A recent Alberta Court of Appeal decision confirmed that where a CCDC contract stipulates that a consultant has authority to determine the rights of the parties, the court will defer to the consultant’s decision.
What Happened?
A facility company engaged the services of a construction company to build a retirement residence in Calgary.
The two companies entered into a contract known as a “CCDC2.” The CCDC, or Canadian Construction Documents Committee, is a national joint committee responsible for the development, production and review of standard Canadian construction contracts. An introductory paragraph in the parties’ contract stated that the CCDC2 was the product of a consensus-building process aimed at balancing the interests of all parties on a construction project and that it reflected recommended industry practices.
Part 2 of the CCDC2 established the role of the “Consultant,” with responsibility for contract administration and payment certification. Among many other things, the contract expressly empowered the Consultant to interpret the contract (except as regards the owner’s financing); to certify work as sufficiently complete for interim or final payment; “to reject work which in the Consultant’s opinion does not conform to the requirements of the Contract Documents”; and to determine deductions for work that is defective or not performed to specifications.
Under the terminology of the contract, the facility company was the Owner and the construction company was the Contractor. The Consultant was an architectural and engineering firm.
At issue was work captured in two invoices that the Contractor submitted to the Owner. The first invoice was submitted before the contract was terminated. The second invoice was submitted much later, after the parties had entered into litigation.
The Owner said that some of the work was not completed to the contractual requirements; that it was either deficient or incomplete. As a result, the Owner withheld payment for the work, in accordance with the Consultant’s determinations.
The Consultant had determined that the Contractor had not performed some of its work to contractual requirements and that the Owner could deduct the value of that work from amounts otherwise owing to the Contractor.
The Contractor filed a lien against the building. The Owner filed an originating application to have the lien discharged, along with notice to the Contractor to prove its lien. By way of a consent order dated 19 March 2015, a security was posted with the court to discharge the lien, and the litigation proceeded between the parties.
Lower Court Decision
The court had to determine the level of deference to be shown to the determinations made by the Consultant under the contract.
The Owner argued that the Consultant’s determinations should be set aside only if they revealed significant legal or factual errors, and that courts should not merely substitute their own views.
The Contractor agreed that deference was owed to decisions made by the Consultant “during the life of the contract,” but submitted that no deference was owed to decisions made after the contract was terminated. It argued that the parties’ intention to be bound by the Consultant ended when the contract was terminated.
The trial judge concluded that deference to the Consultant continued after termination of the contract.
The Contractor appealed the decision.
Issues
The Contractor claimed that the trial judge erred in law when she relied on the terms of the contract in which the parties agreed to defer to the opinion of the Consultant regarding the legitimacy of amounts owing for work performed under the contract.
The Contractor also argued that the trial judge erred in her treatment of work performed under a cash allowance, arguing that it was entitled to recover the cost of the work regardless of deficiencies or other concerns.
Court of Appeal Decision
On the first ground of appeal, the court found that the trial judge had correctly relied on the wording of the contract and the factual matrix within which the parties had been operating. It agreed with the trial judge that, absent demonstrable and significant error or compelling evidence to the contrary, she could defer to the Consultant’s determination to decide what amounts were legitimately owed under the terms of the contract. Additionally, the court found that the contractual documents supported the trial judge’s decision, particularly given the Contractor’s concession that such deference would be appropriate while the contract was extant, stating:
“Surely the mechanism they agreed upon to certify the payment of specific amounts claimed and not to certify others is applicable whether or not the contract has been terminated where the amounts claimed are for work performed under the contract.”
Regarding the second ground of appeal, the court agreed with the Owner that work performed under a cash allowance was subject to the same quality correction and warranty provisions as that performed for a fixed price, stating:
“It would be an absurd result if the [Contractor] could perform or fail to perform work under the contract pursuant to a cash allowance and the [Owner] would be obliged to pay for that work without recourse to challenge either the workmanship or the completion of that work in accordance with the contractual requirements.”
As a result, the appeal was dismissed.
Get Advice
The knowledgeable Calgary construction lawyers and staff at DBH Law understand the complex risks of both multimillion-dollar and smaller construction projects and the expensive disputes that can arise when something goes wrong in all cases. We handle all elements of a construction relationship. We can proactively advise and help draft important documents such as contractor and subcontractor agreements and similar, to make expectations clear and eliminate as much risk as possible. We can also represent you in any litigation or other dispute resolution that may be needed if a dispute arises.
The team of professional and experienced construction lawyers at DBH Law have the experience and technical knowledge to provide you with the legal advice needed in the modern construction industry. We understand the number of moving pieces involved in construction projects and work tirelessly to resolve issues quickly. Contact us online or by phone at 403.252.9937 to discover how we can help you today.