September 6, 2023

Setting-Off When Setting the Lien Fund: Helpful Reminders from the Court, by Catriona Otto-Johnston

The lien fund is made up of two parts, commonly referred to as “Part A” and “Part B”. Part A of the lien fund is relatively straightforward – 10% of the value of the work actually done or materials actually furnished[1]– so long as the value of the work can be ascertained. It is trite law that there are no rights of set-off as against Part A. The same is not true for Part B, which is comprised of any additional amounts due and owing but not yet paid for work done or materials furnished.[2]The owner can set-off against Part B, thereby reducing the amount of the lien fund and the amount payable by the owner, as well as the amount available to claimants to the lien fund. When disputes arise amongst the various participants on a construction project, setting the lien fund can be difficult.

When the value of the lien fund is in dispute, an owner (or its agent) can apply to the Court for a determination, as was done in Bonnyville (Municipal District No87) v RPC Group Inc,2023 ABKB 484 (“RPC Group”). In RPC Group, the owner argued that a payment made after lien registration should be deducted from the lien fund. It further claimed set-off for the cost of fixing the contractor’s deficient work, but failed to adduce sufficient evidence to prove the “deficiency repairs”. The owner also failed to prove on the evidence that certain “extra work” it performed was actually part of the contractor’s scope of work. Finally, the owner claimed set-off for legal fees. The Court dismissed this claim on the basis that the contract did not permit setting-off of legal fees. As a result, the lien fund was set without reduction of the owner’s set-off claims.

The decision in RPC Group contains three helpful reminders when applying to set the lien fund. First, the PPCLA (and the Builders’ Lien Act before it) is clear that once a lien is registered, an owner cannot make further payments.[3]If an owner pays a contractor after a lien is registered, the lien fund is not reduced by a corresponding amount.[4]In that case, the owner will effectively pay twice. Second, if an owner wants to set-off against Part B of the lien fund, it must prove it has the right under the contract to set off the amounts being claimed.[5]Third, an owner seeking set-off must put sufficient particulars into evidence to allow the Court to assess the claim.[6]Failing to do so may lead to dismissal of the set-off claim and setting of the lien fund without accounting for what otherwise may be valid backcharges.

Although brief, this decision serves as a good reminder to those applying to set the lien fund that while it is not a summary judgment application, applicants would be wise to “put their best foot forward” in adducing evidence of entitlement to and quantification of any backcharges sought to be set-off against Part B of the lien fund.

[1]      Section18(3)(a) of the Prompt Payment and Construction Lien Act, RSA 2000, cP-26.4 (the “PPCLA”).

[2]      Section18(3)(b) of the PPCLA.

[3]      Section18(2) of the PPCLA.

[4]      RPC Group at paras 5-6.

[5]      RPC Group at paras 9, 11.

[6]      RPC Group at paras 9-10.