As a general rule, a trustee cannot delegate his or her decision-making authority with respect to the administration and management of trust assets, although the trust instrument may indicate that this was the intention of the settlor (or testator in the case of a will). The formal rule against delegation delegatus non potest delegare simply states that a delegate cannot delegate. It further means that the person to whom an office or duty is delegated cannot lawfully devolve the duty on another, unless he is expressly authorized to do so. This maxim is the traditional and fundamental rule for the executor, administrator, trustee or estate trustee considering transferring some of his functions to another person (in this blog post, these roles are generally considered interchangeably). In Turner v. Corney (1841), 5 Beav. 515 (Rolls) at 517, it was stated “trustees who take on themselves the management of property for the benefit of others have no right to shift their duty on other persons.” The rule against delegation also prohibits delegation to a co-trustee, the subject of which we will examine briefly below in the case of Fales v. Canada Permanent Trust Co., [1977] 2 SCR 302.
Where a trustee is required to perform a duty personally, several consequences flow from an attempt to delegate the task:
1. At common law, the attempted delegation is invalid and any act done in reliance of it neither binds the trust nor any third party;
2. A trustee may be held liable to third parties for any loss caused by their reliance on an agent, the agent being the party to whom the trustee tried to delegate; and
3. The trustee may also be held personally liable to the beneficiaries for breach of fiduciary duty.
This list is non-exhaustive. It is implicit in the rule against delegation that if the trustee is incapable of performing her duties due to illness or absence from the jurisdiction, she should resign her trusteeship rather than delegate.
In the case of Fales v. Canada Permanent Trust Co., [1977] 2 SCR 302, the Supreme Court of Canada considered the issue of trustee delegation where two co-trustees, Canada Permanent Trust Company (“Canada Permanent”) and Mrs. Wohlleben, failed to sell in a timely fashion certain shares forming a substantial part of Mrs. Wohlleben`s late husband`s estate, with disastrous results. The four children of the testator, as residuary beneficiaries of the estate, sued Canada Permanent, which then raised a claim against its co-trustee, Mrs. Wohlleben, for indemnity and contribution. Mrs. Wohlleben responded with a counterclaim for the loss which, as recipient under the will of life interest income, she allegedly suffered through the mismanagement of Canada Permanent.
The Court observed that it has long been a policy of law to afford the utmost security and protection to the beneficiaries of a trust estate. Furthermore, each trustee is jointly responsible to the beneficiaries for what occurs in the course of administration, unless the terms of the will, statute or judicial discretion under specific trustee legislation (“Judicial Discretion”) lessens or frees the trustee(s) from that responsibility. The law also does not distinguish between active and passive trustees unless the terms of the trust provide for such distinction.
The Court, therefore, found that in accepting the trusteeship, Mrs. Wohlleben became obligated to exercise an independent judgment and she assumed a duty to the beneficiaries of the residuary estate which, in failing to sell the subject shares in timely fashion, she breached. The Court went on to cite the rule of law which says that with certain exceptions, where two trustees owe a duty to the beneficiaries of an estate and that duty is breached, resulting in loss, the trustee called upon to repay the loss can look to the co-trustee for contribution in that repayment or restitution, subject again to Judicial Discretion.
Canada Permanent, however, could look to Mrs. Wohlleben for contribution and indemnity only if she is liable to the beneficiaries for breach of trust; she is not liable if the Court relieves her pursuant to Judicial Discretion. According to specific trustee legislation, the court or a judge is permitted to relieve a trustee from personal liability for breach of trust if the trustee has acted honestly and reasonably and ought fairly to be excused. The Court, in this case, concluded that Mrs. Wohlleben acted honestly and reasonably and that her acts were not greatly less nor more than might be expected of someone in her position. In this regard, the Court reviewed her background and professional experience or lack thereof, noting that her investment experience was minimal and that she had no experience in the administration of trusts. The Court also reviewed her efforts to keep herself informed, provide responses and make decisions when asked to regarding the trust but within the limits of her experience and knowledge. The Court, therefore, concluded that Mrs. Wohlleben should fairly be excused for her breach of trust.
If you wish assistance or advice with respect to administration of a trust, please contact Andrea P. Kelly.
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Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.