Prompt payment legislation, where it has been enacted in Canada, requires invoices to be paid according to strict timelines. If the payer does not comply, the payee can initiate adjudication.
As described by Justice P.W. Sutherland of the Ontario Superior Court in a June 2023 ruling, “The adjudicative process is an interim measure to keep money flowing down the construction pyramid to the persons that provided labour and materials for the improvement to property so that such persons can be paid on a timely basis.”
Pavle Levkovic, partner with Aird & Berlis LLP, and articling student Kristen Shorer write these payments should be of a “practical, not merely symbolic” nature.
This was reaffirmed in another Ontario Superior Court decision, issued in July 2024 by Justice Janet Mills.
High Tech Power Inc. was awarded $316,960.26 through an adjudication determination against BDA Inc. However, BDA did not pay the funds to High Tech, but instead placed them in trust with its lawyer.
BDA’s lawyers released $161,037.68 so High Tech could pay what was owed to its unionized workers. However, BDA’s lawyers continued to keep the balance of $155,922.58 in trust due to a separate but parallel action related to the same project that was proceeding before the Superior Court of Justice in Toronto.
As summarized by Justice Mills, “The remaining funds have not been paid because a claim has been commenced by Westport Insurance Corporation against High Tech to enforce an indemnity agreement related to a performance bond. Westport has sought a preservation order and in the interim, has demanded BDA counsel retain the funds in trust.”
Levkovic and Shorer write the Ontario Superior Court had two questions to address.
First, “What constitutes ‘payment’ in the context of a construction adjudication order?”
Secondly, “Could BDA’s payments to its lawyers be considered as payment to High Tech and used to reduce BDA’s posted bond?”
On the first question, Justice Mills was clear.
Expanding on what Justice Sutherland had written earlier concerning how adjudication allows the payment funds to flow down the construction pyramid, Justice Mills wrote, “Paying funds into a lawyer’s trust account fails to achieve this fundamental goal of the act. A deposit to counsel’s trust account is not payment to the lien claimant. It is a payment to an agent of the respondent. The fact it is to a law firm is of no consequence. The lawyer is an agent for their client and is required to act on the instructions of their client.”
As for BDA using the funds held in trust to reduce its posted bond related to the performance bond action, Justice Mills said, “No.”
Justice Mills explained when funds are paid to a lien claimant, the respondent is provided credit for the payment against the adjudication determination.
“Once payment is received, the respondent is entitled to seek a reduction, or a return of the security posted to vacate the lien. The lien claimant will be estopped from seeking to again recover those funds at trial and therefore, no security for the payment is required.”
Based on the evidence presented, Justice Mills was not satisfied BDA was entitled to a reduction in security to account for the funds held in trust with its lawyers. She outlined the steps and amounts required by BDA to post bond.
Paul Conrod of Construct Legal writes how this case is instructive.
“The court has upheld adjudication determinations as being payable and enforceable, to meet the goals of the Construction Act. A payment by the unsuccessful party to its own lawyers in trust pending other litigation does not count as a payment to the successful party that was successful on the adjudication.”
Levkovic and Shorer conclude such a payment when held in trust “impedes the flow of money on a construction project. Interpreting ‘payment’ to require actual receipt by the claimant, on the other hand, ensures that prompt payment is achieved in practice and not just on paper.”
John Bleasby is a freelance writer. Send comments and Inside Legal Notes column ideas to editor@dailycommercialnews.com.
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