Date: December 2023
This is one of the most common questions I get from contractors/subcontractors who have allegedly not been paid. Thankfully, the law is pretty clear.
Understanding whether the failure to continue working on a project amounts to abandonment or repudiation in construction projects requires a clear understanding of contractual obligations. A recent Superior Court Decision by Justice Sutherland sheds light on the serious consequences a contractor or subcontractor may face when refusing to continue work, particularly when not entitled to further payment.
In this case, a dispute between a contractor and subcontractor, the central issue was whether the subcontractor’s refusal to work, citing non-payment, constituted abandonment of the project. Justice Sutherland’s decision emphasized key principles for contractors/subcontractors to bear in mind when making this critical decision to stop working:
1. Fundamental breach or frustration: Contractors/subcontractors may be justified in failing to complete a contract if they can prove, on a balance of probabilities, that external factors beyond their control make contract performance impossible.
2. Abandonment consequences: Abandoning a project prior to completion, especially in fixed-price contracts, puts the contractor at their own peril. It is considered a breach of the contract.
3. Repudiation through demand for immediate payment: Even if a party genuinely wishes to complete the contract, demanding immediate payment before it’s due as a precondition for returning to work can be deemed a repudiation of the contract.
Justice Sutherland’s ultimately found that the subcontractor was in breach of the contract after failing to return to work. His reasoning aligns with the Construction Act’s intent—to balance contractor/subcontractor protection and project continuity. For minor payment disputes, the recommendation is clear: register a lien and continue working.
Click here for a link to the decision.