Adjudication case law round-up: Divisional Court provides guidance on judicial review of adjudicator’s determinations

In a string of recent cases, the Ontario Divisional Court has provided guidance to construction industry participants who are considering making an application for leave to apply for judicial review of an adjudicator’s determination. With the number of adjudications in the province increasing, parties would be wise to stay informed about recent developments and the growing body of case law that could impact the exercise of their rights after receiving an adjudication determination.

Recent Divisional Court case law addresses limits of applications for leave for judicial review of an adjudicator’s determination, and the test that is to be met

Adjudicator’s determinations, while only binding on the parties until a further determination of the matter by a court or an arbitrator, must be complied with – and there are consequences if one does not comply. For example, failure to make timely payment of an adjudication determination could result in the possible suspension of further work by the successful contractor or subcontractor awaiting payment.

Since the adoption of the prompt payment and adjudication regimes in Ontario, several parties have exercised their right to apply for leave to seek judicial review at the Divisional Court, so far, with limited success. However, some themes have emerged of which any party seeking to exercise this right under the Construction Act (Ontario) should be aware:

• An adjudicator’s determination can be challenged and set aside by an application for judicial review on limited grounds that are expressly set out under the Construction Act (Ontario). Such an application does not operate as a stay of the adjudicator’s determination or the requirement to make payment (as discussed in our blog post highlighting the case of SOTA Dental Studio Inc. v. Andrid Group Ltd., a decision released by the Divisional Court in April 2022), unless the Divisional Court orders otherwise.
• In SOTA Dental Studio Inc. v. Andrid Group Ltd., the Divisional Court made clear that a failure to pay an adjudicator’s determination in accordance with the prompt payment requirement under the Construction Act (Ontario) may lead the Divisional Court to refuse an application for leave – and where leave is granted – an applicant must either obtain a stay of the adjudicator’s determination, or make payment, or risk the dismissal of its application for judicial review altogether.
• Parties should consider any potential arguments regarding the jurisdiction of the adjudicator and raise them at first instance during the adjudication itself. In Pasqualino v. MGW-Homes Design Inc., a decision released by the Divisional Court in October 2022, the Court was critical of an applicant for leave to apply for judicial review for raising issues of the adjudicator’s jurisdiction for the first time at the Divisional Court. The Court also rejected a submission that adjudication under the Construction Act (Ontario) is only available while construction proceeds.
• Although not a Divisional Court decision, in Okkin Construction Inc. v. Apostolopoulos, a decision released by the Ontario Superior Court in November 2022, the Court adopted and applied the recent Divisional Court jurisprudence to tackle a case where a party refused to pay an adjudicator’s determination when it became concerned it would have to “pay twice” because the adjudicator’s determination did not address basic statutory and notice holdbacks contemplated under the Construction Act (Ontario). The Court held that it did not have the jurisdiction to grant the relief sought – as a party’s only recourse in respect of an adjudicator’s determination is to make an application for leave for judicial review to the Divisional Court. The Court held that, absent a stay of an adjudicator’s determination granted by the Divisional Court, where a party is ordered to pay an adjudicator’s determination, it must do so – even, as in this case, where the owner argued that it created a risk of “paying twice” in the short-term.
• The Divisional Court has now provided guidance respecting the test for leave to apply for judicial review of an adjudicator’s determination. In March 2023, the Divisional Court released its decision in Anatolia Tile & Stone Inc. v. Flow-Rite Inc., clarifying the conjunctive test which, given the interim nature of adjudicator’s determinations, was deemed to be analogous by the Court to the test for leave to appeal an interlocutory order of a judge:

Either:

1. There is a good reason to doubt that the impugned decision is reasonable, or
2. There is good reason to believe that the process followed by an 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.

Furthermore, in Anatolia Tile & Stone Inc. v. Flow-Rite Inc., the Divisional Court noted it is in the interest of the adjudicator to decide whether an adjudication is properly brought under the Construction Act (Ontario). The Court held that arguments such as whether or not a contract “is invalid” or has “ceased to exist” (which may be a ground to set aside an adjudication determination) are in the jurisdiction of the adjudicator to decide, and decisions on such issues will be reviewed on a standard of reasonableness.

Conclusion

As adjudications continue to take place in Ontario, we can expect further guidance from the Courts on procedures and practices applicable to the regime. The rights and obligations of the parties following receipt of a determination from an adjudicator should be kept top of mind. For a discussion of some of these considerations, see our previous blog post.