On April 14, 2016, the priority of statutory trust protections
afforded to subcontractors and suppliers under Alberta's lien
legislation was strengthened: the Supreme Court of Canada dismissed
an appeal in Iona Contractors Ltd. v. Guarantee Company of
North America, 2015 ABCA 240, thereby bolstering the priority
of the trust even in the face of a bankrupt general contractor.
The case concerned a dispute over entitlement to holdback funds
between a surety, the Guarantee Company of North America (the
"Guarantee"), and the trustee in
bankruptcy of an insolvent general contractor, Iona Contractors
Ltd. ("Iona"). Iona had been hired by
the Airport Authority to build improvements on airport lands, and
was required to provide a labor and material bond. Under the terms
of the bond, issued by the Guarantee, if Iona failed to pay its
subcontractors then the Guarantee would be responsible for paying
them, and in return, the Guarantee would be subrogated to the
Iona subsequently failed to pay subcontractors, the Airport
Authority withheld payment from Iona, and the Guarantee paid out on
the bond to settle the outstanding accounts of Iona's
subcontractors. Subsequently, Iona applied for protection under the
Companies' Creditors Arrangement Act, and was later
assigned into bankruptcy.
The issue was who was entitled to the funds held back by the
Airport Authority: the Guarantee, in its capacity as subrogee of
the subcontractors, or Iona's trustee in bankruptcy. The
Guarantee argued, among other things, that it took priority because
the funds were impressed with a trust under section 22 of
Alberta's Builders' Lien Act, RSA 2000 c B-7
("BLA"). Iona's trustee
argued that it took priority because those trust provisions offend
the priority regime in the federal Bankruptcy and Insolvency
Act, RSC 1985, c B-3
At issue, then, was whether the statutory trust scheme in the
BLA could prevail in the event of bankruptcy proceedings.
The Court of Appeal concluded that the BLA trust would
only be given priority if it satisfied the criteria for a common
law trust, being certainty of intent, certainty of objects and
certainty of subject matter. A majority of the Court found that the
BLA trust provisions did satisfy these common law
criteria, and consequently, the trust provisions of the
BLA took priority over the BIA.
The Supreme Court of Canada's dismissal means that the
majority's conclusion is the final word on this point, at least
for now. Subcontractors and suppliers can have increased faith in
their right to statutory trust funds under the BLA. The
impact of this case in other jurisdictions remains to be seen, but
contractors and owners across the country can expect the
Court's reasoning to feature in other cases with similar
Iona demonstrates the distinct and powerful nature of
the BLA trust provisions. Those provisions:
operate irrespective of the lien
remedies under the BLA;
serve to deter members of the
construction pyramid from misappropriating construction funds;
can provide subcontractors, material
suppliers and other construction parties an effective means to
recover payment for their work.
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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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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