Double security for lien claimants?: The Stuart Olson decision

On September 18, 2015, the Supreme Court of Canada issued reasons for judgment in Stuart Olson Dominion Construction Ltd. v. Structal Heavy Steel, 2015 SCC 43. While in many respects the decision simply confirmed the remedies available to contractors and sub-trades under builders’ lien legislation, there are significant unresolved questions with respect to how this decision will be applied in British Columbia.

The case involved a dispute between Stuart Olson, the general contractor for the construction of the new Investors Group Field football stadium in Winnipeg, and Structal Heavy Steel, one of its sub-contractors. Structal Heavy Steel filed a claim of builders’ lien, which Stuart Olson discharged by posting a lien bond in court for the full amount of the claim. When the dispute remained unresolved, Stuart Olson applied to court for a declaration that it was free to use further funds it received from the owner without regard to any trust claims against those funds that Structal Heavy Steel might have, given the posting of the lien bond as security. The Manitoba Court of Queen’s Bench agreed with Stuart Olson that the lien bond also stood as security for the trust claims, however the Manitoba Court of Appeal reached the opposite conclusion.

The Supreme Court of Canada dismissed Stuart Olson’s appeal and confirmed that the lien bond was not posted as security for both the lien claim and any trust obligations. The sub-contractor’s lien rights and trust rights were held to be separate and distinct, and the Supreme Court found that posting security for one claim did not automatically discharge the other. Interestingly, the Supreme Court suggested in its decision that if money had been posted in Court – as opposed to a lien bond – that might have been sufficient to secure any trust claims as well since payment of trust funds into court as security could not result in a breach of any trust obligations.

The decision in this case serves to underline that contractors and sub-contractors have both lien rights and trust rights under builders’ lien legislation, and that these are separate and distinct rights. Owners or head contractors may be required to post actual funds in trust as security in order to ensure that both lien claims and any trust claims are discharged, and thus preserve the flow of money to the project.

Several unresolved questions remain, however. It is unclear how the principles in this decision might apply to a Shimco lien against holdback funds – something which is unique to British Columbia. In addition, it is unclear whether other sub-trades or sub-contractors further down the contractual chain may be able to insist that their trust rights ought to be secured as well, which would further complicate the process of posting security and ensuring the continued flow of payments.

It remains to be seen how the implications of the Stuart Olson decision will play out in British Columbia, but it is clear that owners and contractors will need to pay careful attention when posting security for claims.