Statutory adjudication in Ontario has, since its introduction, generated a meaningful body of case law. This case law has addressed concerns of procedural fairness, generating ample debate about the extent to which parties are entitled to procedural protections in adjudication as compared, for example, to arbitration or litigation.
Recently, this topic has generated a further case of significance. In Feldt Electric Ltd v Gorbern Mechanical Contractors Limited, 2025 ONSC 4150, the unsuccessful party in an adjudication refused to comply with a determination on the basis of jurisdictional and procedural fairness objections, resulting in the successful party moving to discharge the unsuccessful party's lien, dismiss its action, and return the lien security posted, or, alternatively, to stay its action and return the security. The recalcitrant party was successful in defending the motion, with its only adverse consequence being a disentitlement to costs.
Below, we review the implications of the decision.
Factual Background
The Toronto District School Board (the "TDSB") contracted with Gorbern Mechanical Contractors Limited ("Gorbern") to act as general contractor for a project at a school. Gorbern subcontracted with Feldt Electric Ltd. ("Feldt") to perform electrical work for $93,350 plus HST.
Gorbern and Feldt ultimately fell into dispute regarding whether certain work was within Feldt's scope. Feldt declined to perform the work in question without a change order and further payment, estimating that it would require an additional $100,000. In coordination with Gorbern, Feldt prepared a proposal, plans, and cost estimates for this work, following which Gorbern submitted a proposed change order to the TDSB. The TDSB rejected the change order.
Following the rejection, Gorbern took the position that Feldt was obligated to perform the work as part of its original scope. Feldt continued to maintain that it would not perform the work without a commitment to payment. Gorbern ultimately issued notices of default and terminated Feldt's right to perform the disputed work. Gorbern then contracted with another trade to complete the work at a cost of $94,017.20.
Gorbern then commenced adjudication with respect to whether Feldt was liable to pay the $94,017.20. An adjudicator was assigned to the dispute, who found that he had jurisdiction despite Feldt's objections, and reached a determination in Gorbern's favour. Feldt was directed to pay Gorbern. Gorbern filed the adjudicator's determination with the court under s. 13.20(1) of the Construction Act, rendering it enforceable as if it were an order of the court.
Feldt did not seek judicial review of the determination, and instead simply refused to pay it. Feldt preserved its lien and commenced a lien action, in response to which Gorbern posted security.
Following Feldt's refusal to pay, Gorbern brought a motion to discharge Feldt's lien, dismiss its action and return the security, or in the alternative, stay the action and return the security.
The Application Judge's Decision
Whether to Discharge the Lien on the Merits
The Court first considered whether Feldt's lien should be discharged (and the action dismissed) on the merits under s. 47 of the Construction Act, concluding that it should not.
On this issue, Gorbern argued that there was no triable issue with respect to its set-off claim and counterclaim, which exceeded the aggregate of Feldt's liens; even if Feldt were able to prove its claim in full, it would recover nothing, such that dismissal and discharge were warranted.
The Court concluded that there were issues that required a trial, particularly concerning whether the disputed work was within Feldt's scope. Feldt had originally estimated the work would cost $100,000 (close to the amount it ultimately billed), such that it was found that there was uncertainty as to whether Feldt had agreed that it would perform nearly $200,000 for half of that price.
Furthermore, Feldt had not signed Gorbern's purchase order, although the purchase order was subsequently referenced in Feldt's invoices. There were triable issues as to whether the language of the purchase order was agreed to by Feldt, whether Feldt's quotation governed, and the legal relationship between the two documents. As a result, the Court concluded that discharging the lien and dismissing the action would not be appropriate in the circumstances.
Whether to Stay the Action
In the alternative, Gorbern argued that the lien action should be stayed until such time as Feldt paid the determination, and that the security should be returned in that context.
Gorbern argued that although the Construction Act does not specifically provide that a lien action may be stayed for a breach of the Act's provisions, the Court nevertheless had the authority pursuant to the Rules of Civil Procedure (which apply to lien actions1 except to the extent of any inconsistency with the Construction Act and its regulations).2 Gorbern analogized Feldt's failure to pay to a failure to pay an award made in a proceeding and/or a failure to comply with an interlocutory order.
The Court began by observing that Ontario's prompt payment and adjudication regime operates in addition to the Construction Act's lien regime, such that an unsuccessful adjudication cannot prevent a contractor from liening the same amount rejected by the adjudicator. On the other hand, compliance with the adjudication provisions are mandatory, and accessing the lien remedy entails complying with other obligations under the Act. Ultimately, however, the Court concluded that reasons for non-compliance with a determination may matter, depending on the facts of the case.
Within that context, the Court reviewed Feldt's complaints about the adjudication in order to assess what remedy would be appropriate in the circumstances. On this point, the Court observed that it was within the Divisional Court's jurisdiction to determine whether the adjudicator was entitled to adjudicate the matter before him, and whether the procedure followed in the adjudication was fair; however, the Court nevertheless concluded that it was able to review these issues within the context of deciding whether to grant relief on Gorbern's motion.
Feldt's concerns about the adjudication process were as follows:
- the adjudicator found he had jurisdiction to deal with the dispute, despite Feldt objecting on the basis that the proposed adjudication was not merely an issue of payment, but rather required a determination of the scope of work before any determination could be made regarding payment;
- the adjudication dealt with issues beyond the scope of those permitted by the Construction Act without Feldt's consent;
- the adjudicator proceeded with the adjudication in the absence of evidence from or participation by Feldt; and
- the adjudicator ignored Feldt's report from a third-party expert on Feldt's scope of work.
The Court focused only on the first concern, as it was found to be dispositive of the entire matter (although the Court observed in passing that those three also had merit).
Specifically, the Court focused on the adjudicator's conclusion that he had jurisdiction because the dispute fell within ss. 13.15(1)(1) and/or (2) of the Construction Act, which respectively reference (1) valuation of services or materials provided under the contract, and (2) payment under the contract, including in respect of a change order, whether approved or not, or a proposed change order. Upon reviewing the adjudicator's decision, his jurisdictional finding was based in substance on the conclusion that the dispute was regarding the "valuation of services or materials provided under the contract", and the adjudicator did not meaningfully discuss the change order.
The Court took issue with aspects of the jurisdictional decision, including that it appeared to state Gorbern's position as fact, and that it did not meaningfully address any of Feldt's concerns. Rather, it simply acknowledged those concerns in passing. (It appears Feldt initially raised its jurisdictional concern via email, and then again in a meeting convened by the adjudicator, but then declined to deliver formal submissions despite the adjudicator requesting them.)
In any event, this was not a situation where the contractual scope of work was agreed to, and the adjudicator's determination required either an assumption or a finding that the disputed electrical work was within Feldt's scope of work. This involved an exercise in contractual interpretation, which, according to the Court, is not among the matters referable to adjudication without both parties' consent. Consequently, the Court concluded (seemingly in obiter) that the adjudicator appeared to have exceeded his jurisdiction, calling into question the entire adjudication.
Given the foregoing, the Court observed that only Rule 60.12 applied, given that the determination was filed with the court. However, Gorbern did not tender any case law under Rule 60.12, and the operative language of the Rule was that the Court may stay the proceeding or grant other relief (i.e., it was at the Court's discretion). In refusing to grant a stay, the Court observed that doing so would be disproportionate to the nature of Feldt's breach.
That being said, the Court concluded that although it considered the circumstances of the adjudication in this case, that may not be true in all cases, and that conversely, it might be appropriate in other cases to stay a lien action (or a defence to one) pending compliance with an unpaid determination. (The implication presumably being that, if the Court were in agreement with an adjudicator's conclusion on jurisdiction, then a stay might be appropriate.)
Whether to Order the Return of Security
On the issue of whether to reduce the security posted by Gorbern to zero (and consequently order the return of the security), the Court also declined this relief. Because Feldt's lien attached to the security, its return would mean that the lien would attach to nothing. This would effectively result in the discharge of the lien by other means. If such an order were granted, a determination – which is non-binding on the Court –would become the basis for an order effectively disposing of Feldt's lien without any prior order for compliance with the determination.
Having rejected Gorbern's requests for relief, the Court finally observed that Feldt was not entitled to its costs due to its ongoing refusal to pay the determination. That being said, the Court also observed that it had considered granting a stay and requiring Feldt to either pay Gorbern or post the determination amount into court as a precondition to continuing its action, but ultimately decided against it. Notably, the Court also cautioned that other litigants should not assume they will achieve a similar outcome if they defy a determination without seeking judicial review.
Commentary
Although Feldt presented a challenging case for the Court, particularly because the party that was successful in the adjudication chose to attempt to attack the unsuccessful party's lien and not enforce the determination as a judgment, it raises certain concerns. In the result, the Court declined to discharge the lien, dismiss the lien action, or return the security for the lien; however, in the circumstances, the Court's close analysis of the adjudicator's jurisdiction, and the procedural fairness of the adjudication, resulting in the refusal to grant a stay raises both jurisdictional and substantive issues that require further consideration.
In effect, the Court was faced with the task of articulating the interface between adjudication and lien proceedings, a challenge by anyone's standards.
Fundamentally, adjudication was intended to be a rapid form of dispute resolution with its animating theory being "pay now, argue later". In Feldt, the unsuccessful party not only refused to "pay now" in the face of what was effectively a court order – it avoided responsibility for its behaviour by receiving no more punishment than disentitlement to its costs on the motion.
There is accordingly a risk that adjudication participants may try to replicate Feldt's success based on a cost-benefit analysis – if lost costs on a motion are less than the cost of complying with a determination, then those thrown-away costs are simply the price of doing business. This is particularly true as adjudication continues to handle increasingly large matters, where the values in dispute may significantly exceed legal costs.
Second, adjudication was premised upon the proposition that adjudicators have the "right to be wrong" in the first instance, and that an error will not prevent payment of a determination. If a party is dissatisfied with the outcome, including based on jurisdictional or procedural fairness concerns, then it has an express avenue for seeking recourse via judicial review and/or ordinary-course litigation or arbitration. In addition, the proposition that an exercise of contractual interpretation is beyond an adjudicator's jurisdiction may have the unintended consequence of limiting the ambit of adjudication, significantly constraining its efficacy.
Further, although the Court observed that the Divisional Court holds the jurisdiction to determine whether the adjudicator was entitled to adjudicate the matter before him, the Court nevertheless undertook a detailed analysis of the adjudicator's jurisdictional decision, finding that it appeared the adjudicator exceeded his jurisdiction and that the entire adjudication was therefore in question. Accordingly, Feldt also gives rise to an element of jurisdictional uncertainty as between the Divisional Court and the Superior Court.
If Gorbern seeks (and is granted) leave to appeal this decision (given that it is presumably an interlocutory order), then it stands to reason that the Court's analysis on this point may be entitled to deference from the Divisional Court insofar as the Court here was arguably considering a question of mixed fact and law. In practice, then, the Court's approach on this issue will essentially have created an intermediate level of appellate review of jurisdiction – all because Feldt refused to apply for judicial review to the Divisional Court, despite being required to do so if it wished to challenge the adjudicator's determination. This suggests an unintended downloading of jurisdiction from the Divisional Court to the Superior Court.
Furthermore, it is worth considering that this jurisdictional concern – as well as one of Feldt's procedural concerns about the adjudication proceeding without Feldt's participation – appears to have stemmed from Feldt's own refusal to participate in the adjudication. As noted by the Court, Feldt delivered an email expressing its jurisdictional concerns and subsequently participated in a meeting on the topic, but then refused to deliver formal submissions despite being invited to do so by the adjudicator. It is not clear from the judgment whether Feldt similarly refused to participate in the substantive portions of the adjudication.
In any event, this refusal to participate left the adjudicator in the difficult position of making a jurisdictional decision in the absence of full submissions from Feldt, resulting in what appears to have been (unsurprisingly) a somewhat one-sided analysis. To be clear, Feldt was not entitled to refuse participation, nor to ignore the determination, but appears to have again been rewarded for flouting its obligations.
Ultimately, Feldt presents a concerning possibility that obstructive litigants as will use the decision as a blueprint for resisting enforcement. As noted, obstructive parties may simply object to an adjudicator's jurisdiction on the basis that contractual interpretation is required to resolve the dispute (and what dispute does not require contractual interpretation?), refuse to participate, refuse to comply with a determination, and then rely upon their earlier refusals as a basis for resisting enforcement on grounds of jurisdiction and/or procedural fairness.
This recalls concerns that we have raised in prior publications3 about adjudication receiving judicial treatment too closely akin to arbitration, when it was intended as a "rougher" form of justice. The preferred solution, in the authors' view, would have been the one considered by the Court – granting a temporary stay and requiring Feldt to either pay Gorbern or post the amount of the determination in court as a precondition to continuing its lien action, but declining to discharge Feldt's lien, dismiss Feldt's lien action, or return Gorbern's security. At the same time, it is worth noting that the net effect of the result here was simply to maintain the status quo between the parties, such that it remains open to Gorbern to enforce the determination as envisaged by the Act.
Footnotes
1 As well adjudication provisions, for that matter, including those regarding mandatory payment of a determination.
2 Specifically, Rules 2.1.01(1), 57.03(1), and 60.12.
3 Bruce Reynolds, Sharon Vogel, Nicholas Reynolds, and Tanya Soni, "Jamrik v 2688126 Ontario Inc.: What is Adjudication?", Canadian College of Construction Lawyers Legal Update, December 2024 at pp. 22-30 (available here).
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