Arbitech Articles

I wrote an opinion report recently dealing with a townhouse that had structural and leakage issues.  In this case, my opinion was not about what to do.  It was about who was responsible – negligence issues – not damages.  Those had already been established and the repairs were complete.  Basically, through a review of documents, my opinion said that the engineer of record had a duty to design appropriate shoring and drainage; he failed in his duty to do so; and as a direct result, repairs were needed.  Yes, the municipality was also on the hook for failing to meet their duties and the builder as well for failing to comply with the design that was wrong and, in his failure, actually making it worse.  But that’s not the issue here.  The issue was that of the wording of the one-page covering letter to my report.  In that letter, I stated that the report was intended for mediation.  Further, I stated that I did not append all footnoted documents as those were in the court record.  Like all expert reports should, I added the phrase stating that the opinion was based on available information and that if new information became available, I might change my opinion.  We’d been through discoveries, so if new information appeared, there had better be a very good reason.  It was a report that could quickly be amended for trial if needed.  But this was not going to trial.  It was obviously headed toward settlement.  Being a report for mediation, I knew that the mediator was not going to read the 100 pages let alone another 100 pages of referenced documents; so, why include those.  He was only going to read the 3-page executive summary. 

The engineer’s legal counsel knew all this.  He knew it was silly to append all referenced documents; he knew his client’s insurer was going to write a cheque.  I knew that he knew this because I had been his expert on another matter so he and I both knew where this case was headed.  But, rather than move forward with the business of closing the matter, he chose to take issue with the wording of the covering letter to my report.  He said that my report was “not final” that it was “without prejudice” and; therefore, could not be used in the mediation.  I amended the wording of the letter once – removing the statement that it was intended for mediation.  A week later – same response.  After my client’s lawyer and I shook off our disbelief and she (our client’s lawyer) torn him a new one over the phone, we finally went to mediation.  Less than a day later there was a draft settlement agreement which is now being tuned up for execution.  The engineer’s lawyer wasted two weeks.  Nobody understands why.  Nobody understood why an opinion report for mediation should cause him such concern. 

The only answer I have is that he knew he was holding no playable cards so he had to use distraction as a tactic to make it seem like he was doing something.  He couldn’t deal with the facts so he dealt with the paper they were written on.  Obfuscation may work before you get to trail.  It may increase the anxiety of the parties to make it seem like they have a softer claim than their expert has presented; but, in front of an arbitrator with subject matter expertise or a seasoned judge, as a tactic, it becomes his liability as it withers before the evidence. 

So, legal community…. why not quit with the games and just get down to business?  The civil justice system has enough problems without lawyers lathering on more.

Imagine if you will, a situation in which, though a CCDC 2 Stipulated Price Contract executed last January, a building owner/manager hires a contractor to replace all the windows in a high-rise building starting in March 2020 and finishing by September 2020.  That work has been needed for some time and the occupants have been insistent that they need new windows.  To calm the occupants, the owner/manager of that building, promises the occupants by a newsletter and Town Hall meeting that they would have new windows before the fall of 2020.

Supposing as well, that several of the occupants had made arrangements with other contractors to repaint walls, and make other improvements that could occur only after the windows were installed and that their contractor’s lump sum prices for those improvements were agreed by a signed purchase order which stipulated that price was dependent upon completing the work in September 2020.  You see where this is headed?

In steps COVID 19 and government business intervention measures to protect health and safety in an “all in this together” approach.  The window contractor’s glass supplier becomes insolvent and closes down.  The window installer looks for new glass but cannot get any until November due to shortages.  The trickle-down impact of COVID 19 on business agreements is in place.  Now, we have a painter who agreed to do work in September 2020 but is told he cannot, an occupant who based that agreement on a commitment from the building owner/manager that work in their suites would be completed before September 2020 who cannot get the work done, and a window contractor who was to do the window work but is unable to do that work because now, he can’t get the right glass in time.

The painter says he is ready to go in September; but, if the work is delayed, he will charge 20% more because the government suspension of work has prevented him from working; purchase orders have been backing up, and to satisfy everyone, he will have to pay overtime.  The contractor who was to install the windows says that his price has to increase 30% because his glass supplier is no longer around and the only other supplier he can find with that particular type of window will cost 30% more.   Moreover, this delay has cost his business so much that his surety company will no longer provide a labour and material payment bond.  Finally, if the owner/manager does not accept these new terms, the window contractor says that the contract can no longer be completed as agreed, has been “frustrated”, and he can no longer do the work.

The owner/manager says that he has no knowledge of where the windows came from and that if there are extra costs those are the contractor’s responsibility.  Further, the owner/manager says that if he is sued by the occupants for extra costs arising from the window contractor’s delay, he will back-charge those to the window contractor.  Messy, no?

In this situation, who can claim for costs?  Who has originally prescribed obligations that they no longer have to meet?  Who gets to charge more?   Lawyers will say, look at the contract.  Was there a provision for delay not contemplated?  Was there a compensation clause?  Was there a compensation and delay without consequences clause?

Force Majeure

This term has been tossed about quite a lot lately.  Basically, it means that a contract can no longer be executed because there were intervening and extraordinary circumstances, sometimes referred to as “acts of God” that were not, perhaps could not, have been contemplated.  These could include fires, labour disputes, strikes, lockouts, diseases, plagues, and epidemics.  Under the heading of epidemics, certainly COVID 19 has been declared a worldwide pandemic; but, does that make it a claimable event?  There are no clear answers, but here are just some thoughts on the matter.

1. A CCDC 2 Contract has General Condition (CG) 6.5 regarding delays and costs. That clause can guide a claim or response subject to Supplementary General Conditions (SGC).

2. Force Majeure in the manner of a pandemic may trigger delays or delays and costs can be informed by CG 6.5 or amending SGC.

3. While a Force Majeure event may have occurred, the occurrence may not be sufficient grounds for a claim or counterclaim. Details such as foreseeability, ability to alter an agreement, ability to mitigate costs, and effort to mitigate costs all weigh into any claim.

4. One must also consider the significance of any change in costs. Would a 10% increase in cost be claimable as a response to a force majeure event?  How about 20%, 50%?

5. If work is only delayed and not terminated, is the delay within the total non-critical path period of a project or is it just an extension of certain critical path periods? What is the actual extended period?

6. If the work is terminated due to a force majeure event, and the termination is invoked by the building owner/manager (in the case of the window installation) or by the occupant (in the case of the painter), can these contractor(s) claim lost opportunity costs, lost income, overhead and profit on the project, and/or overhead on the costs to maintain their office.

7. If the work is terminated by the window contractor, can the owner/manager claim costs for delay or 3^rd party claims from occupants passed along as the added costs to do the painting?

8. Does the understanding between the occupant and the owner/manager constitute a contract that can trigger a claim?

9. Can any of these matters be claimed against business operations insurance?

10. Do a government measures trump all or any commercial arrangements in contracts affected by COVID 19?

11. Does the government have any liability for possible failure to protect citizens against effects of a pandemic type force majeure-type event and to what degree was it foreseeable?

12. Can the government be held financially responsible for frustration of the commercial arrangements and associated costs?

Like everything else we do, the actions we agree to take and accept in a contract are based on the type and amount of risk we will take and how much the taking of that risk is worth.   But what if you do not know the risks?

Who should be at risk?

Contracts are really all about doing something for someone and getting something in return (illegal activities excluded).  When nobody else intervenes in a contract, there is supposed to be an ability for the parties to understand the expectations and the rewards in those contracts.  In that way, they can decide how the risks can be divvied up.  Normally, if you assume more risk, that is worth more than if you assumed less risk.

COVID 19 and the government threw a huge wrench into the works of construction contracts.  Under the heading of “we’re all in this together”, government (presumably rightly) shut down most businesses and, thus, the ability of those businesses to do things they promised to do, pay for things they promised to buy, and go places they promised to go.  As it sits today, in the absence of better force majeure compensation clauses in contracts, there is a very tall hill for a claimant to climb to demonstrate that the contract could not be completed.  I will not quote case law, but the conditions that allow a contract to be ended due to force majeure essentially term ”impossible” has been the subject of some discussion.  Today, essentially, the contract has to have been made “impossible” and, thus, totally frustrated by unforeseeable events such that it cannot be completed.  But, “impossible” is very different situation from being “commercially impractical”.

A contract that is “commercially impractical”, considering the intervening restrictions and suspensions, can no longer be done in the planned time, or cannot be done with the same materials.  It is not “impossible”; it is just not possible at the same cost, time, or using the same materials.

It seems to me that at present, the assumptions made by contracting persons, like our window installer who expected to get glass starting in March and possibly expected to have access through the occupied spaces to install those windows or the occupant who agreed with a painter to have work done at a specific time and cost following the window replacement, were reasonable risks that each understood and paid for or were paid for.  If those conditions are out the window, so to speak, it would seem that the current frustration or “impossible” threshold puts a heavier burden of risk on the contractor.  Disagree if you will.

As a glimmer of light contrary to current “impossibility” standards for frustration of a contract, the Canadian Law Dictionary © 1980, defines “impossibility” as follows:

“[…] ‘Impossibility’ means not only strict impossibility, but impracticability because of extreme and unreasonable difficulty, unanticipated difficulty, expense, injury or loss involved … Mere unanticipated difficulty, however, not amounting to impracticability is not within the scope of the definition.”  Restatement of the Law of Contracts, American Law Institute, vol. II, S 454 […]”

So, there remains a very high test of “impossibility”.  It would seem that the test requires deep exploration of the facts to arrive at a determination of whether a particular contract has been made impossible or merely more difficult.

Now what?

Whether, a contract is impossible, impractical, unreasonably difficult, etc., will undoubtedly be the subject of much new Canadian common-law in the years to come.  One can also expect that in a post-COVID 19 world, there will be substantial changes in the drafting of contracts regarding delays, suspensions, and associated costs to more reasonably share the risks involved.  I expect that there will also be added layers of complexity as in our example of the painter affected by the inability of the window supplier to meet expected timelines.

While several steps removed from the government intervention measures, there have been unpredicted consequences brough about by conditions to which nobody had agreed.  We may have been “in this together” as far as protecting our health and safety; but that may not be the case when trying to reconcile costs and damages.

In the meanwhile, I expect that there will be an accounting done and fingers pointed.  Interesting times ahead.

Gerald R. (Jerry) Genge is an ODACC Adjudicator, engineer, mediator and arbitrator employed by Arbitech Inc. and Pretium Engineering.

On one hand, the civil justice system is underpinned by fairness and equal opportunity to argue or defend a claim.  It has allowed evidence to be weighed and interpreted, and to form the basis for the opinion and decision by only the judge.  The judge may have experience in many aspects of law; but, they are likely not trained in matters involving technical issues.  Sometimes common sense is enough; but, not always.  Enter the “expert”.  As an exception to the rules of evidence, the expert may be granted the right to present an opinion on the technical matters.  If well presented the “opinion” evidence should replace a judge’s personal experience or bias or their indecision with a fair and reasoned expert opinion.  A good expert can do this.  A hired gun can not and since the “hired gun” is the usual worry of all other parties, they too must engage “experts” to respond to the evidence and present their “expert opinion”.  On the surface, that all supports fairness and equality of opportunity.  It also slows the process and adds cost as report upon report upon report is written and produced.  The reports may answer only some of the questions about the matter and; thus, be only part of the picture.  They may be long and tedious to read.  They may be advocating for a position.  They may not be helpful at all.

On the other hand, an adjudicator or arbitrator with technical subject matter expertise may be able to hear technical evidence and substantially abbreviate the time it takes to respond.  If they are really on their game, they may require that the experts for all parties meet with a facilitator to pare down the points of disagreement and, without influence by the advocates or the principals in the claim, establish a fair valuation of damages or specific performance needed to resolve the issues.  Then the expert evidence may be limited to assessing liability which a worthy adjudicator can probably work out using the contracts or other documents obligations.  As another option, the technically astute arbitrator adjudicator or may choose to get all the experts together as a panel and question them on their reports, direct certain experts to do certain activities, or give counsel some direction on the limits of the qualifications of the experts.  In the cases that I have done this, the parties were present in the background; the evidence took less than half the time to submit; the case settled that day.

In the cases where the conventional process is employed, everyone spends a lot of time and money working their way to the date of a trial.  Sometimes the important parties have disappeared.  Sometimes the evidence and memories are stale.  But, the due process is upheld.  In the cases where someone with subject matter expertise takes control, time taken, money spent, anxiety experienced, and public exposure presented can be curtailed while possibly arriving at a better answer to the questions of liability and damages.

Jerry Specializes in ADR of matters in the $250,000 to $1,000,000 range and applies over 40-years’ experience to resolution in a friendly, yet efficient settling.