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Construction - 'Prompt Payment'

. 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:

(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.


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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