The decision of Steven Thompson Family Trust v. Thompson 2012 ONSC 7138, (Ont. S.C.J.) dealt with a contested passing of accounts for the Steven Thompson Family Trust .
The beneficiaries contested the passing and opposed 23 disbursements that had been paid to lawyers and accountants for the Trust
The trustees in turn relied on the terms of the Trust which stated that they could employ lawyers, accountants and agents, and pay them from the Trust funds.
They also relied upon the very broad exculpatory clause in the Trust Deed which they argued indemnified them from any errors in judgments or mistakes made by them.
Justice McCarthy stated that while the courts have the inherent jurisdiction to limit the operation of an exculpatory clause,
Such clauses will generally be effective as long as the Trustees’ conduct does not constitute gross negligence, bad faith, or wilful 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 wilful misconduct.
Justice McCarthy reviewed the legal principles applicable to these facts and stated that the law imposes limits on a Trustee exercising a trustee discretionary power.
The existence of an exculpatory clause in a trust document does not necessarily relieve a trustee from exercising fundamental duties which are referred to as “substratum duties”. Justice McCarthy summarized these as being:
(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.
An exculpatory clause is not a licence to a trustee to act as they wish.
– See more at: http://www.disinherited.com/blog/court-limits-trustee-discretionary-spending-and-rejects-exculpatory-clause-limiting-trustee-lia#sthash.pyFElPWB.dpuf