In Centurion Apartment Properties LP v. Sorensen Trilogy Engineering Ltd., 2024 BCCA 25, the BC Court of Appeal overturned a summary trial decision which had limited the liability of the engineers allegedly responsible for the negligent design of a building with dangerous defects to the amount of their fees. At the summary trial, the court dismissed the plaintiff building owners’ claims against the engineers in negligence, and limited the engineers’ liability to the builder in contract to the amount of their fees.
Background
This case concerns a building that was constructed by a developer/owner using a standard form, fixed price design-build contract that is commonly used in the construction of a wide variety of commercial projects. After construction was completed, the developer sold the building to a real estate investment trust operating through a limited partnership. The structure of the purchase was typical in the commercial real estate industry. The B.C. Land Title Office will not register a limited partnership as an owner of land in British Columbia, which makes it practically necessary for limited partnerships to hold their property through a trustee or agent. In this case, the buyer elected to purchase the shares of the existing legal nominee that held title to the land, rather than transfer the title to another agent for the same purpose. Both the design-build contract and the purchase agreement addressed the risk of deficiencies in the construction of the building, and allocated that risk to the design-builder and vendor, respectively. Following the completion of the sale of the building, dangerous structural deficiencies in the building were disclosed to the new owner, which required the building to be immediately evacuated and remediated.
The primary issue on appeal was whether the contractual arrangements between the plaintiffs and the building developer and vendor negated their ability to sue the engineers responsible for the dangerous structural deficiencies. In other words, by seeking a contractual remedy against the parties that they were dealing with, had the plaintiffs limited their ability to pursue any other remedies that may be available to them in tort? The Court of Appeal also addressed the standing of a beneficial owner to sue for damages to trust property, and the ability of the defendant engineers to enforce their contractual limitation of liability clause against the design-builder on a summary trial.
Decision
At the summary trial, the engineers argued that the plaintiffs’ claims in negligence against them should be dismissed because they were not in a sufficiently proximate relationship with the plaintiffs to owe them a duty of care in tort. The chambers judge agreed on the basis that the plaintiff building owners and the engineers were linked by a contractual matrix in which the parties had agreed amongst themselves on how to allocate the risk of deficiencies in the building. As a result, the judge found that any proximity between the parties that might have otherwise given rise to a duty of care owed by the engineers was negated.
In overturning this finding, the Court of Appeal focused on the chambers judge’s error in failing to find that the relationship between the plaintiff owners and the defendant engineers was analogous to the relationship of proximity recognized in Winnipeg Condominium Corp. No. 36 v. Bird Construction Co. [1995] 1 S.C.R. 85. In this regard, the decision is less remarkable for what it says than for what the Court of Appeal determined it need not say.
On appeal, it was argued that the lower court’s decision was contrary to the long-standing principles of concurrent liability in tort and contract established in BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12. However, rather than address this issue directly, the Court of Appeal held that the particular factors that justified the finding of a duty of care in Winnipeg Condominium also arise in this case notwithstanding the plaintiffs’ contractual arrangements. Arguably, this represents proper judicial restraint, rather than an open door to future attacks on BG Checo.
The Court of Appeal upheld the lower court’s finding that the plaintiff limited partnership, who owns the beneficial interest in the building through a bare trust and agency agreement with its legal nominee, does not have standing to sue in negligence. The Court of Appeal held that there were no circumstances that justified departing from the standard rule that a beneficiary does not have standing to sue a third party for losses related to property held in trust. Given the widespread use of limited partnerships as real estate investment vehicles, and the practical need for them to hold land through trust and agency agreements, this finding was disappointing, but softened by the Court of Appeal’s confirmation that it does not matter if the trustee has not actually suffered any loss, since it can claim the loss either directly as its own loss, or as trustee on behalf of the beneficiary.
On the limitation of liability issue, the Court of Appeal overturned the lower court’s order that the engineers’ liability was contractually limited to its fees on the basis that the question was not suitable for summary determination. The Court of Appeal’s decision to hear this issue despite the respondent’s argument that the issue had been made moot due to the bankruptcy of the design builder, signals the importance of the Court of Appeal’s findings regarding the enforceability of the contractual limitation clauses. The Court of Appeal agreed with the appellants that a full hearing and weighing of the evidence will be required to determine (a) whether the conduct of the engineers at the time they entered into the contract was relevant to whether it would be unconscionable to permit them to limit their liability to the amount of their fees; and (b) whether enforcing the clause would be contrary to public policy, particularly given the important public safety concerns at issue.
Key takeaways
It remains to be seen whether it will be necessary in this case for the contractual limitation of liability issue to be argued. However, the Court of Appeal’s decision provides helpful confirmation of the factors that will be considered when determining the enforceability of limitation of liability clauses.
On the negligence issue, the Court of Appeal’s decision not to address the implications of the lower court’s decision on the principle of concurrent liability in tort and contract suggests that it remains best practice to include clauses in your contracts that expressly preserve any rights and remedies available at law that the client intends to retain in addition to those set out in the contract.
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Morgan Burris is a partner in Dentons Canada’s Vancouver office, a member of the Construction group and a prominent member of Firm’s Litigation and Dispute Resolution and Infrastructure and PPP groups.