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31/07/19

What can the Ontario construction industry learn from adjudication in the UK?

What can the Ontario construction industry learn from adjudication in the UK?

Nicola Huxtable, Operations Director, Driver Trett UK explains some of the lessons learned from over 20 years of adjudication in the UK.

With the introduction of adjudication into the Ontario construction industry imminent, it is a hot topic for construction lawyers, owners, and contractors across the province. With the exception of a couple of points, the legislation has been drafted to closely reflect the adjudication provisions incorporated into the law of England and Wales. As such, there has been much interest in how the process has developed in the UK over the last twenty years, with construction professionals in Ontario expressing a keen interest in the experiences of UK construction professionals working in this field.

It is fair to say that there is a certain amount of both trepidation and excitement in the Ontario market, with owners facing the uncertainty of potential ambush adjudications and contractors hoping that adjudication may provide them with a route to securing payment quickly. Owners will of course be able to use adjudication to recover money from contractors, and contractors will face the possibility of adjudication from subcontractors. There is certainly more optimism than negativity on the part of contractors and subcontractors, with perhaps the opposite view within the owner sector.

Following a number of seminars held across Ontario in May this year, there were a number of questions which arose time and again for which the delegates were looking to find answers within personal experiences in the UK.

Firstly, contractors are looking for guidance on how much it will cost to take a dispute through adjudication. The answer to this of course is dependent on the complexity of the dispute and the amount of expert support required.  As with the UK adjudication provisions, each of the parties will bear their own costs in adjudication and Contractors can significantly reduce the cost by ensuring that they keep good quality records throughout the project, and have organised the relevant documentation prior to instructing external representatives

Again, this was not a question with a straightforward answer. Several of the contracting organisations had hoped that adjudication, when introduced into Ontario, would solve their cash flow issues, particularly with regards to late or under-payment from public sector owners. Often the sums outstanding or deducted from payment applications would be smaller amounts, say $20K to $100k. Contractors are looking for a process that will take a month, cost small amounts and recover outstanding sums to keep the cash flow moving on a project, rather than trying to sweep it up at the end and spend years trying to recover it under the lien provisions of the Construction Act, as is the current process.

Unfortunately, the UK experience of this problem and the discussion regarding this somewhat flattened the enthusiasm held by the contractors. Despite the fact that there is nothing preventing contractors from representing themselves in adjudication and doing all of the work that sits behind the process, the reality is that it is rare. The adjudication process in the UK has been itself a minefield of jurisdictional challenges and procedural pitfalls. It is therefore far more common for parties to be represented by lawyers and / or consultants, both of which cost money which is not recoverable. Even the simplest of disputes will incur costs which may well outweigh the sums in dispute, particularly when you take into account the adjudicator’s fee which is likely to be split equally between the parties – per s13.10(3)

When taking these costs into account, and the amount of time required from the contractor’s team, who still have a project to deliver in the meantime, it will be a commercial and strategic decision as to whether to refer these smaller value disputes to adjudication.

The most common question posed by the owner organisations, and a question being discussed at length within the legal community in Ontario, is how common is ambush adjudication in the UK?

It is important to remember that the UK has 20 years’ experience of adjudication, so Ontario is currently facing the uncertainty that faced the UK construction industry prior to the passing of the Housing, Grants, Construction and Regeneration Act 1996. The unknowns are the same and although Canada can look to the UK and UK case law for guidance, there are no guarantees that the Canadian courts will make the same decisions.

With regards to ambush, it is fair to say that this was also a concern in the UK immediately following the incorporation of adjudication into UK law, and a valid concern at that. Certainly for the first few years, ambush was a big concern to employers and main contractors in the UK, who often stared at the fax machine all afternoon on Christmas Eve hoping that the feared Notice of Adjudication, which would lead to them working through the Christmas break and into the New Year, would not materialise. Contractors or subcontractors would push lawyers and consultants to serve Notices of Adjudication at times when they knew the key individuals for the other party were not available or would be put at a disadvantage. The Christmas Ambush became a well-known trick.

However, this was short lived and is much less common in the UK now for numerous reasons. Firstly, this strategy will lead to both parties working throughout the holiday period, including representatives and the adjudicator. Adjudicators have little desire to work over the holiday period, as do the parties, and have used their ability to conduct the adjudication as they see fit to extend the time for service of the Response, taking it through past the holiday period. The Referring Party is then put in a difficult position, as they often do not want to reject requests from the adjudicator to extend the timetable and risk upsetting the person that will ultimately be deciding on the outcome of the case.

Often an “ambush adjudication” is met with claims of “breach of natural justice” from the responding party, although such claims are rarely upheld.  However, they do involve the parties in further unnecessary costs.

As a result, ambushes are rare in the UK as the parties want to avoid adjudication in the first place, if possible, and often the positions of the parties in disputes are well versed in advance of any adjudication starting. It is in the interests of both parties to get to the end of the process with a decision, albeit that one, or both, of the parties may not be happy with the content of that decision.

It is an exciting time for the Ontario construction industry, and it will be interesting to follow the development of the adjudication process over the next few years, in particular, the approach the courts take to some of the issues which were quickly developed in the UK. When does a dispute crystallise? What constitutes a single dispute? Does a natural justice argument take precedence over the adjudication timetable? These are all issues which are currently being debated in Ontario. Only time, and a foray into the adjudication process, will tell.

Adjudication is being proposed in numerous provinces and at the federal level across Canada.  Be sure to read our accompanying article by Kevin O’Neill in the upcoming Driver Trett Digest magazine for a description of the latest proposals and legislation.

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