Serving the Thermal Insulation Association of Canada

By: Orie Niedzviecki

So you are getting stiffed on the job. You also waited too long to lien and now you are out of time. But the guy who hired you is still driving around in a fancy car, while you have employees to pay, materials you paid your own money for, and you haven’t been paid for months of work. The company that hired you has nothing and there would be little purpose in chasing it for payment. You are out of luck—or are you?

In today’s economy, there are many companies that are shutting down or going bankrupt. It also has been common practice in the construction industry to have separate corporations for each new project. They can easily close up shop or claim insolvency. You need to know what your rights are when you seem to be looking into empty pockets for payment. A good lawyer will know what legal “tricks” might allow you to make something from nothing. These are not tricks, of course, but actual legal principles that might help you obtain payment.

Some of these “tricks” are the trust provisions set out in Ontario’s Construction Lien Act. You always have the right to sue for payment under contract. But the Construction Lien Act gives contractors extra rights. The best known of these rights is the right to put a lien on a property. However, the time by which you have to do so is very limited. If you miss it, you can be out of luck, but sometimes you can rely on the trust provisions—the other major set of rights granted to contractors in the Construction Lien Act.

Simply put, in certain circumstances, money received by the individual or company above you in the contracting chain—be it the owner or the general contractor—is held in “trust” for the contractors below.

Section 7 of the Construction Lien Act says that any amounts received by an owner that are to be used in the financing of the improvement are a trust fund for the benefit of the contractor. The same section goes on to say that once an amount becomes payable on a certificate of payment certifier, or substantial performance of a contract has been certified, then an amount of money equal to what is now owing that is in the owner’s hands or received afterwards is trust funds for the contractor’s benefit.

Similarly, Section 8 of the Construction Lien Act says that the general contractor “shall not appropriate or convert any part of the fund to the [general] contractor’s . . . own use or to any use inconsistent with the trust until all subcontractors . . . are paid all amounts related to the improvement owned to them by the contractor”.

So when an owner receives a loan from the bank for a project, the owner holds the money in trust to pay the general contractor. When your general contractor gets paid by the owner, he is holding the money he received in trust for you, the contractor. They are deemed by the law to be holding the money for you and have to use it to pay you and account for it if it goes missing.

Furthermore, if a certification of work is made, then you may get the added protection that any monies in the owner’s hands become trust funds available to pay you, if you have a direct contract with the owner. In order to access this or any of these provisions, you have to strictly meet the tests set out in the legislation and the case law that has interpreted it. It will therefore be very valuable to obtain a certification of your work.

Great, you say, but the general contractor’s company has no money and is shut down. How do I squeeze blood from a stone?

The fact that these sections of the Construction Lien Act establish a legal trust is very important. It means that the money in question belongs to you, the contractor, already. If they put it in their own pocket, your lawyer can trace the money and try to get it back. This applies if they give it to their mother, pay their mortgage with it, or whatever. If the monies are trust funds under the Construction Lien Act, and they use them for a purpose other than paying you, then you may have the ability to chase the money wherever it went.

But the Construction Lien Act gives contractors another really powerful weapon—Section 13. That section allows you to go after every director or officer of a corporation and “any person, including an employee or agent of the corporation, who has effective control of a corporation” who assents to or acquiesces in conduct that they know or ought to know amounts to a breach of trust.

This means that any officer, director, or person in charge of a company that has absconded with the funds made available to pay you, or knew that the money was being misdirected, can possibly be found personally liable for the missing money. This is an incredibly powerful tool that allows you to really turn up the heat on unscrupulous owners or contractors who are living the high life using your money!

Now these remedies are only available in certain circumstances, and there are many reasons why such claims may fail, but they are usually worth asking a lawyer to look into. A good lawyer will always consider them and their chance of success before recommending you invest your money in litigation. They are often your last chance at payment when the owner or contractor above you is insolvent. 