Commercial Litigation and Dispute Resolution Blog

On September 18, 2015, the Supreme Court of Canada issued its reasons in Stuart Olson Dominion Construction Ltd. v. Structal Heavy Steel, 2015 SCC 43.  Although the judgment concerned the interpretation of the Manitoba Builders’ Lien Act, it has implications for owners, contractors and others in the construction industry across Canada, including remedies available to industry participants in British Columbia under the BC Builders Lien Act.  The decision will no doubt have an important procedural impact on how liens ought to be discharged during the currency of a project where the claim is disputed.

The facts of the case were rather unremarkable.  A dispute arose between a contractor and subcontractor on the construction of a stadium at the University of Manitoba.  The dispute was not resolved and the subcontractor filed a claim of builders’ lien.  In order to ensure funds did not cease to flow on the project, the contractor secured the discharge of the lien by posting a lien bond in court for the full amount of the claim.  As the claim was still not resolved in a timely fashion, the contractor subsequently sought a declaration that it was entitled to use further funds it received from the owner disregarding any trust claim the subcontractor may have, given that the lien bond had already been posted in court securing the subcontractor claim.  In other words, the contractor took the position the lien bond was security for not only the lien claim but also any trust claims that may arise.  The Manitoba Court of Queen’s Bench initially sided with the contractor but that decision was overturned at the Court of Appeal.  The Supreme Court of Canada dismissed the appeal, essentially holding that the lien bond was not posted as security for both the lien claim and any trust obligations.  The remedies available to the subcontractor – i.e., a lien claim and a trust claim, could co-exist and the mere fact of securing of one did not discharge the other.

The result serves to confirm that contractors and subcontractors have a variety of remedies available to them to ensure payment on a construction project – that proposition, in and of itself, is not controversial.  However, perhaps the most surprising aspect of the decision was the court also confirmed that if trust money had been posted into court as opposed to a lien bond, the result may have been different.  This is because the court expressly acknowledged that payment of trust funds into court as security for a claim will not result in a breach of trust and, therefore, such a payment could secure not only a lien claim but also any trust obligations.  The court reasoned that the subcontractor would not recover twice on a lien claim and on a trust claim and that if for a variety of reasons the lien claim was not successful, the trust claim would still be available.

As a result of this decision, the manner in which lien claims are secured pending their determination by a court may result in a change of practice.  Previously, either lien bonds or letters of credit have been posted as security to discharge liens during the currency of a project.  However, if actual funds are posted instead, such funds may also stand in the place of trust rights or trust obligations that a contractor may have.  What remains to be seen is whether other trust claimants may then complain that their trust rights ought to be secured in the same fashion.  Regardless, it is clear that the protection afforded to contractors and subcontractors in builders’ lien legislation across Canada has been fortified by this decision.