This post was written prior to our January 2017 merger, under our previous firm name, Aikins, MacAulay & Thorvaldson LLP.
A common misunderstanding of Manitoba’s The Builders’ Liens Act (BLA) is that it provides only one remedy to unpaid contractors, subcontractors and suppliers, namely the right to file a Builders’ Lien.
While a claim for Builders’ Lien is certainly the most common remedy exercised by unpaid persons involved in the construction industry, the BLA has another less used remedy available for special circumstances: the action for breach of trust.
The nature of the claim for breach of trust is relatively simple: all of the funds that have been allocated by an Owner for a specific project/improvement, including the statutory holdback, are impressed with a statutory trust for the benefit of all those persons who have supplied services, equipment and materials to that project or improvement (the “Beneficiaries of the Trust”). Those funds remain trust funds in the hands of every person to whom they are paid and cannot rightfully be applied to the payee’s own use unless and until they have, in turn, paid the amounts properly owing to the appropriate Beneficiaries of the Trust.
In the recent case of Stuart Olson Dominion Construction Ltd. v. Structal Heavy Steel, the Supreme Court of Canada confirmed that the lien remedy and the trust remedy under the BLA, while necessarily related due to their arising out of the same project or improvement, are distinct and separate remedies. In this case, Stuart Olson Dominion Construction Ltd. (SODCL), as general contractor for the Investors Group Field stadium project, posted a $15.57 million lien bond to obtain an order removing the lien claim of Structal Heavy Steel (“Structal”) from the project lands. Structal asserted that SODCL’s refusal to make further payments to Structal was a breach of trust under the BLA, which led to the Owner withholding further advances to SODCL. SOCCL then brought an application to the Court of Queen’s Bench for a declaration that the posting of the lien bond satisfied SODCL’s trust obligations to Structal. While the Court of Queen’s Bench agreed with SODCL, the Court of Appeal agreed with Structal that the lien and trust remedies were separate, with the result being that the lien bond did not discharge SODCL’s trust obligations to Structal.
In a unanimous decision, Canada’s top court agreed with the Manitoba Court of Appeal and, in its reasons for decision, laid to rest any suggestion that the posting of alternate security to obtain an order removing a lien from property also stands as security for any potential breach of trust claims that may arise out of the project or improvement that was the subject of the registered lien claim. As noted by the Court, a lien bond only secures a contractor’s lien claim – it does not extinguish the owner’s or contractor’s obligations under the statutory trust created by the BLA.
What does this mean for contractors and owners?
Fortunately, the Court’s decision merely confirms the separate but distinct nature of the two remedies – it does not create or take away any remedies that had been available to either side of the BLA equation to date. Further, the court provides confirmation to the construction industry that, notwithstanding the relatively ready availability of lien bonds, the only security that will provide an owner or contractor with protection from potential breach of trust claims while, at the same time operating as alternate security for a lien claim, is cash.
This article was originally published in Upword, Issue 4, Edition 2015.
Daryl Chicoine is a partner in the Construction Law Practice Group at Aikins Law. Reach him at email@example.com
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.