Day-late lawsuit may have cost $700K

City missed window to sue company over sewage sludge disposal

A city lawyer waited one day too long to file a lawsuit against a company that breached a contract to get rid of Ottawa’s sewage sludge, possibly costing taxpayers $700,000.

Nobody comes out of the case between the City of Ottawa and GSI Environnment Inc. looking very good.

Not GSI, which signed a contract in 2005 to dispose of 42,000 tonnes a year of gunk left over from sewage treatment at the city’s Robert O. Pickard Environmental Centre in Gloucester, only to discover it wasn’t able to do the job. (The city had to pay a new contractor $1.2 million to get rid of the sludge, but it had held back $500,000 in payments to GSI as the contract went sour, which helped cover the bill.)

According to a ruling by Justice Robert Beaudoin of the Ontario Superior Court, GSI found itself in financial trouble and couldn’t build transfer facilities it needed to handle the contract, or find enough Ontario farmers willing to take the sludge for their fields as fertilizer.

Not Laflèche Environmental, a landfill company GSI had used to dispose of the excess until (as the ruling has it) Laflèche decided it wanted to muscle GSI out of the contract and take the main job over itself, so the company closed its doors to the sludge GSI couldn’t do anything with.

Not the province of Quebec, which changed its rules on what sludge can be spread on Quebec farmers’ fields in 2007, partway through GSI’s contract with Ottawa, closing off another option for the beleaguered company.

And not even the City of Ottawa, which seems to be the most blameless in the original case but which couldn’t get its act together to file the paperwork needed to get back from GSI what it paid another company to do the disposal work that GSI couldn’t.

The original lawsuit came from GSI against the city, blaming Ottawa because its sludge doesn’t meet the tougher rules Quebec set two years into GSI’s contract. GSI argued its legal duty was to get rid of the city’s “conforming biosolids,” meaning sludge that met certain standards for poisonousness and smelliness; as GSI sees it, when Quebec changed its standards, it was the city’s duty to make sure its sludge changed to meet them.

Beaudoin ruled that that was a red herring. Spreading sludge on Quebec fields accounted for less than two per cent of the gunk GSI took and the company had much deeper problems, such as its inability to build the transfer station and its dispute with Laflèche. The city even agreed to pay GSI more after the new Quebec rules came in, which Beaudoin wrote amounted to a mutual agreement to revise the contract.

“GSI did not raise the non-conforming issue until a few weeks before it withdrew its services. Had it been a serious breach (of the contract), one would have expected GSI to raise it much sooner,” Beaudoin wrote. In fact, the company was panicking because it had stored too much sludge and had nowhere to put more and was looking for a way out. Which means its $563,000 claim against the city for breaching the contract is bunk, Beaudoin found. In fact, “the City could insist that GSI continue to perform its obligations under the contract and could sue GSI for breach.”

If only it had done so in time. When the whole thing fell apart in late 2008, city lawyer Carey Thomson sent the company a letter on Nov. 29 saying that by not showing up to collect any more sludge from the sewage plant, GSI had breached its contract and the city intended to seek damages. That, Beaudoin said, started the clock ticking on a statute of limitations that gives a plaintiff two years from the time he says he’ll sue to the time he actually files the papers. But the city didn’t file its countersuit against GSI until Nov. 30, 2010, one day too late. It’s not clear whose responsibility it was to file the paperwork. According to Beaudoin’s ruling, city lawyer Geoffrey Cantello argued at the trial that the city didn’t really declare GSI had broken its contract until Dec. 1, which would have bought two more days to file the paperwork, but Thomson’s earlier letter was “unequivocal,” the judge said. “I conclude that the City’s counter-claim is out of time,” Beaudoin wrote. It’s entitled to $72,000 it’s owed for a couple of sludge loads delivered to the city’s own Trail Road landfill, he decided, but not the $700,000.