Transition provisions in Ontario’s new Construction Act create professional negligence risk: lawyer

Ontario lawyers advising clients on the new Construction Act need to pay close attention to the transition provisions and prepare for court decisions interpreting the phase 1 and phase 2 amendments, says a litigator at McCarthy Tétrault LLP.

As Canada continues to accelerate infrastructure and real estate development post-COVID-19 pandemic, Ontario lawyers should be aware that the transition provisions of the Construction Act, RSO 1990, c C.30 create a significant professional negligence risk, especially if they are contacted on short notice to advise on lien rights, and can make the difference between a properly preserved and perfected lien and an expired lien, Ivan Merrow says.

“Another potential transition provision trap relates to premises subject to leasehold interests,” Merrow adds. “If the lease was entered into before July 1, 2018, then the old Construction Lien Act applies where the prime contract date or procurement process pre-date December 6, 2018.”

In a blog post, Merrow analyzed Crosslinx Transit Solutions Constructors v. Form & Build Supply (Toronto) Inc., 2021 ONSC 3396, the Ontario Superior Court of Justice’s first decision focusing on the transition provisions in s. 87.3 of the Construction Act, with the sole issue in the case being the operation of the transition provisions in a situation where a contract for the improvement was entered into before July 1, 2018, but a lien claimant’s subcontract is entered into after July 1, 2018.

In this case, an unpaid supplier registered two liens against stations in the Eglinton Crosstown Light Rail Transit project in Toronto 56 days following the date of last supply. While the defendant and lien claimant agreed that s. 87.3(1)(a) was applicable, they disagreed about how it should be applied.

The court rejected the lien claimant’s argument that s. 87.3 was ambiguous and applicable to contracts and subcontracts based on the date they were entered into, stating that there was no ambiguity in the relevant definitions in the legislation and that s. 87.3 (2) expressly provides that s. 87.3 1 (a) and (c) specifically apply regardless of the date that any subcontract was entered into.

The court, interpreting the form and substance of the legislation’s transition provisions, found that the “contract” mentioned in s. 87.3 refers to the date of the prime contract. Thus, the date that will trigger s. 87.3 is the date of the prime contract between the owner and the contractor, not any subcontract date.

Merrow said that this finding is important because, on an Ontario-based construction project, “the transition provisions determine whether lien claimants benefit from the new Act or continue to be governed by the old Construction Lien Act.”

The ruling also offers a guideline for those dealing with lien rights on large private developments and on public infrastructure projects, which will most likely fall within the purview of the legislation’s transition provisions, Merrow added.

“For now, owners, contractors and trades would be well advised to exercise information rights to get transparency into key dates and abide by the stricter deadlines in the old Act wherever possible,” Merrow wrote.

Another blog post, which was co-authored by Merrow and by Julie Parla, Sam Rogers and Moya Graham of McCarthy Tétrault, has emphasized that construction activities or projects, as well as related services supporting such activities or projects including demolition services, have been allowed to move forward on June 11 under Ontario Regulation 363/20. This regulation is part of the province’s first step of its reopening plan.

Ontario lawyers who have clients dealing with construction projects suspended or delayed because of COVID-19-related restrictions should assist their clients concerning the potential legal consequences of the resumption of construction, says Rogers, a partner McCarthys. These requirements include monitoring notice requirements for making claims for increased costs and liquidated damages.

Lawyers should also stay on the lookout for opportunities and risks of possible disputes arising between businesses concerning the allocation of COVID-19-related costs and damages due to the continuing relaxation of pandemic restrictions across the country and the end of government support programs, Rogers says.

“In Ontario, any assessment of risks should take into account the suspension of limitation periods last year from March 16, 2020, to September 13, 2020, inclusive, which may impact the timing of the commencement of litigation,” Rogers says. “Other provinces enacted similar suspensions of limitation periods, though for different durations in each jurisdiction.”