Canada: Trustee/Executor De Son Tort: Recognizing And Avoiding The Traps Of Unintended Fiduciary Obligations

Last Updated: November 17 2016
Article by Eric Hoffstein

From time to time, a person will take it upon themselves to hold and administer property for the benefit of another, without having been formally appointed as a trustee. This might occur with full knowledge that the person has no legal authority to deal with the property; or the person might unintentionally deal with property that is impressed with a trust. This person is known as a trustee or executor de son tort.

A person who takes on the responsibilities of an executor or trustee without proper authority may be held personally liable as a trustee for any loss or damage to the trust property. This makes it critically important to understand when a person's actions might attract fiduciary obligations, particularly when they have not knowingly or deliberately taken on a fiduciary role.

Constructive Trust and Constructive Trustee

Constructive trusts have been used for centuries by the English courts of equity to describe certain situations and relationships. More recently, the common law provinces of Canada have used constructive trusts as a remedy to address unjust enrichment.1 Imposing a constructive trust can give rise to personal liability on the part of the "constructive trustee". This can be confusing since there is not necessarily any property actually held in the trust. For example, a constructive trust may be applied to estate assets which have not yet been distributed.2 Nonetheless, a person may be liable to account as a constructive trustee, just as any other trustee. This personal liability can arise in one or more of three situations: acting as a trustee de son tort; knowing assistance in the breach of trust by another person; or knowing receipt of trust property transferred in breach.3 This article will focus on the first of these situations.

The Supreme Court of Canada clarified that personal liability will only arise where there has been some misconduct on the part of the trustee which would normally expose him to liability for breach of trust. The person is not liable simply from taking up the role of a trustee, but rather because he has taken possession of and administered trust property contrary to the terms of the trust, of which he is or should be aware. As Iacobucci JA said in Air Canada v. M & L Travel Ltd;4

"...a trustee de son tort will not be personally liable simply for the assumption of the duties of a trustee, but only if he or she commits a breach of trust while acting as a trustee." The trustee de son tort will therefore be personally liable if he acts in a way which would constitute a breach of trust for a properly appointed trustee.

The trustee de son tort is treated as a properly appointed trustee from the moment she takes possession of the trust property and starts to administer it, knowing or constructively knowing that it is trust property. As the English House of Lords recently said:

"...we would do better today to describe such persons as de facto trustees. In their relations with the beneficiaries they are treated in every respect as if they had been duly appointed. They are true trustees and are fully subject to fiduciary obligations. Their liability is strict; it does not depend on dishonesty."5

Although the hallmark of the trustee de son tort is that he has no proper authority as trustee, the trustee need not be acting dishonestly. In actual fact, most trustees who find themselves in this position are well-intentioned.6

The Innocent Executor

The recent Ontario case of Chambers v. Chambers7 ties together the principles of renunciation and intermeddling in the context of estate administration and presents a novel situation in which an executor de son tort can be found. The Estates Act8 provides that if a named executor fails to either apply for probate or renounce her appointment, and fails to respond to a summons to appear in court to apply, her right of appointment ceases:

25. When an executor survives the testator, but dies without having taken probate, and when an executor is summoned to take probate, and does not appear, the executor's right in respect of the executorship wholly ceases, and the representation to the testator, and the administration of the testator's property, without any further renunciation, goes, devolves, and is committed in like manner as if such person had not been appointed executor.

It is well established, and repeated in the Chambers decision, that renunciation is generally not available once an executor has taken even minor steps to administer the estate. Rather, an executor who has started to administer the estate must apply to court to be removed from that role. Similarly, an executor de son tort will not be allowed to renounce her executorship after even a minor act of intermeddling in the Estate. Such was the case in Chambers.

The deceased had primary and secondary wills, both of which appointed his wife and daughter as estate trustees. The daughter renounced her right to serve and the wife began administering the estate. An order was made requiring the wife to apply for a Certificate of Appointment of Estate Trustee or be deemed to have renounced her appointment. She failed to respond to that order and, by the operation of s. 25, her right to serve as executor ceased. She nonetheless continued to deal with the business which was owned by the estate. On an application to appoint a new executor, the court held that although the wife's right to act as executor ceased, the role nonetheless devolved to her as an executor de son tort due to her intermeddling in the Estate assets. The court held that the wife could only be removed through the appropriate process for executor removal or resignation.

In contrast to the Chambers decision, the courts will not necessarily consider all minor intermeddling to constitute the person as an executor de son tort. In Re O'Reilly (No. 2),9 for example, one beneficiary carried on the deceased's farming business, maintained the property and paid property taxes and insurance premiums. The court concluded that the question of whether a person is an executor de son tort is a question of law. The court held that where a person acts in the bona fide belief that they are entitled to receive the particular asset (as was the case here), that person is not an executor de son tort. The person's conduct must be indicative of an intention to take over the executor's role, and not just consistent with an independent claim to ownership of the trust property.

Liability of the Executor/Trustee de son tort

The overarching principle, which serves as a rationale for imposing liability on an executor de son tort, is that third parties should be able to rely on his authority. An executor de son tort is treated as an executor for the purpose of fixing liability. As such, the executor de son tort is liable to the rightful personal representatives to the extent of any assets received in the estate, less any proper payments made on the estate's behalf.10

In this context, there are distinctions to be drawn between an executor de son tort and a trustee de son tort. Whereas an executor de son tort is treated as an executor, duly appointed to that office, a trustee de son tort is not considered to be appointed to that office. Rather, the law imposes liability on the trustee de son tort for interfering with trust property in a way that prejudices the beneficiaries. The trustee de son tort incurs personal liability only where they perpetrate or participate in a breach of trust while acting as trustee. A trustee de son tort is not liable for simply taking up the office of trustee, but rather for administering the trust property contrary to the terms of the trust, of which they are or should be aware.

The actions of both executors and trustees de son tort are good and valid as against third parties, and binding on the rightful representatives of the estate or trust.11 Additionally, where the executor de son tort is subsequently appointed as the proper executor, any acts performed prior to that appointment for the benefit of the trust beneficiaries are ratified.12

This area of the law is far from static. There has been recent case law which considered whether an executor de son tort is entitled to compensation.13 As well, there has been some thought given in the academic sphere to how an attorney might incur similar liability. Stay tuned for developments in these issues.

The author gratefully acknowledges the research assistance of Carrington Hickey, Student-at-Law.

A version of this paper was presented at the 19th Annual LSUC Estates & Trusts Summit on November 4, 2016.

Previously published in STEP Connection

Footnotes

1 See e.g. the landmark decision in Becker v. Pettkus, [1980] 2 S.C.R. 834, 117 D.L.R. (3d) 257 (S.C.C.).

2 See e.g. Paragon Finance plc v. D.B. Thakerar & Co., [1999] 1 All E.R. 400 (C.A.).

3 For additional detail and discussion, see Waters, DWM, Gillen, M and Smith, L, Waters' Law of Trusts in Canada, 4th Ed., (Scarborough, Ont.: Carswell, 2012) at sec. 11.II (A) ("Waters").

4 [1993] 3 S.C.R. 787 at 809 ("Air Canada"), and Nova Scotia (Attorney General) v. Axford (1885), 13 S.C.R. 294 at 300, both as cited in Waters, ibid.

5 Dubai Aluminium Company Ltd. v. Salaam (2002), [2003] 2 A.C. 366 at para. 138 (Eng. H.L.).

6 See e.g. Selangor United Rubber Estates Ltd. v. Cradock, [1968] 2 All E.R. 1073 at 1095 (Eng. Ch. Div.).

7 [2013] O.J. No. 3659, (2013), D.L.R. (4th) 151, 90 E.T.R. (3d) 161 (C.A.) ("Chambers").

8 R.S.O. 1990, c. E.21, s. 25.

9 (1981), 28 O.R. (2d) 481 (H.C.) at 485-86, aff'd 33 O.R. (2d) 352 (C.A.) ("O'Reilly").

10 See Tsang v. Chen, 2005 Carswell Alta 1678 (ABQB) ("Tsang") and Cook v. Dodds, 1903 CarswellOn

11 Cook, ibid

12 See e.g. Murray v. Munroe, 1916 CarswellNS 12 (NSSC).

13 See Ontario (PGT) v. Patsalas Estate, 2000 CarswellOnt 37 (ONSC), aff'd 2001 CarswellOnt 61 (ONCA).

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.