BC Court Considers the Role of Fundamental Breach in Termination of CCDC Contracts
Canadian Construction Documents Committee (“CCDC”) standard form contracts often govern the relationship between owners and general contractors for construction projects in Canada. Although these contracts may be subject to modification, they usually include clauses which (a) govern how notices of default must be given by one party to the other, and (b) set out parties’ rights and obligations arising upon issuance of a notice of default. This usually means that a party delivering a notice of default cannot terminate a contract without giving the other party notice of the alleged default and an opportunity remedy it. An issue that parties often struggle with is whether they may terminate a CCDC contract without strictly observing the formalities of the contract.
The Supreme Court of British Columbia addressed this issue in Contura Building Corporation v. 0772552 Ltd., 2018 BCSC 466 (“Contura”). In Contura, the plaintiff (contractor) and defendant (owner) entered into a CCDC Design-Build Stipulated Price Contract with respect to the construction of an industrial building. During performance of the work, the contractor issued a notice of default which alleged several defaults relating to the failure to provide required geotechnical reports and make timely payments to the contractor. By the notice, the contractor also advised the owner of the contractor’s right to terminate the contract if the default was not corrected within five working days of receipt of the notice. The contractor subsequently terminated the contract when the owner failed to respond or address the issues in the notice of default. The contractor sued the owner for breach of contract, and the owner counterclaimed against the contractor for breach of contract.
In giving its reasons for judgment, the Court summarized some principles drawn from the case law regarding the termination of CCDC contracts:
- A CCDC contract may be terminated for fundamental breach, but this would be an “exceptional remedy”. This remedy would only be available in circumstances where the breach is so serious that the foundation of the contract has been undermined because the thing bargained for has not been provided.
- The notice requirements of CCDC contacts must be strictly interpreted. A notice of default must give sufficient detail so as to enable the receiving party to understand its import and leave no doubt as to the possible or unexpected consequences of noncompliance. The delivering party bears the onus of identifying the breaches upon which it relies. The receiving party is not required to satisfy the court that it did not understand the notice.
- If a notice of default does not contain the clarity the law requires, it is improper. The result of an improper notice is that the time period set out in the notice never begins to run, and termination by the delivering party at the end of that period is wrongful.
Applying the aforesaid principles to the case, the Court held that the contractor was entitled to rely on the notice of default to terminate the contract. However, the Court went further and held that the contractor was also entitled to terminate the contract on the ground of fundamental breach. The Court held that the owner’s breaches were so serious that the foundation of the contract had been undermined because the thing bargained for (presumably payment) had not been provided. The Court awarded the contractor what it determined to be the approximate profit it would have earned had the contract been performed by the owner.
This case highlights some important considerations for parties contemplating the termination of a CCDC contract:
- The circumstances which justify termination of a CCDC contract, other than in accordance with its terms, will be rare. Defaults for which the innocent party may be compensated in damages will rarely justify termination on the ground of fundamental breach. The “safest” means of terminating a CCDC contract would be to follow the termination provisions in the contract.
- A party delivering a notice to terminate must clearly set out the reasons for default and the consequences thereof. The question of whether a notice of default is sufficiently clear is to be assessed objectively; the question of whether the receiving party understood the notice is irrelevant.
- An improper notice will not trigger the start of the time period set out in the notice. If a party terminates a contact in reliance on an improper notice, the termination will be improper and the party would likely liable to the other for damages. A party seeking to rely on a notice of default should, before issuance, review the requirements of the contract to ensure meticulous compliance with its terms.