Was there a breach of duty? The Q&A from the New SCC Decision

February 22, 2018 Doreen So Estate & Trust, Executors and Trustees, General Interest, In the News, Passing of Accounts, Trustees Tags: , , , , , , 0 Comments

The facts in the new Supreme Court of Canada decision on trustee duties were previously set out in last Tuesday’s edition of this blog.

Valard Construction Ltd. v. Bird Construction Co. arose from a commercial matter in which Valard was a subcontractor in a construction oilsands project where Bird was the general contractor.  Bird was the trustee of a labour and material payment bond that could have been available for Valard’s claim for unpaid invoices if notice of claim was given to the surety within a fixed time limit.  Valard claimed against Bird when Bird failed to disclose the existence of the bond to Valard within the relevant time period.

Justice Brown, for the majority, found that Bird had a fiduciary duty to disclose the bond to Valard even though Valard did not explicitly ask about the existence of the bond until it was too late.  In order to determine whether a breach of trust occurred, Justice Brown went on to consider what was required of Bird in order to discharge its duties to Valard because “the question is not what Bird could have done in this case, but what Bird should reasonably have done in the circumstances of this case to notify beneficiaries such as Valard of the existence of the bond” (paragraph 29).  In concluding that the duty was breached in this instance, paragraph 26 is particularly instructive for the analysis:

Like all duties imposed upon trustees, the standard to be met in respect of this particular duty is not perfection, but rather that of honesty, and reasonable skill and prudence.[31] And the specific demands of that standard, so far as they arise from the duty to disclose the existence of a trust, are informed by the facts and circumstances of which the trustee ought reasonably to have known at the material time.[32] In considering what was required in a given case, therefore, a reviewing court should be careful not to ask, in hindsight, what could ideally have been done to inform potential beneficiaries of the trust.  Rather, the proper inquiry is into what steps, in the particular circumstances of the case — including the trust terms, the identity of the trustee and of the beneficiaries, the size of the class of potential beneficiaries and pertinent industrial practices — an honest and reasonably skillful and prudent trustee would have taken in order to notify potential beneficiaries of the existence of the trust. But, where a trustee can reasonably assume that the beneficiaries knew of the trust’s existence, or where practical exigencies would make notification entirely impractical,[33] few, if any, steps may be required by a trustee.

In this case, Justice Brown found that Bird could have reasonably discharged its duties by posting notice of the bond on its information board and that some method of notice was required of the company to notify beneficiaries like Valard with a caveat.  The caveat being that, in some circumstances, nothing could be required to discharge this duty where industry practice and knowledge would render notice unnecessary.

Interestingly, what was or was not industry practice in this case was the question that divided the Court.  For Justice Karakatsanis‘ dissenting opinion, she would have dismissed the appeal because Bird was not under an obligation to inform Valard beyond responding accurately when asked because this type of bond was common in this industry in her view.

Thanks for reading!

Doreen So

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