Denali Construction Inc. v. Tremore Contracting Ltd., 2013 ABQB 321

Court of Queen ’ s Bench of Alberta Citation: Denali Construction Inc. v. Tremore Contracting Ltd., 2013 ABQB 321 Date: 20130528 Docket: 1203 16426 Registry: Edmonton Between: Denali Construction Inc. Applicant - and - Tremore Contracting Ltd. Respondent _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.B. Veit _______________________________________________________

Summary [ 1 ] Denali Construction Inc. appeals an arbitral award which granted a mechanical sub-contractor, Tremore Contracting Ltd., compensation for what the arbitrator characterized as additional work done by Tremore in response to a significant change in the contract. Denali claims the standard of review on appeals of arbitral awards is correctness and that, in characterizing the changes as “ significant ” rather than “ fundamental ” , the arbitrator made an error of law. [ 2 ] The appellant has mis-stated the standard of review on appeals of arbitral awards.

The Arbitration Act states that appeals of arbitral awards can be taken on questions of law or questions of fact or questions of mixed fact and law. The standard of review on

appeals of arbitral awards varies according to whether the appeal is on a question of law, where the standard of review is indeedcorrectness, or whether the appeal is on a question of fact or mixed fact and law where the standard is deference unless there has been apalpable and overriding error. [3] Because of the view which it had taken concerning the applicable standard of review, Denali did not characterize its appealaccording to the classifications set out in s. 44(1) of the Arbitration Act. [4] In analysing the nature of the portion of the arbitral award in dispute, the court concludes that the arbitrator did not make anerror of law.

As the appellant itself acknowledges, the use of the expression “fundamental change” is not decisive in determining whethera quantum meruit award can be in a contract situation; what the law requires is a finding that the work required “was not this that Ipromised to do”. Here, the arbitrator demonstrated that he understood and applied that legal principle.

Therefore, the only basis forappeal in the circumstances here is that the arbitrator made an overriding and palpable error in applying the facts of the case to the law. [5] In reviewing the decision of the arbitrator, the court concludes that the appellant has not met the burden of proving that thearbitrator made a palpable or overriding error in his assessment of the facts in this dispute. Cases and authority cited [6] By the Appellant: Willick v Willick (1994) 118 D.L.R. (4th ) 51; J.B. Casey, Arbitration Law of Canada: Practice and Procedure, 2nd ed. [7] By the Respondent: Contract Policy Committee v.

Fortis Alberta Inc., 2012 ABQB 653; Arbitration Act, s. 6, CourtIntervention Limited; Foundation Co. of Canada v. Alberta, (ABQB). [8] By the court: Horizon Resource Management Ltd. v. Blaze Energy Ltd. 2013 ABCA 139; Edmonton School District No.7 v Alberta Teachers’ Association 2013 ABCA 155. Appendix A: Paragraphs 5, 6 and 7 of the arbitral award relating to Issue #3 1.

Background [9] Denali Construction Inc. was the general contractor for the construction of an Esso service station, with additional services.Tremore Contracting Ltd. submitted a quote, dated July 29, 2010, to provide all of the mechanical services required for the project inaccordance with the plans and specifications. The quote was accepted by way of a purchase order from Denali to Tremore datedSeptember 10, 2010; that purchase order incorporated by reference the Alberta Standard Construction Contract ACA Form A.

Inaddition, the purchase order stated that the work was to be in compliance with the Denali Construction Safety Program and the Occupational Health and Safety Act. The project documents were defined as follows: a geotechnical report prepared in September 1999,tender information by Esso and specified design drawings. [10] The ACA Standard Subcontract reads in part:

Article 1(

A) The Subcontractor shall supply all of the labour, supervision, materials, tools, and equipment necessary to construct, install and complete. . . the Work . . . in accordance with the requirements and on the terms and conditions of both the Prime Contract (including, withoutlimitation, such documents as drawings, specifications, instructions to bidders, general and/or special conditions, and any addenda theretoissued before the date of Subcontractor’s tender closing to the Contractor or as modified herein), and this Subcontract including the

Subcontract Conditions, together with those Appendices, if any, listed thereafter forming part hereof (hereinafter called the “ Contract Documents ” ) . . . .

Article 3 All documents as set forth in

Article 1(

A) form part of this Subcontract and the whole shall constitute the entire contract between the parties. [ 11 ] Disputes between the parties arose during the course of construction. The parties entered into a consent order on May 11, 2012 which set out their agreement to enter into arbitration to solve the dispute. The order stated that either party had the right to appeal the award of the Arbitrator pursuant to s. 44(1) of the Arbitration Act and that s. 44(3) of that Act did not apply to the arbitration or to any award made by the Arbitrator.

An arbitral award was made on October 5, 2012. [ 12 ] Denali now appeals the arbitral award on the basis that the arbitrator made an error of law in finding that the changes with respect to the site services were a significant change to the scope of work required under the Contract and also in finding that the continuation of work into 2011 was also a significant change to the scope of work required under the Contract. 2. Standard of review of arbitration award [ 13 ] The appellant states that the standard of review of the arbitral award is correctness. With respect, that position cannot be sustained.

The authorities on which the appellant relies have been overtaken by a more contemporary, more nuanced, approach to the standard of review which applies on appeals. [ 14 ] In determining which standard of review is appropriate, the court begins with a reminder of the kind of statutory right of appeal with which we are dealing.

As the appellant correctly observes, s. 44 of the Arbitration Act sets out the framework of appeal beginning with a statement that, if the arbitration agreement so provides - as is the case here - a party may appeal an award on a question of law, on a question of fact or on a question of mixed fact and law. The standard of correctness does not apply to each of those three types of appeal. [ 15 ] On the contrary, as our Court of Appeal has recently noted in Horizon Resource Management Ltd. , the possible standards of review on appeals are: 13 The standard of review for questions of law is correctness.

For questions of fact and questions of mixed fact and law, the standard is palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33 at paras 8 , 10 and 36, [2002] 2 SCR 235. 14 Contractual

interpretation involving questions of law is reviewed on the correctness standard. However, where the court has to make fact findings in order to determine the essential terms of a contract, those findings warrant deference absent palpable and overriding error : Double N Earthmovers v. Edmonton, 2005 ABCA 104 , 363 AR 201 at para 16 , aff'd 2007 SCC 3 , [2007] 1 SCR 116 . 15 Costs are discretionary and are entitled to appellate deference unless it is shown that the judge erred in law or made a palpable and overriding error on the facts: Deans v. Thachuk, 2005 ABCA 368 at para 16 , 376 AR 326 . (Emphasis added)

[ 16 ] In order to determine which standard of review applies here, the court must determine whether this is an appeal on a question of law alone or whether this is an appeal on either facts or mixed fact and law. The appellant states that the arbitrator made an error of law; if that were so, the standard of review would, indeed, be correctness. [ 17 ] However, the errors identified by the appellant are described in this way: . . . made an error of law as follows: i.

In finding that the changes with respect to the site services were a significant change to the scope of work required under the Stipulated Price Contract thereby allowing the Respondent to recover on a time and materials basis; and, ii.

In finding that the continuation of the work into 2011 with respect to the site services was a significant change to the scope of work required under the Stipulated Price Contract thereby allowing the respondent to recover on a time (and materials basis). [ 18 ] The specific legal errors alleged to have been committed by the arbitrator were, first, to have concluded that what the appellant considers to be minor changes to the Stipulated Price Contract were in fact “ significant ” and further that only “ fundamental ” - as opposed to “ significant ” - changes to a contract would allow recovery on a quantum meruit basis.

The second legal error alleged by the appellant is that the arbitrator characterized as a “ fundamental ” change to the Stipulated Price Contract the length of time to complete the project when the contract itself did not contain a term relating to time to complete. [ 19 ] With respect, if these alleged errors existed they were, at best, questions of mixed fact and law, or perhaps even only questions of fact; they were not errors of law.

They are either questions of mixed fact and law because the arbitrator was required, on the one hand, to assess the contractual requirements and, on the other, to apply those requirements to the facts as he found them or merely questions of fact if the arbitrator was only required to determine what the facts were relative to the scope of work and the requested changes.

In any event, the appropriate standard of review in such cases is “ deference absent palpable and overriding error ” . [ 20 ] In relation to the third issue decided by the arbitrator, the appellant states that the arbitrator failed to apply the correct test to the facts before him and set too low a standard for the circumstances in which time and materials could be charged in a stipulated price contract. The appellant argues that the changes which were considered by the arbitrator were, in fact, minor changes to the contract.

Relying on the Heintzman and Goldsmith text, the appellant argues that, where there is a contract, quantum meruit can only apply where the contract has “ changed so fundamentally that the payment provisions in the contract no longer have any application to the work actually performed ” . The appellant states that the arbitrator used the language “ significant change ” where the law requires that there be a “ fundamental change ” .

However, the appellant itself acknowledges that the use of the word “ fundamental ” is not critical to the legal construct of quantum meruit but that the use of quantum meruit can be justified wherever the person who contracted to do the work is able to say “ It was not this that I promised to do. ” The arbitrator ’ s decision illustrates that the arbitrator understood very well the legal principle of fundamental change to a contract: see paras. 5, 6 and 7 at page 12 of the arbitral award as set out in Appendix A.

Moreover, the arbitrator carefully removed from the respondent ’ s revised time and material work orders the value of work which was, on any view of the facts, required to be performed according to the contract.

In the result, the only complaint the appellant can make with respect to the arbitrator ’ s decision is not whether the arbitrator made an error of law, but whether the arbitrator made an error of mixed fact and law in applying the facts of the case to the law as it stands. [ 21 ] The second error identified by the appellant as an error of law is the finding by the arbitrator that “ there was a change to the overall time frame in which the work was done which created additional impact from weather and a change in market conditions from one year to the next ” in circumstances where the contract itself did not contain a term about the date by which the mechanical services were to have been completed.

In fact, the arbitrator found in favour of the appellant on this issue, so the appellant has no basis on which to find error in the arbitral award.

The fact that the arbitrator made an award of interest with respect to the “ significant changes ” aspect of issue #3 is, of course, an aspect of quantifying the cost of the fundamental or significant changes which might, at the most, again attract consideration of whether the facts justified the application of an established legal principle. [ 22 ] I observe that, in application, the appropriate standard of review on this appeal is very similar in application to the standard of reasonableness which would apply in situations of judicial review of an arbitral decision: Edmonton School District No. 7 .

[ 23 ] This case is not, as was the Contract Policy Committee case, a situation in which leave of the court was required to appeal an award on a question of law as set out in s. 44(2) of the Arbitration Act . Therefore, the respondent ’ s reliance on that decision is not helpful in the situation here. 3. In coming to his decision on issue #3, did the arbitrator make an overriding and palpable error? [ 24 ] Although the appellant is of the view that the changes that were made to the contract were only minor, the arbitrator came to a different view. The arbitrator is a professional engineer.

He gave clear reasons for his conclusion that the work that was required to be done consisted of a fundamental change to the original contract. The appellant has failed to prove that the arbitrator made an overriding and palpable error in coming to his conclusion on issue #3. 4. Costs [ 25 ] If the parties are not agreed on costs, I may be spoken to within 30 days of the release of this decision. Heard on the 6 th day of March, 2013. Dated at the City of Edmonton, Alberta this 28 th day of May, 2013. J.B. Veit J.C.Q.B.A. Appearances: Kevin P.

Chapotelle, Bryan & Company LLP for the Applicant, Denali Construction Inc. Robert S. Riddle for the Respondent, Tremore Contracting Ltd. Appendix A

5) In reviewing the evidence submitted by both parties it is evident that the original site service design did not adequately represent the work that was eventually carried out on site to properly complete the installation. It would appear that much of the solution process was left to the contractors to deal with or at least initiate and decisions from the Owner and consultant were not forthcoming to move the process along.

Tremore took initiative by undertaking exploratory hydrovac work to ascertain the existing site conditions and proposed solutions but the process appears to have stalled with the decision makers. 6) I find that there was a significant change to the scope of work required to complete the site service installation in two respects. First, there were changes made to routing, materials, elevations and the impact of working in close proximity to existing utilities.

Secondly, there was a change to the overall time frame in which the work was done which created additional impact from weather and a change in market conditions from one year to the next. 7) Although Tremore had a stipulated price subcontract to complete the mechanical scope of work for this project, the ongoing changes to the site service scope and lack of direction on how to proceed led to the overall delay experienced on site. The approach to proceed to complete the work on a time and materials basis was reasonable considering the circumstances.

The difficulty in analyzing this issue was to separate contract work from change order work. I find that the valuation method used in Items #1 to #3 above provides a fair and equitable valuation.