Labour and material payment bonds (L&M Bonds) serve an
important purpose on a construction project by providing security
for subcontractors and suppliers and by reducing the risk of
In Valard Construction Ltd v Bird Construction
Company, 2016 ABCA 249 [Valard], a
majority of the Alberta Court of Appeal confirmed that, unless
asked, an owner/trustee under an L&M Bond has no duty to
disclose its existence to subcontractors or suppliers.
In Valard, the respondent, Bird Construction
Company (Bird), was the general contractor on a construction
project and it had required its subcontractor, Langford Electric
Ltd. (Langford), to obtain an L&M Bond. The appellant, Valard
Construction Ltd. (Valard), a subcontractor to Langford, was not
fully paid by Langford and was not initially aware of the existence
of the L&M Bond. After later discovering that an L&M
Bond existed, its attempted claim was denied because the notice
period for making a claim under the bond had expired. Valard argued
that Bird had a positive duty to inform Valard of the L&M Bond
and that Bird breached that duty by failing to disclose its
existence. Since Langford was insolvent, the only potential
prospect of recovery for Valard was under the L&M Bond.
Alberta Court Of Appeal Decision
A majority of the Alberta Court of Appeal dismissed Valard's
appeal and confirmed that unless a subcontractor requests
information about an L&M Bond (as it may be legally entitled to
do under section 33 of the Alberta Builders' Lien
Act), an owner under an L&M Bond does not have a
positive legal duty to disclose its existence. The Court also held
that while L&M Bonds create limited trusts for the purpose of
allowing non-party beneficiaries to make claims, this relationship
is not a fiduciary one. The Court further found that Valard was a
sophisticated party who could have easily verified the existence of
the L&M Bond. As such, the Court concluded that the
language of the L&M Bond contained the entirety of the duties
owed by Bird to Valard, that Bird acted honestly at all material
times, and as such, Bird did not have a legal duty to inform Valard
about the existence of the L&M bond.
In dissent, Justice Wakeling held that all trustees, including
those under an L&M Bond, have onerous obligations as a
fiduciary and are therefore required to take "reasonable
steps" to inform a "sufficiently large segment" of
the beneficiary class about the existence of an L&M Bond. In
determining what constitutes a "reasonable step" Justice
Wakeling suggested, as an example, the posting of the L&M bond
at Bird's site office.
L&M Bonds provide subcontractors and suppliers with security
in the unfortunate event a general contractor defaults on its
payment obligations. However, L&M Bonds contain a number of
strict notice and other technical requirements that must be
complied with, failing which the claim will be denied. From a
subcontractor's point of view, the Court of Appeal's
decision in Valard emphasizes the importance of
taking steps to determine whether an L&M Bond exists and to
strictly comply with the notice provisions in the bond. Such steps
can include requesting bond information under section 33 of the
Alberta Builders' Lien Act, and generally
making the appropriate inquiries with the owner and general
contractor. If a subcontractor fails to take such reasonable steps,
the Valard decision may apply to prevent the
subcontractor from recovering against this important form of
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.
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