Introduction
Apportionment of liability is an important and complex issue in many multi-party construction claims. The purpose of this article is to provide an overview of the law surrounding apportionment in Canada, and the factors impacting apportionment of damages amongst owners, general contractors, consultants, design professionals, subcontractors and municipalities in construction claims.
The Meaning of Apportionment
“Apportionment” and “liability” are interrelated yet distinct legal concepts. The distinction is particularly important in claims involving multiple parties that contributed to the design, project oversight and construction of a project. Liability is whether a party has legally caused a loss that forms the subject matter of a claim. Liability is an all or nothing proposition, meaning that a party will either be found liable, or not. Typically, in construction claims, breach of contract and negligence are the primary ways a defendant is found liable for damages. The liability analysis occurs without any reference to the amount of damages that was caused by the liable party. This is because the question of liability is separate and distinct from the question of the degree to which the liable party caused or contributed to the plaintiff’s damages. More than one party can be found to have legally caused a loss, which is especially common in construction claims.
Apportionment differs from liability in that apportionment refers to the degree of fault a party bears for a loss, after it has been found liable for the loss. That is, a party may be found to have legally caused a loss, but may only be held responsible for a portion of that loss.
In Canada, other than Quebec the “fault-based approach” is used to assess apportionment. The fault-based approach determines apportionment based on each party’s relative degree of fault. This approach has been accepted by Courts across Canada, as it is grounded in the relative risk of loss created by each party’s actions or inactions.
In sum, a finding of liability requires the Court to determine that a party legally caused a loss. If liability is established, that party’s apportionment is based on its fault relative to that of all other parties found liable.
The following discussion of cases is meant to provide an overview of how courts have assessed apportionment as against the most common actors in a construction case, those being: owners, general contractors, design professionals, subcontractors, and municipalities. The result of each case is highly dependent on its own set of facts, however there are general principles which can assist when attempting to determine how apportionment might be awarded in other, similar cases.
Owners
In Canadian Natural Resources Limited v Wood Group Mustang et al.[1], the owner commissioned the design and installation of a pipeline that failed soon after completion. The pipeline design was inherently flawed due to the negligence of several parties retained by owner, but the catastrophic failure of the pipeline also partly resulted from operator error by the owner’s employees who failed to appreciate the pipeline’s design limitations. The pipe supplier and installation contractor entered into Pierringer agreements prior to trial and were apportioned 25% and 5% respectively. The owner and design consultant were each found liable after trial and were apportioned 50% and 20% respectively.
The issue of apportionment was appealed to the Alberta Court of Appeal. The Court of Appeal overturned the trial judge’s decision as it related to the owner’s apportionment and reduced its apportionment of 50% at trial to 25%. The Court of Appeal found that the owner could not be held responsible for the pipeline’s design inadequacies in any way, even if it ought to have known of the design problems, as it retained the services of other design professionals and was entitled to rely on their expertise. The owner also could not be apportioned fault for demanding the installation of a heat exchange bypass valve against the recommendations of the design professionals, as that aspect of the design did not contribute to the loss. As is explained further below, the Court of Appeal apportioned 35% to the pipe supplier, 35% to the design consultant, and 5% to the installation contractor.
In Madalena v Kuun[2], a general contractor designed and built a single family home which later sustained water damage. The general contractor asserted that it had instructed the owner how to properly maintain the home’s gutters, and the owner’s failure to do so had caused the loss. The Court apportioned the majority of liability to the general contractor and 10% to the owner. Although the owner was negligent in failing to maintain the gutters as instructed, the general contractor’s negligent design and construction work had created much more significant risk of loss than the owner’s failure to maintain the gutters, which is why it was apportioned the vast majority of damages.
In House and Harding v. Patey & Town of Happy Valley-Goose Bay[3], the previous homeowners, the Pateys, constructed their own home and lived in it for approximately two years before selling it to the plaintiffs. The Home was built below the required grade, and the plaintiffs alleged that they consistently experienced flooding as a result. The plaintiffs sued the Pateys and the Town of Happy Valley-Goose Bay (the “Town”), alleging that the Pateys negligently built the home below the required grade, and knew or ought to have known of the resulting potential for flooding; and further that the Pateys acted as their own general contractor and should be held to the standards of a reasonable general contractor, including the standards set out in the Canada Building Code. The Pateys defended the claim, alleging that: 1) there was no flooding problem when they owned the Home, 2) if one developed after they sold the Home to the plaintiffs, they did not contribute to the problem and; 3) the plaintiffs inspected the Home before buying it and should have discovered any issues at that time. The Court determined that the flooding issues were not discoverable by the Pateys as it took the expertise of an experienced contractor to identify the issue with the grade and contour of the lot. The Court noted that where property owners build their own house and elect not to hire an architect and a general contractor, they are taking the responsibility for those functions onto themselves. The Pateys were found not to have the necessary skill and experience to ensure that the Home was built above the required grade. The Pateys were liable to the plaintiffs for damages in the respective proportion of 80%.
In Gendron v. Doug C. Thompson Ltd. (Thompson Fuels)[4], the plaintiff appealed the trial decision finding the plaintiff 60 % at fault. At trial the plaintiff sued Thompson Fuels for damages caused by an oil leak after they had delivered 700 liters of fuel oil to two oil tanks located in the basement of the plaintiff’s home. The fuel was used to power the furnace. Almost immediately oil began to leak from one of the tanks. The plaintiff spent the night collecting the oil in Tupperware containers. He incorrectly thought he had collected all of the leaking oil but unbeknownst to him at the time, hundreds of liters of oil had leaked. Nearly $2 million was spent on remediating the contaminated land in the surrounding area and the damage to a lake. The Court found the plaintiff negligent for the improper installation of the fuel oil tanks, failure to maintain the tanks by having them inspected annually, improper introduction of water into the tanks, and failure to promptly report the leak. On Appeal, Thompson Fuels argued that the 60% liability was too low and alleged that the trial judge failed to properly weigh the totality of the plaintiff’s blameworthy conduct. The trial judge found the Plaintiff 60% at fault and Thompson Fuels was 40% at fault. Thompson Fuels was found liable because it was negligent in its failure to conduct the required comprehensive inspection, especially since it conducted maintenance visits in 2006 and 2008. On appeal, the court found that the trial judge properly found the plaintiff failed to take reasonable steps in the circumstances, and considered the comparative blameworthiness of the parties and correctly concluded that the Plaintiff was responsible for the majority of the loss.
General Contractors/Consultants
In CNRL, the pipe supplier sold the pipe and various other materials, and acted as the threshold expert on design and installation of the pipeline. One of its acts of negligence stemmed from its oversight of installation of the pipeline in a manner that resulted in cracking of the pipeline’s outer waterproofing jacket. The pipe supplier advised the installation contractor and all other parties that such cracking was acceptable, when in fact the cracking and subsequent migration of moisture within the outer jacket was a primary cause of the pipeline’s eventual failure. The pipe supplier was apportioned 35% fault, some of which resulted from its design responsibilities and some of which was attributed to its negligent inspection and opinion that the cracking of the pipeline’s outer waterproofing jacket was acceptable.
In Vermilion & District Housing Foundation v Binder Construction Limited[5], the Plaintiff, a housing foundation, retained an architect to design, and a general contractor to construct, a housing project. After completion of the project, defects in the vinyl flooring were discovered. The general contractor committed four acts of negligence, three of which contributed to the defects. As the party involved in the project on a day to day basis, the general contractor had a greater opportunity to identify and avoid failures to comply with the project plans and specifications, leading it to be apportioned a higher degree of fault than the architect. The court found that the general contractor ought to have identified deficiencies during its field reviews, and failed to do so. It was therefore apportioned 65% of the Plaintiff’s damages.
Design Professionals
In CNRL, an engineering design professional was retained to complete design services and review the recommendations of the pipe supplier and the installation contractor as construction proceeded. The Court held that the owner was entitled to rely on the design professional’s expertise, and the design professional was negligent in failing to advise CNRL of various design risks or undertake independent analysis of certain aspects of the project design. In particular, its reliance on the opinions of other professionals without undertaking its own analysis led it to be apportioned 35% fault. The Court of Appeal confirmed that the owner was not expected to rely on its own expertise, as it had chosen to retain the services of the engineering design professional to assume such responsibilities. “Where a party retains an expert, it is entitled to rely on the expertise it has purchased”[6]. Further, the engineering design professional’s standard of care required that it independently assess and verify the adequacy of the pipeline design, despite representations made by other professionals including the pipe supplier. As the Court of Appeal noted, “It signed off on the technical compliance without any further testing, and without understanding the meaning of the test data that [the pipe supplier] had sent. It made no independent assessment of the technical requirements for the pipe system, and never warned CNRL that no independent analysis had been done”[7]. On that basis, the design professional’s negligence had been “pervasive, and went to the very core of the problems that were later experienced”[8].
In Vermilion, the Court held that the architect was required to provide a design in accordance with prevailing standards at the time, and failed to do so by specifying a grade that slightly deviated from the prevailing minimum standards. The architect also had non-exhaustive responsibilities to confirm that the general contractor was generally conforming to the project plans and specifications, but the contract did not require the architect to complete exhaustive site reviews or inspections. This was an important factor in the architect’s ultimate apportionment which was 35%.
Trade/Subcontractor
In CNRL, the installation contractor was found negligent due to some deficiencies during installation of the pipeline. Its degree of responsibility was relatively limited overall however, as a major construction deficiency was cracking of the outer jacket of the pipeline. The installation contractor had raised this with the pipe supplier and was advised it was not a concern. As the installation contractor had no design responsibilities, it was not apportioned fault for this deficiency. Overall, its fault was assessed to be 5%.
In Kuun, a subcontractor negligently completed exterior stucco work. Its apportionment was limited to 15% as the Court focused on the relative risk of harm caused by each of the parties’ negligence. The general contractor’s negligent design created much greater risk of loss than that of the stucco subcontractor.
In Gendron, the trial judge found Thompson Fuels breached its duty of care by failing to perform a comprehensive inspection of the fuel oil tanks and by failing to test the tanks for water during its service calls. The trial judge found that Thompson Fuels was negligent in its failure to conduct the legally required comprehensive inspection. Thompson Fuels was apportioned 40% at trial and the appellate Court found no error in the trial judge’s apportionment analysis. However, the Court considered the comparative blameworthiness of the parties and concluded that the majority of the responsibility for the loss lay with the plaintiff. It is important to note that Les Reservoirs D’Arccier de Granby Inc., the manufacturer of the tanks, was also brought into the action, however entered into a Pierringer agreement with the plaintiff at the commencement of trial.
Municipality
In Patey, the Pateys (previous homeowners who acted as general contractors) alleged that the Town was negligent in permitting the construction of the Home below the required grade; and that the Town owed the plaintiffs a duty of care. Further the Pateys in their defense alleged that any flooding problem was the Town’s fault for permitting the home to be constructed before the developer established the final elevation of the road. The Pateys discontinued third party claims against companies that poured the foundation and acted as the sub-contracting carpenter. The Court noted that Municipalities are required by law to make regulations concerning the design and construction of homes, and are permitted, but not required, to hire inspectors. The Court held that municipalities had a duty (moral, political, economic, and legal) to act reasonably in deciding whether or not to inspect new homes and had a legal duty to warn citizens if they do not inspect the construction of new homes. As to the Town, the Court noted that a policy decision is distinguishable from an operational decision, and if the matter is a policy decision, a municipality will avoid liability; however, depending on the facts of the case, a municipality may have liability for an operational decision. In this case, there was no evidence as to why the Town had decided not to hire a building inspector. The Court held that a decision must be a true policy decision and a town council must act in a reasonable manner. Given the budget of the Town, the Court determined that it should have some system for inspection of buildings and that the ordinary citizen would expect the Town to take some responsibility for enforcement. In the alternative, the Town had a duty to warn citizens that it is not accepting such responsibility. The Town’s breach of the duty of care led the court to apportion 20% of the Plaintiff’s damages against it.
Conclusion
The complexities of multi-party construction claims accentuate the importance of properly assessing liability and apportionment of all types of parties typically involved in the construction process from the pre-design to end of project.
[1] Canadian Natural Resources Limited v Wood Group Mustang et al., 2018 ABCA 305 (“CNRL”).
[2] Madalena v Kuun , 2009 BCSC 1597 (“Kuun”).
[3] House and Harding v. Patey & Town of Happy Valley-Goose Bay, 2014 NLPC 1711 C00021 (“Patey”)
[4] Gendron v. Doug C. Thompson Ltd. (Thompson Fuels), 2019 ONCA 293
[5] Vermilion & District Housing Foundation v Binder Construction Limited, 2017 ABQB 365 (“Vermilion”).
[6] CNRL at paragraph 77.
[7] CNRL at paragraph 79.
[8] CNRL at paragraph 80.
