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New Guidance On Jurisdiction Arguments For Adjudications – Arbitration & Dispute Resolution



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In reasons released October 4, 2022, the Divisional
Court provided guidance
on when jurisdiction arguments have to
be raised on Construction Act adjudications (and
confirmation that adjudicators can properly determine
jurisdictional challenges), and answered an important question on
whether the abandonment or termination of a contract results in the
contract ceasing to exist.

The matter came before Regional Senior Justice Ricchetti as a
motion for leave to bring an application for judicial review, in an
effort to set aside an adjudicator’s determination. In the
underlying adjudication, the Owner (Pasqualino) was ordered to pay
$119,314 to his Contractor (MGW-Homes) in respect of unpaid
invoices for renovation work done at the Owner’s property.

The Owner’s motion for leave stated that his application
would be based on jurisdictional arguments. Among other things, the
Owner would be arguing that because the contract in question had
been either terminated or abandoned prior to the commencement of
the adjudication, it had “ceased to exist”. The
Construction Act only allows the Divisional Court to set
aside a determination in seven limited circumstances, one of which
is where “the contract or subcontract is invalid or has ceased
to exist.”

As an initial point, Justice Ricchetti confirmed that any
challenge to an adjudicator’s jurisdiction must be first raised
with and resolved by the adjudicator. Justice Ricchetti cited the
Supreme Court of Canada’s decision in Dell Computer Corp. v
Union des consommateurs
for this proposition. The Dell
Computer
case was decided in the context of jurisdiction
challenges in arbitrations, but Justice Ricchetti stated that the
rationale is equally applicable to an adjudication and an
adjudicator’s determination under the Construction
Act
.

If a party wants to challenge jurisdiction, and wants to
preserve their ability to raise a jurisdictional challenge at the
Divisional Court, they first must raise it with the
adjudicator.

Justice Ricchetti’s decision has also provided much-welcome
guidance on the issue of when a contract has ceased to exist. To
date, it has been somewhat unclear whether a party could cause a
contract to “cease to exist” by abandoning or terminating
the contract.

In Justice Ricchetti’s view, “whether the construction
contract was abandoned or terminated, even if that had been
established before the Adjudicator, would not have made the
construction contract “cease to exist””. This shuts
the door on the argument that a contract ceases to exist simply
because it has been abandoned or terminated.

Finally, it is worth noting that the Owner raised a further
jurisdictional challenge that was dismissed out of hand. The Owner
tried to argue that because the Contractor had a parallel lien
claim outstanding at the same time they commenced their
adjudication, their adjudication conflicted with the lien claim.
Justice Ricchetti found no conflict because the Construction
Act
specifically permits an adjudication at the same time as a
lien claim (s.13.5(5)), and also provides a mechanism by which
security posted to the credit of the lien action can be reduced
following payment of the adjudication award (s.44(5)). Not only did
Justice Ricchetti find no conflict, but he stated that the two
processes work harmoniously together.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be ought
about your specific circumstances.

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