Westin Grand Hotel (Vancouver): O'Neil Hotels & Resorts Ltd. must produce Whistler documents

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Strata Plan LMS 3851 et al v. Homer Street et al,

2006 BCSC 1362

Date: 20060908
Docket: S76792
Registry: New Westminster

Between:

The Owners, Strata Plan LMS 3851, Chong Ping Wong and others

Plaintiffs

And

Homer Street Developments Limited Partnership,
(formerly Cressey (Homer) Limited Partnership) and others

Defendants

And

O’Neill Hotels & Resorts Ltd. and others

Third Parties


Before: The Honourable Mr. Justice Truscott

Reasons for Judgment
In Chambers

Counsel for the plaintiffs:

B.W. Dixon
S.T. Warnett

Counsel for the defendants
Homer Street Development Ltd. Partnership et al (The “Developers”):

D.C. Harbottle

Counsel for the defendants
O’Neill Hotels & Resorts Ltd. and OHR Grand Management, Robert F. O’Neill and John C. O’Neill:

A. Borrel

Counsel for the defendant
MM&R Valuation Services, Inc.
DBA HVS Hospitality Valuation Services Canada:

H. Brownley
(Article Student)

Date and Place of Trial/Hearing:

September 1, 2006

New Westminster, B.C.

[1] The plaintiffs seek from O’Neill Hotels & Resorts Ltd. delivery of the following documents:

1. Any projections relating to the expected operational results for the Westin Resort & Spa Whistler prepared any time before April 1999, as well as any copies of any third party reports regarding the expected operational results for the Westin Resort & Spa Whistler received before the end of April 1999.

2. Any correspondence with Westin Hotel Company, related or successor corporations regarding revenue or costs expectations relating to the Westin Resort & Spa Whistler at any time before the end of April 1999.

3. Alternatively the plaintiffs seek the same orders from OHR Whistler Management Ltd., a non-party to this action.

[2] Related to these orders is another motion by the plaintiffs for an order that Mr. John O’Neill, a representative of O’Neill Hotels & Resorts Ltd., and Mr. Cressey, a personal defendant and a representative of the defendant Cressey Development Corporation, answer questions with respect to these matters.

[3] Counsel for O’Neill Hotels & Resorts Ltd. and Mr. O’Neill, as well as counsel for Mr. Cressey and his company oppose production of these documents and any questions with respect to these matters on the basis that they have no relevance to the issues in this action.

[4] This action concerns the purchase of strata units by the individual plaintiffs in the Westin Grand Hotel in downtown Vancouver, and alleged misrepresentations and non-disclosures on the part of the defendants related to financial projections for the hotel made in a disclosure statement dated November 8, 1996, for the years ending December 31, 1999 through December 31, 2003.

[5] The disclosure statement was amended on July 8, 1997 and on March 19, 1999.

[6] The hotel opened on April 1, 1999. OHR Grand Management managed the hotel for the first 13 days on behalf of the developer and thereafter entered into a management agreement with The Owners, Strata Plan LMS 3851.

[7] The plaintiffs allege that the projections included in the 1996 disclosure statement were never updated thereafter to the opening of the hotel on April 1, 1999, when the defendants knew or should have known that they no longer had any real validity, if they ever did, and should have been updated.

[8] The plaintiffs submit that the Westin Whistler documents may reveal information and knowledge in the possession of the O’Neill group that may be relevant to information and knowledge in the possession of the O’Neill group with respect to the Westin Vancouver hotel, before it opened.

[9] The evidence from Mr. John O’Neill in his affidavit of May 18, 2006 is that the Westin Whistler project originated sometime in December 1996 and came to be managed by OHR Whistler Management Ltd., a wholly owned subsidiary of O’Neill Hotels & Resorts Whistler Ltd., which in turn is a wholly owned subsidiary of O’Neill Hotels & Resorts Ltd.

[10] He goes on in his affidavit to point out a number of distinctions between the Whistler hotel and marketplace and the Vancouver hotel and marketplace at any time.

[11] He does not specifically deal with the contents of any of the documents sought by the plaintiffs.

[12] In the outline of the O’Neill group the position was taken that the proper order would be only as against OHR Whistler Management, if the documents have any relevance.

[13] However at the hearing plaintiffs’ counsel relied on authority that documents in the possession, power or control of a subsidiary is equally in the possession, power or control of the parent.

[14] Counsel for the O’Neill group at the hearing did not make any further submission on this issue.

[15] I will assume that any order that I issue by these reasons against O’Neill Hotels & Resorts Ltd. will capture those documents in the possession, power or control of OHR Whistler Management Ltd. as well.

[16] The leading authority on the production of documents is the case of Cie Financiered u Pacifique v. Peruvian Guano Co. (1882), 11 Q.B.C. 55 (C.A.), where Brett L.J. said at p. 63:

It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may – not which must – either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in the words “either directly or indirectly”, because, as it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of inquiry, which may have either of these two consequences …

[17] Chief Justice McEachern in Boxer v. Reesor et al (1983), 43 BCLR 352, accepted that there must always be a reasonable limit to production of documents and a reconciliation between the right to full disclosure with the proper management of the trial process. Mr. Justice Myers in Desgagne v. Yuen, 2006 BCSC 955, refers to it as a matter of common sense.

[18] The way in which the plaintiffs’ application is expressed, looking for projections relating to the operational results of the Westin Whistler hotel and any correspondence regarding revenue or cost expectations relating to the Westin resort hotel before April 1999 is in my view far too broad a request. I am unable to see how any projections for occupancy rates and financial returns for the Whistler hotel could have any bearing whatsoever on occupancy rates and financial projections for the Westin Vancouver hotel.

[19] At the hearing I did refer to the possibility that one or more of these documents may contain information in a broader category dealing with the economy of British Columbia or some other financial considerations not specifically narrowed to the Westin Whistler project exclusively that may have relevance to the market conditions for the Vancouver hotel before its opening.

[20] Counsel for the O’Neill group suggested that if I order any production it should only be with respect to any information in these documents related to general market conditions in the hotel industry in British Columbia at the material time.

[21] I accept this submission.

[22] O’Neill Hotels & Resorts Ltd. will produce to plaintiffs’ counsel within seven days of this ruling any parts of the Westin Whistler documents leading up to April 1999 that offer information and opinions on the hotel industry in British Columbia apart from the Whistler project specifically.

[23] Otherwise the plaintiffs’ applications are dismissed both with respect to the documents sought of the projections on the Westin Whistler project, and the questions of Mr. O’Neill and Mr. Cressey in that regard.

“J. Truscott, J.”
The Honourable Mr. Justice J. Truscott

Riverwest (Delta): Leaky condo owners win in Appeal Court; Delta stuck with huge repair bill

Citation:

The Owners, Strata Plan NW 3341 et al. v. Delta (Corporation)

Date: 20020917

 


2002 BCCA 526

Docket:

CA028972

Registry: Vancouver

COURT OF APPEAL FOR BRITISH COLUMBIA

ORAL REASONS FOR JUDGMENT

Before:

The Honourable Mr. Justice Esson

September 17, 2002

 

The Honourable Mr. Justice Donald


 

The Honourable Madam Justice Newbury

Vancouver, B.C.

 



 

BETWEEN:

THE OWNERS, STRATA PLAN NW3341, LESLIE EVANS, GERALD O’NEIL, FIONA SMITH, JOHN ROBERT McNAB, COLLEEN HARNETT, GEORGE TEMPERTON, NANCY STEWART, TAWNIA GALE SCOTT, NOREEN SYDELL ANNE GUNN and LAVONA SYBIL MARIE DAYLE, executrices of the Estate of DORIS WRIGHT

PLAINTIFFS

(RESPONDENTS)

AND:

THE CORPORATION OF DELTA

DEFENDANT

(APPELLANT)

AND:

ELBE, LOCK WALLS & ASSOCIATES INC., VAN MAREN CONSTRUCTION

CO. LTD. and VAN MAREN CONSTRUCTION (#8701) LTD.

DEFENDANTS/THIRD PARTIES

RESPONDENTS

             

J.E. Gouge, Q.C. and

J.G. Yardley

appearing for the Appellants

D.W. Roberts, Q.C. and

B. Curran

appearing for the Respondents

[1] ESSON, J.A.: The defendant Corporation of Delta appeals certain aspects of a judgment of Mr. Justice Grist holding Delta liable for damages in excess of $3,000,000 which arose out of defective design and construction of a condominium development.

[2] The action was launched in October 1996 by the strata corporation on behalf of the owners of the units situate in three separate buildings which formed the overall project. The claim was for repair and remediation of the three buildings which was made necessary because of wood rot in the exterior wall, the studs, and the beams. The other defendants to the action were the developer, a firm of architects, a firm of building designers and the contractor. The firm of architects was dropped from the action because there was no basis for any liability against it. The trial involved only the liability of Delta. Prior to the trial the developer Canlan was dismissed from the action by consent following upon a settlement. The building design firm and the contractor remained as parties but took no part in the trial.

[3] The trial judge found the developer, the building designer, and the contractor jointly and severally liable along with Delta for the damages and, after delivering judgment, made an order under s.4 of the Negligence Act allocating the degrees of liability as required by that section. There is a cross appeal by the plaintiffs with respect to that aspect of the judgment.

[4] The basis of liability against Delta was essentially that it breached its duty to inspect and supervise the construction and particularly to enforce the provisions of the Building Code. Delta has not appealed against the findings of liability and quantum. The basis for the appeal is firstly, that the action was commenced out of time and secondly, that the learned trial judge erred in failing to find contributory negligence on the part of the plaintiffs.

[5] The limitation argument rests on two statutory provisions. The one which was relied on at trial is s.285 of the Local Government Act which reads as follows:

285 All actions against a municipality for the unlawful doing of anything that

(a) is purported to have been done by the municipality under the powers conferred by an Act, and

(b) might have been lawfully done by the municipality if acting in the manner established by law,

must be commenced within 6 months after the cause of action first arose, or within a further period designated by the council in a particular case, but not afterwards.

[6] The trial judge held that that section did not apply. At the time the appeal was launched, there were a number of conflicting decisions of trial judges on the applicability of s.285 to actions such as this. That issue was resolved by a decision of this Court delivered while this appeal was proceeding. That decision, holding that s.285 does not apply, is Gringmuth v. North Vancouver (District) 98 B.C.L.R. (3d) 116, 26 M.P.L.R. (3d) 54, [2002] 3 W.W.R. 612.

[7] Faced with the reality that the Gringmuth decision would be binding on this Court on the hearing of this appeal, counsel for Delta applied some time ago to the Chief Justice requesting that he direct that five judges sit who would then be in a position to overrule that decision. In rejecting that application, the Chief Justice left open the possibility that the panel hearing the appeal would see fit to determine that the Gringmuth decision should be reconsidered.

[8] Having heard the full submissions of the appellant, I am of the view that there are no grounds which would justify reconsideration, certainly at this time, of the fully considered and very recent decision of this Court in Grinmuth. It follows that, in my view, we are bound by that decision and that the first ground of appeal must fail.

[9] The second limitation provision relied on by Delta is s.3(2)(a) of the Limitation Act which reads as follows:

3 (1) In subsections (4) and (6), "debtor" means a person who owes payment or other performance of an obligation secured, whether or not the person owns or has rights in the collateral.

(2) After the expiration of 2 years after the date on which the right to do so arose a person may not bring any of the following actions:

(a) subject to subsection (4) (k), for damages in respect of injury to person or property, including economic loss arising from the injury, whether based on contract, tort or statutory duty;

[10] At the opening of this appeal, Mr. Roberts made a preliminary objection to that ground of appeal being heard. His objection was based on the fact that the section was not raised at trial. In its statement of defence, Delta had pleaded that the action was barred by efluxion of time and had made specific reference to the Limitation Act although without referring to a particular section. No particulars were requested and it would appear that, from that point on, no further reference was made to the Limitation Act. Certainly, it was not raised at trial.

[11] We declined to deal with Mr. Robert’s objection as a preliminary one. Having heard the appellant’s submission, it is unnecessary to decide the question because the appellant’s submission fails on the merits.

[12] The only case which, in my view, need be referred to in support of that conclusion is Workers’ Compensation Board of British Columbia v. Genstar Corporation (1986), 24 B.C.L.R. (2d) 157, [1988] 4 W.W.R. 184. The issue arose in that case on an application to add a defendant. It was contended by the proposed defendant that the action was barred by efluxion of time and that it should therefore not be added to the case. The chambers judge rejected the submission that the applicable limitation period was the two year period provided by s.3(1)(a) of the Limitation Act and held that the applicable period was the six years provided by what is now s. 3(5) of the Act which reads:

(5) Any other action not specifically provided for in this Act or any other Act may not be brought after the expiration of 6 years after the date on which the right to do so arose.

[13] On appeal to this Court, a bench of five sat. The appeal was dismissed for the reasons of Madam Justice McLachlin. The relevant passages in the reasons are these:

I cannot accept Genstar's contention that the action against it is for damages for "injury to property". I am persuaded by the authorities that "injury to property" refers to the situation where property is damaged by an extrinsic act, and not to the situation where a claim is made for damage occasioned by defects in the property itself. In Alberni District Credit Union and ADCU Development Ltd. v. Cambridge Properties Ltd. et al. (1985), 65 B.C.L.R. 297 (B.C.C.A.), the issue, as in the case at bar, was whether the limitation period applicable to a claim for defects in the building was the two-year limitation period provided by s. 3(1)(a) of the Limitation Act, or the six-year limitation period provided by s. 3(4). Esson J.A., speaking for the Court, held that the action was not one in respect of "injury to property", as the "building simply has not, in plain language, been injured". Accordingly, the six-year limitation period was held to apply. Counsel for Genstar seeks to distinguish the Alberni case on the grounds that the claim there was for breach of contract rather than in tort. In my opinion, that distinction cannot be sustained. Whether the action is brought in contract or tort, damage is an essential element of it. The question in each case is whether that damage comes within the phrase "injury to property".

Other authorities support the same view. In British Columbia Hydro & Power Authority v. Homco International Ltd. (1980), 25 B.C.L.R. 181 (C.A.), this Court held that the phrase "injury to property" did not apply to a claim for damages arising from defective gas fitting tees that fractured during testing procedures. The court stated that to fall within the ambit of the phrase "injury to property", an action must be one for physical injury or for direct damage to property.

 

[14] After referring to a number of authorities Madam Justice McLachlin went on to say:

Policy considerations support the conclusion that "injury to property" refers to damage caused by an identifiable external event. A short limitation period of two years is appropriate where the claim is based on an event which causes direct injury to property. Such a short limitation period may not be appropriate for a claim based on defects in the property which may not manifest themselves clearly for some time, even though with the benefit of hindsight one may be able to say that their onset was revealed at an earlier date.

It is that paragraph which, in my view, has particular application to the facts of this case. This was very much an instance of a case where the claim was based on defects which to some extend manifested themselves very early in the day but where the true magnitude only became clear with the passage of time and increased damage. I should say that, in this case, the appellant concedes that the action was commenced within the six year limitation period in s.3(5).

[15] In this Court it was submitted that the frequent rainfalls which are a fact of life in the Lower Mainland qualify as an identifiable external event within the meaning of the passage which I have quoted from the W.C.B. case. With respect, I cannot accept that submission.

[16] I turn then to the alternative submission, i.e., that the trial judge erred in failing to attribute a degree of responsibility to the plaintiffs for the loss and damage which they suffered. The submission is that the plaintiffs failed to exercise due care and diligence in protection of their own interests because they failed to follow certain advice given to them at a relatively early stage by an engineer whom they had retained to advise them with respect to warranty claims. In particular, they did not implement certain remedial measures which, had they been taken then would, as the trial judge found, have prevented some of the damage. The appellant puts the matter this way in its factum, the reference to “Frank” being to the engineer in question:

33. The conclusion of the learned trial Judge (that the Plaintiff’s were not contributorily negligent) simply cannot be reconciled with his findings of fact (that the Plaintiffs failed to follow Frank’s advice and that the damage was caused, at least in part, by that failure). We refer to paragraph 6, above:

a. Frank warned the Plaintiffs that the proposal to fix the deck-slope problem by building new decks on top of the old would not work. The learned trial Judge found that, “…despite Frank’s advice…”, the Plaintiffs persisted in attempting to fix the problem in that way. The learned trial Judge also found that that choice “…contributed to … the greater problem of moisture entering the walls.”

b. Frank warned the Plaintiffs that the attempt to solve the flashing problems by caulking the joints with sealant would never be effective. The learned trial Judge found that the Plaintiff attempted no other method of repair. At paragraph 73 of his reasons for judgment, the learned trial Judge found the flashing problem to be the most important cause of the structural damage at Riverwest.

c. Frank recommended that the fascias at the metal reveal band be replaced: Appeal Book, Vol 2, page 218. The Plaintiffs did not follow that advice. The learned trial Judge found that the failure to replace the fascias was fourth in order of importance among the causes of the leaks at Riverwest: Appeal Book, Vol. 1, page 162; Vol 4, page 652.

[17] Based on those assertions, the submission is that, in light of the findings that the plaintiffs failed to follow the advice of their own expert and that that failure was a significant cause of the loss, it “necessarily follows as a matter of law” that some fault must be attributed to the plaintiff under the Negligence Act. The trial judge dealt with those submissions in this way:

CONTRIBUTORY NEGLIGENCE:

[87] Delta argues that the Strata Council contributed by negligence in failing to properly maintain the buildings that comprise Riverwest. Contributory negligence would have the effect of restricting damages against the Municipality to the proportion corresponding to its fault. The fact is, however, that this Strata Corporation acted with a high degree of diligence in pursuing problems with these three buildings.

[88] The degree of organization exhibited by the Strata Council would, in my view, be difficult to sustain with most residential Strata Councils. Their initial efforts were to have the developer correct deficiencies. These were maintained with diligence for so long as the developer was responsive. They continued with efforts to deal with leaks into the various suites and to correct the decks in accordance with advice given them. Ultimately they took the appropriate action in receiving expert advice and undertaking the remediation. I find no substance in this claim that the Strata Council was negligent.

[18] The essence of the trial judge’s decision on this issue is that he had regard to the context in which the plaintiffs had to decide, at an early stage, how to respond to the very difficult problems which were created for them by the defective state of the buildings in which they lived. The trial judge, after hearing many days of evidence and in delivering a very careful and extensive set of reasons for judgment, concluded that it was reasonable for the plaintiffs, having received the advice they did from Mr. Frank, which as I have said was given at a stage when the issue was what was going to be done under warranty, to continue for a time to rely on the developer to remedy the situation. In retrospect and with the wisdom of hindsight, that was not the best course. But I cannot say that the trial judge’s assessment of the issue was an error which would permit this Court to interfere with his decision.

[19] The case principally relied on by counsel for Delta is the very recent decision of the Supreme Court of Canada Housen v. Nikolaisen (2002), 211 D.L.R. (4th) 577 in which judgment was pronounced on March 28, 2002. The Court, by a 5-4 majority, allowed an appeal from the Saskatchewan Court of Appeal which had reversed a finding of the trial judge imposing a degree of negligence upon, as it happens, a municipal corporation. The facts were not similar to those in the case at bar but the case is helpful for the principles emphasised in it. For my purposes, they are adequately set out in this passage in the headnote at p.578 in summarizing the majority judgment given by Mr. Justice Iacobucci and Mr. Justice Major, with three other members of the Court concurring:

The standard of review on pure questions of law was one of correctness, but appellate courts should not reverse findings of fact unless the trial judge had made a “palpable and overriding error”. The same degree of deference should be paid to inferences of fact. If there was no palpable and overriding error with respect to the underlying facts that the trial judge relied upon to draw the inference, then it was only where the inference-drawing process itself was palpably in error that an appellate court should interfere. Questions of mixed fact and law involved the application of a legal standard to a set of facts. Appellate courts should defer the findings of negligence in the absence of a legal or palpable and overriding error. A determination regarding the standard of care was a question of mixed fact and law, and was subject to a standard of palpable and overriding error, unless the trial judge made some extricable error in principle with respect to the characterization of the standard or its application, in which case this might amount to an error of law, subject to a standard of correctness.

[20] In my view, the decision in this case did not demonstrate error of the kind and degree which would be necessary. I do not intend to imply that there was any error in the conclusion. It clearly was one based on the whole of the evidence which involved a long and tortuous history of events.

[21] I would, therefore, dismiss the appeal. I turn then to the cross appeal with respect to the allocation of fault amongst the four defendants pursuant to s.4 of the Negligence Act. The trial judge determined that allocation to be 30% against the developer, 25% against each of the design firm and the contractor and 20% against Delta. The matter is of significance to the plaintiffs at this stage, notwithstanding that the defendants are jointly and severally liable, because the settlement with Canlan renders it in the interests of the plaintiffs to increase the percentage allocated to Delta and reduce that of the developer.

[22] The principles which apply to this issue are essentially the same as those which apply to the contributory negligence issue. The distinction if any is that, with all respect to Mr. Roberts’ submissions, the grounds for interfering are even weaker than with the contributory negligence. Accordingly, I would dismiss the cross appeal.

[23] DONALD, J.A.: I agree.

[24] NEWBURY, J.A.: I agree.

[25] ESSON, J.A.: The appeal is dismissed. The cross appeal is dismissed.

“The Honourable Mr. Justice Esson”

Riverwest (Delta): Court apportions blame between developer (30%), designer (25%), constructor (25%) and municipality (20%)

Citation: The Owners, Strata Plan NW 3341 et al v. Canlan Ice Sports Corp. et al

Date:

20011115

 

2001 BCSC 1751

Docket:

C965848

Registry: Vancouver

IN THE SUPREME COURT OF BRITISH COLUMBIA

Oral Reasons for Judgement
Mr. Justice Grist
November 15, 2001

 
BETWEEN:


THE OWNERS, STRATA PLAN NW 3341,
LESLIE EVANS, GERALD O'NEIL, FIONA SMYTH,
JAMES ROBERT MACNAB, THE EXECUTOR OF THE ESTATE OF
JAMES MARTIN MACNAB, COLLEEN HARNETT,
GEORGE TEMPERTON, NANCY STEWART, TAWNIA GALE SCOTT
AND NOREEN SYDELL ANNE GUNN AND LAVONA SYBIL MARIE DAYLE,
EXECUTRICES OF THE ESTATE OF DORIS WRIGHT

PLAINTIFFS

AND:


CANLAN ICE SPORTS CORP., VAN MAREN CONSTRUCTION CO. LTD.,
GRANT DUMBLETON CARRYING ON BUSINESS AS GRANT DUMBLETON, ARCHITECTS
AND THE SAID GRANT DUMBLETON,
ELBE, LOCK, WALLS & ASSOCIATES INC.,
J. NOVACEK & ASSOCIATES LTD., THE CORPORATION OF DELTA,
AND VAN MAREN CONSTRUCTION (#8701) LTD.

DEFENDANTS

AND:


ELBE, LOCK, WALLS & ASSOCIATES INC.,
VAN MAREN CONSTRUCTION CO. LTD.,
VAN MAREN CONSTRUCTION (#8701) LTD.,
AND J. NOVACEK & ASSOCIATES LTD.

THIRD PARTIES

Counsel for Plaintiffs

E. Tully

Counsel for Defendants

J. Yardley

Counsel for Third Parties

R. Hunter

[1] THE COURT: Counsel have advised that the settlement and discontinuance entered in respect of the developer Canlan in this case requires an apportionment of fault under Section 4(1) of the Negligence Act, primarily to identify the portion of the judgment to which the remaining defendants will stand exposed.

[2] Section 4(1) provides if damage or loss has been caused by the fault of two or more persons, the court must determine the degree to which each person was at fault. This allocation of fault is as indicated in Cemple v. Harrison Hot Springs Hotel, an allocation of blameworthiness not, say, an attempt to draw lines of causation, indicating contribution to damages.

[3] As further indicated in Cemple, blameworthiness is essentially a judgment based upon standard of care, a concept familiar to negligence but not tied to or at least not fundamental to contract.

[4] Assessing fault under Section 4(1), where one of the parties in view may also have contractual obligations, requires an analysis of blameworthiness independent of features of allocation of loss inherent to contract, which might act quite independent of fault, or breach of a standard of care.

[5] Here, the participants in the construction of Riverwest included Canlan, the developer; Van Maren (#8701), the construction company that performed as general contractor; Elbe, Lock, Walls, a design firm which presented the design of the buildings constructed; and the Municipality of Delta, the municipal authority responsible for building code enforcement.

[6] As identified in my Reasons for Judgement, the major failings resulting in the buildings being subject to rot were: Firstly, insufficient care in design and detail associated with the application of stucco to the exterior of the buildings, an application which presented considerable risk considering the configuration of the buildings and the site exposure to weather; and secondly, inadequate inspection and control to assure that quality of construction was maintained and that it satisfied code requirements.

[7] The dominant source of damages was the cost of the remedial project to strip and replace the cladding on the buildings. The evidence did not establish that any of the prior remedial efforts, primarily with respect to the decks, significantly exacerbated the problems; nor did the lack of earlier efforts to remediate, once the degree of the problem became known, add to the eventual cost.

[8] Therefore, the allocation of fault focuses on the roles and failings during construction.

[9] Taking the participants in order, firstly Canlan, the developer was in overall control of the project. It chose the configuration of the buildings it wanted to comprise the project, and decided the level of involvement of the parties it contracted with, and the level of professional involvement by way of architectural design and supervision. They ultimately stood to profit from the avoidance of the cost of more extensive design and inspection.

[10] Van Maren (#8701): The recitation of points of water entry listed by Mr. Ricketts indicated not only failures in design, but very significant failures in workmanship, notably badly applied flashings, and decks which did not have even the reduced slope indicated in the design.

[11] Elbe, Lock, Walls: The design submitted by this defendant stipulated the stucco application, and was noticeably deficient in associated detail. The troublesome features of inadequate deck slope began with a slope detail which did not meet Code.

[12] Further, this defendant stood obliged under the role of designer indicated in the Building Code, notwithstanding the failure of the developer to contract for this function.

[13] With respect to the Municipality of Delta: The assessment of Delta's role is better indicated in my previous Reasons for Judgement. In short, the failing or blameworthiness was an abdication of the responsibility to enforce the relevant part of the Building Code, leaving the public unprotected from just what occurred here.

[14] I described this role as secondary to those who had a hand in the construction of the defective buildings themselves; and at first exposure, judged the degree of fault at 20 percent.

[15] I remain of this view after a more complete review and assessment of the fault of the other participants. I view the developer's contribution to fault as being the largest, because of the inadequate level of professional design and inspection determined by their management of the project. I assess its fault at 30 percent.

[16] The two remaining participants, Van Maren #8701 and Elbe, Lock, Walls should be fixed with 25 percent fault in each case.

"W.G. Grist, J."
The Honourable Mr. Justice W.G. Grist

Riverwest (Delta): Leaky condo owners win; owners not responsible for leaks and rot

Citation: The Owners, Strata Plan NW 3341 et al v. Canlan Ice Sports Corp. et al

Date: 20010821

  2001 BCSC 1214

Docket:

C965848

Registry: Vancouver

IN THE SUPREME COURT OF BRITISH COLUMBIA

BETWEEN:

THE OWNERS, STRATA PLAN NW 3341,
LESLIE EVANS, GERALD O'NEIL, FIONA SMYTH,
JAMES ROBERT MACNAB, THE EXECUTOR OF THE ESTATE OF
JAMES MARTIN MACNAB, COLLEEN HARNETT,
GEORGE TEMPERTON, NANCY STEWART, TAWNIA GALE
SCOTT, AND NOREEN SYDELL ANNE GUNN AND LAVONA SYBIL
MARIE DAYLE, EXECUTRICES OF THE ESTATE OF DORIS WRIGHT

PLAINTIFFS

AND:

CANLAN ICE SPORTS CORP., VAN MAREN
CONSTRUCTION CO. LTD., GRANT DUMBLETON CARRYING
ON BUSINESS AS GRANT DUMBLETON, ARCHITECTS
AND THE SAID GRANT DUMBLETON,
ELBE, LOCK, WALLS & ASSOCIATES INC.,
J. NOVACEK & ASSOCIATES LTD.,
THE CORPORATION OF DELTA, AND
VAN MAREN CONSTRUCTION (#8701) LTD.

DEFENDANTS

and:

ELBE, LOCK, WALLS & ASSOCIATES INC.,
VAN MAREN CONSTRUCTION (C0.) LTD.,
VAN MAREN CONSTRUCTION (#8701) LTD.
AND J. NOVACEK & ASSOCIATES LTD.

THIRD PARTIES


REASONS FOR JUDGMENT
OF THE
HONOURABLE MR. JUSTICE GRIST

 

Counsel for the Defendants & Third Parties Van Maren Construction Co. Ltd. and Van Maren Construction (#8701) Ltd.

Lawrence W. Coulter

Acting in Person

J. Novacek & Associates Ltd.

Counsel for the Defendant,
The Corporation of Delta

Donald Howieson
And James G. Yardley

Counsel for the Defendants & Third Parties Elbe, Lock, Walls & Associates Inc.

Beth Allard

Counsel for the Plaintiffs, The Owners, Strata Plan NW 3341 et al

Darrell W. Roberts, Q.C.
and Barbara J. Curran

Date and Place of Hearing/Trial:

December 11th to
December 15th, 2000 and January
2nd to 19th, 2001

 

New Westminster, B.C.

[1] The plaintiff Strata Corporation claims damages for repairs to the three buildings comprising Riverwest Estates made necessary by wood rot in the exterior wall sheathing, studs and beams. The deterioration of the wood framing at Riverwest is similar to that found in many other contemporary buildings in the lower mainland. Many buildings have required extensive repairs of the wood frame members, replacement of the sheathing and exterior wall surfaces. The repairs are costly and Strata Corporations have difficulty functioning under the stress. The individual owners have ultimately had to carry most or all of the very substantial costs of these repairs.

[2] Riverwest is situated on the south arm of the Fraser River in the Municipality of Delta. In total there are eighty-five units. The buildings were constructed in 1990 and fully occupied by the fall of 1991. Two of the buildings are identical in design and the third is similar. The design incorporates terraced decks on the east and west ends of the buildings, balconies on the north and south sides, a flat roof, stucco walls and tall half-round windows on the top floor, extending above ceiling height and covered by peaked metal roofing. The buildings are wood frame construction and suites have exterior windows and doors opening onto the decks and balconies. The suites have gas fireplaces vented to the roof through frame chimney chases annexed to the exterior walls. The exterior walls extend above the roof to parapet tops. There are no roof overhangs.

[3] The project was owned and developed by the defendant Canlan Ice Sports Corp. The defendant, Van Maren Construction (#8701) Ltd. was the general contractor.

[4] This action lists the developer and the contractor, the structural engineer, and a building design company as defendants, but the case at trial involved only the Strata Corporation and the Municipality of Delta. The plaintiffs' action alleges negligent approval of the application for the building permit, negligent inspection of construction, and negligence in the final act of issuance of the occupancy permit.

HISTORY:

[5] In 1989 the Riverwest project was presented to the Municipality for rezoning along with architectural drawings indicating the outward appearance of the buildings. At this stage the appearance of the buildings was quite different from what became the final design. Mr. Dumbleton, an architect, prepared these drawings. Council approved the proposal and the project went to the building permit stage. At this point the defendant, Elbe, Lock, Walls & Associates Inc. became involved, preparing the plans that accompanied the permit application. The final configuration of the buildings and some of the construction details were determined by these plans.

[6] The structural design of the buildings was presented in plans drawn by the defendant, J. Novacek & Associates Ltd., structural engineers.

[7] The plans prepared by the defendants, Elbe, Lock, Walls were not drawn by a professional architect. The legend affixed to the plans had Mr. Dumbleton's name block affixed to them, but he did not act in their preparation nor authorize his name to be used. The plans met with the approval of the Building Department and a permit was issued on February 26, 1990.

[8] During the course of construction, the Municipality conducted inspections at three of the five stages indicated in the bylaw. The two other inspections required by the building bylaw, to occur on completion of the foundation footings and after framing was complete, were noted on the municipal record as being the responsibility of the structural engineer who provided the structural design.

[9] The buildings were completed in succession. Owners began to take occupancy of suites in the first building in August 1990, and virtually all of the suites in the three buildings were occupied by the end of 1991. The occupancy permit for all three buildings was issued the 27th day of November 1991.

[10] Shortly after units were occupied owners began to complain about the construction of the decks and balconies. The developer had stipulated that the design of these features should include minimum slopes for the horizontal deck and balcony surfaces and the lowest threshold height achievable at the intersection with the patio doors. The plans approved for issuance of the building permit detailed a slope of 1:96, which indicates a fall of about one-eighth of an inch along each foot travelled toward the outside edge. The evidence given at this trial indicated this was less than the building code requirement of approximately one-quarter inch to the foot. As constructed, many surfaces apparently had no consistent slope at all, resulting in water pooling on these surfaces.


[11] Mr. Frank, an engineer consulted by the strata counsel to advise on deficiencies prior to expiry of the one-year warranty offered by the developer, inspected some of the deck repairs in October 1992. His report noted the inappropriate slope and his comment was that the efforts being made at that time to improve the slope were unlikely to produce favourable results. His recommendation was that the decks should be completely stripped and reconstructed.

[12] Despite Mr. Frank's comments improvements to the decks and balconies were attempted by building new deck surfaces over the old, increasing the slope back from the outside edge by using supporting cross strips of increasing thickness. This had the result of raising the deck below the patio doors and creating a seam between the waterproof vinyl surface of the deck and the stucco surface of the walls. Originally the vinyl membrane covering the decks and balconies was run up the adjoining walls for a distance with the stucco applied over top of the membrane. In the construction of the replacement deck surfaces, the vinyl was brought into contact with the stucco surface and a watertight joint attempted by using a sealant.

[13] The efforts to improve the decks and balconies continued for a number of years after substantial completion of the project and were a continuing concern of the owners and the Strata Corporation. These remedial efforts were undertaken by the developer and the construction company until further efforts were refused in January 1995. By this time some of the decks had been resurfaced twice.

[14] The attempts to improve the decks and balconies deserve mention in the history of this case because the original construction and remediation of these features contributed to what became the greater problem of moisture entering the walls. But also because balcony repairs eventually led to the discovery of the significant rot found in the structural framing.

WATER LEAKS INTO THE INDIVIDUAL UNITS:

[15] Starting during the first year of occupancy, the Strata Council also dealt with water leaks into the interior of many of the units. These leaks followed periods of rain and wind and were noticed above and below windows and patio doors and through ceilings of certain units. The worst leaks followed heavy rains and were usually seasonal occurrences. They were dealt with by application of sealants at likely points of entry into the exterior walls.

[16] Mr. Frank's January 1992 report dealt in part with deficiencies he noted in the application of flashings along the parapet tops, at intersections with roof membrane, and where flashings met stucco. He also noted that he could not observe the metal beads and drip moulds that were supposed to be incorporated in the fascia built into the top perimeter of the buildings, a defect that would allow moisture to enter into the wall. He commented that flashings would have to be re-detailed to achieve outward slope and needed to continue up behind the stucco. Further, that the flashings applied to the building, "require extensive and continued application of sealants in order to remain somewhat waterproof." He also noted that the complex was not protected by overhanging soffits and was located beside the Fraser River and subject to substantial wind effects on moisture and precipitation.

[17] Mr. Frank's comments were forwarded to the developer who assured that all details were pre-approved by "the architect", and that the flashings were inspected by the roofing contractor. Nothing more was done to attempt repairs beyond the application of sealant in response to leaks into the apartments.

[18] Discovery of rot in the framing began with events in 1996. On one occasion an owner brought to the Strata Council's attention a piece of trim at the base of an interior wall. The painted wood trim had rotted to the point that the moulding would give way to hand pressure, revealing the interior of the wall cavity. In July 1996 rot was found in a beam, part of the structure supporting the roof of one of the buildings, during a repair to a deck of a third floor suite. Removal of the deck revealed the beam rotted to the extent that pieces of the laminated beam could be pulled away by hand.

[19] The Strata Corporation commissioned a report from MHP Consultants, an engineering firm, to advise on the beam repair, followed by a further report dealing with the need to assess the extent of rot in the three building complex. In September 1996, the Strata Corporation took legal advice. Written notice of a potential claim was given to Delta on October 2nd, and this action was filled on October 16 1996.

[20] The MHP reports were prepared by Mr. Morstead, an engineer with experience in building envelope design. He surveyed the owners in relation to water leaks that had occurred in the past, examined the outside cladding, design features and flashings, and inspected the ongoing beam repair. He found that 41 of the 85 suites at Riverwest had experienced water leaking onto interior walls, window surfaces or ceiling finishes. Approximately one-quarter of the suites showed evidence of ongoing water leakage problems. The summary of his findings was as follows:

Wall, window and patio deck construction at Riverwest is similar to many timber-frame, stucco-clad condominium buildings in the Lower Mainland. Water entry problems at Riverwest and other buildings derive from a reliance on exterior surfaces, joints and junctions to remain watertight during the service-life of the buildings. This enclosure type is often referred to as "face-sealed". Leakage into exterior walls and patio decks occurs when even minor openings in exterior seals allow water in. In some instances, water entry has resulted in wood rot of timber structural elements.

Wind-driven rain is a particularly difficult source of moisture to control using face-sealed details and many architectural features of the buildings result in joints and junctions that are difficult to seal. Recurring water entry problems at some suites is an indication of the difficulty of obtaining serviceable face-sealed assemblies. Up-grading of walls, windows and decks is needed to obtain assemblies that do not rely on the integrity of exterior seals. This work would involve all three main enclosure components included in the recent investigation: 1) Patio deck waterproofing including adjacent windows and sliding doorways. 2) stucco and metal wall cladding including metal flashings particularly with East and South exposures, and 3) window and patio door installations.

[21] This report was followed by more extensive investigation of the buildings and moisture probing conducted by Mr. Frank, who was at this time employed by Morrison Hershfield, a further consulting firm hired by the Strata corporation. The testing confirmed water entry into the buildings and also recommended extensive rebuilding of the exterior walls and balconies.

[22] In early 1998 the Strata corporation hired RDH Building Engineering to provide advice, and to design and manage the repair program. The project was tendered and a bid selected. The buildings were stripped of stucco and sheathing, structural framing was replaced where required and the sheathing, building paper and exterior surface replaced. The replacement was primarily with stucco of similar composition to that originally applied, but applied onto wooden strips which allowed drainage and ventilation so that moisture that might penetrate into the wall behind the stucco would drain or dry, rather than being retained in the wall itself. Remediation also included addition of overhanging canopies over upper storey windows and doors and reconstruction of the decks. The total price paid was in the order of $3 million, or roughly $40,000 to $60,000 per unit.

DEFECTS IN THE STRUCTURAL DESIGN:

[23] During the process of stripping the exterior, deficiencies in the structural design of the buildings were uncovered and repaired. The supporting joists below balconies and decks were not adequate to support these features over the distance spanned. Joists were not fixed into beams with adequate support and the deck structures were tied into chimney chases, which did not rest on foundation footings. These structural defects were improved as part of the overall project. The cost of these repairs was not isolated, but estimated to have increased the total cost by approximately $50,000 to $75,000.

NEGLIGENCE:

[24] The law imposing liability for negligence requires that a defendant must owe the claimant a duty of care. Proof must then be given that the defendant failed to exercise a reasonable standard of care and that this failure was a material cause of the damage the plaintiff suffered.

DUTY OF CARE:

[25] The duty of care of a government regulatory body to individuals among the public it serves is now well established by case law. In Anns v. London Borough of Merton, [1978] A.C. 728, a local government body was found liable to a private claimant for negligence in enforcing building standards. The two-step test established in Anns required, first an analysis of whether there was a sufficiently close or proximate relationship between the public body and the private claimant to be able to reasonably forecast that negligence by the regulatory body would cause damage to the claimant. The second consideration is whether there are any competing, often policy based, reasons why the public body should not be made liable.

[26] In Kamloops v. Nielsen [1984] 5 W.W. 1, the Supreme Court of Canada made it clear that the law expressed in Anns would extend liability in Canadian cases where economic loss resulted from the negligent acts of a regulatory body. In Kamloops, and traditionally, the argument advanced in favour of limiting liability was that government bodies would be subject to indeterminate and overwhelming exposure, a concern expressed in a U.S. authority, Ultramares v. Touche (1931) 255 N.Y. 170. At p.45 Wilson, J. rejected this limitation of liability:

I do not believe that to permit recovery in this case is to expose public authorities to the indeterminate liability referred to Ultramares. In order to obtain recovery for economic loss the statute has to create a private law duty to the plaintiff along side the public law duty. The plaintiff has to belong to the limited class of owners or occupiers of the property at the time the damage manifests itself. Loss caused as a result of policy decisions made by the public authority in the bona fide exercise of discretion will not be compensable. Loss caused in the implementation of policy decisions will not be compensable if the operational decision includes a policy element. Loss caused in the implementation of policy decisions, i.e., operational negligence will be compensable. Loss will also be compensable if the implementation involves policy considerations and the discretion exercised by the public authority is not exercised in good faith. Finally, and perhaps this merits some emphasis, economic loss will only be recoverable if as a matter of statutory interpretation it is a type of loss the statute intended to guard against.

It seems to me that recovery for economic loss on the foregoing basis accomplishes a number of worthy objectives. It avoids undue interference by the courts in the affairs of public authorities. It gives a remedy where the legislature has impliably sanctioned it and justice clearly requires it. It imposes enough of a burden on public authorities to act as a check on the arbitrary and negligent discharge of statutory duties. For these reasons I would permit recovery of the economic loss in this case.

[27] Kamloops was a case where the Municipality failed to take any effective action to require a property owner to replace an unstable retaining wall. The city inspector had discovered the defect and placed a stop work order on the site, but the city took no further action to resolve the problem. The city was found liable to a subsequent purchaser who bought the property without notice of the defect and suffered loss when the wall failed, removing support for the foundation of the home situate on the property. The failure founding negligence was therefore the failure to enforce compliance with building standards.

[28] In Rothfield v. Manolakos (1989) 63 D.L.R. (4TH) 449, another case involving a retaining wall, the Municipality was held liable for issuing a building permit without having received proper plans for the wall and for subsequently failing to make a proper inspection. The case illustrates that municipalities may be liable not only for negligent enforcement of the building bylaw, but for negligence in the approval and inspection process. La Forest, J. said at p. 455:

The inspection of plans and the supervision of construction increases the costs of a construction for everyone. But I think that most rate payers, were they to give the matter any thought, would justify the increased expense as an investment in peace of mind; faulty construction, after all, is a danger to life and limb and may result in future expense and liability.

[29] In each of these cases the duty to exercise proper care originated in the public law responsibility imposed by statute or adopted under permissive statutory authority by the local authority. In each case there was foreseeable loss to the plaintiff if the process of regulation was done badly or not undertaken at all.

[30] In assessing policy based reasons for avoidance of liability the court in Kamloops recognized that if the failure to act were based on a good faith employment of discretion in the allocation of resources, liability should not be imposed. The distinction was made between operational negligence and implementation of policy decisions. In any individual case, however, the difficulty often lies in properly labelling the failure in question. Was it an operational failure to implement a policy or a forgivable policy based economy of resources? The further, or perhaps initial, requirement of good faith in determining policy adds another level of analysis.

[31] In Just v. British Columbia [1989] 2 S.C.R. 1228, Cory J. said the following at p. 1242:

The duty of care should apply to a public authority unless there is a valid basis for its exclusion. A true policy decision undertaken by a government agency constitutes such a valid basis for exclusion. What constitutes a policy decision may vary infinitely and may be made at different levels although usually at a high level.

The decisions in Anns v. Merton London Borough Council and City of Kamloops v. Nielsen, supra, indicate that a government agency in reaching a decision pertaining to inspection must act in a reasonable manner which constitutes a bona fide exercise of discretion. To do so they must specifically consider whether to inspect and if so, the system of inspection must be a reasonable one in all the circumstances.

[32] In a subsequent case, Brown v. British Cclumbia [1994]1 S.C.R. 420, Cory J. reiterated much of what was said in Just and added the following:

In distinguishing what is policy and what is operations, it may be helpful to review some of the relevant factors that should be considered in making that determination. These factors can be derived from the following decisions of this Court: Laurentide Motels Ltd. v. Beauport (City), [1989] 1 S.C.R. 705; Barratt v. District of North Vancouver, [1980] 2 S.C.R. 418; and Just, supra; and can be summarized as follows:

True policy decisions involve social, political and economic factors. In such decisions, the authority attempts to strike a balance between efficiency and thrift, in the context of planning and predetermining the boundaries of its undertakings and of their actual performance. True policy decisions will usually be dictated by financial, economic, social and political factors or constraints.

The operational area is concerned with the practical implementation of the formulated policies, it mainly covers the performance or carrying out of a policy. Operational decisions will usually be made on the basis of administrative direction, expert or professional opinion, technical standards or general standards of reasonableness.

[33] The requirement of good faith is an overriding consideration that will extend liability no matter how a particular government act or omission is characterized. At pp.435-6 of Brown, Cory J. said:

It will always be open to a plaintiff to attempt to establish, on a balance of probabilities, that the policy decision was not bona fide or was so irrational or unreasonable as to constitute an improper exercise of governmental discretion. This is not a new concept. It has long been recognized that government decisions may be attacked in those relatively rare instances where the policy decision is shown to have been made in bad faith or in circumstances where it is so patently unreasonable that it exceeds governmental discretion. The test to be applied when a policy decision is questioned is set out in City of Kamloops v. Nielsen, [1984] 2 S.C.R. 2, at p. 24, by Wilson J. in these words:

In my view, inaction for no reason or inaction for an improper reason cannot be a policy decision taken in the bona fide exercise of discretion. Where the question whether the requisite action should be taken has not even been considered by the public authority, or at least has not been considered in good faith, it seems clear that for that very reason the authority has not acted with reasonable care.

[34] In Ingles v. Tutkaluk [2000] 1 S.C.R. 298, the point was again made by Bastarache J. at pp. 311-2:

To determine whether an inspection scheme by a local authority will be subject to a private law duty of care, the court must determine whether the scheme represents a policy decision on the part of the authority, or whether it represents the implementation of a policy decision, at the operational level. True policy decisions are exempt from civil liability to ensure that governments are not restricted in making decisions based upon political or economic factors. It is clear, however, that once a government agency makes a policy decision to inspect, in certain circumstances, it owes a duty of care to all who may be injured by the negligent implementation of that policy; see, for example, Just v. British Columbia, [1989] 2 S.C.R. 1228, at p. 1243, per Cory J.; Rothfield v. Manolakos, supra, at p. 1266, per La Forest J.

While I have stated above that a government agency will not be liable for those decisions made at the policy level, I must emphasize that, where inspection is provided for by statute, a government agency cannot immunize itself from liability by simply making a policy decision never to inspect. The decisions in Anns v. Merton London Borough Council, supra, and Kamloops v. Nielsen, supra, establish that in reaching a policy decision pertaining to inspection, the government agency must act in a reasonable manner which constitutes a bona fide exercise of discretion. In the context of a municipal inspection scheme, we must bear in mind that municipalities are creatures of statute, which have clear responsibilities for health and safety in their area. A policy decision as to whether or not to inspect must accord with this statutory purpose; see, for example, Kamloops v. Nielsen, at p. 10.

STANDARD OF CARE:

[35] The standard of care is set out in Ingles at p.312:

Once it is determined that an inspection has occurred at the operational level, and thus that the public actor owes a duty of care to all who might be injured by a negligent inspection, a traditional negligence analysis will be applied. To avoid liability, the government agency must exercise the standard of care in its inspection that would be expected of an ordinary, reasonable and prudent person in the same circumstances. Recently, in Ryan v. Victoria, supra, at para. 28, Major J. reaffirmed that the measure of what is reasonable in the circumstances will depend on a variety of factors, including the likelihood of a known or foreseeable harm, the gravity of that harm and the burden or cost which would be incurred to prevent the injury. The same standard of care applies to a municipality, which conducts an inspection of a construction project. While the municipal inspector will not be expected to discover every latent defect in a project, or every derogation from the building code standards, it will be liable for those defects that it could reasonably be expected to have detected and to have ordered remedied; see, for example, Rothfield v. Manolakos, supra, at pp. 1268-69.

CAUSATION:

[36] It is difficult to conceive of an act or omission of a regulatory body that would be the direct or principal cause of faulty construction, but such an act or omission could be a cause of the loss, in conjunction with the other causal factors, if the negligence of the regulatory body materially contributed to the loss. This, for example, was the finding in Manolakos where the deficient construction was predominantly the fault of the contractor. The city's failing in not conducting a proper inspection, however, was judged to have contributed to the loss, which might otherwise have been avoided.

[37] Barring contributory negligence by the plaintiff, defendants mutually contributing to the loss will be jointly and severally liable to the plaintiff. In cases where the participants most contributing to the loss are those responsible for construction, these defendants may be separately incorporated for the individual project and accordingly may not be viable entities when latent defects become apparent. This leaves the other enduring entities associated with the loss exposed to the full force of the judgment.

THE APPLICABLE LEGISLATION:

[38] A municipality's power to regulate construction emanates from Section 694 of the Municipal Act R.S.B.C. c. 323. That section provides that a Municipal Council, "may, for the health, safety and protection of persons and property, by bylaw, do one or more of the following:

 (More)

Riverwest (Delta): Mr. and Mrs. Fleming, the owners of a leaky condo, sue the Strata Corporation which sues Royal Insurance Company of Canada

Date of Release:  March 22, 1996                      NO. A953402
VANCOUVER REGISTRY

IN THE SUPREME COURT OF BRITISH COLUMBIA

IN THE MATTER OF STRATA PLAN NW3341 - RIVERWEST
AND IN THE MATTER OF THE INTERPRETATION OF A POLICY OF INSURANCE

BETWEEN: )
)
THE OWNERS, STRATA PLAN NW3341)
- RIVERWEST )
)REASONS FOR JUDGMENT
PETITIONERS)
)OF THE HONOURABLE
AND: )
)MADAM JUSTICE SAUNDERS
ROYAL INSURANCE COMPANY OF )
CANADA )(IN CHAMBERS)
)
RESPONDENT)


Christopher J. O'Connor For the Petitioners
Ingrid E. Rost For the Respondent


Heard at Vancouver: January 17, 1996


1 Is the respondent insurance company obliged to defend an
action brought against the petitioners by a third party? The
petitioners seek a declaration to this effect on two bases. They
say that either the respondent insurance company has waived its
right to deny a duty to defend, or the parties' contract of
insurance imposes a duty to defend the action.

2 The answer to this question requires a review of the
lawsuit, the insurance policy, and the respondent's actions after
the action was commenced, all in the context of applicable legal
principles.

THE LAWSUIT

3 The petitioners are the owners of a strata corporation
known as Riverwest. Riverwest is a condominium complex and dock
facility near the Fraser River harbour in Delta, British Columbia,
initially owned and developed by Canlan Investment Corporation.

4 In February 1992, Mr. and Mrs. Fleming purchased a strata
lot at Riverwest from Canlan Investment Corporation. They have
commenced an action in this court seeking damages from, amongst
others, the petitioners. In the action Mr. and Mrs. Fleming allege
that at the time they purchased their strata lot, Canlan Investment
Corporation agreed to perform certain repairs. They allege that
Canlan Investment Corporation failed to make the repairs and failed
to provide agreed facilities and amenities.

5 As against the petitioners, Mr. and Mrs. Fleming allege
failure to complete the repairs in a timely way or at all, and
allege that such failure rendered their strata lot unfit for
habitation. They also allege that wrongful acts of the petitioners
caused a resale of their strata lot to fail to complete, and claim
damages for inducing breach of the resale contract. They have made
these allegations against the petitioners in these terms:

21. The Defendant, The Owners, Strata Plan NW
3341 failed to complete repairs to the common
property including the deck adjoining the
Strata Lot in a timely fashion and the work
which was performed failed to adequately
repair the common property.

22. The Plaintiff Rosemary Fleming has a
heart condition. As a result of the failure
of the ... The Owners, Strata Plan NW 3341 to
complete the repairs set out in the Contract
of Purchase and Sale in a timely fashion, the
Strata Lot was rendered unfit for the
habitation of the Plaintiff, Rosemary Fleming.

...

27. Subsequent to executing the Contract of
Purchase and Sale, Mr. and Mrs. Stanley were
told by a member or members of Strata Council
that their infant daughter would not be able
to live at Riverwest.

28. Were it not for the statements made by
the member or members of Strata Council Mr.
and Mrs. Stanley were prepared to purchase the
Strata Lot for Two Hundred and Sixty Thousand
Dollars ($260,000.00).

...

32. Further, or in the alternative, the
Plaintiffs claim damages against The Owners,
Strata Plan NW 3341 for failing to repair the
common property.

...

34. Further, or in the alternative, the
Plaintiffs claim damages against The Owners,
Strata Plan NW 3341 for their inducement of
Mr. and Mrs. Stanley to breach their contract
with the Plaintiffs.THE INSURANCE POLICY

6 The parties have contracted for comprehensive insurance
including directors' and officers' liability and commercial general
liability.

7 The Directors' and Officers' Liability portion of the
policy provides:

1. INSURING CLAUSE:

To pay on behalf of the insured all sums which
... the insured becomes legally obligated to
pay as damages because of claims made against
the insured arising out of wrongful acts
committed by the insured while acting as ...
Officers of the Condominium Corporation of
Strata Council, or as members of the Board of
Directors of the Condominium Corporation or
Strata Council or ...

...


3. DEFENSE:

The Insurer will defend any suit brought
against the insured seeking damage to which
this coverage applies, even if the allegations
in the suit are groundless, false or
fraudulent. ...

...


7. DEFINITIONS:

When used in reference to this coverage:

a. "Directors & Officers" - means the
... Board of Directors, Strata
Council or as may be defined by
Provincial Legislation relating to
condominiums or strata corporations
...

b. "Claim" - means any demand, notice,
summons, suit ... served on the
insured or it's [sic] representative
alleging damage because of or
arising out of a wrongful act
directly related to the maintenance
or use of the condominium ...

c. "Wrongful Act" - means a negligent
act, error or omission directly
related to the maintenance or use of
the condominium or co-operative
property.

d. "Insured" - means all Directors and
all Officers of the corporation ...
named condominium or strata owners
... and shall include the said
corporation with respect to claims
for which the corporation may be
obligated to indemnify it's [sic]
Directors or Officers.

8 In the Commercial General Liability portion of the policy
the respondent covenanted:

1. Insuring Agreement

a. The Insurer will pay those sums that
the insured becomes legally
obligated to pay as compensatory
damages because of "bodily injury or
property damage" to which this
insurance applies. ... The "bodily
injury" or "property damage" must be
caused by an "occurrence". ... The
Insurer will have the right and duty
to defend any "action" seeking those
compensatory damages. ...

b. Compensatory damages because of
"bodily injury" include compensatory
damages claimed by any person or
organization for care, loss of
services or death resulting at any
time from the "bodily injury".

c. "Property Damage" that is loss of
use of tangible property that is not
physically injured shall be deemed
to occur at the time of the
"occurrence" that caused it.

...

DEFINITIONS

1. "Action" means a civil proceeding in
which compensatory damages because of
"bodily injury", "property damage" or
"personal injury" to which this insurance
applies are alleged. ...

...

3. "Bodily injury" means bodily injury,
sickness or disease sustained by a
person, including death resulting from
any of these at any time.

...

5. "Impaired property" means tangible
property, other than "the Named Insured's
product" or "the Named Insured's work",
that cannot be used or is less useful
because:

...

b. The Named Insured has failed to
fulfil the terms of a contract or
agreement; if such property can be
restored to use by:

i. the repair, replacement,
adjustment or removal of "the
Named Insured's product"; or
"the Named Insured's work"; or

ii. the Named Insured's fulfilling
the terms of the contract or
agreement.

...


7. "Occurrence" means an accident, including
continuous or repeated exposure to
substantially the same general harmful
conditions.

...

11. "Property damages" means:

a. Physical injury to tangible
property, including all resulting
loss of use of that property; or

b. Loss of use of tangible property
that is not physically injured.

...

13. "The Named Insured's work" means:

a. Work or operations performed by the
Named Insured or on the Named
Insured's behalf; and

b. Materials, parts or equipment
furnished in connection with such
work or operations.

EVENTS AFTER THE WRIT

9 The Fleming action was commenced on May 5, 1994. When
the writ and statement of claim were served upon the petitioners on
May 9, 1994, the petitioners promptly notified the respondent's
agent; the matter was referred to a claims adjuster. On May 12,
1994 the claims adjuster advised that the claims in the action were
covered by the policy and requested instructions from the
respondent to defend the claim. In the course of doing so, the
adjuster expressed the view that the Directors and Officers
liability coverage would provide costs of defending the action.
This was a confidential report to the respondent, and accordingly
does not constitute a waiver of the right to deny the duty to
defend.

10 On May 16, 1994 the respondent retained counsel to defend
the Fleming action on behalf of the petitioners and entered an
appearance on their behalf forthwith. Counsel filed a statement of
defence on the petitioners' behalf on June 1, 1994.

11 On June 17, 1994 defence counsel advised the petitioners
that he had been advised by the respondent that the respondent had
not fully addressed the issue of coverage with respect to
directors' and officers' liability and said:

... please treat this letter as formal
notification by Royal Insurance Company of
Canada, the insurer, that they reserve their
right to deny coverage with respect to items
in dispute but not covered by the directors
and officers liability endorsement.

12 On June 30, 1994 counsel for the petitioners further
advised:

... Rather than Royal Insurance Company of
Canada, the insurer, taking the position now
that they do not have a duty to defend based
upon a review of the pleadings, they had asked
me to advise formally that they reserve their
right at some time in the future to deny
coverage with respect to those items in
dispute and not covered by the endorsement or
conversely excluded by the endorsement.
Essentially this means that the Royal will
continue to defend NW3341 and pay my ongoing
legal fees.

13 On January 10, 1995 the respondent advised defence
counsel that the policy does not provide coverage for the claims
raised in the action. Since that time the respondent has denied
both a duty to indemnify and a duty to defend.

WAIVER

14 The petitioners contend that the respondent waived any
right to deny a duty to defend. They do not rely upon estoppel.
They say the waiver is found in the correspondence from defence
counsel appointed by the respondent, and point out that counsel
acted on this waiver by entering the statement of defence and
actively defending the action.

15 Although waiver and estoppel are ofttimes confused in
cases in this area of insurance law, estoppel does not engage
specific provisions of the Insurance Act, R.S.B.C. 1979, c. 200:
Cadboro Investments Ltd. v. Canada West Insurance Co. (1987), 19
B.C.L.R. 352 (B.C.C.A). On the other hand, the issue of waiver is
determined by application of section 13 of the Act. This section
provides:

13.(1) No term or condition of a contract
shall be deemed to be waived by the
insurer in while or in part unless
the waiver is stated in writing and
signed by a person authorized for
that purpose by the insurer.

(2) Neither the insurer nor the insured
shall be deemed to have waived any
term or condition of a contract by
any act relating to the appraisal of
the amount of loss or to the
delivery and completion of proofs or
to the investigation or adjustment
of any claim under the contract.

16 It is apparent s.13 only applies to waiver of a term or
condition of an insurance policy. In this case the policy endows
the respondent with a "right and duty" to defend any action, the
damages of which are included in the scope of required
indemnification. Thus the petitioners must bring themselves within
s.13(1) in order to establish an effective waiver.

17 To bring themselves within s.13(1) of the Act, the
petitioners must establish that the "waiver" was in writing and was
signed by a person authorized for that purpose. The written waiver
must be express and unequivocal: Northern Life Assurance Company of
Canada v. Reirson [1976] 3 W.W.R. 275 (S.C.C.). Waiver will be
found only where the party waiving had both full knowledge of its
rights and a conscious intention to abandon those rights:
Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co.,
[1994] 7 W.W.R. 37 (S.C.C.).

18 In my judgment the train of correspondence referred to by
the petitioner does not establish that the respondent unequivocally
and consciously intended to waive its right to deny coverage. I
have reached this conclusion for two reasons. Firstly, the
correspondence, in my view, is a best ambiguous, for it both
reserves the right to deny coverage, and appears to defer the issue
of the duty to defend in the June 30, 1994 letter from defence
counsel:

Rather than [the respondent] taking the
position now that they do not have a duty to
defend ...

This is not the clear sort of statement which is required to
constitute a waiver.

19 Secondly, I find this correspondence is not within
section 13 of the Act because it is not established that the
correspondence was signed by a person authorized for the purpose of
waiving this right. Assuming that counsel was acting as agent for
the respondent, which is not clear given his professional duty to
act on behalf of the petitioners, it is not established that he was
authorized to waive the issue of the respondent's duty to defend.
If, on the other hand, he was not acting as agent for the
respondent, there is no writing in evidence from the respondent to
wherein this right is waived.

20 For these reasons I find that the petitioners have not
established a waiver of the right to deny the duty to defend and I
move to the question, is there a duty to defend?

IS THERE A DUTY TO DEFEND?

21 The duty of an insurer to defend an insured is broader
than the duty to indemnify.

22 Determination of the duty to defend requires the
pleadings in the lawsuit to be compared to the insurance policy.
Where the policy expressly excludes the allegations, the insurer
has no duty to defend. On the other hand, where the plaintiff's
claims, if proven, might be covered by the policy, there is a duty
to defend: Privest Properties Ltd. v. Foundation Co. of Canada
Ltd. (1991), 57 B.C.L.R. (2d) 88 (B.C.S.C.); Nichols v. American
Home Assurance Co. Ltd. (1990), 68 D.L.R. (4th) 321 (S.C.C.).

a) The Directors' and Officers' Liability Coverage

23 The respondent contends the directors' and officers'
liability coverage is inapplicable to the claims because the policy
does not insure the actions of the corporation itself, except where
it must reimburse the directors and officers. It says that the
Fleming action is against the Strata Corporation, not members of
the Strata Corporation, and so no members have been joined and the
policy does not apply.

24 The Fleming action alleges that a member or members of
the Strata Corporation had discussions with the prospective
customers and that those discussions caused the resale of the
Fleming strata lot to fail to complete. This wrong, says Mr. and
Mrs. Fleming, entitle them to damages against the petitioners for
inducing breach of the resale contract.

25 Section 15 of the Condominium Act, R.S.B.C. 1979, c. 61
provides that a strata corporation may be sued as representative of
the owners of the strata lots, and that a judgment against a strata
corporation is a judgment against the owners. In effect, by suing
the strata corporation, Mr. and Mrs. Fleming have sued all the
owners of the strata lots.

26 The definition of "insureds" in the directors' and
officers' liability coverage provides:

Insured - means all Directors and Officers of
the corporation ... named condominium or
strata owners ... and shall include the said
corporation with respect to claims for which
the corporation may be obligated to indemnify
it's [sic] Directors or Officers.

27 In this case all strata owners are named and all strata
owners will be judgment debtors of any judgment obtained by Mr. and
Mrs. Fleming against the petitioners. Read broadly, the allegation
concerns statements made by some strata owners, or members of the
Strata Corporation concerning the use of the strata lot. Read
broadly, the allegation is for damages for a wrongful act by an
insured.

28 In my view, the claim, if proved, might engage their
liability under this portion of the policy.

b) The Commercial General Liability Coverage

29 I turn now to whether there is also a duty to defend on
the claims made by Mr. and Mrs. Fleming for failure to repair.

30 The policy insures bodily injury or property damage
caused by an occurrence. Bodily injury is defined as "bodily
injury, sickness or disease sustained by a person ..." (emphasis
added). The pleadings allege Mrs. Fleming has a heart condition
and that failure to repair rendered the strata lot unfit for Mrs.
Fleming's habitation. Even reading the pleadings broadly as I must
do in considering whether there is a duty to defend, in my view the
allegation is one of lost usage of the property, not bodily injury.
I do not consider the pleadings might raise a claim for damages for
bodily injury, and I do not find a duty to defend on the basis of
"bodily injury".

31 The petitioners also contend that the Fleming action's
claims for failure to repair, broadly read, are a claim for
property damage.

32 The action apparently claims for damages because the
Fleming strata lot was rendered uninhabitable, and for unspecified
damages for failure to repair. This latter claim is likely a claim
for diminution of value. In my view neither of these claims is
within the "property damage" coverage of the policy. Accordingly,
there is no duty to defend on this aspect of the claim.

CONCLUSION

33 In summary, I find that the respondent is required to
defend the Fleming action under the Directors' and Officers'
Liability portion of the policy.

34 The parties did not address costs in their sumissions to
me. In the event they wish to do so, they may arrange with the
Registry to make submissions on costs, in writing.

"M.E. SAUNDERS, J."
March 22, 1996
Vancouver, B.C.