Canada: Think Twice Before Obtaining A Labour And Material Payment Bond – New Liability For An Old Security

Last Updated: March 27 2018
Article by Jason Annibale, Annik Forristal and Kailey Sutton

The old practice of just filing away a procured labour and material payment bond without taking proactive steps to notify potential claimants of the bond's existence now exposes owners and others arranging for such bonds to claims from unpaid subcontractors. 

The Supreme Court of Canada majority decision in Valard Construction Ltd. v. Bird Construction Company1 has found that "obligees" under labour and material payment bonds owe "claimants" under such bonds a positive obligation to inform of the bond's existence in circumstances where claimants may not have expected a bond to have been obtained.

The Facts

Bird Construction Company ("Bird") was the general contractor for Suncor Energy Inc. at an oilsands construction project near Fort McMurray, Alberta.  Bird subcontracted work to Langford Electric Ltd. ("Langford"), which, in turn, subcontracted work to Valard Construction Ltd. ("Valard").  Pursuant to its subcontract with Bird, Langford obtained a labour and material payment bond in the CCDC 222-2002 standard form for the benefit of Langford's subcontractors. 

Langford became insolvent and Valard, which had obtained default judgment against Langford for non-payment, remained unpaid for work performed.  Almost a year after having completed its work, Valard happened to learn of the labour and material payment bond's existence.  Apparently, Valard never availed itself of statutorily available information requests as against Bird and others in the construction pyramid to inquire of project bonding while working for Langford. 

Accordingly, upon learning of the bond's existence, Valard made a claim under the bond against the "surety", Guarantee Company of North America, for payment of amounts owed for work performed.  The claim was denied as being outside the standard 120 day period following the last supply of services to the "principal" (i.e., Langford). 

Valard then claimed against Bird, the obligee, under the bond for breach of trust.  Valard alleged that Bird breached its fiduciary duty (as trustee) owed to Valard (as beneficiary) to inform Valard of the existence of the bond and Valard's right of action against the surety provided by the bond.     

The trial judge dismissed Valard's claim.  Valard appealed the trial judge's decision.  The majority of the Alberta Court of Appeal dismissed Valard's appeal. Valard then appealed to the Supreme Court.

The Majority Decision

Applying general principles of trust law to the bond, the majority found that Bird, as the obligee (which the bond also identifies as a trustee), owed Valard, as one of the claimants (which the bond also identifies as beneficiaries) a proactive duty to disclose the existence of the bond (i.e., the subject trust) where such claimants would be unreasonably disadvantaged if not informed.  Valard, as beneficiary, had the right to hold Bird, as trustee, to account for Bird's administration of the "trust property" (i.e., the claim against the surety) and enforce the terms of the trust (i.e., the bond) against Bird.  

The decision at first instance referenced the Valard project manager's testimony that in his 10 years of experience, he had not encountered a labour and material payment bond at an oilsands project.  The majority relied on this reference for the proposition that such bonds were uncommon on oilsands projects.  As such, the majority found that Bird's obligation to advise claimants of the bond's existence was engaged.

The majority held that what a trustee must do to discharge its obligation to beneficiaries is "highly sensitive to the context".  In this case, the majority considered that Bird could have discharged its obligation to notify claimants under the bond of the bond's existence by posting a copy of it in Bird's on-site trailer. 

Bird, like many obligees before it, however, took no proactive steps to advise Valard of the bond's existence.  Accordingly, the majority found that Bird had breached its fiduciary obligation owed as trustee to Valard as beneficiary. 

The majority rejected Bird's argument that a proactive duty to disclose the existence of the trust would be inconsistent with the trust's sole purpose, which is "to protect the trustee [i.e., Bird] ...from the risk and expense of liens and work stoppages."

The Dissent

Justice Karakatsanis dissented.  Justice Karakatsanis found that there was no language in the bond requiring Bird to take proactive steps to advise claimants of the bond's existence.  Her Honour explained that bonds employ trust language to avoid the third-party beneficiary rule.  As such, a trustee's obligations under a bond are to be construed narrowly.  Her Honour found that labour and material payment bonds are commonly used in the construction industry and that the common industry practice, aided by construction lien legislation, is for claimants to enquire of others in the construction pyramid of whether a bond has been obtained. 

Justice Karakatsanis reasoned that "imposing a mandatory obligation on the trustee to inform potential claimants of the bond's existence transforms what was a beneficial risk-management tool into a significant liability".  Her Honour further reasoned that introducing a context-specific obligation to proactively advise of a bond's existence creates "unnecessary uncertainty".


  1. Owners and others that have already procured labour and material payment bonds ought to consider publicly posting such bonds where potential claimants are likely to see them – for example, a notice board in a construction trailer.  Where an inquiry is made as to the existence of a labour and material payment bond or any request for information is made under construction lien legislation, obligees ought to consider responding by providing a copy of the bond.  Consideration may also be given to contractually obligating contractors to advise their subcontractors of the bond's existence.
  2. Subcontractors have been afforded a new option to obtain payment for unpaid services.
  3. Owners and others considering the use of labour and material payment bonds as a means of protecting construction projects from disruption must now balance this protective measure against the obligations now accompanying such instruments.


1 2018 SCC 8.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2018

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.

Jason Annibale
Annik Forristal
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