VI. SURETY AND BOND ISSUES
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Supreme Court of Canada finds obligee/trustee under a Labour and Material Payment Bond breached the fiduciary duty owed to a claimant by failing to disclose existence of the Bond.
Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8,per Brown J. (McLachlin C.J. and Abella, Moldaver and Rowe JJ. concurring, Côté J. concurring in result, and Karakatsanis J. dissenting)
I. FACTS AND ISSUES
Bird Construction Co. ("Bird"), as general contractor, entered into a contract with Suncor Energy Inc. ("Suncor") for construction work on one of Suncor's oilsands projects (the "Project"). Bird subcontracted a portion of its work to Langford Electric Ltd. ("Langford").
The subcontract between Bird and Langford obligated Langford to obtain and provide a Labour and Material Payment Bond (the "L&M Bond"). Langford obtained the required bond, which named Bird as obligee, Langford as principal, Vermillion as obligee, and The Guarantee Company of North America ("GCNA") as surety.
Valard Construction Ltd. ("Valard") entered into a subcontract with Langford, but was not paid in full for its work after Langford became insolvent. Valard was unaware of the existence of the L&M Bond and did not find out it existed until approximately a year after Langford last worked on the Project. Valard's project manager gave uncontradicted evidence at trial that although he had experience with labour and material payment bonds on municipal projects, he had never encountered one on any of the oilsands projects in which Valard was engaged.
When the payment issues between Valard and Langford arose, Langford's representative advised Bird's representative that there was a problem as Valard was looking for further payments for extra work it had carried out. Valard also knew Bird was aware, but did not raise the issue with Suncor directly as it did not want to "rock the boat".
Upon learning of the L&M Bond, Valard immediately made a claim to GCNA on the L&M Bond with respect to amounts it claimed were due and owing but unpaid. GCNA denied Valard's claim as it was outside of the express time requirements of the L&M Bond (Valard's claim was approximately seven months late).
Valard sued GCNA and Bird. The claim against GCNA was dropped by Valard after GCNA was able to demonstrate to Valard that it had been prejudiced by Valard's late claim (with such prejudice undermining Valard's ability to seek relief from forfeiture, which otherwise may have allowed the Court to find Valard's claim was valid notwithstanding it was late).
With respect to its claim against Bird, Valard had no knowledge of the L&M Bond until after the notice period had already long expired. Valard argued that Bird as obligee, and as trustee under the L&M Bond, had a fiduciary duty to inform Valard of the L&M Bond's existence within the relevant time frame, and that Bird breached this duty by not disclosing the existence of the L&M Bond to Valard.
Bird denied it had any duty to advise potential claimants of the existence of the L&M Bond. Justice Verille of the Alberta Court of Queen's Bench agreed with Bird and dismissed Valard's claim: Valard Construction Ltd. v Bird Construction Co., 2015 ABQB 141. Valard appealed and the Alberta Court of Appeal upheld the Queen's Bench decision: Valard Construction Ltd. v Bird Construction Co., 2016 ABCA 249. Valard then took its argument to the Supreme Court of Canada.
II. HELD: Bird, as trustee, owed a fiduciary duty under the L&M Bond to Valard. In these circumstances that duty required Bird to disclose the existence of the L&M Bond. As Bird took no steps to disclose the existence of the L&M Bond, it breached the fiduciary duty it owed to Valard.
Brown J. writing...
