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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