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Settlor’s Right to Restrain Discretion of Trustees

1. Introduction

It is a well-settled principle that the settlor of a trust may reserve powers and may thus restrict the trustees’ powers. And it enables a settlor to amend the trust.[1] This principle was front and centre in Union of British Columbia Performers v Morton.[2]

2. Facts

The facts are rather complex, so this is a brief summary. The appellant Union is the British Columbia and Yukon branch of the Alliance of Canadian Cinema, Television and Radio Artists (‘ACTRA’). The union is the collective bargaining agent for its members, who work as performers in recorded media in British Columbia and Yukon. Under the Union’s collective agreement, producers must contribute a specific percentage of gross fees paid to performers to fund an insurance program to provide benefits to the Union’s members. For historical reasons there are two benefit programs in those jurisdictions, namely, the Members Benefit Trust (‘MBT’), which is administered by the respondent trustees, and the ACTRA Fraternal Benefits Society (‘AFBS’), which is operated by the national union. New Union members must choose the provider to which their contributions will be submitted. Existing members are entitled to switch to the other provider in prescribed circumstances. A group of performers established the Union in 1990, and in 1992 the Union entered into a trust agreement with the trustees of the MBT to hold contributions and administer health and welfare benefits for Union members.

In 1996 a report designed to resolve the rivalry between the Union and ACTRA BC was adopted by both unions under a settlement agreement (‘the Keller Agreement’). In consequence, the Union became a local union of ACTRA and ACTRA BC was wound up. Its membership was transferred to the Union, and existing members were given a one-time right to choose either AFBS or MBT as their benefit program. The Union collects the producers’ contributions and then directs them to the benefit program chosen by each Union member. This is reflected in Article 2.1 of the MBT Trust Agreement, which was amended in 1996 to take account of the one-time right of election given to Union members. It provides:[3]

2.1 The Union will pay over to the Trustees during the Trust Period: (1) all contributions received by the Union from Producers pursuant to Collective Agreements in respect of the Members Benefits Program (”Insurance Contributions”), and (2) all deductions received by the Union from Producers pursuant to Collective Agreements from amounts payable to Performers in respect of the Member Benefits Program (”Insurance Deductions”), as soon as reasonably practicable after the receipt of same by the Union, except for those Insurance Contributions and Insurance Deductions in respect of Members who have executed and filed an irrevocable election with the Union to have the Member’s insurance benefits provided by ACTRA Fraternal Benefits Society and directing the Union to pay the Insurance Contributions and Insurance Deductions received by the Union in respect of the electing Member on such Member’s behalf to the ACTRA Fraternal Benefit Society.

In 2005, the Union, ACTRA, AFBS, and MBT entered into an agreement to permit members moving in or out of the Union’s jurisdiction in British Columbia to change their benefit provider at that time (the ‘2005 Transfer Agreement’). In 2014, Article 2.1 was amended to reflect this change, which made an exception to the Union’s duty to submit all contributions to the MBT. The amendment added the following words to Article 2.1:[4]

. . . and those Insurance Contributions and Insurance Deductions in respect of Members who have transferred jurisdictions in accordance with the Benefit Plans Transfer Agreement.

The Union and ACTRA made a further change to the Kelleher Agreement in 2016 to permit Union members to change benefit providers once every five years (the ‘2016 Kelleher Amendment’). The Union then asked the Trustees to amend Article 2.1 to reflect this change. However, the Trustees refused to accede to the request because of concerns their insurer had about the change.

The respondent, Alvin Sanders (treated as an appellant by the Court), who was a Union member and had sought to change providers, then brought an application for a declaration that the Trustees were required to give effect to his request (‘the Sanders petition’). The Trustees brought their own application for directions (‘the Morton petition’). The court heard the two applications together. The chambers judge dismissed the Sanders petition and granted the Morton petition and held that the Trustees had discretion to refuse to make the change. The Union and Mr Sanders both appealed.

Paragraph 1.1(2) of the Trust Agreement defined ‘beneficiary’ as any Union member who has selected MBT as his benefits provider according to the Kelleher Agreement.

3. Analysis and Judgment

3.1 The Issue

The main issue on the appeal was whether the terms of the MBT Trust Agreement required the Trustees to administer the Trust in compliance with the Union’s constitution.

Madam Justice Fenlon delivered the reasons for the Court. Justices Fitch and Voith concurred.

3.2 Does the Trust Agreement Permit Mr Sanders to Transfer his Benefits to the AFBS?

The chambers judge noted that the Trust Agreement did not currently refer to the 2016 Kelleher Amendment, that the Agreement does not currently allow the transfer Mr Sanders requested, and that the Agreement would have to be amended to permit such transfers. The Court of Appeal concluded that Mr Sanders is no longer a beneficiary as that term is defined in the Trust Agreement and that the chambers judge committed an error of law in failing to address Mr Sanders’ argument on that point. The Court held that the definition of ‘beneficiary’ is not restricted to members who elected the MBT under the 1996 Kelleher Agreement. In a labour relations context it makes no sense to expect that such a definition is frozen for all time. Thus, since Mr Sanders is no longer a beneficiary, the Trustees are no longer required to transmit his contributions to the MBT but may transmit them to the AFBS.

Further, the chambers judge erred in assuming that the right of a Union member to make an election to transfer out of the MBT must be found in Article 2.1 of the Trust Agreement. He failed to recognize that the Trust Agreement is not the source of a Union member’s right to elect his provider. Instead, it is the Union’s constitution that is the source of that right. Thus, the Trust Agreement did not have to give members the right to elect to transfer benefits. In any event, Article 2.1 does not deal with the rights of Union members. It concerns the obligation of the Union to remit contributions made by members to the Trust.

Nevertheless, Article 2.1 requires the Union to remit all contributions it has received to the Trustees. Thus, although the Trust Agreement requires the Trustees to comply with Mr Sanders’ election to transfer his benefits to the AFBS, it continues to require the Union to remit his contributions to the Trustees.

3.3 Are the Trustees Required to Amend the Trust to Comply with the Union’s Constitution?

Although the chambers judge considered the relevant Articles of the Trust Agreement, he failed reconcile them. In particular, he failed to address how a benefits trust that he recognized had to be consistent with the right to benefits under the Union constitution could be read as giving the Trustees the power to refuse to bring the MBT program in line with changes to those benefits. His failure can be regarded as an error in principle on the ground that he failed to give effect to the Trust Agreement as a whole. Alternatively, it can be considered to be a failure to recognize the well-settled principle that a settlor may impose restrictions on the trustees and thereby reserve the power to amend the trust.

The Court concluded that it could interpret and Trust Agreement anew. It referred to Article 5.1 of the MBT, which speaks about benefits ‘as may be provided for in the Bylaw or Constitution … of the Union. It also referred to Article 5.2, which provides that the Trustees have ‘complete discretion to establish the terms of the Members Benefits Program’. However, Article 5.2 goes on to provide, inter alia, ‘such terms must be consistent with the Constitution of the Union’. Further, while Article 5.3 permits the Trustees to change the terms of the Members Benefits Program, the changed terms must comply with Article 5.2, and material changes must be ratified by majority vote of the MBT Union members. The Court concluded that this is the only way to read these provisions coherently.

The Court went on to note that trustees do not have discretion to determine whether to exercise a duty imposed on them by their trust agreement. This means in particular that the Trustees in this case may not disregard their duty to administer the Trust in a way that is consistent with the Union’s constitution. The court quoted extensively from Waters’ Law of Trusts in Canada,[5] which says, inter alia, that ‘the first  duty of trustees [is] to carry out the trust terms. Unless the settlor chooses to give them such a power, they have no authority to vary the terms of the trust…’[6]

The Court also rejected the Trustees’ argument that their obligation to comply with the Union’s constitution was restricted to the type of benefits provided and that it did not apply to article 2.1 which is concerned with transferability. Rather, Article 2.1 is concerned with the payment of contributions to the Trustees to fund the MBT Program, while article 5.2 describes the terms of the Program. Therefore, the Trustees did not have control over members entering and exiting the MBT Program.

It noted further that in the context of a contract with a union it stands to reason that the union will periodically make changes to its constitution and will therefore need to reserve powers to amend its constitution. Therefore, in the context of benefit trusts, unions will want to retain the right to restrict the discretion and independence of the trustees.

Although the decision was obviously influenced by the factual situation and the need to give primacy to the Union’s constitution, we must not lose sight of the fact that the Court recognized and enforced the right of a settlor to restrict the powers of trustees in any trust.

Accordingly, the Court allowed the appeal. The Trustees were required to give effect to Mr Sanders’ right to transfer his benefit provider from MBT to FBS. Further, they had to amend the Trust Agreement to permit the Union to pay benefit contributions on behalf of Mr Sanders to the AFBS.

[1] See, e.g., Schmidt v Air Products Canada Ltd, [1994] 2 SCR 611 at 643, 1994 CarswellAlta 138.

[2] 2023 BCCA 57.

[3] Emphasis supplied by the court.

[4] Emphasis in the original.

[5] Fifth ed. by Donovan WM Waters, Mark R Gillen, and Lionel D Smith (Toronto: Thomson Reuters, 2021).

[6] Ibid., p 1442.


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