



COURT OF APPEAL FOR ONTARIO

CITATION: Cahill v. Cahill, 2016 ONCA 962

DATE: 20161220

DOCKET: C61942

Simmons, Pepall and Huscroft JJ.A.

BETWEEN

Patrick Cahill

Applicant

(Respondent)

and

Kevin
    Cahill in his personal capacity and as

Estate
    Trustee of the Estate of Thomas Michael Edward Cahill,

Sheila Kehoe in her personal capacity and as

Estate Trustee of the Estate of Thomas Michael Edward Cahill
,

Tom
    Cahill Memorial Fund, Alcoholics Anonymous,

Jessica
    Kehoe, Craig Kehoe, Calvin Cahill, Kevin Douglas Olson

and
    Corey Robert Olsen

Respondents

(Appellant)

William R. Hunter, for the appellant Sheila Kehoe

Miriam Vale Peters, for the respondent

Heard: November 15, 2016

On appeal from the judgment of Justice Sylvia Corthorn of
    the Superior Court of Justice, dated February 25, 2016, with reasons reported
    at 2016 ONSC 1385, 129 O.R. (3d) 401.

Pepall J.A.:

A.

Introduction

[1]

Thomas Cahill died in March 2010. In his will, he appointed his
    daughter, the appellant, Sheila Kehoe, and his son, Kevin Cahill, as executors
    and trustees of his estate. They were directed to set aside $100,000 in a trust
    fund for the benefit of their brother, Patrick Cahill, with the remainder to
    the testators grandchildren. They failed to do so.

[2]

The will directed that Patrick was to receive a payment of $500 each
    month from the trust fund. Kevin was to be the trustee of the trust fund with sole
    discretion as to the investment of the monies in the fund. However, Kevin used
    most of the $100,000 for his own benefit. Patrick then sued the two executors
    and trustees and claimed breach of trust.

[3]

The application judge found in Patricks favour. Sheila appeals from
    that judgment.  Sheila submits that the application judge erred in concluding
    that she did not establish a trust fund, in holding her liable for losses
    caused by Kevin, and in failing to relieve her from liability pursuant to s.
    35(1) of the
Trustee Act
, R.S.O. 1990, c. T.23.

[4]

For the reasons that follow, I would dismiss the appeal.

B.

Background Facts

(i)

The Will

[5]

Paragraphs 2 and 3(g) of the testators will provided:

2.     I
    HEREBY NOMINATE, CONSTITUTE AND APPOINT my daughter, SHEILA M.L. KEHOE, and my
    son, KEVIN T. CAHILL, to be the Estate Trustees, Executors of and Trustees
    under this my last Will and Testament and I shall hereinafter refer to them as
    my Trustees.

3.     I GIVE,
    DEVISE AND BEQUEATH all my real and personal estate of any kind whatsoever and
    wheresoever situate of which I may die possessed, including any property over
    which I may have a general power of appointment, unto my Trustees upon the
    following trusts, namely:



(g) To
    set aside the sum of ONE HUNDRED ($100,000.00) in a trust fund for the benefit
    of my son, PATRICK E. CAHILL, during his lifetime (hereinafter referred to as
    Patricks Trust Fund). I DIRECT that my son, KEVIN T. CAHILL, shall be the Trustee
    of Patricks Trust Fund, and shall have sole discretion as to the investment of
    monies thereunder. I FURTHER DIRECT that my son PATRICK E. CAHILL, shall
    receive the sum of FIVE HUNDRED ($500) DOLLARS per month out of Patricks Trust
    Fund during his lifetime, or until such fund is exhausted, whichever shall
    first occur.

UPON
    the death of my son, PATRICK E. CAHILL, or in the event that he shall have
    predeceased me, then I DIRECT that Patricks Trust Fund, or any amount
    remaining therein, shall be divided equally amongst those of my blood
    grandchildren who are living at the date of Patrick E. Cahills death, or at
    the date of my death if Patrick has predeceased me, as the case may be, share
    and share alike.

[6]

The will also directed that the testators real estate be sold, and it
    was. The estate received net proceeds of $223,013.75 from the sale of the
    testators house. These funds were deposited in the estates account at
    Scotiabank. Thereafter, Sheila and Kevin both signed a direction to Scotiabank
    to issue a draft for $100,000 from the estates account, payable to London
    Life. The direction did not mention the trust, the trust fund, or Patrick.

[7]

Kevin then opened a non-registered investment plan in the amount of
    $100,000 with London Life. On the application form, he described himself as the
    annuitant and Sheila as the contingent policy holder. The account information
    for Michael Cahill, another brother, was listed under the heading Information
    for Pre-Authorized Payment Agreement  / Direct Deposit. No mention was made of
    any trust, trust fund, or Patrick.

[8]

The payments of $500 per month to Patrick were never paid directly from
    London Life to him.  Rather, they were made payable to Kevin or to Michael, who
    in turn would pay the $500 to Patrick monthly.  Patrick received $500 a month
    from either Michael or Kevin until the spring of 2014, when three consecutive monthly
    cheques were returned for insufficient funds. Patrick has received nothing
    since May 2014.

[9]

Patrick subsequently discovered that in 2012, Kevin had borrowed the
    remaining money in the plan  $92,642.99  as a mortgage for his business
    premises. The business failed, the bank realized on the premises, and there
    were no funds remaining in the London Life plan.

(ii)

The Court Application

[10]

Patrick successfully brought an application for payment of his
    entitlement under the will. He also sought the removal of Sheila and Kevin as
    executors and trustees of the estate and the removal of Kevin as trustee of
    Patricks trust fund, but the application judge adjourned the determination of
    those issues until Sheila and Kevin had provided an accounting of the estate.

[11]

During the course of the litigation, Sheilas lawyer told Patrick to
    communicate with him.  Her lawyer wrote to Patrick stating:

Neither Sheila nor her children received the money from the
    house sale, Kevin did. I do not know what he did with that money. But one thing
    for sure is that Sheila and her two children do not know either. They are not
    liable to you in any way.

[12]

The application judge did not agree with this assessment. She found that
    Sheila was negligent.  Moreover, both Sheila and Kevin had breached their
    fiduciary obligations to the beneficiaries of the estate, including Patrick and
    the testators grandchildren.

[13]

The application judge observed that the executors and trustees of an
    estate, not the beneficiaries, have the onus of establishing that the
    management and distribution of funds is consistent with the terms of the will. She
    concluded that neither Sheila nor Kevin had met that onus. They had failed to
    take the steps necessary to establish the trust fund. She found that a trust
    fund for Patricks benefit was never set aside as directed by the testator. It
    was not enough for Sheila to simply sign the direction to transfer the funds
    from Scotiabank to London Life.

[14]

The application judge noted Sheilas evidence that Kevin had assured her
    that everything was being properly handled.  The application judge rejected
    Sheilas submission that she relied on Kevin because of his qualifications in
    the field of financial management. The evidence did not support her submission
    and, in any event, she made insufficient, if any, inquiries of Kevin or London
    Life as to the details of the $100,000. Sheila acknowledged in her evidence
    that she did not have any knowledge of the administration of the trust fund
    other than her signature on the direction to transfer the funds to London Life.
    In finding that this was inadequate and that Sheila could not simply defer to
    her brother, her co-trustee, the application judge relied on
Fales v.
    Canada Permanent Trust Co.
, [1977] 2 S.C.R. 302; and
The Childrens
    Lawyer v. Penman
, 2013 ONSC 1471, affd (
sub nom. Penman (Litigation
    guardian of) v. Penman
) 2014 ONCA 83, 119 O.R. (3d) 128.

[15]

In essence, Sheila abdicated her duties as executor and trustee of the
    estate. She was required to take real, active steps to ensure that the trust
    fund was set up in accordance with the Will, but she failed to do so. Specifically,
    the application judge stated, at paras. 58-60:

If the Deceased had merely wished Kevin alone to have absolute
    authority and to make all decisions with respect to the Estate, he would not
    have appointed Sheila as an executor and trustee. Sheilas appointment in that
    role must be seen as reflective of the Deceaseds wish that she not simply
    acquiesce to or rubber-stamp anything suggested or done by Kevin. Sheila was
    obligated to exercise her own judgment. She completely failed in that duty.

Sheila had limited information at best and no documentation
    upon which to consider whether the transfer of $100,000 from Scotiabank to
    London Life was sufficient to satisfy the instructions in paragraph 3(g) of the
    Will. Sheila signed a single document, the Direction, which was completely
    uninformative with respect to the terms of the trust.



Sheila assumed solely on the basis of assurances from Kevin
    that the trust fund was set up in accordance with the Will. As an executor and
    trustee of the Estate, Sheila had a duty to the beneficiaries of the Estate to
    do more. She had a duty to make inquiries to satisfy herself that the terms of
    the trust fund were in accordance with the Will. [Citations omitted.]

[16]

The application judge concluded that Sheilas negligence and breach of
    fiduciary duty caused or contributed to the dissipation of the money intended
    for the trust fund pursuant to para. 3(g) of the will.

[17]

The application judge also held that Kevin failed in his duties.
    Moreover, having never established the trust fund, Kevin had no authority to direct
    the investment of the funds.  Further, Sheila and Kevin failed to fulfil their
    obligations to the testators grandchildren, assuming one or more of the
    grandchildren survived Patrick.

[18]

The application judge then considered whether relief was available under
    s. 35(1) of the
Trustee Act
, although neither party had raised the
    issue. Section 35(1) states:

If in any proceeding affecting a trustee or trust property it
    appears to the court that a trustee, or that any person who may be held to be
    fiduciarily responsible as a trustee, is or may be personally liable for any
    breach of trust whenever the transaction alleged or found to be a breach of
    trust occurred, but has acted honestly and reasonably, and ought fairly to be
    excused for the breach of trust, and for omitting to obtain the directions of
    the court in the matter in which the trustee committed the breach, the court
    may relieve the trustee either wholly or partly from personal liability for the
    same.

[19]

The application judge noted that there was no evidence establishing that
    Sheila had failed to act honestly. However, she had not acted reasonably. As
    such, the application judge declined to exercise her discretion to grant relief
    under s. 35(1) of the
Trustee Act
.

[20]

The application judge held that Sheila and Kevin were jointly and severally
    responsible for $80,642.99, being the outstanding principal necessary to fund
    the monthly $500 payments to Patrick, as required under the will.

C.

Grounds of Appeal

[21]

Sheila focused on three grounds of appeal. She submits that the
    application judge erred:

(i)    in finding that a trust was not established;

(ii)    in
    finding that the appellant was liable for any loss occasioned by Kevin; and

(iii)   in
    denying the appellant relief under s. 35(1) of the
Trustee Act
.

D.

analysis

(i)

Failure to Establish the Trust Fund

[22]

Sheila submits that the application judge erred in finding that a trust
    was not established. The three certainties required to establish a trust were
    met by the language of the will, and the trust was constituted when the funds
    were placed with London Life. She argues that the payments to Patrick
    established that the trust was declared, constituted and therefore created, and
    the absence of Patricks name on the documents did not deprive him of his
    beneficial interest.

[23]

As such, the application judge ought not to have concluded that the
    appellant failed in her duties to Patrick and the grandchildren.

[24]

I disagree.

[25]

In
The Law of Trusts
, 3d ed. (Toronto: Irwin Law Inc., 2014),
    at pp. 154-55, Gillese J.A. describes the nature of a trustees role:

Trusteeship is an extremely onerous position. Trustees are
    subject to the specific duties created by the trust instrument and by
    legislation. In addition, they have a great many duties placed upon them by
    equity.



An understanding of the common law duties imposed upon trustees
    has as its starting point the fact that a trustee is a fiduciary. The trustee
    exists to administer the property on behalf of the beneficiary.



Because of the dependency relationship and the fact that the
    trustee controls the beneficiarys property, the trustee is held to the most
    exacting standards of all fiduciaries.

[26]

Justice Gillese goes on to observe that a breach of trust occurs whenever
    a trustee fails to fulfill his or her obligations with respect to the
    administration of the trust, and liability arises whether the breach is
    innocent, negligent or fraudulent. Liability exists even if the loss would
    have occurred without the breach.  In general, liability is imposed not to
    punish trustees but to restore the beneficiaries to the position they would
    have been in had the breach not occurred: p. 178.

[27]

In this case, the will was clear: Sheila and Kevin were to set aside
    $100,000 in a trust fund for the benefit of Patrick. Kevin then was directed to
    invest those funds and make monthly payments to Patrick of $500. In the event
    that Patrick pre-deceased any of the testators grandchildren, the trustees
    were to distribute the remaining trust funds to those beneficiaries.

[28]

The application judge made a finding that the trust fund was never
    established. I see no reason to interfere with that finding.

[29]

The will described the trust, but it was incumbent on Sheila and Kevin
    to establish the trust
fund
. They failed to do so. The record
    disclosed that:

-

the direction to Scotiabank did not mention any trust, trust fund, or Patrick;
    and

-

neither did the application to London Life.

[30]

Although payments of $500 were made to Patrick, these came from either Michael
    or Kevin. There was a dearth of evidence showing that a trust fund had been
    established.

[31]

Based on the record before her, it was open to the application judge to make
    the finding that a trust fund had never been established.

(ii)

The Appellants Liability

[32]

Sheila submits that once the trust was established, she had no further
    obligation with respect to its management. The will was clear in giving Kevin
    sole discretion over the investment of the trust funds, and any liability for
    the loss rested with him. Similarly, Sheila argues that it was Kevins duty to
    distribute any remainder in the trust to the testators grandchildren who had
    been designated beneficiaries, and Kevins personal representative would assume
    his duties if something happened to him.

[33]

The obligation of a co-trustee is well established and described in
    numerous textbooks on trusts and trustees. David Hayton, Paul Matthews and
    Charles Mitchell write in
Law of Trusts and Trustees
, 8th ed.
    (Markham: LexisNexis, 2010), at p. 839:

It is not unusual to find one of several trustees spoken of as
    the acting trustee, meaning the trustee who actively interests himself in the
    trust affairs, and whose decisions are merely endorsed by his co-trustees. The
    court, however, does not recognize any such distinction; for the settlor has
    trusted
all
his trustees and it beholds each and every one of them to
    exercise his individual judgment and discretion on every matter, and not
    blindly to leave any questions to his co-trustees or co-trustee.

[34]

Similarly, Carmen S. Thériault, in
Widdifield on Executors and
    Trustees
, looseleaf (2016-Rel. 9), 6th ed. (Toronto: Thompson Reuters,
    2016), at para. 8.7.2, states:

Not only must trustees be unanimous in the exercise of their
    powers, but each trustee must actively consider his discretion and will not be exonerated
    for passively acquiescing in the actions of the co-trustee.

[35]

Lastly, Donovan W.M. Waters writes in
Waters Law of Trusts in
    Canada
, 4th ed. (Toronto: Carswell, 2012), at p. 43:

[A trustee] is not entitled to shrug off the wrongful actions
    of a co-trustee on the basis that he knew nothing of what the other was doing;
    as a fiduciary, he is responsible for all acts of trusteeship, and he therefore
    carries a several, as well as a joint, liability for all that is done in the
    name of the trust or through the exercise of the office of trustee.

[36]

These principles are also reflected in the applicable jurisprudence: see
Mickleburgh v. Parker
(1870), 17
    Gr. 503 (Ont. Ch.),
and
Fales
.

[37]

The application judge found that Sheila failed to discharge her
    obligations as an executor and trustee of the estate, because the trust fund
    for Patrick was never established. The application judge found, at para. 56,
    that by her own admission, Sheila had virtually no involvement in the
    administration of the estate. Sheila had abdicated her duties. Again, the
    record supports that key finding. The fact that Sheila thought that she was
    acting responsibly does not excuse her inaction. Doing nothing was not a luxury
    available to her as a co-trustee. Justification supporting this conclusion is
    readily available.

[38]

First, the will reflects the testators testamentary intention, and he appointed
    and entrusted two executors and estate trustees, not one. As the application
    judge noted, Sheilas appointment as executor and estate trustee reflects the
    testators wish that
both
she and Kevin administer his estate.

[39]

Second, an executor or estate trustee is entitled to remuneration for
    his or her services, either pursuant to the terms of the will or, if the will
    is silent, under s. 61(1) of the
Trustee Act
. The existence of a
    statutory entitlement to compensation further demonstrates that an executor or
    estate trustees responsibilities are to be taken seriously.

[40]

Third, if a party who is named as executor and trustee is unable,
    unwilling or incapable of accepting the responsibility, it is open to him or
    her to renounce the appointment. As Sheila did not renounce the appointment,
    she was obligated to properly fulfill her duties as executor and estate
    trustee.

[41]

Although the will did provide Kevin with the responsibility for investing
    the monies in the trust fund, this did not absolve Sheila, as co-trustee, of
    her responsibility to ensure that the trust fund was properly set up. Further,
    the testator directed that Patricks trust fund be divided amongst his grandchildren
    who are living at the time of Patricks death. This obligation to divide any
    remainder of the trust fund among the grandchildren was a continuing one; it bound
    Sheila and was not confined to Kevin (or his personal representative, should he
    die).

[42]

For these reasons, I would not give effect to this ground of appeal.

(iii)

Section 35(1) of the
Trustee Act

[43]

The appellant brought a motion for leave to file a supplementary notice
    of appeal and factum so as to pursue an additional ground of appeal relating to
    s. 35(1) of the
Trustee Act
. Feldman J.A. heard that motion and
    determined that the panel hearing the appeal should decide whether or not to
    allow Sheila to raise the issue on appeal.

[44]

The decision of whether to grant leave to allow an appellant to advance
    a new argument on appeal is a discretionary decision, guided by the balancing
    of the interests of justice as they affect all parties:
R. v. Wasing
[1998] 3 S.C.R. 579, pp. 590-92;
Kaiman v. Graham
, 2009 ONCA 77, 245
    O.A.C. 130, at para. 18.

[45]

The application judge acknowledged that s. 35(1) of the
Trustee Act

was not raised in argument before her, but she considered it nonetheless. She
    stated, at para. 64 of her reasons:

There is no evidence to support a finding that Sheila failed to
    act honestly. However, as noted above, I find that Sheila breached her
    fiduciary obligations to the beneficiaries of the estate. She did not act
    reasonably. As a result, she is not entitled to relief pursuant to
    s. 35(1) of the
Trustee Act
.

[46]

While I would permit Sheila to advance this ground of appeal, for the
    reasons that follow, I would not give effect to this ground.

[47]

Sheila submits that she should be afforded relief under s. 35(1) of the
Trustee
    Act
,
because any breach by
    her was neither dishonest nor unreasonable, but rather reflected an honest
    mistake.

[48]

Section 35(1) of the
Trustee Act
provides an opportunity for
    court-sanctioned relief where the trustee has acted honestly and reasonably,
    and ought fairly to be excused for the breach of trust.

[49]

That said, s. 35(1) is discretionary. Absent any palpable and overriding
    error, deference is owed to the application judges exercise of discretion.

[50]

The trustee has the burden of proof with respect to the three elements
    in s. 35(1): (1) that he or she acted honestly; (2) that he or she acted
    reasonably; and (3) that he or she ought fairly to be excused.

[51]

Whether a trustee has acted honestly and reasonably will depend on the facts
    of the particular case. In
The Law of Trusts
, Gillese J.A. notes, at
    p. 190, Generally, the courts have interpreted honestly as an active
    involvement in the affairs and decisions of the trust administration. Whether
    a trustees conduct is reasonable is generally determined on the basis of
    what an ordinary prudent business person would have done in the circumstances.

[52]

Courts are to consider a trustees breach of trust in the light of all
    of the circumstances. The relevant factors will include whether the breach was
    technical in nature or a minor error in judgment; whether the trustee was paid;
    and whether the trustee is a professional: see
Fales
, p. 319; Gillese,
    J.A., p. 191.

[53]

In
Penman
, at para. 86, the application judge held that the
    trustee had not acted reasonably:

[The trustee] failed to consider all relevant criteria in
    determining whether the proposed investments were appropriate; she completely
    delegated the exercise of her discretion to [her co-trustee]; and she failed to
    make any reasonable inquiries about the proposed investments or to follow up
    regarding their status. Section 35 of the
Trustee Act
does not excuse
    a person who does nothing.

[54]

For similar reasons, the application judge in this case found that Sheila
    did not act reasonably.  Sheila made no inquiries and took no steps to fulfill
    her duties owed to the beneficiaries. The application judge gave extensive and
    thoughtful reasons and was alert to the factual context. I see no basis on
    which to interfere with the application judges decision.

[55]

Accordingly, while I would permit Sheila to advance the ground of appeal
    involving s. 35(1)
Trustee Act
, I would not give effect to it.

Disposition

[56]

For these reasons, I would dismiss the appeal. I would order Sheila to pay
    the respondents costs fixed in the amount of $10,000, inclusive of
    disbursements and applicable tax.

Released:

DEC 20 2016                                    S.E.
    Pepall J.A.

SEP                                                            I
    agree Janet Simmons J.A.

I
    agree Grant Huscroft J.A.


