Labour and materials bonds are common guarantees supplied by general contractors to ensure payment for the contributions of certain labour and material subcontractors. In order for a party to be eligible to collect under a bond they must be a proper “claimant” as defined by the bond. Often this requires a direct contractual relationship between the party claiming under the bond and the bonded contractor, however, eligibility will ultimately turn on the language of the particular bond.
In Wolverine Construction Ltd. v Trisura Guarantee Insurance Company, 2023 BCSC 405 [Wolverine], the British Columbia Supreme Court (“BCSC”) considered the issue of a proper “claimant” under a labour and materials bond (the “L&M Bond”), finding that, although the subcontractor, Wolverine Construction Ltd. (“WC”), had provided work and services to the construction project, they were not a proper “claimant” under the L&M Bond as there was no contract between WC and the bonded contractor, Frontline Civil Holdings Ltd. (“Frontline”).
The dispute in Wolverine arose in a relation to a construction project (the “Project”) at a landfill owned by the Peace River Regional District (“PRRD”). PRRD retained Frontline for the construction of the Project pursuant to a contract (the “Prime Contract”). The Defendant, Trisura Guarantee Insurance Company (“Trisura”), issued an L&M Bond in relation to the Project, under which Frontline was the “principal” and PRRD was the “obligee.” Pursuant to the L&M Bond, Trisura and Frontline were jointly and severally liable for claims brought by “claimants” which was defined under the L&M Bond as “one having a direct contract with [Frontline, as the Principal] for labour, material or both, used or reasonably required for the performance of the [Prime Contract].”[1]
Frontline ran into financial difficulties and sought WC’s assistance to complete the Project. WC performed certain work on the Project, however, the capacity in which WC undertook this work was in dispute.[2]
Eventually, Frontline was assigned into bankruptcy and the Project was ceased by PRRD.[3] Following the termination of the Project, WC submitted a claim under the L&M Bond for the balance allegedly owed by Frontline to WC, plus interest, for the work performed by WC.[4]
The main issue before the Court was whether WC was a proper “claimant” under the L&M Bond. The Court found that in order for WC to be considered a proper “claimant” under the L&M Bond, WC was required to prove, on a balance of probabilities, that there was a direct contract between Frontline and WC for labour and/or materials which were used or reasonably required for use in the performance of the Prime Contract.[5] The appropriate question was whether an objective reasonable bystander would conclude that the parties had entered into a contract, having a regard to all of the surrounding circumstances. [6]
WC alleged that there was a written contract between WC and Frontline for labour and material for the Project, but that the contract and supporting document had been lost due to a server failure.[7] WC took the position that the contract could be inferred from the conduct of the parties, in particular, the fact that WC had performed work and billed for its services.[8] However, the court found that there were fatal inconsistencies in the evidence of WC, and the independent evidence, mainly the invoices issued (which were issued to PRRD, not Frontline), did not support WC’s position.[9]
The Court found that WC had not proved, on a balance of probabilities, that there was a contract between WC and Frontline, but rather, that there was ample evidence that WC was seeking to have the Prime Contract assigned, such that WC would be acting as the general contractor to PRRD, rather than as a subcontractor to Frontline.[10] Applying basic contract interpretation principles, the court affirmed that the mere fact that WC performed work on the Project was not sufficient to create a legally enforceable contract between the parties – there must also be an agreement on all of the essential terms of a construction contract, including the (1) nature of the construction, (2) the applicable timelines, and (3) the price.[11]
Key takeaways
Subcontractors should familiarize themselves with the language of the labour and materials bond(s) issued in relation to their projects to ensure that they are adequately covered in the event of non-payment. In addition, Wolverine confirms the importance of written contracts and proper record keeping. A lack of documentary evidence can pose unnecessary risk to a party’s rights and interests, even beyond the four-corners of the underlying contract.
For more information regarding labour and materials bonds or any other construction issues, please contact Miller Thomson’s Construction Litigation Group.
[1] Wolverine Construction Ltd. v Trisura Guarantee Insurance Company, 2023 BCSC 405 [Wolverine] at paras 14-15.
[2] Wolverine at para. 17.
[3] Wolverine at paras 21-22.
[4] Wolverine at para. 23.
[5] Wolverine at para. 29.
[6] Wolverine at para. 35.
[7] Wolverine at para. 31.
[8] Ibid.
[9] Wolverine at para 60.
[10] Wolverine at para 61
[11] Wolverine at paras 37 and 116 citing Hodder Construction (1993) Ltd. v Topolinsky, 2021 BCSC 66 at para 116.
