Canada: Ontario's Construction Dispute Interim Adjudication: Pros And Cons

It has been several years now since Part II.1, Construction Dispute Interim Adjudication ("Adjudication"), was brought into the Construction Act, RSO 1990 c C.30 (the "Act").

As a result of the transition provisions of the Act, it has taken some time for Adjudication to be applicable to ongoing construction disputes since these new provisions only apply to projects in which (i) a Contract for the Improvement was entered into after October 1, 2019, or (ii) the procurement process was commenced by the owner after October 1, 2019. As a result, it is only in recent years that it has become more common to consider the use of Adjudication for payment and other common construction related disputes.

The availability of Adjudication is prescribed by section 13.5(1) of the Act.¹ It is designed to provide quick, interim binding decision making on a single issue in dispute, and works, to a large extent, in tandem with the newly added Prompt Payment provisions of the Act under Part I.1.

Since Adjudication has become more common, we now have experience to share with respect to some of the pros and cons of the process.

One of the pros is that a claimant can simply and quickly register for an online account with the Ontario Dispute Adjudication for Construction Contracts ("ODACC"), set out brief details of the claim, and simply enter the parties' information into the system. The ODACC Portal is simple enough for non-represented claimants to initiate the process on their own, if they wish. Upon initiation of the process, the respondent only has four days to respond and agree to an adjudicator. If the parties cannot agree, the ODACC Portal has a simple system whereby the claimant can request the ODACC to appoint an adjudicator, and it is often typically resolved swiftly at that stage. Overall, we have found that the ODACC Portal is simple to use, and makes the process practical for parties to commence the process, even without the assistance of counsel. This is particularly helpful for smaller subcontractors, suppliers or other claimants who may wish to pursue smaller payment disputes without the added expense of retaining counsel.

Another pro of Adjudication is that the ODACC has several pre-designed processes for the Adjudication which can be selected and suggested by the claimant at the time of filing the claim. However, in reality, we have found that upon appointment of the Adjudicator, the parties will have an initial case conference whereby the Adjudicator and the parties will agree on a customized process that suits the specific claim. This ability to streamline and customize the process to the particular issue in dispute is what provides Adjudication its best potential to adjudicate claims in a proportionate manner.

A further positive to pursuing Adjudication is that the costs of the Adjudication are set at the outset, and typically the fees charged and recommended by the ODACC or its arbitrators are reasonable and fair and, moreover, do not dwarf the amounts in dispute, as litigation often does. Costs of the Adjudication are then typically borne by each party, despite the outcome of the proceeding. This provides access to justice for claimants with fewer resources than owners or large general contractors may have, and allows smaller claimants to pursue legitimate claims that they may have otherwise not pursued in a Lien action due to the potentially adverse costs consequences.

A final pro of Adjudication is that disputes of a technical nature can be dealt with by a person with the appropriate expertise (i.e., engineering, legal, or project management). Under the Act, the adjudicator has inquisitorial powers whereby they may inspect a property, or take other steps they feel are necessary to understand the issues in dispute. Allowing parties to select an adjudicator who has specific experience in a certain industry promotes simplicity in explaining each side's case, and thus requires much less effort by the parties in making submissions.

Turning to the cons of Adjudication, one potential con is that the quick nature of the process may not permit a fulsome investigation into the complexities of the issues in dispute. For example, an Adjudicator may impose overly strict page and document limits, which may make it difficult, or even impossible, for a claimant/respondent to properly articulate or prove their case to a satisfactory standard. In this regard, the process itself may result in a decision that is not based on a thorough understanding of the factual matrix or the legal or technical issues that arise from the dispute. While we appreciate these issues were likely considered when Adjudication was proposed in the new Act, and that Adjudication is meant to be a form of "rough justice," the summary nature of the remedy is something a claimant must be aware of before concluding that Adjudication is the appropriate route to seek redress. If there is a technical, legal or factual complexity that would benefit from deeper scrutiny, and the parties are content to wait for a determination, it may be more beneficial to proceed with a Lien Action and have it determined at a later date.

Another potential con to Adjudication is that a respondent (whether a contractor or owner) will have very little time and opportunity to respond to a claim, whereas a claimant can prepare for a long time prior and has the advantage of being able to pull the trigger at a tactical time in the project. This is because there is no time limit in the Act that requires a claimant to trigger Adjudication within a certain time limit after the dispute arises. For example, if there is a payment dispute, and a claimant receives a notice of non-payment, it would help contractors and/or owners to have some sense of finality or certainty in the process if a claimant was required under the legislation to file for Adjudication within a specified timeline. Instead, we see instances where a claimant is still on a project, and has an unresolved payment dispute for months or years, only to file a request for Adjudication nearing completion of the project.

In addition, and with respect to the ODACC portal itself, there are some platform kinks that need to be worked out. For example, we have encountered some nuisances and difficulties when uploading certain documents, if they are not in the exact formats required. For instance, files with a ".PDF" extension will not upload, whereas if they are all renamed to a ".pdf" extension, they will upload. Such nuisances in an online portal when combined with tight timelines can be frustrating for a claimant or respondent to have to sort out on an urgent basis. However, that is a complaint that also applies to many of the other online systems implemented by the Courts since Covid-19.

Conclusion

Overall, we view Adjudication as one more helpful tool in a construction lawyer's arsenal, to be used in the appropriate circumstances. We have enjoyed success in using this tool as a fast and cost-efficient remedy for subcontractors, suppliers or contractors who may need a payment dispute decided without delay. It gives parties quick and efficient decision making, so as to avoid conflict and prevent interruption on a project that would otherwise disrupt the progress of the work.

Footnote

1 Pursuant to section 13.5(1), disputes relating to valuation of services or materials, payments, change orders, notices of non-payment, holdbacks, and set-offs pursuant to section 12 and/or subsection 17(3) may be referred to Adjudication. In addition, the parties may consent to other matters being referred to Adjudication if they do not fall within the prescribed categories.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.