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TABLE OF CONTENTS
- I. Introduction
- II. The Current Law on Trustee Delegation
- A. Delegation Powers Apart From Statute
- Ministerial Tasks
- Transacting Business Through Agents: the Speight v. Gaunt Rules
- Limits on Speight v. Gaunt Delegation
- B. Statutory Delegation Powers
- Section 7 of the Trustee Act
- Sections 13 and 14 of the Trustee Act
- C. Liability of the Trustee for Losses Caused by Agents and Delegates
- Apart From Statute
- Under Statute
- (a) Section 95 of the Trustee Act
- (b) The Special Case of Delegation Under Power of Attorney
- III. Reform of the Statutory Delegation Powers
- A. General
- B. Some Models
- Section 23 of the English Trustee Act
- The U.S. Uniform Trustees’ Powers Act
- Draft U.S. Uniform Trust Act
- English and Scottish Law Commission Recommendation
- Trustee Bill 5. Section 5 of the Ontario Law Reform Commission Draft
- Trustee Act C. A New Statutory Power of Delegation for British Columbia’s
- General
- Delegation of Specific Powers and Discretions
- Delegation of Full Trustee Powers Under Power of Attorney
- Delegation to a Co-Trustee
- Subdelegation
- IV. Summary of Recommendations
- V. Conclusion
- Appendix A - Trustee Act - Selected Provisions
- Appendix B - National Conference of Commissioners on Uniform State Law
TABLE OF CONTENTS ( continued )
Appendix C - The English and Scottish Law Commission Recommendations on Trustees’ Powers and Duties....................................... 24
Appendix D - Ontario Law Reform Commission Draft Trustee Bill, s. 5......... 25
Appendix E - Trustee Act , 1925 (UK) Section 25.......................... 25
Appendix F - Draft Provisions Implementing Committee Recommendations..... 26
Appendix G - Further Information on the Project and the Committee........... 29
- Consultation Paper on Statutory Powers of Delegation by Trustees (November, 1999).
- Attorney General v. Scott, (1750) 1 Ves. Sen. 413, 417-418, 27 E.R. 1113, 1117; Re Hetley and Merton’s Contract, [1893] Ch. 269 (C.A.).
- (1883) 9 App. Cas. 1 (H.L.).
generally in a revised Trustee Act. It was preceded by a Consultation Paper that the Committee circulated in order to obtain the benefit of other views before formulating its final recommendations.^4
II. The Current Law on Trustee Delegation
1. Apart From Statute
1. Ministerial Tasks
So called “ministerial” tasks, namely ones requiring only the execution of an act without the need for any independent exercise of judgment, may be delegated to others whenever it is practical for the trustee to do so.^5 For example, a trustee can always delegate the task of cutting a lawn. The trustee can also delegate the submission of land transfer documents for registration to a solicitor rather than submitting them personally.
2. Transacting Business Through Agents: the Speight v. Gaunt Rules
A trustee also has power under general trust law to carry out business through an agent out of necessity, or if it is in the ordinary course of business to use an agent to carry out a particular kind of transaction. For example, it would be entirely proper to acquire and dispose of securities for the trust portfolio through a stockbroker, as this is done in the ordinary course of business. The rules associated with the use of agents by trustees are usually referred to as the rules in Speight v. Gaunt ,^6 after the English case with which they are most often associated.
3. Limits on Speight v. Gaunt Delegation
The principal qualifications on the Speight v. Gaunt rules are that: the task assigned
- Fry v. Tapson, (1884) 28 Ch. D. 268 at 280. Thus, it would be a breach of trust for a trustee to employ a person who is not registered to deal in securities to carry out transactions connected with investment of the trust property, since it would not be in the ordinary course of business of an unregistered person to handle such matters.
- Re Weall, (1889) 42 Ch. D. 674.
- Low v. Gemley, (1890) 18 S.C.R. 685.
- Robinson v. Long , [1923] 4 D.L.R. 918 at 921 (N.B.S.C.) App. Div.
- A sprinkling trust is a trust in which the beneficiaries do not receive fixed shares of income or capital, but in which the trustee has a discretion to determine which beneficiaries shall receive distributions, and the timing and size of distributions of income or capital.
- Re Wilson , [1937] 3 D.L.R. 178 (Ont. C.A.). In McLellan Properties Ltd. v. Roberge, [1947] S.C.R. 561, the Supreme Court of Canada considered the decision to exercise a power of sale to be non-delegable. See also Wagner v. Van Cleeff, (1991) 5 O.R. 3d 477 (Gen. Div.).
- Waters, Law of Trusts in Canada (2nd^ edition, 1984) 707.
to the agent must be one that is in the agent’s ordinary course of business to perform,^7
the trustee must act with prudence in selecting the agent, 8 and also in supervising the agent.^9
Delegation is not permissible under the Speight v. Gaunt rules where the settlor clearly intended the trustee to act personally.^10
There is also a category of trustee responsibilities to which the rules in Speight v. Gaunt do not apply, though the boundaries of the category are only vaguely delineated in the case law. These are duties or discretions which are so central to the achievement of the settlor’s intentions that delegation is seen as wholly inappropriate. One example of a non-delegable power might be the exercise of a discretion to distribute capital and income among the beneficiaries of a sprinkling trust.^11 It has sometimes been said that dispositive functions (determining when, and how much, a beneficiary will receive under the trust) are non-delegable, while purely administrative powers (ones relating to the management of the trust property) may be delegated to others. This is not the case, however, as trustees have been held in breach of trust for delegating discretions that can only be described as administrative.^12 Intrinsically non-delegable trustee powers have also been explained in terms of the requirement for a policy decision. A policy decision has been described in turn as “one which, if dispositive, determines how much and at what time a beneficiary takes; if administrative, it directly affects the likelihood of the trust’s object or purpose being achieved.”^13
- Section 14(3).
- Trustee Act Amendment Act , S.B.C.1940, c. 53. s. 2.
- The Trustee Act , R.S.M. 1987, c.T-160, s. 36.
- The Trustee Act , R.S.N.B., c.T-15, s. 6. Section 6(1) also allows a non-resident trustee to make use of a power of attorney to delegate in this manner.
- Re Weall, (1889) 42 Ch. D. 674.
The power of attorney is in effect only while the trustee is out of the province and is automatically revoked when the trustee returns.^19
Provisions similar to these were first enacted in the British Columbia Trustee Act in
1940.^20 They were modelled on English legislation passed at the beginning of the First World War.
Sections 13 and 14 provide the only means by which a trustee relying on British Columbia legislation may delegate his or her entire powers, discretions, and duties without an express power to do so in the trust instrument. Due to the very narrow range of circumstances in which the power of attorney procedure can be used, section 14 provides a very insignificant statutory power. Manitoba^21 and New Brunswick^22 have enacted provisions similar to Section 25 of the English Trustee Act 1925 , which permit delegation of all the trustee’s powers by power of attorney when the trustee is absent from the jurisdiction for any reason for longer than one month.
C. Liability of the Trustee for Losses Caused by Agents and Delegates
- Apart From Statute
As long as a delegation of a specific task to an agent meets the test in Speight v. Gaunt , and the trustee exercises prudence in selecting and supervising the agent, the trustee will not be liable for losses caused by the agent’s acts or omissions.^23
- See Appendix A.
- An Act to further amend the Law of Property, and to Relieve Trustees , 22-23 Vict., c.35, s. 31 ( Lord St. Leonard’s Act ). The section was enacted to provide all trustees with the benefit of the kind of exonerating clause that, by 1859, was nearly always inserted in trust documents at that time: Waters at 698.
- [1931] 1 Ch. 572.
- Brown v. Brown , [1931] 4 D.L.R. 420 (Ont. H.C.); reversed on other grounds [1932] 2 D.L.R. 819 (Ont. C.A.).
2. Under Statute
(a) Section 95 of the Trustee Act
Section 95 of the Trustee Act^24 states that a trustee is only liable for “his own acts, receipts, neglects or defaults, and not for those of other trustees or a banker, broker, or other person with whom trust money or securities may be deposited, nor for the insufficiency or deficiency of securities or any other loss, unless it happens through his own willful default ...”
Section 95 originated in English legislation of 1859.^25 It is duplicated in the trustee legislation of most of the common law provinces in Canada. The meaning of “willful default” is the subject of controversy as a result of the English decision Re Vickery.^26
In Re Vickery “willful default” was held to refer to a conscious breach of trust, or reckless carelessness as to whether a particular act or omission is a breach of trust or not. This was a departure from the interpretation placed on the section before Re Vickery was decided, and also from the equitable principles courts had applied up to that time in connection with trustee liability for the acts of agents. Under those principles, as we have seen, a trustee would be held liable for failing to exercise prudence in selecting and supervising the agent, even though there might be no suggestion of a deliberate or reckless breach of trust. Re Vickery has been applied nevertheless in one Canadian case.^27
Section 95 appears to exonerate a trustee from liability if an agent holding trust money or securities misappropriates them, unless the trustee has consciously permitted this to happen or is recklessly careless as to how the agent deals with the trust money or securities.
In other cases, a trustee must show that the delegation satisfied the Speight v. Gaunt principles and was prudently chosen and supervised in order to avoid liability for losses resulting from the acts of the person to whom authority was delegated.
- Trustee Act, 1925 , 15-16 Geo. 5, c. 19.
- The Trustee Act , R.S.M. 1987, c.T-160, s. 35(1).
- See Appendix B.
- Uniform Trustees’ Powers Act , National Conference of Commissioners on Uniform State Laws, 1964, Section 3(c)(24).
- Ibid.
“if employed in good faith.”^28 Since the scope of the section is difficult to determine, it has rarely been invoked. It has had little impact on the development of trust law. Manitoba, alone among Canadian provinces, has enacted a similar section in its Trustee Act.^29
2. The U.S. Uniform Trustees’ Powers Act
The Uniform Trustees’ Powers Act ,^30 which dates from 1964 and has been adopted in sixteen U.S. states, contains a section which allows trustees to:
(a) employ attorneys, auditors, investment advisers or agents to advise or assist the trustee in the performance of administrative duties; (b) act on their recommendations without independent investigation on the part of the trustee; and (c) employ agents to perform any “act of administration, whether or not discretionary.”
The reference to “administrative duties” and “acts of administration” in this provision^31 is not without significance. American courts make a firm distinction between administrative and dispositive functions, considering dispositive ones to be non- delegable. The scope of delegation that is allowed by the Uniform Trustees’ Power Act is still quite broad, allowing discretionary authority to be conferred on an agent for administrative purposes.
3. Draft U.S. Uniform Trust Act
The National Commissioners on Uniform State Laws are in the course of developing a new Uniform Trust Act ,^32 portions of which would replace the 1964 Uniform Trustees’ Powers Act. Section 807 of the draft Uniform Trust Act also addresses delegation powers. It would allow delegation of “duties and powers that a prudent trustee of
- Trustees’ Powers and Duties (LC 260, Sc. LC 172, 1999). See Appendix C.
comparable skills could properly delegate under the circumstances.” It requires the trustee to exercise reasonable care, skill, and caution in:
(a) selecting an agent; (b) establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust; and (c) periodically reviewing the agent’s actions in order to monitor performance and compliance with the terms of the delegation.
A trustee who complies with these requirements is absolved of liability for losses resulting from the conduct of the agent.
Section 807 of the draft Uniform Statute appears to impose a general criterion of prudence as the test of the propriety of delegation in any case. It does not preserve the clear distinction in the 1964 Uniform Act between administrative and dispositive functions, but the specific reference in the 1964 Act to the ability to delegate discretionary administrative powers has not been carried forward either. Thus, it is not clear whether Section 807 of the draft Uniform Trust Act is really broader or narrower than the 1964 provision on delegation to agents.
4. English and Scottish Law Commission Recommendation
The English and Scottish Law Commissions recently released a joint report^33 on trustees’ powers containing a series of recommendations on delegation. These contemplate the ability to delegate any administrative power, including those with respect to investment and management, but not powers of decision as to the distribution of income or capital among beneficiaries.
Trustee Bill 5. Section 5 of the Ontario Law Reform Commission Draft
In its 1984 Report on the Law of Trusts , the Ontario Law Reform Commission proposed a statutory delegation power that appeared to fall midway between the controversial Section 23(1) of the English Trustee Act 1925 and the American Uniform Trustees’ Powers Act. Section 5 of the draft Trustee Bill prepared by the Ontario Law Reform Commission would permit trustees to use agents to carry out “any act required to be done in the administration of the trust” but not to exercise any discretion as to the transfer or
- Section 27 of the Trustee Act allows for appointment of a substitute trustee, without the need to apply to court, when an existing trustee wishes to be discharged, is incapacitated, or intends to remain out of British Columbia for more than 12 months. The availability of a simple procedure for substitution under s. 27 weakens the case for a broader statutory delegation power, other than in the pure agency sense.
the shoes of the trustee with respect to some or all of the trust powers, seems to be rarely needed, if at all.^37 The presence of wide delegation clauses in trust instruments and wills is possibly explicable in terms of a desire to build enough flexibility into the trust terms to meet any future contingency, or to protect trustees who act pragmatically from liability for technical breach of trust. In some cases, it may only reflect an over-dependence on drafting precedents.
2. Delegation of Specific Powers and Discretions
The Committee does see a case for replacing section 7 of the current Trustee Act with a provision that is at least no narrower than the scope allowed to trustees to delegate authority under the non-statutory principles. To ignore this opportunity to clarify the law would perpetuate the present situation in which the Speight v. Gaunt rules co-exist with a narrow and likely superfluous statutory power, resulting in confusion and obscurity.
Formulation of a statutory delegation power requires that a boundary be drawn between the aspects of trusteeship that should be delegable in the interests of efficient trust administration and those that require the individual judgment of the trustee to be applied, and which therefore should be non-delegable. The ideal distinction between the two would be based on planning or policy decision-making versus operational decision- making, but this is a very elusive distinction in practice. For example, is a stop-loss instruction to a stockbroker a matter of investment strategy to divest the portfolio of volatile securities (policy) or day-to-day portfolio management (operational). Is postponing the sale of land in a rising market in anticipation of further capital growth a policy decision, or is it the execution of a decided policy of maintaining real estate in the portfolio of assets?
The distinction between administrative (management of the trust property) and dispositive functions that is made in section 5(1) of the Ontario Law Reform Commission’s draft Trustee Bill has the advantage of being clear-cut and easy to apply. The Committee prefers to adopt this practical distinction although it does not have the theoretical appeal of a test based on deciding policy vs. execution of decided policy.
In the Committee’s view the existing non-statutory principles governing liability of the trustee for the acts of an agent are adequate and fair, and should be preserved in a
- Section 95 is a jumbled mass of several distinct propositions, only one of which relates specifically to delegation, i.e. delegation of authority to receive and maintain custody of trust property. Each of these propositions would be clearer as the subject of self-standing provision.
- The issue of subdelegation is dealt with in Recommendation 4.
provision replacing section 7. Once it is accepted that some trust business must be carried out with the assistance of others, it follows that a trustee who selects and supervises them prudently should be excused of liability. We do not think that the test of liability for the acts of the delegate should be deliberate neglect or recklessness. A trustee is held to the standard of prudence in other contexts, and there is no cogent reason why beneficiaries should have less protection when a loss arises from the conduct of a delegate, than when the trustee causes the loss by his or her personal act or omission.
The words “willful default” in Section 95 of the Trustee Act , which have so confused this issue, as illustrated by Re Vickery , should be deleted and the Section redrafted so that it will be clear in the context of a revised Trustee Act that the standard of prudence applies rather than one of intentional neglect or recklessness.^38
The Committee recommends:
1. (1) Section 7 of the Trustee Act should be repealed and replaced by a provision stating that a trustee may delegate^39 to another person, within or outside the province, the authority to carry out any act or exercise any power or discretion relating to the administration of the trust, where it is reasonable and prudent to do so.
(2) Recommendation 1(1), does not authorize the delegation of authority to act upon or exercise any express, implied, or statutory discretion as to the transfer or distribution of trust property to or among the beneficiaries of the trust.
(3) The provision described in Recommendation 1(1) should require a trustee exercising the power of delegation to exercise prudence in selecting the person to whom the authority, power, or discretion is delegated and in supervising the conduct of that person.
(4) A trustee should not be liable for a loss arising from an act or omission of a person to whom any authority, power, or discretion is delegated under the provision described in Recommendation 1(1) unless the trustee is in breach of the requirements in Recommendation 1(3) and the loss is a consequence of the breach.
- Since it is possible to create a “springing” power of attorney, it might actually take effect on the happening of a contingency sometime after its actual creation or on a stipulated future date.
extensive business travel. Nevertheless, we will suppose, resignation and replacement would create their own problems for the continuing trustee or trustees, or the adult beneficiaries and the representatives of beneficiaries who are minors would prefer for the future that the particular trustee remain in office. Provision is therefore needed for the temporary period of absence.
The principal safeguard which we have in mind takes into account that a power of attorney gives the trustee the ability to delegate the totality of the trustee's duties and powers. Moreover, we have noted that the power will normally be used in this way. The delegation of particular powers, as of duties, is likely to be authorized in different ways. For instance, the conferment of a trustee power may itself carry the authorization to delegate that power, or a general power of delegation is carefully descriptive of the powers (or duties) it is intended to cover. A general power may also be qualified as to when the settlor or testator envisages delegation. The safeguard to which we refer recognizes that with total delegation a great deal of care is called for in the selection of an attorney. We believe that the best way in which to ensure that the necessary level of consideration is given to that task is to place the risk of wrongful or negligent conduct by the attorney squarely on the appointing trustee rather than on the trust beneficiaries. This is achieved by carrying forward the feature of the present section 14 that imposes full liability on the trustee for acts and omissions of the delegate. This pattern is also followed, we would note, in the trustee legislation of other jurisdictions that provide for a power of attorney. By way of example of Commonwealth trustee legislation, we would mention section 25(5) of the Trustee Act, 1925 , as amended, of England.
Apart from the continuing liability of the appointing trustee, we see two main safeguards that should surround the delegation of full trustee powers by power of attorney. The first is a “sunset clause” that would limit the effective duration of the power of attorney to twelve months from the time it takes effect.^41 This period is consistent with the duration of a power of attorney under the corresponding provision of the English legislation. We do not believe it is appropriate to allow the power to extend for an indefinite period. Where a greatly extended period is contemplated, it may be preferable for the trustee to resign rather than engage in a full delegation.
The second safeguard is to require notification of the grant of the power of attorney to various persons who have an interest in the proper administration of the trust. Creating a notification rule is not free of difficulty because there are issues as to who ought to
- One correspondent suggested that where a trustee seeks to appoint an attorney, the consent of any co-trustee to the appointment should be required. While we can see that the injection of an attorney into the administration of trust, where there has been no consent or consultation, might be regarded as an unwelcome development, we do not believe that it is appropriate to give co-trustees what would amount to a veto over selection of an attorney.
receive the notification and what the legal consequences should be if there is some defect in the notification.
Potential recipients are the other trustees, persons who are entitled to appoint new trustees, and beneficiaries of the trust. It is the last group that has the potential to raise the most difficulties in relation to notification. The trust, for example, may be a pension plan with the beneficiaries being all persons entitled to participate in the plan - perhaps several thousand. Must each member of the pension plan be notified? Under private donative trusts some of the beneficiaries may be contingent only and the contingency may be a relatively remote one? Should they also be entitled to notification?
It is easy to see that simply requiring that notification be given to “all beneficiaries,” in all circumstances, might, in practice, put the power of appointing an attorney beyond the reach of trustees in a large number of cases. Should the notification requirements be less onerous? We note that the English legislation requires that notification be given only to co-trustees and persons entitled to appoint new trustees (who will normally also be co- trustees). This strikes us as a sensible position to take where there are others, such as co- trustees, who are concerned to safeguard the interests of beneficiaries. We believe that notification to them of the appointment of an attorney should be sufficient.^42
The English legislation, however, though it provides in s. 25(2) of the Trustee Act, 1925 , as amended, that a trustee may not appoint as attorney the sole co-trustee, does not expressly address the situation where there are no co-trustees. The possibility that concerns us is that a sole trustee be able and think fit to appoint an attorney to exercise any or all of the trustee powers, and notify no one. It is this situation that calls for consideration of the requirement that the beneficiary or beneficiaries be notified of the (intended) conferment of the power. The trustee who appoints an attorney should be required to notify every competent adult beneficiary whose interest has vested or who is the surrogate of a beneficiary.
There may be some defect in the notification process. One or more beneficiaries may not be notified or the notice itself may not set out all the information it should. What should be the legal consequences of such a defect?
One possibility is to regard the appointment of the attorney as a nullity with a result that all acts or transactions carried out by the attorney are similarly tainted. This would be a
(2) The provision described in Recommendation 2(1) should state that a trustee who grants a power of attorney delegating trusts, powers, and discretions under it remains liable for losses caused by the donee of the power to the same extent as if the trustee had caused the losses under the same circumstances.
(3) The provision described in Recommendation 2(1) should require a trustee who grants a power of attorney to notify, within seven days of the execution of the power of attorney,
(a) all other trustees; and any other person entitled under the trust instrument, if any, to appoint new trustees;
(b) where there is no person to whom notification can be given under paragraph (a) then to every adult beneficiary of the trust whose interest has vested and the guardian or committee of any minor or incapacitated beneficiary whose interest has vested;
(c) where there is no person to whom notification can be given under paragraph (a) or paragraph (b), then to the public trustee
that a person has been appointed to exercise trusts, powers, and discretions vested in the trustee.
(4) The notification under Recommendation 2(3) should identify the donee of the power of attorney, describe the extent of the trusts, powers and discretions affected by the power of attorney, the reason for the appointment, the date or event on which the appointment is to take effect, and the intended duration of the appointment.
(5) The failure of a trustee who is granted a power of attorney under recommendation 2(1) to comply with recommendation 2(3) or 2(4) shall not, in favour of a person dealing with the donee of the power, invalidate any act done or instrument executed by the donee.
4. Delegation to a Co-Trustee
The Committee does not favour a change in the present law preventing delegation of specific authority to a co-trustee unless the delegation would be warranted if the co- trustee had not been a co-trustee.
- Exceptions would be where the Act expressly states that it operates notwithstanding the contents of the trust instrument or where the instrument purports to confer powers that violate some fundamental policy of the law.
It should not be possible to exercise the ability to delegate all trust powers by power of attorney in favour of a co-trustee at all where the terms of the trust contemplate two trustees serving at any given time, as the power of attorney could be used to defeat the settlor’s intention.
The Committee recommends:
3. (1) The powers of delegation conferred by the provisions described in Recommendations 1 and 2 may be exercised in favour of a co-trustee only if the delegation is both reasonable and prudent.
(2) Where the terms of the trust specify that there should be a minimum of two trustees at any given time, the power of delegation by power of attorney under the provision described in Recommendation 2 should not be exercisable so as to delegate to a co-trustee under any circumstances when there are only two surviving trustees.
5. Subdelegation
The Committee recommends no change in the law preventing subdelegation by agents without concurrence of the trustee. If subdelegation by agents were permitted (other than of purely ministerial tasks), the trustee could lose control over the exercise of the delegated power or discretion too easily.
The Committee recommends:
4. Subdelegation by agents of trust powers and discretions without the written consent of the trustee should not be permissible.
IV. Summary of Recommendations
It is important to note that the recommended provisions of the Trustee Act , and most of its other provisions, define a default position with respect to trust law. In almost every case^46 the Act can be overridden by specific provisions of the instrument creating the trust. Readers should bear this in mind when considering these recommendations.
