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23 FEATURE ARTICLE The investment policies were the starting point for managing the portfolio. Prior to 1993, the standard was less stringent. The court suggested that the trustees upheld the standard at that time. After 1994 and until 2004, the policy was lax and did not comply with the new criteria. Both the Québec Superior Court and the Québec Court of Appeal retained three counts of negligence against the trustees: - Not having an adequate investment policy after 1994 - Having been rash in the risk analysis that led to an overconcentration in certain securities, GE (27% of the value of the portfolio), IBM (9%) and Nortel (35%) - Having failed to heed serious warnings from Royal Trust to dispose of some of these securities beginning in 2000 Although they expressed some fears and their disagreement about the allocation of the assets, neither Georges H. nor Royal Trust prevented David from maintaining it. He did not want to trigger a major realization of capital gains by selling the shares before the tech bubble burst, due to the income taxes that would become payable. Impact of taxation on risk analysis The Honourable Judge Pierre Nollet of the Superior Court conducted a detailed analysis of certain principles related to investment risk, including tax considerations. He concluded that the tax impact cannot constitute the only measure of risk management and should not be the pivotal criterion in the administration of the property of others. According to the Court, in this context, prudence advocates regular profit-taking and active management of tax liabilities. The Court of Appeal did not contradict these principles. Duty to maintain financial information Royal Trust had the duty to carry out administrative tasks. In this regard, the Court of Appeal and the Court of First Instance pointed to poor documentary management from 1937 to 1993. Indeed, Royal Trust has no documents concerning the initial management of the trust, making it very difficult to provide the accountability that is the right of all beneficiaries, including capital beneficiaries. There was therefore negligence at this level. Value of trustee liability exoneration clauses The trustees' obligation of prudence and diligence means they cannot be absolved of all liability. The lack of fraud or bad faith criterion is not sufficient. This clause cannot apply if the trustees do not fulfil their duty, if they are imprudent, negligent or lack diligence. Repayment of court costs and out-of-court expenses The Judge of the First Instance ruled that the trustees were eligible to have their legal and out- of-court costs repaid by the trust. This decision was annulled on appeal. The Court had ruled on the basis that administrators of the property of others are not obliged to draw on their own funds for administrative matters when they are acting in the interests of the beneficiaries: an administrator does not have to impoverish himself by paying from his own pocket expenses incurred for the benefit of the trust patrimony. The administrators are, however, solidarily liable for damages caused by their administration. Therefore, if the trustee must go to the courts to protect the interests of the beneficiaries, it is the beneficiary, through the trust, who pays. On the contrary, if it is the trustee's own interests that are at stake, the trustee must pay. The considerable fees related to their defence and counterclaims – in the amount of $1,763,564.81 – were therefore the responsibility of the trustees, who had to assume them personally. Conclusion The entire value of this ruling resides in the Superior Court Judge's careful analysis, repeated by the Court of Appeal, of the criteria that must be upheld in the management of an investment portfolio by administrators of the property of others, and of the prudence and diligence they must demonstrate in their duties, whether or not they are paid. It should also be noted that the Court held Royal Trust liable for not maintaining all the documents related to the management of the trust. This means it is important to keep thorough, up-to- date accounts, along with a history of transactions throughout the lifetime of the trust, even when the period covered is very long.

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