Background

In 2011, the Toronto Transit Commission (“TTC”) contracted Walsh Construction Company of Canada (“Walsh”) to construct the Steeles West Subway Station, later renamed Pioneer Village Station, as part of the Toronto-York Spadina Subway Extension. The original contract, valued at approximately $166 million, stipulated a substantial performance date of November 5, 2014. However, the project faced significant delays, with substantial performance achieved on June 15, 2017—953 days late—and final completion on November 7, 2018.

Walsh attributed the delays to TTC’s actions and sought $193 million in damages across 23 categories. TTC acknowledged responsibility for 411 days of delay but disputed liability for the remaining 636 days. Additionally, TTC counterclaimed for $22 million in liquidated damages, arguing that delays are common in projects of this magnitude and that responsibility should be shared.

Legal Principles Governing Delay Claims

The court outlined key legal principles regarding delay claims in paragraphs 89 to 92 of the judgment. These principles provide a framework for how courts assess different types of delays and their compensability.

Types of Delays:

1. Excusable vs. Non-Excusable Delays:
   • Excusable Delays: Delays beyond the contractor’s control, such as force majeure events, labor strikes, or owner-caused delays. These may entitle the contractor to a time extension and, in some cases, compensation.
   • Non-Excusable Delays: Delays caused by the contractor, such as poor site management or insufficient staffing. These do not warrant time extensions or compensation and may result in liquidated damages.
2. Compensable vs. Non-Compensable Delays:
   • Compensable Delays: Delays for which the owner is responsible, such as failure to provide design approvals on time. These can lead to both time extensions and monetary compensation.
   • Non-Compensable Delays: Delays resulting from unforeseen circumstances not caused by either party, often entitling the contractor only to a time extension but no monetary relief.
3. Concurrent Delays:
   • When both the owner and contractor contribute to a delay simultaneously, courts assess the critical path impact of each party’s delay to determine liability.
4. Critical Path Delays:
   • Delays affecting the project’s critical path, the sequence of tasks determining the overall project duration, are the most scrutinized in delay claims. If a delay impacts the critical path, it is more likely to justify a time extension or compensation.

Justice Hood emphasized that a clear causal link must be established between a delay event and its impact on the critical path for claims to succeed. Contractors must provide thorough delay analyses to substantiate their entitlement to relief.

Expert Evidence in Construction Delay Claims

A central aspect of the case was the evaluation of expert testimony regarding construction delays. Walsh relied on the expert testimony of Richard Ott, a delay analyst who conducted a comprehensive examination of over 780 TTC-related change conditions using the Primavera software. Ott concluded that Walsh was entitled to 1,047 compensable days of delay.

In contrast, TTC did not commission an independent delay analysis. Instead, it presented an expert whose role was primarily to critique Ott’s methodology without offering an alternative assessment. This left the court with a binary choice: either accept Ott’s findings or dismiss them without a competing analysis. Justice Hood emphasized that TTC’s approach was risky, stating: “Without an independent expert analysis, the court was left with a stark decision—to accept the only available expert evidence or to disregard expert testimony altogether.”

The court found Ott’s testimony to be thorough and credible, while TTC’s expert was perceived as overly rigid and unconvincing during cross-examination. Justice Hood noted that Ott “was not dogmatic or stubborn in his opinions,” which enhanced his credibility. Consequently, the court accepted Ott’s analysis, leading to a favorable outcome for Walsh.

TTC’s failure to present its own detailed delay analysis ultimately undermined its position. Justice Hood remarked, “The burden of proof in construction delay claims does not rest solely on the plaintiff; the defendant must also provide a meaningful counter-analysis if it wishes to challenge the findings.” This highlights a critical lesson for construction litigants—merely critiquing an opposing expert’s methodology is insufficient without a substantive counter-analysis.

Key Takeaways on Expert Evidence:

• Conduct Your Own Analysis: Defendants in construction delay cases should engage their own experts to perform comprehensive analyses rather than merely critiquing opposing expert reports.
• Avoid a Binary Outcome: By failing to present an alternative expert opinion, a defendant risks forcing the court into an all-or-nothing decision.
• Burden of Proof Is Shared: Courts expect both parties to provide substantial evidence when disputing construction delays. Without a counter-expert report, the court may be left with little choice but to accept the claimant’s expert testimony.

Flow-Through Claims and Liquidating Agreements

Walsh also attempted to pass subcontractor claims through to TTC via flow-through claims. Flow-through claims, also known as pass-through claims, enable general contractors to seek damages from owners on behalf of subcontractors when the owner’s actions have caused delays or cost overruns. The enforceability of these claims hinges on the general contractor retaining some liability to its subcontractors for the damages in question.

Walsh entered into two types of liquidating agreements with its subcontractors:

1. Assignment Agreements: Walsh fully compensated subcontractors for their claims, and in return, the subcontractors assigned their claims to Walsh.
2. Non-Assignment Agreements: Walsh compensated subcontractors with the understanding that if it recovered any funds from TTC, a portion would be shared with the subcontractors.

In both scenarios, Walsh received full releases from the subcontractors, absolving it of any further liability. The court determined that since Walsh had fully settled these claims and was no longer liable to the subcontractors, it could not recover those amounts from TTC. Justice Hood stated: “A general contractor cannot seek to recover amounts it has no obligation to pay,” emphasizing that flow-through claims require actual liability.

Judicial Concerns on Flow-Through Claims

The court raised concerns about the fairness of allowing a contractor to pass along subcontractor claims while being completely insulated from liability. Justice Hood stated: “The fundamental issue here is whether a contractor who has paid and extinguished the subcontractor claims can nonetheless pursue them against the owner. In my view, the answer is no.”

Additionally, the court questioned the incentives created by liquidating agreements, noting that they could lead to claims being passed through without proper vetting. Justice Hood remarked: “There is an inherent risk in these agreements that the contractor merely acts as a conduit, forwarding subcontractor claims without meaningful assessment.”

Comparison Between U.S. and Canadian Law on Liquidating Agreements

The court acknowledged that in the United States, liquidating agreements are commonly accepted as a valid mechanism to maintain liability and flow through both the subcontractor’s claim and the contractor’s liability to the owner. Justice Hood observed: “Caselaw in the United States seems to accept liquidating agreements as being a valid way to maintain liability and to flow through both the subcontractor claim and the contractor’s liability to the subcontractor to the owner.” However, the court expressed reservations about this approach, stating: “While perhaps useful in minimizing litigation, in my view the attempt to place liability upon the owner for the subcontractor’s damages, where the owner has not contracted with the subcontractor and where the contractor has effectively removed itself from the picture, is not right.”

This highlights a key difference between U.S. and Canadian law regarding liquidating agreements. In the U.S., such agreements are more readily accepted as a means to facilitate flow-through claims. In contrast, Canadian courts may scrutinize these agreements more closely, particularly if the contractor has been fully released from liability.

This decision is currently under appeal at the Ontario Court of Appeal. The outcome of the appeal could significantly impact how flow-through claims are handled in Ontario moving forward.

Key Takeaway on Flow-Through Claims:

• Retain Liability for Flow-Through Claims: General contractors should ensure they maintain some liability to subcontractors before advancing flow-through claims, as courts may reject claims where liability has been fully extinguished. The pending appeal may further clarify this issue.

Conclusion

The Walsh Construction v. TTC decision provides critical guidance on two key issues in construction litigation: the role of expert evidence in substantiating delay claims and the enforceability of subcontractor flow-through claims. The ruling highlights the importance of presenting a well-supported independent expert analysis when defending or advancing delay claims, as courts may reject a party’s arguments if they fail to provide a meaningful counter-analysis.

Additionally, the decision demonstrates that Canadian courts are likely to scrutinize liquidating agreements in subcontractor claims, particularly if the general contractor has fully settled with its subcontractors and no longer retains liability. The case reinforces the need for contractors to carefully structure their agreements and ensure they have a defensible basis for passing claims through to an owner.

Given that the decision is currently under appeal, the legal landscape regarding subcontractor flow-through claims in Ontario remains in flux. Contractors, owners, and subcontractors should closely monitor the outcome, as it may influence how construction claims are advanced and adjudicated in future disputes.

The post Behind Schedule, In Court: The Legal Framework for Construction Delays: Insights from Walsh Construction v. Toronto Transit Commission appeared first on FREEDIN & ROWELL LLP.

Background

In 2011, St. Michael’s Hospital entered into a public-private redevelopment project with Infrastructure Ontario to build a 17-story patient care tower. The project’s construction contract was awarded to a subsidiary of Bondfield Construction Company (hereinafter referred to as “Bondfield”), for a sum of $301,189,863. Bondfield was also responsible for obtaining and maintaining surety bonds, including a performance bond and a labour and material payment bond, as required by both the construction contract and the project lending agreement. Accordingly, Bondfield obtained such bonds from Zurich Insurance Company (“Zurich Insurance”). The project was financed by $230 million loan advanced by a syndicate of lenders including the Bank of Montreal which was named as the administrative agent for the lenders.

As the project unfolded, Bondfield fell into default, therefore inducing the Bank of Montreal to demand payment from Zurich Insurance by invoking the surety bonds. Nevertheless, Zurich Insurance sought to rescind the bonds it had issued due to the discovery of fraudulent misrepresentations and collusion between Bondfield and St. Michael’s Hospital that appeared to have enabled Bondfield to secure the construction contract. Zurich Insurance took the position that it would have never agreed to issue the bonds had it known about the fraud. The Bank of Montreal and certain subcontractors brought two applications seeking a declaration that Zurich may not rescind the bonds because doing so would affect their rights as innocent third parties (ie. they would not get paid as a result of default).

The Court of Appeal Decision

The Court of Appeal asserted that “prejudice to the rights of third parties may be, but is not always, a bar to rescission”. The ONCA dismissed both applications, ruling that the surety bonds may be rescinded despite prejudice to the lenders and subcontractors, and remitted the case to the trial judge to determine whether recession is appropriate in the case at bar based on the factual record.

Implications

This recent court ruling has significant implications for those in the construction industry who use bonds as a safeguard against default. It remains to be seen in this case whether Zurich Insurance will in fact be entitled to rescind its construction bonds. However, it should be noted that burden of proof required to acquire such relief remains high and will only be granted in certain compelling circumstances. Albeit, construction lenders and subcontractors alike, may wish to consider alternative risk mitigation measures in light of this decision.

Co-author: Harjaap Sahota

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As a corporate/commercial lawyer, my practice centres on drafting documents to give effect to clients’ arrangements that they want reduced to writing, so all parties are certain as to the terms of their arrangement. However, a significant component of my practice relates to assisting clients wrestling with the details of agreements that they have entered into, but have not reduced to writing, once a dispute arises.

Whether it is documenting the relationship between shareholders, partners or contractors, an agreement can provide certainty regarding the rights, obligations and benefits of each party during said relationship. However, in its most basic form, a contract can be reduced to a formula: ((Offer + Acceptance) + Consideration = Contract). Broken down: one party makes an offer that must be accepted by the other party and that offer must be packaged together with an exchange of value, in order to create a contract.

A contract can be formed orally. That being said, there is an age-old saying in law that: “an oral contract is generally worth the paper on which it is written.” Reducing contracts to writing helps avoid misunderstandings and assists with the dispute resolution process, whether privately between the parties, or as part of formal court proceedings.

When drafting a contract the following are some key issues to be considered:

❑ Consideration: As mentioned above, consideration must be packaged together with an offer. Consideration may be in the form of money, shares, goods or services. Language in the contract should acknowledge receipt of the consideration by each party and acknowledge that the consideration received is valuable and sufficient.

❑ Know Your Parties: Knowing the parties to a contract is essential to ensuring that the correct entities or individuals are bound by the terms of the contract. Ensuring that the correct party is named in the contract and that the contract contains provisions to ensure that other relevant parties are covered (such as confidentiality or personal guarantee provisions) can help lay out the rights and obligations of the parties, upfront, rather than after the fact during litigation.

❑ Scope: The scope provisions of a contract help to lay out the parameters of the relationship between the parties. What is the nature of the service being provided? What services are included and what services are excluded from the contract? What are the costs of additional services? Said provisions add certainty to arrangement that is the basis of the contract.

❑ Limitation of Liability / Indemnity for Loss: Should a dispute arise, how much will the parties be liable for regarding damages or losses? Will a claim for damages be limited to the money received by the party providing services? Who will be responsible for maintaining insurance? Will that party be required to protect and cover the legal costs (indemnify) the other party from losses?

❑ Term / Termination: Including an exit strategy for the contract, ahead of the relationship breaking down is a strong mechanism to help deal with potential uncertainty in the future. For how long will the service be provided? How can the contract be terminated? What amount of prior notice is required for termination of the contract and in what method can notice be communicated?

The above list is not exhaustive. It is meant however to be illustrative of the following point: drafting a contract is a forward-thinking process which involves conscious planning about the key terms of the relationship being entered into and what issues likely to be in dispute later on.

We at FREEDIN & ROWELL, LLP would be happy to assist you to put to paper the nuts and bolts of your agreements, and to help drive greater certainty into your contracts.

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A holdback is a requirement that all owners, contractors and subcontractors withhold 10% of the cost of the services or materials supplied on a project until the lien expiry period has lapsed. This helps to ensure that there is enough money to satisfy any lien claims that may arise.

A few changes with respect to holdback obligations and payment have taken effect since July 1, 2018. Again, it is important to remember that the old rules and timelines with respect to holdback will continue to apply to a project if any one of the following markers occurred BEFORE July 1, 2018:

1. the contract for the improvement (i.e. the project) was entered into between the owner and contractor before July 1, 2018; and

1. the procurement process, if any, for the improvement was commenced by the owner of the premises before July 1, 2018

Mandatory Release of Holdback

Under the rules of the old Construction Lien Act, payment of the 10% holdback is permissive once liens that may be claimed against the holdback have expired or have been satisfied, discharged or otherwise provided for under the old Act.

The new Construction Act has been amended to require the payment of the holdback once all liens that may be claimed against the holdback have expired or been satisfied, discharged or otherwise provided for under the Act. It is important to note that even after the lien period expires and it is confirmed that no liens have been preserved, the use of holdback funds to address deficiencies will be prohibited, subject to notice requirements.


Annual and Phased Release of Holdback

The old Construction Lien Act does not provide for the holdback to be released on an annual or phased basis.  The new Construction Act, provides that a payer can make payment of the basic holdback on an annual or phased basis if certain conditions are met, including the following:

• the contract provides for a completion schedule that is longer than 1 year (if paid on annual basis);
• the contract provides for payment of accrued holdback on an annual or on a phased basis (and identifies each phase);
• the contract price at the time the contract is entered into is $10 million or higher; and
• If, as of the applicable payment date, there are no preserved or perfected liens in respect of the contract, or all liens have been satisfied, discharged or otherwise provided for under the Act.

Non-Payment of Holdback

The old Construction Lien Act does not provide for a notice of non-payment of holdback. Under the new Construction Act, an owner may refuse to pay some or all of the holdback required to pay to a contractor if the owner does the following:

• Publishes a Notice of Non-Payment of Holdback (Form 6) specifying the amount of holdback owner refuses to pay, and the notice is published no later than 40 days after the publication of a certificate of substantial performance (or, if there is no CSP, the date on which the contract is completed, abandoned or terminated); and

• Notifies the contractor of the publication of the notice in writing (electronic or paper format) within 3 days of publication.

Come October 1, 2019, a contractor may also withhold payment of holdback to subcontractors, but only if:

1. the owner has refused to pay the holdback,
2. the contractor refers the matter to adjudication, and
3. the contractor notifies every sub of the amount not being paid and of the adjudication referral.

Similar rules will also apply to subcontractors who may withhold payment of holdback to sub-subcontractors and suppliers.

The above information is provided by way of guidance as to the application of the amended legislation. It is not exhaustive in its scope and is not legal advice. It is strongly recommended that you consult with a specialized construction lawyer to determine how the amendments will affect your business and what you need to do to prepare.

If you have any questions relating to this article or wish to discuss your particular concerns, you may reach the author atipichini@freedinrowell.com or (905) 276-0420

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As a result of the escalating COVID-19 pandemic, on January 12, 2021, Ontario declared a state of emergency and issued a stay-at-home order, effective January 14, 2021 at 12:01 a.m. The state of emergency will remain in effect for 28 days and gives the Ontario Provincial Police, local police forces, bylaw officers and workplace inspectors the authority to enforce public health rules and issue tickets and fines.

Exempt Construction Projects

The declaration of a state of emergency, in conjunction with the stay-at-home order, will have implications for most industries including the construction industry. Construction projects deemed non-essential will be closed for the duration of the emergency declaration. Subject to review of official regulations, the following construction projects are deemed essential and may operate:

• Construction projects associated with the healthcare sector including long-term care including the creation of new facilities, expansions, renovations and conversions of spaces that could be repurposed for the healthcare sector;
• Construction projects to ensure safe and reliable operations of municipal and provincial infrastructure including energy, transit, mining and justice sectors;
• Construction projects proceeding under the Investing in Canada Infrastructure Program;
• Construction projects involving educational institutions and child care centers;
• Demolition and land surveying services;
• Construction projects involving and/or servicing internet and cellular technologies;
• Construction projects aimed at modifications to existing industrial structures to produce PPE and other products directly required to combat the COVID-19 pandemic
• Industrial construction required for the operation of petrochemical plants and refineries;
• Construction projects commenced before January 12, 2021 and that would provide additional capacity for businesses providing logistical support, distribution services, warehousing, storage or shipping/delivery services;
• Construction projects that are to be completed before July 2021 and aimed at additional production capacity in food processing, manufacturing and distribution;
• Construction aimed at preparing a site for commercial, institutional, residential or industrial development, including excavation, grading, roads or utilities infrastructure;
• Residential construction projects where:
• a footing permit has been granted for a single family, semi-detached and townhomes;
• the project is a condominium, mixed use or other residential building; or
• the project involves renovations of residential properties that started before January 12, 2021
• Below-grade multi-unit residential construction projects, such as apartments and condominiums;
• Construction projects intended to provide affordable housing, shelter or support for venerable persons;
• Construction and maintenance activities necessary to temporarily closed or not active and to ensure ongoing public safety; and
• Construction projects that are being funded in whole or in part by, or are being undertaken by:
• the Crown in right of Canada or right of Ontario;
• an agency of the Crown in right of Canada or right of Ontario
• a municipality;
• a service manager as defined in the Housing Services Act; or
• a registered charity and not-for-profit organization as defined under the Income Tax Act (Canada).

It is imperative that all stakeholders in the above-referenced construction projects remain mindful that with this emergency declaration, the Ministry of Labour will launch a new inspection regime to ensure proper public health steps are adhered to.  It is expected that construction will be among the industries the Ministry of Labour will be focusing on as part of its inspection blitz.

At FREEDIN & ROWELL LLP, our construction and real estate groups can guide you in navigating these complex, ever-changing rules and reduce any potential exposure. Should you have any questions regarding this article or require any assistance, please do not hesitate to contact us.

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Q. I’m a contractor. What can I do to better ensure that I get paid quickly on the projects to which my company, and my subtrades, provide materials and services?

A.         On October 1, 2019, the second round of amendments to the Ontario Construction Lien Act, now the Construction Act, will come into force. One of the forthcoming amendments to the Construction Act will be to put into effect a “prompt payment” regime for all public and private sector construction contracts. This regime will require payment within 28 days between the owner and general contractor from the date of submission of a “proper invoice.”

A “proper invoice” means “a written bill or other request for payment for services or materials in respect of an improvement under a contract, if it contains the following information and meets any other requirements that the contract specifies:

1. The contractor’s name and address.
2. The date of the proper invoice and period during which the service of materials were supplied.
3. Information identifying the authority, whether in the contract or otherwise, under which the services of materials were supplied.
4. A description, including quantity where appropriate, of the services or materials that were supplied.
5. The amount payable for the services or materials that were supplied, and the payment terms.
6. The name, title, telephone number and mailing address of the person to whom payment is to be sent.
7. Any other information that may be prescribed.”

Proper invoices must be given to an owner on a monthly basis, unless the contract provides otherwise. A provision in a contract that makes the giving of a proper invoice conditional on the prior certification of  payment certifier, or on the owner’s prior approval, is of no force or effect.

Upon receiving full payment form the owner, the general contractor has 7 days to pay the amount payable to each subcontractor who supplied services and/or materials that were included in the proper invoice. Subject to the giving of a notice of non-payment where the money withheld by the owner relates to the work of a specific subcontractor, the money paid will be distributed to the other subcontractors rateably. It is important to also note that under the new prompt payment regime, an owner, general contractor or any other payer will be allowed to set-off against invoices by submitting a “Notice of Intention to Withhold Payment” within 7 days of a receipt of a proper invoice, specifying the amount that is not being paid and detailing the reasons for the non-payment.

While the prompt payment provisions have not yet come into effect, it is a good idea for contractors to start looking at their billing practices to ensure that invoices are prepared in accordance with the requirements identified above, and are ultimately delivered on a monthly basis, or in keeping with the timelines set out under the contract.

Q.        What if I render my accounts properly and in the time prescribed, but I’m still not paid?

A.        The Construction Act will also provide for adjudication to enforce the prompt payment regime. The contractor or subcontractor can legally stop work until paid. In addition, mandatory interest rules will apply, and reasonable costs incurred during the delayed payment can be claimed for reimbursement.  The adjudicator’s decision will be filed with the court and will be subject to the same enforcement as any court order. This means that the party who disregards the adjudicator’s determination will be subject to enforcement procedures, including garnishment, seizure of property, and examinations in aid of execution.

Again, neither prompt payment nor adjudication are happening yet. Both regimes will apply only in respect of contracts and subcontracts entered into on or after October 1, 2019.

The above information is provided by way of guidance as to the application of the amended legislation. It is not exhaustive in its scope and is not legal advice. It is strongly recommended that you consult with a specialized construction lawyer to determine how the amendments will affect your business and what you need to do to prepare.

If you have any questions relating to this article or wish to discuss your particular concerns, you may reach the author atipichini@freedinrowell.com or (905) 276-0420

The post The New “Prompt Payment” Provisions Under The Construction Act appeared first on FREEDIN & ROWELL LLP.

In Ontario, if you have a dispute with an individual or corporation where the claim is for money or property valued between $25,000.00 and $100,000.00 an action can be commenced in the Superior Court of Justice using the Simplified Procedure process.1 It is important to note, that the Simplified Procedure does not apply to class proceedings, construction lien actions (with the exception of breach of trust claims), family law proceedings, Small Claims matters or Applications.

In Toronto, Windsor, and Ottawa, cases proceeding by way of Simplified Procedure are automatically subject to mandatory mediation to take place within 180 days after the Defence has been filed.2 Mediation is a process whereby a mediator attempts to resolve or settle the dispute between the parties prior to proceeding to trial. Even when Mediation is not required, the parties are still required to discuss settlement of the issues within 60 days of the Defence being filed in an effort to determine whether all relevant documents have been disclosed and if settlement of the issues is possible.

After the time for serving and filing pleadings has ended, the Discovery phase begins. Within 10 days of the close of Pleadings, parties are required to exchange all documents that are relevant to the matter in the form of an Affidavit of Documents. Thereafter, unlike the Ordinary Procedure, where Examinations for Discovery are required, parties in a Simplified Procedure action can choose whether to participate in Examinations for Discovery. Should the parties opt to conduct these Examinations, each party is entitled to two hours of oral discovery (as opposed to seven hours in the Ordinary Procedure).

Following the Discovery stage, the parties will begin to prepare for trial and will participate in a pre-trial conference. A pre-trial conference is a hearing before a judge or a master to determine the current outstanding issues and the positions of the parties. Further discussion does take place before a judge to determine whether the case can be resolved and if not, the parties can choose to conduct an ordinary or summary trial. Should the parties be unable to agree on the type of trial, the pre-trial conference judge or master will make that determination.

A summary trial is a shorter trial where evidence is presented in the form of a written Affidavit and can give oral evidence for up to 10 minutes by the party’s own lawyer, and be cross-examined by their testimony and Affidavit for up to 50 minutes by opposing counsel. Further, each party has 45 minutes to present oral arguments.

The Simplified Procedure is a more expeditious and cost-effective method for resolving issues and is an important consideration when determining your legal strategy. As it is a significantly more concise process than the Ordinary Procedure, understanding how to properly navigate and prepare for actions proceeding in this manner is critical to your eventual success.

1 Notably, if your claim is for property or a monetary value exceeding $100,000.00 you may be able to bring the action under the Simplified Procedure; however, if there is an objection by the Defendant(s) it will possibly proceed by way of the Ordinary Procedure.

2 In other jurisdictions, mediation is optional

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Construction legislation is undergoing its first overhaul since 1983. In some respects, the changes are formalizing the way that construction matters are dealt with by the court. In others, additional forms of relief have been introduced to strengthen the protections afforded to the smaller players in the construction industry—those trades and suppliers without the resources to challenge more powerful contractors and owners.

The Construction Lien Act will be amended in two phases: the first will take effect on July 1, 2018; the second on October 1, 2019. Dating your contracts or subcontracts properly is very important in determining your legal obligations. This is especially so given the new accounting requirements and the changes in the timelines for substantial performance, completion, holdback and registering liens.

All contracts dated July 1, 2018, will be subject to the new Construction Act. However, the date of a contract is not necessarily the date on which it was signed. While I hope to provide some guidance with the information below, each project is different—the determination is not an easy one. The first phase of amendments will affect all contracts dated July 1, 2018, and later. But how do you date a contract?

Contracts Directly with an Owner (No Tender or Bid Process)
Where a contractor enters an agreement directly with an owner, the applicable date is July 1, 2018. Additional considerations apply for project subject to tender, which will be detailed below. Where, for example, a general contractor signs a contract directly with an owner, any contract dated July 1, 2018, will be subject to the new regime. The existing Construction Lien Act will apply to contracts dated up until June 30, 2018.

Prime Contract (No Tender or Bid Process)
The date of the prime contract determines whether the old regime under the existing Construction Lien Act or the amended Construction Act applies. This applies to situations where either: (i) a contractor retained under a prime contract engages subcontractors; or (ii) an owner retains trades directly on a project subject to a prime contact. On these projects, the date of the prime contract is the applicable date.

Procurement Process / Tenders / Bids
For projects subject to a procurement process—including those where Requests for Quotation (RFQ), Request for Proposals (RFP), or call for tenders–the date that the procurement process was commenced will apply. If a call for tenders is made before June 30, 2018, the old Construction Lien Act will apply, even if the contracts are signed after July 1, 2018. 

For example, a contractor is awarded a tender and enters a contract with an owner on August 1, 2018; if the call for tenders was on May 1, 2018, the current Construction Lien Act applies. If the call for tenders was on July 2, 2018, the amended Construction Act applies.

With respect to the second phase of amendments, contracts will be similarly dated with the applicable date being October 1, 2019.

The above information is provided by way of guidance as to the application of the amended legislation. It is not exhaustive in its scope and is not legal advice. Much confusion is anticipated as to how the Construction Act will be administered and interpreted. It is strongly recommended that you consult with a specialized construction lawyer to determine how the amendments will affect your business and what you need to do to prepare.

If you have any questions relating to this article or wish to discuss your particular concerns, you may reach the author at
ahatsios@freedinrowell.com or (905) 276-0420

The post The Laws Have Changed: When The Amended Construction Act Applies to You appeared first on FREEDIN & ROWELL LLP.

If you work in construction, there’s a good chance that you have your own story about those projects—the large-scale builds that went bust, leaving the contractors and subcontractors waving their unpaid invoices and asking, “What now?”

The common scenario is an owner that runs out of money before the project is finished, the abandoned construction abandoned like steel skeleton against the landscape. In such circumstances, it doesn’t make sense for the owner to assigned into bankruptcy. The initial effort will be to restructure the owner’s business in order for operations to continue. A continuing business concern is seen as creating value not just to pay off debts but to support the economy overall. It is for this reason that proceedings are usually commenced under the Companies’ Creditors Arrangement Act (CCAA).

CCAA proceedings are optimistic; underlying a proposal under the CCAA is the belief that with some help, an insolvent company can continue business. The Court acts as gatekeeper, monitoring the actions of the insolvent company and keeping creditors at bay until a final agreement can be reached to pay of the debts.

The priority of creditors is changed in a CCAA proceeding. The insolvent company needs money to continue operations—this is provided by the Debtor in Possession or “DIP” financer. Since the DIP financer is essentially saving the project, it is given super priority over all other creditors. So, if and when the insolvent company starts to make money again, the DIP lender gets paid first.

Next in line are secured creditors. For construction projects, they would include any contractor or subcontractor that registered a lien before the date of the CCAA proposal.

Unsecured creditors rank at the bottom when it comes to repayment, behind the DIP lender and the secured creditors. Unsecured creditors include any contractor or subcontractor that did not register a lien. This means that most trades and suppliers on these types of projects rank last.

Often, contractors and subcontractors will be asked to continue their contract work to complete the project. Anything done after the date of a CCAA proposal is considered to be under a new contract. As part of the CCAA proposal, the insolvent company has an obligation to ensure that payments are made for any new work supplied. Further, a contractor or subcontractor retains the right to lien or claim for any unpaid amount.

So, what can a contractor or subcontractor do? If a CCAA proposal has been made, the answer is, not much. It is very important that the contractor or subcontractor—by itself or through counsel—monitor the CCAA proceedings to make sure that it is counted as a creditor. That way, when the Court makes a distribution of the owner’s assets, the contractor’s or subcontractor’s debt will be included. Before that time, the options are limited—in some cases, holdback funds may be pursued or a trust claim may be brought.

The most important thing is for a contractor or subcontractor to take action before a CCAA proposal is made. If there’s a delay in payment, it is important for the contractor or subcontractor to find out why. Acting quickly can make all the difference. The take away here is to keep on top of what’s happening on the project and to get the right help when you think there might be a problem.

CCAA proceedings in the course of construction projects are complex. The above is a general overview of proceedings and should not be considered legal advice. It is recommended that you seek legal counsel to discuss your options. If you have any questions relating to this article or wish to discuss your particular concerns, you may reach the author at ahatsios@freedinrowell.com or (905) 276-0420.

The post Bizarre Love Triange: Insolvent Owners, Contractors & CCAA appeared first on FREEDIN & ROWELL LLP.

If you work in the construction industry, chances are you have at least some familiarity with the Construction Lien Act. If money is owing to you, you may be able to register a lien against title to the property for the project. The lien acts as security for the amounts owing until a proper determination can be made of the outstanding accounts.

Whether you retain the right to lien depends on a number of factors—it’s not always as easy as counting 45 days after the last date of supply. Knowledgeable legal counsel can certainly help you in figuring this out.

But what if your lien rights have expired? Or what if a lien isn’t the right way to go in your case? The Construction Lien Act may still assist.

Under the Construction Lien Act, financing for the project is seen as flowing down from the owner to the contractor to the subcontractors and suppliers. Imagine a pyramid with the owner at the top, the contractor one level down, and the many subcontractors and suppliers at the bottom. Basically, the monies used to finance the project are paid to the owner, which then pays the contractor. The contractor then uses part of those monies to pay out the subcontractors and suppliers.

If funds are not paid out as required, there may be a basis to sue for breach of trust. Simply, an action for breach of trust may exist when the project financing does not flow down the pyramid and contractors, subcontractors and suppliers are left unpaid. The owner responsible for paying the contractor may be said to be holding funds “in trust” for the contractor—the owner may be the trustee for the beneficiary contractor. The same relationship can extend to contractors and subcontractors.

The Construction Lien Act recognizes that it is the individuals in charge of the trust who decide what to do with trust funds. As such, the directors, officers and employees of a trustee—the people with authority or control over the company—could be sued in their own name.

While a breach of trust may seem straightforward, it is not simple. If, for example, all the project funds are paid out down the construction pyramid but there are insufficient funds to pay out all the subcontractors and suppliers, there is no breach of trust.

The purpose of the Construction Lien Act is to protect the smaller players in the construction industry from larger and more powerful owners and contractors. The remedies allowed are extraordinary; as such, they are particular. If you think you may have a claim and you wish to canvas your options, you will want to consult with a lawyer with specific knowledge and experience as to how the Construction Lien Act can work for you.

If you have any questions relating to any of the above, please do not hesitate to contact Ann Hatsios  at ahatsios@freedinrowell.com or 905.276.0420.

The post When Lien Rights Are Lost: Other Relief Under The Construction Lien Act appeared first on FREEDIN & ROWELL LLP.