Canada: Assets Held In Trust Under An Asset Purchase Agreement

Last Updated: May 24 2018
Article by Ian Weiss

Often we are asked to assist clients with preparing an asset purchase and sale agreement where all or a portion of the assets require third party consents to the transfer, but those consents cannot be obtained prior to the closing date. In such cases, the agreement is drafted such that the seller will hold these assets in trust for the purchaser until such time as they can be transferred.

This raises questions about what rights the purchaser has to force a transfer of the assets if the seller neglects or fails to obtain the consents necessary to complete the timely transfer of the assets. (Note, in cases where a third party cannot or will not consent to the transfer, the bare trust will still apply such that the seller will be obligated to hold the assets in trust for the benefit of the purchaser and to participate to the extent needed, in managing said assets.)

An express trust is one where the settlor (person who creates the trust) and beneficiary expressly intend to create a trust relationship. An express trust need not be in writing, but written agreements provide greater certainty, and can take the form of a trust deed or a term within a contract between the settlor and the beneficiary promising transfer of property at a future date. In such cases, the trust is created ("settled") when the contract becomes binding, and is enforceable through specific performance, which is a legal remedy available in certain circumstances whereby a party to a contract is legally compelled to perform their commitments under that contract.

In Canadian law, to establish a valid express trust, there must be three certainties: the certainty of intention, the certainty of subject matter, and the certainty of objects. Certainty of intention means that it must be clear that the donor or testator wishes to settle a trust. Certainty of subject matter means that it must be clear what property is part of the trust. Certainty of objects means that it must be clear who the beneficiaries, or objects, are. The law also requires certainty with respect to the amount of the beneficial interest being transferred.

An express trust can impose significant discretionary duties and obligations on a trustee or can be such that the trustee has no independent powers, discretions or responsibilities. The latter form of trust is called a "bare," "naked" or "simple" trust, which is a trust where the trustee has no independent powers, discretions or responsibilities. The trustee's only responsibility is to carry out the instructions of his principals – the beneficiaries.

A bare trust is one where the trustee simply holds title to the property for the benefit of the beneficiary. While the trust may require of the trustee certain duties, such as making the property productive and exercising reasonable care over it, if the trustee possesses his legal duties only for the purpose of guarding the property, prior to conveyance to the beneficiary, those duties are said to be passive. Thus, under a bare trust, the beneficiary is able to call for the property on demand. One of the fundamental duties owed by a bare trustee to a beneficiary is the duty of exceptional honesty and fiduciary. A fiduciary must act in the other party's interests, or in the interests of both parties (if such interests align) to the exclusion of the fiduciary's own interests (where the party's interests are not aligned).

Canadian courts have held that in a bare trust the general proposition is the beneficiary, being absolutely and indefeasibly entitled to the trust property can, absent special circumstances, require a transfer of that property to him. Under the laws of equity, the purchaser can claim the failure by seller to transfer the assets is a breach of trust. The Alberta Court of Appeal in Mills v. Royal Bank of Canada held that "in a breach of trust case all that needs to be shown to establish a cause of action is that the trustee failed to fulfill its duty. The reason it failed to do so will generally be irrelevant."1

Where an asset is not replaceable with monetary damages, the equitable remedy of specific performance may be ordered to compel a party to perform a contractual obligation, and, where a seller fails to transfer assets held under a bare trust established as part of asset purchase agreement, the purchaser can file a Notice of Application requesting a court order to terminate the trust and require the seller to transfer the assets. If the original trust is a bare trust, the trustee can be ordered to transfer the property to the beneficiary. In one example case, the British Columbia Supreme Court in Daum v Clapci 2 , ordered the transfer of a corporation's assets to Mr. Daum due to a breach of trust by the trustee. This likely only applies in cases where the property is transferable; in cases where a third party cannot or will not consent to the transfer, it is doubtful that a court would have the authority to force a transfer.

So what does all of this mean? Bare trust arrangements are commonly used in asset sales out of necessity but it is taken for granted by the parties that they will work as intended - to require the seller to manage the assets in trust for the benefit of the purchaser and also transfer the assets to the purchaser when possible post-closing. While there is not a lot of case law in Canada on this issue, it is our view that purchasers can take comfort that Canadian law supports this position – properly drafted bare trust provisions within asset purchase agreements can be relied on to: (i) manage the assets at the purchaser's discretion until such transfer can be completed; and (ii) require the seller to transfer the assets to the purchaser on demand.


1 Mills v Royal Bank of Canada, 2012 ABCA 75 at para 26.

2 Daum v Clapci, 2014 BCSC 1524

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Norton Rose Fulbright Canada LLP
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Norton Rose Fulbright Canada LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions