Owens v. Meritage
Written by Xiyuan Feng, supervised by Professor Bruce Curran
A corporation can be a tool to limit the personal liability of its principals / directors via its independent legal personality. However, a recent judgment of the BC Court of Appeal, The Owners, Strata Plan KAS 3410 v. Meritage Lofts Inc., reminds small business owners in the construction industry, especially those who often participate in planning and constructing the building, that they may be personally responsible for such participation.[1]
Meritage Lofts Inc. (“Meritage”), a small development, construction and general contracting company, developed a building located in Penticton in accordance with Bevanda Architecture Inc.’s (“Bevanda”) design.[2] After the work was completed, the building owners found various defects, including water leakage to the building envelope, for which the owners later sued both companies.[3] Following the owners’ lawsuit, Bevanda commenced third party claims against both Meritage and its directors personally. In response, the directors claimed that Bevanda’s pleading against them personally contained allegations that were identical to those plead against the corporation, and lacked merit since directors are not liable for the tortious conduct of a corporation merely by virtue of their status.[4]
However, the directors failed at trial and before this Court to have themselves removed from the lawsuit. The potential for the directors’ personal liability in tort was created by their engagement in constructing the building[5], such as retaining and coordinating consultants, subcontractors, and suppliers; supervising the construction; and selecting materials.[6] The tort liability of any person in constructing a building posing a real and substantial danger, even in the absence of a contractual relationship, was developed in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co.[7] In deciding the case at bar, the BC Court of Appeal ruled that “despite some inevitable factual overlap, the cause of action pleaded against [the directors] is independent of any corporate liability in respect of Meritage and their potential personal liability is unrelated to the prospect of piercing the corporate veil.”[8] Therefore, the lawsuit against the directors in their personal capacities may proceed.
As the Court noticed, the principals / directors of small construction companies may well be frequently exposed to personal tort liability due to the nature of their personal involvement,[9] despite the absence of the contractual privity.[10] This case is a reminder for small business owners in the construction context to be cautious about the possibility for personal liability, and to strongly consider obtaining exclusions of personal liability in building contracts.
[1] The Owners, Strata Plan KAS 3410 v. Meritage Lofts Inc, 2022 BCCA 109.
[2] Ibid,at paras 3-5.
[3] Ibid, at para 8.
[4] Ibid, at para 17.
[5] Ibid, at para 39
[6] Ibid, at para 14.
[7] Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., 1995 1 SCR 85, 1995 CanLII 146.
[8] Supra note 1, at para 40.
[9] Ibid, at para 41.
[10]Ibid, at para 30.
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