• About
  • Offices
  • Careers
  • Students
  • Alumni
Background Image
Bennett Jones Logo Bennett Jones
  • People
  • Expertise
  • Resources
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z All

FEATURED AREAS

Energy
Funds & Finance
Mining
Capital Projects
Governmental Affairs & Public Policy
All Industries
All Practices
Global Reach
Insights
Events
Media
Recent Work
Subscribe
Anti-Spam Learning Centre
Kickstart
Client Extranet Login
People
Featured Areas
All Practices
All Industries
About
Offices
Insights
Events
Search
Search
 

Blog

Unpaid Subcontractors Beware

September 14, 2016

 
Subscribe
Print
Share
Share
Twitter
LinkedIn
Email

Alberta Court of Appeal confirms no duty to disclose existence of labour and material bond unless asked

By Brian P. Reid, Chistopher Petrucci and Michael Low

Labour and material payment bonds (L&M Bonds) serve an important purpose on a construction project by providing security for subcontractors and suppliers and by reducing the risk of builders' liens.

In Valard Construction Ltd v Bird Construction Company, 2016 ABCA 249 [Valard], a majority of the Alberta Court of Appeal confirmed that, unless asked, an owner/trustee under an L&M Bond has no duty to disclose its existence to subcontractors or suppliers.

Background

In Valard, the respondent, Bird Construction Company (Bird), was the general contractor on a construction project and it had required its subcontractor, Langford Electric Ltd. (Langford), to obtain an L&M Bond. The appellant, Valard Construction Ltd. (Valard), a subcontractor to Langford, was not fully paid by Langford and was not initially aware of the existence of the L&M Bond. After later discovering that an L&M Bond existed, its attempted claim was denied because the notice period for making a claim under the bond had expired. Valard argued that Bird had a positive duty to inform Valard of the L&M Bond and that Bird breached that duty by failing to disclose its existence.  Since Langford was insolvent, the only potential prospect of recovery for Valard was under the L&M Bond.

Alberta Court Of Appeal Decision

A majority of the Alberta Court of Appeal dismissed Valard's appeal and confirmed that unless a subcontractor requests information about an L&M Bond (as it may be legally entitled to do under section 33 of the Alberta Builders' Lien Act), an owner under an L&M Bond does not have a positive legal duty to disclose its existence. The Court also held that while L&M Bonds create limited trusts for the purpose of allowing non-party beneficiaries to make claims, this relationship is not a fiduciary one. The Court further found that Valard was a sophisticated party who could have easily verified the existence of the L&M Bond. As such, the Court concluded that the language of the L&M Bond contained the entirety of the duties owed by Bird to Valard, that Bird acted honestly at all material times, and as such, Bird did not have a legal duty to inform Valard about the existence of the L&M bond.

In dissent, Justice Wakeling held that all trustees, including those under an L&M Bond, have onerous obligations as a fiduciary and are therefore required to take "reasonable steps" to inform a "sufficiently large segment" of the beneficiary class about the existence of an L&M Bond. In determining what constitutes a reasonable step Justice Wakeling suggested, as an example, the posting of the L&M bond at Bird's site office.

Implications

L&M Bonds provide subcontractors and suppliers with security in the unfortunate event a general contractor defaults on its payment obligations. However, L&M Bonds contain a number of strict notice and other technical requirements that must be complied with, failing which the claim will be denied. From a subcontractor's point of view, the Court of Appeal's decision in Valard emphasizes the importance of taking steps to determine whether an L&M Bond exists and to strictly comply with the notice provisions in the bond. Such steps can include requesting bond information under section 33 of the Alberta Builders' Lien Act, and generally making the appropriate inquiries with the owner and general contractor. If a subcontractor fails to take such reasonable steps, the Valard decision may apply to prevent the subcontractor from recovering against this important form of security.

Subscribe
Share
Share      
 
Twitter
LinkedIn
Email
 

Authors

  • Christopher   Petrucci Christopher Petrucci, Partner
  • Brian P. Reid Brian P. Reid, Partner

Looking Forward: Class Actions in 2019

Download now

Related Links

  • Insights
  • Media
  • Subscribe

Recent Posts

Blog

Freehold Mineral Owners in Saskatchewan May Face Changes [...]

December 09, 2019
       

Blog

ACO Authority Confirmed—Duty to Consult Not Triggered [...]

December 03, 2019
       

Blog

Displacing Coal in Asia with North American LNG

November 28, 2019
       

Blog

Federal Court Issues Site-Blocking Order for ISPs

November 25, 2019
       

Blog

ILPA's Model Limited Partnership Agreement for Private Funds

November 20, 2019
       

The firm that businesses trust with their most complex legal matters.

  • Privacy Policy
  • Disclaimer
  • Terms of Use

© Bennett Jones LLP 2019 All rights reserved. Bennett Jones refers collectively to the Canadian legal practice of Bennett Jones LLP and the international legal practices and consulting activities of various entities which are associated with Bennett Jones LLP

Bennett Jones Bennett Jones