Canada: More Changes To The Construction Lien Act Are Coming In 2019

Ontario's new Construction Lien Amendment Act (the "Act") has significantly overhauled Ontario's construction law rules. While the first set of the amendments have already come into force (see our previous blog here), the second set of changes with respect to prompt payment, a new adjudication process and procedural rules are set to come into force on October 1, 2019.

Prompt Payment

The Act imposes some tight timelines for payments to contractors and subcontractors in situations involving both public and private contracts. Under the Act, outstanding amounts between an owner and contractor must be paid within 28 days of a proper invoice. Subsequent payments to subcontractors must be paid within 7 days that the contractor receives the payment from the owner. If the contractor was not paid within the 28 day period, the contractor can either pay out its subcontractors anyways or issue a notice of non-payment in the prescribed form. If the owner disputes a portion of the funds, the owner must still pay out the undisputed amount within 28 days. If the contractor only receives partial payment from the owner, it must still distribute the funds to its subcontractors within 7 days, either in full or rateably.

The sending of a proper invoice triggers these timelines and payment cannot be made contingent upon certification or the prior approval of the invoice by the owner. The owner is required to comply with these timelines or provide a notice of non-payment within 14 days. The contractor must give a notice of non-payment within 7 days after receiving a notice of non-payment from the owner or, if the owner has not issued said notice, within 35 days from the date of delivery of a proper invoice. Any payments made outside of the timelines will have interest accrue at a specified interest rate (as per the Courts of Justice Act, s.127(2)).

As an invoice triggers these timelines, the Act sets out what is contained in a proper invoice:

  • the contractor's name and address;
  • the date of the proper invoice and the period during which services or materials were supplied;
  • information identifying the authority (typically the contract) under which services or materials were supplied;
  • description, including quantity, of the services or materials supplied;
  • the amount payable for services or materials supplied and payment terms;
  • the name, title, telephone number, and mailing address of the person to whom payment is to be sent; and
  • any other information that may be prescribed by the contract.

New Adjudication Process

In an effort to facilitate the quick resolution of construction issues, the Act introduces a new interim adjudication process. The intention of the adjudication process is to allow parties to resolve issues while still pursuing the preservation/perfection of a lien under the Act. Parties are free to agree on any adjudication terms to be added to their agreement.

Several types of disputes can be referred to adjudication, including, but not limited to, delays, set-offs, deductions, security, proper invoicing and the valuation of work, services and materials. The scope of the availability of adjudication is broad and includes "any other matter that the parties to the adjudication agree to."

Adjudicators are appointed from a Authorized Nominating Authority registry. Adjudicators cannot be appointed in advance and must be nominated only when a dispute has arisen.

Delivering a Notice of Adjudication commences the process. Within 30 days of the Notice, the adjudicator must provide a written determination of his or her decision, with reasons. Adjudication decisions are binding in the interim and enforceable. As such, payment must be made as per the adjudicator's determination within 10 days of the decision or else the amount is subject to non-waivable interest. The Act allows a party to suspend work as per an adjudicator's determination but does not allow for the suspension of work until the adjudication is complete. Any decisions rendered outside 30 days are of no force or effect. If a party does not agree with the adjudicator's determination, they are allowed to appeal it to the courts or an arbitrator as well as negotiate a written agreement varying the terms.

Jurisdiction and Procedure

As the Act will have an adjudication process, several provisions relating to jurisdiction and procedure will be repealed. For instance, leave for interlocutory steps is will no longer be required, lien and trust claims will be brought in a single action, and the requirement that a lien action must be commenced in the jurisdiction where the land is located will be removed.

What this Means

The laws with respect to construction in Ontario and elsewhere are changing. It is very important to consult an experienced construction law lawyer with respect to vetting your organization's invoices, contracts and general practices.

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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