Winnipeg Condominium Corporation No. 36 v. Bird Construction Co.

Winnipeg Condominium Corporation No. 36 v. Bird Construction Co.
Collection
Supreme Court Judgments
Date
1995-01-26
Report
[1995] 1 SCR 85
Case number
23624
Judges
La Forest, Gérard V.; L'Heureux-Dubé, Claire; Sopinka, John; Cory, Peter deCarteret; McLachlin, Beverley; Iacobucci, Frank; Major, John C.
On appeal from
Manitoba
Subjects
Torts
Notes
SCC Case Information: 23624
Decision Content
Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85
Winnipeg Condominium Corporation No. 36 Appellant
v.
Bird Construction Co. Ltd. Respondent
and
Smith Carter Partners Intervener
Indexed as: Winnipeg Condominium Corporation No. 36 v. Bird Construction Co.
File No.: 23624.
1994: October 12; 1995: January 26.
Present: La Forest, L'Heureux‑Dubé, Sopinka, Cory, McLachlin, Iacobucci and Major JJ.
on appeal from the court of appeal for manitoba
Torts ‑‑ Negligence ‑‑ Economic loss ‑‑ Building sold by developer after construction -- Dangerous defect in building ‑‑ Defect repaired to prevent serious damage or accident -- Liability for cost of repair ‑‑ Whether or not contractor liable in tort for economic loss to subsequent purchaser.
A land developer contracted with respondent to build an apartment building in accordance with plans and specifications prepared by the intervener (an architectural firm). Respondent subcontracted the masonry portion of the work. The building was converted into a condominium in October, 1978, when appellant became the registered subsequent owner of the land and building. In 1982, the appellant's directors became concerned about the masonry work on the exterior cladding of the building. They retained the architects (the intervener) and a firm of consulting engineers to inspect the building. The architects and engineers offered the opinion that the building was structurally sound. In 1989, a storey-high section of the cladding fell from the ninth storey level of the building. The appellant had further inspections undertaken which revealed structural defects in the masonry work. Following these inspections, the entire cladding was replaced at the appellant's expense.
Appellant commenced an action in negligence against the respondent, the intervener and the subcontractor. The statement of claim detailed alleged inadequacies in design and workmanship, without assigning specific blame to one defendant or another. Respondent and the subcontractor filed notices of motion for summary judgment and notices of motion to strike the claim as disclosing no reasonable cause of action with the Manitoba Court of Queen's Bench. Both motions were dismissed. Respondent appealed to the Court of Appeal but the subcontractor did not. The appeal was dismissed with respect to the motion for summary judgment but allowed with respect to the motion to strike, and the statement of claim was struck out as against respondent. At issue in this appeal is whether a general contractor responsible for the construction of a building may be held tortiously liable for negligence to a subsequent purchaser of the building, who is not in contractual privity with the contractor, for the cost of repairing defects in the building arising out of negligence in its construction.
Held: The appeal should be allowed.
The Court of Appeal erred in deciding that the costs of repair claimed by appellant are not recoverable economic loss under the law of tort in Canada. The law has now progressed to the point where contractors (as well as subcontractors, architects and engineers) who take part in the design and construction of a building will owe a duty in tort to subsequent purchasers of the building if it can be shown that it was foreseeable that a failure to take reasonable care in constructing the building would create defects that pose a substantial danger to the health and safety of the occupants. Where negligence is established and such defects manifest themselves before any damage to persons or property occurs, they can be held liable for the reasonable cost of repairing the defects and putting the building back into a non-dangerous state.
In coming to its conclusion that the losses claimed by the appellant were not recoverable in tort, the Court of Appeal followed the reasoning of the House of Lords in D & F Estates Ltd. v. Church Commissioners for England. That decision should no longer be seen as having strong persuasive authority in Canadian tort law. First, it is inconsistent with recent Canadian decisions recognizing the possibility of concurrent contractual and tortious duties. Second, it is inconsistent with the continued application in Canada of the principles with respect to the recoverability of economic loss in tort established in Anns v. Merton London Borough Council and adopted by this Court in City of Kamloops v. Nielsen.
The losses claimed by appellant satisfy the two-part test for recoverability of economic loss established in Anns and Kamloops. First, it is reasonably foreseeable to contractors that, if they design or construct a building negligently and if that building contains latent defects as a result of that negligence, subsequent purchasers of the building may suffer personal injury or damage to other property when those defects manifest themselves. The reasonable likelihood that a defect in a building will cause injury to its inhabitants is also sufficient to ground a contractor's duty in tort to subsequent purchasers of the building for the cost of repairing the defect if that defect is discovered prior to any injury and if it poses a real and substantial danger to the inhabitants of the building. In coming to this conclusion, this Court adopts the reasoning of Laskin J. in Rivtow Marine Ltd. v. Washington Iron Works. If a contractor can be held liable in tort where he or she constructs a building negligently and, as a result of that negligence, the building causes damage to persons or property, it follows that the contractor should also be held liable in cases where the dangerous defect is discovered and the owner of the building wishes to mitigate the danger by fixing the defect and putting the building back into a non-dangerous state. In both cases, the duty in tort serves to protect the bodily integrity and property interests of the inhabitants of the building.
Apart from the logical force of holding contractors liable for the cost of repair of dangerous defects, a strong underlying policy justification also exists for imposing liability in these cases. Maintaining a bar against recoverability for the cost of repair of dangerous defects provides no incentive for plaintiffs to mitigate potential losses and tends to encourage economically inefficient behaviour. Allowing recovery against contractors in tort for the cost of repair of dangerous defects thus serves an important preventative function by encouraging socially responsible behaviour.
The present case is distinguishable on a policy level from cases where the workmanship is merely shoddy or substandard but not dangerously defective. Tort law serves to encourage the repair of dangerous defects and thereby to protect the bodily integrity of inhabitants of buildings. By contrast, cases of shoddy or substandard workmanship bring into play the questions of quality of workmanship and fitness for purpose. These questions did not arise here. Accordingly, if respondent is found negligent at trial, appellant would be entitled to recover the reasonable cost of putting the building into a non‑dangerous state but not the cost of any repairs that would serve merely to improve the quality, and not the safety, of the building.
Second, there are no policy considerations which are sufficiently compelling to negate the duty. There is no risk of liability to an indeterminate class because the potential class of claimants is limited to the very persons for whom the building is constructed: the inhabitants of the building. There is no risk of liability in an indeterminate amount because the amount of liability will always be limited by the reasonable cost of repairing the dangerous defect in the building and restoring that building to a non-dangerous state. There is little risk of liability for an indeterminate time because the contractor will only be liable for the cost of repair of dangerous defects during the useful life of the building. Practically speaking, the period in which the contractor may be exposed to liability for negligence will be much shorter than the full useful life of the building. With the passage of time, it will become increasingly difficult for owners of a building to prove at trial that any deterioration in the building is attributable to the initial negligence of the contractor and not simply to the inevitable wear and tear suffered by every building. Finally, given the fact that a subsequent purchaser is not the best placed to bear the risk of the emergence of latent defects, the doctrine of caveat emptor should not serve to negate a contractor's duty in tort to subsequent purchasers.
Cases Cited
Considered: Anns v. Merton London Borough Council, [1978] A.C. 728; Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021; Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; Edgeworth Construction Ltd. v. N. D. Lea & Associates Ltd., [1993] 3 S.C.R. 206; City of Kamloops v. Nielsen, [1984] 2 S.C.R. 2; not followed: D & F Estates Ltd. v. Church Commissioners for England, [1988] 2 All E.R. 992; Murphy v. Brentwood District Council, [1990] 2 All E.R. 908; referred to: Rivtow Marine Ltd. v. Washington Iron Works, [1974] S.C.R. 1189; Dutton v. Bognor Regis Urban District Council, [1972] 1 Q.B. 373; Donoghue v. Stevenson, [1932] A.C. 562; Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465; Houle v. Canadian National Bank, [1990] 3 S.C.R. 122; Rothfield v. Manolakos, [1989] 2 S.C.R. 1259; Attorney General for Ontario v. Fatehi, [1984] 2 S.C.R. 536; Terlinde v. Neely, 271 S.E.2d 768 (1980); Drexel Properties, Inc. v. Bay Colony Club Condominium, Inc., 406 So.2d 515 (1981); Bowen v. Paramount Builders (Hamilton) Ltd., [1977] 1 N.Z.L.R. 394; Bryan v. Moloney, Sup. Ct. Tasmania, No. A77/1993, October 6, 1993; Lempke v. Dagenais, 547 A.2d 290 (1988); Richards v. Powercraft Homes, Inc., 678 P.2d 427 (1984); Fraser‑Reid v. Droumtsekas, [1980] 1 S.C.R. 720; Ultramares Corp. v. Touche, 174 N.E. 441 (1931); Aronsohn v. Mandara, 484 A.2d 675 (1984); Podkriznik v. Schwede, [1990] 4 W.W.R. 220; Vaughan v. Warner Communications Inc. (1986), 56 O.R. (2d) 242.
Statutes and Regulations Cited
Civil Code of Quebec, S.Q. 1991, c. 64, arts. 1442, 2118‑2120.
Court of Queen's Bench Rules, Man. Reg. 553/88, Rules 20.01, 25.11.
Authors Cited
Barrett, Sidney R., Jr. "Recovery of Economic Loss in Tort for Construction Defects: A Critical Analysis" (1989), 40 S.C. L. Rev. 891.
Cooke, Sir Robin. "An Impossible Distinction" (1991), 107 L.Q. Rev. 46.
Feldthusen, Bruce. "Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow" (1990‑91), 17 Can. Bus. L.J. 356.
Jobin, Pierre‑Gabriel. La vente dans le Code civil du Québec. Cowansville: Yvon Blais, 1993.
Osborne, Philip H. "A Review of Tort Decisions in Manitoba 1990‑1993", [1993] Man. L.J. 191.
APPEAL from a judgment of the Manitoba Court of Appeal (1993), 85 Man. R. (2d) 81, 41 W.A.C. 81, 101 D.L.R. (4th) 699, 15 C.C.L.T. (2d) 1, 6 C.L.R. (2d) 1, [1993] 5 W.W.R. 673, striking out a statement of claim on allowing an appeal from a judgment of Galanchuk J. (1992), 84 Man. R. (2d) 23, dismissing an application to strike out or alternatively for summary judgment. Appeal allowed.
Kevin T. Williams and Paul Forsyth, for the appellant.
Sidney Green, Q.C., and Murdoch MacKay, Q.C., for the respondent.
David I. Marr and Roger B. King, Q.C., for the intervener Smith Carter Partners.
The judgment of the Court was delivered by
1 La Forest J. -- May a general contractor responsible for the construction of a building be held tortiously liable for negligence to a subsequent purchaser of the building, who is not in contractual privity with the contractor, for the cost of repairing defects in the building arising out of negligence in its construction? That is the issue that was posed by a motion for summary judgment and a motion to strike out a claim as disclosing no reasonable cause of action argued before Galanchuk J. of the Manitoba Court of Queen's Bench pursuant to Rules 20.01 and 25.11 of the Manitoba Court of Queen's Bench Rules, Man. Reg. 553/88. Galanchuk J. dismissed the motions, but the Court of Appeal of Manitoba allowed an appeal from this decision and struck out the claim against the contractor on the grounds that the damages sought were for economic loss, which were not recoverable in the circumstances, and hence that the claim did not disclose a reasonable cause of action.
2 For reasons that will appear, I do not, with respect, share the views of the Court of Appeal; I agree with Galanchuk J. that the action should proceed to trial. The facts as set out before Galanchuk J. are contained in the appellant's amended statement of claim, the respondent's statement of defence and notice of motion. These facts are as follows.
Facts
3 On April 19, 1972, a Winnipeg land developer, Tuxedo Properties Co. Ltd. ("Tuxedo"), entered into a contract ("the General Contract") with a general contractor, Bird Construction Co. Ltd. ("Bird"), for the construction of a 15-storey, 94-unit apartment building. In the General Contract, Bird undertook to construct the building in accordance with plans and specifications prepared by the architectural firm of Smith Carter Partners ("Smith Carter"), with whom Tuxedo also had a contract. On June 5, 1972, Bird entered into a subcontract with a masonry subcontractor, Kornovski & Keller Masonry Ltd. ("Kornovski & Keller"), under which the latter undertook to perform the masonry portion of the work specified under the General Contract. The work called for by the General Contract commenced in April, 1972 and the building was substantially completed by December, 1974.
4 The building was initially built and used as an apartment block, but was converted into a condominium in October, 1978, when Winnipeg Condominium Corporation No. 36 ("the Condominium Corporation") became the registered owner of the land and building. The facts surrounding the conversion were a subject of dispute between the parties, but during oral argument the appellant conceded for the purposes of this appeal that the Condominium Corporation was a subsequent owner of the building and was not the alter ego of the original owner. I shall accordingly deal with the appeal on the assumption that this was indeed the case.
5 In 1982, the Board of Directors of the Condominium Corporation became concerned about the state of the exterior cladding of the building (consisting of 4-inch thick slabs of stone), which had been installed by the subcontractor, Kornovski & Keller. The directors observed that some of the mortar had broken away and that cracks were developing in the stone work. As a result of these concerns, the Condominium Corporation retained a firm of structural engineers and the original architects, Smith Carter, to inspect the building. The engineers and Smith Carter recommended some minor remedial work but offered the opinion that the stonework on the building was structurally sound. The remedial work, costing $8,100, was undertaken at the Condominium Corporation's expense in 1982.
6 On May 8, 1989, a storey-high section of the cladding, approximately twenty feet in length, fell from the ninth storey level of the building to the ground below. The Condominium Corporation retained engineering consultants who conducted further inspections. Following these inspections, the Condominium Corporation had the entire cladding removed and replaced at a cost in excess of $1.5 million.
7 An action was commenced in negligence by the Condominium Corporation against Bird, Smith Carter and Kornovski & Keller. The Condominium Corporation, in its statement of claim, detailed alleged inadequacies in design and workmanship, without assigning specific blame to one defendant or another. Bird responded by filing a notice of motion for summary judgment and a motion to strike the Condominium Corporation's claim as disclosing no reasonable cause of action with the Manitoba Court of Queen's Bench. Galanchuk J. heard the motions, along with a similar one by the subcontractor. Smith Carter did not bring a motion of its own, but appeared and was allowed to support the motions of its co-defendants. Both motions were dismissed. Bird appealed to the Court of Appeal but the subcontractor did not. The appeal was dismissed with respect to the motion for summary judgment but allowed with respect to the motion to strike and the statement of claim was struck out as against Bird.
Judgments Below
Court of Queen's Bench for Manitoba (1992), 84 Man. R. (2d) 23 (Galanchuk J.)
8 Galanchuk J. dismissed Bird's motion for summary judgment and its motion to strike the Condominium Corporation's claim as disclosing no reasonable cause of action on the grounds that the Condominium Corporation's claim disclosed a reasonable cause of action and that the issues raised before him were genuine. He observed that the parties had raised real issues of credibility and had introduced conflicting evidence of sufficient complexity to warrant a trial. With respect to Bird's argument that the Condominium Corporation's loss was pure economic loss and therefore not recoverable against Bird, he held that that issue had to be dealt with by a trial judge and that the following question (at p. 28) would have to be answered at trial:
Is there a sufficient degree of foreseeability of harm and proximity of the parties to impose liability in all of the circumstances of this case to warrant the plaintiff's claim for recovery?
Court of Appeal (1993), 85 Man. R. (2d) 81 (Huband J.A., Scott C.J. and Philp J.A. concurring)
9 The Court of Appeal, we saw, allowed the appeal and struck out the Condominium Corporation's claim as against Bird. Huband J.A., writing for a unanimous court, decided that the expenses incurred by the Condominium Corporation in repairing the building were pure economic loss and not recoverable against Bird in tort. In reaching this decision, he found the decision by the House of Lords in D & F Estates Ltd. v. Church Commissioners for England, [1988] 2 All E.R. 992, to be directly on point. In that case, the House of Lords ruled that, in the absence of a contractual relationship, the cost of repairing a defective structure, where the defect is discovered before it causes personal injury or physical damage to other property, is not recoverable in negligence by a remote buyer of real property against the original contractor or builder. Applying this reasoning, Huband J.A. observed that, even if Bird's employees, rather than the subcontractor Kornovski & Keller, had affixed the exterior cladding, the Condominium Corporation would not have had a claim in negligence because the damages claimed for the cost of repairing the cladding would still have been purely economic in nature. In support of this conclusion, he quoted with approval the following passage from the reasons of Lord Bridge in D & F Estates, at p. 1006:
. . . liability can only arise if the defect remains hidden until the defective structure causes personal injury or damage to property other than the structure itself. If the defect is discovered before any damage is done, the loss sustained by the owner of the structure, who has to repair or demolish it to avoid a potential source of danger to third parties, would seem to be purely economic. Thus, if I acquire a property with a dangerously defective garden wall which is attributable to the bad workmanship of the original builder, it is difficult to see any basis in principle on which I can sustain an action in tort against the builder for the cost of either repairing or demolishing the wall. No physical damage has been caused. All that has happened is that the defect in the wall has been discovered in time to prevent damage occurring.
10 Huband J.A. found that the law as stated in D & F Estates was consistent with Canadian law. He expressed some concern about the fact that Lord Bridge and Lord Oliver in D & F Estates had expressly criticized the earlier decision of the House of Lords in Anns v. Merton London Borough Council, [1978] A.C. 728, in which Lord Wilberforce had set down a two-stage negligence test and had suggested, in an obiter passage, that liability might fall upon a contractor in similar circumstances to the case at bar. Huband J.A. observed that the application of the reasoning in D & F Estates by Canadian courts may be problematic because D & F Estates paved the way for the full repudiation of Anns by the Law Lords in Murphy v. Brentwood District Council, [1990] 2 All E.R. 908 (H.L.). By contrast, he noted, this Court explicitly declined, in Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021, to abandon Anns.
11 However, Huband J.A. resolved the problem by deciding that the result in this case would be the same under either the Anns or the Murphy approach. First, Huband J.A., at p. 90, found that the concept of caveat emptor negated any relationship of proximity as defined under the first stage of Lord Wilberforce's two-stage Anns approach:
The maxim, caveat emptor, operates as between purchaser and vendor. But the very existence of the principle instructs the potential purchaser to rely upon his own investigations, inspections and inquiries, and not to rely upon the fact that the vendor had retained Smith Carter Partners as architects, Bird as general contractor, and that Kornovski & Keller was one of the subcontractors, and since they are reputable firms, the integrity of the building can be safely assumed. The concept of "buyer beware" tells the potential purchaser that if it seeks greater protection than its own investigations, inspections and inquiries provide, it should seek appropriate warranties from the vendor or, if that cannot be bargained, to seek out an insurer to cover anticipated future risks.
Second, Huband J.A., at p. 86, found that the House of Lords in D & F Estates had set forth sufficiently compelling policy concerns to justify precluding recovery under the second branch of the Anns test:
The great debate as to whether the Anns case was correctly decided and should be followed, or whether the reasoning in Murphy should be preferred will rage on. But in certain cases, I do not think that the difference in approach will yield a difference in result. In the D & F Estates case, the House of Lords did in fact consider whether there were factors which should negative, reduce or limit the scope of a duty of care owed by a building contractor to the subsequent lessee of the building, or a limitation on the damages to which a breach of that duty may give rise. The court found that considerations did exist which should limit the remedy. Lord Bridge observed that with respect to defective chattels, economic loss is recoverable in contract by a buyer or hirer of the chattel entitled to the benefit of a relevant warranty of quality, but economic loss is "not recoverable in tort by a remote buyer or hirer of the chattel". Lord Bridge concluded that the same law should apply in the field of real property and this need for consistency should indeed limit the breadth of a remedy for a breach of a duty of care.
Analysis
12 This case gives this Court the opportunity once again to address the question of recoverability in tort for economic loss. In Norsk, supra, at p. 1049, I made reference to an article by Professor Feldthusen in which he outlined five different categories of cases where the question of recoverability in tort for economic loss has arisen ("Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow" (1990-91), 17 Can. Bus. L.J. 356, at pp. 357-58), namely:
1. The Independent Liability of Statutory Public Authorities;
2. Negligent Misrepresentation;
3. Negligent Performance of a Service;
4. Negligent Supply of Shoddy Goods or Structures;
5. Relational Economic Loss.
I stressed in Norsk that the question of recoverability for economic loss must be approached with reference to the unique and distinct policy issues raised in each of these categories. That is because ultimately the issues concerning recovery for economic loss are concerned with determining the proper ambit of the law of tort, an exercise that must take account of the various situations where that question may arise. This case raises issues different from that in Norsk, which fell within the fifth category. The present case, which involves the alleged negligent construction of a building, falls partially within the fourth category, although subject to an important caveat. The negligently supplied structure in this case was not merely shoddy; it was dangerous. In my view, this is important because the degree of danger to persons and other property created by the negligent construction of a building is a cornerstone of the policy analysis that must take place in determining whether the cost of repair of the building is recoverable in tort. As I will attempt to show, a distinction can be drawn on a policy level between "dangerous" defects in buildings and merely "shoddy" construction in buildings and that, at least with respect to dangerous defects, compelling policy reasons exist for the imposition upon contractors of tortious liability for the cost of repair of these defects.
13 Traditionally, the courts have characterized the costs incurred by a plaintiff in repairing a defective chattel or building as "economic loss" on the grounds that costs of those repairs do not arise from injury to persons or damage to property apart from the defective chattel or building itself; see Rivtow Marine Ltd. v. Washington Iron Works, [1974] S.C.R. 1189, at p. 1207. For my part, I would find it more congenial to deal directly with the policy considerations underlying that classification as was done in an analogous situation in Dutton v. Bognor Regis Urban District Council, [1972] 1 Q.B. 373 (C.A.), per Denning M.R. (aux pp. 396-98), and Sachs L.J. (aux pp. 403-4). However, I am content to deal with the issues in the terms in which the arguments were formulated. Adopting this traditional characterization as a convenient starting point for my analysis, I observe that the losses claimed by the Condominium Corporation in the present case fall quite clearly under the category of economic loss. In their statement of claim, the Condominium Corporation claim damages in excess of $1.5 million from the respondent Bird, the subcontractor Kornovski & Keller and the architects Smith Carter, representing the cost of repairing the building subsequent to the collapse of the exterior cladding on May 8, 1989. The Condominium Corporation is not claiming that anyone was injured by the collapsing exterior cladding or that the collapsing cladding damaged any of its other property. Rather, its claim is simply for the cost of repairing the allegedly defective masonry and putting the exterior of the building back into safe working condition.
14 Although most of the Condominium Corporation's submissions before this Court were directed toward establishing that the costs of repair were recoverable economic loss, counsel for the Condominium Corporation made a subsidiary claim that the losses in question could, in fact, be characterized as damage to property as opposed to pure economic loss. In D & F Estates, supra, at pp. 1006-7, Lord Bridge observed, in obiter, that:
. . . it may well be arguable that in the case of complex structures, . . . one element of the structure should be regarded for the purpose of the application of the principles under discussion as distinct from another element, so that damage to one part of the structure caused by a hidden defect in another part may qualify to be treated as damage to `other property'. . . .
Counsel for the Condominium Corporation argued that the collapse of the cladding may have been attributable to the negligent installation of certain metal ties. Following the logic suggested by Lord Bridge, counsel argued that the loss suffered was not, in fact, economic loss but, rather, damage to "other property" and thus recoverable under the principles established in Donoghue v. Stevenson, [1932] A.C. 562 (H.L.). In other words, he sought to localize the defect in one part of the structure and to claim that the damage to the rest of the structure was "caused" in some manner by the defect.
15 I note at the outset that I do not find the Condominium Corporation's argument on this subsidiary point persuasive. In Murphy, supra, at pp. 926-28, Lord Bridge reconsidered and rejected the "complex structure" theory he had suggested in D & F Estates, criticizing the theory on the following basis (at p. 928):
The reality is that the structural elements in any building form a single indivisible unit of which the different parts are essentially interdependent. To the extent that there is any defect in one part of the structure it must to a greater or lesser degree necessarily affect all other parts of the structure. Therefore any defect in the structure is a defect in the quality of the whole and it is quite artificial, in order to impose a legal liability which the law would not otherwise impose, to treat a defect in an integral structure, so far as it weakens the structure, as a dangerous defect liable to cause damage to `other property'.
A critical distinction must be drawn here between some part of a complex structure which is said to be a `danger' only because it does not perform its proper function in sustaining the other parts and some distinct item incorporated in the structure which positively malfunctions so as to inflict positive damage on the structure in which it is incorporated. Thus, if a defective central heating boiler explodes and damages a house or a defective electrical installation malfunctions and sets the house on fire, I see no reason to doubt that the owner of the house, if he can prove that the damage was due to the negligence of the boiler manufacturer in the one case or the electrical contractor in the other, can recover damages in tort on Donoghue v. Stevenson principles.
I am in full agreement with Lord Bridge's criticisms of the "complex structure" theory. In cases involving the recoverability of economic loss in tort, it is preferable for the courts to weigh the relevant policy issues openly. Since the use of this theory serves mainly to circumvent and obscure the underlying policy questions, I reject the use of the "complex structure" theory in cases involving the liability of contractors for the cost of repairing defective buildings.
16 Proceeding on the assumption, then, that the losses claimed in this case are purely economic, the sole issue before this Court is whether the losses claimed by the Condominium Corporation are the type of economic losses that should be recoverable in tort. In coming to its conclusion that the losses claimed by the Condominium Corporation are not recoverable in tort, the Manitoba Court of Appeal, we saw, followed the reasoning of the House of Lords in D & F Estates. In that case, the House of Lords found that the cost of repairing a defect in a building is not recoverable in negligence by a successor in title against the original contractor in the absence of a contractual relationship or a special relationship of reliance. I should say that the Court of Appeal might well have come to the same conclusion on the basis of the majority opinion in Rivtow, supra, an issue I will take up later. Here I shall dispose of the arguments relating to D & F Estates.
17 The facts in D & F Estates were as follows. The defendants were the main contractors hired by the owner of a piece of land to construct a block of flats between 1963 and 1965. The contractors hired a sub-contractor to carry out plastering work on the building which, it was later discovered, was performed negligently. In 1965, after the block was completed, the plaintiffs took a 98 year lease on a flat from the owner of the block. In 1980, the plaintiffs discovered that the plaster on the ceilings and on one wall was loose and that some of the plaster had fallen down. The plaintiffs had the remaining plaster hacked off and the areas affected were replastered and redecorated at the plaintiff's expense. The plaintiff sued the original contractor in tort for the cost of the repairs and the estimated cost of future remedial work. At trial, the judge awarded damages against the contractors in respect of cost of the remedial work on the grounds that the contractors had been negligent in supervising the plastering work. The Court of Appeal reversed the trial judge's decision, and the plaintiff appealed to the House of Lords.
18 The House of Lords dismissed the appeal on two principal grounds. First, they decided that any duty owed by a contractor to a home owner with respect to the quality of construction in a building must arise in contract, and not in tort. They based this conclusion upon a concern that allowing recoverability for the cost of repairing defects in buildings would have the effect of creating a non-contractual warranty of fitness; see D & F Estates, at p. 1007.
19 Second, they decided that a contractor can only be held liable in tort to subsequent purchasers of a building when the contractor's negligence causes physical injury to the purchasers, damage to their other property, or where a special relationship of reliance has developed between the contractor and the purchasers along the lines suggested in Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465. See D & F Estates, at p. 1014.
20 There was no contract between the plaintiff and the defendants in D & F Estates, and the Law Lords found no special relationship of reliance on the facts of the case. Accordingly, they reasoned that the cost of repairing defective plaster fell under the category of "pure economic loss". Since the negligence in that case did not result in damage to persons or property, they concluded that the plaintiff could not claim that expense against the contractor. Lord Bridge expressed the conclusion as follows, at p. 1006:
. . . liability can only arise if the defect remains hidden until the defective structure causes personal injury or damage to property other than the structure itself. If the defect is discovered before any damage is done, the loss sustained by the owner of the structure, who has to repair or demolish it to avoid a potential source of danger to third parties, would seem to be purely economic.
Lord Oliver came to a similar conclusion, at p. 1014:
. . . such loss is not in principle recoverable in tort unless the case can be brought within the principle of reliance established by Hedley Byrne. In the instant case the defective plaster caused no damage to the remainder of the building and in so far as it presented a risk of damage to other property or to the person of any occupant that was remediable simply by the process of removal.
21 Huband J.A. found the reasoning in D & F Estates to be compelling and of strong persuasive authority and, on that basis, came to the conclusion that the cost of repair of the defects in the building were not recoverable in tort by the Condominium Corporation against Bird. With respect, I come to a different conclusion. In my view, where a contractor (or any other person) is negligent in planning or constructing a building, and where that building is found to contain defects resulting from that negligence which pose a real and substantial danger to the occupants of the building, the reasonable cost of repairing the defects and putting the building back into a non-dangerous state are recoverable in tort by the occupants. The underlying rationale for this conclusion is that a person who participates in the construction of a large and permanent structure which, if negligently constructed, has the capacity to cause serious damage to other persons and property in the community, should be held to a reasonable standard of care. Sir Robin Cooke expressed the rationale for this conclusion as follows ("An Impossible Distinction" (1991), 107 L.Q. Rev. 46, at p. 70):
The point is simply that, prima facie, he who puts into the community an apparently sound and durable structure, intended for use in all probability by a succession of persons, should be expected to take reasonable care that it is reasonably fit for that use and does not mislead. He is not merely exercising his freedom as a citizen to pursue his own ends. He is constructing, exploiting or sanctioning something for the use of others. Unless compelling grounds to the contrary can be made out, and subject to reasonable limitations as to time or otherwise, the natural consequences of failure to take due care should be accepted.
22 My conclusion that the type of economic loss claimed by the Condominium Corporation is recoverable in tort is therefore based in large part upon what seem to me to be compelling policy considerations. I shall elaborate in more detail upon these later in my reasons. However, before doing so, I think it important to clarify why the D & F Estates case should not, in my view, be seen as having strong persuasive authority in Canadian tort law as that law is currently developing. My reasons for coming to this conclusion are twofold: first, to the extent that the decision of the House of Lords in D & F Estates rests upon the assumption that liability in tort for the cost of repair of defective houses represents an unjustifiable intrusion of tort into the contractual sphere, it is inconsistent with recent Canadian decisions recognizing the possibility of concurrent contractual and tortious duties; second, to the extent that the D & F Estates decision formed part of a line of English cases leading ultimately to the rejection of Anns, it is inconsistent with this Court's continued application of the principles established in Anns.
23 Turning to the first of these reasons, I observe that it is now well-established in Canada that a duty of care in tort may arise coextensively with a contractual duty. In Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147, Le Dain J. explained the relationship between tort and contractual duties as follows, at pp. 204-5:
1. The common law duty of care that is created by a relationship of sufficient proximity, in accordance with the general principle affirmed by Lord Wilberforce in Anns v. Merton London Borough Council, is not confined to relationships that arise apart from contract. Although the relationships in Donoghue v. Stevenson, Hedley Byrne and Anns were all of a non-contractual nature and there was necessarily reference in the judgments to a duty of care that exists apart from or independently of contract, I find nothing in the statements of general principle in those cases to suggest that the principle was intended to be confined to relationships that arise apart from contract. . . . [T]he question is whether there is a relationship of sufficient proximity, not how it arose. The principle of tortious liability is for reasons of public policy a general one.
This is not say, of course, that a duty in tort arises out of a duty in contract. In Rafuse, Le Dain J. made it clear that, although duties in tort and contract may arise concurrently, the duty in tort must arise independently of the contractual duty. He stated, at p. 205:
2. What is undertaken by the contract will indicate the nature of the relationship that gives rise to the common law duty of care, but the nature and scope of the duty of care that is asserted as the foundation of the tortious liability must not depend on specific obliga