Executive Summary: Key Legal and Evidentiary Issues

• The central issue was whether Revelry and TAM formed a binding settlement contract when Mr. Cherry accepted TAM's offer on July 31, 2023, to receive $30,000 in exchange for releasing TAM from its obligations under the original construction contract.
   
• Revelry argued no settlement was reached because Mr. Cherry did not agree to the confidentiality clause; the court rejected this, finding the confidentiality clause was not an essential term of the settlement.
   
• Alternatively, the court found that Revelry repudiated the original construction contract when Mr. Cherry directed TAM to cancel it in late July 2022, and that TAM accepted that repudiation sometime in the fall of 2022.
   
• Disputed was whether Revelry's cancellation of the contract amounted to a repudiation or merely a "change to zero" in the scope of work; the court rejected the latter characterization, finding the Contract contained no mechanism for a "change to zero."
   
• TAM's entitlement to lost-profit damages was contested, with Revelry arguing damages should be limited to reliance losses only; the court held that expectation damages — including lost profits — are the correct measure following repudiation.
   
• Quantification of TAM's lost profits was assessed by reference to Mr. Watson's initial cost estimates and TAM's gross profit margins on comparable 2022 contracts, yielding a damages figure of $60,000.

Facts of the case

The Revelry Lodgings Inc. ("Revelry") operates a campground property near Revelstoke, B.C. In 2021, Revelry's owner, Mr. James Cherry, devised a plan to build a campground that included a prefabricated laundry facility and caretaker accommodation joint-use building (the "Laundry Facility"). The plan called for the Laundry Facility to be constructed off-site, then moved and affixed to a foundation on the property. Mr. Cherry's target was to have both the foundation and the Laundry Facility in place by early summer 2022.

Following preliminary discussions and a visit to TAM's manufacturing facility in Sicamous, B.C., Revelry paid Twin Anchors Manufacturing (2004) Ltd. ("TAM") a drawing deposit of $11,500.00 in February 2022. On March 10, 2022, the parties entered into a formal contract (the "Contract") under which Revelry agreed to pay TAM $197,625.00 plus GST to construct the Laundry Facility. Also in March 2022, Revelry paid TAM a construction deposit of $79,050.00. Together, these two payments comprised the Deposit of $90,550.00. At all material times, Mr. Cherry acted on behalf of Revelry and Mr. Nigel Watson, TAM's manufacturing manager, acted on behalf of TAM.

After the Contract was signed, progress slowed due to permitting complications. On April 6, 2022, Mr. Watson emailed Mr. Cherry noting that the project was due to start on April 18, 2022, and asking whether TAM should proceed without a permit. By April 8, 2022, Mr. Cherry asked that the start date be pushed back pending preliminary feedback from the authorities. On May 4, 2022, the permit authorities sent Mr. Cherry a twelve-point list of deficiencies in his application. TAM subsequently amended the construction drawings to address those concerns, sub-contracted an engineering firm on June 8, 2022, to certify the amended drawings, and on May 26, 2022, paid $5,472.60 for trusses — one of the first components for a modular structure — which were delivered on June 1, 2022. Around June 23, 2022, the sub-contracted engineering firm informed Mr. Watson that a geotechnical survey would be needed before certifying the drawings, which Mr. Watson communicated to Mr. Cherry.

By July 2022, Mr. Cherry deposes he decided it would be best to cancel or at least delay the Laundry Facility until the next spring. On or around July 18 or 19, 2022, Mr. Cherry telephoned Mr. Watson and told him that Revelry did not want to proceed with the Contract and wanted to know how much money it would get back. Text communications between July 18, 2022 and September 15, 2022 disclosed that no agreement was reached on a deposit return amount during this period.

Contractual provisions at issue

The Contract's preamble recited a purchase price of $197,625.00. Clause 2 provided for deposits, including a drawing deposit of $11,500 and a build deposit of $79,050. Clause 3 provided for an immediate payment of $90,050 and full payment of an additional $107,075 upon completion of the structure prior to shipping. Clause 8 stipulated that any requests for changes to the structure were required to be made in writing and signed by duly authorized personnel on a Change Order Form, with the acknowledgment that changes could cause considerable and costly delays. Clause 9 provided that the purchase price would increase or decrease based on requested changes. Clause 21 entitled TAM to retain all monies received from Revelry if Revelry did not pay the full purchase price within 45 days of completion.

The settlement agreement, reached in the summer of 2023, contained several relevant terms: clause 4 provided that TAM would keep $60,542.50 of the total deposit and return $30,000.00 to Revelry; clause 5 required Revelry to release TAM from all claims; clause 7 prevented either party from commencing legal proceedings against the other; clause 9 stipulated the agreement was not an admission of liability; clause 12 provided that the settlement agreement superseded all prior agreements; clause 13 confirmed the terms were contractual and not merely a recital; and clause 14 imposed a confidentiality obligation.

Reasoning and analysis

Justice B. Smith addressed the settlement issue first, finding it determinative. The court applied the consensus ad idem test — whether the parties, judged objectively, had a meeting of the minds on the essential terms of the contract — as articulated in Anderson v. Anderson, 2023 SCC 13, and elaborated upon in Salminen v. Garvie, 2011 BCSC 339. The court found that TAM made the settlement offer on July 25, 2023, when Mr. Watson offered to either construct the Laundry Facility at updated pricing or refund $30,000. On July 31, 2023, Mr. Cherry replied in writing accepting the $30,000 refund. He subsequently signed and returned the signature page of the settlement agreement on two separate occasions.

Revelry's primary objection was that the confidentiality clause was an essential term it had not agreed to. The court rejected this argument, relying on Jenneson v. Olson, 2019 BCSC 2367, and Fieguth v. Acklands Ltd., [1989] CarswellBC 88, which establish that the formation and completion of a contract are distinct stages, and that a dispute over documentation or ancillary terms does not defeat consensus already reached on the essential terms. The court found that confidentiality, while of practical relevance given Mr. Cherry's prior threats to contact CBC Go Public, had not been a subject of negotiation and therefore did not form an essential term. The confidentiality clause was accordingly severed from the settlement agreement; the remainder was enforceable.

In the alternative, the court analyzed whether Revelry had repudiated the original Contract. Applying Kuo v. Kuo, 2016 BCSC 767 (approved at 2017 BCCA 245), the court found that Mr. Cherry's direction to TAM to cancel the Contract — communicated by telephone in late July 2022 and confirmed through subsequent conduct — was a repudiation, not a contractual "change to zero." Clause 8 of the Contract provided a mechanism for changes via a Change Order Form, but contemplated no mechanism for cancelling the entire scope of work. TAM had been fulfilling its obligations under the Contract up to the point of cancellation: it had provided amended drawings, sub-contracted an engineering firm, ordered and paid for trusses, and facilitated contact between the parties' respective engineers. The court found TAM accepted Revelry's repudiation sometime in the fall of 2022, by which point TAM had ceased pursuing the Laundry Facility and was instead engaging with Revelry about constructing Shower Units.

On the measure of damages, the court rejected Revelry's submission that TAM was limited to reliance damages. Relying on FPS Food Process Solutions Corporation v. XTL Inc., 2025 BCCA 305, the court confirmed that an innocent party following repudiation is entitled to expectation damages — that is, to be placed in the same position as if the Contract had been performed — which encompasses lost profits. The court assessed TAM's lost profits using Mr. Watson's initial cost estimates and the gross profit margins reflected in spreadsheets prepared by Mr. Watson and TAM's financial controller, Ms. Penny Trudel, based on TAM's other 2022 contracts. The average gross profit margin across all structures was 42.5%, dropping to 26.355% when bulk units were excluded. Applying those margins to the Contract price of $197,625.00 yielded a range of $52,084.07 to $83,990.63, with a midpoint of $68,037.35. Mr. Watson's initial planning estimate, using a 30% margin, produced a figure of approximately $59,591.84 — only slightly less than $60,000.00.

Ruling and outcome

Justice B. Smith found that Revelry and TAM entered into a binding settlement contract on or about July 31, 2023. Accordingly, TAM is entitled to keep $60,542.50 of the Deposit and is ordered to pay Revelry $30,000.00, to be set off against the costs award. Revelry's action is otherwise dismissed, and TAM's counterclaim is also dismissed. In the alternative, had the court been incorrect about the settlement, it would have found Revelry repudiated the Contract and assessed TAM's damages at $60,000.00. TAM was declared completely successful and is entitled to costs assessed at Scale B.