Case information

Contracts — Performance — Breach — Termination — Applicant owner entering into contract with respondent contractor for construction of wharf — Contractor failing to complete project on time — Owner noting contractor in default and freezing all payments for work completed to date until project remediated — Contractor noting owner in default for freezing payments — Both parties issuing notices of termination of contract — Whether standard form construction contract permits owner to withhold funds following default by contractor without terminating contract and in anticipation of having to incur future costs to address contractor's default — Whether owner required or allowed under standard form construction contract to withhold payment under contract for benefit of issuer of standard form performance bond, following delivery of notice of default — Whether circumstances exist in which party to standard form construction contract is entitled to terminate contract without complying with explicit contractual terms and conditions governing termination.

Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

Marine Atlantic Inc. and RJG Construction Ltd. entered into a contract, based on a standard form construction contract, for the construction of a wharf structure. RJG also obtained a performance bond with a surety. Progress payments under the construction contract were to be forwarded to RJG periodically. The project was to be completed by June 15, 2013. Due to several delays, RJG failed to complete the project on time. Marine Atlantic sent RJG a written notice of default. Marine Atlantic, RJG and the surety engaged in discussions for a remediation agreement to correct the default. Marine Atlantic advised RJG that it would be freezing all payments to RJG for any work completed to date until an acceptable remediation agreement was established. RJG issued to Marine Atlantic its own notice of default, for failing to provide progress payments for the work completed to date. RJG then provided notice to Marine Atlantic and the surety of its decision to terminate the construction contract. Marine Atlantic issued its own termination notice, arguing that RJG had breached the contract when it failed to meet the established timelines and when it attempted to terminate even though the contract did not allow for such termination.

RJG commenced an action, seeking damages for breach of contract arising from Marine Atlantic’s failure of payment. Marine Atlantic brought a counterclaim on the basis that RJG had breached the contract. The trial judge held that RJG was not entitled to terminate the contract; that Marine Atlantic did not repudiate the contract when it withheld funds owed; that Marine Atlantic was entitled to freeze funds to ensure RJG’s compliance; that RJG was estopped from terminating the contract while simultaneously negotiating a remediation agreement; and that RJG’s notice of default and notice of termination were invalid, because they did not comply with the contract’s actual termination provisions. The trial judge dismissed RJG’s action and allowed Marine Atlantic’s counterclaim for damages. On appeal, the Court of Appeal of Newfoundland and Labrador overturned the trial judge’s decision and deemed RJG’s notices of default and termination to be valid; Marine Atlantic was not permitted to freeze any funds owed, and the freezing constituted a repudiation of the contract, to which RJG was entitled to respond by terminating the contract; RJG was not estopped from terminating the contract.