Legal Blog

Notice

The concept of notice seems to be continually in issue. Construction contracts, particularly prime contracts with their omnipresent supplementary conditions, have become more and more onerous requiring contractors to give notice of claims. Although the time in which the notice must be given and the degree of detail to be contained in the notice vary from contract to contract, the provisions usually have one thing in common: without the requisite notice, the claim is gone. We first discussed this way back when in 1996 (see July 1996 newsletter) and updated it in our discussion of Technicore Underground Inc. v. City of Toronto (see July 2012 newsletter). Cases come and cases go, but, unfortunately, notice controversies never go away – because contractors are loath to rock the boat and therefore do not give the appropriate notice. One of these controversies was resolved in Newton Mechanical/Electrical Inc. v. NDL Construction Ltd., a 2019 decision of the Manitoba Court of Queen’s Bench.

Contract

A mechanical subcontractor commenced an action against a general contractor for delay entailing extra work under the subcontract. The general counterclaimed for its own delay damages, taking the position that the sub caused the delay. The sub persuaded the judge to deal with the delay claims, of general and sub, by way of a summary trial on one specific issue: was appropriate notice given that complied with the contractual notice provisions? If the judge determined that the general gave appropriate notice, then the counterclaim would continue, on its merits; if the judge determined that the general did not, then the counterclaim would be dismissed. At first glance, this seems to be a reasonable manner in which to deal with the action efficiently, but it ultimately did not turn out that way.

The contract contained the following provisions, which we summarise below:

• A party intending to make a claim must give timely notice in writing of its intent to do so.
• The party making a claim shall submit a detailed account of the amount claimed and the grounds within a reasonable time.
• If a series of events gives rise to a claim, the party making the claim shall give the detailed accounts at reasonable intervals.
• The responding party shall respond to the claim within 10 working days and if the response is not satisfactory, the claim is to be settled by way of the contractual dispute resolution provisions.

These provisions bound both parties and, although the sub commenced the action first, the general was the main claimant.

Dispute

The general’s claim was for $546,000, of which $450,000 related to the sub’s extra labour for which the general was responsible (i.e. room and board for labour that exceeded the stated amount in the contract). The other $96,000 dealt with items such as supervision, cleaning, security, insurance, hydro, fuel, and transportation.

The extra cost for the labour commenced in January 2015. However, the general did not give notice of its intention to claim those extra costs until August 21, 2015 and it gave no details as to the costs involved until early 2016.

The August 21, 2015 email stated “due to (sub’s) lack of progress on the project since November we will be forwarding all costs for delay damages to (sub) that are incurred from the (owner) as well as (general’s) costs due to delays.” The general claimed that it had notified the sub earlier than the August 21, 2015 email, but the judge did not accept those statements as notice, stating “I acknowledge that there were prior indications by (general) that it was unhappy with the progress being made by (sub), but those indications did not amount to the kind of notice of intent which is required by (the notice provisions). Indeed, they might be construed as the kind of grumblings referred to by Locke JJ.A. at para. 78 of Doyle (supra) which he found were insufficient to constitute a claim.”

On January 12, 2016, the general sent an email attaching a spreadsheet and some backup material outlining costs that the general purported to charge to the sub. The email contained the cryptic words “Cost (general) has incurred for discussion”. On February 1, 2016, the general sent a proposed change notice setting out the full amount of its delay claim.

The sub argued that the general lost its right to claim for delay because both the notice of claim and the details of the claim were delivered too late. It contended that the proposed change notice purported to claim for delays going back to September 2013. The general argued that the appropriate notice was given in August 2015 and that the sub was well aware of the general’s dissatisfaction as to the project’s progress and would have known that the general was going to claim adjustments at the end of the job. The general argued that it could not finalise its claim until after substantial completion because only then would the damage be quantifiable.

Jurisprudence

The judge reviewed previous legal cases in which different courts interpreted contractual notice provisions with varying degrees of strictness. He stated that, if an agreement set out a specific notice period, one would expect the court to be more likely to apply the clause strictly – because if the parties chose to contract in a detailed and objective way, then a court would be less likely to interfere with the terms of that contract. However, if the parties, as in this case, chose to use open-ended words such as “timely notice” or “within a reasonable time,” it would “not be surprising to see those concepts being granted latitude as the court attempts to do justice to the case before it.”

The judge referred to a British Columbia Court of Appeal decision and the Ontario Technicore case to hold that the lack of a “failing which” clause did not reduce the impact of a party’s failure to follow the notice provisions in the contract. Accordingly, he then had to determine whether the general had complied with the terms of the contract requiring “timely” notice and provided details of the claim within a “reasonable time.”

Decision

The judge held that the August 21, 2015 email used words that were sufficient to convey an intent to make a claim and, as previously stated, the prior “grumblings” were not. The judge held that the January 12, 2016 email was sufficient to give particulars of the general’s claim. The issue for decision was whether the notice and the particulars were given in time to satisfy the general’s onus under the contract. The judge held that neither of them was given in time.

Although the delay may have started in 2013, the damages for the extra labour hours only commenced in January 2015. A notice given eight months later was not timely; it deprived the sub of the opportunity to streamline its operations (and curtail the room and board costs for which the general was liable) in the face of a pending claim.

Similarly, even if the August notice was timely, the general did not need an additional five months to provide a calculation of the damages. The damages calculation was not given within a reasonable time.

Result

The judge dismissed the general’s claim for extra labour hours, but, because the sub provided insufficient information on which the judge could determine whether the notices were timely for the general’s other claimed delay damages, the judge allowed the general’s counterclaim to continue for them. So much for the time and cost that the summary proceedings were to have saved.

The judge also dismissed the sub’s action, given that it did not submit its claim for damages until May 2016. He noted that the sub’s action “resembles the pot calling the kettle black.”

Image courtesy of Free-Photos.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.