Contingent Payment Clauses in Canada
Contingent payment clauses can be confusing & frustrating. We’ve discussed these in the past, however, we have only discussed payment clauses as they pertain to various cases in the U.S. We haven’t discussed their impact on projects in Canada.
This week, NCS shared an article via social media: Canada: Pay-When-Paid Clauses: Tips and Trends . As the title suggests, the authors, Kelly Hannan & Susan Fader, provide us with four common issues associated with these payment clauses in Canada.
Number one on their list could also be number one on a similar list here in the states: “Courts are not consistent in their treatmentof pay-when-paid clauses.” The authors state that the courts are split — either pro-GC or pro-sub.
“Pro General Contractor: An unambiguous pay-when-paid clause means that a subcontractor clearly assumes the risk of non-payment by the owner to the contractor, or
Pro Subcontractor: If a general contractor wishes to impose a pay-when-paid clause in a standard form contract, it must use very clear language in order to displace its primary obligation to pay the subcontractor.”
Due to the division of court opinions, the authors recommend a conservative approach “…general contractors wishing to impose pay-when-paid clauses into subcontracts should do so using only with the most clear and unequivocal language.”
The article also reminds subcontractors that just because a pay-when-paid clause is in play, it does not mean that the subcontractor has forfeited their lien rights (at least in Alberta).
“While one might assume that a pay-when-paid clause excludes reliance by a sub-contractor on Builders’ Lien legislation, this is not the case. The Alberta Builders’ Lien Act prevents parties from “contracting out” of the legislation by the following provision:
An agreement by any person that this Act does not apply or that the remedies provided by it are not to be available for the person’s benefit is against public policy and void.
Therefore, subcontractors who are faced with an effective and enforceable pay-when-paid clause are still able to enforce their rights directly against the owner through the use of a builders’ lien.”
When possible, all parties entering into a contract should have legal counsel review the contract. Secure your right to file a mechanic’s lien for every project, because, at least in Alberta, you don’t know whether the court will be pro-GC or pro-sub.
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Upcoming Educational Opportunities
Worried about how to protect your legal and financial interests in public construction? Not sure if you are covered under state bonding laws? Attend our FREE webinar 7/26 @ 1:00pm: Bond Claims & Public Construction.
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Attend the morning session and you will learn how the UCC process offers you protection in the event of a customer’s bankruptcy or default.
More interested in the Mechanic’s Lien & Bond Claim process? Make sure you attend the afternoon session to learn how this process can secure your right to get paid when extending credit on construction projects.
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