Limitation Periods, Payment for Extras, and Construction Litigation: A Comment on Saskatchewan (Highways and Infrastructure) v Venture Construction Inc.

In a dispute surrounding a construction contract containing a “payment for extras” clause, does a contractor’s loss occur when they do the extra work, or when they are denied compensation? This question has crucial implications with respect to limitation periods, and the Saskatchewan Court of Appeal recently weighed in with an unintuitive, but helpful answer.

I. INTRODUCTION

The Court of Appeal for Saskatchewan, by way of its recent decision in Saskatchewan (Highways and Infrastructure) v Venture Construction Inc.,1 has provided guidance regarding when limitation periods may commence in construction litigation. More specifically, the Court of Appeal clarified when “discoverability” will occur as it pertains to The Limitations Act2 in the context of a dispute over a construction contract with clauses providing for payment for extra work. The Court of Appeal unanimously held that “injury, loss or damage”3 sustained by a general contractor may be discoverable long before a request for payment has been denied by the project owner.4 Given the severe implications of a missed limitation period, this unintuitive result is one that warrants the attention of lawyers practicing in the area of construction law.
 

II. FACTUAL BACKGROUND

In 2010, the Saskatchewan Ministry of Highways and Infrastructure (the “Ministry”) contracted with Venture Construction Inc. (“Venture”) for the construction of a provincial highway.5 The proposed project consisted of three stages: (1) “preparatory work”; (2) subgrade work; and (3) surfacing.6 Venture had only intended to perform the surfacing work, with the first two stages of the project being delegated to a subcontractor.7
 
By December of 2010, the subcontractor had completed the preparatory and subgrade stages of the project on approximately 7.8 kilometers of the highway before “shut[ting] down for the winter.”8 After the snow melted in May of 2011, “Venture attended the project site to begin surface paving.”9 At this time, Venture observed that the subgrade work had not been performed to the requisite standard; remediation work was therefore required.10
 
When Venture approached the Ministry about the inadequate subsurface work, the Ministry represented to Venture that its testing had indicated the subgrade work was satisfactory in the fall when the subcontractor had completed it, and that the deterioration was a result of Venture failing to properly prepare the site for winter.11 Venture therefore “took steps, at its own expense, to remediate the subgrade” before continuing on with the surfacing work.12
 
In July of 2011, however, suspicions regarding the Ministry’s representations about the subgrade were raised, and Venture “requested that the Ministry provide the results of [the] moisture and density testing” that had been conducted in fall of 2010.13 Venture did not receive these results from the Ministry until December of 2012, nearly seventeen months later.14 Venture argued that those results indicated that the Ministry’s testing in the fall of 2010 had been improperly conducted, implying that the subcontractor’s work was, in fact, defective, and that the deterioration was not the fault of Venture.15
 
Given these findings, Venture requested compensation from the Ministry for the “expenses incurred to remediate the subgrade [work] between 2011 and 2013.”16 In effect, this constituted a request for “payment for extras”—compensation for necessary work falling outside the scope of the construction contract.17 This request was made on December 17, 2013, approximately five months after Venture had completed its work under the construction contract.18 Venture received a response from the Ministry indicating that its request was under review on January 9, 2014.19 Several months passed without further response, leading Venture to commence an action in the Court of Queen’s Bench for Saskatchewan against the Ministry on April 7, 2014.20 The Ministry ultimately denied Venture’s request for compensation on December 10, 2014.21
 
Venture’s statement of claim alleged breach of contract by way of the Ministry’s refusal to provide the testing reports related to the work of the subcontractor as required by the contract.22 In addition, the statement alleged negligence by way of the improper testing and inspection in the fall of 2010.23
 

III. PROCEDURAL HISTORY

The Ministry brought a Chambers application seeking summary judgment on the basis that Venture’s claim was statute-barred by virtue of the expiration of the limitation period.24 This application was dismissed by Justice McCreary in Venture Construction Inc. v Saskatchewan (Ministry of Highways and Infrastructure).25 The relevant sections of the Act are as follows:
 
Basic limitation period
5   Unless otherwise provided in this Act, no proceedings shall be commenced with respect to a claim after two years from the day on which the claim is discovered.
 
Discovery of claim
6(1)   Unless otherwise provided in this Act and subject to subsection (2), a claim is discovered on the day on which the claimant first knew or in the circumstances ought to have known:
­­­(a) that the injury, loss or damage had occurred;
(b) that the injury, loss or damage appeared to have been caused by or contributed to by an act or omission that is the subject of the claim;
(c) that the act or omission that is the subject of the claim appeared to be that of the person against whom the claim is made; and
(d) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it.
(2) A claimant is presumed to have known of the matters mentioned in clauses (1)(a) to (d) on the day on which the act or omission on which the claim is based took place, unless the contrary is proved.26
 
McCreary J. held that “Venture did not know, nor could it reasonably have known, that it suffered a loss,”27 as is required to trigger the beginning of a limitation period,28 “until the work under the Contract was complete in 2013.”29 This was because, while the wrongful acts had occurred in 2010 and 2011, Venture knew that the construction contract included mechanisms for payment for “Extra Work.”30 Venture therefore had reason to believe that it would be compensated, precluding a “loss” until its work under the construction contract had been completed.31
 
Furthermore, since Venture believed that the construction contract itself provided a method of pursuing compensation by virtue of the “payment for extras” clause, Venture had no reason to believe that “a proceeding would be an appropriate means”32 to remedy its loss,33 as required for discoverability per s. 6(1)(d) of the Act.
 
In sum, McCreary J. held that the limitation period did not begin to run until Venture’s loss had actually materialized: when it became clear that the Ministry would not be compensating it pursuant to the extra work clause.34 Prior to this, Venture merely knew that there had been a wrongful act or omission by a given party, but could not identify a loss.
 

IV. VENTURE AT THE COURT OF APPEAL FOR SASKATCHEWAN

The Court of Appeal for Saskatchewan, in a unanimous judgment, overturned the Chambers Decision, finding instead that Venture’s claim was, in fact, statute-barred.35 The Court held that Venture had failed to rebut the presumption under s. 6(2) of the Act, which required it to show that “on the day on which the act or omission on which the claim is based took place, it did not know of at least one of the matters set out in ss. 6(1)(a) to (d).”36
 
The Court of Appeal found that McCreary J.’s conclusion was based on a misidentification of the relevant loss suffered by Venture.37 The Court held that the loss in question was not the lack of compensation flowing from the Ministry to Venture, but rather the initial costs incurred as a result of having to perform the subgrade remediation—independent of potential future compensation.38 On this point, Justice Kalmakoff stated the following:
 
[T]he Chambers judge’s factual findings make it clear that Venture began to suffer the loss identified in its claim as soon as it was required to undertake remediation work. The fact that Venture held out hope, or even had some expectation, that it would be compensated in full or in part for that remediation work under the Construction Contract, does not change the fact that Venture knew it had suffered loss in the spring of 2011. As the jurisprudence makes clear, the mere fact that Venture did not initially know the full extent of its loss does not affect whether that loss was discovered or discoverable within the context of s. 6(1)(a) of the Act. The Chambers judge’s conclusion that the loss was not discoverable until the work under the Construction Contract was completed and its request for payment was denied misidentifies the nature of the loss and constitutes an error in principle.39
  

V. THE IMPLICATIONS

The Court of Appeal’s reasoning is not particularly intuitive. It is logical to think, as McCreary J. did, that when a contract specifically provides for payment for extra work, that expenses incurred to perform extra work would not constitute a “loss”40 until, after pursuing the appropriate remedy through legal proceedings,41 the request for payment has been denied. From a practical point of view, it is not until this point in time that the loss has crystallized.
 
Venture Construction indicates that, in the construction context, there may be less of a distinction between wrongful conduct and an identifiable loss than one would think. Further, it implies that a “payment for extras” clause will not serve to delay the moment a loss occurs until the request for payment is denied. Rather, such a clause is remedial in nature, and as Kalmakoff J.A. noted: “the possibility of remediation does not negate the plaintiff’s knowledge of the damage having occurred in the first place.”42
 
As a result, if a contractor is forced to undertake “extra work” because of an actionable wrong, and the wrongful conduct occurred months before a request for payment for the extra work is issued, it is crucial to be mindful of the limitation period. Contractors may be put in a position where they are forced to commence a claim against project owners before their loss has truly crystallized in the form of a denial of their request for payment. This may have an adverse impact on the project schedule and ongoing professional relations but, nonetheless, may be required in order to avoid the statute-barring of a claim that may prove necessary down the road, as was the case in Venture Construction.
 
Venture Construction therefore constitutes a noteworthy warning to parties in construction disputes. A “payment for extras” clause may not defer the commencement of a limitation period until a request for payment has been denied if the reason for the extra work is itself an actionable wrong.

* JD Candidate (Saskatchewan).

1 2020 SKCA 39 [Venture Construction].

2 SS 2004, c L-16.1 [Act].

3 Ibid, s 6.

4 See Venture Construction, supra note 1 at para 88. According to s. 6(2) of the Act, there is an onus on the claimant to prove that the “act or omission on which the claim is based” was not discoverable on the day that it occurred: Act, supra note 3. Upon review of Venture’s claim, Justice Kalmakoff found that Venture failed to discharge this onus as it did not demonstrate that it was unaware of “the injury, loss or damage… as soon as it became aware that remediation work was required, in the spring of 2011”: Venture Construction, supra note 1 at para 88. Therefore, it logically follows that the limitation period for such proceedings can be realized before a refusal of payment.

5 Venture Construction, supra note 1 at para 6.

6 Ibid at para 7.

7 Ibid.

8 Ibid at para 10.

9 Ibid at para 12.

10 Ibid.

11 Ibid.

12 Ibid at para 13.

13 Ibid.

14 See ibid at para 14.

15 Ibid at para 14.

16 Ibid at para 15.

17 For a reproduction of the provisions detailing the mechanisms applicable to payments for extra work, see ibid at para 77.

18 Ibid at para 15.

19 Ibid.

20 Ibid at paras 15–16.

21 Ibid at para 18.

22 Ibid at para 16.

23 Ibid.

24 Ibid at para 19.

25 2018 SKQB 293, 95 CLR (4th) 263 [Chambers Decision].

26 Act, supra note 2, ss 5–6 [bold in original; italics added].

27 Chambers Decision, supra note 25 at para 47.

28 See Act, supra note 2, ss 5–6.

29 Chambers Decision, supra note 25 at para 47.

30 Ibid at para 48.

31 Ibid at para 49.

32 Act, supra note 2, s 6(1)(d).

33 Chambers Decision, supra note 25 at para 59.

34 See ibid at para 70.

35 Venture Construction, supra note 1 at para 92.

36 Ibid at para 88. For other cases discussing the onus that Venture had to discharge in order to dispute the expiration of the limitation period, see Rack Petroleum Ltd. v Gidluck, 2013 SKCA 104 at para 24, 423 Sask R 247; Embee Diamond Technologies Inc. v I.D.H. Diamonds NV, 2017 SKCA 79 at para 4, [2017] 11 WWR 680.

37 Venture Construction, supra note 1 at para 51, citing Chambers Decision, supra note 25 at para 48. See also Venture Construction, supra note 1 at para 53.

38 Venture Construction, supra note 1 at para 53.

39 Ibid.

40 Act, supra note 2, s 6(1)(a).

41 See ibid, s 6(1)(d).

42 Venture Construction, supra note 1 at para 42, citing Brown v Baum, 2016 ONCA 325, 397 DLR (4th) 161.

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