My last article explained that courts will generally enforce contractual notice requirements contained in construction contracts. This article will explore the circumstances in which courts have permitted claims to advance despite a lack of strict compliance with notice requirements.
Constructive Notice
Constructive notice is when a claimant is able to show that, formalities aside, the defendant had all of the requisite knowledge of the claim.
For example, in W.A. Stephenson Construction (Western) Ltd. v Metro Canada Ltd., [1987] CLD 1499, 1987 CarswellBC 675 (BCSC) [W.A. Stephenson], the Court allowed the contractor’s claim despite its failure to comply strictly with the contractual notice requirements. It distinguished Corpex and Doyle,[1] and found that the owner had actual or constructive knowledge of the claims through various notices issued throughout the course of the project, as well as “meticulous” meeting minutes documenting the contractor’s concerns.[2]
In Centura Building Systems Ltd. v Cressey Whistler Project Corp., 2002 BCSC 1220, 19 CLR (3d) 142 [Centura], the Court refused to dismiss a claim despite a lack of technical compliance with a contractual notice requirement. The Court held that the notice requirement constituted a condition precedent for a successful claim,[3] but stated that:
The weight of authority favours the defendants’ view that it is the substance rather than the form of the notice under GC 9.2.2 that is important. The course of dealings between the parties may provide the required notice: Foundation at paras. 455-456, 484, 489-498; TNL Paving Ltd. v. British Columbia (Ministry of Transportation & Highways) (1999), 46 C.L.R. (2d) 165 (B.C. S.C.) at p. 260; W.A. Stephenson Construction (Western) Ltd. v. Metro Canada Ltd. (1987), 27 C.L.R. 113 (B.C. S.C.), at pp. 180-182. What is critical is that the notice provide sufficient particularity to ensure that the recipient understands a claim will be advanced against it for costs related to delays.[4] [Emphasis added]
The Court held it was necessary to explore the entire factual scenario in order to determine if the owner received “adequate notice” of the claim,[5] and found that a trial was required to resolve the issue.[6]
In Banister Pipeline Construction Co. v TransCanada Pipelines Ltd., 2003 ABQB 599, 30 CLR (3d) 1 [Banister], the contractor claimed for a significant amount of additional work performed outside the scope of the contract, but failed to strictly comply with the change order procedure. The Court allowed the claim regardless, holding that the owner “was always aware” of the extra work being carried out, and that it would be “unconscionable” to deny payment in the circumstances.[7] The Court stated that:
TCPL benefited from the work. It had to know that it would increase the cost. It is simply not fair for it to approve the work, watch it being carried out, sign off on the work as it was being done, obtain a better result because of it and then attempt to rely on the fact that Banister failed to follow the provisions of the contract after all of the work was carried out.[8]
In Limen Structures Ltd. v Brookfield Multiplex Construction Canada Limited, 2017 ONSC 5071, 82 CLR (4th) 284 [Limen], the Court refused to summarily dismiss the contractor’s claim despite the presence of evidentiary issues with the form of notice provided. It cited the case of Mar-King Construction Co. v Peel (Regional Municipality), 48 CLR (3d) 58, 2005 CarswellOnt 5172 (ONSC) for the proposition that “strict compliance with notice provisions may not be required where there has been some timely notice”, and that a “practical, common-sense approach to the interpretation of contracts” is preferable over technical rules of construction.[9] The Court held that a trial was necessary to assess both parties’ evidence on the notice issue.[10]
In Architectural Millwork & Door Installations Inc. v Provincial Store Fixtures Ltd., 2017 ABQB 390, 67 CLR (4th) 13 [Architectural], the Court allowed a claim for damages stemming from continuing delay. The contractor had provided initial notice as required by the contract, but the owner alleged that the fact it had issued partial payment for this delay required the contractor to resubmit notice of its claim.[11] The Court stated:
The purpose of the notice is to inform the Owner there are delay problems and the contractor intends to make a claim, and allow it a reasonable opportunity to take remedial steps or make financial or other arrangements to address them…The substance of the notice is what is important, not the form: Cressey, para 54. The notice must be given in writing, rather than recorded in other writings such as meeting minutes: Dilcon (ABCA), para 60 – 61.[12]
The Court rejected the owner’s argument that fresh notice was required, concluding that “[t]he purposes of the notice provision are to ensure the Owner knows the issues and the potential claims and make whatever arrangements as are appropriate, not to create technical barriers to compensation”.[13]
These cases show that in certain circumstances, Canadian courts will permit claims despite a lack of strict compliance with contractual notice requirements if the owner is provided with constructive notice of the claim. However, constructive notice is “intensely fact driven”, and courts will examine all of the surrounding circumstances and the contents of the purported notice in order to determine if the owner had sufficient notice of the claim.[14]
Reservations in Change Documents
Similar to constructive notice is reservations in change documents that clearly state a party’s intention to seek additional compensation for new work. Construction contracts commonly contain two mechanisms for changing the scope of work or contract time: Change Orders and Change Directives. Typically, a Change Order is used when the Owner and Contractor agree on the change in contract price (or method to adjust it), and on the change in contract time.[15] If the change is urgent or the parties are unable to agree, the Owner may issue a Change Directive requiring the Contractor to commence work promptly.[16] If the parties subsequently reach an agreement on the adjustment to the Contract price and time stemming from the change, they record their agreement in a Change Order.[17]
The Canadian Construction Association has released guidelines to help “contractors, consultants and owners in the valuation of changes” in the performance of work under a contract.[18] The checklist in the Guidelines recommends analyzing, among other things, the impact costs associated with the interruption of planned work.[19] The Guidelines also contain a Model Change Order Quotation for use by Contractors faced with a proposed change. It contains a provision stating that the contractor “reserve[s] th[e] right to assess the impact of the change at a later date and to submit any costs related thereto”.[20]
Some decisions have hinted that including an appropriately worded reservation in change documents may allow claimants to avoid the strict operation of contractual notice requirements. This is of particular importance in the context of delay and impact claims, where claimants are often unable to quantify their losses until the conclusion of the Project, making it difficult to provide details of the amount claimed in accordance with the contract.
In denying a claim in Doyle Construction Co v Carling O’Keefe Breweries of Canada Ltd, 27 BCLR (2d) 89, [1988] BCJ No 832 (BCCA) [Doyle], Locke JA made note of the fact that “not one of the 50 change orders contained a reservation or indication of the fact that further costs, direct, indirect, or cumulative, could be attributable to the specific item being dealt with”.[21] This statement suggests that an appropriately worded reservation of rights could have satisfied the notice requirement and impacted the outcome of the case.
Relying on this, the court in Graham Construction & Engineering (1985) Ltd v LaCaille Developments Inc, 2006 ABQB 898, 70 Alta LR (4th) 181 [Graham] found that a reservation in change orders could provide sufficient notice to satisfy the contractual notice requirements. The contract contained a provision stating that Change Orders represented the total cost of the work in relation to the Change Order, and that “[n]o other claim for additional costs will be considered by the Owner unless a written statement is made at the time of issue of the change order that a claim will be made and the reasons for it given”.[22] Partway through the project, the contractor began placing a reservation in all Change Orders reserving “the right to claim any additional costs incurred as a result of this change, in conjunction with the other changes on the project”.[23] The Court held that this reservation constituted sufficient notice under the contract, and allowed the contractor’s claim from the point it began including such language in its Change Orders.[24]
Waiver
In a similar vein, courts have allowed otherwise non-compliant claims to continue on the basis that the defendant’s conduct prevented it from insisting on the strict interpretation of the contract.
In Clearway Construction Inc. v The City of Toronto, 2018 ONSC 1736, 2018 CarswellOnt 4308 [Clearway], the Court interpreted the same notice requirement that was strictly applied by the Ontario Court of Appeal in Technicore Underground Inc v Toronto (City), 2012 ONCA 597, 354 DLR (4th) 516 [Technicore]. The owner denied additional payment on the grounds that the contractor failed to bring a claim within 30 days from the completion of the work, and sought summary dismissal of the claim.[25]
The Court held that Technicore left open the possibility that a party may waive its right to rely on the notice provisions in a contract if it demonstrates an intention not to be bound by its terms.[26] It found that despite the lack of technical compliance with the notice requirement, there was sufficient evidence to suggest that the owner had routinely deviated from the strict terms of the contract.[27] As such, there was a genuine issue requiring trial as to whether this pattern of conduct was sufficient to disentitle the owner to require strict compliance with the notice requirement.[28]
Conclusion
Canadian courts have routinely held that contractual notice requirements benefit both owners and contractors, and that compliance with them is a condition precedent to bringing a claim. However, courts have also shown a willingness to examine the factual circumstances in order to determine whether the owner received adequate notice or is otherwise disentitled from strictly relying on the terms of the contract.
Constructive notice occurs when a claimant is able to demonstrate that notwithstanding a lack of compliance with contractual notice requirements, it provided the defendant with sufficient notice of the details of its claim. Reservations involve a contractor expressly reserving its right to make a claim for additional compensation in change documentation. Waiver looks at the conduct of the defendant to determine whether it is entitled to strictly rely on the notice provisions of a contract.
It is important for both owners and contractors to be aware of the timing, form and substance of notice called for in construction contracts. Those hoping to advance claims should communicate them as clearly and as early as possible. Those hoping to resist claims by relying on notice requirements should avoid conduct that could impact their right to strictly enforce the contract. Our lawyers are able to help you prepare notice provisions in contract documents, identify whether a claim may be advanced despite a lack of strict compliance with notice requirements, and provide advice on contract management to prevent notice disputes from arising.
[1] W.A. Stephenson at paras 169-172.
[2] W.A. Stephenson at paras 173-175, Yonni D. Fushman, “Deconstructing Delay Claims” (2014) 27 CLR (4th) 181 at 3 (WL) [Fushman] at 3.
[3] Centura at para 43 & 47.
[4] Centura at para 54, Fushman at 3.
[5] Centura at para 55, Fushman at 3.
[6] Centura at para 63
[7] Banister at paras 121 & 123.
[8] Ibid at 122.
[9] Limen at para 63 & 66.
[10] Ibid at para 82.
[11] Architectural at para 501.
[12] Ibid at para 503.
[13] Ibid at paras 504 & 505.
[14] Fushman at 3.
[15] Canadian Construction Documents Committee, “Standard Construction Document CCDC 48: A Guide to the Use of CCDC 18 – 2001” (Ottawa: Canadian Construction Documents Committee, 2002) [CCDC 48] at 23.
[16] Ibid at 24.
[17] Ibid.
[18] Canadian Construction Association, “CCA Doc 16: Guidelines for Determining the Costs Associated with Performing Changes in the Work” (February 1992) [Guidelines].
[19] Ibid at 5.
[20] Ibid at 6.
[21] Doyle at para 61.
[22] Graham at para 73.
[23] Ibid at para 219.
[24] Ibid at paras 219-221.
[25] Clearway at para 34.
[26] Ibid at paras 38 & 39.
[27] Ibid at para 44.
[28] Ibid.
