Executive Summary: Key Legal and Evidentiary Issues

• The central issue was whether the County of Northern Lights’ (CNL) action against Aldea Engineering Services Ltd (Aldea) was commenced after the expiry of the applicable limitation period under Alberta’s Limitations Act.

• CNL relied on advice from its consultants, Wood Canada Limited (Wood) and Aldea, that the HDD (horizontal directional drilling) design was not faulty, despite repeated assertions from EOS Pipeline & Facilities Incorporated (EOS) and its subcontractor that the design was not constructible.

• The court considered whether CNL’s reliance on its consultants’ representations was reasonable and whether this reliance delayed the start of the limitation period.

• The decision turned on whether there was a genuine issue requiring a trial regarding the reasonableness of CNL’s reliance on Wood and Aldea’s advice.

• Aldea’s application for summary dismissal was dismissed, allowing the matter to proceed to trial for a full consideration of the facts and communications between the parties.

• The judgment clarified that summary dismissal was not appropriate where live issues of fact and credibility remain regarding the limitation period and the parties’ interactions.

Facts of the case

In 2015, the County of Northern Lights (CNL) retained a predecessor of Wood Canada Limited (collectively referred to as “Wood”) to design a 59 km water line and manage its construction. Wood was both consultant and project manager for CNL. Wood retained Aldea Engineering Services Ltd (Aldea) to design the horizontal directional drilling (HDD) portion of the project. Wood recommended and CNL retained EOS Pipeline & Facilities Incorporated (EOS) to construct the project, and EOS retained Big Bore Directional Drilling (Big Bore) as the drilling subcontractor.

Construction began in August 2018. EOS immediately encountered difficulties with the HDD work, including “frac-outs” (drilling fluids returning to the surface), exertion of pulling forces on pipe sections beyond allowable limits, and breaking of electrical tracer wires. On September 18, 2018, representatives of EOS, Aldea, Wood, and CNL met to discuss these issues. On September 26, 2018, Big Bore sent a letter to EOS advising that the HDD design was not constructible and suggested reducing drive lengths. On September 28, 2018, EOS sent a letter to CNL and Wood stating that the HDD installation as designed was not constructible, attributing problems to bore lengths and soil conditions, and suggesting a redesign. EOS also gave notice of its claim to entitlement to additional time and payment.

Work on the HDD portion stopped between September 29, 2018, and October 18, 2018. On October 18, 2018, Wood sent a letter to EOS (copied to CNL) disputing the assertion that the HDD design was not constructible and providing reasons why BlueFox Engineering Inc’s (BlueFox) findings were not supportable. Wood and Aldea maintained that the design met industry standards and attributed problems to EOS and Big Bore’s limited experience.

EOS retained another HDD engineering firm, CCI Inc (CCI), and on November 16, 2018, EOS sent a letter to CNL and Wood regarding CCI’s findings, stating that bores must be shortened and “pit to pit” methodology used. On November 27, 2018, EOS sent another letter to CNL and Wood, repeating that the HDD work as designed was not feasible or constructible, agreeing with CCI’s suggestions, and estimating additional costs of $6,883,550 plus $2,250,000 for extra work performed.

On December 3, 2018, Wood sent a letter to EOS (copied to CNL) identifying several items of non-conformance to contract specifications and advising that progress payments would be suspended. EOS responded on December 7, 2018, stating that it had addressed all issues of alleged non-conformance and asked CNL and Wood to reconsider their positions. Further correspondence continued between EOS and Wood regarding defaults and their correction, with EOS maintaining that the original design was not constructible and Wood and Aldea disputing this.

In December 2018, Wood advised CNL that Wood and Aldea wanted to retain Associated Engineering Alberta Ltd (AE) for a further review of the HDD design. CNL accepted this recommendation, but was not involved in or copied on any meetings or correspondence with AE. EOS ultimately completed the HDD work using a “pit to pit” methodology and shorter bore lengths, with completion in approximately November 2019.

On April 20, 2020, EOS sent a letter to CNL (copied to Wood) seeking mediation and binding arbitration for claims exceeding $28 million, including a claim for an extra $17.7 million due to implementing the original HDD design and its redesign. During arbitration, in January 2021, Wood provided CNL for the first time with three AE reports: a “Preliminary Findings Report” dated January 22, 2019; a “Final Report Draft” dated September 14, 2019; and a “Technical Memorandum” dated October 30, 2020. These reports were largely consistent with EOS’s position that the HDD design was faulty, but CNL did not receive them until January 2021.

CNL commenced this action against Wood and Aldea on April 20, 2022, seeking in excess of $28 million. On December 8, 2022, an arbitration award was made in favour of EOS in the amount of $16,986,926.59. A further award was made in favour of EOS in the approximate amount of $4.5 million on February 27, 2023. The essential basis for the arbitration award was that the HDD portion of the project was not constructible as designed by Aldea. Aldea was not a party to the arbitration proceeding.

Legal issues and limitation period discussion

The single issue for consideration was whether CNL’s action against Aldea was commenced outside the applicable limitation period. Aldea argued that CNL had the requisite knowledge for the limitation period to start as early as September 28, 2018, or by November 27, 2018, when EOS first advised that the HDD installation as designed was not constructible and claimed additional payment. Aldea cited Grant Thornton LLP v New Brunswick, 2021 SCC 31, for the principle that the limitation clock begins when a plaintiff has knowledge of material facts upon which a plausible inference of liability can be drawn.

CNL argued that it was entitled to rely on the advice of Wood and Aldea, who advised that there was nothing wrong with the design and that the problems were due to the inexperience and incompetence of EOS and Big Bore. The court reviewed Alberta and Ontario precedents supporting the principle that reasonable reliance on professional advice may delay the start of the limitation period if it was reasonable for the plaintiff to trust those professionals.

The court put itself in the position of CNL as at April 20, 2020 (or March 10, 2020, if Ministerial Order 27/2020 applied), to ask whether CNL then had sufficient knowledge or ought to have known that action against Aldea was warranted. The court found that CNL had done enough to show that there was merit to its position that a trial was warranted, and that the trial judge could consider and evaluate all communications between the parties to determine if CNL’s reliance on Wood’s advice was reasonable.

Outcome

Aldea’s application for summary dismissal was dismissed. The court held that there was a genuine issue requiring a trial as to whether CNL’s reliance on Wood and Aldea’s advice was reasonable and whether this delayed the point at which CNL knew or ought to have known that legal action against Aldea was warranted. The successful party on this application was the County of Northern Lights, as its claim against Aldea was not struck out and will proceed to trial. No specific monetary amount was awarded in this decision, as it was a procedural ruling on the limitation period and not a determination of liability or damages.