Limiting the scope of the construction trust?

Export Development Canada v. Antamex Industries ULC et al.
How do you determine whether funds are impressed with a statutory trust?

Summary: In this case, the court considered the legal effect of a project material agreement entered into by a receiver and a general contractor to prevent delays on a construction project. A disputed amount of over $500,000 was held in trust for the contractor, which the receiver sought court approval to return after validating the contractor’s set-off claim. A material supplier opposed the payment, arguing the funds were subject to a trust under the Construction Act until lien rights expired. The court rejected the supplier’s position, finding that the supplier was attempting to avoid the lien claims process and leapfrog other claimants by asserting a direct claim to the disputed amounts. Given that the project material agreement was a one-off practical commercial solution used in the particular circumstances of this case to avoid a delay that would have prejudiced an array of stakeholders, it did not fit within the provisions of the Construction Act.

Deloitte was appointed Receiver of Antamex and a related party, 256 Victoria. 256 Victoria owned the Alliston Premises at which Antamex was a tenant.

The Receiver was party to a Project Material Agreement with Stuart Olson Construction Ltd. (“Stuart Olson”), a general contractor for a project undertaken at York University (the “Project”). According to the Project Material Agreement, in order to allow the Project to not be stalled unduly by the receivership, all materials related to the project were released to Stuart Olson upon payment by Stuart Olson of outstanding accounts receivable related to the Project.

Stuart Olson disputed that certain amounts forming part of the accounts receivable were payable to Antamex. Under the Project Material Agreement, the Receiver agreed to hold the disputed amount of $562,893.44 in trust for Stuart Olson pending a commercial resolution of the parties’ entitlement in order to allow the immediate release to and pick up by Stuart Olson of certain materials in Antamex’s possession which were urgently needed to complete the Project.

In reviewing the proof of claim filed by Stuart Olson, the Receiver confirmed that Stuart Olson had a valid contractual right to set off its damages against the accounts payable to Antamex on the date of the Receiver’s appointment, and that Stuart Olson had sustained damages that exceeded the disputed amount. Accordingly, the Receiver sought the Court’s authorization to return the disputed amount to Stuart Olson. Alumicor, a materials supplier on the Project retained by Antamex to fabricate and supply aluminum doors and frames, opposed the distribution.

In reviewing the proof of claim filed by Alumicor, the Receiver confirmed that the materials that Stuart Olson had Antamex release were Alumicor’s materials, and that Alumicor was entitled to 100% of its claimed amount for the materials delivered with the caveat that this amount would not be paid in full at that juncture, but would instead be pro-rated based on the available funds to all subcontractors on the Project. Alumicor argued that under the Construction Act, the disputed amounts were impressed with a trust such that any contractual set off that Stuart Olson could claim under the subcontract with Antamex could not be applied to those trust funds until the owner’s $2.3 million holdback was dealt with and all lien claim rights had expired.

Stuart Olson argued that the Construction Act did not apply to the distribution sought to be made by the Receiver because, pursuant to the Project Material Agreement, the Receiver held the disputed amounts in escrow and subject to an express trust for Stuart Olson. Further, Stuart Olson submitted that the disputed amounts were not trust funds under the Construction Act as they were not made “on account of the contract or subcontract price of an improvement” within the meaning of s. 8(1) of the Construction Act. Finally, Stuart Olson argued that the disputed amounts did not form part of the statutory holdback required by the Construction Act, which York University continued to retain in full. The Receiver, for its part, argued that it was obligated to return the disputed amounts to Stuart Olson.

The Court agreed with the Receiver’s submission that the trust claims process had no effect on Alumicor’s ability to pursue its lien claims filed on the Project or any claim it may have against Stuart Olson directly. Alumicor saw in the Project Material Agreement an opportunity to potentially jump the lien claim process and leapfrog other claimants by asserting a direct claim to the disputed amounts. The Project Material Agreement was a one-off practical commercial solution to avoid a delay that would prejudice an array of stakeholders, and did not fit within the provisions of the Construction Act.

The Court authorized the Receiver to pay the disputed amounts to Stuart Olson in accordance with the Project Material Agreement, but did not foreclose Alumicor’s entitlement to pursue its lien claim and any other claim it may have against Stuart Olson directly.

Judge: Justice W.D. Black

Professionals involved:

• Asim Iqbal and Patryk Sawicki of Gowling WLG for Stuart Olson

• Caitlin McIntyre of Blakes for Deloitte as Receiver

• Andrew Punzo and Mark Borgo of BLG for Aviva Insurance

• Mitch Stephenson of Fasken for EDC

• Jawad Janmohamed of Sutherland Law for Krisro Metal Industries

• Daniel Fridmar for Alumicor