Holding Pattern: Alberta Awaits Prompt Payment and Adjudication Regime

Provincial legislatures across Canada are finally heeding the call from industry to implement prompt payment and adjudication regimes. As of the writing of this post however, only Ontario’s Construction Act [1]RSO 1990 c C.30 has in-force prompt payment and adjudication provisions. Elsewhere in Canada, legislatures are at various stages of implementation. In Alberta, Bills 37 and 62 introduced amendments (and then revised those amendments) to the Builders’ Lien Act,[2]RSA 2000 c B-7 to introduce prompt payment and adjudication – amendments so significant, that the Builders’ Lien Act will be renamed to become the Prompt Payment and Construction Lien Act (the “PPCLA“). The authors have previously written regarding the PPCLA and the introduction and passing of Bills 37 and 62 here and here, respectively.

July 1, 2021 was the anticipated proclamation date for the PPCLA when Bill 37 was introduced in October 2020.[3]Protecting jobs in the construction industry – October 21, 2020 – YouTube This ambitious timeline gave industry only a few months to prepare for the substantial changes brought about by the new legislation. Unfortunately, the line between ambition and folly is often best perceived in hindsight, which appears to have been the case here. Following what the Minister’s office describes as “overwhelming feedback from stakeholders”, the July 1, 2021 effective date has come and gone without the PPCLA having been proclaimed into force, and without an alternate effective date being announced.

As of the writing of this post, industry stakeholders continue to engage with the government over the details of how this new legislative framework will operate in practice. Those details are anticipated to be fleshed out in the PPCLA‘s  yet-to-be-released regulations.

In addition to requiring the finalization of the regulations, the PPCLA will require the Minister to appoint an authorized “Nominating Authority” who will be empowered to appoint adjudicators to decide disputes subject to the adjudication regime. As of the date of this blog post, only the ADR Institute of Canada (ADRIC), in collaboration with the Royal Institute of Chartered Surveyors (RICS), has publicly announced an intention to submit a bid to become a Nominating Authority. An ADRIC-RICS Nominating Authority does not appear to be in a position to appoint adjudicators until at least 2022 however, when it has had an opportunity to qualify adjudicators according to its standards.[4]https://adric.ca/construction-adjudication/construction-adjudication-training/  It therefore appears unlikely that the PPCLA will be able to be proclaimed until at least spring 2022.

In the meantime, contracts or subcontracts entered into before the PPCLA is in force will continue to be subject to the existing provisions of the Builders’ Lien Act, subject to the yet-to-be-released regulations.[5]See Bill 37 s.26, PPCLA s. 74

For more information regarding the major consequences of the PPCLA, not just for the construction industry, but for any industry that is involved directly or indirectly in the buying, selling, drilling, mining, developing, maintaining or financing of land in Alberta, please see our team’s presentation that can be accessed here.

We will continue to monitor the progress of the PPCLA and other prompt payment and adjudication regimes across the country, and will provide further updates as they become available.

References

References
1 RSO 1990 c C.30
2 RSA 2000 c B-7
3 Protecting jobs in the construction industry – October 21, 2020 – YouTube
4 https://adric.ca/construction-adjudication/construction-adjudication-training/
5 See Bill 37 s.26, PPCLA s. 74

Payment Clause Held Not To Be A “Pay-When-Paid” Clause

In Cardinal Contracting Ltd. v. Seko Construction (Vancouver) Ltd., 2017 CarswellYukon 107, 2017 YKSC 51, the Yukon Supreme Court recently considered whether a payment clause in a construction contract was a pay-when-paid clause which entitled the contractor to only pay the subcontractor if and when it was paid by the owner.

The clause in question read as follows:

“Payments shall be made monthly on progress estimates as approved by the Contractor covering 90% of the value of the Work completed by the Subcontractor to the end of the previous month; such payments to be made 7 days after the Contractor receives payment for such Work from the Owner.” (underlining added)

The court considered the conflict in the law at the appellate level in Canada. In Timbro Developments Ltd. v. Grimsby Diesel Motors Inc., [1988] O.J. No. 448, the Ontario Court of Appeal held that the clause in question was a pay-when-paid clause, and that the contractor did not have to pay the subcontractor until paid by the owner. Justice Finlayson dissented, holding that the clause was a timing provision and “in no sense puts the subcontractors at risk that they will not be paid if the contractor is not paid. They are not co-adventurers or partners in this construction contract. Having done the work as found by the trial Judge, they are entitled to be paid.”

In Arnoldin Construction & Forms Ltd. v. Alta Surety Co., [1995] N.S.J. No. 43, the Nova Scotia Court of Appeal held that the clause in question was not a pay-when-paid clause which entirely protected the contractor from paying until paid by the owner. Rather, the clause was a payment timing clause which provided that payments by the contractor would generally be paid after payment from the owner but did not preclude the contractor form finally paying the subcontractor even if unpaid by the owner. In the Arnoldin case, the clause was being relied upon by the payment bonding company and that factor may have been important since it makes less sense to interpret the clause as entirely relieving the contractor from paying the subcontractor when the contractor has provided a payment bond to deal with that very situation.

In concluding that the clause was not a pay-when-paid clause, the Yukon Supreme Court said:

“I am in agreement with the interpretation in Arnoldin where the words in the contract before it which were not as clear and precise as the words in Timbro where the contractor clearly assumed the risk of non-payment by the owner to the contractor. In the case at bar, I am of the view that the payment clause is a timing clause rather than a “pay when paid” clause as in Timbro. There is no clear wording that the payment on the Subcontract was conditional on the owner paying the contractor. Therefore, I order that the balance outstanding shall be paid regardless of whether Martian has paid Seko, subject to amount only under the two remaining issues.”

Discussion

This decision follows the trend of recent cases. Most of the recent court decisions have held that, unless the language of the contract makes it very clear that the contractor does not have to pay the subcontractor at all if not paid by the owner, then the provision will not preclude the ultimate obligation of the contractor to pay the subcontractor.

It is difficult to distinguish Timbro from Arnoldin based upon the wording of the respective contracts. In Timbro the relevant wording was “when we have been paid by the owner”. In Arnoldin, the words were “after payment has been received by the Contractor.” The recent cases, following the Arnoldin and not the Timbro decision, may reflect a judicial antipathy to a clause which, in the absence of very clear words, denies payment to the subcontractor when, as Justice Finlayson said, it has done the work.

This decision high-lights the importance of the Prompt Payment regime proposed to be introduced into Ontario law by the Construction Lien Amendment Act, 2017. Under that legislation, a contractor is entitled to deliver to a subcontractor a notice of non-payment, and may deliver such a notice if it has not been paid by the owner. The same regime applies down the payment pyramid.

This legislation may arguably introduce into Ontario a statutory pay-when paid regime. That would be a surprising result since the general trend is for legislatures to ban pay-when paid (as has occured in the U.K. and in several U.S. states) and for courts to strain against finding that a clause is a pay-when-paid clause unless that is very clear.

Cardinal Contracting Ltd. v. Seko Construction (Vancouver) Ltd., 2017 CarswellYukon 107, 2017 YKSC 51

Building Contracts – pay-when-paid clauses – Prompt Payment legislation

Thomas G. Heintzman O.C., Q.C., LL.D. (Hon.), FCIArb                         October 27, 2017

www.heintzmanadr.com

www.constructionlawcanada.com