In a March 2018 decision, Urban Mechanical v. University of Western Ontario, 2018 ONSC 1888, the Ontario Superior Court of Justice held that a subcontractor who had failed to deliver a "notice of dispute" under the subcontract, was deemed to have conclusively accepted a decision of the general contractor denying its claim for additional compensation.
This case serves as a reminder that parties to construction contracts should strictly comply with the notice provisions in dispute clauses, to avoid discovering they have waived certain claims.
The subcontract provided that the subcontractor would be conclusively deemed to have accepted a decision of the general contractor, and to have waived and released the general contractor from any claims in respect of that decision unless, within seven working days after receipt of the general contractor's decision, the subcontractor sent the general contractor a Notice in Writing of dispute.
During construction, the general contractor required the subcontractor to change certain types of pipes it intended to use for the mechanical systems. The two parties disagreed as to whether such a change was necessary to comply with the owner's specifications, and therefore, was a requirement of the subcontract. The subcontractor ultimately made the change and submitted an invoice to the general contractor for associated additional labour costs. The general contractor responded by way of an email reiterating its position that the pipes initially selected by the subcontractor did not comply with the owner's specifications and that, accordingly, the subcontractor was not entitled to additional compensation for changing its supply to ensure compliance with those specifications. Following that email, the subcontractor did not provide the general contractor with a Notice in Writing disputing the general contractor's decision that the subcontractor was not entitled to additional labour costs, and ultimately commenced litigation to seek recovery of its costs.
The court held that the email from the general contractor was a "decision" that triggered the notice provision in the subcontract, and that the subcontractor's failure to send the general contractor a Notice in Writing within seven days of its receipt precluded the subcontractor from claiming additional compensation from the general contractor. The notice provision was clear and mandatory, and had to be strictly complied with, even in circumstances where the disagreement between the subcontractor and the general contractor about the necessity to change pipes and the entitlement to additional labour costs had been known for several months.
In reaching its decision, the court relied on prior Canadian decisions emphasizing the importance of and rationale behind notice provisions in construction contracts, including the Corpex (1977) Inc. v. Can decision where the Supreme Court of Canada discussed how notices of dispute enable the party entitled to notice to consider their options when notified that a contractor or subcontractor is likely to pursue a claim.
Takeaway from the decision
The Urban Mechanical decision serves as a reminder that parties to construction contracts should err on the side of caution and strictly comply with notice provisions to avoid jeopardizing claims they could bring in the future. This is the case not only in Ontario, but also across Canada. Concerns about the impact on project relationships of issuing notices can be at least partially addressed through prior oral communications.
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