Executive Summary: Key Legal and Evidentiary Issues

• Interpretation of a construction agreement turned on whether the parties' contract was lump-sum or subject to adjustment for additional work.
   
• Multiple claims for extra costs failed because no signed contract-modification document supported them.
   
• Testimony from Borj's sole director was found not credible regarding the timing and preparation of a disputed invoice.
   
• Federal interest legislation limited the enforceable annual interest rate to 5%, since the contract failed to state an equivalent annual rate expressly.
   
• Personal liability of the individual defendant was rejected because no guarantee was recorded in the contract and guarantees are not presumed.
   
• Responsibility for a municipal fine fell on the contractor who assured the client it could lawfully proceed without a permit.
   

Facts of the case

In August 2023, Michael Noik contracted with Selk Design et Construction inc. (Selk) for major renovation work on his building, to be carried out directly by Selk and through subcontractors. Borj Construction inc. (Borj), the principal subcontractor, later claimed solidarily from Selk and its representative, Edouard Petel-Ruiz, $52,713.70 as the unpaid balance of a construction contract plus additional work, along with contractual interest of 2% per month or 24% per year. Selk disputed the claim, arguing the contract was a lump-sum agreement and that it had already paid for required additional work, while acknowledging owing $13,497.28. Selk also cross-claimed $6,922.25 from Borj for a fine it paid after Borj began work before obtaining the required municipal permit. Petel-Ruiz denied being a party to the contract or having guaranteed Selk's obligations.

The contractual relationship began when Borj's sole director, Reza Beyrami Tabrizifard, reviewed plans and exchanged several quotes with Petel-Ruiz before transmitting a quote of $194,245.68 on November 30, 2023, and a Construction Works Contract the same day. The contract set a fixed price of $168,946 plus taxes, payable through a 20% deposit and seven weekly progressive instalments. Additional demolition and carpentry work was invoiced separately and paid by Selk, but Borj later sought payment for several further categories of extra work that Selk contested, including worker management for demolition, a meeting with municipal inspectors, additional steel posts, front-entrance excavation, a public-property occupation permit, concrete and excavation management, and foundation concrete.

Policy and legislative provisions at issue

The contract's clause 6 set out payment terms, including the deposit and progressive instalment structure, while clause 5 fixed the contract price without any adjustment mechanism, though clause 5.2 set hourly rates of $85 for employees and $125 for the project manager solely for calculating that price. Clause 12.18 required any changes to the work to be documented in a signed "Contract Modification" form attached to the contract. Clause 6.3 governed interest on arrears, stating a rate of "2% per month, compounded monthly, being a rate of 24% per year." Article 2106 of the Civil Code of Québec (C.C.Q.) addresses how the cost of work under a construction contract is determined, while article 2109 C.C.Q. concerns modification of contract price. Article 4 of the federal Interest Act caps enforceable interest at 5% annually for periods stated at less than one year unless the contract expressly states the equivalent annual rate. Article 2335 C.C.Q. establishes that a guarantee is not presumed, and article 1479 C.C.Q. concerns mitigation of damages.

Reasoning and analysis

The court found the agreement to be a lump-sum contract under the definition set out by legal author Jacques Deslauriers, since Borj supplied all labour and materials, contracted directly with subcontractors and suppliers, and bore full responsibility and risk for the work. Under such a contract, the price remains fixed despite changes to conditions unless the parties agree otherwise through the modification process. Applying this framework, the court rejected each disputed extra-cost claim in turn: the demolition management fee failed because no timesheets or modification document existed and the invoice's suspicious history — including its late transmission and absence from an earlier demand letter — led the court to disbelieve Beyrami's testimony about when it was prepared; the inspector-meeting fee failed for the same reasons, compounded by Beyrami's own assurance to Petel-Ruiz that work could proceed without a permit; the steel-post claim failed because Beyrami could not identify the additional posts in photographic evidence; the entrance-excavation claim failed because Petel-Ruiz's annotated contract copy showed the work was included; the permit-fee claim failed for lack of any supporting invoice; the excavation and concrete-management claims failed because the subcontractor invoices Borj relied on did not actually exceed the original quote, and Borj's own quote documents contradicted Beyrami's testimony; and the foundation-concrete claim failed for lack of any evidence of an agreement. On interest, the court explained that compounding monthly produces a materially higher effective rate than a simple annual rate, and since the contract did not expressly state the annual rate equivalent to the monthly compounding, the Interest Act's default cap of 5% per year applied. On personal liability, the court noted the contract and quote were signed by Petel-Ruiz personally, with no mention of Selk, but Borj admitted at trial that the contract should have named Selk and that Petel-Ruiz had signed on the company's behalf; since no guarantee was recorded in the contract and guarantees cannot be presumed, Petel-Ruiz was not personally liable. Finally, on the fine, the court held Borj responsible for the base infraction amount of $6,826.25 because Beyrami had assured Petel-Ruiz that starting work without a permit was lawful, but did not hold Borj liable for the increased amount that resulted from Selk's failure to pay or contest the notice promptly, since Selk had not mitigated that portion of the loss.

Ruling and overall outcome

The Tribunal partially allowed both the principal claim and the cross-demand. Selk Design et Construction inc. was ordered to pay Borj Construction inc. $13,497.28, plus interest at 5% per year and the additional indemnity under article 1619 C.C.Q. from August 20, 2024. Borj Construction inc. was ordered to pay Selk Design et Construction inc. $6,826.25, plus interest at 5% per year and the same additional indemnity from October 27, 2025. As each party succeeded only in part, the court ordered that each bear its own legal costs.