Protection For a Trustee Against Personal Liability – Episode #151
This week on Hull on Estates, Craig Vander Zee and Bianca La Neve discuss protection for a trustee against personal liability. There are a variety of ways that protection is afforded to a trustee against liability, such as exculpatory clauses in trust documents, various provisions of the Trustee Act, passing of accounts, and releases by beneficiaries and/or third parties.
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Protection for a Trustee Against Personal Liability – Episode #151
Posted on February 24th, 2009 by Hull & Hull LLP
Bianca La Neve: Hello and welcome to Hull on Estates. You are listening to Episode #151 on Tuesday, February 24th, 2009.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.
Bianca La Neve: Hi and welcome to another episode of Hull on Estates. I’m Bianca La Neve.
Craig Vander Zee: And I’m Craig Vander Zee.
Bianca La Neve: If you want to be heard on Hull on Estates, you can participate by leaving us a comment, e-mail us at firstname.lastname@example.org or you can always visit our blog at estatelaw.hullandhull.com.
Craig Vander Zee: How are you today, Bianca?
Bianca La Neve: I’m great, how are you?
Craig Vander Zee: Good, how are the little ones?
Bianca La Neve: My little one is awesome. You have the two kids – I have the one.
Craig Vander Zee: Yes, yes.
Bianca La Neve: Sometimes you forget there are two, right?
So today, Craig, I thought we’d talk about your paper that you recently presented at one of the annual institutes and you spoke about protection for a trustee against liability.
Craig Vander Zee: That’s right, Bianca. That was the annual institute for the OBA which was held on February 4th, earlier this month. And I thought it might be worthwhile to again discuss the protections for a trustee against potential liability.
Bianca La Neve: Now a trustee, whether incoming or outgoing, always needs to be aware and consider his or her potential liability as a trustee and over the administration of the trust. And this is because trustees are principals and not agents of beneficiaries and so prima facie they’re personally liable on obligations owed to any third parties and they can incur personal liability in tort or under statutes.
Craig Vander Zee: That’s right. I mean, trustees are potentially personally liable when they undertake what I’ll call the office of trusteeship and that potential risk or liability can be to a beneficiary, depending on what the allegation is. Or it might be to, as you have indicated, a third party whether by way of a contract or perhaps in the law of tort or by way of a statute such as the Environmental Protection Act. And so once a trustee or an individual or a company is considering becoming a trustee – perhaps they haven’t even agreed to the appointment yet – one of the things that they would be concerned with is the potential risk that might arise from the trust that they are being asked to administer. It might also be that they’re into the actual trusteeship and issues arise and they want to consider what their potential liability might be. And so that was really one of the focuses to my paper and what I thought we would touch upon today.
Bianca La Neve: Great. Now I guess the first step when you’re looking at what kind of protection there is for a trustee in undertaking his or her duties is you look to the trust document.
Craig Vander Zee: Well that’s right. The trust document itself, whether it’s an incoming or an outgoing trustee, may provide terms of protection to the trustee. Sometimes these provisions are called exculpatory clauses and may appear to absolve the trustee, perhaps even entirely, from consequences of a breach of trust by the trustee. What one has to be careful about is that exculpatory clauses, even if they’re expressly contained in the trust document, may not be enforceable and may not be valid in law. A number of papers have been written on this very subject and it seems that when it comes to exculpatory clauses, although there’s not a great deal of case law in Canada, that it appears that certain principles will be held to be enforced by Canadian Courts. And those are that an exculpatory clause cannot excuse liability for acts of gross negligence. They can’t excuse liability for wilful defaults or intentional wrongdoing. That they can’t excuse liability for acts of fraud or dishonesty. On the other hand, an appropriately drafted exculpatory clause will and can be effective to relieve a trustee from liability for breaches of trust of what one might consider lesser culpability than acts of gross negligence, intentional wrongdoing or bad faith. And again, those aren’t principles that I would say are set out in certain Canadian cases per se all in the same place, but ones that come really more from a collection of cases on how the Canadian Courts might apply that.
Bianca La Neve: And it seemed all those sort of limits that you just talked about are really self-explanatory. I mean, you would think that no matter how broad an exculpatory clause can be, you shouldn’t be able to protect against or to protect yourself from something when you did engage in fraud or dishonesty as the trustee.
Craig Vander Zee: Well that’s certainly one side of the argument. And, you know…
Bianca La Neve: And here as lawyers we argue both sides.
Craig Vander Zee: Now when talking about exculpatory clauses, though, Bianca and I were really mentioning those that remove all liability, in any circumstance. But you could have provisions in a trust document which may raise the level of culpability before one is to be held accountable or liable. Or on the other hand, it could limit the extent to which a trustee might be liable in terms of the assets of the trust itself, regardless of the conduct. So there could be different provisions within the trust document that may be of assistance to the trustee. I think what we’re talking about here is really that when looking to protect a trustee, really the first step, I would think, is going to the trust document itself and carefully reading it to see what it says or doesn’t say.
Bianca La Neve: For sure. And so after we’ve looked at that, you can also consider protection found in various statutes.
Craig Vander Zee: Well that’s right. And one such statute, you know, is the Trustee Act itself and certainly I don’t intend to get into all the sections in the Trustee Act that would provide protection or other Acts that would provide protection, but two sections in the Trustee Act I think are certainly noteworthy. And one would be Section 28 of the Trustee Act which provides that a trustee won’t be liable for a loss in a trust arising from the investment of trust property, if the conduct of the trustee that led to the loss conformed with a plan or strategy for investment amongst other things, and that such a plan would be adopted by a prudent investor under comparable circumstances. And that’s not a word-for-word reading but, you know, certainly Section 28 deals with that. And then Section 28 deals with really the damage side of things. Section 28 is relieving a trustee of liability in a circumstance where there’s been investment losses. And 29 then goes on to damages and says that where a Court is assessing damages, it can look to the overall performance of the portfolio and taking that into consideration. And so I think those two are worth mentioning as well.
Bianca La Neve: And I thought, you should also touch on Section 35 of the Act because this is a sort of a really good provision that you can look to when you’re considering whether the conduct of a trustee met the standard of care.
Craig Vander Zee: Right, in Section 35 of the Trustee Act really goes to what I would call the power to excuse the trustee because and without reading it, it deals with the ability in a situation where a trustee has acted honestly and reasonably and ought fairly to be excused from a breach, can be, if in the discretion of the Court, its appropriate in the circumstances. The caveat to this is that subsection 35(2) of it indicates that this doesn’t apply to liability for a loss of a trust arising from the investment of the property.
Bianca La Neve: If you want to be heard on Hull on Estates, you can participate by leaving us a comment. E-mail us at email@example.com or visit our blog at estatelaw.hullandhull.com. Thanks for listening.
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