Vancouver, Shon Yee Place, VR 2275: Architects claim CMHC responsible for leaks and rot; Court declares CMHC did not owe a duty of care to architects but did owe a duty of care to BC Housing Management Commission

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Strata Plan VR 2275 v. Davidson,

 

2008 BCSC 77

Date: 20080118
Docket: S77473
Registry: New Westminster

Between:

The Owners, Strata Plan VR 2275, Shon Yee Housing Society
and British Columbia Housing Management Commission

Plaintiffs

And:

John B. Davidson, David H. Simpson, Ronald Yuen,
Davidson/Yuen Partners, Northmark Projects Inc.,
Northmark Construction Ltd., 334888 B.C. Ltd. formerly
known as Northmark Construction Ltd., Concost Properties
Inc., DNG Services Inc., Robertson, Kolbeins, Teevan &
Gallaher Ltd. doing business as Robertson Kolbeins Teevan
Gallaher Associates and Robertson, Kolbeins, Teevan & Gallaher
Ltd., NDC Construction Ltd. and David Nairne & Associates Ltd.

Defendants

And:

Canada Mortgage and Housing Corporation

Third Party


Before: The Honourable Mr. Justice Butler

Reasons for Judgment

Counsel for the Plaintiffs

Scott MacKenzie

Counsel for the Defendants, John B. Davidson, David H. Simpson, Ronald Yuen and Davidson/Yuen Partners

Craig A. Wallace

Counsel for the Third Party

D. Ross Clark, Q.C.
Ryan Garrett

Date and Place of Hearing:

December 19 and 20, 2007

 

Vancouver, B.C.

[1]                In this action the plaintiffs make allegations of water ingress defects and deficiencies in a social housing project called Shon Yee Place (the “Development”).  The plaintiffs are the Shon Yee Housing Society (the “Society”), which administers and has a leasehold interest in the Development; the numbered strata corporation (“VR 2275”), which is owner of the real property the Development is built on; and the British Columbia Housing Management Commission (“B.C. Housing”).  The plaintiffs have claimed against, among others, the defendants John B. Davidson, David H. Simpson, Ronald Yuen and Davidson/Yuen Partners (collectively, the “Architects”) for damages caused by deficiencies in the Development.

[2]                The Architects have brought a third party claim against the Canada Mortgage and Housing Corporation (“CMHC”).  This claim is founded on the Architects’ assertion that CMHC owed a duty to the plaintiffs and to the Architects to disclose to them knowledge it allegedly possessed, or should have obtained, about the inadequacy of the design principles, construction methods and inspection procedures employed at the Development.

[3]                CMHC has brought this Rule 18A application seeking to dismiss the third party claims.  While the Statement of Claim was first filed in December 2002, the Third Party Notice against CMHC was not filed until August 2007.  Examinations for discovery of CMHC have been substantially completed by the Architects and document discovery has been substantially completed by these parties.  This application was heard on December 19 and 20, 2007.  The trial of the action is scheduled to commence on February 4, 2008.  Accordingly, the 18A application was heard one or two days more than 45 days before the date set for trial as required by Rule 18A (1.1).

Facts

[4]                The Development is a social housing project run by the Society to provide low cost accommodation to seniors.  The Development is a seven-storey building located at 628 East Hastings Street in Vancouver, B.C.  The building exterior uses a number of building envelope design types to protect the interior spaces from water ingress including an exterior insulation finish system (“EIFS”), a face-seal water penetration control strategy.  The building was designed in late 1987 and was substantially completed in October of 1988.  The Architects were retained by the developer, NDC Construction Ltd., to be the architects for the Development.

[5]                CMHC’s involvement in social housing arises as a result of an agreement entered into on April 23, 1986 between the Government of Canada (“Canada”) and the Government of British Columbia (the “Province”) for the administration and cost sharing of social housing programs (the “Global Agreement”).  On July 7, 1986, CMHC and the Province, as represented by the Minister of Lands, Parks and Housing, entered into an agreement to carry into effect the principles set out in the Global Agreement (the “Operating Agreement”).

[6]                Social housing programs funded under the Global and Operating Agreements were designed to assist needy households to obtain affordable accommodation.  The intent of the Global and Operating Agreements was to direct social housing funds to households in need, to implement an arrangement for cost sharing and to transfer responsibility for housing program delivery and administration to the Province.

[7]                Under the Global Agreement, Canada and the Province agreed, among other things:

(a)        that the Province would be responsible for the delivery and administration of social housing programs;

(b)        to undertake a joint planning process, which included the assessment of needs, income and priority groups in different geographic areas in the province and the creation of three-year plans based on the needs assessment;

(c)        to establish a Planning and Monitoring Committee (the “PMC”); and

(d)        to share the costs associated with certain social housing programs.

[8]                Under the Operating Agreement, CMHC and the Province agreed:

(a)        that the Province, through its agent B.C. Housing, would be the Active Party.  The Active Party was responsible for the delivery and administration of social housing programs.  Delivery and administration were defined to include all activity associated with any program including direct dealings with clients or sponsors as well as loan, project and agreement administration.

(b)        that two social housing programs would be sponsored:  the Non-Profit Housing Program, under which the Development was constructed, and the Rent Supplement Program.

(c)        that, as the Active Party, the Province would undertake the assessment of project feasibility, project selection, project development, inspection, client selection, development of occupancy guidelines, approval of project annual operating budgets, calculation of eligible project costs, and loan, subsidy and project administration.

[9]                Under the Operating Agreement, Canada’s responsibilities through CMHC were more limited.  CMHC was responsible for insuring loans made by approved lenders for capital financing for housing projects under Part I of the National Housing Act, R.S.C. 1985, c. N-11, for making loans under s. 37.1 of the National Housing Act for proposal development funding, and for making contributions pursuant to s. 56.1 of the National Housing Act to eligible contribution recipients to enable them to meet the costs of rental accommodation.

[10]            CMHC and the Province also agreed that they would jointly chair the PMC, which would meet to:

(a)        conduct a joint planning process to develop and monitor the implementation of the current three-year plan which identified the most cost-effective and appropriate social housing strategy to meet the objectives of the Global and Operating Agreements;

(b)        propose modifications to the social housing programs and program guidelines, including adjustments to market rents and Maximum Unit Prices (“MUP”);

(c)        provide a forum for the sharing of information resulting from research, studies, surveys and other activities; and

(d)        monitor compliance with the Global and Operating Agreements.

[11]            While Canada agreed to provide mortgage loan insurance through CMHC, under the Operating Agreement the Province was responsible for the underwriting process including site and plans examination, determination of loan amount and approval of financing terms and conditions.  The Province was also responsible for authorizing all loan advances and undertaking inspections to ensure compliance with the plans and specifications and to determine the value of the work in place.

[12]            The Province developed three-year plans under the auspices of the PMC.  The PMC also discussed and approved adjustments to MUPs.  MUP was an estimate of construction costs of modest housing, including land purchase, and was used to forecast the number of units which could be subsidized under the housing programs.

[13]            The quarterly PMC meetings were used so that the Province could keep CMHC informed of the progress of the current three-year plan.  The Province, as the Active Party, carried out the activities required to take a given housing project from concept through to completion including distribution of housing units by area within the province, allocation of funding, formal commitment of subsidies to housing sponsor groups, advancement of funds, inspection and project administration.

[14]            In British Columbia, CMHC did not take a direct role in the delivery or administration of any housing project during the relevant time period under the Non-Profit Housing Program.  The only information CMHC typically received about any particular project was when funding was committed by the Province on that project and when CMHC received undertakings to insure mortgage loans.

[15]            The Shon Yee Housing Association, which is a non-profit organization related to the Society, applied to the Province under the Non-Profit Housing Program for funding to build the Development.  As the Active Party, the Province had direct contact with those organizations throughout the planning and construction of the Development.  B.C. Housing approved the Development under the 1987 Non-Profit Housing Program.  The Province informed the Society of this in December 1987, and also informed the Society at that time that B.C. Housing would arrange for mortgage loan insurance and would act as overall administrator for the project.

[16]            The Development was constructed and occupied.  In March 1998, approximately ten years after occupancy, a consultant retained by the Society reported water damage, fungal growth, cracks in stucco finishing and concrete, roofing membrane failure and sealant failure in certain areas in the building.  Subsequent studies have been done and rehabilitation work with a cost of approximately $1.5 million has been recommended or performed.

[17]            The gist of the plaintiffs’ claims is that the Architects’ designs, plans and specifications were not adequate to prevent water ingress, that they failed to test or inspect the materials to ascertain if they were reasonably fit for the purpose intended, that they failed to ensure that the design conformed with applicable bylaws and other enactments, and that they failed to warn the plaintiffs of maintenance and inspection requirements of the building envelope system.  A significant part of the allegation rests on the assertion that there were significant shortcomings to the face-seal design that were known or should have been known by the Architects.

[18]            The Architects deny the plaintiffs’ claims but say that if they are at fault, CMHC, as a result of its extensive involvement in building envelope studies in British Columbia, also knew or should have known of the problems associated with a face-seal strategy and that it failed in its duty to let B.C. Housing and others know of these problems.

Position of the Parties

[19]            CMHC says that it does not owe a duty of care either to the plaintiffs or to the Architects. (More)