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Legal Notes: Adjudicator pre-selection should be part of contract negotiation

John Bleasby
Legal Notes: Adjudicator pre-selection should be part of contract negotiation

Adjudication is becoming part of provincially legislated prompt payment solutions across Canada. Ontario has taken the most comprehensive step in this respect, having layered its prompt payment and adjudication process on top of its existing lien regime, says national law firm Osler, Hoskin & Harcourt.

Elsewhere, Nova Scotia and Saskatchewan have similar adjudication processes in place. Other provinces like British Columbia, Manitoba, Alberta and Quebec have the matter under discussion or in public consultation.

As Jill Snelgrove of Pallett Valo LLP explains, “Adjudication is a process by which parties to a contract or subcontract can get a quick, interim and binding decision to settle a dispute. This will assist with the flow of funds and with keeping the project moving. Parties no longer have to commence a lawsuit — both expensive and time consuming — to resolve issues.”  

However, she points out in the case of Ontario, adjudication is only available during the course of a contract or subcontract, not after.

Timing is tight, as are other aspects of the province’s prompt payment regime. If parties cannot agree on an adjudicator within four days of adjudication notice being given, one is appointed. It is therefore in the interest of parties entering into a contract to anticipate the possibility of a payment dispute and to strategize any potential adjudication procedures.

For example, given that adjudicator powers are far reaching and their interim determinations binding, the pre-selection of an adjudicator could be critical. However, there are restrictions regarding how this can be correctly handled.

“The Ontario Construction Act says that the parties cannot stipulate the adjudicators in their contract,” David Outerbridge, Partner with Torys LLP in Toronto told the Daily Commercial News. “I think the reason is to make sure that the more powerful party negotiating the contract doesn’t impose their adjudicator on the other side through their negotiating power.”

However, Outerbridge says once a contract is signed, the parties could have a separate agreement dealing with adjudicator selection.

“You could enter into your contract and then the next day enter into an adjudication agreement that says, ‘If we have a dispute on this project under which we have already entered into a contract, we then agree to who the adjudicators might be should there be a dispute.’”

He is careful to point out while there is a good argument for this strategy, it has not yet been tested.

Robert Kennaley, of Kennaley Construction Law, says nevertheless contracted parties can include procedural requirements in their contracts or subcontracts as long as they don’t conflict with the act’s requirements.

“This gives construction participants an opportunity to agree on the ‘nuts and bolts’ of how adjudication will, and perhaps won’t, be conducted,” he says.

This is important, he says, because the procedural requirements of Ontario’s act are minimal, leaving key matters like representation by counsel and cross-examination of witnesses insufficiently addressed or confirmed.

Outerbridge offers additional strategies for adjudication pre-selection.

“Another option might be to just say, ‘We will agree on an adjudicator to be appointed by, for example, ADR Chambers, who is legally trained.’ Therefore, if you can’t agree amongst yourselves, when the time comes you will at least have agreed on the pool from which the adjudicator will be picked.”

He further suggests that the adjudication agreement could mandate a third party to administer the selection of the adjudicator.  

“This third party would pick from a list of adjudicators, perhaps a list of retired lawyers or judges, and do so within 24-hours in order to get a jump on the ODACC (Ontario Dispute Adjudication for Construction Contracts) regime,” he adds.

Again, Outerbridge emphasizes this strategy has not been tested.
Hope for the best, but plan for the worst?

“I am of the belief that agreeing on dispute resolution procedures at the time the contract is entered into and parties are still amicable is best,” says Snelgrove.

That should be possible, given the options available under the act.

 

John Bleasby is a Coldwater, Ont. based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

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