March 15, 2024
Dolden Case Brief – Limitation of Liability in the Construction Setting – March 2024
CAN CONTRACTS PROTECT ARCHITECTS
AND ENGINEERS FROM LIABILITY TO
OWNERS AND OCCUPANTS?
By Paul Dawson, Dolden Vancouver, and
Ouran Li, Dolden Vancouver
When architects or engineers are sued for design or construction deficiencies, the two primary defences are (1) an argument that the relationship between the parties are too far removed such that there is no duty of care owed and (2) their contracts with the builders or developers limit the professional’s liability or transfer risk to other parties.
However, a recent case from the British Columbia Court of Appeal illustrates how those defences might not prevail in the face of egregious misconduct…
Can a Professional’s Contract Preclude a Duty of Care to New Owners or Occupants?
In Centurion Apartment Properties Limited Partnership v Loco Investments Inc., a firm of engineers provided structural engineering services for an 11-storey residential apartment building. Unfortunately, the project was well beyond their experience and competency. Several months after the project was completed, serious structural problems emerged and the occupancy permit was revoked. The engineers later admitted to their professional regulators that they had acted unprofessionally by taking such a project.
The building’s subsequent owners sued the engineers for damages. The engineers got the case dismissed, as they persuaded the court that their contracts with the builders precluded any duty of care to owners and occupants, so they could not be held liable to the owners. They also argued that any liability they might have to the builders was capped by a limitation of liability clause. The plaintiffs appealed, arguing that the contractual defences should not apply.
The Court of Appeal held that the application judge had placed too much emphasis on the contract between the engineers and builders, and not properly considered that the engineers had later admitted they were not qualified for the work. The Court held that where an error in a design or construction professional’s work could pose a “significant risk of harm” to the building’s structural integrity or safety, the professional will owe a duty of care to subsequent owners and occupants, even though the professional has no contract with them.
Can Contractual Defences Be Defeated by Extreme Misconduct?
With respect to the engineers’ limitation of liability defence, the application judge had ruled that a limitation of liability clause limited the engineer’s exposure to the amount of its professional fees (i.e., less than $90,000).
However, the Court of Appeal held that the application judge failed to consider the egregious and dangerous nature of the engineer’s misconduct, and whether it would be unconscionable to allow the engineers to shield themselves behind the contract. Because more evidence would be required to resolve the issue, the Court ruled that the defence should be remitted for a full trial.
Takeaway – For Professional Liability Insurers in the Construction Setting
Generally speaking, well-drafted contracts can limit or remove liability for most allegations of shoddy design and workmanship, through waivers of liability, assignments of responsibility to other parties, limitations of the amount of any liability, etc.
However, where there is a high degree of misconduct on the part of a design or construction professional that poses a “significant risk of harm” to property or safety, Centurion demonstrates that it might be “unfair” for that professional to escape liability because of a contractual provision.
Insurers in the construction context should be aware that even strong contractual defences might not protect professionals from liability, if the misconduct is sufficiently serious. Where the wording of a clause is unconscionable, or if there are public policy reasons not to enforce such clauses, contractual indemnity clauses may not hold up in court.
For further information or if you have any questions about the above article, please contact the author: Paul Dawson, Dolden Vancouver, Email: [email protected], and Ouran Li, Dolden Vancouver, Email: [email protected].
| Editor |
| Cody Mann |
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