The introduction of adjudication into Ontario's Construction Act caused many to coin this new process as "rough justice" as it allows parties to get swift, interim relief, without bringing the project to a halt.
The Divisional Court in Ledore Investments v. Dixin Construction, 2024 ONSC 598 has confirmed how inappropriate the "rough justice" misnomer really is. Adjudication is not a form of "rough justice" that makes the process immune to fundamental rights embodied in the concept of natural justice.
Facts
The applicant, Ledore Investments Limited ("Ledore"), applied for judicial review pursuant to the provisions governing judicial review in Ontario's Construction Act. In its application, Ledore sought to set aside the determination of the adjudicator dismissing its claim for payment against the general contractor, Dixin Construction ("Dixin").
The adjudication touched on the prompt payment provisions of the Act, in that Ledore had delivered three invoices to Dixin, which Dixin had included in its payment application to the owner, for which it was paid. Dixin did not deliver to Ledore a "notice of non-payment" within the time-period required by the Act, but nevertheless refused to pay Ledore's invoices after it had terminated Ledore's subcontract and claimed set-off.
Ledore sought interim relief by way of adjudication, however the adjudicator declined to order Dixin to pay Ledore, because the form and content of Dixin's invoicing to the owner did not "engage" the prompt payment provisions as it was not a "proper invoice," a form of invoice defined in the Act with statutorily mandated contents.
Importantly, neither Ledore nor Dixin had raised this as an issue in the adjudication, however the adjudicator took it upon himself to render his determination without input from the parties.
The Adjudication
The agreed upon adjudication process permitted both parties to provide written submissions of various lengths. No oral submissions were permitted, but both parties had submitted witness statements.
On July 20, 2022, the adjudicator delivered his determination, together with written reasons, concluding that Dixin was not required to pay Ledore for the invoices, but his reasoning turned on a point neither party had raised in their written submissions. He determined that, because Dixin had not delivered to the owner a "proper invoice" as defined in the Act, the Act's prompt payment provisions did not apply.
Strikingly, he acknowledged that neither party had raised this argument, stating that:
Although not raised by either party, my review of the material submitted by the parties also raises an issue with respect to the form and content of [Dixin]'s invoicing (that is, the invoice from [Dixin] to the [owner], which purports to have started the Prompt Payment process).
The adjudicator was troubled with the result of his analysis, remarking that:
I feel it necessary to note that I am concerned with the outcome in this matter, as it appears [Dixin] is able to (unintentionally, it would seem) take advantage of its own failure to comply with the Act. Although not fully canvassed/analysed herein, had the fact of the improper form of [Dixin]'s invoice to the [owner] been known/realized by [Ledore] prior to issuing the Notice of Adjudication, perhaps the adjudication could have been structured in a way to deal with [Dixin]'s failure in this regard.
Judicial Review
Ledore's application for judicial review of the adjudicator's determination raised three issues:
- Is judicial review available in this court?
- If judicial review is available, was there a breach of procedural fairness?
- If there was a breach of procedural fairness, what is the appropriate remedy?
One the first issue, the court considered Section 13.18(5) of the Act, which requires an applicant to establish one or more of these grounds for review to have a determination set aside. Ledore relied on two of these grounds:
13.18(5) The determination of an adjudicator may only be set aside on an application for judicial review if the applicant establishes one or more of the following grounds:
3. The determination was of a ... matter entirely unrelated to the subject of the adjudication.
5. The procedures followed in the adjudication did not accord with the procedures to which the adjudication was subject under this Part, and the failure to accord prejudiced the applicant's right to a fair adjudication.
The court found that the Act specifically provides that procedural fairness is a ground for a party to seek judicial review, and Dixin conceded this point. Consequently, judicial review was available under Section 13.18(5)5 and the court did not need to consider Ledore's argument that the determination related to matter that was unrelated to the adjudication.
Was there a breach procedural fairness?
The court devoted most of its time on the second issue, determining whether there was a breach of procedural fairness. At the forefront of the court's analysis was the level of procedural protection that should be afforded to parties in an adjudication.
On the one hand, as Dixin argued, adjudication is "a fast and informal process intended to secure an interim result pending the parties pursuing their dispute more comprehensively in court or before an arbitrator." The interim nature of a determination limited the procedural protections. The court agreed, in part, with Dixin, that in considering the statutory framework, the legislature intended to "establish a prompt and abbreviated adjudicative process," that should not be overwhelmed by strict procedural conformity.
But it's not "rough justice" that is devoid of all procedural protection, simply because the process results in an interim determination that can be corrected by the courts or an arbitrator, where the procedural rights are more comprehensive. The court found that while procedural protection was limited, some procedural protections remained, as:
the right to be heard on the determinative issue is a central component of even more limited procedural protections. It is a legal truism in our system of justice that it is fundamentally unfair, and quite possibly unreliable, for a judicial officer or adjudicator to reach a conclusion in his or her reasons for judgment in a proceeding based on an issue that has not been pleaded or relied upon by a party to the proceeding.
While the courts tend to pay a significant amount of deference to the determinations of specialized decision-making bodies, this is subject to basic safeguards being met. The procedural entitlements in adjudication were not so low as to eliminate the fundamental right to be heard on the dispositive issue, and accordingly there existed procedural unfairness.
What is the appropriate remedy?
Ledore submitted that the court should set aside the adjudicator's determination as unreasonable and substitute it with its own analysis. The court disagreed, and determined that the adjudicator, who had experience in the construction industry, had not yet had the benefit of the parties' submissions on the dispositive issue.
Thus, the matter was remitted back to the adjudicator for determination in accordance with the court's reasons.
Conclusion
The court has provided valuable guidance: Adjudication is not "rough justice" and remains subject to the most basic of procedural protections as embodied in the audi alteram partem principle, one of the two pillars supporting natural justice. Even though adjudication is interim, parties can at very least expect these basic protections, particularly the right to a fair hearing, and to be informed of and respond to the dispositive issue on which their dispute turns.
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