Sprague-Rosser Contracting Co. Ltd. Applicant - v. -, 2016 ABQB 231

Court of Queen ’ s Bench of Alberta Citation: Sprague Rosser Contracting Co Ltd v EOS Pipeline & Facilities Inc, 2016 ABQB 231 Date: 20160426 Docket: 1301 12801 Registry: Calgary Between: Sprague-Rosser Contracting Co. Ltd. Applicant - and - E.O.S. Pipeline & Facilities Inc. Respondent Corrected judgment: A corrigendum was issued on June 9, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice D.B. Nixon

_______________________________________________________ I. Introduction [ 1 ] This is an appeal from a Master. The issue concerns a contractual dispute that arose in the context of municipal pipeline work. [ 2 ] Sprague-Rosser Contracting Co. Ltd. was the primary contractor on some work involving municipal pipelines for sewer and water. Sprague-Rosser hired E.O.S. Pipeline & Facilities Incorporated as a subcontractor. The subcontract work involved the welding, coating and pull back on three separate pipelines. [ 3 ] At the conclusion of its work, EOS Pipeline alleged that it was owed money by Sprague-Rosser.

As a protective step, EOS Pipeline placed liens on the project. [ 4 ] Sprague-Rosser disputed those liens, and claimed set-off. Some amounts have since been paid to EOS Pipeline. II. Background Facts [ 5 ] The Regional Municipality of Wood Buffalo owns land in the vicinity of Fort McMurray. The municipality required work in respect of sewer and water lines. [ 6 ] To meet its objectives, Wood Buffalo Municipality engaged Sprague-Rosser to undertake the related pipeline work.

The contract between Wood Buffalo Municipality and Sprague-Rosser was entered into during December, 2012 (the “ Prime Contract ”). [ 7 ] Sprague-Rosser entered into an agreement with EOS Pipeline to perform work and supply material related to three pipelines (the “ Subcontract ”). The underlying work involved a 12 inch pipeline, a 28 inch pipeline, and a 30 inch pipeline. [ 8 ] The Subcontract was dated April 29, 2013. However, the final execution of that document occurred in early June, 2013. [ 9 ] The Subcontract involved welding, coating and pullback on the three pipelines, at a lump-sum price of $3,778,758.

GST and bonding costs were in addition to this lump-sum amount. [ 10 ] EOS Pipeline commenced the work in June 2013. It completed the Subcontract work on approximately the following dates: a. The 12 inch line (being the Sanitary Force Main Pipeline) i. Welding and coating, completed on June 21, 2013. ii. Pullback, completed on July 6, 2013. b. The 28 inch line (being the Sanitary Pipeline) i. Welding and coating, completed on August 15, 2013 ii. Pullback, completed on August 30, 2013 c. The 30 inch line (being the Steel Water Main Pipeline) i. Welding and coating, completed on August 26, 2013 ii.

Pullback, completed on November 1, 2013 [ 11 ] On October 8, 2013, EOS Pipeline registered a lien under the Builders’ Lien Act in respect of work completed under the Subcontract. That lien was discharged by a Consent Order on November 4, 2013, coincidental with the deposit of a lien bond into Court. [ 12 ] On November 7, 2013, Sprague-Rosser filed a Notice to Prove Lien. [ 13 ] On December 19, 2013, EOS Pipeline registered four additional liens.

Those additional liens were discharged by an Order of the Court on December 19, 2013 as a result of monies being paid into trust. [ 14 ] On July 21, 2014, the Master held that the liens filed by EOS Pipeline were proper and valid. [ 15 ] On July 31, 2014, Sprague-Rosser went into receivership. Western Surety Company is the bonding company behind Sprague- Rosser.

III. Analysis A. Standard of Review [16] The standard of review on appeal from the Master to a Justice is correctness. An appeal of a decision from a Master is basedon the record, and also may be based on additional evidence that is relevant and material. The determination of what evidence is relevantand material is at the discretion of the judge hearing the appeal. [17] The arguments on an appeal from a Master are not restricted to the record. Further, the judge hearing the appeal from theMaster owes no deference to the determination of the Master on either questions of law or fact. B.

Summary Judgment [18] Sprague-Rosser asserts that the original application that EOS Pipeline brought in this case is an application for

summaryjudgment. Sprague-Rosser went on to submit that the following matters “...should not be summarily decided in EOS’s favour”: (a)whether the “pay when paid” clause applied; (

b) which party is responsible for the non-destructive examination testing; (

c) thedetermination of the contractual terms applicable to the tie-in work; and (

d) whether the deficiency and delay clauses apply, such that itcan set-off against the amounts claimed by EOS Pipeline. [19] While a

summary judgment approach is the nature of the process, it was Sprague-Rosser that filed a Notice to Prove Lien.When Sprague-Rosser filed that notice, it effectively forced EOS Pipeline to take formal steps within a legislated timeframe to prove itsclaim: see sections 48(4) and 52(4) of the Builders’ Lien Act. [20] As part of its overall process, the Court has a duty to determine whether one or more of the issues in dispute require a trial. Atrial is not required if a

summary judgment process can achieve a fair and just adjudication. However, a

summary judgment should not beissued if there are difficult or intricate legal issues, or if the relevant evidence conflicts. [21] The Supreme Court of Canada has indicated recently that the approach in respect of, and the test for,

summary judgmentrequires a cultural shift. The purpose of this cultural shift is to broaden the application of

summary proceedings: Hryniak v Mauldin,2014 SCC 7 , [2014] 1 SCR 87, paras 2 and 31. This cultural shift obligates the Court to actively manage the judicial process,taking into account the principle of proportionality: Hryniak, para 32. [22] While there are complexities to the dispute between Sprague-Rosser and EOS Pipeline, a

summary judgment processconcerning one or more of the issues may be appropriate in the circumstances. The fundamental question is whether the added expenseand delay of a trial proper is necessary for the purpose of ensuring a fair process and just adjudication: Hryniak, para 33. [23] One of the challenges concerning the

summary judgment process in this case is the conflicting affidavit evidence. Afundamental principle that the Court must be guided by is that it “... may not make findings of credibility and resolve contested factissues. That a controversy over nonmaterial facts exists is irrelevant”: Access Mortgage Corporation

(2004) Limited v Arres Capital Inc.,2014 ABCA 280, para 68; see also Attila Dogan Construction v AMEC Americas Limited, 2015 ABQB 120, para 51. [24] These judicial guidelines allow the Court to deal with issues as follows. (

a) If it is clear that a finding of credibility is requiredto resolve contested facts in an affidavit, then this Court will not issue a

summary judgment on that particular issue. (

b) Alternatively, ifthe conflicting affidavit evidence is irrelevant to a particular issue that must be decided and the Court can make a determination in thedispute that is fair and just, it will do so. [25] There are a number of issues in this case. The Court is aware that there are many facts in dispute as between these parties.

Innormal circumstances, this would dictate that a trial proper is required to determine the outcome in respect of the issues before the Court.However, after careful consideration, the Court finds that the relevant facts in respect of each of the issues are not in dispute. [26] Given this finding by the Court, the added expense and delay of a trial proper is not necessary to ensure a fair process and justadjudication in respect of any of the issues.

This determination is further supported by the judicial guideline that “...a self-servingaffidavit is not sufficient in itself to create a triable issue in the absence of detailed facts and supporting evidence.” Guarantee Co. ofNorth America v Gordon Capital Corp., (SCC), [1999] 3 SCR 423, para 31; and Attila Dogan, para 52. C. Subcontract Work 1. Was Sprague-Rosser entitled to delay payment to EOS Pipelineon the basis that the “Pay When Paid” Clause applied? (

a) Additional Facts [27] Sprague-Rosser failed to inform EOS Pipeline when it invoiced the Wood Buffalo Municipality for the work done by thatsubcontractor. Further, Sprague-Rosser failed to inform EOS Pipeline when it received payment from the Wood Buffalo Municipality.

[ 28 ] EOS Pipeline served notices on Wood Buffalo Municipality under

section 33 of the Builders’ Lien Act (the “

Section 33 Notices ”). [ 29 ] Sprague-Rosser subsequently acknowledged that an amount had been paid to it by the Wood Buffalo Municipality for the work performed by EOS Pipeline. However, it informed EOS Pipeline that the funds were subject to trust conditions. [ 30 ] Initially, Sprague-Rosser stated that the “... at no time did counsel for Sprague-Rosser receive a cheque in the amount of $3,395,647.36 from the owner. Rather, I am advised by counsel for Sprague-Rosser that they received a cheque dated March 27, 2014 in the amount of $5,015,203 from the Regional Municipality of Wood Buffalo.” [ 31 ] The trust account

summary in respect of “RMWB Funds” reports that an aggregate amount of $5,015,203 was deposited into the account on March 27, 2014. The details of that deposit indicate that $3,395,647.36 of that March 27 deposit is attributed to the “Saline 3” project (the “ March 2014 Trust Payment ”) and the remaining $1,619,528.64 is attributed to the “Saline Road and Bridge” project (collectively, the “ Wood Buffalo Municipality Trust Account

Summary ”). [ 32 ] Sprague-Rosser also indicated that it was further advised by its “...counsel that the March 27, 2014 Payment was provided to counsel for Sprague-Rosser on the trust condition that it not be released and that to-date there is no agreement or approval from the Owner permitting counsel for Sprague-Rosser to release the March 27 Payment to Sprague-Rosser or EOS [Pipeline]”. [ 33 ] During this hearing, Sprague-Rosser stated that the funds underlying the March 2014 Trust Payment remained in trust with its counsel.

Sprague-Rosser also stated that the trust conditions were to the effect that the March 2014 Trust Payment was not to be released until the liens and claims of various parties had been dealt with, including the liens filed by EOS Pipelines. [ 34 ] Based on the information provided to this Court, the Wood Buffalo Municipality Trust Account

Summary recorded the following transactions in the column labelled “Saline 3”. a. A withdrawal in the amount of $2,415,000 on April 25, 2014, which resulted in a net aggregate balance of $2,378,871.84 in that account. b. A withdrawal in the amount of $700,000 on May 23, 2014, which resulted in a net aggregate balance of $1,678,871.84 in that account. [ 35 ] In late April, 2014, Sprague Rosser disclosed that the Prime Contract between it and Wood Buffalo Municipality had been terminated. Neither the date of termination nor the details associated with that termination were disclosed. (

b) The Law (

i) Contractual Provisions [ 36 ] Articles 2.G and 2.H of the Subcontract stipulate when Sprague-Rosser is obligated to pay EOS Pipelines. Those two articles read as follows:

Article 2.G – Payment of the balance owing under this Subcontract shall be made in a reasonable period of time after total performance or termination of the Prime Contract, or stoppage of the Project, whichever is earlier.

Article 2.H – The Subcontractor’s entitlement to payment under this Subcontract is subject to the Contractor’s receipt of payment for the corresponding Work from the Owner. [ 37 ] The obligation to pay also may be subject to set-off because of deficiencies or delays. That issue will be considered below. (ii) Application of the Law [ 38 ] The Subcontract contains clauses that deal with payment.

Sprague-Rosser has relied on those clauses to avoid payment to EOS Pipeline. [ 39 ] To determine its status under the “pay when paid” clause of the Subcontract, EOS Pipeline needed specific information concerning the invoicing that Sprague-Rosser had issued to Wood Buffalo Municipality, and the payments that Wood Buffalo Municipality had made to Sprague-Rosser. To gain access to information to which it was entitled, EOS Pipeline served the

Section 33 Notices on the Wood Buffalo Municipality. The necessary information was obtained, which included a disclosure that Sprague-Rosser had been paid. [ 40 ] Sprague-Rosser continued to assert that it was not obligated to pay EOS Pipeline. The argument advanced by Sprague-Rosser was that the March 2014 Trust Payment did not constitute payment because the funds were subject to trust conditions. Indeed, Sprague- Rosser asserted that because the funds were subject to trust conditions, the March 2014 Trust Payment had not been received by it. [ 41 ] The trust conditions relating to the March 2014 Trust Payment were subsequently revealed, albeit in very general terms.

Sprague-Rosser alleged that the trust conditions stipulated that the funds were not to be released until it had dealt with the liens or claims of various parties, including the liens of EOS Pipeline. [ 42 ] The Court has considered the Sprague-Rosser argument that the “pay when paid” clause provided it with a protective shield in respect of the claims of EOS Pipeline. The Court has concluded that the Sprague-Rosser argument fails. The reasons for this conclusion are twofold. [ 43 ] First, the Prime Contract was terminated prior to April 30, 2014. That termination event caused

Article 2.G of the Subcontract to apply. Under that clause, Sprague-Rosser had an obligation to pay EOS Pipeline within a reasonable period of time because of the termination of the Prime Contract. That reasonable period of time has long expired. As such, the funds are due forthwith, subject to the application of the withholding or set-off provisions in the Subcontract. [ 44 ] Second, the submission of Sprague-Rosser to the effect that the funds could not be released until it had dealt with the liens of various parties, including EOS pipeline, is not supported by the facts. The Wood Buffalo Municipality Trust Account

Summary discloses that a majority of the March 2014 Trust Payment had been released to pay various subcontractors on the project, albeit not EOS Pipeline. This disclosure rebuts the assertion by Sprague-Rosser that the March 2014 Trust Payment could not be released until it had dealt with all lien and claim matters. [ 45 ] This latter point is evidenced by the disbursements to PCL ($1,320,147.30 on April 10, 2014), Corix ($199,500 on April 25, 2014), Michels ($2,415,000 on April 25, 2014) and, again, Michels ($700,000 on May 23, 2014).

The net effect of these disbursements from the Wood Buffalo Municipality Trust Account indicates that the balance of that account as at May 23, 2014 had been reduced to $1,678,871.84, assuming the Court allows the aggregate of the funds in that trust account to be considered.

If the Court just focuses on the net funds received and disbursed in the “Saline 3” component of the trust account, then even a larger percentage of the trust funds attributable to EOS Pipeline have been disbursed to other subcontractors. [ 46 ] The aggregate impact of these disbursements from the Wood Buffalo Municipality Trust Account is in direct conflict with the submission of Sprague-Rosser that the funds continue to remain in trust with the relevant law firm.

To the contrary, the evidence presented by Sprague-Rosser supports the argument advanced by EOS Pipeline, which is that it is entitled to payment of the amounts because the majority of those funds that were in trust have been disbursed. As a consequence, the amounts owed to EOS Pipeline are not protected by a trust provision. That protective shield is gone. (

c) Conclusion [ 47 ] The Court finds that Sprague-Rosser is not entitled to delay payment to EOS Pipeline on the basis that the “pay when paid” clause applied. This finding is based on the fact that Sprague-Rosser has been paid, and the Prime Contract has been terminated. [ 48 ] The Court also finds that the protective shield in the nature of trust conditions is not supported by the facts. Indeed, more than half of the March 2014 Trust Payment has been disbursed to other subcontractors. If the protective shield allegedly provided by a trust provision ever existed, it has long since evaporated. 2. What Entity is responsible for NDE Testing? (

a) Additional Facts [ 49 ] Sprague-Rosser issued a Request for Quotation to Endeavor Inspection Ltd. (“ Endeavor Inspection ”) on April 24, 2013 concerning the non-destructive examination testing (the “ NDE Testing ”). Endeavor Inspection responded and provided a quote to Sprague-Rosser in respect of the NDE Testing associated with the Subcontract. [ 50 ] On May 22, 2013, Sprague-Rosser issued Purchase Order 0100500 to Endeavor Inspection for the NDE Testing work (the “ NDE Purchase Order ”). [ 51 ] EOS Pipeline was neither engaged nor consulted by Sprague-Rosser during the quotation process for the NDE Testing.

Similarly, EOS Pipeline was not consulted by Sprague-Rosser prior to the issuance of the NDE Purchase Order. [ 52 ] After it commenced its work, Endeavor Inspection submitted its timesheets concerning the NDE Testing to Sprague-Rosser. Sprague-Rosser signed off on those Endeavor Inspection timesheets. EOS Pipeline was involved in neither the review nor the approval of those timesheets. [ 53 ] Similarly, Endeavor Inspection issued its invoices to Sprague-Rosser for the NDE Testing.

During the course of the project, Sprague-Rosser did not submit the Endeavor Inspection invoices to EOS Pipeline for approval or payment. [ 54 ] There is no evidence that Sprague-Rosser issued any change orders to EOS Pipeline in respect of the NDE Testing. Further, there is no evidence that Sprague-Rosser issued a back charge to EOS Pipeline in respect of the NDE Testing invoicing that Endeavor Inspection issued in relation to the Subcontract work. (

b) The Law

(

i) Contractual Framework [ 55 ] The following provisions of the Subcontract are relevant in determining what entity is responsible for NDE Testing.

Article 1. A. – The Subcontractor shall supply all labour, supervision, materials, tools, and equipment necessary to construct, install and complete the following portion(

s) of the Project (hereinafter called the “Work”), at and for the Subcontract price(s), namely: Pipeline Welding services as per attached Pre-Award Meeting Minutes (Appendix “A”) and in accordance with EOS Quote dated March 15, 2013 - Option #2 (Appendix “B”). Any conflict between Appendix “A” and Appendix “B”, Appendix “A” will prevail. Please also note that Exceptions and Clarifications to the Bid also apply to this Contract and are found in Appendix “C”. Annex 1 of Appendix C are clarifications addressing the 3 rd Party mark-up and Progress Payment Milestones. Contractor will supply a work

schedule which will be Annex 1 to Appendix “A”; all in a proper and workmanlike manner and in accordance with the Prime Contract.

Article 4.2.6 – The Subcontractor shall pay the cost of making any test or inspection, including the cost of samples required for such test or inspection, if such test or inspection is designated in the Subcontract Documents to be performed by the Subcontractor or is designated by the laws or ordinances of the Place of work. Clause 4 (

c) of Appendix A to the Subcontract-Item 4-Contracts – (

c) List of sub-sub contractors/ Remarks -“Robotic Interior Coating ( )” Clause 7(

c) of Appendix A to the Subcontract – Item 7-Field Procedures – (

c) Confirm quality assurance and quality control as the responsibility of the sub-trade for their scope of work. / Remarks – “Confirmed.” Pre-Job Review Documents o Date of Documents – May, 2013 o Responsibility for NDE is noted as follows on all documents: ▪ The narrative under the “Owner’s” column reads “NDE to be sub-contracted”. ▪ The narrative under the “EOS Pipeline & Facilities Inc.” column is blank. o Owner’s Representative – Signed off on all of the documents. (ii) Application of the Law [ 56 ] Sprague-Rosser asserts that EOS Pipeline was responsible for hiring the entity that was to perform the NDE Testing, and for paying the NDE Testing.

To support its assertion, Sprague-Rosser relies on

Article 4.2.6 of the Subcontract and clause 7(

c) of Appendix A to the Subcontract. EOS Pipelines disagrees with this allocation of the NDE Testing responsibility. [ 57 ] To determine which entity is responsible for the economic burden associated with the NDE Testing, two aspects need to be reviewed. First, all of the relevant terms and conditions in the Subcontract need to be considered in context. Second, the unilateral steps taken by Sprague Rosser, and the associated timeline. [ 58 ] The Court turns its attention to the overall terms and conditions in the Subcontract. In doing so, it reviewed

Article 1.A and

Article 4.2.6 of the Subcontract, clauses 4(

c) and 7(

c) of Appendix A to the Subcontract, and the Pre-Job Review Documents. [ 59 ] The scope of this review by the Court is broader than the contractual terms on which Sprague-Rosser was relying during the hearing. To be clear, however, all of these contractual provisions were in evidence before this Court. [ 60 ] Concerning the terms and conditions of the Subcontract, the “scope of work” attributable to EOS Pipeline is defined in

Article 1.A of the Subcontract. That provision incorporates Appendixes A and B of the Subcontract by reference. [ 61 ] The Court notes that there is no specific mention of NDE Testing in

Article 1.A of the Subcontract or in Appendix A or Appendix B to the Subcontract. Since there is no specific reference to NDE Testing in any of these contractual provisions, the essence of the argument advanced by Sprague-Rosser is that this particular testing is an implied term of the Subcontract. It is on the basis of this implied term approach that Sprague-Rosser asserts that EOS Pipeline is responsible for the Endeavor Inspection costs.

[ 62 ] The Court finds that the argument being advanced by Sprague-Rosser is inconsistent with the two provisos included in the text of

Article 4.2.6 of the Subcontract. The qualifying wording of that provision states that a subcontractor shall pay the cost of making any test or inspection, if such test or inspection is: (

a) designated in the Subcontract Documents to be performed by the Subcontractor (first proviso); or (

b) designated by the laws or ordinances of the Place of work (second proviso) . [ 63 ] Concerning the first proviso in

Article 4.2.6, the Court has reviewed the Subcontract. The NDE Testing is neither referred to nor designated in the scope of work attributable to EOS Pipeline. Further, there is no specific reference to NDE Testing in

Article 1.A of the Subcontract. Indeed, there are indicia to the contrary in some of the materials associated with the Subcontract. Accordingly, the first proviso is not satisfied. As such, EOS Pipeline is not responsible for the NDE Testing under that first proviso. [ 64 ] Concerning the second proviso in

Article 4.2.6 of the Subcontract, there is no evidence before the Court of any law or ordinance that designates EOS Pipeline as the entity obligated to pay the costs of testing and inspection. Accordingly, second proviso is not satisfied. As such, EOS Pipeline is not responsible for the NDE Testing under that second proviso. [ 65 ] Since the two provisos in

Article 4.2.6 are not satisfied, the Court finds that the NDE Testing is not within the “scope of work” that EOS Pipeline undertook to execute. This finding is further supported by the contents of clause 4(

c) of Appendix A to the Subcontract. [ 66 ] It is noteworthy that the subcontractors to EOS Pipeline in respect of the Subcontract work are to be listed in clause 4(

c) of Appendix A to the Subcontract. In this regard, it is significant to note that Endeavor Inspection is not included in that list as a “sub-sub- contractor” to Sprague-Rosser. Given that Sprague-Rosser admitted in argument that the Subcontract was not signed until early June, 2013, the listing of Endeavor Inspection in clause 4(

c) of Appendix A to the Subcontract would have been an easy procedural step. The Court makes this comment because Sprague-Rosser had concluded its agreement with Endeavour Inspection and had even issued the NDE Purchase Order by May 22, 2013. [ 67 ] The fact that Endeavor Inspection is not listed in clause 4(

c) of Appendix A further supports the finding that the NDE Testing was not to be the responsibility of EOS Pipeline. This judicial finding is further supported by the fact that Sprague-Rosser was seeking quotes from Endeavor Inspection before it had executed the contract with EOS Pipeline. As such, Sprague-Rosser was taking steps to engage Endeavor Inspection on its own, even before it had contract with EOS Pipeline. [ 68 ] Turning to clause 7(

c) of Appendix A to the Subcontract, the Court needs to determine whether the NDE Testing conducted by Endeavor Inspection falls within the scope of work agreed to by EOS Pipeline. The Court focuses on the “scope of work” again because that phrase is part of the context of clause 7(

c) of Appendix A. [ 69 ] Contrary to the assertions of Sprague-Rosser, clause 7(

c) of Appendix A to the Subcontract is not helpful to it. The Court’s reasons for this finding are threefold. [ 70 ] First, the phrase “scope of work” was examined above in the context of an examination of

Article 1.A of the Subcontract. In the context of that contractual provision, the Court found that the NDE Testing was not explicitly referred to in the scope of work attributable to EOS Pipeline. The same finding conclusion applies for purposes of clause 7(

c) of Appendix A. [ 71 ] Second, there is no reference in clause 7(

c) of Appendix A to the NDE Testing. That being the case, it is an implied inclusion by Sprague-Rosser. [ 72 ] If the allocation of the NDE Testing to EOS Pipeline was important to Sprague-Rosser, it would have taken very little drafting effort to have included a specific reference to that fact in clause 7(

c) of Appendix A. That would have made it clear that such testing fell within the “scope of work” to which EOS Pipeline was responsible. Sprague-Rosser did not do that. [ 73 ] The fact that it issued the Request for Quotation to Endeavor Inspection on April 24, 2013 further erodes the argument of Sprague-Rosser to the affect that EOS Pipeline was responsible for the costs of the NDE Testing. EOS Pipeline had not been formally engaged under the Subcontract as at that April 24, 2013 date.

Indeed, the Subcontract is dated April 29, 2013, and was not signed until early June, 2013. [ 74 ] Third, the Pre-Job Review Document forms refer specifically to quality assurance and quality control procedures and requirements. Those particular forms outline the duties and responsibilities of Sprague-Rosser and EOS Pipeline. While NDE Testing is specifically noted on that form, it is not designated as a responsibility of EOS Pipeline. To the contrary, the NDE Testing is listed under the column that identifies the obligations of Sprague-Rosser.

Further, the notation in the column attributable to Sprague-Rosser specifically states that the NDE Testing will be subcontracted. [ 75 ] Further, the Pre-Job Review Document forms indicate that the NDE Testing was to be subcontracted by Sprague-Rosser to a third party. There is no indication on those forms that EOS Pipeline was to be involved in that process, or responsible for the corresponding financial burden, concerning the NDE Testing. [ 76 ] It is also noteworthy that Sprague-Rosser signed off on the Pre-Job Review Document forms.

The execution of those documents indicates that the process associated with the Pre-Job Review Document forms were taken seriously by the parties generally and Sprague-Rosser specifically. The execution of the Pre-Job Review Document forms by Sprague-Rosser further supports the finding that it was responsible for the NDE Testing, and the associated costs. [ 77 ] Sprague-Rosser also argues that because the Subcontract was actually signed in early June, 2013, it prevails over the comments in the Pre-Job Review Document forms. Sprague-Rosser submits

Article 1.1.10.4 of the Subcontract as it authority for this argument. The Court dismisses this argument for three reasons. [ 78 ] First, if Sprague-Rosser had intended to change the contractual thrust from what is evident in the Pre-Job Review Document forms, it would have dealt with the matter explicitly by designating EOS Pipeline as being responsible for the NDE Testing (which

would have been consistent with the requirements of the first proviso stipulated in

Article 4.2.6 of the Subcontract). It did not do so. [ 79 ] Second, Sprague-Rosser would have listed Endeavor Inspection in clause 4(

c) of Appendix A to the Subcontract. That was not done. [ 80 ] Third, Sprague-Rosser would have issued EOS Pipeline a back charge in the ordinary course of its business. It did not do so. That is a significant procedural omission by the party that asserts it is owed funds. The Court draws on adverse inference from the fact that Sprague-Rosser did not issue a back charge. [ 81 ] The Court turns next to a review of the unilateral steps taken by Sprague-Rosser concerning the NDE Testing, and the timeline corresponding to those steps.

When the Court speaks of the unilateral efforts of Sprague-Rosser, it is focusing on the conduct of that corporation in retaining Endeavor Inspection. A review of the circumstances surrounding the engagement of Endeavor Inspection tells a story. [ 82 ] Sprague-Rosser initiated the steps to obtain a quote from Endeavor Inspection concerning the NDE Testing associated with the Subcontract.

That process was commenced by way of a Request for Quotation on April 24, 2013. [ 83 ] In contrast, the Subcontract between Sprague-Rosser and EOS Pipeline was formally dated April 29, 2013, but not actually signed until early June of 2013. Accordingly, Sprague-Rosser had initiated its Request for Quotation from Endeavor Inspection five days before the formal date of its agreement with EOS Pipeline, and approximately 1.5 months before the Subcontract was actually signed.

Given that inherent knowledge, if Sprague-Rosser had intended that EOS Pipeline was to be responsible for, and bear the economic burden of, the NDE Testing it would have listed Endeavor Inspection in clause 4(

c) of Appendix A to the Subcontract. [ 84 ] EOS Pipeline was not involved in seeking the quote from Endeavor Inspection. Indeed, there was no evidence that EOS Pipeline was involved in discussions with any testing company concerning the NDE Testing. [ 85 ] Sprague-Rosser issued the NDE Purchase Order to Endeavor Inspection for the NDE Testing work.

Again there was neither evidence nor any suggestion that EOS Pipeline was involved in approving the NDE Purchase Order. [ 86 ] If there was merit to the Sprague-Rosser assertion that EOS Pipeline was to bear the economic burden of the NDE Testing, it would seem logical for EOS Pipeline to have been involved in the issuance of the NDE Purchase Order. This is especially important in a fixed price contract.

EOS Pipeline was neither involved in that process nor is there any suggestion that it was consulted or informed about the proposed issuance of the NDE Purchase Order. [ 87 ] The operational aspects concerning the NDE Testing further support the finding that Sprague-Rosser was responsible for that testing. Two procedural steps are of particular interest. First, Endeavor Inspection submitted its NDE Testing timesheets to Sprague- Rosser for approval. Sprague-Rosser signed off on those Endeavor Inspection timesheets, and did not involve EOS Pipeline in the approval of those timesheets.

Second, Endeavor Inspection issued its NDE Testing invoices to Sprague-Rosser. Similar to the process followed with the Endeavor Inspection timesheets, Sprague-Rosser never submitted those invoices to EOS Pipeline for approval or payment. [ 88 ] Both of these procedural steps are inconsistent with the assertion of Sprague-Rosser that EOS Pipeline was responsible for the economic burden associated with the NDE Testing. If EOS Pipeline was responsible for the NDE Testing, why would Sprague-Rosser act unilaterally in retaining, approving and paying for the underlying costs?

If EOS Pipeline were to bear the economic burden of the NDE Testing, why would it not be involved in retaining Endeavor Inspection and also approving and paying their invoices? If EOS Pipeline was to be responsible for the NDE Testing, why didn’t Sprague-Rosser back charge it in the ordinary course to its business operations? Those questions answer themselves. (

c) Conclusion [ 89 ] A plain reading of the provisions of the Subcontract and the attached Appendixes does not support the arguments advanced by Sprague-Rosser. A prerequisite to EOS Pipeline being responsible for the NDE Testing is for such tests to be designated in the Subcontract documents. That was not done. [ 90 ] The sequence of events associated with the engagement of Endeavor Inspection also is inconsistent with arguments advanced by Sprague-Rosser. In particular, Sprague-Rosser commenced its discussion with Endeavor Inspection before it had even formalized its agreement with EOS Pipeline.

If Sprague-Rosser had intended for EOS Pipeline to bear the economic burden of the NDE Testing, it would have made the designation referred to in

Article 4.2.6. It also would have listed Endeavor Inspection in clause 4(

c) of Appendix A to the Subcontract. Sprague-Rosser did neither. [ 91 ] In conclusion, the Court finds that entity responsible for NDE Testing is Sprague-Rosser. 3. Is Sprague-Rosser entitled to apply the set-off provisions because of the alleged delays and deficiencies associated with the work that EOS Pipeline performed under the Subcontract? (

a) Additional Facts

[ 92 ] To summarize the timeline associated with the 12 inch line, the welding, coating and pull back was completed on or before July 6, 2013. [ 93 ] The welding of the flange onto the 12 inch line was completed by EOS Pipeline on or about September 23, 2013. [ 94 ] Before EOS Pipeline demobilized, Sprague-Rosser advised it of defective welds in the Subcontract Work. Those defective welds were repaired on site. [ 95 ] After EOS Pipeline demobilized, Sprague-Rosser provided no notice to EOS Pipeline of any additional deficiencies in the Subcontract work.

Further, Sprague-Rosser did not notify EOS Pipeline of any delay issues. [ 96 ] Sprague-Rosser was notified by Wood Buffalo Municipality of the leak at the flange on the 12 inch pipeline in late November or early December, 2013. [ 97 ] EOS Pipeline demobilized from the site in December, 2013. [ 98 ] Sprague-Rosser did not commence the alleged repairs until approximately January 7, 2014. [ 99 ] At the commencement of this hearing, Sprague-Rosser conceded that it did not provide EOS Pipeline with any notice in respect of the alleged deficiencies.

Sprague-Rosser also stated that it had no obligation to provide such notice. (

b) The Law (

i) Contractual Provisions [ 100 ] The relevant Articles in the Subcontract dealing with the entitlement to set-off because of deficiencies and delays are as follows:

Article 5.2.1 The Contractor may withhold payments from the Subcontractor to such extent as may be considered necessary by the Contractor to protect the Contractor from loss on account of defective Work or materials not remedied , or failure of the Subcontractor to make payments for materials, labour or otherwise under this subcontract, or the failure of the Subcontractor to perform any of his obligations hereunder.

The Subcontractor hereby acknowledges and agrees that the Contractor may set-off against any obligation of the Contractor to the Subcontractor, and that the Contractor's obligation to pay the Subcontractor shall be reduced by any claim of any nature or kind by the Contractor against the Subcontractor, whenever arising, whether liquidated or unliquidated, whether or not arising from or related to this subcontract and including any claim against the Subcontractor by any other person which has been assigned at any time to the Contractor.

Article 5.2.2 Proper and complete performance of the requirements of this Subcontract by the Subcontractor shall be a condition precedent to all payments under this Subcontract. ...

Article 6.5.7 If the Contractor is delayed in the performance of the Work of the Prime Contract by an action or omission of the Subcontractor, or anyone employed or engaged by them directly or indirectly, then the Contractor shall have the right, as per SC 5.2, to withhold payment, set off and make claim for damages as they may occur, including, but not limited to loss of profit, penalties or liquidated damages under the Prime Contract, and extended management and overhead expenses. ...

Article 13.1.2 Unless noted otherwise within the Subcontract Documents, the warranty period under this Subcontract is two years from the date of Substantial Performance of the Work.

Article 13.1.3 The Contractor shall promptly give the Subcontractor notice in writing of observed defects and deficiencies which occur during the warranty period as described in 13.1.2.

Article 13.1.4 Subject to paragraph 13.1.3, the Subcontractor shall correct promptly, at the Subcontractor’s expense, defects or deficiencies in the Subcontract Work which appear prior to and during the warranty period as described in 13.1.2. ...

Article 15.1.1 The Contractor reserves the right to perform work with its own forces, or subcontract work to others, including Work under this Subcontract, at the Contractor's discretion. [Underlining added.] (ii) Application Of The Law [ 101 ] Sprague-Rosser alleges that EOS Pipeline failed to execute its work obligations under the Subcontract in a proper and workmanlike manner. Sprague-Rosser goes on to allege that it suffered damages and losses.

[ 102 ] Given those allegations, Sprague-Rosser asserts that it is entitled to set-off against the amounts claimed by EOS Pipeline pursuant to its liens. Sprague-Rosser states that the set-offs are in accordance with the terms of the Subcontract. [ 103 ] Sprague-Rosser argues that its letter to EOS Pipeline, dated November 13, 2013, was notice of delay related to the flange. The Court finds that this assertion is not correct. The Court also finds that the November 13 letter had nothing to do with the flange that was allegedly leaking.

Indeed, Sprague-Rosser did not even know about the leaking flange when it issued this letter. Wood Buffalo Municipality notified Sprague-Rosser of the leak in late November or early December, 2013. [ 104 ] The Court finds that the evidence supports the view that the letter dated November 13, 2013 related to the dispute over 12 hour days to be paid for the Tie-In Work, as opposed to being in the nature of a notice of delay. Indeed, Sprague-Rosser conceded that the November 13, 2013 letter was issued by it because of the threat by EOS Pipeline that it would leave the site where the Tie-In Work was being executed.

The Tie-In Work is a separate issue, and will be addressed below. [ 105 ] Further, the November 13, 2013 letter was provided by Sprague-Rosser to EOS Pipeline after the Subcontract work was completed (the tie-in work aside). To emphasize the point, when Sprague-Rosser issued the November 13, 2013, even the pull back of the 30 inch line had been completed. [ 106 ] Sprague-Rosser further asserts that EOS Pipeline overcharged for welds that had to be corrected. The Court finds that assertion is not consistent with the facts. The Subcontract was a fixed-price contract.

There is no evidence that EOS Pipeline charged Sprague- Rosser on an hourly or unit basis for repairing welds in the Subcontract work. [ 107 ] The Court also finds that there is no evidence supporting Sprague-Rosser’s position that there were deficiencies in the work carried out by EOS Pipeline under the Subcontract, but for any allegations in respect of the tie-in work. The remedial work referred to by Sprague-Rosser all relates to the 12 inch pipeline in the context of the Tie-In Work.

As noted above, the Tie-In Work warrants on independent analysis, and will be addressed below. [ 108 ] While there was acknowledgement that there were some defective welds in the work covered by the Subcontract, there is no evidence that the number of defective welds deviated from the normal course or that the number of defective welds otherwise exceeded the acceptable number on a job of this nature. Imperfections in welds are part of the business. Correcting such deficiencies is standard practice in pipeline construction.

That is why welds are tested. [ 109 ] The evidence in this case is that all of the welds were examined and corrected in the normal course of operations. These corrections to the welding deficiencies were effected before EOS Pipeline demobilized (the tie-in work aside). [ 110 ] Despite its many allegations of delay, deficiencies and breaches of EOS Pipeline, all made after the fact, Sprague-Rosser never notified EOS Pipeline of any deficiencies or warranty items in the Subcontract work.

Consequently, Sprague-Rosser never afforded EOS Pipeline an opportunity to inspect and repair any such alleged deficiencies or warranties, and never noted EOS Pipeline in default under the Subcontract. [ 111 ] Sprague-Rosser stated explicitly to the Court at the commencement of this hearing that it had no obligation to give notice to EOS Pipeline. The Court acknowledges that admission by Sprague-Rosser. [ 112 ] The fact that notice was not given to EOS Pipeline is fatal to Sprague-Rosser in this case. The reasons are threefold. [ 113 ] First, a general comment.

The failure to give notice is often problematic to a person who does not do so, and who then goes on to make a claim against the party who is unaware of the matter. Inadequate or no notice is more than a procedural irregularity. At a minimum, it shifts the onus to the party to prove its case (such as Sprague-Rosser). [ 114 ] Second, while the Subcontract allows Sprague-Rosser to withhold payment, it is subject to a prerequisite. Specifically, Sprague- Rosser can withhold payments “...on account of defective work or materials not remedied ...” : see

Article 5.2.1. The reference in that clause to defective work “not remedied” implicitly means that Sprague-Rosser had to give EOS Pipeline the opportunity to remedy. If Sprague-Rosser failed to provide EOS Pipeline with an opportunity to take corrective steps, then Sprague-Rosser bears the economic burden. While

Article 15.1.1 certainly gives Sprague-Rosser the right to take corrective steps, that clause does not impose a unilateral economic burden on EOS Pipeline. [ 115 ] Third, the assertion by Sprague-Rosser is not consistent with

Article 13.1.3 of the Subcontract, which states that Sprague- Rosser “... shall promptly give the Subcontractor notice in writing of observed defects and deficiencies which occur during the warranty period as described in

Article 13.1.2”. While it is not clear what the actual deficiency is (other than those related to the tie-in work, which is discussed below), for completeness, the Court will address the issue under the terms of the Subcontract. A brief review of the timeline is critical. EOS Pipeline completed the welding of the flange onto the 12 inch pipeline in late September, 2013. Sprague-Rosser and other parties were responsible for the remaining work, which included the placement of the pipeline onto the trench, the insertion of the gasket and the bolt-up.

Wood Buffalo Municipality notified Sprague-Rosser in late November or early December of a deficiency. EOS Pipeline demoralized from the site in December, 2013. Sprague-Rosser commences repairs on the deficient work in January 2014. [ 116 ]

Article 13.1.2 states that the warranty period is two years from the date of substantial performance of the work. Absent evidence to the contrary, EOS Pipeline would have achieved substantial completion of the work under the Subcontract by the date it demobilized. That would have activated the warranty period referred to in

Article 13.1.2 of the Subcontract. [ 117 ] While

Article 13.1.4 of the Subcontract obligates EOS Pipeline to correct deficiencies promptly, that requirement is subject to the proviso that Sprague-Rosser give EOS Pipeline appropriate notice in writing: see

Article 13.1.3. Since Sprague-Rosser advised the Court that it did not give EOS Pipeline notice, it cannot now make any claim in respect of deficiencies or delays, if any. [ 118 ] In making the above comments concerning

Article 13.1, the Court acknowledges the Sprague-Rosser argument to the effect that this warranty clause does not apply to the alleged deficiencies. In particular, Sprague-Rosser argued that the warranty clause does apply

to major defects such as exist in this case. The Court dismisses that assertion. The clause applies to “...observed defects and deficiencies...”. There is no reference in

Article 13.1 of the Subcontract to an exclusion for major defects. [ 119 ] In

summary, the Court finds that

Article 13.1 of the Subcontract applies to the deficiencies alleged by Sprague-Rosser. Consequently, Sprague-Rosser was required to give notice to EOS Pipelines. Notice was also required under

Article 5.2.1 in order to allow EOS Pipelines the opportunity to remedy any deficiency. (

c) Conclusion [ 120 ] The Court finds that Sprague-Rosser is not entitled to apply the set-off provisions to the amount it owes to EOS Pipeline under the Subcontract (excluding the Tie-In Work, which is discussed below.) The lack of notice is fatal to the Sprague-Rosser claim for set- off. D. Tie-In Work 1. On what basis is EOS Pipeline entitled to be paid for the tie-in work performed? (

a) Additional Facts [ 121 ] In or about early September 2013, Sprague-Rosser requested a quote from EOS Pipeline for tie-in work (the “ Tie-In Work ”). This request from Sprague-Rosser came after EOS Pipeline had completed the welding, coating and pull back work required in the Subcontract, with the exception of the pull back of the 30 inch line. [ 122 ] EOS Pipeline provided separate quotes for each of the three tie-in projects, which were as follows: a. Upper Bore Tie-Ins – Lump-Sum Price $495,000 b. Rock Trap Structure Tie-Ins – Lump-Sum Price $205,000 c.

Clear Water River Tie-Ins – Lump-Sum Price $495,000 [ 123 ] Sprague-Rosser signed off on each of the three separate tie-in quotations. The date on each of those three documents was September 3, 2013 (the “ September 2013 Documents ”). [ 124 ] EOS Pipeline mobilized labor and equipment for the Tie-In Work on September 14 and 15, 2013. It commenced the Tie-In Work on September 16, 2013. [ 125 ] On September 18, 2013, Sprague-Rosser had a conference call with EOS Pipeline (the “ September 2013 Conference Call ”).

During the September 2013 Conference Call, Sprague-Rosser requested EOS Pipeline to perform the Tie-In Work on a basis that was different from that noted in the September 2013 Documents. [ 126 ] During the September 2013 Conference Call, Sprague-Rosser indicated that the Tie-In Work should be managed through a change order process. In contrast, the recollection of EOS Pipeline was that Sprague-Rosser asked it to perform the Tie-In Work on a time and materials basis, as opposed to a lump-sum basis.

Also, the recollection of EOS Pipeline during the September 2013 Conference Call was that it advised Sprague-Rosser that its employees were paid 12 hours a day, regardless of how many hours were actually worked. This 12 hour per day stipulation was stated to be in accordance with Fort McMurray requirements to secure the workforce. [ 127 ] Sprague-Rosser was to keep notes of what was discussed during the September 2013 Conference Call.

No notes of the September 2013 Conference Call were ever provided to the Court. [ 128 ] EOS Pipeline provided Sprague-Rosser with a copy of its rate sheet on September 19, 2013 (the “ Rate Sheet ”). EOS Pipeline received no response to the Rate Sheet from Sprague-Rosser. [ 129 ] EOS Pipeline followed up again with Sprague-Rosser on September 25, 2013. In response to the September 25, 2013 enquiry, Sprague-Rosser authorized EOS Pipeline to continue with the Tie-In Work. Sprague-Rosser also advised that further paperwork would be issued in due course.

No further paperwork was forthcoming from Sprague-Rosser. [ 130 ] Daily work tickets in respect of the Tie-In Work were submitted by EOS Pipeline. An employee of Sprague-Rosser, Mr. Cornell, signed the daily work tickets which were submitted by EOS Pipeline during the period that he worked on the project (the “ Daily Tickets ”). Mr. Cornell signed the Daily Tickets without any comments or notations being recorded on those documents. [ 131 ] After Mr. Cornell left the site, notations were made on some Daily Tickets by other Sprague-Rosser representatives.

Those notations indicated that EOS Pipeline personnel had worked less than 12 hours on site. No objections were raised with EOS Pipeline by

Sprague-Rosser concerning the Daily Tickets or the corresponding invoices, until this litigation commenced. [ 132 ] The invoices that were issued by EOS Pipeline to Sprague-Rosser for the Tie-In Work were in accordance with the Daily Tickets and the Rate Sheet. [ 133 ] The Tie-In Work was completed by EOS Pipeline on or about December 3, 2013. The corporation demobilized from the tie-in project on December 9, 2013. [ 134 ] The invoices issued by EOS Pipeline for the Tie-In Work were approximately $11,929 less than the aggregate lump-sums quoted in the September 2013 Documents. (

b) The Law (

i) The Contractual Framework [ 135 ] The “scope of work” in the Subcontract is identified in the

Article 1.A and in Appendix “A” or “B” to the Subcontract. For convenience, the full text of that

Article is as follows.

Article 1. A – The Subcontractor shall supply all labour, supervision, materials, tools, and equipment necessary to construct, install and complete the following portion(

s) of the Project (hereinafter called the “Work”), at and for the Subcontract price(s), namely: Pipeline Welding services as per attached Pre-Award Meeting Minutes (Appendix “A”) and in accordance with EOS Quote dated March 15, 2013 - Option #2 (Appendix “B”). Any conflict between Appendix “A” and Appendix “B”, Appendix “A” will prevail. Please also note that Exceptions and Clarifications to the Bid also apply to this Contract and are found in Appendix “C”. Annex 1 of Appendix C are clarifications addressing the 3rd Party mark-up and Progress Payment Milestones. Contractor will supply a work

schedule which will be Annex 1 to Appendix “A”; all in a proper and workmanlike manner and in accordance with the Prime Contract. [ 136 ] Sprague-Rosser signed off on the September 2013 Documents. Each of those documents included the following elements a. The parties, being Sprague-Rosser and EOS Pipeline. b. The price for each of the three tie-in projects, which are as follows: i. Upper Bore Tie-Ins – Lump-Sum Price $495,000 ii. Rock Trap Structure Tie-Ins – Lump-Sum Price $205,000 iii. Clear Water River Tie-Ins – Lump-Sum Price $495,000 c.

The product, being the goods and services supplied. (ii) Application of the Law [ 137 ] The basis on which EOS Pipeline is entitled to be paid for the Tie-In Work requires the Court to address two questions. First, the scope of work to which the Subcontract applies. By addressing this question, the Court will determine if the terms and conditions in the Subcontract apply to the Tie-In Work. Second, the contractual framework which then applies to the Tie-In Work. The Court considers at each of these questions, and in that order. (

I) Scope of Work [ 138 ] These comments are in addition to the “scope of work” commentary that was discussed above in respect of the NDE Testing. [ 139 ] During the hearing, EOS Pipeline advanced the argument that the Tie-In Work was a whole new scope of work. That argument deserves careful consideration. [ 140 ] The provisions of an agreement which determine the scope of work in a construction project define the duty that is owed by one party to the contract to the other party to that contract.

Determining the scope of work in a construction subcontract is often a challenge because of the continuum of work. [ 141 ] Typically, the general contractor (such as Sprague-Rosser) seeks a broad scope of work provision so that the subcontractor (such as EOS Pipeline) is responsible for a wide range of tasks. The objective of the subcontractor is exactly the opposite. It wants a narrow scope of work so that it limits the range of its responsibility.

[ 142 ] In this case,

Article 1.A of the Subcontract and the Appendixes detail the scope of work that EOS Pipeline was obligated to undertake. The scope of that work is well-defined. It is focused on welding, coating and pull back in respect of each of the 12 inch pipeline, 28 inch pipeline and 30 inch pipeline. [ 143 ] On a continuum of pipeline work, the Tie-In Work would be the next logical step, following the pull back of a pipeline.

In considering the issue, it is important to note that the Tie-In Work is the next step in the pipeline construction process, and not part of the Subcontract unless it is specifically referred to in that document. [ 144 ] In defining the scope of work, the Subcontract makes no mention of the Tie-In Work. That omission is important. [ 145 ] The fact that the Subcontract is silent on the Tie-In Work leads this Court find that the Tie-In Work was not within the “scope of work” as defined by that agreement. Accordingly, neither the “Change Order” framework nor the “Change Directive” framework in

Article 6 of the Subcontract had application to EOS Pipeline in respect of the Tie-In Work, unless EOS Pipeline agreed otherwise. There is no indication that EOS Pipeline agreed otherwise, although there certainly was an indication that it was open to discuss the point. Further, there is no evidence that Sprague-Rosser sought the approval of Wood Buffalo Municipality in respect of either a “Change Order” or a “Change Directive”, which it was required to do under the terms of the Subcontract.

This is approval requirement is explicit in the Subcontract: see Articles 6.2.2 and 6.3.5 of the Subcontract. [ 146 ] The argument that the scope of work in the Subcontract ceased at the point of the pipeline pullback is reinforced by the fact that tie-in work associated with pipeline contracts is usually specified in some detail. The reason that such “detail” is required is because tie- in work is an important part of the pipeline construction process.

That is, tie-in work is not an incidental aspect of pipeline construction. [ 147 ] To reiterate the conclusion, the Court finds that the Tie-In Work was not a change to the Subcontract work. To the contrary, it is an entirely new scope of work. It is the next step on the continuum, but outside the Subcontract framework. (II) Contractual Framework [ 148 ] The next step is to determine the contractual framework which will dictate the payment obligations that Sprague-Rosser has to EOS Pipeline in respect of the Tie-In Work.

Provided the uncontested facts before the Court establish all of the essential elements of an agreement, a determination can be made. [ 149 ] EOS Pipeline completed the Tie-In Work. There is no dispute in respect of that issue, but for the alleged deficiencies and delay. The issue is the manner by which EOS Pipeline is entitled to be paid for the work performed. [ 150 ] The options by which EOS Pipeline could be paid are threefold. First, EOS Pipeline could be paid by reference to a “Change to the Work” to the Subcontract, as suggested by Sprague-Rosser. This is provided for in

Article 6 of the Subcontract. Second, EOS Pipeline could be paid on at the “time and material basis”, based on the Rate Sheet. Third, EOS Pipeline could be paid on the quoted lump-sum price, as noted in each of the three September 2013 Documents. [ 151 ] The Court turns, first, to the “Change to the Work” option. During the September 2013 Conference Call, Sprague-Rosser requested that EOS Pipeline perform the Tie-In Work on a basis that was different than the lump-sum price approach which is evidenced in the September 2013 Documents.

During that call, Sprague-Rosser alleged that it indicated that the Tie-In Work should be managed through a change order process: see Articles 6.2 and 6.3 of the Subcontract. [ 152 ] As concluded above, the Subcontract does not apply to the Tie-In Work because it is outside the “scope of work” as defined in the Subcontract.

That being the case, the “Change in the Work” elements in the Subcontract do not assist in determining the contractual framework that applies to the Tie-In Work. [ 153 ] While Sprague-Rosser did indicate on September 25, 2013 that further paperwork work would be forthcoming, it did not forward such paperwork. Had Sprague-Rosser taken that procedural step, matters likely would have been clarified. Indeed, EOS Pipeline may have, for example, agreed to implement the “Change Directive” elements that are in

Article 6.3 of the Subcontract, notwithstanding that the Subcontract was not otherwise applicable to the Tie-In Work. [ 154 ] The combination of the fact that Sprague Rosser took no steps to advance the discussions with EOS Pipeline and the above finding that the “scope of work” under the Subcontract did not include the Tie-In Work means that Sprague-Rosser cannot now rely on the “Change to the Work” elements in

Article 6 of the Subcontract. Sprague-Rosser is the author of its own misfortune in this regard. [ 155 ] As stated above, the Court emphasizes that Sprague-Rosser provided no evidence that it had submitted the alleged change order or change directive to Wood Buffalo Municipality for approval. If the Subcontract had applied to the Tie-In Work, that procedural step would have been required: see Articles 6.2.2 and 6.3.5 of the Subcontract. [ 156 ] A final reason that the Subcontract cannot apply to the Tie-In Work is because Sprague-Rosser would be technically barred from making a payment to EOS Pipeline in these circumstances. This result flows from

Article 6.1.2 of the Subcontract, which stipulates that Sprague-Rosser “...shall not be responsible for payment or other compensation for any work performed without a Change Order or a Change Directive under the terms of this Subcontract.” [ 157 ] The Court acknowledges the argument that Sprague-Rosser advanced to the effect that the paperwork requirements were “waived”. The Court dismisses that argument because it is inconsistent with the detailed framework that is in the Subcontract. [ 158 ] For reasons touched on above, the Court reiterates its finding that the Subcontract does not apply to the Tie-In Work. As a consequence, the “Change to the Work” provisions in

Article 6 of the Subcontract do not apply. [ 159 ] The Court turns, second, to the “time and material basis” option. The recollection of EOS Pipeline was that Sprague-Rosser

asked it to perform the Tie-In Work on a time and materials basis, as opposed to a lump-sum basis. EOS Pipeline also indicated that it advised Sprague-Rosser that its employees were paid 12 hours a day regardless of how many hours were actually worked. [ 160 ] It is clear that there is conflicting evidence in respect of what was communicated during the September 2013 Conference Call. Since we are in a

summary judgment process, this conflicting evidence typically would require the Court to conclude that a trial proper is required. However, before the Court draws that conclusion, it needs to consider the nature of the September 2013 Document. [ 161 ] All three of the September 2013 Documents were signed. Further, those documents identify the parties, the price and the product (being the Tie-In Work). Nothing was left to speculation at that point. Indeed, EOS Pipeline mobilized on September 14 and 15, 2013. It commenced the Tie-In Work on September 16, 2013.

That conduct affirms that as far as EOS Pipeline was concerned, it had a binding agreement in respect of the Tie-In Work. [ 162 ] Notwithstanding that it had commenced the Tie-In Work, EOS Pipeline was a willing participant in the September 2013 Conference Call. While the parties may not have been ad idem in terms of matters discussed during that call, EOS Pipeline took steps to communicate with Sprague-Rosser in an apparent attempt to at least entertain the revised contractual terms, which included the “time and material” option as a basis for payment.

In particular, EOS Pipeline communicated with Sprague-Rosser on September 19, 2013, and again on September 25, 2013. On the September 19, 2013 date, EOS Pipeline provided Sprague-Rosser with a copy of its Rate Sheet. On the September 25, 2013 date, EOS Pipeline again took steps to engage Sprague-Rosser. [ 163 ] In response to the September 25, 2013 enquiry, Sprague-Rosser authorized EOS Pipeline to continue with the Tie-In Work. Sprague-Rosser also advised that further paperwork would be issued in due course.

Regrettably, no further paperwork was ever received by EOS Pipeline. [ 164 ] Given the evidence before the Court, it is clear that EOS Pipeline was open to discussing matters with Sprague-Rosser. There was at least a possibility that EOS Pipeline would have agreed to the proposition that Sprague-Rosser had proposed in the September 2013 Conference Call. However, Sprague Rosser did not take the appropriate steps to advance matters.

That being the case, the potential variation to which both parties spoke of during argument was never effected. [ 165 ] For the reasons touched above, the Court finds that Sprague-Rosser did not agree to pay EOS Pipelines on a “time and material basis”. The parties were not ad idem concerning the variation discussed. [ 166 ] The Court turns, third, to the quoted “lump-sum price” option. As stated above, each of the September 2013 Documents identifies the parties, the price, and the product (i.e., the goods and services) to be supplied.

Those elements are the essentials of a contract. [ 167 ] The conduct of EOS Pipeline indicates that from its perspective, a binding agreement existed. To reiterate the point, this is evidenced by the fact that EOS Pipeline mobilized for the Tie-In Work on September 14 and 15, and commenced work on September 16, 2013. The commencement of that work was two days before the parties had the September 2013 Conference Call. [ 168 ] For reasons touched on above, the Court finds that each of the three September 2013 Documents constitute a binding agreement. (

c) Conclusion [ 169 ] The Court finds that each of the three September 2013 Documents constitutes a binding agreement. In the circumstances, Sprague-Rosser is obligated to pay EOS Pipeline the lump-sum price that is stipulated in each of the three September 2013 Documents. [ 170 ] As a

summary comment, the parties fall into this result because Sprague-Rosser never took the steps necessary to vary the agreements which are evidenced by the September 2013 Documents. Further, Sprague-Rosser did not implement the steps that may have allowed certain provisions in the Subcontract to apply to the Tie-In Work. 2. Is Sprague-Rosser entitled to apply the set-off provisions because of the alleged delays and deficiencies associated with the work that EOS Pipeline performed in respect of the Tie-In Work? (

a) Additional Facts [ 171 ] As part of the Tie-In Work, EOS Pipeline was required to align and weld a flange to the end of each of the 12 inch pipeline, 28 inch pipeline and 30 inch pipeline. The flange on the 12 inch line is the subject of the claim by Sprague-Rosser for alleged deficiencies and delay relating to the Tie-In Work. [ 172 ] As noted above, EOS Pipeline completed the Tie-In Work on the 12 inch pipeline between September 19 and 23, 2013. [ 173 ] On or about September 22, 2013, Sprague-Rosser completed the bolt-up of the new flange to the pre-existing flange on the 12 inch pipeline.

Sprague-Rosser executed that bolt-up to a specific torque. [ 174 ] Sprague-Rosser agreed with the following during questioning. First, that EOS Pipeline did not do any excavation work. Second, that Sprague-Rosser was responsible for, and actually inserted, the gasket between the pre-existing flange and the new flange that had

been affixed by EOS Pipeline. Third, that Sprague-Rosser lined-up the flanges and tightened the bolts which connect at the flanges. Fourth, that the welding performed by EOS Pipeline was tested in accordance with the NDE Testing or other testing requirements. Fifth, that the welding did not leak. [ 175 ] The deficiency alleged by Sprague-Rosser is that there is a leak at the flange on the 12 inch pipeline. Sprague-Rosser did not provide any inspection report or other reports from a qualified engineer regarding the leak.

Further, Sprague-Rosser did not provide EOS Pipeline with any notice of the leaks. [ 176 ] On November 13, 2013, Sprague-Rosser wrote to EOS Pipeline. That letter read as follows: In light of recent events related to the work being completed by your firm under sub-contract No. 212008-4-2-1260020 (sic) please be advised that Sprague-Rosser has grave concerns regarding the schedule. Should EOS fail to continue with the work in a timely manner we will be left with no other option than to place your firm in default. Pursuant to

Section 6.5.7 of our Subcontract EOS will be held responsible for all damage incurred by Sprague-Rosser. Please immediately provide us with confirmation that you will continue with the work.

In the event that your firm chooses to default on this contract we will take all necessary steps to remedy this issue including notifying your surety provider. [ 177 ] On January 2, 2014, Sprague-Rosser wrote to Associated Engineering Alberta Ltd. and outlined the following issues: In the original IFC drawings issued our firm was required to remove the blind flanged and tie into an existing 350 HDPE DR7.3 SAN [pipe]line... ...

Furthermore the existing valve was not installed in a level position; it is tilted towards the Steel 323MM line our firm is installing which has resulted in the inability to get a proper seal, even with the appropriate gasket connection. Had the connection detailed been as per design this would not have been an issue. [ 178 ] On January 6, 2014, Associated Engineering responded to the Sprague-Rosser letter dated January 2, 2014. The following statements were included in that letter: 2) The notes on drawing 3679-03-1103 Detail A state “Remove Ex. Blind Flange and Tie to Existing”. This has not changed.

The location and flange type were verified at the time of shop drawings to confirm the tie-in and to ensure that the two flanges would be fabricated to mate. 3) At the time of connection in September 2013 there were no issues with the connection to the valve. [Underlining added.] [ 179 ] On January 7, 2014, Sprague-Rosser responded to the Associated Engineering letter dated January 6, 2014. The following was included in that letter: We disagree with the classification of this as deficient work , as there is an obvious change to the design, it can only be considered a change to the contract. ...

The location of this value has been excavated, left open, backfilled, and re-excavated numerous times over the past two years as observed from our work on an adjacent project. To complicate matters this location has an extreme amount of ground water as it is in between the Saline Creek plateau and Clearwater River.

This amount of groundwater and the constant disruption to this valve location are the suspected reasons for the alignment of the valve being off enough that the gasket was unable to make up the difference and function properly. [Underlining added.] [ 180 ] The Master granted judgment to EOS Pipeline without prejudice to the ability of Sprague-Rosser to bring a claim against EOS Pipeline for damages. [ 181 ] Sprague-Rosser has not commenced an action against EOS Pipeline for damages. (

b) The Law (

i) The Contractual Framework [ 182 ] The Court concluded above that the Subcontract had no application to the Tie-In Work. That being the case, none of Articles 5.2.1, 5.2.2, 6.5.7, 13.1.2, 13.1.3, 13.1.4 or 15.1.1 of the Subcontract apply. [ 183 ] The relevant contractual framework in respect of the Tie-In Work is limited to the terms and conditions included in the three September 2013 Documents. No other terms and conditions have been presented in evidence.

(ii) Application of the Law [ 184 ] Sprague-Rosser is claiming set-off. Sprague-Rosser has two challenges in applying set-off in respect of the Tie-In Work. The first challenge is contractual. The second challenge is factual. [ 185 ] Turing first to the contractual challenge, there is no evidence of any terms that provide a set-off entitlement. The September 2013 Document that is relevant to the Tie-In Work associated with the 12 inch pipeline contains no set-off terms.

Further, no other terms and conditions providing for set-off entitlement have been presented in evidence. [ 186 ] Turning second to the factual challenge, there is no direct evidence that EOS Pipeline was the cause of any deficiencies in the Tie-In Work that it pursued in respect of any of the three pipelines, including the 12 inch pipeline. Indeed, the Sprague-Rosser letters to Associated Engineering on both January 2, 2014 and January 7, 2014 suggest that the cause of the deficiencies is not a result of the Tie- In Work that EOS Pipeline executed.

This conclusion is strongly supported by the January 6, 2014 letter from Associate Engineering to Sprague-Rosser wherein the engineers specifically stated that “[a]t the time of connection in September 2013 there were no issues with the connection to the value.” [ 187 ] The Court also notes that Sprague-Rosser provided no independent evidence, such as an engineering report or other investigative report, suggesting the cause of the leaking flange was due to the work carried out by EOS Pipeline.

That omissions is important, particularly when there are so many other factors that could have caused the leak at the flange. [ 188 ] The two month gap between the completion of the Tie-In Work by EOS Pipeline on or about September 22, 2013 and the notice that Wood Buffalo Municipality gave Sprague-Rosser in late November or early December 2013 concerning the leak on the 12 inch pipeline is also noteworthy for two reasons. First, many things would have occurred during that two month gap, which may have caused the leak.

For example, heavy equipment may have ran over the line in circumstances where the material in the pipeline trench is not properly packed. Second, as noted in the Associated Engineering letter quoted above, there were no issues with the subject connection in September 2013. This comment is significant because it is from the engineering firm that represents Wood Buffalo Municipality. (

c) Conclusion [ 189 ] Sprague-Rosser is not entitled to apply the set-off provisions in the Subcontract to the amounts owed to EOS Pipeline for the Tie-In Work. The reason for this conclusion is twofold. First, the Tie-In Work is outside the scope of the Subcontract. Second, there is not sufficient evidence to support the Sprague-Rosser claim that EOS Pipeline caused the alleged deficiencies in respect of the Tie-In Work. IV. The Orders [ 190 ] This Court issues the following Orders: a. The appeal of Sprague-Rosser is dismissed in its entirety. b. The Stay regarding the payment of the judgment is lifted.

The full amount of the EOS Pipeline judgment amount plus interest is to be paid from the funds and Lien Bond deposited by Western Surety with the Court. [ 191 ] Concerning Costs, the Court exercises its discretion and Orders that costs and reasonable and proper disbursements for this action be paid in accordance with Column 5 of

Schedule C of the Alberta Rules of Court . Heard on the 5 th day of May, 2015. Dated at the City of Calgary, Alberta this 26 th day of April, 2016 . D.B. Nixon J.C.Q.B.A.

Appearances: Ms. Jean van der Lee, Q.C. for the Respondent Mr. Dirk Laudan Mr. Jakub Ksiazek for the Appellant _______________________________________________________ Corrigendum of the Memorandum of Decision of The Honourable Mr. Justice D.B. Nixon _______________________________________________________ Typographical errors corrected to counsel’s name and who they act for under Appearances has been made.