Infrastructure Construction v. Private Enjoyment of Land - the Supreme Court of Canada Weighs In

Posted by Craig Ferris on March 08, 2013

On March 7, 2013, the Supreme Court of Canada issued an important decision regarding the obligation of public authorities to compensate private landowners in circumstances where public infrastructure construction has interfered with the private use and enjoyment of land.  In doing so, the Court ruled that a court must weigh the overriding public good occasioned by the infrastructure project against the severity of the interference with the landowner’s property in deciding whether compensation is owed.

In Antrim Truck Centre Ltd. v. Ontario, 2013 SCC 13, the appellant had operated a truck stop on Highway 17 in Ontario for approximately 25 years.  In 2004, Ontario altered Highway 17 such that access to the truck stop was severely limited.  The restriction on access to the truck stop ultimately put the appellant out of business.

The Supreme Court of Canada found that Ontario could be held liable under the Expropriation Act (Ontario) for injurious affection if the appellant could have successfully sued for damages caused by the construction under the law of private nuisance.  A nuisance was determined to arise where there has been an interference with the landowner’s occupation or enjoyment of land that was both substantial and unreasonable.  This is a two part test with the first part being a determination of whether the interference is “substantial” meaning “non-trivial” and the second part being a weighing of the interference suffered by the landowner against the utility of the act of the public authority.  In this weighing process, the Court decided that the act of the public utility will generally outweigh even very significant interferences with a claimant’s land.  It wrote that a claimant must prove that he or she has suffered from an interference that is more than the “give and take” expected of everyone and that the interference must be a disproportionate burden on them.  The public authority is to be favoured where the landowner’s harm cannot be viewed as more than the claimant’s “fair share” of the costs associated with providing a public benefit.

In this appeal, the Court restored the original decision which held that the appellant’s permanent interference with its property and reduced market value was a disproportionate burden which was not outweighed by the greater public good occasioned by the highway construction.  In doing so, the Court made an important finding that the type of harm suffered here – lack of access to the property from Highway 17 – was sufficient to support the claim. 

With billions of dollars being invested on public infrastructure projects in Canada, this decision has deep implications for the public cost of such projects.  While the words used by the Court suggest deference is to be given to reasonable interferences by public authorities, the facts of the case may suggest a broader willingness to compensate landowners.

B.C. Supreme Court Rejects Certification of Proposed REDMA Class Action

Posted by Ron Skolrood on October 10, 2012

In June 2012, my colleague, Craig Ferris wrote about the B.C. Court of Appeal decision in 229 Burrard Residential Limited Partnership v. Essolat where the Court endorsed a strict application of the terms of the B.C. Real Estate Development Marketing Act (“REDMA”).  There, the Court set aside a pre-construction sales contract and ordered the return of the purchase deposit by reason of the developer’s failure to file an Amended Disclosure Statement advising of a delay in the anticipated completion of the project. 

Building on that decision, the Plaintiff in Lee v. Georgia Properties Partnership, 2012 BCSC 1484 applied to certify an action as a class proceeding under the B.C. Class Proceedings Act on behalf of all persons who purchased a pre-construction unit in the private residences at the Hotel Georgia prior to May 22, 2012.  As in the 229 Burrard case, the action is based on a failure of the developer to file an Amended Disclosure Statement.  The Defendant began marketing strata lots in the Hotel Georgia project in September 2007.  The original Disclosure Statement for the development indicated a construction completion date of December 2011.  Construction of the development did not in fact complete in December 2011 and the Defendant did not file an Amendment to the Disclosure Statement until May 22, 2012, one business day after the Plaintiff commenced the proceeding.  Construction is anticipated to complete on October 31, 2012. 

The Plaintiff argued that the case was appropriate for a class proceeding in that there is a single common issue based upon a statutory scheme (REDMA) that is determinative of the parties’ rights.  Moreover, he argued that there is a clearly identifiable class comprised of all persons who signed purchase agreements prior to the date on which the Amended Disclosure Statement was filed.  The evidence indicated that there are 96 purchasers in the proposed class.

The test for certifying a proposed class proceeding is set out in section 4(1) of the Class Proceeding Act as follows:

(a)       The pleadings must disclose a cause of action;

(b)       There must be an identifiable class of two or more persons;

(c)        The claims of the class members must raise common issues;

(d)       A class proceeding is the preferable procedure for the fair and efficient resolution of the common issues; and

(e)       There is an appropriate representative plaintiff.

The Judge, Mr. Justice Savage, assessed the Plaintiff’s claim in light of these factors and declined to certify the proceeding.  He accepted that the Plaintiff had advanced a proper cause of action based upon a breach of REDMA however he rejected the argument that there was an identifiable class of two or more persons.  He did so because there was no evidence before the Court of any other purchaser that had complained about the failure of the developer to file an Amended Disclosure Statement or that had come forward and indicated a desire to get out of the purchase contract based upon the delay in completion.  In his view, the only claim that had been advanced was that of the Plaintiff and there were no other claims that would support the certification of the action as a class proceeding.  For similar reasons, he held that there were no common issues raised as between class members and that a class proceeding is not the preferable procedure. 

One other factor relevant to the Judge’s finding was the fact that there was evidence that units in the development were in short supply and the developer had produced a purchaser who apparently was willing to take an assignment of the Plaintiff’s contract.  It was therefore not apparent to the Judge that the Plaintiff had suffered any loss or that he would even proceed with the action.

The decision in Lee suggests that while REDMA generally may favour the position of purchasers, as found by the Court of Appeal in 229 Burrard, a class action may not be the most effective vehicle for advancing claims based upon delayed completion unless there is compelling evidence that a significant number of purchasers desire relief from their contractual obligations.  Absent such evidence, it will be left to individual purchasers to pursue their remedies on their won.

Construction Warranties: Are They Enforceable?

Posted by Peter Roberts on September 25, 2012

Based on a recent B.C. Court of Appeal decision, Greater Vancouver Water District v. North American Pipe & Steel Ltd., the answer is yes. This case serves as a clear direction to the construction community that the courts will hold contractors to the specifications and warranties they give about the services and products they intend to supply to purchasers. This is good news for the purchasers of construction services and supplies and a cautionary tale for contractors and suppliers.

In this case, the Greater Vancouver Water District (GVWD) contracted with North American Pipe & Steel Ltd. (North American) to supply water pipes as part of a multimillion dollar project.  The pipes were to meet a set of specifications established by the GVWD.  The contract between the GVWD and North American was lengthy and complicated but contained two relevant provisions.  First, North American warranted that the pipes it proposed to supply would conform to all applicable specifications and would be “fit for the purpose for which they are to be used”.  Second, North American warranted and guaranteed that the pipes would be “free from all defects arising at any time from faulty design in any part of the Goods.”

As can be surmised from the fact the matter ended up in court, the pipes supplied by North American were defective.  Specifically, the pipes suffered a serious problem in the coating applied to their exterior.  The coating did not adhere to the pipes, undermining their integrity.  The cause of this defect was the design drafted by GVWD.  The GVWD sued for damages and North American counterclaim for the cost of the pipe. 

Following a 28 day trial, the Supreme Court dismissed GVWD’s claim.   In a 54 page, 221 paragraph ruling, the court essentially held that because GVWD had drafted the piping design and specifications, the parties could not have intended North American to guarantee the pipes would be free from defects arising from faulty design.  This meant there was no real reliance by GVWD on North American to warranty the pipes would be free from design defects.  The judge found that North American’s promise to deliver pipes to GVWD’s specifications conflicted with North American’s warranty that they would be free from defects arising from design.  The contract was interpreted to effectively remove that warranty.  The trial court dismissed GVWD’s claim and granted judgment to North American for the cost of the pipes, a sum in excess of $3.8 million.

GVWD appealed.  After noting that the trial had involved “contentious technical issues concerning the nature and cause of the defects in the pipes”, the Court of Appeal went on to enforce the original contract and find North American liable.  They ruled that the trial judge was mistaken in limiting the scope of North American’s warranty such that it did not extend to cover design and specification work relating to the pipes that was done by GVWD.  The Court reasoned that North American had contracted with GVWD to deliver pipes in accordance with GVWD’s specifications.  In addition, and entirely separately, North American had also “warranted and guaranteed that if it so supplied the pipe, it would be free of defects arising from faulty design.”  The Court viewed these as “separate contractual obligations” that reflected a distribution of risk.  That distribution of risk was agreed to by the parties and was not for the court to interfere with.  As the Court of Appeal noted of this type of warranty clause:

Sometime they appear to [distribute risk] unfairly, but that is a matter for the marketplace, not for the courts.  There is a danger attached to such clauses. Contractors may refuse to bid or, if they do so, may build in costly contingencies. Those who do not protect themselves from unknown potential risk may pay dearly.  Owners are unlikely to benefit from circumstances where suppliers and contractors are faced with the prospect of potentially disastrous consequences.  Parties to construction or supply contracts may find it in their best interests to address more practically the assumption of design risk.  To fail do to so merely creates the potential for protracted and costly litigation.

This decision sends a clear message to owners and contractors that the courts will enforce warranty clauses in construction and supply contracts.  The message is that when contracting over the provision of construction services or supplies, the parties should seriously consider the nature of the warranties they are willing to provide.  If there is a risk you do not wish to be responsible for, make sure it is not covered by the warranty clauses.  This will mean more time and effort will likely be needed in drafting the original contract, but it will also avoid lengthy and expensive litigation after the fact if something goes wrong.

Developers Beware - Strict Compliance with Closing Procedures Required by the BC Court of Appeal

Posted by Craig Ferris on November 04, 2011

I previously wrote on the legal issues faced by developers of residential condominium projects in British Columbia relating to the Real Estate Marketing Development Act (“REDMA”). The focus on REDMA compliance must not, however, distract a developer from focusing on more basic contractual compliance which can also create enforceability issues.  A case in point is a recent decision of the British Columbia Court of Appeal in Sethna v. 350 Kingsway Development Ltd., 2011 BCCA 434 (“Sethna”).

The trial court found that two purchasers were able to terminate their agreements to purchase condominium units because the developer had not met the original construction completion date.  The execution of a Receipt and Acknowledgment of Disclosure Statement amendments setting a new construction completion date, as well as other actions which were argued to be affirmations of the contract, were held not to be bars to the purchasers’ right to terminate.  The Court of Appeal expressly did not endorse the reasons of the trial judge, writing that there were “real questions as to whether the trial judge properly applied the principles of contractual interpretation to the Receipt and Acknowledgment and applied the correct legal principles to the issue of whether the purchasers’ actions barred them from terminating the purchase agreements”.  The Court of Appeal also expressly stated it was not required to address REDMA as part of the appeal.

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Pulling in the Reins - Lien Holdback Liability Scaled Back

Posted by Michael Morgan on March 01, 2011

Ever since the BC Court of Appeal (“BCCA”) decision in Shimco, practitioners and others have cried out for legislative amendments to the B.C. Builders Lien Act (the “Act”) which would see the elimination of a lien against holdback monies retained by owners and others down the contractual chain.  Prior to Shimco, such a lien was not generally thought to exist.  However, the BCCA confirmed the lower court’s ruling that a lien against the holdback is a separate and distinct lien from the lien against the land and can therefore be asserted even where a lien against the land is no longer available to a lien claimant.

Recently, the BCCA once again had to examine a claim to a lien against the holdback (as distinct from a lien against the land) but this time the spin on Shimco was that the owner did not in fact maintain a holdback as it was required to do under the Act.  Therefore the question for the court was whether a lien could exist against a non-existent holdback fund.  The court unanimously held that no such lien could exist as, among other things, there was no fund against which the lien could attach.  In so holding, the court made some interesting comments about the potential need for the legislators to step in and respond to the court’s interpretation of the Act which they have refused to do thus far. 

The result in this case was not remarkable.  The lien claimant sought to expand the reasoning in Shimco, to a limited extent, and it was clear the court did not want such an expansion beyond the four corners of the Act.  In fact, the undertones of the decision were that the court perhaps does not agree that a lien against the holdback ought to exist but the Act is clear such a claim can be asserted.  The court could have even gone farther and determined when the lien against the holdback no longer exists but it did not strictly need to do so in this case.  Eventually that issue, among others, may need to be sorted out by the courts if the provincial legislators don’t abolish the lien in its entirety.  In order to bring more certainty to the practical operation of the Act and its impact on construction projects generally in BC, perhaps that would not be such a bad result.