Publications

Packed with valuable information, our publications help you stay in touch with the latest developments in the fields of law affecting you, whatever your sector of activity. Our professionals are committed to keeping you informed of breaking legal news through their analysis of recent judgments, amendments, laws, and regulations.

Advanced search
  • The Role of the Expert under the new Code of Civil Procedure

    The coming into force of the new Code of Civil Procedure on January 1, 2016 created some uncertainty for litigation lawyers. One issue was the role of experts in litigation and in particular the emphasis on joint experts and the filing of an expert’s report in lieu of testimony. Other provisions that appear to deal a blow to professional secrecy and the litigation privilege could also affect litigation lawyers and their clients. The second paragraph of article 235 C.C.P., which covers the expert’s duties, as well as the second paragraph of article 238 C.C.P., which covers testimony taken by an expert, read as follows: “235. Experts are required, on request, to “235. Experts are required, on request, to provide the court and the parties with details on their professional qualifications, the progress of the work and the instructions received from a party; they are also required to comply with the time limits given to them. They may, if necessary to carry out their mission, request directives from the court; such a request is notified to the parties.” “238. Any testimony taken by the expert is attached to the report and forms part of the evidence.” The recent Superior Court decision in SNC-Lavalin inc. v. ArcelorMittal Exploitation minière Canada (2017 QCCS 737) sheds some light on the scope of these provisions and the interpretation given to them by the courts. The judgment The Honourable Jean-François Michaud ruled on objections dealing with professional secrecy and the litigation privilege. SNC-Lavalin Inc. (“SNC”) asked for [Translation] “the experts’ letters of undertaking and the instructions given to them regarding the performance of their mandate”. ArcelorMittal Mining Canada and ArcelorMittal Mines Canada Inc. (“Arcelor”) objected, primarily on the ground of professional secrecy. Arcelor could also have raised the litigation privilege. Before 2016, all solicitor-client communications were confidential and the opposing party did not have access to them. For litigation lawyers, it was their secret garden. Justice Michaud nonetheless dismissed Arcelor’s objection and allowed SNC’s request for two reasons. First, the experts described their mandate in their report, which constitutes a waiver of professional secrecy, at least with respect to that description of their mandate. According to the judge, this reasoning also applies to instructions received later which may have changed the scope of the mandate. The judge was also of the opinion that article 235 C.C.P. reduced the extent of professional secrecy and the litigation privilege, which he found to be reasonable given the expert’s [Translation] “impartial role and the search for the truth”. In obiter, the judge states that article 235 C.C.P. applies even though the experts’ reports were prepared before the new Code of Civil Procedure came into force since that article had immediate effect according to the transitional rules. Lastly, the judge held that Arcelor would be required to provide SNC with any subsequent instructions it gave its experts, although only those relating to the scope of the mandate and excluding any other discussions between the experts and Arcelor or their attorneys. In the second part of its application, SNC requested for the documents consulted by Arcelor’s experts [Translation] “on which they based their opinion”. This essentially covered interviews the experts conducted with some of Arcelor’s employees, which were mentioned in their report. Based on jurisprudence which preceded the reform, the court held that SNC had a right to those interviews if they were recorded and/or transcribed, since the experts’ report referred to them. However, if the experts only took notes of the interviews, those notes were protected by professional secrecy and the litigation privilege and Arcelor was under no obligation to provide them to the other party. Justice Michaud also set aside the application of article 238 C.C.P. which, as mentioned, requires that experts attach any testimony taken to their report. His decision was based on the fact that this provision did not exist when the interviews were conducted and article 238 C.C.P. is not retroactive. Without going into detail about transitional law, which is not the subject of this newsletter, it is difficult to see why this article would be treated differently from article 235 C.C.P. The judge concluded that at some point he will order the experts to meet pursuant to article 240 C.C.P. to “identify the points on which they differ”. Conclusion This judgment and the provisions on which it is based certainly result in a big change for litigation lawyers. They and their clients will likely have to adjust to the new rules. As mentioned above, this new approach runs counter to not only professional secrecy and the litigation privilege, but also the principle that each party is master of his own evidence. However, debates among experts often lead to more disputes than they resolve. In future, lawyers must be scrupulously clear as to the mandates and instructions given to experts.

    Read more
  • Artificial Intelligence and the 2017 Canadian Budget: is your business ready?

    The March 22, 2017 Budget of the Government of Canada, through its “Innovation and Skills Plan” (http://www.budget.gc.ca/2017/docs/plan/budget-2017-en.pdf) mentions that Canadian academic and research leadership in artificial intelligence will be translated into a more innovative economy and increased economic growth. The 2017 Budget proposes to provide renewed and enhanced funding of $35 million over five years, beginning in 2017–2018 to the Canadian Institute for Advanced Research (CIFAR) which connects Canadian researchers with collaborative research networks led by eminent Canadian and international researchers on topics including artificial intelligence and deep learning. These measures are in addition to a number of interesting tax measures that support the artificial intelligence sector at both the federal and provincial levels. In Canada and in Québec, the Scientific Research and Experimental Development (SR&ED) Program provides a twofold benefit: SR&ED expenses are deductible from income for tax purposes and a SR&ED investment tax credit (ITC) for SR&ED is available to reduce income tax. In some cases, the remaining ITC can be refunded. In Québec, a refundable tax credit is also available for the development of e-business, where a corporation mainly operates in the field of computer system design or that of software edition and its activities are carried out in an establishment located in Québec. This 2017 Budget aims to improve the competitive and strategic advantage of Canada in the field of artificial intelligence, and, therefore, that of Montréal, a city already enjoying an international reputation in this field. It recognises that artificial intelligence, despite the debates over ethical issues that currently stir up passions within the international community, could help generate strong economic growth, by improving the way in which we produce goods, deliver services and tackle all kinds of social challenges. The Budget also adds that artificial intelligence “opens up possibilities across many sectors, from agriculture to financial services, creating opportunities for companies of all sizes, whether technology start-ups or Canada’s largest financial institutions”. This influence of Canada on the international scene cannot be achieved without government supporting research programs and our universities contributing their expertise. This Budget is therefore a step in the right direction to ensure that all the activities related to artificial intelligence, from R&D to marketing, as well as design and distributions, remain here in Canada. The 2017 budget provides $125 million to launch a Pan-Canadian Artificial Intelligence Strategy for research and talent to promote collaboration between Canada’s main centres of expertise and reinforce Canada’s position as a leading destination for companies seeking to invest in artificial intelligence and innovation. Lavery Legal Lab on Artificial Intelligence (L3AI) We anticipate that within a few years, all companies, businesses and organizations, in every sector and industry, will use some form of artificial intelligence in their day-to-day operations to improve productivity or efficiency, ensure better quality control, conquer new markets and customers, implement new marketing strategies, as well as improve processes, automation and marketing or the profitability of operations. For this reason, Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal peculiarities, particularly the various branches and applications of artificial intelligence which will rapidly appear in companies and industries. The development of artificial intelligence, through a broad spectrum of branches and applications, will also have an impact on many legal sectors and practices, from intellectual property to protection of personal information, including corporate and business integrity and all fields of business law. In our following publications, the members of our Lavery Legal Lab on Artificial Intelligence (L3AI) will more specifically analyze certain applications of artificial intelligence in various sectors and industries.

    Read more
  • The latest news from the Canadian infrastructures market / Major trends in the infrastructures market for 2017

    TABLE OF CONTENTS The latest news from the Canadian infrastructures market Defense Construction Canada issues Request for Expressions of Interest for an energy performance contract Boralex completes financing of the Yellow Falls hydro project in Ontario Boralex and AWEC announce a new partnership CC&L and Desjardins acquire a majority interest in the South Fraser Road project Boralex purchases Enercon’s interest in the Niagara Region Wind Farm in Ontario United States: State officials seek abolition of the Clean Power Plan The sale of TerraForm Power moves forward CDPQ and DP World launch a US$3.7 billion port assets fund The Canadian government approves two pipeline projects TerraForm Power successfully refinances its solar power portfolio in Canada The Northwest Territories are seeking financial consulting services for PPPs Crown corporations concerned over the market’s ability to deliver all the infrastructure projects currently planned in Canada Québec is considering a PPP for the Louis-Hippolyte- LaFontaine Tunnel rehabilitation project Consortiums pre-qualified for the Montréal LRT contracts Canada’s Minister of Infrastructure and Communities, Amarjeet Sohi, outlines the federal government’s infrastructures plan Alberta approves 400 MW of new renewable energy projects procurement Refinancing of Montréal Gateway Terminals partnership completed Axium acquires its first solar assets in the U.S. PPP for île d’Orléans Bridge? Global Infrastructure Partners creates the largest infrastructure fund in the world Fiera Infrastructure acquires 50% interest in an Ontario wind farm Major trends for 2017 The latest news from the Canadian infrastructures market Defense Construction Canada issues a Request for Expressions of Interest for energy performance contract Defense Construction Canada (DCC) has issued a Request for Expressions of Interest, dated December 20, 2016, for improvements in energy efficiency contracts covering nine military facilities across Canada (Québec, Ontario, Alberta, Nova Scotia and New Brunswick). The services required include preparation of a feasibility study, financing, performance guarantees, and construction and project management. The payment mechanism, financial structure and energy-saving targets would be specific to each project. The approximate value of the contract would be $52 million, on the basis of a 10-15% reduction in service costs and a maximum amortization of 15 years from the beginning of work. Responses to the Request for Expressions of Interest had to be submitted February 1, 2017. DCC plans to finalize the process by March 31, 2018. Boralex completes financing of the Yellow Falls hydro project in Ontario On December 16, 2016, Boralex announced that it had closed a $74.3 million financing for its Yellow Falls hydro project in Ontario. The 16MW Yellow Falls hydroelectric power station is on the Mattagami River, near the town of Smooth Rock Falls. The total project cost is approximately $91.7 million. Financing was structured on the basis of a hybrid model and includes a short-term tranche of $9.1 million fully amortized over 10 years, and a long-term (39-year) tranche of US$65.2 million which will begin amortizing over 29 years after repayment of the shorter tranche, the balance being due at maturity. Together, both tranches will bear a fixed average interest rate of approximately 5% over the life of the loans. The lenders are Canada Life, The Great West Life Assurance Company and London Life. Construction of the Yellow Falls hydroelectric site has already begun, with commissioning planned for the end of the 2nd quarter of 2017. The plant will operate under a 39-year power purchase agreement with IESO. The Yellow Falls project was developed jointly with First Nation partners, the Taykwa Tagamou Nation and the Mattagami First Nation. The two First Nations, as well as the initial project proponent, Canadian Hydro Developers, hold options allowing them to acquire a participation of up to 31.25% of the project. Boralex and AWEC announce a new partnership On December 15, 2016 Boralex and the Alberta Wind Energy Corporation (AWEC) announced the creation of the Alberta Renewable Power Limited Partnership, owned respectively 52% and 48% by the two entities. This collaboration will allow Boralex and AWEC to pool their mutual expertise in developing and implementing wind and solar projects in Alberta and in Saskatchewan. This new joint venture marks Boralex’s entry into Alberta’s renewable energy market. The partnership will focus primarily on public utility wind farms with capacities greater than 5 MW and will also seek sites for potential solar projects. The partnership expects to prepare tenders for the Windy Point and Old-Elm/Pothole projects in Alberta, and for a portfolio of other projects in Alberta and in Saskatchewan. CC&L and Desjardins acquire a majority interest in the South Fraser Road project Connor, Clark & Lunn Infrastructure (“CC&L”) and the Desjardins Group Pension Plan acquired a majority interest in the South Fraser Perimeter Road project in British Columbia, a public-private partnership (PPP) project. ACS (50%), Star America Infrastructure Fund (25%) and Ledcor Infrastructure Investments (25%) were the project’s initial shareholders. ACS sold 37.5% of the total project for $24.7 million, and will retain a 12.5% minority interest in the project. The transaction closed on December 9, 2016. The project was refinanced in October 2015 for $228 million. Boralex purchases Enercon’s interest in the Niagara Region Wind Farm in Ontario In a media release dated December 8, 2016, Boralex announced its acquisition of Enercon’s 50% interest in the 230 MW Niagara Region Wind Farm in Ontario for a total cash consideration of $238.5 million. The Wind Farm, which extends over the Regional Municipality of Niagara, the Township of West Lincoln, the Town of Wellfleet and Haldimand County in Ontario, was commissioned on November 2, 2016 and comprises 77 Enercon E-101 turbines. The Wind Farm has a 20-year power purchase agreement with IESO. In October 2016, Enercon and its partner, Grand River Development Corporation, secured a $828.3 million non-recourse financing for the project. Grand River Development Corporation financed its capital investment in the project by way of a non-recourse loan from Enercon that will be transferred to Boralex. United States: State officials seek abolition of the Clean Power Plan A coalition of attorney generals and government agency representatives of 24 U.S. states have urged the Trump administration to issue an executive order declaring the Clean Power Plan unlawful. In a letter dated December 14, 2016 to Vice-President Mike Pence, House Leader Paul Ryan and Senate Majority Leader Mitch McConnell, the signatories contend that the Clean Power Plan contradicts section 111 of the Clean Air Act, maintaining that the section does not give the EPA power to regulate emissions from a source that is already regulated. They also claim that the rules subvert each state’s authority over its own sources of electricity generation. The Clean Power Plan, widely regarded as draft environmental legislation bearing President Obama’s stamp, fixes carbon emission reduction objectives applicable to power plants. One of the aims of the draft legislation was to accelerate the shutdown of coal-fired plants while increasing the share of renewal energy projects. The legislation remains suspended further to the Supreme Court’s February 2016 decision delaying implementation. In his campaign, President Donald Trump stated that he opposed the Clean Power Plan. The signatories of the letter noted that an order would not formally cancel the plan, but would however assure States that it would not be applied. The groups also suggested that Congress and the administration work together on legislation that would prevent the EPA from drafting regulations similar to the Clean Power Plan in the future. The letter was also signed by the representatives of West Virginia, Wyoming and Kentucky, the three largest coal-producing states in 2014. Industry participants stated they do not expect any significant changes in the short term if the Clean Power Plan is cancelled and noted that the growth in renewable energy production was largely stimulated by state initiatives rather than by federal mandates. The sale of TerraForm Power moves forward TerraForm Power, the yieldCo created by the US developper Sun Edison, is currently assessing preliminary offers from various strategic buyers and investors, in preparation for the next phase of the sale process, namely committed offers, which had to be submitted mid-January 2017. Pattern Energy Group, Brookfield Asset Management, a Texas-based renewable energy company and other entities established in Asia, are among the potential bidders. TerraForm Power, with a market capitalization of US$1.9 billion, manages US$3 billion in solar and wind assets in North America and in the UK. The energy company SunEdison, currently under bankruptcy legislation protection, remains the largest shareholder of TerraForm Power. CDPQ and DP World launch a US$3.7 billion port assets fund Caisse de dépôt et placement du Québec (CDPQ) and Dubai-based DP World have created a $5 billion (approximately US$3.7 billion) fund, to be used as a platform for investing in ports and terminals around the world (excluding the United Arab Emirates). DP World holds a 55% interest in this investment vehicle, and CDPQ holds the remaining 45%. This new vehicle will invest directly in equity, primarily in existing infrastructure assets, but will also invest up to 25% in projects under development. The fund has invested $865 million in two of DP World’s Canadian container terminals, located in Vancouver and Prince Rupert. CDPQ has acquired a 45% interest in the combined assets. CDPQ Infra, the infrastructure division of Caisse de dépôt et placement du Québec, currently has $13 billion in assets under management, 25% of which is invested in the United States, and 10% in Canada. In November 2013, CDPQ acquired a 26.67% interest in Global Infrastructure Partners in the Port of Brisbane in Australia. The Canadian government approves two pipeline projects According to a November 29, 2016 statement, the federal government has approved two major oil pipeline projects: the Kinder Morgan’s Trans Mountain Expansion Project and the Enbridge Line 3 replacement project. The Trans Mountain pipeline has been in existence for 63 years. It transports crude and refined oil between Alberta and British Columbia. The expansion project will increase the pipeline’s nominal capacity from 300,000 to 890,000 barrels a day. Construction of the Trans Mountain project is scheduled to begin in September 2017, with a commissioning date planned for the end of 2019. The cost of the project would be approximately $7 billion. Calgary-based Enbridge’s Line 3 Replacement Project involves replacing a 50-year old pipeline from Alberta to Wisconsin that would double its original capacity to 760,000 barrels a day. Project completion is planned for 2019. The Canadian government rejected a third pipeline project, the Northern Gateway project, also proposed by Enbridge. The project was envisaged as a twin pipeline system that would have exported bitumen and imported natural gas condensate. TerraForm Power successfully refinances its solar power portfolio in Canada TerraForm Power recently contracted a $120 million 7-year loan with Deutsche Bank to refinance its Canadian solar power portfolio. The loan bears interest at an average interest rate of 3.7%. TerraForm Power’s solar power portfolio includes the following projects: SunE Perpetual Lindsay (15.5MW) March Hill (18.5 MW) Woodville (12.6 MW) Sandringham (13.1 MW) The four projects have 20-year power purchase agreements with IESO. The financing terms and conditions give TerraForm Power the possibility of expanding the loan principal by an additional $123 million (“accordion feature”). The Northwest Territories are seeking financial consulting services for PPPs The Government of the Northwest Territories has launched a call for tenders for financial consultancy services for future PPP projects. The selected firm’s mandate would be to assist the government in developing and evaluating the call for tender process. It will also contribute to the creation of appropriate administrative structures and training programs. The province contemplates at least three potential projects being carried out in PPP mode. A first project, estimated at $700 million would to construct a section of highway in the Mackenzie Valley from Wrigley to Normal Wells. A second project involves construction of the All Season road (approximately $150 million). The third project is also a highway, extending to the Arctic Coast as far as a deep water port in western Nunavut. To date, the province has been involved in two PPPs: the Stanton Territorial Hospital which completed its financial close in August 2015, and the Mackenzie Valley fibre optic line, which finalized its closing in November 2014. Crown corporations concerned over the market’s ability to deliver all the infrastructure projects currently planned in Canada A number of Canada’s main PPP agencies appear to be concerned over the market’s ability to deliver the increasingly high number of projects that are planned across the country. Some agencies, such as Partnership BC or Infrastructure Ontario, try to structure their procurement process to maintain market competitiveness, for example by giving companies more time to assess their needs, or by saturating the market with a large number of requests over a short period of time. Public sector agencies that must manage a growing number of projects in development must also deal with this problem. Québec considering a PPP for the Louis-Hippolyte-LaFontaine Tunnel rehabilitation project In the early part of 2017, Transports Québec will assess private-sector interest in the Louis-Hippolyte-LaFontaine Tunnel rehabilitation project. The government agency is planning a major rehabilitation of the tunnel as well as related work on Highway 25. A traditional procurement model will be assessed alongside Design – Build – Finance and Design – Build – Finance – Operate options. Transports Québec will conduct a market survey of potential privatesector partners (engineering consulting firms, general contractors, investors) regarding the commercial structure, allocation of risk, and terms of remuneration for the project. The various aspects of the project include replacement of the concrete screed and installation of a surface protective coating. The project cost and project schedule have not yet been determined. However preliminary work the project is underway, and the second phase of the project is slated to begin after 2018. Consortiums pre-qualified for the Montréal LRT contracts CDPQ Infra, a subsidiary of the CDPQ, conducted a pre-selection of consortiums for the Réseau Électrique Métropolitain (“REM”) project, the cost of which is estimated at $5.9 billion. In June 2016, the CDPQ published two requests for qualification: one for the infrastructure engineering, procurement and construction (EPC) contract and the other for the rolling stock, systems and operation and maintenance services (RSSOM) contract. The cost of the EPC contract will be approximately $4.4 billion and the RSSOM contract will be approximately $1.5 billion. The following consortiums and companies were pre-selected: For the EPC contract: Groupe NouvLR: SNC Lavalin, Dragados, Aecon, Pomerleau, EBC, Aecom Kiewit-Eurovia, a partnership: Construction Kiewit, Eurovia Québec, WSP, Parsons For the RSSOM contract: Alliance Montréal Mobilité (AMM): Parsons, Hyundai Rotem Company, RATP Dev Canada and Thales Bombardier Transportation Canada Inc. Groupe des Partners pour la Mobilité des Montréalais (PMM): Alstom, SNC-Lavalin The pre-selected teams each have six months to submit a final proposal. Construction is expected to start in the spring of 2017 and the first trains are expected to be in operation by the end of 2020. The project will allow for the deployment of a new high-frequency light rail transit network by building and transforming close to 67 km of double tracks, 24 stations, 9 bus terminals and 13 park-and-ride facilities. The project will also include the acquisition of a fleet of over 200 cars. Canada’s Minister of Infrastructure and Communities, Amarjeet Sohi, outlines the federal government’s infrastructures plan In an interview granted to InfraAmericas, Amarjeet Sohi, Canada’s Minister of Infrastructure and Communities explained the federal government’s infrastructure projects and in particular the role of the future Canada Infrastructure Bank (“CIB”). The CIB’s mandate will be to advise the federal government as well as provincial and municipal authorities on building infrastructure projects through public-private partnerships. The CIB, which has received $15 billion in government funding, will review each transaction and will structure it to ensure the protection of the public interest, while seeking to attract private capital. The relevant projects are primarily in the area of transit infrastructure: building of roads, bridges, tunnels, public transit and interprovincial transit lines. The mandate of the CIB is also to promote renewable energy projects so that ultimately the use of coal will be eliminated in Canada, in furtherance of the COP21 Agreement signed in Paris in 2015. The Minister cited the REM project developed by the CDPQ in Montréal as an example of the situation where an institution dedicated to infrastructure can make a difference by mobilizing private capital for a project that would not otherwise be achievable because the investment required would be too high for government budgets. As regards asset recycling transactions – another way to fund new projects - the government is awaiting the result of a Department of Finance Canada study, which would determine the role that the CIB could play. PPP Canada will continue to play a role in formulating new infrastructure projects and will support the Government in creating the Infrastructure Bank. Alberta approves 400 MW of new renewable energy projects procurement The Government of Alberta has authorized the Alberta Electric System Operator (AESO) to launch a call for tenders for 400 MW of renewable energy in 2017. This call for tenders would be the first of a series that should span the next 14 years, in the knowledge that Alberta plans to add 5,000 MW of renewable generation capacity by 2030. The AESO would accept projects that have a capacity of at least 5 MW and that would be operational by the end of 2019. The Authority will consider new projects and expansions of existing facilities. The AESO plans to issue a Request for Expressions of Interest in the 1st quarter of 2017, a request for qualification in the 2nd quarter 2017 and a request for proposals in the 4th quarter of 2017. Renewable energy is part of Alberta’s long-term climate policy. The province plans to gradually eliminate coal-fueled electricity generation from 49% to zero by 2030. Refinancing of Montréal Gateway Terminals partnership completed A group of Montréal Gateway Terminals shareholders, led by Axium Infrastructure, closed the refinancing of the company’s bank debt, which amounted $252 million on November 17, 2016. in March 2015, a consortium comprised of Axium, Desjardins, Manuvie, FTQ and Industrial Alliance, acquired the company’s assets from Morgan Stanley’s first infrastructure fund. The transaction was initially financed by $252 million in “mini-perm” bank financing over a five-year term. The debt was refinanced via a private bond placement in which several American and Canadian buyers, such as Prudential, Barings and Manuvie participated. Axium acquires its first solar assets in the U.S. Axium Infrastructure has acquired an 84-MWac (110 MWdc) portfolio of solar photovoltaic installations in the USA and Canada from Renewable Energy Trust Capital (RET Capital). The transaction, which closed on November 17, 2016, is Axium Infrastructure’s first solar investment in the US. The portfolio includes eight solar parks in California, Georgia and Ontario. These facilities reached commercial operations between 2012 and 2015. They each have long-term fixed-price power purchase agreements with investment-grade utilities. PPP for île d’Orléans Bridge? The Government of Québec will review all possible options for carrying out the project for a new cable-stayed bridge linking the île d’Orléans to the north shore of the St. Lawrence River. Until now, the preferred option was traditional public sector construction and operation. Two other options are currently under consideration: having the project carried out either in the private sector or in a private-public-partnership (PPP). The question of a bridge toll appears to be definitively ruled out. On November 24, 2016, the ministère des Transports du Québec (MTQ) launched a call for tenders for consultants specialized in finance and economics whose mandate would be to review and analyze the various modes of delivery for the île d’Orléans Bridge project. MTQ officials have estimated the cost of traditional construction and maintenance, i.e., fully government-funded. Although that assessment has not been disclosed, there is an unofficial estimate circulating that puts the budget at $400 million. The current bridge dates from 1935. It must be replaced to conform to new seismic standards, and also because its piles are sinking into the soft bed of the river, on the north shore. The most recent schedule put forward by the government is that the bridge will be in operation by 2024. The new bridge, if built as a concrete structure would have a life-span of 75 years, and if built as a metal structure, would have a life-span of more than 100 years. Global Infrastructure Partners creates the largest infrastructure fund in the world The third fund created by Global Infrastructure Partners – baptized as Global Infrastructure Partners III (“GIP III”) – was completed at US$15.8 billion. The final amount of GIP III is bigger than that of the Brookfield Infrastructure Fund III (“BIF III”), which achieved a final closing of US$14 billion in July 2016. The GIP III will have a 10-year mandate with two options to extend, each for one year. It is planning on making 10 to 14 equity investments of approximately US$500 million to US$1.75 billion over a five-year period. Fiera Infrastructure acquires 50% interest in an Ontario wind farm On January 25, 2017, Fiera Infrastructure Inc., a subsidiary of Fiera Capital Corporation, announced that it had acquired Suncor Energy’s 50% interest in the 100-MW Cedar Point II wind facility in Ontario, through its Fiera Infra LP fund. This is Fiera Infrastructure’s first wind energy investment. Cedar Point II is located in the counties of Lambton and Plympton-Wyoming and has been operational since October 2015. It sells its entire output to IESO under a 20-year power purchase agreement. NextEra Energy Canada, a subsidiary of NextEra Energy Resources, holds the remaining 50% of the project’s assets. National Bank Financial Markets acted as Fiera Infrastructure’s adviser, financial arranger and lender. Major trends in the infrastructures market for 2017 It is interesting to note the major worldwide trends in the infrastructures sector for 2017. Below is a compilation for our readers of the recurring themes gleaned from the analyses of experts in the field. A political commitment to reviving economic growth by means of infrastructure spending Accepted by most economic analysts and political leaders across the spectrum, investments in public infrastructures are universally acknowledged as an effective tool for economic interventionism. Generally, such investments are accompanied by measures to stimulate private investment which in turn optimizes government expenditures. The proliferation of infrastructure investment vehicles accompanied by competition in the fund industry over fund size Intended to attract private capital to infrastructure projects, the number and size of investment funds should continue to grow, particularly under the influence of investors from emerging countries. In some cases, they could compete head-on with traditional developers and builders. Growing competition in the construction industry should increase pressure on sector company margins This phenomenon should stimulate cooperation among firms seeking synergies and economies of scale, and also promote technological innovation. The transportation sector should play a more important role and surpass that of energy in new infrastructure investments Growing urbanization, associated with congestion and pollution in large cities and the need to facilitate trade will push governments to prioritize urban transit projects, especially rail projects. Economic expansion in China China should accelerate its economic expansion in Asia due to the USA’s disinvestment in the region and the failure of the TransPacific Partnership. This situation will affect North American companies and small local Asian companies that cannot compete with large Chinese companies. The energy storage sector The exponential growth of the energy storage sector caused by the problem of managing an increasingly complex energy mix, including renewable energy, which by its very nature is intermittent, and fossil fuels and nuclear energy, the flexibility of which remains limited. Commercially operational technological solutions are beginning to emerge and will represent opportunities for sophisticated investors.

    Read more
  • October news on the Canadian infrastructure market

    Creation of a Canadian infrastructure bank On October 20, 2016, the Advisory Council on Economic Growth published its report entitled “Unleashing Productivity Through Infrastructure”. One of the report’s recommendations is to create a Canadian Infrastructure Development Bank whose objective would be to deliver projects with an aggregate value of more than $200 billion over 10 years, while at the same time minimizing the use of government budgets. The new bank could grant financing in the form of subordinated debt or equity to supplement the financing provided by institutional investors in various projects. The new entity would, in fact, promote the PPP delivery model or alternative financing models, although its role would not be to replace the existing provincial bodies, such as Infrastructure Ontario or the Société québécoise des infrastructures. Moreover, the federal government will also wish to ensure that the establishment of an infrastructure bank does not discourage investments by the private sector. Finally, on November 1, 2016, the Finance Minister, Bill Morneau, confirmed the creation of the Canada Infrastructure Bank (“CIB”) in 2017. The new institution will receive an initial capitalization of $35 billion. It remains to be seen whether the CIB will be governed by the Bank Act or whether a new legislative scheme will be set up for this new institution. Project to privatize eight Canadian airports In the aforementioned report, “Unleashing Productivity through Infrastructure”, the Advisory Council on Economic Growth proposes the privatization of the airports of Toronto, Vancouver, Montreal, Calgary, Edmonton, Ottawa, Winnipeg and Halifax. The Council also recommends the use of private investment in other public infrastructures such as toll highways and bridges, highspeed railways, smart cities, broadband internet networks, power transmission lines and natural resources infrastructure. This is not the first time the federal government has considered a project to privatize airports, but no decision seems yet to have been made at this stage, nor any agenda unveiled. However, the Canada Development Investment Corporation (“CDEV”), a federal Crown corporation reporting to the Finance Minister, Bill Morneau, has been mandated to hire consultants to advise the government. On the other hand, during his speech to the Montreal Chamber of Commerce on November 2, 2016, the Minister of Transport, Marc Garneau, mentioned that privatization was only one of the options on the table. Boralex closes a €100 million wind farm project financing in France Boralex Inc. has announced the closing of financing for the Mont de Bagny (24 MW), Artois (23.1 MW) and Voie des Monts (10 MW) wind farms in France, for a total of approximately €100 million (Cdn$145 million). This financing is provided by Crédit Industriel et Commercial (Groupe Crédit Mutuel) and BPI France Financement. The construction of each of the projects is already underway and they should all be commissioned by the end of 2017. This announcement was made shortly after Boralex acquired a wind farm portfolio of nearly 200 MW in France and Scotland, in September 2016. In June 2016, Boralex also closed another financing of €20.4 million for two wind farms in France. These large transactions confirm Boralex’s position as France’s largest independent producer of onshore wind power, through its Boralex Europe subsidiary. Possible refinancing of Montreal Gateway Terminals’ debt The Montreal Gateway Terminals project is currently studying the possibility of refinancing its bank debt. This consortium, including Axium, Desjardins, Manulife, the FTQ and Industrial Alliance, acquired the company’s assets from Morgan Stanley’s first infrastructure fund in March 2015. The transaction was financed with mini-perm bank financing of $252 million over a five-year term. The banking syndicate currently consists of BMO, CIBC, MUFG & BTMU, RBC and Scotiabank. DBRS downgrades Montreal hospital bonds On October 20, 2016, the DBRS credit rating agency downgraded the rating of the senior secured bonds of the Centre hospitalier de l’Université de Montréal (“CHUM”) from BBB (high) to BBB. This downgrade was due to the postponement of the substantial completion date of phase 1 from the second quarter of 2016 to the first quarter of 2017. This represents an additional delay of 20 weeks since the date of DBRS’s last review and 48 weeks since the initial substantial completion date of April 22, 2016. The project will be in default if delays continue beyond July 2017. HSBC implements a worldwide infrastructure financing platform HSBC recently announced that it was setting up an infrastructure financing platform with a worldwide mandate, whose purpose will be to mobilize capital from institutional investors. The team will be based in London and plans to sign its first mandate with the HSBC insurance company, which seeks to invest primarily in senior, investment grade infrastructure debt. In doing so, HSBC is imitating other international institutions that are seeking to capitalize on the appetite for private capital for infrastructure debt. For example, the French bank, Natixis, has also established its own infrastructure debt platform, based on investments from insurance companies. CIBC Asset Management establishes an energy and infrastructure team CIBC Asset Management has just set up an infrastructure and power projects financing team. The team’s mandate will be to take out interests in the form of private placements or public bond issues in the Canadian infrastructure, PPP, and renewable or non-renewable power production markets. This is therefore a new player from the banking industry positioning itself in the market for long-term public and private financing of infrastructure projects. Until now, TD Asset Management and Desjardins Asset Management were the two most well-known Canadian banking institutions active in fixed income infrastructure financing, in competition with the insurance companies that traditionally dominate this market. Bond refinancing for Kingston solar park On October 19, 2016, Connor, Clark & Lunn (“CC&L”), Samsung and a group of co-investors closed a $633 million bond issue for the refinancing of the Kingston Solar project in Ontario. Kingston Solar is a 100 MW project, one of the largest in Canada, located near the city of Kingston, Ontario, which commenced operations in September 2015. The project benefits from a 20-year power purchase contract with IESO. The bond issue, which DBRS rated BBB, will mature on July 31, 2035 and bears interest at a fixed rate of 3.571%. This is CC&L’s second refinancing of a solar park through the issuance of bonds after the refinancing of Grand Renewable Solar — a project of the same size as Kingston Solar — completed in June 2016. Public bond issues are an appealing option for the refinancing of Canadian renewable energy projects. However, the number of transactions completed to date has been relatively modest, in part because of the constraints imposed by the credit rating agencies, which, until now, had encouraged promoters to turn to more traditional types of financing, such as medium-term bank loans or private placements.

    Read more
  • Overview of the Canadian Public-Private Partnerships market

    The Public-Private Partnership delivery model (“PPP” or “P3”) is now well established in Canada, where more than 177 of such projects were closed between 1993 and 2015 (source: InfraAmericas). The great majority thereof (166) have been closed since 2004, and the current trend indicates the number of projects is on the rise. Thus, considering the projects already completed in 2016 as well as projects currently engaged in the tendering process, according to the Canadian Council for Public- Private Partnerships “CCPPP”, the total number of completed and pending PPP projects in Canada currently stands at 247. Canada is often described as the most active PPP market in the world, and is certainly one of the most mature. The life cycle of infrastructures, the Canadian geography and the current economic context are all convergent factors that favour this market. Also, the improvement of public infrastructures through the use of private capital is a concept which has always benefited from the support of the federal government. The Liberal government elected in October 2015 made infrastructure a major pillar of its economic platform with the campaign promise to double the country’s infrastructure investments. On November 1, 2016, Finance Minister Bill Morneau announced the creation of the Canada Infrastructure Bank (“CIB”) in 2017, whose mandate will be to invest in large infrastructure projects by attracting capital from institutional investors. Taking into account existing infrastructure programs ($91 billion), the investments announced last March in the government’s first budget ($14 billion), and additional investments included in the economic and financial update last November 1 ($81 billion), the federal government estimates that the country’s total infrastructure investments will reach $180 billion between 2016 and 2028. According to the CCPPP’s data, the Canadian P3 industry is still dominated by social infrastructure (58%) and civil infrastructure projects (24%). The health sector remains the largest subsector within social infrastructure, with 37% of the completed transactions. However, we note an increase in transportation-related projects, particularly suburban highways and light-rail transit projects. Other types of projects are also being developed, such as wastewater treatment and waste management plants and power transmission lines, all of which are new asset classes offering alternative investment opportunities for investors. Provincial bodies such as Infrastructure Ontario, Partnerships BC, SaskBuilds, Alberta Infrastructure, Partnerships New Brunswick and the Société québécoise des infrastructures are at the heart of the Canadian PPP programs and are directly responsible for the majority of infrastructure projects. Infrastructure Ontario remains the largest agency in terms of size and the number of completed transactions. It also serves as a reference for documentation and processes. At the municipal level, about 15 municipalities have also undertaken to develop their own projects, although they are often implemented in partnership with the provincial agencies. Federally, seven projects have been launched to date in PPP mode, notably the Confederation Bridge and the new Champlain Bridge. Another recent example is the Gordie Howe International Bridge connecting Windsor, Ontario to Detroit, Michigan, which is currently engaged in a call for tenders process. The 177 PPP projects completed since 1993, as reported by InfraAmericas, represent an aggregate value of $79 billion, or an average project value of $482 million. If we consider the aggregate of projects identified by the CCPPP as completed and currently underway (247), this represents a total value of $118 billion. It is generally acknowledged in the industry that a project must have a minimum value of $50 to $75 million to be viable for the PPP delivery model. To date, Ontario and British Columbia have been the most active Canadian provinces in terms of PPP, together contributing 121 out of a total of 177 projects (68%) by the end of 2015. Ontario has completed 90 projects to date, or 51% of the Canadian market. This is followed by Quebec with 10%, New Brunswick with 6%, Alberta with 6% and Saskatchewan with 5%. Canada remains a market open to international competition and foreign capital, and continues to attract numerous players from Europe and the United States. In terms of risk, this is a relatively conservative market that is not so open to projects exposed to volume (or traffic) risk. However, this has the advantage of attracting the interest of institutional investors for Canadian infrastructure debt, which actually benefits from high-quality risk ratings. In terms of financing, the Canadian pension funds and life insurance companies are the main actors involved in investments in the form of private placements. Their interest in this class of assets has made private placements the primary financing solution for the Canadian P3 market. Most of the projects resort to bank credit during the construction phase, which is then refinanced on the bond market once the project has been completed. However, some projects have been financed solely through bond issues. Thus, according to InfraAmericas, of the 177 projects that were financed by the end of 2015, 125 (71%) were financed solely with bank debt, 37 (21%) were financed solely in the capital markets, and 15 (8%) were financed with hybrid forms, i.e., through a combination of bank debt and long-term bond financing. More recently, a secondary market for PPP projects has developed which has some potential throughout Canada. While most institutional investors such as pension funds and insurance companies view PPPs as long-term investments, there are also some promoters who potentially wish to assign their interests in certain projects after a relatively short time, in order to redeploy their capital in other projects or sectors.

    Read more
  • Renewable energies: the trend is toward hybrid financing

    For about two years now, most renewable energy projects, particularly wind farm projects, have been financed using a so-called “hybrid” model, i.e. a combination of medium-term bank debt and long-term financing or private placements. The term “hybrid” is derived from the vocabulary of the Public-Private Partnerships industry, particularly projects involving an operational and maintenance component as part of a long-term concession. Indeed, during the construction phase, these projects generally involve a bank construction loan with a term of 2 to 5 years, combined with a long-term bond issue. In most cases, the bank financing is to be repaid upon project completion by payments from the Public Authority, while the bond financing is amortized over the duration of the project’s operational phase. Until not so long ago, renewable energy projects were financed through one of two different models: medium-term bank financing of 5 to 7 years, or more rarely 10 years (i.e. “mini-perm financing”), or long-term financing (or a private placement) whose term was as close as possible to the term of the power purchase agreement — generally 18 to 20 years. Bank type loans were primarily granted by the large Canadian banks, while long-term financings were generally the hallmark of the insurance companies and foreign banks. More recently, particularly for the wind farm projects stemming from the latest call for tenders for community projects in Quebec, we have witnessed the emergence of hybrid financings which allow for the optimization of the project’s financial cost and benefit from a lower interest rate on the mini-perm tranche, while still enabling the financing to be secured over the full duration of the project. One of the features of this type of financing is that the long-term lenders must agree to grant a capital repayment holiday for the duration of the amortization of the bank’s tranche. Indeed, if the two tranches were required to be amortized at the same time, the burden of repayment would have an excessive impact on the project’s cash flows. Also, the long-term lenders generally prefer the bank’s tranche to be fully amortized over its initial term to avoid any risk of refinancing at maturity. It is technically possible using modeling to work up a plan to simultaneously amortize the two financing tranches that could be absorbed economically by the project. However, this would require a substantial reduction in the amount of the bank’s tranche, and therefore minimize the financial benefits of the hybrid structure. Other technical issues must also be addressed, such as, for example, how disbursements are to be made during the construction phase. The simplest way is to proceed in a similar fashion to PPPs, i.e., by fully disbursing the long-term financing at the start of the construction and starting the progressive payouts on the bank’s tranche once the funds of the long-term tranche have been fully spent. Another way of proceeding is to pay out the two tranches at the same time with progressive payouts made pro rata to each other. This method is sometimes less suitable for institutional lenders for administrative and cash management reasons.

    Read more
  • An obiter of the Québec Court of Appeal makes its way up to the Supreme Court of Canada

    The facts The client, Station Lands Ltd. (“Station”) retained the general contractor Ledcor Construction Ltd. (“Ledcor”) to build the Epcor tower in Edmonton. As is customary, Station and Ledcor purchased a builders’ risk all-risk property insurance to cover property damage which may occur in the course of the construction project. This insurance also covered all the subcontractors participating in the project. At the end of the project, Bristol Cleaning (“Bristol”) was hired to clean the windows of the Epcor Tower. However, in doing so, Bristol damaged the windows. The replacement cost of the windows was $2.5 million. The insureds, Station and Ledcor, filed claims with their insurers, Northbridge Indemnity Insurance Company, Royal & Sun Alliance Insurance Company of Canada and Chartis Insurance Company of Canada. The insurers denied coverage, relying on the faulty workmanship exclusion: “4. (A) Exclusions This policy section does not insure: […] (b) the cost of making good faulty workmanship, construction materials or design unless physical damage not otherwise excluded by this policy results, in which event this policy shall insure such resulting damage.” [emphasis added] The decisions of the lower courts The insureds were successful at trial2 on the basis of the contra proferentem interpretation principle applied to Clause 4. (A), which was deemed to be ambiguous. However, the trial decision was reversed by the Alberta Court of Appeal3, which concluded that coverage denial was justified on the basis that the damage to the windows was related and closely connected to the object of Bristol’s contract. The issue of the interpretation of Clause 4. (A), which seemed to exclude damages for faulty workmanship while seeming to cover damages resulting from it, ended up before the Supreme Court of Canada4. The common law principles To determine the scope of coverage and nature of the insured property, the common law jurisprudence of the Canadian provinces developed a three-step analytic approach for assessing whether the damages claimed by the insured were excluded from coverage or covered under the exception to the exclusion. Accordingly, the following had to be determined: a) the nature of the damages claimed, making a distinction as to whether they consisted in the cost for making good defective workmanship, that is, re-do the faulty work or damages to property resulting from faulty workmanship; b) the damages caused to property which was the very subject of the contract of the contractor or subcontractor at fault were invariably excluded, whether they were claimed for making good faulty workmanship or resulted from faulty workmanship; c) the damages to property which were not part of the object of the contract of the contractor or subcontractor at fault were covered under the exception to the exclusion. The above principles expressly or implicitly resulted from the following decisions: Poole-Pritchard Canadian Ltd. and Armstrong Contracting Canada Ltd. v. Underwriting Members of Lloyds (Supreme Court of Alberta), (1969) (1970) I.L.R. 1-324; Poole Construction Ltd. v. Guardian Assurance Co. (Supreme Court of Alberta), (1977) I.L.R. 1-879; Sayers & Associates Ltd. v. The Insurance Corp. of Ireland et al. (Court of Appeal of Ontario), (1981) I.L.R. 1-1436); Simcoe & Erie General Insurance Co. v. Royal Insurance Co. of Canada et al. (Alberta Queen’s Bench), (1982) (183) I.L.R. 1-1597; Bird Construction Co. Ltd. et al. v. United States Fire Insurance Co. et al., (Court of Appeal of Saskatchewan), (1985) (1986) I.L.R. 1-2047; Mr. Elegant Ltd. v. Canadian General Insurance Co. Ltd., (New Brunswick Queen’s Bench), (1987) 78 N.B.R. 225, reversed by the Court of Appeal of New Brunswick, 31 CCLI 243. However, a discordant note was heard in 1989, in the decision of the Québec Court of Appeal in the matter of Commercial Union Compagnie d’assurance du Canada v. Pentagon Construction Canada inc., 1989 CanLII 657 (QCCA). In that case, the insured, Pentagon Construction Canada, was claiming an insurance indemnity from its insurer, Commercial Union Compagnie d’assurance du Canada, for damages caused to a stake-pile jacket while in the process of being rammed in the ground. Writing for the Court, the Honourable Marcel Nichols concluded, as had the trial judge, that no faulty workmanship was involved. Accordingly, the exclusion of the policy did not apply. As an obiter, Mr. Justice Nichols stated that even if faulty work had been involved, the exclusion would not have applied to damages to the insured property resulting from the faulty performance of the construction contract. He analysed the subject of the exception to the exclusion as follows: [TRANSLATION] “The appellant maintains that the damage to the stake-pile in itself constitutes “faulty workmanship” irrespective of the fault or mishap of the contractor and thereby falls within the scope of the exclusion. The appellant however forgets to consider the proviso which follows the exclusion. The word “provided”, in the context of such an exclusion clause translates the idea that this particular exclusion does not apply to a case where faulty workmanship results in a damage being caused to the insured property. In other words, the insurer will not pay to make good the faulty workmanship, but will pay the damage to the insured property even if it results from faulty or improper workmanship. The word “provided” is nothing more than a condition to which the insurer intended to submit the exclusion it stipulated. The exclusion stipulated as to “faulty or improper workmanship” will not apply if such “faulty or improper workmanship” translates into a damage to the insured property. (…) In such a case, the insurer will not be required to pay “the cost of making good”, meaning that the cost which would represent ramming a new caisson in the correct location because the insured property would not be affected by a damage. In short, the damage which is covered is not the cost of making good faulty workmanship but the “resultant damage to the insured property.” These comments of Mr. Justice Nichols, although they do not affect the reasons for the Court’s decision in Pentagon Construction Canada, seem to have made their way to the Supreme Court5. The appeal before the Supreme Court The Supreme Court refused to follow the three-step analytic approach favoured by the common law, particularly the second condition related to damages caused to the insured property being the subject of the construction contract itself. As the Québec Court of Appeal6, the Supreme Court was of the view that the exclusion for faulty workmanship only applies to the costs of making good the faulty workmanship, while the exception necessarily has to cover all the damages to the insured property resulting from the faulty workmanship. Moreover, we note that the interpretation of an insurance clause, restrictive as to an exclusion and broad and liberal as to an exception, is reaffirmed and takes on its full meaning in the Ledcor case. To arrive at such a conclusion, the Supreme Court7 used the principles of interpretation set out in Progressive Homes8. It is incumbent on the insured to demonstrate that the damages are covered either by the initial coverage9 or by the exception to the exclusion. To promote a broad interpretation of the insurance coverage, the Court considered the reasonable expectation of the parties to a standard form contract such as most of insurance contracts. The Court noted that the underlying purpose of a builder’s risk insurance is to promote the swift indemnification of the parties involved to avoid paralyzing a construction project10. It concluded that the parties could reasonably expect that the damages caused to the insured property by faulty workmanship of a subcontractor such as Bristol would be covered. The Court then discussed the issue of the valid result from a commercial point of view, which is sought by an insured who pays significant premiums in consideration of builder’s risk coverage. If the exclusion was to receive a broad interpretation, the insurer would incur no risk because the property damaged by faulty workmanship would inevitably be excluded from coverage11. The Court dismissed the argument of the insurers whereby broadly interpreting the initial coverage and the exception to the exclusion would allow or encourage contractors to perform their work improperly or negligently12. As to the principles directing consistency in the interpretation of similar insurance contract clauses, the Court noted that each matter is unique. The object of the construction work which resulted in faulty workmanship must be reviewed to determine what, in fact, constitutes an excluded damage. The Supreme Court agreed with the trial judge, who considered that Clause 4. (A) was ambiguous, without however relying on the contra proferentem principle since it is a principle of last resort, as the ambiguity of the clause could be resolved using other interpretation principles. What is to be noted From a procedural point of view, which is however not the purpose of this bulletin, we note that the Supreme Court considers the interpretation of insurance standard contracts as an issue of law respecting which the decision of a lower court may be appealed on the basis of the standard of correctness, as opposed to the patently unreasonable standard. This decision of the Supreme Court may result in applications for review of the decision of lower courts being more frequently made. We especially note that the restrictive interpretation of an exclusion clause in a builder’s risk insurance contract, which originated from an obiter of the Québec Court of Appeal13, puts the brakes on the expansion of the common law jurisprudence whereby insured property damaged as a result of a badly performed construction contract was excluded. Exclusion from coverage, henceforth, only applies to the cost of making good faulty workmanship. Although their wording is completely different from the exclusion clause in the Ledcor case, the exclusion clauses for faulty workmanship contained in standard CGL and Umbrella commercial insurance policies had also been restrictively interpreted by the Québec Court of Appeal in 201314. While keeping in mind that the underlying purpose of a builder’s risk insurance policy is very particular and distinctive from that of a commercial insurance, it remains to be seen whether the Ledcor case will have repercussions in the interpretation of the exclusion clauses for faulty workmanship in commercial insurance contracts and on premiums. An obiter is an incidental remark that has no binding force, but is persuasive only. Ledcor Construction Limited v. Northbridge Indemnity Insurance Company, 2013 ABQB 585. Ledcor Construction Limited v. Northbridge Indemnity Insurance Company, 2015 ABCA 121. Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Company, 2016 SCC 37. Id., para. 94. Commercial Union Compagnie d’assurance du Canada v. Pentagon Construction Canada inc., 1989 CanLII 657 (QCCA). Id., para. 49-51. Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33. Supra, note 4, para 52. Supra, note 4, para 72. Supra, note 4, para 78 and 79. Supra, note 4, para 80. Supra, note 5. Lombard General Insurance Company of Canada c. Factory Mutual Insurance Company, 2013 QCCA 446; leave for appeal denied: Lombard General Insurance Company of Canada v. Factory Mutual Insurance Company, 2013 CanLII 55903 (CSC).

    Read more
  • Licence security requirements to be hiked shortly

    Effective September 18, 2016, anyone wishing to obtain a general contractor licence will be required to first provide security of at least $40,000. The amount will be $20,000 for specialized contractors. Effective January 21, 2017, the Regulation to amend the Regulation respecting the professional qualification of contractors and owner-builders also amends the description of the work authorized for some contractors specialized in heating, ventilation and refrigeration. On July 20, 2016, following a lengthy review period, particularly before the Régie du bâtiment du Québec (Board), the government passed a regulation to amend the Regulation respecting the professional qualification of contractors and owner-builders.1 The amendments mainly deal with two matters. Firstly, as indicated at the outset, the amount of the security required to be provided by contractors under law2 will be doubled, effective September 18, 2016.3The increase aims to reflect that of the value of contracts since such obligation was introduced. However, the purpose and mechanics of the security remain the same: it aims to compensate clients who sustain a loss following non-performance or performance of construction work if the loss results directly from instalments paid, failure to carry out construction work or faulty work or defects discovered in the year following completion of the work. The security does not cover the claims of persons who took part in the construction work, damages resulting from delays in construction work, damages for moral injury or punitive damages.4 In addition, the client who suffered a loss must obtain a judgment before making a claim before the Board. However, the exemption for contractor dealing in new residential buildings covered by a guaranty plan, Class I or II remains.5 The increase of the security threshold is only effective for the provision of a new security or upon renewal of a licence: a contractor who currently holds a licence is required to provide the new amount of security only from the expiry date of the payment of the fees and charges payable to maintain the contractor’s licence.6 The new security will then replace the former security without it being necessary to give the notice otherwise required by law.7 Secondly, the amending regulation makes some adjustments to the description of the work which holders of some licence subclasses, regarding heating, ventilation and refrigeration work. Many of those adjustments concern language: “warm air” and “hot water and steam” systems will be referred to respectively as “pulsed air” and “hydronic” systems. As to substance, two amendments, scheduled to come into force on January 21, 20178 must be noted. One is that contractors who specialize in natural gas burners will also be allowed to perform work on propane burners. This amendment, which concerns subclasses 15.2 and 15.4 of Schedule II, reflects the harmonization of applicable standards within the industry. Also, a contractor who perform works on systems which allows both heating and air-conditioning, whether on a pulsed air or hydronic system, must henceforth hold the necessary competences for both systems. This amendment concerns subclasses 15.1, 15.1.1, 15.4, 15.4.1, 15.7, 15.8, 15.9 and 15.10 of Schedule II. In case of doubt as to the determination of the relevant subclass, the client relations department of the Régie du bâtiment du Québec should be consulted. Lavery has the necessary knowledge and experience to assist you in your dealings with the Board. Do not hesitate to contact us. Order in council 703-2016 dated July 6, 2016, GOQ.II.2968, rectified by GOQ.II.4711 [the Order in council] adopting the draft Regulation to amend the Regulation respecting the professional qualification of contractors and owner-builders, GOQ.II.2359 dated July 22, 2015 amending the Regulation respecting the professional qualification of contractors and owner-builders, CQLR c B-1.1, r 9 [the Regulation]. Building Act, CQLR c. B-1.1, section 84. Order in council, sections 1 and 11(1). Regulation, section 25. Regulation, section 26. Order in council, section 11(2). Order in council, section 10. Order in council, section 11 para. 1.

    Read more
  • Contracts by public entities: stay tuned on June 1, 2016

    The regulation governing contracts of public bodies leaps into the digital age. The amendments, passed on April 13, 2016, and coming into force June 1, 2016, aim to clarify the rules pertaining to the results evaluation.1 Five key changes Tenders in electronic form are mandatory if so required in the tender documents —> change of computer systems will be needed to ensure the integrity of the signatures and tenders. Minor modifications to the conditions for compliance —> still not possible for the public body to specify what constitutes a minor irregularity in the tender documents. Qualitative evaluation of tenders —> it is possible to ask for the details of the evaluation in case of refusal. For supply contracts, the concept of “total acquisition cost” is introduced —> to determine the lowest price or the adjusted price, the public body may take into consideration the additional costs related to the useful life of the goods which are not included in the tenders. Adoption of a new regulation respecting information technology contracts2 —> these contracts are removed from the ordinary framework of supply and services contracts Electronic transmission of tenders Public bodies may henceforth require tenderers to transmit their tenders only through the electronic tendering system approved by the government (ETS).3 Failing to do so will then constitute a ground for automatic rejection, as well as the fact that the electronic tender “is unintelligible, infected or otherwise illegible once its integrity has been established by the electronic tendering system.”4 Moreover, only tenders whose integrity has been ascertained,5 meaning that it is possible to verify that the information which the document contains has not been altered, that the medium used provides stability and perennity to the information and that the security measures necessary to its preservation exist6may be accepted. If it is not possible to ascertain the integrity of a document at the opening of tenders, the public body must not disclose the prices, but rather send a default notice to the tenderer in question, who will then have two business days to remedy the situation, failing which the tender will be rejected.7 If integrity can be ascertained, the public body shall publish the result of the opening in the ETS within four business days.8. The public body may of course continue to accept the filing of paper tenders, exclusively or in addition to electronic tenders. In this last case, effective from May 31, 2019, in the event that a same tender is both sent electronically and on paper form, it will be deemed to constitute two separate tenders for the purpose of compliance analysis.9 Prior to May 31, 2019, it may be considered that the paper form version prevails. Evaluation of the tenders Conditions for compliance If, effective from June 1, 2016, the erasure of or correction to the tendered price which is not initialled will no longer constitute a ground for automatic rejection, grounds such as a conditional or restrictive tender, a security which does not comply with the form and conditions required, lateness in submitting a tender and non-compliance with a condition stipulated to be essential remain.10 In this respect, the regulation is more timid than the draft regulation published on November 11, 2015, which, for example, would have given the public body the authority to establish which conditions could be the subject of a correction by tenderers in the event of an irregularity. This proposed faculty was finally not retained. Results of the evaluation Regarding contracts to be awarded following a quality evaluation, whereas the public body was previously required to inform each tenderer only of the overall results of the evaluation. From June 1st, 2016, they will also be required, upon the written request to the tenderer sent within 30 days of the quality evaluation results, provide the tenderer with the results in respect of each criterion used, as well as briefly set out the reasons justifying the fact that a tender was not accepted, if such was the case. The public body is required to provide its response to the tenderer within 30 days from the date it received the tenderer’s request.11 Changes specific to supply contracts Supply contracts are the subject of particular amendments, the most important of which apply to the adjustments to be made to the tender price to determine the lowest price. The concept of “impact cost”12 disappears, to be replaced with that of “total acquisition cost,” which allows the public body to take into account the “additional costs related to the acquisition of the goods”. These costs must be identified in the tender documents. They represent quantifiable and measurable elements non included in the tendered price, the cost of which will be borne by the public body during the useful life of the goods acquired. They may include installation, maintenance, support and training costs.13 Their value must be communicated to tenderers within 15 days of the contract awarding.14 The amendments to the regulation also specify the procedure applicable for calls for tenders in two stages15 as well as the procedure pertaining to compliance tests: the public body must first test the goods proposed by successful tenderer according to the terms provided for in the call for tenders and can only resort to the other tenderers if the goods proposed by the successful tenderer fail to pass the compliance test.16 New regulation applicable to contracting in the field of information technologies In addition to the above amendments, a new regulatory framework is adopted in respect of information technologies contracts which, effective June 1, 2016, will cease to be covered by the ordinary regime regulating services and supply contracts. We simply note that if the structure of the Regulation respecting contracting by public bodies in the field of information technologies, O.C. 295 2016 generally retains that of the current regulations, it also innovates, the government seeking to reflect certain issues specific to the “acquisition of goods or the provision of services in the field of information technologies […] [which] seek[s] predominantly to ensure or enable functions of information processing and communication by electronic means, including the collection, transmission, display and storage of information”. The new regulation provides specific rules pertaining to intellectual property or cloud computing and the possibility to use a new method for awarding contracts, “competitive dialogue”. Conclusion These regulatory amendments reflect the government’s wish to make electronic tenders the norm in the medium term. They also reflect some teachings of the courts, particularly as to the importance of precise tender documentation. Lastly, particularly with respect to supply, they aim to give more flexibility to the public body in order to ensure the best possible value to the taxpayer. O.C. 292-2016, 293-2016, 294-2016 and 295-2016 dated April 13, 2016, GOQ.II.1803-1826 (April 13, 2016), respectively amending the Regulation respecting supply contracts of public bodies, CQLR c. C-65.1, r. 2 (Rrscpb), the Regulation respecting service contracts of public bodies, CQLR c. C-65.1, r. 4 (Rscpb) and the Regulation respecting construction contracts of public bodies, CQLR c. C-65.1, r. 5 (Rccpb), all three adopted under the Act Respecting Contracting By Public Bodies, CQLR c. C-65.1. Regulation respecting contracting by public bodies in the field of information technologies, O.C. 295 2016. Sec. 4(5.2.), 9.2 Rccpb, Rscpb, Rrscpb; an exception applies to supply contracts referred to in section 183 of the Act respecting health services and social services, CQLR, c. S 4.2 where the documents related to the tendered price are in the form of a price list whose scope or layout does not make it possible to identify a total price (sec. 46.2 Rrscpb). Sec. 7 para 1 (5) Rccpb, sec. 7 para 1 (4) Rscpb, sec. 7 para 1 (4) Rrscpb. Sec. 13.1 Rccpb, sec. 10.1 Rscpb, sec. 10.1 Rrscpb. An Act to Establish a Legal Framework for Information Technology, CQLR c. C-1.1, sec. 6. Sec. 7.0.1 para 1 Rccpb, Rscpb, Rrscpb. Sec. 14 para 4 Rccpb, sec. 11 para 4 Rscpb, sec. 11 para 4 Rrscpb. Sec. 7 para 3 Rccpb, Rscpb, Rrscpb. Sec. 7 para 1 Rccpb, Rscpb, Rrscpb. Sec. 32 para 5 Rccpb, sec. 28 para 4 Rscpb, sec. 26.3 para 3. Sec. 13 al. 2 Rrscpb (2008-2016). Sec. 15.1.1 and 15.1.2. Rrscpb. Sec. 15.1.2 Rrscpb. Sec. 26.1-26.3 Rrscpb. Sec. 7 para 1(5), 12 para 2 Rrscpb.

    Read more
  • Contracting authorization from the AMF: reduction in threshold for service contracts

    Last June 10, the Autorité des marchés financiers (AMF) announced that the floor amount for obtaining a public contract dealing with services without its prior authorization would be reduced to $1 million.1 Thus, all contracts and subcontracts for services concluded following a call for tenders launched on or after November 2, 2015 — the date the order in council comes into force2 — (or for which the awarding process by direct agreement starts on or after that date) may only be awarded to service providers holding an authorization to contract issued by the AMF. While this lowering of the threshold currently only applies to contracts for services, it is most likely that it will also apply to construction contracts and supply contracts within a few months time. You will remember that since the adoption of the Integrity in Public Contracts Act in 2012,3 the threshold for tendering for and obtaining a contract or subcontract relating to construction or services with Quebec public bodies without the authorization of the AMF was reduced from $40M to $10M and then to $5M (stricter standards are moreover already in place for specific public bodies, such as the City of Montreal). Since prior authorization of the AMF should eventually become mandatory for all contracts with public bodies (at least where a call for tenders is required), any person doing business with such bodies should consider taking the necessary measures to obtain such authorization as soon as possible. Furthermore, in view of the serious consequences of a refusal of such authorization, it is essential that a person wishing to obtain authorization from the AMF should be certain of meeting the prescribed conditions before making their application. These conditions may require a restructuring of the company or the appointment of new directors. Lavery has the knowledge and experience necessary to assist you in your dealings with the AMF. Please do not hesitate to contact us. _________________________________________ 1  See the news release dated June 10, 2015, online. 2 Order in council 435-2015 of May 27, 2015 concerning service contracts and subcontracts involving an expenditure equal to or greater than $1,000,000. 3 Integrity in Public Contracts Act, SQ 2012, c. 25, see Lavery BUSINESS bulletin no. 17 (June 2013), online.

    Read more
  • A Heads-up on Asbestos!

    To allow for adequate planning, the Quebec government phased in the coming into force of certain regulatory amendments on building safety that were adopted in the past few years. These new standards were previously discussed in bulletin Nos. 6 and 9, issued in April 2013 and June 2014 respectively, of our Lavery Real Estate and Construction series. This newsletter serves as a brief reminder of the most imminent deadlines.  ASBESTOS: JUNE 6 IS FAST APPROACHING Our newsletter No. 9, published in June 2014, summarized the new standards for safe asbestos management that came into force on June 6, 2013, most of which appeared in division IX.1, entitled “Provisions on the Safe Management of Asbestos”, of the Regulation respecting occupational health and safety, CQLR, c. S-2.1, s. 223.1 This regulation was adopted from the perspective of occupational health and safety and imposes both an obligation to identify (and reduce) risks and an obligation to inform workers. Identification of existing risks The regulation provides that the employer must: (1) locate flocking in all buildings constructed before February 15, 1999, and heat insulating material in all buildings constructed before May 20, 1999, to find the asbestos they contain — by June 6, 2015; (2) thereafter, conduct inspections of such flocking and heat insulating material every two years; (3) at all times, make the necessary corrections to the flocking, heat insulating material or interior finishes whose condition has deteriorated or which pose a risk; (4) record this information in a register. Identification of high-risk workBeginning June 6, 2015, all buildings covered by the regulation will have a register. These registers should be consulted by any person wishing to do work on the building, regardless of the scope of such work. Indeed, as soon as work is being considered that could lead to asbestos dust emissions, the employer is required to check for the presence of asbestos in any materials and products likely to contain it and, where it is found, to: (1) take the appropriate corrective or mitigation measures; (2) inform the person planning the work of any risks; (3) inform the workers likely to be exposed to asbestos dust and, moreover, inform them of the risks, prevention methods and specific safe working methods for the work to be done; these workers also have the right to consult the registers. Responsibility for these obligations The regulation states that the employer’s responsibility to inspect relates to “any building under the employer’s authority”. The key issue of who has authority over a building will necessarily vary depending on the nature of the building or the operations conducted therein. Thus, the employer-owner-occupant will undoubtedly generally hold the “authority” over the building, but a single tenant, real estate manager or tenant under an emphyteutic lease could also do so. There is, however, no similar limitation on the obligation to take corrective measures, which seems to be imposed on the employer’s authority even where the building is not under its control. It is therefore even more important to consult the registers under these circumstances. Remember also that the Act respecting occupational health and safety, CQLR, c. S-2.1, extends the employer’s obligations to any person who retains the services of a worker for the purposes of the employer’s establishment. As for the potential role of the Commission de la santé et de la sécurité du travail with respect to asbestos exposure of workers, we refer you to the newsletter Need to know prepared by our colleagues in the Labour and Employment sector. In any event, prudence dictates that the various persons who may be exercising some form of control over the building should agree on the efficient sharing of responsibilities. FACADES AND PARKING: WHEN WILL YOUR (NEXT) INSPECTION BE? As we indicated in our newsletter No. 6 of April 2013, pursuant to chapter VIII entitled “Buildings”, which was added to the Safety Code on March 18, 2013 by the Regulation to improve building safety,2 any facade of a public building with five or more storeys, and any underground or aboveground multistorey garage with a concrete slab whose driveable portion is not laid directly on the ground, must henceforth be the subject of an in-depth verification report every five years attesting that it is not in a dangerous condition (or indicating the corrective measures that must be taken3). Inspection of facades The deadlines for completing the first in-depth verification, which is to be signed by an engineer or architect, are being phased in based on the age of construction. Some deadlines have already passed and others are approaching — see the regulation for details. In all cases, the age of construction of the building is calculated in reference to March 18, 2013, the date the regulation came into effect. Verification of multistorey garages For multistorey garages built less than five years after the coming into force of the regulation, an in-depth verification report, supervised by an engineer, was required to be done by March 18, 2014. Owners of older multistorey garages have a longer time period, until March 18, 2016, to obtain such a report. The regulation also requires every owner of a multistorey garage to conduct an annual verification, the first of which was to be completed in the first year following the adoption of the regulation, that is, by March 18, 2014. The wording of the regulation seems to imply that a serious visual inspection conducted by the owner himself is sufficient. We refer you to our bulletin No. 6 of April 2013 for more details. Keeping a register Here again, it is compulsory to maintain a register for keeping the verification reports and maintenance plans on file, but also the construction plans, photographs or description of the work done or to be done. Similar measures also exist for water cooling towers. We refer you to our bulletin No. 6 of April 2013 for more details. SANCTIONS AND CONSEQUENCES The Régie du bâtiment du Québec can impose similar sanctions for keeping an inadequate register as for the breach of the positive duties of verification or implementation of preventive measures. We refer you to our bulletin No. 6 of April 2013 for an overview of the severe fines which offenders could face, as well as the consequences of these changes for contracts dealing with real estate, whether they relate to leasing, management, co-ownership, insurance or financing. CONCLUSION Finally, in closing, it should be borne in mind that while the purpose of the regulatory amendments passed by the government in the past few years is to enhance safety requirements in building construction and maintenance, they only set minimum standards. Indeed, every municipality is free to adopt more stringent standards. _________________________________________ 1 Regulation to amend the Regulation respecting occupational health and safety and the Safety Code for the construction industry, order in council 476-2013 of May 8, 2013, (2013) 145:21 GOQ.II, 1999. 2 Regulation to improve building safety, order in council 1263-2012 (December 19, 2012), (2012) 145:3 GOQ.II, 179. 3 See our newsletter No. 6 of April 2013 on this point.

    Read more
  • Civil law interpretation : Does coverage under a builder’s risk insurance policy extend to an existing structure?

    On February 19, 2015, the Court of Appeal of Quebec1 overturned a judgment rendered by the Superior Court2, on July 12, 2013, which granted the defendants’ motion to dismiss. Essentially, the Court had to determine whether coverage under a builder’s risk insurance policy extends to damage caused by the work to an existing structure, or whether it is limited to the site on which the work is being done. THE FACTS The facts of this case were discussed in further detail in a newsletter published in October 2014.3 However, for ease of reference, we have summarized the main facts of the case. Quebec City (“the City”) intended to convert the Palais Montcalm from an entertainment venue into a concert hall. On December 1, 2004, it retained the services of Génitech as a general contractor to carry out work on the existing structure of the Palais Montcalm. CFG Construction was retained as a subcontractor to perform the required demolition work. The City required the contractor to obtain builder’s risk insurance. The policy, obtained from Promutuel, named Génitech and the City as co-insured, and the protection was also extended to subcontractors. On February 26, 2005, following the faulty performance of the demolition work, a fire caused significant damage to parts of the existing structure which were not included in the transformation work. On February 22, 2008, the City instituted two actions. The first against Promutuel, for compensation under the builder’s risk insurance policy, and the second against Génitech and CFG, based on their contractual and extracontractual liability. On November 5, 2008, the City withdrew its first action and signed a settlement declaration. SUPERIOR COURT The defendants asked for the dismissal of the action on a preliminary basis on three grounds: the builder’s risk insurance policy applies not only to the items that are the subject of the transformation work, but to all property damaged in relation to the transformation work, including damage to the existing structure of the Palais Montcalm; the City no longer has a recourse against the defendants, because it had withdrawn and filed a declaration of settlement in the first action relating to the same facts and claiming almost identical damages; and since the City was a co-insured under the terms of the builder’s risk insurance policy, it cannot sue the defendants. Applying the same reasoning as the Alberta Court of Appeal in Medicine Hat College (“Medicine Hat”),4the Court held that the subcontractors have an insurable interest on the construction project in its entirety, and that, consequently, the builder’s risk policy covers the entire structure of the Palais Montcalm. In addition, the Court held that the settlement in the first action had the effect of res judicata, because the builder’s risk insurance covers all the damage claimed by the City and the City could not commence a second action based on the same facts. Lastly, the Court added that the City could not sue the defendants due to its status of co-insured. The Court therefore granted the motion to dismiss the City’s action. COURT OF APPEAL The Court confirms that the decision in Medicine Hat is the only Canadian decision on this issue. It reiterates that, in matters of insurance, decisions from other jurisdictions can be considered when they are consistent with the general scheme of civil law.5 However, the Court found that since the Civil Code of Québec contains provisions specific to insurable interests,6 distinctions are likely to be made between civil law and common law. Consequently, the question whether builder’s risk insurance applies to an existing structure must be analysed in light of Quebec civil law. Therefore, the Court held that it is premature to dismiss the action at this stage. As for the other grounds for dismissal, the Court of Appeal held that the first action did not disqualify the second on the basis of res judicata, because the two actions are based on distinct contracts. More specifically, the first action, which was withdrawn, was based on the builder’s risk insurance policy, whereas the second action was based on the contractual liability of Génitech and the extracontractual liability of CFG. Furthermore, the Court found that evidence regarding the circumstances surrounding the settlement declaration may be relevant to the outcome of the dispute, noting, in passing, that the grounds for dismissal are surprising. Indeed, if, as the defendants argue, the builder’s risk insurance covered all the damages caused to the Palais Montcalm, why had the City still not been compensated? In light of the foregoing, and given that motions to dismiss must be considered with caution, the Court of Appeal overturned the decision of the Superior Court, and dismissed the defendants’ motion to dismiss. CONCLUSION Since the motion to dismiss has been set aside, the case continues to follow its course. The interpretation of a builder’s risk insurance policy is especially important for the parties to the contract who must determine which property is truly covered. It will therefore be interesting to see whether Quebec courts will adopt the same reasoning as the common law provinces, or whether civil law principles will influence how the question of insurable interest is addressed in relation to whether builder’s risk insurance extends to an existing structure. _________________________________________ 1 Québec (Ville de) v. CFG Construction inc., 2015 QCCA 362. 2 Ville de Québec v. Génitech Entrepreneur général inc. et al., 2013 QCCS 5042. 3 See the Need to Know newsletter published in October 2014 by Louise Cérat and Odette Jobin-Laberge with the collaboration of Alexandra Dubé-Lorrain in respect to the Superior Court’s decision: “Builder’s risk insurance: Insurable interest and subrogation rights”: https://www.lavery.ca/en/publications/our-publications/1834-builders-risk-insurance-insurable-interest-and-subrogation-rights.html. 4 Medicine Hat College v. Starks Plumbing & Heating Ltd, 2007 ABQB 691. 5 Optimum, société d’assurances inc. v. Plomberie Raymond Lemelin inc., 2009 QCCA 416, para. 41. 6 Articles 2481 and 2484 C.C.Q.

    Read more
  • Builder’s risk insurance: Insurable interest and subrogation rights

    I. Intact, compagnie d’assurances v. Théberge & Belley (1985) inc. and l’Union canadienne compagnie d’assurance and EBC inc.1 In this case, the Court of Appeal held that an insurer who indemnified its insured pursuant to “contractors’ equipment” coverage cannot exercise its subrogation rights against the subcontractor who committed a fault. FACTS EBC was the general contractor for the construction of a deep water wharf. Théberge & Belley (hereinafter “T & B”) was the subcontractor chosen by EBC to carry out the electrical work. Two of the five construction trailers owned by EBC, as well as their contents, were damaged by fire. T & B admitted liability. It was also admitted that T & B’s work, which caused the fire, was not related to the construction of the wharf despite the fact that the trailers were located on or near the construction site. Intact had issued a commercial insurance policy offering several types of coverage, including “builder’s risk” and “contractors’ equipment” coverage, to the named insured, EBC, and to various additional named insureds. The relevant clauses of the builder’s risk insurance were as follows: [TRANSLATION] INSURED PROPERTY (...) 1.3 The constructions, scaffolding, stands, fences, temporary formwork, excavations, site preparation work and work of a similar nature, provided that the value thereof is included in the amount of coverage and then only to the extent that they must be repaired or replaced for carrying out the work. EXCLUDED PROPERTY (...) 1.6 Except pursuant to section 1.3 of the Insured Property, the tools, equipment, materials, replacement parts and accessories of contractors or subcontractors, whether or not owned by such contractors or subcontractors. Pursuant to the “contractors’ equipment” coverage, movable buildings (trailers) were expressly covered, provided they were related to the professional activities of the insured as described in the declarations. Superior Court The trial judge found that the trailers and their contents were included in the [TRANSLATION] “constructions (…) site preparation work and work of a similar nature” (Clause 1.3). However, while acknowledging that these items of property were not [TRANSLATION] “intended to be incorporated in the designated work”, he nonetheless concluded that they had to be repaired or replaced for the work to continue. The Court held that in light of the fact that Intact had indemnified EBC for its loss under the builder’s risk coverage, it could not exercise its subrogation rights against T & B. Court of Appeal The Court of Appeal found rather that these items of property were covered under the “contractors’ equipment” coverage. Accordingly, the issue raised on appeal was whether Intact could exercise its subrogation rights against the subcontractor, T & B, who was not a named insured under the “contractors’ equipment” coverage. In other words, under the principles applicable to the builder’s risk insurance, T & B ought to be considered an unnamed insured with respect to that coverage, which precluded Intact from instituting subrogation proceedings against it. The issue was whether Intact had retained a recourse against T & B after having indemnified its insured under the “contractors’ equipment” coverage. The Court noted that even if the coverage under review was different from the builder’s risk insurance, the “contractors’ equipment” coverage which EBC had purchased also constituted property insurance covering a risk related to the same type of activities, namely, construction activities in a general contractor capacity. The Court referred to the Alberta case of Medicine Hat College v. Starks Plumbing & Heating Ltd.2 In that case, the insurable interest of a gas and plumbing subcontractor was confirmed not only with respect to the ongoing construction project for the expansion of a building, but also for the existing building, pursuant to builder’s risk insurance obtained by the client, Medicine Hat College, in which only the client was a named insured. In its subrogation proceedings against the professionals, the general contractor and the subcontractor, the insurer argued that it was not precluded from exercising its recourse as a result of the fact that the indemnity claimed had been paid to Medicine Hat College under the property policy. According to Justice McDonald, it is logical to conclude, in the context of work being performed in connection with the expansion and modification of an existing structure or near such a structure, that subcontractors participating in the work have an insurable interest in all the interconnected structures and not just the new one. He ruled that the fact that the principal amount of coverage was less than the total value of the building taken as a whole was not sufficient to conclude that the policy covered nothing more than the damages to the new structure under construction. In order to reach such a conclusion, the terms of the policy ought to have provided for a clear exclusion of the adjoining structures. In the case under review, the Court of Appeal drew a parallel between the situation of the coverage of the plumbing subcontractor in the Medicine Hat College case and the coverage of the respondent T & B. In the Albertan case, there was a prior policy covering the property of a named insured, the property policy, and a second policy, namely, the builder’s risk policy, which was superimposed over it. In the present case, there was only one insurance policy for the benefit of EBC, covering all of its construction activities. This situation further supported T & B’s argument that it was an unnamed insured under the coverage provided for the “contractors’ equipment”. According to the principles of interpretation of an insurance contract described by Justice McDonald in the Medicine Hat College case, if Intact had wished to retain its subrogation rights against a subcontractor in respect of property used on site by its insured, it should have clearly stated so.   II. Ville de Québec v. Génitech Entrepreneur général inc. et al.3 In this case, the Superior Court had to decide whether the coverage under a builder’s risk insurance policy extended to the damages caused by the work to the existing structure, or if it was only limited to the work. FACTS Quebec City (hereinafter “the City”) awarded a contract to Génitech as general contractor for the conversion of Palais Montcalm from an entertainment venue into a concert hall. The Lot no. 2 contract dealt with work that was to be done on the existing structure of Palais Montcalm. Under the terms of the contract, Génitech purchased a builder’s risk policy from Promutuel to cover the property contemplated by the work. Furthermore, as the project required significant demolition work, Génitech retained the services of CFG as a subcontractor. Génitech and the City were named as co-insureds under the builder’s risk policy and the protection thereunder was extended to subcontractors. The insured activities were described as follows [TRANSLATION]: “Transformation of Palais Montcalm into a house of music lot:2 structure and primary envelope”. Following the faulty performance of the demolition work, a fire caused significant damage to parts of the existing structures not included in Lot no. 2. Moreover, the smoke and the water sprayed on Palais Montcalm by the fire department damaged a recording studio and the refrigeration system of the Youville Square skating rink, which were manifestly not included in Lot no. 2. The City claimed the amount of $1,091,582.98 for the damages thus caused. The defendants filed three motions to dismiss the City’s action. They maintained (1) that the builder’s risk insurance applied not only to the items in Lot no. 2, but also to all the property damaged in relation to the work performed on Lot no. 2, including the damages to the existing structure of Palais Montcalm, (2) that the City no longer had a recourse against them because it had withdrawn from, and filed a declaration of settlement in, another matter relating to the same facts and claiming almost the identical damages against them, and (3) that the City could not sue them, due to its status as a co-insured under the builder’s risk insurance. While the City acknowledged that the general principles related to builder’s risk insurance were applicable, it argued that it had not lost its recourse because the damages to the existing structure were not covered by this builder’s risk insurance, since it specifically covered the damages to property located on the site of the work, i.e. on Lot no. 2 only. In support of its argument, it relied, among other things, on the amount of the builder’s risk insurance, which was obviously insufficient to cover the entire Palais Montcalm building and its contents. Superior Court Applying the same reasoning as the Alberta Court of Appeal in the case of Medicine Hat College, the Court concluded that all the trades and subcontractors have an insurable interest on a construction project in its entirety and, therefore, that the entire structure of Palais Montcalm was covered by the builder’s risk insurance. The action was therefore dismissed, since all the damages claimed were covered by the builder’s risk insurance. In addition, the Court held that, as a co-insured, the City could not sue the defendants. Having found that the builder’s risk insurance covered all the damages claimed by the City, the Court also ruled that the settlement that was reached in the other matter had the effect of res judicata and, noting that the City could not institute another action based on the same facts, also dismissed the action on this ground. The decision has been appealed. Conclusion The three judgments from Quebec and Alberta discussed in this text have held that a subcontractor’s insurable interest extends well beyond the property directly connected with the work alone to include the entire work site, thereby conferring the status of an insured on the subcontractor under the related insurance coverage. In light of these three decisions, insurers would be well advised to more clearly define the scope of the coverage they underwrite in the context of a construction site using specific exclusionary riders, as necessary if they see fit. _________________________________________ 1 2014 QCCA 787. 2 2007 ABQB 691. 3 2013 QCCS 5042, inscription in appeal 09/08-2013.

    Read more
1 2 3 4