Which Takes Precedence In A Building Contract: A Performance Standard Or A Design Standard?

The United Kingdom Supreme Court recently considered the question of whether the performance standard or the design standard prescribed in the contract took precedence. In MT Hojgaard AS v E.ON Climate and Renewables UK Robin Rigg East Ltd & Anor [2017] UKSC 59, the court held that the performance requirement took precedence and that the contractor was liable when the structure failed soon after erection although the structure was built according to the design standard which had an error in it.

This decision generally follows the principle adopted by Canadian courts in holding contractors liable for the structure’s failure to perform as required by the contract even though the structure was built according to specifications issued by the owner.

Background

The contractor MT agreed with the owner E.ON to build the foundations for proposed offshore wind turbines. The technical requirements (“TR”) issued by the owner to bidders stated that “[t]he Works elements shall be designed for a minimum site specific ‘design life’ of twenty (20) years without major retrofits or refurbishments; all elements shall be designed to operate safely and reliably in the environmental conditions that exist on the site for at least this lifetime.”

The TR stated that they were minimum requirements and that the contractor was “to identify any areas where the works need to be designed to any additional or more rigorous requirements or parameters” and that “[t]he design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement. The choice of structure, materials, corrosion protection system operation and inspection programme shall be made accordingly.”

The TR required the contractor to prepare the detailed design of the foundations in accordance with an international standard for the design of offshore wind turbines published by an independent classification and certification agency. An equation in that standard was later shown to be erroneous by a factor of 10, leading to the subsequent failure.

The contract between the parties incorporated the TR, which were attached to the contract. The contract required MT “in accordance with this Agreement, [to] design, manufacture, test, deliver and install and complete the Works” in accordance with a number of requirements, including

“(iv)    in a professional manner in accordance with modern commercial and engineering, design, project management and supervisory principles and practices and in accordance with internationally recognised standards and Good Industry Practice; …

(viii)   so that the Works, when completed, comply with the requirements of this Agreement …;

(ix)      so that [MT] shall comply at all times with all Legal Requirements and the standards of Good Industry Practice;

(x)       so that each item of Plant and the Works as a whole shall be free from defective workmanship and materials and fit for its purpose as determined in accordance with the Specification using Good Industry Practice; …

(xv)     so that the design of the Works and the Works when Completed by [Mt] shall be wholly in accordance with this Agreement and shall satisfy any performance specifications or requirements of the Employer as set out in this Agreement. …”

The contract provided that MT was responsible for making good any defects arising for defective materials, workmanship or design which appeared within 24 months of E.ON taking over the works from MT. E.ON was required to produce a Defects Liability Certificate once the Defects Liability Period has expired and MT had satisfied all its obligations. Within 28 days of the issue of a Defects Liability Certificate, MT was entitled to apply for a Final Certificate of Payment, and to accompany the application with a final account. A Final Certificate of Payment was then to be issued which was conclusive. This regime is referred to as the “Defect Liability regime” in this article.

MT proceeded with the design and construction of the two wind farms. The international certifying authority evaluated and approved MT’s foundation designs. MT began the installation of the foundations in December 2007, and completed the Works in February 2009. During 2009 a serious problem came to light at another wind farm. The certifying authority carried out an internal review during late summer 2009, and discovered the error in the equation in the international design standard that had been prescribed by the owner. The foundations were re-built and litigation was commenced to determine which party was responsible for the additional costs.

The trial judge found in favour of E.ON on the grounds that: the contract required the foundations to be fit for purpose; fitness for purpose was to be determined by reference to the TR; and the TR also required the foundations to be designed so that they would have a lifetime of 20 years.

The Court of Appeal reversed the trial judgment. It held that the contract stipulated that the foundations must be constructed in accordance with the international design standard prescribed by the owner, and the other elements of the contract did not render MT liable for an error in that standard.

Decision of the U.K. Supreme Court

The U.K. Supreme Court reversed the decision of the Court of Appeal and re-instated the decision of the trial judge. The elements of its decision may be divided as follows:

  1. The effect of the Defects Liability regime was that “any claim by E.ON in respect of a defect appearing thereafter was barred, and….. there was no room for claims outside the 24-month period….. In my opinion, there is no answer to that analysis so far as it is directed to the effect of [the Defects Liability regime]….Clause 42.3 makes it clear that the provisions of clause 30 (and any other contractual term which provides for remedies after the Works have been handed over to E.ON) are intended to operate as an exclusive regime. And that conclusion appears to…. tie in very well with the notion that there should be no claims after the Final Certificate, which is to be issued very shortly after the 24-month period.”
  2. This reading of the Defects Liability regime helped to resolve the tension between the 20 year performance standard and other parts of the contract:

“In the light of the normal give and take of negotiations, and the complex, diffuse and multi-authored nature of this contract, it is by no means improbable that [MT] could have agreed to a 20-year warranty provided that it could have the benefit of a two-year limitation period, save where misconduct was involved. It would simply mean that the rights given to E.ON by paras 3.2.2.2(ii) were significantly less valuable than at first sight they may appear, because any claim based on an alleged failure in the foundations which only became apparent more than two years after the handover of the Works would normally be barred by clause 42.3. In this case, of course, there is no problem, because the foundations failed well within the 24-month period.”

  1. The true meaning of the 20-year performance term was, not that the structures would last for 20 years, but that they would be designed to last for 20 years:

“….there is a powerful case for saying that, rather than warranting that the foundations would have a lifetime of 20 years, para 3.2.2.2(ii) amounted to an agreement that the design of the foundations was such that they would have a lifetime of 20 years. In other words, read together with clauses 30 and 42.3 of the Contract, para 3.2.2.2(ii) did not guarantee that the foundations would last 20 years without replacement, but that they had been designed to last for 20 years without replacement. …… Rather than the 20-year warranty being cut off after 24 months, E.ON had 24 months to discover that the foundations were not, in fact, designed to last for 20 years. On the basis of that interpretation, E.ON’s ability to invoke its rights under para 3.2.2.2(ii) would not depend on E.ON appreciating that the foundations were failing (within 24 months of handover), but on E.ON appreciating (within 24 months of handover) that the design of the foundations was such that they will not last for 20 years.”

   It is unnecessary to decide whether para 3.2.2.2(ii) is a warranty that the foundations will have a lifetime of 20 years or a contractual term that the foundations will be designed to have such a lifetime. The former meaning has been taken as correct by the parties and by the courts below, but, for the reasons given in paras 28 to 31 above, I am currently inclined to favour the latter meaning…… However, it is clear that, if para 3.2.2.2(ii) is an effective term of the Contract, it was breached by [MT] whichever meaning it has, and therefore the issue need not be resolved.

  1. The legal resolution of the tension between the prescribed performance (which the court called the “prescribed criteria”) and the prescribed design may be resolved as follows:

“Where a contract contains terms which require an item (i) which is to be produced in accordance with a prescribed design, and (ii) which, when provided, will comply with prescribed criteria, and literal conformity with the prescribed design will inevitably result in the product falling short of one or more of the prescribed criteria, it by no means follows that the two terms are mutually inconsistent. That may be the right analysis in some cases…… However, in many contracts, the proper analysis may well be that the contractor has to improve on any aspects of the prescribed design which would otherwise lead to the product falling short of the prescribed criteria, and in other contracts, the correct view could be that the requirements of the prescribed criteria only apply to aspects of the design which are not prescribed. While each case must turn on its own facts, the message from decisions and observations of judges in the United Kingdom and Canada is that the courts are generally inclined to give full effect to the requirement that the item as produced complies with the prescribed criteria, on the basis that, even if the customer or employer has specified or approved the design, it is the contractor who can be expected to take the risk if he agreed to work to a design which would render the item incapable of meeting the criteria to which he has agreed.” (underlining added)

In arriving at its conclusion, the U.K. Supreme Court relied upon two Canadian decisions, The Steel Company of Canada Ltd v Willand Management Ltd., [1966] S.C.R. 746 and Vancouver Water District v North American Pipe & Steel Ltd., 2012 BCCA 337. In both those cases, the contractor was held liable when the work failed to live up to the performance standard in the contract even though the contractor used the specifications provided by the owner.

  1. In applying this principle in the present case and in finding in favour of the owner, the Court of Appeal concluded as follows:

“The opening provision of Section 3, para 3.1, (i) “stresse[s]” that “the requirements contained in this section … are the MINIMUM requirements of [E.ON] to be taken into account in the design”, and (ii) goes on to provide that it is “the responsibility of [MT] to identify any areas where the works need to be designed to any additional or more rigorous requirements or parameters”. In those circumstances, in my judgment, where two provisions of Section 3 impose different or inconsistent standards or requirements, rather than concluding that they are inconsistent, the correct analysis by virtue of para 3.1(i) is that the more rigorous or demanding of the two standards or requirements must prevail, as the less rigorous can properly be treated as a minimum requirement. Further, if there is an inconsistency between a design requirement and the required criteria, it appears to me that the effect of para 3.1(ii) would be to make it clear that, although it may have complied with the design requirement, [MT] would be liable for the failure to comply with the required criteria, as it was [MT’s] duty to identify the need to improve on the design accordingly.” (underlining added

  1. Having arrived at this interpretation of the contract as being the proper one, the Court of Appeal did not accept a number of submissions of the contractor as to why that interpretation should not be accepted, including:
    1. The “diffuse and unsatisfactorily drafted nature of the contractual arrangements, with their ambiguities and inconsistencies, [which] should be “recognised and taken into account”;
    2. The fact that the “onerous obligation” upon which the court’s interpretation rested “is found only in a part of a paragraph of the TR, essentially a technical document, rather than spelled out in the Contract.”
    3. This interpretation would or would not render the requirements in the TR redundant having regard to the terms of the contract itself.

Discussion

The MT Hojgaard decision contains a fascinating and important analysis of the factors which may assist a court to resolve the apparent conflict between a prescribed criteria (which I have called a performance standard) and a design criteria in a contract, or in the event of conflict, to determine which standard should takes precedence. The court stated the principle that, and the reasons why, the prescribed criteria will generally be given precedence over a design criteria, even a design criteria by the owner.

In the course of its decision, the U.K. Supreme Court considered almost all the conceivable factors relating to the interpretation of these sorts of contractual provisions. The decision provides, therefore, a good check-list for persons drafting or litigating these provisions.

The fact that the U.K. Supreme Court relied upon two Canadian decisions is significant. However, the court did not refer to any Canadian decisions on the other side of the ledger. There are many cases in which the owner’s claim against the contractor has been dismissed on the basis that the contractor had not given a warranty of the life or other criteria of the structure, or that the owner had not relied upon the contractor’s skill and judgment for the design of the structure. One of the leading Canadian decisions to this effect is CCH Canadian Ltd. v. Mollenhauer Contracting Co., [1976] 1 S.C.R. 49.

The debate in Canadian cases often turns on whether the owner relied upon the contractor’s skill and judgment, and whether the agreement of the contractor truly represents a warranty of performance. These elements of the usual Canadian analysis are not evident in the MT Hojgaard decision of the U.K. Supreme Court. Perhaps they were inherent in the court’s interpretation of the performance standard. But if reliance on the contractor’s skill and judgment is something that can be shown objectively from the parties’ conduct, and not merely from the words of the contract, it may be doubtful in this case that the owner really relied upon the contractor’s skill and judgment in relation to the international design standard contained in the TR issued by the owner.

In addition to resolving the tension between the design and performance standards in the contract, there are two other interesting aspects of the MT Hojgaard decision.

The first is the court’s interpretation of the term relating to “20 years without replacement” and its finding that this term “did not guarantee that the foundations would last 20 years without replacement, but that they had been designed to last for 20 years without replacement.”

The second is the court’s interpretation and use of the Defect Liability regime. The court held that this regime meant that, while the “20 years without replacement” term existed in the contract, it could only be enforced during the 2 years after the owner took over the project after which the owner’s rights terminated. The court relied upon this interpretation to resolve the tension between the performance and design criteria.

It can be predicted that Canadian courts will pay close attention to both these approaches.

Heintzman and Goldsmith on Canadian Building Contracts, 5th ed. Chapter 4, sections 3(i) and 5 and Chapter 7, section 7(c)(ii).

MT Hojgaard AS v E.ON Climate and Renewables UK Robin Rigg East Ltd & Anor [2017] UKSC 59

Building Contracts –performance and design standards and defects – warranty period

Thomas G. Heintzman O.C., Q.C., LL.D. (Hon.), FCIArb                   August 24, 2017

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.

A Subcontractor Recovers Against The Owner In Unjust Enrichment

A subcontractor who fails to register a construction lien faces an uphill battle in asserting a claim in unjust enrichment against the owner. That is because the owner will rely upon its contract with the contractor for any benefit that the owner has obtained from the subcontractor’s work. The owner will also assert that there is no equitable reason to grant an unjust enrichment remedy to a subcontractor who could have asserted a construction lien remedy but failed to do so.

Sometimes, however, the subcontractor’s unjust enrichment claim fits within the narrow opening between the owner’s contractual and construction lien defences, and N.K.P. Painting Inc. v. Boyko 2016 CarswellOnt 7332, 2016 ONSC 3016 was such a claim.

Background

The owner contracted with the prime contractor for the refurbishment of the corridors of the building. The prime contractor retained NKP as the subcontractor to supply painting and wallpapering material. During the project, the owner issued progress payments to the general contractor, less the applicable statutory holdback. NKP completed its work and invoiced the prime contractor. A total of $28,928.00 was not paid by the prime contractor to NKP, and the prime contractor became insolvent. Neither NKP nor the prime contractor registered liens. The owner held back a total of $23,893.74 under the prime contract.

Decision

The Superior Court judge held that there “is no reason to deny the appellant access to the common law remedy of unjust enrichment because it did not avail itself of potential statutory remedies,” as long as the ingredients of the unjust enrichment remedy were satisfied.

The court found that the owner had retained the 10 percent holdback, and that there was no claim against that holdback for deficiencies. While there was evidence of a claim by another subcontractor, there was no evidence about the status or disposition of that claim and no evidence to suggest that anything other than the full amount of the holdback remained available and under the control of the owner.

The court therefore concluded that “it would appear clear that [the owner] has been enriched in the sense that it has received 100% of the benefit of the invoiced renovation work performed but has only paid 90% of the invoiced amounts” and that “the enrichment corresponds to the efforts of NKP through the renovation work performed for which it has received no compensation.”

The court then considered the third element in the claim for unjust enrichment, namely whether there was a juristic reason for the benefit and corresponding deprivation. While that juristic reason may be a contract, that reason could only apply:

“where the party advancing the claim for unjust enrichment is a party to the contract, as is the party against whom the claim is advanced. On the facts of the case before me, that would require a contract between NKP and [the owner]. There is no such contract. In other words [the owner’s] enrichment and NKP’s deprivation did not arise in the context of a contract between these two parties…I therefore conclude that there is no established category of juristic reason to deny recovery to the Appellant.”

The court then considered the reasonable expectations of the parties and public policy and found that neither factor should deprive NKP from a remedy in unjust enrichment:

“In my view it cannot have been within the reasonable expectation of the parties that [the owner] would receive a 100% benefit of renovation work invoiced, including NKP’s efforts, while paying only 90% of the cost of those efforts. [The owner’s] statutory obligation to retain the holdback has expired and had expired at the time of trial. There was no legal requirement at trial for [the owner] to retain the funds by way of holdback, nor did [the owner] retain any legal entitlement to those funds….The purpose of the holdback funds is to represent a potential source of funds from which to compensate unpaid providers of service and materials to the improvement of a property. It is remedial in nature….Thus [the owner] could not reasonably have expected to retain the funds and indeed were it to do so it would represent a windfall.”

The court held that the owner’s enrichment was the amount of the holdback held by the owner, and granted judgment for that amount in unjust enrichment in favour of the subcontractor.

Comment

The court arrived at a fair result but, it is submitted, the court’s conclusion is incorrect that a contract must be between the claimant and the defendant before it can be a defence to a claim in unjust enrichment.

There are many cases in which a contract has been held to be a defence to an unjust enrichment claim even though the contract was not between the unjust enrichment claimant and defendant. In most cases, the contract was between the defendant and a third party. For example, if an owner enters into a prime contract with a contractor and pays the contractor in full, including the holdback, then that prime contract is a juristic reason why the owner should not have to pay the subcontractor, which has been unpaid by the contractor but has not filed a construction lien. Requiring the owner to pay twice is not fair, either from a contract or construction lien perspective.

There are even some cases in which the contract between the claimant and a third party has been held to be a juristic reason for the claimant being denied an unjust enrichment remedy against the defendant. For example, a subcontractor has been denied an unjust enrichment remedy against an owner due to the subcontract between the subcontractor and contractor. However, unless the claimant has been paid in full under the subcontract, it is harder to justify that conclusion since there seems to be no good reason why the owner should be entitled to rely upon a subcontract to which it is not a party as a juristic reason for not paying the unpaid subcontractor.

However, the present case fits within the crack between the owner’s juristic reason defences, both based upon its prime contract with the contractor and upon the construction lien regime. The work under the prime contract had been entirely completed but the owner had not paid out the holdback under that contract. So there was no juristic reason under that contract why it should not be compelled to pay the holdback to the subcontractor.

And under section 8 of the Construction Lien Act, the holdback was held in trust “for the benefit of subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor…”. Therefore, even though the subcontractor had not filed a lien, there was a good juristic reason why the owner should pay to the subcontractor the monies in its hands that were due under the prime contract.

The validity of the subcontractor’s unjust enrichment claim extended to the amount held back by the owner, not the amount which the subcontractor had not been paid by the contractor. Payment of the former amount did not penalize the owner under the prime contract nor over-stretch the statutory trust fund remedies, while payment of the latter amount would have.

Another fact to note in this case is that the prime contractor’s trustee in bankruptcy did not assert a claim to the holdback. Accordingly, whether such a claim could have been asserted, in view of the trust fund provisions of the Construction Lien Act, was not considered.        

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 10, part 4.

N.K.P. Painting Inc. v. Boyko 2016 CarswellOnt 7332, 2016 ONSC 3016

Building contracts – construction and builders’ liens – unjust enrichment – juristic reason defence

Thomas G. Heintzman O.C., Q.C., LL.D. (Hon.), FCIArb                                   August 20, 2017

www.heintzmanadr.com

www.constructionlawcanada.com

 

 

How Does The Loss Of A Chance Apply To Damages For Breach Of A Building Contract?

Construction law practitioners must keep their eyes and ears open to the evolving case law in other areas of the law. That case law may have direct application to building contract issues.

This fact is especially true for the assessment of damages. Because of the numerous contracts involved in a building project, a breach of one contract may cause the innocent party to lose a chance to recover, or avoid a loss, on another contract. But is the loss of a chance to negotiate a better deal on another contract sufficient?

This is the issue that the recently Ontario Court of Appeal addressed in Trillium Motor World Ltd. v. Cassels Brock & Blackwell LLP, 2017 CarswellOnt 10114, 2017 ONCA 544. While the facts arose from a franchise relationship, the principles set forth by the Ontario Court of Appeal are directly applicable to construction law due to the intersecting contractual relations in both settings.

The Background

The facts arose from economic downturn in 2008-2009 and General Motors’ efforts to save itself from bankruptcy. GM wanted to avail itself of financial assistance from the U.S. and Canadian governments, but to do so it had to shed financial liabilities and put itself on a sounder financial footing. This involved terminating many franchises with its dealers.

In this case, the trial court found that by May 2009, the law firm Cassels Brock was acting for three of the parties to this tangled web: the Canadian government, certain specific GM Canada dealers and the GM Canada dealers association. GM offered a buy-out proposal to the dealers, including payment of a termination amount to the terminated dealers. Cassels Brock told the dealers they could not act for the dealers on that proposal. After many dealers accepted a buy-out from GM Canada, they sued Cassels asserting that it had been in conflict of interest. The trial judge and the Court of Appeal found that Cassels Brock had been in breach of its retainer contract with the dealers. The question then became: what is the amount of damages to which the dealers were entitled?

The dealers asserted that, had they had independent counsel, they would have been able to negotiate a much better financial settlement with GM Canada, and that by reasons of Cassels Brock’s conflict of interest, they had lost the chance of making a better settlement with GM Canada. Cassels Brock asserted that the dealers had to show that they had suffered a loss on a balance of probabilities, not just on the basis of a loss of a chance, and that in any event, the dealers’ assertion that they would have made a better settlement with GM Canada was purely speculative and not a sufficient basis to award damages.

Judgment of the Court of Appeal

Both the trial judge and the Court of Appeal held that the dealers’ damages were to be assessed based on the loss of a chance to make a gain or avoid a loss, not on the basis of the balance of probabilities of making a gain or avoiding a loss. That is because the dealers’ claims were in contract, not tort. In contract, the existence of damage is not an element in determining liability, while it is in tort. The dealers had satisfied the evidentiary test for contractual liability – on a balance of probabilities. When it came to damages, the courts held that the loss of a chance to negotiate a better deal was a sufficient basis to assess damages.

The Court of Appeal quoted from its previous decision in Folland v. Reardon (2005), 74 O.R. (3d) 688 (C.A.) to explain its reasoning:

“Whatever the scope of the lost chance analysis in fixing liability for tort claims based on personal injuries, lost chance is well recognized as a basis for assessing damages in contract. In contract, proof of damage is not part of the liability inquiry. If a defendant breaches his contract with the plaintiff and as a result a plaintiff loses the opportunity to gain a benefit or avoid harm, that lost opportunity may be compensable. As I read the contract cases, a plaintiff can recover damages for a lost chance if four criteria are met. First, the plaintiff must establish on the balance of probabilities that but for the defendant’s wrongful conduct, the plaintiff had a chance to obtain a benefit or avoid a loss. Second, the plaintiff must show that the chance lost was sufficiently real and significant to rise above mere speculation. Third, the plaintiff must demonstrate that the outcome, that is, whether the plaintiff would have avoided the loss or made the gain, depended on someone or something other than the plaintiff himself or herself. Fourth, the plaintiff must show that the lost chance had some practical value…..” (underlining added)

The Court of Appeal then said:

“Recently, in Berry v. Pulley, 2015 ONCA 449, 335 O.A.C. 176, at para. 70, this court described a “two-step framework” for the determination of a loss of chance claim. Associate Chief Justice Hoy explained, at para. 72, that the court must first determine if the four criteria set out in Folland are met. If they are, then the court proceeds to the second step and “will award damages equal to the probability of securing the lost benefit (or avoiding the loss) multiplied by the value of the lost benefit (or the loss sustained)”.”

Having held that the loss of a chance gave rise to compensable damages for breach of contract, the Court of Appeal referred to the following facts, among many others, in holding that the opportunity of negotiating a better deal with GM Canada fell within the realm of a compensable loss of a chance:

“GMCL had a GM-approved fund of $218 million to conclude the WDAs with 290 dealers. In the end, it offered $143.5 million to 240 dealers. This gave GMCL the financial flexibility to improve the compensation offered under the WDAs….The considerable and varied risks of a CCAA filing by GMCL to both GMCL and GM itself outweighed the benefits of such a filing and would have operated to make GMCL amenable to discussions with the dealers…These factual findings, which were available on the evidence, provide compelling support for the inference that it was likely, at the end of the day, that GMCL would have negotiated with the dealers about the WDAs had the negotiation option been put on the table and had the dealers acted as an organized bloc in opposition to the offers under the WDAs……The amount of the potential chance (to which the percentage of potential chance can be applied) is the difference between what the defendant offered and what the defendant internally had been authorized to offer.”

Discussion

These conclusions are important and readily applicable to a building contract dispute.

First, since that dispute is based on a breach of contract, not a tort, then the loss of a chance, and not the probability of loss, is a sufficient basis to award damages to the plaintiff.

And second, according to this decision, the loss of a chance to negotiate a better contract with a third party falls within the loss of a chance.

The first point – that contract damages can be awarded based on a loss of a chance – has already been applied in the building contract setting. In Naylor Group Inc. v. Ellis-Don Construction Ltd., [2001] 2 S.C.R. 943, the damages of the plaintiff, who was wrongly not chosen as the successful tenderer, were assessed based upon the chance of site conditions and related performance problems impacting the amount of damages. In Maritime Excavators (1994) Ltd. v. Nova Scotia (Attorney General) (2000), 183 N.S.R. (2d) 236 (N.S.S.C.), the trial judge assessed the loss of a chance of the plaintiff being awarded the tender, and awarded the plaintiff its full damages, finding that the plaintiff would have been 100% likely to have been awarded the tender if it had been properly conducted. In Borcherdt Concrete Products Ltd. v. Port Hawkesbury (Town) (2008), 262 N.S.R. (2d) 163, the Nova Scotia Court of Appeal applied a 35 percent reduction to the plaintiff’s damage for the possibility that it would not have been awarded the tender even if properly conducted.

Now, based upon the Trillium Motor decision, the opportunity to use the “loss of a chance” approach to the assessment of damages in building contract cases is, arguably, much broader. The loss of a chance of negotiating a better contract with a third party now falls within the scope of assessable damages.

There may be many contracts in a building project. A breach of any of those contracts may give rise to the opportunity to claim a loss of an opportunity to negotiate a better contract with another party to the building project. For example, a breach of contract by the owner may cause the contractor a loss of a chance to negotiate a better contract with a subcontractor or supplier. A breach of contract by a contractor may cause the loss of a subcontractor’s opportunity to negotiate a better deal, or a better settlement agreement, with a supplier or other subcontractor. The combination of factors that may give rise to a claim for recoverable loss of a chance of negotiating a better deal seems only limited by the number of contracts or potential contracts involved in the project.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 9, section 6(d)

Trillium Motor World Ltd. v. Cassels Brock & Blackwell LLP, 2017 CarswellOnt 10114, 2017 ONCA 544

Building contract – assessment of damages – loss of a chance – negotiation of contract

Thomas G. Heintzman O.C., Q.C. LL.D (Hon.), FCIArb                                         August 2, 2017

www.heintzmanadr.com

www.constructionlawcanada.com