COURT FILE NO.: CV-22-1290
DATE: 20221110
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Okkin Construction Inc., Plaintiff
AND:
Peter Apostolopoulos, Bond Group Ottawa 2018 Inc., and The Toronto Dominion Bank, Defendants
BEFORE: The Honourable Madam Justice S.E. Fraser
COUNSEL: Gerard C. Borean, Counsel for the Plaintiff
Luigi Iantosca, Counsel for the Defendant, Peter Apostolopoulos
Broghan Masters and Michael Mazzuca, Counsel for the Defendant, Bond Group Ottawa 2018 Inc.
HEARD: August 9, 2022
ENDORSEMENT
Nature of the Dispute
A. Introduction
[1] In 2018, Ontario entered a new era in construction law when the Construction Act (“the Act”) came into force. The Act introduced new prompt payment provisions aimed at avoiding disputes which could bog down construction projects.
[2] The Act created a statutory adjudication process where an experienced person assesses the value of invoiced work and decides whether there should be payment (“the Adjudicator’s Order”). The Adjudicator’s Order can be filed with this Court. When so filed, the Adjudicator’s Order is enforceable as an order of the Court.
[3] The Act sets out that the adjudication process is subject to holdbacks in Part IV of the Act. The requirement for holdbacks is also set out in Part IV of the Act. They include a 10% statutory holdback on all invoices rendered by a contractor on a construction project. A notice holdback arises when a payer receives written notice of a lien before payment. When a payer receives such notice, it must retain sufficient funds to pay out the lien.
[4] Under the Act, “payer” means the owner, contractor or subcontractor who is liable to pay for the services or materials supplied to an improvement under a contract or subcontract.
[5] It is the impact of the adjudication process on holdbacks that is the subject of this motion for directions.
B. Background
[6] The Defendant, Peter Apostolopoulos (“Peter”), asks for directions regarding whether he should pay an adjudication award in the face of a perfected lien registered by a subcontractor further described below.
[7] Peter wanted to make improvement on his family residential home (“the Project”). He hired the Bond Group Ottawa 2018 Inc. (“the Bond Group”) to provide construction services for the Project.
[8] The Bond Group provided an estimate for the Project which was acceptable.
[9] Originally, the Bond Group was going to do all the work itself. There were delays, for which the Bond Group blames Peter (and Peter blames the Bond Group), so the Bond Group hired the Plaintiff, Okkin Construction Inc. (“Okkin”), to install cold-formed steel panelized walls and trusses on the Project.
[10] Under the Act, which defines the parties to an agreement in section 1, Peter is an owner, the Bond Group is a contractor, and Okkin is a subcontractor.
[11] The Bond Group went to work and issued invoices as the Project progressed. Prior to the agreement breaking down, Peter paid the invoices in full. The invoices did not detail the statutory holdback and Peter did not hold back anything.
[12] Problems in the Project developed when it went over-budget. The original estimate of the price excluded the price of structural steel, which fluctuates. For this reason, there was some uncertainty about the final price of the contract. However, there were cost overruns. Peter refused to pay, and he terminated the contract.
[13] Peter is now the contractor for the Project. He believes he has overpaid for the work performed and is defending a claim by the Bond Group, further described below.
C. Procedural History
[14] The Bond Group filed a Notice of Adjudication under the Construction Act and there was an adjudication. Before the adjudication could be heard, on March 22, 2022, Okkin registered a construction lien against title to Peter’s property in the amount of $196,316.52.
[15] On April 8, 2022, the Bond Group also registered a construction lien where the amount claimed as owing in respect of services and materials is $402,845.71.
[16] On May 9, 2022, the Adjudicator ordered that Peter pay the Bond Group $207,668.91, inclusive of HST (the Adjudication Order). The sum ordered was a portion of the value of the Bond Group’s Invoices #1193 and #1207. The Bond Group states that this represents only the material cost of structural steel invoices.
[17] Okkin was not a party to the adjudication.
[18] The Bond Group states that Peter could have raised the issue of the holdbacks in its submissions before the Adjudicator and did not. Peter’s written submissions do not raise these issues explicitly, they did include calculations for holdbacks and Okkin offered a witness statement indicating that it had not been paid in full for its work and was owed $192,467.17. The decision did not address the issue of holdbacks.
[19] Peter did not satisfy the Adjudication Order. He became concerned that he would have to pay twice because the Adjudication Order did not address the mandatory 10% statutory holdback or the mandatory notice holdback relating to the Subtrade Lien. He did not seek leave to appeal the Adjudication Order. Instead, he brought this motion for directions in this proceeding and paid $207,668.91 into an interest-bearing trust account.
[20] On May 19, 2022, the parties appeared before Justice Vallee on an urgent basis. She addressed the question of the statutory holdback. She ordered that Peter pay to the Bond Group $186,902.02 being the amount of the Adjudication Order less 10%, $20,766.89. Peter was ordered to pay $20,766.89 in trust to his counsel in a separate interest-bearing account. She ordered further steps taken.
[21] Peter did not pay the Bond Group. Rather, the parties appeared before Justice Vallee on a case conference where Peter raised the issue of the notice holdback. All the parties agreed before her that the Adjudicator did not have the jurisdiction to consider the issue. Justice Vallee timetabled the matter.
[22] Peter has since paid $11,352.39 to the Bond Group which represents the amount of the Adjudication Award that is in excess of the notice holdback ordered on May 19, 2022. After considering the 10% holdback, that leaves $175,549.63.
[23] Peter and Okkin ask that I direct that the balance of the amount ordered by the Adjudicator be paid into court on account of the Subtrade Lien. Peter’s concern is that if he pays out the Adjudication Award, in the face of Okkin’s Subtrade Lien, that he could be exposed to paying the amount twice.
[24] The Act provides that once the adjudicator makes an order, it can be filed with the court and is enforceable as an order of the Superior Court of Justice. On June 30, 2022, after Peter commenced this motion for directions, the Bond Group filed the Adjudication Order with this Court. It is now a separate proceeding and bears Court File No. CV-22-684492 and is enforceable as an Order of this Court.
[25] Okkin submits that if Peter satisfies the Adjudication Award in the face of the Subtrade Lien, it will be prejudiced because a significant portion of the funds available to satisfy his lien will be depleted.
[26] The Bond Group argues that the route of appeal from the Adjudication Order is to the Divisional Court with leave, that leave was not sought and the time for doing so has expired. It submits that Peter’s motion for directions is really a motion to vary the Adjudication Order and that I have no jurisdiction to do so. It argues that I should dismiss the motion on that basis alone. It argues that Peter must both satisfy the Adjudication Order, which is an Order of the Court now that it has been filed.
[27] Peter states that the key issues for directions are:
a. Whether an owner is required to withhold payments to a contractor, in the face of a perfected subcontractor lien under ss. 24(2) of the Construction Act?
b. Whether it is appropriate in the circumstances, for the remaining amount of the Adjudication to be held in escrow pending further Court Order or a determination of the outstanding lien claims?
[28] For reasons set out further below, I find that that I do not have jurisdiction to grant the relief sought, and that even if I did, there are no directions to be given as I am of the view that there should be no interference with the Adjudicator’s Order.
Issues
[29] The motion is framed as a motion for directions relying on s. 51 of the Act and Rule 37 of the Rules of Civil Procedure. Peter submits that the Adjudication Order must comply with the provisions of the Act and asks me to so direct. Alternatively, Peter argues that I could vary the Order under Rule 59.06(c). I must examine, therefore, whether I have jurisdiction to consider this matter and, if so, whether I should direct that the funds presently held in trust should be released to the Bond Group. To determine this, I must consider:
a. The nature and effect of the Adjudication Order?
b. Whether the Adjudication Order, once filed, is an order that can be amended, set aside, or varied pursuant to Rule 59.06 of the Rules of Civil Procedure in this, a separate and different proceeding?
c. Was Peter’s proper route to challenge the Adjudication Order to seek leave to appeal to the Divisional Court?
d. If this Court can vary, what is the effect of section 13(19) of the Act which provides that an adjudication order is subject to Part IV statutory holdbacks? Put another way, does the Act preclude Peter from paying the Adjudication Order in the face of a perfected lien?
Analysis
A. Nature and Effect of the Adjudicator’s Order
[30] A party to a construction contract may refer the matter for adjudication under s. 13.5 of the Act. Section 13.5 outlines the matters that may be referred. Section 13.5 is silent respecting holdbacks. Section 13.5(1) provides:
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.
[31] An adjudication is commenced by the issuance of a Notice of Adjudication under s. 13.7. The powers of an adjudicator are set out in s.13.12(1):
In conducting an adjudication, an adjudicator may exercise the following powers and any other power of an adjudicator that may be specified in the contract or subcontract:
Issuing directions respecting the conduct of the adjudication.
Taking the initiative in ascertaining the relevant facts and law.
Drawing inferences based on the conduct of the parties to adjudication.
Subject to subsection (2), conducting an on-site inspection of the improvement that is the subject of the contract or subcontract.
Obtaining the assistance of a merchant, accountant, actuary, building contractor, architect, engineer or other person in such a way as the adjudicator considers fit, as is reasonably necessary to enable him or her to determine better any matter of fact in question.
Making a determination in the adjudication.
Any other power that may be prescribed.
[32] This process must accord to statutory timelines for the provision of documents to the adjudicator under s. 13.11. An adjudicator must deliver a decision within 30 days of receipt of the documents under s. 13.12 unless an extension is sought.
[33] As discussed further below, the Divisional Court has held that the scheme of the Act is one of prompt payment, and that by having this scheme, it allows for the prompt adjudication of invoices disputes, so that construction can continue and not get bogged down in disputes between the parties.
[34] There is no appeal of an adjudicator’s order under the Act. An application for judicial review may only be brought with leave (s. 13.18(1)) and will only be granted in the limited circumstances specified in s. 13.18(5), none of which appears to apply here.
[35] Section 13.19 mandates that the requirement to pay an award is subject to any requirement to retain a holdback in accordance with Part IV of the Act (namely, the statutory and notice holdbacks).
[36] The adjudication order becomes an order of this Court upon filing. Section 13.20(2) provides that:
(1) A party to an adjudication may, no later than the date referred to in subsection (2), file a certified copy of the determination of an adjudicator with the court and, on filing, the determination is enforceable as if it were an order of the court.
[37] It should be noted that at the time that the motion was brought, the Adjudication Order had not been filed. Now that it has, the Adjudicator’s Order is an Order in a separate proceeding.
B. Does this Court have Jurisdiction to Vary an Adjudicator’s Order?
[38] In his Amended Notice of Motion, Peter relies on s. 51 of the Act as the basis for my jurisdiction to give direction and, alternatively, relies on my power to “clarify” the Adjudication Order under Rule 59.06(2) of the Rules. That Rule permits the Court on motion in the proceeding:
(1) An order that contains an error arising from an accidental slip or omission or requires amendment in any particular on which the court did not adjudicate may be amended on a motion in the proceeding.
(2) A party who seeks to,
(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made;
(b) suspend the operation of an order;
(c) carry an order into operation; or
(d) obtain other relief than that originally awarded,
may make a motion in the proceeding for the relief claimed.
[39] I find that neither of these provisions grant me the necessary authority to give the directions that Peter and Okkin seeks. In my view, what Peter really seeks is a stay of the Adjudicator’s Order. The direction that he wishes for me to provide is for the proceeds of the Adjudicator’s Order to be held in trust. That is a stay.
[40] Additionally, Rule 59.06 does not assist me. I do not find that this Order arises in this proceeding. It is a different proceeding. In so finding, I appreciate that the Adjudicator’s Order was filed after Peter brought this motion for directions. It is however an order made in a different and separate proceeding.
[41] Below I examine why, even if I found I had jurisdiction, I would not have provided directions to maintain the funds in escrow.
C. Should Peter have Sought Leave to Bring an Application for Judicial Review?
(i) The Leave Provisions under s. 13.18 of the Act
[42] The Bond Group asserts that Peter did not raise the holdback issues before the Adjudicator and that he ought to have sought leave to appeal. Peter states that he included holdback calculations in its witness statement and the fact of the Okkin Lien was included in both parties’ submissions and materials.
[43] Peter states here that the question before me is not one that would properly have been the subject of judicial review. I agree that leave is only likely to be granted in a narrow set of circumstances in which a decision will be set aside as set out in s. 13.18(5). Since the Adjudicator decided one the value of the work on two invoices and the invoices to be paid, the relief that Peter is seeking likely would not have been available on judicial review.
[44] The judicial review provisions underscore the limited circumstances in which the Divisional Court will interfere with a decision of an adjudicator under the Act. Two cases are illustrative of this.
(ii) Jurisprudence
[45] The Divisional Court has addressed the importance of the prompt payment provisions under the Act. In SOTA Dental Studio Inc. v. Andrid Group Ltd, 2022 ONSC 2254, the Divisional Court dismissed an application for judicial review. In so doing, the Court noted that there is no automatic stay of an order upon filing an application. The parties had not sought a stay of the order of the adjudicator.
[46] The Court noted the salutary benefits of the prompt payment provisions. It outlined principles to be borne in mind for future cases including that failure to pay in accordance with the prompt payment requirements of the Act may lead the court to refuse leave. Where leave is granted, an applicant must obtain a stay or must make payment, failing which, this Court may dismiss the application.
[47] SOTA Dental Studio highlights that, absent a stay, the Act requires payment of an adjudicator’s order.
[48] Further, faced with the argument that there was no money to make the payment, the Divisional Court stated that if the owner is insolvent, as appeared to be the case there, it should not be permitted to run up costs and delays through litigation in the face of an Order. If there are circumstances warranting a stay, they must be brought on notice with the proper evidence.
[49] In Pasqualino v. MGW-Homes Design Inc., 2022 ONSC 5632, the Divisional Court addressed the purpose of the Adjudication provisions. In that case, the Court considered an application for leave. The Applicant argued that the contract had ceased to exist prior to the Notice to Adjudicate and that there was an arguable case that s.13.8(5)(2) does not apply where a lien has been bonded off.
[50] In dismissing the application for leave, RSJ Richetti emphasized that the provisions were introduced to provide a “quick, efficient, interim determination allowing funds to flow down the contractual ‘pyramid’.” The parties are permitted to continue to litigate the issues including those subject to the adjudication determination. RSJ Richetti rejected the submission that the adjudication under the Act is only available when construction proceeds.
[51] RSJ Richetti noted that the contractor may have obligations to subcontractors, suppliers, and others who await the flow of funds.
[52] In addressing the lien claims, at paras. 37 to 43, the Court addressed an argument by the Applicant that he would have to pay twice: once to satisfy the adjudication order and a second time to bond off the lien claims. The Court held that there was no conflict. The Act permits the Owner to seek a reduction of security posted in court by the amount paid pursuant to the Adjudicator’s determination.
[53] In my view, these cases point to one conclusion: absent a stay, which is not sought here, an Adjudication Order must be paid even if it means that someone will have pay twice in the short term. This allows the contractor to ensure that funds flow. Those liable to withhold funds when receiving a notice of a lien. Litigation may proceed and it is possible under the Act to seek a reduction in the amount of security posted.
D. Is Peter Going to Have to Pay Twice?
[54] Peter and Okkin submit that if payment must flow, that Okkin’s priority and lien rights will be ignored, and Peter will be in a position of having to pay double holdback.
[55] Peter argues that the Adjudication Order, in effect, requires that holdback amounts reserved for the subcontractors of the Bond Group are to be paid despite the lien on title. Peter submits that, as a result, he would have to choose between paying the notice holdback twice or be in direct breach of the Act for not retaining the holdback amounts owed by paying same to the Bond Group. In his view, the Okkin Lien has priority over the Bond Group Lien and s. 24 of the Act precludes him from paying amounts to a general contractor in the face of the lien.
[56] Peter relies on King Road Paving and Landscaping Inc. v. Plati, 2017 ONSC 6319, in support of his position that he should not have to pay twice and that I should direct that the funds continue to be held in trust. King Road Paving was decided under the previous statute. It does not address an award of an adjudicator.
[57] King Road Paving identifies, at para. 26, that the risk of paying twice arises only when the owner fails to hold back:
It would be absurd to suggest that an owner that complied with its obligations to retain the holdback and, following a lien action, paid the holdback to the successful subcontractor, should still be responsible for paying that same amount to the defaulting contractor. If that was permitted the defaulting contractor would obtain a windfall, and there would be no advantage to the owner retaining the holdback amount, since the owner would be responsible to pay the same amount twice whether it retained the basic holdback or not. That would be contrary to the statutory scheme, and in particular s. 23(2) of the Act (Aiken Bros. Hardware at para. 10). An owner is liable to pay the holdback twice only if it fails to comply with its obligation to retain the holdback. [Emphasis added.]
[58] In this case, Peter did not retain the statutory holdback and the invoices did not break out the statutory holdback.
[59] Peter’s concern that he will have to pay twice ignores the trust provisions of the Act. When Peter makes payment, the Bond Group will have to respect the trust provisions of the Act, including s. 8 of the Act. Section 8 sets out that all amounts received by a contractor on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor.
[60] When Peter pays the Bond Group in accordance with the Order, the Bond Group is a trustee for Okkin. It may not appropriate or convert for its own use any part of the trust until all the subcontractors and other persons who supply services or materials have been paid. Peter will get credit for this payment. This interpretation ensures that money can flow from the contractor to the subcontractor. Okkin is the only subcontractor of who I am aware.
[61] At this time, however, if I were to direct that the proceeds of the Adjudicator’s Order continue to be held in trust, it would defeat the purpose of the prompt payment provisions of the Act and create a path for delay.
Order
[62] Peter’s motion for directions that the funds continue to be held in trust is dismissed as I have no jurisdiction to interfere with the Adjudicator’s Order. The funds presently held in trust shall be released to the Bond Group. The parties have provided me with their cost outlines. If the parties cannot agree on costs, I will receive written submissions no longer than 3 double-spaced pages within 14 days of the release of this Endorsement.
Justice S.E. Fraser
Date: November 10, 2022