Ignoring or mismanaging your trust obligations under Ontario’s Construction Act[1] (“the Act”) can have serious financial consequences. Morin Bros. Building Supplies Inc. v Bond Group Ottawa 2018 Inc.[2] serves as a cautionary tale for anyone in the construction industry who handles trust funds. In addition to finding the contractor liable for unpaid invoices and breach of trust, the Court held the company’s two officers and directors personally liable for the breach of trust.
The decision is an important reminder that trust compliance requires thorough bookkeeping. Contractors should be able to show where project funds were deposited, how they were disbursed, and whether amounts received for an improvement were used first to pay those who supplied services or materials to that improvement. Additionally, the decision makes clear that a separate trust account must be maintained, and that trust funds should not be commingled with other monies contained in a general operating account. Contractors and subcontractors who receive funds on a project should review their bookkeeping and banking practices in light of this decision to ensure that they remain onside with the Act.
While this decision touches on a variety of issues, we have focused on its implications for the Act’s trust provisions, including practical takeaways you can implement right away.
Case Summary
Bond Group Ottawa 2018 Inc. (“Bond Group”), a construction contractor operated by sole officers and directors Maria and Tony Marcantonio, ordered construction materials from Morin Bros. Building Supplies Inc. (“Morin Supply”) for the Wateridge Flats and Witherspoon projects pursuant to a credit agreement. Bond Group made full and partial payments on some invoices but did not fully pay all amounts owing. Morin Supply brought a summary judgment motion seeking payment of the outstanding invoices, enforcement of a personal guarantee, and damages for breach of the Act’s trust provisions.
The Court granted summary judgment to Morin Supply. It found Bond Group liable for breach of contract and breach of trust, Maria Marcantonio liable under her personal guarantee, and both Maria and Tony Marcantonio jointly and severally liable for Bond Group’s breach of trust under section 13 of the Act. The Court also held that Morin Supply had misallocated certain payments by applying them contrary to Bond Group’s directions, so the damages calculation had to account for the proper allocation of those payments.
On the trust claim, Bond Group had received monies from the owners of the Wateridge Flats and Witherspoon projects but had not paid Morin Supply in full for materials supplied to those projects. The responsibility therefore shifted to Bond Group to show that it has applied the monies in accordance with its trust obligations. Bond Group failed to do so. It did not provide records substantiating the receipt and distribution of trust funds, did not respond to Morin Supply’s request for information under section 39 of the Act, and admitted that trust monies were mixed with other monies in its general operating account. The Court held that these failures amounted to breaches of sections 8 and 8.1 of the Act.
The Court also found that the interest owed by Bond Group to Morin Supply was part of the trust fund created by section 8(1) of the Act.
Practical Considerations: What You Need to Know
No one wants to be held personally responsible for their company’s breach of trust obligations, but that is exactly what section 13 of the Act permits. Directors, officers, and individuals with effective control of a corporation or its relevant activities may be personally liable if they agree to or accept conduct that they know, or reasonably ought to know, amounts to a breach of trust by the corporation. A claimant does not need to establish dishonesty, personal benefit, or subjective awareness of the Act’s trust provisions. This is a very powerful remedy, one that essentially allows a claimant to pierce the corporate veil.
(1) Maintain separate trust and general operating accounts
Section 8(1) of the Act deems amounts owing to or received by a contractor or subcontractor on account of the contract or subcontract price of an improvement to be trust funds for the benefit of subcontractors and others who supplied services or materials to the improvement and remain unpaid. Section 8(2) states that the trustee (meaning the contractor or subcontractor who receives funds for an improvement), shall not take any part of the fund for its own use or any use inconsistent with the trust until all subcontractors and other persons who supply services or materials to the improvement are paid all amounts owed to them by the trustee that relate to the improvement.
Section 8.1 requires trustees to deposit trust funds into a bank account in the trustee’s name and to maintain written records of amounts received, amounts paid out, transfers made for the purposes of the trust, and any other information prescribed by the Act. Where a trustee is responsible for more than one trust, the Act allows trust funds from separate trusts to be deposited together into a single bank account, as long as the trustee maintains the required records separately for each trust. These funds are deemed to be traceable.
The compliance risk highlighted by Morin Bros. is therefore not that a contractor must maintain a separate bank account for each project trust. Rather, the risk is using the company’s general operating account for trust monies that would otherwise be used for payments to subtrades and suppliers, company business expenses, and overhead expenses. In light of Morin Bros., maintaining separate general operating accounts and trust accounts is crucial.
(2) Apply project-specific payments to the right project
Contractors and subcontractors should pay close attention to how payments are identified and applied. The Court confirmed that Bond Group was entitled to allocate its payments to specific invoices and that Morin Supply was required to apply those payments as directed. The Court also noted that where monies are trust funds under section 8 of the Act, trust monies paid on a particular project generally must be applied against the price of goods or services provided for that project, not against the oldest outstanding accounts or unrelated projects. For those in the construction industry, the practical lesson is to issue clear remittance directions, make appropriate enquiries about the source of project funds where necessary, and avoid applying project-specific funds to unrelated accounts.
(3) Preserve records and respond to information requests
The decision also emphasizes the importance of preserving records and responding to information requests under the Act. Morin Supply requested information under section 39 of the Act, including an accounting of monies Bond Group had received on the relevant projects. Bond Group’s failure to provide records and respond to that request contributed to the finding that it breached its trust obligations. Contractors and subcontractors should be prepared to produce project-level accounting showing receipts, disbursements, transfers, and the relationship between trust funds received and paid out.
The Bottom Line: Trust the Process (and the Act)
Trust obligations are not a formality. Not only can a breach impose serious liability on a company, but the individuals behind the company can be held personally responsible. Take note of the lessons learned in Morin Bros. to maintain a separate trust account, ensure payments are being applied to the correct project, and keep good records and respond to information requests when required. Strict adherence to the Act’s trust provisions and accompanying case law is the best way to avoid an unfortunate and costly mistake.
[1] Construction Act, RSO 1990, c C.30.
[2] Morin Bros. Building Supplies Inc. v Bond Group Ottawa 2018 Inc., 2025 ONSC 5561.
The information and comments herein are for the general information of the reader and are not intended as advice or opinion to be relied upon in relation to any particular circumstances. For particular application of the law to specific situations, the reader should seek professional advice.
