A conflict of interest does not automatically result in the removal of an executor. A review of the case law and secondary authorities paints a coherent picture and legal baseline. For an Ontario judge to remove an executor because of a conflict of interest s/he must be convinced that the removal is in the best interests of the estate1. If the conflict of interest has the potential to negatively impact on the best interests of the estate then there may be grounds for that executor to be removed. The higher the negative impact the more likely litigation to remove that executor will be successful.2
The propinquity inherent in these types of relationships can sometimes create conflicts of interests, which Justice Myers has described as being “insidious”.3 Such conflicts of interest may make it impossible to trust that the executor will discharge his/her responsibilities diligently and will require removal.
The case law is filled with a myriad of examples of disqualifying conflicts of interests ranging in claims for reimbursement for personal expenses to self-dealing of estate assets. Regardless of the amount in issue, where the executor’s personal interests are in conflict with their duties to act in the best interests of the beneficiaries, they may be removed and replaced with a neutral trustee.
Although the Court gives great deference to the testatrix’s choice of estate trustee4, the Court maintains the inherent jurisdiction to remove trustees5, which is confirmed by section 37 of the Trustee Act.6
In Radford v. Radford Estate7, J. W. Quinn J. thoroughly reviewed the considerations to be taken into account on an application to remove an estate trustee. These considerations are no less relevant when the issue deals with conflicts of interest. Here are some of the quotes most relevant for our discussion:
“…In deciding whether to remove an estate trustee, “the court’s main guide should be the welfare of the beneficiaries”: see Crawford v. Jardine, ibid, citing Letterstedt v. Broers (1884), (1883-84) L.R. 9 App. Cas. 371 (South Africa P.C.) at 385 -387 and Anderson, Re (1928), 35 O.W.N. 7 at 8 (Ont. H.C.).
Non-removal must likely prevent proper execution of trust
104 “It is not every mistake or neglect of duty on the part of the trustees which will lead to their removal. It must be shown by the applicant that the non-removal of the trustee will likely prevent the trust from being properly executed”: see Crawford v. Jardine, ibid.
106 “The authorities are, I believe, consistent in placing the emphasis on the future administration of the estate, and the risks to which it will be exposed if the trustee remains in office. The question is whether the trust estate is likely to be administered properly in accordance with the fiduciary duties of the trustee and with due regard to the interests and welfare of the beneficiaries. The sanction of removal is intended not to punish trustees for past misconduct but rather to protect the assets of the trust and the interests of the beneficiaries”: see St. Joseph’s Health Centre v. Dzwiekowski, supra, at para. 28
Not every allegation of a conflict of interest will warrant the removal of an estate trustee. As pointed out by professor Waters in his seminal text, many executors are also beneficiaries and they are placed in a position with discretionary powers which depending how they are exercised may incidentally benefit the executors over other beneficiaries. That type of conflict may not be enough to warrant their removal.8 Nonetheless the case law does acknowledge the insidiousness of conflicts of interest and how they can, “play havoc with people’s judgment of their own capacity to maintain neutrality and a fiduciary stance”.9 However, the onus remains on the party seeking the removal to show that removal is a clear necessity and that the welfare of the beneficiaries requires it.10
Removal of an executor because of a conflict of interest does not necessarily have to include allegations of dishonesty or misconduct. It may just be that the executor cannot faithfully fulfill his/her duty as an executor because s/he has another duty adverse in interest. That is what transpired in RE Owen Family Trust where the executor was removed because there was a conflict between his duty as trustee and his company as a debtor to the Trust.11 The courts have applied the same principle and removed trustees where s/he has gone out and purchased the claim against the Estate and then taken steps to enforce the security for such claim.12
Executors have a duty to look at the interests of all the beneficiaries and not those of any particular beneficiary. Failure to do so may result in their removal.13
In the seminal text, Waters’ Law of Trusts, the authors begin their discussion on this topic as follows:
“It is a fundamental principle of every developed legal system that one who undertakes a task on behalf of another must act exclusively for the benefit of the other, putting his own interests completely aside. In the common law system this duty may be enforceable by way of an action by the principal upon the contract of agency, but the modes in which the rule can be breached are myriad, many of them in situations other than contract and therefore beyond the control of the law of contract. It was, in part, to meet such situations that Equity fashioned the rule that no one may allow his duty to conflict with his interest”14.
While this may be part of the thesis statement of our discussion it alone is not determinative of whether a conflict of interest warrants the removal of an executor. The case law is clear that not every conflict of interest will result in an executor’s removal. As Justice Grange stated in Lithwick , Re
“ It is, of course, not the law that an executor can never have a claim against an estate for past services or loans, but he should not place himself in a position where his duty to investigate the validity of such claim against the estate conflicts with his interest in promoting an undocumented and dubious claim.”15
But, Courts will remove executors where the existence of a conflict of interest, perceived or real, means that the executor’s continuing on in that position is not in the best interest of the beneficiaries16 When a claim that is neither frivolous nor vexatious is made against an executor that trustee cannot be expected to really investigate that claim and the courts have removed executors for that conflict.17 The key take away on when a conflict of interest justifies the removal of an executor was best states by Her Honour Justice Greer, “The main guideline in the removal of Trustees is what is in the best interests of the beneficiaries and their welfare”.18
- I refer the reader to Widdifield on Executors and Trustees, 6th Edition 15 — RESIGNATION, REMOVAL AND APPOINTMENT OF TRUSTEES Contributing Editor: Elena Hoffstein, Editor: Carmen S. Thériault where the authors state,
The leading statement of general principle is in Letterstedt v. Broers (1884), 9 App. Cas. 371 (South Africa P.C.)……Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce Courts of Equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to shew a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity…. Although the Letterstedt decision is over 100 years old, the courts today will still apply Lord Blackburn’s reasoning as the basic framework for the court’s review; see, for example, Holt v. Holt(2003), 1 E.T.R. (3d) 198 (B.C. S.C. (In Chambers)); Schwartz Estate, Re (2003), 1 E.T.R. (3d) 259(N.S. S.C.(In Chambers)); Bathgate v. National Hockey League Pension Society (1994) 2 E.T.R. (2d) 1 (Ont. C.A.) and Scallon v. Canada Trust Co. (1992), 1992 CarswellOnt 4930 (Ont. Ct. (Gen. Div.). The key consideration in all removal cases is whether the removal of the estate trustee is necessary for the welfare of the beneficiaries: Anderson, Re (1928), 35 O.W.N. 7 at 8 (Ont. H.C.). ” ↵
- For example,where a court has removed an executor for a conflict of interest see Mardesic v. Vukovich Estate (1988), 30 B.C.L.R. (2d) 170 (B.C. S.C.) at para. 19, Lithwick, Re (1975), 9 O.R. (2d) 643 (Ont. H.C.), and Beatrice Watson-Acheson Foundation v. Polk (2006), 24 E.T.R. (3d) 124 (Ont. S.C.J.).Re Walter W. Shaw Co. (1922), 68 D.L.R. 616 (Man. Q.B.); Rose v. Rose, (2006), 24 E.T.R. (3d) 217 (Ont. S.C.J.); Also see ; Jordan M. Atin, “Removal of Estate Trustees for Conflict of Interest”, prepared for 5th Annual Estates and Trusts Forum, November 21, 2002. ↵
- See paragraph 13 of Mayer v. Rubin 2017 ONSC 3498, 2017 CarswellOnt 8889, 280 A.C.W.S. (3d) 448, 30 E.T.R. (4th) 239 ↵
- See 13.6 – Court Removal , Schnurr, Estate Litigation, 2nd Ed. The author states, “ Historically, the courts in dealing with removal applications have given great deference to the testator’s choice of executor and trustee, and have not removed a trustee unless there were serious allegations of maladministration. The author cites Oldfield v. Hewson (2005), 14 E.T.R. (3d) 290 (Ont. S.C.J.); Re Thorpe (1929), 35 O.W.N. 325 (H.C.).in support of this proposition. ↵
- St. Joseph’s Health Centre v. Dzwieskowski, 2007 CarswellOnt 7642 (Ont. S.C.J.) at para. 25 ↵
- Trustee Act, R.S.O. 1990, c. T.23 ↵
- 2008 CarswellOnt 5297, 43 E.T.R. (3d) 74, 169 A.C.W.S. (3d) 688 ↵
- In paragraph 14 of Stern v Stern the court refers to Professor Waters text and says, “However, not every conflict of interest will constitute sufficient grounds for the removal of an executor. Many executors are also beneficiaries of the estates they administer. Frequently they are in a position where the discretionary powers given to them under the will may be exercised in a way to favour their own interests as beneficiaries to the disadvantage of other beneficiaries. Such actions may be completely legitimate if the testator has authorized such powers under the terms of the will. See Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith, eds., Waters’ Law of Trusts in Canada, 3d ed. (Toronto: Thomson Carswell, 2005) at 886. Also see Ballard Estate v. Ballard Estate (1991), 41 E.T.R. 113 (Ont. C.A.), leave to appeal refused (1991), 5 O.R. (3d) xii (S.C.C.). ↵
- See paragraph 35 of Mayer v Rubin 2017 CarswellOnt 8889, 2017 ONSC 3498, 280 A.C.W.S. (3d) 448, 30 E.T.R. (4th) 239. ↵
- Paragraph 7 of Stern v Stern. As well, see Dodsworth v. Dodsworth, 1997 CarswellOnt 3162 (On. Div. Ct.) at para. 6 ↵
- The Supreme Court of British Columbia in Re Owen Family Trust (1989), 33 E.T.R. 213 removed the co-trustee. Legg J. stated at p. 217:
Although there is no allegation of dishonesty or misconduct against the respondent, I do find that the failure of the respondent’s company, Atlin, to pay a sum in excess of $25,000 for a period of in excess of 18 months, indicates that the continuation of the respondent as a trustee may place the property of the Trust in some danger. Further, there is a conflict between the duty of the respondent as trustee and his company’s position as debtor to the Trust. ↵
- See paragraph 16 of Cooper v. Fenwick 1994 CarswellOnt 3949, (1994) O.J. No. 2148, 50 A.C.W.S. (3d) 720 ↵
- See Orenstein v. Feldman (1978), 2 E.T.R. 133, in commenting on the conflicting interests of two of the trustees in a property owned by the Estate, Griffiths J. stated at p. 137:
“These two conflicting interests, in my opinion, render it impossible for the respondent trustees to properly discharge their functions. The trustees have a duty to look at the interests of all the beneficiaries, and not those of any particular beneficiary. Here the personal interests of the respondent Feldman place him in the position where he must inevitably weigh his interests against the interests of other beneficiaries, particularly Orenstein, and no trustee should ever be in that position.” ↵
- Waters’ Law of Trusts in Canada, 4th Ed. 18 — Duties Underlying the Office of Trustee Editor: Donovan W.M. Waters, Contributing Editors: Mark R. Gillen and Lionel D. Smith ↵
- See paragraph 8 Lithwick, Re 975 CarswellOnt 462, 61 D.L.R. (3d) 411, 9 O.R. (2d) 643. As well see see Ballard Estate v. Ballard Estate (1991), 41 E.T.R. 113 (Ont. C.A.), leave to appeal refused (1991), 5 O.R. (3d) xii (S.C.C.) and Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith, eds., Waters’ Law of Trusts in Canada, 3d ed. (Toronto: Thomson Carswell, 2005) at 886. ↵
- See Widdifield on Executors and Trustees, 6th Edition
15 — RESIGNATION, REMOVAL AND APPOINTMENT OF TRUSTEES Contributing Editor: Elena Hoffstein, Editor: Carmen S. Thériaultwhich in support of this proposition the authors reference Yeh v. Yeh Estate, 2016 BCSC 1550, 2016 CarswellBC 2329 (B.C. S.C.). See also Ching Estate, Re, 2016 BCSC 1111, 2016 CarswellBC 1683 (B.C. S.C.). ↵
- See paragraph 16 Ballentine v. Ballentine 2000 CarswellOnt 3813, (2000) O.J. No. 3956, 100 A.C.W.S. (3d) 720, 35 E.T.R. (2d) 165 ↵
- See paragraph 17 Ballentine v. Ballentine 2000 CarswellOnt 3813, (2000) O.J. No. 3956, 100 A.C.W.S. (3d) 720, 35 E.T.R. (2d) 165 ↵