18/12/2020 – Jurisdiction Ontario
Part 72 published on 01/12/2020
Condominium corporations were liable for breach of contract for having knowingly misled contractor
The plaintiff contractor had entered into two-year snow removal contracts with the defendant condominium corporations. The contracts included a term permitting the condominium corporations to terminate the contracts, for any reason, upon 10 days’ notice. The condominium corporations decided that they would give the contractor 10 days’ notice of termination (per the contracts) prior to the second winter under the contracts….but they had not told the contractor of this intention. The condominium corporations’ communications with the contractor also led him to believe that the contracts would continue through the second winter.
The contractor took steps in reliance upon his expectation that the snow removal contracts would continue through the second year. In particular, he performed some summer maintenance services at no charge and also decided not to look for a replacement snow removal contract from other potential clients.
The contractor claimed that the failure of the condominium corporations to disclose their intention to terminate the contracts amounted to deliberate deceit and constituted breach of contract. He sued for resulting damages.
The trial Court agreed with the contractor. The condominium corporations appealed, and the Court of Appeal overturned the trial decision. The contractor appealed to the Supreme Court of Canada. The Supreme Court agreed with the trial judge and restored the trial decision.
The Supreme Court said that the condominium corporations had the full right to terminate the contracts; but once they had decided to do so, they couldn’t knowingly mislead the contractor into thinking that the contracts would continue. This was a breach of the contractual duty of good faith between contracting parties. The Supreme Court said:
At the end of the day, whether or not a party has “knowingly misled” its counterparty is a highly fact-specific determination, and can include lies, half-truths, omissions, and even silence, depending on the circumstances.
In this case, the condominium corporations had engaged in “active communications” which had deceived Callow into thinking that the contracts would continue. The condominium corporations were also aware that Callow was under the impression that the contracts would continue and took no steps to correct that misunderstanding.
The Supreme Court said that when the condominium corporations became aware that the contractor had falsely assumed that the contracts would continue, the condominium corporations had a duty to correct this misunderstanding. The failure to do so amounted to an improper use of the termination rights under the contract, and accordingly constituted a breach of contract on their part.
Had the condominium corporations met their contractual duties to Callow, this would have given Callow the opportunity to secure another contract for the second winter. Callow was accordingly entitled to lost profit under the contracts as well as recovery for added expenses incurred (to lease equipment) in anticipation of the continuation of the contracts through the second winter.
Editorial Note: According to the Supreme Court, the actions of the condominium corporations constituted “bad faith”. This makes me wonder: Could any of the condominium Directors be ultimately liable (to the condominium corporations) for the amounts owed to Callow? And if so, could it be that the Directors would not be entitled to be indemnified by the condominium corporations or covered by D & O insurance (per Sections 38 and 39 of the Condominium Act) – due to failure to meet the duty to act honestly and in good faith?
https://decisions.scc-csc.ca/scc-csc/scc-csc/en/item/18613/index.do