Anyone involved in a large construction project, or even a minor one, likely knows that in addition to a general contractor, subcontractors are often hired to do specialized work or perform work that the general contractor may not have the human resources to provide. The involvement of multiple parties in a construction project means that if an issue arises around something like negligent construction and there are questions about damages, it can be difficult to understand exactly who is responsible for what. 

In some cases, a plaintiff may release a party from legal action after a settlement is reached. A release means the plaintiff won’t pursue legal action against the other party. But a decision from the Alberta Court of King’s Bench provides a good example of when a subcontractor’s release is not enough to shield them from all potential liability.

Homeowner seeks damages after discovering mold in new construction

The main parties in the action had hired the defendant to construct a 4.1 million dollar home for him. Construction began in 2011 and concluded three years later. For four years, there were no issues with the home, but in 2018 the plaintiff discovered what was described as “numerous significant defects,” including mould, which made the house unsuitable for living in. The plaintiff sued the defendant for the full price of the home due to the problems with construction.

There were a series of third parties added to the action. This is because the defendant was the general contractor for the home’s construction, but subcontractors had been hired to perform specific work. One of the parties was a company we can refer to as “AM.” AM reached an individual settlement with the plaintiff in February 2020. The terms of the settlement included a payment to the plaintiff in the amount of $96,340.65 

Third-party aims to dismiss their involvement in the matter

AM was named as a third party by the defendant. They filed a motion to dismiss the third-party claim upon learning of this. This occurred on August 6, 2019. AM told the court that it settled its liability directly with the plaintiff when it paid him its settlement. They said this payment was made for its possible liability as one of the subcontractors of the home. The plaintiff signed a release, which we will detail shortly, which AM said should shield them. The defendant told the court it would be “unfair and prejudicial” to release AM because the defendant could be left responsible for damages far exceeding with AM paid for the work AM did.

The court first explained a section of the Tort-Feasors Act, which states that in situations like these, a defendant is able to name a third party to a claim unless the third party has been released from liability by the plaintiff. The court explained that if a third party reached an agreement with a plaintiff, “The general rule is that if a third party has no liability to the plaintiff in respect of particular damage, then it can have no liability to a defendant in a claim over respecting that same damage.”

The court recognized that this had been held up in decisions from Alberta Courts, including a 2015 Court of Appeal decision, where a defendant was not able to recover from the third party because of a pre-existing contract between the third party and the plaintiff. The court added that one of the reasons for this is to promote settlements between parties as a way of avoiding litigation. 

Questions of “same damage”

If this were a simple cut-and-dry case of escape from liability, we probably wouldn’t be discussing the case today. The court explained that while releases from liability can be useful in shielding third parties against future claims, the ability to do so relies on those future claims relating to the “same damage.” This means a release can only protect a third-party if future claims relate directly to the issue that was settled. In this case, the court had to look at the release itself to understand how AB was protected. The release stated the plaintiff,

“Releases and forever discharges (AM) from any action, cause of action or claim for damages specified above where the injury or, as the case may be, the damage, has been sustained as at the date hereof or may be sustained thereafter as a result of shower leakage resulting in damages discovered on or about the 7th day of December, 2018;

agrees not to make any claim or take proceedings against any person or corporation who might claim contribution or indemnity under provisions of any statute or otherwise;

agrees that the said payment does not constitute an admission of liability on the part of Releasee; and

declares that the terms of this settlement are fully understood, that the amount stated herein is the sole consideration of this release and that such amount is accept voluntarily as a full and final settlement for damages specified above.”

In this case, the court noted that the release did not cover personal injury damages, which formed part of the plaintiff’s claim. Additionally, the release does not cover damages discovered after the date of the release (August 3, 2019). The release was also specific to covering damages from the shower leak. The plaintiff’s claim was further reaching than that. Finally, the court pointed out that the damages sought by the plaintiff far exceeded the amount provided in the settlement. For these reasons, the court determined that the release could not prevent AM from being added as a third party to the claim against the defendant. 

HMC Lawyers can assist you with issues related to negligent construction

The construction law team at HMC Lawyers has extensive experience acting on behalf of contractors, subcontractors, lenders, and developers acting as plaintiffs or defendants in cases related to negligent construction. We recognize the value in reaching settlements outside f courts and help our clients reach settlements that reflect their true goals, aiming to prevent rulings like that experienced by AM in today’s blog. It’s also true that there can be no guarantees against future litigation, which is why we are equipped to represent our clients should that be necessary. Call 1-800-480-3534 or contact us online to see how we can help you today.