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