Article

Is the Decision in Valard Construction Ltd v. Bird Construction Co.1 Really Revolutionary in Quebec?

The Supreme Court of Canada recently ruled on the obligation, whose existence and degree of intensity vary according to the circumstances, to disclose the existence of a surety bond for construction wages and materials to potential beneficiaries, pursuant to general principles of Common Law trusts and equity that do not apply, or at least not in the same way, in Quebec.

After analyzing the decision, we will review the state of the law in Quebec in this regard.

1. The Valard decision

General contractor Bird Construction Co. (“Bird”) required its sub-contractor Langford Electric (“Langford”) to provide a CCDC-222-type surety bond for the payment of wages and materials of its sub-contractors and suppliers, including Valard Construction Ltd. (“Valard”), in connection with a private construction project in the Alberta oilsands

The provisions of the bond created a Common Law trust and named Bird as the trustee of the trust, which was intended to provide protection to unpaid creditors of Langford, who had to give the trustee notice of their claim within 120 days of their last provision of work or materials2.

When Valard learned of the existence of the surety bond, however, the 120-day notice period had expired, such that its claim was rejected by the surety, Guarantee Company of North America. Following this rejection, Valard sued Bird on the grounds that it had breached its duty to inform Valard of the existence of the bond.

Both the trial judge and the Alberta Court of Appeal dismissed Valard’s action.

The Supreme Court overturned those judgments, concluding that even if the contract3 and Alberta law did not expressly require the trustee to inform potential beneficiaries of the bond, certain circumstances could require it to “take reasonable steps to notify potential beneficiaries of the trust”.

In this case those circumstances were that the surety bond in question was not commonly used in private-sector projects in the oilsands, that it was not advertized or posted in the on-site trailer where Valard was required to attend daily meetings, that Bird had been advised that Valard was experiencing difficulties in getting paid, and that Valard was unaware of the bond’s existence until its right to avail itself thereof had expired.

The Court indicated that in other circumstances, such as where a surety bond is commonly used or expressly referred to in the contract documents, “few if any steps may be required by a trustee” to disclose the bond’s existence.

The Supreme Court analyzed the degree of intensity of the trustee’s duty in situations where a beneficiary arguably should be informed of the existence of the surety but neither the law nor the terms of the bond require this.

Canada: Obligation To Disclose A Surety Bond To Potential Beneficiaries