Canada: Ontario Court Gives Contractors a Break with Standard but Strict Notice and Record Keeping Provisions

Last Updated: January 20 2006

By Coleen M Shannon1

Overview

In Mar-King Construction Company Limited and Dibco Underground Limited v The Regional Municipality of Peel et al2, the Ontario Superior Court of Justice refused to dismiss a contractor’s claim on the basis that the contractor had, according to the owner, failed to meet the strict notice and record keeping provisions set out in the contract. 3 However, as this was an interim motion, the ultimate outcome of the trial may be different

Background Facts

In 1999 Mar-King Construction Company ("Mar-King") entered into a $25 million contract with The Regional Municipality of Peel ("Peel") for the construction of a sewer, partly in open cut sections and partly through a tunnel section Problems arose when hard rock conditions wer encountered that significantly increased the costs of construction and the length of time it took to complete the project Claims for these increased costs under the contract were denied and litigation ensued

Peel brought a motion before trial claiming that, even if the contract did support claims for additional payment, Mar-King was not entitled to payment because it failed to meet certain preconditions set out in the contract4 including:

  1. immediate oral notice;
  2. written notice within 7 days of the commencement of any work which may be affected by the situation; and
  3. the keeping of detailed records after the claim arose

Immediate Oral Notice

Peel argued that the oral notice requirement required the contractor to give notice of the hard rock conditions even before it was apparent to any of the parties that the conditions were going to have any impact on the project Peel further argued that having been too slow to give the oral notice, no claim at all should be entertained by the Court The Court found, however, that the evidence showed that, as soon as it became apparent to everyone that the rock conditions would have some impact on the project, the parties became quite active The Court supported the contractors’ position that the evidence could substantiate that oral notice was given "immediately" and that such notice met both the letter and the spirit of the contractual provision requirements

Seven-Day Written Notice

Written notice of an intent to claim for additional payment under the contract was made within 7 days of a meeting that was held to consider various options for dealing with the hard rock conditions The notice was also a full month before the scheduled completion of the tunnel portion of the project However, according to Peel, the written notice was made more than a month after the hard rock conditions were first encountered In addition, Peel argued that, having made written notice late, no payment at all should be made to the contractor The contractor argued that the contractual provision required notice within seven days of the "commencement of any work which may be affected by the situation" which in this case meant work that would take place following the originally scheduled completion date of the tunnel portion of the project This issue was left for trial

Daily Work Records

During the motion, Peel argued that the contract required that the general contractor keep Daily Work Records to substantiate its claim under the contract The contractor argued that the records kept by the subcontractor (during the tunnel portion of the project) and the contract administrator for Peel (throughout the course of the project) were sufficient to meet the contractual requirement This issue was also left for trial

No Evidence of Prejudice

There will be times in which the strict notice and record provisions under a contract have not been met Is the contractor then precluded from making a claim at all? In this case, the Court adopted the reasoning in a British Columbia case5 that preserved a contractor’s claim so long as there was some notice sufficient to enable the owner to consider the claim and take steps to conduct its own investigation Justice Lederman adopted the reasoning of the B.C. Court: "The form of notice is not the governing factor, rather the issue is whether the notice contains enough information to satisfy the purpose for which notice is required." In other words, failure to provide perfect notice as required by the contract may not be fatal to the claim and instead the Court will consider whether the owner has suffered any prejudice by the late notice.

Waiver of Preconditions by Owner

The contract notice provisions were characterized by Peel as "preconditions" to the making of any claim by the contractor. The contractor, in turn, argued that the owner had waived its rights to rely on the strict notice provisions in the contract by waiting too long to raise the argument. The Court followed Ontario6 and British Columbia7 precedents and adopted the latter approach. In circumstances in which the owner investigates and perhaps attempts to negotiate the claim, the rights of an owner to raise a defence of lack of formal notice to bar a claim may be waived. In this case, the evidence on the motion indicated that issues of notice were not raised in a timely matter and the Court as a result preserved the issue for trial.

Lessons to be Learned

Contractors

  • Always be aware of the specific provisions governing notice, oral or written, and record keeping in your contract. Raise problems early on and put claims in writing quickly so as to meet the strict requirements.
  • Don’t wait to finish work that might give rise to a claim before giving notice as this could prejudice an owner in its investigation of the claim.
  • Document any discussions with parties on site, drawing their attention to problems that might ultimately lead to a claim.

Owners and Owner Representatives

  • Investigate any problems in a timely manner and do not wait for formal written notice before responding.
  • Identify and document immediately any intention to rely on breaches in formal notice requirements.
  • Use notice provisions that are more reasonable thereby increasing the likelihood that a court with enforce them.

ENDNOTES:

1. Colleen Shannon is a Partner with Borden Ladner Gervais LLP and is lead counsel for the contractor Mar-King and subcontractor Dibco. Ms. Shannon is also a professional engineer.

2. Decision by Mr. Justice Lederman released August 18, 2005.

3. This was just one of many challenges raised unsuccessfully by Peel.

4. Peel made a number of other arguments as well but lost on all issues.

5. TNL Paving Ltd. v. British Columbia (Ministry of Transportation and Highways), [1999] B.C.J. no. 1708.

6. Alden Contracting Ltd. v. Newman Bros. Ltd. (1997), 38 C.L.R. (2d) 1 (Ont. General Division).

7. W.A. Stephenson Construction (Western) Ltd. v. Metro Canada Ltd. (1987), 27 C.L.R. 113

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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