Adjudication is somewhat similar to a mandatory arbitration, with new and strict rules leading hopefully toward ‘prompt payment’ legislation under Ontario’s new Construction Act. Part II.1 of the Bill, “Construction Dispute Interim Adjudication,” covers interim adjudication in Section 13.1 to Section 13.24.
Before diving into the topic, it is important to note this article is not an opinion as to whether the adjudication amendments will be favourable or unfavourable to the industry, but simply explores what the adjudication amendments say. Prompt payment is one of the major objectives of the Act as a whole and Part II.1 certainly follows this objective.
Similar versions of the proposed Part II.1 have been enacted in the United Kingdom, Australia, New Zealand, and Singapore. While reportedly working satisfactorily, none of those examples of legislation contain anything similar to the province’s Construction Lien Act beyond the adjudication section. (For more information, see the December 2006 paper, “The Adjudication Option: The Case for Uniform Payment and Performance Legislation in Canada,” by Duncan W. Glaholt. This remains the definitive writing in Canada on adjudication in other countries.
Bill 142 received First Reading in the Ontario Legislature on May 17, 2017, and Second Reading on Wednesday, October 4, 2017—it was “on Division,” which means it was not unanimous. Third Reading will hopefully take place before year’s end, with Regulations by early 2018. It is anticipated the Act will be passed by the spring. However, all this remains to be seen.
How will adjudication work?
‘Adjudication’ means the construction dispute interim adjudication of any matter that falls within Part II.1, and if one party is not satisfied with the adjudicator’s decision, the party can proceed with a court action or an arbitration to reverse what the adjudicator has decided. The adjudicator’s decision, however, must be followed immediately.
Who will be the adjudicator?
The Lieutenant Governor-in-Council may designate, by regulation, an entity to be the Authorized Nominating Authority (ANA) for the appointment of adjudicators.
The duties of the ANA include:
- developing and overseeing programs for the training of persons as adjudicators;
- qualifying adjudicators;
- maintaining a publicly available registry of adjudicators;
- appointing adjudicators; and
- performing any other duties of the Authority as set out in this Part or that may be prescribed for the purposes of this Part.
The powers of the ANA are, subject to the regulations, to set fees for training and qualifications of persons as adjudicators (and for the appointment of adjudicators), and to require their payment. They can also exercise any other power set out in this Part (or that may be prescribed for the purposes of this Part). It is contemplated most of this will be done through regulations, which, at present, are a work in progress.
What disputes can be adjudicated?
The following disputes can be adjudicated:
- the valuation of services or materials provided under
- the contract;
- payment under the contract, including in respect of change orders, whether they are approved or not, or of a proposed change order;
- disputes that are subject of a Notice of Non-Payment under Part I.1;
- amounts retained under Section 12 (set-off by Trustee) or under Section 17.3 (lien set-off);
- nonpayment of hold-back under Section 27.1; and
any other matters to which the parties to the adjudication agree, or that may be prescribed.
Expiry of adjudicating period
An adjudication may not be commenced if the Notice of Adjudication is given after the date the contract or subcontract is completed, unless the parties to the adjudication agree otherwise.
Adjudication may only address a single matter unless the parties to the adjudication and the adjudicator agree otherwise.
Application despite other proceedings
A party may refer a matter to adjudication even if the matter is the subject of a court action or of arbitration, unless the action or arbitration has been finally determined.
The adjudication is subject to the adjudication procedures set out in the contract or subcontract, if they comply with Part II.1. However, if the contracts do not address adjudication procedures, or if the procedures set out do not comply with the requirements of Part II.1, then the adjudication is subject to the adjudication procedures set out in this Part and the regulations.
Notice of adjudication
A party who wishes to refer a dispute to adjudication gives the other party a written notice that includes:
- names and addresses of the parties;
- nature and a brief description of the dispute, including details respecting when and how it arose;
- nature of the redress sought; and
- name of a proposed adjudicator to conduct the adjudication.
If the same matter (or a related matter respecting improvements) is to be held in different adjudications, the parties may agree to adjudications consecutively by the same adjudicator.
An adjudication may only be conducted by an adjudicator listed in the registry. The parties may agree on an adjudicator or may request the ANA to appoint an adjudicator. This cannot be done in a contract. If an adjudicator refuses to act within four days after the notice of adjudication, the party who gave the notice shall request the ANA to appoint an adjudicator.
The appointment of the adjudicator
The ANA shall appoint the adjudicator no later than seven days after receiving the request for the appointment. The adjudicator need not agree to conduct an adjudication or to accept an appointment by the ANA.
The adjudicator shall be paid a fee (determined before the adjudication commences) for conducting the adjudication. The amount is the fee agreed upon by the parties and the adjudicator, failing which it is determined by the ANA.
Payment of the adjudicator’s fee is to be split equally between the parties. However, if an adjudicator determines a party to the adjudication has acted in a manner that is frivolous, vexatious, an abuse of process, or other than in good faith, the adjudicator may provide that the party pay some or all of the other party’s costs.
Documents for adjudication
No later than five days after an adjudicator is appointed to conduct the adjudication, the party who gave the notice shall give the adjudicator a copy of the notice, together with a copy of the contract or subcontract and any documents the party intends to rely on during the adjudication.
Conduct and powers of the adjudicator
An adjudicator may exercise the following powers and any other power of an adjudicator that may be specified in the contract or subcontract:
- Make directions respecting the conduct of the adjudication.
- Take the initiative in ascertaining the relevant facts and law.
- Draw inferences based on the conduct of the parties to adjudication.
- Conduct an onsite inspection.
- Obtain the assistance of a merchant accountant, actuary, building contractor, architect, engineer, or other person in such a way as the adjudicator considers fit to enable him or her to determine better any matter of fact in question. The adjudicator may fix the remuneration of the expert and who will pay it.
- Make a determination of the adjudication.
- Any other power that may be prescribed.
Conduct of adjudication
The adjudicator may conduct the adjudication in a manner he or she determines to be appropriate in the circumstances, and shall conduct the adjudication in an impartial manner.
The adjudicator shall make a determination of the matter no later than 30 days after receiving the documents required in the notice of arbitration. The time may be extended at the adjudicator’s request and with the written consent of the parties for a period of no more than 14 days, or upon written agreement of the parties, and subject to the adjudicator’s consent. Otherwise, if it is made after the determination date, it is of no force or effect.
The adjudicator’s determination shall be in writing, including reasons.
Termination of the adjudication
The parties may agree to terminate the adjudication on notice to the adjudicator and subject to the payment of the adjudicator’s fee.
Application to set aside the determination
The court may set aside the determination on application made no later than 30 days after the determination has been communicated to the parties, on the following grounds:
- a party participated in the adjudication under a legal incapacity;
- the contract or subcontract is invalid or has ceased to exist;
- the determination is of a matter that may not be subject to adjudication;
- the adjudication was conducted by someone other than an adjudicator;
- the procedures did not comply with the procedures to which the adjudication was subject;
- there is a reasonable apprehension of bias on the part of the adjudicator; or
- the determination was made as a result of fraud.
The court may order that amounts paid be returned.
Enforcement of amounts payable
The defendant must pay any amount no later than 10 days after the adjudicator’s determination has been communicated to the parties.
Interest to be paid
The highest of the contract rate or the rate under Section 127(2) of the Courts of Justice Act shall be paid.
Stopping work until paid
If an amount payable to a contractor or subcontractor under a determination is not paid when due, the contractor or subcontractor may suspend further work until the following is paid:
- the amount due under the determination;
- any interest accrued; and
- any reasonable costs incurred by the contractor or subcontractor as a result of the suspension of the work.
Costs of resumption of work
The contractor or subcontractor who suspends work is entitled to payment of reasonable costs incurred as a result of the resumption of work following payment.
Enforcement by the court
The court may enforce the determination.
Deadline for enforcement by the court
An application must be made before the second anniversary of the communication of the determination to the parties and, if applicable, before the second anniversary of the final determination of an application that did not result in the setting aside of the adjudicator’s determination.
Duty of the court
The court shall make an order enforcing the determination.
Immunity of the adjudicator
No action or other proceeding may be started against an adjudicator or his or her employees for any act done in good faith in the execution or intended execution of any duty or power under Part II.1 or the regulations, or for any alleged neglect or default in the execution in good faith of that duty or power.
The adjudicator is not required to give evidence respecting a matter that was subject of the adjudication.