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Removal of Trustee for Inappropriate Use of Discretion

Ghag v. Ghag[1] is another example of a trustee who was removed for the inappropriate use of his discretion. The late Sukhvinder ‘Sukie’ Ghag operated a pharmacy and owned all of the 100 Class ‘A’ common shares in the business. He was married to Charmaine ad the couple had four children, Brendon, Ashton, Cheyenne, and Shaylene. Sukie was diagnosed with brain cancer and so he established the Sukie Ghag Family Trust in 2017. The trust’s main asset was the 100 Class ‘A’ common shares. The trust named Charmaine and the four children as the beneficiaries, but did not give any of them priority. It appointed Brendan as the trustee and Charmaine as the substitute trustee. The trust gave wide discretionary powers to the trustee and allowed him to exercise these powers to the same extent as if he was the sole owner of the asset. However, the trustee had to exercise them ‘in what he deems to be the best interests, whether monetary or otherwise, of the Beneficiaries’. A majority of the beneficiaries could consent to a variation of the trust and the trustee was prohibited from deleting any original beneficiary.

Charmaine and the children other than Brendan learnt about various dealings by him  with the trust property. He also refused to account to them, and demanded large sums of money from Charmaine. Among other things, in 2018 Brendan transferred the sums of $100,000 and $250,000 from the pharmacy and deposited them into the trust. The next day took $100,000 out of the trust for his own use. He also transferred the pharmacy shares out of the trust to himself and his siblings in such a way that he received 55 percent of the Class ‘A’ common shares, his siblings each received 15 percent of those shares, and Charmaine received none. Brendan followed this by allotting himself 150 Class ‘B’ common voting shares of the pharmacy, which carried the same voting rights as the Class ‘A’ shares.

In 2019 Charmaine and the other children brought an application to remove Brendan as trustee and to replace him with Charmaine, for an order requiring Brendan to account, and for an order declaring that the transfer of the Class ‘A’ shares out of the trust and the issuance of the Class ‘B’ shares to Brendan were null and void.

Brendan defended his actions by alleging that he was carrying out his father’s wishes to give him control and ownership of the pharmacy and to exclude Charmaine. He alleged that these wishes were contained in a document that supposedly contained a ‘secret trust’ that Sukie, Charmaine, and he signed in 2016 four days before Sukie’s brain surgery. Charmaine denied signing it and deposed that she did not see Sukie sign it.

During the hearing, Brendan conceded that the $100,000 withdrawal from the trust was for personal purposes. So he agreed that he should be removed as trustee and would account. However, he did not agree that the transfer of the pharmacy shares out of the trust and the issuance of the Class ‘B’ shares should be declared null and void.

The chambers judge granted the declaratory relief sought by the applicants. He did stated that he did not need to comment further ‘on the alleged secret trust, nor make any findings concerning its validity’. It seems that the agreement was not produced at first instance, but apparently Brendan files separate proceedings in 2020 seeking to enforce it.[2] Tammen J. considered it sufficient to find on the evidence that Brendan took extraneous considerations, namely the ‘secret trust’, into account in administering the trust, which conflicted with the terms of the Sukie Ghag Family Trust, and further that he did not act in the interests of the beneficiaries, and breached his fiduciary duty by withdrawing the $100,000 and by refusing to account.

Brendan appealed on the ground that the chambers judge erred in declaring the share transactions void, that he lacked jurisdiction to make that order and that he should have sent that issue to trial. This is surprising in view of the evidence, which seemed to show clearly that Brendan breached the discretion reposed in him by the trust.

The Court of Appeal dismissed the appeal, holding that under the Supreme Court Civil Rules the court has power to make binding declarations in a proceeding. The court may order a trial of a matter brought by way of application, but mere evidentiary conflicts alone will not require a trial. If the facts are undisputed, the chambers judge is entitled to make inferences of fact. Moreover, a self-serving affidavit is not sufficient of itself to create a triable issue.

With respect to the breach of trust itself, the court held that a trustee is obliged to follow the terms of the trust as found in the trust instrument. Thus it is inappropriate to consider evidence of surrounding facts and circumstances if the language of the trust is unambiguous. The court rarely interferes with a trustee’s exercise of discretion, but it can do so if:

(1) the decision is so unreasonable that no honest or fair-dealing trustee could have come to that decision;

(2) the trustees have taken into account considerations which are irrelevant to the discretionary decision they had to make; or

(3) the trustees, in having done nothing, cannot show that they gave proper consideration to whether they ought to exercise the discretion.[3]

The second of these criteria was relevant in this case, because Brendan relied on the alleged secret trust and he ought not to have done so, because its terms conflicted with the express language of the Sukie Ghag Family Trust.

The court went on to hold that the chambers judge did not misdirect himself on the proper approach to take when considering whether a matter should be referred to trial. Moreover, it was open to him to find that Brendan had exercised his discretion based on extraneous or improper considerations in a way that no honest and fair-dealing trustee may do.

[1] 2021 BCCA 106, 65 E.T.R. (4th) 177, affirming 2020 BCSC 2136.

[2] Ibid., 2020 BCSC 2136 at para. 4.

[3] Ibid. 2021 BCCA 106, para. 47, quoting from Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012), pp. 989-90.

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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