The appellants, a secured creditor and an interim receiver, appealed a decision granting priority to carriers over funds collected by a bankrupt freight broker.
The broker had failed to maintain a separate trust account for carriers' charges as required by provincial regulation, instead co-mingled the funds while tracking them in an accounting system.
The Court of Appeal held that provincial statutory deemed trusts do not exclude property from a bankrupt estate unless they satisfy general trust principles, which require strict segregation.
Consequently, the co-mingled funds collected before the receivership lost their trust character and were subject to the secured creditor's interest.
However, the interim receiver was obligated to hold funds collected after its appointment in trust for the carriers.
