Building projects often give rise to heated discussions. When a change order is made in that sort of situation, can one party later say that the change order was made under duress or coercion? The Newfoundland Court of Appeal said Yes in the recent decision in Hickey’s Building Supplies Ltd. v. Sheppard.

Background Facts

This decision was reviewed in the last article June 7, 2015. To refresh our memories the facts were as follows:

Mr. and Mrs. Sheppard hired Hickey’s to build them a retirement home. Mrs. Sheppard suffered from a type of sensory neuropathy that meant that she had no sensation from her elbows to her hands and below her knees, and both feet were amputated. She moves on two prosthetic feet and a wheelchair. Hickey’s understood that the home was being constructed to suit Mrs. Sheppard’s requirements. The construction of the home was more than a year late. When constructed, the flooring was not level and there was a quarter inch difference in height between the ceramic tile flooring in the kitchen and the hardwood flooring in adjacent rooms. The flooring deficiencies were aesthetically objectionable and presented tripping hazards to able-bodied people, but especially to Mrs. Sheppard.

One of the issues in the case was whether the Sheppards had agreed to a change in the height of the ceiling from 9 feet to 8 feet. The contractor said that he had discussed the height of the ceiling with Mr. Sheppard who had agreed to the lower ceiling. The contractor submitted that the Sheppards had waived any requirement of 9-foot ceilings.

Mr. Sheppard said that when he met with the contractor, the meeting degenerated into shouting. Mr. Sheppard said that he agreed to the 8-foot ceilings because he could not countenance any further delays in the project. Mrs. Sheppard said that the contractor was adamant that “we’re not getting nine foot walls.”

Decision of the Court of Appeal

The Court of Appeal adopted the following definition of waiver:

“waiver…arises where one party to a contract, with full knowledge that his obligation under the contract has not become operative by reason of the failure of the other party to comply with a condition of the contract, intentionally relinquishes his right to treat the contract or obligation as at an end but rather treats the contract or obligation as subsisting. It involves knowledge and consent and the acts or conduct of the person alleged to have so elected, and thereby waived that right, must be viewed objectively and must be unequivocal.”

The court then adopted the following test as to whether waiver had occurred:

“…a finding of economic duress is dependent initially on two conditions precedent:

(i) the contractual variation must be extracted by pressure in the form of a demand or threat;

(ii) the exercise of pressure must be such that the coerced party has no practical alternative but to comply with the demand or threat.

If these two conditions are met, the focus shifts to whether the party consented to the contract variation. The factors to be considered are (i) whether the promise was supported by consideration (ii) whether the coerced party protested the variation or executed it on a “without prejudice” basis and (iii) [if not,] whether the coerced party took steps to disavow the variation on a timely basis.”

Based on this test, the court concluded that:

“the evidence regarding the heated discussion between Mr. Sheppard and the Contractor leads to the conclusion that there was a demand amounting to pressure on Mr. Sheppard to agree to the eight-foot rather than nine-foot walls. In the circumstances, the Sheppards had no practical alternative but to accept this change. The change was not supported by any consideration from the Contractor. Finally, the Sheppards vehemently protested the variation.”

The Court of Appeal accordingly upheld the trial judge’s conclusion that the contractual requirement for 9-foot ceilings had not been waived by the owners.

Discussion

Parties to a building contract should remember that the negotiation for changes to some building contracts may be a fragile exercise, at least in some circumstances. One of the parties to the contract may be under a financial, emotional, physical or other handicap or impairment. That party may be the owner, but it also may be a supplier or subcontractor which is in a position of financial vulnerability. If that party has no real option but to acquiesce in the demand for a change in the contract, and if there is no consideration for that change, then the conduct of the party demanding the change may be later seen as over-bearing and coercive. If it is, then that conduct may be set aside and the change order, or waiver of the original contract, may be nullified.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed. chapter 8, section 7(b)(ii)

Hickey’s Building Supplies Ltd. v. Sheppard (2014), 36 C.L.R. (4th) 15, 2014 CarswellNfld 353

Building contracts – change orders – waiver – duress and coercion – rescission

Thomas G. Heintzman O.C., Q.C., FCIArb                                                       June 15, 2015

www.heintzmanadr.com