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Silence Not Golden

Posted on September 1, 2001 | Posted in Construction

It may seem like a good idea to wait in the wings to pounce but the courts take a dim view of these tactics. The case of West Shore Constructors Ltd. v. Sandspit Harbour Society, a 2000 decision of the B.C. Court of Appeal, is an example of the court’s attitude in this regard.

Delay

The owner contracted with two generals for two aspects of a project. General #1 delayed general #2 and general #2 notified the owner that it would be advancing a delay claim. The owner promptly notified general #1 that the owner would be deducting any damages it may have to pay to general #2 from monies it otherwise owed to general #1.

General #2 submitted its claim to the owner’s consultant. The consultant reviewed the claim and ultimately agreed that the claim was worth $192,000. The consultant notified the owner and the owner again promptly informed general #1 that the owner was deducting this amount from general #1’s contract.

The owner never, however, gave instructions to issue a change order for the delay and did not reply in any way to the consultant.

General #1 sued for its $192,000.

Authority

The owner claimed that the consultant had the authority to determine that there was a delay but not the authority to determine the quantum. It and general #1 wanted a trial to determine the quantum of the delay claim.

The owner was correct that, at least in the first instance, it was not bound by the consultant’s ruling. Just as a contractor is not bound by a consultant’s ruling, neither is the owner. However, did the owner’s actions, or inaction, change this?

CCDC 2

The parties had entered into CCDC 2 – 1994. Section 2.2.7 allows the consultant to decide claims and disputes. Section 8.1.1 states that if the parties have differences as to the interpretation, application, or administration of the contract not initially resolved by findings of the consultant, then the dispute is subject to the mediation-arbitration provisions of the contract.

The mediation-arbitration provisions set out time limits for parties to complain about the consultant’s decision. No timely complaint; no ability to complain later. The trial judge held that the consultant made a finding, the owner had not invoked the dispute settling mechanism, and the owner was therefore bound by the consultant’s findings. The owner appealed.

No Dispute

The Court of Appeal agreed with the trial judge but felt that the matter had not even approached the stage of a dispute that had to be dealt with in a timely fashion under the dispute resolution provisions. The Court held that, as far as it was concerned, there was no dispute. The owner had implicitly accepted the consultant’s decision and could not subsequently revive the dispute.

The Court held that the owner, by failing to question or even respond to the decision of the consultant and by deducting the consultant’s figure of $192,000 from the contract of general #1, demonstrated that it accepted the consultant’s decision and that, therefore, the consultant had resolved the dispute.

Whipsaw 

We understand the owner’s dilemma. It did not want to agree with general #2 and then have the amount challenged by general #1. Unfortunately, it could not sit back and do nothing. It had to either get the consent of general #1 or immediately inform general #2 that it could not accept the consultant’s findings without the consent of general #1 or a finding of an arbitrator. It could easily have asked the consultant for a similar finding for general #1 and taken both generals to arbitration simultaneously. At that point, it could not lose.

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