Construction projects involve a complex and interconnected framework of relationships between their key players: among others, the owner, the contractor, its subcontractors and the consultant. Within such a framework, the consultant, usually an architect or engineer, can play several overlapping and potentially conflicting roles:
- as the owner's agent, it is charged with
representing the owner's interests on the project
- as an impartial decision-maker, it is responsible for
making unbiased choices on matters such as changes to scope,
project timing, defective work and the issuance of payments;
- as a quasi-judicial body, it may be required to serve as
an arbiter of disputes between owners and
Although the consultant is bound to follow the owner's instructions while acting as its representative on-site, when acting in its other roles it must be fair and balanced and must act strictly in accordance with its powers and duties under the contract.
One common task undertaken by the consultant in a decision-making role is the certification of amounts to be paid out to the contractor in response to applications for progress payments. Such progress certificates, which confirm that the amount of work represented by the sum directed to be paid has been satisfactorily performed, are frequently made a condition precedent to any payment by the owner under the contract, such that "the contractor is not entitled to be paid until the architect's certificate has been issued."2 Conversely, however, once the consultant's certificate has been issued, the amount certified as due becomes a debt owing to the contractor and, subject to the terms of the contract, the contractor can bring an action for the recovery of this amount, even if the owner has not been notified of, or objects to, the issuance of the certificate.3 It is generally accepted that, where the owner and contractor agree to charge the architect or engineer with the task of reviewing and determining progress payments, they will be bound by the consultant's certificate approving such payments, provided that the consultant's decision is made without fraud, bias or other misconduct and the consultant has obtained full information regarding the performance of the work.4
However, the fact that an owner may be contractually bound by the amount of a progress payment specified in a consultant's certificate does not mean that the owner must pay this amount in the face of potential cross-claims that it may have against the contractor. This issue was discussed in Modern Engineering (Bristol) Ltd. v. Gilbert-Ash (Northern) Ltd.5, a 1974 case where a contractor had refused to pay out the full certified amount of a progress payment to its subcontractor and had withheld funds on the basis of additional costs allegedly arising out of the subcontractor's delay and poor workmanship. The question was whether the contractor was required immediately to pay out the amounts certified by its agent, the consultant, in full without any right to set off claims it may have had arising out of the subcontractor's breach of contract, leaving such cross-claims to be resolved at a later date. The British House of Lords held that it is necessary to examine the particular contract in every case to determine whether the parties' common law and equitable rights of set-off and counterclaim have been explicitly excluded. In the absence of any such exclusion, there is no ground for holding that one party cannot deduct from the amount certified by the consultant other amounts claimed by it in good faith from the other party:
It is, of course, open to parties to a contract...to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law.... But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption.
So when one is concerned with a building contract one starts with the presumption that each party is to be entitled to all those remedies for its breach as would arise by operation of law, including the remedy of setting up a breach of warranty in diminution or extinction of the price of material supplied or work executed under the contract. To rebut that presumption one must be able to find clear unequivocal words in which the parties have expressed their agreement that this remedy shall not be available in respect of breaches of that particular contract.6
This principle was expressly adopted in Canada by the British Columbia Supreme Court in its 2000 decision of Swagger Construction Ltd. v. University of British Columbia7, where the court confirmed, in relation to a similar claim by a contractor for immediate payment on the basis of a consultant's progress payment certificate, that "when a claim is made by a Contractor for the price of work and labour done, the Owner is entitled, in the absence of a provision in the Contract to the contrary, to set-off against the amount claimed any damages which he has suffered as a result of the Contractor's breach of the Contract"8. The court in Swagger made a clear distinction between the conclusiveness of a consultant's certificate as to the amount due in relation to a particular progress payment, which amount is binding on the parties, and the contractor's right to be paid that amount, which right is subject to competing extra-contractual rights of set-off or counterclaim. "And it is at least arguable that setting off claims for breach of contract against a claim based on a Certificate may be, in a sense, payment of the Certificate. The fixing of the amount due is one thing. The right to set-off against that amount is another."9 While there is nothing preventing parties to a construction contract from curtailing or extinguishing an owner's rights to set-off or counterclaim against amounts certified as owing under a consultant's certificate, the owner possesses these rights by operation of law and retains them unless and until they are taken away by "clear and unequivocal words"10 in the contract.
This issue was recently the focus of an Alberta Court of Queen's Bench decision handed down in September 2007, Point on the Bow Development Ltd. v. William Kelly & Sons Plumbing Contractors Ltd.11. This case involved an unsuccessful application by a contractor for summary judgment in relation to that portion of its claim against the owner that had been certified by the project consultant. The owner had filed a substantial counterclaim against the contractor regarding a variety of performance-related issues, but the contractor argued that the consultant's certificate was final and determinative of the value owed for work it performed. Following Gilbert-Ash and Swagger, the court held that, while the value assessed and certified by the consultant may not later be open for challenge, this does not result in the owner immediately having to pay the certified amount regardless of whether any set-off may be appropriate: "Payment of the certificates issued by the architect pursuant to the terms of the General Contract cannot be made in isolation of determination of [the owner's] counterclaims and claims for setoff These remain genuine issues to be tried."12 Given the numerous and significant cross-claims asserted by the owner, the consultant's certificate alone was not sufficient to allow the contractor's entitlement to payment to be determined summarily.
The consultant's certification of a progress payment still has the important practical effect of binding the parties to the construction contract to the certified amount. However, unless the contract states otherwise (and even if the contract is silent in this regard), owners with bona fide cross-claims for delays or deficiencies that may reduce the amount ultimately owing to the contractor under the certificate have the right to have these claims determined without the owners first having to pay out the certified amount and then having to seek recovery of the funds paid. The result of this principle is that, as seen in Swagger and Point on the Bow, disputed contractor claims for certified progress payments cannot easily be divorced from larger construction disputes and decided based strictly on the stated values in the consultant's certificate -- the owner's rights of set-off prevent the certificate from becoming the sole factor material to the contractor's right to payment.
1 Beverley M. McLachlin, Wilfred J. Wallace & Arthur M. Grant, The Canadian Law of Architecture and Engineering, 2nd ed. (Markham: Butterworths Canada Ltd., 1994) at 195.
2 Immanuel Goldsmith & Thomas G. Heintzman, Goldsmith on Canadian Building Contracts, 4th ed. (Agincourt: Thomson Carswell, 1988) at 4-8.
3 Ibid. at 8-9.
4 Ibid. at 8-8 & 8-9. See also Dilcon Constructors Ltd. v. ANC Developments Inc. (1996), 188 A.R. 241, 42 Alta. L.R. (3d) 32 (Q.B.) at paras. 145-162.
5 Modern Engineering (Bristol) Ltd. v. Gilbert-Ash (Northern) Ltd.,  A.C. 689 (H.L.). 6 Ibid. at 717 & 718.
7 Swagger Construction Ltd. v. University of British Columbia, 2000 BCSC 1839, 7 C.L.R. (3d) 99.
8 Ibid. at para. 20.
9 Ibid. at para. 21.
10 Ibid. at para. 25.
11 Point on the Bow Development Ltd. v. William Kelly & Sons Plumbing Contractors Ltd., 2007 ABQB 530, 81 Alta. L.R. (4th) 175.
12 Ibid. at para. 16.
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