Introduction and Background
Recently, in Valard Construction Ltd v Bird Construction Co (Valard), 1 the Supreme Court of Canada (SCC) decided that the trustee of a labour and material bond (the L&M Bond) is required to reasonably disclose the existence of the L&M Bond to the potential claimants.
Typically, owners and general contractors (the Trustee) contractually require that general contractors and major subcontractors, respectively (the Principal), obtain L&M Bonds from a surety (the Surety) to ensure that the Principal's suppliers and subcontractors (the Claimants) are paid if the Principal experiences financial difficulty. In so doing, the L&M Bond provides the Trustee with security that the Claimants will not register liens or undertake work stoppages due to unpaid bills. However, because the Claimants are third parties to the contract between the Trustee and Principal, the industry has structured L&M Bonds on a trust basis to avoid contractual problems relating to the third-party beneficiary rule.
Historically, the construction industry practice, and arguably some case law, supported the position that the burden was on Claimants to make inquiries about L&M Bonds to protect their interests. In Valard, however, Valard sought recovery against Bird for breach of trust because it failed to advise Valard about the existence of the L&M Bond, causing Valard to miss the deadline for claiming against the Surety.
Facts inValard
Suncor Energy Inc. retained Bird Construction Company as its general contractor for an...
