Thomas G. Heintzman, O.C., Q.C., L.L.D. (Hon.

), FCIArb
Heintzman ADR
Arbitration Place
Toronto, Ontario
www.arbitrationplace.com
416-848-0203
tgh@heintzmanadr.com
www.constructionlawcanada.com
www.heintzmanadr.com

Thomas Heintzman specializes in alternative dispute resolution. He acts as an arbitrator and mediator in commercial, financial,
construction and franchise disputes.

Prior to 2013, Mr. Heintzman practiced with McCarthy Tétrault LLP for over 40 years with an emphasis in commercial disputes
relating to securities law and shareholders’ rights, government contracts, insurance, broadcasting and telecommunications,
construction and environmental law. He has acted in trials, appeals and arbitrations in Ontario, Newfoundland, Manitoba,
British Columbia, Nova Scotia and New Brunswick and has made numerous appearances before the Supreme Court of Canada.
He was an elected bencher of the Law Society of Canada for 8 years and is an elected Fellow of the American College of Trial
Lawyers and of the International Academy of Trial Lawyers.

Thomas Heintzman is the author of Heintzman & Goldsmith on Canadian Building Contracts, 5th Edition which provides an
analysis of the law of contracts as it applies to building contracts in Canada.

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.

Alberta Court Applies Principles of Contract Interpretation and Limitations to a

Client-Consultant Contract

In the recently released decision in Riddell Kurczaba Architecture Engineering Interior Design
Ltd v. Governors of the University of Calgary, 2018 CarswellAlta 10, 2018 ABQB 11, the Alberta
Court of Queen’s Bench applied four potential aids to the interpretation to a client-consultant
contract: contra proferentem; post-contract conduct; and estoppel. The court also applied the
limitation period to a claim for percentage-based fee.
The Interpretation and Limitations Issues
After the project was finished, the architects asserted that, on a proper interpretation of the
client-consultant agreement, the fee should have been paid on a percentage basis, not a fixed
fee basis. The architect relied upon the principle of contractual interpretation known as contra
proferentem on the basis that the client (the University) had prepared the six drafts of the
agreement. The owner asserted that the fee was a fixed fee, and also said that the contract
should be interpreted in light of the parties’ actual performance of the contract and that the
consultant was estopped from asserting that the fee was based on a percentage of the cost of
construction.
The owner also asserted that the consultant’s claim was barred by the limitation period since
more than two years had expired from the time when, if the consultant was correct, the fee
would have amounted to more than the consultant was paid under the contract and the
consultant knew or should have known that the owner was in breach of the contract.
Contra Proferentem
The Alberta court held that there was very little, if any, place for the application of the contra
proferentem rule in the present circumstances:
“Where an ambiguity arises in respect of a matter that has been specifically flagged for
future negotiation between two sophisticated parties, it should be resolved through the
usual principles of contractual interpretation. This includes have regard to the factual
matrix and, in some limited circumstances, post-contract conduct that might assist in
determining the objective of the parties. The doctrine of contra proferentem has very
limited utility or application in that analysis.”
Post-Contractual Conduct
During the performance of the contract, the parties proceeded on the basis that the fee was a
fixed fee, not a percentage fee, but that the consultant was entitled to payment for work done
in relation to change orders. The Alberta Court held that, in interpreting the contract, it was
proper to look at this post-contractual in arriving at the proper interpretation of the contract,
particularly when the conduct was consistently and unambiguously in favour of one
interpretation:
“…..Such post-contract conduct is not properly considered as part of the factual matrix
bearing on the intention of the parties at the time the contract was entered into. It may be
considered, however, in the resolution of ambiguity in the contractual language used:
Shewchuk v Blackmount Capital Inc., 2016 ONCA 9123 at 41….A cautionary approach
 is required where evidence of such subsequent conduct is used for the purpose of divining
intention. It must generally be given limited weight, but "will have greater weight if it is
unequivocal in the sense of being consistent with only one of the two alternative
interpretations that generated the ambiguity triggering its admissibility": Shewchuk at
para 54. In this case, the language used in each of the six Change Orders signed by the
parties during the project is both consistent and unequivocal in treating the work done by
RKA as being part of the basic services. The language is also consistent with being
compensated through adjustments to the "Fee for Service" under Section 1 of Schedule C
to the Service Agreement.”

Estoppel

For the same reason, the Alberta court held that, by conducting itself throughout the project on
the basis that the fee was payable on a fixed basis, the consultant was now estopped from
asserting the contrary:

“…..it is reasonable to infer from the evidence that, had RKA refused to approve and
sign-off on the Change Orders as worded, there would have been, at minimum, a
discussion and negotiation of how RKA should be compensated, having regard for the
wording of Article 4.3.2 and the fee negotiation contemplated in respect of fees for
"Additional Services." By RKA acquiescing in the Change Order process as
implemented, only to assert its entitlement to additional fees well after conclusion of the
project, the University was deprived of that negotiation (or termination) opportunity to its
detriment…… Accordingly, had I accepted the position of RKA regarding the proper
interpretation of the Service Agreement, I would have nonetheless found them to be
estopped from claiming damages for breach of the Service Agreement.”
The Limitation Period
The Alberta Court held that the consultant’s claim was barred by the Alberta two year limitation
period. If the consultant was correct that the contract provided for a fee based on a percentage of
the cost of construction, then during the course of the project it would have been apparent to the
consultant that the cost of construction had much exceeded the projected cost and that the
consultant was owed a much higher fee than was being paid to it. More than two years passed
from that point in time before the consultant made its claim.
The consultant asserted that the fee was not truly payable until its legal entitlement to
percentage-based compensation was known, which it asserted was not known until the
building was complete and the construction costs were known with certainty.
The Alberta court accepted the owner’s submissions:
“The $21,000,000.00 in "Construction Cost" (including contingency) set out in Schedule
C of the Service Agreement was exceeded at an early stage. By this time, which was
approximately January 2009, 75% of "Total Service Fee" had already been billed. It is
 also clear that RKA was being paid for ongoing work, excluding the separately
negotiated FFE Agreement, pursuant to a series of Change Orders purporting to contain
add-ons to the basic services fee described in Section 1 of Schedule C…..Accordingly, the
essential facts supporting a breach of contract under RKA's interpretation of the Service
Agreement were probably known as early as March 23, 2009. These facts were certainly
known when the post-project reconciliation of amounts paid to RKA, as against amounts
owing under the contract, was done in March 2010. Accordingly, if RKA is correct in its
interpretation of the Service Agreement, and is not estopped from claiming a breach, it
would nonetheless have been out of time pursuant to the Limitations Act.”
The Merits Of The Claim
The court reviewed what it described as the “poorly drafted” and “confusing and ambiguous
language” of the contract. Thus, the RFP for the contract stated that the “fees will be based as a
percentage (%) of the total construction budget” and the heading to Article 4.3 of the contract stated
that the fee was a “Percentage-Based Fee”. However, article 4.3.2 stated: “For greater certainty,
the Fee for Services as set out in Schedule C is a fixed fee, and there will be no adjustments to
the fee in the event of changes in Construction Cost due to inflation. The fee will only be
adjusted in the event and in accordance with an approved Change Order which changes the
Scope of Work and results in an upward adjustment in the Construction Cost or Contract Time.”
Schedule C to the contract stated: “(a) Fixed Base Fee…”

After sifting through all this inconsistent language, the Alberta court held that the contract
provided for a fixed fee, not a percentage fee based upon the cost of construction. The court
also held that the consultant was entitled to extra fees in relation to work done on the change
orders:
“Article 4.3.2 shows that the parties intended that the fee for services be a fixed
fee….. Although poorly drafted, Article 4.3.2 also shows that, on an objective basis, the
parties intended that compensation for basic services in respect of changes to the scope
of work being done, as opposed to "Additional Services," are to be governed by Article
4.3 and the corresponding provisions of Schedule C…..The language used by the parties
in Article 4.3.2 allows the University to exercise a measure of cost control by reviewing
and approving Change Orders, and to adjust the base fee for services through the
Change Order process. Section 1.3(a) of Schedule D of the Service Agreement includes,
as "Additional Services," revising or providing additional drawings, specifications, or
other documents "caused by instructions inconsistent with instructions or written
approvals previously given by the owners, including revisions made necessary by
adjustments in the Owner's program or Project Budget….The better view, however, is that
the inclusion of services associated with a scope of work change in Article 4.3.2 was intended to
bring them within the ambit of services compensable through adjustment to the fixed
base fee as set out in Section 1 of Schedule C.”
Accordingly, the court dismissed the consultant’s claim for further fees based on a percentage
of the cost of construction.
Discussion
It is not often that one construction law case deals with a number of contract interpretation
principles and the limitation period. This decision will be a useful guide to those principles for
application in similar circumstances.
The court was strongly influenced by the fact that, throughout the project, the consultant
participated in the calculation and payment of the fee on a fixed fee basis, and did not suggest,
until the project was well over, that the fee should have been paid on a percentage basis.
Clearly there is a lesson for consultants here: be up front about the basis for the fee, and don’t
try to assert a different basis after the fact.
The court’s conclusion on the limitations issue might be contentious. Under section 3(1) of the
Alberta Limitation Act, the limitation period starts to run when the claimant knew or ought to
have known that: (i) injury for which the claimant seeks a remedial order had occurred, (ii) that
the injury was attributable to conduct of the defendant, and that the injury, assuming liability
on the part of the defendant, warrants bringing a proceeding.
Accordingly, the limitation period only commences when the cause of action arises and (not or)
the claimant knows or ought to know that it has a claim. In other words, the fact that the
claimant knows or ought to know that the defendant’s conduct will in the future amount to a
breach of contract, and that the claimant will have a claim, does not start the limitation period
(unless the claimant treats the defendant’s conduct as an anticipatory breach of contract and
terminates the contract forthwith).
If the fee in this case was payable by installments, and each instalment was itself legally due
and payable during the project at the stipulated time or event, then the limitation period for
each payment then arose. But if, on the proper construction of the contract, the fee was one
fee only earned on the completion of the project, although payable during the project by way
of part-payments, then the limitation period would only arise when the fee was fully earned.
And even in the first case, the limitation period would only expire payment by payment, and
would not expire for those payments payable less than two years before the action was
commenced.
The Alberta court did not discuss when the cause of action for the fee payments arose. In its
view, the essential question was: “when the facts giving rise to the claimed breach were known or
discoverable.” It further stated: “The $21,000,000.00 in "Construction Cost" (including contingency) set
out in Schedule C of the Service Agreement was exceeded at an early stage. By this time, which was
approximately January 2009, 75% of "Total Service Fee" had already been billed.” It appears to have
assumed that the obligation to pay had by then arisen. If that assumption is correct, then the court’s
conclusion is correct. If the obligation to pay had not yet arisen, even though the clamant had submitted
interim bills, then the court’s conclusion may not be correct.
All of which is to say that the parties to building contracts that take a long time to perform should be
careful about limitation periods that may arise during the contract. Building contracts are usually
considered to be “entire”, “dependent” or “whole” contracts, under which the obligations are not
independent but dependent on one another, and not fulfilled until entirely fulfilled. However, the part
payment obligations under building contracts are usually considered to be severable and presently
enforceable as to each payment. This is how the Alberta court considered the payments under this
consultant’s agreement. However, the issue may be disputable under another building or consultant’s
contract.

See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.), chapter 1, part 3(f),
chapter 2, parts 2(3)(f), 2(4)(iii) and chapter 9, part 3(a).
Riddell Kurczaba Architecture Engineering Interior Design Ltd v. Governors of the University of
Calgary, 2018 CarswellAlta 10, 2018 ABQB 11
Building Contracts – Interpretation – Estoppel – Contra proferentem – Post-contract conduct –
Limitation periods
Thomas G. Heintzman O.C., Q.C., LLD. (Hon.) January 15, 2018

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