Court File and Parties
COURT FILE NO.: CV-19-5286-00ES9 DATE: 20200317 ONTARIO SUPERIOR COURT OF JUSTICE
IN THE MATTER OF THE TD MUTUAL FUNDS TRUST AND THE TD PRIVATE FUNDS TRUST
BETWEEN:
Marian L. Carroll Applicant/Responding Party on Motion – and – The Toronto-Dominion Bank, c.o.b. TD Bank Group, TD Waterhouse Private Investment Counsel Inc., TD Asset Management Inc., as Trustee of the TD Mutual Funds Trust and the TD Private Funds Trust Respondents/Moving Party on Motion
Counsel: Joseph Groia and David Sischy, for the Applicant Linda Fuerst and Erika Anschuetz for the Respondents
HEARD: March 12, 2020
C. Gilmore, J.
Endorsement on Motion to Strike
Overview and Background Facts
[1] This is a motion by the Toronto-Dominion Bank c.o.b as TD Bank Group (“TD”), TD Waterhouse Private Investment Counsel Inc. (“PIC”) and TD Asset Management (“TDAM”) as the Trustee of the TD Mutual Funds Trust (“the Mutual Funds Trust”) and the TD Private Funds Trust (“the Private Funds Trust”) (“the Trusts”) to strike the Applicant’s Fresh as Amended Application (“the Application”) issued October 18, 2019.
[2] The Application seeks the following relief:
a. An Order granting the Applicant standing and leave to apply for an Order compelling the Respondents to pass their accounts in respect of the Trusts pursuant to s.42(4) of the Substitute Decisions Act (“the SDA), the inherent jurisdiction of this court, and at common law;
b. A Declaration, if necessary that the Applicant has standing to apply to this Honourable Court to compel a passing of accounts to remedy the reputational, financial and personal harm occasioned by the acts and omissions of the Respondents in respect of their administration of the Trusts or by virtue of the fiduciary obligations owed to the beneficiaries therein;
c. An Order granting the Applicant leave, nunc pro tunc, to apply for the passing of the accounts for the Trusts without serving this Notice of Application on each person who has a contingent or vested interest in the Trusts by regular lettermail, pursuant to s.74.18(3) of the Rules of Civil Procedure, or in the alternative, directing the Respondents to do so in such manner as this Honourable Court may require;
d. An Order compelling the Respondents, TD to pass its accounts for the Trusts for the period determined by this Court, within 90 days of such an Order;
e. An Order directing that an independent accounting firm which has no relationship with the Respondents, as will be determined by this Honourable Court, make a full investigation into all of the Trusts’ accounts and provide this Honourable Court with a report on the existence of any financial irregularity on the part of the Trustee at the expense of the Respondents;
f. An Order directing TD to disclose any breach of trust, financial irregularity or misconduct in relation to its role as Trustee to the beneficiaries, securities regulators, or to any other party this Honourable Court directs;
g. An Order indemnifying and otherwise fully releasing the Applicant any liability relating to any breach of trust found through the Passing of Accounts;
h. An Order for payment to the beneficiaries of the Trusts for amounts equal to the benefits which have accrued to TD as a result of its wrongful conduct, determined by way of an accounting ordered by this Honourable Court;
i. A Declaration that the Respondents have been unjustly enriched, to the detriment of the beneficiaries of the Trusts, by any breach of trust, misconduct or financial irregularity;
j. The costs of the investigation, accounting and report prepared by the independent accounting firm;
k. An Order appointing independent counsel for the beneficiaries of the Trusts;
l. Costs of this proceeding.
[3] The Applicant, Marian Carroll (“Ms. Carroll”) is a former employee of Toronto-Dominion Bank (“TD”). She was terminated in October 2014. Ms. Carroll’s position is that she was terminated without cause. She has sued TD for damages for wrongful dismissal in a separate action which was commenced in 2016.
[4] Ms. Carroll alleges the following facts with respect to her Application:
a. PIC failed to provide mutual fund prospectuses to its clients when purchasing TD Mutual Funds or TD Private Trust funds for them;
b. PIC purchased TD Mutual Funds with higher management expense ratios (“MERS”) for its clients, and failed to switch clients into lower MER series of the same TD Mutual Fund to the financial detriment of those clients;
c. PIC received trailer fees from TDAM for the higher MER mutual funds purchased by PIC’s clients;
d. PIC received fees in respect of TD Private Funds that were not disclosed to unitholders via the delivery of a prospectus as required by securities regulation; and
e. TDAM and PIC misled the Ontario Securities Commission (the “OSC”) and did not disclose wrongdoing relating to the TD Private Funds Trust when it entered into a settlement with the OSC in 2014 in connection with the mutual fund fee issues.
[5] Ms. Carroll alleges that she learned of this wrongdoing while she was employed as a senior compliance officer with TD. She alleges she was wrongfully terminated by TD when she persisted in investigating what she described as “serious regulatory infractions and trust breaches committed by certain TD subsidiaries regarding the TD Mutual Funds Trust and TD Private Funds Trust.”
[6] Ms. Carroll raises specific concerns related to TD’s alleged misconduct including the following:
a. As a result of Ms. Carroll’s perseverance with her internal investigations, she forced some of TD’s subsidiaries, including PIC, to report some of the issues to the OSC. This resulted in a settlement agreement which required TD’s subsidiaries to pay more than $14M to their clients in relation to TD Mutual Funds.
b. Ms. Carroll alleges that the settlement agreement itself is problematic in that TD did not provide all of the relevant facts to the OSC including wrongful conduct related to TD Private Funds Trust. Ms. Carroll’s position is that TD made material misrepresentations to the OSC during the negotiation of the settlement agreement.
c. It is Ms. Carroll’s view that as a result of TD’s material misrepresentations to the OSC, more than $50M in undisclosed fees related to TD Private Funds are owed back to clients. Therefore, under the settlement agreement, the PIC unitholders were only paid back a fraction of what was owed to them.
[7] Ms. Carroll has had nothing to do with any of the TD Trusts since she was terminated in October 2014. In September 2019, Ms. Carroll sent a “whistleblower” complaint letter, report and supporting documentation to the OSC, the United States Securities and Exchange Commission, the Office of the Superintendent of Financial Institutions, and the Chair of the Audit Committee and General Counsel of TD.
[8] There was no information about the status of any of the complaints made by Ms. Carroll in the record other than a letter from TD dated April 23, 2019 acknowledging her complaint and advising that TD had conducted an internal investigation and found her allegations to be unsubstantiated. It is acknowledged that pursuant to the Securities Act, R.S.O. 1990, c.S.5, any investigation done by the OSC would be confidential and could not have been included in the court record in any event.
The Test on a Rule 21.01(1) Motion
[9] It is clear from the wording of Rule 21.01(1), and counsel for the Respondents concedes, that the onus is on the Respondents to show that, assuming that facts in the Application to be true it must be plain and obvious that no reasonable cause of action has been pleaded. The purpose of the rule is to eliminate hopeless cases.
[10] The Respondents’ position is that Ms. Carroll does not meet the test for either public or private interest standing and that her Application is not a “reasonable and effective” means of bringing the matter before the court.
[11] Ms. Carroll submits that her Application raises serious matters which are novel and complex. Further, the Court has inherent jurisdiction to grant the relief sought to protect the beneficiaries’ interests. Issues of standing become irrelevant where allegations of fraud or improper conduct are made against a trustee. As well, a person who is concerned they may incur liability as a constructive trustee, may apply for equitable relief in the form of a declaration from the Court.
[12] If Ms. Carroll’s Application is struck, she argues that the beneficiaries will be deprived of information related to TD’s breach of trust and will not have the necessary knowledge to claim damages on their own behalf.
[13] Most importantly, Ms. Carroll submits that it would be contrary to the public interest if, once informed of the misconduct by way of the Application before the Court, the Court declined to grant standing. The court should take a broad view of the issues at stake and its supervisory role in relation to trusts.
The Issues
Does Ms. Carroll Have a Private Interest in this Litigation?
[14] Having carefully considered the arguments made by counsel I conclude that Ms. Carroll does not have a private interest in this litigation.
[15] Section 42(4) (6) of the Substitute Decisions Act 1992, S.O. 1992, c.30 (the “SDA”) sets out that the Court may order a Passing of Accounts by an attorney or guardian of property on application by “any other person, with leave of the Court.” Ms. Carroll is neither an attorney nor a guardian of property for TD nor does she have any authority designated to her by a Power of Attorney document. Further, this section cannot be relevant as it relates to property belonging to persons who are incapable. None of the Respondents are individuals and therefore cannot be incapacitated.
[16] I do not agree with the Applicant that s.42 of the SDA can be read to mean that she could obtain standing for beneficiaries who are unable to protect their own legal and economic interests. Read in the context of s.42 that would have to mean that the Respondent Trust beneficiaries were all incapable persons. A “purposive reading” of the section could not be extended to that point.
[17] As such, the relief sought to give the Applicant standing to request a Passing of Accounts under the SDA cannot stand.
[18] Rules 74.16 and 74.18 of the Rules of Civil Procedure relate to the procedure for a Passing of Estate Accounts by an Estate Trustee, guardians of property or attorneys for mentally incapable persons and minors. It is clear that the Respondents are neither deceased, incapable or minors. This section of the Rules also cannot apply.
[19] Rule 74.15(1) of the Rules permits “any person who appears to have a financial interest in an estate” to move for an order to pass accounts (h) or for an order providing for any other matter that the court directs (i). This rule could apply to give Ms. Carroll standing so long as she could demonstrate that she has a financial interest in the Trusts. However, Ms. Carroll is not a unitholder in any of the Trusts and has no financial interest in any of the Respondent entities.
[20] The caselaw has defined that a person with a financial interest in an estate is NOT any of the following:
a. Creditors of estate beneficiaries or persons who have separate lawsuits against the estate (see HSBC Bank Canada Inc. v. Capponi Estate [2007] CarswellOnt 5822 (Ont. S.C.J.)).
b. An ex-husband of a beneficiary (see Weidenfeld v. Weidenfeld Estate, 2016 ONSC 7330).
c. A person who is not a beneficiary of the trust in question (see Halyk v. Halyk, 1995 CarswellSask 44 (Sask. Q.B.)).
d. A person who is an heir of a beneficiary of an estate, where that beneficiary is still alive (see Gallant v. Gaudet, 1996 CarswellPEI 118 (P.E.I. S.C.)).
[21] While Ms. Carroll is not in any of the categories above, I find that they provide guidance as to the requirements for meeting the definition of having a financial interest in an estate or trust. That is, the interest must be a direct one and not tangential or contingent. As such, I find that Ms. Carroll has no financial interest in the Respondent bank or Trusts that would permit her to bring an application to compel the Respondents to Pass Accounts under Rule 74.15(1).
[22] Ms. Carroll suggests she has standing as a constructive trustee on the basis that she may have some future personal liability given her knowledge of TD’s alleged wrongdoing.
[23] In Polish National Catholic Church of Canada v. Polish National Church, 2014 ONSC 4501 at para 33, citing Fraser v. Houston, [1996] B.C.J. No. 2096 (B.C.S.C.) at para 29 and 31, the court struck the plaintiff’s claim for lack of standing and held that “Questions which are purely academic, hypothetical, obscure or of no relevance to the parties cannot form a suitable basis for an application for relief.” There is no evidence that the Respondents are suing Ms. Carroll or that there is any litigation outstanding (other than litigation commenced by her) in relation to her time at TD or her knowledge of any alleged wrongdoing.
[24] In Air Canada v. M & L Travel Ltd., [1993] 3 S.C.R. 787, the Supreme Court of Canada considered the question of the personal liability of corporate directors as constructive trustees under the “knowing assistance” head of liability. The Court relied on Barnes v. Addy, (1874), 9 Ch. App. 244 in determining that a stranger to a trust must have knowingly assisted in a breach of trust to be liable. In the Air Canada case, the directors of a travel agency failed to set aside funds impressed with a trust and owing to Air Canada.
[25] In the case at bar, there is no evidence that the Applicant in any way participated in a breach of trust. Indeed, her affidavit material is replete with her attempts to investigate and prevent any alleged wrongdoing by the Respondents. I do not find that the Applicant can have standing as a constructive trustee on the record before the court. She neither participated in any alleged breach of trust nor is she the subject of any litigation by the beneficiaries in relation to any alleged misconduct by the Respondents.
[26] Although not specifically argued by the Applicant on this motion, I agree with counsel for the Respondents that there is no foundation for a declaration that TD has been unjustly enriched. Such a claim must be advanced by the beneficiaries, if one exists. The Applicant is neither a beneficiary of the Trusts nor is there anything in the record to indicate she has suffered any personal deprivation.
Does the Applicant have Standing by Virtue of the Court’s Inherent Jurisdiction to Supervise Trusts?
[27] The Applicant submits that this Court has broad inherent jurisdiction to supervise trusts which derives from Courts of Chancery in England and Wales. Principles developed in the Court of Equity permit the Court to grant relief necessary to protect the interests of beneficiaries. The Applicant referred to Halsbury’s Laws of England: Trusts and Powers, Fifth Edition Volume 98 (LNUK, 2019), para 626 as follows:
Under its inherent jurisdiction to supervise, and where appropriate intervene in, the administration of trusts, a court of equity will interfere in the management and administration of a trust where there is no trustee to carry it on, or where the trustee wrongfully declines to act or refuses to disclose trust accounts and supporting information or is otherwise acting improperly….
[28] The Applicant submits that where, as in this case, there is clear evidence of misconduct by a trustee against the interest of the beneficiaries, the Court bears the ultimate responsibility and authority under its equitable jurisdiction to rectify issues of misconduct. Such responsibility becomes even more important where allegations of fraud are made against a trustee. In such cases, issues of standing become irrelevant.
[29] The Applicant relies on McLean v. Burns Philp Trustee Co Pty Ltd. (1985) 2 NSWLR 637 (Young J), p. 636 in which a plaintiff who was not a beneficiary of the trust in question was given standing due to suspicions of irregularity in the subject trust.
[30] The Respondents point out that in McLean, the plaintiff was the beneficiary of a related trust who was a creditor of the trust in question. He was far from a “stranger” to the trust as characterized by the Applicant.
[31] Cromwell, J.’s introduction in Downtown Eastside Sex Workers United Against Violence Society v. Canada, 2012 SCC 45 is informative in the context of public interest standing in constitutional cases:
The traditional approach was to limit standing to persons whose private rights were at stake or who were specially affected by the issue. In public law cases, however, Canadian courts have relaxed these limitations on standing and have taken a flexible, discretionary approach to public interest standing, guided by the purposes which underlie the traditional limitations.
In exercising their discretion with respect to standing, the courts weigh three factors in light of these underlying purposes and of the particular circumstances. The courts consider whether the case raises a serious justiciable issue, whether the party bringing the action has a real stake or a genuine interest in its outcome and whether, having regard to a number of factors, the proposed suit is a reasonable and effective means to bring the case to court.
[32] This passage underscores Ms. Carroll’s difficulty in this case; that is, she has no real stake in its outcome. She is not a unitholder or beneficiary of the trusts and her rights are not directly affected.
[33] Similarly, in Chauvin v. Canada, 2009 FC 1202, where Mr. Frank Chauvin, a recipient of the prestigious Order of Canada, attempted to judicially review the appointment of Dr. Henry Morgentaler by the Governor General of Canada to the Order of Canada. The Court said at para 54:
The investiture of Dr. Morgentaler has no direct affect on Mr. Chauvin’s legal rights, either as an individual, as argued by Mr. Chauvin, nor does it result in a prejudice directly to him….the granting of an honour is far removed from Mr. Chauvin’s individual rights.
[34] Mr. Chauvin argued, as does Ms. Carroll, that his was a novel case and should be allowed to proceed. However, like the Federal Court in Chauvin, it is this court’s view that a novel argument does not go so far as to strike out the test for standing.
[35] Ms. Carroll complains that if her case is not permitted to proceed, then the beneficiaries will be deprived of their right to deal with the alleged misconduct and the potential to receive refunds for overcharged fees.
[36] I disagree with Ms. Carroll on this point. I find that the beneficiaries have many other options open to them. They would not be faced with the same standing objections as Ms. Carroll. Below is a list of option available to the beneficiaries:
a. This court file has not been sealed. The beneficiaries are free to review Ms. Carroll’s affidavit, the TD settlement agreement, and any of Ms. Carroll’s supporting documentation to determine their options and as a basis upon which to obtain legal advice;
b. The beneficiaries could decide to commence a proceeding under the Class Proceedings Act, 1992, S.O. 1992, c. 6 and apply for class certification. In a very recent case decided by this Court, certification was granted to a proposed class with respect to unitholders of TD Mutual Funds who complained of improperly paid trailing commissions to discount brokers. See Stenzler v. TD Asset Management Inc., 2020 ONSC 11.
c. The OSC is granted significant investigatory and procedural powers under the Securities Act, R.S.O. 1990, c. S. The OSC can conduct an investigation (s.11), appoint an examiner, examine documents, apply for a search warrant, and obtain confidential reports. In addition, under s. 127 the OSC can make reprimands, order resignations and make cease trade orders. Under s.128 it can make an application to this Court for a declaration of non-compliance and request the Court to make an order against a non-compliant person or corporation for restitution and general or punitive damages. As the OSC already has Ms. Carroll’s 2019 letter containing all of her allegations, it is up to that regulatory body to take any steps it deems necessary.
[37] Given all of the above, I do not find that this Application is a “reasonable and effective” means of bringing the matter before the court as per the Downtown Eastside case.
Orders and Costs
[38] At the conclusion of the motion, the parties agreed that the successful party would be awarded costs of $25,000.
[39] The following order shall issue:
a. The Respondents’ motion is granted.
b. The Application is dismissed.
c. The two-day hearing scheduled for August 2020 is vacated.
d. The Applicant shall pay to the Respondent all-inclusive partial indemnity costs of $25,000 forthwith.
C. Gilmore, J.