Canada: There Has To Be Something More: Court Finds Decision Of Adjudicator Insufficient To Reduce Security

How, if at all, does an unsuccessful interim adjudication effect a party's lien rights? In Arad Incorporated v Rejali et al, 2023 ONSC 3949¹ the Ontario Superior Court dismissed a defendant's motion for the return of monies deposited into court as security to a lien claim—even though an interim adjudicator had determined they were not liable to pay the plaintiff. This case examines the evidentiary burden required to be met for the court to reduce or return security under s. 44 of the Construction Act²(the "Act").

Background

The plaintiff entered into a contract with one of the defendants, an agent of the other defendants – the owners of a property (the "Property"). The plaintiff claimed that they were owed money on the contract, and registered a lien, which was vacated pursuant to s. 44.

Each party commenced an adjudication under the Act. The plaintiff sought money owed by one of the defendants, while one of the defendants sought money allegedly overpaid to the plaintiff. On January 4, 2023, the adjudicator determined that neither the plaintiff nor the defendant were liable to pay the other.

The defendants then brought a motion pursuant to s. 44 for return of the monies deposited into court.

Decision

Sutherland J. dismissed the motion of the defendants.

In doing so, Sutherland J. first highlighted that the determinations of the adjudicator were interim only, and were not binding on the Court or determinative in respect of the decision to reduce security deposited into court.³ The adjudication provisions in the Act are intended to provide quick determinations which would keep money flowing down the "contractual pyramid" in a construction dispute, to persons who supplied labour and materials for the improvement to the property to keep them paid on a timely basis. However, the adjudicative process is not intended to determine the legal rights of a parties on a final basis, and parties are permitted to litigate the issues as the proceedings continue.⁴

For the Court to determine if the security should be reduced or returned to the party that posted or paid into Court, the requirements of s. 44(5) of the Act must be satisfied. Under s. 44(5) of the Act, a court may order money that had been paid into court or security posted with the court to be reduced and the payment of any part of that amount to be paid to the person entitled, where it is appropriate to do so.⁵

In determining whether security should be reduced or returned, the Court assesses evidence in "much the same way that the evidence record is approached on a motion for summary judgment".⁶ Ultimately, 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 section 44(1) or (2) of the Act".⁷

Here, the Court found the defendants had not met the evidentiary threshold. The only evidence on the motion was the determinations of the adjudicator.⁸ The Court noted the nature of the interim process that had been utilized by the adjudicator, which was designed to provide a quick determination to get money flowing down the construction pyramid. As such, not all evidentiary rules may be adhered to.⁹ For example, not all of the findings of the adjudicator were based on admissible evidence, and he had made certain findings based on his opinion as an engineer and not the expert opinions tendered by the parties.¹⁰

In this context, Sutherland J. held "the court should be weary (sic) 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."¹¹ Further, the Court agreed with the plaintiff, who argued that permitting the plaintiff's security to be reduced to zero at a very early stage of the litigation based only on this adjudicator's determinations would be contrary to the Act, and would also provide owners and contractors with an easier means to invalidate the security to lien claimants that the Act provides.¹²

Key Takeaways

• It is important to remember that interim determinations of an adjudicator under the Act are, in fact, interim. They are not binding on the courts or arbitrators.
• As Sutherland J. held, the findings and conclusions of an adjudicator are evidence that a court "may take into consideration", but are not determinative.
• In the right case, Courts may be willing to reduce or return security posted in the court to lien claimants if there is a sufficient evidentiary basis to persuade the Court that it is appropriate to do so. Defendants must put a compelling record before the Court on such a motion, as they face a high evidentiary burden—they must prove that there is no reasonable prospect of the lien claimant proving that the lien attracts the requirement to attract security.

Footnotes

1. Arad Incorporated v Rejali et al, 2023 ONSC 3949.

2. R.S.O. 1990, c. C.30, s. 44(5)

3. Arad Incorporated v Rejali et al, 2023 ONSC 3949 at paras 16-17.

4. Arad Incorporated v Rejali et al, 2023 ONSC 3949 at paras 16, 26.

5. R.S.O. 1990, c. C.30, s. 44(5)

6. Arad Incorporated v Rejali et al, 2023 ONSC 3949 at para 21.

7. Arad Incorporated v Rejali et al, 2023 ONSC 3949 at para 23. [emphasis added]

8. Arad Incorporated v Rejali et al, 2023 ONSC 3949 at para 19.

9. Arad Incorporated v Rejali et al, 2023 ONSC 3949 at para 28.

10. Arad Incorporated v Rejali et al, 2023 ONSC 3949 at para 25.

11. Arad Incorporated v Rejali et al, 2023 ONSC 3949 at para 28.

12. Arad Incorporated v Rejali et al, 2023 ONSC 3949 at para 26.

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