August 4, 2021
The consultant’s authority may be broader than you think
BY ROB KENNALEY AND EFFI SIDIROPOULOS
IT IS WELL-ESTABLISHED that a consultant acting as a contract administrator must be impartial and objective. This was made clear by the Supreme Court of Canada in the leading case of Kamlee Construction Ltd. v. Oakville (Town), a 1960 decision that has been applied consistently for the last 60 years. Generally speaking, under this line of cases, if the consultant was not impartial or did not act judicially in exercising its duties under the contract, the consultant’s findings will be void against the contractor.
To what extent, however, can the incorrect findings of a consultant be challenged if he or she acted impartially? The issue was recently addressed in relation to progress certifications in Pentad Construction Inc. v. 2022988 Ontario Inc., 2021 ONSC 824, where the contract called for civil earthworks to be certified and approved by an authorized engineer before any amounts would become due and payable. After a number of the contractor’s interim invoices were paid, the engineer became concerned the contractor had been over-billing, and requested a topographical survey to verify quantities and then determined the contractor had been overpaid to that point (such that no amounts were due and payable). The contractor disagreed, suspended work and preserved a claim for lien. The Superior Justice held that because there was no fraud, bad faith or wilful neglect of duty, the engineer’s determination was (as per the contract) conclusive and binding on the parties, relying heavily on “about 150 years of jurisprudence.” The court confirmed the terms of the contract will govern, holding that where payment certifications are non-binding or “provisional” they will not have the same force as certifications that are final and binding.
Some courts have gone so far as to hold that a consultant’s decisions should be entitled to deference wherever he or she is made the interpreter of the contract documents at first instance, as is the case, under CCDC standard form contracts. In Lawhill Ltd. v. Ontario, [2007] O.J. No. 4825, Master Sandler held as follows for Ontario’s Construction Lien Court at para 621:
… a contractor has to show that a significant legal or factual error was made by the consultant to warrant relief being granted by the court.
The same rationale was applied by the Alberta Queen’s Bench in ASC (AB) Facility Inc. v. Man-Shield (Alta) Construction (2018), 90 C.L.R. (4th) 159, where Justice Antonio was required to assess “the level of deference to be shown to the determinations made by the Consultant under the contract.” Her Honour referenced Heintzman and Goldsman on Canadian Building Contracts, which states that a consultant’s decisions will be “persuasive in the absence of compelling evidence to the contrary,” and binding “at least absent demonstrable and significant error, legal or factual.” Her Honour went on further explain her reasons, at para 19-20 of her decision:
“The Consultant had access to the work site and the expertise to evaluate the work he saw. He was regularly involved with the parties, the work, the contract, and the parties’ interactions under the contract. He has expertise in relevant areas. The parties chose this person, equipped with these advantages, to make decisions about the state of completion of the work and any resulting contractual obligations. This Court lacks those advantages. Therefore, as a matter of contractual interpretation, precedent, academic rationale, and practicality, this Court will defer to the Consultant’s determinations on questions of fact, unless they reveal significant errors.”
Justice Antonio went on to hold (correctly in our view) that if a contractually appointed consultant is required to make determinations of law, the standard of correctness should apply (such that no deference would be given).
In summary, it is well-established that the decisions of a consultant acting as contract administrator will be set aside if they were not made impartially and objectively. In addition, if the parties have contractually agreed that a consultant’s certification or approval is a condition precedent to payment, well-established case law holds that the consultant’s determinations in that regard will only be interfered with if fraud, bad faith or wilful disregard of duty can be found. In addition, in Ontario, non-appellate courts have held that a payment certifier’s determination as regards the substantial performance will be binding absent “significant” error. Finally, lower-level courts in both Ontario and Alberta have held that where the consultant is the interpreter of the contract documents at first instance, deference should be granted to his or her findings of fact absent significant error or a failure to act judicially.
In the end, contractors should consider the role of the consultant in bidding for contracts and ensure they have the right to dispute the consultant’s findings. Contractors should also take care to document any circumstance where the consultant may be exceeding its authority or acting without being impartial or objective.
Finally, contractors need to take care to ensure they meet any notice requirements set out in the contract for disputing a consultant’s finding.
Rob Kennaley and Effi Sidiropoulos are with Kennaley Construction Law, a construction law firm with offices in Simcoe, Toronto and Barrie, Ont.