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Final or interim: Prompt Payment Adjudication and what this means for Municipalities
Few have tested the new Prompt Payment and Construction Lien Act’s (PPCLA) adjudication mechanism; fewer still have brought matters relating to the PPCLA to Court. However, one recent decision is of particular note: Welcome Homes Construction Inc v Atlas Granite Inc., 2024 ABKB 301 (Welcome Homes).
Case Summary
Welcome Homes hired Atlas Granite to supply and install countertops on a new home construction project. A dispute arose and Welcome Homes rejected delivery of a countertop, refused to pay Atlas Granite, and terminated the subcontract. Atlas Granite then filed a builder’s lien, outside of the 60-day time period under the PPCLA.
The parties adjudicated the dispute pursuant to the PPCLA, and the adjudicator awarded Atlas Granite $12,775.29.
Following the adjudication, Welcome Homes served a Notice to Prove Lien on Atlas Granite, requiring it to prove its builder’s lien in a court process.
The parties sought the Court’s advice and direction about the interaction between the adjudicator’s decision and the builder’s lien proceedings. The following are the notable implications of the decision.
1. Lien Rights do not impact Contractual Determinations by an Adjudicator
The Court confirmed that an adjudicator may only determine contractual rights, not lien rights and that the Notice to Prove Lien did not override the adjudicator’s decision. The adjudicator’s contractual decision remained binding despite that Atlas Granite’s lien was likely invalid for being out of time.
The Court also confirmed that adjudications cannot occur between non-contracting parties (i.e. a subcontractor and an owner of a construction project).
2. Adjudication Decisions may be Final and Binding
The Court provided commentary that may be interpreted as suggesting an adjudicator’s determination is final and binding. The Court considered the following differences between the Ontario and Alberta legislation:
- The Ontario legislation states that an adjudication decision “… is binding on the parties to the adjudication until a determination of the matter by a court […]”
- The Alberta PPCLA provides that an adjudication decision “…is binding on the parties to the adjudication, except where (a) a court order is made in respect of the matter, (b) a party applies for a judicial review of the decision […]”
The Court seems to interpret the use of the word “until” to suggest an adjudicator’s determination in Ontario is to be interim (temporarily) binding, while Alberta’s use of the word “except” suggests the adjudicator’s determination is to be final and binding. The court notes that the mechanism for challenging an adjudicator’s decision in Alberta is by judicial review (which is only available on very limited grounds). However, the Court later references that the adjudicator’s decision may be ousted by a court order or judicial review.
While Welcome Homes does not provide any clear determination of the issue of the finality of an adjudicator’s decision, the suggestion that it may be final and binding is problematic and seems to run against the legislative intent of the PPCLA.
An Overview of PPCLA Adjudication
The PPCLA adjudication process is like an abbreviated arbitration in that the parties must pay for an accredited adjudicator, and the process is confidential. Adjudications typically deal with payment issues but can extend to other contractual disputes.
Adjudication is often referred to as a ‘quick and dirty’ resolution mechanism because the timelines are very short (intended to take around 60-90 days from start to finish, before extensions). Because of the abbreviated timelines, there are few procedural safeguards, including limited time to prepare a thorough response to a claim, little testing of evidence, and generally no hearings (decisions are made based on written materials only).
Multiple sources seem to agree that the intention of the drafters of the PPCLA is for adjudication to be ‘interim and binding’. For example, on the ADR Institute of Alberta website (https://adralberta.com/resources/types-of-adr/adjudication/ October 23, 2024), they describe adjudications and include as a highlight of ‘Determinations’ that they “..are considered interim and binding”. Other Government of Alberta sources also describe the adjudication process as ‘interim’.
An interim decision is intended to provide a determination that is open to the parties to revisit at a later stage. An interim decision could facilitate progress or even completion of an ongoing construction project, allowing a faster determination of an issue to address an immediate stalemate or other impacts.
Implications of the Welcome Homes decision for Municipalities
For municipalities, the decision of Welcome Homes is significant not only for navigating construction disputes and the still relatively untested adjudication process, but also as a cautionary tale for drafting legislation.
The outcome of Welcome Homes reinforces the potential risk to municipalities, as owners of construction projects, of the expedited adjudication process under the PPCLA, which can result in a significant (and potentially final) money judgement and can be enforced through the courts, without the protections afforded by a court process.
The decision in Welcome Homes is particularly concerning for large value claims, as it may be very prejudicial to one or both parties to have such a dispute determined in such an abbreviated fashion. Consider a contractor bringing a multimillion-dollar delay claim against a municipality that is decided in a few short months, with a limited timeframe for the municipality to respond, no opportunity to test the claimant’s evidence, and no hearing, resulting in a multi-million dollar determination by the adjudicator and the possibility that there is no right for a court to reconsider the matter at a later date and no right of appeal if the adjudicator made an error of fact and/or law.
Adjudications are likely better suited to small claims where the costs of exploring the issues and applicable legal principles in a comprehensive way may be more than the value of the underlying dispute.
If a municipality is faced with an adjudication, it should approach it with extreme caution and diligence. The process is abbreviated, but the outcome is enforceable as a court judgment. A municipality should consider seeking early legal advice as there are strategies to avoid adjudication in certain circumstances, for example, where the dispute is particularly complex. However, these strategies are extremely time sensitive.
Lessons Learned
Beyond the direct implications of the potential for an adjudicator’s decision to be final versus interim, the PPCLA is also an important example of the importance of drafting carefully and deliberately. Municipalities engage in drafting laws, such as bylaws, which their ratepayers must then understand and abide by. Ambiguity in drafting results in confusion and disputes about the meaning of words and phrases. In Welcome Homes, the legislators’ use of the word ‘except’ instead of ‘until’ seems to have led an Alberta Court to the opposite conclusion than what the legislature intended, which could impact parties to construction disputes for years to come.
The Government of Alberta has recently introduced Bill 30 to amend the PPCLA and the Public Works Act. Certain of the proposed amendments seem to be intended to clarify the issues arising from Welcome Homes, but the drafting leaves a lot to be desired.
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This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.
