Liquidated damages and the penalty rule in Canada

The starting point in the common-law provinces is unchanged and easy to state. A clause that fixes the sum payable for late completion is enforceable if the sum is a genuine covenanted pre-estimate of the loss the owner would suffer, it is unenforceable as a penalty if it is not. Canada then adds a second, independent gateway, a sum that is extravagant and unconscionable in amount can be struck even where the pre-estimate reasoning is arguable. Neither limb asks whether the owner had a legitimate interest in enforcement, and Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67 has not been adopted anywhere in Canada. Three independent sources record the non-adoption expressly, and there is no Ontario decision adopting it.

Two structural points frame everything below, and both surprise readers who come to Canada from a JCT, FIDIC or NEC background. First, Quebec is not part of this page: it is a civil-law jurisdiction with no penalty-versus-liquidated-damages characterisation at all, and it is dealt with separately at the end and on the Quebec delay penalties page. Second, the Canadian standard form does not supply the clause. Everything that follows about rates, caps and exclusivity is being applied to text an owner wrote into its own supplementary conditions. The wider Canadian delay material sits at the extension-of-time hub for Canada, and the mechanism as a doctrine (independent of jurisdiction) sits on the neutral extension-of-time pillar.

What a delay liquidated damages clause does in a Canadian construction contract. And does it cap the owner's claim?

It fixes a sum, normally per calendar day or per week of late completion, and it relieves the owner of proving what the delay actually cost. Where the contract says nothing more, valid liquidated damages cap the owner's delay damages. Words such as "in addition to and without prejudice to any other remedy available" make them non-exclusive, so the owner keeps a claim for general damages on top. The Canadian default is cap.

The exclusivity authorities in the corpus are Raymer v Stratton Woods Holdings Ltd (1988), 65 OR (2d) 16 (ONCA) and Passmore Gates Development v Chung, 1996 OJ No 1932. Both must be handled carefully. Each is single-source in this corpus and both are marked unverified, and Passmore Gates has no neutral citation and no stated level of court. They support a proposition that is uncontroversial and widely repeated. That express "in addition to" wording defeats exclusivity, but they are not authorities to put in front of a judge without pulling them first.

The point that follows is the one that decides the argument in practice. CCDC 2 – 2020 contains no delay liquidated damages clause at all. GC 6.5 of the CCDC 2 – 2020 General Conditions governs delays and extensions of time. It does not impose delay damages on the contractor. Every delay LD obligation on a CCDC 2 – 2020 job is inserted by supplementary conditions. So whether the owner has preserved a right to general damages above the liquidated sum turns entirely on the SC drafting, and it is the supplementary conditions, not the standard form, that must be read first.

In Ontario the position is sharper still. The OAA/OGCA Agreed-to Recommended Supplementary Conditions for CCDC 2 – 2020 contain no supplementary condition amending GC 6.5 and add no liquidated damages clause either. An Ontario delay LD clause is therefore almost always owner-drafted, in the owner's own supplementary conditions, and has never been through an industry negotiation, which is why the clauses vary so widely from project to project and why the exclusivity wording is worth reading word by word.

Ontario public road work is the exception where a published clause does exist: OPSS.MUNI 100 (November 2019) GC 8.02.09 and OPSS.PROV 100 (April 2023 edition) GC 8.07 are dedicated liquidated damages provisions in the Ontario Provincial Standard Specifications, two separate documents on separate revision cycles, not one publication, so each must be cited with its own edition. The operative text of both was not retrieved for this corpus, so the rate mechanism, the trigger and any cap cannot be stated here and must be read off the specification itself.

Layer: form-default and jurisdictional. The CCDC 2 – 2020 row states what the standard form does and does not contain. An executed contract will carry supplementary conditions that override it, and those must be read. The exclusivity rows rest on single-source, unverified Ontario authority and on secondary sources only, no Canadian judgment was read in original form for this corpus.

Has Canada adopted Cavendish Square v Makdessi? No. And the divergence is over a decade old

No. Canada has not adopted Cavendish Square Holding BV v Talal El Makdessi, [2015] UKSC 67, and no Ontario decision adopts it either. The "legitimate interest" justification English and Australian drafters have used since 2015 to defend a rate above likely loss has no purchase in Canada. It is not a recognised limb, it is not an answer to a penalty challenge, and citing it in a Canadian court signals unfamiliarity rather than authority.

The Canadian appellate courts have been invited to move and have declined, twice. Haas v Viscardi, 2019 ONCA 133 states that "the common law of penalty clauses remains in force in Ontario". Eleven years earlier Birch v Union of Taxation Employees, Local 70030, 2008 ONCA 809 questioned the doctrine's future and expressly declined to eliminate it. Those two decisions are the reason the pre-estimate test is still the first question, not a historical curiosity.

Nor has the Supreme Court of Canada intervened. It had the opportunity: leave was granted on 11 July 2019 from Capital Steel Inc v Chandos Construction Ltd, 2019 ABCA 32, and the Court then decided the appeal on the anti-deprivation rule instead, leaving the penalty test where it found it.

The consequence for anyone pricing risk on a Canadian job: the Canadian penalty test has not moved since 2020. NEGATIVE FINDING No Canadian appellate decision from 2024 to 2026 reformulates the LD/penalty test in a construction context.

Ontario readers need one more warning before relying on Ontario material. NEGATIVE FINDING No Ontario construction liquidated damages decision from 2018 to 2026 was located. The Ontario LD authorities are real-estate deposit, franchise and employment cases. An Ontario delay-LD argument is built out of Haas, Peachtree II and Elsley and applied by analogy to a construction rate. That is a thin footing for a large claim, and it is better said out loud in submissions than discovered in reply.

The two-limb Canadian test, and how a delay rate is actually attacked

Canada runs two limbs, and they are pleaded separately. Limb one is the genuine pre-estimate rule: was the stipulated sum a genuine covenanted pre-estimate of the damage late completion would cause, judged by what the parties could reasonably contemplate. Limb two is an unconscionability overlay: is the sum extravagant and unconscionable in amount. An owner defending its delay LDs in Canada must satisfy the pre-estimate limb. The overlay is a second, independent route to relief for the contractor.

CONFLICT The corpus records this as a genuine doctrinal conflict rather than a research failure: the two limbs are applied inconsistently across the Canadian cases, and the balance between them is unsettled. The two-limb description is the safe working statement for 2026, for the reasons in the table below.

Layer: jurisdictional. Four of the five rows are Supreme Court of Canada or Ontario Court of Appeal authority. The fifth is the general unconscionability test rather than a construction decision. Every row rests on secondary sources, no Canadian judgment was read in original form for this corpus.

Which of the two limbs governs is contested for a specific reason worth knowing. The Elsley passage (the one owners quote) is obiter, in a restrictive-covenant case, and appellate courts have twice refused to abolish the pre-estimate rule since. So an owner who runs Elsley alone, arguing that there is no oppression and therefore nothing to strike, is arguing from dicta against two later refusals.

The high-water mark for the other side did not become the law either. Peachtree II Associates – Dallas LP v 857486 Ontario Ltd, reported sub nom 869163 Ontario Ltd v Torrey Springs II Associates Ltd Partnership, (2005) 76 OR (3d) 362 (ONCA). Sharpe JA suggested abandoning the genuine pre-estimate test in favour of an unconscionability analysis, and subsequent courts declined to adopt the suggestion. Cite Peachtree II with that qualification, never as a statement of the current test. CONFLICT Two CanLII docket numbers for the decision circulate and disagree, so no CanLII number should be printed, the year, court and substance are agreed across the sources, and the report citation (2005) 76 OR (3d) 362 (ONCA) is the safe one.

How a rate is attacked in practice. The pre-estimate limb is an evidential exercise directed at the moment of contracting: what the owner could reasonably have expected late completion to cost it: financing, lost revenue, extended consultant and staff costs, holdover or relocation costs. And whether the number in the supplementary conditions bears any relation to that. A single flat daily rate applied across an entire project regardless of which milestone slips, or a rate carried forward unchanged from an earlier and much larger project, is where the argument starts. The unconscionability limb is a different exercise, measured against what actually happened and against the bargaining circumstances, Konialian v Paletta, 2020 ONSC 3976, a resale clause at a 75% price reduction held unconscionable, gives some sense of the magnitude at which a first-instance court will intervene, though it is not a construction case.

The trap to avoid is the deposit line of cases. Redstone Enterprises Ltd v Simple Technology Inc, 2017 ONCA 282 holds that forfeiture of a true deposit is allowed unless the clause is "penal or unconscionable", and Aylward v Rebuild Response Group Inc, 2020 ONCA 62 holds that deposits are forfeitable even where the innocent party suffered no actual damage. Deposits are a distinct doctrinal category, security for performance paid in advance, not a pre-estimate of loss on breach. And that exception does not transfer to a per-diem delay liquidated damages rate. Use the deposit line as background on the unconscionability standard only. An owner deploying Redstone as delay-LD authority is over-reaching, and saying so is usually enough.

One further route exists in Ontario and is genuinely untested. Section 98 of the Courts of Justice Act, RSO 1990, c C.43 gives the court a statutory power to grant relief against forfeiture. UNVERIFIED Whether s 98 has ever been applied to a delay liquidated damages clause in a construction contract is not resolved by any source located for this corpus. There is no authority either way. That makes it genuinely open, and an available argument for a contractor whose pre-estimate challenge is weak on the numbers but whose facts are sympathetic.

Chandos: a mechanism triggered by insolvency is void whatever the rate

A delay-damages or forfeiture mechanism that is triggered by the contractor's insolvency fails in Canada on a ground entirely separate from the penalty rule. Chandos Construction Ltd v Deloitte Restructuring Inc, 2020 SCC 25 applied the anti-deprivation rule: a clause forfeiting a percentage of the contract price on insolvency is unenforceable regardless of whether it is a genuine pre-estimate of damage. The pre-estimate question is simply not reached.

That is a materially different way to lose a clause, and it is easy to miss because the drafting that attracts it often looks like ordinary delay protection. Provisions that convert on insolvency. A percentage of the contract price forfeited, retention or holdback converted to the owner's account, a stipulated sum becoming payable on the appointment of a trustee or receiver, are exposed under Chandos 2020 SCC 25 even where the number would comfortably survive a genuine pre-estimate challenge. The enquiry is about the trigger, not the amount.

UNVERIFIED Whether the Supreme Court in Chandos 2020 SCC 25 expressly reserved the penalty question was not read for this corpus. It matters: if the Court reserved it, the two-limb penalty analysis stands untouched and Chandos is a purely parallel ground. If the Court said more, the balance between the pre-estimate limb and the unconscionability overlay could shift. That should be checked in the judgment before either party builds an argument on what Chandos did or did not decide about penalties.

The practical drafting consequence for an owner is straightforward. Keep the insolvency consequences and the delay consequences in separate provisions, and do not make late completion and insolvency alternative triggers of the same forfeiture. A clause that does both invites Chandos to take out the delay remedy along with the insolvency remedy.

The owner's own delay: prevention, and the risk of losing the liquidated damages entirely

An owner that has itself caused critical delay cannot insist on its liquidated damages. Perini Pacific Ltd v Greater Vancouver Sewerage &amp, Drainage District, (1966) BCCA, aff'd [1967] SCR 189, is the Canadian anchor: "A building owner is not allowed to insist upon the penalty for delay if, by ordering extra, he has prevented the builder from completing the work by a specified time." The exposure is loss of the liquidated damages altogether, not a reduced rate.

N.B.C. Mechanical Inc v A H Lundberg Equipment Ltd, 1999 BCCA 775 states the same rule from the other side and supplies the answer to it: an owner cannot enforce liquidated damages where its own conduct caused the critical delay, but where the contract contains a valid extension-of-time mechanism that was properly operated, the owner may enforce the liquidated damages from the extended completion date. That is the operative reason an EOT mechanism has to be used, not merely present. An owner sitting on extension applications while levying delay damages is building the contractor's defence.

Two things a reader should know before running this argument in Canada. First, notice bites first, and bites harder: Canadian courts enforce contractual notice provisions strictly and in most delay disputes the prevention argument is never reached because the contractor is out on notice, see notice and time bars in Canada. Second, NEGATIVE FINDING no Ontario authority on the prevention principle or time at large was located, so an Ontario contractor running prevention is arguing on British Columbia and English authority and should say so rather than be caught by it. The full analysis, including how time goes at large and what happens after it does, is on the prevention principle and time at large page for Canada.

There is one unreconciled item in the corpus that a careful reader should not step on. CONFLICT One source attributes to a case called "Perini" (1967 SCC) the enforcement of a broad no-damage-for-delay clause, almost certainly the same Perini Pacific that the corpus carries for the prevention principle. Those two propositions sit awkwardly together and the conflict is unresolved. The safe formulation, and the only one used here, is that Perini Pacific is a prevention-principle case in which an exculpatory delay clause was also in issue. Do not restate the enforcement characterisation without reading [1967] SCR 189.

No-damage-for-delay clauses in Canada, and the Tercon framework

A no-damage-for-delay clause. One barring the contractor from recovering money for delay however caused, is enforceable in Canada if it is clearly drafted. It fails on clarity, not on policy. The governing framework for any exclusion clause is Tercon Contractors Ltd v British Columbia (Transportation and Highways), 2010 SCC 4, which asks three questions in sequence, and the Canadian battleground for a no-damage-for-delay clause is the first of them.

The three Tercon 2010 SCC 4 stages are: (1) does the clause apply on its true construction to the circumstances that arose, (2) was the clause unconscionable at the time of formation. And (3) is there an overriding public-policy reason to refuse to enforce an otherwise valid clause. Stage three is a narrow residual category. Stage two is the unconscionability enquiry now anchored in Uber Technologies Inc v Heller, 2020 SCC 16. Stage one is where Canadian no-damage-for-delay clauses are actually won and lost.

The Nova Scotia cases show what failure at stage one looks like. Westcounty Construction v Nova Scotia (1985) refused effect to an exculpatory delay clause because the language was "not clear or express enough", and D J Lowe (1980) Ltd v Nova Scotia (Attorney General) (1994), CLR (2d) 181 did the same. A decision also reported as (1993) 121 NSR (2d) 361 (SC), a year and a parallel citation that appear in an index listing and were not confirmed against a source in this corpus. Against that, a clause drafted broadly and expressly, language along the lines of "the Contractor shall have no claim or right of action against the Corporation for damages, costs, expenses, loss of profits or otherwise … by reason of any delay", has been enforced. CONFLICT The attribution of that enforcement is unresolved, as set out above, the drafting lesson survives the conflict.

Plas-Tex Canada Ltd v Dow Chemical of Canada Ltd, 2004 ABCA 309 supplies the contractor's other lever: an exclusion clause cannot be relied on by a party that engaged in unconscionable conduct or deliberate misconduct. That is a high threshold and is not made out by ordinary owner mismanagement.

NEGATIVE FINDING No Alberta decision on a no-damage-for-delay clause was located at all. Plas-Tex, 2004 ABCA 309 is Alberta appellate authority on exclusion clauses generally, not on a delay exclusion. So an Alberta no-damage-for-delay clause is not tested against any Alberta delay authority: it is tested through the Tercon, 2010 SCC 4 framework plus Plas-Tex, with the Nova Scotia clarity cases as persuasive material on stage one and nothing provincial behind them. A submission that asserts an established Alberta position on a delay exclusion is asserting something the sources do not contain, say so, and argue construction. The Alberta cluster is at extension of time in Alberta.

So the contractor's route against a Canadian no-damage-for-delay clause is ambiguity plus prevention, not public policy. Attack the construction of the clause at Tercon stage 1. What delays it actually covers, whether it reaches owner-caused delay, whether it survives the extension-of-time machinery, and run the prevention principle in parallel. Stage 3 is not where this is won.

Is there a Canadian statute prohibiting no-damage-for-delay clauses?

No, nowhere in Canada, at any level. NEGATIVE FINDING There is no statutory prohibition on no-damage-for-delay clauses anywhere in Canada: federal, provincial or territorial. This is the highest-value negative finding in the Canadian delay corpus, and it is the sharpest single contrast with the United States. Every search on the point returned exclusively American material.

The reason the negative is easy to miss is that Canadian construction and lien statutes do contain anti-contracting-out provisions, they protect the lien, trust and prompt-payment entitlements. Those provisions say nothing about delay-damages exculpation. A reader who knows that a provincial statute bars contracting out of the lien regime should not extrapolate that a delay exculpation clause is equally suspect. It is not.

Layer: jurisdictional and comparative. The Canadian column is a recorded negative finding across federal, provincial and territorial legislation, the United States column is a general characterisation of a multi-state position, not a statement about any named state. No statutory text was read in original form for this corpus.

In Canada there is no legislative safety net for a contractor. A clearly drafted no-damage-for-delay clause in a Canadian supplementary condition is a real allocation of risk that will be enforced on its terms, and it should be priced at tender rather than argued about later.

The same negative has a second consequence that matters for delay liquidated damages specifically. Because no statute controls the contractor's side of the delay bargain, and no statute controls the owner's side either, there is no statutory cap on a delay LD rate anywhere in Canada, and NEGATIVE FINDING no Canadian province or territory has a statute addressing construction delay claims as such the entire allocation is contractual. The penalty rule and Tercon 2010 SCC 4 are the only controls on it.

Quebec is different: a clause pénale is valid without proof of loss

Nothing on this page governs Quebec. Quebec is a civil-law jurisdiction and it has no penalty-versus-liquidated-damages characterisation at all. A clause pénale is valid, and under art 1623 C.c.Q. para 1 the creditor may recover the stipulated sum without proving the amount of the injury. Proof of quantum is removed, proof of liability is not. There is no genuine pre-estimate test to run and no unconscionability limb of the common-law kind to plead.

The remedy is different too, and this is what a common-law practitioner most often gets wrong on a Quebec job. Art 1623 C.c.Q. para 2 allows the court to reduce the stipulated penalty where the creditor has benefited from partial performance of the obligation, or where the clause is abusive. The outcome of a successful challenge in Quebec is therefore usually a smaller number, not no number, where the outcome of a successful penalty challenge in the common-law provinces is that the clause falls entirely and the owner is put to proof of its actual damages.

Two further Quebec points follow, and both defeat instincts carried over the border. "Time at large" does not exist in Quebec, so a defective extension mechanism does not release the contractor from the completion obligation and does not void the penalty. And there is no Quebec doctrine of concurrent delay. The whole civil-law treatment, including the reduction power, the adhesion-contract route and how a delay penalty should be drafted, is on the Quebec delay penalties page.

Layer: jurisdictional and comparative. The Quebec column rests on Code articles verified verbatim for the Quebec cluster. The common-law column rests on secondary sources, with no Canadian judgment read in original form for this corpus. Do not extend a common-law proposition on this page to a Quebec contract.

About this material Library content is general information about construction claim practice, not legal advice. Entitlement, deadlines and procedure are governed by your own contract and by the law of the place the work is performed. Reviewed August 8, 2026 · Report a correction