Tips & Traps – Partial Payment from the 10% Holdback

By Catriona Otto-Johnston and Rob Watson

Setting the lien fund can be a complicated and drawn out process. As a subcontractor lienholder, you may find you are standing idly by for payment while the owner and the GC fight amongst themselves. Can you receive partial payment for your work before the lien fund is finalized? Yes, although the “pot” may not be as big as you think.

It’s well settled in Canadian case law that subcontractors with clear entitlements do not have to wait until all issues are settled before receiving partial payment based on the minimum holdback to be retained by the owner, being 10% of the value of the work actually done or materials actually furnished by the GC.

In Trotter and Morton Building Technologies Inc. v Stealth Acoustical &Emission Control Inc., (Stealth Energy Services), 2017 ABQB 431, the subcontractor lienholders, Trotter and Hamil, were seeking interim payment from the owner, Canadian Natural Resources Limited (“CNRL”), pending final determination of the lien fund. Deciding in favour of the lienholders, the Court set the interim payment at 10% of the amount that Stealth (the GC) was paid by CNRL despite CNRL claiming Stealth overbilled them resulting in overpayment by CNRL and an inflated 10% holdback. The Court sided with Trotter and Hamil, but noted it is arguable the 10% should be reduced where it is proven the owner overpaid.  In Trotter, CNRL provided no documentary evidence of overpayment.

How does this decision affect you?

As a lienholder, you may not need to wait until the lien fund is finalized to receive partial payment from the 10% holdback; however, while it’s well-settled that the owner can’t set off against the 10% holdback, the door is open for owners to argue for a reduction of the 10% based on proven overpayment.

If you are a lien claimant waiting for payment and think you might be entitled to seek partial payment from the 10%, Field Law can advise you of your options.  For more information, contact Catriona Otto-Johnston, lawyer and Partner with Field Law to discuss.