Where a claim arises during the course of a construction project, the party making the claim must provide the other party with timely and proper notice, or risk the claim being dismissed in its entirety.
Claims in the construction context can arise for any number of reasons. These include delays in approvals, access to the site or general delays in progress, unforeseen conditions causing changes in the planned work methods, adverse weather conditions, deficient work and labour shortages among many other reasons.
Many construction contracts contain detailed requirements for submitting a claim, whether by a contractor against an owner or vice versa, including a requirement that notice of the claim be submitted within a certain time period. Details or particulars of the claim may be required to be provided at the outset, or within a subsequent timeframe. Even where there are no notice requirements set out in a contract, a claim by one party for additional time or costs may ultimately be reduced or dismissed if no notice is given and this causes prejudice to the other party, such as their being unable to investigate the matter, consider their position and potentially reduce their costs or mitigate their damages. All parties to a construction contract should ensure that they understand the contractual provisions governing the resolution of disputes relating to a project.
Contractual notice provisions
In 1982, the Supreme Court of Canada in Corpex (1977) Inc v Canada, [1982] 2 SCR 543, considered a case involving a contractor claim for additional costs resulting from substantially different conditions on site. In its decision, the Supreme Court set out that the purpose of a notice provision is to ensure that parties are in a position to consider the claim near in time to its occurrence and then to take mitigating steps to protect their position. As a result, compliance with the requirements of a contractual notice provision will often be interpreted as mandatory.
Courts in Canada continue to follow Corpex in requiring strict compliance with the timing and form requirements concerning notice of claims. Therefore, a consultant on a project, or ultimately a Court, may outright reject a claim if it is not made in accordance with timing requirements.
Whether the form requirements of notice will be strictly enforced will depend on the facts of the case, and particularly on the language of the contract. If the contractual language is clear that claims that do not comply with notice requirements will be barred, a Court will be more likely to strictly enforce the language in the agreement. However, Courts do not always require strict compliance with form requirements for notice of a claim. Rather, if the form of a claim does not strictly conform to the contractual requirements but contains enough information to satisfy the purpose for which notice is required (being to provide the other party enough information to consider the claim and protect its position), the Court may find that the notice was sufficient.
To be clear, an owner's knowledge that the contractor is experiencing difficulties is not the same as having knowledge that the contractor is intending to make a claim for costs or an extension of time in relation to those difficulties. The nature of the information provided by the claiming party in the notice provided is key to determine if sufficient notice of a claim has been given.
Waiver of notice requirements
A common response to the argument that a notice provision was not complied with is that the notice requirements were waived by the conduct of the other party, such as by engaging in negotiations despite not having received "formal" notice of the claim.
Construction industry players should be aware that a waiver of notice by conduct may only be found if the alleged waiving party had full knowledge of the deficiency that might be relied on and demonstrated by its conduct or communicated (whether formally or informally) an unequivocal and conscious intention to abandon the right to rely on it. However, no waiver by conduct will be found where the contract requires that any waiver be in writing or stipulates that conduct cannot be used as evidence of a waiver.
Even if it seems obvious that the other party knows of conditions that could give rise to a claim, or that a party has been incurring increased costs or delays, it is critical that formal notice be given in order to protect the claiming party's rights. Engaging in negotiations over a potential claim does not relieve a party of its obligation to provide formal notice. This is why parties should be mindful of the need to provide formal notice of a potential claim within the contractual timelines, even while the parties may otherwise be engaged in "without prejudice" discussions that could resolve the issue.
Conclusion
Given the potentially severe consequences for not providing adequate notice of a claim, parties to a construction contract should be extremely familiar with the dispute resolution processes set out in the governing contract, and should consider seeking legal advice regarding the timing and format requirements with respect to claims being advanced.
Providing proper notice certainly does not preclude the parties from working together to negotiate a resolution satisfactory to both parties. Giving that notice merely protects the claiming party from having its claim refused in its entirety for failing to provide the required notice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
