Industry Perspectives Op-Ed: Clarity on use of lien bonds on Crown land - constructconnect.com

Richard Yehia, James MacLellan and Evan Ivkovic“Ensuring payment of contractors and subcontractors and encouraging liquidity in the flow of funds to them are both significant preoccupations in the construction industry.”, discussing the case of Bird Construction Group vs. Trotter and Morton Industrial Contracting Inc., 2021 MBQB 233, started with this quote from the Supreme Court of Canada.

The application judge held lien bonds were an inadequate form of security for Crown lands. The details of the application judge’s decision can be found in our prior article. The Court of Appeal then made general conclusions about the factors that courts in other jurisdictions have considered when dealing with similar provisions.

However, the Court of Appeal held that, in the absence of evidence challenging the credit worthiness of the proposed surety, lien bonds are adequate security. Conversely, the Court of Appeal stated that, as a corollary to section 24 of the Builders’ Lien Act, there is no holdback account in respect of Crown projects. Therefore, the Court of Appeal held that the application judge misdirected himself by grounding his exercise of discretion in an incorrect finding that TM had a lien on holdback funds, rather than the land itself.

From a practical standpoint, the Court of Appeal’s decision should provide much needed commercial consistency for all parties involved on construction projects in Manitoba.Lien bonds provide a commercially sensible mechanism for vacating liens, ensuring the distribution of funds on a project, and protecting the payor from a potential breach of contract claim while also preserving the payor’s cash flow in the event that the payor has a defence to the lien claim.

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