During a construction job (big or small), disputes can often arise over the work being done. The owner may want to kick the constructor off the site and insist that the work be completed by someone else (with little-to-no moneys being paid for the work done to date), whereas the constructor typically believes their work is more than satisfactory, and the owner’s reluctance to pay warrants them leaving the job site. Put another way, it is a common battle for each party to assert that their other party breached, or repudiated, the contract.
This recent case dealt with this common issue, and provides a very nice summary and synopsis of the law pertaining to construction. It cannot be said any better, as follows:
“[18] The law of construction contracts governs this situation. Repudiation is the key concept engaged.
[19] The repudiation of a contract is conduct that demonstrates that a party has absolutely renounced its contractual obligations: Remedies and the Sale of Land, Paul Perell (Toronto and Vancouver, Butterworths 1988), page 32.
[20] Where repudiatory conduct takes place before the time when performance is due, the result is sometimes described as “anticipatory breach of contract”.
[21] If the owner without justification ceases to make required payments under the construction contract, cancels it, or through some act without cause makes it impossible for the contractor to complete its work, then the owner has breached the contract and it has no claim for damages, and the contractor is justified in abandoning the work and the contractor is entitled to enforce its claim for lien to the extent of the actual value of the work performed and materials supplied up to that time: D & M Steel Ltd. v. 51 Construction Ltd., 2018 ONSC 2171, at para.49.
[22] Mere bad or defective work or insignificant non-completion will not, in general, entitle an owner to terminate a contract, but the owner will have an obligation to pay for the work and make a claim for damages for the defective work. An owner will not be able to terminate the contract because of some minor or inconsequential failure to complete: D & M Steel Ltd v. 51 Construction Ltd., at para. 51.
[23] If a contractor abandons the contract, repudiates the contract, fundamentally breaches the contract, or performs the contract in a way that it is so defective as to amount, in substance, to a failure or refusal to carry out the contract work, the owner is entitled to terminate the contract, to claim damages for breach of contract, and to be discharged from its obligations: D & M Steel Ltd. v. 51 Construction Ltd. , at para. 53.
[24] Cessation of work and abandonment are not necessarily coexistent and in order to constitute abandonment, a cessation of work would have to be permanent in the sense that it was not intended to carry the project to completion: Wildberry Homes Inc. v. Prosperity One Credit Union Limited, 2008 CanLii 70790 (ON SC), at para. 15.
[25] Abandonment is a question of fact. It means, not leaving a work under the belief that the contract is completed, but knowing or believing that the contract was not completed and declining to go on and complete it: Wildberry Homes, at paras. 15 and 16.
[26] It is well accepted that fundamental breach is an extraordinary doctrine and is to be applied sparingly because of the exceptional remedy to which it gives rise. A fundamental breach may relieve the non-breaching party from future executory obligations under the contract. In determining whether there has been a fundamental breach, the court must consider five factors: 1. The ratio of the parties obligations not performed to the parties obligations as a whole; 2. The seriousness of the breach to the innocent party; 3. The likelihood of repetition of the breach; 4. The seriousness of the consequences of the breach; and 5. The relationship of the part of the obligation not performed to the whole obligation: RPM Investment Corp. v. Lange, 2017 ABQB 305, at paras. 49 – 50.
[27] Repudiation occurs by words or conduct evincing an intention not to be bound by the contract. Such an intention may be evinced by a refusal to perform, even though the party refusing mistakenly thinks that he is exercising a contractual rate: RPM Investment, at para. 52.
[28] The effect of a repudiation depends on the election made by the non-repudiating party. If that party treats the contract as still being in full force and effect, the contract remains in being for the future on both sides. Each party has a right to sue for damages for past or future breaches: RPM Investment, at para. 52.
[29] A party’s words or actions may amount to repudiation even if that party believes those words or actions are within its contractual rights: RPM Investment, at para. 53.
[30] In determining whether there has been a repudiation of contract, the conduct and circumstances of the parties must be considered as a whole. The test can be to determine whether the defaulting party’s actions could lead a reasonable person to conclude he no longer intends to be bound by the provisions of the contract: RPM Investment, at para. 54.
[31] An act of repudiation puts the non-repudiating party to an option: either accepting the repudiation, which terminates any prospective obligations under the contract, or declining it, leaving contractual obligations in place: RPM Investment, at para. 55.
[32] A party may also evince an intention to cease to be bound by the contract at some future point, giving rise to an anticipatory repudiation. The other party again has the option to accept or refuse the repudiation: RPM Investment, at para. 56.
[33] Where a general contractor fundamentally breaches the contract, it is entitled to no damages: Adam Rowe v. Fred Hagemans Holdings Limited, 2021 ONSC 5291 at para. 79; D & M Steel Ltd. v. 51 Construction Ltd., at para. 49.”
The court ultimately sided with the company performing the waterproofing work, concluding that the water-proofer was doing a good job up until the owner took the position that they wanted them off the site. The waterproofing company was awarded damages for the outstanding money owed from contracted work.
Southwest Waterproofing and Coatings Inc. v. 155 Uptown and VanMar, 2022 ONSC 3497
https://www.canlii.org/en/on/onsc/doc/2022/2022onsc3497/2022onsc3497.html