The Ontario Court of Appeal has held that where a plaintiff has
imposed the methods and materials that the defendant must use to
complete a project, the defendant is absolved of responsibility if
the project proves to be defective, as the risk has been allocated
to the plaintiff. Although this decision is not a typical products
case, the considerations are similar to those that a court reviews
in a case involving the implied warranty of fitness under the
provincial Sale of Goods acts.
In Bruell Contracting Ltd. v. J. & P. Leveque Bros.
Haulage Ltd.,1 the Ontario Ministry of
Transportation ("MTO") awarded a contract to Leveque
Bros. Haulage Ltd. ("Leveque") to resurface 17.9
kilometers of road. The contract imposed certain specifications
regarding the methods that Leveque was required to use. Shortly
after Leveque completed the work, the road deteriorated for a
number of reasons. As a result, MTO insisted that Leveque remove
the defective surface and reapply a new one. After the road was
repaired, MTO refused to compensate Leveque for the additional work
and Leveque brought an action against MTO for breach of
MTO's position is that there was an implied term in the
contract that the binder and aggregate (which are the main
components of the surface treatment) would be compatible and
Leveque was obligated to test them to ensure their compatibility.
It appears that the binder and aggregate required the addition of
an anti-stripping additive to be compatible; however, the aggregate
and bind¬er were tested by MTO and met all tests required by
the specifications. Leveque claimed that the road surface
deterioration was caused, in part, by excessive application of the
binder, as directed by MTO, and heavy truck traffic permitted by
MTO before the road surface had cured.
The trial judge's decision turned on the designation of the
type of contract between MTO and Leveque: i) Performance
Specification Contact; or ii) Method Specification Contract. In a
Performance Specification Contract, the contractor must carry out
the terms of the contract and adequately perform the task. If the
contract is to resurface a road, the road must be resurfaced
properly without defects. The contractor takes on a
"performance" risk and, as a result, charges a higher
price. In a Method Specification Contract, one party specifies the
methods and materials that will be used in the project. These
contracts place less risk on the contractor because the methods and
materials are already specified, and the contractor is only
required to follow the specifications. In these contracts, the
contractor/expert takes on less risk and charges a lower price.
The trial judge accepted the evidence of the contractor's
expert who opined that the specified tools, emulsion, aggregate,
equip¬ment and instructions for surface preparation were
controlled by MTO. Moreover, in comparison with other MTO
contracts, there was no specific warranty, no requirement for
compatibility testing, and no performance specifications. The trial
judge accepted that this made the contract more consistent with a
method specification contract.
The Ontario Court of Appeal affirmed the trial judge's
decision, finding no error in the characterization of the contract.
The Court stated that since Leveque used the materials specified
and applied them in accordance with the contract specifications,
the respon¬sibility rested with MTO.
This decision illustrates that the court will not imply
performance requirements into a contract where the contract does
not impose performance criteria. A contractor is entitled to simply
follow the specifications and methods mandated in the contract, and
take consolation in the assurance that a court will protect them if
the resulting product is defective.
Note the relationship between the issues in this case and those
involving products that are subject to the implied warranties in
provincial Sale of Goods acts. The implied warranty of
fitness set out in Sale of Goods acts implies a warranty
on the seller that the product will be fit for its purpose unless
it can be shown that the buyer did not rely on the expertise of the
seller. In other words, the seller is not responsible if the buyer
relies on its own expertise. The method specification contract vs.
performance specification contract dichotomy in the case at bar is
similar and is a way for the parties to appropriately allocate the
risk of defect.
1 2015 ONCA 273
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The recent decision of the Ontario Court of Appeal in BMW Financial Services Canada, a Division of BMW Canada Inc. v. McLean provides some useful insight into the relationship between automobile dealers and the financing arms of the manufacturers for whom those dealers are franchisees.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).