Canada: Construction Lien Act Review

The long, 32 year wait to reform Ontario's Construction Lien Act may soon be over. The Province's independent expert review of the Act is expected to submit its final report and recommendations in early May.

When the Act first became law, it was seen as a compromise evolution of the former Mechanics' Lien Act. Since enacted in 1983, the Act has not been significantly amended or updated, despite several attempts to "modernize" it.

In 2015, the Ontario government launched a review of the Act, and we have been monitoring and providing commentary on this CLA reform process. The process of that review and reform is now winding up and Gowling WLG invites you to join us at the Spring Construction Law Program on June 7th, 2016 where we and other industry professionals will be discussing the recommendations of the Expert Review and the reform of the Construction Lien Act.

Background of Expert Review

In February 2015, the Ontario Ministry of the Attorney General and the Ministry of Economic Development, Employment and Infrastructure initiated an independent expert review of the Act. The expert review would be conducted by one of the elder statesmen of the construction sector, Bruce Reynolds, and co-chaired by his partner Sharon Vogel.

The objective of the Expert Review was to examine the effectiveness of the Act in achieving its policy objectives within the modern context, and in particular addressing the issue of promptness of payment and the effectiveness of dispute resolution under the Act.

In the July 2015, the Expert Review issued the "Expert Review of Ontario's Construction Lien Act Information Package" which summarized their process of review, and provided a comprehensive list of issues and provisions of the Act that they proposed reviewing. They also set up a website here to provide public transparency and easy access to the Information Package, and all documents published by them.

Throughout the summer and fall of 2015, the Expert Review consulted with a very broad spectrum of industry stakeholders, including the Construction and Infrastructure Law Section of the Ontario Bar Association, industry associations, municipalities, school boards, unions, and many many other public and private organizations in soliciting views and comments on the Act and possible areas of review, reform and modernization for the Review to consider in preparing its recommendations to the Ministries. The Expert Review received written submissions from, and conducted consultation interviews with, over 40 representative organizations. The submissions and summaries of the consultation interviews are publicly accessible through the Expert Review website.

The Expert Review established an advisory group of senior and experienced legal and industry professionals to assist in its examination of the needs of the industry and how best to address them. They have also twice gone back out with additional issues for consideration, which to us indicates just how thorough their review is going to be.

The next and last stage of this part of the reform process will be the formal recommendation which are anticipated to be submitted by the end of April 2016. This will also be made public and posted on the website.

Issues Addressed

The review of the Act appears to have been very thorough and comprehensive, indicative of the seriousness to which the Expert Review has taken up its task, as well as, hopefully, the government's intent to modernize the Act.

At this point in time, we do not know what recommendations will be made. Nor do we know what recommendations the Ministries will eventually enact in law.

However, some aspects of the recommendations appear to be clear. I think it is fairly safe to predict that we can expect to see specific recommendation for the following reforms:

  1. Prompt payment

This was the initial impetus that drove the push for reforming the Act, and launching the expert review. In 2014, a private member's bill – Bill 69, the Prompt Payment Act – was introduced and eventually made it to third reading before different stakeholders started to pay attention and challenged many technical and substantive aspects of the Bill.

When the Government decided to shelve Bill 69 (and it eventually died on the order paper when the election was called), the Ministries committed to consider prompt payment reform in a broader context of reforming the Construction Lien Act more broadly. That commitment was confirmed with the launch of the Expert Review process. I do not expect that the recommendations, or any legislation or amendments that come out of the recommendations, will look anything like Bill 69, but many of the issues from Bill 69 will be addressed.

  1. Adjudication

A longstanding and growing problem with the Act is the process for dispute resolution and a longstanding and growing demand from our sector is for an efficient, effective, timely, and relatively inexpensive process for resolving disputes. It is simply too costly, too lengthy and too complicated a process to resolve disputes. This has led to a proliferation of mediation and arbitration dispute resolution processes, but these too fall short of a full solution for adjudicants.

There are many alternative adjudication processes employed outside of Ontario, and the Expert Review has thoroughly examined many of these. I am confident that the Expert Review will recommend Ontario follow the alternatives from one or more of these other jurisdictions. They may even go as far as making specific proposal for an alternative dispute resolution procedure.

  1. Updating for modern project structures

The Act clearly does not fit very well for a whole host of different types of projects and project structures that were never contemplated in 1983. The Act needs to be updated to address the unique issues raised by P3 and other project finance structures, and very large projects, for example. It equally does not work well for the smallest projects and home renovations, to which it nevertheless applies.

I think we will see at the very least some tweaking to make the Act more responsive to today's projects, if not revamping of how the Act applies to some types of projects and full exemptions for others. The Act needs to be more flexible for existing and future project developments.

  1. Plumbing

The Act has not been amended in any significant way since it was first enacted. Much of the Act was originally drafted to address issues which are not of the same concern today or which have been addressed in different ways through court decisions. A lot of the processes and basic plumbing of the Act needs to be modernized to catch up with present day realities and case law over the last 3 decades, and how the Act interrelates with other statutory regimes like bankruptcy and insolvency law. We will certainly see many technical reforms recommended by the Expert Review.

Next Steps

The Expert Review's recommendations are only the first step in the reform process. Ultimately, there will be legislation that needs to be passed by the Ontario Legislature. As with every piece of legislation, there will be many more stages to go through, of course, including readings in the legislature, legislative committee reviews, and public consultations.

Very soon, we could be facing a brand new construction world.

The recommendations of the Expert Review and the reform of the Construction Lien Act will be the subject of the Gowling WLG Spring Construction Law Program on June 7, 2016. If you are interested in hearing an analysis of the recommendations from industry and Gowling WLG professionals, and in participating in a robust discussion about the proposed reforms, please join us for breakfast and sign up for our the program.

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.

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