South Rock Ltd. v. Sprague-Rosser Contracting Co. Ltd., 2012 ABQB 157

Court of Queen ’ s Bench of Alberta Citation: South Rock Ltd. v. Sprague-Rosser Contracting Co. Ltd., 2012 ABQB 157 Date: 20120313 Docket: 1101 10492 Registry: Calgary Between: South Rock Ltd. Applicant - and - Sprague-Rosser Contracting Co. Ltd. Respondent _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice M. David Gates _______________________________________________________ [ 1 ] This is an application by South Rock Ltd. ( “ South Rock ” ), filed August 19, 2011, for an order declaring that the Notice of Dispute issued by Sprague-Rosser Contracting Co.

Ltd. ( “ Sprague-Rosser ” ) is not in compliance with the dispute resolution process that is dictated by the subcontract between the parties.

As a result of this non-compliance, South Rock contends that Sprague-Rosser has forfeited any rights that it has, or may have had, with respect to a claim, reimbursement, costs or any other matter arising out of this dispute. [ 2 ] An Originating Application was previously filed by Sprague-Rosser on July 29, 2011, seeking, amongst other things, an order directing South Rock to submit to arbitration in accordance with the mandatory Alberta Transportation ADR Process ( “ AT-ADR ” ).

Both parties agree that South Rock ’ s application should be heard first and, indeed, that it will be determinative of both applications.

[ 3 ] For the reasons which follow, the application is dismissed with costs. Facts [ 4 ] Sprague-Rosser held a construction contract with Alberta Transportation covering work on Highway 63 near Fort McMurray, Alberta. South Rock subcontracted certain portions of this project to Sprague-Rosser by way of an agreement dated January 26, 2010. The value of the subcontract was approximately $11.6 million. [ 5 ] Commencing in or around March, 2010, issues arose between South Rock and Sprague-Rosser relative to the subcontract and work already performed or to be performed.

At the end of March, 2010, South Rock modified the scope of work to be undertaken by Sprague-Rosser. The parties could not agree to revisions to the subcontract price flowing from this modification. Difficulties between the parties escalated to the point that Sprague-Rosser provided a series of Notices of Claim throughout early to mid-April, 2010. [ 6 ] South Rock terminated the subcontract on May 20, 2010, citing alleged safety infractions by Sprague-Rosser employees and, alternatively, unacceptable performance by Sprague-Rosser.

Communication between the parties, and/or their legal counsel, continued from May, 2010 until October, 2010, relative to the termination and the amounts owed to Sprague-Rosser for work performed under the contract. In July, 2010, Sprague-Rosser filed a Public Works Act claim with Alberta Transportation. [ 7 ] South Rock advised Sprague-Rosser of its position relative to the alleged safety violations as a basis for termination in a letter dated November 1, 2010, in which it stated in part: We trust that our position is now clear.

If you are still unwilling to consider this matter in a more objective manner, then regrettably you will have to proceed in a more public forum as you have threatened.

If you would still like to discuss this further we will remain open to do so, based upon our position as outlined above and in our previous communications . (Emphasis added) [ 8 ] Sprague-Rosser responded on November 5, 2010, indicating that "...Sprague-Rosser is willing to attend a facilitated negotiation session to settle our dispute." [ 9 ] Responding to Sprague-Rosser's November 10, 2010 request of Alberta Transportation relative to the Public Works Act claim, South Rock's counsel wrote to both Sprague-Rosser and Alberta Transportation on November 11, 2010 as follows: It is important to note that as per South Rock's most recent correspondence dated November 1, 2010, a copy of which was also provided to you, our client indicated that it remained open to discuss this matter with Sprague-Rosser and as recently as yesterday the writer repeated that offer with Sprague-Rosser's Counsel.

South Rock has seriously considered participating in a facilitated negotiation session, but is of the view that the parties' respective positions are too far apart to have any confidence that a negotiation session would be successful at this time. Arbitration has never been proposed or discussed let

alone refused by South Rock. Again, South Rock acknowledges that it is bound by the dispute provisions of its Subcontract with Sprague-Rosser and has every intent of participating and establishing its position as required to do so in any such proceedings. [ 10 ] On March 9, 2011, Sprague-Rosser's counsel sent an email to South Rock's counsel to determine whether South Rock was prepared to proceed to arbitration pursuant to the AT ADR Process.

On May 9, 2011, counsel for South Rock responded: South Rock is contractually bound by its agreement with Alberta Transportation to participate in the AT-ADR Process, which is in turn incorporated into its subcontract with Sprague-Rosser. Accordingly, both South Rock and Sprague are bound by the requirements of the AT-ADR. The AT- ADR process calls for three (3) steps: negotiation, mediation and arbitration, all of which are mandatory, sequential and preconditions of proceeding to the next stage.

South Rock is not willing to breach these contractual requirements and therefore cannot agree to proceed to arbitration unless and until the pre-requisite steps are undertaken and completed... If it is Sprague's intention to proceed with the AT-ADR then we are in a position to accept service of the Notice of Dispute required to start the negotiation stage of the alternate dispute process. [ 11 ] Sprague-Rosser's legal counsel next provided two emails to South Rock's counsel, one on May 31, 2011 and another on June 19,2011.

In the May 31 st email, an inquiry is made as to South Rock's willingness to engage in a bona fide negotiation process. This communication stated in part as follows: Kerry, in your letter of May 9 th , you indicate that mediation is a mandatory part of the AT-ADR process. The version of the protocol that I have seen makes mediation a consensual process. Do you have a different version? I take it that your client is suggesting a bona fide negotiation process?

I question whether that can occur given your statement (your November 11, 2010, letter to the Minister of Transportation ) that negotiations make no sense since the parties ’ positions are too far apart. Has that position changed? To the extent that your client is prepared to have a bona fide negotiation, do you propose that it be restricted to senior officials of each company? If so, do you have timing in mind?

I look forward to hearing from you. (Emphasis added) [ 12 ] South Rock did not respond to this correspondence, prompting Sprague-Rosser ’ s counsel to send a further letter on June, 19,2011, which stated in part: Although South Rock has yet to provide Sprague-Rosser with its 'final position'

with respect to the dispute that ensued following South Rock's termination of the Subcontract on May 22, 2011, Sprague-Rosser wishes to move forward with the DRP process and is therefore formally tendering this Notice of Dispute. [ 13 ] On July 6, 2011, counsel for South Rock responds as follows: We do not concur that South Rock has not provided Sprague-Rosser with its 'final position' with respect to the within dispute. On numerous occasions since our client's written notice of termination of May 20, 2011, South Rock has clearly stated its final position with respect to your client's claim.

That position has been clear and consistent - South Rock is of the view that it was justified in terminating the Subcontract between itself and Sprague-Rosser and that as a consequence Sprague-Rosser is not entitled to the recovery of any amount being claimed.

Accordingly, our client takes the position that Sprague-Rosser's issuance of the Notice of Dispute is not in compliance with Al.4.1 of the dispute resolution process that is dictated by the Subcontract and therefore any rights that your client had, has or may have with respect to a claim, reimbursement, costs or any other matter arising out of the dispute has been forfeited as an issue in the upcoming dispute resolution proceedings. [ 14 ] On the same date, July 6, 2011, seemingly unaware of South Rock ’ s communication of that same date, counsel for Sprague- Rosser sent an email to counsel for South Park as follows: As I read the AT-ADR document, negotiation was to have commenced within 14 days of the Notice of Dispute.

The Notice was served on July 19th. As such, we are directly into the arbitration process by default since my client has no interest in mediation. So, the next step is to confirm a choice of arbitrator. Jack Marshall has great credentials and has been selected by Gowlings in other cases. I will await confirmation that Mr.

Marshall is acceptable so that we can put the mandated arbitration agreement into place to secure his services. [ 15 ] As previously noted, on July 29, 2011, Sprague-Rosser filed an Originating Application on July 29, 2011, seeking an order selecting an arbitrator and referring the matters in dispute to arbitration. South Rock subsequently filed this application on August 19, 2011, seeking an Order that Sprague-Rosser's right to pursue the issue had been forfeited. Dispute Resolution under the Contract

[ 16 ] It is common ground between the parties that the subcontract was subject to the AT-ADR Process. This process mandates that the resolution of disputes between parties involves at least two phases: negotiation and arbitration. As such, both the Standard Specifications for Highway Construction Manual ( “ the Standard Spec Manual ” ) and Appendices A-E of the Dispute Resolution Process for Government of Alberta Construction Contracts Manual ( “ the DRP Manual ” ) applied to this subcontract.

In the event of a conflict between the DRP Manual and the Standard Specs Manual, both manuals stipulate that the DRP Manual shall govern. Failure to comply with the specified process (including the order and time-lines for notice and response) may adversely impact a party ’ s right to proceed with or respond to a claim flowing from a disagreement. (A copy of the Standard Spec Manual is appended as Exhibit “ G ” to the affidavit of Larry McGregor, sworn August 19, 2011.

A copy of the DPR Manual is appended as Exhibit “ B ” of the Affidavit of Jeff Jessamine sworn July 28, 2011.) [ 17 ] The negotiation phase is triggered by a Notice of Claim .

A claim is defined in the Standard Specs Manual (s. 1.2.54.1.1) as “ a situation or occurrence which results in a difference in opinion between the parties as to payment or compensation required under the contract or the time required to complete the Contract. ” There is no prescribed form required for a Notice of Claim, though it must be in writing; set out the details of the claim; and be delivered within 7 days of a claim arising (s. 1.2.54.1.2). [ 18 ] The DRP Manual govern the arbitration phase.

If the parties do not agree to mediate the dispute and are unable to resolve the dispute in this initial negotiation phase, the claimant can serve the other side with a Notice of Dispute to have the matter determined at arbitration.

A Notice of Dispute must be served within 14 days of a party ’ s receipt of the other parties ’ “ final written position. ” If settlement is not reached within 28 days of the service of the Notice of Dispute, the dispute is deemed to have been referred to arbitration unless the parties agree otherwise. [ 19 ] The relevant portions of Appendix A of the DRP Manual provide as follows: A1.4 Notices of Dispute, Referral and Challenge This subsection (A1.4.1) does not apply when the Contract calls for the use of a Referee.

A dispute shall be deemed to arise when the Owner or the Contractor serves on the other party a written Notice of Dispute. A Notice of Dispute shall be in writing, shall state the nature of the dispute, and shall be served in accordance with the notification requirements of the Contract. A Notice of Dispute must be served within fourteen (14) days of one party ’ s receipt of the other party ’ s final written position regarding a Claim, if the position is not acceptable, or at any time prior to the receipt of such written position.

A party failing to serve a Notice of Dispute in accordance with this subsection (A1.4.1), forfeits any rights to a claim, reimbursement, costs or any other matter arising out of the dispute. [ 20 ] The AT-ADR Process contemplates dialogue and informal negotiation between the parties prior to invoking the more formal, prescribed phases of the process. The Standard Spec Manual, para. 1.2.54.1.2 (Resolution of Claims) states in part as follows: The Parties shall make bona fide efforts to resolve a claim and the Work shall proceed without delay during the claims resolution process ...

In the event the claim is not resolved to the satisfaction of both parties through this process and the claimant wishes to pursue the matter further, it is incumbent upon the claimant to issue a Notice of Dispute...(emphasis added) Similarly, the DRP Manual states in part as follows (at para. 1.4):

During the course of a construction contract there may be many issues that arise on which the parties do not agree and which may be resolved prior to initiating the DRP... It is extremely important that claimants notify the other party of a Claim as soon as possible after the occurrence of the situation giving rise to the Claim. This will allow both parties the opportunity to take immediate action to eliminate or mitigate the factors giving rise to the Claim, to agree on how the work is to proceed (while the Claim is being evaluated) and to keep joint records of any costs associated with the work in question...

Prior to initiating the DRP, the parties shall attempt to resolve through negotiations, any Claims arising out of the Contract ... Issues [ 21 ] Sprague-Rosser states the issues in dispute as follows:

a) Did Sprague deliver timely Notices of Claim and Notice of Dispute sufficient to invoke the AT-ADR Process and refer issues in dispute between the parties to arbitration?

b) Alternatively, has South Rock acquiesced or waived reliance on any contractual "limitation period" to proceed in the AT-DPR process? Positions of the Parties [ 22 ] South Rock advanced two arguments on this application. First, South Rock says that Sprague-Rosser failed to comply with the notice requirements of the AT-ADR Process in that its complaints and/or claims were neither timely nor in a form sufficient to constitute a Notice of Claim. Second, South Rock says that the Notice of Dispute served by Sprague-Rosser on June 19, 2011 also did not meet the time requirements set out in the AT-ADR Process.

In its written submissions, South Rock seems to take the position that its letter of July 29, 2010 constituted its “ final written position, ” thereby triggering the 14 day time line for Sprague-Rosser to submit its Notice of Dispute.

However, during oral argument, South Rock relied on a May 9, 2011 letter, not the July 29, 2011 letter, as constituting its “ final written position. ” According to South Rock, Sprague-Rosser ’ s June 19, 2010 letter, while meeting the requirements of a Notice of Dispute, was out of time in any event. [ 23 ] Sprague -Rosser, on the other hand, takes the position that its various written communications with South Rock, beginning on March 19, 2010 and continuing throughout April, 2010, constitute a Notice of Claim.

Thereafter, until June 19, 2010, when it delivered the Notice of Dispute, Sprague-Rosser says that the parties were actively engaged in a negotiation process, as evidenced by the various exchanges of correspondence and email. Further, Sprague-Rosser says that at no time did either party provide the other party with a final written position “ that clearly and conclusively established its intention to foreclose any further negotiation ” [Written Submissions of Sprague-Rosser, para. 25].

Moreover, Sprague-Rosser says that the actions of South Rock, as evidenced by its correspondence of November 11, 2010 and May 9, 2011, confirm that the negotiation process was still ongoing. Finally, Sprague-Rosser rejects South Rock ’ s assertion that the letter of May 9, 2011 can properly be characterized as South Rock ’ s “ final position ” so as to render the June 19, 2011 Notice of Dispute out of time. Analysis

a) Did Sprague deliver timely Notices of Claim and Notice of Dispute sufficient to invoke the AT-ADR Process and refer issues in dispute between the parties to arbitration?

[ 24 ] In my view, there is no merit to South Rock ’ s contention (advanced in its written submissions in support of this application) that Sprague-Rosser failed to advance any of its complaints and/or claims in the proper form and, instead, relied on verbal comments and/or copies of minutes from meetings.

Attached as exhibits to the affidavit of Jeff Jessamine (sworn November 15, 2011) are copies of several documents sent to South Rock by Sprague-Rosser dealing with the following matters: Exhibit 6 - Letter dated April 16, 2010 - Formal Notice of Claim pursuant to s. 1.2.54.1.2, Resolution of Claims; Exhibit 7 - Letter dated April 16, 2010 - Formal Notice of Delay, pursuant to s. 1.2.54.1.2 Resolution of Claims; Exhibit 8 - Letter dated April 19, 2010 - Work Under Protest; Exhibit 9 - Letter dated April 27, 2010 - Formal Notice of Claim/Formal Notice of an event/condition potentially impacting cost and

schedule of work; Exhibit 10 - Letter dated April 30, 2010 - referencing a Formal Notice of Claim set forth in a letter dated April 23, 2010. [ 25 ] While these materials do not address the timeliness (i.e. within 7 days) of these Notices of Claim, they do confirm that at least in these specific instances Sprague-Rosser was following the proper process to bring complaints/concerns to the attention of South Rock.

I would simply add that there does not appear to be anything in the record before me that indicates South Rock ever formally raised with Sprague-Rosser any alleged noncompliance with the protocol for bringing a Notice of Claim. [ 26 ] I do not accept South Rock ’ s contention that the July 29, 2010 letter from Larry McGregor to Jeff Jessamine (Ex. 19, Affidavit of Jeff Jessamine sworn November 15, 2011) confirmed its denial of all of Sprague-Rosser ’ s claims.

While South Rock ’ s written submissions do not explicitly rely on this July 29, 2010 letter as constituting its “ final written position, ” this is clearly the conclusion they seek to advance. I do not find the letter to be so conclusive. My

interpretation of this letter is that South Rock was disputing Sprague-Rosser ’ s Progress Estimate No. 3 dated May 31, 2010, and informing Sprague-Rosser that the May 20 th termination of the contract meant that no further payments were due from South Rock.

The letter says nothing about denying all of Sprague-Rosser ’ s then existing claims and nowhere suggests that this was its “ final written position. ” In my view, the continuing communication between the parties after July 29, 2010 provides the clearest of indications that they were still very much engaged in negotiations. [ 27 ] During oral argument, South Park places great emphasis on its letter of May 9, 2011 to counsel for Sprague-Rosser.

The letter, found at Tab 30 of the Affidavit of Jeff Jessamine sworn November 15, 2011, is reproduced in its entirety given the significance that South Rock ascribes to this correspondence. We have now had an opportunity to discuss with our client your previous inquiries: 1. Is South Rock Ltd. ( “ South Rock ” ) prepared to proceed to arbitration pursuant to the “ Dispute Resolution Process for Government of Alberta Construction Contracts - Edition 1 - 1997 (the “ AT ADR Process ” )?

South Rock is contractually bound by its agreement with Alberta Transportation to participate in the AT-ADR Process which is in turn incorporated by reference into its subcontract with Sprague-Rosser Contracting Co. Ltd. ( “ Sprague ” ). Accordingly, both South Rock and Sprague are bound by the requirements of the AT-ADR. The AT-ADR Process calls for three (3) steps: negotiation, mediation and arbitration, all of which are mandatory, sequential and preconditions of proceeding to the next stage. South Rock is not willing to breach these contractual requirements and therefore cannot

agree to proceed to arbitration unless and until the prerequisite steps are undertaken and completed. 2. Whether our client is willing to agree that approximately $100K may be released from funds held by Alberta Public Works? South Rock is only willing to agree to the payment of these funds as part of an overall settlement of this matter. Our client ’ s previous position relative to liability need not be repeated. The costs of completing Sprague ’ s scope of work has exceeded any monies that might have been earned by your client while on site.

Accordingly, no monies are due and owing to Sprague, or available to pay subtrades or suppliers. If it is Sprague ’ s intention to proceed with the AT-ADR then we are in a position to accept service of the Notice of Dispute required to start the negotiation stage of the alternate dispute process . (Emphasis added) [ 28 ] Significantly, in my view, the letter makes no reference to the July 29, 2010 letter alleged as confirming South Rock ’ s denial of all of Sprague-Rosser ’ s claims.

Likewise, neither the July 29, 2010 letter, nor the May 9, 2011 letter explicitly identifies South Rock ’ s position as its “ final position, ” the specific language found in the AT-ADR.

This latter point is particularly significant in light of South Rock ’ s May 9 th insistence on strict compliance with the AT-ADR procedural requirements incorporated into its contract with Sprague- Rosser. [ 29 ] Moreover, it must have been clear to South Rock given the content of Sprague-Rosser ’ s May 31, 2010 communication that Sprague-Rosser had not interpreted the May 9 th communication as the end of negotiations, let alone the expression of a “ final position. ” This May 31 st email specifically inquires as to South Rock ’ s willingness to proceed with a bona fides negotiation process and, further, poses a specific question of Sprague-Rosser relative to the mediation portion of the AT-ADR Process.

This communication clearly called for a response from South Rock. If, as they now argue, Sprague-Rosser took the position that negotiations were complete and their May 9 th letter constituted their “ final written position, ” then it was, in my view, incumbent on South Rock to promptly correct Sprague- Rosser ’ s belief that negotiations were ongoing.

Such a response could have explicitly made it clear that the May 9 th letter was South Rock ’ s “ final written position. ” The failure to respond at all to this communication is, in my view, entirely inconsistent with the position now advanced by South Rock. [ 30 ] South Rock ’ s failure to respond to the May 31 st email led Sprague-Rosser to write again on June 19 th . While challenging its timeliness, South Rock concedes that Sprague-Rosser submitted its Notice of Dispute in this communication.

It is noteworthy, in my view, that South Rock took 17 days to respond to this communication (a total of 39 days since Sprague-Rosser ’ s May 31 st email). [ 31 ] Under all of the circumstances, I simply do not accept South Rock ’ s claim that either its July 29, 2010 or May 9, 2011 communication with Sprague-Rosser constituted its “ final written position ” as per the AT-ADR Process governing the resolution of disputes between the parties.

In my view, it seems clear from the materials before me that both parties were clearly engaged in a negotiation process, albeit a protracted one, up to the time of Sprague-Rosser tendering its Notice of Dispute on June 19, 2011.

After waiting a reasonable period of time for a response to their May 31 st inquiry regarding bona fides negotiations, Sprague-Rosser clearly reached the conclusion that South Rock was no longer willing to engage in negotiations and triggered the next step in the process: the tendering of a Notice of Dispute. [ 32 ] It follows that I accept that Sprague-Rosser delivered a timely Notice of Claim sufficient to invoke the AT-ADR Process referring the issues in dispute to arbitration.

Under all of the circumstances, South Rock cannot rely on its May 9, 2011 letter as constituting its “ final written position ” given the absence of any explicit reference to same within the correspondence and its failure to promptly respond to Sprague-Rosser ’ s inquiries of May 31 st . [ 33 ] These findings are, in my view, sufficient to dispose of this matter without specifically addressing the second issue raised by Sprague-Rosser in these proceedings.

I would, however, if required, answer the second question by finding that South Rock did, indeed, acquiesce or waive reliance on any contractual limitation period contained in the AT-ADR Process.

[ 34 ] The Application by South Rock is dismissed with costs. Heard on the 29th day of November, 2011. Dated at the City of Edmonton, Alberta, this 7 th day of March, 2012. M. David Gates J.C.Q.B.A. Appearances: A.J. McConnell for the Plaintiff S. Carter-Edwards for the Defendant