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Construction Arbitration

Last verified on Monday 24th June 2019

Canada

Peter Banks, Hugh A Meighen and Patricia Morrison

    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, excluding Quebec, apply the common law, initially developed in England. Quebec applies the civil law, and specifically the Civil Code of Quebec, derived from French law. The Supreme Court of Canada is the highest court in Canada for all provinces.

      The Canadian Constitution divides legislative power and responsibility between the federal government and the provinces. Municipalities (including cities) derive their jurisdiction from provincially enacted legislation.

      New laws of Canada are published in the Canada Gazette and new laws of the provinces are published in provincial gazettes and are generally available online.

      Where legislative provisions affect vested or substantive rights, retrospectivity is undesirable. New legislation that affects substantive rights will be presumed to have only prospective effect unless it is possible to discern a clear legislative intent that it is to apply retrospectively (R v Dineley [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. Construction contracts are subject to the common law requirements for contract formation: offer, acceptance of the offer, and consideration. Generally, a letter of intent is an agreement to agree, which is not a binding agreement under the Canadian common law. However, parties use letters of intent (or letters of award) to signify the awarding of a contract and allow the preliminary works to commence pending the final negotiations.

      Tendering law in Canada recognises that a “contract A’ is formed upon the submission of a compliant bid. The principal term of contract A is “the irrevocability of the bid and the corollary term [is] the obligation on both parties to enter into a construction contract, contract B, upon the acceptance of the tender” (R (Ont) v Ron Engineering [1981] 1 SCR 111).

    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. Parties are free to choose each of the above laws and rules for their arbitrations, subject to certain non-derogable terms in the applicable arbitration law (which typically relate to aspects of fundamental justice).

      The domestic acts and international acts of the provinces include grounds for the set aside or non-enforcement of arbitral awards, which generally relate to public policy and procedural issues, such as the failure to abide by the applicable procedural rules or arbitration agreement.

    Implied terms

  4. 4.

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

    1. Terms may be implied in a contract:

      • based on custom or usage, where the custom is “so notorious and so generally acquiesced in that it may be presumed to form an ingredient of the contract”;
      • as the legal incidents of a particular class or kind of contract; or
      • based on the presumed intention of the parties where the implied term must be necessary “to give business efficacy to a contract or as otherwise meeting the 'officious bystander' test as a term that the parties would say, if questioned, that they had obviously assumed” (Canadian Pacific Hotels Ltd v Bank of Montreal [1987] 1 SCR 711).

    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. When deciding an issue between an owner and contractor, a certifier has a duty to act impartially and fairly (Sutcliffe v Thackrah [1974] AC 727 (HL)). It must act judicially notwithstanding the fact that it derives its payments from one of the parties. Where the certifier does not exercise such power judicially, a party is entitled to payment based on the contract (Oshawa (City) v Brennan Paving Co [1953] OR 578). In the absence of a contract between the certifier and the contractor, a contractor may bring a claim directly against a certifier in tort if the certifier has breached its duty to the parties.

      Interim payment certificates are generally open to adjustment, whereas the court cannot set aside the certificate of substantial completion and the related final payment absent a finding of fraud (Ram Construction Inc v JBLK Enterprises Inc [2010] BCJ No. 1866).

    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. Parties can cite concurrent delay as a potential defence to reduce or defeat a delay claim against them, even without asserting a delay claim themselves. In the scenario described above, depending on the apportionment of the time and responsibility for the claim, the employer could argue that the culpable delay of the contractor overrides any entitlement to recover damages and that the contractor is only permitted an extension of time.

    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. The court has found that there is an implied term in certain construction contracts that the owner will provide the contractor with a sufficient degree of uninterrupted possession to permit it to carry out his work unimpeded and in the way it chooses (ANC Developments Inc v Dilcon Constructors Ltd, 2000 ABCA 223).

      A successful claim for disruption depends on the terms of the contract, but is likely to require proof of the breach, a loss, owner responsibility for the loss, and that the contractor attempted to mitigate its damages.

      Where a claim is proven, courts and tribunals will attempt to quantify damages, even where it is difficult to do so; the court must “do the best it can in the circumstances” (Martin v Goldfarb [1998] O.J. No. 3403).

    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 case law in Canada to suggest that an obligation to pay costs for a direction to accelerate requires an express direction in writing directing the acceleration. However, the concept of constructive acceleration remains underdeveloped in Canadian jurisprudence.

      Where an employer acts in bad faith in refusing to issue an extension of time, there may be a distinct claim 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. Courts will uphold force majeure clauses, including any circumstances or conditions that the parties agree constitute force majeure (whether those circumstances are foreseeable or unforeseeable, and have permanent or temporary effects). A party cannot rely upon force majeure if it has brought upon the condition itself. In determining whether the factual scenario constitutes force majeure, the court will consider whether the issue is “so radical as to strike at the root of the contract” (Atlantic Paper Stock Ltd v St Anne-Nackawic Pulp & Paper Co [1976] 1 SCR 580).

      The doctrine of frustration may also apply in lieu of (or in addition to) a force majeure clause. 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” (Naylor Group Inc v Ellis-Don Construction Ltd [2001] 2 SCR 943).

  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. Parties may agree upon circumstances in which a party may be relieved from obligations under the contract due to increased expense or hardship.

      The doctrine of frustration (discussed in question 9) will not apply where performance has merely become more onerous, more costly or different from what was anticipated (Fishman v Wilderness Ridge at Stewart Creek Inc, 2010 ABCA 345).

    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. Courts will generally give effect to the contractual allocation of risk agreed between the parties. If a contractor cannot achieve a particular aspect of the specifications, but not due to external events that would potentially give rise to a force majeure or frustration defence, it may not be entitled to any relief. Additionally, the owner may be entitled to relief for the contractor’s inability to meet its obligations under the contract.

    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. See question 11.

    Duty to warn

  13. 13.

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

    1. The express obligation to construct a work capable of carrying out the duty or function in question overrides the obligation to comply with the plans or specifications. The contractor will likely be liable for the failure of the work notwithstanding that it carried out the work in accordance with the plans (Hudson’s Building and Engineering Contracts, 8th ed, 1959). This is particularly the case where it had the requisite skill or experience to identify the improper design (Steel Company of Canada Limited v Willand Management Limited [1966] S.C.R. 746).

    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. The Court has recognised an “organising principle of good faith” underlying many aspects of contract law (Bhasin v Hrynew [2014] 3 SCR 494). In Quebec, the Civil Code of Quebec sets out a general duty of good faith in articles 6, 7 and 1375 (Civil Code, SQ 1991, c 64, articles 6, 7, 1375):

      • Article 6: Every person is bound to exercise his civil rights in accordance with the requirements of good faith.
      • Article 7: No right may be exercised with the intent of injuring another or in an excessive and unreasonable manner, and therefore contrary to the requirements of good faith.
      • Article 1375: The parties shall conduct themselves in good faith both at the time the obligation arises and at the time it is performed or extinguished.

      Parties must exercise discretionary powers under contracts in good faith and act honestly in contractual performance. The “organising principle” is not a pretext for scrutinising the motives of contracting parties, nor does it impose a duty of loyalty on parties or require a party to forego advantages flowing from the contract. A duty to bargain in good faith has not been recognised to date in Canadian law (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. Construction contracts typically set out specific requirements for the proper notification of claims arising under specific provisions of the contract dealing with specific matters and issues. Canadian courts have held that the failure to provide notice in accordance with the contract can bar the claim (Corpex (1977) Inc v Canada [1982] 2 SCR 643; Ross-Clair v Canada (Attorney General), 2016 ONCA 205).

      Each province of Canada has legislation setting out a limitation or prescription period. While limitation periods can be lengthened by contract (or their effects can be suspended), it is often not permitted to shorten limitation periods. See question 38.

    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. A contractor’s failure to comply with interim performance obligations may entitle the owner to withhold payment (Standard Precast Ltd v Dywidag Fab Con Products Ltd [1989] 56 DLR (4th) 385 (BCCA)). Under many contracts, where the contractor fails to correct deficient work, the owner may be justified in temporarily withholding associated payments to the contractor. If the owner incurs additional costs due to the deficient work, it may also be entitled to set off those additional costs against payments to the contractor (PCL Constructors Westcoast Inc v Norex Civil Contractors Inc, 2009 BCSC 95).

    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. An owner’s power to omit work or “de-scope” is typically set out in the applicable contract, and is unlikely to be implied (see question 4). However, Canadian courts have held that an owner must exercise its right to terminate in “good faith” (Mohamed v Information Systems Architects Inc 2018 ONCA 428).

    Termination

  18. 18.

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

    1. Parties may agree on the conditions upon which termination is permitted. The practical and financial consequences of the termination will depend on whether the termination was proper. If a party properly terminates a contract based on an agreed condition for termination, there would be no breach or repudiation to justify relief beyond what is set out in the contract.

  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. Unless the contract provides otherwise, the parties retain their common law rights (Hudson’s Building and Engineering Contracts, 12th ed (London, UK: Sweet & Maxwell, 2010)). Accordingly, where a party repudiates a contract (ie, commits a breach that is so serious or fundamental as to go to the root of the contract and substantially deprives the innocent party of what it bargained for), the innocent party may either reaffirm the contract or treat the contract as terminated and seek damages.

  20. 20.

    What limits apply to exercising termination rights?

    1. Canadian courts have held that termination provisions in a contract are subject to the organising principle of “good faith” (Mohamed v Information Systems Architects Inc, 2018 ONCA 428). Parties should take particular care to ensure that termination is justified, and not motivated by another “dominant motive”. In a similar vein, the court has found that contriving notices of events of default to ground a subsequent termination is a violation of the duty of honest performance, thereby rendering invalid the notices of events of default (Urbacon Building Groups Corp v Guelph (City), 2014 ONSC 3641).

    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. Whether the works may be deemed to be complete will vary based on the terms of the contract and the facts and circumstances of the case. It is not a literal test but, rather, completion may be achieved if the work is completed in all essential and material respects and any defects can be easily cured or at a minor expense compared to the total contract price. In every case, it is a matter of degree (Wagg v Boudreau Sheet Metal Works Ltd [1959] NBJ No. 19).

      In addition, the legislative definition of substantial performance will apply, which varies by jurisdiction in Canada.  For example, in Alberta, parties cannot contract out of the lien legislation, which provides for when a contract is substantially complete. In Alberta, 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 (Builders’ Lien Act, RSA 2000, c B-7, section 2(a)).

  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. It is common for construction contracts to state that payment, use or occupancy do not constitute acceptance of deficient work. Where a contract is silent on acceptance, payment by the owner with knowledge of defects will not necessarily constitute acceptance of the work (Strachan v Barton [1993] BCJ No. 1135). However, an owner may lose its right to claim damages for defective work if approval of the work can be inferred from the owner’s conduct and a waiver of the right to claim damages is found (Thompson v Vrielink [1982] AJ No 474 (ABQB)).

    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. The extent to which liquidated damages for delay are treated as an exhaustive remedy will depend on the terms of the contract. For example, where a contract contained words “in addition to and without prejudice to any other remedy available to the vendor”, the court found that liquidated damages were not an exhaustive remedy (Raymer v Stratton Woods Holdings Ltd (1988), 65 OR (2d) 16 (ONCA)).

      Where a liquidated damages clause is enforceable and does not expressly reserve the owner’s right to claim additional damages, the owner’s damages will be capped by the agreed upon liquidated damages. However, a party is not allowed to benefit from a limitation of liability clause when it has engaged in unconscionable conduct such as fraud (Plas-Tex Canada Ltd v Dow Chemical of Canada Ltd, 2004 ABCA 309). In such circumstances, the owner’s claim may not be limited if its proven damages are greater.

  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. Courts have held that where the owner’s conduct makes it impractical or impossible for the contractor to perform the work within the contractual deadline, the owner cannot enforce the LDs clause. The contractor’s delay on other parts of the project is generally treated as irrelevant (Perini Pacific Ltd v Greater Vancouver Sewerage and Drainage District [1966] BCJ No 105 (BCCA); NBC Mechanical Inc v AH Lundberg Equipment Ltd [1988] BCJ No 2376 (SC)). However, if the contract includes an extension of time clause, and it is used properly, the owner may be able to set a new date from which the liquidated damages mechanism can operate.

  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. The law on liquidated damages is evolving. Traditionally, liquidated damages can be enforced if they are not a penalty, but rather a genuine pre-estimate of the loss the owner would suffer if the project were delayed (or for such other category of loss as specified in the contract). More recently, there has been jurisprudence in Ontario to suggest that liquidated damages clauses are enforceable provided they are not unconscionable (Graham v Imperial Parking Canada Corp, 2011 ONSC 991 (Div. Ct.)). If it is determined that the liquidated damages clause is not enforceable, damages in an amount less than the liquidated damages may be awarded, as actual damages would be assessed. 

  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. The liquidated damages clause will stipulate the maximum damages owing for delay or any other breach of contract that is specified as being covered by the liquidated damages clause. If the clause is determined to be enforceable, a court will not award more than the liquidated damages specified in the contract for those heads of claim. However, generally, a liquidated damages clause will not bar claims for other heads of damages, where the contract clearly allows for other remedies.

    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. Compensatory damages are the usual measure of damages for breach of contract, the calculation of which is governed by the expectancy principle. It requires putting the claimant into the position it would have been in if the respondent had performed the contract as agreed (Bank of America Canada v Mutual Trust Co, 2002 SCC 43). The claimant must establish that the respondent’s breach of contract resulted in the damages claimed and that the damages are not too remote – that is, that they represent a type of loss that was reasonably foreseeable to the respondent when the contract was entered into.

      Lost profits are recoverable if they were reasonably foreseeable at the time the contract was agreed to. It is enough that the existence of some lost profits was reasonably expected, but the respondent does not have to have known of the particular lost opportunities which the claimant suffered as a result of the breach of contract (Houweling Nurseries Ltd v Fisons Western Corp [1988] B.C.J. No 306 (BCCA)).

  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. Where a contractor has not met the technical requirements, the owner is generally entitled to damages incurred to rectify the defects and deficiencies (Miller v Advanced Farming Systems Ltd [1969] SCJ No. 52) unless the cost to remediate is found to be unreasonably high relative to the value to be gained by the expenditure (Nu-West Homes Ltd v Thunderbird Petroleums Ltd [1975] AJ No 345 (ABCA)). The parties may, through their contract, agree to a stricter remedy, as Canadian courts generally enforce the bargain made by the parties, if it is clear and unambiguous. 

  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. The defects notification period (also called a warranty period) is addressed through the contract and, generally, the obligation is limited to defects for which notice is given during the warranty period. The owner may still have a claim in relation to defective work discovered following the expiration of the warranty period, subject to the expiration of the applicable limitation period, but the claim would be for damages incurred for the cost of rectification. 

  30. 30.

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

    1. While there is a lack of consistency in the courts regarding the types of damages included in “consequential damages”, it is generally understood that consequential damages are those that are not foreseeable without the disclosure of special circumstances at the time the contract is entered into. 

      In Tercon Contractors Ltd v British Columbia, 2010 SCC 4, the Supreme Court of Canada considered the enforcement of exclusion of liability clauses and set out a three-part test to be applied, including:

      • applying the rules of contractual interpretation to the wording of the clause, does the exclusion clause 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. Exclusion and limitation of liability clauses are effective and generally enforced in Canada, if they are clear and unambiguous and meet test set out in Tercon (see question 30). In Canada, exclusion clauses must be expressed clearly, are narrowly construed by the courts, and are generally construed against the party benefitting from the exemption (Bauer v Bank of Montreal [1980] S.C.J. No. 46). 

      The applicability of such clauses to claims in tort will depend on the contractual language. If the clause contains language which expressly excludes or limits liability for tort, such a clause will generally be enforced. Where there is no express reference to claims in tort, the court will consider whether the language of the exclusion clause is broad enough, in its ordinary meaning, to include claims for negligence.

      Such clauses often include express exceptions to the exclusion or limitation of liability when the damages arise due to fraud, wilful misconduct, recklessness or gross negligence. However, even without such express language, the courts will not allow a party to benefit from an exclusion or limitation of liability clause when it has engaged in unconscionable conduct such as fraud (Plas-Tex Canada Ltd v Dow Chemical of Canada Ltd, 2004 ABCA 309).

    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. Builders’ liens are created by statute and are provincially regulated in Canada, meaning that each province has its own legislation which governs the timing and process for lien claims and the types of claims that are lienable. In Alberta, a person who does or causes to be done any work on or in respect of an improvement, or furnishes any material to be used in or in respect of any improvement is entitled to register a lien, within 45 days from the day the last services or materials are provided or the contract is abandoned. 

      The amount of the lien claim is the value of the work performed that has not been paid. Damages for other claims, such as delay, are not lienable (Krupp Canada Inc v JV Driver Projects Inc, 2014 ABQB 259).

      The lien claimant must take certain steps to perfect the lien claim, which varies in each jurisdiction. For example, in Alberta, a statement of claim and certificate of lis pendens (CLP) must be filed and the CLP must be registered against title within 180 days of the date the lien was registered.

      In Alberta, where the work is performed for a tenant, a lien claim cannot be made against the owner’s fee simple interest in the land unless written notice was given to the fee simple owner in advance of the work being performed and the owner does not given notice within five days that it will not be responsible for payment for the work.

    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 enforceable if they are clear, unambiguous and are found to be a true condition precedent to payment (Timbro Developments v Grimsby Diesel Motors Inc [1988] O.J. 448 (CA)). Courts have made a distinction between clauses which impact the timing of payment versus entitlement to payment. Where a clause is determined to address the timing of the payment, the court will require that payment be made to the subcontractor within a reasonable amount of time (Arnoldin Construction & Forms Ltd v Alta Surety Co (1995), 137 NSR (2d) 281 (NS CA)).

      The contractor cannot rely on such clauses to avoid payment to the subcontractor if non-payment is due to the fault of the contractor (Kor-Ban Inc v Pigott Construction Ltd [1993] OJ No 1414 (Gen. Div.)).

      Where there is a valid paid if paid clause, the contractor is required to make every effort to collect the money owing or negotiate a reasonable settlement, which will allow the subcontractor to be paid. What is reasonable is fact specific (6157734 Canada Inc v Bluelime Enterprises Inc [2016] O.J. No. 1418).

  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. Generally, a subcontractor may claim only against a party with whom it has a contract and cannot sue the owner directly for breach of contract. Although rarely successful, a subcontractor may have a claim against the owner for unjust enrichment. Lien legislation creates a direct claim by the subcontractor against the owner for the lien fund, which is the statutory holdback fund that is created for the benefit of lien claimants. If the parties have agreed to the law of another jurisdiction, the lien legislation for the jurisdiction in which the project is located will still apply if the lien legislation cannot be contracted out of (for example, in Alberta). 

  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. An arbitration agreement only binds the parties to the contract. Prime contracts will often require that the subcontracts incorporate the terms of the prime contract, including the dispute resolution clause, which may allow the subcontractor to be brought into the same arbitration. However, if the subcontract contains a separate dispute resolution process, and unless the parties agree otherwise, the contractor will be required to arbitrate its dispute with the owner and address disputes with the subcontractor separately. Where a mandatory arbitration clause exists with the owner, the contractor cannot compel the owner to participate in litigation with the subcontractor. If the seat of arbitration is outside of Canada, the above issues must be resolved according to the arbitration law of the seat. 

    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. Third parties may be entitled to benefit from certain clauses in construction contracts, if two conditions are met: (i) the parties to the contract must have intended to extend the benefit in question to the third party; and (ii) the activities performed by the third party must be the activities contemplated as coming within the scope of the initial contract or provision (Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd [1999] 3 SCR 108)). In particular, subcontractors have been found to be beneficiaries of limitation of liability clauses which meet these factors (Swift v Eleven Eleven Architecture Inc, 2012 ABQB 764; British Columbia (Workers’ Compensation Board) v Neale Staniszkis Doll Adams Architects, 2004 BCSC 1629).

      Future owners may have a negligence claim against the contractor for defective work (Winnipeg Condominium Corporation No. 36 v Bird Construction Co [1995] 1 SCR 85).

  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. Affiliated individuals connected to the contractor could face claims in respect of delays, defects and payment if they owe a duty of care to the impacted party and breach that duty. A duty of care may be found to exist if it is reasonably foreseeable that the affiliated individual’s negligence could cause damage. For the extension of limitations of liability to affiliated individuals, see question 36.

    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. Common law jurisdictions in Canada create limitation periods for legal claims through legislation. In Alberta, the Limitations Act sets out that a claimant must seek a remedial order within the earlier of: 

      (a) two years from the date on which the claimant first knew or ought to have known:

      (i)      the injury had occurred;

      (ii)     that the injury was attributable to the conduct of the defendant, and

      (iii)    that the injury warrants bringing a proceeding; or

      (b) ten years after the claim arose. 

      In Alberta, the law with respect to limitation periods applies to arbitrations and an arbitration must be commenced within the applicable limitation period.

      Acknowledgement of a claim or partial payment in respect of a claim, before the expiration of the limitation period, restarts the limitation period on the date of the acknowledgement or part payment. In Alberta, the limitation period can be tolled or extended by agreement that expressly provides for it, but it cannot be reduced (Limitations Act, RSA 2000, c L-12, section 7). 

    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 common law jurisdictions in Canada govern payment disputes in the construction context through builders’ lien legislation. In Alberta, parties to a construction contract cannot agree to exclude the application of the Builders’ Lien Act (section 5). Similar provisions also exist in the lien legislation in British Columbia, Ontario, Manitoba and Saskatchewan, for example.  

      In certain provinces, such as Alberta, the statutory limitation periods cannot be shorted by agreement.

  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. In Canada, parties are permitted to choose the governing law of their contracts. Accordingly, the operation of the substantive provisions of the FIDIC Silver Book 1999 depends on the selected governing law. The provisions of the FIDIC Silver Book 1999 are likely enforceable as drafted under Canadian law. However, local counsel should be consulted, as various standard terms may operate differently across provinces.

    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 new legislation in Canada that addresses this topic. In 2017, Ontario passed the Construction Lien Amendment Act, which outlines that a party is required to pay an award from an adjudicator no later than 10 days after communication of the award to the parties. The award will be enforceable as if it were an order of the court. This new process will come into effect in Ontario on 1 October 2019. 

      At the Federal Level, Bill C-97 is expected to enact the Federal Prompt Payment for Construction Work Act. This Act is expected to contain provisions concerning the enforcement of an adjudicator’s decision. 

    Courts and arbitral tribunals

  42. 42.

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

    1. There are generally no courts that specialise in construction or arbitration matters.
      The province of Ontario has Construction Lien Masters who address issues related to
      construction lien actions.  

  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. Matters related to construction projects or arbitration matters will typically be brought to provincial superior courts. The decisions of superior courts are published and there is a doctrine of binding precedent in Canada.

  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. The traditional rules of the adversarial system adopted in Canada respect the principle of “party presentation”, whereby the definition of the dispute should be determined by the parties (Condessa Z Holdings Ltd v Brown’s Plymouth Chrysler Ltd, 1993 SKCA 6 at paragraph 24). Should a trial judge wish to put forward an issue, the parties must be given a chance to address the issue (Canada Trustco Mortgage Co v Renard, 2008 BCCA 343 at paragraph 42).

      At the appellate level, appellate courts may raise a new issue, but a new issue should only be raised when failing to do so would risk an injustice (R v Mian, 2014 SCC 54 at paragraph 41).

      If the arbitrator makes an award upon a theory that had not been addressed by the parties, that award is at risk of being set aside for a breach of procedural fairness.

  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. Article 9 of the UNCITRAL Model Law has been largely adopted by each of the provinces of Canada, and provides that a party can seek an interim measure from a court before or during arbitral proceedings.

      A court will generally stay a court proceeding in favour of arbitration, but it has the discretion to refuse to grant a stay in certain circumstances (Saskatchewan Power Corp v Alberici Western Constructors, Ltd, 2016 SKCA 46 at paragraph 53; Telus Communications v Wellmen, 2019 SCC 19 at paragraphs 56 and 63).

  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, a contractor should not lose its right to arbitrate if it applied to a foreign court for interim or provisional relief.

    Expert witnesses

  47. 47.

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

    1. Party-appointed experts are commonly used in arbitrations in Canada. As well, tribunals generally have the ability to appoint their own experts.   

      Experts owe a duty to the court or tribunal to provide fair, objective, and non-partisan opinion evidence. Experts must be impartial, independent, and have an absence of bias (White Burgess Langille Inman v Abbott and Haliburton Co, 2015 SCC 23 at paragraphs 10, 26–32).

    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. The Federal Commercial Arbitration Code applies when at least one of the parties to the arbitration is Her Majesty in right of Canada, a departmental corporation, or a Crown corporation. Many of the provinces have also enacted provincial arbitration legislation that binds the Crown. 

      The general principles governing the law of tendering which were established in cases such as R v Ron Engineering & Construction, [1981] 1 SCR 111 and MJB Enterprises Ltd v Defence Construction (1951) Ltd [1999] 1 SCR 619, apply to parties generally. Public procurement rules can impose further limitations as to the manner in which procurement is to take place. For example, federal procurement regulations require open bidding for construction contracts with a value over C$100,000. Provincial governments can have limitations as well, such the Ontario government procurement policies which require that any construction contracts valued at C$100,000 or more must use competitive tendering.

      The issue of lien rights in public lands or interests in public lands is a complicated matter, and many jurisdictions in Canada have limitations or additional requirements that must be considered when dealing with a public entity or public land. In some jurisdictions within Canada, an estate or interest in Crown lands cannot be subject to a lien. In other jurisdictions, there are different procedural requirements for filing against such an interest. For constitutional purposes, it has been held that provincial lien legislation cannot apply to an essential part of a federal work or undertaking, including a leasehold interest on Federal lands that could impair a vital and essential part of a federal undertaking (Campbell-Bennett Ltd v Comstock Midwestern Ltd [1954] SCR 207; Comstock Canada Ltd v Atomic Energy of Canada Ltd., 2001 CarswellOnt 1149; Vancouver International Airport Authority v British Columbia (Attorney General), 2011 BCCA 89, leave to SCC denied [2011] S.C.C.A. No. 182).

    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. It is well established that a settlement offer may not be put before the tribunal until costs fall to be decided. Many provinces have further incorporated express prohibitions into their arbitration acts. 

    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. Yes, “without prejudice” settlement privilege is recognised as a class privilege in Canada. 

      Three conditions must be met:

      (a)      a litigious dispute must be in existence or within contemplation;

      (b)     the communication must be made with the express or implied intention that it would not be disclosed to the court in the event negotiations failed; and

      (c)      the purpose of the communication must be to attempt to effect a settlement.

      (Sopinka, SN Lederman and AW Bryant, The Law of Evidence in Canada, 5th ed. (2018) at §14.348).

      It is the substance of the communication that matters. Simply marking a document as “without prejudice” is not on its own determinative (Bellatrix Exploration Ltd v Penn West Petroleum Ltd, 2013 ABCA 10 at paragraph 25).

  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. Solicitor-client privilege can apply to communications with in-house lawyers.  The test for solicitor-client privilege is whether (i) the communication is between a client and a solicitor; (ii) the communication is for the purpose of seeking or giving legal advice; and (iii) it is intended to be confidential (Pritchard v Ontario (Human Rights Commission), 2004 SCC 31 at paragraph 15).

      However, communications with in-house counsel for matters other than seeking legal advice, or in other capacities, will not be privileged.

      Solicitor-client privilege was elevated from a rule of evidence to a substantive rule of law by the Supreme Court of Canada (Descôteaux v Mierzwinski, 1982 CarswellQue 291 at paragraph 23; R v McClure, 2001 SCC 14 at paragraph 24).

    Guarantees

  52. 52.

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

    1. Throughout the common law provinces, the requirements for a guarantee mirror the requirements for a valid contract. That is, one requires an offer and acceptance, sufficient certainty of terms, valid consideration for the promise, a voluntary assumption of the obligations by the parties to the guarantee, and an intention to create a legally binding agreement.

      The guarantee must be evidenced in writing and signed in compliance with the Statute of Frauds.  In Alberta, a guarantee given by a natural person has no effect unless the person entering into the obligation appears before a lawyer, acknowledges that they executed the guarantee, and signs a certificate (Guarantees Acknowledgement Act, RSA 2000 c G-11). Oral guarantees that are not evidenced in writing are not enforceable by operation of the Statute of Frauds or similar legislation; however, they are not void (KP McGuiness, The Law of Guarantee, 2nd ed (Toronto: Carswell, 1996) at 255).

  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. The guarantor’s liability will be limited to that of the party to the underlying contract, unless the guarantee provides otherwise.

  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 surety will be released from liability on the guarantee where the creditor and the principal agree to a material alteration of the terms of the underlying contract without the consent of the surety. The guarantee’s wording may affect this position as the parties may contract out of the protection (Manulife Bank of Canada v Conlin [1996] 3 SCR 415 at paragraphs 2–8).

    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. An on-demand bond, letter of credit or a performance guarantee in the nature of a documentary form of security, is payable on demand. The documents must be presented in strict compliance with their terms. Proof of the actual default by the principal on the underlying contract is not usually necessary. The obligation to pay is a separate duty that is triggered by presentation, and there is generally no opportunity for a legitimate dispute as to entitlement to payment on the underlying contract. A fraud exception has been recognised by Canadian courts (KP McGuinness, The Law of Guarantee, 2nd ed (Carswell: 1996) at 12.89–12.101, 12.1–12.88; Angelica-Whitewear Ltd v Bank of Nova Scotia [1987] 1 S.C.R. 59).

  56. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts that the employer is entitled to (such as 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. The law on this issue is evolving in Canada. The case law indicates that it might be possible for an employer to be enjoined from making a call where an express contractual term restricts the call and a strong prima facie case exists that the employer is in breach of the restriction or making the call itself is a breach of the restriction (430872 BC Ltd v KPMG Inc, 2004 BCCA 186; Veolia Water Technologies Inc v K+S Potash Canada General Partnership, 2019 SKCA 25 at paragraphs 6 and 52).

    Further considerations

  57. 57.

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

    1. No.

      Our submission is intended to build upon past contributions to maintain continuity and consistency. In addition to the authors of prior Canada chapter submissions we wish to acknowledge the contributions of Zoe Aranha (summer student), Jared Armstrong (summer student), Stephen Armstrong (articling student) Laura Delemere (Associate),  Stela Hima-Bailey (articling student), Emily Paslawski (summer student), Portia Proctor (summer student), Celine Zhen (summer student).

Interested in contributing to this Know-how?

E-mail our Insight Manager


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 that the employer is entitled to (such as 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?