A case study: A contractor’s blind reliance on contractual terms

BY ROB KENNALEY AND JOSH WINTER

In 2009, homeowners hired a swimming pool company to install a pool in their backyard, complete with a concrete patio and landscaping around it. Cracks appeared in the concrete, within the warranty period. The contractor refused to correct the problem. The owner had to fix it (and other miscellaneous items) for a little over $36,000. The owner then sued the contractor. 

The contract was a three-page document on the contractor’s letterhead. The second page of the contract provided, among other things, that soil testing was the responsibility of the owner and that the contractor would be held harmless for damage caused by soil conditions. The second page also included warranty provisions which, among other things, provided that “acts of God” were not covered by the warranty.

The contractor argued the cracking was caused by a combination of soil conditions under the deck and an act of God (being rain, which collected in the soils). It thus argued that it was relieved of responsibility. The contractor, however, had placed the soils under the decking.

The court didn’t buy the contractor’s position. It held that the materials under the deck were clayey silt, which the contractor itself had excavated from the pool area. On expert evidence, the court found the cracking was caused by the freeze-thaw cycles of water which was trapped by the impervious clay beneath the concrete. Not surprisingly, the court did not hold the owner responsible to test the clayey silt, which the contractor chose to use. It did not hold the owner responsible for the soil conditions and did not find the trapped water to be an ‘act of God.’ 

Although it was probably unnecessary to do so, the court held that the contractor could not rely on the ‘fine-print’ of page two, because the contractor had not drawn the owner’s attention to it before she signed the contract. In this regard, the court relied on Tilden Rent-A-Car Company v. Clendenning, a case of the Ontario Court of Appeal, where Tilden took no steps to alert a client, at the rental-counter at an airport and when everyone was in a hurry, of the onerous provisions in its standard form of contract. In Tilden, the Court had gone so far as to quote a well known English Jurist, Lord Denning, who had once stated, “we do not allow printed forms to be made a trap for the unwary.”

The reliance on Tilden goes somewhat against the grain of other cases in Ontario and elsewhere in the country where parties to the contract have been held to the strict language of their bargain, often where the ‘bargain’ is set out in 100-page contract documents. 

As above, it was probably not necessary for the court to rely on Tilden to avoid the application of the page two warranty provisions. This is because ‘soil conditions’ could reasonably have been interpreted to be in-situ, native conditions and because the water build-up could easily have been attributed to the contractor’s placement of clay and not the rains of an act of God. 

The court’s reference to Tilden, however, illustrates how a court can and will find a way, where necessary, to avoid the impact of harsh contractual language on a party whom the court believes is being taken advantage of. In this regard, a distinction can be drawn between the circumstance where a contractor puts a standard form contract in front of an unsophisticated or residential client and the circumstance where sophisticated contractors and owners enter into sophisticated and often very lengthy contracts. 

Part of the lesson to be learned from this case is, accordingly, that contractors who work with residential clients should do what they can to ensure their clients understand what they are agreeing to when they sign contracts. This, of course, includes ensuring they understand the scope of work. It also includes ensuring they understand the nuances of the contracts they are being asked to sign. It is good risk management, for example, to take your clients through the contract to explain how the contract works; having the client initial each page as you do so will also help to prevent the imposition of the Tilden Rent-a-Car line of thinking. 
In the end, the contractor’s efforts to deflect responsibility to the owner were costly in this case. After six day trial, the contractor was held liable to pay the owner over $36,000. The court found the contractor’s conduct throughout the litigation to have been unreasonable, and found the owner had beaten its offer to settle. Accordingly, the court ordered the contractor to pay $100,000 in costs to the owner. 

In addition, and without any supporting evidence, the contractor had added the concrete supplier as a third party, arguing the cracking was attributable to the concrete mix. It was required to pay the concrete supplier a further $47,000 in costs. When we consider the contractor had to pay its own lawyer (at least) $100,000 in costs, the contractor, who could have repaired the concrete for $20,000 or $30,000, ended up paying over $280,000. 

Rob Kennaley and Josh Winter practice construction law in Toronto and Simcoe, Ont. They speak and write on construction law issues and can be reached for 
comment at 416-700-4142 or at rjk@kennaley.ca and jwinter@kennaley.ca. This material is for information purposes and is not intended to provide legal advice. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.