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LEGAL REMEDIES

PRE-CONSTRUCTION PLANNING

A) Construction Trusts

  1. All funds earmarked for a construction project or generated by the sale of a construction project are encrusted with a statutory trust under theand cannot be used for purposes other than the payment of contractors and subcontractors with whom the trustee company has a contract, unless these “other purposes” are expressly authorized by theÌýActÌý(i.e. retention of trust funds for a set-off claim, retention of funds equal to the funds the trustee has personally paid to beneficiaries of the trust, repayment of loans taken out to pay beneficiaries of the trust).
  2. To have a claim for breach of construction trust, you must have provided lienable services and material.
  3. To find out whether you have a claim for breach of trust, serve a demand on your payer and any party who is a payer above your payer. A part of the demand letter is a demand for the “state of accounts” as between your payer and the payer of your payer and between your payer and yourself. This will get from the contractor a statement of what he or she has received from the owner and what, if any, set off claims the contractor is asserting against you.
  4. You must then make a separate demand for an accounting of trust funds (i.e. an accounting of what the contractor has done with the funds he or she received on this project). Bear in mind that you now have only two years from the date you “discovered” or “ought to have discovered” your cause of action against the trustee and its principals to start an action. Otherwise, you loose your right to sue. There has been a recent case that held that this period started to run when you first became aware that the contract funds were due and owing. That case is under appeal. Therefore, while this case is out there, it would be prudent to make your demand for an accounting of trust funds as soon as possible.
  5. In any event, if a certificate of substantial performance has been published in the DCN confirming the substantial performance of the project and monies against which no set off has been asserted have not been paid to you, you should demand in writing an accounting of trust funds from the contractor.Ìý
  6. If no such accounting is forthcoming or if the accounting provided is inadequate or shows a breach of trust, you should consider commencing an action for breach of trust. The only party to be sued as trustee is the party with whom you have a contract, as that is the party that has the statutory trust obligation to you.
  7. If the trustee is a company, you should also have your lawyer obtain a corporation profile search to determine who the officers and directors of the trustee company are. These officers and directors can be joined in the law suit pursuant to of theÌýAct, as they will be held liable for breach of trust if they acquiesced or consented to actions that they knew or ought to know amounted to a breach of trust by the company. Persons who have “effective control” of the company can also be joined.

B) Bonding

  1. If you are a subcontractor (i.e. not a sub-subcontractor) and you have supplied lienable services and materials to the project, you should consider making ademand on the contractor and owner for the purpose of determining whether a Labour and Material Payment Bond has been provided on the project. The demand will require the contractor and owner to provide you with a copy of the Labour and Material Payment Bond within a reasonable time not to exceed 21 days.
  2. If the contractor has provided a Labour and Material Payment Bond, you should get a copy of that Bond as soon as possible and follow the procedure outlined in the Bond very carefully. Most Labour and Material Payment Bonds require that you give notice to the bonding company, owner and contractor of your claim under the Bond within 120 days of the last day of work for non-holdback funds, and within 120 days from when last payment was due for holdback. Some modern bonds make it a condition precedent to the entitlement to payment that this notice be given in a timely way.
  3. With your notice letter you would be prudent to give the bonding company a detailed accounting of your outstanding account along with all backup invoicing.
  4. Bear in mind that you have a relatively short period of time within which to sue the bonding company if they do not pay. This limitation period is clearly spelled out in the wording of the Labour and Material Payment Bond. Under the traditional form of Bond, the limitation period ran for one year from the date ceased working on the project. But bond wording has changed in recent years and you need to read the Bond carefully to determine when you should start your action.

C) Personal Property Security Act

Read the  here.

  1. If you are supplying non-lienable materials or equipment that you own to a project, you should consider taking PPSA security in the materials. This requires getting the “purchaser” of the material to sign at the time of supply an agreement with you that gives you a “security interest” in the materials. This security interest could include a “title retention clause” or a clause allowing you to repossess the materials upon non-payment.
  2. In addition to the sale agreement, you should have your lawyer prepare and register a Financing Statement under the PPSA. This “perfects” your security interest in the materials. If you have a right to repossess, repossession itself “perfects” your security interest. This perfection is subject to any other rights other parties may have in your materials that is are superior to your rights.
  3. When there is a default in payment, you should review your options with your lawyer. If you have a clause that allows for repossession of the materials, you may consider repossession (which includes rendering equipment inoperable). You might consider instituting a receivership if you are not exercising a right of repossession and you are concerned that the collateral will be removed by the debtor. You should consult your lawyer on this issue.
  4. Serve a demand for payment. Also serve a notice of default of payment if payment is not due on demand.
  5. Make sure to have your lawyer serve a 15 day Notice of Intention to Dispose of Collateral before you re-sell the material. If you wish to accept the collateral in satisfaction of the obligation, you need to have your lawyer serve a Notice of Intention to Accept Collateral.
  6. The specifics of the process to follow and the considerations to bear in mind are outlined in theand the.ÌýYou should consult your lawyer to make sure you follow the procedures properly.

D) Criminal Code and Statutory Declarations

  1. Underof thea trustee company can be charged criminally for breach of trust. This includes breach of trust under the. This section has been rarely used since the advent of the civil liability provisions for breach of trust under theÌýConstruction Lien Act.ÌýThe primary reason is that you need to prove intent for the criminal liability to arise.
  2. Given recent amendments to theÌýCriminal Code, however, if you suspect that that the contractor is breaching trust with project funds, you might consider writing a letter to the owner requiring that the owner cease paying the contractor on account of the contractor’s failure to pay monies that are owed to you. If the owner is an “organization,” as defined by the recent amendments to theÌýCriminal Code, the owner would be loath to make the payment as it may be found criminally responsible underfor the contractor’s breach of trust. This is called: “staying the hand of the paymaster,” and would hopefully have the effect of creating a large holdback pool under theÌýConstruction Lien Act.
  3. As to Statutory Declarations provided by the contractor to the owner, if you are able to obtain copies of same and if they show that the contractor swore false Statutory Declarations as to the payments he has made to you, you might be able to start criminal proceedings under theÌýCriminal CodeÌýagainst the contractor for swearing false statements.
  4. The problem with these measures is that criminal proceedings are in the hands of the police and the Crown. Also, compensation may happen as a part of sentencing, but that it not the primary purpose of criminal prosecutions. The primary purpose is deterrence of the crime.

E) Repair and Storage Lien Act

  1. If you have supplied non-lienable services to equipment on a project, you might consider pursuing your rights under the. Under this statute, you have a lien if you “repair” equipment or material for the unpaid contract price or the value of your unpaid work.
  2. If you have possession of the equipment you improved, you can keep possession of it as security for payment.
  3. If you do not have possession of the equipment, you need to have your lawyer register a non-possessory lien in the registration system created under theÌýPPSAÌýin order to give you priority to other claims against the same equipment. You are entitled to a non-possessory lien if you have an acknowledgment of obligation to pay from the debtor such as an invoice.
  4. A non-possessory lien claimant can, with the assistance of the Sheriff, seize the equipment for the purpose of resale.
  5. On 15 days notice to the owner of the equipment and other security interests in the equipment, the possessory and non-possessory lien claimant can sell the equipment to pay for the outstanding account. However, you should review with your lawyer the option of first applying to the court to determine your rights to the equipment.