Termination of a construction contract does not terminate the right to adjudication

Despite having come into effect on October 1, 2019, there is little judicial case law interpreting or applying the adjudication provisions in the Construction Act. In the recent decision of Pasqualino v. MGW-Homes Design Inc., 2022 ONSC 5632 the Divisional Court provides helpful guidance to the construction industry on the availability of adjudication to resolve disputes.

Background

Mr. Pasqualino retained MGW-Homes Design Inc. (MGW) as a contractor for a renovation project at Mr. Pasqualino’s home by a fixed-price contract. A dispute arose between Mr. Pasqualino and MGW, and MGW registered a construction lien and started an adjudication under the Construction Act. The adjudicator decided that Mr. Pasqualino must pay $119,314 to MGW.

Mr. Pasqualino did not pay the amount ordered by the adjudicator and brought a motion to the court requesting an application to set aside the adjudicator’s determination on the basis that the contract “ceased to exist”, which is one of the grounds to set aside an adjudicator’s determination under section 13.18(5) of the Construction Act.

A challenge to an adjudicator’s jurisdiction must be raised to the adjudicator

The Divisional Court first looked to see if the issue of whether the “contract ceased to exist”, which would call the adjudicator’s jurisdiction into question, was brought to the adjudicator’s attention. The court found that this issue was not raised with the adjudicator and, instead, that Mr. Pasqualino had agreed to the adjudication. The court concluded that “if there was a challenge to the jurisdiction of the Adjudicator, it should have been raised before the Adjudicator”.

Termination or abandonment of a contract does not mean the contract has “ceased to exist”

Although section 13.5(3) of the Construction Act states that an adjudication may not be commenced if the notice of adjudication is given after the contract or subcontract is completed (unless the parties agree otherwise), the Divisional Court found that adjudications are not intended to be available only while construction proceeds and that termination or abandonment does not mean the contract or subcontract has “ceased to exist”.

The court explained that the simplified and expeditious process of construction adjudication would be defeated if the adjudicator was required to make potentially complex factual and legal determinations on whether a contract was abandoned or terminated, and if so, whose fault it was.

An existing lien action does not prevent an adjudication from proceeding

The Divisional Court also found that an existing lien action does not prevent the parties from adjudicating a dispute. The Construction Act allows disputes to be referred to adjudication regardless of whether there is a lien or court action relating to the same subject matter. The adjudication allows for an interim decision of the dispute, while preserving the right for the parties to seek final determination through the court or arbitration. This is true even where a lien has been vacated from title to the property by payment into court.

Things to know from this case

If a party intends to challenge the jurisdiction of an adjudicator, the challenge should be raised to the adjudicator at the outset of the adjudication.

Termination or abandonment of a contract or subcontract does not mean that the contract or subcontract has “ceased to exist” under section 13.18(5) of the Construction Act.

Adjudication is not intended to require that an adjudicator make factual and legal determinations on whether a contract was abandoned or terminated, and if so, whose fault it was.

An adjudicator can make an interim decision while a lawsuit proceeds for final determination of the dispute.