May 31, 2022
When is a Notice Provision Enforceable under a Construction Contract? A Lesson in Contract Interpretation from Ontario’s Divisional Court
In H.R. Doornekamp Construction Ltd. v. Canada (Attorney General) (Department of Public Works and Government Services), 2022 ONSC 2247, the Divisional Court heard an appeal from a judge’s dismissal of a motion for summary judgment brought by the defendant, Public Works Canada (“Canada”).
Canada had awarded a contract to the plaintiff, Doornekamp, to re-face the concrete on a lock in the Trent Severn Waterway. Doornekamp made a claim for additional compensation under the contract, Canada denied the claim and Doornekamp contested that assessment. There was some back and forth and Canada took "a second look”, approving a small portion of the claim. Thereafter, Doornekamp did not dispute the decision. No “Notice of Dispute” was given.
As the Divisional Court described Canada’s position:
“In this case, Canada submits that Doornekamp was bound by the "Dispute Resolution Clause" of the contract and that, as a result, it conceded any right, it might otherwise have had, to sue Canada … In short, upon an issue being raised, the Dispute Resolution Clause requires that Canada make a decision, if the other party, in this case Doornekamp, was unhappy with that determination, it had fifteen days to deliver a Notice of Dispute. … As Canada perceives it, the case is straight forward. It rendered a decision, no Notice of Dispute was delivered and, accordingly, there is no active dispute to be resolved.”
The Court summarized Doornekamp’s position as follows:
“Doornekamp does not disagree with the underlying premise that, pursuant to clause GC 8.3 of the contract, where Canada has made a decision and no Notice of Dispute is delivered, the contractor will lose its rights to pursue the dispute resolution process the contract provides. … Doornekamp points out, and Canada did not disagree, that clause GC 8.3 paragraph 1 includes a precondition to the issuance, by Canada, of a decision. A decision is to be rendered where the "difference" ... "is not settled by consultation and co-operation as envisaged in GC 8.2, 'Consultation and Co-operation'".
It accepts that once a decision is properly made and no notice of dispute follows, the Contactor's rights under clause GC 8.3 are over. However, it asserts that the condition precedent for a decision (the need to consult and co-operate) was not met.”
The Divisional Court ultimately agreed with the Motion Judge, and dismissed the Appeal. It held:
“There is a genuine issue requiring a trial. The issue is whether the obligation to consult and co-operate was satisfied such that the Dispute Resolution Clause (GC 8) in the contract between the parties was properly engaged so that the failure of Doornekamp to deliver a Notice of Dispute extinguished the Plaintiff's right to bring a court action. On the particular facts of this case, it is not possible on a motion for summary judgment to determine whether Doornekamp's rights under the dispute resolution clause have been extinguished. This is the question that requires a trial.”
There are two interesting considerations to be taken from the Divisional Court’s decision in this case. First, in the underlying motion, Doornekamp had argued that a different General Condition (GC6.4.3 - “Price Determination – Variation in Tendered Quantities”) governed, as a “separate code”, such that the Dispute Resolution Clause did not apply. At Divisional Court, however, Doornekamp abandoned that position. This (again) highlights the need to comply with notice provisions under a Contract: if a Notice (or other) requirement is set out as a condition precedent to a claim, the Court will generally enforce the agreement between the parties and deny the claim, absent unconscionability or waiver (both of which can be very difficult to prove). Parties accordingly need to know what the notice requirements and other conditions precedent to claims are, to avoid losing their rights to pursue them.
Second, and more importantly, the decision also highlights the fact that notice provisions (and other condition precedent clauses) will not be interpreted and applied in a vacuum. Rather, they must be interpreted upon a reading of the entire contract, and in all of the circumstances, in an effort to determine the intention of the parties. See what is perhaps the leading case on this point, the Supreme Court of Canada’s decision in Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways), 2010 SCC 4, where (at para. 64) the Court held that the words of one provision must not be read in isolation but, rather, should be considered in harmony with the rest of the contract and in light of its purposes and commercial context.
Here, Canada was (perhaps) quick to assume that the Dispute Resolution Clause applied. However, the Court found that the issue was not that simple, because other clauses in the contract indicated that the obligation to consult and negotiate was, in fact, a condition precedent to the Dispute Resolution Clause being engaged. Canada, having moved for summary judgment on the basis that a condition precedent had not been met, ironically lost its motion (and its appeal) because it had at least arguably not itself met a different condition precedent.
In the end, the lesson from Doornekamp might be that contractual conditions precedent matter (and need to be met). Parties, however, should be careful to read the entire contract, in all of the circumstances, to determine if or the extent to which a contractual condition precedent is actually engaged.
Rob Kennaley & Joseph O'Hearn
Kennaley Construction Law
This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.