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Trust Fund

Robert Nicholson Construction Co. v Edgecon Construction Inc. 2016 Ont Div Ct

The Divisional Court overturned the decision of the motions judge. The motions judge held that an owner was liable to a sub for a breach of trust because it paid the general’s associated corporation rather than the general itself. It seems that the motions judge made many errors:

a) He relied on section 7(1) of the Construction Lien Act to hold that the owner was a trustee in favour of a subcontractor. However, that section states only that an owner is a trustee in favour of a general. It is under section 8 that generals or subs are trustees for other subs.

b) He held that there was personal liability on directors and officers of the owner under section 13(1)(a) of the Act merely because they were directors and officers. He ignored the remaining portion of section 13 which states that the director or officer must have acquiesced in conduct that he or she “knows or reasonably ought to know amounts to a breach of trust.”

The sub, on appeal, asserted that the owner and its principals had effective control over the general contractor under section 13(1)(b) because they held the purse strings. It argued that the general breached its trust fund obligations and that the owner and its principals were personally liable for that breach. The court rejected this argument because it meant that every owner and every lending institution could be liable under this section, which would have been absurd.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.