For construction projects in Quebec, contractual holdbacks help shield project owners from claims by subcontractors and other parties entitled to register a legal hypothec on the building. Used properly, it ensures that all parties are paid before the funds are fully released.
However, withholding must not become a means of financing a project at the general contractor’s expense. In Immobilier Multi-Locatif Québec inc. c. Constructions Béland et Lapointe inc., 2026 QCCA 218, the Court of Appeal upheld the order against a project owner that abused its right of withhol to force the contractor to bankroll the project.
- This decision drives home two key points: contractual withholding must be in good faith and in keeping with its legal objective;
- In the event of abuse of rights, the courts may order the project owner to pay not only the sums withheld, but also damages.
The facts: Payment halted by the project owner
In 2012, Immobilier Multilocatif Québec inc., formerly Développement immobilier GCS inc. (“GCS”), awarded Les Constructions Béland et Lapointe Inc. (“CBL”) a $9,311,300 fixed-price contract for the construction of a 10-storey condominium building. The parties agreed that GCS would make periodic payments based on CBL’s payment requests, subject to the design professionals’ approval. After receiving GCS’s payment, CBL in turn paid its subcontractors and obtained their acquittances. Under the contract, GCS could withhold an amount corresponding to 10% of the contract price to protect itself against legal hypothecs.
Ground was broken in May 2012. Starting in December 2013, GCS stopped paying CBL, invoking its right to withhold and demanding that CBL provide all releases from subcontractors before receiving payment. However, the professionals had approved CBL’s payment requests. Despite not receiving payment from GCS, CBL completed the project out of its own pocket, and paid most of the subcontractors.
The Certificate of Substantial Completion was issued in January 2014, eight months after the contractually agreed date, as the project required CBL to complete several items of unforeseen work. In July 2014, CBL published a legal hypothec on the building. Even though the project was complete, GCS continued to refuse to pay CBL, particularly due to the registration of the legal hypothec.
Upon completing the project, CBL submitted a claim of nearly $4 million for the outstanding contract balance and unpaid extras, as well as for the costs incurred as a result of the extended duration of the project. CBL also claimed $300,000 for hardship, trouble, and inconvenience, abuse of rights and exemplary damages.
Trial judge finds withholding was abusive and used to finance the project
The trial judge found that GCS’s withholding was unjustified and abusive. GCS had no basis for deviating from the parties’ agreed method of payment by demanding releases from subcontractors before paying CBL. Likewise, CBL’s registration of a legal hypothec did not justify withholding payments given that it was in response to the abusive withholding. The trial judge therefore granted CBL’s claim for payment of the contractual balance and extras.
In addition, the trial judge sharply criticized GCS for halting payments despite having the professionals’ sign off on the payment requests. GCS’s representatives had no construction expertise or valid grounds to contradict the professionals. Nor did they show concern for the impact of their decisions on CBL, which suffered damage to its reputation among its subcontractors. CBL missed out on business opportunities and was ultimately forced to pay its subcontractors without having received payment from GCS.
Moreover, the evidence revealed that GCS had exercised its right to withhold payment to exert pressure on CBL, hoping to capitalize on its financial vulnerability to have the building constructed at lower cost and force CBL to finance the project. Given the circumstances, the trial judge found that GCS had made abusive use of its right to withhold payment and used her discretionary power to allow CBL’s claim for $300,000.
Court of Appeal confirms abuse, reduces damages
On appeal, the issues were limited to the applicability of contractual interest and the $300,000 award for abuse of rights.
The Court upheld that GCS’s withholding was abusive and in bad faith. The payments to CBL were due, payable and recommended by the professionals. Therefore, GCS could not invoke its right to withhold as justification for halting payments to CBL or preventing the application of contractual interest on the amounts due.
However, the Court reduced the amount awarded for abuse of rights to $100,000, as CBL had originally claimed $100,000 in damages for abuse of rights and $200,000 in exemplary damages. While the trial judge had a degree of discretion in awarding damages for abuse of right, she could not award more than was claimed. Since she had not awarded exemplary damages, an amount of $200,000 had to be deducted from the judgment against GCS.
Practical lessons for project owners and contractors
Project owner’s rights are meaningful only when exercised fairly and in keeping with their underlying goals. The framework governing the relationship between project owners and contractors strikes a balance that leaves no room for abuse by either party. Cooperation is key to avoiding an escalation of conservatory measures, to the detriment of all parties.
When faced with evidence of abuse of rights, the court has discretionary power to award damages. However, this discretion is not without limits. The judge remains bound by what the parties have claimed. It is therefore up to them—and their legal counsel—to clearly set out the amount and form of damages sought.
If you have questions about contractual withholding, legal hypothecs or construction disputes, Miller Thomson’s Construction and Infrastructure lawyers can help. Contact us to discuss your matter.
