20 l ROOFINGBC l SUMMER 2018 FEATURE This article has been reprinted with permission from the Vancouver Regional Construction Association and the authors. A Labour and Material (L&M) payment bond is essentially a guarantee from a surety company that the bonded contractor will pay its trades and suppliers on a project. In the event of default of payment, unpaid trades and suppliers can submit a claim for payment to the surety company under the L&M bond. Does a contractor have a duty to notify its trades of the existence of an L&M bond? The law in this regard has just changed. Previously, the Alberta Court of Appeal in Valard Construction vs. Bird Construction Co. had determined that there was no such duty. The Supreme Court of Canada, however, has over- turned that decision. Now a contractor may be held liable for failing to inform trades of the existence of an L&M bond. In Valard vs. Bird, Valard Construction Ltd. was a subcontractor to Langford Electric Ltd. which in turn was a subcon- tractor to Bird Construction Co. on an oilsands project. Bird was the general contractor, and a term of its contract with Langford required Langford to obtain an L&M bond for the benefit of those who worked on the project under Langford. The L&M bond named Bird as trustee and Langford’s subcontractors as beneficiaries. Langford became insolvent and did not pay Valard. Unfortunately, Valard did not have a copy of Langford’s contract with Bird and was therefore not aware that Langford was required to obtain an L&M bond. In addition, Valard made no timely inquiries as to whether an L&M bond existed, and by the time Valard made a claim under the L&M bond, the stan- dard 120-day notice period pursuant to the bond had long since expired, and its claim was denied. Valard sued Bird for the limit under the bond, alleging that Bird breached its duty as the bond trustee to inform Valard, as a bond beneficiary, of the existence of the L&M bond. At the Alberta Court of Appeal, Valard’s claim was dismissed. The court held that bond trustees were not obli- gated to inform beneficiaries about the existence of an L&M bond unless they were specifically asked. Accordingly, in the court’s view, Bird did not breach its duty as the bond trustee when it did not proactively notify Valard, a beneficiary of the bond. That decision was overturned on appeal. The Supreme Court decided that in many cases, a bond trustee’s fiduciary duty to the bond beneficiaries includes an obligation to disclose the existence of an L&M bond. In order to discharge that obligation, the Supreme Court held that the bond trustee must take reasonable steps to inform the beneficiaries of the existence of the L&M bond. The specific action required in each case will vary depending on the circum- stances, including the bond terms, the identity of the parties, the number of beneficiaries and industry practices. Where a trustee knows that the bene- ficiaries are aware of the bond, or where notifying them would be highly imprac- tical, few, if any, steps may be required. The Supreme Court determined that Bird, on the facts of this case, had a duty to disclose the existence of the L&M bond to Valard and that Bird had failed to discharge that duty. Bird could have, at a minimum, posted a notice of the bond in its on-site trailer. Instead, Bird chose to do nothing, and the Supreme Court held that doing nothing was not sufficient to discharge Bird’s duty. The take-away from this decision is that the bond trustee should notify trades of the existence of relevant L&M bonds. Accordingly, owners or general contrac- tors that take out L&M bonds on projects should take steps to inform trades about the existence of the bond. There is little cost to do so but potentially significant exposure if that obligation is not met. At the same time, unpaid subcontrac- tors and suppliers should always ask about the existence of an L&M bond as soon as possible so they do not jeopardize their ability to make a claim against it. Norm Streu is president and chief oper- ating officer of the LMS Reinforcing Steel Group. Christopher Hirst is a partner and the leader of the construction and engineering group at Alexander Holburn Beaudin + Lang LLP. This article was CONTRACTORS MAY HAVE A DUTY TO INFORM TRADES OF PROJECT BONDS Supreme Court has overturned previous Alberta Court of Appeal decision BY NORM STREU AND CHRISTOPHER HIRST