Failed Contractual Trust
In their contractual relationship, the parties in JMB Crushing Systems Inc., Re, 2021 ABQB 8, included a clause which one party claimed was a trust. The clause stated that JMB Crushing Systems Inc. (“JMB”), was deemed to hold a wide variety of expenses in trust for the Municipal District of Bonnyville No. 87 (“Bonnyville”). Things did not go as planned, however, when several of JMB’s subcontractors went unpaid and applied to court to recognize a trust in their favour.
In its analysis the court relied on the basic principle of contractual interpretation: the court will determine the objective of the parties in the contract based on what a reasonable person would have understood from the words of the whole contract and the facts the parties were aware of at the time the contract was made.
The court then looked at the terms of the trust clause to determine whether the clause met the three requirements of an express trust: (1) Was there certainty as to the intention of the trust? (2) Was there certainty of subject matter of the trust? (3) Was there certainty of object of the trust?
For certainty of intention, the court examined the actions of the parties and terms of the alleged trust clause and found the wording of the clause, specifically, “hold that part of them in trust” favoured a narrow interpretation regarding intent of the parties. Looking at the parties’ actions, the court found JMB and Bonnyville never acted as though a trust existed. The court stated, as an example, Bonnyville never asked for an accounting from JMB to determine what the trust property was.
For certainty of object, the court found the clause failed to mention any beneficiaries other than Bonnyville and the clause provided no timelines. The court stated that, given the work JMB undertook for Bonnyville and the number of contractors involved, the beneficiaries of a potential trust would constantly shift and be “almost impossible” to determine at any particular time so there was no certainty of object.
For certainty of subject, the court found the failed to meet this requirement. The clause would require the parties to determine the trust property from every invoice between the parties and, because the clause included both direct and indirect costs owed to potential beneficiaries, it was difficult to ascertain from even one invoice exactly what the trust property was.
From its analysis, the court found there was no express trust as the clause in the contract lacked all three certainties.
Regarding whether a constructive trust could be imposed, the court found there was no fiduciary relationship to justify that remedy. JMB was not a fiduciary to its subcontractors—their relationship was merely contractual. JMB was not unjustly enriched by its subcontractors. Instead, the subcontractors were JMB’s unsecured creditors.