Comingled and compliant: Construction Act trust obligations after Morin Bros. – Part I
October 2026Breach of trust is among the most consequential remedies available under the Construction Act. Where a contractor fails to honour its statutory trust obligations, an unpaid supplier may pursue officers and directors personally, bypassing the corporate entity that would otherwise insulate them from liability. Because every contractor who receives funds on account of the contract price is subject to these broad obligations, it is essential for lawyers and contractors to understand both the mechanics of the remedy and the possible methods to limit their exposure.
A recent decision, Morin Bros. Building Supplies Inc. v. Bond Group Ottawa 2018 Inc. et al, 2025 ONSC 5561, has put contractors on edge, appearing to signal that a segregated trust account is now required to avoid liability. The authors respectfully suggest that this is a legally incorrect finding and in opposition to the statutory requirements of s. 8.1. As we explain below, the Construction Act’s trust regime requires diligent record keeping, not the maintenance of a separate account.
This article examines the actual record keeping requirements of the Construction Act. We argue that a separate account for funds received and disbursed for projects is an additional judge-made requirement not intended by the Construction Act and contrary to its legislative purpose and history.
In a second article to follow, we address interest on trust funds, comingling liability issues, and provide general suggestions to contractors to limit their exposure to breach of trust claims.
Key Takeaways
- A contractor who receives money on account of the contract price holds it in trust for its unpaid subcontractors under sections 8 and 8.1 of the Construction Act and must pay those subcontractors before applying the funds for its own purposes.
- In a trust action, the plaintiff subcontractor must show the contractor received funds from the owner of the project, the subcontractor supplied services or materials to the project, and the subcontractor was not paid.
- A defendant contractor must produce convincing evidence of compliance with its obligations, including the project ledger recording the receipt and disbursement of funds, the invoices sent and received, the banking records that support the ledger entries, and the progress payment applications made to the owner for payments to subcontractors.
- Diligent record keeping, not the existence of a separate bank account, is the most important of the three statutory trustee requirements and the best defence to a breach of trust claim.
Factual Summary
Morin Bros. Building Supplies Inc. (“Morin“), a construction materials distributor, supplied materials to Bond Group Ottawa 2018 Inc. (“Bond“) for various projects, and Morin invoiced Bond for those materials.
Bond made payments against some invoices and failed to pay others. A dispute arose about the proper allocation of the payments and the total amount owing for two projects.
Morin demanded payment of the outstanding amounts and delivered a request for information under s. 39 of the Construction Act, seeking an accounting of the monies Bond had received on the two projects. Bond did not respond, instead taking the position that it would not pay until Morin accounted for how it had applied Bond’s payments.
Morin then commenced an action to recover the debt and brought a summary judgment motion.
The court found no genuine issue requiring a trial and granted Morin summary judgment, including on Bond’s breach of its trust obligations under the Construction Act, awarding damages on the trust claim plus interest at the contractual rate of interest, holding that the interest constituted part of the trust fund. The court held that Bond failed to discharge its onus that the funds received were paid in accordance with its trust obligations.
The court also found Bond’s primary directors jointly and severally liable for the breach of trust under s. 13 of the Construction Act, finding they assented to or acquiesced in Bond’s non-compliance. Additionally, the directors were liable under their contractual personal guarantees.
Analysis
What is the breach of trust regime?
The trust regime of the Construction Act imposes a trust on all amounts owing to or received by a contractor on account of the contract price of an improvement for the benefit of subcontractors who have supplied materials or services to the improvement who are owed amounts by the contractor.[1]
The contractor’s trust obligations are set out in sections 8 and 8.1 of the Construction Act.[2] The statutory obligation essentially requires that a contractor first pay its subcontractors before it uses the funds (whether for overhead or other reasons).[3] The Act sets out a list of duties which require the trustee contractor to i) deposit trust funds into a bank account in the trustee’s name, and ii) maintain written records of the deposits and withdrawals.[4] Failing to fulfill these duties is a breach of trust for which the contractor is liable.[5]
In a trust action, the plaintiff subcontractor must prove i) the contractor received funds from the owner of the project, ii) the subcontractor supplied services or materials to the project, and iii) the subcontractor was not paid.[6] The onus of proof then shifts to the contractor to show that it applied the funds received according to its trust obligations under the Construction Act (ie. it paid its subcontractors and did not use the funds for another purpose).
The judge-made requirement of a separate trust account
Against the statutory framework, the central difficulty with Morin Bros. is the court’s statement that Bond’s failure to maintain a separate trust account amounts to a breach of trust – a clear change in the law. The court writes plainly and unequivocally:
[114] … Bond Group admitted on cross-examination that it failed to maintain a separate trust account for trust funds, as required under s. 8.1 of the Construction Act. Rather, it comingles monies received in trust on projects with other monies in its general chequing account. Although Bond Group keeps an accounting ledger on a project-by-project basis, the trust funds are deposited in its general chequing account from which it makes payments to subtrades and suppliers, company business expenses, and Bond Group’s overhead expenses.
[115] I find that Bond Group’s failure to maintain a trust account is a breach of its trust obligations under s. 8.1 of the Construction Act.[7]
[emphasis added]
The word “maintain” does much of the heavy lifting in the court’s decision and is an unnecessary change in the law. Rather than critique Bond’s failure to provide the proof of its receipt and disbursement of funds for this project, the Court identifies the “failure to maintain a trust account” as the breach. The authors respectfully disagree with the proposition that maintaining a separate trust account is a requirement at all and is inconsistent with the legislative history of Part II of the Construction Act.
The language used in section 8.1 of the Construction Act does not require the contractor trustee to “maintain a separate trust account”. Instead, the wording of the section imposes on the contractor trustee two obligations: i) deposit trust funds into a bank account in the trustee’s name; and ii) maintain written records respecting the trust funds detailing amounts received and paid out. Comingling trust funds is permitted explicitly under the Act (s. 8.1(1)3).[8] The general principles of statutory interpretation, the authors respectfully submit, do not necessitate an additional requirement to be read into the statute.[9]
While holding one account for all trust funds or individual accounts for each project would provide the best defence to a breach of trust claim, meeting a standard of perfection is not required by the Act, and was explicitly not intended by the recommendations which led to the enactment of s. 8.1.
Striking the Balance and the rejection of separate trust accounts
The question of whether a separate individual trust account is required for each individual project has been a topic of debate for some time, most notably highlighted in Striking the Balance.[10] That report surveyed statutory trust regimes in Canada, the United States, and across the commonwealth, and examined whether a new separate trust account mechanism should be implemented. The authors of the report documented Ontario’s rejection of a proposal for separate holdback accounts in 1983, described as “the most controversial proposal” in the discussion paper at the time.[11] Ultimately, a separate trust account requirement was not recommended due to the costs and administrative burden it would impose on the construction industry. Striking the Balance put it simply:
“while the current provisions of the Act do not explicitly require the creation of a separate bank account for trust funds, a failure to “account for” such funds will be found to be a breach of trust.”
St. Mary’s Cement and the record-keeping requirement
Section 8.1 was added to the Act in 2017, following Striking the Balance, and did not implement a separate trust account system, but the amendment did include clear record-keeping requirements which mirrored those discussed in St. Mary’s Cement Corp v Construc Ltd., 1997 CanLII 12114. In that decision, the court examined the question of a breach of trust under the Construction Lien Act.[12] The court held:
Although there is no specific requirement in the Act that trust funds be segregated in a special bank account, a contractor who deposits trust funds into a general business bank account and intermingles them with funds from other sources does so at its peril… The fact that the Act does not expressly require that trust funds be kept separate from the general accounts of the contractor is not determinative of whether a failure to do so constitutes a breach of trust. A trustee has an obligation to protect the trust funds. Allowing trust funds to be intermingled with other moneys and used for general purposes is inconsistent with the trustee’s duty to maintain proper control of the trust funds.
[emphasis added]
While St. Mary’s Cement does not require separate accounts for each project or trust fund, it requires separate accounting for those trust funds. The obligation on the contractor trustee is to establish what funds were expended and maintained. If funds are used to pay overhead or other costs for the benefit of the contractor while a subcontractor beneficiary is unpaid, there is a clear breach of trust, but the breach does not arise because the trustee comingles trust funds with its general funds. Instead, the breach arises because the trustee fails to account for how it has administered the trust funds.
Conclusion
Maintaining a bank account solely for trust funds separate from a general account is not a requirement for contractors under the Construction Act, and the court in Morin Bros. erred in concluding otherwise.
Contractors who maintain only one bank account must keep detailed records, including a ledger that records payments and disbursements for each project. The ledger entries must be supported by banking records and invoices. The requirement for these ledgers is identical whether the contractor has one bank account or many. Separate accounts for each project, while ideal, are unnecessary.
This article is co-authored by Dylan Dilks and Ted Rotenberg. Dylan Dilks is a senior associate lawyer at Beale & Co LLP and Ted Rotenberg is a retired senior lawyer.
[1] Construction Act, s. 8(1).
[2] For ease of reference, this article uses “contractor” to refer to the trustee and “subcontractor” to refer to the beneficiary. However, the trust obligations discussed apply at every tier of the statutory trust, including owners to their contractors under section 7 of the Construction Act, and contractors and subcontractors who are trustees to their own subcontractor payees. Note, however, that the specific requirements in section 8.1 do not apply to owners.
[3] Construction Act, s. 8(2).
[4] Construction Act, s. 8.1(1).
[5] These specific requirements flowed from the recommendations contained in Striking the Balance and were enacted in 2017.
[6] St. Mary’s Cement Corp. v. Construc Ltd., 1997 CanLII 12114 (ON CTGD)
[8] Construction Act, s. 8.1; see also Ekum-Sekum Incorporated c.o.b. as Brantco Construction v. Lanca Contracting Limited, 2023 ONSC 7535 (CanLII) at para 62.
[9] As recently reaffirmed by the Court of Appeal for Ontario in KingSett Mortgage Corporation v. Mapleview Developments Ltd., 2026 ONCA 512 (CanLII) at para. 55.
[10] Striking the Balance: Expert Review of Ontario’s Construction Lien Act (2016), online (pdf).
[11] Striking the Balance, 2.2.1.2, p. 128.
[12] Before the coming into force of s. 8.1.
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