Court File and Parties

CITATION: Ledore Investments Ltd. v. Ellis-Don Construction Ltd., 2016 ONSC 5441

COURT FILE NO.: 36329

DATE: 2016/08/29

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: LEDORE INVESTMENTS LTD., carrying on business as ROSS STEEL FABRICATORS & CONTRACTORS (Plaintiff)

AND:

ELLIS-DON CONSTRUCTION LTD. (Defendant)

BEFORE: Justice J. N. Morissette

COUNSEL: W. Ross MacDougall, counsel for the Plaintiff Angelo C. D’Ascanio, counsel for the Defendant

HEARD: April 8, 2016

ENDORSEMENT

APPEAL OF ARBITRATION DECISION OF LARRY BANACK DATED APRIL 9, 2015

[1] After seeking leave to appeal, the Honourable Mr. Justice I.F. Leach granted leave and framed the appeal as follows:

Ellis-Don is granted leave to appeal in relation to its contention that the arbitrator erred in law in finding that the letters sent by Ellis-Don to Ross Steel, (and the letter of January 18, 1999, in particular), did not constitute an unsettled “claim made in writing”, capable of satisfying the provisions of Article 15.1 of the parties’ agreement.

[2] In his decision, the leave judge found that the first aspect of Ellis-Don’s contemplated appeal from the arbitrator’s decision does raise an extricable question of law, in respect of which leave to appeal should be granted, given that the other requirements of s.45 (1) of the Arbitration Act, 1991, have been satisfied.

[3] That question of law centres on whether the arbitrator was correct in finding that Article 15.1 (a) could not be characterized as a provision requiring written notice of a claim, the satisfaction of which would depend on meeting the criteria established by jurisprudence, but instead required the fashioning and application of the new test articulated by the arbitrator.

Standard of Review:

[4] The Supreme Court of Canada (SCC) confirmed in Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, (Sattva) that contractual interpretation is an exercise involving findings of mixed fact and law. It will only be in rare instances that a question of law (for which an appeal may be available, with leave) can be extricated from the fact specific nature of the interpretation process, and courts should be cautious in identifying extricable errors of law in disputes over contract interpretation.[^1]

[5] In the first instance a judge of the British Columbia Supreme Court denied leave on the basis that the issue raised was one of mixed fact and law and not subject to appeal. Creston appealed the dismissal of its application for leave to appeal. The British Columbia Court of Appeal reversed the lower court and found the issue to be a question of law and granted leave.[^2]

[6] In 2013, the Supreme Court of Canada ruled that leave to appeal should not have been granted by the British Columbia Court of Appeal because the issue raised was a question of mixed law and fact.

[7] The respondents argue that even where leave is granted, I am still to reconsider whether there is an extricable question of law arising from the arbitrator’s decision. I disagree. In the case at bar, the respondents have not appealed Leach J.’s decision to grant leave, unlike in Sattva.

[8] Failure to appeal the leave decision, this court is bound by the leave judge’s decision. Therefore this court will not consider whether there is an extricable question of law.

[9] In exercising the appeal powers, this court may, among other things, vary or set aside the arbitrator’s award.[^3]

Law and Analysis:

[10] The issues raised on this appeal is whether the arbitrator erred in law in finding that Ellis-Don’s letters, and in particular its letter of January 18, 1999, did not constitute a “claim made in writing”, and “still unsettled”, within the meaning of Article 15.1 (a) of the Subcontract.

[11] On January 18, 1999, Ellis-Don then sent Ross Steel a letter which included the following comments:

As you are aware, there are a number of outstanding issues to be resolved between Ellis-Don and Ross Steel regarding Ross Steel’s performance on this project. The late submission of shop drawings, insufficient man power and your refusal to work overtime are some of the major factors that contributed to Ross Steel’s consistent failure to meet milestone schedule dates. The schedule slippages by Ross Steel had a serious impact on the work of Ellis-Don and other subcontractors and affected the overall completion of the project. In addition to impacting the schedule, Ross Steel also forced Ellis-Don to expend substantial monies to accelerate the work in an effort to recover the schedule. We are currently assessing the financial impact that Ross Steel’s schedule slippages have had on Ellis-Don and we intend to recover these costs from you.

Notwithstanding the above, Ellis-Don has now received an interim assessment of the liquidated damages by the owner for the late completion of the project in the amount of $105,000 for the period of December 3 to December 23, 1998 (copy attached). Additional damages may be assessed when work resumes in the spring of this year. These damages are solely attributable to Ross Steel and on account of this we are withholding the release of any further monies to you at this time.

It is our intention to contest the assessment of liquidated damages by the owner and we will advise you of any further developments in regards to this matter.

[12] Article 15 of the parties’ agreement deals with “Waiver”, and Articles 15.1(a) and 15.2 in particular read as follows:

15.1 As of the date of the final certificate for payment of the prime contract, the contractor expressly waives and releases the subcontractor from all claims against the subcontractor, including without limitation those that might arise from the negligence or breach of this agreement by the subcontractor, except one or more of the following:

(a) those made in writing prior to the date of the final certificate for payment of the prime contract and still unsettled.

15.2 As of the date of the final certificate for payment of the prime contract, the subcontractor expressly waives and releases the contractor from all claims against the contractor arising out of the work performed under this agreement or in respect to any matter relating to the subcontractor’s involved in the project including without the limitation those that might arise from the negligence or breach of this agreement by the contractor except those made in writing prior to the subcontractor’s application for payment upon total performance of the subcontract work and still unsettled.

[13] The arbitrator’s analysis and conclusions are found at pages 11-14 (paragraphs 52-68). As the leave judge stated they may be summarized as follows:

• The arbitrator focused on the provisions of Article 15.1 (a) of the parties’ agreement, and what needed to be done to avoid waiver and release of the claim Ellis-Don wished to advance against Ross Steel. In particular, the arbitrator focused on what Ellis-Don had to do, prior to the date of the final certificate for payment of the prime contract, to ensure that it had submitted an appropriate “claim…made in writing”, in relation to a claim that was “still unsettled”.
• The arbitrator noted that the contract itself contained no description of what might constitute a sufficient “claim in writing”, or when a claim should be regarded as “still unsettled”.
• The arbitrator acknowledged receipt of authority, provided by the parties, setting forth general principles to be applied in determining whether a party to a building and engineering contract had provided sufficient written notice of a claim, in circumstances where the contract required such notice. In particular, the arbitrator acknowledged that he had been provided with the British Columbia Court of Appeal’s decision in Doyle Construction Co. v. Carling, [1998] B.C.J. No. 832 (C.A.); a decision which has been accepted and considered by other courts, (including courts in Ontario), in determining whether a party to such a contract has provided sufficient written notice of a claim, where such notice is an agreed condition precedent to the advancement of a claim. See, for example: Northland Kaska Corp. v. Yukon Territory, 2001 BCSC 929, [2001] B.C.J. No. 1317 (S.C.), at paras. 59-62; Bemar Construction (Ontario) Inc. v. The Corporation of the City of Mississauga, [2004] O.J. No. 235 (S.C.J.), at paras. 180-181 and 191-194, affirmed [2007] O.J. No. 3811 (C.A.); and Technicore Underground Inc. v. Toronto (City), [2011] O.J. No. 5667 (S.C.J.) at paras. 35-36, affirmed 2012 ONCA 597, [2012] O.J. No 4235 (C.A.), at paras. 37-44.
• The arbitrator also acknowledged that correspondence sent by Ellis-Don to Ross Steel, (and the letter of January 19, 1999, in particular), met the requirements, set forth in the jurisprudence, for sufficient written notice of a claim under a construction contract. The arbitrator does not expand on his finding in that regard.
• However, the arbitrator then indicated that such jurisprudence, and his view that Ellis-Don had provided sufficient written notice of a claim under the parties’ contract, had no application or relevance to the determinations he was required to make. In doing so, the arbitrator drew a threshold distinction between provisions requiring written notice of a claim, (which in his view was the subject of the jurisprudence to which he had been referred, including the Doyle decision), and provisions such as Article 15.1(a) requiring the making of claims in writing, (which in his view was a type of contractual provision in respect of which the parties had provided no relevant jurisprudence).
• Given what he perceived to be an absence of any legal authority on point, the arbitrator then proceeded to interpret the requirements of making a claim in writing as a matter of first impression, according to what he perceived to be the “ordinary meaning” of such wording. In particular, he held that such wording required “more than simply notice of an intention”. In his view, such wording required that “a demand must be made”, or “a right must be asserted with consequences or relief sought”.
• Having decided the test to be applied for satisfaction of such provisions requiring a claim to be made in writing, the arbitrator then went on to find that the correspondence sent by Ellis-Don to Ross Steel failed that test.
• In that regard, the arbitrator already had stressed that all of the language employed by Ellis-Don in its letters was prospective, and pointed “to an intention to make a claim but not to an actual claim”. [Emphasis added] However, in finding that Ellis-Don had not satisfied the requirements of Article 15.1 (a), the arbitrator repeatedly returned to the point and his essential threshold distinction; for example, by emphasizing that the correspondence was merely “notice to Ross Steel of an Ellis-Don intention to make a claim”, and by referring to Ellis-Don’s correspondence as a “threatened” and “contemplated” claim that was “never quantified nor pursued”. The arbitrator stressed again that a mere “intention to claim is not the same as a claim”, [emphasis added], and found that the letters relied upon by Ellis-Don, even when taken together, accordingly did “not rise to the level of a ‘claim in writing’ that was still unsettled before the date of the final certificate for payment, as required by Article 15.1”.

[14] The question therefore is whether there is a reasonable legal basis for the Arbitrator’s impugned decision/conclusion.[^4]

[15] The arbitrator’s decision was premised on his threshold view that provisions of a construction contract requiring “claims made in writing”, (such as the provisions of Article 15.1), must be distinguished from provisions requiring written notice of a claim. As a result, the arbitrator considered jurisprudence relating to the provision of adequate written notice of such claims, and Ellis-Don’s apparent provision of satisfactory written notice in that regard, as irrelevant to determination of the question before him.

[16] In doing so, the arbitrator did not apply the general principles established in Doyle Construction Co. v. O’Keefe Breweries of Canada Ltd. (Doyle)[^5] to determine whether or not the requirements of Article 15.1 (a) had been satisfied.

[17] Doyle includes indications that provisions requiring such notice will be satisfied where:

• The complaint goes beyond “grumblings” to display or indicate an “intention to claim”;
• The claimant gives some particulars as to what the complaint is, so that the other party has an opportunity to consider its position and the possibility of taking corrective measures; and
• The complaint is timely; e.g. given “in enough time” to permit the other party to take “guarding measures” if it so desires.

[18] Doyle, provides legal authority for the general proposition that provisions requiring claims to be made in writing should be treated as provisions requiring written notice of claims, contrary to the approach taken by the arbitrator.

[19] In this Court’s view, the arbitrator erred in finding that ‘claims made in writing” should not be treated as provisions requiring written notice of a claim.

[20] As indicated above, not only was there legal authority for that general proposition, but also authority suggesting an approach precisely opposite to that taken by the arbitrator. In doing so, the arbitrator misapplied the general principles and considerations established by Doyle to reach his conclusion that Article 15.1 (a) had been satisfied but instead fashioned and applied his own test in that regard, contrary to the applied legal principles established.

[21] For all of these reasons, the arbitrator’s decision on the ground of appeal on which leave was granted, is set aside. Ellis-Don’s letters and in particular the letter of January 18, 1999, did constitute an “unsettled claim made in writing” satisfying the provisions of Article 15.1 of the parties’ agreement.

[22] As a result, Ellis-Don’s counterclaim is not barred or estopped by Article 15.1 (a) of the parties’ agreement. In other words, Ellis-Don’s right of set-off is not barred.

[23] The matter shall be remitted to the arbitrator for reconsideration of the counterclaim or set-off claim by Ellis-Don.

Costs:

[24] Should the parties be unable to agree on the issue of costs, they may each serve and file brief written costs submissions, not to exceed five pages within 30 days hereof.

Justice J. N. Morissette

Justice J. N. Morissette

Date: August 29, 2016

[^1]: At para 55. [^2]: 2010 BCCA 239, 319 D.L.R. (4th) 219 [^3]: Arbitrator’s Act, 1991 S.O. 1991, c. 17, s. 45(5) [^4]: Ottawa (City) v. The Coliseum Inc., 2014 ONSC 3838 at para. 46. [^5]: 1988 CanLII 2844 (BCCA)