Canada: Can A Lien Bond Satisfy A General Contractor's Trust Obligations? An Analysis Of The Recent Stuart Olson Dominion Construction Ltd v Structal Heavy Steel Decision

Introduction

The Supreme Court of Canada's ("SCC") recent decision in Stuart Olson Dominion Construction Ltd v Structal Heavy Steel¹ ("Stuart Olson") has important implications for the construction industry. In Stuart Olson, the SCC considered whether an unpaid subcontractor had valid and distinct claims against a general contractor under both the statutory trust and construction lien of Manitoba's Builders' Liens Act ("Manitoba BLA")².

Facts

Stuart Olsen Dominion Construction Ltd. ("Dominion") was the general contractor for the construction of a stadium at the University of Manitoba. Dominion entered into a subcontract with Structal Heavy Steel ("Structal") for the supply and installation of steel for the stadium.

In April 2012, Dominion began withholding Structal's payments, originally stating it was because the owner was late in paying but later saying that it was due to delays attributable to Structal. As a result, Structal registered a builder's lien against the property for over $15 million. In response, Dominion filed a lien bond for the full amount in the Manitoba Court.

Structal accepted the bond and vacated its lien on the property. However, Structal claimed that any further payments made to Dominion by the owner were still subject to the statutory trust provisions under the Manitoba BLA and Dominion could not use the money until it paid Structal.  In the Manitoba BLA, the trust provisions require a general contractor to hold any money it receives from the owner in trust for unpaid sub-contractors until all sub-contractors are paid.³

Dominion submitted that because the lien bond fully secured any amount unpaid to Structal, Dominion did not have to hold the money in trust and make payments to Structal. They also submitted that Structal's approach would require them to pay twice. The owner of the property, at Structal's request, withheld over $3 million because of Dominion's alleged violation of the trust provisions of the Manitoba BLA. Dominion applied to the court for a declaration that the lien bond satisfied the Manitoba BLA's trust conditions. Structal sought its own declaration requiring full-payment, without deduction or set-off, once the owner paid Dominion.

The issue was whether the lien bond satisfied Dominion's requirements under the trust provisions of the Manitoba BLA.

Do Lien Bonds Satisfy a General Contractor's Trust Obligations?

The SCC noted that the trust and lien provisions of the Manitoba BLA are separate remedies.⁴ The SCC distinguished the two remedies by noting that the statutory trust is much broader, applying not only to subcontractors, but also to the Workers Compensation Board, workers employed by the general contractor, and the owner for any set-off or counterclaim.⁵ Similarly, the SCC had distinguished between the application of liens and trust provisions in a previous decision,⁶ and the Manitoba BLA itself recognized that the two remedies were distinct by expressly allowing a trust claim to be joined with a lien claim.⁷ However, the legislation did not explain how these two remedies are to interact if a subcontractor claimed both at the same time. The SCC concluded that Structal had access to both remedies.

In other words, filing a lien bond has no effect on the application of the statutory trust.⁸ The purpose of the trust provisions is to ensure that the flow of money is not improperly diverted. If Dominion could satisfy the trust provisions through a lien bond, then the purpose of the trust would be compromised,⁹ because a lien bond does not pay the subcontractor, it only secures the subcontractor's lien claim. Similarly, if the lien was found invalid for any other reason, including being registered too late, the subcontractor would lose all security. Filing a lien bond does not control the general contractor's use of money received and therefore a lien bond does not accomplish the purpose of the statutory trust.

The SCC also rejected Dominion's submission that if the lien bond did not satisfy the trust provisions, then general contractors would essentially have to pay twice for the same services. Instead, the SCC found that paying the statutory trust funds to the court to vacate the lien would avoid any risk of double payment. Using the trust funds in this way is not an improper diversion; if the lien fails, then this money will remain in trust for the subcontractor, subject to the subcontractor proving the value of the work performed.¹⁰

Practical Implications in Alberta

This decision was based on the language of the Manitoba BLA; therefore it may apply differently in Alberta. The Alberta Builders' Lien Act¹¹ contains its own trust and lien provisions. In Alberta, a statutory trust is only created after a certificate of substantial performance has been issued.¹² Therefore, general contractors only have trust obligations over money they receive after a certificate of substantial performance has been issued. As a result, subcontractors will not as frequently be able to make the statutory trust and lien claims as in Manitoba. As well, general contractors can still post lien bonds to satisfy builder's liens before the certificate of substantial completion is issued.

However, general contractors who are faced with a lien registered after substantial completion have two options: first, they can file a lien bond and continue to hold owner-received funds in trust, or, they can pay the funds held in trust into the court to satisfy the lien and trust claim. The second option avoids the issue of the general contractor requiring double security for the same services. However, it will create cash flow issues, because general contractors will no longer have access to the money paid into court, which they could have if only a lien bond was required.

For a lienholder, the importance of Stuart Olson is that they should include both a lien claim and a statutory trust claim in their pleadings if they are unpaid after a certificate of substantial completion has been issued. Importantly, subcontractors can make claims under the trust provisions even after the period to register a lien has expired or if services were provided before substantial completion, but paid by the owner after substantial completion.

Footnotes

1 Stuart Olson Dominion Construction Ltd v Structal Heavy Steel, 2015 SCC 43 [Stuart Olson].

2 Builders' Liens Act, CCSM c B91 [Manitoba BLA].

3 Manitoba BLA at s 4(1).

4 Stuart Olson at para 32.

5 Stuart Olson at para 32.

6 Stuart Olson at para 36.

7 Manitoba BLA at s 66.

8 Stuart Olson at para 39.

9 Stuart Olson at para 41.

10 Stuart Olson at para 46.

11 Builders' Lien Act, RSA 2000 c B-7 [Alberta BLA].

12 Alberta BLA at s 22(1).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.