The Quebec Ministry of Transport was ordered to pay a subcontractor $1.6 million for roadwork even though it had shown signs of premature wear and tear after the Quebec Court of Appeal held that the subcontractor did not face a warranty of durability.
In a ruling that provides guidance over contractual notions such as obligation of result, performance of work and warranty of durability, the Quebec appeal court reaffirms a contractor’s positive obligation to provide information to third parties, according to experts in contract and construction law.
“The appeal court ruling confirms that when a contactor such as the Quebec Ministry of Transport transfers risk in a contract it cannot do so in secrecy by withholding information,” said Jean-Pierre Dépelteau, a Montreal lawyer with Dentons, who successfully plead the case in Procureur générale du Québec v. Talon Sebeq inc 2017 QCCA 363.
The subcontractor, Talon Sebeq, one of only two firms in Quebec that uses a method known as cold mix asphalt to pave roads, did roadwork in the Saguenay region in August 2008 after it won a call from tenders from the Quebec Ministry of Transport. That fall the ministry noticed that the roadwork was deteriorating prematurely even though the cold mix asphalt procedure has a normal lifespan of three-to-five years. Talon Sebeq agreed to remedy the situation during the summer of 2009 and invoiced the Transport Ministry for $1.45 million, as agreed. In the fall of 2009, the ministry noticed yet again that there was premature wear and tear, and further corrective work was performed by the Montreal-based subcontractor the following spring. On June 2011 the transport ministry terminated the contract, and the subcontractor demanded $1.6 million for all corrective work it performed. The ministry refused and filed a counterclaim seeking $1.2 million for reimbursements of amounts paid.
The trial judge, Quebec Superior Court Judge Robert Legris, found that there was no warranty of durability clause in the contract and ordered the Attorney General of Quebec to pay the Talon Sebeq $1.6 million.
The appeal court upheld the lower court ruling, holding that the contractor’s “obligation of result applied to the performance of the work required according to the plans and specifications, not a warranty of durability of the cold mix asphalt with respect to a risk.” The risk in this case involved the extensive use of studded tires in the region, which the subcontractor was not aware of. Heeding guidance from the Supreme Court of Canada in Bank of Montreal v. Bail Ltée,  2 S.C.R. 554, the Quebec appeal court noted that a subcontractor’s responsibility must be examined in light of a contractor’s expertise. In Bail, the SCC held that the main elements of the contractual obligation to inform include knowledge of the information, whether actual or presumed, by the party which owes the obligation to inform; the fact that the information in question is of decisive importance; and the fact that it is impossible for the party to whom the duty to inform is owed to inform itself, or that the creditor is legitimately relying on the debtor of the obligation.
Considering its expertise, the Quebec Ministry of Transport should have been aware of the regional practices of drivers, held the appeal court. Moreover, the ministry’s internal documents showed that it was aware of other risks it was taking by using the cold mix asphalt process in the Saguenay. “Its choice not to reveal the risks to bidders is not without consequences,” noted the appeal court. The ministry could have transferred the risks to the subcontractor but if it chose to do so it would have had to inform the subcontractor of the risks involved, something that it chose not to do. Further, the ministry could have drawn up a contract, as it has done in the past, that includes a warranty of durability when it wants to transfer risks to a subcontractor. Again, it chose not to do so, added the appeal court.
“Even if an entrepreneur faces an obligation of result in a contract, the intensity of this obligation is established by the nature of the contract,” observed François Beauchamp, a Montreal lawyer with De Grandpré Chait LLP, and co-author of a book on the nature and reach of contracts. “In this case the obligation of result was extended to the performance of the work required by the plans and specifications of the contract. The subcontractor did not have to provide a warranty of durability given that he faced an unknown risk.”
According to Dépelteau, the ruling underscores that a contractor cannot impose new contractual obligations on a subcontractor that are not specified in the contract. “Imagine if the the Quebec Ministry of Transport could invent obligations surrounding results or warranties that are not written into the contract, it would render all contracts uncertain,” noted Dépelteau. “If one wants a warranty of durability, it has to be correctly written into the contract and as a result it must be reflected in the price of the contract.”
The appeal court also found that the ministry could not terminate a contract once the work was performed. The only recourse the ministry had once the work was completed was to establish that the “performance” of the work was faulty. But as the appeal court points out the ministry itself acknowledged in court that the subcontractor fully complied with the specifications and performed the work according to its mandate.