Executive Summary: Key Legal and Evidentiary Issues

• Interpretation of a Pierringer Agreement's scope regarding indemnification and assumption of liability between settling and non-settling parties in a multi-party construction dispute.

• Whether OCL Group Inc. assumed Urban Systems Ltd.'s independent liability to RMWB beyond contribution and indemnity claims arising from OCL's own claims.

• RMWB's right to commence a separate action against Urban despite the Pierringer Agreement, given RMWB was not a party to that settlement.

• Distinction between claims for contribution/indemnity and independent direct claims for damages arising from allegedly deficient design and supervision.

• Application to strike the Second Action as an abuse of process was rejected because RMWB's claims do not seek contribution or indemnity for OCL's claims.

• Consolidation of the two related actions was ordered based on the parties' agreement after the court's rulings on the declaration applications.

Background and contractual relationships

This case involves two related legal actions arising from a water and sanitary sewer project in Anzac, Alberta (the "Anzac Project"). The Regional Municipality of Wood Buffalo ("RMWB") served as the project owner, OCL Group Inc. ("OCL") was the contractor, and Urban Systems Ltd. ("Urban") was the prime consultant. RMWB and Urban entered into a contract dated March 15, 2013 relating to several projects including the Anzac Project, and a second agreement in April 2015 for the design of the Anzac Project. RMWB and OCL entered into a construction contract dated August 3, 2017 for the construction of a water and sanitary sewer, and a second contract dated May 27, 2019 that reduced the scope of OCL's work. There was no contract directly between OCL and Urban, though Urban was named as the Prime Consultant in the August 3, 2017 contract between RMWB and OCL.

The disputes and pleadings

Alleged deficiencies arose in 2019 resulting in OCL ceasing work. At about the same time OCL commenced the First Action. OCL's 2nd Amended Statement of Claim, filed August 1, 2023, alleged poor planning and mismanagement, breaches of contract, breaches of common law duties of care, and misrepresentations by RMWB and Urban resulting in loss or damages to OCL of not less than $11,300,000. This included wrongful backcharges, holdbacks and penalty charges of approximately $6,191,435 attributable to breaches by RMWB and Urban; refusal by RMWB and Urban to approve changes totaling $1,655,950 and refusal to engage in dispute resolution regarding those changes; and wrongful termination of the contract between RMWB and OCL, attributable to breaches by both RMWB and Urban, resulting in damages of $4,359,435. The claim also alleged that RMWB agreed to pay claims advanced by OCL's subcontractor totalling $528,897.57, advanced against RMWB alone, not Urban.

RMWB filed a Counterclaim on July 26, 2023 against OCL but not against Urban, alleging breaches of contract and negligence by OCL in the form of deficient work, claiming costs of remediation and completion as follows: $3,699,753 for road work; $5,437,273 for water and sanitary sewer lines; $325,773 for landscaping; and $567,618 for underground infrastructure. The Counterclaim also claims $4,000,000 for additional consulting fees and liquidated damages pursuant to the contract between OCL and RMWB. The court noted that the claims in OCL's claim and RMWB's counterclaim are distinct—OCL's claims are for payment for its work and reimbursement of its costs, while RMWB's claims are for its costs to remediate and complete OCL's work, plus additional consulting fees. There is no overlap between OCL's claims against RMWB and Urban, on the one hand, and RMWB's claims against OCL, on the other.

The Pierringer Agreement

Urban and OCL entered into a Pierringer Agreement dated December 13, 2023, which was disclosed to RMWB with the settlement amount redacted. On March 13, 2024, all three parties consented to an order in the First Action which approved the Pierringer Agreement and removed Urban as a defendant in the First Action. RMWB is not a party to the Pierringer Agreement. The agreement does not purport to bind RMWB. Instead, it requires OCL to limit its claims against RMWB to exclude Urban's portion of any joint or several liability owed by both Urban and RMWB to OCL.

The agreement clearly makes OCL responsible for contribution and indemnity claims RMWB has against Urban arising out of claims by OCL against RMWB in relation to the Anzac Project. It does not explicitly say that OCL is also responsible for other claims by RMWB against Urban. All the language in the Pierringer Agreement, including the language in the hold harmless provisions, refers to claims by OCL. None of the language refers to claims by RMWB except claims for contribution or indemnity with respect to claims by OCL.

The Second Action

On January 23, 2025, RMWB commenced the Second Action, in which Urban is the sole defendant. RMWB's Statement of Claim in the Second Action alleges breaches of contract and negligence by Urban resulting in the following damages: $2,913,122 to remediate and repair roadways constructed by OCL that settled due to Urban's improper design and field testing; $240,458 to reconstruct and repair Townsend Drive due to Urban's failure to inspect OCL's work; $360,000 to test and repair sanitary mains due to Urban's improper design and failure to direct OCL to perform deflection testing; $1,442,334 to test and repair sanitary services installed by OCL due to Urban's improper design; $3,211,282 to remediate and repair infiltration damage and prevent future infiltration due to Urban's improper design and failure to monitor OCL's work; and the portion of $4,744,905 in additional consulting fees that "are the direct result of Urban's errors, omissions or deficiencies." Urban applied for a declaration that the Pierringer Agreement imposes on OCL all liability Urban may have to RMWB in the Second Action and that OCL must indemnify Urban for any damages and costs awarded against Urban in the Second Action.

Court's analysis of the Pierringer Agreement

The court applied the principle from Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para 47 and 56–61, requiring consideration of the factual matrix known to the parties at the time of the agreement. Justice G.S. Dunlop found that if OCL agreed to assume Urban's independent liability to RMWB (i.e. liability other than for indemnity or contribution with respect to OCL's claims against RMWB), one would expect to find language to that effect in the indemnity provisions of the Pierringer Agreement. The operative paragraph is 22. It clearly requires OCL to indemnify Urban for any amount OCL recovers attributable to Urban for which Urban is found liable to RMWB. It does not require OCL to indemnify Urban for anything else. The Pierringer Agreement must be read as a whole. When paragraphs 3 and 4 are read in light of the indemnity provisions in paragraph 22, and in light of the absence of any reference to RMWB's counterclaim, it is clear that OCL took on Urban's liability to RMWB with respect to OCL's claims against RMWB and Urban, and nothing more.

The court rejected Urban's argument that OCL's allegations against Urban in OCL's defence to counterclaim constituted "claims" that were settled. OCL filed a Statement of Defence to Counterclaim on August 22, 2023 which includes allegations of shoddy work by Urban. Those allegations are a potential defence to the counterclaim. In the context of a Statement of Defence to Counterclaim, they are not claims, because the Statement of Defence to Counterclaim seeks only a dismissal of the counterclaim. No other relief is pled in the Defence to Counterclaim. In particular, OCL's Statement of Defence to Counterclaim does not seek any relief against Urban.

Abuse of process application

OCL argued that the Second Action should be dismissed as an abuse of process to the extent it seeks contribution or indemnity from Urban for OCL's claims against RMWB. The court found that the Second Action does not do that. There is no overlap between the damages OCL is seeking in the First Action and the damages RMWB is seeking in its counterclaim and in the Second Action. RMWB has not sued Urban in the Second Action for any portion of what RMWB may be liable to pay OCL in the First Action. That would be a claim for contribution or indemnity, but RMWB has no right to claim contribution or indemnity because OCL's 3rd Amended Statement of Claim limits its claim against RMWB to RMWB's portion of any liability it shares with Urban.

The court noted that while RMWB is a party to the First Action, it is not a party to the Pierringer Agreement. Consequently, it is not bound by the Pierringer Agreement. RMWB consented to the Order approving the Pierringer Agreement but that does not make it a party to or bound by the Pierringer Agreement. RMWB is bound by the Consent Order, but that Order does not restrict RMWB's ability to sue Urban.

Ruling and outcome

Justice G.S. Dunlop granted Urban's application for a declaration that OCL is barred by virtue of the Pierringer Agreement from claiming any contribution or indemnity from Urban for any damages awarded against OCL in the Counterclaim, because this flows from paragraphs 3, 4 and 5 of the Pierringer Agreement. However, the court dismissed Urban's application for declarations that OCL assumes responsibility for some or all damages claimed against and attributable to Urban in the Second Action and that OCL must indemnify Urban for any damages and costs awarded against Urban in the Second Action. Instead, the court granted a declaration that OCL did not assume that responsibility or grant that indemnity in the Pierringer Agreement.

The application to strike the Second Action was dismissed. The court ordered the First Action and the Second Action consolidated, based on the parties' agreement. No specific monetary award was made in this decision, as it addressed preliminary applications rather than the merits of the underlying claims. If the parties cannot agree on costs, a procedure for addressing costs of these applications may be discussed at a future case management meeting.