By Scott Lamb and Cameron N. Fox

Under the British Columbia Builders Lien Act, failure of a general contractor or contractors down the construction chain to make payment of progress claims in a construction project gives rise to not only a potential contractual debt claim, but also to potential liability to a breach of trust claim. This breach of trust claim is set out in section 11(1) of the Builders Lien Act:

11  (1) A contractor or subcontractor commits an offence if that person

(a) appropriates or converts any part of a fund in contravention of section 10…

Importantly, section 11(3) provides that such a breach of trust claim can also include personal liability for directors and officers:

11 (3) If a contractor or subcontractor is a corporation, a director or officer of the corporation who knowingly assents to or acquiesces in an offence under subsection (1) (a) by the corporation commits the offence in addition to the corporation.

However, an issue often arises in the context of directors and officers’ liability under section 11(3) of the Builders Lien Act as to the meaning of “knowingly assents to or acquiesces in”. In the context of breach of trust claims under the common law, a corporation’s directors and officers are not liable for such breaches unless they can be shown to have participated in, or at least to have been aware of, the breach of trust. However, a recent decision of the Ontario Superior Court, Re Fakoori, 2025 ONSC 3956, indicates that a beach may be found without such active participation or awareness.

Background

In Re Fakoori, the Court was asked to lift a stay of proceedings automatically imposed by the Bankruptcy and Insolvency Act after the debtor corporation, HiLife Builders Corporation (“HiLife”) declared bankruptcy. The Creditors, owners of a construction project for which HiLife provided services, sought to advance a breach of trust claim against HiLife and its directors, who were former spouses, alleging they made misrepresentations and misappropriations.

This decision concerned the liability of one director, Azimi. Azimi’s evidence was that, although she had been a director of HiLife, she had very little involvement with the company’s affairs and essentially acted as a “straw director” at the direction of her former husband, Jaypour. This took the form of participating in HiLife’s corporate governance and, importantly to this claim, signing personal guarantee on loan agreements that Jaypour could not due to his previous personal bankruptcies. Azimi claimed that she only acted at the direction of Jaypour, having essentially no independent knowledge of the company’s actual business or financial situation.

The question was whether, assuming that Azimi’s evidence was true, the Creditors had a viable claim against her personally, in addition to a claim against Jaypour and the company HiLife as a whole. The Creditors alleged that, in addition to committing various wrongs under the common law, liability could be imposed on Azimi pursuant to section 13 of the Ontario Construction Act. That section, similar to the British Columbia Builders Lien Act, provides that:

13 (1) In addition to the persons who are otherwise liable in an action for breach of trust under this Part,

(a) every director or officer of a corporation; and

(b) any person, including an employee or agent of the corporation, who has effective control of a corporation or its relevant activities,

who assents to, or acquiesces in, conduct that he or she knows or reasonably ought to know amounts to breach of trust by the corporation is liable for the breach of trust.

If the Creditors were able to demonstrate a viable claim against Azimi under this section, it would follow that the stay of proceedings ought to be lifted to allow the Creditors to pursue this claim against Azimi.

The Decision

Finding in favour of the Creditors and lifting the stay of proceedings, the Court held that there was a viable claim against Azimi because the standard for breach of trust claims under the Ontario Construction Act was different, and lower, than the standard for a claim under the common law. The claims under the common law would require the Creditors to advance evidence of “willful blindness”, “knowing receipt”, or “knowing assistance” on Azimi’s part – all of which are well defined in the law and require proof of actual knowledge or affirmative conduct. However, the Court also decided that, even without meeting these requirements, the Creditors had a good chance of proving that Azimi’s conduct would constitute her “assenting to” or “acquiescing in” actions of HiLife that she ought to have reasonably known amounted to a breach of trust. Therefore, although the Court did not expressly hold this, the implication of this decision is that a person knowingly acting as a “straw director” at the behest of another may be sufficient for a claim of “acquiescence” to succeed.

Key Takeaways

For those who participate in construction projects in Ontario, Re Fakoori is a helpful reminder that a lower standard is required to establish breach of trust claims under Ontario’s Construction Act. While the British Columbia Builders Lien Act does not have the exact same language as the Ontario Construction Act, with respect to director and officer liability, it does reference liability for “acquiescence” as a basis for breach of trust.

This decision suggests that “acquiescence” in the British Columbia Builders Lien Act does not require evidence of actual knowledge or any positive steps taken on the part of a director or officer. Potentially, a mere failure to make inquiries where a reasonable director or officer would suspect that their company was acting in breach of trust, or to prevent a wrong that they knew or suspected was occurring, may be sufficient to establish personal liability in the construction law context.

It is important to note that Re Fakoori does not definitively pronounce on what constitutes acquiescence, nor does it make any findings of wrongdoing on Azimi or anyone else’s part. This is because it was only an application to lift a stay of proceedings, meaning that a determination of the merits of the case and the actual liability of the directors of HiLife has not been made. Still, Re Fakoori is a reminder that in the construction law context, directors and officers may have deemed knowledge of their company’s actions. It is thus imperative that they remain informed about their corporation’s actions, as ignorance may not be a shield to personal liability.

Our Construction group has experience dealing with breach of trust claims and directors’ and officers’ liability in the construction context. If you have any questions or concerns, or any other construction-related legal matters, please contact our Construction group for assistance.