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Healthcare telephone poll sets off a firestorm before Alberta Election

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Cookstown, Ontario construction firm fined $160,000 in connection with fatal 10-metre fall

April 5, 2012 – An Ontario court imposed a fine of $160,000 on Res 2000 Structures Inc. in connection with a construction accident that killed a worker two years ago. Workers were installing formwork and concrete at a building project in Toronto when a worker fell about 10 meters through an opening in a concrete slab and died. The firm pleaded guilty to charges under the Occupational Health and Safety Act, Regulation 213.

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Simcoe, Ontario mechanical-electrical contractor fined over workplace injury

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case summary

No limit on liability for faulty mould test report

By Paul Sandori
Simons v. Diagnostic Engineering Inc.

Mr. and Mrs. Simons and their children lived in a new home in Calgary. In the summer of 2006, they noticed a strong smell coming from the closet in the playroom attached to their daughter's room. They retained Diagnostic Engineering Inc. to test the air in the house for the presence of mould.

On July 19, Diagnostic sent an environmental engineer to conduct the tests. On July 24, the engineer told the Simons that the tests indicated a serious mould problem in the daughter's room, and advised them to move out immediately and have the problem remediated. The Simons acted fast. They retained a firm, recommended by Diagnostic, which specialized in mould remediation.

Two days later, Diagnostic forwarded to the Simons a formal written report which — according to Diagnostic — showed that there was no mould problem. However, the report was less than clear, and there was no explanation whatsoever with the report. Neither the Simons nor Diagnostic provided a copy of this report to the remediation firm.

The Simons moved out of the house and, on August 2, the remediation of the daughter’s bedroom began. On August 3, Diagnostic, on its own initiative, took a second set of air samples. The Simons were not informed why this second set of samples was being taken, but they did agree to pay for it.

Incorrect Mould Reports

The new tests revealed that the initial lab results were incorrect. By the time the Simons received the new report, their daughter's bedroom had been torn apart and required reconstruction, and the homeowners had already disposed of a number of personal possessions which were in the child's bedroom.

The Simons sued for damages. They contended that the contract between the parties was an oral contract, and quite straight-forward: Diagnostic agreed to determine whether the Simons had a mould problem; in return, the Simons agreed to pay Diagnostic for making that determination.

Diagnostic, on the other hand, relied on a one-page document or "Service Agreement" which Mrs. Simons signed when Diagnostic’s representatives came to take the initial air samples. On the back of this document was a list of "Limitations". These provided that the client acknowledged the limitations of air sampling for mould, and advised that the information provided in the reports may not necessarily eliminate uncertainty regarding the potential for contamination. Finally, the document limited Diagnostic’s liability to the project costs, as invoiced to the client.

Breach of Contract and Negligence

At trial, Mr. and Mrs. Simons testified that limitations on the capability of the air sampling to indicate the presence or absence of mould was not explained to them. Quite the contrary, once the results of the analysis of the air samples were received, Diagnostic’s engineer was quite definitive in advising that there was a mould problem and that they should move out. Diagnostic even recommended a remediation expert.

Judge O'Ferrall of the Alberta Provincial Court found that Diagnostic’s actions represented breach of contract and negligent misrepresentation.

The Simons hired Diagnostic to determine whether they had a mould problem. Diagnostic undertook to do so, and then tendered to the Simons a written contract document which suggested that it may or may not be able to do so.

To advise the Simons that they had mould problem on the strength of the results of the first set of air samples was not an exercise of skill, care and diligence expected of an engineering firm or environmental consultant. Diagnostic failed to properly analyze the air tests, and ignored the limitations of an analytical process it knew had limitations.

Reasonable Reliance

Next, the Court had to consider several additional issues. Was the Simons' reliance on Diagnostic's initial representation reasonable, having regard for the limitations in the written contract, and having regard for the written mould assessment report which

they were provided prior to the start of remediation? Could it be that they simply panicked and

acted precipitously?

The limitations on the capability of air sampling were not brought to the Simons' attention or explained by Diagnostic. Should the Simons nevertheless be taken to have read and understood them?

Diagnostic's engineer does not appear to have understood them, nor did Diagnostic's project manager, replied Judge O'Ferrall, and added: “Surely, then, the Simons cannot reasonably be taken to have understood them even if they did have notice of them.”

Furthermore, if the limitations had the meaning ascribed to them by Diagnostic, they would constitute a complete and utter change to the terms of the contract. Diagnostic was hired to determine whether the Simons had a mould problem. And then, without notice or explanation, Diagnostic tendered a form to the Simons that Diagnostic may not be able to make that determination. The Simons could not possibly be bound by such a term without notice

or explanation.

Finally, there was no warning given about the possibility of a false positive diagnosis. Therefore, the Simons' reliance on Diagnostic's negligent misrepresentation was reasonable.

Limitation of Liability Clause

Having suffered damages due to Diagnostic’s negligent misrepresentation and breach of contract, the Simons were entitled to some level of recovery. But the written Service Agreement purported to limit that recovery to the amount they paid to Diagnostic, or a total of $2,667.60.

Counsel for the Simons cited the decision of the Alberta Provincial Court in Boutchev v. D.H.L. International Express Ltd. in which the Court found that three conditions had to be satisfied in order for a limitation of liability to be effective: firstly, notice of the limitation must be given; secondly, the limitation must be clear and unambiguous; and, thirdly, the limitation must specifically limit liability for what caused the loss.

There was no evidence that, at the time Mrs. Simon engaged Diagnostic, she was told that its liability would be limited. And even if the operative contract was the written Service Agreement, the evidence was that no notice was given to Mrs. Simon that Diagnostic's liability was limited prior to her signing the agreement. Nor was this a contract where the Simons might reasonably have expected a limitation of the sort contained in the Service Agreement.

Judge O'Ferrall found another problem with the limitation of liability. Although it was worded clearly and unambiguously in the sense that it limited liability for any and all costs, losses or damages arising from or in any way related to the air testing and reporting, it was not clear that the limitation was intended to cover the situation which arose in this case.

The limitation on liability was contained in the last subclause of a clause dealing with limitations on the capability of air sampling to determine a mould problem. There was no suggestion in the Service Agreement that Diagnostic might identify a mould problem which did not exist.

The Supreme Court of Canada in its recent decision in Tercon Contractors Ltd. v. B.C. Transportation and Highways set out what is required to escape the effect of an exclusion or limitation clause: if it is not clear that (a) the limitation covers the negligent act which occurred, or (b) that the breach that has occurred is within the scope of the exclusion, the exclusion or limitation will fail.

The judge noted that the attitude of the courts to exclusion clauses is one of literal reading (or “strict construction”) of such clauses, particularly where the contract must be hastily signed. Diagnostic showed up at the Simons' door ready to take air samples but insisted that Mrs. Simon sign the Service Agreement first, before sampling would be undertaken. The signing of the Service Agreement was not the result of a protracted and well-considered reading of the text.

As a result, Judge O'Ferrall found that the limitation on Diagnostic's liability was not a part of the contract between the parties in the sense that the Simons could be taken to have agreed that if Diagnostic mistakenly advised them that they had a serious mould problem, and they acted to their detriment on that advice, they would be limited to getting their money refunded. Furthermore, no notice was given of the limitation.

The Simons were awarded a total of $14,895, including $1,000 for inconvenience and discomfort.

Alberta Provincial Court
B.K. O'Ferrall, Prov. Ct. J.
November 5, 2010.

Bid Protest Bulletin

Courts rule on low bid bypass and cancellation

Bid Protest Bulletin | Paul Emanuelli

While owners face liability for using their privilege clauses for inappropriate purposes, the courts have recognized that these clauses can be relied on to avoid awarding a contract in appropriate circumstances.

For example, in its decision in Wind Power Inc. v. Saskatchewan Power Corp., the Saskatchewan Court of Queen’s Bench found that the duty to award to the low bidder did not fetter the owner’s right to cancel its process. The court held that the provincial utility was entitled to rely on its “right to reject” clause after it was unable to obtain the statutorily required Cabinet approval for the contract award:

SaskPower had the right to reject any and all proposals. The plaintiffs studied the clauses. Gary Martens acknowledged that clause 1.5, supra, which permitted SaskPower to reject any or all proposals, clearly meant SaskPower did not have to proceed. He said he believed SaskPower was sincere, he believed they were committed to the project, but ultimately he understood and realized that SaskPower could decide not to proceed. In the absence of some other cogent reason which would disentitle SaskPower to rely on the clauses in question they are operative.

Thus, the applicable approvals for contract award were presumed to form part of the particular Contract A. The Saskatchewan Court of Appeal subsequently upheld this and the plaintiff’s appeal to the Supreme Court of Canada was then dismissed.

Similarly, in its decision in Boileau v. Greater Vancouver (Regional District), the British Columbia Provincial Court (Small Claims Division) upheld the district’s right to bypass the low bidder when that bidder was unavailable to start work at the required time. The case involved a tender call for mobile welding services to pre-qualified contractors.

The court found that the low bid bypass was valid due to the contractor’s unavailability at the material time. The court rejected the contractor’s assertion of bad faith and hidden criteria, finding that “the only reason for not contacting the Claimant was due to his unavailability when the job was being awarded, that is certainly no bad faith.” The claim was dismissed.

Furthermore, in its decision in Silex Restorations Ltd. v. Strata Plan VR 2096, the British Columbia Supreme Court found that a condominium corporation was within its rights when it cancelled its tender call due to faulty designs. The case involved the remediation of a leaky condominium. The condominium corporation cancelled its tendering process after it discovered potentially serious deficiencies in the remediation design prepared by an external consulting firm.

The court found that in the circumstances the condominium corporation was not compelled to award a contract and could use its privilege clause to cancel the tendering process. The court also noted that the right not to award was recognized by the Supreme Court of Canada:

The discretion not to award a contract as discussed in Glenview was also affirmed by the Supreme Court of Canada in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., supra, at para. 47 as follows:

For example, Glenview Corp. v. Canada (1990), 34 F.T.R. 292 concerned an invitation to tender whose specifications were found to be inadequate after the bids were submitted and opened by the Department of Public Works. Instead of awarding a contract on the basis of inadequate specifications, the department re-tendered on the basis of improved specifications.

The bidder’s case was dismissed.

As these cases illustrate, an owner may not necessarily be compelled to award a contract. However, if challenged, it will need to provide valid reasons for the non-award in order to satisfy a court that its privilege clause was not exercised in an arbitrary or unreasonable fashion.

Paul Emanuelli's procurement law practice focuses on all aspects of the tendering cycle including bid dispute resolution. This article is extracted from Emanuelli's Government Procurement textbook published by LexisNexis Butterworths. Reach Paul at paul.emanuelli@procurementoffice.ca.