In The Three Certainties We Trust: The Status Of Builders' Lien Act Trust Claims In Bankruptcy

Introduction

There is now a Nova Scotia decision on the interplay between the provincial Builders' Lien Act and the federal Bankruptcy and Insolvency Act ("BIA") in the interesting context of trusts. In Re Kel-Greg Homes Inc, Justice Rosinski found that monies found to be impressed with a trust under the Builders' Lien Act can also be considered trust property under the BIA—and therefore exempt from the property of the bankrupt that may be distributed to creditors—if they meet the traditional "three certainties" of intention, object, and subject-matter. When the three certainties are present, the effect is that these monies will remain available for distribution among unpaid contractors and subcontractors on a construction project, and will not be subsumed in a bankrupt owner's or general contractor's estate.

Facts

There were four key facts about Kel-Greg: It (1) was the general contractor for several residential construction projects; (2) owed money to multiple contractors who had worked on those projects; (3) went bankrupt on August 2, 2013; and (4) only kept one bank account.

The dispute was whether certain funds in that account, amounting to around $60,000 (the "Collected Funds"), constituted trust property and were therefore exempt from distribution on bankruptcy (paras 1-3). The Trustee in Bankruptcy argued unsuccessfully for the funds to be included in the bankrupt's estate.

Statutory context

The trust provisions are contained in sections 44A-44G of the Nova Scotia Builders' Lien Act. Section 44B was at issue in Kel-Greg. That provision obliges the general contractor to hold all monies received for the project in trust until the subs on the lower rungs of the construction ladder are paid. (As the Supreme Court recently confirmed in Stuart Olson Dominion Construction Ltd v Structal Heavy Steel, 2015 SCC 43, referred to in Kel-Greg at para 55, these trusts serve different protective purposes than the lien provisions.)

On the federal side of things, the BIA excludes trust property from the "property of a bankrupt": Section 67(1)(a).

Analysis

There has been a wealth of case law from across Canada considering whether it is constitutionally permissible for a provincial statutory deemed trust, like the trusts created under lien legislation, to count as "property held by the bankrupt in trust for any other person" under the federal BIA (which the ABCA recently and helpfully summarized in Iona Contractors, infra at paras 28; 38-43). This is...