Know Your Limits: Court of Appeal agrees that Consultant’s Limits of Liability Extend to Contractors
On September 30, 2019, the Ontario Court of Appeal upheld the Ontario Superior Court decision of Justice Ryan Bell in Mississippi River Power Corporation v. WSP Canada Inc., 2018 ONSC 6104.
This is an important case for owners, consultants and contractors because it means that a limitation of liability clause in a consultant’s contract may also be of benefit to the contractors on the project, which leaves the owner with a smaller pot of money from which to recover in the event of a claim.
The Key Facts:
- On February 22, 2007, Mississippi River Power Corporation (MRPC) entered into a professional services contract with its consultants (collectively referred to as Walker) with respect to a hydroelectric generating facility.
- The professional services contract included an insurance covenant clause whereby MRPC agreed to accept Walker’s insurance coverage of $2,000,000 as Walker’s limit of liability.
- The professional services contract included design services such as preparing designs, working drawings and specifications, preparing bid documentation, and assisting in the prequalification of general contractors. But it did not expressly include services to be provided during the construction phase of the work.
- On July 21, 2008, MRPC entered into a CCDC 2 stipulated price contract with general contractor M. Sullivan & Son Limited. The stipulated price identified Walker as the Consultant and set out Walker’s role as the Consultant.
- During the construction phase of the work, Walker provided MRPC with the services described in the stipulated price contract between MRPC and M. Sullivan & Son Limited. There was no written contract between MRPC and Walker with respect to the construction phase of the work. Walker’s invoices for the construction phase of the work had a different job number and description than its invoices during the design phase of the work.
- The new generating station was commissioned in April 2010. In June 2012, it was discovered that one of the penstocks had failed. MRPC brought an action against Walker, the general contractor and others.
The Key Issues before the Court:
- Walker brought a motion before the Court seeking an order to limit their potential liability to $2,000,000 as per the professional services agreement and an order confirming that its liability to the other defendants (i.e. the general contractor and others on the project) was also limited to $2,000,000.
- MRPC argued that professional services contract was with respect to the design phase of the project only and that it had no bearing on the construction phase.
- The general contractor and other contractors (other defendants) sought an order extending the benefit of contractual limitation of liability to them and a declaration that MRPC was barred from seeking any damages attributable to Walker in excess of $2,000,000 from them.
The Court’s Finding:
- The Judge found that the contract between MRPC and Walker “was extended by way of the stipulated price contract so as to apply to the services provided by Walker during the construction phase of the project.” In other words, the limitation of liability clause in the professional services agreement applied to the construction phase of the project.
- The Judge found that the benefit of the insurance covenant extended to the general contractor and other contractors. To not extend it would expose Walker to claims from the general contractor and other contractors, rendering the protection under the limitation of liability clause meaningless. Furthermore, not extending it would mean that the general contractor and the other contractors would take on liabilities that were otherwise not their own.
- Walker’s (the Consultant) liability to MRPC (the Owner) for the construction phase of the work was limited to $2,000,000.
- The potential liability of the other defendants (the General Contractor and other contractors) to MRPC (the Owner) was limited to $2,000,000.
- MRPC (the Owner) was not entitled to seek any damages attributable to Walker (the Consultant), in excess of $2,000,000, from the remaining defendants (the General Contractor and other contractors).
- Contractors → be aware that there may be an agreement in place between the Owner and the Consultant with limitations of liability that benefit you.
- Consultants → be aware that your limitation of liability clauses with the Owner may also be of benefit to you in respect to claims brought by the Contractor and others.
- Owners → be aware that an agreement with respect to limitations on liability with your Consultant may limit your ability to recover money for claims against both your Consultant and your Contractor(s).
This article first appeared in the Ottawa Construcion Association’s Construction Comment Magazine.