Canada: Valard v Bird: General Contractors Should Notify Subcontractor Beneficiaries Of Labour & Material Bonds

Last Updated: March 6 2018
Article by David De Groot, Paul A. Beke and Roger Baker

Introduction and Background

Recently, in Valard Construction Ltd v Bird Construction Co (Valard), 1 the Supreme Court of Canada (SCC) decided that the trustee of a labour and material bond (the L&M Bond) is required to reasonably disclose the existence of the L&M Bond to the potential claimants.

Typically, owners and general contractors (the Trustee) contractually require that general contractors and major subcontractors, respectively (the Principal), obtain L&M Bonds from a surety (the Surety) to ensure that the Principal's suppliers and subcontractors (the Claimants) are paid if the Principal experiences financial difficulty. In so doing, the L&M Bond provides the Trustee with security that the Claimants will not register liens or undertake work stoppages due to unpaid bills. However, because the Claimants are third parties to the contract between the Trustee and Principal, the industry has structured L&M Bonds on a trust basis to avoid contractual problems relating to the third-party beneficiary rule.

Historically, the construction industry practice, and arguably some case law, supported the position that the burden was on Claimants to make inquiries about L&M Bonds to protect their interests. In Valard, however, Valard sought recovery against Bird for breach of trust because it failed to advise Valard about the existence of the L&M Bond, causing Valard to miss the deadline for claiming against the Surety.

Facts inValard

Suncor Energy Inc. retained Bird Construction Company as its general contractor for an oilsands project near Fort McMurray. In turn, Bird Construction Company contracted with Langford Electric Ltd. (the Subcontract), who further contracted with Valard Construction Ltd.

Pursuant to the Subcontract, Langford was contractually required to obtain and provide Bird with an L&M Bond, which it did through the surety company, Guarantee Company of North America. The L&M Bond obtained by Langford provided that any Claimant had to notify Bird, Langford and the Surety within 120 days of the Claimant's last provision of work. Upon receipt of the L&M Bond, Bird filed it at its office in Edmonton, Alberta.

During the course of construction, Langford became insolvent. As a result, Valard had unpaid invoices for $660,000.17. Valard was unaware of the existence of the L&M Bond, in part because L&M Bonds were uncommon in the oilsands sector. Therefore, Valard missed the 120 day notice period for claiming against the L&M Bond. Subsequently, on another project, Valard became aware that Bird had an L&M Bond and inquired about the status of an L&M Bond for the work performed for Langford. Bird advised that there was an L&M Bond for that work. Valard claimed on the L&M Bond but the Surety dismissed the claim for lack of proper notice. Valard issued a claim against Bird for breach of trust for failing to notify it of the existence of the L&M Bond.

Both the trial judge and a majority of the court of appeal dismissed Valard's claim. Valard appealed to the Supreme Court of Canada

The Supreme Court of Canada's Decision

A majority of the SCC allowed Valard's appeal, reasoning as follows:

In general, whenever "it could be said to be to the unreasonable disadvantage of the beneficiary not to be informed" of the trust's existence, the trustee's fiduciary duty includes an obligation to disclose the existence of the trust. Whether a particular disadvantage is unreasonable must be considered in light of the nature and terms of the trust and the social or business environment in which it operates, and in light of the beneficiary's entitlement thereunder.2

The SCC went on to hold that since Valard was a potential Claimant on the L&M Bond, Valard required knowledge of the trust in order to enforce its claim against the L&M Bond. Further, as the trustee, Bird had an obligation to disclose the existence of the L&M Bond to Valard.

Having found a duty to disclose the existence of the L&M Bond, the SCC assessed what the content of that duty required. In this regard, the SCC held:

Like all duties imposed upon trustees, the standard to be met in respect of this particular duty is not perfection, but rather that of honesty, and reasonable skill and prudence.... It is well established that, where all potential beneficiaries cannot be identified at the time of the trust's creation, the trustee's obligation to disclose the existence of the trust extends not to ensuring that every potential beneficiary knows of the trust, but only to taking reasonable steps to that end.3

The SCC accepted that for construction projects in which L&M Bonds are common, "it may well be that very little, or even nothing, will be required on the part of a trustee to notify potential beneficiaries of the trust's existence."4 However, in Valard, where the Court found that L&M Bonds were uncommon in the specific industry, the SCC held that Bird had to do "more than nothing".5 The Court went on to hold that Bird could have discharged its burden by posting a copy of the L&M Bond in its site trailer, which was frequently visited by the subtrades at the project site.

Lessons Learned in Valard

Based on Valard, owners and general contractors in particular should consider the following principles:

  • the Trustee to an L&M Bond is not required to ensure that every subcontractor and supplier is aware of the existence of the L&M Bond. However, the Trustee must prove that it acted honesty, and with reasonable skill and prudence to ensure that potential Claimants were aware of the L&M Bond;
  • even if L&M Bonds are well-known in the specific industry, a Trustee who "does nothing" is significantly increasing its risk;
  • posting the L&M Bond in a publicly available location on the construction site is a good starting place to ensure that Claimants can become aware of the L&M Bond's existence; but the extent of the steps that a Trustee should take to disclose the existence of the L&M Bond is fact-specific. This is a nebulous and vague test, which creates some uncertainty (and potentially increased costs of construction).

Finally, having held that L&M Bonds create equitable obligations that apply to all trustees, Trustees of L&M Bonds should consider the other fiduciary duties that may arise. For example, because a trustee cannot delegate its office to another person, a Trustee of an L&M Bond could not simply require its contracting Principal to disclose to Claimants the existence of the L&M Bond. Rather, the Trustee must satisfy itself that the disclosure has occurred. In this regard, the equitable duties that apply to trustees are potentially wide-ranging.


1 2018 SCC 8.

2 Valard at para 19.

3 Valard at paras 26 and 27.

4 Valard at para 29. [Emphasis added.]

5 Valard at para 29.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions