Insurance & Reinsurance
As part of our series on the Court of Appeal's recent ruling in Deguise v. Montminy, concerning the first wave of lawsuits related to crumbling concrete foundations due to the presence of pyrrhotite, Trevor McCann, Catherine Tyndale and William Plante-Bischoff look at how the court handled the issues surrounding liability.
The lawsuit was launched after hundreds of homes in Mauricie were damaged, having been built between 2003 and 2008 with low-quality concrete that contained pyrrhotite, a sulfide mineral that can cause chemical reactions and weaken foundations.
There were, in fact, three waves of litigation involving vendors, general contractors, concrete mixers, a quarrying company, a geologist and an engineering firm, and, naturally, their insurers. The first wave of lawsuits concerned 832 buildings, including 446 single-family residences, 312 semi-detached dwellings, 56 multi-unit residential buildings and 18 commercial buildings. (The second and third waves are still awaiting trial).
The Superior Court of Quebec rendered 69 judgments, finding that the general contractors and formworkers were liable for the damaged foundations. The contractors had bought their concrete from two suppliers, Construction Yvan Boisvert inc. and Béton Laurentides inc., which together sourced the aggregate from the same quarry, operated by a company they jointly owned and administered, Carrière B&B inc.
The trial judge held that, under article 2118 of the Civil Code of Quebec, the contractor was presumed liable for the loss of a work within five years after its completion. He also applied the CCQ’s provisions on the warranty of quality in a contract of sale.
On appeal, the contractors offered two principal arguments. First, the trial judge erred in applying article 2118 CCQ, because the damages resulted from a latent defect rather than the construction itself. Second, they should be exonerated from liability since another party caused the damages – in this case the suppliers and SNC Lavalin whose geologist concluded in a series of reports that aggregate extracted from B&B's quarry could be used to make concrete without risk of harmful reactions.
The Court of Appeal dismissed the first argument. It found that the presence of pyrrhotite in the foundations was both a latent defect and a construction deficiency. This signified that the client could rely on the warranty of quality and the presumption of liability provided for under article 2118 CCQ, which imposes an obligation of result (i.e. strict liability). Because the damages resulted from the use of poor materials, which they chose, the contractors could not argue that they were external to their performance.
First, under article 2117 CCQ a client has a right to verify the quality of the materials used by a contractor during construction, including those provided by suppliers. Second, under article 2099 CCQ the contractor is free to choose the right materials for construction. Finally, article 2726 CCQ grants a legal hypothec to the supplier who has participated in the construction of a building. Taken together, the Court ruled that a contractor using poor materials, even though supplied by a third party, is not an event external to the construction. The same goes for the presence of pyrrhotite in concrete used by the contractors to build the foundations.
The Court of Appeal did conclude, however, that contrary to what the trial judge had found, the contractors and self-builders were not liable.
It started by noting that the trial judge erred in ruling that one of the two suppliers, Construction Yvan Boisvert, took part in a "common endeavour" with the other, Béton Laurentides, since the two were in fact competitors in the concrete industry. Even so, the error had no bearing on the outcome of the case, since the trial judge did not hold B&B and the two suppliers to be solidarily (i.e. jointly) liable. Indeed, the Court of Appeal endorsed his finding that each of the suppliers was solidarily liable with B&B for damages caused by the harmful concrete it supplied.
The Court of Appeal then found that the trial judge was right to conclude that the SNC geologist Alain Blanchette had been professionally negligent in representing to B&B and the suppliers that the concentration of pyrrhotite in the aggregate extracted from the quarry was not harmful. The Court ruled that this negligence caused damages to B&B and the suppliers since they relied on those findings to market the aggregate to make concrete. There was available information showing the harmful effects of pyrrhotite that Mr. Blanchette either disregarded or of which he was unaware.
The Court determined that the contractors, B&B, the suppliers, and SNC/Blanchette were all liable in solidum towards the building owners. The legal concept of in solidum liability applies in situations in which wrongdoers have each committed a fault which is independent of the faults of other wrongdoers but which together caused a single damage; the victim of that damage can seek recovery from any one of the wrongdoers, which can then turn to the other wrongdoers for amounts paid in proportion with their contribution to the damage. The court ruled that liability was to be split equally between the suppliers and B&B.
As between the contractors and the suppliers, the Court of Appeal departed from the reasoning of the trial judge, who had ruled that the contractors were liable for 5% of the owners' damages, in part because they were bound to comply with CSA standards forbidding the use of aggregates prone to swelling. The Court of Appeal instead concluded that the contractors were not liable for any portion of the damages, as they were entitled to rely on a certification from the suppliers that the concrete met CSA standards. It also concluded that the contractors were not required to be more prudent despite their knowledge of similar failures resulting from concrete made with aggregate extracted from another nearby quarry, as the cause of those failures had been incorrectly attributed to poor cement quality. The Court of Appeal condemned the suppliers and B&B to indemnify the contractors for any amount they may be bound to pay to the owners.
The Court of Appeal also concluded that SNC and Blanchette were to be held extra-contractually liable in solidum towards the contractors, (as opposed to the suppliers who were contractually liable towards them).
But who among the suppliers/B&B and SNC/Blanchette was to assume the proportion of the in solidum liability that had been assigned to the contractors and self-builders in error? The suppliers, the court ruled, knew about problems with the aggregate extracted from the nearby quarry, which adjoined B&B's. They had received the Bérubé Report issued in May 2002 that warned against the use of aggregate containing pyrrhotite. While they ultimately relied on Blanchette's report, they remained concerned with the quality of the aggregate. As a result, the Court of Appeal found that the proportion of the in solidum liability initially assigned to the contractors and self-builders should be borne by the suppliers and B&B. That left SNC and Blanchette liable for 70% of the owners' damages, and the suppliers and B&B liable for 30%.