Ebb and flow of courts' enforcement of contract notice requirements

A long line of Canadian court decisions have looked at the issue of whether the contractor’s compliance with contract notice requirements is a condition precedent to payment for extra work. Some decisions have held that the contractor’s failure to abide by the notice requirements deprive it of the right to seek recourse in the courts. Other decisions have held that the owner cannot rely on technical requirements to rebut a claim for extra work.

A recent decision of the Ontario Court of Appeal in Technicore Underground Inc. v. Toronto (City)[1] falls in the former camp. In this case, the Ontario Court of Appeal held that a contractor’s claim was barred due to failure to give notice in accordance with the contract.

Clearway Construction was hired by the City of Toronto for the construction of an underground water main. Clearway subcontracted with Technicore Underground to do the tunneling work. A flood occurred in the tunnel and caused delay. Technicore completed the tunneling work on December 22, 2006.

On February 9, 2007, Technicore claimed $800,000 against Clearway for damages arising from the flood. On March 6, 2007, Clearway claimed $1,270,000 against the City, which included an indemnity for Technicore’s claim plus about $400,000 for its own flood costs. The City denied Clearway’s claim.

Technicore sued the City on July 30, 2008 for flood damages. The City started a third party claim against Clearway, and Clearway sought damages of $1 million in a counterclaim made in March 2010. In August 2010, Clearway claimed over $3 million in additional damages. On July 23, 2011, Clearway increased its damages claim to over $3.4 million.
The contract between the City and Clearway required Clearway to “submit detailed claims as soon as reasonably possible and in any event no later than 30 Days after completion of the work affected by the situation.”

The City brought a motion to dismiss parts of Clearway’s claim in excess of the March 2007 claim, arguing that the notice clause excluded claims filed outside the 30 day period. The motion judge agreed and held that Clearway was limited to its March 2007 claim. The Court of Appeal affirmed the motion judge’s decision.

The Court of Appeal rejected a number of arguments made by Clearway, and noted that:

The notice requirement does not need to include “failing which” language which notifies the contractor that the claim will be denied if made outside the expiry date.
The City was not required to show that it suffered prejudice as a result of the late submission.
The City’s failure to object to the timing of the March 2007 claim, even though it was made outside of the 30 day period, did not constitute a waiver or variation of the contract as there was no evidence that showed that the City communicated an “unequivocal and conscious intention to abandon” its right to rely on the notice provision or waive strict compliance with its terms. Moreover, there was no evidence demonstrating that the parties did not intend to be bound by the notice provision. In fact, the parties acted in compliance with the terms of the contract.

As noted above, this decision held that the contractor’s claim was barred due to failure to comply with the notice provision. In contrast, the BC Supreme Court in Kei-Ron Holdings Ltd. v. Coquihalla Motor Inn Ltd.[2] held that the owner could not rely on a contractual requirement that notices be submitted in writing and was liable for reasonable extra costs. In that case, the BC Supreme Court held that the owner had authorized some of the extra work, was aware of the increase in contract price and had ignored the contractual requirement that changes be made in writing.