The Province had retained a consultant and was entitled to rely on it. However, it makes the consultant liable for actions the Province took on the consultant’s advice.

Engineering Firm Held Liable In Third Party Claim

by Paul Sandori

In an earlier action the Province of British Columbia was found liable for damages for breach of a bidding contract • On appeal the Province’s third party claim against the engineering firm hired to oversee the project was upheld • The Province had retained a professional firm and was entitled to rely on it

Stanco Projects Ltd. v. British Columbia (Ministry of Water, Land and Air Protection)

In May 2006, the British Columbia Court of Appeal upheld the trial decision that had found the Province of British Columbia liable for damages for breach of a bidding contract (Contract A) between the Province and Stanco Projects Ltd.

Very briefly, the facts of the case are as follows (see also Construction Law Letter, Vol. 23, No. 1, September/ October 2006). British Columbia Parks engaged Aplin & Martin Consultants Ltd., an engineering firm, to oversee the installation of new water reservoir tanks. Aplin distributed the bid documents for the work. Stanco Projects Ltd.was the low bidder. After the bids were opened, the Province made some changes to the project requirements. Aplin, in essence, allowed the other bidders to revise their prices with full knowledge of the Stanco bid and, when the prices were in, recommended to the Province to accept the low bid of another bidder, Wesport. The Province followed Aplin’s recommendation.

The Court of Appeal agreed with the trial judge that the Province’s conduct breached Contract A. However, it also found that the trial judge erred in dismissing the Province’s third party claim against Aplin. In its Supplementary Reasons released in November 2006, the court resolved certain outstanding issues regarding the Province’s claim against Aplin.

The key question that remained was the effect of the indemnity clause of the General Service Contract which provided:

You [Aplin] must indemnify and save harmless us [the Ministry] and our employees and agents (each an ‘Indemnified Person’) from any losses, claims, damages, actions, causes of action, costs and expenses that an Indemnified Person may sustain, incur, suffer or be put to at any time, either before or after this agreement ends, which are based upon, arise out of or occur, directly or indirectly, by reason of, any act or omission by you or by any of your agents, employees, officers, directors, or subcontractors in providing the Services, except liability arising out of any independent negligent act by us.

Counsel for both the Province and Aplin contended that the British Columbia Negligence Act was relevant to the question of indemnification. The court was of the view that the Act did not apply in the context of the case.

The damages awarded to Stanco were those for which the Ministry was liable for its breach of Contract A. Aplin was neither a party to that contract, nor a defendant in the lawsuit. The court quoted from the decision of the Ontario Court of Appeal in Creasy v. Sudbury (Regional Municipality):

Where two parties who have caused damage to a plaintiff have a relationship with each other which is in the form of a contract either express or implied, and which governs their obligations to each other in the eventuality which in fact occurs, then the Negligence Act does not override that contract but has no application to those parties in respect of their obligations as between themselves.

This makes sense because there is no need for legislative intervention or assistance in those situations where parties know that they may each incur liability to third parties as a result of an undertaking in which they are both participating. They are able to structure their financial arrangements, including insurance, in accordance with the obligations to each other undertaken within their agreement.

The Ministry may have been “negligent” in the sense of “careless” with respect to its own interests, but there was little doubt that the Ministry’s obligation to pay damages to Stanco came within the very broad wording of the indemnity clause — i.e., that such damages were “losses, claims, damages, actions, causes of action, costs [or] expenses” suffered or incurred by the Ministry “by reason of any act or omission” of Aplin in providing the services under the General Service Contract.

The next question was whether the exception “any independent negligent act” to indemnity clause applied to shield Aplin from all or part of the liability it would otherwise have under the clause.

The Ministry argued that the award of the contract was one in a series of events and did not involve an independent act of negligence on its part. For its part, Aplin pointed to various errors and omissions made by the Ministry in the post tender-closing phase, as determined by the trial judge.

The Court of Appeal found no reason to assume that the Ministry elected to run the risk of liability to Stanco without the assurance of indemnification by Aplin. In the end, the Ministry followed Aplin’s recommendation to award the contract to Westport:

This is indeed a very fine line to draw, but in our view, the conduct of the Ministry was ‘connected with and not separate from’ Aplin’s administration of the contract generally. Thus that conduct did not amount to ‘any independent… act’, even if one assumes, again for the purposes of discussion only, that the Ministry’s acts were ‘negligent’. In general, the Ministry acted in concert with and in response to Aplin’s advice and conduct of the bidding process.

The case would obviously be different if the Ministry had, contrary to Aplin’s advice, awarded the contract to some other person or decided to terminate the bidding process and start again. In those scenarios, having acted ‘on its own hook’, the Ministry would be caught by the exception for independent negligent acts, assuming such acts were ‘negligent’.

On the facts before the court, however, the exception did not apply. Although as the trial judge emphasized, the Ministry had expertise of its own in the field of bidding contracts, it had retained a professional firm with, presumably, more expertise, and relied on it. As the trial judge found, Aplin failed to meet that standard.

The court ordered that Aplin indemnify the Ministry for all losses and expenses that the Ministry was liable to pay to Stanco.

British Columbia Court of Appeal
   Ryan and Newbury JJ.A.
   November 10, 2006