The Saskatchewan Construction Association (Saskatoon Chapter) regularly offers a range of courses covering topical industry issues, trends in technology, core industry competencies and business development skills.
On November 26, 2019, Misty Alexandre and Jared Epp presented “Preparing for Prompt Payment” as the industry readies itself for upcoming changes to legislation.
Good Faith in Contract Law
By Jared D. Epp, Robertson Stromberg LLP
Although no one on a construction project would argue that good faith is not important, what it means to act in good faith can mean different things to different people. The concept of good faith can often be relevant in the context of termination notices. It is not uncommon, where a party’s contract is terminated, for that party to allege, whether formally or informally, that some aspect of the termination was not done “in good faith”. The issue of good faith, in the context of a termination notice, was recently the subject of a decision by the Ontario Court of Appeal in CM Callow Inc. v. Zollinger.
In this decision, a condominium corporation, through its property manager, had two different maintenance contracts with Callow in relation to a number of condominiums. One contract was for summer maintenance work, while the other contract was for winter maintenance services. The summer maintenance contract was in effect between May 2012 and October 2013, while the winter maintenance contract was in effect from November 2012 until April 2014. Significantly, the winter maintenance contract could be terminated, prematurely, on 10 days’ notice without cause.
Although Callow’s work during the summer seemed to be largely satisfactory, the property manager received a number of significant complaints with respect to Callow’s snow removal services. As a result, in early 2013, the condominium management group (“CMG”) decided that it would terminate Callow’s winter maintenance contract.
However, the CMG specifically chose not to inform Callow of its decision to terminate the winter contract in order to ensure that Callow would complete its summer maintenance work. Not only did Callow complete this work, it also performed a number of additional summer maintenance services in “good faith” and free of charge. Callow also took steps during the summer to lease equipment for the upcoming winter season. Throughout this entire time, CMG did not give Callow any indication that it had decided to terminate Callow’s contract, however, as soon as the summer work was finished, CMG served notice of its intention to terminate Callow’s winter maintenance contract.
After being terminated, Callow decided to sue CMG alleging, among other things, that CMG failed to treat them in “good faith” by failing to let Callow know once a decision had been made to terminate Callow’s contract. At trial, Callow succeeded with this argument and was awarded its lost profit, from the income it would have generated from the winter work, less expenses. Callow was also compensated for the funds that it expended to lease winter equipment which it no longer needed.
However, this decision was over-turned by the Court of Appeal. Although the Appeal Court agreed that CMG had acted “dishonourably”, their deception of Callow did not amount to a breach of CMG’s duty to perform its contractual obligations in good faith. In coming to this conclusion, the Court of Appeal stressed the fact that no one, including CMG, has a duty to disclose information “relevant to termination” nor did the lack of forthright communication by CMG to Callow mean that CMG had forfeited its right to terminate the winter maintenance contract in accordance with that contract’s terms. Callow has since sought leave to appeal this case to the Supreme Court of Canada.
At its core, this decision serves to highlight the uncertain nature of good faith in contract law. Although the Court of Appeal did not believe that CMG had done anything “legally wrong”, the initial judge who heard the case came to the opposite conclusion. It also seems to highlight the difference between a deception by omission and a deception by action, two decidedly unclear legal categories. This is something that the Supreme Court of Canada may very well clarify once they make a decision. However, in the interim, it is a good reminder of the potential perils that can accompany a situation where a decision to terminate is made, but the actual implementation of that decision is deliberately delayed to the prejudice of the party performing the work
Misty Alexandre and Jared Epp presented a plenary session at the 39th Annual Conference of the Canadian Healthcare Engineering Society held in Saskatoon September 22-24.
Their presentation outlined the requirements of the recent prompt payment legislation introduced in Saskatchewan in the fall of 2018. This legislation will have major impacts on consultants in the healthcare industry when administrating construction contracts for new or renovated facilities.
Jared Epp’s construction law article called “Moving Forward with Prompt Payment” was published in the summer issue of We Build, the magazine of the Saskatchewan Construction Association.
The article concerns the upcoming changes to the Saskatchewan Builder’s Lien Act.
In the May 2019 issue of Canadian Lawyer Marg Bruineman writes about the changes afoot in construction lien legislation across Canada.
In the article she talks about how the increasingly complicated construction projects have necessitated discussions around prompt payment and adjudication regimes. Industry groups such as subcontractors and trades have been calling for legislative reform as money is slow to “cascade down the construction pyramid” when claims choke the cashflow of a project.
In the article, Jared Epp gives his take on the current situation in Saskatchewan:
Saskatchewan, like Ontario, is conceiving of a very broad adjudication regime as part of this new legislation and it would allow a lot of the interim disputes and disputes before the project is completed to to put in front of someone, probably from someone in industry, just to make some sort of a decision. There are still quite a few disputes in construction projects that wind their way through the courts, but there’s really no need for them to go that way. In a lot of cases, parties simply need someone to make a decision.
Exciting times in the construction industry!
by Misty Alexandre
Robertson Stromberg LLP
Like the onus carried by the proverbial middle child, the Consultant is bound to wear the unbiased hat of fairness as they administer the typical construction contract. Perhaps this is why the Courts have consistently paid such deference to the role when disputes reach the courts. A recent Alberta Court of Queen’s Bench decision has confirmed that tradition and provided a few clues as to why the courts typically take a back seat to the findings of a Consultant under a contract.
In ASC (AB) Facility Inc v. Man-Shield (Alta) Construction (2018 ABQB 130), the primary issue considered by the Court was whether the Court should make its own findings or defer to the findings already made by the Consultant.
Man-Shield was contracted to construct a retirement residence in Calgary for the Owner, ASC (AB) Facility Inc. Page+steele/IBI Group Architects acted as the Consultant under the terms of the CCDC2 Contract. The dispute centred around 2 invoices – the former submitted prior to ManShield’s termination from the project, and the latter submitted quite some time thereafter. Relying upon the Consultant’s review and determinations on the invoiced work, the Owner withheld payment on the basis that some of the invoiced work was either deficient or incomplete.
Man-Shield argued that deference to the Consultant’s findings was only applicable during the life of the contract, and that no deference is owed following termination.
Justice Antonio, following various past precedents, concluded that deference to the Consultant continues after termination of the contract for a number of reasons, notably:
• The Consultant has the best opportunity and expertise to determine the matters at stake, and the benefit of the best evidence;
• The terms of a CCDC2 contract clearly show an intention by the parties “that the Consultant’s decisions will be binding at least absent demonstrable and significant error, legal or factual”;
• The parties, in the context of a stipulated price contract, have “subjected themselves to the expertise of a payment certifier and not to a “nuts and bolts” accounting before court”; and
• Prudent policy considerations require deference to the Consultant’s findings, as “to defy or ignore certifications would “encourage litigation of a very harassing kind, and probably to a great extent””.
While the Court will generally defer to the Consultant on decisions of fact or contractual interpretations, the situation is slightly different for a Consultant’s determination of law, as presumably the Court would be in a position of greater expertise.
The Court confirmed that the Consultant was not held to a standard of perfection. Rather, the Consultant’s decisions are persuasive in the absence of contrary evidence or demonstrable and significant error.
Despite Man-Shield’s arguments on various aspects of the Consultant’s findings, it was ultimately unable to satisfy the onus of proving a “demonstrable or significant error” in those findings. As a secondary argument, Man-Shield attempted to discredit the Consultant by providing evidence that his numbers changed over time. The Consultant explained that such changes resulted from correction of superficial errors, or refinement of estimates, each time resulting in Man-Shield’s favour. Man-Shield’s efforts backfired on this aspect, as the Court reasoned that the Consultant’s openness to reviewing his numbers based on new information “supports an inference that he took his role seriously and performed it with objectivity.”
A Consultant’s decision is subject to challenge under the dispute provisions of a CCDC2 Contract. However, disputing parties should be aware of the general deference paid by the courts to a Consultant’s findings. On matters of fact or contractual interpretation, the burden of overturning a Consultant’s findings is a heavy one.