COURT OF APPEAL FOR ONTARIO
DATE: 20220120 DOCKET: C69455
Strathy C.J.O., Pepall and Pardu JJ.A.
BETWEEN
Gerald Walters Applicant (Respondent)
and
Steven Walters, Gregory Walters and Janice Bonnin, Estate Trustees of the Estate of Florence Olive Walters Respondents (Appellants)
Counsel: Corey Wall, for the appellants Michael F. Sirdevan, for the respondent
Heard: September 16, 2021 by video conference
On appeal from the judgment of Justice Jill C. Cameron of the Superior Court of Justice, dated April 12, 2021, with reasons reported at 2021 ONSC 2695.
Introduction
1This appeal involves the interpretation of a will that provided trustees with the right to encroach on capital as they in their absolute discretion considered necessary or advisable for the benefit of the income beneficiary. This was to ensure his comfort and well-being. The main issue to address is whether the trustees improperly relied on extraneous factors in the exercise of their discretion.
2The appellants, Stephen [1] Walters and Janice Bonnin, are the children of Florence Olive Walters (“Ollie”) and her husband, the respondent, Gerald Walters. Ollie died on May 8, 2016. She left a will naming Stephen, Janice and her third child, Gregory Walters, as Estate Trustees. Gregory was removed as a co-Trustee on consent by court order dated February 19, 2019 and, though aligned with Gerald, is not a party to the litigation.
3Ollie’s will named Gerald as an income beneficiary and left the residue of the Estate to the three children. However, the will also provided the Trustees with an absolute discretion to encroach on capital in a manner that would ensure the “comfort and well-being” of Gerald.
4Gerald asked the appellants, who were the remaining Trustees, to encroach on capital to pay his living expenses. The appellants mistrusted their father and the proprietor of the residence in which he resided and were not prepared to pay him the sum he requested. Gerald then applied for an order that the Trustees provide him with financial assistance.
5The application judge granted Gerald’s request and ordered the appellant Trustees to pay their respondent father $3,875 per month commencing May 1, 2021 and arrears of $98,750 for the period August 1, 2018 to April 30, 2021. She also ordered that costs of $26,000 be paid out of the Estate to the respondent. The appellants appeal from that judgment.
Background Facts
Ollie and Gerald
6Ollie and Gerald were married for over 60 years. They lived in the parties’ matrimonial home in Coldwater, Ontario. It was registered in the name of Ollie, as was an adjacent vacant lot. Gerald was a builder and ran his own construction company. He built the matrimonial home and all of the other houses in the subdivision where it is located as well as countless other houses in the Orillia area.
7Prior to her death, Ollie lived in a nearby nursing home called Spencer House while Gerald remained in the matrimonial home. According to Gerald, the cost of Ollie’s housing and care was in excess of $2,500 per month. She was 82 when she died in 2016 and Gerald was 86. The evidence on the nature of their relationship is contradictory but the application judge made no findings in this regard. Notes provided by Gerald to his and Ollie’s lawyer recorded that in the event Janice and Stephen brought Ollie home, Gerald would proceed with an application for divorce.
8Ollie’s last will and testament, dated October 18, 2006, provided Gerald with a life interest in her Estate, remainder to her three children. Paragraph 4(b) of the will states:
I DIRECT my Trustees to hold the residue of my estate in trust for my husband, GERALD CECIL FREDERICK WALTERS, for his lifetime, and I DIRECT my Trustees to keep such residue invested and to pay to or for the benefit of my husband, GERALD CECIL FREDERICK WALTERS, by monthly or other convenient instalments the net income derived from the residue of my estate. In addition, I DIRECT that my Trustees shall have the right to pay such part or parts of the capital of the residue of my estate as my Trustees in their absolute discretion consider necessary or advisable to or for the benefit of my said husband from time to time. I wish to advise my Trustees that my husband's comfort and welfare are my first consideration and for this reason, it is my desire that my Trustees exercise their powers to encroach on the capital in a manner which will ensure his comfort and well being.
9On her death, the Estate lawyer prepared a list of Ollie’s assets. The total value of her assets was $428,006.56, $419,500.00 of which represented realty consisting of the matrimonial home and the vacant lot, and $8,506.56 of which represented personalty.
Gerald’s Court Proceedings
10On May 17, 2017, Gerald issued a Notice of Application asking for, among other things, an order that: a January 11, 2011 agreement with Ollie be declared to be a marriage contract; Ollie’s will be declared invalid; he be named as the residual beneficiary, and the matrimonial home, where he continued to reside, and the vacant lot be placed in his name.
11In January 2018, the parties attended at mediation and signed minutes of settlement that were subject to preparation of a more formal agreement. Numerous efforts were made by Gerald’s counsel, Michael Sirdevan, to move the matter forward, but for whatever reason, the appellants’ counsel, Corey Wall, was unresponsive. On May 28, 2018, Mr. Wall sent Mr. Sirdevan a revised agreement that was unsatisfactory to Gerald. On August 27, 2018, Mr. Sirdevan advised that Gerald considered the minutes of settlement to be at an end and that he wished to have the home and vacant lot listed for sale. He also advised that once the home was sold, Gerald expected that he would require monthly payments of $4,000 from the Estate in order to pay his monthly living expenses. Gerald subsequently moved into a residence described as Rural Roots Retirement. Peggy Wainman was its proprietor.
12On March 1, 2019, Mr. Sirdevan wrote again, provided some details of Gerald’s financial circumstances, and requested that the Estate contribute to Gerald’s expenses. He stated that Gerald had savings of approximately $50,000, income of $1,800 per month and expenses of $5,330 per month. Mr. Sirdevan opined that the request of $4,000 was appropriate.
13In response, Mr. Wall asked for proof of expenses. He reiterated that request on May 9, May 13, and May 21, 2019.
14On May 22, 2019, Ms. Wainman wrote a note addressed to whom it may concern simply stating that Gerald paid $3,000 per month for room and board at Rural Roots Retirement. Mr. Wall advised Mr. Sirdevan that this note was insufficient. Mr. Wall said that the Trustees “are willing to exercise their discretion regarding encroachment on the capital but given the circumstances, need better documentary support.” The Trustees also asked for authorization to speak to Peggy Wainman or Gerald directly. This was not forthcoming.
15By correspondence dated May 21, 2019, Mr. Sirdevan wrote to Mr. Wall explaining that he had asked Gerald for the documentary support several times and was not sure why Gerald had not supplied it to him. He advised that Ms. Wainman had written to him stating that she was not going to be talking to anybody. Mr. Sirdevan wrote that he had asked Gerald for an invoice or corroboration of the claimed expense, had not yet received any, but would keep on trying.
16On August 14, 2019, Mr. Wall served Stephen’s affidavit sworn August 13, 2019 and wrote a covering letter expressing the Trustees’ concerns that the amounts claimed by Gerald were an inaccurate reflection of what Gerald was paying and reiterating the request for documentary evidence. Stephen and his co-Trustee were willing to exercise their discretion with respect to capital payments but wanted supporting documentation on expenses. In his affidavit, Stephen said they had been unable to verify that Ms. Wainman was a legitimate service provider or that their father had been paying the amount she described and there was no description of the services she was providing. Searches of the Province of Ontario’s Retirement Homes Regulatory Authority for Peggy Wainman and Rural Roots Retirement revealed no entries. Stephen also described the Trustees’ concern about the contents of a phone message that was inadvertently recorded between their father and Ms. Wainman and left on Stephen’s answering service on May 21, 2019. Stephen’s affidavit described the message as follows:
Gerald: ... Gerry calling, give me a call and I will let you know what time ... around 9 o'clock tomorrow morning ... give me a call back ... and let me know you got the message. Bye ...
Gerald: That's great, thanks Peggy.
Peggy: That should be fine ...
Gerald: I hope so. Lots of things I would like to say ...
Peggy: ... Perfect. ... You've been here for ... month, you don't want them to see what you’re paying now.
Gerald: Ya, if they say anything I'll say I've decided to go to the Birchmere;
Peggy: Ya, you'd be paying $8 - $10,000 a month see how they like that.
Gerald: Oh ya, it would be over 5 and … ya, be over 5.
Peggy: Tell them you want 5 ..., and palatial, at least $8,500 ...
Gerald: Laughter ... Peggy
Peggy: Say you want all the services to go with it ....
Gerald: I know, I know. Monies the whole thing ... right from day one. I can sucker them in pretty good I think.
Peggy: You think so ... I hope you F**k ... them now .
Gerry: I hope so , I don't know what ... too bad that my kids and my … [Emphasis added.]
17In his affidavit, Stephen described why he and his co-Trustee had concerns about Ms. Wainman’s lack of detail and the legitimacy of the expenses claimed. The phone recording suggested that their father was intentionally trying to deceive them and was being supported and encouraged in this regard by Ms. Wainman.
18On August 23, 2019, Mr. Wall reiterated the Trustees’ request for documentary evidence of Gerald’s expenses.
19On May 31, 2019, the house was sold for $458,000 and following commission and other deductions, $400,000 was invested in short term guaranteed investment certificates. The closing date for the sale of the vacant lot was September 4, 2019 with expected net proceeds of $117,900. The Trustees invested the proceeds and started to pay the net income derived from those proceeds to Gerald, paying him $1,972.60 in September and $2,465.75 at the end of December of 2019.
20On October 1, 2019, Mr. Sirdevan advised Mr. Wall that there were no invoices for the expenses claimed by Gerald and instead sent a 12-month record of Gerald’s banking activity.
21On November 27, 2019, Gerald caused his Notice of Application to be amended. He deleted the earlier requests contained in his May 17, 2017 Notice of Application (with the exception of his request for the appointment of an Estate Trustee During Litigation and costs). Now he sought an interim and final order that the Estate pay him $25,000 immediately and $5,000 per month retroactive to September 1, 2018, and an order removing the appellants as Estate Trustees. In his affidavit dated January 25, 2019, he stated that he believed the appellants to be in a conflict because they were attempting to preserve the assets of the Estate for their own purpose. Subsequently, in his December 4, 2019 affidavit, he stated that since January 25, 2019, the Trustees had refused to provide any financial assistance with the exception of one payment of $1,972.60 in September 2019. He went on to say that he had been forced to spend his life’s savings to support himself for coming up to three and a half years. He stated that he lived at Rural Roots Retirement where Peggy Wainman provided him with room and board, assistance with medication and other basic care needs, and transportation to and from medical appointments. He had lived there since August 2018 and paid $3,000 monthly but the fee had been increased to $3,875 as of September 1, 2019. He stated he had additional monthly expenses of $1,200 which included the cost of maintaining his vehicle which he no longer drove, meals out, dental and eye care, and an annual bus trip. He noted that these expenses had been itemized in correspondence sent by Mr. Sirdevan to Mr. Wall on March 1, 2019. He did not address the Trustees’ concerns relating to the recorded phone message.
22On November 29, 2019, the Trustees offered to exercise their discretion to provide quarterly payments of $1,000 from the capital in addition to quarterly interest payments but struggled given the limited scope of the financial disclosure provided. They indicated they would re-consider this amount if Gerald provided further financial disclosure. They described the basis for the exercise of their discretion as follows:
a. The hand-signed note from Peggy Wainman did not qualify as an invoice. The note would not suffice should the Trustees be asked to pass accounts before the court as evidence of legitimate estate expenses.
b. Rural Roots Retirement was not licensed under the Retirement Homes Act, 2010, S.O. 2010, c. 11, nor was Peggy Wainman licensed under that Act.
c. The additional monthly expense of $1,200 was not supported by Gerald’s bank records that had been provided.
d. The eyewear, prescription expenses and the majority of the vehicle expenses were less than previously advised based on the bank records.
e. There were no details or supporting receipts regarding any travel.
f. There was no supporting evidence of meals purchased outside the home.
g. Gerald’s bank records showed that he was receiving $10,000.00 in quarterly payments in addition to his Old Age Security (OAS) and Canada Pension Plan (CPP) payments, contrary to his affidavit of December 4, 2019, in which he stated that his sole income was limited to CPP.
h. Gerald appeared to have significant holdings with other financial institutions, as evidenced from a 2011 TD Waterhouse statement, showing him having assets totalling $1,181,229.15. In that regard, Mr. Wall noted that “It is acknowledged that this statement is over 8 years ago but respectfully if [Gerald] has gone through the $1,181,229.15 in 8 years it is clear why [Ollie] would have left the trustees with the absolute discretion with respect to the encroachment on the residue.”
i. The voicemail left by Gerald in which he stated that he intended to "sucker" the Trustees.
23Mr. Wall wrote to Mr. Sirdevan on the same date, stating:
It is troubling to the trustees that there has been no explanation for the comments made in the voicemail that your client inadvertently left and which is now before the court as evidence and the fact that there has been such limited financial disclosure. The trustees may give some further consideration to this matter but would require full financial details from your client. I would suggest an authorization allowing the trustees to obtain any and all financial records for your client including his annual tax filings. You may think this to be reaching but given the expressed intentions of your client it is reasonable.
24On January 7, 2020, McCarthy J. granted a consent order that the Trustees pay Gerald $1,500 per month commencing February 1, 2020. The Trustees complied.
25On January 9 and March 17, 2020, Gerald swore additional affidavits reiterating his requests and asking that the payments be made retroactive to August 1, 2018 when he said he moved out of the matrimonial home. He explained that his investment account was down to approximately $37,000 and he only had $5,928.20 in his TD bank account.
26On June 11, 2020, Mr. Sirdevan confirmed the conversation he had had with Mr. Wall writing “it looks like it will take a total of about $3,000 per month to meet Gerry’s needs.” He also stated that he would be looking for $25,000 as a retroactive adjustment and a contribution of about $35,000 to his legal expenses. He said that if the Trustees were to propose something approaching those numbers, they would likely reach resolution. Mr. Sirdevan never received a response.
27On March 24, 2021, Stephen swore yet another affidavit. He noted that before moving to Ms. Wainman’s residence, Gerald had expressed a desire to live at Birchmere Retirement Residence where the best view for value was a lakeview room for $2,950 per month covering room, care, and board. Spencer House in Orillia, where Ollie had lived and where Gerald’s sister resided, charged $2,535 monthly. Stephen observed that the 29-30% increase of $3,000 to $3,875 for Ms. Wainman’s residence would not be allowed in a regulated facility. He also pointed out various discrepancies in Gerald’s January 9, 2020 and March 17, 2021 affidavits and earlier disclosures.
28At paras. 30, 31 and 32, he wrote:
My sister and I have researched Rural Roots Retirement and Peggy Wainman and neither is a registered facility with the Retirement Homes Regulatory Authority (RHRA) and as such does not provide the services found at registered facilities, is not monitored as to the level of care as registered facilities are and is not required to meet or confirmed to meet safety standards. There is no governing body to support the rights of the residents, or to ensure proper licensing or insurance requirements, ethics, conduct or otherwise monitoring. Ms. Wainman’s refusal to provide an outline of the services provided and comments during the May 21, 2019 voicemail, furthers our concerns as to whether her charges are reasonable.
According to our research and information found on “Happy at Home” (a body that helps find appropriate housing accommodations for seniors) the reasonable rate for room and board in our area would average $2,000.00 per month. The Birchmere rates ranged from $2,215.00 to $3,884.00 for room, care and meals and it specifically set out the “care”. Gerald claims that Peggy provides room and board, 3 meals a day, assistance with medications and other basic needs and now transportation to medical appointments.
Gerald has not provided details of what assistance with medication Peggy is providing, nor what “other basic needs” entails nor how many medical appointments she takes him to per month nor the distance travelled.
29Stephen stated that Gerald was not being honest and the bank statements did not support the expenses.
Reasons of the Application Judge
30On March 30, 2021, the application proceeded before the application judge. Gerald argued that under the terms of the will, the Trustees were required to encroach on capital in order to ensure his comfort and well-being. In contrast, the Trustees argued that they had an absolute discretion and that their mother had set out a wish, not a direction, in the last sentence of paragraph 4(b) of her will. Moreover, they expressed concern about the charges.
31The application judge gave brief reasons for decision. She found from the material filed by the Trustees that they did not like or trust their father.
32She found that the Trustees were being influenced in their decision making by extraneous matters such as their distrust of the proprietor of the home where their father resided and their dislike and distrust of their father. She therefore granted the application and ordered the Trustees to pay Gerald the sum of $3,875 per month commencing May 1, 2021. She also considered it appropriate to make the order retroactive to August 2018 less the $1,500 monthly payments made pursuant to the consent interim order dated January 7, 2020. This amounted to $98,750. She subsequently ordered that the Trustees pay Gerald $26,000 in costs on a partial indemnity scale.
33The Trustees appealed from that judgment. On June 22, 2021, Tulloch J.A. granted an order on consent that the Trustees pay Gerald $2,500 monthly commencing July 1, 2021 pending disposition of the appeal and a retroactive payment of $1,000 for June 2021.
Grounds of Appeal
34In their appeal, the appellants submit that the application judge erred in substituting her discretion for that of the Trustees with respect to the encroachment on capital. They say they exercised their discretion reasonably and complied with their duty to handle income and capital beneficiaries with an even hand. They made payments to Gerald when the Estate was in funds and the application judge erred in ordering payment of arrears. They submit that the application judge erred in concluding that they relied on extraneous factors, namely their dislike of their father and their distrust of him and Ms. Wainman. The application judge failed to identify the evidence she relied upon in support of their alleged dislike of their father and their distrust of the two was relevant given the contents of the recorded telephone discussion and Ms. Wainman’s desire to extract as much money as possible from the Estate.
Analysis
Consideration of Extraneous Matters
35In her will, Ollie provided her Trustees with an absolute discretion to pay such part or parts of the capital of the residue of her Estate as they considered necessary or advisable to or for the benefit of her husband from time to time. She advised her Trustees that her husband’s comfort and welfare were her first consideration and for this reason, it was her desire that her Trustees exercise their powers to encroach on the capital in a manner which would ensure his comfort and well-being.
36The question raised by this appeal is the purport of these provisions; what was Ollie’s intention?
37A testator’s intention is ascertained from a consideration of the will and the surrounding circumstances. The court puts itself in the position of the testator at the time the will was made: Trezzi v. Trezzi, 2019 ONCA 978, 150 O.R. (3d) 663, at para. 13, and Ross v. Canada Trust Company, 2021 ONCA 161, 458 D.L.R. (4th) 3, at paras. 35-41. This is known as the armchair principle.
38This appeal involves a discretionary trust. Such a trust arises “when property is vested in trustees and a class of beneficiaries or named persons appear as trust objects, but the trustees have complete discretion as to the payment of the income, or the capital, or both.”: D.W.M Waters, Mark R. Gillen & Lionel D. Smith, Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012), at p. 650.
39As emphasized in the jurisprudence and academic commentary, it is not for a court to simply substitute its discretion for that of a trustee clothed with a discretionary power. Put differently, the court may not intervene simply because it would not have come to the same decision itself: Re Gulbenkian's Settlement, [1970] A.C. 508, [1968] 3 All E.R. 785 (U.K.H.L.); McPhail v. Doulton (1970), [1971] A.C. 424, [1970] 2 All E.R. 228 (U.K.H.L.); Waters, at p. 989. However, as I will explain, the presence of a discretionary power does not mean that a court has no role to play.
40Although dealing with an executor, in Cowper-Smith v. Morgan, 2017 SCC 61, [2017] 2 S.C.R. 754, at para. 41, McLachlin C.J. stated that courts may interfere with an executor’s discretion where there is a breach of its fiduciary duty. Like executors, trustees are fiduciaries. That said, the question of the degree of control which the court can and should exercise over a trustee who holds an absolute discretion is filled with difficulty: Fox v. Fox Estate (1996), 28 O.R. (3d) 496 (C.A.), leave to appeal refused, [1996] S.C.C.A. No. 241, at para. 11. Professor Donovan Waters described the dilemma in his treatise, Waters’ Law of Trusts in Canada, at pp. 985-87:
The settlor or testator may create a power which by its nature is discretionary, or he may add that it is to be exercised at the discretion or at the absolute and uncontrolled discretion of the trustees. In the latter situation, he is attempting to underline that he wishes no interference with the trustees, and, since the beneficiaries have no such power to intervene in any event, his meaning can only refer to the courts. Indeed, all trustee discretions involve the question of how far the courts are thereby excluded …. The creator of the trust … does not intend the court to make the discretionary decisions.
On the other hand, the principle of law is that no settlor or testator can take away from the courts their ultimate jurisdiction. There has to be a limit to the extent to which the court can be excluded.
[T]he courts are in a difficult position. The rule of behaviour required of trustees in the discharge of their duties is good faith and the care of the reasonable business person. Yet, as we have suggested, the conferment of discretion appears to make the trustees their own judges of what is reasonable. In attempting to uphold the court’s necessary jurisdiction on the one hand, and the trust creator’s intention on the other, different courts have described the extent of the court’s power of intervention in different ways.
41The traditional formulation of the law was anchored in the good faith requirement referenced by Professor Waters; a court would not interfere with the exercise of a trustee’s absolute discretion unless the trustee exercised that discretion with mala fides. This principle dates back to the House of Lords decision in Gisborne v. Gisborne (1877), 2 App. Cas. 300 (U.K.H.L.). This was the formulation used by this court in Fox in 1996.
42In Fox, Galligan J.A. reasoned that intervention based on mala fides had not always been limited to fraud but could extend to circumstances where the trustee’s decision was influenced by extraneous matters. At para. 12, he quoted with approval from Hunter Estate v. Holton (1992), 7 O.R. (3d) 372 (Gen. Div.), at p. 379:
Trustees must act in good faith and be fair as between beneficiaries in the exercise of their powers. There is no allegation of bad faith in the present case. A court should be reluctant to interfere with the exercise of the power of discretion by a trustee. I adopt the following criteria in [Re Hastings-Bass, [1975] 1 Ch. 25 (U.K.H.L.), at p. 41], as being applicable to the court’s review of the exercise of such power:
To sum up the preceding observations, in our judgment, where by the terms of a trust (as under section 32) a trustee is given a discretion as to some matter under which he acts in good faith, the court should not interfere with his action notwithstanding that it does not have the full effect which he intended, unless (1) what he has achieved is unauthorized by the power conferred upon him, or (2) it is clear that he would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account, or (b) had he not failed to take into account considerations which he ought to have taken into account.
43The court in Fox decided that the trustee’s exercise of her discretionary power had been motivated, at least in part, by a factor that she ought not to have considered: her disapproval of the religion of the woman her son proposed to marry. This was considered to be an extraneous matter that justified the court’s intervention on the basis of mala fides, and accordingly, the trustee’s exercise of the power was set aside.
44In Edell v. Sitzer (2001), 55 O.R. (3d) 198 (S.C.), aff’d , 9 E.T.R. (3d) 1 (Ont. C.A.), leave to appeal refused, [2004] S.C.C.A. No. 372, at para. 159, noting that non-interference is still the general rule, Cullity J. said this about mala fides:
The grounds on which the court will strike down an attempt by a trustee to exercise discretionary powers – even where, as here, the discretion is intended [to] be as unfettered as possible – have been described in different terms over the years. The old approach that limited the court’s intervention to cases of "mala fides" has been reformulated in the more recent cases in terms of a concept of abuse of discretion.… [2]
45He also described this approach more fully in Banton v. Banton (1998), 164 D.L.R. (4th) 176 (Ont. Gen. Div.), at p. 234.
It is established in this jurisdiction that, in the exercise of their powers, trustees must give careful consideration to the scope of the power and the purpose for which it has been conferred. The terms, and the purpose, of the power indicate the facts that are relevant to its exercise. If the trustees ignore relevant factors or give significant weight to irrelevant considerations, they will have abused their discretion and the purported exercise of the power will be set aside by the Court.… These principles flow from their fiduciary status as trustees and apply even where the power is expressed to be absolute or uncontrolled. [3]
46In that case, the trustees were provided with a discretionary power to encroach on capital for the maintenance and support of a beneficiary. They exercised their discretion and gave part of the trust capital to the beneficiary for two reasons: the beneficiary had expressed a desire for it, and in any event, the trustees considered that the capital belonged to him. Cullity J. intervened. He determined that the two reasons relied upon by the trustees constituted extraneous matters; instead, the trustees should have been considering whether the beneficiary required the capital for maintenance or support.
47The court’s approach in Canada to intervention with the exercise of a trustee’s discretionary power is described in Waters’ Law of Trusts in Canada at p. 989: “The court will intervene, however, if (1) the decision is so unreasonable that no honest or fair-dealing trustee could have come to that decision; (2) the trustees have taken into account considerations which are irrelevant to the discretionary decision they had to make; or (3) the trustees, in having done nothing, cannot show that they gave proper consideration to whether they ought to exercise the discretion.” See also Ghag v. Ghag, 2021 BCCA 106, 46 B.C.L.R. (6th) 351; and Corina S. Weigl, “Keeping Fiduciaries Fit: The Exercise of Discretion,” Canadian Bar Association of Ontario, Institute of Continuing Legal Education, The Outer Limits: Exploring Issues and Opportunities in Agency, Attorney and Trusteeship, January 28, 1999. [4]
48To sum up, court intervention into the exercise or failure to exercise a discretionary power flows from a trustee’s fiduciary status. The court may intervene even where the testator has conferred an absolute discretion on the trustee. Mala fides and improper consideration of extraneous matters are encompassed by this analytical framework. Applying this framework to this appeal, the focus of the appeal was the application judge’s intervention on the basis of the Trustees’ consideration of extraneous or irrelevant matters.
Application of Principles
Application Judge’s Analysis of Jurisprudence
49Before the application judge, Gerald argued that the Trustees had exercised their discretion based on irrelevant considerations, or to use the language of the older jurisprudence, extraneous matters. The application judge agreed and concluded that the Trustees should be ordered to encroach on capital by paying the cost of Gerald’s residence. Although I reach the same conclusion as the application judge on the issue of the monthly encroachment, I do so for different reasons.
50The application judge drew on three general propositions described in Barnes v. Barnes (2008), 42 E.T.R. (3d) 16 (Ont. S.C.), at paras. 39-42, to guide her analysis. She first noted that the courts may interfere with the exercise of a trustee's discretion if the trustee's decision is influenced by extraneous matters. As we have seen, this proposition is well supported by the jurisprudence and academic commentary.
51As a second proposition, the application judge determined that in a trust established for the support, care and comfort of a beneficiary, the omission of any mention of the income of the beneficiary in the trust document means that a trustee may not demand that the beneficiary's own income be called on first and a means test is inappropriate. This proposition is more contentious.
52As a general premise, Re Butler, [1951] O.W.N. 670 (Ont. H.C.) confirms that trustees holding a discretionary power to encroach on capital must obtain sufficient information to enable them to decide whether to exercise their powers. In that case, the trustees’ failure to seek any information from the income beneficiary on her means, income, or circumstances resulted in intervention by the court.
53In Re Luke, [1939] O.W.N. 25 (Ont. H.C.), which was relied upon by Barnes, the bequest was to the wife “to use the income therefrom and so much of the corpus thereof as she may have need of for her comfort, maintenance and support during her lifetime”. The judge stated that had the testator intended that his widow should first exhaust her own funds before encroaching on the corpus of his estate, he could have used appropriate language to express that intention. His failure to do so indicated that her right of encroachment was not regulated by her other means. This was followed by Hinton v. Canada Permanent Trust Co. (1979), 5 E.T.R. 117 (Ont. H.C.), aff’d [1980] O.J. No. 1720 (Ont. C.A.), and O’Donnell (Litigation Guardian of) v. Canada Trust Co., [1996] O.J. No. 3461 (Gen. Div.).
54Hinton involved a trust fund of $100,000 for a 50 year-old son who suffered from a lifelong disability requiring continued medication and treatment and who had rarely been employed during the testatrix’s lifetime. He was the only child of the testatrix and the $156,000 residue of the estate was left to him. The trustees were directed to pay him the income from the trust fund. If, in the discretion of the trustees, that income was insufficient to provide for his “competent support, care or comfort … in keeping with his station in life and similar to that which he enjoyed during [the testatrix’s] lifetime, including … proper maintenance of his residence and all hospital, medical and institutional expenses, provision for adequate wardrobe and proper yearly replacement thereof”, they could pay so much of the capital of the trust fund as they in their absolute discretion deemed proper or necessary. The testatrix went on to direct that any doubt as to encroachment was to be resolved in favour of encroaching and the trustees were authorized to make such encroachment without regard to the usual rules of trust administration involving impartiality between life tenant and remainderman, and without regard to the degree to which the principal of the trust fund was depleted. The son’s monthly expenses significantly exceeded the income payments out of the trust fund.
55The question in Hinton on an application for advice and directions was whether the trustees should consider the income beneficiary’s own assets and income when exercising their discretion to encroach. In oral reasons, the application judge construed the testatrix’s will and concluded that the testatrix deliberately omitted any reference to the son’s income as a factor to consider. He reasoned that the principle in Re Luke had application, namely that had the testator intended that trustees have regard to the private means of the beneficiary, appropriate language would have been used.
56O’Donnell (Litigation Guardian of) v. Canada Trust Co. involved a will that stated that “my wife’s comfort and welfare are my first consideration”. In an endorsement, the application judge treated this as being the same as the provision in Hinton that stated that any doubt be resolved in favour of an encroachment, and also relied on Hinton for the principle that express language would have been used by the testator had he intended the trustees to have regard to the private means of the beneficiary.
57In contrast, other decisions have applied a different approach.
58Re McVean (1985), 51 O.R. (2d) 685 (H.C.), involved a power of encroachment of “such sums as may be necessary to properly support and maintain” … the children of the testator “both in sickness and in health according to their present status in life as long as they shall live.” Van Camp J. stated at para. 12: “The difficult question is to what extent the right to encroach on capital is affected when there are funds of their own available. The authorities to which I have been referred are not in agreement, but those authorities must be considered in light of the wording of the wills therein.” Although she did not expressly refer to Hinton, she did review some of the case law including Gisborne v. Gisborne where at p. 309, Lord Penzance had noted that there were no words in the will from which one could conclude that other sources of income available to the income beneficiary were to be disregarded by the trustees. He observed that the object to be obtained was the support and comfort of the testator’s wife but the means of obtaining that support was left entirely to the discretion of the trustees.
59The application judge in McVean determined that while the assets of the income beneficiaries did not need to be exhausted before recourse was made to the corpus of the estate, the power of the trustees to encroach arose only after the income beneficiaries’ income had been considered.
60In Re Passmore Estate (1965), 49 D.L.R. (2d) 176 (Alta. App. Div.), the Alberta Court of Appeal held that trustees were entitled to take the income beneficiaries’ financial positions into consideration. Paterson (Attorney of) v. Paterson Estate (1996), 109 Man. R. (2d) 294 (Q.B.) took a similar approach.
61Commentary on whether trustees should consider the resources of an income beneficiary in their exercise of a power of encroachment is also mixed.
62By way of example, Widdifield on Executors and Trustees at p. 8-12.6 states that despite the court’s reasoning in Hinton, “it is generally considered prudent to inquire into the life tenant’s assets before proceeding with an exercise of the power to encroach on capital.” The authors note that in assessing requests by a life tenant for a grant of capital under a discretionary clause, the trustee may wish to consider the financial resources of the applicant. “These do not have to be exhausted before the applicant qualifies, but neither should the discretionary fund be exhausted before the applicant uses his own capital” (citation omitted).
63In a similar vein, C.S. Weigl notes, at p. 28 of “Keeping Fiduciaries Fit: The Exercise of Discretion”, that often a trustee is given a power of encroachment with respect to capital “for the maintenance, support and well-being” of a beneficiary. “Given there are particular purposes for which the discretion is to be exercised, one would expect there to be some form of due diligence required of a trustee prior to exercising his discretion.” As with Widdifield, at p. 31, the author suggests that regardless of Hinton and Re Luke, “it seems in most cases, no express language needs to be included in the trust document in order for a trustee to require the beneficiaries to produce information relevant to the exercise of his discretion.”
64Waters describes the dilemma at p. 651, footnote 156, saying that from a common sense point of view, consideration of outside income of the income beneficiary would seem a logical factor for trustees to take into account but notes the conflicting case law. At p. 1197, the authors state: “In the absence of clear direction in the instrument, it seems difficult to fault a trustee for taking account of all the circumstances. Whether there is a principle requiring the court to lean towards one construction rather than the other, it may be that the judicial remarks in both Re Luke and Hinton v. Canada Permanent Trust Co. were based upon the particular facts in those cases.”
65Having examined the jurisprudence and the commentary, one can extract certain threads. The starting point is that effect must be given to the testator’s intentions as ascertained from the language of the will and surrounding circumstances. Trustees must therefore carefully examine the wording of the will or trust instrument. “The duty to consider all relevant matters has as its obvious corollary, a duty to make all necessary inquiries so that the trustee is adequately equipped to make a decision”: Cullity, Judicial Control of Trustees' Discretions, at p. 116. Absent other direction in the will, I fail to see how a trustee can satisfy itself that payment of capital to the income beneficiary is necessary or advisable without considering the beneficiary’s financial circumstances. The absence of words mandating consideration of an income beneficiary’s financial circumstances is as unrevealing of intention as the absence of words that an income beneficiary’s financial circumstances be disregarded. Put differently, this is a neutral factor. As in Hinton, while it may be that the absence of such words may lend strength to an interpretative exercise, they should not be treated as a standalone determinative proposition. Ideally, testators will state in wills that contain a discretionary trust with a power of encroachment whether the income beneficiary’s resources are to be considered. Indeed, this would be an advisable practice. In the absence of such a direction however, reliance should not be placed on propositions stated to be of general application. Rather, in each case, resort must be made to the language of the will and the surrounding circumstances. The proper approach is case specific.
66This does not mean that in the absence of direction in the will or trust instrument that a means test is required of the beneficiary. Rather, it simply means that trustees may make some inquiries to satisfy themselves of their mandate and ought not to be criticized for doing so.
67This analysis undercuts the reliance placed by the application judge on the second principle extracted from Barnes. There was nothing in Ollie’s will that addressed specifically the issue of consideration being given to Gerald’s financial circumstances. On the other hand, it is difficult to see how his resources would not necessarily inform both his “comfort and well-being” and the Trustees’ ability to consider what was “necessary” or “advisable”. Although admittedly dated, Gerald did declare in excess of $1 million in assets in 2011, yet claimed impecuniosity at the time he initiated his application without fully explaining the disbursement of those assets. The encroachment would not be regulated by Gerald’s means but his financial circumstances were a proper factor for the Trustees to consider in their discretion under the will.
68The third proposition drawn from Barnes and relied upon by the application judge was that in a trust established for the care, comfort and support of a beneficiary, any doubt as to the desirability of encroaching on capital should be resolved in favour of encroaching. Barnes relied on Hinton v. Canada Permanent Trust Co., at para. 14, as support for that proposition. However, in that case, the will contained an express provision that it was the testator’s intention that any doubt as to the desirability of a given encroachment be resolved in favour of making such an encroachment. Thus, the proposition extracted in Barnes and relied upon by the application judge in this case was explicitly written into the trust instrument in the Hinton case. However, as in O’Donnell, Ollie advised her Trustees that her husband’s comfort and welfare were her first consideration, and as such, the application judge properly considered that any doubt would favour encroachment.
69In summary, although reliance on the second proposition cited in Barnes was ill-placed and reliance on the third proposition more properly was an exercise in construing the will rather than a free-standing principle, the application judge’s reliance on the first proposition relating to extraneous matters was well founded. Her determination of that issue serves to defeat any shortcoming in the remainder of her analysis. I will turn next to the application judge’s treatment of the issue of consideration of extraneous matters.
Application Judge’s Consideration of Extraneous Matters
70As mentioned, the application judge held that the Trustees were being influenced in their decision making by extraneous matters such as (i) their distrust of their father and the proprietor of the home and (ii) their obvious dislike of their father.
71Dealing first with the application judge’s reliance on the Trustees’ distrust of their father and Ms. Wainman, in my view, it was an error for her to characterize the distrust factor as extraneous or, to use the more modern formulation, as irrelevant to the exercise of the Trustees’ discretion. Ollie expressed her desire that her Trustees pay such part of the capital as they considered “necessary or advisable” and that they encroach “in a manner which will ensure [Gerald’s] comfort and well-being” because his comfort and welfare were her first consideration. His residence played a key role in any exercise of that discretion, and while an important factor, Gerald’s desire to live at Ms. Wainman’s residence, as in Banton, was not determinative.
72The Trustees were exercising their discretion in the face of: the unintentionally revealed conversation between Ms. Wainman and Gerald, including his statement that he could sucker in the appellants, and Ms. Wainman’s that she did not want them to see what he was paying now and that she hoped he would “F**k…them now”, or as stated by the application judge, that Ms. Wainman “seemingly encouraged [Gerald] to extract as much money as possible from the estate”; the close to 25% increase in cost over one year attributable to transportation, in circumstances where Gerald also incurred extensive independent transportation costs; the absence of any evidence that Ms. Wainman was a legitimate service provider; Ms. Wainman’s refusal to meet with them; and the inconsistent evidence on Gerald’s financial circumstances and the difficulties encountered with obtaining financial disclosure, difficulties shared by Gerald’s own lawyer. The Trustees needed to know whether the capital encroachment would go towards the proper purpose of Gerald’s comfort and well-being or would go towards the improper purpose of lining the proprietor’s pockets. These factors legitimately raised a spectre of distrust; it was a palpable and overriding error to characterize the distrust as an irrelevant or extraneous matter.
73This brings me to the second extraneous factor found by the application judge: the Trustees’ dislike of Gerald. Their dislike of Gerald had nothing to do with his comfort and well-being, and the application judge properly identified this factor as extraneous in nature. It was irrelevant to the purpose for which their discretion had been granted and ought not to have influenced their discretion. The Trustees’ exercise of discretionary power for this purpose was an abuse of discretion similar to that contemplated by Cullity J. in Banton, at para. 172. It legitimately attracted judicial intervention.
74The Trustees complain that the application judge failed to identify the evidence she relied upon in support of her finding of dislike. The application proceeded based on a paper record and there were no examinations. While it would have been desirable to elaborate, a reading of the entire record supports the inferences drawn by the application judge that the Trustees’ discretion was animated by their dislike of Gerald. Janice Bonnin’s affidavit exemplifies her sentiments. Among other things, she describes her father’s “controlling” behaviour and his “disregard” for other family members. Furthermore, given the history of the parties’ relationship, the Trustees’ dislike is unsurprising.
75Moreover, as stated in Edell at para. 162, “If, of course, the discretion was exercised on the basis of a belief that no reasonable person could hold, it would be legitimate for the court to infer that extraneous matters – whether emotional or otherwise -- must have influenced his judgment.”
76The evidence before the application judge was that by January 9, 2020, Gerald only had an investment account of $37,000 and a bank account of $5,928.20 that included a cheque of $2,465.75 from the Trustees. By March 17, 2021, he was in dire financial need and could not wait any longer. It was open to the Trustees to cross-examine Gerald and to examine Ms. Wainman, but for whatever reason, they opted not to do so. Therefore, the only evidence before the application judge was that Gerald had basically run out of money and he needed the encroachment on capital to cover the costs of his residence. The application judge made a finding of fact that the amount that Gerald was being charged by Ms. Wainman was consistent with the cost of similar facilities in the area. This finding was not seriously challenged on appeal and in any event, was a finding that was open to the application judge to make. In the face of this context and Ollie’s intentions, no reasonable trustees would refuse to exercise their discretion in favour of a monthly encroachment that reflected the $3,875 monthly cost of Gerald’s residence at Rural Roots Retirement. In the circumstances, it was reasonable for the application judge to conclude that the Trustees’ discretion was improperly influenced by an extraneous factor, namely, their dislike of their father.
77In Edell, at para. 178, Cullity J. observed that:
There is ample authority for the proposition that extraneous motives or purposes will vitiate an attempt to exercise a discretion if they form part of the basis upon which the trustee’s decision was reached.
78The application judge’s intervention was fully justified.
Arrears
79The application judge based her arrears order on the date Gerald stated he moved into Ms. Wainman’s residence, August 1, 2018. As I have explained, it was legitimate for the Trustees to conduct some investigation into Gerald’s circumstances and proposed living accommodation. On March 1, 2019, Mr. Sirdevan provided some details in support of his client’s request for a monthly contribution of $4,000. Mr. Wall repeatedly sought some proof of expenses but was repeatedly rebuffed to the point that even Mr. Sirdevan wrote that he was unsure why he did not have the information from Gerald, as he had asked for it several times. In the meantime, the Trustees received the concerning voicemail recording. On October 1, 2019, Mr. Sirdevan provided the Trustees with a 12-month record of Gerald’s banking activity. By that date, the Trustees had material disclosure, were in a position to conduct any necessary cross-examination but opted not to do so, and were in possession of funds. Given these facts, October 1, 2019, rather than August 1, 2018, is a reasonable date from which to calculate arrears.
80The arrears therefore consist of four payments of $3,875 for the period of October 1, 2019 to January 31, 2020; and 15 payments of $2,375 for the period February 1, 2020 to April 30, 2021, this latter calculation reflecting the deduction for amounts already paid by the Trustees pursuant to the order of McCarthy J. The total arrears in the April 12, 2021 judgment therefore amount to $51,125. In addition, the Trustees are to pay arrears of $1,375 per month for the period July 1, 2021 to and including January 1, 2022 so as to augment the quantum of the interim order of Tulloch J.A. ($3,875 less $2,500 = $1,375). This totals $9,625 in arrears.
Disposition
81In conclusion, I would dismiss the appeal of paragraph one of the judgment relating to the monthly encroachment and would allow the appeal of paragraph two of the judgment by replacing the sum of $98,750 with the sum of $51,125 relating to the arrears. In addition, the Trustees are to pay arrears of $9,625 for the period July 1, 2021 to and including January 1, 2022.
82As for costs of the application, I see no error in the costs awarded by the application judge in the amount of $26,000 inclusive of HST and disbursements. On appeal, Gerald was largely successful. As agreed by the parties, the Estate shall pay costs to Gerald fixed in the amount of $5,000 inclusive of disbursements and applicable tax.
Released: January 20, 2022 “G.R.S.”
“S.E. Pepall J.A.”
“I agree. G.R. Strathy C.J.O.”
“I agree. G. Pardu J.A.”
1The title of proceedings in the Notice of Application describes the appellant using a different spelling but he identifies the proper spelling of his name in his affidavit and I have used it throughout these reasons.
2See also his article entitled Judicial Control of Trustees' Discretions (1975), 25 U.T.L.J. 99.
3See also Carmen S. Thériault, Widdifield on Executors and Trustees, loose-leaf (2021-Rel. 11), 6th ed. (Toronto: Carswell, 2021), at p. 8:5.
4The author groups the non-exhaustive list of categories meriting judicial intervention as: improper purpose, failure to consider, and unreasonable decisions. The categories are substantially similar to those described in Waters.
