Law Times

Page 12 January 18, 2016 • Law Times www.lawtimesnews.com FOCUS Trust exists despite bond posting SCC decision in builders' lien proves cash is king BY MARG. BRUINEMAN For Law Times T he Supreme Court of Canada has made a clear distinction between lien rights and trust rights in deciding that a contractor did not completely satisfy its obli- gations by filing a lien bond in court in an attempt to vacate a builder's lien. The decision in Stuart Olson Dominion Construction Ltd. v. Structal Heavy Steel, 2015 SCC 43 involved a subcontractor's lien against the land upon which the construction work was being done. Chad Kopach, who practises construction law and commer- cial litigation with Blaney Mc- Murtry LLP, says the decision addresses the interplay between the two Construction Lien Act remedies available to an unpaid supplier on a construction proj- ect: the claim for lien and the claim for breach of trust. And although Stuart Olson is a Manitoba case, it makes a distinction that is important in Ontario. In a situation that sees some- one posting bond security to vacate a lien from title instead of cash as security, he is not relieved from his trust obligations and must continue to hold cash to satisfy his trust obligations. "It's a bit of a double whammy if they chose the bond route," says Kopach. In December 2010, Domin- ion Construction Company Inc., now known as Stuart Olson Do- minion Construction Ltd., was hired as general contractor for the construction of a new football stadium at the University of Man- itoba. Dominion then entered into a subcontract with Structal Heavy Steel under which Structal would supply and install steel for the structure, roof, bleachers, and wall of the stadium. Within the year, Dominion withheld payment from Struc- tal, originally citing the owner's delay in paying Dominion, and the subcontractor issued a $15- million builder's lien against the property upon which the con- struction was being done. Do- minion filed a lien bond in the full amount of the builder's lien in court. But Structal also claimed that, until it was paid for its work, any money Dominion received from the owner was subject to a statu- tory trust in Structal's favour. Dominion argued the lien bond excused it from Manitoba's trust provisions. The motions court found that the trust obligations owed to the lien claimant were extinguished after the lien claim was bonded off. But the Manitoba Court of Appeal overturned that decision and concluded that subcontrac- tors have the right to the statuto- ry trust as well as the right to file a lien claim against the property, beyond the common law right to sue for breach of contract. A lien claim is meant to create a charge against the land to allow unpaid contractors, suppliers, and workers who can prove their claims to collect some of its debt from the sale of the land. A claim for breach of trust allows subcon- tractors, workers employed by the contractor, and other benefi- ciaries to be paid before an owner or contractor can appropriate trust funds for his or her own use. The Supreme Court of Can- ada upheld the appellate court's decision, finding that the lien and trust provisions are sepa- rate, independent remedies that may be pursued concurrently. So when a bond is posted as security for a lien claim, the trust obliga- tions are not discharged and the money has to continue to be held in trust for the claimant. The high court determined that bonding off a lien wouldn't discharge trust obligations, be- cause if the lien claim failed, there would be no trust funds left for the supplier to access. "If Dominion were correct that the mere filing of the lien bond extinguished a contrac- tor's or owner's trust obligations, enabling the owner or contractor to appropriate the trust funds for his or her own use, the claimant would be left with no lien claim and no trust monies if the lien claim failed. Such interruption of the f low of funds down the so-called construction pyramid, from the owner to the contractor, to each subcontractor and sup- plier, is the very problem that the trust provisions were designed to address," the Supreme Court found in the unanimous deci- sion delivered by Justice Marshall Rothstein in September, prior to retiring from the high court. The net result is a gain for unpaid subcontractors, say researchers Scott Bower and Christopher Petrucci, both commercial litigators with Ben- nett Jones LLP in Calgary, be- cause the judgment opens the duo remedy of a builder's lien and trust to subcontractors. In Alberta — even though the trust requirement isn't the same as in Manitoba — this decision has created a great deal of excite- ment in the construction indus- try there, they say. Petrucci, whose practice has a specific focus on construction litigation, says the decision gives subcontractors a remedy with teeth, proving cash is king. "It's not good for construc- tion companies," adds Bower. "It's another point of business that they're going to have to deal with." Construction companies may well feel restricted as a result. By providing money to the court, they're reducing the cash f low they're using for their business. Petrucci believes this could well impact the surety industry as well and lead them to develop different products to satisfy the demands of the courts. Michael Morgan, a construc- tion and real estate litigator and partner with Vancouver's Lawson Lundell LLP, sees the Supreme Court providing some clarifica- tion of contractors' rights under builders' lien legislation with its decision. He says the decision provides some clarification and will no doubt have an important procedural impact on how liens ought to be discharged during the currency of a project where the claim is disputed. "I think the decision is impor- tant because it may impact the procedure for how the liens are go- ing to be dealt with while the proj- ect is still ongoing," Morgan says. There's often an urgency as- sociated with how to deal with a lien so the project can continue, so the decision will impact those in the industry on how they will move forward. Contractors and owners, he adds, may need to consider post- ing cash as security instead of a lien bond in these types of situations in order to vacate a lien claim. Most provinces provide for a dual remedy to deal with build- ers' liens and construction liens, even though the wording differs from province to province. So the high court's decision will impact the interpretation of the relevant legislation, Morgan says. LT Michael Morgan says the decision could impact the procedure for dealing with liens. REACH ONE OF THE LARGEST LEGAL AND BUSINESS MARKETS IN CANADA! AVAILABLE ONLINE AND IN PRINT 8JUINPSFUIBOQBHFWJFXTBOEVOJRVF WJTJUPSTNPOUIMZDBOBEJBOMBXMJTUDPNDBQUVSFTZPVSNBSLFU FOR MORE INFORMATION CONTACT Colleen Austin T: 416.649.9327 | E: colleen.austin@thomsonreuters.com www.canadianlawlist.com Get noticed by the lawyers, judges, corporate counsel, finance professionals and other blue chip cilents and prospects who find the contacts they need for Canadian legal expertise at canadianlawlist.com with an annual Gold or Silver Enhanced listing package. ENCHANCE YOUR LISTING TODAY! 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