When Is A Consultant Liable To A Contractor For Subsurface Information In Tender Documents?

One of the difficult issues in construction law is the duty owed, if any, by the owner’s consultant to the contractor. In particular, does the consultant owe any such duty in respect of subsurface conditions? In North Pacific Roadbuilders Ltd. v. Aecom Canada Ltd., the Saskatchewan Court of Queen’s Bench recently held that it did. While this case was decided in 2013, it is now about to go before the Saskatchewan Court of Appeal so it is timely to note the trial decision as we await the appellate decision.

Background  

North Pacific was awarded the contract to build a 57-kilometre ore haul road for Cameco Corporation between its mine and mill at one location and a new mine at another location. UMA was Cameco’s consultant and prepared the specifications and technical information for the tender documents. UMA was acquired by Aecom. North Pacific asserted that UMA was negligent in the preparation of the tender documents and misrepresented soil and terrain conditions that would be encountered on the project.

Cameco gave to UMA three reports prepared by a civil engineering firm named J.D. Mollard and Associates Limited (“Mollard”). The route for the road selected by UMA and Cameco was the one recommended originally by Mollard. The tender documents did not make any reference to the Mollard reports and did not state that those reports were available for inspection.

Decision

The trial judge held that UMA had a duty of care to the bidders on the project, relying on such decisions as Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd., [1993] 3 S.C.R. 206. The court held that it was foreseeable that bidders would rely on the information contained in the tender documents. While UMA’s failure to disclose the results of special-purpose test holes was not misleading to bidders, its failure to disclose the Mollard terrain mapping information amounted to a negligent misrepresentation.

The owner, Cameco, had the same terrain mapping information but had effectively excluded tort liability in the invitation to tender. That documents said that “Cameco shall not be liable for any damages or costs incurred by the Contractor in the performance of the contract in the event that the actual quantity or quality of the material differs from the quantity or quality of the material assumed by the Contractor for the purpose of submitting a bid.”

The court held that this language did not exempt the engineers from liability:

“The fact that the contractor may agree to exempt the party inviting tenders from liability for the design process does not suggest that it thereby should be taken to have exempted the engineering firm. In the scheme of things, it makes good practical and economic sense to place the responsibility for the adequacy of the design on the shoulders of the designing engineering firm, assuming reasonable reliance and barring disclaimers. The risk of liability to compensate third parties for design error will be reflected in the cost of the engineers’ services to the owner inviting tenders. But that is a much better result than requiring the owner to pay not only the engineering firm which it retains, but indirectly, the additional engineers which all tendering parties would otherwise be required to retain.”

The court concluded that “the combination of failing to disclose the Mollard terrain information combined with the uniform estimate for surplus rock to be encountered along the way, resulted in an expressly misleading representation to bidders.” The failure to disclose the Mollard terrain information was misleading by omission in implying there was no terrain information available to UMA that could assist bidders to prepare their bids.

On the other hand, the court concluded that UMA’s failure to disclose the results of test holes that it had dug did not amount to a misrepresentation:

“The question remains whether UMA should have disclosed the test hole results recorded by UMA survey crews in any event. I conclude such results not being disclosed did not make the material that was disclosed misleading or inaccurate…..The tests were never intended to disclose terrain conditions which might be encountered along the route….. Because they were specific-purpose tests, the results are arguably unrepresentative of all conditions that would be encountered along the route….. Failure to disclose the results of the special-purpose test holes was not misleading by omission to bidders.

The court concluded that the failure to disclose subsurface conditions amounted to a breach of the standard of care owed by the engineers:

“A key factor in Canadian court decisions awarding compensation to a contractor for variations in subsurface ground conditions has been finding that the project owner and/or engineer failed to disclose important information to the contractor. Where our courts have been satisfied that the owner or engineer has failed to fulfil his or her duty to warn a contractor of known adverse conditions which would have an obvious impact upon the contractor’s analysis and pricing of the project, the courts have decided in the contractor’s favour….not disclosing the Mollard terrain mapping information to bidders fell below the standard of what would be expected of a reasonable engineer in the factual situation faced by UMA. At the time of tender, 37 kilometres of the route was inaccessible to them, and was not going to be accessible to bidders. UMA had relied on the Mollard reports for preliminary design of the route, and used the Mollard terrain information to inform the regulatory authorities ….UMA knew that terrain information would be important to bidders in preparing their bid. While the Mollard reports advised against making the terrain information part of the tender specifications, it informed how the information might be made available to contractors, which indicates Mr. Mollard thought it was worthwhile making the information available to bidders. I conclude that UMA’s failure to disclose the Mollard terrain mapping information to bidders, which was the only information on the terrain to be encountered along the route that was available, and was information that UMA had relied on extensively itself, fell below the standard of a reasonable and prudent engineer and resulted in a breach of its duty of care to bidders on the project, including the plaintiff.”

The court dismissed UMA’s claim against Cameco and North Pacific that they were each contributory negligence. As to UMA, it had contracted out of any duty of care or responsibility to North Pacific in the invitation to tender and resulting construction contract.

As to North Pacific, its reliance on the tender information was reasonable. The bidders had assumed they had been supplied with the terrain information that was available. In these circumstances, North Pacific was not contributorily negligent in failing to make inquiries about additional terrain information.

Discussion

This decision takes the decision in Edgeworth into the subsurface world. Apparently, the non-disclosure of some information – such as test holes – will more likely lead to liability by the consultant to the contractor than the non-disclosure of other information – such as prior reports. What is the distinction and where is the boundary line? Apparently the more general the information, the more substantial the use of the information by the consultant or a regulator, and the less accessible this information to the contractor, the greater the duty of the consultant to disclose its existence to the contractor. Is this a satisfactory distinction?

The court’s reasons for holding the consultant liable are premised on the consultant being in the best position to ensure that no misrepresentation is made. But another consideration is whether the consultant is best able to absorb the cost of liability. Consultants are usually not able or willing to absorb what could be very large damage claims arising from tender misinformation. It seems likely that the consultant may request that exclusionary language in its favour be inserted into the invitation to tender, construction contract or contract with the owner. At the least, consultants may insist that their subsurface liability be limited to the amount of the liability insurance taken out by the consultant.

North Pacific Roadbuilders Ltd. v. Aecom Canada Ltd. (2013), 419 Sask. R. 117, 2013 CarswellSask 289.

Construction law – consultants – liability of consultant to contractor – negligence- subsurface information

Thomas G. Heintzman O.C., Q.C., FCIArb                                                             October 5, 2014

www.heintzmanadr.com

www.constructionlawcanada.com

 

 

The Traps And Perils Of Limitation Of Liability Clauses

In Swift v. Eleven Eleven Architecture Inc., the Alberta Court of Appeal recently considered the impact and scope of a limitation of liability clause in a consultant’s contract between an owner and the architects on a building project. The court arrived at three important conclusions.

First, the clause did not apply to and did not bar a claim by a co-owner of the property who had not signed the consultant’s contract.

Second, the clause did not apply to a negligent misrepresentation made by the sub-consultant engineers during the project.

Third, the architects could recover the full amount of the settlement payment made by it to the owners from the engineers on restitutionary principles.

This decision has important ramifications for architect and engineers, and indeed for anyone who is a party to a building contract containing a limitation of liability clauses.

Background

The owner Mr. Swift hired the architects to design a home on property owned by Mr. Swift and his wife, Mrs. Swift. The architects hired engineers as sub-consultants to design the structure of the home. The consultant contract dated April 29, 2005 was only between Mr. Swift and the architects, and Mrs. Swift was not a party to it. The consultant contract contained the following limitation of liability clause:

“3.8.1 With respect to the provision of services by the Designer to the Client under this Agreement, the Client agrees that any and all claims which the Client has or hereafter may have against the Designer which arise solely and directly out of the Designer’s duties and responsibilities pursuant to this Agreement (hereinafter referred to in this Article 3 as “claims”), whether such claims sound in contract or in tort, shall be limited to the amount of $500,000.00.”

The engineers designed the home to a Part 9 standard, not the higher Part 4 standard for seismic purposes, under the British Columbia building code. The contractor became concerned about the structural design of the building from a seismic standpoint and retained an engineer to review the matter. Ultimately the municipality stated to the parties that the building had to be designed to a class 4 standard. The engineers then advised that the building’s design met the Part 4 standard, when in fact it did not. The building of the home was delayed and further costs were incurred due to the structural mis-design. As a result, the owner incurred $1.9 million extra expenses and sued the architects and engineers. Before trial, the architects settled the owners’ claim against them for $1 million. Two claims proceeded to trial: the owners’ claim against the engineers; and the architects’ claim against the engineers to recover the $1 million the architects had paid to the owners.

Trial decision

The trial judge held that the limitation clause applied to the claim of both Mr. and Mrs. Swift as Mr. Swift had acted as Mrs. Swift’s agent in signing the consultant’s contract and that the limitation clause applied to all the Swift’s claims including the negligent misrepresentation claim against the engineers. The trial judge also decided that, by reason of the limitation clause the architect was only entitled to indemnity from the engineers for $500,000 of the $1 million they had paid the Swifts in settlement before trial.

Appeal Decision

Was Mrs. Swift bound by the limitation clause?

The Alberta Court of Appeal held that there was no evidence that Mr Swift had acted as agent for Mrs. Swift in signing the consultant’s contract and that she was not bound by the consultant’s contract and by the limitation of liability clause in it. The court noted that “Mr. Swift testified that he was signing the Agreement on his own behalf only. Ms. Swift testified that Mr. Swift did not have authority to sign an agreement or the Agreement on her behalf. The Architects testified that they did not believe that Mr. Swift was executing the Agreement on Ms. Swift’s behalf. This evidence, together with the language of the Agreement defining only Mr. Swift as the “client”, ought to have ended the discussion on actual authority.”

Moreover, no evidence ought to have been admitted to try to prove that Mrs. Swift was an undisclosed principal to the contract through Mr. Swift’s agency, for two reasons:

First, the consultant’s contract unambiguously showed that Mr. Swift was the only client.

Second, in order for an undisclosed principal to be liable on a contract, the surrounding circumstances must permit the possibility of identifying the undisclosed principal, by showing that the agent was not acting as the real and only principal. That was simply not the case here.

Scope of the limitation clause

The Alberta Court of Appeal agreed with the trial judge that the limitation clause applied to and protected the architects and those which it retained, including the engineers. However, it found that there was a good argument that the clause applied to each wrongful act, so that if there were multiple wrongful acts the client was entitled to multiple times the limit of damages. In light of its decision about the negligent misrepresentation, it held that it did not need to decide this issue.

Negligent Misrepresentation

The Alberta Court of Appeal held that the negligent misrepresentations made by the engineers during the project, that the structural design satisfied the Part 4 standard, was not covered by the limitation clause in the consultant’s agreement.  Even if the tort claims contemplated by the original consulting contract were limited by the limitation clause, the negligent misrepresentation claim arising from the conduct of the engineers during the project was not so limited. That conduct occurred in September 2006, long after the consultant contract had been made in April 2005. In response to inquiries from the architects, the municipality and another engineer, the engineers promised to bring the structural engineering of the building up to the Part 4 standard, and then confirmed that they had done so when they had not. That representation caused a delay in starting the remedial work and as construction progressed, it became more expensive to undertake the required work. The court held that “it would be unreasonable to conclude that such negligent misrepresentation was contemplated as being something that “arises solely and directly” out of [the architect’s] duties and responsibilities. This is particularly so given that the structural defects presented a real and substantial danger to its occupants.”

Accordingly, Mr. Swift was entitled to recover the full $1.9 million loss from the engineers. Since he had recovered $1 million from the architects, he was entitled to the further $900,000 from the engineers.

Indemnity

The Alberta Court of Appeal held that the architects were entitled to a full indemnity from the engineers based, not on contract or contributory negligence principles, but upon restitutionary principles. The architects had settled the Swifts’ claim against them for $1 million, and the courts favoured settlements. Since the architects’ liability only arose due to the engineers’ fault, the engineers should indemnify the architects for that full amount.

Comments

There are many issues and questions arising from this decision which could be analyzed. But for the moment, the following advice appears to arise from the decision:

  1. A consultant or contractor which is proposing to enter into an agreement with an owner will want to ensure that it contracts with all the owners and that the owner represents that there are no other owners. In the alternative, the consultant or contractor will want to insert into the agreement a stipulation that the owner is acting as agent on behalf of all the owners which are bound by the contract.  Otherwise, an owner which has not signed the contract is not bound by it and may bring proceedings without regard to the provisions of the contract, including the limitation of liability clause.
  2.  If it is proposed to include a limitation of liability clause in a building or consultant’s contract, then consideration should be given to whether the wording applies to negligent conduct undertaken during the project. According to this decision, unless the clause refers to that sort of conduct the clause will not apply to it. This result may be desirable from the owner’s standpoint and undesirable from the contractor’s or consultant’s standpoint.
  3. Consultants may want to ensure that the contract between them deals with the impact of liability upon one of them caused by the other, or at least devise an insurance regime that provides adequate protection, not just against liability for the wrongful acts of each consultant but for the liability for the wrongful acts of one consultant which are imposed on the others by way of restitutionary principles.

Whether or not one agrees with the conclusions of the Alberta Court of Appeal in this decision, it is certainly a wake-up call about the frailties and hidden traps of limitation clauses in building and consultants’ contracts.

See Heintzman and Goldsmith on Canadian Building Contracts, 4th ed., chapter 6, parts 2(b)(i)(C) and (ii)(C). 
Swift v. Eleven Eleven Architecture Inc. 2014 CarswellAlta 153, 2014 ABCA 49.

Building contracts – limitation clauses – negligent misrepresentation – architects and engineers

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                   March 30, 2014

www.heintzmanadr.com

www.constructionlawcanada.com

Does An Interim Lender To A Construction Project Owe A Duty of Care?

Construction projects don’t often proceed without a lender. And often there is an interim lender which provides financing pending the advancement of funds by the final lender. In this circumstance, two questions arise:

First:  Does the interim lender owe a duty of care to the owner or purchaser of the project?

Second:  If the interim lender makes representations to the owner or purchaser, does that lender owe a duty to make those representations carefully?

In Condominium Corporation No. 0321365 v MCAP Financial Corporation, the Alberta Court of Appeal recently answered Yes to the first question, but Maybe to the second question.

The MCAP decision is important because different answers were given to these two questions. The different answers highlight the difference between the duties of a lender, acting strictly as a lender, and the duties which a lender may assume if it makes representations to the owner or purchasers.

The answers to these questions become even more problematic when the interim lender receives vital information about the safety of the construction, or if the interim lender or its agents are arguably performing statutory duties. Can the lender ignore the impending safety risks? Can it ignore the potential application of statutory duties? If the lender receives vital information about the safety of the structures and makes representations to third parties about those matters, does it assume a duty of care which it would not otherwise have?

Background Facts

MCAP was the interim lender to a condominium construction project in Fort McMurray, Alberta. MCAP provided interim construction financing to the developer of the project.

The commitment letter between MCAP and the developer of the project stated that a soils test report by a professional engineer would be provided, demonstrating that the proposed construction and site improvements of the project were feasible under existing soil conditions. The commitment letter also required the lender’s cost consultant to verify the costs of the condominium project.

The commitment letter stated that, prior to the initial advance a project and budget review report would confirm that project has been designed in accordance with a geotechnical engineer’s report, and that all requests by the developer for advances would include an inspection certificate from the lender’s cost consultant confirming that the work to date was in accordance with the plans and specifications. The commitment letter also stated that if actual costs exceeded the budgeted and approved costs, then the developer would contribute the excess before receiving any further advances.

MCAP retained a cost consultant and parts of the commitment letter were attached to the contract between MCAP and the cost consultant. Effectively, the key provisions of the contract between MCAP and the developer were mirrored in the contract between MCAP and the cost consultant. The purchaser alleged that MCAP’s cost consultant was the “cost consultant” of the developer under section 14 of the Alberta Condominium Property Act (the Act). The purchasers accordingly argued that MCAP and its consultant had statutory duties with respect to certifying the cost to complete the project before funds were released to the developer.

In 2002, conversations occurred between a consultant acting for the purchasers of the condominium units and MCAP. According to the purchasers, in those conversations MCAP represented to the purchasers’ consultant that the terms and conditions of the commitment letter would be enforced for the benefit of the purchasers of units in the condominium project and that MCAP’s cost consultant would be the “cost consultant” under the Act.

In September 2001, the purchaser’s consultant wrote letters to MCAP’s cost consultants, copying MCAP, and set out various alleged serious deficiencies in the design and construction of the condominium project, including suspected Alberta Building Code, development permit and contractual deficiencies. It was the purchasers’ position that these letters signalled grave concerns that the units and related common property in the project were not in fact substantially completed as contemplated by the Act. The purchasers said that the suspected construction and design deficiencies required that statutory holdbacks be maintained to cover these deficiencies.

In late September 2003, a number of the purchases of the condominium units were completed and the developer received payment of the purchase prices. That money was used by the developer to reduce the loan from MCAP. In the closings, the developer’s lawyers gave undertakings about maintaining holdbacks pursuant to section 14 of the Act. In those undertakings, the developer’s lawyers referred to MCAP’s cost consultant as the developer’s costs consultant.

The purchasers and the condominium corporation then sued the developer and MCAP for damages. They alleged that the condominium was a disaster and was sinking into the ground due to numerous construction faults including the failure of the footings, improper compaction of fill and excessive moisture. The purchasers alleged that MCAP owed them a duty of care and had breached it by its failure and that of its cost consultant to take any steps to address the safety concerns of which they were well aware. The purchasers also alleged that MCAP had made negligent misrepresentations by effectively telling the purchasers that MCAP would enforce the commitment letter and that MCAP’s cost consultant would perform the duties of the “cost consultant” under the Act, and then failing to do either.

MCAP brought a motion to dismiss the action against it, asserting that it owed no duty of care to the purchasers, and that it owed no duty with respect to the statements which it or its cost consultant had allegedly made to the purchasers. The motion judge agreed with MCAP and dismissed the action against it. The purchasers then appealed.

The Decision

The Court of Appeal agreed that, apart from any duty arising from representations made by it, MCAP owed no general duty of care to the purchasers. The Court held that the purchasers’ assertion of such a duty failed on virtually every account.

First, the lender was entitled to waive defaults and give extensions in its own interest, and the existence of a duty to the purchasers would contradict that entitlement.

Second, the class of persons to whom the alleged duty was owed was indefinite as the circumstances relating to each purchaser could be different and the units could be “flipped”, making unfeasible for MCAP to consult with the class to which it allegedly owed a duty.

Third, the business interests of MCAP and the purchasers might well be different.

Fourth, the commitment letter was between MCAP and the developer and, as third parties to that letter, the purchasers had no legal rights in that letter.

Finally, policy reasons dictated that no such duty was owed. As the Court said: “The deleterious effects that recognizing this novel duty of care would have on commerce and the financial industry and in turn economic development are obvious.”

However, the Court of Appeal held that the purchasers had a potential claim against MCAP arising from negligent misrepresentation. The Court reversed the motion judge’s decision on this issue and directed that the action proceed to trial.

The Court held that the purchasers had a viable claim that MCAP had impliedly represented that it would enforce the commitment letter and that it had retained a cost consultant which would perform the duties of a “cost consultant” under the Act, and that MCAP had done neither. The Court of Appeal held that, on a disputed evidentiary record, the motion judge was not entitled to make factual findings as to the existence and scope of any alleged representations made by MCAP, the existence of any special relationship between MCAP and the purchasers and whether the purchasers reasonably relied on any statements of MCAP. Those were factual matters that must go to trial.

The Court of Appeal distinguished the two torts as follows:

“I agree that an interim lender owes no duty of care to purchasers of units in a project it is financing to ensure that the project it is financing is completed in accordance with the lending agreement. I have explained why that is so earlier. However, the court cannot use the absence of a duty of care based on a lender-purchaser relationship to determine whether the specific facts and circumstances of a particular case created or gave rise to a special relationship between the lender and purchasers and a corresponding duty of care sufficient to ground an action in negligent misrepresentation.”

The Court noted that the British Columbia Court of Appeal had held that, in the particular circumstances of that case, a lender did owe a duty to a third party not to make negligent misrepresentations and was liable to that third party.

The Court of Appeal also held that the other claims against MCAP should also proceed to trial. Those claims were based on knowing assistance in a breach of trust by the developer and unjust enrichment. MCAP had accepted the monies paid from the developer. Those monies were paid to the developer by the purchasers and were trust funds under the Act. MCAP received payment at the very time that the costs consultants under the Act should, arguably, have ensured that those monies were set aside to properly complete the project and correct the deficiencies. In these circumstances, the Court held that there were arguable claims of knowing assistance in breach of trust and unjust enrichment.

Conclusion

Even though the decision in MCAP arose on a summary judgment motion, it demonstrates the pitfalls which may face a lender to a building project. These pitfalls are magnified if the lender learns of facts which raise real concerns about the safety of the project or building, and if there are statutory duties relating to the project. Since building projects are subject to a number of statutory regimes, including construction lien and building code legislation, the role of the lender may not be a happy one.

This decision should alert lenders to a variety of potential claims that can be made against them. Indeed, the claims asserted in the MCAP action are a good shopping list to consider, both for project lenders and purchasers and owners of allegedly defective buildings.

Two precautions for lenders arise from the decision:

First, be very circumspect in any dealings with third parties to a lending agreement and avoid any conduct which could be construed as a representation to the third parties or the assumption of statutory duties.

Second, be aware of the trust fund legislation applicable to monies held by a borrower, and be very careful in accepting monies which may be trust fund monies.

Condominium Corporation No. 0321365 v MCAP Financial Corporation, 2012 ABCA 26

Building Contracts – Consultants – Negligence and Negligent Misrepresentations – Knowing Assistance – Unjust Enrichment

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                                         June 20, 2012

www.heintzmanadr.com

www.constructionlawcanada.com

 

Can An Agent Claim Damages As An Owner Under A Building Contract?

Agents of contractors and subcontractors often play a role and assert rights during construction projects. This is because contractors often use agents to perform the work, and construction lien legislation recognizes their right to assert a lien for the improvement of the land.

But agents of owners do not often assert rights under a building contract. Can they do so? And if they can, can they be sued as parties to the building contract?

These issues were recently addressed in the decision of the Nova Scotia Supreme Court in Ross v. Garnett. That court held that the agent could assert a claim for damage for breach of the building contract. This decision is significant because it could dramatically widen the scope of persons who can sue or be sued through the owner’s rights under a building contract.

The background

Ross entered into a contract with Garnett to purchase a log home kit manufactured by Riverbend and to have Garnett build the home. The home was built on a lot formerly owned by Ross but transferred by him to his mother shortly before the contract with Garnett was made. The transfer occurred because Ross’s mother could obtain mortgage financing and he could not. He paid all the mortgage payments, and the other expenses relating to the construction of the home. The lot was to be re-transferred to Ross once the mortgage was paid.

Ross claimed that the home kit and construction were defective and he sued Riverbend and Garnett. The defendants asserted that Ross had not suffered damage as he was not the owner of the lot. They brought a summary judgment motion to dismiss Ross’ claim.

The decision

The motion proceeded on the basis that Ross had entered into the contract with Garnett as agent for his mother. The motion judge concluded that a contract made by an agent can be enforced by and against the agent if the agent had a demonstrable intent to be personally bound by the contract and the other party elected to so deal with the agent. The motion judge concluded that Ross could not succeed in establishing those elements at trial. Ross’ own evidence demonstrated that he acted only as trustee and agent for his mother and did not intend to be personally bound by the contract.

However, the motion judge held that there was a second exception to the rule that an agent cannot sue on a contract made by the agent’s principal. Under this exception, the agent can sue on the contract if he has a “special interest” in the contract. A special interest could be shown if the agent has “some special property in the subject matter of the contract, or a lien upon it, or some special interest in the completion of the contract”, citing Fridman on The Law of Agency. The motion judge held that Ross had an arguable “special interest” in the contract between Ross’ mother and Garnett and therefore his claim could not be dismissed on a summary judgment motion.

The importance of this decision

This decision is important for those interested in building contracts because it has the potential to significantly widen the scope of the contracting parties on the owner’s side of the contract. The decision seems problematic from several standpoints.

First, the concept of “special interest” seems to be suitable to determine whether the agent has suffered damage, but it seems unsuitable to determine whether the agent is a party to the building contract. Without a “special interest” it would seem difficult for the agent to assert any loss. Combined with an initial entitlement to sue based upon a demonstrated intention to be a party to the contract from the inception, a “special interest” may provide the necessary loss which will give rise to a claim to damages. But it is more difficult to understand how a “special interest” can make the agent a party to the owner’s contract and entitle the agent to sue on that contact.

Second, if a “special interest” of an agent gives rise to a separate entitlement by the agent to enforce the building contract, then the contract should be as enforceable against the agent as by the agent. So the concept of “special interest” may create a whole new and dangerous basis of liability for owner’s agents.

Third, “special interest” appears to be an imprecise basis to create a pool of persons who have rights or obligations under a building contract. Who falls within the pool? Do the architects, engineers and consultants of the owner fall within it? Do they fall within it if they have an interest in the property? Do they have a “special interest” if they have a contingent interest in the success of the project, for example if the price of their services is influenced by the ultimate cost of the project? If so, is it advisable or inadvisable for a consultant to take an interest in the property or in the project, if that interest may allow rights to be asserted by or against the consultant under the building contract? And is it necessary for the contractor to inquire as to what agents of the owner have a “special interest” in the building contract?

The answer to these questions will await future cases about the rights or obligations of owners’ agents under building contracts.

Ross v. Garnett, 2012 NSSC 132

Building contract – consultants – enforcement – third parties

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                               May 20, 2012

www.heintzmanadr.com
www.constructionlawcanada.com

Construction Liens: Two Thorny Issues: Can non-lienable work be sheltered? Can off-site work be liened?

In John Barlot Architect Ltd. v. 413481 Alberta Ltd, the Alberta Court of Appeal has recently dealt with two thorny issues relating to a consultant’s services and construction liens: Can a lien shelter non-lienable work?  And can a consultant’s services provided to one project be liened on a second project if they were also used on the second project?

The plaintiff architect undertook three kinds of services to the owner defendant, and filed a lien for those services when its contract was terminated and it was replaced as the architect on the project.

First, it provided rezoning, subdivision and development services for the project.

Second, the architect did some work for a Sales Centre for the project, and that work was properly the subject of a lien.

Third, the architect submitted plans to the owner which were actually plans that had been previously prepared to construct another building in another location.  The owner used those plans to develop cost estimates.  The plaintiff architect claimed that the work to prepare these plans was also protected under its lien.

The Alberta Court of Appeal applied prior judicial authority in Alberta and held that the services relating to rezoning, subdivision and development were not sufficiently connected to the construction to constitute an “improvement” to the land.  Therefore, the lien was improperly filed in respect to that work.

The Court also confirmed the trial judge’s finding that the plans for the other project were not in fact connected to the owner’s project because they were not seen or used by the replacement architect.  The plans which the plaintiff architect had prepared were different and “too far removed from the intended construction process” to support a lien.

Most importantly, the Alberta Court of Appeal arrived at two further legal conclusions.  First, the Court held that even if the evidence of the plaintiff architect was accepted and the plans for the other building and the plans for the present project were similar, the plans for the other building were “not prepared ‘in respect of’ an improvement intended to be constructed on the subject land”.   Accordingly, while the plaintiff might have a claim in contract against the owner for the work in relation to those plans, the plaintiff had no lien rights.   That conclusion means that work prepared for a first project and site but useable on a second project and site cannot, as a matter of statutory interpretation, give rise to lien rights in relation to the second project.

Second, the Court held that the valid lien for the Sales Centre work could not shelter the rezoning, subdivision and development work. The Court noted that there was little authority on the proposition that a valid lien in respect of some work could shelter other non-lienable work.  However, it concluded that such a proposition was inconsistent with the whole scheme of the Act.  The word “improvement” cannot be interpreted to include the words “plus any related work not in respect of the improvement”.  That proposition would also play havoc with the application of the words “price of the work” and the hold back and trust fund provisions of the Act.  The owner and others receiving money on the project would never know what amount of non-lienable work was to be included in the hold back and trust funds.  In addition, a contractor or supplier which had delivered a small amount of lienable work or supplies but a large amount of non-lienable work would be unfairly preferred over one who had provided no lienable work or supplies.

Two important conclusions can be drawn from this decision.  First, the sections of the Construction and Builders’ Lien Acts are highly integrated.  Each provision depends on the others. Changing the impact of one section may change the impact of other sections. The Alberta Court of Appeal concluded that expanding lien rights to protect work on other projects, or other non-lienable work, would stretch the Act unfairly and unworkably.

Second, the decision also shows that the Construction and Builders’ Lien Acts provide uncertain protection for “soft services” such as those provided by consultants.  Originally, those services were not protected by some of these Acts, probably because the connection to the actual improvement of the land was thought to be indirect and debatable.  When they are protected, courts will be careful not to expand the net of lienable consulting services to those which do not directly relate to the improvement to the lands.

Building Contract – Consultant- Construction Lien – Improvement- Sheltering:  

John Barlot Architect Ltd. v. 413481 Alberta Ltd, 2010 ABCA 51 (CanLII)    https://bit.ly/gMvCma

www.constructionlawcanada.com                                                                                                                                                                       March 20, 2011