A party who has suffered a loss only has a certain amount of time within which to initiate a claim by way of litigation or arbitration. In Alberta, the Limitations Act, RSA 2000, c L-12 provides that a claimant must commence its claim within two years of when the claimant first discovered, or in the circumstances ought to have discovered, that it suffered an injury. The Limitations Act further provides for an ultimate limitation period of ten years after the claim arose, regardless of when the claim was discovered.
Construction projects are often protracted and complex. As a result, losses identified in the course of an ongoing construction project may be difficult to quantify in the moment, particularly as they relate to delays, deficiencies or changes. Some losses may appear to be minor at the outset of a breach, but may escalate significantly, as they are compounded by additional changes or delays to the project’s schedule, or other matters that influence the project’s construction.
All of this uncertainty can lead to significant confusion as to what kind of conduct will trigger the commencement of the limitation period. Under the Limitations Act, all three of the following factors must be present in order to trigger the start of the limitation period:
- the claimant must have suffered an injury, which includes personal injury, property damage, economic loss, non-performance of an obligation or the breach of a duty;
- the injury must be attributable to the conduct of the party being claimed against; and
- the injury must “warrant bringing a proceeding”.
In the construction context, the injury will often be the other party’s breach of the relevant contract or negligence. Often, it will be easy to identify the injury (or the breach) and the party who caused it; however, there will frequently be uncertainty as to when the injury “warrants bringing a proceeding”.
In Riddell Kurczaba Architecture Engineering Interior Design Ltd v Governors of the University of Calgary, 2018 ABQB 11, the Owner University issued payment on a fixed-fee basis to the Plaintiff Architect during the course of a construction project, pursuant to a Service Agreement entered into between the parties. In 2009, the Owner issued six Change Orders to the Plaintiff, increasing the total fixed-fee amount provided for in the Service Agreement. In March, 2010, at substantial completion of the project, the Owner and the Plaintiff performed a reconciliation of the invoicing and payment; both parties agreed that the amounts invoiced by the Plaintiff matched those paid by the Owner. The Plaintiff later repeated its review of the Service Agreement and invoicing and determined that it had improperly invoiced the Owner on a fixed-fee basis, when it was contractually entitled to a percentage-based fee on the total cost of construction. The Plaintiff concluded that it had been underpaid by approximately $1,800,000.00 and filed a claim with the Court on May 8, 2012.
The Owner raised a limitations defence to the Plaintiff’s claim alleging that the Plaintiff had sufficient knowledge of all of the relevant facts in respect of its claim as soon as the construction costs had exceeded the amount specified in the Service Agreement. After that point, the Owner was compensating the Plaintiff by way of the Change Orders, which were intended to increase the fixed-fee in the Service Agreement.
In response, the Plaintiff argued that because the percentage fee was to be calculated and paid based on the total cost of construction, the commencement of the limitation period was not triggered until the project was complete and the construction costs were known with certainty.
In concluding that the Plaintiff was out of time, the Court held that “whether the legal implications of the relevant facts were known or discoverable does not matter in regards to [the Plaintiff’s] knowledge, or the discoverability of the actual facts”.1Further, the Court found that “perfect knowledge of those facts is not necessary. All that is necessary is that sufficient facts are known or discoverable” for the Plaintiff to bring its claim.2The Change Orders received by the Plaintiff in 2009 purported to compensate the Plaintiff for add-ons to the fixed-fee in the Service Agreement. Accordingly, the Court concluded that Plaintiff knew or ought to have known that the Owner was breaching the Plaintiff’s interpretation of the contract when it issued those Change Orders. The Plaintiff had filed its claim in 2012 and was, therefore, out of time pursuant to the Limitations Act.
Contractors are regularly faced with difficult decisions as losses are inevitably suffered during the course of construction. On the one hand, the commencement of a claim prior to the project’s completion can disrupt business relationships among contracting parties and negatively impact the project. On the other hand, a failure to commence a claim within the prescribed timelines in the Limitations Act will leave a contractor without a remedy for what can end up being a significant loss.
In order to preserve the right to claim without damaging the business relationship, a prudent contracting party should keep the following in mind:
- contracts should be regularly reviewed throughout the course of construction, paying close attention to change management, payment, claims and delay provisions, to ensure that any non-performance or breach is identified in a timely manner;
- when a non-performance or breach is identified, the contract’s dispute resolution provisions should be reviewed and, if applicable, litigation or arbitration should be commenced within two years from the non-performance or breach regardless of whether or not the claiming party has perfect knowledge of the loss associated with such non-performance or breach; and
- if commencing an action is likely to significantly disrupt the project or important business relationships, tolling agreements should be implemented to prevent one party from later relying on the expiration of a limitation period.
Erin Cutts and Theron Davis are Construction lawyers in our Calgary office.
1 Riddell Kurczaba Architecture Engineering Interior Design Ltd v. Governors of the University of Calgary, 2018 ABQB 11 at para. 69, [2018] A.W.L.D. 506 (Alta. Q.B.) (Riddell Kurczaba).
2 Ibid.