On June 18, 2026, the Superior Court handed down a judgment in Norgéreq ltée c. Ville de Montréal concerning the redevelopment project for the Bain Saint‑Michel in Montreal.

The City of Montreal had awarded Norgéreq a fixed-price contract of more than $5 million for work to be carried out over a period of 365 days.

However, only a third of the work had been completed in that timeframe because serious, unexpected problems arose during the project, leading to several modifications in the work that had to be done. Given the increase in costs and the fact that the contingency budget had been spent, the City terminated Norgéreq’s contract before the work was finished.

After the contract was terminated, Norgéreq claimed over $1.5 million from the City. Norgéreq argued it was entitled to all administration fees and profits provided in the contract, even if much of the work was never performed. It also claimed daily expenses due to project delays, compensation for its subcontractors and suppliers, the contractual holdback and payment of damages. 

The City filed a counterclaim concerning a portion of the field overhead costs it had allegedly overpaid. The City also argued it was not required to pay interest and the additional indemnity on any amounts owing to Norgéreq.

Limitations on the right to profits if a contract is terminated

Approximately 30% of the work had been performed when the project was suspended. The City therefore paid the contractor 30% of its administration fees and profits, and 100% of the field overhead costs. Norgéreq argued that full payment of the field overhead costs was an acknowledgement of its right to all administration fees and profits set out in the contract.

The Court ruled that it is fair to pay field overhead costs based on the duration of the work because such costs vary according to this duration. Given that Norgéreq worked on the project for the period agreed upon as part of the bid process, all field overhead costs should be paid. As a result, the City did not overpay, and its counterclaim was accordingly dismissed.

However, the Court dismissed Norgéreq’s argument that it was entitled to the profits it would have earned if the entire project had been completed. The Court held that when a contract is terminated before work is complete, the contractor can only claim a profit on the portion of the contract that was actually performed. Payment of the entire profit would have amounted to the unjustified enrichment of Norgéreq.

Therefore, the Court established that field overhead costs must be paid based on the actual duration of the work, whereas administrative fees and profits are owed according to the project’s percentage of completion. 

Costs due to project delays: the Court rejected an arbitrary calculation

The contract between the City and Norgéreq required the contractor to provide supporting documents demonstrating the expenses actually incurred after the scheduled project completion date. However, Norgéreq did not provide any evidence to establish these expenses.

Norgéreq claimed over $340,000 in additional costs related to project delays. To establish this amount, it spread the total amount of its general conditions over the initial term of the contract to obtain a daily cost. Next, it split its claim into separate periods and adjusted the daily cost to take into account certain expenses that vary based on jobsite conditions. Lastly, it multiplied these costs by the number of days in each period.

The City hired an expert to assess the costs actually incurred due to the project delays. The Court agreed with the expert’s determination and awarded Norgéreq $127,523.

The City was not required to pay interest because it was justified in invoking the exception for non-performance given that Norgéreq had not submitted the supporting documents as required under the contract. The Court also ruled that there was no delay in the performance of the City’s obligations and that Norgéreq’s claim was unreasonable.

Beneficiary of the compensation: the contractor (not its subcontractors and suppliers)

Norgéreq claimed over $338,000 on behalf of its subcontractors and suppliers as compensation following termination of their respective contracts. The Court dismissed this portion of the claim.

The Court held that the contract provided for compensation for Norgéreq alone. It was up to Norgéreq, if applicable, to share this amount with its collaborators. The City could not be required to pay compensation a second time for the same issues, whether directly to these parties or indirectly through Norgéreq.

Contractual holdbacks and limits on the right to require releases

The City held back over $226,000 (10%) and refused to pay this amount to Norgéreq on the basis that the contractor had not provided releases from its subcontractors and suppliers.

The Court ruled that the City could only require releases from the parties that had previously disclosed their contract or registered a legal construction hypothec on a building. Given that the City did not demonstrate any of these circumstances, the contractual holdback was due to Norgéreq from the time the contract was terminated.

Compensation for termination in an amount exceeding the general contractor’s claim

The contract provided for payment of compensation in the event of termination. The City applied the formula set out in the contract and determined this amount to be $104,690. Though it is higher than the amount claimed by Norgéreq, the Court confirmed the City’s position and held that the calculation was consistent with the terms of the contract.

Conclusion

This case underscores the importance of rigorously documenting the actual costs of a project and following the compensation mechanisms set out in the contract. In the end, although the Court awarded certain types of compensation to Norgéreq, it dismissed a significant portion of the claim and limited compensation to amounts provided in the contract that were supported by the evidence.

In addition, the Court reiterated that a contract cannot be interpreted in a way that gives rise to an unreasonable outcome. In this case, the City could not be required to pay the contractor a higher amount following termination of the contract than it would have paid had the work been fully completed.

If you have any questions concerning termination of a construction contract, the drafting of contractual clauses specific to your project, or dispute management while a project is ongoing, Miller Thomson’s Construction Litigation lawyers can help.