Construction laws due for overhaul

Concerns of the prompt payment movement will inform changes to Ontario's Construction Lien Act

IF BRUCE REYNOLDS and Sharon Vogel of Borden Ladner Gervais LLP have their way, Ontario’s construction sector is on the verge of a major legislative overhaul that will fundamentally alter the way it does business.

In late September, the government released the report that followed on the two lawyers’ mandate to review the Construction Lien Act. The report, completed in April, focused on the construction lien/holdback regime, promptness of payment, and modernization of construction dispute resolution including the use of adjudication.

The broad-ranging recommendations – more than 100 of them – address lienability; the preservation, perfection and expiry of liens; holdback and substantial performance; summary proceedings; prompt payment; and adjudication.

The current review can be traced back to Bill 69, known as the Prompt Payment Act, 2014. Tabled in December 2013, its origins can be found in a worldwide movement centred in the United States and the United Kingdom, and directed at fighting back against the elongation of the payment cycle caused by the increased complexity of modern commerce. But the government withdrew Bill 69 after strenuous opposition from the province’s municipalities, general contractors and other government ministries, many of whom complained that they had not been consulted.

The death of Bill 69, however, only fueled the prompt payment movement further.

“There was really quite a lot of political pressure for the province to somehow accept the principle of prompt payment,” Reynolds says. “Our review was the government’s response.”

The current report is the product of extensive research and consultation with more than 60 stakeholders in Ontario’s construction industry over a three-month period. Reynolds and Vogel received more than 70 written submissions from industry groups and consulted with construction law experts around the world.

“The recommendations take into account the nature of Ontario’s construction industry and legal landscape and drew upon the foundational knowledge and experience of other countries, including the United States, the United Kingdom, Australia, Singapore, Malaysia and Hong Kong,” Reynolds says.

The report’s two primary concerns, prompt payment and dispute resolution, are inextricably intertwined. “When disputes happen in the current system, the chain of payments goes into gridlock,” Vogel says. As she and Reynolds see it, adjudication – in place in the UK for almost two decades and in many other jurisdictions as well –  is the tie that binds.

“Adjudication ... provides for interim binding dispute resolution within 28 to 42 days and therefore frees up cash flow and resources,” Vogel says. “Parties who are dissatisfied with the result can proceed to arbitration at the end of the project, but the experience in the UK is that these disputes ... are almost never reopened.”

Successful adjudication does not require the parties to agree to anything.

“For example, if parties can’t agree on an adjudicator, there is a mechanism for appointing one within days,” Reynolds explains. “Adjudicators can be drawn from anyone with expertise in the area, including engineers, quantity surveyors and lawyers.”

On the other hand, the process is flexible enough to allow the parties to agree to most anything. “Parties can devise their own adjudication procedures as long as they meet the minimum statutory requirements found in the regulations,” Vogel says.

If payment is not made following adjudication the payee has the right to suspend work. Under the current system, suspending work in the face of a dispute amounts to a breach of contract allowing for termination.

There’s no question that adjudication amounts to rough justice. “Courts have recognized that adjudication is by its nature an inquisitorial model with broad discretion in the adjudicator,” Reynolds say. “Appeals are available only on very limited grounds, confined to whether the adjudicator asked the wrong question or perpetrated a gross violation of natural justice.”

All indications are that the Ontario government intends to act on the recommendations with dispatch. “The attorney general has made a number of public statements saying that he is very pleased with the report and was quite clear that he intends to act upon it,” Reynolds says.

The feedback from stakeholders who have reviewed the report has also been positive, according to Vogel. “The attorney general’s office has advised that the government is committed to introducing the legislation in the spring of 2017,” she says.

If the report’s recommendations come to pass, “The construction bar will have to make fundamental and profound changes,” Reynolds says. “There will be no more scheduling at the convenience of counsel, for example. On the other hand, nobody’s taking up collections for the construction bar in London.”