In the decision Les Équipements d’Excavation Quatre-Saisons Inc. c. 6642641 Canada Inc. (2014 QCCS 2454), rendered on May 6, 2014 by the Honourable Daniel Turcotte, the Quebec Superior Court examined the obligations of a subcontractor in relation to the owner of the property on which the work is performed.

The Facts

The facts of the case are relatively simple: In 2008, 98362 Canada Inc. (“Groupe Jean Coutu”) decided to renovate its pharmacies. Following a call for tenders, 6642641 Canada Inc. (“Seabrook”) obtained the contract for the renovation and development of one such pharmacy. Before submitting its bid, Seabrook had obtained a bid from Les Équipements d’Excavation Quatre-Saisons Inc. (“Quatre-Saisons”) in relation to a portion of the contract dealing with specialized work described in the estimate as “excavation-backfilling” and “landscaping.” After discussions between Seabrook and Quatre-Saisons, a contract was finally awarded to the company solely for the “excavation-backfilling” work.

As required by Quebec law as a prerequisite for benefiting from a legal hypothec for constructions (the equivalent of a construction lien in the Province of Quebec), Quatre-Saisons declared its subcontract to Groupe Jean Coutu. In so doing, it described its scope of work as “redevelopment of the parking lot, drainage, et cetera” for a sum of $84,000 plus tax and extras.

For various reasons, the construction project encountered difficulties and Groupe Jean Coutu eventually terminated its contract with Seabrook. At the same time, Quatre-Saisons received full payment for its original subcontract price of $84,000, but did not receive payment for additional work valued at $51,840. Despite this, Quatre-Saisons signed two releases, at the request of Seabrook, declaring that it had received full payment for both its original scope of work and its extra work.

Quatre-Saisons published a legal hypothec for construction on Groupe Jean Coutu’s pharmacy and undertook a hypothecary recourse against the company.

Conditions for Asserting the Right to a Hypothec Will be Strictly Enforced

First, the Court concluded that Quatre-Saisons’s declaration of its subcontract was not sufficient because it did not correctly describe the scope of the work. Although the declaration correctly described the original work to be carried out, the extra “landscaping” work was not included in the declaration. Thus, Quatre-Saisons could not benefit from a legal hypothec with regard to this additional work.

The Court then concluded that Groupe Jean Coutu could rely on the releases signed by Quatre-Saisons in order to defeat the exercise of its hypothecary recourse. Seabrook demanded these releases as a condition for payment of Quatre-Saison’s invoices and both Seabrook and Quatre-Saisons understood at the time the releases were signed that the amounts owing had not been paid. However, this agreement could not be invoked against Groupe Jean Coutu.

The Court based its decision on articles 1451 and 1452 of the C.c.Q., which permit a third party in good faith to rely on the “apparent contract.” This allowed Groupe Jean Coutu to rely on the releases regardless of the agreement made between Seabrook and Quatre-Saisons.

Finally, the Court noted as an aside that, despite the lack of a contractual relationship between Quatre-Saisons and Groupe Jean Coutu, Quatre-Saisons was not relieved from complying with the plans and specifications for the work. The Court, relying on articles 1434, 2098, 2100 and 2101 of the C.c.Q., stated :

[62] The sub-contractor cannot blindly accept instructions from the general contractor when they aim to reduce the quality of the work for which the owner has retained his services. The sub-contractor could not, without a request for a change [approved by the owner], refrain from providing the membrane and the quantity of crushed stone required. He knew or should have known that the owner is the only one that has the authority to approve such a request. [Translation]

Thus, the Court rejected the hypothecary recourse of Quatre-Saisons and ordered the cancellation of their legal hypothec. However, the Court ordered Seabrook to pay the sums due for the work.

Subcontractors Will Suffer the Consequences of Ignoring the Strict Legal Requirements for a Legal Hypothec and the Plans and Specifications of a Project

Subcontractors should take note of the following aspects of this decision:

  1. The criteria regarding legal hypothecs for construction, especially the written declaration requirement, are stringent and factual;
  2. One must be very cautious upon receipt of a demand for a release before the underlying payment has been made; and
  3. Depending upon the terms of its subcontract, even a sub-contractor cannot ignore plans and specifications and rely solely on the instructions of the general contractor.