Canada: Sanctity Of Contracts Trumps Court's Sympathy For Delay In Bringing Claim: Thom V. Laird Custom Homes Ltd.

In the recent decision of Thom v. Laird Custom Homes Ltd., 2017 BCSC 1577, the BC Supreme Court upheld the dismissal of an application by the Plaintiffs, Graham and Michel Thom, to add Hearth Architectural Inc. as a defendant to an action in which the Plaintiffs sought damages for defects with the building envelope of their home. In dismissing the claim, Justice Williams highlighted the importance of certainty of contract and found that the architectural firm could rely on a limitation period clause in its contract which prevented the Plaintiffs from commencing an action more than 2 years after the completion of its work.

The contract between the Plaintiffs and Hearth Architectural Inc. was entered in October 2006. The Plaintiffs hired Laird Custom Homes Ltd. to construct the home. The project was completed in June 2008. In 2012, the Plaintiffs became aware of leaking and water damage. Additional problems were discovered in the coming years. In October 2014, the Plaintiffs put Hearth on notice of a potential claim, but at that time they refrained from commencing a claim, as they did not believe Hearth was the responsible party. In November 2015, the Plaintiffs commenced an action against the builder, Laird, and the roofing company, Mack Kirk Roofing and Sheet Metal Ltd.

After the action was commenced, the Plaintiffs undertook further investigation, which they said for the first time, revealed that Hearth had negligently performed its duties under the architectural service contract. Hearth took the position that both the statutory limitation period under the Limitation Act and the contractual limitation period had expired. The contractual limitation clause read as follows:

3.2.6   In further consideration of the services provided by HEARTH architectural Inc., the Client expressly agrees that HEARTH architectural Inc.'s liability shall be absolutely limited to a Claim brought within a period of two (2) years from the date of the suspension or abandonment of the Project, the Certificate of Completion or substantial Performance for the Project or the termination or suspension of HEARTH architectural Inc.'s services, whichever first occurs (the "Limitation Period").  The Client further agrees that, following the expiration of the Limitation Period, HEARTH architectural Inc.'s lability for a Claim brought by the Client shall absolutely cease to exist and the Client shall bring no proceedings against HEARTH architectural Inc.

Justice Williams reviewed the law with respect to both statutory and contractual limitation clauses. Justice Williams found that notwithstanding the contractual limitation clause, section 4(1) of the Limitation Act, R.S.B.C. 196, c. 266 applied, which reads:

4(1)      If an action to which this or any other Act applies has been commenced, the lapse of time limited for bringing an action is no bar to

...

(d) adding or substituting a new party as plaintiff or defendant,

under any applicable law, with respect to any claims relating to or connected with the subject matter of the original action.

As an action had already been commenced, the court could exercise its discretion to add Hearth as a defendant to the action if the court considers it just and convenient. Justice Williams found that in assessing whether it was just and convenient to add Hearth it was necessary to consider the factors enunciated by the court in Letvad v. Fenwick, 2000 BCCA 630, 82 B.C.L.R. (3d) 296, which included:

a) the extent of the delay;

b) the reasons for the delay;

c) any explanation put forward to account for the delay;

d) the degree of prejudice caused by the delay; and

e) the extent of the connection, if any, between the existing claims and the proposed new cause of action.

While recognizing that the above factors were relevant to considering whether Hearth should be added to the action, Justice Williams focused on the important policy reasons behind enforcing the contractual limitation clause. In doing so, Justice Williams relied upon the decision of Howe Sound School District No. 48 v. Killick Metz Bowen Rose Architects and Planners Inc., 2008 BCCA 195, wherein the BC Court of Appeal stated:

[13]      The parties have utilized a standard form contract which demonstrates a concern for precise risk allocation and insurance.  The contracts are intended to be of general application and readily comprehensible.  Both Gray J. (at para. 68) and Rice J. (at para. 27) relied on a passage from the majority reasons of La Forest and McLachlin JJ. in BG Checo International Ltd. v. British Columbia Hydro & Power Authority, 1993 CanLII 145 (SCC), [1993] 1 S.C.R. 12 at 26-27, 99 D.L.R. (4th) 577, that parties are entitled to arrange their affairs and assume risks at variance with the duties otherwise imposed by the law of tort.  I agree with the trial judges that the contracts reflect the common intention of the parties to limit the architects' risks of liability for tort and breach of contract by agreement.  They agreed through clear and unambiguous words to allocate risks of negligent design in a manner that limited any application of the postponement provisions of the Limitation Act to a period within six years from the date of substantial performance of the work, and there are no policy reasons to interfere with that contractual arrangement.

Justice Williams found that this statement from the BC Court of Appeal required substantial deference and that none of the factors articulated in Letvad outweighed "the effect of the contractual limitation". In highlighting the importance of contractual limitation provisions, Justice Williams went on to find that in the absence of this clause, it would have been just and convenient to add Hearth notwithstanding the potential application of the statutory limitation period. It was not clear and obvious that the limitation period had expired and the delay in bringing the application was not unduly long having regard for the time it took to fully discover the damage. In such circumstances, it would have been just and convenient to add Hearth to the action, but for the parties' clear intention to prohibit such claims.

The decision of Hearth provides a prime example of the value of ensuring that a contract contains an enforceable limitation period clause. It is common for defects in construction to evade discovery for many years after the completion of the project. To avoid long tail risk, a contractual limitation clause is a key component to proper risk mitigation and management.

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