January 15, 2008
By Robert Kennaley
McLauchlin & Associates

Robert KennaleyThis month, we address issues faced by contractors, subcontractors and suppliers who wish to pursue claims against their clients for damages or additional compensation under a contract or subcontract. We note that a claim for ‘additional compensation’ is different from a claim for ‘damages.’ The former is essentially a claim for an ‘extra’ for services or materials supplied, while the latter compensates for effects suffered when someone has done you wrong. The difference can be significant in the construction context, because suppliers of services or materials have a claim for lien under the Construction Lien Act for the value of services or materials provided to an ‘improvement,’ which would include ‘extras.’  There is, however, no claim for lien for damages. Similarly, if you have arguably lost the right to claim for additional compensation under your contract or subcontract, you may avoid the contractual limitation by presenting your claim as a claim for damages.  

There is a distinction between damages and additional compensation. This is a legal issue that you need to be aware of. In the end, if in doubt in any particular circumstance, you should consult counsel before presenting a claim, preserving a claim for lien, or commencing an action.

Proof of loss is required

It should also be understood that the law will not necessarily pay damages or additional compensation simply because you have been wronged.  Rather, in the case of damages, the Courts will generally require proof to the extent to which you have suffered actual monetary losses as a result of the wrong. With respect to a claim for additional compensation under a contract or subcontract, the Courts will generally require proof of the value of the additional services or materials for which you seek compensation. There are exceptions where the Courts will pay damages or additional compensation, even where such loss or value is not proven.  These include damages for ‘punitive’ or ‘aggravated’ damages (where the Court essentially punishes a wrong-doer for unacceptable conduct), and some claims for pain and suffering, which are extremely difficult to prove and almost never arise in the construction context.  

The need to prove the value of a claim for damages or additional compensation is very often overlooked by contractors and subcontractors. First, they often proceed on the basis that because they have been wronged, they should have a remedy in a Court of law. In many such circumstances, time, energy, and often money, is spent quarrelling over the issue before the realization sets in that no loss or entitlement to payment can be established. Second, contractors and subcontractors all too often fail to properly document their costs or damages after becoming aware of a possible claim.  

Track all extra time and materials

For example, contractors and subcontractors often fail to change their record-keeping procedures once they become aware of a possible claim.  Where they know they are working overtime to overcome a problem of the owner’s making, for example, they do not detail the purpose for which the overtime is being worked, in tracking their time. Where they incur additional material costs, they do not record quantities used or the value of same. Where they have to re-sequence their work, they do not track how the re-sequencing occurred while the work is progressing. In such circumstances, they often wait until the damages or additional costs have incurred, before they think about quantifying those costs, which at that time may be too late.

In the end, contractors and sub-contractors are well advised that when they become aware of a possible claim, to consider how the claim is to be presented and how the claim for damages or additional compensation can be proven, if at all. In this way, they can better protect their position in the event of a formal claim.
Robert Kennaley practices construction law in Toronto and Simcoe. He speaks and writes regularly across North America.  He can be reached for comment at 416- 368-2522, or at kennaley@mclauchlin.ca. This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation.  Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.