Construction Contract Held To Mandate The Payment Of Extras

One of the most contentious issues in building contracts is mechanism to ensure that the contractor is guaranteed payment for extras, and that the owner is guaranteed not to pay for something that is not an extra. It would be simple to state these propositions in a building contract, but they usually aren’t there.

However, in King Road Paving and Landscaping Inc. v. Plati, the Ontario Superior Court of Justice found that that is exactly what the contract said. The contract was for the renovation of a barn, to convert it into a “marijuana grow operation” said the contactor, or a nightclub said the owner. The parties entered into an initial written contract to renovate the barn. However, there were no signed contracts for much of the work that was done and the payments for the work were largely made in cash without any receipts. There were disputes over a large amount of work for which additional payment was claimed by the contractor.

The Decision

The court performed a two-stage test to determine if the owner was obliged to pay for this work:

“in the absence of any written agreements relating to extras, the only way to determine whether something is an extra is by reference to the original contract. A secondary issue is whether the work claimed was actually performed, and, if so, the cost of such work.

Having performed this exercise, the court held that under the following term of the contract, the contractor was entitled to be paid for this work:

“All work not stated will be a charge of time and materials.”

Accordingly, the court found that since the work was done, and was not covered by the written contract, the owner was required to pay for it. Payment was to be the basis of “time and material” where invoices or other evidence supported the claim.

In arriving at this conclusion, the court found that the owner’s representative was on the site and therefore aware that the work was being done. As the court said:

“[the owner] often assumed (or perhaps hoped) that any extras would be covered by the price set out in the contract. That, however, is not what the contract provides.”


Why make a fuss about this simple little case? Because the building contract stated an express obligation to pay for extra work that so many building contracts don’t quite state.

Thus, the CCDC contracts never quite state that obligation. Instead, they construct an elaborate regime under which the consultant is to oversee the progress of the work and rule on whether work or materials are extras, and then an equally elaborate procedural regime relating to dispute resolution, change orders and changed conditions. Those regimes appear to intend that the contractor will be paid for extra work and materials, and that the owner won’t pay for work and materials that are covered by the contract. But they never quite say that expressly.

The real problem is with respect to work that, during the job, the owner says the contractor must perform as it is within the contract and the contractor says is not within the contract. If the consultant sides with the contractor and the contractor feels obliged to proceed with the work, the contractor may be shut out of a quantum meruit claim based upon the decision of the Supreme Court of Canada in Peter Kiewit Sons Co. of Canada v. Eakins Construction Ltd. [1960] S.C.R. 361. If the contractor refuses to do the work, then the owner may terminate the contract and sue the contractor for damages.

It is this conundrum that the dispute resolution and change order provisions of the CCDC contracts are intended to address. They are intended to ensure that the contractor can proceed with the work without prejudicing its claim for extra payment for the work. The court or arbitrator can later determine that the work or materials were or were not part of the contract, and if they were not, then the contractor is entitled to be paid for them.

This is the result that the Supreme Court of Canada arrived at in Corpex (1977) Inc. v. Canada, 1982] 2 S.C.R. 643. The Court said that, as long as the contractor gives timely notice under these procedural clauses of its claim that the work is an extra (or is due to unforeseen circumstances, or due to the owner’s delay or whatever the claim arises from), then the contractor is “practically certain of being compensated for additional costs”.

The words “practically certain” aren’t the strongest foundation for a claim in these chancy circumstances, but coming from the Supreme Court of Canada contractors have been relying on them to proceed with the work and assert the claim. But those words are, perhaps, appropriate because the sorts of extras/changed condition/dispute resolution provisions dealt with in Corpex provide procedural remedies. They don’t actually say that the contractor will be paid. But they must mean that, as long as the contractor gives timely notice and the work and labour is later found to be extra to the contract.

Refreshingly, in twelve rather inelegant words, the contract in the King Road Paving case said exactly that: the contractor will be paid for extra work. Maybe other building contracts can say exactly that.

Thomas G. Heintzman O.C., Q.C., LL.D (Hon.) FCIArb                   April 1, 2017

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 4, part 8 and chapter 10, part 6(c).

King Road Paving and Landscaping Inc. v. Plati, 2017 CarswellOnt 1712, 2017 ONSC 557

Building contract – extra work and materials – quantum meruit

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

Restitutionary Payment May Be Ordered For An “Ineffective” Construction Contract

Owners and contractors should always avoid undertaking a project without a contract.  But if they do build the project without a contract, the British Columbia Court of Appeal has recently recognized in Infinity Steel Inc. v. B & C Steel Erectors Inc. that the party which received the benefit of the work or supplies must pay a fair amount to the party which provided them.

This may not be a novel proposition.  But what is novel is that the courts now recognize this situation as an “ineffective transaction” which falls within a discrete category of unjust enrichment.

Background Information:

Infinity made a tender bid to the general contactor, Bird Construction, for the supply and erection of the structural steel for the Search and Rescue Hanger at the Canadian Forces Base in Comox, British Columbia.  Infinity entered into discussions with B & C for that company to erect the steel.  The companies exchanged written documents which they thought constituted the contract, but each of them had a different view of the price and other elements of the contract. When the job was over 90% finished, Infinity terminated its relationship with B & C and had another erector finish the work.  Litigation ensued and it was Infinity’s position that, in determining the fair amount to be paid to B & C, the amount which it paid the replacement erector had to be taken into account.

The trial judge found that the parties had not agreed on the fundamental elements of the contract.  Accordingly, he was unable to order a contractual remedy, either by way of damages for breach of contract if a price for the contract had been agreed upon, or by way of contractual quantum meruit if no price had been agreed upon.  The judge held that a remedy in restitution was available in these circumstances and awarded compensation to B & C.  Infinity appealed arguing that the trial judge had not taken into consideration the amount that it had paid to complete the erection after B & C was no longer on the job.

There are two interesting aspects of the decision of the B.C. Court of Appeal which largely upheld the trial judge’s decision.

First, the Court of Appeal held that this situation constituted an “ineffective transaction” which, under a recent decision of the Supreme Court of Canada, was a distinct ground for restitutionary compensation.  It said: “[I]t is now firmly established that a claim alleging unjust retention of a benefit conferred in an ineffective transaction is a discrete category of the doctrine of unjust enrichment, which may attract a personal monetary remedy (Kerr v. Baranow, 2011 SCC 10 (CanLII), 2011 SCC 10 at para. 31) and that remedy must match, as best it can, the extent of the enrichment unjustly retained by the defendant (at para. 73)”.

Kerr v. Baranow was a family law case, not a construction law case.  That case was not about an ineffective contract and the statement at para 31 in the Supreme Court’s judgment had nothing to do with the merits of that case. The Supreme Court simply said, in a part of a sentence dealing generally with the circumstances in which a remedy in unjust enrichment may be ordered, that such a remedy could be awarded in a case of an “ineffective contract”.

Moreover, it is not clear from the decision in Kerr v. Baranow what amounts to an “ineffective transaction.”  One might have thought that the Supreme Court was thinking of dealings which are otherwise contracts but ineffective as contracts for legal reasons, such as the Statute of Frauds or lack of consideration.  When the parties simply fail to negotiate a contract, as happened in Infinity Steel v. B & C Steel Erectors, is this an “ineffective” transaction?  The B.C. Court of Appeal has held that it is.

While this result may come out of left field so far as construction law is concerned, it is a good one for that branch of the law.  It recognizes that an “ineffective transaction” constitutes a comprehensive classification to which the principles of unjust enrichment may be applied.  It should not matter whether the contract failed for legal or factual reasons.  If one party received a benefit, then the other party should pay for it.  Once the benefit is accepted, then the only question is the amount that the benefitted party should pay, and if the parties cannot agree on the amount, then the court will have to fix it.   For those propositions, we can now refer to this decision as authority.

The second interesting aspect of the Court of Appeal’s decision is its completely open-ended approach to assessing the appropriate compensation.  Again, taking a leaf from the decision in Kerr v. Baranow, the Court rejected any formulistic approach. The Court held that, once a trial judge rejects a contractual remedy and finds unjust enrichment, the trial judge’s task is “to determine what measure is appropriate to remedy the unjust enrichment in all the circumstances of the case. ….. in the light of Kerr, the appropriate measure for restitutionary quantum meruit is to be selected to meet the circumstances of the particular case.  Important factors will include but not be limited to, the course of dealings between the parties, any estimates obtained, the costs incurred, the scope of work, the actual work done, the market value of the services provided.”

These are sweeping considerations which will give the Court an unfettered power to award the amount of compensation that is fair in all the circumstances.

So far as the amount to which B & C was entitled for the work it had done, the Court of Appeal held that the trial judge had taken into account the cost of completion by the replacement contractor, and apart from a slight adjustment it upheld the award of the trial judge.

In the result, this decision of the British Columbia Court of Appeal provides a comprehensive basis for a court in Canada to assess equitable compensation if a construction contract is ineffective for any reason.

Construction law   –  Restitution   –   Quantum Meruit  –   Ineffective Transaction

Infinity Steel Inc. v. B & C Steel Erectors Inc., 2011 BCCA 215

Thomas G. Heintzman O.C., Q.C.                                                                                                   October 30, 2011

Contractors Beware: Don’t Rely On Quantum Meruit To Fill a Gap in a Contract

The principles of contract interpretation and quantum meruit are obviously quite distinct.  But in its recent decision CH2M Hill Energy Canada, Ltd. v. Consumers’ Co-operative Refineries Ltd., the Saskatchewan Court of Appeal has reminded us that they also give rise to two very different and separate payment obligations.  There cannot be an obligation to make a quantum meruit payment if the contract, properly interpreted, covers the subject matter but contains no contractual obligation to pay.

CH2M Hill Energy Canada Ltd. (“CH2M”) answered a request for proposal issued by Consumers’ Cooperative Refineries Ltd. (“CCRL”). The accepted proposal was for the provision by CH2M of home office services and field management services, and also included the provision of craft labour.  The proposal stated that there would be a specified mark-up on the home office services and field management services, including percentages for burden and overhead.  However, while the request for proposal and the accepted proposal provided for payment of the cost of the craft labour itself, neither provided for a mark-up on craft labour.

The Court rejected the argument that the principle of “contractual quantum meruit” could be used to imply an obligation to pay a mark-up on craft labour when the contract contained no such obligation.  Contractual quantum meruit only applied, the Court said, if the contract contained an obligation to pay for the mark-up, but left the amount of payment unspecified.

Another concept is restitutionary quantum meruit which applies if the parties have not made any agreement about the subject matter at all.  That was not the case here.  The agreement did include the subject matter of craft labour but only provided for payment for the direct cost of that labour.

In the present case, the request for proposal and the proposal contained no obligation to pay for mark-up on craft labour.  The Court said that CM2H was seeking to imply into the contract a “multimillion dollar claim for overhead”.  The Court noted that overhead is “too variable a term” and its calculation “inherently uncertain and controversial”.  In the present case, the amount of the overhead would be about $10 million.  Before an obligation to pay for a mark-up on craft labour could be implied into the contract, cogent evidence of the parties’ intention to that effect would have to exist.  To the contrary, the request for proposal and the proposal itself contained no such evidence, in contrast to the mark-up specified for the other services.  Absent a contractual obligation to at least pay for the mark-up on craft labour, there was no room for the application of quantum meruit.

This decision is a fair warning to contractors:  If you want to be paid for each element of the materials or services that you provide, then ensure that the contract clearly identifies those elements and states an obligation to pay for each of them.  If you don’t at least provide for the obligation to pay, then don’t expect quantum meruit to fill the gap left by an adverse interpretation of the contract.

Building Contracts – Interpretation – Quantum Meruit:   CH2M Hill Energy Canada, Ltd. v. Consumers’ Co-operative Refineries Ltd. 2010 SKCA 75 (CanLII)