Campus Contracting Inc. found itself between a rock and a hard place. It had been contracted by Torbear Contracting Inc. to install high pressured concrete watermains and sewers at a project site in Vaughan, Ont., a project valued at over $1.4 million. The problem was the pipes had failed pressure testing. Responsibility for that was under dispute.
As Ivan Merrow, associate, and Abygail Cross, articling student, both with McCarthy Tétrault LLP describe, “Torbear faulted Campus for installing the pipes on unstable subgrade. Campus blamed Torbear for failing to make the subgrade suitable for pipe installation, alleging that Torbear had failed to install a supporting concrete beam or sufficiently compact backfill.”
Campus was losing money as it repeatedly attempted to remediate the deficiency in the faulty couplings and joints. It claimed it was owed over $750,000 plus HST for work done to that point. Campus said it would cease work and walk away, which it did three days later.
In response, Torbear issued a notice of default declaring Campus in breach of the contract. It also said Campus’ work was deficient and had caused additional cost to the project through delays. Campus continued to deliver invoices to Torbear, none of which were certified for payment.
Ontario Superior Court Justice Phillip Sutherland addressed two specific questions: Was Campus owed for the invoice it rendered just before walking away? Did Campus abandon the project or did Torbear unlawfully terminate the contract by refusing to pay?
First, Campus was ruled unsuccessful in its attempt to gain payment for its invoice.
“The invoice that Campus delivered immediately prior to ceasing work was never certified,” write Merrow and Cross. “The contract made payment of invoices contingent on certification by the payment certifier and the court strictly enforced this term.”
In any case, as per the payment provisions in the contract, the invoice from Campus was not due until one month after they had ceased work. Furthermore, Torbear had not been paid by the project owner.
Secondly, the Court ruled Campus’ behaviour was a breach of contract.
Although expert witnesses were called by both sides to describe the condition of the site and the pipe installation details, the court determined Campus failed to prove that the deficiencies causing so much added expense to remediate were the fault of Torbear.
“Campus was spending good money after bad,” Justice Sutherland wrote in his ruling. “Campus could not afford continuing. Campus decided that the best bet for it was to get out of this losing situation and left the project.”
Nevertheless the Justice ruled despite Campus claiming it was unable to complete the contract due to circumstances outside its control and for the reasons presented, the court was not persuaded.
“It was Campus’ obligation to complete the work they were contracted for.”
There are several lessons to be learned from Campus’ unhappy experience.
While it may have wished to disconnect itself from a losing proposition, abandonment of a contract is a poor choice, Fasken Martineau DuMoulin LLP partner Edward Lynde and associate Anna Lu told the Daily Commercial News.
“Construction entities are often faced with difficult decisions that could be seen as lose-lose, in this case, to either continue to complete work without payment, or to treat the contract as at an end,” they said. “Despite these competing and challenging choices, each option should be weighed carefully and judiciously in each specific circumstance, particularly given the potential greater liability that may come with abandoning work, and where the contract is a fixed-price arrangement.”
Careful contract management and adhering to contract terms would have been advisable, write Merrow and Cross.
“Alternatively, if a party wishes to avoid such liability while preserving the right to terminate, it should build in a clear-cut termination right based on non-payment,” suggested Lynde and Lu, “or elsewise, a clearer regime setting out each party’s responsibility when it comes to deficient work.”
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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