By Douglas J. Conolly and Ashley K. Dhaliwal

UNDERSTANDING AND APPLYING THE TRUST PROVISIONS OF THE BUILDERS LIEN ACT: FIVE THINGS TO KNOW

By Douglas J. Conolly and Ashley K. Dhaliwal

The trust provisions of the Builders Lien Act1 (“BLA”) are often misunderstood and misapplied by practitioners. Although most of the provisions of the BLA pertain to lien rights (unsur- prisingly), the trust relationships created by this statute should not be given short shrift. If understood and applied correctly, breach of trust and related claims arising from the trust provisions of the BLA can be powerful tools for an aggrieved party in a construction dispute.

TWO TYPES OF TRUST RELATIONSHIPS There are two types of trust relationships created under the BLA.

Pursuant to s. 5(2) of the BLA, all funds in the owner’s holdback account are held in trust for the benefit of the contractor from whom the holdback was retained, subject to, inter alia, any lien claims by those engaged below the said contractor.

Pursuant to s. 10 of the BLA, all funds received by a contractor (or subcontractor) on account of the price of its contract (or subcontract) are held in trust for the benefit of all persons that the contractor (or subcontractor) engaged in connection with the improvement. All beneficiaries of the s. 10 trust must be paid before the trustee can appropriate the trust funds for its own use or uses not authorized by the trust.2

To illustrate, suppose that Alpha is the owner of a property. Alpha contracts with Bravo for the construction of a building on that property. In turn, Bravo contracts with Charlie to perform the roofing work and with Delta to perform the painting work. Charlie then contracts with Echo to supply the materials for the roofing work.

In this scenario: • pursuant to s. 5(2), the funds held back from Bravo in Alpha’s holdback account would be held in trust for Bravo, subject to the lien claims of Charlie, Delta and Echo; and

• pursuant to s. 10: • Bravo would hold all amounts received from Alpha on account of the price of its contract with Alpha in trust for Charlie and Delta; and • Charlie would hold all amounts received from Bravo on account of the price of its contract with Bravo in trust for Echo.

FLOW OF RELATIONSHIPS The scheme of ss. 5(2) and 10 is such that the trust obligations created by these provisions flow only one step down the construction pyramid. This means that the trustee-beneficiary relationship exists only between those directly above or below each another in the construction pyramid and that the trust obligations only flow downward.3

Consequently, owners do not hold s. 5(2) funds in trust for subcontractors,4 and contractors do not hold s. 10 funds in trust for the owner5 or for those engaged by their subcontractors.

Using the same scenario as above: • Alpha would hold the s. 5(2) funds in trust only for the contractor from whom the funds were held back—namely, Bravo—and not for Charlie, Delta or Echo; and • Bravo would hold the s. 10 trust funds in trust only for the parties it directly engaged—namely, Charlie and Delta—and not for Alpha or Echo.

LIMITATION PERIOD Pursuant to s. 14, all s. 10 trust claims are subject to a one-year limitation period, running from the date that the head contract is completed, abandoned or terminated, or if there is no head contract, running from the date that the relevant improvement was completed or abandoned.6 Therefore, a party who has failed to file a lien within the 45-day time period stipulated by s. 20 of the BLA may still be at liberty to advance a trust claim under s. 10.

ARCHITECTS, ENGINEERS AND MATERIAL SUPPLIERS Although architects, engineers and material suppliers can be beneficiaries of a s. 10 trust, pursuant to s. 10(4) they are not trustees of a s. 10 trust. Given that the funds received by architects, engineers and material suppliers on account of the contract or subcontract price are not impressed with a s. 10

trust, these parties are free to appropriate these funds without risking a breach of the statutory trust.

That said, when an architect, engineer or material supplier is providing services or materials to one party on account of multiple improvements, they are required to make inquiries to the party from whom they are receiving the funds in order to determine which improvement the funds are being advanced on account of7 and to credit the funds against the debt in respect of the improvement.8 Failure to do so will not constitute a breach of trust but may impact their BLA rights.9

BREACH OF TRUST Section 11 of the BLA specifies the statutory consequences of a breach of a s. 10 trust, for both trustees and, in cases where the trustee is a corporation, its directors or officers. The statutory penalties include fines and imprisonment; however, these provisions are not exhaustive with respect to the claims, liabilities and remedies that may flow from a breach of a s. 10 trust.

A trustee’s directors, officers and other “strangers to the trust” may also be liable in tort for, inter alia, knowing assistance in breach of trust and/or knowing receipt of trust funds.10 Therefore, whenever a breach of trust claim is being advanced under the BLA, whether the relevant facts give rise to these tort claims should also be considered. This is because such claims, if proven, may entitle a wronged beneficiary to restitutionary remedies that are not expressly set out under s. 11 of the BLA.

ENDNOTES

1. SBC 1997, c 45 [BLA]. 2. Aside from payment to beneficiaries, see s 11(4) of the BLA for other authorized uses of s 10 trust funds. 3. Trust relationships flowed differently under the previous scheme of the Builders Lien Act, RSBC 1979, c 40, s 2. Therefore, one should be mindful of this when relying on case law interpreting the predecessor statute. See also Columere Park Developments Ltd v Enviro Custom Homes Inc, 2010 BCSC 1248 at paras 61–63 [Columere Park Developments Ltd]. 4. Bear Creek Contracting Ltd v Pretium Exploration Inc, 2020 BCSC 1523 at paras 61, 66–68. 5. Columere Park Developments Ltd, supra note 3 at para 63. Although the court in this case confirmed that the owner was not the beneficiary of a statutory trust under the BLA, it did find a wrongful conduct constructive trust in favour of the owner over the

monies advanced by the owner to the contractor for the construction project: ibid at paras 85–89. 6. For further discussion of the implications of s 14 and the issues it raises, see British Columbia Law Institute,

Report on the Builders Lien Act (2020) BCLI Report

No 89 at 155, online: <www.bcli.org/wp-content/ uploads/2020/07/Report-Builders-Lien-Act-final. pdf>. 7. Ross Gibson Industries Ltd v Greater Vancouver

Housing Corp, 1985 CarswellBC 293 (CA) [Ross

Gibson Industries Ltd]. 8. BLA, supra note 1, s 12. 9. See Ross Gibson Industries Ltd, supra note 7. 10. For a detailed discussion regarding these torts, see

DBDC Spadina Ltd v Walton, 2018 ONCA 60, rev’d 2019 SCC 30.

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