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Uncertainty in Construction Trusts

Uncertainty in Construction Trusts

By:

Mann Lawyers

Posted August 19, 2021

An earlier blog reviewed the usefulness of contractors’ and suppliers’ trusts, available under section 8.1 of the Construction Act. However, a new decision by Ontario’s Court of Appeal, refusing leave to appeal for an earlier, unreported, decision has added uncertainty to the protections offered by such trusts.

In Carillion Canada Holdings Inc. (Re), a global construction conglomerate, Carillion Group, was paid nearly $29M by owners in relation to various construction projects in Canada. These monies were supposed to pay the various contractors and suppliers on those projects.

However, Carillion Group had in place various automatic pooling and cash sweep arrangements with its bank, which resulted in funds being moved around into different accounts at various times. As a result of these automatic transfers, the $29M wound up in an HSBC Bank account in the UK. When Carillion Group went bankrupt, the court-appointed monitor sought to have those funds declared subject to a construction trust to benefit the Canadian contractors and suppliers.

Earlier case law established that trusts must satisfy three key conditions:

  1. Certainty of intention,
  2. Certainty of object, and
  3. Certainty of subject matter.

For construction trusts, the Construction Act provisions provide certainty of intention, and certainty of object merely refers to the ability to identify the beneficiaries of the trust, which is also relatively straightforward in a construction context.

Certainty of subject matter requires the ability to identify the property and funds that are the subject of the trust. In this case, however, the monies had been transferred and comingled with other funds, without being separately accounted for. The Court concluded that this resulted in the monies losing their status as trust funds, and the Court of Appeal refused leave to appeal, rendering the decision final.

Unfortunately for construction trust beneficiaries, the circumstances in which specific funds lose their character as trust funds will be out of the beneficiaries’ control. This decision must thus be incorporated into the risk analysis of anyone entering into a contract with large corporate builders who may have complex banking arrangements.

This blog post was written by Brett Hodgins, a member of the Commercial Litigation team.  He can be reached at 613-369-0379 or at brett.hodgins@mannlawyers.com.

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Brett Hodgins

Brett Hodgins

I practice primarily in corporate and commercial litigation, although I have represented clients on matters as diverse as employment issues, wrongful dismissals, estate disputes, landlord tenant matters, and real estate disputes. I have appeared on behalf of clients in the Ontario Superior Court and the Small Claims Court, the Federal Court of Canada, the Federal Court of Appeal, and before various tribunals including the Human Rights Tribunal of Ontario, the Landlord and Tenant Board, and the Parole Board of Canada. I have represented a wide variety of businesses and individuals in my practice, and I am keenly aware of the stress and costs faced by clients engaging in any kind of litigation. My guiding principle in every matter is to achieve the best possible result as efficiently and expeditiously as possible so that clients can get on with their lives. Prior to joining Mann Lawyers I completed my articles and... Read More

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