Express Trusts by wuzhenguang


									                                                 The Trust Concept
Trust: A creature of equity which is a separation of ownership from enjoyment of property. A trust is an equitable
obligation, binding a person (trustee) to deal with property over which he has control (the trust property), for the benefit
of persons (beneficiaries), of whom he may himself be one and any one of whom may enforce the obligation. Any act or
neglect on the part of the trustee which is not authorized or excused by the terms of the trust instrument, or by law, is a
breach of trust. (Underhill Definition). The trust is unique because it is such a flexible tool for making dispositions of
property. It is not limited to specific situations, but can be created for any purpose that is not illegal or contrary to public

The trust is a fiduciary relationship imposing certain obligations on the person who holds title to the property. It is
fiduciary b/c while trustees have substantial control over the trust property, they are bound to act in strict confidentiality,
with honesty and candour, and entirely in the interests of the cestuis que trust. (beneficiary trust)

The trustee receives legal title. He can therefore enter into legal transactions concerning the subject property. Equity,
however, effectively limits the trustee in the enjoyment of these legal rights. It does not deny that the trustee can enter
into effective legal transactions with the property. Rather, it enjoins him from doing so other than for the benefit of the
beneficiary. The trust therefore deprives the trustee of control over his power to deal with the property in legal
transactions. This is a primary function of the trust.

The beneficiary does not have legal title and therefore cannot deal with the trust property in legal transactions, nor can the
beneficiary give directions to the trustee. The beneficiary does, however, have an equitable interest that is alienable. The
beneficiary’s enjoyment is limited, however, by the specific terms of the trust and by the law of trusts generally. Once the
trust terminates, full ownership, along with the unfettered right to the incidents of ownership will be assigned to the

While a trust is treated as an individual for limited purposes (i.e. tax purposes), a trust is not a legal entity but
essentially a relationship between the trustees and the beneficiaries. Unlike a corporation, it is not regarded by the law
as a person capable of acquiring rights and obligations independently of those of the parties to the relationship. A trust
cannot enter into contracts, cannot acquire ownership of property, cannot incur liabilities and cannot enter into other legal
relationships such as partnerships. Any such transaction can, however, be effected by the trustee in his capacity as such
and, subject to any limitations contained within the trust instrument, will be binding upon the trust property and, to that
extent, upon the beneficiary. Where a trust is itself a party to a contract, this is nothing more than a shorthand reference to
the trustee acting in his fiduciary capacity as distinct from his individual capacity.

Rules of equity started to look as system of law, and later it became a system of law of maxims. There are two systems of
law operating side by side where (1) CML is based on theory of law and declaration of rights and (2) equity acts upon
gloss of the CML and fairness that complements the CML discretionary. Trust is an example of law of equity but where
one doesn’t have property, can’t have trust.

Equity claims it does not claim rights, but as a beneficiary have certain rights i.e. rights to impose the obligation but also
right to property. If Benificiary is of sound age and right mind can claim ownership by collapsing the trust. Benificiary
can also trace the property when 3rd party comes along where 3P takes ownership of the property. Equity does not create
rights but imposes personal obligations on the defendant (in personam). If Trustee said that he was the owner, COE, said
that was true and had rights to use, abuse, and fruits of the property, BUT as a matter of personal conscience, should do it
under the system of undertaking. Will impose personal obligations on the trustee so those U/A/F are filtered to the
beneficiary. Trustee would be owner, and beneficiary would receive the benefits of the Tr’s actions.

Unless the trust is a bare trust (i.e. one in respect of which the trustee no longer has active duties to perform, except to
convey the trust property to the beneficiary on demand), the trustee is not normally an agent of the beneficiaries. Under a
trust that is not a bare trust, the trustee normally acts as principal and not as agent in his transactions with third parties and,
by so doing, he incurs personal liabilities. Although he will generally have a right of indemnity against the trust assets
with respect to expenses and liabilities incurred while acting within the scope of the authority conferred upon him under
the trust instrument, his liability to third parties is not confined to the value of the assets of the trust unless such a

limitation is provided for under the terms of the particular transaction; and he will usually have no right to be indemnified
by the beneficiary with respect to such liabilities.

                                            Classifications of Trusts
(1) An express trust is one in which the person creating it has expressed his intention to have property held by one or
more persons for the benefit of another or others. The intention may be expressed orally, by deed, or by will. A creator of
the trust may intend himself or another person to be the trustee. Express trusts may be subdivided into a number of
different types, including: (a) a trust for persons; and (b) a trust for purposes; and (c) executed and (d) executory trusts.

• (A) trust for persons are also called private trusts which are trusts for the benefit of individuals or corporate persons
• (B) trust for purposes do not have persons as beneficiaries but have defined purposes i.e. charitable trust (advancement
      of education, scholarships). The advantage of charitable trusts is that they enjoy tax benefits. Others can be non-
      charitable trusts (i.e. promote fox hunting)
• (C) Executed trusts: settlor has completely set out beneficial interests. Courts interpret these trusts strictly.
• (D) Executory trusts: settlor has expressed only a general intention about who shall have the property, while final
      disposition is left to a later time or to other persons, i.e. trustees (find this type in marriage settlements). Courts
      interpret this type of trust by looking at the whole instrument and carry out the real intention of the settlor.

(2) A trust by operation of law occurs in three ways:
• (A) In certain defined situations, a resulting trust is imposed on someone who has title to property to return it to the
      person who gave it and is entitled to it beneficially. Thus, the property “results” to the true owner. A resulting trust
      arises in two situations:
                 (a) an automatic resulting trust arises when an express trust fails in whole or in part for any reason and
                 these trusts have nothing to do with the settlor’s or testator’s intention, b/c it is unlikely the he considered
                 what should happen to the property if the trust should fail.; and
                 (b) a presumed resulting trust arises when, in an inter vivos transaction, a person makes a voluntary
                 transfer of property to another or purchases property in the name of another (putting legal title in name of
                 that person) and the latter pays no consideration, it is presumed that the grantor/purchaser did not intend
                 to give the grantee the beneficial interest, but rather to retain it. Because it is only a presumption, the
                 recipient can rebut the presumption by evidence and show that the gift was intended.

• (B) A constructive trust has nothing whatsoever to do with intention, but is imposed by law to prevent injustice. It is a
      restitutive device imposed to prevent unjust enrichment. Constructive trusts most often arise from a fiduciary
      relationship (i.e. trustee and beneficiary, solicitor-client, agent-principal etc), though a fiduciary relationship is not
      required (i.e. when have misuse of confidential information where Constructive Trustee has an arm’s length
      relationship). A CT may be imposed to strip a financial gain that belongs to the beneficiary.

• (C) An implied trust is an express trust where the expression of trust is imperfectly stated and only becomes apparent
      after interpretation, e.g. when precatory language (language expressing a wish, hope, desire or expectation, rather
      than mandatory or directory language) is used, or where the settlor or testator employs what appears to be a
      condition rather than a trust.

(3) A statutory trust is a trust imposed by statute (e.g. s.2 of the Estates Administration Act vests all non-jointly owned
property of a deceased in the personal representative in trust).

(4) Similarly, a deemed trust is one imposed by legislation to ensure that employers do not avoid various revenue and
social obligations (e.g. vacation pay and income tax are deducted and subject to a deemed trust; and PST is held in trust
by the vendor for the Crown).

                                      Why Claim a Fiduciary duty?
Breach of a fiduciary duty could be attractive compared to a tort or breach of contract. Claims of law (CML) are typically
restricted to compensatory damages, the equitable action may support a host of alternatives, including disgorgement,
specific enforcement and proprietary relief. Equity (breach of fiduciary duty) is more generous and takes a more relaxed
approach to issues of causation, proof, mitigation and time of assessment. Fiduciary duties are proscriptive – Their
purpose is not to compel the defendant to ensure that the plaintiff enjoys a particular “end-position”, but rather to limit
the manner in which the defendant can exercise a discretion that affects that plaintiff. i.e. It is to return the defendant
to the position he was in before his breach, stripping the defendant of profits made; undoes decisions improperly reached,
unwinds irregular deals.

                                       Equity and the Common Law
1. Equity developed to soften the rigid rules of the common law.
       a. CML is the base system
       b. Equity acts as a gloss on the law
                 i. i.e. no separate set of contract rules – develops and lends specific performance to give effect to CML
                     rights of contract (i.e. Specific performance = equitable discretionary remedy)
2. Rules by their nature cannot conflict
3. CML declares rights
4. Equity does not declare or confer rights – it acts in personam by imposing personal obligations on persons. For
   example, trustee is entitled to the Use/Abuse/Sell/Rent/fruits) but has an undertaking for the benefit of the beneficiary.
   Trustee filters the benefit of the property to benefit the beneficiary. Equity is a system of law. Cannot just say that its
5. Equity’s law developed on the basis of conscience but they are now based on precedent and are not ad hoc application
   of fairness standards.
6. Whether equitable relief will be granted is a matter of discretion. However, trusts are enforced as it is in contracts.

One would seek equity when one seeks Equity’s Primary Tools
1. Trust (breach of trust)
2. Fiduciary Breach
3. Equitable Tracing: allows you to get the property from the defendant.
4. “Unconscionability” Constructive Trusteeship: put a personal obligation as though they are a trustee even though not
agreed to be trustee
5. Resitutionary Devices: Unjust Enrichment, Money paid under mistake of fact, quantum merit or quantum valet
6. Equitable Estoppel: to prevent someone to exercise from their legal right b/c acted on detriment
7. Equitable doctrines complementing Contract Law: i.e. specific performance, unconscionability (rescission)
8. Equitable Remedies
        (a) constructive trust: enjoyment of the plaintiff where CT results in transfer of property to pl.
        (b) Compensation (with or without lien) i.e. to put a lien on the property
        (c) Accounting (with or without lien) i.e. account defs for profits
9. Equitable Defences
        (a) laches: i.e induced reliance to the detriment of the actor.
        (b) limitations by analogy: treat equitable action as if it was covered by the statute.

Equity works on maxims as opposed to principles.
   - Equity follows the law
   - Equity acts in personam (e.g. damages make you a debtor; equity makes you pay)
   - Equity is equality
   - Equity looks to substance rather than form(e.g. it is not necessary to use the word “trust” in order to create a trust)
   - Where the equities are equal, the first in time prevails
   - Delay defeats equity (laches or limitation periods by analogy)
   - Those who seek equity must do equity
   - Those who come to equity must come with clean hands
   - Equity imputes an intention to fulfill an obligation

Rights can be in personam or right in rem (tenable against anybody, i.e. property/ownership rights where you have
property right against everybody). In personam should not create property right. So if someone says that beneficiaries are
the owner, and have rights in rem, that is not true. However, will see that Benificiary is owner.

Judicature Act fused both courts and in ON 1881 abolishing the Chancellor Courts. B/c it fused, what happened to
jurisdiction and jurisprudence? Conservative view to consider it as 2 separate bodies of law. 2 streams of jurisprudence
running the same channel but don’t mingle where have CML and Equity on separte streams.
     • United Scientific Holdings Ltd. v. Burnley Borough Council: (Lord Diplock) 2 bodies of law are mixed up.

    •   Why are conservatives reluctant to accept that the 2 are fused? Underpinnings of equity are uprooted. Won’t know
        what to do what. Should we throw away everything that has been developed?

Equity and the common law now co-exist. There is no legal dichotomy – it was abolished by statute. There was fusion.
The maxims are helpful to serve the ends of justice as perceived in our day. Equity should use its tools to receive a result
different from law only where there is a different policy objective that makes same appropriate (per La Forest in Canson
Enterprises). The reality is that we continue to treat equity and common law separate for certain purposes. The basic rule
is that in dealing with trusts and property, we use equity, not tempered by common law (Canson Enterprises). Outside of
the trust situation, i.e. with respect to other claims (e.g. fiduciary breach with no property involved), the common law
approach should be applied. The argument to be made is that, since the courts are merged, one can seek equitable
remedies and equitable claims (per La Forest in MK v. HK).

   Equity does not get involved in every case but where there is a breach of fiduciary duty, that opens door for
equity which will provide a better outcome for the plaintiff. (Canson Enterprises).

  use CML and Equity but should keep them distinct for policy reasons. The fusion of law and equity is now complete
where maxims can be interfused. Equity should be used where there is good policy for achieving that good
purpose(Canson Enterprises).

   Ask whether trust person has control of the property? In trust like situations (such as when there is control of
the property), the remedies of equity would be available; however, where it is not a trust like situation, have to use
CML remedies. (Canson Enterprises).

Canson Enterprise Ltd. v. Boughton & Co.
    Facts: Triet has potential investors interested in purchasing land for commercial use with other JVs, but Triet is also
affiliated with Sunmark. Sunmark would sell the land to JVs for more where S and T made a secret profit. S and T go get
a lawyer(Wollen) to execute land deal for Sumark, but lawyer also allegedly acts for JVs. Note: Lawyers are at a
fiduciary duty.

    •   FIDUCIARY DUTY: obligation to act in the best interest of the client but has to share information with his
        clients. Wollen does not tell the JVs that they are getting screwed but acts in the best interests of T and S and does
        not act to his fiduciary duty obligation
    •   Equity does not get involved in every case but where breach fiduciary duty, opens door for equity and will
        do better for the plaintiff since will get a better outcome.
    •   Other relations exist b/w client and lawyer: (1) Fiduciary duty; (2) Confidentiality; and (3) Contract
    •   One can sue for BOC, fraud, but problems with those remedies is that after deal took place, JVs didn’t know
        about it, and they started to develop the land and those architects made mistakes. JVs sued those architects for
        negligence under K, but the architects were bankrupt. Therefore, the JVs sued the lawyer for the lost
        investment b/c if he had told them, they would have walked away and would not have bought the land. If,
        however, sue the lawyer under a BOC, will face a problem of foreseeability, and under K law, will only get
        damages at time of breach. Additionally those, damages have to be under the reasonable contemplation of parties,
        so probably would have to settle for less. Under a tort action, will have issues of remoteness and foreseeability
        b/c cause is so remote.
    •   CML works on the theory that recovery is predicated on ideas of free bargain i.e. duty to mitigate. A
        reasonable person would only be bound to reasonable damages at the time of breach [Para 16], however
        equity is a court of conscience.
    •   Para 18: Restitution: seeks to put the plaintiff in the position as if it never occurred i.e. specific
        performance. Equity likes in rem remedies where it likes to transfer things. Where there is no property to
        transfer, would put it via $ as if that breach never occurred.
    •   Court looked at Guerin case (see below)

    •   Lawyers for JVs argued that foreseeability is not an issue and that should be in the same position had the breach
        never occurred.
    •   How far does responsibility go? What does merger of equity in CML mean?
   •   La Forest (majority):.
           o There is position in both – use CML and Equity but should keep them distinct for policy reasons. The
              fusion of law and equity is now complete where maxims can be interfused
           o Equity should be used where there is good policy for achieving that good purpose.
           o Para 55 and 56
                       Pick the ones that produce substantial justice.
                       Get around Guerin where in G, govt had control of property in trust. Used that property for some
                       other purpose and then should return property or compensate by $, but in Canson, lawyer never
                       had control of the property so Forest creates 2 concepts:
                            • Def holds property for other (trust)
                            • In specie theory of restitution
                       Para 54: There might be room for concern if one were indiscriminately attempting to meld the
                       whole of the two systems (CML and Equity). Equitable concepts like trusts, equitable estates and
                       consequent equitable remedies must continue to exist apart, if not in isolation, from CML rules.
                       Para 41: In the case of a trust relationship, the trustee’s obligations is to hold the res (thing) or
                       object of the trust for his cestui que trust, and on breach the concern of equity is that it be restored
                       to the cestui que trust or if that cannot be done to afford compensation for what the object would
                       be worth. In the case of mere breach of duty, the concern of equity is to ascertain the loss
                       resulting from the breach of the particular duty. Where wrongdoer has received some benefit, that
                       benefit can be disgorged.
                       Equity of the law have merged, and can utilize the best of each together, but have to think in
                       Trust –like situations have to use equity.
                       Fusion: if have trust-like situation, use equity rules. If non-trust, use CML.
                       Use CMl and use equity if there is good policy if going to use it for non-trust like situations.
                       Here, not applicable b/c can’t hold him responsible for actions on the property forever and
                       If use equity remedies, make sure there are good reasons. Requires f/s WRT damages. Those
                       damages are too remote.
   •   McLaughlin
           o FIDUCIARY DUTY concept is to keep ppl honest.
           o K and Tort predicated on notion of equal power and she does not want to see the fiduciary concept
              devalue where if give power to Judges when to use it and when not to use it, taking benefits of CML.
           o Beginning Para 61: Equity compensates the plaintiff and also enforces the trust.
                       Whole idea b/w fiduciary duty is threatened if treat CML and equity is merged b/c they think
           o Goal of equity is to produce generous returns.
           o Idea is good faith, power of undertaking that I will take care of you. La Forest is making a concession. Q
              is whether there is a difference of quality in fiduciary duty?
           o Para 81: re: quantification
                       Should start with equity when there is a fiduciary duty breach. Pl can choose equity and
                       start from equity, and equity can learn from the CML. La Forest: start from the CML and
                       allow equity to come in for good policy reasons.
                       Will not give judges to use power of mitigation whenever they want.
           o Comes with same outcome as Forest b/c of causation.
                       What is material here was that Wollen did not disclose the land flip and everything that was
                       caused later on was not caused by the fiduciary duty breach.
                       Consequence of the fraud was that they paid more than they should have and will not bring in
                       remoteness (the part of architects screwing up).
                       She accepts that equity has some remoteness to it, but does not want to use K ideas.
                       She will be more liberal in causation than in CML.
                       They hired incompetent architects and that is a separate cause.
   •   Stevenson J: agrees with both but leans towards La Forest
   •   Most courts will follow La Forest

Guerin Case
   •   Facts: Band surrendered land to Fed govt in return by promise by Crown to use the land in the best interest of the
       Band. Business men wanted to build a golf course and went to Feds and Feds asked band if they want to move
       etc? Feds misrepresented some facts to the band and surrendered the land to the Fed. Terms were different. Golf
       club leased land for 29K. However, had the land been used for commercial purposes, it would have been 10

   •   Issue: what was damage fee and whether they would be reliable at all.

   •   In the UK doctrine: Crown is not morally bound as per political trust but in Canada, that doctrine is nonsense.
   •   ½ J said it was trustee relationship and other ½ said it was fiduciary duty. As a trustee need to have ownership
       of property where Wollen was not Trustee but was a fiduciary.
   •   In Guerin it was fiduciary duty so opened door in equity and opened door for compensation with the objective of
       putting the pl in the same position had the breach not occurred.
            o On the assumption of a sale that if the fiduciary acted in the best interest of the beneficiary, and sold at
                FMV would have gotten 100 million bucks.
            o What about foreseeability? IN CML at time of breach but in equity when do you want the damages? At
                time of breach or now.
            o Band was allowed to obtain the $ under equity not under breach of K (not at time of breach)

   When dealing with Trust situations, don’t have to worry about Canson cases etc b/c in trust-like situations, use
equity, but when get outside trust like situations start with CML, and if there are good policy reasons to use equity,
then can use equity. Creates some uncertainty in law.
    • Ask if fiduciary has control of the property?

                                                   Fiduciary Duties
For example, law tells trustee that can sell it etc, but those acts defeat the interests of the beneficiary. Trustee cannot be
directed by the beneficiary b/c would lose the benefit of the trust. As a result of the power vulnerabilities, equity
developed the fiduciary duty concept.

The trustee when discharging its fiduciary duty must be motivated with the best interests of the beneficiary, not to
punish, or choose what the trustee thinks is right or wrong, or to benefit oneself. (Klug v. Klug – daughter)

Frame v. Smith
Characteristics of a fiduciary obligation is a combination of vulnerability, power and decisions to make choices and those
choices are to act in the best interest of the beneficiaries
    (1) Power to make choices: The fiduciary has scope for the exercise of some discretion or power
    (2) Power affects interests of beneficiary: The fiduciary can unilaterally exercise that power or discretion so as to
        affect the beneficiary’s legal or practical interests
             a. unilaterally implies that duty is where have significant control
             b. practical means also economic relationship
    (3) Beneficiary is vulnerable: The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the
        discretion or power.

Canson case: Plaintiff wanted lawyer to be characterized as a fiduciary because wanted to make use of remedies available
in equity (i.e. compensation)

Klug v. Klug
   • Court held, that mother breached fiduciary duty obligation. Role it plays is that the power and discretion it has is
        to be used for the benefit for the beneficiary and mother did not do so. Primary goal is not to benefit themselves
   • Fiduciary duty would not say that whenever she asks you, give her the money. But in arriving at results where
        have choice, must be motivated with the best interests of the beneficiary.
   • Trustee was holding property and held title to the property and had 2 categories of beneficiaries (capital and
        income) where the partner of wealthy is given income and on the death of the partner, capital would be distributed
        to kids. Here, income was daughter of the deceased. Klug and other person are trustees. Had power of
        advancement and gave it to the income beneficiary (here the daughter).: take some of the capital to augment the
        income incase the trust is not adequate, but mother did not consent so daughter sued mother
   • Daughter got into some financial trouble and asked mother (trustee) to obtain some more $ and mother said no.
   • In a trust, trustee had a choice and not a duty to obey but here question is whether that decision was in the best
        interest of the beneficiary? Here mother used power to punish the daughter, which was a fiduciary duty breach.

Frame v. Smith
   • Custodial parent vs. non-custodial and whether former owes any duty to the latter?
   • Majority resolved issued based on statute and did not have to determine whether there was a fiduciary duty.
   • In Wilson’s dissent can break it down into 3 facts which is to prevent abuse of power (see above)

Hodkinson v. Simms
   • From a conceptual standpoint, the fiduciary duty may properly be understood as but one of a species of a more
      generalized duty by which the law seeks to protect vulnerable people in transactions with others. The concept
      of vulnerability is not the hallmark of fiduciary relationship though it is an important indicia of its existence.
      Vulnerability is common to many relationships in which the law will intervene to protect one of the parties. It is
      in fact the golden thread that unites such related causes of action as breach of fiduciary duty, undue influence,
      unconscionability and negligent misrepresentation.
   • Differences b/w fiduciary obligation and tortious liability (i.e. neg. representation) is that in a fiduciary
      obligation there is loyalty, trust and confidence.
   • All three equitable doctrines (undue influence, unconscionability and fiduciary principle), are designed to protect
      vulnerable parties. Undue influence focuses on the sufficiency of consent and unconscionability looks at the

        reasonableness of a given transaction, the fiduciary principle monitors the abuse of a loyalty reposed. It deals
        with motives.

   According to Professor Smith Page 744 of text (most accurate description), prophylactic obligations are not
fiduciary duties in themselves (but rather exist to prevent fiduciary duties from being breached). Smith does not believe
that the essence of fiduciary duty is the obligation to positively advance the beneficiary’s interest. Rather the essence of
a fiduciary duty is the obligation to act with a proper motive. Focus should not be on results but should be based
on motivation (i.e. whether fiduciary acted in what he believed to be the beneficiary’s best interests). Idea: fiduciary
duty does not monitor the quality of performance, or standard of care, but deals with the motivations. Don’t
impose formal results that have to be achieved but prevent from individuals from taking actions against their
   Page 741: fiduciary duty is supposed to be proscriptive. Their purpose is not to compel the defendant to ensure that
the plaintiff enjoys a particular “end-position”, but rather to limit the manner in which the defendant can exercise a
discretion that affects that plaintiff. i.e. It is to return the defendant to the position he was in before his breach, stripping
the defendant of profits made; undoes decisions improperly reached, unwinds irregular deals.

Because CML does not enforce the promise when title is transferred, and since trustee is the legal owner, beneficiary can’t
direct the trustee to do what it wants, but b/c there is a benefit to the beneficiary, there is peculiar vulnerability, power to
make choices and power affects interests of the beneficiaries (Frame v. Smith criteria). As a result, we don’t want
fiduciary to be tempted by that power. Fiduciary is not a restitution concept which is to return the property back (to
restore), but at times, plaintiffs may not receive actionable loss.

Keech v. Sandford (pg 63)
   • Youth could not enter into K and made living out of fish monger stall but the owner would not lease the stall to
       him. An arrangement was made that someone (a trustee) would enter into the lease for the benefit of the youth.
       Upon renewal, the owner refused to renew the lease to the youth, so trustee said that he will lease it on his own
       and run the business. Youth sued and was successful and was entitled to the profits that the trustee made. Court
       held that renewed lease was held on a constructive trust for the infant beneficiary.
   • In the fiduciary duty context, it is appropriate policy to have prophylactic rules where absent a collusion
       can result in a remedy.

  There are 2 overlapping rules (page 735). The general rule is that Fiduciary must act in the beneficiary’s best interests.
These rules were intended to be prophylactic in order to deter future disloyalty.
   (1) Conflict rule: fiduciary must avoid situations where their personal interests conflict with the beneficiary’s
        interests. Best example is from Arbedeern Railway: where there is a potential or mere conflict cannot get into a

    (2) Profit rule: fiduciary must not profit from their position and this is why beneficiaries receive $ from suits that
        they never lost. Fiduciary duty is powerful where it would give a windfall and sending a strong message to the

Why do we want someone declared a fiduciary?: If you are a plaintiff, want a fiduciary declarant b/c it opens up other
remedies. Have access to accounting (going after profits), and those accounting and restitution remedies are in personam

In rem remedies An in rem remedy is good against the whole world
    • Constructive trust: in rem remedies – creates a trust relationship w/o the intent of anyone. In a classic trust, have
       an undertaking. In CT, have someone who is owner of property or has property interest in it (the owner) and the pl
       sues and turns the owner into a fiduciary and will be disgorged from his relationship. The def (owner) is required
       to transfer that property to the plaintiff. Creates an in rem remedy. The def is not even a fiduciary (according to
       the book) b/c all def has to do is to transfer the property which according to Pac is true in 99% of the cases. .
    • Equitable Lien: orders def to hold title subject to a lien where give in personam remedy and if they don’t pay
       you, can seize the property. Can use it to pay yourself off before def collects the $, esp when value of property is
       going down. Complement this with the CT.
Views on Fiduciary duty
    •   Sopinka: free market attitude, calls fiduciary duty the nuclear of all remedies and don’t want to use it just because
        it is there. Also worried about commercial relationships because if take this idea, it will destroy the market place.
    •   Other view is to keep it loose, see which remedy is available and forced to argue basic principles.
    •   Not every fiduciary obligation gives rise to the same obligations. See page 736. Professor Scott: some fiduciary
        relationships are more intense than others; there are varying degrees of fiduciary duties. Identifying someone as
        fiduciary duty will depend on the nature of the relationship. Trustees for example may have higher degree of a
        fiduciary duty or duty of loyalty than maybe someone who is a corporate director who can only act as a member
        of the BODs or a promoter.

Cautionary Views on Fiduciary duty
 Caution about fiduciary breach: there is a tendency to identify things as fiduciary breaches which is not a breach. One
can be a fiduciary but this does not mean that every cause of action would be an action of fiduciary breach. A breach
would exist where person has not remained loyal to you. Just because they have done a bad job, does not mean that it is a
result of bad motivation and not a fiduciary breach unless it is related to some kind of loyalty.

    Girardet v. Crease & Co. Page 52 Supp
    • Be cautious when claiming a breach of fiduciary duty b/c not all obligations existing b/w the parties to a well-
       recognized fiduciary relationship will be fiduciary in nature, and it just may be a breach of contract or negligence.
       Allegation of breach of fiduciary duty carries with it the stench of dishonesty.

    Nichols and Guanrantee Trust (will see this in standards of care)
    • It is a standard of care case which is framed as a breach of fiduciary duty, so be careful when claiming a
       breach of a fiduciary duty.
    • Have a trustee using the income of the trust where the trustee has encroachment powers to supplement her
       income. The son of the mother puts her in an expensive home and trustee wants opinion of docs that she needs
       level of care and son obtains that. Trustee pays the $ and nothing is left in the capital for the son an son brings a
       cause of action that trustee should have done more due diligence, not based on a self-serving letter by a doc. A
       reasonable prudent person would not have acted that way. Point: framed as standard of care for a breach of
       fiduciary duty.

Szarfer v. Chodos page 739
   • Solicitor learns about marital issues about the plaintiff and lawyer makes move on the wife as she also happened
        to work there. Pl sues on fiduciary duty, claiming psychological stress etc. Court held it was a fiduciary duty
        breach, however, the decision is controversial because question was what was the scope to his obligations to
        the client? He was hired to give advice on the wrongful dismissal issue and he properly did so. What was the
        breach of the fiduciary duty?

K.L.B v. BC Case – page 81 SCC affirmed this case.
   • Facts: Children that were in a foster care who were sexually and physically abused by their foster parents brought
        a lawsuit against the BC social workers alleging that those social workers had a fiduciary duty to the children in
        which they failed to supervise of what was going on in the foster home.
   • [[Note: in BC: there is no longer a statute of limitation period to claims for sexual abuse]]
   • Case enforces fact that parents owe duty to fiduciary duty to children, and extends sexual abuse to foster
        parents. There is power, discretion and children are vulnerable.
   • Court is not satisfied that there is has been a breach of fiduciary duty when there is a physical assault as
        opposed to sexual abuse and not a breach that there was a failure to supervise.
   • Note: sexual abuse was not found.
   • Negligent supervision does not involve the same type of conflict of duty and self interest as does sexual
        abuse, and just because a social worker has failed to discharge her duty to supervise adequately does not

        necessarily mean that she has exploited the child’s vulnerability for personal advantage or other conflicting
    •   Difference b/w the 2 is that sexually abusing a child is providing a sexual gratification for one’s self, but in
        physical abuse, does not have the same directness WRT personal benefit.
    •   A failure to supervise may be based on poor performance and have tort law to deal with that. Similar idea in
        Canson case where just don’t grab and use equity. Start with CML and if not sufficient then use equity, even
        where they may be a fiduciary relationship. Don’t turn every cause of action into a breach of fiduciary duty.

MK Case
  • In MK case, tort action was statute barred, and was held to be a fiduciary duty breach. (note this was
      sexual assault case). Incest was a breach of fiduciary duty as well as a tort of assault and battery. La Forest
      considered incest to be part of a broader category of sexual assault actionable as a breach of fiduciary duty.
      “parental obligation is simply to refrain from inflicting personal injuries upon one’s child.”

International Corona v. LAC Minerals Ltd “Fiduciary Obligation”
    • Facts: Corona (small Co) had stake of claim to land adjacent to Williams family and discovered gold reserves but
        did not have $ to pay for it. Lac Minerals and Corona discussed matters and there was no confidentiality
        agreement entered into, but there was a convention in the mining industry, that would not discuss it further with
        anyone else. Corona was thinking of purchasing W’s property but the deal b/w C and L failed where L bought
        W’s property. Corona alleged causes of actions (1) Tort: Breach of confidence and (2) Fiduciary relationship b/w
        the parties

    •   Note that Joint Ventures (JV) and partnerships are different b/c JV does not mean carrying a business as a single
        entity and is not in a fiduciary duty relationship in the classic sense.
    •   La Forest is in dissent and holds to be a fiduciary duty relationship but Sopinka commands majority and
        held not to be fiduciary duty relationship and predicated on the tort of confidence and constructive trust
        (result of Canson which is to choose equity when necessary).
    •   Will start from presumption that if falls in FIDUCIARY DUTY relationship, start with the assumption
        that it will be fiduciary, but we will then characterize it and will look at the factors from Frame v. Smith

    •   Minority: Defence: JV not on the list so not fiduciary, but La forest states that term fiduciary is loosely applied
        and there are 3 categories of a fiduciary relationship:
                (1) Classic list of established fiduciary duty relationships: (a) Solicitor-Client; (b) Power of Attorney-
                Donor; (c) Executor-Estate; (d) Officer/Director-Corporation; (e) Parent-Child; (f) Doctor-Patient; (g)
                Priest-Penitent; and (h) Partner-Partner
                         There will be certain relationships that we will recognize as fiduciary and if have a case falling on
                         that list, it will be prima facie fiduciary. If someone wants to oppose that, need to show that it is
                         not fiduciary where duty is not to be imposed where will look at the Wilson’s 3 part test.
                         But in this case, JVs are not in a prima facie fiduciary relationship.

                (2) Case by Case: Not falling in the list but share basic principles depending on a specific set of
                circumstance. It can arise out of the specific circumstances of a relationship, where it may not normally
                be expected. The test, however, will be if there is a mutual interest in the parties which will be measured
                by the reasonable observer
                        Sopinka concedes there is a 2nd category but narrows it but this gets modified in Hodkinson
                        and becomes current law.
                        Mutual understanding: what were 2 ppl in a relationship reasonably come to believe –
                        reasonable expectations. Mutual understanding became a fiction

                        Page 65: the existence of a fiduciary duty in a given case will depend upon the reasonable
                        expectations of the parties, and these in turn depend upon factors such as trust, confidence,
                        complexity of subject matter and community or industry standards. Will look at discretion,
                        influence, vulnerability, subject of matter (complex or simple), trust and will make a
                        judgment call. (Hodkinson)

               (3) Improper Use: should not be doing it predicated on idea of abuse where trying to achieve a result.
               This one should not be used.
                        This is wrong and should not be doing this but there are many cases that judges are doing so.
                       Don’t call something is fiduciary b/c of the results it brings. Reason to determine whether it is

                       Chase Manhattan Bank Case
                          Bank A plaintiff approached by Bank C to lend 2 million and pl lent that $. Pl directs his
                          bank to credit Bank B for Bank C. Employee sends money twice to B. After 4 mil comes to
                          Bank C, became brp. Gave the 2 mill back but the Crs sought the other $. In CML, once $ is
                          mixed with other $, ownership is lost. To use equitable tracing, pl needs to have someone as
                          a fiduciary but here there was no fiduciary relationship. Judge at trial: when someone receives
                          $ they shouldn’t have, their conscience must be touched and resulting in a fiduciary.
                          In Lac, La Forest states that can’t do this b/c it would be misused and is in favor of getting rid
                          of legal and equitable tracing, doesn’t object the result, but the way it was achieved. He is in
                          favor of fusing the 2.
                          La Forest would have changed the law of tracing so if can find their property in mixed
                          situation, would have allowed it in other situations.

   •   La Forest: In Lac case, have to use Fiduciary duty # 2 whether there was a reasonable expectation that Lac would
       look after Corona’s interest after Corona provided that information and purchasing W’s property was a breach.
   •   Sopinka J – was Corona was peculiarly vulnerable? No, b/c they protected themselves by extracting a contractual
       promise and didn’t do that. Have commercial participants. Cannot create own vulnerability.
   •   La Forest says that there was an industry expectation and vulnerability is not a necessary thing, it is just a factor
       and if someone has the power to affect you, it is necessarily vulnerable and factor # 3 becomes moot.
   •   Sopinka – cannot create that vulnerability b/c there was no influence and no unconscionable. Corona could have
       insisted on a confidentiality agreement but didn’t, There is a breach of confidence tort available. He agrees with
       outcome with La Forest where there was a breach of confidence as there was an expectation of confidence.
       Fiduciary duty is the nuclear weapon of equity and use them as a last resort. “ equity’s blunt tool must be
       reserved for situations that are truly in need of the special protection that equity affords.”

   •   Breach of Confidence pg 711
          o 3 elements: information conveyed was confidential, communicated in confidence, and misused by the
              party to whom it was communicated
          o Court remedied breach of confidence on equity’s tool of trust and b/c of the fusion of the law and equity,
              if there is a sound basis to use equity, we can use equity to remedy the situation. Gave Lac minerals
              credit for the improvements to the land and it would have been unfair for Corona to obtain the windfall on
              the improvements.

Hodgkinson v. Simms
   • Majority looks like the minority of Lac.
   • Facts: Defendant Simms is a chartered accountant and specialist in tax shelter investments i.e. the MURBs.
      Hodgkinson was also an investment counselor but didn’t know much about tax sheltering. H invests in the
      MURBs based on S’s advice, but H didn’t know that S was an accountant for the person selling the MURB and S
      also has an interest in those MURBs. Interest rate sky-rocketed where H lost $ on the project and found out about
      S’s interest in the property. There is a conflict of interest when S advised H, but there was no contract showing
      that S failed to the agreement of the K. The MURB failed b/c economy failed and probably any investment would
      have failed. There was no fraud or deceit but H paid FMV.
   • Professional advisor is not a prototypical fiduciary.
   • On exam, first tell him on the exam that category # 1 is not on the list and then apply #2.
   • The test is Whether, given all the surrounding circumstances, one party could reasonably have expected
      that the other party would act in the former’s best interests with respect to the subject matter at issue.
    Discretion, influence, vulnerability and trust are several non-exhaustive evidential factors. The existence of
    a fiduciary duty in a given case will depend upon the reasonable expectations of the parties, and these in
    turn depend upon factors such as trust, confidence, complexity of subject matter and community or
    industry standards. Will look at discretion, influence, vulnerability, subject of matter (complex or simple),
    trust and will make a judgment call.
•   How do community and industry standards have an in impact in reasonable expectations
         o La Forest in Lac: Industry expectations that confidential information would remain confidential
         o Subject matter: are you vulnerable to the other party?
•   In H, H is also an investment counselor, and understands the business and the risk does not have to do w/ tax
    advantages but with market forces.
•   If there is a fiduciary duty relationship, the law suit comes from equity b/c in CML it would look at the market
    forces and say screw u
•   Case turns whether there is fiduciary duty
•   Power and discretion mean the ability to cause harm. Vulnerability is ability to cause hamr, susceptibility to
    cause harm.
•   Paciocco: Looking at Frame V. Smith
         o When an advisor comes to u for an advise, u can take it or leave it
         o Advisor doesn’t have power b/c you can do what you want
         o WRT unilaterally, advisor can only advice.
         o Wrt vulnerability, ….
•   However, H wins b/c even though he knows about investments, he still went to S for advise on MURBS and paid
    him $ where he trusted S to give advise and relied on that advise, yet S used that for his own benefit. H placed
    trust and reliance on the advisor, which was an exercise of a power or discretion reposed in the advisor by H.
•   Sopinka states that need peculiar vulnerability but La Forest, states that don’t need too much emphasis.
•   La Forest almost reads vulnerability out of existence and means nothing more than the ability of one to do harm to
    another. It is not a necessary condition (peculiar) and requirement of unilateral exercise of power, does not
    have to be unilateral. We look at the realistic power. You are subject to what they tell you, you are basing the
    information and trust the information of what is been told.
•   Special vulnerability need not invariably be demonstrated. At a minimum, all that is required for the imposition
    of fiduciary obligations is a relationship of trust and confidence in which the plaintiff relies upon the defendant.

Hunt and TD Securities
• Hunt has mutual fund with TD – non discretionary cash account where TD would only do the trades as Hunt
   directed them to do. TD sells bunch of shares that RRSP holder held in the business (VCE). Hunt found out that
   it was a banking mistake where he calls them and tells them to invest in X corporation. VCE go up and X goes
   down. Had TD Bank not made the mistake he would have gained the windfall so sues TD on basis of fiduciary
   duty breach b/c if sued on K, it was his decision to replace the VCE shares and can’t complain. If can get
   equity, will get entire amount and convinces trial judge to do so.
• COA: TD does not fall in classic fiduciary duty relationship but is subject to the discretion of H and not an
   overarching principal-agent relationship. In Cat #2, have to look at the circumstances and factors of Frame v.
       o Where is the power and discretion? They had legal authority to move $ but not have the legitimate
            authority to do so
       o No power to unilaterally exercise
       o There was a mistake in managing the account.
• Have a trust like relationship but note that when deposit $, not in a trustee type relationship where are in a
   debtor-creditor relationship. However some RRSP could be trust relationship.
• Could have characterized as trust b/c TD had interest in selling that shares b/c it has an interest in those shares.
   He could have purchased those VCE shares but didn’t.

                                    Express and Constructive Trusts
Constructive trust is property that was acquired in breach of trust, or by otherwise taking advantage of a fiduciary
position. In an express trust, the trustee agrees to take on the obligations, and imports a fiduciary relationship. However
in a constructive trust, the court would impose those obligations and require the defendant to disgorge the property.
Constructive trusts most often arise from a fiduciary relationship, though a fiduciary relationship is not required.

 In Canada, we gradually moved from an institutional to remedial model, but we have not completely eliminated the
institutional model where, under certain circumstances the institutional model is the appropriate tool to use. When there is
no clear institutional model, we utilize the remedial CT model.

The benefits of a CT is that it is an in rem remedy which is a remedy against the whole world. For example in Soulos v.
Korkontzilas, individual wanted the property b/c of stature even though property value fell down. It is a good way to
protect property and if the property increases in value, you get benefit. Equity will also give you in personam damages.
            o Insolvency: when go bankrupt, but if have proprietary remedy i.e. CT, b/c in equity it is mine, (i.e.
                 machinery) b/c it gives your priority over other creditors.
            o Gives remedy against everybody and traditionally hooked on fiduciary breach.

An institutional model is familiar and been around for a while. Have the ability to recognize it and offers range of
remedies. CT is when in equity, wanted one person who owns property to relinquish that property, call on the principles of
trust, where equity constructed a trust where one was not present. It included things like someone wrongly receives
property from a trust property where for example, an ttempt to make express trust but failed b/c of formalities. i.e. in
Statute of frauds, can’t transfer land unless it was written. Examples of an institutional model include: (a) contract (b)
Mortgagee having power of sale under mortgage; (c) Mutual wills; (d) secret trusts invalid under wills (e) breach of a
fiduciary duty where fiduciary made a profit, fiduciary was treated as holding that property on trust

I.e. Keech and Sandford

Classic Institutional Fiduciary Constructive Trust (page 109)
Equity will impose a CT where:
   (1) a person in a fiduciary position
   (2) has property (including traceable money)
   (3) obtained by reason of the fiduciary position in particular
             a. the fiduciary was acting within the scope of the fiduciary position when the profit was made; and
             b. the profit was made because of his or her position

    •   Boardman v Phipps (758-762)
           o Deceased has shares in CoA and places them in trust w/ trustees in a testamentary trust (Mr. Fox –
              Accountant; Ms. Noble – daughter and Widow). The beneficiaries included Thom Phipps, his brother
              (plaintiff) and others. Boardman was the solicitor for the trustees. Boardman and Phipps believe that if
              the company is run right, can make lot of $ and decided to attempt to have TP elected as BOD. Because
              of lack of shares, the two could not elect Mr. Fox and Ms. N to be on the BOD, they bought the shares of
              the company, after learning information from a shareholders meeting they attended. Eventually the
              profits soar, but brother is pissed off and claims that they went to the shareholders meeting as a trustee
              and by profiting from that meeting, must disgorge the profits
           o House of Lords held that they were fiduciaries b/c they were self-appointed agents b/c going to the
              meeting as a trust which would not be publicly available and benefited from that information such as the
              acquisition of the shares therefore are Constructive Trustees.
           o Pacicco doesn’t agree b/c:
                       Trustees must act unanimously and widow didn’t consent. N and F probably didn’t have
                       sufficient picture. Have a mere possibility of a conflict and there is no real conflict. No evidence
                       suggests that trust would have purchased those shares.
           o Majority however stated that does not mean that fid can’t profit.
            o   If acting for lawyer for other side,
                         Ask for full disclosure, independent legal advise, unanimity
                         Get rid of the widow b/c can’t make decisions
                         Do it in writing
                         Get it in writing that trust is not interested in the shares
                         So there will be no conflict
            o   Opportunity belongs to the trust and need their authority, not the beneficiary
            o   Trustee = fiduciary and need Benificiary’s for profit. But here, it is different b/c it is not a trust case and
                is an agency case.
            o   Boardmand and TP did not do it right and had to hand the profits to the BENs. TP got the beneficiary
                from the trust. Court did bestow an allowance to Boardman and TP b/c of the work they did.
            o   DISSENT
                         The purpose of the attendance of the meeting was to get TP elected and once not elected, the
                         fiduciary duty ended at that time so the information was acquired after the meeting
                         Causation: was the information privately or public known? Have to ascertain whether profit was
                         made due to the fiduciary duty relationship?
            o   Unclear whether there was a CT in this but imposed an accounting, but Boardman had assumed
                some responsibility of the trust where they were fiduciaries and obtained information to have person
                elected. Courts may have impose CT by using the fiduciary breach but unclear.
            o   Accounting is what happened in Boardman, but pl never identified property, but that Boardman made a
                profit which they should have not made and pay back that profit (less any hard work). So Boardman is
                not really a CT case, but is really an accounting case (Constructive Trusteeship)

•   CT should be used where have identifiable property held by order for the benefit of the plaintiff. Defendant is
    indebted to the plaintiff where he has in personam obligation to account to the pl. This is not right. Where if indebted,
    you are general creditor b/c not the same as having a beneficial interest under a trust. In a true trust, you can tell
    others to keep your hands of that property. A CT is a powerful remedy. Many cases would impose a CT but is really
    a in personam remedy. At the start of the litigation, a person is not a trustee. If you are a trustee, you would owe in
    personam obligations and equity would be applicable by opening in personam remedies (accounting etc). Other cases
    would use term CT has the status of the def as he had been a trustee for remedies and liabilities where not to really
    impose a trust.
•   He uses constructive trusteeship for the improper use of the term.

Remedy of Accounting: Equity has its own remedies. Compensation is used when a plaintiff has sustained a loss. In an
equitable relief, one can use an accounting remedy which can be used when the plaintiff has not sustained a loss, but
where the defendant has made a gain. Accounting is a judicially overseen process by which the amount of the profit was
determined. Accounting is both a remedy in identifying property. If there is no identifiable property to be held on trust,
hold on accounting (in personam claim) where it is a personal remedy. The remedy provided in Boardman v Phipps, was
accounting but pl never identified property, but that Boardman made a profit which they should have not made and pay
back that profit (less any hard work). So Boardman is not really a CT case, but is really an accounting case (Constructive

A CT is imposed on a person who has title to, or possession or control of property and, therefore, is a remedy that affects
property (proprietary remedy). Cannot have a CT unless there is property to which it can attach.

Equity also imposes personal obligations (in personam) to make compensation. Cases often state that someone who is
liable to pay accounting is “liable to account as a constructive trustee” but Pacicco and text believe this is incorrect, and
the duty to render an account falls on every express trustee. As a result, need to understand the clarity of whether it is in
personam judgment (i.e. accounting) or is it true CT. For example, suppose the property is no longer held by the trustee
or trustee/fiduciary makes a profit which is not a traceable product of property, clearly, accounting of profits is required,
but is that say, bribe, held on CT?
         Hong Kong v. Reid: Crown Counsel accepted bribes to obstruct prosecution of criminals. He invested the bribe
         money in real property. Court held that as a result of the fiduciary breach, the bribe was held in trust for the

        person to whom the duty is owed to (plaintiff (the AG)). The plaintiff was allowed to claim the surplus of the
        investment of the real property and claim the bribe money (so long as there wasn’t double recovery).
        Soulos v. Korkontzilas: SCC held that gain acquired by a fiduciary in breach of his duties of loyalty could, in
        appropriate circumstances, be held on CT for the principal.

•   Procedure to obtain a CT Order & Clarification of CT: Don’t just ask for CT, ask for declaration that defendant
    holds property for the plaintiff. Once a declaration is made, that is if a CT has been held, if it is real property, a copy
    of the judgment or caveat may be registered on title so as to prevent disposition by the defendant to a bona fide
    purchaser for the value of the legal estate w/o notice. If, however, the property is personal, the plaintiff does not have
    the same opportunity to protect his interest. In other words, a bona fide purchaser can get good value and plaintiff
    could lose, so that is why you want to register the judgment on title. You want the court to vest the title to you, and
    not simply ask for a declaration that the defendant holds the property upon a CT for the plaintiff.
             Classic CT case (Pettkus) is a tragedy.
                     Def treated order as if it was a mere $ judgment and not a vesting. Pl tried to chase the property but
                     eventually became bankrupt. So make sure it is clear what court is ordering where it may not be CT
                     b/c court is using ambiguity.

                       Remedial Unjust Enrichment Constructive Trust
Because of the difficulties of courts whether parties had a common intention, courts moved towards the acceptance of a
remedial CT. This is a constructive trust which is a restitutive device imposed to prevent unjust enrichment.

Cardozo CJ stated that “a CT is the formula through which the conscience of equity finds expression. When property has
been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial
interest, equity converts him into a trustee.” The problem is that there is no more predictability and it interferes with
market place, and the concern is that the law should be clear.

Before the courts used Unjust Enrichment as it was a right and remedy. UE is cause of action and CT is but one kind of
remedy for UE. You may also have remedy of accounting. Restitution is the remedy for unjust enrichment. Concept of
UE got accepted in Pettkus v. Becker case.

Pettkus v. Becker (UNJUST ENRICHMENT)
• UE is a cause of action in Pettkus which laid out the following test:
            (1) An enrichment (no longer have “unjust”): Def received benefit w/o paying compensation
            (2) A corresponding deprivation: Pl, if provided benefit, no corresponding compensation provided.
            ((According to Peter v. Beblow, Cory believes that whenever have an enrichment, there will be a
            corresponding deprivation))
            (3) The absence of a juristic reason for the enrichment (a legal reason for the enrichment)
                    (a) A legal obligation to make the contribution which leads to the enrichment is a juristic reasons,
                    defeating the claim (i.e. contract, gift, statutory obligation, trust pay out)
                        • i.e. we enter into negotiations and I am poorer, you are richer, hard to claim that it is UE
                        • i.e. same with gifts – there is no injustice
                        • McLaughlin takes broader approach by invoking term “unjust: The fundamental concern is
                            the legitimate expectation of the parties

                    (b) the reasonable expectations of the parties must be considered to see whether the enriched party
                    knew or ought to have known of an expectation that the contribution was not gratuitous (Mc.
                    Laughling on what she means by fundamental concern)

                    (c) considerations of policy can inform reasonable expectations

•   Need causation that def is richer and pl is poorer, and there might be cases where that happens w/o having UE. I.e.
    (Confederation Light in Canada)
         Policy holders wanted claim to be paid and Co was bankrupt and paying workers wanted pensions, creditors
         want there $. Under the Insurance Act, the policy holder gets first $. Worker claim that should get first claim
         on property on cause of unjust enrichment. We are poor that we did the work b/c would have received the
         Court cut them off at # ½. There was enrichment and deprivation, but there is no corresponding b/w the 2. The
         company is poorer not b/c they got richer from their work, but the fact that the company became bankrupt.
         Need to look at a cause of connection b/w the 2. However, in most cases, Cory is right, where someone is richer
         b/c someone is poorer. Most of the analysis occurs under the 3rd head (see above)

    Peter v. Beblow: or is it pettkus case?
        • Enrichment: wife’s housekeeping and child-care services where husband received household services w/o
             compensation where he was able to pay of the mortgage.
        • Corresponding deprivation? She got nothing in return and he acquired property.
        • Absence of juristic reason: there was no legal reason for the enrichment
                   The test is flexible.
                   In every case, the fundamental concern is the legitimate expectation of the parties (Pettkus v. Becker).
                   Factor 1: there is no general duty presumed by the law on a common law spouse to perform work and
                   services for her partner.

                     This relationship was not short-lived. There was strong presumption that services provided by one
                     party won’t be used to enrich the other. There would be reasonable expectation of the reasonable
                     contribution. The spousal services were not minor
                     Cory ties it to the reasonable expectation
                     McL sees it as a broader public policy.

    Ellingsen v. Hallmark (Commercial)(
        • E said he would obtain financing of the truck and Hallmark provided the truck w/o any $ received. E never
            obtained the financing.
        • If apply UE approach: E and Creditors are enriched. Corresponding deprivation where H does not have the
            asset. Absence of juristic reason? H does not have a security interest b/c did not file one….and the fact that
            if they have ownership. Issue is whether there is a valid K.
        • Financing was a condition precedent and did not meet it, so there was no valid K. The financing was to move
            things along.
        • H never agreed to be the financier. Would have been total insolvency for the creditors.
        • Other J: Had legal mechanism to protect them selves (PPSA)

    Wasenlenko v. Touche Ross Ltd (643) [POLICY – part 2(c])
       • According to the contract, contractor builder would hold title to the property and owner would continue to
          make payments until house is built. Builder becomes bankrupt and is placed under a receivership, but the
          receiver refuses to build the house.
       • Court held that the receiver held the house upon a constructive trust because the receiver and creditors would
          have been unjustly enriched if the owners would have sued on breach of contract.
       • Court stated that they would disregard the contract, b/c it would enrich the creditors.
       • If look at the juristic reason, would get stalled under (a) because there was a contract that allowed for the
          enrichment, but if look at it from a policy point of view, then could say “it is unjust”.

    Chase Manhattan (applying the principles)
       • Have an enrichment and a corresponding deprivation, but there is no legal obligation to make that payment.
           However, the reasonable expectation is that can’t walk away w/ it. In many commercial cases, courts may
           overlook the K and provide a remedy.

Remedy – What is appropriate.
Once determined that have issue of unjust enrichment, have to deal with remedy. However, just b/c have found an
unjust enrichment cause of action it does not necessarily result in a constructive trust. A remedy may exist in
personam, accounting.

    Lac Minerals: The constructive trust awards a right in property, but that right can only arise once a right to relief has
    been established. A constructive trust should only be awarded if there is reason to grant to the plaintiff the
    additional rights that flow from recognition of a right of property.
    For example, in personam remedy, accounting may be the preferred remedy.
    Remedy may be (1) May be accounting (personal remedy); (2) Construtcive trust (tracing)

When to award a Constructive Trust
Factors in giving a Constructive Trust: “This may occur . . . if there is some reason to grant to the plaintiff the additional
rights that flow from recognition of a right of property”
              (1) Monetary or personal award is insufficient
                     In Peter v. Beblow, the first step to determine the proper remedy for unjust enrichment is to determine
                     whether a monetary award is insufficient.
                     Look at the probability of the award being paid and special interests in the property acquired by the
                         • Pettkus, monetary award would be insufficient, b/c he had no $.

                        •    Ellingsen: monetary was unavailable b/c E was bankrupt and H would have become a general
                             creditor, losing his priority.
                                 o However, a general creditor should retain their position as a general creditor when
                                      they expect is to be a general creditor. In those circumstances, a constructive trust
                                      should not be awarded. Hallmark never accepted to be a general creditor.
                        •    Peter v. Beblow: had few assets and hard for her to get any $ and the best place is to look at
                             an effective remedy.

            (2)There is sufficient factual connection or link between the plaintiff’s contribution and the property or
            asset in question;
                     In Peter v. Beblow, the wife’s tasks in maintaining the house, home for his kids etc indirectly helped
                     preserve the property and saved money for the husband. Wife not only made husband richer, but
                     made him richer with the specific property wife is claiming and that is the substantial link

            (3) Whether the claimant reasonably expected to obtain a proprietary remedy interest in the asset.
                   In Peter v. Beblow, even though there was no emotional attachment to the property, it could be
                   inferred in light of the work she had done on the property. Note, also that the husband was living in
                   another community as well.

            (4) Whether competing equities point away from the constructive trust.
                   In Lac Minerals

In Lac Minerals: other factors what would be important in providing constructive trust proprietary remedy:
       • Plaintiff receive the priority accorded to the holder of a right of property in a bankruptcy.
       • The right of the property holder to have changes in value accrue to his account rather than to the account of
           the wrongdoer.
       • In Lac, Corona had specific property of mine they wanted to acquire and Lac took it away. Won’t know what
           the long term prospects would be? Here it would be best to give title to the property.
       • Moral act of the defendant, the reprehensibility of the conduct suggest need to send strong message, where
           individuals do not take advantage of the situation.

Quantification: General approach is to look at the value surviving rather than value provided. If give proprietary
remedy, value of property increases. In a fiduciary context, pl can decide to take remedy at time of act or time of breach.
If bring in personam, can decide when to look at value. IN CT, hold that property at the value it survives at. In
determining the value, have to look at the factors.

      •     Is it truly remedial CT? B/c if it is one, then it is a remedy. A remedy arises when court gives effect it it.
            Suppose, however, bankruptcy occurs.
        •   Look at s.67(a) of BIA, where property of the brp held in trust is not part of brp’s estate.
        •   Issue is when does a CT arise? Suppose obtains property on Monday, becomes brp on Tuesday? Does CT
            arise before or after brpcy? S.67 speaks to property at time of brpcy?
        •   If truly remedial, how do you argue that you don’t want H wanting to get that property back? If truly
            remedial, CT arises when court declares, how will know it exists before that? However, it is deemed to have
            risen when UE occurs, at time of fiduciary breach.
        •   See page 115 –para 38
        •   Issue of timing..
        •   Wrong creates the beneficiary interest.
        •   He thinks there is no longer an uncertainity (look at Rowlic v. Rowlic)
        •   (He thinks CT has important role to play in commercial contexts and believes that should not be overriding
            BIA principles)

The Good Conscience Constructive Trust

Soulos v. Korkontzilas
• In a claim for unjust enrichment, normally the defendant should be enriched, however sometimes a party suffers no
• IN this case, pl is trying to take advantage of a CT, which would if imposed would lose money. S wants a real estate
   building and asks agent K to obtain it. However, K screwed S where K’s wife purchases the property and tells S that
   he could not obtain the deal. However, when S found out about it, market went down, so the issue was whether there
   was any enrichment to K?
• McLachlin believes that the constructive trust does not apply only when there is a corresponding deprivation and
   enrichment, but may apply absent an established loss to condemn a wrongful act.
• Paciocco asserts in his article that unjust enrichment is not a necessary condition of a constructive trust, and can be a
   remedy when there is a windfall remedy
• [Sopinka disagrees where why award someone a constructive trust when there is no loss?]
• Need to look at the underlying principles which are broader such as good conscience. Good conscience addresses not
   only fairness between the parties before the court, but the larger public concern of the courts to maintain the integrity
   of institutions like fiduciary relationships.
• The constructive trust imposed for breach of fiduciary relationships serves not only to do justice b/w the parties that
   good conscience requires, but to hold fiduciaries and people in positions of trust to the high standards of trust and
   probity that commercial and other social institutions requie.
• As a result, constructive trust may be imposed where good conscience so requires.
• There are 2 situations where court may consider in deciding whether good conscience requires imposition of
   the constructive trust.
     • (1) Property obtained wrongful act of the defendant (i.e. breach of fiduciary obligation or breach of duty of
     • (2) def has not acted wrongfully in obtaining property the property, but where he would be unjustly enriched to
         the plaintiff’s detriment by being permitted to kepp the property for himself.
• Under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful acts like fraud and
   breach of duty of loyalty, as well as to remedy unjust enrichment and corresponding deprivation.
     • (1) Constructive trusts may be imposed on either ground: where there is a wrongful act but no unjust enrichment
         and corresponding deprivation; or
     • (2) where there is an unconscionable unjust enrichment and in the absence of a wrongful act; (i.e. Pettkus v.

•   Four factors where constructive trusts should be imposed for wrongful conduct:
     • (1) the defendant must have been under an equitable obligation (like a fiduciary duty), that is, an
        obligation of the type that courts of equity have enforced [this incorporates a person in a fiduciary position]
        in relation to the activities giving rise to the assets in his hands [this is like 3 (a)]

     • (2) the assets in the hands of the defendant [incorporates # 2] must be shown to have resulted from deemed or
       actual agency activities of the defendant in breach of his equitable obligation to the plaintiff [incorporates 3 and

     • (3) the plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the
       need to ensure that others like the defendant remain faithful to their duties [formalizes an aspect of discretionary
       remedial power]; and

     • (4) there must be no factors which would render imposition of a constructive trust unjust in all the circumstances
       of the case (e.g. the interests of intervening creditors must be protected) [formalizes an aspect of discretionary
       remedial power];

                             Equity will impose a CT where:
                                (1) a person in a fiduciary position
                                (2) has property (including traceable money)
                                (3) obtained by reason of the fiduciary position in particular
a. the fiduciary was acting within the scope of the fiduciary position when the
   profit was made; and
b. the profit was made because of his or her position

                                                   Express Trusts
Trusts are not considered to be a separate legal entity like corporations are. A trust, itself, is not capable of holding
property. It is basically a series of relationships. A trustee administers the trust and has obligations. A trustee is a means
to an end to find a way to give trustee the control the management and administration of the property. A beneficiary can
enforce the trust by enforcing the in personam obligations the trustee owes to the beneficiary.

Role of the Settlor
Express trusts are created intentionally by a settlor/testator that may be inter vivos or testamentary. Where a trust is
properly constituted, all of the beneficiary’s rights and obligations come into existence. In order for a settlor to constitute
a trust properly, the following 4 factors are necessary:

     • (1) Capacity: settlor/testator must have the capacity to create a trust, meaning that the settlor or trustee be of
       legal age, have sufficient mental capacity and have the property interest that will ultimately constitute the subject
       matter of the trust.
     • (2) Certainty of intention: settlor/testator must manifest an unequivocal intention to create a trust
     • (3) Certainty of (a) subject matter and (b) share: the subject property must be certain as must the share that
       each beneficiary is to receive.
     • (4) certainty of object and compliance with the beneficiary principle: the beneficiaries of the trust must be
       certain, or where the trust is for a purpose and not a person, that purpose must be legally recognized and
       established with certainty
     • (5) constitution + (formalities) = trust: the subject property must be transferred to a trustee. If the settlor is to
       be the trustee of an inter vivos trust, no actual transfer is required. The manifestation of intention will be a
       declaration of trust which will create a notional transfer from the settlor, as absolute owner of the property
       interest, to himself, as trustee

Trusts can be created by (1) Declaration of trust which is to do it by oneself where when there is intention, it changes from
full owner property w/o conscience binding them, conscience bound or (2) Trust transfer where the owner and trustee are
different people and the trustee makes an undertaking to the owner.

Duties and powers of trustee are found in 3 sources
     • (1) Equity: creation of fiduciary obligation.
     • (2) Trustee Act which are not codes. Those statutes dealt with problems of issues settlor may not have thought
        of. Statute creates supplementary powers and creates certain obligations.
     • (3) Trust declaration/agreement: most important source. A trust can have any thing you want, so long as not
        change it into something other than the trust. Note under, s67 can opt out of the trust.

Relationship b/w trusts and individuals
     • Owner = Settlor = that creates the trust. The Difference b/w beneficiary of trust and donee of gift is that the
        donee gets title whereas, a beneficiary of a trust receives certain rights of enforcement against trustee, but are
        constrained. Power of revocation is the best way to keep S involved.
     • The beneficiary has the standing to sue and not the settlor because the settlor has transferred title. Once lose
        ownership, lose abilities to control the property.

Trusts & Contracts
     • Creation of trust is considered a disposition rather than a contract and once the trust has been established,
        the trustees’ responsibilities, powers and discretions with respect to the administration are governed
        exclusively by the rules and principles of equity.
     • The trust instrument does not itself create any contractual relationship between the settlor and the trustee b/c of
        lack of consideration. Trustees are supposed to act in the best interest. Normally, a seal imports notion of
        consideration which would be enforceable, but equity does not recognize seals. As a result, seals are not
        recognized as considerations in trusts. It appears to be a contract but is not a contract. Foundation of
        enforcement comes from the conveyance.

      • Because of the non-contractual nature of the trust instrument, a settlor does not have control of the trust. The
        trustee is bound to carry out the provisions of the trust even though there is lack of consideration. Trustees are to
        make their own decisions, and should not take directions from the settlor.
      • The settlor cannot sue the trustee for failure of the trustee to carry out his obligations. The settlor will not have
        power and control over the trust except to the extent what the trust instrument provides.
      • One way for the settlor to sue is to be involved via an instrument, by making the settlor a beneficiary to the
        trust b/c the beneficiary can sue. If you are a beneficiary, have the right to hold the trustee to the trust agreement.
        You lost control however. Need to worry about the tax consequences.
      • For the settlor to have control, Can have a power of revocation but there are issues of taxes
      • Can make settlor a trustee but the limits is that they don’t have beneficiary of the property, and have to make
        decisions in the best interest of the trust.
      • Have to inject settlor into the trust to give rights to the settlor.
      • The settlor, trustee, and/or beneficiary can enter into a separate contractual agreement however b/c can have a
        conflict of interest. The trustee is to act in the best interest of the beneficiary. Furthermore, what damages would
        arise from the BOC? Settlor hasn’t lost anything. Overall, collateral Ks are worthless. Every opportunity S is
        involved has ramifications.

Terminating a trust
A trust normally ends when the trust property is distributed to the beneficiaries, but the trust may also end
      • when the settlor wants to revoke, in whole or in part;
      • beneficiaries want to call for the property earlier than when the trust allows for; or
      • court sets aside the trust (rarely happens)

Determining whether a trust is inter vivos or testamentary
     • Need to determine whether a trust is inter vivos or testamentary because inter vivos trusts are not subject to
       formality requirements as testamentary trusts. A testamentary trust must be in writing and witnessed (as wills
     • In determining whether a trust is inter vivos or testamentary, ask whether the trust is dependant upon the settlor’s
       death for “it’s vigour and effect/vitality”. Two factors in deciding whether the trust takes it it’s vigour and
       effect/vitality from the death of settlor are (1) intention of the settlor, and (2) the time at which the trust property
       vests in the trustee.
     • Although the intention of the settlor normally determines the type of trust created, the time could dictate the
       construction of the trust. This could happen when the settlor is intending to create an inter vivos trust, the settlor
       retains title to the trust property until the time of his death, at which time title to the property vests in the trustee.
       It is a testamentary trust because it has not been constituted until the death of the settlor.
     • If property vests in the trustee at time of declaration, both possibilities can arise.
            Anderson v. Patton (Inter-vivos): Settlor transferred money to P to be held in trust for himself and if
            anything should happen to the settlor, for two friends. The settlor reserved the right to call for the return of
            the money at anytime. Court held that it was a fully constituted inter vivos trust because the right to call for
            return of the funds was held to constitute a power of revocation and not a stipulation about when the trust
            was to take effect. Note that title was transferred to the trustee at the time of declaration (therefore either and
            inter vivos or testamentary trust was possible).
            Re Beardmore Trusts (Testamentary): It was held to be a testamentary trust, and was void because it did not
            comply with the formalities requirement. Settlor agreed to transfer 3/5 of his net estate upon trusts which
            contemplated payments to his ex-wife during her life or until remarriage and then for the benefit of the
            children. The trust stipulated that the trust property was to be transferred to the trustees only upon the
            husband’s death. Note that title was not transferred to the trustee until the time of the settlor’s death, which
            can only result in a testamentary.

Powers of Revocation
    • Only inter vivos trusts can be revoked because testamentary trusts are constituted at the testator’s death.
    • Not uncommon to have revocation powers inside of a trust. However, critics believe that it may seem
       inconsistent with the powers of the trust.

      • Normally, settlors cannot revoke trusts, either in whole or part, unless they retain a power of revocation when
        creating the trust because once a trust is constituted, the settlor disposes of his property and no longer has control
        over it, unless a provision calls for control. However, before constitution, the creator of the trust is free to revoke
        because there is no trust before constitution.

      •      However, unrestricted powers of amendment or modification do not include the power to revoke
          (Metropolitan Pensions Plan) The power of revocation has to be clearly and unequivocally reserved to the
          settlor at the time of creation. An amending power, even a broadly worded one, does not bring with it the
          power to revoke.(Schimdt)

      • Metropolitan Pensions Plan
          o Facts: The city enacted a By-Law that created a pension plan for the benefit of its employees. Both
              employees and employer make contributions to the plan. The by-law that created the plan gave the city a
              general power to amend the Plan but with two restrictions (1) city cannot amend the plan to recover any
              contributions and (2) city cannot amend plan to reduce accumulated benefits. The city passed another
              bylaw that allowed amendments to be made to plan, purporting to amend the plan where the city would be
              allowed to recover the costs. In effect, the city is taking some of the trust property out of the trust. Issue
              came: can city make this change in this time? City alleged that they had power of revocation from the
              construction of the trust itself or from the statute.
          o       In Schimdt it was accepted that a settlor of a trust may reserve a power of revocation, however the
              power of revocation has to be clearly and unequivocally reserved to the settlor at the time of
              creation. An amending power, even a broadly worded one, does not bring with it the power to revoke.
          o Here, the by-law conferred a power to amend, not revoke.

Exceptions to the Rule Against Revocation
    • A debtor may revoke a trust that is made for creditors, unless the (1) creditors joined as parties to the
        instrument transferring funds or, (2) having had notice of the transfer, they forbear from suing. In those two
        situations, the parties have, in essence, given consideration for the transfer of property and the debtor may not
    • The debtor is free to revoke the trust, subject to the exceptions, because no trust in favor of the creditors was ever
        created – that is debtor never intended that equitable title pass to the creditors, and that the trust is for the benefit
        of the debtors. The trust was created with the debtor as beneficiary. The trustee pays third parties for the benefit
        of the debtor. As per the rule in Saunders v. Vautier, the debtor can wind up the trust and obtain the trust
        property because the debtor is the sole capacitated beneficiary.
    • However inconsistent that (1) can create an act of bankruptcy and (2) if the creditors become parties to the trust
        by signing it, the power of revocation disappears unless it is expressed. So if involved in informal settlement, and
        are acting for creditor, want to make sure that creditor can sign the document and acquire status of the
        beneficiaries because if the creditor is the beneficiary, the debtor may not revoke.

    Constituting a Trust & Powers of Revocation: Ambiguity
       The rule in Milroy v. Lord: In order to render a voluntary settlement valid and effectual, the settlor must have
       done everything which, according to the nature of the property comprised in the settlement, was necessary to be
       done in order to transfer the property and render the settlement binding on him.
     • In a constituted trust, have to get the property of the subject matter into the trustee. In Milroy, Lord created a
       trust document in which he was to be the trustee, executed which would have created beneficiaries etc, but
       Milroy died. Lord forgot to transfer the shares into himself, and how could Lord be a trustee, so trust was not
       properly constituted. Milroy died with the shares still owned by him. Milroy is not about powers of revocation
       but is a about constituting a trust.
     • If have power of revocation, how bound are you by it because the power of revocation can create uncertainty on
       whether settlor wanted to create a trust. If one successfully transfers property, the trust will satisfy the rule of
       Milroy. However, have other powers in the trust i.e. powers of revocation.
     • First, Cannot have a trust unless there is certainty of intention. As the settlor, need to unequivocally intend to
       create a trust otherwise can create ambiguity. Power of revocation can create uncertainty on whether settlor
       wanted to create a trust. Difficulty is created because not every trust has a trust document (i.e. have oral

   agreement). In oral declarations, an attempt to create power of revocation can obscure whether you intended to
   create a trust.
• Second, the significance b/w testamentary or inter vivos trust.
       o Power of will: (1) have to meet the formalities of verification and witnesses have to sign the will or in a
           (2) holographic will – allows testator to create will in own handwriting and it can be analyzed for
           handwriting. So if looking at trust document, have to see if it is testamentary or inter vivos where in the
           former need to conform to the formalities.
       o The legal characterizations determines if the document creating the trust is inter vivos or testamentary by
           looking at vigor and vitality at the death? Does death give it the effect then it is testamentary.
       o Powers of revocation can lead to argument that did not take effect until the person died because not have
           total control over the property. Can create a situation where the document is testamentary and is invalid
           b/c not meet the formalities. See page 292 of CB for cases.
       o Point is that testamentary instruments have to comply with formalities and instrument is
           testamentary, depending on vigor and vitality at the death of the individual.
  Third: there are statutes vis-à-vis property that would operate differently to keep powers of revocation. I.e. in tax,
  if have that powers, would have tax implications to the settlor where the property is not a deemed disposition.
  Family law statutes can treat individuals to own property if there are powers of revocation.

                                The Nature of the Beneficiary’s Interest
Beneficiary’s relationship to the trust property
A trust beneficiary the powers to enforce the terms of the trust i.e. payment of 100K. The beneficiary does not have that
ownership until it is paid, but has powers to enforce it. Once made beneficiary has a choses in action value.

A beneficiary has in personam rights against the trustee such as when the trustee has improperly administered the estate or
whether the beneficiary has direct access to the property. In Schalit v. Joseph Nadler Ltd. the beneficiary was not entitled
to the rents and profits directly when then trustee leased commercial properties that was held in trust for the beneficiary.
He had only rights to the accounting.

Beneficiaries are not entitled to direct the trustee.

The “equitable veil” will not be lifted under the following circumstances:

(1) Proposition 1: We deny the beneficiary the benefits of ownership when we are dealing with the issue of whether
    the trustee has properly administered the estate (i.e. in the conduct of trust estate business).
         a. Don’t allow the beneficiaries to direct the trustees and here is what we want you to do.
         b. Tempest and Lord Camoys: trustee held property and had powers to sell and acquire new property, and power
             to borrow money. Beneficiary wanted another piece of property which she liked better, and went to trustee to
             request to sell the current beneficiary’s property and buy the one she liked. The court ruled that it would
             defeat the essence of the trust, because beneficiary may not have good judgment (held that beneficiary
             cannot direct the trustee)

(2) Proposition 2: Subject to the terms of the trust, we deny the beneficiary the benefits of ownership during the
    continuance of the trust, where the issue is whether the beneficiary can control the enjoyment of the property.
        a. Verdun v. Toronto-Dominion Bank: registered shareholders of TD shares were allowed to circulate petitions
            to other shareholders. Verdun was a trust beneficiary owner of the shares and wanted to circulate petitions
            but TD prevented him from doing so. The trustee has the ownership, not the beneficial owner.
        b. Schalit v. Joseph Nadler Ltd.: JN rented property to S. JN sets up corporation and instead of transferring
            ownership tot the property, he set himself as the trustee for the benefit of the corporation. JN = trustee and JN
            ltd = benificiary. S is not paying rent. JN Ltd sends letter to sheriff that exercising power of distraint. S sues
            JN ltd for wrongful distraint and winslawsuit because only the legal owner of the property can enforce the
            powers of distraint, not the JN ltd.

The “equitable veil” will be lifted under the following circumstances:
(1) Baker v. Archer-Shee:
     • Father, a citizen of the US, left the residue of his estate by his will upon trust in the US which stipulated the
        income and profits for the use of his daughter during her life. The trustee was in NY as well. She was married to
        a UK citizen (Lord Archer) who was assessed to be taxed on his own income and income on his wife, including
        the income earned by the trust in the US.
     • If have income elsewhere in the world in stock, it will be taxable in the UK whether you bring it in the UK or
        not, but if other than stock, then will be only be taxable if income is received in the UK. Income earned outside
        of UK is taxable in the UK if it is from a possession other than stock, only if bought into the UK
     • Issue: whether income from the trust is taxable? It is taxable if income is from stock, but not taxable other than
        possession of stock.
     • Argument to make for her is that she does not own the stock, possession is in the trust, she is entitled to the
        income. Trustee would be responsible his taxes because the shares are not in her name. Equity recognizes in
        personam rights to enforce trust obligations, and does not make the beneficiary the owner of the property. The
        owner of the stock is the trust. The income she earned is on the trust income.
     • Majority of the court decided that it is income from stock. The income is the income of the beneficiaries;
        the income does not belong to the trustee.
     • Pacicco thinks it belongs to the trustee.
(2) MNR v Trans-Canada Investment – pg 30
     • TCI wanted to set up form of mutual fund and set up TCI Inc and purchased shares from various company and
       transferred it to TCI Inc. Memberships were sold to purchasers (beneficiaries), where they would get a
       percentage of the fund. However, permitted that certain individuals to receive shares as if it were their shares,
       but in the TCI Inc name (the trustee). That individual would get income from all the shares and had right to
       revoke the shares. Problem was that beneficiaries received income from the joint accounts, but wanted to claim
       Cdn Corporate Tax Credit, permitted individuals to offset income, but caveat is that person had to be the
       shareholder, but they are benifciaries
     • CRA: property is held in trust and TCI Inc can use the tax credit, and not the individual.
     • Estey in dissent: individuals are not entitled to tax credit.
     • Majority: who are the real owners of the shares and will give the tax credit to the individuals.

Article by Water’s on when to lift the veil
Where the following conditions are met, a court may “lift the equitable veil” and emphasize the PROPRIETARY
character of the trust rather the IN PERSONAM character of trust:

(1) there is no need to insist on the fiction of Equity (that it does not create rights but simply imposes obligations) to
    preserve the essence of the trust, and

(2) the beneficiary’s interest is DIRECT and EXCLUSIVE enough; and
    - i.e. if say you are real owner, have to tell what you are the real owner of

(3) (where a statute or legal instrument is involved) the language accommodates it;

(4) and POLICY supports the conclusion
    - the fact you can, does not mean you have to. There have to be reasons in doing so.

Brinkos v. Brinkos (Family law)
     • Facts: Wife had settled moneys received from her parents, before and after marriage, in a trust under which she
        was entitled to an inalienable life interest in the net income. Issue: was the future income earned from the trust
        property under the Family Law Act? and whether the husband is entitled to treat that income as family property.
        Note that capital is not caught upon equalization. Under the FLA, a property is any interest present or future
        vested or contingent in real or personal property.
     • OCA: Court followed Baker v. Archer-Shee that wife’s beneficial interest income was to be treated as family
        property even though the capital was not family property. Cannot use trust to avoid from disclosure of income
        earned during marriage.

Exceptions to where Beneficiary has interest in Property and how they can collapse the trust
Technically, a beneficiary has no interest in the property but there are situations where it is not. The rule in Saunders v.
Vautier allows beneficiary collapse the trust even if the settlor had something else in mind. The right to require premature
distribution of the trust property is based on the view that since equitable ownership of the property resides in the
beneficiaries, they have the right to decide what is to be done with the property. However, the rule has been abolished in
AB and MB and have to convince the court that it is an appropriate outcome.

Three things to note: Beneficiary (1) can compel the trustee to terminate the trust without court approval; (2) even
against the wishes of the settlor; and (3) can compel the trustees to convey the property to whomever they direct.

Preconditions to be met
For a trust beneficiary to apply the rule of Saunders v. Vautier, the following conditions have to be met:
     • Beneficiary must be sui juris where he is an adult and of full mental capacity.
     • Beneficiary must be entitled to the trust property that is if interest is vested. Interest is vested if beneficiary is
        ascertained and there are no conditions precedent to the interest of rising.

     • Where there are more than 1 beneficiary, all the beneficiaries must be ascertained and together, their interests
       must account for all the interests in the trust property. All of the beneficiaries must be sui juris and come
       together to collapse the trust.

Courts do not want property left in a confused state and that is why they allow early vesting.

Buschau v. Rogers Communication Inc
    • Held: Rogers should disclose the names of the trust names to the individuals so the employees could apply the
       rule of Saunders v. Vautier to collapse the trust.
    • Employees had a pension plan with another company and Rogers purchased the company. There is a pension
       surplus in the plan and Rogers takes out the surplus, but the terms of the trust agreement was that the amount is
       to be distributed upon termination of the plan. Employees want to use the Saunders rule to collapse the trust but
       they don’t have all the names. Rogers won’t share the names and judge orders Rogers to furnish the names of all
       the applicants so they can collapse the trust.

Characterization of trusts and Saunders Rule
    • Sometimes, court’s characterization of trust can be impediment to applying the rule of Saunders v. Vautier.
        Suppose there is 1 trust with 3 bens, may not be able to collapse, but if have 3 separate trusts, may be able to
        collapse each on individually.

How to prevent Saunders v. Vautier from operating?
    • explain clients rule of Saunders v. Vautier
    • make it a condition precedent
    • note: all applicants have to be a sui juris, do a gift over to younger person
    • make yourself a beneficiary
    • if have a sole beneficiary, make the that beneficiaries interest so that it is either vested, but subject to divestiture,
        or contingent
    • choose beneficiaries who are unascertained or minors

Circumstances where Saunders v. Vautier can apply
The rule in Saunders v. Vautier can apply in the following circumstances where once the beneficiary or beneficiaries are
of age, mentally competent, they can join together (if more than 1) and call for the trust property:
      • trusts that postpone enjoyment of trust property to a particular age or future date
      • trusts which give a beneficiary the income from capital until a certain age, at which time the beneficiary is to take
         the capital
      • trusts which settle property on a spouse for life with the remainder to children, if and when they attain a
         particular age;
      • trusts which provide for instalment payments
      • discretionary trusts

Variation of Trusts
A trust can be anything you want it to be. Since it is important to tailor the trust, it is prudent to retain the power to vary
the trust in the future. You can provide a formula that allows for a variation of those terms, however, should keep in mind
the tax consequences that may result from variation.

Even though a settlor may forget to create powers of amendment for variation, the Trusts Act of the provinces allow for
variations through a court application, but these costs are expensive.

Under the Variation of Trust Act: (page 137), the Court has the power to vary the trust and stipulates when a variation can

    Finnel v. Schumacher Estates pg 135 – (Variation)
     • Ratio: For a variation to occur, the following conditions must be met:
           o (1) Does it keep alive the basic intention of the testator
                         Does the variation keep alive the basic goals of the testator?

            o   (2) is there a benefit to be obtained on behalf of infants and of all person who are or may become
                interested under the trusts of the will?
                         Is it going to benefit the trust overall and benefit each one? If harm someone, would be

            o   (3) is the benefit to be 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 risk and the
                proposal made, would be likely to accept?
                         Would a prudent adult accept it?

     • Facts: In a will, the testator left property etc to his grandson which was to be distributed 21 years after his death.
       Here, trying to minimize the taxes. The problem is with the tax consequences of mining properties and the
       income generated from those assets. For purposes of trusts, mining income is capital but for tax purposes, it is
       income. The other issue is that current tax law states that there is a deemed disposition in trust property every 21
       years. As a result, will have capital gains every 21 years. The trustees, in principle, have agreed with the CRA
       in a proposal, but to vary the trust, there was a risk that some of the unborn could end up with nothing
       after the deal. The younger unidentified individuals would end up with less in the future. It may be good for
       CRA and everyone currently but at the cost of the individuals.
     • Court held: if were to advice the individuals, would tell them not to take that deal. Would a prudent person take
       that deal? Court refused to approve the variation. Not the only formula available. Future individuals could be
       left with nothing.
     • Point: variation powers exist and can bring an application to the court. And if you do create the variation powers,
       need to consider the factors that should be taken.

The Beneficiaries Obligation viz the Trustee
The obligations are for the benefit of the trustee and which in turn assist the beneficiary. (i.e. compensation,
indemnification, accounting)

   • If the trust agreement lays out the details of the compensation, trustee can pre-take the compensation, pay herself
      from time to time as the work is ongoing. The amounts that a trustee can take to compensate themselves have to
      be accurate and take no more than entitled to. Having the compensation details in the trust agreement is a better
   • If the trust agreement is silent to details of compensation, s.61 of the Trustee Act (pg.1020) provides for
      payments (applies to trustees, executors). The Act allows for a “fair and reasonable allowance”. The
      trustee/executor can apply to court which would fix compensation but prior to applying to court, the disadvantage
      is that it is costly. Until recently, a trustee could not pre-take compensation unless court ordered it. But now it is
      routine to allow pre-taking (Pac assumes it is true).
   • Compensation is detailed by passing accounts where an accountant etc certifies the estate and will by preparing
      the amount of assets collected, valuing them, assets distributed, income earned during the course of the estate,
      and claimed compensation by the trustee/administrator. Go to court and discuss if estate should be passed, and if
      yes, then compensation is set.
   • Compensation is set via a formula as to what the reasonable amount is. This is just a rule of thumb.
   • Laing Estate v. Laing Estate – pg 1021
          o Judge reduced the passing account by 75K b/c executor did not keep proper records, however the court
               in this case re-instated the tariff based amount

            o       what is fair and reasonable under the circumstances? Should consider the (1) magnitude of the
                trust (2) the care and responsibility springing therefrom; (2) the time occupied in performing its
                duties (4) the skill and ability displayed; (5) the success which has attended its administration. (Re
                Toronto General Trusts Corp. and Central Ontario Railway) as well as the judge should consider the
                whether an extra allowance should be made for management, based on special circumstances. (Re
                Jeffery Estate).
            o    Court will want to examine all the circumstances and if the tariff represents the fair amount

    • Trustee enters into a personal contractual obligation and if a tort occurs, trustee would be liable as if she is acting
       on her own behalf. A trustee can indemnify themselves out of the trust fund to pay for the expenses incurred,
       rather than paying out of your own funds.
    • Section 25 AB Trustee Act (pg 1028). Ontario had a similar provision but is repealed, however s.23.1(1)
       provides that a trustee may recover expenses properly incurred in carrying out the trust fund or may pay such
       expenses directly from the fund.
    • However, if the expenses occur in breach of trust, cannot recoup the amount.
                Vermont Loan v. Immes (SK Case): Trust wants to borrow $ from the bank and makes a deal with the
                bank where it would pay the bank from own loan when the mortgagor paid the trust. So if trust did not
                get paid, won’t have to pay the bank. Main trust asset is the land owned. Mortgagors stop paying, but
                trustee felt it was his duty to pay the bank from the trust account. Court held that the trustee was not
                allowed to indemnify himself.
                Thomson v. Herman: Herman did not own interest in land but the name of property was in his name,
                but there was a fall out. Herman does not allow others to participate and does what he wants. Have
                issues with engineers etc where the construction goes bad. He put ½ million of his own $ into the
                project, and paid himself from the trust. Sued by others, and held that he was not entitled to indemnify
                himself b/c failed to hold to standard of care.
    • Can indemnify yourself if it flows from a reasonable duty, no other breach, and expenses are reasonably
    • Trustees have no right of indemnity from the beneficiaries, except in the following cases:
           o If the trustees undertook the trust at the request of the beneficiaries;
           o If the beneficiary is also the creator of the trust; or
           o If the beneficiaries are sui juris and together absolutely entitled to the trust property (signed on in the

If the property of the trust is depleted where there isn’t enough to pay the trustee, the trustee can request for accounting.
       • Hardoon v. Belillios (143): Company A decides to purchase shares in Hong Kong bank (unlimited liability
          shares, where you get dividends from income earned, and if company goes bad, hook for the losses) for the
          plaintiff A for the Benefit of Co A. Co A sells its beneficial interest to defendant. Bank was not good
          investment, and all money is lost and there is a cash call. Plaintiffs is the owner (Trustee) and is on the hook, but
          he claims he doesn’t get a benefit. There is nothing in the trust he can take to indemnify himself so he wants to
          go after the beneficiary b/c you are the real owners, and you should pay the shortfall. Court: real owner is the
          defendant and should be out of the pocket. If the trustee would have done something in breach of trust, then ti
          would have been different. Point: beneficiary could be on the hook

     • When factors would the beneficiaries be on the hook for?
         o They have Ability to collapse the trust,
         o Here, the kids could not exercise b/c not of sound age, etc. cannot make choices
         o Cannot go after an accountant defendant that is not of sound age.
         o So if take a trust for the benefit of the kids, cannot go after kids
         o Suppose one is sui juris and other is not, can you go after one and not the other?
                     If have joint bens, cannot go after adult, but equity would allow you to go after one if there are 2
                     trusts; if adult beneficiary has asked you to be trustee, then can go after accounting; or spelled it
                     out in the trust agreement and trustee takes on that role and beneficiary accepts that property then
                     can go after that beneficiary, or if settlor asks you to be trustee and have indemnification.

     • 1903 case: Entrepreneurs wanted to set up a dinner club and set up in form of a trust. One would acquire a
       membership. Trustee would make money, was a form of business, and when biz went under, trustee went after
       the members. Court: members thought they were joining a club, cannot allow trustee to come after them
       for accounting. Similar to health clubs – where we pay memberships


The basic duty of loyalty and good faith
Fiduciary duty – where have a duty of loyalty to the beneficiaries: the obligation to perform duties personally, the duty to
invest the trust assets, the obligation to act impartially, the duty to account and duty to provide information.

        Fiduciary duty: malfeasance, motivation is concern

The duty to carry out trusts and to use powers for proper purposes

Initial Duties
     • Upon appointment, trustees must (a) ascertain the terms of the trust; (b) acquaint themselves with the state of the
       trust property; (c) invest the trust property in accordance with the provisions of the trust instrument or statute; (d)
       ensure that the trust property is in proper custody; and (e) if the appointment is of a replacement trustees, the new
       trustee must take all reasonable steps to ensure that there were no prior breaches of trust.
     • In short, trustees are to collect the assets for the trust, ensure their safety and then preserve and enhance their
       value. Failure to do so amounts as breach of trust.
           o Bentley v. Canada Trust Co., trustee was held to have breached its duty by failing to safeguard the trust
               property adequately. In this case the plaintiff’s wife forged a signature in letters directing the trustee to
               redeem shares under the plan, and the court held that the trustee could have asked to meet the plaintiff
               personally and required to have signed a signature card or made inquiries. Convenience and reduced
               expensed could not be justified.
           o Froese v. Montreal: duty to safeguard the trust property encompasses a non-contractual CML duty to
               warn beneficiaries of any threats to the trust (i.e. custodial trustee should have warned plan members that
               the employer failed to make contributions under the pension plan funds).

Trustees must act jointly
     • Trustees of private trust must act jointly – their decisions must be unanimous – and exists for every trustee,
         irrelevant for the purposes of determining how the trustees are to make decisions and for what.

Seeking Courts Advice
     • S.60 of the Trustee Act allows for trustees to apply for discretion on the exercise of their powers if there is a
        deadlock amongst the trustees. Note that courts are reluctant to interfere with the exercise of discretion by the
        trustees, so will advise whether power or duty must be exercised.
     • Under s.60, if the trustee makes full disclosure to court and follows their advice, the trustee cannot be sued.
        However, Courts don’t like it when trustees use this provision to insulate themselves.
     • If have deadlock, courts don’t like making choices of discretions. In Fales, where have dispute, should come to
        court, where will break the deadlock.
     • Re: Wright
       - Facts: 1 Trustee felt it was the best time to sell the shares, whereas everyone else, including the beneficiaries,
            felt they should wait for a better offer. The 1 Trustee sought the court’s advise.
       - Court: Under s.60, if the trustee makes full disclosure to court and follows their advice, the trustee cannot be
            sued, but the responsibility is theirs, and cannot be shifted upon the Court. The court will not give advice
            on when to sell and when not to. The court’s advice is restricted to legal matters or legal difficulties arise in
            the discharge of duties of executors, not WRT matters concerning which executor’s/trustee’s judgment and
            discretion must govern.

The duty of care and standard of care
Standard of care required of a trustee in administering a trust is that which a person of ordinary prudence would use in
managing his affairs. (Fales v. Canadian Permanent Trust Co). The standard of care is the same, irrespective whether the
trustee is professional or non-professional. The standard of care concerns with misfeasance, poor performance while the
fiduciary duty is concerned with malfeasance, motivation. The standard of performance varies with the discretion of their

performance. Sometimes trustee has clear choice and other times give them the authority but does not require it. Issue
depends, whether they are exercising straight duty or having a discretion.

In a straight duty, the trustee is strictly liable if he doesn’t perform his duty correctly. For example, In Diplock case, the
settlor wanted to give his property to charity where he, in his will, provided that the property would be divided to
charitable or benevolent organizations as trustee sees fits. Concept of charities in trusts is a limited one and certain forms
of trusts can be upheld. Benevolent is broader i.e. could have been for cancer or for tuxedos for law ball. End result:
courts would consider this to be invalid power b/c cannot be benevolent and charitable. But by time the trustee realized
the difference, he had already distributed the money, and the trustee was held liable for all the $ he distributed. Had a
duty to make distribution but he exercised his made it wrongly, error arose from the powers of discretion he made.

National Trustee Co. v. Australasia Ltd. v. General Finance Co. of Australasia Ltd.
     • Facts: Trustee goes to lawyer for advice, and the trustee follows advice of the lawyer, but lawyer makes mistake.
        Trustee is liable for breach of trust. Why hold trustee and not beneficiary, even though he followed lawyer?
        Trustee would have cause of action against the lawyer. Trustee would sue the lawyer and failure to sue the
        lawyer would be a breach of trust as well. Problem is that if lawyer is not fully insured or not enough $, trustee
        could be liable.
     •     Point: if have a duty to perform, do it properly

Most issues occur with the exercise of discretion. Have to exercise degree of care as prudent and reasonable person
would exercise in his own business.

Duty to Convert:
     • Trustees often have a duty to convert. Trustees should not be hanging on to speculative or insecure investments
        and would have to sell those and invest something that is stable.
     • Duty of conversion:
           o It would be implied in the case of the will for all personal property.
           o No implied duty to convert land
           o Some wills have express duty to convert my property and trustee would have to do so.
           o Inter vivos trust – no duty to convert unless expressed
           o Sometimes have a duty to convert, but not the best time b/c of market conditions, so well documented
               agreement would have powers of postponement where can wait until the appropriate market

Fales v. Canada Permanent Trust
     • Facts: Mr. W owned shares in Boyles Bros Inc and when he died he left the company in trust with his wife and
         Canada Perm Trust as trustees, and the beneficiaries are his wife and children. Wife was inexperienced with the
         financial affairs. (Note: can be beneficiary and trustee so long as not sole). When husband died, Inspiration Ltd
         came along and wanted to take over Boyle Bros and would do a share exchange where IL shares would be issued
         for BB shares? BB was interested b/c IL shares would be traded in the stock market. IL would transfer preferred
         shares and CMN shares to BB and payment of cash upfront. Trustees agreed to it Pemberton Securities (broker)
         agreed to underwrite the value of the shares (insuring the value of the shares would be at a minimum value) but it
         was refused. Eventually trustees decided to go ahead with the deal and things went bad, IL shares did not go to
         stock market. Internal memo of Canada Perm. Stated that employee of Canada Perm wanted to sell but no one
         listened. CPT was approached to sell shares and called Ms. W but did not provide her with full advice and she
         said no each time or did not respond because not all the facts were given. Shares just sat there until stops paying
         dividends on the note. Ms. W calls CPT to sell shares, but they said that cannot sell shares but advise was
         wrong. Eventually IL shares were worth nothing. Beneficiaries were not happy so sued CPT.
     • Trustees are jointly and severally liable for breach of trust and plaintiffs can sue whichever trustee you want.
         CPT adds Ms. W has co-defendant (contractual agreement).
     • Claim 1: trustees did not have authority to deal with the trust and whether or not they had powers to deal with the
         share exchange depends on the trust doctrine: Did not succeed
     • Claim 2: even if had authority, it was an imprudent deal and should not have done the deal in the first place

     • Trustees often have a duty to convert. Trustees should not be hanging on to speculative or insecure investments
       and would have to sell those and invest something that is stable.
     • Duty of conversion:
           o It would be implied in the case of the will for all personal property.
           o No implied duty to convert land
           o Some wills have express duty to convert my property and trustee would have to do so.
           o Inter vivos trust – no duty to convert unless expressed
           o Sometimes have a duty to convert, but not the best time b/c of market conditions, so well documented
               agreement would have powers of postponement where can wait until the appropriate market
     • In this case, the trustees were given both duty to convert and allowed to hang on to shares as appropriate
       investment. The 2 clauses seemed contradictory, so if had duty to convert, had to get rid of BB shares, but also
       had duty to hold on to shares, so court interpreted the clauses as if trustee had duty to convert and powers to deal
       with another company to facilitate the conversion and then sell Inspiration shares when conditions get better.
       Court found that the trust document allowed for this deal. Court: making of the deal was not a breach, b/c
       was not imprudent.

     • Claim 3: even if deal was appropriate at time it was made, it was a breach of trust to do nothing when IL was in
       trouble. This claim was successful and others were not.
     • Test: Standard of care required of a trustee in administering a trust is that which a person of ordinary
       prudence would use in managing his affairs. Would ordinary prudent person have given the same
       attention/SOC to his own property? If a trustee is take up those obligations, have to live up to those standards.
       The standard may be relaxed or modified up to a point by the terms of the will. However wide the discretionary
       powers contain in the will, a trustee’s primary duty is preservation of the trust assets, and the enlargement of
       recognized powers does not relieve him of the duty of using ordinary skill and prudence, nor from the application
       of common sense.
     • Note: these rules developed when it was simple times, simple trusts
     • Handling own affairs: is the standard lower or higher? It is higher b/c equity assumes we would act in our self-
       interest and we would be selfish and exercise greater caution.
     • Here have breach of trust b/c prudent person won’t act the way he did.
     • The trust officers set idly by and allowed the shares progressively to decline in worth until they became
       valueless, even though Canada Permanent had knowledge that the shares are speculative.

Nichols v. Central Guarantee Trust Co.
     • Elderly woman needs nursing care and is the income beneficiary under the will. She will receive income and
        capital would be distributed to kids. The trustee is given power of encroachment to take some of the capital on
        top of the income. Trustee is not obliged to use it, but sometimes they must.
     • Her son arranged for nursing care and trustee wanted evidence that she needed this care. The son obtained a self-
        serving letter from the nursing home and doctors that the mother required the necessary care. The Trustees,
        based on the letter, paid the amount, but eventually funds became depleted. The trustees were sued by other
        children for breach of trust b/c reasonable person who is prudent would not have made that payment and would
        not have relied on that letter.
     •      Once it has been established that the trustee has breached the standard of care, the onus shifts to
        trustee to establish that the decision was correct. This is so because simply showing that person failed as
        imprudent person, does not mean it is necessarily a breach of trust, but the act also has to show loss.
        Plaintiff needs to show that the prudent person would have done better, and once established, onus shifts
        to the trustee, that there was no loss, etc. I.e. could have defended themselves by lawsuit that she didn’t
        need the medical care.
     • (Note in breach of fiduciary duty, don’t have to show loss).
     • The decision should have never been made. Power of encroachment was not exercised properly because the
        trustee should have taken the precautionary measures to ensure that the mother did need that care.

        In CPT case and Nicholson, have professional trustees that have expertise. Should they be held to higher standard
        in making those decisions?
             o Will have same standard of care.
             o Dickinsons uses s.35 ON that allows for forgiveness for breach of trust. But need to
                         Act honestly, reasonably and fairly to be excused
                         But how can you excuse someoebidy for failure to live up to the performance? Provision was not
                         designed for forgivness of care. How did Dickinson get around it? He defines reasonableness as
                         subjective standard, could she have acted reasonably knowing what she knew? Discretion to
                         excuse, can look at what she knows…
             o He doubts this can happen again b/c of amendments – 35(2): ss (1) does not apply…
                         Poiwer to forgive cannot be used where loss is caused by investment decision. Issue is whether it
                         is an investment decision? He thinks it is.
Duties of the Trustee
Ordinary prudent person – as if managing his own affairs, rather than managing affairs of others to signal the higher level
of performance. Just because have not lived up to that level, does not mean that it is actionable. If the quality is poor,
mistake etc, the burden shifts to the trustee.
Fales case:
    • Claim 1: trustees did not have authority to deal with the trust and whether or not they had powers to deal with the
    share exchange depends on the trust doctrine
    • When looking at standard of care, looking at the powers of the discretion they have.
    • The clauses in the will, whether there was a duty of conversion. In both inter vivos and testamentary trusts, have
    a duty to convert. And when there is a duty to convert, it is a presumption that the trustee would have a duty to
    • In the Fales case, there was a clause stipulating conversion.
    • Trustees often have a duty to convert. Trustees should not be hanging on to speculative or insecure investments
    and would have to sell those and invest something that is stable.

Duty of conversion:
   • In this case, the trustees were given both duty to convert and allowed to hang on to shares as appropriate
   investment. It said that the trustees could trade and hold shares the same way they can authorize as trust investments.
   2 clauses seemed contradictory. First said to hold and second said to share. Court: wills often give powers to
   postpone. This is a temporary authorization to delay the conversion, and is given when market conditions are bad.
   Court interpreted the clauses as if trustee had duty to convert and WRT to 2nd clause was a power of postponement
   which was a means to an end. Ultimate goal is to convert BB shares to covnert something that would be meaningful,
   but those shares are of a private held company so one way would be to swap the shares for IL shares, with the
   assumption that they could get rid of those IL shares in the future. That been so, they had the powers to convert and
   postpone. No breach of trust.
   • Claim 2: Initial swap was a bad one, even if had authorization to swap, it was a bad deal. No reasonable person
   would have done that. There will be a deferment to the trustee, so it is tough to make this sort of a claim. There is no
   suggestion of any kickbacks, insider moves, favoritism, etc. Court was not prepared to find a breach of trust.
   • Claim succeeds that no prudent person would have sat back and did nothing. Someone at CPT recognized the
   issue. This performance was dismal and fell below the standard.
   • CPT wanted the wife to share some of the responsibility.
   • There is no difference standards b/w the professional and non-professional trustees. Equity was reluctant in doing
   • However, wife does get forgiveness for her breach of trust where it looks at s.35 of trustee Act to give court the
   discretion to forgive the trustee (the wife)
            o Trustee must act honestly
            o Must act reasonably
            o Trustee ought fairly to be excused
   • The nature of the breach is circular, how a reasonable person acted. How to make a determination that person
   acted reasonably.
   • Dickson took the subjective approach. She only had a few weeks of training and did as well as she could have

    • Issue with this is whether the SOC changes? And it is discretionary. Rather than having a rule, have a discretion
    on the facts of the case.

Section 35(2): Passed after this case. See page 198 subsection 1 does not apply to loss applying from trust
property…takes power away from court for breaches.

Other ways to remove potential liabilities of trustees
Steps to reduce their exposure
    - create limited liabilities in the trust document (exculpatory clauses)
    - beneficiaries have power to sue, make the trustee the beneficiary?
    - To stop a beneficiary from suing, when beneficiary asks them to do something that is a breach. Get authorization
        ahead of time when ben is sui juris.
    - Make sure beneficary obtains legal advice
    - Can protect trustee if pre-plan everything.

create limited liabilities in the trust document (exculpatory clauses)
Poche v. Pihera
    - See clause
    - Leave her alone in many ways. She was incompetent, grossly negligent.
    - Essence of a trust is a legally enforceable obligation. Cannot exculpate gross negligence.
    - English Court of Appeal has gone the opposite where they have exonerated professional trustees when they did

Can vary the standard of care, but there would be a line you would cross. If provided a protection for the trustee that goes
to far, courts may be relunctant. Can, however, in the trust agreement, can vary the powers and exculpatory of
professionals and non-professionals.

Trustees are jointly and severally liable. Don’t have to sue the other trustee, but the trustee can sue the other for right of
contribution from the other trustee. Solvency of the nominate co-trustee might be an issue b/c beneficiaries would be
liable for that.

3 situations where perfect contribution wouldn’t exist (equal share of loss) is via a right of indemnity. Contribute your
share and indemnify for my loss. Indemnification would exist where:
     - co-trustee acts fraudently and other does not
     - co-trustee is a lawyer and co-trustee’s breach of trust involves on professional advice (this is relying on
         professional trustee)
     - where the co-trustee seeking indemnification is also a beneficiary of the trust.

Duty to protect property:. Need to identify it and exercise control. If have actions available to you against 3rd parties if
they have caused loss to the trust property, have to bring action.

Have a duty to invest unless trust provides otherwise and same with inter vivos trusts. Many wills are coupled with
trusts. (In simple wills, collect debts and pay them off.)

Duty not to delegate: Generally, trustees may not delegate any of their powers or duties to other people because it is
based on the idea that trustees obtain an in personam obligation (taking of personal obligations). But because in today’s
world, would need assistance with certain areas and would require the trustee to bring people of expertise to take care of
the property.

As a result, delegation is permitted (a) if expressly authorized by statute or the trust instrument; (b) if the duties are not
required to be performed personally; (c) if it is clearly necessary there is no other practicable way for the trustee to
perform; and (d) if it is common business practice to delegate in the particular power or duty.

   The test would be if an ordinary prudent business person would delegate their own affairs. (If in the ordinary
course of affairs, it would be prudent for a person to delegate performance of certain duties, a trustee may delegate
those duties.

The trustee would be responsible for the actions of the delegate. A trustee may not delegate all of their duties because
it would be considered an abdication of responsibility. A trustee should ensure that the agent is able to perform their
duties and the trustee should exercise his judgment in selecting and determining the agent’s suitability where the trustee
has exercised care that a person of ordinary prudence would show (Fry v. Tapson). Trustee has a duty to monitor the
delegates and make sure they are doing their work properly and terminate them when they are not suitable, else they could
be in breach of supervision.
       Fry v. Tapson
        - trustee needed a mortgage appraisal and obtains an appraiser that the lawyer had recommended, without
             checking the agent out. The appraiser was incompetent, and since the trustee did not take prudent steps, the
             trustee was held liable.
        - A trustee should ensure that the agent is able to perform their duties and the trustee should exercise his
             judgment in selecting and determining the agent’s suitability where the trustee has exercised care that a
             person of ordinary prudence would show

If a trustee delegates properly and delegate causes losses, the trustee would not be liable for the losses, but the trustee has
an obligation to sue the delegate. If the agent is insolvent the trustee would not be liable and the beneficiaries lose.
However, if you are improperly and delegate is insolvent, you would be liable.

Some basic tasks cannot be delegated. Remember that discretionary trusts are those trusts where the amount is
discretionary, but the range of beneficiaries are determined. Trustee has discretion to administer the funds as necessary.
However, the trustee cannot delegate to someone the discretionary how much and who will receive the funds (this is a
matter of policy)
       Re Partanen
         - Trustee was given $ to establish scholarship for architects and engineers. He did not feel he was competent
            about the criteria etc,so he provided the money to the university to administer it. This was a breach of trust.
            He could have consulted and obtained information and determined appropriate recommendation, rather he just
            shelled the $.

Make sure you don’t delegate fundamental policy reasons.

Provisions in the Trustee Act WRT delegation and mirror the above. S.27(7) WRT investment delegation, where can
receive information from others but you make your own choices. 27(3) WRT mutual funds, any rule of law that prevents
delegation does not prevent in investing in mutual funds.

Duty to Account: is the need to explain as to the status of the trust. The Trustee Act allows the trustees to pass accounts
(i.e. liabilities, income, etc, etc). A trust agreement may provide for the mechanism of accounting, such frequency etc.
Even if it absent, the beneficiary can go to trustee in order to educate the beneficiary about the trust. The trustees have
reasonable time to respond to reasonable inquiries. Canadian Courts are sympathetic to beneficiaries that want
information. If records etc are not kept up, will see a breach of trust, but providing the remedies might be difficult
because the beneficiary has not lost anything. The trustee does not have to give reasons as to their decisions. It is a
question of degree whether enough information has been furnished to the beneficiary.

Note that in the article (Excerpts from Ontario Law Commission – 1984), the article stated that s.23(1) of the Trustee Act
stated that, absent a provision in the trust agreement, sets forth the procedure for trustees who wish to file their accounts
with the court. Further, trustees of testamentary trust may pass their accounts voluntarily or may be called upon to do so.
For inter vivos trusts, the trustee cannot be compelled to pass their accounts, unless, the trust agreements provides so must
either do it voluntarily as per s.23(1). If a beneficiary wishes to have the accounts passed, they must allege breach of trust
by the trustee in order to have the accounts brought before the court.

Duty to be impartial: This is the duty of the trustee to owe equal fiduciary duty to each beneficiary and act impartially to
all beneficiaries of the trust, particularly when at least one of the beneficiaries is an income earning trust and other
receives capital. Unless the trust agreement calls for otherwise, the trustee must be impartial.

Who pays for what (i.e. receipts): I.e. if spending money to collect rent, that money would be allocated ot the income side
of the equation. Suppose need to repair the building, it is to be allocated to the capital earning beneficiary.

WRT money coming in, general rule, it is to be treated in the form coming in. Suppose, dividend income.
However, in one case, shares held in corporation that owned gas stations. Decision made to sell the stations (not the
shares). For tax purposes, when money was distributed to the holders upon sale of the stations, it was done via dividends.
Capital holders disagreed, they wanted to be treated as capital. Court: it was paid in form of dividends, it was held to
be income. Form it came in was which should be held.

Re Smith (965):
    - Facts: Peter Smith inherited his father’s holdings of shares. Father directed son to pay ¼ of the annual income to
       mother. Peter Smith set up an inter vivos trust and the income would go to his mother for life and capital (shares)
       would come back to him (PS). Imperial paid dividends, and at that time, there were investments that would yield
       8-10% (Imperial’s rate was 2%). Mother asked trustees to invest in other investment and PS did not want to and
       mother sued the trustees. At that time there were investments that could have resulted in higher paying interest.
       The trustee asked PS what to do, but PS said not to sell those shares.
    - NB: When the trustee has a duty to convert/invest, the trustee needs to bear in mind the type of investment that
       would not be wasting, but income producing. Invariably there are investments that would increase the capital. A
       typical beneficiary would want something that would grow and be secure
    - Mother won the lawsuit, because the trustee manifested an interest for the up keeping of the capital. Trustee
       also allowed the settlor to decide what to do with the trust. The trustee chose to ignore the request of the
       life-income beneficiary and was partial towards the other beneficiary.
    - Court directed that a new trustee be appointed.
    - Shows that when that trust was setup, no one asked the right questions. Could have put a clause in there that
       shares would not be sold w/o the consent of PS. It was a typical trust agreement. Bad lawyering.
    - Trustee had the power to hang on to the shares, but power does not entail discretion, and discretion is to be

Whenever have duty to convert that arises from
  - all personal property
    -   no implied duty to convert land
    -   Some wills express duty to convert my property and trustee would have to do so.
    -   Inter vivos trust – no duty to convert unless expressed
    -   Sometimes have a duty to convert, but not the best time b/c of market conditions, so well documented agreement
        would have powers of postponement where can wait until the appropriate market conditions.

Powers of authorization: Look at language if it is mandatory or permissive. If it is permissive/authorizing, it is a power.
Where a pure power exists, it is up to the trustee to exercise it. Tempest case: Trustees had power to acquire land but
were not under a duty to do it, the power was discretionary. Where trustee has a power, they are obliged to consider its
use and appropriate its discretion. Page 197 case (Schipper v. Guaranty Trust Co. of Canada)
    - Facts: Wife of the testator is to receive income from the trust fund during her lifetime and will states that trustee
        has power to encroach where it is has “uncontrolled discretion” for the “general welfare, benefit, comfort and
        enjoyment” (authorization to trustee to use some of the capital to supplement the income). Upon her death, the
        capital of the trust would go to the son (HS). Wife wanted the trustees (wife, son and Guaranty) to use the powers
        of encroachment to provide her with more funds from the capital she needed it for her living. Note that opinion of
        the majority shall prevail so long as G is one of the majority. G refused because it was concerned with the unborn
        children and the amount of funds would be less. The son claimed that he was not going to have any children, and
        it was ok to give the mother the requested funds.
    - “uncontrolled discretion” clause was broad, and normally courts do not interfere where the trustee is acting bona
        fide. However, when construct the words of the will, the primary goal of this trust is to care for the wife and
         provide here with a reasonable income out of the trust fund including the capital, but the trustee (G) failed to
         exercise its discretionary powers because they made it a priority to preserve capital for contingent
         beneficiaries, by having too much concern for the unborn (too speculative) and taking no regard for the
         unanimous consent of the beneficiaries.
    -    Pacc believes that because Howard said that he wanted his mother to have the money, probably cleared the way
         for the judges.

Statutory Powers – Investment Decisions
Often powers are not bare powers and are coupled with a duty, i.e. where have to do a job, but have discretion or choice
on how to get the job done. Ex: investment powers Certain powers are granted under the Trustee Act which provides the
trustee to take certain actions. The trustee is held to the standard of care when the trustee uses his powers to make
investments for the trust property. The trustee is to consult the act and criteria set under the act.

      s.27(1): In investing trust property, a trustee must exercise the care, skill, diligence and judgment that a
    prudent investor would exercise in making investments.

        s.27(2): A trustee may invest trust property in any form of property in which a prudent investor might invest.

       s.27(5): Sets out the criteria that the trustee should consider. (pg 197) and should have an investment plan which
    will consider the economic conditions, etc.

        s.27(6) trustee must diversify to the extent that is appropriate to.

       s.28 (liability): a trustee is not liable for loss to the trust arising from investment of trust property if the conduct . . .
    conformed to a plan or strategy . . . , comprising reasonable assessments of risk and return, that a prudent investor
    could adopt under comparable circumstances.
        (1) need to show that have a plan/strategy for investment
        (2) has to comprise reasonable risks – that a prudent investor

There are 4 duties involved in investment decisions
   - (1) Invest in appropriate investments. In trust agreement can provide for narrow investments.
   - (2) trustee has to invest in an even handed way (i.e. capital and income beneficiary)
   - (3) Trustee has to act honestly and live by fiduciary obligation (i.e. Hodgkins v. Simms)
   - (4) have to meet appropriate SOC

Nature of powers: usually given to trustees, but can give certain expertise powers to other individuals. Trustee’s duties
comes from an undertaking of receiving trust property. Extent to control the expertise’s is non-fiduciary power.

    (1) Fiduciary must consider whether to exercise the power. In non, don’t have control.
    (2) Standard of performance is different: Fiduciary has to abide by the powers described. Exercise of the other has to
        be capricious (purely arbitrary, where not giving any consideration to the powers) or fraudulent (acting
        dishonestly). Liability is limited to those situations.
    (3) Power given to mere power holder will lapse, but if given to trustee, given to office. It is the executor of the
        trustee that assumes the role.

    When create powers in non-trustees, some powers have to be exercised. Can’t make that person use it, but trustee just
    can’t sit back and is entitled to step in to fill the void.

    Trustee Act: most of the provisions create powers, rather than duties. Sometimes, settlor forgets to create the duties
    that trustee has.

    S.67/68 are important sections – act is subject to the trust agreement (normally statues override, but not the trustee

                                                   Law of Tracing

General Example
   • S and T enter into K where T gives B $500/month. T stops paying to B. B is not privy to the K so has no rights.
   • S transfers property to T where T gives B $500/month. T stops paying to B. Now B has enforcement rights
      because B is considered a volunteer (someone who gives no value for the property received). Equity does not care
      about B in a K, but in a trust, B gets those powerful tools.

Beneficiary’s primary remedy is a personal one against the trustee for money judgment, but where trustees have a
property, the beneficiaries have a proprietary remedy and recover the property. If the trustee is insolvent or no longer has
the property, beneficiaries may have a right of action against the recipients of the trust property. The right of action
includes a right in personam and a right in rem (proprietary remedy).

Remedies Available
You cannot sue in personam in trust against an innocent volunteer, in spite of what Diplock states because that was an
estate case.

A breach of trust occurs whenever a trustee fails to fulfill his obligations with respect to administration of the trust or fails
to dispose properly of the trust property. In the event of a breach of trust, beneficiaries have both personal and
proprietary remedies available. The only restriction is that cannot double recover.

       In personam Remedies (personal remedies) involves an order for the payment of money in either
        • (a) Compensation (payment for loss caused) – to restore the plaintiff to the same position they would have
           been in had there been no wrong. Because of Canson, will not always get this remedy. However, beneficiary
           will get this remedy always. Plaintiff will select this remedy if: (a) the fiduciary caused a loss to the trust or
           failed to make a gain; or (b) if it is difficult to prove the amount of the profit, or whether and the extent to
           which it was caused by the breach of trust. If successful, the beneficiary can recover the loss with interest.
           This must not be confused with common law damages: the damage principles of foreseeability and remoteness
           do not apply in assessing compensation in breach of trust cases

        • (b) Accounting (payment of gain made). Plaintiff will select this remedy when the fiduciary has made a
          profit from the trust or from the fiduciary position; and if this remedy will give a greater recovery. If
          successful, the fiduciary must disgorge the profit made.

    These remedies are better than CML remedies but are only good against the defendant. These remedies are
    alternatives and the plaintiff has to select one or the either. Personal remedies are helpful when: (a) the trust
    property is no longer in the trustee’s possession or the value of the trust property is less than the amount of
    the beneficiaries’ claim.

           A proprietary remedy (in rem) is essentially the return of property and is good against the world; it affords
        the plaintiff the right to get the thing back, even if the defendant is insolvent. They include:
            • (a) Recovery in specie (judicial order for return of property, or personal recaption)
                      o In specie get the property. Not just a CT, could be a return of property to the person that it
                          belongs to.
                      o Recaption i.e. grab your bike if stolen
            • (b) Constructive trust
                      o Coupled with vesting order = seizure of property; or
                      o Ongoing trust obligation aka constructive trusteeship
            • (c)Equitable lien
                      o Order that property be held as security for in personam remedy of accounting
                      o Allows you to secure an in personam claim whether it is for accounting or compensation.
                          Problem w/ in personam cause of action, you are just a general creditor, but in this case you
                          obtain a lien on property that secures that in your in personam claim. I.e. if have breach, can be at
                          time of breach or at time of lawsuit. If you have a lien on that property, you can force the sale of
                          that property if they don’t pay you, and then you get the proceeds of the sale.

        Proprietary remedies will be sought if (a) the trustee retains the trust property; and/or (b) the trustee is insolvent
        or of limited means (in which case proprietary remedies may be the only remedy of real value).

        Proprietary remedies for breach of trust allow tracing. Generally, if a trustee misappropriates trust
        property, the beneficiary can trace the property and recover it, even if the property was transferred by
        the trustee to a third party (unless that third party was a bona fide purchaser for value without notice, in
        which case the equities are equal).

        In Rem advantages:
            • Bankruptcy context: will give you higher claim against most creditors.
            • Plaintiff can take advantage of increase in value of the property
            • Want specific property (i.e. have attachment to it)
            • Carry interest if the property is income-producing, from the date that the defendant acquired the property
              (whereas personal claims such as for an accounting, only carry interest if it is claimed, at the prejudgment
              interest rate, from the date the cause of action arose to the date of the order)
            • May be available when personal action is not
            • If you get it in rem remedy, take it

Tracing vs. Following
Tracing and following are processes that lead to remedies. Tracing is the following of property into the hands of those
that have received the property (normally from the trustee). Tracing involves the tracing of the proceeds the trustee
receives when he exchanges the trust property. i.e. Trustee sold shares in breach of trust for 5K and purchased shares of
another company can factually follow the money. Tracing allows you to trace property in its different incarnations.
Following the property is going after the actual item. Point: the remedy you get will differ and tracing and following are
processes that lead to remedies.

The two remedies available in consequence of a successful tracing in equity are: (a) the recovery of the property or its
product, in which case the defendant is effectively a constructive trustee of the property; or (b) a personal judgment
supported by an equitable lien (i.e. a charge). The beneficiary has the right to elect either to recover property or its
product, or have a lien upon it for its value.

Legal History
   • CML would allow real remedies in rare cases (conversion, replevin, detinue)
   • Following the property at COMMON LAW
           a. (1) Plaintiff needed a legal (as opposed to equitable) interest in the property traced
           b. (2) the property had to be WRONGFULLY in the hands of the another (this limited the claims)
           c. (3) the property had to be IDENTIFIABLE
           d. i.e. in Chase Manhattan, CML idea had idea that it had to be strictly identifiable.

Tracing at equity
1. Property traced must have been in the hands of a fiduciary before it was improperly transferred
2. The plaintiff must have an “equitable property interest”, and
3. The property traced must be identifiable as the trust property or proceeds of the trust property.

Non-Mixed Property
When the trustees take trust property and claim it for their own or convert it to their own use, but do not mix it with their
own property, the beneficiaries may trace and take either the original property if it still exists, or the proceeds of sale if it
does not.

    • If the proceeds of sale were used to buy other property, the beneficiaries may trace into that property (Re Hallett’s

    • Further, if the trustees transfer the property or its proceeds to a third party, the beneficiaries may still trace into the
      hands of the third party if she takes with notice (McTaggart v. Boffo) or if the transfer was by way of gift or for
      insufficient consideration, so that the defendant is a volunteer, innocent or otherwise (Re Diplock).

    • Tracing stops, however, if the third party is a bona fide purchaser of the legal estate for value and without notice
      (Dalton v. Dominion Trust). If the third party gave value but took with notice, the beneficiaries can still trace
      (MacLeod v. Canada Permanent Trust). If the third parties are innocent volunteers, the beneficiaries may only be
      entitled to a lien and not a constructive or resulting trust (Foskett v. McKeown).

Mixed Property – Claim against Trustee: Mixing other than in a Bank Account
If the claim is against the trustee and is in respect of funds mixed other than in a bank account, the beneficiary has two
options(Fossett v. McKeown):

    • (a) If the value of the property has decreased, he would want to trace into the fund and get an equitable lien
      over the whole fund (or any property purchased with it) to secure his personal claim.

               When a lien is claimed, the onus is on the trustee to prove what part of the mixed fund, if any, was his; the
        beneficiary is entitled to every part of the fund which the trustee cannot prove to be his own.

    • (b)If the value of the property has increased, he would want to adopt the trustee’s conduct and claim a
      proportionate share of the mixed fund as tenant in common with the trustee.

               The proportionate share claim is based on a constructive trust. This remedy is clearly justified since, if the
        beneficiary could only recoup the original property with interest, the trustee would retain the profit represented by
        the increase.

    However, if the trustee does not have a beneficial interest in the funds (e.g. where the trustee uses trust funds for an
    insurance policy in his own name, benefiting his wife), the beneficiaries can only have an equitable lien (Foskett v.

    If the property is fungibles (where $ has been taken to buy property that is divisible), can put a lien and court will
    determine the proportionate considerations and you will get that. In Jones v. De Merchant) court said cannot divide
    the coat, so will give entire coat to the wife..

Mixed Property – Claim against Trustee: Mixing in a Bank Account
In banking situations where trust money is deposited into a current account and mixed with the trustees money, three main
rules apply:

    Rule in Hallett’s Case: A trustee is deemed to have spent his own money before the trust money, i.e. he cannot claim
    that he squandered trust money and saved his own. This occurs when there are evidentiary problems in tracing money
    in accounts, equity will resolve those problems in the hands of the trustee.

    ⇒ The beneficiary generally has the right to elect either to recover the property or its product, or have a lien upon it
      for its value. However, if the trustee purchases an item with mixed monies, the beneficiary can no longer elect to
      take the property because it is no longer bought with purely trust money, but with a mixed fund. He is however,
      still entitled to a charge on the property purchased, for the amount of the trust money laid out in the purchase (Re

    ⇒ A beneficiary can’t claim the whole mixed fund, but only that part which can be attributed to the trust property
      (Re Hallett’s).

    Lowest Intermediate Balance Rule: A beneficiary is entitled only to take (or put a lien on) the lowest balance
    attained after the deposit of trust money (i.e. the intermediate balance between the date the mixing occurred and when
    the beneficiary made his claim). To hold otherwise (i.e. to hold that the beneficiary could claim the whole fund)
    would be unfair to the trustee’s creditors.

    ⇒ This rule does not apply: (a) when the trustee makes a payment back into the account with the intention of
      reimbursing the trust (Roscoe v. Winder) – if the account is a separate trust account, it is presumed that he
      intended to replenish the trust; or (b) when the money can be traced out of the account and then back into it,
      regardless of the trustee’s intention.

    ⇒ The Court of Appeal casts doubt on the lowest intermediate balance rule, since one claimant should not have
      an advantage over all others simply because of the timing of events (LSUC v. TD Bank).

    Rule in Re Oatway: If a trustee uses mixed monies to purchase a lasting asset, it is deemed to have been acquired for
    the trust. Trustee is presumed to act to preserve the trust property. If beneficiary likes the painting and the value of
    the painting has increased, he can take it b/c it is traceable from the proceeds of the trust account or put a lien on it. If
    there is a shortfall, will have in personam right.

    ⇒ If a trustee withdraws money from the account but retains enough in it to satisfy the trust, if the investments made
      by the trustee increase in value, the beneficiary is entitled to the trust money and the increase in value attributed to
      it (Re Oatway).

Mixed Property – Claim against Trustee: Mixing Two or More Trusts into a Single Fund
A trustee with more than one trust under his control cannot mix the trust funds, unless authorized by the trust instruments
or by statute. If the trustee does mix them when not authorized to do so, the beneficiaries may bring action against him
for any resulting loss.

    If the two trust funds are mixed in a single trust account and the beneficiaries cannot recover from the trustee because
    he is insolvent, they may trace into the common fund in proportion to their trust’s contribution to it (pro rata).

    The rule in Hallett’s case applies: A trustee is deemed to have spent his own money before the trust money, i.e. he
    cannot claim that he squandered trust money and saved his own.

    ⇒ The rule in Clayton’s case does not apply in trust situations: the rule holds that if the two trust funds are mixed in
      a single current account (i.e. a non-trust account), the “first in, first out” principle deems that the moneys first
      paid are the first withdrawn. The rule in Clayton’s case is a rule of banking, not trust law. In trust cases, equity
      demands the application of the rule in Hallett’s case: a trustee spends his own money before the trust money.

    ⇒ The rule in Clayton’s case does not apply between innocent claimants, even if their money is mixed in a current
      account. Like other fungibles, the balance remaining is divided according to proportionate share (pro rata)
      (LSUC v. TD Bank).

Mixed Property – Claim against Trustee: Mixing of Trustee’s Funds with the Funds of Two or More Trusts
If a trustee mixes his money with that of several trust funds, and subsequently he withdraws from the mingled fund (OSC
v. Greymac):

• (1) the rule in Hallett’s case applies such that the trustee is deemed to have spent his own money before the trust
      money; and

• (2) the beneficiaries share in proportion to their contributions (i.e. pro rata) both in: (a) the money withdrawn or its
      product (if it can be traced); and/or (b) whatever remains (unless they either expressly or impliedly agree to a
      division other than pro rata).
      ⇒ Prior to transfer each beneficiary has a property right in the fund in proportion to its contribution. This does not
        alter after transfer. All that occurs is that their respective entitlements, in the same proportions, are spread over
        several accounts.

      ⇒ Where a trustee mixes the money of two innocent beneficiaries, the relationship of the innocent beneficiaries to
        each other is that of equality, i.e. neither can claim priority over the other (Sinclair v. Brougham).

      ⇒ The rule in Clayton’s case (first in, first out) does not apply to competing claims of beneficiaries (or innocent

    LSUC v. TD Bank held that to apply the lowest intermediate balance rule and a pro rata distribution would throw all
    the loss on some to the benefit of others (merely because of timing). It applied a pari passu approach, which it
    deemed more equitable in the circumstances. The problem with this case is that while the result was fair, the rules of
    tracing were not adhered to.

If a trustee transfers trust property to a third party in breach of trust, the trustee is personally liable to the trust and may, if
he received value, hold the proceeds of the transfer in trust for the beneficiary. As far as the third party transferee is

If, however, third party no longer has the property, the Q arises whether he or she is personally liable. The tradition of
equity depends on wrongdoing. To bring a claim against a third party, that party has to have knowledge, that was aware
of the trust or ought to have been aware of the trust. There is no in personam action against innocent volunteer. If
the trust has the property, can trace it. If it is combined, can share in proportion of the asset, but cannot take the money,
and if there is shortfall, cannot sue the innocent volunteer, and if the asset is completely gone, can’t sue innocent volunteer
as well. The beneficiary cannot bring a claim in unjust enrichment because UE does not depend on wrongful acts, but that
one is enriched, one is deprived.

    If the third party transferee is a bona fide purchaser for value without notice, he is not liable to the trust. The
    beneficiary has no proprietary or personal remedy against him. A beneficiary’s only recourse is against the trustee for
    breach of trust; and the trustee holds the proceeds of the conveyance in trust for the beneficiary).

        A bona fide purchaser for value without notice (“equity’s little darling”) is someone who:
        • (1) has no knowledge that the receipt of the trust property will be in breach of trust.
            ⇒ Knowledge is what you have personal information about. You know the facts. Suppose if you knew that
                trustee had no claim, can’t be the bona fida purchaser.

        • (2) gives real value in exchange for the trust property (i.e. if the purchaser paid less than full consideration, the
              court’s suspicion that he knew of the trust will be aroused); and
            ⇒ Suppose there is a seal on a doc and you sign it, you are agreeing that you have received consideration for
                your promises. The seal is a formal way of recording transactions. Equity will require something concrete
                for a value in return. So need to get something real and exchange.

        • (3) is not caught by any of the notice concepts, i.e. is not:
              • (a) willfully blind (where he suspects the property: (i) is impressed with a trust but chooses not to
                     confirm; or (ii) could be impressed with a trust but willfully refrains from making inquiries that an
                     honest person would make);
                       • You subjectively have a suspicion that something is wrong and you chose not to remove that

               • (b) negligent (where a reasonable person would know the property: (i) is impressed with a trust and the
                     transfer is in breach of trust; or (ii) a could be impressed with a trust and would undertake reasonable
                     inquiries to find out);
                   •   objective evaluation. If you are negligent, you lose benefit of the status.

          • (c) caught by imputed notice, either: (i) of their agent (A principal is deemed to know everything the
                agent knows, even if the P does not know); or (ii) by statutory notice (e.g. if a trust interest is
                registered) [bills of sales acts, PPSA, SGA, etc that deals with exchange of goods and they have
                notice requirements]

          If the third party transferee is caught by any of the notice concepts, he is a wrongful receiver.

    ⇒ If the third party, being a bona fide purchaser, transfers the property to a volunteer, or to one who knew of the
      breach of trust, the beneficiaries cannot reach the property, because of the intermediate transfer to the bona
      fide purchaser. However, if the trustee receives the property or its product, the beneficiaries can trace it into
      the trustee’s hands.

If the third party transferee takes with notice or fraudulently, (i.e. if he is a knowing receiver) he is liable to the trust
as a constructive trustee (whether or not value is given) and the trust can trace the property (see also: p.10 – “knowing

⇒ To be in knowing receipt requires the third party receiver to acquire the trust property in his personal capacity (i.e.
  for his own benefit) rather than as agent (Air Canada v. M&L Travel).

⇒ The knowledge requirement is actual knowledge, recklessness, willful blindness, or negligence (Air Canada v.
  M&L Travel).

⇒ The basis of liability for knowing receipt stems from unjust enrichment.

If the third party transferee is an innocent volunteer, he is liable to the trust (although not as a constructive trustee).
The volunteer must restore the value of the property (i.e. an equitable lien) and he is also subject to the proprietary
tracing action (i.e. recovery in specie). An innocent volunteer must return the property because he paid no value, did
not change his position based on it, and suffered no detriment. Equity prefers the interest of the beneficiary to the
interest of the innocent volunteer. Moreover, the beneficiary can trace the property, subject to certain limitations.

    An innocent volunteer is someone who: (1) has no knowledge that he is receiving property in breach of trust; and
    (2) has paid no value, or inadequate value for the property.

    Where a volunteer contributes money to a mixed fund, he gets back what he puts in (Re Diplock’s Wills Trust).

    ⇒ Where the account has increased in value, the beneficiary and third party each take the amount of their initial
      contribution and the beneficiary takes the interest/profit.

    ⇒ Where the account has decreased, the beneficiary and third party share in proportion to initial contributions
      (pro rata).

    Where a volunteer contributes money to a mixed asset, the asset is sold and he gets back what he put in (Re
    Diplock’s Wills Trust). The beneficiary cannot get a constructive trust but can get an equitable lien to secure the
    forced sale of the item.

    ⇒ Where the item has retained its value, the beneficiary and third party will each be entitled to the proceeds of
      the sale in the amount of their respective contributions to the original purchase.

    ⇒ Where the item has increased in value, in addition to receiving the amount of their initial contribution, the
      beneficiary and third party share the profits in proportion to their initial contribution (pro rata).

    ⇒ Where the item has decreased in value, whatever proceeds are obtained from the sale will be distributed
      between the beneficiary and the third party in proportion to their initial contribution (pro rata).
            If the asset declines because the third party made a bad investment, it is unclear if the beneficiary can sue him.
            However, it would be pointless to allow that remedy and at the same time split the proceeds. In Diplock,
            personal liability of the innocent volunteer was found; but it was an estate case; it is unclear if these rules
            apply to trusts. The solution may be unjust enrichment: is the innocent volunteer unjustly enriched if there is
            no personal liability? (Paciocco).

Fossett v. McKeown (UK – HL)
   • Trustee holds money in trust. Instead of using the $ for promised purposes, he uses money for his own insurance
       policy. Prior to that, he had already purchased the property. Beneficiaries of the trust use want 2/5 of the relative
       amount of the value that was purchased.
   • UK courts tried to equate unjust enrichment with law of tracing. If use UE, does not fit well. Is there
       corresponding deprivation with the enrichment? Pls are out 20K and enrichment of 400K? (none, really). A
       relationship cannot support UE, but that does not matter because talking about tracing. Because policy was never
       cancelled, they would still have to pay it.
   • In a claim of unjust enrichment, plaintiff must show that the defendant has been enriched at the plaintiff’s
   • In a claim of right of action to property, the plaintiff must show that the defendant is in receipt of property
       which belongs beneficially to the plaintiff or its traceable proceeds, but does not need to show that the
       defendant has been enriched. (i.e. if defendant has paid full value, may still have to disgorge it)
   • However, a bona fide purchaser may defeat the plaintiff’s claim.
   • Plaintiffs received 400K b/c they can trace the money into the premium. However, not fully sorted.
   • This would, however, be available for beneficiary. The issue arises when you don’t have trust beneficiary.

British Columbia Teachers’ Credit Union v. Betterly
    • Facts: Employee stole money and used part of the money to purchase a house in the name of a woman he lived
       with (the defendant). She was unaware of the theft.
    • Court: employee was a constructive trustee for the plaintiff when he stole the money and the plaintiff could trace
       the money into the house. Plaintiff was entitled to a lien. It is always understood who has lost property has
       equitable claim because it is the right of claims. But P does not think so.
    •     one does not have to be in a fiduciary relationship

Bank Accounts
Problem 8 – pg 163
   • partners are jointly and severally liable in PS. A depositor and a bank have a debtor-creditor relationship. B/c
      partners are liable, he can be sued by P b/c P lent $ to D. Court had to decide when the $ was w/drawn and what $
      was w/drawn. If P w/drew 1st $, debt satisfy, but if last w/draw then debt satisfied. Court assumes that ppl would
      pay oldest debts – FIFO rule – where he took the first 1000. law suit failed on C’s rule. Law is trying to cut it
      back. Currently, law is confined to current bank accounts so does not apply to trust accounts
   • This was applied in the Diplock Case. Had competing claimants where If have 2 ppl, share the $, don’t use
      Clayton’s rule.

Problem 9 – pg 163
   • S has 2 breaches of trust – (Trust A and B) If, however, Clayton’s rule was applied, trust A would receive b/c of
      FIFO. However, won’t let trustee to get away with it b/c of Hallet’s rule that override Clayton’s rule.
   • But suppose amount w/drawn was 4500?
           o Rule of H – takes care of all the trustee’s contribution
           o Rule of C – beneficiary will not get anything b/c FIFO
           o That $ would be lost with respect to trust A.
           o In Diplock’s case, applied Clayton’s rule where one gets everything, and other gets nothing.
           o However, with respect to fungibles (shares), the court divided the share certificates and will not use FIFO.

Greymac pg 164
   • Apply Hallet’s rule with respect to money put in by Greymac. Of the 1.8 wasted, would include G’s money but
     still have shortfall.
   • High court used Diplocks case to resolve dispute b/w the beneficiaries – FIFO.
           o At least 1 million was Trust A’s account but then trust B would only have 200K. Court said this is unfair,
               and the only thing that distinguishes them is that one’s is stolen first – share it proportionately
           o Where have competition in money account – don’t use C’s rule
           o Diplock’s case was a rule of banking convenience
           o Don’t need that when have competition
           o So will get pro rate share of the 4.2 million
           o Works out 6.25:1 relative to contribution
           o Same for fungible or money

Law Society v. Td Bank
   • Facts: Money stolen from trust and transferred to his own account. He did not place the TD cheque into trust
     account, but in his own (was supposed to be for a real estate deal). The highest amount is the lowest intermediary
     balance that could be related ot the theft. Simple tracing rules would have said that TD gets all its $ back, and
     others share in the 66K. So COA divides the $ on a pro rate base. Only the coincidence in time distinguishes the
     pl’s $.If the tracing rule depends on factual tracing, then this case is wrong.
   • In cases of pro rata sharing b/w beneficiaries, the LIBR should not be applied, but the pari passu ex post
     facto approach should be applied. Take the claim or contribution of the individual beneficiary to the mixed fund
     as a percentage of the total contributions of all those with claims against the fund at the time of distribution, and
     multiplying that factor against the total assets available for distribution.

               Strangers to the Trust: Beneficiary’s rights viz third parties
To hold the stranger to a trust liable, that stranger incurs liability as a “constructive trustee” where the remedy is
considered more personal and not proprietary. The rules will differ depending which pigeon hole the stranger is placed in.

The strangers can include a (1) beneficiary [be a wrongful receiver and someone who aids and abets], (2) Innocent
Volunteer [if they still have the property, can hand over the property, but hard for them to make them personally liable],
(3) Bona Fide Purchaser for Value without Notice [no cause of action for this person b/c this person obtains higher
claim in equity], (4) Non-trustees performing the function of trustees (known as trustee de son tort), (5) Innocent
Agents, (6) Knowing Assisters (wrongful assisters or third party assisters), or (7) Knowing Receivers (knowing
receivers or third party receivers).

Because trust property can be found in the hands of the constructive trustee, there are two avenues of relief (1) stranger
might be held liable as a constructive trustee where the stranger is required to pay an appropriate amount of the money or
(2) if the stranger still retains the property (or its traceable proceeds), the court may impose a constructive trust where the
stranger is the true trustee and is required to hold the property on the beneficiary’s behalf.

A stranger may be held liable as a constructive trustee on three grounds (where third parties may be treated as trustees for
purposes of liability):(1) trustee de son tort; (2) knowing assistance in a breach of trust; and (3) knowing receipt of trust
property. (Categories # 4, 6 and 7)

Trustee de son tort
If someone assumes some or all the obligations of the trustee, he becomes a trustee on his own wrong. If someone has
control of the trust property or the means to acquire it, he as assumed the role of a trustee by administering the estate. It is
a person who knows that he is dealing with trust property and who receives, or later acquires, it with such knowledge.
The liability is not based on dishonesty, but on the fact that he has taken control of trust propery and purports to act for the
beneficiaries. As a result, will be liable in the same way as express trustees are liable (i.e. accountable for profits, liable
for compensation or loss).

   Note: time period does not run out, so can sue a trustee de son tort indefinitely? trustee de son tort is treated as an
express trustee.

For a person to be liable as a trustee de son tort, the person must be in a position to call for the property or at least have
control of the trust property so as to be in the position to dispose of it. (Re Barney)

        Air Canada
            ⇒ Facts: Airlines were to be deposited in the trust account in accordance to the agreement with AC but the
               travel agency did not do so. There were 2 directors (M & V). M was involved in the day to day
            ⇒ Court held that M & V were not de son tort b/c they didn’t have control of the trust. The corporation
               had control of the trust property (money that was to be held in trust for Air Canada)

        Re Barney
           ⇒ Facts: Widow was trustee of property and her 2 friends agreed that they would help her in checking the
               accounts. An arrangement was made with the bank that they won’t execute cheques w/o the other 2 sigs.
               Business ends up losing money.
           ⇒ Court held that the 2 friends were not de son tort because they did not have control and decision over
               on how to spend money or have title to the property. The court will not treat them as trustees for the
               purposes of liability.

          ⇒ Facts: Money was lent to a third party by the defendant. The guardian was an aunt and she consulted the
              older brother to lend money to the younger brother acquatance (the third party) from the younger
              brother’s estate. The older brother (defendant) lent the money to the 3P and eventually the 3P defaulted.
              The younger brother sues the older brother and the aunt’s estate (she died).

            ⇒ Court held that brother who made the loan was de son tort b/c he had sufficient control over the money
              and transacted the deal. He received trust money with notice, had possession of it and purported to act as
              trustee. Because he lent the money, he breached his trust duties.

Knowing Assisters (wrongful assisters or third party assisters)
This is like the like the aider and abetter of criminal law. The stranger in this case helps the trustee break the trust so
should bear responsibility as well. A knowing assister is a stranger to the trust who: (1) with knowledge (2) assists the
trustee (3) in the trustee’s dishonest and fraudulent breach of trust. A knowing assister will be liable to the beneficiaries
for losses sustained and/or profits made.

Four issues to consider (1) nature of the underlying relationship; (2) the nature of the relief (3) the nature of the stranger’s
knowledge and (4) the nature of the underlying breach.
            ⇒ (1) nature of the underlying relationship: liability may arise for participation in a breach of any fiduciary
                 duty, whether or not that duty arose in the context of an express trust (i.e. employee misappropriating a
                 company asset even though property is not held on trust for the company). Any type of equitable
                 relationship would be considered fiduciary even if its not fiduciary in nature.

            ⇒ (2) the nature of the relief: A stranger who is held liable for knowing assistance is subject to a personal
              obligation to pay money which is mostly quantified by reference to a loss that the plaintiff suffered. If
              defendant obtained a benefit, the plaintiff has the option of demanding disgorgement, rather than

            ⇒ (3) the nature of the stranger’s knowledge: What knowledge did the defendant have? The Supreme Court
              has adopted the subjective approach.

            ⇒ (4) the nature of the underlying breach: to what fact must that knowledge pertain? Plaintiff must prove
              that the defendant acted with the knowledge that the trustees were engaged in a “fraudulent and dishonest
              gain” such that the taking of a knowingly wrongful risk resulting in prejudice to the beneficiary is
              sufficient to ground personal liability (Air Canada)

        The knowledge requirement can be satisfied by subjective constructive notice:
           ⇒ Wilful Blindness: wilfully shutting one’s eyes to the trustee’s dishonesty;
           ⇒ Failure to make an obvious inquiry: wilfully/recklessly failing to make inquiries that an honest and
               reasonable person would make. An honest and reasonable person would appreciate that the
                 property may well be impressed, and the recipient, seeing that, consciously chooses not to
                 inquire in order to be able to deny knowledge.
            Undermines ability to claim bona fida purchaser for value without notice status
            Undermines ability to claim to be “innocent volunteer”
            Sufficient level of notice to brand someone either wrongful receiver or wrongful assister.

        The knowledge requirement is not satisfied by objective constructive notice:
           ⇒ Negligence: if a reasonable person would know the property is impressed with a trust and the transfer is
               in breach of trust.
           ⇒ Negligent failure to inquire: if a reasonable person would know the property could be impressed
                 with a trust and would undertake reasonable inquiries to find out.
            ⇒ Imputed Notice: a principal is deemed to have knowledge acquired by his agents in the course of their
            ⇒ Statutory Notice: where notice is deemed by statute (e.g. if a trust interest is registered)
            Undermines ability to claim bona fida purchaser for value without notice status
            Undermines ability to claim to be “innocent volunteer”
            Sufficient level of notice to brand someone a wrongful receiver but not a wrongful assister.

        Quineco and Acosta

    ⇒ Facts: guy has problem with toilet and he didn’t have money to pay the repair person. He had lottery
      ticker and claimed that he will share it. He won. Got his friend to hide the $. Friend had never provided
      consideration. Friend was not a wrongful receiver, held it administratively. But the case was involved in
      assisting in the breach of the trust, he knew the facts so was personally liable with the trustee (jointly
      and severally)

Air Canada v. M & L Travel Ltd
    ⇒ M and V carry on business as a corporation and corporation entered into agreement with A/C, in
       substance, that receive the proceeds in payments of the tickets less commissions to hold it in trust and
       remit it every 15 days. So after taking commissions, to put the remainder in the trust account, but they
       were putting in the general account. V had borrowed $ and bank secured the $ from the corporation’s
       account. There is a dispute b/w the 2 and told bank to freeze account. A/C’s cheque bounced and banks
       w/draws the money. Can M and V be held personally liable? Can A/C go after them
    ⇒ Breach of trust occurred b/c corporation was to place the $ in the trust account, however, are those 2
    ⇒ The directors are not strangers in trust of “knowing receivers” because the stranger in trust is to
       receive trust property in his personal capacity, rather than as an agent of the trustees. The directors of the
       corporation did not personally control the trust funds and did not receive any benefit from it. Money was
       paid into the corporation and owned that money
    ⇒ “Knowledge assistance” would be, in this case, the basis to hold the directors personally liable as
       constructive trustees on the basis that (1) nature of the breach of trust and (2) degree of knowledge
       required to the stranger.
                (1) nature of the breach of trust
                    • looks at mental state of the trustee of who the assisters is acting
                    • must be held fraudulent where the conscience should be touched
                    • The taking of a knowingly wrongful risk resulting in prejudice to the beneficiary is
                        sufficient to ground personal liability.
                (2) degree of knowledge required to the stranger (mental requirement – mens rea)
                    • actual knowledge, recklessness or wilful blindness.
                    • If willfully blind, can be found liable as a constructive trustee. In wilful blindness, it is
                        obvious to the recipient that the property is impressed with a trust, but the recipient
                        chooses to shut her eyes to the obvious in order to be able to deny knowledge.
                    • The stranger receiving a benefit as a result of the breach of trust may a ground of
                        inference that the stranger knew about the breach, but does not mean it is a condition to
                        meet a breach of trust by a stranger.
                    • According to case, constructive knowledge is insufficient to bind the stranger’s
                        conscience to give rise to personal liability.
    ⇒ Negligence is the objective standard: where the recipient has knowledge of circumstances that would
       indicate to an honest and reasonable person that the property is impressed with a trust and should not be
    ⇒ Corporation knew Air Canada monies were held in trust and was not for general use, and in doing so, the
       corporation took a risk to the prejudice of the rights of Air Canada, which risk was known to be one
       which there was no right to take. Corporation did not place the money in trust when it knew it had
       entered into a contract with AC. As a result, the breach of trust by the corporation was dishonest and
    ⇒ The directors assisted or participated in the breach of trust because dealt with the funds, stopping
       payments, opening an account, withdrawing, transferring funds, etc, which culminated into Air Canada
       not being paid and seizure of the funds by the bank. As a result, the directors are personally liable for the
       breach of trust as constructive trustees.
    ⇒ Knowledge: directors are of a closely held corporation and will have knowledge of all the actions of the
       corporate trustee. V, even though, not involved in the day to day operations knew of the contract between
       M and Air Canada and the trust funds. He also jeopardized the general account by securing the loan, and
       in doing so, bank took the money from the general account which has the trust money so V has assisted in
       the BOT. This constitutes actual knowledge of the breach of trust. He was wilfully blind (subjective)

                or reckless in his failure to recognize that there was a breach. V received a benefit because personal
                liability to the bank was extinguished.

Knowing Receivers
Would be more aggressive in holding these people responsible because they have been enriched. The liability is based on
UE (not want of dishonesty).

   Note: there may be limitation periods because held liable as a “constructive trustee” because a knowing receipt is not
treated as an express trustee.

A knowing receiver is a stranger who receives trust property (a) lawfully and not for his own benefit but then deals with
it in a manner inconsistent with the trust; or (b) for his own benefit and with knowledge that it was transferred to him in
breach of trust.

        Receipt Requirement: The stranger must receive or apply trust property for his own use and benefit, i.e. in his
        own personal capacity, rather than as an agent of the trustee (Citadel v. Llyods).
           ⇒ Banking Context: the recipient must have received the property for his own use and benefit. In paying or
               collecting money for a customer the bank acts only as agent; it sets up no title of its own. However, if the
               collecting bank uses the money to reduce or discharge the customer’s overdraft, it receives the money for
               its own benefit. Thus, a distinction is made between a bank receiving funds for its own benefit, in order to
               pay off a bank draft (“knowing receipt”), and a bank receiving and paying out trust funds merely as agent
               of the trustee (“knowing assistance”) (Citadel v. Llyods). Of the all the moon

        Knowledge Requirement: is satisfied by actual knowledge or subjective or objective constructive notice (Citadel
        v. Llyods). See above in knowledge assistance.

        Citadel Insurance
            ⇒ Facts: Citadel is an insurance underwriter and when it sells policy to the individual it purchases another
                insurance policy. Drive-On insures car warranties of for dealers so dealers send moneys to Drive On
                where $ is deposited. Drive On is a subsidiary of international warranty. When money is paid, Drive On
                is to take out commissions etc, and remit $ to Citadel where properties are held in trust and then passed on
                to Citadel. IW and DO operate at the same bank. Bank arrangement is that if IW is overdrafted, take $
                from DO to pay it off and v/v. DO gets in $ trouble, and calls bank to say that whatever is left, put it in
                IW’s $. Citadel allows late payments for a while and in July/August receives nothing. Was supposed to be
                trust $ but that money is paid to the IW at the end of each day. Citadel’s K is with DO but can’t sue DO
                b/c nothing leftover. So wants to go after IW but has nothing also. Citadel goes after bank. Money owed
                by IW is taken by the bank. Insurance Act has a provision that sets up trusts.
            ⇒ Issue: Was the bank a receiver of the trust property?
            ⇒ Need to meet (1) the receipt requirement and (2) knowledge requirement
                         (1) In order for a plaintiff to establish that the stranger met the receipt requirement, the liability on
                         the baisis of knowing receipt requires that strangers to the trust receive or apply trust property for
                         their own use and benefit.
                         (2) satisfied by actual knowledge or subjective or objective constructive notice
            ⇒ If bank is receiving deposited of trust money, bank is not considered a receiver, they are acting as an
                agent of the trustee, but where grab it, they would be doing it for their own benefit. The bank is enriched
                because when it withdrew the amount from the IW’s account, it was to set-off the amount owed IW to the
                bank. Hence, the bank received the trust funds for its own use to the detriment of Citadel where it was
                deprived. Knowing receipt is best characterized as resitutionary terms where one receives a benefit with a
                corresponding deprivation to another party.
            ⇒ With respect to knowledge requirement, a reasonable person would have inquired as to the possible
                misapplication of the funds in order to determine whether insurance premiums were being misapplied.
                By failing to do so, the bank had constructive knowledge of DO’s breach of trust.
            ⇒ As a result, bank’s enrichment was unjust and liable to Citadel as a constructive trustee.

    ⇒ NB: Tracing rules would not applied, is b/c money paid by DO is paid to IW, and then the $ is dispersed
      when there is a set-off claim. It doesn’t go into a specific account, it goes into a general account.

Bank could have been bona fide purchaser, where there was consideration for every claim, but here, not so
because had knowledge requirement
If stranger is a Bona fide Purchaser then there is no cause of action.
If person did not pay value, but not negligent, would be considered an innocent volunteer. Can trace the property
and take it back cannot sue in IP. Could be 3rd party receiver if took the property and based on knowledge.

                                         Beneficiaries liabilities to 3P
In general, a beneficiary is not directly liable to third parties. If a 3P Ks with the beneficiary, can’t sue the beneficiary
because K is to be with the trustee. The only exceptions arise if there is a deficiency in the trustee-beneficiary
relationship; that is:

(a) where a trustee’s powers are so narrow that he is effectively an agent of the beneficiary; for example, with a bare
    trust (where a trustee has title but all decisions are directed by the beneficiary, who is seen as “calling the shots”), the
    beneficiary can be liable to third parties because the trustee is practically void of powers and is in many respects
    merely an agent of the beneficiary; or

    ⇒ The trustee is not an agent of the beneficiary, as he does not derive authority from the beneficiary but from the
      trust itself (Trident Holdings v. Danand Investments). It is possible, however, for someone to be both a trustee
      and an agent at the same time. Where this occurs, the trustee is a trustee qua agent and the beneficiary is a
      beneficiary qua principal.

    ⇒ The mere fact that the beneficiaries may be entitled to terminate the trust under the principle in Saunders v.
      Vautier does not by itself convert the trustee into their agent (Re Brockbank). However, where a possibility of
      terminating the trust under Saunders v. Vautier is combined with the fact that the beneficiary is also in effect the
      settlor, the position is not so clear.

(b) where there is insufficient funds in the trust to indemnify a trustee, in which case a beneficiary may be called on to
    make the trustee whole again – while there is no direct liability of a beneficiary to a third party, a beneficiary may be
    indirectly liable by indemnification.

        Trident holdings Ltd. v. Danand Investments Ltd
            ⇒ Danand (trustee) was holder of the property and held it in trust for the investors. Its BOD could not make
                choices so was a bare trust. The recital identifies Danand has holding property as bare trustee/nominee.
            ⇒ Trustee was under the direction of the individuals and the trustee was the agent because they were telling
                the trustee what to do. As a result, trustee was contracting on their behalf, therefore allowed the plaintiff
                to sue the beneficiaries and the trustee.
            ⇒ Pg 173: where a business trust is set up, it is a Q of degree and Paccicco states to look at the nature of the
                transaction and if the beneficiaries give direction, then should be able to sue them. But case law looks at
                the nature of the transaction.
            ⇒ How could have they insulated themselves?
                         Could have given some trustees some tasks
                         Have a corporation set up
                         Could have setup a limited liability

                                                    Express Trusts
Express trusts are created intentionally by a settlor/testator that may be inter vivos or testamentary i.e. where the creator
expresses his intention (orally, by deed, or by will) that property be held by one or more persons for the benefit of another
or others. Where a trust is properly constituted, all of the beneficiary’s rights and obligations come into existence. In
order for a settlor to constitute a trust properly, the following 4 factors are necessary:

      • (1) Capacity: settlor/testator must have the capacity to create a trust, meaning that the settlor or trustee be of
        legal age, have sufficient mental capacity and have the property interest that will ultimately constitute the subject
        matter of the trust.
      • (2) Certainty of intention: settlor/testator must manifest an unequivocal intention to create a trust
      • (3) Certainty of (a) subject matter and (b) share: the subject property must be certain as must the share that
        each beneficiary is to receive.
      • (4) certainty of object and compliance with the beneficiary principle: the beneficiaries of the trust must be
        certain, or where the trust is for a purpose and not a person, that purpose must be legally recognized and
        established with certainty
      • (5) constitution + (formalities) = trust: the subject property must be transferred to a trustee. If the settlor is to
        be the trustee of an inter vivos trust, no actual transfer is required. The manifestation of intention will be a
        declaration of trust which will create a notional transfer from the settlor, as absolute owner of the property
        interest, to himself, as trustee

Trusts can be created by (1) Declaration of trust which is to do it by oneself where when there is intention, it changes from
full owner property w/o conscience binding them, conscience bound or (2) Trust transfer where the owner and trustee are
different people and the trustee makes an undertaking to the owner.

In addition, there are also (3) statutory trusts (e.g. deeming insurance moneys as trust money i.e. [Metropolitan Toronto
Pension Plan); and (4) trusts by judicial order.

⇒ A statutory deemed trust gives priority to certain creditors, i.e. it is for the benefit of the government (e.g. PST is
  held on trust).

⇒ A court-imposed trust is used in damage actions, where awards for damages are impressed with a trust – a third
  party caregiver is given money as trustee for the benefit of the injured party (to ensure that it is used for its intended
  purpose) (Krangle v. Brisco – down syndrome – court imposed trust – public benefit as well).

The capacity requirement entails that the creator of the trust, the trustee, and the beneficiary all have sufficient capacity.

    The creator of a trust has three potential incapacities.

    (1) Minority: Where a minor cannot make a valid will, he cannot make a valid testamentary trust. A minor cannot
        make a valid will unless, at the time of making it, he is: (a) married or has been married; (b) contemplating
        marriage and it subsequently occurs; (c) a member of the Canadian Forces, or (d) a mariner or seaman in the
        course of a voyage (SLRA, s.8). Any inter vivos settlement made by a minor is voidable at his option. However, a
        minor can enter into marriage settlements with the court’s approval (FLA, s.55(2)).

    (2) Incompetence: Mentally incompetent persons can’t make a valid will or inter vivos settlement except as permitted
        by statute; but through his committee or the Public Trustee, and with court approval, he can enter a domestic
        settlement (FLA, s.55(3)).

          ⇒ For a testamentary trust, the testator must understand: (a) the nature and effect of making a will; (b) the
            extent of the property of which he is disposing; and (c) the claims to which he ought to give effect
            (Ouderkirk v. Ouderkirk).

         ⇒ For an inter vivos trust, the settlor must understand substantially the nature and effect of the transaction
           (Royal Trust Co. v. Diamant).

   (3) A bankrupt is subject to a number of statutory controls on his ability to alienate his assets. A bankrupt,
       accordingly, cannot make a valid inter vivos settlement.

   The trustee has the following potential incapacities:

   (1) Capability: Anyone capable of holding property in his own right is capable of holding property as a trustee. Thus,
       any capacitated individual or limited company can be a trustee. However, unincorporated associations are
       incapable of acting as trustees because they have no separate legal personality and thus are incapable of holding
       title to property.

   (2) Minority: It is unwise to appoint a minor as trustee because a minor is incapable of making a valid conveyance of
       the trust property. Courts can replace trustees who are minors; and may empower a committee to fulfill the duties
       of the office of trustee, or appoint a new trustee when it is for the benefit of the afflicted person or is otherwise
       expedient (Trustee Act, s.5).

         ⇒ Where an appointed trustee is a minor (or is out of the province or cannot be found), the Ontario Court
           (Gen. Div.) can make a vesting order of trust property that is land (Trustee Act, s.10) or stock, the right to
           receive dividends, or choses in action (Trustee Act, s.13).

   (3) Incompetence: Where a mentally incapacitated person has been appointed trustee, the court can replace him; and
       may empower a committee to fulfill the duties of the office of trustee, or appoint a new trustee when it is for the
       benefit of the afflicted person or is otherwise expedient (Trustee Act, s.5).

   The beneficiary has a potential incapacity only with respect to capability.
   • An unincorporated association is incapable of being a beneficiary to a trust because they have no separate legal
     personality. However, it is possible to transfer property to trustees of an unincorporated association.
   • All persons, including minors, mentally incapacitated persons, bankrupts, and corporations can be the beneficiaries
     of a trust. A trust may even benefit unborn or unascertained persons, in which case a representative is appointed to
     protect their interests. Incapacitated beneficiaries are usually represented by an official, e.g. Public Trustee, Official
     Guardian, or Guardian of Minors.

Certainty of Intention to Create A Trust
The certainty of intention requires that the court find an intention that the trustee is placed under an imperative
obligation to hold property on trust for the benefit of another and ultimately to distribute the property to the other.

   Certainty of intention is a matter of construction; intention is inferred from the nature and manner of the disposition as
   a whole.

   ⇒ The language used must convey more than a moral obligation or mere wish as to what is to be done with the
     property; it must impose an obligation (Johnson v. Farney). Use of the word “trust” is indicative but not
     determinative (Air Canada v. M&L). The language used need not be technical so long as the intention to create a
     trust can be found or inferred with certainty. A trust can even be found by use of the word “may” if the
     instrument, as a whole, connotes a trust (LeBlanc Estate).

   ⇒ A direction that money is to be kept separate and apart is a strong indication of a trust relationship being created.
     However, the absence of same is not detrimental – the fact that there is no specific discussion about moneys being
     kept separate and apart from other moneys does not detract from the fact that the money is paid for a particular
     purpose (Air Canada v. M&L).

       • If the terms by which the person receives money are that he is bound to keep it separate and apart, he is a
         trustee. However, if he is not bound to keep the money separate but is entitled to mix it with his own money

      and deal with it as he pleases and when called on to hand over an equivalent sum, then he is not a trustee but
      only a debtor (Air Canada v. M&L).

⇒ An irrevocable designation of a beneficiary in an insurance contract is evidence of a settled intention to create a
  trust (Shannon v. Shannon).

If, on construction, no certainty of intention is found to exist, the result depends on what was intended.
• If the intention was that the “trustee” receive an outright gift, he takes absolutely (by the rules of gifts) (Johnson v.
• If the intention was that the holder of the property was to have a power of appointment over it, then the persons
   entitled in default of exercise of the power will take equitable title subject to divesture (by the rules of powers).

Is there certainty of intention?
         ⇒ Specific language used – is the language apt to impose obligations?
         ⇒ Context w/in words used – does context enlighten us as to the meaning of words used?
         ⇒ Imprecision – is the document precise enough to support a mandatory duty?
         ⇒ Contradiction – is there anything in the instrument or circumstances suggesting that there was no
             intention to impose trust obligation
         ⇒ Relevant practice – [bearing in mind, it is subjective intent that is at issue] is there a relevant personal or
             business practice that could assist in illustrating the settlor’s intention
         ⇒ Efficacy – the parties are likely to intend their arrangement to be effective in accomplishing their
             purposes – is it safe to assume that the settlor must have had a trust in mind, in order to make the relevant
             arrangement effective.

    Johnson v. Farney
       ⇒ Facts: Husband dies leaving will behind that left property to his wife. In his will, he leaves his property
          to his wife but also wished that she is to divide the property equally between her family and his. Issue is
          was this clause a gift to her or was she to be a trustee (intending to set up a trust)?
       ⇒ Court held that there was no intention of creating a trust on the clauses because the terminology of the
          will expressed a wish and not a direction. No obligations were created.
       ⇒ Applying Leblanc clauses were expressions of desire

    Leblanc Estate v. Belliveau: Need to look at the entire context.

    Air Canada v. M & L Travel Ltd.
        ⇒ There was certainty of intention to hold the money in trust in accordance with the contract b/w Air
           Canada and M & L. .If someone is setting up a trust, setting it up for benefit of another. Iaco: generally
           not allowed to mix funds, but in commercial accounts need to place money in general accounts. Similar to
           collection of GST. Court also influenced by business practices in the industry

    Shannon v. Shannon
       ⇒ Facts: There is a separation agreement b/w the 2 parties where husband agrees to continue his wife as the
          beneficiary under an insurance policy. However, later he filed with the insurer that the nephew and niece
          would be beneficiaries. Wife seeks that the proceeds of the policy were impressed with a trust in her
          favor because of the agreement. Note that if the court characterizes this as a contractual obligation to
          keep policy in place, she is entitled to a money judgment and she becomes a general creditor. Nephew and
          niece would walk away with 50K. If, however, it is a trust obligation, then she gets 50K and expectations
          are delivered on, and N & N get nothing and there is money left for true creditors
       ⇒ Court held that it was a trust. Paccicco thinks that this was a policy driven case. The deceased
          intended to create a trust and the subject matter and the beneficiaries of the trust were certain.

    QuistClose Trust (Barclays Bank Ltd. v. Quistclose Investments Ltd.)
       ⇒ Facts: Quistclose lent money to Rolls subject to a condition that it be used only to pay a dividend to the
           borrower’s shareholders. Borrower became insolvent and the dividend could not be paid. Note: the
                 relationship between the two is that of a debtor-creditor and if so, then Quistclose would become a
                 general creditor. Need to characterize it as a trust.
            ⇒    Held: The money was not available to the borrower’s other creditors, but was held in trust for the lender.
            ⇒    When a party gives another party property to be used for a specific purpose, and that purposes
                 becomes impossible to achieve, then the property will be held in trust for the original party that
                 gave the property.
            ⇒    Resulting trust: trust established with respect to part of the property and Roll fails so a resulting
                 trust comes into play where that money results back to the settlor.
            ⇒    The money was lent to for the purposes of paying the shareholders and it failed to do so, the $ results back
                 to the settlor (Quitclose)
            ⇒    Quistclose trust can apply to gifts, loans and other payments made on condition that the money be used
                 only for a specific purpose, even if that purpose is abstract. The settlor is the beneficiary from the outset,
                 and the trustee has only a power to use the money for the specified purpose. Therefore, the settlor (as
                 beneficiary) can enforce the trust and restrain any misuse of the money for other purposes.

Certainty of Subject matter
Certainty of subject matter is usually an issue in trusts under wills. Since the goal of a trust is to give effect to intention of
creator, we try to interpret his words in order to give them effect, looking at the entire context and background. In cases
of inter vivos trusts, we don’t ask the settlor what his intention was – because what matters is the intent at the time of

The certainty of subject matter (aka: the corpus of the trust estate) requires that it be clear what property is being held
on trust:

        (1) the trust must have property which can be clearly identified as its subject matter; and

            ⇒ It must be possible to determine what property the trust is meant to encompass – the subject matter must
              be ascertained or ascertainable at the time the trust takes effect.
                      Subject matter is ascertained if it is a fixed amount or specified piece of property.
                      Subject matter is ascertainable if a method by which it can be identified is available from terms
                      of the trust or otherwise (i.e. formula).
                           • The clause leaving the “bulk” of an estate is not ascertained or ascertainable (Palmer v.
                               Simmons). However, leaving “enough capital to pay X in 2010” is ascertainable;
                               likewise, leaving the “residue” is ascertainable (by the formula of paying debts and
                               legacies with what is left over being the residue). Similarly, “1/3 of the remainder” or
                               “the first of my cousins to get married” is ascertainable A clause leaving “blue chip
                               stock” is not certain enough – unless the settlor has a file marked “blue chip stock”, in
                               which case it is ascertainable.

            ⇒ All property is capable of being the subject matter of a trust. The word “property” includes all equitable
              and legal interests in realty or personalty (e.g. an equitable interest under a trust, the benefit of a contract,
            ⇒ The property of a bankrupt divisible among his creditors shall not comprise property held by the bankrupt
              in trust for any other person (Bankruptcy and Insolvency Act, s.67(1)(a)).

            ⇒ The phrase “and other property” creates uncertainty as to what was intended to be included in the
              trust (Re Romaniuk Estate).

        (2) the terms of the trust must: (a) define the portion each beneficiary is to receive; or (b) vest the
        discretion to decide in the trustees.
            ⇒ If the quantum of the beneficial shares is uncertain, the trust will fail and the property will result to the
              creator’s estate, unless this uncertainty of quantum can be cured in one of three ways – if:
                       (a) the creator gives the trustee the discretion to decide quantum (must be expressed in the will)

                 (b) it is appropriate to apply the equitable maxim, “equity is equality” (unless there is a contrary
                 intention); or
                 (c) the division can be determined objectively (e.g. “reasonable income” can be so determined)
                 (Re Golay’s Will Trusts).

The certainties of subject matter and object: (1) enable the court to enforce the trust; (2) enable the court to know
it is enforcing the settlor’s intention; (3) enable the beneficiary to control the enjoyment of the trust property; and
(4) enable certainty of title.

Palmer v. Simmons
   ⇒ Facts: have a clause in a will: the bulk of my residuary estate is to be divided b/w my 4 brothers equally.
       Residuary estate is whatever is left after paying of all the debts. There is no trust when set up an estate,
       deceased is still alive at that time. So no problem with subject matter with residuary of estate.
   ⇒ Here, the problem is that it is states that ‘the bulk of my residuary estate is to be divided b/w my 4
       brothers equally’ – what is a bulk? Need to be able to enforce the rights.
   ⇒ Concept of trust cannot work unless id the trust property. If settlor cannot communicate it effectively,
       can’t give it effect to it.

Edmonton Pipe Pension Plan Trust Fund v. 350914 Alberta Ltd.
   ⇒ Facts: Members of a union and employer Noralta agreed that certain contributions of the employee’s
      money would be made to various trust funds where a separate account was to be created. However,
      Noralta became bankrupt and issue was whether the subject matter is identifiable because Noralta
      commingled the funds of the trust money into its general account. Question was can that trust money be
   ⇒ Court held that the subject matter was identifiable because the remittance forms identify the trust
      moneys from the beginning. They contain amounts defined by the formula in the agreements. The
      remittance forms show that the must was calculable by a formula but also was calculated. Hence
      the money can be ascertained or identified.

Hunter v. Moss
   ⇒ Facts: Corporation issued 1000 shares where Moss has 950 of them and declares himself as a trustee to
       the remainder of the 50 shares for the benefit for Hunter. Moss did not identify any shares for the
       purposes of disposition, so the issue becomes whether the subject matter can be identified and create a
       trust account for the 50 shares because all the shares were mixed.
   ⇒ Because the shares were of one class, there was certainty of subject matter because the shares could
       be separated.

Re Goldcorp
   ⇒ Facts: Gold bullion company where people purchase gold and company holds it for them. One
       arrangement is where the gold is set aside in separate area, and for other customers, they say will hold it,
       but not kept aside and on 7 days notice that can come and pick it.
   ⇒ Court held that upon bankruptcy, earmarked gold was trust money, but the other customers that did not
       have their gold earmarked, was not considered to be held in trust as they were not earmarked. In other
       words, the latter property did not constitute the certainty of subject matter? He doesn’t know how to
       distinguish it from Hunter v. Moss.

Re Cobb
   ⇒ Facts: Testator tried to give away blue chip security, but what is blue chip security? Attempted gift failed
      b/c could not identify the stocks.
   ⇒ When interpreting the stocks, stand in the shoes of the deceased. The court said that if we had evidence
      that Cobb had file of blue chip securities and if it can clarify what the chips are, would be able to identify
      the property.
   ⇒ Will look at the language used by the settlor as well as context.

             ⇒ In an inter vivos trust, if it is invalid, he can re-constitute the trust again but no so when the person is

        Re Golay’s Will Trusts
           ⇒ Facts: Person died and let Tosse receive “reasonable income” from my other properties. The question is
               what is reasonable income? It is subjective, but at the same time, reasonable is objective.
           ⇒ Court saved trust b/c did not want T to end up with nothing.
           ⇒ Reasonable was not what was subjective to him.
           ⇒ Court held that what he was saying was objectively speaking, and that means the courts that are
               accustomed to settle amount of reasonableness.

        Re Boyce
           ⇒ Facts: testator had 4 homes but didn’t provide for who gets what except that Marie is to pick out the
               house she wants, and other 3 go to the other sister. So Marie has power to distribute the power, and if she
               dies, the power dies. Marie died after the testator but before she made the decision. One of the houses
               was to go to her estate but was unable to. Court held that the mechanism to divide the share failed b/c she
               died. Note, old England case. Unlikley Canada would do the same now.

Certainty of objects (Beneficiaries)
The certainty of objects requires that the objects be described with sufficient certainty, i.e. that: (1) the trust be in favour
of persons (not non-charitable purposes); and (2) the class of beneficiaries be described in sufficiently certain terms that
the trust can be performed. A trust that lacks a certainty of objects test will fail and the property will result back to the
settlor or the testator’s estate (Resulting Trust).

Remember that the unborn is represented by the government (Official Guardian)

Certainty of objects is required because unless the objects are clearly specified by or at the time of distribution the trustee
cannot be sure he is performing properly. The requirement of certainty of objects is also important to the creator of the
trust and the beneficiary.
• The creator must be assured that the trustee will carry out his intention. If the creator has not defined the class to be
  benefited in sufficiently clear terms, there can be no assurance that the intended class will take.
• The beneficiaries have an obvious interest in the requirement: if the class of objects is not sufficiently well-defined, no
  one can know whether he is a member of the class and therefore entitled to a proprietary interest in the subject matter of
  the trust.

There are two types of certainty: (1) Conceptual certainty (or linguistic certainty) requires that we understand what the
settlor intended (e.g. “frugal” is not certain; “brothers” is certain); and (2) Evidential certainty requires that it can be
proved whether a given individual fits in the group.

The test for certainty of objects is different for a fixed trust than for a discretionary trust. The fixed trust is subject to the
“class ascertainability” test whereas the discretionary trust must comply with the “individual ascertainability” test.

    In the case of a fixed trust, the class ascertainability test requires that, at the time the trust is created, it must be
    possible to ascertain each and every object so that a trustee can make a complete list. It must be certain who the
    beneficiary is, or if certain criteria are provided at the time the trust is created for identifying those who will be the
    beneficiaries at the time of distribution.

    ⇒ A fixed trust is one in which the trustee has no discretion to decide who the beneficiaries are nor in what
      proportions they are to take; the shares or interests of the beneficiaries are specified in the trust instrument or are
      ascertainable and to perform the trustee must know the identity of each and every beneficiary.

    ⇒ A fixed trust to an individual (by name or status) requires evidential certainty for that individual, which can
      only exist in an individual trust if there is conceptual or linguistic certainty (i.e. the language used conjures up
      clear criteria for selection). “I give 10 Shares of ABC to A in trust for John Smith” - could have many John
      Smiths. So put yourself in the armchair of the settlor.
        •   Need both evidential and conceptual

⇒ A fixed trust to a class of persons requires equal division among the class and class ascertainability test. There
  must be evidential certainty for all class members, which necessarily requires that there is conceptual or linguistic
  certainty in the class description (i.e. the language conjures up clear criteria for selection). The trust can fail if the
  criteria is unclear or if have not found everybody.
       • Re Barlow: I give my paintings to my trustee and I direct her to let any members of my family and any
            friends of mine, who may wish to do so to purchase any such paintings from the estate at the price shown
            in Mr. F’s catalogue (which is much lower than the actual market value of the paintings).
                    Ask who are the intended beneficiaries (Friends and Family)?
                    There is conceptual certainty b/c family means next of kin but can be rebutted since it is only a
                    There is not conceptual certainty with friends, so with class ascertainability test, it would be
                    struck down, but with evidential certainty, trust would be kept alive.
       • Point: Evidential certainty would be sufficient.

⇒ A fixed trust to individuals described as a class (e.g., “friends”, “family”, “short family”, etc.) requires evidential
  certainty for a particular claimant before the trustee can distribute. There need not be conceptual certainty (Re
  Barlow’s Will Trusts).

⇒ The term “family” is presumed to mean “next of kin” and includes everyone up to and including first cousins.
  However, where the testator signifies a broader conception of family by elsewhere designating a great niece, this
  presumption does not apply because there is no conceptual certainty. The term “friends” has no presumption; and
  there is no conceptual certainty.

In the case of a discretionary trust, the individual ascertainability test requires (1) conceptual certainty, i.e. it must
be certain that any given individual is or is not a member of the class (but no list of beneficiaries is required) (McPhail
v. Doulton); and (2) evidential certainty for a particular claimant before the trustee can distribute to him.

⇒ Evidential uncertainty will not defeat a trust; but the evidentially uncertain individual will simply not himself take
  under it.

⇒ A discretionary trust is one in which the trustee is given a dispositive discretion (as to whom is to receive trust
  property or in what share they are to receive) and where he is required to exercise that discretion.

    • If a power is optional, it is a power, not a discretionary trust. A power to divide is a power of appointment; a
      duty to divide is a discretionary trust. Whether it is a power or a discretionary trust, the test should be the same
      (Re Baden’s Will Trusts)

    • A court can give effect to a power of appointment by the class ascertainability test: if there is conceptual
      certainty (that an individual is or is not a member of the class). The trustee need not arrive at a complete list of
      everyone in that category.

⇒ The word “dependents” is conceptually certain; there is no need to come up with a complete list. Anyone wholly
  or partly dependent on the means of another is a “dependant”. The trustee, or if necessary, the court can come to
  a conclusion as to whether a particular candidate could properly be described as a dependant (Re Baden’s Deed

⇒ The word “relatives” is conceptually certain. While a reference to the “relatives” of a given person is prima facie
  a reference to all who are descended from a common ancestor, in practice one would select those whom a
  reasonable and honest person would introduce as “relative”, rather than as a “kinsman” or as a “distant relative”
  (Re Baden’s Deed Trusts).

The certainties of object and subject matter: (1) enable the court to enforce the trust; (2) enable the court to
know it is enforcing the settlor’s intention; (3) enable the beneficiary to control the enjoyment of the trust
property; and (4) enable certainty of title.

Purpose Trusts

Purpose trusts are either charitable or non-charitable. The beneficiary principle is when there is a human beneficiary to the

The purpose of charitable trusts is for the public good. It does not matter that the trust may have other ancillary purposes
that may by themselves not be charitable. Those will not render the trust non-charitable (may be considered illegal
activities). The Crown holds the right to administer charitable trusts.

If cannot satisfy the heads where it is a purpose trust such that it would be struck down, then can set it up as a corporation,
or unassociated corporation (will not receive benefit of perpetuities, tax).

Benefits of A Charity (purpose trust)

(1) Exempt from Beneficiary Principle(Don’t need human beneficiary)
    By the beneficiary principle, a trust must have a beneficiary. Unless someone can monitor the trust, the trustee, who
    has title, is tantamount to an absolute owner. With charitable trusts, the beneficiary principle is satisfied by the
    Public Trustee in accordance with the Charities Accounting Act. (note that an obligation is placed on the lawyer
    that is to notify the Public Trustee a purpose trust). Since charitable trusts are for the good of society, the state
    appoints a Crown officer (exercising parens patriae jurisdiction) to monitor and enforce these trusts. In the case of
    non-charitable purpose trusts, the beneficiary principle is not satisfied (since these are not deemed worthy of
    public funding) and the trust fails, subject to certain specified exceptions.

(2) Preferred Perpetuity Treatment: A charitable trust does not need to meet the strict test in the rule against
    perpetual duration, which is to say that many charitable trusts are intended to exist for a long time. This relaxed
    treatment does not extend to the rule against remoteness in vesting as the trust must become active for its charitable
    purpose in keeping with the rule:
        a. rule against remoteness vesting: intending to keep property ownerless for too long. Will tolerate for how
            long property can be kept ownerless – 21 years. (Charity is not exempt from this)
        b. rule against perpetual duration” – where have owners of property who have vested interest but have former
            owner on who they can use it and how their successors can use it. Don’t want them to have restrictions on
            how long their ownership can last, longest it can last is 21 years…
                 i. can’t hold such property indefinitely. In CML, would violate a gift if breached perpetuity period
                ii. perpetuity rule would put a duration on the life span on future enjoyment of the property
               iii. charities are exempt – would remain charitable property forever

(3) Benevolent Construction: The court will be more generous in interpreting a trust document establishing a charitable
    trust because charity is of such great public utility. They will not usually strike down a charitable trust because of a
    lack of clarity or non-essential purpose. In some cases this relaxed application can save a charitable trust by severing
    a non-charitable, vague, or illegal provision.
        a. i.e. give $ to invest in blue chip security to set up labs. In private would be struck down, and in charitable
             trusts, what is the intent – it is to have charitable purposes. Text book: courts are narrow - he doesn’t think
             rule is gone. Courts will be influenced by their decisions.

(4) CY Pres Scheme (as near as possible): The cy-pres jurisdiction arises when the trust’s creator (settlor) has defined
    specific charitable purposes, but those purposes are impracticable or impossible to carry out. The court is permitted to
    devote the property to charitable purposes as nears as may be to what the trust’s maker intended. If the purposes
    intended by the creator of the trust cannot be carried out, i.e., because the institution the settlor intended to benefit
    does not exist, there is an initial impossibility. On the other hand, if the institution ceases to exist after the trust
    takes effect, there is a supervening impossibility.

    ⇒ Initial Impossibility or Impracticability: if the specified purposes are impossible to carry out, or the named
      charitable institutions never existed or have ceased to exist before the trust takes effect. Need to consider:

             o   (1) Whether the trust is impracticable or impossible:(determined at time trust takes effect (i.e. date when
                 inter-vivos trust created or date when testator dies)
                          impracticable arises when there no longer a need for the purpose intended and the testator’s
                          purpose can no longer be carried out. e.g. a trust to free slaves where slavery no longer exists.
                          Impossibility arises when the trust cannot be carried out at all. i.e. named institution never
                          existed; name is wrong in the will; misnames it

             o   (2) Whether there is a general intention: if specific then settlor intended it for that purpose such that if it
                 is impossible or impracticable, the property results to the estate. If general purpose, in which case the
                 money vests in charity at the time the trust is made and remains in charity forever because the court will
                 find that the purpose is not to benefit the institution, but the purpose which the name of the institution
                 signifies. A general charitable intent by the concept of charity by association or kindred objects can be
                 found if a testator is giving the entire estate (or all the residue) to named charities, one of which never
                 existed. (note if one: then unlikely to find general charitable intention).

             o      Re Spence Will Trusts: testatrix, in her will, gave property to be divided equally b/w Blind Home at S
                 Street and Old Folks Home at HL Keighly for the benefit of patients. Blind Home did not exist but
                 another association by similar name existed on the same street that was known as the Blind Home. Judge
                 held this was ok. But for the HL, it closed before she made her will and became a retirement home then it
                 became offices before she died.
                         The gift was charitable purpose at date of will and capable of accomplish and at death, it was not.
                         Gift fails unless a general charitable intention can be found to apply cy-pres doctrine. Gift

    ⇒ Supervening Impossibility or Impracticability: if a trust is devoted exclusively to charity and the property has
      vested in the charity, the property cannot revert to the donor when the purpose subsequently becomes impossible
      or impracticable. It belongs to the charity and it is irrelevant whether donor had a general or particular
      intention. (Fitzpatrick)

(5) Taxation Benefits: Charities registered with Revenue Canada can receive preferential tax treatment, including: (a)
    ability to give tax receipts to donors so that their donations are tax deductible (registered charity) ; and (b) the
    charity is not taxed for donations received (non-profit organizations)

Charitable Trusts and Charitable Corporations
Have basic principles such that if give a gift to a corporation, giving it as a gift to an individual. If, however, giving gift to
charitable corporation do not have to worry about the beneficiary principle.

(1) Charitable trusts
        • Property given in trust to a person or entity for charitable purposes

(2) Charitable Corporation
        • A gift given here is not money held in trust but is an absolute gift.
        • It is a gift of property to a corporate entity that is recognized as a charitable corporation that is created by
           letters of patent as legal entity with objects to carry on charitable purposes.
        • It is not a trustee, but rather legal owner subject to its objects
                 o “analogous to a trustee” (Liverpool and District Hospital for Diseases of the Heart v. AG)
                 o “fiduciary duty to the public” (Ontario Public Guardian and Trustee v. AIDS Society for Children) It
                     is trust like even though law of trust does not completely control it, however, the laws of fiduciary
                     obligations apply
                 o Obligations enforceable by Public Trustee and via courts supervisory scheme

        • Christian Brothers of Ireland: If have charitable corporation unwinds its business, the CY Pres power will
          apply even though corporation is not a trust because the charitable corporation carries trust like obligations.

        • Re Centenary Hospital Association: a public hospital is created under the Corporations Act that owned
          adjacent land to the hospital. It wants to use the land for the purposes of establishing a medical arts building
          but not a hospital per se. Who controls the decision the hospital? The hospital board or the public trustee
          (even though technically not a trust and have trust like fiduciary duty). Held that board will have decision
          status. It cannot be the intent of the legislators to prevent public hospitals from carrying on the activities
          designed to improve and upgrade the quality of care delivered by the Hospital simply because those activities
          may be regarded as businesses.

        • In Re Toronto Human Society: society is registered charity to canvass money to use $ for experimentation and
          applying 10% of total take to lobby law to make that experiment illegal (has political purpose). Public trustee
          wants to step in to determine if this appropriate. Knows it is not a trust but in the articles of incorporation, has
          that function set out.
                o “It will be recognized immediately that the doctrine of the separate legal entity of corporations and
                   the doctrine of holding property in trust conflict. A gift to a charitable corporation which has as
                   its object a certain charitable purpose is nonetheless a gift to the corporation as a separate legal
                   person. Yet courts of equity have always been prepared to exercise jurisdiction where the
                   administration of the property by the corporation perverts the aims of the donor.”
                o      Here, the Society is a trustee and would be answerable to its activities.

        • The Public Trustee can bring charitable corporation to court to make they meet their obligations. This
          is the case even though they are not trustees per se. (Re Toronto Human Society)

        • A bequest to a corporate body takes effect simply as a gift to that body beneficially, unless there are
          circumstances which show that the recipient is to take the gift as a trustee. A gift can be intended to be a trust
          even if give it to a charitable corporation and courts can apply cy pres power. (Christian Brothers of Ireland)

Christian Brothers of Ireland Canada (CBIC)
     • Facts: Abuse by CBIC members. As a result plaintiffs wanted to obtain funds. The society held school properties
         and properties were establish as a result of operating educational institutions and orphanages. Christian Brothers
         was a trustee in administering those educational purpose. CBIC wants to liquidate its assets to pay the victims
         but holds in trust shares of other charitable corporations.
     • Issue: whether plaintiffs should be able to realize on those assets held in trust be CBI?
     • Conventional trust law: property held in trust is not available for creditors.
     • Held: Assets held by charitable trusts or charitable corporations (because property is held in trust) are not
         immune from liability to tort victims. This principle holds even if the assets in question are charitable
     • (Mercy Docks): based on this doctrine, property of the beneficiaries would not be protected from the
         consequences of the acts of their trustees (i.e. in tort claims)
     • An employer including a charity would be held liable of unauthorized, intentional wrongs. The Q is whether or
         not the entity in question generally increased the harm of the activity in question. of children?
     • Charitable corporations receive and hold properties/assets beneficially as all corporations do, but are obliged to
         use those assets only to further the charitable purpose of the corporation. As a result, because of this trust-like
         obligations, the courts or Public Trustee can have a supervisory role.
     • Court: liable if put an institution and if put others that could give rise to sexual abuse.
     • Liability is vicarious where all the assets of the corporation are subject to the claim whether they are held
         beneficially or in trust for the charitable purposes of the corporation even if the harm is done by one person.
     • A plaintiff’s claim does not have to relate with the assets of the corporation. Ex: here, would have to pay even
         with the cottage.
     • The corporation may not be a trustee but is expected to carry out obligations.
     • Don’t want to immunize gifts given by a testator to a charitable corporation when that corporation is liable to
         victims from wrongdoings.

Unincorporated Associations
     • Point: These are not purpose trusts when someone adds to the fund. Look to the constitution documents.
When donating property/money to a charitable organization, they hold property, they hold the property as a person b/c
corporations can hold property. You will not assume they would divide the money. Rev. Canada – determines if
registered charity, non-profit organization. CRA is not really bound to follow trust doctrines and have their own policy but
do follow some doctrines.

Unincorporated Associations can hold property as well. You give money to the group. If there is an implied contract
when putting the dues in where everyone has understanding that money would be used in the agreed terms that are found
under the constitutional rules. Treasurer is holding the contract money. Technically it belongs to the parties. Supposed if
someone wants to make a donation, law is assuming that someone is adding to the pot pursuant to the contract you have.
Law assumes that there is K amongst all of you, and treat all of your contributions as part of the contract. Technically that
other person is giving a gift to each of you and that is adding to the contract. The organization is not a purpose trust b/c
the organization is not a valid purpose trust.

Example - Star Trek
   • Bill started up the club by donating $ and opened a bank account. It is person trust. Bill holds $ for all the
     members of the trust.
   • If Sam wants to buy $ for a car, the parties are contractually bound to each other to hold property for the reasons
   • Look to the terms of the charter/constitution, and if it is not, it is implied.
   • Access would depend to terms of the const. Suppose Will S wants to donate money or someone else dies and
     leaves in their will to leave $ for the club. This is not a purpose.
   • The property from the will is an accretion or decretion to the fund. They are making a gift and are bound by the
     terms of the contract. Even if money is donated, it is not a purpose, but made contractually based on
     unincorporated association. They donation is made as an accretion to the contract.
   • Sum: it is not a purpose trust b/c the Club is not a valid association purpose trust.

Re Liplinski
   • testator dies and gives $ to organization that has some charitable like functions. This group was not incorporated.
      All of the members of the association were bound together by contract to carry out their purposes, so treasurer was
      bound to use the money for specific purposes. So if these guys can do it, why not allow some 3P member to
      contribute and become part of it as per laws of K.
   • held that it was a gift to an unincorporated non-charitable association.
   • Next of kin wanted that organization to be a purpose trust that is invalid so they would receive the property.
   • Members can decide that they would collapse and distribute $ amongst themselves.
   • Cy press would not apply b/c group was not incorporated.

Validity of Charitable Trusts (Analysis – Overview)
(1) Is it a purpose trust or person trust? A person trust, won’t get benefits.

(2) If purpose, is it a “charitable purpose” within one of the four heads?

(3) If so, is there sufficient Public Benefit
              a. Is it a public benefit (i.e. bridges example) b/c deny private advantages

            b. Is it really of benefit (Utility, does it have that kind of utility that supports benefit)

(4) Is the trust exclusively charitable?
             o Can potentially use the funds for non-charitable purposes
             o There is redundancy analysis when dealing in this head
             o Focus of Q is different

Step 1: Is it a purpose or person trust?
    To differentiate between a purpose trust and a trust for persons, one must determine the paramount intention of the
    settlor (e.g. in a trust to my child for the purpose of education, is the real objective education or the child). In equity, a
    trust that does not have a human beneficiary is going to be void. Z

    ⇒ If the real intention is to benefit particular individuals in a particular way, it might be seen as a personal trust with
    ⇒ If the paramount intention is to advance a particular purpose or objective, it is a purpose trust

        i.e. give 1000 to T on trust to feed my dog

        i.e. if give 1000 to t for the to educate my children will be considered invalid because b/c have object and the trust
    is to accomplish a benefit for particular individuals

        Give 1000 to X to advance the study of law
    -    X is the trustee. The object is to study law. The fact that someone would be benefited (i.e. individual) is not a
         person trust b/c what a settlor has in mind is a cost. Has a general purpose to benefit society. It would not matter
         who the particular law students are, because it is a purpose oriented choice. He would see it as a purpose trust.

Step 2: If purpose, is it a “charitable purpose” within one of the four heads?
The purpose must fall within one of the 4 heads of charity established in Pemsel’s case and codified in s.7 of the Charities
Accounting Act (a trust may fall under more than one category). Those categories are (1) the relief of poverty; (2)
education; (3) the advancement of religion; (4) any purpose beneficial to the community, not falling under the 3 other

(1) Relief of Poverty:
    • Note that relief of aged, impotent and poor people (Statute of Elizabeth) is viewed disjunctively. One can be poor
      and aged/handicapped. Relief of the aged and impotent falls under the fourth head. i.e. trust for the benefit of old
      women of the working class is seen as charitable under the 4th head (relief of the aged). So can have poor old
      women fall under both heads.
    • An organization is not charitable just because it helps the poor by providing free services to them. It will not be
      charitable unless its object is the relief of poverty per se (Re Planned Parenthood of Toronto).
    • “Poverty” is a relative term. It does not only connote destitution, but can also describe limited means (Jones v.
      Eaton). “needy,” “indigent” and “destitute” are synonyms for poor.
    • If a person is employed, he is by definition not poor (Re Saunders’ Will Trusts) but see poor relations below.
    • Providing entertainment for a group home relieves poverty due to the nature of a home for needy children (Re
      Cole). This would qualify because mental health would include entertainment. “a trust established to provide
      entertainment for children in a group hom” the children are without means.
    • Providing luxuries is not considered relief of poverty since “luxury” connotes something you don’t need,
      entertainment being a luxury (Re Brown). “i.e. providing band uniforms”
    • Providing for a home for the aged is relief of poverty since the aged tend to be poor (Re Wright); same with a home
      for single mothers. However, to establish a home for the aged “whether poor or not” is too broad (Re Pentacostal
      Benevolent Assn.).
    • A private gift to a poor person is not charitable; nor is a trust for named poor persons (Re Cohn) where it said “A
      trust for A, B, C, who are poor relatives of mine” but see Scarbrick where it was held to be ok. In Cohn, objective is
      to benefit the three individuals.
    • A trust for “needy or deserving” people may be read as conjunctive and redundant and be upheld (Jones v. Eaton).
      For example financial misfortune, illness or family tragedy are examples that may justify “deserving”.

    ⇒ To be charitable, a trust for the relief of poverty must meet the public benefit requirement (Step 3). The benefit
         element is assumed (poverty is the paradigm charity); the public element is satisfied if the trust for the relief of
         poverty benefits a section of the community (i.e. more than a person or family).

   ⇒ However, the “poor relations” cases are an exception that the relation be a public benefit: relieving poverty
     of one’s poor relations (or by extension poor employees) is charitable despite the beneficiary’s personal nexus to
     the donor. Helping even one family is in the public interest since relief of poverty benefits the public (Re
                     i.e. leaving residue upon trust “for such relations” of his son or daughter” that shall be in needy
                     circumstances. Relations was considered to be a wide degree of relationships and even it lacked a
                     public element, it was a valid charitable trust. However, it is a matter of construction.
   ⇒ “Poor relations” extends to poor employees – trusts in favour of needy employees (Jones. v. Eaton)

(2) Advancement of Religion
   • The following are charitable: gifts to repair or improve the fabric of churches(windows; bells etc); burial grounds
     operated by churches; gifts to support ministers of religion; and missions conducted by churches.

   • The law does not prefer one religion to another (as long as there is faith and worship, religion will exist). Different
     religions should each be supported regardless of whether its beliefs are true. A religion can be beneficial without it
     being necessary to assume that all its beliefs are true (Gilmour v. Coats).

   • Secular society or humanistic movements (ethic movements) do not fall under the advancement of religion, but may
     fall under the fourth category.

   • If a gift made to a religious advisor or corporation is gifted to a person by name, it is likely to be an absolute private
     gift and thus not charitable. However, if the gift is made to a person or corporation virtute oficii, it is a valid
     charitable gift so long as the person’s duties or corporation’s objects are exclusively charitable.

   • A trust for the publication of works by someone with religious beliefs might be seen as valid (Thorton v. Howe)
     even though may have some cult like activities.
   ⇒ Thorton v. Howe: testatrix bequeathed her estate upon trust for printing, publishing and propagation of the works
       of Joana Southcote. JS believed that she was the child of the Holy Ghost and a second Messiah would be born.
       Courts held it was a valid charitable trust because the purpose of the trust was to propagate a religion.

   • A tax exemption claimed by a church with respect to farming income as charitable activity can be struck down by
     reason of it being a commercial venture (Hutterian Bretheren Church of Wilson v. R.).

   ⇒ Step 3: analysis: In order to be charitable, a trust for the advancement of religion must meet the public benefit
     requirement: benefit is presumed once it is shown that the trust satisfies the “religion” test. The public element is
     presumed, since it is assumed, unless otherwise shown, that all religions are open to a sufficiently broad segment
     of society.
     • A trust to a very specific order of a church for the purpose of prayer may be void both because prayer does not
       benefit the public and the group might be too restrictive (Gilmour v. Coats).

(3) Advancement of Education:
   • Advancement of education includes: (a) the promotion of education in the traditional classroom environment; (b)
     any purpose which tends to promote or foster that type of instruction, including workshops and training in life skills,
     so long as there is systematic instruction; (c) places where persons are instructed in their ancestral language and
     customs; (d) vocational training, if there is actual advancement of education and not simply a private benefit to a
     particular group; and (e) intellectually stimulating endeavours (i.e. culture) (e.g. music, art). However, tuition fees
     are not charitable gifts because it is treated as consideration for education received.

   • As long as something is geared at training the mind and not just the promotion of a particular view, it can be
     educational (Vancouver Society)

   • If a gift for education fails to specify the method to be used, the court will direct a scheme to carry it out.

• Chess is intellectual (Re Dupree’s Trust Deeed)

• Sports: amateur sports are charitable under the fourth head of charity (beneficial to the community); but if a trust is
  in favour of a school and its object is to provide sporting or athletic facilities at the school, it will be charitable.
• If a trust for physical education can be linked to a school, it helps attach it to education (McMullen v. IRC – football
  case where purpose was to promote students’ physical education, not just football, to supplement their mental
  education. Education includes spiritual, moral, mental and physical elements).

• Research: Research is charitable since its object is to increase and disseminate knowledge. However, trusts which,
  while educational in some respects, are in fact political in purpose, will not be upheld.

⇒ A gift to Simplified Spelling Society for the simplification or improvement of English spelling or the English
  language failed because it had a political purpose.

⇒ Shaw’s trust also failed because it was to promote a new lettering system since the terms of the trust required
  advertisement, propaganda and research on controversial matter. (Re Shaw)

• Education in Arts: Trusts which support the arts are charitable and fall under advancement of education because it
  is educational in the sense that it brings pleasure. Education of artistic taste is one of the most important things I the
  development of a civilized human being. (Royal Choral Society v. Commissioners of Inland Revenue)

• Professional Education: Trusts which further education of the learned professions have always been regarded as
  charitable. However, gifts to professional bodies are not charitable, since their purpose is to benefit the members of
  those bodies.
• If the purpose of producing a book is to enable a subject to be studied, it is for the advancement of education,
  despite that professionals use the knowledge acquired to earn a living – this is merely incidental (Law Reporting
  Case), but a trust to a Chartered Insurance Institution, a college supplying professional “trade” instruction fails
  because fund was set up to help insurance institutes ability to raise money – enhance marketing skills of people who
  were raising money – too much of an economic orientation (Chartered Ins. Institute v. London Corp)

• A trust to a College whose purpose was to educate person in, and promote principles of, the cooperative and credit
  union movement failed because the credit union was too political. (Co-op College of Can. v. Sask Human Rights

⇒ Step 3: analysis: To be charitable, a trust for advancement of education must meet the public benefit
  requirement. Trusts for advancement of education require greater public component, as well as greater benefit
  component than trusts for the advancement of religion.
      ♦ The benefit is presumed since the trust is for the purpose of education. However, the court will
         investigate the benefit if the quality of education is questionable (e.g. bad art) (Re Pinion).
      ♦ The public element requires that the class who benefits be substantial or at least not so small that there is
         no benefit to the community as a whole. The benefits cannot be provided exclusively to a class of
         particular individuals defined only by their personal relationship to the donor or organization (Vancouver
         Society). A class of beneficiaries limited to immigrant and minority women would satisfy the “public”
         requirement (Vancouver Society).

⇒ The public benefit requirement is hindered if the purpose is political, such that if the court cannot make a
  decision b/c would embarrass the court or don’t have the criteria, we use the term political i.e. to further a political
  purpose or party or to change the law of Canada or another country (Positive Action v. MNR). For example, a
  trust to develop a 40-letter alphabet was determined to be too political and to have no benefit (Shaw). Promotion
  of secularization failed b/c was political undertaking in an attempt to the change the law (Bowman)

                 •   Scholarships for a class of individuals are seen as benefiting all of society since the idea is that
                     the “winner” will share his knowledge with the world. Of course, a condition that a thesis never
                     be published is against the public benefit requirement.

(4) Other Purposes Beneficial to the Community
Note: Under this 4th head, the argument for public benefit requirement is to be stronger than the other 3 heads.
The test for “a sufficient segment of the public” normally requires that the purpose assist the public generally, or
at least a very broad segment.

In determining whether a charitable trust can fall under the 4th head, ask if there is a general public utility such
that a sufficient segment of the public is benefited or purpose is to promote the mental, moral and ethical
improvement of the public. You are asking if it is charitable by law.
   • The relief of the old and disabled (if poverty is not an aspect of the trust, it falls under the fourth head)
           ⇒ Comes from preamble: relief of the aged and impotent people

   • The care and establishment in life of young persons (e.g. a trust for an orphan’s home, enabling persons to emigrate,
     enabling deserving girls to marry, etc.), though if the relief of poverty is the motive for the gift, it may fall under the
     relief of poverty;
            ⇒ Comes from preamble: the preferment of orphans, the marriages of poor maids and the supportation, aid
                and help of young tradesmen, handicraftsmen and persons decayed.

   • Public Works (e.g., repair of bridges, ports, havens, highways, causeways, sea banks etc)
           ⇒ providing free internet (Vancouver Regional FreeNet Assn v. MNR) – could also may be held as
              advancement of education.
           ⇒ Comes from preamble: essential means of communication

   • The benefit of a locality or the country (e.g. a gift to the government in exoneration of the national debt or to a
     foreign jurisdiction as a while);
           ⇒ Trust permitting residents to dredge oysters for their own benefit is charitable (Goodman)
           ⇒ Organization developing and producing radio/tv programs of a particular relevance to native people in a
                province. This is even restricted to a certain group and appears to be political b/c the government has
                taken an interest in the welfare of native people. (Native Communications Society of BC v. MNR)
                Activities related to self-government questionable but is incidental/ancillary. (but note, that if wanted to
                set up dinner club for Italians, would fail under first head and fourth).
           ⇒ Comes from preamble: to the aid or ease of any poor inhabitants concerning the payment of fifteens and
                other taxes

   • Preservation of public order and the administration of justice (e.g. gifts to police, forces, Merchant Marine;
     publishing law reports not for profit, etc.);
           ⇒ Comes from preamble by way of analogy where it refers to the setting out of soldiers.

   • Relief of prisoners: while trusts to promote the release of prisoners would be contrary to public policy and for
     political purposes, modern organizations which seek to relieve the suffering of prisoners and to rehabilitate
     them would be charitable.
            ⇒ Comes from preamble: release of debtors from prison by paying their debts

   • Resettlement and Rehabilitation (e.g. a trust for soldiers returned from a war or a trust to provide a disaster relief
            ⇒ But does not apply for the purpose of immigrant women become established in their new country
              (Vancouver Society of Immigrant & Visible Minority Women)
            ⇒ Comes from preamble: maintenance of the sick and maimed soldiers and mariners

   • Promotion of economic activity (commerce and industry), provided it is not for the private benefit of an individual
     or an industry;

    • Trusts for animals: a trust to maintain an animal is not charitable, though it may be valid as a non-charitable trust.
      However, trusts which promote the maintenance and preservation of animals generally are charitable
      (because, if domesticated, the animals are useful to society) (e.g. trusts to preserve wildlife, prevent animal cruelty,
      discover cures to animal diseases, etc.);

    • Health and medicine: gifts to hospitals are charitable, as are gifts to promote medical research and treatment;
           ⇒ It is irrelevant that the beneficiary institution is state supported or charges a fee. The only issue is the
               public element since benefit is presumed.

    • Social and recreational purposes, an organization operating a community recreational facility for profit is not

    • Sports: trusts which promote sports, unless associated with advancement of education, have been denied charitable
      status in the past (Re Nottage). However, the furtherance of amateur sport is charitable (Re Laidlaw Foundation –
      trust to promote amateur sports – gave $ for Special Olympics).

    ⇒ The question here is whether the purpose is analogous to the kind of charity that has been recognized in the past
      (or an existing government program that operates with public funds (Re Laidlaw)); and whether it is the kind of
      thing that society be subsidizing (i.e. through tax exemptions, etc.). The SCC has recognized that Parliament, not
      the courts, should decide what types of ventures should be subsidized by the public purse (Vancouver Society).

    ⇒ Step 3 analysis: Under this fourth head of charitable entitlement, the public benefit inquiry will be far more
      aggressive than under the other heads. Public benefit requires broad segment of public and general as opposed to
      particular sentiment. If there is a personal link, the courts would strike it down.
          ⇒ IRC case: the link between the settlor and the people was specific where had to be a Methodist but
              contrast this with the Native Communications Case.
          ⇒ SCC did not have a problem with Vancouver women case where they took cognizance of the fact of
              immigrant women.
          ⇒ Profits: any suggestion that would result in a profit for someone would result in problems

Step 3: is there sufficient Public Benefit?
This is a two part test that takes into consideration if is it (1) a PUBLIC benefit and (2) really of BENEFIT?

   ex: trust for relief of poor in Toronto. Poor of Toronto satisfies public requirement and relief of poverty satisfies
   ex trust to promote anti-vivisection in animals may not be charitable b/c disadvantages outweigh adv (lack of benefit)

Note: public requirement varies with the head of charity under which a particular purpose belongs.

   A trust for a purpose which would otherwise be charitable fails if it is for the benefit for the benefit of private
   individuals (Re Compton, Power v. Compton)

    ⇒ Re Compton, Power v. Compton: Testatrix set up a trust “for the education of C and P and M children . . . to be
      used to fit the children to be servants of God serving the nation”. The beneficiaries were defined as the lawful
      descendants of 3 named persons. Held not charitable b/c the beneficiaries were not a section of the community but
      were part of a group of private individuals related to each other through a common ancestor. Public benefit
      would exist if the relationship b/w the beneficiaries is an impersonal one.

    ⇒ Oppenheim v.Ttobacco Securities Trust Co: Trust failed where income of that property was to be used to provide
      education of children of employees of a named company and its subsidiaries and allied companies because the
      children were connected by a personal relationship.

   Normally, trusts which are intended to effect a purpose outside jurisdictions, but which are charitable within
   the jurisdiction will be held as charitable. (see pages 346-347 where it may not)

   A trust for political purposes is not charitable because cannot be determined conclusively that it will be of
   benefit to the public (Bowman v. Secular Society). Organizations that promote sanctity of human life, oppose
   abortion and seek to persuade others to that view will not be considered charitable trusts because purposes are

    ⇒ Bowman v. Secular Society: Valid as gift but in dicta it was said that if the gift had been in trust, it would not have
      been charitable because the promotion of the incorporated body included promotion of the secularization of the
      state and repeal of some religious laws.

    ⇒ Humanist Association of Toronto: granted charitable status by a settlement with CRA where it was held to be
      “beneficial to the community as a whole” under the fourth head. It holds lectures, provides public speakers and
      performs weddings etc, but it also provided info about stem cell research and abortion.

    ⇒ National Anti-Vivisection Society v. Inland Revenue Commissioners: Trust failed because in addition to purposes
      of the society, it’s purposes included the promotion of legislation prohibiting vivisection of animals for medical
      and other research.

    ⇒ N.D.G. Neighbourhood Association v. M.N.R: Organization failed to be a registered charitable organization. Even
      though association carried on educational activities and help low-income groups and alleviate poverty, they were
      principally an activist organization which defended tenants rights and conducted campaigns and lobbying

    ⇒ Postive Action Against Pornogrpahy v. MNR: organization is not charitable even though its activities were to
      educate public about evils of pornograpgy because its main purpose was political in that it advocated legislative
      reform and greater governmental control of pornography.

    ⇒ Toronto Volgograd Committee v. MNR: Non-charitable because it was political. Sought to promote
      understanding b/w Canadian and Soviet societies and help the 2 societies look for peaceful ways to live together.

    ⇒ Ontario (Public Trustee) v. Toronto Human Society: Animal rights group got control of the organization that
      sought to solicit funds and devote those funds to an organization whose purpose was to lobby for the abolition of
      legislation that permitted impounded animals to be used for research. This purpose was regarded as ancillary to
      its main cause which was to promote and devlop human public sentiment etc”

Step 4: Is the trust exclusively charitable?
Trust must be devoted exclusively to charitable purposes. If trustee is permitted to use trust property for the benefit of
charitable or non-charitable purposes, and if the trust does not allocate a proportion of the funds to charitable and to non-
charitable purposes, the trustee could possibly use the funds for the non-charitable purposes. Because non-charitable
purpose trusts don’t have a recognized meaning in law, the entire trust will be invalid.

   Charitable Trust must be one that operates exclusively as for charitable purposes and not other, non-charitable
   purposes (Vancouver Society).
   Diplock: benevolent is not coterminous in meaning with “charitable”. one of the objects may be benevolent and not
   necessarily charitable, so it is not exclusively charitable and is void for uncertainty.
   Jones v. Eaton: SCC saved the provision where it was upheld for relief of poverty. The term needy suggests poverty
   so for the relief of poverty.

   There are three exceptions to the exclusivity requirement:
        (a) Construction: A gift may be saved by construing gifts and terms in favour of charity. For example,
            in Re Diplock, a gift to “charitable or benevolent purposes” might have failed because “benevolent
            purposes” fall outside the protection of charitable trust rules and thus exclusivity is infringed.
            However, the court construed the term as conjunctive rather than disjunctive, making it redundant

   and saving the gift. Similarly, in Jones v. Eaton, the court construed “needy or deserving” as
   conjunctive, making the term “deserving” a mere modifier on the term “needy”.
(b) Severability: Applies to trusts generally. If the gift can be construed as two gifts – one to charity and
    one to a non-charitable purpose – the charitable part may be severable from the non-charitable part,
    and thus will be valid (the non-charitable part will be declared void). Whether a gift can be severed
    is a matter of construction and intention. A gift can only be severed if: (1) as a matter of
    construction, it is clear that specific proportions of the property were given to the two purposes; and
    (2) with respect to the settlor’s intention, it is clear that he would rather see only one gift fail as
    opposed to both.
                    ⇒ i.e. one-half each to church X and such other worthy purposes as my trustees may
                    ⇒ to such charitable or worthy purposes as my trustees decided (not severable)

(c) Disregard Ancillary Purposes: An ancillary purpose does not undermine the charitable purpose. If
    the main purpose of a trust is charitable, according to the incidental activities doctrine, ancillary
    purposes which are not charitable (e.g. bingo) can be disregarded and does not invalidate the main
    purpose. (Re Laidlaw Foundation – amateur sports that certain purposes were not charitable, but
    promotion of amateur sports was charitable).
   ⇒ The political activities doctrine is often relevant here. However, whether an activity is a
     charitable or ancillary activity is a matter of degree (Ontario Public Trustee v. Toronto Human
       • A society to educate the public about the evils of pornography is political in nature since it
         advocates legislative reform and greater governmental control of pornography (Positive Action
         Against Pornography v. MNR).
       • A society promoting enforcement of suitable laws to prevent animal cruelty is not necessarily
         political in nature. It is the society’s objects, not activities, that are considered (Ont. Public
         Trustee v. Toronto Human Society).
               It is a charitable trust to promote sentiment towards animals. It is a registered charity (tax
               receipts). Complaint made to Public Trustee that board became active in animal research. 10%
               would be contributed to this. Q was whether the society crossed the line such that it should lose
               its status of charitable corporation? It characterized campaign as not one of its purposes which
               was to protect animals, treated the activity as one of the activities as part of the broader purpose,
               that activity had not passed the wronged threshold.
               Non-charitable activities authorized which form the part of the trust purpose will deprive
               the trust of its charitable status. The non-charitable activities authorized by the trust
               instrument which are merely subsidiary or incidental to a charitable purpose will not
               deprive the trust of its charitable status.
               Held: that not incidental and did not render the trust invalid.
       • A society promoting the education of immigrant women to promote their employment is only
         incidentally political. The political purposes were just a means to an end (Vancouver Society).
               Main purpose would have been charitable for advancement of education, but the ancillary
               purpose enabled the society to do all things “conducive” to the attainment of its objects
               was too broad and would allow it to do things that would not be ancillary to the main
               purpose. Hence the Society was not exclusively charitable. Those activities were not to
               train women. It was a job employment placement and did not satisfy the charitable trust purpose.

                                                    Purpose Trusts
Ex: I give 10,000 to X which he may use to keep my rose bush for 21 years, failing which the money is to go to Ted.
These would be enforceable indirectly. A power is authority and does not offend the beneficiary principle. If give $ to
someone for some power, want to make sure they don’t abuse it. Law would allow this to take effect on the basis that if
the power holder uses for some purposes not authorized because Ted can sue. It is an authority, but not a duty.

In the past, a purpose trust would be upheld as a purpose power trust (Trusts of Imperfect Obligations)
     (1) Maintain specific animals: Re Asters: trust to maintain specific animals as power cases and allow it to exist it for
         perpetuity period.
     (2) Erect or maintain monuments or graves
     (3) Trust for the saying of masses – allow it to go as a power (i.e. if mass never said, would not be sued)
     (4) Not sure if relevant anymore – trust for the promotion of fox hunting –

One possibility was to take a broad approach to beneficiary principle.
• Re Denley’s Will Trust – should draw distinction b/w purpose trust that are personal and from purpose trusts where
   have an individual would receive a benefit of the trust.
• i.e. Want to promote the playing of hockey in N. ON where individuals would be able to benefit. Why not allow
   people to have standing. It would be a failed charitable trust because there were human beneficiaries connecting to it.
   Wanted to setup a sports ground and tied it to the workers employed and gave trustee the discretion for others to come
   and use it (not having public benefit). Courts would have had to strike this down as charitable trust what clearly was
   had social benefit. So it can be upheld as a trust but for only the perpetuity period. So longest can setup the sports
   ground is for 21 years.

For a failed charitable trust to succeed, it must be a (1) trust; (2) that will suvive for 21 years; (c) the purpose must be
certain and (d) purpose must not be impersonal (Denley’s W.T.)

Legislation of ON forged its own solution for invalid purpose trusts which is different from Re Denley. If can use re
Denley, would not use s.16 b/c s.16 is not a greater remedy. Denly is inconsistent with the legislative intent of s.16. so be
careful with Re Denly followed in MB. It is not really not right in law. Remember it is for 21 years. Make sure purpose is
certain. Cannot use it for impersonal purposes.

s.16 of the Perpetuities Act– see page 461
    - adopts solution that litigators tried to adopt years ago
    - will take some failed purpose trusts and allow them to take effect as purpose powers for 21 years.
    - A trust for specific – (meant certainty) – courts use language of is or is not. Have to make sure that the settlor’s
         intention is what the purpose is defined with sufficient clarity. Have to know what the power is.
              o Ruling out person trust,
              o If specific purpose trust, shall treat it as a power for 21 years, rather than trust unless for illegal purpose or
                   contrary to public policy
              o Settlor would rather see it survive for 21 than fail
              o If creating power in will where would satisfy it indefinitely but would not take effect, can take effect as
                   power trust but for 21 years.
    - If I try to set out a purpose to last it for 65 yrs, and if court feels that would sooner see it fail than courts would
         strike it down sooner than 21.

Denley saves it as a trust for 21. Statute saves it as a power for 21 years!

“I give 20K to T on trust to use the money to pay my daughter’s educational expenses” is a purpose trust
I give 20K to T on trust to use to give plant food to wild flowers” is not a purpose trust.
‘I give 20K to T on trust to maintain a lunch fund for law students at U of O” is a valid purpose trust even even though
generic gift for law students, have human beings – allow it to take effect for 21 years.

Tracing into the hands of the Trustee – Exercise – pg 157
   • (1): C does not get $. 5000 is not property of T, but is encumbered with in personam obligations. T cannot claim
      it, so how can his creditors can get that money. Money is B.
   • (2) B can obtain an injunction (property has not gone yet, potential breach of trust). Will obtain a new trustee and
      have trustee replaced and if legal age, collapse the trust. S.5(1) and s.16 of the Trustee Act – see pg 915 can
      have the trustee replaced where you think trustee is going to breach his duties.
   • # 3: B has no remedy against 3P. What remedy does B have against the trustee? Proceeds are gone. Cannot id the
      property. Followed it that it became $, but its gone. Factual tracing is impt. i.e. if shares become money and if
      bought car, can trace it. However, here cannot.
   • #4(a): B does not remedy against 3P. Can put a lien on the trust (in rem remedy on a in persoman claim where at
      time of lawsuit or breach of trust) and pay himself back. Can claim the truck (sometimes see language of a CT).
      If not sui juris, can have someone represent you for suitable replacement.
   • #4(b): Fossett v. McKeown: when have fungibles (where $ has been taken to buy property that is divisible), can
      put a lien and court will determine the proportionate considerations and you will get that. Problem is that truck
      cannot be cut up as grain/shares can. In Jones v. De Merchant – see that (1094) court said cannot divide the coat,
      so will give entire coat to the wife. He says, put lien on truck and sell it. But cannot seize the truck b/c there is
      non-minimus contribution.
            o Suppose truck goes up on value, you would be able to claim 20K and the proportionate share of the value
                of the increase
            o But this case suggest that lien is to secure compensation claim and not the increase of value in the item.
                Cannot use lien to support it, but can go after the increase as security personam
            o Exam: if value increases, should try to get the increase. If can’t seize it, get a lien, but Fosset suggests
                that cannot obtain increase and then claim security personam – see above

Problems - Mixed Property: Bank Accounts
   • 5(a): T has rcvd 500 and takes it out and uses it in a gambling binge. The trust money is mixed with the trustee’s
      own money in a bank account. Rule in Hallett’s Case applies because there is an evidentiary problem in tracing
      the money into bank accounts. As a result, if a trustee takes out property from account and wastes it, he is deemed
      to waste his own property first but retains the trust property. Here, the beneficiary can trace that 500 to the 1000.
      Remember there cannot be liens in bank accounts. Grab and run. Will also have priority over it.

    • 5(b) Again, have evidentiary problem in tracing the money into a bank account. Rule in Oatway applies where
      trustee is presumed to act to preserve the trust property. So if beneficiary likes the painting can take it (i.e. if gone
      up on value,) or put a lien on it. If shortfall, will have in personam right. But suppose value increase to 5K? ben
      can take painting b/c it is traceable from the proceeds of the trust account. No rights against the Greece trip.

    • (c) where did the $ come from to buy the painting? Unsure, but if you add it up some had to be trustees b/c
      purchase price was greater than what trustee had. Take 500 in cash in account and go after the painting.

    • (d) lowest intermediary balance rule applies. Requirements to equitable tracing: met the first 2 but is the
      property identifiable? What can the pl claim? 300 remaining – because the 1000 that was put later and that was not
      the beneficiary’s money. The 1200 is gone in the binge, and some of that $ had to be trust $. Only the 300 that is
      left can be trust $. The LIBR states that a claimant to a mixed fund cannot assert a proprietary interest in that fund
      in excess of the smallest balance in the fund during the interval between the original contribution and the time
      when a claim with respect to that contribution is being made against the fund. The exception to the rule, that the
      trustee intended to replenish the trust fund when he made the deposit and the beneficiary can go after it(James
      Roscoe (Bolton), Ltd. v. Winder) Problem with this rule is if trustee goes bankrupt after the replenish of the $
      would be available for all the creditors b/c it is considered a fraudulent preference for the beneficiary? Fraudulent
      Preferences Act. LSUC Canada – for him it casts doubt on the lowest intermediate balance rule.

Tracing in hands of 3Ps
   • Pg 162 – 6(a)

             o    Daughters status? She has no rights to car under equity, she is not a bona purchaser b/c no consideration
                  given (she is a mere volunteer).
              o Who has higher equity? Your right is first in time, established recognized interest in equity, so can go in
                  and take the car or put a lien on the car.
    •   Re Diplock: 1147
              o Facts: Settlor wanted to give his property to charity and provided in the will that would divide the
                  property to charitable or benevolent organizations as trustee sees fits. Concept of charities in trusts is a
                  limited one and certain forms of trusts can be upheld. Benevolent is broader i.e. could have been for
                  cancer or for tuxedos for law ball. End result: courts would consider this to be invalid power b/c cannot
                  be benevolent and charitable. But by time he realized, he distributed monies. Trustee was held liable for
                  all the $ he distributed. Had a duty to make distribution but he made it wrongly, error arised in powers of
                  discretion he made
              o Issue: what remedies do the next of kin has?
              o Note it is an estate case (not really a trust case).
              o Plaintiffs could sue the executors in personam and entitled beneficiaries are required to sue the executors
                  in personam and attempt to get the property that way before go after 3Ps (but this is an estate rule, and not
                  trust rule) Here, beneficiaries are going after the innocent volunteers (charities)
    •   Pg 160
    •   (a) get the truck, sell it and get in personam claims against trustees
              o Innocent volunteer has lower right to the truck
    •    (b i) – B will be able to get the amount they put at risk
    •   (b ii) – he thinks he can secure full amount through the lien –
    •   (b iii) –
              o See gp 1150 – first complete para – the explanation .. . .
              o See pg 1149: there is no ground . . .
              o Will not be turned into a trustee for the purposes of the liability
    •   In Diplock, end up with analysis to sue innocent volunteer.
              o Making in personam claim is disruptive when volunteer has sold it
              o Case holds you can! But it is an estate case and that in personam claim is based on an estate rule
              o He things the correct view, is that cannot sue an innocent volunteer in personam.

Pg 162 problem 7c
    - can u sue the hosp in in personam? No, because no action. Personal liability depends on equity
    - have traced the property, and force a sale? But can you force sale of hospital? If it is an immaterial contribution,
       i.e. wallpaper, can’t expect someone to force a sale, sometimes Ben will lose.

Page 162 – 6b
   - normally can grab car but where D paid, she no longer is an IV, she maybe a bona fide purchaser. See page 159 –
   - bona fide purchaser defeats equity
   - equity’s conscience is not touched,
   - it is there to protect markets, and protect people with stronger claims

    -   2- anything that could cloud the title, you requisition the vendor and then other side has to satisfy you that what
        looks like an impediment is not an impediment. But what happens that on title, the property is held in trust. i.e.
        John Smith in trust. In re McKinnely, a purchaser sent a requisition to Vendor and that to satisfy him that he has
        the authority that he has the authroty to sell to him, but Vs laywer claimed that don;’t have to answer it. Court: not
        required to answer that requisition. The simple fact that the doc is registered in trust, does not mean that it is a
        breach of trust. You needn’t go behind that when trustee is selling to you and assuming there is a breach of trust.
    -   How to protect the client? Register the trust terms. You are required to go behind the documents, i.e. if put the
        terms on the doc, can aruge that party has received notice.
    -   So need to be caught w/o notice requirements

Pg 162 – 6(c)
    - Is she BF purchaser? Can argue that she didn’t provide real value. She may have been negligent. But the
       relationship weakens that argument.
    -   If they are BF, then end of line to take from them.

    - she is BF.
    - Does B have rights against C?
    - See pg 1145:

(ii) – if trustee recvs product, beneficiary can follow in the hands of the trustee.


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