Monday, September 02, 2013

Court of Appeal Reverses Damages Award in Bronson v. Hewitt

The British Columbia Court of Appeal has allowed the appeal of Howard Hewitt and Eugene Lewis in Bronson v. Hewitt, 2013 BCCA 367, against whom the Supreme Court of British Columbia had awarded damages as a result of a sale of shares in he made as trustee of a trust that had been settled by two brothers Harold D. Lewis, Sr. and A. Eugene Lewis.

The trust, known as the Big Nine Trust, held shares of a guide outfitting company in northern British Columbia: Big Nine Outfitters Ltd (which I will refer to as “Big Nine). I have written about the trial judgment in more detail here, but I will summarize it very briefly. The litigation had its roots in the falling out of the two brothers. When the trustee of the trust died, and a successor trustee resigned in 2002, the terms of the trust provided that both Eugene and Harold Lewis were the successor trustees, but Harold Lewis was not at that time aware of his succession rights as trustee (the trust having been settled back in 1978). Eugene Lewis renounced as a trustee, and their brother-in-law Howard Hewitt became a trustee in accordance with an appointment Eugene and Harold had previously made if either were unable or unwilling to act. The trial judge found that Eugene Lewis and Howard Hewitt mislead Harold Lewis by concealing from him his right to be a co-trustee. Howard Hewitt sold the shares of Big Nine in 2004 without receiving an appraisal of the value of the shares in Big Nine, or exposing the shares to the market. The trial judge found the sale to be improvident. The trial judge found that Mr. Hewitt was liable for breach of trust and Mr. Eugene Lewis for knowingly assisting him in a breach of trust, and awarded damages of $350,000 against them both in favour of Harold Lewis’ children and one other beneficiary of the trust.

There were a number of other issues, which I won’t deal with in this post.

The Court of Appeal reversed the trial judge’s award of damages. Madam Justice Newbury, writing for the Court, expressed doubt about the trial judge’s finding that Howard Hewitt and Eugene Lewis had deliberately concealed from Harold Lewis his right to act has trustee, but did not decide the point. She held that even if they did, the loss did not flow from any concealment from Harold Lewis of his right to act as a trustee. Rather the loss flowed from the improvident sale. Accordingly, neither was liable for the loss on the basis of the concealment—if there were any.

What about the finding that the sale was improvident? Is Mr. Hewitt liable as trustee on the basis that he should have obtained an appraisal and exposed the shares to the market?

In holding that Howard Hewitt was not liable for the improvident sale, the Court of Appeal applied a term in the trust agreement that protected Mr. Hewitt as a trustee as follows:

Exoneration of Trustee No trustee provided he act in good faith, shall be held liable for any loss occasioned to the trust property except for loss caused by his own dishonesty, gross negligence or willful breach of trust.

The trial judge had found that with respect to the sale itself, Mr. Hewitt had acted in good faith believing that the sale was in the best interest of the beneficiaries. Madam Justice Newbury held that based on the finding of the trial judge, Mr. Hewitt was entitled to the protection afforded by the clause against liability.

In the result, Mr. Hewitt and Eugene Lewis will not be required to pay the damages of $350,000 for the sale of the shares.

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