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The Court's Judgment and Distinction in Estate Trustees' Power

November 1, 2021

Ontario

,

Canada

Issue

When can an estate executor exercise their discretion to sell land?

Conclusion

The Court had jurisdiction to intervene in the exercise of a discretion by Trustees in three situations: 1) a mala fide exercise of such a discretion; or 2) a failure to exercise such a discretion; or 3) a deadlock between trustees as to the exercise of such a discretion. Even in the absence of mala fides by the Trustees, the Court had jurisdiction to intervene if the Trustees “failed to exercise a power” of discretion granted to them by the settlor or testator, even if their conduct would not justify their removal as Trustees. (Parson v. McGovern)

When it is a discretionary power given to the executors, the case must be dealt with according to the general principle that it is the duty of executors, as of other trustees, to hold an even hand between beneficiaries. In exercising, or refraining from the exercise of any power, they must act honestly, and not benefit one cestui que trust at the expense of another, except so far as exercise of a discretion permitted to them necessarily involves that result. (Re McClintock)

The executors are protected from all liability if they honestly and with due care exercise the discretion vested in them. (Re Wright)

The executors cannot come to the Court and ask whether the present is a good time or a bad time to sell stock or anything else, or ask whether a price offered is sufficient or insufficient. The advice which the Court is authorised to give is not of that type or kind; it is advice as to legal matters or legal difficulties arising in the discharge of the duties of the executors, not advice with regard to matters concerning which the executors' judgment and discretion must govern. (Re Fulford)

It is the obligation of the executors, not the courts, to decide how to proceed. Any risks associated with a decision should rest with the executors. (Keller v. Wilson)

In Josephs v. Josephs Estate the Court affirmed the executors' broad power to acquire and dispose of assets, particularly land.

In Read Estate v. Read, Quinn J. held that the Estate Trustees pursuant to the terms of the Will had no authority to sell the farm. The farm, on death or remarriage of the first wife of the deceased, was to be conveyed to the two sons or their estates. While Quinn J. recognized that he had no authority to impose a settlement in this matter, he recommended that the matter should be resolved by selling the farm. After expenses have been paid the proceeds of the sale of the farm should be divided into three shares. One share should be delivered to the first wife. Two shares should be delivered to both sons, one to each, subject to the payments to be made to their sisters. This proposed settlement would have been an equitable resolution for all family members and in keeping with the deceased’s wishes.

Law

In Parson v. McGovern, 2014 ONSC 1785 (CanLII) Smith J. held that the Court had jurisdiction to intervene in the exercise of a discretion by Trustees in three situations: 1) a mala fide exercise of such a discretion; or 2) a failure to exercise such a discretion; or 3) a deadlock between trustees as to the exercise of such a discretion. Even in the absence of mala fides by the Trustees, the Court had jurisdiction to intervene if the Trustees “failed to exercise a power” of discretion granted to them by the settlor or testator, even if their conduct would not justify their removal as Trustees:

[25] In Re Blow Press Ltd. v. U.S.W.A. (1977), 1977 CanLII 1274 (ON SC), 18 O.R. (2d) 516, Rutherford J. held that the Court had jurisdiction to intervene in the exercise of a discretion by Trustees in three situations: 1) a mala fide exercise of such a discretion; or 2) a failure to exercise such a discretion; or 3) a deadlock between trustees as to the exercise of such a discretion.

[...]

[27] At para. 18 of Re Blow, Rutherford J. stated:

The starting point for consideration of the extent of the Court’s supervisory jurisdiction over trustees’ discretion is the House of Lords decision in Gisborne v. Gisborne (1877), 2 App. Cas. 300 (H.L.). In that case, the testator’s will provided that the trustees, “in their discretion, and of their uncontrollable authority”, pay all or part of the income of the trust for the maintenance and comfort of the testator’s wife. Their lordships held that where the trustees’ have exercised their discretion, the Court will not interfere in the absence of mala fides.

[28] In the Gisborne decision the Trustees were given a wide discretion to pay all of the income of the trust to the testator’s wife. The words used were “in their discretion, and of their uncontrollable authority.” At para. 20 in Re Blow, Rutherford J. stated:

…However, the predominant view appears to be that the Court has no greater power over the trustees’ exercise of a discretion which is “unenlarged” by such adjectives (see Philip H. Petit, Equity and the Law of Trusts, 2nd ed. (1970), p.340; Terence Sheard, “Comment” (1966), 44 Can. Bar Rev. 660 at pp. 660-661; Maurice Cullity, “Judicial Control of Trustees’ Discretions” (1975), 25 U. of T. L.J. 99 at p. 101).

[29] At para. 22 in Re Blow, Rutherford J. stated:

…In his article, Professor Cullity (op. cit., especially pp. 114-117) referred to several cases where the Courts intervened in cases where trustees, in effect, failed to exercise the discretion granted to them by the settlor or testator. . . . In my view, the Court’s discretion to intervene in such circumstances exists quite apart from the jurisdiction referred in Gisborne.” The Gisborne principle arises in respect of the exercise of a discretionary power and restricts court intervention to cases of mala fides”. In my view, where the Trustees fail to exercise a power, the Court’s jurisdiction is not so limited.

[30] In summary, Rutherford J. held that even in the absence of mala fides by the Trustees, which Gisborne held was required for the Court to intervene in the Trustees’ exercise of their jurisdiction, the Court had jurisdiction to intervene if the Trustees “failed to exercise a power” of discretion granted to them by the settlor or testator, even if their conduct would not justify their removal as Trustees.

In Re McClintock, 1976 CanLII 721 (ON SC) the Court held that when it is a discretionary power given to the executors, the case must be dealt with according to the general principle that it is the duty of executors, as of other trustees, to hold an even hand between beneficiaries. In exercising, or refraining from the exercise of any power, they must act honestly, and not benefit one cestui que trust at the expense of another, except so far as exercise of a discretion permitted to them necessarily involves that result:

It is a discretionary power given to the executors, and not a specific pecuniary legacy to Peter Fritsche. The case must, therefore, be dealt with according to the general principle that it is the duty of executors, as of other trustees, to hold an even hand between the several beneficiaries. In exercising, or refraining from the exercise of any power, they must act honestly, and not benefit one cestui que trust at the expense of another, except so far as exercise of a discretion permitted to them necessarily involves that result: 38 Hals., 3rd ed., p. 973, para. 1684. In Re Smith, 1970 CanLII 276 (ON SC), [1971] 1 O.R. 584, 16 D.L.R. (3d) 130; affirmed 1971 CanLII 577 (ON CA), [1971] 2 O.R. 541, 18 D.L.R. (3d) 405, it was held that notwithstanding an express power to retain securities the executors were in breach of their duty to hold an even hand between the life tenant and the remainderman in failing to sell securities and to reinvest the proceeds in securities which would bring in a higher return.

In Re Wright, 1976 CanLII 812 (ON SC) the Court held that the executors are protected from all liability if they honestly and with due care exercise the discretion vested in them:

I adopt the language of Middleton, J., in the case of Re Fulford (1913), 29 O.L.R. 375 at p. 382, 14 D.L.R. 844 at p. 850, as follows:

The executors are protected from all liability if they honestly and with due care exercise the discretion vested in them. But the responsibility is theirs, and cannot be shifted upon the Court. The executors cannot come to the Court and ask whether the present is a good time or a bad time to sell stock or anything else, or ask whether a price offered is sufficient or insufficient. The advice which the Court is authorised to give is not of that type or kind; it is advice as to legal matters or legal difficulties arising in the discharge of the duties of executors, not advice with regard to matters concerning which the executors' judgment and discretion must govern.

In Re Fulford, 1913 CanLII 515 (ON SC) the Court asserted the wide discretion given to the executors:

It is suggested that some scheme should be devised by which the Court should approve of realisation in each particular case, taking the opinion of some advisory committee, if necessary, upon each particular transaction. I do not think that any such scheme can be authorised. The executors are protected from all liability if they honestly and with due care exercise the discretion vested in them. But the responsibility is theirs, and cannot be shifted upon the Court. The executors cannot come to the Court and ask whether the present is a good time or a bad time to sell stock or anything else, or ask whether a price offered is sufficient or insufficient. The advice which the Court is authorised to give is not of that type or kind; it is advice as to legal matters or legal difficulties arising in the discharge of the duties of the executors, not advice with regard to matters concerning which the executors' judgment and discretion must govern.

In Keller v. Wilson, 2015 ONSC 6962 (CanLII) Broad J. held that it is the obligation of the executors, not the courts, to decide how to proceed. Any risks associated with a decision should rest with the executors:

[19] Re Fulford was followed in the case of Re Wright 1976 CanLII 812 (ON SC), [1976] O.J. No. 2367 9H.C.J.) in which an estate trustee applied to the court for an order approving the sale of shares comprising just over half the value of the estate. In dismissing the application, Craig, J. adopted the language of Middleton, J. in Re Fulford as well as the principle in Tempest v. Lord Camoys (1882), 21 Ch. D. 571 (a case cited by counsel for Mr. and Mrs. Wilson in his Factum this case) that the court has no power, save in the case of male fides or a refusal to discharge the duty undertaken, to put a control on the exercise of the discretion which the testator has left to the trustees.

[20] More recently Justice D.M. Brown, as he then was, in the case of Re Kaptyn Estate (2009) 48 E.T.R. (3d) 278 (S.C.J.), applied the principle in Re Fulford, and adopted in Re Wright, to a case where an estate trustee brought an application to the court pursuant to section 60(1) of the Trustee Act, R.S.O. 1990, c. T.23 for directions on whether an action should be commenced on behalf of the estate. Section 60(1) of the Trustee Act provides as follows:

A trustee, guardian or personal representative may, without the institution of an action, apply to the Superior Court of Justice for the opinion, advice or direction of the court on any question respecting the management or administration of the trust property or the assets of a ward or a testator or intestate.

[21] Justice Brown, at paragraph 31 of Re Kaptyn Estate, observed that “it is the obligation of the executors, not the courts, to decide whether an action should be commenced for the benefit of the estate and how to do so. Any risks associated with a decision about whether or not to sue should rest squarely on the shoulders of the executors.”

In Josephs v. Josephs Estate, 1992 CanLII 7669 (ON SC) the Court affirmed the executors' broad power to acquire and dispose of assets, particularly land:

Even if what is dealt with in the eventual sale is not personalty but realty, the rule in Howe v. Dartmouth (Earl), supra, applies only to specific bequests under wills. The question to be determined in the case at bar is whether the even-handed principle to which I will be referring applies to land acquired by the estate after the testator's death. However, before looking at that aspect of the case it must be determined whether the land in the present case, if it is deemed to be realty, was an asset acquired after the testator's death or an asset forming part of the estate at death. It is trite law that the mortgage is personalty and that the land is realty. Accordingly, it can be argued that by electing to foreclose and take title to the land (as opposed to selling under power of sale or suing for the mortgage debt or both) the executors have exercised their discretion and acquired a new asset. It is not necessary to settle that argument in this case because the executors did far more than that. Faced with litigation by Mayzel attacking their foreclosure, they negotiated a settlement whereby they acquired title to some land and were paid some money for release of any claim with regard to other lands. In my view this constituted an entirely new investment by the trustees in their discretion which turned out to be a fortunate one. They thereby acquired a new asset that was subject to their obligation to exercise an even hand between life beneficiary and the residual beneficiary.

In Read Estate v. Read, 2007 CanLII 57937 (ON SC) Quinn J. held that the Estate Trustees pursuant to the terms of the Will had no authority to sell the farm. The farm, on death or remarriage of the first wife of the deceased, was to be conveyed to the two sons or their estates. While Quinn J. recognized that he had no authority to impose a settlement in this matter, he recommended that the matter should be resolved by selling the farm. After expenses have been paid the proceeds of the sale of the farm should be divided into three shares. One share should be delivered to the first wife. Two shares should be delivered to both sons, one to each, subject to the payments to be made to their sisters. This proposed settlement would have been an equitable resolution for all family members and in keeping with the deceased’s wishes:

[2] Robert Nelson Kitchener Read (the deceased) died November 8, 1976. The deceased’s last Will and Testament provided for a life estate to his farm to his widow Thelma Read (Thelma), and on Thelma’s death or remarriage one half of the farm was to be conveyed to the decesed’s son Ralph Read (Ralph), and one half to his other son Robert Read (Robert). The conveyance to Ralph and Robert was subject to Ralph paying his sister Irma $1,000 within two years of the deceased’s death and Robert paying his sister Ruby $1,000 within two years of the deceased’s death. As of the date of this hearing neither Robert nor Ralph has paid the $1,000.

[3] Robert died November 2003 and the respondent Brenda Read is his widow. Thelma is still alive and receiving the benefits of the life estate. On April 26, 2006, the residence on the farm was destroyed by fire. Thelma has received $71,000 in insurance proceeds. The residence has not been rebuilt.

[...]

[9] The Estate Trustees pursuant to the terms of the Will have no authority to sell the farm. The farm, on Thelma’s death or remarriage, is to be conveyed to the two sons or their estates.

Costs

[10] Costs are reserved for submissions if necessary.

[11] I have no authority to impose a settlement in this matter. What I have written above is my opinion as to the law. I would recommend, however, that this matter should be resolved by selling the farm forthwith. After expenses have been paid the proceeds of the sale of the farm and the $71,000 should be divided into three shares. One share should be delivered to Thelma. One share should be delivered to Ralph less the sum of $1,000 plus interest from November 8, 1978 which is to be paid to Irma. One share is to be delivered to Robert’s estate less the sum of $1,000 plus interest from November 8, 1978 which is to be paid to Ruby. This proposed settlement would be an equitable resolution for all family members and in keeping with the deceased’s wishes.

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