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LIENS - Moneys subject to statutory trust - Duties of trustee

Thursday, March 18, 2021 @ 6:19 AM  


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Application by the subcontractor Electro-Works for an order that the respondent law firm pay it $39,813 that the respondent received from its client, the general contractor, for legal fees and disbursements. The applicant provided electrical services for a construction project. The respondent represented the general contractor in a construction lien action against the owner of the project and defended the contractor in an action brought by the applicant for breach of trust under the Construction Lien Act. The contractor settled the lien action and the respondent deposited the settlement funds into its trust account. The respondent paid its legal fees from funds from the trust account. The contractor subsequently settled the trust action with the applicant. After it defaulted on the settlement, the applicant obtained a consent judgment. The contractor had since become bankrupt.

HELD: Application allowed. The money was impressed with a trust when the respondent received it. The respondent was in knowing receipt of trust funds. It received property subject to a trust and applied it to its own use and benefit. The contractor committed a breach of trust when it made the payment of legal fees out of the lien claim settlement funds. The respondent had knowledge of facts and circumstances sufficient to put a reasonable person on notice that the payment constituted trust funds for the benefit of those who provided improvements to the project. The respondent was to pay the money to the applicant on the basis it held the money as a constructive trustee.

Electro-Works Ltd. v. Fogler, Rubinoff LLP, [2021] O.J. No. 508, Ontario Superior Court of Justice, E. Papageorgiou J., January 26, 2021. Digest No. TLD-March152021007