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Banking, Commerce and the Economy

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42-1 42nd Parliament, 1st Session (December 3, 2015 - September 11, 2019)
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Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue No. 14 - Evidence - February 15, 2017

OTTAWA, Wednesday, February 15, 2017

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-224, An Act respecting payments made under construction contracts, met this day at 4:18 p.m. to give consideration to the bill.

Senator David Tkachuk (Chair) in the chair.

[English]

Welcome, colleagues, invited guests and members of the general public following today's proceedings of the Standing Senate Committee on Banking, Trade and Commerce, either here in the room or listening via the Web.

My name is David Tkachuk and I'm the chair of this committee. Today is our fourth meeting on Bill S-224, An Act respecting payments made under construction contracts. The bill was read a first time in the Senate on April 13, 2016, and referred to our committee on November 28.

I am pleased to welcome, in the first portion of our meeting, from the Department of Justice Canada, Mr. Louis Davis, Senior Counsel, Constitutional, Administrative and International Law Section; and Christopher Meszaros, counsel, Public Services and Procurement Canada, legal services; and after them, as an individual, Gerald Chipeur, from Miller Thomson LLP.

Thank you for being with us today.

Mr. Davis, please proceed with your opening statement, which will be followed by question and answer.

Louis Davis, Senior Counsel, Constitutional, Administrative and International Law Section, Department of Justice Canada: I'm counsel in the public law branch in the Department of Justice, and my colleague is counsel in the legal services of Public Services and Procurement Canada. We've both seen the webcast of last week's meeting of this committee. There were questions about the Constitution and emphasis on the need for a lawyer from the Department of Justice to appear as a witness before the committee to explain the constitutional situation.

I want to add we regret there appears to have been some confusion that caused the committee to think that Justice counsel would be here last week, but we are pleased to be here today to assist the committee with these questions, within the constraints that I will discuss shortly.

Permit me to begin by saying that in my 39 years as a constitutional legal adviser in the Department of Justice, I cannot recall any time when my appearance anywhere has been so highly anticipated.

Let me jump right in by saying that the government's position is that it is questionable whether Bill S-224 is constitutional since regulation of construction contracts is generally a matter of provincial jurisdiction.

The issue in this matter is about subcontractors and late payment by prime contractors to subcontractors. The Government of Canada has no relationship with the subcontractors, so the constitutionality of Bill S-224 is questionable, especially regarding subcontractors.

The committee also had questions about the basis for the government's position, so in a moment I will be referring the committee to a Supreme Court of Canada decision called Quebec (Minimum Wage Commission) v. Construction Montcalm Inc., which is reported at (1979) 1 Supreme Court reports 754.

There are some important preliminary remarks I must emphasize before I continue, and I will do so as briefly and quickly as possible.

As a government lawyer, I'm not permitted to speak to any internal advice. I am also not in a position to give a legal opinion to the committee which, of course, has access to its own legal counsel and independent witnesses.

As indicated by my opening remarks on the government's position, I'm not stating this to avoid providing any assistance I can, but to point out that there are restraints on the extent to which I am in a position to assist the committee.

My role is essentially limited to assisting the committee on the constitutional issues by referring to broad and basic constitutional principles that are well established — the constitutional landscape, so to speak — and not to enter into discussion over their application in a specific way.

I can refer the committee to the case I mentioned because it is generally considered the most authoritative and leading case dealing with the broad constitutional issues relevant to the constitutionality of Bill S-224.

The case deals with both the question of the application of provincial jurisdiction and the constitutionality of federal legislation in the context of federal government construction contracts.

While I will, of course, be faithful to what the court said, senators will understand that I will, for the most part, not be quoting from the judgment as such, but summarizing and paraphrasing the positions of both the majority and the dissenting judgments. I will oversimplify a bit for the sake of clarity and brevity but without sacrificing anything relevant to consideration of the constitutional points.

The relevant facts are that the employees of a Quebec construction company were engaged in the carrying out of a contract with the federal government, on federal Crown land, for the construction of runways for the then-new Mirabel Airport that was being built in Quebec. They were being paid in accordance with minimum wage amounts set by federal legislation applicable to work done under contracts with the federal Crown.

The workers wanted the higher minimum wage amounts provided for under Quebec minimum wage legislation. The question was whether the contractor was subject to the wage legislation of the province in the carrying out of the contract with the federal Crown. The court split seven to two on the question.

The majority stated the provincial laws apply because they do not relate to federal property or aeronautics, but they govern the civil rights of the construction company and its employees on federal Crown lands, and these lands do not constitute an extraterritorial enclave within provincial boundaries.

So I do not think there is any doubt that a province can pass prompt payment legislation and apply it to a construction company, even in the context of a contract with the federal Crown. I'm speaking generally.

The contract between the Crown and Montcalm was also governed by a federal law called the Fair Wages and Hours of Labour Act. This law, which has since been repealed, applied to all persons in the employ of the contractor, subcontractor or any other person working further to a construction contract entered into with the Government of Canada.

The court considered the constitutionality of this federal statute, and I think this is where we come to what is of most interest to this committee. I think it would be best if I begin by summarizing the views of the dissenting judges on this point.

Chief Justice Laskin, speaking for himself and Judge Spence, clearly upheld the federal legislation. They relied on the fact that the court was dealing with a contract with the federal Crown for the execution of works on federal Crown land and noted that federal property is a matter of exclusive federal jurisdiction under section 91(1A) of the Constitution Act, 1867. They also relied on the federal power over aeronautics.

The majority judgment on behalf of the other seven judges was delivered by Judge Beetz. The majority noted the case bore many similarities with a case decided five years earlier in Manitoba. In that case, a provincial court judge held that provincial laws applied and the provincial court judge went on to comment that the Fair Wages and Hours of Labour Act was unconstitutional.

The majority noted that the case went to the Manitoba Court of Appeal, where the Attorney General of Canada supported the Attorney General of Manitoba in arguing for the applicability of the provincial law. Both Attorneys General argued that it was not the intent of the federal law to conflict with the provincial law, and the Manitoba Court of Appeal agreed and took the view that it was not necessary to adjudicate upon the constitutionality of the federal legislation.

In other words, the court held that provincial law governs employees working for a contractor under a contract with the federal Crown for work to be performed on federal land.

The Manitoba Court of Appeal stated that the contrary argument was " . . . based on an artificial division of legislative competency.''

The majority in the Supreme Court of Canada case decided the Montcalm case on the basis of " . . . substantial agreement with the Manitoba Court of Appeal."

So, in closing, I want to note that in the Montcalm case the majority of the Supreme Court of Canada was faced with the question of the constitutionality of the federal legislation regulating construction contracts with the federal government. The majority was fully aware that the two dissenting judges were of the view that the federal legislation was constitutional, while a lower court judge had considered the federal law unconstitutional.

Without wishing to cross the line from summarizing the judgment to providing an opinion, I think it is obviously implicit that the majority recognized that there were arguments to be made both ways, and so it chose to leave the question of the constitutionality of the federal legislation an open question.

There was also a question raised in committee last week, by Senator Wetston, I believe, about the residual power. Perhaps it will suffice to note that there was no reference to that power in the Montcalm case, and I do not think I am venturing beyond basic constitutional law in stating that the residual power is really more relevant to matters that were beyond the contemplation of the constitutional authors in 1867, such as aeronautics.

Finally, before I conclude, I would like to share with the committee a quote from one of Canada's most respected constitutional scholars, distinguished Professor Emeritus Dale Gibson. In an article published 50 years ago, dealing with the division of powers in relation to water issues, he said, "Most law is opinion, and that is particularly true of constitutional law.''

My remarks have focused on constitutional law. If there are questions about the constitutionality or other legal aspects of the bill, we will do our best to answer within the restraints I have noted. Thank you, Mr. Chairman.

The Chair: Thank you. Do you have anything to add, Mr. Meszaros? Okay, then we have Senator Plett.

Senator Plett: I will ask one very brief question.

If federal jurisdiction could be avoided by subcontracting, a contractor could entirely avoid the requirements of Bill S-224 by simply subcontracting every task and completing no part of the contract directly. In my opinion, sir, that would make a complete mockery out of the Constitution. Do you have any response to that?

Mr. Davis: I will try, senator. I may be missing the direction of your question. If I am, please ask a supplementary question. For clarification, it is not only the relationship between the government and the subcontractor that is constitutionally questionable. The primary relationship between the government and the contractor itself is questionable because that relationship, as was stated by the majority in the Montcalm case, deals with civil matters that are part of property and civil rights, even though it's taking place on federal Crown land.

Senator Plett: So, in your opinion, it's questionable but not necessarily that the federal government would not have the jurisdiction to do this?

Mr. Davis: That is correct, senator.

Senator Ringuette: This is very intriguing because we have labour relations law for federally incorporated institutions, and probably your department, in the last five years, has many times drafted back-to-work legislation in a situation where you would have contractual agreement between employer and employees.

So what you're saying is that you are questioning the validity of this federal legislation when you say that contract legislation is under the unique umbrella of the provinces. I understand that we're a federation, and it's a complex situation. Therefore, I totally agree with the labour relations legislation that we have federally, which complements the vacuum that exists on the provincial side.

Second, federally, there is a sphere of jurisdiction where you have entities that move from one province to another, like the employees of VIA Rail, the employees of Air Canada and so forth. I believe that it is probably also the same situation, and, down the road, even more so, because the general contractors are getting bigger and bigger. We look at the certain names. They're not restrained to one province.

I really think that the realm of contracts between federally constituted entities remains, especially in this particular case, the federal government.

Mr. Davis: Thank you for the question, senator. There's absolutely no conflict between the position that I have expressed and the existing federal labour laws. As a constitutional lawyer, I can tell you this is very simple —

Senator Ringuette: Contractual.

Mr. Davis: Yes. As a constitutional lawyer, I can tell you that this is very simple to explain. I hope I can do it in 30 seconds; I'm going to try.

The labour relations jurisdiction of Parliament over those federal entities comes about because of federal jurisdiction over those operations. As you mentioned, aeronautics, interprovincial railways. No one doubts that.

The federal jurisdiction here is based on federal jurisdiction over public property. So, if I can just give you an example from a case, public property, Indian reserves, same thing. They both come under federal jurisdiction. I use the word "Indians'' because that's the constitutional term. Otherwise, I would say Aboriginal peoples. But in this case, Aboriginal people were manufacturing shoes on an Indian reserve. The case went to the Supreme Court of Canada saying that that's federal jurisdiction because they're on land that comes under federal jurisdiction. The court said, "No, no, no. You don't look at the land they're on; you look at what they're doing.'' If they were engaged in a federal activity, like banking, it would be federal jurisdiction over them, but if they're engaged in normal activities that come under provincial jurisdiction, such as construction work, it still falls under provincial jurisdiction, even though you're on federal land or on a federal reserve. So there's no contradiction between what we're saying and acknowledging that there is federal labour jurisdiction over labour relations in other areas of federal jurisdiction.

Senator Ringuette: This is just contractual, the basic.

Senator Massicotte: Thank you very much for being with us this afternoon.

You expressed your opinion in an answer to Senator Plett in saying that there's a probability, but we don't know for sure. It's not very useful. I've been in business most of my life, and I hear that a thousand times. But, in real life, you have to make decisions based upon probabilities. You're never 100 per cent sure, but you're never zero per cent sure. You say, "It might rain, but I doubt it's going to rain on Saturday. It might snow.'' Give me a sense of that answer. When you say it probably has a constitutional problem, are you 99 per cent sure? Are you 97 per cent sure? Are you only 40 per cent sure?

Mr. Davis: Thank you for the question, senator. First of all, I can't give you that kind of analysis because that goes to legal opinion, but I can help you in terms of what you mention —

Senator Massicotte: Use English words. Highly probable?

Mr. Davis: I'm not allowed to do that, senator, but I can help in explaining why it is still helpful just to know that it's a grey area. The constitutional advice informs policy choices. Very often, we can tell the federal government, "This is not in your jurisdiction; you can't do it. This is in your jurisdiction; you can do it.'' When we say that it's a grey area and that it can be challenged and is questionable, then the federal government can say, "All right, do we want to be,'' as was discussed last time, "a leader in this area? Do we want to work with the provinces? Do we want to support them? Do we want to follow them? Do we want to take the lead? Is there a policy concern that, if we take the lead, there will be litigation? Will a province, jealous of its jurisdiction, attack us?''

The constitutional uncertainty informs policy choices even if we don't say it. And I'm not allowed to say whether it's high, low or medium, but that will inform policy decisions. So, if I can put it into a business context, it's relevant to the operations of the government.

Senator Massicotte: I appreciate that it's relevant but, from what I'm hearing, you're between 20 and 80 per cent sure there's a problem.

Mr. Davis: I'm not giving you a number, senator, because I'm not allowed to.

Senator Massicotte: In real life, you have to interpret walking across the street. There's a risk that you may get hit. I'm going to walk quickly, then. You sort of interpret all of these risks. I hear you, but we often hear, when we review bills, people often say, "It's not constitutional,'' and everybody wants us to freeze and run away from it. No. That's our job. We say that there's a risk in these things; we can't run away because somebody said it could be unconstitutional. So you're not helping us. I'm not scared by your comment. It may be constitutional; it may not be.

Mr. Davis: I think I am helping you, senator, if I may say so, because —

Senator Massicotte: Repeat it slowly. I'll try again.

Mr. Davis: — I'm giving you the government's position on the constitutionality of Bill S-224. I'm clearly saying the government's position is that the constitutionality of Bill S-224 is questionable. Not only am I giving you the government's position, I'm giving you the basis for it. I'm giving you a case where the judge has talked about federal government contracts, and I'm explaining why that's the government's position. I am not allowed, because of my position — I'm not an independent witness — to go further in telling you it is 50-50, how serious it is, but I've given you as much as I can.

The Chair: It's like the weatherman, Paul. Fifty per cent chance of rain, but, you know what? I'd still book the tee time.

Senator Massicotte: But if there's a drop of rain, you say, "For once, they're right. It ruined my day.''

Senator Wetston: I'm going to get my rainsuit out, Mr. Chair.

Mr. Davis, thank you for coming. It's been a long time since we've seen each other.

Mr. Davis: It's a pleasure to see you again, senator.

Senator Wetston: Nice to see you. Thank you.

Just a question: Bill S-224, do you think that's private law?

Mr. Davis: Well, construction contracts are a matter of private law. Once the Crown gets involved in anything, there's always the possibility that you get specific issues related to the Crown, but the Crown is subject to the common law. When the Crown contracts, although there are some special features about the Crown, you are generally dealing with private law, provincial law and contractual law.

Senator Wetston: Sure, and I know the special features raise Crown immunities, and obviously you're familiar with that, as I might be.

I'm asking the question because you may recall that in Ontario there was an effort a few years ago with Bill 69. I'm not sure if you're familiar with that, but it was prompt payments legislation that was introduced. It was a private member's bill.

Given your constitutional opinion — and I realize you're not offering an opinion in that sense — that it might be valid, constitutionally, because it's property and civil rights in the province, and it might be in question.

Mr. Davis: Senator, I appreciate you respecting my restraints but I am free to speak to the constitutional landscape. As far as I'm concerned, and I'm speaking for the Minister of Justice — this has been cleared — the provincial ability to pass prompt payment law is not an issue. I remind you there are many occasions, such as the Manitoba case I referred to, where the federal government supports the provinces.

Senator Wetston: If you don't mind, chair, I'd like to follow up.

The Chair: I have one more questioner and then I want to go to the other witness.

Senator Wetston: Can I ask this last question? It will take a second.

The Chair: Sure. No problem.

Senator Wetston: I understand it's your opinion and it's questionable regarding the constitutionality of Bill S-224 and I've heard what you said with what Senator Massicotte has asked you. But if I suggested that I believed there was a likelihood it was constitutional — just my opinion — would the assertion of a paramountcy clause be something that could be considered as a way of providing a national response to a failure that exists in the contracting in this particular area in the event that is the case? Would you be able to comment on that?

Mr. Davis: The basic constitutional premise before you can get to the paramountcy clause is always that the federal legislation itself must be constitutional. That's the first issue: Is the federal legislation constitutional?

Assuming the federal legislation is constitutional, then, yes, it is basic constitutional law that once there is a conflict with the provincial law, the federal law would be paramount. But the essential first question is — you need two valid laws, a valid federal law and a valid provincial law, coming into conflict.

Senator Black: I want to put three thoughts back to you that I heard you say, and you can confirm or deny whether I heard you correctly.

In respect to Senator Wetston's recent question on Bill 69 in Ontario, I heard you to say that would be constitutional, in your view.

Mr. Davis: Not exactly. I've never seen the bill, and I can't comment on a specific piece of legislation. However, prompt payment legislation, under construction contracts, as a concept generally, would be valid provincial law.

Senator Black: And that is what Bill 69 addressed.

Mr. Davis: I'm not familiar with Bill 69.

Senator Black: But if I told you that Bill 69 —

Mr. Davis: Then I would say, yes, senator. I would agree.

Senator Black: Thank you.

My next point: You're saying the constitutionality of Bill S-224 is questionable.

Mr. Davis: That's the position of the Attorney General of Canada, yes.

Senator Black: We had last week the deputy minister or the parliamentary secretary who indicated that the government at the House of Commons level is not prepared to move ahead with Bill S-224 in the House of Commons. I take from that that your opinion must clearly be that it's not constitutional. Why else wouldn't they allow it?

Mr. Davis: Senator, I'm not allowed to speak to internal advice, but I will say this: I am only being as clear, honest and forthright as I can with the Senate.

I will repeat: It is questionable whether the legislation is constitutional. I am not saying it is unconstitutional. I want to make that clear.

The Chair: What the government said is they didn't support the bill; they didn't support the legislation but the legislation will still move forward. It's a private member's bill, so someone is going to move it in the house if it passes the Senate.

Mr. Davis: I don't know if it's appropriate for me to say this, but having heard the witnesses last week —

The Chair: Say whatever you like.

Mr. Davis: I'm concerned about my other constraints, senator.

The Chair: But we're not worried about those.

Mr. Davis: To be fair — because I watched the webcast — the witnesses were saying that the issue of the constitutionality is a policy consideration. When they consider if we go ahead, is there likely to be litigation? Is it likely to create more problems than it solves? It is a fair policy consideration.

Even if the advice is not that this is clearly unconstitutional, the questionability of constitutionality is a fair policy consideration for the government and the client to take into account. That's the important point the witnesses were making.

The Chair: Any other questions?

Senator Day: Just to clarify the record, I've heard mention of "244.'' We're dealing with Bill S-224, just so the record is clear.

Senator Ringuette: At the Department of Justice, I'm sure that you have a large library and database on legal precedents on probably every issue.

Mr. Davis: We have Google.

Senator Ringuette: We have Senator Baker with regard to providing us with legal precedents and so forth.

You base your entire comments on a case during the construction of the Mirabel Airport, which happened in the 1960s and 1970s. That's over 45 years ago. Have you scanned, even on Google, any other case that would be similar with regard to the issue we're looking at?

Mr. Davis: I hope this won't sound like bragging, but for 39 years, I've been at the Department of Justice working in constitutional law in the same public law branch, in the same constitutional law section. I do this every day. I follow all the judgments, all the cases and I'm surrounded by colleagues who do the same thing. I have modern, up-to-date books, and I stay up to date.

One of the beautiful things about constitutional law is that, unlike tax law, it doesn't change very fast. Yes, there are changes, but it's the area of law where the principles and precedents can go back to 1979. In fact, they can go back to 1879. That's one of the beautiful things.

To answer your question, that case is still the leading case, and whenever you look at recent judgments, they refer to that case.

Senator Ringuette: So it's the benchmark.

Senator Wetston: I asked this question last week. You may have answered it already, Mr. Davis. It was about getting back to Ontario, as an Ontario senator. If Ontario passes the law, does it bind the federal Crown?

Mr. Davis: The federal position, and we believe there is authority for this, is that provincial laws do not bind the federal Crown. That having been said, it gets complicated. The federal Crown can waive that immunity in certain circumstances. The federal Crown, very often when it comes to federal property, has what's called the "good neighbour policy,'' and we voluntarily do things like pay taxes to the province, even though when we pay them, we're not doing it because we're bound to pay it by law but because we want to pay taxes like everybody else. Hence, "good neighbour policy.''

So the simple answer to your question is, "no, it doesn't bind the federal Crown'' but there are exceptions. In the case I mentioned, it's called payment in lieu of taxes, and I believe there's an act by that name.

Senator Black: Mr. Davis, we have an offering from Mr. Chipeur, our counsel in Calgary. Have you had an opportunity to review his document?

Mr. Davis: I believe my department requested a copy, and we have not been given one.

Senator Black: I see. Certainly, we can have a copy provided to you. I will read the first "in conclusion.'' Mr. Chipeur's view is that Parliament has jurisdiction to enact Bill S-224 under section 91(1A) of the Constitution Act.

Mr. Davis: Is that 92(1) or 91(1)?

Senator Plett: Point of order, chair. I asked to read something into the record from him last time, and I was told he would be here, so I was asked not to do it. I would ask that same thing here. Mr. Chipeur is here and will be testifying in a few minutes.

The Chair: Senator Black, please ask your question. Then Mr. Chipeur will be here, and he can do it himself. So please ask your question.

Senator Black: I want to clarify, though. I want the opinion of constitutional experts as to what Mr. Chipeur is saying. I don't need to ask Mr. Chipeur what he's saying. I can read what he's said. I want to hear what these fellows have to say about what Mr. Chipeur is saying.

The Chair: Go right ahead, Senator Black.

Senator Black: Again, Mr. Chipeur says that Parliament has a jurisdiction to enact Bill S-224 under section 91(1A) of the Constitution Act, 1867. Could I have your comments, please?

Mr. Davis: I am going to answer the question, but first I want to say I'm responding to a sentence out of context as a conclusion. In a sense, it's really not right for me to be commenting on an opinion I have not read. I don't know the basis for that conclusion.

Actually, on second thought, I really don't think I can answer this way. I apologize, but I just don't think it's appropriate.

Senator Black: We'll get you a copy and then perhaps you can have a review.

Mr. Davis: Again, I don't think that's the appropriate thing for me to do. I'm not here as an independent witness. My thoughts are not what matters. I'm here representing the Attorney General of Canada. I would have to consult.

I'm sorry, but I can't answer the question. I would like to but I can't.

The Chair: Thank you, Mr. Davis, for your testimony today.

As we continue, for our next panel of witnesses, I'd like to welcome as an individual, Gerald D. Chipeur, Partner, Miller Thomson LLP.

Gerald D. Chipeur, Partner, Miller Thomson LLP, as an individual: Thank you. I think it would be very good for us to cut to the chase. As Senator Wetston has said, the issue is clearly about paramountcy. There is no doubt. If you read the case that my learned friends brought to your attention, you will find on page 780 the Supreme Court refers to a citation. The court said there's valid provincial legislation and there's valid federal legislation, both applying minimum wage laws in the context of federal and provincial undertakings in the Province of Quebec. The court said there that the reason Montcalm lost and had to pay the higher Quebec minimum wage was because of this:

Montcalm had to prove that federal and provincial law were in actual conflict for the purposes of this case.

In that case, we were dealing with labour law — and that's another distinction — but we were dealing with labour law. In fact, it was possible for this contract or subcontractor, Montcalm as contractor, to be in compliance with both the federal and the provincial laws. So no paramountcy issue arose.

Because of that distinction, this case is of no use to you when you deal with a very specific question about whether this is valid federal law. If it is valid federal law, then to the extent that it imposes duties that the common law or a provincial statute does not impose, then it is in conflict with the provincial statute or the provincial common law, and it will prevail.

I think my friends from whom you just heard would be in agreement that if we have a federal law that is valid, then we have paramountcy. Unfortunately, this case doesn't help us because it wasn't a paramountcy case.

What I'd like to do is bring to your attention several other cases that I think will be useful for this committee as you consider whether the federal government has jurisdiction.

Remember, we're dealing with section 91(1A); we're dealing with federal property. No one has ever said that the federal government doesn't have the right to pass a law with respect to its own property. Again, just cutting to the chase and not wasting your time with 100 pages of law, the issue is to ask one simple question: Is the subcontract integral to the main contract? Could you fulfill the main contract without fulfilling the subcontract? If you could, then I think one could make an argument that we can separate away the minor "subcontracts.''

This would be a decision made by a judge, and if the judge is of the view that in a particular case, a particular subcontract was in relation to federal property — and what could be more important to federal property than the creation of federal property? Every subcontractor is creating property — a building, a sidewalk or a road even. Those subcontract actions are with respect to federal property and are integral to that main contract for the construction of the building.

If one were able to say that this is provincial and the federal government doesn't have that jurisdiction, it would be possible — even possible in good faith — for a provincial government to act to stop a federal building from being constructed on federal land by creating a set of circumstances that might apply to everyone. But in this case, that would make it impossible for the federal government to go forward.

Let me take you to three cases that I think are important. The first is on the question of "integral.'' That is a case out of the Supreme Court of Canada in 2007. It's the Burrardview Neighbourhood Association case. In that case, we had the question of whether, in the Port of Vancouver, the federal law was going to apply to every aspect of that development. This is what the court said in paragraphs 72 and 78:

Authorizing the construction of a cement plant on these port lands . . . . belongs to an incidental port development business, which because of its integration in marine transportation is reached by federal jurisdiction . . . .

Here's the important part:

We agree . . . that . . . the whole of the Lafarge project. . . is sufficiently "integrated'' . . . —

And that is in quotation marks. The Supreme Court is quoting "the test.'' "The test'' is integration.

. . . to make federal regulation applicable to all aspects of it.

That is the heart of the question for you to ask: Is each section of this legislation important to make sure that all integral activities related to the construction of federal buildings, any kind of federal infrastructure or any kind of federal property that is owned federally. I believe that it does; I believe that we're talking about federally owned. We're not talking about federally regulated undertakings; we're talking about actual property that is owned by the government and new property that is being created by these tradespeople.

That's what's integral and therefore, in my view, subject to the jurisdiction of the Parliament of Canada. It's not, by the way, that the provincial laws of general application, both in the common law and in the legislation, wouldn't apply unless and until a federal law came along that was paramount, that was valid and inconsistent with the scheme that was provided for under the provincial common law or the provincial civil law.

So going back to just one other case — actually, I promised you two, so I'll give you two. The other case that is important is the case of Canada (Attorney General) v. Gottfriedson, a Federal Court case of 2013. In that case, the issue was whether or not the plaintiff could invoke the general law of a contract applicable to all persons, or whether there was federal jurisdiction. This is what the Federal Court said at paragraph 22:

. . . Parliament could have enacted a special law in relation to a federal subject matter, which would have prevailed over the provincial law and made it inoperative, it had not done so.

So, in that case, there was no federal jurisdiction because it hadn't created this special law. It's my opinion that Bill S-224 is the kind of special law that was referred to by the Federal Court in that particular case.

The final case on the issue of integration, to give you a sense of how the court looks at things, is Murphy v. CPR, a case out of 1958, Supreme Court Reports, 626. I believe you all have these citations with you in the opinion that was distributed.

In that case, the Supreme Court of Canada upheld the power of Parliament to regulate both the Canadian Wheat Board and its subcontracting agents — the railways and all the way down the line — because of the issue of integration.

With that, I'm happy to answer any of your questions, Mr. Chair.

The Chair: Thank you very much.

Senator Massicotte: Let me try to interpret what I think I heard. I could be very wrong. If you start with the opinion, which is the question you asked, that the subtrades are fundamental to the construction of that building — in other words, the Government of Canada is usually not even tooled or doesn't have the expertise to do the subtrade work — it's therefore a team effort. Having said that, what's your conclusion?

Mr. Chipeur: The conclusion is that the word "integrated'' applies and the Supreme Court of Canada has said if the contract and the contractor are integral to the jurisdiction over property that is owned by the Government of Canada, or the creation of property that will be owned by the Government of Canada, then necessarily it is federal jurisdiction under section 91(1A) and it will prevail to the extent of any inconsistency with a provincial law.

So the provincial laws will still be valid, but to the extent of any inconsistency, any additional requirements that are imposed by this bill, those additional requirements will be constitutional.

Senator Massicotte: Okay. Now, say it in plain English. What's the problem with that?

Mr. Chipeur: I don't think there's any problem with that.

Senator Massicotte: Why is that offensive to the bill that's being proposed?

Mr. Chipeur: It's not. I'm saying the bill is constitutional. Senator Black quoted me and said that section 91(1A) is jurisdiction for this bill. I'm in disagreement with the idea that there's a grey area. There's no grey area. The Supreme Court of Canada is clear that Parliament has jurisdiction over federal property and that anything that is integral to the property or the creation of that property is within the federal jurisdiction and is paramount to any provincial common law or legislation.

Senator Massicotte: I understand. Thank you.

Senator Moncion: Do you speak French?

Mr. Chipeur: I don't, but I can put my earpiece in.

Senator Moncion: I think it would be easier for me to say it in French.

The Chair: Of course. You have a right to do that.

[Translation]

Senator Moncion: Bill S-224 is intended to provide for the prompt payment of invoices. We look to the Constitution Act to determine whether Bill S-224 is constitutional. I am wondering whether the problem it seeks to address lies with the federal government or whether 99 per cent of payment problems involve the provinces. In my opinion, there is a huge difference between what the Bill S-224 seeks to address and the constitutional aspect. A problem within each of the provinces, in the construction industry, is being confused, and a solution is being sought through this bill at the federal level. It is believed that this will resolve all the problems related to the construction industry and prompt payment in the provinces. In my opinion, there is a huge "Y'' between the two positions. In any case, there seems to be confusion about what is federal, what is provincial, and the problem for which a solution is being sought. I would like to hear your thoughts on this.

[English]

Mr. Chipeur: In my view, you're creating a little basket for apples inside a big basket of apples. The little basket is all federal contracts. The big basket is all of the contracts in the country. What I understand this bill to do is it creates a special set of laws to quickly resolve disputes and quickly ensure payment of all contractual payments that are due, and takes that out of a process that we have to admit, as lawyers, if you were to go through the normal civil dispute resolution processes, would take years in any individual case. In fact, many construction lawsuits are settled way after the building is completed.

I'm not saying that this problem is not nationwide, but what I understand this bill to do is to deal with the federally owned apples.

Senator Black: Thank you very much for being here, and thank you for your very thorough treatment of this issue. It's not easy material; we can agree on that.

I presume from what you have said, counsellor, that if this legislation were provincial legislation, you would have no doubt in your mind that a province could pass it without any constitutional question.

Mr. Chipeur: In my opinion, the province could not pass this exact bill. It could pass a bill of general application that applied to all property, which would include federal property. But if it just said we are going to pass a law only dealing with federal property, in my opinion, that it would take it outside section 92.

Senator Black: Sure. But the pith and substance of this legislation is to get at prompt payment.

Mr. Chipeur: It's property and civil rights. So in the absence of federal legislation, it is property and civil rights, properly described.

Senator Black: So the Province of Alberta could pass a piece of legislation on prompt payment and there would be no questionable constitutional question in your mind?

Mr. Chipeur: Absolutely none. It would apply, as long as it applied to everybody without exception.

Senator Black: We agree on that.

You heard the folks from Justice who were just here. They have said to us that the constitutionality is questionable. You heard the whole conversation. I hear you to say in your view it is not, and that it is clearly the domain of the Government of Canada.

Mr. Chipeur: Yes. I say it is. I would say this: It is possible to conjure up a set of circumstances at the edge of any contract where there's a question of whether it is in or out. But I don't think that makes the law grey. It just means that that factual situation is grey and now we need to apply a clear law to it, and it will be federal or provincial. That is the role of judges, or, in the case of this law, it could be the role of the committee.

Senator Black: So given that there is an honest disagreement amongst very smart lawyers as to constitutionality, why isn't the case for prompt payment being pushed at the provincial level, where this wouldn't even be a question?

Mr. Chipeur: I understood it was. I understand that it is being pushed at both levels.

But here's the twist on this law that, to me, makes it very different. From experience as a litigator, I can tell you that even now we are involved as a firm on behalf of contractors who contract with provincial and federal governments. The last thing they want to do is sue the contractor on the other side.

So it is, in my view, a very salutary kind of law. It would be very generous on the part of the federal government if it were to say: "We understand that we have the money, and we understand that you are reluctant to get into a fight with us, so we're setting up a process so that there aren't any fights, and so that if there's a dispute amongst human beings — and human beings, we're all different; we sometimes see things differently — we're not going to use the nuclear option every time there's a little dispute.''

To me, that's what this is about. It's not saying that the provincial government couldn't go that far, but I don't even see any prompt payment legislation within the provincial area that is general enough that it could apply to the federal government. That's the problem: even the provincial legislation that I'm aware of does seem to focus on government. So it's my opinion that it would not be constitutional for a provincial government to say, "This law applies to provincial contracting agencies and government departments, and federal contracting agencies and departments.''

To be constitutional, they would be really re-working their legislation and have to appoint so many judges that it would, I think, be unworkable, from their perspective. I'm just guessing that that's why they haven't reformed their contract system to put in place something like Bill S-224 puts in place.

Senator Black: That's very helpful. Thank you very much.

Senator Plett: I want to ask this question basically to get it on the record. You've answered it already, and Senator Black raised it just now, about, in my opinion, a bit of an evasive answer that we got from Mr. Davis here a few minutes ago; Senator Massicotte pressed him hard when he said it was questionable. I asked him, and he of course agreed it was questionable, and Senator Massicotte wanted to know the percentages.

Let me just ask you, sir, about the percentages. Do you believe this is 100 per cent constitutional or 90 per cent constitutional?

Senator Day: That's questionable.

Senator Ringuette: Are you crossing the road or not?

Mr. Chipeur: Let me tell you a story. The famous lawyer, J.J. Robinette, was once asked by his clients: "What's my case like?'' The response was: "You will win. I'm certain you will win.'' The client then said, "Give it to me in percentages.'' He said, "51-49.'' So the problem is when you go to court, the judge decides in your favour on the preponderance of probabilities.

Senator Plett: That's not the question I asked you, sir.

Mr. Chipeur: I hear you.

Senator Plett: Answer my question. I want to know what you think, not what does the Supreme Court think.

Mr. Chipeur: Well, the problem is we're dealing with human judges, and I am not going to second-guess the Supreme Court of Canada. There are nine people who have a lot of power and I don't have any power. But I am confident that if the Supreme Court of Canada followed the precedents that are in place, that there is zero chance that they could find this bill unconstitutional. There is no circumstance under which I believe they could find it to be unconstitutional.

Senator Massicotte: I don't like the condition you attached to your answer: "if they follow the precedents.'' So let me ask you another question: What's the probability of them not following those precedents?

Mr. Chipeur: When I graduated from law school in 1984, I would have said there's no chance that they won't follow their own precedents. But I've been in a case where we won a Supreme Court of Canada case in which they overturned their own decision from five years earlier. The fact is the Supreme Court of Canada used to have a rule that they would not overrule themselves unless there were special circumstances.

Senator Massicotte: So what's the answer?

Mr. Chipeur: The answer today is that —

Senator Massicotte: You know, you don't know? Maybe, maybe so?

Mr. Chipeur: I'm saying that I would sign an opinion to you, which I have signed, saying that I am certain that Bill S-224 is constitutional. That's my opinion. But if you're asking me, as a client, what I think the Supreme Court of Canada will do, I think I know what they should do, but I can tell you that I will not guess, in any case, what the Supreme Court of Canada will, in fact, do because we are in a different era.

In this era, the Supreme Court has, where it believes it's in the public interest and where there are good public policy reasons, they have abandoned their former precedent.

Now, the question I think that you're really asking is: Are there any public policy reasons to find this legislation unconstitutional? The answer is no. I'm going to say also there would be huge public policy problems if this legislation was found to be unconstitutional because, as Senator Ringuette said, what if you had a situation where you had either a labour dispute or even, let's say, a civil disobedience of some other kind and Parliament couldn't come in to protect its own properties and control every aspect of the construction of those properties? I think the court would, under no circumstance, find that Parliament would be impotent to deal with that kind of crisis.

Senator Ringuette: I want to reverse how we are approaching this issue. Maybe it will help clarify it.

What if every province had similar legislation for prompt payment in the construction industry within its provincial territory, and we didn't have this federally, and we were looking at a job that involved constructing a federal government building. It's happening all over the place in Ottawa within the National Capital Commission, or NCC, territory. What would apply? Would the subcontractor be able to use provincial Ontario legislation for prompt payment for a federal building going up within the NCC territory?

Mr. Chipeur: If the provincial law was constitutional — in other words, if it applied to all construction, by anyone private, public, provincial or federal — then, yes.

Senator Ringuette: Then the thing here is the government issue.

Mr. Chipeur: Most of the prompt payment legislation applies only to a province promptly paying its debts. That's why, in my view, if the prompt payment legislation at the provincial level is focused on government contracts, then that's the limit of their jurisdiction. By specifically focusing on themselves, they then have eliminated the federal buildings.

That's why you need this, so that you can cover all governments, if that is the intention, and exclude the private sector and let the private sector have the courts, because that's what I see happening, in fact, with the provincial legislation.

But you are right; if it was beyond the provincial government and it applied to everyone, then everyone would include the federal government, and it wouldn't mean that the federal government couldn't legislate.

Let's say this bill was in place. Let's say Bill S-224 became federal law and then the provinces passed a law of general application that applied to everybody. What would happen then is that, if there was no inconsistency, both pieces of legislation would happily exist together. So, to me, this law does not in any way deter a province from taking any steps it wants to ensure that we have a better-functioning construction industry in the province.

Senator Wetston: I think you've answered my question, because I was going to ask you about what a law of general application would be.

Mr. Chipeur: I have, exactly.

Senator Wetston: I understand what you've said.

Senator Day: I have two questions. First, is your work at Miller Thomson to do with the construction or contract side of things?

Mr. Chipeur: I do litigation that has included these kinds of contracts. I can't talk about any specific cases, and I can't talk about the case that I was referring to that we had. I won't say which province or which government, but I can tell you that there are cases where clients of ours have felt that deputy ministers have not contracted with them in the future when they took that department to court over a contract.

That is their opinion. I can't talk to you about it because of solicitor-client privilege, but I can assure you it exists. It's a real fear. In fact, it has happened that people have suffered because they have challenged the decision of a deputy minister or their agent with respect to whether a contract clause had been complied with.

Senator Day: To summarize that, your view is that parts or all of this legislation would be helpful.

Mr. Chipeur: It would be helpful to the government and — let's put it this way: I think it would be helpful to the citizens of Canada, because it would ensure that their public property was constructed more efficiently. It would also be more helpful to the industry. In fact, it would probably lead to greater tax revenues because there would be less money spent on lawyers.

Senator Day: My second question is to understand the emphasis you put on "integrated.'' The Supreme Court of Canada, I guess, put the emphasis on it, so you picked up on that.

We have a port that is federal jurisdiction, but the incidental business, Canada Cement Lafarge in that case, pays a lease to build. What makes that independent private-sector business "integrated'' into the Port of Vancouver?

Mr. Chipeur: The court in that case said it was integrated because it was an essential part of the port. Remember, this is about jurisdiction over an undertaking. We're talking in 91(1A) about jurisdiction over owned property. So it is different, but it's the same integration question that would be asked in both cases.

Let me take you to the edge of it. If you wanted to take the Lafarge case and say, "Does this then apply to the mine where they mine the cement?'' the answer would be, "no, it's not integrated.'' You can get your cement from anywhere.

But it certainly does go to the edge of the port, because the entire port is owned by the Government of Canada, so the entire port was under the jurisdiction of the Government of Canada. The question they asked themselves was: "Is this an integral part of this port and, therefore, subject to federal jurisdiction in that case?'' They came to the conclusion that it was.

I don't think that case is important for any other reason than they used the word "integrated.'' They're going to ask that question any time. If you say, "Are the nails used in constructing that cabinet over there subject to federal jurisdiction, if I go down to the hardware store?'' Of course not. But once those nails show up on federal property and are being hammered in, that process, to the extent the federal government wants to control it — they don't have to — but to the extent they want to, it can be totally controlled. You can say, "You can only take three swipes.''

Senator Day: I'm reading from your summary and your opinion letter here: "Authorizing the construction of a cement plant on port lands belongs to an incidental port development business.''

So Lafarge, an independent company, setting up a plant, presumably so it can bring ships in, load the cement and ship it wherever, but it's not integrated in the sense that it's part of the operation of the port; it's just incidental to it.

Mr. Chipeur: Right, but they said it's necessarily incidental. That's what they meant by saying it's incidental. There's a legal concept called "necessarily incidental,'' which means it's integrated. They used the word; they said, "What does incidental mean?'' Incidental means it's integrated enough so that it's essential — essential to the operation. In that case, they concluded that way. In another case, they would ask the same question but maybe come to a different conclusion with respect to water, for example, or some other thing that is used on the site.

But the question is not whether something is incidental. Rather, "incidental'' is being interpreted by the court as integration. So if something is incidental, it means it's integrated.

Senator Wallin: I'm going to try to come back to Senator Massicotte's point one more time. We heard from the Justice Department officials. Presumably, they are the ones advising the federal government, or their advice would be sought. They said there is a possibility that this legislation could be found — would be found, might be found — unconstitutional, and that's a valid policy consideration. Government doesn't generally like to pass legislation that might be considered unconstitutional.

So given their views as stated, do you think, despite your advice on the constitutionality, it would be challenged?

Mr. Chipeur: I did not hear an opinion from them. They were very clear not to give you an opinion. That is telling, first.

Senator Wallin: They cited a reason for that.

Mr. Chipeur: They did, but I think if you go back into your history of committee hearings, government has been very open about its opinions in the past. It is very telling that they did not give you their opinion.

Second, there is no more grey about this subject than there is about any statute, were you to choose a federal statute at random. Yes, anything might be found to be unconstitutional. That's as far as I think they went. I think it was that unclear. I do believe they did not commit. They just highlighted a case where it's clear the principle of paramountcy wasn't even considered.

So they agreed that paramountcy applied, and the only question they said was "it might be that this is not going to be found to be legislation with respect to federal property.'' That's the question, and it is possible that the court will abandon 150 years of precedent, but I don't think so.

Senator Greene: With regard to the test of integration, I heard the Justice lawyer talk about the essential test being whether the activity takes place on federal land. I wonder if integration supersedes the other test, or is integration a newer test?

Mr. Chipeur: I think he was talking about activity in the context of the Montcalm case.

Senator Greene: Yes.

Mr. Chipeur: Because the question in that case was whether that activity was covered. They didn't determine that it wasn't subject to federal jurisdiction. That's not what they said. They said the federal law was valid; the minimum wage law was valid. The question was whether the provincial law was valid.

They had to ask a question about activity, because this was not provincial land. It was about activity that the province was gathering, and the activity was something subject to property and civil rights, which is within their jurisdiction. We are in a different world when we're talking about federally owned. This is important. The only way that this bill is, in my view, bullet-proof is because it is limited to federally owned property. As soon as you start dealing with federally owned property, in my opinion, Parliament's jurisdiction is virtually unlimited. It's only limited by the question of whether the statute includes a section that governs something that's not integrated with the federal work that is owned by the Government of Canada. That's why integration is important.

Senator Massicotte: Just a quick question. You're obviously expressing an opinion about constitutional matters. Further to Senator Day, who was asking a question about you being a litigator and having dealt in construction contracts. Have you litigated a lot of constitutional matters?

Mr. Chipeur: Yes. I've been in the Supreme Court 20 times. I've got about 100 cases, and about half of them are constitutional matters. It's not been quite 39 years, but 32 years doing constitutional battles.

The Chair: Thank you very much, Mr. Chipeur. We appreciate it.

I'm pleased to welcome, in the next panel, appearing by video conference from Toronto, the counsel who conducted the expert review of Ontario's Construction Lien Act and the 2016 report Striking the Balance: Expert Review of Ontario's Construction Lien Act, appearing as individuals.

Please welcome Mr. Bruce Reynolds, who is the Chair of the International Projects Group, Borden Ladner Gervais LLP; and Sharon C. Vogel, National Leader, Construction Law, Borden Ladner Gervais LLP. Thank you for appearing before our committee today.

Mr. Reynolds and Ms. Vogel, please proceed with your opening remarks, after which we'll go to a question and answer session. Senators, we're going to try to finish this on time, so, at about quarter after, we're out of here. So conduct yourselves accordingly. Please proceed.

R. Bruce Reynolds, Chair, International Projects Group, Borden Ladner Gervais LLP, as an individual: Thank you very much, Mr. Chair. We thought that we would make brief introductory remarks in order to leave as long as possible for questions.

So the first thing that we thought might be helpful to the committee would be to have a bit of context around our process. I was counsel to the expert review on the Construction Lien Act, and my partner, Ms. Vogel, was co-counsel. We began our mandate in February 2015. Our instructions from our client, the Province of Ontario, were to conduct our mandate in an open, transparent and collaborative manner. We proceeded, through the mandate, not only to review the existing Construction Lien Act of Ontario from a legal perspective, but we were expressly instructed to consult the Ontario construction industry broadly. That consultation involved face-to-face meetings with 60 stakeholder groups. We received 72 or so written submissions, some from those 60 stakeholders prior to our face-to-face meetings with them and some after. The stakeholder meetings were extremely productive, very meaningful. Rarely did a stakeholder meeting take place without a new issue being identified, so, after the initial round of face-to-face stakeholder meetings, we published a supplementary list of issues that had emerged during the stakeholder meetings and received further written submissions at that time.

The second phase of the consultation process involved the establishment of an advisory group. The advisory group comprised Ms. Vogel, myself and 13 subject matter experts, some lawyers, some not lawyers. The members of the advisory group were chosen by me and Ms. Vogel for their alignment with different industry sectors. They were not members of the advisory group as specific representatives or appointees of the parts of the industry with which they were aligned, but they were knowledgeable in relation to those parts of the industry.

We conducted five advisory group meetings at Borden Ladner Gervais, and they were each about five hours in length. They were conducted pursuant to Chatham House Rules. There was quite a vibrant and vigorous exchange of ideas. People rolled up their sleeves. People white-boarded problems together and tried to identify solutions.

The core issues with which we were dealing, both in the stakeholder consultation meetings and in the advisory group meetings, really fell into three categories. The first category was modernization of the Ontario Construction Lien Act. The second category was promptness of payment. The third category was efficiency of dispute resolution.

Following the conclusion of the advisory group process, we then completed our legal research and prepared our report, which was some 300 pages in length and was delivered to our client at the end of April.

So that was our process. We made it as inclusive as we could. Anyone who identified themselves as a stakeholder became a stakeholder. Any issue that was identified to us became an issue, so we approached our mandate with that inclusiveness, with that openness and, we hope, with the transparency that we had been instructed to employ.

In terms of transparency, we not only delivered a report, which we endeavoured to draft in plain language, but we launched a website. On our website, we have posted not only the report but an information package, which we developed early on in the process in order to contextualize the stakeholders prior to their meetings with us. We have posted all of the written submissions that we received from the stakeholders, and we have posted summaries of each of the stakeholder consultation meetings. We felt that it was important to do that so that any member of the industry could have ready access to all of the written documentation that we either received or produced.

Those are our introductory comments, subject to any questions. Ms. Vogel is going to speak to the issue of promptness of payment because we appreciate that the modernization of the Construction Lien Act of Ontario would not form part of your remit.

Sharon C. Vogel, National Leader, Construction Law, Borden Ladner Gervais LLP, as an individual: In relation to the stakeholder consultations that Mr. Reynolds referred to, they were a key part of our process because we heard from industry stakeholders in the construction industry about issues that were important to them, and, in every single stakeholder meeting that we held, we heard about promptness of payment. Industry stakeholders told us that between 2002 and 2013 alone, the average collection period in construction has increased from 57.3 days to 71.1 days, compared to 47 days in other industries. We know that some of these same stakeholders have spoken to you.

When we sat down to write our report, which is a bit of a weighty tome — it's over 300 pages, and it is available on the CLA review website that we created — we looked at the cause of this elongation of payment cycles. We've concluded, as you'll see from a review of the report, that payment cycles have become elongated due to a number of reasons, including the increased size and complexity of projects, for example, public-private partnerships, and the increased complexity of both contracts and payment processes.

In relation to payment processes, there are increasing checks and balances necessary to prevent corruption and other issues of concern so that those checks and balances become necessary, but that has resulted in elongation of payment cycles.

We then turned to look at what other jurisdictions around the world are doing in terms of promptness of payment legislation. We looked first to the United States. We looked at the U.S. federal legislation on prompt payment and the legislation introduced in all but one state in the United States that dealt with prompt payment.

Now, that legislation varies state by state. In some states the prompt payment legislation applies only to public projects, while in other states it applies to both public and private projects.

There are construction liens and statutory trusts at the state level in the United States. In the United States as well, there are mandatory surety bonds on public projects, at both the federal and the state level, to help protect contractors.

We then turned to the United Kingdom and we looked at the security of payment legislation there. There are no construction liens in the legislation in the United Kingdom, but there is promptness of payment legislation and also adjudication legislation. In the United Kingdom, there are also piloted project bank account programs to pilot the establishment of project bank accounts to ensure that funds properly flow down the construction pyramid.

This U.K. approach on both promptness of payment and adjudication has migrated to a series of other jurisdictions. We then looked at those jurisdictions as well, including Australia, New Zealand, Malaysia, Singapore and others. We then sat down to write our recommendations, and if you look at our report, there are over 100 of them. In reaching these recommendations, we tried to strike a balance. One of the key balances we had to try to strike was that between allowing for freedom of contract on one hand and regulatory intervention through legislation on the other. We also wanted to balance the tension between ensuring cash flow on a construction project and collateralization. We also wanted to ensure the efficiency and thoroughness of any package of recommendations that we pulled together.

In relation to promptness of payment, many stakeholders who attended before us felt that the Construction Lien Act, as it exists in Ontario, doesn't sufficiently protect them from payment delays and that proceeding to litigation — going to court to secure payment — is too protracted a process and too costly.

Many stakeholders who appeared before us indicated that there was a need for a more practical solution. In the result, we recommended that a promptness of payment regime be adopted in relation to both the public and the private sectors. We recommended that contracting parties be free to provide returns in their contracts that meet their specific needs, so long as those terms meet the minimum standards in the legislation. Our recommendations in relation to promptness of payment apply at both the owner-general contractor level, the general contractor-to-subcontractor level and so on down the construction pyramid.

We recommend that there be a mechanism for general contractors to notify subcontractors of non-payment by owners and to undertake to commence or continue proceedings necessary to enforce payment up the chain.

Under our recommendations, the trigger for payment is the delivery of a proper invoice, provided that a certification for payment process, if contracted for, must follow submission of the invoice.

Now, as I said earlier, parties would be free to contract with respect of the timing and contents of a proper invoice, but once that proper invoice is delivered, then payment must be made within 28 days from the owner to the general contractor and then within a further seven days from the general contractor down to the subcontractors.

Payers, under our recommendations, can deliver a notice of intention to withhold — that is, to assert a right of setoff — but that right of setoff should not extend to debts, claims or damages related to other contracts outside the project. We also recommended mandatory non-waivable interest requirements. We further recommended a right of suspension in relation to non-payment, but that right of suspension only arises after adjudication and the parties have failed to comply with the results of that adjudication.

The Chair: Ms. Vogel, are you going to be quite a bit longer? Do we have time for questions?

Ms. Vogel: You will have time for questions. That was my last point and then I was going to hand it over to Mr. Reynolds.

The Chair: Go ahead. Thank you very much.

Ms. Vogel: Mr. Reynolds is going to talk about adjudication for a few moments.

The final suggestion that was made to us was that there be mandatory financial disclosure, and we did not recommend that, because we felt that that was more of a procurement-related issue and that the other protections that we had provided in relation to promptness of payment dealt with the promptness of payment issue.

I'll pass it over now to Mr. Reynolds to speak on adjudication.

Mr. Reynolds: I'll make some very brief comments on adjudication.

Adjudication is what makes prompt payment work. The experts that we consulted with in the United States, which was the progenitor of the original prompt payment legislation, as I'm sure you're aware, indicated that in circumstances where a party didn't wish to pay, they simply identified a dispute, took the dispute to court and prompt payment did not work anymore.

So prompt payment in the United States has a positive effect on the normal course of business, but in circumstances where a party doesn't want to pay, they can delay it for years.

So in looking at the legislation in effect in the U.K., where adjudication was developed about 20 years ago, it became evident — by the way, the U.K. also has an element of the same legislation that provides for promptness of payment — that what makes the U.K. approach work is the availability of the adjudication because, as I'm sure you've heard from other people appearing before the committee, in the U.K., you can obtain the determination, on an interim, binding basis, on a dispute within 28 to 42 days. That's to be compared with the situation in Canada, where the same timelines are measured in years.

So in our report we have recommended the adoption, in the province of Ontario, of an adjudication regime. We're happy to talk about the details of that, but I think I'll end my introductory comments on adjudication at this point.

Senator Massicotte: I reviewed your report a couple of days ago, and I must commend you. I love your process. I think it's very inclusive, and it certainly has to be one of the most studied issues in Canada. The contribution you've made to the industry is very good and very reasonable. Thank you very much on behalf of everybody who will profit and benefit from your report.

Having said that, I think your summary represents, at least from what I understood from your report, that it should not interfere with normal contractual negotiations, but it should be an envelope. The emphasis would be adjudication, otherwise, like you said, it matters less.

Have you read Bill S-224 that we're reviewing?

Ms. Vogel: Yes, we have.

Mr. Reynolds: Yes.

Senator Massicotte: How does that tie into your conclusions?

Ms. Vogel: We think that, with Bill S-224, there are some differences between our recommendations and what the bill proposes in terms of imposing a stronger mandatory payment structure. The recommendations in our report allowed for a bit more freedom of contract, if I can put it that way. Our recommendation focuses on the delivery of a proper invoice. So parties, up to the point in time of delivery of a proper invoice, are free to agree to what contract terms they want to agree to, but then, after delivery of that proper invoice, there should be payment within 28 days.

In terms of the overall goal of shortening the elongation of the payment cycles that the construction industry is experiencing, I think that both our recommendations and the draft legislation are directed toward achieving that same goal.

Senator Massicotte: I appreciate that. Did you want to add something, Mr. Reynolds?

Mr. Reynolds: Well, I was going to say that, in our 60-stakeholder consultation meetings, I think it's accurate to say that the elongation of the payment cycle seems to be exacerbated in certain sectors of the industry. Let me be a little more focused in that comment.

It seems to be of greater concern to contractors and subcontractors, in respect of different classes of owners, to a greater or lesser extent. I don't think we heard from any stakeholder in a way that was critical of the payment administration of the federal government. So I thought that might be an important point to draw to your attention in terms of the point that Ms. Vogel has emphasized, which is the balance to be struck, in this class of legislation, between freedom of contract and regulatory intervention.

Senator Massicotte: As to the process of your report, what's the next step? Is the Province of Ontario going to soon propose another bill to enact your recommendations?

Mr. Reynolds: We have recently received confirmation of our retainer to work under the Ministry of the Attorney General to assist in developing a bill. The Attorney General of Ontario, Minister Yasir Naqvi, has publicly stated that it is his intention to attempt to bring the legislation forward and obtain passage by the end of this calendar year. I believe it's accurate to state that that is the objective of the Ministry of the Attorney General.

Senator Massicotte: Thank you very much.

Senator Plett: Thank you to both of you for being here today. I'm the sponsor of this legislation and have done a great deal of work with the national trade contractors in drafting this legislation.

Certainly, we have read the Reynolds report as well and have actually come up with a number of minor amendments that I believe bring this legislation even closer to the Reynolds report than you might be aware of, Ms. Vogel, simply because the amendments are in an envelope here and haven't been distributed. So you wouldn't have had an opportunity to look at them.

Nevertheless, we believe many of those amendments bring us closer to the Reynolds report. One specifically that you have talked about and, as a matter of fact, have in yours — you have referred to the U.K. in that — is about adjudication. That is an amendment, so I'm going to deal just with that and ask you a question on that amendment. Obviously, I can't deal with the other seven or eight amendments that also deal with timelines that you have already alluded to.

One specifically deals with the timeline on the adjudication process that largely mirrors, in our opinion, your suggestions in the Reynolds report as well as the United Kingdom's legislation. This new clause stipulates that the adjudicator must render a decision within 28 days, or any greater period agreed to by the parties, of the expiry of the period referred to in subsection 4(1). To either one of you, do you believe that period is a sufficient timeline for adjudication?

Ms. Vogel: That is a tight time frame, but, when parties are embroiled in a payment dispute, swift resolution makes sense. The experience in other jurisdictions around the world is that, even though they might not be able to have all of the protections that are afforded when you go through a court process, in general, people are happier with a faster result.

When we look at other jurisdictions, the time frames tend to be between 28 days and 42 days, so I'm not sure exactly what your amendments are in relation to time frames. But the point of adjudication is that it is fast and that it is flexible in terms of its process so that it is not an overly cumbersome process and can be completed within 28 to 42 days.

It's interesting when you mention in your proposed amendments that there can be a longer period of time if the parties agree because sometimes, with a more complex dispute, a large sum of money at issue, a number of payment elements to the dispute, it might take a bit longer to resolve.

Senator Plett: Which is clearly why we put in the clause "if the parties agree.'' I'm assuming that, if there were an adjudicator there that was fairly adamant that, "This is going to take us 35 days to do that,'' the parties would agree.

Ms. Vogel: It would seem to make sense in the circumstances. The other thing that helps to speed up the process is that you get an adjudicator selected quickly. So the party, under our recommendations, who delivers a notice of adjudication identifies a proposed adjudicator in that notice. The parties then have a couple of days to advise whether they agree or disagree with that adjudicator, and, if they do not agree, then, within another five days, an adjudicator will be appointed for them from a roster of adjudicators.

Mr. Reynolds: Just to complete that point, Senator Plett, that appointment, as I'm sure you know, would be done by an entity called an adjudicator-nominating authority, which we've recommended be established in the Province of Ontario.

This is critically important because, as I'm sure many of you have experienced, if you're arbitrating a dispute under a contract and one party wants to delay the process — and there is always one party that wants to delay the process — they can do it quite effectively by simply ragging the puck around the appointment of the arbitrators. This cannot happen —

Senator Plett: Generally, that would be the party that owes the money.

Mr. Reynolds: Generally, that would be the case, Senator Plett.

Senator Black: Mr. Chairman, my questions have been answered.

Senator Day: Rather than having an adjudicator-appointing authority, what would your reaction be to saying that if it's not in the construction contract and the parties can't agree, then the party that wants the adjudication can go to court to have an adjudicator appointed? Is that going to be a delaying tactic?

Mr. Reynolds: It's a very good question, because we have great confidence in our courts as Canadians. However, the reality is that the time it would take to bring on a motion, draft a set of competing affidavits, conduct cross-examinations on those affidavits, argue the motion for the appointment of the adjudicator to a judge and then obtain the judge's decision — not to mention the potential for appeal — would stretch out over a period of weeks. That's why the U.K. approach of having the adjudicator-nominating authority is the elegant solution, because there's no way around it, and it's not possible to rag the puck.

Senator Day: I notice in this particular legislation we're looking at, it's the courts that would be the fallback situation. But maybe someone who is presenting this legislation might want to consider this adjudicator-appointing authority as a more streamlined approach.

Also, I didn't hear you comment on the right of the unhappy subcontractor to stop the work. Did you comment on that, or did you have any comment on that?

Ms. Vogel: In terms of a party's right to suspend performance, I mentioned briefly that said right only arises upon the non-paying party's failure to comply with an adjudicated determination.

Senator Day: After adjudication.

Ms. Vogel: After adjudication. That's the difference, yes.

Senator Day: So there would be no —

Mr. Reynolds: That is the distinction between our recommendations and the U.K. approach.

Senator Day: What does the U.K. do? You were saying they have a pretty established process, so explain briefly what that is.

Mr. Reynolds: The adjudication process in the U.K. is very similar to the process that we've recommended. It's been road-tested not just in the U.K. but in a number of common-law jurisdictions over the last 20 years, and it's been quite successful.

In terms of a right of suspension, the point I'm making is that I don't believe the U.K. legislation creates the linkage that our recommendation does. It was felt by many owner-side stakeholders and by general contractor stakeholders — municipal and governmental stakeholders, for example — that the right of suspension is a very powerful, very draconian right, and they wanted an element of policing of that right to be introduced into the recommended process. That's so that some independent party would look at the dispute between the two parties in dispute before that very powerful right would arise. That's why we created the linkage between the adjudication process and the right of suspension.

Senator Day: I don't see that in this legislation. It looks like there can be suspension without the necessity of adjudication.

The Chair: Senator Wetston, you had a supplementary?

Ms. Vogel: Based on the draft we reviewed, that was the case.

Senator Day: Clause 19. Sorry, go ahead.

Mr. Reynolds: That's the way we also read the draft bill.

Senator Day: Yes. Thank you.

Senator Wetston: I'm following up on that. As I read the bill, subclause 17(2) allows for a suspension of performance after receipt of the notice of default. Maybe that's one of the amendments in the brown envelope.

Senator Plett: Let me do this in the way of a question to Mr. Reynolds or Ms. Vogel. Yes, one of the amendments is that the right to suspend would only arise upon failure to comply with adjudication decision.

Ms. Vogel: That's what we've recommended in our report.

Senator Plett: And that's what we are putting into the bill.

The Chair: I'm pleased to hear it.

Mr. Reynolds: That would be consistent. That was an important element, we believe, in achieving industry consensus within the Province of Ontario.

The Chair: Thank you, Senator Day.

I want to thank the two witnesses for assisting us on this bill and providing a large body of evidence and knowledge to help us make a decision. I appreciated your testimony and your answers to our questions.

With that, colleagues, tomorrow will proceed to clause-by-clause consideration of the bill. We meet in the morning at 10:30.

(The committee adjourned.)

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