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

2. 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
3. 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
4. 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.
5. 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
6. 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.