New SCC Decision on Duty to Disclose Trust to Beneficiaries

February 20, 2018 Doreen So Continuing Legal Education, Estate & Trust, Executors and Trustees, Passing of Accounts, Trustees, Uncategorized Tags: , , , , , 0 Comments

The Supreme Court of Canada released a decision last Thursday that is a must read for estates and trusts practitioners.  Interestingly enough, Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8, arose from a commercial matter.

Bird was a general contractor for a construction project.  When Bird subcontracted with Langford, Langford was required to obtain a labour and material payment bond which named Bird as trustee of the bond.  If Langford was delinquent in paying its contractors, the bond would permit the contractor to sue and recover from Langford’s surety on the condition that notice of the claim must be made within 120 days of the last date in which work was provided to Langford.  Langford became insolvent and some of Valard’s invoices went unpaid.  Unfortunately, Valard was not notified of the existence of the bond and did not inquire about whether there was a bond in place until after the 120 day notice period.  The surety denied Valard’s claim and Valard sued Bird for breach of trust.  This matter was dismissed at first instance by the Alberta Queen’s Bench, dismissed again by the Alberta Court of Appeal, and finally reversed by the Supreme Court of Canada (with a dissent from Justice Karakatsanis).

Justice Brown for the majority (per McLachlin C.J., as she then was, Abella, Moldaver and Rowe J.J.) found that Bird had a fiduciary duty to disclose the terms of the trust, i.e. the bond, to Valard notwithstanding the fact that the express terms of the bond did not stipulate this requirement.  Justice Brown was clear that “While the ‘main source’ of a trustee’s duties is the trust instrument, the ‘general law’ which sets out a trustee’s duties, rights and obligations continues to govern where the trust instrument is silent” (para.15).  Justice Brown then went on to say that a beneficiary’s right to enforce the terms of the trust is precisely what keeps the trustee from holding the “beneficial as well as legal ownership of the trust property” (para. 18).  Otherwise, no one would have an interest in giving effect to the trust.

With this logic in mind, Justice Brown developed the following framework at paragraph 19,

“In general, wherever “it could be said to be to the unreasonable disadvantage of the beneficiary not to be informed” of the trust’s existence,[17] the trustee’s fiduciary duty includes an obligation to disclose the existence of the trust. Whether a particular disadvantage is unreasonable must be considered in light of the nature and terms of the trust and the social or business environment in which it operates,[18] and in light of the beneficiary’s entitlement thereunder. For example, where the enforcement of the trust requires that the beneficiary receive notice of the trust’s existence, and the beneficiary would not otherwise have such knowledge, a duty to disclose will arise.[19] On the other hand, “where the interest of the beneficiary is remote in the sense that vesting is most unlikely, or the opportunity for the power or discretion to be exercised is equally unlikely”,[20] it would be rare to find that the beneficiary could be said to suffer unreasonable disadvantage if uninformed of the trust’s existence.”

Thanks for reading and more to follow later this week on Valard Construction Ltd. v. Bird Construction Co.

Doreen So

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