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.


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.


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.


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





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.


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




When Does the Limitation Period Start For A Negligent Construction Claim?

When Does the Limitation Period Start For A Negligent Construction Claim?

The law of Limitations creates a difficult question for those involved in construction projects: When does the limitation period begin for a claim in negligence arising from a construction project?   In Timminco Ltd. v. ABB Industrial Systems Inc., an Ontario judge recently held that the answer is: when the plaintiff knew or ought to have known of the particular defect that gave rise to the damage for which the plaintiff sues.

The plaintiff produced magnesium billets.  In March 1998, it retained engineers and started the design of a new facility to mill, alloy and refine magnesium. In August 1998, it contracted with the defendant for the supply of the two furnaces for the facility. The furnaces were installed and tested in 1999.  In November 2000, molten magnesium spilled out of the furnace, through a gap in the floor and landed on the pipes carrying glycol coolant to the furnace. The glycol was ignited, a fire ensued and the furnaces were damaged.

The plaintiff did not commence an action against the defendant until November 2006 or just within the old six-year limitation period in Ontario if the limitation period started which the fire occurred in November 2000.  The plaintiff said that the damage which occurred in November 2000 was an essential element of its cause of action, that the cause of action did not accrue until then and therefore the six year limitation period had not expired when it started its action.

The defendant brought a summary judgment motion to dismiss the action. The defendant asserted that, well before November 2000, the plaintiff knew all about the circumstances which led to the fire.  The characteristics of the design of the facility were well understood by the defendant and its engineers during the construction of the facility.  Incidents had occurred prior to November 2000 – during the construction project itself, the testing period and the operation period leading up to November 2000.  Those incidents had caused damage, including damage arising from spilled magnesium causing a previous fire in September 1999.  From those incidents, the defendant said that the plaintiff knew or ought to have known of the very defects which allowed the spilled molten metal to come into contact with the pipes carrying the glycol to the furnaces.  Accordingly, the defendant said that, at the very latest, the limitation period ran from the date of those incidences, and that by November 2006 the limitation period had expired.

The problem with the limitation period is that the elements of the tort of negligence contradict the principles relating to limitations of action.  The occurrence of damage is an essential element of the tort of negligence. So, the “cause of action” in negligence should only arise when the damage occurs.  However, both the courts and the legislatures have said that it is unfair to expect a plaintiff to sue if the damage is unknown. The common law in Canada developed the principle that the limitation period for a claim in negligence only commences when the plaintiff knew or ought to have known of the cause of action. That principle is now contained in Ontario’s Limitations Act, 2004.

In these circumstances, the question is: What facts must the plaintiff know or ought to know for the limitation period to begin?  Any damage arising from the negligent act or omission? Any defects arising from the negligent act or omission?  The particular damage for which the plaintiff sues? Or the particular defect which gave rise to the particular damage for which the plaintiff sues?

If the first two answers were correct, then the plaintiff’s claim would have been out of time under Ontario’s old six-year limitation period.  The defendant asserted that the second answer was the correct one. If the third answer was correct, then the plaintiff’s action would be in time. This was the theory advanced by the plaintiff. If the last answer was correct, then the facts might establish that the plaintiff did, or did not, know about the particular defect which caused the fire until that fire occurred, or within six years of when the action was commenced.

The motion judge selected the last answer.  She held that in Grey Condominium no. 27 v. Blue Mountain Resorts, (2008), 90 O.R. (3s) 321,  the Ontario Court of Appeal had held that each deficiency in a construction project gives rise to a separate cause of action in negligence. She reasoned that the decision in Grey Condominium means that there are separate causes of action “not because there were separate and distinct injuries, but because the deficiencies in question were distinct deficiencies and the discovery of one would not reasonably give rise to the discovery of the other.”

Applying this principle, the motion judge held that two questions arose. First, were the defects giving rise to the fire in November 1999 latent or patent?  If they were latent, then they were arguably unknown and reasonably unknowable to the plaintiff. Second, even if the defects were known, were they the same defects as those that gave rise to the prior incidents?  If not, then this incident in November gave rise to a new limitation period.

The judge held that these questions could not be answered on a summary judgment motion, and accordingly ordered the action to proceed to trial.

In rejecting the third answer, the motion judge refused to apply a Massachusetts’ decision – Cigna Insurance Company v. Ov Saunatec Ltd, 241 F. 3d 1 (1st Cir 2001). In that case, the court held that each damage gives rise to a separate cause of action, even though caused by the same act of negligence, and that “if there are multiple injuries, there will be multiple causes of action with multiple dates of accrual if the injuries are separate and distinct.”  The motion judge said that, while the Grey Condominium decision appeared to support this approach, its reasoning dictated to the contrary. She held that it was the distinction between the defects, not the distinction between the damages, which led to the result in Grey Condominium.  Accordingly, if the same defect led to two occurrences causing damage, the first occurrence could well cause the limitation period to run.  If the defects were different, then the limitation period relating to the damage for this second occurrence only commenced at the date of that occurrence.

The motion judge did give effect to one part of the summary judgment motion. The contract limited the damage recoverable to the amount of the purchase price for the furnaces.  The motions judge granted a declaratory judgment limiting the amount of the plaintiff’s recovery to that amount.

Needles to say, these distinctions can make the head spin.  Whether the same deficiency led to the same damage, whether the deficiency was latent or patent and whether the plaintiff knew or ought to have known any of this, will confuse even the most sophisticated persons engaged in construction projects.  All the more reason to carefully monitor the course of construction and the condition of the constructed project, and to start any claim as soon as possible.  This is particularly so since, under the Limitations Act, 2004, the Ontario limitation period has now been reduced to two years.

Limitations – Negligence – Limitation clauses:

Timminco Ltd. v. ABB Industrial Systems Inc. 2010 ONSC 6971

The principle in the Timminco case was recently adopted and applied by the Ontario Superior Court of Justice in Jagosky v. Corporation of the Town of Huntsville, 2010 ONSC 4590 (CanLII).  The Court held that “distinct construction deficiencies not discoverable by due diligence may give rise to separate causes of action”.