by Misty Alexandre
Robertson Stromberg LLP
Like the onus carried by the proverbial middle child, the Consultant is bound to wear the unbiased hat of fairness as they administer the typical construction contract. Perhaps this is why the Courts have consistently paid such deference to the role when disputes reach the courts. A recent Alberta Court of Queen’s Bench decision has confirmed that tradition and provided a few clues as to why the courts typically take a back seat to the findings of a Consultant under a contract.
In ASC (AB) Facility Inc v. Man-Shield (Alta) Construction (2018 ABQB 130), the primary issue considered by the Court was whether the Court should make its own findings or defer to the findings already made by the Consultant.
Man-Shield was contracted to construct a retirement residence in Calgary for the Owner, ASC (AB) Facility Inc. Page+steele/IBI Group Architects acted as the Consultant under the terms of the CCDC2 Contract. The dispute centred around 2 invoices – the former submitted prior to ManShield’s termination from the project, and the latter submitted quite some time thereafter. Relying upon the Consultant’s review and determinations on the invoiced work, the Owner withheld payment on the basis that some of the invoiced work was either deficient or incomplete.
Man-Shield argued that deference to the Consultant’s findings was only applicable during the life of the contract, and that no deference is owed following termination.
Justice Antonio, following various past precedents, concluded that deference to the Consultant continues after termination of the contract for a number of reasons, notably:
• The Consultant has the best opportunity and expertise to determine the matters at stake, and the benefit of the best evidence;
• The terms of a CCDC2 contract clearly show an intention by the parties “that the Consultant’s decisions will be binding at least absent demonstrable and significant error, legal or factual”;
• The parties, in the context of a stipulated price contract, have “subjected themselves to the expertise of a payment certifier and not to a “nuts and bolts” accounting before court”; and
• Prudent policy considerations require deference to the Consultant’s findings, as “to defy or ignore certifications would “encourage litigation of a very harassing kind, and probably to a great extent””.
While the Court will generally defer to the Consultant on decisions of fact or contractual interpretations, the situation is slightly different for a Consultant’s determination of law, as presumably the Court would be in a position of greater expertise.
The Court confirmed that the Consultant was not held to a standard of perfection. Rather, the Consultant’s decisions are persuasive in the absence of contrary evidence or demonstrable and significant error.
Despite Man-Shield’s arguments on various aspects of the Consultant’s findings, it was ultimately unable to satisfy the onus of proving a “demonstrable or significant error” in those findings. As a secondary argument, Man-Shield attempted to discredit the Consultant by providing evidence that his numbers changed over time. The Consultant explained that such changes resulted from correction of superficial errors, or refinement of estimates, each time resulting in Man-Shield’s favour. Man-Shield’s efforts backfired on this aspect, as the Court reasoned that the Consultant’s openness to reviewing his numbers based on new information “supports an inference that he took his role seriously and performed it with objectivity.”
A Consultant’s decision is subject to challenge under the dispute provisions of a CCDC2 Contract. However, disputing parties should be aware of the general deference paid by the courts to a Consultant’s findings. On matters of fact or contractual interpretation, the burden of overturning a Consultant’s findings is a heavy one.
One of the key ways in which risk is allocated on a construction project is through insurance, typically in the form of builder’s risk, course of construction, or “all-risk” property policies. In most cases, the responsibility for obtaining insurance coverage is set out in a parties’ construction contract. It is common for these contracts to require a policy holder to add others, such as the owner or a subcontractor, as named insureds, which then affords this party the benefit of coverage. By ensuring all parties can be indemnified by a common insurer, there should be, in theory, less disputes over who is responsible for a loss on a construction project when such a loss occurs, which should allow construction projects, even in the event of loss, to proceed in a timely manner.
In Jacobs v. Leboeuf Properties Inc., an Ontario court had an opportunity to consider who should be responsible for a loss, on a construction project, when the owner fails to obtain the insurance coverage stipulated in the prime contract.
The basic facts of Jacobs were as follows:
1. The Owner executed a contract with a General Contractor to demolish and replace a residential property located in the City of Toronto.
2. The Prime Contract stipulated that:
The Owner shall purchase and maintain property . . . insurance in a form acceptable to the Construction Manager upon the entire Project for the full cost of replacement as of the time of any loss. This insurance shall include, as named insureds, the Owner, the Construction Manager, Trade Contractors, and their Trade Subcontractors and shall insure against loss from the perils of Fire, Extended Coverage, and shall include builder’s risk insurance for physical loss or damage including, without duplication of coverage, at least theft, vandalism, malicious mischief, transit, collapse, and where applicable, flood, earthquake testing, and damage resulting from defective design, workmanship or material. . .
3. The Owner did not include the General Contractor as a named insured.
4. Although it appears the demolition work scope was completed without issue, the Owner alleged that there were numerous issues with the workmanship of the General Contractor, which caused the Owner to suffer property damage.
5. Ultimately the Owner sued the General Contractor, alleging that the General Contractor was responsible for paying the Owner the costs incurred to correct this property damage.
6. The General Contractor then brought a court application to dismiss the lawsuit on the basis that the costs the Owner was claiming should have been covered by the Owner’s property insurance policy and, more particularly, on the basis that the General Contractor was supposed to be included as a named insured under that policy.
7. In response, the Owner argued that even if it had obtained a builder’s risk policy, the type of property damage that occurred would have been excluded from coverage.
Ultimately the Court agreed with the General Contractor and dismissed the Owner’s action. According to the judge, the Owner had clearly agreed to obtain a builder’s risk policy indemnifying the parties, including the General Contractor, from “damage resulting from defective design, workmanship or material”. The fact a “hypothetical” insurance policy may not have covered the loss was not important. Rather, by failing to obtain insurance, the Owner had voluntarily assumed the risk of loss. As such, even if the General Contractor was negligent, it could not be held liable. Jacobs is a timely reminder for both owners, as well as general contractors, who in many cases are responsible for obtaining builder’s risk policies, of the importance of ensuring that contract provisions, relating to who must obtain insurance as well as who must be added as an insured under an insurance policy, are followed.
Download Jared’s article here.
The Saskatoon Construction Association is offering its members a lunch hour legal information session on November 13th. The Robertson Stromberg Lunch and Learn, presented by Tim Hawryluk, will discuss the best approaches to one of the most challenging prospects for every employer – firing an employee.
To learn more or to register for the event, click here.
On November 1, Jared Epp will present “Construction 101” for the Saskatoon Construction Association’s introductory course on all aspects of the construction industry.
To learn more about this two day event, click here.
Jared Epp presented “Cross-Canada Check-up Saskatchewan” while attending the Canadian Bar Association’s national Construction and Infrastructure Law Conference. The conference was held in Halifax on October 12-13, 2018.
Jared Epp discusses the recent case Cargojet Airways Ltd. v Aveiro Constructors Ltd. in the May 2018 issue of The Saskatoon Specifier. This decision is a good reminder of the factors that a judge considers in limitation period construction law cases.
The article can be read here.