ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 61307
DATE: 2012-12-10

BETWEEN:

Odell-Jalna Residences of London
Plaintiff/Responding Party

– and –

D. Grant & Sons Limited and Malhotra-Nicholson Sheffield Architects Inc.
Defendant/Moving Party

David Kirwin, for the Plaintiff/Respondent

Megan Marrie, for the Defendant/Applicant

HEARD: November 27, 2012

A.W. Bryant J.:

1. Overview

[1] The defendant Malhotra-Nicholson Sheffield Architects Inc. (“Malhotra” or the "Architect") brings this motion for summary judgment to dismiss Odell-Jalna Residences of London's (the “Plaintiff Odell") action for negligence. The Plaintiff Odell’s claim is based upon the terms of the agreement between the Architect and the Plaintiff.

[2] The Plaintiff Odell submits there is a prima facie case of negligence against the Architect which was not discoverable until 2008. The Plaintiff further submits that Malhotra failed to meet its onus to establish that there is no genuine issue requiring a trial.

2. Facts

[3] The Plaintiff Odell is a not-for-profit corporation incorporated on October 1, 1989. The Plaintiff Odell operates non-profit housing complexes in the City of London containing 246 rental units. It also operates three additional properties containing 199 units through a related not-for-profit corporation known as Homes Unlimited.

[4] The Plaintiff’s operations are governed by a volunteer Board of Directors drawn from a variety of backgrounds and organizations throughout the City of London. The Plaintiff hired Arnsby Property Management Ltd. ("Arnsby"), a property manager, to manage the buildings after they had been constructed.

[5] In 1992, the Plaintiff Odell planned to build a nine-story, sixty unit not for profit apartment building on lands municipally known as 227-239 Grey Street at London, Ontario (the "Project"). The Plaintiff had retained Malhotra on an earlier project and retained the Architect again for this Project. The Plaintiff Odell and Malhotra entered into a written agreement (the “Agreement”), dated December 9, 1992, to provide architectural services.

[6] The Plaintiff Odell also entered into a construction agreement with D. Grant & Sons Limited (“Grant” or the “general contractor”). It was a stipulated price construction contract in the amount of $3,186,950.

[7] The Agreement obligated Malhotra to provide basic architectural services for the construction project in accordance with Articles 2.1 and 5. Paragraphs 2.1 and 5 contained several positive obligations on Malhotra relating to its duties to ensure compliance with rules, regulations and codes including:

Para 2.1.5 – “…the Architect shall review applicable statutes, regulations, codes and by-laws… and then prepare schematic design documents…”

Para. 2.19 – “... the Architect shall continue to review applicable statutes, regulations, codes and by-laws in relation to the design of the project...”

Para 2.1.13 – “…the Architect shall review statutes, regulations, codes, and by-laws applicable to the design …in order that the required consents, approvals, licences, and permits necessary for the project can be applied for and obtained by the Client.”

Para. 2.1.16 – “The Architect shall carry out the general review of the Work at intervals appropriate to the stage of construction which the Architect considers necessary to determine if the Work is in general conformity with the Contract Documents. However, the Architect shall not be required to make exhaustive or continuous on-site reviews. The Architect shall….report to the Client of any defects or deficiencies in the Work observed during the course of the site reviews…”

Para. 5.1 – “Basic Services listed under Article 2.1 shall include normal structural, mechanical, electrical and civil engineering and landscape design”

[8] One of the building’s design features prepared by Malhotra consisted of a bullnose band and cap on the top of walls or parapet of the building. Each bullnose unit is approximately 160 mm wide by 150 mm high and approximately 2 meters in length. Each unit weighs approximately 300 pounds.

[9] On or about September 15, 2008, a pre-cast concrete bullnose piece fell from the top of the building and landed close to the rear entrance of the building. No substantial property damage resulted from the fall and no one was injured.

[10] The City of London Building Department issued a remedial work order. The Plaintiff Odell retained Hastings and Aziz Limited, construction engineers. The engineering consultants opined that the masonry code requires all “belt courses and/or cornices to be anchored as required by design.” The consultants stated that “no anchors could be seen tying these precast units back to the building.”

[11] The Plaintiff paid contractors $110,000 to satisfy the work order issued by the municipality. On February 27, 2009, the Plaintiff commenced an action against the Architect and the general contractor Grant, for negligence and breach of contract. The claim was issued within two years of the discovery of the allegedly faulty construction.

3. Analysis

(a) The Limitation Period

[12] For the purposes of this motion, I find that Odell did not know that the bullnosed concrete units on the top of the wall were negligently constructed prior to September 15, 2008. I further find that the principle of discoverability applies to a cause of action framed in contract relating to negligent construction of a building. In Consumer’s Glass Co. v. Foundation Co. of Canada (1985), 1985 159 (ON CA), 51 O.R. (2d) 385, at p. 398 (C.A.). The Court held:

In my opinion, in cases which are based on a breach of duty to take care, a cause of action does not arise, and time does not begin to run for the purposes of the Limitations Act, until such time as the plaintiff discovers or ought reasonably to have discovered the facts with respect to which the remedy is being sought, whether the issue arises in contract or in tort .

As I read the judgment of the Supreme Court of Canada in Kamloops, supra, the underlying policy consideration was "the injustice of a law which statute-bars a claim before the plaintiff is even aware of its existence". That principle, in my opinion, is equally applicable where the issue arises in cases sounding in contract or in tort. That is not to say that the plaintiff would have to know the extent of the damage complained of before the time begins to run, but the cause of action does not arise, in my opinion, until the plaintiff could first have brought an action and proved sufficient facts to sustain it, or ought reasonably to have discovered the facts upon which the cause of action is premised [underline added].

[13] Malhotra submits that it and Odell expressed their mutual intention to allocate certain risks arising from the project by limiting the Architect's liability for errors and omissions which might amount to commissions of a tort or breaches of a contract. Malhotra relies upon Article 3.9.6 of the Agreement which states:

The Architect’s liability for all claims of the client [the Plaintiff Odell] shall absolutely cease to exist after a period of six years from the date of:

(a) Substantial performance of the work,

(b) Suspension or abandonment of the project,

(c) Termination of the Architect’s services in this Agreement, or

(d) Commencement of the limitation period for claims prescribed by any statute of the province or territory of the Place of work

whichever shall first occur , and following the expiration period, the Client shall have no claim whatsoever against the Architect. [underline added]

[14] I find that the Limitations Act, 2002, S.O. 2002, c. 24, including the principle of discoverability, was incorporated into the Agreement under Article 3.9.6(d). However, as noted, the Agreement allowed the Architect to rely on an earlier event.

[15] The Certificate of Substantial Performance of the work was issued on August 2, 1994. The Certificate stated that Substantial Performance had occurred by July 29, 1994. Accordingly, the limitation period is 6 years from July 29, 1994. The action against Malhotra commenced on February 27, 2009, more than 9 years after the expiration of the limitation period in Article 3.9.6(a).

(b) Did the Architect provide adequate notice of the limitation period?

[16] I appreciate that members of the Board of the Plaintiff Odell are lay persons and may not have expertise in construction contracts. I also appreciate that non-profit housing fulfills a need that may not be available in the private sector. Allan Johnson, the affiant for the Plaintiff Odell, joined the Board in October 25, 2000, six years after the formation of the contract. Mr. Johnson had no personal knowledge of the discussions, if any, between the representatives of the Architect and members of the Board or their consultants with respect to the terms of the Architect’s contract. He spoke to two persons who were Board members of Odell when the Gray Street residences were under development. These individuals had no recollection of matters relating to the formation of the Agreement.

[17] Counsel for the Plaintiff Odell submits that there is a triable issue whether the Plaintiff had proper notice of the limitation period in Article 3.9. Counsel further submits that the Agreement is a 16 page contract containing 122 paragraphs. Counsel argues that Article 3.9.6 was not emboldened so as to draw the reader’s attention to the limitation period or initialled by a Board member, indicating he or she had read the Article.

[18] The Plaintiff Odell retained Barbara Chapin Housing Consultant Inc. to act as its administrator and monitor the construction of the building. Chapin Housing sent the Architect’s standard form contract to the Ministry of Housing for review. The Ministry proposed changes to the contract but none of the proposed changes related to the limitation period. Construction of the building commenced in September 1993.

[19] Article 3.9.1 contains a marginal notation which clearly states: “Article 3.9 Liability of the Architect”. Article 3.9.1 specifies several alternate triggering events, and indicates that liability is based on whichever occurs first. Article 3.9.3 states:

It is agreed that: (a) the Client [the Plaintiff Odell] will not assert a claim against the Architect unless the Client has asserted such a claim within any required time limitation . against all persons who might reasonably be liable therefore...

[20] In 1990, the Plaintiff Odell retained counsel for advice on the limitation of liability of the Architect with respect to an earlier project. The contract or a copy of the 1990 contract was not produced by either party. Article 3.9 of the 1990 contract and the 1992 contract specify limitation periods. The Plaintiff Odell retained the law firm of Belecky and Belecky for advice with respect to the 1990 contract. The law firm advised, in part, as follows:

We acknowledge receipt of the draft Contract with Desh Malhotra Architects Inc. [a predecessor of the Architect] and our comments are as follows:

We are in general agreement with the terms of the Contract, subject to the following:

Article 3.9 deals with the liability of the architect and is drafted by the lawyers on behalf of the architects to limit their liability. You will note that the liability is limited to "the extent only that such (architect's professional liability) insurance or indemnity is available to the architect to satisfy such claims. Therefore, your claims would be limited to $250,000.00 per claim. If you require further protection, the architect will obtain increased or special insurance at your expense . The amount of the architect's insurance should be reviewed with the Ministry of Housing. I am not particularly happy with the rest of Article 3.9 which simply limits the architect's liability; however, it has been our experience that architects will not negotiate the removal of the various clauses in Article 3.9” [underline added].

[21] In Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. (1997), 1997 4452 (ON CA), 34 O.R. (3d) 1 (C.A.), Robbins J.A. stated at pp. 10-11:

As a general proposition, in the absence of fraud or misrepresentation, a person is bound by an agreement to which he has put his signature whether he has read its contents or has chosen to leave them unread: Cheshire, Fifoot & Furmston's Law of Contract , 13th ed. (1996) at p. 168. Failure to read a contract before signing it is not a legally acceptable basis for refusing to abide by it. A businessman executing an agreement on behalf of a company must be presumed to be aware of its terms and to have intended that the company would be bound by them. The fact that Mr. Gordon chose not to read the contract can place him in no better position than a person who has. Nor is the fact that the clause is in a standard pre-printed form and was not a subject of negotiations sufficient in itself to vitiate the clause: L'Estrange v. F. Graucob Ltd., [1934] 2 K.B. 394 at p. 403, [1934] All E.R. Rep. 16 (D.C.) ; Craven v. Strand Holidays (Canada) Ltd. (1982), 1982 1859 (ON CA), 40 O.R. (2d) 186 at p. 194, 142 D.L.R. (3d) 31 (C.A.).

This is not a case in which the clause limiting liability was so obscured as to make it probable that it would escape attention. This contract was printed and contained on essentially one sheet of paper. The limitation provision was highlighted in bold block letters. The language is clear and unambiguous. There was no need to resort to a magnifying glass to see it or a dictionary to understand it. Nothing was done to mislead a reader.

[22] There is no evidence of fraud or misrepresentation. The fact Article 3.8.6 is part of a standard form contract does not render the contract unfair or unreasonable.

[23] It is my view that the Plaintiff Odell had an opportunity to review the proposed contract from the Architect in 1992 with their consultant Barbara Chapin Housing Consultant Inc. and the Ministry of Housing. Also, the Plaintiff’s Board was told by their solicitors in 1990 that Article 3.9 contained financial limits and additional insurance coverage would increase the costs of the Architect’s fees. The Board was further informed that the Architect would not negotiate the removal of other clauses in Article 3.9.

(c) The Summary Judgment Rule

[24] In Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1, at para. 42, the Ontario Court of Appeal held that “those claims or defences that are shown to be without merit” fall within the scope of the summary judgment rule. The Court of Appeal instructed motions judges to determine if it can make dispositive findings based on the record:

Can the full appreciation of the evidence and issues that are required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial? ( Combined Air , at para. 50)

[25] The Court of Appeal provided helpful advice:

The point we are making is that a motion judge is required to assess whether the attributes of the trial process are necessary to enable him or her to fully appreciate the evidence and the issues posed by the case. In making this determination, the motion judge is to consider, for example, whether he or she can accurately weigh and draw inferences from the evidence without the benefit of the trial narrative, without the ability to hear the witnesses speak in their own words, and without the assistance of counsel as the judge examines the record in chambers ( Combined Air , at para. 54).

[26] In the subject case, the critical timelines for the Project – for example, the date of the Agreement, the terms of the contract and the date when the Plaintiff Odell first learned of the alleged faulty construction – are not in dispute. The central issue before the court is the interpretation of the Agreement. The issue before the court is the appropriate interpretation and application of the limitation period set out in the Agreement.

[27] In Howe Sound School District No. 48 v. Killick et al, 2007 BCSC 28, 58 C.L.R. (3d) 251, aff’d (2008) 69 C.L.R. (3d) 174 (B.C.C.A.), the court considered virtually identical provisions in a consulting contract. Gray J. held as follows at para. 59:

In other words, Clause 3.9.6 provides that the school board’s claims arising out of the Consulting Contract shall cease six years from the earliest of several events. In this case, only two events apply, being the Substantial Performance of the Work or the commencement of the limitation period prescribed by the Limitations Act, R.S.B.C. 1996, c. 266.

[28] Gray J. adopted the principles for construing a contract as set out by the Supreme Court of Canada in BG Checo International Ltd v. British Columbia Hydro and Power Authority, 1993 145 (SCC), [1993] 1 S.C.R. 12, at pp. 26-27, which stated:

... it is always open to parties to limit or waive the duties which the common law would impose on them for negligence. This principle is of great importance in preserving a sphere of individual liberty and commercial flexibility. ... if two business firms agree that a particular risk should lie on a party who would not ordinarily bear that risk at common law, they may do so ...

Viewed thus, the only limit on the right to choose one's action is the principle of primacy of private ordering - the right of individuals to arrange their affairs and assume risks in a different way than would be done by the law of tort.

[29] The British Columbia Court of Appeal upheld Gray J. and her reasoning: see Howe Sound School District No. 48 v. Killick et al , (2008) 69 C.L.R. (3d) 174 (B.C.C.A.). It wrote at para. 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 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. [Underline added.]

[30] In my view, the principles quoted in Howe Sound apply to the Agreement for the project. The terms of the Agreement are clear, enforceable and dispositive. This action was commenced beyond the contextually agreed period. The Architect’s motion for summary judgment is granted for the above reasons. The action is dismissed.

“ Justice A. W. Bryant”

Justice A. W. Bryant

Released: December 10, 2012

COURT FILE NO.: 61307
DATE: 2012-12-10

SUPERIOR COURT OF JUSTICE

BETWEEN: Odell-Jalna Residences of London Plaintiff/Responding Party – and – D. Grant & Sons Limited and Malhotra-Nicholson Sheffield Architects Inc. Defendant/Moving Party

REASONS FOR JUDGMENT
Bryant J.

Released: December 10, 2012