Construction projects and corresponding contracts often involve potential damages regarding abandonment, non-payment, notice and contract termination. When a court is presented with construction dispute involving similar issues to those presented in Campus Contracting Inc v. Torbear Contracting Inc., a court will consider the scope of the work of the parties involved to determine which party breached the subject agreement between them.

Plaintiff Refuses To Perform Work Under Contract Until Payment Is Received

In the matter of Campus Contracting Inc v. Torbear Contracting Inc. the plaintiff (“Campus”) entered into a fixed-price construction contract with the defendants (“Torbear”) to provide materials and labour for the installation of high-pressured concrete water-mains and sewers for a pumping station (the “Project”) for the amount of $1,407,050 plus GST. The Project proceeded until pressure tests performed on intake pipes installed by Campus failed several tests, despite remedial efforts.

Campus threatened to stop work on the Project if Torbear did not make payments on progress draws allegedly due for June and July. However, Torbear did not agree that any amounts were owed to Campus. Accordingly, Campus stopped work on August 13, 2007, and refused to continue performing work under the contract until it received payment. On the same day, Torbear issued a notice of default and declared Campus in default of the contract three days later on August 16, 2007.

Plaintiff Claims Breach Of Trust; Defendant Counterclaims For Deficient And Incomplete Work

Torbear, the general contractor for the project, was bonded and posted a Performance Bond and Labour Material Payment Bond issued by its surety Aviva Insurance Company of Canada. Campus sued Torbear and its Officer, “RM”, for breach of trust, claiming that it had not been paid for its work already completed on the Project and was owed $750,168.10 plus GST.

Torbear counterclaimed against Campus claiming that the work that had been performed was deficient and that Campus abandoned the Project. As such, they claimed damages for “deficient and incomplete work along with damages for delay.”

Trial Involves Issues of Liability and Damages

The parties agreed to a bifurcated trial, the first trial would determine which party breached the contract, and the second would determine who is responsible for damages flowing from such a breach, and the assessment of those damages. The key issues before Justice Sutherland in this case were:

• whether the contract was breached by Torbear due to non-payment of progress draws; and
• whether Campus had abandoned the Project or Torbear unlawfully terminated the contract.

Did Torbear Breach Contract for Non-Payment?

Communications between the parties regarding non-payment occurred in July and August, in which Campus threatened to stop work until payment was received. The Court noted that parties to a contract are bound by its terms. Under the contract, payment applications were to be made by Campus and were due the 25th day of each month with payment to follow by the end of the following month. In reviewing the evidence, it was found that Campus had submitted its payment applications late on June 30th and August 3rd, respectively.

Given these late applications, Torbear was not required to make payments to Campus until August 31st and September 30th. This was further affirmed given that there was also no evidence to suggest that the subject invoices were approved by the payment certifier, accepted by Torbear, and that the Project owner had provided Torbear with money to pay such invoices.

Was the Project Abandoned or Was the Contract Terminated?

When addressing the issue of project abandonment, the Court emphasized that “[a] contractor who abandons a project prior to completion is in breach of the contract. When the contract is for a fixed price, the contractor abandons at his own peril.” Accordingly, the Court found that the work Campus performed did not comply with the terms outlined in the contract, as the installation of the high-pressured concrete pipes did not pass the required pressure testing. It was also noted that Campus “left the project claiming non-payment pursuant to the terms of the Contract” and Campus’ claim for non-payment under the contract was not supported by the evidence presented at trial.

The Court found that Campus had abandoned the Project, thus breaching the contract with Torbear when it stopped providing work on the Project and demanded payment before payment aws actually due and before it completed performance of its obligations under the contract. The Court also determined that, in its view, this was not a case in which the contract could not be performed for reasons outside of Campus’ control that could justify failure to complete the contract.

Court Finds Plaintiff Breached Contract

The Court noted that the onus was on Campus to establish, on the balance of probabilities, that in accordance with the terms of the contract, it was owed money as of August 10, 2007. However, the Court was not satisfied that this burden was met and Torbear was found to not have breached the contract by dismissing Campus’ demands to pay the June and July progress draws.

Consequently, the Court held that Campus had breached the contract and Torbear was “within its right to terminate the Contract pursuant to the terms of the Contract.”

Important Takeaways for Parties Considering Withdrawing or Withholding Contractual Services for Non-Payment

This case highlights the importance, and benefits, of strict compliance with contractual terms and administrative realities involved in construction projects. When it comes to issues regarding notice and payments, parties must ensure that they act in accordance with the parameters and obligations outlined in the project contract. If a party considers withholding or refusing to complete services due to claims of non-payment, they will do so at their own risk, as they may actually be found liable for breach of contract and failure to fulfill their contractual obligations.

Contact Campbell Litigation in Kitchener-Waterloo for Advice on Construction Disputes Involving Non-Payment

At Campbell Litigation, our seasoned team of construction litigation lawyers understand the complex and nuanced issues that can arise during the course of a construction project. From financing disputes and project deficiencies to delays and remedial enforcement, we help clients resolve their disputes and protect their interests throughout the course of litigation. Contact us online or by phone at 519-886-1204 to learn how we can assist you in your construction matter.