By James Steele
I enjoy practising in the area of estate litigation, and follow case law developments closely. Interestingly, a recent Supreme Court decision from the construction context, nevertheless has important implications for estate lawyers. In Valard Construction Ltd. v Bird Construction Co. (2018 SCC 8), a majority of the Supreme Court found that a trustee can owe a duty to disclose the existence of a trust to its beneficiaries.
As a recap, a trust is a relationship whereby the trustee holds property for the beneficiaries of the trust. Bird was a general contractor on a construction project in the oilsands. Bird subcontracted with Langford and required Langford to obtain a labour and material payment bond naming Bird as trustee. If Langford was slow in paying a contractor, the bond would permit any contractor to sue. However, notice of any claim on the bond had be made within 120 days of work being provided by the contractor.
Langford became insolvent. Unfortunately, a certain provider of work (the “Beneficiary”) was not notified by Bird of the bond’s existence. The surety denied the Beneficiary’s claim and the Beneficiary then sued Bird for breach of fiduciary duty in not informing it of the existence of the bond.
A majority of the Supreme Court of Canada agreed. It held that wherever a beneficiary would be unreasonably disadvantaged not to be informed of a trust’s existence, the trustee was obliged to disclose the existence of the trust.
For the majority, Justice Brown explained that “whether a particular disadvantage is unreasonable must be considered in light of the nature…of the trust and the…environment in which it operates, and in light of the beneficiary’s entitlement.” Here, Bird as a trustee should reasonably have made some efforts to notify beneficiaries of the existence of the bond. Here, the trustee did nothing, having filed the bond offsite, declining to post it, and telling nobody about it.
As such, the Supreme Court found that the Beneficiary had been unreasonably disadvantaged by the trustee’s failure to inform it of the trust’s existence. The expiry of the notice period had effectively prevented the Beneficiary from enforcing the trust. As a result, the Beneficiary was entitled to be compensated for the sum that it could have obtained under the terms of the trust, had it been aware of its rights. The quantum of damages was ordered remitted to the trial judge for adjudication.
Justice Karakatsanis offered a dissent. She found that a trustee was merely under an obligation to maintain and deliver the trust property, but not to provide notice of the trust to potential claimants. It was sufficient that Bird simply responded to any enquiries which may have been made about a bond.
While Valard Construction did not arise in the typical estate context, estate lawyers should pay attention to its implications when advising both trustees and beneficiaries alike. Future issues remain to be considered, such as what interests are “significant” enough to entitle a beneficiary to knowledge of a trust. For instance, the Supreme Court said that “where the interest of the beneficiary is remote in the sense that vesting is most unlikely” the beneficiary would likely not have suffered unreasonable disadvantage, even if uninformed of the trust’s existence.
James Steele is an lawyer with Robertson Stromberg LLP in Saskatoon, Saskatchewan. He practises in the area of estate litigation. The above constitutes general overview of the subject only, and readers are advised to consult a lawyer for specific advice.
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