“Personal Responsibility of Directors of Defunct Load Broker for Unpaid Freight Bills”.

Almost every trucking company faced the situation when a load broker who hired a company seized its operation without paying freight bills.  A carrier should to be aware of the trust provisions imposed on load brokers in Ontario.

The recent case Tripar Transportation LP vs. U.S. Consolidators Inc. is a good illustration of how the trust requirement can be used against unscrupulous brokers that became inactive or insolvent  in order to collect unpaid freight bills.

In this case a carrier sued a load broker and its three directors for unpaid freight bills.  The directors denied personal responsibility as the broker was an incorporated company.

The claimant relied on the precedent in Air Canada v. M&L Travel Ltd., where the judge held that directors and officers of the corporation can be held personally liable for the corporation’s breach of trust where they either knowingly directed or assisted in the corporation’s breach of trust.

At trial, the judge agreed with counsel for Tripar’s submissions and held that the corporate broker committed a breach of the s. 191.0.1(3) of the Ontario Highway Traffic Act trust provision. The broker had admitted at trial that the work was performed and invoiced by the carrier, monies were received from the various shippers and deposited into a general account, but that other creditors of the corporation (hydro, payroll, rent, etc.) were paid before the carrier. The simple fact of depositing funds into a general account and not into a specifically constituted trust account was itself a breach of trust, as was dispersal of the trust funds to entities other than the beneficiary (i.e. paying the other creditors and not the carrier with funds received from the shippers in payment of the carrier’s freight charges). The broker had subsequently become insolvent and therefore no assets or monies were available to satisfy any judgment for the unpaid invoices.

The judge also agreed with Tripar’s argument that the corporate directors and officers “knowingly assisted” the corporation in its breach of trust, although only for two of the three directors. To prove “knowing assistance”, the directors and officers must have actual knowledge (or be reckless or wilfully blind) of the corporation’s breach of trust and that the disbursal of trust funds is in breach of trust. If the trust is imposed by statute (as it was in this case, as per s. 191.0.1(3) of the Highway Traffic Act), then the person will be deemed to have knowledge of it, as persons are deemed to have knowledge of the law.

The court agreed with carrier’s position and imposed personal liability on directors for the broker corporation’s breach of the Highway Traffic Act requirement to hold funds paid by shippers to it in trust for the carrier.