Ontario is now a little over four years into the new prompt payment requirements under the Construction Act, R.S.O. 1990, c. C.30 (the “Act”). While there have been many articles and presentations on the written requirements set out in the new Part I.1 of the Act, not much is set in stone as far as the implementation and enforcement of these new provisions. More particularly, some members of the construction industry are finding it hard to understand and follow the requirements pertaining to Notices of Non-Payment. In this post, we will explore these notices in closer detail, their requirements, and the consequences (or lack thereof) of non-compliance.
Brief Summary of Prompt Payment and Interaction with Notices
As of October 1, 2019, parties involved in any (prime) contracts that are procured or entered into following this date must comply with the prompt payment requirements set out in Part I.1 of the Act.[1] In a nutshell, the main requirement is to ensure expedient delivery of proper invoices (as defined in section 6.1 of the Act) and subsequent compressed timelines for payment by owner to contractor, then contractor to subcontractor, and so on. While this sounds great in theory, it has been a bumpy road enforcing it in practice.
Some members of the construction industry assume that these prompt payment requirements only apply to commercial or larger projects. On the contrary, these requirements apply to every project and any contract of any quantum or size. This means that, even if you’re a general contractor on a kitchen renovation project in someone’s home, you have an obligation to issue a proper invoice to the owner once a month, unless otherwise contractually agreed.[2] The homeowner, in turn, has an obligation to render payment to the contractor within twenty-eight days from the issuance of the proper invoice.
Alternatively, if the homeowner has reason not to remit payment to the contractor, the homeowner must issue a Notice of Non-Payment – within fourteen (14) days of receiving the proper invoice – specifying the amount disputed in the proper invoice and the reason for non-payment. In turn, the contractor has seven (7) days after receiving the notice to send a similar Notice of Non-Payment to their subcontractors (depending on whether or not they dispute that monies are owing to that subcontractor), and so on and so forth down the pyramid. Overall, there are a total of six (6) notices/notice types depending on whether or not there is general non-payment or whether there is non-payment following disputes.[3]
While this system appears in order academically, in practice, many owners and contractors – especially in the residential renovation industry – have not been complying with these provisions. To date, there has not been much clarification or interpretation of non-compliance with these provisions by the Courts.
Silence on the Treatment of Notices by the Courts
As far as published decisions are concerned, there are only two (2) cases coming out of the Ontario Courts in the past four years pertaining to the notice provisions of prompt payment, namely the Anatolia Tile decision[4] and the Newfore decision.[5] While both of these decisions touch on compliance with prompt payment and interim adjudication, neither of these decisions gives any direction on the consequences of failing to provide or issue Notices of Non-Payment.
Similarly, while some of these disputes and issues may have proceeded through interim adjudication under Part II.1 of the Act, those decisions are not published and, as such, no precedent is available on the consequences for failing to comply with these provisions.
Looking at the legislature’s intention, and practically speaking, Subsections 6.5(7)(b) and 6.6(8)(b) of the Act appear to be explicitly drafted to contemplate scenarios where the owners and contractors fail to give these notices to the respective party on the lower-levels of the pyramid. Namely, the language of these subsections clearly suggests that there is a timeline to still provide Notices of Non-Payment down the pyramid “if no notice was given by the owner/contract”.
As such, it appears that – in addition to there being no teeth to these provisions – there are no real consequences for not issuing a Notice of Non-Payment.
Practical Consideration of Notices
This post does not intend to suggest that industry members should not strictly comply with the requirements of the Act. Conversely, strict compliance with the notice provisions will benefit the industry as a whole as it will increase transparency in invoicing and promptness in remitting payment down the pyramid. However, the legislature clearly failed to consider that industry players are businesspeople and, where there are no consequences, there is no motivation to change operation models.
Even Section 6.9 of the Act, which holds that interest on late payments accrue at the rate set out in Section 127(2) of the Courts of Justice Act, R.S.O. 1990, c. C.43 (or any different rate if greater than the CJA rate), does not pose much of a threat.[6] This is because, even before the new provisions under Part I.1 of the Act any amounts that are properly owing would have been subject to prejudgment interest (bolded and underlined to express frustration).
Further, in reading the provisions, it also is not clear that failing to issue a Notice of Non-Payment would amount to an admission or acknowledgment that funds are owing by the owner or contractor. As many members of the construction industry and bar know, some claims for deficiencies and set-off do not arise until much later in the project. From a policy perspective, it would be immensely unjust to say that a party, who failed to issue a Notice of Non-Payment would no longer be entitled to set-off.
To conclude, for both industry members and lawyers advising industry members, the conclusion here is of course that everyone should issue these notices and comply with them accordingly. However, we hope that the Courts and perhaps the legislature will provide some guidance on the consequences of failing to comply – otherwise, there really isn’t much incentive for industry members to change their practices implemented to date.
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at dan@fridmar.com.
[1] Construction Act, R.S.O, 1990, c. C.30, Part I.1.
[2] See Construction Act, R.S.O. 1990M c. C. 30, s. 6.3(1).
[3] These notices can be found here: https://ontariocourtforms.on.ca/en/construction-lien-act-forms/
[4] Anatolia Tile & Stone Inc. v. Flow-Rite Inc., 2023 ONSC 1291.
[5] Newfore Inc. v. BCHQ Barton Holdings Inc., 2023 ONSC 6119.
