Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8 – Trusts — Fiduciary duty — Bonds

On appeal from a judgment of the Alberta Court of Appeal (2016 ABCA 249) setting aside the decision of Verville J. (2015 ABQB 141).

Bird was a general contractor for a construction project in the oilsands. Bird subcontracted with Langford and required Langford to obtain a labour and material payment bond naming Bird as trustee. The bond allows for a provider of work who has not received payment from Langford to sue a company acting as a surety for that unpaid sum, subject to a condition that it give notice of its claim within 120 days of its last provision of work. Langford contracted with Valard to provide work on the project. Langford became insolvent and some of Valard’s invoices went unpaid. Valard was never notified of the bond’s existence. After the 120-day notice period had expired it asked Bird whether a bond had been obtained. Bird replied affirmatively and Valard filed a claim. The surety denied the claim. Valard sued Bird for breach of trust. The trial judge dismissed Valard’s action. A majority of the Court of Appeal dismissed Valard’s appeal.

Held (6-1): The appeal should be allowed and the matter of quantum of damages should be remitted to the trial judge for adjudication.

Per McLachlin C.J. and Abella, Moldaver, Brown and Rowe JJ.:

Wherever a beneficiary would be unreasonably disadvantaged not to be informed of a trust’s existence, the trustee’s fiduciary duty includes an obligation to disclose the existence of the trust. In the circumstances of this appeal, where the evidence was that labour and material payment bonds were uncommon in the pertinent sector and where the trustee’s failure to disclose the existence of the trust prevented the beneficiary from making a claim within the prescribed notice period, that duty was breached. The bond created an express trust. The beneficiary of a trust has a right to hold the trustee to account for its administration of the trust property and to enforce the terms of the trust. In some cases, the beneficiary’s right to enforce the trust can be meaningfully exercised only if he or she is first informed of the trust’s existence. In general, wherever 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. Valard was unreasonably disadvantaged by Bird’s failure to inform it of the trust’s existence. The expiry of the notice period before Valard learned of the bond effectively prevented it from enforcing the trust.

The standard to be met by a trustee in respect of the duty to disclose the trust’s existence is that of honesty, and reasonable skill and prudence. The specific demands of that standard are informed by the facts and circumstances of which the trustee ought reasonably to have known at the material time. What a trustee must do to discharge it is highly sensitive to the context in which the particular trust relationship arises. An honest, reasonably skillful and prudent trustee would have known that labour material payment bonds were uncommon on private oilsands construction projects. Conversely, Bird could not have known of all potential beneficiaries when the bond was procured. Its obligation extended only to taking reasonable steps to notify potential beneficiaries of the trust. Bird had an on-site trailer in which notices were normally posted and where Valard was required to attend daily meetings. It could have posted a notice of the bond in its trailer. Instead, it did nothing. Something more than nothing was required. Bird therefore committed a breach of trust.

Per Côté J.:

In general, there is no proactive duty on the part of a trustee to take steps to inform potential claimants of a bond’s existence, although a trustee does have an equitable obligation to accurately answer all requests from potential claimants for information pertaining to the existence and particulars of any labour and materials payment bond.

On the facts of the present case, Bird had a duty to inform Valard of the bond’s existence when it was first notified by email of problems Valard was experiencing in obtaining payment from Langford. That email, from Langford and copied to Valard, ended with a clear request for guidance from Bird. At this point, Bird was alive to the very real possibility of Valard not being paid. As one of the recipients of this email (and part of this conversation), Valard was entitled to expect that, if a bond were available, its existence would have been disclosed by Bird at this time.

Rather than disclosing the existence of the bond, however, Bird instead removed Valard from the email chain and replied directly to Langford. Bird therefore breached the equitable duty it owed to Valard. Had Valard been informed of the available bond, it would still have been within the 120 day window within which to make a claim against the surety.

Per Karakatsanis J. (dissenting):

Bird was not under an obligation to inform potential claimants of the existence of the bond. For over 45 years, labour and material payment bonds have been commonly used in the construction industry. The industry understanding and practice is that claimants are expected to enquire as to the existence of a bond. General trust law principles do not imply the obligation to notify potential claimants in this commercial context.

Trust language is used in the labour and material bond to avoid the third-party beneficiary rule. In light of this, the bond itself narrowly defines the obligations placed on the trustee. Bird is not obliged to do or take any act, action or proceeding against the surety to enforce the bond. Bird is under an obligation to maintain and deliver the trust property, the right to claim on the bond, but this does not necessarily imply the obligation to provide notice to potential claimants. Given the narrow purpose and scope of the trust, the limited obligations of the trustee, and industry use of these trusts, it is sufficient if the trustee responds to any enquiries about a bond.

The obligations imposed upon a trustee are first and foremost determined by the terms of the trust instrument itself, but can be supplemented or modified by general principles of equity. Equity imposes different obligations depending on the particular context. In determining the duties of a trustee, it is important to consider the nature and terms of the trust and the social or business environment in which the trust operates. Given the narrow purpose of the trust created here, and the practice in the construction industry, Bird was entitled to assume that such bonds were sufficiently known in the industry and it was therefore under no duty to determine whether potential claimants required notice and how to provide reasonable notice.

The chambers judge did not make a finding that labour and material payment bonds were uncommon in the oilsands. Further, imposing different obligations depending on the particular sector or geographic region within the construction industry introduces uncertainty and instability where there was none.

Reasons for judgment: Brown J. (McLachlin C.J. and Abella, Moldaver and Rowe JJ. concurring)

Reasons concurring in the result: Côté J.

Dissenting Reasons: Karakatsanis J.

Neutral Citation: 2018 SCC 8

Docket Number: 37272