Lessons Learned
- If you’re going to draft a contract, be realistic about what might go wrong.
- If you’re going to claim a fundamental breach of that contract, the breach had better be serious.
- If you’re going to court to fight about that contract, hire a lawyer.
Construction
The scene: a tasteful, two-storey, custom-built house in a golf-centred strata community just south of Kelowna.
The players: Carol MacLeod, the retired anthropology professor who owns the house, and Ellcar Ventures Ltd., the father-daughter team who built it for a nominal price of $400,000.
The theme: the unexpected, which became routine during construction. Unexpectedly shallow bedrock called for blasting, the slope of the lot called for a retaining wall, and land-use restrictions imposed by a nearby astrophysical observatory inflicted adaptations on the electrical plan.
An unpaid invoice caused Ellcar to down tools, and it sued for what was owed.
Litigation
The Court found the lead witness for Ellcar, Hart Buckendahl, to be a model witness – non-argumentative, unemotional, exacting and detailed in his recall, and careful to delineate matters about which he was certain or knowledgeable from those where his memory was weaker or which were outside his expertise. As we have seen on this blog, while a good impression of credibility is no guarantee of victory, it’s an excellent sign.
The Court was less kind to MacLeod, who was self-represented – “confused and confusing, indecisive and hesitant, and to be the source of many of the misunderstandings and miscommunications leading to this protracted dispute and trial.” At the height of an extended denunciation, the Court wrote:
The overwhelming impression arising from her testimony, and from the entire body of evidence, is that she desperately wished to build her dream home, with unrealistic views of what could be achieved for her budget, coupled with unrealistic views about the effects of changing specifications on the cost and efficiency of the construction. This combination of desperation and delusion continued through litigation and trial, where she threw up every possible resistance to the plaintiff’s contractual charges, no matter how unfounded, de minimis, or consumptive of valuable court time, not only to avoid payment, but also, in her words, to show that she was “not going to kow tow to someone who thinks they can push me around.”
This, dear reader, is why tradespeople prefer commercial contracts to working for homeowners, and courts prefer litigants represented by counsel.
Analysis
Just as Ellcar’s lead witness was a model to follow, the 8-page contract Ellcar drafted also turned out to be a model of its kind.
While one section of the contract states a “total contract price”, it was qualified by an express exclusion of expenses over the anticipated costs, listed by line item, and also expressly excluded any requested or necessary additions, extras, goods, or services beyond those specified in the contract. Likewise, while Ellcar provided MacLeod with detailed schedules, the contract lacks both a completion date and a “time is of the essence” clause, and the schedules were never represented as binding in either the contract or Ellcar’s communications with the plaintiff.
Browne v Dunn Rears Its Head
Against this, the defendant’s case suffered from a tendency to attempt to produce inadmissible hearsay, and contravention of the ancient tripwire Browne v Dunn, a case from 1893 that requires litigants to put statements of fact to opposing witnesses in cross-examination if the litigant later intends to claim that the statement of fact contradicts the testimony of the opposing witness. In this case, for example, MacLeod did not put to the railing installer her version of their conversations about her preferred railing colour.
Lack of Written Change Orders
The point of greatest risk might have been Ellcar’s failure to obtain written change orders before implementing some of the changes MacLeod demanded, as the contract stated “shall” occur before such work was performed. MacLeod suggested that such a failure to abide by the terms of the contract negated her obligation to pay, an argument the Court deemed “audacious”. The case law was clear, the Court wrote, that an owner cannot rely on strict compliance with a contractual provision requiring written change orders where the owner has waived that provision or acquiesced in ignoring it.
Ellcar was likewise rescued by the Court on the subject of whether the contractual obligation to “dig” the foundation included blasting through bedrock, which the Court ruled was a verb that only applied to the removal of earth and soil.
Repudiation
The Court’s analysis ultimately turned to the moment of crisis when MacLeod refused an invoice late in the project and Ellcar downed tools, never to return. Tension had been growing over indications that MacLeod was likely to dispute significant extra costs, and perhaps in an attempt to bring the inevitable forward in time, the invoice in question contained those extra costs, despite the contract stating that extras would only become payable on the last invoice.
Ellcar argued that MacLeod’s refusal to pay that invoice constituted a “fundamental breach”, also known as a “repudiatory breach”, of the contract that annulled its obligation to perform further work, including the correction of deficiencies.
Here the Court differed, explaining that repudiation, which occurs by words or actions evincing an intention not to be bound by the contract, requires a breach of the contract in a very important respect – a condition or term sufficiently critical that refusal to fulfill it represents a substantial failure of performance. It is not to be lightly found or inferred.
In this case, MacLeod at all times evinced an intention to pay some amount of the invoice, albeit less than the contractually-agreed sum, while Ellcar demanded more than the contractually-agreed sum. The Court described this dynamic as both parties engaging in brinkmanship that stretched their rights under the contract. It was not unreasonable, the Court concluded, for Ellcar to demand reassurances, but MacLeod also occupied a reasonable position that the extras, however legitimate, were not yet contractually due – no repudiation of the contract had occurred.
Ellcar was consequently found to be liable for deficiencies that MacLeod had been forced to hire other contractors to correct, in the amount of $7,000. This award was, however, dwarfed by the $101,000 the Court awarded Ellcar for the legitimate overages the Court found to be contractually owing.