September 28, 2016
Revisiting enforceabilty of notice provisions under a contract
BY ROBERT KENNALEY
In construction, owners and contractors will often refuse to pay a claim on the basis of ‘technical defences,’ where the claimant allegedly failed to comply with a notice requirement under the contract or subcontract. Historically, however, claimants have often been able to avoid these defences by arguing that the notice requirements had been waived. Generally, notice requirements have been found to have been waived where the party on them showed, by his words or conduct, that he would not insist that the formal requirements be followed. Waiver has been found, for example, where the parties negotiated a potential resolution to the claim, where the hiring party was aware that the party hired was aware of the problem and where the hiring party had previously paid additional compensation without receiving the formal contractual notice.Two decisions of the Ontario Court of Appeal remind us, however, that notice is important and that the Courts will not hesitate to enforce a technical notice requirement where appropriate. First, in Technicore Underground Inc. v. Toronto (City), 2012 ONCA 597 (CanLii), the project was substantially impacted by a flood in relation to which the contractor and its servicing subtrade incurred costs and pursued claims. The contract (which was incorporated into the subcontract) provided that the claimant was to submit a detailed written claim no later than 30 days after the completion of the work affected by the situation. Neither the contractor nor the subcontractor did so and, accordingly, their claims were dismissed. This, even though the owner had been well aware of the flood and of the fact that the contractor and trade were incurring costs to address it. Some would say it was a case of ‘form over substance:’ the technical defence was allowed to prevail even though the owner had actual notice of the claim.
The Court found that the clause was clear on its face and the parties, as sophisticated entities, should be held to their bargain. As regards the fact that the owner knew of the circumstances all along, the Court held that “one purpose of a notice provision is to enable the owner to consider its position and the financial consequences of the contractor providing additional work” and that the owner “is assumed to have been prejudiced by a multimillion dollar claim being made years after the Contract permitted and long after the City could consider its position and take steps to protect its financial interests.” In this regard, the owner lost the right to pursue an alternate path. As regards the ‘waiver’ argument, the Court confirmed that a party will only be found to have waived its rights where it communicated “an unequivocal and conscious intention to abandon” those rights. In this case, the Court found no evidence of any such communications. (The case acknowledges that waiver by conduct can still be found, but only where there is clear evidence in that regard).
More recently, the Ontario Court of Appeal has revisited the issues of notice and waiver, in Ross-Clair v. Canada (Attorney General), 2016 ONCA 2016 (CanLii). In that case, the contract required that, in addition to the original notice, the contractor submit to the owner’s consultant, within a certain period of time, a written claim containing information sufficient to allow the consultant to assess the claim and determine if additional compensation was justified. The contractor submitted a claim but the consultant took the position that it was not detailed enough. Neither side ‘budged’ on the issue, and the matter proceeded all the way to the Ontario Court of Appeal. An Application Judge originally held the information was sufficient, but the Court of Appeal disagreed.
The Court of Appeal held that the claim could only be sufficient if it were supported by detailed information. Even though the consultant was intimately familiar with the project, the Court of Appeal held that the detail had not been provided. In particular, the Court noted that very little information on the amounts attributed to various sub-contractors and no breakdown identifying things like the costs of labour, plant, and material or the amount of the percentage mark-up had been provided. As regards waiver, the Court held that there was no evidence of any prior communication or conduct that would show that the owner intended to waive its strict reliance on the terms of the contract. In that regard, that contractor was therefore held to the bargain that it had made about the conditions for additional payment, and the claim was dismissed.
There are lessons to be learned from these cases. First, as the Court recognized, owners place these clauses into contracts for a reason. They are not merely intended to trip up claimants so the owner can get work done for free. Rather, there are good, sound, commercial reasons for the owner requiring such notice and, unless there is evidence of a clear and unequivocal intention to waive reliance on the clause(s), the Courts may hold the parties to their bargain. The more important lesson, however, is that contractors and trades can avoid the (potentially devastating) impact of the issue by simply following their contract and meeting the conditions precedent to payment. By simply meeting the contractual requirements, we can take the issue off the table. Third, these cases are now buttressing owners, coast-to-coast, who are now much more willing to (i) place very specific and detailed claims procedures into their contracts and (ii) refuse payment (all the way to trial if necessary) if the claims are not met. Accordingly, the playing field is changing: as the clauses will be enforced more readily, they should be all the more understood and followed. Lastly, contractors and subcontractors must understand if their subcontracts incorporate the terms of the prime contract, between owner and contractor. The contrator wants to ensure the trades he retains will have met the same notice requirements as he does — so he is not responsible for a subtrade claim which he cannot make the owner. The subcontractor, of course, needs to know if he is bound by the notice provisions of the prime contract, so he can meet them if necessary.
Robert Kennaley practices construction law in Toronto. He speaks and writes regularly on construction law issues and can be reached for comment at 416-368-2522 or at kennaley@mclauchlin.ca. This material is for information purposes and is not intended to provide legal advice.