Drafting Standard Form Construction Contracts? Ontario's Top Court Has a Message for You

If you draft standard form construction contracts, or if you're a contractor who sometimes signs them on a "take it or leave it" basis, you will want to pay attention.

In two recent, back-to-back decisions [1], the Ontario Court of Appeal has put the fine print of standard form construction contracts under the microscope, with a laser focus on dispute resolution provisions. Typically, construction participants are forced to become incredibly familiar with every syllable of a dispute resolution clause when a problem arises.

The cases show that how a contract functions in the real world are just as important as the words on the page. Here’s what it means for you.

The key takeaway: Courts prefer contractual interpretations that reflect “commercial reality” and accord with sound business principles, not overly strict and technical readings.

Commercial “Common Sense” Guides Contractual Interpretation

If you're drafting a standard form agreement, the Court's message is to stress-test your clauses (and your interpretation of them) against the backdrop of the commercial reality of your projects. A clause that looks clever on paper but is unworkable or impractical in the field may be at risk of being interpreted unfavourably by a Court.

In J.P. Thomson, the Court of Appeal held that it would defy “good business sense” to force parties in a long-term contractual relationship to trigger a dispute resolution process within 30 days of a dispute arising, so it interpreted the provision to mean that the process could be triggered only after 30 days of amicable negotiations. If you intend to create a limitation period or condition precedent to dispute resolution that expires after a certain time, you must clearly state that consequence. In other words, if you want to bar or limit another party’s ability to claim, that language has to be completely clear, as we explain below.

Ensure that deadlines for certain actions are clearly tied to preceding events (e.g. “within 30 days of the date of the cost consultant’s decision”) rather than fixed dates that may not account for potential delays in the dispute resolution process.

When drafting a standard form contract, ask yourself: could this clause, as drafted, ever become impossible or highly impractical for the other party to follow? If so, it may be at risk. Stress-test your dispute resolution timelines against real-world scenarios.

Be Crystal Clear on Limitation Periods

The Ontario Limitations Act, as a general matter, gives parties two years to bring a claim. However, a business agreement can shorten or augment that period, provided you use explicit and clear language to do so. The court won't read between the lines to enforce a shortened deadline; ambiguity may result in the default two-year statutory limitation period being applied.

Do not assume that a timeline in your contract will be interpreted on a ‘use it or lose it’ basis. If you intend to create a limitation period or condition precedent to dispute resolution, that expires after a certain time, you must clearly state that consequence in your contract.

Protect Your Right to Arbitrate

With a well-drafted and clear arbitration provision, your right to engage in arbitration is protected. Parties are increasingly electing to arbitrate – an alternative form of dispute resolution – because it is quicker and parties have more control over the process. This will help to avoid protracted litigation. Courts strongly support the "competence-competence" principle, meaning an arbitrator generally has the authority to rule on their own jurisdiction first, without the intervention of a Court. Accordingly, a court will likely send any arguable jurisdictional challenge to the arbitrator to decide. This is a significant protection, as it should prevent the other party from attempting to litigate to delay or escape a binding arbitration clause each party agreed to.

It may be prudent to avoid drafting overly complex clauses which attempt to surgically limit an arbitrator’s scope – this may only lead to more disputes about the dispute clause itself.

Sometimes You’ll Get ‘Two Cracks at the (Contractual Interpretation) Can’

The Court of Appeal applies a "correctness" standard when reviewing a lower court’s interpretation of standard form contracts because it recognizes that its interpretation has precedential value for other industry participants who use similar contracts (for example, those developed by the CCDC). This should be good news for all parties involved. It means that if a lower court gets the interpretation wrong, an appeal court can look at the issue fresh, ensuring consistency and fairness for everyone who, in future, signs that same agreement. That’s not generally true of negotiated contracts – the Court in those cases, will generally defer to the lower court’s findings of fact.

Here's How We Can Help

By making your contracts crystal clear from the start, you build certainty into your projects and avoid the consequences of a protracted dispute. At RAR Litigation Lawyers, our team of expert lawyers can assist your development of construction contracts that are clear, comprehensive, and free from ambiguity and can protect and vindicate your contractual rights in the event of litigation. Our focus is on the success of our clients.

Contact us to discuss how RAR Litigation can support you and your business.

[1] J.P. Thomson Architects Ltd. v. Greater Essex County District School Board and Ontario (Transportation) v. J & P Leveque Bros. Haulage Ltd.