So you received an adjudication determination: what comes next?
Adjudication, a quick method meant to achieve interim binding resolution of construction disputes, was introduced to the construction industry as one of the key amendments to Ontario’s Construction Act on October 1, 2019. There has been much discussion in the industry regarding its application and processes in order to prepare industry participants for navigating the adjudication itself, but less attention has been paid to what comes after. In this post, we discuss six key considerations that parties to an adjudication will want to keep top of mind if they have received a determination from an adjudicator under the Construction Act.
1. Check for errors in the determination
An adjudication determination will be admissible as evidence in court proceedings. The determination by an adjudicator is binding on the parties until a determination of the matter by a court and, as such, it is important to ensure that the decision is accurate and does not contain any typographical errors that may come back to haunt you. Adjudicators can make changes to a determination to correct typographical errors, or errors of a similar nature. For example, we would expect that the omission by an adjudicator of an importantly placed “not” in a sentence could be fixed. Corrections to determinations, however, must be made no later than seven days following the determination. Therefore, parties should immediately review the determination upon receipt to determine if there are any errors that require correction. If a party wishes to suggest corrections, they must message the adjudicator through Ontario Dispute Adjudication for Construction Contracts (“ODACC”)’s Custom System, and if necessary, a corrected determination will be issued.
2. Amounts payable under the determination
A party who is required to make a payment to comply with an adjudicator’s determination must do so within 10 calendar days after the determination has been communicated to the parties. It is important, then, for a party facing a determination to consider aligning its internal processes (as well as external processes to the extent that funds are provided by lenders) to ensure payments can in fact be processed within 10 calendar days. This may require advanced notice to the person or group responsible for accounts of a potential award prior to receiving the determination. Failure to make payment on time could result in significant consequences, including the possible suspension of further work by the successful contractor or subcontractor awaiting payment, until the amount required under the determination is paid, along with interest and reasonable costs resulting from suspension of work. While there is room for debate regarding what exactly constitutes “reasonable” costs, a party wishing to avoid any exposure whatsoever to delays as well as costs should take the necessary steps to ensure compliance with its payment obligations.
3. Enforcement of determination
Once a certified copy of a determination has been received from an adjudicator, the successful party to an adjudication must consider whether or not it wishes to have the option to enforce the determination as if it were a court order. If so, the successful party must file a certified copy of the determination (which can be obtained from ODACC) with the court within the later of two years of the communication of the determination to the parties or, where a motion for judicial review has been filed, two years from the dismissal of the motion or the final determination of the application if it is not dismissed. A successful party’s decision to seek a court order has a variety of implications, including on the requirement of the successful party to make related payments to parties down the construction pyramid.
For example, where a successful contractor has filed a determination and is engaged in enforcement of a court order, any related payment obligations of that contractor to its subcontractors are deferred pending the outcome of the enforcement. Where a successful party has not been paid within the 10 calendar days required under the Construction Act, it may be particularly beneficial for the party to file the determination and seek to enforce a court order – in order to avoid payees down the pyramid demanding related payments while the monies required to be paid under the determination remain outstanding. Furthermore, once a determination has been reflected in a court order, the party seeking enforcement can engage more traditional remedies like performing a judgment-debtor examination and seeking a writ of seizure and sale or garnishment. These remedies have their own strategic considerations including timing and cost.
4. Interim binding or final?
The determination of an adjudicator is binding on the parties to the adjudication until a further determination of the matter by a court, an arbitration, or a written agreement between the parties respecting the matter. Once the adjudication process is over and an unsuccessful party has complied with the determination, it must therefore consider whether it wishes to end the dispute where it stands or to pursue it under other dispute resolution methods, for example mediation, arbitration or court proceedings. Parties will need to consult their existing contracts as they relate to dispute resolution procedures, which may impact the options available. The impact the determination may have on future disputes between the parties in respect of the same or similar projects may be an important factor in an unsuccessful party’s decision whether to take further action. Furthermore, if the adjudicator’s determination is in relation to a contract before the certification or declaration of substantial performance, a party’s choice regarding whether to end the dispute or pursue it further will have an effect on the contract price in determining substantial performance under the Construction Act. Any amounts ordered by an adjudicator to be paid (or deducted amounts if overpaid) will be added to (or subtracted from) the contract price in determining substantial performance.
5. Setting aside on judicial review
The determination of an adjudicator can only be set aside by an application for judicial review on limited grounds, such as legal incapacity of the parties, reasonable apprehension of bias of the adjudicator or fraud. Another ground for judicial review is where the adjudicator lacked jurisdiction (i.e., where the determination was of a matter that either may not be the subject of adjudication under the Construction Act, or of a matter entirely unrelated to the subject of the adjudication), or where the adjudicator breached the principles of natural justice (i.e., where the adjudicator failed to follow the procedures to which the adjudication was subject, and the failure resulted in prejudice to a party’s right to a fair adjudication).
If the experience of other jurisdictions that have already introduced adjudication is any indication, jurisdiction and breaches of the principles of natural justice will likely prove the most fruitful grounds for challenging adjudication decisions by way of judicial review. For example, a party might argue that the adjudicator overstepped, and has decided something that was not part of the referred dispute. In addition, particularly in grey areas under the legislation, a party might argue that the adjudicator has decided an issue that is not properly the subject of adjudication under the Construction Act. Prior to filing an application for judicial review of an adjudicator’s decision, parties should nevertheless remember that such an application will not operate as a stay of the implementation of the determination unless the Divisional Court orders otherwise, and its obligation to pay amounts under the determination remains in effect.
6. Expiry of liens
The Construction Act allows an extension of time for preservation of a lien if the matter that is the subject of a valid lien is also subject of an adjudication. For the purposes of preserving the lien, the lien is deemed to have expired on the later of 60 days from the standard trigger date for preserving a lien and 45 days from the day the adjudicator receives the documents for adjudication. Therefore, parties must consider the impact of this on construction lien deadlines and holdback release, and in particular whether any action is required following the receipt of a determination.