Who are You Contracting With?

Many companies carry on business under multiple corporate structures. This can make it difficult to determine exactly who you are contracting with. This affects who is actually responsible for doing the work. It can even deprive you of your of legal remedies if the deal goes sour.

FACTS

Park v. K.S. Mechanical Ltd. involved an appeal from a provincial court judgment awarding a plaintiff subcontractor (the "Subcontractor") $8,400.00 against a defendant property owner (the "Owner") for unpaid work.

The Owner had entered into a joint venture with three other parties under the name of ­­Regency Joint Venture ("Regency") to build and sell a single family dwelling on property that he owned adjacent to his personal residence (the "Project").

The joint venturers agreed to appoint Canex Construction Ltd. ("Canex"), a company for which two of the joint venturers acted as principals, to be the Construction Manager for the Project.

A principal of Canex then entered into an agreement on behalf of "for Regency Ventures" with the Subcontractor who was hired to install plumbing at the Project (the "Contract"). None of the other members of the joint venture signed the Contract.

The Provincial Court judge held that the principal of Canex purported to act on Regency's behalf when signing the Contract. As a result, the Contract was binding on all of the members of the joint venture, including the Owner, who was found to be personally liable. The Provincial Court further held that even if the Contract was not legally binding on the Owner, he was still liable on the basis that he had been unjustly enriched by the Subcontractor's work.

ISSUES

1.         Was the Contract legally binding on the Owner?

2.         Was the Owner unjustly enriched as a result of the Subcontractor's work?

COURT DECISION

The Provincial Court decision was overturned by the Supreme Court. In its decision, the Supreme Court considered whether the principal of Canex had the "apparent authority" to act on Regency's behalf in contracting with the Subcontractor. In British Columbia, an agent acting with apparent authority can only bind a principal where the party contracting with the agent is induced to enter the agreement by a representation that the agent represents the principal. Here, the court found that the Subcontractor never relied on the fact that the principal of Canex represented Regency in deciding to sign the Contract. As such, the Supreme Court found that there was no contract between the Owner and the Subcontractor.

Having rejected that the Owner was contractually liable to pay the Subcontractor for work performed, the Supreme Court went on to consider whether the Subcontractor could recover on the basis of unjust enrichment. The Supreme Court noted that it is only in rare cases that a court will allow a subcontractor to recover against a property owner with whom the subcontractor has not directly contracted. The proper recourse for the subcontractor is usually to start an action against the party that it does have a direct contractual relationship with (usually the general contractor), or to file a lien under the Builders Lien Act. Unless "unusual circumstances" exist, such as in cases where an owner personally makes a representation that is relied upon by the subcontractor, no claim for unjust enrichment will lie against the owner even if he or she has benefited from that subcontractor's services.

LESSONS LEARNED

1.         Before signing a contract, confirm that each signatory has the authority to sign.

2.         Make sure to file a lien within the time limits imposed by the Builders Lien Act. A failure to do so will likely deprive you of any claim against the property or its owner.   

 

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