Breach of Trust Claims: When Does The Clock Start Ticking?

February 21, 2017 | Enzo Di Iorio

Certain court decisions are worth revisiting to ensure that they aren’t overlooked when facing complicated construction litigation matters. One such case is the decision in Frank’s Drilling and Blasting Inc. v. Isbester, 2015 ONSC 3581 (“Frank”). If you are an owner or contractor, Frank could have a significant impact on your business since, arguably, the decision may have equipped contractors, subcontractors, and suppliers with an enhanced tool to pursue claims that may otherwise be statute-barred. For years, contractors, sub-contractors and suppliers have relied on the trust provisions in the Ontario Construction Lien Act (“CLA”) to collect on unpaid invoices. The breach of trust remedy is, and remains, an effective tool to sue not only the company that owes the money, but also those individuals in control of that company, such as its officers and directors.

Historically, the start of the limitation period for breach of trust claims was the same as it was for breach of contract claims. Frank may have changed this. Although Frank is in the context of a motion to amend a statement of claim, the decision appears to stand for the proposition that the limitation period for breach of trust claims under the CLA does not begin to run until the beneficiary (i.e. the contractor/subcontractor or supplier) first discovers or ought to have discovered that funds were received by the trustee (i.e. the party that owes funds to the contractor/subcontractor or supplier beneficiary).

Once a beneficiary of a construction trust knows, or ought to have known, of facts that are believed to result in a claim for breach of trust, the beneficiary has two years from that moment to start a law suit. In some of the cases that were decided before Frank, the general view was that in a breach of trust case, the limitation period begins to run as of the date that a properly rendered invoice was due. In Frank, both the plaintiff’s last day of work on site and, more importantly, the last payment received by the defendant was in November 2012.  The plaintiff’s motion to add a party to the action for breach of trust was not issued until April 9, 2015 (well over 2 years later). The court rejected the defendant’s argument that the two-year limitation period commenced in November 2012 when the plaintiff last worked at the project site. Instead, the court focused on the date that the plaintiff first discovered that monies were received by the defendant in late June 2013 even though, according to the defendant, the monies were received in November 2012.

Miller Thomson LLP has been successful in applying Frank, and in particular, in the context of a motion to strike a construction trust claim in the unreported decision of E-M Air v. JRN Holdings et al. In that case, the Court confirmed that a statute-barred contract claim does not preclude a breach of trust remedy, and that knowledge of receipt of funds is critical to triggering the clock for the limitation period in a breach of trust claim.

If you are an owner or general contractor and you believe that you have a valid defence to a breach of trust claim, you will want to ensure that you have not done anything to unintentionally delay the start date for the breach of trust limitation period. For example, if you receive a demand letter under section 39 of the CLA, you should respond as soon as possible to foreclose an argument from the claimant that, without the requested documents, it had no knowledge of when trust monies have been received. There may be other factors that impact the start date of the limitation period. One should always seek legal advice to determine how best to deal with a breach of trust claim.

 

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