Construction Disputes: A Contractor’s Right to be Paid vs. Owner’s Claims for Defective Work

It is one of the most common scenarios in construction litigation: work has completed, the contractor has rendered its final bill and an owner refuses to pay on the basis that there were delays or that there are defects or deficiencies with a contractor’s work. While contracts can and do provide allowances for such situations, that is not always the case. A stalemate can often follow disagreement and litigation can then often follow a stalemate. Such was the case in the recent decision of Can-West Development Ltd. v Parmar, 2019 BCSC 1573 (CanLII).

The Plaintiff and contractor, Can-West, sought an order for $351,530, the amount it said was owed by the owners, the Parmars, for construction services in respect of the redevelopment of a property. Among other things, Can-West claimed that there had been an oral agreement that certain aspects of Can-West’s work were to be considered “extras”, which increased the total project cost and the amounts Can-West claimed. The Parmars denied the existence of the oral agreement.

The Parmars counterclaimed for $217,968 for alleged deficiencies in Can-West’s work. The Parmars had obtained an inspection report which identified hundreds of issues with Can-West’s work. While Can-West purported to repair those issues, the Parmars alleged Can-West’s work was delayed and that there were remaining deficiencies.

The court first turned its mind to whether there was an agreement in place and, if so, what the terms of the contract were. The court found that there was an agreement for the construction of a duplex, an infill house and a garage largely on the terms asserted by the Parmars. The court determined these terms consistently with written agreements, communications and all the circumstances and specifically rejected the oral agreement or adjustment alleged by Can-West.

The court was required to engage in several exercises in contractual construction, all of which carried with them the risk of the contract being interpreted in a manner other than in accordance with the expectations of one or both of the parties. Each instance in which the court had to construct a term of the contract represented real risk to both parties and substantial legal costs associated with related arguments and evidence gathering. A clear contract from the outset of the contractual relationship would likely have saved both Can-West and the Parmars substantial uncertainty and expense.

With respect to damages, the court held as following at para. 106: “As a general rule, a plaintiff who has purchased the services of a builder is entitled, as far as possible, to receive the product bargained for and is, therefore, entitled to compensation in damages representing the cost of correcting or completing any unfinished work or deficiencies, or in some cases, a set-off against any damages awarded under the contractor’s claim: 0867740 B.C. Ltd. v. Quails View Farm Inc.2014 BCCA 252 (CanLII).” The court went on to analyze the various types of damages claimed by the Parmars in relation to defective or deficient work including in applying a contractual delay penalty.

The court ultimately determined that that proper price of the contract was $803,250 plus GST. The Parmars had paid $585,282 of that amount, leaving a difference of $217,968 plus GST. Accordingly, the $217,968 plus GST became the maximum claim that Can-West could establish. Again, the court rejected the alleged oral agreement in respect of “extras” or that Can-West was entitled to the $351,530 it claimed.

From the $217,968 plus GST that could be owing, the court then had to determine if the Parmars had any claims for set-off, damages or breach of contract to be subtracted. Based on its earlier findings that there were defects, deficiencies and delays, the court found that the Parmars were entitled to $137,250 in damages and delay penalties. As a result, the Court found that the total owed to Can-West was $80,718 plus GST, being $217,968 plus GST, less the $137,250.

Can-West Development Ltd. v Parmar is a multi-faceted cautionary tale. Arguably, both sides engaged in conduct which put their interests at risk. The case underscores how important it is for parties to a contract to ensure that their contract is clear, that any terms or alterations to the contract be clearly recorded and agreed to in writing and that a contract ought to consider and provide for what is to occur in various scenarios likely to be encountered during the life of the contract.

In failing to provide its work in a good and workmanlike fashion, failing to complete its work when required and failing to properly correct all defects and deficiencies, Can-West was exposed to substantial claims against it, which ultimately reduced its entitlement to payment substantially and also likely resulted in substantial delays in obtaining the payment it was entitled to. By withholding payment without agreement to do so or there being contractual terms allowing for such holdback, the Parmars risked being held in breach of contract, which could relieve Can-West from its obligations to conduct remediation of its deficient work.

Both parties were left with the possibility that they could not recover legal costs and disbursements given the mixed findings of the court and their respective breaches of legal and contractual obligations. It was also likely the case that the issues in dispute could have been substantially reduced, along with associated legal expenses, by the parties more closely adhering to their legal and contractual obligations or otherwise starting with a better, clearer contract.

If there is a concern about deficiencies or defects at the end of construction, the parties can negotiate a contractually agreed upon holdback in respect of such issues rather than an owner exposing themselves to claims for payment or loss of entitlement to court costs in an action to follow. If one party to a contract finds the other failing in their duties, the non-breaching party does no favours to themselves by also breaching the contract to “get even”.

Some suggested additional reading related to the above includes the following other articles I have written:

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