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In Alberta's fast-moving construction sector, disputes over payment delays and project performance can escalate quickly. A recent Alberta Court of Appeal decision in Tempo Alberta Electrical Contractors Co Ltd v Man-Shield (Alta) Construction Inc1 clarifies two key principles that often collide in construction litigation: equitable set-off and the clean hands doctrine.
For construction law practitioners, this case provides useful guidance for when equitable set-off can serve as a valid defence to summary judgment.
What was the dispute between Tempo and Man-Shield about?
Tempo Electrical Contractors Co Ltd. ("Tempo") was retained by Man-Shield (Alta) Construction ("Man-Shield") to perform electrical work under a subcontract valued at over $3 million related to the construction of a facility in Edmonton, Alberta.2 The project experienced a 45-week delay, and both parties alleged responsibility for the resulting costs.3 Tempo claimed $678,261 in unpaid amounts under the subcontract4 and Man-Shield counterclaimed for $2.675 million, citing damages from delay and deficiencies in Tempo's work.5 Thereafter, Tempo initiated a second action claiming $2.788 million for unpaid amounts and delay damages. Man-Shield pleaded an equitable set-off as a defence to that claim.6
A lien was registered in June 2017, which was discharged by the owner of the project by paying funds into court and who in turn assigned its rights to Man-Shield.7 In 2020, Man-Shield obtained court approval to substitute the lien funds with a bond. Tempo appealed, and the chambers judge upheld the decision.8
On further appeal, the Alberta Court of Appeal found that the lien funds were subject to a statutory trust in favour of Tempo under section 22 of the Prompt Payment and Construction Lien Act.9 The Court of Appeal ordered that Man-Shield pay the $678,407.88 into court within 90 days as security for Tempo's claim for the outstanding payments.10 More details are available in Miller Thomson's article: Can cash paid into Court be substituted with lien bond after project completion: Alberta Court of Appeal clarifies.
Man-Shield did not pay the funds into court, prompting Tempo to apply to have Man-Shield held in contempt. The contempt application was dismissed, however, as Man-Shield's negative financial position provided a reasonable excuse for its failure to pay the funds into court. This dismissal was recently upheld by the Alberta Court of Appeal.11
Decision now under Appeal – Tempo Alberta Electrical Contractors Co. v Man-Shield Construction Inc, 2023 ABKB 44412
This latest decision concerns an appeal of a partial summary judgment award in favour of Tempo. An applications judge granted Tempo partial summary judgment in the amount of $678,261 for unpaid subcontract amounts. The decision was appealed to a chambers judge.13 On appeal, Man-Shield argued, among other things, that summary judgment was not available because it had an equitable set-off claim for its delay damages.14
The chambers judge found that Man-Shield's set-off claim was not a "true defence" and awarded Tempo partial summary judgment.15 The court emphasized that determination of whether there was a valid set-off claim was not necessary to determine whether summary judgment was available. The decision did not consider whether Man-Shield's set-off claim was equitable or procedural.16 Instead, the court cited the "culture shift" toward more efficient legal processes over conventional trials and relied upon the "just result principle" to conclude that delaying payment to Tempo due to Man-Shield's "questionable" claims would not achieve a just result.17 Man-Shield's claim for delay damages was deferred to trial.18
How did the Alberta Court of Appeal interpret equitable set-off?
The Court of Appeal overturned the chambers judge's decision, confirming that equitable set-off is a genuine defence to summary judgment. It emphasized that the culture shift toward litigation efficiency does not override the need to fairly adjudicate valid defences.19 The Court of Appeal also found that there was an "inseparable connection" between Tempo's claim for outstanding payments and Man-Shield's claim for project delays, and it would be "unjust to allow Tempo to realize on the outstanding payments under the Subcontract while Man-Shield would be limited to a damages claim against Tempo to be determined at a future date".20
Does the clean hands doctrine still apply in payment disputes?
The Court of Appeal also considered whether Man-Shield's conduct barred its equitable set-off defence under the clean hand's doctrine, citing Scott v Golden Oaks Enterprises Inc.21 In Scott, the Supreme Court of Canada held that equitable relief may be denied where misconduct has an "immediate and necessary relation" to the transaction. set off this test, the Court of Appeal found that Man-Shield's alleged misconduct (substituting lien funds with a lien bond, asserting set-off by withholding payments under the subcontract and disorganized litigation conduct) lacked the requisite connection set out in Scott. As no fraud or unconscionability was tied to the transaction itself (unlike the fraudulent scheme in Scott), Man-Shield was not disentitled from asserting equitable set-off.22
Key takeaways
This decision provides important guidance for practitioners navigating construction law disputes. The Court of Appeal reaffirmed that:
- Equitable set-off is a valid defense in construction disputes: The Court of Appeal confirmed that equitable set-off is a substantive legal defense, not just a procedural tactic. When a contractor's payment claim and the opposing party's damages clam are closely connected, summary judgment may be denied until both issues are fully examined at trial.
- Efficiency should never override fairness: While Courts continue to encourage streamlined dispute resolution, this decision reminds litigants that speed cannot come at the expense of a fair hearing. Judges must still consider whether genuine defenses exist before granting summary judgment.
- Clean hands still matter, but context is everything: The Court of Appeal found that the clean hands doctrine only bars equitable relief when misconduct is directly tied to the transaction itself. Administrative mistakes, financial difficulties, or procedural missteps are not enough to lose equitable rights unless they involve fraud or unconscionable conduct.
For construction companies and in-house counsel managing complex project disputes, understanding how equitable set-off operates can be crucial to successfully resisting or obtaining summary judgment.
To explore how this decision could impact your upcoming projects or to spark a conversation about proactive dispute management, we invite you to connect with a member of our Construction & Infrastructure Group.
Footnotes
1. 2025 ABCA 310 (Summary Judgment Appeal)
2. Ibid at para 6.
3. Ibid at para 7.
4. Ibid at para 8.
5. Ibid at para 10.
6. Ibid at para 11.
7. Ibid at para 12.
8. Ibid at para 13.
9. RSA 2000, c P-26.4, section 22
10. Summary Judgment Appeal, supra note 1, at para 15.
11. Ibid at para 15, citing Tempo Alberta Electrical Contractors Co Ltd. v Man-Shield (Alta) Construction Inc. 2025 ABCA 282 (Contempt Appeal), contempt application dismissal upheld but decision varied on other grounds.
12. 2023 ABKB 444.
13. Summary Judgment Appeal, supra note 1 at para 16.
14. Ibid at para 17.
15. Ibid para 21.
16. Ibid at para 22.
17. Ibid at para 23.
18. Ibid.
19. Ibid at paras 34-35.
20. Ibid at para 40.
21. 2024 SCC 32.
22. Summary Judgment Appeal, supra note 1 at paras 49-55.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
