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
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
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