In the recent decision in Stuart Olson Construction Ltd. v. Structal Heavy Steel 2015 SCC 43 (“Stuart Olson”) the Supreme Court of Canada (“SCC” or “Court”) clarifies that builders’ liens and statutory trusts are separate remedies available to an unpaid supplier on a construction project. More specifically, the Court held that the trust fund obligations on a project do not terminate when the contractor posts a bond to vacate the registration of the subcontractor’s lien.
Although Stuart Olson deals specifically with the Manitoba Builder’s Lien Act, CCSM c.B91 (“BLA”), it is my view that it will have an impact on the construction industry in other provinces in which builders’ lien trusts are in use, including in Ontario under the Construction Lien Act R.S.O. 1990, c. C.30 (“CLA”).
Facts of the Case
Stuart Olson Dominion Construction Ltd. (“Dominion”) was hired as the general contractor for the construction of a football stadium. Structal Heavy Steel (“Structal”) was the subcontractor. Dominion claimed that Structal had delayed construction and withheld payment. In response, Structal filed a $15 million builder’s lien claim against the property. Dominion then posted a lien bond for the amount of Structal’s lien claim in order to ensure funds for the project did not cease to flow.
Despite the posting of the lien bond and vacating of the lien, Structal insisted that the Owner withhold a $3.5 million progress payment that was supposed to be paid to Dominion, arguing that the payment should be subject to a statutory trust under the BLA. The Owner agreed and demanded that Dominion apply for a declaration that it had satisfied its trust obligations to Structal and was entitled to receive and use the progress payment to pay other trust claimants and creditors. Structal subsequently brought its own motion requiring full payment of its past-due invoices, without deduction or set-off, once Dominion received the funds from the Owner.
The motion judge held that Dominion’s posting of the lien bond extinguished its trust obligations under the BLA. The Manitoba Court of Appeal, however, reversed the motion judge’s decision, holding that the right of a subcontractor to enforce a statutory trust is separate from its right to file a lien claim, where reliance on one does not affect the other.
The SCC agreed, holding that:
- The trust and lien provisions of the BLA are “separate”, and “distinct” remedies which “exist independently”, such that the subcontractor would be able to pursue both remedies concurrently.
- The filing of a lien bond does not terminate a trustee’s statutory trust obligations. The language of the BLA clearly indicates that the payment of money or security in court takes the place of land as the lien claimant’s security, and that a lien bond secures a lien claim rather than merely satisfying it through payment.
- If a party, whether owner, contractor, or subcontractor, complies with relevant provisions of the lien act, it is not required that the claimant pay twice for the same work. Rather, payment under the trust reduces the lien claim by an equivalent amount if they are both related to the same obligation.
- A lien bond does not reduce the amounts that are required to be held in trust. However, payment of cash into court in place of a bond can allow a contractor to avoid paying double security. Payment of trust funds in cash is in fact regarded as compliance with the BLA, and not as a breach of trust.
Conclusion and Analysis
The SCC’s focus in Stuart Olson on the “legislative evolution” and intent of the BLA, as well as on specific Manitoba case law dealing with the BLA, is helpful in understanding the separate statutory lien and trust remedies. The Court, however, seems to have overlooked the practical implications of its decision and nuances of altering the procedure for posting security for a lien.
For example, the SCC does not consider it a particular hardship for a contractor to hold “double security”, paying both premiums on a bond while having to meet its obligations under the statutory trust. The Court does state that payment of a trust claim reduces the lien claim by the equivalent amount if trust obligations are paid in cash and are related to the same obligation. This does not, however, take into account “real world” issues that may arise. For example, a contractor who is forced to post both lien and bond security may not have the funds available to hire a new subcontractor to complete necessary work while the dispute is pending.
Stuart Olson also seems to call into question the long-held understanding of the function and utility of a bond. Prior to the Stuart Olson decision, a bond was likely to be perceived by a contractor as a means to vacate a lien more cheaply without tying up operating capital. If, however, a contractor is forced to secure its trust obligations through cash, the flow of funds and completion of the project may be compromised. If a contractor is unable to complete its share of the project, its ability to obtain future bonds may be affected, since sureties grant bonds partly based on a party’s credit rating and liquidity.
It remains to be seen how Ontario courts will apply the Stuart Olson decision. Ontario courts have referred to the relationship between lien and trust remedies, but this relationship has never been fully addressed. And the Stuart Olson decision may not be as much in conflict with the CLA as it might appear. For example, under s. 79, subcontractors as one class all share in the monies paid into court or protected by security such as a lien bond, even if those monies or that security is initially paid or provided in order to take one particular lien off the title to the property. From this point of view, the Stuart Olson decision, and specifically the holding that a lien bond in itself is not payment, may not be entirely inconsistent with the CLA and practice in Ontario.