Legal Blog

Adjudication

The prompt payment and adjudication provisions of the Construction Act (“Act“) have now been in effect for a couple of years and we have seen some court cases applying them. If a participant in an adjudication is unhappy with the decision, can that participant do anything about it? This question was answered in SOTA Dental Studio Inc. v. Andrid Group Ltd., a 2022 decision of the Ontario Divisional Court.

Background

The court set out the rationale behind the prompt payment provisions, so concisely that we will simply quote it:

The whole point of these provisions is to require prompt payment to avoid the consequences of disruptions to construction projects of brinksmanship over disputes that arise. The prompt payment provisions are based on similar provisions introduced in the United Kingdom more than a decade ago. They provide for a quick and relatively informal adjudication, by an adjudicator experienced in construction law disputes. The decision is without prejudice to the parties contesting issues between them at the end of the project. It triggers an obligation on the part of the payee to make its payments to its subcontractors, suppliers and workers. Effective implementation of these provisions is intended to reduce terminations (by payors) and work cessations (by payees) in the midst of construction, either of which can cause cascading losses down the construction pyramid. The obligation to pay, and to pay promptly, when ordered to do so, is fundamental to the scheme of the prompt payment provisions.

Appeal etc.

First, we give some basic explanations:

Judicial review: a process by which a court reviews the award of an administrative tribunal. The court can overturn the decision, but usually defers to the expertise of the tribunal unless something very wrong took place during the hearing.

Stay of decision: the decision is unchanged, but it is stayed for a specific time (perhaps forever) or until the happening of a stated event, such as the final determination of an application for judicial review or an appeal.

Appeal: a decision of one court goes to a higher court for a decision. The appeal court may overturn the lower court’s decision, but will defer to the lower court unless the appeal is based on a matter of law alone or the lower court misapprehended the facts as proven in evidence.

Determination: the Act refers to the “determination” of an adjudication, which really just means a decision. We will use determination and decision  interchangeably.

The Act

An adjudication decision is not a court decision; it cannot be appealed. However, the Act allows some limited redress:

Section 13.18(5) – upon judicial review, an adjudication decision may be set aside only on seven named grounds such as fraud, reasonable apprehension of bias, a party being under disability, an invalid contract, etc. These are very narrow grounds.

Section 13.18(1) – an application for judicial review may only be made with leave of the Divisional Court and, pursuant to ss. 4, that decision may not be appealed.

Section 13.18(7) – an application for judicial review of an adjudicator’s decision does not stay the operation of the decision unless the Divisional Court orders otherwise. Normally an appeal of a decision stays its effect (e.g. if the lower court says pay $100, the loser who is appealing does not have to pay the money until after the appeal). This section says that the loser initially pays, regardless of an ongoing judicial review application, unless the Divisional Court says otherwise.

SOTA Facts

General was building a dental clinic for owner. General sent its proper invoice, but owner did not pay. Accordingly, general started the adjudication process and, ultimately, was successful. The adjudicator held that owner was to pay $38,400.00.

General started enforcement proceedings. First, it filed the adjudication determination with the court and, pursuant to s. 13.20(1), the determination became enforceable like any order or judgment of the court. Then it used its judgment to collect, whether through seizure or garnishment, $6,700. Still, owner did not pay the remaining $31,700.00.

Instead, owner first brought an application for leave for judicial review, which the court granted, and then brought its application for judicial review.

What it did not do was bring a motion to the court to stay the adjudicator’s determination pending the application.

Decision

Owner argued that the application could proceed on its merits because a stay would only mean that general could not enforce the decision until after the judicial review application was decided and “no stay” would mean that general could enforce the decision immediately. Whether the decision is stayed or not, the matter can still be heard on its merits (i.e., a stay affects immediate enforceability, not the merits of the application). Indeed, this would be true for a judgment being appealed. Whether the lower court decision is stayed or not pending appeal, does not affect the outcome of the appeal itself.

This was a reasonable argument, but the court did not accept it. It stated that prompt payment was integral to the Act and failure might result in a refusal of leave to bring the application and, even if leave were granted, would result in a dismissal of that application. Given this ruling, the losing party would have no reason to request leave to bring the judicial review application without joining it to a request for a stay of the adjudication decision.

Owner’s counsel stated during argument that the court’s ruling would be inequitable because owner did not have the money to pay the award. The court held that, if this were so, this was even a further reason to dismiss the application. It said that, “If the owner is insolvent, as appears to be the case, it should not be permitted to run up costs and delays through recourse to litigation in the face of the order below and the prompt payment provisions of the Act.”

The court dismissed the application without considering its merits and ordered payment of $10,000 in costs. Whether general will be able to collect the costs or the remaining money ordered on the determination is another matter.

Tidbits of Info

Under s. 13.15(1), an adjudication determination is an interim decision. It binds the parties only until the matter is finally determined by way of action, arbitration, or consent of the parties; it is not finally binding on the participants. The purpose of an adjudication is to allow a party to get a quick decision on an issue so that the project can continue in the normal course without the issue festering in the background. The mantra is “pay first, fight later.” Accordingly, we suppose that the SOTA owner could conceivably start an action to determine the issue in dispute and, if successful, would have its $6,700 returned to it and its debt eliminated.

Under s. 13.5(3), a party cannot commence an adjudication if a contract has been completed – unless the parties agree. Again, adjudication is supposed to be an interim measure to allow a project to continue.

Under s. 13.19(5), a contractor with an unpaid adjudication award has a right to suspend work on the contract.

 

Image courtesy of athree23.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.