It was only five years ago that the Supreme Court of Canada held in Valard Construction Ltd v Bird Construction Co, 2018 SCC 8 that “the beneficiary of a trust has a right to hold the trustee to account for its administration of the trust property and to enforce the terms of the trust.” In light of this statement, it may seem reasonable to assume that any trust beneficiary in Canada can compel a trustee to pass his or her accounts. However, in light of the current legislative scheme in Ontario, the usefulness of such an assumption appears to be questionable at best.
The law is simply unclear as to whether all beneficiaries can compel a trustee to provide an accounting. While the Trustee Act, RSO 1990, c T.23 does not address this point, the Rules of Civil Procedure, RRO 1990, Reg 194 provide for applications to pass accounts. The Rules, however, do not actually state that beneficiaries may compel an accounting. Rather, rule 74.15(1)(h) directs that “any person who appears to have a financial interest” may move for an order to pass accounts. While this rule expressly references the passing of accounts in the context of wills and estates, the court confirmed in Carroll v. The Toronto-Dominion Bank et al., 2020 ONSC 1629 that rule 74.15(1)(h) also applies to applications to compel a passing of accounts for a trust.
If a beneficiary is not given a tangible financial interest in a trust, the Rules seem to indicate that he or she cannot compel an accounting. This could be a real issue, should a discretionary beneficiary of a trust want a trustee to pass his or her accounts, since discretionary beneficiaries, as a rule, do not have a direct financial interest in a trust. Any payment that such beneficiaries receive from the trust is entirely subject to the discretion of the trustee. A discretionary trust beneficiary cannot even demand payment from the trust, as the trustee has the power to select who amongst the trust objects shall benefit, and to what extent. Accordingly, at most, a discretionary beneficiary has only a hope that the trustee will exercise his or her power in the beneficiary’s favour.
Considering the test for standing to compel an accounting articulated in Carroll,it appears unclear that a discretionary beneficiary would be able to apply for a passing of accounts under the Rules. Justice Gilmore held that an applicant’s interest in a trust under rule 74.15 “must be a direct one and not tangential or contingent.” However, the court was not actually asked to determine whether a discretionary beneficiary may apply to compel an accounting in that case – instead, the applicant who sought standing was a complete stranger to the trust.
On that note, if the court were asked to determine whether a discretionary beneficiary has a financial interest in a trust for the purposes of rule 74.15, the outcome could be different. For example, in Reeves v. Inglis, 2022 ONSC 209, the court came to a seemingly contrary decision compared to Carroll, holding that a contingent beneficiary had a financial interest in an estate, even though that beneficiary would only have an interest in the trust property in the event that another beneficiary predeceased her. The court granted the order sought by the contingent beneficiary and ordered the trustee to provide an accounting.
It also warrants noting that a discretionary beneficiary may succeed in obtaining an order requiring a trustee to pass his or her accounts, even if, technically, that beneficiary does not have standing under rule 74.15. This point is aptly demonstrated by Pierce v Zock, 2019 ONSC 4156 – in this case, the beneficiary of a Henson Trust applied to the court for a passing of accounts and, in response, the trustees agreed to pass their accounts.
So, while it may be the case that a discretionary beneficiary can apply for a passing of accounts in Ontario, the law is actually unsettled on this point, considering rule 74.15(1)(h) and the diverging caselaw decided under this rule.
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