On a construction project, an owner is in the best position to organize its affairs before the start of construction in order to protect himself from delay.

Non-Contracting Parties Do Not Owe An Owner A Duty To Use Reasonable Care Not To Cause Delay

by Paul Sandori

Hearn/Actes v. University of British Columbia

Owner counterclaimed for delay against subcontractors who had no contract with owner ? subcontractors argued counterclaim was for pure economic loss and did not disclose a cause of action ? owner?s counterclaim did not fall within categories recognized by courts ? further, policy considerations clearly dictated that there should be no duty of care ? no cause of action for damages for delay based on a duty of care between an owner and a subcontractor

The University of British Columbia contracted with Hearn/Actes as general contractor for the construction of a housing project. The project ended in a lawsuit, with Hearn/Actes suing the University for damages. The University counterclaimed for delay.

Included in the University?s counterclaim was a number of subcontractors and suppliers who had no contract with the University. We shall refer to them collectively as ?the Subcontractors.? The University claimed that the Subcontractors ?negligently failed to exercise all reasonable skill, care, diligence and competence? to ensure that the project was completed on time.

The Subcontractors applied to the B.C. Supreme Court to have the University?s counterclaim dismissed. They argued that the counterclaim was for pure economic loss and did not ?disclose a cause of action.?

The common law traditionally does not allow recovery of pure economic loss, the kind where a plaintiff has suffered neither physical harm nor property damage but only financial loss, except in limited circumstances. In Kamloops City v. Nielsen, the Supreme Court of Canada expressly approved a two-stage test from the 1978 decision of the House of Lords in Anns v. Merton London Borough Council. Madam Justice Bertha Wilson restated the test in the following terms:

(1) is there a sufficiently close relationship between the parties (the [defendant] and the person who has suffered the damage) so that, in the reasonable contemplation of the [defendant], carelessness on its part might cause damage to that person? If so,

(2) are there any considerations which ought to negative or limit (a) the scope of the duty and (b) the class of persons to whom it is owed or (c) the damages to which a breach of it may give rise?

In 1990, the House of Lords repudiated Anns. However, the Supreme Court of Canada has followed a different course, and continues to develop its approach to negligence on the basis of Anns.

In Hearn/Actes decision Justice Sigurdson reviewed a number of cases that indicate that the Supreme Court of Canada has adopted a category-by-category approach in this area of law. The categories, each of which involve different policy considerations, are:

1.???????? liability of public authorities;

2.???????? negligent misrepresentation;

3.???????? negligent performance of a service;

4.???????? negligent supply of shoddy goods or structures;

5.???????? relational economic loss.

Relational economic loss arises where, even though the plaintiff has suffered no physical damage to its property, its operations were so closely allied to those of the parties who did that it can be considered a joint venture. Such a person is in the same position for practical purposes as if he or she owned the property that was physically damaged.

In Winnipeg CondominiumCorporation No. 36 v. Bird Construction Co., the issue was whether a general contractor responsible for the negligent construction of a building could be held liable to a subsequent purchaser of that building for the cost of repairing defects when there was no privity of contract between the contractor and the subsequent owner.

When that case finally reached the Supreme Court of Canada, the court re-affirmed that the recoverability for economic loss must be approached with reference to the unique and distinct policy issues raised in each of the categories. It found that the Winnipeg case fell partially within the fourth category, but with an important difference: the negligently supplied structure was not merely shoddy, it was dangerous. The court unanimously allowed recovery for pure economic loss in such cases, according to the test developed in Annsand Kamloops.

The University relied on Winnipeg, where the court found that

? the contractor?s duty [was] to ensure that [a] building meets a reasonable and safe standard of construction.

The University argued that, similarly, there should be a duty on the part of the subcontractor ?to not delay construction.?

Most recently, the Supreme Court of Canada set out the correct approach to be taken in novel cases of pure economic loss that fall outside the recognized categories. In Martel Building Ltd. v. Canada, the court decided that the Anns two-stage test is the appropriate approach to be taken in all novel cases of economic loss, whether they fall within an existing category or not. If a particular case does not fall within a recognized category, recovery in tort may still be awarded if the two‑step test can be fulfilled.

Justice Sigurdson found that the University?s counterclaim did not fall within any of the recognized categories and, as a result, he had to consider whether a new category of recoverable economic loss should be created, or an existing category expanded.

Is there a cause of action for damages for delay based on a duty of care between an owner and a subcontractor on a construction project? The judge answered this question in the negative.

He accepted that the first stage of the test in Anns may be satisfied in the circumstances. However, it seemed plain and obvious to Justice Sigurdson that policy concerns under the second stage of the Anns test would clearly dictate that there should be no duty of care.

First, and most significantly, there was the spectre, in the words of the often‑quoted decision UltramaresCorp. v. Touche, of ?liability in an indeterminate amount for an indeterminate time to an indeterminate class.?

If the Subcontractors had a duty to the University to avoid delay in this case, there would be nothing in principle preventing such a duty to any user of the project affected by the delay. Potential occupiers, other contractors and anyone else affected could presumably seek to recover pure economic losses from the Subcontractors.

The judge found other policy considerations. On a construction project, an owner is in the best position to organize its affairs before the start of construction in order to protect himself from delay. He could, for example, require that the subcontractor contract directly with the owner. He could also require that bonding be put in place for this type of loss from delay.

The judge found that other arguments outlined by the Subcontractors also had merit. For example, it was argued that the claim not to cause delay logically must arise in contract or it does not make any sense, otherwise the Subcontractors would not know what schedule or time line governs their activities.

He concluded:

In my opinion? setting this matter for trial would impose undue inconvenience and expense on the [Subcontractors] since the matter can be adequately determined at this stage? The [University?s] claim is very simple and straightforward: that non‑contracting parties simply owe an owner a duty to use reasonable care not to cause delay. I do not think that any evidence will assist in deciding in these circumstances whether there is a cause of action. I have concluded that it is plain and obvious that the claim cannot succeed. ? I see no purpose in sending the matter to trial.

Supreme Court of British Columbia

Sigurdson J.

December 22, 2000