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By: Saad Patel

A recent decision from the Supreme Court of British Columbia serves as a reminder that termination for convenience clauses in construction contracts cannot shield a party from prior breaches. In Clarity Architectural Products Inc. v Gryphon Corporate Construction Ltd., 2026 BCSC 699 [“CAP“], the Court found that a party’s conduct during the project can amount to repudiation, which can prohibit that party’s reliance on a termination for convenience clause.

What was the Dispute in CAP?

The case concerned a residential construction project in Vancouver, BC. The plaintiff subcontractor was engaged by the defendant general contractor to undertake architectural casework and related millwork for the project under a stipulated price contract (the “Subcontract”). The parties entered into the Subcontract on October 26, 2023, for a stipulated price of $2,656,285.84, inclusive of applicable taxes. The Subcontract provided that progress payments would be made to the plaintiff after specific milestones in the plaintiff’s work were completed. The Subcontract included a standard termination for convenience clause, which allowed the general contractor to terminate the Subcontract at anytime without cause, upon written notice.

The plaintiff 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 the plaintiff, its subcontractors, and manufacturer were ready to proceed to production, pending the defendant’s direction to proceed. Around this time, the defendant verbally advised the plaintiff that production should be paused due to “internal decisions.” On December 20, 2023, the plaintiff issued an invoice in the amount of $664,071.46 in connection with the second milestone (the “Second Invoice”), which was not paid. On the same day, the plaintiff gave notice that it considered the defendant’s direction to pause production a breach of the Subcontract.

In the ensuing months, the plaintiff repeatedly sought directions, confirmed it remained ready to perform, and requested payment of the Second Invoice. The defendant provided no instruction, did not pay the Second Invoice, and instead, sought pricing from replacement subcontractors without informing the plaintiff. On June 6, 2024, the plaintiff filed a builders lien in the amount of the still unpaid Second Invoice. In response, the defendant gave notice that as a result of a change in management and alleged irregularities, the Subcontract was being terminated for convenience by the defendant. The plaintiff responded by rejecting the defendant’s purported termination and delivering its own notice of termination citing the defendant’s prior breaches as the basis for termination.

What was the Main Issue before the Court?

The plaintiff commenced action and brought a summary trial application seeking to recover the amount owing in the Second Invoice and lost profits resulting from the alleged breach and repudiation of the Subcontract by the defendant. The main issue before the Court was to determine which party’s termination notice was effective. The Court had to decide if the defendant’s conduct amounted to repudiation and, if so, whether the plaintiff accepted that repudiation. If the answer to either of those questions was no, then the defendant could rely on the termination for convenience clause to terminate the Subcontract and the plaintiff could not recover any lost profits.

The plaintiff argued that the defendant’s conduct, including directing that production be paused, failing to pay the Second Invoice, and engaging another subcontractor to perform the plaintiff’s work, amounted to repudiation of the Subcontract, which the plaintiff accepted.

The defendant maintained that the Subcontract was validly terminated by its exercise of the termination for convenience clause.

What did the Court Decide?

The Court ultimately agreed with the plaintiff. The Court found that the defendant had taken steps that were inconsistent with the continuation of the Subcontract and, when considered objectively, would lead a reasonable person in the plaintiff’s position to conclude that the defendant no longer intended to perform the Subcontract.

After determining that the defendant’s conduct amounted to repudiation, the Court had to determine if the repudiation was accepted by the plaintiff and, if so, when. The Court confirmed that direct communication of the innocent party’s acceptance and election to treat the contract as terminated will be expected, and that mere silence will usually be viewed as an election to keep the contract in place. The Court reviewed the plaintiff’s conduct between the time the Second Invoice and termination notices were delivered. Through the winter and spring of 2024, the plaintiff continued to communicate with the defendant to seek payment of the Second Invoice and clarification of the status of the project. The Court found that the plaintiff’s correspondence in this period was not properly characterized as an acceptance of the defendant’s repudiation. Further, the plaintiff’s filing of a builders lien still did not necessarily amount to a clear and unequivocal acceptance of repudiation, but the Court found that action marked a material shift in position. Ultimately, the Court found that the plaintiff’s clearest election to treat the subcontract as terminated occurred after the defendant’s June 12, 2024, letter, when the defendant first asserted termination for convenience.

The Court emphasized that while acceptance must occur within a reasonable time, the timing must be viewed in context. The plaintiff’s conduct in seeking payment and continued performance was reasonable, and its eventual acceptance of repudiation was deemed timely and effective. As a result, the Court found that the defendant could not rely on the termination for convenience clause at the time it purported to, as the repudiation had been accepted and the Subcontract was validly terminated by the plaintiff.

What are the Key Takeaways from the Decision?

CAP provides useful guidance for contractors and owners in navigating the breakdown of a contractual relationship. The following lessons can be gleaned from the decision:

• A formal termination letter is not required for a contract to be effectively terminated. Repeated or persistent non‑payment, lack of direction and silence can collectively amount to repudiation, especially where progress payments are central to ongoing performance.
• Repudiation alone does not automatically end the contract. The innocent party must ultimately make a clear election through steps such as filing a lien, asserting breach of contract, and delivering some form of notice of termination accepting the repudiation.
• Contractors are entitled to take a reasonable period to seek clarity before making an election. In CAP, the subcontractor did not immediately accept repudiation but continued to ask for directions and payment. The Court confirmed that such conduct did not undermine or nullify a later election. Despite this finding, the innocent party should be careful about waiting too long before making its election clear.
• There is risk in delaying taking action to terminate. In CAP, the defendant contractor’s delay in delivering a notice of termination for convenience was fatal. Had notice been delivered earlier, before the subcontractor took steps toward making its election, the contractor’s notice might have been effective and would have been avoided exposure to a potentially significant claim for lost profits. The innocent party must also be careful not to delay making its election to avoid losing its right to advance such a claim.
• Termination for convenience clauses do not protect against prior breaches. These clauses can be useful, but they do not insulate an owner or contractor from liability.
• Taking steps to replace a contractor without informing or terminating the contractor may be a significant step towards repudiation. A party should not knowingly create or maintain a false impression concerning the continuation of a contract.
• Non-payment of a progress or milestone invoice may be repudiatory conduct. Ongoing legislative developments, such as the Construction Prompt Payment Act, S.B.C. 2025, c. 24 [“CPPA“] will hopefully alleviate this risk. The CPPA creates mandatory prompt payment timelines between owners, contractors and subcontractors for proper invoices issued for the supply of services or materials. Until this legislation is brought into force, paying parties should be mindful that persistent non-payment may amount to repudiation. For further information about the CPPA, see also: https://www.rbs.ca/publications/prompt-payment-legislation/.

If you have any questions regarding this article, please contact the author, Saad Patel, or any member of our Construction Law group.