The Supreme Court recently released a decision that, while arising in the construction context, has important implications for estates practitioners. In the case of Valard Construction Ltd. V Bird Construction Co. (2018 SCC 8), a majority of the SCC found that,
In general, wherever a beneficiary would be unreasonably disadvantaged not to be informed of a trust’s existence, the trustee’s fiduciary duty includes an obligation to disclose the existence of the trust.
Suncor Energy Inc. hired Bird Construction Company (“Bird”) as a general contractor. Bird subcontracted to Langford Electric Ltd. (“Langford”), which in turn subcontracted to Valard Construction Ltd. (“Valard”). As part of Langford’s contract with Bird, it was required to obtain a labour and material payment bond. The bond allowed for any “beneficiary” (a provider of work or materials who did not receive payment from Langford) to sue on the bond for any unpaid sum. Bird held the bond in trust. The trust property was, then, the right to claim against and recover from the bond. Key in this case was the fact that any claim against the bond had to be made within 120 days of the end of the beneficiary’s work, or else the surety would deny the bond.
Langford experienced insolvency, and did not pay Valard for its work. Valard, unaware of the existence of the bond, did not make a claim within the requisite 120-day period. Valard eventually learned of the bond, and attempted to make a claim against it, which was denied on the basis that it was outside of the claims period. Valard sued Bird for breach of fiduciary duty, for not informing it of the existence of the bond. The trial judge dismissed Valard’s action on the basis that Bird did not owe a duty to inform Valard of the existence of the bond. The Alberta Court of Appeal dismissed Valard’s appeal.
The SCC, in allowing Valard’s appeal, found that, in some cases, “the beneficiary’s right to enforce the terms of the trust can be meaningfully exercised only if he or she is first informed of the trust’s existence” and that “equity imposes upon trustees a duty to disclose to beneficiaries the existence of the trust in a variety of circumstances.” Justice Brown for the majority elaborated, “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.” Justice Brown further found that if the interest of the beneficiary is remote, it would be unlikely that the beneficiary would be unreasonably disadvantaged by not knowing of the trust’s existence.
It will be interesting to see the application of this case to a more “traditional” trusts context. This was really the perfect test case: the trust property itself was the right to recover, and the beneficiary’s recourse was all-or-nothing, based on whether or not they made a claim by a set date. It remains to be seen how the Courts will apply this decision to, for example, discretionary trusts with individuals as beneficiaries. Until then, estate practitioners should be mindful of this case when advising Trustees and beneficiaries alike.