Introduction 

In construction projects, the relationship between owners and contractors is usually governed by a formal contract. But what if the contract does not specify the owner’s liability when their actions interfere with the contractor’s ability to complete the project? This article explores that question. For the purposes of this discussion, the term “owner” refers to the entity that owns the land or facility where the construction is occurring.

Diving Into Duty of Care 

Before turning to the circumstances in which Canadian Courts have recognized a duty of care of owners in a construction context, it is important to address what it means to owe a duty of care. The duty of care test has two parts. Part one asks whether the harm was reasonably foreseeable and whether proximity supports a prima facie duty of care. Proximity is the term used to describe a close and direct relationship. Proximity is first assessed by looking to analogous cases. If no analogous cases exist, then the Court will consider whether a new duty should be recognized. Then, it must be assessed whether there are reasons, notwithstanding the proximity between the parties, that tort liability should not be recognized due to factors arising from the relationship between the plaintiff and the defendant. If the plaintiff is successful in establishing a prima facie duty of care, the question at the second stage is whether there are residual policy considerations which justify denying liability because of how recognizing a duty of care would impact society broadly. 

Owner Duty of Care in the Tendering Process 

Owner’s Designer Liable for Misrepresentation in the Tendering Process

In Edgeworth Construction Ltd v N.D. Lea & Associates Ltd.^[1], the SCC found that the owner’s design consultant owed a duty of care to the contractor who relied on the plans for their highway construction. The contractor alleged that it lost money due to errors in the specifications and construction drawings. The SCC held that the responsibility of the consultant that completed the plans arose from its own misrepresentation, coupled with the knowledge that contractors would be relying on it and acting on it without a practical opportunity for independent inquiry by the contractor. On the contrary, the Province of British Columbia, which was the owner of this project, was not found to have owed a duty of care because the contract stipulated that any representations in the tender documents were for the general information of bidders and were not in any way warranted or guaranteed or on behalf of the Provincial Ministry of Highways. 

Owner’s Duty of Care to Contractor Found in the Tendering Process 

In Golden Hill Ventures Ltd. v Kemess Mines Inc.^[2], an action arose from a construction contract awarded to Golden Hill Ventures Ltd. (“Golden Hill”) by Kemess Mines. Golden Hill alleged that Kemess breached its duty of care and made a negligent misrepresentation because the tender documents did not accurately reflect the nature of the work. Golden Hill had to accommodate completely unexpected soil conditions by changing its plan for the work. The work that needed to be performed by Golden Hill was substantially different than what was expected at the time of the tender. There was an exclusion clause in the tender documents that attempted to absolve the owner, Kemess, of liability for any implied obligations. The exclusion clause provided that only the express agreements in the contract could form the basis for any action against the owner. 

The British Columbia Supreme Court held that Kemess breached its duty of care and made a negligent misrepresentation because the tender documents did not accurately reflect the nature of the work. Golden Hill relied on the information regarding the nature of the work when determining its bid prices, as there was no independent means of verifying the information. Regarding the exclusion clause, the British Columbia Supreme Court held that it did not contain the very specific language which would be required to exclude the duty of care which must by the very nature of the bid process be implied. 

No Duty of Care Recognized Between an Owner and Subcontractors in the Tendering Process

In Design Services Ltd. v Canada^[3], the question was whether an owner (in this case, Public Works) in a tendering process owes a duty of care in tort to subcontractors. The Appellants were the subcontractors who would have been subcontracted by a contractor named Olympic if the contract had been rightfully awarded to a compliant bidder. The Appellants did not have privity of contract with the owner. Thus, they were unable to establish a claim for breach of contract, so instead the Appellants asserted a claim in tort for the economic loss they suffered.

The SCC unanimously held that the appeal should be dismissed because the claim did not fall within a recognized category of duty of care, and the recognition of a new duty between an owner and subcontractors is not justified. In other words, the Supreme Court of Canada (“SCC”) refused to recognize a duty of care being owed by owners to subcontractors in the context of the tendering process. Further, the SCC found that this type of claim cannot be justified as a new category of negligence because proximity was not established. Also, the SCC dismissed the claim because recognizing such a duty could create uncertainty as to how far down the subcontracting chain an owner’s duty of care might extend. 

No Duty of Care for Owners in Pre-Contractual Commercial Negotiations 

In Martel Building Ltd v Canada^[4], the SCC held that there are a number of ancillary policy considerations that necessitate precluding the extension of the tort of negligence into commercial negotiations.  First, the goal of commercial negotiations is often to realize a financial gain at the expense of the other party. Second, socially and economically useful conduct could be deterred by depriving a party of any advantageous bargaining position. It would defeat the essence of negotiation to label a party’s failure to disclose its bottom line, its motives or its final position as negligent. Third, tort law could become after-the-fact insurance against failures to act with due diligence or to hedge risk of failed negotiations through the pursuit of alternative strategies or opportunities. Fourth, courts would assume a significant regulatory function of scrutinizing the minutiae of pre-contractual conduct when other causes of action provide alternative remedies.  Fifth, needless litigation should be discouraged.  In the circumstances of this case, any prima facie duty of care was held to be outweighed by the deleterious effects that would arise if a duty of care was extended into the conduct of pre-contractual negotiations.

Although Martel Building Ltd v Canada was not about a construction contractor, it does address the issue of owner duty of care, and the principles from this SCC decision would likely apply to different facts regarding the same issue of whether a duty of care is owed in negotiations. Martel Building Ltd v Canada was cited in the case of H2 Canmore Apartments LP v Cormode & Dickson Construction Edmonton Ltd.^[5], in which the court held that there is no stand-alone duty of care owed to the opposite side in contract negotiations.

Owner’s Obligation to Deliver the Work Site

The case W.A. Stephenson Construction (Western) Ltd. v Metro Canada Ltd. established that the owner has an obligation to deliver the work site as specified in the contract. In this case, W.A. Stephenson Construction (Western) Ltd. (“W.A. Stephenson”) was awarded a contract to build part of Vancouver's light rapid transit in time for the 1986 Expo. Metro Canada Ltd. was the owner under the contract. The contract required the owner to meet specific milestone dates because W.A. Stephenson had designed a plan to build in sequential stages. However, there were difficulties in gaining full access to the work area, and road closures were poorly coordinated. These obstacles hindered W.A. Stephenson’s plans to build in the sequence they had planned. The British Columbia Supreme Court held that, in the absence of clear qualifications in the contract, the owner is obliged to deliver to the contractor, on the day the contract is signed, full and exclusive possession of the work site as specified. 

Despite the apparent clarity of the reasoning in W.A. Stephenson Construction (Western) Ltd. v Metro Canada Ltd., determining what constitutes adequate delivery of the work site can still be complex. In Herve Pomerleau Inc v Canada^[6], the Plaintiff, Herve Pomerleau, initiated an action for damages due to additional work they unexpectedly had to complete. The federal Department of Public Works was the owner. A document provided by Public Works specified that overhead hydro power lines were to be removed and replaced with underground lines. Herve Pomerleau relied on this information when preparing their tender. However, after starting the work, Herve Pomerleau was notified by the municipality that the lines would not be removed as scheduled or within a reasonable time. Consequently, Herve Pomerleau incurred extra costs and fell behind schedule.

In evaluating an owner’s obligations in Herve Pomerleau Inc v Canada, the Federal Court reasoned that “…in principle, there is an implied warranty by the building owner that he will provide the contractor with possession of the land on which the work is to be performed and will facilitate the performance of the contractor’s obligations by ensuring, for example, that there is a sufficient space around the site to allow the normal performance of the work, by going the necessary preliminary work to prepare the worksite such as the construction of the connecting routes, relocation of electrical wires or underground public utility conduits, drainage of the grounds and soil samples, and by providing the necessary plans, diagrams, levels and measures for the establishment of the constructions.”^[7] Further, the Federal Court recognized that there is an implied commitment by the building owner that they will hand over the land for the purpose of allowing Herve Pomerleau to do that which they agreed to complete.

Despite recognizing these obligations of property owners in delivering the work site, the Federal Court dismissed Herve Pomerleau’s action. The Federal Court found that the presence of the hydro line was clearly disclosed in the documentation that Public Works shared with Herve Pomerleau. 

The Federal Court concluded that Public Works had neither failed to complete the necessary preliminary work nor to provide Herve Pomerleau with the information required for proper performance of the contract. It also found that this was not a case of a hidden defect that Public Works would have had an implied duty to disclose. The Federal Court further noted that Herve Pomerleau had obtained the (ultimately inaccurate) information from the municipality solely to assist in calculating its own costs, and that such information did not bind Public Works. Finally, the Court held that no authority required Public Works to remove the obstruction within a reasonable time. Consequently, Herve Pomerleau was responsible for the additional expenses incurred.

Conclusion

As illustrated by the case law discussed above, Canadian jurisprudence regarding the duty of care owed by owners in the construction context has been largely limited to narrow circumstances, such as the tendering process and pre-contractual negotiations. The scarcity of Canadian case law on this issue is likely because matters of owner liability during the construction phase, including delays, are typically addressed within the governing contracts between owners and contractors. As a result, when disputes arise, courts generally look first to the terms of the contract rather than to tort law.

Given how infrequently a duty of care is recognized between owners and contractors or subcontractors, there has been limited judicial analysis of the applicable standard of care, which is the scope or extent of such a duty. As this article discussed, in many cases, applying the test for duty of care results in a determination that no duty should be imposed, often for policy reasons. As a result, questions regarding the standard of care arise infrequently, since the threshold issue of duty is not satisfied.

If you are facing a dispute involving potential liability as an owner, seeking timely legal advice can help you determine the best path forward. Brownlee’s experienced commercial litigation and corporate services teams can assist in navigating these disputes and pursuing legal solutions best suited to your needs. 

Contact us at (780) 497-4800 or reach out online to connect with one of our lawyers.