OVERVIEW AND BASIC DEFINITIONS ............................................................................................... 6
KEY TERMS RELATING TO TRUSTS ............................................................................................................. 6
Trust Players ......................................................................................................................................... 6
Settlor ................................................................................................................................................................ 6
Trustee .............................................................................................................................................................. 6
Beneficiary (“cestui qui trust”) ......................................................................................................................... 6
Trust Property ................................................................................................................................................... 6
Trust Instrument ................................................................................................................................................ 6
Types of Trusts – Form of Instrument: .................................................................................................. 6
Testamentary Trust ........................................................................................................................................... 6
Inter Vivos Trust ............................................................................................................................................... 6
Types of Trusts – Obligations of Trustee: ............................................................................................. 6
Bare Trust ......................................................................................................................................................... 7
Discretionary Trust ........................................................................................................................................... 7
Fixed Trust ........................................................................................................................................................ 7
Types of Trusts – Beneficiary: .............................................................................................................. 7
Trust for Persons ............................................................................................................................................... 7
Trust for Purposes ............................................................................................................................................. 7
TAXATION OF TRUSTS ................................................................................................................................ 7
Attribution of Income ............................................................................................................................ 7
Conduit Taxation of Income .................................................................................................................. 7
Capital Gains and Trusts ...................................................................................................................... 8
Deemed Disposition of Property Every 21 Years.................................................................................. 8
Charities under the Income Tax Act...................................................................................................... 8
HISTORY AND DEVELOPMENT OF EQUITY AND TRUSTS.............................................................................. 8
The Meaning of Equity in Relation to Trusts: Maitland’s Definition ................................................... 8
Medieval Origins of Equity ................................................................................................................... 8
Origins & Development of the Law of Uses & Trusts ........................................................................... 9
Theoretical Origins of the Use .......................................................................................................................... 9
Pragmatic Origins of the Use ............................................................................................................................ 9
Other Ways in which the ‘use’ was employed .................................................................................................. 9
Development in England ................................................................................................................................. 10
Development of Equity in Canada .................................................................................................................. 10
Fusion of Law and Equity ............................................................................................................................... 11
Procedural vs. Substantive Fusion ............................................................................................................. 11
Current Status of the Fusion Debate .......................................................................................................... 11
Canson Enterprises Ltd. v. Boughton [1991, SCC] .............................................................................. 11
CREATING A TRUST ...............................................................................................................................12
CAPACITY ..................................................................................................................................................12
Who must have legal capacity? ............................................................................................................12
Types of Legal Incapacity ....................................................................................................................12
THE THREE CERTAINTIES ..........................................................................................................................13
Certainty of Intention ...........................................................................................................................13
Cases re Certainty of Intention ........................................................................................................................ 13
Re Walker [1925, CA] .......................................................................................................................... 14
Re Shamas [1967, ONCA] ................................................................................................................... 14
Johnson v. Farney [1913, CA] .............................................................................................................. 14
Certainty of Subject Matter ..................................................................................................................15
Cases re Certainty of Subject Matter ............................................................................................................... 15
Boyce v. Boyce [1849] ......................................................................................................................... 15
Sprange v. Barnard [1789].................................................................................................................... 15
Re Beardmore Trusts [1952] ................................................................................................................ 16
Re Romaniuk [1986, AB] ..................................................................................................................... 16
Certainty of Objects .............................................................................................................................16
Fixed trusts ...................................................................................................................................................... 17
Discretionary trusts ......................................................................................................................................... 17
Conceptual vs. Evidentiary Uncertainty .......................................................................................................... 17
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Cases re Certainty of Objects .......................................................................................................................... 17
McPhail v. Doulton (In Re Baden’s Deed Trusts) [1971, HL] ............................................................. 17
Re Baden’s Deeds Trust (No. 2) [1973] ............................................................................................... 18
Re Connor [1969, ABSC] ..................................................................................................................... 18
Jones v. Executive Officers of the T. Eaton Company (sub nom Re Bethel) [1973, SCC] ................... 18
Daniels v. Daniels Estate [1992, ABCA] .............................................................................................. 19
Values/Concerns that May Influence Findings Re Certainty ...............................................................19
CONSTITUTION ..........................................................................................................................................19
Rationale ..............................................................................................................................................19
How a Trust is Constituted...................................................................................................................20
Ways of Constituting a Trust .......................................................................................................................... 20
Transferring Interests in Property.................................................................................................................... 20
Legal Interests ............................................................................................................................................ 20
Equitable Interests...................................................................................................................................... 21
Cases re Constituting a Trust .......................................................................................................................... 21
Milroy v. Lord [1862]........................................................................................................................... 21
Re Rose [1952, Eng CA] ...................................................................................................................... 21
Paul v. Constance ................................................................................................................................. 22
Watt v. Watt Estate [1987] ................................................................................................................... 23
Forcing the Settlor to Constitute the Trust ..........................................................................................23
Gratuitous Deeds ............................................................................................................................................. 23
Specific Performance ................................................................................................................................. 23
Cases Re Forcing Settlor to Constitute Trust through Specific Performance ....................................... 23
Re: Pryce [1917] 1 Ch. 234 .................................................................................................................. 23
Re: Kay’s Settlement [1939] ................................................................................................................ 24
Seeking Remedy of Damages .................................................................................................................... 24
Cannon v. Hartley, [1949] .................................................................................................................... 24
Recharacterization of the Subject Matter of the Trust ................................................................................ 25
Fletcher v. Fletcher [1844] ................................................................................................................... 25
Transfer for Value ........................................................................................................................................... 25
Promise to Convey Future Property ................................................................................................................ 25
FORMALITIES .............................................................................................................................................25
UK: Statute of Frauds ..........................................................................................................................25
Origins ............................................................................................................................................................ 26
Contracts with Respect to Land ...................................................................................................................... 26
Creation of Trusts with Respect to Land ......................................................................................................... 26
Assignments of Equitable Interests in Trusts .................................................................................................. 26
Problems w/ Statute of Frauds & Responses ................................................................................................... 27
Doctrine of Part Performance .................................................................................................................... 27
Doctrine of Fraud ....................................................................................................................................... 27
Section 59 of the BC Law and Equity Act ...................................................................................................... 27
Testamentary Trusts .............................................................................................................................27
The Wills Act .................................................................................................................................................. 27
Prospective Changes: ................................................................................................................................. 28
Secret and Semi-Secret Trusts ......................................................................................................................... 28
Secret Trusts .............................................................................................................................................. 28
Semi-Secret Trusts ..................................................................................................................................... 29
PUBLIC POLICY ..........................................................................................................................................30
Conditions that Have been Found Contrary to Public Policy .............................................................30
Trusts for Illegal Purposes ...................................................................................................................30
Consequences of Illegality ...................................................................................................................31
Forfeiture of Trust Property ............................................................................................................................ 31
Return of Trust Property ................................................................................................................................. 31
Trusts Imposing Conditions Contrary to Public Policy, Impossible of Performance, or Uncertain ...32
Conditions Precedent vs. Conditions Subsequent vs. Words of Limitation .................................................... 32
Conditions Impossible of Performance ........................................................................................................... 32
........................................................................................................................................................................ 33
Discretion of the Court and Underlying Factors ............................................................................................. 33
Trusts that Defraud Creditors ..............................................................................................................33
Rules Against Perpetuities ...................................................................................................................34
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Remoteness of Vesting .................................................................................................................................... 34
Rule Against Perpetual Duration ..................................................................................................................... 35
Charities .......................................................................................................................................................... 35
Legislative Modifications................................................................................................................................ 35
The Rule in Whitby v. Mitchell  Repealed by Perpetuities Act, s. 6(2) ............................................ 35
Perpetuities Act .......................................................................................................................................... 35
Conflicts Issues ............................................................................................................................................... 36
Accumulations ................................................................................................................................................ 36
Restraints on Alienation and Spendthrift (or Protective) Trusts ..........................................................37
Restraint on Alienation (In Canada) ................................................................................................................ 37
OVERRIDING THE TRUST INSTRUMENT .........................................................................................38
TERMINATION OR VARIATION PER TERMS OF TRUST INSTRUMENT............................................................38
TERMINATION UNDER THE RULE FROM SAUNDERS V. VAUTIER ................................................................38
The Facts: ............................................................................................................................................38
The Rule: ..............................................................................................................................................38
Situations in Which the Rule Could Apply ...........................................................................................38
Avoiding the Application of the Rule ...................................................................................................38
Competing Views on the Rule ..............................................................................................................39
TERMINATION OR VARIATION WITH COURT APPROVAL UNDER VARIATION OF TRUSTS LEGISLATION 
BC TRUST AND SETTLEMENT VARIATION ACT .........................................................................................39
S. 1 – Persons On Whose Behalf The Court Can Give Consent...........................................................39
S. 2 – Appears to be for the Benefit of the Person on Whose Behalf the Court is Consenting .............40
S. 3 – Notice .........................................................................................................................................40
Cases Re Variation under Legislation .................................................................................................40
Finnell v. Shumacher Estate [1990, ONCA]......................................................................................... 40
Re Kovish [1985, BCSC] ..................................................................................................................... 41
PURPOSE TRUSTS ....................................................................................................................................41
NON-CHARITABLE PURPOSE TRUSTS ........................................................................................................41
General rule against validity ...............................................................................................................41
Evolution of Exceptions to the General Rule .......................................................................................42
Purpose Trusts with Individual Beneficiaries ......................................................................................42
Re Denley’s Trusts ............................................................................................................................... 42
Application of Re Denley’s Trusts in Canada ................................................................................................. 42
Keewatin Tribal Council v. City of Thompson [1989, Man. QB] ........................................................ 42
Peace Hills Trust Co v. Canada Deposit Insurance Corp [2007] .......................................................... 42
Statutory Reform ..................................................................................................................................43
Re Russell ............................................................................................................................................. 43
The Problem of Gifts to Unincorporated Associations ........................................................................44
Re Lipinski’s Will Trusts [1976] .......................................................................................................... 45
CHARITABLE PURPOSE TRUSTS .................................................................................................................45
Introduction .........................................................................................................................................45
Tax and Charities ............................................................................................................................................ 45
The Legal Meaning of Charity .............................................................................................................45
Analysis: ......................................................................................................................................................... 46
Public Benefit Requirement ............................................................................................................................ 46
Charitable Purposes......................................................................................................................................... 46
1. The Relief of Poverty ............................................................................................................................. 46
Public Benefit in the Context of Relief of Poverty ............................................................................... 47
2. The Advancement of Education ............................................................................................................. 47
Vancouver Society of Immigrant and Visible Minority Women v. MNR ............................................ 48
The Public Benefit in Advancement of Education ................................................................................ 48
3. The Advancement of Religion ............................................................................................................... 49
Public Benefit in Advancement of Religion ......................................................................................... 49
4. Other Purposes Beneficial to the Community ........................................................................................ 49
The Approach of Courts to the Fourth Head of Charitable Purpose ..................................................... 50
Native Communications Society v. MNR ............................................................................................ 50
Vancouver Regional Freenet Association v. MNR [1996, FCA] .......................................................... 50
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Vancouver Society of Immigrant and Visible Minority Women v. MNR [1999, SCC] ....................... 50
Taking a Different Approach to Charitable Purposes ...................................................................... 51
Exclusivity ...................................................................................................................................................... 51
Ways to avoid invalidity on basis of non-exclusivity ................................................................................ 52
Reinterpret Per Intention of Settlor ....................................................................................................... 52
Read the Non-Charitable Part as Charitable Based on Who the Donee Is ............................................ 52
Sever the Non-Charitable Portion ......................................................................................................... 52
Find Non-charitable Purpose to be Merely Ancillary to the Charitable Purposes................................. 52
Guaranty Trust Co v. MNR [1967, SCC] ............................................................................................. 52
Apply a Statutory Provision to Sever the Non-Charitable Portion........................................................ 53
The Legal Meaning of Charity: Associated Doctrines .........................................................................54
Political Purposes ............................................................................................................................................ 54
Human Life International in Canada Inc. v. MNR [1998, FCA] .......................................................... 54
Discriminatory Conditions .............................................................................................................................. 55
Scheme-Making Power and the Cy Près Power .............................................................................................. 55
Situations in which Cy Près applies: .......................................................................................................... 55
Initial vs. Subsequent Failure ..................................................................................................................... 56
ADMINISTRATION OF TRUSTS ............................................................................................................56
OVERVIEW.................................................................................................................................................56
Historical Background .........................................................................................................................56
Three Main Sources of Law re Administration of Trusts ....................................................................57
Default Rules........................................................................................................................................57
Intervention by Settlor or Beneficiaries ...............................................................................................57
Letter of wishes ............................................................................................................................................... 57
Protectors ........................................................................................................................................................ 57
APPOINTMENT, RETIREMENT AND REMOVAL OF TRUSTEES ......................................................................58
Appointment .........................................................................................................................................58
The Trust Instrument ....................................................................................................................................... 58
Accepting Appointment ............................................................................................................................. 58
Power to Appoint ....................................................................................................................................... 58
Failure to Appoint Trustee in Instrument ................................................................................................... 58
Statute – BC Trustee Act ................................................................................................................................. 58
Judicial Appointment of Trustees.................................................................................................................... 59
Powers to Appoint Trustees and Vest Trust Property in New and Continuing Trustees ............................ 59
Principles Applied by Courts in Appointing Trustees ................................................................................ 59
Removal, Retirement and Discharge....................................................................................................60
Non-Judicial .................................................................................................................................................... 60
Judicial ............................................................................................................................................................ 60
Principles Applied by Courts in Deciding Whether to Remove a Trustee ................................................. 60
DUTIES AND POWERS ................................................................................................................................61
Overview ..............................................................................................................................................61
Types of Powers .............................................................................................................................................. 61
Distinction and Overlap of Duties and Powers ............................................................................................... 61
Tempest v. Lord Camoys [1882] .......................................................................................................... 62
Improper Exercise of a Power ......................................................................................................................... 62
Types of Trustee Powers and other General Points Concerning Powers ............................................62
Administrative Powers and Dispositive Powers .............................................................................................. 62
Investment Duties and Powers .............................................................................................................63
Historical Background .................................................................................................................................... 63
Statutory Investment Power Provisions........................................................................................................... 63
Permitted Types of Investment .................................................................................................................. 63
The Standard of Care in Making Investments ............................................................................................ 64
No Official Obligation to Diversify ........................................................................................................... 64
Liability of Trustee for Loss on an Investment .......................................................................................... 64
Delegation of Investment Functions .......................................................................................................... 64
Mutual Fund Investments ..................................................................................................................... 64
Common Trust Fund Managed by a Trust Company ............................................................................ 64
Seeking an Opinion, Advice or Direction from the Court ....................................................................64
Court Intervention In The Exercise Of Trustee Powers .......................................................................65
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Intervention Where there is Bad Faith or Failure to Exercise a Power ............................................................ 65
Courts will not Act for the Trustee – only Advise........................................................................................... 66
Intervention in the Case of Deadlock .............................................................................................................. 66
Duties of Trustees ................................................................................................................................66
Indemnification .......................................................................................................................................... 66
Note: Absolute Duties vs. Duties Subject to a Standard of Reasonable Care ............................................ 66
Duty of Care .................................................................................................................................................... 67
Duty of Non-Delegation .................................................................................................................................. 67
When Trustees May Delegate .................................................................................................................... 67
Delegation Permitted by Trustee Act ......................................................................................................... 68
Delegation by a Corporate Trustee ............................................................................................................ 68
Re Wilson [1937, ONCA] .................................................................................................................... 68
Liability for Agent’s Fault or Negligence .................................................................................................. 68
5
Overview and Basic Definitions
Key Terms Relating to Trusts
Trust Players
Settlor
 The person who creates the trust
 May not be an express trust  court may infer an intent to create a trust, from words or
circumstances (implied trust).
 May also be the trustee  can declare self to hold something in trust
 May also be the beneficiary  A can have B hold property in trust for A.
 There can be more than one settlor
Trustee
 Holder of the trust property
 Can also be a beneficiary
 There can be more than one trustee
Beneficiary (“cestui qui trust”)
 Person for whose benefit or use the property is being held in trust
 There can be more than one beneficiary
Trust Property
 Aka ‘trust res’, ‘trust corpus’
 The subject matter of the trust.
 A trust is a mechanism for dealing with property.
Trust Instrument
 The generic term for any document that creates a trust, whether expressly or with sufficient
implication
o E.g. a will may create a trust, in which case the will (while not being the trust itself) is
the trust instrument.
Types of Trusts – Form of Instrument:
Testamentary Trust
 A trust created under a will
Inter Vivos Trust
 Aka “living trust” – US.
 A trust that is created/takes effect during the life of the settlor.
Types of Trusts – Obligations of Trustee:
6
Bare Trust
 Aka “simple trust” or “naked trust”
 A trust in which the only obligation on the part of the trustee is to hold the property and
eventually deliver it.
o i.e. no obligation of upkeep on property, etc.
Discretionary Trust
 Trustee can choose which beneficiary/ies will get what and in what proportion of the trust
property.
Fixed Trust
 Set number of identified (fixed) beneficiaries, who will get fixed proportions of the trust
property.
Types of Trusts – Beneficiary:
Trust for Persons
 A trust whose beneficiary/ies = person(s)
 Can be inter vivos or testamentary
Trust for Purposes
 A trust whose goal is to further a particular purpose.
 Can be inter vivos or testamentary
 Can be for a charitable or non-charitable purpose.
Taxation of Trusts
Attribution of Income
 Trustee is not an agent, they are an owner.
 Once in the hands of the trustee property is gone, settlor has divested it
o If S wants, can retain control over it by:
 Telling the trustee they want it back
 Retaining the power to choose among beneficiaries, or
 Qualifying trustee powers with a consent requirement
o But, if these are done, S will be deemed to still own the property (doesn’t have legal
title, but will be taxed as though did).
o So, in Canada, S can retain power to revoke the trust, but it’s almost never done
because of the tax consequences.
Conduit Taxation of Income
 Trusts are not separate legal entities, BUT ARE taxed like individuals.
 Trust must file income tax return separate from that filed by trustees/beneficiaries on income
from the trust
o Trust can deduct any income that is paid or payable to beneficiaries
o All other income is taxed on the trust.
 Allows income to flow through the trust to beneficiaries
7
Capital Gains and Trusts
 Beneficiary will have to pay CGs on amounts paid to them.
 As soon as a person passes property to someone else as a trustee, ownership shifts and capital
gains are incurred
Deemed Disposition of Property Every 21 Years
 People: deemed disposition on death  CGs triggered at that point.
 Trust: won’t die, so deemed disposition every 21 years.
 Opportunities for income-splitting are much greater with inter vivos trusts than with
testamentary trusts.
o Testamentary are treated like an individual, but inter vivos are different.
o With inter vivos, goal is to get the money out to beneficiaries ASAP (i.e. really treat the
trust as a conduit), because otherwise will probably wind up paying tax at the highest
rate.
Charities under the Income Tax Act
 Certain advantages:
o Not taxed on income
o Can give receipts for donations which can be used for a charitable donation tax credit.
 But only registered charities get these advantages.
o Have to apply to the minister and CRA to register
o Minister has the power to revoke charitable status
 Two forms:
o Foundations
 Raise money but then pass it out to charitable organizations
 E.g. United Way
o Organizations
 Can raise money directly, but sometimes get distributions from charitable
foundations
 The activity is what must be charitable.
 Could be organized as trusts, but really charities are almost always set up as corporations.
o For a trust, the purpose must be charitable (distinct from the activity)
History and Development of Equity and Trusts
The Meaning of Equity in Relation to Trusts: Maitland’s Definition
 “Equity is now that body of rules administered by our … courts of justice which, were it not
for the operation of the Judicature Acts, would be administered only by those courts which
would now be known as Courts of Equity.”
Medieval Origins of Equity
 Began as an administrative structure, but shifted to operate as a corrective to law.
 Courts of equity originated in the 14th century.
o Situations were observed in which the law enforced an unjust result
 E.g. written evidence of a debt would rule, even if debtor had in fact repaid it and
just didn’t get the document back from the lender.
o Petitions were made to the king in such cases
 Initially the king dealt with complaints himself, but later they were delegated to
8
the Chancellor.
So, typically a bill would be sent to the Chancellor explaining the problem, and
whatever other evidence was available to show the injustice (e.g. evidence that the
debt had been paid)
o Chancellor would then seek answers from the lender, e.g., and if he couldn’t
explain/answer the evidence from the debtor, e.g., then Chancellor would issue an
injunction, ordering that lender couldn’t enforce the order obtained from the court of
law.
 Note: law still the same  equity follows the law, doesn’t change it. So the written document
always ruled in court of law.
 In equity, remedies were in personam: Chancellor would issue an order to the specific person,
e.g. the lender, for a specific thing.
o Equity is the source of remedies such as specific performance.

Origins & Development of the Law of Uses & Trusts
Theoretical Origins of the Use
 Roman law: fide comissum (aka the trustee)
o When a person died, could leave property to another person who was supposed to hold
the property for a time (usually their life) and then convey it to someone.
 Ancient Muslim law: waaf
o Could convey property to someone to use for their family’s benefit for a period of time,
after which it would be donated to a charitable cause
 German tradition – before the saxon invasion: True Hand
o A person could put property into the True Hand’s possession for their use and to hold
onto it.
Pragmatic Origins of the Use
 Franciscan Monks
o Form of the “use”:
o Rule that they couldn’t own property, but if someone else who owned property allowed
them to use it, that was ok
o So, property held by someone ≠ a monk, for their benefit.
o A person could convey property “to A to the use of B”
 Meaning ‘on behalf of B’  from the Latin opus, ad opus.
 Crusades
o Men went away, couldn’t leave property with their wives b/c women couldn’t own
property
o So gave it to someone else for family’s benefit
o But issue: men would return home and find the trustee wouldn’t give back their
property, and courts wouldn’t enforce.
 By 1420, courts were honouring the ‘use’ model.
Other Ways in which the ‘use’ was employed




To avoid the feudal burdens of wardship and marriage
To avoid the feudal requirements of forfeiture for treason or escheat for felony
To avoid creditors
To effect testamentary dispositions of land
9
Development in England
 Non-recognition of ‘use’ in courts of law
o Although A was holding property for B’s use, law didn’t recognize B’s title and treated
as though A had title.
o This non-recognition helped people avoid creditors, e.g., because they couldn’t go after
B for property to which A technically had title.
 Subsequent recognition by Chancellor:
o Started to recognize uses for equity reasons, (i.e. to stop this kind of avoidance.)
 1535 Statute of Uses
o Prevented uses (since they were being used to avoid feudal incidence)
 People sought ways around the statute: Use on a use.
o To A to give to B for the use of C
 Statute of Uses would negate the first use and say it was really just ‘to C’, but then
the second use would be honoured.
 But courts said the second use on a use (i.e. the trust for C on the initial use for B)
was repugnant, and wouldn’t be accepted.
o Note: couldn’t say “to the use of myself for life and then to my children”  law would
just assume transferred to self.
o Note: much later, around the 17th century (?) courts began accepting use on a use as a
form avoiding the statute of uses.
 Development of equity and trusts, 1550-1700: from “conscience” to “equity”
o Growing popularity of courts of equity and conflicts with courts of law
o Courts of equity survive the civil war and removal of the monarchy
o 17th century developments – equity as a body of substantive law.
 Development 1700-1900: disaffection, reform and fusion
o Equity was the main source of protection for copyrights and trademarks (through
injunctions)
o Business trusts  in response to Bubble Act of 1720
 Prohibited an early precursor to a corporation known as a joint stock company 
basically a large P/P.
o Trusts were increasingly funds of investments that trustee would administer for the
benefit of others  as opposed to previously, when they were primarily used for
holding land.
Development of Equity in Canada
 Atlantic Provinces
o NS: assumption that governor in colony was the keeper of the great seal which is what
gave the English Chancellor power to exercise equity jurisdiction.
o Eventually NS is split into PEI and NB, who carry forward the exercise of equity
jurisdiction
o NB and NS brought equity w/in the law courts by 1850, in advance of the English
Judicature Act in 1873.
o In PEI, kept separate cts of equity until 1974
o Nfld and other atlantic provs didn’t follow this idea of governor exercising equity
jurisdiction, prob b/c governor wasn’t around very often.
o Instead, in Supreme Ct of province, as codified by 1825.
 ON and QC
o QC: 1763-74 English law, in which Equity admin by ct, and then went back w/ Quebec
Act and dropped English concept of equity.
o ON: cts of equity were only started in 1837. For some reason governor didn’t exercise
10
before this. Ct of Chancery was absorbed into High Ct of ON in 1881.
 The West and the North
o When courts were est’d in west and north, equity was already established and
unification well on its way. Thus, courts were just set up with jurisdiction over both
law and equity.
o BC and MN practice was to have divisions of the court, with one admin’ing law and
one admin’ing equity with cts of law ≠ give equitable remedies. Later, these divisiosn
were abolished (1895 in MN)
Fusion of Law and Equity
Procedural vs. Substantive Fusion
 Substantive: rules of law and equity are merged into a single body of rules
 Procedural: one can apply to a single court following a single procedure, which can administer
both rules of law and equity, and apply remedies from either.
o E.g.. damages or injunctions, specific performance, accounting, etc.
o But the rules run side by side, they don’t mingle.
 If procedural (i.e. two separate streams), issues may arise with a gratuitous promise
o If you have a deed, it’s enforceable in a court of law.
o But if you want specific performance you’d have to go to equity, which won’t enforce
gratuitous promises (equity won’t aid a volunteer).
 See Ashburner’s fluvial metaphor diagram.
Current Status of the Fusion Debate
Canson Enterprises Ltd. v. Boughton [1991, SCC]
 Facts
o Company sells land to  purchaser, who didn’t realize at the time that their lawyer (∆)
had significant interest in the selling company.
o So, lawyer made a substantial profit on the transaction.
o Problems arose, building fell down.  sued engineers but they were judgment-proof, so
 sued lawyer for breach of fiduciary duty
o  seeking equitable damages.
 Lawyer willing to account for his profits but refuses to pay for collapse of
building, which he says he didn’t cause.
  says equitable damages don’t require causation  not a legal tort action, but an
equitable one. Equity isn’t constrained to the breach.
  says ∆’s breach, ∆’s legal duty, ∆’s liability.
 Argues separate stream, and since  seeking equitable damages ∆ can only defend
with what’s available in the rules of equity
 Held: Court dodged the fusion issue, but found for ∆.
 Reasons – McLachlin CJ
o Found in favour of the lawyer, but on the defence of non-causation in equity.
o So, refused to decide whether there is substantive fusion or not. Could assume an
equity stream and save ∆, no need to borrow from other side.
o Added in obiter that “we may take wisdom where we find it, and accept such insights
offered by the law of tort, in particular deceit, as may prove useful.”
 So, suggests that a court might be able to go to law to find rules for equity.
11
Creating a Trust
 To determine whether a valid express trust has been created, consider the following five
requirements.
Capacity
Who must have legal capacity?
 Settlor(s)
o Must be a legally recognized “person” who has a legal or equitable interest in the
property they purport to make the subject of the trust.
o Must also have legal capacity to dispose of their interest in the property.
 Trustee(s)
o Should have capacity to deal with the subject property
 Theoretically, any legally recognized person can hold title to property, meaning
any person can be a trustee and hold trust property.
 But if they don’t have capacity to deal with the property, they may not be able to
comply with trust obligations.
o Most trustees are given some typical powers to deal with the property
 E.g. power to sell trust property, maintain a rental property in proper state of
repair, etc.
 If a trustee personally lacks capacity to exercise those powers, it will be difficult
to exercise them as a trustee either.
 Also, other parties will be reluctant to deal with trustee where they may be unable
to enforce arrangements.
 Even a bare trust normally requires efforts to protect the property until it is to be
transferred to the beneficiary
 Beneficiary/ies
o Must be a legal “person” to receive and hold a legal or equitable interest in property.
o Beneficiary ≠ required to have capacity to deal with the property to hold the interest.
o Beneficiary must be in existence before they can hold an interest in property, but they
don’t have to be in existence at the time a trust is created.
 Beneficiary’s interest may be contingent on coming into existence, though.
Types of Legal Incapacity
 Minors
o Limited capacity to enter binding Ks
o Makes adults reluctant to deal with them, fearing an unenforceable bargain.
o So law allows for “necessities” of life, or long-term Ks concerning land.
 Binding unless repudiated w/in reasonable time of reaching age of majority.
o Can also make a gift of property/interest therein.
 Some jurisdictions have statutory limits.
 ON Children’s Law Reform Act: requires court approval of disposition of
property by a minor, which can only be given if property is being disposed of for
purpose of providing for child’s support or education.
 Mental incapacity (legally incompetent adults)
o Focus is on mental incapacity  distinct from just having a mental illness
o The question is whether the mental illness is such that it would make the person
incapable of understanding substantially the nature and effect of the particular
transaction.
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o
A settlor must be capable of understanding the nature and effect of the creation of the
trust.
 E.g. appreciate the extent of property that is being disposed, who will benefit from
holding it per trust terms.
o Where making a will, the person must:
 Understand the nature and effect of making a will and the extent of property being
disposed of, and
 Have an appreciation of the needs of their dependents.
 Not recognized in law as a person
o An unincorporated association is not legally recognized as a person
 Neither is a trust or a P/P
o Can’t own property/interest therein.
 Bankrupts
o Things get complicated when bankrupts try to settle a trust
o Property of a bankrupt is held by a trustee in bankruptcy
o Rule (w/ very limited exceptions): property held by a trustee in bankruptcy is governed
by the Bankruptcy and Insolvency Act.
o Transactions prior to bankruptcy may be void against the trustee in bankruptcy and
may be void under provincial fraudulent conveyance or fraudulent preference
legislation.
The Three Certainties
Certainty of Intention
 Intention to create a trust relationship
o Intention of the settlor to create a trust
 Intention by one person that another person hold property for the benefit of
persons or purposes, or
 Intention expressed by a person that property he or she (or it) holds title to is to be
henceforth held on trust (i.e. self-declared trust)
 Written, oral or inferred from conduct or circumstances
o Can be
 Expressed orally or in writing,
 Inferred from words expressed orally or in writing
 Inferred from circumstances
 No formal requirements (except in certain situations)
o For testamentary trusts and statute of frauds cases, mere conduct or oral expression of
intent are insufficient.
 No specific words required
o Words such as “in trust” or “as trustee for” don’t even necessarily satisfy the certainty
of intention requirement (although they most often would)
 Precatory trusts
o Precatory words (e.g. ‘hope’, ‘desire’, ‘expectation’) are not normally sufficient to
satisfy certainty of intention [see e.g. Johnson v. Farney]
o But certainty of intention may nonetheless be found if other words/evidence are
sufficient to satisfy.
o In 1830, the Executors Act changed the rule re executors taking property, and
subsequently courts became less willing to fund trusts from precatory language.
Cases re Certainty of Intention
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Re Walker [1925, CA]
 Facts
o Testator left estate to his wife, and if any left over on her death then to children.
 Issue: trust?
 Held: No trust intended. Wife could have it all if she wanted.
 Reasons
o Repugnant words indicate both gift absolute and holding property in trust.
 Must determine intention of the settlor.
o Can’t make a gift of the whole thing and then attempt to restrain it.
 Note: could be a gift or a gift over, so can’t just stop reading after the word ‘gift’
and assume it’s not a trust.
 Either a gift, which predominates, or a gift over (i.e. w/ remainder), which
predominates.
 In the latter case, wife would hold in trust and thus ≠ encroachment allowed.
o Underlying factors
 Difficult to find a basis to impose legal obligation on the wife.
 No strong reasonable expectation among the named persons of receiving anything.
o Here, court struck out the words that made it seem like there was a trust, and made it a
gift absolute to the wife.
Re Shamas [1967, ONCA]
 Facts
o Will in 1932:
 “All will belong to my wife until the last [child] comes to the age of 21 years old
... If my wife marries again she should have her share like the children if not, she
will keep the whole thing and see that every child gets his share when she dies.”
o Application brought 33 years later: assets had grown to $125,000
 Issue: Trust? Encroachment allowed?
 Held: Wife held on trust but could encroach on capital until her death for the maintenance and
education of her and the children.
 Reasons
o Based on circumstances present when will was made.
o Court read down the words of gift absolute and made it a trust.
 Commentary:
o Interpretation based on circumstances provided a basis for imposing a legal obligation
on the wife (i.e. a basis on which court could control her exercise of discretion to
encroach on the capital)
o Stronger expectation of children to receive something here than in Re Walker?
o Effect of appreciation in value of assets  perhaps court had a desire to share the
wealth?
Johnson v. Farney [1913, CA]
 Facts
o Testator’s will left property to wife and then said:
 “I also wish if you (my wife) die soon after me that you will leave all you are
possessed of, to my people and your people equally divided between them, that is
to say your mother and my mother’s families.”
 Codicil:
 “Property known as the William McGuire property to go to my wife to do as
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she sees fit with it. ... If she my wife dies intestate divide what is left of it
equally among my brothers and sisters...”
o Wife distributed to her family, not to his.
 Issue: was wife entitled to distribute to her family?
 Held: Yes. Wife was free to dispose as she did.
 Reasons
o “wish” was not considered sufficient to create a trust in previous cases.
 Here, it was just a suggestion, based on consideration of the whole will  not
binding
Certainty of Subject Matter
 Rationale
o Trustee needs to know how to comply
o Court needs to know so it can determine if there is a breach of trust, or so it can
administer the trust if trustee disappears
 Certainty of property subject to trust obligation
o Must be established when trust is created
o Normally a reference to a specific piece of property or fixed amount of a specific fund
will be sufficient.
o Also sufficient if it can be determined from the terms of the trust what property is
subject to it.
 Certainty of amount/share of property each beneficiary is to receive
o This can be satisfied by
 (i) setting out the specific amounts or proportions
 (ii) setting out the method by which such amounts will be determined
 (iii) giving trustee discretion
Cases re Certainty of Subject Matter
Boyce v. Boyce [1849]
 Facts
o Will instructed executors to hold four houses in trust
 So houses are the subject matter, but not clear how to allocate among the
beneficiaries
o Trustees were supposed to let M, one of T’s daughters, choose one house for herself
and then C, other daughter, would get other three.
o However, M died without choosing, so trustees didn’t know which house to give to M’s
estate and which to C.
 Held: No certainty of subject matter. Void.
Sprange v. Barnard [1789]
 Facts
o Wife left property to husband, and “at his death, the remaining part of what is left that
he does not want for his own wants and use, to be divided among John Crapps, my
sister Wickenden, and my sister Bauden, to be equally divided between them.” One of
the questions dealt with was whether the husband, Thomas Sprange, could take the
whole amount for himself leaving nothing for Crapps, Wickenden or Bauden.
 Held: invalid trust.
 Reasons
15
o
o
o
o
o
The court in 1769 confirmed that “the property, and the person to whom it is to be
given, must be certain, in order to raise a trust.”
The court went on to note that the property here was “only what shall remain at his
death” and “only so much as he shall not want for his own wants” and concluded that if
this was held to be a trust, it “would be impossible to be executed.”
No way to be certain as to what amount would be left for the proposed beneficiaries
 It was therefore decreed that the whole amount be transferred to Thomas Sprange
Factor  similar to Re Walker.
Also, the reliance of the proposed beneficiaries was not very strong
Re Beardmore Trusts [1952]
 Facts
o Separation settlement.
 Husband was to hold 3/5 of his net estate for wife for her life or until she
remarried, w/ remainder to be held and paid out to two daughters over 20 years
(and if either daughter died then remainder to their issue)
o Wife dies, both daughters alive.
o Husband brought motion for an order that the trust was void. The daughters, now
adults, supported him.
 One daughter had minor children w/ contingent interest in the alleged trust, and
unborn issue of the other daughter also had contingent interest
 Held: no trust.
 Reasons
o If a testamentary trust could be found, the subject matter would be clear (i.e. 3/5 of
estate on his death).
 But settlement was not executed in a way that complied with wills legislation, so it
couldn’t take effect as a will.
o Inter vivos trust:
 Can’t ascertain what 3/5 of his estate is, since he’s still alive and will continue to
accrue/use.
 Subject matter property has to be clear at the date the trust comes into effect,
not just at the time beneficiaries have right to call on the trust property.
Re Romaniuk [1986, AB]
 Facts
o Testatrix listed three bank accounts in will, but at time of death she had four accounts.
 Issue: judge had to assess whether she intended to cover all her accounts in the will, or only
the three listed.
 Held: No trust.
 Reasons
o Since court couldn’t know what was intended to be held in trust (i.e. which accounts),
no certainty and thus no trust.
Certainty of Objects
 Rationale:
o To properly administer a trust, must know who the beneficiaries are, so as to properly
consider the effect on them.
o To assess breach of trust, court must be able to assess who was supposed to get the trust
property.
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o Third parties must be able to determine whether they are beneficiaries of the trust.
 This req’mt is reduced for charitable purpose trusts
o Purpose trusts must have certainty of purpose
o Only necessary to have an intention that property be held for charitable purpose  so
long as this is clear, trust won’t fail for lack of specificity as to how trust should be
carried out.
o Court will provide a purpose, thereby rectifying any uncertainty concerning the
particular charitable purpose of the trust.
Fixed trusts
 Trustees of a fixed trust have no discretion  must distribute property to beneficiaries in a
fixed proportion.
o Thus, must be able to identify each beneficiary.
 “Class Ascertainability Test” or “Complete List Test”  Test of certainty of objects for a
fixed trust. One must be able to [Broadway Cottages]:
o (i) determine whether any person is a member of the class of beneficiaries;
o (ii) identify every member of the class of beneficiaries
Discretionary trusts
 Trustee has discretion to decide which beneficiaries get what.
 Certainty of beneficiaries req’mt is met “if it can be said with [conceptual] certainty that any
given individual is or is not a member of the class.” [McPhail v. Doulton (1971, HL)]
 “Individual Ascertainability Test”
Conceptual vs. Evidentiary Uncertainty
 Conceptual uncertainty will render a trust void, but evidential will not.
 Conceptually certainty: where description of the class is sufficiently clear to be applied.
o i.e. if you have the relevant info about an individual, you will be able to assess
determinatively whether they are part of the class of beneficiaries.
 Evidentiary certainty: would need to be certain you could prove the information about a
given individual.
o This is not necessary. Just need to know if you had the info you could assess status.
Cases re Certainty of Objects
McPhail v. Doulton (In Re Baden’s Deed Trusts) [1971, HL]
 Facts
o Baden put money aside for a trust to be created to benefit em’ees of his company.
o The will said that trustees shall distribute money “in their absolute discretion” to/for
benefit of current or past officers/employees, or any relatives or dependents thereof
o Can’t determine every single potential beneficiary  what does dependent cover?
o Executors claimed no certainty of beneficiaries
 (If trust invalid, then assets Baden contributed would revert to his estate)
 Issue: Do the trustees need to identify all current and past employees, and all their
relatives/dependents?
 Held: Set out new test, and returned the case to trial to assess on the test set out.
 Reasons
o Court interpreted “may” as “shall” to make this a trust power and require executors to
decide.
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
o
o
At the time of this case, courts had held that the test was the same for
discretionary and fixed trusts, meaning trustees would need to show they could
make a complete list of people in the class of beneficiaries.
 But if it were a power, then a different case would apply, and trustees would only
need to show that they could determine whether any given person was a member
of the class (and not the second aspect of the fixed trust test)
HL found there was a discretionary trust, and that a trustee w/ a power and one w/
discretion would approach the task the same way.
 Although the original logic in using the full two-part test was to enable a court to
equally divide assets if it were required to step in, it does not make follow that a
court should invalidate a discretionary trust for this reason
 If settlor had intended to insist on equal division, he would have provided for
a fixed trust with equal distribution.
HL sent the matter back to Chancery with a test so the lower court could reconsider the
reframed issue: is it possible, within the wording of the clause, to determine with
reasonable certainty whether any given person is a member of the class of
beneficiaries?
Re Baden’s Deeds Trust (No. 2) [1973]
 Facts
o HL referred question of validity back to Chancery from Baden 1.
o Chancery found valid trust. Appeal brought the case back to the CA.
 Issue: are the words “relatives” and “dependents” sufficiently certain to allow someone to
determine whether any given person is a member of the class?
 Held: Sufficiently certain. Valid trust.
 Reasons
o All three CA judges agreed in the result, but gave different reasons.
o Each had a slightly different definition of “dependent”,
 One judge just said that whatever dependent means, it must be sufficiently certain,
or a whole lot of trusts would fail.
o So, basically, it’s okay, but no consensus on what it does mean.
Re Connor [1969, ABSC]
 Note: decided pre-Baden.
 Facts
o To be distributed “among my close friends, in such a way and at such a time as the
trustee shall determine”
o Procedural background: executrix applied to court for directions  seeking declaration
as to the validity of the clause.
 Issue: who counts as a “close friend”?
 Held: invalid
 Reasons
o Too uncertain. To make the gift valid the trustee must be able to ascertain the class of
close friends, and under the pre-Baden test this class was too uncertain.
Jones v. Executive Officers of the T. Eaton Company (sub nom Re Bethel) [1973, SCC]
 SCC adopts McPhail v. Doulton test  so that is the law in Canada
 Facts
o Disposition: to needy or deserving Toronto members of the Eaton Quarter Century
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Club
 If you put in 25 years of service at Eaton’s, you got to be a member of the club
 Probably 7000 living members in Toronto who had made it into their club.
 Issues
o (1) is this a valid express trust for persons?
o [(2) if not, could the trust take effect as a charitable purpose trust?  see below]
 Held: Would have been valid as an express trust for persons, but found it as a charitable
purpose trust anyway (below)
 Reasons:
o Adopts McPhail v. Doulton test. Insufficiently certain.
Daniels v. Daniels Estate [1992, ABCA]
 Facts:
o testator executed a will with a residuary clause: “all the residue of my estate not
hereinbefore disposed of I devise
o and bequeath unto my executors to distribute as they see fit”
 Held: failed
 Reasons
o Lack of certainty of the objects of the trust. In court’s opinion, the executors were
intended to be trustees, they could not take the property for themselves.
o Thus they held the property on a resulting trust for the estate of the testator to be
distributed to the intestate heirs of the estate.
Values/Concerns that May Influence Findings Re Certainty









Maximizing Property Values
Evidence of Owner’s Intention
Deliberation by the Owner
Reasonable Expectation or Reliance
Unjust Enrichment
Enforceability and Administrative Cost
Distributional Equity
Balancing Underlying Values or Concerns
Shifting Values or Concerns
Constitution
 Property must go into hands of the trustee before they can meet trust obligations with respect to
that property.
o i.e. trustee must have legal or equitable title to subject matter property
Rationale
 Trustee can’t carry out obligations with respect to property the trustee doesn’t have control
over.  must have authority to carry out obligations.
 Equity will not perfect an imperfect gift.
o If property hasn’t been transferred, then trustee has no power to give to beneficiary.
Trust ≠ formed, and intended beneficiary of the trust can’t enforce the intended trust
obligations.
o Equity won’t aid a volunteer  if no consideration for a promise, a court of equity
would not enforce specific performance, even if the deed were validly executed.
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o
o
 Even now, courts won’t enforce a gift in the situation described above.
Courts of law had legal requirements for a gift
 (i) Donor must express intention to make the gift
 (ii) Donor must deliver property
 this is mainly to corroborate (i), especially in situations where the donor has
died or there is conflicting info.
 (iii) Donee must accept the gift
if Equity were to grant specific performance of the donor’s promise, it would be
completing an otherwise ‘imperfect’ gift  which is just not done.
How a Trust is Constituted
Ways of Constituting a Trust
 (i) Settlor can transfer intended trust property to another person to hold as a trustee
 (ii) Settlor can declare self a trustee with respect to property he/she already owns
 (iii) (uncommon) A third party can transfer intended trust property to the trustee.
o E.g. A might K to provide services to B, but ask B to pay C, who has been given
instructions to hold money on behalf of A’s children.
 Once trust is constituted, settlor can’t revoke or alter it unless the power of revocation was
expressly retained.
Transferring Interests in Property
 Settlor must have either legal or equitable title
Legal Interests
 Land
o If abstract or registry system, transfer using a deed
o If land title system, statutory instrument of transfer
 Chattels
o Title is usually indicated by possession
o May be transferred
 In documentary form (e.g. through a bill of lading), or
 Via a deed (but only where specific performance of the deed is available, which
means there must be consideration  non-gratuitous.)
 Choses in action
o Transferred by assignment
 Legal assignment per Law and Equity Act, s. 32
 Equitable assignment
 No particular form req’d unless specified by a statute or other agreement
(e.g. if shares of a corp)
o An assignment can be enforced without consideration
o Assignment relates to an existing right  can’t assign a chose in action that doesn’t
exist.
 But can make a binding promise to assign some property rights one expects to
receive in the future
o Three requirements
 (1) Must be in writing
 (2) Signed by assignor
 (3) Notice must be given to the person who owes the obligation under the chose in
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action
 Negotiable instruments
o Must be endorsed in favour of another person or in blank (making payable to the
bearer)
 Securities
o E.g. shares, debentures. Often considered negotiable instruments.
o May also have statutory requirements for transfer
o If your name is on the register you have legal title  so can personally enforce
obligation. But often traded through a brokerage or fund etc., so may only have
equitable title.
Equitable Interests
 A person can constitute a trust from an equitable interest by:
o (i) Assigning equitable interest to a trustee in trust for proposed donee
o (ii) Declaration by the person that s/he is a trustee of the equitable interest for the
proposed donee
o (iii) An instruction to existing trustees to hold the equitable interest in favour of the
new beneficiary
Cases re Constituting a Trust
Milroy v. Lord [1862]
 Facts
o Deed purports to create trust of Bank of Louisiana shares in favour of E.
 Settlor reserves right to direct trustee (Lord) to transfer shares and proceeds to E.
 BoL shares registered in name of settlor
 Lord has power of attorney from settlor.
o No instruction given to Lord to transfer shares to E
o Dividends on shares paid to E, except that some of the dividends used to acquire shares
in a company that are then registered in name of settlor.
o Settlor dies, and his executor refuses to transfer the shares to E.
 Issue: was the trust of BoL shares properly constituted?
 Held: Trust.
 Reasons:
o Settlor must do everything he can to effect the transfer
o 3 possible modes of transfer:
 1) Gift
 2) To another person in trust
 3) Self-declaration of trust (declare self to be trustee)
o Court won’t substitute one mode of transfer for another.
 on the facts, settlor intended to transfer the property to another person (Lord), not
declare himself a trustee.
 Lord was settlor’s agent, not a trustee, and needed instructions to act on power of
attorney to transfer shares
o But, intention was expressed in the deed that the dividends on the shares were to go to
E, and in fact did transfer to her on some occasions, so the court treated this as an
indication that he had declared himself a trustee.
Re Rose [1952, Eng CA]
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 Later case applying Milroy v. Lord
 Facts
o March 30, 1943: Mr. Rose executes proper forms for transfer of company shares
 10,000 shares to wife as gift and 10,000 to wife and company secretary to hold in
trust for wife for life, remainder to son.
o April 5, 1943, executed forms delivered to company secretary for entry on company
shareholder register.
 Company articles require BoD consent to transfer of shares
o June 30, 1943, BoD consent and entry of transfer on SH register
o Feb 16, 1947, Mr. Rose died.
 Issue: were the transfers effective on April 5 or June 30, 1943?
o If April 5, no estate tax on value of shares
o If June 30, estate tax on value of shares.
 Held: April 5th.
 Reasons:
o Mr. Rose had done everything he could to effect the transfers on April 5
o Crown argued finding this would amount to saying Rose had declared himself a trustee
of the shares (since he still had legal title to the shares), and this would be substituting
the self-declaration mode of transfer for the intended mode (to another to hold in trust)
 Court dismissed this argument on basis that Rose had made an effective transfer
and therefore was a trustee of the shares  transfer of legal title was beyond his
control.
 Comments – unanswered questions raised by this decision:
o Was the Crown argument right? The efforts of Mr. Rose to transfer were effectively
treated as a declaration by him that he held the legal title to the shares in trust
o Purpose of constitution of trusts? How can Mrs. Rose and the company secretary carry
out the trust if they do not have title to the shares?
o Consider, though, in terms of the functions of delivery as corroborating evidence and
indication of deliberation
 Was it something that happened in a rash moment, or was it something he really
intended to do?
Paul v. Constance
 Facts
o 1965 Mr. Constance separated from his wife
o 1967 begins living with Mrs. Paul
o 1969 injury
o 1973 compensation of £950 and opens bank account in own name
 Instead of joint account w/ Mrs. Paul on advice of bank manager
 But Mrs. Paul given authority to draw on account
 Deposit of joint bingo winnings and use of account for food and Christmas
presents.
 Issue: Did Constance declare himself a trustee of the funds in the account for the benefit of
Mrs. Paul?
 Held: Yes.
 Reasons
o No technical words necessary to declare a trust
o Discusses Milroy: won’t substitute one more of transfer for another
 But here not substituting, since C’s intention was simply to declare himself trustee
of bank account.
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o
Clear evidence of intention to self-declare a trust is required.
Watt v. Watt Estate [1987]
 Facts
o Note: this case is between two unrelated people with the same last name.
o RJ Watt owned marina, and S Watt work there for free (bookkeeping, customer service
etc.).
o RJ was friends w/ S’ husband, and they built a boat together.
 RJ owned the boat, but gave S keys and S’ family used it on several occasions
before RJ’s death.
o Before RJ’s death, he wrote a formal letter stating joint ownership.
 Issue:
o Written note indicates intention, but was there delivery of the gift?
o If there was no gift, did the letter amount to a self-declaration of trust?
 Held: no gift; trust.
 Reasons
o Letter declared trust for the half-interest in the boat in favour of S.
Forcing the Settlor to Constitute the Trust
 Recall: equity will not complete an imperfect gift.
o So when can a trust be enforced against a settlor?
Gratuitous Deeds
Specific Performance
 Court will not enforce a transfer from settlor to trustee where the deed to settle on trust was
gratuitous
 Equity will not grant specific performance of a gratuitous deed
o Accordingly, they will not force the trustee to sue the settlor to obtain specific
performance of the deed
 Further will not allow the beneficiaries to specifically enforce the promise in the
deed.
o Policy Rationale: forcing the settlor to deliver the property would have the effect of
completing an imperfect gift.
Cases Re Forcing Settlor to Constitute Trust through Specific Performance
Re: Pryce [1917] 1 Ch. 234
 Facts: Husband and wife entered into marriage settlement deed – W put land on trust, H put
funds to which he might become entitled to in the future on trust. Trust held for H&W for life,
remainder to survivor for life, remainder to children. If no children, remainder to W’s next of
kin. H’s father dies entitling him 2 remainder interests after mother’s life interest.
 Issue: Should trustees of the settlement deed try to enforce the settlement of the remainder
interest.
 Held: Wife’s next of kin were volunteers, Trustees should not take steps to enforce settlement
of remainder interest.
 Reasons:
o Next of kin were not party to marriage settlement, nor were they part of the “marriage
consideration”
23
o
o
Court will not give by indirect means what they could not get directly.
Very unlikely there was any reliance on these funds by the next of kin – very remote
chance of vesting
Re: Kay’s Settlement [1939]
 Facts: unmarried woman (Kay) executed voluntary settlement by deed containing covenant to
settle all after-acquired ppty with certain exceptions; Trust was for herself for life; with power
to appoint, if she were to marry, to husband for life should she pre-decease him; remainder to
her children should she have any and as she should appoint, etc.; later married had 3 kids.
o Kay inherited ppty from her mother which trustees of the settlement claimed and she
refused to settle it on the trust
o Ts applied for court’s direction as to whether they ought take action against her to have
interests conveyed to the trustees
 Issue: Should the trustees be compelled or permitted to enforce the covenant in the deed of
settlement by the woman?
 Held:
o 1. No SP But Question of Damages: Conceded trustees could not get SP, but
question of whether they should claim for damages
o 2. No Indirect Enforcement of Covenant by Volunteers Through Trustees: -Follows
Re Pryce, directs Ts not to take any proceedings to enforce covenant since doing so
would be allowing non-parties to covenant to effectively enforce covenant indirectly
 NB: Though Bs to covenant were the children (thus part of marriage consideration) settlement
was not made in consideration of marriage. Rather made by Mary Kay before she married and
not in contemplation of marriage.
 Comment:
o Evidence/Caution/Channelling: deed itself providing evidence and suggesting desire to
have legal effect - execution in formal circs
o Reliance: She's still alive and she had a power of appointment amongst the children.
Too many contingencies for reliance. The children would have to outlive the mother
and would have to count on the mother making an appointment in their favour.
o Private Autonomy -- Alteration of Terms re After-Acquired Property: Would she have
expected not to be able to alter terms wrt after-acquired property, especially when she
had reserved extensive powers of appointment. Might she not change her mind with
respect to after-acquired property? Should she be able to?
Seeking Remedy of Damages
 If one or more of the beneficiaries can be said to be a direct coventantee in deed, then they can
sue to enforce it.
 If, however, the deed is gratuitous the beneficiary could not get specific performance. Instead,
the beneficiary can only get damages.
 Damages would be compensation to the beneficiary for not receiving the beneficial interest
promised in the deed,
 While such damages may compensate beneficiary, they would be payable to beneficiary and
would not result in constitution of the trust.
Cannon v. Hartley, [1949]
 Facts: Deed of separation signed with husband, wife and daughter as parties providing that
during W or D’s life, if H received more than £1000 from his parents will, he would put half in
trust for himself for life, remainder to W for life, remainder to D.
24
o H became entitled to £50k. W died. H refused to settle on trust and D sued to enforce
 Issue: Could D have the court force H to settle the property as he had covenanted?
 Held: Volunteers can’t seek SP, \though D was party to deed, equity would not enforce the
covenant. Could claim damages.
 NB: D was not a volunteer in the sense of Re: Pryce where the Bs were not parties to the deed.
Recharacterization of the Subject Matter of the Trust
Fletcher v. Fletcher [1844]
 Facts: S signs deed saying that if his two illegitimate sons survive him and reach 21, his
executors will place funds on trust for them; S kept deed and didn’t tell sons or trustees about
it. Will gave everything to S’s wife and legitimate children. 1 illegitimate son reached 21.
 Held: (1) Deed created a trust for the son though it was voluntary. Deed created debt to pay
into trust in future creating a chose in action for the trustees. (2) held not to be testamentary,
since there was no power of revocation; must pay upon satisfaction of conditions precedent.
 Comment: Unlikely to be reliance b/c it was secret. That S kept deed and could have changed
it but didn’t suggests intent to have it enforced. Lastly, enforcing won’t affect S’s ability to
arrange affairs since he’s dead.
Transfer for Value
 If B gave consideration for S’s promise, they’d be a party to the K and would be able to
enforce
o Damages available, and SP possible if B is able to show damages are insufficient.
 Similarly, if T gave consideration to S for the promised delivery of property to T, they could
enforce the promise
o Default would be damages, though SP would potentially available.
o HOWEVER, difficult for T to show what damages would be appropriate, and why
they’d be inadequate.
 Ex. If administering trust for a fee, damages would be lost wages, SP would be
inappropriate.
Promise to Convey Future Property
 May promise to settle on trust property not yet owned – usually an interest in the form of an
inheritance
 Promises of this kind can be defeated if, ex. The person from who the promisor expects to
inherit does not include them in their will, or if that person re-writes their will to exclude the
promisor.
Formalities
 Generally no formal req’mts to create a trust
o Can be created orally
 But in specific trusts may need to do certain things.
 Two areas in which formal requirements arise: the Statute of Frauds and Wills legislation
o i.e. testamentary trusts must comply with wills legislation
UK: Statute of Frauds
25
Origins
 Enacted in 1677 in response to concerns about frauds based on oral evidence
o Previously, a debtor could simply swear in court that he didn’t owe and creditor would
have no recourse
 Applies to:
o Ks for land;
o Long-term Ks (usually those calling for performance over more than 1 year);
o Creation of trusts w/ respect to land;
o Grants/assignments of equitable interests
 Adoption in Canada
o Some provinces have adopted the 1677 Statute wholesale (AB, SK, NF & Territories),
o Others have re-enacted more modern versions (ON, NS, NB).
o Manitoba has repealed the Statute of Frauds
o BC has re-enacted part of the SoF in s. 59 of the Law and Equity Act
Contracts with Respect to Land
 Section 4 of the English Statute of Frauds provides that:
o “no action shall be brought … upon any contract or sale of lands, tenements or
hereditaments, or upon any interest in or concerning them … unless the agreement
upon which such action shall be brought, or some memorandum or note thereof shall be
in writing, and signed by the party to be charged therewith, or some other person
thereunto by him lawfully authorized.”
 Enforcement
o Enforcement requires some note/memorandum of the K in writing or signed by
the person to be charged or by that person’s agent [different from s. 7]
o Note/memo doesn’t have to be the K itself  as long as it contains the terms of
agreement, or unequivocally refers to a document containing the terms.
o Signed writing does not have to be made at the same time the K is made.
Creation of Trusts with Respect to Land
 Section 7 of the English Statute of Frauds
o “all declarations or creations of trusts or confidences of any lands, tenements or
hereditaments, shall be manifested and proved by some writing signed by the party who
is by law enabled to declare such trust, or by his last will in writing, or else they shall
be utterly void and of none effect.”
 Enforcement
o Does not require a signed trust instrument.
o Trust obligation must be proved by some writing signed by the settlor
 (except NS and NB, where trust instrument itself is req’d to be in writing)
 Signed writing does not have to be signed at same time as the creation or
declaration of trust, but it cannot be signed by agent of the settlor. [different
from s. 4]
o “utterly void and of none effect” has been read by courts as meaning simply
unenforceable.
o S. 7 has been held to apply where beneficiary of trust of land declares himself to be a
trustee of his equitable interest.
Assignments of Equitable Interests in Trusts
 Section 9 of the English Statute of Frauds
26
“… all grants and assignments of any trust or confidence shall likewise be in writing,
signed by the party granting or assigning the same, or by such last will or devise, or
else shall likewise be utterly void and of none effect.”
 Application:
o “trust or confidence” has been interpreted to mean equitable interests
 so, grants/assignments of equitable interests must be in writing, signed by the
person making the grant/assignment. (not an agent)
o Applies to land and personal property
o
Problems w/ Statute of Frauds & Responses
 Could be used to perpetrate frauds
 Otherwise could lead to reliance and unjust enrichment if promisor could avoid promise by
pleading statute.
 In response: doctrines of part performance and fraud.
Doctrine of Part Performance
 Courts may take partial performance of an alleged contract as evidence of the contract’s
existence.
Doctrine of Fraud
 Sometimes, you can bring in parol evidence to indicate existence of a contract [Rochefoucauld
v. Boustead (1897, Eng. CA)1]
Section 59 of the BC Law and Equity Act
 59(3): allows for enforcement in ways other than a writing signed by the person to be
o (a) a “reasonable indication” in writing
o (b) an act or acquiescence to an act “not inconsistent” with the alleged contract
o (c) reasonable reliance by the person alleging the contract
 Contracts respecting land:
o 59(3) essentially re-enacts s. 4 of SoF as modified by the doctrine of part performance
and the doctrine of fraud.
 Dispositions of land by way of trust:
o 59(3) applies to “disposition of land”, but 59(1)(a) explicitly states that this does not
apply to trusts. So, s . 7 of SoF ≠ adopted.
 Assignments of equitable interests:
o S. 59 does not re-enact s. 9 of SoF, so no req’mt of writing for the grant or assignment
of an interest in trust.
Testamentary Trusts
The Wills Act
 Concerns w/ fraudulent wills were also covered in the Statute of Frauds, but the wills
provisions were moved to the Wills Act in 1837.
1
Rochefoucauld v. Boustead [1897, CA]: B orally agreed to hold land in trust for R, remit profits and later
return land to R. B later wrote & signed letters and remitted profits. Later, R asks for return of land and B
refuses, claiming statute. Held: Letters signed by B may have been enough to meet SoF req’mt, but even if
not other evidence (i.e. oral evidence) was admissible to prevent the statute from being used to commit a
fraud.
27
 Requirements
o Per current BC Wills Act, to be valid a will must:
 1) be in writing [s. 3]
 2) be signed at its end by the testator or by some other person on behalf of the
testator, in the testator’s presence and by the direction of the testator [s. 4(a)]
 3) have testator make or acknowledge the signature in the presence of two or more
witnesses attesting to it. [s. 4(b)]
 4) Be signed by the witnesses [s. 4(c)]
o No effect will be given to writing appearing beneath the signature [s. 6(3)]
o Normally a will made by a person under the age of 19 is invalid unless married [s. 7],
or if they are in the military per s. 5.
 S. 6 gives some flexibility regarding the formatting/placement of the signature.
 To make a valid testamentary disposition, the Wills Act must be complied with.
Prospective Changes:
 The BC Wills, Estates and Succession Act, S.B.C. 2009, c. 13 has been enacted but is not yet
in force.
 Section 36(1): any person who is 16 years of age or older and who is mentally capable of doing
so can make a will.
o A will made by a person under the age of 16 would not be valid (s. 36(2))
o 37(1): a valid will must be:
 In writing
o Signed at the end by the testator, or the testator must acknowledge that the signature is
his/hers in the presence of 2 or more witnesses
o Signed by 2 or more witnesses in the presence of the testator
Secret and Semi-Secret Trusts
 Secret: no indication in will that donee takes on trust
 Semi-secret: indication that donee takes on trust but no indication of who the beneficiaries are.
 Requirements for secret and semi-secret trusts:
o (i) communication by the donor of the trust and its terms to the donee (i.e. the person to
whom property is given under the will and who will be subject to the trust obligation)
o (ii) acceptance of the trust obligation by the donee (can include mere acquiescence)
o (iii) communication must be timely
 Difference: secret trust communication can be made any time before death of
testator. Semi-secret trust communication must be at or before the time of the
making of the will.
Secret Trusts
 A’s will states that x property is bequeathed to B. No indication in will, but A has separately
communicated to B the intent that B hold this property in trust for C.
 B’s obligation technically ≠ enforceable under Wills Act, but voiding the trust would go
against testator’s intentions, so courts have imposed what is normally considered to be a
constructive trust on B to hold in trust for C.
 Fraud on B’s part is said to arise because either [per Lord Hatherly in McCormick v. Grogan2]:
2
McCormick v. Grogan [1869, HL]: C devised all property to G in will. Informed G of this at deathbed
mtg, and told G he would find the will in drawer w/ letter. Letter asks G to pay annuities to various ppl,
including M. G paid annuities to some but not to M, so M sued. Held: for G  didn’t induce the will,
28
o
(i) B induced the gift to himself in the will on the understanding that he would do what
the testator wanted.
o (ii) B accepted the trust obligation under the will and testator consequently chose not to
make out another will with someone else to act as trustee
o (iii) B acquiesced knowing that the gift to him was to be held in trust and consequently
the testator did not make another will with someone else to hold in trust.
 Timing: must be before death of testator. [see e.g. Boyes v. Carritt]3
o Allows testator to change will if secret trustee refuses to accept obligation
o Merely informing trustee that there is a letter with the will that gives instructions 
insufficient. Must communicate content of the obligation. [McCormick v. Grogan]
 Trustee must have opportunity to accept/reject the obligation with knowledge of
what the trust obligation is.
 The essentials of a secret trust are [Ottaway v. Norman]4
o (i) an intention of the testator to subject the primary donee to an obligation to a
secondary donee
o (ii) communication of that intention to the primary donee, and
o (iii) acceptance of obligation by primary donee – express or acquiescence.
 Secret trustee can transfer inter vivos or by will. [Ottaway v. Norman]
Semi-Secret Trusts
 Contrary to wills legislation: indicates trust obligation but not who gift is made to.
 Rationale for enforcement
o Non-enforcement could defeat testator’s intention;
o Acceptance or acquiescence may have deterred testator from taking other steps to
accomplish intention (the ‘fraud’ aspect)
o Might defeat expectations of intended beneficiaries
 Timing of communication  difference from secret trusts
o Communication of a semi-secret trust must be at or before the will is written.
[Blackwell v. Blackwell]5;
o Note: many other CL jurisdictions don’t follow this timing difference, but Canada does.
didn’t assent, and couldn’t acquiesce since testator wouldn’t have it any other way. No indication of the
contents of the letter ahead of time.
3
Boyes v. Carritt [1884]: Will left all to C. Testator said he would communicate instructions by letter when
he reached the continent, but never sent it – found in his papers after death. Instructed C to take £25 and
give test to a Nell Brown. Action by her statutory next of kin that C held funds in trust for her estate. Held:
Communication must be rec’d in testator’s lifetime. Possibly receiving sealed letter in testator’s lifetime
might be enough (though not after death).
4
Ottaway v. Norman [1972]: O testamentary gift of house/contents to housekeeper. Gift alleged to have
been made on basis that HK would devise house/contents to O’s son & his wife. HK has a few wills, and
her last one left house/contents to Norman, w/ half of residue to him and the other half to son/daughter-inlaw. Action by son/d-i-l claiming house/contents held on constructive trust – i.e. a secret trust. Held: given
affidavits of O’s exeutor as to his intention and of HK’s friend who heard the intention mentioned when
visiting the house, clear enough intention  trust existed.
5
Blackwell v. Blackwell [1929, HL]: Testator altered his will by a codicil that made a specific bequest of
£12,000 to trustees to invest and apply the income “for the purposes indicated by me to them.” One of the
trustees was given the details of testator‟s plans and the others knew of the general scheme. The intention
was communicated at the time of execution of the will and one of the trustees then wrote a memorandum of
the intentions immediately thereafter. Intention was to give £12,000 in favour of a lady other than the
testator’s wife and in favour of that lady’s 16-year-old son. Wife and child argued semi-secret trust must fail
and funds should be distributed according to residue in will. Held: semi-secret trust enforced.
Communication was made at the time of the execution of the will, making it enforceable.
29
 Semi-Secret trust obligations are enforced for the same reasons as fully secret trusts: to prevent
fraudulent denial of the intention of the testator. [Blackwell v. Blackwell]
 Where two interpretations are available, one of which leaves property undistributed and one
that leaves all property distributed, the court prefers the latter. [Jankowski v. Pellek]6
Public Policy
 Trusts may be invalid by reason of being contrary to public policy
Conditions that Have been Found Contrary to Public Policy
 (Note: likely many others would apply today – can pretty much guess.)
 Restraint of marriage [e.g. Re McBain (1915), Re Cutter (1916, ONCA)]
 Interference with marital relationships [e.g. Hurshman (1956, BCSC)7, Re Nurse (1921), Re
Blanchard (1963)]8
 Interference with discharge of parental duties [e.g. Clarke v. Darraugh (1884)9, Re Thorne
(1922)10]
 Discriminatory conditions [Christie v. York Corp. (1940, SCC)11; Re Drummond Wren (1945,
ONHC)12; Noble v. Alley (1949, ONCA)13; Canada Trust Company v. Ontario (Human Rights
Commission (1990, ONCA)]14
 Restraints on alienation or interference with enjoyment of property
 Adherence to particular religion.
o Hasn’t necessarily been considered contrary to public policy, but courts will find it void
for uncertainty since it’s difficult to say what it means to adhere to a particular religion.
Trusts for Illegal Purposes
 A court may refuse to enforce a trust that is for an illegal or socially unacceptable purpose.
 Trusts that are for an illegal purpose are invalid because they are clearly contrary to public
6
Jankowski v. Pellek [1995, Man CA]: Testatrix left property to her lawyer/executor to distribute with
discretion, naming three of her six nephews in the will, and indicating that there were three other people
she wanted to benefit who were not named in the will. After signing of the will, lawyer/executor asked who
the other ppl were and she wrote the other nephews’ names down & signed the piece of paper. Problem:
presumption that a gift to executor is a trust, but timing would have been wrong then since not
communicated before will. Held: Court found a valid secret trust. Court interpreted the clause as giving a
gift to the executor in his personal capacity, amounting to a secret trust.
7
Hurshman [1956, BCSC]: Gift to daughter so long as she didn’t marry someone Jewish. She married
someone Jewish. Held: court removed the offending req’mt and allowed her the gift.
8
Re Blanchard [1963, PEI CA]: Gift of real property to housekeeper if she is still living away from her
husband. Gift of personal property saying if she ever returns to husband she will lose the gift. Held: both
RP and PP had void conditions subsequent attached, cond’ns stuck such that gifts took effect w/o
conditions.
9
Clarke v. Darraugh [1884]: gift made to infant on condition that gift would be lost if he lived with his
father at any time before reaching the age of majority. Held: void CS. Struck.
10
Re Thorne [1922]: Gift of $800 to child living with her uncle, “in case she does not go to live with her
mother”. Held: void CS.
11
Christie v. York [1940, SCC]: Bar staff told not to serve “coloured people.” SCC held ≠ contrary to
public policy, but it for sure would be now.
12
Re Drummond Wren [1945, ONHC]: Not selling to Jews was found to be contrary to public policy.
13
Noble v. Alley [1949, ONCA]: Gift had condition that it was not to be sold to a person of specified
races/heritage. Held: ≠ contrary to public policy.
14
Canada Trust Co v. Ontario (aka Leonard Foundation) [1990, ONCA]: Case looked at Charter,
Human Rights Code, UN Conventions, etc. Held: court agrees that condition is contrary to public policy.
30
policy
 Trusts can be illegal in the sense of being for a purpose that is prohibited under the Criminal
Code, or under some other statute enforced with a penal sanction, or simply because it is
contrary to a law that makes such a transaction void or voidable.
 Note: trusts for illegal purposes are often invalid charitable purpose trusts  ‘illegal’ in the
sense that courts won’t enforce.
Consequences of Illegality
 Unenforceable
 May forfeit property
Forfeiture of Trust Property
 Property may be forfeit as a consequence of the illegal purpose.
 Criminal Code: sections 462.3-462.5 allow for proceeds of any indictable offence to be seized.
o Also applies to any act committed outside Canada which would be an indictable
offence if it had occurred in Canada.
 Proceeds of Crime (Money Laundering) and Terrorist Financing Act, SC 2000, c 17
o Section 3 sets out record-keeping and client info req’mts for financial service providers
and other businesses/professions/activities that are susceptible to being used for money
laundering or the financing of terrorist activities.
o If funds can be connected to the original crime activity, they can be taken.
Return of Trust Property
 Two schools of opinion:
o 1) if illegal purpose hasn’t been carried into effect, just give the settlor’s property back
and no problems.
o 2) if you have an illegal purpose, it doesn’t matter if it has been given effect 
intention is enough and court give back the property. (i.e. taken by gov’t)
 British model:
o Seems to prefer the latter – don’t give it back.
o See Symes v. Hughes15 and Re Great Berlin Steamboat Company16 for earlier position,
but changed.
o New UK principle: If you have an intent to defraud, you can’t have your money back
[no case provided].
 Canada:
o If the illegal purpose has not been effected, settlor can recover the property. [Krys v.
Krys (1929, SCC)]
15
Symes v. Hughes [1870, Eng.]: S transferred house to acquaintance M (to put it out of reach of a
creditor), who moved in w/ her daughter & husband, H. After requests by S to have the property returned,
M transferred house to H in exchange for his promise to provide her room and board for life. After M’s
death, S sought house return. Held: house returned to S on basis that it was held on resulting trust. Illegal
purpose not carried out, so could be returned.
16
Re Great Berlin Steamboat Company [1884, Eng. CA]: Company talked Mr. Bowden into depositing
money with the company. The resolution was that the money was to be held by the company on trust for
one month, for the express purpose of tricking a bank into paying money for shares in the company (that is
really worth nothing). B left his money with the company, which was used for company purposes, and
brought suit for his money when the company wound up. Held: Couldn’t get funds back – illegal purpose
carried out.
31
Trusts Imposing Conditions Contrary to Public Policy, Impossible of
Performance, or Uncertain
Conditions Precedent vs. Conditions Subsequent vs. Words of Limitation
 Condition precedent
o Something that must occur before the gift can become effective
o Contrary to Public Policy:
 CP involving real property: presumptively void if contrary to public policy.
 CP involving personal property: not presumptively void – must go to next step
 If it is malum in se (bad in itself), void. But not if malum in prohibitum
(bad because prohibited)
 If malum in prohibitum, offending condition is struck out, and gift
continues without.
o Uncertain
 Gift fails.
 Condition subsequent
o Gift is effective but can be taken back if the condition occurs
o A defeasible interest.
o Contrary to Public Policy
 If CS is contrary to public policy, the condition is struck from the gift and the
donee just gets a complete gift.
o Uncertain
 Condition struck and gift lives.
 Words of limitation  difficult to distinguish from CS.
o Words of limitation refer to a specific time period (“until”, “as long as”, etc. are
indicative)
o WoL give a determinable interest.
o Contrary to Public Policy
 If WoL found contrary to public policy then the gift fails entirely. So will always
be an argument as to whether CS or WoL.
Conditions Impossible of Performance
 If at the time the gift is made, the condition could not possibly be completed, the gift is just
held to be complete.
 If a condition becomes impossible after the gift is made, and for reasons beyond settlor’s
control, the gift fails.
o Policy: seems to be presumed that the settlor intended the gift would not occur if it
were impossible for the condition to be performed after he made the gift.
32
QuickTime™ and a
decompressor
are needed to see this picture.
Discretion of the Court and Underlying Factors
 When there are inconsistencies in how things are characterized, it’s usually because the court is
outcome-oriented.
 May have reliance or reasonable expectations of the beneficiaries or their creditors
 If beneficiary has actually given something in exchange, then you could have unjust
enrichment of the settlor.
Trusts that Defraud Creditors
 Trusts to avoid settlor’s creditors by settling property on trust for the benefit of related persons
are addressed by the Federal Bankruptcy and Insolvency Act and provincial fraud legislation.
 BC Fraudulent Conveyances Act
o s.1: Trusts to Avoid Creditors are Void
 A disposition of property made to delay, hinder or defraud creditors is void
against creditors (or their personal representatives or assignees) whose rights are
delayed, hindered or defrauded by collusion, guile, malice, or fraudulent devices
and practices is void.
o s. 4: Good Faith can Prevent Application of Fraud Legislation
 s. 1 does not apply to a disposition of property for good consideration and in
good faith to a person not having any notice or knowledge of the collusion or
fraud. [Bona fide purchaser for value without notice]
 BC Fraudulent Preference Act
33
o
o
Fraudulent preference: a transaction that favours some creditors over others.
s. 1: Disposition of person when he is in insolvent circumstances or knows that he is on
the eve of insolvency is void against injured creditor, IF:
 (a) it was made to defeat/hinder/delay creditors, OR
 (b) it was made for a creditor with the intent to give one creditor preference over
another
o s. 6: Does not apply if the disposition was for consideration in good faith [BFP]
 Federal Bankruptcy and Insolvency Act
o Generally, this Act allows trustees in bankruptcy to apply for a court order to void a
transaction as against the trustee (can apply to property settled in trust)
o 96(1)(a) Arm’s Length Transfer: void against trustee in bankruptcy IF
 (1) transfer was at undervalue
 (2) transfer occurred within one year of the date of the initial bankruptcy
 (3) debtor was insolvent at the time of the transfer OR rendered insolvent by the
transfer
 (4) debtor intended to defraud/defeat/delay a creditor
o 96(1)(b) Non-Arm’s Length Transfer: void against trustee in bankruptcy IF
 (i) (One Year Rule)
 Transfer was at undervalue, AND
 Transfer occurred one year prior to the date of bankruptcy
 (ii) (Five Year Rule)
 Transfer occurred within 5 years prior to bankruptcy, AND
 Debtor was insolvent at the time of the transfer or intended to defraud,
defeat or delay a creditor
o 95(1) Preferences: transfer void against trustee in bankruptcy IF
 Made in favour of a creditor dealing at arm’s length with an insolvent person, or
in favour of a person in trust for that creditor;
 Made with a view to giving that creditor a preference over another creditor; AND
 Made within three months prior to the date of the initial bankruptcy event.
o 95(2) if a transfer has effect of giving creditor preference, presumption that it was made
with that intention.
Rules Against Perpetuities
 Note: if it is before 1979, the full CL rule applies in BC.
Remoteness of Vesting
 Main rule.
 Mission:
o 1. Articulate the Rule.
o 2. Apply the rule (identify potential problems)
o 3. Indicate that it is often modified by legislation and that these modifications must be
addressed.
 A gift must vest, if it will vest at all, within 21 years of the end of a life in being at the date the
instrument takes effect.
o Must vest in all beneficiaries.
o Rationale:
 Designed to deal with ‘dead hand’ controlling property for prolonged periods of
time.
 Also said to be economically efficient because tying up property for long periods
34
may prevent better uses of the property.
 Steps to applying the rule
o a) Is the interest contingent?
 The rule applies to contingent interests only.
 Note: death is not a contingency. Everyone dies.
 Interest in property can be vested “in interest” or “in possession”
 Remainder interest on a life estate: vested in interest.
 So, list all the interests created, then ask whether any one is subject to a
contingency.
 See e.g. Lucas v. Hamm17
o b) What are the relevant lives in being referred to in the instrument?
 Can make reference to a person who you want to measure the perpetuity period
by.
o c) Is there a possibility that the interest will vest outside the perpetuity period?
 If there is even a remote possibility that it won’t vest during the period (but could
after), then it’s void.
 If it is clear that the gift will never vest, then it’s valid.
 If it could bypass even one member of the class of beneficiaries: invalid.
 But note that the class closes when the perpetuity period ends.
o So as long as there will be at least one person in the class when the
perpetuity period ends, as many people as qualify at the end of the
period can claim the right.
Rule Against Perpetual Duration
 Some people consider this a separate rule
 Where there are no lives in being, the period is 21 years.
 So, this rule affects valid non-charitable purpose trusts.
Charities
o
o
Charitable purpose trusts can last indefinitely
Cy pres doctrine fixes this, but watch for property in trust subject to CS on which event
property is to be held in trust for charitable purposes.
Legislative Modifications
The Rule in Whitby v. Mitchell  Repealed by Perpetuities Act, s. 6(2)
 The rule said that an interest to the unborn child of an unborn person is not valid.
 Problems may arise where remoteness of vesting rule is complied with, but rule in Whitby v.
Mitchell isn’t. So the Perpetuities Act just abrogates it.
Perpetuities Act
 Only applies to instruments that took effect after Dec 31, 1979. Instruments that took effect
before this are subject to the full CL rule in BC.
 Age at which persons can have children
17
Lucas v. Hamm: instruction to the executors to make a particular gift to the Communist Party within five
years of receiving probate. Normally probate will be received within a few years so it was highly likely the
gift would vest within the period, but technically possible. Held: Since it is technically possible for the gift
to vest outside the perpetuity period, the gift is void.
35
o





S.14: deems that women over 55 don't have children. (Also men may give evidence that
they no longer can have children)
Wait and See
o S.8: the mere possibility that a contingent interest wont vest in time will not make it
void
o S.9: gift will be considered valid until events indicate gift will not take effect in the
perpetuity period
Age Reduction
o S.11: provides that a gift is made on a person reaching a certain age that is greater than
21, the court can reduce the age to 21 to make it work
Class Splitting
o S. 12: All that is necessary is for a gift to vest in some members of a class within the
perpetuity period
 If it doesn't vest in other members, then they get cut off.
Cy Pres
o S.13: Court can vary the gift to make it fit the general intention of the donor.
Eighty-Year Rule
o S.7: allows for an express 80 year period. Can specify this instead of complying with
the 21 year rule
Conflicts Issues
 Even if you go to a jurisdiction that doesn't have the rules, you have to ask what the applicable
laws are
o Figure out where the property is vested.
 land  jurisdiction where the land is located
 chattels  where the chattel is located (but of course it could be moved)
 choses in action  normally the jurisdiction of the debtor
 In the case of a bank account, that's the bank.
 Revised checklist:
o i) where are the interests located?
o ii) if the property is located in a “wait and see” legislation reform jurisdiction, how do
the legislative modifications affect the application of the CL rule?
o iii) is the interest contingent?
o iv) what are the relevant lives in being referred to in the instrument?
o v) is there a possibility that the interest will vest outside the perpetuity period?
Accumulations
 Old rule: if you accumulate beyond the perpetuity period and the gift could not be distributed
until after the end of the period, then the gift was void.
o Accumulations Act, 1800 made the accumulation period less than the perpetuity period.
 Permitted periods of accumulation under the Ontario legislation
o Six periods in s. 1:
 For inter vivos
 End of the life of the grantor
 21 years from the date of making inter vivos disposition
 Periods of minority of persons living or conceived at making of the inter
vivos disposition
 21 years from end of grantor’s life
 Periods of minority of the persons entitled to income from accumulation
36
 Periods of minority from the end of the grantor’s life
o See National Trust v. McIntyre18
 The accumulation period adds a further layer of complication, since you have to deal with it
even if a trust meets the rule against perpetuities.
o BC’s solution: modification of the Perpetuity Act
 S. 25: “if property is disposed of in a manner that all or part of the income may
be accumulated, the power of discretion to accumulate that income is valid if the
disposition of the accumulated income may be valid, but not otherwise.”
 Satisfying the remoteness of vesting rule is what makes the disposition
valid.
Restraints on Alienation and Spendthrift (or Protective) Trusts
 Trustee must follow the terms of the trust, if not it will be a breach of trust.
o It may also be a breach to follow the settlor's intent that is not recorded in the trust
instrument (Re Smith)
o Settlors may impose restraints on:
 Mode of alienation of property
 Class of persons to whom property can be alienated
 Alienation for a particular period of time
 Competing Interests:
o Allowing settlor to do what he/she wants with his/her property
o Promoting the alienability of property and the flexibility of the marketplace
 Protective / Spendthrift Trusts:
o Common examples of trusts with restraint of alienation, designed to provide funds on
an ongoing basis for a beneficiary who cannot be trusted with funds
o Problems: Beneficiary can still sell their equitable interest for a lump sum, or go
bankrupt despite trust funds, causing creditors to seize beneficial interests
 Spendthrift Trusts (USA – don’t really exist in Canada)
o “spendthrift” trusts dictate that the trustee cannot pay trust income to any person other
than the specified beneficiary
 So, beneficiary cannot assign away their interest for a lump sum
o Such trusts walk the line of restraint of alienation, and courts have differed on whether
to uphold them or strike them down as restraints on alienation against public policy
Restraint on Alienation (In Canada)
 Spendthrift trusts have never been accepted, but lesser restraints on alienation have
 Methods:
o A trust in which the beneficiary interest comes to an end if the beneficiary becomes
bankrupt or subject to a charge by a creditor is not an invalid restraint on alienation
[Brandon v. Robinson]
o Typical: create a discretionary trust with a fairly broad discretion to the trustee
 And pick a trustee who has an understanding of the beneficiary/problem and who
settlor trusts to act in the proper interest.
 Permits a trustee to direct payments to someone other than the spendthrift
18
National Trust v. McIntyre [1997, ON]: Applied ON legislation; one party argued it was intended
beneficiary of certain accumulated income in a testator’s estate. Held: Court looked at intent of testator, and
he seemed to think he had dealt with all of his property in his will, so didn’t think of the excess income in
question. So, the failed legacy provision didn’t apply, because no attempt to give it away. Result: Intestate
property, back to estate and distributed to next of kin.
37

beneficiary who becomes bankrupt or subject to a charge by a creditor.
Also makes assignment unlikely since the assignee will know that payments are
not likely to be made to him
Overriding the Trust Instrument
Termination or Variation per terms of Trust Instrument
 Trust may be terminated under the terms of the trust instrument.
o E.g. instrument might provide that the beneficiaries can terminate the trust by majority
vote.
 Revocation
o Terms of trust can be overridden before full implementation.
o Power of revocation allows settlor to revoke trust and have trust property returned to
settlor.
 This would allow settlor to either retain the property or subject it to different trust
terms.
o Right of revocation ≠ automatic  must be expressly reserved
 Rarely done, because of the tax implications noted above.
Termination under the Rule from Saunders v. Vautier
The Facts:
 Trustee instructed to accumulate dividends and keep with capital until nephew V reached 25.
 Once over 21, nephew applied to get the money immediately, and the Chancellor allowed.
 Reasons: no contingent interests
o Note – if he hadn’t reached 25 the money would have reverted to the estate, but
Chancellor apparently didn’t think that was a problem.
The Rule:
 One or more beneficiaries, all of full legal capacity, and who is, or are collectively, entitled to
all the beneficial interest in the trust  may apply to have the trust terminated and the assets
transferred even though the trust instrument calls for final payment to be delayed
o Beneficiaries must have full legal capacity. They must, therefore, be adult and of sound
mind.
o Together, the ppl applying to wind up the trust must have the full beneficial interest in
the property. If there are ppl with contingent interests, they must agree too.
Situations in Which the Rule Could Apply






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Single Adult Beneficiary of Sound Mind
Several Adult Beneficiaries of Sound Mind with Concurrent Interests
Several Adult Beneficiaries of Sound Mind with Successive Interests
Postponement to a Future Date
Instalment Gifts
Discretionary Trusts and Powers
Life Interest with General Power of Appointment of the Remainder
Avoiding the Application of the Rule
38
 Settlor may want to prevent application of the rule
 The two elements of the rule allow for drafting to avoid the application of the rule. Could use
any of the following to avoid:
o Contingent interest in a person who will refuse to consent
o Interest or contingent interest in a minor or unborn person.
o Discretion to trustee to distribute among a class with some members of the class being
difficult to ascertain.
Competing Views on the Rule
 US tends to give more weight to intentions of the settlor  some US jurisdictions require that
the material purposes of the trust be served before a trust can be wound up.
 AB (1973) and Man (1983) have given courts discretion not to apply the rule even where all
beneficiaries are represented and are of full capacity.
o Court can refuse to apply the rule in Saunders v. Vautier if the termination of the trust
is not of “justifiable character”
 The application of this test is not clear, but seems from cases that the mere fact
that the settlor’s wishes would be overridden by the application of the rule is not
enough for the court to exercise its discretion not to apply the rule.
Termination or Variation with Court Approval under Variation of
Trusts Legislation  BC Trust and Settlement Variation Act
 If the rule in Saunders v. Vautier doesn’t apply, can still vary the terms of a trust under the
relevant provincial legislation
S. 1 – Persons On Whose Behalf The Court Can Give Consent
 Allows court to approve a proposed variation or revocation on behalf of particular types of
people, as described in (a) to (d).
 (a) ppl w/ direct or indirect vested or contingent interest who is incapable of assenting b/c they
are minors or persons lacking legal capacity
 (b) Persons of a Specified Description or Specified Class
o Court can consent on behalf of parties who may not be ascertained, so long as they
are a person of specified description or class who may become entitled at a future
date or on the occurrence of a future event.
 E.g. to Adam and his then wife at a future date  A can consent, but his future
wife is not ascertained until the future date arrives.
o This para may empower courts to grant consent on behalf of certain persons with
contingent interests
 Double contingency – not just a remainder, but a contingency on a remainder. 
e.g. Fiona for life, remainder to her statutory next of kin. Say F has a son of legal
age/capacity – court can’t consent for him. But may be able to consent on behalf
of the rest of her relatives, who would only get the remainder if son dies before
Fiona.
 (c) Unborn persons
 (d) Discretion that Can Only be Exercised on the Failure or Determination of an Existing
Interest
o Court can give consent on behalf of a person who may obtain an interest as a result of
the exercise of discretionary power that can only be exercised on the failure or
determination of an existing interest that has yet to fail or be determined.
39
S. 2 – Appears to be for the Benefit of the Person on Whose Behalf the Court
is Consenting
 Court must not give its consent on behalf of the people described in s.1(a) to (c) unless it
“appears to be for the benefit of that person”.
S. 3 – Notice
 If the court is being asked to give its consent on behalf of an unborn person, a minor, or a
person otherwise lacking capacity, notice in writing of the application must be given to the
Public Guardian and Trustee so that they can appear to represent such a person.
Cases Re Variation under Legislation
Finnell v. Shumacher Estate [1990, ONCA]
 Facts
o S’ will settled estate (mostly mining properties) on trust. Foundation got ¾ of capital 21
years after death of testator’s grandchild; remaining ¼ to the grandchild’s issue.
Income of the trust was to be similarly split.
o Problem 1: income from a mineral trust is presumed to be capital, which was not
expressly overruled in this case.
o Problem 2: trust was made when CGs weren’t taxed, but after 1972 trusts are deemed
to dispose of capital and pay CGs every 21 years.
 Trust paid out very little profit and would have its capital reduced by taxation
every 21 years.
o Beneficiaries proposed a variation such that revenues would be treated as income to be
distributed to beneficiaries (problem 1 presumption overridden).
 But, this variation would be detrimental to the beneficiaries entitled to capital.
 So beneficiaries proposed to put a portion of the income aside to provide
for the detriment to the unborn issue of the grandchild, who lost out on
capital.
 Held: Not allowed
 Reasons:
o Three considerations must be taken into account:
 (1) Does the proposed variation keep alive the basic intention of the settlor?
 This is a little shaky, since the Rule in Saunders v. Vautier already allows
the intention of the settlor to be overruled.
 (2) Is there a benefit to be obtained on behalf of infants and of all persons who
are or may become interested under the trusts?
 Must measure benefit against the starting point of entitlement – what the
beneficiary will already get under the trust.
 (3) Is the benefit obtained on behalf of those for whom the court is acting
such that a prudent adult, motivated by intelligent self-interest and
sustained consideration of the expectancies and risks and the proposal made,
would be likely to accept?
 In this case, not clear whether what was being proposed represented a fair
bargain.
o It is not enough simply give some potential benefit to the persons on
whose behalf the court is giving its consent.
 Note: in BC this third arm of the test is all we need. It has been found
to sufficiently encapsulate the issue. [per Smith v. Smith Estate (2003,
40
BCSC)]
Re Kovish [1985, BCSC]
 Note: confirmed by Smith v. Smith Estate: court can take into account non-financial benefits on
the behalf of the person consenting.
 Facts
o B’s Estate left to daughter P (who got $100/month) with the capital going to P’s
children and grandchildren. P and her adult children wanted to use the capital to start a
furniture business. Court asked to consent for P’s unborn grandchildren, who weren’t
ascertained
 Held: Application granted
 Reasons
o Although you must look at every member of class, the party applying for variation
doesn’t have to show that everyone is definitely going to be better off. It’s a question of
rationality – just have to show that variation is one a reasonable adult would
accept/agree to.
o Liberal Interpretation of Benefit
 One does not have to show that each individual beneficiary on whose behalf the
court is being asked to consent is bound to be better off
 One must only show that the bargain being made is a reasonable one that an adult
would be prepared to make
o In this case:
 “benefit” extends to the indirect benefit to the grandchildren from the successful
business endeavors of their parents
 Court consented on behalf of unborn children to varying the trust
Purpose Trusts
 Express trusts can be for charitable or non-charitable purposes, instead of persons.
 All the same basic requirements for an express trust apply
o Capacity; 3 Certainties; Constitution; Formalities; Public Policy
Non-Charitable Purpose Trusts
General rule against validity
 Generally, non-charitable purpose trusts ≠ valid. [Morice v. The Bishop of Durham]
 Rationale:
o Main reason: The Beneficiary Principle
 With no beneficiary, there is no one to enforce the equitable trust obligation
[Morice v. The Bishop of Durham]
o Conceptual Uncertainty
 This is often a problem with purpose trusts but it is not a reason for a general rule
of non-validity since some purpose trusts can be reasonably certain
o Perpetual Duration
 Purpose trusts often provide for perpetual duration and this violate the rule
against perpetuities  but this is not universally true
o Excessive Delegation of Testamentary Power
 Concern that the testator could simply settle funds to trustee, leaving the trustee
with no safeguarding timelines and very broad discretion
 However, testamentary trusts that provide broad discretionary trust powers or
41

even general powers of appointment are valid
This is obviously not a failsafe criteria
Evolution of Exceptions to the General Rule
 Exceptions to the general historical rule developed over the 19th C
o (i) the erection of a monument at a gravesite;
o (ii) the maintenance of a gravesite; and
o (iii) the care of specified animals.
 Then some cases indicated that the list of exceptions should be considered closed [Re Astor’s
Settlement Trusts; Leahy v. AG]
o In the existing exceptions, court/gov’t had the power to enforce the trust.
o Court worried about having large amounts of money in the hands of trustees for
purposes that courts/gov’t couldn’t enforce
 One other possible exception was noted [Re Thompson]
o Trust for foxhunting  upheld because purpose was certain, and Trinity College of
Cambridge could enforce if funds were misapplied.
Purpose Trusts with Individual Beneficiaries
 Courts may choose to enforce a non-charitable purpose trust by construing it as a trust for
persons.
Re Denley’s Trusts
 A trust for the benefit of individuals is a trust for persons
 “Where a trust, though expressed as a purpose, is directly or indirectly for the benefit of an
individual or individuals, it seems to me that it is in general outside the mischief of the
beneficiary principle”
Application of Re Denley’s Trusts in Canada
 Non-charitable purpose trusts = valid if there is someone who can be given standing to enforce.
 Two lower court decisions support this conclusion  suggests development toward Canada
abolishing the general rule against validity of non-charitable purpose trusts.
 Difficult questions remain:
o Who can be given standing to enforce a trust?
o What happens if the designated person does not enforce the trust?
Keewatin Tribal Council v. City of Thompson [1989, Man. QB]
 Facts
o Trust to provide housing for various First Nations bands for housing native students
attending high school
o Among other arguments, it said that the alleged trust was not a valid trust because it
was a non-charitable purpose trust.
 Held: Enforceable
 Reasons
o A Non-charitable purpose trust can be enforceable as long as there are persons who can
be given standing to enforce the trust
o Any number of individuals might be given standing to enforce the trust
Peace Hills Trust Co v. Canada Deposit Insurance Corp [2007]
42
 Facts
o Settlement from government to FN band was paid to five individuals as trustees and the
sum was deposited with the Peace Hills Trust Company. The band was the beneficiary
of the trust. The question arose as to whether the sum was held in a purpose trust for
the band or in trust for individual members of the band as “the true beneficiaries.”
 Held: it’s cool.
 Reasons:
o Having particular regard to the approach taken in Keewatin, concluded that “a noncharitable purpose trust may be created in Canada and would be recognized by the
courts of this country.
o Note: this decision just straight up held that non-charitable purpose trusts can be valid,
it did not even dip into the enforcement issue
Statutory Reform
 “Wait and see” perpetuity legislation provision
o Perpetuities statutes in Ontario, Alberta, British Columbia and the each of the territories
deal with the problem of the non-enforceability of non-charitable purpose trusts by
treating them as powers and limiting the power to a period of 21 years.
o S. 24 turns a non-charitable purpose trust into a power:
 (1)  A trust for a specific non-charitable purpose that creates no enforceable
equitable interest in a specific person must be construed as a power to appoint the
income or the capital, as the case may be.
 (2) Unless a trust described in subsection (1) is created for an illegal purpose or a
purpose contrary to public policy, the trust is valid so long as and to the extent
that it is exercised either by the original trustee or the original trustee’s successor
within a period of 21 years
 (even if the disposition creating the trust expressly provides that the trust
should continue for a longer period)
 (4) To the extent that the income or capital of a trust for a specific non-charitable
purpose is not fully expended within a period of 21 years (or any internally
specified time)… the person who would have been entitled to the property
comprised in the trust…is entitled to that unexpended income or capital.
o Meaning of “specific non-charitable purpose” is unclear – four possible interpretations:
 (1) only applies where there is a perpetuity problem
 (2) only applies where there is no enforcement mechanism
 (3) only applies if there is no-one with a clearly identifiable equitable interest
 (4) Applies to all non-charitable purpose trusts whether or not they are
recognized anomalies
Re Russell
 Facts
o Will left a legacy to the Theosophical Society on trust for its “religious, literary and
educational purposes” (not specific enough to be charitable purposes). The
Theosophical Society was not an incorporated society and therefore not a “person” and
could not be a beneficiary.
 Held: No trust.
 Reasons:
o The court upheld the gift as a charitable purpose trust by eliminating “literary” and
making it a trust for religious educational purposes
o The court went on to consider whether it could be upheld as a non-charitable purpose
43
o
trust:
 Court applied the Alberta equivalent to the BC perpetuities act
 The court seems to have suggested that the legislation applied in situations (3) or
(4), and not only in situations of potential perpetuities
 “the legislation appears to me to equate ‘specific purpose trust’ with other
recognized anomalous purpose trusts which have been permitted to operate
as powers”
 “specific non-charitable purpose”  one must be able to say whether any given
use would qualify as a proper use of the trust funds
 nothing in the section does away with the requirement that the objects of a power
must be certain
 Even if the trust is to be valid but enforced only as a power, as it is under the
legislation, the court must be able to determine whether any given use of the
property is within the power or not in order to determine whether the power has
been validly exercised
In this case, the purpose of the trust did not meet the certainty requirement of a
“specific non-charitable purpose”
The Problem of Gifts to Unincorporated Associations
 Gift to no one
o Not a person, so gifts to UAs are not valid.
 Gift to the members allowing members to take their share
o If a gift could be interpreted as a gift directly to the members of the UA as joint tenants,
it could be saved.
o Could argue that name of assoc is just a shorthand for referring to the members of the
association
 But this would really only work if members could sever their shares and take
them to themselves regardless of continued membership – otherwise because of
changing membership over time, there will be doubt as to who the gift applies to.
o Also, it’s pretty rare that this would actually be the intent of the gift, so it’s probably a
tough sell.
 Gifts to members for purposes of association
o If members can wind up the association and distribute property to themselves, then a
gift for the purposes of the association can be saved.
 Title to the property is then vested in the members.
o If members can’t wind up & distribute to themselves, and association can go on
indefinitely without a distribution of property to anyone, then the gift violates the rule
against remoteness of vesting.
 Policy:
o When all else fails, much of the jurisprudence indicates a strong willingness of courts
to find a way to uphold purpose trusts. [See Re Lipinski’s Will Trusts]
 Often a strong desire to enforce gifts to unincorporated associations to satisfy the
intent of the donor or settlor, and often because the incorporated association,
while not necessarily charitable, is set up to do things that might generally be
considered beneficial to the community.
o Often consistent w/ settlor’s wishes, so upholding it is better than having it revert to
estate/statutory next of kin where that’s clearly not what testator had in mind.
o The concern about ppl not being able to enforce trust obligations if a trust were found
to exist may be addressed, in part, by members who might want to see the trust
enforced by other persons who might benefit from the unincorporated association’s
44
activities wanting to see the terms under which the gift was made/complied with.
Re Lipinski’s Will Trusts [1976]
 Facts: to a Jewish community association in trust to fund sporting endeavours etc.
 Held: upheld gift.
 Reasons
o Oliver J. discussed possibility of treating the gift as creating a trust for persons
o Further, according to Oliver J., there is no reason why a gift that specifies a purpose
that is within the powers of the association and of which members of that association
are beneficiaries should fail since the beneficiaries are either able to enforce the trust or
terminate the trust for their own benefit
o Words of settlor about use solely for building was just a non-binding direction to the
members to use it for a building
o Concludes by saying that it doesn’t matter whether one treats the gift as a purpose trust,
an absolute gift with a superadded direction (i.e. a power) or as a gift where the trustees
and the beneficiaries are the same persons (i.e. a trust for persons), they all lead to the
same conclusion (the gift is a valid gift)
o Confusing – hard to figure out just what the reason was for upholding the gift – but gift
to do good things although not technically charitable – upholding fits intention of
testator – clearly did not want it to go on an intestacy – persons (members) who might
enforce
Charitable Purpose Trusts
Introduction
 The beneficiary principle
o In the context of charitable purpose trusts, this is dealt with by having the Crown (i.e.
AG or delegate) enforce the trust.
 Certainty of objects
o This requirement is modified for charitable purpose trusts  court will provide a
scheme/cy pres to carry out settlor’s intention so long as it’s clear that the settlor had a
charitable intention.
 Relief from perpetuity rules
o Charitable purpose trusts can go on forever.
Tax and Charities
 “Charity” ≠ legally recognized term. Covers two things  charitable purpose trusts and
corporations that operate for charitable purposes.
 Non-profit vs. Charitable organization under the ITA
o Non-profit: if you have no profit, then there’s no tax to pay.
o Charitable organizations and charitable donation tax credit
 Charitable organizations aren’t taxable
 Can give tax receipt to donors, for which they get a tax credit.
o Charitable organizations’ activities must also be charitable.
 Municipal tax relief for charitable organizations
The Legal Meaning of Charity
 Legal Definition
o 1) Exclusive dedication of property
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o 2) to a charitable purpose
o 3) in a way that provides a public benefit
o AND: ≠ for a political purpose
 Four categories of charitable purpose [Per Lord McNaughton in Commissioners for Special
Purposes of the Income Tax Act v. Pemsel (1891, HL)]
o (i) Relief of poverty
o (ii) advancement of education
o (iii) advancement of religion, and
o (iv) other purposes beneficial to the community
 this category is not open-ended  otherwise you wouldn’t need the other
categories. Other purposes that are legally within the meaning of charity.
Analysis:
 1. Is it to a Charitable Purpose?
 2. Is there a Public Benefit?
 3. Exclusivity?
Public Benefit Requirement
 Public Benefit is presumed but rebuttable [Re Pinion]
o For the first three categories, at least. For the fourth you have to prove public benefit to
fit under it.
 “benefit”
o Must have some practical utility [Gilmour v. Coates]
 “public”
o Test from Oppenheim v. Tobacco Securities Trust Company [1951, HL]19:
 (i) the number of potential beneficiaries must not be “numerically negligible”;
 (ii) the quality that distinguishes the beneficiaries from other members of the
community must not depend on their relationship to a particular individual.
Charitable Purposes
1. The Relief of Poverty
 Charitable trusts and the poor
o There is no overarching requirement to show that something helps the poor for it to be
considered a charity. This is only one head under which a charitable purpose may be
found.
 Poverty as a relative concept
o Variation over time
 There have been cases to assist people who were impoverished only as measured
against other people of their social station. [see e.g. Trustees of Mary Clark
Oppenheim: Trust provided for “the education of children of employees or former employees of BritishAmerican Tobacco Co Ltd...or any of its subsidiaries or allied companies.” As a trust for education it would
normally have been considered charitable under that head, but it didn’t satisfy the public benefit
requirement  whether a person was a beneficiary depended on having a relationship to the companies; ≠ a
“section of the community”. Note, though that Lord McDermott found this odd, as if the trust were set up
for, e.g., an entire industry, it would be fine b/c no dependence on personal relationships. So what could be
the same trust is treated differently.
19
46
o
o
House v. Anderson (1904, KB)20]
What may be considered satisfactory for living may also vary over time.
 In more affluent times, more amenities may be considered required.
Relief of poverty can cover more than just providing the basic amenities of life [Re
Brown (1900, ONHC)21; Re Hart (1951, NSSC)22]
Public Benefit in the Context of Relief of Poverty
 Note: trusts involving quite small classes of beneficiaries have been upheld as constituting a
“public” benefit.
 ‘Poor relations’ cases [Re Scarisbrick (1951)23]
o Note, though, that this case was decided before McPhail v. Doulton, which suggested
that “relatives” could meet test for certainty of beneficiaries for discretionary trust, so
this might now just be interpreted as a valid trust for persons instead.
 ‘Poor employees’ cases [Jones v. Executive Officers of the T Eaton Company (1973, SCC)24]
o Makes an exception to (ii) of the Oppenheim requirements for “public” in the context
of trusts for relief of poverty.
2. The Advancement of Education
 Has been interpreted to include trusts for
o educational institutions, scholarships and prizes
o private, non-profit schools
o libraries
o learned societies
o adult learning institutes
o research conducted at a university
o private research when the research results are published
o Cultural education [see e.g. Societa Unita v. Gravenhurst]25
o Vocational education [see Re Seafarer’s Training Institute and Williamsburg]26
o (Questionable) production of law reports [see Law Reporting]27
Trustees of Mary Clark House v. Anderson [1904, KB]: A trust to assist “ladies in reduced
circumstances” was considered charitable under the relief of poverty head.
21
Re Brown [1900, ONHC]: Gift to treasurer of a poor house to provide for luxuries for inmates. Upheld
as charitable purpose under this head.
22
Re Hart [1951, NSSC]: Court upheld a trust to provide outings for poor children and their parents during
the summer months.
23
Re Scarisbrick [1951]: A trust for “such relations” as “shall be in needy circumstances”. Under
Oppenheim Test this shouldn’t have been allowed, but it was.
24
Jones v. Executive Officers of the T Eaton Company [1973, SCC]: Testator legacy of $50,000, to be
paid to exec officers of T Eaton Co, to be used as trust for needy or deserving Toronto members of the
Eaton Quarter Century Club. Held: charitable purpose. Court noted that exceptions to public benefit req’mt
have been made for trusts for relief of poverty.
25
Societa Unita v. Gravenhurst [1977, ONHC]: Summer camp with the usual recreational activities but
also an aspect in which children learned Italian language, history and customs. Held: charitable purpose.
Produced better citizens through understanding of their backgrounds/selves.
26
Re Seafarer’s Training Institute and Williamsburg [1983, ON Div. Ct.]: “where there are students,
physical facilities, teachers/instructors and a curriculum to further advance those in attendance so they
might pursue their vocation, it is a charitable purpose.” Vocational education is not limited to professionals
 can include gardeners, chauffeurs, artists etc..
27
Incorporated Council of Law Reporting for England and Wales v. AG [1972, Eng. CA]: trust for
production of law reports found charitable under advancement of education. Argument accepted: legal
20
47
Training in skill games [Re Dupree’s Trusts]28
Aesthetic appreciation [Delias]
 Promoting plays, particular composers, etc.
 NOT included: Provision of information [Vancouver Society of Immigrant and Visible Minority
Women v. MNR; Law Reporting]
o If it’s just providing information that people might or might not use to educate
themselves, it doesn’t qualify. The mere provision of information doesn’t contribute to
the “improvement of a useful branch of human knowledge and its public
dissemination.”
o
o
Vancouver Society of Immigrant and Visible Minority Women v. MNR
 Leading case on advancement of education head
 Facts:
o  incorporated in 1985, and in 1992 applied to CRA for registration as a charitable
organization.
o CRA refused, on the basis that some of the Society’s objects were not charitable.
o  reapplied in 1993, with modified constitution stating purposes as:
 provide educational forums, classes, workshops and seminars to immigrant
women to assist them in finding employment
 carry on incidental political activities
 raise funds for its purposes
 provide services and do all such things as would be “incidental and conducive” to
the objects
  also ran various workshops/seminars related to career/vocational preparation,
etc.
o CRA refused again
 Held: Counts as charitable purpose under educational head.
 Reasons – Iacobucci J.
o Limited definition of education is unduly restrictive
o Something counts as advancement of education if it is:
 (i) geared at the training of the mind;
 (ii) provided in a “structured manner” ;
 (iii) for a genuinely educational purpose (i.e. to advance the
knowledge/abilities of the recipients); AND
 (iv) not just for the promotion of a particular point of view or political
orientation.
The Public Benefit in Advancement of Education
 Trusts for education must still provide a public benefit (presumed but rebuttable)
 Court can seek “expert” views on whether it provides a benefit.
 The creation of a museum is presumed to be educational and to provide a public benefit.
profession is a learned profession, and law reports are the raw material for the study of law. But...this really
seems like more of a subsidy to lawyers, since law reporting is published on a commercial basis.
28
Re Dupree’s Trusts [1944, Eng. CA]: Trust for purpose of encouraging chess playing among boys.
Held: charitable. Court noted that the game “encourages foresight, concentration, memory and ingenuity,”
and is “essentially a game of skill into which elements of chance enter, if at all, only to a negligible extent.”
Gillen argued that a game of chance might also be said to be educational in that it would provide an
understanding of probabilities.
48
However, it’s rebuttable. [Re Pinion]29
3. The Advancement of Religion
 Derives from language in the Statute of 1601 that refers to the repair of churches.
 Now, includes:
o Publishing, teaching, and propagation of religious belief
o The building and maintenance of churches and burial grounds.
o Work of churches and ministers of religion.
 Requirement of a God [Re South Place Ethical Society (1980); Church of the New Faith v.
Commissioner of Pay-Roll Tax (Vic) (1983)]
o English law requires belief in a God to be a religion
o Walter v. AG AB [1969, SCC]: religion involves “matters of faith and worship”
 Requirement of a God may be against the Charter
Public Benefit in Advancement of Religion
 Private activities may not satisfy this head due to the public benefit requirement [see e.g.
Gilmour v. Coates]30
 Public access may be sufficient [Re Hetherington31; Fennel v. Stewart32]
 Note: suggestions have been made to disconnect religion and consider it as a separate entity
outside of charitable purpose. i.e. just consider whether we want to allow trusts for purposes
devoted to religion, as a distinct category of purpose trusts.
o Then they wouldn’t have to be tied to the public benefit requirement.
4. Other Purposes Beneficial to the Community
 Social welfare trusts have been found charitable under this head
o to help the old, the young or the disabled
o to care for the sick
o the provision of hospitals
29
Re Pinion; Westminster Bank Ltd. v. Pinion [1964, Eng. CA]: Testator gave a studio with pictures he
painted and a collection of furniture to be held by the National Trust in the hope of making it a museum.
Also gave funds for a custodian to allow showing to public as museum. Bank (as trustee) and next of kin
seeking a ruling (kin say invalid). Held: museums are presumed to be for advancement of education, but
this could be rebutted. Considers testator’s purpose and intent, and sees that it was mainly for the
advancement of his family’s name. The pictures and furniture were not at all valuable – judge concludes no
useful object served and therefore no public purpose. Note: doesn’t apply Oppenheimer test.
30
Gilmour v. Coates [1949, HL]: Trust for Roman Catholic community. Coats argued not public benefit.
Held: No public benefit. Arguments: (1) prayer, even if private, is beneficial  Lord Reid: can’t just accept
that prayer will lead to benefit for society as a whole. (2) Some edifying aspect – uplifting positive/moral
aspect for ppl, Catholic and otherwise  Lord Reid: if this argument accepted, every religion would
automatically have public benefit. Rejected. (3) Many people could access the funds to go pray  Lord
Reid: doesn’t matter how many people could be assisted by a trust to go pray, if prayer doesn’t provide
benefit to society (as was found under argument 1). The prayer facilitated by the trust would have to be
somehow accessible available to the public, otherwise no public benefit.
31
Re Hetherington: Gift for masses for the souls of testator, husband, parents, siblings. Held: Public
benefit, because public could attend the mass, in which case the edifying effect discussed in Gilmour
would apply.
32
Fennel v. Stewart: Private religious services held by small group, in basement of private home. But they
did faith healing, which was supposedly open to any member of the public (though the group didn’t
advertise, if someone knew about it they could come for faith healing). Held: because public could attend,
found to have public benefit. In this case, the public benefit wasn’t actually challenged, the court just stated
its acceptance of this point.
49
o to provide for health care or advance medicine
o to provide for disaster relief
o to care for veterans
o to provide aid to prisoners
 Also community objectives
o Public works/amenities – e.g. parks & cemeteries.
 Amateur sports don’t qualify as a charitable purpose [Amateur Youth Soccer Association]33
The Approach of Courts to the Fourth Head of Charitable Purpose
 It’s a catch-all for other charitable purposes referred to in the preamble to the Statute of
Charitable Uses.
 The traditional approach to this head is to look at the preamble, then look for an analogy to the
preamble, and then look for analogies on previous analogies to the preamble.
 More flexible approach: “spirit and intendment”: Native Communications Society v. MNR
Native Communications Society v. MNR
 Facts:
o Non-profit radio/tv productions and training in newsmedia for native people. Sought
funding, denied, appealed.
 Held: Charitable.
 Reasons
o Didn’t fit into any other category (broader purposes didn’t involve education; probably
not relief of poverty – but didn’t deal too much b/c found under 4th head anyway.).
o Beneficial to community?
 Traditional approach applied: no direct link to preamble, no analogy, and no case
that was appropriately analogous.
 Note: not enough just to show beneficial to community under this hear – must be
something the law would consider charitable.
 Court lists some broad points about how it’s beneficial to the community, then,
applying the broader spirit and intendment approach, considers whether this is
something that should be considered charitable in society today, rather than being
tied to the preamble from 1601.
 Native Communications indicated a shift away from the traditional approach, but later cases
have indicated courts’ desire to stick with the original approach:
Vancouver Regional Freenet Association v. MNR [1996, FCA]
 Basically, if a court wants to find something charitable, they will find a way to do so. This
court preferred to be creative with the preamble rather than look to spirit and intendment.
 Facts: volunteer group that provided free internet access to select sources.
 Preamble talks about highways  internet is an information highway. Therefore, providing
internet is a charitable purpose.
Vancouver Society of Immigrant and Visible Minority Women v. MNR [1999, SCC]
 Facts: see above.
Amateur Youth Soccer Association:  applied for charitable organization status, but not organized on
national basis as required in the Act. Held: not charitable organization. Amateur sports don’t qualify as
charitable purpose. Note: sports might fit under this head in ON, but not elsewhere.
33
50
 Analysis of charitable purpose under fourth head.
 Iacobucci J
o The Income Tax Act doesn’t define charity for the purpose of charitable
purpose/organizations. Since ITA separately provides for non-profit organizations, it
can’t be enough to operate not-for-profit; must be something more.
o Since not in ITA, looks to McNaughton’s 4 heads of charity.
 Has to be charitable in a way the law perceives as charitable. (not sufficient to
just be beneficial to the community)
 But how do we deal with adjustments over time/social changes?
 Iacobucci says we proceed by way of analogy to purposes already found to
be charitable.
 So, rejects the broader spirit and intendment approach from Native
Communications Society, and reaffirms the traditional approach.
 Dissent – Gonthier J
o Look to preamble, then analogies, then analogies upon analogies.
 This is the proper mode, everyone agrees.
o But dissent argues care of immigrants is analogous to the pre-existing ‘care of veterans’
model.
Taking a Different Approach to Charitable Purposes
 English Charities Act, 2006
o 2(2) Charitable purposes listed
 (1) prevention or relief of poverty
 (2) advancement of education
 (3) advancement of religion
 (4) the advancement of health or the saving of lives
 we see this purpose reflected in some of the things that have been found
charitable under the 4th head.
o 2(4) any purposes that may be reasonably regarded as analogous to or within the spirit
of anything that was previously considered charitable, continues to be charitable.
 Ontario Charities Accounting Act.
o Annual accounting req’mts for charitable purpose trusts
o Has a section that lists charitable purposes
 Relief of poverty
 Advancement of education
 Advancement of religion
 Other purposes ...etc.
o For the fourth head, we know it isn’t enough to show benefit to the community 
because if that were sufficient you wouldn’t need any of the first three.
 So, sthg else, but what isn’t clear.
 And in the statute, it stands alone – not connected to preamble, and no case
connecting it.
 So...things may be different in ON on this front. (Hence the comment before that
the Amateur Youth Soccer Assoc case might have been valid in ON.)
Exclusivity
 Generally: charitable trust must be devoted exclusively to charitable purposes. Otherwise void.
 Alleged rationale:
o Otherwise trustee has a discretion to use the funds for either charitable or noncharitable purposes and hard to enforce the charitable purpose.
51
o
Discretion would be hard to control – even if AG or PT kept an eye on what the
trustees were spending the funds on, it would be hard to argue that the trustee spent too
much on the non-charitable activity.
Ways to avoid invalidity on basis of non-exclusivity
Reinterpret Per Intention of Settlor
 Look at words used, try to interpret the intention of the settlor overall rather than sticking at
words that may indicate a non-charitable purpose. [see e.g. Jones v. T. Eaton Co]34
Read the Non-Charitable Part as Charitable Based on Who the Donee Is
 See e.g. Blais v. Touchet35
Sever the Non-Charitable Portion
 But court may be reluctant to do this  won’t rewrite the trust for the settlor. Must give effect
to what settlor intended.
 Court will only sever a portion of the trust if doing so would not render the trust substantially
different from the one the settlor intended to create.
Find Non-charitable Purpose to be Merely Ancillary to the Charitable Purposes
Guaranty Trust Co v. MNR [1967, SCC]
 Facts
o Trustee to distribute residue of estate to U of T Medical Alumnae Association to
establish a student loan fund.
o Listed purposes: (some charitable, others ≠)
 (a) to maintain/promote interest of U of T med school graduates in their alma
mater.
 (b) to encourage/cultivate goodfellowship among the members of the Association
 (c) to promote/enlarge the usefulness & influence of the Provincial University
 (d) to consider & make recommendations on matters pertaining to the welfare of
the U of T Faculty of Medicine
 (e) Generally to promote the science and art of medicine
 (f) To administer and invest funds rec’d from life members of the Association
and any other funds and bequests of which the Association may from time to
time have custody and to apply and disburse the moneys so administered in
accordance w/ the provisions and conditions relating to the same
 (g) to do all other such things as are incidental or conducive to the attainment of
the above objects.
o Issue: do the other purposes deprive the Association of its character as a charity?
o Held: Valid charitable purpose trust.
o Reasons – Ritchie J.
34
Jones v. T. Eaton Co: Testator tried to say he wanted to distribute to people who had worked hard, etc.,
but this didn’t fly as charitable purpose. Not distributing property of T. Eaton Co, but his own property; and
other issues. However, court found that the word “deserving” really meant the same thing as needy, and so
it fit into relief of poverty under that head.
35
Blais v. Touchet [1963, SCC]: SCC held that by appointing a bishop as trustee, the testator (a parish
priest) had limited the gift to charitable purposes, religious and otherwise. Note: this won’t always be the
case, but in that case the circumstances and wording of the will made it possible.
52



Purposes (c) and (d) determined to be charitable.
 If (d) isn’t itself charitable, it is at least incidental to (e) as a means of
fulfilling that goal.
Test of whether association was constituted exclusively for charitable purposes
 Not just examination of incorporating documents
 Estate Tax Act refers to an organization being charitable “at the time of the
making of the gift and of the death of the deceased”. Thus, must examine
“the activities to which the Association was devoted at the relevant time.”
o Greatest effort of the Association was the operation of scholarship,
bursary and loan funds for medical students at U of T
Were the non-charitable objects/activities simply means to ends in themselves, or
were they means of fulfilling charitable purposes?
 (a)  maintaining and promoting the interests of graduates in alma mater
must be for some purpose  “the fulfillment of this object in my opinion
provides an obvious means to further” purpose (c).
 Same goes for (b), and (d).
 [he doesn’t seem to address (f) directly, but he’s clearly cool with it. Also,
(g) is clearly in furtherance of the other purposes, so I’d assume that’s cool
too.]
 Also notes that “after having paid for its operational and promotional
expenses ‘all or substantially all’ of its remaining sources ‘were devoted to
charitable activities carried on or to be carried on by it.’”
Apply a Statutory Provision to Sever the Non-Charitable Portion
 Distinction from simply severing the non-charitable portion: no worries about the will of the
settlor – just do it.
 BC Law and Equity Act, s. 47:
o “If a person gives, devises or bequeaths property in trust for a charitable purpose that is
linked conjunctively or disjunctively in the instrument by which the trust is created
with a non-charitable purpose, and the gift, devise or bequest would be void for
uncertainty or remoteness, the gift, devise or bequest is not invalid as a result but
operates solely for the benefit of the charitable purpose.”
o So, basically, to have a trust operate solely for the benefit of the charitable purpose:
 (i) a person must give, devise, or bequeath property
 (ii) in trust
 (iii) for a charitable purpose
 some part of the words used must be able to be interpreted as a charitable
purpose
 (iv) that is linked conjunctively or disjunctively in the instrument by which the
trust is created with a non-charitable purpose, and
 Words must be used in an instrument, so probably only applies to trusts
expressed in writing.
 (v) the gift, device or bequest would be void for uncertainty or remoteness
 Potentially a significant limitation on the application of this provision
 See e.g. Wood v. R (Re Russell)36
Wood v. R (Re Russell) [1977, ABTD]: Gift “for the religious, literary and educational purposes” of the
Theosophical Society. Of these, the court found only the educational purposes to be charitable. Applied AB
equivalent to s. 47 of BC Law and Equity Act, striking out offending portions, and found gift charitable
purpose trust for educational purposes.
36
53
The Legal Meaning of Charity: Associated Doctrines
Political Purposes
 General rule: trusts for political purposes are invalid, even if they are otherwise for
charitable purposes.
 Applies to: [per McGovern v. AG (1982)]
o promotion of a political party
o Promotion of a particular candidate
o promotion of political ideas
o any attempt to influence the legislative or executive process
o Any attempt to influence government policy
o Also to trusts to improve international relations or influence foreign government
decisions or foreign country laws
 Rationale: [per Lord Barker in Bowman v. Secular Society (1917, HL)]
o “a trust for the attainment of political objects has always been held invalid, not because
it is illegal, for every one is at liberty to advocate or promote by any lawful means a
change in the law, but because the court has no means of judging whether a proposed
change in the law will or will not be for the public benefit, and therefore cannot say that
a gift to secure the change is a charitable gift.”
o Also, idea that courts must proceed as though the law as it stands is correct.
 Criticism of the political purposes doctrine:
o Courts always have to decide whether something is for the public benefit in charity
cases – why is this different?
o Some critics see value in encouraging debate and fostering pluralism  court doesn’t
have to approve of the proposed change itself.
o Some organizations that have been found charitable on other grounds also pursue
political purposes (see e.g. Native Communication Society).
 Many religious organizations have political goals, direct or indirect, and even
preference for religion is arguably a political choice.
o Some argue that the doctrine undermines “the very essence of popular ‘charity.’”
o Basically, the overall argument is that while some political purposes maybe shouldn’t
be supported under the head of charity, the scope of the doctrine is overbroad.
Human Life International in Canada Inc. v. MNR [1998, FCA]
 Facts
o Incorporated for purpose of:
 (i) promoting social welfare and defending the human rights of persons born and
unborn;
 (ii) promoting, and assisting in the promotion of, natural methods of child
creation;
 (iii) educating, and assisting in the education of, persons in their obligations to
respect and protect innocent human life
o granted registration as a charitable organization on basis it would advance education
and good health – i.e. advancement of education and other purposes beneficial to the
community
o 1988 letter sent to every member of Parliament showing a picture of a 20-22 week old
aborted foetus
o This prompted an audit by Revenue Canada
o Leads to revocation of charitable status
o HLI appeals
54
 Held: Invalid.
 Reasons
o Political activities aren’t limited to those listed in McGovern.
o Court states the reasons for the rule against “political” purposes or activities in similar
terms to Bowman.
o On the facts, court found that a substantial part of the activities were devoted to
political purposes.
o No obligation under s. 2 of the Charter to subsidize the expression of particular views.
Discriminatory Conditions
 Don’t discriminate. Courts will not uphold discriminatory behaviour in a trust. [Leonard
Foundation]37
Scheme-Making Power and the Cy Près Power
 There is an administrative scheme-making power and a cy près power.
 Scheme-making power says how you will carry out the trust.
o Where settlor doesn’t specify clearly enough how things should look.
 i.e. once there is a clear charitable intent, courts will fill in the gaps.
o If there is a scheme already set out in the trust, but circumstances change or trustee
needs to be removed, court may alter the scheme.
 Cy Près power deals with something that causes the particular intended charitable purpose to
be impracticable or impossible to carry out.
o The trust has been operating exactly as the settlor had in mind. There was no problem
except that something in the interim has made it no longer workable.
o E.g. a trust in the US in the 1950s for training people to use a slide-rule. But then
calculators, so it’s impractical to spend the money teaching people to use slide-rules.
 Cy près: you look for impossibility or impracticability.
 Scheme-making is applied because the settlor didn’t give an indication of how they wanted it
carried out.
Situations in which Cy Près applies:
 Impossibility – where it is impossible to use for the purpose
o Where no one can benefit
 e.g. educating ppl to use a slide-rule
o Surplus from a fundraising campaign for a charitable purpose
 Could return the funds, but sometimes this would make it impossible
o Surplus remains because funds were obtained from another source
o Charitable purpose trust found to violate public policy
 e.g. Leonard Foundation  that trust had been operating for a long time
o The organization to which the funds were to be given had ceased to exist or never
existed
 E.g. testator intended to give funds to a particular institution, but at time of death
that institution has ceased to exist.
37
Leonard Foundation (Re Canada Trust Co and the Ontario Human Rights Commission) [1990,
ONCA]: Denominational trust – scholarships for non-Catholic Christians of the “White Race” with limits
on how many scholarships could go to women. Theoretically charitable under advancement of education;
public benefit because not just relatives of settlor benefited but a wide class of ppl representing a broad
cross-section of the public. But...discriminatory. Held: Invalid for being evil. Violation of public policy.
Court looked at human rights legislation. Note: might be able to have affirmative action-type trusts, though.
55

Could also be that testator got a name wrong or something so there was no such
institution. [see Royal Trust Co v. Hospital for Sick Children]
 Impracticability
o Where it does not make sense to carry out the settlor’s intentions. [See e.g. Re
Schneckenburger]38
o Doesn’t mean just that there is a better use of the funds [Rector, Wardens and Vestry of
the Parish Christ Church v. Canada Permanent Trust]39
Initial vs. Subsequent Failure
 Initial Failure  where it fails before trust took effect.
o In addition to impossibility/impracticability concerns, settlor must have had a
charitable intent.
o If couldn’t devote to this charitable purpose, would they have devoted it to some other
charitable purpose, or would they have sent it to a non-charitable purpose?  Consider
settlor’s intent.
o If there is no general charitable intent, then it goes back to the estate.
o See e.g. Royal Trust Corporation of Canada v. Hospital for Sick Children40; Re
Ramsden Estate.41
 Subsequent Failure  Where it fails after the trust took effect.
o No search for general charitable intent – funds go to Cy Près immediately.
 Rationale: already vested in charity.
 If the trust had been running for a long time, it would be difficult to find
that settlor’s intent had not yet been satisfied.
 Also, might be impractical to try to find the intent after a long time has
passed.
Administration of Trusts
Overview
Historical Background
Re Schneckenburger [1931]: German church – didn’t make sense to build a new Catholic church, as
they might not ever be used.
39
Rector, Wardens and Vestry of the Parish Christ Church v. Canada Permanent Trust [1985, NSSC]:
Trust for repairing an old church – ½ to build, ½ to repaid. Asked to court to use all the funds to replace the
church, but didn’t intend to build a new one. Held: not allowed. Court focused on intent of settlor and took
the view that it was clear what he had in mind. Also, still possible that future wardens would build a new
church. The test is not whether there is a better use, but whether the use the settlor wanted is practicable.
40
Royal Trust Corporation of Canada v. Hospital for Sick Children [1997, BCSC]: In trust for life for a
relative, then to the “Crippled Children’s Hospital” in Vancouver and Toronto. Sadly, there is no hospital
with that name, so initial failure. Court looks at general charitable intent – remainder was to go to hospitals.
So on to cy près: court suggests 4 institutions that could be for crippled children and divides the amount
between them.
41
Re Ramsden Estate: Gift from the estate of Eliza Jane Ramsden to set up a scholarship fund in the name
of her and her husband. The scholarship fund was to be restricted to protestant students. The University Act
in Prince Edward Island provided that the government, management and control of the university was to be
non-denominational and that any gifts accepted by the university could not be prejudicial to its nondenominational character. The gift could not therefore be carried out in the way she had intended. Held:
clear charitable intent. Applied cy pres to modify the gift such that university wouldn’t manage the fund.
Applicants given 60 days to find a suitable body to administer instead of university.
38
56
 Feoffee to use deemed to be a trustee – Chancellor forced them to honour the use
 After 1420, the Chancellor attaches a remedy for the breach.
 Once trusts were recognized as enforceable, Chancellor had to fill in the gaps where a trust
instrument didn’t deal with an issue explicitly.
Three Main Sources of Law re Administration of Trusts
 1. The trust instrument
o Court will look to first
 2. Applicable legislation
 3. General law of trusts
Default Rules
 General trust law and statutory provisions consist largely of default terms that can be varied in
the trust instrument.
o But can take away things like dealing with the beneficiaries even handedly. If the trust
says that you can take the capital and give it to the income beneficiary, then this is
permitted – there is no breach of the duty of impartiality/even-handedness
o But – if you take away too many of the duties, then there may be no trust at all. The
“irreducible core” can never be removed.
Intervention by Settlor or Beneficiaries
 General rule: trustee follows instrument’s instructions – not what the settlor or beneficiary
tells them to do.
 Only if all beneficiaries agree (including contingent), and are all of capacity, can the trustee
follow beneficiaries instructions.
o Even then, should get it in writing.
 Even if the settlor is the trustee, it’s not what they want to do with the property  must follow
the terms of the instrument and act in beneficiaries’ interest.
o Once it’s in trust, it’s not your property anymore.
Letter of wishes
 What if the settlor wants to have some control of the use, but doesn't want to be their own
trustee (and therefore fear the capital gains tax)?
o One could constrain the trustee's discretion but the trustee might not like that
(especially a trust co) and reject the trust
o One could give a lot (or absolute) discretion, but also create a letter of wishes.
 The letter must be clear that it is not part of the trust terms. It has no legally binding effect. But
it does tell the trustee what you had in mind
o the danger with this for the trustee is that since the letter of wishes is not binding, the
trustee could be held in breach for following it if it is not in the beneficiaries' best
interests.
o The trustee has to be very careful with these
Protectors
 Aka “trust guardians” or “trust management committee”
 The settlor may be concerned (as above) about how the discretion will be exercised -> this
especially arises in the offshore trust context (whence Gillen thinks this comes)
o Might be fine with strangers using their discreiton to invest, but not their discretion to
57
distribute among family members, eg
o So the 'protector' is given these other discretions instead of the trustee
 Protectors are a new thing.
o There are questions about fiduciary duties and s.75 of the ITA. If the CRA learned that
the protector was controlling the trust for the settlor (even beyond the grave) then it
might get pulled back in.
Appointment, Retirement and Removal of Trustees
Appointment
The Trust Instrument
 Settlor can appoint herself or himself as trustee
Accepting Appointment
 A person cannot be compelled to act as a trustee (even where the person has indicated in
advance their willingness to act as trustee)
 Acceptance of appointment can be express or implied (and can be implied from the carrying
out of even minor tasks of a trustee)
 If appointment not accepted then the person may disclaim; if accepted then the appointee
wishing to no longer be a trustee must seek a formal discharge
Power to Appoint
 Trust instrument usually provides for appointment of initial trustee and may provide for
appointment of future trustees, either naming specific persons as alternate trustees or
conferring a power of appointing trustees
o (e.g. where trustees die, become incapable of acting or are unwilling to act or have
failed to act or even a general power to appoint new trustees)
o May allow for the appointment of additional trustees
 May confer a power to appoint or may impose a duty to appoint in specific
circumstances
 Power to appoint additional trustees may be conferred on existing trustees or on other persons
(including beneficiaries, a third party (e.g. a protector) or the settlor)
Failure to Appoint Trustee in Instrument
 Note: a fully constituted and valid trust does not fail for want of a trustee  the court can
appoint one.
 If it is an inter vivos trust and the named trustee refuses to act, the trust will not be constituted
and the settlor can arrange for another person to be trustee
 If the trust is testamentary the trust comes into existence when the will has been administered
(it is said to be constituted even if the named trustee refuses to act as trustee) and the court will
find a replacement trust or administer the trust itself if necessary
Statute – BC Trustee Act
 S. 27(1): If trustee:
o Is dead;
o remains out of British Columbia for more than 12 months;
o wishes to be discharged from all or any of the trusts or powers reposed in or conferred
58





on him or her;
o refuses to act;
o is unfit to act; or
o is incapable of acting.
Then trustee-ship shifts to a person nominated in the trust instrument, or if no such person
then surviving or continuing trustees or personal representatives of the last surviving or
continuing trustee.
27(2) On appointment of new trustee for all or part of the trust property,
o (a) can increase number of trustees
o (b) can split off part of trust property and appoint a separate set of trustees
o (c) if there was only one trustee originally then there is no obligation to appoint more
than one trustee, and if there were more than two trustees originally then there is no
obligation to maintain the original number of trustees so long as there are at least two.
But if two or more trustees were originally appointed then the trustee can’t be
discharged unless at least two trustees will remain.
o (d) Steps must be taken to vest trust property jointly in new trustees
27(3) New trustee has all powers as if they were originally appointed.
27(4) Can use 27(1) power of appointment where person nominated in will as trustee has died
before testator.
27(5) section 27 is a default provision.
Vesting of property in trustees
o 29(1): can appoint a new trustee in writing (by deed)
 Vests title to trust property
 Covers interests in land, chattels, choses in action.
o 29(2) If retiring trustee: person w/ power of appointment, along with retiring and
continuing trustees, can declare in the deed of discharge that remaining trustees have
joint title.
o 29(3) and (4)  other steps are required for some assets that involve steps req’d by
legislation or corporate agreements
 e.g. registration under land titles or entry of transfer in company books.
Judicial Appointment of Trustees
Powers to Appoint Trustees and Vest Trust Property in New and Continuing Trustees
 Inherent power  inherent jurisdiction.
 Trustee Act
o s. 31: “If it is expedient to appoint a new trustee and it is found inexpedient, difficult or
impracticable to do so without the assistance of the court”, then court can appoint a
trustee.
o 33: court can make an order vesting the trust property in the new trustee
o 34: Can give trustee power to call for share transfer, and give rights under chose in
action.
o 35: Order for replacement of trustee convicted of indictable offence, and vesting of
trustee property in new and remaining trustees
o 36: Application for statutory judicial appointment can be made by any of the
beneficiaries or any of the trustees
o 37: order by court does not discharge former or continuing trustees from existing
liabilities.
Principles Applied by Courts in Appointing Trustees
59
 Per Re Tempest
 Court should:
o (1) consider the wishes of the settlor
o (2) avoid conflicts of interest; and
o (3) ask whether the appointment of the particular person will promote or impede the
execution of the trust.
 Court should also:
o Avoid appointing someone the settlor said should not be appointed
o Avoid appointing someone who appears from the circumstances to be a person the
settlor would not have wanted appointed
Removal, Retirement and Discharge
Non-Judicial
 Retirement & Discharge
o Trustee Act s. 28(1): if two or more trustees then one can be discharged, with the
consent of co-trustees and any person with power to appoint new trustees by deed.
o 28(2): steps for vesting property in remaining trustee or trustees must be completed
o 28(3): section 28 is a default provision.
 Removal
o The trust instrument can provide for removal of a trustee by conferring the removal
on a specified person/persons
 Often where there is a protector this power is conferred on the protector.
o Trustee Act, s. 30: VERY LIMITED – only applies where trustee was appointed by
the court, and then only with majority beneficiary consent.
 More likely court would have to turn to judicial inherent discretion.
Judicial
 Courts have an inherent jurisdiction to allow a trustee to retire and to give a discharge.
 Courts have an inherent jurisdiction to remove a trustee.
o This is often relied upon, since most Trustee Acts don’t provide the court with a
statutory power of removal. (see note above re s. 30)
Principles Applied by Courts in Deciding Whether to Remove a Trustee
 Overall, courts will look to the welfare of the beneficiaries [Conroy v. Stokes]42
 “friction or hostility between trustees and the immediate possessor of the trust estate is not of
itself a reason for the removal of trustees.” [Conroy v. Stokes]
 Note: “it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees,
which will induce Courts of Equity to [remove a trustee]. But the acts or omissions must be
such as to endanger the trust property or to show a want of honesty, or a want of proper
capacity to execute the duties or a want of reasonable fidelity.” [Letterstedt v. Broers (1984,
South Africa PC)]
 A trustee can be removed where the continued administration of the trust in the interests of the
42
Conroy v. Stokes [1952, BCCA]: 5 beneficiaries; 2 from first marriage, 3 from second. Children from
first marriage upset about trustee failing to pass their accounts in a given year, and failing to consult them
over the sale of a property. (he had authority to sell the property, and they had no problem with the sale
price). Sought removal of trustee. Held: no. Quotes Letterstadt v. Broers: not every mistake/neglect will
induce removal of a trustee. Also: the main guide must be the welfare of the beneficiaries.
60
beneficiaries has become impossible or improbable [Re Consiglio Trusts]43
 Misconduct by the trustees is not necessary for removal of trustees [Re Consiglio]
 Where there is a misconduct: [Re Consiglio]
o Not every instance of misconduct will result in removal; and
o Misconduct (acts or omissions) must:
 Endanger the trust property;
 Show a lack of capacity to execute the duties required of the trustee;
 Show a lack of honesty (i.e. not fair / lack of truthfulness); OR
 Show a lack of fidelity (e.g. bad faith dealing – sale of property in conflict of
interest).
Duties and Powers
Overview
Types of Powers
 Personal Power
o Power given to an individual in personal capacity
o Aka bare power or mere power  can only be exercised in the mode given
o No obligation at all to exercise  discretionary.
 Fiduciary Power
o In a situation where they could use the power, must at least consider exercising the
power.
o Duty to use the power to benefit the beneficiary.
o If power is given to someone in a fiduciary position (i.e. a trustee), then this assumption
applies.
 Trust Power
o A trust power is an obligation  must be exercised.
Distinction and Overlap of Duties and Powers
 Duty means an obligation; power means an authority or permission (i.e. discretion/choice)
 Trustees are assumed to hold powers as fiduciaries.
o Where power is held in a fiduciary capacity (e.g. as a trustee) the person holding the
power usually has a duty to at least consider the exercise of the power.
o Must exercise in accordance with underlying duties – care, loyalty, etc.
 Overlap of duties and powers: possible to exercise a power and powers subject to underlying
duties
o e.g. Duty to invest with the power to choose investments
 rRmember that you can't have a conflict of interest – this would be a breach of
the duty of loyalty – e.g. Can't invest in your own company
o Duty of care – wouldn't want to put all your money into one particular business
o Duty to select or determine amounts of distributions
 When you do have powers to select amongst beneficiaries or decide on the
amounts to be distributed, this is usually a duty to do so – you would have to act
43
Re Consiglio Trusts: Appeal for removal of three trustees made by official guardian of two infant
beneficiaries. There had been dissention among the trustees, such that it would make it virtually impossible
for the trustees to agree on policies for trust management. No evidence of misconduct had been reported. In
this case: dissent made mgmt of trust impossible. Must act in best interests of beneficiaries.
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in accordance with your duties when doing so
Power to accumulate – power to select or determine amounts of distributions with no
duty to exercise the power
 have a power to defer, because you can accumulate
 duty to accumulate
 Distinction between duty and power; mere power and trust power  depends on interpretation
o Duty usually says “must” or “shall”
 Remember though that in McPhail the court read “shall” as “may”.
o Need to look to the words of the instrument – though sometimes will have to look at
surrounding circumstances to resolve ambiguity.
o
Tempest v. Lord Camoys [1882]
 Facts
o Power for trustees to grant mortgage to buy Bracewell Hall. Beneficiaries wanted this
done but one of the trustees didn’t want it.
 Held: Must buy.
 Reasons:
o Courts won’t intervene to force the exercise of a power where trustees have been
given pure discretion to exercise the power or not.
o Courts will, however, prevent trustees from using a power improperly.
o Where there is a duty to exercise a power, courts will require that it be carried out, and
in a proper manner and reasonable time.
o In this case: duty to buy land, but two powers
 (1) to choose the land
 (2) to time the purchase
 this was a constrained power, not absolute  had to purchase in reasonable
time.
Improper Exercise of a Power
 Improper to exercise power in a way that is inconsistent with the terms. If there is a constraint
on the power, it must be exercised w/in the constraints.
 Also improper if exercised in breach of an underlying duty (i.e. duty of care, loyalty, nondelegation etc.)
Types of Trustee Powers and other General Points Concerning Powers
Administrative Powers and Dispositive Powers
 Administrative powers  allow trustee to manage trust property
o E.g. power to sell trust property, postpone sale of trust property, lease real property,
renew leases, grant an option to purchase property, repair/make improvements to real
property or other trust assets, insure trust property, issue receipts, settle debts, etc.
 Dispositive powers deal with the distribution of income or capital to beneficiaries
o Not all trusts have Dispositive powers
 E.g. fixed trusts – no discretion.
o Includes power or selection, the power to determine amounts of distributions, power to
accumulate income, power to encroach on capital, power of advancement (taking
money from capital to the remainder interest before the life interest dies)
 Express and implied powers
o Powers can be expressly stated in the instrument
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o





Implied powers are found where wording/circumstances suggest a power
 Courts filling in the blanks
 Implied powers as default terms
 Normal implication may not make sense in some circumstances  must
look at the circumstances.
 An implied power can be overridden, not just be express terms of trust but
also by the circumstances.
Statutory default powers
o Trustee Acts codified many powers, but sections variously denote their status as default
provisions.
Approach to identifying powers of trustees:
o 1) Trust instrument
o 2) Trustee Act
o 3) Case Law
Precedents
o Usually will use frequently (or at least previously)-used clauses and phrases, to avoid
ambiguity in the instrument.
Descriptive names for powers
o Be careful with short form names for powers
 Just giving a description of “a power to encroach on capital”, e.g., may not be
enough  can’t know how courts will fill in.
Presumption of unanimity in the exercise of powers
o When trustees exercise powers, it is presumed they acted unanimously.
o It has been recommended that the default be made majority, but this hasn’t happened
yet.
Investment Duties and Powers
Historical Background
 If there is no express power to invest, courts will likely infer it.
 Constraints on the power
o In early 19th C, duty was to invest prudently (preserve the capital)
 Difficult to know what prudent meant.
 Legal list developed in England in 1859, copied by Canada.
o This remained in BC until 2003, but not anymore.
o Reflected protection of capital concern focusing on what was, at the time, considered
cautious
o “legal list” could, however, contain very risky investments
o Also detrimental to remainder interests in times of inflation
o Legal list also inconsistent with developments in investment theory in 1960s
o Recommendation that approach be a prudent investor approach and add default
provisions that bring investment power into line with developments in investment
theory
Statutory Investment Power Provisions
Permitted Types of Investment
 15.1 to 17.1 of BC Trustee Act
o The legal list in section 15 is gone
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 17.1 leaves one restriction  a corporate trustee can’t invest in its own securities.
 15.1(2): terms of trust instrument can restrict the types of investments the trustees can make.
o i.e. investment powers provisions are default provisions.
The Standard of Care in Making Investments
 s. 15.2: “in investing trust property, a trustee must exercise the care, skill, diligence and
judgment that a prudent investor would exercise in making investments.”
No Official Obligation to Diversify
 BC Trustee Act doesn’t expressly require diversification, but it would likely be considered
prudent.
 Quite possibly a failure to diversify would constitute a breach of duty of care.
Liability of Trustee for Loss on an Investment
 15.3 what if the overall portfolio does well but there is a loss on one investment? This is where
modern investment theory comes in – you look at the portfolio, not the particular investments
 Derivatives – these are hugely risky standing alone – but they can be used to manage risk.
Alone it is risky but makes perfectly prudent sense in the portfolio.
 The Act now adopts the portfolio risk approach
 15.4: in assessment of loss, can take gains from other investments into account.
Delegation of Investment Functions
 Delegation of trustee powers generally ≠ allowed  trustee was specifically given those
powers as a trusted person. Doesn’t have authority to delegate.
 However, BC Trustee Act s. 15.5 expressly permits delegation of investment powers
o Rationale: it takes some expertise to invest.
 15.2(3): a trustee who delegates his authority must exercise prudence in selecting the agent,
establishing the terms of the authority delegated and monitoring the performance of the agent
to ensure compliance with the terms of the delegation.
 15.5: if trustee exercises prudence in these ways, won’t be liable to beneficiaries or to trust for
decisions/actions of the agent.
Mutual Fund Investments
 Arguably amounts to delegation of investment power to mutual fund manager (who makes
investments on behalf of the fund)
 15.1(1) expressly permits investment in a mutual fund.
 15.5(7) ≠ delegation of investment duties to invest in a mutual fund.
o So, should not be considered an improper delegation of investment powers by trustees
o In any case, trustees will have the underlying duty to make a prudent mutual fund
investment.
Common Trust Fund Managed by a Trust Company
 15.1(3): a trust co can invest property it holds in any given trust in a common trust fund
managed by a trust company
o Common trust fund: an investment fund managed by a trust company for the
investment of funds held by the trust co for estates and trusts under its administration.
Seeking an Opinion, Advice or Direction from the Court
64
 Previously: courts didn’t believe they had inherent jurisdiction to do this.
o But trustees would run into problems of administration and seek an order to let trust
funds be paid into court and have court deal with the issue.
o Basically, courts would often wind up giving an opinion.
 Trustee Act, s. 86: trustees may apply to court for an opinion, advice or direction
o (Plus rule 10 of the BC Supreme Court Rules allows seeking an opinion from court)
o The application must be served on all interested parties.
o Once declaration of the court is obtained, the trustee is no longer responsible if he
follows the direction of the court, unless he has been guilty of fraud, willful
concealment or a misrepresentation in seeking the court’s opinion.
Court Intervention In The Exercise Of Trustee Powers
 Beware wasting trust funds on legal fees trying to find out whether trustee can exercise a
power.
o Often broad powers are conferred on trustees to avoid this sort of thing.
Intervention Where there is Bad Faith or Failure to Exercise a Power
 If a trustee has complete discretion, courts will intervene only for bad faith [Gisbourne v.
Gisbourne]44
 If a trustee fails to even consider the exercise of a power, courts will intervene. [Re Blow]45
 Trustees may not ignore relevant considerations or use irrelevant considerations [The Rule in
Hastings-Bass, applied in Fox v. Fox Estate46]
o The court can intervene in exercise of discretion by trustee where:
 (i) it is clear that the trustee would not have so acted if the trustee had not taken
into account considerations which should not have been taken into account [i.e.
trustee took into account considerations that should not have been taken into
account.]
 (ii) trustee failed to take into account considerations that ought to have been
taken into account [i.e. did not take into account things that should have been
44
Gisbourne v. Gisbourne [1877, Eng.]: Testator left residue of estate to be held in trust w/ remainder to
brother W, but during T wife’s life to be held by trustees with discretion to use part of the annual income to
support wife. Trustees had “uncontrollable discretion” to use funds “as they think expedient.” Wife sought
income, trustees denied her (she had substantial income from a marriage settlement that was sufficient to
cover most of her expected expenses.). Held: trustees upheld. Court won’t overrule “uncontrollable
authority”
45
Re Blow [1977, ONHC]: Trustees (son & Canada Permanent Trust) had power to advance capital to
daughter ‘if in their uncontrolled discretion they deem it advisable’. Daughter sought capital, son supported
but CP refused. Application to force CP to exercise power to advance capital. Held: court wouldn’t order
trustees to exercise power (since no bad faith – considered the option but chose not to exercise), but ordered
the removal of CP as trustee, on basis that disagreement b/w co-trustees would make future administration
difficult/improbable.
46
Fox v. Fox Estate: Testator appointed wife executrix, giving her a lifetime interest of 75%. 25% to son
W with remainder of mother’s share on her death. W married a shiksa and his mother decided to exercise
her right to encroach and took all the capital. She made encroachments in favour of other children, leaving
no capital for W in his remainder interest. Issue: intervention? Held: yes. Two judges found that testator did
not intend the power to be exercised in that way. Galigan JA (who the other judges seem in obiter to maybe
agree with) applied the rule in Hastings-Bass: the fact that the son married a gentile was irrelevant to the
considerations that should have been taken into account. Thus, mala fides being demonstrated, court should
intervene. Also noted (per Leonard Foundation) that it would be contrary to public policy to allow a trustee
to exercise power in such a discriminatory way  so, suggestion that it is mala fides for trustee to exercise
discretion in a discriminatory way.
65
taken into account.]
 Note: trustees cannot use the discretion rules from Hastings-Bass as a shield [Pitt v. Holt]47
Courts will not Act for the Trustee – only Advise
 Trustees must exercise the power themselves – court won’t do it for them. [Re Wright]48
o When trustees go to court to ask for advice on whether they can exercise a power, the
trustee must still make the final decision of whether to exercise the power.
Intervention in the Case of Deadlock
 See e.g. Re Blow.
 See Re Consiglio Trusts
 Courts can intervene where there is a deadlock between trustees over the exercise of discretion.
[Kordyban v. Kordyban]49
o (1) Court will consider whether the failure to exercise discretion is consistent with
the settlor’s intentions.
o (2) If it will frustrate settlor’s intentions, court must decide which side to come
down on
 Will intervene considering the interests of the beneficiary.
o Note: courts seem to consider the overall harmony of the administration of the trust in
deciding whether to intervene.
Duties of Trustees
Indemnification
 Trustees can be exculpated from liability for negligence in the trust instrument.
 Trust instrument can modify the presumed core duties but limits to how far it can go in
relieving trustees. There is an “irreducible core” of trust obligation.
o Rationale: essence of trust in law is that there is some obligation on trustee that can be
enforced by courts.
o Irreducible core = duty of loyalty, at min. (perform duties honestly and in good faith for
beneficiaries (Armatage))
 This has particularly come up in context of modifying duty of care.
 Can an exculpation clause shield trustee from liability even for gross negligence? No definitive
answer.
o Re Poche [1984, ABQB] says no;
o Armatage v. Nurse [1997, UK] says yes but noted there is widely held view that paid
trustees should not be able to exclude liability for gross negligence
Note: Absolute Duties vs. Duties Subject to a Standard of Reasonable Care
47
Pitt v. Holt: The trust was losing huge amounts of money in taxes, and trustees applied to court to find
everything void so they wouldn’t be liable.
48
Re Wright: Trust had large volume of shares in life insurance company. Trustee got an offer to purchase
them and applied to court to see if he had the power to sell. Court said he had the power, but wouldn’t
make the decision as to whether it was the right decision to sell for that price.
49
Kordyban v. Kordyban: K died, testamentary trust had lots of shares of his company. His children V and
W are co-trustees. Meeting of company, W and mother (M) voted their shares to they would be directors
and V out. Trust was deadlocked between W and V. If trust had voted its shares and voted in favour of V,
she would have remained a director. V applied to court for intervention in her favour. Held: Court declined
to interfere.
66
 Some duties are absolute, meaning that it is no defence for a trustee to say that he acted with
reasonable care.
o Failing an absolute duty will result in liability even if reasonable care was taken.
 The duty of non-delegation is an absolute duty.
 Duties subject to standard of reasonable care: e.g. duty to invest, duty to sell, duty to retain and
manage, etc.
Duty of Care
 Relief under s. 96 of the BC Trustee Act
o If court thinks trustee is liable, but acted honestly/reasonably and ought to be excused,
can be excused.
 The adopted standard of care for trustees is “that of a person of ordinary prudence in managing
his or her own affairs” [Fales v. Canada Permanent Trust Co (1977, SCC)50, quoting Learoyd
v. Whitely (1887)]
o This standard applies equally to professional and non-professional trustees. [Fales]
 Factors the court will consider in determining whether to relieve a trustee who has breached the
standard of care of liability under s. 96 of the BC Trustee Act [per Fales]:
o (i) whether the trustee was paid for its services;
 perhaps less likely to grant relief
o (ii) whether the breach was merely technical in nature or a minor error in judgment;
o (iii) whether a decline in value of securities was attributable to general economic
conditions;
 interestingly, bringing in a causation issue
o (iv) whether the trustee is someone who accepted a single trust to oblige a friend or is a
company organized for the purpose of administering estates and presumably chosen in
the expectation that it will have specialized departments and experienced officials; and
o (v) above all, whether the conduct of the trustee was reasonable.
Duty of Non-Delegation
 General rule: trustee may not delegate.
o Exception: where trust instrument specifically allows it, or where circumstances
suggest the settlor would have allowed/wanted the trustee to delegate.
When Trustees May Delegate
 Trustees can delegate to agents and have agents handle funds where it is normal in such
transactions to engage agents for those purposes. [see e.g. Speight v. Gaunt]51
o (i) trustees are not bound to transact business personally where, according to the usual
mode of conducting such business, persons acting with reasonable care and prudence
Fales v. Canada Permanent Trust Co [1977, SCC]: CP and testator’s widow = co-trustees. Children
sued CP for breach of duty; CP tried to put all blame on mother. Held onto property while dropping in
value. Issue was the reasonableness of the timing of sale – should it have been sold off earlier? Held:
standard of care must be applied against both trustees. CP lacked the appropriate vigilance, prudence and
sagacity. Listed several considerations the court should take into account when considering breach of the
standard of care.
51
Speight v. Gaunt [1883, HL]: Trustee G invested in municipal bonds (permitted under statute). Used a
stockbroker, who gave him a receipt but didn’t actually purchase the bonds. Then the brokerage went
bankrupt. Beneficiaries sued G for breach of trust for delegating the task of investing, and breach of duty of
care. Held: normal to use a stockbroker, in fact required in order to acquire the bonds in question. No
liability.
50
67
o
on their own account would ordinarily conduct such business; and
(ii) when it is the usual course of such business that monies receivable or payable ought
to pass through the hands of such agents then that may be properly done by trustees.
Delegation Permitted by Trustee Act
 s. 7(1) trustee can appoint solicitor to receive and give a discharge for money, valuable
consideration or property receivable by the trustee
 7(2) trustee can appoint a banker or solicitor to receive and give a discharge for money payable
to the trustee under a policy of insurance - trustee must not allow money to stay in the hands of
the solicitor or banker for longer than reasonably necessary (s. 7(3))
 7(3): The trustee must not allow the money to stay in the hands of the solicitor or banker for
longer than reasonably necessary to transfer it to the trustee
 7(5): s. 7 is a default provision. Statutory powers to engage an agent can be overridden by the
express terms of the trust
Delegation by a Corporate Trustee
 When a trustee is allowed to delegate, must select agent and make sure agent they select is able
to perform the duties they’re being asked to do.
Re Wilson [1937, ONCA]
 Directors breached their duty.
 Court held either that directors cannot delegate (which Fales has since confirmed is not the
case), or that the directors in this case delegated improperly to officers (which is the law, since
Fales clarified).
Liability for Agent’s Fault or Negligence
 Where fault of agent, trustee ≠ liable unless the fault happens through the trustee’s own willful
default.
o Willful default has been interpreted to mean consciousness of negligence or breach of
duty or recklessness in the performance of the duty. [Re Vickery]
 i.e. had to be aware or recklessly aware of agent’s behaviour
68