Canada: BCSC Provides Much Needed Guidance For Trust Proceedings

Last Updated: December 3 2013
Article by Mark Weintraub

In Mayer v. Mayer, 2013 BCSC 1958, the BC Supreme Court ruled on the following issues:

  1. the principles which govern an application by a trustee under s. 86 of the Trustee Act for leave to bring proceedings on behalf of a trust without the unanimous agreement of all of the trustees;
  2. the ability of a beneficiary to bring proceedings for damages to the trust when leave is denied to the beneficiary to bring proceedings as a trustee; and
  3. whether the court may direct the winding up of a trust and, if so, the circumstances when it should do so.

Because these issues had not previously been considered by Canadian courts, this case may have significant implications for both personal and commercial trusts. Trustees and beneficiaries may find this case useful for determining their respective rights and duties, and the assistance that can be obtained from courts.

The case involved brothers engaged in years of protracted litigation. Two brothers, Bhora and Mhinder, were the remaining trustees and beneficiaries of a trust established over 40 years prior to permit them (and, formerly, three other brothers) to carry on business and own properties together. Under this trust, all brothers were both beneficiaries and trustees. In these proceedings, Mhinder wished to bring a number of claims against Bhora's family members and their companies for damages allegedly done to the trust. Given the legal requirements that a trustee who is also a beneficiary must first act in the former capacity, and that trustees must act unanimously, and given that Bhora would not agree to these claims being brought, Mhinder sought the court's permission to bring these claims in the name of the trust without Bhora's consent. Mhinder also sought a declaration that, if leave was denied to him as a trustee, he was at liberty to bring these claims as a beneficiary of the trust. Finally, Mhinder argued that the trustees were hopelessly deadlocked and, as a result, the court should order the winding up of the trust.

With respect to the first issue, the court confirmed that it has the discretionary jurisdiction under s. 86 of the Trustee Act to intervene, where it is "just and equitable" to do so, to break a deadlock between trustees to ensure that trustees exercise their powers properly and in the interests of the beneficiaries. This includes permitting a trustee to bring claims on behalf of the trust notwithstanding opposition from the other trustees. The court found guidance in the principles governing granting of leave to bring derivative actions under the Business Corporations Act. Derivative actions are actions brought by a shareholder or a director in the name of a corporation for damages suffered by the corporation rather than the shareholder or director personally. The court held that, similarly, claims that Mhinder sought to bring were derivative in nature because they were not personal, but derived from the rights and powers of trustees. The guiding principles outlined by the court are as follows:

  • the trustee must have made reasonable efforts to cause the other trustees to bring the legal proceeding;
  • notice of the application for leave has been given;
  • the trustee is acting in good faith; and
  • it appears to the court that the proceedings are in the best interests of the trust and the beneficiaries – which includes consideration of the merits of the proposed claims, the potential overall effect on and consequences to the trust of the proposed proceedings, and the requirement that the result be just and equitable.

Given the "vast evidentiary divide" between Mhinder's and Bhora's evidence, both of whom were beneficiaries whose interests the court was obliged to protect, and the great risk to the trust in terms of costs that would be awarded if the proposed proceedings failed, the court concluded that it would not be in the best interests of the trust to grant Mhinder leave to bring the proposed claims.

With respect to the second issue, the court held that having been denied leave to pursue the proposed claims in his capacity as a trustee on behalf of the trust, Mhinder did not need the court's leave to bring his claims as a beneficiary, at his own risk and expense. Such claims are subject to limiting or exclusionary rules, such as the claim not being known in law or being vexatious or otherwise inappropriate. The onus is on the other beneficiaries/trustees to apply to court to strike the claims for these reasons. The court noted, however, that Mhinder's right to bring such claims existed only because he first tried, unsuccessfully, to cause the trustees to bring the claims in the name of the trust.

Finally, the court held that, notwithstanding irretrievable breakdown of the relationship between the trustees and beneficiaries, it did not have jurisdiction under s. 86(1) of the Trustee Act or at common law to order a winding up of the trust. The jurisdiction of the court to break a deadlock between trustees is based on the necessity to do so to carry out the terms of the trust in the interests of the beneficiaries, and does not extend to terminating the trust absent express termination provisions in the trust. A trust with adult beneficiaries having legal capacity can only be terminated by the express terms of the trust, or by consent of all beneficiaries pursuant to the rule in Saunders v. Vautier.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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