Failure to Pay Arbitrator’s Order Jeopardizes Judicial Review in Ontario Real Estate

The first application for judicial review of an arbitrator’s decision under Ontario law building law was fired. In SOTA Dental Studio Inc. c. Andrid Group Ltd.2022 ONSC 2254 (“SOTA“), a three-judge panel of the Divisional Court unanimously dismissed the owner’s application for judicial review of an arbitrator’s order requiring payment of the unpaid bills. The application was not dismissed on the merits — it was dismissed because the plaintiff had neither paid the order under review nor moved for a stay.

The court’s message is clear: applications for judicial review can fail when arbitrators’ orders remain unpaid. What follows is a review of the decision, the relevant provisions of the building law (there “Law“), and lessons learned.

Background

The landlord plaintiff, SOTA Dental Studio Inc., owns property on Highway 7 in Vaughan, Ontario. The owner retained the services of the respondent contractor, Andrid Group Ltd. (“Andrid”), to construct a dental clinic on the property. The contractor carried out the work and submitted the invoices to the owner.

Under the Law, the owner was required to pay all invoices meeting the requirements of a “proper invoice” within 28 days (or less). If the owner intended to dispute the invoices, he was required to issue a “notice of non-payment” in accordance with article 6.4.

The owner did not dispute Andrid’s invoices, so they became payable.

The owner refused to pay, so Andrid referred the payment dispute to arbitration under Section 13.5 of the Law. Mr. Chad Kopach was selected as arbitrator.

On May 21, 2021, Arbitrator Kopach ordered the owner to pay Andrid $38,454.55.

Arbitrators’ orders are considered “interim binding”: they can be enforced like a court order, but can be re-determined through litigation or arbitration. In Ontario, court orders can be enforced in several ways, including by garnishment or by filing a writ of execution against real property.

In this case, Andrid seized $6,711.04 from the owner’s bank account by executing the arbitration award through a notice of garnishment served on the owner’s bank. There remained an outstanding balance of $31,743.51.

The owner subsequently filed an application for leave for judicial review of Arbitrator Kopach’s decision of May 21, 2021.

Judicial review of arbitrators’ orders under the building law

An application for judicial review is a request to the Ontario Superior Court of Justice to review the arbitrator’s decision and, if necessary, to set it aside. The very limited grounds for setting aside arbitrators’ orders are set out in subsection 13.18(5) of the Law, including a legally incapacitated party; the contract or sub-contract ceases to exist; lack of jurisdiction; decision by a non-arbitrator; procedural defect affecting the right to a fair trial; a reasonable apprehension of bias on the part of the arbitrator; or that the determination was the result of fraud.

There is no automatic right to judicial review of arbitrators’ decisions under the Law. Authorization (permission) must first be sought from the Divisional Court in accordance with Article 13.18. The request for authorization must be served and filed no later than 30 days after the communication of the arbitrator’s decision to the parties.

Pursuant to subsection 13.18(7), applications for judicial review do not operate as a “stay” of the arbitrator’s underlying decision unless the Divisional Court orders otherwise.

Court grants leave, but dismisses claim for non-payment

On September 21, 2021, permission was granted in writing in the brief decision reported Andrid Group Ltd. vs. Sota Dental Studio Inc.2021 ONSC 6254.

Three days after the leave decision, on September 24, 2021, a case conference was held with Judge Corbett. The case conference approval specifically stated that the application for judicial review did not act as a stay of the arbitrator’s order, and that if the owner “requests a stay pending application” without consent “a request must be made for the stay”.

The owner never filed a motion for a stay. This proved fatal to the application for judicial review, even though leave had already been granted.

The application was heard on March 2, 2022 and dismissed on April 14, 2022. The Divisional Court clarified that “prompt payment is an integral part of the building law. “If the court allowed arbitrators’ orders to be ignored when considering applications for judicial review, parties could rack up costs and cause further delays. Therefore, instead,”[stays] must be established on the basis of appropriate evidence in the context of a motion for a stay.”

key ideas

In SOTAthe Divisional Court set the tone for future reviews of unpaid arbitration orders in Ontario: without a request for a stay, the request is doomed.

By failing to deliver a notice of non-payment, the owner suffered a loss at auction, a garnishment of $6,711.04 and an unsuccessful application for judicial review with an award of costs of $10,000 to his against. The dates of non-payment notices must be diligently recorded to avoid suffering a disadvantage in a resulting payment dispute.

SOTA also highlights the significant delays inherent in the judicial review process in Ontario. Following an arbitrator’s decision in May 2021, the leave was not granted for four months. The Divisional Court judicial review decision did not come for seven months. During this year-long process, the arbitrator’s order remained fully enforceable absent a stay. Parties facing high-value decisions should mitigate risk by adhering to the Lawand should consider filing timely stay motions before enforcement sets in.

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