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Legal Notes: Key lessons concerning the adjudicator’s role and limitations

John Bleasby
Legal Notes: Key lessons concerning the adjudicator’s role and limitations

Three years after adjudication under Ontario’s Construction Act took effect in the province, a dispute between a homeowner and his renovation contractor provides one of the few opportunities for clarity regarding the interpretation and application of adjudication provisions.

Mr. Pasqualino entered into a fixed-price agreement with renovator contractor MGW-Homes Design Inc. (MGW). However, a dispute arose causing MGW to put a lien on the home of about $170,000, followed after by a statement of claim. Pasqualino responded by posting $211,000 with the Ontario Superior Court as security, which vacated the lien, and issued a statement of defence and counterclaim. MGW in turn filed for adjudication. The adjudicator ruled Pasqualino must pay MGW nearly $120,000.

Although he wilfully participated in the adjudication process, Pasqualino did not pay the amount determined but instead brought a motion to the court claiming the contract “ceased to exist” and therefore the adjudicator’s ruling should be set aside.

As was later determined by the Ontario Divisional Court there were several problems to the course of action chosen by Pasqualino. The first related to questions of jurisdiction and the timing of the various actions.

As Paul Conrod of Construct Legal writes, “The court concluded that ‘if there was a challenge to the jurisdiction of the adjudicator, it should have been raised before the adjudicator,’” something that was never brought forward by Pasqualino when he participated in the adjudication hearing.

“The simplified and expeditious process of construction adjudication would be defeated if the adjudicator was required to make potentially complex factual and legal determinations on whether a contract was abandoned or terminated, and if so, whose fault it was.”

 “The Pasqualino case illustrates the importance of raising an issue of jurisdiction before adjudication commences under the Construction Act,” write Gowling WLG partner Sahil Shoor and articling student Michael Piaseczny. “Adjudicators are granted the power to determine issues of jurisdiction before them.”

Another problem concerned definitions and Pasqualino’s use of the term “cease to exist” when referring to his contract.

“Termination or abandonment does not mean the contract or subcontract has ‘ceased to exist,’” says Conrod.

Shoor and Piaseczny concur, even if the contract is repudiated.

“The language of the Construction Act does not contain the words ‘abandon’ or ‘terminate’ as a ground under section 13.18(5) for judicial review,” they explain.

“The legislature specifically chose the words ‘cease to exist’ and thus construction does not have to be ongoing for adjudication to be available.”

 They add that it was ironic that Pasqualino chose to issue a counterclaim while at the same time claiming the contract did not exist.

“The divisional court found that adjudications are not intended to be available only while construction proceeds,” writes Conrod.

He also points out an existing lien action, as placed by MGW against Pasqualino’s home, would not have stood in the way of the parties having their dispute adjudicated.

“The adjudication allows for an interim decision of the dispute, while preserving the right for the parties to seek final determination through the court or arbitration,” he writes. “This is true even where a lien has been vacated from title to the property by payment into court.”

At the same time, the Ontario Divisional Court also rejected Pasqualino’s motion for judicial review to set aside an adjudicator’s determination after considering his argument that there was an existing lien bonded off prior to the adjudication hearing.

“Section 13.5(5) of the Construction Act expressly allows for adjudication regardless of whether there is an existing court action dealing with the same subject matter,” write Shoor and Piaseczny. “Despite the adjudication decision, Mr. Pasqualino still retains the right to reduce the amount of the lien…and still has the right to defend the lien claim and the right to argue his Counterclaim. Mr. Pasqualino would not be paying ‘twice’ since he can still seek a final determination on what was claimed for in the lien.”

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

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