July 14, 2026
Construction Law Newsletter July 2026
This special edition of our newsletter highlights recent decisions on construction
law, with practical guidance on holdbacks, anticipatory breach, and mitigation in
a changing market.
Skipping Steps? – What Limits Are There on Subcontractors’ Claims? ……………. 1
When Does a Defect Justify Full Replacement? ………………………………………………. 3
No Obligation on Buyer to Renegotiate Contract with Developer in Changing
Market …………………………………………………………………………………………………………… 4
Skipping Steps? – What Limits Are There on Subcontractors’ Claims?
By Jonathan Weisman, Dolden Vancouver
The 10% holdback is the most common payment protection in British Columbia’s Builders Lien Act and applies automatically on every project. From the owner on down, each successive payor is required to hold back 10% of what it owes until the “holdback period” has passed. If liens have been registered by downstream subcontractors, the holdback can be used as security to discharge them.
But what happens when a payee, one step removed, tries to recover sums due from an upstream party? What happens where there is a failure to hold back funds which results in a negligence claim – a personal claim – against the owner?
KEL Design & Procurement Corp. v. Springbok Electric Limited, 2026 BCSC 950, answers this question previously left open by the BC Courts earlier in Bear Creek Contracting Ltd. v. Pretium Exploration Inc., 2020 BCSC 1523.
In Bear Creek Contracting, the plaintiff subcontractor sued the owner and general contractor for additional costs arising from alleged scope expansions. When the general contractor, Rokstad, entered restructuring, Bear Creek sought to amend its pleadings to claim against the owner for failing to hold back funds from the general contractor. Bear Creek’s claim was for roughly $14 million. The holdback for Rokstad’s contract was only $6.15 million.
The owner asserted that Bear Creek’s claims against it, if any, were limited to $6.15 million – the amount that would have been held back from Rokstad if the owner had fulfilled its duty. Section 34 of the Act, the owner asserted, limited the aggregate recovery for liens to the holdback owed to Rokstad, the contractor under whom Bear Creek was retained.
The Court declined to agree. Bear Creek had offered arguable reasons why the section 34 limits did not apply to its claims, so the question was better left for trial. No trial followed, leaving the issue unresolved.
KEL Design addresses that gap. The plaintiff in KEL Design supplied electrical fixtures to Springbok, an electrical subcontractor. Springbok failed to pay KEL Design roughly $170,000. The owner resolved issues with its general contractor, Pro-Can, and Pro-Can had maintained a holdback of about $1.6 million. But the share of that holdback payable to Springbok was only $78,300. Pro-Can argued that KEL Design could recover no more from its holdback than the amount allocated for Springbok, the party with whom KEL Design contracted.
The Court disagreed. It read section 34 to cap recovery from holdback funds, but only from the holdback held by the claimant’s immediate payor. Springbok could limit lien claims from its subcontractors (and their subcontractors in turn) to its holdback. But that limit applies independently at each level of payor. Pro-Can’s liability for liens was limited to the value of the holdback which Pro-Can itself retained, not that of its subcontractors. Nothing in section 34 allowed Pro-Can to rely on its subcontractors’ holdbacks to limit claims from more remote payees.
KEL Design clarifies how section 34 works. The liability limits benefit each payor, but only with respect to the holdback they retain and the payees claiming under them in the chain of contracts. This means that higher-level payors, such as owners and general contractors, may have greater liability to contractors and suppliers lower down in the pyramid than they have to those who sit on the steps between them.
Takeaway
It is well established that parties may be personally liable for failing to retain a holdback. What KEL Design makes clear is that the limit of that liability is higher than had previously been assumed. Insurance needs should consider both that personal liability and the potential holdback value for which project participants may prove liable.
For further information or if you have any questions about the above article, please contact the author: Jonathan Weisman, Dolden Vancouver, Email: [email protected]
When Does a Defect Justify Full Replacement?
By Cody Mann, Dolden Vancouver
Construction defect claims often begin with a discrete issue but sometimes evolve into demands for extensive remediation. The recent Ontario decision in McKee v. Tarion Warranty Corp., 2026 ONSC 205, illustrates how a narrow construction defect does not automatically entitle a homeowner to the broadest or most expensive repair solution available.
The homeowners in McKee reported two concerns affecting the brick at the front of their home: efflorescence and persistent wetness. Ontario’s home warranty administrator Tarion accepted those items as “warranted” and proposed a targeted repair valued at approximately $14,800 plus HST. The homeowners rejected that proposal. They argued that the problems could only be remedied by replacing the entire brick veneer on the home, at a cost of roughly $200,000.
Ultimately, the Court did not accept the homeowners’ position. Instead, it upheld a much narrower remedy, awarding $16,724 for repairs relating to the front windowsill, flashing, and brick staining. In doing so, the Court emphasized that the remedy must remain connected to the defects that were actually established and accepted under the warranty program. The warranted items were limited to persistent wetness and efflorescence affecting the front brick. The homeowners had not established that replacement of the entire brick veneer was necessary or appropriate to correct the warranted items.
The decision reinforces an important distinction between proving a defect and proving the scope of repair required to address it. While the existence of a defect may be accepted, the party seeking a remedy must still establish, on a balance of probabilities, that the proposed repair is necessary and appropriate. A broader remediation proposal will not be awarded simply because it is preferred by the claimant or because it addresses concerns extending beyond the proven defect.
Takeaway
McKee v. Tarion confirms that establishing the existence of a construction defect does not determine the scope of the resulting remedy. The claimant must also prove that the repair sought is necessary to address the defect that has been established. A limited defect will not necessarily justify a wholesale replacement simply because a more extensive remedy is preferred. For owners, contractors, insurers, and others involved in construction defect disputes, the decision serves as a reminder that liability and remedy are separate questions. Even where a defect is proven, the appropriate scope of repair will ultimately depend on the evidence.
For further information or if you have any questions about the above article, please contact the author: Cody Mann, Dolden Vancouver, Email: [email protected]
No Obligation on Buyer to Renegotiate Contract with Developer in Changing Market
By Sarah Makson, Dolden Halifax
In FH Development Group Inc. v Brooks, 2026 NSCA 13, the Nova Scotia Court of Appeal considered whether a developer can rely on rising construction costs to justify renegotiating a contract, and when a purchaser’s duty to mitigate is triggered following an anticipatory breach.
The Brooks entered into an agreement to purchase a new home from FH Development Group Inc. (“FH”) in January 2021. The contract provided that the closing date would be October 14, 2021, and the purchase price was set at $597,490.
A few months later, FH claimed it was experiencing issues with the availability and cost of materials and labour. It asked the Brooks to increase the purchase price, delay the completion of the house, or terminate the agreement in exchange for the return of their deposit. The Brooks refused to agree to these options and insisted on performance of the contract. FH responded by stopping work.
The closing date passed, and the house was not complete. The Brooks claimed repudiation by FH and terminated the contract. They purchased a comparable house elsewhere in Halifax for $853,000. The Brooks sued FH for the difference between the two purchase prices.
The trial judge allowed the Brooks’ claim and the Court of Appeal agreed. FH’s attempt to renegotiate the contract constituted an anticipatory breach, which the Brooks did not accept. The Court found that the real reason FH stopped construction was an increase in material costs, rather than the unavailability of building materials. Building materials and labour were available for the construction of the house such that the house could have been completed by the October 14, 2021, closing date had FH continued with its construction.
The Court of Appeal held that the Brooks had no obligation to negotiate changes to their contract with FH. It was reasonable for them to decline such negotiations because of the actions of FH through the course of their relationship that caused the Brooks to lose trust in FH. Further, the Court held that the duty to mitigate only began when the breach occurred on October 14, 2021, when the house was not available for closing, not earlier in the summer when it became clear that the house would not be ready in time.
In making its decision, the Court of Appeal referred to McGregor on Damages, which
states:
Where a party to a contract repudiates it, the other party has an option to accept or not to accept
the repudiation. If he does not accept it there is still no breach of contract, and the contract
subsists for the benefit of both parties and no need to mitigate arises. On the other
hand, if the repudiation is accepted this results in an anticipatory breach of contract
in respect of which suit can be brought at once for damages […]
[Emphasis in Court’s decision]
In the end, the Court dismissed FH’s appeal.
Takeaway
This case shows that the Courts will generally enforce a contract and will not consider changing market conditions as a reason to excuse a party from performing its obligations. Here, the Court held that it was reasonable for the Brooks to decline negotiations with FH when it asked to change the contract, resulting in FH paying the difference between the two houses.
For further information or if you have any questions about the above article, please contact the author: Sarah Makson, Dolden Halifax, Email: [email protected].
