Warranties and Construction Work

 

Written by Ryan M. Morstad, Law Student

Email: rmorstad@gfslaw.ca

 

It’s the middle of Winter and you, as the General Contractor, get a call from the owner of your newly constructed condominium building in the middle of the night. A pipe on the third floor has become disconnected and is leaking water, which is seeping through the drywall, and out into the hallway. The water is spreading, and you are unable to turn it off. You call your plumbing sub-contractor; however, they have an “out of office” set stating that they will not be returning for 5 days. What should you do? Should you wait for the sub or hire a third party to repair? If you hire a third party to repair will this void the subs warranty?

Mitigation of Damages

Those who encounter a warrantable construction defect that is causing damage, have a duty to mitigate. The obligation to mitigate is not limited to defects or deficiencies and exists regardless of the nature of the claim.  Mitigating damages means that if your plumbing sub-contractor for example has installed a faulty pipe that leaks, it cannot simply be left to cause damage. Under the law of contract, a wronged party must avoid “unreasonable accumulation” of damages and take steps to limit the impacts of the wrongful conduct[1] (i.e., the faulty pipe installation). Generally, this will involve contacting the company who has installed whatever is causing the damage and allowing them the opportunity to come and repair.  However if that contractor cannot, or does not, respond in a reasonable amount of time, other steps should be taken, such as, hiring a third party to repair faulty work. What is considered to be reasonable time will depend on the circumstances.  In the above example of the pipe leaking, factors to consider would be the size and location of the leak, the external temperature, and whether the leaking water can easily be contained. The key is that the sub-contractor must be given a “reasonable” amount of time to repair the damaged or faulty work.

What happens to the warranty if someone else fixes the defect?  Will my warranty still be valid? 

Having a third-party complete repair work may raise other questions about the warranty on the original work. A term that limits the warranty is known as an “exclusion clause” and will only be found to be enforceable in certain circumstances.

Generally speaking, sophisticated parties such as contractors, who enter into a contract will be bound by the terms of the contract, which includes any agreed to exclusions. An exception to this rule occurs where an exclusion clause in the contract is “onerous or unusual”[2]. Terms that exclude a contractor from liability, or limit ones right to repair, may be seen as onerous, as the cost of repairing deficiencies in manufacture or installation can be astronomical. Onerous or unusual clauses require “reasonably sufficient” notice of the clause, or else it will not be enforceable. Determining reasonably sufficient notice involves a contextual analysis and may be met by an augmented size of font, highlighting, or specifically explaining or mentioning the clause to the signing party[3]. The more onerous the exclusion clause, the greater the requirement will be for the notice to be seen as reasonable[4].  Even if notice is given, Courts may choose not to enforce an exclusion of liability clause for public policy reasons, or if it is unconscionable. A clause will be seen as unconscionable if the parties have great inequality in their bargaining power, due to the ignorance, need, or distress of the weaker leaving them in the power of the stronger, coupled with the agreement being substantially unfair[5]. Proving a contract between two businesses as being unconscionable would however be difficult a difficult exercise.

An exclusion clause must also be in “clear, unequivocal language” and will be strictly construed against the party seeking to enforce it[6]. This means that any ambiguities will be resolved in favour of the party defending against the clause. Therefore, a clause outlining that third parties are not permitted under any circumstances to repair the work may be valid and binding. If it is, deficiencies that cause damages will likely remain recoverable in court, however this will be dealt with as a breach of contract issue, and will be separate from any questions about the validity of the warranty. If a clear exclusion of liability clause is in your contract, contractors would be wise to do whatever they can to mitigate damages without affecting the original work. Nonetheless, if repairs to the original work are done, courts may still give effect to the warranty for fairness, and public policy reasons.

[1] Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al., 1978 CanLII 16 (SCC)

[2] Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd, [1989] QB 433

[3] See: Karroll v Silverstar Mountain Resorts,1988 Canlii 3294 (BCSC), Tilden Rent-A-Car Co. v. Clendenning, 1978 CanLII 1446 (ON CA)

[4] Apps v. Grouse Mountain Resorts Ltd., 2020 BCCA 78 (CanLII) para 25

[5] Harry v. Kreutziger (1978), 95 D.L.R. (3d) 231 (BCCA)

[6] Edmonton (City of) v. Lovat Tunnel Equipment Inc., 2000 ABQB 882