The interim adjudication dispute resolution process was one of the most hyped-up changes to the Construction Lien Act. This new regime promised expedient determinations to improve (or at least supplement) processes that otherwise took years to complete. As a selling point, comparisons were made to other jurisdictions where interim adjudication had flourished and almost replaced traditional lien litigation. With this promise, many awaited their turn to take this process for a spin. Excitement was in the air. I was one of those people – freshly introduced into the construction law sphere – who was mesmerized by the appeal of an efficient resolution system.
As many know, Construction Dispute Interim Adjudication under Part II.1 of the Construction Act applies to projects whose prime contracts were procured or entered into following October 1, 2019.[1] We are now four years into this process and more disputes are qualifying for adjudication. As per the 2022 Report released by Ontario Dispute Adjudication for Construction Contracts (“ODACC”), being the authority facilitating this process, during the 2022 Fiscal Year, 121 adjudications were commenced at ODACC. Of those, 67 resulted in the rendering of a Determination.[2]
While these numbers do not seem large, I understand that a fair number of construction lawyers have now had a chance to experience this process – me included. Of the people I have spoken with, there appears to be a general disappointment with the process as it is now. Of the four adjudications I participated in, one stood out as the most problematic from both a procedural and substantive approach.
Enter the Wild West
Earlier this year, a general contractor client of mine received a Notice of Adjudication from a displeased subcontractor. This subcontractor was self-represented. While I do not know how he learned about this process, he did not seem to have anyone helping him from the sidelines. This was apparent by the fact that his Notice was all over the place, his numbers did not add up, and he failed to name the correct corporate entity with whom he had a contract (or for himself, for that matter).
Within a few days, we submitted a Response to Notice of Adjudication suggesting the use of a well-regarded construction lawyer and adjudicator from the ODACC roster. The self-rep refused to cooperate in that regard as well. ODACC, as it is allowed and required, thus appointed a civil engineer with a decent amount of industry experience to act as adjudicator. Both parties agreed on a Pre-Designed Adjudication Process, allowing each party up to five pages of written submissions and “a copy of the disputed invoices.”[3] In reality, the dispute was fairly simple. The subcontractor claimed an outstanding balance of just over $7,000.00. The general contractor disputed any entitlement to payment on the basis of setoff, failure to mitigate deficiencies despite reasonable opportunity to do so, issues with accounting and amount claimed, one of the projects already being completed, etc. On its face, it appeared to be a slam-dunk case if ever litigated on its merits.
From the get-go, the subcontractor delivered materials where the “five page” submission were made in 10-point font, with margins stretched to the maximum, incoherent arguments, and in-text references to various evidence. The subcontractor also attached over 150 pages of various E-Mails, invoices, etc. This prompted the adjudicator to unilaterally increase his rate to double of what the pre-designed process anticipated. A dispute worth $7,000.00 now cost the parties $2,260.00.
Needless to say, responding to this insane and unorganized approach was beyond frustrating. I made submissions on behalf of the general contractor that were neatly packaged into an organized argument, with references to legal principles and explanations for certain lack of evidence pertaining to deficiencies. Objectively (in my subjective opinion), the case spoke for itself. Both the contractor and subcontractor were provided with an opportunity to serve final replies.
We received a Determination a week following the last reply. To my absolute surprise, not only did the adjudicator ignore the clear and simple mathematical errors in the subcontractor’s calculation of how much was owing to him (which error was supported by his own evidence), but the adjudicator ignored and did not touch or comment on any of the legal arguments I made. Rather, the adjudicator awarded the subcontractor the full (incorrectly calculated) amount he claimed in his Notice of Adjudication, and furthermore slammed my client with full indemnity costs sought by the subcontractor and also ordered that my client pay the subcontractor’s portion of the adjudicator’s fee.
This Determination was on the basis that the subcontractor enclosed invoices and submitted that he did the work with no issue (which evidence was never tested or delivered by sworn affidavit) and relied on the fact that the general contractor did not produce photographs of deficiencies (which were not available because the Owner forced the general contractor off the property following the subcontractor’s shoddy workmanship). To reiterate – the adjudicator did not touch upon, comment, or otherwise reflect on any of the legal considerations that would have otherwise been made in a court of law, or even in binding arbitration. To say that I was baffled at this Determination is an understatement.
While this Determination was clearly wrong, there were some practical issues with applying for judicial review. For starters, and as the recent decision of Anatolia Tile & Stone Inc. v. Flow-Rite Inc. has made clear,[4] the only focus of the Divisional Court on judicial review will be whether the decision was reasonable giving credence to the fact that adjudication is interim and not finally binding. Secondly – and more importantly, it would be beyond silly to appeal a $10,000.00 decision given the costs associated in doing so.
On the basis of this saga that my client and I went through, I have arrived at the following conclusions:
- If this process is going to continue, we need to make sure that there’s a special educational sub-process available to self-represented litigants to avoid procedural chaos.
- While I appreciate that ODACC does offer its adjudicators some level training before they can qualify to become adjudicators, ODACC needs to ensure that all adjudicators – especially non-lawyers – understand basic legal principals and the importance to fairness and reasonableness in ensuring that those legal principals are considered and applied in their Determinations.
- There needs to be a better-defined appeal/judicial review process for disputes that are not financially reasonable to appeal. Parties should not be stuck with an incorrect or unreasonable decision due to the lack of business sense in appealing.
- Interim adjudication applies to all projects as indicated above. Some members of the construction industry do not know this. Construction lawyers must thus educate their clients on evidence gathering/storage during the course of the project to ensure that – when the Notice arrives – there is sufficient corroborating factual evidence to support a determination.
- ODACC needs to add levels of restraint or at least a something that disallows the adjudicators from having a cart-blanche approach to the determination process, as well as how fees are set. To this point, and as occurred in my adjudication, the respondent had no choice but to participate because the claimant refused to comply with the five-page argument and limited documents approach. A system needs to be put into place to address that.
As it stands, and as has been echoed by my colleagues who have gone through this process, interim adjudication is a wild west when it comes to dispute resolution. While I still believe in its potential, there must be some order and clear introduction and appreciation of the law for this process to survive into the future.
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at dan@fridmar.com.
[1] Construction Act, R.S.O. 1990, c. C.30, as amended, s. 87.3(4).
[2] Ontario Dispute Adjudication for Construction Contracts, 2022 Annual Report, p. 21, online: https://odacc.ca/wp-content/uploads/2021/07/ODACC-2022-Annual-Report-1.pdf
[3] See ODACC’s website: https://odacc.ca/en/adjudicators/adjudication-process/
[4] Anatolia Tile & Stone Inc. v. Flow-Rite Inc., 2023 ONSC 1291.
