February 7, 2023
Construction dispute resolution
Changes for a post-COVD world
BY ROB KENNALEY
On Dec. 15, 2022, Alberta’s Justice Statutes Amendment Act, 2022 (No. 2), SA 2022, c-20 came into force. Among other things, it allows Alberta’s Lieutenant Governor to increase the province’s small claims court jurisdiction from $50,000 to up to $200,000. The change was made to take pressure off the province’s more senior courts and to improve access to a (theoretically) better, more streamlined and cost-effective process for smaller claims. Although the increase has not yet been initiated, it causes us to reflect on how construction dispute resolution is both undergoing, and in need of, change.
It is virtually undeniable that, in Canada, construction participants are not always well served by traditional litigation processes. This is so for a number of reasons. First, construction litigation can be extremely expensive, as well as document and issue intensive. Consider, for example, that where deficiencies and changes in the work are in issue, a ‘mini trial’ has to be had over every disputed item — often requiring evidence on both liability and damages. In addition, (often competing) delay claims will put often numerous scheduling and sequencing documents in issue. Also, in an overwhelming number of cases, the participation of experts will be required.
Second, Canadian judicial resources are stretched to capacity, with little relief in sight. As a consequence, it can take a very long time for matters to get to trial. Also, many regions lack judges experienced in construction, leaving lawyers and their clients to educate the Court on often complex engineering or architectural designs, systems or components. In addition, in our postCOVID world it is unlikely that the pressure is going to subside. Governments will be hard pressed to invest significantly in more judicial resources, given the amounts spent on COVID recovery and the need to invest in health care, etc. Also, our Courts were shut down for some period of time because of the pandemic. Criminal trials, in particular, were not being heard. This, after our Supreme Court of Canada had previously telegraphed, in R. v. Jordan, [2016] 1 S.C.R. 631 that our criminal courts had to do better to avoid delays in criminal proceedings. As a result, and not surprisingly, our Courts will be focused for some period of time on catching up on the COVID-related criminal case backlog.
It remains to be seen if an increase in the monetary jurisdiction of the small claims court would be a welcome change for construction participants in Canada. The small claims court face their own back-logs and resource limitations, and extended delays in small claims proceedings are already somewhat common. From this perspective, increasing the small claims court workloads without adding resources cause even more delays. In addition, documentary disclosure obligations and requirements can be much more informal in small claims courts. Production often does not occur until after the pre-trial, for example, such that the utility of that conference for settlement purposes can be lost. In addition, small claims courts will often take a more informal approach to the rules of evidence than will their more senior counterparts. Finally, given the complex and document intensive nature of construction disputes, parties will often feel compelled to retain counsel, even though the potential to recover legal costs are generally extremely limited. This is not to say that increasing the small claims limits or engaging the small claims courts is necessarily a bad thing. It is only to say that in many circumstances the promise of an efficient and inexpensive remedy in the small claims court might not be realizable. To the extent that this is a problem, it is magnified as the small claims’ limits increase
Alternatives to construction litigation (be it in small claims or senior courts) might accordingly be worth considering, and we can already see trends in this regard. The move to prompt payment and adjudication in most Canadian jurisdictions is one example. At the time of writing, Alberta, Ontario, Saskatchewan, Manitoba, Nova Scotia, New Brunswick and the federal government have all adopted such legislation, while British Columbia and Quebec have it under consideration. Although the adjudication provisions are directed in large part at the ‘interim’ resolution of disputes during ongoing projects, there is no doubt that the provisions are drafted with the expectation that parties will often (if not generally) accept the results of interim adjudication and forgo subsequent litigation in that regard. There is also no question that the adjudication regimes provide a substantially less time consuming, expensive and document intensive process: in Ontario, for example, an adjudicator’s decision can be obtained as quickly as in 46 days or less.
Construction adjudication might not always be available towards the resolution of a construction dispute, however, depending on the provisions of the applicable statute. In Ontario, for example, the process is not available if the contract or subcontract under which the dispute arose has been completed, unless the parties agree otherwise. This is a restriction which many find frustrating, as many disputes will not crystalize until post-completion. Given the timely and efficient remedy offered by adjudication, we accordingly recommend construction participants in Ontario consider including an agreement to adjudicate post-completion expressly in their contracts and subcontracts. Those outside Ontario should consider the options available under the applicable legislation.
Other dispute resolution options include mediation and arbitration. We will not spend any real time discussing the former, as its processes are relatively straightforward and well known. We will say, however, that the mediation of construction disputes enjoys a relatively successful track record. Even if unsuccessful, mediations will generally result in a narrowing of issues and/or lay the groundwork for future discussions such that they are rarely a waste of time or money. In our experience, however, mediation is not always considered as early as it might be.
Arbitration is also becoming increasingly prevalent in the resolution of construction disputes, for good reason. Parties can agree on both their arbitrator and the terms of the arbitration. This allows the parties to control the process to ensure that documentary disclosure and evidentiary issues are managed to provide a reasonable result in a timely and efficient way. It also allows the parties to ensure both that the matter is heard before an arbitrator with the particular expertise required and that the result remains confidential between them. They can also determine the extent to which the arbitrator’s ruling will be subject to appeal. Parties who wish to avoid the time and expense associated with litigation should accordingly consider setting out mandatory arbitration provisions in their contracts or subcontracts. Said another way, appropriate mandatory arbitration provisions are becoming increasingly popular in our post-COVID world for, we believe, good reason.
Rob Kennaley is with Kennaley Construction Law, a construction law firm with offices in Simcoe, Toronto and Barrie, Ont.