CITATION: Ledore Investments v. Dixin Construction, 2024 ONSC 598 DIVISIONAL COURT FILE NO.: DC-23-00000001-0000 DATE: 2024-01-29

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

Before: Kurke, O’Brien and MacNeil JJ.

BETWEEN:

Ledore Investments Limited Applicant

– and –

Dixin Construction Limited Respondent

Counsel: W.R. MacDougall and M. Petrovic, for the Applicant L.J. Armstrong and B.K. Duewel, for the Respondent

HEARD at London (by videoconference): November 21, 2023

REASONS FOR DECISION

THE COURT:

Overview

[1] The applicant, Ledore Investments Limited, carrying on business as Ross Steel Fabricators & Contractors (“Ross Steel”), applies for judicial review pursuant to provisions governing judicial review in the Construction Act, R.S.O. 1990, c. C30 (“the Act”). In its application, Ross Steel seeks to set aside the determination of the adjudicator dismissing its claim for payment by the respondent, Dixin Construction (“Dixin”), of $349,263.57. Ross Steel submits it is owed this amount under three invoices it had provided to Dixin.

[2] The context of the adjudication involves the “prompt payment” provisions of the Act and a project at Lambton College (“the College”). Under the procedure established by these provisions, subcontractor Ross Steel had delivered its three invoices to contractor Dixin, and Dixin was paid by the owner, the College, for these amounts owing to Ross Steel. Dixin did not deliver to Ross Steel a “notice of non-payment” within the time-period required in the provisions, but nevertheless refused to “pay down” the invoices submitted by Ross Steel.

[3] Claimant Ross Steel brought the matter for adjudication, and the adjudicator declined to order respondent Dixin to pay Ross Steel because the form and content of Dixin’s invoicing to the College did not “engage” the prompt payment provisions as not being by way of a “proper invoice,” a form of invoice defined in the Act with statutorily mandated contents. Neither Ross Steel nor Dixin had raised this point as an issue for the adjudication; the adjudicator focused on this issue in his determination without input from the parties.

[4] This application raises three issues:

(1) Is judicial review available in this court? Subsection 13.18(5) of the Act states that the determination of an adjudicator may only be set aside on judicial review if the applicant establishes one of the prescribed grounds.

(2) If judicial review is available, was there a breach of procedural fairness? Ross Steel submits it was a breach of procedural fairness for the adjudicator to reach a decision based on an issue that neither party had raised and on which the parties were not given an opportunity to provide submissions.

(3) If there was a breach of procedural fairness, what is the appropriate remedy? Ross Steel submits the court should set aside the adjudicator’s interpretation of the prompt payment provisions as unreasonable and substitute its own decision.

[5] The following reasons explain why we would grant the application, set aside the determination of the adjudicator dismissing Ross Steel’s claim, and remit the matter to the adjudicator. Briefly, judicial review is available for a breach of procedural fairness. Here, although the Act contemplates a speedy and targeted adjudication process, fundamental procedural fairness demands an opportunity for the parties to provide at least written submissions on the key issue that will determine the adjudication. The matter should be remitted to the adjudicator so he will have the opportunity to make a determination on that issue after having received the parties’ submissions.

Facts

Dispute between Dixin and Ross Steel on the Lambton College project

[6] The dispute between Ross Steel and Dixin related to a project involving improvements being constructed at the College’s west entrance and campus bookshop. The College is the owner of the property on which the construction was being done, and for which it put out a request for tenders in 2020. Dixin became the general contractor, and Ross Steel, a structured steel fabricator and erector, was acting as a subcontractor on the project. Ross Steel was to supply and install structural steel, a roof deck, and one 5-flight staircase.

[7] Although Ross Steel had sought additional relief before the adjudicator, on this review its focus is only on three unpaid invoices and attendant holdbacks. Ross Steel had submitted to Dixin three invoices for which it claimed entitlement to payment of a total of $349,263.57 inclusive of HST and holdback for services and materials supplied by Ross Steel. Ross Steel argues that Dixin never delivered to Ross Steel a “Form 1.3 Contractor Notice of Non-Payment if Dispute” in relation to any of the three following invoices, or in relation to their associated holdbacks, which raise the total to the $349,263.57 that Ross Steel claims:

a. Invoice 1747, dated August 20, 2021, in the amount of $32,902.10 issued in respect of purchase order of August 28, 2021;

b. Invoice 1780, dated February 1, 2022, in the amount of $162,101.33, a progress billing for January 2022; and

c. Invoice 1787, dated March 1, 2022, in the amount of $89,902.51, a progress billing for February 2022.

[8] It is not in dispute that the College paid Dixin the monies owing on work performed by Ross Steel. Dixin had received $559,924.40 from the College for Ross Steel’s work, but had only paid down $327,214.69, both figures inclusive of HST.

[9] On March 9, 2022, Dixin provided Ross Steel with a notice of default, and opportunity to cure its default in its performance of its subcontract. There had been project delay because of the late supply of steel to the project by Ross Steel. Ross Steel was supposed to start steel erection in July or August 2021, but steel did not arrive on site until November that year. Ross Steel blamed unforeseen global steel supply chain issues for the delay, but Dixin blamed Ross Steel.

[10] On April 1, 2022, Dixin terminated Ross Steel’s subcontract, claiming that Ross Steel had failed to agree to a schedule for the performance of the subcontract, had failed to perform its subcontract in a timely manner, and that its work also required repair. Dixin claimed set-off against Ross Steel, relating to costs arising from delay in other areas of the project that it attributed to Ross Steel’s poor performance of its subcontract.

[11] Dixin’s principal explained that it had issued no notices of non-payment for the three invoices in question, hoping that “the situation could be resolved.” However, when that was not the case and the situation “had become critical,” Dixin delivered notices of non-payment with respect to invoices after March 9, 2022, including the final March 2022 billing and the holdback invoice. Ross Steel calculated holdback owing on the three above invoices at $64,357.63, but it appears that this amount was included with other holdback funds in a later comprehensive holdback billing.

The adjudication

[12] Pursuant to s. 13.7(1) of the Act, on June 3, 2022, Ross Steel referred the dispute in respect of its contract with Dixin to construction dispute interim adjudication by filing a notice of adjudication with the Ontario Dispute Adjudication for Construction Contracts. Chad Kopach, a construction lawyer, was assigned as the adjudicator.

[13] Ross Steel disputed Dixin’s termination of its subcontract and Dixin’s claims of set-off and sought payment of its three invoices pursuant to the prompt payment provisions in Part I.1 of the Act. Ross Steel sought a total of $554,855.12, representing $349,263.57 for the three invoices for which no notice of non-payment was delivered by Dixin and related holdback, as well as other monies left unpaid because of a notice of non-payment that Dixin did deliver to Ross Steel for a further invoice and the holdback invoice. Only the $349,263.57 is in issue before this court.

[14] 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 five pages in reply. No oral submissions were permitted. Submissions were provided on time or slightly late, on consent, with Ross Steel’s reply submissions delivered July 11, 2022. Both parties also submitted witness statements.

[15] Ross Steel included in its document brief a single invoice from Dixin to the College, which was attached to a payment certificate. Ross Steel relied on the payment certificate and its attachments to demonstrate, among other things, Dixin’s recognition of the value of the work that Ross Steel had completed, totaling over $500,000.

[16] On July 20, 2022, the adjudicator delivered his determination. He provided written reasons, in which he summarized the arguments of the parties. Ross Steel’s argument with respect to the three invoices in question was straightforward: Dixin had given no notices of non-payment in respect of any of the three invoices within the time required by the Act. Ross Steel therefore claimed that Dixin should pay $349,263.57, being the total amount owing for invoices 1747, 1780, and 1787, for which no notice of non-payment was provided by Dixin, and associated holdback.

[17] Dixin’s argument was 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. It was unclear to the adjudicator whether the set-off argument related to the three invoices or to other monies owing to Ross Steel. Dixin also complained that the holdback amount was not yet payable, and that Ross Steel had not yet supplied some of its steel to the job site.

[18] The adjudicator concluded that Dixin was not required to pay Ross Steel for the invoices, but his reasoning turned on a point neither party had raised. He found that, because Dixin had not delivered to the College a “proper invoice” as defined in the Act, the Act’s prompt payment provisions did not apply. He 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).

[19] The adjudicator was concerned with the result of his analysis. He stated that if the prompt payment provisions had been engaged, he would have found that the three invoices for which no notice of non-payment was given must be paid. He would not have allowed Dixin to rely on set-off against the first three invoices given the failure to deliver a notice of non-payment.

[20] He went on to expressly acknowledge his concern with the outcome, stating at para. 45:

I feel it necessary to note that I am concerned with the outcome in this matter, as it appears [Dixin] is able to (unintentionally, it would seem) take advantage of its own failure to comply with the Act. Although not fully canvassed/analysed herein, had the fact of the improper form of [Dixin]’s invoice to the [College] been known/realized by [Ross Steel] prior to issuing the Notice of Adjudication, perhaps the adjudication could have been structured in a way to deal with [Dixin]’s failure in this regard.

Is review in this court available?

[21] The Act provides a party who is dissatisfied with an adjudicator’s determination grounds on which to bring the matter on review before this court. Section 13.18(5) of the Act requires the applicant to establish one or more of these grounds for review to have a determination set aside. Leave was granted allowing Ross Steel to seek review based on the two 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.

3. The determination was of a … matter entirely unrelated to the subject of the adjudication.

4. 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.

[22] Ross Steel submits that this court should set aside the adjudicator’s determination because it was not given an opportunity to be heard on the key issue that determined the outcome. It relies on paragraph “3.” above to say that the issue of whether the invoices constituted “proper invoices” was entirely unrelated to the subject of the adjudication. It relies on paragraph “5.” to say that the adjudication did not accord with proper procedures in a manner that prejudiced its right to a fair adjudication. It also submits the adjudicator’s analysis of the “proper invoice” issue was unreasonable.

[23] We do not need to decide whether this case falls within s. 13.18(5)3 because in our view, the adjudicator’s decision breached procedural fairness and should be set aside under s. 13.18(5)5.

[24] Dixin acknowledges that judicial review is available for breaches of procedural fairness. Paragraph 13.18(5)5. authorizes the court to set aside the determination of an adjudicator on an application for judicial review if the applicant establishes that “[t]he 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.”

[25] Although the relevant part of the Act, Part II.1, does not expressly incorporate principles of procedural fairness, s. 13.6 states that an adjudication shall be conducted in accordance with the procedures set out in, among other things, the regulations. Regulation 306/18 provides that the code of conduct for adjudicators shall include principles of procedural fairness. In any event, it would necessarily fall within this court’s jurisdiction to intervene with respect to serious breaches of procedural fairness.

Was there a breach procedural fairness?

[26] Dixin submits, however, that there was no breach of procedural fairness in this case. In its submission, the context of interim adjudication is important. It is a fast and informal process intended to secure an interim result pending the parties pursuing their dispute more comprehensively in court or before an arbitrator. Dixin submits that in this context, the parties are entitled to limited procedural protections.

[27] We agree that Ross Steel was not entitled to the full range of procedural protections that would apply, for example, in a final arbitration or court hearing. In determining the level of procedural fairness owed, Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817, requires the court to consider, among other factors, the statutory scheme. The provisions of the Act establish a prompt and abbreviated adjudicative process. The process is targeted (see s. 13.5(4)), proceeds according to short timelines (see ss. 13.11, 13.13(1)) and, in this case, with strict page limits as described above.

[28] But the right to be heard on the determinative issue is a central component of even more limited procedural protections. It is a legal truism in our system of justice that it is fundamentally unfair, and quite possibly unreliable, for a judicial officer or adjudicator to reach a conclusion in his or her reasons for judgment in a proceeding based on an issue that has not been pleaded or relied upon by a party to the proceeding.

[29] It is fundamentally unfair because the losing party has had no opportunity to know the case it has to meet, or to address the issue that has been determined to be decisive. It is potentially unreliable because, in a system in which the adversarial process is relied upon to reach the best and most thoroughly considered determination, a decision that has not been tested in that framework cannot be trusted to have had its flaws exposed and addressed: Labatt Brewing Company Ltd. v. NHL Enterprises Canada, L.P., 2011 ONCA 511, 106 O.R. (3d) 677, at paras. 4-5; Rodaro v. Royal Bank of Canada (2002), 59 O.R. (3d) 74 (C.A.), at paras. 61-63; A-C-H International Inc. v. Royal Bank of Canada (2005), 139 ACWS (3d) 525 (Ont. C.A.), at paras. 15-18; Garfin v. Mirkopoulos, 2009 ONCA 421, 250 OAC 168, at paras. 19-20.

[30] In this case, the subject of the adjudication was whether the funds paid to Dixin by the College should flow down to Ross Steel since Dixin had delivered no notices of non-payment on the three invoices in question. From Dixin’s perspective, the adjudicator needed to determine whether it was entitled to withhold funds and set them off against deficiencies and damages caused by Ross Steel even in the absence of notices of non-payment. The parties agreed that the College had paid the funds on the invoices that Dixin had given it.

[31] The parties did not raise the form of Dixin’s invoice as an issue, and Dixin had not even filed in its adjudication materials the invoices that it had submitted to the College for the adjudicator’s consideration. Had submissions been invited from the parties, Ross Steel may have chosen to make comment on the adjudicator’s ability to base conclusions on invoices that were not before him.

[32] And there were many areas in which Dixin and Ross Steel, experienced players in the construction industry, could have offered valuable insights to the adjudicator, had they been given the opportunity. Before reaching his conclusion about the operation of the prompt payment provisions and the part that proper invoices play in that scheme, the adjudicator could have invited submissions from the parties about the correct interpretation of the Act, including on such issues as:

a. whether, even though Dixin had received payment from the College, its failure to issue a “proper invoice” to the College should allow it to withhold payment to Ross Steel;

b. what, if anything, in the Act required the use by a contractor of a “proper invoice” to an Owner to engage the rest of the prompt payment scheme; and

c. what effect a requirement to issue “proper invoices” to engage the prompt payment provisions would have on the policies and legislative choices that lie behind Part I.1 of the Act.

[33] The procedural entitlements in this case were not so low as to eliminate the fundamental right to be heard on the dispositive issue for the following reasons.

[34] First, while the adjudicator’s decision is interim, it is still important. Ross Steel sought an order for payment of over $350,000. Adjudication decisions are binding on the parties pending a determination of the matter in court, by an arbitrator, or pursuant to a written agreement of the parties: s. 13.15(1). A party who is required by an adjudicator to pay an amount must make the payment within ten days: 13.19(2). If the payment is not made, the determination may be filed in court and is enforceable as a court order: s. 13.20(1). Therefore, had Ross Steel been successful before the adjudicator, it would have been entitled to quickly enforce the payment order, even as litigation between the parties in court ensued.

[35] Second, the statutory scheme, while focusing on efficiency, does not preclude the adjudicator from requesting further written submissions on the determinative issue. Subsection 13.12(1) expressly authorizes an adjudicator to issue directions respecting the conduct of the adjudication. In this case, at the conclusion of his reasons, the adjudicator proposed that Ross Steel could “relaunch” an adjudication based on Dixin’s potential failure to deliver a proper invoice in a timely manner and resultant breach of the subcontract or Act. A request for written submissions addressing issues with respect to what he considered to be the central issue would have been more efficient and may have short-circuited any need to launch a new adjudication.

[36] Dixin relies on the powers in s. 13.12(1) to argue adjudicators have an inquisitorial role that empowers them to proactively determine the facts and issues in a case. Paragraph 13.12(1)2., for example, authorizes an adjudicator to “tak[e] the initiative in ascertaining the relevant facts and law.” In our view, the adjudicator’s entitlement to take initiative in ascertaining facts and law does not override an experienced party’s fundamental right to be heard on the determinative issue. Similarly, while deference is owed to the procedure chosen by the adjudicator, it does not extend to overriding Ross Steel’s right to be heard on the pivotal point. The adjudicator in this case could have taken the initiative on the issue of the “proper invoice” by requesting written submissions and any relevant documents from the parties on an expedited timeline.

[37] In short, the adjudicator’s decision was interim, but related to a significant sum of money that Ross Steel could have enforced by court order if successful. Ross Steel had an entitlement to be heard by written submissions on the pivotal issue.

[38] Finally, we reject Dixin’s claim that Ross Steel had an adequate alternative remedy and that the application constitutes an abuse of process. Dixin states that launching a new adjudication was an adequate alternative remedy. Dixin also suggests Ross Steel could have proceeded to arbitration or sought summary judgment in the lien action. In its submission, judicial review was a longer, costlier option.

[39] In making the abuse of process argument, Dixin relies on information that was not before the adjudicator. The court advised the parties at the hearing that it would not consider the additional information relied on by either party given that no motion seeking to admit additional evidence had been brought. Therefore, we do not address this information.

[40] Although the adjudicator raised the possibility of a second adjudication, it is unclear whether Ross Steel had a viable argument for breach of the subcontract or the Act. In any event, there was no requirement for Ross Steel to start a second adjudication. It also was not required to pursue other procedural options in court or before an arbitrator. Ross Steel’s choice to pursue judicial review when there was a violation of the right to be heard on the dispositive issue does not constitute an abuse of process.

What is the appropriate remedy?

[41] Ross Steel submits that if the court finds a breach of procedural fairness, it should set aside the adjudicator’s determination as unreasonable and substitute its own analysis. In Ross Steel’s submission, the only reasonable conclusion is to require Dixin to pay Ross Steel.

[42] We disagree that the court should engage in its own analysis. Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, states at para. 142 that even where a decision is found to be unreasonable, it will most often be appropriate to remit the matter to the administrative decision maker to have it reconsider its decision with the benefit of the court’s reasons. The Court of Appeal for Ontario recently cautioned against a reviewing court conducting its own analysis, stating that “unless the matter fits into one of the ‘limited scenarios’ described in Vavilov at para. 142, the reviewing court should instead remit the matter back to the original decision maker to be decided in accordance with the applicable law”: Thales DIS Canada Inc. v. Ontario (Transportation), 2023 ONCA 866, at para. 102.

[43] Here, the adjudicator, who has expertise in the construction industry, has not yet had the benefit of the parties’ submissions and any additional evidence on what he found to be the dispositive issue. He should be permitted to reconsider the issue after receiving their input. Although whenever a matter is remitted to an underlying administrative decision-maker it causes delay for the parties, this case is not one of the limited situations in which it is appropriate for the court to reach a decision on the merits itself.

[44] Therefore, the application is allowed. The matter is remitted to the adjudicator for determination in accordance with these reasons.

[45] Pursuant to the agreement of the parties, the applicant, as the successful party, is entitled to its costs fixed in the amount of $15,000, all inclusive.

A.D. Kurke J.

S. O’Brien J.

B. MacNeil J.

Released: January 29, 2024

CITATION: Ledore Investments v. Dixin Construction, 2024 ONSC 598 DIVISIONAL COURT FILE NO.: DC-23-00000001-0000 DATE: 2024-01-29

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

Before: Kurke, O’Brien and MacNeil JJ

BETWEEN:

Ledore Investments Limited Applicant

– and –

Dixin Construction Limited Respondent

DECISION ON APPLICATION

A.D. KURKE J.

Released: January 29, 2024