October 6, 2011

Ontario court rules owners liable for undisclosed conditions

LEGAL | PAUL EMANEULLI

In its decision in Brown & Huston Ltd. v. York (Borough), the Ontario Court of Appeal upheld the trial judge’s decision and found the owner liable for failing to properly disclose the presence of problematic groundwater levels. The case involved a tender call for the construction of an underground pumping station. Serious performance issues arose due to undisclosed soil conditions.

When preparing its tender, the plaintiff contractor had relied on a diagram in the tender call that contained inverted triangles. However, the bidder did not interpret these inverted triangles to reflect the presence of a water table. As noted in the trial decision, the plaintiff maintained that it would have bid differently or not at all if it had been properly informed of the problematic soil conditions documented in an undisclosed soil condition report:

Mr. Leonardelli is experienced as a manager or supervisor of construction. He prepared the estimate for the tender. He read the tender package and visited the site. He concluded that an appropriate and the least expensive method of construction would be to excavate for the pumping station on one to one grade and shore the excavation where necessary for a 24” sewer pipe located in this area. He said that he looked at SK 1 and SK 2 and saw the inverted triangle. This meant to him that water had been found at that level. He said that he was not concerned because the drawing did not show that the water table was at that level. The water, he thought, could have been surface water; particularly since no water was shown in Borehole A. He said that had he seen the Geocon report he would have tendered on a different basis because of the ground water level and the recommendations in that report, or he would not have tendered at all.

As the trial decision detailed, the soil conditions led to serious problems during the construction project, which included the rupture of two sewer pipes that caused the flooding of the excavation hole that had been dug for the pumping station. These problems resulted in additional unforeseen expenses to the contractor.

The trial judge found that the engineers should have disclosed the existing soil condition report as part of the tender call package and found them liable for negligent misrepresentation for failing to do so.

The trial judge also made a finding of contributory negligence against the contractor for failing to make further inquiries with respect to the inverted triangle markings on the diagram. Negligence was divided 75 per cent against the engineers and 25 per cent against the contractor.

The Court of Appeal agreed with these conclusions. With respect to the failure to disclose the ground water reports, it held that the “evidence is clear that such a report showing a high water table level would be invaluable to any bidder: it would tell him that a more expensive method of construction would be required than anticipated”. It also held that the inverted triangle markings on the diagrams were insufficient to discharge the disclosure duty with respect to the soil conditions.

The Court of Appeal also agreed with the trial decision’s 75/25 allocation of negligence, finding that there was a basis for finding contributory negligence on the part of the contractor.

This case therefore serves as a cautionary tale for all parties, underscoring the need for the owner and its advisors to ensure proper disclosure in a tender call and the need for bidders to make proper inquiries in the event of any ambiguities in that document.

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

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