Calculating Damages When a Renovation Contract Gets Delayed

Despite the best intentions, a construction project can be delayed beyond the anticipated completion date. If the matter proceeds to litigation, the court must decide the appropriate method for determining what damages, if any, should be awarded for breach of contract. In Thai House Restaurant (North Vancouver) Ltd. v. Lui's Millwork Ltd., 2011 BCSC 964 [Thai House], the British Columbia Supreme Court provided some guidance on how it will assess damages stemming from late completion of a renovation contract.

Facts:

In Thai House, the Plaintiff, Thai House Restaurant (the "Restaurant"), brought a claim for damages against the defendant, Lui's Millwork Ltd. (the "Contractor"), for failure to complete the terms of a renovation contract (the "Renovation Agreement").

The Renovation Agreement, which required the Contractor to undertake a substantial renovation of the plaintiff's new restaurant, was to be completed within 10 weeks of obtaining a building permit. The permit was issued on June 16, 2008, making the final completion date August 26, 2008 (the "Final Completion Date").

As a result of numerous construction delays, the Contractor was unable to meet the Final Completion Date. The parties then entered into another agreement on November 6, 2008 (the "Side Agreement") which provided for a new completion date of November 18, 2008. The Side Agreement stipulated that a failure by the Contractor to complete the project on time would result in a penalty of $500 dollars being paid to the Restaurant for each day the project was delayed.

The project was still incomplete as of November 18, 2008. The Restaurant chose to terminate the Renovation Agreement as a result of the continued delays.

Issue:

How will the Court assess damages in cases where renovation contracts are not completed in a timely and workmanlike manner?

Court Decision:

In rendering its decision, the Court accepted that the original completion date of August 26, 2008, was impracticable as a result of construction delays that were outside of the Contractor's control. However, the Contractor was liable for failing to meet the extended completion date contained in the Side Agreement.

In determining liability, the Court found that the Contractor had only agreed to the extended completion date in order to gets its final progress payment under the contract; presumably a factor demonstrating bad faith on the Contractor's part. Another important factor leading the Court to rule in the plaintiff's favour was the detailed photographic evidence that the Restaurant produced showing the many deficiencies and incomplete nature of the Contractor's work.

After finding the defendant liable for breach of contract, the Court next considered the appropriate method for calculating damages in cases where a contractor fails to complete a renovation project on time. While refusing to hold the Contractor personally liable for the Restaurant's losses, damages were awarded against the defendant's company on a number of grounds. In addition to loss of profits, the Court ordered the Contractor to reimburse the Restaurant for the cost of hiring another company to properly complete the work. The Court also enforced the $500 dollar daily penalty against the Contractor for each day the project went beyond the completion date.

Lessons Learned:

1.     If it becomes clear that a construction project is going sideways and may result in future litigation, photographic evidence can be a very useful tool in demonstrating how much of the contract has been completed.  

2.     The Court may enforce clauses penalizing late completion. If you are party to an agreement containing such a clause, every effort should be made to comply with the written completion date in order to reduce your exposure.

 

This article was written by Ian Moes, a lawyer, and Andrew Delmonico, an articling student, both with the law firm of Kuhn LLP. It is only intended as a guide and it is important to get legal advice for specific situations. If you have questions or comments about this case or other construction law matters, please contact Ian at 604-682-8868