Canada: Change Orders, 'Damages' And Builder's Liens

In Krupp Canada Inc. v. JV Driver Projects Inc., 2014 ABQB 259, Master Robertson of the Alberta Court of Queen's Bench provides guidance on the extent to which damages can properly be the subject of a builder's lien claim. Krupp Canada Inc. ("Krupp") was the general contractor for a project involving the construction of a slurry preparation plant on the Kearl Oil Sands Project in Fort McMurray. JV Driver Projects Inc. ("JV Driver") was a sub-contractor of Krupp. Due to problems in the execution of the contract between Krupp and JV Driver, JV Driver claimed a builder's lien of $52,246,550.00. Krupp argued that of the amount claimed by JV Driver in respect of the builder's lien, only $6,791,146.04 was properly the subject of a builder's lien. The remaining amount was an in personam claim for damages and in respect of that amount, JV Driver was unable to obtain the security afforded under builder's lien legislation.

Krupp had already posted security but was applying to have that amount reduced to reflect what it felt was properly the subject matter of a builder's lien. JV Driver claimed the following in its single lien:

1. Submitted invoices relating to two Change Orders;

2. Invoices relating to various problems that impacted JV Driver including the following:

a. Labour escalation;
b. Contract extension;
c. Heating/Hoarding concrete;
d. Extra time large cranes;
e. Loss of productivity;
f. Schedule acceleration;
g. Additional scaffolding; and
h. Final progress payment.
(the "Invoices")

 

3. Field change requests and bid construction invoices (the difference in cost between initial set of drawings and what ultimately was issued for construction).

Krupp took issue with the Invoices on the basis that the expenses were not the proper subject matter of a builder's lien under the Builders Lien Act of Alberta. Krupp argued that these expenses were already included in the contract between it and JV Driver (the "Contract") or that the additional work was covered by the Change Orders and the words in the Change Orders made it clear that the amounts negotiated and agreed upon for those changes also covered any additional or related claims. JV Driver argued that the amounts were due because of breaches of the Contract by Krupp or at least an expanded change of specifications and scope of the work that were not included in the Change Orders.

The Court of Queen's Bench indicated that at "...its elemental level, the question is this: are amounts that might be claimed as damages amounts 'due' in respect of work on the improvements to the land, and therefore the proper subject matter of a lien?" Master Robertson extensively canvassed the case law on this issue and concluded that if the claim relates to work or materials that added value, as opposed to a damage claim that represents a loss to the claimant but no added value to the lands, there is a proper lien claim.

Wording of the Change Order

In the case of Krupp and JV Driver however, the Contract proved to provide the answer to the question before the Court. Specifically, the technicalities concerning the Change Order provisions guided the Court's decision to ultimately decline to reduce the amount of security posted by Krupp.

One of the General Conditions of the Contract between the parties stated that:

The Contract Price and Completion Date shall be subject to adjustment only by Change Order. A Change Order, when issued, shall be deemed to include the effect of the change in the Work or the circumstances covered therein on all previously authorized Work.

The form of Change Order used 23 times between the parties stated among other things that:

...the adjustments include, to the extent reasonable [sic] forseeable by contractor, all direct costs, overhead costs, general and administrative expenses, profit and all other effects (direct, indirect and consequential, including impacts and "ripple effects").

Upon realizing that the wording of the Change Order had the effect of preventing any further claim at all for payment that related in any way to the work described in the Change Order, JV Driver refused to sign the remaining two Change Orders issued by Krupp. Based on the above two provisions, Krupp argued that the work in the Invoices was either part of the Contract already or the additional work was covered by Change Orders and the words in the Change Orders made it clear that the amounts negotiated and agreed upon for those changes also covered any additional or related claims.

JV Driver argued that many of the Change Orders did not deal with many of the expenses claimed in the Invoices. It argued that whenever a change was made to the work by Krupp, thus increasing JV Driver's costs, Krupp was obligated to issue a Change Order and it was not an option for them not to do so. The Contract stated that unless the Contract provided otherwise, Krupp shall issue a Change Order when it

a) revises the Specifications or elements of the Work already complete or being performed in accordance with the Specifications,

b) requires additional services of JV Driver, or

c) directs omission of part of the Work previously authorized, provided in each circumstance that either or both of JV Driver's costs or time required for performing the Work are affected.

Further, the Change Orders are not as complete an answer to Krupp's argument as they are limited by the reference to what was "reasonably foreseeable" and that is not something the Court can determine on an application as that before the Court in this case.

Master Robertson Declines to Reduce the Security

Master Robertson ultimately found that the provision obligating Krupp to issue a Change Order whenever a change was made to the work was, at this stage of the proceedings (being a request for reduced security), a complete answer to most if not all of the concerns raised by Krupp in respect of JV Driver claiming damages under its builder's lien claim. The amounts claimed in the Invoices related to increased costs incurred by JV Driver for performing the work and those costs had a contractual entitlement in the form of an appropriate Change Order which had not been issued by Krupp in many instances. Therefore, those amounts were essentially not to be categorized as "damages" but rather, part of the Contract via the Change Order process.

To the extent there were Change Orders issued by Krupp and signed by JV Driver, whether the amounts claimed on those Change Orders were "reasonably foreseeable" was a matter for the Trial Judge.

As a result of the above analysis, Master Robertson declined to reduce the security previously posted by Krupp.

This case is an interesting review of the intersection between Change Order provisions in a construction contract and the law on claiming damages in a builder's lien context. The obligation placed on Krupp to issue a Change Order left it little room to later claim work had already been included in a prior Change Order and the wording of the Change Order itself left room for the sub-contractor to argue reasonable foreseeability. When the sub contractor's costs were affected by changes imposed by Krupp, there was an entitlement to a Change Order thus rendering those costs the proper subject of a builder's lien. This was an interlocutory matter at an early stage in the proceedings and Master Robertson was not interested in reducing the security amount at this stage, preferring to leave many decisions on the merits to the Trial Judge.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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