Summary

In H. R. Doornekamp Construction Ltd. v. Canada (Attorney General) (Department of Public Works and Government Services) (“Doornekamp”), the Ontario Superior Court held that parties are required to follow conditions precedent set out in the dispute resolution framework of their contracts. The decision demonstrates the importance of complying with stepped or staged dispute resolution clauses.

Doornekamp arose as an appeal from a motion for summary judgment brought by the defendant, Canada, seeking dismissal of the action. Canada’s motion had been dismissed, with the motions judge finding there was no genuine issue requiring a trial. Canada sought leave to appeal, which was granted on the single question of “…whether the Dispute Resolution Clause (GC8) in the contract between the parties extinguished the Plaintiff’s right to bring a court action such that summary judgment should have been granted dismissing the Plaintiff’s claim against the Defendant.”

Background

By invitation to tender dated August 29, 2013, Canada solicited bids for a project at Lock 15 on the Trent Severn Waterway (the “Work”). On October 8, 2013, a contract for the Work was awarded to Doornekamp (the “Contract”). The Work was to be paid for on a unit-price basis. Among other provisions, the Contract contained the following dispute resolution clauses:

Clause GC 8.2:

.1 The parties agree to maintain open and honest communication throughout the performance of the Contract.

.2 The parties agreed to consult and co-operate with each other in the furtherance of the Work and the resolution of problems or the differences that may arise.[1]

Clause GC 8.3

.1 Any difference between the parties to the Contract of any nature arising out of or in connection with the Contract which could result in a claim by the Contractor against Canada, and which is not settled by consultation and co-operation as envisaged in GC 8.2, “Consultation and Co-operation”, shall be resolved in the first instance by Canada, whose written decision or direction shall be final and binding subject to the provisions of GC8. Such written decision or direction includes, but is not limited to, any written decision or direction by Canada under any provision of the General Conditions.

.2 The Contractor shall be deemed to have accepted the decision or direction of Canada referred to in paragraph 1) of GC 8.3 and to have expressly waived and released Canada from any claim in respect of the particular matter dealt with in that decision or direction unless, within 15 working days after receipt of the decision or direction, the Contractor submits to Canada a written notice of dispute requesting formal negotiation under GC8.4, “Negotiation”. Such notice shall refer specifically to GC8.4, “Negotiation”, and shall specify the issues in contention and the relevant provisions of the Contract.[2]

On July 6, 2015, Canada certified the Work as substantially complete. On February 10, 2016, Doornekamp delivered a request for an adjustment of the contract time and cost (the “Adjustment Request”). In February and March 2016, Canada informed Doornekamp that the Adjustment Request was being considered pursuant to the claim process set out in the contract.

Doornekamp received no further communications from Canada until July 8, 2016, when Canada sent a “formal notice under GC 2.3 Notices and GC 8 Dispute Resolution”, denying the Adjustment Request (the “Canada Response”). On July 12, 2016, Doornekamp wrote an email to Canada stating the Canada Response failed to address the issues raised in the Adjustment Request. On July 26, 2016, Canada responded that Doornekamp’s claim for adjustment was unsubstantiated.

On January 27, 2017, Doornekamp commenced an action by Statement of Claim with respect to the dispute between the parties about the Adjustment Request. Canada brought a motion for summary judgment to dismiss the claim, on the basis that there was no arguable dispute, because Doornekamp had not delivered a Notice of Dispute within 15 days of receiving Canada’s decision regarding the Adjustment Request.

Analysis

Canada’s position on appeal was that there was no genuine issue requiring a trial because Doornekamp had not delivered a written Notice of Dispute requesting formal negotiation under GC 8.4, within 15 days of receiving the Canada Response. Canada argued that because Doornekamp failed to deliver a Notice of Dispute, it had lost its rights to dispute resolution.

Doornekamp’s position was the Canada Response could not be a decision under GC 8.3.2, because the condition precedent to making that decision had not been met: i.e., the parties had not consulted and cooperated to resolve their differences as required pursuant to GC 8.3.1.

The Court held that, properly interpreted, the Contract required that the parties attempt to reach a settlement through consultation and cooperation, and only if settlement could not be reached did Canada have the opportunity to make a determination in the “first instance” that could be disputed through a formal notice of dispute.[3] In particular, the Court found that, because GC 8.3.1 made express reference to consultation and cooperation as envisaged in GC 8.2, those actions were a true condition precedent that had to be met before Canada could make a determination.[4]

The Court also held it was clear that Doornekamp had not waived its rights to consultation and cooperation, since the correspondence between the parties at the relevant time showed that Doornekamp reasonably expected that consultation and cooperation would be forthcoming based on Canada’s correspondence.[5]

The Contract did not expressly state what activities constituted consultation and cooperation. However, the Court found that, at a minimum, the obligation to consult and co-operate included that the parties have open and honest communication with each other.[6] The Court also found more could be required to satisfy the precondition, depending on the circumstances of the dispute. For example, if a dispute involved variations to the tender quantities, consultation and co-operation have required the parties to follow the specific dispute resolution process for variations:[7]

It may be that proceeding under clause GC 6.4.3 is a separate precondition that the parties are obliged to follow before resorting to clause GC 8.3.1 or that the process it outlines assists in understanding the nature of the “consultation and co-operation” required of the parties proceeding under Clause GC8.3.1 where the dispute concerns an increase in the tendered quantities.[8]

The Court held that whether or not Canada had satisfied the requirement to consult and co-operate was a genuine issue requiring a trial.[9] 

Canada also argued that the parties’ disagreement on whether the condition precedent had been satisfied was itself a dispute to be submitted to the dispute resolution process.[10] The Court rejected this argument:

If this is the applicable approach to resolve the issue of whether the condition precedent of consultation and co-operation has been satisfied, it would confront the contractor with what has been colloquially referred to as a Hobson’s choice (a choice of taking what is available or nothing at all) being:

• the contractor could file a notice of dispute on the basis that the condition precedent had not been satisfied, thus acknowledging a claim could be filed in the absence of consultation and co-operation rendering the requirement to provide it meaningless

or

• in order to satisfy the condition precedent, the contractor could ask for consultation and co-operation as to whether the condition precedent had been satisfied prior to the decision of July 8, 2016. In such circumstances, Canada could, as it is alleged to have done here, “decide”, without providing any substantive response, that there had been consultation and co-operation. Doornekamp would be left to make the same request in response to that decision in what could become a continuous circle of requests for consultation and decisions made without it.[11]

Finally, the Court commented that the arbitration clause in the Contract did not preclude litigation, because the arbitration clause was not comprehensive. Rather, it stated that after mediation a party “may require that the dispute be resolved by binding arbitration” (emphasis added).[12] As such, the Court held that where no notice to arbitrate is delivered, either party to the Contract was entitled to commence court proceedings.[13]

Conclusions

Parties often default to using standard dispute resolution provisions, which typically allow parties to access arbitration or court proceedings only after certain preconditions, such as cooperation, negotiation, or mediation, are met.

Although these stepped dispute resolution clauses are commonplace, parties should carefully consider whether it will be practical to perform each step of such a “stepped” dispute resolution clause during a dispute. Questions that ought to be considered include whether the timelines set out in each step will be reasonable given temporal constraints and whether mandatory preconditions will be workable if the parties’ relationship becomes contentious. Counsel should be consulted to ensure that any preconditions are drafted clearly to minimize disputes over whether a precondition has been met. Parties must also keep in mind that, by the time dispute resolution provisions are triggered, the relationship with their counterparty may be strained. For further reading and guidance on drafting stepped dispute resolution clauses, see our previous blog post: here.

Arbitration has a number of advantages over court proceedings, including the ability to choose the arbitral tribunal and the option to keep the process, judgement and reasons confidential between the parties. Where mandatory arbitration is important, parties should make sure that experienced counsel have the opportunity to review the arbitration agreement and consider how to make the arbitral process effective and efficient.

[1]Doornekamp at para. 35.

[2]Doornekamp at para. 33

[3]Doornekamp at para. 42

[4]Doornekamp at para. 52

[5]Doornekamp at para. 52

[6]Doornekamp at paras. 56-57.

[7]Doornekamp at paras. 58-65.

[8]Doornekamp at para. 65.

[9]Doornekamp at para. 80.

[10]Doornekamp at para. 71.

[11]Doornekamp at para. 72.

[12]Doornekamp at para. 73.

[13]Doornekamp at para. 73.