Any doubt about the finality of an adjudicator’s ruling under prompt payment regimes across Canada has been dispelled by a recent decision issued by the Ontario Court of Justice.
Plaintiff “Arad” was contracted to supply services and materials for defendant “Rejali’s” project. A payment dispute arose. Arad felt it was owed money whereas Rejali felt it had overpaid. Arad registered a lien on the property. It was vacated when Rejali posted security pursuant to section 44 of the Ontario Construction Act. The dispute went to adjudication.
The adjudicator dismissed both claims, saying neither owed the other anything. Rejali applied for his security to be returned. However, Arad disputed this, saying adjudicator determinations are only interim and not sufficient to grant security relief. The Ontario Court agreed, and dismissed Rejali’s application.
“The defendants (Rejali) argue that they are entitled to a full reduction in the monies paid into court,” wrote the Honourable Justice Philip Sutherland. Furthermore, they argued, “that based on the determination of the adjudicator, the plaintiff is entitled to no monies.”
However, Justice Sutherland ruled allowing Rejali’s application based on an adjudicator’s decision would defeat the purpose of the act.
“This would result in a contractor or owner obtaining relief by way of the removal of any security deposited for the benefit of a lien claimant without having to proceed to judicial adjudication of documentary discovery, examinations and oral testimony subject to cross-examination,” he wrote.
The lack of proper evidence was a major problem with this particular adjudication. No witnesses were called. The adjudication was based on documentary evidence, oral submissions and a site visit. There were contradicting claims and statements made by the parties on the facts relating to the agreement and the scope of work to be performed and the work actually performed.
“The decision of the court in Arad v Rejali is not surprising,” Edward Lynde, partner with Fasken Martineau DuMoulin LLP, told the Daily Commercial News. “The evidentiary threshold for a motion seeking to reduce or return security is a high bar, as the court must be satisfied on the basis of the motion material that there is no reasonable prospect of the lien claimant proving that the lien claimed attracts the requirement to attract security pursuant to s. 44(1) or (2) of the act.”
Although adjudicator rulings can be helpful to the court, Sam Rogers and Rosemary Gasparro of McCarthy Tetrault LLP write, “Defendants must put a compelling record before the court on such a motion, as they face a high evidentiary burden.”
James Little, Nicholas Reynolds and Adam Rose of Singleton Urquhart Reynolds Vogel LLP suggest, “the closer an adjudicator adheres to evidentiary rules and elements of the adversarial system such as cross-examination of witnesses – in short, to standard civil procedure – the likelier it would be that a court would find an adjudicator’s determination to be sufficient evidence.”
Adjudication provisions were introduced across the country to keep funds flowing down the construction pyramid, rather than protracted and costly proceedings. It’s a concept that Lynde and many others support.
However, serious questions arise among legal experts.
As Lynde pointed out, “Ontario remains uniquely situated as one of the very few jurisdictions in the world to combine adjudication and liens in a single, integrated piece of legislation, as almost all other jurisdictions have chosen one or the other. The concept of adjudication is sound, but the jury is still out with respect to its implementation and integration into the governing legislation as well as whether practical and beneficial results will be created for the construction and infrastructure industry.”
The ruling raises other concerns with Little, Reynolds and Rose concerning the perception of adjudication within the industry.
“Adjudication was intended from its inception to forego procedural trappings in favour of a quicker, ‘rough justice’ approach in order to maintain the flow of funds down the construction pyramid. If parties begin to view this scepticism as it relates to related proceedings, then this aspect of adjudication might unfortunately be undermined.”
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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