Canadian Natural Resources Limited v Wood Group Mustang (Canada) Inc (IMV Projects Inc), 2017 ABQB 106

Court of Queen’s Bench of Alberta Citation: Canadian Natural Resources Limited v Wood Group Mustang (Canada) Inc (IMV Projects Inc), 2017 ABQB 106 Date: 20170215 Docket: 1001 01541 Registry: Calgary Between: Canadian Natural Resources Limited Plaintiff - and - Wood Group Mustang (Canada) Inc., formerly IMV Projects Inc. Defendant _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice R.E. Nation _______________________________________________________ Table of Contents I. Introduction . 4 II.

Summary of Decision . 5 A. IMV .. 5 B. Shaw .. 6 C. Flint 7

D. CNRL .. 7 E. Result 8 III. Brief Factual Background . 8 IV. Fact Findings on Disputed Issues . 9 A. What was the Design Temperature for the Insulative Lining? . 9 B. The Passage of Time . 10 C. The Decision to Bury the Pipeline . 11 D. Radial Temperatures . 12 E. The Temperature Data . 13 F. Responsibilities of CNRL .. 15 G. Scope of Work of IMV .. 16 V. Findings from the Expert Evidence . 20 A. Discussion of Evidence . 20 B. Findings Based On the Expert Evidence . 20 VI. Negligence . 25 A. The Law .. 25 B. The Breaches of Duty by IMV Argued by CNRL .. 26 1. Duty to Warn . 26 2. The Procurement Role . 27 3.

The Stress Analysis . 30 4. The CSA Standards . 36 5. The Stamping of the Drawings . 42 6. Adequacy of Construction Documents . 46 7. Failure to Place a Temperature Alarm or Shut-off Valve . 47 8. Overall Standard of Care . 51 C. Causation . 52 1. The Law .. 52 2. Application of the Law to the Facts . 53 3. Conclusion on Causation . 55 D. Foreseeability . 55 E. Conclusion on Negligence . 56 VII. Breach of Contract 56 A. Background on Contract 56 B. Was there a Breach of Contract by IMV? . 56 1. Warranty of Fitness . 56 2. Analysis . 57 C. Conclusion on breach of contract 57 VIII. Contractual Bars to Recovery . 58

A. Was There a Restriction of Damages to $50,000? . 58 1. What were the terms of the MOA Contract between CNRL and IMV? . 58 2. Evidence . 58 3. Decision . 60 B. Does Clause 14(

e) of the MOA (the “Blowout” Exclusion) affect the liability of IMV? . 60 1. The Formal Admissions Argument 61 2.

Interpretation of the Term “Blowout” . 63 3. Did the Damage Arise from the “Blowout”? . 67 4. Was IMV “Grossly Negligent”? . 68 5. Was the Loss Covered by IMV’s Insurance? . 68 C. Conclusion . 69 IX. Liability of the Settling Parties: Flint and Shaw .. 69 A. Pierringer Agreement Issues . 69 1. Application for Changes to Trial Procedure . 69 2. The Use of Shaw Documents . 71 3. Cross-Examination Using a Transcript by Another Party in the Same Action . 76 B. Liability of Shaw .. 77 1. Established Facts . 79 C. Liability of Flint 79 X. Comparative Liability Assessment 81 A. The Law .. 81 B.

Contributory Negligence . 81 C. Liability Split between the Tortfeasors . 83 XI. Damages . 83 A. The cost of the initial E Pipeline or the cost of replacement? . 84 B. How to Divide Expenses between the E Pipeline and the BFW Line? . 84 C. Should there be Deductions from the Invoices? . 85 1. Overhead Costs . 85 2. Travel Costs . 85 3. Gifts and dinners . 85 4. Subcontracting . 86 D. GST Claim .. 86 E. Deduction of the Benefit Received . 86 F. Costs of Investigation . 87 G. Costs of Decommissioning . 87 H. Conclusion on Damages . 88 XII. Conclusion . 88

I. Introduction [ 1 ] In 2008, the Plaintiff, Canadian Natural Resources Limited (“CNRL”) embarked upon an expansion of its Primrose holdings, part of which involved the construction of a buried 32 kilometre emulsion pipeline (the “E Pipeline”) to carry hot emulsion fluid from the Primrose East Plant (“PRE”) to be processed at the Wolf Lake Plant (“WLP”). Built during the 2007 to 2008 construction season, the pipeline was put into service in October 2008. It was shut down in January, 2009 due to damage to the insulation system on the pipe, which allowed heat to transfer into the surrounding ground.

The issue in this action is whether there is any legal responsibility for the failure of the insulation system. [ 2 ] The focus of the trial was the liability, if any, of the Defendant Wood Group Mustang (Canada) Inc., (formerly IMV Projects Inc., referred to as “IMV” in this decision) in contract or tort, as a result of its involvement in the engineering work on the E Pipeline.

The Plaintiff had originally sued other parties, namely: Shawcor Ltd., Shaw Pipe Protection Ltd., and Shawcor Canada Holding Ltd., formerly Bredrero Shaw Company Limited, (collectively referred to as “Shaw”) and Flint Field Services Ltd. and Transline Ltd. (collectively referred to as “Flint”). The Plaintiff settled its claims with both Shaw and Flint by way of a Pierringer Agreement, so although Shaw and Flint were not parties to the lawsuit at trial, the Court is required to decide if they bear any liability for the damages sustained by CNRL. II.

Summary of Decision [ 3 ] The evidence in this trial took a period of three months; written argument was submitted, followed by three days of oral argument (three months later). The evidence was technical in nature, involving a multi-million dollar project and the engineering behind an underground pipeline. Twenty-four lay witnesses (nine of whom were engineers) and twelve expert witnesses testified. [ 4 ] I am providing a table of contents and a

summary of my conclusions since there may be readers of this case who are not parties to the action, but who are interested in certain applications of legal principles. The parties themselves are invested and interested in detail; the reasons for these conclusions will be set out in detail later in this decision. [ 5 ] The E Pipeline was a small, but essential, part of a much larger project - the East Primrose expansion.

Excited by the successful completion of the North Primrose Expansion, CNRL wished to expand its thermal operation into the East Primrose Area, building on lessons learnt from Primrose North and effecting, if possible, some cost savings. One of the considerations was to bury the E Pipeline.

It is clear from the evidence that this was largely because of the success of burying a boiler feed water (“BFW”) pipeline on the Primrose North Project. [ 6 ] Although there were moments when individuals had flashes of the significance, or importance, of burying a high-temperature pipeline, IMV, CNRL and Shaw never seemed to fully appreciate the additional considerations and challenges that were involved in burying the E Pipeline. At the time, there were precious few buried pipelines in northern Alberta that could sustain an operating temperature up to 140°C, rising at times to 160°C.

The E Pipeline represented unique challenges: it required pre-heating, it was running through northern Alberta in some muskeg areas, winter construction was necessary, and the high temperature meant that a completely new insulation system was necessary.

As the planning for the project progressed, Shaw was in the process of developing an insulation system with the capability to handle high temperatures when pipe was buried. [ 7 ] Although discussion about the PRE and the E Pipeline started in 2004, due to the contractual nature of the relations between IMV and CNRL, their written scope of work was only finalized in the spring of 2007, by which time most of the material for the E Pipeline was already ordered, meaning many engineering decisions had already been made. [ 8 ] My conclusion in this case, applying the law to the facts established in this trial, is that Flint, Shaw and IMV all failed in their legal obligations to CNRL.

Having said this, however, CNRL also bears legal responsibility for some of the damages sustained. A. IMV [ 9 ] IMV, an engineering company, undertook engineering work without the expertise required to fully evaluate and appreciate the high-operating temperature of the E Pipeline and its effect on pipeline design. [ 10 ] Witnesses Dr. Alan Murray, Mr. Wes Dyck, Mr. Tim Gurr and Mr. Nick Lenstra all emphasized how unique this project was, and the care that was needed when designing a buried, hot-temperature pipeline through soil that involved sections of muskeg.

Based on their evidence, I have found that IMV failed to warn CNRL that aspects of the design were risky, and that design features should have been considered to ameliorate the risk. [ 11 ] IMV only performed a stress analysis on the pipe, ignoring completely the insulation. Despite this, their subcontractor who performed the stress analysis indicated that the “pipeline” met all CSA Z662-03 requirements. Although CNRL requested IMV to have these stress calculations reviewed by Mr. Wes Dyck, and IMV undertook the same, IMV failed to do so. Mr. Dyck testified as an expert at trial.

He fully appreciated the uniqueness of this project, in particular its special considerations from a stress-analysis point of view, specifically the strain aspect. His expertise was sorely missing as a result of IMV’s failure to follow through with CNRL’s requested review. [ 12 ] IMV, under its procurement duties, set the specifications for what it needed in terms of the Shaw product. In reality, it was parroting back some engineering information that Shaw had provided. This information did not include many of the specific requirements for the lining, however, and IMV did no analysis on the specifications. Mr.

Ernie Glubish, an IMV employee described variously as project manager or lead technical employee on the project, signed off on Shaw’s quote as technically acceptable, but without any analysis. In fact, he had no knowledge of the EN standards (European Standards) with which the quote on its face admitted it had not

fully complied. IMV never made clear to CNRL that it signed-off on technical acceptance in procurement without performing meaningful engineering analysis. [ 13 ] The drawings for the pipeline, including the pipe and insulation, were stamped by Mr. Mike Dowhopoluk, representing IMV, with minimal review, and based on a misrepresentation from Mr. Glubish that an analysis had been done to ensure that the insulation on the pipe could withstand the operating conditions. There is no evidence that Mr.

Glubish had ever seen such an analysis, or that Shaw had done one, or that IMV had even provided the detailed information to Shaw, if Shaw was to perform that analysis. In fact, IMV assumed that Shaw would do what was necessary to supply an insulation system appropriate for the underground pipeline and took no steps to ensure that was true, or to know what Shaw had in fact done to assess stress-related issues. [ 14 ] Mr. Gurr and Mr.

Lenstra spoke to the mitigative steps that were essential to consider for a buried pipeline of this type, including the importance in winter construction of ensuring that no water intruded into the insulation. The extreme seriousness of water intrusion - and thus the necessity to take time and be strict about the design and installation - was never truly understood or communicated by IMV to CNRL. Rather, IMV produced installation directions for the E Pipeline that were the same as those required for the burial of the BFW pipeline on the North Primrose project.

Lack of attention to detail in written instructions for the pre-heat and construction package led to a failure in the field to take the strict precautions necessary for a design of this nature. This lack of attention materially contributed to the water intrusion that ultimately destroyed the insulation, and thus the function, of the E Pipeline. IMV bore responsibility to take care in the design and construction directions and plans, to be sure that all steps were taken to ensure that the line was as watertight as possible, in order to maintain its integrity. B.

Shaw [ 15 ] Shaw, a pipeline product company, was developing the Insul-8 HT lining - which was ultimately used for the E Pipeline - as the discussions on the E Pipeline project were underway. Shaw’s communications at the start were largely with IMV; clearly their main contact was with Mr. Glubish.

I have found that Shaw breached the following legal duties that it owed to CNRL: • Shaw specifically directed the installers of the pipeline that small cracks in the foam insulation during installation were acceptable: this is an illustration of its lack of care when introducing a new product for this type of application.

Several experts confirmed that small cracks of any diameter should not be acceptable on a project of this type, due to the extreme damage that could be caused if water travelled through cracks in the insulation and got to the hot pipe, which would cause steam and rapid damage to the insulative foam. • Shaw knew that IMV and CNRL were relying on their expertise in launching the new product, and thus had a heightened duty to be sure the product it was developing could withstand the temperatures specified in an underground situation.

In light of the composition of the foam, and the risk that it would degrade rapidly in the presence of water turned to steam, Shaw should have been aware of the critical importance of the insulative layer remaining watertight, and it should have taken steps to emphasize this need. Shaw represented to IMV and CNRL that its insulation liner would be good to 140°C, with only slight degradation at temperatures to 160°C. What happened in January 2009 illustrated that at temperatures below 160°C, near the WLP, the product sustained severe degradation due to its exposure to water.

This statement of slight degradation was a material misrepresentation by Shaw, where it failed to emphasize the susceptibility of the foam in the insulative layer to destruction by steam in the high-temperature situation of this line, which was exacerbated in an underground situation. C. Flint [ 16 ] Flint, a pipeline construction company, was responsible for the construction of the E Pipeline. Breaches of its contract with CNRL contributed to the ultimate failure of the pipeline in the muskeg sections.

The following actions of Flint contributed to the damage of the insulation, by allowing access of water into the insulative layer and thus damage to the E Pipeline: • Installation of some of the pipeline using straps that were clearly too narrow; • Allowing the pipe to sit in water and at times allowing rocks and chunks of ice to be backfilled in proximity to the pipe; • Installing the pipeline in at least two muskeg sections where it was not placed in clay soil, as per specifications; • Installation of bag weights in a manner that did not comply with the drawings, adding additional stress to the insulation in some areas.

D. CNRL [ 17 ] The eventual failure of the insulative lining was precipitated by the operators of CNRL, who had a complete lack of any appreciation of the design limits of the E Pipeline. Faced with an order to flow back all emulsion, they poured hot emulsion into the E Pipeline beyond the design limits of the insulation, and at times above the design limits of the pipe. This not only caused damage to the insulation, but also more extreme movement of the E Pipeline, causing damage to the outer jacket, which allowed water into the system. E.

Result [ 18 ] Although CNRL materially contributed to the failure of the E Pipeline, CNRL’s actions were not the sole cause of the damage.

[ 19 ] The actions of Flint, Shaw and IMV all contributed to the losses. CNRL is held 50% contributorily negligent and the balance of the fault is apportioned 20% to IMV, 25% to Shaw, and 5% to Flint. III. Brief Factual Background [ 20 ] CNRL was involved in thermal production of heavy oil in the Primrose area. In expanding its operations, it constructed: four pads, each connected to twenty wells; gathering lines; a steam plant; and the E Pipeline to the WLP, a processing facility.

In very simplified terms, as the bitumen is viscous and will not flow, production involves pumping large amounts of hot steam into the ground, at high pressure, which heats the bitumen, allowing it to flow as an emulsion fluid: a combination of injected steam, bitumen and water.

This emulsion must then be pumped through the well heads at the pads, and transported by gathering pipelines to the PRE, where gas is removed, and the emulsion is cooled, before it goes into the E Pipeline and is transported approximately 32 kilometres to be processed at the WLP, where the water is separated from the petroleum product. [ 21 ] Because of the emulsion’s high temperature, the E Pipeline had to be insulated to protect the ground from environmental damage, and to prevent heat loss during transport.

The E Pipeline travelled through muskeg areas of northern Alberta, adding challenges to the construction and design. [ 22 ] CNRL started to consider the expansion in 2003, with conceptual studies starting in 2004. CNRL had previously done a similar-type expansion involving pads, interconnecting pipelines, and a steam plant in the North Primrose area, using IMV to provide engineering services.

At that time, CNRL hired IMV and entered into a contract (the terms of which are under contention), which remained the only signed contract to provide engineering services for this project. [ 23 ] A decision was made to bury the E Pipeline, in hopes of saving construction costs. Burying a pipeline of this type was novel. It was considered because of the success of burying a BFW line at the North Primrose plant. Responsibility for the decision to bury the E Pipeline is disputed. [ 24 ] It was decided that Shaw would provide the actual pipe and the insulation system.

The insulation system manufactured by Shaw was three parts: (1) an anti-corrosion coating on the pipe; (2) a layer of foam which was the thermal insulation layer bonded onto the anti-corrosion layer; and (3) an outer protective jacket which was a bonded layer of polyethylene. Flint would provide construction and installation services, as a subcontractor to CNRL. [ 25 ] The E Pipeline was constructed over the winter season of 2007 to 2008, and completed at the end of April 2008. During the construction, the pipe was pre-heated, so the pipe would thermally expand, and it was then backfilled in its expanded state.

This was in an effort to minimize later thermal expansion or movement to the pipe during operation. The pre-heat was a critical part of the design and engineering work. The line pipe was delivered to the site already treated with the epoxy layer, foam and outer protective layer. The insulation and jacket for the field bends and the field joints had to be applied in the field. [ 26 ] The E Pipeline was commissioned by the end of June 2008, steam tested in the summer of 2008, with start-up in October 2008. [ 27 ] On January 3, 2009, emulsion was observed on the ground near surface pad 74.

The pads were connected to the gathering pipes which take emulsion to the PRE, to be cooled and for gas removal before going into the E pipelines. This was an emergency, involving the applicable regulatory authority, the Alberta Energy Regulator (AER). Once it was determined the leak was not due to vehicles or equipment on the ground, all steam injection was stopped, and flowback of the emulsion from the reservoir was ordered in order to reduce the pressure in the reservoir.

With the reduction in pressure, there is no force to allow the escaping emulsion to flow, thus ameliorating any environmental concerns. [ 28 ] During the emergency flowback, the emulsion was produced and transported at a high volume, and at times at temperatures that exceeded the design envelope temperature for both the insulation and the pipe of the E Pipeline. The CNRL operators in the PRE allowed hot emulsion to enter the E Pipeline, seemingly unaware that the design temperature for the lining of the E Pipeline was being exceeded, or if aware, finding it was necessary in the circumstances.

There is no question that various existing alarms in the system brought the temperature of the emulsion to their attention. [ 29 ] Around January 14, 2009, “hot spots” (areas where the snow over the emulsion pipeline had melted) were observed at various points along the E Pipeline right of way. This was concerning, as it appeared that heat was being transferred from the E Pipeline to the earth below the surface. [ 30 ] CNRL arranged for sections of the pipeline to be excavated. Obvious compromise to the insulation layer and jacket was observed.

After consideration of the costs and operational issues in digging up the E Pipeline and repairing the insulation, CNRL made a decision to replace the pipeline with an above-ground pipeline, using the same right of way. The pipeline was designed and constructed in late 2009 and went into operation in April 2010. [ 31 ] In this lawsuit, the Plaintiff claims the cost of the replacement pipeline, investigations costs, costs of operating the pipeline on a modified basis, and the costs of abandoning and remediating the pipeline. No claim was advanced for loss of use of the E Pipeline. IV.

Fact Findings on Disputed Issues A. What was the Design Temperature for the Insulative Lining? [ 32 ] Significant time at trial was spent on the issue of what was the appropriate or agreed-upon design temperature for the E

Pipeline. It is clear that at all times, the design temperature for the pipe was 160°C. There was conflicting evidence as to what the design temperature for the lining was, or should have been. There were multiple conversations about what the temperature would be for the design of the insulation that was a coating on the pipe.

In argument, there was no issue between the parties with respect to the E Pipeline design temperature: they both agreed that the language that started as early as the draft Design Basis Memorandum (“DBM”) in August 2005 was for an expected 140°C emulsion temperature, increasing up to 160°C for spike conditions. I find this was the information provided by CNRL in discussions with IMV. [ 33 ] As early as the January 25 and 26, 2006 meeting involving representatives from IMV and CNRL, there were discussions about design temperature.

The meeting notes reflect that the insulative lining would be good to emulsion temperatures of 140°C, and going up to 160°C, with slight degradation to the lining. The source of the phrase “slight degradation” cannot be definitively found in the evidence. I infer it was information provided by Shaw in terms of the product they were developing and what it would be capable of handling. Neither IMV nor CNRL had the sophistication to decide this, and unfortunately, neither had the will, knowledge or sophistication to press Shaw on exactly what “slight degradation” meant.

Clearly, as the project progressed, IMV, Shaw and CNRL were on the same page that the emulsion temperature would generally be under 140°C, but there would be spikes in operations up to 160°C. Clearly, the understanding promoted by Shaw was that between 140°C and 160°C, there would only be slight deterioration of the insulative liner. [ 34 ] IMV and CNRL were entitled to and did rely on Shaw, a then-leader in the design of pipeline insulation, in terms of the quality of the insulation and its suitability for temperature.

This did not, however, relieve IMV of any duty it had as the designer of the “pipeline” as a whole, to be sure the Shaw product, on the pipe, buried in the way IMV was specifying, would result in a pipeline fit for operation to carry emulsion at the operating conditions, at temperatures generally at or under 140°C, but at times spiking to 160°C. B. The Passage of Time [ 35 ] Given that the pertinent events to this lawsuit occurred as far back as 2004, some witnesses were testifying about events that occurred over ten years before the trial.

Thankfully, CNRL had insisted on minutes being kept of most meetings, so there is some documentary record made contemporaneously with events. Most witnesses used these minutes to refresh their memories; few could give more specific evidence outside of those records. [ 36 ] It is dangerous when witnesses embrace what a document says as their memory. This happened on occasion on material points with both Mr. Ernie Glubish and Mr. Derek Wilkinson. For example, Mr.

Glubish, despite giving detailed evidence about a meeting he attended with Shaw in June 2005, later admitted in cross-examination that in pre-trial questioning, he testified that he did not recall what was said at the meeting. It was clear he had looked at the

summary of the presentation at that meeting which was in the Shaw documents to reconstruct a memory of the meeting for trial. Another example was when he gave some detail in his direct evidence about a January 2007 meeting about stress analysis: he admitted in cross-examination that he did not recall more than would be captured in the minutes (Exhibit 90). This leads me to be careful about the reliability of some of Mr. Glubish’s evidence. [ 37 ] Likewise, Mr. Wilkinson testified about matters, while being referred to Shaw’s internal memos (for example, Exhibit 2, tab 108).

These were not meetings that he attended, so he could not have a memory of these meetings. He had not seen these memoranda at the time. He used these documents to suggest things had occurred. In addition, he testified about presentation notes from a meeting (Exhibit 2, tab 105), but in cross-examination he confirmed he was not at that meeting. He was often asked to advise what he took from Shaw documents he received, for example, the PowerPoint

summary that was sent to him, from a presentation he had not attended. Although he likely testified truthfully to say he took it to mean Shaw would do Finite Element Analysis (“FEA”) testing, or he took it to mean the product would do various things, that does not prove that Shaw meant the document that way, or that the contents of the document were true. He frankly admitted that CNRL never asked Shaw to do an FEA analysis. In his evidence, Mr.

Wilkinson also often used the term “we”, meaning CNRL and IMV, so it was hard to differentiate what conduct was that of IMV, and what was that of CNRL. [ 38 ] A second issue about the passage of time in this case is that while IMV was working on this project and developing ideas and discussing them with CNRL, one can see the evolution of the planning being captured in drafts of important documents, such as the DBM and the project execution plan (“PEP”). These are not contracts per se, but they inform both parties of the scope of work, and progressively give more details of how it will be carried out.

These drafts are some of the few documents that outline what was being proposed and discussed, and ultimately, decided. This is important, as the terms of the DBM from the summer of 2006 onwards are critical to the argument of IMV that it had no contractual obligation to deal with the insulative lining to the underground pipe, as it was not in the defined scope of work. Originally, the DBM did not delineate between above-ground and below-ground insulation, a distinction that is crucial to IMV’s argument.

It is the August 1, 2006 DBM where a change in the definition of scope of work is seen to take out the word “insulation” in general, and replace it with “above ground insulation.” By March 2007, when the DBM was under its last revision, the line coating system for the pipe had already been ordered from Shaw on January 22, 2007, and the field joint coating had been recommended by IMV in a letter of recommendation dated February 28, 2007. [ 39 ] I reject any suggestion that the DBM was a “contract” between the parties, or had contractual status.

It was a work in progress that reflects the discussions of the parties, as the details of the project was refined. It does help to determine the terms of the contract between the parties, as the details of what IMV was to do on this project was not the subject of a specific written contract. C. The Decision to Bury the Pipeline [ 40 ] The evidence at trial about discussions to bury the pipeline was given by Mr. Glubish, the IMV project manager, and Mr. Wilkinson, the project manager at CNRL. When Mr. Glubish started work on Primrose East, he dealt with Mr. Wilkinson.

There were some discussions about the E Pipeline, and any costs associated with burying it. Mr. Glubish did have discussions around costs with Mr. Wilkinson. Mr. Glubish testified that he thought the saving on an underground E Pipeline would be roughly 50%, an estimate he arrived at by looking at historic detail from previous above-ground projects done by IMV, as well as the information from Primrose North. Mr. Ursu, an engineer at IMV, was not involved in the decision to bury the pipeline, but he did heat loss calculations, for a comparison between the below and above-ground scenarios.

[ 41 ] Mr. Glubish testified that IMV was not asked to do a technical feasibility study about burying the E Pipeline, however, in cross-examination he was shown a promotion video produced by Shaw, promoting the Shaw product, where he indicated that he was involved in a “feasibility study” for a client (CNRL), and that “based on putting it underground, we saved our client several million dollars”. [ 42 ] It is clear from Mr. Glubish’s evidence that he told CNRL that he had confidence in burying this pipeline, and that he knew CNRL would rely on him as the technical lead at IMV.

At no time after this discussion did Mr. Glubish ever express any concerns about burying the E Pipeline. [ 43 ] Mr. Wilkinson testified that ultimately it was CNRL’s decision to bury the pipeline, based upon their wish to save money, but at any point up to starting the work, it could have been put above ground, if burying it was not technically feasible. The emulsion line at North Primrose was above ground. When asked directly if IMV was tasked to do a technical feasibility study or analysis in relation to the burial, Mr.

Wilkinson took some time to answer the question, indicating that IMV was to address how to do the burial, single or double right of ways, the nuts and bolts of how to do the work, but not really an analysis on whether to bury it or not. He said: “It was more the nuts and bolts of how would you actually make this thing work.” [ 44 ] From this, I find that IMV was not asked to do a formal technical feasibility study in relation to the burying of the pipeline. However, Mr. Glubish made representations to CNRL about the feasibility of it from an engineering point of view and the cost savings.

Although it was ultimately CNRL’s decision whether to bury the E Pipeline or not, CNRL was relying on IMV’s assurances that it was cost-effective and feasible - that the nuts and bolts of the plan and construction would work. [ 45 ] I accept Mr. Wilkinson’s clear evidence that at any point the E Pipeline could have been put above ground (as it ultimately was after the failure) if the realities of burying the pipeline became unfeasible. D.

Radial Temperatures [ 46 ] There was a lack of clarity about the expected radial temperature profile of the emulsion, which is important as there had to be some awareness of the maximum temperature allowable at the jacket, in terms of the transfer of heat from the pipeline into the ground. [ 47 ] The evidence established that CNRL gave information to IMV that 35°C was the highest outside temperature on the jacket that their staff had wanted for environmental reasons. [ 48 ] Mr.

Glubish testified that no radial heat calculation was ever done by IMV before the failure; he adamantly took the position this was Shaw’s responsibility, although he had no discussions with Shaw and was not privy to any information that Shaw had done those calculations. He testified that CNRL came up with a specification of 35°C for the maximum temperature for the outer jacket. Mr. Ed Dyck, the corporate officer of IMV, stated that IMV requested a 35°C outer jacket maximum temperature, although this was not identified by any particular calculation.

The outside jacket temperature was never specified by IMV as a specification in the request for quotes. [ 49 ] In the bid document for the insulation, Exhibit 2, tab 291, the only reference to the outside temperature is that Shaw indicated that the jacket was capable to a maximum temperature of 50°C. [ 50 ] Mr. Ron Coutts was qualified as a geological engineer. He holds both Bachelor and Master’s degrees in engineering, and as well has experience with pipelines, largely in the Arctic.

He clearly had the expertise to give opinion evidence on thermal modelling and specifically heat exchange between a buried insulated pipeline and soils for application in buried insulated pipeline design, and in the case of the E Pipeline, how analysis the heat exchange from the E Pipeline to the surrounding area can give information about the failure of the E Pipeline. [ 51 ] Mr. Coutts testified what the expected temperature ranges would be at the jacket/soil interface, assuming that the insulation on the E Pipeline was functioning as intended, when emulsion reached temperatures of 140°C and 160°C.

He discovered in his modelling that at 140°C, if the pipeline was buried at 1.8 metres in non-muskeg soil, the jacket temperature would be 39°C minimum to 48°C maximum, but at 3.9 metres in muskeg sections, it would be 56°C to 58°C. At 160°C, at 1.8 metres it would be between 45°C and 54°C. At 3.9 metres, it would be between 64°C and 65°C. In some scenarios, 50°C was reached when the emulsion had a temperature of 120°C. Mr. Coutts in his testimony seemed fair, using middle of the road figures, and presented well in direct and cross-examination.

His evidence was not contradicted by other engineers, and I accept it. [ 52 ] What I take from this evidence is that 35°C was suggested by CNRL as what they wanted for an outside jacket temperature maximum. IMV was aware of this, but did not specify it in the request for quotation. IMV did no calculations about radial temperature transfer. There was no information that Shaw had done these calculations, nor did IMV take steps to ask Shaw for any calculations before the failure. [ 53 ] In addition, IMV calculated that the insulation thickness should be 2 inches, by looking at the North Primrose numbers. Mr.

Glubish came up with the 80°C pre-heat numbers, again, by looking at the North Primrose pre-heat. No project-specific calculations appeared to be done. [ 54 ] The issue of the radial temperature illustrates the continual explanation by IMV that Shaw was to be responsible for all sorts of calculations, but IMV took no steps to see they had been done. E. The Temperature Data [ 55 ] During the course of the trial, various temperature data about which various witnesses testified was entered into evidence.

Some of this involved the temperatures recorded both at the temperature gauge at the entrance to the E Pipeline from the PRE, and the

temperature gauge at the WLP, just after emulsion would have exited from the E Pipeline. The data was available from the relevant dates, which were start of production in the fall 2008, through January 2009.

There were no temperature gauges along the length of the E Pipeline, so this is the only data on which to base any determination of the temperature of emulsion as it travelled the E Pipeline. [ 56 ] Although at first blush it may seem that it would be easy to determine any loss of temperature to the emulsion over the 32 kilometres of the E Pipeline, the picture is complicated as just after the emulsion left PRE, amounts of emulsion from Burnt Lake were at times mixed with that emulsion in the E Pipeline. Also, further down the E Pipeline, at the AC1 Junction, emulsion could be introduced from other wells.

The dates that mixing occurred were available to the Court, but not the temperatures in all situations. [ 57 ] The temperature data was disclosed and known to the parties as the litigation of this case proceeded. Various experts struggled with some of the numbers, as at times the emulsion was a higher temperature arriving at WLP than leaving PRE. This is puzzling, as there was no source of heat after entry to the E Pipeline, other than mixed emulsion. The time and quantities of added emulsion from Burnt Lake and AC1 was not always explainable.

Various experts in their evidence expressed confusion over this data, including Dr. Jim Oswell, Mr. Nick Lenstra and Mr. Tony Paulin. Mr. Paulin spent considerable time and effort to reconcile this in tab A to his first report. [ 58 ] Complicating the issue of temperature loss was the fact that IMV had done calculations when designing the pipeline to suggest the temperature loss should only be one or two degrees.

Various experts testified that any temperature loss would depend on volume and flow, but most suggested it would be a minimum of one, to a maximum of five degrees. [ 59 ] There was a formal admission by IMV in a Notice to Admit Facts, that the maximum temperature reached at the entrance to the WLP was 145°C on January 9, 2009 at 5 a.m. IMV also admitted under paragraph 134(

b) of that same Notice, some 5 minute interval temperature data for relevant temperature indicators. [ 60 ] In both written and oral argument, IMV argued that the temperature data was inherently unreliable, at least at the entrance to the WLP, as there should have been a small drop in temperature along the length of the E Pipeline, but rather, the evidence suggests there was an increase in temperature at times and that the increase in temperature could not be explained in some of the fall months, based on the mixing.

This prompted CNRL in oral argument to “drill down” on the numbers, and present written graphs and information about mixing, prepared by counsel, using an assumption of a seven-hour travel time, to suggest that by December 2008 there was a significant temperature loss over the length of the E Pipeline, supporting their submissions that the liner was significantly destroyed before the January 2009 over-temperature event, as the liner must have been allowing significant temperature into the soil. [ 61 ] The Plaintiff argued this in support of their causation theory that the damage started as early as October of 2008 as there must have been water in the foam on the E Pipeline.

They argued that the damage was progressive, it happened over a long period of time (months) as the E Pipeline was operated at over 100°C. CNRL argued this was not an instantaneous failure in a matter of days due to the over-temperature event. [ 62 ] IMV responded in oral argument by making assumptions of flow times based on a working sheet used by Mr. Coutts, who had considered varying time periods for emulsion to travel the E Pipeline, depending on flow volumes.

IMV’s counsel went through specific days, an assumption of time to travel the E Pipeline, and argued that on those assumptions, there was not a great temperature loss, so the liner could not have been significantly impacted until the over-temperature event. [ 63 ] On this issue, I find firstly, the change in temperature of emulsion in the E Pipeline is highly sensitive to the assumption of travel time in the line. This issue is a matter of expert opinion, not something that lawyers can determine using graphs based on the evidence.

Debate over using pinpointed temperatures for a given day, averages, or trending data, illustrated that the loss of temperature over the course of travelling the E Pipeline is not a simple determination. [ 64 ] Secondly, although I accept that the temperature at the two spots they were recorded were accurately recorded, there still remains confusion about the use of the temperatures. I find the data is reliable as there was evidence from Mr. Shawn Mullen (an employee of Bermac) that the temperature indicators were tested before the PRE started up, in close proximity to the start of recording temperatures.

No issue was raised as to the accuracy of the temperature recordings before trial, and all experts had been working with that data for months before trial.

However, the data does raise some confusion as to whether there was another source of emulsion at the WLP temperature gauge, or if some of the information about mixing was incorrect. [ 65 ] Therefore, I do not accept the argument of CNRL that the temperature data shows on the balance of probabilities that the insulation had lost its integrity weeks before the January 2009 flowback, which would prove CNRL’s “stewing” theory of causation. [ 66 ] Nor do I find - as IMV urges - that the temperature data should be excluded or ignored as unreliable.

It is the best evidence available, and several experts worked with this data to come up with an understanding of how much of the line was exposed to temperatures in excess of 140°C or 160°C. This would include Mr. Paulin’s opinion that one-third of the E Pipeline never hit the temperature of 150°C. F. Responsibilities of CNRL [ 67 ] One of IMV’s key arguments was that the parties were involved in a collaborative project, and ultimately, the contractual obligations left CNRL as the owner and general contractor.

It had contracted certain work to Shaw, certain work to IMV, certain work to Flint and certain work to Dunn Hiebert. The argument was that as the general contractor for PRE, CNRL bore responsibility for any omissions. IMV argued that if there was an omission of anyone to coordinate how the insulation system interfaced with the pipe, or functioned underground, that was CNRL’s responsibility. [ 68 ] Substantial trial time was spent on this issue. The evidence dealing with this issue started with a November 2005 email from Mr.

Kessler at CNRL, where he was addressing the role of the parties in the execution of the project, and went on to include the DBM and PEP documents as they refined the scope of work between CNRL and IMV.

[ 69 ] Clearly CNRL’s project manager, Mr. Rick Koshman, was not to micro-manage this project from CNRL’s point of view. He was to be more in charge of the coordination, cost reporting and schedule. Mr. Blair Kessler testified about his memo and the organization at CNRL. He was clear that CNRL did not have engineers on staff that could do the design of the E Pipeline. CNRL’s role was as an overseer. The “hands-on” CNRL employees were to ensure the design met the business and operational goals of CNRL.

The level of oversight of the engineers at IMV by CNRL staff, for the owner’s benefit, was to provide input, not do the calculations, or detailed work themselves. There was to be collaboration. The facilities engineer was to be the “executor” of the project, the primary contact with the engineering company. He was to be sure the operation, field, or technical leads were brought into the design decisions.

The field technical lead was to be part of the pipeline and well design process to review design changes and ensure adherence to development goals, operation experience and where applicable, to introduce new technical advances. [ 70 ] Thus, the overall structure was that IMV was hired to do detailed engineering work. IMV worked collaboratively with CNRL, their client, on the project. CNRL was making decisions, but they were based on technical data being provided by IMV.

IMV argued that the way this project was set up and the contractual relations put obligations on the CNRL team to be responsible for technical input and oversight. IMV pointed to the fact that CNRL individuals had to sign off bids and contracts and expenditures, after IMV indicated technical compliance. It was argued CNRL should have caught some of the errors, or issues about compliance with standards. I do not find this relieved IMV of its duties to CNRL. The collaborative nature of the project is important in looking at the factual matrix, and how decisions came to be made.

However, the fact that CNRL made decisions that were based on information and recommendations from IMV shows reliance on their technical skills, since CNRL did not have sufficient numbers in their staff to do the engineering work in-house. There is certainly evidence, such as outlined at paragraph 140, that IMV was sloppy with details of temperatures, and these were not picked up by CNRL.

Although from the evidence it is clear that CNRL had this system of governance, it does not shift liability or responsibility for those items away from IMV’s engineers, who were retained, as CNRL clearly did not have the engineering capacity to do the plan in-house. [ 71 ] Another example of how the collaborative nature of the discussions plays into the relationship between the parties and the development of legal liability is the issue of whether IMV was to do a formal feasibility study on the insulation system. It was never asked to do a formal feasibility study.

However, IMV was intricately involved in discussions with Shaw and how CNRL came to accept Shaw as the supplier of the system on this project. [ 72 ] Near the start of the project, Mr. Wilkinson had asked IMV for advice on the insulation systems available on the market, in terms of what was out there. No formal feasibility report was requested, but IMV was involved in looking for products and making preliminary investigations. All evidence suggests that it was IMV’s position that Shaw was the only viable vendor of an insulation system. This was expressed by Mr. Glubish and it is evidenced by Mr.

Sarvis’ email of December 15, 2006. Despite several requests by CNRL to look for other parties to bid on the project, IMV did not find any other bidder. IMV’s information and advice was a significant factor in CNRL’s decision making. Mr.

Wilkinson testified that he expected IMV to discover the insulation products available on the market, understand how these were made, understand their abilities based on vendor information, understand how easy they were to install, determine availability and preliminary costing, know their track record of the products and know the standards they were qualified to, to ensure they were reliable. Clearly CNRL made the ultimate decision that the insulation system would be sole sourced to Shaw.

CNRL paid for IMV to have engineers do a preliminary review of the insulation companies and products. [ 73 ] It was clear that CNRL expected and paid for IMV to be involved in assessing the information that Shaw provided and the ongoing development of the insulation system. IMV was at all of the demonstrations and discussions about the Shaw system. In fact, IMV was the main contact with Shaw, who passed technical information to IMV, who in turn passed it along to CNRL. Even the final FFI testing came directly to IMV from Shaw.

IMV maintained procurement responsibility, despite the fact the contract was sole sourced. IMV signed the Shaw product off for technical compliance. [ 74 ] It is true a formal feasibility study as to who should produce the lining and the technicalities of all possible insulation providers was not requested by CNRL nor done by IMV. However, IMV was involved in recommending the Shaw product, and it had a duty to assess it in terms of the overall development of the buried pipeline, which IMV had responsibility to design to work underground. As expressed by Mr.

Wilkinson, IMV was to put the nuts and bolts together to work as a system. G. Scope of Work of IMV [ 75 ] A significant amount of trial time was focused on the development of the discussions around the E Pipeline, particularly the DBM. How the scope of work was defined, and exactly what obligation IMV had in terms of the pipeline design, was fundamental to the argument of the parties. It has far reaching consequences, as it impacts the application of the CSA Standards, and the whole question of responsibility for the design of the underground insulation system.

It is essential to deal with this issue before determining the standard of care and whether there was a breach of that standard. [ 76 ] The Memorandum of Agreement (“MOA”) contract between the parties was signed before the project was started. It was a master agreement to deal with all work done between the parties from 2003 onwards.

It set out that: IMV Projects shall supply Engineering, Consulting, Procurement and Construction Management Services on an “as required” basis as directed by CNRL. …all as directed by CNRL Facilities Engineering Representatives. [ 77 ] Since the MOA was general to all work between CNRL and IMV, the actual scope of work has to be determined from the various discussions and documents generated by the parties on each separate project. [ 78 ] The argument of IMV was that the scope of work, as expressed in the finalized DBM, did not expressly include the underground insulation, and so IMV had no obligations in relation to that, it only had responsibility to design the steel pipe.

IMV also argued that no work in relation to the below-ground insulation system was expressly delegated to it. It argued that Shaw was solely responsible for designing the insulation and making sure it would perform once attached to the pipe. It argued it was entitled to rely on Shaw to do its job. In addition, it argued that CNRL was the general contractor for the project, and to the extent that anything was missed - for example the stress analysis on the entire pipeline - those omissions are the responsibility of CNRL, who took that risk on this

project. [ 79 ] CNRL, while recognizing that IMV is not a developer, vendor or manufacturer of insulation systems, argued that the insulation system was an integral part of the operating pipeline. It argued that it is overly technical to say that because the final DBM referenced only the above-ground insulation system, the below-ground insulation system was excluded. It argued that there was a duty on IMV to assess the design, including the insulation, against the expected stresses and operating conditions.

In addition, it argued that IMV had a procurement role, which included a duty to assess the insulation system. In that procurement role, IMV found the Shaw product technically compliant with specifications that IMV had set. CNRL points also to the stamping of the engineering plans, which included the insulation, to speak to the scope of work for IMV. [ 80 ] The development of the scope of IMV’s work has to be examined. It is clear from the evidence that when IMV started work on this project, it was involved in the discussion about the insulation. It was the primary contact with Shaw; in fact Mr.

Glubish went alone to some meetings with Shaw, as IMV’s representative about the development of Shaw’s insulation product in 2005 and 2006. As the information was developed, and the project refined, IMV recommended the Shaw product, and CNRL accepted Shaw as the sole- source supplier of the liner, as both parties felt at the time it was a world leader, and effectively, the only company capable of providing the liner. [ 81 ] Considerable time was spent going through the development and finalization of the DBM and the PEP.

Both parties acknowledged they are not actual “contracts”, however, as written documents reviewed by both parties they are the only “written” directions under the contract and thus inform what the terms of the contract were, in terms of scope of work. [ 82 ] The earlier drafts of the DBM referred to the “insulation” in general, but later drafts, starting in mid-2006, referred only to the “above ground insulation”, and were silent on the “below ground insulation”. IMV argued that this means that IMV had no obligation to assess the Shaw insulation product in terms of its compatibility with the overall E Pipeline.

I do not accept this argument. One has to view in detail the development of the project. [ 83 ] IMV acknowledged that all items that were either IMV’s responsibility, or undertaken by it, were not specifically set out in the scope

section of the DBM. For example, the pre-heat was acknowledged as an integral part of pipeline design, but not specifically mentioned. This was also true of the stress analysis done on the pipe. Thus, not all work to be done by IMV on the E Pipeline was specifically mentioned in the scope definition of the DBM. By the time the final DBM was issued in 2007, the contract for the insulated pipe had been awarded to Shaw, on a sole-source basis. To suggest that IMV could design the pipe, but ignore the insulation, is a very restrictive view of the whole relationship between CNRL and IMV.

In addition, if that were so, it does not explain why IMV continued to be involved extensively after mid-2006 in all of the following: further discussions about the insulation for the pipe, as well as the field bends and joint insulation; receipt of the FFI testing; the procurement of the line pipe, field bends and joint insulation, including signing off on technical compliance; demonstrations about the insulation, manner of its application, and signing off on those; and an inspection role in the manufacture of the insulation. [ 84 ] Clearly, CNRL recognized that IMV was not the developer, manufacturer or vendor of insulation systems.

However, CNRL argued that the insulation system had to be considered in the design, as IMV was designing, engineering and procuring a functioning, buried, high-temperature pipeline that could operate at 140°C for 30 years and handle excursions up to 160°C. [ 85 ] IMV relied heavily on the evidence of Mr. Wilkinson about the decision of CNRL to use Shaw, and the argument that Shaw had relied on its in-house expertise. IMV and Mr. Wilkinson characterized the insulation as an “engineered product”.

IMV argued that this meant IMV had no liability for assessing the insulation in terms of its use, just as if a piece of equipment in a plant, for instance a generator, is provided according to specifications, the supplier is responsible to be sure that is so, and the purchaser can rely on the supplier to comply with specifications. [ 86 ] However, in this case, although Mr.

Wilkinson specifically testified that the design of the insulation system was in his mind Shaw’s, and he likened it to an engineered product, he testified that IMV needed to be satisfied themselves that the insulation system was going to work in the complete design, and for the desired lifetime. On a number of occasions, he asserted that IMV was to advise on the nuts and bolts, how to assemble the project.

He testified that IMV and CNRL settled on Shaw, with the understanding that if Shaw was providing information to IMV that caused IMV concerns, IMV would indicate it was concerned about the information, for instance, the compressive strength or the axial sheer test. For instance, Mr. Wilkinson testified that he expected IMV to check the compressive strength of the foam at the expected operating temperature to make sure it could resist any pressure on the insulation system in the ditch.

He confirmed that IMV was the entity in the end stamping the drawings, to certify that the design of the pipeline overall would work. Even if the insulation was an engineered component, IMV still had to be satisfied it would work in the overall design of the pipeline system, of which the insulation was an essential component. The evidence establishes that the insulation was a critical part of the overall E Pipeline. [ 87 ] It is clear that this was not a turnkey plan, and CNRL was the owner, and maintained overall responsibility for the coordination of the project, including meeting statutory requirements.

CNRL did decide to sole source the insulation system to Shaw. However, that did not alleviate IMV from any responsibility to assure that the product would work in the way it was assembled and used in the E Pipeline. This whole exercise was a sham if IMV had no responsibility to determine that the insulation would work with the pipe, so that the E Pipeline would work as a whole. [ 88 ] Further, it was clearly within IMV’s knowledge, as Mr.

Glubish confirmed, that IMV never asked Shaw to assess the compatibility of the insulation with IMV’s pipeline design - IMV never provided Shaw with the information it needed to do that analysis. IMV never asked for, or asked to see any calculations by Shaw about the anticipated stresses on the insulation from installation or pre-heating, and further, never raised the issue of who was doing this with CNRL. [ 89 ] IMV provided to Shaw: the design temperature, the insulation thickness of 2 inches and the pipeline location, as including muskeg soil.

There was no evidence or suggestion from IMV that it provided to Shaw any other technical evidence, and it never provided Shaw the drawings, the actual alignment sheets, or any other technical work.

[ 90 ] The documentary evidence shows that the communication path of Shaw on the insulation it was designing was from Shaw to IMV. IMV then passed information along to CNRL. Shaw certainly saw IMV as reviewing technical data, as seen by the technical data (for instance the FFI testing) sent from Shaw to IMV and the language accompanying the testing. Technically important information such as the FFI testing did not go from Shaw directly to CNRL. [ 91 ] IMV argued that Mr. Wilkinson testified that CNRL had provided CNRL’s expectations directly to Shaw. For instance, Mr.

Wilkinson testified that at some time he orally told Shaw that the construction practices were to be the same as for the North Primrose BFW line: it was a restrained design with a pre-heat, strap-on weights would be used, the jacket temperature was to be a maximum of 35°C, and the system was to be designed to the EN standards selected by Shaw. [ 92 ] Although CNRL may have had meetings and discussions with representatives of Shaw about what they wanted the pipeline to do - including items such as operating temperatures, pressures, and its use in muskeg - the information such as the fill to be used, the bends in the pipe, or details to assess the stresses on the buried pipeline, was never provided to Shaw in the detail required.

This was technical data that Shaw would need to know to do a proper analysis of the insulation in terms of how it was going to be constructed into the E Pipeline, after the insulation and jacket were attached to the pipe. [ 93 ] At a critical part of the sign-off on the drawings, Mr. Dowhopoluk, the engineer to whom IMV delegated that task, testified that he expected someone at IMV or Shaw had done an assessment of the suitability of the insulation system for the E Pipeline to ensure that it could withstand the expected operating conditions. Mr. Glubish told him this had been done, something Mr.

Dowhopoluk said was essential, and he relied on that. There was, in fact, no basis for Mr. Glubish’s assurance, as the evidence was that no one at IMV had done this analysis, and Mr. Glubish’s evidence was that he assumed Shaw had done it, even though IMV had no information that Shaw had done such an assessment. [ 94 ] Mr. Ed Dyck, IMV’s corporate officer, testified that no man-hours were budgeted or built-in by IMV to design the insulation system or review it.

This, however, was contradicted by other evidence, particularly Exhibit 39, and Exhibit 2, tab 209 which outlined substantial hours of engineering time for the E Pipeline, not always broken down in terms of area (almost 7,000 hours to design the E Pipeline). Unfortunately, the evidence on how many hours - as opposed to engineering hours - was budgeted for different tasks was not complete, and no frame of reference was given for what was reasonable time for an engineering firm to budget for various steps.

The evidence was clear, however, that IMV billed hourly rates for all time spent on the E Pipeline and those bills were paid, without issue. There is no evidence that IMV ever suggested more time be spent on the plan, or that if additional time had been requested for engineering work essential to the pipeline, that time would have been rejected.

Although there was some evidence that CNRL did not want lots of add-ons or “jewelry” to the project, there was no evidence that CNRL was trying to cut corners, to the point of compromising integrity. [ 95 ] When one looks at the complete course of the dealings between CNRL and IMV, the documentary evidence, and the meetings and discussions, although there was not a specific written direction to IMV to clearly delineate its scope, it was within the scope of IMV’s retainer to do the engineering and be responsible to be sure the composite of the parts, the pipe and the insulation would provide an operating E Pipeline, complying with the design requirements of CNRL.

IMV was responsible for assessing the stresses and strains on the E Pipeline as a whole, including the insulation, to be sure it could function properly. This duty also involved taking reasonable care in setting construction plans and doing the drawings, in making sure adequate instructions were given to ensure the pre-heat was obtained, and in ensuring that every precaution was taken to avoid water getting into the lining. V. Findings from the Expert Evidence A. Discussion of Evidence [ 96 ] A discussion of this claim cannot be undertaken without comment on the expert evidence.

The expert evidence in this trial was complex, and at times conflicting. Any discussion of it is lengthy. As a result, I am presenting at this point of the judgment some findings I make from the experts’ evidence. In the course of my analysis I refer to the experts who testified on matters that relate to the cause of the failure, as well as the standard of care of engineers generally. This includes evidence by Dr. Oswell, Mr. Dennis Hansen, Dr. Alan Murray, Mr. Wes Dyck, Mr. Robert Gurr, Mr. Lenstra and Mr. Paulin. I have dealt with the evidence of Mr. Jack Averill and Mr. Tim Webber in the

section dealing with the alarms and shut-offs in paragraphs 282-288 as their evidence was very specific to that part of the claim. I have dealt with the evidence of the experts, Dr. Murray, Mr. Bruce Fowlie, Mr. Gurr, Mr. Lenstra and Mr. Paulin as it specifically related to the CSA Standards at paragraphs 209-224. In terms of the stamping of documents, I have dealt with the evidence of Mr. Wes Dyck, Mr. Lenstra and Mr. Gurr in relation to that topic at paragraphs 247-250. In terms of the stress analysis, I have dealt with the evidence of Mr. Wes Dyck, Mr. Paulin, Dr. Oswell and Dr.

Murray in relation to that topic at paragraphs 167-182. [ 97 ] The detailed discussion gives detail and context for comments below as to the evidence I found relevant, the weight I give it and where there is a conflict, whose evidence I preferred. B. Findings Based On the Expert Evidence [ 98 ] There are some opinions that were agreed to by all experts, either explicitly in their evidence, or obviously when their evidence is regarded in its totality. There were also areas where they differed.

Where all expert evidence on the topic was in agreement, I accept it as a fact and indicate that (for example paras 99, 100, 102, 105 and 106). Where there is a difference, I have indicated whose evidence I accept. Below is a

summary of the cumulative effect of the opinion evidence, and what I find from it. [ 99 ] Water is the enemy to an insulative lining of the composition provided by Shaw. Complicating this, if water reaches the pipe which has a temperature over 100°C, upon contact the water turns to steam. This steam has a greater volume, and can travel extensively in vapour form, severely damaging the bonds in the polymers making up the insulation. Although the experts may have disagreed on

which party had the duty, all agreed that in any duty to design or install this pipeline, it was critical that careful steps are taken to be sure water is kept away from the buried pipeline. The insulation was essential to the E Pipeline; it could not operate properly without it. [ 100 ] All the experts recognized that the pipeline had gone through displacement during operation. Compressive loads can develop due to thermal expansion of heated pipe, especially at bends in the pipe, or in thermal waves. Displacement can result in damage to the jacket and allow the entry of water.

The areas of the sleeves would be inherently weaker, and here movement could cause the layers of the jacket at the sleeve areas to separate, and allow water from the soil to enter the insulation. [ 101 ] Once water enters the insulation and finds a path to the pipe over 100°C, it turns to steam and destroys the integrity of the foam, which constitutes the thermal insulation layer.

The bonds in the foam and between the foam and the anti-corrosion coating on the pipe are affected, allowing partially debonded pipe to slide in a less restrained manner intensifying loads and contributing to further damage to the sleeves, the entry of more water and thus further damage. Movement of the pipe occurs because the compressive force that builds up in the pipe finally overcomes the frictional force that stops the pipe from moving. The frictional force is provided by the soils around the pipe. In muskeg soils, the frictional force would be easier to overcome than in clay or stronger soils. Although Mr.

Lenstra testified that movement in his opinion was only at temperatures above 140°C, I do not accept that 140°C is a magic number, as Mr. Lenstra did no calculations to support this temperature and based that number on the assumption that the pre-heat temperature was achieved. I prefer the evidence of Mr.

Wes Dyck on this issue, which was that movement would be likely to occur at less than 140°C, especially where there was a lack of restraint in the muskeg areas. [ 102 ] Because of the destructive nature of water to the insulation, all experts agreed that for Shaw to allow cracks of a certain diameter in the insulation during construction was questionable.

That these cracks were suggested as acceptable by Shaw and sanctioned by IMV shows the laxity around the issue of water entry and a lack of precision about the need to keep water away from the hot pipe. [ 103 ] Because the idea of burying the pipeline of such a high temperature was novel, the risks had to be assessed. There was substantial evidence about the Firebag Project, and the Shell Caroline Project. In fact, Mr. Gurr and Mr. Lenstra were involved in one or both of them. The actual DBM on Firebag is not relevant in determining the standard of care. What is instructive from the evidence of Dr. Murray, Mr.

Lenstra, Mr. Gurr and Mr. Wes Dyck was the unconventional nature of the pipeline, and that the risks associated with that had to be identified and carefully assessed. These risks were not unknown to the engineering community; in fact other projects had looked at and at the same time were assessing the possibility of burying high temperature pipelines. How each informed owner may deal with the risk associated with a project of this type differs, but the questions need to be raised, and the risk assessed.

Mitigative steps, such as leak detection systems, roped curves, the importance of the pre-heat and how it is achieved in muskeg areas, all have to be identified and discussed. [ 104 ] Thermal expansion of the E Pipeline and its interaction with the soil is essential to evaluate for this project. In very basic terms, the soil exerts a force that will resist pipeline thermal expansion and soil also imposes a load on a buried pipeline. Insulation on the outside of steel pipe can be damaged by the movement of the pipe in the soil.

Lengthening of pipe that is buried can cause stress in the pipeline, particularly at horizontal bends. Soil properties are important in considering the stresses and strains on the pipe. The pre-heat of the pipe was essential to this project, to ameliorate the thermal expansion issues. The evidence was clear that pre-heating pipe is not the norm in pipeline projects. The amount of the pre-heat calculated by IMV as necessary was acceptable. The essential nature of the pre- heat meant that construction had to be done in a way to assure the pre-heat was obtained.

Thus, the methods to be employed and the details of the plan for the pre-heat were important, as were the actions of the installers of the pipe. A question that was raised by some experts was whether the pre-heat was actually achieved in the field, especially in the muskeg areas. It cannot be independently or scientifically determined if the pre-heat was achieved.

All that can be examined is the instructions to do it, their adequacy and what indicia there are that the construction team followed the directions. [ 105 ] If the bond is not maintained between the insulative layer and the steel pipe in an underground pipeline such as the E Pipeline, the pipe when heated starts to move independently of the insulation. This movement may physically damage the foam in the insulation, and will compromise the grip the soil has on the pipeline, as the pipe is no longer constrained the same way as it was when the pipe and insulative layer where being held together.

Thus, any damage to the bond between the insulation and the pipe is a grave concern. [ 106 ] Due to the possible buoyancy forces of a pipeline when it is not full, weights have to be used in the design of an underground pipeline going through muskeg areas. The bag weights used on this project, if not sitting on clay soil, could be detrimental to the insulation, as they would pull down on the insulation in muskeg areas and could create damage, which could allow water to intrude.

Alternate use of screw anchor restraints was never raised or considered by IMV in specifying construction details. [ 107 ] The jacket was compromised in several of the dig areas, and it was clear that the sealed overlapping areas of the jacket were the place of water ingress, as they had come apart.

How this occurred was not agreed upon between all experts, just that this was a weaker area in terms of possible places for water ingress. [ 108 ] Shaw, in its bid for the pipe and the pipe insulation dated November 30, 2006, included system test data on the insulation, with the wording “For your review, please accept our Insul-8 test data that was completed to assist IMV with evaluating our system as it pertains to the EN 253:2003 standard”. These were clearly preliminary results, dated October 4, 2006, referring to test methods under EN 253:2003, Annex C.

The “final” test results presented to IMV from Shaw were the FFI tests (Exhibit 2, tab 289, “the FFI Testing”) which IMV passed along to CNRL, and upon which Mr. Wilkinson testified that CNRL relied to give the final go ahead with the Shaw system. This FFI testing was accepted by IMV and CNRL as indicating that although testing was continuing, the Insul-8 system had been assigned a preliminary continuous operating temperature of 150°C for 30 years. It included a “test certificate” that indicated based on CCOT results that the foam has an expected lifetime of 30 years at 150°C. [ 109 ] I accept Mr.

Lenstra’s evidence that the FFI testing applied only dry heat to the samples of the foam specimens and all testing was done in the absence of simulated operational load conditions. Although heating was involved to temperatures beyond 150°C, no performance tests were conducted at the elevated temperatures, as the specimens were allowed to cool before being performance tested. This, in his opinion, is problematic, as the testing is not necessarily referable to actual operating conditions. Mr.

Lenstra’s evidence was that to take the FFI testing to guarantee or assure an operating temperature of 150°C for an operating life of 30 years on the E Pipeline is

misleading. It could not necessarily be expected to apply to a project pipeline under field conditions, which might experience, for example, compressive forces due to movement, shear forces and variations in application. All experts agree that the FFI testing has no applicability to performance if the foam is wet. [ 110 ] Several experts, notably Mr. Wes Dyck, Mr. Lenstra, and Mr. Paulin, were all trying to analyze the reasons for the failure.

As so often happens in a litigation situation where the cause of the failure may be more than one source, and is not provable with scientific certainty, experts try modelling information to prove or disprove their own hypothesis, or those of other experts. Each of these experts agreed that the operation of the E Pipeline with emulsion over the design limits, with the high temperatures in January 2009, could account for two things: (1) damage to the insulation and (2) excessive movement of the pipe, which would cause abrasion and the introduction of water, and thus more destruction.

The difficulty all experts faced was that there was extreme water damage to the insulative lining close to the WLP, where the temperatures had not been so extreme. In fact, it was likely that the lower third had not been operated at temperatures above 160°C, or even 150°C. Mr. Paulin recognized in his evidence that approximately one-third, or about 13 kilometres, of the E Pipeline never hit 150°C during the flow back. All felt there had been some movement to cause water ingress, which led to opinions that the pipe could not have been sufficiently restrained in the muskeg and Mr.

Wes Dyck’s explanation that there must have been movement with water ingress below 140°C. [ 111 ] It was also problematic that the hot spots did not line up with the bends, where stresses may have been greater and where the sleeves used for the joints were most vulnerable to damage from movement. The Defendant highlighted this lack of correlation between the bends and the hot spots, to argue that damage from movement could not be proven. This also led some experts, and the Defendant, to argue that there were fundamental problems with the Shaw product.

Having reviewed all the evidence, I am not concerned that the hot spots did not all line up with bends, or suspected weak spots. This is because the whole E Pipeline was not excavated, so it is impossible to know the exact correlation between every failure and every hotspot, and every bend. It would be expensive to excavate the line, the cost far outweighing any utility of study. In addition, I accept evidence given by Mr. Paulin, Mr. Coutts and Mr.

Wes Dyck, where they recognized that there are attributes to soil, air temperature and snow cover that would influence how soon hot spots would show, if there was heat released into the ground below. For instance, the wet consistency of muskeg means that heat would travel faster through water or saturated soils to the surface. In addition, snow cover, aspect of land, in terms of sunlight warming and other factors influence how soon hot spots would appear in areas. Some digs were done where there were no hot spots. For instance, there were no hot spots at digs 4 and 9.

However, the liner was clearly destroyed at these dig sites. So although for scientific certainty it would be nice to line up hot spots with bends, here no hot spot does not mean there was no failure underground. In addition, the ability of steam to travel along the pipe means the point of entry of water is not where the steam will stay.

Thus, due to the steam’s movement and destructive force, it is hard by examining the line after failure, to tell the exact point of water ingress and the exact path of steam propagation. [ 112 ] Another aspect of this case that is important in distilling the expert evidence is evidence from the digs. Relevant information from the digs is set out directly below and illustrates the variability of information obtained from the digs: • There was considerable compromise to the insulative lining at numerous dig sites within a 5 kilometre radius of WLP.

For instance dig sites 1, 2, 3, and 5 showed excessive water, steaming and degradation of the foam. These were all areas that likely had not been exposed to temperatures over 150°C, so some problem other than just high temperature was occurring. Mr. Lenstra pointed to indicia of movement of the pipe in the wrinkles and strap in dig 1, very close to the WLP. • All dig sites near WLP did not show the same catastrophic failure, for example, dig site 7, close to the WLP was in frozen clay.

There was no water and the insulation was in good condition generally, with some evidence of jacket disbondment in the east end of the dig. • There were no hot spots at dig 3, or 4, near WLP, but there was damage to the insulation, at dig 3 the jacket was sagging and wrinkled. At dig 4 the insulation and jacket were intact, but there was evidence of steam and disbondment; specifically, the insulation was loose on the pipe. • The three dig sites either at the middle of the E Pipeline and nearer the PRE - digs 6, 9 and 10 - were in clay.

Nonetheless there was evidence of foam damage and jacket degradation or disbondment. • The insulation on the riser at WLP, AC1 and PRE, all above ground, was in good condition, even though the riser at PRE would have been subjected to the most excessive temperatures. This would seem to support the suggestion that the foam would perform to the high temperatures above ground and when dry. • Dig sites 1 and 3 show examples of where the straps on the bag weights were digging into the insulation and had not been installed correctly.

Other photos during construction show that in places the bag weights had been placed in ways that they were on top of the E Pipeline, or not supported by clay, so they were putting pressure on the insulation below. • Dig site 1 revealed the pipe being buried in muskeg, with no clay fill around it and above the clay level of the soil. [ 113 ] In coming to decisions about whether the Shaw product was negligently manufactured, the opinions of Mr. Lenstra and Mr.

Paulin have little weight as both were based on a mix of facts, some of which were not proven in evidence. Both experts had been givencomplete transcripts of the evidence given at questioning by various Shaw employees, and documentation of Shaw. No Shaw employeestestified at trial and the Shaw documents were not entered for the truth of their contents. Because the information relied on was notclearly laid out by these two experts in their reports, their opinions are very hard to assess, in terms of the exact factual basis on whichthey based their opinions about Shaw and its product.

Although both experts gave some evidence at trial based on photographs whichwere admissible at trial as true indications of what was depicted, it was still hard to distill what other information they had relied upon. [114] I accept Mr. Lenstra’s opinion that the design team must identify the issues of risk that would be associated with pipelinemovement and water ingress. The designer should assess the risks and present them to the owner, with options to ameliorate risks. Theowner makes the decisions on those options and costs. VI. Negligence A. The Law [115] CNRL claims that IMV was negligent.

In order to be successful in a negligence action, the plaintiff must prove all of thefollowing four elements: that the defendant owed the plaintiff a duty of care, that it breached the standard of care, that the breach of thatstandard caused loss to the plaintiff, and finally that the damages were not too remote. [116] There is no issue here that IMV owed a duty of care to CNRL. The major issue is what the standard of care was, and whether itwas breached in this case.

Causation is also in issue. [117] The general statement of the standard of care to be ascribed to engineers is the following: Unless expressly stated in the contract for professional services, in all the work done for the client, the engineer owes a duty to exerc

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