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Trust Fund & Bankruptcy

Posted on September 23, 2015 | Posted in Five Liners

Royal Bank of Canada v. Atlas Block Co. 2014 Ont SCJ

Material supplier was attempting to trace its materials into products manufactured by bankrupt and sold to contractors. The tracing was tenuous at best. However, the motions judge was willing overlook this liability to allow the trust action to at least continue, subject to proof. What the motions judge was not willing to do was to overlook the Bankruptcy and Insolvency Act, which set out a regime that was paramount to Ontario legislation.

The motions judge held that only if there was a common law trust (i.e. containing certainty of intention, objects, and subject matter) could there be a trust for purposes of the BIA. The motions judge held that a statutory trust under the Construction Lien Act did not qualify. He dismissed the action.


Iona Contractors Ltd v. Guarantee Co. of North America 2015 Alta C.A.

The surety under a payment and material bond paid the subcontractors of a bankrupt contractor $1.8 million and claimed, as a subrogee, against $1 million that the owner was to pay the contractor in holdback.

At trial, the judge ordered the money to be paid to the contractor’s trustee and thence to the contractor’s secured creditors. The surety got nothing. This was the same issue as in RBC v. Atlas and at the trial level decided in the same manner.

The Court of Appeal in a 2-to-1 decision overturned and held that since the lien legislation and the trust provisions in it, were part of an overall scheme to ensure that contractors who provided work on a project were paid, the province was not attempting to bypass the federal scheme. The majority decided that, due to the legislation, there was certainty of intention to create a trust, there was certainty of object to benefit unpaid subcontractors, and there was certainty of subject matter i.e. a chose in action against the owner to pay the holdback). The majority referred to and rejected the approach in RBC v. Atlas.


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