CONTRACT LAW

2014 NCHCA Education SeriesJanuary 23, 2014Ron Price, Rasmussen Starr Ruddy LLPGeoffrey Cantello, Senior Legal Counsel at the City of Ottawa

2

OVERVIEW

Those who are involved in the construction industry, either as contractors, subtrades, material suppliers, workmen or persons who rent equipment, have been given a special remedy pursuant to the Construction Lien Act in order to assist them in recovering money owed to them in relation to their work. This remedy is an addition to their ordinary legal remedies to enforce the contracts under which the work or materials have been supplied.

3

OVERVIEW CONTINUED

By virtue of the Construction Lien Act, which is a statutory remedy, the lien holder is given the right to lien the lands which have benefited from the lien claimant’s labour, materials and/or equipment. In order to rely upon this statutory right, the lien claimant must comply exactly with the provisions of the Construction Lien Act.

4

OVERVIEW CONTINUED

The rights and obligations as set out under the Act can be separated into two categories:

1. Holdback obligations/lien rights

2. Trust obligations

5

WHAT IS A LIEN?

• Section 14 of the CLA provides that 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

6

WHEN DOES THE LIEN ARISE?

• Section 15 of the CLA

• A lien is created when a person first supplies services or materials to an improvement for an owner of the improvement, or to a contractor under the contract to the owner, or to a subcontractor, under the contract to the contractor

7

WHEN DOES THE LIEN ARISE?

• At any time after the first supply to the improvement, a person may proceed to enforce their rights in accordance with the CLA for the value of services then rendered and for which payment has not been received

• A lien is valid irrespective of whether the monies under the contract are actually due and payable

8

CONTENTS OF THE LIEN

• The Lien shall be set out in the prescribed form and is registered electronically on title (subject to certain exceptions set out below).

• Amendments to the CLA have eliminated the need to prepare and attach an Affidavit of Verification to the Claim for Lien (even in instances where the lien is to be served and does not attach to the title).

9

CONTENTS OF THE LIEN (CONTINUED)• In order to be valid, a lien must contain the following

information:o The proper legal name and address of the lien claimant;o The name and address of the owner of the premises (on which the

lien is to be registered);o The name and address of the person to whom the lien claimant

supplied the services and materials;o A short description of the services and materials that have been

supplied;o The contract price or subcontract price (inclusive of extras and

applicable taxes); ando The amount claimed as owing in respect of the services and

materials supplied (inclusive of extras and applicable taxes).

10

WHEN TO LIEN?

• Who am I:o “Contractor”? - Section 31(2) – CLAo “Other Persons”? – Section 31(3) – CLAo Construction Management Contracts

11

CONTRACTOR

The lien must be preserved within 45 days of the earliest of the following events (Section 31(2):

i) The date on which a copy of the certificate or declaration of substantial performance is published; or

ii) The date on which a contract is completed or abandoned

Failure to preserve the lien with 45 days is fatal to the lien

12

OTHER PERSONS Section 31(3) of the CLA

Typically subtrades and suppliers

The lien must be preserved by the registration of the Claim for Lien within 45 days of the earliest of the following events:

i) the date on which a copy of the Certificate or Declaration of Substantial Performance of the contract is published;

ii) the date on which the person last supplied services or materials to the improvement; or

iii) the date the subcontract is certified to be completed Failure to preserve within 45 days is fatal to the lien

13

COMPLETION OF THE CONTRACT

• A contract is deemed to be completed for the purposes of the CLA when the price of completion, correction of a known defect or last supply is not more than the lesser of:

i) 1% of the contract price or ii) $1,000.00

14

BONDING OFF A CLAIM FOR LIEN

• A Claim for Lien that has been preserved (or perfected) can be vacated by making payment into court

• Section 44 of the CLA • Payment into Court of the full amount of the lien, plus the

lesser of $50,000.00 or 25% of the value of the lien as security for costs

• Without notice

• Lien becomes a charge against the amount paid into Court

15

CROWN AS OWNER

• Provincial Crown is subject to the CLA – 16(3) • Federal Crown is not subject to the provisions of the

CLA

• If Provincial Crown is owner, Lien does not attach to the premises but constitutes a charge upon holdbacks

• Lien is not registered – simply delivered

16

PUBLIC STREET OR HIGHWAY

• Public street or highway owned by a Municipality is subject to the CLA

• Lien not registered

• Lien would constitute a charge against holdbacks required under the CLA

17

FEDERAL CROWN

• Constitutionally, the Federal Crown is not subject to any Provincial Legislation

• Typically, PWGSC/DCC require Labour and Material

Payment Bonds to be posted by a general contractor (two-tier bonds)

• Typical general conditions on Federal projects contain

notice provisions permitting the Federal Crown to withhold payment from a general contractor of unpaid amounts allegedly owed to subtrades or suppliers

18

HOLDBACKS

• Each and every payor in the construction pyramid is required to maintain a statutory holdback of 10%

• Section 22 – CLA • Holdback is for the benefit of those who do not have a direct

contract with others above them in the construction pyramid

• 90% of the value of services can be paid without risk unless written notice of the lien is received by a payor

• If written notice received – notice of holdback in additional to

statutory holdback is required

19

HOLDBACKS (CONTINUED)

• Holdback available to all of those entitled on a pro-rata basis

• No right of set-off against 10% statutory holdback • set-off is available against notice holdback or once all

lien rights have expired

20

RIGHTS TO INFORMATION• Section 39 of the CLA provides that a person having a lien or that is a

beneficiary of a trust under the Act can obtain certain information from any owner or contractor including:

a) the name of the parties to the contractb) the contract pricec) the state of accountsd) a copy of the Labour and Material Payment Bonde) a statement as to whether the contract provides in writing that liens

that arise expire on a lot by lot basis (residential construction only) • This can be an important tool especially in the context of a L and M

bond

21

TRUST CLAIMS

• Section 7 to 13 of the CLA

• In simple terms, all funds generated by work performed in a project are impressed with a trust in favour of a payee

• Privity of contract required • Breach of trust may render directors, officers and those in

effective control personally liable if that person assents to, or acquiesces in, conduct that he or she knows or reasonably ought to know amounts to a breach of trust by the corporation

22

MISCELLANEOUS

• Cannot contract out of provisions of CLA

• Priority of Revenue Canada – Requirements to Pay

• Substantial performance – Section 2 – CLA

o Requirements for achieving substantial performance

23

VARIOUS PROVISIONS OF THE CLA

• The full text of the Construction Lien Act, RSO 1990, c. C.30 can be found at:

http://www.canlii.org

24

DISPUTE RESOLUTION

• Dispute resolution mechanisms:o Litigationo Mediationo Arbitrationo Med/Arb

• • Notice Requirements

o it is essential to review the wording of the contract

• example – typical CCDC2 – 2008 – Stipulated Price

Contract

25

GC 8.2 – NEGOTIATION, MEDIATION AND ARBITRATION8.2.1 In accordance with the Rules for Mediation of

Construction Disputes as provided in CCDC 40 in effect at the time of bid closing, the parties shall appoint a Project Mediator

.1 within 20 Working Days after the Contract was awarded, or

.2 if the parties neglected to make an appointment within the 20 Working Days, with 10 Working Days after either party by Notice in Writing requests that the Project Mediator be appointed

26

GC 8.2 – NEGOTIATION, MEDIATION AND ARBITRATION (CONTINUED)

8.2.2 A party shall be conclusively deemed to have accepted

a finding of the Consultant under GC 2.2 – ROLE OF THE CONSULTANT and to have expressly waived and released the other party from any claims in respect of the particular matter dealt with in that finding unless, within 15 Working Days after receipt of that finding, the party sends a Notice in Writing of dispute to the other party and to the Consultant, which contains the particulars of the matter in dispute and the relevant provisions of the Contract Documents.

27

GC 8.2 – NEGOTIATION, MEDIATION AND ARBITRATION (CONTINUED)

8.2.3 The parties shall make all reasonable efforts to resolve their dispute by amicable negotiations and agree to provide, without prejudice, frank, candid and timely disclosure of relevant facts, information and documents to facilitate these negotiations.

28

GC 8.2 – NEGOTIATION, MEDIATION AND ARBITRATION (CONTINUED)

8.2.4 After a period of 10 Working Days following receipt of a responding party’s Notice in Writing of reply under paragraph 8.2.2, the parties shall request the Project Mediator to assist the parties to reach agreement on any unresolved dispute. The mediated negotiations shall be conducted in accordance with the Rules for Mediation of Construction Disputes as provided in CCDC 40 in effect at the time of bid closing.

29

GC 8.2 – NEGOTIATION, MEDIATION AND ARBITRATION (CONTINUED)

8.2.5 If the dispute has not been resolved within 10

Working Days after the Project Mediator was requested under paragraph 8.2.4 or within such further period agreed by the parties, the Project Mediator shall terminate the mediated negotiations by giving Notice in Writing to the Owner, the Contractor and the Consultant.

30

GC 8.2 – NEGOTIATION, MEDIATION AND ARBITRATION (CONTINUED)

8.2.6 By giving a Notice in Writing to the other party and the Consultant, not later than 10 Working Days after the date of termination of the mediated negotiations under paragraph 8.2.5, either party may refer the dispute to be finally resolved by arbitration under the Rules for Arbitration of Construction Disputes as provided in CCDC 40 in effect at the time of bid closing. The arbitration shall be conducted in the jurisdiction of the Place of the Work.

31

GC 8.2 – NEGOTIATION, MEDIATION AND ARBITRATION (CONTINUED)

8.2.7 On expiration of the 10 Working Days, the arbitration agreement under paragraph 8.2.6 is not binding on the parties and, if a Notice in Writing is not given under paragraph 8.2.6 within the required time, the parties may refer the unresolved dispute to the courts or to any other form of dispute resolution, including arbitration, which they have agreed to use.

32

Thank You