It is common for construction contracts to contain provisions outlining the resolution of possible disputes.
As Osler Hoskin & Harcourt LLP partner Paul Ivanoff and associate Bushra Nassab write, these might be straight-forward provisions, such as those contained in the CCDC-2 form of contract.
However, project parties are not restricted to these alone.
“Industry participants employ a wide array of mechanisms to address and resolve claims,” they write.
“Under Ontario’s Limitations Act, 2002, there is a two-year basic limitation period founded on the concept of discoverability. The act also provides that parties to a ‘business agreement’ may vary limitation periods in certain circumstances and in the manner set forth in the act.”
Such business agreements might contain more elaborate resolution systems requiring many levels of review, mapped over various prescribed timelines, they explain.
These are quite justifiable, Edward Lynde, partner with Fasken Martineau DuMoulin LLP, told the Daily Commercial News.
“Given that construction projects are the epitome of risk, a properly formed construction contract should have a reasonable dispute resolution clause that is proportionate to the size, complexity and overall risk associated with the particular project.”
As such, Lynde said these warrant, “heightened consideration and negotiation by the parties prior to agreement and implementation in their governing contract.”
J & P Leveque Bros. Haulage Ltd. was under a $12.9 million contract with the Ontario government through the Ministry of Transportation (MTO) for the removal and replacement of asphalt, grading and drainage improvement. The project was completed. Afterwards, however, the MTO sought a refund of close to $1.8 million paid to Leveque, related to a winter shutdown of the roadwork.
The two parties had an elaborate three-level dispute resolution clause containing some key elements that Lynde described to the Daily Commercial News.
“Pursuant to the terms of the dispute resolution clause contained in the construction contract, neither MTO nor Leveque could resort to litigation unless, (a) the contract review process and/or the review process had run their course, and (b) the litigation was commenced no later than two years after the date of the contract completion.”
However, the Court found the MTO did not act within the time frame outlined in the limitation provision. Leveque had completed the contract on July 9, 2019. That completion date was important and meant two things.
First, the parties would have had to complete the dispute resolution process, and secondly, the MTO would have had to commence their litigation by July 9, 2021. However, the MTO did not resort to litigation and commence its action until November 14, 2022.
As complex as the dispute mechanism might have appeared, the Court said, “There is nothing absurd about how the construction contract was to be performed. Had the parties kept their eye on the 730-day clock stipulated by (the dispute resolution clause) of the construction contract, the contract would have functioned without any problem.”
“The Court held that the parties had entered into a business agreement (as defined under the act), which ‘plainly and clearly excludes and substitutes a limitation period for the limitation period prescribed by the act,’” write Ivanoff and Nassab. “With that being so, the action of MTO was dismissed.”
Vigilance by contract parties and their legal counsel concerning limitation clauses is critical, Lynde said.
“Ill-conceived and poorly drafted dispute resolution clauses obviously can have significant ramifications for the parties.”
Lynde said an appropriately conceptualized and well drafted dispute resolution clause would include some combination of negotiations, either direct or through a third party, with interim or binding determinations.
Even so, “Parties should remain cognizant of their respective rights and obligations agreed upon and memorialized in their contract and ensure compliance with the same,” Lynde said. “It’s fundamental to the process and outcome of any dispute.”
Ivanoff and Nassab write that Leveque vs. the MTO, “is a reminder that courts may enforce contractual limitation clauses if they are unambiguous, clear in language and scope, and exclude the operation of other limitation periods.”
John Bleasby is a freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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