Construction Disputes continue to arise from the intersection of adjudication and construction lien actions in the relatively new era of prompt payment and adjudication in the construction industry. In Feldt Electric Ltd v Gorbern Mechanical Contractors Limited, 2025 ONSC 4150 (Feldt), the Ontario Superior Court determined that the lien claimant's non-compliance with an adjudicator's determination did not invalidate its lien.
Background
The general contractor, Gorbern Mechanical Contractors Limited (GC), was hired by the Toronto District School Board (Owner) to remediate heating and ventilation systems of a school. The GC then hired Feldt Electric Ltd. (Subcontractor) to perform electrical work.
The GC asked the Subcontractor to complete certain work that the GC asserted was within the Subcontractor's scope, which the Subcontractor disputed (Disputed Scope). The Subcontractor refused to perform the Disputed Scope without a change order and additional compensation. The GC issued a notice of default, terminated the subcontract and engaged another electrical contractor to complete the Disputed Scope.
The GC then commenced an interim adjudication against the Subcontractor under the Construction Act, RSO 1990, c C.30 (Act) seeking to recover all amounts paid to the replacement subcontractor to perform the Disputed Scope.
The adjudicator awarded the GC its full claim, but the Subcontractor refused to pay. Instead, it registered a construction lien and commenced a lien action against the GC. The GC posted a lien bond as security for the lien, and the lien was vacated from title.
The GC then brought a motion for orders dismissing or staying the Subcontractor's lien action and returning the posted lien security. The GC relied on, among other things, the fact that the amount awarded to the GC in the adjudicator's determination exceeded the aggregate of the Subcontractor's liens.
The Result
The Court declined to dismiss or stay the action and refused to order the return of the lien security, finding a triable issue regarding the Disputed Scope.
The Court held that while the Subcontractor had failed to provide an adequate explanation for its ongoing non-compliance with its mandatory obligation to pay the amounts awarded in the adjudication, the lien action should not be stayed or dismissed, due to concerns regarding the adjudicator's jurisdiction and the procedural fairness of the adjudication.
Analysis
The GC asserted that under Part II.1 of the Act, an adjudicator's determination is binding on the parties until (i) a determination by a court or arbitrator, or (ii) a written agreement between the parties. As neither existed, the GC argued the Subcontractor had to pay what the adjudicator had awarded. The GC also argued that Rules 2.1.01, 57.03, and 60.12 of the Rules of Civil Procedure permit the Court to stay an action when there is a failure to comply with an order.
In response, the Subcontractor argued the adjudicator did not have jurisdiction to decide the question of whether the Disputed Scope was in the Subcontractor's scope of work, so it was justified in not paying the amount awarded to the GC.
Displeased with the Subcontractor's refusal to comply with the adjudicator's determination, the Court nevertheless held that the rights and obligations under the Act go hand-in-hand, and that a lien claimant who disregards its legal obligations is "rolling the dice" and cannot expect a court to ignore such conduct seeking to access the "extraordinary lien remedy". But, the Court ruled, the context of the Subcontractor's non-compliance was critical.
The Court held that issues of adjudication jurisdiction and procedural fairness can be considered in a request for substantive relief in a related lien action. The Court found that the adjudicator did in fact exceed his statutory jurisdiction under the Act, and that the adjudicator had disregarded the Subcontractor's concerns about the adjudicator's jurisdiction to determine the contractual interpretation issues, making no effort to meaningfully address them, and instead making assumptions about the proper interpretation of the contract.
The Court admitted to being "somewhat at a loss" with the adjudicator overlooking the jurisdiction issues, and so, apparently reluctantly, found that staying the lien action would be disproportionate to the Subcontractor's refusal to adhere to its statutory obligation to pay what the adjudicator had awarded to the GC.
In doing so, the Court held that turning a blind eye to the procedural fairness issues raised by the Subcontractor would only exacerbate the problem because the Subcontractor would potentially lose its opportunity to have its lien and contract claims tried on their merits.
Key Takeaways
First, employ the correct procedure for challenging an adjudicator's determination. In Ontario, the proper procedure is via application for judicial review. Although the Subcontractor in Feldt successfully resisted the dismissal or stay of its lien action, that did not overturn the adjudicator's determination, meaning that the Subcontractor remained in continuous breach of its obligations, and could be the subject of enforcement action.
Second, consider the issue of jurisdiction at the outset of an adjudication. The Ontario Dispute Adjudication for Construction Contracts (ODACC) process includes the option for a party to request that an adjudication be terminated because the adjudicator lacks jurisdiction. After the pending amendments to the Act come into force (specifically under proposed section 13.12.1 of the Act), the parties will have also a statutory right to object to the adjudicator's jurisdiction.
Third, refusing to comply with an adjudicator's determination carries significant risk. The Court admonished the Subcontractor for its failure to do so and appears to have only sided with the Subcontractor because of the enormous weight and impact of the lack of procedural fairness by the adjudicator on the facts of this case.
If you have any detailed questions or require tailored advice on how prompt payment, adjudication, and construction lien matters can affect your project, please contact one of the members of our Construction Law practice group.
