Trusts

Question 1

Source of law

Answer 1

Lien legislation

Question 2

Where do trust funds come from?

Answer 2

Contract Funds

Question 3

Envelope Trust Funds

Answer 3

all monies “received” on account of any contract or subcontract price constitutes a trust fund for the benefit of EVERY supplier or work, services, or materials on account of a contract or subcontract

Question 4

In NB which trust do we use?

Answer 4

Envelope trust (contractor and subcontractor trust fund)

Question 5

Privity trust

Answer 5

Monies received by each payor is held in trust for the payees (more like a holdback)

Question 6

Who has charge on trust funds?

Answer 6

Generally persons who supply services/materials are given a charge on trust funds created by lien legislation in addition to a lien on the land

Question 7

Distinguished from a lien

Answer 7

• Don’t need lien entitlement to pursue trust claim

- Projects not lienable can still be subject to trust claim

Question 8

Projects not lienable

Answer 8

Trusts can apply to Federal Crown Projects where liens cannot (don’t need to go through analysis to see if they submitted themselves to lien legislation)

Question 9

Rationale for trusts applying to Federal Crown Projects

Answer 9

where an ultimate remedy for the lien is the land, this is not the case for a trust fund (trust could never result in a sale)

Question 10

Concurrent?

Answer 10

Can pursue trust and lien claim concurrently

Question 11

Contractors and subcontractors trust

Answer 11

Trust where:

1) Amounts are RECEIVED by a contractor or subcontractor;
2) on account of the contract or subcontract price;
3) which will constitute a trust fund for those who supplied services or materials to the improvement;
4) AND are owed amounts by the contractor or subcontractor

Question 12

Contractors and subcontractors– RECEIVED?

Answer 12

where amounts owing are not currently part of the statutory trust, the SCC has deemed that funds payable to the contractor are received by the contractor for the sake of the trust

Question 13

Owners Trust

Answer 13

• Not currently in NB legislation

- Imposes statutory trust on monies in hands of the owner

Question 14

How Owners trust operates

Answer 14

• When becomes payable to a contractor by an owner
• an amount equal to the sum that is certified that is in the owners hands will be a trust fund in the owners hands until paid to the contractor

Question 15

Who is the sole beneficiary of the owners trust

Answer 15

The contractor

Question 16

Corporations- individuals can be liable on two grounds

Answer 16

1) Personally Liable
2) Criminally liable

(some acts make individuals personally liable for breach of trust others make certain persons guilty of an offence in addition to corporation)

Question 17

Punishment for messing with trust funds

Answer 17

In NB, the legislation states that a person who appropriates or converts trust funds to their own use or to any use not authorized by the Act is guilty of an offence punishable under the respective provincial offences legislation

Question 18

What liability do you have if messing with trust funds?

Answer 18

In NB we have criminal or quasi-criminal liability that may lead to imprisonment

Question 19

Breach of Trust for corporations

Answer 19

In NB the legislation constitutes a breach of trust to be an offence and makes the directors and officers who knowingly assent or acquiesce to the breach of trust guilty of the offence in addition to the corporation

Question 20

Does intent need to be proven for breach of trust to be made out?

Answer 20

Unlike under the Criminal Code, in NB there is no need to prove intent to defraud in order for the offence of breach of trust to be made out

Question 21

Directors/ officers who knowingly assent to or acquiesce

Answer 21

Directors/ officers who knowingly assent to or acquiesce in any such offence by the corporation is guilty of the offence in addition to the corporation

Question 22

Separate Trust Accounts

Answer 22

• Not all legislation requires
• courts have said that failure to segregate will be prima facie evidence of acquiescence or knowingly assenting to breach of trust by officers, directors and persons in control of corporations

Question 23

Permitted use for trust funds

Answer 23

All acts contemplate this

Question 24

In NB a permitted use for trust fund is

Answer 24

Trustee can retain an amount equal to amounts paid by the trustee in respect of the work or materials supplied to the project and may use the trust fund to repay a loan to a third party for funds used to pay for all or part of the work or material supplied

Question 25

Trust/lien remedies pursued concurrently

Answer 25

• Does not mean that if the statute of limitations expires on liens you can just sue people in breach of trust
• only if you can prove they breached trust requirements

Question 26

Can use trust funds to

Answer 26

pay off debts without breach as long as they retain an equal amount of money for the contractor

Question 27

If owner receives money and is impressed with a statutory

Answer 27

can use that to pay the debt for the third party if you replace quickly

Question 28

What can’t trustee use trust funds for?

Answer 28

What a trustee cannot do is use the trust funds and apply it to their own overheads while beneficiaries are unpaid (ex: cannot use to pay mortgage)

Question 29

Iona Contractors Limited

Answer 29

1) Unless contractual obligation of owner to pay unpaid subcontractors, a bankruptcy will end discretion to pay contract funds to unpaid subcontractors
2) Lien legislation impresses funds with a statutory trust (different jurisdictions impress the funds at different times, e.g. once received vs once owing), and that if that trust is in existence prior to the bankruptcy, the trust funds are not the property of the bankrupt and are thus still available to discharge the statutory trust.