By Brian Reid, Vasilis Pappas, Chris Petrucci and Chris Abtosway
In construction, delayed payments can be devastating to contractors, suppliers, and overall project success. Recovering payments through traditional litigation or arbitration processes can add further delays. In answer, prompt payment legislation has been sweeping across Canada.
Prompt payment legislation offers two solutions: (i) a prescribed invoicing framework, requiring timely invoicing and either prompt payment or dispute of invoices; and (ii) a fast-track adjudication process to expeditiously resolve such disputes. This article considers the adjudication process.
Adjudication offers third-party ‘adjudicators’ who determine construction disputes separate from typical court and arbitration processes. Adjudication has ambitious aims—seeking to award fair compensation, while promoting speedy resolution of disputes. In most jurisdictions, for example, unless agreed otherwise, the adjudicator’s decision is required within 30 days following the claimant’s submissions. Rough-but-fast justice is the goal to ensure construction projects continue with efficiency.
Despite its admirable aims, adjudication should be approached strategically. Pitfalls may await those navigating the intersection of adjudication, court, and arbitral processes. Adjudication has many benefits but may not always be the best answer.
Before and during adjudication
Traditionally, court or arbitral processes have been employed to determine construction disputes. Adjudication offers a third option for some disputes. But what happens if a court or arbitral process is already underway before an adjudication is commenced? What happens if, during an ongoing adjudication, a parallel court or arbitral proceeding is commenced? Different jurisdictions offer different answers, with two approaches having developed.
Parallel Proceedings: In Ontario and jurisdictions with similar legislation (Saskatchewan, Manitoba, New Brunswick, Nova Scotia and under Federal legislation), parallel proceedings are permitted. Adjudication is available even if a court or arbitral proceeding is already underway unless the court or arbitral proceeding has already finally determined the issues.
In these jurisdictions, an adjudication decision is “binding until” a court or arbitral process is concluded—offering quick, interim relief pending the determination of the issues in the more complex and rigorous court or arbitral process.
Court-Priority: In Alberta, if a court action is already underway, adjudication is not available. The court action takes priority. In fact, even if a court action and adjudication are commenced on the same date, the adjudication must be discontinued to allow the court action to proceed.
Interestingly, in Alberta, priority is only specified for court actions. Arbitration is not mentioned, without explanation and despite the prevalence of arbitration as a dispute resolution mechanism for construction disputes. However, in Alberta the adjudicator’s decision is binding on the parties “except where…the parties have entered into a written agreement to appoint an arbitrator under the Arbitration Act.“ This provision has not yet received judicial attention.
However, several questions arise, including:
- Is the presence of an arbitration clause in a contract enough to foreclose the binding nature of an adjudication, or do the parties have to agree on a specific arbitrator after the dispute has arisen?
- Does this provision relate only to domestic arbitrations commenced under the Arbitration Act, or does it also apply to international arbitrations commenced under the International Commercial Arbitration Act?
These questions have not yet been answered in Alberta.
Racing to the courthouse
Given the complexities, stakeholders may wonder whether they should race to initiate court or arbitral proceedings before an adjudication is commenced. In most jurisdictions, the answer is no.
In the Ontario Model Jurisdictions, since parallel proceedings are allowed, a mad dash to the courthouse will not halt the adjudication, and the outcome of the adjudication will be binding until the dispute can be more fully resolved in court or in arbitration.
However, it is different in Alberta, where initiating a court action before or on the same day as an adjudication can stop the adjudication in its tracks. So, if avoiding adjudication is the goal, a speedy trip to the courthouse might just be the ticket, which may also cause a surge in litigation to avoid adjudications.
However, in Alberta, the treatment of arbitration is again less clear, and it does not appear that the mere commencement of an arbitration will stop an adjudication. Nonetheless, if parties have made an agreement to appoint an arbitrator under the Arbitration Act, the adjudicator’s decision won’t be binding.
After adjudication
Once an adjudication decision has been issued, stakeholders contemplating related court or arbitral proceedings encounter a fresh set of considerations.
Commencing a Court or Arbitral Process After Adjudication In all Canadian prompt payment jurisdictions, the adjudication process is an interim process. As such, even if an adjudication decision has already been issued, there will likely be no impediment to a party commencing a fresh court or arbitral process, provided such process is not barred by the passage of time.
Binding Decision Unless Stayed or Overturned An adjudicator’s decision may be overturned in two ways. First, in limited circumstances, judicial review may be available if there were problems with the adjudication process. For example, a decision may be set aside if the adjudicator was biased, the adjudication procedure was improper, or the decision relates to a matter that was outside of the adjudicator’s jurisdiction.
Second, an adjudicator’s decision may be overturned by a subsequent court or arbitral decision relating to the subject matters adjudicated. In these circumstances, the adjudicator’s decision serves as an interim decision, pending the issuance of the court or arbitral decision.
However, if a subsequent process is commenced, the adjudicator’s decision will not be automatically stayed. If a monetary award is issued, the award must be paid, or a stay must be obtained to pause the adjudicator’s decision, while the subsequent dispute resolution process continues. Obtaining a stay can be difficult, and will likely require that it be shown, among other things, that irreparable harm will be suffered if the stay is not granted. Additionally, a court may require that the disputed award amount be paid into court to obtain the stay.
Of course, one can simply ignore an adjudicator’s decision without obtaining a stay. However, doing so carries risk. The adjudicator’s award is likely immediately enforceable against the losing party’s assets. Moreover, the Ontario court recently dismissed a judicial review because the applicant failed to pay the award or obtain a stay. Thus, by ignoring the adjudicator’s order, the applicant lost its opportunity to have the order set aside.
The effect of the adjudicator’s decision in a subsequent court or arbitral proceeding
once an adjudication decision is issued, what is its impact on subsequent court or arbitral processes? Ontario and New Brunswick prompt payment legislation explicitly allows adjudication decisions to be admitted as evidence in court.
The admission of an adjudication decision in subsequent related proceedings presents further risk. Adjudication offers “rough justice,” fraught with perils that may impact the decision ultimately issued—a decision that may be prejudicial if reviewed in a subsequent process. While adjudication offers swift resolution of disputes, it lacks many of the rigours of court and arbitral processes. Stakeholders with complicated issues or significant sums in dispute may face significant difficulty in the confines of the adjudication process, where the rushed nature of adjudication may hamper a stakeholder’s ability to present a robust case. In prompt payment disputes, claims relating to set-off or withholding rights arising from delay claims, illegality, fraud, negligence, or property damage may require significant evidence, expert opinions, complex damage quantification and intricate legal argument.
Respondents face considerable prejudice in these circumstances. The claimant chooses when to commence an adjudication. Accordingly, a claimant may carefully prepare its evidence, before ambushing a respondent with a case that must be countered, often in mere days or weeks. The compressed timelines of adjudication leave little room for thorough investigation, witness preparation, or expert analysis, potentially compromising the quality of evidence presented.
Moreover, the hearing may be too short, and the adjudicator may have too little time to properly consider the evidence and prepare an informed decision due to the fast-track process required.
A rushed case preparation process, followed by a rushed hearing and a rushed decision may not produce a good decision. For example, to avoid engaging with detailed evidence or complex issues in the time available, an adjudicator’s hastily prepared decision may make broad-brush statements about witness or expert credibility. Such a damaging decision will surely weigh on the mind of a subsequent decision maker considering the same issues.
Given these challenges, options should be carefully considered. For example, steps to avoid adjudication in the first place may be advisable (such as initiating a court action in Alberta or agreeing to appoint an arbitrator).
If adjudication cannot be avoided, instead of leading rushed evidence, unprepared witnesses and experts, or overwhelming the adjudicator with volumes of evidence and argument, prejudicing the case, a party may also wish to consider intentionally circumscribing adjudication evidence or taking a “participation-under-protest” approach. In this regard, parties may elect to strategically risk “losing the battle” in an adjudication to preserve their position and ultimately “win the war” in a subsequent court or arbitral process. Such an approach may also allow a party to avoid the significant expense associated with a fast-track adjudication, particularly in a complex matter.
Navigating with confidence
The wave of prompt payment legislation sweeping across Canada offers construction stakeholders adjudication, a new dispute resolution that comes with its own advantages and disadvantages. As parties chart their course through the maze of dispute resolution options, one thing is clear: strategic decisions made before, during and after the adjudication process can have far-reaching implications. By understanding the nuances of each mechanism and embracing a proactive approach, parties can navigate with confidence.
Brian Reid, Vasilis Pappas and Chris Petrucci are partners at Bennett Jones. Chris Abtosway is an associate at Bennett Jones.
[This article originally appeared in the July/August 2024 edition of ReNew Canada]
Featured image: (Getty Images)