In the last few years, home prices across the country have risen substantially, including the costs associated with building a new home. When a person enters into a contract for the construction of their new home, it is not unreasonable that they expect the home to be properly built and ready to move in on time. So, what happens when the construction of a home does not live up to the purchaser’s expectations?

In a recent decision from the Court of Appeal of Alberta, the Court heard from a homeowner who sought to assign liability for a defective home to the director and majority shareholder of the company that built it. The decision shows how the courts approach matters regarding personal liability in construction litigation.

Owner of $4 million home sues construction company

In Parks v. McAvoy, the dispute between the parties began in 2010 when the appellant (“LP”) contracted with the respondent home-building company, Woodparke Homes Ltd., and its majority shareholder and director (“SM”). The parties entered into an agreement under which the respondent would build a home for the appellant. Construction of the house was completed in 2014 and came with a final price tag of $4.1 million. However, this agreement was never put in writing.

In 2018, the appellant discovered a number of defects in the house and claimed that it was uninhabitable due to structural and mechanical issues, in addition to mold. He commenced a claim against several parties, including Woodparke Homes Ltd., and the respondent in his personal capacity, seeking $6.5 million in damages to compensate for the cost of rebuilding the house and the stress and health problems he alleged that he endured. He claimed that the respondents were responsible for breach of contract, negligence, negligent and fraudulent misrepresentation, and breach of fiduciary duty. One of the named defendants brought a cross-application for summary dismissal on the basis that he had no personal liability for the damages sought.

Homeowner alleges there was deficient construction and accounting issues

The matter was originally heard by way of summary judgment application. The chambers judge broke the claims down into two categories: deficient construction and accounting issues. The chambers judge dismissed the claims that fell under the first category after finding that SM was not a party to the oral agreement, which was between the appellant and the company. The chambers judge also found SM did not owe LP a duty of care and that SM was not aware of any of the deficiencies of the home.

Regarding the accounting issues, the chambers judge found that SM was only partially liable, concluding that SM used LP’s money for things other than the appellant’s home. Further, he charged SM for beams and joists that were never installed in the home.

LP appealed a portion of the chambers judge’s decision in which the claims against SM regarding the deficient construction of the home were summarily dismissed. LP advanced three grounds of appeal, arguing that the judge erred in fact or law in finding that there was no triable issue with respect to SM’s personal liability based on the judge’s findings that:

1. the appellant did not contract personally with SM;

2. SM did not owe a fiduciary duty to the appellant; and

3. SM was not personally liable in tort.

Should the homeowner’s appeal be allowed?

Negotiations between the parties occurred between LP and SM, which led the appellant to believe the contract was between himself as well as SM and the company. LP told the Court that SM had agreed to personally inspect, supervise, and ensure the work being done was properly executed. When the work started, all of the invoices came from the company, and the payments were made directly to the company. The Court of Appeal found that the existence of a contract between the appellant and SM depends on the proof of the objective intentions between the parties, not their individual subjective thoughts. Based on this, the Court found that while SM handled the negotiations for the construction, the agreement was between the company and LP and not SM.

The Court then considered whether SM owed a fiduciary duty to LP. Although the Court agreed that SM’s company had a fiduciary duty towards the appellant, SM personally did not owe a fiduciary duty to LP, other than what he had already been found liable for, writing that:

“we agree with the chambers judge that if (SM) is found liable for a breach of fiduciary duty arising from the misappropriation of funds, the measure of damages is the funds misappropriated, and there is no basis for awarding damages for the deficient construction of the house.”

Court of Appeal allows part of appeal

Turning lastly to SM’s personal liability in tort, the Court explained that the chambers judge had found that the claims against SM’s acts could not lead to a separate identity or interest from the company. The Court wrote that since SM was not a party to the contract, any failure to live up to it could not be linked directly to him. While it is possible to pierce the corporate veil to address personal liability, this issue would have to be determined at trial.

The Court allowed part of this appeal with respect to the appellant’s claims alleging Mr. McAvoy’s personal liability for tortious claims related to the construction of the appellant’s home, with the outstanding claims remaining to be determined at trial.

The Litigation Lawyers at DBH Law in Calgary Provide Exceptional Representation in Construction Disputes

The team of skilled construction litigation lawyers at DBH Law have the experience and technical knowledge to provide you with the comprehensive and strategic advice needed in the modern construction industry. We understand that issues related to residential and commercial construction can be a stressful and time-consuming process, and we will work tirelessly to resolve issues in a quick and cost-efficient manner. If you require advice in relation to a construction dispute, contact us online or by phone at 403.252.9937 to schedule a consultation with a member of our team.