Ontario Superior Court tackles the issue of "paying twice" when construction lien claims and adjudications run simultaneously

The adjudication provisions under Ontario's Construction Act^[1] (the "Act") can create a situation wherein an owner of a construction project may have to "pay twice" as it relates to construction liens. This situation can occur when contractors and subcontractors register construction liens and seek adjudications on those liens simultaneously.

The "pay twice" issue was recently addressed by the Ontario Superior Court in Okkin Construction Inc. v. Apostolopoulos, 2022 ONSC 6367. In this case, the Court was unconcerned with the owner having to pay twice as any payment to the general contractor must be held in trust for the subcontractor as required by the trust provisions of the Act, thereby meaning the owner will get credit for any such payment.

Background

The Defendant, Peter Apostolopoulos ("Mr. Apostolopoulos") sought improvements on his family home (the "Project") and contracted Bond Group Ottawa 2018 Inc. (the "Bond Group") to undertake the necessary construction improvements for the Project. When construction delays arose, the Bond Group hired the Plaintiff, Okkin Construction Inc. ("Okkin"), to perform certain tasks on the Project.

As the works on the Project progressed, the Bond Group issued invoices to Mr. Apostolopoulos which were paid in full. However, the invoices did not address the statutory holdback and as a result, Mr. Apostolopoulos failed to retain the statutory holdback required under the Act. When the Project progressed over-budget due to fluctuations in the price of structural steel, Mr. Apostolopoulos refused to pay and terminated the Project contract as a result.

The Bond Group filed a Notice of Adjudication under the Act. But before the adjudication was heard, Okkin registered a construction lien against title to Mr. Apostolopoulos' property in the amount of $196,316.52. Soon after this, the Bond Group also registered a construction lien against Mr. Apostolopoulos' property regarding services and materials in the amount of $402,845.71.

At adjudication, the Adjudicator ordered that Mr. Apostolopoulos pay the Bond Group $207,668.91, inclusive of HST (the "Adjudication Order"). Okkin was not a party to the adjudication. Mr. Apostolopoulos did not satisfy the Adjudication Order, did not address the statutory holdback, and did not seek leave to appeal of the Adjudication Order. Rather, Mr. Apostolopoulos brought a motion for directions regarding Okkin's lien and paid $207,668.91 into an interest-bearing trust account. Mr. Apostolopoulos' chief complaint was that the Adjudicator's determination failed to account for Okkin's lien and that this triggered the statutory prohibition against making payment in the face of a lien, pursuant to section 24 of the Act.

Superior Court decision

There were two main issues before the Court: (1) whether an owner is required to withhold payments to a contractor, in the face of a perfected subcontractor lien under ss. 24(2) of the Act; and (2) whether it is appropriate in the circumstances, for the remaining amount of the Adjudication to be held in escrow pending further Court Order or a determination of the outstanding lien claims.

The Court first reviewed the case law on adjudication under the Act. Foremost, the Court looked to the Divisional Court's decision in SOTA Dental Studio Inc. v. Andrid Group Ltd, 2022 ONSC 2254 where it held that "absent a stay, the Act requires payment of an adjudicator's order."^[2] The Court next looked to the Divisional Court's decision in Pasqualino v. MGW-Homes Design Inc., 2022 ONSC 5632 where it addressed the purpose of the adjudication provisions in the Act. In doing so, the Divisional Court in Pasqualino held that there is no conflict when an owner has to pay twice as the Act "permits the owner to seek a reduction of security posted in court by the amount paid pursuant to the Adjudicator's determination."^[3]

In analyzing these two cases, the Court held that only one conclusion can be drawn:  absent a stay, which was not sought in this case, an Adjudication Order must be paid even if it means that someone will have pay twice in the short term. The Court found that Mr. Apostolopoulos' motion to vary the Adjudicator's Order in a separate proceeding is essentially a "stay". As such, the Court was of the view that it did not have jurisdiction in Okkin's lien proceeding to vary the Adjudicator's Order.

The Court did acknowledge, however, that the trust provisions under the Act, although not determinative of the entire issue, helps to address Mr. Apostolopoulos' concerns of paying twice. When Mr. Apostolopoulos makes a payment, the Bond Group is required to follow the trust provisions of the Act, which thereby makes the Bond Group a trustee for Okkin. As such, Mr. Apostolopoulos will get credit for his payment. This interpretation of the Act ensures that those lower on the "construction pyramid" who have supplied services and materials will be paid.

In sum, the Court rejected Mr. Apostolopoulos' arguments and held that if it were to direct that the proceeds from the Adjudicator's Order continue to be held in trust it would defeat the purpose of the prompt payment provisions of the Act.

Key takeaways

1. The Superior Court's decision in Okkin Construction Inc. clarifies that when an owner is subject to registered construction liens and associated adjudications concurrently, the trust provisions of the Act ensure that such an owner will receive credit for its payments.

2. If an owner is concerned that paying twice will put them in contravention of section 24—payments that may be made—of the Act, it ought to raise this issue with the Adjudicator that it not be required to pay until all liens claimed against the holdback are either expired, satisfied, discharged or otherwise provided for under to the Act.

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