A construction firm seeking payment had hoped the matter could be resolved through adjudication. However, an error by the adjudicator concerning basic legal definitions resulted in the Ontario Divisional Court sending the matter back to square one for a fresh determination.
The dispute was between Turnkey Construction and Stephen Jamrik. Turnkey had claimed prompt payment for $564,812.87 from Jamrik. The adjudicator had assumed jurisdiction in the case on the basis that the project was not completed, referencing the outstanding amount owing and unpaid on the contract.
As Gowling WLG partner Sahil Shoor and associate Nailah Ramsoomair point out, Section 13.5 (3) of the Construction Act provides, “An adjudication may not be commenced if the notice of adjudication is given after the date the contract or subcontract is completed, unless the parties to the adjudication agree otherwise.”
What is the correct legal definition of a “completed” contract?
Shoor and Ramsoomair write under the Section 2(3) of the act, “a contract is deemed to be completed, and services or materials shall be deemed to be last supplied to the improvement when the price of completion, correction of a known defect or last supply is not more than the lesser of: (a) One per cent of the contract price, or (b) $5,000.”
That’s not the same thing as the amount owing.
Jamrik caught this conflict and asked for a judicial review of the adjudicator’s determination regarding jurisdiction.
Justice Corbett of the Divisional Court found the adjudicator had misconstrued the plain meaning of deemed “contract completion” under the Construction Act and therefore was “plainly wrong in law” in finding jurisdiction.
“The Court emphasized that completion, substantial performance and last supply of services and materials to an improvement all relate to the status of performance of contract work, and not the value outstanding claims for payment,” write Shoor and Ramsoomair. “This decision by the Divisional Court clarifies for both contractors and owners when a contract is considered to be ‘complete’ in order to pursue these claims by way of adjudication.”
Also troublesome was that, as Shoor and Ramsoomair write, “The adjudicator did not cite any legal authority for their interpretation of ‘contract completion’ and made a determination solely on there being outstanding payments amounting to more than one per cent of the contract price.”
This brings forward the topic of facts and procedural fairness in adjudication procedures as well, writes Lea Nebel, partner with Blaney McMurtry LLP.
“There is a clear preference for an adjudicator making findings on the alternative issues so that a reviewing court will have the necessary factual findings to make the appropriate decision on review.”
Nebel points out there was an absence of factual findings on the two key issues argued before the adjudicator, those being whether certain work was included in the contract and the value of the contract.
The second problem was not only related to the adjudicator’s understanding of contract completion but to the manner by which he assumed jurisdiction. It gives rise to the importance of procedural rights, writes Nebel. She refers to the earlier ruling in Ledore Investment v Dixin Construction of January 2024 which was outlined in this column in March.
“If an adjudicator is going to decide a point on a basis not raised by the parties, as a matter of procedural fairness and to ensure the adjudicator has the benefit of the parties’ submissions on material points, the adjudicator should give notice to the parties of the concerns, and provide an opportunity to address them.”
“The adjudicator failed to request submissions on jurisdiction, and failed to make any factual determination with respect to whether any contract work remained for completion and, if so, its value,” write associates Simren Sihota and Jacob Lokash of Margie Strub Construction Law.
“As a result, Justice Corbet was forced to refer all issues back for determination before a different arbitrator, to determine if the contract was complete, and whether or not adjudication was available to the parties.”
John Bleasby is a freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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