Breach of Trust as Cause of Action

Contractor’s and subcontractor’s trust

Amounts received a trust

8 (1) All amounts,

(a)  owing to a contractor or subcontractor, whether or not due or payable; or

(b)  received by a contractor or subcontractor,

on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor.

Obligations as trustee

(2) The contractor or subcontractor is the trustee of the trust fund created by subsection (1) and the contractor or subcontractor shall not appropriate or convert any part of the fund to the contractor’s or subcontractor’s own use or to any use inconsistent with the trust until all subcontractors and other persons who supply services or materials to the improvement are paid all amounts related to the improvement owed to them by the contractor or subcontractor.

Contractor’s, subcontractor’s duties re trust funds

8.1 (1) Every person who is a trustee under section 8 shall comply with the following requirements respecting the trust funds of which he or she is trustee:

1.  The trust funds shall be deposited into a bank account in the trustee’s name. If there is more than one trustee of the trust funds, the funds shall be deposited into a bank account in all of the trustees’ names.

2.  The trustee shall maintain written records respecting the trust funds, detailing the amounts that are received into and paid out of the funds, any transfers made for the purposes of the trust, and any other prescribed information.

3.  If the person is a trustee of more than one trust under section 8, the trust funds may be deposited together into a single bank account, as long as the trustee maintains the records required under paragraph 2 separately in respect of each trust.

Multiple trust funds in single account

(2) Trust funds from separate trusts that are deposited together into a single bank account in accordance with subsection (1) are deemed to be traceable, and the depositing of trust funds in accordance with that subsection does not constitute a breach of trust.

Liability for breach of trust

By corporation

13 (1) In addition to the persons who are otherwise liable in an action for breach of trust under this Part,

(a)  every director or officer of a corporation; and

(b)  any person, including an employee or agent of the corporation, who has effective control of a corporation or its relevant activities,

who assents to, or acquiesces in, conduct that he or she knows or reasonably ought to know amounts to breach of trust by the corporation is liable for the breach of trust.

Effective control of corporation

(2) The question of whether a person has effective control of a corporation or its relevant activities is one of fact and in determining this the court may disregard the form of any transaction and the separate corporate existence of any participant.

Joint and several liability

(3) Where more than one person is found liable or has admitted liability for a particular breach of trust under this Part, those persons are jointly and severally liable.

Contribution

(4) A person who is found liable, or who has admitted liability, for a particular breach of a trust under this Part is entitled to recover contribution from any other person also liable for the breach in such amount as will result in equal contribution by all parties liable for the breach unless the court considers such apportionment would not be fair and, in that case, the court may direct such contribution or indemnity as the court considers appropriate in the circumstances.

[61]  The plaintiffs submitted that Andrew should be held jointly liable with Par-Tek for any money Par-Tek is required to return to the plaintiffs.

[62]  Pursuant to section 13 of the CLA Andrew, as the officer and director of Par-Tek had effective control of Par-Tek at all material times and is therefore personally liable for breach of trust provisions by Par-Tek.

[63]  The defendants have produced no evidence that they held the $15,000 in a separate trust account as they are obligated to under the law.  In fact, Andrew admitted during cross-examination that he deposited the $15,000 payment into his general account and became comingled with his general funds.  The money paid by the plaintiffs to the defendants constituted a trust pursuant to section 13 of the CLA.

[64]  By virtue of section 13 of the CLA, I find that Andrew is personally liable jointly with Par-Tek of its breach of the trust provisions under section 8 of the CLA.