Certainty of Intention in Creating a Trust
It is well recognized that in order to create a valid trust, the “three certainties” must all be present. An Ontario Superior Court judgment from November 2015 considered the three certainties, particularly the certainty of intention, and found that the intention was absent and thus the trust failed.
Briefly, the key facts of Ridel v Schwartz, Levitsky, Feldman Inc., 2015 ONSC 6899 are as follows:
- Following a judgment against e3m Investments Inc. (“e3m”) for breach of contract, negligence and breach of fiduciary duty in April 2013, the Ontario Securities Commission (the “OSC”) was concerned with respect to e3m’s ability to satisfy the judgment in favour of the Ridels;
- e3m was required by the OSC to create an Accumulating Account in order to accumulate and maintain sufficient liquid assets to satisfy the Judgment;
- After unsuccessfully appealing the Judgment in November 2014, e3m filed an assignment in bankruptcy on January 20, 2015;
- The statement of affairs showed available cash of approximately $550,000.00, most of which was held in the Accumulating Account.
The question before the court was whether the Trustee in Bankruptcy could take possession of the funds in the Accumulating Account, or whether these funds were held in trust for the benefit of the Plaintiffs in the civil action (the “Plaintiffs”). Specifically, the issue was whether the certainty of intention had been met.
The court found that the OSC Decision requiring the establishment of the Accumulating Account and the terms and conditions which required it did not evidence an intention to create a trust, and the OSC did not take a position regarding whether the funds were trust funds. The court also found that the terms and conditions did not address the ultimate disposition of the funds in the Accumulating Account and whether they would or would not become payable to the Plaintiffs, another indication that a trust was not intended. The court also held that the Plaintiffs’ distance from the negotiations that resulted in the Accumulating Account is a relevant factor, despite the fact that notice is not required. Additionally, despite the fact that funds were segregated, this is not conclusive of an intention to settle a trust. Lastly, the ability of the OSC and the Investment Industry Regulatory Organization of Canada (“IIROC”) to permit the funds in the account to be used for any purpose they deem appropriate within their regulatory mandate as fundamentally inconsistent with an intention to create a trust.
As demonstrated in this case, it appears that the court will very strictly consider whether the intention to settle a trust is present. Thus, if the establishment of a valid trust is desired or required, it is vitally important to indicate any intention to settle a trust very clearly and explicitly.
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