



COURT OF APPEAL FOR ONTARIO

CITATION: Penman v. Penman, 2014 ONCA 83

DATE: 20140130

DOCKET: C56915

Rosenberg, Cronk and Tulloch JJ.A.

BETWEEN

The
    Childrens Lawyer, litigation guardian for Jacob Roderick Penman,

Bernard
    Alexander, Rachel Penman, Valerie Clay, Julia Renee Honor Penman, Faith
    Katherine Penman and Scarlett Lynn Rivers, and Maja Joseph Rivers, minors, and
    as representative of the unborn and unascertained beneficiaries of the
    Penman Family Trust

Applicant/Respondents in Appeal

and

Randal
    Penman, Mark Penman,
Mary Lou McGillvray
, Rigel
    Penman, Kristy
    Lee Penman, Susan Penman and the Canada Trust Company, Trustee
    for the Penman Family Trust

Respondents/Mary Lou McGillvray

Appellant in Appeal

James A. Ironside and Heather
    McLeish, for the appellant

Susan J. Stamm for the respondent

Heard: January 23, 2014

On appeal from the judgment of Justice Lois B. Roberts of
    the Superior Court of Justice, dated March 18, 2013.

ENDORSEMENT

[1]

The appellant, Mary Lou McGillvray, appeals from the application judges
    ruling that she is jointly and severally liable, together with her two nephews,
    Randal Penman and Mark Penman, for the sum of $453,048.20, plus interest, on
    account of trust funds wrongfully removed from a trust created by her late
    brother and her sister-in-law for the benefit of their grandchildren.  At all
    relevant times, the appellant and Mark Penman were co-trustees of the trust.  On
    this appeal, the parties accept that Randal Penman, although not named as a
    co-trustee, was a trustee
de

son tort
of the trust.  The
    appellant was also one of the executors of her deceased brothers estate.

[2]

The appellants central submission is that she acted honestly and reasonably,
    in good faith, and with the benefit of legal advice from her nephew, Randal Penman,
    an Alberta lawyer, in all her dealings with the trust, that she was duped by
    her two nephews who wrongfully used the trust funds for their own benefit, and
    that no act or omission on her part caused the admitted loss of the trust
    funds.

[3]

The application judge disagreed.  Although she did not reject the
    appellants theory of wrongdoing by Mark and Randal Penman, she made multiple
    factual findings that the appellant breached her obligations as a co-trustee of
    the trust, including her fiduciary obligations, and that she knew more about
    her nephews dealings with the trust funds than the appellant claimed.

[4]

The application judges key findings concerning the appellant were
    expressly based on her adverse assessment of the appellants credibility and
    the reliability of her testimony.  They included the following findings:

(1)

the
    appellant signed a directors resolution authorizing her nephew Mark Penman to
    invest the trust funds in the exercise of his unfettered discretion;

(2)

after so
    authorizing Mark Penman, the appellant failed to make any inquiries regarding
    the investment of the trust funds or her nephews dealings with the funds;

(3)

contrary
    to her contention, the appellant was not misled by her nephews regarding the
    use and investment of the trust funds; and

(4)

the
    appellant did not act reasonably in relation to her duties as a co-trustee of
    the trust and did not comport herself in accordance with her statutory duty of
    care as a trustee, set out under s. 27(1) of the
Trustee Act
, R.S.O.
    1990, c. T. 23 (the Act).  To the contrary, she abdicated her duties
    entirely, by improperly delegating all her powers, duties and authority as a
    co-trustee to her two nephews.

[5]

The application judges core findings regarding the reasonableness of
    the appellants conduct are perhaps most succinctly set out at paras. 86, 87
    and 102 of her reasons:

While there is no suggestion of any dishonesty on her part, the
    evidence clearly establishes that Ms. McGillvray did not act reasonably: she
    failed to consider all relevant criteria in determining whether the proposed
    investments

were appropriate; she
    completely delegated the exercise of her discretion to Mark Penman and to
    Randal Penman; and she failed to make any reasonable inquiries about the
    proposed investments or to follow up regarding their status.

It is wilful neglect and default of a trustee to place trust
    funds in the hands of another and allow it to remain there for years without
    any inquiry or any assurance that the

trust

is being properly administered. Ms.
    McGillvrays failure to make any further inquiry about the investment of the
    trust funds constitutes wilful neglect and default of which Ms. McGillvray would
    not have been guilty in the management of her own affairs.

.

Even if I were to accept Ms. McGillvrays evidence at its
    highest, other than a brief conversation concerning an investment of the trust
    funds in a GIC, it appears that, by her own admission, Ms. McGillvray barely
    read anything to do with the proposed investment of the trust funds but simply
    signed whatever was placed in front of her.  She made no inquiries to
    understand all of the details of the investment.  She signed a directors
    resolution to allow Mark Penman to do whatever he wished with the trust funds without
    the necessity of having to consult her further or obtain her authorization. 
    She made no further inquiries of the progress or status of the investment of
    the trust funds.  She simply assumed without any rational justification that
    things were going well.

[6]

These key findings were open to the application judge on the evidentiary
    record before her.  The appellant has failed to establish that they are tainted
    by palpable and overriding error.  Accordingly, there is no basis for appellate
    interference with these findings.

[7]

The application judges factual findings are dispositive of the issue of
    the appellants personal liability for the wrongfully exhausted trust funds
    unless she may be relieved of liability by operation of law or under the terms
    of the trust indenture.

[8]

Before the application judge, the appellant argued that she could, and
    should, be absolved from personal liability on two grounds.  First, she sought
    to invoke the courts authority under s. 35(1) of the Act to relieve a trustee
    from personal liability for breach of trust or for omitting to obtain the
    directions of the court in the matter in which the trustee committed the breach
    at issue.

[9]

The application judge concluded that the appellant could not rely on the
    protection of s. 35(1) of the Act.  She held, at para. 85:

Ms. McGillvray relies upon subsection 35(1) of the
Trustee
    Act
, which excuses trustees from liability for breaches of trust and
    failure to seek direction of the court where it is found that they acted
    honestly and reasonably.  This relief is not available to Ms. McGillvray
    because the alleged loss arises out of investment of the trust property; and
    subsection 35(2) of the
Trustee Act
expressly provides that subsection
    35(1) does not apply in these circumstances.

[10]

We
    agree.  Moreover, on the application judges findings, relief under s. 35(1) is
    unavailable to the appellant on a second preclusive ground.  As the application
    judge noted, court-ordered relief under s. 35(1) is available only for a
    trustee who has acted reasonably, as well as honestly.  On the application
    judges findings, that is not this case.

[11]

The
    appellant also relies, as she did before the application judge, on paragraph 8
    of the trust indenture as a bar to any finding of personal liability as against
    her.  Paragraph 8 reads in part:

The Trustee [
sic
] shall not be responsible for the
    acts or defaults of each other or for any error in judgment or for any act of
    omission or commission not amounting to actual fraud in the management and
    administration of the Trust Property.  The Trustee shall not be personally
    liable for any monies to become due from or by any claims against the Trust
    Property or upon any investment executed by the Trustees under the provisions
    hereof.

[12]

The
    application judge held that paragraph 8 did not apply to immunize the appellant
    from personal liability for her breaches of her duties as a co-trustee of the
    trust.  She reasoned, in part, at para. 90:

Further, an exculpatory clause will not protect a trustee when
    it is found that the trustee improperly delegated the power or discretion in
    question.  Each trustee must actively consider his or her discretion and will
    not be exonerated for passively acquiescing in the actions of a co-trustee. 
    The law does not distinguish between passive and active trustees.  In accepting
    a trusteeship, a trustee assumes a duty to the beneficiaries of the trust. 
    [Citation omitted.]

[13]

Again,
    we agree.  In their leading text,
Waters Law of Trusts in Canada, 4th ed.
(Toronto: Carswell, 2012), at pp. 981-82, Waters, Gillen and Smith suggest that
    there is some uncertainty in Canadian law concerning the validity of indemnity
    or exculpatory clauses in trust instruments in relation to a trustees
    liability for gross negligence; however, they also state that clauses of this
    kind will not protect the trustee when it is found that he improperly
    delegated [his or her] power or discretion.  See also
Re Wilson
,
    [1937] O.R. 769, 3 D.L.R. 178 (Ont. C.A.).

[14]

Paragraph
    8, the exculpatory clause in the trust indenture in question, is designed to
    protect trustees in their management and administration of the trust property.  In
    this case, the appellant was found to have wholly abdicated her duties as a co-trustee
    in favour of others, by reason of her improper delegation of all her
    discretion, authority, powers and duties to her nephews.  As a result, she did
    not function as a co-trustee of the trust, although she was obliged to do so. 
    Nor was she engaged in the management and administration of the trust property.
    To the contrary, the appellant wrongfully delegated these responsibilities to
    others.

[15]

In
    these circumstances, we agree with the application judge that the appellant is
    unable to bring herself within the protective ambit of paragraph 8 of the trust
    indenture.

[16]

We
    observe that nothing in these reasons should be taken to mean that the
    appellant is without a potential remedy. She remains free to pursue
    indemnification from her nephews, Randal and Mark Penman, for their wrongdoing
    in relation to the trust, should she be so advised.

[17]

For
    the reasons given, the appeal is dismissed.  The Childrens Lawyer sought
    nominal costs in the event of success on this appeal.  We would therefore

award the Childrens Lawyer costs of the appeal, fixed
    in the amount of $2,500, inclusive of disbursements and all applicable taxes.

[18]

We
    thank both counsel for their forthright and helpful submissions to the court.

M. Rosenberg J.A.

E.A. Cronk J.A.

M. Tulloch J.A.


