Ontario Divisional Court clarifies the test for judicial review of adjudication under the Construction Act

In late 2019, the Ontario construction industry welcomed several amendments to the Construction Act,^[1] chief among them being the introduction of a prompt payment and adjudication regime to circumvent costly and time-consuming litigation. The prompt payment and adjudication regime is designed to secure a reasonable interim payment direction, while leaving open the ability for parties to revisit the substantive issues in other litigation and adjudication proceedings.

An adjudicator's decision under the Construction Act is an interim binding decision, but it is not final. The Construction Act does not provide for an appeal of an adjudicator's decision, rather judicial review is provided only with leave of the Divisional Court.^[2]

Prior to the decision in Anatolia Tile & Stone Inc. v. Flow-Rite Inc., 2023 ONSC 1291 ("Anatolia Tile"), there existed no judicial guidance on the test for leave to apply for judicial review of an adjudicator's decision under the Construction Act. In Anatolia Tile, the Divisional Court denied leave to appeal yet provided rare reasons on such a leave motion, in order to provide guidance as to the proper test for leave to apply for judicial review.

Key takeaways

The Divisional Court first specified that the interim nature of an adjudicator's adjudication is "fundamental to the prompt payment scheme of the Construction Act: it is designed to secure a reasonable interim payment direction, following a fast and informal process."^[3] In recognition that the prompt payment regime is premised on the purpose of expedited resolution of disputes, leave to apply for judicial review of such an interim decision will be rarely granted — in other words, there exists a high bar for leave being granted. The high bar recognizes that parties are without prejudice to revisit their substantive disagreements in litigation and private arbitration notwithstanding an adjudicator's interim decision.

Second, the Divisional Court provided two key points of clarification:

1. Where leave to apply for judicial review is granted, the standard of review is reasonableness.
2. Procedural unfairness may constitute a ground for judicial review, but such a review will be reviewed with the recognition that the prompt payment regime is intended to be an expedited process of dispute resolution.

Third, the Divisional Court set out the test to be satisfied for leave to appeal, which is as follows:

Either:

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.

And either:

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 arbitration 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.

Lastly, the Divisional Court clarified the effect of non-payment on a motion for leave to appeal:

1. Failure to pay in accordance with the prompt payment requirements of the Construction Act may lead the court to refuse leave.
2. Where leave is granted, an applicant must obtain a stay or must make payment, failing which the court may dismiss the application on motion to quash or at the hearing of the application.
3. It is in the discretion of a case management judge to stipulate whether a stay motion shall be argued (i) before the leave motion is decided, (ii) together with the leave motion, in writing, or (iii) by way of a separately argued motion after the leave motion is decided (if leave is granted).
4. It is in the discretion of a case management judge to direct payment into court as a condition precedent to permitting a stay motion and/or a leave motion to be brought while the moving party is in breach of the payment order.^[4]

The Divisional Court concluded its reasons by emphasizing that the legislature's goal of the prompt payment and adjudication regime is one of "prompt payment" and not just "prompt adjudication."^[5]

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