On May 31, 2017, the Attorney General introduced for first reading the long awaited first set of substantial amendments in 34 years to Ontario’s Construction Lien Act. Bill 142, An Act to amend the Construction Lien Act, provides the construction industry with its first look at the legislative amendments that are intended to work together to provide prompt payment of invoices, a quick summary procedure to resolve disputes, including non-payment, and to modernize the Act. This article focuses on the five most critical proposed amendments.
1. Prompt Payment
The Bill introduces a new prompt payment regime. An owner is required to pay a “proper invoice” from a contractor no later than 28 days after receiving the invoice. The Bill sets out the elements of a “proper invoice” and includes any requirements specified in a contract. The contractor is then required to pay a subcontractor within seven days of receiving payment. Where the amount that will be paid is less than the invoiced amount, the owner must provide a notice of non-payment to the contractor who, in turn, will provide a similar notice to the subcontractors. It remains to be seen whether requirements specified in a contract will affect the extent to which payment is made promptly.
2. Adjudication of Issues
The amendments introduce mandatory adjudication as an interim binding dispute resolution process. Adjudication applies to “disputes” related to the valuation of services or materials provided under a contract, payment and non-payment, amounts set-off, non-payment of holdback or any other matter that the parties agree to adjudicate. Adjudication also extends to disputes between contractor and subcontractor. Adjudication is intended to be summary, with the adjudicator’s determination to be delivered within 30 days after the adjudicator receives the notice of dispute and documents that the party relies on. Where the adjudicator determines an amount for payment, it must be paid within 10 days, failing which the party can suspend work and apply to the court to enforce payment. The determination is binding for the duration of the project, and a party can litigate or arbitrate the decision upon completion of the project. Similar longstanding legislation in the United Kingdom has resulted in very little litigation after project completion on matters previously adjudicated.
3. Mandatory Payment of Basic Holdback
Under the current regime, getting holdback paid was difficult as the payer may pay the basic holdback after all liens that may be claimed against the holdback are addressed. Bill 142 makes payment of basic holdback mandatory as payers shall pay the basic holdback after all liens are addressed. Where a payer refuses to pay the entire amount of holdback, it must deliver a written notice specifying the amount the payer refuses to pay within 40 days of the date on which the holdback is payable.
4. Accounting of Trust Funds
The Bill introduces new accounting requirements. The trustee must deposit project funds into an account in its own name and must maintain written records detailing amounts received and
paid. Funds deposited into the account form separate trusts and are deemed traceable. Time will tell whether these amendments will address insolvency issues whereas project trust accounts would have been more effective at ensuring payment to trades, including in the event of an insolvency.
5. Lien Modernization
The well-known 45-day period for preserving a lien is amended to 60 days and then another 90 days to start the action. The timing to preserve liens is consistent with the period within which a payer gives a notice of non-payment of all or part of the holdback. Another aspect of modernization relates to the amount of security posted to vacate a lien. Under the current regime, a party posts 25 per cent of the lien value to a maximum of $50,000 as security for costs. The amendments would require security for costs to a maximum of $250,000. Payment of security may now be a consideration in deciding whether a party posts security, settles the lien or at least pays what it owes to reduce the lien value. The extent to which these reforms will be adopted remains to be seen. However, these are much-needed improvements and reforms to the current legislation.