Laying the Foundation
So, what is Construction Law? Technically, any legal actions ranging from product liability at construction sites, to negligent work performed at projects, and finally to disputes with respect to payment for construction work can fall into the typical Construction Lawyers’ menu. However, for the purpose of this blog, we will be discussing Construction Law as envisioned by Ontario’s Construction Act (formerly Construction Lien Act) or the CLA.
Each provincial jurisdiction in Canada has a version of its own CLA, with few variations such as the title of each respective Act as well as functions and protections granted thereby. The CLA was first introduced as An Act to revise the Mechanics’ Lien Act and was assented to on January 27, 1983.[1] Many portions of the CLA have been amended since its enactment, leading up to the new and modified Construction Act which was introduced in 2017. However, some fundamental aspects – such as when lien rights arise – remain the same.
Although the original Mechanics’ Lien Act [2] provided similar protections with respect to securing payment for work performed, the CLA came about as a result of the Ontario Legislature’s realization that the Construction Industry was a large and complex beast, and existing legislation and common law protections were not enough to secure the rights of all the Industry’s participants. Accordingly, the Ontario Legislature introduce the CLA with a clear, simple purpose: introduce a regime of expedited resolution to protect the rights of contractors, sub-contractors, and materials suppliers participating specifically in the Construction Industry. However, not all participants receive such protection. For example, an owner of a project under construction would rarely be entitled to exercise any of the rights granted by the CLA (with the exception of the right of set-off and others).
A further justification of the CLA is due to the existence of the Construction Pyramids alluded to last week. An archetypal Construction Pyramid will often have an owner or project-financer at the very top. The next level down will typically contain a general contractor, who may or may not act as the project manager – where the latter case would entail a separate body managing and overseeing the development of construction at the project.
Depending on the complexity of the project, the general contractor might arrange for sub-contractors to undertake and perform specific technical tasks, such as excavation, concrete-pouring, electrical work, furnishing, etc. Digging deeper, those sub-contractors may further hire sub-sub-contractors, materials suppliers, or other independent labourers to complete specific tasks.
The issue with the Construction Pyramid is that, where multiple complex levels of trades exist, there are rarely contractual relationships between the owners at the top, and the materials suppliers at the bottom. Without the CLA, where a materials supplier is not paid by the sub-contractor it has contractual relations with, that same party would have limited other means of recourse. Solution? The Lien (and other remedies granted by the CLA)! Although we will be dissecting liens in subsequent weeks, our readers should note that this legal instrument allows materials suppliers to ensure payment for their work by encumbering the physical real property where said services or materials were provided.
Even though a materials supplier may have ten layers of other contractual relations prior to the owner, the CLA – in recognition of such an issue – has effectively provided the materials supplier with a direct ability to protect its legal interests: in most cases.
Tune in next week to discover more about Lien Rights!
[1] Construction Lien Act, 1983, S.O. 1983, c. 6.
[2] Mechanics’ Lien Act, R.S.O. 1980, c. 261.
The foregoing is for informational purposes only, and should in no way be relied upon as legal advice. For legal advice tailored to your circumstances and business, please contact any of Sutherland Law's lawyers by email or telephone.