B.C. Supreme Court holds non-trustee liable for pension losses

Julius Melnitzer | January 16, 2020

The British Columbia Supreme Court has found that an individual who was the “directing mind of a company,” but not a trustee of its pension plan, was personally liable for a contribution shortfall because he “knowingly assisted” the company in breaches of its fiduciary duties.

“The case is a heads-up, especially for small employers, to keep their accounts clean and pay their pension contributions in a timely fashion,” says Paul Litner, the chair of Osler Hoskin & Harcourt LLP’s pensions and benefits group.

The idea that a “stranger” to a trust can be held personally liable for assisting has been a part of Canadian law since 1993, when the Supreme Court of Canada established the principles governing the doctrine. But the jurisprudence on the subject has been sparse, so much so that Litner says the case, Trustees of the IWA v. Wade, is the first time he’s seen a breach of trust award against a non-trustee who was a stranger to the trust.

The lack of case law is somewhat surprising, given the relatively broad nature of the doctrine. “The doctrine applies to anyone who is responsible for handling trust funds even if the actions were taken on behalf of the company,” says Gordon Brandt, a partner at Lawson Lundell LLP and lawyer for the trustees of the Industrial, Wood and Allied Workers of Canada’s multi-employer pension and long-term disability plans.

What’s more, the stranger to the trust need not have benefitted personally in a financial sense to attract liability. “In this case, the defendant [Roger] Wade didn’t take any money for himself, but continued to authorize payments out of the company’s general account when he knew that it included trust funds,” says Brandt. “So by failing to keep the contributions in a separate trust account, he exposed them to creditors, and that in itself constitutes a breach of trust.”

What attracted the personal nature of the liability was the fact that Wade was the sole director, officer and shareholder of Log Transport, the offending company, for seven years before the company got into financial trouble. “He operated and controlled Log Transport from 2007 until November 2014,” noted Justice Marguerite Church in her reasons finding Wade liable in the sum of $16,529.95 to the trustees of the plans.

As Litner explains it, the company operated pretty much as a “sole proprietorship.” So while he may not have received a direct financial benefit — in the sense that the money in the general account was used for the benefit of the company — he did garner a tangible advantage, although there was no dispute that all his actions were taken on behalf of the company and not in a personal capacity.

“The breach prolonged the business operations of Log Transport, which was to the benefit of Mr. Wade as the sole shareholder,” wrote Church.

And while it’s unlikely that personal liability would attach in a large company where equity ownership and management are more diffuse, Brandt cautions that anyone handling or responsible for handling trust funds must be careful even if “egregious” conduct isn’t alleged.

“In the end, even non-trustees who control trust monies must make sure they are protected and remitted, even if their actions or omissions to the contrary are clearly on behalf of the company.”

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