CITATION: Pasqualino v. MGW-Homes Design Inc., 2022 ONSC 5632
COURT FILE NO.: DC-22-00000004-00
DATE: 2022 10 04
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Domenic PASQUALINO
Carlo Pasqualino, for the Appellant
Appellant
- and -
MGW-HOMES DESIGN INC.
Eliezer Kapp, for the Respondent
Respondent
HEARD: September 22, 2022
REASONS ON APPLICATION FOR LEAVE TO APPEAL
TO THE DIVISIONAL COURT
RSJ RICCHETTI
The Motion for Leave. 2
Background. 2
Analysis. 4
The Law. 4
Mr. Pasqualino’s Position. 5
Whether the Contract “Ceased to Exist” was not considered by the Adjudicator 6
The Contract Ceased to Exist 8
“While Construction proceeds” 9
The Purpose of Adjudication. 11
The Existence of the Lien Claim and Bonding of the Lien. 12
The Alleged Palpable and Overriding Error 14
The Test for Leave. 15
Conclusion. 16
Costs. 16
The Motion for Leave
[1] This is a Motion by Domenic Pasqualino (“Mr. Pasqualino”) for leave, pursuant to section 13.18 of the Construction Act, to bring an application for judicial review to set aside the determination of Colin P. Stevenson (the “Adjudicator”) dated January 21, 2022.
Background
[2] MGW-Homes Design Inc. (MGW) is a contractor.
[3] Mr. Pasqualino is the owner of the home where construction materials and services were supplied by MGW.
[4] MGW was hired to make certain renovations to Mr. Pasqualino’s home. The parties entered into a fixed price contract.
[5] A dispute arose in approximately October 2021. MGW registered a Claim for Lien in the amount of $169,184.94 (Lien). A Statement of Claim was issued shortly thereafter.
[6] In November 2021, Mr. Pasqualino obtained an order vacating the Lien by posting $211,481.18 as security with the Accountant of the Superior Court of Justice. A Statement of Defence and Counterclaim was delivered shortly thereafter.
[7] On December 15, 2021, MGW filed a Notice of Adjudication.
[8] No issue was raised by Mr. Pasqualino to the Adjudicator’s jurisdiction before or at the Adjudication.
[9] Both parties participated in the Adjudication. Materials were filed by both parties on January 4, 2022. Oral submissions were heard on January 7, 2021.
[10] On January 18, 2022, the Adjudicator decided that Mr. Pasqualino pay MGW $119,314, inclusive of HST.
[11] Mr. Pasqualino did not pay and has not paid the amount determined by the Adjudicator.
[12] MGW took steps to enforce the Adjudicator’s determination.
Analysis
The Law
[13] Adjudication is permitted in construction disputes by section 13.5 of the Construction Act, which provides:
13.5 (1) Subject to subsection (3), a party to a contract may refer to adjudication a dispute with the other party to the contract respecting any of the following matters:
The valuation of services or materials provided under the contract.
Payment under the contract, including in respect of a change order, whether approved or not, or a proposed change order.
Disputes that are the subject of a notice of non-payment under Part I.1.
Amounts retained under section 12 (set-off by trustee) or under subsection 17 (3) (lien set-off).
Payment of a holdback under section 26.1 or 26.2.
Non-payment of holdback under section 27.1.
Any other matter that the parties to the adjudication agree to, or that may be prescribed.16
[14] To review an Adjudicator’s determination, a party must first obtain leave of the court:
13.18 (1) An application for judicial review of a determination of an adjudicator may only be made with leave of the Divisional Court in accordance with this section and the rules of court. 2017, c. 24, s. 11 (1).18
[15] The Adjudicator’s determination can only be set aside in limited circumstances:
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:
The applicant participated in the adjudication while under a legal incapacity.
The contract or subcontract is invalid or has ceased to exist.
The determination was of a matter that may not be the subject of adjudication under this Part, or of a matter entirely unrelated to the subject of the adjudication.
The adjudication was conducted by someone other than an adjudicator.
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.
There is a reasonable apprehension of bias on the part of the adjudicator.
The determination was made as a result of fraud.19
Mr. Pasqualino’s Position
[16] Mr. Pasqualino submits that two of the above criteria apply to the present circumstances:
a) That “the contract or subcontract is invalid or has ceased to exist” because Mr. Pasqualino alleges it had been abandoned or terminated prior to the Notice to Adjudicate; or
b) “The determination was of a matter that may not be the subject of adjudication under this Part, or of a matter entirely unrelated to the subject of the adjudication”. In particular, Mr. Pasqualino submits that:
• “MGW and Mr. Pasqualino were no longer parties that could be the subject of a construction dispute interim adjudication proceeding under the Construction Act. The Adjudication process was commenced after MGW and registered a Claim for Lien on the Premises and initiated Action and the Lien was bonded off by posting security”;
• That it has a fairly arguable case that s. 13.18(5)(2) does not apply after a lien is registered and bonded off. Mr. Pasqualino submits that this case involves the “statutory interpretation of section 13.18(5)2 of the Construction Act and should be permitted to proceed to the Divisional Court.
Whether the Contract “Ceased to Exist” was not considered by the Adjudicator
[17] Mr. Pasqualino submits that “The Adjudicator did not consider whether the contract ceased to exist”. The reason is obvious. Mr. Pasqualino did not challenge the jurisdiction of the Adjudicator on this ground or any other ground. The Adjudicator expressly stated in his reasons that no jurisdictional issue was raised by the parties.
[18] In my view, if there was a challenge to the jurisdiction of the Adjudicator, it should have been raised before the Adjudicator.
[19] Section 13.5 (1) 7 expressly permits the parties to refer to adjudication “any other matter that the parties to the adjudication agree to”.
[20] The Adjudicator expressly sets out that the parties agreed to proceed to the adjudication and raised no issue regarding the Adjudicator’s jurisdiction to decide the issue. Mr. Pasqualino does not suggest that this statement is wrong. Instead, Mr. Pasqualino’s responds that the Construction Act compelled him to agree to the Adjudication. There is no merit to this submission. Mr. Pasqualino agreed to the Adjudicator’s jurisdiction. The same argument proffered to this court could have been made to the Adjudicator, preserving this argument. Mr. Pasqualino chose not to.
[21] The Supreme Court of Canada in Dell Computer Corp. v. Union des consommateurs 2007 SCC 34 at para. 84 held that the issue of whether an arbitrator has the jurisdiction to determine the issue to be arbitrated should be raised with the arbitrator:
First of all, I would lay down a general rule that in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator. A court should depart from the rule of systematic referral to arbitration only if the challenge to the arbitrator’s jurisdiction is based solely on a question of law. This exception is justified by the courts’ expertise in resolving such questions, by the fact that the court is the forum to which the parties apply first when requesting referral and by the rule that an arbitrator’s decision regarding his or her jurisdiction can be reviewed by a court. It allows a legal argument relating to the arbitrator’s jurisdiction to be resolved once and for all, and also allows the parties to avoid duplication of a strictly legal debate. In addition, the danger that a party will obstruct the process by manipulating procedural rules will be reduced, since the court must not, in ruling on the arbitrator’s jurisdiction, consider the facts leading to the application of the arbitration clause.
[22] The rationale is equally applicable to an Adjudication and an Adjudicator’s determination under the Construction Act.
[23] There is no merit to this submission.
The Contract Ceased to Exist
[24] Whether the construction contract was abandoned or terminated was expressly not decided by the Adjudicator. In my view, whether the construction contract was abandoned or terminated, even if that had been established before the Adjudicator, would not have made the construction contract “cease to exist”.
[25] I point out that the Adjudication process was not intended to require an Adjudicator to delve into making factual and legal determinations on whether a contract was abandoned or terminated, whose fault it was, did it amount to a repudiation, is the claim advanced by the innocent party and such types of determinations. The simplified and expeditious process of adjudication would be defeated if the Adjudicator was required to consider and decide such issues.
“While Construction proceeds”
[26] I reject the submission that Adjudication was intended only to be available “while construction proceeds”. If this had been the intention of the legislature, such language could easily have been included. The legislature chose not to use words such as the contract is “terminated” or “abandoned”. Instead, the legislature chose to use the words “cease to exist”.
[27] A construction contract is repudiated by a fundamental breach by a party. A termination or abandonment can amount to contract repudiation. However, if a contract is determined to be abandoned or terminated contract, even if amounting to repudiation, that does NOT make the contract cease to exist. The innocent party can elect to affirm the contract or accept the repudiation and bring the performance of the contract to an end. But the terminated or abandoned contract does not cease to exist. Its performance is brought to an end. The innocent party is excused from performing its obligations and can sue for damages for breach of contract. The guilty party generally (although not in all cases) loses its right to claim damages. Accordingly, the abandoned or terminated contract cannot “cease to exist” because the parties will have acquired rights during the performance that can and do survive a termination or abandonment of the contract.
[28] In Guarantee Company of North America v. Gordon Capital Corp. (2000), 178 D.L.R. (4th) (SCC) 1, the court concluded that, whether there is repudiation, the contract continues to exist to determine rights that arose prior to the termination:
41 So much is relatively clear. Problems have arisen, however, from misuse of the word “rescission” to describe an accepted repudiation. In Keneric Tractor Sales Ltd. v. Langille, 1987 29 (SCC), [1987] 2 S.C.R. 440, at p. 455, Wilson J., writing for the Court, addressed the distinction as follows:
The modern view is that when one party repudiates the contract and the other party accepts the repudiation the contract is at this point terminated or brought to an end. The contract is not, however, rescinded in the true legal sense, i.e., in the sense of being voided ab initio by some vitiating element. The parties are discharged of their prospective obligations under the contract as from the date of termination but the prospective obligations embodied in the contract are relevant to the assessment of damages: see Johnson v. Agnew, [1980] A.C. 367, [1979] 1 All E.R. 883 (H.L.), and Moschi v. Lep Air Services Ltd., [1973] A.C. 331, [1972] 2 All E.R. 393 (H.L.). [Emphasis added.]
See similarly Waddams, supra, at para. 629; Furmston, supra, at p. 287, note 12; G. H. Treitel, The Law of Contract (9th ed. 1995), at p. 341; S. Williston, A Treatise on the Law of Contracts (3rd ed. 1970), by W. H. E. Jaeger, vol. 12, § 1454A, at p. 13; cf. Sail Labrador Ltd. v. Challenge One (The), 1999 708 (SCC), [1999] 1 S.C.R. 265, at paras. 31 and 50.
(Emphasis added.)
[29] The absurdity of the position taken by Mr. Pasqualino is evident from the fact Mr. Pasqualino issued a Counterclaim seeking damages arising from the Contractor’s breach of the very contract Mr. Pasqualino alleges has “ceased to exist”.
The Purpose of Adjudication
[30] 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.
[31] Mr. Pasqualino’s interpretation would defeat the very purpose of the Adjudication provisions. In this case, the Contractor may very well have financial obligations to subcontractors, suppliers and others, who await the flow of funds from Mr. Pasqualino. One of the fundamental objectives sought to be overcome by the Adjudication and requirement that any payment occurs forthwith after determination.
[32] If either party could allege a termination or abandonment of their construction contract and that allegation were to result in the construction contract “ceasing to exist”, Adjudication could be easily avoided and there would be a return to the prior lengthy and expensive legal process with the likelihood that the flow of funds would not flow down the construction pyramid for a very long time. Essentially, the Adjudication provisions in the Construction Act would be gutted.
[33] Mr. Pasqualino submits that the words “cease to exist” are meant to only apply “during the performance of a construction contract”. There is no basis for such a very restrictive interpretation.
The Existence of the Lien Claim and Bonding of the Lien
[34] Much of Mr. Pasqualino’s submissions center on the fact there was an existing Lien action at the time of the Adjudication.
[35] Section 13.5 (5) of the Construction Act expressly provides that construction disputes may be referred to adjudication regardless of whether there is a court action regarding the same subject matter.
[36] Mr. Pasqualino alleges there is a conflict in proceeding with both remedies. But the Construction Act expressly permit both proceedings. Adjudication is an interim determination on the way to a final determination (or resolution).
[37] Mr. Pasqualino submits that the conflict is that he posted monies in court to bond off the Lien, and now he must pay the amount determined by the Adjudicator.
[38] I see no conflict.
[39] In the Lien action, the Contractor’s lien has been bonded off. There is no determination on the validity or quantum of the lien claim. There is simply money posted into court (rather than the land) as security for Lien.
[40] The Adjudicator has determined that Mr. Pasqualino should pay $119,314 to the Contractor and the Construction Act requires that this amount be paid forthwith.
[41] Mr. Pasqualino has a right to seek a reduction of the amount of the security posted under s. 44(5) of the Construction Act. In fact, the Adjudicator, in his reasons, refers to the consent of the Contractor to this very action.
[42] By doing this, Mr. Pasqualino is not “paying” twice now. However, it preserves the Contractor’s right to seek a final determination on what was claimed in the Lien (of course less any payment made pursuant to the Adjudicator’s determination). It preserves Mr. Pasqualino right to defend the Lien claim – in its entirety, which includes claiming repayment of any amount paid pursuant to the Adjudicator’s determination, the return of his security and costs. And it preserves Mr. Pasqualino’s Counterclaim.
[43] Mr. Pasqualino submits that allowing the Adjudicator’s decision to remain “will undermine the purpose and effectiveness of Section 44.” I disagree. For the reasons set out above, I see no conflict in the language of the Construction Act nor its application nor inequity arising from the application of ss. 13.15, 13.5 and s. 44 of the Construction Act. In fact, by permitting the Owner to seek a reduction of the security posted in court by the amount of paid pursuant to the Adjudicator’s decision demonstrates how the two processes work harmoniously together.
The Alleged Palpable and Overriding Error
[44] Mr. Pasqualino also submits that the Adjudicator made a palpable and overriding error by failing or erroneously stating or referring to an attachment to Mr. Pasqualino’s expert report (HKA Report).
[45] There can be no doubt that the Adjudicator had and reviewed the HKA Report as it is extensively referred to in the Adjudicator’s decision.
[46] Mr. Pasqualino points to the Adjudicator’s wording “No structural engineering report has been filed but the Respondent’s construction consultant, HK, has set out in some detail alleged deficiencies…” as a palpable and overriding error.
[47] I agree that there is a document from CPE Structural Consultants Limited dated November 24, 2021, attached to the HKA Report. But the document essentially is a “site visit report” which sets out the construction progress and the writer’s observations.
[48] Even if this is an engineering “report”, I am not persuaded it was material to the Adjudicator’s decision when read as a whole.
The Test for Leave
[49] I agree that the Construction Act does not set out a test for a motion for leave for judicial review.
[50] Mr. Pasqualino submits that the test should be whether there is a “reasonably arguable case if leave were granted” (Bains v. Canada (Minister of Employment and Immigration 1990 CarswellNat 615, [1990] F.C.J. No. 457, 109 N.R. 239, 21 A.C.W.S. (3d) 405, 47 Admin. L.R. 31 or “fairly arguable case” (Raincoast Conservation Foundation v. Canada (Attorney General) 2019 FCA 224.
[51] The Contractor submits that the test for leave should be a higher standard such as a “strong prima facie case” AND whether or not it is in the balance of convenience to grant leave. (R. v. Canadian Broadcasting Corp. 2018 SCC 5. at para. 18).
[52] I need not decide what the appropriate test for leave to appeal an Adjudicator’s decision under the Construction Act as I am satisfied that, even if I were to accept Mr. Pasqualino’s position on this issue, he has failed to demonstrate that he has a reasonably or fairly arguable case in the circumstances of this case.
Conclusion
[53] Mr. Pasqualino’s Motion is dismissed.
Costs
[54] The Contractor shall deliver written submissions within 2 weeks of the release of these reasons with the following limit: no more than 5 pages, plus attached Bill of Costs, Authorities and any Offers.
[55] Mr. Pasqualino shall deliver written submissions within 2 weeks thereafter after receiving the Contractor’s submissions with the same limit.
[56] There will be no reply submissions.
RSJ Ricchetti
Released: October 4, 2022
CITATION: Pasqualino v. MGW-Homes Design Inc., 2022 ONSC 5632 COURT FILE NO.: DC-22-00000004-00
DATE: 2022 10 04
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Domenic PASQUALINO
Appellant
- and –
MGW-HOMES DESIGN INC.
Respondent
REASONS FOR JUDGMENT
RSJ Ricchetti
Released: October 04, 2022