Pair of Ontario Decisions Demonstrate Importance of Adherence to Contractual Notice Requirements

With a pair of recent decisions, Ontario Courts have signalled that a contractor intending to pursue a claim against an owner must take care to adhere to contractual notice provisions, or risk having its claim dismissed entirely, especially in cases of governmental owners. In these recent cases, claims by contractors were dismissed on interlocutory motions for summary judgment, without making it to trial, in circumstances where the Court found that the contractors failed to provide notice as required by the contract.

Furthermore, in a third case, the Divisional Court recently granted leave to appeal the decision of a lower Court refusing to grant summary judgment in similar circumstances, suggesting that we’ll soon hear further on this issue from an appellate Court.

The Cases

1. Tower Restoration v Attorney General of Canada[1]

In Tower Restoration, the contractor, Tower Restoration Ltd. (“Tower“), brought an action against the owner, the Attorney General of Canada (“Canada“), claiming an additional post-completion payment of $1,003,621.82 arising from a contract for the replacement of windows at Millhaven Maximum Security Penitentiary.[2]

Prior to commencing legal proceedings, Tower submitted its claim to Canada for consideration. After approximately 3 months, Canada rejected Tower’s claim.[3] Canada advised Tower that if it disagreed with the rejection of the claim, it could exercise its options under the dispute resolution provisions of the contract,[4] which required Tower to submit a Notice of Dispute to Canada within 15 days of receiving its rejection of the claim.[5] However, Tower took no action until almost two years later, when it wrote to Canada asking for a reconsideration of the claim.[6] Canada did not respond to Tower’s request, and accordingly, Tower commenced legal proceedings.

Canada brought a motion for summary judgment, asking the Court to dismiss Tower’s action for failing to provide a Notice of Dispute in accordance with the provision of the contract. However, Tower argued that through conversations between the parties, Canada’s conduct prior to its rejection of the claim had given Tower the “impression” that it would be “dealt with fairly at the conclusion of the work” with respect to payment.[7] Tower took the position that its case should proceed to trial so it could call further evidence to support its position that Canada, by its conduct, effectively waived strict requirement to the contractual notice provisions.[8]

Notwithstanding Tower’s arguments, the Court sided with Canada, noting that Tower was a sophisticated commercial enterprise engaged in a multi-million-dollar contract with the government, and that Tower knew it would have to comply with the terms of the contract.[9] The Court found that the terms of the contract regarding notice were “crystal clear”, and further noted the policy rationale behind binding notice provisions such as in this case, that the defending party ought to be allowed to consider options in response to a prospective claim and take corrective action.[10] With respect to Tower’s waiver argument, the Court noted the fact that Canada had “never once” paid Tower outside of the strict processes contemplated by the contract, and rejected that Canada had, by any conduct, waived compliance with the applicable notice provisions.[11] Accordingly, the Court granted summary judgment to Canada and dismissed Tower’s action.

2. Elite Construction Inc v Canada[12]

In this case, the contractor, Elite Construction Inc. (“Elite“), brought an action against the owner, Canada, seeking $4,165,772.77 in additional compensation under the contract in relation to delays and extras, in the context of a contract for construction of a 96-cell unit and related infrastructure within Collins Bay Correctional Institution.[13]

The contract contained two applicable notice provisions: one requiring Elite to give Canada notice of its intention to claim for an extra, loss, or damage within 10 days of the alleged cause of same,[14] and another that required Elite to submit a Notice of Dispute to Canada within 15 days of the receipt of any decision or direction of Canada (including a Change Order) which Elite disagreed with.[15] Elite did not provide notice of its claims, or a Notice of Dispute, strictly within either of the applicable notice periods under the contract.[16] In response to Elite’s legal action, Canada moved for summary judgment on the basis that Elite failed to comply with the notice provisions of the contract, and was thereby precluded from pursuing its claim.[17]

Elite argued that it provided notice of its claims in various forms, including Contemplated Change Order Summaries, informal email and letter correspondence, and requests for extension of time.[18] To that end, Elite argued that on a project with “many moving pieces”, and with representatives of both Elite and Canada in constant communications, that a dispute was not “crystallized” until there was a breakdown of communications, and that a 10-day time period in which Elite had to provide notice, running from a particular date as asserted by Canada, was inapplicable.[19]

In the alternative, Elite argued that Canada had waived strict compliance with the notice provisions of the contract by various dilatory conduct, [20] including the “extensive time” Canada took for the approval of certain Change Orders, although Elite acknowledged that the contract did not specify a timeline for the approval of Change Orders. Elite also relied on Canada allegedly permitting it to complete work outside of the terms of the contract in the absence of a formal Change Order, which Elite characterized as an example of Canada waiving strict compliance with the contract.[21]

However, the Court ultimately agreed with Canada with respect to the waiver and notice issues.

With respect to notice, the Court stated:[22]

[Elite] was required to put its best foot forward on this summary judgment motion brought by Canada. Its argument that a deeper dive into the evidence would reveal the elusive [contractual] notice that it purportedly sent must be rejected. The “grumblings of a contractor” are not sufficient to constitute notice[.] The purpose of the notice period benefits both parties but importantly gives the owner the opportunity to determine its options. […] It is not surprising that, if [Elite] was entitled to more compensation, it would have to adhere to the contractual provisions set out in the public-tender contract for this large scale project. Canada was able to demonstrate that there is no issue requiring a trial and the action should be dismissed.”

With respect to waiver, the Court rejected Elite’s arguments and noted that it had “not satisfied its burden of demonstrating that Canada had a full knowledge of some deficiency that might be relied upon by [Elite], an unequivocal and conscious intention to abandon the right to rely on it, and that Canada, by its conduct, communicated this to [Elite]”.[23] The Court also noted a provision of the contract which provided, in any event, that the failure of either party to require performance by the other party of any particular provision was not to affect the right of that party to thereafter enforce that provision.[24]

Accordingly, as in Tower Restoration, summary judgment was granted and Elite’s claim was dismissed on the motion.

Discussion and Implications

The above decisions are a signal from the Courts that it will enforce contractual notice provisions where the circumstances warrant their enforcement. Each case is fact-dependant but applicable notice provisions will not be lightly set aside. Accordingly, in both of these cases, claims were dismissed at the summary judgment stage.

In Tower Restoration, Justice Mandhane explained the policy rationale behind the requirement that notice provisions be strictly adhered to, having particular regard to the use of public funds in the contract at issue in that case:[25]

The Supreme Court of Canada and other appellate courts have explained that, in construction contracts, the purpose of binding notice provisions is to provide the other party with sufficiently detailed information to allow it to consider its options and take corrective action before the contractor pursues a claim […].

These policy rationales are germane to disputes arising from government construction contracts, which involve sophisticated commercial enterprises, a competitive bidding and selection process, use of public funds, contracts of adhesion, and which have precedential value beyond the immediate parties […].

However, in Tower Restoration, the contractor’s failure to provide a Notice of Dispute within the required timeline occurred after the completion of the project, meaning there may not have been corrective action that could have been taken by Canada in response.[26] Furthermore, in Elite Construction, the Court specifically noted the support for the proposition that failure to comply with notice provisions acts as a bar to a contractor’s claim, even in the absence of prejudice to the owner.[27] Taken together, the cases suggest that adherence to notice provisions is required, notwithstanding lack of prejudice to an owner.

These cases also send a strong message with respect to the concept of waiver: in the absence of clear and informed waiver of compliance with the contract provisions and notice requirements, the Court may be hesitant to hold that waiver is established. That said, these cases do not preclude the operation of the doctrine of waiver, depending upon the case-specific circumstances.

For contractors, these cases should serve as a reminder to take the notice provisions in the contract seriously. Oftentimes, when a project has “many moving pieces” and the parties are otherwise in “constant communications”, such as in Elite Construction, contractors can be hesitant to adhere to notice provisions for commercial reasons. However, with this pair of decisions, the Courts have signalled that contractors may be foregoing any claim should they fail to provide proper notice.

Subcontractors should also take note. In many cases, subcontracts expressly incorporate prime contract conditions by reference. In such cases, subcontractors will need to ensure they: (1) carefully review prime contract provisions to be incorporated into the subcontract; and (2) adhere to notice provisions as may be required.

Looking Ahead

Previously, in another action, a summary judgment motion was brought by Canada against H.R. Doornekamp Construction Limited (“Doornekamp“), seeking the dismissal of Doornekamp’s action on similar grounds as in Tower Restoration and Elite Construction – being Doornekamp’s alleged failure to comply with the applicable dispute resolution provisions and to provide the required notice of its claims.[28] However, in that case, Canada’s motion was dismissed, as the motion judge determined that genuine issues for trial remained with respect to Canada’s reliance on the applicable provisions.[29] However, following Tower Restoration and Elite Construction, on June 7, 2021, leave to appeal the above decision was granted to Canada.[30] Accordingly, industry participants can expect appellate-level guidance with respect to this area of law.

[1] 2021 ONSC 3063 (Ont Supt Ct) [“Tower Restoration“].

[2] Ibid at paras 3, 11.

[3] Ibid at paras 11-13.

[4] Ibid at para 13.

[5] Ibid at para 14.

[6] Ibid at paras 14-15.

[7] Ibid at para 20.

[8] Ibid at para 18.

[9] Ibid at para 22.

[10] Ibid at paras 19, 25-26.

[11] Ibid at paras 20-21.

[12] 2021 ONSC 562 (Ont Sup Ct) [“Elite Construction“].

[13] Ibid at paras 3, 5, 9.

[14] Ibid at para 34.

[15] Ibid at paras 39-41, 72-73. The terms of the contract are available here.

[16] Ibid at paras 72-73. Although Elite provided proper notice of certain components of its claim, those components were dismissed on their merits (see e.g. para 108).

[17] Ibid at paras 31-32.

[18] See ibid at para 53.

[19] Ibid at para 51.

[20] Ibid at para 83.

[21] Ibid at paras 81-87.

[22] Ibid at para 122.

[23] Ibid at para 91.

[24] Ibid  at para 90.

[25] Tower Restoration at para 26.

[26] Tower Restoration at paras 10, 24.

[27] Elite Construction at paras 68-69.

[28] H R Doornekamp Construction Ltd v Attorney General of Canada, 2019 ONSC 3101 (Ont Sup Ct).

[29] See ibid at paras 57-59.

[30] H R Doornekamp Construction Ltd v Attorney General of Canada, 2021 ONSC 4096 (Ont Div Ct).

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