In February 2018’s edition of Breaking Ground, we reviewed the legal tests used to determine what will constitute a valid extra or back charge.[1] These issues were discussed in some detail in the Alberta Court of Queen’s Bench decision in Impact Painting Ltd. v Man-Shield (Alta) Construction Inc.[2] A year after that article, the Alberta Court of Appeal has weighed in on the tests utilized by the trial judge in that case, dismissing the appeal.[3]

By way of summary, between 2011 and 2012, Man-Shield (Alta) Construction Inc. (“Man-Shield”) and Impact Painting Ltd. (“Impact”) had entered into the following contracts concerning the provision of painting and wallpaper services on a construction project known as the Laurel Retirement Community:

  1. A subcontract for painting dated March 29, 2011, for $248,850;
  2. A subcontract for wallpaper installation dated June 23, 2011, for $98,700; and
  3. A subcontract for painting of the “DAL Wing” dated March 24, 2012, for $65,310.

While the project was underway, a significant change was made after the owner obtained government approval and funding to have one of the floors of the building converted to a residence for dementia patients, being the DAL Wing. This change necessitated expansive renovations to that floor before the original scope of work was fully completed, and the evidence at trial indicated that it also created a great deal of strain for all parties involved in the project, including both Man-Shield and Impact.[4]

The trial judge’s reasons exhaustively covered the available evidence, including Impact’s contract proposal, the contracts and other project documentation, as well as the oral evidence called at trial. At the conclusion of the hearing, a net amount of $57,397.86, was found owing to Impact by Man-Shield. Man-Shield was also awarded judgment on its counterclaim in the amount of $14,903.60 for the additional premiums paid for the bond that stood in place of the builder’s lien. This damage was found to have been caused by Impact because of the disparity between the amounts claimed by Impact and what was ultimately awarded at trial.

Legal Tests Applied at Trial

The trial judge considered the following factors in determining the validity of the claims for extras and back charges.

Extras

  1. The work was outside the subcontractor’s scope of originally contracted work;
  2. The subcontractor was either expressly or impliedly instructed by the general contractor to do the work;
  3. The general contractor was informed or would have necessarily known that the extra work would increase cost; and
  4. The general contractor waived or acquiesced in not following formal change order provisions.

Back Charges for Deficiencies

  1. The back charge is for an expense actually, necessarily and reasonably incurred by the party claiming it;
  2. By terms of the contract, or some other agreement between the parties, the charge related to a task for which the subcontractor undertook responsibility;
  3. The general contractor incurred the expense because of the subcontractor’s default to which the charge relates; and
  4. Prior to incurring the charge, the general contractor gave notice to the subcontractor of default and provided a reasonable opportunity to cure it.

The Appeal

Impact initially appealed the decision on the grounds that the trial judge had erred:

  1. by refusing to award Impact $45,000 for the painting subcontract deduction;
  2. by failing to consider relevant evidence or misapprehending the evidence as well as misapplying the standard of proof required;
  3. in awarding Man-Shield full back charges relating to Hay Decorating Painters; and
  4. in the approach used to award or assess the lien bonding costs.

The Court of Appeal began its analysis by finding that the trial judge had committed no error in articulating the factors to be considered by the court when determining whether a back charge ought to be allowed. The Court of Appeal also found that the trial judge had properly articulated the law with respect to the determination of permissible claims for extra work. In this regard, the Court of Appeal endorsed the following summary from Kei-Ron Holdings Ltd. v Coquihalla Motor Inn Ltd.[5], a 1996 decision of the British Columbia Supreme Court concerning claims for extra work:

In determining liability for the cost of extra work, the first question to be answered is whether the work performed was, in fact, extra work; that is, it did not fall within the scope of the work originally contemplated by the contract. If so, did the owner give instructions, either express or implied, that the work be done or was the work otherwise authorized by the owner? Next, was the owner informed or necessarily aware that the extra work would increase the cost? Finally, did the owner waive the provision requiring changes to be made in writing or acquiesce in ignoring those provisions? If the plaintiff can establish these elements, the defendant is liable to pay a reasonable amount for the extra work. These elements must be proved with respect to each extra claimed.

Given that the correct legal tests had been used, the remaining issues, as questions of fact or mixed law and fact, were all subject to review only for palpable and overriding error.

Impact’s Claims for Extras

The trial judge based his findings on plain reading of the relevant documentation and testimony of witnesses. Absent error in method or conclusions, the Court of Appeal was unwilling to disturb those findings.

In particular, the trial judge had found no evidence that Impact’s acceptance of the $45,000 contract deduction was conditional.

Man-Shield’s Back Charges

Again, the Court could find no error, let alone a palpable and overriding error with the findings of the trial judge. The reasons supplied by the trial judge in relation to the back charges displayed that the evidence had been reviewed.

While Impact argued that some of the back charges allowed were unreasonable (for instance in allowing amounts for travel and hotel costs of the completion painters), these arguments were insufficient to disturb the finding of fact at trial that Impact had approved the arrangement without condition. This decision provides no express guidance as to whether such back charges would have been valid, absent the express consent of the subcontractor.

Lien Costs

Given that the debt owing was found to be approximately a quarter of the amount claimed in the lien, the trial judge found that the lien was excessive and that Man-Shield was entitled to damages. The Court of Appeal was once again unwilling to disturb this finding, as no palpable and overriding error had been committed.

Of note, it was argued on appeal that for the purpose of calculating judgment interest, the lien amount should be calculated prior to set-off or contractual factors. The Court of Appeal however rejected this means of calculation, finding it inconsistent with the wording of the statute.

Conclusion

Both the trial judge’s findings and the Court of Appeal’s endorsement of his reasons provide a useful overview of the state of the law in Alberta relating to claims for change orders, extra work, and for back charges, whether between owner and contractor, or between contractor and sub-contractor. In all cases, it is essential to assess the nature of the amounts at issue against the original scope of work and the contemporaneous communications between the parties concerning the work and the amounts at issue. This is particularly true in the case of change orders on construction projects where formal contractual procedures governing changes may impact the analysis.