Supreme Court of Canada Affirms Statutory Trust and Lien Protections for Subcontractors are Distinct and Complementary
October 26, 2015
The Supreme Court of Canada very rarely weighs in on the construction lien regime. However, on appeal from the Manitoba Court of Appeal in Stuart Olson Dominion Construction Co v Structal Heavy Steel (2015 SCC 43), a unanimous Supreme Court confirmed the power of two important statutory protections afforded to subcontractors in the construction industry, being the lien and the statutory trust.
The appellant, Stuart Olson (the “Contractor”) retained Structal Heavy Steel (the “Subcontractor”) to provide structural steel work for Investors Group Field, the new CFL Football stadium in Winnipeg. The Subcontractor was not paid for some of its work, and registered a lien against the property for $15,570,974.53. The Contractor vacated the lien by posting security into court in the form of a lien bond.
The Subcontractor also asserted that the Contractor was obligated to comply with the trust provisions of the Manitoba Builders’ Liens Act, which require that subcontractors and other workers employed by a contractor need to be paid before the contractor can appropriate any of the funds received on account of the contract for the contractor’s own use (see sections 4(1) and 4(3) of the Manitoba Act).
The Contractor denied it had trust obligations under the Manitoba Act as a result of having posted security into court to vacate the Subcontractor’s lien, and brought an application for a declaration to that effect.
The motion judge granted the Contractor’s application. However, that decision was overturned by the Court of Appeal for Manitoba, and the decision of the Court of Appeal was upheld by the Supreme Court of Canada.
Justice Rothstein wrote for a unanimous court, and found the bond posted by the Contractor to vacate the Subcontractor’s lien had nothing to do with the Contractor’s statutory trust obligations. His Honour observed that the security posted to vacate a lien stands in place of the land in securing the interests of the lien claimant, as opposed to representing some form of payment to the lien claimant.
His Honour also found that even though the funds sought under each remedy may be the same, the trust provisions of the Manitoba Act granted rights independent and separate from lien rights. Further His Honour noted that the trust provisions applied to all funds received by a contractor, whether or not a lien was available, or properly preserved.
Still further, the Court found the trust provisions of the statute applied to create a trust until all subcontractors had been paid all amounts owed to them and that the posting of a bond to stand in place of the land pending the determination of a lien action did not satisfy such requirements.
The Contractor argued that recognizing trust and lien rights contemporaneously required it to “double” secure the single amount sought by the Subcontractor. The Court rejected this argument, finding the Contractor was not required to do so, but in this case chose to, by posting a lien bond to vacate the lien. The Court took the view that if the trust funds themselves were posted as security to vacate a lien, a contractor would not need to hold separate cash security to satisfy its trust obligations.
Accordingly, the Contractor’s appeal was dismissed.
This decision deals with Manitoba legislation. While it may be unclear how it applies in other provinces, the similarities between the Manitoban statute and Ontario’s Construction Lien Act suggest it should have a very similar application in Ontario. In particular, in both provinces, the existence of a trust over all funds received by a contractor on account of the contract price continues until all subcontractors and other people who supply services or materials to an improvement are paid all amounts owed to them (see s. 4(3)(a) of the Manitoba Act and s. 8(2) of the Ontario Act).
While not ground-breaking, this decision should be seen as a victory for subcontractors, as it affirms the simultaneous right to secure the unpaid price of a contract through the mechanism of a lien, while still imposing a trust to all funds received by a contractor in respect of the project until the subcontractors, suppliers, and workers get paid for their work.
For contractors, the decision should serve as a reminder that trust obligations are not extinguished by a subcontractor commencing a lien action, or by a contractor posting security to vacate a lien. The decision also clearly sets out the route for securing a subcontractor claim that is being asserted by way of lien and trust without requiring “double” security is to post the trust funds themselves into Court to vacate the lien. This may raise practical challenges, as construction financing and lien litigation take place in “real time”: a contractor will not always be in possession of sufficient funds at the time it needs to post security to vacate a claim for lien. A solution in some cases will be to post non-cash security as needed, and replace the security with trust funds once the necessary funds are received and/or available. Of course, the appropriate solution will always depend on the circumstances in which the issues arise, and expert legal advice and assistance should be sought out to determine the most appropriate approach for each particular case.