| On April 6, the Court of Appeal of Québec rendered its decision in SNC-Lavalin inc. (Terratech inc. et SNC-Lavalin Environnement inc.) c. Deguise, 2020 QCCA 495.
Considering the importance of this decision for both the construction and insurance industries, RSS offers a series of newsletters discussing the main issues at stake. This is one segment of the complete series found here. |
June 30, 2020 — In the Trois-Rivières area, the construction of homes and other buildings turned into nightmares for owners as they discovered years later that the foundations were deteriorating. Approximately 880 claims were filed in Court, divided into more than 60 files.
Since laying the foundations involved numerous parties, one issue arose: Who has to pay how much to the owners? How is the liability distributed between the owners of the quarry that supplied the defective aggregates, the concrete plants that sold them, the contractors who poured the concrete, and the expert who certified their quality?
These are some of the questions submitted to the Court of Appeal in the Deguise case, commonly referred to as the “pyrrhotite case”.
To facilitate understanding the role played by the parties, they have been divided into four groups:
- An expert geologist, his employer SNC-Lavalin, and their insurers
- BL and CYB, the concrete plants, B&B, the quarry, and their insurers
- The contractors and their insurers
- The claimants.
After reviewing the substantial evidence filed during a trial that lasted over a year, the Superior Court relied on the principles arising from Article 469 of the Code of Civil Procedure [C.C.P.], as it read at the time, to divide the liability among the groups:
| Every judgment involving a condemnation must be susceptible of execution. Every judgment for damages must contain a liquidation thereof; if it contains a joint and several condemnation against the persons responsible for the injury, it shall, if the evidence permits, determine as between such persons only, the share of each in the condemnation. |
Justice Michel Richard decided as follows: Group 1 had to assume 70% of the global liability and of the amounts to be paid; Group 2 was to bear 25% of the liability, split equally between the involved concrete plant and the quarry; Group 3 was to pay the remaining 5%; the three groups were held solidarily for the awarded amounts towards Group 4; the motions for forced intervention were dismissed, considering the division of liability.
The application of Article 469 C.C.P by Justice Richard was one of the issues on appeal. Even if the parties signed a judicial contract that allowed the application of Article 469, the Court of Appeal ruled that such consent could not lead to the automatic dismissal of the motions for forced intervention and that it would be acknowledged in its re-evaluation of the division of liability between the groups.
To determine whether the division of liability by the Superior Court was appropriate, the Court of Appeal reviewed the relations between groups 1, 2 and 3 and applied seven different analyses in its reasons.
The first deals with the relationship between the concrete plants and the quarry. The concrete plants questioned the 50/50 split between them and the quarry, arguing that they were bound by a contract and the warranty of quality to which the quarry was bound. The Court acknowledged that, theoretically, the warranty of quality could apply. However, in the specific context of this case and because of the very close relationship between the concrete plants and the quarry, this warranty could not exonerate the plants. The Court outlined that the close relationship between the plants and the quarry, with common shareholders and directors, and exclusive supply of the aggregates, could not allow it to consider that the quarry was more at fault than the concrete plants. Neither could this lead to the application of the vendor’s warranty between them. In such a case, the concrete plants could not raise the contract to avoid liability as their relations did not end with its terms. The Court therefore affirmed the 50/50 liability split between the concrete plants and the quarry.
The application of the conclusion that the contractors and self-builders are not responsible
The second analysis rests upon the relation between the contractors, on one side, and the concrete plants and the quarry on the other, identified by the Court as the “tandems”. Justice Richard considered that the contractors had a 5% responsibility because their line of work involved the duty to obtain information and to abide by the applicable standards of quality for the material they used. The contractors disagreed with this finding and questioned the dismissal of their motions for forced intervention towards the tandems. As the pyrite situation was broadly discussed in the Trois-Rivières area at that time, the Court considered that the contractors could not ignore it and that that knowledge led to an enhanced duty of information. However, the Court highlights the fact that the applicable standards of quality of the aggregates bind those who produce the concrete, not those who buy it; therefore, when contractors buy concrete, as in this case, and especially when it bears a certification, the concrete has to meet the standards.
The Court also considered that, at the time the concrete was bought, the exact cause of the problems had not been identified. Some of the contractors did ask questions regarding the possible risks to the tandems and they were assured that there was no such risk with their product. The contractors were so convinced by those statements that they bought the same concrete for some personal projects or for people close to them.
Therefore, the Court held that there was a latent defect and that the contractors were entitled to the warranty of quality for the concrete they bought. The Court considered that the motions for forced intervention toward the tandems should not have been dismissed and that the tandems must reimburse the contractors for any amount that they would be required to pay to the Claimants. The Court also held that the distinction made by Justice Richard between the contractors that built residential buildings and those involved in commercial buildings had to be discarded because the evidence adduced did not justify such a distinction.
As for the self-builders, Justice Richard had reduced by 5% their claim considering the absence of any contractor or any suit filed against the form setter. The Court of Appeal concluded that this part of the decision contained two errors of law. First, a creditor holding a solidary debt can claim it from the debtor of his choice without any effect on the amount of his debt. The second error is related to the fact that the Court recognized that the contractors were not liable towards the tandems: similarly, self-builders are entitled to the protection that comes with the warranty of quality provided by the tandems. Therefore, the motions presented by the self-builders for the forced intervention of the tandems were granted.
The expert’s extra-contractual liability
The Court then analysed the relation between the contractors and the self-builders (collectively the “contractors”) and the expert and his employer SNC-Lavalin (collectively “the geologist”). The geologist was the expert who issued opinions on the quality of the aggregate from the B&B quarry, which triggered his contractual liability towards the parties who hired him, the tandems, as well as his extra-contractual liability towards the other parties. The Court ruled that the contractors had committed no fault and that, accordingly, the motions for the forced intervention against the geologist should be allowed.
The relation between the tandems and the geologist was then reviewed. Considering the Court’s conclusion as to the absence of liability by the contractors, the part that had been attributed to them had to be apportioned between those who were considered liable.
The Court reiterated that the tandems were liable towards the contractors following the application of the presumption against a professional seller in Articles 1728 to 1730 of the Civil Code of Quebec and that no exemption could exonerate them. They therefore had to reimburse the price paid for the concrete and the damages arising from the defect. The tandems had been assured by the geologist that they could go on with the sale of their aggregates and concrete.
The geologist alleged that the tandems, as manufacturers, had important obligations and they were the ones who decided to sell the defective aggregates. The Court highlights that the tandems were aware of some information that should have led them to be more cautious and to seek additional information. This conclusion arises mainly from the proximity between the Maskimo quarry, which produced the aggregates that led to the first problematic cases, and B&B, both being less than 500 metres apart. The tandems were aware that their aggregates presented a similar composition as Maskimo’s, and they received some warnings regarding that similarity. Although the geologist’s reports could have been comforting to the tandems, they still tried to obtain other opinions. According to the trial judge, this would not have been enough as the situation required extensive caution.
The Court considered that the geologist’s liability determination had to remain unchanged since he had not brought out a decisive error in its evaluation at trial. Considering the tandems’ lack of research for additional information, the Court increased their share of the liability to 30%. Their motions for forced intervention towards the geologist were granted, but only for 70% of their value as the remaining 30% had to be paid by them.
Considering the conclusions on the relations between the concrete plants, the quarry and their directors and shareholders, the Court rejected CYB arguments regarding BL’s behaviour towards it. The Court considered that Justice Richard’s findings as to the dismissal of CYB’s motion for BL’s forced intervention was based on the evidence filed during trial and that there was no ground allowing the Court to overturn that part of the decision.
Finally, the Court held that the insurers’ liability was directly related to their insureds’ liability and that it did not have to rule on the possible solidarity among the insurers and the insureds, considering that this question had not been raised before the Court of Appeal.
Overall, 70% of the claimants’ damages had to be paid by the geologist and SNC-Lavalin while the other 30% had to be paid by the concrete plants and the quarry, in equal shares between the concrete plant involved in each case and the quarry. The analysis of the relation between the tandems and the contractors by the Court of Appeal brings an interesting dimension to those relations that can exist in complex situations as this one, but also in cases where the professional seller can be considered as such and still has to comply with the warranty of quality even though his client is a professional buyer.