March 26, 2010

FEATURE | Sewer and Watermain

Nova Scotia court says oral contract stands

Watermain contract wasn’t worth the paper it was printed on: Court

PETER KENTER

correspondent

The Nova Scotia Supreme Court has settled a dispute over a 2007 water main contract in favour of the contractor, saying an oral agreement constitutes a contract.

In a written decision January 27th, Justice David MacAdam sided with contractor Stephen Harris, ruling that an oral agreement between the parties took precedence over a written quotation that failed to adequately spell out the terms of the contract. Harris was awarded $17,081, the amount unpaid on outstanding invoices, prejudgment interest, and court costs.

However, the entire dispute could have been avoided if the parties had used a contract drawn up by a lawyer.

“It’s one of those cases where taking it to the Supreme Court could and should have been avoided,” says William L. Ryan, QC, president of the Canadian College of Construction Lawyers, and a partner with Stewart McKelvey Barristers & Solicitors, based in Halifax. The limit for the province’s Small Claims Court is $25,000, but Coldbrook, NS developer Busch Mac Developments Ltd. originally asked for $44,561, before reducing the claim to $21,000 in closing submissions.

“Even under the initial claim amount, the parties could have taken the dispute to an adjudicator or mediator,” says Ryan. “They wouldn’t have had to file the pre-trial briefs, and would have saved the time and the expense of two days in Supreme Court. You could never justify spending the amount of money required to proceed with this litigation to get an award of $17,000.”

Busch Mac initially negotiated with Harris in early 2007 to build a road about 300 metres in length. Harris was recommended to company president Tom Busch by Harold MacKenzie, who had a business relationship with Busch but worked as a volunteer on the project. On April 23, 2007 Busch requested Harris to forward a quotation, which stated: “After my onsite inspection to build your road of approximately 1,000 feet and to bring it up to ABL Environmental standards prior to Class A gravel, I would quote a price of $70,000 plus HST. This would also include a watermain, individual hookups and a fire hydrant.”

While all three men agreed that the quote covered time and materials, they differed on the limitations of what was covered. Busch said the quote was for the lesser of time and materials, or $70,000.00 plus HST, and included the materials required to install the watermain. MacKenzie said the contract covered time and materials, and that Harris would attempt to keep the price under $70,000. Harris said the quote covered time and materials with no maximum. Harris testified that he did not select or purchase the materials, and that the list of materials used expanded during the project to include additional fire hydrants, an additional lateral and pipe with a larger diameter.

Ultimately, the case was decided on the weakness of the quote and the fact that the testimonies of the three men contradicted it.

“In my view, there is no reason in law to recognize as a term of a contract something the parties never agreed, never intended and were not acting under,” wrote Justice MacAdam in his decision.

Ryan points out that the case might have been avoided had the parties proceeded with a clear contract, drafted by a lawyer.

“A contract should be free of ambiguity and state that the undersigned are putting their names to something that they agree reflects the complete and full contract in all respects,” says Ryan. “The written memorandum did not embody what was agreed to by the parties and a piece of paper is not really a contract, if it’s not signed. The trial had to rely on the testimony of the parties involved.”

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