The recent decision of the British Columbia Court of Appeal in Greater Vancouver Water District v. North American Pipe & Steel Ltd. serves as a warning to contractors about the risks taken when they commit to follow design specifications while also providing an unqualified warranty against design defects.
The case concerned a contract for the supply of water pipes to the GVRD. The tender documents issued by the GVRD required that the pipes have a seal coat over a fibre mat over-wrap. The documents also included contractual terms stating the supplier “warrants … that the Goods … will conform to all applicable Specifications …” and “warrants and guarantees that the Goods are free from all defects arising at any time from faulty design in any part of the Goods.” North American Pipe submitted the winning bid and manufactured the pipes according to the specifications. Subsequently, the seal coat on the pipes began delaminating and it was determined that this problem was caused by the GVRD specifications. The GVRD sued under the warranty for repair costs. North American Pipe successfully defended itself at trial, arguing the warranty should be restricted to design errors made by the supplier.
The Court of Appeal disagreed, saying the warranty applied regardless of whose design gave rise to the defects. The lesson to be learned was succinctly stated by the court’s Mr. Justice Chaisson when he wrote:
[Warranty clauses such as the one used in this contract] distribute risk. Sometimes they appear to do so unfairly but that is a matter for the marketplace, not for the courts. There is a danger attached to such clauses. Contractors may refuse to bid or, if they do so, may build in costly contingencies. Those who do not protect themselves from unknown potential risk may pay dearly. Owners are unlikely to benefit from circumstances where suppliers and contractors are faced with the prospect of potentially disastrous consequences. Parties to construction or supply contracts may find it in their best interest to address more practically the assumption of design risk. To fail to do so merely creates the potential for protracted and costly litigation.
If you have any questions about this article or any other construction matter, please contact R. Glen Boswall at 604.643.3125 or firstname.lastname@example.org, or any other member of the Clark Wilson LLP Construction Group.