In Ross-Clair v. Canada (Attorney General), the Ontario Court of Appeal has recently held that a contractor’s claim for extras and changed circumstances was ineffective because it contained inadequate particulars of the claim.

The Extras/Changed Circumstances clause

The changed circumstances clause in the construction contract stated in part as follows:

35.4 A written claim referred to in GC 35.3 shall contain a sufficient description of the facts and circumstances of the occurrence that is the subject of the claim to enable the Engineer to determine whether or not the claim is justified and the contractor shall supply such further and other information for that purpose as the Engineer requires from time to time.

The contractor’s dealings with the engineer:

The correspondence leading up to the court proceedings started with a letter from the contractor in December 2008 making a claim for extra time and extra compensation in the amount of about $1.5 million.  The owner replied stating that the contractor had provided inadequate particulars of its claim.

The parties met and then during 2009, the parties engaged in correspondence in which the contractor re-iterated its claim for extra time and compensation and the owner stated that insufficient particulars had been provided.  The contractor provided a description of the circumstances that, according to it, caused delay in completion of the construction and attached “Additional Costs Summary” listing subcontractors and the costs attributed to their work, but contained no other supporting documentation. The owner responded, saying that “once we have received additional information from you relating to the assumptions and factual background to your claim, we would suggest that we meet to discuss it, after which the Engineer will determine whether any portion of the claim is justified. Once the Engineer makes that determination, [the contractor] can consider the processes available under the [C]ontract for resolving disputes.”  The owner extended the time to complete the project to September 14, 2009, but without compensation and without prejudice to the owner’s right to contest the contractor’s entitlement to any time extension or compensation.

The correspondence continued into 2011 with the contractor now submitting a claim of about $2.2 million but providing no breakdown of the costs being claimed and the owner replying that the contractor’s letter “did not contain a sufficient level of detail.”  The owner asked for “documentation to substantiate each of your costs on the original [Claim] and the additional Claim] that you have referenced in your letter of April 2, 2011, with proof that the delays responsible for these additional costs were caused by [the owner]. Until this is received [the owner] will not be able to assess your entitlement to any additional compensation.”

The contractor’s work was certified by the engineer as complete in February 2012 and the contractor was not granted any further extension to the Contract.

In May 2013, the contractor provided the engineer with an expert report called “Analysis of Delays and Additional Costs”.

The contractor commenced an application for an order compelling the engineer to consider its claim for extra payment.  The Superior Court judge granted that order. The owner appealed and the Court of Appeal set aside that order and declared that the contractor’s claim for extra payment was barred by operation of the contract.

Reasons of the Ontario Court of Appeal

The Court of Appeal found that the contractor had not complied with the requirements relating to a claim for changed condition or extras for the following reasons:

  1. The General Conditions contained both a form requirement and a timing requirement. The form requirement meant that the claim must be in writing and “must contain a sufficient description of the facts and circumstances to enable the Engineer to make a decision as to whether the claim is justified.”
  2. If the contractor’s claim is for extras, the contractor must give written notice within 10 days of the occurrence giving rise to that claim.  Then, the contractor must submit a claim within 30 days of the date that a Final Certificate of Completion is issued.  GC 35.4 “provides an opportunity for the Engineer to request further information in support of the Claim and the contractor to respond to any such request”, and “expressly allows this process to continue beyond the date when the work is certified as being complete.”
  3. “The nature of the information required by [other portions of the General Conditions] provides additional context for the interpretation of GC 35.4”.  Those portions deal with how costs are determined prior to work being undertaken and state that, “in order to facilitate approval of a change, the contractor must submit a cost breakdown identifying, at a minimum, the costs of labour, plant, and material; each subcontract amount; and the amount of the percentage mark-up”.
  4. Both the Superior Court Judge and the Court of Appeal held that the contract established a “Code” under which, in the Court of Appeal’s words, “[the contractor] could seek payment for extras relating to changes in soil conditions, or neglect or delay by [the owner]”.  The Court of Appeal held that the Code “contemplates a process for dealing with a contractor’s claim for extras in which the Engineer has control sufficient that it can fulfill its obligation to determine whether a claim is justified. The Engineer receives the claim. The Engineer decides whether the information provided within the prescribed time frame is sufficient to determine if the claim is justified. If so, the Engineer decides the amount, if any, to be paid to the contractor — again, subject to arbitration. The Engineer fulfills this important role in the context of a Code that, in my view, depends on a highly specific informational component.” (underlining added)
  5. The Court of Appeal held that the contractor’s claim did not satisfy the requirements of the “Code” for the following reasons:a.    While the contractor must give notice of its claim within 10 days of the events giving rise to it, the extended time during which the contractor must submit its written claim contemplates that the claim will be a substantive claim, not just further notice of the claim.

    b.    In addition, the contractor was required to submit a cost breakdown identifying, at a minimum, the costs of labour, plant, and material; each subcontract amount; and the amount of the percentage mark-up, and the submission of detailed information if it was not possible to predetermine the price of a change.

    c.    The combined effect of these requirements was that, even though GC 35.4 did not state that a “detailed” claim must be submitted, that word must be read into that provision. The Court of Appeal said:

    “The language used in GC 35.4, interpreted in the context of the rest of the Code, leads me to conclude that even though the word “detailed” is not included in GC 35.4, the requirement that a contractor submit a claim in writing sufficient to enable the Engineer to determine whether the claim is justified cannot be interpreted in a manner other than that it must be supported by detailed information. Without detailed information, it is difficult to see how the Engineer would be able to make a decision as to the validity of a claim. In my view, such a decision requires “proof” that the claim is justified.”

    d.    The contractor’s letters “provided little if any support for the [$1.5 million] Claim. Among other things, the letters failed to include information relating to the nature and extent of [the owner’s] responsibility for the delay, to address whether compensation had already been paid on account of the extra expense or to explain whether the extra expense contained in the [$1.5 million] Claim fell within the classes of expenses compensable under GC 35.5 and GC 49 or GC 50, and, if so, in what amount.”

    e.    In addition, the contractor’s letters “were inconsistent and therefore confusing” in terms of the location where the extra work was said to be required.  Furthermore, the contractor’s cost summary “provided skeletal information listing the amounts attributed to various sub-contractors but no breakdown identifying, for example, the costs of labour, plant, and material or the amount of the percentage mark-up.”

    f.    Accordingly, the contractor’s claim lacked specificity, was confusing in terms of identifying the parts of the project affected by the delay, was accompanied by virtually no information in support of the extra work done and the costs associated with any such work, and therefore did not meet the requirements of GC 35.4

Discussion

This decision is of vital importance to contractors submitting claims for extras or changed circumstances under building contracts.  If the language of the contract could potentially be read as requiring the contractor to provide details of the claim, then the Court of Appeal has set a very high bar so far as those details are concerned.  Indeed, the contractor must determine if the word “detailed” may be read into the contract, as occurred in this case.  If that is a possibility, then those details must be provided.  This decision provides a virtual roadmap or check list to consult when developing the details for such a claim.

Those details are higher than are normally required for the commencement of a legal claim in court.  The rationale for that higher bar is both the wording of the building contract and the role of the engineer in scrutinizing the claim and rendering a decision about its validity.  The Court of Appeal considered that the engineer could only perform its function in a timely manner if those details were provided.

One can wonder whether the bar has been raised too high in this decision.  The Court of Appeal has set a very high standard relating to the materials to be submitted for the consultant’s review, by reading the word “detailed” into the requirements of a claim, and by holding that the claim procedure entailed a “highly specific informational component” involving “proof” that the claim is justified.  Is this standard of proof suitable at that stage of the claim, or more suitable for the later arbitration of the dispute?

In the alternative, should the contractor be allowed to amend the claim to provide details after the time limit for delivering the claim has expired, as long as no prejudice has been suffered?  That is the normal course in court proceedings. It would be extremely rare for a court action to be dismissed for lack of particulars.  The plaintiff would almost always be given the right to amend the claim to provide further particulars.

This decision goes in the drawer of important decisions, to be pulled out when a claim for extras or changed circumstances is being considered.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 6, part 9(d)

Ross-Clair v. Canada (Attorney General), 2016 CarswellOnt 3854, 2016 ONCA 205, 265 A.C.W.S. (3d) 289
Extras and changed circumstances –particulars of claims for extra payment under building contracts –

Thomas G. Heintzman O.C., Q.C.,FCIArb
July 10, 2016
www.heintzmanadr.com
www.constructionlawcanada.com

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.