July 15, 2022

By Jonathon Clark

The introduction of prompt payment requirements was one of the most important changes in the move from the Construction Lien Act to the Construction Act.

WHAT IS NEW ABOUT THIS LAW

The whole point of these provisions is to require prompt payment to avoid disruptions to construction projects when payment disputes arise.

Ontario’s provisions are modeled on similar provisions which have worked very well in the United Kingdom for more than a decade. The intention of these provisions is to keep the project running smoothly and avoid shutdowns.

They provide for a quick and relatively informal adjudication of payment disputes by an adjudicator experienced in construction issues and trained in basic construction law dispute resolution. The adjudicator’s decision leaves open the possibility of revisiting issues at the end of the project but triggers an obligation on the part of the payor to pay subcontractors, suppliers, and workers immediately after the adjudicator’s decision.

To keep things running smoothly, there are no appeals from prompt payment decisions.

Judicial review, which is much more limited than an appeal process, is available but only with leave from the Divisional Court. The granting of leave to bring an application for judicial review does not automatically stay the requirement for prompt payment. This is consistent with the intention to keep the funds flowing down the construction pyramid and keep the job working.

The Divisional Court may give a stay order.

WHAT HAPENS IF NO STAY ORDER GRANTED?

The Divisional Court has now considered what happens when a payor fails to pay promptly after the adjudication but applies for leave to apply for judicial review.

The court has ruled that where leave is granted, the applicant payor must either obtain a stay or must make payment. Failing that, the court may dismiss the application without considering the merits.

WHEN WILL A STAY ORDER BE GRANTED?

The applicant did not apply for a stay, so the court did not decide what test would apply.

The usual test in other situations for a stay pending review is:

  1. The applicant must raise a serious issue for review;
  2. The applicant will suffer irreparable harm if no stay is granted; and
  3. The balance of convenience must favour the granting of the stay.

Assuming the court applies that test to prompt payment disputes, we expect that there will be strong battles over “balance of convenience”. A stay should be difficult to obtain for the very reasons we have prompt payment provisions in the first place.

This is reinforced by the comment of the Court that in future cases, failure to pay or obtain leave will likely result in summary dismissal of the application, without consideration of the merits, as happened in this case.

The applicant argued that review should be allowed to proceed because there was no money to make the payment. This argument was unsuccessful.

If the owner or other payor is insolvent, it makes no sense to run up further costs and delay during the judicial review process. If the project is going to be affected by the insolvency, better that this realization occurs before suppliers, subcontractors, and workers provide more services that will not be paid for. Sometimes, instead of prompt payment, parties may have to be content to simply cut their losses sooner rather than later.

WHAT ABOUT OTHER CHANGES UNDER THE NEW LAW?

We interpret this decision as a sign that courts at all levels are likely to take the prompt payment provisions seriously. Replacing the Construction Lien Act with the more broadly named, and broader, Construction Act, signals a need to be a change in attitude in applying the new provisions. How far this extends to how courts deal with the tweaks to the construction lien provisions is less clear, but it is time to take prompt payment, and the adjudication process, seriously.

This is simply one of the many new issues that are arising under the new Construction Act in Ontario. They are arising not only in southern Ontario, but also in places like Thunder Bay, Kenora, and throughout northwestern Ontario.

HOW WEILERS LAW CAN HELP YOU

At Weilers Law, we have extensive experience in dealing with construction disputes in the North. If you find yourself in need of advice regarding the provisions of the Construction Act, or in need of representation either on a judicial review, a construction lien, or another form of construction litigation, we may be the right lawyers for you.