Does a general contractor have a duty to proactively disclose to subcontractors and suppliers that there is a labour and materials payment bond through which they may benefit? A recent case from Alberta had occasion to consider such an obligation.
In Valard Construction Ltd. v. Bird Construction Company, 2016 ABCA 249 (“Valard”), the majority of the Alberta Court of Appeal held that the general contractor does not have a duty to proactively disclose the existence of a labour and materials payment bond (“L&M Bond”). In dissenting reasons, one of the Justices of the Alberta Court of Appeal held that there was such a duty of proactive disclosure. Valard has appealed the decision to the Supreme Court of Canada, and a hearing of the appeal has been tentatively set for November 7, 2017.
Although Valard is an Alberta case and not technically binding on the Manitoba courts, this decision is of interest to the local construction industry for two main reasons:
- Both the majority and the dissent relied on legal principles that apply in Manitoba as well as Alberta legislation that is substantially similar to Manitoba legislation.
- The Supreme Court of Canada has determined that this case involves an issue of national importance and the learned justices of the Supreme Court may well find that, in Canadian law, there is a duty to proactively disclose the existence of an L&M Bond to anyone who might benefit from it. Notwithstanding that the appeal originated in Alberta, the recognition of such a duty by the Supreme Court of Canada would quickly be adopted and enforced by the courts of Manitoba.
The facts of Valard were relatively straightforward:
Bird Construction entered into a subcontract with Langford Electric for work to be performed at a project at its Fort McMurray oil sands site, and in turn Langford sub-subcontracted some of that work to Valard. It was a term of Bird’s subcontract with Langford that Langford would provide an L&M Bond, against which any of Langford’s sub-subcontractors and suppliers could claim. Langford arranged for the issuance of the appropriate bond and gave a copy to Bird.
In the course of completing its work under the sub-subcontract with Langford, Valard submitted a number of invoices which Langford did not pay. Some of the unpaid invoices related to unforeseen difficulties that were encountered, and Valard elected not to notify Bird or the project’s owner, Suncor, that Langford had not paid its accounts. It was not until approximately one year after it had left the project and obtained judgment against Langford that Valard inquired with Bird about the existence of an L&M Bond obtained by Langford. Bird promptly provided the L&M Bond to Valard, but Valard’s claim was denied for being submitted outside of the required period specified in the L&M Bond. Unable to collect from the bonding company or Langford, Valard sued Bird, alleging that Bird was liable to Valard for failing to inform it earlier about the existence of the L&M Bond.
Both the trial judge and the majority of the appeal judges agreed with Bird that there was no duty to disclose the existence of an L&M Bond until a request was received.
The majority of the Court of Appeal expressly found that, in Alberta, a contractor has no legal duty to inform potential beneficiaries of an L&M Bond as to the existence of the bond, unless and until a clear and unequivocal request for information about the bond is received. The majority also noted that the Alberta Builders’ Lien Act provides a method for potential claimants to make demands for information on contractors and other parties. Despite conceding that steps such as posting a copy of L&M Bonds in jobsite trailers would not be an onerous undertaking for contractors, the majority of the Court of Appeal noted that neither the common law nor the Alberta Builders’ Lien Act imposed such a duty.
In his reasons, the lone dissenting voice on the Court of Appeal held that a contractor such as Bird was obliged to take reasonable measures to make information about the L&M Bond available to as many of the potential beneficiaries of the bond as possible.
While not demanding that those measures ensure that all potential beneficiaries receive notice of the bond, the dissenting opinion held that steps such as posting the bond on the jobsite or modifying subcontracts to include an obligation on subcontractors to disclose the existence of L&M Bonds would satisfy this duty.
While the lien legislation of provinces such as Ontario and Saskatchewan contain provisions that may require an owner or contractor to explicitly disclose the existence of an L&M Bond, neither The Builders’ Liens Act of Manitoba nor the Alberta Builders’ Lien Act has such a provision. Currently, in Manitoba, a subcontractor or supplier beneficiary to an L&M Bond must either use the information request provisions of the Act to obtain a copy of the contract to reach its own conclusion as to whether there may be an L&M Bond in place for their work or, alternatively, not rely on the Act at all and make a direct request of the owner or contractor for that information.
It will be interesting to see whether the Supreme Court of Canada agrees with the majority or the dissenting opinion from the Alberta Court of Appeal in Valard and, should it find the existence of a duty to proactively disclose the existence of L&M Bonds, what guidance it provides about the measures the construction industry would be forced to take in order to meet such a new duty.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
Daryl A. Chicoine is a partner in the construction law practice area at MLT Aikins LLP. Reach him at firstname.lastname@example.org.