telling him) to pay off the debts owing; lawyer tells assistant to take a salary. Practice then goes bankrupt. Assistant wants to be a preferred creditor, so seeking constructive trust.

L: To be an ad hoc fiduciary person must make an undertaking: by agreement, implied, or under statute. Beneficiary must be vulnerable to ad hoc fiduciary.A: Assistant not vulnerable to lawyer, as he did not originally know about/ask her to take out, the $.

Sun Indalex Finance v United Steelworkers: need to find that the alleged fiduciary took on an undertaking to exercise care towards, and comply with a duty of loyalty towards, the alleged beneficiary.

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M(K) v M(H): child brought action against father for prolonged incest, claimed constructive trust over his property (b/c trust actions have no limitation periods). L: Parent always had implied undertaking towards their children.

VulnerabilityLac Minerals v Corona Resources: Corona gets information that a certain farm area has gold, and wants to negotiate joint venture with LM; while negotiating, it sells LM where the gold is. LM secretly buys the farm and constructs a huge mine that becomes highly profitable. Corona sues for breach of trust.

I: Is vulnerability a necessary component of a fiduciary relationship?

L: Majority: vulnerability is necessary (Guerin). Minority: vulnerability may be sufficient, but is not necessary. Lesser things like dependence can trigger fiduciary duty. A: Corona gets constructive trust over the property, since concurring judge agrees with remedy.

Hodgkinson v Simms: stockbroker had money he wanted to shield at a tax shelter, so he gave it to an accountant to invest in MURBs (multiple unit residential buildings). Real estate market crashes, stockbroker left with huge mortgage payments. Then finds out accountant got commission on the MURBs he sold. Sues for breach of fiduciary duty.

L: Majority: sides with minority judgement from Lac Minerals -- vulnerability is not necessary. Nature of the parties’ reasonable expectations is relevant, which will be affected by complexity of subject matter, community and industry standards, discretion, influence, vulnerability, and trust. Minority: vulnerability is necessary.

A: Majority: accountant in breach for not disclosing his commission. Stockbroker entitled to equitable compensation (not a CT b/c stockbroker already has title to the properties). Minority: loss was simply due to normal market downturn.

Galambos v Perez (2009): lawyer’s practice often in financial difficulties, his assistant borrows money from the practice (without telling him) to pay off the debts owing; lawyer tells assistant to take a salary. Practice then goes bankrupt. Assistant wants to be a preferred creditor, so seeking constructive trust.

L: To be an ad hoc fiduciary person must make an undertaking: by agreement, implied, or under statute. Beneficiary must be vulnerable to ad hoc fiduciary.A: Assistant not vulnerable to lawyer, as he did not originally know about/ask her to take out, the $.

3. Unjust Enrichment

-constructive trust may be imposed as remedial measure, where there is no fiduciary relationship, but the plaintiff has lost because of the defendant being unjustly enriched-unjust enrichment: where property acquired through the pursuit of one’s own advantage, but at the unfair expense of another

Basics of Unjust EnrichmentPettkus v Becker: couple lived together and worked to acquire three bee farms; couple then splits up, husband keeps the farms and refuses to give any interest to the woman. Evidence that wife put a lot of work into the properties.

L: Unjust enrichment requires:

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(1) An enrichment by the defendant;(2) A corresponding deprivation by the plaintiff;(3) Absence of juristic reason for the enrichment.

Must be causal connection b/w the acts of the plaintiff, and the property interest claimed: i.e. her actions contributed to the maintenance, acquisition, or improvement of the property.

A: No juristic reason for property being in husband’s name only, since woman had reasonable expectation they would share the property.

Chase Manhattan v Israel Bank: P accidentally paid D twice, not knowing that someone in the company had already paid.L: This was an enrichment and was unjust b/c P simply made a mistake and D was not entitled to profit from that mistake. D should restore the situation, but had gone bankrupt, so P awarded a constructive trust (became a preferred creditor) over D’s estate.

Unjust Enrichment in Family Context-note that cohabitation cases often involved unjust enrichment b/c under the FRA unmarried cohabitating couples had no right to property division upon separation: under the FLA common-law partners are now entitled to property division

Kerr v Baranow: couple living together, relationship then fails. Wife seeks constructive trust over assets on basis of unjust enrichment.L: Where a person is entitled to a constructive trust b/c (a) the defendant was a fiduciary, or (b) the defendant was unjustly enriched, it is just one of the equitable remedies they may be awarded. The plaintiff may thus be awarded equitable compensation in lieu of equitable title.A: Wife had been disabled at all material times during the relationship, so had not contributed financially to the relationship. No constructive trust awarded.

Vanasse v Seguin: high-powered couple with two kids. Wife takes time off work to raise the kids, during which time husband’s career flourishes.

L: Enrichment/deprivation: husband would not have been able to succeed as he did without his wife taking care of the kids: thus he was enriched, she was deprived. Juristic reason: mutual conferral of benefits between parties is not a juristic reason; the value of benefits that each party contributed, should be set off against each other, at the defence (no enrichment) or remedy (constructive trust) stage.Remedy: where plaintiff can show causal link b/w their actions and the acquisition/maintenance/improval of the property, and can show monetary award is insufficient, CT may be awarded instead of damages.

A: Remedy: wife cannot show specific involvement with the assets, so it is hard to separate them (to impose a constructive trust) as they are all in the husband’s name. Also too hard to assess what “fee” is appropriate for the wife’s “services” on a quantum meruit basis. Calculate wife’s entitlement on the “value survived” approach: look at the value of the matrimonial property at time of separation, and determine what portion of that value is attributable to the claimant’s services.

Requirements for Awarding Constructive Trust as Unjust Enrichment Remedy

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Soulos v Korkontzilas: Korkontzilas was a real estate broker acting as agent for Soulos, who wanted to buy property. K presented a listing to S, S was interested and told K to make an offer. K made the offer, but then conveyed the property into joint tenancy b/w himself and his wife, and told S the vendor no longer wanted to sell. S found out what happened and sued, seeking a CT over the property.

L: No inherent right to a CT, however a CT may be awarded even without unjust enrichment where there is a wrongful act. The unifying concept behind a CT is “good conscience”: where property acquired in circumstances that the legal title holder may not retain title in good conscience, equity converts him to a trustee. A: ONSC did not award a CT b/c K had not been unjustly enriched: he paid FMV for property, and its value then decreased. ONCA/SCC overturned this and awarded a CT despite no unjust enrichment.

To award a CT, generally four conditions must be satisfied: (Soulos)(1) D must have been under an equitable obligation (obligation of the type that courts of equity have enforced) in relation to the activities giving rise to the assets in the D’s hands;

(2) The assets in the hands of D must be shown to have resulted from deemed or actual activities of D in breach of his equitable obligation to P;

(3) P must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like D remain faithful to their duties; and

(4) There must be no factors which would render imposition of a CT unjust in all the circumstances (e.g. the interests of intervening creditors must be protected).

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