Tag: breach of fiduciary duty
Disposing of the body is a fundamental responsibility of an estate trustee, and an estate trustee is entitled to be reimbursed from the estate for legitimate and reasonable funeral expenses. In considering what is “reasonable”, the court will consider the deceased’s “station in life”, and other circumstances, such as any direction from the deceased in the will or otherwise, the size of the estate, and cultural and religious beliefs, practices and traditions: see Chernichan v. Chernichan (Estate), a decision of the Queen’s Bench of Alberta.
In Zaradic Estate (Re), the Supreme Court of British Columbia disallowed an estate expense of $11,525.01 claimed by the two estate trustees for a trip to Croatia to deliver and scatter the deceased’s cremated remains. There was no specific provision in the will directing that the remains be taken to Croatia. However, the will did provide that the executors could incur expenses in relation to the deceased’s funeral. The executors also gave evidence, which was accepted by the court, that the deceased wanted his remains taken to Croatia. However, the court held that there was no justification for BOTH estate trustees to travel to Croatia. Therefore, only half of the cost of the trip was allowed.
(In Zaradic, the estate trustees, who were friends of the deceased, were also denied executor compensation. Although the will provided that they could claim compensation in the amount of 10% of the value of the estate, the court held that their actions disqualified them from receiving any compensation. The estate trustees had attempted to sell the deceased’s residence to their daughter at a price well below market value. The residual beneficiary commenced litigation in order to stop the proposed improvident sale. “The actions of the executors were an egregious breach of their fiduciary duty. If they had been successful, the beneficiary would have been swindled out of 50% of the estate’s value, and the executor’s (sic) daughter, their only child, would have thereby profited. … the actions of the executors are sufficiently egregious to disentitle them to any fee.”)
In The Estate of George Francis Perkins, the estate trustee claimed payment for airfare for his son and daughter-in-law (the deceased’s grandson and granddaughter-in-law) to travel to the deceased’s funeral. The court disallowed half of this expense, stating that it was unreasonable for the estate to pay for BOTH tickets, in light of the small size of the estate.
Where expenses are incurred for funeral and burial related matters, the beneficiaries of the estate will examine these closely, and the courts will likely disallow anywhere there is a hint of unreasonableness, or where it appears that the estate trustees were unfairly taking advantage of their position at the expense of the estate.
Have a great weekend.
Yesterday, I blogged on Public Guardian and Trustee v. Cherneyko et al, 2021 ONSC 107. Today’s blog will focus on some of the breaches of fiduciary duty that were found by the Court. For those who have not read yesterday’s blog, this is a case that involves Jean, a 90 year old woman, and Tina, the attorney for property, who was purportedly given a gift of $250,000.00 just days before Jean was hospitalized for acute delirium and progressive cognitive decline.
While the purported gift of $250,000.00 to Tina was found to be invalid, the Court went on to find that Tina was in breach of her fiduciary duty to Jean by accepting the money. Tina was in breach because she knew that Jean was exhibiting signs of cognitive decline when they went to the bank. In the Court’s view,
“a person acting in a fiduciary capacity for a person actively demonstrating moments of irrationality should be very cautious about any big financial moves that person claims they want to make in and around such periods of demonstrated incapacity. Even if Jean was clearly acting in a competent manner during the few hours she attended the CIBC with Tina on August 27, 2019, I agree with the submissions of the PGT it is no answer to an accusation of breach of duty to assert that an attorney was simply acting in accordance with the wishes of the grantor of the attorney. Tina should have proceeded with caution at that time. I find she did not exercise the appropriate degree of caution and good judgment given the circumstances about which she knew.” (para 42)
The Court also reiterated Justice Penny’s comments in Ontario (Public Guardian and Trustee) v. Harkins,  O.J. No. 3313, that a fiduciary’s first duty is to see to the best interest of the person regardless of what their stated wishes may be. The Court was very critical of how a $250,000.00 gift to Tina could possibly benefit Jean, and expressed disapproval on how there was no evidence of any effort on Tina’s part in considering whether this money would better serve Jean if it was applied towards Jean’s in-home care instead of admitting Jean to a long term care home.
Of relevance to the unique circumstances that surround the care of others during Covid-19, the Court commented that,
“since March 2020 more than at any time in the past, any genuinely concerned person charged with caring for an elderly person in long term care would have at least considered the issue of taking whatever steps could be taken to remove the person from this situation if it was in any way possible.” (para. 47)
Instead, Tina allowed her adult son to move into Jean’s home, and she was found to be actively misusing Jean’s assets for her own and her family’s benefit which were additional breaches of her duties as fiduciary. The Court also disapproved of how Tina did not take any steps to sell Jean’s house in order to maximize or preserve its value which, reading between the lines, seem to be a concern for the uncertainty in today’s markets.
Thanks for reading! Stay safe!
Remedies for breach of trust are commonly sought in estate litigation, most notably in the context of a contested passing of accounts application. An executor who mismanages the estate assets, makes a bad investment, or distributes to a stranger rather than a beneficiary can easily be found to be liable for either breach of trust or breach of fiduciary duty or both.
The remedies available to the disappointed beneficiary can, however, be complex. AIB Group (UK) Plc v. Mark Redler & Co. Solicitors, a 2014 decision of the United Kingdom Supreme Court, provides a comprehensive multi-jurisdictional overview of this interesting area of law.
The case considered the remedies available to a bank when the solicitors it engaged to secure a loan against property failed to adequately secure the bank’s interest. The Court noted that, in considering the remedies available for breach of trust, the Court must consider the different obligations of a trustee in order to evaluate the remedies that may be available for a given breach, such as:
(i) a custodial stewardship duty (to preserve the assets of the trust);
(ii) a management stewardship duty (to manage the property with care), and
(iii) a duty of undivided loyalty (prohibiting a trustee from taking advantage of his or her position without fully informed consent of beneficiaries).
What is interesting from the perspective of an estates litigator is the Court’s observation that, “historically, the remedies for such breaches took the form of orders made after a process of accounting. The basis of the accounting would reflect the nature of the obligation. The operation of the process involved the court having a power, where appropriate, to “falsify” and to “surcharge.”
Falsification is another word for “disallow”; the Court will “falsify” the unauthorized breach of the custodial stewardship duty and require the trustee to make good the loss to the trust.
Although the terms are less commonly referenced in modern practice, surcharge and falsification are great examples of how courts provide remedies for breach of trust in the context of a contested passing of accounts.
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The Ontario Superior Court recently considered the application of section 38 of the Trustee Act in John C. Chaplin v. First Associates Investments Inc. et al and Abrahamovitz v Berens.
Section 38(1) of the Trustee Act states:
Except in cases of libel and slander, the executor or administrator of any deceased person may maintain an action for all torts or injuries to the person or to the property of the deceased in the same manner and with the same rights and remedies as the deceased would, if living, have been entitled to do, and the damages when recovered shall form part of the personal estate of the deceased; but if death results from such injuries no damages shall be allowed for the death or for the loss of the expectation of life, but this proviso is not in derogation of any rights conferred by Part V of the Family Law Act.
In Bonaparte v. Canada (Attorney General), the Court held that in considering whether a wrong falls within the ambit of s38(1), “the focus is not upon the form of the action but whether the alleged wrong constitutes an injury to the person.” The courts have held that this section applies to claims in tort, contract, and breach of fiduciary duty.
In John C. Chaplin, an Estate commenced an action against an investment advisor for making speculative investments, which resulted in losses. In this case, the Court seems to expand the scope of s. 38(1) further, to include actions for purely economic loss, stating:
The property of the deceased, being her money, was allegedly destroyed in value due to the wrongful acts of Mr. Monaghan. Black’s Law Dictionary includes in the definition of “injury” the “violation of another’s legal right, for which the law provides a remedy; a wrong or injustice” and “any harm or damage”. That is broad enough to include the claims here for damages arising from the actions of Mr. Monaghan who was a registered investment advisor with First Associates.
The court also considered the limitation period in section 38(3) of the Trustee Act, which states:
An action under this section shall not be brought after the expiration of two years from the death of the deceased.
The Court held that this limitation period is strict and that the discoverability rule does not apply. This limitation period applies both to claims by and against the estate, under s. 38(2). Moreover, in Abrahamovitz v Berens the Court held that the section does not extend or toll a limitation period created by the Limitations Act, but simply passes the right to commence an action from the deceased to the personal representative if the cause of action arose before death.
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I blogged earlier this week about the availability for a trustee to bring an Application for the opinion, advice and direction of the court under section 60(1) of the Trustee Act, and, in so doing, potentially alleviate themselves from liability concerning the decision so long as they act in accordance with the court’s direction. But what should happen if, when confronted with a difficult decision, the trustee does not ask the court for direction, but rather should act of their own volition? If a beneficiary should later successfully argue that the trustee acted improperly in making such a decision, and committed a breach of trust, will the trustee always be liable for such a decision?
The Trustee Act is clear that just because a trustee commits a technical breach of trust, it does not necessarily follow that the trustee will be held liable for any corresponding damages. Section 35(1) of the Trustee Act provides:
“If in any proceeding affecting a trustee or trust property it appears to the court that a trustee, or that any person who may be held to be fiduciarily responsible as a trustee, is or may be personally liable for any breach of trust whenever the transaction alleged or found to be a breach of trust occurred, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust, and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach, the court may relieve the trustee either wholly or partly from personal liability for the same.” [emphasis added]
As is made clear by section 35(1) of the Trustee Act, so long as the trustee acted “honestly and reasonably” in committing the breach of trust, the court may in its discretion relieve the trustee from liability concerning such a decision. The leading authority regarding what is to be considered “honestly and reasonably” is the British decision of Cocks v. Chapman,  2 Ch. 763, at 777, where the court states:
“It is very easy to be wise after the event; but in order to exercise a fair judgment with regard to the conduct of trustees at a particular time, we must place ourselves in the position they occupied at that time, and determine for ourselves what, having regard to the opinion prevalent at that time, would have been considered the prudent course for them to have adopted.” [emphasis added]
If the court is of the opinion that the opinion prevalent at the time would have considered the decision prudent, it may alleviate the trustee fr
om liability concerning such a decision in accordance with section 35(1) of the Trustee Act. If not, the trustee may continue to be liable for the decision.
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For thousands of children across Ontario, the Province is their legal guardian. These children are referred to as Crown Wards under the Child and Family Services Act. A Crown Wardship order will typically be made by the courts if it is found that it is in the child’s best interests that he or she no longer resides with his or her biological parents and where placing the child with another family member is not an option. In the event that a Crown Wardship order is made, the Province becomes the child’s legal guardian with all of the rights and responsibilities that this entails.
Many of these children are often removed from the care of their families as a result of being in an abusive environment. In a Class Action being brought against the government of Ontario, it is further alleged that once these children were made Crown Wards, that many continued to be victimized while in the system, including being subjected to physical, emotional, and sexual abuse.
The Class Action, which encompasses all children who were Crown Wards at any time from January 1, 1966, is seeking justice for what is viewed as the government of Ontario’s failure to protect their rights to claim for the abuse they suffered both prior to becoming Crown Wards and while under the Province’s care. Specifically, it is being claimed that as a result of the Province’s inaction, limitation periods have passed and evidence has disappeared, affecting their ability to seek damages and compensation which is in breach of their fiduciary duties.
Despite arguments by the Province that it does not owe a duty of care to the Crown Wards, the Superior Court of Ontario ruled last week that the Class Action may proceed. The Honourable Mr. Justice Fregeau dismissed the Province’s attempt to appeal the decision of the Superior Court which had granted the motion for an order that the first part of the test for certification be granted.
As the Plaintiffs continue on with the next steps in their action, it remains to be seen whether the courts will ultimately find that the Province did, in fact, owe a duty of care as legal guardian to the Crown Wards and whether any inaction in protecting their rights will be interpreted as a breach of fiduciary duty.
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When a trustee breaches his or her fiduciary duties, there are various remedies available to the beneficiaries. For instance, if a trustee makes an unlawful disbursement of trust funds and these funds are traceable, there may be a proprietary remedy. In other cases, when the funds are not recoverable, the beneficiaries may have recourse to a personal remedy against the trustee.
These types of claims are most often channeled through the obligation to account. In requiring a trustee to provide a full and complete accounting, the beneficiaries are able to review transactions and determine whether any of them go beyond the trustee’s parameters. This is why a trustee must always be prepared to provide records and account details if requested by the beneficiaries.
In reviewing a trustee’s accounts, the beneficiaries are accorded with a great deal of discretion with respect to accepting or rejecting any unlawful transactions. For instance, if a trustee breaches his or her fiduciary duty by engaging in an unlawful act which results in a financial loss, the beneficiaries can disallow the disbursement and it will not form part of the trust accounts. They can then seek a remedy to have the missing funds replaced – either through tracing or by the trustee personally. This may occur in a situation where a trustee uses trust funds to make an imprudent investment that s/he did not have the authority to make. If the investment does not succeed, the beneficiaries can strike it from the accounts.
Alternatively, if the same investment results in a profitable outcome, the beneficiaries can choose to adopt the act and reap the benefits, notwithstanding the fact that the initial act itself was unlawful. In this case, the proceeds of the transaction are treated as trust property or if the trustee no longer has the funds, he or she can be required to restore the value of the proceeds to the trust.
This mechanism provides the beneficiaries with the best of both worlds. Even if there is one profitable act and another that is not (resulting in the trust assets breaking even by cancelling one another out), the beneficiaries can choose to adopt the profitable act and disallow the other. This can cause a windfall gain in some situations. The fact that the beneficiaries have this choice showcases that the law in this area can be very beneficiary-oriented.
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Reeves v. Dean, a recent decision of the Supreme Court of British Columbia (BCSC), acts as a helpful reminder that a fiduciary relationship may arise between a caregiver and their client.
The plaintiff was 50 years old and suffered from developmental delays making her unable to independently manage her finances. The defendant was the plaintiff’s caregiver pursuant to a contract of services between the defendant and the Provincial Government. The plaintiff sought damages based on, amongst other things, breach of fiduciary duty arising from the misappropriation of monies arising from a joint account between the plaintiff and defendant.
The decision of Ben-Israel v. Vitacare Medical Products Inc. (ON SC) provides a helpful summary of the traditional categories of relationship in which a fiduciary duty exists: agent to principal; lawyer to client; trustee to beneficiary; business partner to partner; and, director to corporation. In addition, as set out in the Supreme Court of Canada decision in Lac Minerals v. International Resources, relationships in which a fiduciary obligation have been imposed appear to possess three general characteristics:
- The fiduciary has scope for the exercise of some discretion or power;
- The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and
- The beneficiary is peculiarly vulnerable to, or at the mercy of, the fiduciary holding the discretion or power.
Of the three characteristics, the BCSC found that it was the vulnerability of the client that was essential to a finding of a fiduciary relationship. As such, since the plaintiff was in a position of disadvantage regarding the administration of the joint account monies, and consequently placed her trust in the defendant, a fiduciary relationship was found to exist between the plaintiff and defendant.
Therefore, the plaintiff was entitled to rely on the remedies available for breach of fiduciary duty including constructive trust, accounting for profits, and equitable compensation to restore to the plaintiff what was lost.
Families with young children are encouraged to start saving for their education as early as possible. The RESP is one of the most popular methods used to accomplish this; however, it is not uncommon for it to become the subject of disputes if the parents later separate or divorce. One of the issues that arose this past year specifically looked at the possibility of a spouse removing the other as co-holder of an RESP that was created for the benefit of their mutual children. By categorizing the RESP as a trust, the court held that in certain circumstances, removal was a possibility.
In McConnell v McConnell (2015 ONSC 2243, CarswellOnt 4939), the court looked at the nature of the RESP. It determined that it is essentially a trust fund held by a trustee on behalf of the children, who are the beneficiaries. Furthermore, as long as the three certainties are met, there is no real need for an express declaration of trust.
By determining that the RESP is a trust, the removal of a spouse as co-holder can be looked at through the lens of trust law. The court concluded that trustees of an RESP must be able to act unanimously. If the trustees cannot cooperate to the detriment of the beneficiaries, then removal of a trustee may be appropriate.
Removal of a spouse as co-holder of an RESP is not a novel concept. However, the categorization of the RESP as a trust now allows the courts to do so through established recourses traditionally available for the removal of trustees. The parent account holder as a trustee may be held to higher standards of accountability as a fiduciary. As such, for those seeking to have a co-trustee removed, remedies for breach of fiduciary duties may be available.
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We hear a lot about fiduciary duty in the practice of wills and estates. But what is it exactly? According to this definition in Irwin law’s online dictionary, a fiduciary is “a person occupying a position of trust vis-à-vis another person”.
In the recent case of Hooper (Estate) v. Hooper, 2011 ONSC 4140, the court discusses the concept of fiduciary duty. In Hooper, the estate trustee, who did not defend the proceedings against him, placed himself in a fiduciary relationship with respect to not only the deceased, but also in relation to the other named beneficiaries.
The court commented that when a person in such a fiduciary position fails to pass accounts or otherwise account for his or her actions, he or she can be required to repay the amount unaccounted for to the estate. Breach of such a special relationship gives rise to wide array of equitable remedies. Such equitable remedies are always subject to the discretion of the court, and are designed to address not only fairness between the parties, but also the public concern about the maintenance of the integrity of fiduciary relationships.
In exercising its equitable discretion, the court is concerned not only with compensating a wronged plaintiff, but also with upholding the obligations of good faith and loyalty, which are the cornerstone of the concept of fiduciary duty.
The freedom of the fiduciary is limited by the nature of the obligation he or she undertakes, an obligation which “betokens loyalty, good faith and avoidance of a conflict of duty in self interest.” In short, equity is concerned not only to compensate the plaintiff, but to enforce the trust which is at its heart.
Fiduciary duties are clearly those which should never be entered into lightly or on an uninformed basis.
Sharon Davis – Click here for more information on Sharon Davis.