Everyone wants to protect his or her own interests but effective
protection can be challenging to achieve. Wise people in all walks
of life enter into contracts to control their liability in the
event something goes wrong. By managing risks through contractual
promises, parties are able to go forward in their dealings with one
another with some measure of certainty over what may be lost or
gained if their best laid plans do go awry.
On a construction site, with many parties and many interests
needing protection, difficulties may abound. Effective protection
means close attention must be paid to the contract intended to
provide certainty and security over the cost of an error. A recent
Alberta Court of Appeal case, Swift v. Eleven Eleven Architecture
Inc., well illustrates the importance of taking
Philip Swift retained Eleven Eleven Architecture Inc.(Eleven
Eleven) to design a new home for him and his wife. That home became
dangerous because of problems with the structural engineering work
subcontracted by the architect to a firm of engineers, Tomecek
Roney Little & Associates Ltd. (Tomecek).
As a result, the architect was in a rather unfortunate position.
Even if the home was only dangerously defective because of the
subcontracted engineering work, it still meant that Eleven Eleven
had not properly performed the contract and a significant liability
resulted for the architect.
Prudently, the terms of the architect's agreement contained
a term limiting liability to $500,000. That exposure was not
insignificant but much more palatable than the $1.9 million needed
to fix the home. The engineering firm had not signed the agreement
between Mr. Swift and the architect but, by its terms, it was
protected in the same fashion as the architect. Tomecek was thus
able to take comfort from the terms of an agreement it had not
That comfort was unfortunately short-lived for both firms. Mrs.
Swift had not signed the architect's contract and, with no
authority in Mr. Swift to bind his wife to the limitation of
liability clause found in the agreement with the architect, her
claim for damages was not limited against either party.
This fact represents a simple and important lesson. Courts will
no longer treat a married or cohabiting couple as an indivisible
unit and simply assume that one of them can make a contract in the
name of the other. A design professional wishing to use contracts
to limit a potential exposure should be sure to obtain an agreement
to that limitation from every person who could complain when an
error is made. Because this had not happened in this case, Mrs.
Swift was entitled to recover in full for the damage done to her
In addition, Tomecek had still more problems to confront. The
deficiencies in its engineering work came to light during
construction. Once discovered, the engineer gave Mr. Swift an
assurance the engineering work would be fixed. The construction
work therefore continued but the fix did not materialize and the
cost of remedying the engineer's work increased as construction
If the engineering work had been corrected when problems were
first discovered, the cost of remediation would have been less. Mr.
Swift sued the engineering firm for misrepresenting that the
engineering work would be fixed at the time errors were discovered.
The engineer again sought the protection found in the
That protection proved illusory. Every contract is
different—the protection it affords is a function of what it
says. It is not difficult to appreciate that the terms of Eleven
Eleven's contract did not protect the non-party engineer for
misrepresentations made during the course of construction
concerning assurance that its errors would be corrected. Mr. Swift
was awarded full recovery for the increased costs of fixing
engineering work after construction was allowed to proceed. The
Supreme Court of Canada denied the defendants leave to appeal so
this decision stands.
The engineer's fate also contains a useful lesson for
parties looking to contractual terms to protect against liability.
The use of agreements to control risk is prudent and encouraged by
legal professionals. We also know that no contractual term will
pertain to every conceivable situation. A party wishing to control
risk in its business ventures is well advised to utilize the
contractual limits of its liability and liability insurance.
An earlier version of this article was published in the
November 2014 issue of Insurance People and in Singleton
Urquhart's quarterly newsletter, "Letter of the Law"
located at http://www.singleton.com.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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