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Trusts and trustees — Speculative shares received by co-trustees in exchange for shares owned by testator — Failure to sell shares in timely fashion —Disastrous results — Breach of trust — Damages — Co-trustee acting honestly and reasonably in circumstances — Co-trustee relieved of liability — Trustee Act, R.S.B.C. 1960, c. 390, s. 98.

The respondent, Canada Permanent Trust Company, and the third party appellant, W, co-trustees of the estate of W's late husband, failed to sell in a timely fashion certain shares of I Ltd. forming part of the estate, with disastrous results. The shares were received by the co-trustees in exchange for shares of B Ltd. which had been owned by the testator during his lifetime. The four children of the testator, as residuary beneficiaries of the estate, sued Canada Permanent, which then raised a claim against its co-trustee for indemnity and contribution. W responded with a coun­terclaim for the loss which, as recipient under the will of life interest income, she allegedly suffered through the mismanagement of Canada Permanent.

The trial judge held that (i) the exchange of B shares for I shares was authorized by the terms of the will, not as a permanent investment but as a satisfactory vehicle for the divestment of B shares; (ii) Canada Permanent incurred no liability to the plaintiffs by reason of having

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entered into the exchange arrangement; (iii) Canada Permanent made no real attempt to sell or persuade its co-trustee to agree to a sale of I shares notwithstanding the unsatisfactory and gradually worsening financial condition of I; (iv) failure to sell the shares in timely fashion resulted in a breach of duty rendering Canada Permanent liable to the plaintiffs for damages, which should be assessed at $250,408, based upon the average price at which I shares traded during the period in which, in the opinion of the judge, the shares should have been sold. The judge dismissed Canada Perma­nent's claim for contribution from W, and her counter-claim for interest and income on her interest in the estate. He refused Canada Permanent relief under s. 98 of the Trustee Act, R.S.B.C. 1960, c. 390, which provides that, if it appears that a trustee is or may be personally liable for any breach of trust, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust, then the Court may relieve him from personal liability.

On appeal to the British Columbia Court of Appeal, the damages were reduced to $206,398.80, as a result of a change by that Court in the base period, and W was ordered to contribute $31,127.52. The residuary beneficiaries and the third party then appealed to this Court.

Held: The appeal should be allowed and the damages fixed at $250,408; the appeal of the third party should be allowed and the cross-appeal of the third party should be dismissed.

Canada Permanent breached the duty which it owed to the residuary beneficiaries of the estate. It failed to meet the standard of care and diligence required of a trustee in administering a trust, i.e. the standard of a man of ordinary prudence in managing his own affairs. It was not necessary to decide whether a higher standard of diligence should be applied to the paid trustee, for Canada Permanent failed by any test. The vigilence, prudence and sagacity which the law expects of trustees was never apparent. There was no explanation for the languor shown in retaining shares in a venture known to be speculative, for an extended period, during which period the market afforded ample opportunity for profitable sale. W's refusal to respond affirmatively to three or four half-hearted suggestions for sale was not suffi­cient to protect her co-trustee, and, in any event, if a recommendation and proper explanation had been made

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and W remained adamant, the proper course would have been to have applied to the Court for advice and direc­tions. No case could possibly be made out for granting Canada Permanent relief under s. 98 of the Trustee Act.

The measure of damages was the actual loss which the acts or omissions had caused to the trust estate. The method selected by the trial judge for determining that loss was approved. The base period, as held by the trial judge, was the period of possible advantageous sale of the I shares.

In accepting the trusteeship, W became obligated to exercise an independent judgment and she assumed a duty to the beneficiaries of the residuary estate which, in failing to sell the I shares in timely fashion, she breached. However, Canada Permanent could look to W for contribution and indemnity only if she was liable to the beneficiaries for breach of trust; she was not liable if the Court relieved her pursuant to s. 98. W should be so relieved as she had acted honestly and reasonably in the circumstances.

Canada Permanent was not negligent nor in breach of trust in agreeing to the exchange of B shares for those of I Ltd. and, accordingly, W's claim for interest and income on her interest in the estate failed.

Learoyd v. Whiteley (1887), 12 App. Cas. 727, applied; Re Waterman's Will Trusts; Lloyds Bank, Ltd. v. Sutton, [1952] 2 All E.R. 1054; National Trustees Co. of Australasia v. General Finance Co. of Aus­tralasia, [1905] A.C. 373; Re Inman. Inman v. Inman, [1915] 1 Ch. 187; Royal Trust Co. and McMurray v. Crawford, [1955] S.C.R. 184; Re Windsor Steam Coal Co. (1901) Ltd., [1929] 1 Ch. 151; Mickleburgh v. Parker (1870), 17 Or. 503, referred to.

APPEAL from a judgment of the Court of Appeal for British Columbia[1], allowing in part an appeal from a judgment of Munroe J. Appeal allowed; respondent's third party claim and third party's cross-appeal dismissed.

B. W. F. McLoughlin, Q.C., for the plaintiffs, appellants.

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T. R. Braidwood, Q.C., and R. R. Sugden, for the third party, appellant.

C. C. Locke, Q.C.. for the defendant re­spondent.

The judgment of the Court was delivered by

DICKSON J.—These proceedings emanate from the failure of the co-trustees of the estate of Kai Wohlleben, late of the City of Vancouver, to sell in a timely fashion certain shares of Inspiration Lim­ited forming part of the estate, with disastrous results. The shares were received by the co-trustees in exchange for shares .of Boyles Bros. Drilling Company Ltd. which had been owned by Mr. Wohlleben during his lifetime. The four children of Mr. Wohlleben, as residuary beneficiaries of the estate, sued Canada Permanent Trust Company, one of the trustees, which then raised a claim against its co-trustee, Mrs. Wohlleben, for indem­nity and contribution. Mrs. Wohlleben responded with a counterclaim for the loss which, as recipient under the will of life interest income, she allegedly suffered through the mismanagement of Canada Permanent. The children plaintiffs chose not to sue their mother as co-trustee.

I

In the main action three issues faced Munroe J. during a 13-day trial: (1) whether the exchange of Boyles Bros. shares for Inspiration shares was authorized by the terms of the will; (ii) if so, was Canada Permanent, in entering into the transac­tion, guilty of a breach of its duty to make proper inquiry and to exercise reasonable skill and care; (iii) was there a breach of duty in failing to sell the Inspiration shares before the bankruptcy of that company?

Mr. Justice Munroe held that (i) the exchange was authorized by the terms of the will, not as a permanent investment but as a satisfactory vehicle for the divestment of Boyles Bros. shares; (ii) Canada Permanent incurred no liability to the plaintiffs by reason of having entered into the

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exchange arrangement; (iii) Canada Permanent made no real attempt to sell or persuade its co-trustee to agree to a sale of Inspiration shares notwithstanding the unsatisfactory and gradually worsening financial condition of Inspiration; (iv) failure to sell the shares in timely fashion resulted in a breach of duty rendering Canada Permanent liable to the plaintiffs for damages, which should be assessed at $250,408 based upon the average price at which Inspiration shares traded during the period in which, in the opinion of the judge, the shares should have been sold. The judge dismissed Canada Permanent's claim for contribution from Mrs. Wohlleben, and her counterclaim for interest and income on her interest in the estate. He refused Canada Permanent relief under s. 98 of the Trustee Act, R.S.B.C. 1960, c. 390. This sec­tion provides that, if it appears that a trustee is or may be personally liable for any breach of trust, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust, then the Court may relieve him from personal liability.

The Court of Appeal for British Columbia, following seven days of argument, allowed the appeal brought by Canada Permanent to the extent that the damages were reduced from $250,408 to $206,398.80. The Court agreed that Canada Per­manent had committed a breach of trust by negli­gently failing to sell all or any of the estate's preferred and common shares of Inspiration Lim­ited while there was a ready market. The Court considered, however, that there was a time immediately following acquisition when it was not imprudent to hold the shares, and that the period of averaging should extend until the shares were delisted. This change in the base period resulted in a reduction in the damages to be awarded. A cross-appeal, in which the plaintiffs renewed their contentions that there was no power in the will to make the exchange of shares, and that Canada Permanent was guilty of breach of trust in acquir­ing the speculative and hazardous shares of Inspi­ration Limited, was dismissed. Canada Permanent

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was again unsuccessful in its claim for relief under s. 98 of the Trustee Act but succeeded on the appeal in obtaining a reversal of the trial judge's dismissal of the third party proceedings brought against Mrs. Wohlleben for contribution. The Court of Appeal considered Mrs. Wohlleben guilty of breach of trust for failure to join in liquidation of the Inspiration Limited shares at advantageous times and ordered that she contribute a moiety of the damages sustained by plaintiffs in the period to September 1, 1969 amounting to $31,127.52. Her cross-appeal for interest and income was dismissed.

In this Court the appellant residuary beneficiar­ies seek an increase in the damages awarded to them. The third party, Mrs. Wohlleben, asks that she not be held liable to contribute in any way for the breach of trust by Canada Permanent and that she be awarded her lost interest and income by reason of such breach. Canada Permanent asks that the Court of Appeal be reversed in its decision to relieve Mrs. Wohlleben in part from the conse­quences of her breach of trust or in the alternative, if relief is afforded her, that the Court declare a different method of calculating the amount of reduction. Canada Permanent also seeks a declara­tion that the Court of Appeal erred in failing to relieve it from the consequences of any breach of trust.

II

The will of the late Mr. Wohlleben is unexcep­tional. A bequest of personal effects to Mrs. Wohlleben is followed by a direction to the trus­tees to sell, call in and convert the estate into money, with power to postpone. The will directs the trustees to invest the residue of the estate in investments authorized by law for the investment of trust funds. The trustees are empowered to deal with any shares or other interest held by the estate in any company or corporation to the same extent and as fully as the testator could if alive "and in

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particular ... to join in the reconstruction of any such company or corporation and to accept shares or securities in any other company or corporation in lieu of or in exchange for the shares or other interests held by my estate in such company or corporation ... . Any interest or assets so acquired by my Trustees may be held as investments of my estate whether or not they are authorized invest­ments". The will provides that Mrs. Wohlleben shall receive the income from the residue of the estate during her lifetime and at her death the residue is to be divided equally among the children.

III

Mr. Wohlleben died suddenly on December 23, 1955. He left a substantial estate, the greater part of the value of which consisted of shares in the capital stock of Boyles Bros. Drilling Company Ltd., a small but sound and profitable company in which Mr. Wohlleben had been an officer and one of four major shareholders. During the ten years following Mr. Wohlleben's death another major shareholder died and the remaining two became increasingly concerned as to the position of their estates, in the event of demise, as each had used practically all of his liquid assets in acquiring shares of Boyles Bros. from estates of former associates. In 1966 Pemberton Securities Limited, a Vancouver brokerage house, brought to the man­agement of Boyles Bros. a proposal for a merger of that company with Inspiration Limited.

Inspiration Limited was engaged in construction operations and, like Boyles Bros., in contract dia­mond drilling and the furnishing of other services to the mining industry. A controlling interest in Inspiration had been acquired in 1962 by a major Canadian conglomerate, Power Corporation of Canada Limited, which, it was generally thought, would assure Inspiration adequate financial back­ing and good management. The merger proposal contemplated an exchange of Boyles Bros. shares for common and preferred shares and notes of Inspiration Limited.

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The Vancouver office of Canada Permanent forwarded to the company's head office in Toronto the terms of the merger proposal. The covering letter noted that, although Inspiration was a large company, its profit and loss picture was "not ins­piring", but this was expected to change due to the more active interest being taken in the company by Power Corporation. The letter also observed that while no commitment had been made, it was believed that Pembertons would be willing to underwrite at a price of about $85 per share the sale of the 6 per cent preferred shares of the par value of $100 each, which Boyles Bros. sharehold­ers would receive. The proposal was considered by the management committee of Canada Permanent and the Vancouver office was advised that, subject to a firm commitment by Pembertons to take up the Wohlleben preferred shares at $85 per share and subject to Mrs. Wohlleben being in favour, Canada Permanent would go along with the other shareholders in accepting the proposal.

An accompanying memorandum prepared at the head office referred to the shares of Inspiration as "a non-dividend paying speculation". That the shares were speculative could hardly be doubted. The main activity of Inspiration was in the con­struction industry, notoriously volatile; the compa­ny's earnings record was dismal; there was lack of working capital (current assets $18,378,454, current liabilities $17,684,972 as at September 30, 1966); neither the large write-up of assets nor the depreciation policy adopted by the company was such as to engender much confidence; substantial earnings were required to service anticipated debt load. The reason for the head office of Canada Permanent requesting a Pemberton commitment to purchase the preferred shares is found in this sentence of the memorandum:

Due, however, to the speculative nature of Inspiration Limited (operated at a loss in 1963 and 1964 and earned 13 cents per share in 1965), there would appear to be doubt as to the advisability of Trustees making the exchange and running the risk of not being able to

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dispose of the Inspiration shares at the prices ($85 for preferred and $l.75 for common) indicated above.

Pembertons did not consider the time propitious for a public offering of the shares of Inspiration. A commitment on the part of that firm was waived and, with the approval of the Toronto office of Canada Permanent, the merger of Inspiration and Boyles Bros. was concluded. Canada Permanent and Mrs. Wohlleben, as trustees of the Wohlleben estate received upon closing the sum of $11,218 in cash; 44,872 N.P.V. common shares of Inspiration; 10,668 $1.50 cumulative redeemable convertible preferred shares of the par value $25 each (the proposal for $100 par value shares was changed during negotiations); and $212,298 in notes payable in three annual instalments in December 1967, 1968 and 1969. Power Corporation declined to guarantee payment of the notes. Mrs. Wohlleb­en was apprised by Canada Permanent of the final terms of the exchange offer but not of the corre­spondence which had passed between the Vancou­ver and Toronto offices.

From date of closing in December 1966, until bankruptcy of Inspiration in January 1970, the Inspiration shares remained in the estate. One instalment of principal was paid on the notes on December 19, 1967. Since bankruptcy there has been some recovery on the notes but upon the bankruptcy the shares became valueless, and it is the loss in value of the shares which is at the heart of the present action. The notes do not directly concern us.

As I have said, two of the issues which the trial judge, Munroe J., considered were whether the share exchange was authorized by the terms of the will and if so, whether the transaction was improvident. Mr. Justice Munroe, whose judgment in these respects was upheld by the Court of Appeal of British Columbia, held that the will authorized the exchange and that the exchange was not negligently made. The first point was not pursued in this Court and I would not disturb the concurrent findings of the Courts below that

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Canada Permanent was not to be faulted for enter­ing into the exchange arrangement. Neither point, however, it may be said, is of surpassing impor­tance because for some two and one-half years following the exchange, the shares acquired could have been marketed without loss to the estate. The main complaint against Canada Permanent is that a duty rested upon it to sell the shares received on the exchange and use the proceeds for the purchase of trustee investments as soon as could rea­sonably and advantageously be done and that such duty was breached.

IV

In May 1967, Pembertons underwrote a public issue of 180,000 preferred shares of Inspiration. An opportunity was afforded the Wohlleben trus­tees at that time to dispose of the preferred shares of Inspiration owned by the estate at a net price of $21.50. Canada Permanent referred the offer to Mrs. Wohlleben without recommendation. She said that she saw no reason to accept $21.50 for a $25 par value share and the Inspiration shares remained in the estate portfolio. At the time of the underwriting Mrs. Wohlleben, upon the advice of Canada Permanent, signed an undertaking not to place any of the estate's Inspiration preferred shares on the market during the three-month period of primary distribution of the 180,000 share offering. She signed reluctantly, voicing her hos­tility to being prohibited temporarily from dealing with the shares. In her letter to Canada Permanent she said "one of the attractions of the switch-over was that the Inspiration shares would be mar­ketable".

During 1967, the common shares of Inspiration steadily declined from $1.95 - $1.70 in January to $l.25 - .90 in December and in the same period, the preferred shares declined from 224 - 234 in February (listed February 1967) to 164 - 182 in December.

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The 1967 annual report of Inspiration disclosed an after-tax loss of $417,289 (following a 1966 consolidated profit of $l,715,834) and a further $l,241,037 was charged to deficit in 1967.

On January 31, 1968, the Vancouver investment committee of Canada Permanent recommended sale of "at least part" of the estate's holding of common shares but no action respecting preferred shares. No shares were sold.

Inspiration did not pay the June l, 1968, divi­dend due on the preferred shares (nor later divi­dends due December 1, 1968; June l, 1969; or December 1, 1969). The explanation given for passing the June 1968 dividend was "to conserve working capital while the whole of our cash situa­tion is very tight".

On September 20, 1968, Inspiration disclosed that operating results for the first six months had been most disappointing, reflecting a loss of approximately $1,870,000. This was accompanied by a change in top management.

When the Wohlleben estate came before the Vancouver investment committee for review in October 1968 the notation "Check into" was made opposite the common share listing and "Watch for upswing" opposite the preferred share listing but that would appear to have been the extent of the action taken at that time.

Inspiration defaulted in payment of the Decem­ber 15, 1968, instalment due on the notes. During 1968 the stock market valuation of the preferred shares declined from 17 - 18 in January to 11 - 134 in May but closed the year at 14 - 177. The common shares declined from 1.25 - 1.50 in Janu­ary to 1.05 - 1.15 in June, but strengthened to l.30 - 1.80 in December.

The Inspiration annual report for 1968 revealed a net operating loss of approximately $4,500,000 in 1968; in addition a further $3,000,000 trans­ferred to deficit account in that year. The 1968 annual report of Power Corporation contained the

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following melancholy reference to Inspiration Limited:

The difficulties which beset Inspiration in 1967 increased considerably in 1968 and resulted in an increase of its deficit by some $7,500,000. The company has been drastically reorganized and several of its oper­ating divisions have either been closed out or are in the process of being closed out. Future activities will be concentrated primarily in specialized engineering services, contract diamond drilling and the Boyles Manu­facturing operations.

Canada Permanent continued apathetic except that on May 26, 1969, when Inspiration preferred shares, for some inexplicable reason, went up to 18½ the suggestion was made to Mrs. Wohlleben that "we might unload a little". She was concerned as to re-investment of the proceeds if a sale were made and said she would consult her children. The matter died there.

On June 9, 1969, the trust officer who had been in charge of the Wohlleben estate account prepared a memorandum for an incoming senior offi­cer of Canada Permanent at Vancouver which reads in part:

Inspiration controlled by Power Corporation has, during the past two or three years, suffered serious losses, however, the outlook for the future is improving and even at today's depressed market the value of the holdings of both estates is considerably higher than original inventory of Boyles.

The memorandum shows no appreciation of the parlous financial state of Inspiration nor recogni­tion of any duty to sell to protect the estate.

On July 30, 1969, the Vancouver investment department wrote a memorandum to Mr. Jakeway, the trust officer overseeing the Wohlleben estate at that time, making the following recom­mendation:

2. Reduce holding of 10,668 shs. Inspiration Pfd. by at least one-half.

It was agreed that in general terms we should now be getting out of Inspiration shares.

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The recommendation was not communicated to Mrs. Wohlleben and no action was taken by Canada Permanent to implement the recommen­dation.

The interim report, of Inspiration, dated June 30, 1969, issued September 10, 1969, commenced with these words:

Operating results for the first six months of 1969 were disappointing. The operating loss of $1,230,000 and additional charges to deficit are the result of operating deficiencies and of the onerous burden placed on the ongoing entity by the past. Included in the latter are much higher interest costs servicing non-productive debt, abnormal overheads required to supervise the completion of various construction contracts and the larger than expected losses incurred due to the construction industry strikes of recent months.

On October 16, 1969, Mrs. Wohlleben reported to Canada Permanent that two former sharehold­ers of Boyles had sold their shares of Inspiration.

Late in 1969 Inspiration's line of credit was reduced by its bankers. Power Corporation was obliged to guarantee $2,500,000 of Inspiration's bank loan. The auditors recommended reorganiza­tion, including deferment of the notes of the former shareholders of Boyles Bros. and a bank guarantee by Power Corporation of an additional $5,500,000. The new financial plan would have reduced the holdings of common shareholders of Inspiration to one-tenth by consolidation on a one for ten basis, subordinated all rights of the pre­ferred shareholders to those of the holders of new preferred shares, and deferred payment of the notes. These plans were discussed by an officer of Power Corporation and a trust officer of Canada Permanent on November 17, 1969. Two days later Mrs. Wohlleben telephoned Canada Permanent to say that she wanted to sell Inspiration shares but she was told, incorrectly it would appear, that the trustees were "insiders" and that stock exchange regulations would prohibit sale. The reorganiza­tion and recapitalization plans were abandoned on January 20, 1970, when Power Corporation, according to its 1969 annual report, concluded that Inspiration's financial circumstances "had

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become such that further shareholder support could not be justified". Inspiration thereupon made a proposal under the Bankruptcy Act.

During 1969 the stock market values of the shares of Inspiration fluctuated from 16 - 17 in January to 85 - 106 in December for the preferred shares and from 1.40 - 1.60 in January to .45 - .65 in December for the common shares.

V

Traditionally, the standard of care and diligence required of a trustee in administering a trust is that of a man of ordinary prudence in managing his own affairs (Learoyd v. Whiteley[2], at p. 733; Underhill's Law of Trusts and Trustees, 12th ed., art. 49; Restatement of the Law on Trusts, 2nd ed., para. 174) and traditionally the standard has applied equally to professional [sic] and non-profes­sional trustees. The standard has been of general application and objective though, at times, rigor­ous. There has been discussion of the question whether a corporation which holds itself out, expressly or impliedly, as possessing greater competence and ability than the man of ordinary prudence should not be held to a higher standard of conduct than the individual trustee. It has been said by some that a higher standard of diligence and knowledge is expected from paid trustees: Underhill's Law of Trusts and Trustees, art. 49, relying upon obiter of Harman J. in Re Waterman's Will Trusts; Lloyds Bank, Ltd. v. Sutton[3], at p. 1055, and upon dicta found in National Trustees Co. of Australasia v. General Finance Co. of Australasia[4], a case which did not turn upon the imposition of a greater or lesser duty but upon the relief to which a corporate trustee might be entitled under the counterpart of s. 98 of the Trustee Act of British Columbia, to which 1 have earlier referred.

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In the case at bar the trial judge held that the law required a higher standard of care from a trustee who charged a fee for his professional services than from one who acted gratuitously. Mr. Justice Bull, delivering the judgment of the Court of Appeal, was not prepared to find, and held it unnecessary to find that a professional trustee, by virtue of that character and consequential exper­tise, had a greater duty to a cestui-que trust than a lay trustee.

The weight of authority to the present, save in the granting of relief under remedial legislation such as s. 98 of the Trustee Act, has been against making a distinction between a widow, acting as trustee of her husband's estate, and a trust com­pany performing the same role. Receipt of fees has not served to ground, nor to increase exposure to, liability. Every trustee has been expected to act as the person of ordinary prudence would act. This standard, of course, may be relaxed or modified up to a point by the terms of a will and, in the present case, there can be no doubt that the co-trustees were given wide latitude. But however wide the discretionary powers contained in the will, a trus­tee's primary duty is preservation of the trust assets, and the enlargement of recognized powers does not relieve him of the duty of using ordinary skill and prudence, nor from the application of common sense.

Whether the testator intends a power of post­ponement to mean retention permanently or only until the trustees can sell advantageously will depend upon construction of the trust instrument: Re Inman, Inman v. Inman[5]. The right to hold may be held to be ancillary and subsidiary to the basic duty to convert and to invest: Royal Trust Co. and McMurray v. Crawford et al.[6] Such was the construction, I think properly, placed upon the will in the instant case by the trial judge and by the Court of Appeal. What is a reasonable delay in selling will depend upon the particular circumstances

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but where the duty of the trustee is to sell, call in and convert to investments authorized for trustees a heavy burden rests upon a trustee, where loss is suffered by reason of retention of specula­tive non-trustee securities, to show that the delay in selling was reasonable and proper in all the circumstances.

A trustee must also be alert to changes in the fortunes of the companies represented in the port-folio of the trust estate. It is not expected that he will sell hastily at a sacrifice, since a power to postpone and retain will generally entitle him to hold for an advantageous sale, but such a power has never had the effect of converting non-trustee securities into trustee securities.

During argument there was some discussion as to the obligation of one trustee to keep a co-trustee informed. In my view where an asset of the character of the Inspiration shares is involved, con­stituting the principal asset of the estate, a duty rested upon Canada Permanent to keep its co-trus­tee as fully informed as possible as to any infor­mation touching upon the shifting fortunes of Inspiration.

VI

Applying the foregoing principles to the facts of this case, I do not think it can be doubted that Canada Permanent breached the duty which it owed the residuary beneficiaries of the Wohlleben estate. It is not necessary to decide whether a higher standard of diligence should be applied to the paid professional trustee, for Canada Perma­nent failed by any test. No one in that organiza­tion would seem to have brought his mind to bear upon the relative merits, and dangers, of retention and disposition of the shares with which we are concerned. It is not with the prescience of hind-sight that one may conclude that the Inspiration shares should have been sold during the period of two and one-half years following acquisition. Notwithstanding recognition by Canada Permanent during the negotiations antedating the exchange

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that the Inspiration shares would be speculative and that it would be desirable to extract an undertaking from Pembertons to take them off the hands of the shareholders of Boyles Bros. who received them, the trust officers in Vancouver sat idly by and allowed the shares progressively to decline in worth until they became valueless. Despite gathering storm clouds and successive presages of disaster, no attempt was made to market the shares. The vigilance, prudence and sagacity which the law expects of trustees was never apparent. After the acquisition, the Vancou­ver trust officers charged with supervision of the account, initially Mr. Donnelly and later Mr. Jakeway, would seem never to have consulted a senior officer of the company concerning the shares of Inspiration. There was no communica­tion between Vancouver and Toronto as to reten­tion or sale. The Vancouver advisory committee, the head office management, the head office investment committee, the board of directors were available but never consulted. Internal procedures proved inadequate and sterile. Apart from the annual review of the Vancouver investment com­mittee which produced cryptic, handwritten, prac­tically illegible notations, there would appear to have been no meetings at which sale was con­sidered. No minutes are in evidence.

To a certain extent, the trustees may have been lulled into a state of inertia by the presence of Power Corporation as controlling shareholder of Inspiration and by the belief, which proved to be ill-founded, that Power Corporation would never allow a subsidiary to suffer the ignominy of bank­ruptcy. But after due allowance for all of that, there is simply no explanation for the languor shown in retaining shares in a venture known to be speculative, for an extended period, during which period the market afforded ample opportunity for profitable sale. Canada Permanent was never seized with a sense of urgency, yet the shares constituted over sixty per cent of the assets of a substantial estate.

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The refusal of Mrs. Wohlleben to respond affir­matively to three or four half-hearted suggestions for sale is not sufficient to protect her co-trustee. At no time did Canada Permanent make an intelli­gent analysis followed by a firm recommendation, supported by reasons. At most, Mrs. Wohlleben was told the obvious truism that it was not wise to have too many eggs in one basket. Although famil­iar with the passed dividends and the note defaults it was not until November 1969, when Inspiration was in extremis, that Mrs. Wohlleben became aware of the grave financial condition of Inspi­ration. Canada Permanent had not forwarded to her the earlier annual reports or interim reports received by it. In any event, it would not have been enough for Canada Permanent merely to have acquiesced in the refusal of its co-trustee to sell; if after a recommendation and proper explanation Mrs. Wohlleben remained adamant, the proper course would have been to have applied to the Court for advice and directions.

At trial and in the Court of Appeal, Canada Permanent asked for relief under s. 98 of the Trustee Act. A trustee is not expected to be infal­lible nor is a trustee the guarantor of the safety of estate assets and I have no doubt that in an appropriate case a paid professional trustee may seek and obtain relief under s. 98. Section 98 in terms admits of that possibility. All of the circum­stances would have to be considered, including whether the trustee was paid for its services: Na­tional Trustees of Australasia v. General Finance Co. of Australasia, supra, followed and applied in Re Windsor Steam Coal Co. (1901), Ltd.[7] Among other relevant considerations is whether the breach was merely technical in nature or a minor error in judgment; whether decline in value of securities was attributable to general economic conditions; whether the trustee is someone who accepted a single trust to oblige a friend or is a company organized for the purpose of administering estates and presumably chosen in the expectation that it will have specialized departments and experienced

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officials; above all, whether the conduct of the trustee was reasonable. The actions, or inaction, on the part of Canada Permanent which gave rise to the breach of trust in the present instance were not reasonable in my view. No case can possibly be made out for granting Canada Permanent relief under s. 98.

VII

We come now to quantum of damages. The measure is the actual loss which the acts or omis­sions have caused to the trust estate. There are various means which might have been adopted for the purpose of determining that loss. One method, selected by the trial judge, is to take the highest and lowest points reached by the shares during a base period. This method fails to take into account the frequency and strength and duration of price movement between high and low during the base period and it does not reflect volume of sales at various price levels. Nevertheless, it affords a rough means of calculation. The Court of Appeal accepted the method but altered the base period. The method was accepted by counsel for Canada Permanent in this Court.

Counsel for the appellants contends that there are four different ways in which the damages could be calculated and he urges that this Court select among (a), (c) and (d) following. These are:

(a) Adopting the trial judge. The judge selected the highest and lowest points reached during the period January 1967 to May 1969. Within that period, the preferred shares fluctuated from $11 to $24, with an average price of $17.50 and the common shares fluctuated from 900 to $l.95, with an average price of $1.42. Applying these figures:

44872 common shares.       @ $ 1.42        $ 63,718.00

10668 preferred "                 @ $17.50       186,690.00

$250,408.00

[Page 321]

(b) Adopting the Court of Appeal. The Court of Appeal considered that the trustees were under a duty to sell over the several years when a market was available but there could be no complaint for failing to liquidate during 1967. The base period which the Court favoured com­menced in May 1968 and continued until the shares were delisted in December 1969. Within this period, the average market price of the preferred shares was $14.30 and of the common shares $1.20. Applying these figures:

44872 common shares        @ $ 1.20        $ 53,846.40

10668 preferred "                 @ $14.30       152,552.40

$206,398.80

(c) Adopting the figures given by Mr. Purchase, assistant general manager, treasurer and head of the Investment Department of Canada Perma­nent. He testified in chief as follows:

Q. Now, subsequent to the merger or the share-exchange what could have happened to a former Boyles shareholder who had wished to realise upon his shares?

A. Are you talking of a small shareholder?

Q. No. One of the larger ones. I'm talking now about after the whole arrangement was through and Inspi­ration was listed on the Toronto Stock Exchange.

A. After the exchange was through? Q. Yes.

A. A Boyles shareholder in 1967, 1968 and 1969 had the opportunity to dispose of preferred shares. I would say at pretty close to $20 a share because in each of those three years the high point at which preferred shares traded was in excess of $20. They would have had the opportunity also in three years to dispose of common shares at $1.75 because I believe in each of those three years the high price at which Inspiration common traded was in excess of $1.75.

It was submitted that this was a statement against interest and that the values given by Mr. Purchase should be adopted in assessing dam-ages. The award would then be $292,000.

[Page 322]

(d) On the basis of the Pemberton underwriting in April 1967, $21.50 for the preferred shares, and $1.80 for the common, totalling $310,110.10.

I am satisfied that neither (c) nor (d) should be adopted. As to (d), Mrs. Wohlleben was opposed to selling at the price offered by Pembertons, particularly when the investment still appeared to be safe. The time required to get a court order to obviate her lack of consent would have been longer than the underwriters could allow. None of the other shareholders sold at that time. Method (d) was never advanced in the Courts below as a possible means of assessing damages. For these reasons I would reject (d).

As to (c), Mr. Purchase's evidence was no doubt tendered for the purpose of establishing that Canada Permanent was not improvident in approv­ing the share exchange and that a Boyles Bros. shareholder could readily and profitably have divested himself of the Inspiration shares following the exchange. It might be poetic justice to hold Mr. Purchase and his employer to the figures he mentioned but I do not regard that as a proper course. His testimony affords some evidence of value but it really only reflects roughly the upper limits of stock exchange values reached by the shares. Highest value is not the sole criterion. All of the circumstances bearing on value must be considered. The trial judge and the Court of Appeal preferred an averaging of upper and lower values and I would agree. One could not expect to dispose of a substantial holding of shares at the top of the market. I would accordingly reject (c).

The choice is then between the calculations made by the trial judge and those of the Court of Appeal and I favour those of the trial judge. The major defect which, with respect, I would see in the approach taken by the Court of Appeal is that, having found that there was a plain duty to liqui­date as opportunities arose, the Court then, in what would seem to be an inconsistent stance, held that it was not imprudent to defer sale until May 1968 and commenced the base period at that time.

[Page 323]

The first bad news, that the dividend on the pre­ferred shares would not be paid, was received in May 1968. I do not think that it is upon the receipt of bad news that a duty to liquidate arises. If, as the Court of Appeal held and I agree, a duty rested upon the trustees to dispose of the Inspi­ration shares, that duty was to dispose of the shares when this could be done advantageously. The shares could have been sold to advantage from January 1967 to May 1968. There was a continu­ing decline in the value of the preferred shares from August 1967 to May 1968 from 226 to 134. I agree with Mr. Justice Munroe that the base period began in January 1967. I also agree with him that it should terminate in May 1969, and that it should not be extended until the shares were delisted in December 1969. May 1969 marked the beginning of the end for Inspiration Limited and the period of possible advantageous sale could not be said to extend beyond that date. I would therefore measure damages in the manner of the trial judge, in the amount of $250,408.

VIII

The third party proceedings, in which Canada Permanent seeks contribution and indemnity from Mrs. Wohlleben, and her claim for relief under s. 98 of the Trustee Act now fall to be considered. The policy of the law has been to afford a max­imum degree of security and protection to the interests of beneficiaries of a trust estate. Each trustee normally is responsible to the beneficiaries for what occurs in the course of administration, subject to such exoneration as may be afforded by the terms of the will, or by statute, (as, for exam­ple, statutory exoneration given a trustee for the acts of others: s. 97 of the Trustee Act, supra) or by the exercise of the discretionary judicial power to give relief under legislation such as s. 98 of the Trustee Act. The law does not distinguish between active and passive trustees save when the terms of the trust so provide, Mickleburgh v. Parker[8], at p.

[Page 324]

506. In accepting the trusteeship, Mrs. Wohlleben became obligated to exercise an independent judg­ment and she assumed a duty to the beneficiaries of the residuary estate which, in failing to sell the Inspiration shares in timely fashion, she breached. With certain exceptions, where two trustees owe a duty to the beneficiaries of an estate and that duty is breached, resulting in loss, the trustee called upon to make good the loss can look to the co-trus­tee for contribution, subject to s. 98. Canada Per­manent, however, can look to Mrs. Wohlleben for contribution and indemnity only if she is liable to the beneficiaries for breach of trust; she is not liable if the Court relieves her pursuant to s. 98. See Waters, Law of Trusts in Canada, p. 855, for a few instances where one trustee has borne the entire burden for a breach of trust. Another instance would be where the Court relieves one trustee pursuant to legislation analogous to s. 98. Should Mrs. Wohlleben be relieved under s. 98?

Section 98 is remedial legislation, giving statutory recognition to the fact that the standard of conduct which courts have expected of trustees has been, at times and in certain circumstances, unduly harsh and inflexible: see "The Trustee's Duty of Skill and Care", (1973), 37 The Con­veyancer and Property Lawyer (N.S.) 48. Section 98 permits the court or a judge to relieve a trustee from personal liability for breach of trust if the trustee has acted honestly and reasonably and ought fairly to be excused. Mrs. Wohlleben acted honestly. After careful reading of the evidence and examination of the exhibits, I have concluded that she also acted reasonably. Her acts were not great­ly less nor more than might be expected of one in her position. At the death of her husband, she was a housewife with four young children. She had been a school teacher and she had taken a three months' night school course on "How to Invest your Money". That would seem to have been the extent of her business exposure. She was no doubt an intelligent young woman of independent mind who from time to time consulted a broker and the lawyer for the estate, but her investment experi­ence was minimal and she was without experience in the administration of trust estates. She tried to

[Page 325]

the best of her ability to keep herself informed but Canada Permanent failed to make known to her the contents of papers which were essential to informed opinion. She tried to respond but from less than complete information. She made all deci­sions which she was asked to make within the limits of her experience and knowledge, and I cannot find that at any time she failed to listen to reason or that she responded irrationally or obdu­rately. In short, it would seem to me that this is the very sort of case for which s. 98 of the Trustee Act was intended and that Mrs. Wohlleben ought fairly to be excused for her breach of trust.

In view of the conclusion which has been reached in the Courts below, and in this Court, that Canada Permanent was not negligent nor in breach of trust in agreeing to the exchange of Boyles Bros. shares for those of Inspiration Lim­ited, Mrs. Wohlleben's claim for interest and income on her interest in the estate must fail.

I would, accordingly,

(a) allow the appeal, set aside the award of damages made by the Court of Appeal for Brit­ish Columbia and fix damages at $250,408, with costs.

(b) dismiss the third party claim brought by Canada Permanent Trust Company against Mrs. Wohlleben, with costs in this Court and in the Court of Appeal for British Columbia.

(c) dismiss the cross-appeal brought by Mrs. Wohlleben against Canada Permanent Trust Company, without costs.

Judgment accordingly.

Solicitors for the plaintiffs, appellants: Law­rence & Shaw, Vancouver.

Solicitors for the third party, appellant: Braidwood, Nuttall & Co., Vancouver.

Solicitors for the defendant, respondent: Ladner, Downs & Co., Vancouver.



[1] [1975] 3 W.W.R. 400, 55 D.L.R. (3d) 239.

[2] (1887), 12 App. Cas. 727.

[3] [1952] 2 All E. R. 1054.

[4] [1905] A.C. 373 (P.C.).

[5] [1915] I Ch. 187.

[6] [1955] S.C.R. 184.

[7] [1929] 1 Ch. 151.

[8] (1870), 17 Gr. 503.

 

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