Canada: The Alberta Construction Trust: A Remedy On Projects That Cannot Be Liened?

INTRODUCTION AND OVERVIEW

The Alberta Prompt Payment and Construction Lien Act,¹ and its predecessor Builders' Lien Act² primarily create a scheme in which a lien may be registered against title to any lands improved by the lien claimants work. Doing so provides the lien claimant some security against the land. This purpose is, of course, expanded by the introduction of the Prompt Payment regime, but the lien remains largely the same. The ability to lien, however, is limited in various manners, primarily in the properties or projects that a lien can be registered against.

For instance, the Prompt Payment and Construction Lien Act specifically excludes liens against public highways³ and case law disallows a lien for public policy where it would be against the public interest to sell the lands in question.⁴ A recent Alberta case held that a lien was invalid against a municipal property simply because the property had been registered as a "municipal reserve."⁵ Builders' liens are also unavailable against projects within federal jurisdiction, which includes airports, federal penitentiaries, and national parks amongst others. Indigenous lands are also excluded as a result of their special status. In short, contractors, subcontractors, and material suppliers should be aware of the type of project they are accepting work on as the inability to lien will substantially increase the risk where payment is not made.

Despite this general position, there is a growing body of case law allowing the remedies contained within the Prompt Payment and Construction Lien Act to apply even where a lien would be unavailable as a result of the property on which the work is done.

TRUST PROVISIONS UNDER THE PROMPT PAYMENT AND CONSTRUCTION LIEN ACT

Provinces have implemented different legislative approaches to statutory trusts. Ontario, for example, uses a "privity-based" trust where funds received by each payor are held in trust for their respective payees.

Alberta's legislation had no trust provisions until 1985. Eventually, Alberta added a limited trust scheme. Section 22 of the Builders' Lien Act and its replacement Prompt Payment and Construction Lien Act now provides that when a contractor receives payment from the owner after a certificate of substantial performance is issued, the funds are held in trust for persons who (1) furnished work or materials in relation to the improvement, and (2) are owed money by the contractor.

However, the extent and implication of the Alberta trust remains ill-defined, and there are a growing number of cases that consider the application of the trust (under the Builders' Lien Act and Prompt Payment and Construction Lien Act and other similar provincial schemes). These cases confirm that trust remedies still apply even where the lands and project may not be lienable:

Stuart Olson Dominion Construction Ltd v Structal Heavy Steel

In Stuart Olson Dominion Construction Ltd v Structal Heavy Steel⁶ arising from Manitoba, a surety argued that the filing of a lien bond extinguished a trust claim.⁷ This argument was based on the bond standing as security for any potential claim.⁸ The Court disagreed with that argument and held that bond provided no greater security than the lien and that the lien claimant must be successful in the lien action in order to collect the amount secured by the lien bond.⁹ The bond did not constitute security for the trust claim and did not result in the protection of the actual trust funds at issue.¹⁰ Therefore, the party that chooses to file a lien bond with the court instead of depositing the funds at issue is required to maintain the trust fund along with the bond.¹¹ This decision has resulted in a closer examination of the trust provisions in Alberta, and elsewhere.

Iona Contractors Ltd v Guarantee Company of North America

In Iona Contractors Ltd v Guarantee Company of North America,¹² the parties agreed that even though the subject lands (an airport) fell under federal jurisdiction and could not be liened (so as to avoid a situation where a portion of the airport was sold to satisfy the lien), the trust provisions in section 22 of the Builders' Lien Act potentially still applied.

In that case, the Alberta Court of Appeal considered whether the trust provisions in the Builders' Lien Act, giving a form of security to an otherwise unsecured creditor, affected the priority prescribed by the BIA. The Court noted that the section 22 trust provisions were part of a larger statutory scheme designed to create new civil rights for unpaid subcontractors. The holdback provisions and the trust provisions played a supportive role in the overall regime, in place to prevent the unjustified erosion of the lien rights created by the statute and there was no attempt to use "form to override substance." The fact that the trust provisions in the Builders' Lien Act could indirectly affect the priorities of creditors contemplated in the BIA was not enough to establish a conflict such that the Builders' Lien Act is ineffective and the Court found that there is no operational conflict between section 22 of the Builders' Lien Act and the federal BIA.

Moreover, even though created by statute, the Builders' Lien Act trust provisions met the common law test for a trust and therefore fell within the ambit of Section 67 of the BIA. Therefore, the Court held that the disputed funds were not property of the respondent, bankrupt contractor (Iowa Contractors Ltd.), but instead, held that the trust funds in issue in that case met the criteria of a common law trust and were therefore not property of the bankrupt contractor. These trust funds were properly payable to the appellant, bonding company (Guarantee Company of North America), who had paid a group of unpaid subcontractors under the Labour and Material Payment Bond.

Northwest Angle 33 First Nation v Razar Contracting Services Ltd et al

Likewise, issues may arise if the provincial lien legislation arguably has no application to the land at issue, such as First Nations land or land owned by the federal Crown. Section 91(24) of the The Constitution Act, 1867¹³ provides that the federal government has exclusive jurisdiction over First Nation's land. A recent Ontario decision in Northwest Angle 33 First Nation v Razar Contracting Services Ltd et al,¹⁴ continues the Stuart Olson trend in relation to First Nations lands. Read the full case commentary from the Miller Thomson Construction Litigation Group.

In that case, the Court held that the statutory holdback amounts under the Ontario Construction Act¹⁵ applied despite the fact that the subject project was located on First Nations land. The Court followed case law that suggested that the Construction Act was provincial legislation of general application and therefore applied to the First Nation.¹⁶ The Court rejected the submission that the trust provisions amounted to a prohibited seizure of the personal property of a First Nations person.¹⁷

The Ontario decision in Northwest Angle 33 has not yet received treatment or commentary from Alberta courts, so the extent of its applicability in Alberta is uncertain.

TAKEAWAY

Work on any construction project carries risks, including the risk of non-payment. A lien provides some comfort in these situations, however, parties should always be alert that their work may not come within the Prompt Payment and Construction Lien Act. If you find yourself in these situations, seeking legal advice in a timely manner is paramount as there may still be avenues available for recovery such as a trust claim, a claim under the Public Works Act¹⁸, or a claim against a labour and material bond obtained on the project. We can also expect these issues to grow as the amendments found within the Prompt Payment and Construction Lien Act now specifically exclude the provincial government from the scheme. How the Court will interpret these provisions is yet to be seen.

Footnotes

1. RSA 2000, c P-26.4 [Prompt Payment and Construction Lien Act].

2. RSA 2000 c B-7 [Builders' Lien Act].

3. Prompt Payment and Construction Lien Act, s 7.

4. Alspan Wrecking Ltd v Dineen Construction Ltd, 26 DLR (3d) 238, 1972 CarswellMan 102 (SCC).

5. Golden Triangle Construction Management Inc v Nuwest Interior Systems Inc, 2019 ABQB 292.

6. 2015 SCC 43 [Stuart Olson].

7. Ibid at para 39.

8. Ibid at para 39.

9. Ibid at para 41.

10. Ibid at para 41.

11. Ibid at para 47.

12. 2015 ABCA 240 [Iowa Contractors].

13. 30 & 31 Vict, c 3.

14. 2023 ONSC 1233 [Northwest Angle 33].

15. RSO 1990 c. C.30.

16. Ibid at para 74.

17. Ibid at para 75.

18. RSA 2000, c P-46

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.