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Architect Liable In Tort And Contract

by Paul Sandori

W&M 062 Ventures Ltd. v. Blonski

Architect used partial Scheme and Plan without checking with City to determine if it complied with zoning bylaws ? developer only able to build 10 warehouses instead of 11 ? actual loss suffered by developer in the construction of the 10 units to the anticipated net profit had there been 11 units awarded

In 1995 W&M 062 Ventures Ltd. wanted to acquire a lot in a business development park in the city of Surrey, British Columbia, to build strata title warehouses. David Nairne & Associates Ltd., the architect of the property?s owner, had previously prepared a Building Scheme setting out the location of various lots in the development park. W&M was interested in lot 7, a corner lot.

At the time Nairne prepared the Scheme, it knew that the City required a 7.5 meter rear yard setback. The Scheme showed the rear setbacks but made no reference to the specific requirements for corner lots.

Nairne also prepared a Building Envelope Plan for lot 7. It did not comply with the setback requirements for corner lots but it contained a notice to check with the City to determine bylaw compliance.

W&M obtained only a partial copy of the Building Scheme and Building Envelope Plan so that it did not show the notice regarding bylaw compliance. It then engaged another architect, Gerry Blonski, to determine how many warehouses could be erected on lot 7. Blonski used the partial Scheme and Plan without checking with the City to determine if it complied with zoning bylaws.

He prepared a rough sketch which showed that W&M could build 11 strata lot warehouses. W&M bought the property. Unfortunately, it turned out that, because of the bylaw setback requirements, only 10 warehouses could be built.

W&M sued both Blonski and Nairne for negligent misrepresentation, negligence and breach of contract.

W&M argued that Blonski did not exercise the required degree of care, skill and diligence reasonably expected of an architect of ordinary competence, as measured by the professional standards of the time.

Text Box: Once Blonski realized that there was non-conformity, he should have applied for a Development Variance Permit before applying for a building permit.W&M?s case against Nairne was that its plans did not comply with the bylaws and therefore amounted to negligent misrepresentation. W&M submitted that it needed only establish that the negligent misrepresentation was at least one of the factors which induced it to act to its detriment.

W&M also put forward a claim against both architects based on contract. It argued that Blonski was obliged by contract to do the design and obtain the building permit for 11 warehouse units but did not fulfill this contractual obligation.

W&M paid Nairne $2,000 to review, as a member of the Architectural Review Committee, the plans drawn up by Blonski. This, argued W&M, created a contract between Nairne and W&M which Nairne breached by reviewing the plans negligently.

In court, Blonski pointed out that he was not retained to conduct a full ?due diligence? review with respect to the zoning requirements but was limited to ?partial basic services.? He further argued that, because the Building Envelope Plan had been prepared by Nairne, a registered professional, Blonski was entitled to assume that it complied with the appropriate bylaws.

Nairne?s defence was that neither W&M nor Blonski actually relied on the Building Envelope Plan and, if they did, the reliance was unreasonable because they did not use the Building Scheme for the purpose for which it was intended. Furthermore, both the Building Scheme and the Building Envelope Plan contained clear disclaimers and warnings. In any event, said Nairne, the exclusion of liability clause in the documents provided a complete defence to the action.

In essence, the defences boiled down to this: Blonski said that he was dealing with an experienced client familiar with such projects and that he was entitled to rely on the work of Nairne; Nairne?s position was that its work was limited to the preparation of the Building Scheme and Envelope Plan and the individual purchasers were still obliged to obtain the appropriate approvals from the City.

Justice Warren found the case against Blonski straightforward:

W&M asked the expert [Blonski] to tell them how many units could be placed on the lot. The expert was wrong in his response but he could have been right had he made some enquiries? Blonski had a duty to make enquiry of the zoning bylaws of the City of Surrey before he offered an opinion.

Once Blonski realized that there was non-conformity, he should have applied for a Development Variance Permit before applying for a building permit. W&M reasonably relied upon his advice when it made the decision to buy the property. Blonski was therefore liable for the losses suffered by W&M.

Nairne?s situation was different. Nairne was providing a concept for general consideration and not specifying what precisely was appropriate for a particular lot. The Building Scheme and the Building Envelope Plan contained a clear qualification of Nairne?s responsibility. The Architectural Review Committee only checked the development to ensure that it was aesthetically appropriate for the Scheme, and this function was described in the statement of purpose found in the Scheme. The court therefore dismissed the action in negligence against Nairne.

There was still the issue of contractual liability. The court found that, in addition to negligence, Blonski was also liable for breach of contract ? but not Nairne. There was no privity of contract between W&M and Nairne with respect to Nairne?s preparation of the Building Scheme and Building Envelope Plan. Nairne prepared these documents for the owner of the property, and only dealt with the owner. As there was no contractual relationship, Nairne could not be liable to W&M for breach of contract.

However, there clearly was privity of contract between W&M and Nairne with respect to Nairne?s review of the plans drawn by Blonski. W&M paid Nairne $2,000 but the contract only required Nairne to review Blonski?s plans for compliance with the design guidelines of the Building Scheme, not for bylaw compliance. As a result, Nairne?s failure to check the plans for bylaw compliance did not amount to breach of contract.

For what damages was Blonski liable?

The court accepted W&M?s position that it would not have purchased lot 7 but for the misrepresentation of Blonski. It would have purchased another lot suitable for 11 units. Further, it was the intention of W&M to build 11 units for resale, presumably at a profit. Blonski was aware of that.

In 1854, a classic English decision, Hadley v. Baxendale, established that, in addition to damages flowing directly from the breach of contract, the plaintiff could also recover damages ?such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it??.

With regard to misrepresentation, a plaintiff is not entitled to be put in the position he would have been in had the representation been accurate but only receive compensation for losses due to the fact that it was not. Justice Warren quoted from the decision of the Supreme Court of Canada in Rainbow Industrial Caterers Ltd. v. C.N.R.:

The plaintiff seeking damages in an action for negligent misrepresentation is entitled to be put in the position he or she would have been in if the misrepresentation had not been made....

What that position would have been is a matter that the plaintiff must establish on a balance of probabilities. In a case in which a material negligent misrepresentation has induced the plaintiff to enter into a transaction, the plaintiff?s position is usually that, absent the misrepresentation, the plaintiff would not have entered into the transaction.

In V.K. Mason v. Bank of Nova Scotia, the Supreme Court of Canada decided that an award of damages could include a provision for loss of profit arising out of the tort of negligent misrepresentation.

Following these precedents, Warren J. decided that the correct approach to assessing the damages of W&M was to add the actual loss suffered by W&M in the construction of the 10 units to the anticipated net profit had there, in fact, been 11 units.

Supreme Court of British Columbia

October 7, 1999

Warren J.

Bid Protest Bulletin

Courts rule on low bid bypass and cancellation

Bid Protest Bulletin | Paul Emanuelli

While owners face liability for using their privilege clauses for inappropriate purposes, the courts have recognized that these clauses can be relied on to avoid awarding a contract in appropriate circumstances.

For example, in its decision in Wind Power Inc. v. Saskatchewan Power Corp., the Saskatchewan Court of Queen’s Bench found that the duty to award to the low bidder did not fetter the owner’s right to cancel its process. The court held that the provincial utility was entitled to rely on its “right to reject” clause after it was unable to obtain the statutorily required Cabinet approval for the contract award:

SaskPower had the right to reject any and all proposals. The plaintiffs studied the clauses. Gary Martens acknowledged that clause 1.5, supra, which permitted SaskPower to reject any or all proposals, clearly meant SaskPower did not have to proceed. He said he believed SaskPower was sincere, he believed they were committed to the project, but ultimately he understood and realized that SaskPower could decide not to proceed. In the absence of some other cogent reason which would disentitle SaskPower to rely on the clauses in question they are operative.

Thus, the applicable approvals for contract award were presumed to form part of the particular Contract A. The Saskatchewan Court of Appeal subsequently upheld this and the plaintiff’s appeal to the Supreme Court of Canada was then dismissed.

Similarly, in its decision in Boileau v. Greater Vancouver (Regional District), the British Columbia Provincial Court (Small Claims Division) upheld the district’s right to bypass the low bidder when that bidder was unavailable to start work at the required time. The case involved a tender call for mobile welding services to pre-qualified contractors.

The court found that the low bid bypass was valid due to the contractor’s unavailability at the material time. The court rejected the contractor’s assertion of bad faith and hidden criteria, finding that “the only reason for not contacting the Claimant was due to his unavailability when the job was being awarded, that is certainly no bad faith.” The claim was dismissed.

Furthermore, in its decision in Silex Restorations Ltd. v. Strata Plan VR 2096, the British Columbia Supreme Court found that a condominium corporation was within its rights when it cancelled its tender call due to faulty designs. The case involved the remediation of a leaky condominium. The condominium corporation cancelled its tendering process after it discovered potentially serious deficiencies in the remediation design prepared by an external consulting firm.

The court found that in the circumstances the condominium corporation was not compelled to award a contract and could use its privilege clause to cancel the tendering process. The court also noted that the right not to award was recognized by the Supreme Court of Canada:

The discretion not to award a contract as discussed in Glenview was also affirmed by the Supreme Court of Canada in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., supra, at para. 47 as follows:

For example, Glenview Corp. v. Canada (1990), 34 F.T.R. 292 concerned an invitation to tender whose specifications were found to be inadequate after the bids were submitted and opened by the Department of Public Works. Instead of awarding a contract on the basis of inadequate specifications, the department re-tendered on the basis of improved specifications.

The bidder’s case was dismissed.

As these cases illustrate, an owner may not necessarily be compelled to award a contract. However, if challenged, it will need to provide valid reasons for the non-award in order to satisfy a court that its privilege clause was not exercised in an arbitrary or unreasonable fashion.

Paul Emanuelli's procurement law practice focuses on all aspects of the tendering cycle including bid dispute resolution. This article is extracted from Emanuelli's Government Procurement textbook published by LexisNexis Butterworths. Reach Paul at paul.emanuelli@procurementoffice.ca.