March 7, 2007

Six years means six years

Have you recently been served with a leaky school writ of summons? If so, chances are the architect for that allegedly leaky school was using a version of the Canadian Standard Form of Agreement between architect and client which required that the School District bring all claims against the architect arising from the agreement within six years of substantial completion.

Years after the leaky condo crisis inundated the courts and nearly seven years after most insurers stopped providing insurance coverage for water ingress issues, the School Districts of B.C. had been slowly churning out writs for alleged leakage problems at various schools at a speed that could only be described as glacial. Lately, the pace of new actions has increased considerably. Why the sudden flurry of new actions? The answer appears to lie in the recent decision of the Supreme Court of British Columbia in The Board of School Trustees of School District No. 48 (Howe Sound) v. Killick Metz Bowen Rose architects and Planners Inc. et al. where the Supreme Court found in favour of an architectural firm’s application to dismiss the action on the basis of a contractual limitation period.

In the decision, an architectural firm was party to a contract with the School District for the provision of architectural services for the construction of an addition to an existing school. The contract, like many professional services contracts, contained many provisions, some relating to payment terms, some relating to the scope of services to be provided, and some of which limited the liability of the architects. The terms of the contract, like most contracts, reflected a commercial bargain freely entered into by the two parties.

Substantial completion of the addition was achieved in August of 1996. In September of 2003, seven years after substantial completion, the School District commenced legal proceedings against the architects for alleged water ingress problems at the school. The architects brought an application to have the action dismissed against them on the grounds that the action breached the following provision in its contract with the School District:

The architect’s liability for all claims of the client arising out of this agreement shall absolutely cease to exist after a period of six (6) years from the date of:

(a) Substantial Performance of the Work or

(b) commencement of the limitation period for claims prescribed by any statute of the province or territory of the Place of the Work. (sic)

whichever shall first occur, and following the expiration of such period, the client shall have no claim whatsoever against the architect<0x2026>

The School District resisted the application and made two main arguments why in its view it should not be bound by the plainly worded six year limitation period contained in its contract with the architect. First, the School District argued that the alleged water ingress problems were not “discovered” until long after substantial completion and that the limitation period should not, in fairness, commence to run until such time as it was aware that it had a claim against the architects. That argument was based on the so called “discoverability rule”. The Court disagreed with the School District.

The court found that while the discoverability rule could be applied to contracts in certain circumstances, it had no application to the contract before it’s given: that the architects and the School District had exercised their right to freely order their business affairs as between them; that they had obviously decided to allocate the risks of the contract in a certain manner; and finally, that one could not include a discoverability principle within the limitation clause of the contract without doing violence to its unambiguous meaning.

Second, the School District argued that even if the limitation provision barred it from pursuing claims in contract after six years, it was free to pursue any claims it had against the architect based in tortious allegations of negligence.

The court had little patience with this argument and applied established case law to the effect that where the particulars of a contractual breach are the same as those of a tort allegation, the courts will not permit a plaintiff to avoid a contractual limitation by the simple expedient of suing in tort.

Accordingly, the School District’s case against the architects was dismissed with costs to the architects.

We understand that many leaky school actions may be effected by this decision and that accordingly, the School District has decided to appeal the decision. We trust that the Court of Appeal will not perform any legal gymnastics in order to reverse this decision and in so doing override the primacy of private contracting and the ability of parties to allocate risks between them in a manner which makes commercial sense to them.

If the School District wanted a discoverability provision in the architectural services contract it could have sought to include one at the time the contract was negotiated, or, alternatively, it could have refused to have entered into the contract with the architects at all. Perhaps the architects would have agreed to a discoverability provision but would have demanded a greater fee in return for that increase in its risk or perhaps, the architects would have sought to reduce their risk to some other element of the project in return. It is impossible to say now what the parties may have negotiated at the time in return for concessions on this issue.

Accordingly, there is no principled reason why the Court of Appeal should interfere, eleven years later, and essentially grant the School District a contractual right which it did not ask for at the time and for which the architects will now receive nothing in return. Ultimately however, and much like the BC Housing leaky building claims, regardless of the outcome of the appeal, don’t expect much to happen with any of these new lawsuits any time soon. The School Districts are attempting to wring industry wide settlements from insurers rather than spend any money prosecuting these cases individually. Accordingly, these actions are more likely to accumulate dust in your lawyer’s filing cabinet than to be moved towards resolution in any concerted manner.

Norman D. Streu and Christopher E. Hirst are partners in the Construction & Engineering Group of the Vancouver law firm Alexander Holburn Beaudin & Lang LLP. If you have any questions about this decision, or any construction law related issue, please feel free to call Norm or Chris at (604) 484-1700.

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