Construction deficiencies are common in all types of construction, including condominium construction. One of a condominium corporation’s most important tasks is to identify, investigate, and resolve construction deficiencies.
When construction deficiencies arise, developers who stand behind their product will acknowledge the problem and undertake the remedial work. Some condominium corporations are able to have remedial work done through new home warranty insurance. Unfortunately, in many cases insurance is not available, developers are unwilling or unable to assist, and condominiums end up repairing construction deficiencies themselves.
Recovering repair costs can be challenging for condominium corporations. The fact that the condominium corporation did not exist during construction limits the type of claims that condominiums can make. In some foreign jurisdictions, such as the U.K., contractors and professionals cannot be liable for construction deficiencies unless they have a direct contractual relationship with the owner or condominium corporation. This is problematic in the condominium context because contracts relating to the design and construction of the condominium are signed and completed long before the condominium is registered/created. Fortunately, Canadian courts have taken a different approach.
In 1993, the Supreme Court of Canada decided that professionals can be liable for negligence, even in the absence of a contract. In the case of Edgeworth Construction Ltd. vs. N.D. Lea & Associates Ltd., the B.C. Ministry of Highways retained an engineering firm to design specifications for a new highway. In a separate contract, the minister retained a contractor, Edgeworth, to build the highway. Edgeworth later sued the engineers, claiming that it suffered damages because the engineering drawings contained errors. The engineers defended the lawsuit by claiming that Edgeworth could not sue them because there was no contractual relationship between the two companies. The Supreme Court held that the engineers could be liable to anyone who suffered damages as a result of their negligence, whether a contract existed or not. The engineers were liable for all economic losses that Edgeworth suffered as a result of the engineers’ mistakes.
This Edgeworth decision dispelled the notion that claims for construction deficiencies in Canada could only be made under contract. It opened the door for condominium corporations to sue engineers, architects, and contractors directly for the costs to repair construction deficiencies.
Just as important as the Edgeworth decision is the adoption by the Canadian courts of the principle that liability for repair costs can continue indefinitely. The limitation period for bringing a lawsuit does not begin to run until a deficiency is discovered, which could be many years after the condominium was built. In the 1995 case of Winnipeg Condominium Corporation No. 36 v. Bird Construction Ltd., a serious construction deficiency was discovered when a large section of exterior cladding fell off of the building 11 years after the condominium was registered, some 15 years after the building was constructed. WCC 36 paid $1.5 million to replace the cladding and eliminate a serious risk of harm.
WCC 36 brought a lawsuit to recover its losses against the general contractor involved in the original construction, the sub-contractor who installed the cladding, and the architects who had prepared the plans and specifications. The defendants claimed they could not be liable because they did not have a contractual relationship with WCC 36. Expanding on the precedent set in Edgeworth, the Supreme Court of Canada held that anyone causing or contributing to a dangerous construction deficiency could be liable to reimburse an owner for the cost of rectifying the deficiency.
The Bird Construction case confirms that in Canada, anyone who places a product into the stream of commerce, including a condominium building, owes a duty of care to those who use or will use the product. This means that negligent contractors, architects, and engineers alike are accountable to both current and future owners.
This liability does have limits. In order to be liable for economic loss arising out of a construction deficiency, there must be a reasonable likelihood that the defect will cause injury. The liability is limited to the cost of repairing the dangerous defect or restoring the building to a non-dangerous state. Damages for aesthetic or ornamental issues are excluded. For example, in the absence of a contract, consumers who pay more to buy into a luxury building cannot recover damages if the building turns out to be less luxurious than promised.
The definition of a “dangerous” defect is not as narrow as one might think. The recent case of Winnipeg Condominium Corporation No. 613 v. Raymond S.C. Wan et al illustrates that cost-saving measures can give rise to dangerous consequences. In a decision released last year, WCC 613 brought a claim against a project architect to recover the cost of installing a waterproofing membrane on the main level of a common area parkade. The membrane was contained in the original architectural plans but was deleted by the developer, with the architect’s knowledge, as a cost-saving measure. The missing membrane and other deficient waterproofing caused water to pool in the lower levels of the parkade. The undisputed evidence was that, after several decades, the deficiencies may cause the reinforcing steel to corrode and pose a threat to the safety of the parking structure and its users.
The architects defended the lawsuit by claiming that the deficiency was not dangerous enough for liability to accrue in the absence of a contract. The Manitoba Court of Appeal did not accept this defence. As long as the defect may eventually become dangerous, the architects could be liable for the cost of repairing the deficiency, even if the danger was decades away.
In Canada, the law has evolved and condominium corporations can, in certain circumstances, recover damages directly from the professionals who designed the project and the trades that built the condominium. Competent contractors and professionals need not worry about this liability. Work done in a competent manner is the best shield to liability. Deviations from the plans or specifications should be carefully considered.
Presently, the law ensures that all industry players are held liable for their negligence, which assist condominiums that are unable to recover repair costs from their developers. Hopefully, the potential of direct liability encourages those involved in condominium design, construction and approval to accept accountability for their work and build safe, practical and quality buildings.
Megan Mackey is a partner at Miller Thomson LLP.