Ontario Construction Litigation: A Complete Legal Guide

Your comprehensive 12-chapter resource on construction disputes, liens, prompt payment, trust claims and dispute resolution in Ontario.

1. What Is Construction Litigation?

Construction litigation encompasses legal disputes arising from building projects in Ontario. Unlike general commercial litigation, construction disputes are governed by a specialized statutory regime — the Ontario Construction Act (formerly the Construction Lien Act) — that imposes strict deadlines, holdback obligations, trust requirements, and a mandatory adjudication process unique to the construction industry.

These disputes involve owners, general contractors, subcontractors, suppliers, architects, engineers, and surety companies. The stakes are often high: a single missed statutory deadline can extinguish lien rights worth hundreds of thousands of dollars, and a breach of trust claim can attach personal liability to directors and officers.

Ontario's construction litigation framework is designed to keep money flowing through the “construction pyramid” while protecting the rights of those who supply labour and materials. Understanding this framework is essential for anyone involved in construction projects in Ontario.

2. The Construction Act: Key Provisions

The Ontario Construction Act is the primary statute governing construction disputes. Significantly amended in 2019, it now includes modernized lien provisions, a mandatory prompt payment regime, and an interim adjudication process. Key provisions include:

Lien rights (Part I) — The right to claim a lien against the owner's interest in the improved property for the value of services or materials supplied.
Holdback obligations (s. 22) — Each payer in the construction chain must retain a 10% holdback from each payment, which is held as security for lien claimants below them in the chain.
Statutory trusts (Part II) — All money received on account of a construction project constitutes a trust fund for the benefit of subcontractors and suppliers.
Prompt payment (Part I.1) — Mandatory payment timelines and a right to adjudication for payment disputes.
Adjudication (Part II.1) — An interim binding dispute resolution process administered by the Ontario Dispute Adjudication for Construction Contracts (ODACC).

The Act applies to virtually all construction projects in Ontario where services or materials are supplied to an “improvement” on land, including new construction, renovation, alteration, and demolition.

3. Common Types of Construction Disputes

Construction disputes in Ontario arise from a variety of issues throughout the project lifecycle:

Payment Disputes

Non-payment is the most common source of construction litigation. Contractors, subcontractors, and suppliers who are not paid for their work may preserve construction liens, commence prompt payment adjudications, or bring trust claims to recover what they are owed.

Defective Work Claims

Owners and general contractors who receive deficient work may withhold payment, terminate the contract, and claim damages for remediation costs. Defective work disputes often require expert engineering evidence to establish the nature and extent of the deficiencies.

Delay Claims

Project delays are a frequent source of disputes, often involving liquidated damages clauses, extension-of-time provisions, and competing allegations of responsibility. Delay claims require careful analysis of critical path schedules and contractual notice requirements.

Change Orders and Extra Work

Disputes arise when additional work is performed without a signed change order, or when the parties disagree on the scope and cost of changes to the original contract. Ontario courts assess whether the extra work was authorized and what reasonable compensation should be.

Surety Bond Claims

On larger projects, performance bonds and labour and material payment bonds provide additional security. When a contractor defaults, the surety may be called upon to complete the work or compensate subcontractors and suppliers.

Professional Negligence

Architects, engineers, and other design professionals may face negligence claims if their work fails to meet the applicable standard of care, resulting in defective design, cost overruns, or structural problems.

4. Construction Liens in Ontario

A construction lien is a powerful statutory remedy that gives a claimant a charge against the owner's interest in land that has been improved. The lien process involves two critical steps, each subject to strict time limits:

Preservation

A lien must be preserved by registering a claim for lien on title within 60 days of the last day of supplying services or materials (for most claimants) or 90 days for contractors who have a direct contract with the owner. Missing the preservation deadline extinguishes the lien right entirely — there is no ability to extend or revive it.

Perfection

After preservation, the lien must be perfected by commencing a court action within 90 days of the last day the lien could have been preserved. Failure to perfect results in the lien expiring and being discharged from title.

The 10% Holdback

The Construction Act requires each payer to retain 10% of the value of work done as a holdback. This holdback provides a fund from which lien claimants further down the chain can be paid. An owner who pays out the holdback before the lien period expires does so at their own risk and may be required to pay lien claimants out of their own pocket.

5. Prompt Payment

The prompt payment provisions introduced in 2019 impose mandatory payment timelines on all parties in the construction chain:

Owners must pay a proper invoice within 28 days of receipt, or deliver a notice of non-payment within 14 days.
Contractors must pay their subcontractors within 7 days of receiving payment from the owner.
Subcontractors must pay their sub-subcontractors within 7 days of receiving payment.

If a proper invoice is not paid and no notice of non-payment is delivered, the unpaid party has the right to refer the dispute to mandatory adjudication. Interest accrues on unpaid amounts at the rate prescribed by the Act.

The prompt payment regime applies to all construction contracts entered into on or after October 1, 2019, for projects in which a contract or subcontract was entered into on or after that date.

6. Trust Claims

Part II of the Construction Act establishes a statutory trust regime that imposes fiduciary obligations on all parties who receive construction funds. Money received on account of a construction contract constitutes a trust fund for the benefit of those further down the payment chain.

A breach of trust occurs when a party diverts trust funds before paying subcontractors and suppliers. Critically, directors and officers of a corporation that breaches a construction trust face personal liability for the diverted amounts. This personal liability cannot be shielded by the corporate veil and represents one of the most powerful tools available to unpaid subcontractors.

Trust claims are not subject to the same strict preservation and perfection deadlines as lien claims, making them an important alternative remedy when lien rights have expired. However, trust claims are subject to the general two-year limitation period under the Limitations Act, 2002.

7. The Litigation Process

Construction litigation in Ontario follows two main procedural tracks:

Lien Actions

Lien actions under the Construction Act have their own procedural rules. Multiple lien actions on the same project are consolidated and heard together at a “references hearing” before a judge or master. The court determines the validity and quantum of each lien and distributes the holdback funds (and any additional amounts) among the successful claimants.

Ordinary Actions

Construction disputes that do not involve lien claims (or where lien rights have expired) proceed as ordinary actions under the Rules of Civil Procedure. The standard litigation process applies: pleadings, documentary and oral discovery, mandatory mediation (in applicable jurisdictions), pre-trial conference, and trial.

ODACC Adjudication

The Ontario Dispute Adjudication for Construction Contracts (ODACC) provides a rapid, interim binding dispute resolution process. Adjudications must be decided within approximately 45 days. The adjudicator's decision is interim binding — it must be complied with immediately but can be challenged in subsequent court proceedings or arbitration.

8. Remedies and Enforcement

The following remedies are available in Ontario construction disputes:

Monetary damages — Compensation for breach of contract, defective work, delays, and other losses.
Lien enforcement — Sale of the improved property to satisfy proven lien claims (a remedy of last resort).
Injunctions — Court orders to stop work, preserve assets, or prevent a party from taking specific action during the dispute.
Receivership — Appointment of a receiver to manage project assets or funds where there is a risk of dissipation.
Set-off — The right to deduct amounts owed for defective work or back-charges against amounts claimed by a contractor or subcontractor.

Trust claim remedies additionally include personal liability against directors and officers, making recovery possible even where the corporate debtor is insolvent.

9. Alternative Dispute Resolution

ODACC Adjudication

ODACC adjudication is the primary ADR mechanism under the Construction Act. It provides rapid, interim binding determinations on payment disputes, and is mandatory when triggered by a notice of non-payment. Adjudication decisions must be complied with immediately, though they can be subsequently reviewed by a court or arbitrator.

Mandatory Mediation

In Toronto, Ottawa, and Windsor, mandatory mediation is required for construction disputes that proceed as ordinary actions. Mediation provides an opportunity to resolve disputes efficiently and at significantly lower cost than trial.

Contractual Arbitration

Many construction contracts include arbitration clauses requiring disputes to be resolved by private arbitration rather than court proceedings. Arbitration offers advantages including privacy, flexibility in procedure, and the ability to select an arbitrator with construction industry expertise.

10. Limitation Periods

Construction disputes in Ontario are subject to multiple overlapping limitation periods:

Lien preservation: 60 days (subcontractors and suppliers) or 90 days (contractors) from the date of last supply.
Lien perfection: 90 days from the last date the lien could have been preserved.
Basic limitation period: 2 years from the date the claim was discovered, under the Limitations Act, 2002.
Ultimate limitation period: 15 years from the act or omission giving rise to the claim.

The lien deadlines are especially unforgiving — they cannot be extended by agreement, court order, or any other means. Missing a lien deadline by even one day results in permanent loss of lien rights.

11. Choosing a Construction Litigation Lawyer

Construction litigation requires specialized knowledge of the Construction Act, its strict deadlines, and the unique procedural rules governing lien actions and ODACC adjudications. Look for a lawyer with:

Proven experience with construction liens, trust claims, and prompt payment adjudications.
Familiarity with ODACC procedures and the ability to act quickly when adjudication timelines require it.
Experience working with construction industry experts, including engineers, quantity surveyors, and scheduling consultants.
A track record of results in Ontario Superior Court construction matters.

At Starkman & Zhang, our construction litigation team has over 30 years of experience enforcing and defending construction liens, prosecuting trust claims, and representing parties in ODACC adjudications and court proceedings across the Greater Toronto Area. Our multilingual capacity (English, Mandarin, Cantonese, French, Italian, and Russian) allows us to serve Ontario's diverse construction industry effectively.

12. Frequently Asked Questions

What is the deadline to preserve a construction lien?

Subcontractors and suppliers must preserve their lien within 60 days of last supplying services or materials. Contractors with a direct contract with the owner have 90 days. These deadlines are absolute and cannot be extended.

How does prompt payment work?

Owners must pay a proper invoice within 28 days or deliver a notice of non-payment within 14 days. Contractors must pay subcontractors within 7 days of receiving payment. Failure to comply triggers mandatory interest and the right to adjudication.

Can I still make a claim if my lien has expired?

Yes. Even if lien rights have expired, you may still have a breach of contract claim (subject to the 2-year limitation period) or a trust claim under Part II of the Construction Act. Trust claims can include personal liability against directors and officers.

What is ODACC and how does adjudication work?

ODACC is the Ontario Dispute Adjudication for Construction Contracts. It provides rapid interim binding determinations on payment disputes. An adjudication must be decided within approximately 45 days. The decision is immediately enforceable but can be reviewed by a court or arbitrator.

How much does construction litigation cost?

Costs depend on the complexity and value of the dispute. ODACC adjudications are relatively affordable ($5,000–$25,000). Lien enforcement through trial can cost $50,000–$200,000+ depending on complexity. The unsuccessful party generally pays a portion of the successful party's costs.

What is the 10% holdback?

The Construction Act requires each payer in the construction chain to retain 10% of the value of work done as security for lien claimants. The holdback must be maintained until the lien period has expired without any liens being preserved.

Speak With a Construction Litigation Lawyer

Construction lien deadlines are strict and unforgiving. If you are involved in a construction dispute, contact our experienced Toronto construction litigation team today for urgent advice on preserving your rights.