While we may not realize it, trusts and trust relationships are a part of our daily lives. A common example, which we often overlook, are RRSP and other registered accounts – banks often set up these types of accounts as express trust accounts, with the bank acting as trustee and the account holder as beneficiary. When this happens, the bank is subject to all the same fiduciary duties and responsibilities that apply to all trustees. This includes being prohibited from profiting from the position of trustee without the express consent of the beneficiary. Accordingly, the bank (as trustee) is prohibited from profiting from hidden account fees.

Hidden account fees was the issue in dispute in MacDonald et al v. BMO Trust Company et al, 2020 ONSC 93. In that case, a class action suit was brought against the bank by its RRSP account holds. The account holders argued: (i) that the bank acted as a trustee of their RRSP accounts; (ii) that they were charged hidden foreign exchange fees; and (iii) by profiting from these hidden fees, the bank committed a breach of trust.

The court quickly determined that the bank was, in fact, a trustee. One of the standard RRSP account forms given to the account holders was called a “Trust Agreement” and described the bank as “trustee” of the registered account. The Trust Agreement further stated that the bank was responsible for administering the RRSP accounts “in accordance with trust law.” Given the language of the Trust Agreement, the court held that the bank was a “traditional trustee with traditional fiduciary obligations.”[1]

It is a well-established principle of trust law that a trustee is prohibited from profiting from her position. As a result, a trustee may not be paid for her work administering a trust unless the trust deed expressly allows it or the payment is approved either by the beneficiaries or the court. Where the trustee is an institution, such as in this case, the trustee and beneficiaries usually agree in advance regarding the management fees that will be charged.

In this case, while account holders were advised of the “exchange rate,” there was no way for them to know how much of that rate was the interbank rate (sometimes referred to as “spot rate”) and how much was the bank’s markup fee. While the court noted that the impact on the individual account holders was likely “manageable,” the financial impact on the class (of around 200,000 account holders) was significant: the bank paid itself over $100 million in undisclosed markup fees during the 10 year period in question.

The court held that this was improper – there was an obligation on the bank to provide the account holder with written notice of the amount of the markup fee. The court further found that this obligation to disclose fees was in line with the general principles of trust law requiring a trustee to act with full transparency and to provide the beneficiaries with advance notice of any self-payments. The court concluded that the failure to disclose the markup fee was a breach of the bank’s fiduciary duty.

The court went on to find that there was a wide range of remedies for breach of trust, including an accounting of the profits (also referred to as disgorgement), tracing, and constructive trust. In this case, the account holders were seeking an accounting of the profits.

The court agreed, finding that an accounting of the profits was the “conventional remedy for breaches of trust” [2] and the most appropriate remedy in this case. The court further found that an accounting of the profits is available even in cases where no actual loss can be established, as one of the underlying policy rationales for an accounting is to deter fiduciaries from breaching their trust duties.

While the bank’s profits from the hidden fees were estimated to be over $100 million, the court ordered a reference to determine the exact amount of the profits and the amounts owing to the individual account holders. (The court relied on its authority to order a reference under rr. 20.4(5) and 54.02(1)(c) of the Rules of Civil Procedure.)

A higher duty of care and responsibility is imposed on trustees. As a result, it is worthwhile paying attention to the types of relationships we have to the institutions and people in our daily lives – you may not have to accept being charged those hidden fees after all!

[1] At paragraph 21.

[2] at paragraph 49.