By Ty Schmidt – Supervised by Professor Maharaj
In the law of trusts, it is a well-established that a trustee owes a fiduciary duty to the beneficiaries of the trust, which requires the fiduciary to act with absolute loyalty toward the beneficiaries. As such, trustees are subject to numerous rules to ensure that they adhere to this overarching duty of loyalty while administering a trust, such as the “no conflict” and “no profit” rules. Put simply, these rules respectively dictate that a trustee’s interests must not conflict with their duty, and that they must not profit directly from their office, or role as trustee. However, as illustrated in the recent British Columbia Court of Appeal decision of Pirani v. Pirani, 2022 BCCA 65, there may be certain circumstances where these rules are not as strict.
This case involves a family dispute centred on the passing on of wealth and assets from one generation of the family to the next, through express trusts, and the ensuing conflict amongst members of the second generation. (1) From the 1970s and into the 1990s, four brothers of the Pirani family (“First Generation”) founded a number of successful businesses in the form of hotels and motels. (2) In 1993, the First Generation established four trusts – one for each brother’s family – as part of a plan to implement an estate freeze that would enable the future increases in the value of the businesses to accrue to their intended heirs. (3) Only a few of the second generation beneficiaries had an active role in the family businesses, and as such, they were the ones named as trustees of the four separate trusts. (4) Eventually, the trustees of the “MAP Trust” – so named for Mohamed Aly Pirani – decided to wind up the trust and distribute its assets in an unequal fashion that was not to the satisfaction of the other second generation beneficiaries. (5)
The plaintiffs allege that the MAP Trust was wound up in order to benefit the defendants, and that they had failed to act in the best interest of all the beneficiaries – violating the rules of no profit and no conflict. (6) At trial, the judge held the defendants in breach of their fiduciary duty. (7) On appeal, the Court surmised that the applicability of the general rules for trustees at least partially turn “on the extent to which the trust instrument, interpreted in its appropriate factual matrix, informs, alters, modifies, or displaces the scope and content of fiduciary duties.” (8) In this light, the Court examined one of the broad discretion clauses in the trust that purported to give its trustees sole discretion in distribution of the trust funds and that the funds may “vest in such one or more of the beneficiaries to the exclusion of the other or others in such proportions…as the Trustees in their absolute and unfettered discretion determine.” (9) This clause, among others, was considered for the purposes of determining whether the trial judge’s conclusion that the defendants had breached their fiduciary duties rested on a flawed foundation, and thus whether the judge had made an extricable legal error. (10) The Court’s conclusion was that by failing to properly consider the effect of these clauses on the scope and content of the defendants’ fiduciary duties, such an extricable legal error had been made. (11)
The plaintiffs also put forward the claim, with which the trial judge agreed, that because the trustees had overlapping roles as both trustee and company directors, they were in a prima facie position of conflict with respect to duty and interest and that this conflict was disabling. (12) On the appeal, this Court determined, however, that where a family trust owns a family business, it is common for an individual to act as both director and trustee. (13) Further, the interests of the trust and the business are usually aligned such that what is good for one will be good for both, and the “first duty of someone occupying both these roles is to the company.” (14)
The Court in this decision was not necessarily attempting to determine whether the appellants actually had breached a fiduciary duty. Rather, it was addressing the fact that the trial judge had neglected to consider the grander scheme of the trust instrument in her legal analysis. As such, this Court set aside the trial decision and ordered a new trial that can take place against a proper framework of analysis. (15) In the end, this decision serves as an affirmation of the fact that fiduciary duties do not exist in a vacuum and may be modified or displaced by the terms of the trust instrument and when the entirety of facts are considered in a holistic manner.
1 Pirani v Pirani, 2022 BCCA 65, at paras 6-7, 32 [Pirani Appeal].
2 Ibid at para 5.
3 Ibid at para 6-7.
4 Ibid at paras. 12-18.
5 Ibid at paras. 28-32.
6 Ibid at para. 32
7 Ibid at para. 45
8 Ibid at para. 95
9 Ibid at para 129.
10 Ibid at paras. 129-132.
11 Ibid at para. 138.
12 Pirani v Pirani, 2020 BCSC 974 at paras. 148-153, 165, 172, 195[Pirani Trial]
13 Pirani Appeal supra note 1 at para 120.
15 Ibid at para 141.
The views and opinions expressed in the blogs and case reporter are the views of their authors, and do not represent the views of the Desautels Centre for Private Enterprise and the Law, the Faculty of Law, or the University of Manitoba. Academic Members of the University of Manitoba are entitled to academic freedom in the context of a respectful working and learning environment.