1. Presenters:
Glen Boswall, Partner, Clark Wilson LLP
Oliver C. Hanson, Associate, Clark Wilson LLP
Samantha Ip, Partner, Clark Wilson LLP
Anna Sekunova, Associate, Clark Wilson LLP
Satinder Sidhu, Associate, Clark Wilson LLP

2. Construction Defect Claims
The Ins & Outs, The Do’s & Don’ts
BUILDEX Vancouver
Presented by Samantha Ip & Oliver C. Hanson
February 14, 2013

3. Construction Defect Claims
• Dealing with construction deficiency claims
• A party’s responsibilities at law both in contract and in
tort
• Damages
• Limitation periods
– How long does a party have to commence a claim?
• Risk management
3

4. 1. Breach of Contract
• A civil cause of action arising from the failure of one or
more parties to the contract to perform his or her
obligations under the contract
• In most contracts between the original building owner
and the developer, there are express and implied
warranties as to the quality of construction
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5. 1. Breach of Contract (cont’d)
• Express warranties
– Written terms of the contract, which state the
quality of construction
• Implied warranties
– Implied terms of the contract that the construction
work was performed in a good and workmanlike
manner, and is free of defects
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6. 2. Negligence
• A failure to exercise the care that a reasonably prudent
person would exercise in like circumstances
• Members of a construction team, including the
developer and general contractor, may be found liable
to an owner of a building for faulty construction where
they have failed to meet a reasonable standard of care
in performing their duties
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7. 2. Negligence (cont’d)
• A claim for negligence can be advanced by an original
or subsequent owner of the building
• The leading Canadian case on liability to subsequent
owners is Winnipeg Condominium Corporation No. 36 v.
Bird Construction Co., which involved a 15 story
apartment built in 1972, but where construction
defects were not discovered until 1989
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8. 2. Negligence (cont’d)
• The Supreme Court of Canada held:
“[W]here a contractor (or any other person) is negligent
in planning or constructing a building, and where that
building is found to contain defects resulting from
that negligence which pose a real and substantial
danger to the occupants of the building, the
reasonable costs of repairing the defects and putting
the building back in a non-dangerous state are
recoverable in tort by the occupants.” (emphasis
added)
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9. 2. Negligence (cont’d)
• In terms of the standard that a contractor must
conduct itself, the Court said:
“the duty in tort with respect to materials and
workmanship flows from the contractor’s duty to
ensure that the building meets a reasonable and safe
standard of construction…”
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10. 2. Negligence (cont’d)
• The requirement of a “Dangerous Defect”
– An owner cannot succeed in a claim against the
developer or contractor in negligence to recover
“pure economic loss”, i.e. costs to repair the alleged
defects
– UNLESS the alleged defects pose a real and
substantial danger to the health and safety of the
occupants of the building (the “Dangerous Defect”)
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11. 2. Negligence (cont’d)
• The requirement of a “Dangerous Defect”
– It is not necessary that the alleged defects create an
imminent risk of harm
– In Roy v. Thiessen, the Saskatchewan Court of
Queen’s Bench held that inadequate ventilation
would eventually lead to rotting of trusses and
beams, and that this was sufficient to constitute a
dangerous defect
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12. 2. Negligence (cont’d)
• The requirement of a “Dangerous Defect”
– In Carleton Condominium Corp. No. 21 v. Minto
Construction Ltd., the court held that seismic
deficiencies are “dangerous defects”
– The judge acknowledged that minor deviations from
a building code are normal and would not
necessarily constitute a dangerous defect
– Also raised the possibility of recovery based on
policy reasons where no dangerous defect was
found
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13. 3. Duty to Warn
• As part of a contractor’s duty to adhere to a standard of
reasonable care in performing the construction work,
the contractor also has a duty to warn of known
dangers or deficiencies
• The usual situation in which the duty to warn will arise
is where the issue relates to the safety or suitability of
what the contractor was himself being asked to
undertake
13

14. 3. Duty to Warn (cont’d)
• In order to discharge a contractor’s duty to warn, the
warning ought to meet the following requirements:
a) The warning must be clear and complete;
b) It must provide all current information regarding the risks
and dangers;
c) The warning must be explicit enough to give a full
indication of the dangers;
d) The explicitness of the warnings must be proportional to
the severity of the danger; and
e) The warning must be reasonably communicated and
clearly presented.
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15. 4. Negligent Misrepresentation
• A claim for negligent misrepresentation is based on an
alleged promise by a developer that a building will be
free of defects, comply with the applicable building
code and bylaws, and otherwise be safe for the
occupants of the building
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16. 4. Negligent Misrepresentation (cont’d)
• An owner of a building must establish five elements to be
successful in a claim for negligent misrepresentation:
– There must be a duty of care based on a "special
relationship" between the representor and the representee;
– The representation in question must be untrue, inaccurate
or misleading;
– The representor must have acted negligently in making the
misrepresentation;
– The representee must have relied, in a reasonable manner,
on the negligent misrepresentation; and
– The reliance must have been detrimental to the representee
in the sense that damages resulted.
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17. 5. Damages
• Damages for breach of contract
– The Plaintiff is to be put in the same position as it
would have been had the contract been performed
as agreed
– Where a contractor is in breach of its contractual
obligations, the owner is entitled to damages
measured by the cost of making good the
construction defects and omissions
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18. 5. Damages (cont’d)
• Damages for negligence
– In Winnipeg Condominium, supra, the extent of the
liability of contractors was described as follows:
“Where negligence is established and such defects
manifest themselves before any damage to persons
or property occurs, they should, in my view, be
liable for the reasonable cost of repairing the
defects and putting the building back into a non-
dangerous state”
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19. 5. Damages (cont’d)
• A developer or contractor will not be exposed to
damages for breach of contract AND damages for
negligence
• In addition to damages for direct losses, a developer or
contractor may also be subject to an award of
consequential damages, i.e. loss of profits, delay costs,
etc.
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20. 5. Damages (cont’d)
• Method of assessing damages
– The court may use one of two methods to assess
damages:
a) The diminution of market value, which measures
the extent to which the deficiency has reduced the
value of the building; or
b) Cost of repairs.
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21. 5. Damages (cont’d)
• Method of assessing damages
– The court will generally award damages on the basis
of the cost of repairs if two conditions are met:
a) The new owner has undertaken, or has satisfied the
court that it will undertake the repairs; and
b) The cost of repairs is reasonable in the
circumstances.
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22. 5. Damages (cont’d)
• Method of assessing damages
– Where an owner has not undertaken the repairs, a court may
look at a number of factors when considering which method of
calculating damages is more suitable, including:
a) Is the proposed repair work necessary?
b) Does the homeowner intend to perform the repairs?
c) Is there sufficient evidence of the cost of the repairs on
which to base a damage award?
d) What is the diminution in value of the home as
constructed?
e) Is the cost of repair reasonable in relation to the
diminution in value and the cost of the project?
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23. 6. Limitation Periods
• The B.C. Limitation Act, RSBC 1996, c. 266 sets out the
time period that an individual has to file a civil claim for
construction defects
– Claims for pure economic loss are 6 years
• Falling in line with reform that has already taken place
throughout Canada, a new limitations statute, the
Limitation Act, SBC 2012, c. 13, will come into force on
June 1, 2013
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24. 6. Limitation Periods (cont’d)
• The new Act sets a single limitation period of two years
for most claims
• The two-year period begins to run when a claim is
discovered
• A claim is discovered when a person knew, or
reasonably ought to have known: (a) that the loss had
occurred; (b) that the loss was caused by an act or
omission; (c) the identity of the person responsible for
the act or omission; and (d) that a court proceeding
would be the appropriate course of action to remedy
the loss
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25. 7. Risk Management
• Written agreement
– Describes the rights and obligations of each party
• Pricing
• Schedule and timing
• Quality standards
• Payment and changes
• Termination
• Limitation of liability
• Dispute resolution
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26. 7. Risk Management (cont’d)
• Read your agreement
• Know your agreement
• Follow your agreement
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27. 7. Risk Management (cont’d)
• Understand your legal rights outside of the agreement
– Common law duties
– Professional obligations
– Statutory duties and obligations
– Generally accepted construction standards
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28. 7. Risk Management (cont’d)
• Insurance
– Insurance is intended to provide you with coverage
when an unexpected incident occurs
– Types of construction insurance: commercial general
liability, professional liability and/or wrap-up liability
insurance
– Utilize an insurance broker
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29. 7. Risk Management (cont’d)
• Insurance – Notice of a “Claim”
– Always ensure that you give notice to your insurer
(via your broker) of a claim or potential claim
– What is a “claim”?
• For a “claim” to be made there must be some form of
communication of a demand for compensation or
other form of reparation by a third party upon the
insured, or at least communication by the third party
to the insured of a clear intention to hold the insured
responsible for the damages in question…
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30. 7. Risk Management (cont’d)
• Construction team
– The lowest bid may not be the best bid
– You can avoid future cost and complications if you
work with parties who have a good reputation in the
industry, even if the party is not the least expensive
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31. 7. Risk Management (cont’d)
• Early resolution
– The costs associated with construction deficiency
and delay claims escalate over time
– Attempt to resolve disputes early on by utilizing the
alternative dispute resolution mechanisms in the
contract, i.e. negotiation, mediation and/or
arbitration
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32. Please direct inquiries or comments to:
Samantha Ip, Partner, Clark Wilson LLP
ssi@cwilson.com | 604.643.3172
Oliver C. Hanson, Associate, Clark Wilson LLP
och@cwilson.com | 604.643.3120
www.cwilson.com
THANK YOU