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Is an executor liable for failing to supervise a lawyer?

A case review of Wagner v. van Cleeff1

Christine Wagner was from Austria and spoke no English. When her sister in Ontario died without a will, Christine asked a Mr. van Cleeff of the Austrian embassy, for assistance. Mr. van Cleeff introduced Christine to a lawyer by the name of Mr. Mayhew. Christine hired the lawyer and executed a power of attorney authorizing him to deal with all aspects of her sister’s estate under her control.

On Mr. Mayhew’s suggestion, Christine nominated Mr. van Cleeff, a person with a well-deserved reputation for integrity, to be the administrator of the Estate. Upon his being appointed, Mr. van Cleeff executed a bank power of attorney appointing Mr. Mayhew to deal with all matters involving the estate bank account. Things went south when, unbeknownst to Mr. van Cleeff, Mr. Mayhew misappropriated approximately $217,000 from the Estate.

This blog is about the duty of a trustee to supervise and not to delegate. One might wonder why the family didn’t recover the money from the lawyer who absconded with it, but the case does not address that issue. It may have something to do with lawyers not being insured for claims relating to or arising out of any dishonest, fraudulent, criminal or malicious act or omission of an insured lawyer.2

At trial, Christine alleged that Mr. van Cleeff was liable for the lawyer’s theft. She claimed that Mr. van Cleeff breached his fiduciary duty by choosing Mr. Mayhew to be the lawyer, delegating all of his trustee functions to him and for failing to properly supervise him. The trial judge disagreed because he found that Mr. van Cleeff never assumed the duty as trustee. Moreover, the trial judge stated that even if he was wrong and Mr. van Cleeff did start administering the estate, the judge was prepared to exercise his discretion to relieve him from any liability under s. 35 of the Trustee Act3 (the “Act”). That section of the legislation gives a judge the discretion to excuse a trustee for breaching his/her fiduciary duty if s/he acted honestly and reasonably and ought to be excused for his/her breach of trust.4The Divisional Court overturned the decision and found Mr. van Cleeff liable. The decision is very instructive on some of the duties of trustees and the application of s. 35 of the Trustee Act.

Duty Not to Delegate

Under the common law, a trustee is precluded from delegating his powers or duties.5 That restriction has been modified by statute6 as well as Canadian case law. As the Divisional Court stated in van Cleeff:7

The general rule is that an administrator must personally perform all the duties of the office requiring the exercise of his discretion. However, as an exception to this rule, an administrator is permitted to select agents to perform certain tasks where it would be regarded as prudent for a person in the ordinary course of business to delegate the performance of these duties. McLellan Properties Ltd. v. Roberge, [1947] S.C.R. 561, [1947] 4 D.L.R. 461, at pp. 566-567 [S.C.R.].”

Duty To Supervise

While the prohibition against delegation has been modified and a trustee is permitted to delegate certain duties, the trustee still has a duty to supervise and may ultimately be responsible for any losses that may occur under his/her watch.8

Why the Divisional Court found van Cleeff liable

The Divisional Court found that Mr. van Cleeff assumed the duty to administer the estate. It also found that he did not breach his fiduciary duty in the choosing Mr. Mayhew to be the lawyer. The court referenced a Supreme Court of Canada decision9 for the proposition that the standard of care and diligence required of a trustee in administering a trust is that of a man of ordinary prudence in managing his own affairs. That standard was met with respect to Mr. van Cleeff’s choice of the lawyer. However, the court concluded that Mr. van Cleeff stepped offside by delegating all of his duties to the lawyer10 and for failing to properly supervise the lawyer.11

The court then addressed the issue of whether Mr. van Cleeff should be relieved from personal liability pursuant to s. 35 of the Trustee Act. The court’s analysis is very instructive about the duties of trustees and the limits on s. 35 of the Trustee Act. In summary, the court explained:

  1. For the court to exercise its discretion under section 35, the trustee has the onus to demonstrate that:
    1. s/he has acted honestly;
    2. s/he has acted reasonably; and
    3. s/he ought fairly to be excused for the breach of trust.

These conditions are all independent, and the trustee must satisfy the court with respect to all three matters.12

  1. Section 35 was originally based on an earlier English section which was enacted to relieve trustees from liability for purely technical breaches. In Canada that section has also been used to relieve trustees from liability for defaults that are more than technical breaches of trust,13however, it was never meant to be used as a sort of general indemnity clause for honest men who neglect their duty.14
  2. There is a duty to supervise and the trustee has breached that duty if s/he does not do some minimal supervision. In our situation it appears that the total lack of effort by the trustee is what irritated the judges. Said the Divisional Court, “In the case at bar, Mr. van Cleeff lived close to Mr. Mayhew, and they constantly saw each other. It was not necessary for Mr. van Cleeff to sign a bank power of attorney. It was a matter of convenience.”15The court also found that an abandonment of control over the funds to be extremely serious and gave rise to liability.16
  3. Further, there is case law17 suggesting that where a person with limited experience and knowledge tried to perform some of her duties she was excused for her breach of trust under the equivalent of s. 35 of the Trustee Act. In that case the person acted reasonably under the circumstances. That is different than our case because Mr. van Cleeff did not know the extent of an administrator’s duties and made no attempt to find out.
  4. The court stated that a trustee cannot claim that his/her actions were reasonable when s/he totally relies on lawyers to do the job of the trustee. The bottom line is that section 35 is not available to trustees who completely abdicate their responsibility as trustee.18
  5. The Divisional Court acknowledged that Mr. van Cleeff was 75 years old and would be wiped out financially if he lost the case. It also acknowledged that he was a person of integrity and it was regrettable for him to be in this position. Nonetheless, the court found him liable.

In finding that the court would not exercise its discretion under s. 35 to relieve him of responsibility, the court stated, “…if Mr. van Cleeff was relieved of liability, Ms. Wagner would only stand to lose the benefits of her sister’s estate. I do not consider these to be relevant considerations in a case where the administrator, Mr. van Cleeff, has completely abdicated any duties as trustee. Beneficiaries of an estate cannot be deprived of their interest in the estate merely because the administrator is financially worse off than the beneficiary. I do not read the test in s. 35 of the Trustee Act as excusing a person who does nothing”.19

Conclusion

While courts have relied on section 35 to relieve trustees from more than technical breaches, its availability will be highly dependant on the facts and circumstances of each case. However, the Van Cleeff decision demonstrates that there appears to be no judicial appetite to use s. 35 of the Act to forgive a trustee who has totally abdicated their responsibilities and delegated their jobs to others without even basic supervision.

 

Footnotes
  1.   Wagner v. van Cleeff,1991 CarswellOnt 543, (1991) O.J. No. 1777, 29 A.C.W.S. (3d) 720, 43 E.T.R. 115, 53 O.A.C. 161, 5 O.R. (3d) 477 Ontario Court of Justice (General Division) (Divisional Court) {van Cleeff}.
     
  2.   See the Primary Policy of Law Pro available online at https://www.lawpro.ca/your-policy/policy/
     
  3.   Relief of trustees committing technical breach of trust.

    35 (1) If in any proceeding affecting a trustee or trust property it appears to the court that a trustee, or that any person who may be held to be fiduciarily responsible as a trustee, is or may be personally liable for any breach of trust whenever the transaction alleged or found to be a breach of trust occurred, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust, and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach, the court may relieve the trustee either wholly or partly from personal liability for the same.
     

  4.   We refer the reader to an article written by Dale Roseberg entitled, “Under what circumstances will a court relieve a trustee from liability for a technical breach of trust under s. 35 of the Trustee Act?” which is available on Westlaw Estate Litigation, Issues in Focus, Brian A. Schnurr. His initial comment references Professor Donovan Waters and states, “in his text Law of Trusts in Canada states that there are three fundamental duties which are bestowed upon a trustee: “First, no trustee may delegate his office to others; secondly, no trustee may profit personally from his dealings with the trust property, with the beneficiaries, or as a trustee; thirdly, a trustee must act honestly and with that level of skill and prudence which would be expected of the reasonable (person) of business administering his own affairs.”
     
  5.   See paragraph 20 of the van Cleeff decision and paragraph 12:40:10 of Compensation and Duties of Estate Trustees, Guardians and Attorneys By: Jennifer J. Jenkins, H. Mark Scott, Edward Olkovich. The authors reference McLellan Properties Ltd. v. Roberge, (1947) S.C.R. 561, (1947) 4 D.L.R. 461
     
  6.   See section 20 of the Trustee Act

    Power to authorize receipt of money

    By solicitor

    20 (1) A trustee may appoint a solicitor as agent to receive and give a discharge for any money or valuable consideration or property receivable by the trustee under the trust.

    By banker

    (2) A trustee may appoint a manager or a branch manager of a bank listed in Schedule I or II to the Bank Act (Canada) or a solicitor to be the trustee’s agent to receive and give a discharge for any money payable to the trustee under or by virtue of a policy of assurance or otherwise.

    Appointment not a breach of trust

    (3) A trustee shall not be charged with a breach of trust by reason only of having made or concurred in making any such appointment.

    Liability of trustee, in certain cases, not affected

    (4) Nothing in this section exempts a trustee from any liability that would have been incurred if this Act had not been passed, in case the trustee permits any money, valuable consideration, or property to remain in the hands or under the control of the banker or solicitor for a period longer than is reasonably necessary to enable the banker or solicitor to pay or transfer the same to the trustee. R.S.O. 1990, c. T.23, s. 20.
     

  7.   Paragraph 20 van Cleeff
     
  8.   See paragraph 25 of van Cleeff which states, “An administrator who puts the assets of an estate in the hands of an agent and takes no steps to ensure that the assets are properly dealt with has breached the duty to supervise. Low v. Gemley (1890), 18 S.C.R. 685 , at pp. 689-690.”
     
  9.   Dickson J. in Fales v. Canada Permanent Trust Co., (1977) 2 S.C.R. 302, (1976) 6 W.W.R. 10, 11 N.R. 487, (sub nom. Wohlleben v. Canada Permanent Trust Co.) 70 D.L.R. (3d) 257
     
  10.   See paragraph 23 of van Cleeff.
     
  11.   See paragraph 25 of van Cleeff.
     
  12.   See paragraph 28 of van Cleeff.
     
  13.   See paragraph 39 of van Cleeff.
     
  14.   See paragraph 40 of van Cleeff.
     
  15.   See paragraph 41 of van Cleeff.
     
  16.   See paragraph 42 of van Cleeff.
     
  17.   Fales v. Canada Permanent Trust Co., (1977) 2 S.C.R. 302, (1976) 6 W.W.R. 10, 11 N.R. 487, (sub nom. Wohlleben v. Canada Permanent Trust Co.) 70 D.L.R. (3d) 257, at pp. 325-326
     
  18.   See paragraph 45 of van Cleeff.
     
  19.   See paragraph 50 of van Cleeff.
     

Gregory Sidlofsky, David Wagner and Charles Wagner

The authors of this blog are Gregory Sidlofsky, David Wagner and Charles Wagner. Gregory is a Certified Specialist in Litigation by The Law Society of Upper Canada and partner at Wagner Sidlofsky LLP. David is a member of the firm’s Estate and Commercial Litigation Groups. Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP.

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This blog is not intended to serve as a comprehensive treatment of the topic. It is not meant to be legal advice. Every case turns on its specific facts and it would be a mistake for the reader of this blog to conclude how it might impact on the reader’s case. Nothing replaces retaining a qualified, competent lawyer, well versed in this niche area of practice and getting some good legal advice.
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