Does friction between co-executors warrant removal?

A case review of Venables (Litigation Guardian of) v. Gordon Estate¹

Mrs. Venables was the daughter of the testator, her father. Her father appointed her as the executor of his estate with her son Peter named as an alternate should Mrs. Venables be unable or unwilling to act. The will created a trust whereby the residue was to be invested, with the income paid to Mrs. Venables for her life and the remainder paid equally to her sons Michael and Peter. Mrs. Venables had a fall and was moved out of the family home. She then suffered a debilitating stroke. In accordance with the will, her son Peter took over as executor of his grandfather’s estate. Previously, with Mrs. Venable’s input, Scotia Cassels Investment Counsel Limited (”Scotia Cassels”) was investing the money from the trust. Thereafter, Peter transferred the trust’s assets from Scotia Cassels to MD Management. Mrs. Venables’ other son Michael, who was the attorney for both property and care for his mother, alleged that MD Management was not doing as good a job as Scotia Cassels in investing the trust’s assets and was charging more money. Michael sought to have Peter removed as trustee and have the trust’s assets returned to Scotia Cassels.

The friction between Peter and Michael was long-standing and intense. While the reported case does not specifically say so, it appears that the arguments over their mother’s investments was just another platform of expression for their mutual animus. While Peter may have been the executor of his grandfather’s estate, Michael was his mother’s litigation guardian.

Michael’s application was commenced in Ontario. Peter resided in British Columbia. After two attempts to transfer the file to British Columbia failed, Michael and Peter settled requiring regular reporting by Peter. According to Beaudoin J., the Minutes of Settlement that Peter signed with Michael effectively made Michael a co-Trustee².

But the brothers started to fight again because Peter alleged that Michael had converted their mother’s bank account to a joint account, and, as a result, he was unable to transfer her monthly income payments from that account. So the fight became one between two executors.   Apparently, it became so bad that it resulted in interruption in income payments to their mother without legitimate reason.

Was that sufficient to warrant removal of Peter as executor of his grandfather’s estate?

Beaudoin J. concluded as follows:

“I am satisfied on this evidence that the continued conflict between Michael and Peter interferes with Peter’s proper exercise of his discretion under the Will of their late grandfather and that this conflict will continue. This has resulted in an interruption in income payments to Mrs. Venables without a legitimate reason. Even if Michael was considered a mere beneficiary, Peter’s removal would be justified; but Michael stands in an enhanced position. The Minutes of Settlement that Peter signed with Michael effectively made Michael a co-Trustee of the PHGT. Peter has adopted an indifferent attitude towards those Minutes and he has made investments without obtaining Michael’s approval. I have no confidence that the situation between these step-brothers will improve during the remainder of Mrs. Venables’ life”³.

In coming to this conclusion Beaudoin J. reviewed the law regarding the removal of executors in general and with respect to friction between executors in particular. For both the lawyer and lay person this decision is useful when faced with the question of whether the friction between executors warrants the removal of one or both of the trustees in question.

Legal Principles considered by the Court

Beaudoin J. started off by addressing the court’s authority and explained that in addition to the court’s inherent jurisdiction⁴, sections 5 and 37 of the Trustee Act⁵ provide the court with statutory jurisdiction to remove and/or replace an estate trustee if warranted. As to grounds for removal, Beaudoin J. quoted the case of Elliott Estate (Re)⁶, the case of Letterstedt v. Broers⁷, MacDonell, Sheard and Hull, Probate Practice⁸ as well as D.W.M. Waters, Law of Trusts in Canada⁹ for the proposition that the courts are generally loath to interfere with a testator’s wishes on the basis that two or more co-estate trustees cannot get along with each other unless the failure to remove one or more of them is imperilling the proper administration of the estate. If that is so, the courts will generally not hesitate to act to rectify the situation.

However, removal of an estate trustee is a drastic remedy, as a testator’s wishes as to who should act as trustee should only be interfered with in rare circumstances¹⁰ Generally speaking, a named trustee should only be removed on the “clearest of evidence”, and only where there is no option available other than removal¹¹. Even if a trustee is of bad character, or there is friction between co-trustees, this may not alone justify removal¹². Rather, the welfare of the beneficiaries is paramount¹³.

Beaudoin J. noted that Michael, the applicant in the proceedings, cited Libman v. Feldberg (Ont. S.C.J.), and Rose v. Rose (Ont. S.C.J.) as examples of situations where trustees were removed as a result of conflicts, and Peter cited Radford v. Radford Estate¹⁴for the following propositions¹⁵:

1. the court will not lightly interfere with the testator’s choice of estate trustee;
2. there must be a “clear necessity” to interfere with the discretion of the testator;
3. removal of an estate trustee should only occur on the clearest of evidence that there is no other course to follow; the court’s main guide is the welfare of the beneficiaries;
4. it must be shown that the non-removal of the trustee will prevent the proper execution of the trust; and
5. the removal of an estate trustee is not intended to punish for past misconducts; rather it is only justified if past misconduct is likely to continue and the estate assets and interests of the beneficiaries must be protected.

Although the test to remove a trustee is onerous, it is not insurmountable in all cases. For example, in Rose v. Rose¹⁶, hostility between the beneficiaries and the trustee justified the latter’s removal, including because the trustee had an interest in using the trust property herself.

Before coming to his conclusion Beaudoin J. referenced Consiglio, Re (Ont. C.A.),¹⁷ where the Court of Appeal said,

“It is our view that misconduct on the part of a trustee is not a necessary requirement for the Court to act and that the Court is justified in interfering, and indeed required to interfere, when the continued administration of the trust with due regard for the interests of the cestui que trust has by virtue of the situation arising between the trustees become impossible or improbable.”

Conclusion

In Radford v. Wilkins¹⁸, the Ontario Superior Court of Justice confirmed that friction between co-estate trustees may justify removal:

“Friction between co-estate trustees is likely to warrant the removal of either or both of them because it is prone to impact the decision-making process. However, this is a more remote likelihood where the friction is between a trustee and a truculent beneficiary. Of course, in either case, the friction must be of such a nature or degree that it prevents, or is likely to prevent, the proper administration of the trust.”

In Venables v. Gordon Estate¹⁹, the court held that it would “readily intervene…if the conflict is between co-Trustees”, and removed a trustee on this basis. Similarly, in Re: Newton Trust²⁰, the court found that distrust and suspicion between a beneficiary and a trustee, or where the trustee favours one beneficiary or group of beneficiaries over another, there may be sufficient cause to remove a trustee.

These cases all show that whether an estate trustee should be removed by the court is an inherently fact-driven inquiry. The circumstances that may justify removal in one case may not be sufficient in another. One last note of caution. More often than not when executors cannot get along the court is more than likely to say “a plague on both your houses” and remove both of them.²¹