A Trustee's Duties In Volatile Markets

Published date29 July 2020
Subject MatterStrategy, Coronavirus (COVID-19), Investment Strategy, Economic Analysis, Financing, Operational Impacts and Strategy
Law FirmMiller Thomson LLP
AuthorMr Dwight D. Dee, Pia Hundal, Thomas Ghag and Darren Lund


Market volatility arising from the COVID-19 pandemic is unlike anything experienced in recent history. Two of the largest single day drops in the history of the Dow Jones Industrial Average occurred in March 2020. Later that same month, the S&P 500 Index experienced an 18% surge over a period of three days; and since March, stock indexes in both Canada and the U.S. have recovered significantly from the lows brought on by the pandemic. With this level of volatility in the markets, investors are forced to base their decisions on uncertain and rapidly evolving market conditions.

Trustees that have trust property invested in the markets have additional considerations that can make their roles particularly challenging in these times. In addition to following the terms of the trust deed or indenture, a trustee must continue to act in the best interests of beneficiaries and to comply with the trust legislation in their province. The purpose of this article is to consider the general duties imposed on trustees with an emphasis on duties relating to investing trust property and the possible consequences of failing to comply with such duties. To illustrate we will refer to trustee legislation and case law from both B.C and Ontario.

A Reminder of A Trustee's General Duties

The law imposes a number of general duties upon trustees including the following:

  1. To act in the best interests of the beneficiaries;
  2. To act honestly and with the level of skill and prudence which would be expected of a reasonable person administering their own affairs;
  3. Not to delegate their office to others (with some exceptions); and
  4. Not to profit personally from their dealings with trust property.

In addition to the duties that the law imposes on trustees, the terms of the trust instrument must be followed by the trustees.

With respect to investments, trustees are generally expected to exercise the care, skill, diligence and judgment that a prudent investor would exercise when making investments. This does not mean, however, that a trustee is authorized to invest in a manner inconsistent with the trust instrument. To illustrate how this standard is applied, it is helpful to examine specific legislation and case law.

Prudent Investor Standard - British Columbia

Trustee Act, RSBC 1996, c. 464 (the "B.C Act")

The following is a brief overview of some of the most important provisions in the B.C. Act relating to investments made by trustees.

Pursuant to section 15.1 of the B.C. Act, a trustee may invest property in any form or security that a prudent investor might invest, so long as this is not done in a manner inconsistent with the trust.

Section 15.2 of the B.C. Act sets out the standard of care for trustees when investing trust property:

Standard of care

15.2 In investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments.

Section 15.3 of the B.C. Act effectively protects the trustee from liability for a loss to the trust arising out of an investment of trust property if the plan or strategy for the investment that led to the loss was one that a prudent investor would adopt in comparable circumstances. Section 15.5 provides that a trustee may delegate to an agent the degree of authority with respect to the investment of trust property that a prudent investor might delegate in accordance with ordinary business practice.

To better understand the prudent investor standard and how a court would apply the above legislative provisions, it is helpful to examine a case.

Miles v. Vince, 2014 BCCA 289 ("Miles")

In this case, the court considered whether the trustee of an insurance trust had complied with the prudent investor standard as set out in section 15.2 of the B.C. Act. The trustee had invested all of the insurance trust's assets in a real estate development called "Main Street Properties."

The Court of Appeal considered the prudent investor standard in the B.C. Act, especially in light of the fact that the B.C. Act unlike other provincial statutes, does not expressly impose a duty on trustees to diversify investments. In so doing, the Court of Appeal quoted from Professor Donavan Waters who, in his text Waters Law of Trusts in Canada, writes:

It is true that in some jurisdictions, particularly those retaining the prudent man standard, there is room for argument as to whether the trustee has the duty to diversify. The new prudent investor standard, based on modern portfolio theory, leaves less room for argument; diversity is...

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