While trust relationships can vary significantly, one of the basic principles of trust law is that the whole purpose of the trust’s existence is to administer property on behalf of another, and hold it exclusively for the other’s enjoyment.
The relationship, which arises whenever a person called the trustee is compelled in equity to hold property, whether real or personal, and whether by legal or equitable title, for the benefit of some person or persons, the beneficiaries, or for some object permitted by law, in such a way that the real benefit of the property accrues, not to the trustees, but to the beneficiaries or other objects of the trust.( Waters on Trusts In Canada 4th ed)
By holding legal title, a trustee is able to deal with the trust property so as to achieve the objectives of the trust.
The notion of the fiduciary arose through the law of equity, and originated to explain the position of one who it law held title and had all the appearances of full enjoyment, but who nevertheless, because of equities intervention had no right of personal enjoyment.
Equity could not deny the doctrines of the common law, and at common law, the trustee was titleholder and possessor. Therefore the only way around that obstacle was for equity to impose obligations on the person with title and possession, and the nature and scope of these obligations were spelt out in the concept of fiduciary relationships.
Thus, the trustee was a fiduciary of all the rights and powers that he exercise not only on behalf of the beneficiary and owed a duty to the beneficiary of the utmost duty of loyalty.
There are for significant elements to a trust:
1) It is equitable;
2) The beneficiary has proprietary rights in the trust property;
3) The trust imposes obligations on the trustee;
4) The trustees obligations are fiduciary in nature.
In addition to the trustees fiduciary duties, and other general principles of trust law, trustees must adhere to the terms of the specific trust and failure in that regard is a breach of trust.
The scope of the trustee’s discretion is derived from the trust instrument itself. Neville v Wynne 2005 BCSC 483 at para. 39
Generally speaking, in the absence of mala fides a court will rarely interfere with the exercise of a trustee’s discretion, and will not replace its judgment for that of the trustee, even if it would have come to a different decision. Yates v Air Canada 2004 BCSC 3 at apra.106.
However, a plaintiff need not prove fraud to establish mala fides on a trustee as the court can in turn fear of the trustees decision is influenced by extraneous matters.
While the threshold for judicial intervention remains high, despite the broad definition of mala fides , it is not seem proof of mala fides remains essential.
Waters identifies certain categories that may lead to judicial interference at pages 989 – 990:
1) The decision is so unreasonable that no honest or fair dealing trustee could have come to that decision;
2) the trustees of 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 as to whether they ought to exercise the discretion.
The threshold for judicial intervention remains high and applies equally to decisions about the distribution of income or assets. Edell v Banting 2002 46 ETR (2d) 93 ( Ont. CA).
In Edell the court would not interfere with the exercise of discretion, finding the trustees concern about the future of the family business was a relevant consideration.