Trust Issues: Personal Liability for Construction Trust Funds

Rona supplied construction materials on credit to P3 and United (the "Defendants") for various construction projects in Ontario. Dylan Sliter was a director and the directing mind of both companies.

Sliter personally guaranteed P3's obligations to Rona, which supplied materials to P3 but was left unpaid $858,619. United entered a similar credit arrangement with Rona, but Sliter did not guarantee its obligations. United owed $564,686.

Both Defendants were subsequently deemed bankrupt and proceedings against them were stayed. Rona could rely on the guarantee for the P3 debt, but recovering the United debt from Sliter personally required establishing liability under the trust provisions of Ontario's Construction Act (“Ontario Act”).

What the Court Said

The court found the statutory trust provisions in the Ontario Act applied and that Sliter was personally liable for the breach.

When Does a Construction Trust Arise?

Section 8 of the Ontario Act provides that amounts owing to or received by a contractor or subcontractor on account of an improvement constitute a trust for subcontractors and others who supplied services or materials to that improvement and remain unpaid. Until those beneficiaries are paid, the funds cannot be used for the contractor's own purposes or otherwise inconsistently with the trust.

Importantly, failing to pay a supplier does not, by itself, establish breach of trust. The supplier must connect its materials or services to an improvement for which the contractor was paid or was owed money. The supplier need not know the specific project when the materials are supplied; what matters is whether they can ultimately be linked to such an improvement.

That distinction mattered for Rona. Its claim contained detailed particulars, the credit documentation indicated that the materials were intended for construction sites in Eastern Ontario, and the Defendants had received or were owed amounts under the relevant projects.

Establishing a Trust Shifts the Burden of Proof

The court applied a two-step approach. First, the supplier must establish that the contractor received money on account of the project and that the supplier provided materials to that project but was not paid. Once established, the onus shifts to the contractor to show that the trust funds were properly applied.

Rona met that initial burden. The Defendants were bankrupt, and Sliter neither responded to the claim nor provided evidence of what happened to the trust funds, so nothing showed that the funds had been properly applied.

Personal Liability Can Extend Beyond a Guarantee

Section 13 of the Ontario Act extends potential liability beyond the corporation. Directors, officers, and persons with effective control of a corporation or its activities may be liable where they assent to or acquiesce in conduct that they know, or reasonably ought to know, amounts to breach of trust.

The court emphasized that this does not require proof of actual knowledge, recklessness, or wilful blindness. Because the trust is statutory, those individuals are deemed to know it exists; what must be shown is their assent or acquiescence in the conduct constituting the breach.

Sliter was a director with effective control of both Defendants. The court found that he knew or ought to have known of the breach. The result was significant: Sliter was held personally liable for nearly $2 million. Without any breach of trust, Rona otherwise would have been limited to judgment against the bankrupt corporate Defendants, and received nothing.

How Does Alberta's Legislation Compare?

The same result would likely not occur in Alberta.

Section 22 of Alberta's Prompt Payment and Construction Lien Act creates statutory trust obligations, but Alberta's regime is narrower. Alberta has no equivalent to section 13 of the Ontario Act expressly imposing liability on directors, officers, and persons with effective control who assent to or acquiesce in a corporate breach of statutory trust. More importantly, the statutory trust in Alberta is only triggered after the posting of a certificate of substantial performance. No trust obligations exist on contractors or subcontractors before that point.

In addition, Alberta’s Guarantees Acknowledgement Act imposes additional requirements for a personal guarantee to be enforceable. Simply signing the guarantee is not enough – the required certificate under the Act is needed.

The practical lesson is that both the scope of a construction trust and the circumstances in which it exposes individuals to liability differ significantly by province.

Key Takeaways

The decision highlights several important considerations for contractors, suppliers and directors when dealing with construction trust funds and potential personal liability.

• A personal guarantee is not the end of the liability analysis. In Rona Inc, the director guaranteed the P3 debt but not the United debt, yet the Ontario Act still provided a route to personal liability for the latter.
• Non-payment alone is not enough to establish a trust claim. Suppliers should maintain records connecting materials and services to the projects for which they were supplied.
• Once the trust is established, accounting for funds becomes critical: the contractor bears the onus of showing that trust funds were properly applied.
• The rules are not identical across provinces. Businesses operating across the country should not assume the same analysis applies.

If you are a subcontractor seeking to recover unpaid construction accounts or a contractor or director looking to understand your obligations when handling project funds, please contact Anthony Burden in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law's Construction Group for guidance and assistance.

Link to decision: Rona Inc v 11449346 Canada Inc et al, 2026 ONSC 5877