Legal Blog

Trust – Setoff

In our newsletter of November 1996, we reported on two cases in which a contractor had not held its trust monies in a separate trust account. In each case, the contractor was not allowed to claim setoff against a subcontractor’s claim that there was a breach of the trust fund provisions of the Construction Lien Act. The issue has arisen again – this time involving Bradsil (1967) Ltd., one of our favorite litigants, after Bird of course. Bradsil is currently involved in an action with Nortown Electrical Contractors Associates.

The Contract Claim 

Nortown claimed that Bradsil owed it $66,633, including interest on contract. Bradsil agreed that it owed $44,787.21 but claimed that it could set off damages that it had allegedly incurred due to the actions of Nortown on another project. Those damages, it claimed, were in excess of $44,787.21.

Nortown brought a motion for summary judgment.

The motions judge ruled that the previous cases, Datasphere Sales and Arborform Countertops, on which we have reported, were correctly decided and that because Bradsil had spent the $44,787.21, the money in respect of which it asserted a right of setoff, it lost its right to claim setoff. The judge therefore granted judgment against Bradsil for $44,787.21 and put the remainder of Nortown’s claim, an amount for which there was a genuine issue for trial, over for trial.

The Delay Claim 

Bradsil claimed $1,5000,000 against the owner of the project for delay. It made the claim on behalf of itself and its subcontractors. Bradsil’s claim included $200,000 on behalf of Nortown. Bradsil settled its claim against the owner for $777,500. It did not however pay anything of that settlement to Nortown. We cannot determine from the report whether Bradsil paid anything of that amount to any other subcontractor.

Nortown claimed that it should receive its proportionate share of the settlement funds (i.e. $200,000 divided by $1.5 million). When asked on cross-examination why Bradsil did not pay any of the settlement funds to Nortown, Bradsil’s representative stated that its claim “did not seem to have too much merit.” Bradsil argued that there was no document in which the owner accepted the validity of any part of Nortown’s claim and that Nortown did not deliver any analysis or proof of actual damages.

Notwithstanding the allure of these arguments, to us at least, the judge did not buy them. He awarded the full proportionate share of $103,666.67 to Nortown. We suspect that he did so because of the flippant answer given by Bradsil’s representative at his cross-examination. It appears that the smell factor was present in this case.

Possible Defence 

Bradsil’s representative should have been ready for the question at the cross-examination. He should have replied that he had analysed the plaintiff’s claim and could see no actual damages and that Nortown’s claim was not taken into consideration in the settlement negotiations with the owner – assuming that this is true.

We do not know what went on during the negotiations between Bradsil and the owner regarding the delay claim. However, if there was an amount agreed upon for the subs or, indeed, if there was not, those facts should have been set out somewhere in the settlement documents and Bradsil should have tendered evidence relating to the settlement negotiations at the motion. It did not and lost.