Executive Summary: Key Legal and Evidentiary Issues

• Whether GCC's conduct—pausing production, withholding payment of the Second Invoice, and engaging a replacement subcontractor—constituted repudiation of the Subcontract or a valid termination for convenience under clauses 7.1.8 and 7.1.10.

• Timeliness and sufficiency of Clarity's acceptance of the repudiation, particularly given its months-long pursuit of clarification and payment.

• Applicability of the duty of honest performance under Bhasin and Callow, where GCC engaged another subcontractor while leaving Clarity under the impression the contract remained in place.

• Proper measure of expectation damages, including recovery of the unpaid milestone, reliance costs reflected in the Corozo invoices, and any allowance for overhead and profit.

• Validity of the builders' lien filed under the Builders Lien Act, confined to the unpaid Second Invoice for completed shop drawing work rather than fabricated materials.

• Appropriate cost consequences under the Notice to Mediate (Residential Construction) Regulation arising from the defendants' failure to attend the scheduled March 6, 2025 mediation.

Background and parties
The dispute arose out of a high-end residential condominium project in Kerrisdale, Vancouver known as Gryphon House, the lands of which are owned by Gryphon 6103 Holdings Ltd. and associated developer entities operating collectively as Gryphon Development. Clarity Architectural Products Inc., a supplier and installer of high-end architectural millwork, cabinetry, and related products for residential developments, was engaged by Gryphon Corporate Construction Ltd. ("GCC") as the general contractor for the Project. Following an extended period of engagement beginning in spring 2022, including design development, mock-ups prepared in December 2022, and shop drawing preparation with design subcontractor Corozo Design Ltd., the parties formalized their relationship in a stipulated price Subcontract dated October 26, 2023, with a stipulated price of $2,656,285.84 inclusive of applicable taxes, structured through milestone payments tied to defined stages of the work.

The Subcontract structure and termination provisions
The Subcontract was a standard-form, stipulated price construction contract, with payment allocated across seven milestones ranging from an initial 15% deposit of $379,469.40 to a final 10% payment of $284,602.05. The contract contained multiple termination provisions, notably clause 7.1.8 permitting the contractor to terminate the Subcontract for convenience at any time upon written notice, and clause 7.1.10 limiting the subcontractor's recovery upon such termination to work performed to the date of termination and out-of-pocket expenses reasonably incurred, with no entitlement to loss of profit or damages. Supplemental condition SCC 6.7 capped markups on change orders and change directives at 10% above actual verifiable costs on account of mark-up, fees, overhead, indirect costs and profit, and the supplemental conditions also broadly defined excluded consequential damages.

Breakdown of the contractual relationship
Clarity completed the first milestone and was paid $379,469.40 on November 2, 2023. By mid-December 2023, the shop drawings required for the second milestone were complete and materials had arrived at the manufacturer's plant in China awaiting direction to proceed. However, the defendants' representatives verbally advised Clarity that production should be paused while "internal decisions" concerning the Project were under review, without any written instruction explaining the basis for that direction. Clarity issued the Second Invoice for $664,071.46 on December 20, 2023, which GCC did not pay. Through January to April 2024, Clarity repeatedly sought instructions, return of shop drawings, and payment, while confirming its readiness to perform. Unbeknownst to Clarity, by February 28, 2024 the defendants had issued a letter of intent to a replacement casework subcontractor. On June 6, 2024, Clarity filed a builders' lien in the amount of $697,275.03; GCC posted security under s. 24 of the Builders Lien Act, and only on June 12, 2024—after the lien was filed—did the defendants' legal counsel assert that the Subcontract had been terminated pursuant to the contractual termination provisions.

Legal framework: repudiation vs. termination for convenience
The Court addressed the "fork in the road" between repudiation and contractual termination. Repudiation arises where a party, by words or conduct, evinces an intention not to be bound by the contract or acts in a manner that substantially deprives the other party of the benefit of the bargain, and the conduct relied upon must be clear, absolute, and unequivocal. The Court emphasized that under Bhasin v. Hrynew and C.M. Callow Inc. v. Zollinger, contractual rights including termination rights must be exercised in accordance with the organizing principle of good faith and the duty of honest performance, and a party may not knowingly create or maintain a false impression concerning the continuation of a contract. Critically, a contractual termination right operates prospectively and cannot retroactively cure or recharacterize conduct that has already amounted to repudiation.

Finding of repudiation and acceptance
Madam Justice Sukstorf found that GCC's cumulative conduct—directing that production be paused, failing to pay the Second Invoice, failing to return the shop drawings, and engaging another subcontractor to perform the same work—constituted conduct inconsistent with the continued performance of the Subcontract. The failure to pay the milestone, in the context of the construction contract, went to the root of the agreement. While Clarity did not immediately accept the repudiation—continuing for months to seek clarification and a path forward under the Subcontract within the reasonable latitude afforded to an innocent party—it clearly and unequivocally elected to treat the Subcontract as at an end by June 12, 2024, at the latest, following GCC's assertion of termination. GCC could therefore not rely on clauses 7.1.8 and 7.1.10 to characterize its conduct as a lawful termination or to limit its liability arising from that conduct.

Assessment of damages and compensation
Because the repudiation was accepted, Clarity was entitled to expectation damages under the ordinary principles governing damages for breach of contract, rather than the limited compensation payable under the termination for convenience provision. The Court rejected Clarity's claimed 15% markup as not grounded in any contractual provision, industry evidence, or accounting foundation, and also declined Clarity's $211,435.15 lost profits claim for insufficient evidence. Applying the third calculation approach—excluding pre-contract mock-up invoices—the Court identified $237,189.02 as the residual Corozo work outside the milestone framework and, drawing on SCC 6.7 as the only principled benchmark within the Subcontract, applied a 10% markup, yielding an additional $23,718.90, for a total of $260,907.92. An additional $20,837.16 was allowed for unpaid pre-contract mock-up invoices.

Ruling and outcome
The Court ruled that Clarity succeeded in substantial part. Judgment was granted in favour of the plaintiff, Clarity Architectural Products Inc., and against the defendant, GCC, in the amount of $664,071.46 on the Second Invoice, plus applicable GST, with contractual interest at Royal Bank prime plus 2% from January 17, 2024 to the date of judgment, and additional proven costs of $281,745.08 with contractual interest at Royal Bank prime plus 2% from June 13, 2024 to the date of judgment. The Court declared that Clarity validly filed a builders' lien in respect of the unpaid Second Invoice, with the Registrar directed to pay out the amount secured by the lien of $664,071.46 plus applicable GST from the posted security. The counterclaim was dismissed as discontinued. While Clarity's request to strike the defendants' pleadings and for special costs arising from the defendants' failure to attend the March 6, 2025 mediation was denied as disproportionate, the defendants were ordered under s. 14 of the Notice to Mediate (Residential Construction) Regulation to pay Clarity's reasonable mediation-related legal fees and disbursements on a full indemnity basis, together with Mr. Wellman's reasonable travel and accommodation expenses and reasonable compensation for his attendance time. Clarity was also awarded ordinary costs of the proceeding at Scale B, with the successful party, Clarity Architectural Products Inc., ultimately recovering a total of $945,816.54 in monetary relief before interest, GST, and mediation-related indemnity costs.