By Jason J. Annibale and Allison Worone (summer student) of McMillan LLP
[Ed. note: I believe this also serves as a cautionary tale for anyone who oversees payments in any industry, not just those subject to construction trusts.]
Developers and others with payment obligations in the construction pyramid (payors) can better manage their risk and exposure by ensuring that their payment and accounting practices are well-managed and clear – particularly given the Ontario Court of Appeal’s recent decision in Colautti Construction Ltd v Ashcroft Development Inc . 1 As Colautti confirms, payors must clearly allocate their payments to particular invoices or debts. Failing to do so may in certain circumstances allow those entitled to payment (payees) to apply received payments to other outstanding accounts – even where such accounts are due on other contracts or where the accounts have been outstanding past the two-year limitation period in which a claim for payment could be made. Colautti also cautions that payors who comingle project monies received with other funds, may be found to have breached their trust obligations owed to their payees under the Construction Lien Act . 2
