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Construction - 'Prompt Payment'
Part 2
. Jamrik v. 2688126 Ont. Inc.
In Jamrik v. 2688126 Ont. Inc. (Div Court, 2024) the Divisional Court allowed a JR against a Construction Act adjudicator's 'prompt payment' decision that "the contract was not “completed” within the meaning of the Construction Act", and considers the unique role of these 'prompt payment' procedures:[3] The Adjudicator was plainly wrong in law in finding jurisdiction on the basis that he did. The “price of completion” in s. 2(3) of the Act refers to the value of uncompleted work, and not the quantum of disputed payment claims. In coming to a contrary conclusion, the Arbitrator misconstrued the plain meaning of the Construction Act, failed to apply settled and longstanding jurisprudence on the meaning of deemed “contract completion” under the Act, and misconceived the scheme of the prompt payment adjudication provisions of the Act.
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Contract “Completion” Pursuant to the Construction Act
[15] The definition of contract “completion” in s. 2(3) of the Construction Act applies to the entire Act, and not just to the adjudication provisions of the Act. It does not mean different things for the purposes of construction lien claims and adjudication claims.
[16] It is clear from the lien provisions of the Act and decades of jurisprudence that the concepts (i) “completion”, (ii) “substantial completion” and “last supply” of services and materials to an improvement, all relate to the status of performance of contract work, and not the state of accounts between contracting parties. This is trite in construction lien law: otherwise, the right to assert construction liens would be temporally unlimited except where the value of a dispute was de minimis in the context of the contract. That is not the law. See, for example, Wood Lumber Co. (Ontario) Ltd. v. Eng (1999) 1999 CanLII 15030 (ON SCDC), 45 OR (3d) 795 (Div. Ct.); Micon Interiors General Contractors Inc. v. D’Abbondanza Enterprises Inc., 2008 CanLII 53869 (Ont. SCJ); Gordon Ridgely Architects Inc. v. Glowinsky, 2009 CanLII 6834 (Ont SCJ); DCL Management Ltd. v. Zenith Fitness Inc. et al., 2010 ONSC 5915 (Ont. Master); Rosedale Kitchens Inc. v. 2114281 Ontario Inc., 2012 ONSC 3161 (Ont. Master); Lido v. Joy, 2012 ONSC 5058 (Ont. Master); Martin Creek Construction Ltd. v. Emelko et al., 2014 ONSC 485 (SCJ); V.I.E.W Systems Inc. v. Mansions of Forest Glen Inc., 2014 ONSC 2616 (SCJ); Scepter Industries Ltd. v. Georgian Custom Renovations Inc., 2018 ONSC 988, rev’d on other grounds but upheld on this point: 2019 ONSC 7515 (Div. Ct.), paras. 8-9; Osmi Homes Inc. v. Kumar, 2020 ONSC 2712, para. 278 (Ont. Master). “Price of completion” in s. 2(3) of the Act refers to the price to complete contract work, and not the value of outstanding claims to payment.
[17] The Respondent argued that the Adjudicator was “not bound by previous case authorities interpreting the deemed completion [terms] of s. 2(3) of the Act because all, or substantially all, of these past case authorities relate to the distinguishable issue of deemed completion in relation to commencement and expiry of a lien period…” (Factum, para. 40). The Respondent further argues that requiring adjudicators to seek guidance from the caselaw would frustrate the goal of timely adjudication, because of the time required to undertake legal research and analysis, and thus that it is “reasonable for… adjudicators… to avoid seeking guidance from case authorities….”
[18] I cannot accept this argument. By its express language, s. 2(3) applies to the entire Act. Adjudicators are bound to follow decisions of the Divisional Court and the Court of Appeal, and would be well advised to consider persuasive authorities, including decisions of Justices and Associate Justices of the Superior Court. The concern raised by the Respondent about the difficulty involved in properly stating and applying the law should be attenuated considerably by seeking submissions from the parties on any legal issues that may arise.
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(c) Interim Construction Payment Determinations
[23] The prompt payment provisions of the Construction Act are a recent innovation. These provisions were pioneered in the United Kingdom at the turn of the millennium and were adopted by Ontario in 2017. They are intended to address the problem of interruptions in the flow of funds on construction sites as a result of delays inevitable in the litigation process. They do not exist because construction contract claims are unworthy of a formal litigation process, or because payment claimants on construction sites are more worthy of prompt attention to their claims than are other contract payment claimants. They exist because payment delays on ongoing construction projects can, and do, cause cascading losses – by delay in construction, increased costs, and in some cases, avoidable insolvencies. They exist because of a recognition that money should continue to flow, and work continue to be done, pending final determination of claims through the litigation process. See MGW Homes Design Inc. v. Pasqualino, 2024 ONSC 2852 (Div. Ct.), para. 24; Anatolia Tile & Stone v. Flow-Rite Inc., 2023 ONSC 1291 (Div. Ct.), paras. 3, 6; SOTA Dental Studio Inc. v. Andrid Group Inc., 2022 ONSC 2254 (Div. Ct.), para. 9. The principled basis for interim payment determinations through adjudication disappears once a contract is completed. . MGW Homes Design Inc. v. Pasqualino
In MGW Homes Design Inc. v. Pasqualino (Div Court, 2024) the Divisional Court allows a JR from an order that voided Construction Act s.13.20 adjudication determination court enforcement steps, here for failure to give notice of this step to the respondent [under CA s.13.20(3)].
Here the court, on setting aside the lower court order, considers the consequences of failure to given notice as per CA s.13.20(3):(c) and (d) Non-Compliance Does Not Void the Writ
[25] MGW could have obtained the impugned writ before expiry of the ten-day deadline to give notice of the order. The order and the writ would have been in “strict compliance” with the Act. Nothing in the Act provides that the writ would thereafter become “void” if notice was not given in accordance with the Act. As noted above, the Act is silent on what should happen if notice is not given as required.
[26] I agree with the motion judge that giving notice of the order within ten days is mandatory. Statutory requirements are not “suggestions”. But I do not agree that failure to comply “voids” the writ. Nor do I agree that a further consequence ought to be imposed that precludes a party from ever enforcing an adjudicator’s determination. The requirement to make prompt payment is far more central to the scheme of the prompt payment provisions than is the requirement to give notice of filing of the determination, as explained above. Procedural formalism should not overwhelm the clear intent of the Legislature that prompt payments decisions should be followed without delay and without additional formal processes.
[27] So, what should the court do where a party is entitled to payment in accordance with an adjudicator’s determination, the payor breaches their statutory obligation to make that payment, the party has filed the determination and obtained a court order, but the party has neglected to give notice of the order.
[28] There should be some consequence for non-compliance with a statutory requirement. In the absence of a statutory provision stipulating the consequence, it falls to the court to exercise its discretion as to an appropriate sanction, given all the circumstances. There is no automatic consequence.
The Appropriate Remedy in this Case
[29] The applicant framed its case on the basis that it accepts that voiding enforcement steps taken prior to its giving notice of the order would be an appropriate sanction in the circumstances of this case. Given this concession, it is not necessary for this court to consider whether this sanction is appropriate or whether some lesser sanction might be imposed in the circumstances of this case. Certainly it is a sufficient sanction, in the circumstances of this case.
[30] For the benefit of motion judges called upon to consider this issue in future, however, I would add that setting aside enforcement steps is not a minimum or required sanction. The court should consider the extent of the non-compliance, any explanation for the non-compliance, any prejudice – or absence of prejudice – to the payor arising from the failure to give notice, and any other relevant circumstances, and then should place these matters in the overall context of the dispute and the breach by the payor of its statutory obligation to make prompt payment in accordance with the Act. If it appears to the court that the non-compliance was an oversight, in circumstances where it ought to have been clear that enforcement steps would be taken, and where there is no evidence of prejudice arising from the non-compliance, the court might well conclude that a simple declaration of non-compliance might be a sufficient remedy. Where there is evidence of actual prejudice, where there is no reasonable explanation for the failure to give notice, or where there are other circumstances that commend a more significant sanction, the court could consider voiding pre-notice enforcement steps, suspending interest for the period of non-compliance, an order for costs, or other sanctions that are proportional to the harm resulting from the failure to comply with the notice requirement. It is difficult to imagine any circumstance that would justify an order so draconian as to disentitle a party to ever enforce an adjudicator’s payment determination as a consequence for failure to respect the statutorily required courtesy of notice of the order after it has been obtained and after it has become enforceable. . MGW Homes Design Inc. v. Pasqualino
In MGW Homes Design Inc. v. Pasqualino (Div Court, 2024) the Divisional Court allows a JR from an order that voided Construction Act s.13.20 adjudication determination court enforcement steps, here for failure to give notice of this step to the respondent [under CA s.13.20(3)].
Here the court review aspects of the adjudication determination enforcement procedure, and contrasts them with lien claims:[16] A controlling principle of the Construction Act adjudication provisions is “prompt payment”. Not just “prompt process” but “prompt payment”. When an adjudicator determines that payment is to be made, there is a positive obligation on the payor to make the payment within ten days after the determination has been communicated to the parties: Construction Act, s. 13.19(2). Consequences flow from the payment so made, including positive obligations (on the part of the payee) to use the funds received to make payments to its subcontractors and suppliers: Construction Act, ss. 6.5(8).
[17] The Legislature provided for more expeditious enforcement of Construction Act prompt payment determinations than in respect to some other sub-judicial decisions. The enforcing party does not need to bring a motion on notice. There is no option for a disappointed party to move to oppose enforcement of the payment order. A party may take an adjudicator’s determination to a court office, file it, and thereupon enforce it, all without notice to the other side. Subsection 13.20(1) of the Act provides:A party to an adjudication may… file a certified copy of the determination of an adjudicator with the court and, on filing, the determination is enforceable as if it were an order of the court. Subsection 13.20(3) of the Act states:A party shall, no later than 10 days after filing a determination under subsection (1), notify the other party of the filing. The order is enforceable “on filing” and notice is to be given “no later than 10 days after filing.” On the plain language of these provisions, enforcement may begin before notice is given. The Act is silent on what happens if notice is not given pursuant to s.13.20(3).
[18] When compared to some other prescribed processes for enforcement of sub-judicial decisions, the Construction Act provisions are more expeditious and less onerous. This is consistent with the general policy of the Act respecting adjudication: to require prompt payment so that funds flow down the “construction ladder” and the risk of work stoppages is attenuated.
(b) Enforcement of Prompt Payment Decisions Is Not Analogous to Strict Compliance Requirements for Lien Claims
[19] The motion judge correctly noted that (a) a lien claimant must strictly comply with the requirements for filing a claim for lien under the Act; and (b) a judge has no discretion to relieve from this strict compliance. However, the motion judge erred in drawing an analogy between enforcement of adjudicators’ determinations and the filing of lien claims under the Act. The requirements for lien claims and the requirement to give notice of filing an adjudicator’s determination are both found in the Construction Act, but there is no other basis for drawing an analogy between the two.
[20] A claim for lien initiates a claim and secures the claim against land. The Act provides for the creation of the lien by following a prescribed process – including prescribed time periods (Construction Act, ss. 31 - 38). Various stakeholders are entitled to rely on the state of the land’s title – including the absence of lien claims – in (among other things) making payments, securing loan advances, and releasing Construction Act holdbacks. Strict compliance with the time periods prescribed for lien claims is necessary for stakeholders to be able to rely upon the state of title in making payments under the Act, and is expressly provided in s. 31(1) of the Act, which states:Unless preserved under section 34, the liens arising from the supply of services or materials to an improvement expire as provided in this section. [21] By contrast, an Adjudicator’s payment determination comes into existence following a process that includes notice, an opportunity to make submissions, and then a decision by an adjudicator. The Act requires that payment be made in accordance with the direction, and this obligation does not require that the direction be filed and a court order obtained to be effective. The Act provides for no appeal from a payment direction, and only a right to seek judicial review if leave to apply for review is granted by this court. The grounds for such a review are narrowly circumscribed in the Act. The direction is not stayed pending a motion for leave to seek to judicial review or pending judicial review (if leave is granted), unless this court directs otherwise. As this court has stated previously, compliance with the payment direction is usually required before leave to seek judicial review is granted, and where payment is stayed pending judicial review, the court usually requires the disputed funds paid into court. The Act provides, and this court has held, that a payment determination requires payment promptly. There is no provision in the Act that a determination “expires” if notice is not given that the determination has been filed with the court.
[22] The process for initiating claims for lien requires strict compliance because of the relationship between those requirements and the overall scheme of rights and obligations governed by the Act. The prompt payment provisions of the Act have as their goal the swift interim determination of payment disputes, and prompt payment in accordance with those determinations so that money may flow down the construction ladder and work will continue.
[23] Only when a party has breached their obligation to make payment in accordance with an adjudicator’s determination should there be a need to file the determination with the court – the purpose of which would be to enforce in the face of the payor’s breach of its payment obligation. This context explains why the Act does not prescribe a motion on notice or a motion to oppose confirmation of an arbitrator’s determination. The adjudicative process is complete, the payor has a positive obligation to make payment, and the payor has defaulted on its statutory obligation to make payment.
[24] The importance of prompt payment, in this context, is made all the clearer by the Legislature’s choice that notice of filing the determination with the court need not be given for up to 10 days after the determination may be enforced. The notice requirement is more properly seen as a statutorily required courtesy than a strict condition that must be met before enforcement. . MGW-Homes Design Inc. v. Pasqualino
In MGW-Homes Design Inc. v. Pasqualino (Ont CA, 2024) the Ontario Court of Appeal dismissed an appeal against "an order vacating a writ of enforcement issued in connection with an adjudicator’s determination under the Construction Act".
Here the court illustrates earlier trial 'interim adjudication' procedures:[6] Under Part II.1 of the Construction Act, MGW sought a construction dispute interim adjudication. Adjudication is a relatively new procedure available under the Construction Act that came into force in 2019, allowing parties to seek an interim adjudication on designated issues.
[7] Under s. 13.15 of the Construction Act, the adjudicator’s determination is binding on the parties until a determination of the matter by a court, an arbitration, or a written agreement between the parties is made.
[8] Under s. 13.20 of the Construction Act, a party to an adjudication may file a certified copy of the adjudicator’s determination with the court and, on filing, upon notice to the other party within 10 days, the determination is enforceable as if it were an order of the court. . Ledore Investments v. Dixin Construction
In Ledore Investments v. Dixin Construction (Div Court, 2023) the Divisional Court considered the availability of JR under Construction Act s.13.18(5) [Setting aside on judicial review - Setting aside only for specified reason]:Is review in this court available?
[21] The Act provides a party who is dissatisfied with an adjudicator’s determination grounds on which to bring the matter on review before this court. Section 13.18(5) of the Act requires the applicant to establish one or more of these grounds for review to have a determination set aside. Leave was granted allowing Ross Steel to seek review based on the two following grounds:13.18(5) The determination of an adjudicator may only be set aside on an application for judicial review if the applicant establishes one or more of the following grounds.
3. The determination was of a ... matter entirely unrelated to the subject of the adjudication.
5. The procedures followed in the adjudication did not accord with the procedures to which the adjudication was subject under this Part, and the failure to accord prejudiced the applicant’s right to a fair adjudication. [22] Ross Steel submits that this court should set aside the adjudicator’s determination because it was not given an opportunity to be heard on the key issue that determined the outcome. It relies on paragraph “3.” above to say that the issue of whether the invoices constituted “proper invoices” was entirely unrelated to the subject of the adjudication. It relies on paragraph “5.” to say that the adjudication did not accord with proper procedures in a manner that prejudiced its right to a fair adjudication. It also submits the adjudicator’s analysis of the “proper invoice” issue was unreasonable.
[23] We do not need to decide whether this case falls within s. 13.18(5)3 because in our view, the adjudicator’s decision breached procedural fairness and should be set aside under s. 13.18(5)5.
[24] Dixin acknowledges that judicial review is available for breaches of procedural fairness. Paragraph 13.18(5)5. authorizes the court to set aside the determination of an adjudicator on an application for judicial review if the applicant establishes that “[t]he procedures followed in the adjudication did not accord with the procedures to which the adjudication was subject under this Part, and the failure to accord prejudiced the applicant’s right to a fair adjudication.”
[25] Although the relevant part of the Act, Part II.1, does not expressly incorporate principles of procedural fairness, s. 13.6 states that an adjudication shall be conducted in accordance with the procedures set out in, among other things, the regulations. Regulation 306/18 provides that the code of conduct for adjudicators shall include principles of procedural fairness. In any event, it would necessarily fall within this court’s jurisdiction to intervene with respect to serious breaches of procedural fairness. . Anatolia Tile & Stone Inc. v. Flow-Rite Inc.
In Anatolia Tile & Stone Inc. v. Flow-Rite Inc. (Div Court, 2023) the Divisional Court considered the recently-added 'prompt payment' [s.6.1-6.9] provisions and complementary 'Construction Dispute Interim Adjudication' [s.13.1-13.23] provisions of the Construction Act - with their unusual 'leave for judicial review' regime:[2] The Construction Lien Act, RSO 1990, c. C.30, was amended effective 2019 (and renamed the Construction Act) [SO 2017, c.24]. One important set of changes to the Act added “prompt payment” provisions (ss. 6.1 to 6.9), including adjudication provisions to implement the “prompt payment regime” (ss. 13.1 to 13.23). There is no appeal from such an adjudication decision, and judicial review may lie to the Divisional Court only with leave (s.13.18):(1) An application for judicial review of a determination of an adjudicator may only be made with leave of the Divisional Court in accordance with this section and the rules of court.
(2) A motion for leave to bring an application for judicial review of a determination of an adjudicator shall be filed, with proof of service, in accordance with the rules of court no later than 30 days after the determination is communicated to the parties.
(3) A motion for leave to bring an application for judicial review may be dismissed without reasons.
(4) No appeal lies from an order on a motion for leave to bring an application for judicial review.
(5) The determination of an adjudicator may only be set aside on an application for judicial review if the applicant establishes one or more of the following grounds:1. The applicant participated in the adjudication while under a legal incapacity.
2. The contract or subcontract is invalid or has ceased to exist.
3. The determination was of a matter that may not be the subject of adjudication under this Part, or of a matter entirely unrelated to the subject of the adjudication.
4. The adjudication was conducted by someone other than an adjudicator.
5. The procedures followed in the adjudication did not accord with the procedures to which the adjudication was subject under this Part, and the failure to accord prejudiced the applicant’s right to a fair adjudication.
6. There is a reasonable apprehension of bias on the part of the adjudicator.
7. The determination was made as a result of fraud. (6) If the Divisional Court sets aside the decision of an adjudicator, the Court may require that any or all amounts paid in compliance with the determination be returned.
(7) An application for judicial review of a decision of an adjudicator does not operate as a stay of the operation of the determination unless the Divisional Court orders otherwise. As noted by the moving party in its factum, this court has not provided prior guidance respecting the test for leave to apply for judicial review of an adjudicator’s decision under these provisions.
[3] An adjudicator’s decision does not finally decide substantive issues between the parties. Rather, it has interim effect. Part II.1 of the Act is entitled “Construction Dispute Interim Adjudication.” Section 13.15 of the Act provides:(1) The determination of a matter by an adjudicator is binding on the parties to the adjudication until a determination of the matter by a court, a determination of the matter by way of an adjudication conducted under the Arbitation Act, 1991, or a written agreement between the parties respecting the matter.
(2) Subject to section 13.18, nothing in this Part restricts the authority of a court or of an adjudicator acting under the Arbitration Act, 1991 to consider the merits of a matter determined by an adjudicator. The interim nature of an adjudicator’s adjudication is fundamental to the prompt payment scheme of the Construction Act: it is designed to secure a reasonable interim payment direction, following a fast and informal process, without prejudice to the parties revisiting their substantive disagreements in litigation or private arbitration. Leave to apply for judicial review of such an interim decision will be granted rarely.
[4] Where leave to apply for judicial review is granted, the standard of review in this court is reasonableness. Procedural unfairness could be a ground for review, but such an issue will be reviewed through the lens of the prompt and informal process envisioned for these adjudications and the limited impact of the adjudicator’s decision on the final disposition of issues between the parties. We also note that procedural irregularities may be cured during the process below, and the focus in this court will be on whether the moving party had a fair opportunity to be heard in the adjudication process.
[5] Given this context, the “fairly arguable case” test for leave to bring an application for judicial review, stated by Stratas J.A. in Raincoast Conservation Foundation v. Canada (Attorney General), 2019 FCA 224, does not apply to motions for leave to bring an application for judicial review of an adjudicator’s decision under the prompt payment provisions of the Construction Act.
[6] The impugned decision in Raincoast Conservation had final effect in respect to issues of great importance to the parties. By contrast, the effect of an adjudicator’s decision under the prompt payment provisions of the Construction Act is interim, not final. It is intended to be fast and to secure prompt payment in accordance with its terms. The parties can revisit the substantive issues in other litigation or adjudication proceedings. Given this context, we find that the test for leave, applied to the factors enumerated in s.13.18(5) of the Act, is analogous to the conjunctive test for leave to appeal an interlocutory order of a judge, and specifically:
Either:(1) There is good reason to doubt that the impugned decision is reasonable; or
(2) There is good reason to believe that the process followed by the adjudicator was unfair in a manner that probably affected the outcome below;
And either:
(3) That the impact of the unreasonableness or the procedural unfairness probably cannot be remedied in other litigation or arbitration between the parties; or
(4) The proposed application raises issues of principle important to the prompt payment and arbitration provisions of the Construction Act that transcend the interest of the parties in the immediate case, such that the issues ought to be settled by the Divisional Court. [7] It is in the jurisdiction of an adjudicator to decide whether a claim is properly brought under the Construction Act. Thus, for example, an argument that services or materials provided by a claimant are not lienable (because, for example, they do not constitute an “improvement” to “premises”), that a claim for lien is out of time, or that the contract in issue “is invalid” or has “ceased to exist”, are within the jurisdiction of an adjudicator to decide, and an adjudicator’s decision on these issues is reviewed in this court on a standard of reasonableness. An adjudicator does not “lose jurisdiction” if they “err” on these points: only where an adjudicator’s decision is “unreasonable” would this court intervene.
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Effect of Non-Payment on a Motion for Leave to Appeal
[8] This court has previously observed as follows (SOTA Dental Studio Inc. v. Andrid Group Ltd., 2022 ONSC 2254, para. 12):So that there is no misunderstanding in future cases, we suggest the following principles to be borne in mind.
(a) prompt payment is integral to the scheme of the Construction Act.
(b) failure to pay in accordance with the prompt payment requirements of the Act may lead this court to refuse leave. Where leave is granted, an applicant must obtain a stay or must make payment, failing which this court may dismiss the application on motion to quash or at the hearing of the application.
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