Fermar Paving Limited v. MTO, 2020 ONSC 2603

Court File and Parties

Court File No.: 977-19 Date: 2020/04/27 Ontario Superior Court of Justice

Between: Fermar Paving Limited, Applicant And: Her Majesty the Queen in right of Ontario as represented by the Minister of Transportation, Respondent

Counsel: James LeBer, counsel for the Applicant Alex Redinger, counsel for the Respondent

Heard: February 5, 2020

George J.

Overview

1The Applicant, Fermar Paving Limited (“Fermar”), is a full-service general contractor. In January 2016 it successfully bid on a contract tender published by Ontario’s Ministry of Transportation (“MTO”). It agreed to perform road resurfacing work on Hwy 400 including drainage, paving, grading, electrical work and the installation of an automated traffic-management system (“ATMS”). The total contract price was $7,862,000.00. The scheduled completion date was September 30, 2016. If the work was not completed on time the contract allowed MTO to charge $5,000.00 in liquidated damages for each day beyond September 30th. I am told that this is a standard industry contract.

2This application concerns MTO’s right to assess and claim liquidated damages from September 30th to October 24th, 2016.

3Rule 14.05(3)(d)(h) of the Rules of Civil Procedure provides that:

(3) A proceeding may be brought by application where these rules authorize the commencement of a proceeding by application or where the relief claimed is,

(d) the determination of rights that depend on the interpretation of a deed, will, contract or other instrument, or on the interpretation of a statute, order in council, regulation or municipal by-law or resolution; or

(h) in respect of any matter where it is unlikely that there will be any material facts in dispute requiring a trial.

4Fermar moves under this rule as, in its view, the question its claim raises involves the determination of the parties rights which depends only upon the interpretation of a contract. It submits that there are no material facts in dispute. Fermar seeks the following relief:

• payment in the amount of $71,760.00 plus HST for breach of contract;
• a declaration that MTO’s claim for liquidated damages (of $5,000.00/day) is unenforceable given the circumstances of this case; and
• in the alternative, a determination that MTO’s claim for liquidated damages is unenforceable from September 30, 2016 to October 24, 2016.

5MTO asks that the Application be dismissed. In the alternative, it seeks to have it converted into an action.

Facts

6This dispute arises from the following series of events:

• On September 29, 2016 – the day before the contract’s scheduled completion date - MTO requested that Fermar perform Additional Work (line painting). I will note that the contract provides that “The Owner or Contract Administrator, where so authorized, may request the Contractor to perform Additional Work without invalidating the Contract. If the Contractor agrees to perform Additional Work, the Contract shall proceed with such work upon receipt of a Change Order establishing the basis of payment, the price, and the adjustment of Contract Time”.
• On October 4th Change Order no. 13 (CO #13) was issued instructing Fermar to complete the Additional Work.
• On October 24th MTO cancelled the line painting work ordered under CO #13.
• On November 7th Fermar submitted an extension of time request, which MTO denied.
• As a result, Fermar and MTO engaged the resolution protocol provided for in the contract. Fermar submitted three separate claims – Claims #2 and #3 were related to delay and liquidated damages.
• On March 20, 2019 MTO and Fermar settled Claim #3 which reduced the liquidated damages to $70,000.00.

Position of Parties

7Fermar argues that MTO’s denial of its extension of time request was unreasonable and that its enforcement of liquidated damages at $5000.00/day – when Fermar was under the Additional Work order - is unconscionable. Fermar’s position is that MTO caused the delay in question and therefore cannot seek to recover liquidated damages arising from that delay.

8MTO seeks a finding that its claim for liquidated damages is enforceable for the period of September 30th to October 24th which would result in the dismissal of this application or, alternatively, that it be converted into an action. It argues that if a contractor, in this case Fermar, neglects to apply for an extension in a timely manner it can then presume that the contractor is liable for any delay. It also takes the position that Fermar is barred from bringing this claim, a point I will return to in a moment.

9Fermar characterizes MTO’s position as illogical as it ignores the issue of causation. It says there was concurrent delay – two delays resulting from independent causes overlapping during the same period – and that MTO is the root of one of the causes. If there was indeed a concurrent delay period MTO should not be permitted to recover liquidated damages.

Efforts to resolve outstanding issues before this Litigation

Claim #3

10I will now return to Claim #3 and the contract’s resolution protocol mentioned above. At paras. 9 and 10 of its Factum Fermar describes Claim #3 as follows:

9. During the early stages of the project Fermar realized that MTO’s required design for the implementation of the new Automated Management System would create challenges for Fermar. Fermar devised a solution, which MTO accepted. The solution required more time than the original contract completion date would have provided for. As such, and while the reconstructed Highway 400 was being used as intended by the scheduled contract completion date of September 30, 2016, Fermar’s temporary ATMS was still in place. MTO claimed liquidated damages for Fermar’s delay in installing the permanent ATMS solution. Fermar denied liability for the delay and the liquidated damages. Fermar challenged MTO’s right to keep a total of $370,000.00 in liquidated damages. Fermar challenges MTO’s right to keep a total of $370,000.00 in liquidated damages and Fermar launched Claim no. 3 related to the ATMS system delay.

10. On March 20, 2019, Claim no. 3 was settled by the parties with MTO agreeing to repay / release $300,000.00 of the liquidated damages that had been retained. The form of Release signed indicated “Note: The remaining Liquidated Damages set-off of $70,000.00 will be retained by the Ministry due to late Contract completion”.

11As indicated, Claim #3 was resolved by reducing the amount of liquidated damages down to $70,000.00, which is the subject matter of Claim #2, and the very issue on this application. The specific timeframe we are addressing is between September 30th and October 24th, 2016.

12Prior to the contract’s scheduled completion date (September 30th) Fermar had finished its work except for the installation of the permanent ATMS units. Fermar points out that, while these units were not delivered until September 29th a temporary system had been installed and the highway was operational and being used by the public.

Additional Work

13Not long before the scheduled completion date the contract’s administrator – who, while independent, was retained by MTO – asked Fermar to submit an estimate for Additional Work (to paint arrow markings on the highway’s ramps). A quote was provided. On October 4th, four days after the contract’s scheduled completion date, Fermar was instructed to complete this Additional Work. I previously referred to this as CO #13.

14CO #13 contained these two terms:

• The contractor may apply for an extension of contract time in accordance with the terms of the MTO General Conditions of Contract. Use Form PH-CC-775.
• Except as provided above, all terms and conditions of the contract shall remain in full force and effect.

15At para. 3.06.01 the General Contract provides as follows:

An application for extension of time or interim completion dates shall be made in writing by the contractor on the owners standard form PH-CC-775, Extension of Time Request and approval form, to the contract administrator, as soon as the need for such extension becomes evident. The application for an extension of contract time shall enumerate the reasons and impact on the critical path schedule and state the length of extension required.

16Para 3.10.02.01 of the General Contract addresses Additional Work. It provides that:

The owner or contract administrator, where so authorized, may request the contractor to perform Additional Work without invalidating the Contract. If the contractor agrees to perform Additional Work, the Contract shall proceed with such work upon receipt of a Change Order establishing the basis of payment, the price, and the adjustment of contract time.

17Fermar’s Senior Project Manager, Charles Ezomo, deposes that at the time they were asked to perform the Additional Work he did not know how long it would take to complete it. He further deposes that he was not going to apply for the contract time extension until he knew the answer to that question. I have learned that, on October 4th at 1:30p.m., the contract administrator issued a Liquidated Damages Notice advising Fermar that MTO was claiming damages in the amount $5,000.00 / day commencing October 1st. This was issued the same day MTO formally instructed Fermar to complete the Additional Work.

18Later in October, and after some further communications, MTO decided to cancel CO #13. Mr. Lingenfelter, the MTO representative to whom the contractor administrator reported, was examined on this point and admitted that the Liquidated Damages in question were a factor in his decision to cancel.

19After a further series of communications – including an attempt by Mr. Ezomo to seek clarification on this decision and to advise that Fermar would be claiming its costs for work done per CO #13 – Fermar requested an extension of time to complete the Additional Work, which was submitted on November 7th.

20On January 3, 2017 MTO denied Fermar’s request. During his examination Mr. Lingenfelter explained it this way: “I said, it looks like they’re not going to do the work. They haven’t shown up to do the work, so cancel it. It doesn’t take this long to do line markings”. Fermar rejects this explanation and notes that, to repeat a point I made earlier, during the material period (September 30th to October 24th) the highway was operational and the public was using it, albeit with the temporary ATMS units.

21MTO’s position is that the work under CO #13 was never the “Controlling Operation”. It relies upon the general contract which, it argues, makes it clear that it can assess $5,000.00 for each day after the scheduled completion date. It disputes Fermar’s contention that it is concurrently responsible for any delay. It argues that the Additional Work set out in CO # 13 is irrelevant to the contract and has no bearing on its right to charge liquidated damages. This, it argues, is a simple contract question that arises entirely from Fermar’s failure to complete its work under the general contract within the prescribed time.

22According to MTO, it can charge liquidated damages as Fermar was delayed in installing and completing the ATMS work; a right clearly set out in the contract. It argues that this delay falls solely at the feet of Fermar. Furthermore, as the contract provides that delay is determined by the Controlling Operation –the ATMS work – Fermar’s position cannot hold.

23MTO representatives were of the belief that upon resolving Fermar’s Claim #3 – which was in relation to damages charged for the ATMS work – that it was released from any further claims or legal proceedings in respect of liquidated damages. For its part, Fermar contends that by resolving Claim #3 – which reduced the liquidated damages from $370,000.00 down to $70,000.00 – it was understood by all that it would could then commence litigation regarding that balance. As it turns out, this was not clearly understood by all.

24Apart from the Release signed after resolving Claim #3, MTO’s position is Fermar is improperly conflating the Additional Work with the ATMS work called for under the general contract, and that it is contractually entitled to be compensated for the losses caused by Fermar’s inability to complete the ATMS work on time.

Issues

25These are the issues:

• Is Fermar barred from advancing this Application as a result of Claim #3’s settlement?
• If it is not barred, what is the impact of CO #13 on the question of who is responsible for the delay in completion of the ATMS work? Put another way, does the doctrine of concurrent delay apply?
• Is MTO entitled to charge liquidated damages for the period in question?
• Depending on the answers to these questions, I may have to determine whether this claim is properly the subject of an Application, or should be converted into an Action.

Impact of Release signed when Claim #3 was resolved

26Is Fermar barred from advancing this claim? I will address this question first as, if I find in favour of MTO, that would end the matter. At first blush, absent a careful analysis of the terms of Claim #3’s settlement, and were this merely a contest between two competing positions, I would surely find in favour of MTO. It strikes me that it would have made little sense for MTO to agree to resolve Fermar’s claim by reducing the amount of damages payable, and simultaneously agree that it could be sued in relation to that same reduced amount. In other words, it makes perfect sense that MTO, in agreeing to resolve Fermar’s claims in that fashion, would expect to be able to recover the set-off damages not addressed in the settlement. That said, I am governed by the specific terms of that resolution and must, therefore, focus on what was in fact agreed upon. This is addressed at paras. 3, 4 and 5 of Mr. Ezomo’s supplementary affidavit sworn September 15, 2019:

3. As I deposed in paragraph 2c of my original affidavit the Liquidated Damages claimed by MTO and disputed by Fermar under the Claim #3 “Set-off Charges as a result of Claimed ATMS Design Oversights” dispute were settled on March 20, 2019. This date was well after the Advocates LLP Notice under the Proceedings Against the Crown Act of December 14, 2018…was served identifying Fermar’s intention to proceed to seek recovery of the Liquidated Damages taken under this Claim, which was known as Claim No. 2.

4. Attached hereto and marked as Exhibit 26 to my affidavit is a true copy of the form of Release which I am told by Malcolm Martin of Fermar, was drafted by MTO and presented to Martin for execution. It specifically recites: “The settlement within this release is compensation for any and all outstanding claims associated with MTO Contract 2015-2021 related to Claim #3 – Set-off Charges as a Result of Claimed ATMS Design Oversights…Base Settlement – Reduction of Liquidated Damages Set-Off Amount $300,000.” It goes on to state: “Note: The remaining Liquidated Damages set-off of $70,000 will be retained by the Ministry due to late Contract Completion”.

5. It is clear that the settlement was entered into by the parties knowing that this Claim 2 seeking recovery of the remaining Liquidated Damages sum was pending.

27I have reviewed the March 20th Release referenced by Mr. Ezomo and he accurately sets out its language.

28The parties post-facto explanation of what they did or did not understand is, in these circumstances, inconsequential. The release itself governs, and while one could reasonably interpret it as a bar to Fermar proceeding with this claim, on this particular point it is somewhat ambiguous. The only real clarity is in its consistent reference to Claim #3 which is mentioned both in the preamble and in the final paragraph, where it states:

And for the said consideration, the Contractor further agrees to indemnify and save harmless the Crown and its agents, from and against all liabilities, liens, costs, demands, actions, causes of actions and claims for damages, loss or injury that may be claimed from or payable by the Crown by reason of or in any way related to the work performed in respect of the claim identified by the Claim number above.

29I note that the “Claim number above” is in reference to Claim #3. And while I place significant reliance on those clear references to Claim #3, to the extent there is ambiguity – and I believe there is a degree of uncertainty – I must apply the doctrine of contra proferentem and construe the words of the agreement “more strongly against the party using them”; see Canadian Vapotred Ltd. v. Leonard (1972), 1972 CarswellOnt 1041 where at para. 62 the court writes:

…a man is responsible for ambiguities in his own expression, and has no right to induce another to contract with him on the supposition that his words mean one thing, while he hopes the Court will adopt a construction by which they would mean another thing, more to his advantage.

30And since the Release in question is set out within a standard MTO form, I must find, at least on this point, in favour of Fermar as it makes no reference to Claim #2 whatsoever, which covers the time period in question and which informs this litigation. That is, the Release does not bar Fermar from proceeding with this application.

Impact of CO #13 – Can MTO claim Liquidated Damages?

31Is MTO entitled to charge liquidated damages? The relevance and significance of CO #13 fundamentally impacts the answer to this question.

32I will start with this general principle: Construction contracts are no different than any other. There is, of course, language unique to construction agreements but the principles and rules of interpretation are the same. As I interpret this particular contract, I must appreciate the purpose of the agreement and its overall context.

33Fermar contends that the issuance and subsequent cancellation of CO #13 is a concurrent cause for delay in completion of the ATMS work. In the result I find that the Additional Work (CO #13) is entirely irrelevant to the question of delay responsibility. That is, the Additional Work had no impact on the ATMS work and therefore MTO did not cause a concurrent delay.

34I will attempt to explain why I have come to this conclusion. First, it is not open to me to conclude that this Additional Work was the Controlling Operation, nor that it impacted the Controlling Operation. On this record I simply cannot see how it could have, especially when you consider the relevant definitions, including:

“Additional Work” means work not provided for in the Contract and not considered by the Contract Administrator to be essential to the satisfactory completion of the Contract within its intended scope.

“Contract Time” means the time stipulated in the Contract Documents for completion of the Work, including any extension of Contract Time made pursuant to the Contract Documents.

“Controlling Operation” means any component of the Work that, if delayed, will delay the completion of the Work.

“Work” means the total construction and related services required by the Contract Documents.

35The Additional Work – line painting (using stencils) – is not “work” that was tendered and is not “work” as defined in the contract. Furthermore, CO #13 makes it abundantly clear that this work is “additional”. Therefore, using basic common sense it was not, and had not become, the Controlling Operation.

36Second, on the question of whether CO #13 affected the Controlling Operation (the ATMS work), MTO correctly points out that no field work was ever done pursuant to CO #13. So far as I can tell Fermar ordered stencils and perhaps engaged in some planning. That is it. Therefore, CO #13 could not possibly have impacted the initial schedule. Fermar seems to rely upon the Contract Administrator’s reference to the Additional Work being “partially executed” but that characterization does not alter what the facts clearly reveal.

37I agree with MTO that - when one thinks about the applicable definitions of Work, Additional Work, Controlling Operation, and Contract Time, and considers their plain and ordinary meanings - Additional Work simply cannot have any bearing upon Contract Time calculations.

38Fermar’s counsel correctly states the law as it relates to concurrent delay. He is also right to say that this is a fact specific exercise. He relies upon several authorities that stand for the proposition that when an owner causes a delay in construction he cannot then insist on a contractor’s compliance with a scheduled completion date.

39Moreover, I fully appreciate the context which is, Fermar was asked to complete the Additional Work the day before the contract’s scheduled completion date and that not long after that MTO cancelled CO #13. I get the point which is, at the time, MTO must have known two things: First, that Fermar would not be able to complete the Additional Work within the originally scheduled contract time and, second, that Fermar would have to seek an extension of time. And then, with that knowledge, MTO proceeded to deny Fermar’s request for that extension. Some of what MTO did seems illogical. I also understand Fermar’s position that a failure to complete the contract work by the scheduled completion date is but one condition to claiming liquidated damages. That is, while it is necessary it is not sufficient as MTO must also establish that it has suffered a loss as a result of any delay.

40What I do not understand is Fermar’s position as its set out in paras. 44, 45, and 46 of its factum, where it writes:

44. Argument about whether there was technical compliance with the Contract’s procedures for the EOT (extension of time) request is academic, because failing to complete the Contract work by the scheduled completion date is a necessary, but not a sufficient condition for charging liquidated damages against Fermar. Charging liquidated damages is premised on the MTO having suffered loss or damage due to the delay. Implicit in the analysis is that Fermar is liable for liquidated damages if it caused the delay causing the MTO loss or damage. If that were not so, then MTO could compel forfeiture of liquidated damages, even where there was no evidence that all, or even some, of the causes of the delay were the fault of the contractor.

45. At its most extreme, this interpretation would permit the unconscionable scenario where the owner is solely responsible for the delay, but, in the face of a technically non-compliant EOT request, can continue to extract the liquidated damages claim from the contractor regardless of its innocence.

46. If this court were to deny Fermar’s declaration that MTO cannot claim liquidated damages against Fermar for any time during which CO no. 13 was in effect, being the period between September 29 and October 24, then it would be endorsing such an inequitable result.

41In my view, Fermar’s argument conflates several different issues and ignores completely the contractual language itself. And, as MTO points out in its written materials, Fermar is not arguing that the contract is flawed. It is alleging that its failure to complete the ATMS work is, at least in part, because of CO #13. However, the best evidence is that Fermar alone caused the delay in completion of the ATMS work and that CO #13 had nothing to do with it. Having made that finding it is not open for me to conclude that MTO caused any delay to the contract’s completion. Meaning the doctrine of concurrent delay does not apply.

42I can understand Fermar’s frustration. Once again, it is not clear to me why MTO engaged in discussions about Additional Work when it had to have known the ATMS work was not going to be completed in time, or why it issued CO #13 four days after that scheduled completion date. However, to the question at hand I still do not understand how CO #13 caused a concurrent delay. Fermar’s position seems to be that by cancelling CO #13 in the way it did and when it did, MTO had realized it was indeed causing a concurrent delay. This is an interesting theory, and possibly true, but not likely and certainly not supported by the evidence.

Discussion

Concurrent Delay

43Fermar advanced several arguments – not all of which I have addressed - but in my view each is dependent upon a finding that MTO is concurrently responsible for the period of delay while the Additional Work was issued and remained outstanding. Again, I cannot make that finding.

44Fermar relies upon several authorities, none of which are on all fours. On the issue of concurrent delay specifically see Kei-Ron Holdings Ltd. V. Coquihalla Motor Inn Ltd, and Bianchi v. University of Guelph. Both of these cases involved situations where the owners were held responsible for delay. In Kei-Ron the owners altered site-plans, amongst other actions, that directly prevented completion of the contract work. Our case is clearly distinguishable.

45There is no question that MTO offered to Fermar the Additional Work - and I have already expressed my opinion that that did not affect the contract - but apart from that MTO did nothing to cause Fermar’s delay in finishing the ATMS work. Contrary to Fermar’s assertion that MTO’s decision to cancel the Additional Work is an acknowledgment that it had caused delay, Mr. Lingenfelter’s explanation is the more plausible one which is, he simply concluded that the Additional Work was not going to get done as promptly as expected, so he cancelled it.

46This is the bottom line. There was a contract. This contract set a deadline for the work’s completion (September 30th). Fermar failed to complete the work by that date. There was a critical path schedule and, at least this is what I find, the offer of Additional Work did not and could not have impacted this. The contract created a process whereby Fermar could have sought an extension of time if it could not complete the work. Fermar did not submit that request until November 7th. All of this leads me back to the contract itself, which clearly and indisputably entitles MTO to charge liquidated damages in these very circumstances.

47Everything else is but a distraction. Fermar argues that it could not submit an extension request as, at least according to Mr. Ezomo, it did not then know how long of an extension was required. Earlier in these reasons I reproduced the Notice Provision found at GC 3.06.01, but to repeat myself, the extension request must be in writing; done in the approved form; submitted as soon as the need for an extension becomes evident; set out the reasons for the request and its impact upon the critical path schedule; and state the length of extension required.

48Fermar cannot pick and choose which of these various elements to comply with. It says it did not know the length of the extension required. Fine. But the clause is equally clear in that the request must be submitted as soon as the need for an extension is evident. Fermar must have come to this realization long before November 7th, and indeed before the scheduled completion date. I am not entirely certain why it did not simply estimate the length of time required. There is no reason it could not have at least done that, especially since there is no requirement for precision.

Contra Proferentem

49Fermar argues that the doctrine of contra proferentem applies to this question. I disagree. This principle applies only when there is ambiguity in the contract, but here I see no ambiguity (which I did on the Release question addressed earlier). This particular provision is crystal clear. Fermar ought to have requested an extension at or around the time of the completion date, if not earlier. For whatever reason, it chose not to. In fact, when cross-examined on his affidavit, Mr. Ezomo acknowledged that he could have applied for an extension at time, and was unaware of any reason why he could not have. He also seems to concede that he could have submitted an initial extension request, and a further request if he later learned the initial estimate was inaccurate.

Conclusion

50For these reasons, I dismiss the application. MTO’s claim for liquidated damages is enforceable during the period in question.

51Should MTO seeks its costs written submissions may be filed. There is a four page limit, excluding a costs outline and any authorities relied upon. MTO has until May 20, 2020 to serve and file its argument; Fermar until May 29th. There is no right of reply.