Page ContentAfter a 32-day trial spanning several months during 2004 and 2005, the BC Supreme Court delivered an important decision on January 27, 2006, in Giles v. Westminster Savings Credit Union. The case analyzes the complex issues of fiduciary duty and trust law in the context of allegations of knowing assistance and knowing receipt directed at a financial institution. The case is instructive to underline the risks of accessory liability for breach of trust by the customer and the standards that delineate liability of an alleged accessory. The Giles action was initially commenced in August 2000 as a representative proceeding on behalf of approximately 500 investors, contemporaneous with the commencement of a parallel putative class action by a competing plaintiff group representing certain other investors. Following a carriage motion between the competing actions in August 2002, the class action was stayed and the Giles action was allowed to proceed to trial as an action on behalf of the individual plaintiffs that had advanced funds totalling in excess of $16 million to Ralph Taylor/TVL (TVL) in relation to TVL’s purchase and development of various properties around BC. The investors were promised a 20 per cent annual return, plus on completion, a share of the profits of the specific development as related to their investment. TVL operated one bank account at Westminster Savings Credit Union (WSCU) over a period of more than nine years. During that time, all funds received by TVL, including funds received from investors, were intermingled and deposited to and paid from that one account for all of TVL’s various property developments. WSCU’s account manager, Gary Thomas, had primary responsibility for the TVL relationship throughout these years, and personally loaned funds to TVL in breach of WSCU’s conflict rules. Over the period of several years, TVL sold/transferred some of its development properties to certain major investors, each of whom received mortgage financing for the acquisition with the assistance of Thomas at WSCU. The other TVL investors did not consent to the transactions and asserted that they were not aware of them and would not have invested with TVL had they known that TVL would mortgage the properties. In early 1998, TVL became insolvent, a receiver was appointed, and many of the investors lost all of their investments. The plaintiffs alleged that they advanced funds to TVL under general trust conditions, or alternatively under a “Quistclose” or Purpose Trust, and that Taylor had breached that trust. Alternatively, the plaintiffs alleged that they had a beneficial ownership of the lands, or that Ralph Taylor had breached of a fiduciary duty owed to the investors. The decision has valuable commentary on the subtle and complex points of law on each allegation and holds that while there was no trust of any kind established, the peculiar circumstances of the investor/developer relationship here placed Ralph Taylor as a fiduciary. The Court further found that the transfer by TVL to the nominees and the mortgage of those properties by the nominees to WSCU was a breach by Ralph Taylor/TVL of his fiduciary duties. The investors also alleged that WSCU and Thomas were liable for Taylor’s breach of trust or fiduciary duty on a theory of accessory liability, premised on either knowing assistance or knowing receipt. WSCU and Thomas successfully defended these claims on the basis that they did not have the requisite knowledge. In knowing assistance, the accessory must have actual knowledge of the existence of the trust or the status of the fiduciary and be willfully blind or reckless as to whether their participation in the transaction at issue amounts to a breach of the duties owed by the trustee/fiduciary. Constructive knowledge is not sufficient for liability. In contrast, to find an accessory liable in knowing receipt requires that the accessory received or applied trust property for its own benefit and that it did so with actual or constructive knowledge of the breach of trust. In addition to lack of requisite knowledge, the Court found that Thomas did not receive any trust property and that to the extent that WSCU received mortgage security over the lands at issue, WSCU had advanced new funds in support thereof and as such had a juristic reason for the receipt. Gary Thomas was represented by Ross McGowan and Liam O’Sullivan of Borden Ladner Gervais LLP.