Trusts Flashcards
Source of law
Lien legislation
Where do trust funds come from?
Contract Funds
Envelope Trust Funds
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
In NB which trust do we use?
Envelope trust (contractor and subcontractor trust fund)
Privity trust
Monies received by each payor is held in trust for the payees (more like a holdback)
Who has charge on trust funds?
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
Distinguished from a lien
- Don’t need lien entitlement to pursue trust claim
- Projects not lienable can still be subject to trust claim
Projects not lienable
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)
Rationale for trusts applying to Federal Crown Projects
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)
Concurrent?
Can pursue trust and lien claim concurrently
Contractors and subcontractors trust
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
Contractors and subcontractors– RECEIVED?
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
Owners Trust
- Not currently in NB legislation
- Imposes statutory trust on monies in hands of the owner
How Owners trust operates
- 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
Who is the sole beneficiary of the owners trust
The contractor
Corporations- individuals can be liable on two grounds
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)
Punishment for messing with trust funds
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
What liability do you have if messing with trust funds?
In NB we have criminal or quasi-criminal liability that may lead to imprisonment
Breach of Trust for corporations
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
Does intent need to be proven for breach of trust to be made out?
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
Directors/ officers who knowingly assent to or acquiesce
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
Separate Trust Accounts
- 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
Permitted use for trust funds
All acts contemplate this
In NB a permitted use for trust fund is
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
Trust/lien remedies pursued concurrently
- 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
Can use trust funds to
pay off debts without breach as long as they retain an equal amount of money for the contractor
If owner receives money and is impressed with a statutory
can use that to pay the debt for the third party if you replace quickly
What can’t trustee use trust funds for?
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)
Iona Contractors Limited
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.
