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The Availability of Interim Adjudication for a Terminated Contract

The Availability of Interim Adjudication for a Terminated Contract

By:

Mann Lawyers

Posted September 7, 2023

As detailed in another post, Ontario’s Construction Act creates a scheme for the quick resolution of construction disputes via an “interim adjudication”.

However, there has been some confusion on the question of whether arbitration can be commenced when a project has been terminated or abandoned. The confusion exists because, under section 13.5(3) of the Act, adjudication cannot be started if notice is given after the “contract or subcontract is completed” or where the “contract is invalid or ceased to exist.” The question thus becomes: does a contract that has been terminated (for example, by a contractor walking off the job) count as a contract that has ceased to exist?

The simplest way to provide clarity to parties in a contract regarding the scope of adjudication rights is to ensure that their contracts or subcontracts have a provision stating that the parties agree that the rights of adjudication survive the completion of the project as contemplated by section 13.5(3) of the Construction Act. This removes any confusion about what is meant by the language in 13.5(3).

However, even if there is no provision in a contract which provides for the survival of education rights, a 2021 adjudication determination speaks directly to this point.

The owner in the case argued that because the contract in question had been terminated and abandoned, it was either “completed” or had “ceased to exist,” as referenced in the Act. Adjudicator Edward Dreyer disagreed. He found that the language of “competed” or “cease to exist” was not synonymous with “terminated” or “abandoned.” Instead, he determined that the overall legislative intent of the Act was to reduce “project gridlock” arising from outstanding disputes and allow for meaningful engagement in dispute resolution. To achieve this intent, it would follow that the provision limiting the adjudication rights should be interpreted narrowly. In light of the absence of case law on this point, the adjudicator looked to arbitration decisions and how other countries have dealt with this issue. He found that (a) arbitration clauses can survive the termination of a contract, and (b) adjudication is available in the United Kingdom even after a contract has been terminated or abandoned.

While Adjudicator Dreyer’s decision is not determinative for other parties in this situation, it is persuasive and helps to indicate how these provisions under the Construction Act may be interpreted.

For the time being, the law in Ontario favours permissive interpretations of dispute resolution clauses over restrictive ones in cases where there is uncertainty.

This blog post was written by Brett Hodgins, a member of the Commercial Litigation team.  He can be reached at 613-369-0379 or at brett.hodgins@mannlawyers.com.

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Brett Hodgins

Brett Hodgins

I practice primarily in corporate and commercial litigation, although I have represented clients on matters as diverse as employment issues, wrongful dismissals, estate disputes, landlord tenant matters, and real estate disputes. I have appeared on behalf of clients in the Ontario Superior Court and the Small Claims Court, the Federal Court of Canada, the Federal Court of Appeal, and before various tribunals including the Human Rights Tribunal of Ontario, the Landlord and Tenant Board, and the Parole Board of Canada. I have represented a wide variety of businesses and individuals in my practice, and I am keenly aware of the stress and costs faced by clients engaging in any kind of litigation. My guiding principle in every matter is to achieve the best possible result as efficiently and expeditiously as possible so that clients can get on with their lives. Prior to joining Mann Lawyers I completed my articles and... Read More

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