Kennaley Construction Law

                                                                                                                          October 23, 2024

 

When can a Determination obtained in a Construction Adjudication in Ontario be Judicially Reviewed on the Grounds of Fraud?Does “Civil Fraud” Suffice?

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A determination obtained in an adjudication under Ontario’s Construction Act, RSO 1990, c.C30 (the “Act”) is as enforceable as a judgment until a further binding decision is rendered by a Court or Arbitrator.  There is no right of appeal:  the only recourse available to set aside a determination is motion for leave to apply for judicial review pursuant to s.13.18 of the Act.  One of the grounds upon which leave can be granted is where the determination “was made as a result of fraud”. 

 

Recently we responded to a motion for leave in which the moving party argued that the scope of “fraud” contemplated by s.13.18 includes “civil fraud”. It relied on the Supreme Court of Canada decision in Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8 at para 18, which held that civil fraud occurs when a representation has been made knowingly, without belief in its truth or recklessly and careless as to whether it be true or false.  The moving party thus argued such that a party’s intentional misstatement of fact in an adjudication can give rise to judicial review if it can be shown that the adjudicator relied on the statement in making the determination.  We disagreed. 

 

We argued that, for the purposes section, fraud allegations must fit within the established scope of judicial review, which focuses on the role and conduct of the decision maker, and not on the role or conduct of the parties. We thus argued that the section ought not apply where a party merely alleges that another spoke a non-truth such that the adjudicator came to a wrong conclusion. We submitted that interpreting the section to include for such misstatements would run contrary to the spirit, intent and historical application of both judicial review and the Construction Act.

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As regards the spirit and intent of judicial review, we pointed to the Supreme Court of Canada decision in Dunsmuir v. New Brunswick, 2008 SCC 9, where the Court held that judicial review “is the means by which the courts supervise those who exercise statutory powers, to ensure that they do not overstep their legal authority” and “to ensure the legality, the reasonableness and the fairness of the administrative process and its outcomes”.  As the Supreme Court continued:

 

• “A decision maker may not exercise authority not specifically assigned to him or her. …Thus, when a reviewing court considers the scope of a decision-making power or the jurisdiction conferred by a statute, the standard of review analysis strives to determine what authority was intended to be given to the body in relation to the subject matter. This is done within the context of the courts' constitutional duty to ensure that public authorities do not overreach their lawful powers.” [1]

 

We also argued that the above principles had been confirmed by recognized authorities, including David Phillip Jones and Anne S. de Villars in Principles of Administrative Law, who noted but one exception to the principle that the focus of judicial review is on the conduct of the decision makers:

 

• In judicial review, Superior courts are called upon to review the legality of actions allegedly taken by statutory delegates pursuant to legislative authority; therefore, a great deal of attention must be focused on the precise limits of the statutory power being exercised by the statutory delegate.  Although most of the grounds for judicial review are jurisdictional in nature, there is one exception. Superior courts have historically asserted the anomalous power to issue certiorari to correct many intra jurisdictional errors of law on the face of the record.” [2]

 

We submitted that extending the application of judicial review under s.13.18(5) to allegedly intentional untruths which do not impact the jurisdiction, authority, conduct or impartiality of the decision maker would open the gates to appeals from alleged errors of fact brought in the guise of judicial review. This we submitted, would require Ontario courts conducting judicial review applications to consider errors of fact from a “correctness” perspective, notwithstanding that our appellate courts apply the standard of palpable and overriding error to questions of fact (or mixed-fact-and-law).

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We would point, as well, to the Ontario Court of Appeal decision in Campbell v. Toronto Standard Condominium Corporation No. 2600, 2024 ONCA 218, where the Court considered the meaning of the word “fraud” in the Arbitration Act, 1991, S.O. 1991, c. 17 in overturning a motion judge’s decision to set aside an Arbitral Award on the basis of “constructive fraud”.In that case, the Court held at paragraph 54 that, “had the Legislature intended to extend the meaning of “fraud” to include the different and broader concept of “constructive fraud” one would have expected it to do so explicitly”.  We would suggest that the same analysis would apply under s.13.18(5) of the Act.  

 

As regards the spirit and intention of the adjudication provisions of the Act, we submitted that exiting case law has confirmed on balance that the adjudication provisions are intended to provide a quick and informal interim dispute resolution process which is not subject to appeal, that parties who are unhappy with a determination are expected to pursue a remedy in subsequent litigation or arbitration and that judicial review will be available in only limited circumstances. We pointed to SOTA Dental Studio Inc. v. Andrid Group Ltd., 2022 ONSC 2254 ,[3] Pasqualino v. MGW-Homes Design Inc., 2022 ONSC 5632 [4], Anatolia Tile & Stone Inc. v. Flow-Rite Inc., 2023 ONSC 1291[5], Arad Incorporated v Rejali et al, 2023 ONSC 3949 [6],  MGW Homes Design Inc. v. Pasqualino, 2024 ONSC 2852 [7]  and Jamrik v. 2688126 Ont. Inc., 2024 ONSC 2854[8] in that regard.

 

We finally submitted that limiting the scope of judicial review available for fraud under s.13.18(5) to what is traditionally reviewable is consistent with prompt payment’s goal of having Determination awards paid promptly. In this regard, we suggested that allowing unsuccessful parties to do an end-run around the bar on appeals by alleging misstatements of fact would effectively delay prompt payment to a successful party contrary to that goal.

 

Although both parties submitted that the application of s.13.18(5) as regards fraud had not yet been considered by the Ontario Courts, the motion for leave was dismissed without reasons.This, of course, is not unusual.It may be that the Divisional Court panel found no evidence that an intentional misstatement of fact had occurred (as we had argued) or that the panel was split on its reasons and opted to leave the analysis on the scope of judicial review under the section to a later day.Regardless, we will have to await another decision of the Court for clarity on the issue.In the meantime, however, we suggest that a party might be hard pressed to rely on the civil standard of fraud as a ground for judicial review under s.13.18(5) of the Construction Act in Ontario.

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Rob Kennaley,

Kennaley Construction Law

 

[1] Dunsmuir v. New Brunswick, 2008 SCC 9, at para 28-29

[2] David Phillip Jones & Anne S de Villars, Principles of Administrative Law, 7th ed (Toronto: Carswell, 2020) at 149-151

[3] SOTA Dental Studio Inc. v. Andrid Group Ltd., 2022 ONSC 2254, at para 9-10

[4] Pasqualino v. MGW-Homes Design Inc., 2022 ONSC 5632, at para. 30

[5] Anatolia Tile & Stone Inc. v. Flow-Rite Inc., 2023 ONSC 1291, at para. 6

[6] Arad Incorporated v Rejali et al, 2023 ONSC 3949 (CanLII), para. 15-17

[7] MGW Homes Design Inc. v. Pasqualino, 2024 ONSC 2852, para 16-18.

[8] Jamrik v. 2688126 Ont. Inc., 2024 ONSC 2854 at para 23