Ten years and counting

Notable legal reforms in the past decade
Thursday, January 3, 2013
By John R. Singleton

The last 10 years has seen some significant changes and events in the construction industry in B.C., not only in the way the industry operates but in the law that governs those operations.

The law of tenders
The law of tenders changed radically with the decision in R. (Ont.) v. Ron Engineering and Construction (Eastern) Ltd. in 1985, and has continued to evolve since then.

Until the turn of the century, the evolution in this area of the law was mainly focused on explaining the contract A/B analysis and the rights and entitlements the tender contract, contract A, brings to builders and trades. Since then, there has been more of a focus on what rights and protection is afforded to owners by privilege, discretion and limitation of liability clauses that have crept into tender conditions over the past decade.

An owner’s right to negotiate during the bidding process, to award contracts to non-compliant bids and to be immune from claims even where the tender conditions are not complied with, would have been seen as heresy at the turn of the century. Now the courts have recognized that as long as tender conditions of this nature are clearly worded they will be enforced by the courts. That is not to say provisions of this nature may not one day be seen as unenforceable as a matter of public policy but, for now, the silver lining brought about by Ron Engineering is not as bright as it originally appeared.

Insurance coverage
During the leaky condo debacle, many contractors and trades found themselves without insurance coverage because of court decisions finding that actions by strata corporations involved only claims for pure economic loss and not property damage, a risk not covered by their liability insurance.

The Supreme Court of Canada reversed this line of thinking in Progressive Homes Ltd. v. Lombard General Insurance Company of Canada in determining defects in materials and workmanship arguably constitutes “property damage,” resulting in the availability of wider coverage for contractors and trades when faced with claims for correcting construction defects.

In another insurance case, Canadian National Railway Co. v. Royal and Sun Alliance Insurance, the Supreme Court of Canada reinterpreted the phrase “faulty workmanship” as that term was used in builders risk or course of construction insurance policies.

Prior to this case, workmanship or materials were determined to be “faulty” if they did not serve their intended purpose, whether or not the contractor, trade or material supplier installing or supplying them was negligent. The cost of repairing or replacing faulty workmanship or materials was not covered by these policies, so the Royal and Sun Alliance case modified this test. Materials and workmanship are now deemed to be faulty if (and only if) they fail to meet the highest recognized standard of care available in the industry. That is, they can be unfit for their intended purpose but if they meet the highest recognized standard, they are not faulty. Perhaps only a slight change in favour of the industry but with significant consequences

Limitation periods
In B.C. there has also been reform in the area of limitation periods. Effective January 2013, the ultimate limitation period will be reduced from 30 years to 15 years, and a six-year limitation period previously applicable to some claims in the industry will be reduced to two years. Although there will be vigorous debate over the meaning of some of the provisions in the legislation introducing these reforms, the bottom line is the industry will be exposed to claims for a shorter period of time than was previously the case.

John Singleton, Q.C., is a partner at Singleton Urquhart LLP in Vancouver.

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