Legal Blog

Owner’s Trust

The court’s censure of breach of trust is incredibly wide ranging. Judges will go out of their way to find a breach of trust and affix personal liability to the individuals involved. The case of Structural Contracting Ltd. v. Westcola Holdings Inc., a 2000 decision of the Ontario Court of Appeal, is an example.

Breach 

An owner of a commercial building contracted with a general to renovate its underground parking garage. The owner was $90,000 short of the money necessary to pay the contractor and the contractor sued, not only the owner for breach of contract but also the owner’s CEO for breach of trust. What breach, you ask? The contract related to a commercial building and the owner was receiving rent after substantial performance of the contract. It was not paying that rent to the contractor and was therefore alleged to be in breach of trust. The CEO, as the person in charge, would then be liable personally.

Section 7(3) of the Construction Lien Act states that where substantial performance of the contract has been certified or declared by a court, if the owner receives monies up to the unpaid price any time thereafter, those monies constitute a trust fund in the hands of the owner.

Argument

The CEO argued, quite rightly, that the owner did not receive the use of all of the rent monies. These were used for mundane matters, such as mortgage interest, taxes, and building maintenance. There were no net monies available after these expenses were paid. If the expenses did not get paid, the business would fail, the mortgagee would take over the building, and no one would get paid.

Tough 

The court analogised the landlord’s argument to a contractor’s argument that it should not have to account for monies that are paid towards overhead. Just as the courts have not accepted that argument, this court did not accept the owner’s argument. As far as the court was concerned, section 7(3) of the Act contained no exception for how the monies coming into the hands of the owner were to be used. All monies subsequently received were first to be applied to the debt owing to the contractor. If the owner had to arrange with the municipality or the mortgagee to buy some time for realty tax or mortgage payments, that was the problem of the owner, not the contractor.