Despite the best intentions, a construction project can be
delayed beyond the anticipated completion date. If the matter
proceeds to litigation, the court must decide the appropriate
method for determining what damages, if any, should be awarded for
breach of contract. In Thai House Restaurant (North
Vancouver) Ltd. v. Lui's Millwork Ltd., 2011 BCSC
964 [Thai House], the British Columbia Supreme Court
provided some guidance on how it will assess damages stemming from
late completion of a renovation contract.
In Thai House, the Plaintiff, Thai House Restaurant
(the "Restaurant"), brought a claim for damages against
the defendant, Lui's Millwork Ltd. (the
"Contractor"), for failure to complete the terms of a
renovation contract (the "Renovation Agreement").
The Renovation Agreement, which required the Contractor to
undertake a substantial renovation of the plaintiff's new
restaurant, was to be completed within 10 weeks of obtaining a
building permit. The permit was issued on June 16, 2008, making the
final completion date August 26, 2008 (the "Final Completion
As a result of numerous construction delays, the Contractor was
unable to meet the Final Completion Date. The parties then entered
into another agreement on November 6, 2008 (the "Side
Agreement") which provided for a new completion date of
November 18, 2008. The Side Agreement stipulated that a failure by
the Contractor to complete the project on time would result in a
penalty of $500 dollars being paid to the Restaurant for each day
the project was delayed.
The project was still incomplete as of November 18, 2008. The
Restaurant chose to terminate the Renovation Agreement as a result
of the continued delays.
How will the Court assess damages in cases where renovation
contracts are not completed in a timely and workmanlike manner?
In rendering its decision, the Court accepted that the original
completion date of August 26, 2008, was impracticable as a result
of construction delays that were outside of the Contractor's
control. However, the Contractor was liable for failing to meet the
extended completion date contained in the Side Agreement.
In determining liability, the Court found that the Contractor
had only agreed to the extended completion date in order to gets
its final progress payment under the contract; presumably a factor
demonstrating bad faith on the Contractor's part. Another
important factor leading the Court to rule in the plaintiff's
favour was the detailed photographic evidence that the Restaurant
produced showing the many deficiencies and incomplete nature of the
After finding the defendant liable for breach of contract, the
Court next considered the appropriate method for calculating
damages in cases where a contractor fails to complete a renovation
project on time. While refusing to hold the Contractor personally
liable for the Restaurant's losses, damages were awarded
against the defendant's company on a number of grounds. In
addition to loss of profits, the Court ordered the Contractor to
reimburse the Restaurant for the cost of hiring another company to
properly complete the work. The Court also enforced the $500 dollar
daily penalty against the Contractor for each day the project went
beyond the completion date.
If it becomes clear that a construction project is going
sideways and may result in future litigation, photographic evidence
can be a very useful tool in demonstrating how much of the contract
has been completed.
The Court may enforce clauses penalizing late completion. If
you are party to an agreement containing such a clause, every
effort should be made to comply with the written completion date in
order to reduce your exposure.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Supreme Court of Canada today released its highly anticipated decision in Iona Contractors Ltd. v Guarantee Company of North America, dismissing the application for leave to appeal by the Trustee in Bankruptcy of the bankrupt, Iona Contractors Inc.