By Kim Do

We previously summarized the decision of Centurion Apartment Properties Limited Partnership v. Loco Investments Inc, 2022 BCSC 2273, wherein the BC Supreme Court granted an application for summary dismissal of owners’ claims against structural consultants in negligence for dangerous defects on the basis that, due to the construction contracts entered into, there was no duty of care owing to the owners. This decision was appealed.

The BC Court of Appeal recently set aside the lower court decision, finding that a prima facie duty of care did exist between the owners and the structural consultants. The decision can be found here.

Background and Lower Court Decision

As set out in our prior article, the project at issue concerned the construction of an apartment building (the “Building”) in Langford, BC (the “Lands”) between 2017 to 2019. At the time, the legal owner of the Lands was 113407 B.C. Ltd. (“111”), a wholly-owned subsidiary of Loco Investments Inc. (“Loco”). 111 held the Lands as bare trustee for Loco.

111 engaged DB Services of Victoria Inc. (“DB Services”) to perform certain design-build works for the Building (the “DB Services Contract”). DB Services, in turn, entered into a contract with the structural consultants, Sorensen Trilogy Engineering Ltd. (“Trilogy”) whereby Trilogy agreed to perform certain structural engineering services for the design and construction of the Building (the “Trilogy Contract”). The Trilogy Contract and the DB Services Contract each contained clauses that allocated risk and limited liability.

Following construction, the Building was sold. Ultimately, 111 maintained legal title to the Lands in trust for Centurion LP as beneficial owner. Deficiencies were later discovered with the Building’s design and structural integrity, which were so severe that the occupancy permit was revoked and the residents were required to vacate the Building. The legal and beneficial owners, 111 and Centurion LP, subsequently commenced an action for the losses suffered as a result of the repairs required for the Building against various parties including among others, Loco, DB Services, and the structural consultants alleging, among other things, negligence and breach of contract.

The structural consultants brought an application to summarily dismiss the claims of negligence made against them. The lower court granted the application, finding that:

1. As beneficial owner, Centurion LP had no standing to pursue claims in negligence. Only the legal owner, 111 had standing to bring a claim in negligence.
2. 111’s claims in negligence were dismissed as the contracts entered into between the parties made it so there was no contractual relationship between 111 and the structural consultants, and therefore no duty of care owed by the structural consultants to 111.
3. The limitation of liability clause in the Trilogy Contract was enforceable.

These findings were appealed.

The Appeals and Cross-Appeal

The BC Court of Appeal allowed the appeals in part, finding that (among other things):

1. The lower court correctly determined that Centurion LP, as beneficiary, had no standing to bring a claim in negligence for damages of trust property.
2. The lower court erred in finding that the structural consultants and 111 did not have a sufficiently close and direct relationship to establish a duty of care owed by the structural engineers to 111.
3. The question of enforceability of the limitation of liability clause in the Trilogy Contract was not suited to summary trial.

Of these findings, the finding that the lower court erred when determining that the structural consultants did not owe 111 a duty of care is significant to the construction industry. This finding turns on an application of the “Anns test”.

The “Anns test” is a long-standing legal test that sets out the factors to consider when asked if a duty of care exists between two parties, such that one party should be compensated for a wrongful act by another party. The first part of this test is whether a prima facie duty of care exists between the parties (often referred to as a consideration of “proximity”). The second part of this test is whether there are any policy considerations that limit the duty of care.

Applying the first part of this test, the lower court found that the contracts entered into between the parties meant that there was no proximity between 111 and the structural engineers, and accordingly, that no duty of care was owed. The Court of Appeal disagreed.

Instead of considering the contracts alone, the Court of Appeal considered the relationship of parties in a construction contract to one another and, specifically, looked to whether or not there was any category of “proximate relationship” that would apply to 111 (the legal owner of a building) and the structural engineers (individuals that performed negligent work resulting in defects), as opposed to the contracts alone.

The Court of Appeal identified a proximate relationship between 111 and the structural engineers when considering a decision of the Supreme Court of Canada, Winnipeg Condominium Corporation No. 36 v Bird Construction Co, [1995] 1 SCR 85. In this case, the Supreme Court found that contractors responsible for constructing a building had a duty of care to the owner of the building ensure it did not contain defects that posed foreseeable danger to the health and safety of the occupants. In this case, like in Winnipeg Condominium, the complained of defects gave rise to a foreseeable danger to health and safety of the occupants of the Building. The “proximate relationship” between the owners of a building and the impact that a negligent contractor or consultant will have on the construction of the building gives rise to a duty of care owed by the contractor or consultant to the owner. Any contracts entered into between the parties allocating risk should not negate that duty of care.

Takeaways

This decision from the Court of Appeal affirms that contractors and consultants will owe a duty of care to owners of a project they are engaged to construct, whether or not they contract directly with that owner, and whether or not they have included provisions in their contracts that seek to remove risk from their actions. Parties entering into construction contracts should carefully consider the contract language around the allocation of risk and liability for defective work and errors, and, should ensure that they understand how their “proximate relationship” to others in the contractual chain (and specifically the owner of a project), may impact their exposure to clams in negligence.