When Does An Arbitral Award Contain An Appealable Question Of Law?

The Supreme Court of Canada has recently re-examined the issue of whether a statutory and contractual interpretation by an arbitral tribunal may be appealed. The court re-iterated the principle that arbitral awards are not appealable on a question of law when in reality the question is one of mixed fact and law. On this basis, in Teal Cedar Products Ltd. v. British Columbia, 2017 CarswellBC 1648, 2017 SCC 32, the Supreme Court re-instated an arbitral award which had been set aside in whole or in part, by the courts of British Columbia.

In doing so, the court re-affirmed its previous decision in Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633 to the effect that, unless a discrete question of law arises, the interpretation of a contract is a question of mixed fact and law, not a question of law, and that an arbitral award interpreting a contract cannot be appealed to the courts if the right of appeal is only on a question of law.

I reviewed the Sattva decision in an article dated August 10, 2014 and the decision of the British Columbia Court of Appeal in Teal in an article dated July 7, 2015

The Issues

Teal held a license to harvest timber on provincial Crown land. The province then reduced the amount of Teal’s allowable harvest. The parties were able to settle the amount of Teal’s compensation for its loss of harvesting rights (the Rights Compensation) but were unable to agree on the compensation for the improvements Teal had allegedly made to Crown land (the Improvements Compensation). The parties agreed to arbitrate the amount of Improvement Compensation to which Teal was entitled. The arbitrator made an award in Teal’s favour and the province appealed.

The issues upon which the arbitral award was appealed were as follows:

  1. Did the arbitrator err in selecting a valuation method that was allegedly inconsistent with the governing statute, the Revitalization Act?
  2. Did the arbitrator err in his interpretation of the contract between the parties, especially in resorting to the factual matrix to interpret an amended settlement agreement between the parties in light of the negotiations between the parties?
  3. Did the arbitrator err in denying compensation to Teal Cedar relating to the improvements associated with one of its licences because it never lost access to those improvements?

The Decision Of The Majority Of The Supreme Court Of Canada

The nine-member court was divided 5-4 in this appeal. The majority held as follows with respect to these questions:

  1. This question was a question of law. Accordingly it could be appealed under the British Columbia Arbitration Act. However, the arbitrator applied the plain meaning of the statute prescribing that valuation and reasonably selected a suitable valuation method. Accordingly, his award was valid and could not be set aside.
  2. This question was either a question of mixed fact and law, or was without reviewable error as it was based on the wording of the contract interpreted in light of the factual matrix. In either case it was not appealable to the courts since section 31 of the B.C. Arbitration Act limits appeals to questions of law.
  3. This question was one of mixed fact and law and not reviewable under the B.C. Arbitration Act.

The four judges who dissented held that the arbitrator erred on Question 1. They held that Teal was entitled to compensation only for its limited interest in the improvements.  Teal, as a licence holder, did not own the improvements, which belonged to the Crown. The arbitrator selected a valuation method — the cost savings approach —, which failed to consider that Teal had only a limited interest in the improvements as a licence holder and was therefore not entitled to compensation on that basis under the Act.

In arriving at its conclusions, the majority of the court provided some further explanations and clarifications of its historic decision in Sattva. Here are three addition principles that can be extracted from Teal and added to the principles arising from Sattva:

  1. Alteration Of A Legal Test Raises A Legal Question.

If, in the course of the application of a legal principle, the underlying legal test has been altered, then a legal question arises. “For example, if a party alleges that a judge (or arbitrator) while applying a legal test failed to consider a required element of that test,” –for example, if “the correct test requires him or her to consider A, B, C, and D, but in fact the decision-maker considers only A, B, and C” – then a question of law arises. “If the correct test requires him or her to consider D as well, then the decision-maker has in effect applied the wrong law, and so has made an error of law.”

This situation is an example of an “extricable question of law” which under Sattva is reviewable as a question of law, but the alleged error is hidden or “covert” in the arbitrator’s award. The legal issues or tests are “implicit to their application of the test rather than explicit in their description of the test.”

  1. Statutory interpretation is normally a legal question and contractual interpretation is normally a question of mixed fact and law.

As explained in Sattva, “contractual interpretation remains a mixed question, not a legal question, as it involves applying contractual law (principles of contract law) to contractual facts (the contract itself and its factual matrix)”. But statutory interpretation is a matter of law.

  1. An arbitrator’s legal decision should be reviewed on a standard of reasonableness.

While an appeal of a court’s decision on a question of law should be conducted on the basis of correctness, an appeal of an arbitrator’s award on a question of law – in this case, the interpretation of a statute – should be conducted on the basis of reasonableness, based upon the arbitrator’s presumed special expertise. To do otherwise, and “to weigh an arbitrator’s actual (as opposed to presumed) expertise in every arbitration would require some sort of preliminary assessment of the arbitrator’s level of expertise with a view to establishing the standard of review for every particular hearing — which would be antithetical to the efficiencies meant to be gained through the arbitration process.” Moreover, “in a commercial arbitration context…..from a policy perspective, the deliberate aim is to maximize efficiency and finality.” All of these factors merit deferential review of the arbitrator’s decision.

The arbitrator is presumed to be an expert even though the arbitration process in this case was mandated by statute, not voluntary. If an issue arises in the course of an arbitration that is outside the subject matter of the arbitration, then in that case the presumed expertise of the arbitrator –and the review of the award on a reasonableness basis- might not apply.

This part of the Supreme Court’s decision may come as a surprise. In previous lower court decisions, it has been assumed that errors of law by an arbitral tribunal should be reviewed on a standard of correctness: see, for instance, Denali Construction Inc. v. Tremore Contracting Ltd.,2013 CarswellAlta 898, 2013 ABQB 321, 25 C.L.R. (4th) 54 at paras. 14-16 (Alta Q.B.). The Supreme Court has now said that the standard of reasonableness applies to the review of arbitral awards, even if the question is one of law.


The legal principles stated in Teal have clear application to arbitrations arising under building contracts. For example, if the arbitrator is considering a statute such as the Construction Lien Act, his or her interpretation involves a question of law. If the relevant provincial arbitration statute permits an appeal on a question of law, then the arbitrator’s decision on this point is appealable. But in the appeal, the arbitral award will be reviewed on a standard of reasonableness and only set aside if it is unreasonable.

If, on the other hand, the arbitrator is interpreting a building contract, his or her interpretation will usually amount to a question of mixed fact and law, and will not be appealable as a question of law. However if there are several elements involved in a particular issue, and if the arbitrator fails to consider, or mis-applies one of the elements, then according to Teal that failure may give rise to a discrete question of law and be appealable.

Exactly how this element of the Teal and Sattva decisions will work out may be a matter of contention. For example, under GC 10.2.6 of CCDC 2 Stipulated Price Contract, the contractor is required to advise the consultant and obtain direction as required by GC 10.2.5 before performing work which is contrary to law, and if it does not, the contractor is obliged to bear the expense of correcting the work. If, in the absence of some other justification (such as waiver or estoppel), the arbitrator holds that the contractor satisfies this condition by reason of advising the consultant without considering the absence of written directions (or vice versa), is this an error of law, or just an error of mixed fact and law due to the involvement of the surrounding facts?

In any event, all construction law practitioners dealing with arbitrations under building contracts must be familiar with the trilogy of Supreme Court decisions: Sattva, and Teal and Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co, 2016 SCC 37 which apply Sattva.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 11, part 11(a)

Teal Cedar Products Ltd. v. British Columbia, 2017 CarswellBC 1648, 2017 SCC 32

Building contracts – arbitration – appeal of arbitral awards – questions of law and mixed fact and law

Thomas G. Heintzman O.C., Q.C., LL.D (Hon.), FCIArb                       July 16, 2017



What Amounts To An Effective Claim Under A Building Contract?

The Ontario Court of Appeal has recently allowed the appeal in the case of Ledore Investments Limited (Ross Steel Fabricators & Contractors) v. Ellis-Don Construction Ltd., 2017 ONCA 518. In doing so, it held that the arbitrator committed no reviewable error in deciding that the correspondence sent by Ellis-Don to its subcontractor did not amount to a claim under the building contract in question.

This is an important decision from a construction law standpoint. Building contracts often contain a clause which provides that claims are released if they are not made during the building project. In the Ellis-Don subcontract, that provision stated that unless a party had made “claims” within a specific number of days from the final completion of the contract, then the right to assert claims under the contract was lost. The arbitrator held that the proper elements of a “claim” were missing in the letter sent by Ellis-Don to the subcontractor. The Court of Appeal held that this decision was not unreasonable and should not be overturned.

Accordingly, parties to building contracts who wish to ensure that they have given a valid “claim” must pay attention to this decision.

The Contract

Article 15 of the subcontract between Ellis-Don and the subcontractor Ross Steel read as follows:

“15.1   As of the date of the final certificate for payment of the prime contract, the contractor expressly waives and releases the subcontractor from all claims against the subcontractor, including without limitation those that might arise from the negligence or breach of this agreement by the subcontractor, except one or more of the following:

(a) those made in writing prior to the date of the final certificate for payment of the prime contract and still unsettled;” [Emphasis added by the court, underlining added by me.]

The Claim Made By Ellis-Don

The letter written by Ellis-Don, upon which it relied as being its claim, read as follows:

“In addition to impacting the schedule, Ross Steel also forced Ellis-Don to expend substantial monies to accelerate the work in an effort to recover the schedule. We are currently assessing the financial impact that Ross Steel’s slippages have had on Ellis-Don and we intend to recover the costs from you.” (underlining added)

The Arbitrator’s Decision

The arbitrator held that this letter did not amount to a “claim’:

“I find that while Ellis-Don may have contemplated a delay claim in January 1999 and may have discussed amongst its own representatives a possible strategy to assert a claim for delay costs in the amount of $400,000, there is no proof that it actually did so. As stated earlier, the intention to claim is not the same as a claim. Further, the failure to advance the delay claim in the August 4, 1999 meeting supports my view that Ellis-Don did not assert a delay claim “in-writing” before the final certificate of completion.” [Emphasis added by the court.]

Appeal Judge’s Decision

Ellis-Don appealed the arbitrator’s decision to the Ontario Superior Court of Justice. That court set aside the arbitrator’s decision, holding that Ellis-Don’s letter was a sufficient “notice of claim” and that all that was required under Article 15.1 was a notice of claim, not a claim:

“…..provisions requiring claims to be made in writing should be treated as provisions requiring written notice of claims, contrary to the approach taken by the arbitrator….In this court’s view, the arbitrator erred in finding that “claims made in writing” should not be treated as provisions requiring written notice of a claim…..the arbitrator misapplied the general principles and considerations established in Doyle to reach his conclusion that Article 15.1(a) had been satisfied but instead fashioned and applied his own test in that regard, contrary to the applied legal principles established. (underlining added)

I reviewed this decision in an article dated December 3, 2016.

The Court Of Appeal’s Decision

First, the Court of Appeal held that the standard of review to be applied to the arbitrator’s decision was reasonableness. Only if the arbitrator’s award was unreasonable should it be set aside.

In a very pithy decision, the Court of Appeal then held that the arbitrator’s decision was reasonable:

“In our view, [the arbitrator’s] interpretation of Article 15.1(a) of the subcontract at paragraphs 52-68 of the award is eminently reasonable. The question of whether Ellis-Don advanced a “claim” for delay in writing within the time permitted under the subcontract is, by its very nature, a question of mixed law and fact. The question required the arbitrator to not only interpret Article 15.1(a), but also to decide whether the language contained in Ellis Don’s January 18, 1999 (or any other letters) was sufficient to constitute a “claim”. This is precisely what the arbitrator did.

The arbitrator was aware of the cases the respondent relies on in this appeal (Ellis-Don put them before him and relied on them in argument). In our view, the arbitrator did not ignore or misperceive them. Indeed, in terms of the principal case relied on by the respondent, Doyle, the arbitrator’s decision is not inconsistent with it; his dichotomy between “intention to make a claim” and “an actual claim” is similar to the distinction in Doyle, at para. 71, between “grumbling display[ing] an intention to claim” and an actual claim.”


Where does this decision leave us with respect to whether a letter like Ellis-Don’s amounts to a valid “claim” under a construction contract?

Is the most that we can say that it is reasonable to conclude that such a letter is not a “claim”? If that is so, then another arbitrator might well find that such a letter is a “claim”. Could the reviewing court well find that that decision is not unreasonable?

That is the problem with the review of arbitral awards on the standard of reasonableness. After the court’s review, we know that the arbitral award is or is not unreasonable. We do not know that it is correct or the only conclusion that is possible.

The second issue is: what did the court and arbitrator decide about Ellis-Don’s letter? We know that the letter was held to be an insufficient claim, but do we really know why? Was it because the letter stated an intention to make a claim, not a claim stated in the present tense? Or was it because the letter did not contain sufficient particulars of a claim?

These are very different issues. By way of example, the Court of Appeal recently held that a claim under a construction contract was invalid, despite the finding by the judge of first instance that the claim was valid, because it did not contain sufficient particulars of the claim: Ross-Clair v. Canada (Attorney General), 2016 CarswellOnt 3854, 2016 ONCA 205. I reviewed that decision in an article dated July 10, 2016. In that case, the claim provision required the claimant to provide 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.”

A third issue is whether these cases apply to “notice of claim” provisions. Thus, GC 12.2 of the CCDC 2 Stipulated Price Contract states that the contractor and owner waive and release “claims” against each other unless (subject to various exceptions) “Notice in Writing [of the claims] has been received ….no later than the sixth calendar day before the expiry of the lien period…” Does this provision make a distinction between a “Notice” of a claim and a “claim”? Does it do so in order that the claimant be put to a lesser standard of particularity or intention to give notice of, and thereby preserve, a claim? Would the views of the Superior Court judge in the Ellis-Don case be more applicable to a “notice of claim” provision rather than a “claim” provision?

In any event, these two decisions of the Ontario Court of Appeal appear to express a judicial and arbitral tendency toward requiring greater precision, and an express statement of a present claim, in the making of claims under building contracts. Arbitrators and the courts seem to be departing from their previous more laissez faire attitude to those claims, under which if the owner was generally aware of the impending claim, it couldn’t avoid the claim on technical grounds. Now the courts and arbitrators seem to be demanding that the claim be present and clear, and if the wording of the dispute resolution clause demands it, that sufficient particulars of the claim be provided.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 4 part 3(c), chapter 6 part 9(b)-(e), chapter 7 part 5 and chapter 9 part 4.

Ledore Investments Limited (Ross Steel Fabricators & Contractors) v. Ellis-Don Construction Ltd., 2017 ONCA 518

Building contracts – dispute resolution clauses – arbitration – claim

Thomas G. Heintzman O.C., Q.C., LL.D. (Hon.), FCIArb                           July 9, 2017



May A Party Terminate A Contract For “Fundamental Breach”?

In the recent decision in R.P.M. Investment Corp. v. Lange, 2017 CarswellAlta 770, 2017 ABQB 305, the Alberta Court of Queen’s Bench held that a party to a contract may terminate a contract on the basis of a “fundamental breach” of the contract, in addition to the right to terminate the contract for repudiation. While on the facts of the case the court held that a fundamental breach had not occurred, the decision still raises the question: what is the role of fundamental breach in Canadian contract law?

It is submitted that the Alberta court erred in applying the doctrine of fundamental breach to the termination for breach of contract. If that doctrine exists at all in Canadian law, it applies to exclusion clauses. Canadian courts should apply the doctrine of repudiation, not fundamental breach, to issues relating to the termination of contract for breach.

This decision and this article do not deal with the role of fundamental breach in relation to exclusion clauses. The law on that subject is somewhat tortured. The last word from the Supreme Court of Canada on that subject is probably found in the Tercon case: Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways), 2010 CarswellBC 296, 2010 CarswellBC 297, [2010] 1 S.C.R. 69.

The Background

The Langes engaged the plaintiff, (called “Mission” in the reasons) to build a home near Calgary. Mission did not complete the construction and the Langes hired a new contractor to complete the construction. Mission sued for the amount remaining due on its contract and the Langes counterclaimed for damage.

Each party accused the other of fundamental breach and repudiation of the contract.   The Langes allege that Mission committed fundamental breaches by not complying with the plans and specifications and by abandoning the project. The trial judge found that neither allegation was proven. While there were breaches of the contract, none of them rose to the level of fundamental breach, as they did not deprive the Langes of “substantially the whole benefit of the contract.” As to abandonment, while Mission removed certain property from the job site, that “was done for cost-savings purposes and did not constitute abandonment.” Moreover, Mission demonstrated its continuing intention to complete the project.

As to repudiation, the trial judge found that the Langes had not expressly accused Mission of repudiation, but that abandonment, had it been found, “might well have constituted a repudiation.”

Mission’s claim for fundamental breach was based on unreasonable delay on the part of the Langes, on the basis that “the Langes had an obligation to act in good faith in moving the project forward.” The trial judge dismissed this claim on the ground that “the delays on the part of the Langes did not constitute fundamental breach as they were not sufficient to deprive Mission of the whole benefit of the Construction Agreement.” The trial judge also held that a finding concerning the allegation of fundamental breach was unnecessary “in light of my finding below in respect of Mission’s repudiation allegation.”

The trial judge found that the Langes had repudiated the contract by writing an email stating that ” …we are hereby giving notice of our intent to terminate effective November 8, 2010.” The trial judge said:

“In my view, Mr. Lange’s email would lead a reasonable person in the position of Mission to that conclusion. It is possible that Mr. Lange’s email was merely a tactic intended to force a favourable response from Mission. However, the law is clear that the test is what a reasonable person would conclude, not what was subjectively intended. Therefore, Mr. Lange’s strategy, if that is what it was, is irrelevant to the outcome.”

Accordingly, Mission had the right to accept the Lange`s repudiation and terminate the contract.

The Trial Judge`S Legal Framework

The trial judge held that a party to a contract has two rights to terminate the contract in the event of breach: for “fundamental breach” and for “repudiation”. In the case of fundamental breach, the wrongdoer`s conduct “deprives the non-breaching party of substantially the whole benefit of the agreement”. Repudiation occurs by the wrongdoer`s conduct “by words or conduct evincing an intention not to be bound by the contract”.

In this case, the trial judge conducted an analysis of both types of breach, and concluded that repudiation by the Langes had occurred, but that fundamental breach had not.


This decision raises the question of whether fundamental breach is a separate ground for termination of a contract. Separate, that is, from repudiation.

It is submitted that it is not, and that the trial judge was not required to perform a separate analysis of fundamental breach in this case.

Fundamental breach is a doctrine developed to deal with exclusion clauses, not with the right to terminate the contract. Under the law developed in England, largely by Lord Denning, the idea came into being that if the wrong-doer’s conduct was so egregious that it removed the whole basis of the contract, then an exclusion clause could not be enforced. The law with respect to exclusion clauses – and fundamental breach – has been very contentious, and has largely been eliminated from the Canadian law relating to exclusion clauses. The history of the fundamental breach doctrine as it applies to exclusion clauses can be reviewed in the Tercon case.

In the present decision, the trial judge quoted from the decision of the Supreme Court of Canada in Guarantee Co. of North America v. Gordon Capital Corp., 1999 CarswellOnt 3171, [1999] 3 S.C.R. 423. However, that case was an exclusion clause case. The Supreme Court of Canada analogized a time limitation provision in a bond to an exclusion clause. The Supreme Court held that, under the principles then developed relating to fundamental breach, the time limitation clause was enforceable. But the Guarantee v. Gordon Capital case, on that issue, was not about whether a contract could be terminated for fundamental breach.

The other case cited by the trial judge was the decision in RIC New Brunswick Inc v Telecommunications Research Laboratories, 2010 ABCA 227, 487 AR 340. In that case, the Alberta Court of Appeal did perform a “fundamental breach” analysis to determine whether a contract could be terminated for breach. It did not perform a repudiation analysis.

In my respectful submission, the doctrine of fundamental breach has no place in the law relating to the termination of a contract due to the breach of the contract. The only doctrine that applies in that situation is repudiation. The wrongdoer`s conduct is either a repudiation of the contract or it is not. In that context, the question of whether the wrongdoer`s conduct amounts to a fundamental breach is irrelevant.

It is also confusing. Two tests cannot work as they will potentially lead to inconsistent results. One test for termination of the contract is sufficient. The repudiation test is well known and has a history of hundreds of years of judicial pronouncements. It is difficult enough to have to advise parties to a contract as to whether there has been a repudiation without having another test riding alongside to create confusion.

It is also duplicative and unnecessary, as the present case demonstrates. The parties argued both tests, although one half-heartedly because it is apparent that both cannot apply. The separate analysis proceeds for no good reason.

The suggestion that a fundamental breach may give rise to a right to terminate a contract appears to have arisen from language used by the Supreme Court of Canada in the Guarantee v. Gordon Capital decision. However, on the relevant point that case was about exclusions clauses, and whether a time limitation clause should be analysed in a fashion similar to exclusion clauses. It was not about whether a fundamental breach gives rise to a right to terminate the contract.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed. at chapter 8, section 8.

R.P.M. Investment Corp. v. Lange, 2017 CarswellAlta 770, 2017 ABQB 305

Building contracts – termination – repudiation – fundamental breach

Thomas G. Heintzman O.C., Q.C., LL.D. (Hon.), FCIArb                       June 12, 2017




Supreme Court Of Canada Grants Leave To Appeal In Bond Notification Case

On March 9, 2017, the Supreme Court of Canada granted leave to appeal from the decision of the Alberta Court of Appeal in Valard Construction Ltd. v. Bird Construction Co., 2016 CarswellAlta 1584, 57 C.L.R. (4th) 171.

This appeal will be of significance in determining the rights of contractors and subcontractors to receive, and the obligation of owners and contractors to give, notice of the existence of a payment bond.

The claim arose from a payment bond taken out by a subcontractor on a project on which Bird Construction was the contractor and Valard Construction was a sub-subcontractor. In the payment bond, Bird Construction was shown as the “obligee” and “trustee”. Valard said that it was not aware of the existence of the bond until after the time for filing a claim under the bond expired. Valard sued Bird for its failure to notify it of the existence of the bond.

The trial judge and the majority of the Alberta Court of Appeal held that Bird was not obliged to give notice to the sub-subcontractors of the existence of a payment bond applicable to the project. In a judgment of 183 paragraphs, the dissenting appellate judge held that because the contractor is designated in the bond as a trustee, the contractor owed a fiduciary duty to the sub-subcontractors which included the obligation to notify them of the existence of the bond.

The payment bond was in a CCDC format and provided, in part, as follows:

The Principal [the subcontractor] and the Surety, hereby jointly and severally agree with the Obligee, as Trustee, [Bird] that every Claimant who has not been paid as provided for under the terms of its contract with the Principal, before the expiration of a period of ninety (90) days after the date on which the last of such Claimant’s work or labour was done or performed or materials were furnished by such Claimant, may as a beneficiary of the trust herein provided for, sue on this Bond, prosecute the suit to final judgment for such sum or sums as may be justly due to such Claimant under the terms of its contract with the Principal and have execution thereon. Provided that the Obligee is not obliged to do or take any act, action or proceeding against the Surety on behalf of the Claimants, or any of them, to enforce the provisions of this Bond. If any act, action or proceeding is taken either in the name of the Obligee or by joining the Obligee as a party to such proceeding, then such act, action or proceeding, shall be taken on the understanding and basis that the Claimants, or any of them, who take such act, action or proceeding shall indemnify and save harmless the Obligee against all costs, charges and expenses or liabilities incurred thereon and any loss or damage resulting to the Obligee by reason thereof. Provided still further that, subject to the foregoing terms and conditions, the Claimants, or any of them may use the name of the Obligee to sue on and enforce the provisions of this Bond. (underlining and square bracketed added)

The majority of the Albert Court of Appeal held that the wording of the bond “is intended to create a limited trust, as is necessary to circumvent the third-party beneficiary rule that would otherwise preclude a non-party entity from claiming any rights under the bond….The bond’s wording is explicit that the respondent obligee/trustee is not obliged to do or take any act, action or proceeding against the surety on behalf of the claimants to enforce the provisions of the bond. And, the bond imposes no positive obligations of any other kind upon the respondent. Without more, the obligations of parties to a labour and material payment bond are established by the wording of the bond.”

The majority noted that the question of whether the Obligee under a payment has a duty to notify the beneficiaries had been answered in the negative by a judgment of an Ontario county court judge 45 years previously:  Dominion Bridge Co. v. Marla Construction Co. [1970] 3 O.R. 125.

The majority also noted that the Alberta’s Builders’ Lien Act “provides the method for a potential claimant — a lienholder — to make a demand for information, and imposes consequences upon those who fail to promptly comply with such a demand.”

In the lengthy judgment, the dissenting judgement reviewed the law of fiduciary duties and pointed to the judicial authorities establishing that one of the duties of a trustee is to give notice to beneficiaries of their rights under the trust. The dissenting judge held that Bird could not have it both ways: “A trustee cannot both assert that the bond features a trust and that the trustee has none of the duties of a trustee. A trust cannot function without a trustee. This is a blatant violation of the equitable principle against approbation and reprobation.”

The appeal to the Supreme Court may involve a number of fascinating questions.

Which result is best for the construction industry: should the Obligee have, or not have, a duty to advise the potential beneficiaries of the payment bond?

Which parties are best suited or able to take responsibility for the default by the bonded contractor or subcontractor?

These questions seem to involve industry and public policy considerations. Should only the parties to this dispute be heard? Should the CCDC – whose payment bond is involved –or contractor associations and surety bond associations, also be heard?

What is the proper role of the courts as opposed to the legislature in dealing with this issue? As the Alberta Court of Appeal noted, section 33(5) of the Alberta Builders’ Lien Act enables subcontractors, once they are lienholders, to apply to court to obtain information from owners, contractors and subcontractors about any “contract, agreement”. But section 33(5) does not refer to payment bonds and section 33(1) of the Alberta Act provides for the subcontractor or sub-subcontractor to obtain a copy of the construction contract, but (unlike the Ontario and Saskatchewan Act) does not contain a right to obtain the details of and a copy of a payment bond from the owner, contractor or subcontractor, and section 33(2) imposes no sanctions for the failure to produce such a bond.

Does this omissions indicate that the Alberta legislature intended that the right to this information would be dealt with at common law, or did it intend that the subcontractor would not have a statutory right to this information but only a right to bring an application to obtain the information? Is the latter approach a practical way for subcontractors to obtain this information in the ordinary course of business?

Interestingly, Chapter 10 of recent study of the Ontario Construction Lien Act (Striking the Balance: Expert Review of Ontario’s Construction Lien Act; April 30, 2016) dealt specifically with surety bonds, and with third party rights under those bonds. The Report states the following:

“A contractor’s obligation to obtain a payment bond is provided for in the underlying contract between the owner and the contractor. As a result, subcontractors may not always be aware that a payment bond was issued with respect to the project. This is addressed in the current section 39 of the Act, which provides that a lien claimant or trust claimant is entitled to request a copy of any payment bond issued in respect of the contract.

The Report makes no recommendation relating to the issue presented by the Valard v. Bird case. Does that indicate the view of the authors or those who made submissions to them that this issue is not one suitable for legislative attention, or that, having regard to the specific rights provided in section 39 of the Ontario Act, the present Ontario statute law need not be altered?

Whatever the Supreme Court decides, it seems that the CCDC will have the final word so far as the future use of this specific payment bond. It can alter the bond to expressly state that the Obligee has, or does not have, the obligation to notify potential beneficiaries of the payment bond. Should it do so?

The trial judgment in this case was reviewed by me in an article dated April 15, 2016.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed. chapter 15

Building Contracts – Payment Bonds – Fiduciary Duties – Notice of Existence of Bond

Thomas G. Heintzman O.C., Q.C., LLD. (Hon.), FCIArb                         May 25, 2017




Recommendations To Amend Ontario’s Construction Lien Act

On April 30, 2016, a Report was delivered to the Ontario Government proposing amendments to the Ontario Construction Lien Act. This report may, in whole or in part, soon be implemented by the Ontario Legislature. For this reason, those engaged in the construction industry or construction litigation in Ontario must immediately become familiar with the recommendations.

There are 100 Recommendations in the report. They can be divided into seven parts:

  1. Amendments to the general provisions relating to the existence, protection and preservation        of liens;
  2. Summary procedures in lien actions;
  3. Construction Trusts;
  4. Prompt Payment;
  5. The introduction of Interim Adjudication in construction projects;
  6. Sureties;
  7. Technical Amendments.

There are 30 recommendations in the report relating to Summary Procedures and Interim Adjudication. Those recommendations concern the dispute resolution mechanisms for construction claims. While those recommendations are important, this article will concentrate on the recommendations relating to the existence and enforcement of lien claims, that is, the recommendations which affect the actual project, short of dispute resolution.

Those involved in the construction projects should be aware of all the important recommendations. They are listed in the Summary in Chapter 13 of the Report. That chapter indicates the page of the report where each individual recommendation is discussed, so the reader can then go back and review the Context, Stakeholder’s Views and the Analysis and detailed Recommendations of the authors of the Report with respect to each Recommendation.

The following are the Recommendations for changes to the Construction Lien Act that I consider to be particularly important or contentious, other than those in the Summary Procedures, Interim Adjudication and some of the Technical Recommendations. I have not included any of the Recommendations that the present provisions of the statute remain unchanged, only those where a change is recommended. The numbers of the Recommendations shown below are the actual numbers of the Recommendations in the Report.

The full Report may be viewed by googling Striking the Balance: Expert Review of Ontario’s Construction Lien Act, or at: https://www.attorneygeneral.jus.gov.on.ca/english/about/pubs/cla_report/


            Improvement and Capital Repairs

1-2.The definition of “improvement” should be amended to refer to “any alteration or addition to the land and any capital repair to the land”.

“Capital repair” includes all repairs intended to extend the normal economic life or to improve the value and productivity of the land, or building, structure or works on the land, but not maintenance work performed in order to prevent the normal deterioration of the land or building, structure or works on the land and to maintain them in a normal functional state.


  1. The definition of “owner” should be amended to provide for multiple owners on public-private partnership projects (“AFP projects”) involving a project manager (“Project Co”) so that Project Co is included as an owner (along with the Crown) and Project Co is responsible for maintaining holdbacks.


  1. The definition of “price” should be amended to include direct out-of-pocket costs of extended duration. However, “price” should exclude damages for delay.

Whether cost arising from delay may be part of a lien claim has been an issue in many cases. This recommendation is that they should not. It may be particularly contentious as it relates, not to clarifying the statute, but to a substantive issue upon which the views of owners and contractors may differ.


  1. Municipal lands should not be subject to a court-ordered sale. Lien claims against a municipality should be “given” by delivery of notice of the lien to the municipality, and not registered.

Preservation, Perfection and Expiry of Liens

  1. The time period for preservation of a lien under section 31 of the Act should be extended to 60 calendar days, commencing as currently stipulated by the Act.
  1. Termination should be added to the list of events that triggers the commencement of the time limit for preserving a lien.
  1. The Act should prescribe a mandatory form of Notice of Termination or Abandonment to be published specifying a date upon which a contract has been abandoned or terminated.

These two provisions may be contentious due to the legal nature of the “termination” of contracts. If the contract contains a termination clause and that clause is activated, there should be no difficulty, but a so-called “termination” may occur due to repudiation by one party. The report appears to proceed on the basis that the repudiation itself gives rise to termination, and that the termination is of the entire contract. However, under contract law the “termination” arising from repudiation is a termination of the obligation of continued performance, and that termination only occurs when the repudiation by one party is accepted by the other party. The factual existence of repudiation and acceptance may well be in dispute. In addition, the contract is not “terminated” in law, and remains in existence for dispute resolution purposes. All of these factors will require careful legislative drafting in the adoption of this recommendation.

  1. The time period for perfection under section 36(2) of the Act should be increased to 90 days from the last day upon which that lien could have been preserved.

Under this recommendation and Recommendation 9, the total time to preserve and perfect a lien would now be 150 days.

Exaggerated Claims

  1. Section 35 of the Act, which imposes penalties for exaggerated claims, should be amended to replace the concept of “grossly inflated” liens with the concept of “wilfully exaggerated” liens, refocussing the threshold at a more sensitive level. As well, the court should be given the discretion to discharge a claim for lien in whole or in part if on a balance of probabilities it is established that the claim is frivolous, vexatious, or an abuse of process.
  1. The court should be allowed to find, where there is wilful exaggeration, that the lien claimant is liable for any damages incurred as a result of the exaggerated claim, including bond premiums, costs, and, where the court considers it just, the lien amount should be reduced by an amount up to the amount of the difference between the wilfully exaggerated amount and the actual amount of the lien claim; provided that a defence of good faith should be available to the lien claimant.


  1. After registration, the common elements in condominium buildings should have a single PIN that is subject to a lien, and the interests of all owners should be subject to this lien.
  1. Notice of lien should be given to the condominium corporation and the unit owners by way of a prescribed form.
  1. Condominium unit owners should be able to post security proportionate to their share of the lien to have the lien vacated.


20. Section 20(2) should be removed from the Act and liens should not be required to be preserved on a lot-by-lot basis.

Landlord and Tenant

  1. For improvements to leasehold properties, lien claims should attach to the interests of the tenant named in the lease and to the interest of the landlord if the landlord funded the improvement through a cash allowance or otherwise required the improvement; provided that the landlord’s liability should be limited to any deficiency in the holdback.
  2. Section 39 of the Act should be amended to allow lien claimants to obtain from landlords, tenants, and secured lenders all relevant information about the lease, the lender’s security, the funding available from the landlord and lender, and the state of accounts.

Holdback and Substantial Performance

  1. Section 2(1) of the Act should be amended to provide that a contract is substantially performed when the improvement or a substantial part thereof is ready for use or is being used for the purposes intended and if it is capable of completion at a cost of no more than 3 percent of the first $1,000,000.00 of the contract price, 2 percent of the next $1,000,000.00 of the contract price, and 1 percent of the balance.
  1. Section 2(3) of the Act should be amended to provide that “a contract shall be deemed to be completed and services or materials shall be deemed to be last supplied to the improvement when the price of completion, correction of a known defect or last supply is not more than the lesser of (a) 1 percent of the contract price; and (b) $5,000”.
  1. The Act should be amended to provide for the mandatory release of holdback, but not the mandatory early release of holdback; that is to say, “may” should be revised to “shall” in sections 26 and 27 of the Act. The owner should be required to publish a notice of non-payment/set-off to interdict the obligation to pay where the owner, in good faith, intends to assert a set-off in relation to the contract.
  1. The Act should be amended to permit partial release of holdback on either a phased or annual basis, if provided for in the construction contract entered into by the parties, subject to a significant monetary and time-based threshold in the case of annual release.
  1. The Act should be amended to allow for the segmentation of holdback for projects involving clearly separable improvements.
  1. There should be no provision for mandatory early release of holdback for design consultants in respect of services supplied up to the commencement of construction; but the Act should permit the designation of a design phase for the purposes of phased release of holdback.
  1. The Act should be amended to allow for deferral agreements to be entered into between owners and contractors provided that such agreements are for the purpose of allowing certification and publication of substantial performance, subject to an appropriate threshold.
  1. The current holdback scheme should be supplemented by allowing the replacement of cash holdback with a Letter of Credit or a demand-worded Holdback Repayment Bond.

Construction Trusts

43. The Act should be amended to require that a trustee must follow specific statutory requirements in relation to trust fund bookkeeping similar to that applied in the New York Lien Law, including the following:

  • If a trustee deposits trust funds they are to be deposited in the trustee’s name;
  • The trustee is not required to keep the funds of separate trusts in separate bank accounts or deposits provided that his books and records of account clearly show the allocation to each trust of the funds deposited in the general account;
  • The trustee must keep separate books for each trust for which it is trustee (and if funds of separate trusts are in the same bank account, the trustee is to keep a record of such account showing the allocation to each trust of deposits and withdrawals); and
  • The books and records of each trust must show specifically articulated particulars with respect to assets receivable, assets payable, trust funds received, trust payments made with trust assets and any transfers made for the purpose of the trust.

Promptness of Payment

47. A prompt payment regime should be legislated in Ontario and it should apply to both the public and private sectors. Prompt payment should be implemented by creating a statutory scheme to be implied into all construction contracts that do not contain equivalent terms.

The introduction of a prompt payment regime may be one of the most contentious Recommendations as the interests of owners and contractors are not necessarily aligned on this issue. In addition, a prompt payment regime is often intended to address a “pay when paid” clause, and such a clause and its effect and enforceability are themselves contentious issues.

48. The prompt payment regime should apply at the level of the owner-general contractor, general contractor-subcontractor, and downwards, and the legislation should provide a mechanism for general contractors to notify subcontractors of non-payment by owners, with reasonable particulars, and to undertake to commence or continue proceedings necessary to enforce payment so as to defer their payment obligations.

  1. The trigger for payment should be the delivery of a proper invoice; provided that certification for payment (if there is certification for payment provided in the contract) must follow submission.
  1. As between:
  • The owner and general contractor a 28 day payment period should be applied, that is triggered by the submission of a proper invoice.
  • The general contractor and subcontractor, a further 7 days from receipt of payment from the owner would be permitted.
  1. Parties should be free to contract in respect of payment terms, but that if they fail to do so, monthly payments should be implied.
  1. Payers should be permitted to deliver a notice of intention to withhold payment within 7 days following receipt of a purported proper invoice and that the notice of intention to withhold must set out the quantum of the amount withheld and adequate particulars as to why that amount is being held back. Undisputed amounts should be paid. Also, the right to withhold should relate only to the contract at issue.
  1. A payer should continue to be able to set off all outstanding debts, claims or damages but that the right of set off not extend to set-offs for debts, claims and damages in relation to other contracts.

The proposed exclusion of set-offs for debts, claims and damages relating to other contracts is a very material change from the present statute.

54. Mandatory non-waiveable interest should be required to be paid on late payments at a rate of the greater of the pre-judgment interest rate in the Court of Justice Act or the contractual rate of interest.

The removal of any discretion not to award interest is a departure from the usual authority that a court has to not award interest.

55.  A right of suspension of further work should arise after an adjudication determination has been rendered and a payer has refused or failed to comply with the adjudicator’s determination.

56. The Act should require disclosure to all subcontractors that they are bidding on a project with a milestone-based payment mechanism.

Surety Bonds

45, 46 and 79. The Act should be amended to require broad form surety bonds to be issued for all public sector projects. The form of such surety bonds should be developed in consultation with the Surety Association of Canada, and once finalized they should become Forms under the Act.

  1. The Act should be amended to require sureties to pay all undisputed amounts within a reasonable time from the receipt of a payment bond claim.
  1. A Regulation to the Act should be promulgated to embody a surety claims handling protocol, and that such surety claims handling protocol be developed in consultation with the Surety Association of Canada.

Technical Amendments

  1. The Act should be clarified to confirm that the following irregularities may be cured so long as no prejudice is caused to other parties.
    • Failure to correctly name the owner and or person to whom materials and services were supplied;
    • Minor errors in the legal description; and
    • Inserting an owner’s name in the wrong part of a statement.

This recommendation would permit the court to relieve against mistakes in the lien claim relating to the name of the owner or lien claimant which under present case law are not correctable under section 6 of the Act.

  1. Separate forms (available electronically and physically) should be implemented: one to release a lien, one to discharge a lien or certificate of action, and one to vacate the registration of a claim for lien or certificate of action.
  1. Modifications should be made to the requirements of section 32(2) of the Act to incorporate the legal description, including PINs and specific municipal address (es); and in the case of a lien to be given (i.e. where the lien does not attach to the land), the name and address of the person(s) to whom a claim for lien must be given.

Notice of Liens

  1. The definition of “written notice of a lien” should be amended to provide further particulars as to service and a form of written notice of lien should be added to the regulations.

This recommendation will clarify the present case law relating to what amounts to the delivery of notice of a lien.

  1. Section 44 should be amended to provide for the posting of security to vacate a written notice of lien. And the withdrawal of a “written notice of lien” should also be in a prescribed form.
  1. Section 39 should be amended to clarify what type of information the person making the request is entitled to and, in particular, what constitutes a “state of accounts” under section 39(1)1.iii, and should include: the value of the work done, the amount paid, the amount held back pursuant to the Act, the balance owed, and leasehold information.
  1. The amount of security that to be posted to vacate a lien under section 44(1) should be amended to include the total of the full amount claimed as owing in the claim for lien and the lesser of 25% or $250,000 of the amount of the lien claim as security for costs.
  1. Letters of Credit with reference to International Commercial Conventions should be accepted as security, provided the Letter of Credit is unconditional, the International Commercial Convention is written into the terms of the credit, and it is accepted by a bank listed under Schedule I of the Bank Act, S.C. 1991, c. 46. Sched. 1 operating in Ontario.

This recommendation should clear up the contentious case law about what security is acceptable under the International Commercial Conventions.


  1. When a mortgagee makes a loan for the purpose of financing both land acquisition and the construction of an improvement, the mortgagee should be required to identify the amount intended for the acquisition of land and the amount intended for the improvement(s) to and/or on the land in mortgage documents.

See Heintzman and Goldsmith on Canadian Building Contracts, (5th ed.), chapter 16

Building contracts –construction and builders liens –amendments to Ontario’s Construction Lien Act

Thomas G. Heintzman O.C., Q.C., LLD (Hon.), FCIArb                         May 1, 2017




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

Contract Limitation Clause Precludes Contractor’s Claim Over Against Designer

The limitation periods which apply to construction claims are difficult to sort out at the best of times. They are even more complicated when the limitation period applies to a claim over for contribution or indemnity.

That situation arises when the owner sues the contractor and the contractor then seeks contribution or indemnity from another party involved in the construction project, say a subcontractor or designer. In this situation there are a number of building and consulting contracts in place and there can be a variety of contractual and statutory provisions that contain limitation provisions. The question may be: which provisions trump which?

In Weinbaum v. Weidberg, the Ontario Divisional Court recently held that the contractual limitation period in the contract between the owner and the consultant prevailed when the contractor sought contribution and indemnity from the designer. The contractual limitation period effectively trumped the statutory limitation period for making claims for contribution and indemnity. Since the contractual limitation period had expired, the statutory period was not applicable.


Mr. and Mrs. Weinbaum entered into a contract with Makow Architects for the design and construction of their home. The contract contained a six-year limitation of liability running from substantial completion of the work, which occurred in late 1994.

In January 2010, the Weinbaums commenced an action for damages against Mr. Weidberg, the construction manager of the project. The Weinbaums alleged that they first discovered evidence of extensive water damage and mold growth in August of 2008. The Weinbaums did not sue the architects.

Then, Mr. Weidberg commenced a third party claim against Makow Architects and its principal, Stan Makow (the architects). The third party claim sought indemnity from the architects on the basis that their conduct caused or contributed to any damages suffered by the Weinbaums. Mr. Weidberg alleged that the architects failed to carry out their duties to the Weinbaums and did not assert an independent or contractual claim against the architects.

Statutory Regime

Section 18 of the Ontario Limitations Act, 2002 states as follows:

18.  (1)  For the purposes of subsection 5 (2) and section 15, in the case of a claim by one alleged wrongdoer against another for contribution and indemnity, the day on which the first alleged wrongdoer was served with the claim in respect of which contribution and indemnity is sought shall be deemed to be the day the act or omission on which that alleged wrongdoer’s claim is based took place. (underlining added)

As can be seen in the first underlined portion, Section 18(1) states that the subsection is “for the purpose of subsection 5(2) and 15.” So one has to understand those latter provisions, as well as section 4.

Under section 4, unless the Act provides otherwise, a proceeding “shall not be commenced after the second anniversary of the day on which the claim is discovered.” So Section 4 establishes the general two-year limitation period that starts on the discovery of the claim, not on the day of the wrongful act.

Section 5(1) then establishes a number of criteria for determining the date when the claim is discovered. Summarizing the subsection, that date is the date when the plaintiff first knew, or ought to have known, that damage has occurred which arose from an act or omission of the defendant for which a civil action was an appropriate remedy.

Section 5(2) then says that a person with a claim “shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.” So the plaintiff has the burden of showing that it first knew or ought to have known of the claim on a later date than when the act or omission took place.

Section 15 then sets an ultimate limitation period. That ultimate limitation period is the “15th anniversary of the day on which the act or omission on which the claim is based took place. “ Thus, even though the normal limitation period is based on the date of discovery, the ultimate limitation period is based on the date of wrongful conduct. That ultimate limitation period over-rides the normal limitation period so that, once the 15 years expires, the claim expires even if not discovered.

Motion Judge’s Decision

The Motion Judge held that section 18 of the Act was intended to alter the previous law of limitations applicable to claims for contribution and indemnity, and that all those claims now have a general two year limitation period running from there date when the person seeking contribution and indemnity is served with the Plaintiff’s claim. Accordingly, the Motion judge held that the third party claim was commenced within that limitation period.

Divisional Court’s Decision

The Divisional Court held that section 18 does not change the previous law with respect to contractual limitation periods. Under that law (as most notably held by the Supreme Court of Canada in Giffels Associates Ltd. v. Eastern Construction Co., [1978] 2 S.C.R. 1346), a claim over for contribution and indemnity cannot be made by a defendant against a third party if that third party is not liable to the plaintiff due to the expiry of a limitation period in the contract between the third party and the plaintiff.

The Divisional Court acknowledged that section 18 does over-rule statutory limitation periods, including sections 4 and 5 of the Limitations Act, 2012 itself and other statutory limitation periods (such as those governing the engineering and other professions). Nevertheless, the Divisional Court held that contractual limitation periods are not affected by section 18. In arriving at this conclusion, the Court referred to a number of decisions of the Ontario Court of Appeal which, in its view, indicated that section 18 did not apply to or over-rule contractual limitation periods. It also expressed the view that the policy of the law is to leave parties to make their own commercial contracts absent a reason to the contrary relating to consumer protection or the like.

Accordingly, the Divisional Court dismissed the contractor’s third party claim over against the architects.


This decision is very important for the construction industry for three reasons.

First as already noted, building projects almost always involve a number of parties, and if something goes wrong then each party that is sued will almost invariably wish to claim over against one or more of the other parties involved in the project, asserting that those other parties are responsible, in whole or in part, for the loss or damage.

Second, building contracts often contain a limitation period that runs from a specific date or occurrence – usually substantial or final completion of the project. Thus, the CCDC contracts have a six-year limitation period running from substantial completion.

Third, damages arising from a construction project may be discovered many years after the project is completed. If the owner has a CCDC-type contract with its contractor, then the owner can’t sue the contractor once that limitation period expires. But under the discovery-based regime in the Ontario Limitations Act, 2002 – and in the limitation statutes of most Canadian provinces –the owner can bring an action against other parties involved in the building project until two years expires after the owner knew or ought to have known of the damage. That discovery may occur many years later. According to the decision in Weinbaum v. Weidberg, those parties are precluded from claiming over against the contractor.

For this reason, any party involved in a building project should be aware of the terms, and in particular the limitation term, of the other contracts under which other parties are providing work or materials to the project. It may seem presumptuous for one party to a construction project to ask to see the terms of all other contracts, and very unlikely that this will occur in practice. But the Divisional Court’s decision makes it advisable to do so.

Moreover, if a party is sued then that party must immediately assert any claims for contribution or indemnity. Any hesitation may result in the passage in the meantime of a limitation period in another contract applicable to the project. In Weinbaum v. Weidberg, the limitation period in the prime contract had long since passed so there was nothing that the contractor could do.

The whole problem arising in Weinbaum v. Weidberg is due to two factors.

First, different limitation periods are expressed to run from different dates: date of discovery, date of a wrongful act, and a specific date (such as substantial completion). Obviously, when there are different limitation periods, then they will expire at different times.

Second, courts have refused to synchronize these dates. In Weinbaum v. Weidberg, the Divisional Court could have synchronized the limitation periods by holding (as the Motion Judge did) that section 18 applied to all claims over for contribution and indemnity, including contractual claims.

The Divisional Court’s policy reason for its decision is open to debate. It held that the parties should enjoy the freedom to contract as they wish, including with respect of limitation periods. That approach may be suitable when one is dealing with parties to the same contract. They may wish to agree to a contractual limitation period for claims between themselves. That approach, however, seems more problematic when dealing with claims for contribution or indemnity. In that situation, the parties have not contracted with each other. They have both entered into contracts with other people to provide services or materials to the project. Thus, in Weinbaum v. Weidberg, the contractor and the architect each contracted with the owner, not with themselves. Is it fair that the terms in the contract between the owner and the architect should bar a claim over by the contractor against the architect, when the contractor is sued by the owner? Is that fair when the owner did not assert its claim against the contractor until limitation period for suing the architect had gone by? Maybe, but it doesn’t seem to have much to do with freedom of contract.

Another reason why the result in Weinbaum v. Weidberg appears unfair is that, generally speaking, the plaintiff can recover its full loss from the defendant even if the loss was partly caused by another party.  When a limitation period in a contract that the plaintiff has made with another party blocks a claim over by the defendant against that other party, perhaps the plaintiff should only be able to recover from the defendant the portion of the damage attributable to the defendant’s conduct.

The construction industry might be advised to consider whether the present regime relating to claims over for contribution or indemnity is a fair one, and to seek amendments to the Limitations Act, 2002 if that regime is considered to be unfair.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 9, part 3.

Weinbaum v. Weidberg, 2017 CarswellOnt 3205, 2017 ONSC 1040

Building Contracts – Limitation Periods – claims for contribution and indemnity

Thomas G. Heintzman O.C., Q.C., LL.D (Hon.), FCIArb                         April 16, 2017



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


Discovery Of Facts Following Mediation Impacts The Limitation Period: Ontario Court Of Appeal

In 625805 Ontario Ltd. v. Silverwood Flooring Inc., the Ontario Court of Appeal has recently held that the discovery of facts following a mediation had the effect of extending the limitation period. This decision has an important impact on the limitation period for all claims, and particularly claims arising from building projects, in which the facts relating to the claim may be gradually disclosed to the claimant.


Henry Smith and his son Carl Smith were home builders who carried on business through the applicant 625805 Ontario Ltd (625). Tamar Royt carried on her business through Silverwood Flooring Inc. (“Silverwood”). Silverwood supplied hardwood flooring to building projects. In 2009, the parties entered into a Joint Venture Agreement (“JVA”) in order to sell and install hardwood flooring to building projects. The JVA provided that Silverwood would continue to engage in its hardwood flooring supply business with customers who were not referred to it by the Smiths. Ms. Royt was responsible for managing the JV and would receive a two percent management fee.

In March 2010, the Smiths secured a customer for the joint venture, being M5V Condominiums Project (the “M5V Project”). Ms. Royt confirmed that all open orders in the system up to and including April 30th 2010 would be shared “as per the agreement as well as M5V of course.” After that, the former partners to the JVA disagreed about their obligations and benefits from the M5V Project.

In December 2010, the Smiths commenced an application against Ms. Royt, 2219970 Ontario Inc., and another company. The application sought an accounting of the amounts owing by Ms. Royt and 2219970 Ontario Inc. to the Applicants under the JVA. Silverwood was not named as a defendant in the application because it was not a party to the JVA and the Smiths claimed they had no knowledge that Silverwood supplied hardwood flooring to the M5V Project.

Ms. Royt swore an affidavit in the application. During a cross-examination on her affidavit in January 2012, Ms. Royt testified that Silverwood, not the joint venture, had supplied the flooring for the M5V Project.  She also testified that the project made a profit, that she or Silverwood had received some of the proceeds from that project, but that it was less than 2 percent. While the Smiths then knew that Silverwood had supplied the flooring for the M5V Project, they did not join Silverwood as a respondent in the application.

In September 2015, the Smiths’ numbered company, 625, issued a statement of claim against Silverwood, Ms. Royt and John Doe seeking a declaration that the defendants have been unjustly enriched at the plaintiff’s expense and an accounting from the defendants as to the amount by which they have been unjustly enriched. After pleadings were delivered, in January 2016 Silverwood and Ms. Royt moved for summary judgment dismissing the action on the basis that the limitation period had expired before the action was commenced.

The motion judge dismissed the action on the basis that by 2012 the plaintiffs knew that Silverwood had made a profit on the M5V Project and had the means to explore the revenues from the M5V project and whether the JV would have made a profit on the project, so that by September 2015 the two year limitation period had expired.

Ontario Court of Appeal’s Decision

The Court of Appeal allowed the appeal. It held that the facts upon which the plaintiffs brought their 2015 action were not known to them until March 2015. The Court of Appeal said, in their pleadings and affidavits, the Smiths allege that:

  1. “in the cross-examination on her affidavit in January 2012, Ms. Royt lied about the profits made on the M5V Project”;
  1. “In or about March of 2015, following an unsuccessful mediationin the Commercial Court action, Royt disclosed to Henry Smith that contrary to her earlier evidence, Silverwood had in fact made at least $200,000 in profit in respect of the sale of flooring to M5V. She also told him that the representation she had made to him in 2009 regarding Silverwood’s overhead expenses was untrue in that it was significantly less than $40,000.00 per month. Royt made these admissions during the course of a meeting, following further unsuccessful settlement discussions, where Henry Smith again requested that the financial records relating to the sale of flooring to M5V be disclosed after Royt’s admissions that she lied during her 2011 testimony.”

The Court of Appeal held that in these circumstances the Smiths had not discovered their loss until March 2015:

  1. Since Ms. Royt had testified that the amount earned on the project was less than her management fee (in 2012), it was reasonable for the Smiths to understand that the JV had suffered no financial loss or damage. As the court said:

“In light of the two percent management fee to which Ms. Royt was entitled before profits could be distributed to the joint venture and Ms. Royt’s express statement that profit from the M5V Project was less than her management fee, the possibility that the Smiths had suffered damage from the M5V Project and that the damage was caused by the respondents was removed from the Smiths’ minds. Accordingly, this is not a case where a party knows that it has suffered a loss but does not know the extent of the loss….”

  1. This was not a case in which the Smiths knew or ought to have known that they or the JV had suffered damage in 2012. The court said:

“It is true that the Smiths could have disbelieved or doubted Ms. Royt’s answers and brought a motion to compel production of financial documentation and/or to add Silverwood as a party to the original application. I do not think this was necessary. Parties are entitled to accept that information testified to under oath is truthful and accurate….In these circumstances, the appellant “discovered” the potential “damage” that grounds its unjust enrichment claim when Ms. Royt told Henry Smith in 2015 that Silverwood made a profit of at least $200,000 on the M5V Project.”


There are two interesting aspects of this decision.

First, the decision demonstrates how the evolving disclosure in civil litigation may extend the limitation period. Clearly, the Ontario Court of Appeal was not inclined to be generous to the defendants in the application of the limitation period, particularly when the plaintiffs alleged that the defendants had lied under oath about important matters relating to the limitation period. Nor, in these circumstances, was the court inclined to be technical about the discovery of damage, or the duty to take steps to explore that issue.

As a result, in building contract disputes, the parties will have to be vigilant about telling the truth in order not to allow the other party to assert that its non-disclosure caused the limitation period to be extended. Equally, parties should always consider whether new information disclosed after the project occurred has caused the extension of the limitation period.

Second, the other interesting aspect of this decision is the court’s reference to information disclosed after a mediation. If the information was disclosed as part of the mediation process, was that information admissible in evidence?

Section 9(1) of the Ontario Commercial Mediation Act, 2010 says that, subject to subsections (2) and (3), the following information is not “discoverable or admissible in evidence in arbitral, judicial or administrative proceedings.” That information includes “2. A document prepared solely for the purposes of the mediation; 3. Views expressed or suggestions made by a party during the mediation concerning a possible settlement of the dispute: 4. Statements or admissions made by a party during the mediation.

None of the exceptions in subsections (2) or (3) appear to apply in the present case. However, one exception which is potentially applicable is section 9(2)(a) which reads: “information referred to in subsection (1) may be admitted in evidence to the extent required, (a) by law.”

In this circumstance, the following questions appear to arise.

First, was the information in this case part of the mediation? How does one determine that issue? Following a mediation, should parties be careful in designating whether or not information is being provided as part of the mediation?

Second, if this information was disclosed during the mediation, could it still be admissible? Does the discoverability principal contained in the Limitations Act, 2002 trump the Commercial Mediation Act, or vice versa? If the plaintiff is entitled to rely on the discoverability principal in the Limitations Act, 2002, is the information obtained during mediation admissible “as required by law”?

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed. Chapter 9, part 3.

625805 Ontario Ltd. v. Silverwood Flooring Inc., 2017 CarswellOnt 1734, 2017 ONCA 125

Building contracts – limitation periods – mediation – discoverability

Thomas G. Heintzman O.C., Q.C., L.L.D. (Hon.), FCIArb                         March 12, 2017



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



Standard Form Contract To Be Given Plain Meaning, Not The Industry Meaning: Supreme Court Of Canada

In its recent decision in Sabean v. Portage La Prairie Mutual Insurance Co., the Supreme Court of Canada has held that words in a standard form contract used by the public should be given their plain and ordinary meaning, and not a different meaning that those words might be given by the industry or trade which drafted the contract.

While this decision related to an insurance contract, it may well apply to standard form building contracts. The question may then arise as to whether building contracts – such as the CCDC contracts – are standard form contracts. If they are, can the words in those contracts have a trade or industry meaning when they are used between participants in the building industry who understand that meaning, and another meaning when they are entered into by a member of the public, such as a homeowner?


The plaintiff recovered a judgment arising from a motor vehicle accident. The judgment exceeded the limits of the tortfeasor’s insurance policy. The plaintiff claimed the shortfall under the policy with his own insurer. Under the standard form excess insurance provision of that policy, there were deductions from the amount payable by the insurer. One of those deductions was for future benefits arising from a “policy of insurance providing disability benefits.” The plaintiff was entitled to receive future Canada Pension Plan (CPP) disability benefits. The insurer asserted that the CPP was a “policy of insurance”. The trial judge held that the CPP benefits were not deductible from the amount payable by the insurer. The Nova Scotia Court of Appeal held that they were. The Supreme Court of Canada re-instated the trial judge’s decision, holding that the CPP benefits were not payable under a “policy of insurance”.

Decision of the Supreme Court of Canada

In arriving at its conclusion, the Supreme Court held that benefits payable by the Canada Pension Plan did not fall within the plain meaning of the words “policy of insurance”. The insurer then submitted that in Gill v. Canadian Pacific Railway, [1973] S.C.R. 654, the Supreme Court of Canada had decided that CPP payments were deductible in calculating monies due under the Families’ Compensation Act of British Columbia. The insurer submitted that the court in the present case should apply the reasoning in the Gill decision. More particularly, however, the insurer submitted that the Supreme Court should recognize that, by reason of the Gill decision, the deductibility of CPP benefits from damage claims had been recognized or assumed in the insurance industry and that therefore the words “policy of insurance” in private insurance policies, like the one in issue in the Sabean case, were meant to include CPP benefits. Accordingly, the insurer submitted that this meaning which had developed in the insurance industry, not the ordinary meaning of the words “policy of insurance, should be applied to those words.

The Supreme Court disagreed. Having found that the ordinary and natural meaning of the words “policy of insurance” did not include CPP benefits, the Supreme Court rejected the submission that an insurance industry or trade meaning could displace the ordinary meaning of those words. It said:

“The insurer submits and the Court of Appeal accepted that the meaning of “policy of insurance” under the Endorsement must be understood in the context of this Court’s decision in Gill. Implicit in the approach urged by the insurer is the suggestion that this Court’s decision in Gill itself supports an alternative reasonable interpretation of the disputed words at the first stage of the Ledcor analysis. As I shall explain, I cannot accept this as a reasonable interpretation of this insurance policy. Gill does not interpret or inform the ordinary words of the Endorsement. Nor would the average person applying for this insurance contemplate the distinct tort and statutory context in Gill in understanding the words of the Endorsement. The insurer relies on its specialized knowledge of the jurisprudence to advance an interpretation that goes beyond the clear words of the policy.” (underlining added)

The Supreme Court arrived at this conclusion for a number of reasons. The purchasers of insurance coverage are not knowledgeable about the insurance case law nor about the drafting of insurance policies:

“It cannot be assumed that the average person who applies to purchase this excess insurance policy would imbue the words in the Endorsement with knowledge of how they were interpreted by the courts for the purposes of provincial insurance legislation and the collateral benefits rule in tort. In this context, the purchaser is not someone with the specialized knowledge of related jurisprudence or of the objectives of the insurance industry. Thus, the history and intention of the insurance industry in drafting the Endorsement following Gill do not assist in the interpretation of this contract.” (underlining added)

In addition, the Gill decision dealt with a statutory, not a contractual, provision. The court in Gill was applying the legislature’s intent, not the intent of parties to a contract as in Sabean. As the Supreme Court said in Sabean:

“…the decision in Gill is confined to a distinct statutory context. When interpreting a statute, the court searches for the intention of the legislature. In interpreting a standard form policy of insurance, the court is concerned with the ordinary meaning of the contract as it would be understood by the average insured.”


This decision follows and has solidly entrenched the recent decision of the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. 2016 SCC 37. Both cases deal with standard form contracts. In Ledcor, the court held that the meaning of the words in a standard form contract cannot be changed by the circumstances surrounding one instance of the use of the contract, because they must be given the same meaning for all users of the contract.   In Sabean, the court has held that the meaning of the words in a standard form contract cannot be changed by industry or trade usage, at least when the contract is entered into by members of the public who are not familiar with the case law and drafting behind that wording. In both decisions, the Supreme Court has strongly endorsed the principle that standard form contracts, and particularly those prepared by a member of an industry for contracting with a member of the public, must be interpreted as written and in according with their ordinary meaning, and must not be altered by extraneous factors, particularly at the instance of and in favour of that industry.

This decision raises important questions for building contracts, such as the CCDC contracts. As I raised in my article of October 10, 2016 about the Ledcor decision, an initial question may be: are the CCDC contracts “standard form contracts”? Since they are not drafted by one particular company and are not issued on a “take it or leave it” basis to customers, but rather developed on a consensual basis by the entire building industry, there is an argument that building contracts like the CCDC contracts are not standard form contracts that fall within the Ledcor and Sabean decisions.

If building contracts do fall within the Sabean decision, what is the effect? If one of the parties to the contract is a member of the public – such as a homeowner, or a business seeking a building for its premises – then the decision in Sabean means that words in the contract may not be given a technical or trade meaning understood by the building industry but not by the general public.

But what if the contract is between the contractor and the subcontractor? Could the same contentious words in the contract be given a technical or trade meaning known to the building industry? And then what happens when there is a main contract with a member of the public and a subcontract between two members of the building industry, and the contentious words appear in both contracts? Could the words in the main contract mean one thing – because they cannot be given an industry meaning – but mean another thing in the subcontract – because the words have a well-known meaning in the building industry? And if the subcontract incorporates the main contract by reference, what happens to the conflicting meaning of the words?

Building contracts often contain a Definitions section to ensure that the parties understand what they mean by particular words. In the CCDC contracts, the Definitions are some two pages in length. The Sabean case is a warning to those drafting “standard form” contracts, including those in the building industry, that they should carefully review their contracts. If those contracts contain any wording that relies on an industry or trade meaning, that meaning should be clearly spelt out in the contract.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 2, parts 3(a), 3(e) and 4(v)

Sabean v. Portage La Prairie Mutual Insurance Co., 2017 CarswellNS 38, 2017 CarswellNS 39, 2017 SCC 7

Interpretation of Contracts – Standard Form Contracts – Trade and Industry meaning –

Thomas G. Heintzman O.C., Q.C., L.L.D. (Hon.), FCIArb                         March 5, 2017



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


Privy Council Defines Extra Work Under A Fixed Price Building Contract

In Mascareignes Sterling Co Ltd v Chang Cheng Esquares Co Ltd (Mauritius), the Privy Council of the United Kingdom recently set out some helpful principles to define the entitlement of a contractor to extra payment under a fixed price contract. The Privy Council held that the power to award extra payments under a fixed price contract is wider than the parties assumed, and upheld the entitlement of the contractor to extra payment.


Mascareignes (MSC) was the owner and Chang Cheung Esquares (CCE) was the contractor under a contract to build a 13 storey office building. An architect was named in the contract but that architect did not take part in the administration of the contract and MSC terminated his appointment. A quantity surveyor was named in the contract. MSC engaged another architect to assist it in relation to technical matters, but that architect was not appointed under the contract and did not carry out the functions of the architect under the contract.

During the performance of the contract the quantity surveyor produced interim valuations of the work which CCE had carried out. MSC paid the amounts due under those valuations. At the completion of the contract works, the quantity surveyor prepared a final account showing the amount due to CCE by MSC. MSC then informed CCE that it had terminated the quantity surveyor. The arbitrator later found the removal of the quantity surveyor unlawful. MSC refused to pay the sum which the quantity surveyor stated was due in the final valuation.

CCE commenced arbitration and claimed the amount certified in the final account. The arbitrator awarded CCE, among other amounts, the amount which the quantity surveyor had certified as due in the final account. MSC appealed to the Mauritius Supreme Court which dismissed the appeal, and MSC then appealed to the Privy Council.

Decision of the Privy Council

The Privy Council dismissed the appeal. Its decision contains a number of elements which are of interest generally to the law of building contracts:

  1. Fixed Price contract not changed into a Measure and Value contract

The contractor originally alleged, and the arbitrator found, that by reasons of the conduct of the parties after the contract was entered into, the contract should be interpreted to be a measure and value contract.

The Privy Council rejected this approach, and indeed the contractor’s counsel accepted that it was wrong. The contract stated that:

“This contract shall be a fixed price contract and no increase whatsoever will be allowed for material or labour … The Contractor must allow in his prices for any possible increases that may affect their tender during the execution of the Works.”

The Privy Council held that there was nothing in the facts that contradicted the clear terms of the contract stating that it was a lump sum contract and that the arbitrator erred in relying on the subsequent conduct of the parties to construe the contract to be a measure and value contract.

  1. Contractor entitled to extra payment

The Privy Council nevertheless affirmed the decision of the arbitrator on the basis that the payments certified by the quantity surveyor were properly due on the basis of extras due to the contractor under a fixed price contract. The Privy Council made the following points:

a. The building as built was radically different than the building which CCE had agreed to build:

“MSC had radically redesigned the building from that which it proposed when the parties entered into the Contract. [The arbitrator] recorded CCE’s evidence that ‘the building has been completely changed from the initial project as per the contract, and this inside and outside, from the bottom to the top, the height, the look, the structure, the finish.’ ”

b.  The certificates issued by the quantity surveyor during and at the end of the project were due to two factors: the        radical changes to the building and the owner’s failure to appoint an architect to supervise the construction:

“What [the quantity surveyor] did in preparing the interim valuations resulted in part from the absence of an architect to operate the process of interim certification under the contract and in part from the changes that MSC was making at the time to both the design of the building and the allocation of work. What [the quantity surveyor] did in creating the final account statement was consistent with the building contract remaining a lump sum contract but being adapted, in accordance with clause 13.5 of the Contract, to the wholesale changes to the building works and the allocation of work.”

c.  The authority to grant extras to a contractor under a fixed price contract was larger than the parties had assumed:

“In the Board’s view there is more scope for flexibility in valuing additional or substituted work in a lump sum contract than the parties have submitted. Work which is not expressly or impliedly included in the work for which the contracted lump sum is payable is extra work. An early example of this in a much less formal building contract which commissioned work set out in a bill of quantities is Kemp v Rose (1858) 65 ER 910; 1 Giff 258, 268-269 per Vice Chancellor Sir John Stuart. In the present case the lump sum was made up of elements set out in the fully priced bills of quantities which the arbitrator held were part of the contract. There was thus a definition of the works which were the subject of the lump sum, from which the existence of additional or substituted work could be identified.” (underlining added)

d.  The Privy Council set forth a step-by step process for determining whether elements from the contract may be used to value the extra work. If some of those steps do not apply, the Privy council then identified when and to what elements the contract rates and pries, or an unjust enrichment analysis, should be applied:

“Under the [contract…..] additional or substituted work carried out within a lump sum contract may be measured and valued by use of the rates and prices set out in the contract bills if three conditions are met. First, the work must be of a similar character to the work set out in the bills; secondly, the work must be executed in similar conditions to those of the work in the bills; and, thirdly, the work must not significantly change the quantity of the work set out in the bills. If either or both of the second and third conditions are not fulfilled, the valuation can be based on the rates and prices on the bills but a fair allowance must be made for differences in conditions or quantity. If the work is not of a similar character to the work set out in the bills (ie the first condition is not fulfilled) the valuer must use fair rates and prices.” (underling added)

e.  Finally, the valuation of the extras in this fashion was not a contradiction to the contract being a fixed price contract:

The use of measurement and value to ascertain the value of additional or substituted work is thus not inconsistent with a lump sum contract. In this case, [the quantity surveyor] treated the contract as a lump sum contract by preserving the preliminaries unchanged, but the sums attributed to each of the other components of the contract were significantly altered. Most of the significant works were measured and valued although some items (site works, professional fees and attendance and profit) were valued at figures which the parties had agreed as appropriate in view of the changes to the building and the allocation of work. While it is not correct to say, as the arbitrator did, that the contract was varied to become a measure and value contract, the bulk of the components of the contract were properly valued by measurement and valued in [the quantity surveyor’s] preparation of the final account statement as a consequence of the changes which MSC made to the building and the allocation of work since the signing of the written contract. Accordingly, in the Board’s view, the arbitrator’s mischaracterisation of the nature of the parties’ contract had no bearing on his decision that CCE was entitled to receive the [amount which the quantity surveyor] stated in his final account statement.(underlining added)


This decision contains a useful checklist of the issues which arise when a project is changed by the owner and the contractor incurs further costs. These events will not, without more, change a fixed price contract into a cost plus contract.

But they may entitle the contractor to extras, provided that the contractor has properly asserted and preserved its rights to extra payments. Unless the contract provides otherwise, the contractor is entitled to extra payment for work which does not fall within the express or implied work for which the lump sum is payable.

The Privy Council stated a process by which the extra work may be valued according to the contract values (if there are such values in the contract), or according to unjust enrichment.

-If the extra work is of similar character, conditions and quantity, the contract values may be used.

-If conditions and quantity are different than, but the character is the same as, contemplated in the contract, then the contract rates and prices may be used, but a fair allowance must be made for differences in conditions or quantity.

-If the character of the extra work is different than the contract work, then unjust enrichment principles must be use.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed. chapter 6, parts 1(b) and 7.

Mascareignes Sterling Co Ltd v Chang Cheng Esquares Co Ltd (Mauritius), [2016] UKPC 21

Building contracts – fixed price contract – cost plus contract – extras

Thomas G. Heintzman O.C., Q.C., FCIArb                                                  January 8, 2017




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



Contractor’s Claim For Extras And Changed Circumstances Held To Be Ineffective Due To Lack Of Particulars

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


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

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