Case Review: Valard Construction Ltd. v. Bird Construction Co. 2018: The duty to disclose the existence of a bond to potential beneficiaries

  • November 09, 2018
  • Maria Le Hunte

Valard Construction v. Bird Construction Co., 2018 SCC 8 examined the question of whether a party named as obligee/trustee in a labour and material payment bond had a fiduciary obligation to take reasonable steps to notify beneficiaries and potential beneficiaries about the bond’s existence. This case confirms that, in general, wherever a beneficiary would be “unreasonably disadvantaged” by not being informed of a trust’s existence, the trustee’s fiduciary duty includes an obligation to disclose the existence of the trust.

Background

This is a case dealing with an unpaid sub-subcontractor, Valard Construction Ltd. (‘Valard’). Valard was a beneficiary of a labour and materials payment bond. When Valard made a claim to the requisite guarantee company, Valard was denied. The guarantee company asserted that Valard failed to give them timely notice. Valard had failed to give timely notice because Valard was unaware that they were beneficiaries of the labour and material payment bond during the notice period in which they could have brought a claim. A labour and material payment bond was not typical in the circumstances and Valard had not been given any notice by the trustee, Bird Construction Co. (‘Bird’) or anyone else in the relevant time period. The trial judge dismissed Valard’s action, as did the Alberta Court of Appeal. Valard appealed to the Supreme Court of Canada (‘SCC’).

Issues

  1. Whether a trustee of a trust contained in a labour and material payment bond owes a duty to disclose the existence of the bond to potential beneficiaries of the trust; and
  2. If such a duty is owed, what conduct by the trustee would discharge it, and whether it was discharged here.

Reasoning

  • Duty to disclose the existence of the trust to potential beneficiaries

The bond in this case was issued in standard form CCDC 222-2002. Its text created an express trust, naming Bird as trustee of the trust property. The bond did not expressly impose a duty on Bird as trustee “to protect the interests of [beneficiaries]” by, for example, disclosing the bond’s existence to them. The SCC stated however that, while the “main source” of a trustee’s duties is the trust instrument, the “general law” which sets out a trustee’s duties, rights and obligations continues to govern where the trust instrument is silent.

In considering the general law of trusts, the SCC considered the extent of a trustee’s duty to account and stated that a beneficiary’s right to enforce the terms of the trust can only be meaningfully exercised if they are informed of the trust’s existence. It stated that equity imposes on trustees a duty to disclose to beneficiaries the existence of a trust in a variety of circumstances. In general, whenever it could be said “to be to the unreasonable disadvantage of the beneficiary not to be informed” of the trust’s existence, the trustee’s fiduciary duty includes an obligation to disclose the existence of the trust. Whether a particular disadvantage is unreasonable must be considered in light of the nature and terms of the trust and the social or business environment in which it operates, and in light of the beneficiary’s entitlement thereunder. On the other hand, where the interest of the beneficiary is remote in the sense that vesting is most unlikely, or the opportunity for the power or discretion to be exercised is equally unlikely then it would be rare to find that the beneficiary could be said to suffer unreasonable disadvantage if uninformed of the trust’s existence.

  • The Content of the Duty generally

The standard to be met in respect of this particular duty is not perfection, but rather that of honesty, and reasonable skill and prudence. The specific demands of that standard, so far as they arise from the duty to disclose the existence of a trust, are informed by the facts and circumstances of which the trustee ought reasonably to have known at the material time. In considering what is required in a given case, the proper inquiry is into what steps, in the particular circumstances of the case — including the trust terms, the identity of the trustee and of the beneficiaries, the size of the class of potential beneficiaries and pertinent industrial practices

— an honest and reasonably skillful and prudent trustee would have taken in order to notify potential beneficiaries of the existence of the trust. But, where a trustee can reasonably assume that the beneficiaries knew of the trust’s existence, or where practical exigencies would make notification entirely impractical, few, if any, steps may be required by a trustee. The discharge of this duty to disclose the existence of a trust is fact and context specific.

Decision

It was found that Valard was unreasonably disadvantaged by Bird’s failure to inform it of the trust’s existence and Valard’s interest under the trust was not too remote. Therefore Bird, as trustee, had a duty to disclose the bond’s existence to Valard.

With respect to the discharge of this duty, Bird did nothing at all in the way of disclosure and since labour and material payment bonds were uncommon, something more than nothing was required from Bird to discharge its duty. Bird therefore committed a breach of trust.

The appeal was allowed. Bird as trustee had to make restitution for the loss suffered by Valard.

Conclusion

Those who have a labour and materials bond or are trustees by virtue of another form of trust instrument must consider their disclosure obligations to all potential beneficiaries. The content and extent of the disclosure that would be required would be specific to each situation. The disclosure requirement may be as minimal as a notice on a public notice board or not required at all depending on the specific circumstances. Erring on the side of disclosing will greatly minimize a company’s risk exposure with respect to liability for duty to disclose.

 

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