Many owners, particularly large corporations or public entities,
require contractors to provide a labour and material payment bond
to ensure that sub-trades are paid and (hopefully) avoid protracted
payment disputes. A typical labour and material bond creates a
tri-partite relationship among the principal (the contractor who is
being bonded), the surety (the bonding company) and the trustee or
obligee (typically the owner or head contractor). Any party with a
direct contract with the principal may make a claim against the
bond; however, most standard bond forms have very strict notice
requirements and very strict time limits for submitting notice of a
claim and (if necessary) commencing an action to enforce the claim.
If these procedures are not complied with, the right to claim under
the bond will be lost.
One question that often arises in this context is whether the
trustee under the bond has any duty to advise sub-contractors of
the bond's existence. In its recent decision in Valard
Construction Ltd. v. Bird Construction Co.,1 the
Alberta Court of Queen's Bench answered this question with a
The facts of the case were relatively straightforward. Bird
Construction Co. was the general contractor on a project in Alberta
and entered into an electrical subcontract with Langford Electric
Ltd. Langford's subcontract with Bird required it to obtain a
labour and material payment bond. The bond was issued by the
Guarantee Company of North America with Langford as the principal
and Bird as the trustee. Langford then entered into a further
sub-contract with the Plaintiff, Valard Construction Ltd.
Valard was not fully paid by Langford, so it sued Langford and
obtained a default judgment. Valard then asked Bird whether there
was a labour and material bond and Bird confirmed that there was.
However, Valard's claim on the bond was denied because it had
not complied with the notice requirements in the bond. Valard sued
on the bond, but also added Bird as a defendant, claiming that Bird
had a fiduciary duty to inform it of the existence of the bond in a
timely manner. Bird denied that it had any duty to take the
initiative to advise Valard as to the bond's existence.
Valard argued that Bird's fiduciary duty as trustee under
the bond included a positive obligation to inform potential
claimants that a bond existed, and noted that Bird could have
easily discharged this obligation by taking steps such as posting a
copy of the bond at the site, providing copies at project meetings,
or including a term in its contract with Langford to oblige
Langford to inform its sub-trades as to the existence of the
Justice Verville of the Alberta Court of Queen's Bench
disagreed with Valard's position. He found that the trust
wording in the bond making Bird the nominal trustee of the bond,
was really a procedural convenience intended to permit claimants to
sue the surety directly, and did not create a substantive duty on
the part of the trustee to take positive steps to protect the
interests of potential claimants. He also found that Valard was a
large and sophisticated company that must have been familiar with
the use of bonds and ought to have had standard procedures in place
to request bond information on all subcontracts. He noted that Bird
had readily revealed the bond's existence when asked, and
concluded that Valard simply ought to have asked sooner.
While the result in this case may depend somewhat on the finding
that the claimant was a "large and sophisticated entity"
and thus ought to have known better, the safest course is always to
ask for bond information at the commencement of the project, or
indeed even during the bid stage. It is clear from the result in
Valard Construction that the courts will be very hesitant
to impose any positive obligations on bond trustees to take any
positive steps to look out for the interests of potential bond
claimants. Given the strict timelines and notice requirements that
apply to claims under bonds, it is good practice to have all bond
information available before any problems develop, rather than
waiting until it becomes necessary to submit a claim. When in
doubt, it cannot hurt to ask.
1 2015 ABQB 141.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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