Adjudication in Ontario and Beyond: The Role of the Construction Adjudicator

Introduction

It has been a year since adjudication and prompt payment came into effect in Ontario under the Construction Act, R.S.O. 1990, c. C.30 (the “Act”).^[1] Despite this, as of September 21, 2020, only eight Determinations had been made and eight adjudications were in progress.^[2] The seemingly slow adoption of adjudication in Ontario is partly due to the fact that the old Construction Lien Act continues to apply where a contract for an improvement was entered into before July 1, 2018 or a “procurement process” for the improvement was commenced before July 1, 2018 by the owner.^[3] In addition, the impact of COVID-19 and the associated government-ordered construction site shutdowns slowed construction in some respects. (Interestingly, some projects have been able to finish ahead of schedule due to COVID-19 related reductions in road traffic.^[4])

Statutory adjudication is one process by which the prompt payment obligations under the Act are enforced. The changes to the Act, including the introduction of prompt payment and adjudication, were designed, in part, to bring construction projects to completion faster and with fewer payment delays. In the construction context, adjudication is the determination of a dispute arising under a contract by an Adjudicator who is a qualified person – not a judge – appointed to conduct an investigation and make a quick decision, which is called a determination. The types of disputes that can be referred to adjudication are the valuation of services or materials, payments under a contract, including in respect of a change order, those related to notices of non-payment or holdbacks and any other matter that the parties to the adjudication agree to or that may be prescribed.^[5]

What advantages does adjudication have over other dispute resolution processes? For starters, adjudication is quick; determinations are made in 39 to 46 days (unless the parties agree to an extension).^[6] It also tends to be less expensive than traditional litigation or arbitration. Adjudication allows the parties and the adjudicator to tailor the process, rules and timeline for the adjudication based on the complexity of the dispute and the dollar amounts involved (while still complying with the Act), which helps to ensure proportionality. The Authorized Nominating Authority (“ANA”) for adjudication under the Act is Ontario Dispute Adjudication for Construction Contracts (“ODACC”). ODACC offers four Pre-Designed Adjudication Processes, each providing for an increasing level of procedural complexity (and corresponding increase in suggested fees). In addition, adjudication is confidential, unlike traditional litigation (at least in theory). As discussed in my colleague Ivan Merrow’s article “ODACC Annual Report in Review”, ODACC has provided information about adjudications in its Annual Report, with identifying features about the parties involved removed. However, if adjudicators’ determinations and reasons are being filed with the court, this presumably would waive confidentiality and create a body of case law. How this works in practice is yet to be seen.

Why would a party choose adjudication, rather than pursue a lien claim? The lien remedy is particularly useful if payment is not made at the end of a party’s work on a project. It can be a good option if a project is in a later stage or if there are concerns about the solvency of the paying party. Conversely, a party may choose adjudication if a payor is not meeting its prompt payment obligations while a project is still in the early or middle stages. Adjudication is often strategically the way to go during a project to ensure payment continues to flow ‘down the chain’ and work can continue. It is worth noting that a claimant who commences an adjudication can still commence lien proceedings and/or litigation, although contractors, subcontractors and suppliers may have to incur significant legal expense to pursue these avenues to recover the money that is owed to them. As discussed in my colleague Patricia Joseph’s article “One Year in Review: A First-Hand Look at an Adjudication under the Construction Act”, it is often prudent to pursue both avenues for potential recovery.

Adjudication in Ontario

ODACC is solely responsible for administering construction-related adjudications and for training and qualifying Adjudicators. ODACC derives its powers from the Act and O. Reg. 306/18.^[7] In Ontario, all adjudications that are commenced under the Act must proceed through ODACC and only adjudicators listed in ODACC’s Adjudicator Registry are permitted to conduct adjudications and make determinations.^[8] To qualify as an adjudicator in Ontario, a person must have at least ten years of relevant working experience in the construction industry, have successfully completed ODACC’s training program, not be an undischarged bankrupt, not have been convicted of an indictable offence in Canada (or a comparable offence outside of Canada), pay ODACC the required fees, costs or charges for training and qualification as an adjudicator and agree in writing to abide by the requirements for holders of a certificate of qualification to adjudicate.^[9]

ODACC’s adjudicator training program is called the Construction Adjudication and ODACC Orientation Program. There is both an online and in-person component to the training, which takes about three days to complete. The program is mandatory for everyone who wishes to become an adjudicator, regardless of previous training and experience. One benefit of having a single ANA is that adjudicators are trained uniformly, which may help to eliminate concerns about real or perceived procedural fairness. This is in contrast to the United Kingdom (“UK”), which has more than a dozen ANAs (it is worth nothing here that the population of the UK is much larger than that of Ontario). Under section 2 of O. Reg. 306/18, the Minister has the right to designate other ANAs, giving Ontario the flexibility to allow for more ANAs in the future.^[10] As demand for adjudication increases, we may see more ANAs in Ontario.

The majority of the adjudicators do not have legal backgrounds. As noted in Carillion Construction Ltd v Devonport Royal Dockyard Ltd, , a decision of the UK Court of Appeal, adjudicators are not selected for their legal expertise, as their “skills are likely (if not more likely) to lie in other disciplines.”^[11] This technical proficiency enables adjudicators to make knowledgeable decisions on highly specified matters within the time constraints of adjudication.^[12] The province’s decision not to limit the pool of people who can become adjudicators to lawyers and ADR professionals has both strengths and challenges. One of the main strengths is the wealth of experience and knowledge that individuals from varied backgrounds bring to adjudications. Someone with many years of project management experience may bring a different perspective to an adjudication than a career civil litigator with little experience in construction matters, for example. The challenge for adjudicators will be remembering that they are operating under a limited, but important, mandate. Adjudicators are not operating as judges or arbitrators. At the same time, they have expansive powers which they must use to identify the issues, understand and apply the Act, ascertain facts and law and assess the credibility of evidence, including witnesses. They must keep due process and natural justice in mind.

Lord Justice Chadwick summarizes the role of the adjudicator as follows: "the task of the adjudicator is not to act as arbitrator or judge. The time constraints within which he is expected to operate are proof of that. The task of the adjudicator is to find an interim solution which meets the needs of the case. Parliament may be taken to recognise that, in the absence of an interim solution, the contractor (or sub-contractor) or his sub-contractors will be driven into insolvency through a wrongful withholding of payments properly due."^[13] While this is true for the most part, many disputes are properly dealt with through adjudication, without the necessity of litigation or arbitration after the fact, thus rendering the adjudicator’s decision final, rather than interim.

Parties seeking to appoint an Adjudicator can search the Registry by name, keyword, geographical area, profession, minimum years of experience, language used, maximum hourly rate and/or flat fee rates. For each adjudicator, the Registry lists:

• Contact information;
• Geographical areas where the adjudicator agrees to travel without travel time or disbursement charges;
• Education;
• Profession(s);
• Professional bodies that the adjudicator is a member of in good standing;
• Years of experience;
• Language(s) spoken;
• The hourly rate at which the adjudicator will conduct ODACC adjudications;
• The fixed fee rates for which the adjudicator is willing to conduct ODACC adjudications;
• A biography detailing areas of expertise in the construction industry; and
• The period of validity of the adjudicator’s certificate.

Along with the factors set out above, when selecting an adjudicator, the parties should consider the adjudicator’s background and experience and whether they are applicable to the dispute and/or the type of project. The adjudicator’s hourly rate should also be considered in relation to the amount in dispute, the volume of documents the adjudicator may need to review and the necessity of a site visit by the adjudicator. As ODACC has the capacity to conduct adjudications virtually and parties will likely choose this option for the duration of the pandemic, the adjudicator’s location may be less important than his or her experience and area of expertise.

Once a claimant serves a Notice of Adjudication on a respondent and sends ODACC an electronic copy of the notice, the parties have four days to select an adjudicator and obtain the adjudicator’s consent to act in the adjudication. An adjudicator will not be appointed without his or her consent.^[14] When determining whether to consent to conducting an adjudication, adjudicators should consider their experience and whether they are qualified to accept the appointment, their hourly rate as it relates to the amount in dispute, whether they will be able to meet the timelines for making a determination and, most importantly, whether a conflict of interest exists which may prevent them from acting. Due to the nature of the construction industry and the limited pool of adjudicators available, repeat appointments are likely.

Ontario permits parties to appoint an adjudicator only after a dispute has begun, whereas the UK permits adjudicator appointments prior to a dispute arising. In the UK, parties to an agreement may name an adjudicator in their contract, although this practice is uncommon. Ontario’s system helps to avoid a situation where an adjudicator is appointed who turns out not to be suited to determine the dispute. On the other hand, by the time a Notice of Adjudication is issued, the dispute between the parties has typically crystallized and the parties may not agree on an adjudicator. In such an event, the parties can send an adjudicator appointment request to ODACC and an adjudicator will be appointed within seven days. Adjudicators are appointed by ODACC on a rotating basis. If appointing an adjudicator, ODACC will aim to appoint an adjudicator who is prepared to adjudicate at a fee that is proportionate to the amount claimed, and will consider, if possible and if travel is required, appointing an adjudicator who is wiling to travel to the location where construction is occurring.^[15] Adjudicators are not necessarily appointed based on whether their expertise is suited to the dispute. Therefore, while all the adjudicators are well-qualified and have completed ODACC’s training process, ideally the selection of an adjudicator should not be left to ODACC.

Under ‘normal’ circumstances, adjudicator training sessions take place in the Greater Toronto Area and Ottawa. During the COVID-19 pandemic, training is taking place virtually. It remains to be seen whether there will be a shortage of adjudicators who work in or are willing to travel to more rural or remote areas in Ontario for site visits. This will be less of an issue if, as in the UK, most adjudications are conducted through paper only. It is now possible for an adjudication, including an “in-person” hearing, to take place completely online using ODACC’s Custom System, which allows parties to present witnesses and documents online.

Adjudicators’ Code of Conduct

ODACC has a Code of Conduct for adjudicators, which is designed to “to maintain and ensure public trust and confidence in ODACC and the Adjudicator’s Determinations for construction disputes”^.[16] The stated purpose of the Code of Conduct is to:

1. Establish rules to govern the professional and ethical responsibilities of adjudicators;
2. Maintain the principles of civility, procedural fairness, competence, proportionality, and integrity in the conduct of adjudications; and
3. Promote public confidence in the adjudication process.
   

Notably, the Code specifies that an adjudicator shall “listen carefully and with respect to, and read carefully the views and submissions expressed by, the Parties and their representatives”, “make determinations on the merits of the case, based on justice, the law then in effect, and the evidence” and “write determinations in accordance with the ODACC Determination Guidelines”. Adjudicators shall not delegate to any other person any duty to decide, unless permitted to do so by the parties or applicable law. The consequences for failing to adhere to the adjudicators’ Code of Conduct include suspension or cancellation of the adjudicator’s Certificate and/or a requirement to complete additional training or education, as deemed appropriate by ODACC. Anyone who has reasonable grounds to believe that an adjudicator may have contravened the Code may proceed with a complaint pursuant to the complaints procedure set out on the ODACC website.

Determinations

An adjudicator’s decision is called a determination. Like most dispute resolution processes, the purpose of an adjudication is for the parties to present their dispute to an independent third party for a decision, in this case the adjudicator. Unlike most decision-makers, adjudicators work under very tight timelines and must make a determination within thirty days from the day on which the claimant submitted its documents.^[17] That deadline can be extended at any time before its expiry, either on the adjudicator’s request and with the written consent of the parties, for a period of no more than 14 days, or upon the written agreement of the parties and with the adjudicator’s consent, for the period specified in the underlying contract.^[18] A determination made after that date is of no force or effect.^[19] Extension requests are handled through ODACC’s Custom System. After a request is submitted, the parties and the adjudicator will receive an email asking them to response to the request. If everyone agrees, the due date will be extended by the number of days that was indicated in the request. If the request is rejected, another may be submitted.

In conducting an adjudication and arriving at a determination, adjudicators have extensive powers, including an inquisitorial function, which they can use to quickly resolve disputes.^[20] Prior to an adjudication, the adjudicator receives a copy of the Notice of Adjudication, which defines the dispute and sets out the nature of the relief sought and whom it is sought against, and a copy of the parties’ contract or subcontract, as well as any documents the claimant intends to rely upon during the adjudication.^[21] The adjudicator must use those documents to become as well-versed as possible on the issues in dispute as quickly as possible.

An adjudication may only address a single matter, unless the parties and the adjudicator agree otherwise.^[22] Complex three-party disputes will require creative solutions, including filing and then consolidating the adjudications.^[23] Unless provided for in the contract between the parties to the adjudication, there is no “pre-trial” before an adjudication.^[24] Decisions are to be made only on the basis of law and the facts presented to the adjudicator.^[25] Accordingly, it is important for adjudicators to “dial out the noise”, including their own opinions, emotions and potential biases, when making a determination. In some cases, the parties to an adjudication will have a long-standing working relationship, which can make it difficult to separate the dispute from other sources of tension. During an adjudication, adjudicators must ensure that their own focus, and that of the parties, remains on the dispute that is the subject of the adjudication.

In making a determination, focus is key. Adjudicators should think a lot, say little and write even less. Clear, concise writing is essential. Adjudicators should also possess case management skills which allow them to steer the adjudication through the very tight timelines mandated by the Act.^[26] Given the tight timelines, it is likely that most adjudications will be decided on a document-only basis. Although not mandated by the Act, Notices of Adjudication may be followed by some other document in which a party will make detailed written submissions, akin to a factum or statement of case. The Act does not prescribe what types of documents are to be submitted to the adjudicator, but the scope of production ought to be informed by the type of dispute. If the adjudication is conducted by way of an in-person (or virtual) hearing, it will be important for the adjudicator to clearly identify the issues to be addressed by the parties, in order to ensure that the parties focus the limited time available on those issues and avoid distractions.^[27] The adjudicator may also obtain “the assistance of a merchant, accountant, actuary, building contractor, architect, engineer or other person in such a way as the adjudicator considers fit, as is reasonably necessary to enable him or her to determine better any matter of fact in question.”^[28]

Determinations must be made in writing and must include reasons.^[29] The reasons should be communicated clearly and concisely, keeping in mind that they may be relied upon as evidence in subsequent proceedings. ODACC has a template form for determinations, which is provided to certificated adjudicators. Determinations are interim binding and remain binding unless set aside on judicial review or overturned by a judgment or an arbitration award, or until the parties execute a written agreement determining the matter. Once a determination is filed with the court, “any related requirement” to make payment to a subcontractor is deferred until final determination of the matter and work on the project in question may be suspended.^[30]

After a determination is made: enforcement and other considerations

Determinations may be enforced in court and can be used as evidence in subsequent proceedings. However, an adjudicator cannot be compelled to give evidence in any action or other proceeding in respect of a matter that was the subject of an adjudication that he or she conducted. It remains to be seen whether judicial guidelines will develop through caselaw on how judges and other decision makers should weigh an adjudicator’s decision as evidence. In addition, while not contemplated by the Act, an adjudicator’s decision presumably can be used as evidence in other contractually ordered dispute resolution processes.

Adjudicators must provide ODACC with a draft determination within 25 days of the claimant providing all documentation to the adjudicator upon which the claimant intends to rely. ODACC will certify the determination within seven days of the determination being sent to the parties and will provide a certified determination to the parties through ODACC’s Custom System.^[31] The parties will receive an email once it is available.

The fee for certifying the determination is $0 where the amount claimed in the Notice of Adjudication is less than $50,000 and $100 (plus HST) where the amount claimed in the Notice of Adjudication is $50,000 or greater. Only one certification fee is payable for each determination and the parties will split it equally, unless the adjudicator orders otherwise. Every party will receive a certified copy of the determination. Either party may file the determination with the court and it can then be enforced as if it were a court Order, including by way of a writ of execution and garnishment.^[32] This step must be taken within two years of the communication of the determination (or in cases where a determination is subject to judicial review, two years from the dismissal or final determination of that application). The filing party must provide notice to the other party of the filing within ten days. The party who is required to pay an amount must pay the amount no later than ten days after the determination has been communicated to the parties, less any holdback.^[33]

Even if a claimant receives a favourable determination, there is no guarantee that they will be paid, particularly if the respondent does not have the funds to pay. In the event a party fails to make the payment ordered by the adjudicator, the unpaid party is entitled to suspend its work on the project.^[34] The party in default is then not only responsible to pay the amounts ordered by the adjudicator, plus interest, but they are also responsible to pay the costs of the suspension and any remobilization costs.^[35] This option will likely not be preferred by contractors, who want to continue working and earning money and ensuring that their subs and suppliers are being paid. There is still some uncertainty as to how enforcement will happen in practice.

It may be tempting for the “losing” party in an adjudication to defend itself against the “winner’s” enforcement proceedings by arguing that the adjudicator made an error in his or her determination. Even if the “losing” party truly believes that the adjudicator made an error, it is important to remember that adjudicators’ determinations are interim binding. Until a matter is finally determined, the “losing” party must live with the determination and pay what it has been ordered to pay, or else it may face enforcement proceedings and additional costs. This is sometimes referred to as the “pay now, argue later” principle, under which some argue a quick answer is more valuable than the right answer. Some industry players have expressed concerns about “rough justice” or the “quick and dirty” determinations of disputes, and there will almost certainly be instances where an adjudicator gets it “wrong”. However, this can be remedied in the form of a final determination of the matter by a court or arbitrator. In the mean time, work continues and cash continues to flow on the project.

Adjudicators can make changes to a determination to correct typographical (or similar) errors. Such corrections must be made no later than seven days following the making of a determination. This may seem insignificant, but an error, however minor, could have unforeseen consequences if later used as evidence in court. If a party would like to suggest a correction to the adjudicator, that party can message the adjudicator through ODACC’s Custom System. If a determination is corrected, the corrected version will be made available in ODACC’s Custom System and ODACC will provide a free copy of the corrected determination to the parties within five days of the changes being made. However, such a situation is potentially embarrassing to the adjudicator and should be avoided as much as possible.

Challenging a determination

A determination cannot be appealed in the traditional sense of the word. A determination can only be set aside on an application for judicial review if the applicant establishes one or more of the grounds set out in section 13.18 of the Act.^[36] An application to set aside a determination will rarely succeed, as the test set out in section 13.18 is very strict.^[37] Subject to section 13.18, nothing in the Act restricts the authority of a court or of an arbitrator acting under the Arbitration Act, 1991 to consider the merits of a matter determined by an adjudicator.^[38]

In the UK, the most commonly cited reasons for non-compliance with an adjudicator’s determination are:

• the unsuccessful party does not have the means to pay;
• the unsuccessful party wants to stall for time, while preparing to launch some sort of belated counter-offensive, e.g., another adjudication or action; and
• the unsuccessful party disagrees with the determination and wants to challenge the decision (i.e., by judicial review).^[39]

While a party is engaged in enforcement proceedings, s. 13.20(4) of the Act operates to defer certain payment obligations. As with an order of the court, the Rules of Civil Procedure apply. Under r. 60.02, an order for the payment or recovery of money can be enforced in the following ways:

• Writ of Seizure and Sale (r. 60.07);
• Garnishment (r. 60.08);
• Writ of Sequestration (r. 60.09); and
• Writ of Possession (r. 60.10)

A judgment creditor can also conduct a debtor examination to identify exigible assets (r. 60.18). These remedies are significant and are different than what many construction industry participants are used to. It is important to seek legal advice throughout the adjudication process, including when determining which enforcements avenues to pursue.

Other Jurisdictions

While other jurisdictions have enacted construction adjudication, such as the UK, Singapore and Australia, Ontario is unique in that adjudication is aligned with prompt payment in its lien statute, meaning it is difficult to draw direct comparisons with other jurisdictions. However, trends in other jurisdictions may help to predict the future of adjudication in Ontario.

The UK has had a system of mandatory adjudication in place since 1998. It was introduced through the Housing Grants, Construction and Regeneration Act 1996 and enabled through The Scheme(s) for Construction Contracts^[40] and their respective Exclusion Orders.^[41] In the UK, an average of 1,500 disputes are referred to adjudication each year.^[42] Overall, adjudication in the UK has been positively received by the country’s construction industry and has reduced construction litigation in the courts. It has generally achieved the goals of resolving disputes quickly and effectively, while allowing cash to continue to flow “down the chain”. It has also allowed parties to resolve payment disputes at a significantly lower cost than litigation or arbitration.^[43] The most common pairing of parties to refer disputes to adjudication in the UK are general contractor and subcontractor, with the client/owner and general contractor combination also accounting for a significant number.^[44] There have been issues in the UK with claimants repeatedly referring the same, or substantially the same, issue to adjudication, and we may see this in Ontario as well.^[45]

Over time, the disputes being resolved by adjudication in the UK changed from being simple payment issues, wherein the payment regime as set out in the UK Act was not being followed, to disputes which are concerned with large sums of money and which involve complex legal questions.^[46] Generally, courts in the UK refuse to correct errors of fact or law in adjudication matters. If the adjudicator has addressed the proper issue in the wrong way, the court will not intervene in the adjudicator’s decision; decisions are only set aside if the adjudicator answered the wrong issue.^[47]

Relationship with Construction Workload

During the “settling-in period” of adjudication in the UK, which lasted until around 2006, there were various legal challenges, many of which were the result of more powerful parties seeking to increase the barriers to the use of adjudication and dissuade others from adjudicating.^[48] These challenges occurred during a time of relatively stable workload in the UK construction industry.

Data from the Adjudication Reporting Centre at Glasgow Caledonian University demonstrated that from year 1 to 3 after adjudication began in the UK, there was a dramatic increase in the use of adjudication. From years 3 to 5, the number of referrals to adjudication remained steady, which mirrored the UK workload over this period. However, as the UK construction workload increased from years 5 to 7, the number of adjudication referrals started to decrease. From years 8 to 9, the UK workload decreased slightly and then started to increase, while the number of referrals did the opposite. From years 11 to 12, the UK construction workload started to declined sharply, as did the number of adjudication referrals. When there was an increase in the UK construction workload, followed by a slight decrease, the number of adjudication referrals continued to increase. However, when the UK construction workload dropped more dramatically in 2010, the number of adjudication referrals also dropped noticeably.^[49] The last three years in the data series are when the downturn in the UK construction workload began to take effect and when a downturn in the economy was occurring and access to funding had become more problematic. In the immediate aftermath of a downturn in workload, adjudications rose, but one year later the ongoing reductions in workload were followed by a reduction in referrals.^[50]

The time lag should be taken into account as disputes may manifest themselves a year or more after contract commenced and when it would have been included as part of the workload statistics, at least in the UK. It is likely that the motivation to pursue an adjudication may be influenced to a greater or lesser degree by the immediate requirements of cash flow and continuity of work.^[51] Parties may be motivated to pursue adjudications during periods where workload is declining slightly because there are fewer opportunities for tender, a greater need for cash flow and more time on their hands to go through with an adjudication. However, where workload has declined sharply, adjudications will likely decrease as parties do not have the resources to follow through and do not want to be passed over for opportunities for later work.

Conclusion

We are still very much in the “settling-in” period of adjudication in Ontario and are currently being impacted by a worldwide pandemic. Adjudication trends in the UK and other jurisdictions will no doubt be of interest to adjudicators in Ontario. However, much remains to be seen about the future of adjudication in Ontario. It will likely be some time before enough adjudications occur that there is enough data to use to meaningfully analyze and predict trends.