Executive Summary: Key Legal and Evidentiary Issues

• Legality of CCDC’s unilateral termination of the paving subcontract and failure to meet the Civil Code of Québec requirements for a valid résiliation-sanction (termination for cause), including proper mise en demeure.
• Allocation of responsibility for construction delays in a northern context, particularly CCDC’s obligations of coordination and planning of preparatory works versus Wemindji’s duty to be ready to pave within the short seasonal window.
• Significance of the unapproved ESG-10 asphalt mix formula and whether Wemindji’s conduct amounted to negligence or was instead a foreseeable constraint that CCDC had to integrate into project scheduling.
• Interpretation and effect of clause 18.1 of the subcontract, and whether CCDC breached its contractual and good faith duty to negotiate revised timelines and conditions once the works were repeatedly postponed.
• Application of the “pay-when-paid” (paiement sur paiement) clause to determine when the contract balance and holdback became due, and from what date interest could run.
• Operation of the labour and material payment bond issued by Intact, including timeliness and sufficiency of notice, and whether premature notice could defeat Wemindji’s direct claim against the surety.

Background and contractual framework

The dispute arises out of a subcontract between Pavage Wemindji Inc. (Wemindji), a paving subcontractor, and La Compagnie de Construction et de Développement Crie ltée (CCDC), the general contractor, for Phase 1 resurfacing and asphalting work on various streets in the Cree community of Waskaganish, in northern Québec. CCDC had itself contracted with the Cree Nation of Waskaganish for the civil and preparatory works, including curbs, sidewalks and commercial entrances, as well as for the overall coordination and scheduling of the project. Wemindji’s subcontract, valued at approximately 1.83 million dollars plus taxes on a unit-price basis, required it to provide the bituminous concrete (ESG-14 and ESG-10 mixes), labour, equipment, transport and mobilization for the paving, as well as final preparation of the upper foundation before paving. Certain elements such as aggregates supply, site signage, surveying, bonding and granular materials were expressly excluded from its scope and remained CCDC’s or others’ responsibility. The project was located in “zone 3,” where northern climatic conditions impose strict cut-off dates: for this contract, ESG-10 surface course had to be placed by 6 September and ESG-14 by 15 October, depending on thickness, under the tender documents. The contract also incorporated administrative clauses and required that asphalt mix designs (formules d’enrobé) be submitted and approved in advance. In addition, the subcontract contained a “pay-when-paid” clause (paiement sur paiement), under which amounts certified as due to the subcontractor only became payable once CCDC itself was paid by the owner, with the latest of defined dates controlling. A labour and material payment bond was issued by Intact Compagnie d’assurance in favour of claimants such as Wemindji, allowing a direct claim against the surety subject to contractual notice deadlines.

Performance of the works and early delays

Although the tender documents and subcontract contemplated completion of all works by mid-October 2019, paving did not begin until 4 October 2019 and was halted on 10 October 2019. Evidence showed that the late start and inability to finish Phase 1 in 2019 were largely linked to unfinished preparatory works within CCDC’s control or that of its own subcontractors: concrete curbs and sidewalks, as well as two commercial entrances (to a Tim Hortons and a hotel) that required design solutions for levels and tie-ins between curbs and asphalt. CCDC’s project manager, Mr. Sadek Tarraf, acknowledged those constraints and could not clearly attribute the October suspension to Wemindji’s default, suggesting instead weather conditions and incomplete preparatory work as likely causes. Given the impossibility of completing all paving in 2019, the parties agreed to defer the remainder to the 2020 season, without fixing a specific date. Wemindji left its mobile asphalt plant mobilised at kilometre 29 near Waskaganish to allow for completion the following year. The 2020 season, however, was severely affected by COVID-19-related sanitary measures, and the remaining paving was again postponed to 2021, again without a firm schedule. That postponement, combined with the strict northern paving window, made project planning and early coordination by CCDC particularly critical.

The 2021 season and the ESG-10 asphalt mix issue

By 2021, only a relatively small quantity of paving remained to be done, primarily an ESG-10 finish course of less than 50 mm in thickness on certain streets. The tender and specifications required that theoretical asphalt mix formulas for ESG-14 and ESG-10 be submitted and approved before the start of paving, with a validation “planche de référence” (test section) to be produced at least eight days prior to paving. This process normally takes around a month from theoretical submission to approval and test production. In 2019, Wemindji had an ESG-10 formula previously approved by another engineer (WSP) for a nearby project and expected approval by Stantec, the owner’s consultant, to be a formality, especially since CCDC was to provide the necessary aggregates at the asphalt plant site. By 2021, however, the original source and set-up for ESG-10 were no longer available: the mobile plant and related supply chain used in 2019 had been demobilised, and the particular aggregates required for the original ESG-10 formula were not accessible on the same terms. This meant a new ESG-10 formula and validation process would be needed before resuming the remaining work.

In early August 2021, after Wemindji had unsuccessfully tried in winter 2021 to reach CCDC for planning purposes, internal correspondence at CCDC shows its construction director instructing the project manager to ask Wemindji to finalise the project. Wemindji indicated that it could not simply reproduce the same ESG-10 mix and instead proposed a technical workaround: apply a tack coat and place a 50 mm layer of ESG-14, a mix it already had validated for a separate Phase 2 contract with another contractor (Fournier), to achieve uniformity in the community streets and allow completion within the 2021 window. This proposal was relayed to Stantec and the community. Stantec rejected the substitution, explaining that the minimum recommended thickness for ESG-14 was 60 mm and warning that adding 20 mm would create level problems at entrances and along curbs and sidewalks. CCDC then asked Wemindji to take a position in light of the consultant’s refusal. On 13 September 2021, Wemindji responded by stating that no ESG-10 formula was presently validated, that the 6 September deadline for placing a surface layer under 50 mm had been exceeded by CCDC, that conditions in mid-September no longer allowed it to guarantee compliance with the specification for a surface course, and that the time slot it had allocated was no longer available. Wemindji proposed instead to carry out the ESG-10 formulation and validation during the 2021–2022 winter, obtain approval at the start of the 2022 season, and perform the paving optimally in 2022. It noted that its asphalt plant would already be on site then for other work.

The September 2021 letter and its legal effect

CCDC answered on 23 September 2021 with a strongly worded letter labelled as a “mise en demeure.” It reproached Wemindji for allegedly deciding to postpone the works to 2022 merely because that suited it better, reiterated that the contract called for ESG-10, criticised the suggestion to switch to ESG-14, and warned that all costs incurred due to Wemindji’s decision not to perform in 2021 would be charged to it. However, the court analysed this letter and found that it did not meet the Civil Code of Québec requirements for a valid formal notice (mise en demeure) opening the door to execution by a third party at the subcontractor’s expense. The letter did not fix a clear, realistic deadline for performance, nor did it explicitly announce that, in default of performance within a stated time, CCDC would terminate the contract, have the work performed by others and claim the completion costs. It also came after the seasonal window for ESG-14 paving in that region had effectively closed. CCDC’s own project manager testified that, notwithstanding that letter, his understanding was that Wemindji was expected to complete its remaining work in 2022, and that after September 2021, the file was taken over by someone else. This evidence corroborated that, at that time, the parties were still in a posture of postponement rather than a clear termination for cause.

The duty to negotiate under clause 18.1 and good faith

Wemindji’s counsel replied in October 2021, setting out the chronology of postponements and arguing that the suspension and rescheduling of the works amounted to a modification of the subcontract’s execution conditions. Under clause 18.1, any such change required a mutual written agreement adjusting both the price and the schedule. Wemindji maintained that CCDC had a contractual and good faith duty to negotiate those adjustments rather than simply insist on strict original terms after multiple postponements, some of which were caused by CCDC’s own incomplete preparatory works and the pandemic. In early 2022, Wemindji wrote again, on 1 February and 6 April, seeking instructions on planning and on revision of the unit price, and asking for a response within a short period so that it could schedule operations and move its plant and crews accordingly. CCDC did not substantively engage in negotiations. Instead, on 9 May 2022, it sent a further letter stating that, because Wemindji had not been able to provide the contractually required ESG-10 mix in 2021, it had decided to “take the necessary steps to finalise the works” and that it was “terminating” the subcontract; it added that all costs, claims and penalties arising from Wemindji’s alleged default would be charged to it. The court held that clause 18.1 created a contractual obligation to negotiate in good faith where the execution conditions were materially modified by postponements and external factors. Drawing on recent Supreme Court of Canada and Québec Court of Appeal jurisprudence on contractual duties to negotiate in good faith, the judge concluded that CCDC failed to honour this obligation by remaining largely silent in early 2022 and opting instead for a unilateral termination when Wemindji sought to agree on new terms and timing.

Absence of valid termination for cause (résiliation-sanction)

CCDC defended a counterclaim seeking more than 577,000 dollars from Wemindji for costs allegedly incurred to complete the remaining paving work through others. To succeed on this claim, it had to establish that it had validly terminated the subcontract for cause (résiliation-sanction) and met the conditions of articles 1590, 1595, 1597 and 1602 C.c.Q. on default, fault and execution at the debtor’s expense. The court recited the cumulative requirements: a failure to perform an obligation, a sufficiently serious breach, absence of justification, and a proper mise en demeure (unless there is a duly established mise en demeure de plein droit). The judge emphasized that the remedy under article 1602 C.c.Q. – performing or having the obligation performed at the debtor’s cost – is exceptional and strictly construed: the creditor must warn the debtor in writing, clearly set out the alleged defaults, grant a sufficient time to cure, and expressly state that, in case of further default, the work will be completed by a third party at the debtor’s expense. In this case, the 23 September 2021 letter was not a compliant formal notice: it lacked a concrete deadline, omitted to announce the specific sanction of completion by a third party, and came after the climatic window for safe paving. Nor was Wemindji in default de plein droit under article 1597 C.c.Q.; the evidence did not show a clear and repeated refusal to perform, but rather efforts by Wemindji to offer a technical solution for 2021 and then to carry out compliant work in 2022 after proper validation of an ESG-10 mix. The deferred scheduling decisions were themselves the product of CCDC’s project management and the COVID-19 disruptions. The court therefore found that there was no valid résiliation-sanction. CCDC’s 9 May 2022 letter was, in substance, a unilateral termination (résiliation unilatérale) under article 2125 C.c.Q., not a termination for cause that would allow it to shift its completion costs onto Wemindji.

Responsibility for delays and the ESG-10 formulation

On the factual matrix of delay and technical readiness, CCDC argued that Wemindji’s failure to have an ESG-10 formula pre-approved in 2019 and kept alive until 2021 amounted to negligence. The court rejected this characterisation. Under the specifications, asphalt mix formulas must be provided before work starts and must be re-established when the source of aggregates changes. That requirement presupposes that the contractor or subcontractor knows in advance when paving will start and what materials will actually be available. Here, the delay in 2019, the pandemic in 2020, and the absence of a firm schedule until August 2021 meant Wemindji reasonably could not be expected to have an ESG-10 formula validated and ready on an indefinite standby basis, particularly once the original plant and aggregate configuration ceased to exist. The court held that the time required for formulating and validating a new ESG-10 mix – roughly a month, including the test section – was a foreseeable part of project planning that CCDC, as general contractor, had to integrate into its schedule. Its failure to plan adequately, especially in the constricted northern season, and its late approach to Wemindji in August 2021, significantly contributed to the impossibility of completing the work in compliance with the specification that year. Against that background, Wemindji’s proposal to complete the work in 2022 after winter formulation and early-season validation of ESG-10 was consistent with contractual performance, not a refusal to perform.

Application of the “pay-when-paid” clause and timing of interest

Wemindji sued for payment of the outstanding contract balance, i.e., the contractual holdback of 102,641.11 dollars, and claimed interest and additional indemnity from the date of termination in May 2022, arguing that CCDC’s unilateral termination deprived it of any benefit from the “pay-when-paid” clause. CCDC responded that, under article 1606 C.c.Q., a terminated contract continues to govern relations for the period prior to termination, and that payment provisions, including “pay-when-paid,” remain applicable to amounts earned before termination. The court agreed in part with CCDC. It held that termination did not retroactively nullify payment mechanisms applicable to the executed portion of the works. The holdback would normally become payable when CCDC was paid its corresponding holdback by the owner; in this case CCDC admitted it had not yet received those sums but accepted that, under the owner’s contract, it should have received them by 23 September 2023, the date of final acceptance of the works. The judge therefore ruled that Wemindji’s holdback became due and exigible as of 23 September 2023, not earlier, and that legal interest and the additional indemnity under article 1619 C.c.Q. ran from that date.

Surety bond, notice requirements and Intact’s liability

Intact Compagnie d’assurance, as surety under a labour and material payment bond, argued that no valid notice of claim had been given within the contractual time limits. The bond required that a subcontractor give written notice to both the contractor and the surety within 120 days of the date on which the retained amounts became due, and prohibited suit until at least 90 days after the work or last services or materials were provided. Intact pointed out that the only notice it received from Wemindji, on 18 May 2022, preceded the date when the holdback became contractually due under the “pay-when-paid” clause (23 September 2023). It contended that a notice given too early, before the sums were “exigibles,” could not satisfy the bond’s terms, leaving Wemindji without a direct action. The court rejected this position. It recalled that payment bonds in Québec construction practice are interpreted less strictly when issued by remunerated sureties, and that the purpose of notice is to inform the surety of a claim so it can manage its risk. While late or missing notice can indeed bar a claim, an early notice that fully informs the surety of the claimant’s demand does not prejudice the surety’s interests, especially if the amounts later become due in the ordinary course. Here, Intact had timely knowledge of Wemindji’s claim and suffered no demonstrable prejudice from the fact that notice arrived before the holdback’s formal due date as against CCDC. The court therefore maintained Wemindji’s recourse against Intact and held the surety solidarily liable with CCDC for the principal, interest and indemnity.

Outcome and monetary consequences

On the merits, the Superior Court partially granted Wemindji’s main action and rejected CCDC’s defence and substantial counterclaim in its entirety. It found that CCDC had not validly terminated the subcontract for cause and could not recover its alleged completion costs from the subcontractor. It declared that the contractual holdback of 102,641.11 dollars was due and exigible as of 23 September 2023, notwithstanding that CCDC had not yet actually been paid those amounts by the owner, and it ordered CCDC and Intact, jointly and severally, to pay Wemindji that sum with legal interest and the additional indemnity under article 1619 C.c.Q. from 23 September 2023, together with costs of justice. In practical terms, Pavage Wemindji Inc. is the successful party, obtaining judgment for 102,641.11 dollars in principal plus unquantified legal interest, statutory indemnity and court costs; the exact total amount of interest and costs cannot be determined from the reasons alone because those figures depend on post-judgment calculations and tariff assessments.