Panellists presiding over a recent Osgoode Professional Development session on the repercussions of Ontario’s new construction adjudication system had a simple message for parties who might end up on the losing end of disputes: unless you are ready to deal with all sorts of troublesome consequences, just pay up.
Construction lawyers James Little and Bruce Reynolds, both of Singleton Urquhart Reynolds Vogel LLP, were assigned the panel topic What Happens After Adjudication? as part of Osgoode’s conference held in Toronto April 29.
The adjudication system, which will be implemented along with a prompt payment regime in the second phase of lien act reforms contained in the province’s new Construction Act, takes effect Oct.1.
Reynolds laid out a “world of pain” for debtors who have lost an adjudication that includes possible writs of seizure and sale under Rule 60, garnishments, writs of sequestration and possession, project suspension and a broad examination aid of execution.
“When the sheriff arrives in your reception area, it is not a good day,” said Reynolds, who with co-counsel Sharon Vogel wrote a report recommending the reforms. “Once we get to the point of the adjudication process where an unpaid subcontractor or general contractor files that determination because someone was stupid enough not to pay, they are entering a world of pain.”
Reynolds told the story of a small creditor who followed up on a claim using Rule 60 against a large firm that let the claim fall through the cracks. The large firm’s bank account ended up seized.
“There is going to be a theme as we move through these remedies and the theme is, if there is a determination, it is a really good idea to simply pay,” said Reynolds.
Reynolds said the new system is intended to re-engineer construction parties’ thinking around payment and dispute resolution. From a public policy perspective, he said, the re-engineering is to be accomplished by giving the winner in a dispute a “great big hammer” with which to enforce their rights and putting “serious pain” on a party who does not honour an adjudicator’s decision.
If adjudication works, the invocation of lien rights may well decline
— Bruce Reynolds
Singleton Urquhart Reynolds Vogel LLP
The right to suspend work on a job arises only 10 days after a losing party in an adjudication fails to pay up, Little noted, and interest accrues at a rate of two per cent per day. There are also drastic default measures, with failure to pay following an adjudicator’s decision potentially deemed a breach of contract.
Little went through legal precedents established in the U.K., whose 20-year-old adjudication system Ontario’s is most closely modelled after. The Balfour Beatty and Macob cases may well carry weight as jurisprudence develops in the province, said Little.
The courts determined in Macob that the purpose of the adjudication process was to establish a speedy mechanism for resolving disputes in construction contracts. Because their parliament did not abolish arbitration and litigation, it was seen as a signal that the new system should render quick justice, Little explained.
The point was expanded upon in Balfour Beatty, he said.
“One of the key principles they discussed was that the need to have the right answer in adjudication has been subordinated by the need to have the answer quickly,” noted Little. “So parties can get their rough justice.”
Reynolds commented that the adoption of adjudication in the U.K. resulted in a “massive offtake” of other remedies, and he expects that to happen in Ontario.
“If adjudication works, the invocation of lien rights may well decline in the next three to five years to the point where lien rights are seldom resorted to,” he said.
Wrapping up, Reynolds offered recommendations on best practices. First of all, he said, choose the right adjudicator.
“We suggest that is a horses for courses decision,” said Reynolds. “What is the monetary amount in dispute, what is the degree of complexity.”
Then, make sure someone on staff knows the new procedures and can hit the ground running when a notice of adjudication is served.
“For us, the single most important thing is to be prepared,” Reynolds said, noting Attorney General Caroline Mulroney has said there would be no postponement of the launch.
“It is not going to be deferred so get your running shoes on,” said Reynolds, who then referred to the 30-day period an adjudication is legislated to take.
“Thirty days can go by in a blink of an eye. And that has implications for proper documents and record keeping being introduced as a matter of ordinary course, because developing an analysis on the fly is much more difficult if you have incomplete documents.”