CONTRACTS

Ross-Clair, a division of R.O.M. Contractors Inc. v Canada (Attorney General),2016 ONCA 205 [Ross-Clair] is the Ontario Court of Appeal’s (“ONCA”) latest decision affecting the commercial construction industry.

Commercial construction contracts typically include not only arbitration clauses, but also detailed provisions on how to deal with disputes over additional costs incurred during the project “extras.” The contract in Ross-Clair contained a provision appointing the Project Engineer (“PJ”) to adjudicate all claims for extras made by Ross-Clair, a division of R.O.M. Contractors (the “Contractor”) and to make a binding decision on whether to approve such extra costs. While the PJ’s decision could be challenged in arbitration, the Contractor was required under the provision to provide sufficient detail to support its claim.

After providing notice of a claim for $1,437,976.00 to its client, in this case Public Works Canada (“PWC”), a division of the Federal Government of Canada, the Contractor thought it was complying with the meaning of the provision. PWC however, took the position that the information was insufficient and that the PJ could not render a decision as a result. The Contractor brought an application to the Superior Court seeking an Order that the PJ make a determination on the Contractor’s entitlement to the extras.

After the applications judge granted the Order, PWC appealed the decision on the basis that the Contractor failed to provide sufficient details of the extras in accordance with the contract and thus should be precluded from claiming anything at all. In seeking only to interpret and apply the provisions of the agreement, the ONCA agreed with PWC. In doing so, it rendered a decision that reached too far into the contractual relations between the parties and interfered with the Contractor’s fundamental rights under the agreement. Determining the standard of review to be ‘correctness,’ the ONCA proceeded in its analysis to re-weigh some of the facts, without indicating whether the applications judge made a palpable and overriding error. Overall, the decision appears to be impractical and creates uncertainty as to how much information will satisfy the terms of such provisions in commercial construction contracts.

Issues and Reasoning

The applications judge carefully considered the provision requiring the Contractor to provide sufficient detail on the facts and circumstances of a claim for extras. The applications judge found that the agreement required the Contractor to provide more than mere notice of its claim to PWC, but the requirement did not extend so far as to require the Contractor to prove its claim for extras. The judge found on the facts that the Contractor provided information that was sufficient for the PJ to make a determination of the Contractor’s entitlement and ordered the PJ to make such a determination. This was a reasonable decision that respects the agreement between the parties and further enables them to proceed with the process they agreed to in the contract. If the PJ still had concerns at this point over the insufficiency of the information provided by the Contractor, this could have been dealt with by weight, meaning any missing information could be held to detract from the Contractor’s claim.

Yet the ONCA treated the informational requirement as a threshold issue, meaning that if the information was deemed insufficient by PWC, the Contractor’s right to the claim would be extinguished altogether. Interestingly, the ONCA disagreed with the lower court over the standard for assessing the sufficiency of the information provided. In fact, it held that the Contractor, in the context of such a provision, was basically required to prove its claim to the other side. After a significant amount of correspondence was exchanged between PWC and the Contractor over the sufficiency of the information in support of its claim, the latter did in fact produce a detailed report titled “Analysis of Delays and Additional Costs” on May 28^th, 2013, which is one year and three months after the project was certified to be complete. Implying that the sufficiency of the information in this report may have met the standard required for the Contractor to prove its claim, the ONCA then found that this report was too late.

Uncertainty for Future Parties

A related provision to the sufficiency requirement was that a claim for extras had to be submitted no later than 30 days after the project was certified to be complete. Thus, the ONCA’s position on the report being late is understandable. However, the above notice provision is separate from the sufficiency requirement. Logically, the two are not dependent on each other. Moreover, nowhere does the agreement state that a failure to meet the sufficiency requirement constitutes a failure to meet the requirement to submit one’s claim. However, the ONCA held that these provisions must be read in the entire context of the agreement as a whole, purportedly justifying the conclusion that failure to provide sufficient information within 30 days after completion is a failure to provide notice of the claim at all. It is unclear in the ONCA’s decision how that conclusion was specifically reached.

The ONCA could have reasonably reached an alternative conclusion without conflicting with the agreement as a whole. While one specific purpose of the agreement was to create certainty by imposing time limits—hence the 30 day deadline to bring a claim for extras—the general purpose was to provide a multi-stage dispute resolution mechanism upon which the parties could rely. In this case, the immediate dispute was not over the extras but over the quantity and quality of information provided in the claim for extras. Extensive correspondence between the parties shows that they disagreed over this point. This is much different than failing to start a claim at all within the 30 days. Why then does disagreeing over the information provided result in one party being stripped of its rights under the contract because they couldn’t see eye-to-eye with the other party on how much information to provide? Such an interpretation of the contract is not only inconsistent with the Contractors’ right to a fair process, it puts the other party, PWC, into a supra-advantageous position where it can continue to deny the adequacy of the information provided in the context of a dispute if a contractor is unable to prove its claim. In other words, it puts PWC into a position of power and its enables it to act self-servingly. It is unclear whether the contract as a whole intended such an unbalanced result.

Conclusion

In deciding as it did, the ONCA rendered a decision that reached too far into the contractual relations between the parties and interfered with the Contractor’s fundamental rights under the agreement. The applications judge made a reasonable decision in ordering that a disputed claim be adjudicated according to the process agreed to by the parties themselves. Overall, the decision appears to be impractical and creates uncertainty as to how much information will satisfy the terms of such provisions in commercial construction contracts.

BY DEZSO FARKAS · MARCH 20, 2016

PUBLISHED AT thecourt.ca