In JM Bay Properties Inc. v Tung Cheng Yuen Buddhist Association, 2022 BCSC 81, Justice Walker found that a contract’s dispute resolution clause which provided that “parties shall make all reasonable efforts to resolve their dispute by amicable negotiations and agree to provide, without prejudice, frank, candid and timely disclosure of relevant facts, information and documents to facilitate these negotiations” was not breached in circumstances where a party decided not to engage in any further communication with the other party to resolve a dispute between them. Justice Walker noted that the party alleging breach did not raise its complaint about the dispute resolution clause at the time of the contract’s termination. Finally, he held that even if the party were in breach, the party alleging the breach failed to establish that it had suffered any damages.
The plaintiff, JM Bay Properties Inc. (“JM Bay”), a company incorporated in British Columbia, carries on business as a construction project manager. It claimed that it suffered financial losses and other damages when, in December 2017, the defendant, Tung Cheng Yuen Buddhist Association (“Tung Cheng”), a non-profit society, unilaterally terminated their agreement concerning the construction of a Buddhist Temple (“Temple”) in Richmond, B.C.
The parties signed a standard form construction contract titled “Construction Management Contract for Services 2010” in mid-September 2015 (the “CCDC”). General Condition (“GC”) 6.1.6 of the CCDC specifically provided for Tung Cheng’s right of unilateral termination without cause and GC 7.1 provided a dispute resolution clause. In December 2017, Tung Cheng terminated its relationship with JM Bay without stating any cause before construction of the Temple had progressed in a significant way.
When the CCDC was signed, the parties had not agreed on the cost of construction. Up until its termination, the parties had exchanged correspondence related to the estimated cost of constructing the Temple. Ultimately the increasing cost estimates provided by JM Bay became unsatisfactory to Tung Cheng, which led to its decision to give notice of termination. JM Bay responded in writing that it accepted the termination. Shortly thereafter, Tung Cheng asked JM Bay for the return of all monies it had paid to JM Bay, including the deposit of $31,500, and that JM Bay sign what it called a termination agreement. JM Bay did not sign the termination agreement. Instead, JM Bay responded with a January 2018 Global Invoice in the amount of $185,661.97 for services provided and costs incurred. Around this time, JM Bay also filed a builder’s lien against the property on which the Temple was to be built and, in the latter part of 2019, delivered a revised Global Invoice to Tung Cheng in the amount of $358,845.25. JM Bay proceeded to commence the action against Tung Cheng. The project had not proceeded beyond the soil preloading and tree removal stage. Tung Cheng had yet to receive its building permit.
In June 2021, at trial, JM Bay sought payment of its fees and other expenses and losses (such as loss of anticipated profits) it claimed it was entitled to pursuant to the CCDC. It also advanced an unpleaded claim that it had suffered damages on account of what it alleged was Tung Cheng’s failure to comply with the dispute resolution provisions in the CCDC. Specifically, JM claimed that Tung Cheng failed to abide by GC 7.1.2 which required the parties to make all reasonable efforts to resolve their dispute(s) by amicable negotiations and to make “frank, candid, and timely disclosure” of all relevant facts, information, and documents to facilitate their discussions:
“GC 7.1 NEGOTIATION, MEDIATION AND ARBITRATION
7.1.1 Differences between the parties to this Contract as to the interpretation, application or administration of this Contract or any failure to agree where agreement between the parties is called for, herein collectively called disputes, shall be settled in accordance with the requirements of this General Condition.
7.1.2 The parties shall make all reasonable efforts to resolve their dispute by amicable negotiations and agree to provide, without prejudice, frank, candid and timely disclosure of relevant facts, information and documents to facilitate these negotiations.
7.1.3 If the parties so agree the dispute shall be submitted to mediation or arbitration in accordance with the provisions of the Rules for Mediation and Arbitration Disputes as provided in CCDC 40 in effect as at the date of this Contract.
7.1.4 If no agreement is made for mediation or arbitration as described in paragraph 7.1.3, the parties may refer the unresolved dispute to the courts or to any other agreed form of dispute resolution.”
Tung Cheng denied it was in breach of the dispute resolution provisions of the CCDC.
In the result, Justice Walker agreed with Tung Cheng. He found that in the circumstances where Tung Cheng made known its concerns and objections to JM Bay about the construction cost, Tung Cheng was not obliged to engage in any other form of communications with JM Bay. In particular, Tung Cheng was not obliged to resolve issues concerning construction costs, as JM had alleged. Accordingly, Justice Walker held that there was no breach by Tung Cheng. On the evidence before him, Justice Walker found that it was JM Bay, not Tung Cheng, that did not disclose all relevant facts and information as required by GC 7.1. Specifically, JM Bay did not address why Tung Cheng’s request to bring the budget under $4 million could not be done or provide particulars to show the basis for an estimate it provided in August 2017. Further, JM Bay had accepted Tung Cheng’s termination of the CCDC without raising the requirement to abide by its dispute resolution provision. Finally, Justice Walker noted that even if it had found that Tung Cheng was in breach, JM Bay failed to establish that it suffered any damages. Accordingly, JM Bay’s claim that Tung Cheng was in breach of the dispute resolution provision of the CCDC was dismissed.
This decision highlights the importance of the particular wording of a dispute resolution clause and also the importance of parties raising any dispute with respect to a dispute resolution clause as soon as the issue arises. Section 7.1.2 required the parties to make “reasonable efforts” to resolve their dispute and within those efforts they were to provide “without prejudice, frank, candid and timely disclosure of relevant facts, information and documents”. Justice Walker determined the exchange of correspondence between the parties where Tung Cheng made its concerns related to construction costs known to JM Bay was sufficient to satisfy the clause’s requirement of reasonable efforts. JM Bay’s argument that Tung Cheng was obligated, by virtue of the dispute resolution clause, to resolve issues concerning construction costs was rejected by Justice Walker. Indeed, the plain and ordinary meaning of the words “reasonable efforts to resolve their dispute” clearly do not impose a mandatory requirement on the parties to settle their dispute, it only requires that they try to resolve it, acting reasonably. Further, whether a party has provided frank, candid and timely disclosure of all relevant facts is a determination made on the facts within the context of each case. Although Justice Walker did not go so far as to hold that JM Bay’s failure to raise its complaint at the time of termination precluded it from advancing this claim at trial, parties should be mindful that any arguments related to a dispute resolution clause should be raised as soon as the issue arises. A unique feature of this case is JM Bay’s argument at trial that Tung Cheng’s breach of the dispute resolution clause caused it to suffer damages. Although this was dismissed by Justice Walker having found there was no breach, he did not dismiss JM Bay’s claim on the basis that it was unjustified. It will be interesting to see if this type of claim will come up again in future cases.