Region loses $2.1M lawsuit
Court ruling pertains to Chippawa pumping station contract
Niagara Region has been ordered to pay damages of $2.1 million after losing a wrongful termination suit by a company that was originally selected to upgrade the Chippawa pumping station.
Superior Court Judge David Broad, in a 36-page court decision released this month, found the Region unlawfully terminated a contract with Kingdom Construction Ltd. on Jan. 21, 2015.
The judge ordered the municipality to pay the Ayr, Ont.-based company those damages plus HST, which brings the total to $2.37 million.
Niagara Region spokesman Daryl Barnhart said the Region’s legal team is reviewing the decision and its options, including whether to appeal.
“The Region is still considering it an ongoing legal matter so we can’t provide a ton of comment,” he said.
A report from the legal team will be written and given to the corporate service committee. From there it will be discussed by council, likely behind closed doors.
Kingdom was the low bidder for a Region contract for the excavation and construction of an underground reinforced concrete storage tank to capture combined sewer overflows in Niagara Falls. The contract also included construction upgrades to an existing pumping station located near the tank.
Part of the project involved drawing water from the site. The Environment Ministry issued a permit allowing a total of 500,000 litres of water a day to be drawn.
The project seemed to be fraught with challenges from the beginning.
The court document said that shortly after Kingdom started dewatering operations in mid-April 2014, it discovered an excessive amount of hydrogen sulfide emanating from the excavation.
“The presence of H2S gas in sufficient quantities poses a threat to worker safety, engaged the Occupational Health and Safety Act and can damage equipment,” the court document said.
The possibility of H2S gas emanating from the excavation was news to Kingdom. It wasn’t in a report submitted by the Region’s geotechnical and environmental engineering consultant, Terraprobe, or any other tender or contract document.
Kingdom’s dewatering subcontractor, Atlas, came up with a proposal to deal with the H2S problem but in May 2014 encountered black sludge in the water, too. A few days later, Atlas had to shut down the dewatering system because of an Environment Ministry order to do so immediately.
That same day, Kingdom’s shoring subcontractor had to shut down its drilling operations during the installation of tiebacks because of a significant concern with the H2S levels and additional concern groundwater was escaping and was “being projected on the workers” from the augured hole.
Kingdom hired its own geotechnical consultant to investigate the subsurface conditions being encountered. The consultant believed the underlying bedrock contained considerable fractures which were impacting the dewatering system and suggested additional testing. That would have involved drilling several wells into the bedrock.
As the issues sprang up, emails were sent back and forth between Kingdom and the Region’s engineering consultant, Hatch, Mott and MacDonald, relating to Kingdom’s concerns and requests for direction.
The court document said it was obvious to the Region by mid-August 2014 that there was much more subsurface water that needed to be dealt with than anyone had expected. But the Region attributed the changed condition to Kingdom’s construction methods or practices.
Kingdom was told it would be responsible to obtain a new permit from the ministry to increase the amount of water which could be drawn from the site and it would have to cover the related costs.
In September 2014, Kingdom told the Region’s consultant that due to the magnitude of work required to move froward with the dewatering for the new tank — up from 500,000 litres a day to 24 million litres a day — it was not prepared to complete the extra work without a written amendment to its contract. It didn’t get one.
The Region sent a letter to Kingdom on Oct. 3, 2014, giving notice that Kingdom was in default of its contractual obligations. It gave Kingdom five working days to correct the items of default.
In his Jan. 8 decision, Judge Broad found the notice of default didn’t give any particulars of alleged defaults on the part of Kingdom. Instead, it referred to a statement of sufficient cause emailed to Kingdom by the Region’s engineering consultant on Oct. 1.
That email didn’t “clearly and precisely” specify the work which Kingdom was being accused of not doing properly or any contractual obligations it wasn’t in compliance with, the judge found.
“The Region was required, in the notice of default, to clearly and precisely communicate the nature of the default or defaults upon which it relied and which it required Kingdom to remedy within the specified time,” the judge said.
As result, the clock on the fiveday period never began to run.
“The notice of termination dated Jan. 21, 2015, was therefore without foundation and the termination was wrongful,” the judge wrote.
The judge found the Region didn’t deliver its notice of termination within a reasonable time either. Ninety-seven days passed between the notice of default and the notice of termination. During that time, Kingdom continued to perform under the contract.
The judge further found that Kingdom was not in breach of any contractual obligation at the time the Region issued the notice of default.
He said it was clear Kingdom’s subcontractors encountered conditions which were not in the Terraprobe report and those conditions substantially interfered with its dewatering operations.
“The changed conditions included the presence of dangerous levels of H2S, the undisclosed presence of organic sludge material which clogged the educator system, increases in water pressure causing infiltration into the excavation, reports of voids being encountered during bedrock drilling for tiebacks and bubbling in the adjacent river during drilling,” the judge wrote.
The judge wrote Kingdom acted appropriately when it encountered the subsurface conditions by discontinuing the dewatering operations, seeking direction from the Region’s consultant and later requesting the amendment to the contract.