On May 2, 2016, the Ontario Court of Appeal issued a decision in
Architectural Millwork & Door Installations Inc. v.
Provincial Store Fixtures Ltd., 2016 ONCA 320, regarding trust
actions and the right of a contractor to set off under section 12
of the Construction Lien Act
Provincial Store Fixtures, the builder, hired Architectural
Millwork & Door Installations, the contractor, to install trim
and accessories at a casino. The builder did not pay all of the
contractor's invoices. The contractor brought a claim for
breach of contract, but did not claim a lien or invoke the trust
provisions of the CLA. The builder alleged that deficiency
damages due to the contractor's defaults on other
projects exceeded the outstanding invoices on the casino project,
and asserted a right of set-off under section 12 of the
Part II of CLA governs trusts and gives subcontractors
the right to commence an action against a contractor for breach of
Section 8(1) of the CLA sets out the basic trust: all
amounts received by a contractor on account of work done by its
subcontractor are imprinted with a trust.
Section 8(2) of the CLA states that trust funds may not
be appropriated or converted until all subcontractors are paid the
amounts owing to them.
Section 12 of the CLA grants contractors the right to
set-off against all projects, including unrelated projects. Under
section 12, a trustee may, without being in breach of trust, retain
from trust funds an amount equal to the outstanding debts of its
subcontractor on the project at issue in the lawsuit, or on an
In order to claim a right of set-off under section 12 of the
CLA, the builder must prove the existence of trust funds
against which set-off can be applied. In Architectural
Millwork, there was evidence that the builder received money
from the owner and that the monies were not held in trust or
retained at all. If no trust funds are retained and all the monies
are spent, the purpose of the trust provisions is defeated and any
right of set-off under section 12 is extinguished.
The availability of the right of set-off under section 12 of the
CLA requires the party seeking set-off to prove specific
circumstances, including the existence and retention of trust funds
against which set-off can be applied. If there are no trust funds,
there can be no set-off.
The best practice for contractors is to retain the trust funds
in a separate account, but this is not absolutely necessary as long
as the contractor can prove that the funds were retained.
The builder, Provincial Store Fixtures, was not entitled to set
off under section 12 of the CLA because it failed to
retain the trust monies obtained from the owner on account of
Architectural Millwork's work.
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