In its June 11, 2014 decision in Iona Contractors Ltd. (Re), 2014 ABQB 347 (“Iona Contractors”), the Court of Queen’s Bench of Alberta (the “Alberta  QB”)  held that the trust created by section 22  of  the  Builders’ Lien Act (Alberta) is not effective in the bankruptcy of a would-be trustee debtor. This result  is  consistent with, but reached completely independently of, the recent Ontario  Superior Court  of Justice  (Commercial List) decision in Royal Bank of Canada v. Atlas Block Co. Limited, 2014 ONSC 3062 (“Atlas Block”) which held, among other things, that a trust claim pursuant to section 8 of the Construction Lien  Act  (Ontario) (the “CLA”) does not survive bankruptcy unless  it also bears all the marks of a valid common law trust.

Where the Atlas Block decision had to address a broad range of issues and left some readers wanting more explanation of how Justice Penny overcame what was regarded  as  the  long-standing  legal  principle  that CLA trusts survive in bankruptcy, the Iona Contracting decision thankfully provides a more fulsome discussion of the issue. In particular, Iona Contracting deals head- on with the 1962 decision of the Supreme Court of Canada (the “SCC”) in John M.M. Troup Ltd. v. Royal Bank, [1962] S.C.R. 487 (“Troup”), which seems to have formed the underpinning of the legal analysis that statutory construction trusts do survive in bankruptcy. Justice Eidsvik of the Alberta QB held that Troup was effectively overruled because it had been considered in the SCC’s decision in Husky Oil Operations Ltd. v. Minister of National Revenue [1995] 3 S.C.R. 453 (“Husky Oil”), yet was at odds with an application, to statutory construction trusts, of the principles laid out in Husky Oil and in the SCC’s earlier decision in British Columbia v.  Henfrey  Samson  Belair  Ltd.,  [1989]  2  S.C.R.  24.

With the same conclusion being reached in parallel by separate courts in Iona Contractors and Atlas Block, it seems safe to conclude that the legal landscape has now shifted for the construction and lending industries.