Court Forces Contractor to Pay Over $100K for Failure to Account for Distribution of Trust Money
Paragraph 7 of the decision provides a succinct summary of the law surrounding section 8 of the CLA. First, the plaintiff must establish that they gave the defendant money to be put towards construction. This requires establishing: 1) that the plaintiff supplied materials to the projects on which the defendant is the contractor or subcontractor; and 2) that the defendant has received or is owed monies on account of the contract price for the project and that the defendant owes the plaintiff money for the materials supplied. The Ontario Court of Appeal has further clarified that the plaintiff is not required to point to a specific and known project at the time of the investment, so long as they can establish a link between the money and an improvement. If the plaintiff succeeds in establishing that they gave money to the defendant to be used for a construction project, they will gain the protection of the trust imposed by section 8 of the CLA and the court’s focus shifts to the defendants who must then prove that all payments of trust funds were made to the proper beneficiaries of the trust. If successfully established, proving payment to proper beneficiaries will avoid liability under section 8 of the CLA.
In this case the plaintiff’s job was made easier by the fact that the statement of defence was struck. The defendants were not able to account for the distribution of monies held in trust and were thereby found liable to the plaintiffs. Liability was extended to the directors and officers of the corporate defendant for their failure to properly account for the funds they controlled on behalf of the plaintiffs. Under section 13 of the CLA, individual defendants can be held jointly and severally liable for breach of trust where they acted as ‘controlling minds’ of a corporate defendant, and their acquiescence or assent amounted to a breach of trust. Further, the court highlighted that misappropriation of trust funds and liability under sections 8 and 13 of the CLA constitute sufficient wrongdoing to warrant survival of a discharge under the BIA.
Another interesting aspect of this case is the court’s decision in respect of the BIA. The court’s decision to have the liability withstand a discharge order under the BIA is significant for the defendants because it essentially ensures repayment. Bankruptcy and insolvency should always be an underlying concern for creditors and judgement creditors because it has the potential to thwart repayment and leave creditors with nothing despite their legal entitlements.
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