Court File and Parties

NEWMARKET COURT FILE NO.: CV-22-3330-00 DATE: 20230704 ONTARIO SUPERIOR COURT OF JUSTICE

IN THE MATTER OF the Construction Act, RSO 1990, C-30

BETWEEN:

Arad Incorporated Plaintiff – and – Alireza Rejali, Yazdan Sabet and Seyedeh-Sana Bagha Morady Defendants

Counsel: Ian Literovich and Aryan Yassavoli, for the Plaintiff/Respondent Esmaeil Mehrabi, for the Defendants/Moving Parties

Heard: June 8, 2023 via zoom

Decision on Motion

Sutherland J.:

Introduction

[1] The defendants bring an amended motion pursuant to s. 44 of the Construction Act (the Act), for the return of monies deposited into court.

[2] The plaintiff opposes the motion on the basis that the court has no material before it to grant the relief requested by the defendants except for the determinations of the construction dispute interim adjudicator. The determinations of the adjudicator are interim decisions. The determinations on their own are not sufficient for the court to grant the relief requested.

[3] For the reasons below, I dismiss the motion of the defendants.

[4] The plaintiff or perhaps the principle of the plaintiff, Vahid Arbati, entered into a contract with, Alireza Rejali to provide services and materials for an improvement on the property known as 132 Kersey Crescent, Richmond Hill, Ontario (the “Property”) owned by the defendants, Yazdan Sabet and Seyedeh-Sana Bagha Morady (the “owners”). The plaintiff claims that Mr. Rejali was acting as agent for, or as a joint venture partner of, the owners and as such, the plaintiff has a contract with the owners and Mr. Rejali.

[5] A dispute arose and the plaintiff alleges that monies are owed. The plaintiff registered a claim for lien and a certificate of action on the Property.

[6] The claim for lien and certificate of action were vacated from title pursuant to s. 44 of the Act as set out in the Order of Bird J. dated March 28, 2023.

[7] Two adjudications were commenced under Part II.1 of the Act. The first adjudication was commenced by the plaintiff seeking monies owed. The second adjudication was commenced by the defendant, Alireza Rejali, for monies allegedly overpaid to the plaintiff’s principle, Vahid Arbati.

[8] On January 4, 2023, the adjudicator, Ahmad Shahroodi, released his determination decisions. In those determinations, the adjudicator found that: “The Respondent [Mr. Rejali] in (sic) not liable to pay the Claimant [the plaintiff] the amount of $184,260.00 pursuant to the invoice number “final” of June 22, 2022, and this adjudication is hereby dismissed” and that “The Respondent [Vahid Arbati] is not liable to pay the Claimant [Alireza Rejail] the claimed amount of $119,000.00 and the adjudication is hereby dismissed.”

[9] Leave to judicially review or stay the adjudicator’s determinations was not sought by any of the parties.

Issue

[10] The issue for this court to decide concerns the interplay between the adjudication process in the Act and the claim for lien proceeding. In a nutshell, the issue is whether the determinations of the adjudicator that no monies are owed means that the money paid into court should be returned.

Position of the Parties

[11] The defendants argue that they are entitled to a full reduction in the monies paid into court. The defendants argue that based on the determination of the adjudicator, the plaintiff is entitled to no monies. The plaintiff did not seek leave to judicially review the determination or a stay of the determination. Thus, based on the decision of the adjudication, the court must order the monies paid into court be returned to the defendants.

[12] The plaintiff, as already stated, opposes on the basis that the adjudicator’s award is an interim order and based on that decision alone, the court cannot grant the relief sought by the defendants. To permit the monies paid into court to the defendants based on an adjudicator’s determination would result in the plaintiff losing any security for labour and material supplied. This would result in a contractor or owner obtaining relief by way of the removal of any security deposited for the benefit of a lien claimant without having to proceed to judicial adjudication of documentary discovery, examinations, and oral testimony subject to cross-examination. Such a result would defeat the purpose of the Act, to provide security for contractors and subcontractors for labour and material supplied for the improvement of property.

Applicable Legislation

[13] Pertinent provisions of the Act are:

Admissibility 13.13 (7) The determination and reasons of an adjudicator are admissible as evidence in court.

Setting aside on judicial review Leave required 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.

No appeal (4) No appeal lies from an order on a motion for leave to bring an application for judicial review.

No stay (7) An application for judicial review of a decision of an adjudicator does not operate as a stay of the operation of the determination unless the Divisional Court orders otherwise.

Reduction of amount paid into court 44(5) Where an amount has been paid into court or security has been posted with the court under this section, the court, upon notice to such persons as it may require, may order where it is appropriate to do so, (a) the reduction of the amount paid into court, and the payment of any part of the amount paid into court to the person entitled; or (b) the reduction of the amount of security posted with the court, and the delivery up of the security posted with the court for cancellation or substitution, as the case may be. [emphasis added]

Framework

[14] I frame the questions to answer as:

(a) What is the nature of the adjudicator’s determination? (b) Should the security be reduced or returned?

(a) The Nature of the Adjudicator’s Determinations

[15] In my views, which is not contested, the determinations of the adjudicator are interim decisions.

[16] In that regard, I agree with the statement of RSJ Ricchetti in Pasqualino v. MGW Homes Design Inc., 2022 ONSC 5632, at para. 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.

[17] As interim decisions, it does not put an end to the proceeding. The proceeding continues between the parties including that which was subject of the adjudication process. The determinations of the adjudicator are not binding upon this court. The findings and conclusions of an adjudicator set out in the determination is evidence, like any other evidence, this court may take into consideration in determining whether to exercise its discretion to reduce security “where it is appropriate to do so.” But an adjudicator’s conclusions are not determinative on the decision to reduce security.

[18] For the Court to determine if the security should be reduced or returned to the party that post or paid into Court, the requirements of s. 44(5) of the Act must be satisfied.

(b) Should the Security be Reduced or Returned

[19] In support of their amended notice of motion, the defendants have filed two affidavits deposed by Ms. Thomas, a lawyer at counsel for the defendants’ law firm. In those affidavits, Ms. Thomas set out the litigation history of the proceeding, the award of the adjudicator and the pleadings. Except for the determinations of the adjudicator, there is no evidentiary basis in the affidavits for the court to determine that the monies paid into court should be retuned to the defendants. The sole evidentiary basis is the determinations of the adjudicator.

[20] In the determinations, the adjudicator indicated that no witnesses were called. The adjudication was completed on documentary evidence, oral submissions, and a site visit. The determinations found:

The adjudication commenced by the plaintiff a. There was no written agreement but for handwritten instruction and priced items. b. There were major changes made as the construction progressed. c. Mr. Rejali was the general contractor. d. The February 3, 2022 handwritten Agreement included all the changes and additional work. e. The plaintiff did not provide proper monthly invoices and the adjudicator did not rely on the invoices submitted and relied on the Agreement and the amendment. f. The delivery of the labour and material was the plaintiff’s obligation. g. The plaintiff completed the work contracted and the amount for that work is $317,530.00 inclusive of HST. h. There is no legally binding contract in place and based on the principles of quantum meruit, the adjudicator’s of the opinion that the plaintiff was entitled to receive $279,675.00. i. The plaintiff has received more than the $279,675.00 and as such no monies are owed.

The adjudication commenced by Mr. Rejali against Mr. Arbati a. The plaintiff corporation was retained to do the renovation work not Mr. Arbati. b. The agreement was not between Mr. Rejali and Mr. Arbati. c. Mr. Arbati is not the person that received any funds and is not responsible for any overpayment claimed by Mr. Rejali.

[21] In determining whether the court should reduce or return the security posted, I agree with Justice Boswell in Pentad Construction Inc. v. 2022988 Ontario Inc., 2021 ONSC 824, at para. 81:

[81] The assessment of evidence in support of, or contrary to, the amount claimed is to be approached much in the same way that the evidentiary record is approached on a motion for summary judgment. See H.I.R.A., para. 10 and HMI Construction Inc. v. Index Energy Mills Road Corp., 2017 ONSC 4075 (Div. Ct.) at para. 25.

[22] Tranquilli J. came to a similar conclusion in Chesney et al v. Malamis et al that the test on a motion under s. 44(5) of the Act is similar to but not the same as the test on a summary judgment motion. I agree with Tranquilli J. that the question is narrower than that on a summary judgment motion. The material question becomes is whether there is an amount that may attract the security afforded by the proper preservation and perfection of a proper construction lien per the Act.

[23] The court must be satisfied on the basis on the motion material that there is no reasonable prospect of the lien claimant proving that the lien claimed attracts the requirement to attract security per ss. 44(1) or (2) of the Act.

[24] In reviewing the only evidence provided, the adjudicator’s determinations, I am not inclined to grant the relief of the defendants for to do so would remove any security the plaintiff/lien claimant may have without the necessary evidentiary foundation. The determinations of the adjudicator alone do not meet the evidentiary threshold required for the court to conclude that the lien claim does not attract need for security.

[25] I make this conclusion for several reasons. The adjudicator made findings based on his opinion as an engineer and not based on the expert opinion or reports of others presented by either of the parties. His opinion was not subject to contestation by any of the parties. He made findings based on a site visit and verbal statements during the oral hearing. His findings were not all based on admissible evidence. He admitted that there was contradicting claims and statements made by the parties on the facts: the agreement and the scope of work to be performed and the worked performed. The adjudicator conceded that he did not consider the extra claims of the plaintiff for, in his opinion, he did not receive “proper evidence”. The adjudicator also decided to just rely on the documentation provided and use his own construction and engineering experience to make final determinations.

[26] As the plaintiff argues, to permit the plaintiff’s security to be reduced to zero at a very early stage of the litigation based on this adjudicator’s determinations alone would not only be contrary to the purpose of the Act but also would provide owners and contractors with an easier means to invalidate the security to lien claimants that the Act provides. That, in my opinion, is not the purpose of the adjudicative process in the Act. The adjudicative process is an interim measure to keep money flowing down the construction pyramid to the persons that provided labour and materials for the improvement to property so that such persons can be paid on a timely basis. It is not to determine the legal rights of the parties on a final basis.

[27] Consequently, I am not satisfied that the evidence provided on this motion persuades me that there is no money owed to the plaintiff for work performed or that there is no amount that could reasonably attract payment of security pursuant to the Act. In a nutshell, I am not persuaded that it is appropriate on the evidence provided to reduce or return the security posted.

[28] For the adjudication process, I make no assertion that such a methodology is or is not permitted. I appreciate that the process is an interim one to provide a quick and efficient determination to get the money flowing down the construction pyramid. Not all evidentiary rules may be adhered to. Not all evidence provided may be subject to scrutiny through the discovery process or subject to cross examination. As such, the court should be weary solely relying on the findings of an adjudicator in this process to conclude that security paid per s. 44 of the Act should be reduced or returned.

[29] I am cognizant of the defendants’ arguments that if an adjudicator finds that a contractor or subcontractor is not owed any monies that the person who posted security into court should be able to get that security back. As counsel contended, it is a two-way street that benefits all parties involved, the contractor, subcontractor, and owner. This is a valid point but misses the bigger picture, in my view. The court may reduce or return security posted in the court with evidence presented that persuades the court it is appropriate to do so, as outlined in s. 44(5) of the Act. In this case, relying solely on the determinations of the adjudicator does not meet the threshold for this court to determine that in the circumstances of this case that it is appropriate to do so.

[30] The defendants further argued that the court can also reduce the security to an amount it deems appropriate. I do not accept this argument. There is no evidentiary foundation for the court to do so. To pick a number out of the air is arbitrary, at best. In addition, to reduce the security by the principal amount but leave the costs component would also be an arbitrary determination without any evidentiary or legal basis to do so. I reject that submission as well.

Disposition

[31] I dismiss the motion of the defendants.

[32] Based on the agreement between the parties, I order costs in the cause.

Justice P.W. Sutherland Released: July 4, 2023