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Importance of builder liens, trusts both underscored in SCC decision

Thursday, October 01, 2015 @ 8:00 PM | By Cristin Schmitz

In its first construction lien ruling in years, the Supreme Court has ruled that unpaid subcontractors can seek compensation via builders’ liens and statutory trusts, and are not confined to pursuing just one of the statutory remedies at a time.

Justice Marshall Rothstein’s 7-0 ruling Sept. 18, in Stuart Olson Dominion Construction Ltd. v. Structal Heavy Steel [2015] S.C.J. No. 43, explains the interaction between the two statutory remedies provided by the Manitoba’s Builders’ Liens Act (BLA) to those who supply services or materials to a construction project.

Counsel said the judgment will apply in other provinces with similar trust and lien provisions to varying degrees, depending on the wording of their statutes.

The top court dismissed the appeal and arguments of the appellant Dominion. The general contractor argued that its filing of a lien bond as security for the full amount of the subcontractor Structal’s construction lien for work on a new University of Manitoba football stadium satisfied Dominion’s statutory trust obligations to Structal. Thus, Dominion was entitled to pay itself and other subcontractors the $4.2 million the stadium owner paid for Structal’s work — a position accepted by the Manitoba Court of Queen’s Bench in 2013, but overturned last year by the Manitoba Court of Appeal.

The Supreme Court affirmed the appeal court’s judgment.

“Registering a lien bond does not relieve a contractor of its trust obligations under the BLA,” Justice Rothstein ruled. “The BLA is silent as to how these provisions interact. However, the text and context of the provisions, as well as the history of the Act reveal that these are two separate remedies for unpaid persons who have done work, provided services or supplied materials for a construction project.”

Accordingly, he held, “an owner, contractor, or subcontractor who chooses to file a lien bond with the court instead of depositing the funds at issue must maintain the trust fund in addition to the bond.”

That is a very important message for contractors, said Kevin Williams of Winnipeg’s Taylor McCaffrey, who represented Structal along with Kyla Pederson.

Williams advised contractors that they “need to adhere to the provisions of the BLA strictly; that to the extent that there are monies that they have in their possession that are subject to the trust, that the provision of the lien bond doesn’t eliminate, or in any way reduce, their obligations pursuant to the Act to preserve the integrity of the trust; and that the lien bond does not stand as security for trust monies.”

He told The Lawyers Weekly, “Structal intends to pursue any remedies it has under the law, which would include payment of the monies which are the subject matter of the breach of trust, and/or any other penalties which could be imposed pursuant to s. 7 of our BLA.”

Notably, s. 7 makes it an offence for every person (and assenting or acquiescing corporate officer or director) to knowingly appropriate and convert any trust monies to his or her own use or any use unauthorized by the trust. If found guilty on summary conviction, a court can impose a fine of up to $50,000 and/or imprisonment of up to two years.

Toronto’s Thomas Heintzman, who writes about construction law, including the textbook Canadian Building Contracts, said the ruling will apply in most provinces, but how “will really be a question of interpreting the legislation, which we can’t absolutely foresee at this point.”

He noted that in some provinces such as Saskatchewan the lien claimant gets all the monies secured by the bond or monies paid into court, whereas in other provinces, such as Ontario, the lien holders share the monies. “That’s why it’s really important that the lien holders have claims to other monies [in trust], because they are not secure[d] entirely by the monies being placed into court or into a lien bond,” Heintzman said.

Dominion’s counsel declined comment.

The Manitoba Court of Appeal agreed with Structal last year that the BLA’s trust and lien provisions offer separate remedies and thus a lien bond does not relieve a contractor from its trust obligations. In accepting Dominion’s contrary view, the trial judge reasoned it would be “commercially unreasonable,” and contrary to the legislature’s intention, to require a general contractor to pay twice: once in vacating the lien, and again to secure its trust obligations.

However, Justice Rothstein explained that owners, contractors or subcontractors will never be required to pay twice. “To the extent that the lien and trust claims are for the same work, services or materials, payment under the trust will eliminate the equivalent amount payable to satisfy the lien claim.”

Moreover, a contractor can avoid double security by paying cash into court to cover the trust monies. Justice Rothstein explained the purpose of a lien is to create a charge against the land in favour of contractors, suppliers and workers who can prove their claims. The purpose of the statutory trust is to assure that money payable by owners, contractors and subcontractors flows with the contractual rights of those engaged in the building project, and that the money “is not diverted out of the proper pipeline.” Holding that a trust claim is extinguished by filing a lien bond would undermine that, he said.