Judicial Review of Adjudications under the Construction Act: Court Denies Leave in Anatolia Tile
The Ontario Divisional Court’s recent decision in Anatolia Tile & Stone Inc. v Flow-Rite Inc., 2023 ONSC 1291 (“Anatolia”) defines the test parties must satisfy to obtain leave for judicial review of an adjudicator’s decision under the Construction Act, RSO 1990, c C 30 (the “Act”). This ruling provides some long-anticipated clarity and marks an important development since the adjudication regime was introduced in 2019.
- Parties must meet a stringent test to obtain leave to judicially review an adjudicator’s decision. As a result, adjudications under the Act will rarely be the subject of court intervention.
- Where leave is granted, an adjudicator’s decision will be reviewed on a reasonableness standard. In addition to the statutory grounds for review, an adjudicator’s decision can be challenged for lack of procedural fairness.
- The court will deny a party’s leave motion if the party has failed to make payments per the adjudicator’s order, or to obtain a stay. The case management judge is afforded wide-ranging discretion to direct the conduct of a stay motion when it is brought in conjunction with the motion for leave.
Adjudication under the Act
The Act has undergone significant amendments over the past five years. Among other measures, lawmakers introduced prompt payment requirements and a companion adjudication regime that came into force in October 2019.
The regime allows disputing parties to circumvent costly and time-consuming litigation. This is especially beneficial in the construction industry where delays and disruptions can be detrimental to the overall success of a project.
The key characteristics of adjudication under the Act include:
- Prompt Resolution: Adjudication is intended to be a fast-track process. An adjudicator must render a decision no later than 30 days after receiving the required documents.
- Informal Process: The process is less formal than litigation or arbitration, and the adjudicator has considerable discretion to determine the procedure that will be followed.
- Broad Jurisdiction: A fairly broad scope of disputes can now be settled by way of adjudication, for instance: disputes involving payment under the contract; the valuation of services or materials; or any other matter agreed to by the disputing parties. Further, an adjudicator has jurisdiction to determine if a claim is properly brought under the  In Anatolia, the court provided the following examples: an adjudicator can determine whether services or materials provided by a claimant are not lienable; whether a lien claim is out of time; or whether a contract in issue is invalid or has ceased to exist.
- Interim Decision: The adjudicator’s decision is binding only until a final determination is made by a court; an arbitrator; or a written agreement between the parties. Put simply—due to the interim nature of an adjudicator’s order—the parties can subsequently litigate or arbitrate the same dispute.
- No right of appeal: The Act does not permit the parties to appeal an adjudicator’s decision. Parties may, however, apply to have an adjudicator's determination judicially reviewed on prescribed grounds with leave of the Divisional Court. A motion for leave must be brought no later than 30 days after the adjudicator’s order is communicated to the parties.
- Judicial Review of an Adjudicator’s Order: In an application for judicial review, an adjudicator’s decision will be reviewed on a reasonableness standard. The court’s ability to set aside an adjudicator’s determination is restricted to situations where there has been procedural unfairness, or otherwise based on narrow statutory grounds. If the ground for review is procedural fairness, the court will consider the informal, prompt and interim nature of adjudications under Its assessment will focus on whether the moving party had a fair opportunity to be heard.
The Test for Leave to Apply for Judicial Review
The Act does not define the test for leave to apply for judicial review. In Anatolia, the court was tasked with developing a test that is consistent with the legislators’ intent as well as the realities of the construction industry. In doing so, the court emphasized that an adjudicator’s decision is interim, not final; it is designed to obtain a reasonable interim payment direction or dismissal, following a fast and informal process. Accordingly, the court reasoned, the test for leave in a judicial review of an adjudicator’s order is analogous to the test for leave to appeal an interlocutory order of a judge. In particular, the moving party must show that:
(1) there is good reason to doubt that the impugned decision is reasonable; or
(2) there is good reason to believe that the process followed by the adjudicator was unfair in a manner that probably affected the outcome below;
(3) That the impact of the unreasonableness or the procedural unfairness probably cannot be remedied in other litigation or arbitration between the parties; or
(4) The proposed application raises issues of principle important to the prompt payment and adjudication provisions of the Construction Act that transcend the interest of the parties in the immediate case, such that the issues ought to be settled by the Divisional Court.
The test is stringent, and makes clear that the court is only prepared to interfere with an adjudicator’s order in rare circumstances. Anatolia was no exception. The court held that the moving party did not meet the high bar for leave and accordingly, dismissed the motion without reasons (as is permitted by the Act).
The Effect of Non-Payment on a Leave Motion
At the outset of the court proceedings in Anatolia, the moving party brought a motion to stay the adjudicator’s order together with a motion for leave to apply for judicial review. The case management judge ordered that the stay motion be deferred until after the court had considered leave motion.
In the leave motion, the Divisional Court affirmed its earlier decision in SOTA Dental Studio Inc. v Andrid Group Ltd. which held that leave will be denied unless the party seeking leave has made prompt payment in accordance with the Act, or obtained a stay of the adjudicator’s order. That said, the Divisional Court decided that would not be a fair approach in this case because it would disregard the case management judge’s direction. In light of this issue the court provided guidance on the role of a case management judge for future cases:
- Whether a stay motion shall be argued before, after or together with a motion for leave for judicial review is within the discretion of a case management judge.
- A case management judge may direct payment into court as a condition precedent to permitting a stay motion and/or a leave motion.
At the end of its decision, the court again emphasized that a stay of an adjudicator’s payment order will not be granted as a matter of course when leave is granted and, where the stay is granted, securing the payment will generally be a term of the stay order. The court made clear that “[t]he Legislature’s goal is, clearly, ‘prompt payment’ and not just ‘prompt adjudication’.”