Construction Law

ODACC 2020 Annual Adjudication Report

On October 1, 2019, the prompt payment and adjudication regime under Construction Act, R.S.O. 1990, c. C.30 (the “Act”) came into effect in Ontario. The Ontario Dispute Adjudication for Construction Contracts (“ODACC”) is the entity responsible for administering the adjudication system, including training and qualifying Adjudicators.

ODACC is also required to publish an annual report containing important statistics about adjudications over the previous fiscal year. On October 1, 2020, ODACC released its first annual report (the “Report”).

Types of Adjudications

The Report notes that, as of ODACC’s fiscal year end of July 31, 2020, 32 notices of adjudication had been submitted to it. The adjudications commenced were in the following sectors:

  • Residential (22);
  • Commercial (5);
  • Public buildings (2); and
  • Transportation and infrastructure (3).

Of the adjudications commenced, 21 of them were “terminated” for the following reasons:

  • The parties settled (14);
  • A Determination was made and payment was ordered (3);
  • The dispute was ineligible as the contracts pre-dated October 1, 2019 (3); and
  • Other (1).

At the time of the Report’s release, 7 adjudications remained open.

Amounts in Issue

The value of the 32 notices of adjudication totalled $2,906,514.30, for an average value of $90,825.57. 

The 3 Determinations issued by Adjudicators, all of which were in respect of the residential sector, awarded a total of $35,459.40, for an average of $11,819.80 per claim. Of those disputes, none of involved prompt payment or payment of holdback, but rather, two dealt with “the valuation of services or materials provided under the contract” and one that dealt with “payment under the contract, including in respect of a change order, whether approved or not, or a proposed change order”. 

Contractors for 22 residential projects initiated the adjudication process, for claims totalling $487,275.20, for an average of $22,148.87.

There were 5 commercial claims, totalling $1,806,746.84, for an average of $361,349.37. There were 2 claims for public building projects totalling $240,348.78, for an average of $120,174.39. There were 3 claims for transportation and infrastructure, totalling $372,143.40, for an average of $124,047.83.

Adjudicators

Those interested in being qualified as an Adjudicator were required to attend a two-day program, answer a series of evaluative questions, and draft sample Determinations, amongst other things. A candidate is also required to have at least 10 years of relevant working experience in the construction industry.

A total of 319 individuals attended ODACC’S training programs during the fiscal year. ODACC collected $314,917.50 in training fees, as well as an additional $21,248.67 in qualification examination fees. 

85 individuals applied for certification, but only 65 were certified as Adjudicators. Of those certified, they are from the following professions (some individuals belong to more than one profession):

  • Engineer (28);
  • Project Manager (26);
  • Lawyer (22);
  • Quantity Surveyor (10);
  • Arbitrator (9);
  • Architect (2); and 
  • Accountant (1).

Flat rate fees payable to Adjudicators range from $800.00 to $3,000.00, while hourly fees range from $250.00 to $750.00 per hour. 

ODACC Custom System 

In addition, ODACC established a custom computer system in order to facilitate the administration of adjudications (the “Custom System”). The Custom System allows parties and their representatives to participate in the adjudication process by providing access to documents filed on the Custom System, standardized forms and notices, the ability to secure an Adjudicator, and more. ODACC also developed ‘How To’ guides and videos demonstrating how the Custom System works. 

Takeaways

It is early days for adjudication in Ontario and the process is not yet widely used. This is likely because most projects currently underway are governed by contracts that pre-date October 1, 2019. The use of adjudication will likely increase significantly as a greater share of projects become governed by post-October 1, 2019 contracts, and as more parties and their representatives become familiar with adjudication.

Divisional Court Confirms Summary Judgment Powers of Construction Lien Masters

In R&V Construction Management Inc. v. Baradaran, 2020 ONSC 3111, the Ontario Divisional Court overturned a decision of the Ontario Superior Court, holding that a construction lien master to whom an action has been referred by a judge is entitled to use the “enhanced powers” available on a summary judgment motion. The Superior Court’s decision was covered in our Summer 2019 Newsletter.

Background

R&V Construction Management Inc. (“R&V”) entered into a contract with Baradaran for the repair of flood damage and other renovations to Baradaran’s home (the “Project”). Following disputes on the Project, R&V registered a claim for lien against Baradaran’s home in the amount of $87,084.70. R&V perfected its lien claim by issuing an action, following which the case was referred by a judge to a master for trial. 

Masters Decision

Baradaran then brought a motion before Master Albert pursuant to s. 47 of the Construction Lien Act (the “Act”), seeking orders dismissing the action, and returning or reducing his lien security.

Master Albert characterized the motion before her as a motion for summary judgment. On a motion for summary judgment under r. 20 of the Rules of Civil Procedure (the “Rules”), a judge can use “enhanced powers” that allow him or her to weigh evidence, assess credibility and draw reasonable inferences in disposing of the motion. Master Albert found that, because the case had been referred to her as a construction lien master, she had all of the powers of a judge, including the enhanced powers under r. 20. Relying on those powers, Master Albert disbelieved Baradaran’s evidence, accepted R&V’s evidence, and prepared a report granting summary judgment to R&V (the “Report”). 

Appeal to Superior Court 

Baradaran then brought a motion to the Superior Court of Justice to oppose confirmation of the Report. The motion judge found that, as a master, Master Albert did not have jurisdiction to use the enhanced powers under r. 20, and thus exceeded her jurisdiction in granting summary judgment to R&V. The motion judge declined to confirm the Report and remitted the case back to a master. 

Appeal to Divisional Court 

R&V appealed the motion judge’s decision to the Divisional Court and asked it to confirm the Report.

Master’s Jurisdiction

The Divisional Court noted that s. 58 of the Act provides a judge with the power to refer the “whole action or any part of it for trial” to a master. It also provides that a person to whom a construction lien action is referred “has all the jurisdiction, powers and authority of the court to try and completely dispose of the action and all matters in question arising connection with the action…”. Further, s. 67 of the Act provides that construction lien actions should proceed as summarily as possible, and construction lien masters often hear interlocutory motions (such as motions for summary judgment) where the master believes it will expedite a resolution of the issues in dispute.

The Divisional Court noted that a master may be asked to adjudicate an issue in a construction lien action at two distinct times: before the case has been referred to him or her, or after a judge has referred the case to him or her. In the former situation, the master acts solely as a master under the Rules and does not have the jurisdiction or power of a judge. However, where the reference has been made to a master by a judge, then that master gains that jurisdiction.

The Divisional Court thus found that Master Albert was a referee to whom a construction lien action had been referred for trial, and therefore had the full range of powers available to a judge, including use of the enhanced powers on a motion for summary judgment.The Divisional Court thus determined that the motion judge erred in finding that Master Albert did not have proper jurisdiction to exercise those powers. 

Lack of Procedural Fairness

The Divisional Court then went on to find that Master Albert erred in granting summary judgment because the only motion before her was in respect of s. 47 of the Act and not for summary judgment. It was therefore unfair to grant summary judgment:

It is fundamental to a fair process that parties have notice of the issues that are before the court. This is trite law. Baradaran’s motion, brought under s. 47 of the CLA, did not give him notice of a motion for summary judgment under R.20 in which the court could grant judgment against him. And yet the court proceeded to do precisely that. This was unfair.

The Divisional Court went on to review the transcript of the hearing before Master Albert and highlighted the ways in which the aforementioned lack of notice compounded the unfairness to Baradaran, particularly in light of the fact that Baradaran was self-represented. Although this unfairness could have been cured by use of a fair process, for example, by advising the parties that it appeared to Master Albert that she could decide the case on the record before her if the parties agreed, that did not happen.

Given that Baradaran was deprived of procedural fairness, the Divisional Court determined that the Report could not stand, and that motion judge’s decision to decline confirmation of the Report should be upheld.

Conclusion

Although Master Albert did not expressly rule on Baradaran’s s. 47 motion, the Divisional Court held that by necessary implication she rejected it. The Divisional Court thus set aside Master Albert’s decision granting summary judgment, dismissed Baradaran’s s. 47 motion, and remitted the case back to a construction lien master.

Takeaways

This Divisional Court provides some welcome clarification on the powers of construction lien masters to whom a construction lien action has been referred. The Divisional Court’s ruling is consistent with the spirit of the summary judgment rules, the Act’s imperative that construction lien actions proceed as summarily as possible, and with the current practice of construction lien masters.


Divisional Court Affirms Limits to Subcontractor Claims Against Owners

In Tremblar Building Supplies Ltd. v. 1839563 Ontario Limited, 2020 ONSC 6302, the Ontario Divisional Court affirmed that the Construction Lien Act (the “Act”) is a comprehensive statutory scheme that does not permit subcontractors to make statutory trust claims, or unjust enrichment claims, against owners.

Background

Tremblar Building Supplies Ltd. (“Tremblar”) provided lighting supplies as a subcontractor of Keystone General Contracting (the “Contractor”), who in turn provided services and materials to Lighting Boutique (the “Owner”) in respect of a building project (the “Project”). 

Tremblar alleged that it was not paid for all of the materials it supplied to the Project, and claimed $30,326.95, interest, and costs, on the basis of its subcontract with the Contractor. Tremblar lost its construction lien rights because it did not register a claim for lien under the Act. As the Contractor was subsequently declared bankrupt, Tremblar pursued its claim through the bankruptcy proceedings. Tremblar also sued the Owner for the money it was owed, alleging two causes of action: a) breach of trust under the Act; and b) unjust enrichment. 

Motion Judge

The Owner brought a motion for summary judgment on the basis that it owed no trust duties to Tremblar, and that the Act does not permit a subcontractor to advance an unjust enrichment claim against an owner.

The motion judge determined that the Act requires that there be “privity of trust”, or a direct relationship between parties, in order for a trust claim to be available under the Act. As there was no privity of trust between Tremblar and the Owner, Tremblar’s trust claim could not succeed. The motion judge also agreed that the Act provides a comprehensive scheme for construction projects in Ontario, and that claims for unjust enrichment could not be grafted onto the scheme of the Act. The motion judge thus granted summary judgment to the Owner.

Divisional Court

Tremblar appealed the motion judge’s decision to the Divisional Court.

Scheme of the Construction Lien Act

The Divisional Court observed that the Act creates two distinct sets of obligations and remedies: the construction lien and the construction trust. These remedies are in addition to whatever contractual rights may exist between the parties.

As for the construction lien remedy, subcontractors are entitled to assert its construction lien rights against an owner by registering a claim for lien, thus entitling it to a rateable share of the statutory holdbacks retained by the owner from payment to the contractor. This creates security and a direct right of action between the subcontractor and the owner. 

As for the construction trust remedy, that trust runs concurrently with contractual obligations, “but only in respect to money received or receivable by the trustee in respect to the improvement”. In other words, owners do not hold funds in trust for subcontractors, but for the contractor with whom they have a direct contract. The contractor would, in turn, hold funds in trust for its subcontractors.

Analysis

As Tremblar did not register a claim for lien, it lost its right to a construction lien remedy.

With respect to the construction trust remedy, Tremblar argued that there was only one trust created by the Act and that Tremblar should be the beneficiary of that trust. The Divisional Court rejected this argument, finding that the Act creates an owner’s trust (s. 7) and a contractor’s trust (s. 8), and that the trustees and beneficiaries of these trusts are distinct. The trust under s. 7 is between the owner as trustee and contractor as beneficiary, and the trust under s. 8 is between contractor as trustee and subcontractor as beneficiary, but there is no trust between owner and subcontractor. Therefore, Tremblar’s trust claim against the Owner could not succeed.

In order to be successful in its claim for unjust enrichment, Tremblar had to show the Owner received a benefit, that Tremblar suffered a loss equal to the benefit to the Owner, and that there is no valid or "juristic" reason for the Owner to keep that benefit without payment to Tremblar. The Divisional Court ruled that the Act is a comprehensive scheme of rights and obligations under the Act, and was designed to address and augment the type of claims available to potential claimants. As such, the Act itself provides the juristic reason that precludes successful unjust enrichment claims by subcontractors against owners.

The Divisional Court thus dismissed the appeal and awarded costs to the Owner.

Takeaway

This case confirms that the Act is a comprehensive statutory scheme of rights and remedies for parties in the construction pyramid. It also confirms the nature of the construction lien and construction trust remedies, and restates the preclusion of successful unjust enrichment claims by subcontractors against owners.


Lack of Documentary Evidence Defeats Lien Claim

In Maplequest (Vaughan) Developments. Inc. v. 2603774 Ontario Inc., 2020 ONSC 4308, the Divisional Court upheld the dismissal of a lien claim as being out of time by relying on the date of the claimant’s final invoice, which was issued about a year prior to registration of the claim for lien, because the claimant did not produce any documentary evidence substantiating its claim that additional work was done at a later date.

Cost Sharing Agreement

The lands at issue (the “Property”) were owned by Cicchino Holding Ltd. (“Cicchino”). Maplequest (Vaughan) Developments. Inc. (“Maplequest”) owned three parcels of land adjacent to and surrounding the Property (the “Maplequest Lands”).

On April 25, 2016, Maplequest and Cicchino entered into a contract (the “Cost Sharing Agreement”) that required Maplequest to “design, construct and upfront the cost of a trunk storm sewer” through the Property, and of a road that would be built partly on the Property. Cicchino agreed to pay $1,000,102, subject to a number of contingencies and adjustments.

Construction Contract

On June 22, 2016, Maplequest contracted with TACC Construction Ltd. (“TACC”) to do the work required by the Cost Sharing Agreement (the “Construction Contract”). Maplequest was responsible to pay TACC under the Construction Contract. Cicchino was not a party to the Construction Contract.

On November 13, 2017, Maplequest delivered a “Landowner to Landowner Claim” to Cicchino, which attached an invoice for $1,420,311 in respect of the work completed pursuant to the Cost Sharing Agreement. When this invoice was delivered, Cicchino was in the midst of selling the Property to 2603774 Ontario Inc. (“260”), which closed on November 30, 2017.

On November 29, 2018, Maplequest registered a claim for lien against the Property in the amount of $1,604,951.40 for services provided between November 9, 2015 and November 29, 2018, and thereafter commenced a construction lien action against 260. Maplequest also brought a contractual claim against Cicchino.

Motion Judge

260 brought a motion under s. 47 of the Construction Lien Act (the “Act”)seeking an order discharging Maplequest’s claim for lien on the basis that the lien claim was registered out of time. The motion judge determined that Maplequest completed its work and fully invoiced for it by November 2017, which was eleven months before it registered its claim for lien. The motion judge thus discharged Maplequest’s claim for lien, and vacated its certificate of action, because it was registered out of time.

Divisional Court

Maplequest appealed the motion judge’s decision to the Divisional Court where it argued that the motion judge failed to consider evidence that the time to register the lien claim had not yet expired, and had erred in relying on the date of its invoice to determine when work was completed.

The Divisional Court noted that the motion judge compared a summary of costs attached to the November 13, 2017 invoice with the work described in the Cost Sharing Agreement, and found that the descriptions were co-extensive and appeared to include the entire contract price. In addition, the covering letter from Maplequest’s agent spoke of the work having been “completed”.

Although Maplequest had a witness state that 260 requested further work be done after November 2017, including services and materials for road finishing, sidewalk and curb work, Maplequest did not produce any corroborating documents, such as invoices or written requests for work. Maplequest produced payment certificates referring to this work being done after November 2017, but the certificates did not identify the lands on which the work was done.

Maplequest also argued that the motion judge erred in determining the issue on the basis of the invoice rendered in November 2017. The Divisional Court acknowledged that an invoice by itself might not establish when work was completed. However, where the invoice says that it is for the entire work, then, “in the absence of any other evidence, the invoice, by itself, may be sufficient to establish that the work was completed”. The Divisional Court found that the motion judge weighed the invoice, covering letter, and other evidence before him, and found that there was a sufficient factual basis to conclude that the work had been completed by November 2017. The Divisional Court thus dismissed Maplequest’s appeal.

Takeaways 

As this case demonstrates, maintaining proper records can be crucial to substantiating a lien claim, particularly where such records can corroborate the materials and/or services that were requested, those that were provided, the parties to whom they were provided, the dates they were provided, and a description of the lands improved by their provision.


Court Clarifies Different Appeal Routes for Masters’ Judgments and Reports

In Prasher Steel Ltd. v. Maystar General Contractors Ltd., 2020 ONSC 6598 (“Prasher”), the Divisional Court clarified the different and proper appeal routes to be taken with respect to “judgments” and “reports” issued by construction lien masters.

Background

In Prasher, a construction lien master granted judgment on a motion to enforce a settlement under r. 49 of the Rules of Civil Procedure (the “Rules”),or for summary judgment under r. 20 of the Rules

Divisional Court

On appeal to the Divisional Court, the jurisdiction of the master to hear the motion was challenged.

The Divisional Court noted that a judge of the Superior Court had previously ordered that the case be referred to a construction lien master. As the case remained before a master at the time the motion was heard, the Divisional Court held that “the Master had ‘all the powers of a judge’ to hear and decide the case”. Such powers include the power to decide motions under r. 49 and r. 20 of the Rules, in accordance with R & V Construction Management Inc. v. Baradaran, 2020 ONSC 3111, which was covered earlier in this newsletter.

Despite the master’s legitimate exercise of power, the Divisional Court held that the appeal was not properly brought before it, and described the procedural error as follows:

As a construction lien reference Master, the Master was required to embody his findings in a Report, which would then be subject to confirmation in the Superior Court [by a judge] pursuant to the Rules of Civil Procedure. The distinction between a Judgment and a Report matters: it determines the routes by which the Master’s decision may be reviewed and appealed. In particular, once the Master issues his Report, it is for an objecting party to move before a single judge of the Superior Court to oppose confirmation of the Master’s Report. The judge’s decision on the motion to oppose confirmation is then subject to appeal to a panel of the Divisional Court. An appeal from a final order granted by the Master is to a single judge of the Divisional Court, and thereafter to the Court of Appeal, with leave. In my respectful view, the Master erred in granting Judgment rather than issuing a Report, this error materially affects review and appeal rights, and cannot be allowed to stand for that reason. 

The Divisional Court noted that, although this procedural issue was not raised before the master and was raised in the Divisional Court by the court itself, it was nevertheless “an important point of practice in construction lien cases and affects the proper appeal routes”, and thus “is an error that cannot be ignored”.

The Divisional Court allowed the appeal, set aside the judgment of the master, and remitted the case back to the master to have a Report issued.

Takeaways

It is always helpful and appreciated when an appeal court clarifies the proper procedural routes litigants are required to take.