Canada Line Nuisance

Under the increasingly common public-private part-partnership (P3) arrangements for building public infrastructure, the private sector partner typically bears the long-term risk for design and construction. A recent British Columbia court case suggests that the poten-tial liability of P3 partners is growing in relation to design and construction methods. As parties involved in designing and administering these P3 projects, consulting engineers need to be aware of the decisions in the B.C. case and their potential impacts.

The case of Susan Heyes Inc. v. Van-couver (City) is a 2009 judgment of the B.C. Supreme Court relating to the P3 project to develop the Canada Line, a rapid transit line that opened recently and connects the airport and the City of Richmond with Vancouver. The public sector entities involved in the litigation included the City of Vancouver, the province of British Columbia, the federal government, TransLink (a crown corporation responsible for development of regional transportation) and a special purpose corporation “CLRT” formed by TransLink for the Canada Line project. Claims were also made against the private sector “concessionaire” known as InTransit BC.

Susan Heyes was the owner and operator of Hazel & Co., a maternity clothing store located on Cambie Street in Van-couver. The store was directly on the route of the Canada Line construction. Hazel & Co. claimed it was misled by representations that the construction along Cambie Street in front of the store would be done by an underground bored tunnel and that there would be no disruption to the street surface. Ms. Heyes renewed her building lease based on that representation. The concessionaire responsible for design and construction of the project subsequently changed its construction method for the line to a cut and cover or “open trench” which required major excavation and serious disruption to the street. The cut and cover method reduced construction costs by $400 million.

“Gross over-simplification” of construction impacts

The concessionaire said that the cut and cover construction would last no more than three months. In fact, there was an open trench on Cambie Street for up to eight months. The court found that the three month approximation was a “gross over-simplification” of the impact such construction would have on Cambie Street. This promise of three months of disruption formed the second ground for a claim of misrepresentation. In fact, the vicinity of Hazel & Co. was seriously disrupted by construction from fall 2005 through to October 2008. The court found that the cut and cover method of construction was the sole cause of the economic loss incurred by Hazel & Co.

Mr. Justice Pitfield awarded $600,000 in damages for economic losses sustained by Ms. Heyes’ business on the basis of the net sales from preceding years. The claims made against the City of Vancouver and the provincial and federal governments were dismissed, as were the claims of negligence and misrepresentation against Translink, CLRT and the concessionaire, InTransit BC. However, the claim of nuisance was successful against Translink, CLRT and InTransit BC.

The misrepresentation claim was dismissed by the court for two reasons. First, it was held that there was no evidence to support the allegation that the representation of a bored tunnel made in 2003 to Ms. Heyes was false or negligent because the cut and cover method of construction was not considered until 2004. Second, the estimated duration of three months for the cut and cover method was reliable at the time the decision was made, and it only became inaccurate as a result of conditions encountered during the course of construction.

The negligence claim was also dismissed because Hazel & Co. did not allege any harm to persons or property, and a claim of negligence does not permit recovery for purely economic losses. The court found that the factual basis for negligence was more properly grounded in a nuisance claim.

The claim of nuisance against both the provincial and the federal government was dismissed as these parties merely contributed funds to the project. The court also found that the City of Vancouver was not liable on the basis of nuisance as it lacked sufficient involvement and did not have enough knowledge of the project.

However, Translink, CLRT and InTransit BC were found to be jointly and severally liable in tort for nuisance because TransLink and its subsidiary, CLRT had accepted the design and InTransit BC caused the project design to be implemented. The court rejected the defence of statutory authority because alternative construction methods were available and Translink, CLRT and InTransit BC were not obliged by statute to pursue the cut and cover method.

The court did not accept that the loss sustained by Hazel & Co. was a burden that the retailer should absorb “as its contribution to the realization of a project of general public utility.” The court found that the potential cost savings of a change to the design or the method of construction should not automatically outweigh adverse financial consequences and disruptions to private third parties. Not surprisingly, the Heyes decision is under appeal.

Could lead to class actions

The Heyes decision is important because it challenges the assumption that a P3 project that benefits the public will outweigh the inconvenience and effects on its neighbours. It also illustrates the importance of accuracy when making representations to the public about a project and highlights the increased risk of claims for damages against P3 parties for the choice of design and construction methods. Consulting engineers should be alert to situations similar to those in Heyes and be aware that decisions regarding changes to design and construction methods for a major project carry the risk of potential claims where those decisions impact private third parties. In addition, engineers should review their project agreements and ensure they understand the allocation of risk for design and construction methods. Of particular interest will be indemnity provisions that distribute such liability.

Finally, engineers should note that there is a pending class action lawsuit from other store owners impacted by the construction of the Canada Line. That lawsuit is in abeyance pending the outcome of the appeal. But, if the appeal is not successful, indirect costs of the project due to the class action lawsuit could be significantly increased, well beyond the award to Ms. Heyes– possibly in excess of the savings realized by the concessionaire from using cut and cover construction!

Owen D. Pawson is a partner, and So Yin Woo is an associate, with Miller Thomson LLP in Vancouver.

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“Hazel & Co. claimed it was misled by representations that the construction along Cambie Street in front of the store would be done by an underground bored tunnel.”