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Trusts: Pavlich 2017 Fall

Table of ContentsINTRODUCTION...........................................................................................4

THREE CHARACTERISTICS OF A TRUST.................................................4EQUITY’S MAXIMS....................................................................................4

EXPRESS TRUSTS........................................................................................5VESTING....................................................................................................5

I. Variable #1: Forms of Transacting Transfer of Property..............................5II. Variable #2: Nature of the Type of Property Entrusted..............................7

CERTAINTY...............................................................................................7I. Certainty of Intention....................................................................................7II. Certainty of Subject Matter..........................................................................9III. Certainty of Objects (Beneficiaries)...........................................................10

FORMALITIES AND EQUITABLE INTERESTS...........................................13FULLY SECRET TRUST............................................................................13HALF SECRET TRUST.............................................................................14Rectification of a Will: Effect on Secret Trusts.......................................14EQUITABLE FUTURE INTERESTS..........................................................15

I. Is the Equitable Interest Vested or Contingent?.........................................16II. What Type of Contingency?: Examples of Forms of Contingent Future Interests...........................................................................................................16III. Legality of Qualifying Conditions or Limitations.......................................17

REVOCATION BY SETTLOR.......................................................................19PURPOSE TRUSTS.....................................................................................20

PRIVATE PURPOSE TRUSTS...................................................................20I. Horses, Dogs, Graves and Monuments........................................................20II. The “Denley Rule”......................................................................................20III. Unincorporated Associations or Clubs......................................................21IV. Private Purposes as Powers.......................................................................23

CHARITABLE PURPOSE TRUSTS............................................................23I. Public Benefit Requirement (Commissioners of Income Tax).....................23II. Heads of Charitable Purpose (Commissioners of Income Tax)..................24III. Mixed Charitable and Non-Charitable.......................................................26IV. Certainty of Object and Cy-Pres................................................................26

RESULTING TRUSTS..................................................................................28(1) AUTOMATIC RESULTING TRUSTS....................................................28

I. Transfer under a Void Trust........................................................................28II. Transfer of Trust Assets with Excess Equitable Interest...........................28III. The “Quistclose Trust”...............................................................................29IV. Surplus Funds in Trust After Trust Objectives Achieved..........................30

(2) PRESUMED RESULTING TRUST.......................................................31REBUTTING THE PRESUMPTION OF RESULTING TRUST....................31

I. Evidence to Rebut the Presumption............................................................31II. Special Situation: Money in Joint Bank Account........................................32

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PRESUMPTION OF ADVANCEMENT.......................................................33I. Husband Wife..........................................................................................33II. Parent Child............................................................................................33II. Rebutting the Presumption of Advancement (Onus on Transferor)...........34

THE BENEFICIARY....................................................................................38WHAT DOES THE BENEFICIARY OWN?.................................................38BENEFICIARY’S ABILITY TO DISPOSE OF EQUITABLE TITLE..............39

I. Beneficiary’s Ability to Dispose of Equitable Title......................................39II. Priority Among Assignees...........................................................................40

PROTECTIVE TRUST...............................................................................40TERMINATION OF TRUST BY BENEFICIARY.........................................41

I. Is it a Discretionary Trust?..........................................................................42II. Is the Interest Vested in Possession or Enjoyment?...................................42III. Limits on the Scope of Application of the Rule?........................................43IV. Saunders Do Not Apply: Pensions and Commercial Trusts.......................44

VARIATION OF TRUSTS..........................................................................44I. CL Variation: Variation of Trusts by Common Law.....................................44II. Statutory Variation: Trust Variation Legislation........................................45

THE TRUSTEE............................................................................................49WHO IS THE TRUSTEE?..........................................................................49POWERS OF THE TRUSTEE....................................................................49TYPES OF THE TRUSTEE........................................................................49PROPER APPOINTMENT OF THE TRUSTEE...........................................50

I. Successor Trustees......................................................................................50II. Appointment of Trustees............................................................................50

VESTING OF ASSETS IN NEW TRUSTEES..............................................51RETIREMENT OF TRUSTEES..................................................................51REMOVAL OF TRUSTEES........................................................................51

I. Under the Trust Instrument........................................................................51II. Under the Trustee Act................................................................................52III. Judicial Removal........................................................................................52

RESIDENCY OF THE TRUST...................................................................53TAXATION OF THE TRUST......................................................................53DUTIES OF TRUSTEES............................................................................53

I. Duty to take Custody of Trust Assets..........................................................54II. Duty to Invest: Investment Duties and Powers..........................................54III. Duty of Loyalty...........................................................................................56IV. Duty to be Impartial...................................................................................58V. Duty to Provide Information.......................................................................62VI. Duty to Account.........................................................................................63VII. Duty to Apportion Debts and Other Disbursements.................................63

RIGHTS OF TRUSTEES...........................................................................63I. Right to Remuneration................................................................................63II. Right to Indemnification.............................................................................64

POWERS OF TRUSTEES..........................................................................65

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CONTROLS OF TRUSTEES......................................................................65I. Control by Beneficiaries..............................................................................65II. Control by Court.........................................................................................66

CONSTRUCTIVE TRUSTS...........................................................................68FIDUCIARY PER SE.................................................................................68

I. Does the Situation Fall Under The Definition of a “Fiduciary Per Se”?......68Ii. Other Situations Where the Constructive Trust is Used (Land Transfer, Protection)........................................................................................................69

AD HOC FIDUCIARIES............................................................................69I. Constructive Trusts with Ad Hoc Fiduciaries..............................................69II. Ad Hoc Fiduciary Duty in a Contract / Business Circumstance.................70III. A Fiduciary Duty is Not Confined to Economic Interests Only.................71IV. A Statute Can Form the Basis for an Ad Hoc Fiduciary Duty....................71

UNJUST ENRICHMENT...........................................................................72I. Factor 1: Enrichment to the Defendant.......................................................72II. Factor 2: Deprivation to the Claimant........................................................73III. Factor 3: No Juristic Reasons for Imbalance.............................................73IV. Causality....................................................................................................73V. Is it Appropriate for CT to be Granted for Unjust Enrichment?.................73

REMEDY FOR CONSTRUCTIVE TRUST...................................................74

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INTRODUCTION

THREE CHARACTERISTICS OF A TRUST

IN GENERAL: A trust arises whenever there’s a split between LEGAL and EQUITABLE ownership of a property… when the person who holds legal title (the “trustee”) is OBLIGED to manage the property for the benefit of the person who holds the equitable beneficial title (the “beneficiary”)

1. FRAGMENTATION: Ownership/title to property is SPLITLegal Title control and management of property (given to trustee)Equitable Title enjoyment of property (given to beneficiary)** BOTH legal and equitable titles are freely alienable (i.e. can be transferred to other parties)

2. FIDUCIARY DUTY: The trustee owes a duty of good faith to the beneficiary because of the latter “dependency” on the former for good managements and administration of the trust assets

o Policing of this duty is the responsibility of the BENEFICIARY

3. FOLLOW: As property, both the trustee and the beneficiary obtain “in rem” rights in the trust assets

o Transferability: The beneficiary has “property” b/c they can transfer his interest to another person, and the trustee is obliged to direct the benefits of the trust property to this new person

o Tracing: Because of in rem characteristic of Trusts, if the trustee transfers title to a third party IN FRAUD, the beneficiary can still claim the benefits of the property from the third party (even though the third party thought the beneficial interest in the property were his or hers outright).

o Exception: Equity’s Sweetheart: If the property holder obtained the property after:

(1) Paying consideration (2) In good faith (no fraud, wilful blindness, etc.); AND (3) Without notice … They are considered a “bona fide purchaser for value” and

the beneficiary’s equitable interests ends

EQUITY’S MAXIMS

Maxims based on good conscience and provide the foundational grid for equity law:

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• Equity follows the law. • “Clean Hands” Doctrine: Those who seek equity must do equity• Equity assists the vigilant and not the tardy: Laches are not rewarded.• Equity is equality: There must be proportionality among contributors.• Equity looks to the intent rather than the form: Substance trumps

form.• Equity looks on that which ought to be done as being done.• Equity does not assist a volunteer. • Equity acts in personam (between the 2 people): when there is an action

against the trustee by the B, the T must manage the trust as a prudent biz person.

• The in rem aspects of the equitable interest in a trust: Trustee has a proprietary right against the world

• The fiduciary position of the trustee and what that means in general terms

• Equity will not permit a wrong without a remedy

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EXPRESS TRUSTS

Two Ways that express Trusts can be constructed:

VESTING

CONCEPT: fully conferring with the rights of property

VESTING VARIABLES: 1. Form of transacting or dealing as a way of constituting the trust2. Nature of the type(s) of property entrusted

NOTE: Donationes mortis causa (“If I die this is your, but if I live I’m keeping it”) combined with a transfer might violate WESA and could be void

I. Variable #1: Forms of Transacting Transfer of Property

TEST: To determine which form of transacting is used, one must review the donor’s intention in setting up the trust.

(1)Personal Declaration of Trust or Automatic Constitution of a Trust: Donor may declare himself the trustee of the property and continue to hold

Four Requirements that must be satisfied for an express trust to be

considered valid

1. All parties must have proper capacitya. Testator/settle must NOT be a minor,

mentally incompetent (except as permitted by Statute).

b. Beneficiary could be ANY person or purpose (subject to certainties).

2. The Trust must be completely constituted;a. Trust must be declared AND title must

have conveyed to the trustee.3. The Three Certainties must be satisfied;

a. Note a tendency for the courts to find certainty because not doing so would be to seriously frustrate or thwart settlor intentions

4. All requisite formalities must be met.

Inter vivos act

performed by a settlor in which identified items are transferred to a trustee and the equitable interest disposed to a beneficiary

An act per mortis causa

testamentary disposition in which transmission of the deceased’s property is affected through a will or intestate succession

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legal title, but the equitable title is now held for the beneficiary (Elliott v Elliott Estate); vesting happens almost immediately

WattAcceptable for a person to be both the trustee and beneficiaryExample of personal declaration: Settlor declares that the boat is jointly owned by himself and Ms. W

Elliott v Elliott

Mere ORAL declaration is acceptableTestator omitted her daughter from her will, intending to provide for her in a separate agreement and set aside a fund for her. Court held that testator declared that the funds were held in trust for the benefit of the daughter and did not form testator’s estate.

Glynn v Federal Commissioner of Taxation

If a settler makes a declaration of trust, then there is a trust even if the beneficiaries are not awareDirectors approved the transfer of shares in the minutes & share register; dividends never paid to the sons, but the sum was used by their dad to support them

(2)Declaration or Settlement of a Trust: Donor appoints a third person as trustee of the property, conveys the thing to him and directs him to hold the trust asset for a named beneficiary

o In situations when the settlor has not vested title in assets to the trustee: trust is incomplete/imperfect, CL rules apply under the maxim of equity – “equity follows law”

MilroyThe gift of the beneficial title of the property is only effective if the legal title of the asset is vested in the 3rd party trusteeSettlor failed to register trustee as the owner of shares; ineffective trust

Ratner

Promise does not complete the gift: formalities of transfer must be completed to perfect giftMom promised to give shares back, but did not register transfer of shares, so failed to complete the transfer by vesting legal title in son; ineffective trust

Strict compliance w/ formalities is not always necessary

Re Rose

Where the donor has done everything he is able to do, legally, in the ordinary course of business and thereby lost control over the property, equity deems conveyance as substantially satisfied; de facto loss of control is the essence

Mordo

In the case of land: execution of Form A + handling of transfer to trustee = sufficient to vest title without formal registrationCourt has accepted as OK: transferor has intention + relinquished control of the property to put the transferee in a position to complete transfer

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Carson

In a transfer that is formally incomplete, a key factor is that there needs to be an intention to be immediately and unconditionally bound and had relinquished control of the property by putting the transferee in a position to complete the conveyanceTransfer was to take place upon grantor’s death but court held that it was an ineffective disposition because there was no intention to be immediately and unconditionally bound

(3)Trusts under Contractual Settlement: The parties deal with each other contractually in order to set up a trust which covers the agreed type of property; trust is constituted when the beneficiary can enforce the contract (i.e. when the contract is binding)

o In situations when the settlor has not vested title in assets to the trustee: If the contract is (1) property constituted and (2) fully enforceable proposed transferee of legal title could obtain an order of specific performance of (tantamount to transfer) under the maxim of equity – “equity regards as done that which was intended to be done”

(4)“Adventitious” Form of Transfer: A person becomes trustee through later “accidental” acquisition of legal title through an unrelated (to the settlement) conveyance/transmission (e.g. in a will);

o Strong v Bird: If an inter vivos gift if imperfect solely due to the fact that the transfer to the intended done is incomplete, the incomplete gift will be perfected if and when the donee subsequently acquires title to the property in his capacity, say, as executor of the donor’s estate

Hilliard v Lostchuk: Canadian Example of Strong v Bird IMPORTANT! Rule in Strong v Bird does not apply to a

promise (without consideration) to give property at a later dateo Four Conditions for Strong v Bird to Apply:

(1)Donor intends to make immediate gift to donee, but gift is imperfect b/c relevant formalities are not followed

(2)Immediate gift must be extended (Re Freeland)(3)Intention must continue unchanged until donor’s death (Re

Gonin)(4)Donor dies & donee appointed as personal representative,

legal title to property now vested in donee & gift is perfected

Strong v Bird

Son’s stepmother lent the son money. Agreed to waive the rent in lieu of repayment of the loan but eventually absolve him of the debt (no formal execution). After stepmother’s death, son is made executor of the estate // Court held that on her death the intended gift of the balance became perfect when the son became the executor

Hilliard Canadian Example of Strong v Bird: Couple (X&Y) gave kids, A&B,

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v Lostchuk

subdivided parcels of land. C (kid) lived with X. X sought to give C his own subdivision and applied to the City for rezoning. X&Y died before approval. C was appointed trustee of X&Y’s estate. A sought to have the whole of the family property (inc. the parcel marked for C) distributed according to the will (C will not get anything) despite X’s intentions. C successfully argued that he was legally entitled to the eland on application of Strong v Bird.

Re Freeland

F said she would give P her car, but the car was currently at garage being fixed. Car never delivered to P & F died. Exception not apply: gift was not immediate

Re Gonin

M allegedly attempted to give house & garden to daughter. M failed to sign deed & subsequently sold part of garden. Changed intention: by selling garden M still considered herself the owner

II. Variable #2: Nature of the Type of Property Entrusted

• IN LAW, the appropriate form of delivery correlates to type of thing proposed to be transferred:

o Realty requires registration of title in LTO (MacLeod v Montgomery & Mordo)

o Shares in company need entry in share register (Milroy & Ratner)o Chattels need actual or symbolic delivery o Assignments of certain type of choses need to be in writing (i.e.

mutual trust)

CERTAINTY

• A fixed trust is valid if (a) the objects of the trust have been set out with such precision that beneficiaries can be individually identified by name or by class, and (b) can be completely listed

• A discretionary trust is valid if (a) the description of the objects meets the is/is not test for certainty and (b) the range of objects is not so “hopelessly wide” that the trust is administratively unworkable

• The difference between discretionary trust and power is now a matter of degree: the extent to which administrative unworkability is the outcome of evidential certainty can affect discretionary trusts, but cannot with powers

• The is/is not test means that the trustee is able to determine, with certainty, whether any given individual is or is not a member of the class of potential beneficiaries as described in the object clause of the trust instrument

I. Certainty of Intention

CONCEPT: Certainty that there is an intention by which the settlor to create a trust

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FIRST: Look at

the language/words that are used in the transfer. If the words of transfer to the transferee request care for a third party no trust on transferee, but if it directs care of third party a trust will be imposed on trustee

o DECIDE: Whether the words reflect an intention to form a trust with

obligations and a charge imposed on the transferee to act only to benefit another; or

Whether title transfer is motivated by an out-and-out gift combined with words that indicate a hope that the transferee, as full owner, use the gifted property in some way to help another individual

o TEST: Settlor’s words and conduct must evince a clear intention to establish a trust

o HINT: Words used that are commanding indicate trust You must deploy the assets to benefit X Trust You may deploy the assets to benefit X Trust

o ALSO CONSIDER: i. “Trust”: not necessary to use the actual word “TRUST” (Re

Kayford). Equity looks to substance, not form; Imperative directors are enough

If “trust” is used, hard to say not a trust unless there is no directive force on the trustee and every action undermines the utilization of “trust”

ii. “Precatory Words”: “In keeping with the wishes I have expressed”/”dispose”/”in full confidence”: Words expressing a wish or request are not necessarily words that connote a trust (Hayman)

SECOND: Look to conduct: Look at all circumstances (inc. all words and/or lack of words to establish whether there is an imperative (versus

CHECKLIST FOR CERTAINTY OF INTENTION

1. Look to the language useda. No need for the words “trust” or “confidence” to

be usedb. Be wary of precatory words (“I wish”, “I hope”, I

request”) cause courts to give effect to an out-and-out gift

2. Look to the conduct and all the circumstances3. Look to statute4. If all of the above still = uncertainty, then no express

trust out-and-out gift

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permissive) on the transferee to hold as manager of the asset for the benefit of a 3rd party beneficiary (Royal Bank v Eastern Trust Co)

THIRD: Look to statute to see if there are any legislation that impose a trust? (Consumers’ Association of Canada v Coca Cola)

Hayman v Nicholl

Deceased had a curious provision in the will – $ to daughter “in full confidence [that] she will dispose [of] it in accordance with the wishes [she] had expressed to her”The settlor’s words and conduct must evince a clear intention to establish a trust. There is a need for some clear signal that the property given to the transferee must be used for a beneficiary and not personally. You cannot assume that the term “in full confidence” automatically signals a trust. It may simply signal a moral appeal. There is a presumption in favor of a gift in family-type trusts.

Re Adams and Kensington

What reads like a trust may not, in the circumstances, be characterized as such. No trust was created where the instrument, a will, declared property “unto and to the absolute use of my wife, in full confidence that she will do what is right as to the disposal thereof between my children.” The wife got absolute title to the property and no trust created.

Royal Bank v Eastern Trust Co

C owed RBC $, so assigned rentals to RBC. Sold property to S, who was required to transfer property back if a significant portion of debts discharged. RBC arguing b/c S knew of the situation, $ received was on trust for RBC // The way the transactions were framed did not show that RBC regarded itself as a beneficiary under a trust (it was fairly directive, unlike beneficiaries who are fairly passive) – Evidence showed that RBC had treated CC as debtors and had taken CC to court as debtors, and thus showed it was not a beneficiary and did not treat CC or S as trustee. Thus, couldn’t impose a trust on the transfers that took place.Pav: With certainty of intention, go beneath the surface! Look at what the circumstances are. What is the relationship between the settlor and the trustee? Between the trustee and the beneficiary? Does that help us understand what the settlor really wants?

Consumers’ Association v Coca Cola

Statute required sellers to take a deposit on bottles of coke sold. Consumer association of the view that this was trust money // not enough in the statute to require transferee to hold it for the benefit of depositors – statue did not help in this case.

CONCLUSION: CONSEQUNCE OF LACK OF CERTAINTY: Where the intention of the transferor is uncertain as to the creation of a trust, no express trust arises PRESUMPTION: the transfer will be regarded by law as an out and out transfer of title in the thing to the transferee

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o EXCEPTION: Transferor adds words which put in issue that the transferee should deploy the property to help an identified third party

ASK 1: Are words used indicating a requirement/condition? Trust

ASK 2: Are the words used indicating a suggestion or hope? Trust

SUMMARY ASK: Is the asset being transferred to the transferee for his personal benefit or for the benefit of a third party beneficiary?

In whom does the equitable interest reside? (transferee or third party beneficiary)

II. Certainty of Subject Matter

CONCEPT: Clear indication of what forms the trust property or, more popular in common parlance, the “trust assets”

FIRST: QUALIFQUALIFYING SUBJECT MATTER: Anything that qualifies as a legitimate legal thing in law qualifies as a thing that is transferable as a trust.

o EXAMPLE: Land usually w/ buildings; Bonds; Stocks; Money in bank account; IP; Chattels (vintage cars, works of art); “Reversionary” interest (residue)

o HOWEVER, excludes (1) salary and (2) account entries (unless there is a purely contractual obligation to fulfill; a trust) (Professional Institute of the Public Service of Canada v Canada: An entry in the consolidated revenue accounts of fed gov’t is not regarded as property)

SECOND: IDENTIFICATION: (1) Identification and (2) % shares (both must be satisfied)

CHECKLIST FOR CERTAINTY OF SUBJECT MATER

1. Does the subject matter qualify as a trust asset?2. Two pronged test of certainty

a. Identification of Trust Assetsb. The beneficiaries’ respective shares (% of the whole?)

3. Floating trust?a. Is the floating trust used to circumvent Wills Legislation?b. Are the trust assets clear at the time the trust was created?c. “Floating Trust” vs. “Floating Equity”

4. If there is a lack of certainty (1) no one can compel transfer or (2) resulting trust

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o (1) Identification of the Trust Assets: a description that clearly identifies the trust property, or “subjects” and is exact enough to point a finger at the trust property.

NOTE: Can be identified in instrument as particular items or set out in instruments a method for their particular ascertainment as long as the articulation of that method is reasonably precise (Re Golay)

NOTE: “Residue” always held to be sufficient subject matter HOWEVER: if property is uncertain in the trust because it

is not identified with sufficient clarity at the date of the trust, the trust will fail (Re Beardmore Trusts)

o (2) Beneficiaries’ Respective Shares: the law requires a measure of certainty concerning the amount of the beneficial interest to which the beneficiary will have rights in the clearly identified item of property.

NOTE: words “some” or “bulk” are not sufficiently clear

Professional Institute of the Public Service

The beneficiaries of a pension plan w/ fed pension plan for civil servants argued that there was a fiduciary obligation to deal with the assets identified in the consolidated accounts as trust assets. Court found that pension plan members did not have a beneficial interest superannuation accounts, because they do not contain assets, therefore there was no property in respect of which a legal or equitable interest could be held.

Re Golay

The settlor intended “to let Bossy . . . enjoy one of my flats during her lifetime and receive a reasonable income from my other properties”, the court found that this was sufficiently certain, as the court could determine objectively what a reasonable income was.

Re Beardmore Truts

Separation agreement required husband to create a trust for children. The drafted deed states: “transfer 3/5 of my net estate to kids. Transfer not to take place until I die”.Court held “3/5 of net estate” was not legally ascertainable! Can’t have ‘wait and see’ approach. In this case, it was ‘wait and see’ how much is left after father died.

CONCLUSION: CONSEQUNCE OF LACK OF CERTAINTY: o If there is a lack of certainty over subject matter, no one can compel

transfer to the trusteeo Where some assets have been transferred but the trust fails for lack of

certainty over which assets are trust assets, then those assets already held by the transferee are held by him on a resulting trust for the transferor

Floating Trusts

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A “floating trust” is still asserted to be a valid trust; the problem is that it is a suspended trust.

CONSIDER is there a floating trusted? A floating trust emerges when the trust assets become clear at a later stage and involve a transferor who transfers money to a trustee on the terms that the trustee may use as much of it as he wants during his lifetime but must leave the balance as a trust to a named beneficiary on his death.

PAV: The residue of a trust, even though we don’t know what they are, are assets of the trust (floating equity).

(1)Is the floating trust used to circumvent WESA?o If actions are sufficiently able to be characterized as an attempt to

avoid the formalities of WESA, then trust is illegal (Re Beardmore Trusts)

(2)Are the trust assets clear at the time the trust was created?o If property is uncertain in the trust b/c it is not identified w/ sufficient

clarity at the date of the trust, trust will fail (Re Beardmore Trusts)(3)“Floating Trust” vs. “Floating Equity”

o Floating trusts are similar to floating equity, which are valid and common in pensions that have the possibilities of surplus (Burke v Hudson’s Bay Co)

Sprange v Barnard

The subjects of the trust consisted of $300, and left to the remainders “what is left that [the husband] does not want for his own wants”. Courts could not determine what this would be at the creation of the trust, and so found it void. No, floating trust = gift because no knowledge of what the husband would spend in his lifetime. The subject matter of the trust was uncertain. HOWEVER, trusts often receive income from property, and that isn’t ascertainable immediately either, yet they constitute valid trusts!

Burke v Hudson’s Bay

When there is a constant fluctuating sum in a pension trust fund, the interest of the beneficiary can be described as “floating equity” which may or may not crystallize, depending on the circumstances. A purported trust in which the quantum of beneficial interest remains undetermined until a specific event, is in abeyance until it crystallizes when the quantum becomes set.

III. Certainty of Objects (Beneficiaries)

CONCEPT: Who are the beneficiaries? • The level of clarity required depends on the kind of appointing mechanism

used by the settlor/testator• Ask: is the settlor/testator setting out whom the beneficiaries are by means

of a “fixed trust”, a “discretionary trust”, or by use of a “power”?

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• NOTE: if the trust is to children, then culturally, it could put the transfer in the realm of trusts

STYLE OF NAMING OBJECTS: 1. Expressly stating the name of the specific individual2. Identifying the beneficiary by description3. Identifying the beneficiary as a member of a specific group or class

Is there a donee power of appointment? If yes, what kind? Remember, the donee need not be a trustee, may just be a 3rd party person

who is not trustee given power to select beneficiaries) applicable in Discretionary Trust or Power Simpliciter

General Power Trustee can name anyone as beneficiary including himself

Special Power Trustee has power to appoint only person(s) in the class of objects (Re Gulbenkian’s Settlements)

Intermediate Power

Trustee can appoint anyone except a person in the proscribed class (Re Hay’s Settlement Trusts)

Discretionary Trust Words Must, trust to appoint, compelled, shall, as determined

Power WordsEmpowered, may, power to appoint, enabled, if a gift-over exists (shows that the testator contemplated the possibility of no appt)

Fixed Trust

CONCEPT: Trustee must distribute to the named object; the settlor determines at the outset who the beneficiaries are, and the equitable interests they are to receive from the trustee

CHECKLIST FOR CERTAINTY OF OBJECTS

1. Identification of naming the beneficiaries2. What is the form of disposition of equitable interest used by

settlor/testator in appointing the beneficiaries: Is the trust a fixed trust, a discretionary trust, or power simpliciter?

a. To determine, consider whether the language/conduct of the trust indicates the settlor allowing the trustee to determine who gets it

3. Identify & apply the TEST required for certaintya. Apply Complete List Test for Fixed Trustb. Apply Is/Is Not Test for Discretionary Trust/Powers

4. Is the trust evidentially uncertain and thus administratively unworkable?

5. If uncertain: Resulting Trust

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• TEST: List-Certainty Test: Capable of compiling from the class description a complete list of eligible beneficiaries (conceptual certainty requirement) (Broadway Cottages Trust)

o If the words used by the settlor (which constitute criteria for identifying or selecting beneficiaries) are inexact, making it unclear who the intended recipient is, there will be conceptual uncertainty.

• Beneficiaries under a fixed trust have rights of enforcement which mere objects of a discretionary trust / power lack (Re Hays Settlement)

Discretionary Trust and Power

DISCRETIONARY TRUST: Trustee must make an appointment of beneficiary but has the discretion to choose whom to appoint

TEST: Individual Ascertainability (Is/Is Not): From the language in the trust document, can it be said with certainty whether any given individual is or is not a potential beneficiary within the class? (Baden 1)

o Might give rise to evidential uncertainty/administrative unworkability (see below)

POWER: Trustee must consider whether to appoint from group of object, but can choose not to appoint anyone,

• NOTE: Beneficiaries can call on Trustee to exercise their consideration, but cannot compel them (Re Manistry’s Settlement) can’t claim breach of trust if trustee refuse to confer benefits

o Exception: court may intervene if Trustee act irrational, perverse or irrelevant to any sensible expectation of the settlor

o No issues with evidential uncertainty because can choose not to appoint a beneficiary if the class is found to be administratively unworkable (Re Hays Settlement).

Differentiating Discretionary Trusts from PowersDiscretionary Trust Power

Trustees are compelled to act Wording enables individuals to act at their full discretion

Mandatory obligation wording (“must”/“shall”)

Permissive wording (“may”)

Trust means must Power means mayBeneficiaries have an interest in trust property

Beneficiaries do not have an interest in trust propertyGift-over suggests power

Evidential Uncertainty Administrative Unworkability

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CONCEPT: Administrative Unworkability occurs where the range of potential beneficiaries are so hopefully wide that, practically, it does not constitute a real class of beneficiaries

Discretionary trusts may be invalidated because administrative unworkability which leads to a lack of evidential clarity and thus a lack of certainty of objects

Power will rarely fail due to administrative unworkability (Re Hay’s Settlement Trust)

INDIVIDUAL ASCERTAINABILITY + ADMINISTRATIVE UNWORKABILITY TEST (Baden 2)

1. The test considers whether the language of the trust instrument is clear enough that it can be determined with certainty whether any individual is or is not a member of that class (conceptual certainty)

2. If so, then ask whether the range of objects is so “hopelessly wide” that the trust is administratively unworkable and therefore invalid (evidential uncertainty)3 APPRAOCHES TO INDIVIDUAL ASCERTAINABILITY TEST

In Baden 2, 3 different approaches to the is/is not test were proposed to help determine whether a power simpliciter was valid.

• - Justice Stamp argued that there cannot be any individuals who are “not sures”, and relied on defined classes.

• = Justice Megaw would tolerate some amount of “not sures”, so long as there were many “yeses”. He held that too much evidential uncertainty could void the trust for difficulty of identifying objects.

• + Justice Sachs only required conceptual certainty. Evidential uncertainty was not a problem, and would just label that individual as a “don’t know” and treated them the same as a “no”.

NOTE: Currently, the “is/is not” test is not as problematic because Once trustees accept a trust, they are likely in agreement with its terms,

including the parameters of the discretion to be exercised, ANDthere are available remedies: Malfeasance: When a trustee distributes to a non-object, qualified

members can claim malfeasance and restrain the trustee. Nonfeasance: When a trustee fails to make an appointment when

required, an eligible object can ask the court to replace the reluctant trustee. If the failure continues, the court can make a modified class and declare a trust for them.

CONSEQUNCE OF LACK OF CERTAINTY: If the trust is invalid for uncertainty, the trustee holds legal title, but on a presumed resulting trust to the settlor,

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unless a gift-over has been specified, in which case, that gifted-over person gets title legally and (likely) beneficially.

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FORMALITIES AND EQUITABLE INTERESTS

Inter Vivos

LAND: BC and MB does not req. that the disposition of the equitable title to the beneficiary in land to be in writing.

FRAUD: The court will not assist a fraudulent party even though he stands behind legislation. Equity follows the law in that certain types of equitable interests will have formal writing requirements; however, the equitable maxim that equity “looks to intent rather than form” is given pre-eminence so as to frustrate fraudulent attempts to misuse legal requirements. (This is why BC has actually done away with the formal writing requirements).

Gifts Per Mortis Causa

WILLS: Useful for when someone wishes to distribute his estate not according to the rules of intestacy

Validity Requirements: (WESA s 37(1))o (a) Must be in writingo (b) Will-maker must sign at the end of the will (or acknowledge his

signature is at the end)o (c) Must be witnessed by at least 2 witnesses present simultaneouslyo (d) Must be signed by at east two witnesses in the presence of the

will-maker Witness Requirement: Must be 19+; May be given a gift but gift may be

voided. o Will is not void if the witness was legally incapable of signing, unless

he was under 19 at the time of signing (WESA s 40) [Court can correct accidental mistakes in wills] WESA s 59 allows court to

rectify a will if the will fails to carry out the will-maker’s intentions b/c of (a) an error arising from an accidental omission, (b) a misunderstanding of the will-maker’s instructions, or (c) a failure to carry out the will-maker’s instructions. Extrinsic evidence is admissible to prove this, but application must be made within 180 days unless otherwise allowed by the court.

There are two effective exemptions from full compliance with wills legislation: “secret” and “half-secret” trusts.

FULLY SECRET TRUST

CONCEPT: The intention of the testator is to benefit a particular person with a legacy as the real, but undisclosed, beneficiary in the will. Under a fully secret trust, beneficiary named in the trust instrument is not the ‘real’ beneficiary, but a person who holds the bequest in the capacity of a trustee for someone unnamed in the will.

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REQUIREMENT FOR VALIDITY:1. The testator, A, must intend that the beneficiary, B, named in the will is to

hold the legacy on trust for the second, real beneficiary, C (Ottaway). 2. During the A’s lifetime, he must communicate to B that B is receiving the

trust assets as a trustee, and B is to hold it for the benefit of C (Re Boyes).a. IMPORTANT! If B otherwise agrees but only learns of C’s identity

after A’s death, B will hold on a resulting trust for A’s estate (Re Boyes).

3. B must agree to A’s proposal (Peters v Peters)a. If B does not agree, then B takes the trust assets for B’s own benefit

4. If it fails, s. 59 WESA gives courts broad powers to give effect to testator’ s intent (below, rectification)

NOTE: If intestacy (there is no will) It is possible for a person who is going to inherit on intestacy (there is no

will) to actually give an undertaking to the testator/testatrix that on receiving the property on the intestate succession, that they won’t use it for themselves, but they will use it for the real unnamed beneficiary

If it can be shown that the testator/testatrix did not complete a will on reliance of that undertaking, the court will enforce the intestate beneficiary to hold the estate for the real unnamed beneficiary

Half-secret trusts CANNOT be created on intestacy because intention must be expressed in a will

Why do the courts allow this?1. It is good conscience2. It's a reliance basis (on reliance of your conduct) – having given the

testator/testatrix an assurance that you’re going to hold as a trustee for an individual (and you know who that individual is), if the testator relying on that assurance does not make a will, and the trustee does not provide for the intended beneficiary, then that’s a problem.

3. If you say you will do something, and you don't do it, you are in essence committing a fraud: The court doesn’t want to be a party to “fraud” (McCormick v Grogan).

Ottaway

Testator must intended the beneficiary named in the will is to hold the legacy on trust for the real beneficiaryTestator left his property and money to his common-law spouse. Evidence showed that the testator, his son and the spouse all agreed that once the spouse pass away, the property will go to the son via the spouse’s will. On her death, the spouse left half of the estate to a third party. The son successfully sued for the property arguing that he was the true beneficiary under a secret trust. But, unsuccessful with the money because he could not show that the testator intended the money to be part of the trust.

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Re Boyes

The trust failed because beneficiary-cum-trustee does not know who the real beneficiary is while the testator is alive and so the beneficiary-cum-trustee would hold the property in a resulting trust for the testator’s estate.Testator failed to ensure that the beneficiary-cum-trustee know who the real beneficiary was while the testator was alive.

McCormick

[Rogue beneficiary can be compelled by courts] If a beneficiary in a secret trust reneges on his promise to the testator, a court can, if alerted, ensure that the rogue beneficiary discharges his trustee duties, so long as an actual secret trust can be proven

Peters[No secret trust if no promise] If the named beneficiary doesn’t promise to hold for another, secret beneficiary, the first beneficiary takes for this own benefit.

HALF SECRET TRUST

CONCEPT: In a half-secret trust, the will reveals that the person named in the will as beneficiary is actually receiving the property as a trustee for a beneficiary whose identity is undisclosed and unrevealed in the document

REQUIREMENT FOR VALIDITY:1. Before the will is made, A must communicate to B that B is to hold the

property on trust for C; and2. Before the will is made, A must communicate to B the identity of C

(Blackwell)3. B must indicate B’s acceptance before or at the time A’s will is made4. If it fails s. 59 WESA (broad rectification powers to court)

NOTE: Half secret trust is mentioned in the will, whereas a fully secret trust is not.

Blackwell

[ + Parol Evidence okay] Court allowed parol evidence to prove the identity of the real beneficiary as it did not alter the will. Held so because it would be against the testator’s intention to not allow this half-secret trust just because of a strict interpretation

Testator had written information in a document that identified the name and address of the real beneficiaries

Rectification of a Will: Effect on Secret Trusts

Today, the need to comply with the rules to successfully set up a secret/half secret trust may be less significant given the tendency of the courts to give effect to the real intention of the testator.

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WESA 59 (1) On application for rectification of a will, the court, sitting as a court of construction or as a court of probate, may order that the will be rectified if the court determines that the will fails to carry out the will-maker's intentions because of

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

(2) Extrinsic evidence, including evidence of the will-maker's intent, is admissible to prove the existence of a circumstance described in subsection (1).(3) An application for rectification of a will must be made no later than 180 days from the date the representation grant is issued unless the court grants leave to make an application after that date.

EQUITABLE FUTURE INTERESTS

*This all proceeds on the prior establishment that the legal title is vested in the trustee*

Also, none of the CL remainder rules work in trusts. Equity does not follow the law there.

Anything put in a will is an equitable interest (Re Robson)

Upon noticing an express trust (either inter vivos or in a will), ask the following (about beneficial interest):

1. Identify the words of purchase (who gets what) and the words of limitation (what is being “got”).

2. Does the holder of the equitable estate have a present right to possession or a future right to possession?

a. Present (freehold or leasehold) – STOP HERE, interest is vestedb. Future = keep going (#3)

3. Given that the interest is for future possession, determine whether the interest is vested or contingent? Can they take possession now?

a. Yes = Vested – a present vested interest in future possession (no problems)

i. E.g. remainder following a life estate (without conditions)b. No = Not Vested – needs to meet contingencies = examine

contingency (#4)i. Contingent future interests mean that there is no immediate

right to possession and that the interest holder must meet qualification(s)

4. Given that it is a contingent future equitable interest, what is the nature of the contingency? It may be:

a. Trust asset (T.A.) to B for life if x

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i. B has contingent life estate upon a condition precedent (e.g. if)

b. T.A. to B but if x, to Ci. C = right of entry in remainder

ii. B = interest defeasible upon a condition subsequent (e.g. but if)

c. T.A. to B until x, then to Ci. B has a determinable interest (e.g. while, until)

ii. C has a possibility of reverter in remainder5. Continue to examine the contingency—is it invalid due to:

a. Illegalityi. If you kill x

b. Public policyi. Racial qualifications and other human rights discriminations

ii. Dictating celibacy c. Uncertainty/lack of clarity

i. “of the Caucasian race”ii. “adherent of X church”

6. What type of trust asset is it?a. If it’s realty

i. Determinable interest (“until, while” x) strike out the whole transfer

ii. Interest upon condition precedent (“if x”) strike out whole transfer

iii. Interest defeasible upon a condition subsequent (“but if”) strike out qualification

b. If it’s personaltyi. If it’s mallum in se (evil in itself) strike out the whole transfer

and revert to transferorii. If it’s mallum prohibitum (wrong by law) strike out the “x” (no

qualification)7. The rule in Whitby v Mitchell has been abolished by s. 6(2) of the

Perpetuities Act. Does the contingency comply with the modern rule against perpetuities: requires a contingent interest to vest, if it is to vest at all, within a recognized period of time – the beneficiaries must be capable of being identified (in order to enable the vesting in them of all the equitable interests) and they must have qualified for the described interest in the trust property upon all the conditions or limitations set by the settlor/testator having been satisfied

a. Identify all the lives in being (including those in utero, s. 1) at the time the will is executed

b. Is it possible that all of those LIB might die and the future interest would be capable of vesting later than 21 years?

i. There must be absolute certainty of vesting at the commencement of the trust (if it vests at all)

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c. Is this test met? Is there a single reasonable hypothetical (e.g. everyone dies)?

i. Modern rule met - Yes (and passed 5) = no problemii. Modern rule not met - No go to the Perpetuities Act

I. Is the Equitable Interest Vested or Contingent?

(A) Vested Future Interest

CONCEPT: Presently-held(vested) future interest(not yet possessory) that is proprietary(can be

sold)

DEFINITIONS:1. Reversion : Settlor gives life estate to beneficiary:

o When the beneficiary dies, the property reverts back to the settlor2. Remainder : Settlor gives life estate to beneficiary, with a remainder to a

third party: o When the beneficiary dies, the interest passes to the third party

REQUIREMENTS: An interest in a trust is vested and effective if three conditions are satisfied:

1. The person entitled to the interest is determined;2. The interest must be ready to take effect forthwith (present right to

possession), may only be prevented from doing so by the existence of some prior legal interest (ie. remainder following a life estate without conditions); and

3. The trust property is identified and legal title is vested in the trustee If (1) or (2) is not satisfied interest is contingent If (3) is not satisfied trust is imperfect

(B) Contingent Future Interest

CONCEPT: Future interest(not yet possessory) that is contingent(non-vested) on the occurrence of some future event

• When contingency occurs or limitation is realized, the interest becomes a vested(presently held) future interest

REQUIREMENTS: An interest is contingent and non-vested if:1. Assets are unidentified, or2. The identity of an actual grantee in existence cannot be established 3. If it is a class gift, and each member of the class has not been determined4. The right of the interest depends on the occurrence of some event5. Content of the contingent event may not:

a. Effectively bar alienation of the propertyb. Use wording that is vague and unclear, orc. Contravene public policy

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II. What Type of Contingency?: Examples of Forms of Contingent Future Interests

(A) Condition Precedent: RemaindersCONCEPT: Interest in a thing subject to a condition precedent (if) [happening of condition vests the interest]

• Example: “To A for life, remainder to B if she turns 30”: contingent (non vested until 30) & future (no immediate possession)

(B) Condition Subsequent: Right of Entry

CONCEPT: Interest in a thing subject to a condition subsequent (on condition that / but if / subject to / provided that) [happening of condition UN-vests]

• Example: Transfer from A to B in trust for C in fee simple, “on condition that C does not marry D”

o C holds a vested equitable interest defeasible upon a condition subsequent, while A has a “reversionary” future interest, a right of entry, contingent on C not marrying D (vests upon happening of the condition subsequent)

• Example: If A had added: “If C marries D, then to E” (the happening of the condition subsequent unvests in C and then vests in E).

o E would have had an equitable future interest in the form of a right of entry, but as a remainder

• The right of re-entry gives the either the settlor or a third party the ability to enter the land and resume/take possession after bringing an action to recover.

(C) Determinable Limitation: Possibility of Reverter

CONCEPT: Determinable interest subject to divestment upon the happening of a limitation (until / when / during / while / as long as / though): a limitation looks for some future occurrence to terminate the entitlement of its holder to possession of the interest in the assets

• Example: To B and his heirs so long as they do not drink alcohol: Grantor gets the possibility of reverter – contingent (non-vested unless limitation met) future interest (no possession); B gets the determinable interest

• Example: To B until she marries, and then to C (remainder person)• The possibility of reverter is an automatic right. Once the estate determines

it automatically transfers to the settlor or a third party remainder person.

III. Legality of Qualifying Conditions or Limitations

CONCEPT: Conditions use in trust instruments ought to have legal validity. If found void, and the condition is subsequent, the devise is absolute

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If the gift had an invalid condition precedent, the gift is void (unless personaltyand the condition precedent was originally impossible or illegal malum prohibitum = bequest is absolute)

TEST:1. Contingent interest can become a vested interest within a legally

recognized zone of time (21 years)2. The condition is intrinsically void because

a. What it necessitates as a condition is unlawful on grounds that it offends public policy,

b. What is required is ambiguous due to a lack of certainty in the wording used to create the contingency, or

d. What it necessitates as a condition effectively bars/restrains alienation

(A) Compliance with Public Policy

Macdonald

Restraints on marriage are not against public policy unless they intend to promote celibacy or induce a divorce. If they are to enhance financial security in the event of single status they are good

Canada Trust Co

Conditions placed on future interests that are contrary to human rights values as expressed generally in the legislation are invalid.

Motive of the settlor/testator is significant An education scholarship was established, but found void as it discriminated on religion and race, which went against public policy as it was against Canadian values

(B) Compliance with Legal Standards of Certainty in the Wording Used to Create the Contingency

1. Condition Precedent TEST: is/is not test: will not be void for uncertainty if it

is possible to say with certainty that any proposed beneficiary is or is not a member of the class (Canada Trust Co)

a. The condition will not fail for uncertainty unless it is impossible for anyone to qualify

2. Condition subsequent TEST: the condition must be such that the court can see from the beginning, precisely and distinctly, upon the happening of what event it was that the preceding vested estate was to determine (divest) (Clavering v Ellisson)

(C) The Presence or Absence of Undue Restraints on Alienation Discussed in “Spendthrift”/ Protective Trusts

(D) The Consequences of a Void Condition

RULES: On Wills If realty devised upon a

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o Void condition precedent, the devise itself is voido Void condition subsequent, the devise is absoluteo Determinable interest, the devise itself is void

If personalty bequeathed on a o Void condition precedent

That is originally impossible or illegal malum prohibitum (wrong because prohibited), the bequest is absolute

Where the performance of condition is the sole motive of the bequest or its impossibility was unknown to the testator or condition was possible in its creation but has since become impossible by the act of god or where it is illegal as involving malum in se (wrong or evil in itself), both condition and gift are void

o Void condition subsequent, the bequest is absolute

Noble

Test set out in Clavering: “the condition must be such that the court can see from the beginning, precisely and distinctly, upon the happening of what event it was that the preceding vested estate was to determine.”Held that a condition subsequent clause was too uncertain, and could not meet the legal standard required.

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REVOCATION BY SETTLOR

CONCEPT: A settlor has a transitory role after a settlor creates a trust, they fall out of the relationship that he/she initiated (Bill v Cureton).

The Settlor falls out of the picture unless:1) declares himself a trustee 2) retains for himself the right to revoke (Nolan v Kerry) 3) retains for himself the power to appoint a new trustee 4) is a beneficiary5) gets the trust on a resulting trust6) a trust is imposed on him under a constructive trust.

REQUIREMENT: Courts require clarity and specificity on any provision in an instrument reserving to the settlor a right to revoke the trust

SchimidtA settlor can reserve any power to itself that it wishes, including the ability to appoint trustees, change beneficiaries, or withdraw trust property, provided it is done when the trust is created,

Bill

[-] Cannot revoke a trust and reclaim assets without being a beneficiary or reserving a power to terminate. Once the settlor creates the trust, they fall out of the picture and cannot terminate the trust or reclaim the assets.P created a trust in which her trustees had to invest in property and pay her the dividends for life, remainder to her husband for life, and remainder to their children. Court barred revocation in the case she did end up marrying or having children despite P never marrying nor having children.

Nolan v Kerry

[-] Settlor cannot remove funds from a trust unless a power of revocation has been expressly inc. in the trustCompany wanted to use a surplus from one trust to bolster a separate trust, but that was held as amounting to a breach of trust

Metropolitan Toronto Pension Plan

Power to amend did not amount to a power to revoke (take funds out of trust)A defined benefit plan had an actuarial surplus, which the settlors wished to dip into to alleviate operational costs. But this was held as amounting to the settlor having control over the trust fund that had been transferred to the trustees, and thus equated with revocation (which is not allowed)

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PURPOSE TRUSTS

CHECKLIST FOR PURPOSE TRUSTS

1. Is it intended to be trust?2. Is there identified subject matter? Is it identified with clarity?3. If there is multiple/proportions, has that been done with certainty?4. Is there certainty of objects (in this case, objects not as persons but

causes)?a. Is it a private non-charitable purpose trust?

i. Uniform Trustee Act (if adopted) would allow a person to create a non-charitable trust provided that its terms are “sufficiently certain to allow the trust to be carried out”

ii. Until then, limited scope for these trusts to be given effectiii. However, the court does acknowledge certain exceptions (I-IV)

b. Is it a charitable purpose trust?i. Is the purpose recognized by the law?

Purpose Trust: a type of express trust in which no actual person is identified as a specific beneficiary, but the trust has been written to advance a specific purpose.

PRIVATE PURPOSE TRUSTS

Generally, non-charitable purpose trusts are found to be invalid due to (Re Astor’s Settlement):

o Administrative Problem: Lack of enforceability, violate the beneficiary principle (no beneficiary to bring a breach of trust claim, therefore, courts can’t control them)

o Give trustees to much discretiono Uncertainty of Objecto Offends the rule against perpetuities

NOTE: stated objectives accompanying settlements that explain why the trust is set up for the persons named as beneficiaries are not private purpose trust (i.e. trusts for grandchildren to advance their education is OK)

NOTE: The court has made some exceptions: I-IV

Schmidt

[+ Pensions are allowed] Court clarified that pension trusts are not purpose trusts, and thus are not presumed invalid

Re Coxen

[+ Incidental, part of the charitable trust is allowed] Court held that if the main purpose of the trust is charitable, some minor or incidental non-charitable element will not invalidate it.

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I. Horses, Dogs, Graves and Monuments

CONCEPTS: Horses, dogs, graves and monuments are long recognized as exceptions to Re Astor. However, duration is limited by perpetuity laws of the jurisdiction in question – often 21 years.

Pettingall

[ + Horses okay] Trust where the executive in a will could spend money for the benefit of the testator’s horse is upheld. The court noted that the residuary legatees would be able to supervise the performance of the trust.

Massett

[ + Graves/monuments okay] Court held that a private purpose trust for graves and monuments would be valid if the trustee was prepared to perform the task.

Endacott

[ - Broadening by sneaking private purpose trust in as a power] Court rejected an attempt to broaden the exceptions for private purpose trusts by sneaking them in under the guise of powers

Re Shaw’s Will

[ -/+ Can’t use provisions that act as a private purpose trust] Court found a 40-letter alphabet was not a purpose that would validate a private purpose trust, but allowed it to be characterized as a power to spend money for that purpose. This does not violate the beneficiary principle

II. The “Denley Rule”

CONCEPTS: Equity has allowed private purpose trusts to exist when the settlor/testator promotes their targeted goal through the instrumentality of named beneficiaries (these individuals indirectly benefit while the settlor/testator advances their intended purpose) (Re Denley’s Trust Deed).

Re Denley’s

Land had been invested in trustees to be used as a sports ground (serving a recreational purpose) for the employees of a company (an identified class of objects) and such other persons as the trustees might permit to use the facility. Valid b/c he had identified the people who were going to use it (the beneficiary principle in play

Keewatin Tribal Council

[+ Purpose of tax avoidance] Court held that each member of the band is affected and that the members would have standing to enforce the trust. “There should be no problem with a non-charitable purpose trust where there are a number of persons with standing to enforce it.”Here the settlor sought exemption from property tax for property used by band children to attend high school. The band members were held to be beneficiaries even though it was a purpose trust.

III. Unincorporated Associations or Clubs

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CONCEPTS: The courts have allowed private purpose trusts where there is a gift to a club or unincorporated association, whose goals align w/ the purpose the donor/testator is trying to further, if it is to benefit the current members of the club.

TEST: Look at (1) make-up of the club (look at contract binding members of the association), and (2) under what conditions the gift was made (method of gifting) to determine whether it is a gift to an official in an unincorporated association in trust with the beneficial interest to members of the club or whether there is no clear beneficiary(ies)

(1) MAKE-UP OF THE CLUB: Unincorporated associations are members joined together by contract around common purposes. These members must be more than a transitory grouping of people, and not groups like political parties (Conservative and Unionist Central Office).

Re Recher’s

[ - Gifting to a non-existent club] Court found that when a will attempts to bequeath to a no-longer-existing club (because it had merged with other similar societies), the gift would not be receivable by the new entity, and thus would fail. The gift was held on a resulting trust for the estate

METHOD OF GIFTING: It is important to determine whether the gift is to the present members who hold as joint tenants, or if the members do not have a beneficial interest in the gift. The latter risks characterization as a non-charitable purpose trust. In the event the gift is intended for present and future members, this may also cause the gift to be classified as an invalid purpose trust (Leahy), as it goes against the beneficiary principle (Re Astor’s) ie. there is a chance that there would be no one to enforce the gift when it is effective. In the event that the members are bound by contractual rights inter se, those will prevail.

Two Forms of Disposition1. A testator may leave funds to an official in an unincorporated association

with the intention that it be shared in common between its current members (member who resigns/dies has claim to gift)

2. The more common disposition occurs where the trust takes the form of a gift to an official in the association and is paid in trust as an accretion to the funds of the club. The donation is used along with the general-purpose funds to advance the purposes of the association. Those monies are then regulated according to the rules of the club (contract between subsisting members). In these circumstances the members as co-owners do not beneficially hold the gift and so a member who resigns/dies has no claim to the gift. The purpose motivated gift is effective even though each member does not own an equitable interest in the gift as a joint tenant.

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a. Recall – Joint Tenancy – Each tenant owns the entire estate, it is not divided into shares (so cannot take your portion when you leave) – when one joint tenant dies, the surviving joint tenant owns the whole property.

b. However – must look to contract of club to see whether members can take shares when they leave.

Hanchett-Stamford

[ + Gift to an official of the unincorporated society] Gifts given to an official in the unincorporated society mean that the funds are paid in trust regularly to the club account. The courts have recognized this as a valid private purpose trust. In such cases, the co-owners do not beneficially hold the gift, and so members who resign have no claim to the gift.

Re Recher’s Will

[ - Gift to members of a moribund society] Court held that when a will purports to gift funds to a dying society, and the gift was to the specific members of that society, the gift would fail as the members were no longer bound contractually. The gift would be held on a resulting trust for the estate

Re Russel Estate

[ - Invalid non-charitable purpose trust] Gift was made in trust to Theosophical Society for purposes rather than subject to their contractual rights inter se (between themselves). Trust must be clearly for the group of club members, not purposes.Bottom line: As a settlor, look to the contractual structure of the club to see if leaving money in trust will advance the purpose you want.

Leahy

[ - Gift must be to current members only] Court held that a trust that did not confine its application of trust assets to present members would fail.Court found that a testator who bequeathed land “upon trust for such order of Nuns of the Catholic Church as the Christian brothers as my executors and trustees shall select” was not valid as a private purpose trust. It was a veiled attempt to establish a private purpose trust for present and future orders of cloistered nuns, and not to benefit the current members of nuns at the time.

Cocks v Manners

[ + Gift to current members of the unincorporated society] Court held that gift to current members of the unincorporated society is a valid gift to individuals in the convent as joint tenants. If a member leaves, they may take their share as it is a JT.A testatrix bequeathed property to the “supervisor for the time being” of a Convent

Re Lipinksi’s

[ + Requirement of having gift include present members] Court held a will as valid because (1) there were ascertainable person beneficiaries, and (2) the purpose was not described as a purpose trust, but detailed how the trust would benefit the beneficiaries. Justice Oliver argued that if a gift to a club’s account is valid, then so should a similar gift, which only adds on a purpose, but specifies beneficiaries which are part of that

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club. Critique: presentation of facts not clear if it was to all members such that the purpose could be disregarded, and that the motive in the gift was simply for the individual beneficiariesA will with a provision to bequeath the residuary of his estate “in memory of [his] late wife to be used solely in the work on constructing new buildings for the Association and/or improvements to the said buildings”

SCENARIO : Gift to a Charity Determinable, Gift-Over to Other Charity

CONCEPT: As a stratagem (scheme), some people give money to a charity, determinable if an instruction to maintain a non-charitable purpose is not pursued, along with a gift over of money to a new charity on determination. Courts have allowed this stratagem, but have required the use of determinable language, and restricted the non-charitable purpose trust to be relatively small (Re Dalziel). Determinable = interest vested, ends when the stated event or condition occurs.

Major line of enquiry: Is it a condition or a determinable fee?- Determinable fees are ALLOWED – if you make a DELIMITING EVENT,

instead of a restraint, it will be enforceable o Signified by words like… “unless,” “when,” or “until”o I give you blackacre, but when you try to sell it, then to Susie =

delimiting event - Conditions are NOT ALLOWED – Conditions are bad – gift will fail or the

donnee will get the fee simple If it is a restraint on alienation, or is against public policy or uncertain, then gift will fail or offending words will be struck down

o Signified by words like… “on condition that,” “provided that,” or “but if”

o When a trust has conditional language, you can basically ignore it and it becomes an out and out gift.

Re Dalziel

[ - In a mixed-purpose trust, private purpose part cannot heavily outweigh charitable side] Settlor’s attempt to mix a private purpose trust to a charitable purpose trust failed because the private purpose part of the mixed purpose trust heavily outweighed the residue

IV. Private Purposes as Powers

CONCEPTS: A power simpliciter can be used to create a private purpose trust. B/c there’s no duty to exercise a power, there’s no need for a legal person to be the beneficiary, thus do not conflict with the beneficiary principle (Re Shaw’s Will)

In BC, section 24 of the Perpetuity Act allows for this as long as it is:

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(1)Not for illegal activity or (2)Activity contrary to public policy and (3)The power exercised by the trustee within 21 years

AS A POWER: Purpose is an empowerment given to the trustee, who can do it only if he wants. This means that it cannot be enforced, but rather, the only control that can be exercised is over whether the trustee consider from time to time how and when to distribute.

Re Shaw’s Will

Shaw’s testamentary trust for a 40-letter alphabet was held invalid as a private purpose trust. However, it was upheld in the Court of Appeal and, as a compromise, characterized as a power to spend money for that purpose

CHARITABLE PURPOSE TRUSTS

CHECKLIST FOR CHARITABLE PURPOSE TRUSTS

1. Is the charitable purpose stated clearly?

2. Does it meet the requirement of “public benefit”?

3. Does it fit with one of the heads of charity?

CONCEPTS: A charitable purpose trusts are much like expressed trusts, but their object must be a charitable purpose. A charitable purpose qualifies as a trust if it promotes the “public benefit” on one or more of the following subjects: relief of poverty, advancement of education, advancement of religion, or other purposes beneficial to the community (Commissioners of Income Tax, referencing the Statute of Elizabeth).

REBUTTABLE PRESUMPTION: It may be concluded as a general presumption that the following charitable trusts are valid: those set up for the purpose of alleviating the plight of the poor (Dingle v Turner, Jones v T Eaton), advancing education and in the cause of religion.

Chichester

[ - Purpose cannot be too vague] Court held that an instruction “for such charitable institution or institutions or other charitable or benevolent object or objects in England” was too vague, and thus void the

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charitable purpose must be stated clearly

I. Public Benefit Requirement ( Commissioners of Income Tax )

1. Charitable purpose must address appreciable section of society who are not relatives

o Purpose must be beneficial to the community by coming within the “spirit and intendment” of Statute of Elizabeth (National Communications Society)

2. Charitable purpose trust cannot be a private benefit masquerading as a public benefit

3. Charitable purpose must exude a public benefit o Must promote the public policy as determined by the court – not the

settlor. It must be a clear “benefit for the community” (National Anti-vivisection Society)

o Cannot offend public policy provided the purpose conforms to at least one of the heads of charity (Everywoman’s Health Centre)

o Must not be set-up to promote political objectives (Positive Action Against Pornography v MNR)

Neville Estates

+ More public groups

Justice Cross held that a trust for the benefit of a community of nuns that “spend their lives in the world” was an appreciable section of the public.

Re Scarisbrick

+ Very public okay

Court held that “such of my relations” was sufficiently broad to pass the public benefit test and constitute a charitable trust as this included relations in any degree. “Next of kin” would be too narrow.

Jones v T Eaton

+ Great benefit shouldn’t be barred because it’s not public enough

A trust for “any needy or deserving Toronto members of the Eaton Quarter Century Club” was held to be valid.

Gilmour- Secluded groups don’t satisfy test

Court held that a trust for the benefit of a community of 20 cloistered nuns would not satisfy the public element test

Oppenheim

- Employees of single employer don’t satisfy public test

Court held that the charitable trust’s purpose was the education of Company employees, all linked to one common employer, would fail

Everywoman’s

+ Just need to benefit

The objects of the Society included medical services of special concern to women. Opposition argued that it

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Health Centre Society

public

was political and should thus be invalid, but Justice Décary held that there does not need to be a public policy supporting the impugned benefit, nor public consensus. The question strictly remains whether the court concludes the charity will be beneficial to the public.

Re Pinion- Shit paintings isn’t a benefit

A colourful attempt to disguise a private purpose trust was seen, with a trust established to memorialize the testator’s art. The court held that there was no public benefit because the art was “atrociously bad”, and could not advance education.

Positive Action Against Pornography

- Political Objectives not valid

Trusts that are set-up to promote political objectives are not valid charitable trusts

II. Heads of Charitable Purpose ( Commissioners of Income Tax )

1. Trusts for relief of poverty2. Trusts for the advancement of education3. Trusts for the advancement of religion4. Trusts for other purpose beneficial to the community

1. Relief of Poverty

CONCEPT: Charitable trusts that aim to relieve poverty are not strictly confined to the destitute, but should be allowed to help a wide range of people (Re Coulthurst’s Wills Trusts).

Jones + “Needy” = poverty

A trust for “any needy or deserving members of the Eaton Quarter Century Club” was found to conform to the charitable head of alleviating poverty (b/c it helped the needy)

Re Brown

+ Providing luxuries and essentials to the poor okay

A trust providing both luxuries and essentials to a poor house was found to fall under the head of alleviating the plight of poverty.

Re Hart+ Providing enjoyment to poor okay

Court found that enabling poor children and parents in Halifax to enjoy the outdoors was sufficient to fall under the head of alleviating the plight poverty.

Payne Estate

+ Location restriction not fatal

Court ruled that it was fine for a charitable purpose trust alleviating poverty to help beneficiaries within a designated area only.

Planned - Main Court found that “the giving of information and advice

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Parenthood of TN

benefactors must be the poor

to members of the public” and “researching and disseminating information on population control” could help the poor, but would not qualify the society to be a charity. Furthermore, the society allowed many wealthy individuals to use its services too. The court ruled that the work was not “oriented or directed to relief of the poor”.

2. Advancement of Education

CONCEPT: The courts view advancing education considerably widely; it is broadly interpreted, thus a low threshold (Vancouver Society of Immigrant and Visible Minority Women).

If the primary purpose is to benefit only family members, the trust is unlikely to be construed as charitable (Caffoor v Commissioner for Income Tax)

[ + Chess okay] In Re Dupree Will Trusts, a court found that a trust to teach schoolboys chess would classify as advancing education, and thus a charity.

[ + Education defined broadly] In Vancouver Society of Immigrant and Visible Minority Women, the court held that informal training initiatives were okay, and that the court’s approach should reflect the fact that ideas about education are not static, but moving and changing. The court held an expansive view of education endorsed.

[ + Production of law reports okay] In Incorporated Council of law Reporting for England and Wales, the court held that

[ - Educate sufficiently] In News to You Canada, the court held that despite the educational attempt, the society would not be granted charity status because it did no further education well enough. Unduly restrictive.

[ - Lack of educational value] In Re Pinion, the courts lampooned a colourful attempt to mask a private trust as a charitable trust. The trust bequeathed an art collection, citing it would advance education. Expert evidence suggested the art was atrociously bad, and the courts found that the public would receive little to no educational benefit.

[ - No relatives-only] In Re Compton, Lord Greene held that beneficiaries under the charity could not be confined to a group. Slight preference is allowed, but ultimately the main purpose must be to benefit the public at large. Reiterated the Public Benefit Requirement and stated that there must be a broad group in which identified subset group (“relations”) is accorded some preference

[ - No restrictive clauses] In Royal Trust Corp, the court held that a scholarship under the head of advancing education failed because it contained

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the non-profit production of law reports was a charitable purpose, noting such activities would aid legal research, study, and education.

restrictive provisions that were discriminatory on race, gender, and sexual orientation. Both for the restrictive clause rule, and against public policy.

3. Advancement of Religion

Includes: Organizations within a denomination and also trusts to erect or maintain the fabric of existing churches (including cemeteries attached to it), chapels or synagogues. It also extends to promoting religious observances such as choral singing, bell ringing, preaching sermons, prizes for Sunday school, faith healing, and saying of masses. Charitable trusts for the promotion of religion or the financial support of clergy are valid too.

(1)Wide Ambit: The courts recognize the advancement of all faiths as falling under this head of charity. So long as the purposes are not immoral, even if the opinions strike the court as foolish and lack foundation (Re Watson).

Walter v Alberta

+Wide criteria of what is religion

This category is a moving target that is dependent on social attitudes towards religion. There are wide criteria as to what is religion all you need is “faith and worship”.

Thornton v Howe

+ Offshoot of religion okay

A charitable purpose trust for the printing, publishing, an propagation of sacred writings of the late Joana Southcote, was held valid, despite being a relatively unknown offshoot of Christianity.

The Church of the New Faith

+ Easy Australian Test (Contrast with Re South Place Ethical Society)

(Australia) two criteria that a religious purpose for a charitable trust should have: (1) a belief in supernatural being or principle, and (2) acceptance of canons of conduct correlated to that belief.

Re South Place Ethical Society

- No worship no trust (Contrast with The Church of the New Faith)

Court held that the necessary elements of religion include: faith and worship. Thus, despite a society being involved in the study and dissemination of religious sentiments, failed as a charitable purpose trust b/c it did not have both necessary elements.

(2)Public Benefit: However, the courts have held that the advancement of religion must benefit the public, with public defined as a relatively large group of persons (Gilmour v Coats).

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Funnell v Stewart

+ No organized religion necessary

A testatrix bequeathed her residuary estate to “further the spiritual work now carried on by us together”, and succeeded in categorizing this as a charitable trust, despite her religion being her own offshoot of Christianity.Canadian Policy: Canada is multicultural, and interprets religion broadly

Gilmour v Coats

- Private religion no good

Carmelite nuns are sealed away from the world, though clearly religious, were too remote to have a public benefit

United Grand Lodge

- Regulating conduct not enough

A trust to urge and regulate free masons conduct did not amount to the advancement of religion

4. Other Purposes Beneficial to the Community

CONCEPT: If the charitable purpose doesn’t fall under the other heads, it may still fall under this fourth catch-all. This category remains broad, reflecting the social attitudes of the past and present. The courts have full authority to determine what falls under this head (Vancouver Society of Immigrant and Visible Minority Women).

Everywoman’s

+ Welfare of sick and disabled persons

Through welfare associations and hospitals

Re Forgan + Advancing and securing human life

Re Bradbury + Protection of old Through support or specialized accommodations

Re Cotton Trust + Environment

Forbes + Public WorksBrisbane City Council + Agriculture

Re Laidlaw ~ Sports Historically deemed recreation, but possibly health

Re Moss + Animals Especially the prevention of cruelty to them is recognized

Cox

+ Infrastructure/public spaces (bridges, ports, havens, causeways etc

Lecavalier v + Giving to area if an area is identified as the object and

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Sussex that’s it, the court will assume charitable purposes within that are were intended

AG v Mathieson

~ Disaster Relief Fund

Can be charitable gifts in the hands of the holder of the funds, often the mayor or some public official. However, if the trustee begin to use the assets outside of that purpose. They can set aside by the AG

Chichester Diocesan Fund - Too Broad =

Invalid

The court held that where a testator places parameters that are too wide on the scope of the charitable purpose, it will be an invalid charity. In Chichester, it was “England”; in Brewer, it was “charitable, religious, educational offer loan flop back purposes”

Brewer v McCauley

National Anti-Vivisection Society

- Political Purpose

Political purposes do not qualify. A political purpose is one that has as its focus the aim of changing the legal situation prevailing in an area of human life or to further the objects of political parties. But there seems to be no impediments to charities adopting position on political

Re Satterthwaite

- Body to Make Profit

Body established to make profit might not be charitable

III. Mixed Charitable and Non-Charitable

CONCEPT: Mixed Charitable and non-charitable purpose trusts are not always held to be invalid. Where the main purpose of a gift is charitable, some minor or incidental non-charitable element will not invalidate it (Re Coxen, Neville Estate). Section 47 of the Law and Equity Act saves mixed charitable and non-charitable purpose trusts that would otherwise fail solely b/c of the non-charitable portion, so long as the entire trust operates solely for the benefit of the charitable purpose. However, the court in AG v Mathieson required an accurate description of purpose.

IV. Certainty of Object and Cy-Pres

CONCEPT: Where the identification of a public purpose beneficiary is unclear making it difficult to execute the charitable purpose, the court can be called upon and is empowered to apply cy-pres to save the trust. The property or gift may be used for some other charitable purpose as close as possible to the one seemingly described.

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NOTE: Cy-pres can only be applied by the court if there are no provisions empowering the trustee to select other appropriate charities to receive the income and the settlor had a general charitable intention (Canada Trust Co)

1. The trustee does not inherently possess powers of cy-pres – the court does2. Cy-pres is an attribute of charitable trusts only and does not extend to

private trusts

TO APPLY CY-PRES: The court (1) must determine if the settlor had a more general charitable intention, and then (2) apply the Cy-Pres only w/in the boundaries of the settlor’s intention if at all (Re Taylor).

Re Tacon

[ ~ Money to charity that lacks general intention] Court held that in the case of a gift to charity where no general charitable intention is present:

If the charity no longer exists at time of donor passing, gift will lapse

If charity does still exist, gift goes to charity and the next-of-kin are excluded from it

Hospital for Sick Children

[ + Wrong name of object is okay]Court applied a trust cy-pres to a hospital for disabled children in BC, when the original wording was meant for the “Crippled Children’s Hospital” in Toronto and BC, which did not exist.

Sidney and North Sannich

[ + Amend administrative powers to save trust] Court found it had jurisdiction amend the trust and invoke cy-pres when failing to do so would leave the trust impractical and frustrate its purpose. Charitable objects should not be frustrated by the trust’s administrative provisions.

Canada Trust Co

The court struck down the gift as void because it was racist (tried to create education scholarships only for white Christians). Invoked cy-pres because settlor had general charitable intention that was stronger than his discrimination.

Re Fitzpatrick

A cy-pres order should “combine the virtues of proximity, usefulness, and practicability, always being mindful of the testatrix’s intention.”

Re BoydIllustration of application of cy-pres. Testatrix provided scholarships to a school which changed names and locations several times over the decades. The gifts were ordered to be paid and delivered to the school district in the relevant area.

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RESULTING TRUSTS

CONCEPT: In RTs, a grantor has transferred legal title in property, but the grantee holds the property as trustee for the grantor who is, therefore, beneficially entitled to the conveyed thing. The basis for a resulting trust is due to that fact that the transferee is getting a beneficial interest greater than the one supposedly intended (Re Vandervell’s).

CATEGORIZATION: (two categories): (1) Automatic and (2) Presumed (Re Vandervell’s). Note, common intention RT is not part of law in Canada (Kerr).

Presumed RT (PRT) : example; Where A makes a voluntary payment to B or pays for the purchase of a property to be vested in B alone or the joint name of A & B: presumption is that A did not intend to make a gift to B (rebuttable).

1. Automatic RT (ART) : example; Where a settlor transfers property to a trustee on express trust for a beneficiary but the trust fails (say due to uncertainty of objects) or the trust declared does not exhaust all of the available beneficial interests in the trust property.

(1) AUTOMATIC RESULTING TRUSTS

CONCEPT: There is a common feature in in all ARTs: they arise from a “gap” in the equitable title of property. Without the mechanism of the resulting trust, the property would appear ownerless. Equity is resistant to the state of affairs of an ownerless interest in a thing, and so it fills the gap by assigning title to someone with the most acceptable claim to it – the transferor.

Four Common Situations(1)Transfer of legal title to the trustee ends up being void, (2)Transfer of legal title to a trustee but equitable interest has not been fully

disposed, (3)Transfer of property to another, with a specific limitation which has not

occurred (Quistclose Trust), or (4)There are surplus funds after a trust-purpose has been achieved.

I. Transfer under a Void Trust

CONCEPT: When a settlor fails to transfer legal title for an express trust (i.e. when he fails to comply w/ the three certainties), the trust assets will be held on an automatic resulting trust for the transferor (Broadway Cottages Trust)

Broadway Cottage

[ - Failed on certainty of objects] Trust failed b/c the trust was for “the settlor’s employees” among other hard to discern classes. Court held that assets were held on RT for settlor.

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s TrustRe Ames Settlement

[ - Failed transfer] The transfer of the settlor’s assets depended on a void marriage settlement, and as a result, was held to be an automatic resulting trust. The court explained that the money should belong to the settlor, because he had only transferred it on reliance of a consideration, the marriage, which had failed.

II. Transfer of Trust Assets with Excess Equitable Interest

CONCEPT: Although the transfer of trust assets is valid, the transferor may only have intended to dispose some of the equitable interest. In that case, the trustee must hold that equitable interest on an automatic RT for the benefit of the transferor (Re West).

Re West

[-] Trustees can’t touch surplus unless allowed toTestatrix left property on trust for sale, with the proceeds going towards paying administrative and operations costs. The trustees wanted to claim the surplus for their own benefit, as they had legal title, but the court held that the trustee did not have equitable title; rather the testatrix (and her estate) did.

King v Denison

[ - Beneficial interest not exhausted belongs to heir of testator] When a gift is subject to a certain purpose (a trust = a mandate), and the whole legal interest is given for satisfying the trusts expressed, and those trusts have not exhausted all their beneficial interest, the remaining beneficial interest belongs to the heir.

Schmidt v Air Products

[ - Pensions: terms of trust can vary automatic resulting trust] Distribution of surplus for pensions was to be based on specific provisions in each of the original pension plans.Defendant company could only claim surplus from the employees who had an annuity contract that intended to have the surplus revert to the company. The other group’s surplus, who had a grandfathered defined contribution plan from their previous company, cannot be touched.

III. The “Quistclose Trust”

CONCEPT: See pg 20 notes to clarify concept Basis of QT is that parties, by establishing a specific purpose, have intended to make the relationship fiduciary. Thus, QT arises when (i) there is a transfer or property that is (ii) subject to a specific purpose, condition or limitation, (iii) which has not been fulfilled. (Barclays Bank)

Example (Loans): when a borrower undertakes to use loan money in a specific way and he segregates the money from the rest of his property, if he becomes insolvent, the loan money will revert to the lender, preventing other creditors from laying claim to it. The borrower is holding as legal

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owner the segregated money for the lender (the equitable owner) on a resulting trust.

Threshold Question: Whether the recipient’s freedom to dispose of the money has been restricted by the loan agreement, such that the money must be used exclusively for the stated purpose

IMPACTS: (Twinsectra) Quistclose provides an exception to the general rule that a lender has no

interest in the money lend if the specific purpose of the loan is specific Quistclose gives the lender an equitable interest in the money (priority over

other creditors) For a Quistclose, the borrower holds the money as a trustee for the lender,

to be used only for the stipulated purposeo Lender is beneficiary with the power to restrain the borrow-cum-

trustee Upon insolvency, lender can recover the money in rem via the Quistclose

since the equitable beneficial title is vested in the lender When the borrower-cum-trustee fails the specific purpose, a secondary duty

immediately arises and operates as a RT for the lender

NOTE: Make sure that the trust is not a private purpose trust!

Barclays Banks

[ + Conditions expressly set, create possibility of QT] Court held that the bank could not take money loaned to borrower as repayment, because it had been advanced for a specific purpose by lender. As subject to the loan’s agreement, an automatic trust in lender’s favour would be created if the money was used for something other than the intended purpose, making the lender a preferred creditor. Thus, the Bank had no claim to those particular assets. Note that this is not initially a trust, which otherwise would have been a private purpose trust.

Twinsectra

[ + QT creates fiduciary duty, objective standard, no knowledge of trust possibility necessary] It is not necessary for a person to appreciate the fact that he entered into arrangements which have the effect of creating a trust. It is sufficient that he intends to enter these arrangements.

Re Westar Mining

[ + Quistclose not limited to loans] BC courts extended the QT to other financial arrangements outside of loansJoint Venture arrangement to engage in coal mining between Westar and Poscan. JV account was created for operating expenses and capital costs that both Westar and Poscan would contribute to according to their share of the venture. Westar put in its money, Poscan didn’t. Westar goes bankrupt and creditors call for money from Westar (including the money in the JV account for operating expenses and capital costs). Employees and contractors claim the JV account is not Westar’s money, it is in a Quistclose trust for the employees and

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contractors. Employees and contractors win, it was a JV with very specific purposes of how the money could be used.

Newmarket Plaza

[ + Quistclose for non-financial (Ontario)] Court held that a QT could arise when an individual transferred property for a specific purpose. Can broaden Quistclose to prevent injustice.In this case, it was money for security.

Giles

[ - Must have specific purpose, not suggestion] Court did not find a QT resulting from a loan where investors were motivated to give a loan for a purpose, but never expressly indicated it was only for the specific purpose of investing in real estate. An indication of a need to segregate funds is a good tell-tale sign

IV. Surplus Funds in Trust After Trust Objectives Achieved

CONCEPT: When the trust completely fulfils its purpose but still leave a surplus of funds, an automatic resulting trust for the transferor in respect of the surplus.

Re British Red Cross

[ + Ascertainability of donors enables recovery] Courts held that it would be held on an automatic RT because it could be easily and completely determined who had contributed and in what amountSurplus of a fund that was raised to help individuals wounded in the Balkan War

Re Gillingham Bus

[ +/- Uncertainty of resulting trust beneficiaries, compromise] Courts could not practically determine who donated, and in what amount, as collections were plenty and not recorded. Thus, the court held that the surplus would be paid to the court, and made available via resulting trusts to claimants who could prove they had donated. Preferable to defaulting to bona vacantia

UNINCORPORATED ASSOSIATION “SURPLUS”: Gift to unincorporated association typically manifest as a gift to existing members according to contractual rights under the governing agreement. So, when a club disbands/becomes moribund, remaining assets are distributed per contractual provisions or club rules. When such guidance is not present, distribution will depend on the circumstances of the club members. Required to be a club, not a charity.

Re West Sussex

[ -/+ Depends on how funds raised] Court held that how funds would be distributed depending on how they originated.

Collection boxes would be bona vacantia (Re Gillingham Bus) Legacies/major donations, if there is a purpose and excess after

the purpose is fulfilled, will be held on an automatic resulting trust (Re British Red Cross)

Contributions from street entertainers, raffles, and sweepstakes

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are founded in contract, not trust, and so surpluses are neither gratuitous or founded on a void settlement, so once the club becomes moribund, surplus funds are bona vacantia.

Hanchett-Stamford

[ + Last member in club gets funds] Court ruled that absent any contractual obligations, the funds from a moribund club will go to the last member.Funds given to an unincorporated, non-charitable association are held for the members but are not distributed to members usually, instead they are generally used in accordance with the CONTRACT at the heart of the association (look to the purpose of the association for implied terms of contract)The last member, Hanchett-Stamford, wanted to forward the assets totalling $2.5 million to an active animal charity, and made a motion to claim all the assets. Court held that the deceased members; estate had no claim to the assets.

Re Bucks Constabulary

[ + Members can amend contract to take club funds] Court allowed for existing members to amend the terms of a contract such that existing funds may be distributed to members. He also held that this would not be permissible if there was only one member because a person cannot contract with him/herself, and that it would be bona vacantia, but this is rejected in Hanchett-Stamford.

(2) PRESUMED RESULTING TRUST

CONCEPT: Resulting trust that arises where there has been a gratuitous transfer of title to property

Occurs when there is (1) a purchase of property in the name of another or voluntary transfer or property to another, and (2) there is no clear evidence concerning the actual intention of the transferor about who is intended to benefit from the transfer (Kerr v Baranow)

o If there is clear evidence as to whom the transferor intended to benefit, there is no PRT

EXAMPLES OF PRESUMED RT: 1. Gratuitous transfer of legal title from A to B without consideration (A

retains equitable title)2. Purchase of property in the name of another

PRESUMPTION: Presumption of Resulting Trust: the recipient of the gift holds it in a resulting trust for the transferor, and the equitable title remains with the transferor.

Presumption of fact: can be rebutted w/ sufficient evidence (Pecore)

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Onus of proof on the transferee (Pecore) Arises from the notion that it is unlikely that an individual would transfer

away such valuable property for no consideration If evidence pertaining to the circumstances behind why the property is

transferred shows an illegal scheme/purpose it is generally rendered inadmissible.

EXCEPTION: Presumption of Advancement: in certain relationships, there is a presumption of gratuitous gift intended (Pecore)

Presumption of fact with the onus of proof with transferor

Dyer[ + Destination of equitable interest unclear] Court held that where the destination of the equitable interest is unclear, there is a presumed resulting trust in favour of the transferor

Oord

[ - Evidence of conduct can rebut presumption] Lack of evidence of expectation of payment rebutted the presumption of RTA mother and father agreed to combine resources with their son and daughter-in-law to purchase a property. The parties were registered on the property as JT, but the purchase price was paid entirely by the mother and father. The court held that this constituted a gratuitous transfer to the son and daughter-in-law, which imposed a presumed resulting trust. However, because the parties’ intention was to live on the property harmoniously, and there was no expectation of repayment, this was sufficient to rebut the presumption.

Eisner

[ - Evidence of intention can rebut presumption] RT was established by evidence showing one party did not intend to benefit the other party equitably. Noted presumption of advancement from husband to wife was declining to insignificance in Canadian courts.Rob and Amanda moved into a new house that Rob had bought by himself. Rob signed the agreement and asked Amanda to fax it, but Amanda snuck her name on the agreement as co-purchaser. Evidence suggested that Rob eventually knew, but did nothing about it, citing that he did not want the relationship to sour. There was co-ownership. They break up. She wants half the house. She didn’t contribute a dime, but she held equitable title on a resulting trust. The fact he knew she would go on title was sufficient for the court to conclude that Rob did not intend to benefit Amanda.

REBUTTING THE PRESUMPTION OF RESULTING TRUST

I. Evidence to Rebut the Presumption

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CONCEPT: The presumption of a resulting trust can be rebutted if evidence establishes an intention to confer beneficial ownership (Russel). The onus is on the transferee to rebut that presumption.

Re Vinogradoff

[ + No evidence, no rebuttal] Lack of evidence did not rebut the presumptionNOTE: Presumption of advancement do not cover grandparents (extremely strict).A grandmother transferred stocks into a joint account held by her and her 4-year-old granddaughter, but only the grandma received dividends. She bequeathed her interest to a third-party legatee. The court found that the grandma held all stocks beneficially, and without evidence rebutting the presumption of resulting trust, the third-party legatee would get the entire interest

Standing

[ - Evidence of actual intention rebuts can’t renege (family)] Court relied on evidence of conduct to conclude that at the time of transfer, the transferor had intended to benefit the recipient, it was not just a legal arrangement. When the transferor attempted to recover the trust assets at a later date by arguing for a presumed resulting trust, the court held that evidence adduced was sufficient to rebut it, and held the transfer would stay. It was an out-and-out gift.Mother transferred shares to son. Later remarried and demanded the son retransfer the shares back. The son rejected. The court held that at the time of transfer, the mother’s intentions were clear as to give beneficial as well as legal title of the shares to the son.

Nishi v Rascal Trucking

[ - Evidence of actual intention rebuts presumption, cannot renege (business friends)] Contribution which expressly states w/o conditions/requirements = a legal gift (PRT rebutted).A property leased to a company (RT) was lodged with many tax arrears and a mortgage debt which were not paid, and CIBC foreclosed on the property. RT felt bad about their conduct, which led to this foreclosure, and wanted to help the wronged party repurchase this land, while securing an interest on this title. The wronged party continuously refused and yet RT transferred the money anyway “without any conditions or requirements and these conditions are irrevocable”.

II. Special Situation: Money in Joint Bank Account

CONCEPT: The presumption of resulting trust can also be found when individuals hold money jointly in a bank account. The presumption here can be rebutted with adequate evidence to the contrary, with the onus on the transferee.

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[ - Don’t need express language to rebut resulting trust] In section 19(3) of the Property Law Act, for express trusts, you don’t have to expressly say “to be use for the benefit of x”

Niles

[ + Evidence not compelling, presumption stays] Sister had legal title, but not equitable title. The only evidence she had was bank contract that was insufficient to rebut the presumption of a resulting trust.Two sisters opened a joint bank account but only one fed the account. The freeloader insisted the presumption of resulting trust was rebutted because they both signed a contract saying the right of survivorship would operate between them, and so when the other died, she should take. The court held that the contract did not accurately reflect the sisters’ actual interrelationship, and that it was the bank that insisted on that arrangement via a standard form agreement to ensure that the bank is not held liable in a situation, and thus was insufficient to rebut the presumption of resulting trust.

Russel

[ - Evidence clearly rebuts presumption] Also, note that this conduct not contrary to Wills Act as it was a joint tenancy with right of survivorship.A joint bank account had been created where although only the aunt fed money into the account, the nephew in fact had a present right to survivorship. This is because the court heard evidence of the aunt’s intention stated by aunt to her solicitor that the money in the account would belong to Russel. This evidence was sufficient to rebut the presumption of resulting trust.

Young

[ - Evidence clearly fortifies presumption, but situation too entrenched; WESA loophole]If the deceased holds legal title as a JT and holds beneficial title alone during his/her lifetime but clearly intends for the other JT to receive both legal and beneficial title upon the death of the deceased party, the court will give effect to that intention and find against a PRT, despite the presence of subverted legislation.Testatrix opened joint account with nephew – intended to confer NO beneficial rights during her lifetime, but he would get the money in the account upon her death. Upon her death, Executor of her estate claimed the money in the account. Court found that her joint account bank agreement, and the declaration that the nephew would have no beneficial rights until her death, amounted to avoidance of the Wills Act. However, longstanding court practice to recognize such outright “transfers of legal and equitable title upon death in favour of surviving JT” was TOO ESTABLISHED in England and Ontario to change it now.

Sawdon Estate

[ - Presumption rebutted by conduct evidence]The deceased left a will stating the defendant was a residuary beneficiary of the estate, but right before his death, opened a joint bank account with his sons that had a right of survivorship provision. Most assets were liquidated and deposited into this fund. The defendant

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argued a presumption of resulting trust, but the court found that the sons, having adduced the evidence of the joint bank account, had successfully rebutted the presumption; the testator’s intention was clarified when he made such arrangement before his death, and the two sons had undertaken to use the assets for themselves and their other siblings too.

PRESUMPTION OF ADVANCEMENT

CHECKLIST FOR PRESUMPTION OF ADVANCEMENT

1. Is there a relationship that would give rise to a presumption of advancement?

2. Is there evidence to rebut the presumption?

3. Is the evidence admissible based on timing (only evidence prior to/at time of transfer)?

4. Is the evidence admissible based on illegality?

CONCEPT: Transfer between certain people is presumed to transfer both legal and equitable title without the need to rebut a presumed resulting trust.

Reason: natural obligation to provide for the transferee (Murless)Onus: lies with transferor who must show evidence of an intention to exclude the presumption

I. Husband Wife

CONCEPT: At common-law, the presumption of advancement from husband to wife applies very rarely, and only in circumstances that fit the old, traditional marriage relationships (Mehta Estate). In other cases, the court’s wide discretion in property and matrimonial disputes have resulted in the effective sidelining of this presumption.

Mehta

[ Traditional circumstance allows presumption of advancement from husband to wife] Court allowed the presumption of advancement to have effect, citing that this marriage was very traditional such that the husband was the major provider for the family and the wife’s role was

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mostly as a homemaker and mother. The strength of the presumption of advancement depended heavily on the circumstances of the case. The court found the presumptions especially relevant as both parties were unable to testify to their intention, and could not adduce any concrete evidence in that regards.Husband, wife, and their children all perished in a plane crash. Heirs from husband’s and wife’s sides were fighting over the estate.

Eisner

[ Modern marriages have no presumption of advancement ] The courts will search for actual intention. In any event, n marriage breakdown, the wide powers of property distribution accorded to the family relations court renders the presumption of advancement of gifts between spouses largely redundant. Clear evidence of intention not to give beneficially will render an argument on the basis of PRT unnecessary. The POA will not exist in contemporary matrimonial arrangements (modern marriages).

II. Parent Child

CONCEPT: At common-law, the modern-day presumption of advancement applies only to minor children who are dependents, operating from father to child as well as mother to child (Pecore). It is especially useful when the parent’s intentions can no longer be ascertained, but the scope has been severely narrowed.

Pecore

[Presumption of advancement failed because not minor] The courts found that the presumption of advancement did not apply as Paula was no longer a minor (19 years). However, she nevertheless defeated the presumption of resulting trust and received the property as an out-and-out gift based on her close relationship with Mr. Percore (her father).

II. Rebutting the Presumption of Advancement (Onus on Transferor)

CONCEPT: Onus of rebutting lies with the transferor. Court focus on evidence that pertains to (1) timing and (2) illegality of the transferor’s intention.

(1) Timing: Evidence is only admissible when such evidence existed before or at the time of the transfer (Shepherd).

(2) Illegality: Evidence that implies illegal action will not be sanctioned by the court, and the property will instead rest with the current possessor, following the par delictum rule (Scheurman).

1. Relevance of Time

CONCEPT: Courts are concerned with the intention of the transferor at the time of the actual transaction, and not so much after. After-the-fact statements of

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intention are admissible only against the party who made them, and not in his favour (Shepherd). Statements made prior to the transfer can carry weight (Neazor)

Shepherd

[ PoA stands; evidence rebutting made after the transfer is not allowed] Evidence is inadmissible as it occurred after the transfer, and presumption of advancement not rebutted. Contrast slightly with Lavelle.A father allocated shares to his three minor children without their knowledge but 5 years later directed them to sign withdrawals to give the shares back to himself. Upon the father’s death, the children argued that a presumption of advancement stood and that they were entitled to the amount that was taken from them. Despite the clear evidence that the father did not intend to leave beneficial interest with his children evidenced by his actions, the evidence was inadmissible as it occurred after the transfer, and was advanced to help his case. The only after-the-fact statements that are admissible are those used against the party who made them.

Lavelle

[ + Evidence rebutting PoA made after transfer carries little or no weight] Contrast slightly with ShepherdCourt noted that self-serving statements or conduct of transferor, who may long after the transaction be regretting earlier generosity, carry little or no weight. Judge was against the use of rigid rules of law.

Neazor [ + Evidence rebutting PoA made before transfer CAN carry weight] Court allowed evidence from 8 years ago

Chechui v Nieman

[ + Intention Re: Presumption of RT limited to key moment of transfer]A (male)’s mother who was rich purchased a house for A and his then girlfriend, B (female). A’s mom paid 1.7 million out of 2.7 million before her death and B paid the remaining amount of a mortgage. The court held that A’s mom wanted to benefit both A and B and that it was a gift to A & B. Even subsequent payment of mortgage by one party did not support the presumption of RT.

Griffith v Davidson

[ ~ Relevant time frame] Court held that the intention of the parties at the time of the purchase is the relevant time frame to determine if there was an intention to gift or the intention to grant a trust.

2. Effect of Illegality

CONCEPT: If the evidence adduced suggests the transfer is for some unlawful activity, or that the transfer was to avoid a lawfully protected interest of a third party, court may not hear that evidence.

Onus on the transferee to produce evidence of the illegal scheme Presumption of advancement is super rare (Pecor and Mehta)

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FOUR ROUTES:When one party seeks to admit evidence that rebuts the PRT or POA but shoes an illegal intention, courts may take 1 of 4 approaches…

1. Par Delictum rule: in cases of equal guilt, the possessor is preferred. The court refuses to hear evidence of the tainted transaction. They leave title as is (the transferee, even if complicit in the illegal scheme, gains a windfall). (Scheuerman) – status quo preferred

a. Ex turpi causa: the court will not give a judgment where they ‘dirty their hands’ with ‘moral filth’

2. Pontius Pilate: (when it is PRT ONLY, or where you are arguing for Presumption of Advancement, when there is a PRT too) the court will apply presumptions, but will not review any tainted evidence to rebut it –Let matters stand, exactly as the chips falls (Foster)

a. Goodfriend: Court moves to ignore presumption of advancement and selects presumption of resulting trust (here, there were remarkable circumstances that led the court to say that the evidence wasn’t “tainted” enough to ignore) “tainted” lies on a scale, and illegal/immoral intent alone is not enough to bar evidence of actual intent where no creditors were actually prejudiced (undermining Scheuerman’s par delictum approach)

b. This approach is attempting to benefit the transferee (because POA stands)

3. Side-stepping approach: Where you are arguing for a PRT (regardless of whether or not there is a POA), the courts will apply the PRT without giving weight to rebuttal evidence. This is not a matter of par delictum but of the court simply not giving effect to the illegal intent and allowing the PRT to operate (David, Gorog)

a. However, if the case can be made without the illegal evidence, the courts will try to use it to rebut the PRT (Tinsley)

b. This approach is attempting to benefit the transferor (because PRT stands)

c. Book says that Gorog might become the norm (given how much POA has been eroded by Pecore and legislation, and given how Goodfriend has undermined Scheuerman)

4. Locus Poenitentiae: Evidence which would ordinarily be excluded (to rebut the presumption) due to its illegality may nevertheless be used under the doctrine of locus poenitentiae (repentance). This occurs when the parties (i) had an illegal scheme but (ii) the scheme is not carried out due to repentance. “Repentance” may be either moral or because matters changed so that the scheme became unnecessary (Tribe) (declare your apologies to the court and ask for forgiveness)

a. E.g. If the transferor transfers title to the transferee to effect an unlawful plan, but the transferor then withdraws from the scheme partway through, that means that in making a claim to recover her property, the transferor is not precluded from bringing evidence of their unlawful intention behind the transfer.

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5. Nelson (Australia—not yet accepted in Canada) suggested a proportionality test given the regulatory nature of our modern existence. Noted that increasing number of illegitimate motives are to defraud fiscus rather than creditors. Since we live in such a highly regulated society, there is an increased opportunity for regulatory infractions which are only ‘technically’ illegal Balance the adverse consequences of granting relief against the adverse consequences of refusing relief. First ask: Is the purpose of the scheme an affront to public conscience?

a. Proportionality – what are the consequences of the plaintiff losing because of the application of the exclusionary illegality rule?

b. Does the operation of the exclusionary rule operate to further the purposes of the statute? If the statute does not seek to penalize greatly with infractions, than neither should the courts. Also, does the statute contemplate penalties beyond those set out in the statute? No, then courts should not add additional penalties.

Ask: Did the act contemplate penalties beyond those set out in the statute? If not, then allow the evidence of illegal motive to rebut a presumption.

Goodfriend

[ + Evidence of illegal intent without act is admissible] Court recognized that evidence was of an illegal nature, but nevertheless found it admissible and held it would rebut the presumption of advancement. This perhaps was due to the circumstances of the case, which the illegal act was based on a mistaken view of law, and both parties were not in pari delicto (of equal guilt). Where an improper motive fails to materialize because the perceived problem was a non-issue, evidence that goes to the base/immoral motive may be used to rebut the POA. Contrast with Scheuerman.A couple participated in spouse-swapping, but Mrs. G persuaded Mr. G to give her title to a farm in case Mr. C sued for the non-existent “alienation of affections”. After Mrs. G left, Mr. G wanted to recover property on the basis of a presumed resulting trust. Mrs. G relied on the presumption of advancement.

Justice Laskin held that despite Mr. G having transferred to avoid a potential lawsuit, no such suit existed and as such he did not violate the law, and should be allowed to adduce his evidence.

Justice Spence held that the plaintiff must come to court with clean hands, but that a mere intent to hinder or delay a creditor is not enough to bar evidence of an illegal intention to rebut the presumption of advancement. He relied on Kyrs, which confined the ruling of Scheuerman to those facts alone.

Tribe [+ Locus poenitentiae can allow for evidence of illegal intent] Doctrine of locus poenitentiae provides that as long as the illegal scheme never comes to fruition, and the plaintiff is willing to

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renounce his/her illegal intentions – presumption of advancement rebutted.Ms. Tribe’s father purchased a condo but registered it in Ms. Tribe’s name in an attempt to avoid taxes. Ms. Tribe, in an attempt to exclude the condo from her assets during her divorce, claimed that it was registered under her name to avoid taxation and that the property was actually her father’s.

Scheuerman

[ - Evidence of illegal acts is inadmissible] Court approached tainted evidence strictly and applied the par delictum rule, which stated in situations of equal guilt, the law prefers the title of the possessor. Contrast with Goodfriend.The husband transferred a house to his wife to avoid creditors who were pressing him for payment. The wife shortly after sold the house, and the husband claimed there was a presumption of resulting trust which would rebut the presumption of advancement. The court held that his intention behind transferring was to violate law, which would prevent the rebuttal of the presumption of advancement even though the illegal intent never materialized. Justice Duff, dissented, saying intent alone should not bar evidence of the illegal intent when no creditor was harmed.

Krys confines the rule in Scheuerman to those facts alone.

David

[ - Can ignore illegal evidence – side stepping approach] Court held for plaintiff as there were no actual creditors at the time and ignored the illegal evidence (side-stepped the evidence) to give effect to a presumed RTP and D combined resources to buy a house as joint owners. As the male plaintiff had a drinking problem, the female came up with a scheme where she would hold legal title so they wouldn’t lose the house if his drinking and driving led to him getting sued

Gorog

[ - Illegal purpose evidence inadmissible to rebut presumption of resulting trust] Policy against David and Gorog: The partying seeking tor ebut PRT with evidence of illegal intent will not be able to do so and will need to reconvey on the basis of PRT.P owned a farm which he transferred to his sister per his solicitor’s advice to hide the asset from someone who sued him. It turns out the plaintiff could settle the suit without losing the farm, but his sister refused to return title. The court held that there was a presumption of RT, and so the onus was on the sister to rebut. However, evidence that would rebut was of an illegal nature and thus inadmissible

Foster

[ - Illegal purpose evidence inadmissible to rebut presumption of advancement – Pontius Pilate = let matters stand as they are] Court reluctantly held for the daughter b/c in the case of equal guilt, the law prefers the position of the possessor. Note, this was decided before Pecore narrowed PoA, and the results of Foster is unlikely today.A father transferred property to his children to avoid a potential

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creditor, who was eventually successful. The father wanted the property back after being sued, but his daughter refused, relying on the presumption of advancement, and the fact that evidence to rebut this presumption was barred because it was illegal

Tinsley

[ - Illegal purpose to scam fiscus is barred] Court did not hear the illegal purpose evidence but held that the presumption of RT operated because the case could succeed without the need to rely on the illegality (Milligan, as she paid, would get half - allowed the scammer to get property).Two women married had split. Tinsley left the house in anger, but legally the house is in her name. Milligan, who remained, claims an interest in the house as well, citing she made payments on the house. To explain why both names were not registered, Milligan relied on illegal purpose evidence, as they would get more social security if her name was not on title.

Nelson

[ + New Proportionality Test may allow illegal purpose evidence (Australia)] To balance the adverse consequences of granting relief against the adverse consequences of refusing relief, courts would consider (1) whether the consequences of barring illegal evidence were proportionate to the seriousness of the illegality, and (2) how the appropriate statute punishes the unlawful conduct in determining how the court’s punishment should follow.The mother bought a house but put her children’s name on title instead, allowing the mother to claim a subsidy. The house was sold, and the mother wished to re-convey legal title of proceeds, but the daughter refused, arguing the presumption of advancement. Court nevertheless allowed illegal purpose evidence to be brought to rebut the presumption because the severity of losing her house was disproportionate to an illegal subsidy claim.

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THE BENEFICIARY

CONCEPT: The beneficiary holds the equitable interest and as the “real owner” of the property (Csak v Amos), has many rights and options stemming from the ius fruendi, not ius utendi. Should the beneficiary find that the trust is not working to his liking, he may have the option to call for legal title and terminate the trust (Saunders v Vaultier).

“fruendi”: through habitation or profit taking from interest on capital investment – enjoyment of all the benefits

“utendi”: “exclusive possession” of the trust assets: the beneficiary gets neither management nor administrative controls. The beneficiary doesn’t have custody nor authority over assets for investment purposes.

B’s personal rights against trustee

B’s in rem right against 3rd

partiesB cannot manage/administer

the trust property

B has personal rights against T to ensure proper management and administration of assets

T must comply with duties laid out in trust instrument and duties as fiduciary (having B’s best interest as #1 goal)

B can assert his beneficial title against 3rd parties who received trust assets with notice that it was obtained from breach of trust (differs from a trustee who can claim legal in rem rights against anyone – including a BFPFVWN)

B has right to monitor and advise trustees but cannot infringe on T’s role by exercising administration over trust asset (Schalit). This respects the fact that T is still the legal title holder (T has administrative and dispositive capabilities). Exception to this rule is when B is acting as agent of T and is following T’s instruction (Re Bagot’s)

Schalit

[ - Beneficiary using power available only to legal title holder is not allowed] Court held that the beneficiary, in attempting to distrain a subtenant, usurped the management’s power to decide and thus the distraint was invalid. The beneficiary may not engage in acts of management with respect to trust propertyA corporate beneficiary attempted to distrain (“seize to obtain payment of rent”) a subtenant of a property that was part of the trust assets. However, distraint is an in rem right available only to the legal title holder.

Re Bagot’s

[ + Exception for minor matters of administration] The court may exercise discretion to allow a pragmatic modification to the role of the

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beneficiary, allowing the beneficiary to take on the management, control, or administration responsibility that is normally restricted to the trustee. Using this modification, the court is permitting the beneficiary to act as an agent of the trustee and collect rents for the portfolio of properties in the trust. However, in so doing, the beneficiary may be fired if they do not act in the best interests of the beneficiary (themselves).A beneficiary managed the rental agreement and collected rent from the tenants

Spencer v Riseberry

[ - Can’t hold both roles; court will separate] Court confirmed that the role of the trustee must be kept separate from the role of the beneficiary (does not mean someone can’t be both, but that they can only act as one at a time).L was both the co-trustee and beneficiary and she was divorcing her husband. Her husband claimed that she held the legal title as co-trustee and thus, he would be entitled to some of them. The court found that b/c she held two roles, the trust was fundamentally unworkable. She attended the divorce proceedings as a beneficiary, and thus did not have legal title.

WHAT DOES THE BENEFICIARY OWN?

CONCEPT: What the beneficial interest bestows on a beneficiary is not always clear, and can vary depending on the circumstances. There are two common conceptual categories, “a la carte” and “set meal”.

A LA CARTE SET MEALThe beneficiary holding equitable title in every individual trust asset, affording him many real rights.

The beneficiary holding equitable title to the trust fund as a single corpus, and speaks more to his personal rights against the trustee in regards to proper administration of the trust as a whole. NOTE: Set meal affords tracing as a remedy to equitable interest holders.

[A la carte held, Policy for Set Meal (narrowed by A-S v Garland)] In Baker v A-S, the court held for a la carte style. In this case, this meant Archer-Shee

[Set meal when trustee has powers, and trust assets fluctuate] In A-S v Garland, the same issue arose, but this time the court held for Archer-Shee, characterizing her equitable interest as a “set meal”. This did not overturn Baker v A-S, but rather it noted an exceptional circumstance where equitable owners may be better characterized as “set meal” ownership.

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would have to pay taxes as her beneficial interest afforded her real rights in each item (which could be taxed), and not a personal right in the proper administration of her trust (which would not be taxed).

Requirement:

(1)The trustee has exclusive power to dispose of the trust assets and can unilaterally extinguish the legal title in each item by lawful exercise of his power as trustee

(2)The beneficiary’s ownership as holding equitable title in each of the individual items of the trust fund has the effect of situating ownership in items that often fluctuate quickly and constantly (ie. large pension plan consisting of a number of different assets).

Policy for set meal / against a la carte: In discretionary trusts, or where there are multiple life tenants and remainders, trying to use an “a la carte” ownership would be an administrative nightmare. In those cases, it makes much more sense to use the “set meal” approach.

Baker v Archer-Shee (HL)

The beneficiary of a trust has a distinct equitable interest in the individual items of property that make up the trust fund. (English law), the personal/trust rights are ancillary.False Dichotomy: this case highlights that an interest in trust is sometimes hard to neatly categorize. The equitable estate is not strictly in rem (because tracing stops with the BPFV) or strictly in personam (it goes beyond that because of the ability to trace). Moreover, in a discretionary trust it seems that a beneficiary can’t have a right in every single item, as the trustee can select from a range of defined groups (“set meal” characterization is more realistic).Archer-Shee was a resident of the UK. She was the beneficiary of a trust outside the UK (in NY). The incomes from the trust never entered the UK. The UK sought to tax the fund on the basis of legislation which rendered taxable possessions that were “stocks, shares or rents” outside the UK. She argued that she owned a cluster of personal rights which were enforceable against the trustee. She argued that she didn’t hold title to the individual items in the fund, which were constantly changing. Further, her cluster of personal rights to proper administration of the property was not included in the tax statute and therefore not taxable. Decision for Baker (not A-S).

Archer-Shee v Garland

The exact same matter was brought under NY law and AS won.

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BENEFICIARY’S ABILITY TO DISPOSE OF EQUITABLE TITLE

I. Beneficiary’s Ability to Dispose of Equitable Title

Equitable chose in action: Beneficiary wants to convey interest to new beneficiary. The way you transfer an equitable chose in action is by assignment. B1 will still retain equitable interest, however, the beneficial interest is assigned to B2 – the equitable interest is fragmented into the equitable estate that is retained and the equitable chose in action via an assignment to B2.

CONCEPT: The beneficiary can create a sub-trust to benefit another individual through a process called assignment. Timpson’s Executors set out four ways in which this can happen:

the beneficiary assigns the equitable interest to the new beneficiary directly,

the beneficiary directs the trustees to hold the property in trust for the third party,

the beneficiary contracts for valuable consideration to assign the equitable interest away, or

the beneficiary can declare himself to be a trustee for the new beneficiary.

NOTE: Except for when B declares himself to be T for new B, legislation requires the assignment to be in writing, with written notice to the initial trustees (Timpson’s Executors). B wishing to make himself T for new B must indicate some intention of becoming a trustee, expressly declaring himself as one, or do something that is equivalent to such a declaration (Richards)

[ + Ability for new beneficiary to sue old trustee, sidestepping privity] Section 36 of BC’s Law and Equity Act allows the new, second beneficiary to take action against the initial trustee, so long as the transfer between old and new beneficiaries was signed and in writing, and the trustee was notified of this transfer in writing. This gets around the common-law problem of privity.

Milroy

[ - Court will not use other methods of transfer to fix trust if one method is used] The court will not override the intention of the party that chose assignment over declaration as the mode of transfer if that mode failed. The court is unwilling to allow using another method to fix trust because that would be to perfect an otherwise failed transfer.

Diguilo

[ - Failing to comply with Section 36 gives no recourse] Assignee did not comply with section 36 requirements, and was subject to the common-law rules and requirements, most notably privity. Main problem with CL rules arises when the original beneficiary has died or disappeared, leaving the sub-beneficiary stranded (unable to enforce rights against trustee due to lack of privity)

Timpso [ - To assign, must give full equitable interest, including ability to

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n’s Executors

enforce rights against trustees]The beneficiary did not assign equitable estate to her children, and only a “revocable mandate”, which the children could exercise to collect money. The evidence did not suggest that the children were given anything more, most notably missing was the ability for children to enforce rights against the trustees. Thus, the court held that it was not an equitable interest that was assigned

II. Priority Among Assignees

CONCEPT: When a beneficiary assigns more than one beneficiary the same beneficial entitlement, the court in Re Wasdale holds that the one assigned first is preferred over the later, following the latin maxim “qui prior est tempore, portior est jure”. Should the preferred beneficiary fail to make claim to the beneficial interest, laches may apply, and the second beneficiary may step in.

PROTECTIVE TRUST

CONCEPT: For protective trusts, the beneficiary’s rights to the income will be terminated when the beneficiary acts in a particular way or causes a particular event that is indicated in the trust settlement (Leir). It is essentially two trusts, with the second one coming into being when the first one terminates.

It is important to vest in the principle beneficiary an equitable determinable life interest (look for language of “until”, “when”, “as long as”, “during”, “unless” etc. which indicates a determinable interest), and not an interest defeasible upon a condition subsequent (words such as “but if”, “on condition”, “however”, “provided that”). Doing so would leave the protective trust vulnerable.

Condition subsequent will be strictly construed and, if uncertain, will strike it down and turn the transfer into an all-out gift.

Settlor cannot use protective trusts to transfer property for himself because it is against public policy (Re Brewers Settlement)

Restraints on alienation are generally not acceptable. If a settlor wants to make provision for a spendthrift child, it must be worded very carefully as a determinable life estate. This involves a determinable equitable life estate to the “principal beneficiary” (the reckless one), with a possibility of reverter for another beneficiary (often a discretionary trust in favour of a class of objects).

TERMINATION OF TRUST BY BENEFICIARY

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CHECKLIST for TERMINATION 1. Does the beneficiary want to terminate the trust?2. Can you apply Saunders?

a. Is the beneficiary sui juris?i. Has the beneficiary attained the age of majority (19 in BC)?

ii. Does the beneficiary have compos mentis (sound mind)?b. Is the beneficiary absolutely entitled to the trust property (vested in

interest – need not be vested in possession to call for the trust)?i. Is there a contingency?

ii. Does the contingency postpone enjoyment or set a condition for vesting?

iii. Courts favour early vesting (will prefer to read condition as a contingency to enjoyment rather than a contingency on vesting in interest) Re Lysiak

c. Are there multiple beneficiaries?i. Are the beneficiaries unanimous in wanting to terminate (must

act collectively)?ii. Can you list all the beneficiaries?

Not feasible if there is a huge class in a discretionary trust (Baden 1)

However, if it is feasible, all beneficiaries must be identified

iii. Are the beneficiaries individually sui juris?iv. Is there a successive interest (remainderperson + life tenant

coming together)? (Smith v Aspinall)v. Is there a gift over?vi. If all beneficiaries fail to act collectively, try to divide the

property.d. Is the trust property divisible?

i. If YES – one or more beneficiary who is sui juris and absolutely entitled (vested in interest) may call on the trustee to transfer them their proportionate share. The trust will continue for those who did not call on it.

ii. If NO – then no beneficiary is permitted to call on the trustiii. No entitlement to call for a division of trust property if it is

land (Re Marshall)e. Will termination lead to hardship?

i. Division of a trust will not be permitted if the termination by one beneficiary unfairly impacts the property of the remaining beneficiaries (Sandemans, Lloyds)

ii. Division will be permissible if there is only a minor reduction in the value of the property

f. Is the trust a pension?i. Cannot be a pension (Buschau)

g. Is the trust involved in a commercial situation?ii. Rule does not apply

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CONCEPT: By applying the rule in Saunders, sui juris beneficiaries with a vested equitable interest in the estate can ignore conditions that can be said to relate to the timing of enjoyment. Instead, beneficiaries are eligible to enjoy the gift immediately by calling for the legal title in the estate from the executor-trustee once they are person with full legal capacity and the age of majority. In other words, beneficiaries may terminate a trust and call for legal title to the trust assets if certain requirements are met. REQUIREMENTS TO APPLY SAUNDERS:

(1)have attained age of majority (19, BC)(2)be compos mentis (can’t suffer from a legal disability), and (3)be absolutely entitled to the trust property (settlement of the interest

cannot be contingent and must be vested); o If there is a condition, ASK: is condition postponing vesting of interest

or enjoyment of a vested interest? Note: When there is an age qualification, the courts lean

towards characterizing it as a restriction on enjoyment and not necessarily of the vesting on the property interest

o Only need to worry about condition precedents! Example: you are the beneficiary when you turn 25 versus

you’re the beneficiary now, but you may only enjoy the income when you’re 25

BASIS FOR SAUNDERS: why does the court give so much power to beneficiary? Court prefers outright ownership – want it to be vested in 1 person rather

than fragmented Liberalism: When you are an adult you should be autonomous – ultimately,

they are the ones to benefit, testator should be restricted from Prevent accumulations – law doesn’t like accumulation b/c of perpetuity

problems that can arise (property being outside commercial circulation) Policy preference for the freer use of property over tying up the property

for unduly long periods

Saunders

[ + Leading case; postponement of enjoyment is fine] Condition set by the settlor in Saunders spoke to enjoyment and not vesting, thus held that the beneficiary can call the trust. NOTE: Courts favour interpretations of early vesting where possible. In other words, the court will try to characterize a condition as a restriction on enjoyment and not necessarily a restriction on vesting.Stocks were given to V, who would receive the capital at 25. When V

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turned 21, he sought to terminate the trust. Despite the condition stating that he would receive the capital only at 25, this condition pertained only to his enjoyment of the interest. Court found that the indefeasible equitable interest was already vested in V when the trust became effective, so V could call the trust.

Fargey

[ + The use of “distributed” signals a vested interest] Court prefer early vesting.Courts found that a provision stating when a grandchild attained “the age of twenty-five years to distribute the capital of the sub-share to him or her” meant that interest had already vested because it acknowledges that the funds would be distributed at the later date of reaching 25, and as such the beneficiaries could call for the trust.

Re Carlson

[ - Vesting delayed, rule does not apply] Vesting was contingent on a future event Saunder doesn’t applyDeceased left residue of his estate to his three children to be distributed in proportion only after the youngest son had turned 21 interest vested in that residue once the youngest son turned 21.

I. Is it a Discretionary Trust?

CONCEPT: Per Buschau, the rule in Saunders also applies to discretionary trusts with multiple beneficiaries. If each class member is sui juris, then, if the members are unanimous, they may require all the income to be distributed to them. If the membership of class of beneficiaries is so broad that it is impossible to list all the members, it will be impossible to ascertain that unanimity exists.

Example of a discretionary trust applying the rule(Re Chodak)

There was a discretionary trust where the trustee had to fix differing percentage of shareholding. All of the beneficiaries (testator’s nephews) agreed to call the trust. Trustee sought guidance from court whether or not the discretionary trust was operative. Court did stat interpretation —finding that the testator intended for the trustee to have discretion to give equally or unequally to the nephews. However, testator also intended for the nephew-beneficiaries to take the beneficial interest immediately so only the enjoyment was postponed. That discretion wasn’t operative and the nephews took equally.

#1: The fact that the trustee had discretion to fix differentiated shares among the beneficiaries did not affect their ability to call in the trust#2: The court also held that the rule in Saunders could also apply to discretionary trusts where not all beneficiaries may receive assets, per the trustee’s discretion.

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II. Is the Interest Vested in Possession or Enjoyment?

(a) POSTPONEMENT BAR: Postponement of enjoyment of the trust assets vesting in the beneficiary did not bar the beneficiary from using the rule in Saunders (Re Lysiak).

Re Lysiak

Testator bequeathed his estate to his wife and son living in Ukraine. A clause postponed distribution of the residue by the trustee until trustee were satisfied that the beneficiaries were no longer oppressed by the regime which they lived in. The courts held that this phrasing (“distribution”) did not indicate vesting was to happen later, but merely that enjoyment would be delayed. The vesting was not suspended by the condition of political freedom, just the timing and manner of its distribution. The condition subsequent relation to Ukraine liberalization was regarded as a clause semantically uncertain and struck out as void

(b) CONTINGENT VESTING: It is always a matter of construction whether the gift is vested in interest and, accordingly, subject to the Saunders termination rules. Saunders DOES NOT operate and the beneficiaries are ineligible to

terminate trust if construing the terms reveals that the vesting of the very interest is contingent on the happening of some future event (Re Carlson Estate)

(c) GIFT OVER: Gift-overs may indicate an interest is intended to be contingent; reciprocally, the absence of a gift-over is likely to be construed as the interest is intended to be vested (with enjoyment postponed to the contingent event) and therefore Saunders can apply.

III. Limits on the Scope of Application of the Rule?

(1) To claim termination of the trust, the beneficiary must enjoy an absolute interest

NOTE: In a discretionary trust, all the beneficiaries must be identifiable (Re Chodak)

NOTE: For discretionary trusts involving life tenants and remainders, where the beneficiaries are all sui juris, they can also combine to call for the trust (Re Smith)

(2) The rule can apply to discretionary trusts with successive equitable interests

CONCEPT: For discretionary trusts with successive equitable interests, if all the objects entitled to both the income and capital (i) act in unison and (ii) are sui juris, then they can terminate the trust or direct trustee in a discretionary trust,

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and then deal with the property as they please. However, both people with present and future interests should agree. (Re Smith)

Re Smith

Testator gave trustees ¼ of his estate to pay, at their absolute discretion, the estate’s income for the maintenance of Mrs. A and/or any of her children for Mrs. A’s life, with the remainder to the children. Mrs. A, her 2 living adult children, and the personal representative for her deceased child combined to assign their beneficial interest to a mortgagee in order to secure a mortgage.

(3) Where the trust property is (i) divisible, (ii) one or more beneficiaries are sui juris, and (iii) absolutely entitled, they can individually call on the trustee to transfer to them their proportionate share of the property

NOTE: Division is permissible even if the value of the rest of the property suffers some minor reduction because of the division

NOTE: The operation of the Saunders rule may be prevented by difficulties in dividing the trust property or by the hardships that dividing the trust property may impose on other beneficiaries (Re Sandeman)

Re Sanderman

Sui juris beneficiaries, who are part of a wider group that includes non-sui juris beneficiaries, can terminate the trust in respect of their respective shares unless termination unfairly impacts the trust and its property for the remaining beneficiariesCourt allowed the beneficiaries to call for the trust even though it meant splitting the shares so that trustees no longer had control of the company. It must be in very special circumstances which would justify the court in refusing to give effect to the plaintiff’s rights

1. Example of Hardship

Llyods Bank v Duker

[ - Getting controlling interest with risk of damaging other beneficiaries’ interests too unfair] If terminating the trust would leave too great a burden on the remaining beneficiaries, then court may bar the use of SaundersBeneficiary wanted to terminate the trust and receive his shares of stocks from the trust. If the withdrawing beneficiary were to succeed, he would get a controlling interest in the company, to which he could simply declare no dividends to be paid, effectively leaving the other beneficiaries without interest. Thus, the court barred the use of the rule in Saunders

Re Marshall

[ - No automatic entitlement to rule when dealing with land] Court held that there is no automatic entitlement to call for division where the trust property is land. The court reasoned that since it would take 20-30

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years for all beneficiaries to be sui juris and eligible to call for legal title, the division would cause undue hardship on other beneficiaries and thus the rule was held inoperable

IV. Saunders Do Not Apply: Pensions and Commercial Trusts

Per Buschau, due to the contractual nature of pension plans, and the unique role of the employer in such plans, unless a pension plan is very small (ex. when offered to a few officers of a corporation), the rule in Saunders is not applicable.

Justice Bastarache explained that pension plans were more than just a trust. It was an instrument that the employer and employees found necessary, and expected to continue indefinitely. That’s the purpose of pension law, to provide long term security. Terminating it would contradict the reasonable contractual expectations of the parties, and allowing the employees to do so would create the possibility to unilaterally vary the pension plan’s terms without the employer’s consent (Buschau)

Buschau

[ - Statute overrules rule] Court held that members of a pension plan cannot collapse a trust in part because the Pension Benefits Standards Act has exclusive jurisdiction on dealing with termination and distribution of assets.To rule otherwise would make the judiciary lawmakers, and not respecting legislature’s intent

Re A.E.G. Unit Trust

[ + Only applies to small commercial trusts] Court held rule in Saunders may apply to some types of commercial trusts, despite there being a contract that may have provisions dealing with termination.

Academic Dissent (Kam Fan Sin): Saunders cannot apply to contractual situations because for contracts, it is mutual rights and not the unilateral wishes of a donor that is in question. Contracts differs from trusts as gifts.

VARIATION OF TRUSTS

CONCEPT: The court recognizes that there are circumstances where the trusts need to be varied without being terminated and recreated. However, they have little jurisdiction to do so.

Chapman

Court declared it had no power to authorize a variation of the terms of a trust even though all sui juris parties agreed and it would clearly benefit everyone. Most variations are dealt with by legislations, but common law offers some recourse

I. CL Variation: Variation of Trusts by Common Law

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Four (narrow) exceptions to the general inability of the Courts at common law to act and change the terms of a trust were developed in equity:

1. Administrative terms may be varied when the trust is compromised or threatened by unforeseen circumstances that the settlor could not have foreseen. In these emergency situations, the court steps in to effectively depart from the trust to save it.

a. May only vary trustee’s management/administration powersb. May not vary quantum or type of beneficial interestc. This is not easily evoked (Chapman)d. Often used to protect trust property, e.g. effect essential repairs to a

building or split shares in the reconstruction of capital matters to make them more realizable (Re New)

2. Maintenance jurisdiction allows the court to direct payments to the beneficiaries if they are not adequately provided for in regards to the standard the trust requires.

3. Conversion jurisdiction allows the courts to convert an infant’s trust property from realty to personalty, and vice versa.

4. Compromise jurisdiction allows the courts to consent on behalf of non-sui juris beneficiaries (and unascertained – not born or cant be found) if there is a judicially sanctioned compromise of a dispute. (Expanded on in statute - TSVA)

Possible way around this would be for the beneficiaries to call the trust, but this is impossible if beneficiaries are not all sui juris, etc.

II. Statutory Variation: Trust Variation Legislation

The Trusts and Settlement Variation Act (TSVA) allows variation of beneficial interests where the trust has beneficiaries who cannot exercise Saunders rights. TVSA allows court to approve a variation on behalf of underage and unascertained beneficiaries and get unanimity among the beneficiaries necessary under Saunders. The court must be persuaded that the proposed arrangement is for the “benefit” of the person on whose behalf it is giving consent. Additionally, note that “benefit” is construed broadly to include financial, moral, educational, psychological, and social benefits.

1. Who classifies? (section 1)

Trust and Settlement Variation Act

(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

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

any arrangement proposed by any person, whether or not there is any other person beneficially interested who is capable of assenting to it, varying or revoking all or any of the trusts or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts.

REQUIREMENT: To classify, the person must have standing, and cannot be a sole beneficiary who is of legal age and is sui juris. Additionally, that person must fall under one of four classes that the court can consent for:

a) Those with a vested or contingent interest who are not sui juris or otherwise incapable of assenting (lack legal marjority or function under some legal disability);

b) Beneficiaries, ascertained and unascertained where:i. Persons of that group have a property interest beyond a mere “spes

successionis” (“mere chance of succession”), in other words, beyond a mere hope to some possibility of acquiring a financial interest

ii. Eligible to acquire defined property interest on the happening of some future event, the outcome of which is unknown at the time of the application

iii. Example: where there is a disposition in which a life estate is left to A and a remainder is left to the survivor of her children – you don't know who the survivor is – you know the class (children) they may be ascertained or maybe hasn't had them all yet (unascertained) so we don't know who the survivor will be from this group of children (Knocker v Yule)

iv. Does not appear to include adults who are simply missing (Bentall, Buschau)

v. Doesn't apply to pensioners because unlike the survivor they are already entitled (Buschau)

vi. Despite past practice the court is not given the power to overrule dissenting beneficiaries with legal capacity who constitute a minority in a group of individuals defined as a group (Buschau)

c) An unborn person; or d) Persons whose interest arise through the exercise of discretionary power

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i. Come here when you have to get court approval when the remainder people are not in existence yet

ii. The court will not allow a beneficiary to appoint the discretionary remainder beneficiary to themselves (Re Steeds)

MISC.: A legal life estate is regarded as a deemed trust, so courts can vary life estates where there are successive beneficiaries who are deemed to be incapable of consenting to the arrangement

Buschau

- 1(b) does not apply for missing or unlocatable adult beneficiaries

Court held that 1(b) does not apply to adult beneficiaries who are unascertained because they cannot be found. Newbury explained that because these individuals already have an interest, the provision does not apply (it only applies to those who may become entitled)Not appropriate for a court to consent on behalf of “missing” sui juris beneficiaries.The pension plan developed a large actuarial surplus, which was being used to download administrative costs, and the plan beneficiaries wished to terminate the trust and thus the pension plan, so they could reap the surplus, sought consent from the court for the missing beneficiaries.

Knocker

- 1(b) applies only to those who have more than a mere hope or speculative interest

Justice held that “interest” of those ascertained or unascertained persons who may become entitled does not refer to people with a mere hope or speculative interest, nor to those in a class of objects in a trust pursuant to a wide power of appointment. It only applies to people who hold a meaningful (albeit contingent) property interest.

EX: Trust for A for life, with remainder to next of kin. B is A’s son, and is next of kin. A has 4 cousins. If B dies, A’s cousins are next of kin. 1(b) applies to the cousins, but not B.

EX: Does not refer to heir presumptive (person entitled to inherit)

Re Middleton

+ 1(b) applies to those with a present contingent interest

Justice Stamp ruled that an heir presumptive did not have a contingent interest in the estate of a living relation.

If a trust names a person or class and is ascertained and we are waiting on a contingency, they have a contingent interest at the time the trust is made.

If a trust sets out conditions to meet at the time of death, then no one has an interest until the

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death occurs

Re Steed

1(d) allows court to give consent for people whose interests arise through exercise of discretionary power

The court refused to consent on behalf of a spectral spouse or children that may exist if the beneficiary had married because it would go against the point of the protective trust.

A protective trust was created, vesting the life interest of the estate with the beneficiary with a remainder to be appointed by the beneficiary.

2) Is there a Benefit if the court consents? (section 2)

(2) The court must not approve an arrangement on behalf of a person coming within section 1 (a), (b) or (c) unless the carrying out of it appears to be for the benefit of that person.

The court may consent for anyone falling under the scope of section 1a, 1b, or 1c if they see that the proposal is of benefit for said person(s). Benefit is defined broadly and not limited to financial gain.

TWO RULES for assessing benefit:1. Benefit must be assessed as benefitting the group targeted by the statute2. The test for court approval does not req. a complete elimination of risk but a

balancing: Would a prudent adult motivated by intelligent self-interest, after careful consideration of the potential benefits and risk, be likely to accept the proposed variation? (Smith)

Benefits may include:1. Advancement of financial interests 2. Tax minimization - but not always! 3. Educational, moral, and social interests 4. Family cohesion – but not if it causes financial disadvantage to a B

VARIATION APPROVED where: (Fishleigh-Eaton)(a) the basic intention of the testator is kept alive by the proposed

variation (CD v AB Estate),(b) the proposed variation is for the benefit of the minor, unborn,

unascertained and incapable beneficiaries, and where(c) such a proposal and the benefit would likely be accepted by a

prudent adult motivated by intelligent self-interest, and a sustained consideration of the experiences and risk of the proposal made.

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Financial benefit test = “good bargain” test (Bentall) – applies where the proposed arrangement is clearly and centrally a financial matter

Ask: would a prudent adult, motivated by self-interest, with long-term consideration of the benefits and risks be likely to accept?

“Prudent advisor standard”: Would a prudent advisor agree that this is a benefit? In Russ, the “prudent advisor standard” overrode the testators intent the Russ approach means that “benefit” is more objectively determined and not so subjectively (as in Steeds) benefits test

The court is NOT bound to preserve the intention of the settlor/testator (Russ), but it may if the variation goes too far against what the settlor/testator intended (Steeds)

Bentall

[When dealing with pure financial matter, use good bargain test] GOOD BARGAIN TEST: One asks whether a prudent adult motivated by intelligent self-interest and sustained consideration of the expectancies and risks, and the proposal made, be likely to accept it?Application to vary a Direct Contribution pension plan with a surplus. The beneficiaries did not agree. Section 1(b) of the TSVA applied on the basis that pension member’s interest was split. A “good bargain” test should guide the court’s decision as to whether to approve the arrangement. Applying the test, the court concluded that Bentall’s proposal was a good bargain. In assessing “good bargain” the court gave weight to the fact that 97% of the beneficiaries approved the proposed arrangement.Pav notes that this case is decided wrongly on 1(b) issue

Re Burns

[ + Tax minimization as benefit okay] Tax minimization was held as a benefit that was appropriate for the exercise of this powerCourt granted consent for unborn beneficiaries in regards to a proposal to give investment powers to the trustees. The court found that these powers would be used to minimize tax, and thus advance the financial interests of the beneficiaries, including the unborn children

Re Weston’s

[ + Social and Educational benefit may outweigh financial benefits] Tax minimization was a benefit, but that benefit was outweighed by the social and education benefits that would be retained if the trust variation was not followed throughThe court refused a variation that would save lots of money (from an already large fund), but also have the effect of uprooting the children from London to a Channel Island

MacNeil Estate

[ + Education is a benefit in Canada Case]

Re Remnant

[ + Benefit applies to “benefit of any other kind”, including family cohesion / more marriage prospects] Family cohesion and “benefit of any other kind” should be considered

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The trust contained a forfeiture clause which activated upon practicing or marrying into Roman Catholicism. Some of the beneficiaries were not sui juris. The court consented on those beneficiaries’ behalf to invalidate the forfeiture clause, as it would prevent family harmony (as some were Roman Catholic already), and that it would better the children’s marriage prospects by not forcing them to choose between the trust or marrying a Roman Catholic

Re Harris

[ - Consider overall and likelihood of benefit] Court held that the benefit attempted to solve problems that were anticipated and not realized, so cannot vary.Husband commits suicide and leaves a disproportionate amount of estate to oldest son. Wife applies for variation on the basis of family cohesion. Court held NO, this would cause too much of a financial disadvantage to the eldest son. Though interests other than financial can be considered to determine benefit, this was too much of a disproportionate disadvantage to the beneficiary. Further it was not certain that the family fight disadvantage would arise.

Russ v BC

[ + Prudent advisor test; not bound by settlor’s intent] Held that the proper test to determine whether the court should exercise its discretion and consent on behalf of a person without capacity is that of a prudent advisor. Aldo did away with the notion that courts are bound by the basic intention of the settlor (more objective standard of benefit)

Re Tweedie

[ - If the proposed change affects someone’s minute chance of a financial benefit, the benefit of the proposed change is assessed broadly] When an unborn beneficiary would lose its very small chance of having a financial benefit, the word “benefit” should be interpreted very broadlyThe unborn child had a small chance of financial benefit, but the proposed change would give emotional, psychological, and family benefit to another individual. The court consent to the change.

Smith

[ Benefit is to be assessed from the group targeted by the statute] Courts, when assessing the benefit of an arrangement, will do so from the standpoint of the group identified as qualifying for court assistance and ask the question of whether a prudent adult will accept the proposed variation.

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THE TRUSTEE

WHO IS THE TRUSTEE?

CONCEPT: As the owner of the legal title, the trustee gets the general rights and power to possess, control, manage, administer, and within the requirements of the law, replace the trust property.

The trust instrument is key and spells out the trustee’s duties and powers (how the trustee must administer the trust). After the property is vested, the trustee gains legal title and the power to control the trust assets in accordance with his fiduciary obligations.

POWERS OF THE TRUSTEE

CONCEPT: The use of power mechanism provides the trustee with flexibility in his administration as it permits him to use his judgement in directing the use of the property that meets the settlor’s objective, despite the changing circumstances

(a)Power of Advancement: allows a trustee to exercise discretion on how much income or capital is appropriate for the maintenance of a person lacking legal capacity (given statutorily)

(b)Power of Maintenance: lets the trustee have discretion whether to allocate part of the trust capital to the beneficiary ahead of the due date, accelerating the beneficiary’s entitlement to capital (given statutorily)

TYPES OF THE TRUSTEE

(1)Types of people who are trustees – responsible, level-headed, business-like approach with capacity for good judgement

(2)Securities investment specialists as part of a mutual fund scheme(3)Public Guardian: Governed by the Public Guardian and Trustee Act, this

office exists for the benefit of the legally and physically disabled, and protection of charitable trusts.

(4)Trustees de son tort: non-appointed, intermeddles in the affairs of an existing trust that lead to a breach of trust may find liability as trustees despite not being the authentically appointed trustee; this happens where evidence points to such an individual as comporting himself as a de facto trustee, regardless of whether deliberate or based on nativity

(5)Advisors to and “Protectors” of the Trusto Non-trustees who are intimately connection with a trust are

protectors: Protectors are there to ensure the proper administration of the trust

Settlor can be a protector

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o When present, the protector’s consent is needed where the trustee wishes to exercise certain powers.

Protectors can veto Trustee actionso Note, care needs to be taken when setting this out so that protectors

are not seen as an intermeddler Protectors should not fetter a trustee’s discretionary power

o Powers given to protectors often include one or more of the following: Appointing, adding or removing trustees Directing or vetoing investments Amending the trust to respond to tax changes Consenting or vetoing trust distributions Modifying or consenting to powers of appointment Change the residence of a trust Approving accounts Settling disputes between trustee and beneficiaries Terminating the trust

o Whether a trust protector is a fiduciary will depend on the terms of the trust

McLean Revocable Trust

[Protectors can have a fiduciary duty] A settlement gave the protector the power to monitor and supervise trustees. The court held that such a power amounted to a fiduciary duty. To not make it a duty, clear wording needs to be used.

PROPER APPOINTMENT OF THE TRUSTEE

The trust instrument usually set out the appointment of trustees, and roles are often defined by mechanism of appointment.

Crucial requirement: person selected must have legal capacity and fulfil any statutory qualifications. Trustee gains authority through vesting. For cases of will appointments, trustee gains authority through letters of administration.

Several Trustees: If several trustees are appointed as JT, they must function with unanimity. Surviving trustee continue if one of them dies. Only when the last trustee die, will the trust pass to his personal representative who will then become the replacement trustee.

I. Successor Trustees

Look at the trust instrument to see if the settlor has made provisions regarding this, if not, look at the trustee legislation.

Courts have inherent powers of appointment: through the maxim of equity (“a trust will not fail for want of a trustee”), the court can ensure continuity of a trust through appointment and removals of trustees

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o If all fails, court will appoint the Public Guardian and Trustee When there’s a new appointment, assets automatically vest in the new

trustee

II. Appointment of Trustees

Appointment by the Settlor

CONCEPT: The settlor has the right to choose individuals to act as trustees, selecting one or many persons to do so (can be individuals or trust corporations)

Traditionally, trust is an administration without remuneration. But statutes now allow for prescribed fee.

A family trust established with a corporation trustee may also appoint a “protector” or “adviser” or even “guardian”

Will or settlement will usually set out an alternative trustee in the event the person named as a trustee declines the appointment. If the will does not, court has inherent powers of appointment. If all else fails, the court will appoint the Public Guardian and Trustee as trustee.

Appointment by Statutes

If the trustee is dead, disqualified, out of province for more than 12 months, unfit or want to retire look to Trustee Act, s 27(1):

(1) The person nominated for the purpose of appointing new trustees by any instrument creating the trust, OR (2) if there is no such person or no such person able and willing to act, then the surviving or continuing trustees for the time being, OR (3) the personal representatives of the last surviving or continuing trustee may by writing appoint another person or persons to be a trustee or trustees in the place of the trustee who is dead, remains out of British Columbia, wishes to be discharged, refuses or is unfit or incapable.

The purpose of s. 27 is to minimize applications to the court to make appointments. BUT NOTE that the courts retain overriding power over trustee appointments. s. 31 Trustee Act empowers the court to make an appointment if it is expedient to do so

Appointment by Court Order

CONCEPT: Trustee Act clarifies the scope of the inherent power of the Court to appoint trustees “if it is expedient.” The court will do so where persons designated to appoint cannot do it themselves (reasons inc.: mental or physical inability, deceased, unfit, etc.); Statute allows for the appointment of a new

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trustee whom, on appointment, obtains full powers of control over the trust assets whether vested by formal conveyance or not

Trustee Act, s. 31 outlines the power of the court to appoint new trustees Trustee Act, s. 36 gives the people with some beneficial interest in the

property standing to apply to the court in the event of a dispute over the statutory appointment of a trustee

Re Tempest

[Appointment Criteria for Replacement Trustees] Guiding principles to consider in the appointing of a replacement trustee:

(1)The wishes of the settlor (esp. for characteristics held by them to be undesirable)

(2)Persons who do not have an axe to grind, either towards settlor nor beneficiaries; and

(3)Persons who will promote and not impede the execution of the trust

VESTING OF ASSETS IN NEW TRUSTEES

CONCEPT: Trustee legislation usually gives courts the power to deal with the vesting of trust properties in new trustees (ss. 29-34 Trustee Act). Statute also states that if a person is designated in a trust deed with the power to appoint new trustees, that the appointee is automatically vested in title, precluding the necessity of formal conveyance or assignments (s. 29).

Instrument of appointment acts simultaneously as a vesting instrument

RETIREMENT OF TRUSTEES

REQUIREMENT: Where there are 2 or more trustees,(1)A trustee using a deed may declare a desire to be discharged (2)The declaration must be served on the other trustees, and if accepted,

the retiring trustee will cease to hold assets in that capacity and be divested of the trust property

a. Remaining trustees will continue as trustees ** The trust instrument cannot vary this [s 28, Trustee Act]

(3)After the acceptance of the retirement by other trustees, the retiring trustee needs to disengage from the assets

NOTE: Failure to follow procedures may result in an ineffectual discharge with the consequences that the intended retiree retains liability for the trust asset and their proper administration

If there is a breach of trust by other trustee, retiree may still be liable even if they did not participate

REMOVAL OF TRUSTEES

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CONCEPT: First place to look for authority to remove a trustee is the trust instrument. If the settlor provides the circumstances for a trustee removal, that governs. If there is no governing provision, look to provisions in trustee legislation or the general principles of equity.

NOTE: Often, power of removal is given to a designated person (EX. “protector”/”guardian”)

THREE WAYS to remove a trustee: (1) under the trust instrument, (2) under the Trustee Act, and (3) through judicial removal:

I. Under the Trust Instrument

CONCEPT: Default first place to look for authority to remove a trustee If settlor’s provides provision, it governs. Often the power of removal is

given to a designated person (the “protector” or “guardian”)

II. Under the Trustee Act

CONCEPT: The Trustee Act codifies the inherent power of court to remove a trustee. Removal may be initiated per the wishes of a majority of beneficiaries.

Helpful in situation where differences of opinion and squabbling among the beneficiaries prevent termination under Saunders.

CONCEPT: Where it’s clear that their continuance as trustees would be detrimental to the execution of the trust, such as the Trustee’s lack of competency or bankruptcy, the beneficiaries or co-trustees can seek removal for reasons that are “expedient” for the operation of the trust s 31

Removal of Trustees on Application

30 Enables court-sanctioned removal (not termination) on a request by a majority of beneficiariesA trustee appointed by any court may be removed and a trustee substituted in place of him, at any time on application to the court by any trust beneficiary who is not under legal disability, with the consent and approval of a majority in interest and number of the trust beneficiaries who are also not under legal disability.

Power of Court to Appoint New Trustees

31 Allows a co-trustee to apply for the removal of a trusteeIf it is expedient to appoint a new trustee and it is found inexpedient, difficult or impracticable to do so without the assistance of the court, it is lawful for the court to make an order appointing a new trustee or trustees, whether there is an existing trustee or not at the time of making the order, and either in substitution for or in addition to any existing trustees.

III. Judicial Removal

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CONCEPT: Pursuant to its inherent jurisdiction, the court may remove trustees Governing criteria that guides trustee removal are facts which disclose that

the welfare of the beneficiary’s interest is being put at risk (Conroy). Removal requires an applicant to point to acts and omissions that endanger

trust property, or that demonstrate a lack of honesty, appropriate capacity or reasonable fidelity (VanKoughnett).

If Court Got Involved in Removal

Factors

Radford v Radford Estate sets out the approach of the court towards judicially sought removal of a trustee:

1. The court shall not lightly interfere w/ the discretion exercised by a person in choosing the person to act as his executors and trustees

Freedom of property means we should give high regard to that choice

2. Interfering w/ the discretion and choice of a person in preparing his last will and testament must not only be well justified, but must amount to a clear case of necessity.

Giving respect to a choice3. Removal of an estate trustee should only occur in the clearest

of evidence that there is no other course to follow. Shouldn’t remove just b/c beneficiaries don’t like the

trustee4. In deciding whether to remove an estate trustee, the court’s

main guide should be the welfare of the beneficiaries.5. It must be shown that the non-removal of the trustee will likely

prevent the proper execution of the trust.6. The removal of an estate trustee is not intended to punish for

past misconduct; rather it is justified on the basis that past misconduct is likely to continue and that the estate assets and interests of the beneficiaries must be protected.

Simple, minor, single instances of misconduct – ex. accounts not handed down to beneficiaries in a timely manner – won’t afford basis for removal of trustee

Single instance of fraud will lead to removal Minor admin breach not sufficient, unless frequent

court gives high deference to choice of settlorFriction Between Trustees

Trustee misconduct is not a prerequisite for removal (Conroy v Stokes; Re Consiglio Trusts):

It is enough when the continued administration of the trust with due regard for the interests of the trust has become impossible or improbable due to the situation between the trustees. (Re Consiglio Trusts)

Conflicts between co-trustees is a legitimate basis to remove a

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trustee if it leads to improper administration of the trust or if it endangers the trust property (Re Newton Trust).

Misconduct Misconduct is not a prerequisite for removal (Re Consiglio Trusts)Antipathy

A track record of antipathy towards beneficiaries is enough to order a removal (Bunn v Gordon)

Grounds for Removal

According to Critchley v Critchley, there are five grounds for which a trustee may be removed:

1. Dishonesty2. Deception3. Failure to give proper accounts4. Failure to file taxes5. Failure to act as a prudent investor

Re Consiglio Trusts

[Misconduct is not a prerequisite for removal]The official guardian and a beneficiary removed 3 trustees even though there was no evidence of misconduct on the grounds that misunderstandings amongst the 3 trustees made it “virtually impossible for the trustees to agree on policies concerning the efficient management of the trust.”

Conroy v Stokes

[Criterion for concerns for the welfare of the beneficiaries] Applicants must point to acts that impair the benefits of the beneficiariesThere was no misconduct, but tension between the beneficiaries and trustees made them bring an application; Court required applicant to point to acts and omission that endanger the trust property, or that demonstrate a lack of honesty, appropriate capacity or reasonable fidelity

Re Newton Trust

[Conflicts between co-trustees as a legitimate basis] The court held that conflicts between co-trustees is a legitimate basis to remove a trustee if it leads to improper administration or endangers the trust property.Trustee brought an application to remove because of fundamental disagreement on the management of the trust

RESIDENCY OF THE TRUST

CONCEPT: Laws of the tax regime in the country where the trustees reside is what applies to the trust.

TEST: Where is the situ of its central management where the control of the trust de facto occurs?

o The test to be applied for determining the residency of a corporation was held to apply similarly to a trust (Garron)

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Garron

[ - Residence is not determinative] Residence of the named trustees is not determinative of trust residence. SCC made it clear that although the trustees of trusts were residents of Barbados, the central management and control of them was de facto in Canada.

TAXATION OF THE TRUST

CONCEPT: Taxes are paid out of the revenue generated by the trust. If there are insufficient revenue, then the beneficiary has to pay. In some jurisdiction, taxes are imposed on the trustee, but the trustee would get an indemnity at law from the beneficiaries.

DUTIES OF TRUSTEES

CONCEPT: There are 3 substantive duties:(1) To take and get control of the trust property;(2) To protect the value of the trust fund through prudent investment decisions

that are also compliant with other trustee obligations;(3) To distribute income fairly according to the distribution requirements under

the trust instrument

I. Duty to take Custody of Trust Assets

CONCEPT: On appointment, the trustee must collect & gain custody of the settlor’s property. Title must be vested in the trustee to give him authority to deal with the assets and to perfect the trust arrangement. However, note that the trustee is allowed to appoint agents. However, this power to delegate also has its own restrictions.

Trustee to act personally

CONCEPT: Common law principle of delegatus non potest delegare (a delegate cannot delegate) is unrealistic in administering most trusts due to their complexity.

Speight

[ + trustee may delegate the administration of the trust if done in the regular course of business]Court allowed trustee to delegate responsibilities if it is done in the regular course of business, and held that a trustee is not liable for losses unless he was negligent in appointing the agent. In this case, the beneficiary sues trustee for breach of trust because the trustee appointed a stockbroker who misappropriated money. But the trustee did something that was standard practice (gave script to broke to go and sell shares) –

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the trustee was not in breach.

Note: He might have been in breach if it was clear that stockbroker was a rogue.

LEGISLATION: Trustee Act Trustee Act, s. 7: Allows the appointment of solicitors and bankers without

attracting liability Trustee Act, s. 15.5: Trustee can delegate investment authority that a

prudent investor would delegate in accordance with ordinary business practice, unless contrary to trust deed.

Implied indemnity of trustees for acts of agents

LEGISLATION: Trustee Act, s. 95: A trustee is not liable for breach of trust when others are in control of trust monies unless it happened through the trustee’s own willful default.

Liability will be assessed from the standpoint of whether he has discharged his duties using the standard of a reasonable business-person controlling and managing his own property.

o Assessment will entail a review of general business practice ordinarily followed

Re Wilson

[- Can’t delegate trustee responsibility away: Example of unlawful delegation] Trustee cannot escape responsibilities by delegating it awayThe trustee was the board, but it let the GM handle the administration of the trust funds, which was found to be an unlawful delegation.

Fales

[Corporate trustees are given responsibility differently: Example of lawful delegation] For corporate trustees, not only the board can exercise discretionary powers. The settlor who employs a corporate trustee is choosing a decision-making structure, so who makes the decision is of less importance. The important aspect is that the decision is made in adherence to the company practice and guidelines

II. Duty to Invest: Investment Duties and Powers

CONCEPT: Scope of investment power may be checked by provisions in the trust instrument

NOTE: Check trust instrument to see if there are any specific req. on investments?

o If none, duty to preserve asset value means that in effect: the trustee needs to decide as to what to keep and what to sell. If the trustee does not do so properly breach

NOTE: Two broad aspect to Trustee Investment:

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o (1) Duty to invest so that the capital is preserved from risk but at the same time yields a reasonable return

o (2) Investment must be made by the trustee in a way that is even-handed between the different classes of beneficiaries

The trustee has the obligation to act as a prudent businessperson in managing his affairs.

Today investments are governed by general prescriptions in the Trustee Act…

Investment of Trust Property

Trustee Act 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.(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.

Allows investment in a trust company’s common trust fund

Standard of Care

Per Fales, the standard of care and diligence required of a trustee in administering the trust is that of a person “of ordinary prudence in managing his/her own affairs” [Trustee Act s 15.2].

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

Currently, there is no “authorized investments” Objective standard

The standard of care is the same for all trustees (Fales) – there is no higher standard for corporate trustees

Jurisdiction of Court to Relive Trustee

Under Trustee Act s 96, court may relive a trustee either wholly or partly from personal liability if they acted honestly & reasonably & ought to be fairly-excused. Power to relieve can be selective among the group of trustees (Fales)

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

Trustee is NOT Liable if Overall Investment

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

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Strategy is Prudent

Trustee’s performance must not be judged in hindsight. Where a trustee invests as an ordinary, prudent man of business conducting his own affairs, he should not be faulted as negligent (Nestle).Trustees must invest in a prudent manner, regardless of their personal objections to the nature of investment (Cowan).

Abrogation of CL Rules: Anti-Netting Rules

Trustee Act s 15.4(1) The rule of general trust law that requires the assessment of the decisions of a trustee on an investment by investment basis if the decisions are called into question is abrogated.(2) The rule for the assessment of damages for breach of trust that prohibits losses from being offset by gains is abrogated , except in respect of circumstances in which the breach is associated with dishonesty on the part of the trustee.

Now you can take a bad performing stock and off set it against good performing stock

Look at the plan as a wholeProhibited

Under Trustee Act s 17.1, a trustee may not invest in its own shares – unique to BC

Trustee Personal Investment Interests & Moral Values

Trustees must invest in a prudent manner, regardless of their personal objections to the nature of investment (Cowan).Trustee must refrain from making the investments by reason of a particular view they hold (environmentalist). Must put their personal interests and views aside and do what is best for trust.Consensus on morals by all trustees and sui juris beneficiaries enables trust variation that can accommodate these considerations.Manitoba law reform (approved by J in Cowan) says that provided predominant goal remains the securing of a reasonable financial return, you can consider non-financial criteria when making investments.

DelegationDelegation of Authority

Under Trustee Act s 15.5, trustee can delegate to the degree that a “prudent investor might” unless the trust deed prohibits this

Implied Indemnity

Under Trustee Act s 95, trustee is not liable when others are in control of properly-delegated funds, provided that the trustee is not in “wilful default”.

Trustee gets immunity under this section

Fales [ Standard of Care for Trustee making investment] “Every trustee has been expected to act as the person of ordinary prudent would act”.Testator bequeathed estate (mostly shares in closely held company BB) in trust to his wife and children in succession. Trustees were his wife and CPT (commercial trustee). The company held onto the shares for a very long time because they said the widow had a big attachment to them, even though it is risky to hold onto shares of closely held

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companies when the principal operator leaves/dies. They held onto them for 11 years before investing them in a speculative stock Inspiration. They held onto these stocks even though they seemed risky. Then everything collapsed, and the children-beneficiaries sued CPT and the widow. CPT tried to say they were exonerated, because of the strong powers to invest/hold onto what they like. CPT then tried to get the widow to be liable for damages too as a co-trustee. Court invoked s. 96 for her and said she had acted honestly and reasonably, and it wasn't her fault that CPT didn't keep her informed.

Cowan

[ Must put personal views aside when considering where to invest] Court held that a trustee cannot refuse to make a certain investment on his own moral grounds, especially if it would be more beneficial to the beneficiaries than other investments. The predominant goal must be to secure a reasonable financial returnTrustee was part of a coal mining union and did not want to invest in other coal mining companies

Nestle

[ Cannot judge trustee performance with hindsight; a proper plan shield trustees from liability] If the trustees follow a prudent business plan, they would not be liable for a breach of trust. The court notes that a trustee’s performance should not be judged with hindsightBeneficiary sues claiming that trustee failed in proper management of the fund and so the assets are worth a lot less than it otherwise could be. Court found for trustee who demonstrated through expert evidence that their plan was standard per that era’s business practices

III. Duty of Loyalty

General Information

CONCEPT: The trustee is a fiduciary and must therefore act in a way that is described as utmost good faith in his dealings w/ the property as it related to the beneficiary. A fiduciary must:

(1) act in good faith: must not personally profit at the expense of the trust(2) not misuse his position and place himself where his duty and personal

interest may conflict with the beneficiary’s interest (3) not act for his own benefit or that of a 3rd person through inconsistent

engagement of trust assets without the informed consent of the beneficiary; and

(4) only contract with the beneficiary in transactions that are fair and in which there has been full disclosure of all matters material to the transaction

NOTE: The only benefit the trustee can derive is compensation per statutory allowance

NOTE: Faithless fiduciaries who profit through a conflict will be disgorged of their profit

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PRIOR, ABSOLUTE RULE: Keech and Boardman (majority) described an absolute standard in which the trustee could not personally profit from the trust even when it is impossible for the beneficiary to benefit. This means that the fiduciaries cannot profit from their position absent informed consent of the beneficiaries. It operates so that even when there’s no real “possibility of conflict”, it could still be a breach. However, this no longer prevails.

CURRENTLY, STRICT RULE: Court held that jurisprudence should move away from the strict rule in Boardman, and that the rules must reflect modern practice and way of life, such that it can be relaxed in certain circumstances. (Peso Silver Mines).

Canadian Aero Service: Liability does not depend on proof of an actual conflict of duty and promotion of self-interest. No-conflict rule should not be couched in absolute or statute-like form.

o Take a factorial approach and consider i. the position held,

ii. the nature of the opportunity missed, iii. the ripeness of the opportunity, iv. the relation of the director to the opportunity,v. the amount of knowledge possessed,

vi. the circumstances in which it was obtained, vii. was it a private or special opportunity,

viii. the time frame of the alleged breach (did it occur after the termination of the relationship?), and

ix. the circumstances under which the employment relation was terminated—retirement, resignation, discharge

Keech

[ Historical – Trustee can’t enter transaction with conflict of interest between the trustee and beneficiary] Court held that as trustee must not enter into any transaction where he may benefit, and there is a possible conflict of interest between the beneficiary and the trusteeTrustee was found to have breached his duty of loyalty when he put his name on a lease that was supposed to be in the name of the beneficiary. Landlord would not rent to the non-sui juris beneficiary, so, the trustee renewed the lease but with his own name

Boardman

[ Historical (upholding Keech) – Fiduciaries cannot profit from their position without the informed consent of the benficiaries] Court upheld the strict no-conflict rule in KeechTrustee and beneficiary (agent of trustee) used valuable info obtained through acting for the trust to make a profit. Their plan was disclosed to the trustee, who rejected it. So they went ahead to carry out the plan. Even though result was favourable towards all beneficiaries, one beneficiary brought a claim to disgorge them. Court gave them a hefty sum for their hard work despite finding them in breach.

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Dissent: The proper test should be the “possibly may conflict” test that a reasonable man would think there was a real sensible possibility of conflict – this later becomes law (moving away from strict liability)

Peso Silver Mines

[ Strict no conflict rule can be relaxed in light of modern practice and way of life] Court held that the rules must reflect modern practice and way of life, such that the rule can be relaxed in certain circumstancesMining claims that were passed up by the trust company were later bought by a director from that company, who made his own company. Court distinguished this from Keech and explained that “an out-and-out bona fide rejection by the company would be the best evidence that any later dealings with the property by anyone is not against its interests”.

Canadian Aero Services

[ Factored approach should be used] No-conflict rule should not be couched in an absolute or statute-like form. Factor approach should be used. Also, held that this is not a movement away from the strict application since liability does not depend on actual conflict, however the strict standard in Keech and Boardman no longer prevails.Executives resigned from a company and started a new company which successfully outbid the old company. This breached their fiduciary duty to their old company and employees, even though the old company would have never won, and the executives were not acting in bad faith. The executives were held to be faithless fiduciaries and were disgorged of their profit.

Holder

[ Courts should investigate for conflict first and determine whether there is a “sensible possibility of conflict”] Courts should investigate whether there is a real conflict before deciding whether a breach of the duty of loyalty has occurred. Also, an inflexible rule prohibiting any transaction is unnecessary and risks unjust outcomes.A trustee renounced his position after a few minor tasks, then proceeded to buy property from the trust that he publicly relieved himself of, at public auction, and without special knowledge. Court upheld the sale because (1) the trustee’s renunciation was well known to all and effective and (2) it had no impact in the negotiations as he paid a fair price.

Mochan

[ Courts should investigate for conflict first – approving Holder] Held Holder as Canadian Law. Look at if there is (1) bad faith, (2) inadequate consideration, (3) transaction was in best interest of the trust, and (4) if there is anything in the trust deed against it.

Specific Situations

(1) Self-Dealing Rule: BAD

SITUATION: If the trustee is both the seller and the purchaser (trustee purchase or used trust property for himself or trustee sold trust property held in his name to himself in his personal capacity without authorization)

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RULE: Under the self-dealing rule, the transaction is voidable at the complete discretion of the beneficiary for any reason the beneficiary chooses.

EFFECT: Transfers to the trustee or nominee results in the survival of the trust until the property comes into the hands of a BFPFV w/o N

RATIONAL: Rule is based on the difficulty of determining whether the trustee really served the interest of the beneficiaries well and secured the best price for them (Ex Parte Bennett). Structural conflict because the trustee wants to buy it at the lowest price or to sell the personal assets at the highest price.

A trustee, who is entrusted to sell and manage for others, undertakes in the same moment in which he becomes a trustee, not to manage the benefit and advantage of himself (Ex Parte Lacey)

EXCEPTION: Self-dealing rule applies unless it is justified as an inflexible rule, because prohibiting all transactions is unnecessary and could lead to injustice (Molchan): The courts should investigate the facts to determine whether there is a “real sensible possibility of conflict” conflict (Holder)

In Holder, there was no conflict because (1) his renunciation was well known and effective, (2) he played no part in the negotiations, and (3) he paid a fair price

(2) Fair-Dealing Rules: OK

SITUATION: Sale of equitable estate by the beneficiary (seller) to the trustee (buyer), provided that there is complete disclosure by the trustee.

RULE: Denton v Donnor: Transaction is not automatically void, but trustee needs to show that every possible security and advantage was given to the beneficiary, and as much was gained from the transaction as could have been gained under any circumstances.

TEST: Creighton v Roman: Transaction is voidable by the beneficiary if it can be shown that trustee has not given full disclosure. If beneficiary alleges a lack of fair dealing, onus on trustee to show:

1. Absence of fraud or concealment of advantages based on info acquired while acting as trustee;

2. Beneficiary had fulsome and independent advice and protection; and3. Consideration was adequate

Creighton

[Give full disclosure, trustee has burden of proof] Court found release signed by the beneficiary invalid due to failure to give full disclosure of information regarding value of shares that the beneficiary gave up.

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EFFECT: Complying with the fair-dealing rule puts an end to a trust relationship in respect of the affected trust assets if the trustee has purchased equitable title in them. Contrastingly, self-dealing does not produce the same result. This is because transfers to a trustee (from himself) or to a nominee results in the survival of a trust until the property comes into the hands of a BPFV.

RATIONAL: Less risky than self-dealing rule as the trustee is on one end of the transaction and the trustee is on the other. But, courts still must scrutinizes the situation to determine whether the trustee acts overbearing upon the beneficiary, fails to disclose, or does not enable independent legal advice

IV. Duty to be Impartial

CONCEPT: When there is a income beneficiary + capital beneficiary (i.e. life tenant & successive beneficiaries - remainders), the trustee must administer the trust such that it does not unduly prefer one class of beneficiaries over the other.

Note: this duty can be excluded via an exemption clause, but if there is no exemption clause, the trustee must consider changing the asset mix in the trust fund; choosing appropriate investment vehicles that are fair to successive beneficiaries; and to apportionment mechanisms that cater fairly to the two classes

USUAL CAUSES OF UNEQUAL TREATMENT: 1. The initial set of trust assets predisposed to cause unequal treatment

between classes of beneficiarieso Inc.: royalties from books, mines, etc.

2. The mix of assets that the trustee assembled under his discretionary powers at risk of causing unequal treatment

3. Particular assets that is rapidly exhausting4. Trust property is characterized in such a way that it causes unequal

treatment (certain kinds of shares can be either capital or income dependent)

EFFECT: Trustee has to pay close attention not only to the return on investment and risk capability of the assets (duty to invest prudently) BUT ALSO ensure the risks and benefits are balanced equally amongst successive beneficiaries. Where a mix of assets causes inequality, a trustee will have to sell some of the assets and redirect them to investments that don't unduly favour one class of beneficiaries.

TEST: (Howe, only applicable to wills): In what circumstance does a trustee have a duty to sell trust assets?

1. Where a testator/testatrix 2. Leaves residuary3. Personalty (not realty)4. To persons by way of succession (life tenant and remainder person) and

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5. The residue includes a wasting asset (or unauthorized or revisionary asset) a. Wasting = Something that deteriorates over time until it is worthless

(ie. Vehicles)b. Revisionary = remainders in shares, insurance policy on another’s life

(where the remainder person gains at the life tenant’s expense)Then the trustee must,6. Sell the personalty that is a wasting asset7. Invest the proceeds in authorized investment (s. 15.2 “prudent business

person)a. Ie. these are investments that a prudent investor would regard as

acceptable from a risk management point of view and which have yield and capital growth capabilities that enable the trustee to meet the obligation of impartiality between successive beneficiaries.

8. Use the income for the benefit of the LT beneficiary while the corpus of the fund is persevered for later use by the person holding the remainder interest

Note: Until conversion by the trustee of these wasting assets occurs, there is a formula to reallocate at the time the trust is created excess revenue that would belong to the LT/remainder person.

CONSIDERATIONS FOR SALE ANALYSIS: Whether Trustee discharged Duty of Impartiality?

[ Apportionment of high-yield, wasting assets (favors the LT at the expense of the remainder person) ] (Howe)

o When attempting to sell a high-yielding personalty, income is set to 4% (can fluctuate depending on inflation) of the value of the property, prior to the sale of the personalty, which goes to the life tenant, and the remaining balance is given to the trust fund to enhance the capital base.

AKA 4% goes to life tenant, and the rest is reinvested.o Considerations:

1. If the shares are sold within a year of the testator’s death, the value of the shares is assessed at the date of sale. If they are not sold within a year, the value is taken at the first anniversary of the testator’s death

2. If the duty to apply is in an inter vivos trust (b/c the testator expressly req. impartiality), the value of the trust assets are assessed at the date of the trust

3. If the income received pending sale is less than 4% of the value of the property, the LT will receive all of the income produced

If the income later exceeds 4%, the difference is paid to the LT to make up the shortfall.

It not made up before sale, LT’s short fall is made up by proceeds of the sale of the asset

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[ Apportionment of reversionary-assets (personalty) (favors the remainder person at the expense of the LT) ] (Earl of Chesterfield)

o Reversionary asset + duty to convert reversionary asset into income producing property

o Trustee must calculate what portion of the sale price, if it had been invested at the date of the testator’s death, would have produced income of 4% (compounded) per year and risen to the sale price

Example of apportionment of capital under this rule Sale of reversionary asset fetches price of $100,000 3 years after the testator’s death. Given these parameters, in order to fetch said price, $88,900 is the sum that would need to have been invested at 4% per year over the 3-year period before actual sale. Thus, $88,900 will be invested as trust property and future annual income from it given to life tenant, plus the $11,100 income from the 3 years prior.

Miles

[ Duty of impartiality between capital and income beneficiaries] Court held that the executrix breached her duty of impartiality between capital and income beneficiaries of the trust when she used all of the income in one trust for administrative purposes of anotherThe testator created two trusts, with his children as beneficiaries in both, and his wife only a beneficiary in one of them. His sister, the testatrix, used to funds from the trust benefiting the wife and children, to help the trust that benefitted only the children. In doing so, the widow was deprived of all income, which ran contrary to the intent of the testator.

OVERALL: For personalty (not realty unless expressly said!) when impartiality is found, the rules in Howe and Earl of Chesterfield apply (except for realty) (Lottman: all of this is subject to express intentions by the testator)

Trust for sale (or convert) = impartiality o Trust for sale means: Trustee must sell (or convert)

Trust to retain = EXCLUDES the rules in Howe and Earl of Chesterfield (you can be partial)

Power to sell = may require impartiality Power to postpone = may indicate you can be partial Power to retain = may indicate you can be partial Trust for sale (or convert) + power to postpone = VERY LIKELY impartiality

(but see Lottman) Trust for sale (or convert) + power to retain = LIKELY impartiality (but see

Lottman) Power to sell + power to retain = According to Smith, equals impartiality

(however does this mean that the “power” (rather than trust) is enough to trigger impartiality and thus trigger the rule from Howe?). Smith suggests

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it may be enough, though it will be overridden by a clear intention by the settlor or testator to the contrary

Provision directing LT to receive income in specie = may indicate you can be partial

Provision to maintain unauthorized investments = may indicate you can be partial

No clause in Will (Personalty) = requirement of impartiality will be implied No clause in Will (Realty)= Rules do not apply No clause in inter vivos trust = requirement of impartiality will not be

implied

Is there a trust for sale or trust to convert clause?

CONCEPT: When there is a trust for sale or trust to convert clause, it is implied that there is a req. of impartiality. Thus, Howe or Chesterfield will apply. If income is from real estate, the payment is in its actual form (in specie), so there is no duty to convert unless expressed directly (Lauer)

Does the trust deed allow partiality?

CONCEPT: A will may do away w/ impartiality by inc. a provision which expressly permits partial treatment. This may also be implied from provisions in the will that:

1. Direct the residue of the trust to be kept or retained2. Authorize the trustee to maintain unauthorized investments despite the duty

of prudent investments or 3. Direct the LT beneficiary to receive income in specie NOTE: A will or inter vivos settlement may also include a re-affirmation of

the req. of impartiality as well

Does the trust contain a trust for sale provision along with a power to retain or postpone?

CONCEPT: When a will contains both a trust for sale and a power to retain or postpone, there is an implied requirement of impartiality. The rule in Howe and Chesterfield is applicable, and the value of goods will be taken at the date of death, due to the power to postpone. If the income is from real estate, payment is in specie (Lauer). Depending on how much weight is put on the power to retain or postpone, the fact that the trust contain both a trust for sale and a power to postpone/retain can signify anything between a signal to the trustee to sell when favourable to excluding the duty of impartiality.

NOTE: If it contains both, then argue both sides with Lauer and Royal Trust Co

Lottman

[ Howe does not apply to realty; express provisions can eliminate Howe] Court affirmed that Howe does not apply to realty. Any income generate

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is given to LT in specie.An express trust for sale with power to postpone, with the widow as life tenant and children as remainder beneficiaries. Despite the trust for sale applying to personalty, the rule in Howe was not applied (and so the widow received no income from those sales) as the trust had express provisions stating that the widow’s needs would be met through use of capital – excluded operation of the rule in Howe in favour of specific direction of testator.

Lauer

[ + Trust expressly provides for sale of all assets, and implies impartiality] Thus, the court concluded that the rule in Howe would apply to both realty and personalty in this specific case. Affirmed without reasons. Contrast with Royal Trust Co.There was a will with a trust to convert all the estate into money, with a wide power to postpone and retain. The court found that the testator intended to convert both personalty and realty, and that there was an implied duty of impartiality covering all the assets sold.

Royal Trust Co

[ - Trust to convert with ancillary power to retain not enough to suggest partiality] the court held that when there was a trust to convert, but a power to retain that was ancillary at best, there would need to be further evidence to support the claim that the life tenant is entitled to the income in specie.Intention of the testator that allegedly displaces the requirement of apportionment must be clearly gauged from the will and surrounding circumstances. It must be very clear from the settlor’s intention that the power to retain/postpone is dominant over the trust for sale. Here it was not, so the duty to apportion applies.A life tenant who was paid a major dividend from the company that compromised most of the trust, severely reduced the value of the company and capital. The court looked at additional evidence to determine that although the widow was to be taken care of financially, the priority was the conservation of capital by the trustees. The court ordered apportionment.Dissenting Judges: Cartwright and Estey JJ cited a clause granting the wife “any surplus income” as evidence that the wife is entitled to income in specie. Consider whether the power is retained to allow for advantageous sale or retained to retain permanently. Contrast with Lauer.

Is there both an express power to sell, and an express power to retain?

CONCEPT: When a trust has both an express power to sell and an express power to retain, duty of impartiality is presumed but can be rebutted by clear intention from the settlor otherwise. (Re Smith)

Re There is a trust that contained a precatory clause which resulted in a life

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Smith

interest for mom with remainder to son. Yearly income was too low for mom, and trustee ignored her request to change the portfolio per the son’s advice. Court found trustee had administered in preference of a remainder person, and was in breach of impartiality. Court applied rule in Howe despite this being an inter vivos transfer probably because the transfer was requested by a will.

Are the Trust Assets settled shares in a company and the terms of a will contain a power to retain?

CONCEPT: When the trust assets consist of settled shares in a company and contain a power to retain, the courts observe the rule “form is substance”: How and in what form the company labels the compensation for these settled shares can determine whether they are held by trustee as income for the LT, or capital for the remainders (Re Water Estate).

NOTE: Dividends = income = LT. Share = capital = remainder

Re Waters Estate

[ Form is substance rule] Court held that the distribution of income from settled shares was in the form of additional shares, not dividends, to avoid taxes. The court observed the “form is substance” rule, and held that as the recompense was in the form of capital, it would stay as capital and thus be held by the trustee for the benefit of the remainder.

CAVEAT: Trustee does not and cannot apportion the recompense from the company, unless there is evidence to the contrary (Re Welsh). If a party can successfully argue that “form is substance” would be contrary to a testator’s intention, express or implied, the rule can be ignored.

Re Welsh

[ Testator’s intent can trump “form is substance” rule] Court held if there is evidence to supporting that enforcing the form is substance rule would produce a result at odds to the testator’s clear intention, then the rule should not applyThere is a will that provided for the testator’s widow as LT, and his own children in remainder. Assets were sold, and when the wife died. Her second husband, and their children, argued that form is substance and the income should flow to them. The estate successfully argued that the testator clearly would not have intended to benefit his wife’s second husband, and his family, and leave his children penniless.

Has the Trustee failed to be even-handed, and attracted court intervention?

CONCEPT: The court does not wish to interfere where a trustee has exercised discretion honestly and intelligently, but will when the trustee fails to be even-handed. (Re Fleming)

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Re Fleming

The Trustees were directors of a corporate trust asset, and could choose the method of distribution for a large surplus. Choose to distributed so that one beneficiary is overwhelmingly benefitted at the expense of the other. Court intervened, stating that the trustee should be aware of:

Adverse tax consequences Other prospect for income enhancement Requirement by law to be even-handed between LT and remainder Fact that by eliminating indebtedness, the future income of the LT

is likely to be enhanced (Miles)

V. Duty to Provide Information

CONCEPT: Trustees have a duty to provide certain information to sui juris beneficiaries, and sometimes even to contingent (Re Ballard Estate) and discretionary (Re Murphy’s Settlement) beneficiaries. But they do not need to volunteer info. Nor is the trustee required to reveal all information, and the trustee should be careful of fishing expeditions (Re Short Estate).

NOTE: This does not mean the trustee can neglect his duty to account for all activities of a trust (Abbot).

Londonderry

[ No general duty to disclose reasons for trustee’s decisions] Upheld the general rule that a beneficiary is not entitled to reasons behind a trustee’s decision b/c that might discourage people from being trustees

Trustee’s agenda, correspondence between trustees and beneficiaries, minutes of trustee meetings are also not subject to duty of disclosure

A beneficiary is not entitled to documents covering the trustee’s exercise of a discretionary power of beneficiary selection

EXCEPTION: If trustee is acting in bad faith, then court can force disclosure

Schmidt v Rosewood

[ Trustee may be compelled to disclose information if strong case is made] If a compelling case was made, the court can compel disclosure of certain info through exercise of its inherent jurisdiction. (Beneficiary is not entitled, this is up to the court)

In deciding whether to compel disclosure, the court must balance the competing interest of different beneficiaries, the trustees and third parties.

o Look for a strong reason, which revealing info would benefit the beneficiary while not hurting the trustee’s reputation

o Those with lower chance of benefit (discretionary) would likely not get any relief

Court was satisfied that a discretionary beneficiary needed further info to determine whether because of a breach of fiduciary duty he

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was allocated less funds than he should receive, the trustee’s reputation is not an issue b/c he was mala fides (bad faith, intent to deceive).

DISCLOSURE OF LEGAL OPINION: Disclosure of legal opinion given to the trustee is not automatically available. General rule is that you are not entitled as a beneficiary to those opinions unless they are routine and discuss how the trust should proceed (Froese). If there is S-C privilege attaching and a reasonable expectation of privacy, that will be respected.

VI. Duty to Account

CONCEPT: As part of his duty of proper administration, the trustee is obliged to account for the trust assets and the beneficiary has a right to inspect the records! But beneficiaries are not entitled to instantaneous info (Sandford): The Trustee has a duty to make the accounts available for inspection & examination

If beneficiary lives in a remote are, there might be an obligation to post copies

LEGISLATION: According to s. 99 of the Trustee Act: The Trustee has 2 years from the date of appointment to file accounts

VII. Duty to Apportion Debts and Other Disbursements

LEGISLATION: s. 144 of WESA: unless the testator requires otherwise, income is not available in isolation for payment of debts. Payments are to be made out of capital – Unless the capital is insufficient to meet the estate’s liabilities, trustees are not to be regarded as having to apply any income of the estate to the payment of debts. Thus, the life tenant takes all of the income arising after the testator’s death.

RIGHTS OF TRUSTEES

I. Right to Remuneration

CONCEPT: Duty to remuneration is set out in s. 88 of the Trustee Act: (1)Trustees are allowed expenses PLUS a fair and reasonable allowance not

exceeding 5% of the gross aggregate value of all the assets for their “care, pains and trouble” and administration

o One-time feeo Has to be approved by the court

(2)Judge of BCSC determines remunerative amount(3)Additionally, trustee can apply for an annual “care and management

fee” that doesn’t exceed 0.4% of the average market value of the assets

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o Payment takes into account the level of skill req. to manage the assetso Probably can’t get every year, but ever so often; can do this

periodically o Has to be approved by the courto Lump sum is preferred

CONCEPT: It is better to deal with the remuneration of the trustee in the trust instrument as a so-called “charging clause”. It can also be arranged in a contract with the sui juris beneficiaries (but not advisable because vulnerable to an “undue influence” attack)

NOTE: Remuneration of trustees form a lien on the trust

What is “Care and Management”?

CONCEPT: Care and management is the responsibility of reasonable supervision and vigilance over the preservation or disposition of assets. Also, it is the responsibility of judgement and decision making in the affairs of an estate to resolve problems from time to time arising over and above the usual and regular procedures attendant upon administration. (Re Sproule Estate)

Preference for lump sum remuneration Use of percentages would require special reasons

Re Sproule Estate

[Care & Management] The trustee wants remuneration for care & management, but the beneficiaries argue that the trustee as just holding the shares (which are performing well). The court awarded the trustee’s remuneration because they spent a fair bit of time as the shares are bulky and inherently risky, so the trustees had to meet and discuss it often. Court sided with Trustees

GUIDELINE: for setting remuneration (Re Sproule Estate) The magnitude of the trust (value and complexity) Level of care and responsibility arising from it The time occupied in performing the duties The skill and ability displace, and The success that has attended the Trustee’s administration of the trust

assets

FACTORS: determining the ‘care and management’ fee (Re Pedlar Estate) Value of estate assets administered The nature of the assets administered The degree of responsibility imposed upon the trustee by the terms of the

instrument, including length/duration of the trust Time expended by the trustee in the C & M of the estate Degree of ability exhibited by the trustee in the C & M of the estate Success/failure of the trustee in the C & M of the estate

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The rending of some extraordinary service in the C & M of the estate Section 85 of the Trustee Act: Trustee’s legal fees

II. Right to Indemnification

CONCEPT: The trustee may be liable for trust debts that incur since they are the legal owner. Equity states the beneficiaries should shoulder these debts. So, the trustees are entitled to an indemnity for all debts they incur in the executing of the trust and can claim against the trust or the beneficiaries this cost. (s. 95 of the Trustee Act).

Modified Rule: Only if there is good reason why the trustee, as legal owner, should personally bear the burdens incurred in carrying out their duties (where trustee is in part in fault)

Example: if there is an inability to be indemnified by all beneficiaries because the asset is divided to all the beneficiaries but only 1 of them is sui juris, then you cannot recover all of it from the sui juris beneficiaries because that would be unfair and the trustee should not have divided the trust as so.

Hardoon v Belilos

[Only 1 beneficiary is sui juris] Court held against indemnification because in this case, only 1 beneficiary would be able to indemnify the trusteeThe trustee divided the trust into smaller trusts in favour of several beneficiaries (only 1 is sui juris). Court held that it would be unfair to cast all the costs of each division on to the single sui juris beneficiaries (only person who can indemnify the trustee)

Re Reid

[Illustration of the need to indemnify] A payment had been made in the UK by a trustee located in the UK in respect of taxes levied against the estate of a beneficiary residing in BC. The only argument that the beneficiary raised for not paying these taxes was that the trustee shouldn't have paid the taxes. The court said no and found for the trustee. Quid pro quo of being beneficiary is that you have to pick up the liabilities.

POWERS OF TRUSTEES

CONCEPT: Trustees has powers like any owner of property. Sources of trustee powers: (1) trust instrument, (2) common law re: managerial powers of the owners, and (3) Trustee Act

[No judicial intervention unless mala fides] According to Fox, courts held that there is no judicial intervention in the trustee’s absolute discretion

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unless there is some mala fides on the part of the trustee (Mala fides include fraud, actions against public policy, or acting on mistaken info)

CONCEPT: Administrative Powers of the Trustee Unless there is a specific duty to keep an asset, the trustee can choose

what/when/how to sell an asset and is exempted from losses arising from the exercise of this discretion unless the transaction is “untoward” i.e. collusion) BUT remember! There is always (unless otherwise indicated) the requirement of the duty to manage as a prudent businessperson, and duty of impartiality – Trustee Act s 5 & 6

o s 5: must act in accordance with trust instrument, as a prudent businessperson, and meet the req. of common law (i.e. ensuring impartiality)

o s 6: beneficiaries can impeach the sale if consideration is clearly inadequate

o s 6(2): exempts trustee from liability of losses from exercise of s 5 as long as no mala fides

Appointment of solicitors & bankers to receive and discharge money – s 7 Use of insurance – Trustee Act s 8

o Trustee can spend money to insure trust assets Compound debts – Trustee Act s 23

o Trustee has wide discretion to compound or abandon debt, and allows them to refer dispute re: debts to arbitration.

o Trustee is not liable to beneficiaries for exercising these powerso Trustee can exercise discretion around corporate management and

reorganization re: companies Expenditures for repairs and improvements to prevent deterioration (has a

duty to take care of assets) – Trustee Act s 11o Even through loans

Investment agents – Trustee Act s 15.5 & 22o Trustees can delegate investment responsibilities to agents but must

be prudent in doing so Maintenance of persons under age of majority – Trustee Act s 24 & 25

o Trustee can apply trust property for the maintenance of persons not sui juris

o Supervision of beneficiaries may be req. to ensure the purpose of the property was met (Re Pauling’s)

o Where the trust instrument is silent on this, trustee has statutory discretion on this maintenance matter

o Court also has inherent power to exercise this discretion

CONTROLS OF TRUSTEES

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I. Control by Beneficiaries

CONCEPT: Beneficiaries who are sui juris can call for the trust (under the Saunder v Vautier rule) and that gives them a large measure of control over the trustees. They can also combine with trustees to amend or redraft the terms of settlement.

LEGISLATION: Trustee can be removed by majority of beneficiaries (s. 30 Trustee Act)

APPOINTMENT OF TRUSTEES: Trustee’s power to appoint trustees cannot be controlled by beneficiaries (Re Brockbank)

Courts can reinforce the discretion the settlor has given to the trustee unless the trustee acts in bad faith

Re Brockbank

[Power to appoint trustees cannot be interfered with] There were two trustees with the power to appoint a professional trustee. One trustee wish to retire and the beneficiaries insist that the bank should take his place. Trustee resisted and argued that they had full power over trustee appointment. The court held that this power is deserving of the greatest respect and refuse to interfere.

TRUSTEE DIRECTORS: Beneficiaries have the same right as other shareholders, not more, so they can’t get ahead of other shareholders by compelling the trustee, who is a director because of the shares in the trust, to disclose info about the company. However, beneficiaries can compel trustees to vote the shares as directed or even to change the articles of the company. (Butt v Kelson)

NOTE SHIFT: Better way to construe Butt is to say that we need to balance the interests of all stakeholders when dealing with issues of info disclosure (Re Martain Estate)

o If the info isn’t deleterious to the other stakeholder, make sense for the other beneficiaries to know b/c it is unique to them (Konig v Hobza)

o Where the corporation has minority stakeholders unassociated with the trust, the beneficiaries request for complete disclosure is more likely to be rejected (Butt)

II. Control by Court

Advice and Opinion from the Court

CONCEPT: Courts tend to support trustees b/c (1) it’s their job, and (2) they’ve been selected by the testator. Under s. 86 of the Trustee Act, the trustee can apply to court in chambers for opinion, advice or a direction on a question of management and administration. s. 87 of the Trustee Act absolves trustees of

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responsibility where they are acting under court authority, except in abuse of process.

Immunity does not indemnify a trustee who is guilty of fraud, wilful concealment or misrepresentation by obtaining such opinion, advice or direction

NOTE: Court can intervene in stock transfer if the transfer is governed by WESA (s. 74, Trustee Act)

Are they in an absolute deadlock?

BENEFICIARY GOING TO COURT: Courts do not want to be overburden w/ requests for advice, esp. where there is a stalemate. Court acknowledges that it cannot force the trustee who is refusing to take a particular view (Tempest v Lord Camoys).

[ Court can’t force trustee to agree when in a stalemate] In Tempest, two trustees could not agree on whether to purchase a certain property. The court held that it could not force the trustee to agree to do so.

TRUSTEE GOING TO COURT: Trustee goes to seek direction when they can’t reach unanimity and feels that the issue is one that will expose them to breach of trust. However, court has refused to intervene, asserting that trustees given discretion should exercise it as they see fit without interference: Only in the case of bad faith or refusal to discharge duties should a court step in to control the exercise of the discretion of the trustees

[ Court will only step in when there is bad faith, or a refusal to discharge duties] In Re Wright, court held only in cases of bad faith or refusal to discharge duties should a court step in. Otherwise, court gives a lot of deference to the trustee. In this case, the trustees could not agree on a selling price for shares.

[ Court will step in when there is a SERIOUS deadlock] In Re Billes, court intervened for a serious deadlock. Constitute serious deadlock b/c the trust assets were in a high-risk investment and there was a conflict of interest person participating in the deadlock

SHOULD THE COURT STEP IN? (Kordyban)(1) Court should step into the shoes of the settlor and surmise what he would

have done on the basis of discernible objectives in the trust instrument(2) Advance a more general criterion of acting in furtherance of what would be

just and equitable

REFUSAL TO CONTROL: courts may refuse to control a trustee when it defers to a settlor’s choice of trustee and respects the settlor’s assessment of the trustee’s qualifications (Louis Winkler Alter Ego Trust)

Intervention where trustee acts outside trust objectives

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CONCEPT: Court will “interfere where the trustee is attempting to exercise its discretion to achieve a purpose not intended under the terms of the trust” (Schipper v Gauranty: trustee refused beneficiary(wife)’s request to encroach into capital trust in the trust that was set up for the general welfare of her by her husband (testator), court held that the trustee failed to give effect to the testator’s first and foremost intention of providing for his wife)

Failure to be Even Handed

CONCEPT: Court will intervene where the distribution of income/capital is unfair or has potential to be unfair (Re Fleming)

Ousting Court’s Jurisdiction

CONCEPT: Attempts by settlor to oust court jurisdiction using trust terms that will state that the trustee is empowered to make exclusively “binding and conclusive” decision will be treated by the court as invalid due to being contrary to public policy

However, for matters of fact (not law), a power to adjudicate can be given exclusively to a trustee

Evans

[ Courts have broad jurisdiction over trust law] Courts have jurisdiction over trusts to ensure trustees are honorable and fulfill their duties. Not even the Trustee Act can oust the inherent equitable jurisdiction of the court to remove a trustee, even if that means the trust would lose its only trustee

In re Wynn

[ Courts reject attempts ousting their jurisdiction in trust law] Any attempts to oust the jurisdiction of the court is invalid, and contrary to public policy.A trust which contained a clause that said a trustee’s decision would be “conclusive and binding”, which the courts held invalid.

Re Tuck’s Settlement

[ Slight limits on court’s jurisdiction] A court’s jurisdiction could be partially limited.A Jewish faith clause which allowed the “Chief Rabbi of London” to conclusively determine whether an approved wife met the condition as set out in the trust deed. A court would retain control if the rabbi misconducted himself, or came to a decision “wholly unreasonable”

Boe [ Privative clause (excludes judicial review) is ineffective if acting dishonestly, or failed to do certain things] A privative clause will be ineffectual to prevent judicial review where the trustees have acted dishonestly or failed to:

Exercise a discretion at all Exercise a level of prudence expected from a reasonable

businessperson Act impartially between classes of beneficiary or prejudicial

manner w/r/t their interest

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A pension plan that is alleged to collect money from members. The trustee made a determination that such collection methods were allowed, and relied on their allege exclusive jurisdiction to bar judicial review. This failed.

Re Poche

[ Exculpatory clause not valid if trustee acts badly] Exculpatory clauses will fail to protect trustees from liability that results from their dishonesty, wilful breach of trust, or gross negligenceTrustee failed to gather the assets, sell the assets, and act even-handedly. All supported the court’s finding that she was grossly negligent, and should not have the protection of the exculpatory clause.

Jones v Shipping Federation

[ Can’t exclude beneficiary’s right to accounting] No clause in a settlement can deny the beneficiary the right to see the accounts of the trust assets.

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CONSTRUCTIVE TRUSTS

CONCEPT: Constructive trusts arises through law, and is a tool for the courts to remedy a situation that if left as is would amount to an injustice. Constructive trusts award the claimant with an equitable interest, to which they may use to call for legal title.

CATEGORIZATION: Situations where CT arises: (1) the category of their relationship (fiduciary per se) or (2) the nature and specific circumstance/context of their relationships (ad hoc fiduciaries) (Elder).

NOTE: The hallmark characteristics of specific circumstance fiduciaries are: ascendency, influence, confidence, trust, or dependence. Where they give rise to a situation of fiduciary expectation – that is, a reliance that a person’s affairs are aligned with protection or advancement of that person’s interests – then the presence of these factors will implicate one party in the affairs of the other, to the point the first should protect or advance the latter’s interest.

(3) The court may apply a constructive trust as a remedial tool if it sees unjust enrichment, despite there being no

fiduciary duty (Soulous). NOTE: Preferred remedy for unjust enrichment is restitutionary

compensation, not the in rem remedy of a constructive trust. However, sometimes resitutionary compensation is inadequate and the alternative proprietary solution is relied on

CONSIDERATIONS: Does the person who holds legal title to the property have a fiduciary duty

such that he needs to be attentive to other claimants of beneficial interests in his property?

Has a person who obtained legal title to the property in a manner which gives rise to an actionable unjust enrichment?

Has the property increased in value while in the defendant’s custodianship such that the plaintiff-beneficiary is entitled to it? (Soulous)

Fiduciary Per Se Ad Hoc FiduciaryRelationships that have for a long time been recognized and characterized in case precedents as fiduciary: subcategories (trustee/beneficiary, principal/agent, solicitor/client) are referred by some as “substantive” or “institutional”

One-off situations in which there is no overt, agreed-upon duties explicitly or impliedly agreed to by the defendant, not ordinarily a fiduciary per e, but one which has arisen because of special, somewhat unique circumstance

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FIDUCIARY PER SE

I. Does the Situation Fall Under The Definition of a “Fiduciary Per Se”?

CONCEPT: If you are the claimant, try to characterize the relationship as a fiduciary per se, in which a fiduciary relationship is presumed (i.e. solicitor-client, parent-child, agent-principal, trustee-beneficiary, etc.). Defendants in this sort of relationship owe the claimant a duty to act with the utmost good faith in respect to the property. If the duty is breached, court will almost always impose a constructive trust.

EXAMPLES of fiduciary per se breaches: Disloyal trustees and their breach of trust (Keech) Faithless directors or senior officers of company who harm company

through personal property acquisitions (Can Aero Services) Agent breaches duty of loyalty to principle (Soulos) Solicitors who have wronged their clients (Canson) Overreaching partners, bribers and corrupt officials (Hawrelak) Undue influences

o A doctor who has gained title to property from unduly influencing a patient (Norberg)

Breach of confidence tricksters intermeddlers in trusts (e.g. trustees de son tort) Persons who knowingly receive trust property

The hallmark feature, common to all of these instances, is that the wrongdoer is inherently in a fiduciary relationship and has breached his duty of outmost good faith

Ii. Other Situations Where the Constructive Trust is Used (Land Transfer, Protection)

CONCEPT: CT is also used as an institutional device for vendor-purchaser relationships. Once the transfer of property is completed, the buyer has an equitable interest in the property sold (effective from date of sale). Risk of accidental damage before the actual transfer falls on the purchaser, as the equitable owner has the burden of dealing with losses caused by acts of God (Rich)

Rich

Applicant brought real property from seller and paid through monthly installments. Seller disappeared, but court recognized buyer already had equitable title and could call legal title from seller to complete the sale. Constructive trust allowed the equitable interest to be vested in an individual. Since the legal title owner is out of the picture, the equitable title owner can call for the end of the trust

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CONCEPT: Court may also use CT as facilitative in other areas of contract and property law

Mayo

Court can place CT on fee simple to resuscitate a remainder in a life estate transfer that has been outsed by the consequence of a property tax sale, and protect innocent beneficiary’s remainder interest from a novel strategy by the life estate interest holder. Life tenant owes a fiduciary relationship to the remainder person.Mom had life interest and didn’t pay taxes. She let her children buy the property at a property sale then had her children transfer it back (upgrading to fee simple). Court did not approve and imposed a CT

AD HOC FIDUCIARIES

I. Constructive Trusts with Ad Hoc Fiduciaries

CONCEPT: Court notes that categories of fiduciary duties are not closed and recognizes ad hoc fiduciary. Ad Hoc fiduciaries are situations where “the relative legal positions are such that one party is at the mercy of the other’s discretion” (Guerin), and are seen as harmful enough to warrant imposition of a CT. Nature of the relationship is more important than category of actors.

NOTE: CT has been used despite a lack of vulnerability. In Lac Minerals, court found a breach of a fiduciary relationship on the finding of a breach of reliance and dependency by one party on another. Court defined vulnerability should not be interpreted only as an individual’s “ability to protect oneself from harm” but instead depends “on the nature of the parties’ reasonable expectation”

NOTE: Important points to be noted in the context of ad hoc fiduciaries(1)Fiduciary law is more concerned with the position of the parties that

result from the relationship which gives rise to the fiduciary duty than with the respective positions of the parties before they enter into the relationship

(2)A critical aspect of the fiduciary relationship is an undertaking of loyalty: the fiduciary undertakes to act in the interests of the other party

GUIDELINE for determining whether a fiduciary relation has been established: (Fame)

The fiduciary has scope for the exercise of some discretion or power, The fiduciary can unilaterally exercise that power or discretion so as to

affect the beneficiary’s legal or practical interests The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary

holding the discretion of power

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TEST: Ad hoc fiduciary: Claimant must show, in addition to the vulnerability arising from the relationship (Elder):

(1)An undertaking by the alleged fiduciary to act in the best interests of the alleged beneficiary or beneficiaries

(2)A defined person or class of persons vulnerable to a fiduciary’s control (the beneficiaries)

(3)A legal or substantial practical interest of the beneficiary or beneficiaries that stands to be adversely affected by the alleged fiduciary’s exercise of discretion or control.

SITUATIONS of ad hoc fiduciary: Negotiations & disclosures in bargaining in special relationships such as

joint ventures (Lac Minerals) Crown acting in reserve land for indigenous peoples (Guerin) Parents and children in situations of abuse (M(K) v M(H)) Professional advisors preferring a special skill (Hodgkinson) Companies & employees in a pension plan (Sun Indalex)

Guerin

[ Nature of the Relationship is the Focus] The focus of fiduciary law is on the nature of the relationship that has developed between the claimant and the defendant. “It is the nature of the relationship that gives rise to the fiduciary duty”[ Fiduciary duty between Crown and Aboriginal groups] Court held that “the categories of fiduciary . . . should not be considered closed”, and that a fiduciary duty existed between the Crown and the Musqueam Band, upon the surrender process.The gov’t ripped off the first nations and leased the golf course at a cheap price to a BFPFV w/out notice; The first nation members got equitable damages instead of proprietary remedy; damages are calculated by being fully restorative of position before the breach. This means only no golf course allowed. And so, it leaves open the fact that land could be used for residential development even though at the time the lease agreement was entered into that was not a viable solution

Galambos

[ No fiduciary duty when there’s no discretionary power to affect other’s interests] Court held that “in both per se and ad hoc fiduciary relationships, there will be some undertaking on the part of the fiduciary to act with loyalty” Also, vulnerability alone not enough – must also show some indication of an undertaking of loyaltyP voluntarily made cash advances to G, who had never requested it nor did he know about it. G went bankrupt, and P sued for breach of fiduciary duty, but there was no vulnerability found. Policy: Fiduciary law protects one party against the abuse of power by another, and looks at whether there is abuse of a loyalty reposed.

II. Ad Hoc Fiduciary Duty in a Contract / Business Circumstance

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CONCEPT: Court have recognized fiduciary relationships within contractual relationships despite being wary of meddling and interfering with free negotiations (especially where parties are sophisticated)

FOR AGURING YES FIDUCIARY DUTY FOR ARGUING NO FIDUCIARY DUTY

In Hodgkinson, Justice La Forest held that a fiduciary duty could arise when an individual places trust and confidence in another party, and relies on that person and his expertise to make a business decision. In other words, reliance & dependency by one party on another can support a finding of a fiduciary relationship (don’t need vulnerability).

In Lac Minerals, Justices Sopinka and McIntye in their dissent were hesitant to characterize one sophisticated commercial entity as “vulnerable” to another sophisticated commercial entity, and instead held that a tort remedy was more appropriate in the circumstances. (circumstances did not give rise to fiduciary relation)

Distinguished from Lac Minerals on the basis that contractual relationships involving a professional advisor (tainted by self-interest as in Hodgkinson) should be seen differently from negotiating parties (who are more equal).

Justice Sopinka in Hodgkinson, also dissented by not finding a fiduciary relationship in a contractual relationship of a professional-advisor type, because the claimant took time for consideration of the tax strategy, and chose to invest.

ElderTEST for ad hoc fiduciary: “a party seeking to establish an ad hoc duty must be able to point to an identifiable legal or vital practical interest that is at stake”.

Lac Minerals

[ Vulnerability sufficient but not necessary] The court held that although there was no vulnerability, reliance on a party was enough to establish a breach of fiduciary duty. The court held that ascendancy, influence, trust, confidence or dependence were hallmarks of a fiduciary relationship. Correct (on the issue of vulnerability) (Sopinka and

McIntyre): Clearly the behavior by LAC was unconscionability (action in tort – breach of confidence), but this is not a situation of ad hoc fiduciary as there is no vulnerability (which is a requirement under Elder now, and was under Frame then). Why was there no vulnerability? These two large mining companies could have dealt with the situation through their armies of lawyers on each of their sides.

Incorrect (on the issue of vulnerability) (La Forest and Wilson JJ): Yes, there was a fiduciary relationship. Fiduciary relationships are not just where you are vulnerable – they are circumstances where there is a dependency or reliance of some

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kind and this can support a finding of a fiduciary relationship. Therefore, a duty of loyalty was created and was breached and so a constructive trust should be available.

o This was endorsed in Hodgkinsons – it is less stringent because it allows an ad hoc fiduciary relationship to be established on the basis of power dependency alone.

Swing vote (Lamer) : said there was no vulnerability (therefore no fiduciary), but that the remedy should be constructive trust (combo of majority and dissent).

o Pav: Lamer was merging CL remedies with equitable - this was using a constructive trust with a breach of a trust or tort which was odd.

Plaintiff had disclosed confidential information during a bargaining of a potential joint venture with Lac. Lac then unilaterally acquired the property.

Chase Manhattan

[ Accidental transfer ] Court found a fiduciary duty on a bankrupt bank in respect of an accidental transfer of money.

Hodkinson

[ Professional Advisors] For professional advisors, test in not confined to just vulnerability the existence of a fiduciary duty depends on the reasonable expectations of the parties (informed by factors such as: trust, confidence, complexity of subject matter, and community standards). Also, the existence of contract does not preclude the existence of fiduciary obligations (i.e. when a client places trust and confidence in a broker and relies on his expertise to make business decisions).Claimant purchased condos which allowed him to write-off income from business, but accountant failed to disclose that he held an interest in the tax avoidance scheme he set up for H. Court held that claimant was vulnerable because of reliance on accountant, and so, failure to disclose resulted in a CT. But since the Claimant already owned the condos, CT remedy is not available and thus, claimant is only entitled to equitable damages. Dissent thought this was bullshit cause loss was because of condo market’s collapse not the accountant’s error.

III. A Fiduciary Duty is Not Confined to Economic Interests Only

CONCEPT: Ad-Hoc fiduciary duty can still be found when the interests are not economic in nature. (M v M)

M v M

[ Unilateral undertaking by a parent] A fiduciary relationship can arise on the basis of a unilateral undertaking that a parent owes to its child

IV. A Statute Can Form the Basis for an Ad Hoc Fiduciary Duty

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United Steelworker

[ Statute] Statute may form basis of an ad hoc fiduciary duty: CT enquiries ought to begin with an assessment of the nature of the scope of the fiduciary duty, which, in turn, required an assessment of “the legal framework governing the relationship out of which the fiduciary duty arise”A company used money from a pension plan as collateral for a loan, without consulting or notifying the pensioners. They later brought an action arguing breach of fiduciary duty imposed by statute, and succeeded. A constructive trust was not found however, as it was inappropriate in the circumstances.

UNJUST ENRICHMENT

CONCEPT: Court may intervene in situations of unjust enrichment and impose CT as a proprietary remedy. Unjust enrichment is when one party has abused property ownership by exploiting it for its own advantage at the unfair, unlawful expense of another.

NOTE: Doctrine of UE is not concerned with presence of fiduciary duty. NOTE: Courts prefer damages, but sometimes damages are insufficient,

and thus CT is imposed despite no fiduciary duty (Westdeutsche)

TEST: To prove unjust enrichment, one must show that (Pettkus):A. Enrichment by the defendantB. Deprivation to the claimantC. No juristic reason to explain the imbalance between the two

(1)The nature of the type of property for which the claim is made: not all cases are going to be subject to a CT (i.e. unlawful financial charges are not (Tracy))

(2)The degree of involvement of the plaintiff in the acquisition or preservation of it (how direct must the claimant’s attachment be?) (Kerr)

o To show degree of involvement: If new asset – that her involvement in acquiring the asset is

substantial; If existing asset – she paid mortgage, or she worked in the

house and as a result of that, his money was used to purchase the house

o Need not be a direct relationship (Pro-Sys Consultants) o The fact that one partner had no expectation of owning the land in

question was not significant: What matters was that the claimant

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had made substantial and direct contributions to the land that significantly improved its value (Haigh v Kent)

(3)Scope of “Juristic Reason ” Two-step analysis when deliberating in the category of “juristic

reason”: (Kerr)1. Gifts or benefits proceeding from a legal obligation such as a

contract between the parties. If that investigation proves inconclusive to determine the presence or absence of juristic reason to explain title of the assets in the D’s name, the court can proceed to step 2.

2. Review whether the facts of the case disclose reasonable or legitimate expectations by the parties to share the assets guided by “policy considerations” that may point to the enrichment as being an unjust one. o Here court investigates the fact that there is an unclear reason

why title in is D’s name especially as there is reasonable expectations – encouraged by policy – to share the assets.

CONCLUSION: If this circumstance is held to be unjust, CT, as a facilitative mechanism, will be used to remedy the injustice b/c the property is in the name of the D, but in actual fact, was acquired by the D at P’s expense and that is unconscionable.

I. Factor 1: Enrichment to the Defendant

CONCEPT: CT can be used “remedially” to rectify the state of title that unjustly enriched the defendant (Pettkus). However, there must be a “causal connection” between the contributions of the plaintiff and the property over which the CT is sought

Kerr

[ No contribution, no unjust enrichment] Court held that a party that had not made an equitable contribution to the acquisition or improvement of the property should not be able to successfully claim unjust enrichment.[ Remedies not confined to proprietary remedies] For unjust enjoyment cases, the court will attempt to award monetary awards first. They will only award a CT as a proprietary remedy when a monetary award will not rectify the situation. How much did the parties increase their wealth from when they got together and when they split up, and then how much percentage wise did they each contribute. This approach was adopted in Vanasse.Court determined that Ms. Kerr who was severely disabled at all time had not made any meaningful contribution to the acquisition or improvement of the realty registered in Mr. Baranow ‘s name (common-law partner)

Vanasse

[ Assessment of Compensation where claim for UE is valid but CT would be inappropriate]

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(1)Assess all the work the claimant has done (quantum meruit), extremely difficult or

(2)Look at the value that survives the relationship, then make an assessment as to what proportion of the claimant’s work is involved in the accumulation, then assign a percentage NOTE: To use (2), must show a clear causal connection

between claimant’s contributions and the accumulation of wealth in the integrated economic lives of the partners

Both wife and husband are high power employees, but wife takes time out to have the two children. During that period, husband’s career really soars, so most of the assets were in his name. The couple split. Issue what to what extent there was an enrichment and a deprivation. Court held that wife is entitled because husband benefitted from the wife taking time off to have the children.

Pettkus

[ Remedial constructive trusts] In situations of cohabitation during which (a) property has been accumulated and (b) title as been placed solely in the defendant’s name, the constructive trust may be the appropriate legal instrument for reassigning the title between the parties so as to more appropriately match their respective financial contributions and allow the plaintiff to receive a percentage of the assets as a equitable owner of the assetBecker brought a claim against Pettkus with regards to some jointly accumulated property that amassed during their unmarried co-habitation relationship. The court found that if Pettkus kept all this property, it would amount to unjust enrichment, so it awarded 50% to Becker through a constructive trust.

II. Factor 2: Deprivation to the Claimant

Rasmussen

[ No deprivation, no unjust enrichment] No unjust enrichment if the defendant was enriched but the claimant suffered not loss. However, deprivation is not limited to economic loss as loss of reputation also qualifies as a deprivation (Solous)

III. Factor 3: No Juristic Reasons for Imbalance

KBA Canada

[ Statute mandating impugned action precludes unjust enrichment] Presence of a juristic reason, such as statutory priority rules governing the relationship between competing creditors, frustrated the claim of unjust enrichment

Kerr [ Two-Step analysis in deliberating in the category of “juristic reason”]Court determined that Ms. Kerr who was severely disabled at all time had not made any meaningful contribution to the acquisition or improvement of the realty registered in Mr. Baranow ‘s name (common-

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law partner)

IV. Causality

Tracy

[ Relationship between claimant and defendant doesn’t have to be direct] Unlawful finance charge is doubted to qualify for unjust enrichment. Also, relationship between plaintiff and defendant need not be a direct one before their relationship to the property in question may be subject to considerations of unjust enrichment.

Haigh

[ Expectation not necessary] Court held that even though a party had no expectation in owning the land in question, that would not preclude them from claiming unjust enrichment so long as the claimant had made substantial and direct contributions to the land such that it significantly improved the property’s value

V. Is it Appropriate for CT to be Granted for Unjust Enrichment?

CONCEPT: While cases often involve both a wrongful act and unjust enrichment, CT may be imposed on either grounds (Beatty). However, CT would only be appropriate when personal restitutionary relief is inadequate (Vanasse).

NOTE: CT and UE is not to be fused: “A finding that a plaintiff is entitled to a remedy for unjust enrichment does not imply that there is a CT.” (Peter)

NOTE: There is no need to find a fiduciary duty (Solous).

TEST for when there is a WRONGFUL ACT but no UNJUST ENRICHMENT: conditions for CT to be imposed as a remedy: (Solous)

(1)The defendant must have been under an equitable obligation that the courts of equity have enforced, in relation to the activities giving rise to the asset in his hands

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

o Must show that D has the goods P’s claiming, and that by getting the goods, D is acting in breach of the equitable obligation

(3)The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties.

(4)There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case (i.e. interests of intervening creditors must be protected; third parties).

Solous

[ Unifying concept of CT: “Good Conscience”] Court held that a contrastive trust Is the formula through which the conscience of equity finds expression. When property is acquired by the holder of the legal title not in good conscience, equity converts him into a trusteeK was a real estate broker who acted as agent for S. K presented a

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commercial listing for S, which S was interested in. K later had his wife P purchase the property instead and held it in a joint tenancy with P & K. S later found out and sued.

REMEDY FOR CONSTRUCTIVE TRUST

CONCEPT: Basis is disgorgement of the benefit of the person unjustly enriched. In the case of fiduciaries, damages are assessed as equitable compensation to place the claimant in the position he would have been had the breach of fiduciary duty not occurred, not disgorgement of profits like unjust enrichment. In other words, one is to deprive the defendant of money, the other is to compensate the claimant.

Disgorgement is an equitable remedy not bound by common-law damage limiting factors (foreseeability, remoteness, mitigation of loss and even causation)

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