Claims: An Overview for Architects

Presented by:

Bernie McGarva and Courtney Raphael

Wednesday, May 11, 2016

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Table of Contents

1. Architects – The Prime Consultant

2. Contract Law – Developing a Project

3. Claims Against Architects – Insurance

Coverage, Limiting Liability

4. Risk Management– Limiting Exposure

5. Forums for Dispute Resolution – ADR, Court

Proceedings

6. Construction Lien Act

7. Acting as an Expert

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Architects – The Prime Consultant

• Client-architect arrangements

• Design-build project

4

Contract Law

“Simplicity is the ultimate sophistication.”

- Leonardo da Vinci

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Different Contract Options

• Handshake

• Letter of Intent

• Letter of Agreement

• Architect or Client Prepared Agreement

• Standard Form Agreements

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Types of Contracts

• Written or oral

- “An oral contract isn’t worth the paper it is

printed on.”

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Why you should have a written contract

1) Minimize later disagreements

2) Precision of terms

3) Much easier to enforce

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Limited Retainers

• Not driven by fee

• Depends on limitations being specifically agreed

to (preferably in writing)

• The “friendly” architect example – as soon as

you say something, you can be held responsible

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Sub-consultant Agreements

• As an architect, you can be retained by an

owner – you can also retain sub-consultants and

sub-contractors on behalf of an owner.

• Direct agreements between owner and

consultants?

• Impact on liability and adequacy of insurance

• Other considerations

• Loyalty

• Business relationships (with owner, with sub)

• Obligation to pay

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Elements of a Contract

• An agreement between parties

• Consideration from both parties

• Intention to create legal obligation

• consensus ad idem (a meeting of the minds)

• Essential terms – e.g. price, time, etc.

Considerations:

• What if the parties do not agree on minor issues?

• What if the contract is silent?

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Offer and Acceptance

• Acceptance must be in same terms as offer

• Offers may be withdrawn at any time before

acceptance

• Acceptance of offer may be:

a) verbal

b) written

c) implied

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Exchanging Draft Contracts –

The Battle of the Forms

• What if the owner simply doesn’t sign the

architect’s draft?

• Using a confirming letter

• The impact of the parties’ conduct

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Contract Terms

A comprehensive contract will include provisions

dealing with:

• duties of client

• who employs consultant

• authority of architect

• certification responsibilities

• dispute resolution provisions

• schedule of fees

• limitations on liability

• termination

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Guidelines for Drafting Contracts

1) Avoid drafting agreement yourself

2) Use well-established standard contracts

3) Avoid cutting and pasting from various

agreements – leads to ambiguity

4) Consider the consequences of adding to or

deleting from standard forms

5) Use simple language

6) Include provisions for a problem project

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Rule of Interpretation by Courts

1) Plain and ordinary meaning

2) That which makes logical business sense

3) Custom of the trade or industry

4) Surrounding circumstances can be considered

to understand the mutual and objective

intentions of the parties as expressed in the

words of the contract

5) Implied terms (fitness for purpose, meet

standard of a competent architect in similar

circumstances)

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Termination

• To avoid misunderstanding, client/architect

agreements should provide for when and how a

contract is terminated

• Failure to pay should definitely be one of the

grounds for termination

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Limiting Liability by Contract

• Claim limitations (tort vs. contract)

• Time period limitations

• Monetary limits

• Indemnification limits

• What if the contract is silent?

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Professional Liability Insurance

• Must have insurance in order to engage in the practice of architecture in Ontario• see Section 40 of the Architects Act

• Do you need excess insurance?• Size of the project

• Size of staff

• Have you assumed the liabilities of others in your contract? Do they have adequate insurance? Do they have exclusion clauses in their contract?

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Claims Against Architects

• Most lawsuits allege breach of contract and/or negligence

• Common allegations include:• Delay claims

• Failure to inspect

• Defects in design (specifications too)

• Defects in certification

• Leaks in building envelopes

• Life safety claims

• Bodily injury to a third party

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Claims Against Architects

• What is not covered:

• Intentional acts

• Libel and slander

• Failure to cooperate with

insurer

• Voluntary admissions or

confessions which prejudice

your position

• Particular products and issues

such as asbestos/toxic mould

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Coverage

• Indemnifies architects for legal liability arising from errors or omissions in the performance of professional services for others

• Covers:a) Damages

b) Legal defence costs – lawyers and experts

c) Interest and costs awarded

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What to do when you get a claim

• Immediately notify insurer

• Go through all materials to refresh memory

• Important to keep good records, including notes,

correspondence and photos

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Claims for Breach of Contract

To establish liability, one must prove:

1. A breach of a term of the contract

2. Loss or damage caused by breach

3. Damage suffered within limits permitted by law

But do not fear, there is a duty to mitigate…

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Negligence Claims

Necessary Elements of Negligence

1. Duty of care owed by the architect

2. Failure to meet that standard of care

3. Damages or injury suffered

4. Damages must be caused by breach of standard of

care

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Duty of Care

Every person owes a duty of care to take

reasonable care not to cause injury to persons

whom they might reasonably anticipate would be

injured by their act or omission

• i.e. owners, inhabitants of buildings, users of buildings

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Standard of Care

“In all the work done for the client, the architect or

engineer owes a duty to exercise the skill, care

and diligence which may reasonably be expected

of a person of ordinary competence, measured by

the professional standard of the time.”

The Canadian Law of Architecture and Engineering, Second Edition,

Beverley M. McLachlin, Wilfred J. Wallace, Arthur M. Grant

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Standard of Care

Standard usually determined through:

• Expert advice (usually must be architect)

• Rules of professional conduct

• Practice bulletins

• Geographic considerations

• Specialty considerations i.e. LEED

• Building codes and regulations

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Risk Management

1) Clear concise contract

2) No oral contract

3) Avoid terms which warrant or guaranty result

4) Clearly set out role

5) New means and methods of construction and

new materials = large number of claims (warn

client of risks)

• Examples - New cladding material

- falling glass cases

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Risk Management

6) Evaluate whether the commission is

appropriate – do you have the capabilities?

7) Evaluate the client’s resources

8) Skimping on general review = lawsuits

9) If not retained for review, do not drop in

because you are in the neighborhood

10)Beware of conversion (not covered by Tarion)

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Risk Management

11)Suggest client contract directly with engineers

(if not, check to see if consultant’s insurance is

adequate)

12)Sub-consultants should adopt provisions of

client/architect agreement

13)Limit liability through clauses in contract

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Risk Management

14.Carefully consider prospect of a counterclaim before sending account to collection or suing for fees

15.Be even-handed and fair in dealing with contractor

16.Take care in signing standard progress certificates of lenders or surety companies

17.Take care with signing off on buildings

18.Put advice (given and received) in writing

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Forums for Dispute Resolution

• Mediation

• Arbitration

• Litigation

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Mediation

• Parties meet with an impartial third party

• Contractual requirement or agreement

• Agree on a mediator, who should be an impartial person whose views and opinions the parties will respect

• Prepare and exchange briefs setting out their positions and the facts

• Can also have discovery process and “hot tub” sessions

• Without prejudice

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Mediation

1. Mandatory now for court proceedings

commenced in Toronto, Ottawa, Essex

2. Before a neutral third party

3. Mediator does not decide merits

4. Mediator utilizes “shuttle diplomacy” in an

attempt to broker a settlement

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Mediation

• Low risk exercise

• Number of advantages:

• Empowers the principals to take control of the

settlement process

• Private process

• Cathartic opportunity

• Opportunity to reach a compromise solution

• Expedite resolution

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Mediation

• Situations when it is not appropriate to conduct a mediation:• The parties do not yet have sufficient information

• Experts’ reports on critical issues are necessary

• Emotional anger and pain too fresh

• One party or the other is so unrealistic and inflexible in their position

• Relief sought in the dispute, for example an injunction, is only available in court

• One party wants a court decision to use as a precedent

• One party has no interest in speeding up the resolution

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Arbitration

• Trial out of court

• Parties select their own adjudicator

• A consensual process

• Often agree to arbitrate their disputes in

advance (i.e. contract provision)

• Process generally more streamlined than a

court case

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Arbitration

• Like a courtroom trial with live witnesses,

cross-examinations and legal submissions

from lawyers

• Generally arbitrator’s award is binding on the

parties

• Arbitration agreement may provide for rights

of appeal to court

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Arbitration

• Advantages:

• Parties determine the process to be followed

• Parties can choose their adjudicator

• Allows parties to set their own schedule

• Process is private

• A less formal process

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Arbitration

• Number of potential drawbacks:

• Arbitration does not create a legal precedent

• Not well suited to cases where there are a large

number of parties

• Not appropriate where one party is seeking to delay

• A party may believe that it can exert more

pressure on the other party through a public

court proceeding

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Litigation

• Construction cases are becoming bigger and

more complex

• Know your rights – i.e. construction liens

• Important to know where you, as an architect,

fall within litigation

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Construction Lien Claims

The purpose of the Construction Lien Act as enunciated in the 1982 Report of the Attorney General’s Advisory Committee is:

“To protect those who contribute their services or materials towards the making of an improvement to a premises. ... While the definition of “improvement” is broad, the Committee has attempted to draft it in such a way that it will be clear that the lien created by the Act applies only in the case of the construction and building repair industries.”

Creation of lien14. (1) A person who supplies services or materials to an improvement for an owner, contractor or subcontractor, has a lien upon the interest of the owner in the premises improved for the price of those services or materials.

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What services are lienable?

Any work or service performed upon or in respect of an improvement –“services must contribute in a direct and essential way to the construction of the improvement”

YES:• contractor (must play active role in improvements)• project manager (murkier – factual determination)• services of estimating• site supervision

NO:• financial consulting services in order to obtain construction loan• legal services• snow plowing and removal

Where the making of the planned improvement is not commenced the supply of a design, plan, drawing or specification that in itself enhances the value of the owner’s interest in the land.

Where plans or specs can be transferred for value to the benefit of any subsequent owner of the land

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Some Lien Basics

When does a claim for lien arise?15. A person’s lien arises and takes effect when the person first supplies services or materials to the improvement. R.S.O. 1990, c. C.30, s. 15.

• do not have to have finished all of your work• consider impact of liening while still working• lien is for price of services and materials relating to the “improvement”

What is included in a claim for lien?

• “price” is agreed upon contract or subcontract price• if no specific price agreed upon, it is the actual value of the services or materials• extras can be included in claim for lien• interest is specifically excluded• claim for damages (i.e. delay damages) is excluded• still can recover interest and damages, just not part of lien claim

Ok, I liened, now what?• Substantial performance of a contract• Completion of a contract• Preservation• Perfection• Order for trial/set down for trial

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Construction Lien Act Review

• Expert review of the Construction Lien Act

• Involves a review of the effectiveness of the Act

in achieving its policy objectives within the

modern context

• Process involves discussions with stakeholders

followed by comprehensive report due April 30,

2016

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Construction Lien Act Review

Some issues to be reviewed include:

• Holdback and substantial performance

• Prompt payment and timely payment

• Adjudication mechanism for construction disputes

in Ontario

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Architects as an Expert

• Expert's duty to provide objective and unbiased

opinion evidence that is of assistance to the trier

of fact

• Must sign Form 53 to acknowledge

understanding of this duty

• Moore v. Getahun, 2015 ONCA 55 (CanLII) –

discussions between lawyers and experts

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QUESTIONS

This presentation may contain general comments on legal issues of concern to organizations and individuals. These comments are not intended to be, nor should they be construed as, legal advice. Please consult a legal professional on the particular issues that concern you.

Contact Information

Bernie McGarva

Partner

416.865.7765

bmcgarva@airdberlis.com

Courtney Raphael

Partner

416.865.3088

craphael@airdberlis.com