Decision: Successful Motion for Holdback Release and Stay of Proceedings Directing Arbitration (Scott Steel Erectors Inc. et al v. Ausenco Engineering Canada Inc. et al.)
In Scott Steel Erectors Inc. v. Ausenco Engineering Canada Inc., the Ontario Superior Court of Justice addressed the conflict between statutory lien rights and contractual arbitration agreements. RAR Litigation Lawyers Rocco Ruso, Ian Cantor, and Jeremie Lachance successfully represented the plaintiff, Scott Steel Erectors Inc. (“Scott Steel”), in its motion for the payout of holdbacks retained by Ausenco and for a stay of proceedings directing arbitration.
The Magino Gold Mine Project
The Scott Steel dispute arose out of a construction project at the Magino Gold Mine (the “Project”) operated by Prodigy Gold Inc. (“Prodigy”). The Project was a conversion project that involved the transition of an underground mine to an open-pit mine that contained a processing facility.
Ausenco was retained by Prodigy for the Project, and subsequently subcontracted work to Scott Steel and its now-amalgamated sister company, Scott Concrete Services Inc., under three separate subcontracts.
During the course of the work, the Project was experiencing significant capital cost overruns. The capital costs of the Project nearly doubled from $475 million to $980 million. This led to multiple liens being registered on the Project due to secondary subcontractors not receiving amounts due and owing.
It was Scott Steel’s position that the cost overruns were attributable to Ausenco’s mismanagement of project coordination, and Prodigy’s extended blasting activities that caused disruptions and delays on the Project.
Mandatory Holdback Release: Deficiencies Are Not a Shield
A central issue in dispute was Ausenco’s mandatory obligation to release the basic holdback pursuant to sections 26 and 27.1 of the Act, as those sections were in effect prior to their amendment on January 1, 2026.
Ausenco disputed the payout of holdback funds. It argued that it was entitled to deduct holdback amounts for set-off against the remedial and incomplete work of its subcontractors. Additionally, Ausenco argued that its holdback obligations ceased once it had posted security, in the form of six lien bonds, to vacate the six liens.
Justice Rasaiah rejected Ausenco’s submission, ruling that “the purpose of holdback is to mitigate the risk of contractor insolvency or opportunistic non-payment, not to serve as a warranty against potential deficiencies or to use it to cover other claims.”
Justice Rasaiah’s decision clarifies how mandatory holdback release provisions under the Act operate even where the underlying merits of a claim are subject to arbitration. The Court explained that under section 27.1, an owner must publish a notice of non-payment in a construction trade newspaper within 40 days of the certificate of substantial performance to refuse the release of holdback funds. Ausenco's failure to do so extinguished its right to assert a set-off or reduction of the holdback.
Justice Rasaiah also clarified that posting a bond to vacate a lien under section 44 of the Act will not satisfy the obligation to release holdback. While a bond clears a lien from the property title, it is a mechanism of security and does not eliminate a party’s statutory obligation to release holdback once all liens have expired or have been otherwise satisfied.
As a result, the Court ordered Ausenco to make an immediate payment of $1,629,242.92 to Scott Steel.
Preserving the Right to Arbitrate
Scott Steel also sought a stay of proceedings under section 106 of the Courts of Justice Act for the purpose of resolving the disputes by arbitration. Ausenco argued that Scott Steel had waived its right to arbitrate by actively prosecuting its lien action.
Justice Rasaiah rejected Ausenco’s position. The Court held that Scott Steel’s opposition to Ausenco’s motions was not a waiver of rights. Rather, it was a defensive and necessary step for Scott Steel to protect its statutory lien rights and preserve its security. Steps taken by a party in response to an attack on their lien rights does not amount to a waiver of arbitration, particularly where a party has “no choice but to respond” in order to avoid summary dismissal or loss of security.
In reaching its decision, the Court applied the "competence-competence principle". Justice Rasaiah noted that an arbitrator has the authority to rule on their own jurisdiction, including whether the three subcontracts should be treated as a single, integrated agreement.
Describing arbitration as the "preferred method of resolving disputes in the construction industry", Justice Rasaiah stayed the court action in favour of the contractual arbitration process that had been originally agreed to by the parties.
Outcome
The Scott Steel decision provides significant guidance to two aspects of construction law.
First, the decision reconfirms the Act’s "pay now, argue later" philosophy. A “payer”, as that term is defined under the Act, cannot withhold holdback funds based on set-off claims without issuing timely notice of non-payment. The Court also clarified that posting security to vacate a lien will not relieve a party of its holdback obligations.
Furthermore, the decision establishes that taking defensive procedural steps under the Act to preserve statutory lien rights does not constitute a waiver of contractual arbitration agreements and affirms the primacy of arbitrators in determining their own jurisdiction to adjudicate construction disputes.
PARTNER WITH US
RAR Litigation’s construction and infrastructure team has a proven track record of representing owners, contractors, and subcontractors in complex disputes, including lien proceedings, arbitration, and insolvency-related matters. Contact us for strategic advice, risk assessment, and litigation representation.