THE OFFICIAL PUBLICATION OF THE GRAND VALLEY CONSTRUCTION ASSOCIATION

May - June 2024

GVCA DEPARTMENT - Legal

ARE YOU WORRIED ABOUT “PAYING TWICE” WHEN CONSTRUCTION LIEN CLAIMS AND ADJUDICATIONS RUN SIMULTANEOUSLY?

WHEN LIEN CLAIMS & ADJUDICATIONS RUN SIMULTANEOUSLY

THE ONTARIO SUPERIOR COURT WEIGHS IN

Under Ontario’s Construction Act (the “Act”), construction project owners may find themselves in situations where they have to “pay twice” for construction liens. This situation can occur when both the contractors and subcontractors register construction liens and seek adjudications on those liens simultaneously.

If this situation arises, owners could be faced with “paying twice.” But do they have to actually submit two payments? And does this situation contradict any other sections of the Act?

A recent decision from the Ontario Superior Court clarified its stance on the “pay twice” issue, providing guidance to project owners and contractors alike.

When can “pay twice” situations arise?

In the recent case of Okkin Construction Inc. v. Apostolopoulos, Peter Apostolopoulos sought to upgrade his family home and contracted Bond Group Ottawa to do the required construction work. When construction delays arose, Bond Group Ottawa hired Okkin Construction Inc. as a subcontractor.

As work on the project progressed, Bond Group Ottawa issued invoices to Mr. Apostolopoulos that 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 by the Act. When the project went over-budget due to the rising price of structural steel, Mr. Apostolopoulos refused to pay and terminated the project contract.

In response, Bond Group Ottawa and Okkin submitted the following:

  1. Bond Group Ottawa filed a Notice of Adjudication under the Act
  2. Before the adjudication was heard, Okkin registered a construction lien against title to Mr. Apostolopoulos’ property
  3. Bond Group Ottawa then also registered a construction lien against Mr. Apostolopoulos’ property regarding services and materials

At adjudication, Mr. Apostolopoulos was ordered to pay Bond Group Ottawa (Okkin was not a party to the adjudication).

In response, 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 instead paid that sum into an interest-bearing trust account in the meantime.

He believed that the determination failed to account for Okkin’s lien, and that according to section 24 of the Act, this triggered the statutory prohibition against making payment in the face of a lien.

All and all, Mr. Apostolopoulos feared a “paying twice” situation occurring.

 

Superior Court decision

The Court was ultimately unconcerned with the owner paying twice, due to the trust provisions in the Act requiring any payment to the general contractor to be held in trust for the subcontractor. Under that trust, the owner will receive credit for any such payment.

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.
  2. Whether it is appropriate in the circumstances to hold in escrow the remaining amount of the adjudication pending further court order or a determination of the outstanding lien claims.

The Court reviewed case law from the past year on adjudication under the Act to guide its decision. In particular, the Court reviewed the following:

  • An Ontario Divisional Court’s decision stating “absent a stay, the Act requires payment of an adjucator’s order.”
  • A second Ontario Divisional Court decision holding 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.”

In analyzing these 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 helps to address Mr. Apostolopoulos’ concerns of paying twice.

When Mr. Apostolopoulos makes a payment, Bond Group Ottawa is required to follow the trust provisions of the Act, which makes Bond Group Ottawa 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

The Superior Court’s decision 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.

In those instances, if an owner is concerned that paying twice will clash with section 24, they must raise this issue with the adjudicator that they are not required to pay until all liens claimed against the holdback are either expired, satisfied, discharged or otherwise provided for under to the Act.

Interested in learning more? Contact Sahil Shoor by way of email at sahil.shoor@gowlingwlg.com or by telephone at +1 519 571 7604.

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