Disputes can arise in construction projects of all sizes. They might concern either money or the scope of work expected under the contract.
There is a selection of resolution processes from which to choose: adjudication, arbitration and litigation.
However, the first step most construction law experts recommend is to continue work and payments, but “under protest.”
For a project owner, it means although payments have been made or will continue, the charges are not accepted and efforts to recover those payments will likely take place later. The term is called Payment Under Protest.
The flip side is when a contractor disputes the extent of their performance obligations under the contract. They may decide to continue work in accordance with the other party’s interpretation but to do so “under protest,” reserving a right to claim further compensation.
“Opting to perform duties or make payments under protest can serve as a practical strategy for conflict resolution,” Fasken Martineau DuMoulin LLP partner Edward Lynde and articling student Jessy Oduro-Kwachie told the Daily Commercial News.
“This approach helps to prevent project delays and ensures continued performance of the work towards completion rather than allowing claims and disputes impacting the progress, which may have significant detrimental effects and negative outcomes, including the potential that the project remains unfinished. No claim has ever, in and of itself, completed a construction project.”
In other words, the show must, and should, go on. Furthermore, halting work completely on any project risks collateral damage beyond the claims within the initial dispute itself.
“Not performing work and/or providing payment under protest would likely lead to competing claims between the parties alleging default under the contract,” Lynde and Oduro-Kwachie said. “The corresponding ramifications could potentially include damages for delay, work-stoppages, suspension, abandonment and termination. In such a scenario, it is more likely than not that the disputes and claims will become larger, both in quantum and scope, which is to be avoided if possible given the possible detrimental effects to all parties and the project.”
It goes without saying contracts should anticipate as much as possible, including the possibility of disputes. The level of anticipation is something the courts will consider when a dispute is brought forward for a decision.
Whether the dispute is a matter of performance or payment, Lynde and Oduro-Kwachie said courts will look at several factors to determine the validity of financial recovery or further compensation, including intentions, surrounding circumstances and, of course, contract language.
Cassels Brock and Blackwell LLP partners Mark St. Cyr, Zach Flemming-Giannotti, associate Stephanie Garraway and articling student Emily Di Bratto agree.
For example, when considering payments made under protest, “Courts will examine the context around the payment(s), applicable contract language, the parties’ correspondence, and other relevant evidence to determine whether the payor ought to be entitled to claw back payments made under protest,” they write.
Payments made grudgingly without other evidence anticipating future recovery have failed before the courts. Simply lodging a “bald” protest by a payor is not in itself determinative, write the Cassels lawyers. “It simply acts as ‘evidence.’”
The most efficient method of resolution process to claim either payment claw back or further compensation must be chosen. Every judiciary process carries a degree of risk and uncertainty.
Lynde and Oduro-Kwachie warn against full blown litigation given the high costs, delays due to court backlogs and strict processes under the Rules of Civil Procedure. The consequence might be that “the desired relief and outcome sought remains elusive, and justice merely illusory.”
To minimize this and to hopefully provide guidance to the court, the Cassels lawyers suggest, in the case of payors, that they enter into “a reservation of rights agreement with a payee that would set out the ability to claw back payments made.”
Alternatively, arbitration offers simplified and flexible procedures customizable to the particular needs of all parties, including the selection of an arbitrator with the appropriate construction knowledge.
John Bleasby is a freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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