The Quebec Superior Court recently1 issued a provisional injunction2 to force a subcontractor that had unilaterally terminated its contract with the general contractor to return to the jobsite in order to continue performing its subcontract, the completion of which was crucial for the viability of a major multi-residential construction project.
The reader will doubtless already have guessed that the relationship between the parties had seriously deteriorated during the performance of the work.
Essentially, having already received $300,000 on an $800,000 contract, the subcontractor demanded payment of a sum of approximately $40,000.
The general contractor asked the subcontractor to first provide it with the usual documents that are a precondition for such a payment (receipts, solemn declarations, attestations, etc.) and incidentally pointed out that some of the amounts claimed were ineligible under the contract (probably the contractual holdback, although the judgment does not so specify).
The subcontractor thereupon registered two notices of legal hypothec, in an amount “to be adjusted” and sent two notices of cancellation of the contract pursuant to clauses 7.2.3 and 7.2.4 of the CCA1-2008 Stipulated Price Subcontract.
The following day, it suspended its work, and vacated the jobsite a few days later.
The criteria that a court must consider for the purposes of issuing a provisional injunction are well established: the petitioner must prove the existence of a colour of right, or at least a serious question to be decided, that the petitioner is exposed to the risk of serious or irreparable harm or to a situation of fact or law that would render the final judgment ineffective and, if the right being invoked is uncertain, that the balance of inconveniences weighs in its favour. There is one additional criterion for provisional injunctions: they can only be issued in cases of urgency.
Application of the law to the facts
The Court concluded as follows:
- Colour of right: The right of the subcontractor to cancel the contract is uncertain, as according to the terms of the subcontract part of the amount being claimed is ineligible. The Court was also concerned about the legitimacy of cancelling an $800,000 contract for a disputed amount of only $27,000, in a situation where the general contractor had already paid the subcontractor $300,000, and where cancellation jeopardized the completion of a project costing several million dollars. Finally, the right to cancel a contract is governed by the Civil Code of Québec, which specifies that the parties to a contract of enterprise must perform it in good faith, and that it cannot be cancelled except for a serious reason, and not at an inopportune moment.
In the author’s view, the Court should also have taken into account the fact that the general conditions of standard contract CCA1-2008, as well as the provisions of the Civil Code, require that a demand letter be sent prior to cancellation in such circumstances, in order to identify the default complained of and to give the other party a reasonable time within which to cure it (five days under clause 7.2.4 of ACC1-2008, and a “reasonable period” under the Civil Code, which was not respected in this instance).
- Urgency: Each day of non-performance by the subcontractor delays, if not paralyzes, a major construction project, something the final judgment cannot remedy.
Harm: Serious harm will imminently be suffered by the general contractor if the Court does not intervene, particularly as the general contractor cannot find another subcontractor to complete the subcontracted work.
In the author’s view, this latter factor is determinative, although in theory and, as the judge correctly points out, the rule of specific performance of a contract prevails in Quebec law, as opposed to performance by equivalence.
- The balance of inconveniences: The project will be jeopardized by the subcontractor’s non-performance, whereas by performing the remainder of the contract, the subcontractor will have the assurance of being paid in accordance with the terms of the contract, guaranteed by the security of a legal hypothec or a surety should the general contractor become incapable of honouring its obligations.
- Cancellation of a contract of enterprise is an extreme measure whose legitimacy must be assessed solely in light of a rigorous examination of the facts and the law.
- Respect for the procedure of notices in writing requires not only an understanding of explicit factors such as giving the other party a reasonable time to cure the default(s) complained of, but also an appreciation of implicit factors such as the obligation of the contracting parties to act in good faith and other fundamental principles of Quebec law.
- While they do constitute an exceptional remedy, injunctions are nevertheless too seldom used in the construction industry, despite the fact that they allow the avoidance of serious and irreparable harm, as well as a lengthy claim procedure that is costly for all parties concerned.
- It would be preferable, in order to minimize the risks and inconveniences of such situations, to begin with the penalties of the project owner and lawyers’ fees, and to supplement the general conditions of the standardized contract so as to circumscribe, through transitory measures, the contested cancellation of the contract pending a final judgement or out-of-court settlement.