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1.INTRODUCTION
I previously argued in my article on "Demystifying the Lowest Intermediate Balance Rule: The Legal Principles Governing the Distribution of Funds to Beneficiaries of a Commingled Trust Account for which a Shortfall Exists"1 that
[t]here 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.2
I presented a logical method for insolvency administrators and the courts to determine which of the various distribution methods to apply in these situations. I argued that the intention of the beneficiaries should be the main factor determining the method of distribution to be applied.
[T]he insolvency administrators and judges should first consider the express or implied intention of the beneficiaries when deciding which method of distribution to apply. The express intention can be determined from the oral or written contractual dealings between the trustee and the beneficiaries. Alternatively, the implied intention can be ascertained from the previous business dealings between the trustee and the beneficiaries, or if the beneficiaries can demonstrate that the trustee has adhered to a particular custom or practice for holding beneficiary funds.
It is argued that the "Lowest Intermediate Balance Rule" ("LIBR") should be applied in cases where the parties intended to fully or legally segregate their funds. Furthermore, the "basic pro rata approach" should be applied in cases where they intended to hold their funds as co-owners in a commingled account. The pro rata approach can also be applied as a default rule in situations where it is operationally too complicated to apply LIBR.
Where the express or implied intention of the beneficiaries remains unclear, the presumption is that the beneficiaries intended to segregate their funds from each other and to distribute them using LIBR. This presumption is justified as a general rule, since it would be irrational to presume that the beneficiaries would consent to sharing co-ownership risks with the other beneficiaries without being informed.3
This case comment analyzes the Alberta cases of Easy Loan Corp. v. Base Mortgage & Investments Ltd., 2016,4 and Easy Loan Corp. v. Wiseman, 2017,5 where the...