Agrium, Inc Plaintiff - v. -, 2021 ABQB 260

Court of Queen’s Bench of Alberta Citation: Agrium, Inc v Worley Canada Services Ltd, 2021 ABQB 260 Date: 20210407 Docket: 1601-03869 Registry: Calgary Between: Agrium, Inc Plaintiff - and - Colt Engineering Corporation, Worley Canada Services Ltd, ACM Automation Inc, Orbis Engineering Field Services Ltd, Elliott Turbomachinery Canada Inc, Elliott Company, Invensys Systems Canada Inc, Schneider Electric Systems Canada Inc, Rockwell Automation Inc and Allen-Bradley Defendants Corrected judgment: A corrigendum was issued on April 20, 2021; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Decision of the Honourable Mr.

Justice P.R. Jeffrey _______________________________________________________ Appeal from the Decision by J. T. Prowse, Master in Chambers

Filed on the 18 th day of December, 2019 Dated the 18 th day of December, 2019 ( 2019 ABQB 978 , Docket: 1601 03869) [ 1 ] Worley appeals the Master’s decision, who denied its application for

summary dismissal. The Master’s decision can be found at 2019 ABQB 978 . Background [ 2 ] The relevant background to the lawsuit can be stated briefly.

Worley supplied engineering, procurement and construction management services to Agrium between 2007 and 2010, pursuant to a “Master Engineering Services Agreement” (the “ MESA ”), on Agrium’s manufacturing plant at Carseland, Alberta (the “ Services ”). [ 3 ] An incident occurred at that plant in 2014, causing Agrium damages it estimates at just over $100,000,000. [ 4 ] Agrium commenced this law suit against Worley in 2016, saying its breaches of the MESA and its negligence caused the losses at the Carseland plant.

Agrium alleges that Worley failed to assess, examine, detect, take required action, correct or otherwise act, and/or failed to perform a failure analysis. It then alleges that “the loss was caused by the negligent acts, omissions and breach of duty of” Worley, of which it then provides 8 particulars. Finally, it alleges Worley is vicariously liable for the negligence and breaches of others (collectively, the “ Claims ”). [ 5 ] Worley says Agrium’s breach of contract and negligence Claims are barred by the terms of the MESA.

Agrium says they are not. [ 6 ] The Master concluded, at paras 32 and 33 of his decision: With respect to each of these potential defences, the

interpretation of the contract is complex and intertwined with the facts. I am not sufficiently satisfied and comfortable with the record to conclude that there is no genuine issue requiring trial. Accordingly, I decline to grant Worley’s application for

summary dismissal. [ 7 ] The standard of review of a Master’s decision on appeal is correctness, on all issues: Bahcheli v Yorkton Securities Inc , 2012 ABCA 166 at para 30 . Analysis [ 8 ] The parties both say the Master erred in concluding a trial is needed to answer the contractual

interpretation issue raised. Both parties are of the view that the question raised by this application can be answered fairly on the basis of the current record, that trial is not required. [ 9 ] I agree with the parties. The question before the Court in this application is one of contract

interpretation, on facts and on an application record that are not in dispute. Trial would add nothing that is not already before the Court on the question of whether the Claims are barred by the terms of the MESA. I assume for the sake of this application that Agrium will succeed in proving the Claims. If so, does the MESA bar Agrium from recovering against Worley? [ 10 ] To answer that question, the parties’ intent must be ascertained from reviewing the whole of the MESA. The Alberta Court of Appeal summarized the principles of contract

interpretation in Canadian Natural Resources Limited v Wood Group Mustang (Canada) Inc (IMV Projects Inc) , 2018 ABCA 305 at para 97 , saying the contract in question is read as a whole : …giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of the formation of the contract.

The words of any one provision must not be read in isolation but should be considered in harmony with the rest of the contract and in light of its purposes and the commercial context: Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co. , 2016 SCC 37 at para. 27 , [2016] 2 SCR 23; Tercon Contractors Ltd. v British Columbia (Transportation and Highways) , 2010 SCC 4 at para. 64 , [2010] 1 SCR 69. [ 11 ] Applying this approach and considering the positions of the parties compels the following conclusions. [ 12 ]

Article 15.7 limits Agrium’s remedies against Worley to only the ones “expressly set forth in” the MESA.

It underscores that point with the following additional statement: Such remedies are [Agrium’s] sole and exclusive remedies and Agrium hereby waives any and all other remedies, whether at law or in equity, and whether the claim arises under contract, tort (including the concurrent or sole and exclusive negligence), strict liability or otherwise, of [Worley]. [ 13 ] Agrium says “remedies” are different from “causes of action” and its causes of action are not precluded, only remedies not expressly specified are precluded.

That is, it argues, the MESA does not contain wording limiting the causes of action it may pursue, only the remedies it may pursue. I agree with Worley, that a cause of action without a remedy is pointless. Absent an express remedy

applicable to Agrium’s loss, continuing the law suit against Worley will be futile. [ 14 ] The question in this case becomes, then, whether the MESA expressly sets forth a remedy for any of the Claims. If so, Agrium may pursue such a remedy or remedies by legal process, and this application to summarily dismiss Agrium’s law suit must be denied.

If the MESA does not expressly set forth a remedy for any of the Claims or if, as Worley says here, the MESA expressly sets forth a remedy for Agrium’s losses for a limited period of time but that time limit has expired, Agrium’s action must be dismissed summarily. [ 15 ] The MESA expressly sets forth three remedies, found in Articles 8.1 (the “ Deficiency Remedy ”), 15.1 (the “ Indemnity Remedy ”) and 13.5 (the “ Intellectual Property Remedy ”). [ 16 ] In

Article 13.5, Worley indemnifies Agrium for patent infringement. The Claims do not fall within the Intellectual Property Remedy in any way. It requires no further mention. [ 17 ] The Deficiency Remedy is available for any “breach of the warranties in

Article 7 or deficient or defective Services”. “Services” is defined differently in the MESA than I have defined it above; it is defined in

Article 2.1 as “engineering, procurement and construction management services as agreed in any Statement of Work.” Worley’s Services for and on the Carseland plant were all pursuant to such a “Statement of Work”. [ 18 ] Worley says all Agrium’s Claims trigger this Deficiency Remedy, but it was available only for the 18 months immediately following “mechanical completion” (Article 8.1 (d)).

Worley says the 18-month window for that remedy closed by the time of the incident and therefore the Deficiency Remedy is no longer available to Agrium. [ 19 ] Agrium says the Deficiency Remedy does not apply to any of its Claims.

Agrium says it is just for construction deficiencies and contains a call back mechanism typical in such contracts. [ 20 ] In the Indemnity Remedy, in relevant part, Worley: … agrees to be liable to and … indemnify and hold harmless [Agrium] from and against all direct expenses, losses, … and damages … for loss of or damage to property … arising … before, during or after the completion of the Services … by reason of any negligence, whether active or passive, of [Worley] … in connection with or incident to performance of this Agreement. … [ 21 ] Agrium says all its Claims fall within the great breadth of this Indemnity Remedy.

Worley says they cannot, because

Article 15.1 containing this Indemnity Remedy begins with the phrase “Subject to Articles 7 and 8”, all the Claims fall within the Deficiency Remedy (Article 8.1), and therefore they cannot fall within the Indemnity Remedy. [ 22 ] Worley says the Indemnity Remedy is for things falling outside the broad scope of the Deficiency Remedy and, in any event, is not for breaches, acts or omissions like the Claims. Worley says the Indemnity Remedy (A.M. Transcript of the Application Hearing, p 35): … is for negligence other than in relation to breaches of the engineer’s warranty or deficient or defective services, Sir.

For instance, if a Worley employee was driving carelessly on the Carseland site and caused damage to property or injury to persons, that would be covered by the indemnity. … They would be such as if a vehicle of Worley’s ran into the plant. [ 23 ] I agree that such events would be covered by the Indemnity Remedy.

But I disagree that the Indemnity Remedy is limited to such events and I disagree that all the Claims fall within the Deficiency Remedy. [ 24 ] In my view the Deficiency Remedy is for construction project deficiencies such as when the completed work not does not meet the specs for it – the specifications in the Statement of Work for the particular project. No negligence need be demonstrated to trigger the Deficiency Remedy, merely a “deficient or defective” service.

It is more akin to strict liability in the delivery of the contracted for engineering, procurement and construction management work described in the Statement of Work, to ensure what is delivered by Worley meets the contract specifications. The Deficiency Remedy is subject to a time limit (18 months).

The Deficiency Remedy holds Worley liable to participate in correcting a breach or deficiency regardless of any negligence, for a fixed period – here a full 18 months – but Agrium must act within a very tight one day window to notify Worley in order to gain its participation in and contribution to the Deficiency Remedy. [ 25 ] The Indemnity Remedy encompasses all the negligence Claims.

It may also encompass the damages consequences of the breach of contract Claims that would have triggered the Deficiency Remedy had they been caught by the 18-month callback deadline and associated cost sharing Deficiency Remedy, or at least any portion that exceeds the costs consequences sharing formula in the Deficiency Remedy. But I need not determine that point in the context of this application. It is enough that some of the Claims fall within

Article 15.1, as they do, outside any contractual time limitation, for the

summary dismissal application to fail. [ 26 ] Worley in the quote at paragraph 22 above says the Deficiency Remedy “is for negligence … in relation to deficient or defective services”. That is true. It encompasses deficient or defective services caused by negligence. But it covers deficient or defective services regardless of whether or not they were caused by negligence. [ 27 ] The

Article 8.1 remedy encompasses far less than Worley suggests. It does not encompass all the negligence Claims, but only those that constitute “deficient or defective” services and that were manifest within 18 months from mechanical completion. It does not encompass all negligence; only those that are manifest within the 18 months can trigger the Deficiency Remedy. All deficiencies resulting from negligence that are not manifest within the 18 months fall within the scope of the Indemnity Remedy. The record indicates none of the allegations underpinning the Claims were manifest within the 18-month window.

The record contains no suggestion they ought to have been apparent within that time window. Therefore, none of the Claims fall within the expired Deficiency Remedy. All the negligence-based Claims fall within the extremely broad scope of the Indemnity Remedy.

[ 28 ] In my view the “Subject to” phrase at the outset of

Article 15.1 means that when a loss falls within the scope of both the

Article 8.1 deficiency process and the

Article 15.1 indemnity, Agrium is limited to its

Article 8.1 remedy. [ 29 ] This narrower scope of the Deficiency Remedy (narrower than Worley maintains) derives from reading the provisions of the MESA as a whole and, notably, from the wording of Articles 15.2 and 15.5. To explain, the prefacing words to

Article 15.1 don’t say just “Subject to Articles 7 and 8” but say “Subject to Articles 7 and 8, and the other provisions of this

Article 15 …” (underlining added). Two of the other provisions of

Article 15 (Articles 15.2 and 15.5) cap Worley’s liability to Agrium both per incident ($1,000,000) and in aggregate (at $5,000,000 for any one Statement of Work). These two capping provisions say the caps apply even if the loss or damage arises “from the fault, breach of contract, tort (including concurrent or sole and exclusive negligence), indemnity, strict liability or otherwise of [Worley]”. If Worley’s

interpretation of the breadth of the Deficiency Remedy is correct, this wording in 15.2 and 15.5 would be superfluous since no breach of contract claim would ever fall to the Indemnity Remedy, and most negligence claims would not fall into the Indemnity Remedy. The fact the words are there reveals the parties considered there may be substantial breach of contract claims and negligence claims that would not be caught by the Deficiency Remedy and for which caps should apply.

This militates strongly in favour of the Agrium narrower scope of the Deficiency Remedy wording than the broad scope of the Deficiency Remedy wording espoused by Worley. [ 30 ] Put another way, there is no point saying the Indemnity Remedy is subject to the caps even if negligence is involved, if the Indemnity Remedy does not indemnify any forms negligence in the work provided. Before liability can be capped there must be some liability exposure to cap. I do not accept that by these words the parties meant simply car-accident-on-site-types of negligence. That construction does not make commercial sense.

These caps make sense under Agrium’s contractual

interpretation, not so much under Worley’s. [ 31 ] I find Worley’s

interpretation a strained reading rather than one sensible to the commercial context. Worley’s

interpretation entails it having no liability whatsoever for any negligence to its work after the 18-month callback regime in the Deficiency Remedy. Its

interpretation entails it only bears residual liability for such things as a vehicular accident on site. And for that sort of accidental event, under Worley’s

interpretation, the parties felt they had reason to cap the liability at 5 such events per Statement of Work (at the maximum of $1,000,000 each to aggregate up to the $5,000,000 cap). This means, under Worley’s

interpretation, that the parties thought it possible they would experience more than 5 such events at any one Statement of Work site. Yet at the same time they supposedly agreed that Worley would bear no liability for even a single event of negligence on its part after 18 months; and, further, within that 18- month period Worley’s responsibility would be limited to redoing deficient work and sharing in some of the cost consequences, and still further only if Agrium notified it within 1 day of “any potential breach or deficiency” (Article 8.1 (a)). With respect, this

interpretation by which Worley bears such a narrow risk of liability for its work is commercially improbable. [ 32 ] The Worley

interpretation also does not accord with the provisions of the MESA on “required insurance”. The insurance required to be carried by Worley for automobile liability (Worley’s vehicle accident on site scenario) is not $1,000,000 per incident and $5,000,000 per Statement of Work, but “$2,000,000 inclusive of any one occurrence” (Article 16.1 c)). The requirement for Worley’s comprehensive general liability coverage, however, “covering standard risks and including coverage for products and completed operations, employer’s liability and contractual liability” is a “combined single limit of $5,000,000 for each occurrence involving … property damage” (Article 16.1 a)). This accords with Agrium’s

interpretation. Conclusion [ 33 ] I conclude that Worley’s

interpretation of the scope of the Deficiency Remedy (Article 8.1) does not accord with the whole of the MESA. It does not accord with commercial reality. [ 34 ] Agrium’s

interpretation, in which the Deficiency Remedy is for no-fault remediation of all deficiencies within 18 months of completion, on the requisite notice and at the parties shared expense, and indemnity for negligence and breaches of contract up to fixed limits and for which Worley was required to carry insurance, gives meaning to all terms in the MESA, in a manner consistent with the subject matter of the contract. [ 35 ] Worley has not met is burden of showing Agrium’s Claims to be barred by the MESA and, therefore, to be without merit. Accordingly, I dismiss the appeal. Heard on the 12 th day of February, 2021.

Dated at the City of Calgary, Alberta this 06 th day of April, 2021. P.R. Jeffrey J.C.Q.B.A.

Appearances: M.J. Bailey, QC for the Plaintiff W.J. Kenny, QC for the Defendants _______________________________________________________ Corrigendum of the Reasons for Decision of The Honourable Mr. Justice P.R. Jeffrey _______________________________________________________ The following changes were made to the Reasons for Decision: 1. The judgment type was changed from Endorsement to Reasons for Decision. 2. Paragraph 31 was amended as follows: “... the they supposedly...” 3. Paragraph 33 was amended as follows: “It does not does not accord with commercial reality.”