Doorknobs and delays

Arecent decision of the British Columbia Supreme Court in the case of F.W. Hearn/Actes Joint Venture Ltd. v. the University of British Columbia et al. (2000 BCSC 1827) illustrates the distinction between contractual claims and negligence claims. It also provides encouragement for those who are concerned about the current trend for construction players to join every possible person as a defendant.

The case involved the construction of new student housing at the University of B.C. Completion of the project was delayed, leading to increased costs. As a result, the general contractor (Hearn/Actes) sued UBC, and UBC countersued Hearn/Actes, each alleging that the other was responsible for the delay. In addition, UBC sued 14 of Hearn/Actes’ subtrades (subcontractors and material suppliers), including the sign supplier and the doorknob supplier, for contributing to the delay. This was in spite of the fact that Hearn/Actes itself was not advancing any delay claim against the subtrades.

In November 2000, a number of the subtrades obtained a court order striking out UBC’s delay claim against them as disclosing no cause of action.

The legal issue

Logically, the only reasonable basis for UBC’s claim against the subtrades had to be that they had not done what they agreed to do (for example, deliver doorknobs by a particular date), which in turn contributed to Hearn/Actes failing to complete the project by the date it had agreed to. UBC therefore had a basic problem. UBC had a contract with Hearn/Actes, and Hearn/Actes had contracts with the subtrades, but UBC had no contract with any of the subtrades it was suing. Its claim against the subtrades offended a basic principle of contract law, namely the doctrine of privity of contract.

Under the doctrine of privity of contract, contractual obligations can only be enforced by parties to the contract. Any claims must pass through the correct contractual chain. If, for example, you hire a contractor to add a room to your house and the room gets painted the wrong colour, you can’t sue the painter. You have to sue the contractor and the contractor in turn sues the painter.

UBC’s lawyers tried to get around this problem by suing the subtrades in negligence, arguing that even though the subtrades had no contractual obligations to UBC, they owed UBC a duty to use all reasonable skill and care to ensure that the project was completed by the contractual completion date. They argued, in effect, that the law in Canada had developed to the point where someone who suffers foreseeable loss as a result of lack of skill or care on the part of someone else should be able to sue that person in negligence, even if they have no contract.

It is true that negligence law allows people to recover damages from people with whom they have no contract, but only in certain cases. For example, under appropriate circumstances you can sue someone in negligence even if you have no contract with him or her if he or she causes you physical injury, or designs a dangerous building that needs repairs to make it safe, or makes untrue statements that cause you to suffer a loss.

However, generally the courts have refused to allow people to recover damages in negligence for “pure economic loss” (i.e. loss not associated with personal injury or property damage). You cannot avoid the doctrine of privity of contract by simply characterizing a breach of an agreement (such as an agreement to deliver doorknobs by a certain date) as negligence. There are recognized exceptions to the rule that there can be no damages in negligence for pure economic loss, including the exceptions for untrue statements and for design of dangerous buildings. Delay claims, however, are not a recognized exception, and the court in Hearn/Actes refused to make them one. They therefore continue to be governed by the rules of contract law.

What was at stake

It is fortunate that the court dismissed UBC’s claim against the subtrades. If the court had decided otherwise, then by logical extension, anyone involved in a construction project who incurred costs as a result of delay could sue anyone who contributed to the delay. The consulting engineer could sue the contractor and its superintendents. The contractor could sue the consulting engineer and its employees. The drywallers could sue the electricians and their superintendents. And every other possible combination.

In addition to being exposed to claims from multiple parties, defendants in such a case would find themselves without many of the defences which would normally be available to them if they were sued by the person with whom they had a contract. In the UBC case, for example, a subtrade would not be able to defend itself against a claim by UBC by arguing that the subtrade had already reached a settlement with Hearn/Actes, or that Hearn/ Actes had not paid the subtrade for its work, or that its contract with Hearn/Actes contained a provision limiting liability for delay. All those situations would provide a defence to a contractual claim by Hearn/Actes, but would be no defence to a negligence claim brought by UBC against the subtrade.

Don Thompson, LL.B., P.Eng. is a lawyer practising construction law with Jenkins Marzhan Logan Barristers & Solicitors of Vancouver.