COURT FILE NO.: CV-11-0000082
DATE: 20121214
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: STEVEN THOMPSON FAMILY TRUST, by former trustees APPLICANTS
AND:
CAROL ANN THOMPSON, BRETT THOMPSON, ANGELA THOMPSON AND LAURA THOMPSON, RESPONDENTS
BEFORE: The Honourable Mr. Justice J.R. McCarthy
COUNSEL: Jeffrey Ayotte, for the Applicant;
Linda Jane Rutherford, for the Respondent Carol Ann Thompson
Michael Dwyer, Respondents Angela Thompson and Laura Thompson
Stephen Bale, Office of the Children’s Lawyer for Brett Thompson
HEARD: April 12, 2012 and July 13, 2012
ENDORSEMENT
OVERVIEW
[1] This is an application for a passing of accounts in respect of the STEVEN THOMPSON FAMILY TRUST (the “trust”) for the period of February 11, 2010 to March 25, 2011 (the “trusteeship”).
[2] The Application is governed by s. 23 (1) of the Trustee Act, R.S.O. 1990, c. T-23, which reads as follows:
A trustee desiring to pass the accounts of dealings with the trust estate may file the accounts in the office of the Superior Court of Justice and the proceedings and practices upon the passing of such accounts shall be the same and have the like effects as the passing of executors’ and administrators’ accounts in the courts.
[3] The beneficiaries of the trust filed notices of objection. Accordingly, the Application proceeded as a contested passing of accounts by way of a hearing before me under rule 74.18(11.5) on April 12, 2012, at Lindsay, and July 13, 2012, at Oshawa. Written submissions in respect of all issues and law were received by the court from the respective parties by October 31, 2012.
THE TRUST
[4] The trust was established on April 15, 2004. Steven Thompson died on October 22, 2007. He is hereinafter referred to as “the deceased”. The trust document itself is attached as Schedule “A” to this judgment.
[5] The trust owns 50% of the shares of Thompson Fuels Ltd., a family owned business (the “business”). The deceased’s brother Paul Thompson owns the remaining 50% of the shares of the business. The business is effectively operated by Paul Thompson. The trust became involved in a dispute with Paul Thompson over a buy-out wherein the value of the respective shares of the parties was at issue. Paul Thompson issued a statement of claim on October 16, 2009, naming the trust as a defendant.
[6] Ross Mitchell (“Mitchell”) is a former estate trustee of the trust and a former accountant with BDO Dunwoody of Lindsay. Mitchell acted in the capacity of estate trustee from May 16, 2009 until February 10, 2010. His accounts for that period were passed by judgment granted on September 14, 2010, at which time he was allowed compensation of $19,775 inclusive of HST. Under pressure from the beneficiaries and having received legal advice on the issue of conflict of interest, he agreed to resign his position as estate trustee. Mitchell had been the long time accountant for both the business and Paul Thompson.
[7] Doug and June Thompson are the parents of Paul Thompson and the deceased. Following Mitchell’s resignation as trustee on February 10, 2010, Doug and June Thompson were named estate trustees. They immediately retained Mitchell as their agent to administer and operate the trust. On March 25, 2011, Doug and June Thompson were removed as estate trustees by order of Mr. Justice Gunsolus. That same order required them to pass their accounts for the period of the trusteeship. For the purpose of this application, they are referred to as “the trustees”
[8] That passing of accounts is the subject of the present application. The application is contested by all beneficiaries. They oppose the approval of twenty-one incurred and paid revenue disbursements, and two incurred but outstanding revenue disbursements. Referring to the Estate Accounts marked as Exhibit “A” to the Affidavit Verifying Trust Accounts of Doug Thompson, those disbursements are as follows:
V9, V24, V37, V52 (payments to Ross Mitchell);
V19, V23, V31, V38 (payments to BDO Dunwoody);
V15 (payment to Gemmill, Farn);
V5, V7, V12, V22, V27, V29, V35, V39, V40, V43, V47, V49 (payments to Larry Todd);
V59 (outstanding payable to Larry Todd); and
V60 (outstanding payable to Ross Mitchell)
THE APPLICANTS’ POSITION
[9] The Applicants (trustees) conceded that they were not involved in the day to day operation of the trust. Nevertheless, they submitted that all monies paid by them to the two lawyers, BDO, and their agent Mitchell were made fairly, reasonably, and in good faith.
[10] The Applicant relied on Article 6.3.3 of the trust document which allows the trustees to employ lawyers, accountants, and agents as they determine to be necessary to assist them in performing their duties. That section goes on to state that the reasonable compensation of these individuals shall be paid by the trustees and charged to the income and capital of the trust fund.
[11] Articles 10.2 and 10.3 of the trust clearly provide the trustees with protection from liability in exercising their discretion. Those Articles operate so as to render the powers and discretion exercised by the trustees binding upon the beneficiaries. The wording goes on to immunize the actions of the trustees against interference from any person, official, authority, court, or tribunal.
[12] Moreover, Article 10.4 of the trust affords the trustees a significant degree of protection from mistakes or omissions. That article reads as follows:
10.4
The Trustees shall be fully indemnified out of the assets in the trust fund from and against any liabilities, costs, charges and expenses arising because for their mistakes or errors in judgment made by them in good faith and in the exercise of due care and diligence in connection with any business carried on by them as Trustees of this Trust and shall not be liable to the Settlor or his Estate or any of the beneficiaries of this Trust by reason of any such mistake or error in judgment.
[13] The Applicant therefore contended that, as a result of this exculpatory clause, the trustees are fully indemnified from any errors in judgment, or mistakes made by them. While courts have the inherent jurisdiction to limit the operation of an exculpatory clause in a trust instrument, such clauses will generally be effective as long as the trustee’s conduct does not constitute gross negligence, bad faith, or willful misconduct. Accordingly, even if this court should find that the estate trustees breached the terms of the trust, they should be relieved from liability in the absence of evidence of gross negligence, bad faith, or willful misconduct.
[14] The court’s attention was also drawn to Article 1.4 of the trust document, entitled “Trustees’ Powers and Discretions”. It reads as follows:
1.4
All determinations which the Trustees are authorized to make and all powers and discretions which are given to the Trustees to exercise, shall be made and exercised by them in what they consider to be the best interests of the beneficiaries. They are absolute and are not to be controlled or reviewed by any beneficiaries, Court or tribunal.
[15] In respect of the impugned fees and charges which are the subject matter of the Respondents’ objections, the following is a summary of the Applicants’ position:
- Payments to Ross Mitchell
(a) The trustees retained Mitchell as an agent to assist them in light of their advanced aged, failing health, their familiarity with him, and his working knowledge the trust document and the family business;
(b) The trustees were empowered by the trust document to engage an agent;
(c) Mitchell exercised no power or discretion. This was at all times reserved to the trustees;
(d) The fact that Mitchell was a former trustee was irrelevant;
(e) The monies paid to Mitchell were fair and reasonable;
(f) The trustees are protected by Article 10.4. There is nothing to elevate the alleged mistake to the level of gross negligence, bad faith, or wilful misconduct.
- Payment to BDO for valuation of shares
(a) There is nothing before the court to suggest that this decision was mistaken;
(b) It was not unreasonable for the trustees to obtain a second opinion of the value of the shares in light of the significant value ascribed to those shares by the McColl Turner report;
(c) The BDO report was broader in scope;
(d) There is no expert evidence before the court in respect of the reasonableness of the cost of the reports;
(e) The BDO report was based on different directions, at a different time, with a different scope, and for a different number of shares than the McColl Turner report. The respective costs of the reports are not easy to compare;
(f) Mitchell was not a BDO employee at the time when the valuation was obtained;
(g) Mitchell exercised no power or discretion in ordering the report;
(h) Article 10.4 would serve to indemnify the trustees in the event it is found that obtaining the report was a mistake, or the price paid for it was unreasonable.
- Rod Farn – legal fees
(a) Farn is a long time personal solicitor for the trustees. They elected to receive advice from him with respect to the administration of the Trust. They were entitled to do so by virtue of Article 6.3.3;
(b) In the event that retaining Farn was inappropriate in light of his dealing with Paul Thompson or Thompson Fuels, there is nothing to elevate this conduct to bad faith, gross negligence, or wilful misconduct.
- Larry Todd – legal fees
(a) The trustees hired Todd to represent the trust in the litigation involving Thompson Fuels and Paul Thompson;
(b) Todd’s accounts to the trust included advice with respect to the passing of accounts;
(c) To the extent that the Trust paid Mitchell to assist Todd, Mitchell’s time was less expensive than Todd’s resulting in an actual cost savings to the trust;
(d) The payments to Todd were fair and reasonable, and were permitted under Article 6.3.3;
(e) In any event, the trustees are indemnified by Article 10.4. Their decision to retain Todd did not constitute bad faith, wilful misconduct, or gross negligence.
[16] On the procedural front, the Applicant contended in oral submissions, although not in written submissions, that to the extent that the Respondents are seeking to adduce evidence of gross negligence, bad faith, or willful misconduct, findings of fact would be necessary. Accordingly, those issues can only be referred for trial since the evidentiary record on the application is not sufficient for a court to make those findings.
[17] The Applicant therefore claims that the Accounts as submitted, including the outstanding balances to Todd and Mitchell, should be approved.
THE RESPONDENTS’ POSITION
[18] The Respondents/Objectors argued that, despite his resignation, Mitchell continued to act as trustee in all but name under the trust. In addition, they argued the following:
(i) The trustees ought not to have engaged Mitchell to administer the trust in light of his conflict of interest which led to his earlier resignation as estate trustee.
(ii) That Mitchell’s fees of $26,258.25 (A) ought not to have been paid from the trust or should be deducted from any trustee compensation awarded.
(iii) Since the sum total paid to Mitchell for his services exceeded the compensation that the trustees are entitled to for administering the trust, that amount should be repaid by the trustees.
(iv) Based upon the conventional percentages, the compensation that the trustees ought to receive is $3,927.74 (B), inclusive of HST.
(v) The amount to be repaid for this double compensation should therefore be the difference between the amount paid to Mitchell for administration fees (A) and the amount of compensation to which the trustees are entitled (B). This amount is $22,330.51 (C).
(vi) The BDO share valuation report was unnecessary. A satisfactory report had been previously prepared by McColl Turner for an identical purpose. Mitchell nevertheless commissioned two reports from BDO Dunwoody at a cost to the trust of $31,234.63 (D). Even assuming that a second report was necessary, BDO was an inappropriate choice. Not only is Mitchell a former accountant at BDO, but BDO remained the accountants used by Paul Thompson and Thompson Fuels. Meanwhile, Mitchell, while acting as administrator for the trust, had made observations on the McColl Turner report while it was in draft form. Mitchell commissioned the BDO report without the knowledge or consent of the beneficiaries. This entire amount should be paid back to the trust by the trustees.
(vii) The disbursements for Larry Todd’s services should be only partially allowed. Disbursements for services unrelated to, or contrary to, the interests of the beneficiaries should be repaid in the amount of $14,199.00 (E). This represents one third of the total amount paid to this solicitor.
(viii) It was improper to use trust funds to pay Gemmill, Farn for legal services. Solicitor Farn was in a hopeless conflict of interest in providing advice concurrently to both Mitchell as administrator for the trustees and to Thompson Fuels/Paul Thompson, both of whom were adverse in interest to the beneficiaries. The advice given could be of no benefit to the beneficiaries of the trust. The amount of $1,624.61 (F) should be repaid.
(ix) The outstanding accounts of Larry Todd ($654) (G) and Ross Mitchell ($2,909.00) (H) should not be approved for the reasons advanced above.
[19] The Respondents further pointed out that Mitchell, in his capacity as administrator, did not perform accounting or professional work of the type called for in Article 6.3.3. Rather, Mitchell was retained and paid for ordinary trustee work for which trustees are compensated according to accepted percentages. The actual accounting work for preparation of financial statements and tax returns was performed by BDO but invoiced separately (see V4 and V53 of the Estate Accounts).
[20] The Respondents conceded that the fees of specialized agents may be charged against the estate; however, where the work done by the agent is work for which the trustees are compensated, the fees paid to the agent will be charged to the trustee or deducted from his compensation [see Widdifield on Executors and Trustees, 6th ed., (Toronto, Ont.: Carswell, 2002), at 9.5, “Reimbursement and Compensation”]. This argument would serve to supplement and reinforce their principal argument that administrator’s compensation should be based on the application of conventional percentages and no more.
[21] The Respondents contended that the matter before the court involved a passing of accounts. There was no claim for damages, or a constructive or resulting trust. Accordingly, the application need not be converted into a trial for the purposes of making findings. The record was sufficient for the court to adjudicate on the matters before it. Indeed, as this was a contested passing of accounts under Rule 75, rule 38.10(4) operates so as to exclude an order for trial as an option for disposition.
LEGAL PRINCIPLES
[22] The fundamental principle of trusteeship is that an obligation is owed by a trustee to the beneficiaries of the trust. Accordingly, the law imposes some limits on a trustee exercising a discretionary power. The existence of an exculpatory clause in a trust document does not necessarily relieve a trustee from exercising fundamental duties. These are often referred to a “substratum duties” and they have been summarized as follows:
(a) No trustee may delegate his office to others;
(b) No trustee may profit personally from his dealings with the trust property, with the beneficiaries or as a trustee; and
(c) A trustee must act honestly and with that level of skill and prudence which would be expected of the reasonable man of business administering his own affairs [see D.W.M Waters, The Law of Trusts in Canada, 2nd ed. (Toronto, Ont: Carswell, 1984) at pp. 690-695].
[23] The law is clear that a privative or exculpatory clause cannot be a license to a trustee to act in any manner he wants. In Boe v. Alexander (1985), 21 E.T.R. 246 (B.C.S.C.), Finch J., after citing a number of cases, concluded as follows:
It is in my view clear that the jurisdiction of the Court to review the exercise of a trustee’s discretion cannot be displaced by even the broadest language creating the discretion. The law imposes overriding duties on trustees, breach of which will call for the Court’s intervention.
[24] The judge went on to set out a list of examples of when a privative clause protecting the exercise of the trustee’s discretion would not be effective: (1) failing to exercise the discretion at all; (2) acting dishonestly; (3) failing to exercise the level of prudence to be expected from a reasonable businessman; (4) failing to hold the balance evenly between beneficiaries, or acting in a manner prejudicial to the interests of the beneficiary.
[25] Where a trustee retains an agent, that agent acts for the trustee, not the estate. It falls to the trustee to justify the expenses of the agent as expenses properly incurred. A trustee is not justified in retaining an agent at the expense of the estate to do the work that an ordinary layman ought to be able to do personally. In order to relieve a trust from having to pay twice for the same services, a personal representative or trustee may see his compensation reduced by the amount paid out for services: Rooney Estate v Stewart Estate, [2007] O.J. No. 3944 (S.C.), at paras. 25-43.
[26] Similarly, the trustee bears the ultimate onus of satisfying the court that an expense was properly incurred in carrying out the trust. While s. 23.1 of the Trustee Act empowers the trustee to either pay the expense directly from the trust property or to pay it personally and recover a corresponding amount from the trust property, s. 23.1(2) acts as a corresponding check, enabling the court to disallow the payment or recovery if it is of the opinion that the expense was not properly incurred in carrying out the trust. While elements of bad faith and mal fides have sometimes entered into the court’s review of a trustee’s activities, especially in the face of privative and exculpatory clauses, the justification for judicial intervention has always been to ensure that the fundamental purpose of the trust is not defeated.
ANALYSIS
Procedural Matters
[27] On the preliminary procedural matter raised by the Applicant, I am not in agreement that a trial of issues is necessary because findings of fact are required in order to establish gross negligence, bad faith, or willful misconduct. Firstly, it appears to me that the court is empowered to proceed with a hearing under rule 74.18(11.2) if the court declines to grant judgment without a hearing. In the face of the objections, clearly the hearing was necessary. Secondly, the Applicant has known about the objections for some time and has been provided the opportunity to address the objections with further materials. The Applicant did not file supplementary materials and must therefore be deemed to be content with the record put before the court. Thirdly, this application is not in the nature of an action for damages for breach of trust or in equity where findings of fact would be crucial. Fourthly, I am of the view that a finding of bad faith, gross negligence, or willful misconduct is not necessary in order for this court to adjudicate on a contested passing of accounts. The record at hand is sufficient for the court to conduct the passing of accounts in a summary fashion. This seems to me the most just and economical use of the courts resources. Fifthly, there is no motion for directions before me and no request for a cross examination on the Affidavit Verifying Accounts. Finally, I was referred to no authority that would mandate the court to order a trial of issues in a contested passing of accounts, even in the face of a privative clause in a trust document. In the case of Newell v. Newell, 2010 ONSC 5010, [2010] O.J. No. 3844, at para. 29, Shaughnessy J. discussed the nature of a hearing under rule 74.18:
The passing of accounts procedure should be informal and summary in nature and only after a hearing judge decides that there are issues requiring a trial should the process as detailed under the Rules be directed.
[28] I am satisfied, therefore, that it was proper and just that the hearing before the court take place before me in a summary fashion.
The exculpatory clauses
[29] It would be presumptively unfair to both the settlor and to the trustee to not afford due consideration to the exculpatory clauses in a trust document. The document does, after all, express the wishes of the settlor. Such a document must be read as a whole and accepted as a whole. We, as jurists, often strive to lend meaning to words and phrases that are vague, ambiguous, or open to competing interpretations in a host of instruments, contracts, and documents. It defies common sense and fairness to attach only limited importance to clearly expressed exculpatory clauses in a trust document, which the settlor was entirely in his right to include.
[30] On the other hand, as expressed by Professor Donovan Waters, “the essence of a trust is a beneficiary’s right of recourse against the trustee for proper administration, and if the beneficiary is altogether denied that recourse it is highly questionable whether the settlor has created a trust at all” (see Waters, at pp. 756-7).
A preferred approach
[31] In my view, the proper approach is for the court to seek to a balance between the protection of the settlor’s freedom and his expressed intention to insulate a trustee from liability or judicial intervention, against the principle that no settlor may take away the court’s ultimate jurisdiction to protect the beneficiaries and safeguard the intention of the trust. Part of the rationale underlying such an approach is that, in most trust documents, there is no self-help remedy available to the beneficiaries. Judicial intervention is the only remedy.
[32] In the recitals of the trust document, the settlor’s intention is clearly expressed: “to establish a trust...for the benefit of Steven Thompson and other members of the (sic) his family as hereinafter provided.” Under the “Definitions, Rules of Construction” heading of the document at Article 1.1.4, Steven Thompson’s family is defined: “at any time (as meaning) CAROL ANN THOMPSON and STEVEN THOMPSON’S children.”
[33] The deceased’s widow and children are beneficiaries of the trust. The object of the trust is clearly to benefit them. It is hardly surprising that they stand as objectors to the present passing of accounts since any expenditure of trust funds or property will undoubtedly reduce their value of their ultimate entitlement.
Exercise of Trustee Powers and Discretion
(a) Mitchell’s services (V9, V24, V37, V52)
[34] The decision of the trustees to retain the services of Mitchell as an administrator was clearly a poor one. While Mitchell certainly had familiarity with the trust, the reasons for his resignation from the trustee position should have been sufficient to exclude him as a candidate to fulfill an advisory or administrative role. The retention of of Mitchell in such a role must be viewed as a failure to comply with the substratum duty not to delegate duties and to adhere to the standard of a reasonably prudent business person. I find that a reasonably prudent business person would not retain an agent to act in the capacity of administrator of a trust when that agent was the very trustee who had just resigned as a result of being in a conflict of interest.
[35] The trustees must certainly face reduction or elimination of their compensation as a result. The law is clear that the estate or trust should not have to pay for a duplication of services. As stated in Stephen v. Miller, 1918 CanLII 348 (BC CA), [1918] 2 W.W.R. 1042 at pp. 1044 and 1046 (B.C.C.A.), aff’d (1919), 1919 CanLII 39 (SCC), 59 S.C.R. 690, there is no justification for burdening an estate with two sets of expenses, those of the trustee and those of his agent, for doing the same work.
[36] The thornier issue is whether the expenses incurred as a result of Mitchell’s administration services should be borne by the trustees personally. In my view, they should. Article 6.3.3 expressly permits the trustees to employ such agents as they determine to be necessary to assist them in their duties. However, as I have found that the retaining of Mitchell in the role of administrator was a breach of a substratum duty, it follows that any cost associated with that breach should not be borne by the trust. This may seem tantamount to an award of damages for breach of trust. On the contrary, it is quite distinct. A passing of accounts requires the court to assess the propriety of an expense and to either allow it or disallow it. Section 21(2) of the Trustee Act provides that remedy to the court. The disallowing of an expense post facto results in an obligation on the trustee to repay that an amount to the trust. This may be an unhappy result, but it is the only available remedy to right the wrong that has been done to the beneficiaries.
(b) BDO valuation reports (V19, V23, V31, V38)
[37] I also find that the commissioning of the BDO share valuation report was unreasonable and unnecessary. Mitchell received and reviewed the McColl Turner Valuation report, dated July 27, 2009, during his tenure as trustee. His comments constituted a critique of the report. He was clearly expressing an opinion that the value placed on the shares was too high. The report was for the benefit of the trust and it was paid for by the trust. Notwithstanding that he had resigned from his role of trustee seven months earlier, Mitchell, now acting in his capacity as agent for the new trustees, retained his previous employer (and the accountants for both Paul Thompson and the business) to conduct a second valuation of the shares. This strikes me as almost farcical. I find it hard to imagine how the second report was prepared with the best interests of the trust or the beneficiaries in mind, especially since Mitchell extensively reviewed and critiqued the McColl Turner report while trustee. In an email to Joe Hilton of BDO, dated November 23, 2009, it is clear that Mitchell is representing, or at least considering, the interests of Paul Thompson as it pertains to the share valuation. He makes reference to the law suit outstanding between the trust and Paul Thompson. Indeed, we know from the record that the statement of claim had been issued as of October 16, 2009. I agree with the submissions of Ms. Rutherford on behalf of the objector Carol Ann Thompson that if a report was going to be commissioned from BDO, it ought to have been Paul Thompson or the company paying for it, not the trust. I am not prepared to allow the cost of the BDO report as a proper expense to be borne by the trust.
(c) Gemmill, Farn legal fees (V15)
[38] The expenses incurred in respect of Gemmill, Farn for legal fees are allowed. While Rodney Farn may have been in a conflict of interest in acting on behalf of the trust from the outset, I am not satisfied that Farn’s services were not of some benefit to the beneficiaries. The statement of claim was issued by independent counsel and was sent to Farn through Mitchell prior to receipt of the conflict of interest opinion letter from Madorin Snider in January 2010. And while some of Mr. Farn’s work continued following receipt of that opinion and following the resignation of Mitchell as trustee, the services performed by him as revealed by his docket entries appear to be in the nature of co-ordinating with counsel and the parties for the proper defence of the action. It cannot be said with any certainty that the trust and the beneficiaries did not derive some benefit from his involvement. The trustees have met their onus in respect of that expense.
(d) Larry Todd’s legal fees (V5, V&, V12, V22, V27, V29, V3, V39, V40, V43, V47, V49)
[39] The expenses incurred in respect of the legal fees of D. Larry Todd are partially allowed. It appears from the record that Mr. Todd’s involvement dates from the commencement of the litigation, but the purpose and scope of his retainer was never properly defined. Mr. Todd came on the record to defend the action and put forward a counterclaim on behalf of the trust. He then proceeded to provide the services relevant to that litigation. Yet, at the same time, he was also providing services to Mitchell for, among other things: (i) advice on alternate advisors for the trust; (ii) valuation of corporate assets; (iii) review of the trust accounts; (iv) advice on appropriate compensation fees and percentages; (v) advice on promissory notes; (vi) advice on passing of accounts for a period of time prior to the trusteeship; (vii) advice and representation to Doug Thompson in respect of the application to remove him as trustee; and (viii) negotiating with counsel for the parties seeking removal of trustees. In correspondence dated September 22, 2010 and addressed to Mitchell, solicitor Todd described how his work for the majority of September, “deals with the collateral attack of the solicitors for the beneficiaries as well as getting ready for the examinations for discovery in the main action.” In short, Mr. Todd became the de facto general counsel for the administrator as well as litigation counsel for the trust. Exactly how Mr. Todd saw his role vis-a-vis the beneficiaries is not at all clear. Nor is it clear whether he ever turned his mind to his own conflict of interest in attempting to defend the interests of the trust in the litigation brought by Thompson on the one hand, and the interests of the administrators/trustees of the trust who were being challenged by the beneficiaries of that trust, on the other.
[40] One thing is very clear: Mitchell, in continuing to give instructions to and receive advice from the trust’s litigation counsel on subject matters that pitted the interests of the administrator and the trustees against those of the beneficiaries, cannot be said to have been exercising the prudent judgment of a reasonable business person. He was certainly not putting the interests of the trust or the beneficiaries before his own. Once again, there was a breach of the substratum duties of the trustee. Mitchell was using trust funds to pay Mr. Todd for services provided to him and the trustees whose interests were clearly adverse to those of the beneficiaries. This was plainly wrong. In my view, a substantial portion of the charges incurred for Mr.Todd’s services were not of any benefit to the trust and the trust should be relieved from the responsibility of paying them. I agree with counsel for objector Carol Ann Thompson that, on a passing of accounts, the trustee bears the onus of satisfying the court that the expenses were properly incurred. I find that one-third of the services provided by Mr. Todd were of no direct, indirect, or consequential benefit to the trust or the beneficiaries and should properly have been paid by the trustees or their agent, not out of trust property. I would therefore disallow the amount of $14,199.00 of these disbursements.
(e) The outstanding amounts
[41] It follows from the analysis above that Mitchell’s remaining account (V60) as submitted is not properly an expense for the trust. It is not allowed.
[42] The outstanding account from Larry Todd (V59), like its predecessors, shows a commingling of legal services. It appears that Mr. Todd soldiered on doing legal work for the trust, Mitchell, and the beneficiaries, seemingly oblivious to his conflict of interest. It cannot be said that the beneficiaries received no value for the services provided or that they would not have required these legal services in any event. The nature and pattern of Mr. Todd’s services having remained relatively consistent, I see no reason to depart from the previous pro-rated allocation of services properly payable by the trust. I would therefore disallow the amount of $217.91 of this disbursement.
Other considerations
[43] I hasten to add that under the law of agency, the principal is responsible for the acts and omissions of its agent (see generally Lalonde v. Applewood Holdings Inc., 2005 CarswellOnt 4295 (C.A.); Craig v. Sauve, 1939 CarswellOnt 305 (C.A.); and Sheppard Publishing Co. v. Press Publishing Co., 1905 CarswellOnt 312 (Div. Ct.). It is clear in this case that Mitchell was imbued with the actual and ostensible authority to act on behalf of the trustees. As well, if there is any doubt that the trustees were under a misapprehension of the reason for Mitchell’s resignation or that they were not aware of the conflict of interest, the record makes it clear that the letter of opinion prepared by the firm of Madorin, Snyder on January 18, 2010 on the issue of conflict was addressed to the trust to the attention of both Ross Mitchell and Doug Thompson. In addition, the trustees’ own appointment was contested by Laura Thompson. An affidavit setting out the basis for the opposition to the appointment includes a detailed explanation of why Mitchell’s role to date was one of concern. I note that counsel for the Applicant conceded this point in his letter to the court dated November 6, 2012, which served as supplementary submissions. Finally, the trustees and their agent had the opportunity during the trusteeship to either seek the consent of the beneficiaries of the trust to the proposed expenses or to obtain directions and approval from the court on an application under rule 14.05. In my view, a reasonably prudent person of business would have found it appropriate to do so. In electing not to do so, the trustees and the administrator ran the risk of having these expenses challenged and disallowed on a passing of accounts.
Compensation
[44] I accept the position of the objectors Carol Ann Thompson, Angela Thompson, and Laura Thompson that the compensation the trustees ought to have received is $3,475.88 plus HST of $451.86, for a total of $3,927.74. This is in accordance with the calculations set out in Exhibit “D,” which I accept as accurate. I adopt this figure as fair and reasonable compensation for care and management services, taking into account the adjustment to the capital disbursements and revenue disbursements as required as a result of the non-allowed expenses and the overall discharge by the trustees of their responsibilities. There was certainly nothing put before me to justify a higher figure for compensation.
DISPOSITION
[45] The Court orders that, in respect of the Estate Accounts for the trusteeship period of February 11, 2010 to March 25, 2011 attached as Exhibit “A” to the Affidavit of Doug Thompson dated July 28, 2011, the following disbursements and payments found in the Application Record are disallowed:
(i) V9, V24, V 37, V52 are disallowed;
(ii) V19, 23, 31, 38 are disallowed;
(iii) $14,199.00 of the disbursements found at V5, V7, V12, V22, V 29, V 35, V39, V43, V47 and V49 are disallowed. The balance of the sum total of those items is allowed;
(iv) $217.91 of the amount owing found at V59 is disallowed. The balance of that payment owing is allowed; and
(v) V60 is disallowed.
[46] In addition, the trustees are allowed as compensation for a care and management fee, the amount of $3,927.74.
[47] The trustees shall repay the disallowed amounts to the trust or into court to the credit of the application within ninety days of the release date of these reasons. Upon the repayment of the amounts disallowed to the trust, the parties may submit in draft form a judgment on passing of accounts for the court’s consideration and review.
[48] If the parties are unable to agree on the form and content of the judgment or on the issue of entitlement to costs, they may address both of those issues via further written submissions according to the following timetable: (a) the Respondents/Objectors shall have fifteen days from the date of the repayment of the disallowed amounts to the court or fifteen days from the date on which the ninety days permitted by this court for the repayment has expired, whichever comes first, to serve and file their submissions; (b) the Applicants shall have seven days thereafter to serve and file responding submissions; (c) the Respondents shall have a further four days thereafter to serve and file reply submissions, if any.
Justice J.R. McCarthy
Date: December 14, 2012