Canada: Can Condominium Developers Be Liable In Tort For Construction Deficiencies?

On May 25, 2022, the Alberta Court of Appeal released its decision for Condominium Corporation No. 0522151 (Somerset Condominium) v JV Somerset Development Inc., 2022 ABCA 193 ("JV Somerset"). Roberto Noce, Q.C. and Michael Gibson of Miller Thomson LLP acted for the appellant, Condominium Corporation No. 0522151 (the "Corporation").

In JV Somerset, the developer, JV Somerset Developments Inc. (the "Respondent"), constructed a 215-unit condominium, the units of which were sold to members of the public in late 2004 or early 2005. In or around 2012, significant damage to the balconies was discovered due to deficiencies in the waterproof membranes. The Corporation replaced all the balconies and sued the Respondent for the cost of repairing the deficiencies, framing the claim in tort and breach of fiduciary duty.¹ In their defence, the Respondent asserted that a developer, which is a defined term under the Condominium Property Act, RSA 2000, c-22, could not be liable in tort if it was not involved in the physical construction of the building.

The Respondent brought an Application for Summary Judgment and the chambers judge summarily dismissed the Corporation's claim on the basis that "there was no evidence that the developer was actually involved in the physical construction" of the building. In effect, the chambers judge's decision held that "a developer who is not actively involved in the construction has no duty of care to detect or prevent defects in construction, and is not vicariously liable for any breaches by the contractor or subcontracts."²

The Court of Appeal, represented by the Honourable Justices Slatter, Strekaf and Hughes, overturned the chambers judge's decision, holding that "the liability in tort of a developer like the respondent for repairing construction deficiencies that pose a real and substantial risk of harm is unclear" and that is was "not possible to dispose of the [Corporation's] claim on a summary basis." The action was ordered to continue to trial.³

The Court of Appeal's decision is important for two reasons. First, the Court of Appeal provides a thoughtful outline of the potential avenues for liability of a developer for construction deficiencies, which includes contractual liability, tortious liability, or a breach of statutory duties.⁴ Second, in the Court's discussion of tortious liability, the Court of Appeal left open the possibility of a developer not actively involved in construction being liable in tort to subsequent purchasers under the principles established in Winnipeg Condominium Corporation No. 36 v Bird Construction Co., [1995] 1 SCR 85 ("Winnipeg Condominium").

In Winnipeg Condominium, an action was brought against a general contractor and its subcontractors for the cost of replacing the building's cladding when a large section of the cladding on the ninth floor fell to the ground. However, the developer in Winnipeg Condominium, who played a similar role to the Respondent, was not sued.⁵ The Court in that decision found that a contractor could owe a duty in tort to subsequent purchasers if it could be established that it was "foreseeable that a failure to take reasonable care in constructing the building would create defects that posed a substantial danger to the health and safety of the occupants. If the danger actually manifested itself and caused personal injury or damage the contractor would be liable."⁶Alternatively, if the damage was identified and remedied before actual injury or damage occurred, then that cost was recoverable. The duty in tort to construct a building in such a manner to not contain dangerous defects arises independently of any contract.⁷

The Court of Appeal declined to provide a definitive answer on the applicability of Winnipeg Condominium to the facts of JV Somerset on the record before it. However, the Court noted that it was "arguable" that the principles in Winnipeg Condominium respecting construction defects that present a real and substantial danger that apply to contractors could extend to developers.⁸ While a full trial or, alternatively, a future decision on a separate matter, will be required to definitively answer this question, JV Somerset serves as a cautionary tale to developers looking to avoid tortious liability for construction defects by never picking up a hammer.

JV Somerset was recently featured as the Court of Appeal decision of the week by Supreme Advocacy LLP. Read the synopsis.

If you have any questions about construction deficiencies or other condominium-related issues, please reach out to a member of Miller Thomson's Condominium & Strata Group.

Footnotes

1. Condominium Corporation No. 0522151 (Somerset Condominium) v JV Somerset Development Inc., 2022 ABCA 193 at paras 5-6.

2. Ibid at para 12.

3. Ibid at para 40.

4. Ibid at para 13.

5. Ibid at para 25.

6. Ibid at para 26.

7. Ibid at paras 25-27, citing Winnipeg Condominium Corporation No. 36 v Bird Construction Co., [1995] 1 SCR 85.

8. Ibid at para 33.

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