PROPOSALS FOR REFORM OF THE TRUSTEES ACT 2002
1. The Law of Trusts in Saskatchewan
The trust is one of the fundamental creations of the English legal tradition.
The legal historian Maitland observed that "of all the exploits of Equity
the largest and most comprehensive is the invention and development of
the Trust."(1) A modern text book on trusts
adds to Maitland's comment that
The trust is unique because it is so flexible a tool for making dispositions
of property for all kinds of purposes. It is not limited to specific situations
such as bailment or agency, but can be created for any purpose which is
not illegal or contrary to public policy.(2)
In Saskatchewan, trusts are created for a variety of purposes(3),
but most are testamentary trusts, included in wills to hold and invest
property for benefit of family members. The trust is an indispensable tool
for estate planning. The typical testamentary trust is designed to provide
for infant beneficiaries, and occasionally still for a surviving spouse.
Trusts for children of the deceased are common; trusts for grandchildren
frequent. Only rarely does a trust arrangement attempt to span more than
two generations of beneficiaries.
A century ago, the trust served different purposes. In England, complex
trust arrangements, "settlements of land", were designed to protect the
wealth of the wealth of the gentry, preventing improvident heirs from jeopardizing
the long term interests of the family. The settlement strongly influenced
the development of trust law. Nineteenth century English trusts legislation
was designed to facilitate settlements. In the last century, trust law
has evolved to meet the changing purposes of the trust. But much of the
innovation and adjustment of the law has been the work of the courts. The
Saskatchewan
Trustees Act(4) still
reflects its origin in nineteenth-century English trusts legislation.
The Trustees Act was enacted in 1909, but copied an earlier Territorial
Ordinance.(5) The ordinance was in turn
based principally on the English Trustee Act,1893.(6)The
Variation of Trusts Act, adopted in 1969, was a significant addition
to the statutory regime, (8) but
The
Trustees Act itself has not been substantially revised. Most amendments
have been limited to special purposes, such as empowering trustees to purchase
crop insurance. The only significant innovation, adoption of a modern approach
to regulation of the investment powers of trustees in 1998,(9)
has been made in the legislation since 1909.
In England, nineteenth century trusts legislation was replaced by the
Trustee
Act, 1925.(10) This Act recognized
that the settlement was no longer the dominant form of trust, and corrected
inadequacies that had been discovered in the older legislation. This lead
was followed in Australia and New Zealand(11),
where some jurisdictions have gone considerably beyond the Trustee Act,
1925,
as has England itself in the Trustee Act, 2000.(12)
In Canada, only Manitoba has incorporated the English reforms of 1925,(13)
but the need to modernize trusts legislation has been widely recognized.
The Ontario Law Reform Commission recommended comprehensive reform,(14)
and the British Columbia Law Institute is currently engaged in a major
project on the law of trusts.
2. Reform of The Trustees Act The Trustees Act is not a codification of the law of trusts.
The drafters of the English model on which it was based left the basic
principles of the law to the courts, including such basic matters as the
constitution of trusts, the general duties of trustees, and the remedies
for breach of trust. Legislation was designed primarily to facilitate the
creation and administration of trusts. Prior to adoption of the nineteenth-century
trustees Acts, trustees possessed only those powers specifically
conferred on them by the terms of the trust instrument. In practice, clauses
giving trustees the powers ordinarily required to administer the most common
varieties of trusts came to be a standard part of trust documents. One
of the purposes of trusts legislation was to make such clauses unnecessary.
The full title of the Trustee Act, 1860 was "An Act to give trustees,
mortgagees and others certain powers now commonly inserted in settlements,
mortgages and wills". These statutory powers were available to all trustees
unless the trust instrument specifically provided otherwise. Only in a
few cases does the Saskatchewan Trustees Act and its English model
go beyond this project, usually to clarify the law. For example, uncertainty
about the scope of trustees' liability led to adoption of a provision relieving
trustees from liability for technical breaches of trust in 1896.
The general principles of trust law are best left to the courts. Trust
law has evolved over time into a complex but coherent body of law. Codification
would likely not make the law any less difficult. The flexibility that
has allowed the law to adapt to the changing uses to which trusts have
been put requires interpretation and adaption of principles, whether they
are contained in the case law or statute. Trust law is "lawyers' law".
The
Trustees Act is not often consulted by lay persons. Lawyers are aware
of the relationship between the statute and the equitable principles that
govern trusts. In the Commission's opinion, trusts legislation should continue
to serve the same limited, but important, role it currently plays. This
approach has been adopted by all Commonwealth law reform agencies that
have recommended substantial reform of trusts legislation.
The Trustees Act is in need of substantial reform because it
now fails to carry out its own purposes in a satisfactory manner. The statutory
powers that where deemed appropriate in the nineteenth century are now
inadequate. For example, while trustees have broad powers to invest trust
property, they have no statutory authority to sell or lease real property
that is part of the trust. The absence of such a power makes little sense
in modern practice. It was not included in nineteenth-century trusts statutes
because it was inappropriate in settlements, which were of course primarily
intended to prevent dissipation of the family's landed wealth. This problem
has been addressed in practice by including expanded administrative powers
in trust documents. But if there is a place for trusts legislation at all,
there is no good reason for allowing it to remain out of step with contemporary
needs.
The Trustees Act also suffers from a lack of clarity that betrays
its history. Some provisions are so tightly bound up with obsolete procedures
or nineteenth-century case law that their meaning is now obscure, even
to practising trust lawyers. In addition, many provisions in the Act
are the product of a succession of incremental reforms that were never
properly consolidated. For example, the Act gives trustees the power
to appoint a replacement when one of their number is unable
to continue. Nearly on third of the provisions in the Act are concerned
with this topic, but because their effect is uncertain, they are rarely
used. Because appointment and removal of trustees can be done by court
order, this state of affairs may have been acceptable in the past. Increasing
concern about the cost of court proceedings now makes it essential to provide
workable alternatives.
Although we are of the opinion that trusts legislation should be primarily
concerned with creation of statutory powers that can be excluded by the
terms of a trust instrument, there are some more fundamental matters that
require reconsideration because they involve significant policy issues
that have not been adequately addressed by the courts. Perhaps the most
important of these is the general duty of care owed by trustees. The present
law has been criticized on two grounds. First, it fails to clearly distinguish
between the standard of care that can be expected of non-professional trustees
and professionals such as trust companies. Second, the present law permits
even professional trustees to limit their liability by insisting on inclusion
of an exoneration clause in the trust instrument. Both issues are important
in Saskatchewan, where a member of a testator's family and a professional
trustee are often appointed as co-trustees.
The guiding principles in the Commission's review of The Trustees
Act flow from the considerations discussed above: .
1. Modernisation: New legislation should adopt modern language
and terminology. Provisions in the Act that have outlived their usefulness
should be removed; Provisions that are out of step with current business
and financial realities should be replaced.
2. Clarification: Provisions of the Act that are now difficult to construe or that are misleading, due both to changes in the general law and the drafting style of the original, should be redrafted. 3. Codification: Areas of trust law that are not specifically addressed in the existing Trustee Act, but which call for reconsideration in light of the demands of modern trusteeship and changes in the judge-made law should be brought within the Act. We do not recommend any radical departures from the established principles of trust law. In addition, there is little in our proposals that can be described as original. In formulating our recommendations, we have drawn heavily on reform of trust law in other jurisdictions and the proposals of other law reform agencies. Our goal is to lay the foundation for state of the art trusts legislation adapted to contemporary Saskatchewan requirements. Our recommendations are set out in full in the last part of this report. Although they are not presented as a draft statute, they are intended to facilitate preparation of a statute. |
1. Scope of the duty 2. The duty of care and investment powers 3. Relief from technical breaches of trust 4. Exoneration clauses Responsibility for administrative decisions: Delegation of authority The duty to avoid conflicts of interest 1. The conflict of interest rule 2. Should the rule be codified? 3. Court approval of conflict of interest 4. Exoneration clauses and conflict of interest The duty of the trustees to act jointly The duty to disclose and account 1. Passing of Accounts 2. The right to an accounting Application to court for advice and direction Payment of trust funds into court Remuneration of trustees and indemnification for expenses 1. Remuneration 2. Indemnification ADMINISTRATIVE AND OTHER POWERS OF TRUSTEES Powers that should be included in a trusts statute 1. Power to sell and otherwise dispose of property 2. Power to lease, grant easements etc. 3. Postponing sale 4. Power to carry on a business 5. Power to improve, maintain and repair trust property 6. Purchase of a dwelling 7. Power to distribute trust property in specie 8. Power to insure trust property 9. Power to borrow money 10. Deposit of trust funds 11. Incidental authority to deal with trust property Other administrative powers of trustees contained in The Trustees Act Powers of executors and administrators contained in The Trustees Act Dispositive powers of trustees APPOINTMENT AND REMOVAL OF TRUSTEES 1. The survivorship rule 2. Death of a sole trustee Replacement of trustees without court order 1. Application of section 15 to personal representatives 2. Grounds for removal of trustees 3. Persons entitled to replace trustees 4. Removal without replacement 5. Incidental powers Removal and appointment of trustees by the court 1. Removal and appointment of trustees under section 14 2. Judicial trustees Reconstituting the trust: The effect of appointment and removal of trustees 1. The powers of new trustees 2. Trustees who retire or are removed 3. Vesting of trust property on non-judicial appointment and removal (a) Express vesting declarations (b) Deemed vesting declarations (c) Effect of vesting declarations (d) Property excluded from the scope of vesting declarations (e) Vesting apart from declaration 4. Vesting orders (a) Vesting orders made to further administration of trusts (b) Effect of vesting orders (c) Appointment of persons to convey (d) Vesting property in charities (e) Vesting orders in other specified cases
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3. Other Recommendations
Reform of The Variation of Trusts Act has been discussed
in two previous reports of the Commission: The Rule in Saunders v. Vautier
and the Variation of Trusts Act (1994) , and Proposals Relating
to the Rules Against Perpetuities and Accumulations (1987).
The report on The Rule in Saunders v. Vautier and the Variation of
Trusts Act concluded that the rule which allows termination of a trust
by competent beneficiaries is longer useful. In practice, it applies only
when the drafter of a trust instrument has failed to use an appropriate
formula to exclude it. Since adoption of The Variation of Trusts
Act, the courts have had jurisdiction to terminate a trust if it is
in the interests of the beneficiaries to do so. This is sufficient to cover
any case in which the Rule in Saunders v. Vautier might still be
useful.
In Proposals Relating to the Rules Against Perpetuities and Accumulations,
the Commission concluded that the policy reasons for these rules are largely
obsolete. In addition, in the unlikely event that a "perpetual trust" is
created and causes inconvenience, The Variation of Trusts Act
is now available to reformulate the terms of the trust. The rules are now
little more than pitfalls for the unwary, which have been reformed or abolished
in most common law jurisdictions.
Changes in The Variation of Trusts Act to accommodate
the recommendations in these reports and to clarify the Act in some
other respects were proposed in the report on The Rule in Saunders v.
Vautier and the Variation of Trusts Act.
The Variation of Trusts Act could logically be included
as part of new trusts legislation. Whether it included or not, we recommend
that any comprehensive reform of trusts legislation should include the
proposals made in the reports discussed here.
As a matter of form, a trust is an arrangement in which legal title
to property is held by "trustees" for the benefit of others, the "beneficiaries".
But more importantly, the trust is a fiduciary relationship. As a fiduciary,
a trustee is under a strict duty to act in the interests of the beneficiaries.
This, more than the formal description offered above, specifies the nature
of the trust. For this reason, Lewin's treatise on trusts defines the trust
in terms of duty. According to Lewin, a trust is "the duty or aggregate
accumulation of obligations that rest upon a person described as a trustee
in relation to property held by him, or under his control."(15)
The fundamental fiduciary duty imposed on trustees has been broadly
described as loyalty to the trust and its beneficiaries. The more specific
duties that can be enumerated are no more than applications of this general
principle.(16) These duties may be classified
and analysed in various ways, but for our purposes, a descriptive list
is sufficient: 1. The general duty of care in administering the trust;
2. The duty of each trustee to take personal responsibility for administrative
decisions; 3. The duty of the trustees to act jointly; 4. The duty to avoid
conflicts of interest with the trust; 5. The duty to act impartially between
the beneficiaries; and 6. The duty to account to the beneficiaries.(17)
The duties of trustees must be clearly distinguished from their administrative
powers. Trustees may, for example, be given the power to sell trust property,
or to invest in certain securities. Powers may be conferred by the trust
instrument, or by statute.(18) But whatever
powers the trustees may possess, they must be exercised with due care,
impartially, and otherwise in conformity with their duties as trustees.
. The powers of trustees are variable. Their duties are uniform, applying
to all trustees.
Because the duties of trustees are heavy responsibilities, they have
been coupled with certain rights and protections. Thus, for example, trustees
have the right to seek the advice and direction of the court, and the right
to submit their accounts to the court for approval. Some protections are
the creation of statute. For example, section 57 of The Trustees Act
permits
the court to relieve a trustee from liability for a "technical breach"of
trust.
The duties of trustees were inventions of the courts of equity, products
of the long evolution of the trust as a basic institution of English property
law. Although they have been modified by statute, the statutory contribution
has been modest. This contrasts with the approach of legislators to the
powers of trustees. We have noted that a major purpose of trusts legislation
was to give statutory powers to trustees, making it unnecessary to insert
commonly required powers in trust documents. Nineteenth-century legislators
did not regard it as necessary or desirable to codify the general duties
of trustees, and modified the duties of trustees only incidentally.
Only recently have commentators and law reform agencies recommended
substantial statutory renovation of the duties of trustees. The perceived
need does not reflect an attraction to codification for its own sake, but
is in response to specific issues and problems. In some instances, the
case for reform is analogous to the case for creating statutory powers.
For example, it has become commonplace to give trustees a broad discretion
to apportion trust property between capital and income, ousting rules established
by the case law. It will be suggested below that a statutory discretion
to apportion between capital and income would be appropriate, both because
the discretion is now part of many trust documents, and because the changing
investment climate has made many of the established apportionment rules
inappropriate.
In other cases, reform seems desirable to clarify or reshape the law. The scope of the duty of care has never been completely certain. This problem has become less academic in recent years. Because of the difficulty faced by trustees who must make investments in an increasingly complex market, trust instruments often relieve trustees of the full weight of the duty of care in making investment decisions. This has created issues about whether it is appropriate to relieve trustees of their basic duty of care, and whether professionals (such as trust companies) should be held to a higher standard than non-professional trustees. The problem has recently been compounded in Saskatchewan and most other Canadian jurisdictions by adoption of a new statutory regime regulating investment powers..(19)
The Commission is not of the opinion that trusts legislation should
attempt codification of the duties and rights of trustees. However, the
examples set out above suggest that statutory modification, amounting to
partial codification of some duties and rights, is desirable.
1. Scope of the duty
In Speight v Gaunt(20) and Learoyd
v. Whiteley(21), the House of Lords
laid that the rule that
As a general rule, the law requires of a trustee no higher degree of
diligence in the execution of his office than an ordinary man of prudence
would exercise in the management of his own affairs.
This formulation of the duty of care has frequently been reaffirmed
by Canadian courts.(22) The standard is
objective. A trustee who acts imprudently is liable for breach of trust,
even if he or she believed that the impugned decisions were prudent, and
that all appropriate safeguards had been taken. In Speight v Gaunt,
the
Court of Appeal had been satisfied that an "honest trustee who has attempted
to do his best"(23) should not be liable.
On appeal, the House of Lords explicitly rejected the subjective criterion
proposed by the lower court.
Waters writes that
[T]he trustee must show ordinary care, skill, and prudence, he must
act as the prudent man of discretion and intelligence would act in his
own affairs. Evidently this does not mean that, if the trustee is careless
and inefficient in his own affairs, he need do no more in the conduct of
the trust affairs. A man may speculate with his own funds, and be negligent
in the administration of his own affairs, but as a trustee he is exercising
the powers and discretions of an owner in favour of another or others.
It follows that the beneficiary should be able to expect an objective test
of what is careful, skilful, and prudent.(24)
Note that the standard requires to same minimum degree of skill from
all trustees, regardless of training and experience. A trustee is expected
to possess some expertise in business affairs of the sort encountered in
the administration of a trust. It is not enough that the trustee acts as
prudently and carefully as his or her background allows. In Fales v.
Canada Permanent Trust Co., the Supreme Court of Canada affirmed that
a single standard of care applies to all trustees:
The weight of authority to the present, save in the granting of relief
under remedial legislation . . . . has been against making a distinction
between a widow, acting as trustee for her husband's estate, and a trust
company performing the same role. . . . Every trustee has been expected
to act as the person of ordinary prudence would act.(25)
The objective character of the standard is essential to ensure that
a uniform minimum of care and prudence can be expected of trustees. However,
the standard applied to trustees is more rigorous than the objective standards
applied in other contexts. The standard of care required in negligence
law is that of the "reasonable person", but in applying the standard, allowance
is made for the skill and experience of the defendant. Thus, for example,
a family physician required to perform surgery is required to exercise
the surgical skill that could be expected of a general practitioner, not
the skill of a more highly trained surgeon. Even other fiduciaries are
not placed under as heavy a responsibility as trustees. Thus, for example,
the directors of corporations are required to act prudently, but, in contrast
to trustees, a director is only required to demonstrate the prudence and
care expected of a person with his or her business experience and training.(27)
Even though it upheld the Learoyd v. Whiteley standard in Fales v. Canada
Permanent Trust Co., the Supreme Court admitted that the conduct expected
of trustees "has been at times, and in certain circumstances, unduly harsh
and inflexible".(28)
Several reasons account for the persistence of the rigorous standard.
Traditionally, the trust has been regarded as the highest form of fiduciary
relationship. As Scott has observed
Some fiduciary relationships are more intense than others . . . . Thus,
a trustee is under a stricter duty of loyalty than is an agent upon whom
limited authority is conferred or a corporate director who can act only
as a member of a board of directors or a promoter acting for investors
in a new corporation.(29)
Although the trust may be a "more intense" fiduciary relationship than
others, we are of the opinion that the standard of care expected of trustees
should reflect to needs of settlors and beneficiaries, not an abstract
classification of fiduciary relationships.
In Saskatchewan, the majority of trusts are testamentary, designed to
hold the deceased's property until it can be distributed within the family.
Many trustees are family members. When more expertise is thought necessary,
a trust company is often appointed co-trustee with a family member. Is
it reasonable to hold nonprofessional trustees to a higher standard than
many can reach, usually a higher standard than the testator expected of
either his trustee or himself? The facts in the Fales case demonstrate
the problem. In that case, the trustees failed to sell shares in a company
"in a timely fashion", resulting in considerable loss to the trust when
the company went bankrupt. The trustees were the testator's widow and a
trust company. The widow relied on the advance of her co-trustee. Although
she questioned the decision to hold the shares, she acquiesced in it, and
did not seek independent advice. In the result, she was found guilty of
breach of trust with her professional co-trustee.
The inflexibility of the Learoyd v. Whiteley standard is often mitigated
in practice. A more equitable result may be achieved by granting the relief
offered by section 57 of The Saskatchewan Trustees Act or its analogs in
other provinces. This remedial provision allows the court to excuse an
honest trustee from the consequences of a breach of trust if the court
believes the trustee "ought fairly to be excused".(30)
The widow In the Fales case was exonerated from paying damages for her
breach under the relief provision in the British Columbia Trustee Act.(31)
The court justified retaining the Learoyd v. Whiteley standard because
the relief provision made it possible to avoid the "unduly harsh" result
dictated by the standard. But the scope of the protection afforded by the
remedial legislation is far from certain, resting on what amounts to an
open-ended judicial discretion. It is difficult to escape the conclusion
reached by Waters that the court missed an opportunity in the Fales case
to make a clear distinction between non-professional trustees with modest
business experience and professionals such as trust companies.(32)
The English courts have consistently held to the standard adopted in
Learoyd v. Whiteley, but unlike the Canadian courts, have made a distinction
between professional and non-professional trustees. In Waterman's Will
Trusts, the Learoyd v. Whiteley standard was treated as a minimum. Harman,
J. expected more of a remunerated professional trustee:
[A] paid trustee is expected to exercise a higher standard of diligence
and knowledge than an unpaid trustee, and a bank which advertises itself
largely in the public Press as taking charge of administrations is under
a special duty. (33)
A similar approach has been adopted in the United States. The Restatement
of the law of trusts recommends that
[Where a trustee] has or procures his appointment as trustee by representing
that he has greater skill than a man of ordinary prudence, he is under
a duty to exercise such skill. (34)
The Uniform Probate Code provides that
. . . [I]f a trustee has special skills or is named trustee on the basis
of representations of special skills or expertise, he is under a duty to
use those skills.(35)
Note that the English authorities place emphasis on receipt of remuneration
by trustees, while the American model legislation places emphasis on the
holding out of greater than ordinary expertise. The Ontario Law Reform
Commission has also recommended a higher standard for experts. In our opinion,
the Ontario proposal improves on its English and American counterparts.
It places the emphasis on possession of special skills or qualifications:
. . . [T]rustees who in fact possess, or because of their profession,
business or calling ought to possess, a particular level of knowledge or
skill which in all the circumstances is relevant to the administration
of the trust, shall employ that particular level of knowledge or skill
in the administration of the trust.(36)
Receipt of remuneration in not an appropriate distinction in Canada,
because in Canada, unlike England, non-professional trustees usually receive
remuneration.(37) While a trustee who advertises
expertise should certainly be required to demonstrate it, we are of the
opinion that all trustees who have special qualifications should be held
to the level of skill that can reasonably be expected of them. The Ontario
Commission's approach is analogous to the standard of care applied to professionals
in negligence law. It has worked well in that context. We recommend adoption
of a similar standard.. (38)
However, adoption of a higher standard for professional trustees will
solve only part of the problem created by the Learoyd v. Whiteley standard.
We are of the opinion that no more should be expected of any trustee than
prudent application of the skill and experience he or she possesses. While
superior skill should be expected of an expert, the non-professional who
undertakes to manage a modest family trust should not be held to a standard
that requires exercise of business and financial skills he or she does
not possess.
We believe this approach accords with the realistic expectations of
testators and settlors. When a testamentary trust is set up to distribute
property to the testator's family, the testator knows the capabilities
of the trustee. If a family member with no special skills is chosen, it
is usually because the testator is satisfied that the trustee will be able
to do an adequate, if not professional, job. If, as is often the case,
a professional co-trustee is also appointed, it is undoubtedly with the
expectation that the professional will take primary responsibility for
difficult financial and business decisions, while the non-professional
family member will provide input and advice about the family's needs and
expectations. In neither case would the testator expect the non-professional
trustee to be held to an artificially high standard of expertise.
Although the courts have held to the Learoyd v. Whiteley standard, they
have recognized that it does not take the skill and experience of non-professional
trustees into account in a realistic manner. The remedial provision has
been used to prevent injustice in such cases,(39)
but as the Ontario Law Reform Commission asked:
If the courts are prepared to exercise their power to excuse trustees
for breach of trust in these circumstances, would it not be better to take
the whole matter out of the realm of judicial discretion - where each case,
as a decision on the facts, lends nothing to legal precedent - and for
the revised Trustee Act to make express provision for a lower standard
of care for non-professional, unremunerated trustees? (40)
Surprisingly, the Ontario Commission answered the question in the negative,
fearing that "any standard of care that is lower than that of the ordinary
prudent man of business would, in all probability, assume some overtly
subjective character."(41) We do not agree.
The counter example of the long-established objective standard applicable
to corporate directors that takes into account individual skill and experience
demonstrates that the fear is unwarranted. A more flexible general standard
of care seems to us to be a logical complement to insistance on holding
experts to the standard which can be expected of them. Finally because,
despite its limitations, the existing remedial provisions amount to defacto
recognition that the individual capabilities of trustees should be taken
into account, adoption of the flexible standard will not dilute the standard
in practice. It would instead make the application of the standard more
consistent.
We recommend that the general standard of care expected of trustee should
be codified to provide that:
In the discharge of his or her duties and the exercise of his or her
powers, a trustee shall exercise that degree of care and diligence that
a person of ordinary prudence would exercise, having regard to the skill,
experience, and qualifications of the trustee. (42)
2. The duty of care and investment powers
The conclusion we have reached concerning the general standard of care
presents a particular problem in regard to the investment powers of trustees.
In 1998, The Saskatchewan Trustees Act was amended to introduce a new regime
governing investment powers.(43) At the
core of the new provisions is the concept of the "prudent investor". Section
3(1) of the Trustees Act now provides that
3 - (1) A trustee may invest trust property in any form of property
or security in which a reasonable, prudent investor would invest, including
a security issued by a mutual fund as defined in The Securities Act, 1988
or similar investments.
This is accompanied by section 3.1 , which carries the marginal note
"standard of care":
3.1 - In investing trust property, a trustee must exercise the
care, skill, diligence and judgement that a reasonable, prudent investor
would exercise in making investments.
Section 3.1 would appear to require a trustee making investment decisions
to possess the skills of a "prudent investor". Presumably, the trustee
should be either a person who has professional training in investment,
or a person who has considerable practical experience as an investor. This
formula appears to conflict with our conclusion that no more can reasonably
be expected of a trustee than prudent application of the skills and experience
he or she actually possesses. Section 3.1 might, of course, be retained,
operating as an exception to the general rule. We would be reluctant to
accept this solution, however. Many contemporary trusts consist of little
more than an investment fund. If the general standard of care we have proposed
does not apply to investment decisions, it would lose much of its practical
significance. On the other hand, we are also reluctant to propose any substantive
change in the new investment powers regime. The new regime is a clear improvement
on the "legal list" of authorized investments it replaced, and was the
product of careful and lengthy consideration by the Uniform Law Conference
of Canada.(44)
We believe there is a way out of this dilemma without abandoning the
principle that trust investments should be those that a "prudent investor"
would choose. Section 3.1 is not an essential part of the new regime. In
fact, it may confuse rather than strengthen, the prudent investor approach
as it is otherwise formulated in the amendments. To understand why this
is the case, it is necessary to consider the origins of the prudent investor
concept. Until recently, unless a trustee was granted wider investment
powers by the trust instrument, Saskatchewan and other Canadian provinces
restricted investments to a statutory list of authorized investments. In
the United states, on the other hand, the legal list approach was never
adopted. The American courts were initially content to subject investment
decisions to the general standard of care, but the standard applicable
to investment decisions was particularized by the first Restatement on
trust law, adopted by the American Law Institute in 1935. The standard
of care applied by the Restatement to investment decisions was more rigorous
than the general standard. It "constrained" the prudent man, requiring
a trustee to exercise the skill and judgement of a "prudent man who invests
the property of others".(45) This approach
has been retained in most American jurisdictions, though the Uniform Prudent
Investor Act, adopted in 1994, constrains the prudent man in a different
way.(46) Like section 3.1 of the Saskatchewan
Act, it requires trustees to exercise the skill of a prudent investor.
The "constrained prudent man" standard rests on the assumption that
investment decisions require particular care and skill. As such, it reflects
the same concerns that led English and Canadian lawmakers to adopt a legal
list of authorized investments instead of leaving trustees to determine
for themselves whether an investment would be prudent. The legal list approach
fell from favour because the list no longer reflected realistic investment
options, and could not easily be amended to keep abreast of changing market
conditions. It is not surprising that Canadian lawmakers turned to the
American experience as an alternative. In 1970, the Uniform Law Conference
of Canada proposed adoption of the constrained prudent man standard contained
in the Restatement.(47) When it drafted
the Uniform Trust Investments Act, 1997, the conference looked to more
recent American models, and adopted the "prudent investor" standard.(48)
However, the Uniform Trust Investments Act, 1997 and the 1998 amendments
to The Saskatchewan Trustees Act differ from their American model in a
way that is critically important in the present context. Section 3(1) of
the Saskatchewan(49)has no parallel in
the American model. Its origin appears to lie in the language of the legal
list approach. It does not formulate a standard of care. Rather, it in
effect defines permitted investments, not by listing them, but by identifying
them as securities or other property in which "a prudent investor would
invest.". Thus the policy implemented in the American legislation as a
standard of care is converted in section 3(1) into a definition of prudent
investment.
Sections 3(1) and 3.1 of the Saskatchewan Act are different ways of
formulating the prudent investor rule. The commentary to the Uniform Trust
Investments Act, 1997 gives no explanation of why both were recommended.
Section 3(1) is sufficient in itself to establish the prudent investor
rule, and, we believe, less problematic in its application than the standard
of care contained in section 3.1. Very few trustees will in fact be investment
professionals or experienced investors. In order to make investment decisions
acceptable under the prudent investor regime, it will be necessary for
most trustees to obtain professional advice. The new regime clearly recognizes
this, and permits trustees to both seek advice and to rely on it. Section
3.3(1) of the Saskatchewan Act provides:
3.3 - (1) A trustee may obtain advice respecting the investment
of trust property.
(2) A trustee is not in breach of trust for relying on advice obtained
pursuant to subsection (1) if a reasonable, prudent investor would rely
on the advice in comparable circumstances.(50)
This provision makes more sense in conjunction with section 3(1) than
as a complement to section 3.1. A trustee who is not an expert investor
can reasonably be expected to take advice to determine what investments
a prudent investor would make. This is what section 3(1) clearly requires.
What section 3.1 requires is not as clear. It is doubtful that its practical
effect will be any different than section 3(1), but on its face it appears
to suggest that the trustee must acquire the skill of a prudent investor,
not merely take advice to ensure that investments are prudent.
We recommend that section 3.1 of The Saskatchewan Trustees Act be repealed.(51)
If the section is repealed, there will be no conflict between the investment
powers provisions in the Act and the general standard of care we propose.
We also believe that the investment powers provisions would be conceptually
sounder if section 3.1 were deleted. However, it must be stressed that
this recommendation would not alter the practical effect of the investment
powers regime adopted in 1998.
3. Relief from technical breaches of trust
Section 57 of The Saskatchewan Trustees Act provides:
57 - If in any proceeding affecting trustees or trust property
it appears to the court that a trustee, whether appointed by the court
or by an instrument in writing or otherwise, or that any person who in
law may be held to be fiduciarily responsible as a trustee, is or may be
personally liable for a breach of trust, but has acted honestly and reasonably
and ought fairly to be excused for the breach and for omitting to obtain
the directions of the court in the matter in which it was committed, the
court may relieve the trustee either wholly or partly form personal liability.
The relief provision was originally enacted in England in 1896(52),
and has been copied in all Canadian provinces except Prince Edward Island.
The marginal note to the section identifies its subject matter as "relief
of trustees committing technical breach of trust". This reflects the origin
of the provision, which was recommended by a Select Committee on Trust
Administration in 1895. The committee was primarily concerned with what
it characterized as "technical breaches", such as payment of money by mistake
by trustees. However, the language of section 57 is broad enough to encompass
more than technical breaches in any narrow sense of the term.(53)
As noted above, it has often been used to excuse a breach of trust by an
inexperienced trustee.(54) It has also
been used to relieve trustees who placed more trust in professional advisors
than was strictly prudent,(55) and has
also proved invaluable as a mechanism for apportioning liability between
trustees according to their relative culpability.(56)
Whatever the intention of the Select Committee, the relief provision
has become in practice a broad judicial discretion to relieve honest and
well-meaning trustees from liability for breach of trust. The courts have
avoided placing any limits on the scope of the discretion, and have on
occasion even refused to state any general principle to be applied in determining
when an honest trustee "ought fairly to be excused".(57)
It is because of the uncertain scope of the discretion created by the section
that we are not content to allow it to remain the only mechanism for reducing
the burden on trustees whose skill and experience fall below the level
required by the Learoyd v. Whiteley standard. Our proposed reformulation
of the standard of care would make section 57 less essential. However,
we are of the opinion that a broad judicial discretion to relieve honest
and well-meaning trustees would remain useful. Section 57 has played this
role in a satisfactory manner. We see no reason to substantially alter
a successful formula. As long as it is not the only mechanism to ensure
that the standard care is not too inflexible, the lack of constraining
criteria in the section is a virtue rather than a vice.(58)
However, one addition to the language of section 57 is necessary. It
has been held that the section does not encompass a case in which the breach
occurred as a result of improper delegation of authority by a trustee to
an agent. The relief provision applies only to the actions of a trustee,
not derogation of duty by allowing an agent to act in place of the trustee.(59)
While this distinction may seem strained, it is consistent with other judicial
authorities relating to improper delegation by trustees. We are of the
opinion that there is no reason why this limitation on the scope of section
57 should remain. We recommend rephrasing section 57 to provide that:
Where a trustee, or any person who may be held liable as a trustee,
is or may be personally liable for a breach of trust as the result of any
act or omission of the trustee or of an agent of the trustee, the court
may, if the trustee has acted honestly and reasonably and ought fairly
to be excused for the breach, or for omitting to obtain the directions
of the court in the matter in which it was committed, relieve the trustee
either wholly or partly form personal liability.(60)
4. Exoneration clauses
It has become common practice to include in trust instruments a clause
relieving trustees, in whole or in part, from liability for breach of the
normal standard of care. Canadian courts have tended to give exoneration
clauses a strict interpretation,(61) but
Waters suggests that so long as only departures from the standard made
in good faith are permitted, carefully drafted exoneration clauses are
"without doubt valid" in England and Canada.(62)
Exoneration clauses are problematic because they cut to the very foundation
of the trust. If Lewin is correct in defining the trust as neither more
nor less than "the duty or aggregate accumulation of obligations" imposed
on trustees(63), the trust loses its essential
character if the duty cannot be enforced. Despite Water's apparent certainty
than exoneration clauses are valid, Canadian courts have sometimes expressed
reservations. Thus in Fales v. Canada Permanent Trust Co. , Dickson, J.
observed in an obiter comment that:
This standard , of course, may be relaxed or modified up to a point
by the terms of a will and, in the present case, there can be no doubt
that the co-trustees were given wide latitude. But however wide the discretionary
powers contained in the will, a trustee's primary duty is preservation
of the trust assets, and the enlargement of recognized powers does not
relieve him of the duty or using ordinary skill and prudence, nor form
the application of common sense.(64)
In Re Poche Estate, an Alberta Court held that "a trustee must be held
responsible for any loss resulting from his gross negligence, regardless
of any provision in the trust instrument relieving him of such liability."(65)
David Steele, while noting that there are few other cases on point, has
concluded that Canadian courts "would likely adhere" to the principle that
an exoneration clause will only be effective "to relieve a trustee from
liability for breaches of lesser culpability then acts of gross negligence,
intentional wrong-doing and bad faith".(66)
This issue has been more intensely debated in the United States than
in Canada, but with mixed results. The Uniform Probate Code,1972 provides
that both professional and non-professional trustees may be relieved of
the duty of care contained in the Code.(67)
In New York State, on the other hand, clauses that attempt "the exoneration
of . . . [a] fiduciary for failure to exercise reasonable care, diligence
and prudence" are invalid.(68) The Restatement
adopts a middle ground. It permits dilution of the standard of care, but
invalidates exoneration clauses that forgive bad faith, reckless disregard
of the duty of loyalty to the beneficiaries' interests, or abuse of the
fiduciary relationship(69):
222(2) . . . [A] provision in the trust instrument is not effective
to relieve the trustee of liability for breach of trust committed in bad
faith or intentionally or with reckless indifference to the interest of
the beneficiary, or of liability for any profit which the trustee has derived
from a breach of trust.
222(3) . . .[T]o the extent to which a provision relieving the trustee
of liability for breaches of trust is inserted in the trust instrument
as the result of an abuse by the trustee of a fiduciary or confidential
relationship to the settlor, such provision is ineffective.(70)
The Ontario Law Reform Commission was impressed that "we can find no
evidence in the literature that any objection has been raised" to the New
York law since its adoption in 1936. The Commission argued that professional
trustees should carry liability insurance, and non-professionals who cannot
meet the minimum standard required of them should decline office. Even
when capable trustees fall into error, it is inappropriate, according to
the Commission, to shift losses from the trustees to the beneficiaries
through application of an exoneration clause. The Ontario Commission therefore
recommended adoption of general prohibition on exoneration clauses based
on the New York model.(71)
We are of the opinion that the Ontario Commission missed the point of
most exoneration clauses. Elsewhere, we have argued that the standards
imposed on trustees should reflect the legitimate expectations of settlors
and testators. An exoneration clause is usually inserted in a trust document
because the settlor is aware that even a reasonably diligent trustee may
fall into error. Protection of a trustee who is a family member may seem
particularly appropriate to the settlor. Investment decisions, which often
depend on predicting an uncertain market, are particularly difficult. The
settlor may accept that misjudgements are almost inevitable, and be content
to allow the burden to be borne at least in part by the trust rather than
expose the trustees to the full risk. Exoneration clauses have become an
accepted part of trust practice in Canada, and in most cases are used for
legitimate purposes.
We wish to qualify this position in two respects, however. First, we
agree with those critics of exoneration clauses who argue that they should
not undermine the basic substratum of duty and obligation underlying the
trust. This appears to have the point of Mr. Justice Dickson's comment
on exoneration clauses in the Fales case and the decision of the court
in the Poche case. For this purpose, the approach taken in section 222
(2) of the American Law Institute's Restatement seems appropriate. It preserves
liability in all cases for acts and omissions that not taken in good faith,
or show a reckless disregard for the interests of the beneficiaries. The
language of the Restatement is broad enough to allow the courts to impugn
any exoneration clause that could be used a shield by a trustee who is
dishonest or guilty of derogation of the basic duty of loyalty to the trust.
Second, we do not believe that professional trustees who receive remuneration
for trust administration should be able to rely on exoneration clauses.
We have recommended above that professional trustees should be held to
a higher standard than others. At least when they receive remuneration,
professional trustees should not be permitted to rely on the protection
of an exoneration clause. Section 222(3) of the Restatement deals with
this problem by focussing on circumstances in which professionals abuse
their position by insisting on the protection of an exoneration clause.
We believe that a more direct prohibition is justified.
We recommend that Saskatchewan trusts legislation should invalidate
any clause in a trust that relieves
(a) A trustee who has committed a breach of trust in bad faith, intentionally,
or with reckless indifference to the interest of the beneficiary, or of
liability for any profit which the trustee has derived from a breach of
trust; or
(b).A trustee who receives remuneration for administration of the trust,
and who holds out that he or she possesses special skills or knowledge
relevant to the administration of the trust.(72)
Responsibility for administrative decisions:
Delegation of authority
Trusteeship is a personal obligation. Clearly, a trustee who turns the
administration of the trust over to another without maintaining supervision
and control fails to carry out his or her duty. In the Nineteenth Century,
Equity applied this rule strictly and narrowly. Waters writes that
The rule adopted by equity towards persons occupying fiduciary positions
was that such a person cannot delegate his duties, whatever they are. The
Latin maxim was clear and succinct; delegatus non potest delegare, and
the prime type of delegate to whom the rule referred was the trustee.(73)
Very few exceptions were permitted. Even permission to use banks and solicitors to "receive or give a discharge of money" required the intervention of legislation.(74) It was not until 1883 that the courts bowed to changing commercial realities , and countenanced the use of agents normally employed in "the ordinary course of business practice"(75) Since then, a trend toward a more liberal view of the use of agents can be detected, but the courts have remained reluctant to approve the use of agents unless close control and supervision is maintained.(76)
As recently as 1994, an Ontario court held that investment of trust
money in mutual funds is an improper delegation of investment decisions
to the fund managers.(77)
This state of affairs has long been regarded as unsatisfactory.(78)
Change was forced in Saskatchewan and other provinces when a new investment
powers regime modelled on the Uniform Trust Investments Power Act, 1997(79)
was adopted.(80) As we have noted above,
the new approach requires trustees to seek and rely on expert investment
advice. The Saskatchewan Trustees Act now expressly permits trustees to
rely on investment advice(81), and to invest
in mutual funds.(82) In addition, the amendments
created a broad general authority to use agents in the conduct of trust
business. The Trustees Act now provides:
44- (1) In this section, "agent" includes a stock broker, investment
dealer, investment counselor and any other person to whom investment responsibility
is delegated by a trustee.
(2) A trustee may delegate to an agent the degree of authority with
respect to the investment of trust property that a reasonable, prudent
investor would delegate in accordance with ordinary business practice.
(3) A trustee who delegates authority pursuant to subsection (2) must exercise prudence and diligence in:
(a) selecting the agent;
(b) establishing the terms of the authority delegated; and
(c) monitoring the performance of the agent to ensure compliance with
the terms of the delegation.
(4) In performing a delegated function, an agent owes a duty to the
trustee and to the beneficiaries to exercise reasonable care to comply
with the terms of the delegation.
(5) A trustee who complies with subsection (3) is not liable for the
decisions or actions of the agent to whom the authority was delegated.
(6) This section does not authorize a trustee to delegate authority
where the terms of the trust expressly prohibit the trustee from delegating
authority to make investments.
(7) Investment in a security issued by a mutual fund as defined in The
Securities Act, 1988 or in a similar investment is not a delegation of
authority with respect to the investment of trust property.
This provision satisfactory answers criticisms of the case law governing
delegation by trustees. It should be retained in Saskatchewan trusts legislation.(83)
The duty to avoid conflicts of interest
1. The conflict of interest rule
The trustees' duty of loyalty precludes any course of action that would
put them in conflict of interest with the trust. Since Keech v. Stanford,
decided in 1726, it has been established law that a trustee who profits
from his or her position as trustee must surrender the benefit to the trust.
In that case, the trustee unsuccessfully attempted to renew a lease on
behalf the trust. The effort failed because the beneficiary was an infant
who could not grant a covenant requested by the lessor. The trustee then
leased the property himself. There was nothing to suggest that the trustee
had defrauded the trust, but the court would not allow even the appearance
of a conflict of interest. Lord King held that "though it may seem hard
. . . the trustee is the only person of all mankind who might not have
the lease."(84)
The rule in Keech v. Stanford was designed as a deterrent. It gives
notice to trustees that they must scrupulously avoid any course of action
that might lead them into conflict with their duty to the trust.(85)
The principle has remained inviolate, but the courts have wavered in their
efforts to define the full extent of its reach. In Broadman v. Phipps,
the court suggested that the rule might not apply to profit-taking that
was not detrimental to the trust if a conflict of interest could not have
reasonably been anticipated as a result of the trustee's actions. Lord
Upjohn said:
The relevant rule for the decision in this case is the fundamental principle
that a person in a fiduciary capacity must not make a profit out of his
trust which is part of the wider rule that a trustee may not place himself
in a position where his duty and his interest may conflict. . . . In my
view it means that a reasonable man looking at the relevant facts and circumstances
of the particular case could think that there was a real possibility of
conflict; not that you could imagine some situation arising which might,
in some conceivable possibility in events not contemplated as real sensible
possibilities by any reasonable person, result in a conflict.(86)
If there is a real distinction between what has been called the "profit
rule" in Keach and the "conflict rule" in Broadman, it has not been consistently
recognized by the courts.(87) Nevertheless,
as Waters has observed, the door has at least been opened to allow the
argument that inadvertent or remote conflicts might be forgiven if the
trust did not suffer any detriment.(88)
Some exceptions to the general conflict of interest rule have been allowed(89).
The trust document may permit conflicts of interest. In practice, blanket
exoneration of conflicts of interest are rare, but specific dealings (such
as purchase of trust property by a trustee) are often permitted. Similarly,
if all the beneficiaries are competent adults, they may consent to a conflict
of interest between a trustee and the trust..(90)
Finally, the court may allow a trustee to purchase trust property if the
purchase is in the interests of the beneficiaries. This exception has long
been recognized.(91). It recognizes a common
situation that arises in the course of trust administration, but as the
Ontario Law Reform Commission observed, "why this situation alone should
have received judicial attention is not clear".(92)
2. Should the rule be codified?
The duty to avoid conflicts of interest is integral to the loyalty owed
by trustees to the trust and its beneficiaries. It is at least as fundamental
as the duty of care. We have recommended codification of the duty of care.
A statutory conflict rule would be a logical complement to the statutory
duty of care. On the other hand, part of the reason for proposing codification
of the duty of care was to introduce flexibility, which we found lacking
in the existing rule. While the conflict of interest rule is not free from
uncertainties, it is an evolving rule best left to the courts to adjust
and refine. Nevertheless, we agree with the Ontario Law Reform Commission
that a statutory conflict of interest rule should be adopted, if for no
other reason than to bring this fundamental rule to the attention of every
trustee.(93) The rule should not seek to
change the existing law, or state it in such a way as to impede further
development of the conflict of interest rule by the courts. The Ontario
Commission formulated the rule in these terms:
Trustees shall discharge their duties and exercise their powers solely
in the interests of the beneficiaries of the trust, and without limiting
the generality of the foregoing, they shall not knowingly permit themselves
to be in a position in which their interest conflicts in any way with the
discharge of their duties and the exercise of their powers, or in which
they may derive any benefit for themselves or for any other person, except
so far as the law or the trust instrument expressly permits.(94)
This recommendation satisfactorily states the conflict of interest rule.
However, we have taken a different approach to exoneration clauses than
the Ontario Commission. We recommend adoption of a formula similar to that
proposed by the Ontario Commission, but would not include in it an exception
to preserve clauses in trust instruments permitting conflicts of interest.(95)
Our reasons for this decision are discussed below.
3. Court approval of conflict of interest
Not every conflict of interest is detrimental to the beneficiaries of
a trust. In some cases, a trustee may even be in a position to benefit
the trust by dealing with it. All too often, a perfectly sound transaction
is impugned by strict application of the conflict of interest rule. For
example, in Harrison v. Harrison, a trustee was required by the terms of
the trust to invest in particular bank stock. He held stock in the bank
himself, and sold it to the trust at market value. When the bank subsequently
failed, the beneficiaries succeeded in having the sale overturned.(96)
Similarly, in the Broadman case, trustees were forced to disgorge their
profits to the trust, even though the trust had also profited from the
impugned transactions.
The existing mechanisms for avoiding application of the rule are usually
inadequate. If the beneficiaries are all of age and competent, approval
of a conflict may be obtained, but in many cases, including the testamentary
trusts most common in Saskatchewan, some of the beneficiaries will be minors.
If the issue involves proposed sale of trust property to a trustee, the
court may approve the sale if it is in the beneficiaries' interest, but
other innocent dealings between trust and trustee are outside this jurisdiction.
Because the conflict of interest rule is strict, a cautious trustee may
be deterred from an otherwise reasonable course of action out of fear that
a technical conflict of interest may be committed. More often, trustees
will place themselves in technical breach of the conflict rule. So long
as no loss results to the trust, the breach will likely go unnoticed. However,
as the Harrison case demonstrates, liability may arise unexpectedly from
an apparently innocent transaction.
It would clearly be desirable to give the courts a broader jurisdiction
to approve transactions that apparently violate the conflict of interest
rule. Such an approach has been adopted in the American Uniform Trustees'
Powers Act:
5(b) If the duty of the trustee and the trustee's individual interest
or his or her interest as trustee of another trust conflict in the exercise
of a trust power, the power may be exercised only by court authorization
. . . .(97)
The Ontario Law Reform Commission recommended a similar approach, but
modified the American model in two ways. First, the Commission would permit
the court to approve of a trustee's actions or proposed actions only if
they are "for the benefit of the beneficiaries". Second, it would allow,
the court to give retroactive approval to actions taken by trustees. This
would, in the Ontario Commission's opinion, avoid unnecessary applications
to court in cases in which a serious conflict seems to be a remote possibility.
The Commission proposed that:
9(2) Where upon application to the court it is shown that it would be
for the benefit of the trust and its beneficiaries, whether or not any
beneficiary withholds his consent, the Court may make an order, on such
terms and conditions as appear just.
(a) permitting the trustees to act notwithstanding that they may be
in a position that contravenes [the duty to avoid a conflict of interest];
or
(b) excusing them from liability notwithstanding that they may be in
breach 9of trust for having acted while in a position that contravened
[the duty to avoid a conflict of interest].(98)
We prefer the Ontario recommendation to the unstructured discretion
in the Uniform Trustees' Powers Act, and agree that retroactive approval
would be appropriate. However, we are of the opinion that the Ontario recommendation
puts too narrow a limit on the court's power to excuse conflicts. Perhaps
because the existing jurisdiction to approve sale to trustees requires
that the sale can be shown to benefit the beneficiaries, the Ontario recommendation
adopted this test. But there are cases in which the trustees' actions may
not be clearly beneficial, but are none the less not detrimental to the
trust. Such cases are perhaps most apt to arise when an innocent course
of action leads inadvertently to a technical conflict. In our opinion,
it should be open to the trustee in such a circumstance to seek court sanction
for what has occurred.
We recommend that the Trustee Act should provide that:
Where upon application to the court it is shown that it would not be
detrimental to the trust or its beneficiaries, and whether or not any beneficiary
witholds his consent, the Court may make an order, on such terms and conditions
as appear just
(a) permitting the trustees to act notwithstanding that they may be
in a position that contravenes the trustees' duty to avoid a conflict of
interest; or
(b) excusing them from liability notwithstanding that they may be in
breach of trust for having acted while in a position that contravened the
trustees' the duty to avoid a conflict of interest.(99)
4. Exoneration clauses and conflict of interest
Because the conflict of interest rule is strict, exoneration clauses
excusing conflicts are often attractive to both settlors and prospective
trustees. However, if the courts are empowered to approve conflicts that
are not detrimental to the trust, such exoneration clauses lose much of
their appeal and justification.
We have argued above that exoneration clauses that completely oust the
normal standard of care required of trustees should be invalid. The provision
we recommended for this purpose would affect exoneration of conflict of
interest as well. We have proposed that a clause that would "relieve the
trustee of . . . liability for any profit which the trustee has derived
from a breach of trust" should not be effective.(100)
This formula reflects the language of the conflict of interest rule, and
thus likely covers any conflict that would be a breach of trust in the
absence of the exoneration clause.
The Ontario Law Reform Commission rejected any limitation on the use
of exoneration clauses to excuse conflict of interest. This was a surprising
conclusion for the Commission adopt, since it recommended an even stricter
prohibition on exoneration of breaches of the standard of care than we
have proposed. Our recommendation is based on section 222(2) of the American
Restatement of the law of trusts(101).
The Restatement's treatment of clauses excusing conflicts of interest does
not appear to have caused practical difficulty in jurisdictions in which
it has been adopted. It is particularly important to note that section
222(2) of the Restatement operates in a trust regime in which court approval
of conflicts of interests is an established feature. The Ontario Commission
does not appear to have fully appreciated the way in which a policy against
exoneration clauses would work with the jurisdiction of the court to approve
non-detrimental conflicts.
In fact, we believe prohibiting exoneration clauses would be less problematic
under our proposals than in American jurisdictions that have adopted the
Restatement's approach. Under American trust law, a conflict must be approved
before it occurs. Thus a trustee who believes a conflict may arise must
seek court approval before acting. Under our proposals, the court would
be authorized to give retroactive approval. This would make it less likely
that a trustee would need to go to court. No approval need be sought when
there is as yet a mere possibility of conflict. In addition, trustees would
likely continue to risk technical conflicts of interest. The power of the
court to approve conflicts would operate in such cases as a defacto defence
if the technical breach unexpectedly led to litigation.
Our recommendation is perhaps most questionable in cases in which the
settlor wishes to permit a clearly defined conflict. For example, a trustee
might be permitted to purchase a specified trust property without court
approval. However, we believe that if a relatively simple procedure for
obtaining court approval is available, no undue hardship will result from
failure to give effect to exoneration clauses. Once again, this is particularly
true if court approval may be retrospective. If it were possible to formulate
a list of exceptions to the general rule, it might be desirable to do so.
But in our opinion, the cases in which a conflict might reasonably be allowed
are too fact specific to make it possible to formulate a list of appropriate
exceptions.(102)
The duty of the trustees
to act jointly
Trustees hold trust property as joint owners of the legal title. The
trustees must therefore act jointly in administering the trust. All must
be involved in administrative decisions, and they must be unanimous. Oosterhoff
and Gillese write that
The requirement of unanimity exists for every decision of the trustees;
whether the decision relates to the exerciser of a power or a duty is irrelevant
for the purpose of determining how the trustees are to make decisions in
relation to the exercise of the power or duty.(103)
If the trustees are unable to agree, they may seek the direction of
the court,(104) and in cases of deadlock,
the court may remove or replace a trustee to allow orderly administration
to proceed.(105)
The reasons why the unanimity rule was adopted may only reflect the
origin of the trust in property law. In the civil law regimes of Europe
and Quebec, fiduciaries are usually bound by majority rule, rather than
unanimity. The American Uniform Trustees' Powers Act has also adopted majority
rule.(106) But whatever its origin, the
unanimity rule is now the expectation of most settlors, and generally
meets their needs. If more than one trustee is appointed, it is usually
to ensure that each serves as a check on the other. Each may possess special
skills useful to the trust, but unanimity ensures that all serve the overall
purposes of the trust. In the unusual case in which a settlor would prefer
majority rule, the unanimity requirement can be ousted by the terms of
the trust, and majority rule substituted for it.(107)
Departure from the unanimity requirement has not attracted support
in the common law provinces of Canada or elsewhere in the Commonwealth.(108)
We see no reason to modify the existing law in this regard.
Because they are jointly responsible for the trust, trustees are jointly
and severally liable for breaches of trust. The consequences of joint and
several liability are governed by the common law. All trustees are equally
liable for the loss resulting from a breach. Each is expected to contribute
an equal share to satisfy a damage award, but the beneficiaries may recover
the full amount of the loss from one or more of them. The most important
exception to this rule occurs when fraud has been committed by one of the
trustees: A fraudulent trustee is solely responsible for the entire loss
to the trust. In a few other limited circumstances recognized in the case
law, trustees may seek indemnity from one of their number to compensate
them for their contribution.(109)
The English Trustee Act, 1893(110)
included two incidental statutory modifications of the contribution and
indemnity rules. Both are now included in The Saskatchewan Trustees Act.
Section 46 of The Saskatchewan Trustees Act permits a trustee who has committed
a breach of trust at the instigation of a beneficiary to seek indemnity
from the beneficiary:
46. Where a trustee has committed a breach of trust at the instigation
or request or with the consent in writing of a beneficiary, the court may,
notwithstanding that the beneficiary is married woman entitled for her
separate use whether with or without a restraint upon anticipation, make
such order as seems just for impounding all or any part of the interest
of the beneficiary in the trust estate by way of indemnity to the trustee
or person claiming through him.
Section 13 of the Saskatchewan Act is broader in scope. When a trustee
commits a breach of trust while acting without the concurrence or knowledge
of the other trustees, the liability is personal unless the others are
found to have acquiesced in the breach. However, if, for example, all the
trustees have signed a receipt for property, but one of their number takes
actual possession of it and later misappropriates it, should all be liable
for the breach? Section 13 addresses this and similar problems:
13. A trustee is chargeable only for money and securities actually received
by him, notwithstanding his signing a receipt for the sake of conformity,
and is answerable and accountable only for his acts, receipts, neglects
or defaults, and not for those of any other trustee, nor for any banker,
broker or other person with whom trust money or securities are deposited,
and may reimburse himself or pay or discharge out of the trust money all
expenses incurred in or about the execution of his trust or powers.(111)
Both section 46 and section 13 remain useful. They should be retained.
However, because section 13 was adopted to remedy specific problems encountered
by the courts in the Nineteenth Century, its scope and limitations are
no longer immediately obvious. It can only be properly construed in the
context of the unanimity rule and the joint and several liability of trustees.
For that reason, we have concluded that it would be useful to give statutory
recognition to these principles. We recommend that new trusts legislation
should provide:
(1) Unless the instrument creating the trust provides otherwise, trustees
must act unanimously in discharging their duties and exercising their powers
as trustees, and, except as otherwise provided by law, are jointly and
severally liable.
(2) A trustee is chargeable only for money and securities actually received
by him, notwithstanding his signing a receipt for the sake of conformity,
and is answerable and accountable only for his acts, receipts, neglects
or defaults, and not for those of any other trustee, nor for any banker,
broker or other person with whom trust money or securities are deposited.
(3) Where a trustee has committed a breach of trust at the instigation,
request, or written consent of a beneficiary, the court may make such order
as seems just to indemnify the trustee or person claiming through him out
of the beneficiary's interest in the trust. (112)
The contribution and indemnity rules applicable to trusts can hardly
be regarded as satisfactory. In principle, the rule of equal contribution
regardless of degree of fault is unfair. In Canada, contributory negligence
legislation has replaced equal contribution of tortfeasors with apportionment
of fault. A similar regime might be adopted in regard to contribution among
trustees, and a more systematic approach to indemnification could certainly
be justified as well. In England, the general law governing joint and several
liability was substantially reformed by the Civil Liability (Contribution)
Act, 1978.
(113) This legislation gives
the court a discretion to apportion fault between trustees, and fix both
contributions and indemnities. The Law Reform Commission of Ontario recommended
adoption of a similar regime.(114)
While comprehensive reform of indemnity and contribution rules would
be attractive, we are of the option that it should take place as part of
a comprehensive review of joint and several liability. We might still have
been persuaded to consider at least some remedial measures if we believed
the need was pressing. But in our view it is not. Courts in Canada and
other Commonwealth jurisdictions have a broad statutory discretion to relieve
trustees of responsibility for breaches of trust. This jurisdiction is
contained in section 57 of The Saskatchewan Trustees Act. (115)
This provision has been used routinely to apportion responsibility between
trustees. In Fales v. Canada Permanent Trust Co., the Supreme Court of
Canada found both trustees to be in breach of trust, but relieved one of
them of any liability.(116) In McDonald
v. Hauer, the Saskatchewan Court of Appeal was prepared to use section
57 to apportion fault between three trustees according to their relative
culpability for the breach(117). The apportionment
regime adopted in England and recommended by the Ontario Law Reform Commission
would likely not be a significant improvement on what can already be achieved
under section 57. Even the Ontario Law Reform Commission admitted that
"the judicial excusing power has begun the process of rendering [reform
of contribution and indemnity rules] unnecessary".(118)
Trustees must scrupulously adhere to the terms of the trust, giving
each beneficiary his or her due, and otherwise show no preference for one
over another. As Waters writes:
It is a primary duty upon trustees that in all their dealings with trust
affairs they act in such a way that, if there are two or more beneficiaries,
each beneficiary receives exactly what the terms of the trust confer upon
him and otherwise receives no advantage and suffers no burden which other
beneficiaries do not share. In this way the trustee acts impartially.(119)
The duty to act impartially is straightforward in principle, but careful
judgement is required when some beneficiaries are entitled to immediate
income from the trust fund, while others are entitled to a capital distribution
in the future. This is a common circumstance. For example, a testamentary
trust may provide income for the surviving spouse and children, and distribution
of the capital to the children when the surviving spouses dies. As a general
rule, unless the terms of the trust provide otherwise, the capital cannot
be encroached to meet income payments. Instead, the capital is invested.
Investment income is the used to meet the income payments required by the
terms of the trust. The capital assets, including any capital gains that
have accumulated, remain intact for eventual distribution to the capital
beneficiaries. The challenge facing the trustees is to devise an investment
plan that fairly balances income against capital appreciation.
Re Smith illustrates the fundamental allocation problem trustees must
address. In that case, the trust fund consisted largely of shares in Imperial
Oil, a sound investment with a high capital growth rate. However, the shares
paid dividends of only 2½ % of capital value per annum, as compared
to rates of 7%-10% on other good investments with lower capital growth
rates. The income beneficiary (the testator's widow) complained that retention
of the shares did not produce enough income for her to maintain the standard
of living she had enjoyed during her husband's lifetime. The court found
that the trustees' investment strategy unfairly preferred the capital beneficiaries.(120)
Re Smith may represent no more than an obvious error of judgement on
the trustees' part. Moreover, the problem could have been avoided if the
trust had specified the income the widow was to receive, or permitted encroachment
on capital. Both these approaches are commonly adopted by settlors. Unfortunately,
the allocation problem is often not so simple. In what can be regarded
as the traditional analysis of the allocation problem, the issues focus
on three critical nodes: (1) Allocation between capital and income producing
assets when the trust property is converted to an investment fund, (2)
allocation of expenses and other "outgoings" between the capital and income
earning assets, and (3) allocation of receipts and other "incomings" such
as dividends between capital and income. All three are infected with issues
that cannot be said to have been finally resolved by the courts. In addition,
changes in investment markets have blurred distinctions between capital
and income earning assets, bringing much of the traditional analysis and
the legal rules it spawned into question.
The rule in Howe v. Dartmouth(121)
places an executor under a duty to convert all wasting and residuary property
(other than realty) into authorized investments. In other cases, the terms
of the trust may expressly or impliedly require conversion to carry out
the purposes of the trust. Pending conversion, a fair allocation of receipts
between income and capital must be made. There have been problems determining
the scope of the rule in Howe v. Dartmouth(122),
but until recently, the allocation issue was perhaps not particularly difficult.
The investments authorized by trusts legislation were sound securities
that provided both modest capital appreciation and reasonable interest.
A trustee who invested in authorized investments automatically made an
acceptable allocation between the needs of income and capital beneficiaries.
Even if trustees were permitted by the terms of the trust to make other
types of investments, the rates of return on securities in the "legal list"
provided a benchmark for determining whether an acceptable allocation had
been made. Changes in investment markets undermined the "legal list" approach
to authorized investments. Under the new approach to trustees' investments
adopted in Saskatchewan in 1998,(123)
trustees are permitted to make any investment a "prudent investor" might
make.(124) But a prudent investment is
not necessarily an investment that properly balances the interests of income
and capital beneficiaries. The new statutory investment regime does recognize
this problem. Investors are required, "in planning the investment of trust
property", to have "regard to . . ."
(d) the role that each investment or course of action plays within the
overall portfolio of trust property;
(e) the expected total return from income and appreciation of capital;
. . .
(g) needs for liquidity, regularity of income and preservation or appreciation
of capital;
(h) an asset's special relationship or special value, if any, to the
purposes of the trust or to one or more of the beneficiaries.(125)
These factors are all relevant to the problem of maintaining an even
hand between beneficiaries, but they provide no easy answers. In fact,
modern investment strategies no longer make easy answers possible. Investment
advisors today recommend a portfolio approach that balances growth and
security. Common shares provide growth and reasonable rates of return when
interest rates are low; bonds and guaranteed investment certificates provide
security and good returns when interest rates are high. The portfolio approach
does not make a rigid distinction between capital appreciation and income.
Under market conditions characterized by low interest rates and high capital
gains, the best way to ensure adequate income from a fund may be to invest
for capital gains, then convert to interest-earning liquid assets only
as required to meet income payments. A trustee whose primary duty is investment
to generate income is constrained to invest in stable securities that can
easily be liquidated, while a trustee concerned primarily with capital
distribution may invest in a buy-and-hold portfolio of common stocks at
a higher level of risk and expected return.(126)
The law governing allocation of "incomings" has long been problematic(127).
Changes in investment markets have only compounded the problems. Traditionally,
the core issue regarding "incomings" was one of classification of receipts
between income and capital. Ordinary share dividends were classed as income,
a distribution of corporate profits. Capital gains or distribution of assets
on the winding-up of a corporation were clearly capital. But many other
corporate distributions proved difficult to classify. For example, during
the 1950's, Canadian tax law favoured retention of corporate earnings.
Rather than pay dividends out of earnings, many companies issued redeemable
preference shares, which could later be redeemed for cash. The Ontario
courts characterized such shares as an income distribution(128).
However, in Re Waters, the Supreme Court of Canada held that since the
earnings had been capitalized, they retained that form even when distributed
as redeemable shares.(129) Donovan Waters
suggests that "we have come to the position that whether a distribution
by a company is to be regarded as income or capital (and it cannot be both)
is determined by what the company does", but the law is still far from
clear, because "whether what has done is a distribution of earnings or
a capitalization is a question of fact in each case."(130)
More important still, it is doubtful whether this kind of analysis of corporate
intention leads to results that can now be regarded as a useful way of
determining how receipts should be allocated between capital and income
beneficiaries.
The law governing allocation of expenses and other "outgoings" is perhaps
better settled than the law governing "incomings", but has been regarded
as uncertain enough in particular cases to have encouraged a variety of
statutory innovations. For example, New Zealand(131)
provides for establishment of a depreciation fund to cover the costs of
improvements to income-earning property, to prevent loss in capital value.
Prince Edward Island requires a similar fund, but only in regard to real
property.(132)
Despite the efforts of the courts to provide concrete rules to assist
in determining whether an allocation decision is acceptable, the law remains
incomplete and uncertain. Much is still left, in practice, to the discretion
and judgement of the trustees(133). The
rules are more apt to be regarded as a potential impediment to exercise
of good judgement than practical guides. Oosterhoff and Gilese observe
that:
. . . [I]t is common practice today to exclude some or all of the rules
governing apportionment and allocation of outgoings in the trust instrument.
This is done for two reasons. First, the rules may block trustees form
making decisions that reflect tax considerations; second, because application
of the rules often makes administration of the trust unjustifiably complicated.
Unless the current state of the law is improved by legislation, this
trend can only be expected to intensify.
In our opinion, the only workable approach to reform is to recognize
that most settlors would prefer to give their trustees a broad discretion
to make allocations between beneficiaries in a fair manner than to rely
on specific allocation rules. We do not believe it is possible for either
courts or legislators to frame specific rules that are both comprehensive
and responsive to the changing business realities confronting trustees.
We therefore recommend giving all trustees the discretion now commonly
inserted in trust instruments.
The Ontario Law Reform Commission recommended a similar course of action
in 1984. However, it was not prepared to recommend that the discretion
in regard to outgoings should apply to trusts constituted before the new
legislation came into effect, and was only prepared to recommend the discretion
in regard to incomings if the settlor expressly adopted the proposed statutory
regime. The Commission was concerned that existing trusts might have been
premised on the traditional allocation rules. That argument may have been
persuasive in 1984, but since then the traditional rules have grown even
less relevant, particularly since abolition of the legal list of authorized
investments. We recommend that the provisions relating to allocation we
propose should apply to all trusts(134),
unless the trust instrument itself ousts them.
Except that we would apply them to all trusts, our proposals are based
on the recommendations of the Ontario Law Reform Commission. We recommend
that:
1. Trustees shall act impartially as between income and capital beneficiaries,
having regard to each item of trust property, whatever the nature of the
property, and whether it is an original asset or an asset acquired subsequently.
2.(1) Subject to recommendation 1, unless the trust instrument provides
otherwise
(a) Trustees may apportion any payment or expenditure for any outgoing
between the income and capital accounts, or they may charge the payment
or expenditure, exclusively to either income or capital as they consider
just and equitable in all the circumstances;
(b) Trustees may pay for any outgoing from income or capital, or wholly
or partly from each, as appears to them to be in accord with sound business
practice and in the best interests of the trust beneficiaries as a whole,
and, where the whole or part of the payment or expenditure is made out
of or charged to capital, they may recoup income from capital, if, in either
case, they consider that course to be just and equitable in all the circumstances;
and
(c) Trustees may, and if ordered by the Court upon application shall,
deduct from the income derived from trust property that is subject to depreciation
or obsolescence such amounts as are fair and reasonable having regard to
sound business practice in order to protect the capital of the trust from
loss, and any sums so deducted shall be set aside and added to the capital
of the trust so as to become capital for all purposes.
(2) This recommendation does not apply to trust for the exclusive benefit
of the spouse of the testator or settlor within the meaning of the Income
Tax Act (Canada).
3.(1) Subject to recommendation 1, unless the trust instrument provides
otherwise, trustees shall allocate receipts to the income and capital accounts
as they consider just and equitable in all the circumstances.
(2) For the purposes of this recommendation and for determining the
relative proportionate interests of beneficiaries of the trust, but not
so as to limit in any way the powers conferred by recommendation 3(1):
(a) income may be understood to be the return in money or property derived
from the use of capital; and
(b) capital may be understood to be the property set aside by the trust
instrument to be delivered eventually to a remainderman, while the return
or use of the capital is in the meantime taken or received by or held for
accumulation for an income beneficiary.(135)
The duty to disclose and account
Trustees have a duty to account and to provide information to the beneficiaries
and other persons interested in the trust. Waters writes that
A trustee is essentially one who is managing the affairs of others.
He may have a personal beneficial interest, indeed, he may for all apparent
purposes be the only beneficiary, but as a trustee he still remains subject
to the obligation to account for his administration to those who may have
an interest in the trust fund, whether as beneficiary or creditor. This
obligation has been called the duty to disclose.(136)
This duty is most often discharged by passing accounts, an application
to the court for an order approving accounts presented to it. In addition,
however, trustees must be ready to allow the beneficiaries and other interested
parties to examine their accounts.
1. Passing of Accounts
Section 35 of The Administration of Estates Act(137)
provides that executors and administrators are ordinarily required to pass
accounts within two years, after which they may be discharged, though section
36 allows formal passing of accounts to be avoided with consent of the
beneficiaries and proof that the estates's debts have been paid. Section
35(3) of the Act requires a trustee of a testamentary trust who is also
executor of the will setting up the trust to account "in the same manner"
as an executor.(138) Other trustees are
not required to pass accounts unless they desire to be formally discharged
from the trust.(139) In addition, although
remuneration for trustees can be approved in an application to court for
that purpose, passing of account is often a practical necessity if remuneration
is sought.(140)
Trustees may also voluntarily pass accounts as a way to obtain court
approval of their administration, even when the trust is not being wound
up. Waters observes that
[The] trustee for his protection has an historical right of access to
the courts for a voluntary passing of accounts, an opportunity which the
wise trustee will use at regular intervals(141).
This right has been recognized by statute in Ontario(142)
and Manitoba.(143) In our opinion, it
would be desirable to clearly recognize the right to voluntarily pass accounts
in The Trustees Act.
There are in addition several other matters relating to passing of accounts
that require further consideration.
First, there are at present no statutory requirements governing the
practice of passing of accounts by trustees who are not personal representatives.
This problem can easily be cured by providing, as does the Ontario Trustees
Act(144), that the practice on passing
of executors' and administrators' accounts applies to all trustees. Passing
of accounts by executors and administrators is largely governed by rules
of court that are also adequate for regulation of the passing of other
trustees' accounts.
Second, since the purpose of voluntary passing of accounts is usually
to obtain official approval, the effect of the court order obtained on
passing accounts should be clarified. In Re Campbell,(145)
the trustees passed their accounts, but the beneficiaries later alleged
that property had been misappropriated before the passing of accounts.
The trustees sought a further order discharging them from liability on
the basis that their accounts had been approved. The Court declined to
make the requested order, deciding that it had no jurisdiction to do so.
As Waters observes, the passing of accounts should not leave "the sword
of Damocles" hanging over the heads of trustees.(146)
The Manitoba Trustees Act provides that when an order is made upon passing
of accounts, it is binding on all persons interested in the trust.(147)
The Saskatchewan Administration of Estates Act applies a similar rule to
approval of executors' and administrators' accounts:
37.- Except to the extent that mistake or fraud is shown, the
approval by the court of the accounts of an executor or an administrator
with respect to the dealings of the executor or the administrator with
the estate is binding on:
(a) each person who was notified of the proceedings, present at the
proceedings, or represented at the proceedings; and
(b) each person who claims through a person described in clause (a).
This protection should be extended to all trustees.
Finally, section 87 of the Saskatchewan Trustees Act requires consideration.
This section permits a trustee to obtain a formal discharge from the office
of trustee. Discharge is ordinarily available only on passing of accounts,
but the court may dispense with that requirement in appropriate cases:
87.- When the accounts of a trustee have been passed, or when
the passing of such accounts has been dispensed with, the Court of Queen's
Bench or a judge thereof may, in its or his discretion, order that the
trustee be discharged and that any bond or security given by the trustee
be cancelled or delivered to him or his solicitor.
This section codifies the practice of the Courts of Equity in England.
Although it fails to directly so state, it is only applicable if the trust
is completed and is being wound up.(148)
Section 87 applies to executors and administrators, but has been partly
superceded in this respect by The Administration of Estates Act. Section
36 permits discharge of an executor or administrator without passing accounts
if the conditions stipulated in the provision are met. It also allows the
court to cancel a security bond given by the executor or administrator.
Surprisingly, section 35, which requires executors and administrators to
pass amounts when their duties are completed, does not refer to either
discharge or cancellation of security. We are of the opinion that discharge
of executors and administrators should be comprehensively included in The
Administration of Estates Act.
Discharge of non-testamentary trustees is uncommon in practice, though
it may be done if a final passing of accounts is requested. We recommend
keeping a discharge provision in the trusts statute, but it need not be
elaborate. If it were to include authorization to discharge without passing
of accounts, it would be desirable to include criteria for dispensing with
an accounting. Many estates are simple to administer. The personal representative
may require a discharge, but a full passing of accounts would serve no
purpose. However, there are very few cases in which there would be any
point in seeking a formal discharge from a non-testamentary trust without
passing accounts. For that reason, we recommend that discharge of a non-testamentary
trustee should be available only on passing of accounts.
We recommend the law regarding voluntary passing of accounts by trustees
be clarified to provide:
(1) A trustee may at any time apply to the Court for an order passing
the accounts of the trustee.
(2) The procedure upon an application under recommendation (1) shall
follow the procedure for the passing of executors' and administrators'
accounts.
(3) Unless mistake or fraud is shown, the approval by the court of the
accounts of a trustee is binding on any person interested in the trust
who was notified of the proceedings, or who claims through such a person.
(4) Except in the case of a executor, administrator, or trustee who
must pass accounts in accordance with The Administration of Estates Act,
when administration of the trust has been completed, a trustee may, upon
passing accounts, be discharged, and any bond or security given by the
trustee may be cancelled or delivered to him or her.(149)
(5) Section 35 of The Administration of Estates Act should be amended
to provide that on passing accounts under the section, an executor, administrator,
or trustee may be discharged and any bond or security given by the trustee
may be cancelled or delivered to him or her.(150)
2. The right to an accounting
Trustees administer property belonging to the beneficiaries, who are
entitled to know what has been done with their assets. Their right to demand
an accounting from the trustees is fundamental to the trust relationship.
The terms of the trust may specify the manner in which the trustees account,
but it has been held that the beneficiaries cannot be deprived of the right
to an accounting.(151)
The right to an accounting is recognized by statute in the Manitoba(152)
and British Columbia(153) Trustee Acts.
Since these statutes appear to do no more than codify the "action for accounting"
recognized by the English Courts, (154)
it is surprising that the Ontario Law Reform Commission cast doubt on the
existence of the right in the absence of a statutory sanction.(155)
While we do not believe that the courts in Saskatchewan would deny beneficiaries
the right to an accounting, it would be desirable to remove doubt by giving
statutory recognition to the right to an accounting.
If the right to an accounting is codified, it must clearly identify
what is expected of trustees. Beneficiaries should not be permitted to
use a demand for accounting to harass trustees or to undertake a fishing
expedition in search of irregularities when there is no good reason for
suspicion. In the leading Canadian case, Sanford v. Porter, the Court affirmed
that "the duty of a trustee or other accounting party is to have his accounts
always ready, to afford reasonable facilities for inspection and examination,
and to give full information whenever required." However, the court insisted
that access to the accounts must be reasonable. Thus when the trustees
undertook to prepare a statement that dealt with the matters of concern
brought to their attention, it was held that an action for a full accounting
was premature. MacLennan, J.A. observed that
It seems to have been thought by the solicitors of the plaintiffs that
it was the duty of a trustee, upon demand for an account, to lay aside
everything else, and to sit down and make out an account for them, at the
peril of a suit for an account and costs. But the law is not so unreasonable.
He held that while a trustee is required to respond to specific requests
for information, and must open files for inspection, "as a general rule,
the trustee is not obliged to prepare copies of his accounts".(156)
The key to the practical application of the trustee's duty to disclose
is reasonable response to the beneficiaries' requests for information.
In Sanford v. Porter, the court declined to order an accounting because
the trustees had offered to make disclosure in a manner that was satisfactory
under the circumstances. In Re Smith(157),
on the other hand, the court ordered an accounting when the beneficiaries
had made every reasonable effort to obtain the requested information from
the trustees.
We recommend that:
Notwithstanding anything to the contrary in the terms of a trust, if
a beneficiary or other interested party has requested information concerning
the accounts of a trustee, and the trustee has refused to comply with the
request in a reasonable and timely manner, the court may order the trustee
to pass accounts.(158)
Application to court for advice and
direction
Section 79 of The Saskatchewan Trustees Act permits trustees to apply
to the court for "advice or direction":
79.- (1) A trustee, guardian, executor or administrator
may, without the institution of an action, apply in court or in chambers
in the manner prescribed by rules of court for the opinion, advice or direction
of a judge of the court of Queen's Bench on any question respecting the
management or administration of the trust property or the assets of a testator
or intestate.
(2) The trustee, guardian, executor or administrator acting upon the
opinion, advice or direction given by the judge shall be deemed so far
as regards his own responsibility to have discharged his duty as trustee,
guardian, executor or administrator in the subject matter of the application,
unless he has been guilty of fraud, wilful concealment or misrepresentation
in obtaining the opinion, advice or direction.
This provision, like its analogs in other provinces, is based on legislation
adopted in England in the mid-Nineteenth Century.(159)
Note that section 79 applies to executors and administrators, which it
would do in without specific reference to them because the Act defines
"trustee" to include an executor or administrator, and to guardians, who
would not otherwise be included.
Waters suggests that the power to seek advice and direction "has proved
to be one of the most important to all trustees".(160)
It is a way for trustees to determine whether they are carrying out their
duties and properly exercising their powers in difficult cases, and thus
avoid disputes with the beneficiaries. In addition, it has proved to be
a useful mechanism for resolving deadlock between the trustees.(161)
Section 79 and the Rules of Court adopted to complement it (162)
create a broad jurisdiction to give direction and advice. Underhill, summarizing
the older authorities, stated that "almost any question of construction
or administration can now be decided" except matters that would amount
to determining whether a breach of trust has occurred, and adjudication
of the rights of parties claiming "adversely to the settlement."(163)
These are matters that are properly resolved by litigation rather than
an application for advice and direction. The more recent authorities have
also made it clear that the courts will not tell trustees how to exercise
their discretion. The court will tell trustees what they may or may not
do under a power granted to them, but will not make the choice between
acceptable options.(164) Nor will the
court look favourably on an application, with intendant costs to trust,
for direction from an overly cautious trustee who should have been able
to resolve the matter without the court's help.(165)
These self-imposed limits on the jurisdiction of the court are appropriate.
The settlor has appointed the trustees to administer the trust and exercise
their judgement and discretion. An application to court for advice and
direction should not be an opportunity to turn the trustees' responsibility
over to the court.
We are of the opinion that the courts should be left to determine the
limits of their discretion to give advice and direction. However, there
is a problem that should be addressed. It has been held that the Rules
of Court permit the court to give advice and direction in some cases that
would fall outside the scope of statute.(166)
Thus, for example in Re Tecumseh Public Utilities Commission and McPhee,
the court held that the Ontario Trustee Act did not allow the court to
determine the rights of the parties on an application for advice and direction,
but that the Rules of Court did.(167)Although
it may be that the Rules of Court can be construed as dealing with only
the jurisdiction of the court, there is at least a defacto overlap here
between procedure and substance. In our opinion, the scope of the court's
authority on applications for advice and direction should be comprehensively
identified in the statute.
Rule 452 of the Saskatchewan Rules of Court provides, in part, that
on originating notice, the court may "determine any of the following matters":
(ii) the administration of the trust;
(iii) any question affecting the rights or interests of a person claiming
to be a creditor, devisee, legatee, next of kin, or cetui que trust;
(iv) the ascertainment of any class of creditors, legatee, devisee,
next of kin, or others; . . .
(vii) directing the executors, administrators, or trustees to do or
abstain from doing any particular act . . . .
We recommend that these matters should be included in the statutory
provision governing applications for advice and direction. Section 79 should
therefore be replaced by a provision that provides that:
(1) A trustee or guardian may apply to court for the opinion, advise
and direction of the court on any question respecting the management or
administration of the trust or estate, including any question affecting
the rights or interests of a person or class of persons claiming to be
interested in the trust or estate.
(2) Upon an application under Recommendation (1), the court may direct
the trustee or guardian to do or abstain from doing any particular act
respecting the management or administration of the trust or estate
(3) Unless a trustee or guardian has been guilty of fraud, misrepresentation,
or wilful concealment in obtaining the opinion, advise and direction of
the court, a trustee or guardian acting upon the opinion, advise and direction
of the court shall be deemed to have discharged his or her duty as a trustee
or guardian in respect to the matter on which the opinion, advise and direction
was sought.(168)
One other matter relating to applications for advice and direction should
be briefly considered. The court has no authority on an application for
advice and direction to enlarge the powers of trustees. In the United States,
the situation is different. The Uniform Trustees' Powers Act permits the
court to authorise "any act which a prudent person would perform for the
purposes of the trust".(169) The Ontario
Law Reform Commission recommends adoption of a similar provision.(170)
We see no need for such a provision. The statutory powers granted to
trustees under our proposals are intended to be broad and comprehensive.
If a settlor has excluded some of these powers, we do not believe that
his or her decision should be overturned on a routine application to court.
It should be noted that the American trust law regime does not include
anything equivalent to Commonwealth variation of trusts legislation. Under
this legislation, the terms of a trust can be changed by the court, but
only if the court is satisfied that it is in the interests of the beneficiaries
to do so. In our opinion, this is sufficient to cover any case in which
an expansion of trust powers is necessary.
Payment of trust funds into court
It was common practice until the late Nineteenth Century for trustees
to pay trust funds into court is response to allegations of wrong doing
on their part. In these cases, the court would assume responsibility for
the trust at least until the dispute had been disposed of. (171)
Because of the cost and inconvenience it caused the courts, this practice
was discouraged by the courts after reform of procedure in Equity provided
alternatives. In 1906, Underhill warned that " now that most questions
of doubt or difficulty can be decided on originating summons, the right
of paying money into court can only be used with safety in very rare cases".(172)
The right to pay trust funds into court was codified in the Trustee
Act, 1893.(173) This provision found its
way into the Saskatchewan Trustees Act as section 56:
56- (1) Trustees or the majority of trustees having in their
hands or under their control money or securities belonging to a trust or
to the estate of a deceased person may pay the same into the Court of Queen's
Bench, and the same shall subject to the rules of court be dealt with according
to the orders of the Court of Queen's Bench.
(2) The receipt or certificate of the proper officer shall be a sufficient
discharge to trustees for the money or securities paid into the court.
(3) Where moneys or securities are vested in any persons as trustees
and the majority are desirous of paying the same into court but the concurrence
of the others cannot be obtained, the Court of Queen's Bench may on application
ex parte order payment into court by the majority without the concurrence
of the others; and, where any such moneys or securities are deposited with
a banker, broker or other depositary, the court may on application ex parte
order payment or delivery of the moneys or securities to the majority of
the trustees for the purpose of payment into court, and every transfer,
payment and delivery made in pursuance of the order shall be valid and
take effect as if the same had been made on the authority or by the act
of all the persons entitled to the moneys and securities so transferred,
paid or delivered.
There now seems to be no good reason for retaining this provision.
Remuneration of trustees and indemnification
for expenses
1. Remuneration
Equity regarded remuneration of trustees for the services they perform
as a potential conflict of interest, a temptation, as Waters observed,
to a trustee "to work up his fees from the trust rather than place first
the best interests of the trust.(174)
This is still the law in England. Trustees may receive remuneration only
if the trust instrument provides for it, or all the beneficiaries consent.
"Charging clauses" for this purpose have become a standard part of English
trust documents. Canada, following American practise, has taken a different
approach. An Ontario statute adopted in 1858 authorized the courts to allow
trustees to receive remuneration.(175)
Legislation passed on the Ontario model has been adopted in all Canadian
provinces.
The Saskatchewan Trustees Act provides:
80.- A trustee under a deed, settlement or will, an executor
or administrator, a guardian appointed by a court and a testamentary guardian
or other trustee, howsoever the trust is created, is entitled to such fair
and reasonable allowance for his care, pains and trouble and his time expended
in and about the trust estate as may be allowed by the Court of Queen's
Bench or a judge thereof or by an officer thereof to whom the matter may
be referred.
81.- A judge of the Court of Queen's Bench may, on application
to him for the purpose, settle the amount of such compensation although
the trust estate is not before the court in an action.
82.- (1) A judge of Her Majesty's Court of Queen's Bench for
Saskatchewan may allow to the executor or trustee or administrator action
under a will or letters of administration a fair and reasonable allowance
of his care, pains and trouble and his time expended in or about the executorship,
trusteeship or administration of the estate and effects vested in him under
the will or letters of administration and in administering, disposing of
and arranging and settling the same and generally in arranging and settling
the affairs of the estate and may make orders form time tot time therefor,
and the same shall be allowed to an executor, trustee or administrator
in passing his accounts.
(2) Where an application is made for an order dispensing with the passing
of accounts, the judge may, by the same order, grant an allowance pursuant
to subsection (1).
83.- Sections 80, 81, and 82 do not apply where the allowance
is fixed by the instrument creating the trust.
84.- Where a solicitor is trustee, guardian or personal representative,
and has rendered necessary professional services to the estate, regard
may be had, in making his allowance, tho that circumstance, and the allowance
shall be increased by such amount as may be deemed fair and reasonable
in respect of those services.
The perhaps somewhat prolix language of these provisions is a product
of accretion over time. Originally, it was the practice to have remuneration
set when trust accounts were passed. Section 81 seems to have been adopted
to permit an application for the express purpose of approving remuneration
prior to passing of accounts, or when accounts are not passed. Section
84 was required to counter the rule adopted by the English courts in Cradock
v. Piper,(176) which prohibited a solicitor
who is trustee from charging for professional services to the trust except
in regard to litigation.
The core of the remuneration provisions is the entitlement to a "fair
and reasonable allowance for . . . [the trustee's] care, pains, and trouble
and for his time expended" in administration of the trust. It is usually
the practice to allow compensation based on a percentage of capital and
income.(177) However, the language of
section 80 makes it clear that compensation must be proportionate to the
work actually done by the trustees, so that a large estate does not necessarily
justify a large fee.(178)
The Commission has found no evidence that the present method of approving
remuneration is inadequate. The substance of sections 80-84 should be retained,
though the language can be simplified.(179)
However, both the Ontario Law Reform Commission and the British Columbia
Law Institute have reviewed the law and practice relating to trustees'
remuneration. Two matters discussed by these law reform agencies deserve
consideration.
Section 83 permits the court to fix remuneration only if the trust instrument
does not do so. There is a danger in pre-setting compensation, particularly
by will. The compensation may appear adequate when the will is drafted,
but be less than reasonable when the will takes effect, perhaps decades
after it was drafted. The British Columbia Institute of Law Reform recommends
the court should be able to revise the compensation scale in such cases.
The institute proposes that:
7.(a) The Trustee Act should be amended to provide that on application,
the court may vary a term of a will or instrument creating a trust that
fixed the remuneration of a trustee (other than by contract), if that term
does not provide for sufficient remuneration. Where the court varies such
a term, it may fix the remuneration the trustee should receive at the level
the court considers appropriate, subject to the other provisions of the
Trustee Act.
(b) The amendment referred to in Recommendation 7(a) should not extend
tot he variation of a contract between a settlor or testator and a trustee
extraneous to the trust instrument or will, whether or not the contract
is incorporated by reference in the instrument or will.(180)
Note that the proposal is designed primarily for executors who were
not consulted when the remuneration clause was drafted. It is not intended
to allow professional executors who negotiated or insisted upon a fixed
fee for services to seek an increase in remuneration. We recommend adoption
of a similar provision in Saskatchewan.(181)
Both the British Columbia Institute and the Ontario Law Reform Commission
also recommend that trustees should be permitted to collect compensation
before court approval has been obtained. This practice, known as "pre-taking"
of remuneration is not expressly prohibited by The Trustees Act. It appears
to be the usual practice in some jurisdictions, and has recently been approved
by the courts in Ontario.(182). In Western
Canada, the practice has generally been frowned upon.(183)
As Waters notes, "in all cases should the trustee assume later court
approval, he runs the grave risk that such approval might not ultimately
be forthcoming".(184) Nevertheless, the
Ontario Law Reform Commission argued that it is reasonable for trustees
to receive compensation during the course of administration of the trust,
particularly if the trust may not be wound up and accounts passed for a
considerable time. While a separate application for approval of remuneration
may be made, the Commission noted that a definitive calculation of fees
on the usual percentage basis may not be possible until the final accounts
are prepared. In addition, pre-taking avoids the cost of a separate application
to set compensation.(185)
We are of the opinion that the arguments advocated by the Ontario Law
Reform Commission are persuasive. We are also impressed by the fact that
the courts rarely deny compensation to a competent trustee, and that the
method of calculating compensation is predictable enough to allow a reasonable
estimate of fees.
The British Columbia Institute drew upon the Ontario proposal in formulating
its recommendation in regard to pre-taking of compensation. The Institute
recommended:
3.(a) The Trustee Act should allow a trustee to receive fair and reasonable
remuneration for services already rendered, without previous court authorization.
(b) A trustee intending to take remuneration without previous court
authorization, though the be minor, unborn or incapacitated beneficiaries,
should be required to give notice, with full details of the remuneration
sought and of the services to which it relates, to adult ascertained beneficiaries.
(c) The notice given under paragraph (b) should state that the recipient
of the notice may object to the proposed taking of remuneration within
a stated period, which should not be less than 60 days from the date of
the notice.
(d) Anyone entitled to notice under proposal 2(b) who objects to the
remuneration proposed, should be entitled to apply to the Supreme Court
within the period stated in the notice to fix the remuneration, if any,
that the trustee should receive.
(e) If a person entitled to notice makes an application under proposal
2(d), the trustee should be prohibited from taking remuneration until the
Supreme court has disposed of the application.
(f) If the trustees' remuneration, as finally decided by the court,
is less than the aggregate of the amounts previously obtained by the trustee
without court authorization during the administration of the trust, the
trustee should be liable to repay the balance to the trust. (186)
We recommend that a similar provision should be adopted in Saskatchewan.(187)
2. Indemnification for Expenses
Although equity did not permit trustees to take remuneration, it did
entitle them to be indemnified out of the trust property for expenses incurred
in the course of administration of the trust. The right to indemnification
was given statutory recognition in England as part of a general provision
designed to protect trustees. This provision was adopted in Saskatchewan
as Section 13 of The Trustees Act,(188)
which provides in part that trustees "...may be reimbursed out of the trust
property for all expenses incurred in or about the execution of the trust
or powers."
Indemnification for expenses has not been controversial. The courts
have reserved jurisdiction to determine whether expenses charged to the
trust are reasonable(189) Most of the
reported cases on indemnification have been concerned with determining
whether expenses should be paid out of capital or income.(190)
This issue has been discussed above.
We recommend that the statutory right to indemnification for expenses
be retained. However, it should be severed from the other matters dealt
with in section 13.(191)
Trustees must have the powers necessary to administer the trust. As
Waters observes:
The object of the trustees' administrative powers is to enable them
to manage the trust property, so that they are best able to fulfill the
terms of the trust. The instrument creating the trust is therefore likely
to confer powers upon the trustees which take account both of the nature
and duration of the beneficial interests created.(192)
In the absence of trusts legislation, almost all the powers required
for efficient administration of the trust must be expressly provided in
the trust instrument.
Obviously, administrative powers must be fitted to the particular needs
of the trust. Nevertheless, by the middle of the nineteenth century, certain
basic administrative powers had become a standard part of trust instruments.
One of purposes of nineteenth century trusts legislation was, as Waters
described it, "to reduce the necessary length of trust deeds and wills
by making the most familiar of the then administrative powers statutory,
so that, unless he wished to exclude them, the settlor or testator need
make no specific reference to them."(193)
This exercise in law reform was completed in the Trustee Act, 1893. Most
of the statutory powers in the 1893 Act were copied in Canadian trust legislation,
including the Saskatchewan Trustees Act.(194)
The most important statutory powers included in the 1893 Act related
to trust investments. The trust investment provisions in the Saskatchewan
Trustees Act have recently been substantially revised, and have been discussed
in the last chapter of this Report.(195)
The other statutory powers inherited from English legislation were actually
rather limited in scope. They do not include, for example, a power of sale,
which is now almost universally found in trust instruments. Legislatures
in Canada have added a few powers to the original list. However, the additions
have been piecemeal, dictated by specific local needs. In Saskatchewan,
power to purchase crop insurance, to participate in a grain company or
co-operative, and to dispose of mineral rights, have been added to the
list. In England some additional powers of more general application were
enacted in the Trustee Act, 1925. In Canada, only Manitoba has adopted
the new powers set out in the English act of 1925.
As the Ontario Law Reform Commission has observed
Trusts drafted today are very different from those that were drawn when
the powers contained in the present...[legislation] were first enacted,
and that as a result some of the powers now contained in the act have little
relevance to contemporary circumstances.(196)
Although there does not appear to be any pressing demand from the legal
profession to revise the statutory powers contained in The Trustees Act,
it would clearly be desirable to bring the Act in line with contemporary
realities.
There are two ways in which this goal might be achieved. First, the
list might be modernized by deleting powers that are no longer relevant,
and adding a select few new powers that are now routinely included in most
trust instruments. Waters suggests that the conservatism of statutory lists
of administrative powers is justified. They were adopted on the theory
that the list should only "reflect what all conveyancers would regard as
standard." While some changes might be made, Waters appears to doubt that
many additional statutory powers would be appropriate. He points to "the
variety of subject matter involved in commercial trusts", and notes that
income tax legislation now often requires "the drafting of administrative
powers to accommodate the particular trust in its particular tax setting."(197)
We are not convinced by this argument. While it is true that the powers
appropriate in commercial trusts, and even in family trusts designed for
specific tax purposes, can hardly be reduced to a standard list, we believe
it is important to recognize that the great majority of trusts in Saskatchewan
are relatively simple testamentary trusts. Usually, these trusts establish
a fund to provide for the testator's family until the children are adults,
and then distribute the fund to the beneficiaries. The powers required
under trusts of this sort are in fact relatively standard. If a problem
arises in regard to trust powers, it is most often the result of failure
to include a power that has proved to be necessary. In our opinion, most
trusts drafted in Saskatchewan would benefit from access to a broad range
of standard statutory powers, encompassing matters which are now often
included in properly drafted trust instruments. The list would include
power to sell, lease, or mortgage trust property, power to carry on a business,
and other matters routinely required to manage trust property. If a testator
or settlor did not want to entrust his trustees with the full range of
powers, some of them could be expressly excluded. But in the usual case,
they would be available when required even if they were not set out in
the trust instrument.
This approach to statutory powers was adopted in the New Zealand Trustee
Act, 1956, and has been copied in the Western Australia Trustees Act, 1962
and the Queensland Trusts Act 1973. In the United States, the Uniform Trustees'
Powers Act , adopted in 1964, also includes a comprehensive list of statutory
administrative powers. A similar approach has been recommended by the Ontario
Law Reform Commission.
We agree with the Ontario Commission that reform of statutory administrative
powers should follow two principles:
First, we believe that the statutory list should comprehend those administrative
powers that are likely to be useful in the execution of common trusts.
Secondly, we consider that each power should be relatively simple in concept
and briefly expressed.(198)
In the remainder of this chapter, the powers we believe should be included
in a comprehensive statutory list will be discussed. In preparing this
list, we have followed the Ontario Law Reform Commission's recommendations
as closely as possible. It is, in our opinion, the most complete of the
comprehensive list models, and has the advantage that it drew on its predecessors.
Some of our recommendations depart significantly from the Ontario proposals,
however.
We have thought it appropriate to include in our proposed list all powers
that will useful in the administration of the majority of family trusts
in Saskatchewan. It is necessary, therefore, to continue to allow settlors
and testators to exclude any power that is unwanted, or unnecessary in
the circumstances of the trust.(199) Nevertheless,
none of the proposed powers is apt to prove harmful in any but very special
cases, which would require careful drafting in any event.
Power to sell and otherwise dispose of property
Good management of a trust requires that the trustees be given authority
to sell trust property and re-invest the proceeds as may be required to
preserve the value of the fund and earn a reasonable rate of return on
it. Powers of sale are almost always included in trust instruments, and
the courts have been willing to imply a power of sale from the general
tenor of the trust.(200) Nevertheless,
sale is not an inherent power of trustees. It must be conferred by the
settlor or implied from the trust instrument.
At the time when English trusts legislation was first adopted, it was
common practice to insert a power of sale in many types of trust instruments.
However, a power of sale was withheld from trustees under settlements of
land: One of the principal objects of settlements was to preserve the family's
landed wealth from generation to generation.(201)
Likely for that reason, 19th Century English trusts legislation
did not enact a statutory power of sale, though the Settled Estates Act,
1877 did allow trustees of land to sell with court approval. Similar Settled
Estates Acts were adopted in Ontario, British Columbia, and New Brunswick.
But since the Saskatchewan Trustees Act is based on the Trustee Act, 1893,
even the concession made in settlements legislation did not become part
of our law.
Because a power of sale is now almost always included in trust instruments,
the lack of a statutory power of sale is not often a problem. Nevertheless,
there is no reason why drafters of modern trusts should continue to be
required to insert a power of sale. Power of sale has been included among
the enumerated statutory powers in all recent legislation that has adopted
the comprehensive list approach.
As a practical matter, creation of a statutory power of sale is attractive
because it offers an opportunity to ensure that the power is comprehensive.
The authorities on the scope of standard powers of sale are incomplete.
Thus, for example, it has been held in Ontario that a bare power of sale
confers authority to exchange properties(202),
but there is no authority allowing trustees with such a power to agree
to partition and sale of trust property, or to surrender property when
obligations attached to it have become onerous (203).
Both exchange and partition are included in modern statutory lists of trustees'
powers. The Ontario Law Reform Commission proposes a simple but comprehensive
formula for powers of sale and related powers to dispose of property:(204)
[Subject to the terms of a trust] trustees may. . . :
(b) sell trust property by public auction or private contract for cash
or credit on appropriate security;
(c) dispose of trust property by way of exchange for other property,
or where the trust property consists of an undivided share, concur in the
partition of the property in which the share is held;.
(f) surrender insurance policies, leases or other property subject to
onerous obligations of such a nature that it would not be in the interests
of the beneficiaries to retain the trust property.
Similar provisions should be adopted in Saskatchewan.(205)
Prior to adoption of trusts legislation in England, there were certain
other problems, most relating to the method and conditions of sale under
the standard terms of powers of sale, that appeared to require a legislative
cure.(206) Most of these problems were
addressed in the Trustee Act, 1893, and adopted as sections 37 and 38 of
the Saskatchewan Trustees Act:
37.-(1) Subject to The Devolution of Real Property Act, where
a trust for sale or a power of sale is vested in a trustee he may sell
or concur with any other person in selling all or any part of the property
either subject to prior charges or not and either together or in lots,
by public auction or by private contract, subject to such conditions respecting
title or evidence of title or other matter as the trustee thinks fit, with
power to vary any contract for sale and to buy in at any auction or to
rescind any contract for sale and to resell without being answerable for
loss.
(2) This section applies only if an as far as a contrary intention is
not expressed in the instrument creating the trust or power and has effect
subject to the terms of that instrument.
38.-(1) No sale made by a trustee shall be impeached by a beneficiary
upon the ground that any of the conditions subject to which the sale was
made may have been unnecessarily depreciatory , unless it also appears
that the consideration for the sale was thereby rendered inadequate.
(2) No sale made by a trustee shall, after the execution of the conveyance,
be impeached as against the purchaser upon the ground that any of the conditions
subject to which the sale was made were unnecessarily depreciatory, unless
it appears that the purchaser was acting in collusion with the trustee
at the time when the contract for sale was made.
(3) No purchaser upon a sale made by a trustee shall be at liberty to
make any objection against the title upon the ground aforesaid.
Because the problems these sections were intended to cure arose out
of 19th Century authorities interpreting the powers of sale
then current in trust instruments, they are not likely to arise in regard
to modern statutory powers of sale. None of the jurisdictions that have
adopted the comprehensive list approach to powers have thought that provisions
as elaborate as section 37 and 38 are necessary. Note, however, that the
Ontario Draft Act does refer to sale by auction, a matter dealt with by
section 37, and sale on credit, which is not expressly included in section
37. The latter is obviously necessary in the modern commercial context,
and is included in most of the non-statutory power of sale precedents we
have examined.. The Manitoba Trustees Act also makes provision for sale
on credit, by agreement for sale, or by taking a mortgage back.(207)
Power to lease, grant easements etc.
The Saskatchewan Trustees Act does not include a general power to lease
trust property, though section 42 does authorize lease of mineral rights
with approval of the court. A statutory power to lease is included in trusts
legislation in some other jurisdictions, including the Manitoba Trustees
Act.(208) Similarly, the Saskatchewan
Act does not authorize trustees to renew a lease or sublease trust property.
This power is also included in some trusts legislation, including the Ontario
Trustee Act.(209)
We are of the opinion that trusts legislation should confer broad powers
on trustees to lease property and otherwise deal with leases.(210)
The Ontario Law Reform Commission also recommends adoption of such a statutory
power. However, the Ontario Commission is of the opinion that the power
to lease or sublease property should be limited to short-term leases. It
argues that long-term leases might interfere with the interests of beneficiaries,
who may desire to take property free of the encumbrance of a long term
lease.(211) We do not agree. Long term
leases are little different in practice than sale. They are most often
used in Saskatchewan when sale is not possible. For example, cottage lots
may be leased for terms of 20 to 99 years on land that has not been subdivided
for sale. The statutory power to lease in the Manitoba Trustees Act places
no limit on the term of the lease that may be granted, with no apparent
ill consequences.
Leases are not the only interests in land apart from the fee simple
that trustees may wish to dispose of. Easements, profits a prendre, and
options to purchase fall into this category. Many non-statutory powers
of sale we have examined do not expressly deal with disposal of such interests,
and the need to encompass them may be overlooked when trust instruments
are drafted. The value of a statutory power covering miscellaneous interests
in land is underlined by section 42 of the Saskatchewan Trustees Act. This
section responded to commercial necessity by authorizing trustees to dispose
of mineral rights with court approval:
42.- A judge of the Court of Queen's Bench may by order authorize
a trustee to lease, grant a profit a prendre in respect of or otherwise
deal with or dispose of mines and minerals or sand and gravel forming part
of the trust estate whether the same have already been worked or not and
either with or without the surface or other land, or to grant an easement,
right or privilege of any kind over or in relation thereto.
The requirement of court approval was likely adopted for no reason other
than the fact that English trusts legislation contains no similar power.(212)
The Ontario Law Reform Commission, following the model adopted in Australian
trusts legislation, has proposed a general power to manage, repair, and
maintain trust property that would encompass granting of easements and
profits a prendre in the course of property management.(213)
However, disposal of interests such as these is often more than a mere
incident of property management. The only trusts legislation we have examined
that deals comprehensively with easements, profits a prendre, options to
purchase, and other rights in land is the Manitoba Trustees Act. Section
27 of the Manitoba Act authorizes trustees to grant profits a prendre,
and other rights over land without court approval:
27(1) Where a trust for sale or a power of sale of land is vested in
a trustee, he may at any time grant leases of the land, or of any part
thereof, or of any easement, right, or privilege of nay kind over or in
relation to the land, including mining leases, for any term, and for any
purpose, whether involving waste or not.
(2) A trustee in whom no trust for sale or power of sale is vested may
grant leases, other than mining leases, of any land subject to the trust
for a term which does not exceed three years from the date on which the
lease is made. . . .
The Manitoba Act also allows trustees to grant options to purchase:
28. (1) Where a trust for sale or a power of sale of land is vested
in a trustee, he may at any time, either with or without consideration,
grant by an instrument an option to purchase or take any authorized lease
of the land or any easement, right, or privilege over or in relation to
the land, at a price or rent which is either fixed at the time of the granting
of the option, or can be effectually ascertained at the time of the time
of the exercise of the option by a method which is set forth in the instrument
granting the option. . . .
We recommend that Saskatchewan enact a broad statutory power to grant
easements, profits a prendre, and other rights over land.(214)
Postponing sale
A distinction must be made between a power of sale and a trust for sale.
The former gives trustees a discretionary power to sell trust property.
A trust for sale requires trustees to convert trust property to establish
an investment fund. Trusts for sale are commonly inserted in wills, and
even in the absence of an express trust for sale, executors are usually
required to liquidate the residue.(215)
They are appropriate estate planning mechanisms, but may cause difficulty
if not carefully drafted. If, for example, the trust for sale provision
requires immediate sale, the trustees may be forced to sell when market
conditions would dictate delay.
Waters is of the opinion that
All statutes should confer . . . authority [to postpone sale] upon trustees
with an obligation to sell. It is eminently sensible, may be omitted unless
the draftsman is careful, and prevents the beneficiaries from demanding
sale before the trustees think it wise to sell. (216)
Surprisingly, the only trusts legislation we have examined that includes
a general statutory power to postpone sale is the Manitoba Trustees Act,
which provides:
33(1) Unless a contrary intention is expressed in the will or other
trust instrument, if any, a trustee in whom a trust for sale or conversion,
or a power of sale or conversion, of property is vested may postpone the
sale or conversion of the whole or any part of the property subject to
the trust for such period as is reasonable in the circumstances; and he
may retain the property, or any part thereof, in the form in which it is
invested.
(2) The powers granted under subsection (1) may be exercised by a trustee
notwithstanding that the property subject to the trust, or any part thereof,
is of a kind in which he is not authorized to invest, or is of a hazardous
or speculative nature or does not produce income.
(3) A trustee exercising any of the powers granted under subsection
(1) is not answerable for any loss incurred thereby while acting in good
faith.
(4) Nothing in this section authorizes the postponement of the distribution
of any property beyond the time at which it becomes distributable to, or
among the beneficiaries.
A power to postpone sale should be included in Saskatchewan trusts legislation.(217)
Power to carry on a business
The Saskatchewan Trustees Act contains no statutory power to carry on
a business that is part of the trust property. Until recently, businesses
were not authorized investments. Unless the trust instrument provided otherwise,
it was necessary to sell the business and reinvest the proceeds. Since
revision of the investment powers provisions of The Trustees Act, it may
now be possible in some cases to retain a business as a trust investment,
though this result is not certain .(218)
It is possible that a power to postpone sale, whether contained in the
trust instrument, or created by statute, would allow the trustees to carry
on a business. However, doubt has been expressed that a power to postpone
will be effective for this purpose.(219)
In any event, a decision to carry on a business involves more than simply
postponement of sale: It is a decision to become actively involved in the
management of a business enterprise on behalf of the trust, and to do all
those things required as owners and managers. For that reason, we believe
that a statutory power to carry on a business should be included in trusts
legislation. Such a power has been included among the statutory powers
of trustees adopted in all jurisdictions that have adopted the comprehensive
list approach. The Ontario Draft Act is typical. It provides that :
[Subject to the terms of a trust] trustees may. . . :
(h) carry on any business, whether as sole proprietor, partner, limited
partner or otherwise, incorporate or otherwise change the form of the business,
and dispose of or wind up the business.(220)
We recommend that a similar provision be adopted in Saskatchewan.(221)
Power to improve, maintain and repair trust property
While trustees can no doubt make expenditures to repair and maintain
property in order to preserve its value as a trust asset(222),
in Canada, only British Columbia, Nova Scotia and Prince Edward Island
confer a general power on trustees to repair, maintain and improve trust
property.(223) The statutory power presumably
allows improvements and repairs that might not be strictly required to
preserve trust property.
A general power to improve, maintain, and repair trust property is a
reasonable statutory addition to the powers of trustees. Such a power has
been included among the enumerated statutory powers in all recent legislation
that has adopted the comprehensive list approach. The Ontario Law Reform
Commission recommends that:(224)
[Subject to the terms of a trust] trustees may. . . :
(f) manage, maintain, repair, renovate, improve or develop trust property,
including in the case of land, subdividing, erecting buildings . . . and
entering into agreements with respect to boundaries, party walls, fencing
or other matters in connection with trust property.
A similar provision should be adopted in Saskatchewan.(225)
Purchase of a dwelling
It was until recently the common practice to include a power to invest
in land in trust instruments. Since the statutory investment power now
permits any prudent investment, such an express power is no longer necessary.(226)
However, a power to invest in land does not appear to permit purchase a
dwelling house for a beneficiary. It has been held that an express power
in a testamentary trust to invest in land did not allow purchase of a house
for the testator's widow and children because the house would not be an
income-earning investment.(227) Similarly,
purchase of a house for beneficiaries is unlikely to qualify as a prudent
investment under The Trustees Act.
The most common trusts in Saskatchewan are established to provide for
the families of testators. Such trusts usually provide for maintenance
out of family income, and often permit the trustees to retain the family
home. If the beneficiaries do not stay in the family home, rental accommodations
can be paid for out of trust income. It is less common to anticipate the
possibility that a new home might be purchased, either for he entire family,
or for one of its members. We are of the opinion that a statutory power
to purchase, rent, or erect accommodations for income beneficiaries should
be enacted. A statutory power to purchase a dwelling house has been included
in recent Australian trusts legislation, and recommended by the English
Law Reform Committee.(228) The New Zealand
Trustee Act also permits rental and erection of homes. The Ontario Law
Reform Commission(229) follows the New
Zealand lead:
[Subject to the terms of a trust] trustees may. . . :
(k) purchase or rent a living accommodation or construct a house on
land held by them for the purpose of providing a home for person entitles
to the income of the money expanded in respect of the purchase, or the
income to be expanded in respect of the rent or the income of either the
land or the money expanded in respect of the purchase or construction,
if in any case under this clause, the person for whom the living accommodation
is provided consents thereto.
A similar provision should be adopted in Saskatchewan.(230)
Note, however, that the Onario recommendation would require the consent
of the person for whom the dwelling is purchased or rented. We do no believe
this is necessary or appropriate. In some cases, a beneficiary who is unable
to consent because of mental incapacity may benefit if the trustees were
authorized to rent accomodation in a suitable facility.
Power to distribute trust property in specie
Trust property is normally administered as a fund. If the trust is testamentary,
after specific bequests have been honoured and legacies paid, the residue
is converted to trust investments.(231)
In other cases, unless the trust instrument clearly provides otherwise,
the trustees are required to make appropriate investments to preserve the
trust fund and earn income. The beneficiaries are entitled, when trust
property is distributed, to a share of the fund, not to trust property
in specie. (232)
If the original trust property is still intact when a distribution is
made, there does not appear to be any reason why a distribution in specie
of a particular asset cannot be made if a beneficiary so requests, and
if the request can be complied with without prejudicing the other beneficiaries.
Nevertheless, because distribution in specie is rarely expressly authorized,
trustees may be reluctant to comply with such a request. It is apparently
for that reason that trusts legislation in Australia and New Zealand confers
a statutory power on trustees to distribute property to a beneficiary in
specie, and to value and appropriate property for that purpose. The Ontario
Law Reform Commission has proposed a similar provision.(233)
We recommend that this power should be contained in Saskatchewan trusts
legislation.(234)
Power to insure trust property
Section 45 of the Saskatchewan Trustees Act provides:
45.- (1) It is lawful for but not obligatory upon a trustee to
insure against loss or damage by fire any building or other insurable property
to an amount, including the amount of any insurance already in force, not
exceeding three fourth parts of the full value of the building or property,
and to pay the premiums out of the income thereof or out of the income
of any other property subject to the same trusts, without obtaining the
consent of any person wholly or partly to such income.
(2) This section does not apply to a building or property that a trustee
is bound forthwith to convey absolutely to a cestui que trust upon being
requested to do so.
(3) It is lawful for but not obligatory upon a trustee to insure against
loss or damage by hail, to an amount not exceeding $10 per acre, the crops
growing or to be grown upon any land that he is farming, or that he has
sold or leased on terms made wholly or partly pursuant to The Crop Payments
Act, or to insure those crops, under a contract of crop insurance, against
loss from risks or perils to which they may be exposed; and to pay the
premiums out of the income thereof or of any other property subject to
the same trusts, without obtaining the consent of any perosn entitled wholly
or partly to such income.
This provision is adapted from the English Trustee Act, 1925. The English
Act is restricted to fire insurance, and is the source of the coverage
limit in the Saskatchewan Act. The extension to crop insurance is, of course,
a Saskatchewan addition. Most provinces have similar provisions, but Manitoba
has adopted a more comprehensive approach, allowing trustees to insure
"any loss or damage" to trust property, and has eliminated the coverage
limit.(235)
Power to insure property is obviously desirable. It has been held in
Canada that insuring against fire is usually an obligation of prudent trustees.(236)
There is no longer any reason for excluding insurance for damage other
than fire, and in fact standard insurance policies usually extend to other
forms of property damage. Similarly, the coverage limit should be eliminated.
As Waters notes, "it surely is preferable today for trustees to prove to
have been somewhat overinsured."(237)
A simple, comprehensive statutory power to insure is appropriate. The
Ontario Draft Act provides:(238)
[Subject to the terms of a trust] trustees may. . . :
(g) insure against loss or damage to trust property and against any
other risk or liability.
A similar provision should be adopted in Saskatchewan.(239)
Power to borrow money
The Saskatchewan Trustees Act contains no statutory power permitting
trustees to borrow money for trust purposes. In the past, there was perhaps
some justification for allowing trustees to borrow money only if permitted
to do so by the trust instrument. The principal duty of trustees is protection
of the trust fund. Trustees were expected to invest soundly, and earn income.
Incurring debt could be regarded as inherently risky, incompatible with
the interests of the beneficiaries. But even in the 19th Century,
it was recognized that raising money using trust property as security was
sometimes prudent. Section 64 of the Saskatchewan Trustees Act provides
that an executor or administrator may mortgage trust property to pay estate
debts and legacies.(240)
Contemporary management of trust investments, which may include businesses,
rental properties, and similar properties may require the borrowing of
money as a matter of course. A statutory power to borrow money has been
included among the statutory powers of trustees adopted in all jurisdictions
that have adopted the comprehensive list approach. No restriction is placed
on the power to borrow in these jurisdictions. We agree with the Ontario
Law Reform Commission that this is an appropriate approach. The Commission
observed that "as there are numerous purposes for which trustees should
be entitled to borrow funds, any attempt to list them all might well result
in omission of one or more."(241) We recommend
that Saskatchewan trusts legislation should contain a general statutory
power permitting trustees to borrow funds, with or without giving trust
property as security.(242)
Deposit of trust funds
Section 6 of the Saskatchewan Trustees Act provides:
6.- (1) Pending the investment of any trust money, a trustee
may deposit it, for any period of time that is reasonable in the circumstances,
in:
(a) a chartered bank;
(b) a credit union that is incorporated under The Credit Union Act, 1998 or any former Credit Union Act;
(c) Saskatchewan Co-operative Credit Society Limited;
(d) a trust company that is licensed under The Trust and Loan Companies Licensing Act;
(e) a loan company that is licensed under The Trust and Loan Companies Licensing Act and that is a member of the Canada Deposit Insurance Corporation;
(f) any other body corporate that is empowered to accept moneys for
deposit and that has been approved for that purpose by the Lieutenant Governor
in Council.
(2) Where a trustee, other than a trust company registered and entitled
to transact business as a trust company in Saskatchewan, deposits trust
moneys under subsection (1), he shall open and keep a separate account
in his name in the bank or other depository for each trust for which moneys
so deposited are held.
Apart from extension to include credit unions and trust companies as
well as banks, this section is copied from the Trustee Act, 1893. It has
been adopted throughout common law Canada. Trusts are, of course, older
than wide-spread use of banks as deposit institutions. A bank can be regarded
as an agent to which the management of deposited funds is delegated. Although
the authority of trustees to delegate is limited(243),
by the middle of the 19th Century, the courts were prepared
to allow trustees to deposit funds in the circumstances later codified
in trusts legislation.(244)
Note that section 6 only allows deposit of trust funds pending investment.
Although this limitation is now often ignored in practice, the 19th
Century authorities suggesting that trust funds should not be left on deposit
for longer than six months remain part of the law.(245)
Since revision of the statutory investment powers of trustees, investment
in term deposits and perhaps some other interest-bearing deposits may now
qualify as trust investments(246). Use
of a chequing account to pay bills as they come due is still not authorized.
The limitation in section 6 reflects the cautious approach of the courts
toward use of banks as deposit institutions more than a century ago. It
is no longer appropriate.
The Ontario Law Reform Commission would continue to specify that deposit
"pending investment" is authorized, but would also authorize deposit "for
the purposes of paying the ongoing expenses of the trust". (247)
This allows use of chequing accounts , and codifies the circumstance in
which use of a current account would be prudent. We prefer to leave the
question of whether a particular use of a deposit account is prudent to
the general law governing investments by trustees. This is the approach
adopted in the American Uniform Trustees' Powers Act. Saskatchewan trusts
legislation should confer a general power on trustees to deposit trust
funds in banks and other financial institutions.(248)
Incidental authority to deal with trust property
Section 48 of the Saskatchewan Trustees Act provides:
48.- (1) A trustee or tow or more trustees acting together, or
a sole acting trustee where by the instrument, if any, creating the trust
a sole trustee is authorized to execute the trusts and powers thereof,
may if and as he or they may think fit, accept a composition or any security
real or personal for a debt or for any property real or personal claimed,
and may allow time for payment of a debt and may allow time for payment
of a debt any may compromise, compound, abandon, submit to arbitration
or otherwise settle any debt, account, claim or thing whatever relating
to the testator's or intestate's estate or tot he trust and for any of
those purposes may enter into, give and execute such agreements, instruments
of composition or arrangement and releases and do such other things as
to him or them seem expedient without being responsible for loss occasioned
by any act or thing so done by him or them in good faith.
This section derives from the Trustee Act, 1893, and has been adopted
in all common law provinces except Prince Edward Island. It gives trustees
broad powers to do things that will arise in the course of the management
of trust assets, such as payment of debts, collection of debts, the writing
off of bad debts, and compromising of claims. These powers are merely incidental
to proper administration of trust property, and likely require no sanction
either in statute or in the trust instrument. Writing only a decade after
the Trustee Act, 1893 was adopted, Underhill was already forced to conclude
that it "is by no means clear" that the provision had changed the law.
He suggested that it may have been intended to relieve trustees of the
onus of demonstrating that a decision, for example, to abandon a debt,
was prudent.(249) However, it has been
held that under the section, the burden of justification remains on the
trustee.(250)
Trusts legislation in Australia and New Zealand confer additional incidental
powers required in the day to day administration of trust property. These
cover:
1. Payment of "outgoings" such as taxes and premiums. Once again, these
powers are incidental. According to the long established rule, trustees
are expected to pay normal "outgoings" from trust income.(251)
2. Express authority to exercise rights, powers, and obligations attendant
on ownership of corporate shares. As the Ontario Law Reform Commission
observed, since trustees are vested with the legal title to shares in the
trust portfolio, they are likely entitled to exercise the powers of a shareholder
without express authorization.(252)
3. Authority to do acts and execute instruments that are necessary to
carry out the administrative powers of the trustees.
It might be argued since all the incidental powers discussed above can
likely be exercised by trustees without the support of legislative sanction,
statutory recognition is unnecessary. Nevertheless, a succinct summary
of incidental administrative powers may have a place in a comprehensive
list of statutory powers. This conclusion is perhaps strengthened by the
fact that section 48 has long been part of trust law in Canada. The Ontario
Draft Act provides:
[Subject to the terms of a trust] trustees may. . . :
(i) exercise all rights and powers and satisfy all liabilities incidental
to the ownership of shares or obligations of a corporation, including power
to sell or exercise subscription rights, to exchange the shares and obligations
for other shares and obligations, to join in plans for reconstruction,
reorganization or amalgamation, to enter into pooling or other agreements,
or to authorize sale of the assets or undertaking of the corporation;
(m) pay or assert or contest any claim, and compromise, compound, abandon,
submit to arbitration or otherwise settle any debt, account, claim or thing
relating to the trust or trust property;
(r) do all supplementary or ancillary acts or things and execute all
instruments necessary or desirable to carry out the intent and purpose
of the powers vested in the trustees. (253)
Similar provisions should be adopted in Saskatchewan. We would amend
the Ontario list only by extending the authority to exercise shareholder
rights to include membership rights in a co-operative or credit union.(254)
A somewhat different rationale justifies retention of section 47 of
the Saskatchewan Trustees Act, which empowers trustees to give receipts:
47. The receipt in writing of a trustee for any money, securities or
other personal property or effects payable, transferable or deliverable
to him under a trust or power is sufficient discharge for the same and
exonerates the person paying, transferring or delivering the same from
seeing to the application or being answerable for any loss or misapplication
thereof.
Like section 48, this section derives from the Trustee Act, 1893, and
has been adopted throughout common law Canada. However, the purpose achieved
in this case is clear. Prior to 1893, there was extensive, but rather confusing,
law governing the giving of receipts by trustees. The 1893 Act swept the
old law away, replacing it with a relatively simple formula.(255)
A similar provision has been adopted in all recent legislation that has
adopted the comprehensive list approach. The substance of section 47 should
be retained.(256)
Other powers of trustees contained in
The Trustees Act
There are certain other sections of the Saskatchewan Trustees Actthat
might be included in a comprehensive enumeration of statutory powers, but
which we have concluded are unnecessary.
Section 50 of The Trustees Act provides:
50.- (1) A trustee acting or paying money in good faith under
or in pursuance of a power of attorney is not liable for any such act or
payment by reason of the fact that at the time of the payment or act the
person who gave the power of attorney was dead or had done some act to
avoid the power if this fact was not known to the trustee at the time of
his so acting or paying.
(2) Nothing in this section affects the right of a person entitled to
the money against the person to whom the payment is made, and the person
so entitled has the same remedy against the person to whom the payment
is made as he would have had against the trustee.
This provision was adopted from the English Trustee Act, 1893. Underhill
commented that this enactment "although restricted on its terms to trustees,
is but little more than the general law now applicable to all persons acting
upon the faith of a power of attorney". In addition, the Saskatchewan Powers
of Attorney act now provides protection where an attorney continues to
act after the power of attorney has been terminated.
Section 51 of The Trustees Act provides:
51.- A trustee may become a member of a company or association
formed for the purpose of buying, selling and marketing grain on the non-profit
co-operative plan, and may enter into a contract with the company or association
for marketing all grain grown upon the land of the trust estate through
such company or association, notwithstanding that the contract may provide
for the retention from the purchase price of the grain of a certain sum
or percentage to provide a reserve fund or facilities for handling the
commodities in which the company or association deals.
The general statutory powers recommended above are sufficient to authorize
participation in a grain growers' company or co-operative. Note in particular
that we have recommended that trustees should be empowered to exercise
shareholder rights in corporations and membership rights in co-operatives.
Powers of executors and administrators contained
in The Trustees Act
Sections 61 to 78 of The Trustees Act are contained under the heading
"executors and administrators". These sections do not apply to trustees.
They are properly part of the law of administration of estates, not the
law of trusts.
Although it is common practice to name the same persons "executors and
trustees" under a will, the offices are distinct. As executors, the testator's
representatives pay debts and the distribute property or proceeds from
its sale according to the terms of the will. Once these duties are discharged,
their duty as executors is complete. If the will establishes a trust, the
executors transfer the property comprising the trust to the trustees, or
if they are themselves trustees, undertake administration of the trust
as trustees, not as executors. The powers in this part of The Trustees
Act were designed to assist personal representatives in carrying out their
duties as such rather than as trustees. Section 67, for example, allows
personal representatives to borrow money to pay estate and income taxes.
These provisions appear to have been assembled from a variety of English
statutory sources. They were likely included in The Trustees Act for lack
of better place to put them. In our opinion, they have no place in trusts
legislation. In 1998, many provisions relating to administration of estates
formerly contained in The Surrogate Court Act and other legislation were
consolidated in a new Administration of Estates Act.(257)
Those "rights and liabilities of executors and administrators" contained
in The Trustees Act which need to be retained should be removed to The
Administration of Estates Act.(258)
Since the expanded administrative powers recommended in this report
will apply to personal representatives as well as trustees per se, some
of the sections in this part can be dispensed with. These include:
Sections 61and 62 - power to distrain for rents
Sections 64-66 - power to raise money to satisfy charges
Section 67 -- power to borrow to pay estate and income taxes
Section 71 -- power to convey in pursuance of a contract made by the
deceased.
Section 73 vests the powers of personal representatives in their survivors
if one of their number dies. We recommend below adoption of a similar provision
applying to trustees as well as personal representatives.
Dispositive powers of trustees
The power discussed above are "administrative powers", necessary for
the management of trust property. They are distinct from, and quite different
in kind from "dispositive powers". Waters defines a dispositive power as
[A] power or discretion to allocate or distribute trust property to a beneficiary
of a trust." He recognizes four common dispositive powers: The power of
maintenance, the power of advancement, the power of appointment, and discretionary
trusts.(259)
Two of these present no particular difficulty. A power of appointment
is authority to vest property in an individual, usually a member of a class
identified in the trust instrument. Under the terms of a discretionary
trust, the trustees have an absolute discretion as to the amount of income
or capital a beneficiary is to receive. Both are useful for certain estate
planning purposes(260), but neither requires
either statutory sanction or regulation. The powers of maintenance and
advancement, on the other hand, have attracted the attention of legislators.
A power of maintenance is the authority to apply income to the maintenance
of a beneficiary whose maintenance needs are not met by the express terms
of the trust. As Waters notes: "essentially the situation is one where
a person will or may take beneficial possession of property tomorrow, but
today has needs which he has no other resources to meet."(261)
The courts have an inherent jurisdiction to authorize maintenance of minors,
but a statutory power of maintenance was created by the English Trustee
Act, 1860. Saskatchewan inherited this provision, but has revised it substantially
to expand both the statutory power and the power of the courts, . The Saskatchewan
Trustees Act now provides:
52.- Where property is held by trustees in trust for an infant, either absolutely or
contingently they may at their sole discretion pay to the guardians, if any, of the
infant or otherwise to apply for or towards the maintenance or education of the
infant the whole or any part of the income to which the infant may be entitled in
respect of that property, whether or not there is a fund applicable to the same
purpose or any other person bound by law to provide for such maintenance or
education; and the trustees shall accumulate all the residue of the income by way of
compound interest by investing it and the resulting income thereof from time to
time in proper securities for the benefit of the person who shall ultimately become
entitled to the property from which the accumulation has arisen:
Provided that such trustees may at any time, if it appears expedient, apply the
whole or any part of the accumulations as if the same were part of the income
arising in the then current year.
53-(1) Where:
(a) a sum of money is held by an executor or administrator in trust for an
infant either:
(i) absolutely;
(ii) contingently on his attaining the age of eighteen years; or
(iii) contingently on the occurrence of an event prior to his attaining the
age of eighteen years;
(b) the fund would be available for distribution to the infant but for his
infancy; and
(c) the income from the fund or any other property is insufficient for the
maintenance and education of the infant;
the executor or administrator may, subject to subsection (2), by order of a judge of
Her Majesty's Court of Queen's Bench for Saskatchewan acting at the judicial
centre at which probate or administration was granted, to be obtained ex parte, or
upon such notice as the judge may direct, pay to the guardian, if any, of the infant
or otherwise apply for or towards his maintenance or education the whole or any
part of the fund.
(2) In addition to the amounts authorized by the court to be applied towards the
infant's maintenance and education, the court may authorize application of any
additional amounts that are, in its opinion, required to meet special circumstances
or expenditures in the best interests of the infant.
54.- (1) Where personal property is held by trustees in trust for an infant absolutely
or contingently on his attaining the age of eighteen years or on the occurrence of an
event previously to his attaining that age, and where the income from the property
is insufficient for the maintenance and education of the infant, the trustees may, by
leave of a judge of the Court of Queen's Bench, to be obtained in a summary
manner, sell and dispose of any portion of the property and pay to the guardians, if
any, of the infant, or otherwise apply for or towards his maintenance or education,
the whole or any part of the money arising from the sale.
(2) If the whole of the money arising from the sale is not immediately required for
the maintenance and education of the infant, the trustees shall:
(a) from time to time invest the surplus moneys and the resulting income
therefrom in proper securities; and
(b) apply such moneys and the proceeds thereof from time to time for the
maintenance and education of the infant; and
(c) hold all the residue of the moneys and interest thereon not required for
such maintenance and education for the benefit of the person who shall
ultimately become entitled to the property from which the moneys and
interest have arisen.
Section 52 permits trustees to provide maintenance out of income; Sections
53 and 54 allow encroachment on capital with the Court's permission. Saskatchewan
has the most comprehensive legislation governing the power of maintenance
of infants in Canada. The substance of sections 52-54 should be retained.
However, because the provisions were adopted at different times, their
language and structure are inconsistent. They would benefit from redrafting.(262)
Alberta(263) and Prince Edward Island
extend the power of maintenance to adults. A statutory power of maintenance
for widows might once has been justified, but in hardly necessary since
adoption of matrimonial property legislation, which gives the surviving
spouse access to the capital of the estate. A power of maintenance might
be applied for the benefit of a handicapped adult, but might jeopardize
entitlement to other benefits(264). We
do not recommend extending the power of maintenance to adult beneficiaries.
A power of advancement is similar to a power of maintenance, but allows
the trustees to advance capital to a beneficiary to take advantage of "some
opportunity that will further him in life".(265)
The court has an inherent jurisdiction to approve an advancement. The English
Trustee Act, 1925(266) and the Manitoba
Trustee Act(267) both include a statutory
power of advancement. The power of maintenance in the Saskatchewan Trustees
Act contains what amounts to a limited power of advancement with court
approval. Sections 53 and 54 permit advancement of capital for education
of an infant, and section 53 also allows advancement of funds to provide
for "special circumstances". We agree with the Ontario Law Reform Commission
that statutory powers of advancement are difficult to justify(268).
In the case of minor beneficiaries, the limited power of advancement contained
in the Saskatchewan Act is adequate. If a settlor has purposefully designed
a trust to postpone distribution of capital to an adult beneficiary, exercise
of a statutory power of advancement would undermine the settlor's intention.
In such cases, an application under the Variation of Trusts Act would be
an appropriate mechanism to determine whether the terms of the trust should
be altered.
Trust law must provide some mechanism for removing and replacing trustees.
A trustee may die. The trust may prove more difficult and time-consuming
to administer than the trustee imagined when the appointment was accepted.
Occasionally, a trustee may become incompetent or otherwise unable to carry
out his or her duties in an acceptable manner. In contemporary practice,
most non-commercial trusts operate for only a few years, diminishing the
likelihood of a problem. But trusts that endure for decades are not rare.(269)
In such cases, the odds are that some change in the trustees will be required
before the trust has run its course.
The courts have always possessed a broad inherent jurisdiction to appoint
and remove trustees. Rules devolving the office of trustee on the survivors
when there is more than one trustee, or on the personal representative
of a deceased sole trustee, have long been established. But until trusts
legislation was enacted in nineteenth century England, trustees could not
otherwise be replaced unless the trust instrument provided a mechanism
for that purpose. It became the common practice to give the trustees themselves,
or some other person nominated in the trust instrument, authority to remove
and replace trustees who desired to retire or had become incapable of acting.
One of the purposes of English trusts legislation was to make it unnecessary
to include this power in trust instruments. Non-judicial appointment of
trustees was first permitted in the Trustee Act, 1860. Some additional
provisions relating to appointment and removal of trustees were included
in the Conveyancing Act, 1881. The final nineteenth century rendition of
these statutory powers was enacted in the Trustee Act, 1893. The provisions
in the Saskatchewan Trustees Act governing appointment and removal of trustees
are based on the English Act of 1893, and have not been substantially changed
since they were originally adopted.
The Saskatchewan Trustees Act appears to provide comprehensive coverage
of appointment and removal of trustees. Section 14 deals with the power
of the court to appoint new trustees. Sections 15-16 and 19 provide for
non-judicial replacement of trustees, and section 20 allows retirement
without replacement in some cases. Sections 18, 22 and 39 apply when a
trustee dies. Sections 17 and 35 specify the powers of new trustees. Vesting
of trust property in new trustees when a non-judicial appointment is made
is governed by Section 21. Sections 27 to 33 provide for vesting of trust
property by court order.
Unfortunately, the comprehensiveness of these provisions is illusory.
Despite the fact that appointment and removal of trustees accounts for
nearly one third of the provisions in the Saskatchewan Trustees Act, it
fails to create a practical mechanism for this purpose. The Ontario Law
Reform Commission found that the statutory non-judicial powers of appointment
and removal of trustees "are rarely employed in Ontario".(270)
Our inquiries suggest that this is also the case in Saskatchewan.(271)
In practice, the assistance of the court is almost always sought because
of uncertainty about the validity of replacements made using the non-judicial
mechanism.
Part of the problem is the confusing and often repetitive way in which
the replacement and removal provisions are set out in the Act. For reasons
that are obscure, many of the appointment and removal provisions are grouped
in the act under the heading "Rights and Liabilities of Trustees". Some
of the provisions relating to the powers of new trustees (e.g. Section
17) are included under this heading, while others (e.g. Section 35) appear
later in the Act under the heading " Powers of New Trustees". The jurisdiction
of the court to replace and appoint trustees is contained in Section 14,
but what appears to be an alternative is contained in Sections 85 and 86
of the act under the heading " Judicial Trustees".
The Victorian draftsmen who prepared the 1893 Act inserted only those
provisions thought necessary to supplement the general law of trusts. The
legislation does not comprehensively codify the law relating to appointment
and removal of trustees. Today, the omissions left by partial codification
are confusing, and even misleading. For example, the Saskatchewan Act includes
extensive provisions relating to vesting orders for real property and choses
in action, but recourse to the inherent jurisdiction of the court is required
to vest other personal property. Similarly, Section 14 fails to provide
for removal of a trustee without the appointment of a successor, though
the court will do so under its inherent jurisdiction. In some cases, the
confusion seems to have been compounded by the way in which Saskatchewan
legislators adapted the English model. Thus, for example, a straightforward
reading of the Act suggests that non-judicial replacement of a personal
representative is possible under section 15. But it is established law
that executors and administrators can only be removed by the court, and
section 15 has never been used to replace executors and administrators.
The most important deficiencies in the legislation have to do with uncertainty
about the effect of non-judicial appointment. Trustees must be able to
demonstrate that they have been validly appointed and that the trust property
has vested in them. At present, a person purchasing trust property must
satisfy himself or herself that the appointment of the trustees was made
in conformity with the Act and trust instrument. The Ontario Law Reform
Commission suggests that this is the main reason why the certainty provided
by judicial appointment and judicial vesting orders is preferred.
In England, the appointment and removal provisions in the Trustee Act,
1893 were revised and clarified by the Trustee Act, 1925. The English Act
of 1925 has been widely copied in the Commonwealth, particularly in Australia
and New Zealand. However, in Canada these reforms have been adopted only
in Manitoba. The Trustee Act, 1925 was a major improvement, but did not
eliminate all the problems inherited from the older legislation. A more
complete over-haul of legislation governing appointment and removal of
trustees has been proposed by the Ontario Law Reform Commission.
We are of the opinion that the appointment and removal provisions in
the Saskatchewan Trustees Act require thorough revision. Our goal is to
clarify and simplify the law. The changes we recommend clarify the existing
law, and in few cases extend it to better reflect contemporary needs and
practice.
A major goal of reform should be to make non-judicial appointment and
removal a practical alternative to judicial appointment. As the Ontario
Law Reform Commission suggested, "judicial application . . . involving
time and expense to the trust, should be discouraged . . . and non-judicial
appointment and discharge encouraged." (272)
This is in fact no more than the drafters of the Trustee Act, 1893 sought,
but at a time when the cost of applications to court is an increasing concern,
it is an even more attractive and necessary goal than in the past.
The general rules applicable when a trustee dies are reasonably clear.
When one of a number of trustees dies, the surviving trustees take full
responsibility for the trust, and title to the trust property automatically
vests in them. On the death of a sole trustee, the personal representative
of the deceased becomes trustee in his or her place. Both rules reflect
the policy of equity to ensure continuity in the administration of trust
property. But despite the apparent simplicity of these rules, they are
not entirely satisfactory. Their origin antedates enactment of trustee
legislation. They were modified by provisions in the English Trustee Act,
1893 which were subsequently adopted in Saskatchewan. Statutory intervention
did not resolve some uncertainty about the scope of the rules.
1. The survivorship rule
Trustees hold legal title to the trust property as joint tenants. At
common law, all joint tenancies are subject to the survivorship rule. Thus
title to trust property vests in the surviving trustees when one of their
number dies. However, it was not entirely clear prior to statutory intervention
that transmission of the legal title to trust property also gave the surviving
trustees full authority to administer the property as trustees.(273)
For this reason, section 22 of the Trustee Act, 1893 provided that surviving
trustees acquire "every power given to trustees which enables them to deal
with or affect the trust property". The English provision applied to transmission
of the office of trustee, executor and administrator. It was copied by
most Canadian jurisdictions, but for reasons which are now obscure, the
Saskatchewan Trustees Act, unlike the English model and other Canadian
counterparts(274), applies the statutory
rule only to executors and administrators:
73. Where there are several executors, administrators, or administrators
with will annexed and one or more of them die, the powers thereby created
shall vest in the survivor or survivors.
While this oversight does not appear to have generated any litigation
in Saskatchewan, it should obviously be corrected. In England, the powers
of surviving trustees are now governed by the English Trustee Act, 1925:
6(1) Where a power in a trust is given to, or imposed on, two
or more trustees jointly, it may be exercised or performed by the survivors
or survivor of then for the time being.
A similar provision should be adopted in Saskatchewan(275)
.
2. Death of a sole trustee
At common law, the personal property of a deceased person vested in
his or her personal representative. In consequence, legal title to trust
property passed to the executor or administrator of a deceased sole trustee.
However real property devolved directly on the deceased's heirs or devisees.
Thus the heir of a sole trustee of real property would usually become the
new trustee. The distinction between devolution of real property and succession
to personal property was abolished by a series of nineteenth-century enactments.(276)
Each change in devolution law was mirrored by a change in trusts legislation.
Underhill described the process as "even more half-hearted and complex
than is usual with the attempts of Parliament to amend our property law."(277)
The last effort of Victorian legislators was enacted in the Trustee Act,
1893, and adopted without change in the Saskatchewan Trustees Act:
22. Where an estate or interest of inheritance in real property
is vested on an express trust in a person solely, the same shall on his
death, notwithstanding any testamentary disposition, devolve to and become
vested in his executor or administrator in like manner as if the same were
personal estate vesting in him and, accordingly, all the like powers for
one only of several joint executors or administrators as well as for a
single executor or administrator and for all the executors and administrators
together to dispose of an otherwise deal with the same, shall belong to
the deceased's executor or administrator with all the like incidents but
subject to all the like rights, equities and obligations as if the same
were personal estate vesting in him, and for the purposes of this section
the executor or administrator of the deceased shall be deemed in law his
heirs and assigns within the meaning of all trusts and powers.(278)
This example of Victorian drafting is far from satisfactory. As Waters
observes, the section "merely say[s] that trust realty shall vest in the
personal representatives as personalty vests in those representatives."(279)
Logically, it would seem that devolution of estates legislation necessarily
implied as much. Perhaps legislators thought clarification was required
because of the uncertainty created by the confusing way in which the law
of devolution of estates was reformed. If that is the case, section 22
is no longer necessary.
What the section does not do is as important as what it does. It does
not explicitly confer trust powers on the personal representatives of trustees.
As noted above, the drafters of the 1893 statute saw fit to expressly state
that surviving trustees have the powers of the original trustees. Why they
did not do the same in this case is unclear, though the anomaly did not
trouble nineteenth-century commentators, who assumed that trustees by devolution
would have the "powers and duties incident to the office of trustee".(280)
In England, the 1893 provision was replaced in the Trustee Act, 1925(281)
with a provision that focuses directly on the authority of personal representatives
of a decreased trustee to carry on administration of the trust. This provision
has been adopted in substance in Manitoba. The Manitoba Trustees Act provides:
6(2) Until the appointment of new trustees, the personal representatives
or representative for the time being of a sole trustee, or where there
were two or more trustees, of the last surviving or continuing trustee,
are or is capable of exercising or performing any power or trust that was
given to or capable of being exercised by the sole or last surviving trustee.
This is a more satisfactory approach, and should be adopted in Saskatchewan(282).
Two other matters relating to the devolution of trusteeship need clarification.
First, since section 2(1) of the Saskatchewan Trustees Act defines "trustee"
to include "executor" and "administrator", section 22 would appear on its
face to apply upon the death of a personal representative, devolving the
office onto the deceased's executor or administrator. It is unlikely, however,
that the section should be read in this way. The "chain of executorship"
, which transmits the office of personal representative to the executor
of a deceased personal representative, is established law.(283)
But the rule does not apply to the administrator of a deceased personal
representative. The relevant English law when the 1893 Act was in force
was stated by Halsbury:
The office [of personal representative] does not devolve upon the administrator
of an executor. Upon the death of an administrator, a fresh grant of administration
to the property of the original testator must be obtained.(284)
The different result implied by the Saskatchewan Trustee Act is the
result of a drafting error. Fortunately, the error appears to have been
ignored. Saskatchewan surrogate practice follows the English rule stated
by Halsbury. The error should be corrected.(285)
Second, section 18 of the Saskatchewan Trustees Act provides that provisions
in the Act "relative to a trustee who has died include the case of a person
nominated in a will but dying before the testator". Since in this context,
"trustee" includes "personal representative", the chain of representation
will devolve through the personal representative of a trustee even if the
personal representative predeceases the trustee. This is a useful provision
to ensure continuity in administration, and should be retained.(286)
Replacement of trustees without court order
Prior to adoption of trusts legislation, a trustee could be replaced
only by the court unless the trust instrument expressly provided a mechanism
for that purpose. By 1860, when the first Trustee Act was adopted, it had
become standard practice to insert such a mechanism in trust instruments.
The Trustee Act, 1860, provided a statutory power to replace trustees modelled
on the standard clause in contemporary trust instruments(287).
This provision was continued without change in substance in the Trustee
Act, 1893, and subsequently adopted in the Saskatchewan Trustees Act:
15. (1) Where. a trustee dies or desires to be discharged from the trusts
or powers in him reposed, or refuses or becomes unfit to act or incapable
of acting therein, the person nominated for that purpose by the deed, will
or other instrument creating the trust, if. any, or if there is no such
person or no such person able and willing to act, then the surviving or
continuing trustee or trustees, or the personal representative of the last
surviving and continuing trustee, may by writing appoint another person
or other persons to a trustee or trustees in place of the trustee or trustees
dying or desiring to be discharged or refusing or becoming unfit to act
or incapable of acting.
(2) When a new trustee or trustees is or are so appointed all the trust
property that for the time being is vested in the surviving or continuing
trustees or trusteed or in the heirs, executors or administrators of nay
trustees or trustee shall with all convenient speed be conveyed, assigned
and transferred so that it may be legally and effectually vested in the
new trustee or trustees either solely or jointly with the surviving or
continuing trustees or a surviving or continuing trustee as the case may
require.
(3) Every new trustee has, as well before as after such conveyance,
assignment or transfer, and every trustee appointed by the court has, the
same powers, authorities and discretions and shall in all respects act
as if he had originally been nominated a trustee by the deed, will or other
instrument creating the trust.
Note that the section permits both discharge of a retiring trustee and
removal of unfit trustees, but in either case, only if substitutes are
named in their place. In certain cases, retirement without replacement
is allowed under section 20 of the Act. Otherwise, reduction in the number
of trustees by discharge or removal is possible only with approval of the
court.
Section 15 facilitates replacement of trustees when it is necessary
to do so to maintain continuity in the administration of the trust without
the expense and delay of an application to court. It is a useful and appropriate
provision. Law reform agencies have consistently recommended that non-judicial
removal and appointment of trustees should be encouraged.(288)
Unfortunately, section 15 and its analogs in most Canadian jurisdictions
is not often used in practice. Instead, judicial removal and appointment
of substitutes is preferred. This state of affairs results from uncertainty
about the effect of section 15. Rather than attempt to make sense of the
statutory power to replace trustees, most legal practitioners rely on the
courts to ensure valid appointment of new trustees.(289)
In England, non-judicial appointment was clarified in the Trustee Act,
1925(290), which has also served as the
basis for modern legislation in New Zealand and most Australian states.
More comprehensive reform has been adopted in Manitoba, and recommended
by the Ontario Law Reform Commission. Similar reforms are overdue in Saskatchewan.
1. Application of section 15 to personal representatives
Since section 2(1) of the Saskatchewan Trustees Act defines "trustee"
to include "executor" and "administrator", section 22 would appear on its
face to apply to replacement of personal representatives. This reading
of the section seems to be strengthened by the fact that section 14, which
governs judicial appointment and removal of trustees, expressly excludes
application to personal representatives, while section 15 is silent on
this point. Nevertheless, it is unlikely that section 15 was intended to
apply to personal representatives.
It has long been settled law that a personal representative can only
be replaced by court order(291). There
is no suggestion in the English authorities that the Trustee Act, 1860
changed this rule.(292) In Saskatchewan,
replacement of trustees is governed by The Administration of Estates Act;
section 15 has never been invoked for this purpose. The apparent application
of section 15 to personal representatives is a drafting oversight that
should be corrected.(293)
2. Grounds for removal of trustees
The statutory power to replace trustees applies when the original number
of trustees has been reduced by death or retirement of a trustee, and to
replace a trustee removed because he or she "refuses [to act as trustee]
or becomes unfit to act or incapable of acting". Use of the section to
facilitate retirement of a trustee or to replace a deceased trustee is
not problematic. More consideration must be given to removal of trustees
for cause without court approval. We agree with the Ontario Law reform
Commission that "where subjective value judgements concerning the ability
of a person to act as trustee are concerned, these determinations should
be made by the court".(294) If grounds
for removal are not objective, it would be all too easy for the trustees
to resolve a conflict with one of their number by removal of the recalcitrant.
In addition, the validity of removal of a trustee under subjective criteria
will inevitably be in doubt without court approval of the grounds for the
action.
It is likely that the drafters of the Trustee Act, 1860 intended that
non-judicial removal would be an option only in cases in which unfitness
or incapacity to act as a trustee was clearly recognized in law. The phrase
used in the legislation likely seemed adequate because it had been construed
in the context of the standard removal clauses in trust instruments. Such
clauses were very strictly construed. Thus, for example, it had been held
prior to 1860 that a bankrupt trustee was not "incapable" of acting, but
was "unfit" to serve as a trustee. (295)
Nevertheless, the phase "unfit to act or incapable of acting" proved to
be an inadequate guide to non-judicial removal. Underhill observed that
under the 1860 and 1893 Trustee Acts:
With regard to a trustee becoming unfit to act, bankruptcy (at all events
where the trust property consists of money or other property capable of
being misappropriated, and where the cetuis que trusts desire his removal
. . . or conviction of a dishonest crime, are grounds for removal by the
court . . . . Whether, however, they would enable the donee of a power
of appointing new trustees to displace him hostilely on the ground of unfitness
seems questionable. . . . With regard to incapacity, the word is strictly
limited to incapacity of the trustee arising from some personal defect,
as illness, lunacy, or, possibly, infancy.(296)
The uncertainty reported by Underhill would appear to narrow rather
than enlarge the statutory authority to remove trustees for cause without
court approval. The Ontario Law Reform Commission's concern is that the
phrase the phase "unfit to act or incapable of acting" might now be given
too broad a meaning. For example, it might permit removal of a trustee
who, though not incompetent, suffers from some diminished capabilities
as the result of old age. Despite the Ontario Commission's fears, there
may in fact be sufficient judicial authority on section 15 and its English
predecessors to prevent its use in ambiguous cases such as this. However,
the Ontario Commission was also concerned that even relatively objective
grounds for removal may not be appropriately defined and limited in the
present law. Thus while it may be that declining capabilities falling short
of incompetency is not a ground for non-judicial removal, it is not clear
how incompetency is to be determined for this purpose. A person who has
been declared incompetent clearly could be removed under section 15. The
position of a person who is merely alleged to be incompetent, an "incompetent
not so found," is ambiguous.
We are of the opinion that the grounds for non-judicial removal of a
trustee under statutory authority should be expressly stated in clear language.
The list of grounds set out in the statute should be exhaustive. The Ontario
Law Reform Commission would confine non-judicial replacement of trustees
to cases in which a trustee (1) dies; (2) desires to be discharged from
the trust; (3) refuses to act or disclaims the trust; (4) is a mentally
incompetent person so found by the court; (5) has been convicted of an
indictable offence; or (6) is a bankrupt (a person against whom a receiving
order is in force or who has made an assignment in bankruptcy), or a corporate
trustee who has been dissolved, or is in liquidation.(297)
In our opinion, with the addition noted below, this is an appropriate list
of circumstances in which non-judicial removal should be permitted. We
recommend that similar criteria be adopted in Saskatchewan(298),
but would make one addition.
In our opinion, non-judicial removal of an infant trustee should also
be permitted. Under the general law of trusts, an infant does not lack
capacity to act as a trustee. However, an infant may lack capacity to deal
with trust property. Thus the courts will inevitably remove an infant trustee
.(299) But it is uncertain whether an
infant trustee could be removed non-judicially under the English Trustee
Act, 1860(300) or section 15 of the Saskatchewan
Trustees Act. The English Trustee Act, 1925 expressly permits non-judicial
removal of infant trustees.
The Ontario Law Reform Commission does not agree with the policy of
the Trustee Act, 1925 in regard to infants. It argues that if the settlor
has seen fit to select an infant as trustee, the infant should only be
removed if the court is satisfied that removal is necessary for proper
administration of the trust. We are not convinced. There will be few, if
any, cases in which an infant will be able to function as a trustee. In
addition, The only circumstance in which an infant is likely to become
a trustee is upon the premature death of a testator who has named a person
who is still an infant executor and trustee by will. Under Saskatchewan
Rules of Court, an infant executor will not be granted probate. It should
be possible to expeditiously remove an infant trustee.(301)
The English Trustee Act, 1925 also permits non-judicial removal of a
trustee who is absent from the United Kingdom. Under the Ontario Act, absence
from the province for 12 months is likewise a ground for non-judicial removal(302).
Such a provision has never been part of the law in the Western provinces.
We agree with the Ontario Law Reform Commission that there is no longer
any reason, if there ever was, to object to "a trustee actively administering
the trust from outside the jurisdiction".(303)
If an absent trustee abandons his or her responsibility, removal would
of course be justified. But whether such dereliction of duty has occurred
is a matter of fact appropriately left to the court to determine.
3. Persons entitled to replace trustees
Section 15 sets out a hierarchy of authority to remove and replace trustees:
(1) If the trust nominates a person or persons to act in this capacity,
the trust instrument governs. (2) If no one is nominated, or if "no such
person [is] able and willing to act", the trustees may act. (3) If there
is no surviving trustee, the personal representative of the last survivor
may appoint replacement trustees. Most modern trusts do not include make
provision for replacement or removal trustees. Thus, section 15 usually
operates to give the trustees themselves authority to name replacements.
Nevertheless, settlors should continue to be permitted to nominate some
person other than the trustees to make decisions about appointment and
removal. Section 15 was designed to assist settlors, not to dictate the
terms on which trustees may be changed. This policy is further underlined
by section 19 of the Saskatchewan Trustees Act:
19. Sections 15, 16, 17, and 18 apply only of and as far as a
contrary intention is not expressed in the instrument, if any, creating
the trust, and have effect subject to the terms of the trust.
However, relationship between section 15 and trust instruments is not
entirely clear.
Note that the trust instrument ousts section 15 only when it expresses
"a contrary intention". Thus, the Act is presumably available to fill any
gaps in mechanism set out in the trust. But this may create a problem.
Section 15 allows the trustees to act if the person nominated to make replacements
is not "able and willing to act". The phase "able and willing to act" is
vague. A nominee is presumably not "able" to act if incapacitated, but
a nominee may not be "willing" to act for a variety of reasons. A nominee
who refuses to consider whether removal or replacement of a trustee is
necessary, thus effectively refusing to accept the role conferred by the
trust, is certainly not "willing to act". But it might be alleged that
a nominee who, after considering the question, declines to remove a trustee
accused of unfitness, is not "willing to act". The same charge might be
levelled against a nominee who, believing that the trust is being properly
administered, declines to fill a vacancy.
In our opinion, a clear distinction should be made between refusal to
exercise the authority to remove or replace a trustee, and a decision that
removal or replacement is not required in the circumstances. If the trustees
or beneficiaries are unhappy with a decision not to remove or replace a
trustee, the matter should be settled in court. The Ontario Law Reform
Commission agreed with this point of view, but recommended no change in
the phase "able and willing to act"be made.. This conclusion rests on the
observation that the phase was retained in the English Trustee Act, 1925,
and does not appear to have caused difficulty in practice. We do not agree.
If non-judicial appointment is to become a practical alternative, the validity
of appointments must be beyond question. There is no reason why clearer
language should not be adopted. In our opinion, a person nominated to remove
and replace trustees should not lose the authority conferred by the trust
unless he or she (1) refuses to exercise the authority, or (2) lacks capacity
to exercise the authority.(304)
A similar problem may arise when the trustees are authorized to make
replacements and removals. Section 18 of the Saskatchewan Trustees Act
provides in part that:
18. The provisions of this Act . . . relative to a continuing
trustee include a refusing or retiring trustee if willing to act in the
execution of the provisions of section 15.
Since the authority of trustees is joint, when the trustees are authorized
to remove and replace trustees, all of the "surviving or continuing trustee
or trustees" must act together. Section 18 makes it clear that a retiring
trustee may be involved in choosing his or her successor. This is appropriate.
However, section 18 also permits a "refusing trustee" to be involved in
the selection of a successor. A refusing trustee is presumably a trustee
who has accepted the office of trustee, but is unwilling to act further.
A disclaiming trustee, who has refused to accept the office, must be distinguished.
In allowing a refusing trustee to participate in naming a successor,
section 19 follows the English Trustee Act, 1925. The Ontario Law Reform
Commission, on the other hand, argues that a refusing trustee "is not a
suitable person to exercise the statutory power."(305)
This presupposes that a refusing trustee lacks the loyalty to the interests
of the trust required of a trustee. But a trustee may refuse to become
actively engaged in administration of a trust because he or she is unable
to make the commitment of time and energy required. In such a case, a trustee
may "refuse" rather than "disclaim" for the purpose of assisting in selection
of a willing successor. For that reason, we are of the opinion that a refusing
trustee should continue to be involved in removal and replacement of trustees.
There are no doubt cases in which this approach will cause inconvenience.
For example, a refusing trustee could attempt to block his or her own removal.
However, we believe that on balance, allowing refusing trustees to be involved
in removal and replacement of trustees will solves more problems than it
creates.(306)
Section 18 makes no reference to disclaiming trustees or trustees who
are removed for cause. The language of section 15 might be broad enough
to encompasses disclaiming and unfit trustees among those who are authorized
to be involved in removal and replacement of trustees. However, the contrary
conclusion has been reached by the English courts. In Re Stoneham Settlements,
it was held that a trustee who had to be removed for cause against his
will could not block the removal when it was agreed to by the other trustees.(307)
In our opinion, any remaining doubt should be removed by expressly providing
that disclaiming trustees and trustees who may be removed for cause have
no right to participate in the removal or replacement of trustees.(308)
4. Removal without replacement
Section 15 provides that replacement trustees may be appointed "in
place of the trustee or trustees dying or desiring to be discharged or
refusing or becoming unfit to act or incapable of acting". Section 20,
on the other hand, allows discharge of a retiring trustee without replacement
if at least two trustees remain.(309)
There is otherwise no statutory authority for non-judicial removal of a
trustee without replacement.
This formula was modelled on replacement and removal clauses in 19th
Century trust instruments. It was perhaps appropriate in settlements of
land, which were then the most important class of trust in England. More
than one trustee was the rule in settlements. Management of the family's
assets was usually placed in the hands of one of a panel of trustees, the
"first beneficiary" and head of the family. He was, however, subject to
the control of the other trustees, who ensured that the current head of
the family did not squander the assets to the detriment of other family
members and future generations. The character of such a trust would be
changed substantially if all the trustees but the first beneficiary retired.
Thus the policy against reduction of the number of trustees, and especially
reduction to a sole trustee.
The modern trust bears little resemblance to the English settlement.
If more than one trustee is now appointed, it is likely to ensure continuity
in administration or to share the burden. Occasionally, a family member,
most likely a principal beneficiary, and a trust company may be jointly
appointed. In this case, the family member provides insight into the beneficiaries'
needs, and the corporate trustee provides expertise. In any event, retirement
of a trustee is unlikely to cause difficulty. If one of the trustees dies,
the other takes responsibility for administration. In practice, appointment
of a replacement is the exception, though of course the survivor or the
court may procure a replacement if it is deemed desirable to do so.
Under the English Trustee Act, 1925 and the Manitoba Trustees Act(310),
removal without replacement is allowed so long as at least two trustees
remain, or if the sole remaining trustee is a trust company. The Ontario
Law Reform Commission recommends a similar approach(311).
In our opinion, this improves on the present law, but is still too restrictive.
We do not believe reduction to a single trustee is a problem in the vast
majority of cases. The case for requiring replacement is strongest in cases
in which a family member and trust company were appointed as co-trustees.
Removal of either would upset the balance intended by the settlor. However,
trust companies rarely retire from administration of a trust. The family
member may retire, but if imbalance is perceived to be a problem, the retiring
trustee can insist on appointment of a replacement. Even failing that,
a beneficiary may apply to court for appointment of a replacement. On balance,
we conclude that non-judicial removal of a trustee should not require appointment
of a replacement, even if only a sole trustee is left.(312)
5. Incidental powers
Section 16 of the Saskatchewan Trustees Act confers what the marginal
note refers to as "incidental powers when making appointment" on those
authorized by the statute to appoint new trustees.(313)
16. On the appointment of a new trustee for the whole or any
part of trust property:
(a) the number of trustees may be increased; and
(b) a separate set of trustees may be appointed for any part of the
trust property held on trusts distinct from those relating to any other
part or parts, notwithstanding that no new trustees or trustee are or is
to be appointed for other parts, and any existing trustee may be appointed
or remain one of such separate set of trustees, or, if only one trustee
was originally appointed, then one separate trustee may be so appointed
for any such part of the trust property; and
(c) it shall not be obligatory to appoint more than one new trustee
where only one trustee was originally appointed or to fill up the original
number of trustees where more than two trustees were originally appointed,
but, except where only one trustee was originally appointed, a trustee
shall not be discharged under section 15 unless there remain at least two
trustees to perform the trust; and
(d) any assurance or thing requisite for vesting the trust property
or any part thereof jointly in the persons who are the trustees shall be
executed or done.
Clause (c) makes it unnecessary to fill pre-existing vacancies when
a trustee desires to retire or must be removed, so long as at least two
trustees remain when there were originally two or more. Since we have proposed
that non-judicial removal without replacement should be permitted in all
cases, this case will no longer be necessary. Clause (d), which has to
do with vesting of trust property in new trustees will be discussed later.
The two remaining clauses in section 16 are significant, and should
be retained.(314) Clause (a) permits the
appointors to increase the number of trustees. While this power is rarely
used, it is potentially useful. For example, a sole trustee may find administration
time consuming and desire assistance, or may find it useful to procure
the expert assistance of a corporate trustee as a co-trustee. In England,
the equivalent to clause (a) is now contained in section 36(6) of the Trustee
Act, 1925. This legislation places some restrictions on the appointment
of additional trustees. In particular, it limits the total number of trustees
to four. The Act also limits the number of trustees under a settlement
of land to four. Thus, a limitation on the number of new trustees of land
that can be appointed is appropriate in the context of the English Act.
Perhaps inadvertently, the limitation on the number of additional trustees
was extended to trusts of personal property as well. The Ontario Law Reform
Commission has recommended that no more than four trustees should be permitted
in any trust.(315) We see no reason for
such a limitation. In England, settlements of land were often complicated
and cumbersome. The 1925 reform was part of an effort to discourage traditional
settlements and generally simplify land law. Excessive numbers of trustees
has never been a problem in Saskatchewan, and is unlikely to become one.
In addition, there are some circumstances in which appointment of more
than four trustees may be desirable. Charitable trusts and trusts for other
beneficial public purposes, for example, may benefit from a large board
of trustees.
Clause (b) recognizes that administration of complicated trusts may
benefit from division of responsibility between trustees. Elsewhere in
this report, we recommend additional measures to facilitate this approach
to trust administration.
Section 20 of the Saskatchewan Trustees Act allows retirement
of a trustee without replacement if the number of trustees is not reduced
to less than two:
20.- (1) Where there are more than two trustees, if one by deed
declares that he is desirous of being discharged from the trust and if
his co-trustees and such other person, if any, as is empowered to appoint
trustees consent by deed to the discharge and to the vesting of the trust
property in the co-trustees alone, then the trustees desirous of being
discharged shall be deemed to have retired from the trust and shall by
the deed be discharged therefrom without any new trustee being appointed
in his place.
(2) Any assurance or thing requisite for vesting the trust property
in the continuing trustees alone shall be executed or done.
(3) This section applies only if and as far as a contrary is not expressed
in the instrument, if any, creating the trust and has effect subject to
the terms of that instrument.
As noted above, section 20 operates as an exception to the rule in section
15 that non-judicial removal of trustees can be made only if substitute
trustees are appointed. Since we recommend that non-judicial removal without
replacement should be allowed in any case in which at least one trustee
remains in office, (316) much of section
20 is unnecessary. However, it is desirable to treat some aspects of retirement
of trustees apart the more general removal and replacement provisions in
section 15.
Equity has always taken the position that no one should be compelled
to accept appointment as a trustee, or continue in office as a trustee,
against his wishes.(317) Section 20 was
adopted to facilitate retirement, but if section 20 is not available, the
courts will permit retirement as a matter of right.(318)
In the United States, the courts have taken a different approach: Trustees
are not permitted to retire if retirement would prejudice the beneficiaries'
interests.(319) This approach has not
been adopted in any Commonwealth jurisdiction. We are of the opinion that
the Equity's policy remains sound. Trusteeship is often onerous, and often
undertaken by friends and family members of the settlor with out full compensation.
Moreover, a trustee who acts under duress cannot be expected to serve the
trust in any more than a minimally adequate fashion.
It is perhaps surprising that section 20, while facilitating retirement,
does not recognize that a trustee has a right to retire. Note that the
section allows retirement only if the trustee's "co-trustees and such other
person, if any, as is empowered to appoint trustees, consent by deed to
the discharge", and only if the trust instrument does not prohibit retirement.
It is even more surprising that the consent requirement was retained in
the English Trustee Act, 1925, and that the Ontario Law Reform Commission
recommends retention of the consent requirement (though it would allow
the right to retire without court approval to override a prohibition on
retirement in the trust instrument). The Ontario Commission took the position
that if a trustee could not obtain the necessary consents, court approval
should be required. Since the court will not deny a trustee the right to
retire, we cannot see any purpose in forcing the retirement issue into
court. We recommend that a trustee should be permitted to retire without
court approval even if the trust instrument purports to deny this right.
We also recommend that when a trustee desires to retire, neither co-trustees
or any other person whose consent to retirement is required should be entitled
to withhold consent.(320)
Removal and appointment of trustees by
the court
1. Removal and appointment of trustees under section 14
Section 14 of the Saskatchewan Trustees Act provides for court
appointment of trustees "either in substitution for or in addition to any
existing trustees":
14.-(1) When it is expedient to appoint one or more new trustees,
and it is inexpedient, difficult or impracticable so to do without the
assistance of the court, the Court of Queen's Bench may make an order for
the appointment of a new trustee or new trustees, either in substitution
for or in addition to any existing trustee or trustees, or although there
is no existing trustee, and, in particular, and without prejudice to the
generality of the foregoing provision, the court may make an order for
the appointment of a new trustee in substitution for a trustee who is convicted
of an indictable offence, or is insolvent.
(2) No order under subsection (1) or consequential vesting order or
conveyance shall operate further or otherwise as a discharge to any former
or continuing trustee than an appointment of new trustees under a power
for that purpose contained inn an instrument would have operated.
(3) Nothing in this section gives power to appoint a personal representative.
Under section 34, application to the court for appointment (and presumably
removal) of new trustees may be made by a trustee or beneficiary:
34.-(1) An order pursuant to this Act appointing a new trustee
or concerning any land or personal estate subject to a trust may be made
on the application of:
(a) any person, whether under a disability or not, beneficially interested
in the appointment of a new trustee or in the land or personal estate subject
to the trust;
(b) a person duly appointed as a trustee of the land ir personal estate;
or
(c) the public trustee appointed pursuant to The Public Trustee Act.
(2) A person entitled may apply, upon notice to such persons as the
court or judge may think proper, for such an order as he deems himself
entitled to.
(3) Upon the hearing of the application the court may direct a reference to inquire into any facts that require investigation, or may direct the application to stand over to enable further evidence to be adduced or further notice to be served.
Section 14 is identical to section 10 of the English Trustee Act,
1893. It is a partial codification of inherent jurisdiction
of the court. to appoint, replace, and remove trustees. It is likely that
the section was inserted as a complement to the non-judicial authority
to substitute new trustees. Note that section 14 is to operate when it
is "inexpedient, difficult, or impractical" to replace a trustee without
assistance from the court. Thus it is not surprising that scope of section
14 is similar to the section governing non-judicial substitution. Unlike
the inherent jurisdiction(321), section
14 does not allow removal of a trustee without replacement.
The inherent jurisdiction gives the court a broad discretion to remove
or replace in any case in which such action is required for the welfare
of the beneficiaries of the trust.(322)
Section 14 does not limit this discretion, but does expressly provide for
replacement of an insolvent trustee, or a trustee who has committed an
indictable offence. The reason why these particular cases, and no others,
are enumerated also likely has to do with the relationship between judicial
and non-judicial replacement of trustees. In England in 1893, removal on
these grounds was apparently reserved to the court. The formula in the
statute reflects this division of authority.(323)
Unsoundness of mind was also reserved to the court, but does not appear
in the statutory list because a separate procedure for removal of a trustee
of unsound mind was provided by the
Lunacy Act, 1890.(324)
While the partial codification enacted in 1893 may have seemed logical
to Victorian legislators, section 14 now appears merely peculiar in its
scope. Since courts in Saskatchewan and elsewhere in Canada continue to
exercise the full inherent jurisdiction to remove and replace trustees,
section 14 and its analogs in other provinces is now not very helpful.
If it is in fact relied upon as a guide to the court's jurisdiction, it
is misleading. There is obviously a place in trusts legislation for a statement
of the authority of the court to remove and replace trustees. However,
to be useful such a provision should encompass the full scope of the inherent
jurisdiction of the court. To achieve this goal, three changes in section
14 are required.(325)
First, the statutory formula should allow the court to remove trustees
without replacement. This is of course part of the inherent jurisdiction
of the court. In addition, it would complement the recommendation made
above to permit non-judicial removal without replacement. The court is
authorized to remove a trustee without replacement under the Manitoba
Trustee
Act(326), and a similar power has
been recommended by the Ontario Law Reform Commission.(327)
Second, the statutory formula should encompass all grounds for removal of a trustee recognized in law. In the English Trustee Act, 1925, some additional grounds for removal not included in the English Act of 1893 were included. The list in section 14 could be made more comprehensive. However, we doubt that it is desirable to do so. The situations in which courts have exercised their jurisdiction to remove trustees are fact specific. For example, a common occasion for an application for removal is a dispute between trustees. The courts are prepared to remove a trustee to break a deadlock and restore orderly administration of the trust(328), but will not do so lightly. Evidence that the disagreement endangers the trust property is usually required.(329) Codification that would adequately cover this and all others cases in which removal is appropriate is not practical. Since judicial removal is governed by well-established precedents, it would be sufficient to confer a discretionary power to remove and appoint without enumerating specific grounds. We agree with the Ontario Law Reform Commission hat there is " no useful purpose in the adoption of a particularized approach". We recommend that appointment or replacement or a trustee by the court should be permitted under the statute in any case in which it is in the interests of the beneficiaries to do so.
Third, the statutory formula should not be limited in application to
situations in which it is "inexpedient, difficult, or impractical" to appoint
a trustee "without assistance of the court". The inherent jurisdiction
of the court is not limited in this way, nor should it be. In fact, since
section 34 allows a beneficiary or any one of the trustees to apply under
section 14, the phase is misleading even in the context of the existing
legislation. The Ontario Law Reform Commission saw some utility in retaining
the phase as a means to encourage non-judicial appointments(330).
We do not think the phase is necessary for this purpose. If a reliable
non-judicial method of appointment is made available, it will almost certainly
be used in preference to application to court in appropriate cases.
Certain other minor matters require attention. Section 16 deals with
"incidental powers when making appointment". It has been discussed above
in the context of non-judicial appointments. The "incidental powers" it
contains are appropriate in cases of judicial appointment as well. These
powers may be encompassed by the court's inherent jurisdiction, but it
would be desirable to avoid doubt.
Section 34 permits application to the court to appoint or remove a trustee
by a trustee or beneficiary. This is a useful formula. In the usual case,
he application will be made by he trustees as a group when non-judicial
action is not feasible. If the trustees cannot agree to take action, one
of their number may appeal to the court to resolve the issue. Finally,
the section also provides beneficiaries with a remedy when administration
of the trust is compromised by vacancies, or by the actions of a disloyal
or incapable trustee. In one respect, however, the section is deficient.
It does not permit a person nominated in a trust instrument to appoint
trustees to turn to the court for assistance. Section 34 is likely confined
to applications by trustees and beneficiaries because it applies to other
matters in addition to appointment and removal trustees. We are of the
opinion that a person nominated in a trust instrument to appoint trustees
should having standing to apply to the court to appoint or remove a trustee.(331)
2. Judicial trustees
Section 85 of the Saskatchewan Trustees Act appears to
provide an alternative means of replacing trustees:
85.- (1) Where application is made to the Court of Queen's Bench
or a judge thereof by or on behalf of the person creating or intending
to create a trust, or by or on behalf of a trustee or beneficiary, the
court or judge may in its or his discretion appoint a person, hereinafter
called a judicial trustee, to be a trustee either jointly with another
person or as sole trustee, and, if sufficient cause is shown, in place
of all or any existing trustees.
Note that since section 3 of The Trustees Act defines "trustee"
to include personal administrators, section 85 can be employed to replace
an executor or administrator of an estate. This is not an oversight. Section
85(2) expressly refers to replacement of personal representatives, providing
that
(2) The administration of the property of a deceased person, whether
a testator or intestate, is a trust and the executor or administrator a
trustee within the meaning of this section.
Trusts legislation in British Columbia, Alberta, Saskatchewan, and the
Northwest Territories, but not in other provinces, provide for appointment
of judicial trustees.(332)
Despite its perhaps deceptive appearance, the purpose section 85 is
intended to serve is quite different than section 14. Section 85 was adapted
from the English Judicial Trustees Act, 1896. The
judicial trustee was modelled on a Scottish officer of the court, called
a "judicial factor", who administers trusts and estates on behalf of the
courts when normal administration has broken down or the trustees have
been discharged by the court. Prior to 1896, the remedy available in England
in similar circumstances was a general administration order under which
the court itself assumed responsibility for administration. According to
Underhill, the object of the Judicial Trustees Act, 1896
"is to give to trust property the same protection as would be given by
a general administration order, but at less cost, and without the necessity
of making numerous applications to court". (333)
It also, of course, relieves the court from direct responsibility for administration
of trusts and estates.
A judicial trustee is not simply a replacement trustee appointed by
the court, but is instead an officer of the court, carrying out administration
on behalf of the court. Section 85 provides for extensive control of the
judicial trustee by the court:
(3) Any fit and proper person named for the purpose in the application
may be appointed a judicial trustee and in the absence of such nomination,
or if the court or judge is not satisfied of the fitness of a person so
named, an official of the court or other competent person may be appointed,
and in any case a judicial trustee shall be subject to the control and
supervision of the court as an officer thereof.
(4) The court or judge may, either on request or without request, give
to a judicial trustee any general or special directions in regard to the
trust or the administration thereof.
(5) There may be paid to a judicial trustee out of the trust property
such remuneration, not exceeding the prescribed limits, as the court or
judge may assign in each case, and the remuneration so assigned shall,
save as the court or judge may for special reasons otherwise order, cover
all his work and personal outlay.
(6) Once in every year the accounts of every trust of which a judicial
trustee has been appointed shall be audited and a report thereon made to
the court by the prescribed persons, and, in case the court or judge so
directs, an inquiry into the administration by a judicial trustee of any
trust or into any dealing or transaction of a judicial trustee shall be
made in the prescribed manner.
The office of Public Trustee was created in England in 1906, and provision
was made under the Public Trustees Act, 1906
for appointment of
the Public Trustee as a "custodian trustee". It appears to have become
the usual practice to employ the Public trustee as a judicial trustee unless
the application for appointment was made by a beneficiary who could assume
administration or suggest a suitable nominee. (334)
The Saskatchewan Trustees Act makes no provision for appointment
of the Public Trustee as judicial trustee, though the practice was likely
intended.(335) However, section 40 of
The
Administration of Estates Act makes the Public Trustee the "official
administrator", to whom the court can assign the office of administrator
of an estate. Waters suggests that although Canadian Public Trustee
legislation does not expressly provide for appointment of the Public Trustee
as a judicial or custodian trustee , " the office is certainly not unknown
in common law Canada, and there would appear to be no reason why the Public
Trustee should not be asked . . . to accept custodian trusteeship".(336)
Very little use has been made in Saskatchewan or elsewhere in western
Canada of the authority to appoint judicial trustees. It can be regarded
as an earlier effort to achieve the purposes of public trusteeship. Waters
doubts that there was a need for judicial trusteeship once the office of
Public Trustee was created.(337) If the
authority of the court to appoint and replace trustees under section 14
is expanded in the manner proposed in this report, there will be no circumstance
in which a judicial trustee could be appointed in which the same result
could not be achieved using the ordinary appointment and removal provision.(338)
In any circumstance in which a suitable replacement for a trustee is not
otherwise available, or supervision of the trust by a public official on
behalf of the court appears necessary, the Public Trustee could be appointed.
We recommend that section 85 be deleted. It would be desirable, however,
to clarify the role of the Public Trustee by expressly providing that the
court may, when no other suitable person is available, appoint the Public
Trustee as a trustee.(339)
Reconstituting the trust: The effect
of appointment and removal of trustees
When a change in the roster of trustees occurs as a result of retirement,
replacement, or addition, the new trustees must be granted full authority
and responsibility for administration of the trust, and old trustees must
be relieved of their responsibility. In addition, since the trustees are
the legal owners of the trust property, it must be vested in the new group
of trustees. Uncertainty about the way in which these three goals are to
be achieved when non-judicial appointment or removal occurs is a major
reason why the judicial assistance is usually sought. We have suggested
that use of the non-judicial mechanism should be encouraged. Clarification
of the law governing what we call here "reconstituting the trust" would
be the most effective way to encourage non-judicial appointment and removal
of trustees.
1. The powers of new trustees
Section 17 of the Saskatchewan Trustee Act provides that:
17. Every new trustee so appointed has, as well before as after
all the trust property becomes by law or by assurance or otherwise vested
in him, the same powers, authorities and discretions and may in all respects
act as if he had been originally appointed a trustee by the instrument,
if any, creating the trust.
This section presumably applies to trustees appointed by the court under
section 14. Whether it is intended to apply to trustees appointed without
judicial intervention under section 15 is doubtful, since subsection 15(3)
contains a similar formula, which is, likely as a result of a drafting
error, repeated in substance in section 35 . Why this apparently unnecessary
repetition occurs cannot now be discovered. Both sections 17 and 15(3)
effectively confer the authority for administration of the trust on the
new trustees.
The general statement of the authority of new trustees contained in
sections 17 and 15(3) should be retained.(340)
However, despite its apparently comprehensive scope, the statutory formula
is inadequate, at least in regard to non-judicial appointments. A person
dealing with trustees needs assurance that the trustees were validly appointed,
and thus capable, for example, of conveying good title to trust property.
In the case of judicial appointment of trustees, the court order naming
the trustees is sufficient warrant of authority. In the case of non-judicial
appointment, a person dealing with the trustees may be shown the documents
by which new trustees were appointed, but will have no guarantee that the
appointment was properly made under the terms of section 15. The Ontario
Law Reform Commission suggested that this state of affairs "seems to explain,
in part, the modest use that is made . . . of the non-judicial appointment
power".(341)
Protection for purchasers of land from trustees in England was provided
by section 38 of the Trustee Act, 1925. This protection has been
copied by several Commonwealth jurisdictions, usually with an extension
of its scope to include purchases of personal property as well as land.
In Canada, the protection has been enacted in the Manitoba Trustees
Act:
12.- (1) A statement, contained in any instrument coming into
operation after June 30, 1931, by which a new trustee is appointed, to
the effect that a trustee has remained out the province for more than 12
months, or desires to be discharged, or refuses or is unfit to act, or
is incapable of acting, or is an infant, or that he is not entitled to
a beneficial interest in the trust property in possession, is, in favour
of a purchaser in good faith and for valuable consideration, conclusive
evidence of the matter stated.
(2) In favour of the purchaser, any appointment of a new trustee depending
on that statement, and any vesting declaration, express or implied, consequent
on the appointment, is valid.
The Ontario Law Reform Commission has recommended a similar provision.
However, the Ontario Commission also proposed further changes in the formula.
We are impressed with the fact that the English provision, with few modifications,
has been widely adopted and has proved satisfactory in practice. We would,
therefore, be less inclined than the Ontario Commission to make additions
to the formula without clear justification. Nevertheless, one of the additional
changes proposed by Ontario deserves consideration.
The English formula recites circumstances in which appointment or discharge
of a trustee is valid. The protection offered to third parties is assurance
that the grounds were appropriate. However, the listed grounds are not
exhaustive. They do not cover, for example, a case in which a trustee has
been appointed to replace a deceased trustee. We believe the Ontario Commission
is correct in suggesting that it should not be the grounds for appointment
or discharge that are deemed valid, but rather the appointment or discharge
itself. The Ontario draft Act provides:(342)
27. (1) Except as otherwise provided in subsection 2, a deed of appointment
or a deed of discharge of a trustee, whether pursuant to this Act or the
trust instrument, is conclusive evidence of the validity of the appointment
or discharge in favour of a purchaser of trust property.
A similar provision should be adopted in Saskatchewan.(343)
However, subsection (2) of the Ontario provision, unlike the
Trustee
Act, 1925 and the Manitoba Act, would limit third party protection
to cases in which the purchaser does not have actual notice of an "improper
act or admission". We do not believe this limitation is necessary or desirable.
It might interfere with the protection afforded purchasers under The
Land Titles Act if title has been registered by trustees.
The Ontario Commission was also concerned that the formula in the Trustee
Act, 1925 operates only in favour purchasers of trust property. For
example, the registrar of land titles should be able to rely on an instrument
appointing a new trustee when called upon to register a transfer from the
trustees. The Ontario Commission proposed to deal with this problem by
deeming "any official " and "any other person registering or certifying
instruments of title" to be a "purchaser" for this purpose.(344)
We agree that it would be desirable to make it clear that the registrar
of titles and other officials should accept a transfer from the new trustees.
However, we are of the opinion that such a provision is properly a matter
relating to the vesting of title to trust property in the new trustees.
This topic will be discussed below.(345)
2. Trustees who retire or are removed
A trustee is responsible for all acts and omissions while carrying out
his or her duties as trustee. Removal of a trustee, whether by retirement
or for cause, does not relieve the trustee of any liability incurred while
in office. This proposition is equally true whether the trustee is removed
non-judicially or judicially. Nevertheless, section 14(2) of the Saskatchewan
Trustee Act appears to be intended to ensure that that removal by the
court has no different effect on the liability of former trustees than
does non-judicial removal:
14.-(2) No order under subsection (1) or consequential vesting
order or conveyance shall operate further or otherwise as a discharge to
any former or continuing trustee than an appointment of new trustees under
a power for that purpose contained in an instrument would have operated.
The explicit concern of this provision is to distinguish "discharge"
by the court, as understood in 19th Century usage in Equity,
from removal under sections 14 and 15. The court may discharge a trustee,
but a discharge is quite distinct from removal under sections 14 and 15.
The circumstances in which a trustee may be discharged are now set out
in section 87 of The Trustees Act. Under this section, a trustee
may be discharged by the court when the trust accounts have been past and
the trust wound up. Because the court has approved the accounts of the
discharged trustee, a question of liability can no longer arise. Section
14(2) makes it clear that when the court removes a trustee, the order of
the court does not effect a discharge in the sense of section 87. However,
section 14(2) seems to us to have been adopted out of an over abundance
of caution. It is unlikely that confusion between "discharge" following
passing of accounts and "removal" under section 14 would have occurred
in the absence of section 14(2).(346)
It might nevertheless be argued that symmetry between the cases of old
and new trustees would suggest that if the position of the new trustees
is set out in the statute, so should the position of the old trustees.
But the cases are different. It s necessary to deal with the new trustees
because their authority flows from appointment under the statute, and should
therefore be defined by statute. The liability of former trustees while
holding office is not created by the statute, and need not be confirmed
by it.
We are of the opinion that section 14(2) is unnecessary. However, because
our conclusion in this regard is quite different from that of the Ontario
Law Reform Commission, some additional explanation is required. Section
14(2) was adopted from the English Trustee Act, 1893. The Ontario
Trustee
Act also copied this provision, but with a significant change in wording:
5. - An order under this section and any consequential vesting
order or conveyance does not operate as a discharge from liability for
the acts or omissions of the former or continuing trustees.
Note that the Ontario provision speaks directly to the liability of
former trustees, but has lost the cross-reference to non-judicial removal
contained in the original. Thus the distinction which explains why a liability
provision was adopted with respect to judicial, but not non-judicial removal,
was obscured. The Ontario Law Reform Commission, regarding the different
treatment as an anomaly, recommended extending the liability provision
to cover both judicial and non-judicial removal.(347)
Section 14(2) has no purpose part from its function to avoid confusion
between "discharge" and "removal". The analogous Ontario provision does
in addition confirm that trustees are responsible for their acts and omissions
while in office, but this is so obvious an application of the general principles
of the law of trusts that there is little point in codifying it.
3. Vesting of trust property on non-judicial appointment and removal
Th legal title to trust property is vested in the trustees. In order
to properly constitute a trust, the trust property must be conveyed to
the trustees. When the roster of trustees is changed, the trust property
must be vested in the new trustees. When the court appoints new trustees,
this result is usually achieved by a vesting order. Prior to statutory
intervention, when non-judicial appointments were made, it was necessary
either for the former trustees to convey the trust property to the new
trustees, or for a vesting order to be obtained. Section 12 of the English
Trustee
Act, 1893(348) made reconveyance unnecessary
in most cases by deeming vesting of the trust property to have occurred
if the instrument appointing the new trustees contained a declaration to
that effect. This provision was adopted as section 21 of the Saskatchewan
Trustees
Act:
21.-(1) Where an instrument by which a new trustee is appointed
to perform a trust contains a declaration by the appointor to the effect
that any estate or interest in land subject to the trust or in any chattel
so subject, or the right to recover and receive any debt or other thing
in action so subject, shall vest in the persons who by virtue of he instrument
become and are the trustees for performing the trust, that declaration
shall, without any conveyance or assignment but subject to The Land
Titles Act, operate to vest in those persons as joint tenants and for
the purposes of the trust that estate, interest or right.
(2) Where an instrument by which a retiring trustee is discharged contains
such a declaration as is in this section mentioned by the retiring and
continuing trustees and by the other person, if any, empowered to appoint
trustees, that declaration shall, without any conveyance or assignment
but subject as aforesaid, operate to vest in the continuing trustees alone
as joint tenants and for the purposes of the trust, the estate, interest
or right to which the declaration relates.
(3) This section does not extend to any share, stock, annuity or property
transferable only in books kept by a company or other body or in manner
prescribed by or under an Act of the Legislature.
(4) For the purposes of registration of an instrument the person or
persons making the declaration shall be deemed the conveying party or parties
and the conveyance shall be deemed to be made by him or them under a power
conferred by this Act.
Vesting declarations make reconstitution of the trust when the trustees
are changed less difficult. However, section 21 is seriously flawed. Uncertainty
about the effect of vesting declarations discourages non-judicial appointment
and removal of trustees, forcing court applications for appointment and
removal or for vesting orders that should be unnecessary. Section 12 of
the Trustee Act, 1893 has been replaced in England by section 40
of the Trustee Act, 1925. The English reform has been widely
adopted in the Commonwealth. In Canada, Manitoba has followed the English
lead.(349) The formula adopted in Manitoba
and other commonwealth jurisdictions appears to have worked well in practice.
(a). Express vesting declarations
The language used in the Saskatchewan to give recognition to vesting
orders on appointment of new trustees (section 21(1)) and on retirement
of a trustee (section 21(2)) is repeated without significant change in
the Trustee Act, 1925 and provisions based on it. A close
reading of these sections suggests that the vesting declaration must list
the trust property. This is obviously inconvenient, since not all the property
owned by the trust may be known to the new trustees when the declaration
is made, or some trust property may be inadvertently omitted. The Trustee
Act, 1925 cured this defect by deeming that vesting declarations apply
to all trust property, whether it is enumerated in the declaration or not.
Manitoba similarly provides that:
13.- (3) An express vesting declaration, whenever made, notwithstanding
that the estate, interest or right to be vested is not expressly referred
to, and provided that the other statutory requirements were or are complied
with, operates, and shall be deemed always to have operated, to vest in
the persons respectively referred to in subsection (1) and (2), as the
case may require, such estates, interests, and rights, as are capable of
being, and ought to be, vested in those persons.(350)
This is a rather indirect way of relieving the new trustees of the need
to list the trust property, if that was in fact what was intended in the
original vesting declaration legislation. The Ontario Law Reform Commission
has suggested a formula that makes it clear that no list is required without
the need for a clarifying subsection:
A deed by which one or more substitute or additional trustees are appointed,
or by which a trustee is discharged without another trustee being appointed,
may contain an express declaration that the trust property vests in one
or more trustees who shall perform the trust as of the date of the instrument
or such other date as is stated in the instrument for that purpose.(351)
We prefer the simpler language recommended by the Ontario Law Reform
Commission to the Trustee Act, 1925 and the Manitoba Act. Note that
the Ontario recommendation avoids repetition by dealing with both appointment
and retirement in a single provision. However, two small changes in the
wording proposed by the Ontario Commission appear to us to be unnecessary.
First, the Ontario provision refers to a "deed" appointing or removing
trustees. We see no reason to require the instrument to take the form of
a deed, which is not required under existing Saskatchewan legislation.
Second, note that the Ontario proposal refers to "discharged" trustees.
For reasons discussed above, we do not believe "discharged" is an appropriate
term in this context. Thus reference should be made to "removal or appointment"
in its place.(352)
(b). Deemed vesting declarations
The Trustee Act, 1925 also addressed cases in which an appointment
or retirement occurs, but no vesting declaration is included in the instrument
making the appointment or retirement. In such cases, rather than requiring
the new trustees to apply to the court for a vesting order, the 1925 Act
deems the instrument of appointment or retirement to vest the property
as though it had contained a vesting order. The analogous Manitoba provision
(353)
states that:
13.- (1)(b) If the instrument . . . does not contain such a declaration,
the instrument operates as if it had contained such a declaration by the
appointor extending to all the estates, interests, and rights, with respect
to which a declaration could have been made.
The Ontario Law Reform Commission recommends a similar provision, but
simplifies the terminology:
Where a deed within the meaning of subsection (1) does not contain an
express declaration, a declaration that the trust property vests in one
or more trustees who shall perform the trust is implied therein as of the
date of the instrument.
A similar provision would be appropriate in Saskatchewan.(354)
(c). Effect of vesting declarations
Outside the present context, the term "vest" is usually applied to future
interests in land. A interest vests when no contingency can prevent an
interest from eventually falling into possession. The use of the term "vest"
in regard to trustees has a somewhat narrower meaning. To constitute a
trust, legal title to the trust property must be "vested" in the trustees
by conveyance to them.(355) Thus to "vest"
property in trustees is equivalent to conveyance of the property to them.
Because "vest" is used in a rather special sense in trust law, it is
surprising that neither the Trustee Act, 1893 nor the
Trustee
Act, 1925 sets out the effect of vesting when a vesting declaration
is made or implied.(356) Anomalously,
both Acts do set out the effect of a vesting order made by the court in
regard to real, though not personal, property. This provision is included
in the Saskatchewan Act.(357) The absence
of a comprehensive definition of "vest" does not appear to have created
any difficulty. It could be argued that no definition is required. However,
we are inclined to agree with the Ontario Law Reform Commission that trust
legislation could usefully include a comprehensive statement setting out
the effect of vesting under both vesting declarations and vesting orders
by equating vesting with deemed conveyance.(358)
We recommend including this statement in the provisions relating to vesting
orders. The provisions governing vesting declarations should provide that
such declarations have the same effect as vesting orders. (359)
One consequence of vesting declarations is set out in section 21(4)
of the Saskatchewan Act. Although this section was copied from the Trustee
Act, 1893, its most useful role is to make it clear that the new trustees
may register title under The Land Titles Act.. The Manitoba Act
contains a similar provision.(360) It
should be retained in substance in trusts legislation.(361)
The existence of the land titles system is expressly acknowledged in section 21(1), which states that a vesting declaration vests trust property "subject to The Land Titles Act". However, this addition appears to have been grafted on to the language of the 1893 Act without proper consideration of the effect of the land titles system on conveyance of real property. Just what it implies is uncertain.
Real property may be conveyed outside the land titles system. Thus,
the conveyance required to constitute a trust need not be a transfer registered
in the land titles system. A vesting order is similarly sufficient to convey
real property to the new trustees without registration. The trustees have
full authority to deal with the property as legal owners by virtue of the
declaration, though registration of their title will be a practical necessity
if the new trustees seek to sell or mortgage the property. It is thus section
21(4) rather than the reference to The Land Titles Act in section
21(1) that reconciles vesting declarations with the land titles system.
A final consequence of vesting declarations should also be considered.
As a practical matter, vesting declarations are evidence that the new trustees
have title to the trust property, and are authorized to sell, mortgage
or otherwise convey the property to others. The Ontario Law Reform Commission
would further clarify this authority by providing that a vesting declaration
is "conclusive evidence of the validity of the vesting of trust property"
in favour of a purchaser of the property without actual notice to the contrary.(362)
In our opinion, this recommendation is unnecessary. We have recommended
above that the instrument appointing or removing trustees should be deemed
to be conclusive evidence of proper appointment of the new trustees. The
vesting declaration has the statutory effect of conveying the trust property
to these trustees. It is not necessary to future provide that the declaration
is evidence of authority to dispose of trust property. In addition, we
are concerned that, without further elaboration, the Ontario recommendation
may be difficult to reconcile with the priorities established by registration
under the land titles system.
(d). Property excluded from the scope of vesting declarations
Section 21(3) of the Saskatchewan Act recognizes only one type of property
that cannot be vested by a vesting declaration: "[A]ny share, stock, annuity
or property transferable only in books kept by a company or other body
or in manner prescribed by or under an Act of the Legislature". This is
a significant exception. Many modern trusts are composed primarily of corporate
securities. We agree with the Ontario Law Reform Commission that this exception
undermines "the whole system of express and implied vesting declarations."(363)
Under older English and Canadian corporation law, corporate securities
could only be transferred upon a request to the corporation to enter the
transfer on the books of the corporation. In the result, it was held that
a trust of securities is not properly constituted unless the conveyance
to the trustees has been entered on the books of the corporation.(364)
Modern corporation statutes in Saskatchewan in most other Canadian jurisdictions
now provide that a security is transferred by endorsing the share or bond
certificate and delivering it to the corporation for registration. In our
view, the modern system for transferring securities is analogous to the
land titles system. Although there are apparently no authorities directly
on point, it is likely that endorsement creates ownership rights in the
transferee(365), but the benefits of ownership,
such as the right to vote shares and receive dividends, cannot not be secured
without registration.(366) We agree with
the Ontario Law Reform Commission that the exception for corporate securities
can, and should, be dispensed with.
The Trustee Act, 1925 contains two additional exceptions, which
have been carried over into the Manitoba Act. The Manitoba Act provides:
13.- (4) This section does not extend
(a) to land conveyed by way of mortgage for securing money subject to
the trust, except land conveyed on trust for securing debentures or debenture
stock; or
(b) to land held under a lease that contains any covenant, condition,
or agreement, against assignment or disposing of the land without licence
or consent, unless, prior to the execution of the instrument containing,
expressly or impliedly, the vesting declaration, the requisite licence
or consent has been obtained, or unless, by virtue of any statute or rule
of law, the vesting declaration, express or implied, would not operate
as a breach of covenant or give rise to a forfeiture . . .
We do not believe either exception is necessary. The mortgage exception
was originally contained in the Trustee Act,
1893, but was
deleted in the Saskatchewan adaption of that legislation. It was thought
necessary in England because it was the practice to prepare mortgage documents
without any reference to the underlying trust. This was done to make it
unnecessary for the subsequent purchasers of the mortgage to investigate
trust instruments to verify the validity of title.(367)
Since trusts are not in any event registered under in the land titles system,
this exception is unnecessary in Saskatchewan.
The exception for leaseholds was adopted in England in 1925, apparently
out of concern that a vesting declaration might amount to breach of a covenant
in a lease against assignment without consent of the lessor. This is an
another example of an over abundance of caution. Assignment of a lease
by operation of law does not breach a covenant against assignment.(368)
We are of the opinion that this covers the case of assignment of a lease
by a vesting declaration. Although the Ontario Law Reform Commission(369)
would follow Manitoba in retaining this exception, we do not believe it
is necessary to introduce it into Saskatchewan law.
(e). Vesting apart from declaration
As noted above, prior to 1893 it was necessary to convey trust property
from the old trustees to the new trustees when the roster of trustees was
changed. Under the Saskatchewan Act, actual conveyance will still be required
if no vesting declaration is made, or if the property consists of corporate
securities. The deemed declaration provision we have proposed will make
actual conveyance unnecessary in the first case, and we have also recommended
eliminating the exception with respect to corporate securities. Under these
recommendations, there is little reason for resorting to conveyances to
vest trust property.
The Saskatchewan Trustees Act contains several provisions that
relate directly to vesting by conveyance: Section 15(2) directs that when
new trustees are appointed, the trust property shall "with all convenient
speed" be conveyed to the new trustees. Section 16(d) requires that "any
assurance or thing requisite for vesting trust property . . . shall be
executed or done" when new trustees are appointed. Section 20(2) is identical
to section 16(d), but applies when a trustee retires. These provisions
will be unnecessary if our other recommendations are adopted. Even in the
context of the present Act, the instruction to convey to new trustees is
misleading; it would be even more inappropriate under our recommendations.
There may remain a few situations in which it will be convenient to convey
trust property to new trustees rather than rely on a vesting declaration,
but even if the provisions discussed here are deleted, nothing will prevent
such a course of action.
4. Vesting orders
When trustees are removed or appointed by the court, the trust property
is vested in the new trustees by a vesting order. In some cases, when non-judicial
appointment or removal of trustees has been made, the new trustees may
nevertheless seek the assistance of the court by requesting a vesting order.
Finally, in a few cases, it may be desirable to vest trust property in
some one other than a trustee, such as beneficiary or purchaser. The
Trustees Act contains extensive provisions governing vesting orders.
Section 23 provides for vesting orders "as to land". Sections 27 and 28
set out the effect of vesting orders "of land". Sections 30 and 31 deal
with vesting orders "as to stocks and choses in action". Section 34 allows
trustees and beneficiaries to apply for vesting orders. Section 29 allows
the court to appoint some person to convey the trust property instead of
making a vesting order. Sections 32 and 33 allows the court to vest property
in charities. Sections 24-26 relate to vesting of property in what are
effectively constructive trustees in special circumstances. All of these
provisions were taken from the Trustee Act, 1893.
Despite obvious duplication and rather obscure language, there is no
evidence that the vesting order provisions have created serious practical
difficulty. In England, they were carried over without significant change
in the Trustee Act, 1925. We recommend few change in substance.
Otherwise, our recommendations in regard to vesting orders are intended
to clarify and simplify.
(a). Vesting orders made to further administration of trusts
Section 23 of The Saskatchewan Trustees Act provides for vesting
of real property:
23.- (1) In any of the following cases, namely:
(a) where a trustee either original or substituted is appointed by the
court or otherwise; or
(b) where a trustee dies or desires to be discharged from the trust
or refuses or becomes unfit to act or incapable of acting, and the trust
property is to be vested in the surviving or continuing trustees; or
(c) where a trustee entitled to be possessed of any land, or entitled
to a contingent right therein, either solely with any other person, is
an infant, or outside Saskatchewan, or cannot be found; or
(d) where it is uncertain who was the survivor of two or more trustees
jointly entitled to or possessed of any land; or
(e) where it is uncertain whether the last trustee known to have been
entitled to or possessed of any land is living or dead; or
(f) where there is no heir or personal representative of a trustee who
was entitled to or possessed of land and has died intestate as to that
land, or where it is uncertain who is the heir or personal representative
or devisee of a trustee who was entitled to or possessed of land and is
dead; or
(g) where a trustee jointly or solely entitled to or any land, or entitled
to a contingent right therein, has been required by or on behalf of a person
entitled to require a conveyance of the land or to a release of the right,
to convey the land or release the right, and has wilfully refused or neglected
to convey the land or release the right for fourteen days after the date
of the requirement;
the Court of Queen's Bench may make an order, in this Act called a vesting
order, vesting the land in such person in such manner, and for such estate,
as the court may think fit, or releasing or disposing of the contingent
right to such person as the court may direct.
(2) Where the order is consequential on the appointment of a new trustee
the land shall be vested, for such estate as the court may direct, in the
persons who, on the appointment, are the trustees.
(3) Where the order relates to a trustee entitled jointly with another
person, and that trustee is outside Saskatchewan or cannot be found, the
land or right shall be vested in the other person, either alone or with
some other person.
Section 30 The Saskatchewan Trustees Act provides for
vesting of securities and choses in action:
30.- (1) In any of the following cases:
(a) where the Court of Queen's Bench appoints, or has appointed, a new
trustee; or
(b) where a trustee entitled alone, or jointly with another person,
to stock, or to a chose in action:
(i) is an infant; or
(ii) is outside Saskatchewan; or
(iii) cannot be found; or
(iv) neglects or refuses to transfer stock, or receive the dividends
or income thereof, or to sue for, or recover a chose in action, according
to the direction of the person absolutely entitled thereto, for fourteen
days next after a request in writing has been made to him by the person
so entitled; or
(v) neglects or refuses to transfer stock, or receive dividends or income
thereof, or to sue for, or recover a chose in action for fourteen days
next after an order of the Court of Queen's Bench for that purpose has
been served on him; or
(c) where it is uncertain whether a trustee entitled, alone or jointly
with another person, to stock or to a chose in action is alive or dead;
the Court of Queen's Bench may make an order vesting the right to transfer,
or call for a transfer of stock, or to receive the dividends or income
thereof, or to sue for or recover a chose in action in any such person
as the court may appoint.
(2) Where the order is consequential on the appointment by the court
of a new trustee, the right shall be vested in the persons who, on the
appointment, are the trustees.
(3) Where the person whose right is dealt with by the order was entitled
jointly with another person, the right shall be vested in that last mentioned
person, either alone or jointly with any other person whom the court may
appoint.
(4) Where a vesting order may be made under this section the court may,
if it is more convenient, appoint some proper person to make, or join in
making, the transfer.
(5) The person in whom the right to transfer or call for the transfer
of any stock is vested by an order of the court under this Act may transfer
the stock to himself, or any other person, according to the order, and
all chartered banks and all companies shall obey every order made under
this section.
(6) After notice in writing of an order under this section it shall
not be lawful for any chartered bank or any company to transfer any stock
to which the order relates, or to pay any dividends thereon except in accordance
with the order.
(7) The Court of Queen's Bench may make declarations and. give directions
concerning the manner in which the right to any stock or chose in action,
vested under this Act, is to be exercised.
(8) The provisions of this Act as to vesting orders apply to shares
in ships registered under the Acts relating to merchant shipping as if
they were stock.
Sections 23 and 30 each list circumstances in which vesting orders can
be made. This list includes, in addition to appointment and removal of
trustees, circumstances in which a trustee is incapable of acting, or in
which the required course of action is difficult without court assistance.
Thus the court may make a vesting order in cases in which trustees have
not been appointed or removed.
There are, however two significant incongruities in these sections.
First, neither section authorizes the court to vest personal property other
than securities and choses in action. Second, it is remarkable that the
lists in sections 23(1) and 30(1) are somewhat different in substance,
and that even taken together, are not exhaustive. Thus, for example, section
23 refers to cases in which a trustee has died, while section 30 does not.
In cases not covered by the statute, vesting orders must be made under
the inherent jurisdiction of the court.(370)
A partial explanation of these inconsistencies lies in the history of
the vesting order provisions. They were originally enacted in England at
different times, and to cure particular problems.(371)
Nevertheless, the problem was not cured by the
Trustee Act, 1925. The
vesting order provisions in the Manitoba Trustee Act were based
on the Trustee Act, 1925, and improved on the model by consolidating
vesting order provisions in respect of real property, securities and choses
in action in a single section(372). But
the Manitoba Act does not encompass other personal property, nor is the
consolidated list comprehensive.
We agree with the Ontario Law Reform Commission that a single section
should govern vesting of trust property in a comprehensive fashion. This
goal could be achieved by consolidating and expanding the lists of circumstances
in which vesting orders can be made under sections 23 and 30. This is the
approach that has been by Australian reformers. The Western Australia Trustees
Act, 1962, for example, lists thirteen circumstances in which a vesting
order may be made.(373) However, it is
likely that not even Western Australia's list is exhaustive. We agree with
the Ontario Law Reform Commission that it would be better to avoid listing
specific circumstances in which vesting orders can be made. It would be
more appropriate to simply affirm the court's broad jurisdiction to make
vesting orders whenever required to assist in the administration of a trust.(374)
The Ontario recommendation provides:(375)
(1) Where it appears to the Court to be in the best interests of a trust,
the Court, subject to subsection (2), may upon application vest the trust
property or an interest therein in one or more persons in such manner,
for such estate or interest and on such terms as the Court orders.
(2)Where an order under subsection (1) is consequential on the appointment
of one or more new trustees or on the retirement or removal of a trustee
without the appointment of anew trustee in place of the trustee retiring
or removed, the Court shall vest the trust property in the person or persons
who, on the appointment, retirement or removal, are the trustees.
A similar provision should be adopted in Saskatchewan(376).
(b). Effect of vesting orders
Section 27 of the Saskatchewan Trustees Act provides:
27.- A vesting order under any of the foregoing provisions shall,
in the case of a vesting order consequential on the appointment of a new
trustee, have the same effect as if the persons who before the appointment
were the trustees, had duly executed all proper conveyances of the land
for such estate as the court of Queen's Bench directs, or if there is no
such person, or no such person of full capacity, then as if such person
had existed and been of full capacity and had dully executed all proper
conveyances of the land for such estate as the court directs; and shall
in every other case have the same effect as if the trustee, or other person,
or description or class of persons, to whose rights or supposed rights
those provisions relate, had been an ascertained and existing persons of
full capacity, and had executed a conveyance or release to the effect intended
by the order.
We have noted above that this provision is probably not strictly necessary,
but is nevertheless useful.(377) It should,
however, be extended to specify the effect of vesting of personal property,
and the language of the section can be considerably simplified.(378)
Section 28, also included under the heading "effect of vesting orders
of land" in the Saskatchewan Act, provides:
28.- Where a vesting order is made as to land, founded on an
allegation of the personal incapacity of a trustee, or on and allegation
that a trustee is outside Saskatchewan or cannot be found, or that it is
uncertain which of the several trustees was the survivor, or on an allegation
that a trustee has died intestate without an heir, or has died and it is
not known who is his heir or personal representative or divisee, the fact
that the order has been so made shall be conclusive evidence of the matter
so alleged in any court upon a question as to the validity of the order;
but this section does not prevent the Court of Queen's Bench from directing
a conveyance on the payment of costs occasioned by the order if improperly
obtained.
Section 31, which carries the heading "effect of vesting orders on choses
in action", appears to be similar in effect:
31.- Where an order has been made under this Act by the Court
of Queen's Bench vesting the legal right to sue for or recover a chose
in action, or an interest in respect thereof, in any person, he may carry
on, commence and prosecute in his own name an action or proceeding for
the recovery of the chose in action in the same manner and with the same
right as the person in whose place he has been appointed.
These provisions are not contained in modern English trusts legislation.
In our opinion, they are unnecessary. A court order can be relied upon
as evidence of title to trust property by both the trustees and persons
dealing with trustees in the absence of provisions such as these.
(c). Appointment of persons to convey
Section 29 of the Saskatchewan Trustees Act provides:
29.- Where a vesting order is made under any of the foregoing
provision, the court of Queen's Bench may, if it is more convenient, by
order appoint a person to convey the land or release the contingent right,
ad a conveyance or release by that person in conformity with the order
has the se effect as an order under the appropriate provisions.
This remains a useful provision(379),
giving the court an alternative to a vesting order when the property involved
can easily be conveyed or transferred. The court might, for example, appoint
a retiring trustee to transfer trust realty under The Land Titles Act,
or to transfer securities by endorsement and delivery under a corporation
statute.(380)
(d). Vesting property in charities
Sections 32 of the Saskatchewan Trustees Act provide:
32.- The Court of Queen's Bench may exercise the powers herein
conferred for the purpose of vesting land or personal estate in the trustee
of a charity or society over which the court would have jurisdiction upon
action duly instituted.
Section 32 was copied from the English Trustee Act, 1925. Charitable
trusts are subject to the cy-pres doctrine: If property is donated
in trust to a charity that has ceased to exist or otherwise cannot accept
the donation, the court may direct that the trust property be applied to
similar charitable objects. Section 32 was intended to facilitate application
of the cy-pres doctrine by using a vesting order to achieve its
purpose.(381) This remains a necessary
provision, but it is deficient in one respect. Like its English model,
section 32 purports to allow vesting in a "charity" or a "society". The
cy-pres
doctrine
applies only to charities. It would be inappropriate to apply section 32
to vest property in a society whose purposes are not recognized in law
as charitable. The section should be limited to charities.(382)
(e). Vesting orders in other specified cases
Sections 24, 25 and 26 of the Saskatchewan Trustees Act provide
for vesting orders in certain anomalous cases:
24.- Where land is subject to a contingent right in an unborn
person, or a class of unborn persons, who, on coming into existence, would,
in respect thereof, become entitled to or possessed of the land on any
trust, the Court o Queen's Bench may make an order releasing the land from
the contingent right, or vesting in any person, the estate to or of which
the unborn person or class of unborn persons, would, on coming into existence,
be entitled or possessed.
25.- Where a court gives a judgment or makes an order directing a sale of land, every person who:
(a) is entitled to or possessed of the land, or entitled to a contingent
right therein as heir or under the will of a deceased person for payment
of those debts the judgment was given or order made; and
(b) is a party to the action or proceedings or is otherwise bound by the judgment or order;
shall be deemed to be so entitled or possessed as a trustee withing
the meaning of this Act, and the Court of Queen's Bench may make an order
vesting the land or any part thereof, for such estate, as that court thinks
fit, in the purchaser or any other person.
26.- Where a judgment is given for the specific performance of
a contract concerning land, or for the partition or sale in lieu of partition,
or exchange of land, or generally where a judgment is given for the conveyance
of land, either in cases arising out of the doctrine of election, or otherwise,
the Court of Queen's Bench may declare that any of the parties to the action
are trustees of the land, or any part thereof, within the meaning of this
Act, or may declare that the interest of unborn persons who might claim
under a party to the action, or under the will, or voluntary settlement,
of a person deceased, who was during his lifetime a party to the contract
or transactions concerning which the judgment was given, are the interests
of person who, on coming into existence, would be trustees within the meaning
of this Act, and thereupon the Court of Queen's Bench may make a vesting
order relating to the rights of those persons, born ad unborn, as if they
had been trustees.
Section 24 has its origin in the English Trustee Act, 1850. It
may have been useful to deal with problems arising out of complex settlements
of land. Its purpose is to make it possible for purchasers to get a conveyance
of an estate in fee simple when land is subject to contingent legal interests
in unborn persons. The provision has little to do with trusts, and in any
event, contingent future interests in land are now invariably equitable
rather than legal, and do not present the problem section 24 was designed
to cure. Section 24 can be safely deleted.
Sections 25 and 26 remain useful. However, neither has anything to do
with express trusts, which is the general subject matter of The Trustees
Act. In both cases, a conveyancing problem is solved by vesting land
in a person who becomes, in effect, a constructive trust. We recommend
removing these provisions from The Trustees Act, and re-enactment
in the
Queen's Bench Act, which contains similar miscellaneous provisions
relating the powers of the court. (383)
The Commission recommends adoption of a new Trustees Act. The
substance of the new legislation should provide as follows:
General
1.1 Except as otherwise provided, a "trustee" in these Recommendations
includes a personal representative.
1.2 Except as otherwise provided, any power, duty or authority conferred
on a trustee by these Recommendations is subject to any express provision
to the contrary in the trust instrument.
1.3 Except as otherwise provided, when these Recommendations allow or
require an application to court, all matters of practice, costs, and standing
shall be governed by The Queen's Bench Act and the Rules of Court.
Duties and Rights of Trustees
Duty of care of trustees
2.1 (1) In the discharge of his or her duties and the exercise of his
or her powers, whether the duty or power is created by law or by the trust
instrument, a trustee shall exercise that degree of care and diligence
that a person of ordinary prudence would exercise, having regard to the
skill, and experience, and qualifications of the trustee.
(2) A trustee who in possesses, or because of his or her profession,
business or calling ought to possess, a particular level of knowledge or
skill which in all the circumstances is relevant to the administration
of the trust, shall employ that particular level of knowledge or skill
in the administration of the trust.
2.2 Any clause in a trust that relieves a trustee
(i) who has committed a breach of trust in bad faith, intentionally,
or with reckless indifference to the interest of the beneficiary, or of
liability for any profit which the trustee has derived from a breach of
trust, or .
(ii) who receives remuneration for administration of the trust, and
who holds out that he or she possesses special skills or knowledge relevant
to the administration of the trust from the duty of care set out in these
recommendations
is invalid for that purpose
Conflicts of interest
2.3 Trustees shall discharge their duties and exercise their powers
solely in the interests of the beneficiaries of the trust, and without
limiting the generality of the foregoing, they shall not knowingly permit
themselves to be in a position in which their interest conflicts in any
way with the discharge of their duties and the exercise of their powers,
or in which they may derive any benefit for themselves or for any other
person, except so far as the law permits.
2.4 Where upon application to the court it is shown that it would not
be detrimental to the trust or its beneficiaries, and whether or not any
beneficiary withholds his consent, the Court may make an order, on such
terms and conditions as appear just
(a) permitting the trustees to act notwithstanding that they may be
in a position that contravenes the trustees' duty to avoid a conflict of
interest; or
(b) excusing them from liability notwithstanding that they may be in
breach of trust for having acted while in a position that contravened the
trustees' the duty to avoid a conflict of interest.
Use of agents and delegation by trustees
2.5 (1) In this recommendation, "agent" includes a stock broker, investment
dealer, investment counselor and any other person to whom investment responsibility
is delegated by a trustee.
(2) A trustee may delegate to an agent the degree of authority with
respect to the investment of trust property that a reasonable, prudent
investor would delegate in accordance with ordinary business practice.
(3) A trustee who delegates authority pursuant to recommendation (2)
must exercise prudence and diligence in:
(a) selecting the agent;
(b) establishing the terms of the authority delegated; and
(c) monitoring the performance of the agent to ensure compliance with
the terms of the delegation.
(4) In performing a delegated function, an agent owes a duty to the
trustee and to the beneficiaries to exercise reasonable care to comply
with the terms of the delegation.
(5) A trustee who complies with recommendation (3) is not liable for
the decisions or actions of the agent to whom the authority was delegated.
(6) This section does not authorize a trustee to delegate authority
where the terms of the trust expressly prohibit the trustee from delegating
authority to make investments.
(7) Investment in a security issued by a mutual fund as defined in The
Securities Act, 1988 or in a similar investment is not a delegation
of authority with respect to the investment of trust property.
Duty to act impartially
2.6 Trustees shall act impartially as between income and capital beneficiaries,
having regard to each item of trust property, whatever the nature of the
property, and whether it is an original asset or an asset acquired subsequently.
2.7 (1) Subject to recommendation 6, unless the trust instrument provides
otherwise
(a) Trustees may apportion any payment or expenditure for any outgoing
between the income and capital accounts, or they may charge the payment
or expenditure, exclusively to either income or capital as they consider
just and equitable in all the circumstances;
(b) Trustees may pay for any outgoing from income or capital, or wholly
or partly from each, as appears to them to be in accord with sound business
practice and in the best interests of the trust beneficiaries as a whole,
and, where the whole or part of the payment or expenditure is made out
of or charged to capital, they may recoup income from capital, if, in either
case, they consider that course to be just and equitable in all the circumstances;
and
(c) Trustees may, and if ordered by the Court upon application shall,
deduct from the income derived from trust property that is subject to depreciation
or obsolescence such amounts as are fair and reasonable having regard to
sound business practice in order to protect the capital of the trust from
loss, and any sums so deducted shall be set aside and added to the capital
of the trust so as to become capital for all purposes.
(2) This recommendation does not apply to trust for the exclusive benefit
of the spouse of the testator or settlor within the meaning of the Income
Tax Act (Canada).
2.8 (1) Subject to recommendation 6, unless the trust instrument provides
otherwise, trustees shall allocate receipts to the income and capital accounts
as they consider just and equitable in all the circumstances.
(2) For the purposes of this recommendation and for determining the
relative proportionate interests of beneficiaries of the trust, but not
so as to limit in any way the powers conferred by recommendation (1):
(a) income may be understood to be the return in money or property derived
from the use of capital; and
(b) capital may be understood to be the property set aside by the trust
instrument to be delivered eventually to a remainderman, while the return
or use of the capital is in the meantime taken or received by or held for
accumulation for an income beneficiary.
Accounting by trustees
2.9 (1) A trustee may at any time apply to the Court for an order passing
the accounts of the trustee.
(2) The procedure upon an application under recommendation (1) shall
follow the procedure for the passing of executors' and administrators'
accounts.
(3) Unless mistake or fraud is shown, the approval by the court of the
accounts of a trustee is binding on any person interested in the trust
who was notified of the proceedings, or who claims through such a person.
(4) Except in the case of a executor, administrator, or trustee who
must pass accounts in accordance with The Administration of Estates
Act, when administration of the trust has been completed, a trustee
may, upon passing accounts, be discharged, and any bond or security given
by the trustee may be cancelled or delivered to him or her.
2.10 Notwithstanding anything to the contrary in the terms of a trust,
if a beneficiary or other interested party has requested information concerning
the accounts of a trustee, and the trustee has refused to comply with the
request in a reasonable and timely manner, the court may order the trustee
to pass accounts.
Joint liability of trustees
2.11(1) Unless the instrument creating the trust provides otherwise,
trustees must act unanimously in discharging heir duties and exercising
their powers as trustees, and, except as otherwise provided by law, are
jointly and severally liable.
(2) A trustee is chargeable only for money and securities actually received
by him, notwithstanding his signing a receipt for the sake of conformity,
and is answerable and accountable only for his acts, receipts, neglects
or defaults, and not for those of any other trustee, nor for any banker,
broker or other person with whom trust money or securities are deposited.
(3) Where a trustee has committed a breach of trust at the instigation,
request, or written consent of a beneficiary, the court may make such order
as seems just to indemnify the trustee or person claiming through him out
of the beneficiary's interest in the trust.
Relief from breaches of trust
2.12 Where a trustee, or any person who may be held liable as a trustee,
is or may be personally liable for a breach of trust as the result of any
act or omission of the trustee or of an agent of the trustee, the court
may, if the trustee has acted honestly and reasonably and ought fairly
to be excused for the breach, or for omitting to obtain the directions
of the court in the matter in which it was committed, relieve the trustee
either wholly or partly form personal liability.
Application for advice or direction
2.13 (1) A trustee or guardian may apply to court for the opinion, advise
and direction of the court on any question respecting the management or
administration of the trust or estate, including any question affecting
the rights or interests of a person or class of persons claiming to be
interested in the trust or estate.
(2) Upon an application under Recommendation (1), the court may direct
the trustee or guardian to do or abstain from doing any particular act
respecting the management or administration of the trust or estate
(3) Unless a trustee or guardian has been guilty of fraud, misrepresentation,
or wilful concealment in obtaining the opinion, advise and direction of
the court, a trustee or guardian acting upon the opinion, advise and direction
of the court shall be deemed to have discharged his or her duty as a trustee
or guardian in respect to the matter on which the opinion, advise and direction
was sought.
Remuneration and indemnification
2.14 (1) Unless remuneration is fixed by the trust instrument,
a trustee or a property guardian is entitled to a reasonable allowance
for administration of an estate, including remuneration for professional
services rendered to the estate by a solicitor who is a trustee or guardian.
(2) The amount of remuneration shall be fixed by the court on application
for that purpose, or upon passing of accounts.
(3) The court may vary a term of a will or instrument creating
a trust that fixed the remuneration of a trustee (other than by contract
between the settlor or testator and the trustee), if that term does not
provide for sufficient remuneration.
2.15 (a) A trustee or guardian may receive remuneration for services
already rendered prior to court approval under Recommendation 14 if notice,
with full details of the remuneration sought and of the services to which
it relates, is given to the adult beneficiaries. Such notice must include
the statement that the recipient of the notice may object to the proposed
taking of remuneration within 60 days from the date of the notice.
(b) Anyone entitled to notice under Recommendation 2(b) may objects
to the remuneration proposed by application to the court within 60 days
of the date of the notice
2.16 A trustee .may be reimbursed out the trust property for all expenses
incurred in administration of the trust.
Consequential
2.17 These recommendations replace sections 3.1, 13, 44,46,79, and 80-84,
and 87 of The Trustees Act.
2.18 Section 35 of The Administration of Estates Act should be
amended to provide that on passing accounts under the section, an executor,
administrator, or trustee may be discharged and any bond or security given
by the trustee may be cancelled or delivered to him or her.
Powers of Trustees
Administrative powers
3.1 The administrative powers proposed in Recommendation 2 apply only
if not excluded by the terms of the trust.
3.2.Trustees may:
(a) sell trust property by public auction or private contract for cash
or credit on appropriate security;
(b) dispose of trust property by way of exchange for other property,
or where the trust property consists of an undivided share, concur in the
partition of the property in which the share is held;.
(c) surrender insurance policies, leases or other property subject to
onerous obligations of such a nature that it would not be in the interests
of the beneficiaries to retain the trust property;
(d) grant an option to purchase land , or any easement, right, or privilege
of any kind in relation to the land, including mining leases or other disposition
of rights to mines and minerals;.
(e) enter into or renew a lease as lessee or lessor;
(f) postpone sale or conversion under a trust for sale or conversion,
for such period as is reasonable in the circumstances;
(g) carry on any business, whether as sole proprietor, partner, limited
partner or otherwise, incorporate or otherwise change the form of the business,
and dispose of or wind up the business;
(h) manage, maintain, repair, renovate, improve or develop trust property,
including in the case of land, subdividing, erecting buildings,. and entering
into agreements with respect to boundaries, party walls, fencing or other
matters in connection with trust property;
(i) purchase or rent a living accommodation or construct a house on
land held by them for the purpose of providing a home for person entitles
to the income of the money expanded in respect of the purchase, or the
income to be expanded in respect of the rent or the income of either the
land or the money expanded in respect of the purchase or construction;
(j) appropriate with the consent of a beneficiary property in specie
in full or partial satisfaction of the share of the beneficiary, and for
that purpose, value the property;
(k) insure against loss or damage to trust property and against any
other risk or liability;
(l) borrow funds, with or without giving trust property as security;
(m) deposit trust funds in:
(i) a chartered bank;
(ii) a credit union that is incorporated under The Credit Union Act, 1998 or any former Credit Union Act;
(iii) Saskatchewan Co-operative Credit Society Limited;
(iv) a trust company that is licensed under The Trust and Loan Companies Licensing Act;
(v) a loan company that is licensed under The Trust and Loan Companies Licensing Act and that is a member of the Canada Deposit Insurance Corporation;
(vi) any other body corporate that is empowered to accept moneys for
deposit and that has been approved for that purpose by the Lieutenant Governor
in Council
provided that unless the trustee is a trust company registered and entitled
to transact business as a trust company in Saskatchewan, the trustee shall
deposit trust funds in a separate account in his name in the bank or other
depository for each trust for which moneys so deposited are held;
(m) exercise all rights and powers and satisfy all liabilities incidental
to the ownership of shares or obligations of a corporation, or membership
in a co-operative or credit union, including power to sell or exercise
subscription rights, to exchange the shares and obligations for other shares
and obligations, to join in plans for reconstruction, reorganization or
amalgamation, to enter into pooling or other agreements,
or to authorize sale of the assets or undertaking of the corporation, co-operative
or credit union;
(n) pay or assert or contest any claim, and compromise, compound, abandon,
submit to arbitration or otherwise settle any debt, account, claim or thing
relating to the trust or trust property; and
(o) do all supplementary or ancillary acts or things and execute all
instruments necessary or desirable to carry out the intent and purpose
of the powers vested in the trustees.
3.3 The receipt in writing given by a trustee relieves the person to
whom the receipt is given from responsibility for any loss or misapplication
of the trust property in respect of which the receipt is given.
Dispositive powers
3.4 (1) Where property is held in trust for an infant, either
absolutely or contingently, the trustees they may at their sole discretion
pay to the guardians, if any, of the infant or otherwise to apply towards
the maintenance or education of the infant all or any part of the income
accuring to the infant, whether or not there is a fund for that purpose,
and whether or not any other person is bound by law to provide for such
maintenance or education.
(2) The trustees shall accumulate and invest any residue of the income
, and
(a) apply the accumulated fund to the maintenance and education of the
infant, and
(b) hold any of the accumulated fund not required for the maintenance
and education of the infant for the benefit of the person who shall ultimately
become entitled to the property from which the income was derived.
3.5 (1) Where a trust fund is held in trust for an infant, either absolutely
or contingently, and the income from the fund or any other property is
insufficient for the maintenance and education of the infant; the court
may direct the trustees to, pay to the guardian, if any, of the infant
or otherwise apply towards the maintenance or education of the infant all
or any part of the fund.
(2) In addition to the amounts authorized by the court to be applied
towards the infant's maintenance and education, the court may authorize
application of any additional amounts that are, in its opinion, required
to meet special circumstances or expenditures in the best interests of
the infant.
3.6 (1) Where personal property is held in trust for an infant absolutely
or contingently and the income from the property is insufficient for the
maintenance and education of the infant, the court may direct the trustees
may to sell any portion of the property and pay to the guardians, if any,
of the infant, or otherwise apply towards the maintenance or education
f the infant all or any part of the money arising from the sale.
(2) If the whole of the money arising from the sale is not immediately
required for the maintenance and education of the infant, the trustees
shall invest any surplus, and
(a) apply the surplus to the maintenance and education of the infant,
and
(b) hold any of the surplus not required for the maintenance and education
of the infant for the benefit of the person who shall ultimately become
entitled to the property from which the income was derived. :
Consequential
3.7 These Recommendations replace sections 37-43, 45, 47-48, and 50-51,
61-62, 64-67, and 71 of The Trustees Act.
3.8 Sections 63, 68,-70, and 72 of The Trustees Act should be
re-enacted in The Administration of Estates Act. .
Appointment and removal of trustees
General
4.1. The Recommendations in this part do not apply to personal representatives
4.2 In these Recommendations, a reference to a trustee or personal representative
who has died includes a person nominated as trustee or executor in a will
but dying before the testator.
Death of a trustee
4.3. Where a power in a trust is capable of being exercised by two or
more trustees jointly, it may be exercised by the survivors or survivor
of the trustees.
4.4. The personal representatives or representative of a sole
trustee, or of the last surviving or continuing trustee, may exercise any
power or trust capable of being exercised by the trustee.
Appointment and removal without court order
4.5 (l) The person nominated in a trust instrument for the purpose
of appointing and removing trustees, or if there is no such person, then
the surviving or continuing trustee or trustees, or the personal representative
of the last surviving trustee may in an instrument for that purpose:
(a) remove any trustee who
(i) desires to retire from the trust,
(ii) refuses to act as trustee,
.
(iii) has been declared mentally incompetent,
(iv) is an infant,
(v) has been convicted of an indictable offence,
(vi) is a person against whom a receiving order is in force, or who
has made an assignment or a proposal under the
Bankruptcy Act (Canada),
(vii) is a corporate trustee that is dissolved or in liquidation;
(b) appoint a substitute for any trustee removed under (a);
(c) appoint a trustee to in place of a trustee who has died, has disclaimed
the trust in writing, or to fill any other vacancy ;
(d) appoint additional trustees;
(e) appoint a separate set of trustees for any part of the trust property
distinct from those relating to any other part or parts, and any existing
trustee may be appointed or remain one of such separate set of trustees.
provided that at least one trustee remains, or where there are separate
trustees for a part or parts of he trust property, at least one trustee
remains for each part.
(2) Notwithstanding anything to the contrary in a trust instrument,
if a trustee requests in writing to retire from the trust, the trustee
shall be removed under subsection (1).
(3) For the purposes of this section, a surviving or continuing trustee
includes a trustee who desires to retire, or who refuses to act, but does
not include a trustee who has disclaimed the trust in writing, or any other
trustee who may be removed under subsection (1).
(4) For the purposes of this section, a person nominated in a trust
instrument for the purpose of appointing and removing trustees does not
include a person who refuses to exercise the authority so conferred by
the trust instrument, is an infant, or has been declared to be mentally
incompetent.
Court appointment and removal
4.6. (1) Where it appears to the court to be in the interests of the
trust, the court may, notwithstanding anything to the contrary in a trust
instrument
(a) remove a trustee, with or without appointment of a substitute;
(b) appoint an additional trustee; or
(c) appoint a separate set of trustees for any part of the trust property
distinct from those relating to any other part or parts, and any existing
trustee may be appointed or remain one of such separate set of trustees;
provided that at least one trustee remains, or where there are separate
trustees for a part or parts of he trust property, at least one trustee
remains for each part.
(2) An application for appointment or removal of a trustee under this
section may be made by a trustee, a beneficiary, a person nominated in
a trust instrument for the purpose of appointing and removing trustees,
or the Public Trustee.
(3) Where it appears to be in the interests of the trust to appoint
a trustee, and no suitable person will accept the appointment, the court
may appoint the Public Trustee.
Effect of a change in trustees
4.7. A trustee appointed under these Recommendations has , as well before
as after all the trust property is vested in the trustee, the same powers,
authorities and discretions and may in all respects act as if he had been
originally appointed a trustee by the instrument, if any, creating the
trust.
4.8. An instrument appointing or removing a trustee under Recommendation
6 is conclusive evidence of the validity of the appointment or discharge
in favour of a purchaser of trust property.
Vesting of trust property without court order
4.9. (1) An instrument removing or appointing trustees under Recommendation
7 may contain an express declaration that the trust property vests in one
or more trustees who shall perform the trust as of the date of the instrument
or such other date as is stated in the instrument for that purpose.
(2) Where an instrument referred to in subsection (1) does not contain
an express declaration, a declaration that the trust property vests in
one or more trustees who shall perform the trust is implied therein as
of the date of the instrument.
(3) The vesting of property in trustees under this Recommendation shall
have the same effect as if a vesting order had been made in respect to
the property.
(4) For the purposes of registration or transfer of title to any trust
property, the instrument referred to in subsection (1) or (2) shall be
deemed to be conclusive evidence that the trust property has vested in
the trustees named in the instrument.
Vesting orders
4.10. Where it appears to the Court to be in the best interests of a
trust, the Court, subject to subsection (2), may upon application vest
the trust property or an interest therein in one or more persons in such
manner, for such estate or interest and on such terms as the Court orders.
(2) Where an order under subsection (1) is consequential on the appointment
or removal of trustees under these Recommendations the Court shall vest
the trust property in the person or persons who, on the appointment or
removal, are the trustees.
(3) An application for an order vesting trust property in accordance
with this section may be made by a trustee or beneficiary of the trust.
4.11. A vesting order made under these Recommendations has the same
effect as if the legal or other interest in the property had been conveyed
or assigned to the person in whom the property is to be vested.
4.12. For the purpose of vesting any property in the trustees of a charity,
the court may exercise the powers conferred on it by these Recommendations.
4.13. Where a vesting order may be made under these Recommendations,
the Court may, in lieu thereof, appoint a person to convey, assign, or
transfer the trust property to the person in whom the trust property would
otherwise has vested by the order of the court.
Consequential
4.14. These Recommendations replace sections 14-32, 34-36, 39 and 85-86
of The Trustees Act
4.15. Sections 25 and 26 of the Saskatchewan The Trustees Act should be re-enacted in The Queen's Bench Act.
NOTES
1. Maitland, Equity: A Course of Lectures, 1936.
2. Oosterhoff and Gillese, Text, Commentary and Cases on Trusts, Toronto : Carswell, 1998, p.1.
3. For a review of modern uses of the trust, see Oosterhoff and Gillese, Text, Commentary and Cases on Trusts, Toronto : Carswell, 1998, p. 9, and D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 3. Intervivos trusts, created while the settlor of the trust property still lives, are infrequently created for family purposes. Charitable trusts, both testamentary and intervivos are occasionally created, but it is now much more common to make a donation or bequest to an established charity than to create a charitable trust. Most charities are non-profit corporations rather than trusts, though some administer trust funds. The trust is sometimes used for business purposes, but other forms of organization are much more common.
4. The Trustee Act, R.S.S. 1978, c. T-23 as amended by R.S.S. 1978 (Supplement), c.79, S.S. 1980-81, c.31; 1983, c.80; 1990-91, c.S-66.1; 1992, c.62; 1994, c.10; 1997, c.18; and 1998, c.C-45.2 and c.40.
5. O.N.W.T. 1903 (2nd sess.), c.11. The ordinance was re-enacted as The Trustees Act, R.S.S. 1909, c. 46.
6. 56 & 57 Vict., c. 53. Some additional provisions were adopted from the Judicial Trustees Act, 1896(7)
8. S.S. 1969, c. 71. See now R.S.S.1978, c. V-1.
11. The New Zealand Trustee Act, 1956 is typical of Commonwealth legislation that incorporated the reforms in the English Trustee Act, 1925. The Queensland Trusts Act (1973-81) is the most innovative of the Australian reforms of trusts legislation.
12. Statutes (England) 2000, c. 29.
13. Trustee Act R.S.M. 1987, c.T160.
14. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984.
15. Lewin on Trusts ( 6th ed.), p. 3.
16. For a discussion of fiduciary duties in these terms see Scott, "The Fiduciary Principle" (1949), 37 Cal. L. Rev., p. 539.
17. A similar classification is adopted, for example, by Oosterhoff and Gillese, Text, Commentary and Cases on Trusts, Toronto : Carswell, 1998, pp. 620 ff.
18. Administrative powers of trustees will be discussed below.
19. S.S. 1998, c. 40, s. 3. See now The Trustees Act, s. 3.1.
20. (1884), 9 App. Cas. 1 (H.L.).
21. (1887), 12 App. Cas. 727 (H.L.).
22. e.g. Fales v. Canada Permanent Trust Co., [1977] 2 SCR 302.
23. (1883), 22 Ch. D. 727 (C..A.).
24. D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 656.
25. [1977] 2 SCR 302. It may not appear to be self evident in the formula adopted by the House of Lords in Learoyd v. Whiteley and Speight v Gaunt(26)
26. (1884), 9 App. Cas. 1 (H.L.). " " " " " " " " "
27. See, for example, Re City Equitable Insurance Co. Ltd. [1925] 1 Ch. 407 (C.A.) (England).
28. Fales v. Canada Permanent Trust Co., [1977] 2 SCR 302
29. Scott, "The Fiduciary Principle" (1949), 37 Cal. L. Rev., p. 539.
30. Section 57 is discussed in more detail below.
31. This is a common use of the remedial provisions. See for example, Linsley v. Kirstiuk (1986), 28 DLR (4th) 495 (B.C.S.C.) and McDonald v. Hauer [1977] 1 WWR 51 (Sask. C.A.).
32. D. W. M. Waters, "Comment" (1977), 55 Can. Bar Rev., 342.
33. [1952] 2 All ER 1054. Following National Trustees Co. of Australasia Ltd. v. General Finance Company of Australasia Ltd. [1905] A.C. 373.
34. American law Institute, Restatement of the Law, Second -- Trusts, (1959), p. 379.
35. National Conference of Commissioners on Uniform State Law, Uniform Probate Code, (1972).
36. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), Draft Act, s. 4(2).
38. See Recommendation 2.1(2).
39. McDonald v. Hauer [1977] 1 WWR 51 (Sask. C.A.); Fales v. Canada Permanent Trust Co., [1977] 2 SCR 302.
40. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p. 28.
41. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p. 28.
43. S.S. 1998, c. 40. The new investment powers regime will be discussed below.
44. Uniform Law Conference of Canada, Uniform Trust Investments Act, 1997.
45. This innovation appears to have been proposed by a leading American expert in trust law, A.A. Scott, who wrote the commentary to the Restatement. See Jeffrey N. Gordon, "The Puzzling Persistence of the Constrained Prudent Man Rule", (1987),62 New York University Law Review, 52.
46. National Conference of Commissioners on Uniform State Law, Uniform Prudent Investor Act, 1994.
47. Proceedings of the Annual Conference on the Uniformity of Legislation in Canada, 1970, 115.
48. Uniform Law Conference of Canada, Uniform Trust Investments Act, 1997, s,. 2.
49. Section 1(1) of the Uniform Trust Investments Act, 1997 is identical.
50. Section 6 of the Uniform Trust Investments Act, 1997 is identical.
52. Judicial Trustees Act, 1896, 59 & 60 Vict., c. 35, s. 3.
53. On the scope of the provision generally, see L. A. Sheridan, "Excusable breaches of trust", (1955), 19 Conv. (N.S.), p. 420.
55. Thus in Perdue v Perdue (1928), 34 OWN 172 (Ont. C.A.), a farmer who turned over administration to his solicitor was relieved of liability for the solicitor's misdeeds.
57. Smith v. Mason (1901), 1 OLR 594 (Ont. H.C.).
58. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p. 39 reached a similar conclusion.
59. Wagner v. Van Cleeffe and Halifax Insurance Co.(1991), 5 O.R. (3d) 477, 43 E.T.R. 115 (Ont. Div. Ct.)
61. See for example Re Wilson [1937] OR 769 (Ont. C.A.) in which a clause that exonerated trustees "from any responsibility from any loss or damage which may have been occasioned through the exercising in good faith of the rights and powers hereby conferred on them" was held not to be broad enough to exclude liability for improper delegation of authority by the trustees.
62. D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 661.
64. Fales v. Canada Permanent Trust Co., [1977] 2 SCR 302.
65. (1983), 6 DLR (4th) 40 (Alta. Surr. Ct.).
66. David Steele, "Exculpatory Clauses in Trust Instruments", (1995) 14Est. & Tr. J. 216
67. National Conference of Commissioners on Uniform State Law, Uniform Probate Code, (1972).
68. N.Y. Estate, Powers & Trusts Law, 11-1.7 (1966).
69. This provision also prohibits exoneration clauses that would relieve a trustee of the consequences of a conflict of interest with the trust. Such exoneration clauses will be discussed below.
70. American law Institute, Restatement of the Law, Second -- Trusts, (1959), p. 516.
71. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), pp. 40-41.
73. D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 604.
74. Trustee Act, 1893 (56 & 57 Vict.) s. 53. This provision adopted in Saskatchewan as s. 44 of The Trustees Act (repealed 998. See below).
75. Speight v. Gaunt (1883), 9 App. Cas. 1 (H.L).
76. Oosterhoff and Gillese, Text, Commentary and Cases on Trusts, Toronto : Carswell, 1998, pp. 643-644 summarizes the law laid down by English and Canadian courts as follows: "Delegation is permitted . . . (a) if expressly authorized by statute or the trust instrument; (b) if the duties are not required to be performed personally; (c) if it is clearly necessary, that is, there is no other practicable way for the trustee to perform; and (d) if it is common business practice to delegate the particular power or duty."
77. Haslam v. Haslam (1994), 114 DLR (4th) 562 (Ont. Gen. Div.).
78. See for example, the commentary on the delegation rules in Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p. 42 ff.
79. Uniform Law Conference of Canada, Uniform Trust Investments Act, 1997, s,. 2. See discussion below.
84. (1726), Sel. Cas. Ch. 61, 25 E.R. 223.
85. Gareth Jones, "Unjust enrichment and the fiduciary's duty of loyalty" (1968), 84 L.Q. Rev., p. 472.
86. [1967] 2 AC 46 (H.L.). This formulation of the rule was adopted by the Supreme Court of Canada in Can Aero Service Ltd. v. O'Malley (1973), 40 DLR (3rd) 371.
87. Dean McLean, "The theoretical basis of the trustee's duty of loyalty", (1968-69), 7 Alta. L.R. 218.
88. D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 654, citing Holder v. Holder, [1968] Ch. D. 353 (C.A.).
89. The exceptions are summarize and discussed in D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p.623 ff.
90. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p.60, suggested that if all the beneficiaries are not competent, the conflict could be approved under variation of trusts legislation if could be shown that the trustee's proposed dealings with the trust would be in the interests of the beneficiaries. However, the Commission could find no cases in which this had been done.
91. Purchase of trust property by a trustee first seems to have been permitted in Campbell v. Walker (1800), 5 Ves. Jun. 678.
92. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p.60.
93. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p.62.
94. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), Draft Act, s. 9(1).
97. National Conference of Commissioners on Uniform State Law, Uniform Trustees' Powers Act, 1964, s. 5(b).
98. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), Draft Act, s. 9(2). Section 9(3) expressly provides that an application to approve a conflict may be brought "after the occurrence of the breach of trust". This provision does not appear to us to add anything that is not already clear in section 9(2). Sections 9(4)-9(6) require service of notice of application on interested parties. These are matters we have dealt with elsewhere. Section 9(7) permits variation of an order. We see no purpose for such a provision in this context.
102. The Restatement does permit certain apparent conflicts without court approval, and even in the absence of an exoneration clause. However, most of the instances included in the list are uncommon. Thus, for example, a trustee is permitted to purchase the trust's interest in a property if the trustee owns the other interest in the property. In addition, we agree with the Ontario Law Reform Commission, Report on the Law of Trusts, (1984), pp.7-69, that most of the exceptions in the Restatement are problematic. Thus, for example, we do not believe a corporate trustee should be permitted to retain a trust investment in its own shares without court approval. If retention in such a case was permitted under an exoneration clause, the question would arise as to whether the clause was forced on the settlor by the corporate trustee.
103. Oosterhoff and Gillese, Text, Commentary and Cases on Trusts, Toronto : Carswell, 1998, pp. 622.
104. The Saskatchewan Trustees Act, s. 79, discussed below.
106. National Conference of Commissioners on Uniform State Law, Uniform Trustees' Powers Act, 1964, s. 6. Majority rule applies only if there are more than two trustees, however.
107. Oosterhoff and Gillese, Text, Commentary and Cases on Trusts, Toronto : Carswell, 1998, pp. 622. The unanimity rule is rarely abandoned in Canada, but some specific powers (e.g. powers of appointment) are not infrequently granted to a named trustee. Such powers are "personal" to the trustee, and are in effect outside the trust proper. See D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p, 613.
108. See e.g. discussion of the issue in Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), pp. 71-73.
109. See D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 853 ff.
111. Note that the section also authorizes reimbursement of trustees for expenses. This aspect of section 13 will be discussed below.
114. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p. 383.
117. [1977] 1 WWR 51 (Sask. C.A.).
118. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p. 381.
119. D. W. M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 690-691.
120. [1971] O.R. 584 (Ont. C.A.).
121. (1802), 7 Ves. 137. See D. W. M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 694 ff. for a modern statement of the rule.
122. See, for example, Lottman v. Stanford [1980] 1 SCR 1065
124. The Saskatchewan Trustees Act, s. 3(1) (as amended S.S. 1998, c. 40).
125. The Saskatchewan Trustees Act, s. 3(3) (as amended S.S. 1998, c. 40).
126. See the discussion of the impact of investment powers reform on investment strategies in Jeffrey N. Gordon, "The Puzzling Persistence of the Constrained Prudent Man Rule", (1987),62 New York University Law Review, 52.
127. A full review of the law governing allocation of "in comings" and "out goings " is not necessary for our purposes here. For further treatment, see D. W. M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 706 ff.
128. Re Fleck, [1952] 2 DLR 657 (Ont..A.).
130. D. W. M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), pp. 709-710.
131. New Zealand Trustee Act, 1956, s. 15.
132. P.E. I. Trustee Act, s. 3.
133. D. W. M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 728.
134. Note, however that spousal trusts as defined in the Income Tax Act (Canada) are excluded from the proposed outgoings rules. This is necessary because they would lose their preferred tax status if the proposed rules applied to them. This is the only case at present in which taxation rules would make the proposals inappropriate. It is necessary to make special provision for spousal trusts because we recommend that our proposals apply to existing trusts, which may have been designed as spousal trusts.
136. 7 D. W. M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 728.
137. R.S.S. 1978,c.T-23, as amended
138. This provision does not impose any special duty on the executor/trustee as trustee. Its purpose is only to ensure that property that is to be held on trust after ordinary administration of the estate has been completed is properly administered by the executor/trustee as executor. When only the trusts established by the will remain, the executor/trustee functions only as trustee. (See D. W. M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 732.
139. See The Trustees Act, s. 87, discussed below.
140. See sections 80-84, discussed below.
141. D. W. M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 730.
142. Trustee Act, R.S.O.1990, c. T-23, s. 23.
143. Trustee Act, R.S.M., 1970, c. T-160, s. 86.
145. (1924), 27 OWN 361 (Ont.)
146. D. W. M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 735
151. Jones v. Shipping Federation of B.C. (1963), 41 WWR 636 (B.C.).
152. Trustee Act, R.S.M., 1970, c. T-160, s. 87(2).
153. Trustee Act, R.S.B.C. 1979, c. 414, s. 101(2).
155. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p. 254. The doubts are based on the Commission's interpretation of Re Smith (see below).
157. [1952] OWN 62, reversed on other grounds, [1952] OWN 170 (Ont. C.A.).
159. Trustees Relief Amendment Act, 1859 , s.30. Prior to the legislation, trustees could obtain direction from the court only upon paying the trust funds into court. See Underhill, p. 361.
160. D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p.753.
161. Oosterhoff and Gillese, Text, Commentary and Cases on Trusts, Toronto : Carswell, 1998, pp. 622.
162. Saskatchewan Rules of the Court of Queen's Bench, r. 452.
164. e.g. Re Warden (1928), 34 OWN 225 (Ont.). However, if a trustee has failed to exercise a discretion, the court may direct him to do so (Re Poche Estate (1983), 50 A.R. 264 (Alta. Surr. Ct.).
165. Re Collins, [1927] 4 DLR 770 (Ont. H.C.)
166. D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p.755-56 identifies and discusses this problem.
167. [1931] DLR 538 (Ont. C.A.).
170. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p.254.
171. Underhill on Trusts and Trustees, 6th ed., 1904, p. 361ff.
172. Underhill on Trusts and Trustees, 6th ed., 1904, p. 363.
173. 56& 57 Vict., c. 53, s. 42.
174. D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 805.
175. An Act to Amend the Law in Relation to Surrogate Courts in Upper Canada, (1858).
177. Re Molesky (1984), 37 Sask.R. 292(Surr. Ct) .
178. Thompson b. Freeman (1868), 15 GR. 384; O"Kelly v. Canada Permanent Trust Company, [1972]1WWR 41 (Sask.C.A.).
179. Recommendation 2.14 (1)(2)
180. The British Columbia Institute of Law Reform, Report on Statutory Remuneration of Trustees and Executors Accounts, 2000, Recommendation 7.
182. Re William George King Estate (1994), 113 DLR (4th) 701 (Ont.Gen.Div.).
183. Re Welbourn (1979), 96DLLK (3rd) 76 (Alta. Surr. Ct.).
184. D. W.M. Waters, Law of Trusts in Canada, Toronto: Carswell (1974), p. 807.
185. Law Reform Commission of Ontario, Report on the Law of Trusts, (1984), p.260-261.
186. The British Columbia Institute of Law Reform, Report on Statutory Remuneration of Trustees and Executors Accounts, 2000, Recommendation 3.
188. This provision has been discussed elsewhere in this report.
189. Re Fisherman's Benefit Fund Inc. v. U.F.C.W. (1991), 83 DLR 4TH 527 (Nfld. C.A.).
190. Thompson v. Lampert, [1945] SCR 343.
192. D. Waters, The Law of Trusts in Canada, p. 739
193. D. Waters, The Law of Trusts in Canada, p. 740.
194. On the history of Saskatchewan trusts legislation, see above.
196. Law Reform Commission of Ontario, Report on the Law of Trusts, p. 234.
197. D. Waters, The Law of Trusts in Canada, p. 742-43.
198. Law Reform Commission of Ontario, Report on the Law of Trusts, p. 236.
200. See generally Smith v Robertson (1909), 4 N.B. Eq. 139. Under the well-known rules in Howe v. Dartmouth (1802), 7 Ves. 137, trustees are usually under a duty to convert the residue of a testamentary trust even in the absence of an express power to sell. . See below.
201. D. Waters, The Law of Trusts in Canada, p. 740.
202. Re Barwick (1884), 5 O.R. 710.
203. Law Reform Commission of Ontario, Report on the Law of Trusts, p. 240. See generally, D. Waters, The Law of Trusts in Canada, p. 747 on interpretation of powers of sale..
204. Law Reform Commission of Ontario, Report on the Law of Trusts, Draft Act, s. 35.
205. See Recommendation 3.2(a)(b)(c).
206. See Underhill on Trusts and Trustees (6th ed.), (1904), p. 284.
211. Law Reform Commission of Ontario, Report on the Law of Trusts, p. 241.
212. Section 43 places additional
restrictions on grants of mineral rights:
43.- Subject to the instrument creating the
trust, where a trustee leases, grants a profit a prendre in respect of
or grants an easement, right or privilege of any kind over or in relation
to mines and minerals or sand and gravel forming part of the trust estate
there shall be set aside by the trustee from the rents and royalties as
capital one fourth part thereof where the person or persons for the time
being entitled to the benefit of the trust is or are entitled to work the
mines and minerals or sand and gravel for his or their own benefit and
in other cases three fourth parts thereof, and the remaining three fourth
parts or one fourth part thereof respectively shall be payable to the person
or persons for the time being entitled to the benefit of the trust.
This section is another example of caution in the face of novelty. We do not believe any convincing case for retention can be made for retaining it..
213. Law Reform Commission of Ontario, Report on the Law of Trusts, p. 242.
214. Recommendation 3.2(d). Note that some of the powers with respect to interests listed in sections 27 and 28 of the Manitoba Act can be exercised only by trustees with a power of sale. Thus the authority to deal with these interests is a statutory extension of the power of sale. Since we recommend that a statutory power of sale be conferred on trustees, this approach is unnecessary in our Recommendation.
215. Howe v. Dartmouth (1802), 7 Ves. 137. See below.
216. D. Waters, The Law of Trusts in Canada, p. 749.
217. Recommendation 3.2(f) . Since we believe that statutory powers should be stated as succinctly as possible, we recommend a less detailed prescription than the Manitoba Act provides. Questions liability should be left to the general law, and it is hardly necessary to expressly provide that postponement of sale does not permit postponement of distribution of trust funds. Note also that Section 33 of the Manitoba Trustees Act includes, in addition to the subsections set out above, express permission to postpone sale of trust property in "unauthorized investments", and protection from liability for trustees who do so. Since the Saskatchewan Trustees Act no longer stipulates a list of "authorized investments", this aspect of the Manitoba provision is unnecessary in our Recommendation.
219. Law Reform Commission of Ontario, Report on the Law of Trusts, p. 243.
220. Law Reform Commission of Ontario, Report on the Law of Trusts, Draft Act, s. 35.
222. Re Courtier 34 Ch.D. 136.
223. e.g. B.C. Trustee Act, s. 11.
224. Law Reform Commission of Ontario, Report on the Law of Trusts, Draft Act, s. 35. The part of the Ontario provision omitted above relates to granting of easements and profits a prendre. See above.
226. See The Trustees Act, s.3, discussed above.
227. In re Power, [1947] 1 Ch. 572.
228. English Law Reform Committee Report, The Powers and Duties of Trustees, (1982), p.63.
229. Law Reform Commission of Ontario, Report on the Law of Trusts, Draft Act, s. 35.
231. Unless the will provides otherwise, conversion of personal property in the residue is required by the rule in Howe v. Dartmouth (1802), 7 Ves. 137 . In Ontario at least, the rule has been extended to real property: Re Rutherford [1933] O.R. 707. The rule may now have been ameliorated by liberalization of trustees' investment powers (see above), since property that was not formerly an authorized investment may now be retained as an investment. But even if the rule is excluded, it does not follow that the trustees are required to hold property in specie.
232. See D. Waters, The Law of Trusts in Canada, p. 694 ff.
233. Law Reform Commission of Ontario, Report on the Law of Trusts, p. 248-49. Note, however, that the Ontario Commission appears to have mistakenly interpreted the power to convert trust property as a prohibition on distribution in specie, even when the latter can conveniently be done. Perhaps because it thought it was recommending a more significant change in the law than we believe to be the case, the Ontario Commission also recommended creating a right to apply to court for review of any valuation or appropriation for the purpose of distribution in specie. We are content to leave it to the general law to provide a remedy if a distribution in specie violates the responsibility of the trustees to maintain an even hand between the beneficiaries.
235. Manitoba Trustees Act, s. 39.
236. Re Gamble, [1925] 4 D.L.R. 768 (Ont.)
237. D. Waters, The Law of Trusts in Canada, p. 750.
238. Law Reform Commission of Ontario, Report on the Law of Trusts, Draft Act, s. 35
240. In this, as in other Trustees Act provisions applying to executors and administrators, it is uncertain whether a person named "trustee and executor" is included when acting as trustee rather than as executor. In this case, however, since payment of debts and legacies is the responsibility of the executor, there is little scope for application of the provision to administration of trusts established under a will.
241. Law Reform Commission of Ontario, Report on the Law of Trusts, p. 246.
243. See above. Note that under the "legal list" approach to trustees' investments, investment was permitted in term deposit certificates of trust companies, but not other financial institutions.
244. Underhill on Trusts and Trustees (6th ed.), (1904), p. 254.
245. Luke v. South Kensington Hotel Company, 11 Ch. D. 121.
247. The Law Reform Commission of Ontario, Report on the Law of Trusts, Draft Act, s. 35(a)
249. Underhill on Trusts and Trustees (6th ed.), (1904), p. 289.
250. Re Brogden 38 Ch. D. 546.
251. Underhill on Trusts and Trustees (6th ed.), (1904), p. 197.
252. Law Reform Commission of Ontario, Report on the Law of Trusts, p. 244.
253. Law Reform Commission of Ontario, Report on the Law of Trusts, Draft Act, s. 35
254. Recommendation 3.2(n)(o)(p).
255. Underhill on Trusts and Trustees (6th ed.), (1904), p. 287.
259. D. Waters, The Law of Trusts in Canada, p. 765.
260. See the Commissions report. The Rule in Saunders v. Vautier and the Variation of Trusts Act, 1994, for discussion of the utility of the discretionary trust.
261. D. Waters, The Law of Trusts in Canada, 769.
263. Trustee Act, R.S.A. 1980, c. T-10, ss. 33-37; Trustee Act, R.S. P.E.I., c. T-8, ss. 39-40.
264. See the Commission's report, Ensuring Continuity, 1992.
265. D. Waters, The Law of Trusts in Canada, p. 785.
268. Law Reform Commission of Ontario, Report on the Law of Trusts, p 317-318.
269. The most common type of non-commercial trust in Saskatchewan is a trust created by will to provide for minor children until they reach the age of majority, and thus will last for only a few years. On the other hand, a trust that postpones vesting of property in a beneficiary until a decade or more after the age of majority, or an accumulation trust to benefit grandchildren when they reach the age of majority, may have a very long life.
270. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 86.
271. Non-judicial replacement of trustees under Section 15 is very rare in Saskatchewan. However, it appears that Section 20 is occasionally used to discharge a retiring trustee.
272. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 86.
273. Warburton v. Sandys , 14 Simm. 622
274. E.g. B.C. Trustees Act s. 12; Ont. Trustee Act, s. 3; Manitoba Trustees Act, s. 6.
276. The devolution rule was changed in part by the Inheritance Act, 1833, but the process was not complete until the Conveyancing and Law of Property Act, 1881.. In Saskatchewan, the reforms were adopted in territorial enactments. See now The Devolution of Estates Act.
277. Underhill on Trusts and Trustees, 6th ed., 1904, p. 306.
278. An addition provision relating
to death of a trustee in contained section 39:
39.- Upon the death of a bare trustee of corporeal
or incorporeal hereditaments of which that trustee was seized in fee simple,
the hereditaments shall vest in his legal personal representative.
This is a hold-over from pre-1893 trusts legislation. It adds nothing to section 22, and in now unnecessary.
279. Waters, The Law of Trusts in Canada, p 585.
280. Underhill on Trusts and Trustees, 6th ed., 1904, p. 306.
283. Eyre v. Countess of Shaftsbury , 2 P. Wms. 102.
284. Halsbury's Laws of England, 1st ed. (1910), Vol. 14, p. 141.
288. See Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, pp. 87-88.
289. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 86. The Ontario Commission notes that part of the concern has to do with he vesting trust property in the new trustees. This problem will be discussed later in this report. Consultation with members of the Saskatchewan bar confirms that non-judicial appointment is as little used in this province as in Ontario.
291. Halsbury's Laws of England, 1st ed. (1910), Vol. 14, p. 141.
292. Halsbury's Laws of England, 1st ed. (1910), Vol. 14, p. 141.
294. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 107.
295. Underhill on Trusts and Trustees, 6th ed., 1904, p. 317.
296. Underhill on Trusts and Trustees, 6th ed., 1904, p. 318. Part of the uncertainty recorded by Underhill results from the fact that the provision in the Trustee Acts authorizing removal of a trustee by the court expressly identifies "recent bankruptcy" and commission of a felony as grounds for removal. This may be construed as ousting authority to remove a trustee without court approval on these grounds..
297. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 492 (Draft Act, s. 19).
298. See Recommendation 4.5 (1)(a)
299. Re Tallatire, [1885] W.N. 191.
300. Underhill on Trusts and Trustees, 6th ed., 1904, p. 318.
301. See Recommendation 4.5 (1)(a)(iv)
302. Trustee Act RSO 1990, c. T.23, s. 3(1).
303. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 109.
304. See Recommendation 4.5 (4)
305. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, pp. 100-101.
306. See Recommendation 4.5 (3)
308. See Recommendation 4.5 (3)
311. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 112.
312. See Recommendation 4.5 (1).
313. Note that s. 16 appears to apply to any appointment of a new trustee, including presumably appointment by the court, though the powers set out in the section are no doubt within the inherent jurisdiction of the court in any event.
314. See Recommendation 4.5 (1)(d)(e)
315. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 120.
317. Forshaw v. Higginson 91855), 20 Beav. 485.
318. Even a sole trustee has the right to retire by passing accounts and obtaining a discharge. If necessary, the court will assume responsibility for administration of the trust. See section 87 of the Trustees Act.
319. Scott, The Law of Trusts (3rd ed.), 837.
320. See Recommendation 4.5 (2).
321. Letterstedt v. Broers (1884), 9 A.C. 371.
322. Letterstedt v. Broers (1884), 9 A.C. 371; Conroy v. Stokes, [1952] 4 DLR 124 (BCCA).
323. See above. Note, however, that section 14 merely confirms the court's jurisdiction in these cases, while section 15 does not expressly exclude these cases from the scope of the non-judicial authority.
324. Underhill on Trusts and Trustees, 6th ed., 1904, p. 315.
326. Trustee Act RSM 1987, c. T-160, s. 9(2)
327. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 119.
328. Consiglio Trusts [1973] 3 OR 326.
329. Forster v. Davies 91861), 45 ER 1134.
330. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 118.
331. Recommendation 4.6 (2). The procedural detail now contained in section 34 (2)(3) should be left to the Rules of Court.
332. D. Waters, The Law of Trusts in Canada, p. 94.
333. Underhill on Trusts and Trustees, 6th ed., 1904, p. 369.
334. Halsbury's Laws of England, 1st ed., Vol. 14, p. 141.
335. Section 86 of the Saskatchewan Act provides that when the Public Trustee is appointed administrator of an estate "under the Act of the Imperial Parliament 6 Edward VII, chapter 55", no security shall be required. The Act referred to is the Judicial Trustees Act,1896. The reference to the English Act is a drafting oversight.
336. D. Waters, The Law of Trusts in Canada, p. 95.
337. D. Waters, The Law of Trusts in Canada, p. 94.
338. Note that under section 85, all trustees can be replaced by a single judicial trustee. This not possible under section 14, but would be possible under the Recommendations.
339. See Recommendation 4.6 (3).
341. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 127.
342. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, Draft Act, s. 27(1).
344. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 130.
346. Note, however that section 20 does refer to "discharge" of a retiring trustee. This terminology should be avoided in any reformulation of removal and appointment provisions. However, it is unlikely that 19th Century practitioners would have been misled by use of the term "discharge" section 20. In the 19th C., discharge was more frequently used than today, and was often resorted to by trustees in response to allegations of impropriety. See below.
347. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 114
348. 5 This provision was originally adopted as the Conveyancing and Law of Property Act, 1881, s. 34.
349. Manitoba Trustees Act, s. 14-23.
350. Section 13(1)(b) applies to appointments. Section 13(2)(b) is identical, but applies to retirements.
351. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, Draft Act, s. 28(1).
352. See Recommendation 4.9 (1)
353. Section 13(1)(b) applies to appointments. Section 13(2)(b) is identical, but applies to retirements.
354. See Recommendation 4.9 (2).
355. Re Bowden [1936] Ch. 71. See generally, D. Waters, The Law of Trusts in Canada, p. 121 ff.
356. Section 15(2) of the Saskatchewan Act, adopted from the Trustee Act, 1893 does however impliedly equate "vest" with "convey" when the old practice of actual conveyance of trust property to new trustees is employed. The subsection directs that the property be "conveyed . . . so that it may be legally and effectually vested in the new trustee or trustees".
357. Section 27. This section is discussed below.
358. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p.137.
359. See Recommendation 4.9 (3).
360. Manitoba Trustees Act, s. 13(3).
361. See Recommendation 4.9 (3).
362. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, Draft Act, s. 29(2)(3)(4).
363. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 143.
364. Milroy v. Lord (1862), 45 E.R. 1185.
365. However, in Re Amland (1975), 10 N.B.R.(2nd) 285, the New Brunswick S.C. held in a different context that a share certificate signed in blank by the owner and handed to the donee constituted a completed gift.
366. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 143 reaches a similar conclusion, but without noting the parallel between registration of securities and registration of land under land titles systems.
367. Underhill on Trusts and Trustees, 6th ed., 1904, p. 333.
368. Doe d. Goodbehere v. Bevan (1815), 105 E.R. 644.
369. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 146.
370. Underhill on Trusts and Trustees, 6th ed., 1904, p. 334.
371. See comments of the Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, p. 151. The vesting order provisions in respect to land were adopted in the Trustee Act, 1850.
374. It should be noted that the list in section 30 deals extensively with transfer of corporate securities. Special rules apply to transfer of securities, which the drafters of section 30 thought had to be taken into account. These rules were discussed above. We concluded there that modern corporations legislation requires no special treatment of securities in regard to vesting orders.
375. Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, Draft Act, s.58
378. See Recommendation 4.11. Compare Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, Draft Act, s. 60.
380. Note that this power in included in the Ontario draft vesting order provision set out above.
381. On the cy-pres doctrine and the function of section 32, see D. Waters, The Law of Trusts in Canada, p. 761.
382. Recommendation 4.14 .Compare Law Reform Commission of Ontario, Report on the Law of Trusts, 1984, Draft Act, s. 78.