A series of recent decisions handed down by Québec courts have provided valuable insights into the consequences of a contractor's failure to comply with the claims procedure stipulated in the contract.
Although non-compliance with such a procedure is in principle fatal to the contractor's claim when the contractual terms used are clear and binding in the eyes of the court, some recent decisions have set exceptions to this principle.
Thus, as demonstrated by the below decisions, the courts have, in certain circumstances, awarded damages to a contractor despite their failure to comply with the contractual claims procedure when it has been shown that (1)the client has clearly waived this procedure; (2)the client has breached their obligation to inform or to cooperate with the contractor; or (3)the client has breached the duty to act in good faith.
The principle: the claims procedure stipulated in the contract must be followed, and failure to do so is fatal to the contractor's claim
InDavid S. Laflamme Construction inc. c.Procureur général du Canada,1 the Québec Superior Court reaffirmed the principle that the claims procedure outlined in the tender documents must be followed for the contractor in order to successfully avail itself of the procedure.
In this case, since the contractor had not complied with this procedure regarding certain aspects of its claim, they were rejected by the Superior Court:
"[Translation] [120]First of all, since the cause of action retained is solely that relating to substantially different soil conditions and not that arising from the breach of the obligation to inform, heads of damages25,28,29,35 and 45to48 are inadmissible pursuant to the January22,2024 decision on the admissibility of these damages[74]. Indeed, these claims are subject to the contractual provisions regarding notice periods, which have not been followed and which, for these specific claims, PWGSC had not waived."
As can be seen from this excerpt, the Superior Court nonetheless opened the door to the possibility of the client waiving the claims procedure provided for in the contract.
Exceptions to the principle:
a) Waiver of the claims procedure:
In another recent decision, Rochette Excavation inc. c. Zurich Compagnie d'assurance,2 the Superior Court addressed the issue of the client's waiver of the claims procedure provided for in the contract.
While recognizing that the client's conduct may constitute a waiver of the claims procedure provided for in the contract, the Superior Court points out that this waiver must be "[translation]clear and unequivocal" (claire et non équivoque).
Thus, despite the fact that in this case, the client had never, prior to the filing of legal proceedings, raised the contractor's failure to comply with the claims procedure, the Superior Court held that the contractor had not demonstrated such a waiver:
"[Translation] [118] In the present case, Rochette has not demonstrated that Zurich has waived its right to invoke the lapse period provided for in clause10.3 by "establishing that its conduct [...] gave rise to a reasonable inference that it had waived that right"[81]. This claim is not supported by a preponderance of evidence."
The Superior Court does not specify the circumstances in which a client may be considered to have waived the claims procedure. However, we have identified the following instances in which the courts have concluded that the contractual procedure has been waived such as when the client:
- approves invoices for additional work without raising the issue of non-compliance with the claims procedure;3
- agrees to pay part of the extra work despite non-compliance with the claims procedure;4
- responds to the contractor's claim, for instance, by proposing a settlement, without raising the issue of non-compliance with the claims procedure;5
- does not require the contractor to meet the contractual deadline and treats its claims on their own merits.6
In the David S. Laflamme Construction inc. case cited above, the Superior Court concluded that the "[translation] final modification of a contract by way of a waiver is only possible if the attitude is reiterated and is intended to vary the contract definitively"7. It also recognized that, after waiving its right to avail itself of contractual provisions governing the claims process, the client may reinstate the application of these provisions after giving reasonable notice to the contractor, particularly in the case of long-term construction contracts.8
b) Breach of the obligation to inform
Additionally, inDavid S. Laflamme Construction inc., the Superior Court ruled on the impact of non-compliance with the claims procedure when it has been established that the client has breached its obligation to inform.
The Court recalled that failure to comply with the contractual claims procedure cannot be invoked by the client against claims based on its failure to meet its obligation to inform:
"[53][Translation]The cause of action based on the breach of the obligation to inform may engage the client's liability despite non-compliance with the contractual notice periods. Indeed, such a fault would likely have vitiated DSL's tender from the outset, since there is reason to believe that DSL would not have bid at the proposed price had it been aware of the additional information on the actual soil conditions, the existence of a crack and the precise location of the rock, all of which were known to PWGSC. (...)".
c) Breach of the obligation of good faith
In a recent decision,PG4 Construction Corp.c.Énergir,9 the Superior Court added that the client cannot invoke the contractor's failure to comply with the claims procedure when they have breached their obligation of good faith:
"[421] [Translation]Énergir's lack of good faith, which manifested itself in its uncooperative behaviour towards PG4 during the performance of the Contract, must be sanctioned by a fin de non-recevoir which prevents it from invoking the contractual claims procedure stipulated in articles18 and 26.2of the General Conditions of the Contract as a defence to the claim.
[422] Énergir's conduct did not comply with its obligation to act in good faith in all circumstances[160]. Its conduct is not exclusively silent; it is deceptive in that it encouraged PG4 to implement acceleration measures by leading it to believe that everything would be settled later. This behaviour must be sanctioned[161].
[423] A fin de non-recevoir to the application of the contractual claims procedure is the appropriate remedy in view of [Énergir's] failure to comply with its duty of consistency and its breach of PG4's trust."
Thus, in this case, the contractor was awarded more than fifteen(15)million dollars in damages for the additional work covered by its claim, even though it had been shown that he had not complied with the procedure set out in the contract and that the client had not waived it.
The Superior Court's decision is currently under appeal, and the Court of Appeal is expected to consider this exception.
Practical tips
Failure to comply with the claims procedure can have drastic effects, depriving the contractor of its right to submit a claim.
For the contractor, it is therefore imperative to document any issues encountered (for instance, site conditions differing from those indicated in the tender documents) and to ensure that it complies with the notice periods stipulated in the contract, in order to preserve its rights.
The contractor should also ensure that it files its claim according to the most conservative interpretation of the notice periods stipulated in the contract. In the Rochette Excavation case discussed above, the contractor had submitted its claim within 120days of the provisional acceptance certificate. However, the Court concluded that the provisional acceptance of the work had in fact taken place several months earlier, therefore the contractor's claim did not comply with the notice period stipulated in the contract.
Upon receipt of a notice of intent to submit a claim, the client should establish the date on which the issue was encountered to determine whether the deadline was met. If the contractual deadline was not met, it may be advisable for the client to notify the contractor in writing. Failure to raise the issue of non-compliance with the claims procedure could in fact be interpreted by the courts as a waiver of that procedure, as discussed above.
Footnotes
1 2024 QCCS 4077.
2 2024 QCCS 1408.
3 Société de cogénération de St-Félicien, société en commandite/St-Felicien Cogeneration Limited Partnership c. Industries Falmec Inc., 2005 QCCA 441, para. 83-88.
4 Construction injection EDM inc.c. Procureure générale du Québec (Ministère des Transports du Québec), 2018QCCQ7060, para. 53-58.
5 Québec (Procureur général)c. Armand Sicotte & fils ltée, 1987 CanLII 536 (QC CA), p. 13.
6 David S. Laflamme Construction inc. c. Travaux publics et services gouvernementaux Canada, 2024QCCS141, para. 92.
9 2024 QCCS 4179, notice of appeal filed on December18,2024.
To view the original article click here
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.
