Restitution Discussion Group Archives
| Sender: |
Lionel Smith |
| Date: |
Fri, 11 Apr 1997 12:06:41 |
| Re: |
subrogation |
For
the subrogation buffs, there is a recent case from the British Columbia
Court of Appeal called Commercial
Union Assurance Co of Canada v. Surrey (City), 19 March 1997. It
is not reported yet but will be soon I am sure.
The fact pattern has been litigated many times and, I think, settled
in the US, but I guess it was a case of first impression in Canada or
at least BC. The main contractor posts a performance bond for a contract
and then defaults on the contract, leaving subcontractors unpaid and the
contract unperformed. The performance bond surety completes the contract
and gets paid by the owner. The question is whether the surety can be
subrogated to the right which the owner would have had, to hold back money
otherwise payable to the contractor but which was required to remedy the
contractor's default. I understand that it is settled in the US that the
answer is "yes." If the answer is "no" then the surety still has a claim
for the costs of remedying the default, but it would not rank ahead of
the subcontractors' claims. In fact it is likely to rank behind, where,
as in BC and I think all Canadian provinces, there is a statutory trust
imposed on contract payments received by the contractor, the beneficiaries
of which trust are the subcontractors.
In this case it was held by a 2-1 majority that the subrogation claim
failed (without the benefit of the US cases). The majority's reasoning
appears to be that the surety takes the payment from the owner subject
to the statutory trust. I suspect that at least some of the US cases were
decided in the context of a similar statutory trust. Indeed I think in
some states a trust for the benefit of subcontractors is seen to arise
even in the absence of a statute.
Note however the argument in S Walt and E Sherwin, "Contribution Arguments
in Commercial Law" [1993] Emory LJ 897, which suggests that the standard
result giving priority to the surety is wrong, as are priority for beneficiaries
of constructive trusts and priority for holders of purchase money security
interests.
If anyone would like a copy, please let me know. If there is a lot of
interest I can make it available via the "get" function.
Lionel
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