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Cochrane v. Cochrane: A Fiduciary’s Blurred Lines

https://canlii.ca/t/jhbnc

Overview

Cochrane v. Cochrane[1], is a recent decision (July 29, 2021) of the Ontario Superior Court of Justice that involves issues relating to a passing of accounts application, including the treatment of trustee compensation.  The Applicants, Bill and Carol Cochrane (the “Applicants”) applied for the first time to pass their accounts before the Honourable Justice Davies as it relates to the administration of Benjamin’s Trust (the “Trust”), a trust arranged for their son.[2]

Benjamin’s Trust

When the Respondent/Objector, Benjamin Cochrane (the “Objector”), was twelve years old, he was hit by a car while riding his bicycle and suffered a serious brain injury.  His parents, the Applicants, brought an accident benefits claim against Co-operators General Insurance on behalf of Benjamin and settled for a lump sum of $475,000 in 2000 when Benjamin was sixteen years old.  The money was invested in an annuity that will make monthly payments for Benjamin’s benefit for the rest of his life.[3]

After the Court approved the settlement, the Court ordered the annuity payments to be made to “William (Bill) and Carol Cochrane in trust for the irrevocable benefit of Benjamin Cochrane.”[4]  The parties agreed that the trust received $418,675.25 between September 2000 and March 2017.  In March 2017, the Applicants/parents  had exhausted all funds in the trust.  The Applicants proceeded to file an application to pass their accounts (the “Application.”)[5]

Roles and Duties as Trustees

As trustees of Benjamin’s trust, the Applicant’s were required to spend the trust money on goods and services for Benjamin’s benefit pursuant to the Trustee Act RSO 1990, c. T. 23, s. 23.1.[6]

The blending of the roles of parents, and trustees of Benjamin’s trust blurred the lines for these fiduciaries.  The Honourable Justice Davies stated at paragraph 11:

Distinguishing between their role as Benjamin’s parents and their role as trustees probably feels like an artificial exercise to Bill and Carol.  However, as trustees, Bill and Carol had specific and important legal obligations to Benjamin.  They had a duty to act honestly in their administration of the trust.  They had a duty to act with reasonable skill and prudence: Valard Construction Ltd. V. Bird Construction Co., 2018 SCC 8, [2018] 1 S.C.R. 224 at paras 16-18.  They had a duty to keep proper records and accounts for the trust.  While they did not have a duty to pass accounts, they did have a duty to be in a position at all times to prove they were administering the trust in an honest and prudent manner.[7] The issue for me to decide is whether Bill and Carol lived up to their obligations as trustees, not whether they lived up to their obligations as parents.[8]

The Court’s Role

The issue for the Court was whether or not the Applicants established that the disbursements from the trust, were incurred in accordance with the terms of the trust.  The Court has the ability to disallow a disbursement if it was inappropriately charged, or is inconsistent with the terms of the trust.  It is within the Court’s jurisdiction to Order that funds be paid back to the trust pursuant to the Trustee Act,[9] based on the inter alia, the decisions in Irwin v. Ruberry, 2015 ONSC 1821, at para. 43; and Steven Thompson Family Trust v. Thompson, 2012 ONSC 7138 at para. 36.[10]

The Evidence Before the Court

The Application involved trust accounts that span a time frame of seventeen years and contained nearly 2208 disbursements.[11]  In this case, the Application involved the arduous task of analyzing all of the transactions that were made in accordance with the terms of the trust.  Fourteen days of Court time were required to hear the evidence and assess the disbursements.  A detailed assessment of the accounts was made through analyzing the expenses and disbursements of the Applicants relating to academic support, caregiving expenses, tuition, accommodation, car expenses, laundry, groceries, and gas, to name a few.

The record keeping from the Applicant was described as haphazard and not in accordance with proper standards.  Many of the invoices were stated to have been created after the fact, and many were inaccurate, or misleading.  The Court’s review took considerable time along with questionable expenses and questionable invoices which raised credibility issues.

Based on her findings, her Honour made the determination that the Applicants accounted for only $253,144.11 of the $418,675.25 thus failing to account for $165,531.14.

Trustee Compensation and Legal Fees

As for trustee compensation and legal fees, the Applicants claimed entitlement to $131,038.42 in trustee compensation ($33,214.66 for “receipts and disbursements” and $97,823.76 for “care and management.”) which is more than 30 percent of the amount received in trust during their administration.[12]  The Court was not satisfied that the Applicants were entitled to any compensation for care and management in light of the fact that the settlement funds received by the trust were invested in an annuity in 2000.  The Court referred to Irwin v Robinson,[13] in addressing the care and management expected, which is intended to compensate trustees for the time and effort they spent managing and investing the capital assets of the trust.  In this case, the Applicants, as trustees, were stated to have simply withdrawn the monthly payments as needed.  In the Court’s reasoned decision, the Applicants were disentitled to any care and management fee.[14]

With respect to the receipts and disbursements claimed by the Trustees totaling $33,214.66, the Court found that this figure was unreasonable given the fact that they failed to discharge their primary duty to account for trust funds they received for Benjamin.  A modest amount of $15,000 was awarded to the Applicants in this regard.[15]

In addition, the Court did not approve the Applicants claims to legal fees as it relates to the Application. The Court found that the Applicants, as trustees failed to discharge their duty to keep proper accounts. The records were stated to have been not transparent and not straightforward.  The Court relied on Zimmerman[16] and denied the Applicant’s their legal costs as it was deemed unfair to require Benjamin, as the beneficiary of the trust, to cover the trustees’ legal fees.[17]

Conclusion

Justice Davies heard evidence with respect to how the Applicants were loving and supporting parents to Benjamin, and that they have supported Benjamin throughout his life.  No matter how close and loving a relationship can be, the nature of the relationship has no bearing on the standard required under law as prudent and responsible trustees.[18]

Justice Davies stated,

The issue at this trial is not whether Bill and Carol are or were good parents to Benjamin.  The issue is whether they discharged their legal obligations as the trustees of Benjamin’s trust.[19]

Based on the findings of Justice Davies, this case again illustrates the importance and need for trustees to keep good records.  The decision also focusses on the importance of separating trust business from family expenses.

Lawyers representing trustees or fiduciaries should also be diligent when providing advice to clients with respect to the duties and the standards required under law.

In the event the parties have failed to reach an agreement with respect to costs, it will be interesting to see how the Court will treat this issue when the decision is released.

[1] Cochrane v. Cochrane 2021 CarswellOnt 11132, 2021 ONSC 5228.

[2] IBID para 4.

[3] IBID para 2.

[4] IBID para 3.

[5] IBID para 5.

[6] Trustees Act RSO 1990, c. T. 23.

[7] Zimmerman v McMichael Estate, 2010 ONSC 2947, at para 31; Class v. Smith, 2018 ONSC 623, at

para. 49; Tarantino v. Galvano, 2017 ONSC 3535, at para. 47; Wall v. Shaw, 2018 ONCA 929, at

para. 23.

[8] Cochrane v. Cochrane 2021 CarswellOnt 11132, 2021 ONSC 5228, para 12.

[9] Trustee Act RSO 1990, c. T. 23, s. 23.1(2).

[10] Cochrane v. Cochrane 2021 CarswellOnt 11132, 2021 ONSC 5228, para 6.

[11] IBID at para 13.

[12] IBID at para 265.

[13] Irwin v Robinson, 2007 CanLII 41900 (Ont. S.C.) at para 69.

[14] Cochrane v. Cochrane 2021 CarswellOnt 11132, 2021 ONSC 5228, para 268.

[15] IBID at para 270

[16] Zimmerman v McMichael Estate, 2010 ONSC 2947 at para 125

[17] IBID at para 273

[18] IBID at para 275.

[19] IBID at para 11.

This paper is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This paper is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

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