1. Repudiation of contracts through non-performance:
Limen Forming West Ltd. v Stuart Olson Dominion Construction Ltd, 2017 BCSC 1485
The defendant, Stuart Olson Dominion Construction Ltd (Stuart Olson), was the general contractor for the construction of a residential rental building, and plaintiff, Limen Forming West Ltd. (Limen), was awarded a subcontract for concrete formwork. The formal contract was not signed for formwork because of a dispute over whether Limen had to provide contract security. The parties negotiated terms of agreement and Limen began the work. Because of the ongoing disagreement over contract security, Stuart Olson made no progress payments. After completing approximately 30% of the work, Limen sent a demand for payment letter and, when agreement could not be reached, instructed its crew not to return to the worksite. Stuart Olson issued a notice of contract termination, taking the position that Limen had repudiated the contract. Limen sued for work performed plus loss of profits and overhead, and materials left on site. Stuart Olson counterclaimed for net damages of $181,669.15, after subtracting the value of Limen’s work.
The action was allowed in part. The Court found that repudiation does not arise where stoppage was used to exert pressure on the payor to make progress payments in accordance with its contractual obligations. Anticipatory breach was not made out since Limen was in a position to carry out the work and did not remove its crew until the contract was terminated by Stuart Olson. Through its unreasonable position and notice of termination, it was in fact Stuart Olson which had repudiated the contract and Limen was entitled to work performed plus damages for breach of contract. The Court ordered damages for work performed in the amount of $934,930.50, inclusive of taxes and holdback, and for lost profits in the amount of $104,032, plus GST. The claims for overhead and materials left on site were dismissed.
Takeaway: Parties to a construction contract should beware in claiming repudiation by the opposing party prematurely lest their conduct be found to constitute repudiation.
2. Enforceability of construction contracts which are in violation of municipal zoning bylaws:
Nzeadibe v Khan, 2017 BCSC 1456
The defendant fraudulently represented to the plaintiff that if he purchased a certain lot, he could build a house on that lot that would measure 3,638 square feet and would incorporate a self-contained suite. The plaintiff purchased the lot relying on those representations. The city of Surrey zoning by-law permitted only residences up to 2,837 square feet and precluded secondary suites. The house that was actually built measured around 2,700 square feet and had no secondary suite. The plaintiff sued for breach of contract and fraudulent misrepresentation. Damages were awarded for fraudulent misrepresentation but damages for breach of contract were denied on the basis that the contract did not contain the promise to build the larger house. The Court also found that such a contract would be unenforceable due to statutory illegality because it violated the zoning bylaw. The Court distinguished this situation from cases where the illegal structure had in fact been built and the owner was seeking to avoid payment to the builder on the basis of illegality while at the same time retaining the benefit of the illegal structure. In this case, public policy was entirely against an individual seeking to claim damages solely for the loss of the profits he would have gained through the illegality.
Takeaway: The doctrine of illegality can be effectively used to defend an action for damages if the party relying on this defense has not itself benefited from the illegality.
3. Enforceability of liens containing incorrect information:
Norson Construction Ltd. v Clear Skies Heating & Air Conditioning, 2017 ABQB 544
A subcontractor hired Clear Skies Heating & Air Conditioning (Clear Skies) to install HVAC systems on the owner’s project. Clear Skies filed a builders’ lien for $131,798.10 against land, but mistakenly indicated that the subcontractor was the owner. The owner advised the general contractor, Norson Construction Ltd. (Norson), that it would cease progress payments until the lien was removed. Norson applied to have the lien removed. The Court found that the recording of the wrong entity as owner on the lien did not vitiate the lien since no one was prejudiced by the error and the lien was in substantial compliance with s. 34 of the Builders’ Lien Act. Norson appealed to a judge of the Court of Queen’s Bench. The appeal was dismissed. The Court of Queen’s Bench found that the lower court correctly stated the issue of prejudice in terms of whether anyone was misled by failure to register against the correct interest holder. The parties admitted that no prejudice resulted from the failure to file a lien against the correct owner as the correct property interest was identified in the statement of lien and was filed against the legal title to the property, ensuring that the owner would get notice. This case was distinguishable from one where both the property interest and the owner were incorrectly identified since in those cases there was a substantial risk that the owner of the liened interest would be misled.
Takeaway: Liens which incorrectly identify the property owner can still be enforced if they correctly identify the property against which the lien is asserted and the owner is not prejudiced.