Despite early views that the Ontario Divisional Court may be reluctant to interfere with the decision of an adjudicator, in fact, 2023 and 2024 saw several Divisional Court decisions relating to adjudication.
Ledore Investments Ltd. v. Dixin Construction Ltd., [2024] O.J. No, 414 involved a claim by Ledore Investments, carrying on business as Ross Steel Fabricators & Contractors ("Ross Steel") for payment of certain invoices rendered to Dixin Construction. The project involved certain improvements to the west entrance and campus bookshop at Lambton College ("Project"), for which Dixin Construction was the general contractor. Ross Steel acted as subcontractor to Dixin Construction for the supply and installation of structural steel, a roof deck, and one five-flight staircase.
During the course of the Project, Ross Steel rendered three invoices for the supply of materials to Dixin Construction totaling $349,263.57, inclusive of HST and holdback. The evidence was that Dixin Construction never gave a Form 1.3 Contractor Notice of Non-Payment for the three invoices, which would require the reasons for non-payment to Ross Steel.
It was not in dispute that Lambton College paid Dixin Construction a total of $559,924.40, inclusive of HST for materials supplied by Ross Steel, yet Dixin Construction only paid Ross Steel the amount of $327,214.69, inclusive of HST.
During the course of the Project, a delay dispute arose between Ross Steel and Dixin Construction: Ross Steel was supposed to have begun steel erection in July or August of 2021, but was not on site until November 2021, citing global steel supply chain issues, presumably preventing it from procuring the material earlier than it did.
On March 9, 2022, Dixin Construction delivered a notice of default to Ross Steel, which contained an opportunity to cure the default. On April 1, 2022, Dixin terminated Ross Steel's subcontract, alleging that Ross Steel failed to agree to a project schedule, failed to perform the subcontract work in a timely manner, and for alleged deficiencies. Dixin Construction sought to set off against amounts owed to Ross Steel, amounts for deficiency rectification and delay. The evidence was that Dixin Construction did give notices of non-payment with respect to invoices after March 9, 2022, including the final invoice and invoice for holdback.
Ross Steel referred the dispute to arbitration by filing a Notice of Adjudication with ODACC. On a written record, Ross Steel sought payment of its invoices. Dixin Construction defended on the basis of alleged entitlement to withhold payment as a result of deficiencies and delay, notwithstanding that it did not give notices of non-payment.
The adjudicator concluded that Dixin Construction was not required to pay Ross Steel under its invoices, reasoning that the invoice from Dixin Construction to the owner was not a "Proper Invoice", defined in the Act.
Neither party raised the issue of whether the invoice from Dixin Construction to Lambton College was a "proper invoice". Despite this, the adjudicator determined that, because Dixin Construction had not delivered to Lambton College a "proper invoice" as defined in the Act, the Act's prompt payment provisions did not apply. Had they applied, the adjudicator went on to write, he would have found that the three invoices for which no notice of non-payment was given, must be paid. The adjudicator would not have allowed Dixin Construction to rely on the defence of set-off against the first three invoices, because of its failure to give a notice of non-payment.
Ross Steel sought leave to seek judicial review of the adjudicator's decision on the grounds of the matter being entirely unrelated to the subject of the adjudication, and that the procedures followed in the adjudication did not accord with the procedures to which the adjudication was subject to and prejudiced the applicant's right to a fair adjudication.
In the result, the Divisional Court held that the adjudicator's decision was not procedurally fair pursuant to s.13.18(5) and should be set aside.
Interestingly, the Divisional Court found that Ross Steel was not entitled to the full range of procedural protections that would apply to an arbitration or court hearing where a final decision is being made, whereas an adjudication involves a "fast an informal process intended to secure an interim result..." (para 26). Here, however, while the adjudicator's decision is interim, it is still important. The procedural entitlements were not so low as to eliminate the fundamental right to be heard on the issue to be determined.
The Court held, at paras. 28 and 29:
- 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.
- 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 [...]
Ross Steel was not able to make submissions on whether Dixin's invoices were "proper invoices", because the subject of the adjudication was whether the monies paid by Lambton College to Dixin Construction should flow down to Ross Steel, because there were no notices of non-payment. Additionally, the statutory scheme does not preclude the adjudicator from requesting further submissions on the issue to be determined. Here, Ross Steel was entitled to be heard by written submissions on the pivotal issue.
The Divisional Court declined to reconsider the matter and substitute its own analysis, and instead remitted the matter back to the adjudicator for determination in accordance with the Court's analysis.
A key take-away from this decision is that adjudication, which can be described as "rough justice" or "swift justice", and meant to be fast and efficient, must still be procedurally fair, which is fundamental to resolution of any dispute.
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