Put Your House in Order (Part II) – Keep Your Records Straight

 by Jennifer Davis

Often the steps taken prior to litigation commencing, or even disputes arising, can assist in mitigating potential damages.

Preservation, contemporaneous recording, and organization of records is not only important during the litigation process but is an integral part of any strategy to successfully defend all possible claims and minimize overall liability.

How documentation is preserved and organized is partially dependent on what type of claims may be expected arising from a dispute. Regardless of the dispute, the importance of contemporaneous record keeping cannot be stressed enough.

Construction projects can come with a litany of potential issues, including delays, defaults, deficiencies, and disputes. Besides the necessity of adhering to contract requirements, it is essential that these issues are papered contemporaneously when they are occurring.

The key component to a successful claim (or defence of a claim) is strong documentary evidence taken during the period during which these issues were occurring. For termination of a contractor or subcontractor, for example, the various defaults, responses, notices, correspondence, reports, and essentially all indicators that termination was warranted will need to be preserved.

Recording and preserving evidence in real time is not only advantageous, but necessary.

In Alberta, a trial of a claim may not occur until several years after the litigation commences. By that point in time, memories have faded, employees and contractors may have moved on, and the task of gathering evidence to prove (or defend) claims becomes much more difficult.

Without documentation, there is a risk that you are unable to fully support (or defend) a claim and leave yourself open to being offside contractual requirements. Your record keeping and document management system should also clearly set out the contractually required timelines for notices, responses, and other communications for each project.

Categories of Documents

The following is a list of the types of documents that should be categorized, recorded, and organized on all construction projects.

• All pre-contract documents, including quotes, estimates, and plans.
• All contract documents, including change orders, change requests, RFIs, and other indicia that have the possibility of impacting your scope of work or the price of the contract.
• Emails and other forms of internal communication. If these are not automatically saved to an appropriate folder or file for each project or sub-task within a project, this could create substantial additional work in organizing and collecting these records at a later date.
• Minutes and notes from site meetings, meetings between parties, and notes from calls. Anytime there is something project related that is discussed over the phone or in person with an owner, contractor, supplier, or subcontractor, those discussions should be memorialized in some fashion immediately after the meeting or call. This could be in a memo to file, an email, or some other form of written documentation. Your notes or memo should circulated to the other parties who were in attendance that same day to help create an objective documentary record;
• Invoices, purchase orders, and other documentation demonstrating hard costs that have been incurred.
• All schedules including original and updated schedules, including emails or other correspondence that reference, modify, or update existing schedules.
• Direct and indirect costs on a project, such as equipment, financing, overhead or loss of opportunity/disruption to other projects.
• All reporting, whether it be a third party report on progress, internal reporting, or monthly status reports.
• Photographs of conditions, work, or progress.

Not only is the preservation of these documents essential in case of litigation, but it can provide useful ammunition to try to resolve a dispute in advance of a complex litigation scenario. Knowing the types of documents that are important to preserve (and file/organize throughout a project) will provide you cost savings during the document production stage.

General tips on reducing risk BEFORE litigation arises:

• Records keeping processes/naming conventions should be utilized – there should be a clear policy for how information is collected/stored, used, and disclosed.
• Processes should indicate how records are saved and stored (paper, electronic).
• Identify problem areas early and often.
• Record keeping and creation of records should be done contemporaneously with events.
• Record organization should be contemplated and implemented at the start of every project – not when litigation is imminent.
• Implement dispute resolution processes that reduce exposure and serve as alternatives to litigation – i.e. draft and review your contracts with this in mind.
• Ensure that you have a handle on notice periods – this includes contractual notices, as well as statutory limitations (i.e. filing a claim, registering a lien).
• Ensure you have a system in place to identify, classify, and store privileged records.

This post is part two of a three part series entitled "Put Your House in Order". The first post, "Put Your House in Order – Pitfalls of Inadequate Privacy Policies", can be read here.
 

To Draft or Not to Draft? The Dangers of Verbal Contracts

 by Broynn Rosser

Verbal contracts are generally just as valid as written contracts. However, practically speaking, verbal contracts can be hard to enforce and unnecessarily complicate disputes between parties. Verbal contracts in the construction industry can be even more problematic given that construction related agreements can be inherently more complicated.

The recent Alberta Provincial Court decision, Saville Drilling Services Inc v Alpha Construction Inc, 2021 ABPC 125 (“Saville”) serves as a cautionary example of the dangers associated with verbal contracts. In Saville, the Defendant was a general contractor hired by the Town of Fox Creek (the “Town”) to upgrade the Town’s water treatment plant. After debris was found in two of the 13 wells, the Town insisted that the Defendant hire its preferred contractor, the Plaintiff, to blow out the wells containing debris, re-install the pumps fixing the wiring and damage and add monitoring tubes – the tubes being an addition, with the cost borne by the Town.

The Court highlights that all contracts require an offer, acceptance, and consideration as well as terms that are certain or can be determined with a “reasonable degree of certainty”. The Plaintiff, as the party attempting to enforce the verbal contract, must also establish the three elements of contract certainty in order to prove that a verbal contract existed. These elements are the parties, subject matter, and price.

In Saville, the Court was ultimately able to infer by the words and conduct of the parties that a verbal contract existed. However, the Plaintiff was not successful in recovering the full amount of its claim. To its own detriment, the Plaintiff incorrectly invoiced and apportioned work to the Defendant which should have been borne by the Town. The Town was a party to the verbal agreement but not the litigation, hence the Plaintiff’s inability to recover.

Essentially, the Plaintiff misinterpreted the assessment of liability between the Town and the Defendant. This resulted in the Plaintiff inaccurately billing the Defendant for the tubing work which should have been apportioned to the Town. The Court in Saville commented that the proper cost appointment was “simple and reasonably clear”. This suggests that the Plaintiff may have forgotten or misinterpreted something over time. Had there been a written contract, perhaps this mistake could have been avoided. The Court was also tasked with resolving conflicting interpretations of what constituted a “fair price” to be paid for the services properly completed by the Plaintiff. Notably, this potentially could have been resolved among the parties without litigation had the contract been in writing.

Implications

Written contracts, in addition to being more easily enforceable in court, can more accurately document the essential elements of an agreement between the parties in ways that fading memories and conflicting interpretations of events cannot. They also serve as a point of reference that can be used by parties throughout the contractual relationship. Finally, they help parties avoid having to resolve their disputes by way of litigation – or at least simplify the disputes between the parties such that litigation may be less costly.

Should you have any questions regarding the material covered in the article above, please feel free to reach out to Broynn Rosser or any other member of our Construction Industry Group

Put Your House in Order – Pitfalls of Inadequate Privacy Policies

by Jennifer Davis

Privacy concerns are often overlooked when considering an organization’s risks and liabilities. Internal policies and mechanisms, if not structured properly, can leave an organization open and vulnerable to breaches ranging from inadvertent disclosure of information to cyber-attacks and data breaches.

Overview

The Personal Information Protection Act (“PIPA”) is Alberta’s guide to the protection of an individual’s personal information by organizations in the private sector. For the most part, PIPA will apply to all organizations in Alberta that are not public bodies and do not fall directly under PIPEDA, the federal legislation that applies in Alberta in relation to federal works, undertakings or businesses.

Accordingly, privacy legislation applies to all Alberta corporations in the construction industry, the majority of which will fall under PIPA. Organizations are required to protect the personal information of individuals, which includes customers and employees.

PIPA was designed to “govern the collection, use and disclosure of personal information by organizations in a manner that recognizes both the right of an individual to have his or her personal information protected and the need of organizations to collect, use or disclose personal information for purposes that are reasonable” (PIPA, section 3).

Personal Information

PIPA defaults to there being no collection, use, or disclosure of personal information without consent of that individual and even where there is consent, personal information is only to be collected, used, or disclosed for purposes that are reasonable. While exception provisions do exist, they are for a limited number of circumstances that are clearly identified in the legislation.  

One of the easiest ways to safeguard against potential breaches by an organization is to ensure privacy policies are robust and updated regularly. An organization does not have an absolute right of collection, use, and disclosure simply because notice was provided to its employees. Without express consent or acknowledgment by employees of how their information will be collected, used, and disclosed, organizations open themselves up to liability for failure to abide by privacy requirements.

Takeaway: Your policies should clearly identify what information is being collected, how it is being used, and under what circumstances that information will be disclosed.

Monitoring

Employee monitoring is a very broad category, and can include everything from biometric scanning data, to punch cards, to video surveillance. Generally, regardless of the level of technology, the practical implications of privacy legislation remain the same: are the measures being taken by the employer reasonable?

An organization implementing any type of technology that may collect personal information of employees, will still remain subject to the reasonableness test. Practically, this means an organization must demonstrate the use of the technology was necessary and reasonable in the circumstances and implementation.

For example, where surveillance cameras are set-up on a job site for security purposes, employees should be aware of the details of the surveillance, its purpose, and what information may be collected and retained.

Takeaway: Organizations do not have a carte blanche to operate surveillance simply for the sake of surveillance without reviewing the reasonableness standard and providing appropriate notice. 

Protection of Information

Not only does PIPA provide rules for the use, collection, and disclosure of personal information, but it also requires organizations to protect personal information and self-report in the case of unauthorized loss or disclosure where a real risk of significant harm exists.

Practically, this means organizations are tasked not only with ensuring they are on the right side of requirements for the collection, use, and disclosure of personal information, but they are also required to protect that information. 

Privacy policies should clearly address how information is safeguarded, including sensitive and confidential documentation. Without appropriate safeguards in place and knowing the appropriate procedures to use when sharing sensitive information both internally and externally, organizations open themselves up to liability and loss.

Takeaway: Safeguards must be established to appropriately protect personal information.

Protecting the House

Overall, the risks and liability for failure to adhere to the privacy legislation falls squarely on the shoulders of the organization – they bear the burden on proving the reasonableness of their methods. An organization can be reported and investigated for privacy breaches, resulting in possible sanctions by the privacy commissioner and opening the organization up to further damages if a breach is found. 

An organization’s best response to protecting sensitive business information and minimizing their exposure to potential breaches of privacy legislation is to be proactive, not reactive:

• Develop internal procedures for handling personal information/employee personal information. Especially with respect to the organization of records in the event you receive a request for information from a third party and are required to respond. Organization and pre-planning make this a much less time intensive and expensive exercise.
• Develop policies that clearly identify what information is being collected, how it is being used, and under what circumstances that information will be disclosed.
• Train staff on how to properly handle personal information and introduce confidentiality agreements.
• Limit the amount of personal information collected to only what is necessary.
• Establish safeguards for the protection of personal information.
• Establish procedures for the review of monitoring technology with an eye to reasonableness of the use of such technology.
• Review contracts, policies, procedures, and coverage regularly to ensure liability is minimized, or at least addressed, in terms of potential cyber-attacks and data breaches.
• Review contracts and ensure privacy provisions are present, for the protection of personal information and business records, especially in the case of sensitive business or trade information that may be susceptible to disclosure.

Should you have any questions regarding the material covered in the article above, please feel free to reach out to Jennifer Davis or any other member of our Construction Industry Group.

Lien Entitlement: An “Overall Project” Perspective

 by Graham Henderson

A recent decision of the Alberta Court of Queen’s Bench provides a reminder that supplying work and materials to a project does not necessarily result in builders’ lien rights. When assessing lien rights, the Court will consider contextual information, including details about the nature of the project. Does the project involve the construction of something on the lands, or is it a maintenance project? Such a distinction may dictate whether lien rights exist or not.

Court Decision

In Young EnergyServe Inc. v. LR Ltd., LR Processing Partnership (“EnergyServe”), the Court assessed whether a Contractor’s builders’ lien was valid.

The Contractor was retained to perform a turnaround project at a gas processing plant (the “Project”). In this case, the Project specifically involved cleaning, repairing, and relining the interior of all tanks and pressure vessels, and the repair or replacement of worn or faulty piping and pressure valves at the plant (the “Work”).

Prior to commencement of the Project, the plant was shut down pending regulatory approval. The Work was required in order for the plant to pass certain inspections, obtain regulatory approval, and continue to operate efficiently and economically. Following completion of the Work, the Contractor registered a lien in relation to the Work.

In order to assess the validity of the lien, the Court analyzed the prerequisites to lien entitlement under Alberta’s Builders’ Lien Act. The Court highlighted the following principles:

1. Courts will assess a party’s entitlement to a lien from the perspective of the “overall project”. Simply put, this means that when assessing the validity of a lien, the Court will not only consider the nature of the work but will also consider the nature of the project.
   
2. In this regard, the Courts have drawn a distinction between work performed as part of a construction process on a building site and work performed as maintenance. The former, which is related to ‘making and constructing’, could entitle a contractor to a builders’ lien. The latter does not, even if the maintenance is required to remain compliant with regulations.

Having regard to these principles, the Court in EnergyServe considered whether the Work was part of an overall project to construct something on the lands, as opposed merely being a maintenance project.

In the result, the Court decided that the Contractor did not have a valid lien. The Court determined that the Work was not part of a project to build or expand the plant, and that the Work was merely in the category of maintenance services.

Implications

Whether you are a contractor who expects to rely on lien rights for your work, or an owner seeking to remove or prevent an invalid lien, it is crucial for you to consider the context of the work underlying the lien. Identical work may be lienable on a construction project but not on a maintenance project – and some projects may involve both construction and maintenance, leaving questions as to the scope of lien rights. The EnergyServe decision demonstrates that, even in the event of a significant and necessary project involving work on a building or lands, the overall context of the project may ultimately determine whether valid lien rights exist.

For any further information or questions regarding the post above, please contact Graham Henderson or any other member of the McLennan Ross Construction Industry Group.

Pending Registration Lien Frustration

 by Corbin Devlin

A new land titles registration process is causing grief for all those involved with builders’ liens.

Effective April 1, 2021 the process for all land titles registrations in Alberta underwent significant changes as part of Provincial government efforts at Red Tape Reduction. Section 14.1 of the Land Titles Act creates a “pending registration queue.” Builders’ liens are no longer registered on the day they are submitted (contrary to past practice). However, registrations are guaranteed priority based on the date of submission; i.e. a lien will apparently be accepted for registration based on the date of submission, even if the lien period expires between submission and registration.

Searches of title show any pending registrations. The Registrar no longer provides confirmation of registration; repeated searches of title are required to determine when registration is completed. There are various publications from the Law Society of Alberta and Service Alberta that provide more detailed background and explanation.

At the time of writing, there is a lag of about a month between submission and registration of an instrument in the queue. The implementation of the pending registration queue is causing unintended problems for lien claimants and those affected by lien claims alike.

• A lien submitted for registration on time might still be “pending” when the lien period expires, leaving lien claimants uncertain if their lien will be accepted for registration. (All those who deal with liens a lot know that rejections occur unexpectedly from time-to-time, for various reasons.)
  
  
• In place of a notice of rejection, the Registrar may now issue a notice of deficiency. The lien claimant who receives such a notice has 30 days to correct the deficiency and resubmit the document to retain their priority based on the original date of submission. Sounds good, right? But the Registrar will still reject an instrument submitted for registration if the “defects are such that they cannot reasonably be corrected.” It remains to be seen how this will be interpreted by the Registrar. Will an error in the land description, for example, be considered correctible? We used to get notices of rejection on the same day the lien was submitted, allowing time (in most cases) for a statement of lien to be corrected and resubmitted before the expiry of the lien period.
  
  
• These changes undermine our ability to discharge liens on an expedited basis, as required to prevent disruptions in project financing. The normal process to discharge liens quickly is to apply to court pursuant to s. 48 of the Builders’ Lien Act, often with the consent of the lien claimant, for an order permitting alternate security to be paid into court. However, there is no mechanism to discharge a lien while it is in the pending registration queue. Cautious construction owners and lenders may suspend payment based on the fact that a lien is submitted, and now the parties have to await registration to before they can apply to court for an expeditious(?) discharge. This has the potential to significantly disrupt timely payments on construction projects (quite contrary to other Alberta government initiatives to promote prompt payment in the construction industry).
  
  
• The above are some of the more obvious problems, but the “pending registration queue” is incompatible with the Builders’ Lien Act in other ways. There are various procedures and requirements – not to mention legal rights - triggered by the registration of a lien. For example, section 21 allows the owner to release the major lien holdback 45 days after a certificate of substantial performance is issued, provided that no lien has been registered. But what if a lien is in the queue?

The recent amendments to the Land Titles Act do not contemplate or integrate with the Builder’s Lien Act. Differing interpretations of the legislative gaps are bound to lead to disputes.

For questions regarding the information included in the post above, please contact Corbin Devlin or any other member of our Construction Industry Group.

Design Defects and Personal Liability: How Can Architects and Engineers Reduce Exposure To Personal Liability?

 by Shaun Chorney, Student-at-Law

In our previous article, we discussed the general principles involved in determining when architects and engineers can be held personally liable for mistakes in design. This article will expand on the theme of personal liability in design by focusing on specific strategies which can reduce exposure to personal liability.

The most common cause of action which retains a realistic likelihood of success in a claim against individual design professionals is the tort of negligent misrepresentation. This article will focus on reducing exposure to this particular cause of action.

Strategies to Reduce Exposure to Personal Liability

There are several strategies that architects and engineers can implement to reduce personal exposure to liability for negligent misrepresentation, including the use of reliance disclaimers, qualifying designs, contractual provisions limiting employee liability, defining the standard of care, and liability insurance. These strategies are not exhaustive and are in no particular order.

Reliance Disclaimers

To successfully prove negligent misrepresentation, one of the elements that a plaintiff must demonstrate is that they reasonably relied on the representations of the defendant. A reliance disclaimer seeks to limit liability by constraining the entities that are permitted to rely on the representations of the representor. Reliance disclaimers are often included with the design materials. An effective disclaimer should stipulate that the materials have been prepared for a specific party, and only that specific party is permitted to rely on the materials; it should also indicate that all excluded parties assume all risk associated with the unauthorized use of the design materials.

Provided that the reliance limitation is unambiguous, Courts have repeatedly found that these disclaimers are valid and will defeat the claims of parties that have been excluded from relying on the design materials. These disclaimers can protect both the design firm and the individual architects or engineers.

Qualification of Designs

Similar to a reliance disclaimer, liability exposure can be reduced by qualifying the design. Any undetermined variables which may affect the design should be identified and stated as such in the design materials. An example of a commonly unknown variable that can substantially affect the implementation of a building design is subsurface conditions. The materials should indicate the evidence and assumptions that the designs are predicated on; the materials should also indicate that actual conditions may differ and materially affect the construction of the design. Qualification of designs can reduce liability exposure for both the design firm and its employees, and it can protect against the claims of the contracting party and third-parties.

Limitation of Liability

Design firms can use contractual provisions to shield both the firm and their employees from claims of parties that the firm has contracted with. The design contracts can include language that limits the contracting party’s ability to personally sue the design firm’s employees. These limitations can include restricting liability to a set dollar amount (such as the dollar value of the contract), excluding liability for consequential or indirect damages, or expressly restricting all claims against the individual employees. These provisions can apply to multiple causes of action, including claims of negligent misrepresentation. They will not shield the employees from third-party claims but they will limit the claims of the contracting party receiving the design materials.

Courts have held that contractual clauses restricting the personal liability of a firm’s employees can be valid, notwithstanding that the individual employees are not a party to the contract. In London Drugs Ltd. v Kuehne & Nagel International Ltd., the Supreme Court of Canada held that employees can be protected by express or implied limitation clauses so long as the employees were acting in the course of their employment and were performing the services provided for in the contract between their employer and the plaintiff when the loss occurred.

Defining the Standard of Care

Design firms can define the standard of care that they and their employees will exercise in providing design services. This is typically done through a provision in the contract between the design firm and the contracting party. Defining the standard of care can reduce uncertainty if the contracting party claims negligent misrepresentation against the design firm or its employees.

When the standard of care has not been defined, the standard of care will generally be assessed as the degree to which a reasonable party, in the position of the alleged negligent party, would have exercised caution and due diligence in carrying out the work. Multiple variables can affect this analysis and can lead to unintended results. Defining the standard of care allows design professionals to more clearly describe the extent of their professional obligations and can decrease ambiguity in claims of negligent misrepresentation. Defining the standard of care will apply to the claims of the contracting party receiving the design materials but will not apply to third-party claims.

Liability Insurance

Another key consideration for architects and engineers wishing to reduce their exposure to personal liability is insurance coverage. Insurance policies can protect design firms and their employees in the event of a lawsuit. As with all things insurance, liability coverage will depend on the particulars of the insurance policy and can vary widely. For risk-conscious design professionals, the acquisition of expansive insurance coverage is a reliable strategy for reducing exposure to personal liability.

For more information on this article or any other construction law matter, please feel free to contact any member of our Construction Law industry group.

Design Defects and Personal Liability: When Can Architects and Engineers Be Held Personally Liable?

By Shaun Chorney, Student-at-law

When substantial defects in project design result in delay, injury, or other damage, the project architects and engineers are typically held responsible. This often comes in the form of a claim being advanced by the project owner or general contractor against the architecture and engineering firms responsible for designing or approving the design plans. These claims typically flow through the design contract or the tort of negligent misrepresentation.

Breach of Contract

When claims flow through the contract between the design firm and the party seeking compensation for the design flaws, the design firm will be held accountable, and the individual employees responsible for the design defects are frequently shielded from the breach of contract claims. If a claim for breach of contract is made against an individual responsible for the design errors, the individual can often point to the contract to show that the agreement was entered into by the company, not themselves as an individual. In most cases, this will provide a full defence to a claim for breach of contract against an individual architect or engineer.

Tort Claims

The same cannot be said for claims arising out of tort. In a tort claim alleging negligent misrepresentation, it is usually more difficult for individual design professionals to escape liability by hiding behind the company for which they work.

In the case of London Drugs Ltd. v Kuehne & Nagel International Ltd. (“London Drugs”), the Supreme Court of Canada confirmed that an employee acting in the course of his or her employment can be held personally liable for breaching a duty of care owed to a client or customer of the employer. In the 2017 Ontario Court of Appeal decision of Sataur v Starbucks Coffee Canada Inc., the Court reaffirmed and commented on the decision of London Drugs:

The motion judge held that the claim against the individual defendants did not disclose a reasonable cause of action because “the general rule remains that employees are not liable for what they do within the scope of their authority and on behalf of their corporation”. Respectfully, the general rule is the opposite. As Justice McLachlin said succinctly in London Drugs… “It has always been accepted that a plaintiff has the right to sue the person who was negligent, regardless of whether the employee was working for someone else or not.” Put in the negative, there is no general rule in Canada that an employee acting in the course of her employment cannot be sued personally for breaching a duty of care owed to a customer.”

Negligent Design

The personal liability of engineers who drafted faulty design drawings in a highway construction project was discussed in the case of Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd. (“Edgeworth”). In this case, both the engineering firm and the individual engineers were sued in tort by the contractor responsible for constructing the project; there was no contractual relationship between the engineering firm and the contractor.

The Supreme Court of Canada held that the engineering firm which drafted the faulty design plans was liable for negligent misrepresentation, even though there was no contractual relationship between the engineering firm and the contractor. However, the Court determined that the individual engineers were not personally liable. In coming to this conclusion, the Court held that to find the individual engineers personally liable, there must have been something “more” than the single fact that the engineers affixed their seals to the plans:

“The only basis upon which they are sued is the fact that each of them affixed his seal to the design documents. In my view, this is insufficient to establish a duty of care between the individual engineers and Edgeworth. The seal attests that a qualified engineer prepared the drawing. It is not a guarantee of accuracy. The affixation of a seal, without more, is insufficient to found liability for negligent misrepresentation.”

Interpretation of Edgeworth

It is not precisely clear what constitutes something “more”, such that it warrants personal liability; this determination has been the subject of litigation in several cases. In Strata Plan No. VR 1720 (Owners ) v Bart Developments Ltd. (“Bart”), three individual engineers were personally sued for errors contained in their building condition survey. The engineers argued that the contract was between the plaintiffs and their employer, so they should not owe an individual duty of care to the plaintiffs. The Court dismissed this argument, holding that the individual engineers did indeed owe a duty of care to the plaintiffs in creating the survey:

“While it is true that the plaintiffs did not engage CSA (the engineering firm) because they intended to rely on the skill of any individual they could identify by name, it is equally true that CSA held itself out as a firm of “consulting engineers”, with “engineers, architects and technologists ...[who] focus their interests exclusively upon resolving” the very problem, building deficiencies, the plaintiffs contracted with CSA to address.”

“There is no question that all three of the personal defendants had a degree of experience and technical skill nor that each was actively involved in the survey and preparation or presentation of the report to the plaintiffs. The personal defendants must have known the plaintiffs would rely on their report. The extent of their involvement distinguishes them from the engineers in [Edgeworth], who merely affixed a seal “without more”.”

Bart suggests that individual design professionals may have increased exposure to personal liability when their employer markets itself on the basis of the expertise of its design staff; especially when those individual design professionals are actively working with the plaintiff.

In my next blog article, I will be addressing other factors and strategies which can limit personal liability for mistakes in design.

Bill 37 Prompt Payment Legislation: The Unclear Adjudication Process

 by Kathleen Garbutt

The Alberta Government has promised to enact the new Prompt Payment Amendment Act, often referred to as “Bill 37”, in July 2021. One of the major changes introduced in Bill 37 is the implementation of an adjudication system to resolve payment disputes.

What We Know

The current version of Bill 37 lacks detail with respect to what the adjudication process will look like. Here is what we know.

The Minister of Service Alberta will appoint “Authorized Nominating Authorities” who will be able to assign third party adjudicators to disputes.

Although the adjudications are intended to be a final and binding process, the parties to the adjudication process will still have the option to register a builders’ lien and enforce the lien through the Court process.

Parties to a contract may refer matters to adjudication “respecting any prescribed matter”. There is no information yet with respect to what will be included in the list of “prescribed matters”. Adjudications will be conducted in accordance with the procedures set out in the Regulation or as established by the Authorized Nominating Authority.

The Adjudication process is not mandatory; however, either party (owner or subcontractor) may refer a dispute to adjudication. Once a matter is referred to adjudication, the adjudicator’s decision is final and binding. The adjudicator’s decision is subject to judicial review or appeal only in limited circumstances such as where the adjudicator made a mistake of law or did not follow the procedures for adjudication.

Where a contract contains a dispute resolution clause that provides for adjudication this clause will apply only to the extent it does not conflict with the Regulations which govern the Bill 37 adjudication process. Where there is a conflict between a contract and the Regulations, the Regulations will apply.

Bill 37 has received royal assent and proclamation is expected in the summer of 2021.

What We Are Still Learning

The Regulation with respect to the adjudication process has not yet been released. Without this information it is impossible to know exactly what the adjudication process will look like. However, Ontario has already implemented legislation similar to Bill 37 which includes an adjudication process.

In Ontario adjudications are conducted through the Ontario Dispute Adjudication for Construction Contracts. Unlike the proposed process in Alberta, the adjudicator’s decision in Ontario is an interim decision and therefore not binding on the parties. 

Also in contrast to Ontario, Alberta has provided for the appointment of multiple nominating authorities and these may include private entities.

In Ontario parties to a construction contact may apply for adjudication with respect to the following categories of disputes:

1. The valuation of services or materials provided under the contract;
2. Payment under the contract, including in respect of a change order, whether approved or not, or a proposed change order;
3. Disputes that are the subject of a notice of non-payment (i.e. disputed invoices);
4. Payment of a holdback;
5. Non-payment of holdback; and
6. Any other matter that the parties to the adjudication agree to, or that may be prescribed.

Likely, the “prescribed matters” that can be referred to an adjudicator in Alberta will be of a similar nature.

Although the adjudication process in Ontario has been in place for a while now, industry experience with the process is still quite limited, as there appears to be a strong tendency to seek a negotiated resolution prior to adjudication. Perhaps this is an indication that the legislation is meeting the objective of promoting early resolution, albeit not directly through the adjudication process.

What’s Next?

This is a new concept and we are still learning about the benefits and consequences of this scheme. It appears that the goal of the adjudication process is to provide a quick and cost-effective means for parties to resolve disputes without the need to resort to the Courts. Although this is an attractive concept, the final and binding nature of this process can leave parties who are unhappy with the outcome of an adjudication with little recourse.

We will continue to monitor the development of Bill 37 and provide updates.

To review Bill 37 click here.

To review our previous articles on Bill 37 follow the links below: 

• Pay What You Owe – Proposed Changes to the Builders’ Lien Act Regarding Prompt Payment
• A First Look at Alberta’s Proposed Prompt Payment Legislation
• Bill 37: Proposed Prompt Payment Legislation

Pay What You Owe – Proposed Changes to the Builders’ Lien Act Regarding Prompt Payment

 by Corbin Devlin & Moe Denny

On October 21, 2020 the Province introduced Bill 37: The Builders’ Lien (Prompt Payment) Amendment Act, 2020 (“Bill 37”), which contained a number of significant changes to Builders’ Lien Act, RSA 2000, c B-7, renamed under Bill 37 to the Prompt Payment and Construction Lien Act (the “Act”). Upon reading Bill 37 many at our office were left scratching their heads as the Bill contains a number of loose ends, which is why we weren’t surprised to hear that the Province released further amendments to the Bill on November 4, 2020.

The purpose of this article is to review the prompt payment provisions of Bill 37; we will discuss the adjudication and other provisions separately.

Bill 37 initially appeared to leave Contractors at significant risk of having to pay Subcontractors prior to receiving corresponding payment from the Owner. Amendments have addressed this initial concern. As amended on November 4, 2020, Bill 37 now largely mirrors the similar legislation already in force in Ontario. Though still not in effect, the proposed changes will have significant implications for construction businesses, one of the most significant changes being the introduction of the concept of “proper invoices” and prompt payment provisions.

Proper Invoices

Bill 37 introduces the requirement of a “proper invoice”, which is a critical first step in the prompt payment process. A proper invoice is: “a written bill or other request for payment for the work done or materials furnished in respect of an improvement under a contract or a subcontract.” According to section 32.1(1) of Bill 37 a proper invoice must contain:

1.       the Contractor’s name and business address;

2.       the date of the proper invoice and the period during which the work was done or materials were furnished;

3.       information identifying the authority, whether in a written or verbal contract or otherwise, under which the work was done or materials were furnished;

4.       a description of the work done or materials furnished;

5.       the amount requested for payment and the corresponding payment terms broken down for the work done or materials furnished;

6.       the name, title and contact information of the person to whom the payment is to be sent;

7.       a statement indicating that the invoice provided is intended to constitute a proper invoice; and

8.       any other information that may be prescribed.

Proper invoices must be given to an Owner at least every 31 days, unless the contract includes a provision for the testing and commissioning of work or material.

It should also be noted that the prompt payment clock begins on delivery of the proper invoice.

Payment by Owner

According to section 32.2 of Bill 37, upon receipt of a proper invoice, Owners must pay Contractors the amount payable under a proper invoice within 28 days, unless within 14 days of receipt of the proper invoice the Owner provides a Notice of Dispute in the prescribed manner (specifying the amount not being paid and detailing all reasons for non-payment). Any amounts not identified in the Notice of Dispute must be paid within the 28 calendar day period. If a Notice of Dispute is not provided, the amount claimed in the proper invoice must be paid in full.

Though not specified under Bill 37, the requirement that a Notice of Dispute detail “all reasons for Non-Payment”, suggests that an Owner may not be able to contest proper invoices by relying on reasons not specified in the Notice of Dispute. It will remain to be seen whether it will be permissible to rely on reasons for Non-Payment that are not contemplated at the time of submitting the notice.

Payment by Contractors

Where a Contractor receives a Notice of Dispute from the Owner, the Contractor can deliver a corresponding Notice of Non-Payment in the prescribed form to any Subcontractors affected by the dispute – otherwise the Contractor is obligated to pay its Subcontractors within 35 days of the issuance of the proper invoice. Where the Owner does not pay, the Contractor, when issuing the Notice of Non-Payment to its Subcontractors, must provide an undertaking to refer the matter to adjudication no later than 21 days after giving Notice of Non-Payment to the Subcontractor.

On the other hand, if a Contractor receives a partial payment from an Owner they will have three options: (1) the Contractor may pay on a proportionate basis the amount received within 7 days and deliver a Notice of Non-payment in the prescribed manner; (2) pay on a proportionate basis the amount received within 7 days and pay the Subcontractor the balance within 35 days (even if not received from the Owner); or (3), deliver a Notice of Non-Payment to the Subcontractors for the entire amount. 

Payment by Subcontractor

The concept of prompt payment applies to all tiers, from Owner to Subcontractors. A Subcontractor who after providing a proper invoice receives full payment from a Contractor is in turn required to pay its Subcontractors within 7 days of receipt of the payment. If the Subcontractor chooses not to pay, it must ‎deliver a Notice of Non-Payment within 42 days of the date the proper invoice was given by the Contractor to the Owner.

If the Subcontractor has ‎received a Notice of Non-Payment from the Contractor, it must within 7 days of receiving the notice from the Contractor deliver its own Notice of Non-Payment to its Subcontractors, and must provide an undertaking to refer the matter to adjudication no later than 21 days after giving Notice of Non-Payment to the subcontractor. If it does not, it must pay its Subcontractors within 42 days of the proper invoice being given by the Contractor to the Owner.

Additional Considerations

Considering the above, it is important that proper invoices be accurate; nevertheless, revisions can be made to proper invoices if:

1.       the parties to the proper invoice agree to a revision;

2.       the date of the proper invoice is not changed; and

3.       the proper invoice continues to meet the requirements (noted above).

Lastly, proper invoices must be properly served on the corresponding party. To constitute proper service, the proper invoice must be served in any manner permitted by the Act or the Alberta Rules of Court, Alta Reg 124/2010 (“Rules”). Some manners of service permitted by the Rules include personal service, registered mail, and electronic methods.

Are You Ready for the Change?

If passed, Bill 37 and the corresponding prompt payment provisions will take effect on proclamation, and are sure to bring a cultural shift to the construction industry in Alberta, with cash flowing more quickly from owners, to contractors to subcontractors, and so on.

In light of the significant changes proposed, members of the construction industry should review Bill 37 to ensure they understand the requirements of preparing and delivering “proper invoices”, payment, or notices within the appropriate time periods.

Additionally, to prepare for the likely passing of Bill 37, members of the industry should consult legal counsel for guidance on revising contacts and updating project management and documents management systems.

Please feel free to contact Moe Denny, Corbin Devlin, or any member of our Construction Industry Group in regards to the information above or any other construction law matter.