by Michael F. Smith*

Carriers doing business in Ontario should be aware of the Load Brokers Regulationⁱ. The regulation, created in 1992, ensures that carriers will be paid for services provided to (or through) load brokers.

The chief mechanism by which the Load Brokers Regulation ensures payment is by the creation of a statutory trust: payments received by brokers from consignors and consignees are deemed to be held in trust for the benefit of the carriers to whom the broker is liableⁱⁱ. The broker is required by the regulation to promptly deposit such payments (that is, the portion due to the carrier) into a separate bank trust account to be paid out only to the carriers who provided the services in respect of which the payments were madeⁱⁱⁱ. The strength and importance of the statutory trust was recently highlighted in GMAC Commercial Credit Corp. - Canada v TCT Logistics Inc^iv.

When TCT went into receivership the carriers owed money by TCT as a result of its brokerage business (Tri-Line Logistics) claimed priority over the secured creditor (GMAC) in respect of the receivables of TCT's brokerage division. The court sided with the carriers, affirming the statutory trust even though TCT had not maintained any separate trust account. The court reasoned that the statutory trust survived the receivership because section 67 (1) (a) of the Bankruptcy and Insolvency Act^v, which has the effect of vacating similar trusts in favour of Her Majesty the Queen (i.e., the federal and provincial governments), does not apply to the trust created by the Load Brokers Regulation.

      Argument in the case before Greer, J., focused particularly on whether TCT's actual operations provided the "three certainties" traditionally regarded as essential to the creation of a trust. However, the court adopted the reasoning of Borins, J. A., in Ward-Price v Mariners Haven Inc.^vi, a case involving the statutory trust created by the Condominium Act.^vii

      Although it may be argued that this trust lacks, in some       respects, the three certainties of intention, object and       subject-matter this does not effect its essential character as       a trust. As McLachlin, J., pointed out in British Columbia v       Henfrey Samson Blair Ltd. [1989] 2 S.C.R. 24 at p. 35, 59       D.L.R. (4th) 726, at p. 742: "the provinces may define "trust"       as they choose for matters within their own legislative       competence....."

The Load Brokers Regulation also requires that every broker post a surety bond of $10,000 with the Ministry of Transport. The bond is available to carriers which have unpaid judgments against the broker or a proven claim in the bankruptcy of the broker.^viii If such judgments or claims, in total, exceed the $10,000 bond, the proceeds of the bond are distributed pro rata.

*Bennett Best Burn LLP, Toronto, Ontario

An interesting application of the statutory trust arguably arises in the case where as insolvent broker, usually a limited liability company, has failed to maintain the separate trust account and records required by the regulation. In theory, the court, acting pursuant to the Ontario Business Corporations Act^ix, may impose a personal liability on corporate directors who have permitted a company to carry on business in a manner that unfairly disregards the interest of creditors.^x It is obvious that a brokerage which completely ignores its duties under the Load Brokers Regulation is disregarding the interest of its carrier-creditors who are entitled to rely on the regulation being observed by brokers, particularly registered brokers, ^xi with which they do business. ^xii

Sometimes the secured creditor imposing receivership on a brokerage is closely related to the principle owner(s) of the brokerage. Indeed, the insolvent brokerage may disappear in the receivership while its business operations continue under the same management and staff and, ultimately, for the benefit of the same individuals. Meanwhile, the carriers' outstanding invoices become worthless, chiefly because of the brokers failure to maintain separate trust funds.

It is submitted that the oppression remedies^xiii provided by the Ontario Business Corporations Act coupled with the trust and record-keeping^xiv requirements of the Load Brokers Regulation permit the court to impose personal liability on directors to pay carrier claims. Directors unwilling to test this theory in court have been known to contribute their own money toward the settlement of carrier claims. Whether such payments might properly be indemnified through Directors Liability Insurance remains to be seen. ^xv

Brokers would be well advised to confirm that their daily business routines fully implement the requirements of the Load Brokers Regulation.

i. O.Reg. 556/92 under the Truck Transportation Act R.S.O. 1990, c.T. 22

ii. O.Reg. 556/92, s. 15 (1)

iii. Ibid., s. 15 (2)

iv. (2002) 61 O.R. (3d) 85

v. R.S.C. 1985, c. B-3

vi. (2001) 57 O.R. (3d) 310 (Ont. C.A.)

vii. R.S.O. 1990, c. 84

viii. O.Reg 556/92, s. 14

ix. R.S.O. 1990, c. B. 16

x. Ibid, s. 248

xi. It is worth noting that 'broker' is defined by the regulation as "a person who arranges, for compensation, for goods owned by one person to be carried by another person who is a carrier" and is not restricted to registered brokers.

xii. Peoples Department Stores Inc. (trustee of) v Wise [2003] Q.J. No. 505 (C.A.) (Q.L.), a decision heralded as decisively limiting directors liability to creditors. The Quebec Court of Appeal held that, generally, directors are not personally liable to third parties (e.g. creditors) except in specific cases such as when under specific statutory duty or in cases of fraud. [italics added]

xiii. Ibid, s. 248 (3)

xiv. O.Reg 556/92, s. 16

xv. The Ontario Business Corporations Act, R.S.O. 1990, c. B. 16, s. 136 permits the indemnification of a director if he or she acted honestly and in good faith with a view to the best interests of the corporation.

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Michael F. Smith


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