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Contractual terms by convention: When parties fail to explicitly set contractual terms

contractual termsOne of the frequent issues encountered in contractual litigation is parties failing to negotiate and set to writing the contractual obligations that exist between them. So long as the parties are getting along and no questions are raised about anyone’s obligations, the lack of written contractual terms may not be an issue and convention will general dictate the parties’ interactions. The concern with not reaching a fully-fleshed out, written agreement is that, once the parties get into a dispute or take differing views as to what has been agreed upon, a great deal of uncertainty and expense is introduced when the parties turn to lawyers and the courts to determine what rights and responsibilities exist within the contractual relations between the parties.

In the recent case of R & B Plumbing & Heating Ltd. v Gilmour, 2018 BCSC 1295 (CanLII) a plumber had been working for a property owner for several years in relation to a renovation. The work proceeded for those years on the basis that the plumber would provide invoices and the owner would pay same without concerns about the quality of work or method of billing.

The relationship soured when a dispute arose over the installation of a temporary heater. Among other things, the owner took the position that she was entitled to detailed invoices from the plumber in relation to its work dating back to the very outset of the business relations. Upon being provided most of these invoices, the owner then took the position that she was being overcharged for the historical invoices. For its part, the plumber adjusted some invoices where it agreed there were errors but was not able to reach a resolution satisfactory to the owner.

The dispute continued until the owner had refused to pay five invoices issued by the plumber and the plumber ceased work and registered a builder’s lien.

The Court’s analysis of the facts placed significance on the owner having never questioned the contact of the plumber’s invoices, the method of billing or the quality of services provided to her. As the Court was being called upon to interpret terms of an oral contract, its analysis began with what the parties said and did and to assess such evidence objectively to determine what contractual terms the parties intended to be bound by (citing, Berthin v. Berthin, 2016 BCCA 104 (CanLII) at para. 46; Le Soleil Hotel & Suites Ltd. v. Le Soleil Hotel Management Inc.https://www.canlii.org/en/bc/bcsc/doc/2009/2009bcsc1303/2009bcsc1303.html, 2009 BCSC 1303 (CanLII) at para. 328).

The Court found that the contract was informal and one that did not have any agreement as to billing method from the outset. By their conduct over time, the parties established an enforceable convention for billing based on time and materials and manifested their intention to be bound by this convention through their conduct as well. While the plumber had made some errors in its invoices, they were minor and did not amount to a breach of contract.

The owner’s refusal to pay invoices constituted a breach of contract which, in turn, provided a legal justification for the plumber to cease work and register a lien. The plumber’s conduct amounted to self-protection from further monetary loss and not an abandonment of the contract. As a result, the owner was not entitled to sue for breach of contract for abandonment by the plumber.

The plumber’s exposure was limited to a small repair and the owner’s additional costs to complete the plumber’s work were laid at the owner’s feet for breaching the contract. The owner was ordered to pay the outstanding invoices and costs were left to the parties to agree upon with the un-stated implication that costs ought to favour the plumber.

R & B Plumbing & Heating Ltd. is illustrative of the importance of how well-drafted contracts at the outset of contractual relations may lessen the costs of disputes over contractual terms if not avoid them entirely. Had the parties in the case set out full details of their contractual relations form the outset, there would have been no question as to the appropriate billing methods. The case is also a reminder that the courts will not shy away from imposing the contractual terms they determine that objective circumstances suggest were agreed upon and may do so to the frustration of one or more parties to a contract. Best business practice dictates ensuring well-drafted contracts are in place from the outset of any contractual relationship and that, if circumstances, convention or agreement suggest a change of contract is in order, that such changes also be put in writing.

By Jeremy Burgess, Pushor Mitchell LLP

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In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at editor@firstreference.com. If you liked this post and would like to subscribe to Inside Internal Controls blog click here.
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