Avoiding Disputes about Dispute Resolution – The importance of careful drafting of dispute resolution and priority clauses in construction contracts

In the recent case of Knox Presbyterian Church v Oakwood Designers & Builders, 2024 ONSC 3131 (“Knox”), the court addressed the dispute resolution procedure and priority of contract documents clauses in the CCDC 14 Design-Build Stipulated Price Contract (“CCDC 14”).

Background

At the outset of the project, the parties signed two contracts – one being the CCDC 14 and the other being the contractor’s own form of construction contract. The contractor’s construction contract was incorporated as one of the contract documents of the CCDC 14 contract.

The owner commenced an application for an order appointing an arbitrator, which is contemplated in the dispute resolution process set out in GC 8.1 of the CCDC 14 general conditions. The owner had previously served the respondent contractor with a notice to appoint an arbitrator, but the contractor did not respond to the notice to appoint.

The underlying dispute between the parties relates to a buried Hydro One power line that was discovered during excavation work. Work on the project was paused until Hydro One could complete relocation of the buried power line. The contractor delivered a request to increase the contract price by $180,000 due to this situation, which was disputed by the owner.

The owner argued that the dispute should be governed by the arbitration clause in GC 8.1 of the CCDC 14 contract, while the contractor argued that the dispute should be governed by the dispute section of its construction contract which provided for resolution through the courts.

The Court’s Analysis of the Dispute Resolution Procedure

The court looked at the scope of each dispute resolution clause. GC 8.1.1 of the CCDC 14 contract states that the contractual dispute resolution procedure covers disputes “as to the interpretation, application or administration” of the contract. The dispute section in the contractor’s construction contract covered disputes “as to the interpretation of the [construction contract], plans and specifications, or purported deficiency”.

The court found that the broader language in GC 8.1.1 (“interpretation, application or administration” of the contract) covered the dispute relating to the buried Hydro One line, while the more specific language in the contractor’s construction contract applied to more “day-to-day” types of disputes.

The court also looked at precedence clause and list of contract documents in the CCDC 14 contract and found that the CCDC 14 contract was higher in priority to the contractor’s construction contract.

Ultimately, the court agreed with the applicant owner that the dispute over the buried Hydro One line should be addressed through arbitration under the CCDC 14 contract process. The court appointed an arbitrator and ordered the parties to participate in the arbitration process.

Key Takeaways

When drafting and negotiating construction contracts, parties should carefully consider the process and scope of the dispute resolution provisions in the contract. Courts and arbitrators will interpret and enforce the provisions as drafted in the contract.

Parties should also carefully consider the order of priority of the various contract documents as they are listed in any precedence or priority clause in the contract.

This article contains information and not legal advice. If you have any questions about legal rights and obligations in your construction contracts, please contact a member of Construct Legal.