Hofer v Hofer et al, 2022 MBCA 99

Citation: Hofer v Hofer et al , 2022 MBCA 99 Date: 20221212 Docket: AI22-30-09767 IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Janice L. leMaistre Madam Justice Karen I. Simonsen Madam Justice Lori T. Spivak BETWEEN : CORNELIUS HOFER JR. and ) gerald Hofer ) D. A. Kreel ) for the Appellants (Applicants) Respondents ) ) D. G.

Douglas - and - ) for the Respondents ) CORNELIUS SAMUEL HOFER SR., ) Appeal heard and RODNEY HOFER and RAINBOW COLONY ) Decision pronounced: FARMS LTD., in their capacity as trustees of ) November 28, 2022 RAINBOW COLONY OF hutterian ) BRETHREN ) Written reasons : ) December 12, 2022 ( Respondents ) Appellants ) o n appeal from 2021 MBQB 175 ; 2021 MBQB 2 65 LEMAISTRE and Simonsen jJA (for the Court): [ 1 ] The respondents appeal the trial judge’s order removing Rodney Hofer (Rodney) as trustee of Rainbow Colony of Hutterian Brethren (Rainbow) ( 2021 MBQB 175 , the first decision).

The applicants cross appeal the trial judge’s dismissal of their request for a declaration that they are directors of Rainbow and its corporations. [ 2 ] After the hearing, we dismissed the appeal and the cross appeal with reasons to follow. These are those reasons. [ 3 ] At the heart of this appeal is a dispute between Rodney and his brothers, the applicants, Cornelius Hofer Jr. (Cornelius Jr.) and Gerald Hofer (Gerald), about control and management of Rainbow, a private, voluntary association that operates a large mixed-farming business. [ 4 ] Rainbow conducts its operations through four corporations.

Although Cornelius Jr. and Gerald were named as directors in 1995, since 2018, Rodney has been the sole officer and director of the four Rainbow corporations, and since 2000, he has been the secretary of Rainbow. [ 5 ] At trial, the parties agreed that, as an officer, Rodney was a trustee of all the property located at, used by or associated with Rainbow, including the shares of the corporations.

Rodney held this property in trust for the community as a whole. [ 6 ] In 2015, after a series of significant disputes that arose over a period of many years, and after the applicants discovered that they had been removed as directors of two of Rainbow’s corporations, they brought an application against Rodney alleging that he had engaged in conduct that amounted to a breach of trust. At the trial, a combined list of issues was filed.

As a result of Rodney’s alleged conduct, the applicants sought orders requiring him to pass accounts; removing him as secretary of Rainbow; removing him as an officer and director of the corporations; declaring Cornelius Jr. and Gerald directors of Rainbow and its corporations; and requiring Rodney to pay the credit card obligations of Cornelius Jr. and Gerald in accordance with Rainbow’s obligation to reimburse its members for their living expenses. [ 7 ] After the trial, the trial judge ruled on two threshold issues raised by Rodney: Rodney had taken the positions that,

because Rainbow is a voluntary association, the Court had no jurisdiction to adjudicate the complaints raised by Cornelius Jr. and Gerald; and that Cornelius Jr. and Gerald had waited too long to bring their application so were barred from pursuing it by the equitable doctrine of laches. The trial judge found that he had jurisdiction and that the laches defence failed. [ 8 ] The trial judge went on to address the law regarding removal of trustees and found that his “most significant credibility concerns” (the first decision at para 264) related to Rodney’s evidence.

He concluded that Rodney had acted in breach of trust, and stated ( ibid at para 277): In my view, this case is best described as one where the trustee, deliberately or perhaps under some misconception, is in a conflict of interest, is failing to place the interests of beneficiaries above his own, and is acting in a predominantly obstructive manner.

Although I have taken Rainbow’s commercial successes into account, they do not carry the day when considered with all the evidence, including the offsetting legal costs. [ 9 ] Having found that Rodney had breached his duty as trustee, the trial judge left the parties with “one last opportunity to negotiate a workable go-forward solution” ( ibid at para 278). They did not do so.

Therefore, a few months later, he issued a further decision ( 2021 MBQB 265 , the second decision), ordering that Rodney be removed as trustee of Rainbow and as an officer and director of the four corporations; pay the outstanding credit card debts of Cornelius Jr. and Gerald; and provide an accounting to the beneficiaries of the trust. The trial judge was not, however, prepared to appoint a new trustee because Rainbow is a voluntary association such that the responsibility to appoint new trustees rested with it.

He dismissed the applicants’ request for a declaration that they remain directors of Rainbow and its corporations. [ 10 ] On appeal, Rodney states that he takes no issue with the trial judge’s findings of fact or credibility assessments. He raises five arguments: • The trial judge erred by exercising jurisdiction to intervene in the affairs of Rainbow, which is a private, voluntary association.

Rodney characterizes this as his primary ground of appeal, and says that the existence of a trust, in and of itself, does not cloak the Court with jurisdiction to intervene; rather, there must be a legal issue of sufficient importance at stake to warrant judicial intervention. • The trial judge erred by conflating the practices of a voluntary association with the legal obligations of a trustee, and in finding that Rodney had a duty to consult with his brothers. • The trial judge erred by concluding that the application of Cornelius Jr. and Gerald to remove Rodney as trustee was not barred by the passage of time; Rodney asserts it is barred by operation of the equitable doctrine of laches. • The trial judge erred by conflating the duty of documentary disclosure in litigation proceedings with the duty of a trustee to provide an accounting, which Rodney had fulfilled. • The trial judge erred by removing Rodney as trustee, especially in view of Rainbow’s fine economic performance during his years of trusteeship, and by giving virtually no weight to the expert report of Terry Betker about the performance of Rainbow and Rodney. [ 11 ] Cornelius Jr. and Gerald maintain that the trial judge made no errors warranting appellate intervention.

We agree. [ 12 ] The issues raised by Rodney on appeal involve questions of law reviewable for correctness and errors of mixed fact and law reviewable for palpable and overriding error, as well as discretionary decisions entitled to significant deference on appeal: absent a material error in law or fact, this Court will not intervene unless the decision is so clearly wrong as to amount to an injustice ( see Housen v Nikolaisen , 2002 SCC 33 at paras 8 , 10, 25, 28; and Perth Services Ltd v Quinton et al , 2009 MBCA 81 at para 28 ). [ 13 ] We are not persuaded that the trial judge erred in law in his conclusion that he had jurisdiction to intervene in the affairs of Rainbow in the manner that he did.

His jurisdiction can be found in both the legislation and the common law. [ 14 ]

Section 9 of The Trustee Act , CCSM c T160 (the Act ) permits a court to appoint or remove a trustee.

Section 9(2) states: Removal 9(2) The court may, on an application under this section, make an order removing a trustee without appointing a new trustee in his place. [ 15 ] In Ocean Man Trust , Re , 1993 CarswellSask 88 (CA) , the Saskatchewan Court of Appeal quoting from Scott v Scott , 1991 CarswellSask 194 (QB) at 189-90 , considered whether “[a]s a Court of Equity, the Queen’s Bench court has an inherent jurisdiction to remove a trustee” (at para 8), in circumstances where the legislation only permitted removal of a trustee upon the appointment of another trustee in substitution.

Relying on Professor DWM Waters, Law of Trusts in Canada , 2nd ed (Toronto: Carswell, 1984) at 683, Wakeling JA found that “the power of a court to remove a trustee is not hampered by the absence of a statutory provision to that effect” (at para 9). [ 16 ] In our view, the trial judge was correct in relying on

section 9 of the Act as well as the Court’s inherent jurisdiction to remove a trustee (see Ocean at paras 8-9).

[17] Moreover, the trial judge correctly framed the legal issues when he stated that this case “is about legal rights affected byRodney’s administration of an admitted trust and related property” and “allegations of breach of trust” (the first decision at paras 242-43). Courts have jurisdiction to intervene in decisions of voluntary associations where a legal right is affected.

This is clearly the casehere where property rights are at stake (see Ethiopian Orthodox Tewahedo Church of Canada St Mary Cathedral v Aga, 2021 SCC 22 atpara 29). [18] We are also not persuaded that, in reviewing the history of Rainbow, the trial judge conflated the practices of avoluntary association with the legal obligations of a trustee and the legal rights of the applicants under trust law. He clearly understoodthat Rainbow is a voluntary association.

Nonetheless, he concluded that the case was “about legal rights affected by Rodney’sadministration of an admitted trust and related property” (the first decision at para 242). [19] Furthermore, the trial judge understood and articulated the applicable legal principles.

He reasonably found thatRodney’s failure to consult with the applicants, or any other member of Rainbow, when making decisions concerning its businessoperations, was inconsistent with the documents and the past practises of Rainbow. [20] Moreover, Rodney’s failure to consult was not the only basis upon which the trial judge concluded that Rodney was inbreach of his duty as trustee. As he explained in the second decision, “finding that Rodney failed to consult is but one of numerousmanifestations of the breaches, which, together, resulted in my decision” (at para 2).

The key factor for the trial judge’s conclusion thatRodney was in breach was his finding that Rodney was “in a conflict of interest, [was] failing to place the interests of beneficiariesabove his own, and [was] acting in a predominantly obstructive manner” (the first decision at para 277). [21] Regarding Rodney’s argument that the application to remove him as trustee was barred by laches, we see no error in thetrial judge’s conclusion on the record that Rodney’s breach of duty was ongoing, that the applicants did not, by their conduct, waive theirright to a remedy or acquiesce in Rodney’s management of Rainbow and that “the factual landscape [had] progressively changed(worsened)” (ibid at para 248). [22] The trial judge acknowledged the “distinction between the duty to account and discovery in litigation” and recognizedthat, “If, delay aside, Rodney [had] in fact reasonably met his accounting obligations, there [was] no further requirement for him to doso” (the second decision at para 9).

Rodney has pointed to no error that would warrant appellate intervention in the trial judge’s orderregarding Rodney’s duty to account including his decisions declining to determine “the level of detail required for a proper accounting”(ibid) and requiring Rodney to account for bank notes and bank accounts relating to Rainbow’s operations, uncashed old age securitypension benefit cheques in the name of Corny Hofer Sr. and his spouse Lydia and related bank accounts. [23] Nor do we see any basis to interfere with the trial judge’s discretionary decision removing Rodney as trustee ofRainbow.

The trial judge correctly articulated the legal test (see the first decision at paras 252-54) and he made no error when weighingthe evidence, including the expert report of Terry Betker and the evidence regarding the manner in which Rodney managed Rainbow’sbusiness operations, or when applying the law to the facts as he found them. Therefore, his decision is owed significant deference (seeConroy v Stokes, (BC CA), [1952] 4 DLR 124 at 128 (BC CA); Sinclair v Sinclair, 2013 SKCA 123 at paras 35, 40;and Wood’s Homes Society v Selock, 2021 ABCA 431 at para 28).

Moreover, his conclusion that Rodney has not acted in the bestinterests of Rainbow having regard to the welfare of the beneficiaries is reasonably supported by the record. [24] On the cross appeal, Cornelius Jr. and Gerald assert that the trial judge erred by not granting a declaration that theyremained directors of Rainbow and its corporations pursuant to section 101(5) of The Corporations Act, CCSM c C225, as they had notresigned, nor had they been removed from office or become disqualified. [25] A judge’s decision on an application for declaratory relief is discretionary and entitled to significant deference (seeManitoba Métis Federation Inc v Canada (Attorney General) et al, 2010 MBCA 71, at paras 248-49, rev’d on other grounds 2013 SCC14; and Green v University of Winnipeg, 2015 MBCA 109 at para 17). [26] After he removed Rodney as trustee, the trial judge expressed disappointment “that despite the Court’s urgings, theparties [had] not come together for the sake of the community” to determine how Rainbow’s affairs would be managed (the seconddecision at para 10).

In keeping with his choice of remedy, the trial judge declined to grant the applicants a declaration that theyremained directors of Rainbow and its corporations. In his view, “[b]ecause Rainbow is a voluntary association . . . at first instance theresponsibility to appoint a new trustee or trustees and declare them as new corporate officers and directors rests with it” (ibid at para 10). [27] We agree with the trial judge’s view and see no basis to interfere with his exercise of discretion.

Despite making noexplicit finding as to whether the applicants had been properly removed as directors, he was entitled to decline the declaration sought. The record amply supports his conclusion that the appointment of trustees and corporate officers and directors is best left to Rainbow. [28] For these reasons, the appeal and the cross appeal were dismissed. There will be no order as to costs. JA JA JA