Call us: (905) 366 9700
Legal Blog
Construction Act (#5)
In 2018, we devoted four newsletters to the revamp of the Construction Lien Act, including its change of name to the Construction Act (the “Act“). Most of the changes to the Construction Lien Act took effect as of July 1, 2018; the prompt payment and adjudication provisions took effect as of October 1, 2019. On November 6, 2024, the Act had its first revamp. The bill making these changes has been enacted, but has not yet been proclaimed into force. Similarly, contemplated new regulations have not yet been promulgated.
Rather than a whole-scale change, the new legislation is more akin to a significant tweaking of some existing concepts in the Act. We will now review the more important of these tweaks. To meet space requirements, we will limit our comments to a prime contract scenario; however, the changes are applicable to subcontracts with only slight variations.
Adjudication
ODACC (i.e. Ontario Dispute Adjudication for Construction Contracts) is the authority responsible for administering adjudications and for training and qualifying adjudicators. Previously, all adjudicators had to be registered with ODACC to be able to conduct an adjudication. We now have the concept of a private adjudicator. Private adjudicators must still be involved in ODACC training programs and meet prescribed requirements as adjudicators in the same manner as registry adjudicators (s. 13.3(1)). The only difference that we can see, at this time, between private adjudicators and registry adjudicators is that ODACC can set the fees that registry adjudicators may charge, but cannot do so for private adjudicators (s. 13.3(2)). The parties must agree on a private adjudicator’s fees (s. 13.10 (2.1)).
Previously, adjudication was limited to very specific items set out in the Act. Now, any party to a contract may refer a dispute to adjudication regarding any prescribed matter or any matter to which the parties agree (s. 13.5 (1)). We will have to wait to see what the prescribed matters are, but we suspect that they will be wider than the original provisions.
Previously, adjudication would not take place if the notice of adjudication was given after the date of completion of the contract. That provision has been repealed. Now, a party may give a notice of adjudication up to 90 days after the date on which the contract is completed, abandoned, or terminated or, if the other party agrees, even later (s. 13.5(3)).
If two or more adjudications are pending for the same matter, not only can the contractor move to consolidate the adjudications, but any of the parties may also move to consolidate them (s. 13.8(2)).
An adjudication previously extended the lien termination date (s. 34(10)). Except for a transition rule (s. 84.7 (6)), this section is repealed. Lien periods run regardless of an adjudication (because the adjudication time has been extended past the lien period).
Finally, rather than merely stating that an adjudicator may make a determination in the adjudication, the section is much more specific. It allows an adjudicator to determine whether (i) a matter may be the subject of an adjudication, (ii) the adjudicator has jurisdiction to conduct the adjudication, and (iii) the adjudicator has exceeded his or her jurisdiction in conducting the adjudication (s. 13.12 (1)6)).
Prompt Payment
Some technical changes were made to the definition of “proper invoice” (s. 6.1(1)).
More importantly, an owner can no longer sit back and wait a lengthy period before claiming that a contractor did not deliver a proper invoice. An invoice is deemed to be a proper invoice unless the owner notifies the contractor in writing of a specific deficiency and what is required to correct it, and does so within 7 days after receiving the invoice (s. 6.1(2)).
Lien for Design
A designer may lien for a design, plan, drawing, or specification even if the planned improvement is not commenced – unless the owner proves that the value of the owner’s interest in the land has not been enhanced (s. 14 (4)).
Basic Holdback
A payer who is required to retain a basic holdback (i.e. 10%) must pay the amount of that holdback annually. It is mandatory. The rules for this payment are set out in s. 26, summarised as follows:
26(2) – following the anniversary of the date of the prime contract, the owner shall publish a notice set out in subsection (3) and make payment of the accrued holdback in accordance with subsection (4).
26(3) – within 14 days after the prime contract anniversary, the owner shall publish a notice of annual release of holdback setting out the intended amount and payment date.
26(4) – no later than 14 days after the expiry of the normal lien period, the owner shall pay the contractor all accrued holdback in respect of services or materials supplied during the year immediately preceding the anniversary – unless a lien has been preserved or perfected in respect of the contract and the lien has not been vacated, discharged, or satisfied.
26(5) – no later than 14 days after a contractor receives payment of the holdback, the contractor shall pay all subcontractors their accrued holdback – unless a lien has been preserved or perfected in respect of their subcontracts, which has not been vacated, discharged, or satisfied.
26(8) – holdback, still unpaid after the mandatory payments have been made, is to be paid 14 days after all liens have expired or been vacated or discharged.
26(9) – payments made in accordance with s. 26 reduce the amount of the basic holdback.
All of the previous provisions dealing with early payment of holdback are repealed.
A lien arising from the supply of services or materials, which are included in a properly published notice of annual release of holdback, expires on the 60th day after the date that the owner publishes the notice (s. 31(2)).
Finally, the amendments deal with setoff against holdback (basic or finishing). Previously, under s. 27.1, an owner, contractor, or subcontractor could refuse to pay some of the holdback otherwise due by publishing a notice of the refusal. Section 27.1 has been repealed. A payer now has an obligation to pay holdback when it is due and setoff no longer applies.
Joinder-Lien Claim To Trust Claim
Section 50(4) is new. It states that the procedures prescribed by way of regulation may provide for the joinder of a lien claim with another claim. Prior jurisprudence had decided, on analysis of the Act and its regulations, that a trust claim cannot be joined with a lien claim. We suspect that the new section has been inserted to dovetail with a new section under the regulations that will allow a trust claim to be joined with a lien claim.
Transition
Subject to exceptions, the new provisions apply to an improvement, ongoing or new, after the provisions are proclaimed (s. 87.4(2)). However,
- the new provision relating to a lien for design (s. 14(4)) does not apply if the owner retained holdback for the design before proclamation (subsection 3);
- for prime contracts entered into before proclamation: (i) the mandatory 1st contract anniversary payment of holdback is deemed to be the 2nd anniversary of the contract, (ii) a requirement to pay the holdback on the 1st contract anniversary date includes all holdback accrued as of the 1st contract anniversary date, and (iii) these provisions apply regardless of any subsequent contract that the parties may enter into for the improvement after the date of proclamation (s. 87.4(4)).
We await proclamation and the new regulations.
Image courtesy of geralt.
Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices. |