Do Something! Labour And Material Payment Bonds Should Be Disclosed To Claimants

Labour and Material Payment ("L&M") Bonds are commonly issued in the construction industry to ensure that subcontractors and suppliers working on construction projects get paid. L&M bonds also protect the "obligee", as named in the bond, from work stoppages and liens being registered. Basically, these bonds contain enforceable promises by a third party, the "surety", to pay subcontractors and suppliers (who fall within the definition of "claimant" as set out in the bond) for their work, provided any claim for payment advanced satisfies the express conditions of the bond (which include express time requirements for making a claim). If unpaid, a claimant can sue on the bond to receive payment from the surety.

Often subcontractors and suppliers have no knowledge of whether such an L&M bond has been issued on a given project. Unless they, or their legal counsel, are savvy enough to ensure the right questions are asked a party could easily lose out on an opportunity to advance a claim under such a bond and the chance to get paid for their work.

This was the situation which occurred in Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8. Valard was a subcontractor of a party who became insolvent. That insolvent party had been required to obtain a labour and material payment bond for its work. The bond named Bird, who was the general contractor, as the obligee. Valard's invoices went unpaid. It had no knowledge of the bond's existence. Importantly, Valard had never seen an L&M bond used on the type of privately owned oilsands project in question. Only after the time period for making a claim on the bond had passed, did Valard ask Bird whether there was an L&M bond. Bird advised there was in fact a bond and Valard made a claim. However, Valard's claim was denied for being out of time.

Valard sued Bird alleging that Bird had a positive obligation to disclose the existence of the L&M bond. The Supreme Court of Canada ("SCC") agreed and focused on language contained in L&M bonds which makes the obligee a "trustee" for the claimants. The trustee language creates a fiduciary duty on an obligee, which in...