Contractual Limitation Period
On May, 7, 2008 the British Columbia Court of Appeal unanimously upheld two British Columbia Supreme Court decisions that held that, based on a limitation clause in a standard client architect agreement, the client could not bring an action against the architect more than six years after substantial performance of the work. This is a vast improvement on the Limitation Act ultimate limitation period of 30 years.
The facts in both cases were very similar. The architects had designed new schools in two difference school districts. Substantial performance of the schools was in 1994 and 1996. The school districts filed lawsuits against the architects in 2003 and 2004, alleging that the schools had suffered damage as a result of undetected water ingress and this damage was caused by the negligent design of the schools’ envelope by the architects.
The architects challenged the lawsuits on the basis that the client architect agreement, in each case, contained the same limitation clause, which was a bar to the action. The limitation clause provided as follows:
The Architect’s liability for all claims of the Client arising out of this agreement shall absolutely cease to exist after a period of six (6) years from the date of:
(a) Substantial Performance of the Work,
(b) suspension or abandonment of the project,
(c) termination of the Architects services in this agreement, or
(d) commencement of the limitation period for claims prescribed by any statute of the province or territory of the Place of the Work,whichever shall first occur, and following the expiration of such period, the Client shall have no claim whatsoever against the Architect. The Architect’s liability with respect to any claims arising out of this agreement shall be absolutely limited to direct damages arising out of the Architect’s services rendered under this agreement, and the Architect shall bear no liability whatsoever for any consequential loss, injury or damage incurred by the Client, including but not limited to claims for loss of profits and loss of markets.
The school boards argued that they were not aware of the latent defects in the design or construction that caused the water ingress until shortly before the actions were commenced. The school boards argued that the reference in subparagraph (d) to the Limitation Act thereby incorporated the “discoverability” postponement provision in the Limitation Act. Under that provision, the limitation period does not begin to run until the claimant knows, or ought to have known, of the defects and the identity of the responsible parties. Both trial courts and the Court of Appeal rejected that argument and held that the clause in the client architect agreement was clear and there was no “discoverability” postponement applicable to subparagraph (a).
The Court of Appeal held:
I agree with the trial judges that the contracts reflect the common intention of the parties to limit the architect’s risk of liability for tort and breach of contract by agreement. They agreed through clear and unambiguous words to allocate risks of negligent design in a manner that limited any application of the postponement provisions of the Limitation Act to a period within six years from the date of substantial performance of the work, and there are no policy reasons to interfere with that contractual arrangement.
This decision by the Court of Appeal upholds the use of limitation clauses in professional services agreements to limit the time within which the client may claim against the professional for an alleged defect in the professional services. You should use this limitation in your agreements with clients. In the absence of this limitation, you will be bound by the Limitation Act, which has a six-year limitation for professional negligence, but due to the “discoverability” postponement provision this six-year limitation period can be extended to the 30-year ultimate limitation period.
Finally, the scope of this decision has to be recognized. As with any clause in your professional services agreement, it only binds you and the client. This contractual limitation period would not be effective as against a third party. Thus if these schools had not been schools, but rather, multifamily residential strata buildings, and the claimant was not the client/developer, but rather, the strata corporation, the contractual limitation period would not bind the strata corporation because the strata corporation was not a party to the professional services agreement.
Robert Hunter is a partner with Bull, Housser & Tupper LLP in the area of engineering and construction litigation. He is recognized as a leading lawyer in the area of construction law and administrative law.