Section 35 Trustee Act – Life-Saver

An executor, estate trustee or any trustee for that mater can be subject to court scrutiny over his or her administration of an estate or trust. That scrutiny is usually initiated by a suspicious beneficiary. Often, and preferably, the scrutiny process will be informally handled through the exchange of explanatory letters and documents, either directly or through counsel. Often that is the end of the matter. But not always. In Ontario, a beneficiary (or for that matter any financially interested party such as a creditor) can formally launch the scrutiny process by bringing motion to court to compel the passing of accounts. It is usually best to wait at least a year into the administration before launching such a motion. Alternatively, beneficiaries can issue a statement of claim in the Ontario Superior Court of Justice and seek compensation, damages and costs against the trustee. In most civil litigation in Ontario, the plaintiff is merely required to prove the wrongful act on the balance of probabilities and the court, as a matter of course, then orders damages to be paid by the defendant. Inelegantly put – wrong-doers must pay for screw-ups. There is, however, a significant twist in estate litigation; what one could refer to as the get-out-of-jail-for-free card or the negligence licence. Some of the more popular beneficiary challenges our firm has seen on passing of accounts are failure to distribute the estate in a timely and proper fashion and over-involvement of professionals and agents. It was the first category that was involved in the case that follows. The author was involved in an unusual administration challenge in 2011 in the reported and much-debated decision ofMcDougall Estate 2011 ONSC 4189. This case started out, as many does, innocently enough with an Order to pass the accounts brought by a merely suspicious beneficiary. Through the accounts filed with the court and the documentation produced in support, the beneficiary was surprised to discover a sizable donation had been made from the estate to a charity in Jamaica with, at best, scant wording in the Will to support even the concept of any such donation. That donation was challenged. At the hearing, the court was sympathetic to the volunteer trustee (neither a family member nor a beneficiary) and struggled to assist her in stretching the wording of the Will to justify the donation. However, the court ultimately could not and did not find that the donation was authorized under the wording of the Will. Beneficiary wins right? No wrong. In traditional civil litigation in Ontario, that would have been the end of the matter – the breach of trust having been found to have occurred by the court, the wrongdoer must pay back the funds to the estate. Instead, the court found the trustee to be honest in her evidence but unsophisticated in the ways of the world. The court, seemingly almost on its own, seized on the statute that would rescue the trustee – s. 35 of the Trustee Act R.S.O. 1990 c. T23. Under Section 35, a trustee who acts honestly and reasonably may be relieved from her breach of trust. To the author’s knowledge, no similar statutory relief exists in any other area of Ontario civil law. The court determined to apply Section 35 and declined to make an order for repayment. That having been said and despite the trustee’s successful defence, she did suffer other consequences such as the loss of some compensation and legal costs. As Ontario estates continue to grow in size and come under greater scrutiny, Section 35 will find its way more and more into the jurisprudence. The obvious must now be stated. A trustee should not rely upon Section 35 and should seek the customary protection of legal and other professional advice, which the author points out are legitimate estate expenses. But isn’t it nice to know that when all else fails, there may be a get-out-of-jail-for-free card waiting. As Ontario estate litigation lawyers, our firm is involved in the day-to-day issues of estate administration and disputes. We appear regularly on the Toronto Estates List and in the civil courts of Southern Ontario.