Adjudication a.k.a. arbitration on steroids • Legal Desk, March 2018
By Dan Leduc
April 4, 2018 — The Ontario government is due to proclaim a new Construction Act (which heavily modifies the current Construction Lien Act), and while a lot of time has been spent discussing new prompt payment provisions (justifiably so), of equal importance is a whole new section regarding Adjudication.
A practice borrowed from the United Kingdom—which has had this system in place since 1996—Adjudication will become a compulsory dispute resolution platform premised on a very short turnaround time between submission to the adjudicator and a decision.
The types of disputes that can be adjudicated will include anything arising out of a “proper invoice” (also de ned by the new Act), including value of work claimed, other monetary claims, change orders/scope, claims in relation to security held (bonds), set-offs/back charges and delay issues as they relate to payment.
It’s difficult to do justice to a whole new dispute resolution mechanism in a brief column, but let me try to summarize some of its important features.
Again, the process is compulsory, and it starts with a Notice of Adjudication. If you are the party initiating the process, you get to propose an adjudicator. Your Notice requires the names and addresses of the parties, and a brief description of the dispute, which includes details of how and when it arose, the relief you are seeking and the name of your nominated adjudicator.
The responding party has two (2) days to agree to your choice of adjudicator; if not, the Nominating Body will appoint one within five (5) days. (We assume this Nominating Body will either be part of the Attorney General’s office or nominated through the A.G.’s office.)
Once appointed, the adjudicator can ask questions, seek further documentation and information, and even visit the worksite, if required. The adjudicator must make a decision within 30 days of the date they were confirmed as adjudicator, though the parties can extend the deadline for a decision a further 14 days.
The adjudicator’s decision must be reached no later than 60 days from the date the Notice of Adjudication was delivered. The new Construction Act extends your lien rights from 45 days to 60, making it possible to have a dispute adjudicated before your lien rights expire.
The adjudicator’s ruling is binding until a final determination is made by the Court or an Arbitrator. Any money that is payable pursuant to an adjudication must be paid within 10 days. If not paid within 10 days of the ruling, the party who won the award on adjudication may suspend work until the money is paid (in the U.K., this model has been referred to as “pay now, argue later”).
The parties still have a right to “appeal” an adjudication with a subsequent court or arbitration proceeding; however, in the U.K., challenges by the losing party have rarely been successful.
The takeaways for Ontario… and Canada
So what can Ontario contractors take from the foregoing? First, make sure your documents are in order, especially when there’s even the slightest suggestion of a dispute. This includes having them organized chronologically or by issue, having them properly tabbed and accessible (likely electronically), and ready to be submitted to the Adjudicator at a moment’s notice.
You should also open up a separate cost code to track your costs associated with the dispute so they are easily identifiable and not part of your overall project costs. Get ready for this now.
And what about contractors outside of Ontario? There is nothing stopping you from adopting the same process. The Adjudication platform is designed to keep cash flow as neutral as possible, even through the dispute. It is available to you and your counsel, and the U.K. model is easily adaptable to any Canadian project or contract.
Dan Leduc is a partner in the law firm of Norton Rose Fulbright LLP, and practices exclusively in the area of construction law. He is always happy to take on new clients from anywhere in Canada. Contact Dan at firstname.lastname@example.org.
This article originally appeared in the March 2018 issue of Electrical Business Magazine.