Newsletter > June 2010
In this issue:
1. Firm and Industry News
2. Freight Brokers Trust Obligation
1. Firm and Industry News
- August 11: AIMU Field trip Maritime Site Visits
- September 12-15: IUMI Conference, Zurich, Switzerland
19-21: Houston Marine Insurance Seminar
22-24: International Marine Claims Conference, Dublin, Ireland, www.marineclaimsconference.com
- October 1: MICA Annual Dinner at Marriot Marquis
2. Ontario Court of Appeal Upholds the Trial Decision in CIBC v. Nadiscorp Logistics Group Inc.: The “Freight Brokers Trust Obligation”
In the November 2009 edition of the Fernandes Hearn LLP newsletter, we reported on the outcome of the trial of a priority dispute between a secured creditor and various unpaid motor carriers following the demise of a freight broker intermediary, Nadiscorp, which went into receivership after the subject contracts of carriage were performed. Various shippers paid monies to Nadiscorp’s Receiver in fulfillment of their freight payment obligations. But who was to get the money? The secured creditor of Nadiscorp, who had amongst it’s collateral the Nadiscorp accounts receivable? Or the carriers, who risked not being paid for services performed?
The case brought into question the only statutory provision of its kind in Canada, in effect in Ontario by virtue of section 191.0.1(3) of the Ontario Highway Traffic Act which provides:
A person who arranges with an operator to carry the goods of another person, for compensation and by commercial motor vehicle, shall hold any money received from the consignor or consignee of the goods in respect of the compensation owed to the operator in a trust account in trust for the operator until the money is paid to the operator.
This creates an obligation to hold such monies in a trust account for the benefit of the carrier[s] involved.
The trial judge held that on the particular facts of the case and given the manner in which the monies were handled by the receiver that they in fact had been at all times treated as, and therefore retained the character of a “trust fund”. Accordingly, in accordance with established legal precedent, those monies would then be awarded to the unpaid carriers in priority to the secured creditor. However there was also a ‘geographic wrinkle’: what about those carriers who performed services beyond the borders of Ontario? What was the ‘reach’ of the Ontario legislation? Nadiscorp was based in and carried on it’s operations from Ontario. In this regard the trial judge ruled that the ‘legislated trust obligation’ applied whenever the freight broker intermediary or person (recalling the broad ‘reach’ of the provision) arranging the carriage of goods undertook such activities within the Province of Ontario – regardless of the geography or routing involved with the carriage. Accordingly regardless of their place of performance carriers ‘generally’ caught in the Nadiscorp web would benefit from the priority created by the above trust provision. An appeal was taken from this decision by certain of the secured interests who would lose in the priority claim to the carriers.
On appeal the Ontario Court of Appeal upheld the trial finding that carriers performing services outside of the Province of Ontario benefited from the trust protection and priority to the extent that the operations of the broker (or, generally, ‘person’) arranging such carriage were based within the Province of Ontario. The Court of Appeal found that the legislation is clear in imposing the trust fund obligation on such entities regardless of geography or the routing involved.
Accordingly, anyone in the Province of Ontario who is engaged in the arrangement of motor carrier services for other persons must be wary and careful as to how they handle and to care for freight payments received from a shipper or consignee. They will be likely be held to an obligation as trustee over the monies. There is case law precedent for the ‘corporate veil’ of a brokerage operation to be ‘pierced’ resulting in personal liability of corporate officers and directors where they have been found to have facilitated the failure of the brokerage entity to properly hold the freight monies in trust.
This newsletter is published to keep our clients and friends informed of new and important legal developments. It is intended for information purposes only and does not constitute legal advice. You should not act or fail to act on anything based on any of the material contained herein without first consulting with a lawyer. The reading, sending or receiving of information from or via the newsletter does not create a lawyer-client relationship. Unless otherwise noted, all content on this newsletter (the “Content”) including images, illustrations, designs, icons, photographs, and written and other materials are copyrights, trade-marks and/or other intellectual properties owned, controlled or licensed by Fernandes Hearn LLP. The Content may not be otherwise used, reproduced, broadcast, published,or retransmitted without the prior written permission of Fernandes Hearn LLP.
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