There has been much legal uncertainty in Canada regarding the best method for distributing commingled trust funds to beneficiaries where a shortfall occurred due to fraudulent misappropriation committed by the trustee or as a result of other operational risks. The case law in this area has been riddled with legal uncertainty. This article analyzes a series of dicta from the Ontario courts that have considered the relevant rules for the distribution of the remaining trust funds in these situations, with a focus on the Ontario Superior Court decision in Boughner et al. v. Greyhawk Equity Partners Limited Partnership (Millenium) et al. (2012). It observes that the judges have continuously muddled up the "Basic Pro Rata Approach" and the "Lowest Intermediate Balance Rule" because there has been a misunderstanding of how these rules operate in practice. Furthermore, it presents a logical method for insolvency administrators and the courts to determine which rule to apply in these situations. It argues that the intention of the beneficiaries should be the main factor determining the method of distribution to be applied.
|Banking and Finance Law Review
|Published - 2014