COURT FILE NO.: CV-16-69541 DATE: 2019/01/18
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Federal Electric (1976) Limited, Applicant AND McDonald Brothers Construction Inc., Respondent
BEFORE: Justice M. O’Bonsawin
COUNSEL: Mark Gallagher for the Applicant Christopher J. Hunt for the Respondent
HEARD: November 15, 2018
ENDORSEMENT
Overview
[1] On this Application, the Applicant, Federal Electric (1976) Limited (“Federal Electric”), seeks an Order requiring the Respondent, McDonald Brothers Construction Inc. (“McDonald Brothers”), to attend and participate in the arbitration of Federal Electric’s claim against it.
[2] On March 12, 2014, McDonald Brothers entered into a contract (“Contract”) with Public Services and Procurement, formerly, and at the times material to these claims, known as Public Works and Government Services Canada (“PWGSC”) whereby McDonald Brothers was to be the general contractor for the fit-up of the Sir Frederick Banting building located in Ottawa (“Project”). The contract was in the amount of $15,754,000.00.
[3] On March 25, 2014, Federal Electric and McDonald Brothers entered into a subcontract agreement (“Subcontract”) whereby Federal Electric was to supply the labour, material and related services associated with the electric scope of work for the Project.
[4] The schedule contained in the Subcontract called for the electrical scope of work for the Project to be completed by April 2015. In the context of a competitive bidding process, Federal Electric accounted for such completion date in bidding the Project.
[5] In April 2014, pursuant to the Subcontract, Federal Electric deployed its forces to the site to commence work pursuant to the Subcontract and work progressed accordingly. However, the Project quickly became significant delayed as a result of issues unrelated to the Subcontract.
[6] The project was originally scheduled for eleven months and was extended to thirty-two months.
[7] Throughout the execution of the Contract, many delays were encountered and McDonald Brothers issued thirteen Delay Even Notifications to PWGSC’s consultant.
[8] Throughout the execution of the work under the Subcontract, various issues were encountered by Federal Electric. At each point during the execution of the work under the Subcontract, Federal Electric sought to resolve the issues that arose in collaboration with McDonald Brothers pursuant to the terms of the Subcontract.
[9] Pursuant to the terms of the Subcontract, Federal Electric provided written notice to McDonald Brothers with respect to the following claims:
a) for the costs of the supply and installation of Variable Frequency Drives (“VFD”) which were not part of Federal Electric’s scope of work for the Project in the amount of $147,690.39;
b) for additional cost of the supply of a particular type and brand of automatic transfer switches which were also not required of Federal Electric under the subcontract in the amount of $50,220.00; and
c) a claim for delay on the Project which led to additional amount incurred.
[10] While notice and negotiation of these issues have been ongoing since approximately the fall of 2014, mediation in this matter was first requested by way of letter dated September 11, 2015. Subsequently, counsel for Federal Electric sent an email to McDonald Brothers on October 5, 2015 enclosing a Notice of Appointment of Arbitrator.
[11] On October 16, 2015, counsel for McDonald Brothers responded that article SCC 8.2.7 did not apply to mediation and the Project was nearing completion in any event. By the time a mediation was scheduled, the Project would be complete. Counsel for McDonald Brothers requested dates for a one-day mediation in respect to the VFD.
[12] There was correspondence back and forth between counsel. McDonald Brothers subsequently agreed to add the issue of the Transfer Switches to mediation.
[13] The parties attended mediation on April 28, 2016 with Rick Brooks as the mediator. None of the issues were resolved. Federal Electric took the position at mediation that it was entitled to have the delay claim mediated and McDonald Brother disagreed.
[14] At mediation, counsel for McDonald Brothers undertook to provide (a) details and copies of the notices provided by McDonald Brothers to PWGSC regarding its own delay claim; and (b) copies of the provisions of the Contract for dispute resolution.
[15] The Certificate of Completion was issued by PWGSC on November 14, 2016. In accordance with the requirements of the Contract, McDonald Brothers delivered their delay claim to PWGSC on December 9, 2016. Six subcontractors also submitted claims for delay through McDonald Brothers.
[16] On July 5, 2017, the VFD and Transfer Switches issues were arbitrated in a hearing and a final decision was rendered by the arbitrator.
[17] On November 28, 2017, counsel for McDonald Brothers wrote to PWGSC to follow up on their delay claim submitted a year earlier. PWGSC followed up the same day and indicated “it would be premature to proceed directly to binding arbitration”. On November 30, 2017, PWGSC provided to McDonald Brothers a substantive response regarding their delay claim submission.
[18] On January 23, 2018, Federal Electric provided further information in support of its delay claim at the request of counsel for McDonald Brothers. McDonald Brothers argue that Federal Electric’s information was lacking in various aspects.
[19] On November 28, 2017, McDonald Brothers sent a letter to PWGSC requesting a response to the delay claim which had been submitted the year earlier and requested that PWGSC advise whether it was prepared to proceed by way of binding arbitration.
[20] On November 29, 2017, PWGSC responded: “Notwithstanding the length of time that has elapsed since your client has filed a claim, it would be premature to proceed directly to binding arbitration”.
[21] On December 16, 2017, counsel for Federal Electric was provided with the request for additional information received from PWGSC which related to its claim. The additional information required from Federal Electric was not received until January 23, 2018.
[22] The additional information from the subcontractors, Federal Electric and McDonald Brothers was delivered to Revay and Associates, the delay expert retained to assist in the preparation of the delay claim of McDonald Brothers and the other subcontractors.
[23] On May 10, 2018, counsel for McDonald Brothers was advised by Revay that the updated analysis had been completed and would be delivered to PWGSC. At the hearing, I asked counsel if Revay had actually submitted the report. Counsel was unsure and undertook to follow-up on the issue and provide me with a response. In a letter dated November 15, 2018, counsel for McDonald Brothers advised me of the following: “As requested, we have enquired with respect to the delivery of the Revay Report to the Owner. We have been advised that the report has not yet been delivered to PWGSC pending receipt of the revised report of the subcontractor, Tam-Kal”.
Position of the Parties
[24] Federal Electric argues that as per the terms of its Subcontract with McDonald Brothers, they must proceed by way of arbitration for dispute resolution and cannot proceed to Court for relief since it does not have jurisdiction to deal with the issue of delay.
[25] For its part, McDonald Brothers argue that the delays on the Project were caused by PWGSC and as such, they are a necessary party to any arbitration/action commenced to recover the expenses and additional costs incurred. The terms of the Contract between McDonald Brothers and PWGSC require that a specific procedure which does not include a provision for mandatory arbitration be followed when initiating a claim for delay against PWGSC. As per the terms of the Contract, McDonald Brothers submitted its claim for delay against PWGSC. Consequently, McDonald Brothers submit that Federal Electric’s delay claim must proceed with the delay claim against PWGSC in accordance with the provisions of the Contract and the Subcontract.
Issue
[26] There is only one issue in this matter: is Federal Electric entitled to have its delay claim with McDonald Brothers arbitrated separate from the procedure with PWGSC?
Analysis
[27] It is important to begin this analysis by reviewing the relevant terms of the Contract and Subcontract.
[28] The relevant paragraphs of the Contract are as follows:
GC 6.5 - Delays and Extension of Time
If the Contractor incurs or sustains any extra expense or any loss or damage that is directly attributable to any neglect or delay that occurs after the date of the Contract on the part of Canada in providing any information or in doing any act that the Contract either expressly requires Canada to do or that would ordinarily be done by an owner in accordance with the practice of the trade, the Contractor shall give Canada written notice of intention to claim for that extra expense or loss or damage within ten working days of the date the neglect or delay first occurred.
When the Contractor has given a notice referred to in paragraph 4) of GC6.5, the Contractor shall give Canada a written claim for the extra expense, loss or damage no later than 30 days after the date that a Certificate of Completion is issued and not afterwards.
A written claim referred to in paragraph 5) of GC6.5 shall contain a sufficient description of the facts and circumstances of the occurrence that is the subject of the claim to enable Canada to determine whether or not the claim is justified and the Contractor shall supply such further and other information for that purpose as Canada may require.
If Canada determines that a claim referred to in paragraph 5) of GC6.5 is justified, Canada shall make an extra payment to the Contractor in an amount that is calculated in accordance with GC6.4, “Determination of Price”.
[29] The Contract also contains a section regarding Dispute Resolution in paragraph 8. This section contains a consultation requirement and a notice of dispute provision which can lead the parties to negotiation and mediation. The Contract, however, does not contain a specific arbitration provision. Instead, it contains the following paragraph:
9.8.12 Subsequent Proceedings
- The parties shall not rely on or introduce as evidence in any arbitral or judicial proceeding, whether or not such proceeding relates to the subject matter of mediation …
[30] According to 9.8.12, nothing precludes the parties from starting “any arbitral or judicial proceeding”.
[31] The relevant paragraphs of the Subcontract are as follows:
SCC 8.1 INTERPRETATION AND INSTRUCTION OF THE CONTRACTOR
8.1.1 The Contractor, in the first instance, shall decide on questions arising under the Subcontract and interpret the requirements therein. Such decisions shall be given in writing. The Contractor shall use the Contractors powers under the Subcontract to enforce its faithful performance by both parties hereto.
8.1.2 Differences between the parties to the Subcontract as to the interpretation, application or administration of the Subcontract or any failure to agree where agreement between the parties is called for, herein collectively called disputes, which are not resolved in the first instance by decisions of the Contractor as provided in paragraph 8.1.1, shall be settled in accordance with the requirements of Part 8 of the Subcontract Conditions – DISPUTE RESOLUTION.
8.1.3 If a dispute is not resolved promptly, the Contractor shall give instructions for the proper performance of the Subcontract Work and to prevent delays pending settlement of the dispute. The Subcontractor shall act immediately according to such instructions, it being understood that by so doing neither party will jeopardize any claim the party may have. If it is subsequently determined that such instructions were in error or at variance with the Subcontract Documents, the Contractor shall pay the Subcontractor costs incurred by the Subcontractor in carrying out such instructions which the Subcontractor was required to do beyond what the Subcontract Documents correctly understood and interpreted would have required, including costs resulting from interruption of the Subcontract Work.
8.2.2 The parties shall make all reasonable efforts to resolve their dispute by amicable negotiations and agree to provide, without prejudice, frank, candid and timely disclosure of relevant facts, information and documents to facilitate these negotiations.
8.2.3 After a period of 10 Working Days following receipt of a Contractors Notice in Writing of reply under paragraph 8.2.1, the parties shall request the Project Mediator of the Work to assist the parties to reach agreement on any unresolved dispute. The mediated negotiations shall be conducted in accordance with the Rules for Mediation of Construction Disputes as provided in CCDC 40 in effect of the time of bid closing with the following amendment:
.1 the word “Contract” appearing in the rules shall read “Subcontract”;
.2 delete clauses 5.1 to 5.4 and replace them with the following:
“5.1 The Project Mediator shall be the Project Mediator of the Work appointed by the parties to the Prime Contract”; and
.3 in clause 11.1, delete “GC 8.2.5” and substitute “SCC 8.2.4”.
8.2.4 If the dispute has not been resolved within 10 Working Days after the Project Mediator was requested under paragraph 8.2.3 or within such further period agreed by the parties, the Project Mediator shall terminate the mediated negotiations by giving Notice in Writing to both parties.
8.2.5 By giving a Notice in Writing to the other party, not later than 10 Working Days after the date of termination of the mediated negotiations under paragraph 8.2.4, either party may refer the dispute to be formally resolved by arbitration under the Rules of Arbitration of Construction Disputes as provided in CCDC 40 in effect of the time of bid closing with the following amendment:
.1 the word “Contract” appearing in the rules shall read “Subcontract”; and
.2 delete clause 7.1 (b) and replace it with the following:
“7.1 (b) the date the Work has been completed or the Subcontract has been terminated.”
The arbitration shall be conducted in the jurisdiction of the Place of the Work.
8.2.9 Except to the extent that any dispute between the Contractor and Subcontractor is part of or relates to a dispute between the Owner and the Contractor, all disputes between the Contractor and Subcontractor shall be consolidated into a single arbitration.
8.2.10 Should any dispute or portion of any dispute between the Contractor and Subcontractor relate to a dispute between the Owner and the Contractor, such dispute or portion thereof as between the Contractor and Subcontractor shall be disposed of at the same time in the same proceedings and by the same Arbitration Board as is appointed to resolve the dispute between the Owner and the Contractor [emphasis added].
[32] Federal Electric argues that as per its interpretation of the Subcontract, the parties must proceed by arbitration for dispute resolution and this Court does not have the jurisdiction to provide relief to the parties. Specifically, Federal Electric relies on paragraphs 8.2.2, 8.2.3, 8.2.4 and 8.2.5 of the Subcontract. On the other hand, McDonald Brothers rely on different paragraphs of the Subcontract to support their position that Federal Electric’s claim should be heard through the contract with PWGSC. More specifically, McDonald Brothers rely on paragraphs 8.2.9 and 8.2.10.
[33] Federal Electric submits that McDonald Brothers have not made best efforts to move forward their delay claim with PWGSC. In OEB International Ltd. v. Leyden, 1995 7332 (ON SC), Binks J. reviewed the caselaw regarding the interpretation of “best efforts” clauses. He cited Dorgan J. in Atmospheric Diving Systems Inc. v. International Hard Suits Inc., (1994) 1994 16658 (BC SC), 53 C.P.R. (3d) 459, 13 B.L.R. (2d) 243, [1994] 5 W.W.R. 719 (B.C.S.C.) who determined that the principles turn largely on the facts of each case. The principles are as follows:
1.“Best efforts” imposes a higher obligation than a “reasonable effort”.
2.“Best efforts” means taking, in good faith, all reasonable steps to achieve the objective, carrying the process to its logical conclusion and leaving no stone unturned.
3.“Best efforts” includes doing everything known to be usual, necessary and proper for ensuring the success of the endeavour.
4.The meaning of “best efforts” is, however, not boundless. It must be approached in the light of the particular contract, the parties to it and the contract's overall purpose as reflected in its language.
5.While “best efforts” of the defendant must be subject to such overriding obligations as honesty and fair dealing, it is not necessary for the plaintiff to prove that the defendant acted in bad faith.
6.Evidence of “inevitable failure” is relevant to the issue of causation of damage but not to the issue of liability. The onus to show that failure was inevitable regardless of whether the defendant made “best efforts” rests on the defendant.
7.Evidence that the defendant, had it acted diligently, could have satisfied the “best efforts” test, is relevant evidence that the defendant did not use its best efforts (para. 49).
[34] Based on the evidence before me and the arguments provided, I find that McDonald Brothers made best efforts to move forward their delay claim. They filed their claim with PWGSC within the allotted timeline of the Contract, they followed up with PWGSC as to the status of their claim and they retained Revay to provide an expert report to PWGSC.
[35] It must be noted that Federal Electric’s delay claim relates to the actions of PWGSC and involve the same parties (PWGSC, Federal Electric and McDonald Brothers). As per the clear language in paragraph 8.2.10 of the Subcontract, the delay dispute between Federal Electric and McDonald Brothers “shall be disposed of at the same time in the same proceedings and by the same Arbitration Board as is appointed to resolve the dispute between the Owner and the Contractor”.
[36] I agree with McDonald Brothers that undertaking separate proceedings as sought by Federal Electric is duplicitous.
[37] The provisions of the Contract require that specific steps be taken to advance a claim for delay. The evidence demonstrates that McDonald Brothers is following the procedure as set out in the Contract in order to protect its claims as well as those of its subcontractors.
Conclusion
[38] For all of the reasons noted above, I dismiss Federal Electric’s Application.
Costs
[39] A successful party is presumptively entitled to costs in a reasonable amount (Boucher v. Public Accountants Council for the Province of Ontario, 2004 14579 (ON CA) at 302 [Boucher]). The amount awarded is intended to be fair and reasonable for the unsuccessful party, but not fixed by the actual costs incurred by the successful party (Boucher at paras. 24, 26).
[40] The Court has discretion to award costs pursuant to s. 131 of the Courts of Justice Act, and Rule 57.01 of the Rules (Goldman v. Weinberg, 2017 ONSC 4743 at para. 4 (citing Chandra v. CBC, 2015 ONSC 6519)). Rule 57.01(1) sets out a number of factors to be considered in determining costs.
[41] Parties often argue that costs should follow the event. This was confirmed in Schreiber v. Mulroney, 2007 31754 (ON SC), [2007] O.J. No. 3191 (Sup.Ct.) at para. 2. Substantial indemnity costs are the exception to the rule.
[42] In this matter, McDonald Brothers are clearly the successful party. I have taken into consideration the factors in rule 57.01(1), for example, the matter was not overly complex, the issues were important to the parties and I do not conclude that the parties acted inappropriately.
[43] The parties provided me with their Costs Outlines. It must be noted the costs listed by McDonald Brothers’ counsel are significantly lower than those listed by counsel for Federal Electric. I exercise my discretion and order that Federal Electric pay McDonald Brothers the fair and reasonable amount of $6,268.74 inclusive of disbursements and HST. This amount is to be paid within 30 days of this Endorsement.
Justice M. O’Bonsawin
Date: January 18, 2019
COURT FILE NO.: CV-16-69541 DATE: 2019/01/18
ONTARIO SUPERIOR COURT OF JUSTICE
RE: Federal Electric (1976) Limited, Applicant AND McDonald Brothers Construction Inc., Respondent
BEFORE: Justice M. O’Bonsawin
COUNSEL: Mark Gallagher for the Applicant Christopher J. Hunt for the Respondent
ENDORSEMENT
Justice M. O’Bonsawin
Released: January 18, 2019