Court of King's Bench of Alberta releases first decision regarding new adjudication provisions

The Court of King's Bench of Alberta has released its first decision about the new adjudication provisions of the Prompt Payment and Construction Lien Act ("Act"). In Welcome Homes Construction Inc v Atlas Granite Inc, 2024 ABKB 301, the Court explained the adjudication process and held that adjudications do not depend upon the validity or invalidity of an adjudicating party's lien.

What is the adjudication process?

Adjudicators are picked by a nominating authority and are governed by a Code of Conduct.^[1] The following matters between the parties to a contract or subcontract can be adjudicated pursuant to section 19 of the Regulations:^[2]

1. The valuation of services or materials provided under the contract or subcontract, including in respect of a written change order, whether approved or not, or a proposed change order.
2. Payment under the contract or subcontract, including in respect of a written change order, whether approved or not, or a proposed change order.
3. Disputes that are the subject of a notice of non‑payment under Part 3 of the Act.
4. Payment or non‑payment of an amount retained as a major lien fund or minor lien fund and owed to a party during or at the end of a contract or subcontract.
5. Any other matter in relation to the contract or subcontract that the parties in dispute agree to, regardless of whether or not a proper invoice was issued or the claim is lienable.

When can a party start an adjudication?

A party may start an adjudication so long as there is no existing court action about the same dispute. The notice of adjudication must be given before the date the contract or subcontract is completed unless the parties to the adjudication agree otherwise.^[3]

The adjudicator has discretion to refer the matter to court should the matter fall outside their jurisdiction, or to refuse to hear the dispute if they deem it frivolous or vexatious. A written notice of determination is issued by the adjudicator and is binding on the parties to the adjudication, except where:^[4]

1. A court order is made in respect of the matter.
2. A party applies for judicial review of the decision under section 33.7.
3. The parties have entered into a written agreement to appoint an arbitrator under the Arbitration Act.
4. The parties have entered into a written agreement resolving the matter.

An adjudicator's order may be filed as an order of the court and has the same effect as a court order.^[5] The adjudicator's decision may be reviewed by the Court under judicial review.

What is the relationship between liens and adjudication?

In Welcome Homes Construction, the supplier of marble countertops to a homeowner both registered a lien for its unpaid invoices and started an adjudication seeking an award of those unpaid invoices.

How did the lien interplay with the adjudication?

After the adjudicator made an award to the countertop supplier against the homeowner, the homeowner issued a notice to prove lien. That notice required the countertop supplier to issue an affidavit proving its lien. If that affidavit did not prove the lien, the Court could dismiss the lien against the homeowner. Would this override the adjudicator's decision?

The Court in Welcome Homes answered no – the determination of the validity of the lien does not override the adjudicator's decision. Thus, the homeowner would have to pay the sum awarded by the adjudicator's decision even though the validity of the lien was still subject to the notice to prove lien.

Bottom line?

The bottom line of the decision in Welcome Homes is that lien rights and adjudications are independent processes. A party can start an adjudication whether or not they have registered or lien and whether or not they still have a valid lien. Court proceedings that determine the validity of the lien do not override an adjudicator's award.

Although lien rights give access to the procedure and the lien frames the dispute, an adjudicator's role is to determine contractual rights, not lien rights. Therefore, the notice to prove lien did not affect the validity of the adjudicator's award in favour of the countertop supplier.

Importantly, however, the adjudication can only begin if there is no existing Court proceeding about the same issue. Therefore, in this case, had the homeowner started a Court Action calling into question the validity of the lien, the countertop supplier would not have had a right to start an adjudication.

Are adjudicators' awards binding?

There is an important difference between the Ontario and Alberta legislation regarding the binding nature of an adjudicator's order. Both the Ontario Construction Act and the Alberta's Act provide that nothing restricts the authority of a court to consider the merits of a matter determined by an adjudicator (Ontario s. 13.15(2) and Alberta s. 33.6(6)).^[6]

However, the Ontario legislation sets out an interim dispute process that is temporarily binding on the parties, subject to determination of the matter by court, by way of an arbitration under the Arbitration Act, or by written agreement between the parties.

In contrast, the Alberta legislation provides a result that is binding on the parties except where the decision is displaced by a court order or judicial review.^[7]