By Matthew T Potomak, and Jeremy S. Koch, Kuhn LLP
Many contractors appreciate the importance of utilizing written contracts for their construction and renovation projects. Standard form contracts such as those developed by the Canadian Construction Documents Committee (the “CCDC”) can be particularly useful when employed correctly.
There are risks, however, with blindly using standard form contracts that do not conform to the actual expectations of the parties involved. There are also dangers with failing to clearly delete inapplicable sections, as evidenced by the recent case of Anway Construction Ltd. v Hunte, 2020 BCSC 601.
The Facts
In that case, the defendant homeowners hired the plaintiff, Anway Construction Ltd. (“Anway”) to demolish their existing house in Vancouver, B.C. and build a new, energy-efficient ‘passive house’ in its place.
The parties executed a written agreement using a standard template CCDC 3-1998 cost-plus contract that contained a guaranteed maximum price option (the “GMP Option”). The GMP Option, if utilized, effectively sets the maximum price that could be charged under the contract. However, given that Anway apparently never set fixed prices for their work, the guaranteed price option was left blank.
As a requirement for the owner’s financing, the owner’s lender (“BMO”) insisted upon a copy of a signed contract detailing the total expected cost of construction. Given that much of the details pertaining to the house were still undecided, the parties had only discussed general estimates.
When BMO was provided with a copy of the signed agreement that failed to articulate the anticipated costs, BMO communicated to the owners that they would not be able to provide financing if the costs of construction were unknown.
In some mysterious fashion, BMO acquired a copy of the contract with the figure $925,000.00 written in the spot for the GMP Option. Interestingly, the only copy of the contract produced at trial which stated this maximum price was the copy on file with BMO.
Anway demolished the old house and began construction of the new one but did not complete. After experiencing some issues with financing and paying Anway nearly $1 million, the owners refused to pay anymore, taking the position that the contract had a guaranteed maximum price of $925,000.00. As a result, Anway abandoned the project and demanded payment for the work that they had completed.
Eventually, Anway sued the owners for their unpaid invoices, totaling $132,989.37. The owners counterclaimed for $1.46 million for the cost of hiring another contractor to complete construction and other damages.
The Decision
Much of the court’s analysis examined whether there was, as the owners alleged, a guaranteed maximum price in the contract. The owners claim that Anway verbally communicated a maximum price of $925,000.00. Anway denied this representation, stating that they never provide a fixed price.
At summary trial, no one was willing to admit that they added the amendment. It appeared that there was an irreconcilable conflict in the evidence on the question of how the $925,000.00 figure first came to be placed on the copy of the contract in BMO’s file.
After weighing all the evidence, the court determined that it must have been someone from Anway who sent BMO the amended contract.
The court concluded that there was a guaranteed maximum price of $925,000.00 and Anway was in breach of their contract for billing the owners in excess of the guaranteed maximum price. The court dismissed Anway’s claim and granted judgement in favour of the homeowners and against Anway in the amount of $836,944.03.
Lessons Learned
- Exercise caution in using standard form template contracts. Ensure you are using the most suitable form of contract for the specific project and one that conforms to your standard business practice. If you are unsure, seek legal advice in advance.
- It is good practice for handwritten amendments in a contract to be initialed by both parties. While in this case the court found that the handwritten amendment was valid despite the lack of initials from both parties, this will not always be the case. Initialing handwritten terms can improve certainty and help avoid costly disputes.
- If a term of the contract is not being used, it is good practice to delete it or clearly strike it through and have both parties initial the deletion. Leaving sections blank can be risky. ■
This article was written by Matthew T. Potomak, lawyer, and Jeremy S. Koch, articled student, who practise in construction law with the law firm of Kuhn LLP. This article is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have any questions or comments about this case or other construction law matters, please contact us at 604.864.8877 (Abbotsford) or 604.684.8668 (Vancouver).
