Court of Appeal Overturns Award for Business Losses from Construction Disruption

By Mark Danielson
Categories: Blog, Construction

Court of Appeal Overturns Award for Business Losses from Construction Disruption

On February 18, 2011, the British Columbia Court of Appeal released its decision in Susan Heyes Inc. (Hazel & Co.) v. South Coast B.C. Transportation Authority, 2011 BCCA 77, holding that the builders of the “Canada Line” rapid transit system were not responsible for a business’ losses from disruption during the project’s construction, and overturning a ruling of the Supreme Court of British Columbia. The decision has implications for public bodies and developers involved in the construction of infrastructure projects, as well as individuals and businesses impacted by the construction process.

Background

The “Canada Line” links downtown Vancouver, the City of Richmond, and the Vancouver International Airport. The project was developed as a public-private partnership involving the federal and provincial governments and a private concessionaire, InTransit BC Limited Partnership (“InTransit”), that was formed at the conclusion of a competitive procurement process and was responsible for the design, construction, operation, and maintenance of the project.

Initially, it was envisioned the project would be completed using a “bored tunnel” construction method which would minimize disruption on the surface of Cambie Street. However, the project was completed using a “cut and cover” method that required the excavation of an open trench along the street’s surface. The public was unaware of the prospective use of this method until the conclusion of the confidential procurement process. Susan Heyes Inc. (“Hazel & Co.”) operated a business along the project’s construction route and renewed its building lease on the understanding that the construction would be carried out using the bored tunnel method. After it was determined the cut and cover method would be used, the South Coast British Columbia Transit Authority (“TransLink”) advised the public the trench would remain open in any one location for no more than three months. In reality, the trench was open in some locations for up to eight months and the construction activities restricted pedestrian and vehicular access for about three years.

The Trial Decision

Hazel & Co. commenced an action against the City of Vancouver, the federal and provincial governments, TransLink and its subsidiary Canada Line Rapid Transit Inc. (“CLRT”), and InTransit, seeking damages for negligence, negligent misrepresentation, and nuisance. The trial judge dismissed the claims of negligence and negligent misrepresentation against all defendants on the grounds that (a) they were insufficiently involved or lacked sufficient knowledge of the project, or (b) there was no evidence that any representations regarding the method of construction were untrue, inaccurate, or misleading when made. However, the trial judge found that the activities of TransLink, CLRT, and InTransit constituted nuisance by substantially interfering with Hazel & Co.’s use and enjoyment of its premises. He found this interference was unjustified because the use of bored tunnel construction would have minimized the impact on Hazel & Co.’s business. He awarded Hazel & Co. damages in the amount of $600,000, being the estimated amount of its losses due to the project’s construction.

The Court of Appeal Decision

The Court of Appeal upheld the trial judge’s finding of nuisance despite finding that he improperly confined his analysis to the choice of construction methods and their impact. In doing so, he failed to adequately consider other factors which favoured the cut and cover proposal, such as its lower cost, faster and more flexible construction schedule, promise for increased ridership, and proponent’s willingness to assume greater construction risk. The Court concluded that his finding that the bored tunnel method was a viable non-nuisance alternative did not undermine his finding of nuisance, but was unsustainable because other proposals were not practically feasible. The Court found that the trial judge did not recognize that proposals submitted in a competitive procurement process must be evaluated as a whole and that proponents could not change their proposals to substitute alternative construction methods. Further, the Court found the trial judge failed to consider that a public sector funding cap made the acceptance of other proposals practically unfeasible. Also, the Court found the use of the bored tunnel method would merely shift disruption to other urban locations and, therefore, was not a non-nuisance alternative to the cut and cover method.

Conclusion

Heyes highlights the difficulty in achieving a balance between the long-term public benefit of infrastructure upgrades and the short-term detriment to individuals and businesses directly impacted by the construction process. The decision does not suggest that public bodies and developers may assume the social utility of a project will outweigh individual harm in a nuisance analysis. In this case, the Court of Appeal found that the cut and cover proposal was the only viable means of completing the project. Therefore, public bodies and developers may be liable for using an economical and disruptive construction method where a more expensive, less disruptive alternative exists. In Heyes, the Court of Appeal was impressed with the social utility of the project and was satisfied that it was an important upgrade to the region’s transportation infrastructure. It will be interesting to see how courts assess the social utility of improvements made only for aesthetic purposes.