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Construction Arbitration

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Canada

John Margie and Derrick Dodgson

    Legal system

  1. 1.

    Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

    1. Canada and its provinces and territories are common law jurisdictions with the exception of the Province of Quebec, which is a civil law jurisdiction. The laws of Canada and its provinces and territories excluding Quebec are derived from English law, while the laws of Quebec are largely based on the Napoleonic Code.

      Canada is a federal country with two constitutionally recognised levels of lawmaking authority: the federal government of Canada and the provincial governments. Additionally, municipalities (including cities) derive their lawmaking authority from provincially enacted legislation (see, for example, the Ontario Municipal Act 2001, SO 2001, c 25). Each level of government has legislative bodies that are competent to enact legislation within their jurisdiction.

      New laws of Canada are published in the Canada Gazette and new laws of the provinces are published in provincial gazettes. Generally, all statutes and regulations are available online.

      In Canada, retrospective effect of legislation is permitted only in exceptional cases and only where there is a clear legislative intent to rebut a presumption against retroactivity. Where new legislative provisions affect either vested or substantive rights, retrospectivity has been found to be undesirable – see R v Dineley, 2012 SCC 58; [2012] 3 SCR 272. 

    Contract formation

  2. 2.

    What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

    1. The requirements for a construction contract to be formed are similar to those in other common law jurisdictions. There must be an offer, acceptance and consideration. In addition, as a consequence of the tendering law in Canada, a ‘Contract A’, arises automatically upon the submission of a compliant tender between the contractor and the owner. The principal term of Contract A is that the bid is irrevocable and the corollary term is the obligation that both parties enter into a construction contract, ‘Contract B’, upon the acceptance of the tender – see R (Ont) v Ron Engineering, [1981] 1 SCR 111 and MJB Enterprises Ltd v Defence Construction (1951) Ltd, [1999] 1 SCR 619.

      Generally, a letter of intent is an agreement to agree, which is not recognised as a binding agreement under Canadian contract law.  However, letters of intent are commonly used in the construction industry to signify award of a contract. This permits preliminary works to commence, and the contractor to be compensated for these works, with the formal contract to be executed at a later date.

    Choice of laws, seat, arbitrator and language

  3. 3.

    Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

    1. At the time the parties execute a contract, they are free to choose the governing law of their contract, including the law that will apply to the arbitration agreement, and the seat of the arbitration. In addition, unless addressed in the contract, the parties are also free to choose any arbitral rules, the language of the contract and the arbitration hearing itself. The parties are free to choose anyone to act as arbitrator, subject to any provision in the contract and any statutory requirement of an arbitrator to disclose any matter that may give rise to a reasonable apprehension of bias or circumstances likely to give rise to justifiable doubts as to the arbitrator’s impartiality or independence – see article 12 of the UNCITRAL Model Law on International Commercial Arbitration, as adopted under the Ontario International Arbitration Act, RSO 1990, c I9.

      Under the Ontario International Arbitration Act, an arbitration is not international only because the parties agree that it is. In other words, parties cannot choose to be governed by the International Arbitration Act. In this regard, section 2(3) of the Ontario International Arbitration Act provides that “Despite article 1(3)(c) of the Model Law, an arbitration conducted in Ontario between parties that all have their places of business in Ontario is not international only because the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.”

    Implied terms

  4. 4.

    How might terms be implied into construction contracts? What terms might be implied?

    1. There are three circumstances in which a term may be implied into a construction contract:

      • custom or usage of the trade;
      • as the legal incidents of a particular class or kind of contract; and
      • the presumed intention of the parties where the term is necessary to give business efficacy to a contract – see Canadian Pacific Hotels Ltd v Bank of Montreal, [1987] SCJ No. 29, [1987] 1 SCR 711.

      With respect to custom or usage of the trade, the term must be so notorious, that the parties sought to be bound must have actual or constructive knowledge of the practice in question. The custom or usage must be certain, so notorious and so generally accepted that it may be presumed to form a contract term – see Georgia Construction Co v Pacific Great Eastern Railway Co, [1929] SCJ No. 47, [1929] SCR 630).

      With respect to the legal incidents of a particular class or kind of contract, a party is required to show that the term is necessary, given the nature of the contractual relationship.

      With respect to the presumed intention of the parties, the court focuses on the intention of the actual parties and not the intention of ‘reasonable parties’. Therefore, the implication of the term must have a certain degree of obviousness to it and if there is any evidence of a contrary intention on the part of either party, an implied term will not be found on this basis.

      So, for example, in the tendering context, the obligation on the part of owners to treat all bidders ‘fairly and equally’ was an implied term as it had the necessary obviousness to it; otherwise bidders would not waste their time and money on preparing a bid.

    Certifiers

  5. 5.

    When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

    1. A certifier (architect or engineer) has a duty, when deciding matters at issue between an owner and a contractor, to act impartially, fairly, and with professional competence. – see, for example, Oshawa (City) v Brennan Paving Co, [1955] SCR 76; Sutcliffe v Thackrah, [1974] AG 727 (HL).

      Generally, there are interim and final payment certificates. Interim payment certificates are open to adjustment. However, final payment certificates are generally found to be binding on the parties, absent extraordinary circumstances such as fraud or collusion between the certifier and the owner – see Ram Construction Inc v JBLK Enterprises Inc, [2010] BCJ No. 1866, 94 CLR (3d) 297 (BCSC); Croft Construction Co v Terminal Construction Co, [1959] 20 DLR (2d) 247.

      A contractor may bring proceedings directly against the certifier in tort, where the payment certifier has acted fraudulently, dishonestly, or without independence, as required by its role.

    Competing causes of delay

  6. 6.

    If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

    1. Courts will generally break an overall delay into its component parts and apportion the delay to the parties in accordance with their responsibility. Reference must be made to the contract to determine how the parties may have agreed to treat delay under an extension of time clause.

      In the above case, the contractor should be entitled to an extension. Initially, through the variation process the contractor would obtain an extension for the time of completion. Where the owner has a delay claim, the onus is on the owner to prove there was a delay for which the contractor was responsible. Once proven, the onus shifts to the contractor to show the project would have been delayed for another reason through no fault of the contractor – see East Kootenay Community College v Nixon & Browning, 1985 Carswell BC 1789 (BCSC).

    Disruption

  7. 7.

    How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

    1. Claims for disruption, such as loss of productivity claims, may be successful, particularly where the owner’s breach has repercussions in respect of other aspects of the project.

      The contractor will need to prove the disruption, that it suffered a loss, that the owner is responsible, that the loss is not too remote, and that the contractor attempted to mitigate its damages – see MacKay Construction Ltd v Potts Construction Co, [1995] 38 Sask R 178.

      Where entitlement is proven, courts and tribunals will attempt to quantify damages, even where it is difficult to do so given the evidence available. Courts will typically rely on the opinion evidence of experts in quantifying the loss.

    Acceleration

  8. 8.

    How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

    1. There is no objection in Canadian law to constructive acceleration. Where the owner fails to provide an extension of time that should have been granted to the contractor, the owner will likely be liable for a breach of the contract for failing to provide the extension of time. The contractor will likely recover all costs incurred as a result of the delay, including the costs required to accelerate. The contractor will be required to show that there was a delay for which it is entitled to an extension of time and the costs associated with that delay including the acceleration costs.

      Where an owner acts in bad faith, this may give rise to an independent breach of the contract arising from the owner’s breach of the duty of honest performance. See question 14.

    Force majeure and hardship

  9. 9.

    What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

    1. What constitutes force majeure and the effect of the event of force majeure is usually defined in the contract between the parties. Courts will uphold force majeure clauses in contracts and allow parties to rely on them, so long as the circumstances giving rise to invocation of the clause were not caused by the party’s own action or inaction – see Atlantic Paper Stock Ltd v St Anne-Nackawic Pulp & Paper Co [1976] 1 SCR 580.

      Where a contract does not set out events of force majeure, a party may be relieved from further performance of the contract as a consequence of frustration. Frustration occurs when a situation has arisen for which the parties made no provision in the contract and performance of the contract becomes ‘a thing radically different from that which was undertaken by the contract’. It is not sufficient that performance has merely become more difficult or more costly. Frustration requires the obligations of a party to be altered by a ‘supervening event,’ which was not the fault of either party – see Naylor Group Inc v Ellis-Don Construction Ltd, [2001] 2 SCR 943.

      Frustration discharges the parties from further performance of their obligations under the contract, however contracts typically set out the effect of the event of force majeure, such as work being stopped for the period of time and entitling the contractor to an extension of time without compensation. Examples of events giving rise to frustration may include the expropriation of a piece of land required for the construction, or where planning legislation changes such that it affects the construction.

  10. 10.

    When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

    1. If the requirements of frustration or force majeure are not met, a contractor is generally not entitled to any relief against the construction contract becoming unduly expensive or otherwise more difficult to perform than anticipated. The owner or the owner’s consultant is not required to advise the contractor how to perform the work or what method to choose. The contractor is required to follow the specifications in the contract; however, there is generally no implied warranty by the owner that a contractor will be able to carry out work as specified. The contractor is responsible for the means and methods of construction and the costs incurred to carry out the means and methods. 

    Impossibility

  11. 11.

    When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

    1. The parties assume and allocate risk as specified in the contract between them. Therefore, whether a contractor is entitled to relief as a result of being unable to achieve a particular aspect of the contractual specification will depend on the terms of the contract. Where the contract requires a specific methodology for construction, but also provides that the contractor shall bear full responsibility for the method specified in the contract, then there will be no relief available to the contractor.

    Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  12. 12.

    How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

    1. Whether or not a contract term will be effective will depend entirely on how clearly the provision is drafted. These are matters of contract interpretation and will depend on the clear wording of the provisions.

    Duty to warn

  13. 13.

    When must the contractor warn the employer of an error in a design provided by the employer?

    1. If a design contains obvious errors, a contractor owes a duty to the owner to identify the defects and warn the owner of the danger of proceeding with the construction as-designed – see Brunswick Construction Ltée v Nowlan, [1974] 2 SCR 523 (SCC).

      This too, however, would be a matter of the contract terms and whether there is an obligation on the contractor to identify all errors in the design and advise an owner of them. 

    Good faith

  14. 14.

    Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

    1. In 2015, the Supreme Court of Canada decided the case of Bhasin v Hrynew, [2014] 3 SCR 494. In its decision, the Court created the duty of honest performance of a contract. The Court held that there is an organising principle of good faith that underlies many aspects of contract law and then recognised a new common law duty that applies to all contracts as a manifestation of the general organising principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.

      It is too early to tell what the effect of this new duty of honest performance will be as regards construction law. The Bhasin case dealt with the renewal of a commercial agreement in circumstances where one party was dishonest in addressing the renewal as it was in fact trying to force a lucrative reorganisation upon the other party. In the construction setting, where a party seeks to use the termination clause in the contract as a result of Bhasin, it should do so upon good and proper grounds and ensure that it has complied with the contract terms for termination.

      In Québec, a general duty of good faith is implied into all contracts: Civil Code, SQ 1991, c 64, arts 6, 7, 1375.

      A duty to bargain in good faith has not been recognised to date in Canadian law – see Martel Building Ltd v R, [2000] 2 SCR 860.

    Time bars

  15. 15.

    How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

    1. Irrespective of whether it is a claim for an extension of time or relief from liquidated damages as a result of delay or a claim for monetary sums, where the contract requires notice to be provided, Canadian courts have held that the failure to provide notice in accordance with the contract will be a bar to the claim. In recent years, the notice provisions in contracts have been more rigorously applied. See, for example, Corpex (1977) Inc v Canada, [1982] 2 SCR 643. See also more recently, Technicore Underground Inc v Toronto (City), 2012 ONCA 597. Where notice is required, the contractor is required to comply strictly with the contents of the notice, as may be set out in the contract – see Ross-Clair v Canada (Attorney General), 2016 ONCA 205.

    Suspension

  16. 16.

    What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

    1. Only a breach that goes to the root of the contract, such as abandonment of the contract when partially completed, will allow an owner to cease making payments to the contractor. Such a substantial breach denying the owner of the thing it bargained for will allow repudiation – see Standard Precast Ltd v Dywidag Fab Con Products Ltd, [1989] 56 DLR (4th) 385 (BCCA); Nikolic (c.o.b. High Steel Co) v Kivinen, [1993] OJ No. 2679 (Ont Gen Div); 568694 Ontario Ltd v Davis, [1994] OJ No. 1030 (Ont Gen Div).

      Where the contractor fails to correct deficient work, the owner is justified in temporarily withholding associated payments to the contractor. However, where the owner withholds payment and makes clear its intention not to make future payments as a result of unjustified complaints about the contractor’s performance; this may amount to a repudiation of the contract by the owner, allowing the contractor to terminate.

    Omissions and termination for convenience

  17. 17.

    May the employer exercise an express power to omit work; or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

    1. Often such a provision will be included in a construction contract, allowing an owner to terminate a contractor for convenience or reduce the scope of work in whole or in part. Absent such a provision, the power of an owner to omit work or terminate for convenience will not be implied.

    Termination

  18. 18.

    What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

    1. Construction contracts typically provide for the particular circumstances under which the contract may be terminated and the consequences thereof.

      Unlike in the United Kingdom, a party’s exercise of a contractual right to termination will not necessarily preclude it from recovering expectation or loss of bargain damages from the point of termination forward – see Keneric Tractor Sales Ltd v Langille, [1987] SCJ No. 61; [1987] 2 SCR 440 (SCC).

  19. 19.

    If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

    1. As in other common law jurisdictions, contractual termination clauses will often overlap with breaches sufficient to justify common law termination. Unless the contract provides otherwise, the parties retain their common law rights – see Hudson’s Building and Engineering Contracts, 12th ed (London, UK: Sweet & Maxwell, 2010) at 8-029; Architectural Installation Services Ltd v James Gibbons Windows Ltd(1989) 46 BLR 91.

  20. 20.

    What limits apply to exercising termination rights?

    1. As in other common law jurisdictions, contractual termination clauses will often overlap with breaches sufficient to justify common law termination. Unless the contract provides otherwise, the parties retain their common law rights – Hudson’s Building and Engineering Contracts.

      Termination must not be contrived – see Urbacon Building Groups Corp v Guelph (City), 2014 ONSC 3641. The parties must honestly carry out performance of the contract, including reliance on the termination provisions – see Bhasin v Hrynew, [2014] 3 SCR 494.

    Completion

  21. 21.

    Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

    1. The answer to this issue will vary from province to province. Under Ontario law, every contract or subcontract related to an improvement is deemed to be amended in so far as is necessary to be in conformity with the Construction Lien Act, RSO 1990 c C30, s 5(1). Under s 2(1) of the Construction Lien Act, a contract is substantially performed where the project is being used or capable of being used for the purpose intended and the monetary portion of test for substantial performance has been met. Under s 2(3) of the Construction Lien Act, a contract shall be deemed complete when the price of completion or the cost to correct any defect is the lesser of 1 per cent of the contract price or C$1,000.

  22. 22.

    Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

    1. The process for acceptance will often be outlined in the terms of the contract. Absent agreement to the contrary, payment with knowledge of defects will not constitute acceptance of the work as is – see Strachan v Barton, [1993] BCJ No. 1135, 10 CLR (2d) 142 (BCSC).

      However, it has been held that when deficiencies are apparent from the beginning of the project and an owner does not object, the owner may not be able to claim associated damages upon completion – see Thompson v Vrielink, [1982] AJ No. 474 (Alta QB).

    Liquidated damages and similar pre-agreed sums ('liquidated damages')

  23. 23.

    To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

    1. Liquidated damages must be a genuine pre-estimate of costs associated with delay. The pre-determined amount of damages must be reasonable; otherwise the liquidated damages will be construed as a penalty and unenforceable.  – see HF Clarke Limited v Thermidaire Corp Ltd, [1976] 1 SCR 319. However, in HF Clarke, the majority of the court relied on Dunlop Pneumatic Tyre co Ltd v New Garage and Motor Co Ltd, [1915] AC 79, which was recently addressed by the Supreme Court of the United Kingdom in Cavendish Square Holding BV v Talal El Makdessi, [2015] UKSC 67. It is too soon to say the extent to which the holding in Cavendish will be adopted in Canada.

      The extent to which liquidated damages for delay are treated as an exhaustive remedy for all an owner’s losses as a result of delay will depend on the specific terms of the contract. For example, the contract term may provide that liquidated damages will be applied with respect to delay, but other losses that an owner may suffer will be addressed under other remedies available to an owner. Conversely, the contract terms may provide that liquidated damages are an exclusive remedy for the breach with which they deal and the injured party cannot, therefore, choose to claim general damages instead.

      Where a liquidated damages provision is enforceable, it will cap the owner’s entitlement to delay damages, unless there is fraud, wilful misconduct, recklessness or gross negligence by the contractor.

  24. 24.

    If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

    1. Where an owner claims liquidated damages, irrespective of whether there is a ‘sweep up’ provision, the contractor is entitled to argue that it is improper to assess liquidated damages related to any portion of the delay caused by an owner. 

  25. 25.

    When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

    1. As in other common law jurisdictions, liquidated damages clauses are enforceable if they are a genuine pre-estimate of damages required to compensate the innocent party for delay. Otherwise, if they are merely a financial penalty they will not be enforceable and a court or tribunal may award less – see HF Clarke Limited v Thermidaire Corp Ltd, [1976] 1 SCR 319. However, in HF Clarke, the majority of the court relied on Dunlop Pneumatic Tyre co Ltd v New Garage and Motor Co Ltd, [1915] AC 79, which was recently addressed by the Supreme Court in Cavendish Square Holding BV v Talal El Makdessi, [2015] UKSC 67. It is too soon to say the extent to which the holding in Cavendish will be adopted in Canada.

      Where the amount for liquidated damages is found to be unreasonable, a court will not allow full recovery of the contractually stipulated liquidated damages and instead will limit recovery to the actual loss.

  26. 26.

    When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

    1. Contractual liquidated damages clauses will often, themselves or in association with a limitation of liability clause, act as an exclusive remedy for delay. Generally, a court will not award more than the liquidated damages specified in the contract for delay itself. However, depending on the contract terms, the liquidated damages clause will not itself bar additional claims based on other matters such as defects, workmanship, or additional costs that an owner incurs to complete a project where a contractor abandons the contract.

    Assessing damages and limitations and exclusions of liability

  27. 27.

    How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

    1. Compensation for breach of contract is assessed in terms of expectation damages: putting a party in the position it would have been in if the other party had performed the contract as agreed. The amount assessed may be limited to what could reasonably have been expected by the offending party as the damages caused by its breach. A plaintiff will need to prove that the lost profits claim was an amount with ‘some reasonable probability’ of being obtained and that the defendant should reasonably have expected such a loss. Certainty is not required, and courts may assess damages by reference to the amount of a potential lost profit and the chance of it having been obtained, were it not for the defendant’s breach – see Eastwalsh Homes Ltd v Anatal Developments Ltd, [1993] OJ No. 676, 12 OR (3d) 675 (Ont CA); BPI Resources Ltd v Merrill Lynch Canada Inc, [1989] AJ No. 457, 67 Alta LR (2d) 97 (Alta CA); Health Care Developers Inc v Newfoundland, [1996] NJ No. 149, 29 CLR (2d) 237 (Nfld CA).

  28. 28.

    If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

    1. Generally, an owner is entitled to receive what it contracted for and a contractor is therefore responsible for remedying defects or the cost incurred by the owner in doing so. However, where the cost to rectify a deficiency is disproportionate to the benefit of the remedy, the court will determine whether or not the decision of the owner to correct the deficiency was reasonable in the circumstances. Whether or not the conduct of the owner was reasonable in correcting the deficiency, there is no requirement that the owner exercise perfection in its conduct – see Nu-West Homes Ltd v Thunderbird Petroleums Ltd, [1975] AJ No. 345; 59 DLR (3d) 292 (Alta CA).

      The parties are free to agree to an alternative arrangement, or to amend their agreement during performance of the contract.

  29. 29.

    If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

    1. Obligations under a DNP clause will typically extend to the end of the DNP only. Subsequently discovered defects may still give rise to a common law claim by an owner for defective work, however the owner may not be able to compel the contractor to remedy the defect itself. Instead such an owner will remedy the defect and claim against the contractor for damages.

  30. 30.

    What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

    1. ‘Consequential Loss’ has no generally accepted definition in Canada. A 2010 article in the Journal of the Canadian College of Construction Lawyers concluded that while it is often assumed that ‘consequential damages’ are those damages that are economic in nature and that are beyond the damages associated with physical loss, a careful analysis of case law shows that courts in Canada consider any damages that are reasonably foreseeable as arising from a breach to be direct damages, not consequential damages.

      In Tercon Contractors Ltd v British Columbia (Transportation and Highways), 2010 SCC 4, the Supreme Court of Canada set out the general analytical framework to be applied to the issue of the exclusion of liability clauses:

      • as a matter of contractual interpretation, does the exclusion clause in question apply to the circumstances;
      • if so, is the clause unenforceable because it was unconscionable at the time the contract was entered; and
      • are there any overriding public policies based on which the Court ought to refuse to enforce the otherwise valid exclusion clause?
  31. 31.

    Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

    1. Contractually agreed limits on liability or exclusions of liability are effective and routinely applied by Canadian courts. Whether the agreed limit on or the exclusion of liability will apply in a tort claim is a matter of the contractual term.

      As for the general test for enforceability of such clauses, see question 30.

      Fraud, wilful misconduct, recklessness and gross negligence have all been circumstances that have been used to avoid a limitation of liability or exclusion of liability clause even when the contract is silent as to such behaviour.

    Liens

  32. 32.

    What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

    1. Liens in the common law provinces of Canada are created by provincial statute. Under Ontario law, s 14(1) of the Construction Lien Act creates the lien. A contractor’s lien rights arise the moment the contractor has commenced supply of services and materials to the owner of the project. Under Ontario law, an ‘owner’ means any person, including the Crown, having an interest in a premises, at whose request and upon whose credit or on whose behalf, or with whose privity or consent, or for whose direct benefit, an improvement is made to a premises.

      The interest of an owner in the premises may be equitable or legal. However, where the owner has no interest, then the contractor will not be entitled to a lien upon the premises. See – Graham Mining Ltd v Rapid-Eau Technologies Inc, 7 CLR (3d) 291 (SCJ), affd 155 OAC 70 (Ont Div Ct).

      In Ontario, a lien of a contractor expires unless it is preserved within 45 days of the earlier of completion, abandonment or the publication of a certificate of substantial performance. A lien is preserved by registering a claim for lien in the land registry office where the property is located. The lien need not be registered where it does not attach to the premises such as crown land or highways and municipal roads but instead must be given within the 45-day period for preservation. The 45-day period for preservation of a lien of others (subtrades and suppliers) expires on the earlier of the date on which the certificate of substantial performance of the contract is published, the date on which the subtrade or supplier last supplied services or materials or the date the subcontract is certified complete – see sections 31 and 34, Construction Lien Act.

      Once a lien is preserved, it must be perfected within 45 days from the last day available for preservation. A lien is perfected by issuing a statement of claim and a certificate of action and registering the certificate of action in the land registry office where the property is located. A certificate of action need not be issued and registered where a party has posted security for the lien and vacated the registration of the claim for lien. Once security is posted, the lien ceases to attach to the property and attaches instead to the security posted – see sections 36 and 44, Construction Lien Act.

      Also, a lien will expire within two years from the date of the issuance of the statement of claim unless an action in which the lien may be enforced has been set down for trial or an order has been obtained fixing the date, place and time for the trial – see section 37, Construction Lien Act and Deslaurier v Le Groupe Brigil, 2012 ONSC 3350. 

    Subcontractors

  33. 33.

    How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

    1. Conditional payment provisions are enforced, however, the conditional payment provision must be a true condition precedent to payment, otherwise it is considered by the court to be a matter for the timing of the payment and the court will require that payment be made within a reasonable amount of time – see Timbro Developments Ltd v Grimsby Diesel Motors Inc (1988), 32 CLR 32 (Ont CA) and Arnoldin Construction & Forms Limited v Alta Surety Co (1995), 19 CLR (2d) 1 (NSCA).

  34. 34.

    May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

    1. By definition, there is no privity of contract between an owner and subcontractor. One cannot sue the other for breach of contract. The subcontractor has no contractual right to demand payment from the owner either to itself or to the general contractor. In tort, the Supreme Court of Canada has refused to recognise a duty of care between owner and subcontractor in a tendering context - see Design Services Ltd v Canada, [2008] SCJ No. 22; [2008] 1 SCR 737). Outside a tendering context, a subcontractor may in the rarest of cases have a claim directly against an owner for unjust enrichment or in tort, but, generally speaking, such direct claims are unlikely to be available. Lien legislation assists by requiring owners to retain, out of all payments made under the contract to the contractor, a percentage of the value of the work done at the time the payment is made. This percentage, or holdback, forms a fund out of which the lien claims of the subcontractors and material suppliers may be paid.

  35. 35.

    May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

    1. Contracts between an owner and contractor (prime contracts) will often provide that any subcontracts must incorporate the terms of the prime contract, including the dispute resolution provisions. If this is not the case, or if the requirement is not followed in the subcontract, then a mandatory arbitration agreement will only bind the parties who have agreed to it. In such a situation the contractor will be held to arbitration with the owner, while potentially facing litigation proceedings initiated by the subcontractor. This should not be altered by the seat of the arbitration. 

    Third parties

  36. 36.

    May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

    1. In Canada there are limited exceptions to the doctrine of privity of contract. For a third party to enforce a contract, the contract must clearly demonstrate that the contracting parties intended for it to benefit that third party. This includes agency relationships, relevant in construction when an owner is represented by a consultant. However, there is no general exception allowing for breach of contract claims by a subcontractor against an owner – see Humby Enterprises Ltd v Humby, [2003] NJ No. 114, 225 Nfld & PEIR 268 (NLCA).

  37. 37.

    How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

    1. Where third parties are closely connected to contractual activities and those parties could reasonably foresee that negligence on their part may cause damages, a duty of care will be found to exist. Contractual limitations of liability may be extended to employees or agents of contracting parties if the provisions were intended to extend to them – see London Drugs Ltd v Kuehne & Nagel International Ltd, [1992] 3 SCR 299; Brown v Belleville (City), 2013 ONCA 148.

    Limitation and prescription periods

  38. 38.

    What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

    1. Generally there are limitations periods that apply. For example, in Ontario, the Limitations Act 2002, SO 2002, c 24 sets out a basic two-year limitation period and a 15-year ultimate limitation period. The two-year limitation period runs from the time the party discovered the claim. A claim is discovered on the earlier of:

      (i) the day on which the party with the claim first knew:

          • that an injury, loss or damage occurred;
          • knew that the injury, loss or damage was caused or contributed by an act or omission;
          • knew that the act or omission was that of the person against whom the claim is made and that having regard to the nature of the loss, injury or damage, and
          • a proceeding would be an appropriate means to seek to remedy it; or

      (ii) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (i).

      In this regard, being ‘damaged’ does not require that the party know the precise amount of the loss, merely that a loss is anticipated. In addition, the act or omission on which the claim is based is deemed to have taken place on the day on which it is acknowledged where the person who owes the liquidated sum acknowledges in writing that the liquidated sum is owed.

      With respect to the ultimate 15-year limitation period (subject to specific enumerated exceptions), even where the two-year basic limitation period has not expired, no claim shall be brought after the expiry of the 15-year limitation period. Further, no proceeding shall be commenced in respect of any claim after the 15th anniversary of the day on which the act or omission on which the claim is based took place.

      The parties can agree to toll any limitation period. The tolling agreement must be in writing. The stepped dispute resolution clause found in most construction contracts will not stop the time from running, although a contract clause that requires an action to be commenced at the end of the project may effectively act as a tolling agreement until the end of the project.

      In addition, where arbitration of disputes is mandatory, the two-year limitation period applies and the notice to arbitrate must be delivered within that time - see, for example, Ontario Arbitration Act 1991, SO 1991, c 17, s 52(1). 

    Other key laws

  39. 39.

    What laws apply that cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

    1. All Canadian provinces and territories have builders’ or mechanics’ lien legislation. The majority of those statutes prohibit contracting out of the lien legislation. See, for example, the Ontario Construction Lien Act, RSO 1990 c C30, s 4.

      Ontario and Québec have enacted legislation invalidating mandatory arbitration clauses precluding class actions: Ontario Consumer Protection Act 2002, SO 2002, c 30, Schedule A, ss 7 and 8; Québec Consumer Protection Act, CQLR c P-40.1, s 11.1.

  40. 40.

    What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

    1. Regardless of the governing law, construction projects in Canada will be governed by the builders’ or mechanics’ lien legislation – see question 39. 

    Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  41. 41.

    For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

    1. There is no direct authority on point, however Canadian courts will generally attempt to uphold and enable the dispute resolution process agreed-to by the parties to a construction contract. Under ICC Rules, unless and until a party can convince a court (or if empowered in the contract, an arbitration panel) to reverse or modify a DAB’s decision, the parties are required to comply with the decision. See: Harvey J. Kirsh, “Dispute Review Boards and Adjudication: Two Cutting-Edge ADR Processes in International Construction” (October 2008), Canadian College of Construction Lawyers, online: http://cccl.org/.

       In 2016, the Expert Review of Ontario’s Construction Lien Act (entitled “Striking the Balance”) recommended the implementation of statutory adjudication for disputes on construction projects in Ontario, based on the model operating in the United Kingdom under the Construction Act since 1996. The Review recommended that interim, binding adjudication be available as a right to parties to both public and private sector construction contracts. The Ontario government has committed to enacting the Review’s recommendations, however no draft legislation has been tabled as of February 2017.

    Courts and arbitral tribunals

  42. 42.

    Does your jurisdiction have courts or judges specialising in construction and arbitration?

    1. Generally no. There are some exceptions to this, such as the Lien Masters that sit in Toronto and obtain their jurisdiction from a judgment referring a lien action to the Lien Master for trial.

      There are no courts specialising in arbitration, however, issues related to arbitration in Toronto are generally referred to the Commercial List. 

  43. 43.

    What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

    1. Litigation relating to construction projects will generally be brought in provincial superior courts, such as the Ontario Superior Court of Justice. Similarly when adopting the UNCITRAL Model Law on International Commercial Arbitration, provinces establish their superior court as the ‘competent court’ contemplated in the Model Law.

      Decisions of the superior courts are published and precedent within the jurisdiction at a higher level (such as that of a provincial court of appeal or the Supreme Court of Canada) is binding.

  44. 44.

    In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

    1. Under the doctrine of procedural fairness, parties must have the opportunity to present their case before a court or arbitrator and denial of that opportunity will be grounds for overturning the decision or award. If an arbitrator makes an award based on a theory or argument not addressed by the parties, the decision may be set aside – see Corporacion Transnacional de Inversiones SA de CV v STET International SpA, [1999] OJ No. 3573 (SCJ Comm List) (aff’d [2000] OJ No 3408 (CA); Louis Dreyfus v Holding Tusculum, 2008 QCCS 5903.

  45. 45.

    If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

    1. Before or during an arbitration proceeding, a party may seek from a court an interim measure of protection and a court may grant such measure. See – UNCITRAL Model Law, Article 9.

      In light of an arbitration provision, Canadian courts will stay any litigation upon request by one of the parties. In domestic arbitrations, where the applicant for a stay is not the plaintiff in court litigation, the stay of the court action must be granted, subject to certain limited exceptions and exercises of discretion. Where the applicant for a stay is also the plaintiff in court proceedings, ie, where a party seeks to stay its own proceeding, the stay is discretionary - see Carillion Construction Inc v Imara (Wynford Drive) Ltd, 2015 ONSC 3658 (Master). This distinction flows from the mandatory ‘shall’ in section 7 of the Arbitration Act 1991 where the applicant for a stay is the ‘other party’ to court proceedings and the discretionary ‘may’ in section 106 of the Ontario Courts of Justice Act.

  46. 46.

    If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

    1. No. Foreign applications for interim or provisional relief should not prevent arbitration, absent such an express provision in the contract. 

    Expert witnesses

  47. 47.

    In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

    1. Tribunal and party-appointed experts are used throughout Canada.

      Under the Ontario Rules of Civil Procedure, for example, a party-appointed expert owes its duties to the court. The expert is required to acknowledge in writing that their duty is to provide opinion evidence that is fair, objective and non-partisan, to provide opinion evidence that relates only to matters within the area of expertise of the expert, and to provide such additional assistance to the court as may reasonably be required to determine the matter in issue and that these duties prevail over any obligation that the party-appointed expert may owe to any party that has engaged the expert.

    State entities

  48. 48.

    Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer)?

    1. Federal procurement regulations require open bidding for most procurement with a value of C$25,000 or more, however the limit is C$100,000 in the case of construction contracts. Provincial procurement is also generally open when in excess of an amount ranging from province to province between;C$10,000 and C$100,000. Municipalities are required to adopt their own procurement policies.

      There are additional requirements for making a claim for lien against a public entity.  In Ontario, a lien does not attach to the interest of a public entity in the premises itself, but rather constitutes a charge upon the holdback that is required to be retained by the public entity. Such claims for lien must be given to a prescribed officer of the owner, rather than by registering the claim for lien on title.

      In addition, provincial lien legislation does not apply to federal crown property.

    Settlement offers

  49. 49.

    If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

    1. At the conclusion of the arbitration when costs fall to be determined, there are no restrictions prohibiting a party from putting a settlement offer before the arbitral tribunal. The Ontario Arbitration Act 1991 provides that the fact that an offer to settle has been made shall not be communicated to the arbitral tribunal until it has made a final determination of all aspects of the dispute other than costs.

    Privilege

  50. 50.

    Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

    1. Canada and its provinces recognise ‘without prejudice’ privilege, however the ‘without prejudice’ letter or other communication must meet two criteria: the letter must be written for the purpose of settling a dispute; and the party sending the letter must expressly or by implication intend that the letter be excluded from evidence in the event that there is no settlement. Marking the letter ‘without prejudice’ does not determine the intent of the communication although it is a relevant consideration. Likewise, where the letter is not marked ‘without prejudice’, this is not determinative of the required intent. Any response and subsequent exchanges are also without prejudice. 

  51. 51.

    Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

    1. Generally to qualify for lawyer and client privilege, the communication must be between the client and the lawyer who is acting in a professional capacity as a lawyer, given in the context of obtaining legal advice and also intended to be confidential. Therefore, where the communication between the in-house counsel and the internal client has these elements, the communication may qualify for lawyer and client privilege. Communication with in-house counsel will not be privileged if the in-house counsel is acting in a capacity other than a lawyer.

      Communication between in-house counsel and external counsel retained by the company is protected under lawyer and client privilege.

    Guarantees

  52. 52.

    What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

    1. As in other common law jurisdictions in which a Statute of Frauds continues to apply, guarantees must be made in writing. However, the Statute of Frauds is a matter of contractual form rather than substantive law. It does not render an oral agreement void, but merely makes the contract unenforceable - see KP McGuiness, The Law of Guarantee, second edition (Toronto: Carswell, 1996) at p 255.

      Since a guarantee is simply a form of contract, the general requirements for formation of a valid contract apply. See question 2. In addition, the Statute of Frauds requires that a guarantee (of a note or memorandum of the guarantee) be in writing and signed by the guarantor or his or her agent.

  53. 53.

    Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

    1. Absent a contradictory provision in the guarantee, the guarantor’s liability will be limited to that of the party to the underlying contract

  54. 54.

    Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

    1. A material alteration of the terms of the underlying contract of debt affects a guarantor's continuing liability under a guarantee. At common law and equity, a guarantor will be released from liability on a guarantee in circumstances where the creditor and the principal debtor agree to a material alteration of the terms of the contract of debt without the consent of the guarantor. However, it is open to the parties to make their own arrangements, so a guarantor can contract out of the protection afforded by the common law or equity – see Posocco v Battista, 2016 ONCA 419.

    On-demand bonds

  55. 55.

    If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

    1. While a surety under a surety bond is entitled to the full range of rights and defences to which guarantors are entitled under the law of guarantees, the issuer of an on-demand instrument must perform its obligations notwithstanding allegations of non-performance of the underlying contract, except in the case of fraud – see Standard Trust Co v Mortgage Insurance Co of Canada (1992), 6 BLR (2d) 133.

  56. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

    1. See question 55.

    Further considerations

  57. 57.

    Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

    1. No.

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GAR know-how provides reliable cross-jurisdictional insight to help cement the building blocks of international practice. In this section, select experienced practitioners answer commonly asked questions for key jurisdictions so allowing readers to be better-placed to solve the challenges of their working days.

Questions

    Legal system

  1. 1.

    Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?


  2. Contract formation

  3. 2.

    What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?


  4. Choice of laws, seat, arbitrator and language

  5. 3.

    Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?


  6. Implied terms

  7. 4.

    How might terms be implied into construction contracts? What terms might be implied?


  8. Certifiers

  9. 5.

    When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?


  10. Competing causes of delay

  11. 6.

    If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?


  12. Disruption

  13. 7.

    How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?


  14. Acceleration

  15. 8.

    How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?


  16. Force majeure and hardship

  17. 9.

    What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?


  18. 10.

    When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?


  19. Impossibility

  20. 11.

    When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?


  21. Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  22. 12.

    How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?


  23. Duty to warn

  24. 13.

    When must the contractor warn the employer of an error in a design provided by the employer?


  25. Good faith

  26. 14.

    Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?


  27. Time bars

  28. 15.

    How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?


  29. Suspension

  30. 16.

    What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?


  31. Omissions and termination for convenience

  32. 17.

    May the employer exercise an express power to omit work; or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?


  33. Termination

  34. 18.

    What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?


  35. 19.

    If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?


  36. 20.

    What limits apply to exercising termination rights?


  37. Completion

  38. 21.

    Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?


  39. 22.

    Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?


  40. Liquidated damages and similar pre-agreed sums ('liquidated damages')

  41. 23.

    To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?


  42. 24.

    If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?


  43. 25.

    When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?


  44. 26.

    When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?


  45. Assessing damages and limitations and exclusions of liability

  46. 27.

    How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?


  47. 28.

    If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?


  48. 29.

    If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?


  49. 30.

    What is the effect of a construction contract excluding liability for “indirect or consequential loss”?


  50. 31.

    Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?


  51. Liens

  52. 32.

    What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?


  53. Subcontractors

  54. 33.

    How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?


  55. 34.

    May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?


  56. 35.

    May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?


  57. Third parties

  58. 36.

    May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?


  59. 37.

    How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?


  60. Limitation and prescription periods

  61. 38.

    What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?


  62. Other key laws

  63. 39.

    What laws apply that cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?


  64. 40.

    What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?


  65. Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  66. 41.

    For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?


  67. Courts and arbitral tribunals

  68. 42.

    Does your jurisdiction have courts or judges specialising in construction and arbitration?


  69. 43.

    What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?


  70. 44.

    In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?


  71. 45.

    If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?


  72. 46.

    If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?


  73. Expert witnesses

  74. 47.

    In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?


  75. State entities

  76. 48.

    Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer)?


  77. Settlement offers

  78. 49.

    If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?


  79. Privilege

  80. 50.

    Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?


  81. 51.

    Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?


  82. Guarantees

  83. 52.

    What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?


  84. 53.

    Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?


  85. 54.

    Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?


  86. On-demand bonds

  87. 55.

    If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.


  88. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?


  89. Further considerations

  90. 57.

    Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?