Toronto Estate Law Blog : Toronto Estate Lawyer : Hull & Hull Law Firm : Trust Mediation and Succession Planning : Serving Ontario, Ottawa, Mississauga, Hamilton

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Billionaire and recently deceased American shopping mall developer Melvin Simon's heirs are fighting over his last will.  Mr. Simon's children from his first marriage are challenging a will that changed the distribution of his estate in favour of his second wife.  Aside from the glamour factor, the case is interesting in that an allegation of fraud was recently dismissed on the grounds that "[t]he complaints fail to allege affirmative misrepresentations that can support a claim of actual fraud".

This illustrates an important point in estate and trust litigation.  Ontario's Rules of Civil Procedure similarly requires pleadings that contain allegations of fraud or breach of trust to contain full particulars:

"Rule 25.06(8)  Where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred."

This could theoretically present beneficiaries challenging the actions of a trustee, since the trustee frequently has the particulars and the beneficiaries do not.  In practice, this problem rarely arises because most litigation occurs in the context of a passing of accounts, where it is unnecessary to make allegations against the estate trustee.  Instead, under the procedure in Rule 74, the beneficiaries can simply file and serve a Notice of Objection to Accounts challenging transactions or omissions in the trustee's accounts.

After filing their Notice of Objection to Accounts, the beneficiaries can then bring a motion for an order giving directions (or an order for assistance) that will provide for the disclosure of the particulars they think exist.  After receiving full disclosure, the beneficiaries should in a position to make a better-informed decision on whether to add such allegations to their pleadings. 

Where this process is anticipated, the order should specifically authorize the parties to return to court for further directions.  Of course, it would rarely even be necessary to allege fraud at all, since the facts that support the allegation of fraud can form the basis of an objection to the accounts without using the words "fraud" or "breach of trust", and this can achieve the same practical result without the risks associated with alleging fraud.  Beneficiaries can also avoid the risk of having their pleadings struck at an early stage.  

Have a great day,

Christopher M.B. Graham - Click here to learn more about Chris Graham.

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The Trustee Act can be a responding solicitor's best friend.  Consider section 35, which excuses trustees for technical breaches of trust where the elements are met:

"35. (1)  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."

This helpful section can eliminate Gotcha! claims and provides a ready response to frivolous accusations that often arise in the course of litigation.  By eliminating nuisance claims for minor breaches, section 35 gives solicitors acting for trustees a very quick answer to the minor types of claims that add little substance to already complex litigation.   

However, this provision does not apply to liability for a loss to the trust arising from the investment of trust property (Trustee Act, s.35(2)).

Have a great week, and remember, it's really Wednesday.

Chris Graham

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When does a bank become liable for the actions of clients who use its accounts as a vehicle for fraud?

This was the question considered in Abou-Rahmah v. Abacha [2006] EWCA Civ 1492 as reported in 9 ITELR.

A victim of fraud made payment into a Nigerian bank account through an English branch which funds were promptly removed from the bank by the fraudsters who disappeared. The victim sought damages against the Nigerian bank by way of a proceeding commenced in England.

Having lost at trial, the Plaintiff appealed, arguing that the bank had knowingly assisted in the fraudster’s breach of trust. The Court of Appeal (Civil Division) dismissed the appeal and, in so doing, comprehensively reviewed the authorities.

In short, a finding that the bank had knowingly assisted in the breach of trust would require a dishonest state of mind such that the bank had knowledge that rendered its participation “contrary to normally acceptable standards of honest conduct.”

Such a state of mind could involve suspicions combined with a conscious decision not to make enquiries. Applied to the case at hand, the Court considered that, although the bank had general suspicions that the account holder who subsequently committed the fraud was possibly involved in money laundering, the bank had no knowledge of any specific act of dishonesty regarding the transactions in question.

Until tomorrow,

David