Homeowners and general contractors often find themselves under various pressures to complete work and advance the project. The rushed approach that often ensues can cause parties to overlook or postpone settling essential terms with subcontractors. The recent case of Limem Forming West Ltd. v. Stuart Olson Dominion Construction Ltd., 2017 BCSC 1485, highlights the dangers of delaying a written contract and later trying to assert harsh or stringent terms that were never agreed to.
Stuart Olson Dominion Construction Ltd. was the approved general contractor (the “General Contractor”) for construction on the Budzey Building in East Vancouver (the “Project”). Limem Forming West Ltd. (the “Subcontractor”) was the successful bidder on the invitation to tender and was awarded the subcontract for the concrete formwork (the “Contract”). The Contract sum was $2,868,480.
The General Contractor and Subcontractor never signed a formal contract for the forming work due to a dispute over whether the Subcontractor had to provide a corporate guarantee as contract security.
Notwithstanding the lack of a formalized written contract, the parties negotiated oral terms of agreement with a view to deciding on the corporate guarantee at some later date. The General Contractor instructed the Subcontractor to begin work on the project in the meantime.
Further discussions about contract details and the security dispute continued over the coming months as work progressed. However, because of the dispute and the absence of a signed agreement, the General Contractor made no progress payments to the Subcontractor.
When the Subcontractor performed about 30% of the work required under the Contract, the General Contractor told the Subcontractor it would make no progress payments unless the Subcontractor signed the most recent draft subcontract and provided a corporate guarantee. The Subcontractor did not accept the terms, and threatened to stop working until the owing progress payments were made.
The General Contractor took this threat as repudiation of the contract, terminated the Contract and hired a new subcontractor to finish the formwork. The Subcontractor brought action, advancing its claim for work performed and loss of profit.
The court held the Subcontractor was entitled to payment for the work performed and loss of future profit for the remaining work on the Contract.
The court reasoned that despite the lack of a formalized written contract, the parties had made an oral agreement with all essential terms (i.e. parties, subject matter, time for performance and price). Further, the General Contractor awarded the contract to the Subcontractor and insisted it begin working on agreed-upon terms. From that point, the General Contractor could not force new conditions on the Subcontractor.
Finally, the court noted that the General Contractor’s refusal to pay progress draws for work performed was a breach: “A contractor will not be found to have repudiated a contract where the owner (or general contractor) imposes harsh and unrealistic terms as a precondition to payment” (para. 123).
1. Ensure all conditions are first included in a written contract – you cannot later add conditions to an existing contract without “fresh consideration”.
2. Do not permit subcontractors to begin work until a formal agreement is in place and all terms are established.
3. Permitting contracting parties to carry on in breach of a condition of a contract may be viewed later by a court as (i) a waiver of that condition; or (ii) if the condition’s existence is in dispute, evidence that the alleged condition never formed part of the original contract.
4. Beware of the risks of using “hard bargaining” to force another party into performing obligations it never contractually agreed to.
This article was written by Jay N. Spiro, and Matthew T. Potomak, Articled Student, who practice in construction law with the law firm of Kuhn LLP. This article is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have any questions or comments about this case or other construction law matters, please contact us at 604-864-8877 (Abbotsford) or 604-684-8668 (Vancouver).