Introduction
In Arad Incorporated v Rejali et al[1], the Ontario Superior Court of Justice provided insight into the interplay between, and the weight a court may afford to, an adjudicator’s determination(s) when deciding whether to reduce or return security posted into court to vacate a construction lien in accordance with section 44 of the Construction Act[2](the “Act”). The court in this case considered whether an adjudicator’s determinations (alone) that no monies are owed to (or by[3]) the claimant (plaintiff in the lien action and respondent by motion) were sufficient evidence to allow for the reduction or return of security posted into court in accordance with section 44(1) of the Act.
Background of the dispute
The plaintiff, Arad Incorporated (the “Plaintiff”), entered into a contract[4] to provide services and materials for an improvement to a residential property owned by the defendants, Alireza Rejali, Yazdan Sabet and Seyedeh-Sana Bagha Morady (collectively the “Defendants”). A dispute arose between the parties and the Plaintiff alleged that it was owed monies by the Defendants. The Plaintiff registered a claim for lien and a certificate of action on the Defendants’ property. Pursuant to Section 44(1) of the Act, the Defendants posted security into court and the claim for lien and certificate of action were subsequently vacated from title.
Dismissed competing/cross adjudications by the parties
The Plaintiff and the Defendants each commenced an adjudication under Part II.1 of the Act. The first adjudication was commenced by the Plaintiff who alleged that amounts were owing by the Defendants. The second adjudication was commenced by the Defendants who alleged that they overpaid amounts to the Plaintiff, or its principal, Mr. Vahid Arbati. In the context of adjudication proceedings completed on the basis of documentary evidence, oral submissions and a site visit (no witnesses were called and no expert opinions or reports of others presented), the adjudicator determined that no additional amounts were owed to the Plaintiff and that the Defendants did not overpay any amounts to the Plaintiff. Accordingly, the adjudicator dismissed both adjudications. Both the Plaintiff and Defendants did not seek leave to judicially review or stay the adjudicator’s determinations.
On the basis of the adjudicator’s determination that the Defendants were not liable to the Plaintiff for any amounts allegedly owed, the Defendants brought a motion in the (concurrent and related) court lien proceedings for return of the security posted into court by the Defendants to vacate the Plaintiff’s construction lien.
Key Issue(s) and the position of the parties
The key issues for the court to determine were with respect to the nature of the adjudicator’s determinations, and the relationship between the adjudications and the related lien action, all of which were commenced under the Act. In particular, the court was tasked with determining whether an adjudicator’s determination(s) that no monies are owing to a lien claimant is tantamount to (and constitutes a sufficient evidentiary foundation for) ordering a return of the monies paid into court to vacate the subject construction lien.
In addressing the referenced issues, His Honour Justice Sutherland noted by way of reminders and governing principles that:
- the purpose of the Act is to provide security for contractors and subcontractors for labour and material supplied for the improvement of property; and
- a motion to reduce or return the security posted into court in a lien proceeding is similar (akin) to, but not necessarily the exact same as the test on a summary judgement motion.
In determining whether the court should reduce or return the security posted, the necessary and sufficient evidentiary foundation must be present, and “[t]he court must be satisfied on the basis of the motion material presented that there is no reasonable prospect of the lien claimant proving that the lien claimed attracts the requirements to attract security per ss. 44(1) or (2) of the Act”.[5]
The Defendants argued that they were entitled to a full return of the monies paid into court given that the adjudicator’s determination concluded that the Plaintiff was not entitled to any outstanding amounts from the Defendants. The Plaintiff opposed the relief sought by the Defendants and argued that the adjudicator’s determination is interim binding, and accordingly the court cannot grant the relief sought by the Defendants. The Plaintiff argued that permitting a full return of the monies posted into court by the Defendants based on an adjudicator’s determination would result (at a very early stage) in the removal of security posted for the benefit of a lien claimant without having to proceed with a judicial determination based on documentary discovery, examinations and oral testimony of the parties.[6]
Analysis
In addressing the central issue of whether the adjudicator’s determinations were tantamount to (and a sufficient evidentiary foundation for) a return of the Defendants’ monies paid into court, the court considered the following two issues:
- the nature of an adjudicator’s determination(s); and
- whether the security posted into court should be released based solely on an adjudicator’s determination(s).
1. WHAT IS THE NATURE OF THE ADJUDICATOR’S DETERMINATION?
The court highlighted that an adjudicator’s determinations are interim decisions and these determinations do not put an end to the proceedings.[7] Further, while a court may consider the adjudicator’s determination(s) as evidence to determine whether to exercise its discretion to reduce security, these decisions are not binding upon the court.[8]
The court cited the decision in Pasqualino v MGW Homes Design Inc., 2022 ONSC 5632 and adopted the following statement from Justice Ricchetti’s decision in Pasqualino:
The Adjudication provisions were introduced into the Construction legislation to provide a quick, efficient, interim determination allowing funds to flow down the contractual “pyramid”. I stress that adjudication determinations are interim, allowing the parties to continue litigating the issues, including those the subject of the Adjudication determination to a final and binding determination in the courts or by arbitration. See s. 13.15(1) of the Construction Act.[9]
Further, the court noted that it is not the purpose of the adjudicative process to determine the legal rights of the parties on a final basis.[10] The nature of adjudication proceedings under the Act allows parties to continue litigating the issues, including those that are the subject of the adjudication determination.
2. SHOULD THE SECURITY BE REDUCED OR RETURNED?
The court relied on prior case law[11] to suggest that the appropriate test in determining whether to grant a return or reduction of the security paid into court pursuant to section 44(5) of the Act is: whether the court is satisfied there is no reasonable prospect of the lien claimant proving that the lien claim attracts the requirement to attract security under the Act.[12] In other words, there must be sufficient evidence that the lien claim (i.e. the quantum of the lien claim) does not attract the need for security.
In this case, the court noted that the only evidence provided by the Defendants was the adjudicator’s determinations.[13] Therefore, the court was tasked with considering whether it was appropriate to reduce or return the security posted by the Defendants solely on the basis of the adjudicator’s determinations.
The court found that the determinations alone did not meet the evidentiary threshold required to conclude that the lien claim did not attract the need for security. In reaching its decision, the court analyzed the methodology utilized by the adjudicator in arriving at its determinations. The court noted that the adjudicator made findings based on his opinion as an engineer (which opinion was not subject to contestation) and not based on expert reports provided by either of the parties.[14] The adjudicator also made findings based on a site visit and verbal statements during oral hearing. Further, the court noted that the adjudicator’s findings were not all based on admissible evidence and that the adjudicator relied on the documentation provided and his construction and engineering experience to make final determinations.[15]
Therefore, the court was not satisfied that the Defendants met the applicable test to award a return or reduction of the security posted into court. The court found that the “determinations of the adjudicator alone did not meet the evidentiary threshold required for the court to conclude that the lien claim does not attract need for security.”[16]
Key takeaways
The decision in Arad serves as a cautionary tale for parties navigating and leveraging the different processes available under the Act and seeking to solely rely on an adjudicator’s determination(s) to persuade a court to return or reduce security posted into court to vacate a construction lien. A court must be satisfied that there is no reasonable prospect of the lien claimant proving that its lien claim attracts a need for security. Further, the evidentiary threshold is relatively high given that returning or reducing security removes a protection afforded by the Act to lien claimants.
The Arad decision provides further commentary and adds to evolving case law with respect to adjudications commenced under the Act. As noted in this decision, not all evidentiary rules may be adhered to in the adjudication process. Further, not all evidence provided in an adjudication is subject to scrutiny through the discovery process or cross examination in court. Therefore, reducing or returning the security at an early stage in the litigation based on an adjudicator’s determination alone would be contrary to the purpose of the Act and “would provide owners and contractors with an easier means to invalidate the security to lien claimants that the Act provides.”[17] However, the court did reaffirm that given the interim nature of the adjudication process, an adjudicator’s determinations may be used as evidence to assist a court in determining whether to return or reduce a security, but the determinations alone are not binding on the court and may not meet the evidentiary threshold required.
Should you have any questions, please do not hesitate to contact a member of Miller Thomson’s Construction Litigation Group.
[1] Arad Incorporated v Rejali et al, 2023 ONSC 3949 [Arad].
[2] Construction Act, RSO 1990, c. C. 30.
[3] By way of overpayment, given the second adjudication commenced by the defendant, Alireza Rejali, for monies allegedly overpaid to the plaintiff’s principal, Vahid Arbati.
[4] Note that the case involved a dispute on fronts respecting, among other things, privity, quantum of supply and contract terms in respect of the quantum of supply, etc.
[5] Supra note 1 at para 23.
[6] Supra note 1 at para 12.
[7] Ibid at para 17.
[8] Ibid.
[9] Ibid at para 16.
[10] Ibid at para 26.
[11] Pentad Construction Inc v 2022988 Ontario Inc, 2021 ONSC 824; and Chesney et al v Malamis et al, 2023 ONSC 1742.
[12] Supra note 1 at para 23.
[13] Ibid at para 24.
[14] Ibid at para 25.
[15] Ibid.
[16] Ibid at para 24.
[17] Ibid at para 26.
