Thursday, June 03, 2004

The Observatory (North Vancouver): Owners of leaky Cressey condo tower face huge repair bill

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

The Owners, Strata Plan VR2771 v. Cressey Dev. Corp. et al

 

2004 BCSC 748

Date: 20040603
Docket: A963128
Registry: Vancouver

Between:

The Owners, Strata Plan VR2771

Plaintiff

And:

Cressey Development Corporation, A.M. Fifteen Holdings Ltd., Nacel Properties Ltd.,
 PAC Architecture Ltd. formerly known as the Hulbert Group B.C. Ltd., Richard E. Hulbert, Raymond M. Pradinuk, Richard E. Hulbert and Raymond M. Pradinuk doing business as the Hulbert Group, Sterling, Cooper & Associates Ltd., Almetco Building Products Ltd., Continental Mechanical Ltd., Eltex Enterprises Ltd., Hil-Ron Cladding Ltd., Intertek Testing Services NA Ltd./Services d’Essais Intertek AN Ltée, Koplin Enterprises Ltd., Prestige Glass Ltd., Preswitt Manufacturing Ltd., and the City of North Vancouver

Defendants

And:

Almetco Building Products Ltd., Continental Mechanical Ltd., Eltex Enterprises Inc.,
Hil-Ron Cladding Ltd., Intertek Testing Services NA Ltd./Services d’Essais Intertek AN Ltée, Koplin Enterprises Ltd., PAC Architecture Ltd. formerly known as the Hulbert Group British Columbia Ltd., Richard E. Hulbert, Raymond M. Pradinuk, Richard E. Hulbert, and
Raymond M. Pradinuk doing business as the Hulbert Group, Prestige Glass Ltd., Preswitt Manufacturing Ltd., Sterling Cooper & Associates Ltd., Tremco Ltd./Tremco Ltee, and
the City of North Vancouver

Third Parties


Before: The Honourable Mr. Justice Chamberlist

Reasons for Judgment

Counsel for the plaintiff:

D. Miachika

Counsel for the defendant and third party Intertek Testing Services NA Ltd./ Services d’Essais Intertek AN Ltée

 

G.B. Gomery

 

Counsel for the defendants Cressey Development Corporation, A.M. Fifteen Holdings Limited, Nacel Properties Ltd.

 

S. Boothman

 

Also appearing but taking no position on behalf of

 

 

PAC Architecture Ltd. formerly known as the Hulbert Group B.C. Ltd.

 

M. Spector

 

Preswitt Manufacturing Ltd.

 

P. Gordon

 

City of North Vancouver

 

L. Krebs

 

Prestige Glass Ltd.

C. Gleadow

 

Date and Place of Hearing:

February 16, 17, 2004

March 18, 19, 2004

 

Vancouver, B.C.

NATURE OF APPLICATION

[1]            This is the application of the defendant and third party Intertek Testing Services NA Ltd./Services d’Essais Intertek AN Ltée (“ITS”) for orders dismissing the within action and the third party claims against the applicant.  The applicant also claims that the plaintiff and defendant third parties Cressey Development Corporation (“Cressey”) and A.M. Fifteen Holdings Ltd. pay its costs of the action.

ISSUES

[2]            The within action was commenced on September 24, 1996 and the statement of claim filed some two years later on December 11, 1998.  The within motion was filed August 28, 2003.  When the matter first came before me in February 2004 I expunged certain portions of the applicant’s primary affidavit material (affidavit #2 of Lawrence Gibson, sworn August 27, 2003) but gave liberty to the applicant to file additional affidavit material of the deponent Lawrence Gibson.

[3]            The issue of whether or not this was a suitable matter to be disposed of on an 18A application was made a threshold argument at the commencement of this summary trial.  I determined that suitability would be addressed first and if I found the issue to be suitable for an 18A disposition then I would hear from the respondents on the merits.  At this time I have only heard from the respondents on the suitability issue although I have heard from the applicant on suitability and the merits.

BACKGROUND

[4]            This litigation involves what has become known in the vernacular as “leaky condo” litigation.  The Observatory building (“the Observatory”) is a 73 unit, 26 floor high rise residential strata development located at 120 West Second Street, North Vancouver, B.C.  The Observatory suffers from a progressive and ongoing building envelope failure due to exterior water ingress.  The original developer was Cressey.  It, along with its affiliate A.M. Fifteen Holdings Ltd., built the Observatory in about 1989 and 1990 and over the next several years the 73 strata lots were sold. 

[5]            The action was originally commenced by the plaintiff owners against Cressey, the architects and a mechanical consultant.  Additional parties, including ITS, were subsequently joined as defendants.  Ultimately Cressey third partied ITS seeking contribution and indemnity in relation to the direct claims made against it.  The owner retained Halsall Associates Limited (“Halsall”) to conduct an investigation of the exterior building envelope. 

[6]            In November 2000 Halsall issued its report where it identified deficiencies in the building envelope including the exterior cladding comprising of exterior insulation finish system (“EIFS”), which it opined permitted water ingress to the building’s interior. 

[7]            As a result of its investigations, Halsall recommended, and the owners agreed, to proceed with a progressive repair of the building envelope, including initial repairs to the EIFS cladding.  These initial repairs were completed.  To date the plaintiff owners have incurred some $860,000.00 in remediation costs to the building and anticipate future renovation costs of some $3.5 million.

[8]            This action is presently under case management and set to proceed to an eight week trial commencing October 18, 2004.

[9]            ITS became involved in the construction of the Observatory in December 1989.  The degree of its involvement and the extent of its responsibilities assumed in that involvement is a question that must be able to be determined on the evidence before me if the applicant is to succeed in its motion for judgment.  ITS says it had a limited retainer and that it only played a small part in the construction project. 

[10]        At the time ITS was known as Warnock Hersey Professional Services Ltd. (“Warnock”).  It contracted to audit the application of the exterior cladding or “EIFS” through random inspections at weekly intervals.  The principal evidence relating to the formation of the contract comes from records maintained in the ordinary course of business by ITS and Cressey, together with affidavit material of Scott Cressey, president of Cressey, and Lawrence Gibson, a manager with Warnock and ITS, and examination for discovery transcripts of those two individuals.

[11]        No written contract has been discovered due to the passage of time being some 14 or 15 years.  There is, however, a work order dated December 20, 1989 on Warnock letterhead and addressed to Cressey, to the attention of Brian Jones.  It refers to an approximate commencement date of January 1990 with the project and description of work provision is as follows:

To conduct ongoing quality audits at the Observatory Project at 120 West 2nd in North Vancouver, B.C.  The purpose of the audits is to determine that the Exterior Insulation Finish System (EIFS) is being applied as per the manufacturer's installation instructions and as it was when tested for Full Scale Fire Resistance.  Approximately one audit will be required per week, depending on the weather conditions at a two or three hours per audit.  ($150.00 - $225.00 per audit.)

[12]        Prior to the Observatory project, Warnock had evaluated the EIFS product manufactured by the defendant Preswitt Manufacturing Ltd. for the manufacturer for the purposes of certifying it as complying with fire resistance properties as specified in the codes.  From January through September 1990, Warnock’s representatives, technicians identified as Paul Arnold and Steve Harris, attended at the site. 

[13]        Lawrence Gibson neither attended on site nor had any involvement in the preparation of Intertek’s scope of work on the Observatory. 

[14]        The portions of the Gibson affidavit that I ordered expunged were portions that contained hearsay and double hearsay.  The further affidavit material filed by the applicant consisted of a further affidavit filed by Mr. Gibson which primarily focused on inferences to be drawn by the court.  That inference was that the applicant, ITS, only played a minor role in the construction of the Observatory and that role was restricted to what was contemplated in the purchase order, namely the auditing of the application of the EIFS with particular reference to fire performance criteria. 

[15]        Mr. Gibson deposed that at the conclusion of ITS’s work, he issued a report dated September 18, 1999, which conclusions stated:

To the best of our knowledge the installation of the Preswitt Exterior Insulation Finish system at 120 West 2nd Street, North Vancouver, B.C., is representative of the formulation and installation of samples tested to the NRC Full Scale Fire Resistance test and the ULC.S101 15 minute Stay in Place test.

[16]        Mr. Gibson, in his affidavit material, opined that the sole purpose of the audit was to determine whether the EIFS was being applied according to the manufacturer’s instructions and to ensure that it was installed in the same manner as a sample which had been tested for fire resistance under laboratory conditions. 

[17]        Thus, says Intertek, was the extent of its retainer. 

[18]        The plaintiff, Cressey and A.M. Fifteen Holdings Ltd. however point out contradictions in the evidence upon which the limited retainer is advanced.  Lawrence Gibson was examined for discovery as a representative of ITS.  At question 210 of discoveries conducted by counsel for the plaintiff and counsel for Cressey, this exchange took place:

210   Q     All right.  So after the first sentence it

then goes on to say:

The purpose of the audits is to determine that the exterior insulation finish system (EIFS) is being applied as per the manufacturer’s installation instructions.

That’s one aspect of the audit; correct?

      A     Correct.

211   Q     And then it says:  “. . . and as it was

when tested for full-scale fire-resistance,” so that’s another aspect of the audit?

A     Correct.

[19]        Under further cross-examination, Mr. Gibson was asked questions relating to non-conformance and what would be the consequence of that.  Those questions and answers are:

143   Q     Now again, I’m asking sort of a general

question.  During the inspections that would have been done at the Observatory, if there was any non-conformance in the application noticed by your inspector, what steps, if any, would they take?

A     He would document the non-conformance, he would bring it to the site superintendent or the foreman for the application - - his attention, sometimes they would even - - they might - - the superintendent might walk around with them.  At the end, he would certainly leave them a report, maybe come back to the office, . . .

155   Q     What, if any, follow-up did your company

do when there was an non-conformity?

A     The next inspection they would be looking to see if it was rectified.

156   Q     And would they usually make a note to

indicate that it had been rectified?

      A     Yes, they were supposed to.

157  Q      Okay.  Is it fair to say that your inspectors - - let me start this - -  if I understand it, if the inspector notified [sic] any non-conformance with the manufacturer’s specifications, that’s an issue that would be raised in the report; correct?

       A    Correct.

158    Q    Is it also fair to say that if your

inspector noticed something in the installation that was against their experience of good practice, that would also be mentioned in the report?

A     Possibly.  That - -  that’s a vague

      question, so it’s hard to answer.

160   Q     Based on the experience of the inspectors

at that time, did they have any instructions or was there a firm practice in that regard when they conducted these inspections.

A     The normal course would be that there was a number of normal defects that we expected to see.  What gypsum board, improperly back wrapped details, thin base coat, washed off areas, those would be normal course.  If for some reason there was some issue where it was, yeah, certainly not covered by the manufacturer's installation instructions on a non-standard detail.  That might - - that would probably also be addressed in there.

[20]        Further in the discovery process this issue was again commented on in the following exchange:

563   Q     I understand that.  What I'm asking you

is: as a firm practice at the time, if your inspector was looking at the EIFS and it noted something that was deficient in its installation that was something beyond just specifically fire protection, would it note that to its client?

A     If it was - - if it did not comply with manufacturer's installation, it would probably be noted in the report.

564   Q     Okay.  And/or tell the client?

A     Normally it had to go into the record which I assume would go to the client.

565   Q     Well, we saw one example - -  for example

on the back of the balcony back wraps, there was no previous reference to it, but there's a subsequent reference to it being remediated; correct?

      A     Correct.

566   Q     So there may be instances where there's

deficiencies that were specifically noted verbally and not necessarily indicated there?

      A     There may have been.

[21]        The application booklet prepared by Preswitt Manufacturing Ltd. detailing application instructions for the EIFS contains instructions relative to protection application and various other details.  Under the heading Protection at p. 6, this instruction is provided:

3.    Co-ordinate with other trades to ensure the flashings, caulking etc. are installed as soon as possible after the System installation to prevent water penetration.

[22]        Under the heading Application Instructions, at p. 14, these comments appear:

Reinforce corners of windows, doors etc. with strips of mesh.

. . .

Control joints, drip grooves and other features may be cut or routed out only after the board is firmly adhered to the substrate.

[23]        Under Caulking, at p. 20, this comment appears:

The following information is for reference only and installation must be in accordance with the caulking manufacturer's written instructions.

[24]        James Young who was site superintendent at Cressey during the construction of the Observatory, recalled that ITS was retained by Cressey to inspect the installation of the EIFS at the project.  In his affidavit material he details recalling one problem the ITS inspector had at one point with control joints and flagged the problem with the installer of the EIFS.  He specifically recalled that the Intertek inspector did not like the way the control joints were installed and the installer had to remove the control joints and redo them.  He also recalled that the control joint problem was related to water getting in through the control joint because the joint was not sealed at that stage and was delaminating the EIFS from the exterior drywall substrate.  He recalled that the ITS inspector had the installer remove the control joint and cut away some of the panel.  He recalled the ITS inspector being concerned with water getting in through the joints and terminations in the EIFS.

[25]        He also recalled the ITS inspector coming back to the site after the control joint problem was resolved to continue with the inspections. 

[26]        Michael VanDusen, P. Eng., of Halsall Engineers, in his correspondence of February 6, 2004, followed up his report of November 27, 2003.  He opines as to his conclusions relating to the inspection reports of the ITS inspectors which have been produced to date.  Those reports apparently reference joint details.  From his perspective the complete joint detail includes the sealant that was used and he opines that a reasonable EIFS inspector would have reviewed the sealants to determine that they were properly applied.   He ultimately concluded that defects with the sealant resulted in the water ingress problems.

[27]        He also concluded from his review of the ITS reports that those reports identify problems with the paper-faced gypsum becoming wet, damaged and requiring replacement, indicating the vulnerability of the material to damage when exposed to water.

[28]        While Mr. Gomery, on behalf of ITS, objected to the form of Mr. VanDusen's letter of February 6, 2004 as not providing the factual basis or assumptions upon which the opinion is provided, I do note that there appears to be a supplementary report to the report dated November 27, 2003 and the facts and assumptions, together with Mr. VanDusen's curriculum vitae, were provided under Tab 25.  Ultimately that opinion is receivable in evidence on this application.

[29]        The conclusions in that opinion [Tab 20] are set out in para. 3 of Mr. VanDusen's letter:

It is our opinion that Intertek undertook responsibility to act as a reasonable EIFS inspector and review the EIFS details that influence the durability and performance of the EIFS, including resistance to cracking, water ingress and associated deterioration.  Defects that were incorporated into the EIFS should have been apparent and identified by Intertek for correction at the time of construction.  By not observing these defects and/or by not reporting them to their client and/or other appropriate parties responsible for the construction, Intertek was not acting as a reasonable EIFS inspector.  The EIFS defects that were not identified or reported by Intertek have led to the water ingress and deterioration problems at the Observatory. 

As such, given the scope of work undertaken by Intertek, the obligations of a reasonable EIFS inspector, and the deficiencies that occurred in the EIFS installation, it is our opinion that Intertek is a responsible party who contributed to the deficiencies as noted in the Scott Schedule.

[30]        In my view, all of the opinions and issues raised come down to a simple fact and that is, what was the scope of work undertaken by Warnock, now ITS, when it commenced its retainer in December 1989.  The onsite inspection reports utilized by Warnock/ITS consists of two columns - Observations and Comments.  The comment column is left blank, with space for comments.  The observations column have six headings.  They are - Substrate Condition, Insulation Application, Mesh Application, Joint Details, Base Coat and Finish Coat.  There is also a provision for notes. 

[31]        In none of the onsite inspection reports is there reference to joint details being other than acceptable.  This is inconsistent with the evidence of Mr. Young, who specifically recalled a problem with respect to joint details.  It necessarily leads to the inference that comments must have been made orally that were not referenced in the prepared format onsite inspection report being utilized at the time by ITS.

DISCUSSION

[32]        The determination of what exactly was the scope of work agreed upon between Intertek and Cressey is key to the determination of any liability of Intertek.  Notwithstanding the supplemental affidavit sworn by Mr. Gibson there is still a lack of direct or complete evidence before the court.  The evidence of Gibson himself is contradictory on this point given his evidence on discovery and his evidence by way of affidavit. 

[33]        The expert opinion evidence of Mr. VanDusen hinges on a finding of the scope of work undertaken by ITS.  

[34]        Under R. 18A, I am of course permitted to resolve issues of credibility, however that should be only in the clearest of circumstances.  Here I find there is conflicting evidence from the applicant's primary witness.  This problem was addressed in Jutt v. Doehring, [1993] B.C.J. No. 932, Vancouver Registry CA015873.  In that case, McEachern C.J.B.C. distinguished the general comments in Inspiration Management Ltd. v. McDermid St. Lawrence Ltd. (1989), 36 B.C.L.R. (2d) 202, where he had earlier stated, at pp. 215-16:

. . . Subject to what I am about to say, a judge should not decide an issue of fact or law solely on the basis of conflicting affidavits even if he prefers one version to the other.  It may be, however, notwithstanding sworn affidavit evidence to the contrary, that other admissible evidence will make it possible to find the facts necessary for judgment to be given.  . . .

[35]        In Jutt, Chief Justice McEachern said, commencing at para. 12:

[12]  What emerges from the material which was before the learned chambers judge is an apparent conflict between the evidence of the two appellants and the evidence of Constable O'Callaghan on matters relating to what was said and done concerning a search.  . . .

[13]  The fundamental problem in this case is that the material filed on the 18A application shows a "head on" conflict in the evidence which goes directly to the foundation of the appellants' action against the respondents.  It was not possible to resolve the conflicts without credibility findings being made.  This case was unsuited to summary trial for the issues of fact should not have been decided solely on the basis of the conflicting material which was before the court, regardless of whether the chambers judge preferred one version to the other.

[36]        Essentially, here we have the applicant's chief witness providing evidence as to the scope of work which is not direct evidence, which he did not define in the purchase order as he had nothing to do with the preparation of the purchase order, and which work he did not have the benefit of reviewing on site.  This view of the scope of work is inconsistent with the evidence he gave at his discovery.  This view is also inconsistent with remedial work apparently ordered by the ITS inspectors according to their onsite inspection reports, and is inconsistent with the recollections of Mr. Young who was the onsite superintendent.  These are inconsistencies that, in my view, must be tested by the occurrence of a tradition trial which would, hopefully, provide a better factual matrix from which the trial judge may draw the inferences necessary to reconstruct the activities that occurred almost 15 years ago. 

[37]        Further, it would be unjust to draw inferences in this case from business records which are admittedly incomplete due primarily, I would think, to the passage of time.  Credibility findings in a case such as this which have complex technical issues should not be determined on the basis of inference from usual business dealings. 

[38]        Obviously this is not a case where the cost of proceeding to a conventional trial in relation to the amount claimed is not so great as to make a conventional trial uneconomic or impractical.

[39]        Therefore, in conclusion, I find that I am unable to find the necessary facts which would establish the scope of work to be done by ITS at the material times.  I am also of the view that it would be unjust to decide the issues on a summary trial basis, taking into account the some $4 million involved, the complexity of the issues and the cost of proceeding to a conventional trial in relation to the amount involved. 

[40]        I certainly appreciate that from an economic point of view there is urgency to ITS in knowing whether or not it will be involved in what will ultimately become extremely expensive litigation should this matter proceed to the anticipated eight week trial, but that is not a matter of urgency in the legal sense.

[41]        Lastly, in cases such as this involving numerous co-defendants and third parties, the court should be slow to let one defendant out on a summary trial leaving the trial judge with the remaining defendants submitting that liability should be apportioned primarily to the defendant who is no longer before the court. 

COSTS

[42]        Unless the parties wish to make further submission on costs, the respondents shall have their costs of this summary trial application on Scale 3.

“E.G. Chamberlist, J.”
The Honourable Mr. Justice E.G. Chamberlist

July 20, 2004 – Revised Judgment

It has come to my attention that the plaintiff, The Owners, Strata Plan VR 2771 were inadvertently recorded as Strata Plan VR 2271 on page one of those reasons.  This change is noted and applied.