The Construction Lien Act & Contract Administration

Transcription

1 The Construction Lien Act & Contract Administration Liens, Trusts, Rights to Information and New Amendments Glenn W. Ackerley Wellington Street West TD Bank Tower Toronto, ON M5K 1B

2 Overview What we ll cover The Construction Lien Act overview Purpose Definitions Essential lien basics: Substantial Performance Timing of Lien Rights Holdbacks Distribution of monies 2

3 Overview What we ll cover Construction Trusts: trust basics the different trusts personal liability of trustees Do s and Don ts Section 39 Information Rights The New Construction Act (Bill 142) Prompt Payment Adjudication Updates and Amendments 3

4 Traditional Construction Pyramid Owner General Contractor Subcontractor Supplier Subcontractor Supplier Worker Subsubcontractor 4

5 Construction Management Pyramid Owner Construction Manager Trade Contractor Supplier Trade Contractor Supplier Worker* Subcontractor 5

6 Architect Pyramid Owner General Contractor Architect M/E Specification Structural Printer Engineers Writer Engineer Engineers Engineers Engineers 6

7 Typical Construction Pyramid Owner General Contractor Architect Subcontractor Subcontractor Subcontractor Subcontractor Supplier Supplier Worker Subsubcontractor Subsubcontractor Subsubcontractor Subsubcontractor Subsubcontractor Subsubcontractor Manufacturer Subsubcontractor Supplier Worker Worker Manufacturer 7

8 The Construction Lien Act What is the purpose? Provide a degree of security of payment for trades and suppliers on a construction project: lien rights trust rights provide parties with a right to certain information prompt payment of invoices adjudication of disputes mandatory bonding of public projects 8

9 The Construction Lien Act How does CLA secure payment? creates a scheme for pooling funds for the benefit of those lower in the pyramid, with the funds secured by the project lands (i.e., holdbacks) LIEN RIGHTS prevents monies for project flowing out of the pyramid while contractors, trades and suppliers remain unpaid (i.e., retention) TRUST RIGHTS 9

10 The Construction Lien Act Why is it important for Architects to understand? your contract administration responsibilities under client/architect agreement: holdbacks substantial performance knowing your own lien rights and trust obligations under the CLA 10

11 The Construction Lien Act Three basic CLA principles: you CANNOT contract out of lien and trust rights contracts and subcontracts are DEEMED to comply with the Act rights are STRICTLY CONSTRUED, i.e. must work within the rules or you may lose the benefit 11

12 The Lien Claim Other Lien Basics: the right to lien substantial performance timing of lien rights distribution of holdback and contract funds 12

13 The Right to Lien Who has a right to lien? A person who supplies services or materials to an improvement for an owner, contractor or subcontractor, has a lien upon the interest of the owner in the premises improved for the price of those services or materials 13

14 The Right to Lien Key Definitions for who has the right to lien: supplies services; or supplies materials; improvement; owner, contractor or subcontractor; premises; 14

15 who supplies services Supply of Services means... any work done or service performed upon or in respect of an improvement and includes, the rental of equipment with an operator, and where the making of the planned improvement is not commenced, the supply of a design, plan, drawing or specification that in itself enhances the value of the owner s interest in the land 15

16 who supplies services project/construction managers? site security services? transportation of materials? 16

17 who supplies services Architect s Supply of "Services... Based on definition, design work for the improvement supports right to lien for work performed other services, such as feasibility studies, may or may not support right to lien depending on connection to the improvement 17

18 who supplies services Architect s Supply of "Services... if project not begun, includes drawings, plans and specifications that enhance the value of the land Ontario Inc. v. Sterling (2000) (Ontario Divisional Court) services rendered to obtain site plan approval may increase value of land and support lien 18

19 or materials Materials means every kind of movable property, that becomes part of the improvement that is intended to become part of the improvement is used directly in the making of the improvement is used to assist in making the improvement e.g. temporary items, equipment rental, fuel 19

20 or materials Supply of Materials occurs when... materials are placed on the land where the improvement is being made materials are placed on designated lands adjacent to the project materials are incorporated or used in making the improvement 20

21 ... to an improvement What is an Improvement? any alteration, addition or capital repair to the land, any construction, erection or installation on the land, including the installation of industrial, mechanical, electrical or other equipment on the land or on any building, structure or works on the land that is essential to the normal or intended use of the land, building, structure or works, or the complete or partial demolition or removal of any building, structure or works on the land Kennedy Electric v. Dana Canada (2006) 21

22 for an owner Who is the Owner? a person: who requested work to be done AND on whose behalf work is done, or either who gave credit for, contracted for, consented to, or directly benefited from the work not necessarily the registered owner of the property (could be tenant, mortgagee, etc.) P3 special purpose entity may be deemed owner 22

23 for an owner Special types of Owners Federal Government and federal works are not affected by Construction Lien Act Provincial Government & Crown Agencies all property is exempt from registration of liens Municipalities roads exempt but otherwise, it s like any other private owner and subject to liens Changes under new Construction Act to make Municipalities like Provincial Government & Crown Agencies no registration of liens 23

24 for an owner, contractor Who is the Contractor? A person who contracts with or is directly employed by the owner, or the owner s agent Where an architect contracts with the owner, the architect is a Contractor under the CLA 24

25 owner, contractor, or subcontractor Who is a Subcontractor? A person contracting with a contractor or another subcontractor, but not with the owner Where an architect contracts with someone other than the owner, the architect is a Subcontractor under the CLA 25

26 Traditional Construction Pyramid Owner General Contractor Subcontractor Supplier Subcontractor Supplier Worker Subsubcontractor 26

27 Traditional Construction Pyramid - CLA Owner Contractor Subcontractor Subcontractor Subcontractor Subcontractor Subcontractor (Worker) Subcontractor 27

28 Construction Management Pyramid Owner Construction Manager Trade Contractor Supplier Trade Contractor Supplier Worker Subcontractor 28

29 Construction Management Pyramid - CLA Owner Contractor Contractor Contractor Contractor Subcontractor Subcontractor (Worker) Subcontractor 29

30 Architect Pyramid Owner General Contractor Architect M/E Specification Structural Printer Engineers Writer Engineer Engineers Engineers Engineers 30

31 Architect Pyramid - CLA Owner General Contractor Contractor Subcontractor Subcontractor Subcontractor Subcontractor Subcontractor Subcontractor Subcontractor 31

32 in the premises improved What is the premises? Lien attaches to the land, building, materials and related lands enjoyed therewith Only the owner s interest in the premises can be subject of the lien e.g. the lienable interest may be just a tenancy 32

33 in the premises improved Improvement Materials 33

34 in the premises improved Improvement Land Materials 34

35 in the premises improved Improvement Lands Enjoyed Therewith Land Materials 35

36 for the price of those services or materials How is price determined? Price is the contract or subcontract price: agreed on by the parties, or where no agreement, the market value of the supply of services or materials if contract or subcontract not yet complete, involves estimate of value based on total price 36

37 for the price of those services or materials How is price determined for architects? depends if client-architect agreement based on fixed fee, percentage fee, or hourly rate when contract not yet finished, calculation of price usually based on value of the services provided as a percentage of the fees for the total services anticipated under agreement 37

38 Special Situations Special types of liens The general lien (s.20) Prevenient arrangements Leasehold interests (s.19) Condos 38

39 The General Lien When is it available? one contract for work on more than one lot same owner for all lots contract does not say: lien rights expire on a lot by lot basis 39

40 The General Lien What do you lien? all lots remaining in the owner s hands whether worked on remaining lots or not claim for full amount owing for all lots worked on 40

41 Prevenient Arrangements Special case for material suppliers informal arrangement for ongoing supply lien rights revive with each new supply Deemed Completion doesn t apply even if supply directly to owner 41

42 Leasehold Improvements Working on tenant s space written notice to landlord under s. 19 may put landlord on the hook as owner unless landlord denies responsibility within 15 days - REPLACED non-rent defaults: lien survives against leasehold premises rent default: lien claimant can pay rent to save lease and protect lien NEW: landlord will be subject to lien for 10% of value of tenant improvement allowance 42

43 Condominiums Section 33.1 re Condos An owner must give 5-15 days notice that it intends to register the project as a Condo Owner s Name and Address Overview of the Land Description Contractor Information, where known and required liening common elements notice to condo corporation and each unit owner 43

44 Substantial Performance When is it reached? Qualitative test: improvement or a substantial part is ready for use or being used as intended AND Quantitative test: formula is satisfied for remaining work and known defects 44

45 Substantial Performance Key Milestone... Certified by the payment certifier for the project or agreed between owner and contractor if no payment certifier Certificate (Form 6) published in the Daily Commercial News If not published, not effective! 45

46 Substantial Performance What is the formula? 3% of first $500,000 ($1,400K - $500K = $900K) 2% of second $500,000 ($900K 500K = $400K) 1% of balance of contract price (1% of $400K) Assume $1.4M contract price... $15,000 $10,000 $4,000 Total: $29,000 (97.9%)

47 Substantial Performance What is the formula? 3% of first $500,000 ($750K - $500K = $250K) 2% of second $500,000 ($250K) 1% of balance of contract price (1% of $0) Assume $750K contract price... $15,000 $5,000 $0 Total: $20,000 (97.3%)

48 Substantial Performance What is the formula? 3% of first $500,000 ($10.5M - $500K = $10M) 2% of second $500,000 ($10M 500K = $9.5M) Assume $10.5M contract price... $15,000 $10,000 1% of balance of contract price (1% of $9.5M) $95,000 Total: $120,000 (98.9%)

49 Substantial Performance - NEW What is the formula? 3% of first $1,000,000 ($10.5M - $1M= $9.5M) 2% of second $1,000,000 ($10M $1M = $8.5M) Assume $10.5M contract price... $30,000 $20,000 1% of balance of contract price (1% of $8.5M) $85,000 Total: $135,000 (98.7%)

50 50

51 Completing the Certificate It s one or the other! Either the lien claim is to be registered against the title to the property (Line A completed) OR The lien claim is to be delivered to applicable government office (Line B completed) 51

52 52

53 Pursuing Lien Rights It s a two-step process... PRESERVE the lien within time CLAIM FOR LIEN AND PERFECT the lien within time LIEN ACTION 53 if neither step is taken, the lien is no longer valid if neither step is taken, the lien is no longer valid

54 Preserving the Lien How is Preserving done? By registering a Claim for Lien against title to premises, usually by electronic registration 45 days from the triggering time period. Changing to 60 days after July 1, 2018 against Special Owners serve Claim for Lien without registration: Provincial Government projects Municipal roads after July 1, 2018, all municipal project liens to be delivered to clerk s office 54

55 Preserving the Lien What document is used? Claim for Lien form (Form 8): names, parties, dates of supply, description of work, amount claimed to be owing for work done supported by sworn affidavit of verification can t lien for interest and damages (e.g. lost profits) Change: any direct costs incurred as a result of an extension of the duration of the supply of services or materials to the improvement for which the contractor or subcontractor, as the case may be, is not responsible 55

56 Preserving the Lien What if there is a mistake in the Claim for Lien? minor irregularities can be corrected, as long as no one was prejudiced (s.6) Minor irregularity in name of owner Minor irregularity in legal description Putting owner s name in the wrong place liening the wrong land cannot usually not be corrected unless lands enjoyed therewith failure to have affidavit of verification is fatal flaw unless lien registered electronically 56

57 Preserving the Lien The wrong amount? Liened too late? If the lien claim is preserved or written notice of a lien is given: where the person knows or ought to know the amount is grossly excessive [willfully exaggerated], or where the person knows or ought to know that he/she doesn t have a lien the person is liable to anyone who suffers damages (s.35) may be personally liable for costs or may only be awarded costs for what should have been the least expensive (s. 86) 57

58 Vacating the Claim for Lien Getting the lien off the title... any party can put up security with the court to clear the title to the premises allows owner and mortgagee to deal with land security can be cash, letter of credit or lien bond lien becomes charge against security not land Change to quantum of security from $50K to $250K max 58

59 Vacating the Claim for Lien Other ways of getting the lien off the title... The lien claim may be settled and a Release of Lien is registered discharging the lien The lien may have been preserved or perfected out of time and a court orders that it has expired 59

60 Perfecting the Lien Starting the Lien Action Must be started within 45 days after lien period would have expired Changing to 90 days If lien still on title, Certificate of Action registered within 45 day time period to prove action started May be possible to shelter under another lien action without starting own action 60

61 Perfecting the Lien What claims can be made in the action? lien breach of contract, including damages interest on monies owed only the actual lien claim is secured by the registration of the lien 61

62 Perfecting the Lien Who are the defendants? Contracting Party for debt Owner for holdback Mortgagee(s) for priority Party posting security for lien 62

63 Timing of Lien Rights Key definitions Substantial Performance Contractor: Deemed Completion Abandonment Subcontractor: Date of last supply 63

64 Timing of Lien Rights Contractors... For work up to substantial performance : Lien expires 45 days (changing to 60 days) after the earlier of Date Certificate of Substantial Performance is published Completion Abandonment Amendment: or Terminated 64

65 Timing of Lien Rights Contractors... For work post- substantial performance or where no certificate is published Lien expires 45 days (changing to 60 days) after the earlier of Completion Abandonment 65

66 Completion When is the contract completed? historically, factors to consider included: when was contractor able to sue for full account? was last work was done in good faith to complete contract or just to revive lien rights? was last work really warranty or guarantee work? was last work done on extras outside original contract work? 66

67 Completion How to determine if contract is finished... CLA created deemed completion time starts running on lien expiry period even if contract is not actually finished applies only to contracts, not subcontracts 67

68 Deemed Completion When is the contract deemed to be finished? Value of work left to complete or correct is lesser of $1,000 (changing to $5,000) and 1% of contract price Ex. 1: a $1.4M contract is deemed to be completed when $1,000 left to do Ex. 2: a $45,000 contract is deemed to be completed when $450 left to do 68

69 Deemed Completion What s less than $1,000 [$5000]? BOTH the value of work left to complete AND the cost of correcting known defects and deficiencies must be taken into account in calculating deemed completion 69

70 Deemed Completion How does it apply to architects? When the value of services under client-architect agreement is less than the threshold, the contract is deemed to be complete, and the 45-day period to lien begins to run 70

71 Abandonment / Termination When has the contract been abandoned? point when it s clear contract is at an end mere suspension of work not enough not necessarily the last date actually worked e.g. may be when termination letter sent by owner when contractor makes clear no intention of returning to complete the work Termination (Change: Notice of Termination to be published and publication does not prevent the contesting of the validity of the termination) 71

72 Abandonment / Termination How does it apply to architects? When the client-architect agreement has clearly come to a premature end, the 45/60-day period to lien begins to run 72

73 Timing of Lien Rights Contract Work Commences Basic WorkCertification Publication of of Certificate of Deemed Finishing Actual WorkCompletion Substantial Substantial Performance Performance Typical project timeline 73

74 Timing of Lien Rights Basic Work Certification of Substantial Performance Finishing Work Contract Work Commences Publication of Certificate of Substantial Performance Actual Completion Deemed Completion Typical project timeline 74

75 Timing of Lien Rights Scenario 1: Contractor is terminated before completion 45 days 45 days 75 Contract Termination Work of begins the Contract Last day to Preserve Lien Last day to Perfect Lien

76 Timing of Lien Rights Scenario 1: Contractor is terminated before completion Contract Work begins 45 days 45 days 76 Termination of the Contract Last day to Preserve Lien Last day to Perfect Lien

77 Timing of Lien Rights Scenario 2: Contract is substantially performed, but certificate not published Last day to Preserve Lien 45/60 days 45/90 days Contract Work begins Deemed Completion of the Contract Last day to Perfect Lien 77

78 Timing of Lien Rights Scenario 2: Contract is substantially performed, but certificate not published Last day to Preserve Lien 45 days 45 days Deemed Completion of the Contract Last day to Perfect Lien 78

79 Timing of Lien Rights Scenario 3: Contract is substantially performed, and certificate is published Scenario 3: Contract is substantially performed, and certificate is published Publication Last day to Preserve Lien 45/60 days 45/90 days Substantial Contract Work Performance begins Last day to Perfect Lien 79

80 Timing of Lien Rights Scenario 3: Contract is substantially performed, and certificate is published Scenario 3: Contract is substantially performed, and certificate is published Last day to Preserve Lien Substantial Performance Work Continues Last day to Perfect Lien 80

81 Timing of Lien Rights Scenario 3: Contract is substantially performed, and certificate is published Scenario 3: Contract is substantially performed, and certificate is published Last day to Preserve Lien Substantial Performance Deemed Completion of the Contract 45/60 days Last day to Perfect Lien 45/90 days 81

82 Timing of Lien Rights Scenario 3: Contract is substantially performed, and certificate is published Last day to Publication Preserve Lien 45/60 days 45 days Contract Work begins Substantial Performance Deemed Completion of the Contract 45/60 days Last day to Perfect Lien 45 days 82

83 Timing of Lien Rights Subcontractors... For work up to substantial performance : Lien expires 45 days (changing to 60 days) after the earlier of Date Certificate of Substantial Performance published Date of last supply of services/materials Date subcontract was certified complete 83

84 Timing of Lien Rights Subcontractors... For work post- substantial performance or where no certificate is published Lien expires 45 days (changing to 60 days) after the earlier of Date of last supply of services/materials Date subcontract was certified complete 84

85 Completion of Subcontract What is the process? Subcontractor declares last supply (Form 5) Contractor requests payment certifier to certify subcontract is complete (Form 7) Owner releases holdback prematurely for specific subcontract after time to lien has expired Contract has to provide that it is mandatory 85

86 Last Supply Q: When did subcontractor last supply? Consider whether the work was: necessary for improvement supplied in good faith not separate extra to original subcontract Fact supply is trivial value not the issue 86

87 Last Supply When does this apply to architects? If client-architect agreement is not with owner: with a prime consultant with a design-builder, etc. then the timing related to subcontractors applies when was work last done? 87

88 Timing of Lien Rights Scenario 4: Subcontractor work prior to substantial performance 45/60 days 45/60 days 88 Subcontract Date Work of begins Last Supply Last day to Preserve Lien Last day to Perfect Lien

89 Timing of Lien Rights Scenario 4: Subcontractor work prior to substantial performance Subcontract Work begins 45 days 45 days 89 Date of Last Supply Last day to Preserve Lien Last day to Perfect Lien

90 Timing of Lien Rights Scenario 5: Early subcontract certified as having been completed 45 days 45 days Subcontract Subcontract Work Certified begins Complete 90 Last day to Preserve Lien Last day to Perfect Lien

91 Timing of Lien Rights Scenario 5: Early subcontract certified as having been completed Subcontract Work begins 45 days 45 days Subcontract Date of Certified Last Supply Complete 91 Last day to Preserve Lien Last day to Perfect Lien

92 Timing of Lien Rights Scenario 6: Substantial performance, publication, and late subcontractor Publication Last day to Preserve Lien Subcontract Work Substantial begins Performance 45 days 45 days Last day to Perfect Lien 92

93 Timing of Lien Rights Scenario 6: Substantial performance, publication, and late subcontractor Last day to Preserve Lien Substantial Performance Date of Work Continues Last Supply 45 days 45 days Last day to Perfect Lien 93

94 Timing of Lien Rights Scenario 6: Substantial performance, publication, and late subcontractor Publication Last day to Preserve Lien Substantial Performance Date of Last Supply 45 days 45 days 45 days 45 days Last day to Perfect Lien 94

95 Timing of Lien Rights Scenario 7: Contractor deemed complete v. subcontractor s last supply at finish Deemed Completion Last day to Preserve Lien CONTRACTOR 45 days 95

96 Timing of Lien Rights Scenario 7: Contractor deemed complete v. subcontractor s last supply at finish Last day to Preserve Lien CONTRACTOR SUBCONTRACTOR 45 days 45 days 96 Actual Completion Date of Last Supply

97 Timing of Lien Rights Scenario 7: Contractor deemed complete v. subcontractor s last supply at finish Possible Time Differential CONTRACTOR SUBCONTRACTOR 45 days 45 days 97

98 Timing of Lien Rights Scenario 5: Early subcontract certified as having been completed 45/60 days 45/90 days Subcontract Subcontract Work Certified begins Complete 98 Last day to Preserve Lien Last day to Perfect Lien

99 Timing of Lien Rights Scenario 6: Substantial performance, publication, and late subcontractor Publication Last day to Preserve Lien Subcontract Work Substantial begins Performance 45/60 days 45/90 days Last day to Perfect Lien 99

100 Timing of Lien Rights Scenario 6: Substantial performance, publication, and late subcontractor Last day to Preserve Lien Substantial Performance Date of Work Continues Last Supply 45/60 days 45/90 days Last day to Perfect Lien 100

101 Limits on Lien Claim How much is the lien for? Regardless of amount claimed to be owing, lien is restricted to: Holdbacks + Contract monies owed, if any cannot recover more than the amount owing to payer of lien claimant, after holdbacks 101

102 Holdback What is the holdback obligation? Each payer on a contract or subcontract must hold back 10% of the price of the services or materials supplied under the contract or subcontract Owner is personally liable for holdback Failure to retain may lead to double pay-out 102

103 Holdback How does it come about? Holdback funds accumulate over course of project 10% deducted from each progress payment Don t need to hold back from bottom of the pyramid if no possible lien claimants further below 103

104 Contract Monies What if there is more owing than holdback? Lien is a charge against ALL monies owing by payer to defaulting contractor or subcontractor, not just holdback Payer can deduct own claims against the contract monies; holdback monies must stay intact 104

105 Distribution of Monies How is the money released where NO lien claims? Title search is done after time to lien has passed to ensure no liens registered If title is clear, remaining holdback monies may be/must be released by owner to contractor; contractor pays subcontractors (changing to 60 days) if owner is not planning to release all or part of the holdback, must give notice to contractor, and publish 105

106 Distribution of Monies Do architects have to wait until the end of the project to get their holdback? Possible to split client-architect contract into two separate agreements: Design (~75% of total work) Contract administration (~25% of total work) Holdback is released once each is completed possibility of contracts having annual or phased holdback release 106

107 Distribution of Monies How is the money distributed with lien claims? Usually the result of a lien action in the courts Lien claimants with proven liens share pro rata with those others at the same level with the same payer those lowest on the pyramid are paid first 107

108 Distribution of Monies Liens have priority over: judgments executions assignments attachments garnishments receiving orders 108

109 Distribution of Monies Liens have limited priority over: mortgagees may have priority for any holdback shortfall depends on date of registration and timing of advances 109

110 Limits on Lien Claim a Holdback: $50,000 Contract Monies: $70,000 Owner Recovers $120,000 General Contractor Subcontractor Claim of $120,000 Limit of Lien: $120,

111 Limits on Lien Claim Holdback: $50,000 Contract Monies: $70,000 Owner General Contractor Claim of $150,000 Recovers $120,000 Subcontractor Limit of Lien: $120,

112 Limits on Lien Claim Holdback: $50,000 Contract Monies: $70,000 Owner General Contractor Combined Limit of Liens $120,000 Claim of $80,000 Subcontractor Subcontractor Claim of $70,000 Recovers $66,667 Recovers $58,

113 Limits on Lien Claim Holdback: $50,000 Contract Monies: $70,000 Backcharges:-$90,000 Owner General Contractor Combined Limit of Liens $50,000 (= Holdback) Claim of $80,000 Subcontractor Subcontractor Claim of $70,000 Recovers $26,777 Recovers $23,

114 The Trust Basic trust principles... Fund held by a one party (Trustee) for the benefit of others (Beneficiaries) for a purpose Monies do not belong to the Trustee; monies belong to the Beneficiaries If the Trustee takes the funds for his or her own use or against purpose = breach of trust 114

115 What is a Trust? Trusts and the Construction Lien Act... Trust obligations are found in Part II of the CLA: Sections 7 to

116 The Trusts The essential definitions: Owner, Contractor, Subcontractor Improvement Substantial Performance 116

117 Lien Claim vs. Trust Claim What s the difference? The lien claim is: security against the premises for the value of the services and materials supplied subject to 45 day timing issues potentially limited to holdback fund may be shared with other lien claimants 117

118 Lien Claim vs. Trust Claim What s the difference? The trust claim is: a direct personal claim against the trustee for the total amount owing pursued to judgment in a separate non-lien action 118

119 Lien Claim vs. Trust Claim What s the difference? With the trust claim... timing of trust claim not limited to 45-day period amount of claim may be reduced by backcharges claimed by trustee action may be brought directly against the trustee s officers, directors and managers in addition to trustee 119

120 The Trusts The Rules... Project monies must stay within the project pyramid Those at the bottom of the construction pyramid get paid first Trustee and beneficiary are in direct contractual relationship 120

121 The Trusts The Trusts: The three Owner s trusts The Contractor s trust The Subcontractor s trust The Vendor s trust 121

122 The Three Owner s Trusts The trust funds held by the Owner #1: All amounts received by an Owner that are to be used in the financing of the improvement #2: All amounts which are certified as payable under a payment certificate #3: All amounts owing when substantial performance is certified 122

123 The Three Owner s Trusts a Bank Payment Certifier Owner General Contractor X #1 The Financing Trust Subcontractor Subcontractor Subcontractor Supplier Worker Sub-sub Sub-sub Sub-sub 123

124 The Three Owner s Trusts. $ Payment Certifier Payment Certificate $ Bank Owner $ General Contractor X #2 The Payment Certificate Trust Subcontractor Subcontractor Subcontractor Supplier Worker Sub-sub Sub-sub Sub-sub 124

125 The Three Owner s Trusts. $ Certificate of Substantial Performance $ Payment Certifier Bank Owner $ General Contractor X #3 The Substantial Performance Trust Subcontractor Subcontractor Subcontractor Supplier Worker Sub-sub Sub-sub Sub-sub 125

126 The Contractor s Trust The Draws Trust (s.8(1)) All amounts owing to and received by a Contractor on account of the contract are a trust fund for the benefit of subcontractors who are owed money by the Contractor 126

127 The Contractor s Trust The Draws Trust (s.8.1(1)) New Duties Trustee (i.e., GC or Sub) must: Deposit funds into bank account in trustee s name (all trustee s names); Maintain written records respecting the trust funds detailing monies received into and paid out; Funds can be deposited together into a single bank account but records must be separated 127

128 The Contractor s Trust. Bank Payment Certifier Owner The Draws Trust General Contractor X Subcontractor Subcontractor Subcontractor Supplier Worker Sub-sub Sub-sub Sub-sub 128

129 The Subcontractor s Trust The Draws Trust (s.8(1)) All amounts owing to and received by a Subcontractor on account of the subcontract are a trust fund for the benefit of subcontractors who are owed money by the Subcontractor 129

130 The Subcontractor s Trust. Bank Owner The Draws Trusts Payment Certifier General Contractor Subcontractor Subcontractor Subcontractor X Supplier Worker Sub-sub Sub-sub Sub-sub 130

131 The Vendor s Trust Vendor s Trust (s.9(1)) Sale Proceeds Trust If the Owner sells the property, the sale proceeds (after deducting reasonable expenses and any vendor take-back mortgage) are a trust fund for the benefit of the Contractor 131

132 Trustee s Obligation General Prohibition: Trustee cannot appropriate or convert any part of the trust fund for trustee s own use or a use inconsistent with the trust until all beneficiaries of the trust are paid all amounts owing in relation to the improvement 132

133 Permitted Uses Exceptions to the General Rule... Paying a beneficiary of the trust (s.10) Retaining from trust an amount used to pay for the improvement which are not subject to a trust (s.11(1)) Paying a lender back out of the trust fund monies borrowed for the project (s.11(2)) 133

134 Permitted Uses Exceptions to the General Rule (cont d) Retaining an amount equal to all outstanding debts, claims or damages, against the beneficiary whether or not related to the improvement (s.12) 134

135 Personal Liability Who could be on the hook (s.13(1))? Those who allow a breach of trust by the corporation (... assents to, or acquiesces in, conduct that he or she knows or reasonably ought to know amounts to breach of trust... ) are also personally liable for the breach of trust: every director and officer of a corporation any person who has effective control of a corporation or its relevant activities 135

136 Personal Liability Sections 13(2)-(4) question of effective control is one of fact without regard to the form of any transaction or separate corporate existence individuals are jointly and severally liable each individual s contribution may be equal or shared on some other proportionate basis 136

137 Personal Liability What the Courts say... dishonesty does not have to be shown good character or sincerity of the individual is irrelevant fact the individual may be unaware of the trust provisions of the CLA is not a defence it is a matter of strict liability 137

138 Personal Liability What happens to the participant? personal assets of the individual participant may be seized to satisfy the judgment nature of the claim may survive the bankruptcy of the individual 138

139 Summary The trust obligations are onerous and the consequences of breach may be serious The trust claim is potentially a very powerful remedy for collection 139

140 Rights to Information s.39 Can ask the owner and others for info... Who are the parties to the contract? What is the contract price? What is the state of accounts? Price of what has been supplied Amounts paid (and if they apply to landlord work) Amount of holdbacks and retentions Any other information prescribed Copy of a Labour and Material payment bond? Do liens expire on lot-by-lot basis? 140 Is payment phase/milestone based?

141 Prompt Payment Regime to keep payment flowing: Trigger Date Delivery of a proper invoice Written bill or other request for payment Sets out the requirements of the contract and by the Act Name and Address of Contractor Invoice Date and Invoice Period Authority under contract or elsewhere for supplying labour and material Amount payable and payment terms Name, Title and Contact Information to whom payment to be sent. And any thing else prescribed 141

142 Prompt Payment No Disputes or Payment Issues Day 0 Day 28 Day 35 Day 42 Contractor submits "proper invoice" to Owner Owner pays Contractor amount payable (in full, less holdback) Contractor pays Subcontractors amounts payable (7 days after payment received by Contractor) Subcontractor pays Sub-subcontractors amounts payable (7 days after payment received by Subcontractor) 14 2

143 Prompt Payment Issues Scenario 1 Dispute between Owner & Contractor Day 0 Day 14 Day 21 Day 28 Contractor submits "proper invoice" Owner gives Contractor a "notice of nonpayment" disputing amount of invoice in full or in part (Form 1.1) Contractor either pays (in 35 days) or gives Subcontractor "notice of nonpayment" within 7 days and starts adjudication within the next 21 days (Form 1.2) Subcontractor either pays (in 42 days) or gives Subsubcontractor(s) "notice of nonpayment" within 7 days (Form 1.4) 14 3

144 Prompt Payment Issues Scenario 2 Non-payment by Owner when due Day 0 Day 28 Day 35 Contractor gives Owner a "proper invoice" Owner does not pay Contractor and Owner does not give Contractor a "notice of non-payment" Contractor either pays (in 35 days) or gives Subcontractors "notice of non-payment" and starts adjudication within the next 21 days or pays Subcontractors (Form 1.2) 14 4

145 Prompt Payment Issues Scenario 3 Dispute between Contractor & Subcontractor Day 0 Day 28 Day 35 Day 42 Contractor gives Owner a "proper invoice" Owner pays Contractor amount payable Contractor gives Subcontractor "notice of non-payment" within 7 days of receipt of payment over disputed amount (Form 1.3) Subcontractor either pays (in 42 days) or gives Subsubcontractor(s) "notice of nonpayment" within 7 days and starts adjudication within the next 21 days (Form 1.4) 14 5

146 Prompt Payment Issues Scenario 4 Dispute between Subcontractor & Sub-subcontractor Day 0 Day 28 Day 35 Day 42 Day 49 Contractor gives Owner a "proper invoice" Owner pays Contractor amount payable Contractor pays Subcontractor amount payable Subcontractor gives Subsubcontractor(s) "notice of nonpayment" within 7 days over disputed amount (Form 1.5) Sub-subcontractor either pays or gives others notice and so on 14 6

147 Adjudication new way of resolving project disputes in real time using an "adjudicator" adjudicator's "determination" is binding until end of project any contracting party can refer dispute to adjudication (owner, contractor, subcontractor, sub-subcontractor) adjudication is not mandatory, but necessary to avoid having to make prompt payments 14 7

148 Adjudication limited "scope" of adjudication types of disputes that can be adjudicated: valuation of services payment (including COs or proposed COs) notice of non-payment under "Prompt Payment" claims for set-off (against trust funds or against lien) payment or non-payment of holdback other disputes the parties agree to adjudicate 14 8

149 Adjudication General Rules: one dispute per adjudication Contractor can elect to consolidate contract and subcontract adjudications further consolidation rules under development adjudicator's fee paid equally by parties parties pay own costs 14 9

150 Adjudication Process Adjudicator consents to adjudicate 4 days 5 days Notice of Adjudication Party giving notice sends documents to adjudicator 30 days subject to extension Adjudication and Determination 4 days 5 days Adjudicator does not consent Authorized nominating authority to appoint adjudicator 7 days Adjudicator consents and is appointed 10 days 30 days Payment of determined amounts Application to set aside 15 0

151 How To Achieve Goals review and modify document management system review or set up method of keeping track of issues and dates (limitation periods) consider how to keep staff on site while also preparing for adjudication consider how to simplify complex disputes list of adjudicators evaluate experiences list of lawyers able to assist with disputes 15 1

152 Remedies for Non-Payment of Adjudicator's Determination within 10 days Interest Suspend Work (cost to demobilize and remobilize) Construction Lien? Apply to Court to enforce (2 years to convert to judgment) 15 2

153 What Happens After Owner Pays Contractor within 10 days? Contractor pays Subcontractor within 7 days Subcontractor pays Subsubcontractor within 7 days Construction Lien? Parties treat decision as final 15 3

154 2018 WeirFoulds LLP QUESTIONS?