The contractor’s failure to complete its work diligently was evidence of repudiation, despite its assertion that it intended to proceed. The contractor’s commitment to proceed was not unconditional — it required the disputes to be resolved in its favour before proceeding. The court found this position unreasonable and the owners’ loss of confidence in the contractor justified. The contractor’s conduct amounted to repudiation: thus, the owners were legally entitled to terminate the contract.

Contractor’s Conduct implies repudiation of contract

By Michael MacKay

3027539 N.S. Ltd. v. Mogon

Contract • repudiation • implied by conduct • contractor that requires disputes to be resolved on its terms before completing contract effectively repudiates contract • owner entitled to terminate contract and hire another • Construction contract contained arbitration clause • arbitration attempted but never successfully implemented • contractor’s failure to complete arbitration indicates repudiation

In April 1999, the Mogons (the owners), hired 3027539 N.S. Ltd. (the contractor) to build them a house for $132,625. The contract was a modified version of the contractor’s standard “Construction Building Contract” and contained arbitration and termination clauses.

Construction started in May, with completion scheduled for August 15, 1999.

By July the parties had a number of disputes, including:

whether the owners were allowed to choose the bricks and the aluminum siding colour, or were limited to the samples the contractor showed them;
the cost of upgrades — the owners chose many materials and fixtures that were more expensive than those the contractor intended to supply;
extras, including construction of a “hip roof” over the garage in place of the “gable roof” specified, which would have eliminated a side window on the house ($900).

They tried to resolve these disputes through arbitration but became bogged down in the choice of arbitrators. The contract required three arbitrators, one chosen by each of the parties, with the third chosen by the first two. The owners chose a friend. The contractor chose the employee who had been project supervisor. The third arbitrator, a lawyer, was concerned about the propriety of an employee of one of the disputants being on the arbitration panel. In any event, because the contractor feared the cost of arbitration, the arbitration never proceeded.

The contractor did not truly understand the arbitration process. Even at trial, the contractor insisted that the arbitration had been completed because the first two arbitrators had met. All the other witnesses, even the contractor’s own appointee, disagreed.

By September, the owners had grown frustrated with the contractor’s failure to complete the arbitration or finish the house. Although it was past the scheduled completion date, the contractor had done only 60 per cent of the work. The owners gave the contractor a complete list of the work required to complete the house. They made it clear that, if the contractor did not respond positively, they would hire someone else.

The contractor’s reply did not address these concerns; but simply repeated its earlier claims. This did not advance either the project or resolution of the dispute.

The owners then delivered a notice of termination and hired another contractor. At the time, the owners had paid the contractor $34,000. Their costs to complete were $132,625. The contractor claimed a lien of $132,972.50.

By the time of trial, the parties had agreed generally on how to settle their lawsuit, but required the court to decide two legal issues, the most significant being whether the owners were entitled to terminate the contract.

To justify their termination, the owners had to prove that the contractor had repudiated the contract.

Repudiation occurs where one party indicates that it is unwilling to honour its obligations under the contract. Here, the contractor did not explicitly repudiate the contract. The question is not what a party intends or says that is important, however: it is what a party does. A party can repudiate a contract if its conduct amounts to a substantial breach of contract that demonstrates the “necessary intention to no longer be bound.”

The case was referred to the Referee to determine what amounts were owing and by whom as a consequence of this decision, as well as to determine certain issues relating to claims for extras.

Nova Scotia Supreme Court
Kelly J.
April 12, 2002