The appellant, Riddell Kurczaba Architecture Engineering Interior Design Ltd. (“RKA”), was the successful bidder in a request for proposal process undertaken by the respondent, the University of Calgary (the “University”), to provide architectural services for the construction of a building. RKA and the University subsequently negotiated and entered into a services agreement with respect to that project (the “Agreement”).
RKA was paid through a series of purchase orders during the course of the building’s construction, including six change orders following changes in the scope of the work. Once the building was substantially completed, a billing reconciliation process took place and both RKA and the University were satisfied that amounts invoiced by the RKA matched amounts paid by the University, which totalled $3,969,312.
However, later, RKA took the position that the Agreement had not been properly followed and that the University therefore owed an additional $1,800,000. The University refused to pay this additional amount, and RKA sued.
Lower Court Decision
At trial, RKA argued that its fees under the Agreement were to be based on a percentage of the overall construction costs of the building. The University submitted that the Agreement was a fixed-fee contract, where the parties had agreed that RKA’s fees would be based on the building’s estimated construction costs and any adjustments to compensation would be made by way of approved change orders.
The correct interpretation of the fee provisions of the Agreement would have a significant effect on the amount of compensation ultimately payable to RKA; indeed, the actual cost of the building ($46,564,516) was more than twice the originally estimated amount ($18,750,000).
The trial judge interpreted the provisions of the Agreement, concluding, despite some ambiguity, that it provided for fixed-fee compensation based on the originally contemplated cost of construction with provision for additional compensation through approved change orders. The trial judge also found that the parties had intended that work completed through approved change orders would fall within the ambit of RKA’s basic fees for its services, which were compensable through an adjustment of the fixed-fee provisions of the Agreement.
While the trial judge acknowledged that post-contract conduct is not properly considered to be part of the factual matrix bearing on the intention of the parties at the time a contract is entered into, he noted that such conduct may be considered in resolving ambiguity in the contract. His view was that the consistent and unequivocal language employed in the change orders and agreed to by the parties during the course of the project was consistent with his interpretation of the Agreement.
Finally, the trial judge indicated that even if he had accepted RKA’s position as to the proper interpretation of the Agreement, both equitable estoppel and the expiry of the applicable limitations period would have barred its claim for damages under the Agreement.
RKA’s first ground of appeal was that the trial judge erred in interpreting the Agreement and specifically in finding that its fee was not fixed to a percentage of the actual construction cost. It also submitted estoppel and limitations arguments.
Court of Appeal Decision
The court noted from the outset that the Agreement was not, as submitted by RKA, a standard form contract reviewable by this Court on the correctness standard. Rather, it was a contract originally drafted by the University but negotiated through a series of drafts with RKA.
As a result, the interpretation of the Agreement was a question of mixed fact and law that involved the application of interpretive principles to the words of a written contract, considered in light of the factual matrix, reviewable on a standard of palpable and overriding error.
The court found no reviewable error in the trial judge’s interpretation of the fee provisions of the Agreement. The court stated that the trial judge was thorough in his consideration of the provisions and he had not been persuaded that the parties intended RKA to be compensated based on the actual construction costs of the building. Rather, and notwithstanding what he perceived to be some ambiguity in the Agreement, the trial judge’s view was that the Agreement’s fees for service provisions provided for a fixed-fee subject to additional compensation through approved change orders. The Court of Appeal found this interpretation was not palpably and overridingly in error.
Additionally, the court disagreed with RKA that the trial judge incorrectly considered the parties’ conduct subsequent to entering into the Agreement. It stated:
“The trial judge correctly acknowledged the limited use of post-contract evidence, and he indicated that such evidence will have greater weight if it is consistent with only one of two alternative interpretations that generated the ambiguity […] The trial judge’s view was that the change orders signed by the parties were consistent with, and unequivocal in, treating work done by [RKA] as a component of the [RKA]’s basic fees for services, which supported the [University]’s interpretation of the Agreement. We see no error in this assessment.”
As a result, having found no reviewable error in the trial judge’s interpretation of the Agreement, the court stated that it was not necessary to deal with RKA’s estoppel and limitations arguments and dismissed the appeal.
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