By / Liam M Robertson, Kuhn LLP
The recent case of Wolverine Construction Inc. v Trisura Guarantee Insurance Company, 2023 BCSC 405, exemplifies a common situation where a subcontractor was found not to be entitled to compensation under a labour and material bond.
The Facts
This dispute centered between Wolverine Construction Inc. (“Wolverine”) and Trisura Guarantee Insurance Company (“Trisura”).
On April 25, 2019, the Peace River District and Frontline Civil Holdings Ltd. (“Frontline”) entered into an agreement in relation to the construction of a landfill closure and water management system (the “Project”).
Trisura issued a labour and materials bond (the “Bond”) in relation to the Project with Frontline being named as the Principal. The Bond made Trisura and Frontline liable for the maximum amount of $714,386.53 and set out the following terms:
A Claimant for the purpose of this Bond is defined as one having a direct contract with the Principal for labour, material or both, used or reasonably required for use in the performance of the Contract…
The Principal and the Surety, hereby jointly and severally agree with the Obligee, as Trustee, that every Claimant who has not been paid as provided for under the terms of its contract with the Principal … may as a beneficiary of the trust herein provided for, sue on this Bond … and have execution thereon…
Frontline commenced work on the Project but by June 2019, was having financial difficulties. As a result, Frontline engaged Wolverine to provide assistance with the Project.
On September 19, 2019, Frontline was assigned into bankruptcy.
The Issue
On January 31, 2020, Wolverine gave notice to Trisura and Peace River that Frontline had failed to pay them in the amount of $476,048.14. As a result, Wolverine sought payment for the amount of $476,048.14, plus interest, pursuant to the Bond.
Trisura denied paying any amounts to Wolverine as they had not provided any evidence that they had a contract with Frontline or that they otherwise met the definition of a “claimant” pursuant to the Bond.
The sole issue for the Court to determine was whether Wolverine was a “claimant” within the meaning of the Bond. This depended on whether Wolverine had a direct contract with Frontline for labour, material, or both, and whether such labour or material was reasonably required for use in the performance of the contract between Frontline and Peace River.
The Decision
In short, the Court found that Wolverine did not contract with Frontline for the supply of goods and materials for the Project on terms that would render Frontline liable for the costs of the goods and materials supplied.
In reaching this conclusion, the Court looked at several principles to determine whether a contract existed such as whether there was an intention on behalf of Wolverine and Frontline to contract and whether the essential terms of this contract were agreed upon.
Wolverine’s evidence that an agreement was prepared and agreed to between the parties was fatally inconsistence with their discovery evidence wherein they had testified twice to not knowing whether an agreement was ever finalized.
In addition, the Court found that various invoices did not fill the “lacuna” in evidence for the following reasons:
a. there was no evidence any invoices were delivered to Frontline by Wolverine;
b. the timing of the invoices suggests they were made for purposes other than billing Frontline for services rendered or materials supplied;
c. some invoices were potentially prepared for Peace River as opposed to Frontline; and
d. the invoices were prepared after Frontline made its assignment into bankruptcy.
The Court also found that there was overwhelming evidence that Wolverine took over the project with the intent of procuring an assignment of the head contract rather than as a subcontractor to Frontline.
Lessons Learned
A couple lessons learned are as follows:
- at the outset of working on a bonded project, contractors should ensure that they are eligible under any applicable performance or labour and material bond; and
- contractors should ensure that any agreement for labour or materials are properly documented and that all relevant terms, especially payment terms, are adequately outlined and agreed upon.
This article was written by Liam M. Robertson, who is a lawyer that practices in construction law with the law firm of Kuhn LLP. This article is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have any questions or comments about this case or other construction law matters, please contact us at 604-864-8877 (Abbotsford) or 604-684-8668 (Vancouver).
