( Disponible en anglais seulement )
In Ledore Investments v. Dixin Construction,[1] the Ontario Divisional Court recently offered direction to both parties and adjudicators with respect to the conduct of adjudications under the Construction Act (“the Act”).[2] Under the Act, adjudicators possess a set of broadly defined powers and can carry out the adjudication in a manner deemed suitable for the prevailing circumstances.[3]
In this case, the Ontario Divisional Court was asked to review (and set aside) an adjudicator’s determination that was based on a dispositive issue, which pivotal issue was not raised as a point in issue for the subject adjudication, and for which there were no submissions by the parties. The Divisional Court’s decision in this case highlights a party’s fundamental right in a statutory adjudication to be heard on a determinative issue as a procedural entitlement notwithstanding, among other variables: an adjudicator’s decision is interim; and despite an adjudicator’s otherwise inquisitorial role.
Finding the adjudicator’s decision unreasonable, the Divisional Court in this case granted the applicant’s application for judicial review, and set aside the determination of the adjudicator, remitting the matter to the adjudicator rather than substituting the adjudicator’s determination with its own analysis.
Background of the dispute
Ledore Investments Limited, a subcontractor who was carrying on business as Ross Steel Fabricators & Contractors (“Ross Steel”), issued three invoices to Dixin Construction (“Dixin”), the general contractor with respect to a project involving improvements at Lambton College (the “College” or the “Owner”). The project involved improvements to the College’s west entrance and campus bookshop. Ross Steel was to supply and install structural steel, a roof deck, and one 5-flight staircase.
Despite receiving payment from the College, Dixin failed to remit payment to Ross Steel in respect of the three subject invoices and Dixin did not provide a notice of non-payment for any of the three invoices. Ross Steel submitted that it was owed $349,263.57 (inclusive of HST and holdback) for services and materials supplied under the three invoices it had provided to Dixin.
On March 9, 2022, Dixin issued a notice of default to Ross Steel, offering Ross Steel an opportunity to rectify performance issues under its subcontract. According to Dixin, the project had experienced delays due to the late supply of steel by Ross Steel. Subsequently, on April 1, 2022, Dixin terminated Ross Steel’s subcontract, asserting that Ross Steel had not agreed to a performance schedule, failed to execute the subcontract promptly, and that its work required repairs. Dixin maintained that it had set-off claims against Ross Steel, and that it was entitled to withhold payment as set-off because of deficiencies and delay caused by Ross Steel, even if it issued no notice of non-payment.
Subsequently, Ross Steel initiated an adjudication to secure payment for the three invoices due to the absence of any non-payment notice, specifically, the delivery of a Form 1.3 Contractor Notice of Non-Payment of Dispute.
The adjudication centered on the provisions related to “prompt payment” within the Act. In this scenario, Ross Steel, had issued three invoices to Dixin. Dixin received payment from the College, covering the amounts owed to Ross Steel. Despite this, Dixin failed to provide Ross Steel with payment and without a “notice of non-payment” within the stipulated timeframe outlined in the relevant provisions under the Act. Nevertheless, Dixin refused to settle the submitted invoices from Ross Steel.
The adjudicator determined that payment from Dixin to Ross Steel for the invoices was excusable, basing the rationale for the determination on an issue not raised by either party. Specifically, the adjudicator found that, due to Dixin’s failure to provide a « proper invoice » in accordance with the Act’s definition of that term, the prompt payment provisions of the Act were inapplicable. The adjudicator acknowledged that neither party had raised this argument, stating at para. 26 of his reasons:
Although not raised by either party, my review of the material submitted by the parties also raises an issue with respect to the form and content of [Dixin]’s invoicing (that is, the invoice from [Dixin] to the [College], which purports to have started the Prompt Payment process).[4]
Although neither Ross Steel nor Dixin had raised the issue of the form and content of Dixin’s invoicing to the College, the adjudicator declined to order Dixin to pay Ross Steel on this basis. The adjudicator based his reasoning on the finding that the Dixin invoice to the Owner did not “engage” the prompt payment provisions which require a “proper invoice,” and this ultimately led to the denial of Ross Steel’s claim in the statutory adjudication.[5]
Ross Steel pursued a judicial review of the adjudicator’s decision, asserting that the adjudication procedure was unfair due to the lack of an opportunity to address the crucial issue that determined the final outcome.[6]
Analysis
The Divisional Court first addressed whether judicial review was available in this case. The Act provides a party who is dissatisfied with an adjudicator’s determination grounds on which to bring the matter on review before the Divisional Court. According to Section 13.18(5) of the Act, the applicant must demonstrate one or more of these review grounds to have a determination overturned. Leave was granted, enabling Ross Steel to pursue a review based on the following grounds:
13.18(5) The determination of an adjudicator may only be set aside on an application for judicial review if the applicant establishes one or more of the following grounds.
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- 3. The determination was of a … matter entirely unrelated to the subject of the adjudication.
- 5. The procedures followed in the adjudication did not accord with the procedures to which the adjudication was subject under this Part, and the failure to accord prejudiced the applicant’s right to a fair adjudication.[7]
The Divisional Court held that in this case it was within the Divisional Court’s jurisdiction to intervene with respect to breaches of procedural fairness.
In agreeing with Ross Steel, the Divisional Court emphasized that it is procedurally unfair for a decision in a statutory adjudication to be based on an issue not pleaded by any party involved. In this situation, the parties did not raise the form of Dixin’s invoice as an issue, nor had Dixin even filed in its adjudication materials the invoice(s) that it had submitted to the College for the adjudicator’s consideration. The Court held that this was “fundamentally unfair because the losing party [Ross Steel] has had no opportunity to know the case it has to meet, or to address the issue that has been determined to be decisive.” [8] The Court went on to cite three reasons for their decision.
1. Weight (importance) attributed to adjudication decisions irrespective of interim nature
While adjudications under the Act are considered « interim binding, » the Divisional Court reiterated that their outcomes carry significant weight for the parties. Adjudication decisions hold binding authority over the parties until the matter is resolved in court, through arbitration, or as stipulated in a written agreement between the parties (s. 13.15(1)). A party directed by an adjudicator to make a payment must fulfill this obligation within ten days (s. 13.19(2)). Failure to make the payment allows the determination to be filed in court and treated as enforceable through a court order (s. 13.20(1)). Therefore, if Ross Steel had succeeded in the adjudication, it could swiftly enforce the payment order, even while court litigation between the parties was ongoing.
Despite the intended efficiency and informality of the process,[9] adjudicators are not precluded from seeking additional written submissions on crucial issues. In fact, the Act explicitly empowers adjudicators to conduct proceedings in a manner they deem appropriate under the given circumstances.
2. Legislative framework
The legislative framework, while prioritizing efficiency, does not prevent an adjudicator from seeking additional written submissions on a pivotal matter. Subsection 13.12(1) explicitly grants adjudicators the authority to issue directions regarding the adjudication proceedings. In this instance, at the conclusion of his rationale, the adjudicator suggested that Ross Steel could potentially initiate a new adjudication based on Dixin’s failure to provide a proper invoice promptly and resultant breach of the subcontract or Act. The Divisional Court’s view was that requesting written submissions to address concerns related to what the adjudicator deemed as the central issue could have streamlined the process, potentially obviating the need for a new adjudication.
3. Procedural fairness
The Divisional Court dismissed Dixin’s assertion that Ross Steel had a satisfactory alternative remedy and contended that the application for judicial review amounted to an abuse of the legal process. The Court held that Ross Steel’s choice to pursue judicial review when it did not have a chance to be heard on the dispositive issue did not constitute an abuse of process, as it was the reasonable alternative to a second adjudication.
Ross Steel suggested that if a breach of procedural fairness is found, the Court should set aside the adjudicator’s determination and substitute its own analysis, requiring Dixin to pay Ross Steel. The Court, however, disagreed with this approach. The Court emphasized that even if a decision is deemed unreasonable, it is generally appropriate to remit the matter to the original administrative decision-maker for reconsideration with the benefit of the Court’s reasons. In this case, the adjudicator, having expertise in the construction industry, had not considered the parties’ submissions on the crucial issue of the form and format of the invoices, and thus, the matter should be remitted for his reconsideration. Despite the potential for delay, the Court deemed it inappropriate to reach a decision on the merits itself.
Ultimately, the Divisional Court returned the matter to the adjudicator, instructing a reconsideration after allowing submissions from the parties regarding the « proper invoice » matter.
Key takeaways
In Ledore, the Divisional Court identified a procedural unfairness with respect to an adjudication determination based on dispositive issues that have not been pleaded, and where the parties have not been given an opportunity to make submissions on the pivotal issues at the root of the adjudicator’s determination. Furthermore, the Divisional Court highlighted its jurisdiction to intervene in cases of breaches of procedural fairness, and to set aside an adjudicator’s decision on judicial review. In the new[10] climate of prompt payment and statutory adjudication, the Ledore decision highlights: the importance of procedural fairness notwithstanding statutory adjudications are otherwise designed to be procedurally “informal” and expeditious; and, the learning curve for both parties and adjudicators associated with structuring (and modifying the applicable structure governing) adjudication proceedings in a way to appropriately deal with the various issues that will form the universe of an adjudicator’s determination.
[1] 2024 ONSC 598.[Ledore]
[2] Construction Act, RSO 1990, c. C. 30.
[3] Construction Act, RSO 1990, c. C. 30, s. 13.12(4).
[4] Ledore, supra note 1 at para 18.
[5] It is worth noting that even the adjudicator was concerned with the outcome in this matter, as it appeared Dixin was otherwise (even if unintentionally) able to take advantage of its own failure to comply with the Act. See Ledore supra note 1 at para 20.
[6] Ledore, supra note 1 at para 29.
[7] Ledore, supra note 1 at para 21.
[9] The format of adjudication permitted Ross Steel a 10-page submission with its written argument, and a 15-page submission to Dixin. Ross Steel was granted a further 5 pages in reply. No oral submissions were permitted. Both parties also submitted witness statements.
[10] There are still very few reported cases in Ontario citing section 13.18 of the Construction Act (Setting aside on judicial review) and the Ledore case is the first decision where an adjudication determination was set aside and remitted back to the adjudicator.
