Arecent decision1 from the B.C. Supreme Court effectively provides a roadmap for what not to do when a dispute between a subcontractor and a general contractor arises on a commercial construction project. It provides a cautionary tale for how matters can spiral out of control and result in substantial and significant legal fees and damages being incurred when a contractual dispute is not addressed in a timely and reasonable manner.

The subcontractor in this case, a steel stud framing and drywall subcontractor on a residential condominium project, walked off the job after a payment dispute. It then issued bogus invoices and filed an inflated claim of builders' lien on title to the project. It proceeded to pursue its inflated claims through an eight day trial only to concede in closing argument that its inflated invoices were not in fact what had been agreed between the parties as the amount owing at the relevant time.

The court granted judgment to the general contractor for the increased costs incurred to complete the subcontractor's work and, in a separate decision2 regarding costs, also ordered "special costs" against the subcontractor meaning that the subcontractor has to indemnify the general contractor for the reasonable legal fees the general contractor incurred in defending the subcontractor's claims through trial. The end result is that the subcontractor is liable not only for the judgment against it of over $130,000 but also is liable for the general contractor's actual legal fees which will likely be tens of thousands of dollars more and may in fact approach the amount of the judgment itself. In addition, it will have paid its own lawyer as well. In the end, it will likely be out of pocket several hundred thousands of dollars all arising from a dispute that perhaps could have been addressed for a fraction of that amount if the subcontractor had taken a more practical and reasonable approach.

In terms of the inflate invoices, the court stated as follows in the costs decision about the evidence of the contractor:

[7] In his direct evidence at trial, the plaintiff agreed that there had been a meeting on December 18, 2015, but he denied that any agreement was reached limiting payment for the steel stud work performed on the first four floors. Further, despite Invoice No. 7801 appearing on its face to have been in respect of steel stud work on those floors, he contended that invoice was only in respect of "extras".

[8] In closing argument, the plaintiff — without explanation — abandoned his position that Invoice No. 7801 was for "extras". Further, he accepted the defendants' position that he had, during the December 18, 2015 meeting, agreed to the value of the work he had performed on the first four floors; that he agreed to issue an invoice to reflect that agreement; and, that he agreed he would continue to work only on the drywall and concrete fill portions of his subcontract, performing no further steel stud work.3

At paragraph 10 of the costs decision, the court found that the subcontractor knew his claim was grossly inflated which it knew to be substantially untrue. That finding lead to the extraordinary and unusual result of special costs against the subcontractor as the court held the subcontractor's deceit was calculated to "drive the general contractor from the judgment seat." In other words, by pursuing knowingly inflated claims, it attempted to force the general contractor to drop its claims.

What could the subcontractor have done instead when the payment dispute arose? Clearly, issuing false invoices and filing an inflated claim of builders' lien was entirely inappropriate. Aside from not engaging in that wrongful conduct, a potential better course of action for the subcontractor to have taken could have been:

  1. when the payment dispute arose, the subcontractor should not have walked off the project. By doing so, it breached the subcontract and became liable to the general contractor for the costs incurred in finding a replacement subcontractor. Instead, it ought to have attempted to resolve matters with the general contractor before leaving the site;
  2. if it believed the general contractor was in default by failing to pay amounts properly due and owing, it perhaps ought to have issued a notice of default instead of unilaterally terminating the subcontract by abandoning the site. Once the subcontractor left, the general contractor had no other option but to hire a replacement subcontractor; and
  3. if either of the above did not resolve the matter, the situation could still have been resolved at an early stage if the subcontractor had not inflamed the situation by, among other things, filing an inflated claim of builders' lien. By doing so, the general contractor was forced to defend its position and pursue the claim through trial at tremendous expense, all of which became the responsibility of the subcontractor.

Accordingly, as always, where a contractual dispute arises in the middle of an ongoing construction project, obtaining timely legal advice is critical before things escalate and before the parties become entrenched in their positions.


1 Kang v. My Gastown Development Limited Partnership, 2021 BCSC 1861

2 Kang v. My Gastown Development Limited Partnership, 2021 BCSC 2242 (the "Costs Decision")

3 The Costs Decision, supra. note 2 at paras. 7-8

Originally Published by Construction Business.

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