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TRUSTS - Express trusts - Notice of - Breach of trust - Duty to provide information

Thursday, February 15, 2018 @ 12:58 PM  

Lexis Advance® Quicklaw®
Appeal from a judgment of the Alberta Court of Appeal that affirmed a decision concluding that Bird Construction Co. (Bird) had no duty to disclose the existence of a trust contained in a labour and material payment bond to Valard Construction Ltd. (Valard). Bird, a general contractor for a construction project, subcontracted with Langford Electric Ltd. for certain electrical work. As required by its contract with Bird, Langford obtained a labour and material payment bond. The bond allowed for a “beneficiary”, being a provider of labour or materials who had not received payment from Langford within 90 days of the last day upon which it provided labour or materials, to sue the bond company on the bond for that unpaid sum. Langford contracted with Valard to provide directional drilling work on the construction project. During Valard’s work and the ensuing 120-day notice period, neither Bird nor anyone on its behalf notified Valard of the bond’s existence. Valard was, therefore, unaware of the bond throughout the entire window of time during which it could have benefitted from it. Some of Valard’s invoices went unpaid by Langford. Approximately seven months after the 120-day notice period had expired, Valard’s project manager learned that a labour and material payment bond had been obtained for the project on which Valard had not been paid. Valard filed a claim with the bond company for the full amount of the bond. The bond company denied Valard’s claim, citing Valard’s failure to give timely notice. Valard sued Bird for breach of trust, alleging that it had breached its duty as a trustee to inform the bond beneficiaries of the existence of the bond. The trial judge dismissed Valard’s action, finding Bird owed no duty to notify Valard of the existence of the bond. A majority at the Alberta Court of Appeal dismissed Valard’s appeal.

HELD: Appeal allowed. The bond did not expressly impose a duty on Bird as trustee to protect the interests of beneficiaries by, for example, disclosing the bond’s existence to them. The absence of an express term imposing a duty on Bird to disclose the trust’s existence was not, however, fatal to Valard’s appeal. Valard was unreasonably disadvantaged by Bird’s failure to inform it of the trust’s existence. Valard required knowledge of the trust in order to enforce it. The expiry of the 120-day notice period before Valard learned of the bond effectively prevented it from enforcing the trust by making a claim against the bond company and recovering sums owed under its contract with Langford. Bird, as trustee, had a duty to disclose the bond’s existence to Valard. The standard imposed on trustees in respect of the duty to disclose the trust’s existence was that of honesty, and reasonable skill and prudence. Bird could have satisfied its duty to inform beneficiaries of the trust by posting a notice of the bond in its on-site trailer. This would have provided a significant portion of potential beneficiaries with notice of the bond’s existence. Instead, Bird did nothing. In the circumstances of this appeal, where the evidence was that labour and material payment bonds were uncommon, something more than nothing was required from Bird to discharge its duty. Bird therefore committed a breach of trust. Valard was entitled to be compensated for the sum that it could have obtained under the terms of the trust had it been aware of its right to claim thereunder. The matter of quantum of damages was remitted to the trial judge for adjudication.

Valard Construction Ltd. v. Bird Construction Co., [2018] S.C.J. No. 8, Supreme Court of Canada, B. McLachlin C.J. and R.S. Abella, M.J. Moldaver, A. Karakatsanis, S. Côté, R. Brown and M. Rowe JJ., February 15, 2018. Digest No. TLD-Feb122018011SCC