The prompt payment and adjudication provisions under the Construction Act (the “Act”)[1] have been in effect since October 1, 2019. Since then, Courts have had to grapple with the existence of a parallel regime for the resolution of construction disputes. The question addressed in this article is how much weight are Courts giving on motions for the return of posted security in circumstances where an interim adjudication process has concluded that no monies are due.
This was the precise issue that the Court addressed in Arad Incorporated v Rejali et al.[2]
In Arad, the owners of a property moved for the release of security it had posted for a construction lien on the basis that an adjudicator had already determined that the owners were not liable to the lien claimant for any amounts claimed by the claimant.
The Court dismissed the owners’ motion and refused to release or reduce the amount of security paid into Court. In its decision, the Court provides helpful guidance to parties and other stakeholders on the weight it places on an adjudicator’s determination when assessing whether to grant relief under the Act.
The Adjudications
The plaintiff, Arad Incorporated (“Arad”), registered a construction lien and a certificate of action against property owned by the defendants (the “Owners”).[3] The owners vacated the lien and certificate from title by posting security into Court pursuant to section 44 of the Act.
Two statutory adjudications were commenced under Part II.1 of the Act, with Arad seeking monies owed for work carried out at the Owners’ property, and the Owners seeking the return of monies allegedly overpaid to Arad.[4] The adjudicator dismissed both adjudications and neither party sought leave to judicially review the adjudicator’s determinations. Critically for this case, the adjudicator found that no monies were owned by either party.
The Motion for Return of Security Paid into Court
In light of the adjudicator’s determination, the Owners moved for the release of their security paid into court to vacate the plaintiff’s lien. In their motion, the Owners relied solely on the adjudicator’s determination that no further monies were owed to the plaintiff.[5] According to the Owners, if no further money was owed, and the plaintiff did not seek leave to judicially review the determination or a stay of the determination, there was no need for the security to remain in court and ought to be released to the Owners.
In response, Arad argued that the adjudicator’s determination was made on an interim basis and that the court should not return the security to the owners based on the adjudicator’s decision alone. To do so, Arad argued, 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.[6] Such a result, Arad argued, would defeat the purpose of the Act, which is to provide security for contractors and subcontractors for labour and materials supplied for the improvement of property.
The Court’s Decision
The Court found that it had two issues to consider:
- What is the nature of the adjudicator’s decision; and
- should the security paid by the defendants be reduced?[7]
As regards the first question, the Court found that the determinations of statutory adjudicators are interim decisions.[8] As interim decisions, the Court found that this does not put an end to the proceedings. The proceedings continue between the parties, which also includes those issues which was the subject of the adjudication process. The decisions of adjudicators are ultimately not binding on the Court.[9] The findings and conclusions of an adjudicator set out in the determination is evidence the Court found and, like any other evidence, the court may take into consideration in determining whether to exercise its discretion to reduce security “where it is appropriate to do so.”[10] But an adjudicator’s conclusions are not determinative on the decision to reduce security.
The test to release security paid into court to vacate a lien requires an evidentiary record similar to that required on a motion for summary judgment.[11] A court must be satisfied on the evidence that there is no reasonable prospect of the lien claimant proving that its lien claim attracts a need for security.[12] The determinations of an adjudicator alone do not meet this evidentiary threshold required for the court to conclude that the lien claim does not attract the need for security.[13]
Key Takeaways
A number of important takeaways arise from this decision:
- Adjudication determinations are interim decisions;
- The Adjudication provisions were introduced into the Act to provide a quick, efficient, interim determination, allowing funds to flow down the contractual “pyramid” and which help keep projects moving;[14]
- Statutory adjudication does not determine legal rights on a final and binding basis. Nor should it. Not all evidentiary rules Not all evidence provided may be subject to scrutiny through the discovery process or subject to cross-examination.
- It is the very efficiency and expeditious nature of adjudication which necessitates its determinations to be interim pending litigation or arbitration where the typical procedural safeguards are both available and followed.
If you have any questions, please reach out to a member of Miller Thomson’s Construction and Infrastructure Group.
[1] Construction Act, RSO 1990, c C 30.
[2] Arad Incorporated v Rejali et al, 2023 ONSC 3949
[3] Arad, at para. 5.
[4] Arad, at para. 7.
[5] Arad, at para. 11.
[6] Arad, at para. 12.
[7] Arad, at para. 14.
[8] Arad, at para. 15.
[9] Arad, at para. 17.
[10] Arad, at para. 17.
[11] Arad, at para. 22.
[12] Arad, at para. 23.
[13] Arad, at para. 24.
[14] Arad, at para. 16.
