Ontario’s Construction Act contains an interim dispute resolution system known as adjudication. The premise is one of “rough justice” – a quick process, subject to review at a full trial or arbitration, designed to provide a short-term resolution of the dispute. This may allow the project to continue and reach completion despite conflict between the parties. If the parties are still unhappy with the result of an adjudication after the contract has been completed, they may then proceed with a trial or arbitration.
The Construction Act conveys a broad array of powers to an adjudicator. It is also difficult to challenge an adjudicator’s determination. A party seeking judicial review of an adjudicator’s “determination” must first be granted leave by the court, and then succeed on an argument based on the very limited grounds afforded under the Act, such as (among others) participating in the adjudication while under a legal incapacity, or procedural unfairness.
However, there are limits to an adjudicator’s discretion. The Ontario Divisional Court in Ledore Investments v. Dixin Construction, the Court held that the procedure employed by the adjudicator was procedurally unfair such that it could not stand.
In Ledore, the matter involved “proper invoices”: invoices which meet a technical set of criteria defined under the Construction Act. When given by a payee to a payor, a proper invoice will place a set of obligations on the payor under the Construction Act’s prompt payment regime, including strict timelines and the requirement to provide a “notice of non-payment” if the payor disputes the validity of the invoice. The Claimant argued that it was owed payment as it had never been provided notices of non-payment in response to its invoices. The Respondent argued it was entitled to set-off costs of repairing deficiencies against the claimant’s invoices, despite not providing a notice of non-payment.
The adjudicator’s determination turned on a point neither party had raised in their written submissions. The adjudicator held that the invoices presented by the Claimant were not “proper invoices”, and as a result, the prompt payment regime was not engaged. On this basis, the adjudicator held that the claimant’s adjudication could not succeed.
In its application for judicial review, the claimant noted that whether or not the invoices were “proper invoices” was not raised or argued by either party. The Court agreed, and held that this was a breach of procedural fairness, as it did not allow the parties to submit on the issue which was ultimately determinative:
[…]the right to be heard on the determinative issue is a central component of even more limited procedural protections.
[…] It is fundamentally unfair because the losing party has had no opportunity to know the case it has to meet, or to address the issue that has been determined to be decisive. It is potentially unreliable because, in a system in which the adversarial process is relied upon to reach the best and most thoroughly considered determination, a decision that has not been tested in that framework cannot be trusted to have had its flaws exposed and addressed.
The Court in Ledore set out some examples of procedural powers which the adjudicator could have used to avoid this outcome. One such example is the ability to request the parties provide further written submissions on a discrete issue. The Court notes that had the adjudicator pursued this option, the parties would have had the ability to address the issue which it found ultimately determinative and avoided the breach of procedural fairness it encountered.
This case demonstrates one of the limits, and a potential workaround, on an adjudicator’s discretion and “inquisitorial” role. While the adjudicator has the power to direct the adjudication, ultimately, the process is still party driven and must be determined on the basis or arguments raised and addressed by the parties.
About the Author: Matthew Cameron is a litigator with a focus on bankruptcy & insolvency law and construction litigation. He has appeared in multiple adjudications before ODACC and enjoys the fast-paced nature of construction litigation.
DISCLAIMER: This article is for general information purposes only and is not (and should not be construed as) legal advice. The information contained herein summarizes only certain aspects of the subject matter and is not a comprehensive review of applicable law. All of the foregoing is subject to legal and accounting advice based on the particular circumstances of each potential client.
