It is easy to be so distracted by the anticipation of a new project that formalities fall by the wayside. Unfortunately, the failure to take basic preliminary steps, such as clearly establishing who is responsible to pay for your work, can have a real impact on collecting when the job is done. The recent case of Kooltech Refrigeration v. Toor and Imraj Holding Enterprises, 2018 BCPC 297 addresses a contractor’s risk in going to work before understanding, and clearly documenting, who is going to pay for its work.
THE FACTS
In early 2011, Imraj Holdings Enterprises Ltd. (the “Owner”) acquired and began renovating a truck stop in Salmo, BC, known as the Whiteline Truck Stop (the “Project”). To assist with the renovations, the Owner entered into a verbal agreement with Trousdale Construction Ltd. (the “General Contractor”) to construct a walk-in cooler and sales counter.
The claimants in this case were engaged to provide refrigeration services to the Project. Specifically, the claimants were initially approached by, and received most of their initial instructions from, the General Contractor. The claimants say it was the General Contractor who told them that they would get paid by the Owner. Unfortunately, the claimants never bothered to confirm this with the Owner or get any commitments in writing from the General Contractor.
The claimants performed the work at the Project and no issue was taken with the quality of their work or the amounts charged. The real issue was who was responsible for paying the claimants’ bill. The claimants asserted it was the Owner who was responsible to pay the bill, while the Owner claimed it was the General Contractor.
The claimants commenced an action against the Owner and its principal, Mr. Toor, for unpaid invoices and six years’ worth of interest at the rate of 2% per month. The General Contractor also became a Third Party in the litigation, but for unknown reasons, was later released from the action before trial.
THE DECISION
The BC Provincial Court ultimately dismissed the claimants’ action against the Owner.
The claimants based their claim for unpaid invoices on, among other things, an argument that they had a contract with the Owner. The claim for interest was based on a statement that appeared at the bottom of the claimants’ invoices, which read: “Interest will be Charged at 2% Net 30 days on All Over Due Accounts.”
With respect to the first part of the claim, the Court was unable to find any evidence that the claimants’ contract was with the Owner, rather than the General Contractor. The Court reasoned that two parties cannot agree to bind a third party to a contract without that third parties consent or some evidence of agency, so the General Contractor could not oblige the Owner to pay the claimants’ invoices.
With respect to the second part of the claim, the Court found the claim for interest was based on a unilateral decision to charge interest by the claimants. It was not a term that was agreed to by the Owner, so could not be recovered by the claimants.
LESSONS LEARNED
- There are typically many different parties involved in a construction project. Before starting work, make sure you understand who your contract is with, and which of these parties is going to be paying your bills.
- A right to charge interest on unpaid invoices cannot be based on a unilateral term inserted in an invoice. Consider instead including provisions in a written agreement that unpaid invoices are subject to contractual interest.
By / Andrew D. Delmonico and Matthew T. Potomak
This article was written by Andrew D. Delmonico and Matthew T. Potomak, lawyers who practice in construction law with the law firm of Kuhn LLP. This article is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have any questions or comments about this case or other construction law matters, please contact us at 604.864.8877 (Abbotsford) or 604.684.8668 (Vancouver).
