The Law of Trusts 3 - e - Gillese, Eileen E.

THE LAW OF TRUSTS
T H I R D E D I T I O N
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E S S E N T I A L S O F
C A N A D I A N L A W
THE LAW
OF TRUSTS
T H I R D E D I T I O N
EILEEN E. GILLESE
Court of Appeal for Ontario
The Law of Trusts, third edition
© Irwin Law Inc, 2014
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ISBN: 978-1-55221-372-8
e-book ISBN: 978-1-55221-373-5
Library and Archives Canada Cataloguing in Publication
Gillese, Eileen E., author

The law of trusts / Eileen E. Gillese, Court of Appeal for Ontario. — Third
edition.
(Essentials of Canadian law)
Includes bibliographical references and index.
Issued in print and electronic formats.
ISBN 978-1-55221-372-8 (pbk.).—ISBN 978-1-55221-373-5 (pdf)
1. Trusts and trustees—Canada. 2. Trusts and trustees—Canada—Cases.
I. Title. II. Series: Essentials of Canadian law
KE787.G54 2014 346.7105’9 C2014-902532-7
KF730.G54 2014 C2014-902533-5
The publisher acknowledges the financial support of the Government of Canada

through the Canada Book Fund for its publishing activities.
We acknowledge the assistance of the OMDC Book Fund, an initiative of

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Printed and bound in Canada.
1 2 3 4 5 18 17 16 15 14
SUMMARY
TABLE OF CONTENTS
PREFACE TO THE THIRD EDITION xiii
PART ONE: Introduction 1
CHAPTER 1: An Introduction to the Law of Trusts 3
CHAPTER 2: Powers 21
PART TWO: Express Trusts 37
CHAPTER 3: The Creation of Express Trusts 39
CHAPTER 4: Purpose Trusts 59
CHAPTER 5: Ending or Changing a Trust 80
PART THREE: Trusts Arising by the Operation of Law 105
CHAPTER 6: Resulting Trusts 107
CHAPTER 7: Constructive Trusts 123
PART FOUR: The Trustee 145
CHAPTER 8: The Appointment, Retirement, and Removal of Trustees 147
CHAPTER 9: Duties of Trustees 154
CHAPTER 10: The Powers and Rights of Trustees 168
CHAPTER 11: Breach of Trust 178
v
vi THE LAW OF TRUSTS
CHAPTER 12: Conclusion 193
TABLE OF CASES 195
INDEX 203
ABOUT THE AUTHOR 210

DETAILED
TABLE OF CONTENTS
PREFACE TO THE THIRD EDITION xiii
PART ONE: INTRODUCTION 1
CHAPTER 1:
AN INTRODUCTION TO THE LAW OF TRUSTS 3
A. Understanding Trust Law 3
B. An Introduction to the Trust Concept 5
C. History and Background 6
1) The Beginning 6
2) Personal Rights Elevated to Proprietary Status 8
3) Abolition of the Use 9
4) The Trust 9
D. Trusts, Fiduciaries, and Other Legal Relationships 10
1) Fiduciaries 10
2) Agency 12
3) Contracts 13
4) Debt 13
E. Equitable Remedies 14
F. Equitable Maxims 17
G. Trusts in Quebec 19
vii
viii THE LAW OF TRUSTS
CHAPTER 2:
POWERS 21
A. Introduction 21
B. Powers 22
C. Powers of Appointment 24
1) General Powers of Appointment 25

2) Special Powers of Appointment 25
3) Hybrid or Intermediate Powers of Appointment 26
4) Gift, Trust, or Power? 26
D. Obligations of a Donee of a Power of Appointment 28
E. Rights of Objects of a Power of Appointment 32
F. Creating a Valid Power of Appointment 33
PART TWO: EXPRESS TRUSTS 37
CHAPTER 3:
THE CREATION OF EXPRESS TRUSTS 39
A. Introduction 39
B. Capacity 39
C. The Three Certainties 41
1) Certainty of Intention 42
2) Certainty of Subject Matter 43
3) Certainty of Objects 44
D. Constitution of Trusts 47
E. Formalities 51
F. Limitations on the Creation of Trusts 53
1) The Objects of the Trust Are Illegal 53

2) The Trust Imposes Invalid Conditions 55
a) Conditions Contrary to Public Policy 55
b) Conditions Impossible of Performance 56
c) Uncertain Conditions 57
G. Residence of a Trust 57
CHAPTER 4:
PURPOSE TRUSTS 59
A. Introduction 59
Detailed Table of Contents ix
B. Charitable Trusts 61
1) The Established Approach 64

a) Within an Accepted Category 65
b) Public in Nature 67
c) Of Benefit to Society 68
d) Exclusively Charitable in Purpose 68
e) Without Political Purposes 69
2) Upholding the Established Approach 69
C. Non-charitable Purpose Trusts 72
1) Quistclose Trusts 75
D. The Relationship between Charitable and Non-charitable Purpose

Trusts 76
E. Unincorporated Associations 77
CHAPTER 5:
ENDING OR CHANGING A TRUST 80
A. Introduction 80
B. Termination of the Trust 81
1) Revocation by the Settlor 81

2) “Exceptions” to the Rule against Revocation 82
3) Reserving a Power of Revocation 83
4) The Rule in Saunders v Vautier 85
5) The Rule in the Pension Trust Context 88
6) Distribution 89
7) Setting the Trust Aside 90
C. Alteration or Amendment of the Trust 90
1) Through the Trust Instrument 90

2) At Common Law 94
3) Under Statute 95
D. Variation of the Trust 97
PART THREE: TRUSTS ARISING BY THE OPER ATION

OF LAW 105
CHAPTER 6:
RESULTING TRUSTS 107
A. Introduction 107
B. Automatic and Presumed Resulting Trusts 111

x THE LAW OF TRUSTS
C. Classic Resulting Trust Situations 113
1) Failure of an Express Trust 113

a) Total Failure of the Express Trust 113
b) Partial Failure of the Express Trust 114
2) Purchase in the Name of Another 114
3) Gratuitous Transfer into the Name of Another 117
D. The Presumptions of Resulting Trust and Advancement 118
CHAPTER 7:
CONSTRUCTIVE TRUSTS 123
A. Introduction 123
B. Constructive Trusts: Remedy or Cause of Action? 126
C. Recognized Applications of Constructive Trusts 128
1) Causes of Action 128

a) Gains by Fiduciaries 128
b) Strangers as Constructive Trustees 131
i) Trustees de Son Tort 133
ii) “Knowing Assistance” to a Trustee in a Misapplication of Trust
Property 135
iii) “Knowing Receipt” of Trust Property 137
2) Remedies 142
a) Unjust Enrichment 142
PART FOUR: THE TRUSTEE 145
CHAPTER 8:
THE APPOINTMENT, RETIREMENT, AND REMOVAL OF
TRUSTEES 147
A. Introduction 147
B. Appointment 148
1) Introduction 148
2) Non-judicial Appointments 148
3) Court-Appointed Trustees 150
4) Number of Trustees 150
C. Retirement 151
D. Removal 152
Detailed Table of Contents xi
CHAPTER 9:
DUTIES OF TRUSTEES 154
A. Introduction 154
B. Powers and Duties 155
C. Delegation of Duties 159
D. Investment of Trust Funds 160
E. Duty to Act Impartially 162
F. Duty to Account 165
G. Duty to Provide Information 165
CHAPTER 10:
THE POWERS AND RIGHTS OF TRUSTEES 168
A. Introduction 168
B. Administrative Powers 169
1) Generally 169
2) Statutory Powers 170
3) Power of Investment 171
C. Dispositive Powers 172
1) Generally 172
2) Power of Maintenance 173
3) Power of Advancement 173
D. Rights of Trustees 174
1) Payment 174
2) Reimbursement 175
3) Set Off 177
CHAPTER 11:
BREACH OF TRUST 178
A. Introduction 178
B. Civil Liability of Trustees 180
1) Joint and Several Liability 180

2) Contribution and Indemnity 181
C. Criminal Liability of Trustees 183
D. Rights of Beneficiaries against Trust Property 183
1) Personal Remedies 183

xii THE LAW OF TRUSTS
2) Following Property at Law 184

3) Tracing in Equity 184
4) Tracing to a Third Party 185
5) Appropriation of Trust Property by the Trustee 186
E. Defences of Trustees 187
1) Exoneration Clauses 187

2) Laches 187
3) Limitation Periods 188
4) Technical Breach and Statutory Excusing Power 189
5) Consent and Participation 191
6) Release 192
7) Acquiescence 192
CHAPTER 12:
CONCLUSION 193
TABLE OF CASES 195
INDEX 203
ABOUT THE AUTHOR 210

PREFACE
to the Third Edition
When the first edition of this book was published seventeen years ago,
the trust had re-emerged as a revitalized legal instrument utilized by
businesses, charities, families, pension funds, and conservation organ-
izations, to name just a few. In recent years, trust law has continued to
expand its influence at a rapid pace, particularly in the area of pension
trusts, where it plays a key role in resolving conflicts over the adminis-
tration, creation, termination, and revocation of pension funds.
The flexible nature of trusts results in its continued development,
especially in the areas of resulting and constructive trusts. This new
edition offers substantially revised chapters on both types of trust.
Chapter 6 explores the various situations in which a resulting trust
can arise, examines the important role of intention in finding a resulting
trust, and analyzes recent pronouncements by the Supreme Court on the
presumptions of resulting trust and advancement. Chapter 7 offers an
updated discussion of the constructive trust, which courts increasingly
employ as a tool for remedying unjust enrichment in cohabitation cases.
In the Foreword to the first edition, Donovan Waters described this
book as “the sort of thing you can read with your feet up, as well as in
the office or library” and commended it “to lawyer, student, and lay-
person alike.” Accessibility remains a primary goal of the third edition.
Drawing on familiar examples from daily life, the new edition illus-
trates fundamental trust principles that cannot be found in a code or
legislation. However, there is one very significant change to this edition
xiii
xiv THE LAW OF TRUSTS
of the book. While the emphasis remains on the principles that shape
trust law, I have added many more references to the leading cases in the
various areas. By doing so, I hope to provide the reader with not only
a framework for understanding trust law but also a starting point for
research into any given area.
Trusts have been in existence for thousands of years, yet they con-
tinue to transform and adapt to the demands of modern life. This third
edition aims to provide an approachable introduction to this thriving
area of law.
Justice Eileen E. Gillese
Court of Appeal for Ontario
Toronto, Ontario
P A R T O N E
INTRODUCTION
This page intentionally left blank
C H A P T E R 1
AN INTRODUCTION
TO THE LAW OF TRUSTS
A. UNDERSTANDING TRUST LAW
Trust law is dynamic; trust principles are not. These apparently para-
doxical statements are meant to drive home an important point. The
principles that form the basis of the law of trusts are well established,
having been formulated and refined over hundreds of years. Those
principles can be distilled and their operation explained through the
use of examples and reference to caselaw. Indeed, this book is designed
to do just that: to provide readers with a concise and current statement
of the major principles of trust law in Canada. At the same time, however,
readers must recognize that principles are not rules, nor are they a code.
Principles do not provide answers to questions. Rather, they provide the
tools with which answers can be devised, guidance on how to approach
new and novel situations, and the basis on which people’s rights and
obligations can be determined. While it may be frustrating to learn that
there are no answers but only principles, this reality explains why trust
law is dynamic; the principles enable the courts and those using trusts
to be creative and to adjust to new demands.
To understand trust law, we must study and understand trust princi-
ples. In order to illustrate how those principles operate, this book offers
examples from daily life and analyzes the core cases that have shaped
Canadian trust law. While the aim is to provide readers with an access-
ible introduction to trust law, this edition also highlights contemporary
leading cases from the Supreme Court of Canada. Readers wishing to
3
4 THE LAW OF TRUSTS
delve into the details of a particular topic are well advised to consult, as
well, the comprehensive Waters’ Law of Trusts in Canada.1
It also helps to understand something of the history of trusts and
how the trust differs from other legal constructs. Those matters are
the topics of Chapters 1 and 2 of this book. In Chapter 3, the elements
necessary to create a trust are explored. In Chapter 4, the principles gov-
erning trusts for purposes, rather than for persons, are considered.
The mechanisms for changing and ending a trust are the subject matter
of Chapter 5. In Chapters 6 and 7, the principles that define the shape of
resulting and constructive trusts are set out and explored. Chapters 8,
9, 10, and 11 are directed towards those who act as trustees. In Chapter
8, the matters of appointment, retirement, and removal of trustees are
discussed. Trustees’ duties, powers, and rights are examined in Chap-
ters 9 and 10, respectively. The book concludes, in Chapter 11, with
an examination of what constitutes a breach of trust and the conse-
quences to trustees of being found liable for breach of trust.
The emphasis in this book is on the principles that shape and de-
fine trust law. The legislation that governs trustees is not like the Crim-
inal Code or the Charter of Rights and Freedoms. You cannot turn to the
legislation to gain insight into the structure or functioning of a trust.
The legislation addresses discrete points of law and presupposes an
understanding of what trusts are and how they operate. For example,
trustee legislation does not set out the role of the trustee, complete
with a description of duties and powers, but it does set out mechanisms
for the appointment and removal of trustees. Trustee legislation does
not create or define the duty of loyalty, that being the overriding duty
of trustees, nor does it explain how that duty is fulfilled or even the
standard to which the trustee will be held. The legislation does, how-
ever, indicate how certain aspects of that duty may be fulfilled, as, for
instance, in its treatment of investment powers.
Often, the common law principles, and how they have been inter-
preted in the caselaw, are the only guidance that exists. Trustee legisla-
tion has been passed in all Canadian provinces and territories, but all
too frequently it is of limited or no application. Where trustee legislation
affects any given area, the effects are highlighted and samples of such
legislation are given. For the convenience of readers who wish to con-
sult the trustee legislation in their jurisdiction,2 citations for that legis-
lation are given in note 2, below.
1 Donovan Waters, Mark Gillen, & Lionel Smith, Waters’ Law of Trusts in Canada,
4th ed (Toronto: Carswell, 2012).
2 Trustee Act, RSA 2000, c T-8; RSBC 1996, c 464; RSNL 1990, c T-10; RSNS 1989,
c 479; RSNWT 1988, c T-8; RSNWT (Nu) 1988, c T-8; RSO 1990, c T.23; RSPEI
An Introduction to the Law of Trusts 5
B. AN INTRODUCTION TO THE TRUST

CONCEPT
To define a trust is a difficult, if not impossible, task. No one definition

can encompass all the intricacies of the trust concept. That, in fact, is
part of the magic of the trust concept. Having no fixed definition, it is
flexible and can adjust to the unending change that is part of modern
society. Take, for example, the need that arose in the latter part of this
century to deal fairly with property distribution on the breakdown of
personal relationships. Trust law, in the form of the constructive trust,
was the solution. Consider the huge growth in the area of fiduciaries,
again an area largely determined through the application of trust prin-
ciples. Another important and developing area is that relating to pen-
sion plans. The framework for analysis, once again, is built on trust
principles.
These examples are in addition to the traditional uses to which
trusts have been put. Historically, equity has been dominant in the areas
of wills, property, and trusts. There are the obvious tax uses to which
trusts can be put, as well. Provision for one’s family is still often best
accomplished through use of a trust. The desire to create successive
interests in property is best accomplished through a trust. Children
who are not of age need to be provided for, as do loved ones who suffer
from some type of incapacity; again, perhaps the safest and most secure
way of making such provision is through use of a trust. Corporate law
is now heavily dependent on the use of trusts — joint ventures, de-
bentures, and insolvencies all rely on the trust as an operating mode.
On death, the property of a deceased vests automatically in a personal
representative who is the trustee of such funds. Many statutes rely on
trusts to effect their purposes. Pension legislation, for instance, deems
that employee contributions to pensions that are collected by employ-
ers are held in trust until they are deposited into the pension fund. The
list could go on, but these examples should serve to show how exciting
and important the trust is in modern life.
In its simplest terms, a trust arises whenever there is a split in legal
and beneficial ownership to property — that is, whenever one person
holds legal title to property and is legally obliged to manage that prop-
erty for the benefit of another. It is an equitable concept that enables
two persons to have shared ownership rights in a single piece of prop-
erty. The person holding the legal title is termed a trustee; the duty to
1988, c T-8; RSY 2002, c 223; The Trustee Act, 2009, SS 2009, c T-23.01; The
Trustee Act, CCSM c T160; Trustees Act, RSNB 1973, c T-15; Arts 1260–98 CCQ.
6 THE LAW OF TRUSTS
hold the property for the benefit of another is termed a duty of loyalty;
the person with equitable or beneficial entitlement is called the bene-
ficiary. A trust can be created for any purpose so long as the purpose is
not illegal or contrary to public policy.
Readers who want a more detailed definition of a trust may find
Underhill’s description useful:
A trust is an equitable obligation, binding a person (who is called a
trustee) to deal with property over which he has control (which is
called the trust property), for the benefit of persons (who are called
the beneficiaries or cestuis que trust), of whom he may himself be one
and any one of whom may enforce the obligation.3
C. HISTORY AND BACKGROUND
Familiarity with the way in which trusts developed makes it easier to

understand what the trust is today, how it can be used, and how it may
develop in the future. Generally speaking, the trust developed through
the following four stages.
1) The Beginning
Equity has its origin in the office of the Chancellor. The King had re-
sidual power to do justice among his subjects in circumstances where
justice could, for some reason, not be achieved in the courts of common
law. The King delegated this power to the Chancellor. Once a body of
decisions by the Chancellor had been developed, and there was some
predictability that the Chancellor would hear a matter and that he
would act according to certain principles, this branch of law was given
a name: equity.
Thus, it can be seen, equity is the body of rules that evolved to re-
duce the rigidity of the rules of common law. Equity became a branch
of law that, until the passage of the Judicature Act, 1873, was adminis-
tered by the Court of Chancery. The effect of the Judicature Acts was to
fuse the equity and the common law systems of law so that both could
be dispensed by all courts.4
3 Underhill and Hayton, Law Relating to Trusts and Trustees, 18th ed by David J
Hayton, Paul Matthews, & Charles Mitchell (London: LexisNexis, 2010) at 2.
4 The Common Law Procedure Act, 1854 (UK), 17 & 18 Vict, c 125, gave the common
law courts power to dispense equitable remedies. The Chancery Amendment Act,
1858 (Lord Cairn’s Act) (UK), 21 & 22 Vict, c 27, gave the Court of Chancery power
In the beginning, however, there was no system of law known as

equity. There was only the hope that those aggrieved in the common
law courts might find help from the Chancellor. For example, a serf
might have turned to the Chancellor for help if he felt unable to obtain
justice in the common law courts because his opponent was a rich and
powerful lord.
In this, the first stage in the development of equity and trusts, the
Chancellor recognized the rights of an individual and dispensed relief
on a case-by-case basis. The equities of the two sides were considered,
and relief was granted as the Chancellor saw fit. As more and more de-
cisions were given, the outlines of the rights of the two parties became
clear.
One area in which the Chancellor became involved was that relat-
ing to uses. Uses have their own history. Under feudal law, a lord was
entitled to a payment when an heir succeeded to feudal land, and to
other valuable rights arising when the land was held by a minor heir.
These payment burdens were avoided if the land was vested in a person
who was not a minor. Thus, people would transfer property to feoffees
to uses. These various feoffees to uses were unlikely to die simultan-
eously, and those who died could be replaced by others who were of
age. Thus, transfer of land to a feoffee to use had the effect of eliminat-
ing the burdens owed to the lords. In effect, the use was a tool for tax
avoidance or tax planning.
The need for relief from the Chancellor resulted from the fact that
the person for whose benefit the trust was created, who was known as
the cestui que use, could not enforce the obligations undertaken by the
feoffee to use in the common law courts. In the eyes of the common
law, the feoffee was the legal owner. The feoffees were only obligated
by conscience to conduct themselves in the manner initially intended.
EXAMPLE: X conveys her interest in land to A, asking that A hold the inter-
est for the benefit of X’s infant daughter, B. A agrees, but, after X’s death,
reneges on his promise. B turns to the common law courts, but gets no
relief because, in the eyes of the court, A is the owner of the property inter-
est. B seeks the intervention of the Chancellor. The Chancellor interferes to
compel A to hold the land for the exclusive use and benefit of B.
to award damages in addition to or in substitution for an injunction or a decree

of specific damages. The Judicature Acts, 1873 (UK), 36 & 37 Vict, c 66, and 1875
(UK), 38 & 39 Vict, c 77, abolished the old separate courts and created divisions
that could exercise both legal and equitable jurisdiction.
8 THE LAW OF TRUSTS
The Chancellor could not say that B was the owner, because to do so
would have put his decision in direct conflict with the common law
courts that recognized A as the owner. However, all the beneficial in-
terest in the land could be given to B by compelling A to manage the
property to the benefit of B.
This example illustrates the concept of split ownership that is at the
root of the trust. As will be seen, the use is the precursor to the trust.
2) Personal Rights Elevated to Proprietary Status

The second stage in the development of the trust began roughly in the
1400s, when the Chancellor routinely began to enforce uses. By enforcing
the use, the Chancellor could demand that feoffees honour their obliga-
tions in conscience. The Chancellor recognized the rights of the cestui
que use not just against the feoffee but also against third parties. Ultim-
ately, in this stage, it became known that the Chancellor recognized the
rights of the cestui que use against all except those who had purchased
the property for value without any reason to suspect that they could
not freely purchase the property. In other words, the Chancellor rec-
ognized the rights of the cestui que use against the feoffee and all those
claiming through the feoffee, save and except the bona fide purchaser
for value without notice. At this point, it can be said that the rights
of the cestui que use were elevated to proprietary status. However, it is
more accurate to recognize that the rights of the cestui que use are both
personal and proprietary, depending on the circumstance.
The position of the cestui que use is similar to that of the trust bene-
ficiary. In the following discussion, for ease of reference, we will refer
to trustee and beneficiary, but the principles are equally valid in re-
spect of feoffee and cestui que use. Ownership is a bundle of rights that
can be grouped under three headings: management rights, the right
to physical enjoyment of the trust property, and the right to enjoy the
benefits of the trust property. In a trust, the ownership right termed
“management” or “administration” is given to the trustee. The trustee,
having legal title, has the right to do such things as sell, mortgage,
lease, and charge the trust property. The beneficiary, on the other hand,
has the right to enjoy the benefits of the trust property. The beneficiary
also has the right to compel the trustee to duly administer the trust. The
right to compel due administration is a personal remedy. If the bene-
ficiary seeks to claim a right against anyone who gains title through
the trustee as volunteer or with notice of the trust, again the action is
personal, because it emanates from the right to compel due administra-
tion. The courts recognize the legal title of the trustee but constrain it
through the trustee’s personal obligation to act in the best interests and
for the sole benefit of the beneficiary. When looked at in this way, the
beneficiary’s rights are in personam rights.
At the same time, the rights of the beneficiary to the property are
enforceable against all but the bona fide purchaser for value without
notice. When considered in this way, the rights of the beneficiary ap-
pear proprietary in nature, since they can trace the property, they may
at times demand that the property be transferred to them, and so on.
When considering the right of the beneficiary to recover trust property
from all but the bona fide purchaser for value without notice, the bene-
ficiary can be seen to have in rem rights. The language used to describe
the beneficiary’s rights should not obscure the fact that parallel sys-
tems of law operate simultaneously.
3) Abolition of the Use

The third stage in the development of the trust arose with the enact-
ment of the Statute of Uses, 1535. The legislation had the effect of trans-
ferring legal title to the property to the cestui que use. Only in limited
situations was the use permitted to continue;5 with those few excep-
tions, uses were abolished.
The most likely explanation for the enactment of the legislation is
that the King did not appreciate the diminution of his feudal rights that
could be effected through a use. As a result of the legislation, the feoffee
was eliminated and the legal title transferred to the cestui que use was
thereafter enforceable in a court of law.
4) The Trust
The use was far too important a device to be eradicated without a fight.
Clever lawyers decided that perhaps the effect of the Statute of Uses,
1535 could be avoided by means of a second use. Thus, instead of trans-
ferring property to a person to hold to the use of another, property was
conveyed to the use of another to the use of yet another. It worked! The
courts held that the first use was executed by operation of the Statute
of Uses, 1535, but that the statute was then exhausted. The second use
then became enforceable by the Chancellor and was known as a trust.
5 The exceptions were when the feoffee stood seized not of land but of personalty or
chattels real; when the use was active, as the feoffee had duties to perform; when a
corporation was the feoffee; or when a person was seized to his or her own use.
10 THE LAW OF TRUSTS
During these four stages of development, equity was transformed

from an ad hoc system based on the personal interference of the Chan-
cellor into a system of established rules and principles. These rules and
principles are discussed below.
D. TRUSTS, FIDUCIARIES, AND OTHER LEGAL

RELATIONSHIPS
The trustee is a type of fiduciary and must be understood in that way.

However, the role of trustee can be better understood by also differenti-
ating it from other familiar legal concepts such as agency, contract, and
debt. Accordingly, after considering the trustee as fiduciary, the role
of trustee will be explored by distinguishing it from those other legal
relationships.
1) Fiduciaries
The characteristics of a fiduciary relationship were described in Frame
v Smith:
(1) The fiduciary has scope for the exercise of some discretion or
power.
(2) The fiduciary can unilaterally exercise that power or discretion so
as to affect the beneficiary’s legal or practical interests.
(3) The beneficiary is peculiarly vulnerable to or at the mercy of the
fiduciary holding the discretion or power.6
Fiduciary duties are often found to exist in order to protect rela-
tionships of importance to the public.7 Well-recognized fiduciary re-
lationships are solicitor-client, guardian-ward, director-company, and
principal-agent relationships.8 The trustee-beneficiary relationship is also
a fiduciary relationship. It is the most intense of all fiduciary relation-
ships because the trustee has the right and power to control property
6 [1987] 2 SCR 99 at 136.

7 R v Neil, 2002 SCC 70 at para 16.
8 However, it is important to realize that not every legal claim arising from a
fiduciary relationship gives rise to a fiduciary claim. For example, while the
solicitor-client relationship has fiduciary aspects, many tasks undertaken in the
course of that relationship do not attract a fiduciary obligation. See Galambos v
Perez, 2009 SCC 48 at paras 36–37 [Galambos].
belonging to another (the beneficiary). The legal effect of this intensity

is that the trustee will be held to the highest fiduciary standards.
A fiduciary’s obligation is rooted in the duty of loyalty. This duty
translates into an obligation to act strictly in the best interests of the
other.9 The duty to act strictly in the best interests of the other has, in
turn, been understood to mean that a fiduciary may not permit his or her
personal interests to conflict with the responsibilities of the fiduciary
office; may not make unauthorized profits; may not delegate fiduci-
ary responsibilities; must keep proper accounts; and must act honestly,
with due diligence, and with the utmost candour.
The concept of when a fiduciary relationship may arise has expanded
greatly in recent years. Thus, it is important to recognize not only the
established categories of fiduciaries but also the non-traditional rela-
tionships that courts are treating as fiduciary in nature. The categories
of fiduciary relationships are not closed. What is required in all cases is
an undertaking by a person, either express or implied, to act in accord-
ance with the duty of loyalty reposed in him or her.10 In determining
whether such an undertaking has been given, the courts will consider
such matters as professional norms, industry or other common practices,
and whether the alleged fiduciary induced the other party into relying
on the fiduciary’s duty of loyalty.11
Importantly, fiduciary duties do not arise in a vacuum but are
linked to the legal interests at stake and the relationship at issue. Thus,
“the nature and scope of the fiduciary duty must be assessed in the legal
framework governing the relationship out of which the fiduciary duty
arises,” and the type of obligation imposed may vary depending on the
relationship.12 Because fiduciary duties are so demanding, these duties
will only be imposed on those who have expressly or impliedly under-
taken them.13
One difference between the trustee-beneficiary relationship and other
types of fiduciary relationships is that a trust relationship cannot exist
without trust property. In contrast, many fiduciary relationships exist with-
out property.
9 See Lac Minerals Ltd v International Corona Resources Ltd, [1989] 2 SCR 574 at
646–47.
10 Galambos, above note 8 at para 75.
11 Ibid.
12 Sun Indalex Finance, LLC v United Steelworkers, 2013 SCC 6 at paras 185–86. See
also Sharbern Holding Inc v Vancouver Airport Centre Ltd, 2011 SCC 23 at para
141, and KLB v British Columbia, 2003 SCC 51 at para 41.
13 See Galambos, above note 8 at para 71.
2) Agency
An agency relationship arises when one person, called an agent, has
express or implied authority to act on behalf of another person, called
the principal. The obligations of an agent to its principal are similar to the
obligations of a trustee to its beneficiary. The similar obligations are
the result of both being fiduciary relationships. One should be aware of
the fine distinctions that separate a relationship from being either an
agency or a trust, because the distinction results in serious legal con-
sequences.
The first distinction between the two concepts is that the agency re-
lationship is personal, as between principal and agent, while the trust
relationship is proprietary in nature. Thus, the agent-principal rela-
tionship is generally treated as debtor-creditor, while the beneficiary
is, in substance, treated as the owner of the property in the trustee-
beneficiary relationship.
Second, agents generally do not have title to property, while the
trustee must have title to the trust property.
Third, an agent acts on behalf of, and subject to the control of, the
principal. In contrast, a trustee is not subject to direction or control by
the beneficiaries, beyond the obligation to deal with the trust property
in accordance with trust duties.14 This distinction holds even where all
the beneficiaries are sui juris and unanimous in their desire to replace
the current trustee with a trustee of their choosing; no beneficiary can
interfere with the exercise of the trustee’s fiduciary powers in the admin-
istration of the trust. The beneficiaries may, in certain circumstances,
band together and end the trust,15 or sue to compel the due performance
of the trust, but that is the extent to which they can control the trustee.
Finally, agency arises by agreement between the parties. No one
can force another to become a trustee against his or her will; or, as
the saying has it, “You cannot thrust a trust.” However, the trust may
be created without agreement between the trustee and the benefici-
aries. In addition, once a trust is constituted, it may not be revoked by
the settlor unless there is an express power of revocation, whereas the
principal can normally end the agency relationship at will. An agency
relationship normally terminates by the death or at the wish of either
party, while a trust is not terminated by the death or wish of the trustee,
beneficiaries, or settlor.
14 Re Brockbank, [1948] Ch 206.

15 Saunders v Vautier (1841), 4 Beav 115, 49 ER 282, aff’d (1841), 1 Cr & Ph 240, 41
ER 482 (Ch). This right has been abolished by legislation in Alberta and Mani-
toba, as discussed in Chapter 5.
The consequences of finding an agency relationship rather than

a trust can be critical. The most important consequence arises when
the agent is insolvent: unless the agent has agreed to keep the subject
property separate from her own, the principal is entitled only to an
accounting by the agent and cannot claim any special right to specific
property or its proceeds. As a result, the principal will rank as a gen-
eral creditor. In contrast, a trust beneficiary has a proprietary right to
the trust assets, or the proceeds from the trust assets and the profits
thereon, a right that ranks above those of all creditors.
3) Contracts
A contract is a legally binding agreement, or bargain, between two
people. Consideration must flow between the parties, and an intention
to create legal relations must be found to exist. Trusts and contracts
may exist simultaneously. For instance, contractual rights may be the
subject matter of a trust; a contract may create a trust; or a trust may
arise by operation of law to support a contract. Trusts and contracts are,
however, fundamentally different.
In the first place, a contract is based on agreement or on an ex-
change of promises, with each party accepting obligations; considera-
tion (or a seal in lieu thereof) is essential to the formation of a contract.
In contrast, the trust may be created without the agreement of any of
the parties and with an absence of consideration. Second, property must
be transferred to the trustee, whereas a contract need not involve the
transfer of property.
Finally, the common law privity of contract rule prevents any per-
son who is not a party to the contract from suing to enforce it. Equity,
however, enables the trust beneficiary to sue to enforce the trust, re-
gardless of whether the beneficiary is a party to the trust agreement.
4) Debt
A debt exists when one person is under a personal obligation to pay
money to another. Unlike a trustee, a debtor is not a fiduciary. A creditor
has no interest, legal or equitable, in the property of the debtor. There
is simply a personal obligation on the debtor to repay the debt when it
is due. The trust beneficiary, on the other hand, has a beneficial propri-
etary interest in the trust property.
A debt is created by agreement, and the parties may compromise, al-
ter, or extinguish the debt by further agreement. In contrast, there need
be no agreement to create a trust. Further, there can be no bargaining
between the trustee and the beneficiaries, since the trustee must act
strictly in the interest of the beneficiaries and not permit his own inter-
est to conflict with the interests of the beneficiaries.
The debtor remains liable to the creditor until the debt is paid. The
trustee, however, is not personally obligated to compensate the bene-
ficiaries if the trust property is lost, unless the loss was caused through
a breach of the standard of care owed.
Confusion between the trust and debt concepts arises when one
holds money belonging to another. The essence of the distinction was
captured in the following quotation from Henry v Hammond:
It is clear that if the terms upon which the person receives the money
are that he is bound to keep it separate, either in a bank or elsewhere,
and to hand that money so kept as a separate fund to the person en-
titled it, then he is a trustee of that money and must hand it over to
the person who is his cestui que trust. If on the other hand he is not
bound to keep the money separate, but is entitled to mix it with his
own money and deal with it as he pleases, and when called upon to
hand over an equivalent sum of money, then, in my opinion, he is not
a trustee of the money, but merely a debtor.16
E. EQUITABLE REMEDIES
One important feature of equitable remedies is that they are discre-

tionary. This means that even if a plaintiff proves that a defendant has
breached an equitable cause of action, no remedy is automatically forth-
coming. The concept that proof of a breach leads automatically to a right
belongs to the common law. For example, if I prove a breach of contract,
I will automatically get a damage award. It may be nominal if the breach
led to no actual harm, but I will get an award. Equity, on the other hand,
is more flexible in its approach to granting relief. It considers the con-
duct of the plaintiff, for example, in determining whether to grant relief.
Whereas at common law, conduct and motive are irrelevant, in equity the
conduct of the parties is always relevant. To continue with the example
of the breach of contract (a common law action), once the plaintiff proves
the breach, it is up to the defendant to have the breach excused, if pos-
sible. The court does not turn to the plaintiff and examine the plaintiff’s
conduct or motives. In equity, however, the plaintiff’s actions are highly
relevant. As will be seen below, although equitable relief is discretionary,
16 [1913] 2 KB 515 at 521.

it is not arbitrary. The factors that the court will consider in determining
whether to exercise its discretion can be found in the equitable maxims.
A second feature of equitable relief is that it is available in two differ-
ent circumstances. In the first instance, if an equitable cause of action is
in issue, equitable remedies may be requested. If, however, the cause of
action lies at common law, then equitable relief is available only if the
common law remedy of damages is inadequate. Thus, if a plaintiff pursues
a common law cause of action, the plaintiff is prima facie entitled to a com-
mon law remedy and must demonstrate that the common law remedy is
inadequate in order to request equitable relief. For these reasons, despite
the passage of the Judicature Acts, which had the effect of fusing the com-
mon law and equity courts, it is still important to understand what system
of law governs any given cause of action and the relief sought.
EXAMPLE: An acquaintance has an antique brooch that I admire. I pay her
$100 and she agrees to give me the brooch. She now refuses to give me the
brooch, so I sue. What relief can I get?
The acquaintance and I entered into a contract. A contract is a com-
mon law cause of action. Prima facie I am entitled to be put into the
position I would have been in had the contract been performed, so I
should be compensated by a damage award for the value of the brooch.
But if I can show that I am not able to purchase such a brooch in the
market because it is unique, I can ask the court for the equitable rem-
edy of specific performance. Specific performance would require the
acquaintance to perform as promised — to give me the brooch.
There are a great number of equitable remedies. The common thread
running through each is an inherent flexibility and ability to respond to
a variety of situations “in principled and realistic ways.”17 Four commonly
sought remedies are set out below. In addition, there are the equitable
remedies of accounting, compensation for loss, and tracing, which are dis-
cussed at length in Chapters 7 and 11.18
Specific performance: a court order that a party perform according to an
agreement or a contract.
EXAMPLE: A vendor backs out of a contract for the sale of land because
he wishes to sell the land to someone else. Equity may grant an order for
specific performance, which would require the vendor to complete the ori-
ginal contract.
17 Kerr v Baranow, 2011 SCC 10 at para 71.

18 For a thorough examination of equitable remedies in Canada, see Jeffrey
Berryman, The Law of Equitable Remedies, 2d ed (Toronto: Irwin Law, 2013).
Specific performance is available where money cannot fully compen-

sate a plaintiff’s loss, due to the “peculiar and special” value of the
property to the plaintiff.19 In the recent case of Southcott Estates Inc v
Toronto Catholic District School Board, the Supreme Court confirmed
that if a plaintiff has a “substantial justification” or a “substantial and
legitimate interest” in specific performance, the plaintiff’s refusal to
purchase other property in order to mitigate his or her loss may be
reasonable.20
Injunction: a court order that requires a person to do or, more usually,
to refrain from doing a particular act.
EXAMPLE: A municipality issues a permit to a farmer that allows the farm-
er to run a gravel pit on the farmland between the hours of 8 a.m. and 6 p.m.
The farmer operates until midnight on a regular basis, and the noise causes
the neighbours much distress. The municipality may seek an injunction
to prevent the farmer from operating the pit outside the prescribed hours,
since damages are not an adequate remedy for the municipality.
Rescission: a court order that a contract be set aside and the parties re-
stored to their original positions.
Rectification: where a written document does not correctly reflect the
agreement entered into, a court order that the document be altered to
reflect the parties’ true agreement.
EXAMPLE: X and Y agree that X will buy Y’s house for $100,000. The
agreement is typed up and the purchase price is stated to be $10,000. X is
delighted. If X will not willingly agree to amend the contract, Y can seek
rectification to reflect the orally agreed upon price.
Rectification is not readily available as a remedy: there are “high hur-
dles” placed in the way of a party seeking rectification of a written con-
tract.21 In this example, Y must first prove the prior oral agreement to
sell the house for $100,000.22 Among other requirements, Y must then
19 Adderley v Dixon (1824), 1 Sim & St 607, 57 ER 239.

20 2012 SCC 51 at para 37.
21 Performance Industries v Sylvan Lake, 2002 SCC 19 at para 35 [Performance
Industries].
22 In Performance Industries, ibid at para 41, the Supreme Court said that the
claimant had to provide “convincing proof,” which was described as proof
falling short of the criminal standard but more than that required by the civil
standard of proof. This has been supplanted, however, by FH v McDougall, 2008
SCC 53 at para 49, in which the Supreme Court held that there is only one
standard of proof in a civil case, and that is proof on a balance of probabilities.
prove that X knew or ought to have known about the inconsistencies

between the written contract and the oral agreement in circumstances
amounting to fraud or the equivalent of fraud.23
F. EQUITABLE MAXIMS
The court’s discretion in determining whether to grant equitable re-

lief is not capricious or arbitrary. Some of the considerations that help
to determine whether to grant relief are encapsulated in the following
equitable maxims:
Equity will not suffer a wrong to be without a remedy

The principle behind this maxim is that equity will intervene to protect
a right that is not enforceable at law. If a wrong has been committed in
the eyes of equity, relief will be given even if the wrong is not recog-
nized by the common law.
Equity follows the law

Equity does not override statute law or common law. It is for this reason,
for example, that equity does not strip title from the trustee and vest it
in the beneficiary. Equity recognizes that, in the eyes of the common
law, the trustee is the lawful owner of property; therefore, it imposes
obligations on the trustee so that the trustee acts for the sole benefit of
the beneficiaries.
Those who seek equity must do equity

Equity requires that the plaintiff who seeks equitable relief must act
fairly towards the defendant.
EXAMPLE: A plaintiff seeking an injunction will not succeed if he is unable
or unwilling to carry out his own future obligations.
Those who come to equity must come with clean hands

This maxim is slightly different from the one above. This principle is
concerned with the plaintiff’s previous conduct, whereas the above
maxim is concerned with the future conduct of the plaintiff.
23 See Performance Industries, above note 21 at paras 36–41. See also Shafron v KRG
Insurance Brokers, 2009 SCC 6.
EXAMPLE: Equity will not grant relief, such as specific performance of a con-
tract for the repair of a damaged loading dock, if the tenant is in breach of her
obligations, such as failure to pay according to the terms of the agreement.
Where the equities are equal, the law prevails

Where both sides to a dispute have legitimate claims, the one who has
the common law on her side prevails.
Where the equities are equal, the first in time prevails

This maxim is self-explanatory. Read in conjunction with the maxim
above, the doctrine of the bona fide purchaser for value without notice
is explicable.
EXAMPLE: A stranger unwittingly purchases land from a trustee. Nothing
could have alerted the stranger to the fact that it was trust property. Fair
market value was paid. The trustee runs off with the purchase money. The
beneficiary would be unsuccessful in an action to recover the property from
the purchaser. The equities between the purchaser and the beneficiary are
equal; the purchaser prevails, since she has the legal estate.
Thus, it is that an equitable interest can be defeated by a bona fide pur-
chaser for value without notice. If the purchaser acquired with notice,
the equities are no longer equal and the beneficiary would prevail.
Equity imputes an intention to fulfil an obligation

Where a person is obliged to do some act and does some other act that
could be regarded as a performance of it, the act performed will be re-
garded in equity as the act that was to be performed.
Equity regards as done that which ought to be done

Where there is a specifically enforceable obligation, equity regards the
parties as being in the positions they would have been in after perform-
ance of the obligation.
EXAMPLE: A specifically enforceable contract for the sale of land is seen to
have transferred the equitable interest to the purchaser, so that the vendor
holds the legal title on constructive trust until completion of the contract.
Equity is equality
Where two or more persons are entitled to an interest in the same prop-
erty, equity assumes an equal division, provided there is no evidence of
a contrary intention.
EXAMPLE: I leave $20,000 in trust for my four children. I have not specified
the amount that each child is to take, nor have I given my trustees a discre-
tion to determine how much to give to each child. Equity will assume that
each child is to take an equal share of the money.
Equity looks to the intent rather than the form

Equity looks at substance rather than form.
EXAMPLE: A trust may be found to have been created, even though the
word “trust” was not used by the parties.
Delay defeats equity

Equity will aid the vigilant, not the indolent. This maxim led to the
doctrine of laches. A party who has slept on his rights cannot obtain
equitable relief.
EXAMPLE: A minor beneficiary discovers that the trustee has acted in
breach of trust. Ten years after attaining the age of majority, the beneficiary
seeks to sue for breach. As a result of failing to act within a reasonable time
period, the beneficiary may be refused relief.
Equity acts in personam

Equity has jurisdiction over the defendant personally.
EXAMPLE: Failure to comply with an order, such as specific performance or
an injunction, is a contempt of court punishable by imprisonment.
G. TRUSTS IN QUEBEC
Historically, the concept of a trust was not recognized in civil law

jurisdictions, because the idea of split-title ownership is not found in
civil law. However, civil law now recognizes the trust concept. Article
1260 of the Civil Code of Quebec24 provides that a trust is established
when a settlor transfers property from his or her patrimony to another
patrimony that the settlor constitutes and appropriates to a particular
purpose. The trust is created when the trustee accepts the trust, and
acceptance divests the settlor of the property under Articles 1264 and
1265. The trustees appropriate the property and administer the trust,
and certain rights are conferred on the beneficiaries. The overall ef-
fect is to create a trust that appears to be very similar to the equitable
concept of a trust in common law Canada. The Code also accepts trusts
24 CCQ [Code].
created for personal, private, and commercial purposes.25 The net effect
of these changes to the Code is that trusts may now be created and used
in all of Canada.
25 See Bank of Nova Scotia v Thibault, 2004 SCC 29 for a discussion of the trust
concept in Quebec, including the requisite characteristics of a trust under the
civil law. In her decision, Deschamps J noted that while the 1991 reform of
Quebec’s Code established the trust as a more flexible instrument for use in the
province, settlors must still comply with the basic requirements set out in the
Code in order to create a valid trust (at paras 37–41).
C H A P T E R 2
POWERS
A. INTRODUCTION
The trust can be a useful legal device, as Chapter 1 makes clear. The
challenge when creating a trust is to ensure that it is useful in practice.
One way to make sure that a trust is flexible and can be used effectively
is to invest the trustee with suitable powers. A power is the authority
to do any act that the grantor might him- or herself lawfully perform.
The types of powers a trustee needs to perform the terms of the trust
properly and efficiently are outlined in Chapter 10.
Powers may exist independently of trusts; they are a separate legal
construct, with their own advantages and disadvantages. They must be
understood at a broad conceptual level as well as at a more detailed level.
Often the first question to be answered is whether a trust or a power is
the best legal tool to use to achieve a particular purpose. If the deci-
sion is made to use a trust, then the next decision must be the powers
the trustee may need to perform the trust. The first question is a broad
conceptual one: trust or power? If a trust is found to be preferable, then
powers are considered as ancillary to the dominant legal tool, the trust.
In this chapter I consider powers at the conceptual level: the overall
nature of a power as distinguished from a trust. In Chapter 10, I look at
powers when they are attached to trusts; that is, I consider powers not
as a separate legal construct but as ancillary to the trust.
The one overriding reason to examine the concept of powers in a
book on trusts is that one particular type of power, a power of appoint-
ment, appears to be very similar to a discretionary trust. Yet the conse-
quences of creating one or the other are markedly different. Not only is
21
the power of appointment easily confused with the discretionary trust,

but many discretionary trusts are coupled with powers of appointment,
thereby doubling the confusion. Caselaw from years gone by is replete
with examples of documents that had been drafted in such a way that
it was unclear which of the two was intended. It is important that we
have a good understanding of how a discretionary trust and a power of
appointment differ so we can properly draft and interpret documents.
This chapter begins with a discussion of what powers are and goes
on to explore the power of appointment and how it differs from a discre-
tionary trust. The focus is on the consequences that follow from creating
either a discretionary trust or a power of appointment. The ramifica-
tions of creating one or the other are serious for each of the “players”
— that is, the obligations of a trustee are markedly different from those
of the donee of a power of appointment. So, too, the rights of a trust
beneficiary differ significantly from those of the object of a power of
appointment. The chapter concludes with a discussion of the require-
ments that must be met to create a valid power of appointment.
B. POWERS
One of the difficulties that non-lawyers face (including law students) is

that some words used in everyday conversation are also technical legal
terms with prescribed meanings. As a result, when such words are used
by lawyers and academics, non-lawyers can become confused. The non-
lawyer hears the word and interprets it in accordance with its common
meaning. The lawyer or professor, on the other hand, may be using the
word in a technical way, and an obvious gap in communication can
then arise. The word “power” is one such word. It is important to iden-
tify its technical, legal meaning and to understand that when the word
is used in this book, it is used in accordance with its technical meaning.
First, however, it is helpful to consider an everyday example of a
power.
EXAMPLE: I allow my oldest daughter to wear my watch.
I have given my daughter a power. The power is the authority to use
— in this case, to wear — property that does not belong to her. In tech-
nical, legal terms, power is the authority that the owner of property
can invest in another and that gives the non-owner the legal right to
use the property. In short, a power is the authority to deal lawfully with
the property of another. The word “authority” is important because it
focuses attention on the fact that a power enables its holder to deal
Powers 23
with property; it does not impose an obligation on the holder of the

power to do anything.
A vast number of powers are possible. I could deposit my watch
with a pawnbroker and allow the pawnbroker to sell it. In that situa-
tion I would have invested the pawnbroker with a power of sale. I could
leave my watch with a jewellery store to have it repaired. In that case
I would have given the store the authority to take the watch apart and
to clean and alter its mechanism as necessary. Another well-known
example of a power is the power of attorney. Under a power of attor-
ney, one person is empowered to represent another, or to act in his or
her stead, for certain purposes. One power that is currently receiving
much attention in the pension field is the power of revocation. A power
of revocation enables a settlor to set aside the trust, in whole or in part,
after the trust is created. The power of revocation is explored more
fully in Chapter 5.
The source of a power may be an express grant or legislation. Where
the source is an express grant, the person who owns the property and
grants the authorization is called the donor of the power. The person in
whom the power is vested is called the donee of the power.
Modern trustees can have, by express grant and from statute, a
wide variety of powers, including powers to invest, use agents, lease,
advance, hold assets in specie, and various powers of appointment. The
list of powers that can be created is endless; it is limited only by our
own imaginations, because the law permits the creation of any power,
so long as it is not illegal or contrary to public policy. The reason for
this latitude is that our legal system operates on the assumption that,
within the bounds of public policy, persons who own property should
be able to deal with the property as they wish.
Powers can be grouped under two general headings: administrative
powers and dispositive powers. Administrative powers are those that
enable the donee to manage property. They include the power to sell,
mortgage, and invest property. Dispositive powers give the donee the
power to pay income or transfer property — that is, to actually dispose
of property.
There are a number of practical differences between trusts and
powers, most of which flow from the fundamental distinction between
the two: a trust is imperative, whereas a power is discretionary. A trust-
ee must perform the terms of a trust, whereas the donee of a power
need not exercise the power at all. Trustees of a discretionary trust
decide who is to take and how much, whereas a donee must also decide
whether anyone is to take. If a trustee fails to perform the terms of
the trust, the court will replace the trustee or complete the trust itself.
Completion can take the form of equal division of the trust property
among the beneficiaries, or in such proportions as is appropriate in the
circumstances.
In short, failure to perform renders a trustee liable for breach of
trust. Failure to exercise a power is not, and cannot be, a breach, be-
cause the essence of the power is that its holder has a discretion whether
to exercise the power. This fundamental distinction has important con-
sequences not only for the trustee/donee but also for the beneficiaries/
appointees. Potential appointees under a power of appointment have no
proprietary interest in the subject matter of the power unless and until
the donee exercises it in their favour. The beneficiaries of a trust, on the
other hand, have a proprietary interest in the trust property. These fun-
damental distinctions must be kept in mind when reading the remain-
ing portions of this chapter.
C. POWERS OF APPOINTMENT
A power of appointment is the ultimate example of a dispositive power.

It is the authority conferred by one person on another to appoint (select)
the person or persons who are to receive the property. The donee of a
power of appointment is also known as the appointor, and the person
whom the appointor selects to receive the property is called the ap-
pointee.
Powers of appointment are exercisable by deed or by will, depending
on the terms of the power established by the donor. An example will help
solidify the terminology.
EXAMPLE: Recall the example of a power given earlier in this chapter where
I allowed my daughter to wear my watch. Instead, I allow my daughter to
give my watch to whichever of my children my daughter wishes, including
my daughter herself.
I have created a power of appointment in favour of my daughter. I, the
owner of the property, am called the donor of the power. My daughter
is referred to as both the donee of the power of appointment and the ap-
pointor. My children form the group who are eligible to be selected and
are called objects of the power. If a child is actually selected to receive
the watch, the child so selected is called the appointee of the power of
appointment.
There are three kinds of powers of appointment: general, special,
and hybrid or intermediate.
Powers 25
1) General Powers of Appointment

Under a general power of appointment, the donee may appoint to any-
one in the world. The donee may even appoint to herself unless the
power is exercisable only by will.1
EXAMPLE: My daughter may give my watch to anyone in the world.
I have given my daughter a general power of appointment.
It can be difficult to distinguish the situation of a general power of
appointment from that of an outright gift. In the example, if I hand my
watch to my daughter and tell her she can give it to whomever she wish-
es, it may appear that I have made a gift of the watch to my daughter.
After all, she has lawful possession of the watch, she may exercise the
power in favour of herself and keep the watch forever, or she may give
the watch to anyone she pleases, which is another sign of ownership.
Although it may appear that there is no difference between a gener-
al power of appointment and an outright gift, consider what happens if
my daughter dies without having exercised the power of appointment
— that is, without having chosen an appointee. In that situation the
law would find that the power had not been exercised and could no
longer be exercised, since the donee of the power had died. The origin-
al owner of the watch, having never been divested of title, remains the
owner. Thus, the watch would be returned to me as the rightful owner.
If, instead, I had made a gift of my watch to my daughter, she could
have used it as she wished — that is, she could have given it away
to whomever she wished. If she died without having given it away, it
would devolve according to her will; it would not be returned to me.
2) Special Powers of Appointment

Under a special power of appointment, the choice of appointees is re-
stricted, by the donor of the power, to a particular class, such as issue or
a list of individuals.
EXAMPLE: My daughter may give my watch to such of my children as she
wishes.
1 If, however, the donee is given a life interest in the property as well as a power
of appointment that is to take effect on death, the donee may exercise in her
own favour. The beneficial interest then merges in the beneficiary, and she can
terminate the trust. Barford v Street (1809), 16 Ves Jun 135, 33 ER 935 (Ch).
This is an example of a special power of appointment because if my

daughter chooses to give away my watch, it must be to someone in the
class (i.e., to one of my children).
3) Hybrid or Intermediate Powers of Appointment

A hybrid or intermediate power of appointment enables the appointor to
appoint to anyone except certain individuals designated by the donor.
EXAMPLE: My daughter may give my watch to whomever she chooses, with
the exception that she may not appoint in favour of herself.
This very broad power of appointment is an example of a hybrid or
intermediate power of appointment. While it is broad, there is a limit:
my daughter cannot purport to appoint it to herself. Therefore, if she
dies without having given it to another, it will be disposed of according
to my estate, not hers.
4) Gift, Trust, or Power?

The dividing line between a power of appointment held by a fiduciary
— particularly when the fiduciary is a trustee — and a discretionary
trust is often unclear. A power of appointment held by a trustee is still
discretionary in that the trustee need not perform, although the trustee
must, as discussed below, consider the exercise of his or her discretion.
The discretionary trust, on the other hand, still has as its fundamental
characteristic the fact that the trustee must perform the trust. But in a
discretionary trust, the trustee may have the power to decide who will
take, or in what proportions, or both. In short, a trustee (or other fiduci-
ary) holding a power of appointment has the right to decide whether to
exercise the power, whereas in a discretionary trust a trustee has only
the right to decide how to exercise the powers given to him or her.
In addition to discretionary trusts and powers of appointment,
many instruments are capable of a third interpretation — an outright
gift. To determine whether a trust, power, or gift has been created, the
courts construe the document in question to ascertain the intention of
the settlor, donor, or giver. The use of the word “trust,” “power,” or “gift”
is not conclusive of what was intended. However, if there is a gift over
in default of appointment, it is clear that a power of appointment was
intended. This is so because the gift over unambiguously shows the
discretionary nature of the original “gift.”
Powers 27
A gift over in default of appointment arises when the creator of the

power stipulates where the property is to go in the event that the donee
fails to appoint.
EXAMPLE: To my eldest daughter, M, for life, remainder to such of her chil-
dren as she may appoint, failing which to my research assistant, B.
In this example, I created a power of appointment in M, which she can
exercise in favour of one or more of her children, and a gift over in
favour of B. If M fails to exercise the power, B will take the property.
Although we term the transfer to B a “gift over,” it is, in fact, a gift
to B subject to divestment in favour of the children, if and when the
power is exercised.
A gift over in default of appointment is not to be confused with the
creation of successive interests. An example of successive interests is
“to A for life, remainder to B.” Nor is a gift over in default of appoint-
ment to be confused with the disposition of the residue of an estate
which, again, is a gift of an interest and not the stipulation of where the
property is to go in the event of a donee’s failure to act.
In the absence of a gift over in default of appointment, the deed
may be treated as having created a trust, power, or gift. Although all
three constructions are often possible on the same facts, it is the power
of appointment and the discretionary trust that are the most difficult
to distinguish, especially when the power of appointment is held by a
fiduciary such as a trustee.
EXAMPLE: A testator gave property to his two children for life, with re-
mainder to their issue. If the children died without issue, the remainder was
to go as the survivor appointed, by will, among the testator’s nephews and
nieces or their children. There was no gift over in default, and the children
died without issue and without exercising the power of appointment.2
The court held that what was intended was not a mere power of appoint-
ment in favour of the nieces and nephews but, rather, a trust in favour
of the nephews and nieces equally, subject only to a power of selection in
the surviving child of the testator. Lord Cottenham enunciated the test
to be applied in such cases as follows:
[W]hen there appears a general intention in favour of a class, and a
particular intention in favour of individuals of a class to be selected
by another person, and the particular intention fails, from that se-
lection not being made, the Court will carry into effect the general
intention in favour of the class. When such an intention appears, the
2 Burrough v Philcox (1840), 5 My & Cr 72, 41 ER 299 (Ch).

case arises . . . of the power being so given as to make it the duty of

the donee to execute it; and, in such case, the Court will not permit
the objects of the power to suffer by the negligence or conduct of the
donee, but fastens upon the property a trust for their benefit.3
In each case it depends on the testator’s or the settlor’s intention.
The caselaw is replete with examples of indicators of intention that the
courts rely on to determine whether a gift, trust, or power was intend-
ed. For instance, the greater the degree of specificity used in describing
the objects, the more likely it is that the courts will find the imperative
flavour of a trust.4 However, I will not dwell on such cases, since it is
clear that the proper approach is to draft documents so that there is no
ambiguity about the creator’s intent.
D. OBLIGATIONS OF A DONEE OF A POWER

OF APPOINTMENT
Donees of a power of appointment need not exercise the power, but if

they do exercise it, they must do so honestly and in accordance with
the terms of the power. Any exercise in favour of non-objects is void.
Acting in accordance with the terms of the power means that appoin-
tees must be within the class of specified objects and that the power
was exercised in conformity with any conditions imposed by the terms
of the power.
EXAMPLE: The donor stipulates that the power of appointment is exercis-
able only by will.
The exercise of the power must be contained in the donee’s will in order
to be effective; any other purported exercise of the power will be held to
be invalid and will be set aside.
The general rule enunciated above, that if a power is exercised, it
must be done honestly and in accordance with its terms, sums up the
parameters that govern the actual exercise of a power. Are there legal
rules that govern the selection process? Are there legal rules that gov-
ern how a power is to be dealt with during the period in which it is held
but not exercised? The answer to these questions lies in the identity of
the donee of the power.
3 Ibid at 91.
4 Re Lloyd, [1938] OR 32 (HCJ).
Powers 29
A power may be given to a donee in her personal capacity, or it

may be given to a donee by virtue of the fact that the donee is a fiduci-
ary. Where the power is held in a personal capacity, the power may be
termed a bare power.5 The obligations of a fiduciary donee are dramat-
ically different from those of a bare donee. The reason for the difference
lies in the nature of the legitimate expectations that a donor holds in
respect of the conduct of a fiduciary. The following passage explains
this distinction well:
It is a power given not to the individuals who happen also to be trust-
ees but to the trustees as such so that new trustees duly assumed or
appointed can exercise it. In my view it follows that the trustees are to
act in their fiduciary capacity. They are given an absolute discretion.
So if they decide in good faith at appropriate times to give none of the
income to any of the beneficiaries the court cannot pronounce their
reasons to be bad . . . . That was decided by this House in Gisborne v.
Gisborne (1887) 2 App. Cas. 300. But their “absolute discretion” must,
I think, be subject to two conditions. It may be true that when a mere
power is given to an individual he is under no duty to exercise it or
even to consider whether he should exercise it. But when a power is
given to trustees as such, it appears to me that the situation must be
different. A settlor or testator who entrusts a power to his trustees
must be relying on them in their fiduciary capacity so that they can-
not simply push aside the power and refuse to consider whether it
ought in their judgment to be exercised. And they cannot give money
to a person who is not within the classes of persons designated by the
settlor: the construction of the power is for the court.6
The examples considered thus far are of a donee holding a power of
appointment in her personal capacity. That is, my daughter received the
power to deal with my watch or property in her personal capacity, and
not in any special fiduciary role. However, it often happens that people
are given powers of appointment not in their personal capacity, but
because they are serving a function such as agent, executor, or trustee.
In these situations, the power of appointment is given to them in their
capacity as a fiduciary. As a consequence, their obligations change.
5 Terminology in this area is not consistent. The term “bare power” has also been
used to mean any power of appointment as distinguished from a trust. The bet-
ter usage, in my view, is to describe the dominant legal vehicle (trust or power)
and to attach modifiers to add specificity.
6 Lord Reid made these remarks in Re Gulbenkian’s Settlement Trusts, Whishaw v
Stephens (1968), [1970] AC 508 at 518 (HL) [Re Gulbenkian’s Settlement Trusts].
The fact that a person is called a trustee (or other fiduciary) and
is given a power of appointment does not necessarily mean that the
power is held by the person as a fiduciary. Whether it is held person-
ally or as a fiduciary will be determined by the circumstances, but, all
other things being equal or where it is unclear, it is likely that it will
be construed that the power of appointment was conferred upon the
person qua fiduciary.
It is important to note that the nature of the power does not change
depending on how it is held — it is still merely an authorization and
does not carry with it an obligation to perform. As we discovered in
Chapter 1, the essence of a trust is that an obligation is placed on a
person (the trustee) to perform according to the trust terms. If a trustee
refuses to perform, the trustee can be replaced, or the court can act in
the trustee’s stead. A power, as we have seen, is discretionary. Despite
a power’s discretionary nature, when the holder of a power is a fiduci-
ary, certain obligations are imposed on the holder. It is not the power
that imposes obligations, but the office of fiduciary.
The fact that the donee of a power of appointment is a fiduciary can-
not mean that the donee must exercise the power, as that would be con-
trary to the nature of a power. However, the donee who holds the power
in a personal capacity may ignore the power with impunity. The donee
need not exercise it or even consider its exercise. The fiduciary who
holds a power is in a different position. The fiduciary may not ignore the
power. The fiduciary still need not exercise the power, since to require
that would be to contradict the essence of a power. On the other hand,
when a fiduciary is given a power of appointment, the donor of the power
is entitled to assume that the fiduciary will act responsibly and that cer-
tain things will take place, not because a power was created but because
it is being held by a fiduciary. The duties are imposed as a consequence
of the fiduciary relationship, not the creation of the power.
The law has created guidelines for fiduciaries holding powers of
appointment so they know what they must do to fulfil their fiduciary
responsibilities in relation to the power. The fiduciary donee must con-
sider whether the power should be exercised, must consider the range of
possible objects, must consider any application made to the donee of the
power by an object, and must ensure the appropriateness of any particu-
lar appointment.7 The extent of the duty to consider, and how it is to be
fulfilled, will vary greatly, depending on the terms of the power. Where
the objects are few in number, it should be expected that the circum-
stances of each individual in the class would be considered. Where the
7 Ibid.
Powers 31
objects are numerous, much will depend on the amount of money to be

distributed. If the funds are few and the objects numerous, the expense
of considering all the objects in any detail suggests that a much more
cursory review of the class would be sufficient. It may even be sufficient
for the fiduciary to look no further than those objects known to her,
assuming that the fiduciary is aware of the breadth of the class. How-
ever, for larger sums, it would seem likely that more would be expected
of the fiduciary. It is interesting to consider whether in cases where the
class is large, the donee of the power is entitled to turn to the instru-
ment in order to understand any underlying purpose or other considera-
tions that might help determine the content of the duty to consider. That
approach has common sense to commend it, but may be vulnerable to
the criticism that it is a fetter on the discretion of the fiduciary and that
independent judgment is the hallmark of a fiduciary.
The fiduciary must turn his or her mind to the exercise of the power
and must do so in a meaningful way. For example, if a fiduciary is asked
to agree to an appointment and does so without due consideration of
the appropriateness of the appointment, the act is a breach of obliga-
tion and results in the appointment being invalid.8 Like the donee of a
power who receives it in a personal capacity, a fiduciary who exercises
the power must do so honestly and in accordance with the terms of the
power. It is generally accepted that in order to meet the requirement of
ensuring the appropriateness of any particular appointment, the fiduci-
ary must refrain from acting capriciously.
It must be emphasized that the fiduciary’s obligations flow from
his or her status as a fiduciary and not from the power. In the end, the
power need not be exercised so long as the fiduciary has properly con-
sidered the exercise of the power.
The obligation to consider the exercise of a power is perhaps the
most significant difference arising from whether the holder of the power
of appointment is a fiduciary or a lay person, though there are other
differences, too. A fiduciary holding a power of appointment cannot
release the power, once it is conferred, unless the release is expressly
authorized, whereas a donee holding in a personal capacity can release
a power at will. Even if the donees are referred to by name, if they were
selected because of their positions as fiduciaries, it will be assumed
that the power was given to them qua fiduciary; the powers cannot be
released without express authorization. The basis for the rule is that
fiduciary duties are owed to the objects and that the donee of the power
should not be released from those duties without sufficient authorization
8 Turner v Turner, [1984] Ch 100.

in the trust deed or by the conscious act of the creator of the power. A
person who is an object can release the fiduciary from his or her duty
to consider that person as an object of the power.9
A further difference exists in relation to who can exercise the power.
The general rule is that only the donee of a power may exercise it. How-
ever, if the donee is a fiduciary, then the power is normally construed
as being given not to the person but to the position of fiduciary, so that
whoever holds the office may exercise the power.
EXAMPLE: The donee of a power created by will predeceases the testator;
the power lapses.10 The donee of a power is a fiduciary. The donee dies.
Whoever assumes the office of fiduciary may exercise the power.
E. RIGHTS OF OBJECTS OF A POWER OF

APPOINTMENT
Trust beneficiaries are, in the eyes of equity, the owners of the trust
property: the trustees are under a duty to hold the trust property for
the benefit of the beneficiaries. Objects of a power, on the other hand,
own nothing unless and until the donee appoints in their favour. They
merely have a hope that the power will be exercised in their favour.
Until a power is exercised, those who will take in default of an appoint-
ment are the equitable owners, their interest being subject to defeas-
ance on the exercise of the power.
If a power of appointment is held by a donee in a personal capacity,
the only right of the objects of the power is to restrain the donee from
exercising the power improperly.
EXAMPLE: I empower my daughter to give my watch to such of my children
as she, in her unfettered discretion, deems fit, failing which the watch is to
go to my research assistant. My daughter gives the watch to her best friend.
The power was improperly exercised, since it was used to benefit some-
one outside the class of objects. As objects of the power, my children
can go to court and complain, and the court will intervene to set aside
the purported exercise of the power. However, my children cannot get the
court’s assistance to require my daughter to actually give one of them
the watch. Had the watch been held by a fiduciary — for example, by an
9 Re Gulbenkian’s Settlement Trusts (No 2) (1969), [1970] Ch 408.

10 “Lapse” means the power ends, since there is no longer anyone who can exer-
cise the power.
Powers 33
executor — the objects of the power could have sought the assistance
of the court in compelling the fiduciary to consider the exercise of the
power. No matter who the holder of the power is, the objects can never
compel the exercise of the power.
It is this point — what happens in the event of a failure to dis-
tribute the property — that so dramatically highlights the difference
between the rights of objects of powers and the rights of beneficiaries
under a discretionary trust. Under a discretionary trust, a trustee has a
discretion to select beneficiaries from a specified class or to determine
the shares in which the beneficiaries are to take, or both. Unlike the
beneficiary of a fixed trust, the beneficiaries of a discretionary trust
are not entitled to any specific part of the trust assets until the trustee
exercises his or her discretion in their favour. In that respect, their pos-
ition is similar to that of an object of a power. However, if all the bene-
ficiaries of a discretionary trust are sui juris, they may join together,
terminate the trust, and obtain the trust property.11 And if a trustee
of a discretionary trust fails to exercise his or her discretion, the court
can replace the trustee or order that the trust property be distributed
to the class of beneficiaries. Objects of a power, in contrast, can never
compel the distribution of the property.
Beneficiaries of a fixed trust are entitled to have access to trust
documents.12 Arguably, so are beneficiaries of a discretionary trust. Ob-
jects of a power, however, have no such rights, even where the power is
held by a fiduciary.
F. CREATING A VALID POWER OF

APPOINTMENT
Chapter 3 sets out the numerous requirements with which trusts must
comply in order to be valid. Powers of appointment, on the other hand,
have relatively few requirements to meet. For this reason, instances of
invalidity of powers should be rare.
The first requirement exists solely in respect of powers of appoint-
ment over land and interests in land. Provincial legislation has decreed
that such powers of appointment must comply with certain writing
requirements.
The second requirement relates only to special and hybrid (inter-
mediate) powers of appointment. In creating these two types of powers,
11 The rule in Saunders v Vautier (1841), 4 Beav 115, 49 ER 282, aff’d (1841), 1 Cr
& Ph 240, 41 ER 482 (Ch).
12 See Chapter 9.
the description of the class must be crafted in such a way that it passes
the certainty of objects test. Certainty of objects means that the de-
scription of the class of possible appointees must be sufficiently clear
that the donee can properly exercise the power, if the donee so chooses.
In the case of intermediate powers, it is the class of excepted persons
who must be sufficiently clearly described.
The test for certainty of objects of a power of appointment, as es-
tablished in Re Gulbenkian’s Settlement Trusts,13 is that there may be
no conceptual uncertainty about “whether any given individual is or
is not a member of the class.” However, it is not necessary “to be able
to ascertain every member of the class.”14 The certainty of objects test is
not met simply on the basis that at least one person can be found who
comes within the description of the range of objects.15 Caselaw exists
which establishes that the power to add to the class of objects is valid.16
The question of certainty of objects is to be determined as of the
effective date of the document that declares the donor’s intention. If
the class is sufficiently defined so as to pass the certainty of objects
test, the fact that it may be difficult to ascertain the whereabouts of
some of the members of the class does not render it invalid. It is un-
certain, however, whether a power once held to be valid could later be
determined to be invalid if it becomes conceptually uncertain at a later
date. This is probably a question more in theory than in practice, as it
is hard to conceive of such circumstances. As will be seen, in the case
of discretionary trusts, where a similar test for certainty of objects has
been adopted, the question is very relevant.
It is generally agreed that the certainty of objects requirement ap-
plies to all powers of appointment, regardless of who holds them.
There may be a third requirement that applies to powers of appoint-
ment. A power of appointment may be void if it is capricious. This sug-
gestion comes from a comment in Re Manisty’s Settlement:
The objection to the capricious exercise of a power [by a trustee] may
well extend to the creation of a capricious power [by a settlor]. A
power to benefit “residents of Greater London” is capricious because
the terms of the power negative any sensible intention on the part of
the settlor.17
13 Above note 6 at 521.

14 Ibid.
15 Ibid, overruling the Court of Appeal (see Re Gulbenkian’s Settlement Trusts (1967),
[1968] 1 Ch 126 (CA)). See also Re Gibbard (1965), [1966] 1 All ER 273 (Ch).
16 Re Manisty’s Settlement (1973), [1974] Ch 17, but see Blausten v Inland Revenue
Commissioners, [1972] Ch 256 (CA).
17 Re Manisty’s Settlement, ibid at 27.
Powers 35
It would seem that the objection is not an absence of a sensible inten-

tion on the part of the settlor, but the fact that it would be difficult,
if not impossible, for the fiduciary holding the power to consider the
exercise of the power in any sensible fashion. There is some doubt as
to whether this comment is a limiting feature on the creation of pow-
ers, as Megarry V-C has stated that the example of a capricious power
given — a power to appoint in favour of the residents of Greater London
— might be valid if the settlor was, for instance, a former chair of the
Greater London Council.18
If this requirement exists at all, it should be limited to situations
where the holder of the power of appointment is a fiduciary. The basis
for the objection relates not to the nature of the power, but to the obli-
gations on the holder to consider its exercise. In effect, the requirement
(if it exists at all) may be an attempt to protect a fiduciary. There is no
reason in theory to preclude the creation of capricious powers of ap-
pointment when the donees of such powers hold the powers in their
personal capacity. The only possible argument against allowing powers
held personally to be capricious is that if the power is exercised, it would
not be possible to know whether it had been exercised properly. But
people act capriciously. Is this sufficient justification to prevent people
from disposing of property through creation of capricious powers? In
the case of fiduciaries, the answer is clear. The nature of the office is
incompatible with such a power. In the case of powers held personally, it
is a policy decision to be made by the courts after weighing these vari-
ous considerations.
18 Re Hay’s Settlement Trusts, [1981] 3 All ER 786 (Ch).

P A R T T W O
EXPRESS TRUSTS
C H A P T E R 3
THE CREATION
OF EXPRESS TRUSTS
A. INTRODUCTION
An express trust is one that is created intentionally; it is the conscious

act of a person to transfer property to one party, with the stipulation
that the property is to be held for the benefit of another. It is to be con-
trasted with resulting and constructive trusts, which arise by operation
of law.
Express trusts can be made in favour of persons or purposes. In this
chapter, we will consider the four requirements that all valid express
private trusts have to meet. First, the requirements related to capacity
of the parties. Second, the need for three certainties: certainty of inten-
tion to create a trust, certainty of subject matter, and certainty of ob-
jects. Third, the requirement that the trust must be constituted — that
the trust property must be transferred to the trustees. And, fourth, the
requirement that all the requisite formalities must be met. The chapter
concludes with a discussion of the legal limits to the creation of trusts.
B. CAPACITY
In discussing capacity, it is useful to consider separately the positions

of the creator of the trust, the trustee, and the beneficiary.
39
There are three potential incapacities for the creator of a trust: minor-
ity, mental incompetency, and bankruptcy. In the Canadian common law
jurisdictions, minors may not make valid wills unless they fall within
certain statutory exceptions, such as where the minor is or has been
married, is contemplating marriage and the marriage subsequently oc-
curs, is a member of the Canadian Forces, or is a mariner or seaman in
the course of a voyage. A minor who cannot make a valid will cannot
create a valid testamentary trust. Further, any inter vivos settlement
made by a minor is voidable at his option. In most Canadian jurisdic-
tions, however, minors are permitted, with the court’s approval, to en-
ter into marriage settlements.
A person found to be mentally incompetent cannot make a valid
will or inter vivos settlement except as permitted by statute. Bankrupt
persons are subject to a number of statutory controls on their ability to
alienate their assets. Accordingly, a bankrupt cannot make a valid inter
vivos settlement.
Anyone capable of holding property in his or her own right is ca-
pable of holding property as a trustee. Thus, any capacitated individual
or limited company can be a trustee. Because unincorporated associations
have no separate legal personality, they are incapable of holding title to
property and are incapable of acting as trustees. As we have seen, a trust
is a relationship. Like an unincorporated association, it does not have a
separate legal personality so is incapable of holding title to property. It is
the trustee, and not the trust, that holds title to the trust property.1 It
is unwise to appoint a minor as trustee because a minor is incapable of
making a valid conveyance of the trust property. Canadian common law
courts have the authority, under various provincial statutes, to replace
trustees who are minors.
All persons, including minors, mentally incapacitated persons, bank-
rupts, and corporations, can be the beneficiaries of a trust. A trust may
even benefit unborn or unascertained persons. Incapacitated benefici-
aries are usually represented by an official, such as the Public Trustee,
the Official Guardian, or the Guardian of Minors. Again, because un-
incorporated associations have no separate legal personality, they are
incapable of being beneficiaries of a trust. As we will see in Chapter
4, however, it is possible to transfer property to the trustees of an un-
incorporated association.
Trust beneficiaries may be persons or purposes. When the object of
a trust is a purpose, the purpose may be charitable or non-charitable;
1 Foo v Yakimetz, [2002] OJ No 3958 at para 72 (SCJ); Canon v Funds for Canada
Foundation, 2010 ONSC 4517 at para 65.
The Creation of Express Trusts 41
both charitable and non-charitable purpose trusts are dealt with in

Chapter 4. In this chapter, the discussion is limited to objects who are
persons.
C. THE THREE CERTAINTIES
In order to create a trust, there must be certainty of intention to create

the trust, the subject matter of the trust must be described with such
certainty that it is ascertained or capable of ascertainment, and those
who are to benefit from the trust — the objects or beneficiaries — must
be described in terms clear enough that the trust obligation can be per-
formed properly. These three requirements are known as certainty of
intention, certainty of subject matter, and certainty of objects. A state-
ment or series of statements that together satisfy the three certainties
amount to a declaration of trust. A declaration of trust is to be distin-
guished from the creation of a trust: the latter occurs when both the
trust has been declared and title to the property has been conveyed to
the trustee. The transfer of title to the trustee is known as “constitution
of the trust” and is discussed in Section D of this chapter. It is important
to understand that a trust is created only when both the declaration
and the constitution have occurred. In other words, a declaration of trust
that meets the certainties requirements is necessary, but not sufficient,
to create a trust; so, too, constitution is necessary, but not sufficient, to
create a trust.
Although each of the three requirements is considered separately,
they are interrelated and reflexive. For example, if you test for certainty
of intention and feel that it is met but that the other two certainties
are not met, it is important that you reconsider the issue of certainty of
intention to see whether a different characterization is more likely.
A classic example of the reflexive nature of the certainties can be
found in cases in which one person gives property to a second person
and, in the same instrument, attempts to give an unspecified portion
of the same property to yet a third person. The issue arises whether the
second person takes the property absolutely, or as a gift subject to a
condition or a personal obligation, or as a life estate subject to a trust
in favour of the third person. If, on construction, the court is inclined
to find that a trust in favour of the third person was intended, it must go
on to determine the subject matter of the trust. There will be no clear
answer, given the apparent uncertainty of the subject matter, and this
uncertainty, in turn, will cast doubt on whether the intention to create
a trust truly exists.
1) Certainty of Intention
To satisfy the certainty of intention requirement, the court must find an
intention that the trustee is placed under an imperative obligation to
hold property on trust for the benefit of another. Certainty of intention
is a question of construction; the intention is inferred from the nature
and manner of the disposition considered as a whole. The language
employed must convey more than a moral obligation or a mere wish as
to what is to be done with certain property. The language used need
not be technical, so long as the intention to create a trust can be found
or inferred with certainty. The words of request, as well as the entire
document as a whole, must be considered in determining whether the
requisite intention exists. Two examples will assist in illustrating the
certainty of intention requirement and in underscoring the process by
which documents are construed.
EXAMPLE 1: In her will, X leaves all her property to her spouse and states
that her spouse is to “pay my debts and raise the family.” Is there certainty
of intention? That is, must the spouse hold the property in trust for the
children?2
EXAMPLE 2: Y leaves all his property to his spouse and states that if the
spouse dies soon after he does, the spouse is to leave all her property “to
my people and your people.” Is there certainty of intention? Must the spouse
hold the property in trust for the two families?3
In Example 1, the court held that the spouse had a life estate and that
the remainder was to be held for the children in equal shares. In Ex-
ample 2, the court held that the spouse took absolutely. In construing
the documents, the courts looked at not only the provisions set out in
the examples but the whole of the wills. In the first example, there were
other statements to the effect that the children were to take their shares
upon reaching the age of twenty-one. In the second example, Y had
attempted to direct how all the spouse’s property was to be dealt with,
not only the property he had left her; the court saw this as indicating
that the language was precatory and not obligatory in flavour.
What is the result if, on construction, it is found that no certainty
of intention exists? To answer this question, one must determine what
was intended. If the intention was that the “trustee” receive an outright
gift, then the “trustee” will take absolutely rather than as trustee; the
rules determining ownership in this situation are those that govern
2 This example is based on Re Shamas, [1967] 2 OR 275 (CA).

3 This example is based on Johnson v Farney, (1913), 29 OLR 223 (SCAD).
gifts, not trust law. If it was intended that the holder of the property
was to have a power of appointment over it, then the persons entitled
in default of exercise of the power will take. In this situation, the rules
that are relevant are those related to powers, not trusts.
2) Certainty of Subject Matter

The certainty of subject matter requirement has two components. First,
a trust must have property that can be clearly identified as its subject
matter. Second, the terms of the trust must define the portion each
beneficiary is to receive or must vest the discretion to so decide in the
trustees.
Even if the language used in the trust instrument illustrates a clear
intention to create a trust, no trust exists unless the subject matter of
the trust is ascertained or ascertainable. It must be possible to determine
precisely what property the trust is meant to encompass. The subject
matter is ascertained when it is a fixed amount or a specified piece of
property; it is ascertainable when a method by which the subject matter
can be identified is available from the terms of the trust or otherwise. For
example, the “residue” of an estate is ascertainable because it has been
legally defined as the estate’s assets minus debts and legacies.
All property is capable of being the subject matter of a trust. The
word “property” includes all equitable and legal interests in realty or
personalty. So, for example, an equitable interest under a trust is prop-
erty and is capable of forming the subject matter of a further trust. So,
too, the benefit of a contract is a property right capable of forming the
subject matter of a trust.
A trust will fail and the property will result4 to the creator’s es-
tate if the quantum of the beneficial shares is uncertain. However, the
requirement of certainty of quantum of the beneficiaries’ interest is
unusual because the courts have accepted that this kind of uncertainty
can be cured. The first “cure” is when the creator gives the trustees the
discretion to decide quantum. This authority must be given expressly,
since the courts will not imply such a discretion. Second, in appropri-
ate circumstances, the court will rely on the equitable maxim “equity
is equality” to cure uncertainty of quantum. A third possible cure for
uncertainty was set down in Re Golay.5 In the Golay case, a testator
directed his executors to give a person “reasonable income from my
4 “Result” means that the trustee will hold the property for the benefit of the set-
tlor and must ultimately return the property to the settlor.
5 [1965] 2 All ER 660 (Ch) [Golay].
other properties.” The trustees were not given the discretion to deter-
mine what constituted a “reasonable income.” Was the quantum of sub-
ject matter uncertain? The English court held that it was not:
It is, however, submitted that what the court is concerned with in the
interpretation of this will is not to ascertain what is “reasonable in-
come” in the opinion of the court but to ascertain the testator’s inten-
tion in using the words “reasonable income.” The question therefore
comes to this: whether the testator by the words “reasonable income”
has given a sufficient indication of his intention to provide an effect-
ive determinant of what he intends so that the court in applying that
determinant can give effect to the testator’s intention.
...
In this case, however, the yardstick indicated by the testator is
not what he or some other specified person subjectively considers
to be reasonable but what he identifies objectively as “reasonable
income.” The court is constantly involved in making such object-
ive assessments of what is reasonable and it is not to be deterred
from doing so because subjective influences can never be wholly ex-
cluded. In my view the testator intended by “reasonable income” the
yardstick which the court could and would apply in quantifying the
amount so that the direction in the will is not in my view defeated
by uncertainty.
Golay is an English authority and may not be followed in Canada. De-
spite the court’s pains to suggest that “reasonable income” can be dealt
with objectively, what amounts to a reasonable income may differ from
person to person. It is hard to envisage how quantum can be seen to
be sufficiently certain when what is given to the beneficiary will vary
depending on who holds the office of trustee, as each trustee will be
called upon to determine what is reasonable income. It would seem
that the requirement of certainty of subject matter of quantum is to
preclude just such variations.
3) Certainty of Objects
The third requirement that all trusts must meet in order to be valid is
that the objects must be described with sufficient certainty. The phrase
“certainty of objects” is used to describe two very different concepts.
One meaning of the phrase is that a trust must be in favour of per-
sons, and not for non-charitable purposes. The second meaning of the
phrase is that the class of beneficiaries must be described in sufficiently
certain terms that the trust can be performed. It is this latter meaning
of certainty of objects which is considered now.
Certainty of objects is required because the trustee cannot be sure
that he is performing properly unless the objects are clearly specified
at the time of distribution. The requirement of certainty of objects is
also important to the creator of the trust and to the beneficiaries. The
creator must be assured that the trustee will carry out her intention. If
the creator has not defined the class to be benefited in sufficiently clear
terms, there can be no assurance that the intended class will take. The
beneficiaries have an obvious interest in the requirement. If the class of
objects is not sufficiently well defined, no one can know whether she is
a member of the class and therefore entitled to a proprietary interest in
the subject matter of the trust. The beneficiaries will be unable to join
together and terminate the trust once all are sui juris and absolutely
entitled. Indeed, the court itself has an interest in having the class ad-
equately defined, for if the trustees fail to distribute, the court must be
able to step in and perform. As well, the court must be able to identify
those persons with sufficient standing to enforce the trust. A trust that
fails to pass the certainty of objects test will fail, and the property will
result to the settlor or testator’s estate.
The test for certainty of objects is different for a fixed trust than
for a discretionary trust. The test for a fixed trust is the “class ascer-
tainability” test, whereas a discretionary trust must comply with the
“individual ascertainability” test. In the case of a fixed trust, it must be
possible to ascertain each and every object, so that a trustee can make
a complete list of all beneficiaries.
A moment’s reflection on the nature of a fixed trust will illustrate
why this requirement is necessary. A fixed trust is one in which the
trustees have no discretion to decide who the beneficiaries are or in
what proportions they are to take; the shares or interests of the bene-
ficiaries are specified in the trust instrument or are ascertainable. If the
trustees are to perform their duties, they must know the identity of each
and every beneficiary. For example, a trust of $10,000 “to the members
of my family in equal shares” is a fixed trust. Unless the trustees know
who all the family members are, they cannot distribute equally.
The test for certainty of objects of a discretionary trust has been
“assimilated” to that of certainty of objects of a power of appointment.
For both a discretionary trust and a power of appointment, it must be
possible to say with certainty whether “any given individual is or is not
a member of the class.”6 Thus, there is no need to be able to ascertain
6 McPhail v Doulton (1970), [1971] AC 424 at 456 (HL).

every member of the class of objects of a discretionary trust. How-

ever, the tests are not identical. What differences exist between the two
arise from the caveat that Lord Wilberforce added in his judgment in
McPhail v Doulton when he assimilated the tests. He said that discre-
tionary trusts which pass the individual ascertainability test may fail
if “the definition of beneficiaries is so hopelessly wide as not to form
‘anything like a class,’ so that the trust is administratively unworkable.”
The reasons for the assimilation of the two tests are as follows: dis-
cretionary trusts and powers of appointment held by trustees are very
similar in nature; a trustee’s obligations under a discretionary trust
are similar to those of a trustee holding a power of appointment; and
a trustee need not distribute the subject matter of a discretionary trust
in equal shares. Although a trustee’s obligations under a discretionary
trust are similar to those of a trustee holding a power of appointment,
there are differences between the two. The most significant difference
is that a trustee under a discretionary trust must ultimately distribute
the trust property, whereas the trustee holding a power of appointment
need never exercise the power (may never distribute). Another signifi-
cant difference is in discharge of the duty to consider. It is generally
accepted that the trustee under a discretionary trust must take greater
pains in considering the range of possible objects than must a trustee
holding a power of appointment.
There are at least five ambiguities inherent in the test for certainty
of objects of a discretionary trust. First, how does one distinguish be-
tween that which is conceptually certain and that which is conceptual-
ly uncertain? Consider, for example, the word “friend.” Is it conceptually
certain or not? We have an approximate idea of what the word means,
and we can turn to a dictionary and get a “definition” of the word. But
is it conceptually certain? How loose must our understanding of a word
be before it becomes uncertain? Even a description of a class using a
word like “lawyers” can be seen to be conceptually certain or not. For
example, are people with law degrees and who have been called to the
bar but are no longer practising lawyers or not?
Second, what happens if there are several categories of potential
beneficiaries, some of which pass the certainty test and others which
do not? Is it enough if there are a significant number of possible objects
in the categories that are certain? Again, an example will assist.
EXAMPLE: I leave $5,000 to be distributed among the following groups as
my trustees deem fit: third-year law students at the Faculty of Law, Univer-
sity of the Universe; my friends; and my children.
The meaning of children is conceptually certain, and we can identify

those within that category. The meaning of “third-year law students
at the Faculty of Law, University of the Universe” has some degree of
ambiguity, but is probably certain enough. The ambiguity can arise over
particular possible objects, such as third-year students on a letter of per-
mission to complete their degree elsewhere. Are they third-year stu-
dents at the Faculty of Law, University of the Universe or third-year
students at the transfer institution? The category entitled “friends” is
probably uncertain. Should this discretionary trust fail for uncertainty?
The test gives no clear answer to this question.
Third, must a beneficiary show that he is included in the class, or
is it sufficient to show that he is not excluded? In the example of the
third-year transfer student, must the student prove she is a student at
the University of the Universe, or would it be sufficient to show that she
will not get her law degree from the transfer institution?
Fourth, do the words “given individual” exclude hypothetical ap-
plicants?
And, finally, when have a sufficient number of objects qualified for
inclusion so that the trustees may conclude that the class is certain and
they may distribute? This relates to the question of when the trustees
have considered a sufficient number and type of possible objects that
the trustees can be confident they have satisfied their duty to consider the
range of possible objects.
Despite these ambiguities, a reading of the cases in the area over
the last decade makes it clear that the courts have accepted this test as
valid and that they are applying it.7 The courts state the test and then
state conclusions, but they do not make explicit how they resolve these
ambiguities.
D. CONSTITUTION OF TRUSTS
Constitution of a trust occurs when there has been both a declaration

of the trust and conveyance of the property to the trustees.
EXAMPLE: A declares that he will transfer $10,000 to B in trust for C. Does
a trust exist?
While the three certainties exist, no trust arises, since constitution has
not occurred. On the facts given, C is a volunteer, so A may, with impun-
ity, refuse to transfer the money to B. Had C given consideration for the
7 See, for example, Jones v T Eaton Co Ltd (1973), 35 DLR (3d) 97 (SCC).
promise or if A had made his promise under seal, A could have been
forced to constitute the trust. That outcome, however, would have been as
a result of the application of contract principles, not trust law.
Once a trust is constituted, in the absence of a power of revocation,
the settlor cannot revoke.8 The property belongs, in the eyes of equity,
to the beneficiaries, and equity will permit no one, not even the settlor,
to interfere with their vested rights.
What happens, however, when the settlor promises to settle funds
on trust but does not convey the property to trustees, and the benefici-
aries have not given valuable consideration? The short answer is that
equity will not assist a volunteer and, therefore, a beneficiary in such
a situation is not able to compel the settlor to carry out his promise.
However, that short answer must be immediately qualified. The rule
that equity will not assist a volunteer is subject to a number of ex-
ceptions. These exceptions include the doctrine of part performance,
equitable estoppel, gifts mortis causa, and the rule in Strong v Bird.9 The
rule in Strong v Bird can be stated as follows: When an incomplete gift
is made during the donor’s lifetime and the donor appoints the would-
be recipient as executor,10 the vesting of the property in the donee as
executor may be treated as completion of the gift.
Moreover, if the promise to transfer property to the trustee is con-
tained in a covenant (that is, a promise contained in a signed document
under seal), the courts may compel performance of the promise. If the
beneficiary is party to the covenant, the beneficiary can sue for dam-
ages at common law. If the trustee (but not the beneficiary) is party to
the covenant, the common law may recognize the trustee’s right to sue
by virtue of the trustee being a party to the covenant. It is contract law
that would provide the basis of an action; equity would not assist the
trustee without the trustee having given valuable consideration, as to
do otherwise would be for equity to assist a volunteer. The common law
cares nothing for the fact that the trustee holds an office; it recognizes
the right of the trustee to sue by virtue of being a party to the covenant.
However, whatever damages are recovered must be held according to
the terms of the covenant and, therefore, in trust. If the trustee sues for
breach of covenant and recovers, the trustee must deal with the funds
in accordance with the terms of the covenant. If the covenant directs
the trustee to hold the funds in trust, then the law governing covenants
will require the trustee to act accordingly. In short, if the trustee sues
8 See Paul v Paul (1882), 20 Ch D 742 (CA).

9 (1874), LR 18 Eq 315 (Ch).
10 Or, in cases of intestacy, where the would-be recipient is appointed administrator.
on the covenant and recovers, the trustee must use the funds in the
same fashion as if the monies had been voluntarily transferred.
If the trust is not constituted but the beneficiary gave valuable con-
sideration for the trust promise, then the promise is enforceable. If the
consideration is money or money’s worth, then the beneficiary can rely
on the common law to obtain damages for breach of contract. If dam-
ages are inadequate, specific performance may lie.11
Consideration has both a narrower and a wider meaning in equity
than it does at common law. Like the common law, equity recognizes
money and money’s worth as consideration. Unlike the common law,
equity does not accept that a seal is acceptable in lieu of consideration,
nor does it recognize a “peppercorn” as consideration, while, again,
the common law does. The key is that equity requires “valuable” con-
sideration. Neither a seal nor a peppercorn is valuable. However, if the
trust promise is contained in a marriage settlement, equity treats the
husband, wife, and issue of the marriage as having given valuable con-
sideration. In this way, consideration has a wider meaning than it does
at common law. However, since it occurs only in the context of mar-
riage settlements, it is virtually obsolete.
Constitution may occur in one of three ways: direct transfer of the
property by the trust’s creator to trustees, transfer of the property to
the trustees by a third party, or declaration of self as trustee. Once
constitution takes place, in the absence of a power of revocation, the
creator of the trust cannot revoke, even if the beneficiary is a volunteer.
In order to vest title to property in trustees, the property must be
transferred properly from the settlor to the trustees. To transfer prop-
erty, it is necessary to comply with the transfer requirements that exist
for any particular type of property. Some property is transferred simply
by physically transferring it with the appropriate intention. The most
common example is money. Cheques, on the other hand, require en-
dorsement as well as delivery. Shares may require execution of a share
transfer document and registration. The requirements differ for all
types of property, but they must be complied with to ensure that title
(and not merely possession) has been transferred to the trustee.
On rare occasions, transfer of title actually involves a person other
than the owner. For example, it may be that the transfer document
must be registered elsewhere. The law treats the transaction as being
completed once the settlor has done all that is within her power to di-
vest herself of ownership.12
11 See Beswick v Beswick (1967), [1968] AC 58 (HL).

12 Milroy v Lord (1862), 4 De GF & J 264, 45 ER 1185 (Ch).
A trust may be constituted by a transfer of title to the trustees

from someone other than the trust’s creator.13 If title to the property is
vested in the trustee through a third party, the trust is still held to be
constituted and beyond revocation unless the settlor has reserved a power
of revocation or has evidenced a contrary intention prior to transfer of
title. A trust is created, however, only when a valid declaration of trust
has been made and constitution has taken place. If a declaration of
trust is made and the declaration complies with the requirements of the
three certainties, but the settlor manifests a contrary intention before
constitution, no trust arises, even if title is transferred to the trustee.
By the time that title is transferred, the requisite certainty of intention
has been withdrawn.
The third method of constituting the trust is “automatic.” Auto-
matic constitution occurs where a person declares himself trustee of
something for another. The person is the owner, so there can be no
issue in respect of constitution: title is already vested in the person by
virtue of being owner. The issue that arises in this context is whether
the owner has actually declared himself a trustee. While there must
be sufficient evidence of a manifestation of the intention to become a
trustee for a third person, no technical words need be used to create
a trust. As a result, it can be very difficult to know whether and when
a person has converted himself into a trustee for another. In this area,
the court will not “discover” a trust if the facts show that what was
intended was a gift: the intention to make a gift is not equivalent to
declaring oneself to be a trustee for another. The problem arises where
the supposed gift has not been delivered. An example will illustrate the
difficulty.
EXAMPLE: Z holds up a cheque made payable to him in the amount of
$10,000. Z waves it in front of a baby and says he wants it to be for the baby.
Z dies and the cheque is found in his possessions. Does it belong to Z’s es-
tate or to the baby?14
If Z’s actions were an attempt to make a gift, the cheque would form
part of the estate, as the gift failed for lack of delivery. If, however, Z’s
actions amounted to declaring himself trustee of the cheque for the
baby, the baby would be entitled to it. In the case on which the ex-
ample is based, the court found that Z had not manifested an intention
to become a trustee of the cheque on behalf of the child. It would not
13 Re Ralli’s Will Trust (1963), [1964] 1 Ch 288.

14 This example is based on the case of Jones v Lock (1865), 1 Ch App 25.
recharacterize a failed gift as a trust in order to save it; thus, the cheque
formed part of the estate.
E. FORMALITIES
If someone creates a trust, she should have the assurance that the trust
will be properly performed. For that reason, many trusts are docu-
mented in writing. The question that arises, however, is whether trusts
must be in writing, or whether that is just a precaution. Are there other
formalities that must be observed in order for a trust to be valid and
binding? Formalities are technical legal requirements that must be met
for some act or document to be accepted by the law as binding, and
include such things as documents being in writing, signatures being
witnessed, and documents being sworn before a notary public or regis-
tered at a particular office. In any system of law, it is important that you
be aware of any formalities that are required in respect of any particu-
lar action.
In considering what, if any, formalities are required in creating a
trust, it is useful to consider why formalities were required. They are
usually imposed to remedy some mischief, real or anticipated. When
trusts were first recognized in equity, and for hundreds of years there-
after, no formalities were required. However, problems with faulty
memories, perjury, and fraud led to the imposition of certain require-
ments under the Statute of Frauds, 1677.15 The other aspect of trusts
which warrants the imposition of formalities is that trusts are abstract
concepts. The greater the level of abstraction, the more opportunity
there is for misunderstanding. This quality, then, augurs in favour of
certain writing requirements.
Formalities are normally different for inter vivos acts than for
those of a testamentary nature for the obvious reason that after death,
a person is no longer able to oversee matters, give evidence, or other-
wise act to ensure that his or her wishes are carried out. Testament-
ary trusts are required to follow the formalities set out in the relevant
wills legislation in each jurisdiction.16 Nonetheless, there are formal-
ities associated with the creation of certain express inter vivos trusts.
15 (UK), 29 Car 2, c 3.
16 Wills Act, RSBC 1996, c 489; CCSM c W150; RSNB 1973, c W-9; RSNL 1990, c
W-10; RSNS 1989, c 505; RSNWT 1988, c W-5; RSNWT (Nu) 1988, c W-5; RSY
2002, c 230; Wills and Succession Act, SA 2010, c W-12.2; Succession Law Reform
Act, RSO 1990, c S.26; Wills Act, 1996, SS 1996, c W-14.1; Probate Act, RSPEI
1988, c P-21.
Resulting and constructive trusts are specifically exempted from the

requirements.
The following are general statements about statutory formalities.
The legislation differs among the various jurisdictions, so you must
check the provisions of the legislation that governs you. However, you
should be aware that much of this legislation is based on the Statute of
Frauds, 1677; the language is often ambiguous, confusing, and incon-
sistent, and each of the statements could be challenged on a technical
reading of the legislation. However, they are offered here as conserva-
tive views of the effect of the legislation:
• The creation of a trust of land and interests in land is to be in writing
and signed by the settlor; otherwise it is void.
• Contracts for the sale of land and interests in land which are to be
performed outside of a year are to be in writing and signed. Therefore,
if the contract contemplates the creation of a trust of land and it is not
to be performed within a year, it should be in writing and signed.
• The creation of inter vivos trusts of personalty appear not to be cov-
ered by the legislation. On the other hand, a tortured reading of the
requirements that all dispositions of interests in a trust must be by
way of writing and signed could stretch to encompass the creation
of such trusts.
• The formalities for the creation of testamentary trusts are the same
as those for any testamentary disposition and are contained in will
or succession legislation. In general, in order for any testamentary
disposition to be valid, it must be in writing, signed, and witnessed.
There are the usual exceptions for holograph dispositions.
What happens where the formalities are not observed? The ready
response would be that the legislation gives us the result. It states that
if certain things are not done, the disposition is void; thus, the pur-
ported creation of a trust or disposition of an interest in a trust is void
for failure to comply with the formalities. In fact, this is not what hap-
pens. Despite equity’s protestations that it “follows the law,” it will hear
evidence of the alleged trusts and then decide whether to admit it. It
hears the evidence on the basis that it will not permit legislation to be
used as an instrument of fraud.17 The legislation, in the eyes of equity,
would be an instrument of fraud if it permitted a wrongdoer to benefit
by sheltering behind its provisions.
EXAMPLE: I tell you that in order to minimize tax payable on your estate,
you should leave all your property to me. I tell you I will act as trustee of
17 See Rochefoucauld v Boustead, [1897] 1 Ch 196.

the property in favour of your children. You make your will, leaving all your
property to me. The will makes no mention of my undertaking in favour of
your children. After you die, I claim to be entitled absolutely. The children
wish to introduce evidence of my promise in order to contest the validity
of the will. Will they be permitted to introduce the oral evidence? After
all, evidence of testamentary dispositions is to be in writing, signed, and
witnessed.
Equity will permit the evidence to be led in court, as to do otherwise
would enable me to shelter behind the wills legislation and to perpe-
trate a fraud.
In the testamentary field, the devices by which such evidence is
led are governed by the doctrines of secret and semi-secret trusts. Fully
secret trusts are those in which no mention of the trust is evident on
the face of the will. Semi-secret trusts are those in which the trust is de-
clared in the will, but the objects of the trust are not. In both cases, the
evidence will be admitted when it can be demonstrated that an inten-
tion to create a trust existed and that communication and acceptance
of the trust occurred. A body of caselaw has developed about these
requirements and, in particular, about the question of what is timely
communication.18 An exploration of these elaborations on the basic re-
quirements is, however, beyond the scope of this text.
F. LIMITATIONS ON THE CREATION

OF TRUSTS
1) The Objects of the Trust Are Illegal

The objects of a trust may be persons or purposes. Where the objects
are persons, the trust may still be an attempt to achieve certain pur-
poses. I may, for example, create a trust in favour of my grandchildren
so long as the money is used for their college education. The objects
of the trust are my grandchildren, but I clearly had the purpose of fur-
thering their postsecondary education in mind. The purpose for which
any trust is created varies, depending on why the creator chose to es-
tablish the trust in the first place. Generally, the purpose for which a
trust is created is irrelevant in the eyes of the law. The purpose may
be eccentric or peculiar, but the law tends not to restrict people from
18 See Wallgraves v Tebbs (1855), 2 K & J 313; In re Boyes (1884), 26 Ch D 531; Re

Mihalopulos Estate (1956), 5 DLR (2d) 628 (Alta SCTD).
disposing of their wealth in the ways in which they wish, except in very
limited circumstances.
If the objects of a trust are of an illegal nature, they are held to
be unenforceable and void. Trusts that have illegal purposes are those
contrary to public policy, that involve or foster criminal acts or civil
wrongs, that are contrary to statute, or are for a fraudulent purpose.
EXAMPLE: I leave $10,000 in trust, the income to be used to support such
of my children who study to become expert car thieves.
Here the purpose of the trust is to further a criminal activity — namely,
car theft. Clearly, the law would not permit the creation of a trust that
seeks to promote criminal activity.
In dealing with trusts for illegal purposes, the courts follow the prin-
ciple that a disgraceful matter cannot be the basis of an action. As a
consequence, the beneficiary cannot sue for the fruits of the illegal trust.
If the purpose or object of a trust is found to be illegal and, thus,
the trust is held to be unenforceable and void, the question arises:
Does the settlor recover the trust property? Generally, if an express trust
fails, the property results to the settlor. The resulting trust principle is
modified in the case of trusts for illegal purposes. In order to determine
whether the property should result, it must be determined whether the
settlor underwent a “timely repentance.” If repentance was timely, the
property will result. Repentance is too late — and therefore the settlor
cannot recover — if the illegal purpose has been carried out or if the
fraud has served its purpose. Whenever the illegal or fraudulent purpose
has been carried out, the settlor will not be permitted to recover the
property on the basis of a resulting trust.19 Of course, if the settlor does
not have to rely on evidence of the illegality to make his case, it can be
ignored.
Like so many other areas, the general propositions of law can be
stated, but they are only generalizations and the caselaw is replete with
qualifiers. Still, the broad propositions set out above generally govern:
the courts will not help someone who was attempting to defraud an-
other. If the person repents before the other is harmed, it is more likely
— but not inevitable — that the courts will come to the first person’s
aid. If harm has resulted, the wrongdoer will not get the court’s aid. If
both the wrongdoer and the person harmed acted wrongfully, there is
no readily predictable outcome.
19 Symes v Hughes (1870), LR 9 Eq 475 (Ch).

2) The Trust Imposes Invalid Conditions

Dispositions made by way of trust are often subject to conditions. The
use of conditions is of great value to settlors, as conditions help to
ensure that the purpose behind establishing the trust is realized. For
example, a testator may establish a trust for her children but state that
they become entitled only if they complete a university education.
However, not all conditions are acceptable in the eyes of the law.
Conditions are invalid if they are found to be contrary to public policy,
impossible of performance, or uncertain. Depending on the reason for
the condition’s invalidity, the condition will be held to be either void
or voidable.
a) Conditions Contrary to Public Policy

Conditions contrary to public policy include those that seriously limit
freedoms that our society views as important. Examples might be con-
ditions that act as restraint of marriage, that interfere with the dis-
charge of parental duties, or that foster or promote discrimination.
EXAMPLE: X leaves all her estate in trust for her son on condition that he
never converts from Catholicism to Judaism.
The condition is intended to preclude the son from freely choosing the
religion he wishes and will be held to be contrary to public policy.
Conditions in restraint of marriage are generally invalid and prima
facie void as being contrary to public policy, regardless of whether the
condition is precedent or subsequent.20 Conditions of this nature will
be valid if the intention of the settlor was not to promote celibacy but
to provide for the beneficiary while he or she was single or for some
other lawful reason. Partial restraints on marriage may be valid, if seen
to be reasonable in light of the individual’s circumstances. Examples of
acceptable partial restraints are conditions that create constraints on re-
marriage, marriage to a named person, or marriage without consent.
EXAMPLE: D leaves the family farm in trust for her daughter for life, so long
as the daughter never marries.
EXAMPLE: D leaves the family farm in trust for her daughter for life, so long
as the daughter never marries V, whom D loathes.
20 Conditions precedent are those that must be met in order for an interest to
vest or a gift to take effect. Conditions subsequent are those that, if they occur,
cause an interest or a gift to end.
In the first example, the condition would be invalid and void, as total
restraints of marriage are not legally acceptable. In the second example,
the restraint is limited to precluding marriage to a single individual
and is likely to be legally acceptable.
Conditions that interfere with the discharge of parental duties are
void as being contrary to public policy. Thus, where the condition is
subsequent, it will be struck down, and the gift made through the trust
will become absolute. If the condition is precedent, then the gift, whether
realty or personalty, will itself be void in addition to the condition.
EXAMPLE: A settlor transfers a car to a trustee, stating that a named minor
may have the use of the car unless and until the minor recommences living
with his parents.
In this instance, the condition is subsequent and interferes with the

discharge of the parental duties toward the minor. Therefore, the con-
dition will be struck down, the “gift” becomes absolute, and the minor
can have the use of the car even if he returns to his parents’ home.
Conditions that are discriminatory in nature are void because they
are contrary to public policy.
EXAMPLE: My property is to be sold and the proceeds held in trust, but the
property may not be sold to Jews.
This condition will be deemed discriminatory and void for public policy
reasons.
Conditions that unduly interfere with or restrict the enjoyment of
property are known as repugnant conditions and are invalid as being
contrary to public policy. Such is the case with conditions that postpone
possession by a person solely entitled to the property to a time after
he or she becomes sui juris, conditions that attempt to interfere with the
legal course of devolution, and conditions that restrict alienation. For ex-
ample, a testator devises land to her son on the condition that the land
not be sold outside the immediate family. This restriction on alienation
is repugnant and will therefore be invalid and void. Had the restriction
been minor in scope, the restriction would be valid. Such is the case
if the restriction limits sale to a particular individual.
b) Conditions Impossible of Performance

If a gift is subject to a condition that is based on an assumption of the
existence of a state of facts that does not and cannot exist, the condi-
tion is of no effect. As a result, the beneficiary will take free of that
condition.
If the testator clearly intended that the condition should operate in

any event, the condition is said to be impossible to perform. If the con-
dition is precedent and impossible to perform at the time of the will, or
becomes so through circumstances beyond the control of the testator
or beneficiary, the gift fails. The beneficiary gets nothing. If, however,
the condition is subsequent, the gift becomes absolute and the condi-
tion is struck down.
c) Uncertain Conditions
When a condition is uncertain in its meaning or operation, it is void. If
the condition is precedent, the gift fails. If, however, the condition is
subsequent, the condition is struck down and the gift becomes abso-
lute. The test for uncertainty is different (much relaxed) for conditions
precedent than for conditions subsequent because the law prefers that
gifts take effect.
A condition precedent will be found uncertain only when it renders
the gift devoid of all meaning or when it is internally inconsistent. If
it is uncertain, the courts will strike down the condition and therefore
preclude the possibility of the beneficiary taking. The courts have been
reluctant to find conditions precedent uncertain because to do so is
to doom the gift to failure. This reluctance explains cases such as Re
Allen,21 where the court found that if a condition is certain in relation
to the person or persons claiming the gift, it matters not that there
are persons in the world in relation to whom the condition would be
uncertain.
In contrast, in order for a condition subsequent to be found uncer-
tain, the court must be able to determine, from the outset, what event
will cause the interest to fail.
G. RESIDENCE OF A TRUST
If the trustee of a trust resides in one jurisdiction but the benefici-

aries of that same trust reside in another jurisdiction, where does the
trust itself reside? This question was recently considered in Fundy
Settlement v Canada,22 where the Court was called upon to determine
the residence of a trust for the purposes of taxation under the Income
Tax Act.23 The trustee in Fundy, who resided in Barbados, argued that
21 [1953] Ch 810 (CA).

22 2012 SCC 14 [Fundy].
23 RSC 1985, c 1 (5th Supp).
a trustee’s residence should determine the residence of a trust. The

Supreme Court rejected this argument, choosing instead to adopt the
central control and management test for residency of a corporation and
apply it to the residency of a trust.
The Court held that while a trust is not a person at common law, as
a corporation is, a trust is deemed to be an individual under the Income
Tax Act, section 104(2). In addition, the reference to a “person” in sec-
tion 2(1) of the Income Tax Act, the basic charging provision of the Act,
must refer to the taxpayer whose income is being subjected to tax. This
taxpayer is the trust, not the trustee.
The Court concluded that the many similarities between a trust and
a corporation justified the application of the central management and
control test, given that the fundamental function of each entity is the
management of property. Moreover, adopting a similar test for trusts
and corporations promotes certainty, consistency, and fairness in tax
law.24 Thus the residency of a trust is determined by the principle that
a trust resides for the purposes of the Income Tax Act where its “real
business” is carried on, whether that happens to be the residence of
a trustee or of a beneficiary. In Fundy, the Court found that the main
beneficiaries, who resided in Canada, exercised the central manage-
ment and control of the two trusts. Therefore, the trusts were deemed
resident in Canada.
24 Fundy, above note 22 at para 16.

C H A P T E R 4
PURPOSE TRUSTS
A. INTRODUCTION
The objects of an express trust may be persons or purposes. A trust for

persons sets out the individuals, by name or class, who are to enjoy the
trust property. A trust for purposes, on the other hand, sets out a task
that the creator of the trust wishes the trustee to perform through use
of the trust property. It can be difficult to distinguish trusts for persons
from those for purposes.
EXAMPLE: I leave $10,000 in trust for my children’s education. Is that a
trust for persons or for purposes?
The answer lies in the paramount intention of the settlor. If the para-
mount intention is to benefit the children, it is a trust for persons. If
the paramount intention is to provide education, then it is a trust for
purposes. In the example given, the most likely construction would be
that the trust was for persons (my children).
As we saw in Chapter 3, trusts for persons that satisfy the certain-
ties requirements and that are duly constituted and comply with the
formalities requirements are valid and enforceable. In this chapter, I
will explore how to create valid trusts for charitable and non-charitable
purposes.
Examples of charitable trusts abound: collection boxes, annual ap-
peals, and special events such as the “Ride for Cancer” are all charities,
whether charitable trusts or foundations. Non-charitable purpose trusts
are something different: these trusts are intended to provide for some-
thing, rather than someone, where that something has not been accorded
59
charitable status. Examples of non-charitable purpose trusts include the

provision of a trophy for an annual club tournament, money to feed a
beloved animal, and provision of sports and recreation facilities.
As we will see in Section B of this chapter, the rules relating to the
creation of charities have been fashioned over a long period of time and
are relatively well defined. This history does not mean that the rules
are particularly sensible. Rather, the fact that charities have a long his-
tory means that a large body of caselaw has built up in the area, and
lawyers have a fairly clear sense of what is permissible and what may
be problematic.
On the other hand, non-charitable purpose trusts have gone in
and out of judicial fashion. It is only relatively recently that they have
become more acceptable in law. Therefore, the law relating to non-
charitable purpose trusts is less clear than that of charities. The pri-
mary objection to non-charitable purpose trusts was well put in Morice
v Bishop of Durham,1 where it was categorically pronounced that the
chancery courts would not enforce non-charitable purpose trusts be-
cause “There must be somebody, in whose favour the court can decree
performance.”2 This is known as the “beneficiary principle,” or the
“enforceability objection.” It is based on the fact that the essence of a
trust is that a trustee is obliged to perform the trust. There can be no
obligation on a trustee to perform unless there is a correlative right
in someone else to enforce the obligation. And, since the beneficiary
is a purpose and not an individual, there is no one who can bring an
action to compel the trustee to perform. This objection does not apply
to charitable trusts, since public officials are charged with the duty of
enforcing such trusts.
In Section C of this chapter, I examine the modern trend towards
validating non-charitable purpose trusts both at the common law and
through legislation. Note that even when the courts were very reluc-
tant to find non-charitable purpose trusts to be valid, they upheld such
trusts in “exceptional cases,” such as trusts for the maintenance of
graves, animals, and monuments.
In Section D, I look briefly at the interrelationship between charit-
able and non-charitable purpose trusts, followed in Section E by an
analysis of unincorporated associations. The reason for including a sec-
tion on unincorporated associations is that the problems associated
with non-charitable purpose trusts are magnified when the purpose
1 (1804), 9 Ves Jun 399, 32 ER 656, aff’d (1805), 10 Ves Jun 521, 32 ER 947 (Ch)
[Morice cited to Ves Jun].
2 Ibid at 405.
Purpose Trusts 61
or medium is an unincorporated association. It is useful to understand

the ways in which “gifts” can validly be made to unincorporated asso-
ciations for their purposes, whether as non-charitable purpose trusts or
otherwise. Thus, that matter is also discussed.
B. CHARITABLE TRUSTS
Gifts for charitable ends can be made in one of two ways: to registered
charities or through charitable trusts. Care must be taken to under-
stand the distinctions between the two. While this book is concerned
with the creation of charitable trusts, it is helpful to juxtapose that
information with how gifts are made to registered charities.
Registered charities need not be trusts at all. They are charities
that the government has registered for tax purposes. Once registered, a
charity is exempt from income tax, corporate tax, and capital gains tax.
The Income Tax Act3 defines a registered charity in section 248(1) as
a charitable organization, private foundation, or public foundation, or a
branch thereof, resident in Canada, that receives donations on its own
behalf and is registered with the Minister of National Revenue. Thus,
registered charities may be corporations whose objects are exclusively
charitable, or they may be public or private foundations whose ob-
jects are to disburse funds to operating charities. Familiar examples of
registered charities are the foundations for hospitals and universities.
When a gift is made to a registered charity (charitable organiza-
tion, corporation, or foundation), ownership passes outright. The regis-
tered charity takes full legal and beneficial ownership of the property.
It must, however, use the property for the exclusively charitable ob-
jects specified in its memorandum of association or constitution. This
memorandum or constitution cannot be changed so as to make the
registered charity’s objects no longer charitable.
Charitable trusts, on the other hand, are trusts set up by individ-
uals to accomplish public purposes that the courts have accepted as
warranting certain advantages. A charitable trust does not benefit per-
sons directly. Instead, the public, or a segment of the public, derives a
benefit from the trust indirectly. A charitable trust is a purpose trust
— one that has as its paramount obligation the fulfilment of a task that
the creator of the trust wishes the trustee to perform through the use
of the trust property.
3 RSC 1985, c 1 (5th Supp) [ITA].

EXAMPLE: A trust is established to provide scholarships for students at-

tending law school. Is this a charitable trust, a trust for persons, or a regis-
tered charity?
Although this trust will benefit certain students, its paramount inten-
tion is to provide scholarships, so it is not a trust for persons. It is not
a registered charity, as there is no indication that the tax authorities
have registered it. To be a charitable trust, the trust must be recognized
by the courts as having satisfied the legal requirements for a charity.
Trusts to promote education are accepted as charitable trusts. Thus, in
the example given, the trust is a charitable trust.
Because society has deemed that philanthropy is to be encouraged,
a trust that the law characterizes as charitable is accorded significant
advantages. First, considerable tax relief is granted by the federal, prov-
incial, and municipal levels of taxation for charitable trusts. The tax
relief comes in the form of concessions for income tax and capital gains
tax, and concessions for municipal tax purposes.
The second advantage is that the rules regarding certainty of objects
do not apply to charitable trusts. As we have seen, when the objects of
a non-charitable trust are uncertain, the trust will fail and a resulting
trust for the settlor arises. In the case of charitable trusts, the trust
will not fail even if its purposes or objects are uncertain, so long as the
settlor revealed a general charitable intention. Even trusts for abstract
purposes will be upheld as valid charitable trusts so long as the settlor
revealed a general charitable intention.
If a charitable trust cannot take effect, but the settlor had a general
charitable intention, the trust property will be applied cy-près, under a
scheme formulated by the court, to some other charitable purpose that
resembles the original purpose as closely as possible. Thus, a charit-
able trust that would otherwise fail for uncertainty of purpose or object
will be salvaged through application of the cy-près doctrine. Where the
donor of property intended to create a trust that is seen as charitable
in the eyes of the law, yet the purpose is impossible to achieve, has
never existed, or has ceased to exist, then the court will direct that the
subject matter be devoted to the charitable purpose most closely ap-
proximating the settlor’s intention.
The relaxation of the certainty of objects requirement must not be
overstated, however. If the choice of words used in describing the pur-
poses is too vague, and may include non-charitable purposes, the trust
will fail. For example, if a trust is set up for “worthy causes,” it will fail
because the trustee can apply the money for many “worthy” purposes
Purpose Trusts 63
not all of which fall within the rubric of “relief of poverty” or any other
charitable category.
Where there are two possible constructions, owing to an ambigu-
ity of wording, the construction that makes the trust valid should be
chosen.4
EXAMPLE: A trust is created for “charitable or benevolent purposes.” If the
words are construed disjunctively as covering two distinct purposes, the trust
will be void, because the property could be used for benevolent purposes that
are not necessarily charitable. If the words are construed conjunctively, so
that the benevolent purposes must also be charitable, then the trust will be
valid.5 Is the trust valid or not?
The courts would normally favour the conjunctive interpretation be-
cause that would render the trust valid. However, in construing docu-
ments, the courts have sometimes chosen constructions that render
the trust void, though an alternative interpretation would have led to
a finding of validity. It is hard to say that the cases were wrongly de-
cided, since we do not have the full text of the documents before us as
the courts do. What we can draw from these apparently inconsistent
determinations is an appreciation for the need for informed and clear
drafting of documents.
There is no need to restrict charitable purposes from being abstract,
nor must there be persons who benefit sufficiently so they can be seen
to have locus standi to enforce the trust. The Attorney General, acting
for the Crown as parens patriae, has locus standi to enforce the charitable
purpose trust.
The third advantage accorded to charitable trusts is that the rules
against perpetuities are applied to them differently. There are two
rules against perpetuity: the rule against remoteness of vesting and the
rule against excessive duration, also known as the rule against perpetual
duration.
The rule against remoteness of vesting requires that interests in
property vest at dates not too remote in the future. At common law, the
period was calculated as a life or lives in being plus twenty-one years.
The rule had the effect of scuttling some private trusts, based, as it is, on
the concept that it is against public policy for persons to retain control
over their property for too long a period into the future. Statutes now
provide much less stringent methods for calculating perpetuity periods.
4 Inland Revenue Commissioners v McMullen (1980), [1981] AC 1 (HL).

5 Chichester Diocesan Fund and Board of Finance Inc v Simpson, [1944] AC 341 (HL).
The rule against perpetual duration does not apply to charitable

trusts. In short, they can last indefinitely. If property is left on trust to
be applied indefinitely for a purpose, the trust fund is tied up forever. Al-
though the actual trust property within the fund may change as invest-
ments are sold and purchased, the fund itself must be set aside forever as
a capital endowment fund to support the charitable purposes. If the trust
were subject to the normal rules, it would have to be restricted so that it
would end within the perpetuity period of twenty-one years, or twenty-
one years from the death of some specified life in being at the creation of
the trust. Charitable trusts are exempt from the rule, since they are for
the public benefit and are to be encouraged to continue forever.
Charitable trusts are under the supervision of the Crown. Since the
public is to receive the benefits of the charitable trust, the state has an
inherent responsibility to ensure that the charitable trust is adminis-
tered for its charitable purposes. Although the supervision of charitable
trusts falls under the scope of duties of the provincial Attorney General,
this task is delegated to the Public Trustee. The favourable tax incentives
and the relaxed rules of certainty and rules against perpetuities are the
significant advantages of characterizing a trust as being charitable.
Difficulties arise when a person wishes to create a trust for pur-
poses that may be charitable but for which there is no registered char-
ity and which the courts have not yet recognized as charitable. When
will the courts recognize the trust as a valid charitable trust? There is
no statutory definition of a charitable trust. Instead, the approach of
the courts has been to begin by comparing the proposed trust with a
list of purposes contained in the preamble of the Elizabethan Statute
of Charitable Uses, 1601. (The Statute of Charitable Uses was enacted as
part of a code to provide for an administrative system of supervision
of charitable trusts.) The archaic language of the preamble was nicely
restated in Income Tax Special Purposes Commissioners v Pemsel:
“Charity” in its legal sense comprises four principal divisions: trusts
for the relief of poverty; trusts for the advancement of education;
trusts for the advancement of religion; and trusts for other purposes
beneficial to the community, not falling under any of the preceding
heads.6
1) The Established Approach

Historically, in order to determine whether a trust was charitable, the
courts applied five tests to any given trust. The trust had to pass all five
6 [1891] AC 531 at 583 (HL) [Pemsel].

Purpose Trusts 65
requirements to be given the designation of charitable. Those require-

ments are that the trust must
a) be within at least one of the accepted categories of charity;
b) be sufficiently public in nature;
c) be of benefit to society;
d) be exclusively charitable in purpose; and
e) not be for a political purpose.
a) Within an Accepted Category

The first step in determining whether a trust is charitable is whether
the trust fits into one or more of the accepted categories of charitable
trusts set out above in Pemsel. It will be recalled that the categories are
1) relief of poverty,
2) advancement of religion,
3) advancement of education, and
4) other purposes beneficial to the community.
“Poverty,” in the context of charitable trusts, does not have its nor-
mal meaning. The word “poverty” in everyday language connotes a
person who is destitute. In the context of charitable trusts, however,
“poverty” means only that an individual is in need or of limited means.
The test is subjective and allows the court to have regard to the person’s
station in life.
“Religion” used to be interpreted by the courts as referring only to
monotheistic religions. Now, however, it applies to any religion, Chris-
tian or otherwise, so long as it is not a cult. It does require a belief in a
god or higher being, so that theosophy, for example, which seeks to de-
velop an ethical and moral standard on a humanistic or atheistic basis,
does not qualify. It cannot be subversive of morality, so that Satanism,
for example, would not qualify.
“Education” similarly bears a meaning that is different from the
usual. Schools, institutions of higher learning, museums, culture, librar-
ies, scholarship, music, and drama are all subsumed within the heading
of education. The promotion of sport is not. Neither is pure research
that is not disseminated, because “the advancement of” education is
required, and enhancing one’s own knowledge, without sharing it, is
not advancement of education for the purposes of charitable trusts. Re-
search must be of educational value, or directed into something that
will pass into the store of educational material so as to improve the sum
of communicable knowledge in an area. Education may extend to the

formation of literary taste and appreciation.7
The Supreme Court of Canada considered the “advancement of edu-
cation” category in Vancouver Society of Immigrant and Visible Minor-
ity Women v Canada (Minister of National Revenue).8 Although the case
dealt with the Society’s application for registered charity status under
the Income Tax Act, the principles enunciated are applicable to charit-
able trusts. In this case, the Vancouver Society’s application to become
a registered charity was rejected by the Minister of National Revenue
on the grounds that the Society had not been constituted primarily for
charitable purposes as required by the Act. The Society unsuccessfully
appealed the decision to the Federal Court of Appeal. The Society fur-
ther appealed to the Supreme Court.
A majority of the Supreme Court dismissed the Society’s appeal on
the grounds that the organization was not constituted exclusively for
charitable purposes. The majority found, however, that the Society fell
within the “advancement of education” category. The dissent would have
allowed the appeal on the grounds that the Society fell within the “ad-
vancement of education” and “other purposes beneficial to the public”
categories, and was constituted exclusively for charitable purposes.
The reasons of both the majority and dissent dealt with the subject
of how to determine whether an entity’s purposes were charitable. Both
stated that the scope of the advancement of education category under
Pemsel should be modernized. Justice Iacobucci, writing for the major-
ity, stated:9
To limit the notion of “training of the mind” to structured, systematic
instruction or traditional academic subjects reflects an outmoded
and underinclusive understanding of education which is of little use
in modern Canadian society. As I said earlier, the purpose of offering
certain benefits to charitable organizations is to promote activities
which are seen as being of special benefit to the community, or ad-
vancing a common good. In the case of education, the good advanced
is knowledge or training. Thus, so long as information or training
is provided in a structured manner and for a genuinely educational
purpose — that is, to advance the knowledge or abilities of the re-
cipients — and not solely to promote a particular point of view or
political orientation, it may be properly viewed as falling within the
advancement of education.
7 Re Hopkin’s Will Trusts (1964), [1965] Ch 669 at 680.

8 [1999] 1 SCR 10 [Vancouver Society].
9 Ibid at para 169.
Purpose Trusts 67
The category of “other purposes beneficial to the public” is not sus-

ceptible to any cohesive principle or set of principles. This category is
best understood as analogous to the words in the preamble to the Statute
of Charitable Uses, 1601, or, as has been said, the proposed use must fall
within the spirit and intendment of the preamble, taking into account
decided cases and analogies with such cases. Trusts for relief of the aged
and the infirm fall within this category, as do trusts for the promotion of
health, public amenities, social rehabilitation, and animal welfare.
b) Public in Nature
To be a charitable trust, the trust must also be sufficiently public in
nature. That is, in order for a trust to be characterized as charitable, it
must be seen to provide a benefit to the community at large or, at least,
a significant segment of the community.
What constitutes a “significant segment” of the community varies
with each of the four categories. In some of the categories, the public
aspect is related to the nature of the group — to those who are within
the group. This is the case for trusts for relief of poverty, where the test
for public is that the personal nexus between the settlor and the bene-
ficiaries cannot be too close. Thus, a trust to relieve poverty among my
children would not be given charitable status, as the relationship is too
close. However, a trust to relieve poverty among my poor relations is
likely to be found to be valid.
In trusts for education, a personal nexus is not permissible.10 Sheer
numbers of people seems to be irrelevant. If there is a connection (per-
sonal nexus) between the settlor and the recipients, the trust will not
be given charitable status.
The assumption in respect of religion is that the public hurdle is
met, since most religions want as many people as possible to subscribe
to their beliefs.
In the benefit to the community category, to satisfy the public test,
you must demonstrate that there is no personal nexus and that a sig-
nificant portion of a community can take advantage of the trust.
EXAMPLE: I put money into a trust for the purpose of building a bridge in
a remote part of the province. Anyone who needs to use the bridge can do
so, but because of its location, it is likely that very few people will actually
use it. Is the trust sufficiently “public” in nature to satisfy this requirement?
It is likely that the courts would find that the public requirement is met
in this case. Why? Because despite the fact that few people may use
10 Oppenheim v Tobacco Securities Trust Co Ltd, [1951] AC 297 (HL).

the bridge, it is available for use by all, and there is no personal nexus
between those who can use it and me.
c) Of Benefit to Society
A charitable trust must be of benefit to society. Benefit is assumed to
exist for those trusts within the first category — relief of poverty. It
must be demonstrated in respect of the other categories. For example,
the courts have ruled that there is no benefit to society from the pray-
ers of cloistered nuns, because the benefits of intercessory prayer are
not susceptible of proof, and the alleged edification of a section of the
public by the example of the nuns’ pious lives is too vague.11
A person’s studio and pictures were not given charitable status
under the heading of education, because expert evidence was given
to the effect that the collection was inferior and not likely to be of any
benefit to the public.12
The requirement for benefit is highest in the fourth category of other
purposes beneficial to the community. In the fourth category, it is ne-
cessary to demonstrate that the benefit arising from the trust is suffi-
cient. The law has not clearly set out what is sufficient. Trusts designed
primarily to promote social or recreational matters will be valid only
under this heading, if at all. The courts have demonstrated a reluctance
to give charitable trust status to trusts whose primary purposes are
fitness, sport, or social activities, but the reason for this reluctance is
not entirely clear. Is it simply that, historically, such trusts have not
been accepted, since they were not analogous to those contained in
the preamble to the Statute of Charitable Uses, 1601? Or is it because
they are not seen to benefit society sufficiently, since the benefits ac-
crue primarily to the individuals involved? The rulings in Vancouver
Society and AYSA Amateur Youth Soccer Association v Canada (Revenue
Agency),13 which are discussed in more detail below, suggest that the
Supreme Court is reluctant to stray from precedent when it comes to
determining what qualifies as “charitable” at common law.
d) Exclusively Charitable in Purpose

To satisfy this fourth requirement, it is necessary to show that the dom-
inant purpose of the trust is charitable. Where a trust has only one pur-
pose and it is stated in a way that is clearly charitable, this requirement
is easily satisfied. Once the purpose has been shown to fall within one
11 Gilmour v Coats, [1949] AC 426 (HL).

12 Re Pinion (1964), [1965] Ch 85 (CA).
13 2007 SCC 42 [AYSA].
Purpose Trusts 69
of the above categories, it can be assumed that it will pass this require-
ment, since the funds must be used as specified. The situation becomes
more complex when the express purposes include, expressly or by im-
plication, non-charitable purposes. If the non-charitable purposes are
purely ancillary to the major purpose, which is charitable, then the gift
will be valid. Ancillary purposes are those that are construed as neces-
sary for the attainment of the main (charitable) purpose. If the non-
charitable purposes are not ancillary, the trust may fail, as we shall see
in Section C.14
EXAMPLE: A leaves $10,000 in trust to be used “to assist with the work
of my parish priest.” The work of a parish priest, as we all know, includes
things that are not directly part of the advancement of religion. For example,
the priest needs funds to pay lighting and heating bills. Will the trust be
held to be a valid charitable trust?
It will. The primary function of the priest is to advance religion. Payment
of such things as heating bills is ancillary to the dominant purpose of
advancement of religion.
e) Without Political Purposes

Charitable trusts that promote a “political purpose,” such as a change
in legislation, are not permissible charitable trusts. The reason given by
the courts is that they cannot determine whether a proposed change in
the law will be of benefit to the public. Trusts that aim to influence Par-
liament to change the law in accordance with the views of the members
of particular organizations are void for the same reason.
EXAMPLE: A testator leaves his estate in trust for a lobby group whose sole
purpose is to make possession of firearms illegal. This outcome would call
for a change in the laws. Thus, this trust will fail as a charitable trust.
2) Upholding the Established Approach

In the 1984 Ontario case Re Laidlaw Foundation, the judge deciding the
case stated that it is “highly artificial and of no real value in deciding
whether an object is charitable for courts in Ontario today to pay lip-
14 See also Vancouver Society, above note 8, where the majority found that one of
the Society’s objects, namely, “to do all things that are incidental or conducive
to the attainment of” its other stated objects, was vague and uncertain and
could lead to non-charitable activities beyond those that could be considered
ancillary or incidental to those purposes that were charitable.
service to the preamble of a statute passed in the reign of Elizabeth I.”15

The case validated, as charitable, donations to amateur athletic organ-
izations. Holding that such organizations fit into the fourth Pemsel cat-
egory of “purposes beneficial to the community,” Laidlaw jettisoned
the established approach in favour of a forward-looking, open-ended
test that telescoped all the previous law into a question of whether the
proposed use of funds would be beneficial to the community.
Laidlaw is striking in its approach to determining charitable status.
For the most part, it stands alone. The established approach to deter-
mining charitable trust status is not based on modern views, but on
what types of trusts have historically been accorded such status. By
contrast, Laidlaw articulated a flexible approach intended to enable the
courts to make more meaningful determinations of which trusts war-
rant being accorded charitable trust status. The majority in Vancouver
Society adopted a modern and expansive approach to the “advancement
of education” category but did not go so far as Laidlaw. It refrained from
applying a more flexible approach to the “purposes beneficial to the
community” category. The majority suggested a cautious approach to
broadening the purposes found charitable under this category. Justice
Iacobucci noted:
The question before this Court . . . is not whether this purpose should
be considered charitable but whether the common law recognizes it
to be charitable. I agree that the law in this area is in need of reform
but there are limits to the degree of change that the common law
can accommodate. It is one thing to change the law by legislative
amendment and quite another to alter the existing jurisprudence by
a fundamental turning in direction.16
The dissent in Vancouver Society accorded more closely with the
approach taken in Laidlaw. It would have found the Society to be char-
itable on the grounds that its purposes fell within the category of “ad-
vancement of education” as well as the category of “other purposes
beneficial to the public.” The dissenting reasons noted that its conclu-
sion would adhere to the principles of altruism and public benefit, as
well as existing caselaw under the Pemsel classification, to identify new
charitable purposes. It was rooted in Pemsel, but it did not shy away
from recognition of new purposes “which respond to pressing social
needs.”17
15 (1984), 48 OR (2d) 549 at 582 (Div Ct) [Laidlaw].

16 Vancouver Society, above note 8 at para 179.
17 Ibid at paras 50–51.
Purpose Trusts 71
However, the more liberal approach taken in Laidlaw to the def-

inition of charity was labelled “anomalous” by the Supreme Court in
AYSA,18 a recent case dealing with whether an amateur soccer organiza-
tion could be granted charitable status for the purposes of the Income
Tax Act. The Supreme Court determined that because the Laidlaw case
concerned a provincial statute that required only that the organization
have a “purpose beneficial to the community” to be a charity, the judge
never considered whether the organization’s purpose was recognized
by the common law as charitable. As a result, the judge considered only
part of the common law test for a charity. This made the Laidlaw decision
inconsistent with the Supreme Court’s holding in Vancouver Society.
In AYSA, the Supreme Court hewed closely to the established ap-
proach laid out in Pemsel and followed by the majority in Vancouver So-
ciety. The Court noted that the central question in determining whether
the organization was charitable under the fourth Pemsel category for
purposes of registering under the Income Tax Act was whether the or-
ganization’s purposes were for a public benefit in a way that the law
regards as charitable. Stressing that public benefit alone does not equal
charity, the Court concluded that while participating in sports is no
doubt beneficial to the community, the common law consistently held
that such benefits were insufficient to qualify as charitable. The Court
acknowledged that sporting activities, if ancillary to another recog-
nized charitable purpose such as providing education or aiding the
disabled, could in fact be considered charitable. Thus, a soccer organ-
ization for disadvantaged youth is likely charitable, while the AYSA,
which is open to all youth, is not.
The Supreme Court also highlighted the distinction made by the
Income Tax Act between charitable and non-profit organizations.19 The
fact that the Act assumes that not all non-profit activities will be char-
itable signals that the legislative scheme does not support a judicial
broadening of the definition of charity. The Court concluded that
granting sports organizations charitable status would be a substantial
18 Above note 13.

19 By meeting certain requirements, an organization will be eligible for non-profit
status under the ITA. This provides certain tax advantages such as income tax
exemptions, despite an organization’s lack of registered charitable status under
the ITA. Not-for-profit organizations can incorporate under the Canada Not-
for-profit Corporations Act, SC 2009, c 23, or under a provincial statute such as
Ontario’s Not-for-Profit Corporations Act, 2010, SO 2010, c 15 (not yet in force).
These and similar acts aim to provide a comprehensive set of rules for not-for-
profit corporations. However, the simple fact of being incorporated as a not-
for-profit corporation under such acts is not sufficient for a corporation to be
considered a registered charity for the purposes of the ITA.
expansion of the law with significant impact on the income tax system.
Such a change, while potentially desirable as a matter of policy, would
be better left to Parliament.
C. NON-CHARITABLE PURPOSE TRUSTS
Had we been discussing non-charitable purpose trusts some twenty or

thirty years ago, I would have recited the courts’ historical aversion to
them and expressed the wish that some flexibility would be injected
into this area. Today, however, the courts appear more flexible when
deciding whether non-charitable purpose trusts are valid.20 Despite
some continuing uncertainty, there are examples of the courts’ accept-
ance of non-charitable purpose trusts. The current state of the law ap-
pears to be that a non-charitable purpose trust may be found valid if it
does not violate the applicable rule against perpetuities and is in some
way enforceable.21
This acceptance of non-charitable purpose trusts is most welcome.
Our system of law accepts that people should be able to dispose of
their property as they wish, so long as the disposition is legal and com-
plies with the rules on public policy and with legal requirements. There
should be no blanket rule proscribing trusts for non-charitable pur-
poses. After all, gifts for purposes are valid, as are powers that are to be
used for purposes; alternatively, the settlor can form a company with
the desired non-charitable objects that can validly fulfil such purposes.
It seems unfortunate that inept use of language may be the difference
between having a testator’s intention carried out or thwarted.
The new view appears to be that, instead of prohibiting non-charitable
purpose trusts, the legal rules must ensure that the intention of the
creator of the trust is carried out and that the trustee is able to per-
form in compliance with that intention. Naturally, non-charitable pur-
20 Schmidt v Air Products of Canada Ltd, [1994] 2 SCR 611. The Supreme Court of
Canada in rejecting the notion that pension trusts are purpose trusts, relied
on the reasoning of the Pension Commission of Ontario in Arrowhead Metals
Ltd v Royal Trust Co (26 March 1992), [unreported] that people are clearly the
beneficiaries of pension trusts and that such trusts are established primarily to
benefit such people, not to effect a purpose. The Court did not suggest that non-
charitable purpose trusts were impermissible or invalid.
21 See, for example, Keewatin Tribal Council Inc v Thompson (City), [1989] 5 WWR
202 (Man QB), and also Re Westar Mining Ltd, 2001 BCSC 618. However, non-
charitable purpose trusts may still be found invalid where the court is not
satisfied it can be enforced for lack of a beneficiary: Ernst & Young Inc v Central
Guaranty Trust Co, 2004 ABQB 389 [Ernst & Young].
Purpose Trusts 73
pose trusts must comply with the legal limits of legality, public policy,
perpetuities, formalities, and the like.
The historical reluctance to permit non-charitable purpose trusts
was said to have been based on the fact that they led to problems of
enforceability, execution, excessive delegation of testamentary power,
and infringement of the perpetuities rules.
The enforceability objection was discussed in the introductory
portion of this chapter. Its essence is that because a purpose is not a
person, there is no one who can go to court to enforce the trust. The
absence of a beneficiary means that the court has no one at whose in-
stance it can step in and carry out the terms of the trust if the trustee
fails to perform. This was perhaps the most difficult objection to over-
come because there is no one person with a correlative right to enforce
a trustee’s duty. But this is where the need for some flexibility in the
law comes in. Should the absence of such a person be an insurmount-
able barrier? The law now disagrees. At common law, the case that first
created a mechanism for dealing with the problem is Re Denley’s Trust
Deed.22 In that case, a person wished to establish a recreation ground
for employees and ex-employees of a corporation — that is, he wished
to create a non-charitable purpose trust. The court upheld the trust
on the basis that there were individuals who could be ascertained and
who had a sufficiently direct interest in the due administration of the
trust (the employees and ex-employees) that they were given standing
to apply to the courts to enforce it. It is accurate to say that no one
employee could claim to be a beneficiary in the strict sense of being
the equitable owner of the property, but this did not prevent the court
from seeing that the employees’ interest could otherwise create a viable
situation. Re Denley’s Trust Deed has been followed and must be given
the credit for creating a flexible approach to the enforceability problem.
Several modern perpetuities statutes validate some non-charitable
purpose trusts for a limited period. Section 16 of the Ontario perpetu-
ities legislation23 is an example of such legislation. It treats specific non-
charitable purpose trusts as powers and permits them to take effect for
a twenty-one-year period. The question arises why, in provinces with
provisions such as section 16, the courts are dealing with these matters
through common law solutions such as Denley rather than through the
legislation. In my view, although the cases do not make this explicit, it
is because the legislation transforms the matter from a trust to a power.
22 (1968), [1969] 1 Ch 373 [Denley].

23 Perpetuities Act, RSO 1990, c P.9, s 16; see also Perpetuities Act, RSA 2000, c P-5,
s 20; RSNWT 1988, c P-3, s 17; RSNWT (Nu) 1988, c P-3, s 17; RSY 2002, c 168,
s 20; Perpetuity Act, RSBC 1996, c 358, s 24.
This is a radical departure from what was intended, since a trust is ob-
ligatory in nature, whereas a power is discretionary. It may be that the
courts consider first whether the proposed trust is valid at common law
so that, if upheld, it will be in the way most consonant with the cre-
ator’s intention. Only if the trust cannot be so validated, will the courts
turn to the legislative provisions.
The second, third, and fourth objections to non-charitable purpose
trusts can be dismissed more readily. The execution objection is con-
cerned not with the lack of a beneficiary but with the terms of the
trust, which may be drafted in such broad or ambiguous language that
a trustee cannot “execute”; that is, a trustee cannot know whether the
testator’s intention is being carried out when he or she performs, nor
can a court assess whether the trustee is properly performing. This is
clearly legally unacceptable; the purpose must be described with suf-
ficient certainty that the trustee can perform without fear of being in
breach. This objection is easily met: to be valid, the purpose must be
specified in sufficient detail that the trust can be carried out (executed).
The third objection to non-charitable purpose trusts is that those
created by will are void, since they amount to “an excessive delegation
of testamentary power.” This objection is based on the view that each
individual must make his or her own will; it is not acceptable to leave
that task to someone else. So, the argument runs, testators who want
a purpose carried out should do it themselves rather than leaving it to
a trustee. This objection does not lie against inter vivos non-charitable
purpose trusts for obvious reasons. For those trusts created by will, the
objection can be met by pointing out that an individual may grant to
another a general power of appointment over property.24 General pow-
ers of appointment are much broader delegations of testamentary
power than are non-charitable purpose trusts. Since general powers of
appointment have been accepted by the courts, any objection to non-
charitable purpose trusts based on excessive delegation of testament-
ary power simply cannot be correct.
The fourth objection to non-charitable purpose trusts is that they
are often drafted to last perpetually, and thus infringe either the rule
against remoteness of vesting or the rule against inalienability, also
known as the rule against indefinite duration. The answer to this ob-
jection is short. Generally, no transfer of property may infringe either
24 See Re Nicholls’ Estate (1987), 57 OR (2d) 763 (CA). Such general powers of ap-
pointment are virtually unlimited. See Chapter 2 for a more detailed discussion
of the breadth of such powers.
Purpose Trusts 75
rule.25 All transfers that do infringe one of the perpetuity rules are struck
down.26 Thus, if a non-charitable purpose trust infringes the rules, it
too should be struck down. If it is drafted so that it is confined to the
perpetuity period, the fourth objection is overcome. Non-charitable
purpose trusts should be treated like all other private transfers in that
regard.
1) Quistclose Trusts
In Barclay’s Bank Ltd v Quistclose Investments Ltd,27 the House of Lords
developed the notion of a “Quistclose trust” — a non-charitable pur-
pose trust involving the payment of monies. In Quistclose, the monies
advanced by the lender were to be held and used only to pay dividends
to the borrower’s shareholders. Upon the borrower’s bankruptcy, the
monies were found not to be part of the borrower’s assets or simply a
debt owed to the lender, but were declared by the House of Lords to be
monies held in trust for the lender and therefore not available to satisfy
the borrower’s debts.
In a Quistclose trust, money is loaned subject to requirements or re-
strictions on its use, as specified by the lender. The settlor is a beneficiary
of the trust and can enforce the trust or prevent the use of the money for
any purpose other than that specified. The trustee holds the money
in trust and has the power to use it only for purposes specified by the
settlor. In Twinsectra Ltd v Yardley,28 following Quistclose principles,
the loan arrangement was found to be a valid non-charitable purpose
trust,29 notwithstanding some degree of vagueness regarding the pre-
scribed use for the money, namely, the “acquisition of property.”
In Canada, the Quistclose trust has been accepted. Examples are Re
Westar Mining Ltd30 and Del Grande v McCleery.31 However, a different
result was reached by the court in Ernst & Young v Central Guaranty
25 Charitable trusts, however, are exempt from the rule against inalienability. The
rule against remoteness of vesting applies to all trusts, including those that are
charitable.
26 However, in Manitoba, this is no longer the case: Perpetuities and Accumulations
Act, RSM 1987, c P-33, as am by The Residential Tenancies and Consequential
Amendments Act, SM 1990–91, c 11, s 205(1).
27 [1968] 3 All ER 651(HL) [Quistclose].
28 [2002] 2 AC 164 (HL) [Twinsectra].
29 The majority in Twinsectra found an express trust, whereas the minority held it
to be a resulting trust. In either case, however, the monies reverted back to the
settlor.
30 Above note 21, aff’d 2003 BCCA 11.
31 (2000), 127 OAC 394 (CA).
Trust Co32 on the grounds that there were no persons who could be as-
certained so as to enforce the terms of the intended trust. In light of the
Ernst & Young decision, it will be interesting to see whether Quistclose
trusts will be available in Canada.
D. THE RELATIONSHIP BETWEEN

CHARITABLE AND NON-CHARITABLE
PURPOSE TRUSTS
It is not uncommon for a trust to express a number of different purpos-

es, some of which may be charitable, and others, not. Trust provisions
that encompass both charitable and non-charitable objects are referred
to as “mixed” or “imperfect.”
For a trust to be valid as a charity, the trust purposes must be ex-
clusively charitable. Historically, if any portion of the trust property
could benefit a non-charitable purpose, the whole trust would fail and
the trust property would result back to the settlor.
In some instances, the courts have been able to save the charitable
elements of an imperfect trust by severing the non-charitable elements,
disregarding ancillary purposes, or finding that the trust is charitable.
In such cases, the courts were prepared to apply the entire trust prop-
erty to the charitable purposes. These mechanisms continue to be em-
ployed to preserve the charitable elements of mixed-purpose trusts;
however, since these cases turn on the creator’s intention, the caselaw
presents fine distinctions between those situations in which the charit-
able elements will be salvaged and those in which they will not.
Legislation could save such trusts in a number of ways, but perhaps
the most simple is to provide that such trusts are to be construed so
the trust property could be used only for charitable purposes. Some
jurisdictions have enacted statutes aimed at preserving the charitable
elements of mixed-purpose trusts in this way. Alberta, for example,
enacted legislation that provides that where there are mixed purposes,
“the trust or gift is valid for both purposes,” and the “trustee or execu-
tor shall divide the property among the charitable and non-charitable
purposes according to his or her discretion.”
32 Above note 21.

Purpose Trusts 77
E. UNINCORPOR ATED ASSOCIATIONS
In the eyes of the law, there are only two legal entities: human beings
and corporations. When we speak of persons, in law, we are referring
to either of these entities.
An unincorporated association is not a legal entity. It is a loose
grouping of people who come together for a purpose. The best ex-
ample of an unincorporated association is a club. As an unincorpor-
ated association is not a legal entity, it is not capable of holding title to
property, nor can it exercise any other legal rights, powers, or duties
associated with legal personhood. Rather, it is a group of individuals
bound together for a common purpose whose relationship is governed
by a contract (oral or written) among them. Property is held by certain
members of the group (usually the treasurer or president, or both) on
trust for all association members, and the property is to be dealt with
according to the rules of the association. Legal acts of the association
are completed through the group’s officers.
Legal problems arise as a result of the association’s absence of legal
status. For example, it is difficult to determine how assets that flow to
an unincorporated association should be treated. And, if we are unclear
about how assets are given to an unincorporated association, it is dif-
ficult to know how the assets are to be disposed of.
There are four ways in which assets flowing into an unincorporated
association may be viewed:
1) As a gift to the members of the association at the time the gift is
made. A gift of this sort is valid as an outright gift.
2) As a gift to the members, present and future, of the association.
This type of gift is invalid because it infringes the rule against per-
petuities.
3) As an accretion to club funds to be dealt with according to the club
rules. These inflows of assets are valid on the basis of contract law.
The funds are held with other club assets — namely, in trust — but
the uses of the funds are governed by the contract created by the club
rules.
4) As if the assets were given to the unincorporated association to be
used for prescribed purposes. Such a gift will be valid in one of two
circumstances. Where the purposes are charitable, the officers of
the association will be obliged to fulfil such charitable purposes. If
they cannot or will not, new trustees will be appointed, or a cy-près
scheme will be put in place. Where the purposes are non-charitable,
if a Denley type of construction is possible, the inflow of assets will
be upheld as a valid non-charitable purpose trust. Otherwise, such

an attempted disposition is invalid.
On either of the first two constructions, the mode of transfer is an
outright gift. Therefore, trust principles are not applicable, and there
can be no question about the purpose or purposes to which the money
will be put. The third construction provides that the assets are to be
distributed according to contract principles, and, again, there is no
problem in finding that the assets have been validly transferred to the
association. It can be a nice question as to how the funds are to be used,
but that is a matter of evidence. The officers of the association will have
to demonstrate the agreement of the members to any proposed use of
funds.
The fourth construction involves trust law, and the validity of the
transfer depends on whether the principles contained in the Denley
case (whether there are individuals sufficiently interested in the trust
property that their presence overcomes the enforceability doctrine) can
be applied.
Which of the four possible constructions will be held to exist de-
pends on the way in which the donor expresses his or her intention.
Intention is determined by reference to the instrument of gift and to
the rules and nature of the unincorporated association.
In the Canadian case Keewatin Tribal Council Inc v Thompson (City),33
these principles were applied. A corporation, consisting of Indian
bands, owned three apartment buildings. For tax reasons, it executed a
deed under which it was stated that the corporation held the properties
as bare trustee for the member bands. The municipality assessed the
corporation for municipal tax, arguing that because the Indian bands
were unincorporated associations, they were incapable of being the
beneficiaries of the trust.
The validity of the trust was upheld on the basis of the reasoning
in Denley.34 The trial judge rejected the notion that the real effect of the
transaction was to amount to a gift in favour of the individual band
members. If we follow his reasoning, we will see that, in effect, he
viewed the matter as falling within the non-charitable purpose trust
arm of the fourth category set out above:
In the case at bar, the ultimate, albeit indirect, beneficiaries of the
trust are the individual members of the bands; indeed, there are pot-
entially very real benefits in that the children are entitled to use the
33 Above note 21.

Purpose Trusts 79
properties free of charge as accommodation while attending school

in Thompson. Even if this were not enough to give individual band
members locus standi, surely the trust could, and would, be enforced
by the band councils, or any one or more of them, or failing that,
the chiefs, or any one or more of them. If the band councils have a
status similar to that of municipalities, surely they have the neces-
sary standing to enforce the trust. The real question is one of en-
forceability and nothing else. There is absolutely no problem with
a charitable purpose trust, which will be enforced by the Attorney
General, however impersonal its objects; similarly, there should be
no problem with a non- charitable purpose trust where there are any
number of persons with standing to enforce it.
...
It follows that in Manitoba, at least, the type of trust in ques-
tion is perfectly valid as a non-charitable purpose trust which neither
contravenes the rule against perpetuities, for there is no such rule
here, nor fails for want of beneficiaries having standing to enforce
the trust.
Many of the English cases appear to favour a contractual approach
— the construction set out in point 3, above. They see money flowing
into a club as an accretion to funds, to be dealt with according to club
rules. That may well be an appropriate interpretation when the assets
are club dues, membership fees, or other like matters. It is less likely
when there are “strings attached” to the asset transfer. With the courts
becoming more open to accepting non-charitable purpose trusts, it
is likely that the fourth construction will find more favour with the
courts, since it is often the most readily consonant with the apparent
intention of the donor.
C H A P T E R 5
ENDING OR
CHANGING A TRUST
A. INTRODUCTION
When a trust comes to an end, we generally think of it ending “natur-

ally” — the situation where the trustees have fully distributed the trust
property to the beneficiaries in accordance with the terms of the trust.
There are other possibilities, however: before distribution, the settlor
may wish to intervene and retrieve or redirect the trust corpus, in
whole or in part; the beneficiaries may want to call for the property
earlier than is provided for under the trust; or one of the parties may
wish to leave the trust afoot, but alter its terms. In rare cases — fraud,
undue influence, duress, misrepresentation, or mistake — courts may
be asked to set the trust aside.
This chapter explores when and how termination and alteration
can occur. First, I consider how the settlor may initiate termination,
and then I examine how beneficiaries can cause the premature ending
of the trust through use of the principle in Saunders v Vautier.
Alteration of the trust is dealt with separately, since it presupposes
a desire to keep the trust mechanism in place but to change or modify
some aspect of its functioning or structure. As part of the discussion
on alteration, I will consider the issue of amendment, which when
achieved through use of an amending power in the trust document,
does not require court approval. As well, I will consider variation of
trusts, which is achieved through the courts.
80
Ending or Changing a Trust 81
The limitations inherent in variation of trust legislation must be

understood, if only to illustrate how important it is to include broad
amending powers within trust documents. As well, an appreciation of
the legislative constraints governing variation applications is helpful
in understanding how and when recourse to the courts is useful. In
conjunction with an examination of the variation of trust legislation,
I will discuss the limited capacity of the common law to provide for
variation of trusts.
B. TERMINATION OF THE TRUST
1) Revocation by the Settlor

Once a trust is created, the settlor cannot retrieve any part of the trust
assets unless he or she retained a power of revocation when the trust was
created. A power of revocation enables the settlor to intervene and set
the trust aside, or call for the return of all or a part of the trust property
after its creation.
A power of revocation must be clearly and expressly reserved at the
time the trust is created. Creation occurs at the time of constitution.
Constitution, in general terms, occurs when trust property is vested
in the trustee. In the case of testamentary trusts, constitution occurs
at the time of death. Inter vivos trusts are constituted when title to the
trust property is conveyed to the trustees. Thus, unless a declaration
of trust is made for valuable consideration, the creator of a trust is free
to revoke at any time before constitution occurs, since there is no trust
without constitution.
Because testamentary trusts are constituted on death, the issue of
revocation is relevant only to inter vivos trusts. In the case of testament-
ary trusts, before death (and therefore before constitution) the testator
may revoke at any time. After death, there is no one with the power to
revoke, so the issue does not arise.
Why can a power of revocation not be inserted after constitution?
Why can the creator of a trust not revoke the property without a power
of revocation? The answer to both questions is the same. When a trust
is created, the creator is divested of title — legal title vests in the trustee,
and equitable title vests in the beneficiaries. The creator, therefore, has
no title to the property, no claim to any rights over the property, and no
right to exercise any power in respect of it.
For many years, it was unclear in Canada whether the courts would
accept, as valid, trusts that had been created with a power of revocation.
Those who believed that such trusts could not be valid argued that
since a trust was a disposition of property, it was contrary to the fun-
damental nature of the trust to allow the creator later to call for the
return of the property. Proponents of the view that such powers were
valid argued that a trust with a power of revocation was no different
in concept from gifts subject to conditions subsequent, and since such
conditional gifts were valid, so too were powers of revocation. They
pointed, as well, to the fact that the use of powers of revocation in the
United States is extensive.
The Supreme Court of Canada has ended this debate, ruling in
Schmidt v Air Products of Canada Ltd1 that a power of revocation in a
pension trust enables a plan sponsor to call for the return of funds from
the trust. Moreover, the power of revocation was held to entitle the
plan sponsor to insert language in an ongoing plan which stipulated
that surplus fund assets that were to accrue in future were to belong to
the plan sponsor. The Court reinforced the concepts surrounding the
fundamental nature of a trust, thereby rejecting the notion that there is
some inherent or residual power in a settlor to intervene once the trust
has taken effect.
Caselaw in the pension area prior to Air Products suggested that un-
restricted powers of amendment or modification could be interpreted
to include the power to revoke.2 The Supreme Court made it clear, how-
ever, that a broad power of amendment could not include a power of
revocation — nothing short of an express power of revocation would
enable a settlor to revoke trust property. Although the case involved
pension trusts, it is submitted that the general principles relating to
powers of revocation are applicable to all trusts.
2) “Exceptions” to the Rule against Revocation

There are some supposed exceptions to the rule against revocation, the
most notable of which is that relating to debtors. If a debtor transfers
money to a third party to hold for the purpose of paying his general
creditors, the debtor may revoke unless the creditors joined as parties
to the instrument transferring the funds or, having had notice of the
transfer, have forborne from suing. Because of this power to “revoke,” it
has been said that a debtor may revoke a trust made for creditors.
1 [1994] 2 SCR 611 [Air Products].

2 See Maurer v McMaster University (1991), 4 OR (3d) 139 (Gen Div); Hockin v
Bank of British Columbia (1990), 71 DLR (4th) 11 (BCCA); Campbell-Renton v
Cayley, [1960] OR 550 (HCJ).
It is correct to say that, in such circumstances, a debtor may call

for the return of the property. However, it is not a true exception to the
rule against revocation of trusts. The debtor is free to revoke because
no trust is ever created.3 The courts have held that the necessary inten-
tion to create a trust is lacking because the debtor never intended that
equitable title pass to the creditors. Rather, the courts have found that
such arrangements are intended to benefit the debtors themselves. In
the absence of the requisite certainty of intention, no trust is created, the
creditors never acquire an interest in the property, and there is, there-
fore, no reason why the debtor may not revoke.
An alternative explanation for the debtor’s right to revoke is that the
trust was created with the debtor as beneficiary. The trustee is to pay
third parties for the benefit of the debtor. On this analysis, the debtor
can wind up the trust and obtain the trust property under the rule in
Saunders v Vautier because he or she is sui juris and the sole beneficiary.
If creditors join as parties to the conveyance, then the debtor is
precluded from recovering the funds. So, too, where the creditors have
notice of the trust and forbear from suing, because, in essence, the par-
ties have given consideration for the transfer of the property.
If a trust is set up for the benefit of named creditors, the settlor
cannot revoke, because the creditors become beneficiaries at the time
of the creation of the trust. No communication is necessary, since the
particular creditors’ rights arise in the normal way.4
3) Reserving a Power of Revocation

Three problems may arise as a result of reserving a power of revocation
at the time the trust is created. First, it may create problems in relation
to intention. When a settlor retains a power of revocation, it is some-
times difficult to know whether the requisite certainty of intention
existed. The transfer of property to the trustee may be held to show an
intention that an equitable interest pass to a beneficiary until such later
time as the settlor decides to revoke. If so, a valid trust with a power of
revocation has been created. Such a trust is like a gift made subject to
a condition subsequent. However, the power of revocation may suggest
that the settlor never intended equitable title to pass. If he or she did
not, then the trustee merely holds the funds as agent for the settlor, and
no trust arises. To carry through the analogy to a gift, this is equivalent
3 Bill v Cureton (1835), 2 My & K 503, 39 ER 1036 (Ch).

4 See Thomson v Merchants Bank of Canada (1919), 58 SCR 287, for a discussion of
the distinctions between trusts for creditors generally and those for particular
creditors.
to cases in which the courts have held that no gift was made because
the necessary intention to give was lacking.
A second problem can arise where the settlor retains a power of
revocation that can be exercised until death. It is unclear whether, in
such circumstances, the trust is testamentary or inter vivos. If it is tes-
tamentary, then it must comply with the formalities required of wills.
In brief, this means that it must be in writing and witnessed. Inter vi-
vos trusts are not subject to the same formality requirements; for that
reason alone it is important to know from the outset whether a trust is
inter vivos or testamentary.
To determine whether a trust is inter vivos or testamentary, it is ne-
cessary to determine whether the instrument is dependent on the set-
tlor’s death for “its vigour and effect.”5 If so, it is testamentary; if not, it
is inter vivos. A power of revocation (unless expressed to be for a limited
duration) may be exercised at any time until the settlor’s death. At the
time of death, the power also “dies,” as there is no one who can exercise
it thereafter. Thus the question becomes, Is there an inter vivos trust that
takes immediate effect, but, because of the power of revocation, will not
be performed until after the death of the settlor? Or is the trust testa-
mentary, since it is dependent on the settlor’s death for its effect?
EXAMPLE: A settlor transferred money to P to be held in trust for himself
and “if anything should happen” to the settlor, for his two friends. He re-
served the right to call for the return of the money at any time. He died and
the question was, Where should the money be paid? To his estate or to the
two friends?6
A majority of the Alberta Court of Appeal declared this to be a fully
constituted inter vivos trust. The right to call for the return of the funds
was a power of revocation, and not a stipulation as to when the trust
was to take effect. Because the trust was a valid inter vivos one, it was
not struck down for failing to comply with the formalities requirements
of wills. The dissent held that because the settlor was entitled to de-
mand the return of the funds at any time, no valid trust was created
inter vivos, and, further, as the instrument was dependent on the settlor’s
death for effect, the disposition was testamentary in character and
ineffective, for failure to comply with the necessary formalities.
No firm answer can be given as to which of the two constructions
will be adopted, since the courts have accepted both.
5 Cock v Cooke (1866), LR 1 P & D 241 at 243 (Ct Prob).

6 Anderson v Patton, [1948] 2 DLR 202 (Alta CA).
A third problem that arises from placing a power of revocation in a

trust document is that for tax purposes, the settlor is treated as having
not alienated the property, so that the income and capital remain the
settlor’s; any income arising in the trust may be deemed to accrue to
the settlor.
An alternative to reservation of a power of revocation in favour of the
settlor is to name the settlor as a trustee. This device would not empower
the settlor to call for the return of the trust property but would give the
settlor a voice in the administration of the trust, without encountering
the tax problem outlined above. Of course, the settlor as trustee would
be a fiduciary and, therefore, subject to strict limits, including the re-
striction that decisions be made solely and exclusively in the best inter-
ests of the beneficiaries and not according to the settlor’s priorities.
4) The Rule in Saunders v Vautier 7

EXAMPLE: A man dies. Under his will, he leaves stock worth £2500 in trust
for his great-nephew. He stipulates in his will that his great-nephew is not
to be given the stock until he turns the age of twenty-five. The great-nephew
reaches the age of majority and, through the assistance of the courts, compels
the trustee to transfer the stock to him, plus accrued interest and dividends.
These are the facts of Saunders v Vautier. The case created a new right
for trust beneficiaries. The proposition of law for which the case stands
can be stated as follows: A beneficiary who is sui juris and absolutely
entitled can require the trustee to make an immediate distribution of
the trust property and thereby terminate the trust prematurely.8 Ab-
solute entitlement means that the beneficiary’s interest is vested and
represents the full (actual and possible) beneficial interest.
The Saunders v Vautier principle has been extended to trusts for
more than one beneficiary, whether entitled successively or concur-
rently, or both, so long as together all beneficiaries account for the full
beneficial interest. Even when the principle is used in this extended
sense, it is referred to as the rule in Saunders v Vautier.
7 (1841), 4 Beav 115, 49 ER 282, aff’d (1841), 1 Cr & Ph 240, 41 ER 482 (Ch).
8 See an early consideration of the rule by the Supreme Court of Canada in Hali-
fax School for the Blind v Chipman, [1937] SCR 196. As discussed below, the
rule in Saunders v Vautier has been abolished in Alberta and Manitoba through
legislation. Where the rule in Saunders v Vautier would have otherwise applied,
legislation in Alberta and Manitoba makes termination subject to judicial dis-
cretion. See Trustee Act, RSA 2000, c T-8, s 42; The Trustee Act, CCSM c T160, s
59(2). The rule applies throughout the balance of common law Canada.
There are two parts to the Saunders v Vautier rule, both of which
must be met in order for it to apply. First, the beneficiary or benefici-
aries must be sui juris — adult and of full mental capacity. Second,
the beneficiary or beneficiaries must be absolutely entitled to the trust
property. To be absolutely entitled, all the beneficiaries must be ascer-
tained as a class and, together, their interests must account for all the
interests in the trust property, both actual and possible.
Saunders v Vautier has been criticized for failing to give sufficient
weight to the wishes of the testator. After all, the testator established the
trust with the express intention that the great-nephew was not to take
until he turned twenty-five. Those who support the decision point to
the fact that it is the logical outcome of the application of trust principles.
On the testator’s death, he lost all title to the property, as legal title be-
came vested in his executor, and beneficial title to the stock became vest-
ed in his great-nephew. As equitable ownership of the property lay with
the beneficiary, the great-nephew had the right to call for the property.
When a trust is terminated under the rule in Saunders v Vautier, the
beneficiaries can compel the trustees to convey the property to whom-
ever they, the beneficiaries, direct.9 The beneficiaries cannot, however,
control the trustees: they must choose between terminating the trust
or abiding by its terms, but they cannot direct the trustees or interfere
with the trustees’ exercise of powers.
The tension between respect for the wishes of the creator of the
trust and the beneficiary has been played out in the legislative arena,
as we will see when we consider variation of trust legislation in Section
D, below in this chapter.
In contrast to variations of trust that require court approval, the
Saunders v Vautier principle enables a beneficiary to terminate without
court assistance.
Trusts that postpone enjoyment of the trust property to a particu-
lar age or a future date are easily recognizable as potential Saunders v
Vautier situations. The following situations may also trigger the rule:
trusts that give a beneficiary the income from capital until a certain
age, at which time the beneficiary is to take the capital; trusts that
settle property on a spouse for life, with the remainder to children, if
and when they attain a particular age; trusts that provide for instal-
ment payments; and discretionary trusts. In all these situations, once
the beneficiary or beneficiaries are of age, so long as they are mentally
competent, they can join together and call for the trust property under
the rule in Saunders v Vautier.

How does one prevent the rule in Saunders v Vautier from apply-
ing? The trust must be drafted in such a way that one or other of the
two parts of the rule does not apply. For example, where there is a sole
beneficiary, draft the beneficiary’s interest so that it is either vested but
subject to divestiture, or contingent. In the case of discretionary trusts,
create a broad, fluctuating class of beneficiaries. A beneficiary under a
discretionary trust has an equitable chose in action against the trust-
ees to enforce their fiduciary duties, so that, for example, they do not
benefit persons outside the class of beneficiaries or dissipate the trust
property. However, since the beneficiaries are a fluctuating body, they
cannot all be ascertained, so no question can arise of them together
calling for the distribution of the trust property.
It is often a question of construction whether an equitable interest
created under a trust is vested or contingent. In the Saunders v Vautier
case itself, in which the great-nephew was to take when he attained the
age of twenty-five, it could be argued that the great-nephew merely had
a contingent interest until he reached the age of twenty-five. Alterna-
tively, it could be argued that the interest vested immediately upon the
testator’s death, and all that was postponed was actual enjoyment of
the funds. Where both interpretations are available, the law accepts the
latter construction because it favours early vesting. It was the latter
construction that was accepted in Saunders v Vautier, and this construc-
tion is the reason that the great-nephew could call for the trust prop-
erty before he reached the age of twenty-five.
If a gift over is inserted in the trust, it will ensure that the benefici-
ary alone cannot call for the trust property prematurely.
EXAMPLE: $2500 of stock is to go to my great-nephew when he reaches the
age of twenty-five, failing which the stock is to go to my great-niece when
she reaches the age of twenty-five.
When the great-nephew reaches the age of majority, he cannot go to
court and compel the distribution of the trust property, since he will
not have met the second part of the rule in Saunders v Vautier that
requires absolute entitlement. In such a situation, however, the great-
nephew and great-niece, once both were sui juris, could join together
and call for the trust property under the Saunders v Vautier principle.
Where there is more than one beneficiary, one way to avoid the rule
in Saunders v Vautier is to choose beneficiaries who are unascertained
or minors. In the example above, assume that the great-niece is a very
young infant. Depending on the age of the great-nephew at the time of
the testator’s death, it is unlikely that she would reach the age of majority
before the great-nephew attains the age of twenty-five, so it is unlikely

that Saunders v Vautier could be invoked to end the trust prematurely.
In making gifts to minors or unascertained beneficiaries, be careful
not to infringe the rules against perpetuity, which require that interests
vest within certain predetermined periods of time.
5) The Rule in the Pension Trust Context

The rule in Saunders v Vautier has been explored recently in relation to
pension trusts, highlighting the issues of whether all beneficiaries can
be ascertained and whether the court can consent to the termination of
the trust on behalf of certain classes of beneficiaries.
EXAMPLE: A company amended its pension plan to close it to new members.
The plan is funded through a trust and there are surplus assets. The mem-
bers of the plan seek to terminate the plan and trust and to obtain distribu-
tion of the surplus.
This fact situation was considered in Buschau v Rogers Communications
Inc.10 The beneficiaries of a pension plan that was held to be irrevocably
closed to new members wished to terminate the trust and receive pay-
ment of the surplus. They sought to rely upon Saunders v Vautier, and
they also sought court consent or approval under the British Columbia
Trust and Settlement Variation Act11 on behalf of those beneficiaries who
could not be located. The British Columbia Court of Appeal held that
the rule in Saunders v Vautier could apply to pension trusts provided
that, in the same manner as “classic” trusts, the preconditions for the
application of the rule were met — that all sui juris beneficiaries con-
sented to the termination and that the entire interest in the trust was
accounted for. The Supreme Court of Canada disagreed, unanimously
holding that the pension plan members could not invoke the rule to
terminate the trust. Instead, the majority decision directed the plan
members to seek recourse under the Pension Benefits Standards Act,
1985,12 noting that the Superintendent of Financial Institutions, who is
responsible for the application of the Act, was in a position to deal with
issues relating to termination or winding up of a plan.
Despite their unanimity on the outcome in Buschau, the two deci-
sions rendered by the Supreme Court offer different explanations as to
why the rule in Saunders v Vautier did not apply. The majority empha-
10 2006 SCC 28, rev’g 2004 BCCA 80.

11 RSBC 1996, c 463.
12 RSC 1985, c 32 (2nd Supp).
sized that the Pension Benefits Standards Act, 1985, which regulates the
termination of a plan and distribution of trust assets, was intended
by Parliament to displace the traditional common law rule. A pension
trust is not a stand-alone instrument and cannot be terminated without
regard to the specific pension plan at issue, as well as to the legislation
governing that plan. In addition, a pension trust is a unique type of
trust, established by an employer for the benefit of all employees —
past, present, and future. Accelerating termination of a pension trust
and the distribution of its capital under the rule in Saunders v Vautier
would defeat the social purpose of protecting employees’ financial se-
curity for the duration of their retirement.13
By contrast, the minority focused on the more traditional aspects
of the rule. The rule requires that the beneficiaries seeking to termin-
ate the trust must together be absolutely entitled to the trust property.
However, the members would not have absolute entitlement to the
surplus in the plan until the plan and trust were terminated. Moreover,
not all those with a claim had consented, and the court did not have
the power to consent on behalf of current or future spouses and com-
mon law partners since termination of the plan would presumably not
be in their best interests. As a result, the minority concluded, the rule
in Saunders v Vautier could not be invoked.
Both the majority and minority agreed that introducing the rule
into the private pension plan context would derogate from an employ-
er’s right to voluntarily offer or continue a pension plan. Unlike the set-
tlor in a traditional trust, an employer maintains a continuing interest
in a pension trust, an interest that the rule in Saunders v Vautier does
not recognize.
6) Distribution
Distribution occurs when all the trust assets have been paid out or
transferred to the beneficiaries. Obviously, once distribution occurs
and the required accounting takes place, the trust comes to an end. A
trust cannot exist without trust property.
As the balance of the chapter explains, it is accepted law that, in
addition to termination through distribution, a trust may be ended
13 Justice Deschamps, writing for the majority in Buschau v Rogers Communications

Inc, above note 10, noted in passing that the rule in Saunders v Vautier might
apply to very small pension plans, but she concluded “in general, the fit is
wrong” (at para 33).
through use of the rule in Saunders v Vautier or through the exercise of

a power of revocation.14
7) Setting the Trust Aside

A settlor may apply to the court to have a trust set aside, even after
constitution, if the trust was made because of fraud, undue influence,
duress, misrepresentation, or mistake. The basis for setting aside the
trust in such circumstances is simple: to create a trust, there must be
certainty of intention; that is, there must be a conscious decision to part
with ownership through means of an intermediary (the trustee). The
requisite intention does not exist when the declaration of trust arose as
a result of one of the listed factors.
C. ALTER ATION OR AMENDMENT OF THE

TRUST
1) Through the Trust Instrument

The simplest and most ideal method for amending a trust is through the
use of an express amending power contained in the trust instrument.
Amending powers are now common features of trust instruments; at the
time of creating a trust, a broad power of amendment should be included
which clearly states the steps that are to be taken to amend the trust. The
Supreme Court of Canada in the Air Products case rejected the idea that a
broadly worded power of amendment clause includes the power to revoke.
Only an express power of revocation is sufficient authorization to allow
14 An anomalous decision is Joy Technologies Canada Inc v Montreal Trust Co of

Canada (1995), 7 ETR (2d) 243 (Ont Ct Gen Div) [Joy Technologies], where the
court found that a series of transfers from one pension plan to successor plans
constituted termination of the trust and the settlement of a new trust in each
case of transfer. With each new trust, the court found the employer at liberty to
insert provisions in its own favour, such as surplus reversion. Joy Technologies
has not been followed. As discussed later in this chapter, transfers to successor
plans have been consistently found to be subject to the powers of amendment
set out in the original trust, and also not to terminate or extinguish the terms
of the original trust. See Aegeon Canada Inc v ING Canada Ltd (2003), 34 CCPB
1 (Ont SCJ), aff’d (2003), 38 CCPB 1 (Ont CA), leave to appeal to SCC refused,
[2004] SCCA No 50 [Aegeon]; Bower v Cominco Ltd, 2003 BCCA 537, leave to ap-
peal to SCC refused, [2003] SCCA No 527 [Bower]; and Buschau v Rogers Cable-
systems Inc, 2001 BCCA 16, leave to appeal to SCC refused, [2001] SCCA No 107
[Buschau].
revocation in part or in full. Although the ruling was given in the context
of pension trusts, the Court gave no indication that the ruling was restrict-
ed to pension trusts. Accordingly, where plan documentation gives full
beneficial entitlement to plan members, a plan amendment that purports
to permit a reversion of surplus to an employer cannot be accomplished
through use of an amending power; nothing short of an express power of
revocation will empower a settlor to make that type of amendment.
It is important to comply with the terms and conditions contained
in an amending clause. If you do not fully and completely comply with
such terms and conditions, you run the risk of creating an amendment
that is of no effect.
There are two aspects to full and complete compliance. The first is
to ensure that the proposed amendment is in accordance with any lim-
itations or conditions contained in the amending power clause.
EXAMPLE: The power of amendment clause in a pension trust states that
no amendment may result in a derogation of accrued benefits. The employer
proposes to amend the plan and to reduce the amount of benefits being paid
to retirees.
Is the amendment valid? It is not. Reducing the value of benefits paid
out to existing retirees amounts to a derogation from accrued rights.
This amendment violates the condition contained within the amending
power.15
It is unlikely that a court will attempt to salvage the amendment by
severing the offending portions of the amendment. Nor is it likely that
the court will construe the amendment so that it is in compliance with
the condition. The maxim that a document will be construed against
its maker applies to amendments as well.
Examples of invalid amendments of this sort — that is, for breach
of the conditions contained in the amending clause itself — abound in
the pension field. In the 1980s, many employers “amended” pension
plan documentation to provide that surplus assets were to belong to
the company. The documentation frequently contained language which
precluded amendments that derogated from the irrevocable rights of
plan members to the funds. The courts have held such “amendments”
to be invalid. Indeed, the Air Products case itself contains an example of
such an invalid amendment.
Similarly, the validity of amendments to pension plans that relate to
the payment of administrative expenses from trust assets, rather than
15 Note that this type of amendment may be precluded by legislation as well. See,
for example, s 14 of the Pension Benefits Act, RSO 1990, c P.8.
by the employer, is dependent upon the scope of the original amend-

ing power and the particular nature of the proposed amendment. In
Markle v Toronto (City),16 for example, the court held that the scope of
the power of amendment did not permit a provision compelling the
plan trustees to pay plan expenses out of the pension fund. The original
trust document stipulated that the employer would be responsible for
all plan expenses. Such an amendment was seen as fettering the discre-
tion of the trustees over the trust property and constituted a revocation
where no such power of revocation had been retained by the settlor.
In Nolan v Kerry (Canada) Inc,17 by contrast, the Supreme Court
held that amendments allowing expenses incurred in the administra-
tion of the pension plan to be paid out of the pension trust fund did not
constitute a partial revocation of the trust. In Nolan, the employer had
paid plan expenses directly until it introduced amendments allowing
third-party plan expenses for actuarial, investment management, and
audit services to be paid from the fund. Employees argued that such
expenses could not be paid out of the fund, as the trust agreement
required that expenses paid by the fund must be for the “exclusive
benefit” of the employees.
Importantly in Nolan, the plan texts had never required the em-
ployer to pay plan expenses. Silence, the Court noted, does not create
an obligation on the employer to pay plan expenses.18 In addition, the
payment of plan expenses was necessary to ensure the plan’s continued
integrity and existence; therefore, these expenses had been incurred
for the exclusive benefit of the employees.
In Nolan, the Court concluded that the payment of plan expenses
from the trust fund did not constitute a partial revocation of the trust.
So long as nothing in the plan texts requires the employer to pay plan
expenses, provided that the expenses were reasonable and necessary
for its integrity and existence, payment of the expenses did not amount
to the employer controlling the use of the funds in the trust.
The situation in Nolan is usefully contrasted with that in Markle,
where the employer attempted to cancel its existing obligation to pay
plan expenses through the amendment. A comparison of these two de-
cisions reveals that each case will turn on its own facts and the terms of
the plan, trust agreement, and impugned amendments at issue.19
16 (2003), 63 OR (3d) 321 (CA), leave to appeal to SCC refused, [2003] SCCA No
138 [Markle].
17 2009 SCC 39 [Nolan].
18 Ibid at para 44.
19 Ibid at para 64.
A further example, again from the pension field, relates to pension

plan mergers.20 Subject to the scope of the amending power contained
in the documentation of each original pension plan, one or more pen-
sion plans may be amalgamated. Where such plans are funded through
a trust agreement, the transfers of assets that give effect to a plan mer-
ger do not terminate the original trusts or the rights and entitlements
of plan beneficiaries that are contained in the terms of the original
trusts. The terms or restrictions that governed the use of the trust
property in the original trusts continue to apply in the successor plans,
in some cases making some part of the “merged” fund unavailable for
certain purposes or uses, such as contribution holidays or reversion to
the employer on plan termination.
The second aspect to compliance relates not to the substance of the
amendment but to the process followed in creating the amendment. If
the power of amendment states that an amendment can be made only
after notice is given to certain parties, pains must be taken to ensure
that the notice is duly given and that records showing how the notice
requirements have been met are kept. Failure to follow due process
may lead to the amendment being held to be invalid. It is important to
look beyond the strict wording of the amending clause to ensure that
due process is followed. The following questions should be asked: Do
I need a corporate resolution to take this action? Are there companion
documents that must be examined, such as master trusts or collective
agreements, which may contain additional process requirements? Are
there any legislated requirements for making such changes (amend-
ments)? In the pension context, for example, plan amendments must
be registered with provincial pension authorities, and legislation stipu-
lates that, for certain types of amendments, strict notice requirements
must be met.
The case of OPSEU v Ontario (AG)21 illustrates the perils of attempt-
ing to alter the terms relating to pension trusts without following due
process. In that case, the Ontario government wished to exempt itself
from statutory provisions that would have led to terminated employ-
ees receiving pension enhancements. It passed a regulation exempting
itself from the operation of certain provisions of the pension legisla-
tion. Under a sponsorship agreement that the government had entered
into with the union that represented the public sector employees, the
government had agreed that “a regulation in respect of the OPSEU Plan
may be made only with the concurrence of the Crown and OPSEU.”
20 See Air Products, above note 1, and also Aegeon, Bower, and Buschau, all above note 14.
21 (1995), 26 OR (3d) 740 (Gen Div).
The court found that “in order to make the impugned regulation the
concurrence of O.P.S.E.U. was required.” As the union’s concurrence
had not been obtained, that portion of the regulation which purported
to exempt the government from the pension provisions was declared to
be of no force or effect.
2) At Common Law
A broadly worded power of amendment and careful attention to its
terms are the most secure guarantees for the valid amendment of a
trust. What can be done if the trust instrument does not contain an
amending power, or the amending power is not drafted so as to create
sufficient flexibility? One option is to end the trust. However, situa-
tions may arise in which the desire is to keep the trust afoot but to
modify its terms in some way. The only avenue of recourse — apart
from terminating the trust and starting over — is to the courts.
The English courts, unfortunately, took a very restrictive view of
the assistance that could be offered in such cases.22 The House of Lords
held that the courts do not have an inherent jurisdiction to vary the
terms of a trust. This inability exists even when beneficiaries who are
sui juris agree to the variation, and the variation would clearly benefit
the remaining minor or unascertained beneficiaries. The courts, it was
held, could vary the terms of a trust only in extremely limited cir-
cumstances. The Canadian courts followed suit, with the result that, at
common law, the courts can vary trusts only in conversion, comprom-
ise, emergency, and maintenance situations.
Conversion: Conversion describes the power of the court to direct that
realty held for the benefit of a minor may be changed into personalty,
and vice versa. It must be established, to the court’s satisfaction, that
the conversion is for the benefit of the minor.
Maintenance: The courts can direct that the terms of a trust be varied so
that income can be used for the benefit of infant beneficiaries who need
the money, but who are not immediately entitled to it.
EXAMPLE: A will states that a family cottage is to be held in specie in trust
for the lives of various family members, including minors. There are insuffi-
cient funds to provide the basic necessities of life for the minors. What can
be done?
22 Chapman v Chapman, [1954] AC 429 (HL).

An application to the court for a variation of the trust on the basis of

both conversion and maintenance may be in order. The court could or-
der the sale of the cottage to provide maintenance — that is, sufficient
money to provide the basic necessities of life for the minors.
Compromise: The courts may approve settlements to disputes that in-
volve the variation of a trust. It is readily apparent that this head could
be used to enable the courts to approve many variations. All one would
have to do is provide some evidence of a dispute and ask that the courts
approve a variation to the trust to settle the dispute. The courts, how-
ever, have taken the view that they will use this power only when there
is evidence of a real and serious dispute, which normally means that a
lawsuit must be in existence. It is the court’s compromise power that is
relied upon by government bodies such as the Public Trustee’s Office to
settle estate claims.
EXAMPLE: X had two children, the elder of whom continued to live at home
and to look after X in her failing health. X dies, leaving her entire estate in
trust for her elder child. The younger child begins a lawsuit claiming that X
was not of sound capacity when she executed the will and seeking a share
of the estate. The elder child is prepared to give her sibling a share in the
estate. Must the lawsuit go to trial to resolve this matter?
The answer is no. An application to vary the trust to permit the settlement
of the claim through a variation of the terms of the trust is possible
under the common law compromise powers of the court. Although the
court has an inherent jurisdiction to approve compromises that involve
a variation of trust, in many jurisdictions such an application can be
brought under the rules of court as well.23
Emergency: The court may approve variations of trust in emergencies.
Emergencies are situations which had not been foreseen by the settlor,
which were not provided for, and which threaten the existence of the
trust.
3) Under Statute
Two different mechanisms can be used to gain the assistance of the
courts when a trust is to be maintained, but some clarification or
amendment is needed and the amending power is insufficient. I will con-
sider both mechanisms, bearing in mind that in some circumstances,
23 See, for example, the Ontario Rules of Civil Procedure, RRO 1990, Reg 194, r
14.05(3)(f).
a trustee should apply to the court for a variation of trust, the topic of
Section D in this chapter.
Trustee legislation: If, in the administration of a trust, some disposition
or transaction cannot be effected by reason of the absence of a neces-
sary power vested in the trustees, the court may confer upon the trust-
ees, either generally or in any particular instance, the necessary power,
if it considers such disposition or transaction expedient.24
The legislation governing trustees generally empowers trustees to
seek the advice or direction of the courts.25 It may be used as well to
obtain court approval for investments of trust funds other than invest-
ments authorized by legislation or the trust instrument, as long as they
are fit and proper and not expressly prohibited by the terms of the trust
instrument. Again, the trustee legislation may permit payments for an
infant’s maintenance, education, or benefit.
Rules of court: The rules of court may also provide the trustees with
an opportunity to gain the assistance of the court. Like the assistance
available to trustees under the legislation governing trustees, the as-
sistance is not tantamount to a variation of trust. It is, however, usu-
ally more expeditious to apply to court under either this head or the
preceding head than it is to bring a variation application. Rule 14.05(3)
of the Ontario Rules of Civil Procedure is illustrative of the type of help
that can be obtained.
Rule 14.05 (3) A proceeding may be brought by application where
these rules authorize the commencement of a proceeding by applica-
tion or where the relief claimed is,
(a) the opinion, advice or direction of the court on a question affect-
ing the rights of a person in respect of the administration of the
estate of a deceased person or the execution of a trust;
24 See, for example, Trustee Act, RSA 2000, c T-8, s 21(1); RSNS 1989, c 479, s 51(1);
RSNWT 1988, c T-8, s 18(1); RSNWT (Nu) 1988, c T-8, s 18(1); The Trustee Act,
CCSM c T160, s 58(1); and Trustees Act, RSNB 1973, c T-15, s 25.
25 See, for example, s 60 of the Trustee Act, RSO 1990, c T.23, as am by SO 2000,
c 26, Sched A, s 15(2) (item 14) respecting the management or administration
of the trust property. See also Trustee Act, RSA 2000, c T-8, s 43(1); RSBC 1996,
c 464, s 86(1); RSNL 1990, c T-10, s 25; RSNWT 1988, c T-8, s 48(1); RSNWT
(Nu) 1988, c T-8, s 48(1); RSPEI 1988, c T-8, s 52(1); RSY 2002, c 223, s 48; The
Trustee Act, 2009, SS 2009, c T-23.01, s 47; and The Trustee Act, CCSM c T160, s
84(1).
(b) an order directing executors, administrators or trustees to do or

abstain from doing any particular act in respect of an estate or
trust for which they are responsible;
...
(f) the approval of an arrangement or compromise or the approval of
a purchase, sale, mortgage, lease or variation of trust[.]26
D. VARIATION OF THE TRUST
Because of the extremely limited view of the courts of their common

law inherent powers to alter trusts, most Canadian jurisdictions have
passed legislation giving the court wider powers of variation.
Two different models have been adopted in Canadian legislation.
Under both models, the effect of the court’s approval is to protect the
trustees so they cannot be found to be in breach of trust for acting in a
way that is at variance with the terms of the trust.
The first model, which was adopted by Alberta and Manitoba,27 pre-
cludes any variation or termination of a trust before its natural ending
without the approval of the courts. This type of legislation has the ef-
fect of eliminating the rule in Saunders v Vautier, which gives benefici-
aries the power to collapse a trust prematurely and without recourse
to the courts.
In order to make an application for variation of trust in Alberta and
Manitoba, the party proposing the arrangement must have the consent
in writing of all others beneficially interested in the trust that are ca-
pable of consenting. The court can provide the consent of those incap-
able of consenting where it is satisfied that to do so would be for the
benefit of those persons on behalf of whom the court gave its consent.
In effect, this model operates on the same principle as Saunders v
Vautier in that it requires that the full beneficial interests are accounted
for and all beneficiaries have consented to the change. It is only in
that circumstance — and only in the discretion of the court — that
the court will “trump” the settlor and alter the terms of the trust. It is
important to note, again, the significant difference between an applica-
tion under such variation of trust legislation and the common law rule
of Saunders v Vautier. Under the rule in Saunders v Vautier, it is within
the power of the beneficiaries to bring the trust to an end, whereas
in Alberta and Manitoba the beneficiaries must obtain the court’s ap-
26 RRO 1990, Reg 194.

27 Trustee Act, RSA 2000, c T-8, ss 42–43; The Trustee Act, CCSM c T160, s 59.
proval to end the trust, even if all the beneficiaries are capacitated and
together absolutely entitled.
The second model is that adopted by British Columbia, Saskatch-
ewan, New Brunswick, Ontario, Nova Scotia, Prince Edward Island,
the Northwest Territories, Nunavut, and the Yukon Territories.28 Under
this model, the court can approve arrangements on behalf of persons
who cannot themselves give their approval, as, for example, where such
persons are unborn, unascertainable, or minors. However, the court
must be satisfied that the arrangements are for the benefit of those on
whose behalf it gives approval. There is no elimination of the rule in
Saunders v Vautier, nor is there an express requirement that all those
beneficiaries who are sui juris must consent.
The Ontario Variation of Trusts Act29 is an example of this second
model:
1. (1) Where any property is held on trusts arising under any will,
settlement or other disposition, the Superior Court of Justice may, if
it thinks fit, by order approve on behalf of,
(a) any person having, directly or indirectly, an interest, whether
vested or contingent, under the trusts who by reason of infancy
or other incapacity is incapable of assenting;
(b) any person, whether ascertained or not, who may become en-
titled, directly or indirectly, to an interest under the trusts as be-
ing at a future date or on the happening of a future event a person
of any specified description or a member of any specified class of
persons;
(c) any person unborn; or
(d) any person in respect of any interest of the person that may arise
by reason of any discretionary power given to anyone on the fail-
ure or determination of any existing interest that has not failed
or determined,
any arrangement, by whomsoever proposed and whether or not there
is any other person beneficially interested who is capable of assenting
thereto, varying or revoking all or any of the trusts or enlarging the
powers of the trustees of managing or administering any of the prop-
erty subject to the trusts.
28 Trust and Settlement Variation Act, RSBC 1996, c 463; The Trustee Act, 2009, SS
2009, c T-23.01; Trustees Act, RSNB 1973, c T-15; Variation of Trusts Act, RSO
1990, c V.1; RSNS 1989, c 486; RSPEI 1988, c V-1; RSNWT 1988, c V-1; RSNWT
(Nu) 1988, c V-1; and RSY 2002, c 224.
29 RSO 1990, c V.1.
(2) The court shall not approve an arrangement on behalf of any per-
son coming within clause (1) (a), (b), or (c) unless the carrying out
thereof appears to be for the benefit of that person.
While an arrangement under this type of variation of trusts legisla-
tion can be put forward by anyone, three things must be established
in any variation application. First, there must be someone on whose
behalf the court can act in giving consent. Second, there must be a
proposed arrangement. Third, in applications where the court is asked
to give its consent under headings (a), (b), or (c), it must be established
to the court’s satisfaction that there will be a benefit to those on whose
behalf it gives its consent.
Let’s now examine each of these requirements.
Persons on whose behalf the court can act

In order for an application to be made, there must be a person or per-
sons on whose behalf the court can grant approval. The court’s role is
to determine whether to approve the arrangement on behalf of persons
interested in the trust who are under a disability, including those who
are incapacitated (e.g., minors), unascertained members of a class or
description, the unborn, or those persons contingently entitled upon
determination of a prior estate.
Under the express terms of this type of legislation, the courts can-
not approve arrangements on behalf of adult capacitated beneficiaries.
While it is not expressly set out in the legislation, it has been generally
assumed that adult capacitated beneficiaries must consent to the pro-
posed arrangements.30 If any adult capacitated beneficiary refuses to
consent, the courts have been reluctant to approve a proposed arrange-
ment. In this way, the variation of trusts legislation has been viewed
as complementary to the operation of the rule in Saunders v Vautier.
However, recent caselaw in the area of pension trusts has cast doubt
on the requirement of unanimity, because the courts have sanctioned
variations in the face of outright opposition by beneficiaries.31 The pen-
sion plan in Versatile provided that surplus on plan termination would
go to the plan members, but the power to terminate lay with the com-
pany. The plan also provided that the company could apply surplus to
cover current contribution costs. The company applied for a variation of
30 See Ontario Law Reform Commission, Report on the Law of Trusts, vol 1 (To-
ronto: Ministry of the Attorney General, 1984) at 390. See also Re Suffert’s Settle-
ment (1960), [1961] Ch 1.
31 See, for example, Versatile Pacific Shipyards v Royal Trust Corp of Canada (1991),
84 DLR (4th) 761 (BCSC) [Versatile].
trust at a time when it was in serious financial difficulty. An agreement

was reached with approximately 90 percent of the current members,
pursuant to which it was proposed that one-half of the surplus would
be paid to the members and the other half to the company. The court
found a clear benefit to the members, because there was a real danger
that surplus would not be available if the order was not granted. The
court acknowledged that, in most cases, the interests of contingent and
unascertained beneficiaries must weigh heavily in its consideration.
However, where there is a real risk that the surplus could be used in
ways of no benefit to the current members, the interests of contingent
and unidentifiable beneficiaries were not to be weighted too heavily.
By contrast, in the more recent decision in Sutherland v Hudson’s
Bay Co,32 the court rejected the proposition that it had jurisdiction
under the Ontario Variation of Trusts Act to consent to an arrangement
varying a pension trust on behalf of sui juris beneficiaries or classes of
beneficiaries (i.e., minors, the unborn, those afflicted by incapacity).
The British Columbia Court of Appeal in Buschau v Rogers Com-
munications Inc 33 also faced the question of whether it had jurisdiction
under the Trust Settlement Variation Act to consent to termination of
the trust on behalf of the “missing” beneficiaries. In this case, the mis-
sing beneficiaries were the pension plan members’ designated benefici-
aries who had a contingent interest in the trust but had not personally
agreed to the termination because they had not been located. Section 1
of the British Columbia legislation gives a court the power to consent
to the variation of a trust on behalf of persons who are not sui juris and
persons who may in future gain an interest in the trust. Given the Su-
preme Court’s ruling in Buschau v Rogers Communications Inc, the issue
became moot, leaving open the question of whether a court would have
the power under the legislation to consent to termination of a trust on
behalf of unlocated persons who are sui juris and have a contingent
interest.
The question of whether legislation should empower a court to dis-
regard the refusal of an adult vested or contingent beneficiary to consent
to a proposal to vary, resettle, or revoke a trust was considered by the
British Columbia Law Institute’s Committee on the Modernization of
the Trustee Act, specifically in the Committee’s Report on the Variation
32 [2005] OJ No 1455 (SCJ). The decision dealt with a motion for summary judg-
ment and certification under the Class Proceedings Act, 1992, SO 1992, c 6. The
case involves a continuing proceeding in which various transfers of pension
plan assets and entitlement to surplus are in issue. See also Buschau v Rogers
Communications Inc, above note 10.
33 Ibid.
and Termination of Trusts.34 The Committee recommended that Brit-

ish Columbia’s Trust and Settlement Variation Act should be revised to
approve a proposal to vary, revoke, or resettle a trust where an adult
beneficiary has withheld consent, provided that (1) a substantial ma-
jority of the beneficiaries that represent a majority interest in the trust
have consented, (2) it would be detrimental to the administration of
the trust not to approve the proposed arrangement, and (3) the pro-
posed arrangement will not negatively affect the beneficiary withhold-
ing consent.
Arrangement
The second requirement in variation of trusts legislation is that an “ar-
rangement” or proposal for variation be presented to the courts. It is
the arrangement as a whole that must be approved, and not just the
effects on those persons whose approval the court is asked to supply.
It is not clear what constitutes an arrangement. Is any variation an
arrangement? What is the difference between an arrangement and a
resettlement? In Re Ball’s Settlement,35 Megarry J said:
If an arrangement changes the whole substratum of the trust, then it
may well be that it cannot be regarded merely as varying that trust.
But if an arrangement, while leaving the substratum, effectuates the
purpose of the original trust by other means, it may still be possible
to regard that arrangement as merely varying the original trusts, even
though the means employed are wholly different and even though
the form is completely changed.
If “wholly different” means can be employed and a “completely
changed” form permitted, the test for arrangement seems to have little
substance. Following this approach, an arrangement is anything in
which the very basic scheme of distribution intended by the settlor is
respected; all other aspects of the trust can be changed. The limit to
an arrangement on this view is that the courts will not alter the basic
scheme of distribution, as to do so would be to create an entirely new
trust under the guise of a variation. On this view, a very flexible approach
34 A Modern Trustee Act for British Columbia: A Report Prepared for the British
Columbia Law Institute by its Committee on the Modernization of the Trustee Act,
BCLI Report No 33 (Vancouver, BC: British Columbia Law Institute, 2004); see
also the Committee’s Report on the Variation and Termination of Trusts: A Report
Prepared for the British Columbia Law Institute by its Committee on the Modern-
ization of the Trustee Act, BCLI Report No 25 (Vancouver, BC: British Columbia
Law Institute, 2003).
35 [1968] 2 All ER 438 at 442 (Ch).
will be taken in determining whether the proposed arrangement is con-

sistent with the dominant intention of the trust, and little considera-
tion is paid to the settlor’s purposes for creating the trust as he did. At
most, the settlor’s purposes would be but one factor that the court takes
into account in the exercise of its discretion.
A more restricted view of an arrangement would give a greater role
to the creator’s intention in establishing the trust. Some arrangements
have failed to be approved on the ground that they were not sufficiently
referable to the purposes of the settlor.36 It is not clear that this is a
valid criterion to be applied. In any event, it is not easy to identify
the purpose of the settlor, especially if a wide power of amendment is
included in the trust instrument. In the end, the courts will have to
decide whether the question of the settlor’s intention is relevant at all
to the question of whether a variation should be approved.
It seems in the best interests of beneficiaries to empower the courts
to approve resettlements of trusts, as well as variations. The British
Columbia Law Institute, in its Report on the Variation and Termination
of Trusts,37 expressly noted that “the inability of the courts to consent
to a resettlement of a trust is an unnecessary limitation on the judicial
power to approve what may otherwise be a desirable arrangement.” The
Committee recommended legislation authorizing the court to approve
a settlement or resettlement of a trust, in addition to the existing power
to approve a variation or revocation of a trust.
Benefit
The court may approve an arrangement on behalf of any person in para-
graphs 1(1)(a)–(c) of the Ontario Act only where there is a benefit to
such persons. The test for benefit as established by caselaw is:
[I]s the benefit . . . [sufficient] such that a prudent adult motivated
by intelligent self-interest . . . [after consideration of the risks and
benefits of the proposal], would be likely to accept [the variation]?38
The test requires the applicant to establish a benefit. Some proposed ar-
rangements require a balancing of the benefits and risks. Where an
arrangement involves a risk for a person on whose behalf approval is
sought, it is unclear what the court will do. It may be permissible to
take such a risk. Or the courts may approve it if insurance is taken out
to cover the particular risk. It is up to the applicant to demonstrate to
36 Re Steed’s Will Trusts, [1960] Ch 407 (CA).

38 Re Irving (1975), 11 OR (2d) 443 at 450 (HCJ).
the court that the balancing will result in an overall benefit to the per-
son on whose behalf the court is acting.
The courts have interpreted the word “benefit” broadly. It obviously
includes financial benefit, but it is not limited to such considerations.
The rearrangement of trusts so as to reduce the risks of family dissen-
sion among different objects of a trust has been held to be a benefit.
Social, moral, and educational benefits may be taken into account.39
The court is entitled to consider the efficacy of the general administra-
tion of the trust, with the result that a trust can be moved to a more
appropriate jurisdiction.40
39 Re Weston’s Settlements (1968), [1969] 1 Ch 223 (CA) [Weston]; Re Holt’s Settle-

ment (1968), [1969] 1 Ch 100.
40 Re Seale’s Marriage Settlement, [1961] Ch 574; but see Weston, above note 38 at
223.
P A R T T H R E E
TRUSTS ARISING BY
THE OPERATION
OF LAW
C H A P T E R 6
RESULTING TRUSTS
A. INTRODUCTION
The resulting trust, like the constructive trust, arises by operation of

law. It occurs when the legal owner of property is found to hold the
property for the benefit of the donor. Unlike the constructive trust,
however, the resulting trust is a static legal concept. The scope of its
operation is limited, and the courts appear unwilling or unable to ex-
pand its application outside of the following three situations:
1) Where a trustee holds property under the terms of an express trust
and the trust fails in whole or in part, the trustee holds the prop-
erty by way of resulting trust for the settlor.
2) Where A purchases property and title is taken in the name of B, or,
jointly, in the names of both A and B, the law presumes a resulting
trust in favour of A.
3) Where A gratuitously transfers property into the name of B, or into
the joint names of A and B, so long as B is not A’s child, the law
again presumes a resulting trust in favour of A.1
At various times, the concept of resulting trust has been unsuccess-
fully invoked as a means of resolving new types of legal problems. One
example can be found in the area of pension trusts. The resulting trust
concept was urged upon the courts as a means of determining entitlement
1 If B is A’s child and a minor, the presumption of advancement arises, not the
presumption of resulting trust. The presumption of advancement is explored in
Section D, below in this chapter.
107
to pension fund surpluses. The argument was made primarily by those

representing employers and ran along these lines: When an employer
created a pension plan, it placed funds in trust to ensure that it could
pay the promised pension benefits; when the pension plan was wound
up, if there were assets in excess of those needed to pay all benefits,
the employer was entitled to their return on the basis that beneficial
entitlement in the express trust had not been fully exhausted. Initial-
ly, some courts accepted the argument and applied the resulting trust
doctrine,2 but the Supreme Court of Canada has stated that there is
little scope for the doctrine in the field of pension trusts.3 The basis for
the Court’s position is that many pension trusts contain non-reversion
language that precludes funds from being used for any purpose other
than the exclusive benefit of employees.
A decade or two earlier, the resulting trust was invoked in an at-
tempt to resolve questions of entitlement to property in domestic situa-
tions in which an unmarried couple cohabited and shared expenses,
but title to property was held in the name of only one of the two par-
ties. On breakdown of the relationship, the parties disagreed on how
the property was to be divided (“cohabitation cases”). In Murdoch v
Murdoch,4 the Supreme Court of Canada relied on the notion of a “com-
mon intention” resulting trust to resolve this type of domestic property
dispute. The idea was that a resulting trust could arise based on the
“common intention” of both parties that the non-title holder would have
an interest in the property. However, apart from a very limited exten-
sion of the rules in situation 2 (purchase of property in the name of
another) to encompass instalment payments made by way of mortgage,
2 Hockin v Bank of British Columbia (1990), 71 DLR (4th) 11 (BCCA); Otis Canada
Inc v Ontario (Superintendent of Pensions) (1991), 2 OR (3d) 737 (Gen Div); Cana-
da Trust Co v Cantol Ltd (1979), 103 DLR (3d) 109 (BCSC).
3 Schmidt v Air Products of Canada Ltd, [1994] 2 SCR 611 at 648–49, Cory J stated:
“Therefore, the provisions of most registered pension plans will normally them-
selves exclude the possibility of a resulting trust’s arising. That is not to say that
the resulting trust will never have a place in the context of pension funds. Yet
the practical reality is that the factual circumstances which could trigger the
operation of a resulting trust will rarely occur in pension surplus cases.” See,
however, Air Jamaica Limited v Charlton, [1999] UKPC 20, where a pension trust
provision that purported to grant surplus solely to plan members and their ben-
eficiaries was found to be void for violating the common law rule against perpe-
tuities. The Privy Council consequently declared a resulting trust existed over
the surplus in favour of the employer and plan members (including deceased)
in shares proportionate to their contributions.
4 [1975] 1 SCR 423.
Resulting Trusts 109
expansion of the resulting trust concept was rejected by the Court in

Rathwell v Rathwell.5
In the recent case of Kerr v Baranow,6 the Supreme Court abandoned
the use of a “common intention” resulting trust altogether in claims by
domestic partners. When their common law relationship of twenty-five
years broke down, Ms Kerr sued for support and a share of property
held in Mr Baranow’s name based on resulting trust and unjust enrich-
ment principles. Both parties had contributed jointly to the family’s
mutual welfare during the course of their relationship, through finan-
cial contributions as well as services.
The Court held that the common intention resulting trust no longer
has a useful role to play in domestic property disputes for a variety
of reasons. Notably, the concept was doctrinally unsound because
only the intention of the grantor or transferor matters in determining
whether a resulting trust exists, and the principles of resulting trust
law do not easily accommodate situations in which the claimant’s con-
tribution was not made in the form of property or closely linked to
its acquisition. Moreover, a search for common intention may become
highly artificial, especially in domestic cases.
The Court instead focused on Ms Kerr’s claim of unjust enrichment
and discussed the possibility of providing a remedy in the form of a
constructive trust, signaling a complete shift in the domestic realm
away from resulting trust and towards the more flexible approach of
unjust enrichment, in which the equities of a particular case are con-
sidered “transparently and according to principle.”7
As a consequence of the rigidity with which the courts view the
concept of the resulting trust, the limited situations in which resulting
trusts arise are the three set out above. Because the resulting trust ap-
pears to be limited to those three situations, little time needs to be de-
voted to its theoretical underpinnings. It is sufficient to understand that
a resulting trust arises whenever title to property is transferred from
one person to a second person, and the law requires the second person
to hold beneficial title, in whole or in part, for the original owner.
EXAMPLE: Professor G gives K, a student in her Trust Law class, the sum of
$50 and asks K to buy coffee and donuts for the members of the class. K does
as requested. The cost of the coffee and donuts is only $45. What happens
to the excess money? K is obliged to hold the remaining money for Professor
5 [1978] 2 SCR 436 [Rathwell].

6 2011 SCC 10 [Kerr].
7 Ibid at para 28. The use of unjust enrichment and constructive trust principles
in cohabitation cases is more closely examined in Chapter 7.
G and ultimately to return it to her. That is, K holds the surplus funds on
resulting trust for Professor G.
Resulting trust is the term used to describe what happens to the prop-
erty in question — it “springs back” or results to the original owner
of the property. One could argue that in the example given, the bene-
ficial interest never left the settlor and that it is a misnomer to say that
it springs back; nonetheless, for historical reasons, the expression re-
mains.
The resulting trust can be usefully compared with the express trust
and the constructive trust. As we have seen, express trusts are those
that come into existence because settlors have expressly decided to
transfer property through the medium of a third-party trustee. Con-
structive trusts arise not because of a person’s express intention but be-
cause the law is of the view that one person ought to surrender or hold
property for the benefit of another. Constructive trusts are remedial
devices and may be ordered by the courts even in the face of an express
contrary intention of the “settlor.” The constructive trust is a mechan-
ism employed by the courts to redress inequality.
The resulting trust borrows from both the express trust and the
constructive trust. As in cases involving express trusts, the courts refer
to intention when deciding whether to impose a resulting trust. How-
ever, unlike express trusts, which are concerned with the actual inten-
tion of settlors, the area of resulting trusts is filled with assumptions
about intention. These assumptions are discussed more fully below.
Intention does play a definitive role in one situation: a resulting trust
cannot be imposed in the face of an express contrary intention.
Distinguishing between resulting trusts and constructive trusts can
be difficult in part because the distinction has been blurred by the courts
in many decisions. Simply put, constructive trusts have nothing to do
with intention, express or implied. Constructive trusts can be imposed
for remedial purposes, even in the face of a contrary intention. Resulting
trusts, on the other hand, are theoretically explicable on the basis of as-
sumptions made about intention, and therefore yield to evidence of the
settlor’s intention; they can never be imposed in the face of evidence of
contrary intention.
It should be pointed out that the formalities required of trusts do
not apply to trusts arising by operation of law. Therefore, resulting
trusts need not be in writing. As well, limitation periods that protect
resulting trustees do not always protect express trustees. And, finally,
obligations on resulting trustees differ from those on express trustees.
Each of these points is elaborated upon in the relevant chapters of this

book.
B. AUTOMATIC AND PRESUMED RESULTING

TRUSTS
Resulting trusts have been classified as “automatic” or “presumed.” They

are said to be automatic in the first situation — namely, where property
has been transferred to a trustee under the terms of an express trust
and the trust fails, in whole or in part. But they are said to be pre-
sumed in the second and third situations. In my view, such terminology
is of little utility and may retard the concept from rational development.
However, as the phrases continue to be used, we should be aware of
their meanings.
After property has been transferred to a trustee pursuant to an ex-
press trust, the trust may fail in whole or in part for a number of reasons.
For example, the objects or purposes of the trust may be impossible to
fulfil, or having been fulfilled, surplus trust assets may remain without
provision for their disposition. When that happens, the assumption is
made that beneficial entitlement automatically returns to the settlor on
the basis that the settlor did not intend that the trustee retain beneficial
ownership. The word “automatically” is used in contradistinction to
those resulting trusts which arise in the second and third situations
and which are termed “presumed” resulting trusts. The point of calling
the latter presumed resulting trusts is that they are based on presump-
tions and, as we know, presumptions can be rebutted by evidence of a
contrary intention.
It takes little to see that the modifier — automatic or presumed —
is extremely artificial. Consider again the example set out above, which
is an example of the first situation in which resulting trusts arise. Did
Professor G “intend” student K to hold the surplus funds for her bene-
fit? The truth of the matter is that Professor G probably did not turn her
mind to the question of surplus funds; she probably thought that she
had given the correct amount of money in the first instance. We know
that student K holds the surplus funds in trust for Professor G by way
of resulting trust. How is it more accurate, or in any other way helpful,
to describe it as an automatic resulting trust? Surely if evidence were
led to show that Professor G intended that any excess funds were to be
retained by student K, the courts would so direct. That is, the “auto-
matic” resulting trust would yield to evidence of a contrary intention.
But isn’t it then a presumed resulting trust? Presumed resulting trusts

are those in which a presumption of resulting trust arises, but the pre-
sumption can be rebutted by evidence of a contrary intention.
Furthermore, it is hard to see the utility in distinguishing between
automatic and presumed resulting trusts. Is the use of “automatic” in
the first situation meant to suggest that failure of an express trust must
always and inevitably lead to a resulting trust? This seems unlikely, as
intention is always relevant in determining what is to happen to prop-
erty.
EXAMPLE: I leave $10,000 to my husband on trust for my child, who, it
turns out, predeceases me. Who is beneficially entitled to the $10,000? My
husband or my estate?
Like the previous example, this appears to be an example of the first
situation, in the sense that the trust has failed because it cannot be car-
ried out — my child is not alive when I die so the money cannot be
given to her. If, indeed, there is an automatic resulting trust, the money
must result to my estate.
But we know that the courts would not automatically order the
return of the funds to the estate. Rather, particularly in testamentary
dispositions, the courts would attempt to determine whether I had in-
tended to voluntarily convey the money to my husband, adding a wish
that he look after my child. It is more likely that the courts would find
that the gift lapsed and that my husband holds the funds by way of
resulting trust for my estate, but the possibility of a gift to my husband
is not precluded. It is a question of construction, which means that the
question of intention is relevant.
All of this is a long-winded way of saying that the distinctions in
this area between automatic and presumed resulting trusts seem to be
distinctions without a difference. Indeed, presumptions may be of more
relevance in the supposed automatic situations, since the courts would
tend to invoke the presumption that trustees are not to take benefi-
cially without clear evidence that they are to so take in resolving the
issue of entitlement.
It is helpful, however, to understand why the law makes the presump-
tion of resulting trust in the second and third situations. The presumption
of resulting trust arises because equity does not assume a gift when a
gratuitous transfer of property has been made. Equity will subject such
a transfer to scrutiny, placing the burden of proof on the transferee to
prove a gift — that is, to provide evidence of an intention contrary to the
presumption that a trust in favour of the transferor was intended. If
the burden is not discharged, then the presumption of resulting trust

remains operative.
C. CLASSIC RESULTING TRUST SITUATIONS
1) Failure of an Express Trust

a) Total Failure of the Express Trust
An express trust may fail for any number of reasons. The settlor may
have made a fundamental mistake, as where he or she signs a settlement
deed, thinking that it was another document and having no intention
to settle monies on trust. It may fail because the settlor settled the
trust property as a result of fraud, duress, or undue influence. A trust
will fail if the description of the objects fails to meet the certainty of
objects test. A trust will be deemed invalid (and therefore to fail) if
its objects are illegal or contrary to public policy. If a limitation con-
travenes the legal rules, such as the rules against perpetuity, then the
limitation to a beneficiary of an interest in ascertained property may
fail. Common to all these situations — except in some cases of illegal
objects — is that the property results to the settlor.
The distinction between voidable trusts and void trusts is import-
ant in determining what happens to benefits conferred upon others
after the trust has nominally taken effect. If the trust is void, no propri-
etary benefits can be retained against the settlor because no property
has passed. If the trust is voidable, on the other hand, title to the bene-
fits may pass, provided the trust has not yet been set aside.
It is also important not to jump to the conclusion that a failed trust
results automatically to the settlor. It depends upon why the trust failed.
Resulting trusts arise in the instance of trusts that have been declared
but which fail for the reasons set out in the above paragraph. They do
not arise where a declaration fails to pass the certainty of intention or
certainty of subject matter tests. If there is uncertainty of intention, no
trust was created, so no resulting trust can arise. If there is uncertainty
of subject matter, again the trust never came into existence: hence there
can be no resulting trust. However, if the trust objects or purposes are
certain at the time of creation, but later circumstances make the trust
incapable of performance and there is no gift over, the property will be
held by way of resulting trust.
b) Partial Failure of the Express Trust

It may happen that the beneficial interests created by the settlor fail to
exhaust ownership in the property that the settlor has transferred to
the trustees. Indeed, that was the situation that arose in the example
given earlier in this chapter of the professor who provided funds with
which to buy coffee for the class.
The court will examine the facts of each case to determine whether
the settlor disposed of the full beneficial interest in the property. This
examination will reveal whether the trustee was to take the remaining
interest for himself or herself, after the prior limited interests had been
completed. So, in the first example in this chapter, a determination will
be made as to whether the professor intended the student to “keep the
change.”
Where a settlor establishes a trust to accomplish explicit purposes,
but the fund is not exhausted in accomplishing those purposes, in or-
der to determine how to deal with the unspent funds, one must deter-
mine whether the purposes were charitable or non-charitable. If the
purposes were charitable, the courts may apply the surplus funds ac-
cording to a cy-près scheme.8
EXAMPLE: A public appeal is made for victims of a fire. Money is collected
and funds are used to help the victims. Surplus funds remain after the vic-
tims have been assisted. Who is entitled to the surplus funds?
If the terms of the appeal demonstrate a general charitable intention,
the surplus funds will be applied cy-près. If there was no general char-
itable intention evident from the terms of the appeal, and it is clear
that the funds were not intended to be held beneficially for the victims
themselves, any surplus sums must be held on resulting trust for the
settlors.
2) Purchase in the Name of Another

Where one person advances the funds to purchase property, but legal
title is conveyed to a second unrelated person, or into the joint names
of the purchaser and the second person, the presumption arises that
the second person becomes a resulting trustee for the person who ad-
vanced the funds.9 In other words, the person who advanced the funds
8 An exception to this general proposition arises where the failure or inability to

meet the charitable purpose is evident from the outset, and the purpose or ob-
ject of the trust was restricted to a specific charity. In that case, the assets will
result to the settlor.
9 Dyer v Dyer (1788), 2 Cox Eq Cas 92, 30 ER 42.
is presumed to hold a beneficial interest in the property in proportion

to that person’s contribution. The principle is applicable to both real
and personal property. Operation of the resulting trust doctrine arises
in this case from the presumption in equity that people do not make
gifts.
EXAMPLE: X purchases a stereo system through a telephone order in the
name of Y, her friend, so that Y can pick up the system for her. The presump-
tion of resulting trust will cause Y to hold the stereo system in trust for X.
In order for the presumption to apply in this example, X must show
that it was she who provided the purchase money. If Y wishes to rebut
the presumption, he must show that X intended to make a gift of the
stereo system to him.
Litigation involving this head of resulting trust was common in do-
mestic situations. The problem arose where the claimant and the trans-
feree were members of the same household and each paid for different
things. If the man’s contributions to the running of the house were by
way of payment of the mortgage, and the woman’s contributions were
for food, utilities, and the like, the presumption of resulting trust led
to the man having full entitlement to the house. Arguments that the
man could not have paid the mortgage but for the woman’s payment of
all other expenses did not move the courts towards a relaxation of the
rules governing resulting trusts. Because of the rigidity with which the
resulting trust principles were treated, redress was fashioned through
use of the constructive trust. The only apparent amplification of the
resulting trust principle was the extension of the idea of purchase price
to allow for mortgage payments.
The recent case of Kerr10 confirms that the classic resulting trust
based on contribution to a purchase in the name of another will be
strictly applied in domestic situations, with a resulting trust arising
only when a party has contributed directly to the purchase price or
the mortgage. If the situation does not fit into one of these narrow and
static categories, the court will turn to unjust enrichment and remed-
ial constructive trust principles to resolve the issue of entitlement to
property.
Even where claimants can establish that they paid some or all of
the purchase money, they must prove that they did so as a purchaser.
The difficulty in such cases is that it is often unclear whether a claimant
was lending money to the transferee, making a gift to the transferee, or
providing money towards the purchase of the property.
10 Above note 6.
EXAMPLE: A young couple decides to buy their first house for $100,000.
The woman’s uncle advances the couple $25,000 at the time the house is
purchased. When the couple divorces, the house is sold. Does the couple
owe the uncle any money?
The answer depends on the uncle’s intention. If the uncle intended
to make a gift of the money to the couple, then the couple owes him
nothing. If the uncle intended to loan the money to the couple, then
they owe him $25,000 (plus interest, perhaps). If the uncle intended
that his funds be used to give him an interest in the property, then a
resulting trust was created in proportion to his contribution to the pur-
chase price, and he can claim a quarter of the house’s sale value.
Intention is key in determining whether a resulting trust exists in
such situations, as evidenced by the recent case of Nishi v Rascal Truck-
ing Ltd.11 Rascal Trucking leased two acres of land in Nanaimo, on
which it operated a topsoil processing facility. Despite being ordered
to remove the topsoil, Rascal failed to do so. The City of Nanaimo then
removed the topsoil and lodged the costs of removal against the prop-
erty as tax arrears amounting to $110,679.74. Some years later, Mr Nishi
bought the land. He was financially assisted in the purchase by Rascal.
Legal title to the property was taken in the name of Mr Nishi alone.
Before advancing the funds, Rascal offered to contribute in return
for acquiring a part interest in the land. Mr Nishi rejected this offer.
Rascal then offered to contribute precisely $110,679.74, without any
conditions or requirements attached. Mr Nishi accepted the offer on
those terms and Rascal transferred the money. Rascal later claimed a
one-half undivided interest in the property.
The issue before the Supreme Court was whether Rascal had in-
tended to have a beneficial interest in the property when it advanced
the funds. Since Rascal advanced the money gratuitously, the presump-
tion of resulting trust arose, and Mr Nishi bore the burden of proving
that at the time of transfer, Rascal did not intend to acquire a beneficial
interest in the property. The Court found that Rascal’s intention at the
time of transfer was to repay the tax arrears that Rascal’s behavior had
caused to be imposed on the land, without any conditions attached,
and thus make good on Rascal’s moral obligation to repay its debt.
The Court held that this intention was not inconsistent with a find-
ing of a legal gift made by Rascal to Mr Nishi, since the concept of a
legal gift is not restrictive and does not require philanthropic motiva-
tions. A gift at law occurs when the evidence demonstrates that the
transferor intended the transferee to have the beneficial interest in
11 2013 SCC 33 [Nishi].

the property being purchased.12 The Court also held that Rascal’s con-
tribution to the purchase price could not be used both to discharge
its moral obligation and to obtain a beneficial interest in the land. Thus,
the evidence proved that Rascal’s intention was that Mr Nishi — not
Rascal — held the beneficial interest in the land.
The issue of a loan did not arise in the Nishi case. However, as the
example of the young couple buying their first home demonstrates, the
courts are often called upon to determine whether a gift or a loan oc-
curs when the transferor contributes to the purchase price but does not
intend to retain a beneficial interest in the property. If the contribu-
tion is a loan rather than a gift, then the transferee will be obligated
to repay the amount of the loan. However, the transferor will not be
able to claim a portion of the property itself, since a resulting trust is
incompatible with a loan.
3) Gratuitous Transfer into the Name of Another

The presumption of resulting trust also arises when a person transfers
property into another’s name, or into the joint names of himself or her-
self and another, and does so gratuitously.
EXAMPLE: A gratuitously transfers title to his car into the name of B, his
friend. Who has beneficial ownership of the car?
Equity assumes bargains, not gifts. Thus A, the original owner, is pre-
sumed to be beneficially entitled. If B wishes to retain the car, he will
have to prove that A intended to make a gift of the car to him.
Thus it can be seen that in the case of a gratuitous transfer, the
presumption of resulting trust has the effect of putting the burden of
proof of a gift upon the transferee. It is not enough for the transferee to
show that the transfer was “complete and perfect,” in the sense that the
transferee was fully vested with title to the property; the transferee
must also show that a gift was intended. Any admissible evidence, writ-
ten or parol, may be adduced to rebut the resulting trust, including
circumstantial evidence.
The strength and utility of the presumption of a resulting trust in
situations of gratuitous transfer has been questioned by some courts. Jet-
tisoning the presumption would have the effect of shifting the burden
of proof from the transferee (who had the burden to prove that the
property was transferred by way of gift) to the transferor to prove that
the transferor did not intend a gift. However, the recent Supreme Court
12 Ibid at para 37.

case of Pecore v Pecore,13 discussed below, confirmed that the presump-

tion of resulting trust remains as the general rule for gratuitous transfers.
Despite the presumption, however, courts must look at all the evi-
dence with an open mind, to determine what the settlor intended.
Evidence may include, but is not limited to, any relevant evidence
subsequent to the transfer, bank documents, control and use of the
transferred property after transfer, and, if the transferee was granted a
power of attorney, the terms of that power.14 If the evidence on inten-
tion is evenly balanced, the presumption of resulting trust will operate
to cause the transferee to hold beneficial ownership for the transferor.
D. THE PRESUMPTIONS OF RESULTING TRUST

AND ADVANCEMENT
Before Pecore, many legal commentators questioned the utility of the

presumptions in this area. After all, in modern times when I gratuit-
ously transfer title to property to another person, is it more sensible to
assume that I have made a gift or that I transferred title on the assump-
tion that the transferee would hold title for me? It is at least as likely
that I intended to make a gift as that I intended to create a trust. And
if I did intend to create a trust, shouldn’t I be held to the requirements
that exist for express trusts and not be favoured by the presumption of
a resulting trust?
Whatever the merits of this debate, the recent cases of Pecore and
Nishi have ended it. In these cases, the Supreme Court has made it clear
that the courts must apply the presumptions of resulting trust and ad-
vancement. The Court explained in Pecore that the presumptions con-
tinue to play an important role in disputes over gratuitous transfers by
providing certainty and predictability, particularly where evidence as
to the transferor’s intent is unavailable.15
We have discussed the presumption of resulting trust but not the
presumption of advancement. What is the latter? In general terms,
advancement is a type of gift. Historically, if a man gratuitously gave
money or property to his wife or child, the law presumed that he in-
13 2007 SCC 17 [Pecore]. See also the companion case of Madsen Estate v Saylor,
2007 SCC 18.
14 Pecore, ibid at paras 56–68.
15 Ibid at para 23.
tended to make a gift.16 That is, instead of the presumption of resulting

trust, the law presumed a gift. The burden of proof was not on the
transferee but on the father, who would have to show that he had no
intention of making a gift. That situation describes the presumption of
advancement.
The presumption of advancement traditionally would not arise if
the donor was the mother and the donees were her children17 or her
husband.18
The presumption of advancement was based on the notion that the
donor was, in the eyes of equity, under an obligation to provide for his
wife and children.19 In the past, it may have been plausible to assume
that a husband — and not a wife — intended to make a gift, for often
it was the man who had the bulk of the financial resources. Equity’s
old reasoning has no place in the modern day, and, as a result, the
antiquated presumption of advancement between husband and wife
has been eliminated, both judicially 20 and legislatively.21 And the pre-
sumption of advancement between a parent and an adult child was re-
cently abolished in Pecore. However, the presumption of advancement
as between a parent and a minor child remains in effect, and it applies
equally to fathers and mothers.22
Thus, in the situation of gratuitous transfer, the identity of the par-
ties determines which of the two presumptions arises. If the gratuitous
transfer is from a parent to a minor child (or into joint names with the
minor child), the presumption of advancement is the starting point for
16 Hyman v Hyman, [1934] 4 DLR 532 (SCC); Grey (Lord) v Grey (Lady) (1677), Rep
Temp Finch 338, 23 ER 185.
17 Lattimer v Lattimer (1978), 18 OR (2d) 375 (HCJ).
18 Heseltine v Heseltine, [1971] 1 All ER 952 (CA).
19 Murless v Franklin (1818), 1 Swans 13, 36 ER 278 (Ch).
20 Pettitt v Pettitt, [1970] AC 777 (HL) and Rathwell, above note 5.
21 New Brunswick, Marital Property Act, SNB 2012, c 107, s 15(1); Prince Edward
Island, Family Law Act, RSPEI 1988, c F-2.1, s 14(1); Nova Scotia, Matrimonial
Property Act, RSNS 1989, c 275, s 21(1); Newfoundland and Labrador, Family
Law Act, RSNL 1990, c F-2, s 31(1); Ontario, Family Law Act, RSO 1990, c F.3, s
14; Northwest Territories, Family Law Act, SNWT 1997, c 18, s 46(1); Nunavut,
Family Law Act, SNWT (Nu) 1997, c 18, s 46(1); Saskatchewan, The Family
Property Act, SS 1997, c F-6.3, s 50(1); Yukon, Family Property and Support Act,
RSY 2002, c 83, s 7(2).
22 Pecore, above note 13 at para 40. Under the Family Law Act, RSO 1990, c F.3, ss
31 & 32, the parent only has to support an unmarried child who is under age
eighteen, or under age sixteen if he or she has withdrawn from parental control,
and only if the parent is capable of providing support. Further, the Succession
Law Reform Act, RSO 1990, c S.26, s 26, Part V, is premised on an obligation by
a person to make adequate provisions for his or her dependants on death.
determining who owns the property. In all other situations of gratuit-

ous transfers into the name (or joint names) of another, the presump-
tion of resulting trust is the starting point.
Just as the presumption of resulting trust can be rebutted by evi-
dence of a contrary intention, so too can the presumption of advance-
ment. To rebut the presumption of resulting trust, the transferee must
adduce evidence (to the civil standard of proof of a balance of prob-
abilities) that the transferor intended to transfer the beneficial interest
to the transferee. To rebut the presumption of advancement, on the
other hand, the burden of proof is on the transferor to adduce evidence
(again, to the civil standard of proof) that he or she intended to with-
hold the beneficial interest.
As the seminal case in this area, Pecore warrants close scrutiny.
In Pecore, an aging father gratuitously placed the bulk of his assets
(mutual funds, bank accounts, and income trusts) into joint accounts
with one of his three adult children, Paula. Paula was dependent on her
father and made no deposits into the accounts. Some of the financial in-
stitution documents creating the joint accounts specifically confirmed
Paula’s right of survivorship. The father’s accountant advised him that
transfers to Paula would trigger a capital gain and that tax on the gain
would be due as of the year of disposition. As a result, the father wrote
letters to the financial institutions stating that he was the 100 percent
owner of the assets and that they were not being gifted to Paula.
Paula’s father continued to use and control the accounts after they
were transferred into joint names. He declared and paid all the taxes
on income from the assets. Paula made some withdrawals but was re-
quired to notify her father before doing so. There was no mention of the
accounts in the father’s will, in which he left the residue of his estate
to be divided equally between Paula and her husband, Michael. After
her father died, Paula took the remaining funds in the bank accounts.
Later, in divorce proceedings, Michael challenged Paula’s entitlement
to those funds.
The Supreme Court had to determine which presumption — if any —
applied in the context of a gratuitous transfer from a parent to an adult
child. The Court held that the presumption of advancement, which
traditionally applied to gratuitous transfers from parents to children,
does not apply in the case of a gratuitous transfer to an adult child.
Since the principal justification for the presumption of advancement
is a parental obligation to support a dependent child, the majority rea-
soned that the presumption should not apply in respect of independent
adult children. Moreover, since aging parents frequently transfer assets
into joint accounts in order to have their adult children assist with
financial management, there should be a rebuttable presumption that

the child holds the property in trust for the parent. A presumption of
resulting trust therefore applies to all gratuitous transfers from a parent
to an adult child.
In addition, the Court held that the presumption of resulting trust
should apply in the case of adult dependent children, since determin-
ing on a case-by-case basis whether a particular adult child is “depen-
dent” would create uncertainty and unpredictability.
As a result, the presumption of advancement applies only in the
case of a transfer from a parent to a minor child. In Pecore, because the
trial judge found an actual intention on the part of the father to make
a gift to Paula, the Court concluded that the presumption of resulting
trust had been rebutted, and Paula was entitled to the contents of the
joint accounts when her father died.
In her concurring reasons, Abella J opined that the presumption of
advancement should continue to apply to all gratuitous transfers from
parent to child, regardless of the child’s age. Given the lifelong nature
of parental affection, she noted, “the intention to have an adult child
manage a parent’s financial affairs during one’s lifetime is hardly incon-
sistent with the intention to make a gift of money in a joint account to
that child.”23
The decision in Pecore leaves open certain questions, including the
following: Does the presumption of advancement apply to gratuitous
transfers only where the transferor is the parent of the minor child?
What if the transferor stands in loco parentis to the transferee, or there
is a very close familial-type relationship between the transferor and
transferee such as with a grandchild, niece, nephew, or godchild? Is the
determination of whether a child is an adult to be based on the rules of
the province or territory in which the child or the parent resides? Given
that the age of majority varies across Canada, it is worth noting that the
age of the child at which the presumption of advancement will no longer
arise will vary.
It is difficult to understand the interrelationship between the pre-
sumption of resulting trust and the presumption of advancement. Is it
that the presumption of resulting trust in situations of gratuitous trans-
fer and purchase in the name of another is rebutted by the presump-
tion of advancement where close family relationships are involved? If
so, ought the courts to take an expansive view of the presumption of
advancement and extend it to situations closely akin to a parent and
23 Pecore, ibid at para 100.

minor child, such as where a grandparent makes a gift to a grandchild

that he or she is raising? If not, why not?
Pecore dictates that the presumptions serve as the starting point for
resolving property disputes in the second and third situations in which
resulting trusts have historically arisen. In modern times, given the va-
riety of types of family raising children, these types of questions about
the interrelationship between the presumptions promise to become more
pressing.
C H A P T E R 7
CONSTRUCTIVE TRUSTS
A. INTRODUCTION
A constructive trust is a relationship created and imposed by oper-

ation of law and in the interests of good conscience. Unlike express
trusts, the constructive trust is not related to intention. There is no
definition of a constructive trust, and there is no general theory that
explains constructive trusts. In part, this is because the recognized
situations in which constructive trusts are found to exist have their
roots in both English and American law. The English tendency is to
treat constructive trusts as arising in situations of misconduct; where
there is misconduct, there is a cause of action based on the misconduct,
and it is the cause of action that is seen to lead to the imposition of a
constructive trust. These situations of misconduct include gains by fi-
duciaries and those within the rubric of “strangers to a trust” — third
parties who participate, in some way, in a trustee’s wrongdoing.
The Americans, on the other hand, view constructive trusts as rem-
edies to prevent unjust enrichment. Like any other remedy, the con-
structive trust is ordered by the court in those situations when it has
been requested and found to be warranted. In Canada, a good example
of the constructive trust imposed to remedy unjust enrichment can be
found in the caselaw relating to cohabitation property disputes.1
Many legal academics view all constructive trusts as a remedy for
a cause of action based on unjust enrichment or breach of confidence
or fiduciary duty. However, no single theory or principle explains all
1 This area is considered in Section C(2), below in this chapter.
123
the situations in which constructive trusts will be found to exist or be

imposed. We do know that the constructive trust exists as a cause of ac-
tion based on the English approach. We also know that the constructive
trust as a remedial device has been accepted by Canadian courts. There-
fore, rather than debating the general principles underlying constructive
trusts, I will examine both ways in which the constructive trust has
been used. Before turning to these, an example is in order.
EXAMPLE: A real estate agent advises his client not to purchase a certain
property and then purchases it for himself, without the client’s knowledge.
He later sells the property and makes a profit. Does the client have a remedy?2
He does — in the form of a constructive trust. The real estate agent
owed a fiduciary obligation to the client, which he breached when he
purchased the property for himself without full and frank disclosure
and the concurrence of the client. He is liable to disgorge the profit
made to the client. The basis of the action is breach of fiduciary obliga-
tion, or that area of law, discussed more fully below, which requires
fiduciaries to disgorge profits made by virtue of their position. If the
agent still held the property, the court would generally impose a con-
structive trust on the property, thereby requiring the agent to hold the
property for the benefit of the client. The client would, of course, have
to pay the agent the purchase price that the agent had paid for the prop-
erty. If, as in the example above, the agent no longer had the property,
the client could claim the profit by way of an action for accounting.
For a constructive trust to be imposed, title to property must be
vested in the (constructive) trustee. Often, the circumstances that give
rise to the constructive trust give rise to other remedies. It is important
to understand which remedy is appropriate in which circumstances. A
plaintiff is entitled to ask for alternative forms of relief, but relief must be
requested in order for it to be given, so it is necessary to know what to ask
for. Moreover, double counting is not permissible. In the example given
above, if the property had been impressed with a constructive trust, and
the client had not had to compensate the agent for the purchase price that
the agent had paid, there would be double counting in favour of the client.
The remedies that are most often usefully considered as alterna-
tives to the remedy of a constructive trust are accounting, equitable
compensation, and tracing. The following example will highlight the
situations in which each remedy is most appropriate:
2 This example is based on Soulos v Korkontzilas, [1997] 2 SCR 217, discussed in

Section C(1), below in this chapter.
Constructive Trusts 125
EXAMPLE: A trustee receives trust property with the knowledge that it is

trust property. The trustee invests the property contrary to the trust instru-
ment, and the investment
1) makes a profit, which the trustee takes personally;
2) does poorly and loses value; or
3) does well, and the trustee uses the profits to buy a piece of art.
Situation 1
The equitable remedy of accounting is most appropriate in the first
situation. An action for accounting of profits gives the beneficiary the
ability to require the trustee to disgorge the unauthorized profits made
by the trustee by virtue of his position as a fiduciary.3
The trustee is personally accountable for the profit. If there is a
specific item that the beneficiary can identify as the “profit,” then the
beneficiary can ask that a constructive trust be impressed upon the
item so that the trustee must hold the item for the benefit of the bene-
ficiary.
EXAMPLE: A trustee is given a car as a bribe to secure the trustee’s agree-
ment to vote the trust shares in a particular fashion. The beneficiary be-
comes aware of what happened. The beneficiary could seek to impress a
constructive trust on the car. Alternatively, the beneficiary may seek an
accounting for the value of the “profit” (i.e., the car) made by the trustee.
If the trustee is subject to an obligation to account, the trustee must
satisfy the judgment just as he must satisfy any other monetary judg-
ment against him. It is a personal remedy payable in money.
In the example given in situation 1, no specific item of property is
vested in the trustee, so there is no property upon which to fasten a
constructive trust. The original trust property obviously remains sub-
ject to the original trust.
In sum, the remedy of accounting is personal, whereas the con-
structive trust remedy is proprietary.
Situation 2
The remedy of equitable compensation is most appropriate in situa-
tion 2. Equitable compensation is a remedy for a loss. It is a personal
money award given to require a trustee to compensate the trust for loss
3 Disgorgement serves a prophylactic purpose, as it is intended to discourage

breaches of fiduciary duty. It thereby advances the goal of equity, even though
it may result in a windfall for the wronged beneficiary. See Strother v 3464920
Canada Inc, 2007 SCC 24 at paras 75–77.
caused by, or for a lost gain due to, breach by the trustee. An order for
compensation enables the beneficiary to recover the loss or lost gain
with interest.
An action for equitable compensation is restitutive in nature. It must
be distinguished from the common law remedy of damages. A com-
mon law damage award is meant to restore the plaintiff to her original
position. As a result, in determining the amount of a common law dam-
age award, foreseeability and remoteness must be determined. Gener-
ally speaking, neither concept applies when calculating an equitable
compensation award. Whatever loss the trust suffered by reason of
the breach is compensable. Whatever gain was forsaken by virtue of a
breach must be compensated for by the offending trustee.4
The personal remedy of equitable compensation is to make good
any loss to the trust. It is unlikely, therefore, that there will be any
property on which to fashion a constructive trust.
Situation 3
Tracing is most appropriately sought in situation 3. Tracing is a propri-
etary remedy that enables a beneficiary to implement the remedy of a
constructive trust and follow the trust property or the proceeds of its
disposition. In this case, the beneficiary would have to allege that the
profits were impressed with a constructive trust in his favour. To suc-
ceed on a tracing basis, the beneficiary would have to prove that the
profits were directly used to purchase the piece of art. If so, equity will
permit the beneficiary to trace the profit into the piece of art and then
impress it with a constructive trust; the trustee would then hold title
to the art for the benefit of the beneficiary. This remedy is particularly
attractive when a trustee is of limited means or bankrupt, as it enables
the beneficiary to claim an item on a proprietary basis, thereby ranking
ahead of all other creditors.5
B. CONSTRUCTIVE TRUSTS: REMEDY OR

CAUSE OF ACTION?
In the American legal system, the constructive trust is viewed as a

remedy available to prevent unjust enrichment. There is no construct-
4 For an in-depth look at the development of the remedy of equitable

compensation, see Jeffrey Berryman, The Law of Equitable Remedies, 2d ed
(Toronto: Irwin Law, 2013) at 476–99.
5 See Chapter 11 for a further discussion of tracing.
ive trust cause of action. The constructive trust is defined in terms

by which a person holding property is subject to an equitable duty to
transfer it to another in circumstances in which the person would be
unjustly enriched if allowed to retain the property. The American pos-
ition is not to treat the constructive trust merely as a form of property
institution. Instead, as Cardozo J in Beatty v Guggenheim Exploration
Co stated, “[a] constructive trust is the formula through which the con-
science of equity finds expression.”6
English jurisprudence, on the other hand, sees the constructive
trust not as a remedial device but as a substantive institution based on
notions of ownership and not obligation (that is, proprietary rather than
compensatory). It has been suggested that the constructive trust is tied
to the fiduciary relationship and arises in five circumstances:
1) as an extension of an existing trust
2) on receipt of trust property by a stranger
3) profit from a trust
4) as surplus from a mortgagee sale
5) where a vendor is a constructive trustee of land for a purchaser by
virtue of specific performance
From the English viewpoint, the constructive trust is similar in na-
ture to other trusts, so the appropriate line of inquiry is to ask in what
circumstances a constructive trust would arise. The answer in England
was (1) for breach of fiduciary obligation and (2) in situations grouped
together as “strangers to a trust.” Both circumstances are discussed
below.
In Canada, both views have been accepted. The examples given
in the previous section of this chapter illustrate that both the Amer-
ican view and the English view have been accepted. In situation 3, the
profits were traced into a piece of art, and the art was impressed with a
constructive trust. The constructive trust was the remedy given; the
cause of action was breach of fiduciary obligation, since trustees are
prohibited from making unauthorized profits. The cause of action is that
established in English jurisprudence as leading to a constructive trust.
A good example of the remedial constructive trust, discussed below,
can be traced to the Supreme Court of Canada decision in Pettkus v
Becker.7 Although the constructive trust is frequently used as a remed-
ial device to prevent unjust enrichment in domestic cohabitation situa-
tions, it plays an important role in the business world as well.
6 122 NE 378 at 380 (NY Ct App 1919).

7 [1980] 2 SCR 834.
C. RECOGNIZED APPLICATIONS OF
CONSTRUCTIVE TRUSTS
1) Causes of Action
a) Gains by Fiduciaries
The rule is simple: a trustee may not profit from his or her position. If
the trustee does so profit, the profit must be held for the beneficiaries.
This rule is not restricted to trustees, since it extends to all fiduciaries.
Well-known fiduciary relationships include those between trustee and
beneficiary; personal representative and beneficiary; guardian and ward;
director, senior officer, or promoter and company; and partner and co-
partner. The fiduciary aspect of some of these relationships is more in-
tense than in others, with the trustee-beneficiary relationship being the
most intense of all.8 Hence the courts apply the rule most strictly in
the trustee-beneficiary relationship.
Profit, in the context of this rule, means any unauthorized gain by
a fiduciary. It includes any type of advantage or benefit gained by the
trustee and is not limited to the normal meaning of the word. Whether
there is an unauthorized gain by a fiduciary is a question of fact. In de-
termining this fact, the courts must decide whether the profit or benefit
arose from the fiduciary position or abuse of that position, or whether
it arose from the fiduciary’s personal rights. In Soulos v Korkontzilas,9 a
real estate broker acted for a prospective purchaser of a specific com-
mercial property. The broker presented an offer to the owner on be-
half of the purchaser and conveyed back the owner’s counter-offer. The
counter-offer was rejected, but in communicating with the owner, the
broker was told what the owner would accept as a final price. The brok-
er did not disclose this information to the purchaser, but rather pro-
ceeded to purchase the property in his spouse’s name. As the property
subsequently decreased in value, the prospective purchaser abandoned
his claim for damages for breach of fiduciary duty and sought a declara-
tion that the broker’s spouse held the property upon constructive trust
for him.
8 The word “intense” refers to the degree of vulnerability or dependency of one

upon the other. A beneficiary is virtually completely dependent upon the trust-
ee for due administration of the trust, since the trustee holds title to the trust
property. This is seen to create the greatest vulnerability for the beneficiary, so
that the trustee is held to the highest of standards. Conduct that may be sat-
isfactory in a principal-agent (fiduciary) relationship, for example, may not be
acceptable in the trustee-beneficiary relationship.
9 Above note 2.
The Supreme Court of Canada had little difficulty in finding that

the broker was a fiduciary by virtue of the principal-agent relationship
and that the broker breached his duties. The Court was, however, div-
ided on the issue of remedy. The majority of the Court held that “good
conscience” required that the appropriate remedy lay in a constructive
trust. In this case, the broker’s spouse was declared to hold the property
upon constructive trust for the plaintiff. In making its determination,
the majority identified four conditions that generally need to be satis-
fied for a constructive trust to be imposed based on wrongful conduct:10
(1) the defendant must have been under an equitable obligation in
relation to the activities giving rise to the assets acquired by the
defendant;
(2) the assets must have resulted from deemed or actual agency ac-
tivities of the defendant in breach of the defendant’s equitable
obligations to the plaintiff;
(3) the plaintiff must show a legitimate reason for seeking a propri-
etary remedy, either personal or related to the need to ensure
that others like the defendant remain faithful to their duties; and
(4) there must be no factors rendering imposition of a constructive
trust unjust.
All four conditions were found to have been satisfied. The real es-
tate broker breached his equitable obligation as a fiduciary by allowing
his personal interests to conflict with his duty to the purchaser. The
property acquired by the broker resulted from his agency activities in
breach of his obligation. The Court was satisfied that the plaintiff was
entitled to a proprietary remedy because he had a personal reason for
wanting that particular property, and imposition of a constructive trust
was necessary in this case to ensure that other real estate agents and
brokers in a position of trust would fulfil their duty of loyalty. Finally,
there were no factors making the imposition of a constructive trust
unjust.11
10 Ibid at para 45, recognizing that a constructive trust may be imposed for wrong-
ful acts such as fraud and breach of the duty of loyalty, even in the absence of
unjust enrichment.
11 The dissent would have upheld the trial judge, who had found that the broker
had breached his fiduciary duty but held that the purchaser was not entitled to
a constructive trust. Because the property had decreased in value, the purchaser
had not suffered any damages — there had been no enrichment on the part of
the broker. Any deterrent effect could have been achieved through an award of
exemplary damages for the breach of fiduciary duty.
EXAMPLE: X buys Bell Canada shares. She is then named a trustee of a

trust that also holds Bell shares. X sells her shares on the open market and
makes a handsome profit. Can the beneficiaries claim breach and seek the
profit?
No, they cannot. X owned the shares in her personal capacity and was
therefore entitled to deal with them as she wished. Persons filling fidu-
ciary offices are persons as well as fiduciaries. The rule is designed to
preclude conflicts of interest for the fiduciaries, not to immobilize them
as human beings.
The rule is designed to prevent trustees from putting themselves in
a position where their personal interests conflict with their duties to
the trust beneficiaries. It is founded on the duty of loyalty owed by the
trustee to the beneficiary. It is designed to punish trustees who give in to
temptation, even if there is no loss suffered by the trust or by the bene-
ficiary. The “self-dealing rule” is one example. The beneficiary is permit-
ted to avoid a transaction with a trustee, such as a sale of trust property
to the trustee, even if the transaction was for fair value. In the alternative,
the beneficiary can require the trustee to account for any profits made as
a result of the purchase of trust property by the trustee.
If a trustee purchases property from the trust, the trustee is pre-
cluded from taking advantage of any special knowledge about the prop-
erty. Equity regards the transaction as voidable at the instance of the
beneficiary and will require the trustee to hold the property on a con-
structive trust for the beneficiary.
EXAMPLE: A trustee buys stocks from a trust. She gives fair consideration
for the stocks but fails to obtain the informed consent of the beneficiary.
The sale may be set aside at the instance of the beneficiary. The trust would
have to reimburse the trustee for the purchase price.
The rule with respect to the purchase of property by the trustee is
sometimes said to be absolute and automatic; however, there appear to
be two exceptions to the rule. The first is where the fiduciary obliga-
tion is assumed only after the contract was entered into.12 The second is
where the beneficiary consents to the transaction after full disclosure
of all material facts by the fiduciary, and fair value has been paid.
A trustee may purchase property from a beneficiary. In the previ-
ous example, the trustee purchased from the trust and therefore was in
an automatic conflict of interest position, since the trustee bought from
12 Crocker & Croquip Ltd v Tornroos, [1957] SCR 151, is an example of the first ex-
ception.
him or herself. A trustee who buys from a beneficiary is buying from a

different person, and that is acceptable under certain conditions.
EXAMPLE: A trustee buys stocks from the beneficiary at a fair price. The
beneficiary is aware of all material facts and is independently advised.
The trustee must satisfy a court that there was full disclosure of all
material facts, that the beneficiary was independently advised, and that
a fair price was paid. Hence, this situation is termed the “fair-dealing
rule,” whereas purchase from the trust invoked the “self-dealing rule.”
Sales or loans by a trustee of his own property to the trust are dealt
with in the same fashion as purchases from the trust, since, once again,
the trustee is self-dealing.
EXAMPLE: A trustee loans $10,000 on a short-term basis to the trust for the
purchase of additional stock until additional funding is obtained.
The beneficiary has the opportunity to have a loan or a sale from the
trustee to the trust set aside if full disclosure and consent have not been
obtained. If, however, restitutio in integrum is not possible, the bene-
ficiary may claim compensation for any loss. The beneficiary may not
claim accounting for any profits made on a sale by the trustee unless
the original acquisition by the trustee was itself a breach of fiduciary
duty. A situation where the original acquisition by the trustee was itself
a breach of fiduciary duty arises when a trustee ought to have pur-
chased property for the trust but instead purchased it for him- or her-
self and then sold it to the trust for a profit.
It follows that where a trustee sells property to the trust that was ac-
quired without a breach of fiduciary duty, the property never belonged
to the trust in equity, so the beneficiary may only have the transaction
avoided or claim compensation for a loss.
In contrast, where the trustee sells property to the trust that was
acquired by breach of duty, the property is viewed in equity as always
having belonged to the trust,13 so the beneficiary may not only avoid
the transaction or claim compensation for a loss but may also seek an
accounting of profits and claim a constructive trust over the benefit
obtained.14
b) Strangers as Constructive Trustees

Courts have imposed the obligations of a trustee on third parties who
participate in another’s breach of trust or breach of fiduciary obligation.
13 On the basis that equity looks on that as done which ought to have been done.
14 National Trust Co v Osadchuk, [1943] SCR 89.
These third parties are termed “strangers.” The term is explained in the
following quotation:
With respect to any given trust, a person who is not a trustee is said
by equity to be a stranger to the trust. Even settlors and benefici-
aries, if they are not also trustees, belong to the category of strangers.
There are numerous ways in which a stranger may establish relations
with a trust. He may loan it money or sell it securities or offer it
legal advice. He may become a bailee or a converter of trust property.
In each case, strictly speaking, the legally significant relationship is
established not between the stranger and the trust but between the
stranger and the trustee.15
This quotation serves to highlight the fact that, generally, a stranger
may conduct business with a trustee and not have to worry about the
beneficiary. The stranger’s dealings are with the trustee, and it is to the
trustee that the stranger owes obligations. In turn, the trustee owes
obligations to the beneficiaries, and it is to the trustee (not the stranger)
that the beneficiary turns if he or she is dissatisfied with the adminis-
tration or functioning of the trust. However, there are three situations
in which equity permits the beneficiaries to take action against the
stranger.16 These situations form the subject matter of this section.
Two general bases underlie these situations and form the founda-
tion on which a stranger to the trust can be held liable as a constructive
trustee for breach of trust. The first is as trustee de son tort. The second
is where a stranger knowingly participates in a breach of trust. This
latter group has two subcategories: the “knowing receipt” category and
the “knowing assistance” category. “Knowing receipt” is the shorthand
term for the stranger who is in receipt of and chargeable with the trust
property; the stranger must have received the trust property in his or
her personal capacity, rather than as agent of the trustee. “Knowing
assistance” refers to the stranger who knowingly assists in a dishonest
and fraudulent scheme on the part of the trustees.
EXAMPLE: A friend of a trustee purchases a car from the trustee at a much
reduced price, knowing full well that the car is trust property. The trust-
ee absconds with the proceeds of sale. Does the beneficiary have recourse
against the purchaser?
Yes. On these facts, it is very likely that a court would find the friend as
falling within the “knowing receipt” category. If so, equity will require
15 Ruth Sullivan, “Strangers to the Trust” (1986–1987) 8 E & TQ 217 at 217.

16 Barnes v Addy (1874), LR 9 Ch App 244.
the friend (the stranger to the trust) to hold the trust property for the
beneficiary by way of a constructive trust.17 The friend will have to chase
the trustee for the proceeds of sale. A person who buys from a trustee
in suspicious circumstances, knowing that the person is a trustee, must
take care.
Before a court will impose liability on the stranger, it must deter-
mine the degree of knowledge of the stranger. Clearly, in both “knowing
receipt” and “knowing assistance,” actual knowledge of the wrongdoing
by the trustee is sufficient to lead to liability. But what of wilful blind-
ness? By wilful blindness we mean situations where the circumstances
are such that the only way in which the stranger failed to have actual
knowledge of the wrongdoing is as a result of intentionally closing her
eyes to what was going on. And what of the situation where there is
something less than actual knowledge or wilful blindness? Will reck-
less disregard of the circumstances be sufficient? Is notice sufficient?
Notice is used to mean knowledge of facts or circumstances that would
put an honest person “on inquiry” (i.e., to ask questions).
And what degree of wrongdoing on the part of the trustee must be
proven? Must the trustee’s breach of trust be dishonest and fraudulent, or
will any breach, however innocent, be sufficient? Fortunately, as will be
seen below, these questions have been largely resolved by the Supreme
Court of Canada in its judgment in Air Canada v M & L Travel Ltd.18
A stranger to a trust who takes the legal title to trust property and is
a bona fide purchaser for value without notice will take the trust prop-
erty free of the beneficial interest, even if the trustee acted in breach of
the trust.19 The beneficiaries in such a situation have no proprietary or
personal remedy against the stranger. Their only recourse is against the
trustee for breach of trust.
i) Trustees de Son Tort

Trustees de son tort are strangers who make themselves accountable
as trustees. A stranger becomes a trustee de son tort when the stranger
“intermeddles” with trust property or performs acts characteristic of
the office of trustee, even though he or she has no official right to do
so. These strangers do not claim to act in their own right, but on behalf
of the beneficiaries. The chief difficulty in this area is to know when
persons have “intermeddled” in such a way as to render themselves
17 The remedy of an equitable lien could be sought as an alternative to seeking a

constructive trust.
18 [1993] 3 SCR 787 [Air Canada].
19 See i Trade Finance Inc v Bank of Montreal, 2011 SCC 26, for a recent discussion
of the concept of a bona fide purchaser for value without notice.
trustees de son tort. I suggest that performance of acts that belong to the
office of trustee, without a juristic reason for such acts, is what is meant
by the word “intermeddling.”
If a person undertakes to act as a trustee, the person will be treated
as a trustee and held to trust standards. The voluntary assumption of
responsibility leads to the stranger’s accountability as a trustee de son
tort. Hence, a trustee de son tort is a stranger who voluntarily assumes
the office or character of trustee of an existing trust. It does not matter
whether the assumption of the role of trustee is based on a mistake or
not; accountability ensues.20 The situation in which a mistake can lead
to the assumption of the role of trustee is where the stranger believes
that he or she is a duly appointed trustee. However, a trustee de son
tort may act with full knowledge that he or she is not a duly appointed
trustee.
Like a duly appointed trustee, the trustee de son tort must have title
to, control over, or possession of the trust property, and must have
undertaken to manage the property for the benefit of the beneficiaries.
At the point where the stranger has both aspects (title to, control over,
or possession of the property and has undertaken to act on behalf of the
beneficiaries), the stranger becomes a trustee de son tort and is there-
fore accountable to the beneficiaries. Liability will ensue if the trustee
de son tort commits a breach of trust while acting as trustee.
The liability of a trustee de son tort is equivalent to that of the ex-
press trustee. Hence, a trustee de son tort owes a full range of duties, is
held to the same standards of conduct, and is accountable in the same
manner as any trustee for profits improperly made or losses improperly
caused to the trust.
EXAMPLE: A daughter is named executor and trustee under her mother’s
will. The daughter lives in Ontario, and the mother in Alberta. The mother
dies unexpectedly and her son, who also lives in Alberta, steps in to help
and begins to secure the estate assets. The insurance policy on the mother’s
house stipulates that the insurance is void after the house has been vacant
for three consecutive days. The brother is unaware of this clause and takes
no steps to ensure that the house is properly insured. The house burns
down. Is the brother liable for loss?
It is entirely possible that the brother will be liable along with his sister,
the named trustee. The court will view the brother as a trustee de son
tort because he began to “intermeddle” with the trust property for the
benefit of others. The brother was acting without malice; he wanted to
20 Selangor United Rubber Estates, Ltd v Cradock (No 3), [1968] 2 All ER 1073 (Ch).
help his sister and the rest of the family members in a difficult time. It
matters not; if he undertakes to act as a trustee, he will be held to the
standards of a trustee.
ii) “Knowing Assistance” to a Trustee in a Misapplication of Trust

Property
This category is distinguishable from the “knowing receipt” category on
the basis that here the stranger does not take receipt of the trust prop-
erty; rather, he or she provides some type of assistance to the trustee.
In general, a stranger to a trust who knowingly assists the trustee in a
breach of a trust or in perpetrating a dishonest or fraudulent scheme
will be liable to the beneficiaries for losses sustained or profits made.
In Air Canada v M & L Travel Ltd,21 a travel agency breached its duty
of trust by failing to account to Air Canada for the monies the agency
had collected through its sales of airline tickets. Air Canada sued both
the travel agency and its directors personally to recover the funds. The
travel agency itself was found to be a trustee, while the directors of the
agency were strangers to the trust who had allegedly participated in
misapplying trust property.
The questions facing the Supreme Court of Canada in the Air Canada
case were, first, must the misapplication of trust property by the trustee
be dishonest or fraudulent, or will any breach, however innocent, be suf-
ficient, and, second, what type of knowledge must the stranger have in
order to face liability as a constructive trustee.
On the question of the nature of the breach of trust, the Court held
that a fraudulent and dishonest design was necessary. Fraudulent and
dishonest were seen to amount to the same thing and include taking
risks that trustees know they have no right to take.
The degree of participation in the breach by the stranger providing
“knowing assistance” was considered in Air Canada as well. More is
required than in the “knowing receipt” category because, typically, the
strangers in the “knowing assistance” category are agents who should
be free to follow the instructions of their principals, short of participat-
ing in a fraud. The Court quoted with approval the following passage
from the Sullivan article:
Unlike the stranger who takes title, an agent who disposes of trust
property has no choice in the matter. He is contractually bound to act
as directed by his principal the trustee. It is one thing to tell an agent
that he must breach his contract rather than participate in a fraud on
the part of his principal. It is quite another to tell him that he must
21 Above note 18.

breach his contract any time he believes his principal’s instructions

are contrary to the terms of the trust. This is to tell the agent that he
must first of all master the terms of his principal’s undertaking and,
secondly, enforce his own understanding of what that undertaking
entails. In effect, it burdens him with the duties of trusteeship upon
the mere receipt of trust property as agent.22
The question of the extent of knowledge of the trustee’s wrongdoing
needed to fix liability on a stranger was decided also. As the Court put it,
whether personal liability is imposed on a stranger to a trust “depends
on the basic question of whether the stranger’s conscience is sufficiently
affected to justify the imposition of personal liability.”23 The Court con-
cluded that the stranger must have actual knowledge or, at least, be reck-
less or wilfully blind. In Air Canada, the directors of the travel agency
were found to have had actual knowledge of the company trustee’s
wrongdoing; in fact, the Court held that the breach of trust was caused
directly by the conduct of the directors, who were therefore personally
liable due to their “knowing assistance.”
Before Air Canada, it was clear that a stranger to the trust with actual
knowledge of the scheme and its dishonesty would be liable to the trust
under this heading. It is now clear, as well, that the stranger who shuts
his or her eyes to the obvious by wilfully or recklessly failing to make the
inquiries an honest and reasonable person would make, or ought reason-
ably to have made, will be liable. Apparently, the level of knowledge does
not vary with the degree of the stranger’s participation.
Although receipt of a benefit by the stranger may ground an infer-
ence that the stranger knew of the breach, the receipt of a benefit is nei-
ther sufficient nor necessary for the drawing of such an inference.
Air Canada ends the debate as to whether carelessness or construct-
ive knowledge — that is, knowledge of circumstances that would indi-
cate the facts to an honest person or knowledge of facts that would put
an honest or reasonable person on inquiry — reflects the want of probity
that justifies the imposition of a constructive trust in this category. In
the “knowing assistance” category, constructive knowledge and care-
lessness are insufficient to warrant liability, according to the majority
judgment in Air Canada.24 As was pointed out in the majority reasons,
22 Sullivan, above note 15 at 246.

23 Air Canada, above note 18 at 808.
24 While agreeing with the majority on the outcome, McLachlin J (as she was
then) would have left the determination of whether the lower threshold of
constructive knowledge would suffice to impose liability on a stranger in the
knowing assistance context to a case in which the question squarely arose.
there is no sense in requiring dishonesty on the part of the trustee (the

principal) while accepting negligence as sufficient on the part of some-
one who provides assistance. Where recklessness and wilful blindness
indicate a want of probity that justifies the imposition of a constructive
trust, the carelessness involved in constructive notice does not nor-
mally amount to a want of probity and is therefore insufficient to bind
the stranger’s conscience.25
In short, it is more difficult to fix liability on the stranger in the
“knowing assistance” category than in the “knowing receipt” category.
The stranger in the “knowing assistance” category must have actual
knowledge, be wilfully blind, or reckless. A higher threshold of know-
ledge is appropriate in this category because, unlike the “knowing re-
ceipt” category, in this category the stranger never takes title to the
property. Receipt of property should require a lower threshold of know-
ledge and lead to higher standards of behaviour. Moreover, it takes lit-
tle thought to see that if constructive notice is all that is required in the
“knowing assistance” category, many people in many professions and
jobs will be in difficulty. The following example should demonstrate
this point. A seedy-looking character goes into a bank and deposits a
large sum of money. Is the bank teller supposed to ask the person how
someone who looks like the depositor has come into possession of a
significant sum of money? If that is the case, why should the teller not
be obliged to ask the same question of a prosperous-looking person
who deposits an inordinately large sum? If the test for liability is merely
constructive notice, and the teller (and bank) may be liable for assisting
if the person turns out to be a dishonest trustee, the teller would be
bound to ask such questions whenever someone made an unusual de-
posit; otherwise, the teller would run the risk of being held to have
assisted with the dishonest scheme. The lineups at banks would prove
exceedingly long!
This example could be multiplied a hundred times over by all those
who work with trustees. It would make their positions virtually impos-
sible, since they would not be able to reasonably rely on the instruc-
tions of their principals.
iii) “Knowing Receipt” of Trust Property

As in the “knowing assistance” situations, the stranger in this category
becomes a constructive trustee by doing something that equity consid-
ers unconscionable. The “knowing receipt” category differs significantly
from the “knowing assistance” category in that, in the “knowing receipt”
25 See also In re Montagu’s Settlement Trusts, [1987] Ch 264.

category, the stranger takes title to, possession of, or control over the
trust property. Therefore liability in “knowing receipt” cases is based
on the stranger’s personal enrichment at the expense of the beneficiary.
A fundamental difference between the categories of “knowing assist-
ance” and “knowing receipt” is that assisting a fraud triggers liability
for knowing assistance while the concept of unjust enrichment under-
lies knowing receipt.26
In the case of a trustee de son tort, the beneficiaries are allowed to sue
the stranger directly because the stranger undertook to act on their be-
half. In the “knowing receipt” and “knowing assistance” situations, the
trustee and stranger are both seen as being responsible for wrongdoing.
As a consequence, equity permits the beneficiaries to directly take action
against the stranger as well as against the trustee.
In many ways, the questions that exist in relation to the “knowing
receipt” category are similar to those that existed in the “knowing assist-
ance” category. Although Air Canada did not directly address the ques-
tions in relation to the “knowing receipt” category, it hinted at many of
the answers. For example, it is clear from the majority judgment in Air
Canada that the stranger who “knowingly receives” trust property is to
be held to a more stringent standard than is the stranger who “know-
ingly assists.” This suggests that the stranger who “knowingly receives”
will be liable if he has actual knowledge, acts recklessly, is wilfully blind,
or has constructive notice. Such was the result in Citadel General Assur-
ance Co v Lloyds Bank Canada,27 where the Supreme Court set down the
knowledge requirements that a stranger must possess to be held liable as
a constructive trustee in knowing receipt cases. Unlike cases of know-
ing assistance, where actual knowledge, recklessness, or wilful blind-
ness must be established, the lower threshold of constructive knowledge
is sufficient to hold a stranger liable in a case of knowing receipt.28
In Citadel General Assurance, a broker negotiated insurance con-
tracts on behalf of Citadel and held premiums in trust in a bank account
at Lloyds Bank. The bank was aware that the funds were insurance pre-
miums. The broker instructed the bank to clear this bank account on a
daily basis and transfer the funds to the account of an affiliated corpor-
26 See Gold v Rosenberg, [1997] 3 SCR 767 at para 41 [Gold].

27 [1997] 3 SCR 805 [Citadel General Assurance]; see also Waxman v Waxman
(2004), 186 OAC 201 (CA); and A & A Jewellers Ltd v Royal Bank of Canada
(2001), 53 OR (3d) 97 (CA).
28 See also Arthur Andersen Inc v Toronto-Dominion Bank (1994), 17 OR (3d) 363
(CA); and Glenko Enterprises Ltd v Ernie Keller Contractors Ltd (1996), 134 DLR
(4th) 161 (Man CA), both cited approvingly by the Supreme Court in Citadel
General Assurance.
ation. The funds were then used to reduce an overdraft that the affili-
ated corporation had with the bank. Upon the insolvency of the broker,
Citadel sued the bank and sought a constructive trust. The trial judge
found that the bank had knowledge of the nature of the funds on de-
posit in the broker’s trust account and that the bank had “shut its eyes”
to the suspicious nature of the transfers. Because the bank failed to
make reasonable inquiries, the trial judge concluded that the bank had
constructive knowledge of the broker’s breach of trust. A constructive
trust was imposed on the funds received by the bank.
The Alberta Court of Appeal overturned that result. It held that
constructive knowledge was insufficient and that only actual know-
ledge, recklessness, or wilful blindness could render the bank liable for
the broker’s breach of trust from which it received benefit.
The Supreme Court allowed the further appeal by the insurer. The
Court held first that because the bank did not have actual notice, it was
not liable for knowingly assisting the breach of trust committed by the
broker. However, the Court held that the bank was liable for know-
ing receipt of trust property. The circumstances of the daily transfer
of monies from the broker’s account to reduce the overdraft of an af-
filiated company should have put the bank on notice to make further
inquiries; constructive knowledge was sufficient. The bank was liable
because it failed to make the inquiries and had been unjustly enriched
at the insurer’s expense. With respect to the knowledge requirement in
knowing receipt cases, the Court noted:
Given the fundamental distinction between the nature of liability
in assistance and receipt cases, it makes sense to require a different
threshold of knowledge for each category of liability. In “knowing
assistance” cases, which are concerned with the furtherance of fraud,
there is a higher threshold of knowledge required of the stranger to
the trust. Constructive knowledge is excluded as a basis for liability in
“knowing assistance” cases . . . . However, in “knowing receipt” cases,
which are concerned with the receipt of trust property for one’s own
benefit, there should be a lower threshold of knowledge required of
the stranger to the trust. More is expected of the recipient, who un-
like the accessory, is necessarily enriched at the plaintiff’s expense.
Because the recipient is held to this higher standard, constructive know-
ledge (that is, knowledge of facts sufficient to put a reasonable person
on notice or inquiry) will suffice for restitutionary liability . . . . In
“knowing receipt” cases, relief flows from the breach of a legally
recognized duty of inquiry. More specifically, relief will be granted
where a stranger to the trust, having received trust property for his
or her own benefit and having knowledge of facts which would put a
reasonable person on inquiry, actually fails to inquire as to the pos-
sible misapplication of trust property. It is this lack of inquiry that
renders the recipient’s enrichment unjust.29
Another recent case of the Supreme Court in this area is Gold v
Rosenberg.30 Gold raises very interesting questions about what consti-
tutes trust property in cases of knowing receipt, as well as what might
be found to be reasonable conduct. The case concerned the residue of an
estate left by a testator to his son, Rosenberg, and grandson, Gold. The
residue consisted largely of commercial properties held by two com-
panies. Gold gave power of attorney to Rosenberg, who then managed
the properties and Gold’s interests together with his own businesses. A
single bank was used for all these enterprises. In the course of his busi-
ness, Rosenberg obtained a loan from the bank and, in so doing, caused
the companies controlling the property in the estate to give security to
the bank in the form of a guarantee, collateral mortgage, and mortgage
postponement. The facts of the transaction are complex but include
Rosenberg obtaining legal advice (although one firm acted for all par-
ties), Gold signing a director’s resolution authorizing the guarantee and
the agreement (signed after the monies were advanced), and Gold sub-
sequently revoking the authority and suing Rosenberg, the bank, and
the law firm.
The trial judge held that this was a case of knowing assistance. He
held that Rosenberg had committed a fraudulent and dishonest breach
of trust and that the bank had actual knowledge of the breach. He im-
posed a constructive trust on the bank in favour of Gold of those estate
assets representing his half interest. The trial judge gave effect to the
constructive trust by declaring the guarantee unenforceable, together
with the collateral mortgage and postponement agreement. The law
firm was also held liable but did not appeal. The Ontario Court of Ap-
peal allowed the bank’s appeal on the grounds that Rosenberg’s breach
of trust could not have been fraudulent or dishonest since Gold had
signed the director’s resolution and knew the risk the transaction
posed to the estate. The Court of Appeal also held that the bank was
entitled to rely on the legal opinion that the guarantee was valid. Thus,
the bank did not have actual knowledge of the breach and was neither
reckless nor wilfully blind. Gold appealed to the Supreme Court.
With respect to the nature of the liability, a majority of the Court
held that the facts constituted a knowing receipt situation. The minor-
29 Citadel General Assurance, above note 27 at paras 48–49.

30 Above note 26.
ity of the Court held it to be a knowing assistance case. The difference

between the two conclusions turned on whether what was received by
the bank (the guarantee, collateral mortgage, and postponement agree-
ment) could properly be regarded as trust property. The majority on this
issue found that forms of contractual security over trust property could
themselves constitute trust property, and even if they didn’t, they con-
stituted a benefit to the bank. With respect to the issue of the bank’s lia-
bility, the majority (a differently constituted majority than on the issue
of the nature of the liability) dismissed the appeal on the grounds that
the bank had acted reasonably. For the majority, if it were a knowing
assistance case, the bank did not have actual knowledge and was not
reckless or wilfully blind. If it were a knowing receipt case, an honest
and reasonable person in the position of the bank would not have been
put on notice to make further inquiries: the bank knew that Gold had
granted Rosenberg power of attorney, the bank was entitled to rely on
the legal opinion that the guarantee given by the company in the estate
was valid, and Gold had signed the resolution approving the granting of
the guarantee. The dissenting opinion on the issue of the bank’s liability
held that the facts were suspicious enough to put the bank on notice to
make further inquiries; thus, under the “knowing receipt” test, the bank
could not enforce its guarantee.
While the justices in Gold agreed that the threshold for liability dif-
fers depending on whether the case is one of “knowing assistance” or
“knowing receipt,” it is difficult to reconcile the two approaches taken
by the Supreme Court as to what constitutes “receipt” of trust property,
as well as what type of knowledge would put a reasonable person — in
this case, a reasonable bank — on “notice.”
EXAMPLE: A purchases shares from a trustee. It turns out that the trustee
was not empowered to sell the shares. Can the beneficiaries recover the
shares from A?
The answer depends on the state of A’s knowledge of the breach. A will
be liable if A had actual knowledge that the trustee acted improperly
or if A acted recklessly or was wilfully blind. A will also be liable if
there were facts that ought to have reasonably put A on inquiry. Only
if A is a bona fide purchaser for value without notice does A take title of
the trust property, free of the beneficiary’s equitable interests. As in the
“knowing assistance” category, the party attempting to recover from
the stranger who is in “knowing receipt” has the burden of proof that the
stranger had the requisite degree of knowledge and that the trustee was
guilty of wrongdoing of the sort set out above.
The stranger who knowingly receives trust property that has been
transferred in breach of trust and becomes a constructive trustee owes
a duty to restore the trust property and make good any losses suffered
by the beneficiaries.
2) Remedies
a) Unjust Enrichment
The elements required by the courts to impose a constructive trust to
remedy unjust enrichment are (1) that the defendant is enriched, (2)
that the plaintiff suffers a corresponding deprivation, and (3) that there
is no juristic reason for the defendant’s enrichment. The person claim-
ing a constructive trust has the burden of proof for all three elements
and must demonstrate the causal connection between the deprivation
and the enrichment.
This type of remedial constructive trust has been held to arise in
cohabitation property disputes in which one party has been unjustly
enriched at the expense of the other. It has been used to remedy situa-
tions where one party made no direct financial contribution to the pur-
chase of the property but contributed labour by way of improvements,
maintenance, or operation of the home. Traditional trust principles
in the resulting and express trust realms were not able to provide an
equitable response, which explains the extension of the constructive
trust to this area.
EXAMPLE: A common law relationship sours after twenty years of cohabita-
tion. The plaintiff had contributed twenty years of labour into the house’s
decorating, upkeep, and maintenance, but she had made no direct financial
contributions. Title is in the defendant’s name. Is the plaintiff entitled to
share in title to the house?
The defendant would be unjustly enriched by the fruits of the plaintiff’s
labour over the twenty years, and the plaintiff would be deprived of any
compensation for her labour. There is no juristic reason for the enrich-
ment of the defendant, so a constructive trust would be imposed on the
title, with the defendant becoming constructive trustee of the title for
the plaintiff and himself in such shares as the court deemed just. Of
course, personal remedies may be claimed in these situations as well.
Kerr v Baranow31 offers a recent pronouncement from the Supreme
Court on unjust enrichment and remedial constructive trusts in the
cohabitation context. In Kerr, the Court confirmed that the provi-
31 2011 SCC 10 [Kerr].

sion of domestic services may support a claim for unjust enrichment.

When their common law relationship of twenty-five years broke down,
Ms Kerr sued for support and for a share of the property held in Mr
Baranow’s name. Both parties had contributed jointly to the family’s
mutual welfare and accumulated wealth during the course of their re-
lationship, through financial contributions as well as domestic services.
As discussed in the previous chapter, the Court in Kerr held that the
common intention resulting trust no longer had a useful role to play
in cohabitation property disputes. Instead, drawing on its earlier deci-
sions in Pettkus v Becker 32 and Peter v Beblow,33 the Court considered Ms
Kerr’s claim for unjust enrichment and addressed the issue of when a
remedial constructive trust might be ordered.
The Court chose to rely on an unjust enrichment analysis, coupled
with the possible remedy of a constructive trust, because this approach
avoids the need for “artificial inquiry” into common intent, allows
claims for property interests to be addressed, permits various types of
contributions to be justly considered, and requires a court to consider
the equities of a particular case in a transparent manner.34
As stated in Kerr, the plaintiff making an unjust enrichment claim
must show that he or she has provided a tangible benefit, or enrich-
ment, which was received and retained by the defendant. The defend-
ant’s enrichment must directly correspond to a deprivation suffered by
the plaintiff, who must prove a link between his or her contributions to
the “joint family venture” and the accumulation of wealth. Finally, the
plaintiff must show there is no reason in law or justice for the defend-
ant to retain the enrichment conferred by the plaintiff. The absence
of juristic reason includes taking into account the legitimate expecta-
tions of the parties, as well as moral and policy-based arguments about
whether particular enrichments are unjust.35
Remedies for unjust enrichment are restitutionary in nature. Where
a monetary award will not suffice, usually because a plaintiff has con-
tributed to the acquisition or maintenance of specific property such as
a family home, a court may impose a constructive trust on the property
in dispute. The defendant, now a constructive trustee, would then be
required to hold the property (or some portion of it) in trust for the
benefit of the plaintiff.
In short, where the plaintiff can demonstrate that a monetary award
would be insufficient and that there is a sufficiently substantial and
32 Above note 7.
33 [1993] 1 SCR 980 [Peter].
34 See Kerr, above note 31 at para 28.
35 See Garland v Consumers’ Gas Co, 2004 SCC 25, and Peter, above note 33.
direct link between his or her contributions and the acquisition or

maintenance of the disputed property, a proportionate share of the
property can be impressed with a constructive trust in the plaintiff’s
favour.36
Unjust enrichment now plays a significant role in the cohabitation
context. It provides a flexible, comprehensive, and principled basis for
addressing property disputes upon the breakdown of a domestic re-
lationship. For instance, the test for unjust enrichment includes due
consideration of the autonomy of the parties as well as their legitimate
expectations, allowing it the flexibility to meet changing perceptions of
justice.37 Likewise, the equitable proprietary remedy of a constructive
trust, which is imposed without reference to intention, has proven a
usefully broad and adaptable tool in cohabitation cases involving con-
tributions to specific property.
36 See Kerr, above note 31 at para 50.

37 See Peel (Regional Municipality) v Canada, [1992] 3 SCR 762 at 788.
P A R T F O U R
THE TRUSTEE
C H A P T E R 8
THE APPOINTMENT,
RETIREMENT, AND
REMOVAL OF TRUSTEES
A. INTRODUCTION
Trusts must be continuously administered: there can be no hiatus in

the administration of a trust. At all times there must be a trustee, or
someone that the law designates as standing in his or her stead, with
responsibility for the administration of a trust. This simple legal re-
quirement is the underpinning of the operation of the law as it relates
to the appointment, retirement, and removal of trustees.
Apart from knowing this basic requirement, it is useful to under-
stand something of the circumstances in which trustees are appointed,
can retire, or can be removed, as well as the legal strictures governing
such activities. This chapter begins with an examination of how and
when trustees are appointed. It differentiates between non-judicial ap-
pointments and appointments made by the courts, and between the
appointment of new trustees and substitutionary ones. Thereafter, it
discusses the conditions under which a trustee may retire. The chapter
concludes with a discussion of the circumstances in which trustees can
be removed from office.
147
B. APPOINTMENT
1) Introduction
There are two distinct aspects to the issue of appointment of trustees:
the occasions on which they are appointed and the manner in which
they are appointed — in other words, both when and how trustees are
appointed. In this section I discuss how trustees are appointed, looking
first at when the need to appoint can arise.1
First trustees are normally appointed by the settlor or the testator
in the document that creates the trust. However, the need to appoint
trustees can arise at the time that the trust is created. Situations that
require the appointment of trustees at the outset are where the named
trustees (1) renounce, (2) are unable to act, or (3) predecease the testa-
tor. If the trust instrument names another trustee who is willing and
able to act, the office will devolve upon him or her. However, if there
is no such alternate, the mechanisms discussed below are available for
the appointment of other persons as trustees.
Circumstances may also create the need to appoint trustees during
the continuance of the trust. For example, first trustees may die or retire,
or it may be decided that additional trustees are necessary for the best
functioning of the trust. In these circumstances, trustees will be ap-
pointed either in substitution for, or in addition to, existing trustees.
The following sections deal with the different methods of appoint-
ing trustees. The methods apply to all appointments, whether made at
the outset or during the continuance of the trust.
2) Non-judicial Appointments
As mentioned, first trustees are normally appointed by the trust instru-
ment. Thereafter, the settlor or testator has no further say about ap-
pointments unless he or she expressly reserves a power over subsequent
appointments. If the trust instrument addresses the issues of appoint-
ment, removal, or discharge of trustees, its terms will govern. If it does
not, the non-judicial power to appoint substitute trustees created by
legislation in all Canadian common law jurisdictions except Prince Ed-
ward Island and New Brunswick applies, subject to any contrary inten-
1 Appointment must be contrasted with the situation in which a person becomes

the de facto trustee by assuming functions of the trustee. McLaughlin Estate v
McLaughlin, [2001] OJ No 5040 (CA), provides an example of a person becom-
ing a trustee by virtue of his acts with the result that he was precluded from
complaining about management of the trust in his capacity as a beneficiary.
The Appointment, Retirement, and Removal of Trustees 149
tion in the trust document.2 Because New Brunswick and Prince Edward
Island do not permit non-judicial appointments at all, in those jurisdic-
tions there must always be a court application for the appointment of
trustees, whether as substitutes for or in addition to existing trustees.3
Section 3 of the Ontario Trustee Act4 permits the continuing trustee
to appoint another person in place of an existing trustee where a trust-
ee dies or remains out of Ontario for more than twelve months, wishes
to be discharged from the trust, refuses to act, is unfit to act, is incapable
of acting, has been convicted of an indictable offence, or is bankrupt or
insolvent. The Ontario legislation is representative of other Canadian
legislation of this type.
In Ontario the non-judicial power of substitution is exercisable (1)
by the person nominated in the trust instrument to appoint new trust-
ees; (2) by the surviving or continuing trustee if no such provision
exists or if the person so named is unable or unwilling to act; or (3)
failing such a trustee, by the personal representative of the last surviv-
ing or continuing trustee. The appointment must be made in writing.
The power of appointment in surviving or continuing trustees is
a fiduciary power exercisable only with due regard for the interests
of the trust and the beneficiaries.5 If the beneficiaries are sui juris and
together absolutely entitled, they may end the trust. They cannot, how-
ever, compel the trustees to appoint their nominee; the trustees must
exercise independent judgment in making such an appointment.6
In most of Canada, there is no statutory authority authorizing the
non-judicial appointment of additional trustees as such. Section 3 of
the Ontario Trustee Act,7 as we have seen, provides for the non-judicial
appointment of substitute trustees. Thus, when a trustee dies, retires,
or is removed, another person or persons may be appointed to replace
such a trustee. In this way, the number of trustees may be maintained,
but not increased. Unless there is an express power in the instrument
to appoint additional trustees, an application to the court is required.
2 Trustee Act, RSA 2000, c T-8, s 14; RSBC 1996, c 464, s 27; RSNL 1990, c T-10, s
11; RSNWT 1988, c T-8, s 7; RSNWT (Nu) 1988, c T-8, s 7; RSNS 1989, c 479, s
16; RSO 1990, c T.23, s 3; RSY 2002, c 223, s 10; The Trustee Act, CCSM c T160,
s 8; and The Trustee Act, 2009, SS 2009, c T-23.01, s 15.
3 See RSNB 1973, c T-15, s 29, and RSPEI 1988, c T-8, s 4.
4 RSO 1990, c T.23.
6 Ibid.
7 Above note 4.
3) Court-Appointed Trustees
The courts in common law jurisdictions in Canada have an inherent
jurisdiction to appoint and dismiss trustees. This inherent jurisdiction
has, for the most part, been codified by statute.8 Such legislation does
not eliminate the courts’ inherent powers.
Trustee legislation generally empowers the courts to appoint both
substitute and additional trustees. In reaching its decision as to an
appointment, a court will act in accordance with the following princi-
ples.9 The court will have regard to the settlor’s wishes, as expressed or
deduced from the trust instrument. So, for example, if the trust declares
that a particular person or category of person should not be a trustee,
the court will not appoint such a person. The court will not appoint a
person as trustee who, it appears, may prefer the interests of one bene-
ficiary over others. And, finally, the court will determine whether the
proposed person will impede or promote the execution of the trust. Of
course, a person will not be appointed if his or her own interests would
conflict with the obligations as trustee.
When a court proposes to appoint a new trustee, it may do so even
against the wishes of the existing trustees.10
4) Number of Trustees
At common law, there is no maximum number of persons who may be
trustees of a trust. However, it is wise to establish a maximum limit so
that the trust does not become unworkable. Because trustees must act
jointly, as a general rule all acts must be agreed to unanimously.11 The
greater the number of trustees, the more difficult it is to obtain unanimity.
Legislation in Manitoba has established a maximum number of four
trustees.12 No other Canadian jurisdiction appears to have a statutory
restriction on the maximum number of trustees that may be appointed.
8 Trustee Act, RSA 2000, c T-8, s 16; RSBC 1996, c 464, s 31; RSNL 1990, c T-10, s
33; RSNS 1989, c 479, s 31; RSNWT 1988, c T-8, s 6; RSNWT (Nu) 1988, c T-8, s
6; RSO 1990, c T.23, s 5; RSPEI 1988, c T-8, s 4; RSY 2002, c 223, s 9; The Trust-
ee Act, CCSM c T160, s 9; Trustees Act, RSNB 1973, c T-15, s 29; and The Trustee
Act, 2009, SS 2009, c T-23.01, s 16.
9 Re Tempest (1866), 1 Ch App 485 at 487.
10 Re Moorhouse, [1946] OWN 789 (HCJ).
11 Should the British Columbia Law Institute’s recommendation be implemented,
British Columbia provincial legislation will be reformed to enable trustees to
act by a majority. See note 34 in Chapter 5 for a full citation.
12 The Trustee Act, CCSM c T160, s 10.
Whether trustees are appointed non-judicially or by the court,

legislation in Canadian common law jurisdictions decrees that there be
a minimum number of trustees. In most Canadian jurisdictions, there
must be a minimum of two trustees. However, in Ontario and Mani-
toba, the legislation allows for trusts with a single trustee if only one
was appointed originally; if more than one was appointed originally, a
trustee can be discharged, provided that the sole remaining trustee is
a trust corporation.13
C. RETIREMENT
The basic operating rule for retirement is simple: once a person has ac-
cepted the office of trustee, he or she is to continue in the office until
the trust is completed. It is only in restricted circumstances that a
person is permitted to retire during the continuation of the trust. Even
if a trustee is permitted to retire, he or she is not entitled to a release
from trusteeship unless the court so grants because releases normally
are given only when the trust is completely distributed.
If the trust instrument expressly provides for the retirement of the
trustees, its terms will govern. In the absence of express provisions,
legislation enables a trustee to retire by obtaining the consent of his or
her co-trustees. Such consent must be contained in a deed.14
EXAMPLE: One trustee wishes to retire. Her fellow trustees refuse to con-
sent. Must the trustee continue?
The trustee could apply to the courts for a substitutionary order, as
discussed in Section B, above in this chapter. It is not clear whether the
trustee would have to bear the costs of the application in such a case.
A ruling on costs would involve a consideration of whether the trustee
had good reason for wishing to retire and whether the fellow trustees
acted reasonably in withholding consent.
The statutory provisions that permit retirement upon consent gov-
ern trustees; they do not apply to personal representatives. Personal
representatives cannot resign; they must file a deed with the appropri-
ate court and obtain an order of removal.15 Where one person is both
trustee and personal representative, such as an executor, the person
may resign from one position without resigning from the other. Should
13 Trustee Act, RSO 1990, c T.23, s 6, and The Trustee Act, CCSM c T160, s 8(5).
14 See, for example, Trustee Act, RSO 1990, c T.23, s 2.
15 Re Cooper (No 1) (1976), 21 OR (2d) 574 (HCJ).
the person wish to resign from both, he or she must comply with the
requirements for retirement from each position.16
D. REMOVAL
If the trust instrument specifies a mechanism for removing a trustee

from office, its terms will govern. In the absence of such an express pro-
vision, trustees can be removed through use of the non-judicial power of
appointment or upon application to the court. The non-judicial power
of appointment, discussed in Section B above, enables one trustee to
remove a fellow trustee through substitution of a new trustee for an
existing one. The grounds for removal in this manner are extremely
limited and are spelled out in the governing legislation. In Ontario, the
circumstances that permit one trustee to remove another, through sub-
stitution of a new trustee, are that the original trustee remains outside
Ontario, refuses to act, is unfit or incapable of acting, is convicted of an
indictable offence, is bankrupt, or is insolvent.
It can be seen that the ability of one trustee to remove another is
— quite rightly — limited. It is the courts that have the real discretion
and power with respect to the removal of trustees. The court can re-
move a trustee by exercise of its inherent jurisdiction or through pow-
ers conferred on it by legislation.17 Where trustees have been expressly
appointed, the courts should be loath to interfere except on the clearest
of evidence that there is no other course to follow.18 Some provincial
trustee legislation empowers the court to exercise its statutory power
of removal only when it is appointing a replacement. If a court wishes
to remove a trustee without naming a replacement, it can do so only
under its inherent jurisdiction.
Whether removing a trustee pursuant to its inherent jurisdiction
or statutory powers, the court must be guided by the principle that a
16 Re McLean (1982), 37 OR (2d) 164 (HCJ).

17 See, for example, Trustee Act, RSO 1990, c T.23, s 5. With regard to a court’s
inherent power of appointment and removal, see Gonder v Gonder Estate, 2010
ONCA 172 at para 42.
18 See Re Tempest, above note 9, and Re Weil, [1961] OR 888 (CA). The same cau-
tion should apply when a court “passes over” a named executor and declines to
appoint him or her as a trustee. In Chambers Estate v Chambers, 2013 ONCA 511
at para 95 [Chambers Estate], the court affirmed: “Just as a court should remove
an estate trustee only on the ‘clearest of evidence’, so too they should be reluc-
tant to pass over a named executor unless ‘there is no other course to follow’”
(citing Windsor v Mako Estate (2008), 43 ETR (3d) 255 at para 41 (Ont SCJ)).
trustee will be removed when his or her continuance would jeopardize

the assets of the trust, put the welfare of the beneficiaries at risk, or
prevent the trust from being properly executed.19 The test for remov-
al, as recently enunciated by the British Columbia Court of Appeal, is
whether removal “is necessary and expedient to protect the interests of
the beneficiaries as continuation of the trustee jeopardizes the proper
and efficient administration of the trust.”20
Trustees who are guilty of any of the following are subject to removal:
misconduct; lack of bona fides; a failure, inability, or unwillingness to
carry out the terms of the trust; being in a position where the trustee’s
personal interests are in conflict with his or her duties to the trust; act-
ing in furtherance of the trustee’s own interests; incapacity; personally
benefitting from the trust; acting to the detriment of beneficiaries; or
any other ground that shows that the trustee is not fit to control an-
other’s property.
Although misconduct of the trustee is not a prerequisite to removal,
something more than mere friction is normally necessary. For example,
before making an order for removal of a trustee because of friction with
co-trustees, the court must be satisfied that the continued administra-
tion of the trust is impossible or improbable.21
EXAMPLE: Two of five beneficiaries apply to have a trustee removed be-
cause they are dissatisfied with the way in which the trustee administered
the trust. What is the likely result?
Friction between a trustee and a beneficiary is not necessarily a suffi-
cient ground for removal. There must be evidence of danger to the trust
property or of a want of honesty, capacity, or fidelity.22 The fact that three
beneficiaries are not dissatisfied would be a relevant consideration.
19 This statement is based on the principles enunciated in Letterstedt v Broers

(1884), 9 App Cas 371 (PC).
20 See Weinstein v Weinstein, [1996] BCJ No 2061 (CA). See also Bathgate v National
Hockey League Pension Society (1994), 16 OR (3d) 761 (CA), a case in which im-
propriety did not rise to a level warranting removal.
21 Re Consiglio Trusts (No 1), [1973] 3 OR 326 (CA). See also Crawford v Jardine,
[1997] OJ No 5041 (Gen Div). In Chambers Estate, above note 18, the court
passed over a named executor because his “strong animosity” towards a co-
trustee rose above mere friction and created the real risk of deadlock, thus jeop-
ardizing the due administration of the estate (at paras 98–100).
22 Conroy v Stokes, [1952] 4 DLR 124 (BCCA). But see Re Davis (1983), 14 ETR
83 (Ont CA), where friction between the trustee and beneficiaries was held to
prevent the trustee from being able to exercise the broad discretion that she had
been given, with the result that the trustee was removed.
C H A P T E R 9
DUTIES OF TRUSTEES
A. INTRODUCTION
Trusteeship is an extremely onerous position. Trustees are subject to

the specific duties created by the trust instrument and by legislation.
In addition, they have a great many duties placed upon them by equity.
These duties have been carved out through a long series of cases decided
by the courts of equity and according to equitable principles; although
it seems like a contradiction in terms, when we describe such duties, we
will refer to them as common law duties. The words “common law” are
used not as a reference to the King’s common law courts but in contra-
distinction to duties imposed by legislation or by instrument.
An understanding of the common law duties imposed upon trust-
ees has as its starting point the fact that a trustee is a fiduciary.1 The
trustee exists to administer the property on behalf of the beneficiary.
The trustee is to put the beneficiary’s interests first in the performance
of any act and the exercise of any powers or duties. This obligation to
act solely for the benefit of the beneficiary is termed the “duty of loyalty.”
It is the duty of loyalty that underlies all the duties discussed in this
chapter: the obligation to perform personally, the duty to invest the trust
assets, the obligation to act impartially, the duty to account, and the duty
to provide information. The duty of loyalty also requires trustees to act
honestly, with candour and diligence; avoid placing themselves in situa-
tions of conflict of interest; and derive no profit from their position.
1 See Chapter 1 for a more detailed discussion of the fiduciary concept.
154
Duties of Trustees 155
The trustee is a special type of fiduciary. Since the trustee holds

legal title to property that belongs to the beneficiary, the beneficiary is
particularly dependent upon the trustee. Because of the dependency re-
lationship and the fact that the trustee controls the beneficiary’s property,
the trustee is held to the most exacting standards of all fiduciaries.
This chapter explores some of the duties placed on the trustee
as recognized by the common law. To begin with, I will consider the
duties that a trustee must discharge immediately upon assumption of
the office. Next, I will look at the strictures on the decision-making
process of trustees, followed by a discussion of the standard of care
and the legal principles relating to deadlocks among trustees. There-
after, I consider the circumstances in which trustees may delegate their
duties, the trustees’ obligation to invest and enhance trust funds, the
duty to be impartial, the duty to account, and the limited obligations
of trustees to provide beneficiaries with information about the admin-
istration of the trust.
In describing these duties, it is useful to keep in mind the roles of
the three principal players: the trustee, the beneficiary, and the court. A
tension exists between the trustee and the beneficiary that can be ob-
scured by focusing on the duty of loyalty. The trustee has to act solely
in the interests of the beneficiary, but the trustee also has a job to do —
to administer the trust. Sometimes that will involve making decisions
with which beneficiaries do not agree. As well, there may be a tension
between being open and candid about the services that are rendered by
the trustees and the need for the trustees to act efficiently and effectively.
The court has an inherent jurisdiction to supervise trustees. Its
role is to assist both sides and, where necessary, to establish guidelines
that favour one side or the other. As a general proposition, where the
matter in dispute relates to the administration of the trust, the rules
are designed to support the trustee. This emphasis can be seen most
obviously in relation to the disclosure of information; the requirements
clearly favour the right of the trustee to make decisions, with little need
for disclosure of reasons.
B. POWERS AND DUTIES
In summary fashion, the obligations upon trustees are to secure (col-

lect) the trust assets; to safeguard, preserve, and enhance their value;
and to distribute the trust assets to the beneficiaries.
It is prudent for trustees to keep trust property separate from their
own — that is, to refrain from commingling trust assets with other
assets. However, there is no duty to keep trust assets separate. If there

were such a duty, failure to keep trust assets separate would be a
breach of trust. There are some who believe that the obligation to re-
frain from commingling is a duty that flows from the duty of loyalty.
In my view, the courts have accepted that commingling of trust funds
takes place and that it is not an automatic breach.2 In the Supreme
Court of Canada case Air Canada v M & L Travel Ltd,3 the Court con-
sidered the issue of commingling in determining whether a trust rela-
tionship or one of debtor and creditor had been established. The Court
found that a trust relationship had been established and that commin-
gling had taken place. There was no finding that the commingling was
a breach of trust. However, segregation is an indication that a trust
has been created. When setting up a trust, it is wise to insert a clause
prohibiting the commingling of trust funds so as to preclude any un-
certainty about the matter.
In performing, the trustee is held to the standard of care that a per-
son of ordinary prudence would use in managing his or her own affairs.4
This is an objective standard of care, so that lack of experience, training,
or knowledge on the part of any particular trustee is no excuse for poor
performance. Failure to fulfil the obligations set out above, or to meet
the requisite standard of care in their fulfilment, constitutes a breach of
trust.
Trustees hold title to property in their joint names unless they are
expressly authorized to do otherwise. The dealing with trust assets,
therefore, leads to certain assumptions about whether the standard of
care has been met. For instance, if there are two trustees and trust assets
are disposed of, it will be assumed that both trustees must have partici-
pated in the disposition; disposition would require the signatures of
both trustees, since title to the property is held jointly. If one trustee
argues that the other was responsible for the sale, the obvious question
is, How could one trustee sell trust assets without the other’s knowledge/
acquiescence unless the second failed to meet the standard of care?
2 See McLaughlin Estate v McLaughlin, [2001] OJ No 5040 (CA), in which the

Court of Appeal expressly held that there was no such duty. Query whether the
result would be the same if the beneficiaries had expressly asked that the trust
funds be segregated.
3 [1993] 3 SCR 787.
4 Caselaw states that professional and non-professional trustees are held to the
same standard of care. See, for example, Fales v Canada Permanent Trust Co
(1976), [1977] 2 SCR 302. However, the effect of the courts’ use of the statutory
excusing power (discussed in Chapter 11) may have the effect of causing the
professional trustee to be held to a higher standard of care.
The summary of duties set out in the first paragraph of this section
gives little guidance as to what exactly a trustee is to do. Some detail
can be added to good effect. If the trustees are the first to be appointed,
they must familiarize themselves with the specific terms of the trust
and the requirements of any relevant legislation, familiarize themselves
with the nature and extent of the trust property, ensure that the trust
property is invested in accordance with the provisions of the trust in-
strument and relevant legislation, and ensure that the trust property is
in proper custody. If a trustee is newly appointed to a continuing trust,
in addition to those duties, the new trustee must take all reasonable
steps to ensure that the trust had been properly administered to the
date of his or her appointment. If the new trustee discovers anything
that might amount to a breach of trust, the new trustee must take ac-
tion to recoup for the trust any losses that may have been incurred. The
decision to take action must be made in accordance with the standard
of care; for example, if a previous trustee breached the terms of the
trust, but there is no reasonable prospect that recovery could be made
since the wrongdoing trustee is assetless, the new trustee may properly
decide to take no legal action.
Unless the trust instrument provides otherwise, trustees of private
trusts must act jointly; that is, all trustees must participate in the mak-
ing of all decisions, and 100 percent agreement of the trustees is needed
for any decision to be binding. A majority vote is not sufficient. The
requirement of unanimity exists for every decision of the trustees, re-
gardless of whether the decision relates to the exercise of a power or to
the performance of a duty.5
EXAMPLE: A, B, and C are trustees. A and B wish to invest in certain bonds.
C objects. What is the result?
As trustees must act jointly (unanimously), the trustees cannot pur-
chase the bonds, no matter how worthwhile such an investment may be.
The situation where one trustee fails to agree with his or her co-
trustees is termed a deadlock. One mechanism for the resolution of
deadlocks is for trustees to apply to the court for direction on the exer-
cise of their powers.6 However, this provision is of limited utility because
5 Under the British Columbia Law Institute’s proposed modern trustee legislation,
trustees of a private trust would be empowered to act by majority: s 12(1). See
note 34 in Chapter 5 for a full citation to the legislation.
6 Most provinces have legislation expressly permitting the courts to give such ad-
vice. See Trustee Act, RSA 2000, c T-8, s 43; RSBC 1996, c 464, s 86; RSNL 1990,
c T-10, s 25; RSNWT 1988, c T-8, s 48; RSNWT (Nu) 1988, c T-8, s 48; RSO
1990, c T.23, s 60; RSPEI 1988, c T-8, s 52; RSY 2002, c 223, s 48; The Trustee
Act, 2009, SS 2009, c T-23.01, s 47; and The Trustee Act, CCSM c T160, s 84.
the courts are reluctant to interfere with the exercise of discretion by the
trustees. At most, the court will advise whether a power or duty must
be exercised or will direct the trustees to act; it will not normally direct
trustees how to act or how to exercise any particular power or duty. So,
for example, if the trustees are agreed that a power should be exercised
but disagree about the circumstances in which to act, the courts will not
resolve this disagreement by issuing a direction.
Whether the court will issue a direction to the trustees to act de-
pends, in part, on whether the deadlock relates to the exercise of a duty
or a power. Duties must be discharged, whereas the exercise of a power
is discretionary. If a deadlock arises in relation to a duty, and the ma-
jority of trustees wish to act, the court is more likely to direct that the
trustees act because of the imperative nature of duties. If the deadlock
arises in relation to the exercise of a power, different considerations
prevail. When trustees are given powers, they are given a discretion.
The court will not enforce the exercise of the power against the wishes
of the trustees, but it will prevent them from exercising it improperly.7
If the exercise of a power has been considered but not acted upon, the
court will do nothing. If the exercise of a power has not been con-
sidered at all, the court will interfere to compel its consideration. If
the power has been exercised, the court will not interfere unless the
decision to exercise it was made in bad faith, oppressively, corruptly, or
otherwise improperly.
It is generally conceded that courts will not intervene when trust-
ees are deadlocked over the exercise of a power. However, if the failure
of the trustees to exercise the power would frustrate the intention of
the testator or harm the interests of the beneficiaries, the court will
intervene and appoint new trustees or execute the trust itself.8
If there is a conflict between a duty and a power as, for example,
when trustees are given a duty to convert and a power to retain, only
unanimity will succeed in causing the trustees to act. However, where
there are equally balanced powers as, for example, a power to convert
and a power to retain, the courts will intervene in cases of deadlock on
the basis that the trustees are under a duty to exercise one power or the
other, and until they do so, they fail to discharge their duty.
The courts’ inherent jurisdiction to supervise the exercise of trust-
ees’ discretion cannot be displaced. Therefore, specific provisions in
the trust instrument that purport to relieve trustees from liability, ex-
cept for acts of wilful dishonesty or knowing breaches of trust, will
7 Kordyban v Kordyban, 2003 BCCA 216.

8 Ibid.
not prevent the courts from intervening when the trustees are grossly
negligent.
C. DELEGATION OF DUTIES
As a general rule, trustees may not delegate any of their powers or dut-
ies. The maxim puts it succinctly: “Trustees are to perform personally.”
The rationale for this rule is that the settlor selects trustees, and upon
accepting office, the trustees agree to perform. If the trustees shift the
obligation to perform to others, they have broken their promise. An al-
ternative approach is to say that it is the settlor’s prerogative to choose
trustees; if the trustees delegate, they have in effect usurped a right that
belongs to the settlor.
Delegation is permitted (1) if it is expressly authorized by statute
or by the trust instrument; (2) if the duties are not required to be per-
formed personally; (3) if it is clearly necessary, as there is no other
practicable way for the trustee to perform; or (4) if it is common busi-
ness practice to delegate the particular power or duty. The third situation
in which delegation is permissible reflects an appreciation of the fact that
a trustee cannot be an expert in all things. The ordinary person must
often rely on experts in order to properly conduct his or her business
affairs. So, too, the trustee may well require the help of lawyers, account-
ants, investment managers, and other such experts in order to properly
conduct the business of the trust. The last exception recognizes that
delegation may be necessary to meet the standard of care, as where, in
the ordinary course of affairs, it would be prudent for a person to dele-
gate performance of certain duties to others.
If delegation is permitted, trustees may use agents, but they are still re-
sponsible for making all decisions. In other words, ultimate responsibil-
ity for decision making rests with the trustees; all they are entitled to
do is to have the agent perform a particular duty or give advice. Trust-
ees, while permitted to delegate some of their duties, may not delegate
all of them, since that would amount to an abdication of responsibility.
EXAMPLE: Trustees are to hold a portion of pension trust assets in real
estate. Are they permitted to use an agent to value real property? To decide
what parcels of land to purchase on behalf of the trust?
The trustees may use an agent to provide valuations, since it is com-
mon business practice to determine land prices through the use of such
valuations. (Of course, they must employ a person with appropriate
competence and skills, and they must act in good faith.) They may not
use an agent to tell them what parcels of land to purchase, since that is
not within the scope of any of the exceptions, and it is expected that
such decisions will be made by the trustees themselves. There is noth-
ing to prevent the trustees from seeking professional advice on what
considerations should be present when making their decision on what
real estate to purchase. Indeed, it may be that obtaining such advice is
necessary to meet the standard of care.
Proper delegation requires that a trustee carefully select and super-
vise agents. In selecting an agent, the trustee must ensure that the agent
is used to perform work that the agent normally performs, and the trust-
ee must exercise his or her own judgment in selecting and determining
the agent’s suitability. The trustee must meet the general standard of
care in selecting agents. In other words, the trustee must take the care
that a person of ordinary prudence would show in choosing an agent.
Proper supervision requires the trustee to monitor the agent’s activities
carefully and to terminate the delegation when circumstances show
that it ought not to continue. A trustee who puts assets 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.
If a trustee is entitled to delegate and does so properly, the trustee
is not liable for any losses that result to the trust from the delegation.
On the other hand, in the event of improper delegation, the trustee is
liable for any and all losses to the trust. The trustee will be liable, as
well, for any costs associated with retention and use of the agent.
D. INVESTMENT OF TRUST FUNDS
Trustees are under a duty to invest the trust funds in authorized in-
vestments. Investments are authorized by the trust instrument or by
statute. Failure to invest the trust property is a breach of trust. Trustees
cannot just bury money in a sock in the ground, for example. If trust-
ees fail to invest the trust property, they will be personally liable for
any loss that the trust suffers.
The difficult question in relation to investments is what the trust-
ees should invest in and how they can make their investment decisions
in a way that satisfies the standard of care requirements. Trustees are
not guarantors of success in investing; there will be times when invest-
ments turn out poorly. The question of when trustees will be liable for a
loss is, therefore, one of determining whether the trustees met the stan-
dard of care in choosing the investments. At common law, the standard
of care to which trustees are generally held is that which a person of

ordinary prudence would use in managing his or her own affairs.
In some jurisdictions, this is the codified standard of care.9 How-
ever, some “ordinary” people may take quite a lot of risk in relation
to the investment of their money, and others may take little risk, de-
pending on their degree of tolerance for risk. Thus some provinces
have modified the standard of care for investments so that trustees are
to take only the amount of risk that a prudent person would take when
investing property for others.10
The degree of risk that is permissible will vary depending upon the
size and nature of the trust assets, the terms of the investment pow-
ers contained in the trust instrument, and the nature of the beneficial
interests.
In order to meet the standard of care, the trustee should be guided by,
at least, these four principles. First, the trustee must be even-handed
between beneficiaries interested in income and those interested in cap-
ital. Second, the trustee must act honestly. Third, the trustee must not
select speculative or unduly risky investments. Fourth, trustees are not
to invest on the basis of political or social/economic belief.11
A properly drawn trust instrument normally contains wide pow-
ers of investment. However, the trust instrument can limit the scope
of possible investments if so desired. If the investment powers are too
narrow, trustees may make application to the court under the variation
of trust legislation to have them broadened. When considering such
applications, the court will have regard to the breadth of the proposed
investment powers; the efficacy of provisions for advising and control-
ling trustees in the exercise of the extended powers; the desirability,
when the proposed extended powers of investment are to be very wide,
of a scheme dividing the trust fund into two parts, one to be confined
to safe investments and the other to be used for investments involving
a greater risk; the standing of the particular trustees; and the size of
the trust fund.12
9 See Trustee Act, RSA 2000, c T-8, s 4(1); RSBC 1996, c 464, s 15.2; RSNS 1989, c
479, s 3; RSO 1990, c T.23, s 27(1); RSPEI 1988, c T-8, s 3.
10 See Trustee Act, RSNWT 1988, c T-8, s 2; RSNWT (Nu) 1988, c T-8, s 2; RSY
2002, c 223, s 2(1); RSNB 1973, c T-15, s 2; The Trustee Act, CCSM c T160, s
68(2).
11 Cowan v Scargill, [1985] Ch 270.
12 See Trustees of the British Museum v AG, [1984] 1 All ER 337 (Ch).
E. DUTY TO ACT IMPARTIALLY
Trustees must act impartially when they deal with beneficiaries. They
may not give preferential treatment to any one beneficiary or group of
beneficiaries unless so authorized by the trust instrument. Trustees
who treat beneficiaries unevenly, based on the trust instrument, must
take care that their interpretation of the instrument is correct; actions
based on honest but erroneous interpretations that have the effect of
failing to hold an even balance among beneficiaries amount to a breach
of trust.13
The competing interests of beneficiaries have historically arisen in
trusts that create successive interests; for example, where one person is
given a life interest in trust assets, and another is given the remainder
interest. A modern-day example of this conflict and of the need to estab-
lish rules to assist in even-handed treatment exists in the pension field.
The normal rule applies: trustees must make decisions that treat all
beneficiaries fairly. The conflict between the groups is readily apparent.
For example, retirees may wish increases to cover inflation, whereas
plan members will want the money to be retained in the fund to ensure
the security of their retirement income. Where employers are permit-
ted to take contribution holidays without express provision in the trust
instrument, have they been favoured over employees?
Employers are allowed to use pension funds to provide early retire-
ment inducements, as, for example, in the case of “early retirement win-
dows.” The money so used is being given preferentially to some, but not
all, employees. That is, pension trust funds are used to provide a bene-
fit to one group of beneficiaries. Use of pension funds in this manner
has been widespread. Confirmation that it is permissible was given in
Anova Inc Employee Retirement Pension Plan v Manufacturers Life Insur-
ance Co.14 However, is it not a breach of the even-handed rule? If so, on
what basis is it permissible?
In all trusts involving successive interests, the rules relating to in-
vestments are designed to ensure that impartiality is achieved: they
strike an even balance between providing income for life tenants and
preserving capital for those with the remainder interest. Thus, if trust-
ees invest according to the legal list, as a general rule the life tenant
takes the income generated by the trust property, and those entitled to
the remainder take the capital. However, it appears that where a trust
instrument has been properly varied in order to meet an obligation to
13 Boe v Alexander (1985), 21 ETR 246 (BCSC).

14 (1994), 121 DLR (4th) 162 (Ont Ct Gen Div).
income beneficiaries, the variation can implicitly oust the even-handed

rule, even where the result is manifestly unfair to the capital benefici-
aries.15
Situations do arise in which the interests of the life tenant and
those entitled to the remainder come into conflict. For example, if a
trustee invests in high-income-producing securities, the life tenant
may benefit at the expense of those entitled to the remainder interest
because high returns are often achieved at the expense of capital ap-
preciation. Conversely, if the trustee pays the expenses associated with
the administration of the trust from income, the life tenant would be
penalized and the holders of the remainder interest would be corres-
pondingly benefited.
In order to maintain an even hand between successive beneficiaries,
all assets will ideally be authorized investments. The trustees then can
simply pay the income to the life tenant and retain the capital for those
entitled to the remainder. Unfortunately, trust property often consists of
unauthorized investments and, therefore, the trustees must determine
• whether a duty to convert a particular asset into an authorized in-
vestment exists;
• if so, whether the asset must be apportioned between income and
capital; and
• if so, how the apportionment is to be calculated.
In many cases, trust property is not converted immediately for any
of a number of reasons. The trustees may have a power to postpone,
they may be unaware of their duty, or they may be unable to find a
purchaser. In such cases it would be unfair to the beneficiaries if no ad-
justments were made until actual conversion. Rules on apportionment
have been developed to deal with these circumstances, and readers are
directed to more detailed treatises for information on this subject.
A settlor or testator may not have imposed a duty to convert. Where
trusts are created of specific bequests or devises, the courts assume that
the particularization of the assets is evidence of an intention that the
assets are to be held in specie, even if this results in uneven treatment
among beneficiaries. Where testamentary residuary assets are the sub-
ject matter of the trust, however, no such assumption can be made.
In such circumstances, the law requires that residuary assets that are
wasting or hazardous, or otherwise may result in uneven treatment of
beneficiaries, are to be sold, and the proceeds constitute the trust fund.
The fund must then be invested in authorized investments. This is
15 The Canada Trust Company v Browne, 2012 ONCA 862.

known as the rule in Howe v Earl of Dartmouth.16 The rule does not
apply to real property.17
Although the duty to apportion is normally a corollary of the duty
to convert, it may be excluded. For example, if the testator directs a
conversion but also indicates that until conversion the life tenant is
to enjoy the income produced by the trust assets, there will be no ap-
portionment. Indeed, if there is no express trust for sale but a direction
that the life tenant shall enjoy the income in specie, the duty to convert
is thereby negated.18 An express exclusion of the rule in Howe v Earl of
Dartmouth normally excludes the duty to apportion as well. These are
general rules, however, and each trust instrument must be construed
to ascertain whether any or all of the rules are excluded. Whether they
are or not may depend on the existence of an express power of reten-
tion, a power to postpone conversion, or on other reasons.
Ideally, the trust instrument will specify whose beneficial interest
is to bear what expenses. If the document does not expressly stipulate
how outgoings are to be allocated, the trustees must look for the set-
tlor’s or the testator’s implied intention — an exercise that can lead
to difficult questions of construction. If the intention is still unclear
after construction, the trustees must turn to the common law for guid-
ance. The general rule at common law is that outgoings that relate to
the income of a trust are borne by the income beneficiaries, whereas
expenses of a capital nature are borne by those with the remainder
interest. Examples of the former kinds of expenses are taxes, insur-
ance, and ongoing repairs to property. Expenses that fall into the latter
category are the costs of major improvements to trust property and
expenses related to the administration of the trust. If certain costs re-
lated to the administration of the trust are related exclusively to the life
tenant’s interest, then his or her interest is made to bear such expenses.
Administration costs are prima facie allocated to those entitled to the
remainder because, by using capital to meet such costs, the life tenant
loses income that would have been produced by the expended capital;
in this way, the life tenant indirectly shares the burden.
16 (1802), 7 Ves Jun 137, 32 ER 56 (Ch).

17 Lottman v Stanford, [1980] 1 SCR 1065.
18 Re Gough, [1957] Ch 323.
F. DUTY TO ACCOUNT
Trustees must keep proper accounts of how they deal with the trust
property, and they must be ready to produce the accounts for inspec-
tion and examination by the beneficiaries. The case of McLaughlin Es-
tate v McLaughlin19 suggests that the call for an accounting must be made
before the end of a trusteeship. Although beneficiaries have a right to
inspect the accounts, the trustee is allowed a reasonable time to assem-
ble the accounts after the beneficiary requests them. If a trustee causes
expense through neglect or refusal to furnish accounts, the trustee
must bear the expense personally.20
Trustees may pass accounts in the manner stipulated by the trust
instrument. In the absence of such express provisions, they may pass
accounts in accordance with statute.21 An application to pass accounts
must contain an inventory of the trust property, an account showing
what the original estate consisted of, an account of all money received
and disbursed, an account of all property remaining, a statement of
the compensation requested, and such other accounts as the court may
require.
G. DUTY TO PROVIDE INFORMATION
At common law, trustees have a duty to provide beneficiaries with ac-

curate information about the state of the trust and its administration.
As well, they must make trust documents available for inspection by
the beneficiaries.22 They are also obliged to inform the beneficiaries
when the trust is at risk.23 However, where a trustee is given a discre-
tion, the trustee is not required to give reasons for the exercise of that
discretion, nor are the trustees required to permit the beneficiaries to
inspect documents that will reveal the basis for the exercise of discre-
tionary powers.24
These statements of law, while accurate, obscure the difficulties in
this area. The first question is: What are trust documents? The cases
19 Above note 2.
20 Re Smith, [1952] OWN 62 (HCJ), rev’d on other grounds [1952] OWN 170 (CA).
21 See, for example, Trustee Act, RSO 1990, c T.23, s 23.
22 It appears that potential plan amendments to a pension trust are trust docu-
ments and must be disclosed. See Hembruff v Ontario Municipal Employees Re-
tirement Board, [2004] OTC 289 (SCJ).
23 Froese v Montreal Trust Co of Canada (1996), 137 DLR (4th) 725 (BCCA).
24 Re Beloved Wilkes’ Charity (1851), 3 Mac & G 440, 42 ER 330 (Ch).
provide little guidance so that, apart from the absolutely obvious exam-
ples of the trust instrument itself, statements of what the trust property
consists of, and how it is invested, it is not clear what beneficiaries can
call for.25 Can they ask for legal opinions paid for by the trust but so-
licited by the trustees to assist in the administration of the trust? What
about communications from legal and other advisers? Can they ask for
minutes of meetings of trustees? What if the minutes include some as-
pect of the decision-making process in relation to the exercise of discre-
tion? Are they entitled to the minutes with appropriate deletions? To
the agendas of trustees’ meetings? English caselaw suggests that there
is no obligation to reveal agendas, minutes, or correspondence.26 There is
even some question as to whether the trustees’ duty is to provide the
information at regular intervals or only upon demand by the benefici-
aries. Moreover, are the trustees required only to make the information
available for inspection at some convenient location, or must they give
copies of the information to the beneficiaries?27
The other point that is obscured by the bald statements of law re-
lates to the competing interests of the trustees and the beneficiaries. This
area exemplifies the tension that exists between the needs and rights
of trustees and those of beneficiaries. The trustees argue that their job
is difficult enough as it is; if they were compelled to disclose the reasons
for their decisions, it would be even more difficult to make some of the
tough decisions they must make.
The beneficiaries, on the other hand, argue that they are the owners
of the property in the eyes of equity and, as such, should be entitled
to access information that relates to their property. They argue, as well,
that it can be exceedingly difficult to know whether due administration
has taken place if they are precluded access to information. Finally,
they point out that if they commence a court action against the trust-
ees, alleging wrongdoing or the like, the rules relating to discovery of
documents will enable them to obtain all such documents.28 It seems
25 In Schmidt v Rosewood Trust Ltd, [2003] UKPC 26, the Privy Council held that
beneficiaries have no entitlement to disclosure of any trust documents and
stated that disclosure is a matter for the court to decide as part of its inherent
jurisdiction to supervise the administration of trusts.
26 Re Londonderry’s Settlement (1964), [1965] Ch 918 (CA).
27 Section 8 of the British Columbia Law Institute’s proposed modern Trustee Act
would require trustees to provide specified information annually to qualified
beneficiaries. This obligation would be in addition to the common law duty to
provide information: s 8(3). See note 34 in Chapter 5 for a full citation to the
legislation.
28 Communications passing between a solicitor and a trustee may not be priv-
ileged as against a beneficiary claiming under the trust: Sudeley (Lord) v AG,
inconsistent that the court permits access in one situation and not in
the other, and, furthermore, it is wasteful in that an action must be
launched in order for beneficiaries to obtain such documentation. There
is some peril in commencing such a civil suit since, if they do so without
reasonable grounds and the action is later dismissed, they may be liable
in costs.
The resolution of these competing interests and principles may occur
in the context of pension trusts. A recent English case illustrates the
competing interests and demonstrates that the English courts appear to
be inclined to an application of existing trust principles without modi-
fication. The facts of that case form the basis of the following example.
EXAMPLE: A company sold a division and transferred the affected employ-
ees to the purchaser. As part of the terms of sale, the purchaser established
a pension plan. The vendor company’s pension plan was funded through a
trust. The trust deed provided that the trustees were to transfer such of the
trust assets as the trustees determined to be appropriate. The trustees trans-
ferred an amount equal only to the past service reserve of the transferred
employees, leaving the whole of the surplus in the vendor’s plan. The em-
ployees sought disclosure of the documents that might indicate the trustees’
reasons for making such a decision.
The court refused to grant the application, saying that the principles
applicable to trusts generally were to be applied to pension trusts, and
in the absence of any evidence of impropriety, the trustees were under
no obligation to disclose documents containing evidence of their rea-
sons for the manner in which they exercised their discretion.29
It is to be hoped that Canadian courts will openly reconsider the
strict application of trust principles when they are given the opportun-
ity. It may be that trustees ought not to have to give reasons for deci-
sions that relate to the worthiness of given individuals (e.g., “to such
of my children as my trustee deems most deserving”) but that they
should do so in other cases. Justification for such a change is as simple
as this: trustees ought to bear the burden of demonstrating that they
have acted in the best interests of the beneficiaries.30
[1897] AC 11 (HL).
29 Wilson v Law Debenture Trust Corp plc, [1995] 2 All ER 337 (Ch).
30 If the British Columbia Law Institute’s proposed modern Trustee Act becomes
law, trustees would have no obligation to disclose reasons for the exercise of
discretion. See s 8(5)(d) of the proposed legislation. See note 34 in Chapter 5 for
a full citation to the legislation.
C H A P T E R 1 0
THE POWERS AND

RIGHTS OF TRUSTEES
A. INTRODUCTION
Chapter 9 explored the duties that trustees must fulfil. In this chapter
I explore the powers that trustees need to carry out those duties ef-
fectively and efficiently. It will be readily apparent that both duties and
powers are needed for a trust to function and that the two are inter-
related. For example, a trustee may be under an express duty to act but
be given a power to not perform the act.
EXAMPLE: X dies, leaving a will in which he directs his trustee to sell the
family home and to hold the assets in trust for his children. The trustee is
given the power to postpone sale.
Although the trustee is under a duty to sell, the power to postpone
gives the trustee the flexibility to postpone sale until an appropriate
point in time. For those concerned about giving too much discretion
to the trustee, the power could have been circumscribed, for example,
by stipulating that the power lasted for a set period of time, or was to be
exercised in light of the children’s needs.
The interrelationship between duties and powers is complex. At the
time of creation of a trust, it is important that appropriate powers are
given to the trustees and that their duties are clearly specified.
Trustees receive powers from two sources: express grant and stat-
ute. At one time, it was thought that trustees had implied powers as
well. Implied powers were thought to be those necessary to enable a
168
The Powers and Rights of Trustees 169
trustee to take reasonable actions in the administration of the trust.

The better (and more modern) view is that trustees have no inherent
powers; they have only those created by the trust instrument or be-
stowed by legislation.
It is not prudent to rely on the powers granted by statute. Such
powers vary from jurisdiction to jurisdiction and are general in nature.
Instead, each time a trust is created, thought must be given to the pow-
ers that are needed for the trustee to perform in an efficient, effective
fashion. These powers must then be set out expressly in the trust instru-
ment. To do otherwise invites the expense of a court application that
may not result in the appropriate powers being given.
Powers are of two kinds: administrative and dispositive. Administra-
tive powers are those that enable trustees to manage the trust property.
Dispositive powers are those that enable the trustees to dispose of trust
assets in favour of beneficiaries. The two can look remarkably similar as,
for example, when trustees transfer a trust asset. If transferred to a bene-
ficiary, the transfer is an exercise of a dispositive power, whereas if the
transfer is to a third party, it is an exercise of an administrative power.
The nature and types of administrative and dispositive powers are
the subject matter of Sections B and C of this chapter. The chapter
concludes with an examination of the rights of trustees to payment
for services rendered and reimbursement for expenses incurred in the
administration of the trust.
B. ADMINISTR ATIVE POWERS
1) Generally
In a well-drafted trust instrument, trustees are given the administra-
tive powers necessary to enable them to manage the trust property
and thereby fulfil the terms of the trust. As mentioned above, some of
the standard, general, and more basic powers necessary for the proper
functioning of the trust are conferred upon trustees by legislation. A
list of some of these standard powers is set out in Section B(2). All legis-
lative powers can be excluded or amended by the creator of the trust.1
Those powers necessary for the effective functioning of a given
trust should be conferred by the trust instrument itself. The admin-
istrative powers created by the trust instrument should be specific and
tailored to achieve the purpose of the trust. The person drafting the trust
1 See, for example, Trustee Act, RSO 1990, c T.23, ss 67 & 68.
instrument must bear in mind the nature of the trust property, the types
of beneficial interests created and their duration, and common business
practices. The goal is to confer powers so that the trustees end up having
all the powers of a natural person acting as owner of the property, but
without detracting from their fiduciary obligations to the beneficiaries.
Examples of powers that are not conferred by statute, but that
should be considered for inclusion, include the power to insure up to
full market value, to carry on business, to sell assets, to lease, to main-
tain and repair, to borrow, to settle claims, to pay outgoings, to hold
assets in specie, and to do all supplementary and ancillary acts or things
necessary or desirable to enable the trustees to fulfil their obligations.
A full exploration of the administrative powers that should be given to
trustees can be found in the Ontario Law Reform Commission report
on the law of trusts.2
If additional administrative powers are needed — that is, powers in
addition to those given by the trust instrument and conferred by legis-
lation — the trustee can make application to the courts to have such
powers conferred. Trustees can apply to the court for enlargement of
their powers pursuant to the court’s inherent jurisdiction. As discussed
in Chapter 5, the scope of this jurisdiction is limited to compromise,
conversion, emergency, or maintenance situations. The strictures on the
court’s jurisdiction are marked: an emergency situation, for example, is
limited to one in which it can be demonstrated that the lack of a par-
ticular power will jeopardize the very existence of the trust.
Alternatively, an application for the grant of additional powers may be
brought under the variation of trust legislation. Such an application may
require that all beneficiaries who are sui juris consent to the proposed
variation. In any event, the court must approve the variation on behalf
of any incapacitated, minor, unborn, or unascertained beneficiaries, and
benefit for the person on behalf of whom the court is consenting must
be established. Apart from the difficulties inherent in such applications,
they are expensive and inconvenient, so it is best to ensure that the trust
document is drafted to provide the trustee with all the requisite powers.
Moreover, should the application for additional powers be held to be un-
reasonable, the trustee may be personally sanctioned in costs.
2) Statutory Powers
The statutory powers given to trustees include the following examples:
2 Ontario Law Reform Commission, Report on the Law of Trusts (Toronto: Min-
istry of the Attorney General, 1984) ch 4.
• to determine the mode of sale when a power or duty of sale is created

by the trust instrument
• to dedicate or sell lands for highway purposes
• to insure property up to three-fourths of its value
• to enable trustees who hold renewable leases to renew them
• to issue receipts
• to deposit funds with a bank or trust company pending their invest-
ment
• to invest in authorized investments
• to reimburse the trustees for expenses incurred in the administra-
tion of the trust
• to pay monies into court
• to compromise claims by or against the trust
• to apply to the court for advice and direction on any question re-
specting the management or administration of trust property
3) Power of Investment
Trustees are fiduciaries who hold title to property that, in the eyes of
equity, belongs to another. Part of their fiduciary obligation is to ensure
that the trust assets are properly invested.3
Although trustees have a duty to invest, they need powers of selection
in order to choose appropriate things in which to invest. In other words,
trustees need to be given powers to select appropriate investments.
Investments are authorized by the trust instrument or by statute.
A properly drawn trust instrument normally contains wide powers of
investment. A trustee when investing must be guided by at least three
principles. First, the trustee must be even-handed between beneficiaries
interested in income and those interested in capital. Second, the trustee
must act honestly. Finally, the trustee must not select speculative or
unduly risky investments. Other aspects of the appropriate approach
to investing are discussed below.
In Canada, prior legislation in eight provinces set out a list of
permitted investments, commonly referred to as the “legal list.” New
Brunswick, Manitoba, the Northwest Territories, and the Yukon did not
follow the legal list approach. Instead, these provinces adopted the pru-
dent person approach. Today, all Canadian jurisdictions have adopted
the prudent person approach.4
3 See Chapter 9 for a discussion of the standard to meet in fulfilling the duty to invest.
4 See Trustee Act, RSA 2000, c T-8, s 3; RSBC 1996, c 464, s 15.2; RSNL 1990, c
T-10, s 3(1); RSNS 1989, c 479, s 3(1); RSNWT 1988, c T-8, s 2(b); RSNWT (Nu)
1988, c T-8, s 2(b); RSO 1990, c T.23, s 27(1); RSPEI 1988, c T-8, s 3; RSY 2002,
The prudent person rule is, in essence, a restatement of the common

law general duty of care and skill required of trustees in the discharge
of all their tasks on behalf of the trust and its beneficiaries. This rule
provides that trustees are to invest trust assets in property or security
that a prudent investor might invest in. The prudent person of business
would not speculate, but would have regard to the proper investment of
the trust funds, considering both the probable income and the probable
safety of the capital.
Trustees’ investment duties cover a wide range of activities. Trustees
must ensure that in investment decisions there is no conflict between
their duty to the trust and their personal interests. The trustee may em-
ploy advisers, but the ultimate investment decisions cannot be delegated.
So far as one can generalize, a trustee investing as a prudent person
would avoid unproductive property, real estate outside the jurisdiction,
unsecured loans, and investments in unincorporated businesses, as
well as temporary high-risk assets. Second mortgages would commonly
be avoided because the trustee loses control of the investment: the first
mortgagee may foreclose, and the trustee may not have the funds to re-
deem. Under the prudent person rule, loss of control and commingling
of funds account for the avoidance of shared investments such as life
insurance annuities left with insurance companies. Diversification of
investment is a factor that the prudent person would always consider,
and most often judge wise, but the prudent person rule itself does not
make diversification mandatory.
C. DISPOSITIVE POWERS
1) Generally
A dispositive power is an authority to allocate trust property to one or
more beneficiaries. Common examples of dispositive powers are the
power of appointment, the power of encroachment, the power of main-
tenance, and the power of advancement.
Powers of maintenance and advancement are discussed below; pow-
ers of appointment are discussed in Chapter 2 above. A power of en-
croachment is a particular type of power of appointment, in the sense
that the settlor or the testator confers, upon a designated individual,
the power to distribute capital to an income beneficiary.
c 223, s 2(1); The Trustee Act, CCSM c T160, s 68(2); Trustees Act, RSNB 1973, c
T-15, s 2; The Trustee Act, 2009, SS 2009, c T-23.01, s 7.
So long as there is no mala fides, the exercise of an unfettered dis-

positive power is not to be interfered with by the court.5 However, the
court will interfere with the exercise of a limited dispositive power if
its exercise was influenced by extraneous considerations.6
2) Power of Maintenance
A power of maintenance is the authority to apply income for the immedi-
ate and recurring needs of a beneficiary who is a minor; capital may, in
certain circumstances, also be so applied. Maintenance powers are nor-
mally used to provide periodic payments for basic physical needs such
as food, shelter, clothing, and medical care. However, the trust instru-
ment may specify that other needs, such as education, be met through
a power of maintenance.
All of the Canadian provinces and territories except Ontario now
provide statutory powers of maintenance.7 In Ontario, trustees must
rely either on an express power of maintenance in the trust instrument
or on the inherent jurisdiction of the court to bestow such a power.
3) Power of Advancement
A power of advancement is the authority to pay capital to, or for the
benefit of, a minor so that the minor may take advantage of some op-
portunity that will further him or her in life. Advancement means pay-
ing a lump sum to a beneficiary to help establish the person in life, for
example, to enable a beneficiary to purchase a business or pay off a
substantial debt.
In Alberta and Prince Edward Island, trustees have a legislated
power of advancement.8 Elsewhere in Canada, trustees must rely on
express powers of advancement in the trust instrument or apply for the
same pursuant to the courts’ inherent jurisdiction to authorize pay-
ments for the advancement of a beneficiary.
EXAMPLE: X dies, leaving all her estate to be held in trust for her daughter,
Y. Y is not to take until she reaches the age of thirty-five. Y is twenty-five
5 Fox v Fox Estate, [1996] OJ No 375 (CA).

6 Ibid.
7 See Trustee Act, RSA 2000, c T-8, s 33(1); RSBC 1996, c 464, s 24(1); RSNL 1990,
c T-10, s 26(1); RSNS 1989, c 479, s 30(1); RSNWT 1988, c T-8, s 27(1); RSNWT
(Nu) 1988, c T-8, s 27(1); RSPEI 1988, c T-8, s 39(1); RSY 2002, c 223, s 30; The
Trustee Act, CCSM c T160, s 29(1); The Trustee Act, 2009, SS 2009, c T-23.01, ss
38, 39, & 40; Trustees Act, RSNB 1973, c T-15, s 14.
8 See Trustee Act, RSA 2000, c T-8, s 34(1)(b); RSPEI 1988, c T-8, s 40.
and needs money to pay her mortgage. Can the trustee give it to her? If so,
under what power?
If the trustee is given a power of advancement, money could be trans-
ferred to pay down the mortgage. If there is no power of advancement,
but there is a power of maintenance, it is possible that periodic amounts
could be transferred to Y as maintenance. Maintenance is normally
meant to apply to minors, so in this circumstance the trustee may wish
to have the court sanction the decision to provide maintenance in this
way. Moreover, if Y is absolutely entitled and sui juris, she could col-
lapse the trust pursuant to the rule in Saunders v Vautier and call for
the entire sum.
D. RIGHTS OF TRUSTEES
1) Payment
At common law, trustees are expected to perform their duties gratuitous-
ly unless the trust instrument expressly provides for their remuneration.
In Canada, however, legislation empowers the courts to compensate
trustees for their efforts in administering trusts.9 Thus, it is common
for all trustees to be paid. In Ontario, for example, legislation provides
that a trustee may apply for compensation either at the time he or she
passes accounts or at any other time.10 “Passing of accounts” refers to
the application to the courts that a trustee can make seeking court ap-
proval of the trustee’s management of the trust assets. The application
includes an inventory of the trust property from the time of receipt of
the original estate to the time of disbursal. It must disclose all money
received and disbursed, the compensation claimed by the trustee, how
funds were invested, and how the investments performed.
In fixing compensation, the court considers such things as the size
and complexity of the trust; the care, responsibility, and risks assumed
by or required of the trustee; the time spent in administering the trust;
the skill and ability displayed; the results obtained; and the success
achieved through the efforts of the trustees.11 It has been suggested
9 Trustee Act, RSA 2000, c T-8, s 44; RSBC 1996, c 464, s 88; RSNL 1990, c T-10,
s 52; RSNS 1989, c 479, s 62; RSNWT 1988, c T-8, s 49; RSNWT (Nu) 1988, c
T-8, s 49; RSO 1990, c T.23, s 61; RSPEI 1988, c T-8, s 31; RSY 2002, c 223, s 49;
The Trustee Act, CCSM c T160, s 90; Trustees Act, RSNB 1973, c T-15, s 38; The
Trustee Act, 2009, SS 2009, c T-23.01, s 52(1).
10 Trustee Act, RSO 1990, c T.23, s 61.
11 Re Mortimer, [1936] OR 438 (CA).
that in determining compensation, the court should first apply tariff

guidelines and then confirm the amount using the factors set out above;
further, time spent is not to be the dominant consideration.12 Compen-
sation can be reduced to sanction the trustee’s improper conduct.13 In
the past, the courts often awarded compensation based on a percentage
of capital and income. However, while compensation may be paid on
such a basis, the court can award only what is “fair and reasonable.” To
determine whether compensation based on a percentage basis is fair
and reasonable, the trustees must provide the information described
above, including sufficient particulars of the magnitude of the estate,
the diversity of assets, the time spent, and the skills required. This type
of information is contained in an application to pass accounts, and it is
common to have compensation set at that time rather than by means of
a separate application.
2) Reimbursement
At common law, trustees were entitled to be indemnified out of the
trust property for all expenses properly incurred in the administration
of the trust. The general principle is undoubted: trustees have the right
to reimburse themselves or pay out of the trust property all expenses
properly incurred in the due administration of the trust. They have a
lien on the trust corpus and income for their expenses in priority to the
claims of beneficiaries.
The right to reimbursement has now been codified. This right has
been held to permit trustees who are parties to an action to recover,
from the trust, legal expenses reasonably incurred in the prosecution
or defence of the action.
The right to indemnification lies against the trust property; trustees
generally have no right of indemnity from the beneficiaries. The trust-
ees may, however, look to the beneficiaries personally for indemnity
where the trustees undertook the trust at the request of the benefici-
aries, where the beneficiary is also the creator of the trust, or where the
trustee properly incurs expenses in connection with the trust property
and the beneficiaries are sui juris.14
The right to charge the fund with expenses is not inviolate; the
trustee must demonstrate that the expenses were reasonably incurred.
Part of the beneficiaries’ right to compel due administration of a trust
12 Re Jeffrey Estate (1990), 39 ETR 178 (Ont Surr Ct); Laing Estate v Hines (1998),
113 OAC 335 (CA).
13 Simone v Cheifetz (2000), 137 OAC 351 (CA).
14 Hardoon v Belilios, [1901] AC 118 (PC).
is the right to restrain the trustees from improper use of the trust funds
as, for example, in payment of expenses that are not legitimate. The
issue of the propriety of expenses has received much judicial attention
recently in the field of pension trusts.
Can an employer, for example, change the nature of the pension
plan from defined benefit to defined contribution and look for reim-
bursement, from the trust fund, of the expenses associated with such a
change? A defined benefit pension plan provides a fixed amount of re-
tirement income. A defined contribution pension plan is one in which
the employer and the employee contribute a fixed amount during the
period of employment; on retirement, the employee receives a pension
benefit in the form of annuity payments, the annuity having been pur-
chased with the aggregate of the contributions plus investment income
thereon. In Hockin v Bank of British Columbia,15 the court found that
the administrative expenses of such a change, which had been charged
by the bank against the fund directly, were actually costs incurred by
the bank more for its own benefit than for the benefit of the employees.
Therefore, the court stated, those administrative costs were collateral
to the purposes of the pension fund, and the bank was ordered to reim-
burse the fund for the full amount of the expenses. Likewise, in Nolan
v Kerry (Canada) Inc,16 the Supreme Court held that an employer could
not use funds from its defined benefit pension plan to pay for consult-
ing fees related to a study of the possibility of introducing a defined
contribution component to the existing plan. Such an expense was not
for the employees’ exclusive benefit, as required by the trust agreement,
and therefore it could not be charged to the plan.
Can an employer legitimately charge to the trust fund the costs of
applying to the court for a determination of the surplus ownership?
Many cases have proceeded on such a basis, with both sides recover-
ing costs from the trust fund. Hockin barred the bank from recovery of
such expenses, as did the court in Sherwood Communications Group Ltd
v Canada Trust Co.17 Costs on a solicitor-and-client scale were not paid
out of the surplus in the pension fund, as had been requested by all
the parties, because the court was of the opinion that the application
should not have been made in the first place.
The Supreme Court recently confirmed in Nolan v Kerry that the key
question in determining whether to award litigation costs from a trust
fund in the pension context is whether the litigation is adversarial in
15 (1995), 123 DLR (4th) 538 (BCCA) [Hockin].

16 2009 SCC 39.
17 (1992), 9 OR (3d) 792 (Gen Div).
nature or whether it is necessary for the due administration of the pen-

sion trust. Costs will be awarded from the fund when the proceedings
are necessary for the due administration of the trust or when the claims
were advanced for all those beneficially interested in the trust fund.18
Questions still remain, however. Can an employer charge to the
trust fund the costs of a consultant who reviews a plan and fund for
the purpose of determining whether there is good governance? Can an
employer charge the costs of preparation of a legal opinion on surplus
ownership to the fund? And what about the costs of preparing amend-
ments that are for the benefit of the employer? These questions show
that, in the pension field, it remains to be determined what expenses
are properly payable from the trust fund.
3) Set Off
It sometimes happens that the trustee lends money to the trust. If this
is done for the proper administration of the trust, the trustee is entitled
to be reimbursed from the trust assets.
18 Ibid at para 124.

C H A P T E R 1 1
BREACH OF TRUST
A. INTRODUCTION
A breach of trust takes place whenever a trustee fails to fulfil his or

her obligations with respect to the administration of the trust or fails
to dispose properly of the trust property. The breach may be a failure to
meet the obligations created by the terms of the trust instrument, the
rules of equity, or statute. A breach can be an act either of commission
or omission; that is, it may be that the trustee commits an act contrary
to his or her duties, or it may be a failure to carry out a duty.
Liability for breach of trust arises whether the breach is innocent,
negligent, or fraudulent, and exists even if the loss would have occurred
without the breach. In general, liability is imposed not to punish trustees
but to restore the beneficiaries to the position they would have been in
had the breach not occurred. The exception to this general proposition
arises in the situation where the trustee makes a profit by virtue of the
breach. In that case, the trustee must disgorge the profit to the benefici-
aries even if they would not otherwise have been entitled to it.
EXAMPLE: X and Y are co-trustees. X is a lawyer, Y is not. X makes the
decisions and Y acquiesces. The decisions lack the requisite prudence, and
the trust suffers a loss. Throughout, Y acted as he did in the belief it was in
the best interests of the trust and the beneficiaries. Is Y liable as well as X?
Yes, both X and Y are liable. Intention is irrelevant, except to a deter-
mination of fraud or dishonesty, which is not in issue in this example.
The standard to which trustees are held is an objective one, not a sub-
jective one, so the fact that Y acted in what he thought was a prudent
178
Breach of Trust 179
fashion is no excuse or defence. As a trustee, he had an obligation to

join fully in the decision-making process. If he was unable, unwilling,
or incapable of performing in that fashion, he should not have accepted
the office of trustee, or he should have taken steps to be removed once
he became aware of the fact he could not effectively discharge his obli-
gations.
When thinking about breach of trust, it is important to understand
that misuse of a position of trust is frequently considered by the courts
to be dishonest. In Air Canada v M & L Travel Ltd,1 the Supreme Court
held that “the taking of a knowingly wrongful risk resulting in preju-
dice to the beneficiary” amounts to a dishonest and fraudulent breach of
trust. Indeed, it has been said that fraudulent and dishonest amount to
the same thing for a trustee, and includes taking risks that the trustees
know they have no right to take.2
However, not every intentional breach of trust is dishonest. For ex-
ample, if trustees act in a way which they know is beyond their powers
(e.g., by making an unauthorized investment), but they do so in good
faith and with the honest belief that they are acting in the best inter-
ests of the beneficiaries, although their action is deliberate, it is not
likely to be held to be fraudulent or dishonest. However, an intentional
breach which the trustee does not honestly believe to be in the benefici-
aries’ best interest is likely to be found to be dishonest. In determining
whether a breach is fraudulent or dishonest, it is irrelevant whether the
trustee benefitted from his or her actions.
This expansive notion of dishonesty in respect of trustees is conson-
ant with equity’s approach to fraud. Equitable fraud is conduct which,
having regard to some special relationship between the two concerned
parties, is an unconscionable thing for the one to do towards the other.3
It takes little to see that because of the special relationship between
trustee and beneficiary, many breaches of trust may be viewed by the
law as unconscionable and, therefore, acts of fraud. As you will see later
in this chapter in the section on trustees’ defences, whether a trustee is
found to have acted dishonestly or fraudulently plays a significant role
for purposes of liability.
1 [1993] 3 SCR 787 at 826.

2 Gold v Rosenberg (1995), 25 OR (3d) 601 at 601 (CA), aff’d [1997] 3 SCR 767.
3 Kitchen v Royal Air Force Assn, [1958] 2 All ER 241 at 249 (CA).
B. CIVIL LIABILITY OF TRUSTEES
1) Joint and Several Liability

In the eyes of the law, trustees act jointly. All decisions made in respect
of the administration of the trust by the trustees must be by all trustees
acting in concert. If one or more trustees fail to participate in the mak-
ing of a decision, the law assumes they have participated because the
law assumes that people act in accordance with legal requirements. The
principles the law has fashioned to resolve conflicts in decision making
by trustees are discussed in Section B of Chapter 9.
As a result of the assumption that all decisions are made jointly,
trustees are jointly and severally liable for breaches of trust. Each trust-
ee is liable for breaches that he or she has personally committed (sev-
eral liability), but each trustee is liable, as well, for any loss caused by a
co-trustee (joint liability).
Not only is a trustee generally liable for all the acts of co-trustees,
but a trustee who is named to a continuing trust may become liable for
acts committed by previous trustees.
EXAMPLE: G is named as a trustee in substitution for H. H was guilty of
a breach, as she had invested in shares of her own business. G is unaware
of the investment in the shares until some time later when H’s company
declares bankruptcy, at which point the shares are found to be worthless.
What liability does G have, if any?
G is liable. G’s obligation on becoming trustee was to familiarize him-
or herself with the terms of the trust and its administration. G was re-
miss in failing to discover the prohibited investment. Had G properly
familiarized him- or herself with the trust and its assets, G would have
taken steps to divest the trust of the shares at a time when they had
some worth. By failing to take appropriate steps, G effectively con-
tinued the breach. Failure to correct breaches of which a trustee knows
or ought to have known will render the trustee liable.
The beneficiary who sues for breach of trust may claim the amount
of the entire loss from all the trustees, a group of the trustees, or any
one trustee. Thus, the beneficiary may sue all the trustees in an action
for breach of trust but levy execution for the entire sum of the loss
against any one trustee.
EXAMPLE: A and B are co-trustees. A mistakenly invests trust funds in an
unauthorized investment. The investment goes badly and the beneficiaries
sue A and B for the $10,000 loss suffered by the trust. Who is liable?
Breach of Trust 181
Both A and B are liable for the full sum. A is severally liable, as it was A
who invested in the unauthorized asset. B is liable on two bases. Trust-
ees are jointly liable, and therefore B is liable for losses caused by A. As
well, decisions are meant to be made jointly. Thus, the fact that B failed
to participate in the decision on how to invest the funds was a breach;
alternatively, B is presumed to have participated in the making of the
decision. Either way of looking at B’s role in the decision to purchase
the unauthorized investment leads to B being liable.
2) Contribution and Indemnity

As a general rule, if one trustee alone is required to compensate the
beneficiaries for losses due to breach, that trustee may seek contribu-
tion from the co-trustees. Contribution means that each trustee must
share in the loss caused by a breach, so that if a beneficiary chooses to
levy execution against only one trustee for the full amount, that trustee
may seek to recover from the co-trustees.
EXAMPLE: A, B, and C neglect to properly supervise investments made by
the trust, as a consequence of which the trust suffers a loss of $30,000. The
beneficiary sues and recoups the full sum from the sale of assets seized from
A. A is entitled to seek contribution of $10,000 each from B and C.
There are three exceptional situations in which a trustee may be indem-
nified. Indemnification means that the trustee need not contribute to
payment for losses suffered by the trust but may look to one or more
sources to pay fully for the losses. A word about each of these excep-
tional situations is in order.
The first situation arises where one trustee, acting alone, perpetrates
a fraud on the trust. If the beneficiaries recover from the fraudulent
trustee, that trustee cannot seek indemnity from his or her co-trustees.4
If all the trustees participated in the fraud, but execution is levied
against fewer than all of them, those trustees from whom recovery was
made cannot seek contribution from the remaining trustees because
the courts will not assist in a claim for contribution based on fraud.
The second exception to the general principle of indemnification
occurs where one trustee is a solicitor and, through use of that position,
causes the co-trustees to rely on his judgment. Again, the solicitor/
trustee will not be permitted to look to the co-trustees for indemnifica-
tion in the event of loss to the trust.5
4 Bahin v Hughes (1886), 31 Ch D 390 (CA).

5 Chillingworth v Chambers, [1896] 1 Ch 685 (CA).
The third exception occurs where a trustee is also a beneficiary

and participates in the breach of the trust. The beneficiary/trustee may
not claim any share of the trust interest until he or she has cleared his
or her liability as trustee first. Further, the beneficiary/trustee will be
required to indemnify the co-trustees to the extent of his or her bene-
ficial interest.
An explanation of how this calculation is performed will help. First,
the loss to the trust is divided among the trustees liable for the breach
of the trust, which is normally all the trustees because of the assump-
tion that trustees act jointly. Next, the beneficiary/trustee must assume
the sole burden of liability to the extent of the value of his or her bene-
ficial interest, so the value of the beneficial interest is deducted equally
from the other co-trustees’ liability. The value of the beneficial interest
is divided equally when there is more than one co-trustee.6 By subtract-
ing the value of the beneficial interest from the co-trustees’ liability, the
beneficiary/trustee has the effect of indemnifying the co-trustees to the
extent of his or her interest in the trust. The non-beneficiary trustees
receive partial or full indemnity, depending on the size of the loss and
of the beneficial interest. The calculation performed by the courts does
not eliminate the beneficiary/trustee’s right to contribution from the
co-trustees. Some examples may help to clarify the calculation.
EXAMPLE: Assume that the beneficial interest of the beneficiary/trustee is
$10,000, the loss to the trust is $24,000, and there are three trustees. Divide
the loss to the trust among the three trustees, with the result that each is
liable for $8000. Divide the value of the beneficiary/trustee’s beneficial in-
terest of $10,000 by two (because there are two co-trustees). Deduct $5000
from each co-trustee’s liability. Thus, the co-trustee’s liability of $8000 is
reduced to $3000.
This first example demonstrates a partial indemnification.
EXAMPLE: Assume that the beneficial interest of the beneficiary/trustee is
$30,000, the loss to the trust is $21,000, and there are three trustees. Divide
the loss to the trust among the three trustees, with the result that each is
liable for $7000. Divide the value of the beneficiary/trustee’s beneficial inter-
est of $30,000 by two (because there are two co-trustees). Deduct $15,000
from each co-trustee’s individual liability. Their liability of $7000 is reduced
to $0.
6 Ibid. See DWM Waters, “Liability between Co-trustees—Another Contest: Mac-

Donald v Hauer” (1977) 4 E & TQ 12 at 27–29 for a comment on the mode of
calculation.
Breach of Trust 183
This second example illustrates complete indemnification of the co-

trustees.
C. CRIMINAL LIABILITY OF TRUSTEES
Breach of trust may amount to a crime when the breach is tantamount

to theft under the Criminal Code.7 The elements of the offence of theft
are comparable with those for a breach of trust under section 336 of
the Criminal Code.8 Under section 336, it is necessary to show that the
property in question was trust property. Stiffer penalties may be im-
posed on the trustee who commits a breach of trust with the intent to
defraud the trust than in cases of simple theft.
When a trustee acts fraudulently, beneficiaries may choose to take
action in the civil courts for breach of trust or take steps to have the
trustee prosecuted. Rules of evidence have been developed to deter-
mine how evidence in each system of law is to be dealt with in the other
system. For example, a trustee cannot be convicted of theft on evidence
that has first been elicited in the course of a civil proceeding. On the
other hand, in civil suits a trustee does not have the privilege of refus-
ing to give evidence on the basis that it might incriminate him or her.
D. RIGHTS OF BENEFICIARIES AGAINST

TRUST PROPERTY
Beneficiaries have both personal and proprietary remedies available in

the event of a breach of trust. Personal remedies are helpful when the
trust property is no longer in the trustees’ possession or when the value
of the trust property is less than the amount of the beneficiaries’ claim.
If, however, the trustee still retains the trust property, the beneficiaries
will also have proprietary remedies. Where a trustee is insolvent or of
limited means, proprietary remedies may be the only ones of real value.
1) Personal Remedies
Personal remedies, as we have seen, are those in which the relief
sought against the trustees takes the form of a money judgment. The
7 RSC 1985, c C-46.

8 See R v Hammerling, [1982] 2 SCR 905, and ATH Smith, “Constructive Trusts in
the Law of Theft” [1977] Crim L Rev 395.
beneficiaries will seek an accounting for profits in those cases where the
breach has led to the trustees’ obtaining a benefit. Where the breach led
to a loss to the trust, the beneficiaries will take an action for compensa-
tion. As personal remedies give only a claim to money from trustees,
where the trustee is insolvent, the judgment may be worthless. Thus, it
can be seen, personal remedies can be of limited utility.
2) Following Property at Law

Proprietary remedies for breach of trust allow tracing (the following
of property) both in equity and at law. Common law proprietary ac-
tions are conversion, detinue, and replevin. Under the action of con-
version, the plaintiff seeks to recover a chattel from the person who
wrongfully converted it to his or her own use. In contrast, the action
of detinue relates to the wrongful retention of the beneficiary’s chat-
tel. Replevin relates to the recovery of property that was unlawfully
taken from the beneficiary. Although readers should be aware of these
common law proprietary actions, they should also know that they are
seldom used in practice. The primary reason for their lack of use is that
the common law does not recognize equitable title in the beneficiaries,
so these remedies are often unavailable to them. As well, the equitable
remedy of tracing is more flexible and more easily proven.
3) Tracing in Equity
The common law does not recognize and will not enforce equitable
title. Therefore, when a claimant is a beneficiary under an express trust,
tracing is primarily through equity, not the common law.
Generally, if trustees misappropriate trust property, equity enables
the beneficiary to trace the property and recover it, even if the property
was transferred by the trustee to a third party. However, if the third
party is a bona fide purchaser for value without notice, the beneficiary
will be unable to recover the property, as, in that instance, the equities
are equal.
Even if the trust property has changed in form, equity still fol-
lows the property so long as it can be ascertained to be the product of
the original property. That is, the property must remain identifiable in
order to be traced. To be identifiable, it must be the original property,
or the product or sale of the original trust property. Equity permits
the claimant to follow property into a mixed fund, or through such a
fund into property purchased with monies from that fund, because the
Breach of Trust 185
claim is against the traced asset itself and is not dependent on estab-
lishing some claim to the entirety of the converted asset.
EXAMPLE: The original trust property consisted of $10,000 in cash. The
trustee purchased a painting with the money. Alternatively, the trust funds
were placed in a sock under the trustee’s mattress. Can the trust funds be
traced?
The answer in both cases is yes. As long as the trust property remains
identifiable, it does not matter whether it changes form.
The beneficiary has two remedies available in the tracing action. He
or she may recover the property or its converted form or try to impose
a charge against the final converted form for the funds that have been
improperly used in its purchase.
Difficulties with the tracing remedy arise when the trustee has
mixed trust funds with his or her own funds. The principle that ap-
plies is that the beneficiary is entitled to view the whole of the mixed
funds as trust property in order to recover his or her part. This places
the burden of proof on the trustee to prove otherwise.9
The key advantage of an action for tracing is that it confers priority
on the beneficiary over the defendant’s creditors.
EXAMPLE: A trustee begins to use trust property for his own use and be-
comes insolvent. Judgment creditors will fail in any attempt to seize the
trust property because the beneficiary holds equitable title to the trust prop-
erty.
4) Tracing to a Third Party

If, in the course of a breach of trust, the trust property is transferred
to a third party by the trustee for value, then the trustee will hold the
proceeds of the conveyance in trust for the beneficiary. There are three
significant outcomes for the transferee:
• The transferee is not liable to the trust if he or she is a bona fide
purchaser of the legal estate for value without notice. The issue goes
to whether there was notice. The beneficiary has no cause of action
because in this situation the equities of the transferee and the bene-
ficiary are equal.
• The transferee is liable to the trust as a constructive trustee if he or
she took with notice or fraudulently, whether or not value is given.
9 Re Hallett’s Estate (1880), 13 Ch D 696 (CA).

• The transferee is liable to the trust, although not as a constructive

trustee, if he or she is an innocent volunteer.
The situation in which the transferee was a bona fide purchaser for
value without notice arose in the recent case of i Trade Finance Inc v
Bank of Montreal.10 In this case, i Trade Finance had advanced funds to a
fraudster who then pledged securities acquired with these funds to the
Bank of Montreal, which had no knowledge of the fraud. A tracing rem-
edy was not available to i Trade Finance because the Bank of Montreal
successfully raised the equitable defence of being a bona fide purchaser
for value without notice. This defence allowed the bank to maintain its
legal rights to the funds unencumbered by i Trade’s pre-existing equit-
able rights in the same funds. As a result, i Trade’s equitable property
right was essentially defeated by the transaction in which the Bank of
Montreal acquired its proprietary interest.11
In the situation where the transferee was a volunteer with notice, or
the transferee paid full consideration with notice of the trust, the tracing
remedy is available to the beneficiary. In the situation where the trans-
feree takes the property as a volunteer without notice of the trust, the
transferee is personally liable in equity to restore the property and is
subject to the tracing remedy. However, such a volunteer does not hold
the property as a constructive trustee. The difference between impos-
ition of a constructive trust and permitting recovery in specie should
be obvious. If a constructive trust were imposed, the transferee would be
entitled to retain the property, but would be obliged to hold it for the
benefit of the beneficiary. The remedy of recovery forces the transferee
to restore the property to the rightful owner.
5) Appropriation of Trust Property by the Trustee

If the trustee appropriates the trust property and claims it for his or her
own but does not mix it with his or her own property, then the benefici-
ary may trace and recover the original property. If, however, the trust
property was mixed with the trustee’s property, then the rules become
more complex. Special rules exist for situations where trust money is
mixed with the trustee’s money — for example, in bank accounts.
10 2011 SCC 26.

11 Ibid at paras 60–61.
Breach of Trust 187
E. DEFENCES OF TRUSTEES
1) Exoneration Clauses
The most effective defence that a trustee has is to demonstrate that he
or she exercised due diligence and met the standard of care owed. A
second line of defence is through exoneration clauses found in most
modern trust instruments. These clauses excuse trustees from liabil-
ity arising from innocent mistakes, carelessness, and the like. They
frequently excuse the trustees for losses caused by any reason except
fraud, wilful dishonesty, and knowing breaches of trust. Trustees
should realize that such clauses will be given the narrowest of pos-
sible constructions. As well, the breadth with which some exoneration
clauses have been drawn has called into question whether the courts
will accept them as valid, or strike them down as invalid by reason of
being contrary to public policy.
EXAMPLE: Two members of a pension plan have agreed to serve on the
Board of Trustees for the plan. They worry about their lack of knowledge
of financial matters and ask that an exoneration clause be inserted which
excuses them from liability for loss no matter what the cause. Is it likely
that the courts will accept this clause as excusing fraudulent behaviour or
wilful acts of dishonesty?
The courts may construe this clause as not intending to cover fraud or
wilful dishonesty, or they may strike it down as being contrary to public
policy, on the basis that no clause should give a trustee licence to com-
mit fraud.
2) Laches
Equity recognizes that it would be unfair to allow a person with a legal
claim to do nothing for a long time and then to assert the claim in the
courts. If nothing else, the evidence becomes stale, making it far more
difficult for the courts to be able to establish what happened and who
was in the wrong. More important, the claimant is seen to have acqui-
esced in the wrongdoing by virtue of having taken no steps to have it
redressed. The courts do not wish to lend their aid to those who acqui-
esce in wrongdoing.
The recognition of the undesirability of permitting lawsuits to be
launched long after a wrong is committed is reflected in the doctrine
of laches. Hence the maxim: “Equity aids the vigilant, not those who
sleep on their rights.” Laches applies in the context of a breach of trust
by the trustee in this way. Neglect by the beneficiary to assert a right

or claim which, taken together with lapse of time and other circum-
stances, causes prejudice to the trustee operates as a bar to the action.
The legal system also has an interest in preventing this type of
litigation; thus, legislation has been passed that contains limitation
periods. Legislation creating limitation periods is the statutory codifi-
cation of the doctrine of laches. Different limitation periods have been
created for different causes of action, making it difficult to set out any
fixed rules. Still, the legislation does not eliminate the equitable doc-
trine of laches, and it is an alternative form of defence. Laches is useful
as a defence because the limitation periods in statutes do not apply to
all equitable causes of action.
3) Limitation Periods
Limitation period statutes have codified the equitable concept of laches
so as to bar the taking of certain types of actions after set periods of
time. In Alberta,12 Ontario,13 Saskatchewan,14 New Brunswick,15 and
British Columbia,16 legislation has been adopted that will standardize
limitation periods in those provinces. For example, the basic limitation
period in Ontario is now two years from the date the claim is discov-
ered.17 The remaining jurisdictions in common law Canada continue
to use limitation period legislation that sets out different limitation
periods for different types of actions.18
It is questionable whether any of the legislation is intended to pro-
vide protection to trustees who hold trust property improperly, use trust
property for their own benefit, or are guilty of fraud. Each piece of prov-
incial limitation legislation must be examined in relation to any alleged
breach of trust to determine whether the cause of action is barred or the
trustee is otherwise excused, as Section E(4) explains.
While limitation periods apply to express trustees, it is not clear
whether they apply to constructive trustees and, if they do, what the
12 Limitations Act, RSA 2000, c L-12.

13 Limitations Act, 2002, SO 2002, c 24, Schedule B.
14 Limitations Act, SS 2004, c L-16.1.
15 Limitation of Actions Act, SNB 2009, c L-8.5.
16 Limitation Act, SBC 2012, c 13.
17 Limitations Act, 2002, above note 13, s 4.
18 The Limitation of Actions Act, CCSM c L150, s 2(1); RSNS 1989, c 258, s 2(1);
RSNWT 1988, c L-8, s 2(1); RSNWT (Nu) 1988, c L-8, s 2(1); RSY 2002, c 139,
s 2(1); Limitations Act, SNL 1995, c L-16.1, s 7(1); Statute of Limitations, RSPEI
1988, c S-7, s 2(1).
Breach of Trust 189
applicable period is. While there are no ready answers to these ques-
tions, a recent Ontario Court of Appeal decision offers guidance in the
family law context.
In McConnell v Huxtable,19 the applicant and respondent had a per-
sonal relationship for a lengthy period of time. Some years after the re-
lationship ended, the applicant brought an action for unjust enrichment
claiming that she had made significant contributions to certain proper-
ties which the respondent owned. In the action, the applicant sought a
remedial constructive trust over one of the respondent’s properties. The
respondent brought a summary judgment motion, claiming that the ac-
tion was out of time because the limitation period had expired. The cen-
tral question on the motion was what limitation period, if any, applied
to the constructive trust claim. Was it either the general two-year limita-
tion period in the Limitations Act, 2002, or the ten-year limitation period
in the Real Property Limitations Act, or did no limitation period apply at
all? The Court of Appeal held that the ten-year limitation period in the
Real Property Limitations Act applied. It remains to be seen whether the
court’s reasoning and result will apply to constructive trust claims out-
side of the family law context.
4) Technical Breach and Statutory Excusing Power

A technical breach occurs when a trustee fails to comply strictly with
the trust obligations, but the breach causes little or no loss to the trust.
Equity considers not just that a breach occurred, but also the effects of
the breach. If the effect of the breach was insignificant and the object
of the trust is maintained, the trustee, while technically in breach, may
be excused.
EXAMPLE: The terms of a trust deed stipulate that the trustee cannot invest
in mortgages. The trustee is a non-professional lay person who mistakenly
invests in a mortgage. When the trustee discovers the mistake, the mortgage
is sold at no loss, although there were some small transaction fees.
Although the trustee acted in good faith, the trustee is guilty of a (tech-
nical) breach of trust. The fact that there was no loss caused by the
improper investment may relieve the trustee from liability for the admin-
istrative costs that were incurred as a result of the breach.
Statutory provisions codify and extend the defence of technical
breach. The defence of technical breach is meant to excuse breaches that
caused little or no loss. The statutory excusing provisions go further
19 2014 ONCA 86.

and can excuse breaches that caused loss. In effect, this type of statu-
tory provision empowers the court to consider all the circumstances
and decide whether it is more equitable for the beneficiary or for the
trustee to bear any loss that has occurred. It is legislative recognition
that a trustee is not infallible nor a guarantor of the safety and prop-
er performance of trust assets. In its essence, the legislation permits
the court to relieve a trustee from personal liability for breach of trust
where the trustee has acted honestly and reasonably and ought fairly
to be excused.
Section 35(1) of the Ontario Trustee Act20 is an example of such
legislation:
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.
Comparable legislation exists throughout common law Canada with the

exception of Prince Edward Island.21 Using the example of the Ontario
legislation, the courts require the trustee to show that his or her con-
duct satisfies all the elements of section 35 before they will exercise
their powers and excuse the trustee.22 The elements in section 35 are
that the trustee acted honestly and reasonably and ought fairly to be
excused. Generally, the courts have interpreted “honestly” as an active
involvement in the affairs and decisions of the trust administration
and “reasonably” as conduct that meets the standard of the ordinary,
prudent person of business.23 An additional element that the trustee
must address is why he or she failed to obtain direction from the court.
Although these are the elements expressly stated in the legislation, and
the trustee has the burden of proof to establish them, caselaw makes it
20 RSO 1990, c T.23.

21 Trustee Act, RSA 2000, c T-8, s 41; RSBC 1996, c 464, s 96; RSNL 1990, c T-10,
s 32; RSNS 1989, c 479, s 64; RSNWT 1988, c T-8, s 30; RSNWT (Nu) 1988, c
T-8, s 30; RSY 2002, c 223, s 33; The Trustee Act, CCSM c T160, s 81; Trustees Act,
RSNB 1973, c T-15, s 42; and The Trustee Act, 2009, SS 2009, c T-23.01, s 45.
22 Structural Contracting Ltd v Westcola Holdings Inc (2000), 48 OR (3d) 417 (CA).
23 Ontario Law Reform Commission, Report on the Law of Trusts, vol 1 (Toronto:
Ministry of the Attorney General, 1984) at 36.
Breach of Trust 191
clear that all the circumstances will be considered. The circumstances

for consideration by the court are whether the trustee was paid, wheth-
er the breach was technical in nature or a minor error in judgment,
whether a decline in the value of securities was attributable to general
economic conditions, and whether the trustee was a professional. It is
also clear that more will be expected of a professional and remunerated
trustee than of a non-professional.24
5) Consent and Participation

Under this defence, the beneficiary who consents to, participates in, or
instigates a breach of trust may later be barred from recovering from
the trustee.25 In order to raise this defence successfully, the trustee
must show that the beneficiary was sui juris; that consent was given
with full knowledge of what the beneficiary was concurring in; that
consent was given with full knowledge of the beneficiary’s rights and
all material facts; and that the beneficiary’s will was not overborne by
the trustees or others through undue influence or duress.26
Understanding the nature and requirements of this defence is im-
portant. It encourages trustees to make full disclosure of all acts to the
beneficiaries, and the consequences of such acts. In the event that the act
later turns out to be a breach, full and frank disclosure to capacitated
beneficiaries who give their consent is an effective defence.
Where a beneficiary instigates or consents to a breach, and the
trustee is later found liable for loss due to the breach, the beneficiary’s
interest may be impounded. The beneficiary’s interest is applied against
the loss, and the trustee is indemnified to the extent that the beneficial
interest is used to pay for the loss. Apart from British Columbia and
Ontario,27 in the balance of common law Canada the court’s right to
impound a beneficial interest has been codified.28
24 Fales v Canada Permanent Trust Co (1976), [1977] 2 SCR 302.

25 Re Pauling’s Settlement Trusts (1963), [1964] Ch 303 (CA).
26 Gold v Rosenberg, above note 2.
27 The right to impound a beneficial interest in the event of a breach of trust at the
instigation of the beneficiary was contained in s 34(1) of the Ontario trustee
legislation; however, that provision was repealed in 1998. See SO 1998, c 18,
Schedule B, s 16(1).
28 Trustee Act, RSA 2000, c T-8, s 26; RSNL 1990, c T-10, s 50; RSNS 1989, c 479,
s 49(1); RSPEI 1988, c T-8, s 25; RSNWT 1988, c T-8, s 22; RSNWT (Nu) 1988,
c T-8, s 22; RSY 2002, c 223, s 25; The Trustee Act, CCSM c T.160, s 80; Trustees
Act, RSNB 1973, c T-15, s 41; and The Trustee Act, 2009, SS 2009, c T-23.01, s 42.
6) Release
This defence is related to the previous one of consent. The release defence
requires evidence of an expression by the beneficiary of an intention to
exonerate the trustee for his or her breach.29 The release may be a for-
mal document or it may be informal. If it is informal, it must be some-
thing more than passive assent. It must demonstrate that the beneficiary
approved of the conduct and that the beneficiary was fully informed
when giving approval. The trustee must provide evidence that the re-
lease was obtained from the beneficiary without undue influence by the
trustee and that the beneficiary acted on the basis of full knowledge.
7) Acquiescence
The trustee may have the defence of acquiescence for a breach of trust.
Acquiescence is refraining from action knowing that a breach of trust has
occurred and that one’s rights have been infringed.30
EXAMPLE: In 1980, M, a beneficiary, was twenty-five years old. She learned
that the trustee had committed a breach of trust. In 1996 she approaches a
lawyer for advice. What should she be advised?
In these circumstances, M should be advised that, given the long delay,
an action for breach of trust might well be held to be barred on the
ground of acquiescence.
The defence of acquiescence is available to the trustee even if the
defence of laches is not. The defence of laches differs from the defence of
acquiescence in that the former is also available where the plaintiff did
not know of the breach.
29 Wawanesa Mutual Insurance Co v JA (Fred) Chalmers & Co (1969), 7 DLR (3d)

283 (Sask QB).
30 Life Association of Scotland v Siddal (1861), 3 De GF & J 58, 45 ER 800 (Ch);
Kinakh v Kurta, [1995] MJ No 174 (QB).
C H A P T E R 1 2
CONCLUSION
Trusts have been in existence for the past thousand years because of
the convenience they offer in corporate/commercial life and because
people need trusts in order to provide for those who are unable or
unlikely to prudently administer their own property. The desire for
convenience and to provide for those we love is part of the human
condition; therefore trust law is likely to remain a thriving area of law.
In my view, it is likely that trusts will become increasingly im-
portant for the same reason that the legal system itself is undergoing
change: the demand that law become more relevant, more responsive,
and more accessible. Trust law is part of equity. As discussed in Chap-
ter 1, equity is characterized by flexibility and considerations of fair-
ness. Because equity and trust law are less rigid than the common law,
they offer a more responsive system of law. Equity and trusts are con-
cerned with the behaviour of those who come to the court and ask for
assistance; thus, they are more concerned with what happens outside
the courtroom than is the common law. Accessibility, however, is not
something that trust law can readily claim. As the principles of trust
law cannot be found in a code or legislation, to become knowledgeable
about trust law, one needs to read and study caselaw and legal litera-
ture. It is hoped that this book will help make trust law more accessible.
In the first edition of this book, I predicted that pension trusts
would cause the field of trust law to undergo serious reconsideration
and change. This has, in fact, come to pass. Pensions in modern times
are most often funded by means of trusts. As Canadian society ages
and the level of government assistance for seniors decreases, pensions
assume a greater importance. This has increased the tension between
those who offer and administer pensions and those who receive them.
Often, a great deal of money is at stake. In such circumstances, the
193
courts have become the arena for resolution of at least some of the
conflict. In the course of resolving those conflicts, the law has had
to rethink such matters as the creation, termination, revocation, and
variation of trusts; the powers of trustees; the role of the fiduciary; and
the administration of trusts.
The creation of trusts has already been confused by the pension
trust: there are cases in which a trust has been used and the courts
have found that no trust exists,1 and there are others in which an insur-
ance contract has been used as the funding vehicle and the courts have
found a trust to exist.2 The powers and rights of trustees in the pension
trust context have begun to explode: Do trustees in pension trusts have
to give reasons for decisions they make? Are they allowed to infringe
the even-handed rule as, for example, where they give enhanced pen-
sions to one group of beneficiaries but not another? When can trustees
of pension trusts be removed and for what reasons? Does it make a
difference if the pension trust fund consists, in part, of direct contri-
butions by employees? What costs and expenses can trustees and/or
plan administrators legitimately charge to the pension trust fund and
when? How can pension trusts be varied? Does the variation of trust
legislation apply differently to pension trusts than to other trusts? Are
the rules relating to a trustee’s obligation to account appropriate in the
pension trust context, or do the rules need to be “updated” so that they
are more effective?
As indicated in the relevant chapters in this edition, answers to
these questions have been emerging through recent court decisions.
However, the questions have not yet been fully explored, and many of
the answers not yet fully explained. Clear guidance will come only
with time and an even larger body of appellate decisions. I look for-
ward to those decisions and the next edition of this book!
1 See, for example, CrownX Inc and Edwards et al (1994), 20 OR (3d) 710 (CA).
2 See LaHave Equipment Ltd v Nova Scotia (Superintendent of Pensions) (1994), 121
DLR (4th) 67 (NSCA), and Bull Moose Tube Ltd v Ontario (Superintendent of Pensions)
(1994), 3 CCPB 187 (Ont Ct Gen Div).
TABLE OF CASES
A & A Jewellers Ltd v Royal Bank of Canada (2001), 53 OR (3d) 97,

143 OAC 375, [2001] OJ No 840 (CA)......................................................... 138
Adderley v Dixon (1824), 1 Sim & St 607, 57 ER 239 .......................................... 16
Aegeon Canada Inc v ING Canada Ltd (2003), 34 CCPB 1,
48 ETR (2d) 170, [2003] OJ No 448 (SCJ), aff’d (2003),
179 OAC 196, 38 CCPB 1, [2003] OJ No 4755 (CA), leave to
appeal to SCC refused, [2004] SCCA No 50................................................. 90
Air Canada v M & L Travel Ltd, [1993] 3 SCR 787, 108 DLR
(4th) 592, [1993] SCJ No 118 ...................................................... 133, 135, 136,
138, 156, 179
Air Jamaica Limited v Charlton, [1999] UKPC 20............................................. 108
Anderson v Patton, [1948] 2 DLR 202, [1948] 1 WWR 461,
[1948] AJ No 59 (CA) .................................................................................... 84
Anova Inc Employee Retirement Pension Plan v Manufacturers
Life Insurance Co (1994), 121 DLR (4th) 162, 11 CCPB 67,
[1994] OJ No 2938 (Gen Div)...................................................................... 162
Arrowhead Metals Ltd v Royal Trust Co (26 March 1992)
(Pension Commission of Ontario) [unreported] .......................................... 72
Arthur Andersen Inc v Toronto-Dominion Bank (1994),
17 OR (3d) 363, 14 BLR (2d) 1, [1994] OJ No 427 (CA) ............................. 138
AYSA Amateur Youth Soccer Association v Canada
(Revenue Agency), 2007 SCC 42 ............................................................. 68, 71
Bahin v Hughes (1886), 31 Ch D 390 (CA) .........................................................181

Bank of Nova Scotia v Thibault, 2004 SCC 29..................................................... 20
195
Barclay’s Bank Ltd v Quistclose Investments Ltd,

[1968] 3 All ER 651, [1968] UKHL 4............................................................. 75
Barford v Street (1809), 16 Ves Jun 135, 33 ER 935 (Ch)..................................... 25
Barnes v Addy (1874), LR 9 Ch App 244............................................................ 132
Bathgate v National Hockey League Pension Society (1994),
16 OR (3d) 761, 110 DLR (4th) 609, [1994] OJ No 265 (CA)...................... 153
Beatty v Guggenheim Exploration Co, 122 NE 378 (NY Ct App 1919)..............127
Beswick v Beswick (1967), [1968] AC 58 (HL).................................................... 49
Bill v Cureton (1835), 2 My & K 503, 39 ER 1036 (Ch) ...................................... 83
Blausten v Inland Revenue Commissioners, [1972] Ch 256 (CA)....................... 34
Boe v Alexander (1985), 21 ETR 246, [1985] BCJ No 160 (SC) ......................... 162
Bower v Cominco Ltd, 2003 BCCA 537, leave to appeal to
SCC refused, [2003] SCCA No 527......................................................... 90, 93
Bull Moose Tube Ltd v Ontario (Superintendent of Pensions)
(1994), 3 CCPB 187, [1994] OJ No 626 (Gen Div) ...................................... 194
Burrough v Philcox (1840), 5 My & Cr 72, 41 ER 299 (Ch)................................ 27
Buschau v Rogers Cablesystems Inc, 2001 BCCA 16,
leave to appeal to SCC refused, [2001] SCCA No 107............................ 90, 93
Buschau v Rogers Communications Inc, 2006 SCC 28,
rev’g 2004 BCCA 80 ........................................................................ 88, 89, 100
Campbell-Renton v Cayley, [1960] OR 550, 25 DLR (2d) 512,

[1960] OJ No 560 (HCJ) ................................................................................ 82
Canada Trust Co v Cantol Ltd (1979), 103 DLR (3d) 109,
[1979] 6 WWR 656, [1979] BCJ No 587 (SC).............................................. 108
Canada Trust Company v Browne, The, 2012 ONCA 862................................. 163
Canon v Funds for Canada Foundation, 2010 ONSC 4517 .................................40
Chambers Estate v Chambers, 2013 ONCA 511 ........................................ 152, 153
Chapman v Chapman, [1954] AC 429 (HL)......................................................... 94
Chichester Diocesan Fund and Board of Finance Inc v Simpson,
[1944] AC 341 (HL) ....................................................................................... 63
Chillingworth v Chambers, [1896] 1 Ch 685 (CA) ............................................181
Citadel General Assurance Co v Lloyds Bank Canada,
[1997] 3 SCR 805, 152 DLR (4th) 411, 1997 CanLII 334............................ 138
Cock v Cooke (1866), LR 1 P & D 241 (Ct Prob)................................................. 84
Conroy v Stokes, [1952] 4 DLR 124, 6 WWR (NS) 204,
[1952] BCJ No 111 (CA) .............................................................................. 153
Cowan v Scargill, [1985] Ch 270 .........................................................................161
Crawford v Jardine (1997), 48 OTC 23, 20 ETR (2d) 182,
[1997] OJ No 5041 (Gen Div) ...................................................................... 153
Crocker & Croquip Ltd v Tornroos, [1957] SCR 151,
7 DLR (2d) 104, [1957] SCJ No 7 ................................................................ 130
CrownX Inc and Edwards et al (1994), 20 OR (3d) 710,
120 DLR (4th) 270, [1994] OJ No 2551 (CA) .............................................. 194
Table of Cases 197
Del Grande v McCleery (2000), 127 OAC 394, 31 ETR (2d) 50,
[2000] OJ No 61 (CA).................................................................................... 75
Dyer v Dyer (1788), 2 Cox Eq Cas 92, 30 ER 42 ................................................ 114
Ernst & Young Inc v Central Guaranty Trust Co, 2004 ABQB 389........ 72, 75–76
Fales v Canada Permanent Trust Co (1976),

[1977] 2 SCR 302, 70 DLR (3d) 257, [1976] SCJ No 72........................156, 191
FH v McDougall, 2008 SCC 53 ............................................................................ 16
Foo v Yakimetz, [2002] OJ No 3958 (SCJ) ...........................................................40
Fox v Fox Estate (1996), 28 OR (3d) 496, 88 OAC 201,
[1996] OJ No 375 (CA) ................................................................................ 173
Frame v Smith, [1987] 2 SCR 99, 42 DLR (4th) 81, [1987] SCJ No 49 ................ 10
Froese v Montreal Trust Co of Canada (1996),
137 DLR (4th) 725, 11 CCPB 233, [1996] BCJ No 1091 (CA) ..................... 165
Fundy Settlement v Canada, 2012 SCC 14..................................................... 57, 58
Galambos v Perez, 2009 SCC 48 .....................................................................10, 11

Garland v Consumers’ Gas Co, 2004 SCC 25 .................................................... 143
Gilmour v Coats, [1949] AC 426, [1949] UKHL 1 ............................................... 68
Glenko Enterprises Ltd v Ernie Keller Contractors Ltd (1996),
134 DLR (4th) 161, 11 ETR (2d) 205, [1996] MJ No 122 (CA)................... 138
Gold v Rosenberg (1995), 25 OR (3d) 601, 129 DLR
(4th) 152, [1995] OJ No 3156 (CA), aff’d [1997]
3 SCR 767, 152 DLR (4th) 385, [1997] SCJ No 93.......... 138, 140–41, 179, 191
Gonder v Gonder Estate, 2010 ONCA 172 ......................................................... 152
Grey (Lord) v Grey (Lady) (1677), Rep Temp Finch 338,
23 ER 185..................................................................................................... 119
Halifax School for the Blind v Chipman, [1937] SCR 196,

[1937] 3 DLR 9, [1937] SCJ No 10 ................................................................. 85
Hardoon v Belilios, [1901] AC 118 (PC)............................................................. 175
Hembruff v Ontario Municipal Employees Retirement Board,
[2004] OTC 289, 40 CCPB 281, [2004] OJ No 1355 (SCJ) ......................... 165
Henry v Hammond, [1913] 2 KB 515 ................................................................... 14
Heseltine v Heseltine, [1971] 1 All ER 952 (CA) ............................................... 119
Hockin v Bank of British Columbia (1990), 71 DLR (4th) 11,
46 BCLR (2d) 382, [1990] BCJ No 1470 (CA) ....................................... 82, 108
Hockin v Bank of British Columbia (1995), 123 DLR (4th) 538,
3 BCLR (3d) 193, [1995] BCJ No 688 (CA)..................................................176
Howe v Earl of Dartmouth (1802), 7 Ves Jun 137, 32 ER 56 (Ch) ..................... 164
Hyman v Hyman, [1934] 4 DLR 532, [1934] SCJ No 79.................................... 119
i Trade Finance Inc v Bank of Montreal, 2011 SCC 26.............................. 133, 186
In re Boyes (1884), 26 Ch D 531........................................................................... 53
In re Montagu’s Settlement Trusts, [1987] Ch 264 .............................................137
Income Tax Special Purposes Commissioners v Pemsel,

[1891] AC 531 (HL)................................................................ 64–65, 66, 70, 71
Inland Revenue Commissioners v McMullen (1980),
[1981] AC 1 (HL) ........................................................................................... 63
Johnson v Farney, (1913), 29 OLR 223 (SCAD) ................................................... 42

Jones v Lock (1865), 1 Ch App 25........................................................................ 50
Jones v T Eaton Co Ltd, [1973] SCR 635, 35 DLR (3d) 97,
[1973] SCJ No 65 ............................................................................................47
Joy Technologies Canada Inc v Montreal Trust Co of Canada (1995),
7 ETR (2d) 243, 12 CCPB 182, [1995] OJ No 4135 (Gen Div) ...................... 90
Keewatin Tribal Council Inc v Thompson (City), [1989] 5 WWR

202, 61 Man R (2d) 241, [1989] MJ No 295 (QB).................................... 72, 78
Kerr v Baranow, 2011 SCC 10............................................................... 15, 109, 115,
142, 143, 144
Kinakh v Kurta (1995), 103 Man R (2d) 22,
8 ETR (2d) 183, [1995] MJ No 174 (QB) ..................................................... 192
Kitchen v Royal Air Force Assn, [1958] 2 All ER 241 (CA) ............................... 179
KLB v British Columbia, 2003 SCC 51..................................................................11
Kordyban v Kordyban, 2003 BCCA 216............................................................. 158
Lac Minerals Ltd v International Corona Resources Ltd,

[1989] 2 SCR 574, 61 DLR (4th) 14, 1989 CanLII 34.....................................11
LaHave Equipment Ltd v Nova Scotia (Superintendent of
Pensions) (1994), 121 DLR (4th) 67, 137 NSR (2d) 11,
[1994] NSJ No 555 (CA) .............................................................................. 194
Laing Estate v Hines (1998), 41 OR (3d) 571, 113 OAC 335,
[1998] OJ No 4169 (CA) .............................................................................. 175
Lattimer v Lattimer (1978), 18 OR (2d) 375, 82 DLR (3d) 587,
[1978] OJ No 3233 (HCJ)............................................................................. 119
Letterstedt v Broers (1884), 9 App Cas 371 (PC) ............................................... 153
Life Association of Scotland v Siddal (1861), 3 De GF & J 58,
45 ER 800 (Ch) ............................................................................................ 192
Lottman v Stanford, [1980] 1 SCR 1065, 107 DLR (3d) 28,
[1980] SCJ No 28 ......................................................................................... 164
Madsen Estate v Saylor, 2007 SCC 18 ................................................................ 118

Markle v Toronto (City) (2003), 63 OR (3d) 321, 223 DLR
(4th) 459, [2003] OJ No 265 (CA), leave to appeal to SCC
refused, [2003] SCCA No 138....................................................................... 92
Maurer v McMaster University (1991), 4 OR (3d) 139,
82 DLR (4th) 6, [1991] OJ No 1067 (Gen Div).............................................. 82
McConnell v Huxtable, 2014 ONCA 86 ............................................................. 189
McLaughlin Estate v McLaughlin (2001), 43 ETR (2d) 65,
[2001] OJ No 5040 (CA)...............................................................148, 156, 165
Table of Cases 199
McPhail v Doulton (1970), [1971] AC 424, [1970] UKHL 1 ...........................45–46

Milroy v Lord (1862), 4 De GF & J 264, 45 ER 1185 (Ch)................................... 49
Morice v Bishop of Durham (1804), 9 Ves Jun 399, 32 ER 656,
aff’d (1805), 10 Ves Jun 521, 32 ER 947 (Ch)................................................ 60
Murdoch v Murdoch (1973), [1975] 1 SCR 423, 41 DLR (3d) 367,
[1973] SCJ No 150 ....................................................................................... 108
Murless v Franklin (1818), 1 Swans 13, 36 ER 278 (Ch) ................................... 119
National Trust Co v Osadchuk, [1943] SCR 89,

[1943] 1 DLR 689, [1943] SCJ No 7............................................................. 138
Nishi v Rascal Trucking Ltd, 2013 SCC 33........................................... 116–17, 118
Nolan v Kerry (Canada) Inc, 2009 SCC 39...................................................92, 176
Oppenheim v Tobacco Securities Trust Co Ltd (1950),

[1951] AC 297, [1950] UKHL 2...................................................................... 67
OPSEU v Ontario (AG) (1995), 26 OR (3d) 740, 131 DLR
(4th) 572, [1995] OJ No 3927 (Gen Div) ....................................................... 93
Otis Canada Inc v Ontario (Superintendent of Pensions) (1991),
2 OR (3d) 737, 34 CCEL 341, [1991] OJ No 251 (Gen Div) ........................ 103
Paul v Paul (1882), 20 Ch D 742 (CA) .................................................................. 48

Pecore v Pecore, 2007 SCC 17 ............................................................................ 118
Peel (Regional Municipality) v Canada, [1992] 3 SCR 762,
98 DLR (4th) 140, [1992] SCJ No 101 ......................................................... 144
Performance Industries v Sylvan Lake, 2002 SCC 19.....................................16, 17
Peter v Beblow, [1993] 1 SCR 980, 101 DLR (4th) 621,
1993 CanLII 126 .......................................................................................... 143
Pettitt v Pettitt, [1970] AC 777 (HL)................................................................... 119
Pettkus v Becker, [1980] 2 SCR 834, 117 DLR (3d) 257,
[1980] SCJ No 103 ................................................................................ 127, 143
R v Hammerling, [1982] 2 SCR 905, 142 DLR (3d) 577,

[1982] SCJ No 107 ....................................................................................... 183
R v Neil, 2002 SCC 70 .......................................................................................... 10
Rathwell v Rathwell, [1978] 2 SCR 436, 83 DLR (3d) 289,
1978 CanLII 3 .......................................................................................109, 119
Re Ball’s Settlement, [1968] 2 All ER 438 (Ch) ...................................................101
Re Beloved Wilkes’ Charity (1851), 3 Mac & G 440,
42 ER 330 (Ch) ............................................................................................ 165
Re Brockbank, [1948] Ch 206 ................................................................ 12, 86, 149
Re Consiglio Trusts (No 1), [1973] 3 OR 326,
36 DLR (3d) 658, [1973] OJ No 2022 (CA) ................................................. 153
Re Cooper (No 1) (1976), 21 OR (2d) 574, 90 DLR (3d) 710,
[1976] OJ No 2423 (HCJ)..............................................................................151
Re Davis (1983), 14 ETR 83, [1983] OJ No 60 (CA)........................................... 153
Re Denley’s Trust Deed (1968), [1969] 1 Ch 373 ..................................... 73, 77, 78
Re Gibbard (1965), [1966] 1 All ER 273 (Ch) ...................................................... 34

Re Golay, [1965] 2 All ER 660 (Ch)...................................................................... 43
Re Gough, [1957] Ch 323 ................................................................................... 164
Re Gulbenkian’s Settlement Trusts (1967), [1968] 1 Ch 126 (CA)...................... 34
Re Gulbenkian’s Settlement Trusts (No 2) (1969), [1970] Ch 408 ...................... 32
Re Gulbenkian’s Settlement Trusts, Whishaw v Stephens (1968),
[1970] AC 508 (HL) ................................................................................. 29, 34
Re Hallett’s Estate (1880), 13 Ch D 696 (CA) .................................................... 185
Re Holt’s Settlement (1968), [1969] 1 Ch 100 .................................................... 103
Re Hopkin’s Will Trusts (1964), [1965] Ch 669................................................... 66
Re Irving (1975), 11 OR (2d) 443, 66 DLR (3d) 387,
[1975] OJ No 2594 (HCJ)............................................................................. 102
Re Jeffrey Estate (1990), 39 ETR 178 (Ont Surr Ct)........................................... 175
Re Laidlaw Foundation (1984), 48 OR (2d) 549,
13 DLR (4th) 491, 6 OAC 181 (Div Ct) ................................................... 69–70
Re Lloyd, [1938] OR 32 (HCJ) .............................................................................. 28
Re Londonderry’s Settlement (1964), [1965] Ch 918 (CA) ................................ 166
Re Manisty’s Settlement (1973), [1974] Ch 17...................................................... 34
Re McLean (1982), 37 OR (2d) 164, 135 DLR (3d) 667,
[1982] OJ No 3293 (HCJ)............................................................................. 152
Re Mihalopulos Estate (1956), 5 DLR (2d) 628, 19 WWR 118,
[1956] AJ No 64 (SCTD) ................................................................................ 53
Re Moorhouse, [1946] 4 DLR 542, [1946] OWN 789 (HCJ).............................. 150
Re Mortimer, [1936] OR 438, [1936] 3 DLR 380,
[1936] OJ No 220 (CA) .................................................................................174
Re Nicholls’ Estate (1987), 57 OR (2d) 763, 34 DLR (4th) 321,
[1987] OJ No 87 (CA) .................................................................................... 74
Re Pauling’s Settlement Trusts (1963), [1964] Ch 303,
[1963] EWCA Civ 5 ......................................................................................191
Re Pinion (1964), [1965] Ch 85 (CA) ................................................................... 68
Re Ralli’s Will Trust (1963), [1964] 1 Ch 288...................................................... 50
Re Seale’s Marriage Settlement, [1961] Ch 574 .................................................. 103
Re Shamas, [1967] 2 OR 275 (CA)........................................................................ 42
Re Smith (1951), [1952] OWN 62, [1951] OJ No 232 (HCJ),
rev’d on other grounds [1952] OWN 170 (CA)........................................... 165
Re Steed’s Will Trusts, [1960] Ch 407 (CA)....................................................... 102
Re Suffert’s Settlement (1960), [1961] Ch 1.......................................................... 99
Re Tempest (1866), 1 Ch App 485.............................................................. 150, 152
Re Weil, [1961] OR 888, 30 DLR (2d) 91, [1961] OJ No 602 (CA) .................... 152
Re Westar Mining Ltd, 2001 BCSC 618, aff’d 2003 BCCA 11 ....................... 72, 75
Re Weston’s Settlements (1968), [1969] 1 Ch 223 (CA) .................................... 103
Rochefoucauld v Boustead, [1897] 1 Ch 196 ....................................................... 52
Saunders v Vautier (1841), 4 Beav 115, 49 ER 282,

aff’d (1841), 1 Cr & Ph 240, 41 ER 482 (Ch) ....................................12, 33, 80,
83, 85–90, 97, 98, 99, 174
Table of Cases 201
Schmidt v Air Products of Canada Ltd, [1994] 2 SCR 611,

115 DLR (4th) 631, [1994] SCJ No 48 ............................................. 72, 82, 108
Schmidt v Rosewood Trust Ltd, [2003] UKPC 26 ............................................. 166
Selangor United Rubber Estates, Ltd v Cradock (No 3),
[1968] 2 All ER 1073 (Ch) ........................................................................... 134
Shafron v KRG Insurance Brokers, 2009 SCC 6 ...................................................17
Sharbern Holding Inc v Vancouver Airport Centre Ltd, 2011 SCC 23.................11
Sherwood Communications Group Ltd v Canada Trust Co (1992),
9 OR (3d) 792, 94 DLR (4th) 86, [1992] OJ No 1171 (Gen Div)..................176
Simone v Cheifetz (2000), 137 OAC 351, 36 ETR (2d) 297,
[2000] OJ No 4191 (CA) .............................................................................. 175
Soulos v Korkontzilas, [1997] 2 SCR 217, 146 DLR (4th) 214,
[1997] SCJ No 52 ................................................................................. 124, 128
Southcott Estates Inc v Toronto Catholic District School Board,
2012 SCC 51................................................................................................... 16
Strong v Bird (1874), LR 18 Eq 315 (Ch) .............................................................. 48
Strother v 3464920 Canada Inc, 2007 SCC 24 .................................................. 125
Structural Contracting Ltd v Westcola Holdings Inc (2000),
48 OR (3d) 417, 187 DLR (4th) 407, [2000] OJ No 2131 (CA).................... 190
Sudeley (Lord) v AG, [1897] AC 11 (HL) ..................................................... 166–67
Sun Indalex Finance, LLC v United Steelworkers, 2013 SCC 6 ...........................11
Sutherland v Hudson’s Bay Co (2005), 74 OR (3d) 608, 4
6 CCPB 225, [2005] OJ No 1455 (SCJ)........................................................ 100
Symes v Hughes (1870), LR 9 Eq 475 (Ch)........................................................... 54
Thomson v Merchants Bank of Canada (1919), 58 SCR 287,

[1919] 1 WWR 855, [1919] SCJ No 10........................................................... 83
Trustees of the British Museum v AG, [1984] 1 All ER 337 (Ch) .......................161
Turner v Turner, [1984] Ch 100 ............................................................................31
Twinsectra Ltd v Yardley, [2002] 2 AC 164, [2002] UKHL 12............................. 75
Vancouver Society of Immigrant and Visible Minority

Women v Canada (Minister of National Revenue),
[1999] 1 SCR 10, 169 DLR (4th) 34, [1999] SCJ No 5............66, 68, 69, 70, 71
Versatile Pacific Shipyards v Royal Trust Corp of Canada
(1991), 84 DLR (4th) 761, [1991] BCJ No 3922 (SC) ..................................... 99
Wallgraves v Tebbs (1855), 2 K & J 313 ............................................................... 53

Wawanesa Mutual Insurance Co v JA (Fred) Chalmers & Co
(1969), 7 DLR (3d) 283, 69 WWR 612, [1969] SJ No 124 (QB).................. 192
Waxman v Waxman (2004), 186 OAC 201, 44 BLR (3d) 165,
2004 CanLII 39040 (CA)............................................................................. 138
Weinstein v Weinstein (1996), 81 BCAC 282, 13 ETR (2d) 227,
[1996] BCJ No 2061 (CA) ............................................................................ 153
Wilson v Law Debenture Trust Corp plc, [1995] 2 All ER 337 (Ch) ..................167
Windsor v Mako Estate (2008), 43 ETR (3d) 255,
[2008] OJ No 4293 (SCJ) ............................................................................. 152
INDEX
Accounts, passing of, 165, 174 trustees. See Appointment of trustees

Administration of trusts Appointment of trustees, 148–51
charitable trusts, 64 court appointment, 150
continuous administration, 147 first trustees, 148
expenses, 164, 175–77 non-judicial appointments, 148–49
powers, 23, 169–72 number of trustees, 150–51
Advancement removal after appointment, 152–53
power of, 173–74 retirement after appointment, 151–52
presumption of, 118–22 Assets. See Trust assets
Agency, distinguished from trust, 12–13 Associations, unincorporated, 77–79
Agents, use by trustees, 159–60 capacity as trustee or beneficiary, 40
Alteration of trust. See Amendment of
trust Bankrupt persons, 40
Amendment of trust, 90–97 Beneficiaries
common law, 94–95 breach of trust
compromise, 95 beneficiary/trustees, 182
conversion, 94 consent and participation, 191
emergency, 95 remedies, 183–86
maintenance, 94 personal remedies, 183–84
statute, 95–97 tracing, 184–86
rules of court, 96–97 capacity, 40–41
trustee legislation, 96 certainty, 44–47
trust instrument, 90–94 contract parties, distinguished, 13
invalid amendments, 91 equitable title, 81, 184
pension trusts, 91–94 information, right to, 165–67
variation by court, 97–103 premature termination of trust,
Appointment 85–88
power of. See Power of appointment proprietary rights, 8–9, 13, 24
203
Saunders v Vautier, rule in, 85–88 benefit to society, 68

successive interests, impartiality, exclusively charitable, 68–69
162–63 political purposes, without, 69
Breach of trust, 178–92 public in nature, 67–68
appropriation by trustee, 186 registered charities, distinguished, 61
beneficiary/trustee, 182 rules against perpetuities, 63–64
defences, 187–92 status as, 64–72, 76
acquiescence, 192 established approach, 64–69
consent and participation, 191 upholding established approach,
exoneration clauses, 187 69–72
laches, 187–88 Cohabitation property disputes. See
limitation periods, 188–89 Domestic property disputes
release, 192 Compensation
statutory excusing provisions, beneficiaries for loss, 125–26,
189–91 183–84
technical breach, 189 trustees, 174–75
dishonesty, 179 Conditions
liability for certainty, 57
civil liability, 180–83 conditions precedent, 57
contribution and indemnity, conditions subsequent, 57
181–83 contrary to public policy, 55–56
joint and several, 180–81 impossible to perform, 56–57
criminal liability, 183 Constructive trusts, 123–44
generally, 178–79 alternative remedies, 124–26
rights of beneficiaries, 183–86 accounting, 125
personal remedies, 183–84 equitable compensation, 125–26
proprietary remedies, 184–86 tracing, 126
tracing at law, 184 cause of action, 127, 128–42
tracing in equity, 184–85 gains by fiduciaries, 128–31
tracing to third party, 185–86 strangers as constructive trustees,
tracing to trustee, 186 131–42
knowing assistance to trustee,
Capacity, 39–41 135–37
Certainty requirements, 41–47 knowing receipt of trust prop-
intention, 42–43 erty, 137–42
objects, 44–47 trustees de son tort, 133–35
subject matter, 43–44 express trust, distinguished, 123
Charitable trusts, 61–72. See also Pur- formalities, 52
pose trusts misconduct remedy, 123
administration, 64 operation of law, 107, 123
advantages, 62–64 resulting trust, distinguished, 107,
cy près and, 62 110
definition, 61, 64 unjust enrichment remedy, 123,
examples, 62–63 126–27, 142–44
non-charitable purpose trusts, rela- domestic property disputes,
tionship, 76 142–44
objects Contract, distinguished from trust, 13
certainty, 62–63 Court directions, deadlocked trustees,
charitable purpose, 64–69 157–58
accepted categories, 65–67 Cy près doctrine, 62
Index 205
Debt, distinguished from trust, 13–14 fraud, 179

Defences of trustees, 187–92 history of, 6–8
acquiescence, 192 maxims, 17–19
laches compared, 192 remedies, 14–17
consent and participation, 191 accounting, 125
exoneration clauses, 187 compensation for loss, 125–26,
laches, 187–88 183–84
acquiescence compared, 192 injunction, 16
limitation periods, 188–89 rectification, 16–17
release, 192 rescission, 16
statutory excusing provisions, specific performance, 15–16
189–91 tracing, 126, 184–86
technical breaches, 189 Express trusts, 39–103
Definition of trust, 5–6 amendment or alteration. See Amend-
Delegation ment of trust
testamentary powers, excessive, 74 constructive trust, distinguished, 123
trustees, by, 159–60 creation, 39–58
Directions, deadlocked trustees, 157–58 capacity, 39–41
Disclosure constitution of trust, 47–51, 81
constructive trust where no, 130–31 formalities, 51–53
information by trustee, 155, 165–67 limitations, 53–57
Discretionary trusts illegal objects, 53–54
certainty of objects, 45–47 invalid conditions, 55–57
power of appointment, distinguished, requirements, 39
26–28 residence of trust, 57–58
Domestic property disputes three certainties, 41–47
constructive trusts, 142–44 intention, 42–43
resulting trusts, 108–9 objects, 44–47
Duties of trustees, 154–67. See also Pow- subject matter, 43–44
ers of trustees promise to settle, 48–49
accounts, 165 purpose trusts. See Purpose trusts
apportionment, 163, 164 resulting trust
common law duties, 154 distinguished, 110
conversion, 163–64 failure of express trust, 113–14
court directions, 157–58 revocation. See Termination of trust
delegation, 159–60 variation by court. See Variation of
fiduciary duty, 154–55 trust
generally, 155–59
impartiality, 162–64 Fiduciaries, 10–11. See also Trustees
information, provision, 165–67 agents, distinguished, 12
investments, 160–61, 171 characteristics, 10
joint action, 157–58 duties, 10–11, 154
loyalty, 154 gains by, constructive trusts, 128–31
powers, interrelationship, 158, 168 trustees as, 154–55
Fixed trusts, certainty of objects, 45
Equity Formalities
characteristics, 193 constructive trusts, 52
defences express trusts, 51–53
laches, 187–88 resulting trusts, 52, 110
technical breaches, 189 testamentary trusts, 51, 84
Gifts Operation of law, trusts arising by,

distinguished from trust or power, 107–44
26–28 constructive trusts. See Constructive
gift over in default, 26–27 trusts
presumption of advancement and, formalities, 110
118–19 resulting trusts. See Resulting trusts
History of trust law, 6–10 Passing of accounts, 165, 174

abolition of the use, 9 Pension trusts
equity, 6–8 amendment, 91–94
personal rights elevated, 8–9 information, provision by trustees,
trusts, creation, 9–10 167
resulting trusts and, 107–8
Invalid trusts, 53–57 termination, 88–89
contrary to public policy, 55–56 trust law, impact on, 193–94
illegal objects, 53–54 Perpetuities, rules against
impossibility of performance, 56–57 charitable purpose trusts, applica-
uncertain conditions, 57 tion, 63–64
Investments, 160–61 non-charitable purpose trusts and,
authorized investments, 160, 161, 171 73, 74–75
power of investment, 171–72 Power, 21–35
standard of care, 160–61 appointment, of. See Power of ap-
successive interests, impartiality, pointment
162–63 distinguished from trust, 21–22,
23–24, 26–28
Matrimonial property disputes. See examples, 22–23
Domestic property disputes technical meaning, 22–24
Maxims of equity, 17–19 trustees. See Powers of trustees
Mentally incompetent persons, 40 Power of appointment, 24–35
Minors, 40 creation, requirements, 33–35
discretionary trust, distinguished,
Non-charitable purpose trusts, 72–76. 26–28
See also Purpose trusts example, 24
charitable trusts, relationship, 76 general power, 25
objections to gift over in default, 26–27
enforceability objection, 60, gift, distinguished, 26–28
73–74 hybrid or intermediate power, 26
excessive delegation of testament- obligations of donee, 28–32
ary power, 74 rights of objects of the power, 32–33
execution objection, 72 special power, 25–26
primary objection, 60 Powers of trustees, 168–77. See also Dut-
rules against perpetuities, 74–75 ies of trustees
Quistclose trusts, 75–76 administrative powers, 23, 169–72
validity, 72, 73 additional, court application, 170
generally, 169–70
Objects of trust investment powers, 171–72
certainty, 44–47 statutory powers, 170–71
charitable trusts, 62–63 court directions, 157–58
illegal objects, 53–54 delegation, 159
purpose trusts. See Purpose trusts discretionary nature, 23–24, 26
Index 207
dispositive powers, 23, 24, 169, proprietary remedies

172–77 constructive trusts, 125, 144
advancement, 173–74 tracing, 126, 184–86
encroachment, 172 unjust enrichment, 142–44
generally, 172–73 Residence of trust, 57–58
maintenance, 173 Resulting trusts, 107–22
duties, interrelationship, 158, 168 automatic versus presumed, 111–13
exercise, unanimity required, 157–58 classic situations, 113–18
implied powers, 168–69 failure of express trust, 113–14
sources of power, 168–69 partial failure, 114
Presumptions total failure, 113
advancement, 118–22 gratuitous transfer into another’s
resulting trust, 107, 111–13, 118–22 name, 117–18
Promises, enforcement, 48–49 purchase in name of another,
Property. See Trust assets 114–17
Proprietary remedies constructive trust, distinguished,
constructive trusts. See Constructive 107, 110
trusts domestic property disputes and,
tracing, 126 108–9
Proprietary rights of beneficiaries, 8–9, example, 109–10
13, 24 express trust, distinguished, 110
Purpose trusts, 59–79. See also Express formalities, 52, 110
trusts operation of law, 107
charitable trusts, 61–72. See also pension trusts and, 107–8
Charitable trusts presumption of, 107, 111–13, 118–22
examples, 59–60 Revocation of trust. See Termination of
imperfect trusts, 76 trust
mixed purpose trusts, 76 Rights of beneficiaries
non-charitable purpose trusts, 72–76. breach of trust, 183–86
See also Non-charitable purpose impartiality, 162–63
trusts information, 165–67
person trusts, distinguished, 59 proprietary rights, 8–9, 13, 24
relationship between charitable and termination of trust, 85–88
non-charitable trusts, 76 Rights of trustees, 174–77
unincorporated associations, 77–79 payment, 174–75
reimbursement, 175–77
Quebec trusts, 19–20 set off, 177
Remedies Saunders v Vautier, rule in, 85–88

breach of trust, 183–86 Settlors, capacity, 40
personal remedies, 183–84 Statute of Uses, 9
tracing, 184–86
constructive trusts. See Constructive Termination of trust, 81–90
trusts distribution, through, 89–90
equitable remedies, 14–17. See also exceptions to rule, 82–83
Equity pension trust context, 88–89
accounting, 125 power of revocation, 81, 83–85
equitable compensation, 125–26 premature termination by benefici-
tracing, 126, 184–86 ary, 85–88, 97
revocation by settlor, 48, 81–82
Saunders v Vautier, rule in, 85–88 breach of trust. See Breach of trust
setting aside by court, 90 capacity to act as, 40
Testamentary trusts compensation, 174–75
formalities, 51, 84 constructive trustees, strangers as,
inter vivos trusts, distinguished, 84 131–42
Title knowing assistance to trustee,
bona fide purchaser for value without 135–37
notice, 133 knowing receipt of trust property,
constructive trust, 124 137–42
resulting trust, 107, 114–18 trustees de son tort, 133–35
trust property, 12, 40, 81 deadlock, 157–58
equitable title, 81, 184 debtors, distinguished, 13–14
joint title by trustees, 156 defences. See Defences of trustees
transfer to trustee, 41, 49–50 discretion, 23–24, 26, 158–59
Tracing, 126, 184–86 duties. See Duties of trustees
equity, in, 126, 184–85 expenses, reimbursement, 175–77
property at law, 184 fiduciary relationship, 10–11, 154–55
third parties, to, 185–86 gains by, constructive trusts, 128–31
trustee, appropriation by, 186 passing of accounts, 165, 174
Trust assets powers. See Powers of trustees
apportionment, 163, 164 purchase from trust, 130–31
commingling, 155–56, 186 removal, 152–53
conversion, 163–64 retirement, 151–52
investment, 160–61 rights. See Rights of trustees
misappropriation, 183–86. See also sales to trust, 131
Breach of trust standard of care, 156
personal remedies, 183–84 unanimity, 157–58
tracing, 184–86 Trusts
purchase by trustee, 130–31 administration. See Administration
purchase from trustee, 131 of trusts
successive interests, 162–64 amendment or alteration. See Amend-
title, 12, 49, 81, 156 ment of trust
Trust concept, 5–6 assets. See Trust assets
agency, distinguished, 12–13 certainty requirements, 41–47. See
beneficial interest, 5–6, 8–9 also Certainty requirements
contract, distinguished, 13 charitable. See Charitable trusts
debt, distinguished, 13–14 constructive trusts. See Constructive
definition of trust, 5–6 trusts
fiduciary relationship, 10–11 creation, 39–58
history, 6–10 capacity, 40
power, distinguished, 21–22 operation of law, 107
Quebec, 19–20 definition, 5–6
Trust principles, 3–4 discretionary trusts. See Discretion-
beneficiary principle, 60 ary trusts
enforceability objection, 60, 73 express trusts. See Express trusts
Trustees. See also Fiduciaries formalities. See Formalities
agents, distinguished, 12–13 invalid trusts, 53–57
appointment, 148–51. See also Ap- purpose trusts. See Purpose trusts
pointment of trustees residence of trust, 57–58
Index 209
resulting trusts. See Resulting trusts Variation of trust, 97–103

termination. See Termination of trust Alberta and Manitoba, 97–98
testamentary trusts. See Testament- other provinces and territories,
ary trusts 98–103
variation by court. See Variation of arrangement to be presented,
trust 101–2
benefit required, 102–3
Unincorporated associations, 77–79 persons on whose behalf court
capacity as trustee or beneficiary, 40 can act, 99–101
Unjust enrichment
constructive trust remedy, 123,
126–27, 142–44
domestic property disputes,
142–44
ABOUT THE AUTHOR
Eileen E. Gillese, BA, BCL (Oxon) is a justice of the Court of Appeal for
Ontario, a position that she has held since 2002. She served as a judge
of the Superior Court of Justice from January 1999 until her elevation
to the Court of Appeal. Prior to her appointment to the Bench, Justice
Gillese served as professor and Dean of the Faculty of Law at the Uni-
versity of Western Ontario, where she taught Trusts, Property, Wills,
Administrative Law, Pension Law, and Legal Research and Writing.
Justice Gillese holds undergraduate and graduate law degrees from
Oxford University, England, and a BComm from the University of Al-
berta. She has been a member of the Alberta and Ontario bars and has
practised law in both jurisdictions. She was appointed a member of the
Pension Commission of Ontario in 1988, served as its Vice Chair from
1989 to 1993, and Chair from 1994 to 1996. Justice Gillese was Chair
of the Financial Services Commission and the Financial Services Tri-
bunal in 1998.
210

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THE LAW OF TRUSTS

Immigration Law Intellectual Property Law 2/e

Securities Law Criminal Procedure 2/e

Computer Law 2/e Criminal Law 5/e

Maritime Law Personal Property Security Law 2/e

Insurance Law The Law of Contracts 2/e

International Human Rights Law Youth Criminal Justice Law 3/e

Franchise Law Constitutional Law 4/e

National Security Law: Canadian Environmental Law 4/e

Bankruptcy and Insolvency Law Remedies: The Law of Damages 3/e

The Law of Partnerships and Freedom of Conscience and Religion

Irwin Law Inc

Library and Archives Canada Cataloguing in Publication

Gillese, Eileen E., author

The publisher acknowledges the ﬁnancial support of the Government of Canada

We acknowledge the assistance of the OMDC Book Fund, an initiative of

Printed and bound in Canada.

PREFACE TO THE THIRD EDITION xiii

PART ONE: Introduction 1

CHAPTER 1: An Introduction to the Law of Trusts 3

PART TWO: Express Trusts 37

CHAPTER 3: The Creation of Express Trusts 39

CHAPTER 4: Purpose Trusts 59

CHAPTER 5: Ending or Changing a Trust 80

PART THREE: Trusts Arising by the Operation of Law 105

CHAPTER 6: Resulting Trusts 107

CHAPTER 7: Constructive Trusts 123

PART FOUR: The Trustee 145

CHAPTER 8: The Appointment, Retirement, and Removal of Trustees 147

CHAPTER 9: Duties of Trustees 154

CHAPTER 10: The Powers and Rights of Trustees 168

CHAPTER 11: Breach of Trust 178

CHAPTER 12: Conclusion 193

TABLE OF CASES 195

ABOUT THE AUTHOR 210

PREFACE TO THE THIRD EDITION xiii

PART ONE: INTRODUCTION 1

A. Understanding Trust Law 3

B. An Introduction to the Trust Concept 5

C. History and Background 6

1) General Powers of Appointment 25

E. Rights of Objects of a Power of Appointment 32

F. Creating a Valid Power of Appointment 33

PART TWO: EXPRESS TRUSTS 37

C. The Three Certainties 41

F. Limitations on the Creation of Trusts 53

1) The Objects of the Trust Are Illegal 53

1) The Established Approach 64

C. Non-charitable Purpose Trusts 72

D. The Relationship between Charitable and Non-charitable Purpose

B. Termination of the Trust 81

1) Revocation by the Settlor 81

1) Through the Trust Instrument 90

PART THREE: TRUSTS ARISING BY THE OPER ATION

B. Automatic and Presumed Resulting Trusts 111

C. Classic Resulting Trust Situations 113

1) Failure of an Express Trust 113

D. The Presumptions of Resulting Trust and Advancement 118

B. Constructive Trusts: Remedy or Cause of Action? 126

C. Recognized Applications of Constructive Trusts 128

1) Causes of Action 128

PART FOUR: THE TRUSTEE 145

B. Powers and Duties 155