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Ontario Court of Appeal Confirms that Construction Lien Act Deemed Trusts Survive Bankruptcy

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17 January 2019
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In The Guarantee Company of Canada v. Royal Bank of Canada, a panel of five judges of the Ontario Court of Appeal confirmed that statutory deemed trusts under s. 8(1) of the Construction Lien Act, R.S.O., c. C. 30 ("CLA") are excluded from distribution to creditors of the bankrupt, pursuant to s. 67(1)(a) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA").

Cavalluzzo represented LIUNA Local 183 on the appeal. LIUNA Local 183 participated solely on the issue of paramountcy, arguing: 1) that provincial statutory deemed trusts can provide the certainty of intent necessary to create a trust under the BIA; 2) that there is no operational conflict between the BIA and s.8(1) of the CLA; 3) that the CLA trust scheme is consistent with the objective of the BIA to provide for the equitable distribution of a bankrupt's assets and 4) that the commingling of CLA trust funds with other funds is not fatal to the trust in the context of bankruptcy.

The Court rejected RBC's argument that the requirements of a trust must be established independent of the statutory deeming provisions; rather, the Court held that a statutory deeming provision can provide the requisite certainty of intention to form a trust.

The Court considered the paramountcy issue in detail and confirmed the constitutionality of the CLA under provincial property and civil rights powers and that the s. 8(1) trust is an integral part of the CLA scheme. The Court further held that the federal bankruptcy scheme relies on provincial property and civil rights law, including provincial deemed trusts, for its operation and that there was no operational conflict between the BIA and the CLA deemed trust. The Court also ruled that the CLA did not frustrate the purposes of the BIA in that the CLA trust scheme is "directed at equity" and consistent with the BIA's objective of providing for the equitable distribution of assets.

Finally, the Court of Appeal corrected a line of Superior Court cases which held that any commingling of trust funds was fatal to a trust. The Court held that as long as funds are identifiable and traceable the requirement of certainty of subject matter will be met.   A copy of the decision can be found here.

Paul Cavalluzzo, Amanda Pask, and Alex St. John represented LIUNA Local 183 on the appeal.

 

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