As the saying goes, “The road to success is always under construction.” Inevitably in the construction business one dispute or another will arise – no matter whether you’re an owner, general contractor, subcontractor or supplier.
Disputes can arise from the most trivial to the most important issues on a project. Common disputes involve extra work, timing of payment, disagreement about deficiencies, responsibility for delay and termination.
It is important to have clear contractual provisions specifying dispute resolution processes.
The Canadian Contract Documents Committee (CCDC) recognizes that construction disputes are common, and that parties require a process to resolve them in a cost-effective manner. Accordingly CCDC contracts include processes that incorporate negotiation, mediation and arbitration. Even if a CCDC form is not used, most contracts incorporate some manner of dispute resolution provisions. Prudent parties consider the consequences, requirements and time commitments of those provisions when negotiating the contract.
Questions to consider before entering into the contract might include:
- Is there a consultant appointed for the project? If so, what powers does he/she have to make binding decisions?
- What steps do I take if I disagree with the consultant’s decision?
- If the dispute cannot be resolved through negotiation, what is the timeline for mediation?
- If negotiation and mediation do not succeed, what is the method to achieve a final result: private arbitration or court?
- If it is arbitration, what is the scope of the arbitrator’s authority and what are the rules?
Once the project has started, there are simple steps you can take to prepare yourself in case a dispute does arise.
Documentation is key at all stages of a dispute – whether for negotiation, before an arbitrator, or if the matter goes to court. Keep organized and clear records, particularly regarding work performed, instructions given or received, changes made, notices given, and impacts of delay. Consider taking photographs at regular intervals or key stages; these can be invaluable.
When using email, keep it clear and concise and try to limit the number of issues in the same email chain. Try to avoid text messages for important matters. When site meetings are held and minutes are circulated, be sure to read them and suggest corrections if they are not accurate. Remember, anything you or others put in writing can and probably will show up in an affidavit or as an exhibit in a proceeding.
When a dispute arises, it’s important that the issues are clearly defined.
Refer back to the contract to remind yourself of the required notices and timelines. If you kept good records, you will have a file to rely on. Also consider early legal advice to identify your strengths and weaknesses.
The first step usually involves negotiation.
You know the project and once the issues are defined, the strengths and weaknesses considered, you are probably in the best position to cite the facts that support your case. If the dispute comes up mid-project, remember there is a long road ahead to complete; keep the relationship professional. In many situations there is an obligation contractually and legally to continue the work despite the dispute, which will then either proceed independently, or will be held in abeyance until the project is completed.
The next step is often mediation.
This involves a third-party mediator (or project mediator if appointed) and is a more formal but still non-binding process. The parties must each agree to the resolution, and any party can walk away at any time. The mediator attempts to facilitate a resolution, and usually does not have any power to make a binding order.
The mediation is almost always “without prejudice and confidential.” At its simplest, this means that what took place at the mediation cannot be used against a party at a later stage. While the parties or mediator usually determine the process of a mediation, CCDC documents have a set of standard form rules that can help.
If mediation is unsuccessful, the matter can proceed to a binding process: either arbitration or court.
In Manitoba, arbitration is governed by The Arbitration Act and any “arbitration agreement” between the parties, which can be either verbal or in writing. Accordingly the parties can decide on the process and rules for the arbitration. While there are exceptions (including whether the subject matter of the dispute is not capable of being arbitrated), courts will generally enforce an agreement between the parties to arbitrate and will not allow a court action to proceed. For example, while historically allegations of fraud or claims in tort (such as negligence) were considered to fall outside an agreement to arbitrate, recent case law has favoured a broad reading of arbitration agreements to allow arbitrators to consider such allegations.
Arbitration involves the use of a private arbitrator chosen by the parties and paid by the parties. An advantage of arbitration is that if the subject matter is technical, the parties can agree to hire an arbitrator with experience in that area. The Winnipeg Construction Association maintains a list of arbitrators willing to hear construction disputes.
The other binding dispute resolution process is the court, resulting in a decision by a judge. The Manitoba courts do, however, offer “Judicially Assisted Dispute Resolution” (JADR), a non-binding and voluntary process to resolve pending court actions. Similar to mediation, this is a facilitated negotiation presided over by a judge of the court, with the parties usually represented by counsel. Recent experience shows that JADR has a high rate of success.
Remember that at each successive stage of a dispute, the costs and time to resolve it usually increase.
Identifying the preferred process and presenting the best evidence available will go a long way to achieving a successful result.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
John Martens is a partner in the construction law practice at MLT Aikins LLP, Western Canada’s Law Firm. Reach him at firstname.lastname@example.org.