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Sun October 25 2020

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Ontario court decision emphasises need for proof of variations.

20 Sep 10 The parties entered into a framing contract but disputed its terms. The claimant performed no work after February 2007, and a replacement contractor was brought in.

The claimant disputed the costs of completing the works, and there were also disagreements between the parties as to the extent of the work which was outstanding when the claimant ceased work. The defendants counter claimed for the cost of completing the works. It fell to the court to decide whether the claimant was owed money under the underlying contract and for variations, or to special damages. In addition, the judge also had to determine what work was left to be done, its value and who was liable to pay for it. Finally, there was an issue as to whether the claimant' work had been defective and, if so, what the cost of remedying it would be.

The base contract price was $18,000. The claimant alleged that the defendants were slow in making progress payments which had caused them cash flow problems because he had had to pay his workers on an hourly basis whilst it was waiting to be paid by the defendant. The claimant stated that the first progress payment of $6,000 has been paid in three instalments, so that by the time the first instalment had been paid, the claimant was well into the work leading to the second progress payment. This second payment had not been made on time and also paid in instalments so that the defendant was in breach of contract. The defendant denied that these allegations.

Article 4 of the contract provided that the framing contractor could stop work without giving notice until the amount was paid. If the defendant decided that he did not need the framing contractor, he was liable to pay double the contract price for breach of contract.

Despite not being paid the first and second instalments on time, the claimant had continued to work. It was not uncommon for progress payments not to be made on time, and this would entitle a contractor to interest as compensation. Whilst the judge agreed that persistent late payment was a breach of contract, the appropriate compensation had to be commensurate with the seriousness of the breach.

Article 4 as a penalty:

The claimant took the view that the late payment entitled it to invoke Article 4 so that the defendant paid double the contract price, although the clause states that the owner must decide that "he is no longer in need of the framing contractor". The judge disagreed with the claimant's stance because:

It was not clear what that phrase meant;

There was an issue between the parties as to whether that part was part of the contract.

The provision was a penalty because it  was not a genuine pre-estimate of damages agreed by the parties in advance in the event of a breach of contract. It had no reasonable relationship to the damages which the claimant might sustain should there be a breach of contract. It was not, therefore, enforceable.

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Extras:

By the time the third progress payment became due, the question of extras had become an issue. The fact that a contractor has performed extra work does not automatically mean that he is entitled to payment. The claimant acknowledged that it was normal practice to identify the scope of the extra work and value it and approve it for extra payment. This did not occur in the present case. In the judge's view, it was the contractor's responsibility to ensure that all proper and necessary steps were taken to establish its entitlement to payments for extra work. Often the contractor has more experience in construction than the owner so that the burden of documenting and proving the extra work remains with the contractor. A proper claim for extras also involves ensuring that there is an agreement that they may be performed together with an indication of the value of the work. On large projects, there are usually change orders signed by both parties indicating the scope of the extras and their valuation. There was no evidence here that  the defendant had had the opportunity to know how much the extra work was going to cost before asking it to be done.

There was no documentary evidence to show that the work which the claimant had performed had been an extra to the contract price; nor was there any documentary evidence showing what he was going to charge for it. The claimant had had no reasonable basis for suspending the work because the third progress payment had been paid. The claimant had been in breach of contract and was liable to the defendant for the cost of completing the framing works.

The claimant's alternative claim for payment for the extras on a quantum meruit basis was also rejected. Firstly, it had not been raised in the pleadings and, secondly, the claimant had been unable to provide any detail of the valuation of the extra work. He did not disclose any invoices, time sheets or any other evidence that would allow his claim to be assessed on a quantum meruit basis. 

Farhat c.o.b as Le Chateau Carpentry v Malt and Wickham, [2010] ONSC 1786

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