Good Faith in the Construction Industry

Whether you’re a contractor accused of bad faith by a co-contractor, or a customer dissatisfied with the work performed by a contractor, we’re here to help!

While many questions can be answered with the help of the guides, sample letters and forms in our legal toolkit, an independent jurist affiliated with PSP Legal will always be happy to help you by answering any questions you may have.

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Of course, if you prefer to have an experienced practitioner take charge of your situation and intervene directly and quickly on your behalf, you can also request that one of the independent jurists affiliated with PSP Legal represent you by clicking here.

Good faith

Good faith is an essential obligation of public order in a construction contract. It is essential to the success of the project, given the risks taken by both parties. This principle, codified in Articles 6 and 7 of the Civil Code of Quebec, establishes that a person must have a sincere, honest and loyal attitude in the performance of an obligation.

Furthermore, article 1375 of the Civil Code of Quebec specifies that the obligation of good faith must be present at all stages of a contractual relationship, i.e. negotiation, performance and termination of a contract. It can be broken down into several sub-obligations, such as the obligation of loyalty, which requires one party to refrain from harming the other or abusing its contractual right, and the obligation of cooperation, which requires the parties to cooperate, helping and assisting each other.

Although this obligation is fundamental to any contractual relationship, regardless of the type of contract or field, it is sometimes difficult to know what behavior to adopt with one’s co-contractor. This difficulty stems from the fact that there is no such thing as typical or expected behavior on the part of every contracting party. What’s more, over the years, case law has regularly interpreted this obligation in contradictory ways.

Moreover, even if the recent decision of the Supreme Court of Canada in Churchill Falls (Labrador) Corp. v. Hydro-Québec[1] has put the brakes on the broadening of the notion of good faith, it remains essential that each situation be considered on a case-by-case basis, according to the facts of the case and the balance between the parties, by the Tribunal.

Requirements of good faith in the construction industry

At the contract conclusion stage, the parties have an implicit obligation to establish the objectives of the contract and to disclose relevant information in their possession that could have an impact on the risk assumed by the other party.

By way of example, here are a few situations that could be subject to review by the court, taking into account the balance between the parties;

• The way the parties negotiate;
• The sudden breakdown of negotiations;
• information communicated.

These obligations will continue to apply throughout the life of the contract. At the contract performance stage, it is important that the parties maintain good faith in the performance of the contract. The parties may not make the performance of the contract more difficult, onerous or unprofitable for the other party in order to satisfy their own interests. Moreover, the parties have an implicit obligation to help their co-contractors resolve any difficulties they may be experiencing. Indeed, in the Kiewit case [2], the Court of Appeal ruled that parties to a contract cannot hide behind the contract if specific actions have modified it, or led to the belief that it would apply differently, by attenuating the contractual formalism that might result from strict application of the contract’s terms. This assistance towards the co-contractor in difficulty may have created legitimate expectations on the part of the co-contractor. What’s more, it will be more difficult to “go back” to the initial situation at a later date, given the expectations that one party may have had of its co-contractor.

With regard to termination of the contract, the parties must cooperate to avoid termination of the contract in the event of failure to complete performance of their obligations. The parties must not attempt to favour their own interests to the detriment of those of their co-contractor by trying to exhaust him financially and/or by other similar means of pressure. In the construction industry, work often takes longer or is more complex than anticipated for a variety of reasons, and the contractor (or even the sub-contractor) may find himself in a precarious financial situation. This precariousness can make it difficult, if not impossible, for the contractor to fulfill his obligation. In Birdair inc. v. Danny’s Construction Company inc.[3], the Court of Appeal established a positive obligation for a party to assist its co-contractor in the event of financial difficulties, in order to avoid termination of the contract.

How we can help

Our legal toolkit includes a variety of online resources and links to templates and guides to help you better understand your obligations.

However, should the Legal Toolkit prove insufficient in your situation, you can obtain additional assistance by speaking with one of PSP Legal’s affiliated jurists:

• Online

• On the phone

• In person

Of course, if you prefer to have an experienced practitioner handle your situation, you can always request that one of the independent jurists affiliated with PSP Legal intervene on your behalf by clicking here. He or she will then be able to intervene directly and rapidly on your behalf by:

• Preparing, negotiating and drafting applications, procedures or any other legal documents related to your situation;
• Assisting and advising you on your legal rights and obligations;
• Representing you before the courts when legal action is taken;
• Guiding you through the choices available to you, leading to a fair and satisfactory solution.

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