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THE TRUSTEE - Breach of trust

Wednesday, August 18, 2021 @ 5:31 AM  

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Appeal by the defendant from summary judgment finding him liable for breach of trust. The appellant was the lawyer for Lynx Inc. Lynx agreed to loan the respondent money. The loan agreement required the respondent to pay a $30,000 deposit to Lynx’s lawyer in trust and on certain conditions. If the conditions were met, the amount was to be applied toward insurance costs. If not, it was refundable. The appellant was not a party to the loan agreement, was not involved whatsoever with the negotiation or drafting of the loan agreement and was not even aware of its existence until the respondent demanded the return of the deposit. The appellant received the funds without express notice from Lynx that they were impressed with a trust. When the conditions for the deposit were not met, the respondent sought the return of the deposit. The funds had already been transferred by the appellant into two accounts on Lynx’s instructions. The respondent then brought claims against Lynx and the appellant for breach of trust. Lynx failed to defend the action and default judgment was entered against it. The application judge concluded that the appellant was the respondent’s trustee. While the appellant never expressly agreed to become a trustee for the respondent, in the judge’s view, the surrounding circumstances made him so.

HELD: Appeal allowed. The circumstances in this case did not make the appellant the respondent’s trustee. A mere transfer of funds into the trust account of another party’s lawyer, without anything further, was insufficient to result in a finding that the lawyer was the transferor’s trustee. If the respondent expected the appellant to act as its trustee, it never sought his consent and he never expressly gave it. The appellant never acted for Lynx in the transaction and had no notice of the terms of the Agreement creating the trust in the money he paid out of his trust account. The mere fact that the funds were deposited into his trust account was not sufficient to impute knowledge to him that the funds were impressed with a trust, per the terms of the Agreement. The appellant could thus not be taken to have accepted the mantle of trustee, whether impliedly or as a trustee de son tort. There was also no factual basis to support a finding that the appellant assisted with knowledge, recklessness or willful blindness in a dishonest and fraudulent scheme on the part of his client.

Green Light Solutions Corp. v. Baker, [2021] B.C.J. No. 1567, British Columbia Court of Appeal, M.E. Saunders, P. Abrioux and P.G. Voith JJ.A., July 19, 2021. Digest No. TLD-August162021006