Participants In Illegal Construction May Have No Remedy In Court

By Mark Danielson
Categories: Blog, Construction

The Supreme Court of British Columbia recently held that a party that submitted misleading plans to a municipality to obtain a building permit had no remedy in court even though it may have suffered damages.
In Shafazand v. Whitestone Management Ltd., 2014 BCSC 21, a contractor was engaged by a construction manager to build a residence for a property owner who wished to have an illegal suite constructed in the residence. The owner instructed the construction manager to submit misleading plans to the municipality to obtain a building permit. The construction manager then instructed the contractor to finish building the illegal suite after the building permit was obtained.

After the project was complete, the contractor sued the construction manager and the owner for the cost of work which was allegedly “extra” to the contract, and the construction manager counterclaimed against the contractor for the cost of work needed to complete the project when the contractor walked off the job.

The court held that the contractor was obligated to perform most of work alleged as being “extra” pursuant to its terms of the contract. The court also held that the construction manager would have been entitled to judgment on its counterclaim for $42,468.86, but for its deception in obtaining the building permit. In the circumstances, the court held that it would be “unjust” to reward the construction manager for its conduct based on the principle that a contract will be held to be unenforceable if its object is illegal.

The case does not establish a universal rule that participants in illegal construction will have no remedy in court. Rather, the court must refer to several factors to determining whether a contract with an illegal object is enforceable, including whether voiding of the contract would result in a penalty which is disproportionate to the criticized conduct.

The case highlights the question of the degree to which a contract must be “tainted” by illegality to render it unenforceable. The contract in question was not solely to build an illegal suite, but rather to build a residence which contained an illegal suite. It is not clear from the decision whether the items for which the construction manager would have received judgment on its counterclaim related to the illegal suite at all. Given the uncertain outcome that would face litigants pursuing claims of this nature, it would be best to resolve disputes relating to such questionable contracts outside of court or avoid making them at all.

Mark Danielson can be reached at (250)869-1284 or danielson@pushormitchell.com.