30 UPWORD www.winnipegconstruction.ca SETTING THE INDUSTRY STANDARD FOR OVER 30 YEARS • Asphalt Paving, Maintenance, and Repairs • Imprinted and Coloured Asphalt • Joint and Crack Sealing • Asphalt Sealcoating • Concrete and Paving Stone Repairs • Snow Removal • Parking Lot Sanding Phone: 204-254-3737 Fax: 204-257-6111 pave@superiorasphaltpaving.ca www.superiorasphaltpaving.ca BENCHMARKS W hat rights do subcontractors, bonding companies and owners have to project funds when a general contractor is insolvent? A recent 2017 decision from the Manitoba Court of Queen’s Bench1 considered an application by Manitoba Housing and Renewal Corporation (MHRC) to pay disputed project monies into Court. In this case, MHRC as owner retained a general contractor to perform repairs and improvements to a residential housing complex (the “Project”).The general contractor arranged Recent Manitoba Decision Considers Competing Claims Against Project Funds Held by Owner By John Martens for The Guarantee Company of North America to issue a performance bond and a labour and materials bond. During the Project MHRC maintained the holdback as required by The Builders’ Liens Act (the “Act”). Near the end of the Project a number of builders’ liens were filed by subcontractors. In addition to the statutory holdback, MHRC held back payment to the general contractor, as allowed by the contract, for amounts owing by the general contractor to unpaid subcontractors. On the default of the general contractor, the bonding company paid lien claimants pursuant to the labour and materials bond, and obtained assignments of their rights. In addition, other subcontractors remained unpaid. No claim was apparently made by MHRC under the performance bond because the Project was completed. A Requirement to Pay was delivered by Canada Revenue Agency (CRA) to MHRC pursuant to The Income Tax Act (the “ITA”) directing MHRC to remit amounts it had retained from the general contractor to CRA in satisfaction of the unpaid tax and source deductions that the general contractor owed to CRA. As the judge referenced, there is case law that has interpreted the provisions of the ITA to take priority over both lien and trust claims arising under provincial legislation. CRA and the bonding company each made demands on MHRC for the monies that were held. As a result of the competing claims, MHRC sought to pay the monies into Court. At the same time, the Court considered the competing claims by the bonding company and subcontractors, and by CRA. On the application the bonding company argued that MHRC was legally required to pay it the funds on the basis of the law of guarantee and the obligation of MHRC to mitigate those amounts paid by the bonding company. It also argued that MHRC had a legal obligation to pay the trust funds to the subcontractors – and therefore to the bonding company – as it had paid some of those subcontractors under the labour and materials bond. On the other hand, CRA argued that MHRC had no obligation to pay the funds directly to the bonding company or to unpaid subcontractors and that the funds remained payable to the general contractor. As long as the general contractor remained entitled to the funds held by MHRC, the Requirement to Pay was triggered and CRA’s Requirement to Pay took priority over the claims of the bonding company and the other unpaid subcontractors. The judge agreed with CRA that the funds were payable by MHRC to the insolvent general contractor such that the Requirement to Pay wastriggered.Thejudgealsofoundthat,despite the funds being “subject to lien and trust claims in favour of the unpaid subcontractors” under the Act, the Requirement to Pay took priority. The judge disagreed with the bonding company that the wording of the contract and the right of subrogation held by the bonding company 1  Manitoba Housing and Renewal Corporation v. Able Eavestroughing Ltd., 2017 MBQB 27