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Trusts - Bare Trusts. Johwel Investments Inc. v. Welton
In Johwel Investments Inc. v. Welton (Ont CA, 2023) the Court of Appeal highlights the point that 'bare trustees' do not hold a property interest that is subject to execution (here, a writ of seizure and sale):[5] When Stonebrook did not pay Ms. Welton the commissions she thought due to her, she started an action for damages against it in 2012. She initiated a second action against Stonebrook in 2015 seeking similar relief. In neither action did Ms. Welton join the co-tenants, Johwel and Davwel, as defendants. The actions were tried together in 2019, resulting in a judgment in favour of Ms. Welton against Stonebrook of approximately $180,000, plus costs (the “Judgment”). Ms. Welton sought to execute on her judgment. She obtained a writ of seizure and sale that she registered against title to the Property (the “Writ”).
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[7] The respondents, Johwel and Stonebrook II, thereupon commenced this application seeking an order lifting the Writ from title and, if necessary, the ability to pay into court the amount of Ms. Welton’s Judgment. Hainey J. granted the order sought, allowing title to the Property to be conveyed, but he ordered counsel for the respondent Johwel to hold in trust the amount of $235,750 to the credit of the application.
[8] The issue of whether the Writ attached to the Property was then considered by the application judge. She concluded that the Writ did not attach to the Property held by Stonebrook and ordered the funds held in trust be released to the respondents (the “Order”).
[9] The basis of her decision was that Stonebrook held title to the Property as bare trustee for the two co-tenants, Johwel and Davwel. As a result, Stonebrook, as bare trustee, had no interest in the property available for seizure by one of its execution creditors, such as Ms. Welton.
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[15] In her analysis of whether Stonebrook held the Property as bare trustee for the co-tenants, the application judge considered: (i) provisions of the Declaration of Trust (at paras. 23 and 24); (ii) terms of the Co-Tenancy Agreement about the relationship between the co-tenants and Stonebrook, including responsibilities for the payment of expenses (at paras. 22, 25, 42, 54, 62); (iii) evidence given by Dan Welton on his cross-examination about Stonebrook’s activities and operations (at paras. 56-57); (iv) and evidence by Ms. Welton about Stonebrook’s business activities (at paras. 58-60). The application judge’s reasons disclose that she did not ignore evidence about how Stonebrook carried on its business, as contended by Ms. Welton.
[16] We see no palpable and overriding error in the application judge’s key factual findings, set out in para. 13 above, that Stonebrook was a bare trustee of the Property because it had no independent powers, discretions or responsibilities: Trident Holdings Ltd. v. Danand Investments Ld. (1988), 1988 CanLII 194 (ON CA), 64 O.R. (2d) 65 (C.A.), at p. 75. Those findings were amply supported by the evidence reviewed by the application judge at paras. 51 to 65 of her February 2022 reasons, which included consideration of provisions of the Co-Tenancy Agreement. Ms. Welton does not argue that the application judge applied incorrect legal principles to the facts she found. Accordingly, we see no basis to interfere with the application judge’s finding that Stonebrook held the Property as bare trustee for its beneficiaries, Johwel and Davwel.
[17] Ms. Welton acknowledged that the application judge correctly stated, at paras. 66 to 71 of her reasons, that a writ of seizure and sale to enforce a judgment does not attach to real property held by the judgment debtor in trust as a bare trustee. We do not see any error of fact or mixed fact and law in the application judge’s conclusion that the Writ seeking to execute on the Judgment obtained by Ms. Welton against Stonebrook could not attach to the Property held by Stonebrook, as bare trustee, for the beneficial owners.
[18] We would observe that that conclusion would apply equally had Ms. Welton’s judgment resulted not from a claim of breach of employment contract but from an allegation that the bare trustee, Stonebrook, had breached an obligation in the Co-Tenancy Agreement to pay expenses, an allegation Ms. Welton now proposes as an alternative basis for some further claim. That a property held in trust by a bare trustee is not available to satisfy a judgment against the bare trustee results from the character of the relationship between the bare trustee and the beneficial owners of the property – the bare trustee’s lack of independent powers, discretion or responsibilities – not from the specifics of the contractual claims upon which a judgment against the bare trustee may rest. . Rubner v. Bistricer
In Rubner v. Bistricer (Ont CA, 2019) the Court of Appeal stated the basics of 'bare trusts':[56] A bare trust is generally accepted to be a trust where the trustee holds property without any active duties to perform other than to convey the trust property to the beneficiaries on demand: Waters, at p. 33. The hallmarks of a bare trust are: (1) the beneficiaries must be able to call for the property when they please, and (2) the trustee must not have (or must no longer have) active duties in respect of the trust property: Waters, at p. 34. The duty to guard the property prior to conveyance is considered passive: Waters, at p. 34.
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