Elite Construction Inc. v. Canada serves as a stern reminder to construction contractors of the importance of abiding by contractual notice provisions.Elite Construction Inc. v. Canada, 2021 ONSC 562, CarswellOnt 2971 [Elite Construction].
The Ontario Superior Court of Justice dismissed the plaintiff contractor’s $4.1 million claim for additional compensation on the basis that the contractor had failed to abide by the contractual notice provision for making claims for additional compensation. The Court also rejected the plaintiff contractor’s claim that the defendant owner’s conduct had waived strict compliance with the notice provision.
Delays and changing conditions are ubiquitous in construction projects, large and small. Notice provisions regarding claims that may arise as a result of changes or delays are a common and prudent contractual term.
Where present, as in Elite Construction, they often provide for very tight timelines for the contractor to provide notice of an intention to claim. Owners and contractors alike need to be aware of notice provisions, and ensure they have procedures for complying with and responding to them.
The practical takeaways from Elite Construction are:
- Contractors must be sure to use the precise form and method of notice stipulated by the contract for claiming additional compensation, and must deliver that notice before the contractual deadline. Where no form of notice is stipulated by the contract, a notice should:
- be delivered in accordance with the means and method of delivery of any other notices under the contract;
- specifically reference the applicable provision in the contract that contemplates claims for additional compensation;
- identify the conditions giving rise to the claim for additional time or compensation;
- state explicitly that the contractor intends to assert a claim for additional compensation; and
- provide any other information contemplated by the contract.
- Owners should be mindful to ensure that their conduct is, and can be demonstrated to be, consistent with their intention to rely on their contractual rights. Owners should bear in mind that contractors who have not abided by contractual terms may seek to argue that the owner has waived its right to rely on strict conformance with the contract.
Elite Construction pertains to a dispute for additional compensation arising from a stipulated price contract between the contractor Elite Construction Inc. and owner Public Services and Procurement Canada. As a stipulated price contract, a fixed sum was agreed to in compensation for “everything that is necessary to be done, furnished or delivered by the Contractor to perform the Contract in accordance with the contract documents”.Elite Construction, at para 9.4.
The contract explicitly stated that no additional payments would be made to Elite for expenses associated with delay unless Elite complied with the notice provisions in the contract.Elite Construction, at para 34. The notice provision required that where Elite incurred extra costs or losses attributable to Procurement Canada’s “neglect or delay”, Elite was to provide Procurement Canada with “written notice of intention to claim for that extra expense or loss or damage within ten working days of the date the neglect or delay first occurred.”Elite Construction, at para 34, emphasis added by the Court.
Elite claimed that Procurement Canada’s failure to issue change orders under the contract in a timely way caused delays that required Elite to incur additional costs.Elite Construction, at paras 28 and 52. The change order process provided by the contract required Procurement Canada to issue a “Contemplated Change Notice” (or “CCN”) outlining a requested change to the scope of work. Elite would respond to a CCN with a “CCN Summary” containing Elite’s estimate of the additional time and/or compensation required to perform the work outlined in the CCN. If accepted, Procurement Canada would issue a change order on the basis of the CCN Summary and any revisions negotiated by the parties.
Elite contended that Procurement Canada’s delay throughout the project in issuing change orders following receipt of Elite’s CCN Summaries caused the overall delay.
Elite commenced its action over a year after substantial completion of the project. The matter arrived before the Court as a result of Procurement Canada’s motion for summary dismissal of Elite’s claims, primarily on the basis that Elite had failed to abide by the contract’s notice provision for additional compensation.
Elite argued that it had provided the required notice, or in the alternative that Procurement Canada had waived strict compliance of the contract by its own dilatory conduct throughout the project. Elite submitted that Procurement Canada conducted itself outside of the terms of the contract, and in turn should not be allowed to demand strict compliance.
Analysis and Decision
The primary issues of interest in the Elite decision are the Court’s assessment of whether Elite complied with the notice provisions of the contract and whether Procurement Canada waived strict compliance with the notice provision through its conduct.
The Court granted Procurement Canada’s summary dismissal motion after finding that (i) Elite did not strictly comply with the notice provision to obtain either an extension of time to complete the contract or additional compensation,Elite Construction, at para 59. and that (ii) Procurement Canada had not waived its right to rely on the notice provision.Elite Construction, at para 122.
A. Strict Compliance With Notice Provisions Required
Law Regarding Compliance with Notice Provisions
The Court based its analysis on a line of Canadian appellate cases concerning contractual notice provisions in construction contracts, namely Corpex (1977) v. The Queen in Right of Canada,  2 S.C.R. 643, Doyle Construction Co. v. Carling O’Keefe Breweries of Canada Ltd., 198827 B.C.L.R. (2d) 89 (BCCA), and Technicore Underground Inc. v. Toronto (City), 2012 ONCA 597.
The Court noted that Corpex and Doyle emphasize the importance of enforcing notice provisions in construction contracts. Notice provisions provide benefits to both contractor and owner, placing them back in the position they were in at the time of the bid: the contractor can provide and negotiate a price, and the owner can determine if it wants to pay or negotiate that price, adjust the contemplated scope of work, or cancel the contract.Elite Construction, at para 66.
With those benefits at stake, Canadian courts are reluctant to allow parties to evade a notice provision. The Court noted that compliance with a notice provision is a “condition precedent to maintaining a claim”,Elite Construction, at para 67. and that there is no need for an owner to prove prejudice in order to rely on failure to comply with a notice provision as a bar to the claim.Elite Construction, at para 68.
Court’s Application of the Law to the Facts
The Court noted that none of the various documents cited by Elite as providing notice actually referenced the notice provision or explicitly informed Procurement Canada of Elite’s intent to make a claim as contemplated in the notice provision. Failing to comply with the ten working days timing requirement of the notice provision, and failing to provide explicit notice of an intent to claim, barred Elite from claiming additional compensation.Elite Construction, at para 81.
The Court first determined that Elite’s submission that it had properly requested an extension of time under the contract was irrelevant to Elite’s request for additional compensation as a result of the alleged delay, as the contract established separate procedures for additional time and for additional compensation.Elite Construction, at paras 64 and 76.
The Court agreed with Procurement Canada’s assessment that the “logical time” for notice to be given under the notice provision for Elite’s claim for compensation arising from Procurement Canada’s delay in issuing change orders was within ten working days of any allegedly late change order.Elite Construction, at para 72. Instead, Elite argued that its CCN Summaries and various emails to the project consultant constituted proper notice (as well as several other documents issued months and sometimes years after the change orders).
The Court rejected Elite’s submission that the CCN Summaries constituted the notice required by the notice provision. The Court found that “it would make no sense” for the CCN Summaries to constitute notice for additional and general amounts not incorporated within the ensuing change order: the CCN Summaries pertained to the additional work stipulated by the CCN and were supposed to contain a description of all additional time and compensation required to perform the work set out in the CCN.Elite Construction, at Appendix “A”. Not only did the CCN Summaries precede the alleged neglect or delay Elite complained of, but allowing the CCN Summaries to constitute notice sufficient to ground a claim for general delay damages on top of the compensation already agreed to in the change order could lead to double recovery.Elite Construction, at para 71.
Elite’s various emails to the project consultant were also found to not constitute proper notice under the notice provision, as they were not issued within the required ten working days, and did not refer to the delay or neglect by Procurement Canada that ultimately underpinned Elite’s claim.Elite Construction, at para 74.
Finding that Elite had not complied with the notice provision, the Court then assessed whether Procurement Canada had waived strict compliance with the notice provision by its own dilatory conduct. The Court applied the test for waiver set out by the Supreme Court of Canada in Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 2 SCR 490. which requires the party asserting waiver to establish that the waiving party had (i) full knowledge of the deficiency that might be relied on, (ii) an unequivocal and conscious intention to abandon the right to rely on it, and (iii) communication of the waiver.Elite Construction, at para 82, citing Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC),  2 SCR 490.
Elite submitted that Procurement Canada’s own delay issuing change orders amounted to a waiver of the right to insist upon timely receipt of notice. Elite also asserted that Procurement Canada knowingly allowed Elite to perform work beyond the agreed-upon scope, and that this also amounted to a waiver of the specific requirements of the notice provision.Elite Construction, at para 86.
The Court found that Procurement Canada’s conduct regarding the change orders did not breach any specific contractual provision, and that even if the delay was construed to be contrary to the general “time is of the essence” provision, it would not amount to waiver of the specific notice provision.Elite Construction, at para 93. Further, the Court found that Procurement Canada had not permitted Elite to perform work beyond that contemplated in the original and amended contract, as all additional work was subject to pre-approval by virtue of the contract forms.Elite Construction, at para 96. Accordingly, the Court held that Elite did not establish waiver by demonstrating that Procurement Canada had full knowledge of some deficiency by Elite that Procurement Canada might rely on and an unequivocal and conscious intention to abandon that right that was communicated to Elite.
|↑1||Elite Construction Inc. v. Canada, 2021 ONSC 562, CarswellOnt 2971 [Elite Construction].|
|↑2||Elite Construction, at para 9.4.|
|↑3||Elite Construction, at para 34.|
|↑4||Elite Construction, at para 34, emphasis added by the Court.|
|↑5||Elite Construction, at paras 28 and 52.|
|↑6||Elite Construction, at para 59.|
|↑7||Elite Construction, at para 122.|
|↑8||Elite Construction, at para 66.|
|↑9||Elite Construction, at para 67.|
|↑10||Elite Construction, at para 68.|
|↑11||Elite Construction, at para 81.|
|↑12||Elite Construction, at paras 64 and 76.|
|↑13||Elite Construction, at para 72.|
|↑14||Elite Construction, at Appendix “A”.|
|↑15||Elite Construction, at para 71.|
|↑16||Elite Construction, at para 74.|
|↑17|| 2 SCR 490.|
|↑18||Elite Construction, at para 82, citing Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC),  2 SCR 490.|
|↑19||Elite Construction, at para 86.|
|↑20||Elite Construction, at para 93.|
|↑21||Elite Construction, at para 96.|