CANADA Law and Practice Contributed by: Ian Hull, Suzana Popovic-Montag and Nick Esterbauer, Hull & Hull LLP
Mechanisms to Protect Fiduciaries From Liability Errors and omissions insurance may be available to trustees, including estate trustees. Such insur - ance policies typically cover trustees for the costs of defence and indemnity for damages awarded against them, personally, that arise from errors and omissions committed during the administration of the trust. Exculpatory and indemnity clauses purport to protect fiduciaries from personal liability relating to loss result - ing from their administration of a trust or estate. They frequently appear in trust documents and refer to the protection of trustees from liability for the exercise of their authority in good faith. Canadian courts have considered the validity of exculpatory clauses on numerous occasions. Almost without exception, clauses that protect trustees from liability are valid, but are not interpreted to protect fiduciaries from fraud and/or dishonesty. 6.3 Fiduciary Regulation Canadian fiduciaries are bound by the prudent inves - tor rule and the best interests standard, and must invest and administer trust assets in the best interests of the beneficiaries. Standards are imposed by industry-regulating bodies and provincial legislation. In Ontario, for example, a trustee is subject to the Trustee Act and the common law. A fiduciary’s investment of assets is not regulated by federal law. Financial advisers in Canada may or may not be held to a fiduciary standard; different standards of care are imposed, depending on the type of assistance pro - vided to clients. 6.4 Fiduciary Investment Trustees have an obligation to take care and to act reasonably and prudently when investing trust prop - erty. Accordingly, trustees may be held liable for fail - ing to invest trust property when it would have been reasonable to do so, or if the trust assets have not been maximised for the benefit of the beneficiaries. Legislation enables parties with a financial interest in trust property to compel fiduciaries to apply to pass
ing an interest in assets that would otherwise pass outside an estate – for example, the proceeds of a life insurance policy or other assets subject to a benefi - ciary designation. In passings of accounts, courts may make a number of orders against the fiduciary if the fiduciary has failed to exercise their duties diligently and in good faith. 6. Roles and Responsibilities of Fiduciaries 6.1 Prevalence of Corporate Fiduciaries Canadian trust companies may act as estate trustees, estate trustees during litigation, and attorneys for or guardians of property in Canada. The rate at which trust companies are compensated may differ from the rate that fiduciaries are typically able to claim on a passing of accounts, and is often set out in the fee schedule, which normally appears as a schedule to the testamentary document or order appointing the trust company. 6.2 Fiduciary Liabilities Trustees may be personally liable for any loss to the trust property resulting from a breach of fiduciary duty. Trustees acting in good faith may also be held liable for acting honestly upon mistaken facts or misunder - standing, but the extent of the personal liability is typi - cally limited to the value of the trust property. Piercing the Corporate Veil In some situations, it may be unreasonable to limit liability for the operations of a corporation to the cor - poration itself. Canadian courts may “pierce the cor - porate veil” to hold shareholders and/or directors of a corporation liable for the consequences of the actions of that corporation. Courts may be more likely to hold the directing mind(s) behind the corporation account - able in situations where fraud, breach of trust and/or an intentional tort has/have been committed by the corporation’s principals, or where the corporation is deliberately undercapitalised relative to the legitimate damages sought against it.
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