Dear colleagues:

 

The Supreme Court of Canada issued a decision yesterday that expands the scope of a trustee’s obligation to notify a beneficiary of the existence of a trust: Valard Construction Ltd. v Bird Construction Co., 2018 SCC 8: https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16983/index.do.

 

Bird Construction was the general contractor for Suncor Energy on an Alberta oilsands project. Bird contracted with Langford Electric for some electrical work, with the contract requiring Langford to obtain a labour-and-material payment bond. The bond, issued by the Guarantee Company of North America for $660,000, made Bird a trustee for every claimant who hadn’t been paid under its own contract with Langford. A claimant had to give notice of its claim within 120 days of completing its work or last supplying materials. One of Langford’s subcontractors, Valard Construction, wasn’t paid for its work and obtained a default judgment against Langford for close to $660,000.  About seven months after the 120-day notice period had expired, Valard’s project manager learned that Bird had recently required a labour-and-material payment bond on a different project. He asked Bird whether such a bond had been obtained for the project on which Valard hadn’t been paid. Bird replied affirmatively and directed him to the Guarantee Company, which denied the claim, citing Valard’s failure to give timely notice. Valard sued Bird, alleging it had breached its duty as a trustee to fully inform the bond beneficiaries of the bond’s existence and their right of action under it. Both lower courts dismissed the claim, but there was a dissent in the Alberta Court of Appeal. That dissent formed the basis for a majority judgment at the Supreme Court of Canada.

 

The decision is 5:1:1. The 5-member majority, in a decision written by Brown J, holds that “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.” The standard associated with that duty is one of “honesty, and reasonable skill and prudence,” as “informed by the facts and circumstances of which the trustee ought reasonably to have known at the material time.” In these circumstances, where evidence suggested that labour-and-material payment bonds were uncommon in oilsands projects, the obligation extended only to taking reasonable steps to notify potential beneficiaries. Such steps, concluded the majority, could have been satisfied by doing something as simple as posting a notice of the bond in an on-site trailer where notices were normally posted and where Valard was required to attend daily meetings. In a concurring judgment, Coté J holds that there was no proactive duty for 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. Such an obligation was triggered here, said Coté J, when Bird was first notified by email of problems that Valard was experiencing in obtaining payment from Langford. The dissent by Karakatsanis J holds that Bird had no duty to inform potential claimants of the existence of the bond on the basis that industry practice expects claimants to enquire as to the existence of a bond, and that in such a context, general trust law principles do not imply the obligation to notify potential claimants that a bond exists.

 

Yours truly

 

JOHN C. KLEEFELD  Dean and Professor, Faculty of Law University of New Brunswick PO Box 4400 41 Dineen Drive Fredericton NB  Canada E3B 5A3   +1 506 453 4635 john.kleefeld@unb.ca http://www.unb.ca/faculty-staff/directory/law/kleefeld-john.html

/unblaw @UNBLaw | @UNBKleefeld

 

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