Notice requirements in construction contracts

Introduction

It is common for construction contracts to impose notice requirements on parties seeking to make claims in relation to the contract. Such clauses often impose multiple timelines on claimants, and state that noncompliance will invalidate the claim. Canadian courts have demonstrated that they will strictly enforce notice requirements, and have stated that compliance is a condition precedent to making a successful claim.

However, courts will sometimes allow deviation from contractual notice requirements in situations where the parties have received constructive notice of the claim, or where their conduct otherwise disentitles them to rely strictly on the terms of the contract.  This article will explore the case law interpreting notice requirements, and discuss the circumstances in which courts will decline to enforce them.

Example of Notice Requirement

Contractual notice requirements as part of the claim process are commonplace in construction contracts. A good example of such a clause is GC 6.6 of the Canadian Construction Documents Committee (“CCDC”) 18 – 2001 Civil Works Contract. This provision governs the claim process, and imposes notice requirements on the parties:

GC 6.6 CLAIMS

6.6.1 If the Contractor intends to make a claim for additional payment, or if the Owner intends to make a claim for a credit to the Contract Price or for damages of any kind, the party that intends to make the claim shall give notice in writing of intent to claim to the other party and to the Consultant as soon as practicable, but no later than 10 Working Days after commencement of the event or series of events giving rise to the claim. Failure to provide such notification shall invalidate the claim.

6.6.2 Upon commencement of the event or series of events giving rise to the claim, the party intending to make a claim shall:

.1 take all reasonable measures to mitigate any loss or damage which may be incurred as a result of such event or series of events, and

.2 keep such records as may be necessary to support the claim.

6.6.3 Within 30 Working Days after commencement of the event or series of events giving rise to the claim, or such other reasonable time as may be agreed by the Consultant, the party making the claim shall submit to the Consultant a detailed account of the amount claimed and the grounds upon which the claim is based.

6.6.4 Where the event or series of events giving rise to the claim has a continuing effect, the detailed account submitted under paragraph 6.6.3 shall be considered to be an interim account and the party making the claim shall, at such intervals as the Consultant may reasonably require, submit further interim accounts giving the accumulated amount of the claim and any further grounds upon which it is based. The party making the claim shall submit a final account with 30 Working Days after the end of the effects resulting from the event or series of events.

6.6.5 The Consultant’s findings, with respect to a claim made by either party, will be given by notice in writing to the other party within 30 Working Days after receipt thereof by the Consultant, or such other time period as may be agreed by the parties. If such finding is not acceptable to both parties, the claim shall be settled in accordance with Part 8 of the General Conditions – DISPUTE RESOLUTION. [Emphasis added]

According to the CCDC, GC 6.6 “is intended to address the procedural matters related to the making of a claim for additional payment of any kind”.[1] This broad wording captures claims including differing site conditions, delay and impact costs. GC 6.6.1 states that a party seeking to make a claim must give notice in writing of its intent to do so to the other party and the Consultant “no later than 10 Working Days after commencement of the event or series of events giving rise to the claim”.[2] Failure to provide this notice of intent to claim shall invalidate the claim.[3]

GC 6.6.3 requires a claimant to submit a detailed account of the amount claimed and the grounds for claiming it to the Consultant within 30 working days of “commencement of the event or series of events giving rise to the claim”. Section 6.6.4 contemplates the notion that an event giving rise to a claim may have a continuing effect. If so, the claimant’s mandatory submissions under GC 6.6.3 are considered interim accounts, and the claimant shall “submit further interim accounts giving the accumulated amount of the claim and any further grounds upon which it is based”.[4] In such cases, the claimant must submit a final account of its claim within 30 working days “after the end of the effects resulting from the event or series of events”.[5]

The CCDC has stated that the most important aspect of GC 6.6 is the imposition of time limits for providing notice related to claims.[6] These limits ensure that both Owner and Contractor are able to “take steps to mitigate the effects of the claim as the event or series of events giving rise to the claim occur and are not having to deal with the impact of the event after the event or series of events has occurred”.[7] The rights and obligations under this section apply equally to both Contractors and Owners.[8]

Case Law and Commentary on Notice Requirements in Construction Contracts

Canadian courts generally favour a strict interpretation of notice provisions in construction contracts. The purpose of such provisions is discussed in Heintzman and Goldsmith on Canadian Building Contracts[9], which states as follows:

The purpose of the notice is to alert the other party to the alleged delay or changed conditions so that the other party has the opportunity to decide what course of action to take on the job – whether to discontinue, change or proceed with or accelerate the particular work – and to consider the increased compensation that the claimant will likely seek. So it is not necessary that the claimant realize the full consequences of the delay or changed condition, and the notice must be given within the prescribed period after the contractor is reasonably aware that a claim under the changed condition clause may be given.[10]

Corpex (1977) Inc v Canada, [1982] 2 SCR 643, 6 CLR 221 [Corpex] is the leading Supreme Court case on the interpretation of notice provisions in construction contracts. In Corpex, the Court enforced a notice provision requiring a contractor to provide written notice of a claim for extra costs. Under the contract, the contractor was required to inform the owner of the conditions giving rise to a claim in order to seek reimbursement for extra costs related to differing soil conditions, in which case the owner would be required to pay the amount claimed.

The Court stated that notice requirements benefit both owners and contractors.[11] It held that compliance with the notice requirement was a condition precedent to a claim for extra costs.[12] Once the work is complete, “a contractor cannot claim in a Court of law benefits similar to those which [the notice provision] would have guaranteed if he has not himself observed that clause and given the notice for which the clause provides”.[13] Otherwise, the owner would be deprived of the benefits of the notice provision. In order to preserve its rights, the contractor was required to notify the owner; without such notice, the claim could not succeed.[14]

In Doyle Construction Co v Carling O’Keefe Breweries of Canada Ltd, 27 BCLR (2d) 89, [1988] BCJ No 832 (BCCA) [Doyle], the contractor claimed impact costs for “inefficiency created by delays, interference, and changes of the sequence of the work” over and above the amounts already claimed in change orders.[15] It argued that each “change order had an impact on cost, which counsel likened to a « ripple effect », and that the plaintiff could not ascertain the cumulative effect of the impact costs until the completion of construction”.[16] The owner defended on the basis that claiming impact costs without giving notice deprived it of the opportunity to analyze the reasons and explore methods of cost reduction.[17]

Although each of the three Justices wrote separate reasons, the panel confirmed the trial judge’s ruling denying the contractor’s claim. The contractor had an obligation to “give notice within a reasonable time of the events occurring which he considers may entitle him to additional payment under the terms of the contract”.[18] Craig JA noted such notice provisions are “generally interpreted by the courts as a condition precedent to a claim and failure to give the notice may deprive the contract of all remedy”.[19]

Notably, Locke JA stated 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”.[20] Because the contractor failed to utilize the claims procedures built into the contract, the “the trial judge was right in saying that the impact costs could not be recovered in this way under the provisions of the contract”.[21]

In ANC Developments Inc v Dilcon Constructors Ltd, 2000 ABCA 223, 84 Alta LR (3d) 235 [Dilcon], the Alberta Court of Appeal strictly interpreted the notice provisions in a contract. The two main problems in the case were delays and growth in the scope of work to be completed in the construction of a paper mill.[22] The contractor requested compensation for additional work, and the owner refused to pay the amounts claimed.

The contract required written notice within a specified time frame in order to advance a claim for delay or additional work.[23] The Court held these notice provisions as providing reciprocal rights and responsibilities to both the contractor and owner: contractors have the right to make claims for delays and extra costs associated with such delays as long as the owner receives timely notice of such claims.[24]

The Court of Appeal held that if a contract provides detailed remedies for damages and extensions of time, and excludes damages if the notice and claim provisions are not complied with, then it is not for the Court to rewrite the contract and produce a different consequence than what is intended.[25] Written notice is important because it crystallizes the position of the parties and allows owners to take action to mitigate damages or alter schedules.[26] The Court made clear that neither of the complaints made at site meetings and recorded in minutes nor subsequent requests for compensation constituted sufficient notice.[27] The Court stated that contractors must adhere strictly to the requirements of the contract regarding both the timing and form of notice.[28] Doing so serves the purpose of “allow[ing] the parties to deal with the problems as they arise, rather than arguing about it afterwards”.[29]

In Technicore Underground Inc v Toronto (City), 2012 ONCA 597, 354 DLR (4th) 516 [Technicore], the contract required immediate notice of an intention to claim, and the submission of more detailed claims “no later than 30 Days after completion of the work affected by the situation”.[30] The contractor submitted a claim in March of 2007 in which it “noted the possibility that « some costs have not yet been identified » and « reserve[d] the right to claim payment for work(s) not specifically mentioned herein »”.[31] The contractor subsequently tried to make additional claims, and the owner refused on the grounds that the contractor had not complied with the notice requirements under the contract.  The owner brought an action for summary judgment dismissing the portion of the claims that were in addition to the March 2007 amounts.

The Court of Appeal affirmed the motions judge’s decision to deny the excess claims. It stated that the notice provision “sets out a mandatory procedure for the filing of claims under the Contract, including the requirement that detailed claims are to be submitted no later than 30 days after completion of the work affected by the situation”.[32] The Court relied on Corpex, noting that such provisions benefit both contractors and owners, and that compliance with them served as a condition precedent to legal proceedings.[33] The owner was not required to show it suffered prejudice in order to rely on such a provision.[34]

The Court found no evidence that the owner clearly and unequivocally waived its right to rely on the notice provision, nor was there any pattern of conduct by the parties over the course of the contract evidencing an intention not to be bound.[35]  As such, the contractor’s failure to comply with the notice provision barred its claim. The inclusion of a general reservation in a claim document was not sufficient to save a claim that was otherwise offside of the contractual notice requirements.

In Ross-Clair v Canada (Attorney General), 2016 ONCA 205, 347 OAC 177 [Ross-Clair], the Court dealt with a similar contractual provision governing a claim for extras. The provision in question required written notice of a claim for “any extra expense” within 10 days of the event occurring, and a more detailed description of the claim within 30 days.[36]

The Court of Appeal overturned the trial judge’s finding that strict compliance with the notice requirements in the contract was not required. It noted that the contract required notice to be in written form, contain sufficient information to describe the claim, and be submitted within the relevant time period.[37] The Court also noted that “while the contractor must give notice within ten days of the occurrence giving rise to the claim for extras, the contractor has time to submit the actual claim”.[38] In the result, the Court barred the contractor’s claim because it failed to provide adequate details. The claim was “lacking in specificity, confusing in terms of identifying the parts of the Project affected by the delay and accompanied by virtually no information in support of the extra work done and the costs associated with any such work”.[39]

In Ledore Investments Limited (Ross Steel Fabricators & Contractors) v Ellis-Don Construction Ltd., 2017 ONCA 518, 415 DLR (4th) 483 [Ledore] the Court of Appeal affirmed an arbitrator’s decision to deny the contractor’s claim, despite the fact it had written a letter to the owner stating as follows:

In addition to impacting the schedule, Ross Steel also forced Ellis-Don to expend substantial monies to accelerate the work in an effort to recover the schedule. We are currently assessing the financial impact that Ross Steel’s slippages have had on Ellis-Don and we intend to recover the costs from you.[40]

The Court relied upon Doyle to affirm the arbitrators’ reasoning that this merely constituted an “intention to claim” rather than an “actual claim” sufficient to satisfy the notice requirement in question.[41]

In Maglio Installations Ltd. v Rossland (City of), 2018 BCSC 1313, 2018 CarswellBC 2084 [Maglio], the Court denied the contractor’s claim for failure to comply with the notice requirement, and only providing notice during the final stages of the project. The Court relied upon Doyle and Dilcon[42] for its conclusion that the contractor’s late notice were mere “grumblings”, and failed to satisfy the contractual requirements.[43]

Summary

Canadian decisions have demonstrated that courts view contractual notice requirements as providing reciprocal rights and obligations to both owners and contractors. Merely indicating an intention to claim is not enough. Parties must provide a sufficiently detailed claim in the requisite amount of time in order to succeed. Courts are generally unwilling to override the intentions of the parties without a compelling reason to do so.

However, there are situations where courts have declined to require strict compliance with contractual notice requirements. These exceptions, which include constructive notice, waiver and reservations, will be the subject of my next article.

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[1] Canadian Construction Documents Committee, “Standard Construction Document CCDC 48: A Guide to the Use of CCDC 18 – 2001” (Ottawa: Canadian Construction Documents Committee, 2002) at 23 [CCDC 48] at 26.

[2] CCDC 18, GC 6.6.1.

[3] Ibid.

[4] Ibid, GC 6.6.4.

[5] Ibid.

[6] CCDC 48 at 26.

[7] Ibid.

[8] Ibid.

[9] Thomas G Heintzman, Q.C., & Immanuel Goldsmith, Q.C., Heintzman and Goldsmith on Canadian Building Contracts, 5^th ed, looseleaf (Toronto: Carswell, 2016) at ch 6, pg 6-51-52.

[10] Ibid at 6-52.

[11] Corpex at paras 57-60.

[12] Ibid at 63.

[13] Ibid at para 62.

[14] Ibid at para 64.

[15] Doyle at para 11

[16] Ibid at para 16.

[17] Ibid at para 17.

[18] Ibid at para 35.

[19] Ibid.

[20] Ibid at para 61.

[21] Ibid.

[22] Dilcon at paras 9-10.

[23] Ibid at para 30.

[24] Ibid at paras 31-32.

[25] Ibid at para 51.

[26] Ibid at para 53.

[27] Ibid at para 60.

[28] Ibid at paras 59-61.

[29] Ibid at para 53.

[30] Technicore, Appendix A.

[31] Ibid at para 9.

[32] Ibid at para 29.

[33] Ibid at paras 34-35.

[34] Ibid at para 47.

[35] Ibid at paras 64 & 67.

[36] Ross-Clair at para 13.

[37] Ibid at para 53.

[38] Ibid at para 54.

[39] Ibid at para 66.

[40] Ledore at para 4.

[41] Ibid at 22.

[42] Maglio at paras 28 & 29.

[43] Ibid at para 57.