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Case Brief - Removing a co-executor due to conflict of interest

In Durand v. Durand et al., 2020 MBQB 70, the Court of Queen's Bench of Manitoba considered an application to remove a co-executor of an estate on the grounds that his ownership of a corporation was at odds with his fiduciary duty to the beneficiaries.

Facts

Maurice Jean Augustin Durand ("Maurice") and Suzanne Marie-Therese Durand ("Suzanne") had six children: Leona, Bertrand, Leonel, Fernand, Gilbert, and Romeo. Maurice died in 2011. His will, made in 2010, named Romeo and Leona as co-executors, and Bertrand as an alternate executor.

Since Maurice's death, there have been legal disputes over the estate. One unresolved issue relates to the interpretation of the will and exactly what Suzanne should receive from a spousal trust. This amount has signicant financial implications for Maurice's farm corporation (the "Corporation"), of which Romeo is the sole director, officer, and shareholder.

In 2014, Suzanne and her children agreed that the estate would pay Suzanne a monthly stipend. She is dependent on these payments to cover her living expenses. The Corporation owes the estate $460,000.

Romeo tried several times (in 2012, 2015, and 2016) to settle the amount standing with his mother in a way favourable to the Corporation.

The Issue

Suzanne applied to have Romeo removed as co-executor of the estate, due to a conflict of interest between his role as executor and his role with the Corporation. She asks that the court appoint Bertrand as co-executor in Romeo's place.

Analysis

The Law

Courts in Manitoba have the discretion to replace an estate trustee if the trustee is guilty of misconduct, unfit, or incapable (see Trustee Act, C.C.S.M. c.T160, s. 9(1)).

The case law is clear that an executor can be removed if there is a conflict of interest, if the executor fails to put the beneficiaries' interests first, or if the executor's conduct is purley obstructive (see Bereskin Estate, Re, 2014 MBCA 15).

The party seeking removal of an executor must show that the removal is necessary for the welfare of the beneficiaries (Tapper v. Sair-Segev, 2003 MBQB 243) and the courts can also consider if there is conflict or a breakdown of communication between co-trustees (Orenstein v. Feldman et al (1978), 2 E.T.R. 133 at 137 (Ont. H.C.).

Application to the Facts

McCawley J. found that Romeo's position puts him in a conflict of interest and he should be removed as co-executor.

Romeo's duty to maximize value for the beneficiaries is at odds with his duty to maximize value for the Corporation by interpreting the will in a way that minimizes the amount owed to Suzanne. His attempts to settle matters with his mother highlight this conflict. He also refuses to communicate with Leona, his co-executor, or his mother, the primary beneficiary of the spousal trust.

Romeo used his role as co-executor to advance his preferred interpretation of the will. Since Romeo failed to put the interests of the estate and the beneficiaries first, the court removed him as estate trustee.

In Romeo's place, the court appointed Bertrand as Leona's co-executor. While Romeo argued for a corporate trustee, McCawley J. found that there was no need for such an expensive option when the will already named an alternate executor.

The Bottom Line

Executors are fiduciaries and must put the interests of the estate and its beneficiaries first. Failing to do so can result in being removed.