T-51 1-88
Ian Wilson Callie on his own behalf and on behalf
of and representing that class of persons for whom
Her Majesty the Queen administered pensions
pursuant to section 16 of the Pension Act, R.S.C.
1927, c. 157, and revisions and amendments there
to (Plaintiff)
v.
Her Majesty the Queen (Defendant)
INDEXED AS: CALLIE v. CANADA (T.D.)
Trial Division, Joyal J.—Calgary, October 29,
1990; Ottawa, February 8, 1991.
Veterans — Plaintiff served in Canadian Forces from 1939
to /94/ Discharged for schizophrenia Hospitalized in
psychiatric facility Awarded pension for entire disability
Issued to D. V.A. for administration — Monies deposited to
credit of Receiver General In 1986, accumulated pension
credits released to plaintiffs niece — Crown, having paid for
plaintiffs hospitalization — Whether Crown having been trus
tee of pension funds, discharging duties of trustee — Must
Crown account for unjust enrichment — Whether Court can
award interest — Purpose of Pension Act — No action lies to
recover gratuity to military officer — Not intention of Parlia
ment to make D. V.,4. fiduciary of mentally ill pensioners'
benefits Nothing in Pension Act requiring D.V.A. to invest
pension funds, pay interest thereon.
Crown Trusts — Armed Forces veteran hospitalized with
schizophrenia Awarded pension for entire disability —
Benefits issued to D. V.,4. for administration — Was Crown
trustee of pension funds, and if so, were fiduciary duties
discharged Guerin case distinguished as depending on
Indians' aboriginal title to land existing apart from Indian Act
Reference to "political trust" cases — Statutory direction
imposing administrative, not fiduciary, obligation — Pension
Act not containing words of settlement, certainty of obligation
— Act not requiring D.V.A. to invest pension funds, pay
interest thereon.
Equity Defence of equitable set-off — Armed Forces
veteran hospitalized in psychiatric facility for 45 years at
public expense — Bringing class action against Crown for
breach of trust in failing to invest pension funds administered
by D.V.A., pay interest thereon Cost of hospital care
exceeding interest earned if funds invested — Trustee entitled
at common law to indemnification for expenses — Plaintiff's
case resting on equity — Principles of equity not selectively
applied to produce unjust results.
This was a class action for damages for breach of trust or
fiduciary duty in the administration by the Crown of war
veteran's pension funds from 1946 to 1986. The plaintiff served
in the Armed Forces from 1939 to 1941 when diagnosed as
having schizophrenia. He served a year in Canada and one in
England. From 1946 to 1986, the plaintiff's pension was issued
to the Department of Veterans Affairs for administration. The
Department deposited the monies to the credit of the Receiver
General. In 1986, the Canadian Pension Commission author
ized the release of the principal sums of the plaintiff's total
accumulated pension credits in two instalments to his niece for
administration. In addition, the Crown has paid a psychiatric
institution for the plaintiff's domiciliary care since 1949. The
accumulated costs of this care exceeded the value of the
interest that would have been earned on the plaintiff's funds
had they been invested in interest-bearing securities.
The plaintiff argued that Pension Act, subsection 41(1)
created a fiduciary relationship between the Crown and pen
sioners. That subsection permits the Commission to direct that
the pension payable to a mentally ill pensioner be administered
"for the benefit of the pensioner". The plaintiff argued that the
statutory obligation to administer the pension funds created a
trust in his favour. One duty was to invest moneys under
administration so that a reasonable return would be earned.
The plaintiff further argued that the Crown had a statutory
duty to pay interest on the funds in that they were not "public"
moneys within the meaning of the Financial Administration
Act as they did not "belong to" Canada and therefore provi
sions of that Act dealing with the Crown's discretion to pay
interest on such money did not apply. Section 2 of that Act
defines "public money" as meaning "all money belonging to
Canada ... and includes ... (d) all money that is paid to or
received or collected ... pursuant to any Act, trust...." The
Crown argued that such funds fell within the "and includes"
part of the definition of "public money". The plaintiff's submis
sion was that the Crown had a statutory duty to provide
medical care because of his total incapacity. It was submitted
that because that statutory duty arose independently of the
Crown's duty to pay a veteran's pension, the doctrine of
equitable set-off could not apply. The issues were (I) whether
the Crown had a fiduciary duty to pay interest on the plaintiff's
pension funds; (2) whether the Crown had a statutory duty to
pay interest thereon; and (3) whether the doctrine of equitable
set-off applies with respect to the hospitalization expenses paid
by the Crown.
Held, the action should be dismissed.
(1) The government does not owe the plaintiff a fiduciary
duty in the private law sense of that term. The "political trust"
cases demonstrate that a mere statutory direction to officers of
the Crown to administer a sum of money for the benefit of
designated persons does not necessarily imply the existence of a
fiduciary relationship between the two parties. The statutory
duty to administer the plaintiff's pension for his benefit imposes
an administrative or governmental obligation to administer the
pension funds, but not a trust. The Pension Act establishes a
comprehensive statutory benefit scheme, which provides for the
payment of pensions and allowances. The purpose of the Act is
not to set up a trust for pensioners, but to confer benefits on
members of the Canadian Forces who have given military
service to Canada. A gratuity to a military officer is by its
nature dependent upon the largesse of the Crown and no action
lies to recover such a gratuity. Furthermore, the components of
a trust are not found in the Pension Act: there is no express
intention to create a trust for pensioners, nor can such a trust
be implied. The words of subsection 41(1) do not constitute
words of settlement and certainty of obligation as is required of
legally enforceable trusts.
The Crown's fiduciary duty respecting Indian lands held in
reserves should be distinguished. Although Indian Act, subsec
tion 18(1) may be similar to Pension Act, subsection 41(1), the
Supreme Court was careful in Guerin to point out that it was
the special nature of Indian title in the land that created the
fiduciary obligation, not subsection 18(1).
(2) Since the funds were received pursuant to Pension Act,
subsection 41(1), they were "public money" as defined in the
Financial Administration Act. The use of "includes" in a
definition amplifies or extends the ordinary meaning of the
term being defined. The term "public money" has been
enlarged to include sums of money which might not otherwise
come within the ordinary meaning of that term. Therefore
Financial Administration Act, sections 17, 18, 21 and 26 apply
to the plaintiff's pension funds which were administered by the
Crown. While that Act requires that all public money be
credited to the Receiver General (section 17), it does not
require that interest be paid on public money which has been
received for a special purpose and paid into the Consolidated
Revenue Fund (subsection 21(2)) in contrast to Indian moneys
held in the Consolidated Revenue Fund (Indian Act, subsection
61(2)).
Nothing in the Pension Act or in the various Regulations
referred to by counsel requires the Department of Veterans
Affairs to invest pension funds that it administers and to pay
interest thereon when the money is handed over to someone else
for administrative purposes. The Regulations are permissive.
The power of the Minister of Finance to invest public money in
securities pursuant to subsection 18(2) of the Financial
Administration Act is discretionary. Finally, Pensions Act,
section 31, indicates some limitation on the right of a deceased
pensioner's estate to claim benefits. They leave the Commission
a wide discretion as to their distribution and even provide that,
absent an order of the Commission, no benefits shall be paid.
This would not be consonant with a fiduciary obligation.
(3) Even if the Crown had a fiduciary duty to invest the
pension funds, the doctrine of equitable set-off, which is conso
nant with the obligations of trustees and fiduciaries, would
apply with respect to the hospitalization expenses provided by
the Crown for the benefit of the plaintiff over the past 45 years.
A trustee is entitled at common law to be indemnified for
expenses which are reasonably and properly incurred on behalf
of a trust. The plaintiff's case rests on equity. Equitable
principles cannot be selectively applied so as to create harsh or
oppressive results. While hospitalization expenses and pension
benefits arise from different statutes, they have their root in the
authority conferred by the Appropriations Acts adopted by
Parliament from year to year. They are all public funds in the
hands of the Crown, which in that sense is the trustee for all the
taxpayers.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Department of Veterans Affairs Act, R.S.C., 1985, c.
V-1.
Federal Court Act, R.S.C., 1985, c. F-7, s. 36.
Federal Court Rules, C.R.C., c. 663, R. 1711.
Financial Administration Act, R.S.C., 1985, c. F-11, ss.
2, 17, 18(2), 20(3), 21(2), 26, 37.
Guardianship of Veterans' Property Regulations,
C.R.C., c. 1579.
Indian Act, R.S.C., l985, c. I-5, ss. 18(1), 61(2).
Pension Act, R.S.C. 1927, e. 157, s. 11.
Pension Act, R.S.C., 1985, c. P-6, ss. 21(1), 31 (as am.
by R.S.C., 1985 (2nd Supp.), c. 12, s. 6), 35(1), 41(1),
72(1).
Receipt and Deposit of Public Money Regulations,
C.R.C., c. 728.
Repayment of Receipts Regulations, C.R.C., c. 729.
Revenue Trust Account Regulations, C.R.C., c. 730.
Veterans Care Regulations, SOR/84-709.
Veterans Treatment Regulations, C.R.C., c. 1585.
CASES JUDICIALLY CONSIDERED
APPLIED:
Nova, An Alberta Corporation v. Amoco Canada
Petroleum Co. Ltd. et al., [1981] 2 S.C.R. 437; (1981),
32 A.R. 613; 128 D.L.R. (3d) I; [1981] 6 W.W.R. 391;
38 N.R. 381.
DISTINGUISHED:
Guerin et al. v. The Queen et al., [1984] 2 S.C.R. 335;
(1984), 13 D.L.R. (4th) 321; [1984] 6 W.W.R. 481; 59
B.C.L.R. 301; [1985] I C.N.L.R. 120; 20 E.T.R. 6; 55
N.R. 161; 36 R.P.R. I.
CONSIDERED:
Kinloch v. Secretary of State for India in Council
(1882), 7 App. Cas. 619 (H.L.); Tito v. Wadell (No. 2),
[1977] Ch. 106; Hereford Railway Co. v. The Queen
(1894), 24 S.C.R. I; Rustomjee v. The Queen, [ 1876] I
Q.B.D. 487; [1876] 2 Q.B.D. 69 (C.A.); Quebec, Mon-
treal and Southern Railway Company v. The King
(1914), 15 Ex.C.R. 237; 20 D.L.R. 987; Thomas v. The
King, [1928] Ex.C.R. 26; [1928] 2 D.L.R. 535; Worrall
v. Harford (1802), 8 Ves. Jun. 4; 32 E.R. 250 (H.C. of
Ch.); Williams v. Wentworth (1842), 5 Beay. 325; 49
E.R. 603 (Ch.); Payne v. Evens (1874), 18 L.R. Eq. 356.
AUTHORS CITED
Weinrib, Ernest J. "The Fiduciary Obligation" (1975),
25 U.T.L.J. I.
COUNSEL:
William S. Klym and Teresa J. Glod for
plaintiff.
Duff F. Friesen, Q.C. and Audrey J. Nowack
for defendant.
SOLICITORS:
Cook Snowdon, Calgary, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
JOYAL J.: This is an action, instituted by the
plaintiff as a class action, claiming an accounting
by the Crown with respect to an accumulation of
war veteran's pension funds administered by the
Crown on the plaintiff's behalf over the period
1946 to 1986. The plaintiff also claims damages
for the Crown's breach of its fiduciary duty in the
administration of these funds.
At the opening of the trial, counsel agreed that
the Court should only deal with the alleged breach
of trust, namely whether or not the Crown had a
duty to invest the pension funds under its adminis
tration and thereby provide a fair return on these
funds as they accumulated.
It was also recognized that plaintiff's counsel
was being instructed by Sandra Keats, a niece of
the plaintiff and litigation guardian for purposes of
the action. Since 1986, Sandra Keats has been
administering the funds on her uncle's behalf,
having been appointed by the Canadian Pension
Commission for that purpose.
THE FACTS
The facts are not in dispute and were the subject
of an agreement by the parties. A recital of these
facts follows.
The plaintiff served in the Canadian Armed
Forces in Canada from the date of his enlistment
in September, 1939 to September, 1940 and then
in England from September, 1940 to March, 1941,
when he was diagnosed as having the condition
schizophrenia. As a result, he was discharged from
the Canadian Armed Forces on April 8, 1941 on
medical grounds. Prior and subsequent to the
plaintiff's discharge from the Armed Forces in
1941, he was hospitalized for various periods of
time. On May 19, 1949, he was confined to what is
now called the Psychiatric Institute, Victoria Hos
pital Corporation in London, Ontario. He has been
confined in that institution since that time.
On May 8, 1941, the Canadian Pension Com
mission ruled under section 11 of the Pension Act,
R.S.C. 1927, c. 157, that the plaintiff's condition
existed prior to his enlistment and was not
aggravated by his service in the Active Force. In a
further decision of the Commission dated July 16,
1941, it was stated that the schizophrenia was a
pre-enlistment condition wilfully concealed on
enlistment, which progressed during the plaintiff's
service. The Commission ruled that the schizo
phrenic condition was aggravated two-fifths during
the plaintiff's service in England.
On December 10, 1942, the Commission
approved a recommendation for pension award
dated December 4 and decided that, effective from
his discharge from treatment on August 19, 1942,
a disability pension of $30 a month would be paid
to the plaintiff pursuant to section 11 of the Act
(now subsections 21(1) and 35(1) [R.S.C., 1985,
c. P-6]), to be calculated at the rate of 40% of the
maximum entitlement. It was decided on Decem-
ber 23, 1942 that, by reason of the plaintiff's
incapacity, all pension payments would be paid to
the plaintiff's mother for administration.
However, by a decision of the Commission dated
July 19, 1943, the plaintiff's pension was suspend
ed as of July 7, 1943 during his period of treat
ment. On October 4, 1946, the Commission decid
ed to reinstate the plaintiff's pension with the
payments to be issued to the Department of Veter
ans Affairs for administration. On August 31,
1948, the Commission decided to award an addi
tional amount of $7.60 per month, effective
May 1, 1948, as a dependant's allowance for the
plaintiffs mother.
Then on February 2, 1950, the Commission
ruled pursuant to paragraph 11(1)(c) (now para
graph 21(1)(c)) of the Act that the pre-enlistment
condition of schizophrenia was not obvious or
recorded on enlistment and was aggravated during
service in a theatre of war. Thus, the plaintiff was
awarded a pension for the entire disability, effec
tive 12 months prior to the date of this ruling. As a
result, from February 2, 1949 to the present, the
Crown has continued to pay to the plaintiff a
pension at the rate of 100% of the maximum
entitlement. The pension currently being paid to
the plaintiff is $1,293.75 per month. Furthermore,
the Pension Act was amended in 1971 and as a
result, the plaintiff became entitled to and received
an additional allowance, known as an Exceptional
Incapacity Allowance, pursuant to subsection
57(1) [as am. by R.S.C. 1970 (2nd Supp.), c. 22,
s. 28] (now subsection 72(1)) of the Act. This
allowance is now at the rate of $228.30 monthly.
From October 4, 1946 until December, 1986,
the plaintiff's pension and allowances were issued
to the Department of Veterans Affairs for
administration, pursuant to a direction of the
Commission under section 16 (now subsection
41(1)) of the Pension Act. During this time, the
Department deposited all the monies to the credit
of the Receiver General pursuant to section 17 of
the Financial Administration Act, now R.S.C.,
1985, c. F-11, and the preceding legislation. These
funds were held at the district office until 1972
when the Commission ordered that the bulk of the
accumulated monies be transferred to a Head
Office Pension Administered Fund with the
remainder to stay at the district office.
It was on September 22, 1986, that the Commis
sion authorized the release of the total accumulat
ed pension credits to the plaintiff's niece, Sandra
Keats, for administration. These credits were
released to Ms. Keats in instalments, the first in
October, 1986 in the amount of $34,028.52, repre
senting the complete balance held in the district
office and the second in December, 1986 in the
amount of $157,822.79, representing the complete
balance held in the Head Office Pension Adminis
tered Fund. These amounts represented the princi
pal sums of the plaintiff's total accumulated pen
sion credits.
Ms. Keats then requested an accounting of the
plaintiff's funds and this was done by the defend
ant so far as was possible on the basis of available
documentation and information. The accounting
which was given indicated the opening fiscal year
balances from April, 1956 to December, 1986 and
the minimum monthly balances from January,
1970 to December, 1986.
During the period in which the Department
administered the funds, the Commission author
ized three payments to the plaintiff's mother out of
the plaintiff's account to help defray the costs of
her visits to the plaintiff in 1955, 1960 and 1964.
There were also other payments from time to time
to enable the plaintiff to take holidays and excur-
sions and for sundry expenses relating to the plain
tiffs personal comforts.
In addition to paying the above-mentioned pen
sions and allowances, the Crown, under the au
thority of the Veterans Treatment Regulations,
C.R.C., c. 1585, the Veterans Care Regulations,
P.C. 1984-2971 [SOR/84-709], and the regula
tions or legislation that preceded them, has also
paid for the domiciliary care conferred on the
plaintiff from about the time he became confined
to the hospital to the present time. In fact, Her
Majesty is currently paying to the hospital $169
per diem in respect of and for the benefit of the
plaintiff. The parties have agreed that the value of
the benefits conferred on the plaintiff by way of
domiciliary care and otherwise, from the time of
his hospitalization until the present time, exceeds
the value of the interest that would have been
earned on the plaintiffs funds, had these funds
been invested in interest-bearing securities.
THE ISSUES
The present action raises several substantive and
procedural issues which, in accordance with the
agreement of the parties, may be summarized as
follows:
I. Was the Crown in fact a trustee for the plain
tiff during the forty years that it administered his
pension funds, and if so, did it fulfil all the duties
incumbent upon a trustee?
2. Was the Crown unjustly enriched by the use
of the plaintiffs funds such that it must now
account to the plaintiff for the profits thereby
earned?
3. Does the plaintiff have a cause of action, given
section 36 of the Federal Court Act [R.S.C., 1985,
c. F-7], which states that in the absence of a
contract or of a statute providing for payment of
interest by the Crown, this Court shall not allow
interest on any sum of money it considers to be
due to the claimant?
To the best of my knowledge and that of coun
sel, this is the first time that a court has been faced
with a claim of this nature. The circumstances of
the case are novel; the principles which are sought
to be applied are not.
THE PLAINTIFF'S CASE
The plaintiff's case rests substantially on two
grounds. The first is that the framework of the
legislation concerning war veterans' pensions and
allowances is such that the Crown is a trustee, or
at the very least, a fiduciary with respect to the
plaintiff and other mentally ill pensioners whose
pensions it administers. The other ground is that
the Crown has a statutory duty to pay interest on
the funds in that these funds are not "public"
moneys within the meaning of the Financial
Administration Act.
For purposes of this case, it might be wise to
consider these grounds individually.
FIDUCIARY DUTY OR TRUST
Plaintiff's counsel sees in the legislative scheme
relating to veterans that the Crown must be held
to a strict standard of conduct that is required of
trustees and fiduciaries. One such duty is to invest
moneys under administration so that a reasonable
return may be earned. This the Crown has not
done. The Crown is therefore in breach of its duty
and it must now be called to account by way of
damages for the loss suffered over the forty-year
period 1946-1986.
Plaintiff's counsel says that subsection 41(1) of
the Pension Act' is the source of the fiduciary duty
owed to the plaintiff. The section reads as follows:
41. (I) Where it appears to the Commission that a pensioner
is
(a) by reason of infirmity, illness or other cause, incapable of
managing his own affairs, or
(b) not maintaining any person that he has a legal obligation
to maintain,
the Commission may direct that the pension payable to the
pensioner be administered for the benefit of the pensioner or
any person that the pensioner has a legal obligation to main
tain, or both, by the Commission, the Department or a person
or agency selected by the Commission. [Underline mine.]
' R.S.C., 1985, c. P-6.
Counsel argues that the statutory obligation to
administer the pension funds creates a trust in the
plaintiff's favour. Counsel relies in this respect on
the decision of the Supreme Court of Canada in
the celebrated case of Guerin et al. v. The Queen
et al. 2 where the Court held that the Crown was
subject to a fiduciary duty respecting Indian lands
held in reserves. Counsel states that the Crown is
under a similar obligation with respect to pension
ers' funds. Counsel notes in particular that the
wording of subsection 18(1) of the Indian Act' is
practically identical to that of subsection 41(1) of
the Pension Act. Subsection 18 (1) reads as follows:
18. (1) Subject to this Act, reserves are held by Her Majesty
for the use and benefit of the respective bands for which they
were set apart and subject to this Act and to the terms of any
treaty or surrender, the Governor in Council may determine
whether any purpose for which lands in a reserve are used or
are to be used is for the use and benefit of the band.
According to counsel for the plaintiff, the same
obligation is imposed upon the defendant in the
present case by subsection 41(1) of the Pension
Act. The Crown did not have an unfettered discre
tion to determine whether or not it would invest
the plaintiff's pension and it could not transfer the
plaintiff's pension money to the Consolidated
Revenue Fund for its own benefit. The Crown was
subject to the strict standards that govern any
trustee's conduct.
With respect, I think it is dangerous to leap to
such conclusions. Counsel for the plaintiff seems to
place much reliance on the wording of subsection
18(1) of the Indian Act, while failing to consider
that, in Guerin, supra, the Supreme Court repeat
ed several times that it was the special nature of
Indian title in the land that created the fiduciary
obligation on the part of the Crown. That interest
was said to be independent of any statutory rights
and to have existed long before being recognized in
the Indian Act.
For example, according to Mr. Justice Dickson,
as he then was, at page 376:
2 [1984] 2 S.C.R. 335.
3 R.S.C., 1985, c. I-5.
The fiduciary relationship between the Crown and the Indi-
ans has its roots in the concept of aboriginal, native or Indian
title.
He was more specific at pages 378-379:
... Indian title is an independent legal right which, although
recognized by the Royal Proclamation of 1763, nonetheless
predates it. For this reason Kinloch v. Secretary of State for
India in Council, supra; Tito v. Waddell (No. 2), supra, and
the other "political trust" decisions are inapplicable to the
present case. The "political trust" cases concerned essentially
the distribution of public funds or other property held by the
government. In each case the party claiming to be beneficiary
under a trust depended entirely on statute, ordinance or treaty
as the basis for its claim to an interest in the funds in question.
The situation of the Indians is entirely different. Their interest
in their lands is a pre-existing legal right not created by Royal
Proclamation, by s. 18(1) of the Indian Act, or by any other
executive order or legislative provision.
Counsel for the plaintiff also makes much of the
comments by Mr. Justice Dickson, where he cited
from Professor Ernest Weinrib ["The Fiduciary
Obligation" (1975), 25 U.T.L.J. 1] at page 384, to
the effect that "the hallmark of a fiduciary rela
tion is that the relative legal positions are such
that one party is at the mercy of the other's
discretion", and concluded:
I make no comment upon whether this description is broad
enough to embrace all fiduciary obligations. I do agree, how
ever, that where by statute, agreement, or perhaps by unilateral
undertaking, one party has an obligation to act for the benefit
of another, and that obligation carries with it a discretionary
power, the party thus empowered becomes a fiduciary. Equity
will then supervise the relationship by holding him to the
fiduciary's strict standard of conduct.
However, his conclusion in this respect must be
read in conjunction with subsequent remarks at
page 385:
It should be noted that fiduciary duties generally arise only
with regard to obligations originating in a private law context.
Public law duties, the performance of which requires the exer
cise of discretion, do not typically give rise to a fiduciary
relationship. As the "political trust" cases indicate, the Crown
is not normally viewed as a fiduciary in the exercise of its
legislative or administrative function. The mere fact, however,
that it is the Crown which is obligated to act on the Indians'
behalf does not of itself remove the Crown's obligation from the
scope of the fiduciary principle. As was pointed out earlier, the
Indians' interest in land is an independent legal interest. It is
not a creation of either the legislative or executive branches of
government. The Crown's obligation to the Indians with respect
to that interest is therefore not a public law duty. While it is
not a private law duty in the strict sense either, it is nonetheless
in the nature of a private law duty. Therefore, in this sui
generis relationship, it is not improper to regard the Crown as a
fiduciary. [Underline mine.]
Madam Justice Wilson also noted that the
fiduciary obligation owed by the Crown to the
Indians in Guerin "had its roots in the aboriginal
title of Canada's Indians" and that, at pages 348
and 352:
s. 18 does not per se create a fiduciary obligation in the
Crown with respect to Indian reserves ....
It seems to me that the "political trust" line of authorities is
clearly distinguishable from the present case because Indian
title has an existence apart altogether from s. 18(1) of the
Indian Act.
Thus, I think it is clear from the Guerin decision
that subsection 18(1) of the Indian Act was not
the source of the fiduciary obligation owed to the
Indians. Rather that source was the pre-existing
sui generis aboriginal interest in the land. Section
18 merely acknowledges the fiduciary obligation
which the Crown is deemed to owe to the Indians
as a result of their unique and historical interest in
reserve lands. It is on this very basis that both Mr.
Justice Dickson and Madam Justice Wilson were
able to distinguish between Guerin and the series
of so-called "political trust" cases. Let us look now
at what these political trust cases tell us.
In one of the first of these cases, Kinloch v.
Secretary of State for India in Council,° the
Queen had by Royal Warrant granted a war booty
to the Secretary of State "in trust" for officers and
men of the forces to be distributed by him as he
determined. The appellant brought an action
claiming an accounting of the money and seeking
distribution of the residue of the booty. The House
(1882), 7 App. Cas. 619 (H.L.).
of Lords decided that while a trust in the higher
sense might have been created, there was no trust
existing of a nature which could be enforced by the
Court.
Likewise, in Tito v. Waddell (No. 2), 5 Banabans
claimed that by a 1928 Ordinance, a trust had
been set up in their favour with respect to royalties
obtained from phosphate extraction on their home
island. The 1928 Ordinance provided in part that
any moneys payable by way of royalty would be
paid to the Resident Commissioner and would be
held by him "in trust" on behalf of former owners
of the land. This Ordinance was modified by the
1937 Ordinance, which omitted the reference to a
trust and instead provided that moneys payable by
way of royalty would be paid to the Resident
Commissioner, who would [at page 183] "apply
the same in such manner as the High Commission
er may from time to time direct to or for the
benefit of the natives of the island". (Emphasis
added.) Vice-Chancellor Megarry explained why
the Crown had only a "governmental obligation",
as opposed to a fiduciary obligation, towards the
Banabans [at pages 228 and 230]:
I do not think that a statutory duty to administer money in a
particular way can be said necessarily or even probably to
impose a fiduciary obligation upon the person subjected to the
duty. Many statutory duties exist without giving rise to any
fiduciary obligation, and before such an obligation can arise I
think that there must be something to show that the imposition
of such an obligation was a matter of intention or implication.
If there is a fiduciary duty, the equitable rules about self-deal
ing apply: but self-dealing does not impose the duty. Equity
bases its rules about self-dealing upon some pre-existing fiduci
ary duty: it is a disregard of this pre-existing duty that subjects
the self-dealer to the consequences of the self-dealing rules. I do
not think that one can take a person who is subject to no
pre-existing fiduciary duty and then say that because he self-
deals he is thereupon subjected to a fiduciary duty.
In a similar vein, Canadian courts have also
been reluctant to impose fiduciary obligations
upon the Crown in the exercise of its statutory
5 [1977] Ch. 106.
discretion. In Hereford Railway Co. v. The
Queen,' the appellant claimed a subsidy from the
Lieutenant Governor for the completion of a rail
way line. The provisions in the statute upon which
the railway company based its claim were worded
as follows [at page 8]:
The Lieutenant Governor in Council is authorized to grant
the following subsidies ....
and
It shall be lawful for the Lieutenant Governor in Council to
grant a subsidy ....
Chief Justice Strong refused to imply the crea
tion of an enforceable trust in favour of the appel
lant from these provisions [at page 13]:
The language of the act is permissive and facultative; it
makes no direct grant to the railway company, but in using the
words "it shall be lawful for the lieutenant governor to grant" it
imports that the Crown is to exercise its discretion in paying
over or withholding the money as it may think fit.
The Chief Justice then made reference to Kin-
loch and another English decision, Rustomjee v.
The Queen,' and continued [at page 15]:
I see no reason why the principle of these cases should not
apply here. If no enforcible trust is to be considered as imposed
when money to be applied to a particular designated purpose is
placed in the hands of the Crown under treaty or otherwise
than by act of parliament, why should the conclusion be
different where the money is granted by the legislature and its
application is prescribed in such a way as to confer a discretion
upon the Crown?
The same decision was reached in Quebec,
Montreal and Southern Railway Company v. The
King,' where Mr. Justice Audette called the rail
way construction subsidy a matter of bounty and
grace on behalf of the Crown, creating no liability
to pay the same [at page 250]:
Where there is a discretionary power, there is no legal
remedy.
Thus, as these cases demonstrate, a mere statu
tory direction to officers of the Crown to adminis
ter a fund or sum of money for the benefit of
designated persons does not necessarily imply the
' (1894), 24 S.C.R. 1.
[1876] 1 Q.B.D. 487; [1876] 2 Q.B.D. 69 (C.A.).
" (1914), 15 Ex.C.R. 237.
existence of a fiduciary relationship between the
two parties. In fact, I believe that this is the case
with respect to the Crown's statutory duty to
administer the plaintiff's pension for his benefit.
While the Crown may have an administrative or
governmental obligation to administer his pension
funds accordingly, this obligation does not amount
to a trust or fiduciary duty.
As counsel for the Crown pointed out, the Pen
sion Act establishes a comprehensive statutory
benefit scheme, which provides for the payment of
pensions and allowances. The purpose of the Act is
not to set up a trust for pensioners, but rather to
confer benefits on members of the Canadian
Forces who have given military service to Canada.
In Thomas v. The King,' it was noted that a
gratuity to a military officer is by its very nature a
matter entirely dependent upon the grace and
bounty of the Crown and that no action lies to
recover such a gratuity from the Crown.
Furthermore, the various components of a trust
are not found in the provisions of the Pension Act.
For one thing, the Act does not express an inten
tion to create a trust for pensioners such as the
plaintiff, nor can such a trust be implied. Mr.
Justice Dickson pointed out in Guerin, supra, that,
at page 386:
The law of trusts is a highly developed, specialized branch of
the law. An express trust requires a settlor, a beneficiary, a
trust corpus, words of settlement, certainty of object and
certainty of obligation. Not all of these elements are present
here.
In the present case, I do not believe that the
wording of subsection 41(1) of the Pension Act
suffices to constitute words of settlement and cer
tainty of obligation, as is required of legally
enforceable trusts. The legislator would have been
much more specific had he intended to set up a
trust in favour of the plaintiff and other mentally
incompetent pensioners.
[1928] Ex.C.R. 26.
I also cannot conclude from the wording of the
statute that Parliament ever intended to make the
Department of Veterans Affairs or any other body
a fiduciary with respect to the pensions payable to
mentally ill pensioners. Rather, I believe that the
statutory obligation to administer the plaintiff's
pension funds is exactly that and no more. In other
words, while the government may have a moral or
political obligation to administer the pension for
the plaintiff's benefit, it does not owe the plaintiff
a fiduciary duty, at least in the private law sense of
that term. This distinction between "higher" and
"lower" trusts has been adopted in Kinloch, Tito
and the numerous other decisions to which I have
already made reference.
THE STATUTORY DUTY
The second ground in the plaintiff's case is
whether the Crown has a statutory duty to pay
interest on the plaintiff's pension funds. Counsel
for the plaintiff argues that the pension funds in
question are not "public" money within the mean
ing of the Financial Administration Act. As a
result, he contends that several provisions of that
Act did not apply to the plaintiff's pension monies.
These provisions deal with the investment of public
money, as well as with the Crown's discretion to
pay interest on such money. The relevant sections
of the Act read as follows:
2....
"public money" means all money belonging to Canada received
or collected by the Receiver General or any other public
officer in his official capacity or any person authorized to
receive or collect such money, and includes [Underline
mine.]
(d) all money that is paid to or received or collected by a
public officer under or pursuant to any Act, trust, treaty,
undertaking or contract, and is to be disbursed for a purpose
specified in or pursuant to that Act, trust, treaty, undertak
ing or contract;
17. (1) Subject to this Part, all public money shall be
deposited to the credit of the Receiver General.
18. ...
(2) The Minister may, when he deems it advisable for the
sound and efficient management of public money or the public
debt, purchase, acquire and hold securities and pay therefor out
of the Consolidated Revenue Fund.
20....
(3) Money paid to the credit of the Receiver General that is
not public money may be returned or repaid in accordance with
regulations of the Treasury Board.
21. (I) Money referred to in paragraph (d) of the definition
"public money" in section 2 that is received by or on behalf of
Her Majesty for a special purpose and paid into the Consolidat
ed Revenue Fund may be paid out of the Consolidated Revenue
Fund for that purpose, subject to any statute applicable thereto.
(2) Subject to any other Act of Parliament, interest may be
allowed and paid from the Consolidated Revenue Fund in
respect of money to which subsection (I) applies, in accordance
with and at rates fixed by the Minister with the approval of the
Governor in Council.
26. Subject to the Constitution Acts, 1867 to 1982, no
payments shall be made out of the Consolidated Revenue Fund
without the authority of Parliament.
37. (1) Subject to subsections (2) and (3), the balance of an
appropriation granted for a fiscal year that remains unexpend-
ed at the end of the fiscal year shall lapse.
Counsel for the plaintiff, referring to section 2
of that statute, argues that since the pension funds
do not "belong to" Canada, they cannot be public
money subject to the Act. Ordinary trust funds do
not "belong to" the trustee. Counsel for the Crown
counters that such funds do fall within the defini
tion of public money under paragraph 2(d). The
words of that section say "and includes all money
that is paid to or received or collected ... pursuant
to any Act, trust, treaty, undertaking or contract".
[Underlining added.]
It seems clear to me that an interpretation of
that section, under the authority of Nova, An
Alberta Corporation v. Amoco Canada Petroleum
Co. Ltd. et al., 10 leads to the finding of an "expan-
sive technique" which amplifies the meaning of the
words preceding. As to the inclusion of the word
"trust" in that section, counsel for the Crown
i" [1981] 2 S.C.R. 437.
points out that pension funds were not paid pursu
ant to a trust but pursuant to an Act.
As I have concluded that in the present case the
pension funds were not held by the Crown pursu
ant to a legally enforceable trust, the question of
whether the funds were received pursuant to a
"trust" or pursuant to an "Act" seems rather
moot. I think that one could say that both inter
pretations are accurate. On the one hand, counsel
for the plaintiff concedes and has indeed even
argued that funds received pursuant to a political
trust would fall within the ambit of paragraph
2(d) of the Act. On the other hand, I think that it
is equally clear that the funds were also received
pursuant to subsection 41(1) of the Pension Act
and therefore again would fall within the scope of
paragraph 2(d) of the Financial Administration
Act. Thus, for all intents and purposes, the pension
funds are in my opinion "public money" as that
term is used in the latter Act.
As was pointed out in Nova, supra, when the
word "includes" is used in a definition, it is used to
amplify or extend the ordinary meaning of the
term being defined. That is precisely what para
graph 2(d) of the Financial Administration Act
accomplishes in the present case. The term "public
money" has been enlarged to include sums of
money which might not otherwise come within the
ordinary or everyday meaning of that term.
As a result, sections 17, 18, 21 and 26 of the
Financial Administration Act do apply to the
plaintiff's pension funds which were administered
by the Crown. The wording of subsection 21(2) of
the Act is clearly permissive in tone when it states
that subject to any other Act, interest "may" be
allowed and paid from the Consolidated Revenue
Fund. I note in contrast, the mandatory nature of
subsection 17(1) of the same Act, which states
that all public money "shall" be credited to the
Receiver General.
I think it is also worthwhile to refer to subsec
tion 61(2) of the Indian Act, which was discussed
in Guerin, supra, since so much of the plaintiff's
argument was centered around that case:
61. ...
(2) Interest on Indian moneys held in the Consolidated
Revenue Fund shall be allowed at a rate to be fixed from time
to time by the Governor in Council. [Emphasis added.]
Thus, while the Financial Administration Act
requires that all public money be credited to the
Receiver General, it does not require that interest
be paid on public money which has been received
for a special purpose and paid into the Consolidat
ed Revenue Fund. In contrast, it is clear from
subsection 61(2) of the Indian Act, which has just
been cited, that the Crown would be required to
pay interest on Indian moneys held in the Con
solidated Revenue Fund. I think it is a fair
assumption that if Parliament had also intended to
make payment of interest on all public money
compulsory, it could have easily demonstrated this
intent as it has done so under other statutory
provisions.
Moreover, I cannot find any provisions in the
Pension Act itself which would require the Depart
ment of Veterans Affairs to invest pension funds
that it administers and to pay interest on such
funds to pensioners when the money is handed over
to someone else for administrative purposes. Coun
sel for the plaintiff could not point to any such
provisions in the Act but suggested that this Court
should consider the effect of various regulations
passed pursuant to the Financial Administration
Act and the Department of Veterans Affairs Act
[R.S.C., 1985, c. V-1]. Regulations cited included:
(the) Receipt and Deposit of Public Money
Regulations;" the Repayment of Receipts
Regulations; 12 the Revenue Trust Account
Regulations;" the Veterans Treatment
Regulations; 14 and the Guardianship of Veterans'
Property Regulations. 15
However, I have looked at those regulations and
I find nothing in them which imposes a duty upon
the Crown to pay interest on the pension funds
which it administered for the plaintiff. Further
more, these regulations are largely permissive in
" C.R.C., c. 728.
'' C.R.C., c. 729.
C.R.C., c.730.
4 C.R.C., c. 1585.
15 C.R.C., c. 1579.
nature, such that the respective Ministers or
Deputy Ministers "may" authorize interest pay
ments from time to time. There is, however, no
obligation on their part to do so. Similarly, Order
P.C. 1970-300, which was made pursuant to sub
section 21(2) of the Financial Administration Act,
does not make interest payments mandatory. It
simply approves of a rate at which interest "may"
be allowed and paid.
Similarly, the power of the Minister of Finance
to invest public money in securities pursuant to
subsection 18(2) of the Financial Administration
Act is purely discretionary. The Minister has no
obligation to do so. Thus, I must conclude that the
Crown has neither a fiduciary nor a statutory duty
to pay interest on the pension funds at issue.
Finally, I might refer to section 31 [as am. by
R.S.C., 1985 (2nd Supp.), c. 12, s. 6] of the
Pensions Act which reads as follows:
31. (I) Any pension or allowance held in trust by the
Commission or the Department and due to a deceased pension
er at the time of his death does not form part of the estate of
the deceased pensioner.
(2) The Commission may, in its discretion, direct the pay
ment of any pension or allowance referred to in subsection (1)
either to the pensioner's estate or to the surviving spouse or
child or children of the pensioner, or to the surviving spouse
and child or children, or may direct that it be paid in whole or
in part to any person who has maintained, or been maintained
by, the pensioner or toward the expenses of the pensioner's last
sickness and burial.
(3) If no order for the payment of a pension or an allowance
referred to in subsection (1) is made by the Commission, the
pension or allowance shall not be paid.
These provisions to which Crown counsel made
reference would not appear to give support to the
plaintiff's plea. Admittedly, they are not conclu
sive on the issue of a fiduciary obligation. Further
more, the consequences which might legally flow
from these provisions cannot be easily determined
without an analysis of the whole statute. Neverthe
less, they serve to indicate some limitation on the
right of a deceased pensioner's estate to claim
benefits. They ostensibly leave to the Commission
a wide discretion as to their distribution and even
provide that, absent an order of the Commission,
no benefits shall be paid. In my respectful view,
this would not be consonant with the fiduciary
doctrine advocated by the plaintiff.
DEFENCE OF EQUITABLE SET-OFF
It is admitted that, for the past 45-odd years,
the plaintiff has been hospitalized at the Psychia
tric Institute in London and the costs thereof borne
by the Crown. The current cost of hospital care is
in excess of $5,000 monthly and the parties have
agreed that these costs accumulating over the
years exceed the value of interest which would
have been earned on the plaintiff's funds had they
been invested in income-bearing securities. This
factual situation raises of course the doctrine of
equitable set-off, a doctrine which is consonant
with the obligations of trustees and fiduciaries
which are themselves grounded in equity and good
conscience. As Professor Weinrib states in his
well-known article on "The Fiduciary Obligation":
What is presently required — and what the cases do not give us
is an elucidation of the purposes that these rules serve, the
values they promote, and the processes they seek to protect.
All that a system of justice can demand is that the underlying
principles be consistently felt and applied, even if they are not
crystallized into words."
In the present case, one must ask what values
are promoted and what purposes are served should
the present action be allowed. We must remember
that the plaintiff has required constant medical
attention and care for the last forty-five years. He
suffers from a condition which existed at least to
some extent before his military service in World
War II. The Crown has had the sole responsibility
of providing that care to him at a considerable cost
to Canadian taxpayers in general.
It is well recognized that in trust matters, the
defence of equitable set-off may be pleaded. Both
English and Canadian cases indicate that a trustee
is entitled at common law to be indemnified for
expenses which are reasonably and properly
incurred on behalf of a trust. Lord Chancellor
'6 (l975), 25 U.T.L.J. I, at p. 2.
Eldon put it this way in the case of Worrall v.
Harford:''
It is in the nature of the office of a trustee, whether expressed
in the instrument, or not, that the trust property shall reim
burse him all the charges and expenses incurred in the execu
tion of the trust. That is implied in every such deed.
In Williams v. Wentworth'" the Master of the
Rolls (Lord Langdale) said:
... I am of opinion, that in the case of money expended for the
necessary protection of the person and estate of the lunatic, the
law will raise an implied contract, and give a valid demand or
debt, against the lunatic or his estate, and that under the
circumstances of this case, a debt was constituted, and that
payment of it may be obtained out of the real estate, if the
personal estate be insufficient.
Counsel for the plaintiff argues of course that
the Crown has a statutory duty to provide medical
care to the plaintiff by reason of his total incapaci
ty. That statutory duty is imposed on the Crown
independently of its duty to pay the plaintiff a
veteran's pension. Such a pension arises from a
different statute and therefore the doctrine of
equitable set-off cannot apply.
With respect, I disagree. The fount of the plain
tiff's case rests on equity. Equitable principles, in
my view, cannot be selectively applied so as to
create results which any reasonable person would
regard as harsh or oppressive. It would create an
anomaly in the whole complex of veterans' legisla
tion, an anomaly which I seriously doubt Parlia
ment intended to create. While it might be correct
to say that hospitalization expenses and pension
benefits arise from different statutes, they all have
their root, in my opinion, in the authority con
ferred on the Crown by the Appropriations Act
adopted by Parliament from year to year and the
itemized breakdown of which are contained in the
annual Blue Book. They are all public funds in the
hands of the Crown which might be said to be, in
that sense, trustee for all the taxpayers.
" (1802), 8 Ves. Jun. 4; 32 E.R. 250 (H.C. of Ch.), at p. 252.
'" (1842), 5 Beay. 325; 49 E.R. 603 (Ch.), at p. 605.
The point may now be made. Even if it should
be established by some form of legal contortion or
other that a fiduciary duty is imposed on the
Crown to invest these pension funds, I would
nevertheless apply the doctrine of equitable set-off
with respect to the hospitalization expenses pro
vided by the same Crown for the benefit of the
same plaintiff over the past 45 years and which, as
is admitted by the parties, exceed any accumulated
income which the pension funds might have other
wise earned. Under one doctrine or the other, the
relief prayed for by the plaintiff cannot be pro
vided to him.
Before concluding, however, I should refer brief
ly to the plaintiff's claim in his action on the
failure by the Crown to provide a sufficiently
detailed accounting as to the administration of the
pension funds over a period of two generations. No
evidence or argument is advanced by plaintiff's
counsel in that regard and I can reasonably con
clude that the real crux of his case is the failure of
the Crown to invest the moneys rather than its
failure to provide adequate accounting. On the
issue of adequacy, I should perhaps refer counsel
to the case of Payne v. Evens' where an action to
account was lodged by a beneficiary against a
surviving trustee and representative in 1872 in
respect of an estate which had devolved in 1832.
The Court, while acknowledging that trustee
duties must be discharged with the utmost punctu
ality, refused to hold the defendants, liable after so
many years had passed simply because certain
vouchers and accounts were not forthcoming. The
Court said:
... but I never heard of a case in which, after such a lapse of
time as has taken place here, and after such transactions as are
here clearly proved, the rule against trustees has been applied
as if they were still trustees, still holding in their hands funds,
and still liable to account.
And the Court to conclude:
... I am asked to presume that, because one trustee has not
now forthcoming accounts and vouchers, he has committed that
19 (1874), 18 L.R. Eq. 356, at p. 362.
default which this court visits, when the trustee withholds his
accounts, or does not present them at the proper time, not only
with liability, but by making him pay the costs up to the
hearing. There was never such a case presented to the Court,
and so to hold would be in direct violation of the rules always
acted upon, and directly opposed to everything like common
honesty — I had almost said common decency. 20
Perhaps the plaintiff can get some guidance
from this case.
THE CONCLUSION
By consent of the parties, only one issue was
debated at trial. There is therefore left outstanding
the issues of whether the action is properly framed
as a class action, pursuant to Rule 1711 of the
Rules of this Court [Federal Court Rules, C.R.C.,
c. 663], of fixing the quantum of damages which
might otherwise be assessed against the Crown and
finally of whether limitation statutes apply to bar
recovery for all or part of the period covered.
In the circumstances, I should invite counsel for
the parties to see whether or not they can agree as
to the disposition of these collateral issues in a
manner which of course would avoid prejudice to
the plaintiff's right to appeal. If agreement may be
reached, I would ask counsel to submit a draft of
the formal judgment for my endorsement. Other
wise, I may be spoken to and, in the meantime, I
remain seized of the case.
Subject to the foregoing, I would find that the
plaintiff's action for damages by reason of the
Crown's breach of trust or fiduciary duty in failing
to invest the plaintiff's pension benefits should be
dismissed, with costs to the Crown.
20 Supra, at p. 363.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.