SEDCO et al. v. Kelly (William) Holdings Ltd. et al., (1990) 83 Sask.R. 33 (CA)

• Judge: Cameron, Vancise and Sherstobitoff, JJ.A.
• Court: Court of Appeal (Saskatchewan)
• Case Date: March 13, 1989
• Jurisdiction: Saskatchewan
• Citations: (1990), 83 Sask.R. 33 (CA)

SEDCO v. Kelly Holdings Ltd. (1990), 83 Sask.R. 33 (CA)

MLB headnote and full text

SEDCO and Hospital Laundry Services of Regina (plaintiffs/appellants) v. William Kelly Holdings Ltd., William Kelly Architect (1983) Ltd., William Kelly, Briggs and Associates Ltd., Reginald Briggs and Trevor Harle (defendants/respondents)

(No. 9843)

Indexed As: SEDCO et al. v. Kelly (William) Holdings Ltd. et al.

Saskatchewan Court of Appeal

Cameron, Vancise and Sherstobitoff, JJ.A.

March 19, 1990.

Summary:

SEDCO, a Crown corporation, hired an architect to custom design a building for its tenant, a hospital laundry. The project was valued at $4,177,700 excluding land. The facility was leased to the hospital on a nonprofit basis. The architect engaged the services of a mechanical engineer who designed the air-conditioning system. The engineer underestimated the requirements of the building and specified a chilling unit with a capacity of 229 tons instead of 610 tons. The faulty design caused improper ventilation and cooling. The employees had to take heat breaks and the laundry had to pay overtime of $12,210.82 to the employees and maintenance personnel. A consulting engineer retained by SEDCO estimated the cost of upgrading the central air-conditioning system at $1,021,215. The consultant suggested that the architect and the engineer pay $541,378 of that amount. After making some ineffectual modifications and expending $126,672, SEDCO sold the facility to the hospital for $4,400,000. SEDCO attempted to assign its rights under the contract with the architect to the hospital. Shortly after the sale, a medical emergency was experienced and the Department of Labor threatened to close the laundry unless the cooling was upgraded. The hospital effected a partial solution by installing a number of roof top air-conditioning units at a cost of $581,038. SEDCO and the laundry then commenced an action against both the architect and the engineer in tort to recover damages caused by the negligent design. SEDCO also claimed against the architect in contract. The architect cross-claimed against the engineer.

The Saskatchewan Court of Queen's Bench, in a decision reported at 68 Sask.R. 244, dismissed all of the claims except for the laundry's claim against the engineer for damages for the employees' heat breaks that resulted in overtime pay of $12,210.82. The court also dismissed the cross-claim. SEDCO and the laundry appealed.

The Saskatchewan Court of Appeal allowed the appeal and found that the architect was liable to SEDCO in contract and that the engineer was liable to both SEDCO and the laundry in tort. The court assessed SEDCO's damages provisionally at $780,880 and held the architect and engineer jointly and severally liable. The court also allowed the cross-claim by the architect against the engineer for the same amount.

Building Contracts - Topic 5502

Architects and engineers - Duties to owner - Respecting design - SEDCO engaged an architect to design a building to be used as a hospital laundry - The agreement called for the building to be "the most modern and up-to-date laundry in Canada" and included specifications respecting temperature and air quality control - The architect retained an engineer who negligently under-designed the central air-conditioning system - The Saskatchewan Court of Appeal held that the architect breached the express terms of his contract - The court observed that the architect was probably also in breach of several implied terms - See paragraphs 69 to 72.

Building Contracts - Topic 5502

Architects and engineers - Duty to owner - Respecting design - Negligent design by engineer - SEDCO retained an architect to design a building - The building was leased to a hospital for use as a laundry - The architect hired a mechanical engineer to design the building's central air-conditioning system - The engineer negligently under-designed the system - The Department of Labor threatened to close the laundry unless the system was upgraded - SEDCO sold the laundry to the hospital, which upgraded the system - SEDCO and the laundry sued the engineer for negligence - The Saskatchewan Court of Appeal held that the engineer was liable for any loss - See paragraph 95.

Building Contracts - Topic 5515

Architects and engineers - Duties to owner - Reliance on incorrect advice - [See first Building Contracts - Topic 5502].

Building Contracts - Topic 5542

Architects and engineers - Liability to owner - General - Basis of liability - SEDCO retained an architect to design a building - The architect hired an engineer - The engineer's air conditioning design was faulty - SEDCO spent $126,672 on repairs - SEDCO sold the building to the tenant and assigned its rights under the contract with the architect to the tenant - The tenant spent $581,038 on repairs - SEDCO and the tenant (owner) sued the architect to recover damages on the grounds of negligence and failure to supervise the engineer - The Saskatchewan Court of Appeal observed that the architect was probably liable in both contract and tort - See paragraph 59.

Building Contracts - Topic 5542

Architects and engineers - Liability of owner - General - Basis of liability - Negligent design by engineer - [See second Building Contracts - Topic 5502].

Building Contracts - Topic 5548

Architects and engineers - Liability to owner - General - Architect's liability for negligence of engineer - SEDCO retained an architect to design a laundry - The architect hired a mechanical engineer to design the air-conditioning system - The engineer negligently under-designed the system and the Department of Labor threatened to close the building - The architect failed to check the engineer's work - SEDCO sued the architect in tort for damage caused by the engineer's negligence - The Saskatchewan Court of Appeal held that the architect was not liable in tort for negligence - The court found that the architect was entitled to rely on the engineer's alleged expertise - See paragraphs 74 to 94.

Building Contracts - Topic 5557

Architects and engineers - Liability to owner - General - Damages - In contract - SEDCO retained an architect to design a building - The architect hired an engineer - The engineer's air-conditioning design was faulty - SEDCO spent $126,672 to make repairs - SEDCO sold the building to the tenant and assigned its rights under the contract with the architect to the tenant - The tenant spent $581,038 to repair the system - SEDCO and the tenant sued to recover damages - The Saskatchewan Court of Appeal stated that the only damages recoverable in contract (as opposed to tort) were those suffered by SEDCO - See paragraphs 60 to 69.

Contracts - Topic 9002

Rights and liabilities of strangers to contract - General - Assignees - Right of recovery - [See Building Contracts - Topic 5557].

Damages - Topic 531

Limits of compensatory damages - Remoteness - Torts - Recoverable damages - Purely economic loss - SEDCO hired an architect to design a laundry - The architect retained a mechanical engineer to design the central air-conditioning system - The engineer negligently under-designed the system - The Department of Labor threatened to close the laundry unless the system was upgraded - SEDCO spent $126,672 to effect a partial upgrade - SEDCO sued the engineer in negligence to recover damages - The Saskatchewan Court of Appeal observed that the engineer was liable to SEDCO in tort for its loss, even to the extent they were purely economic - See paragraph 113.

Damages - Topic 1003

Mitigation - General principles - Mitigation - What constitutes - SEDCO was a Crown Corporation - SEDCO retained an architect to design a building - The architect's engineer negligently under-designed the air-conditioning system - The cost of upgrading the system would exceed one half million dollars - The Crown directed SEDCO to privatise a portion of its holdings - SEDCO sold the building to the tenant before the upgrade was done and recovered much of its cost - SEDCO sued on behalf of itself and the new owner - The defendants submitted that SEDCO's loss was mitigated by the sale - The Saskatchewan Court of Appeal held that there was no reduction in damages from mitigation because the sale occurred outside SEDCO's duty to mitigate - See paragraphs 121 to 134.

Damages - Topic 6510

Contracts - Building contracts - Breach by engineer or builder - Assignees - Right to recover - [See Building Contracts - Topic 5557].

Damages - Topic 6516

Contracts - Building contracts - Breach by engineer or builder - Measure of damages - SEDCO retained an architect to design a laundry - The architect hired an engineer to design the air-conditioning system - The engineer negligently under-designed the system - The cost of upgrading the system was in excess of one half million dollars - SEDCO sued to recover damages - The Saskatchewan Court of Appeal held that the proper measure of damages was the cost of up grading the system to specifications, not merely the diminution in the value of the building - See paragraphs 115 to 120.

Torts - Topic 77

Negligence - Duty of care - Relationship required to raise duty of care - [See second Building Contracts - Topic 5502].

Torts - Topic 79

Negligence - Duty of care - Factors limiting or reducing scope of duty of care - [See Building Contracts - Topic 5548].

Cases Noticed:

Central Trust Company v. Rafuse and Cordon, [1986] 2 S.C.R. 147; 69 N.R. 321; 75 N.S.R.(2d) 109; 186 A.P.R. 109, folld. [para. 59].

Mus v. Matlashewski, [1944] 4 D.L.R. 522 (Man. C.A.), refd to. [para. 62].

Helstan Securities Ltd. v. Herfordshire County Council, [1978] 3 All E.R. 262 (Q.B.D.), refd to. [para. 62].

Greaves & Co. (Contractors) v. Baynham Meikle and Partners, [1975] 3 All E.R. 99 (C.A.), refd to. [para. 71].

Colchester Developments Ltd. v. Leslie R. Fairn and Associates (1975), 11 N.S.R.(2d) 389; 5 A.P.R. 389 (C.A.), refd to. [para. 71].

Vermont Construction Inc. v. Beatson, [1977] 1 S.C.R. 758; 8 N.R. 271; 67 D.L.R.(3d) 95, refd to. [para. 72].

Moresk Cleaners Ltd. v. Hicks, [1966] 2 Lloyd's Rep. 338, refd to. [para. 72].

Junior Books Ltd. v. Veitchi Co., [1982] 3 All E.R. 201, refd to. [para. 78].

Volie v. Inglewood Shire Council, [1963] A.L.R. 657, refd to. [para. 80].

University of Regina v. Pettick et al. (1986), 51 Sask.R. 270 (Q.B.), refd to. [para. 80].

Brantford v. Kemp (1960), 23 D.L.R.(2d) 640 (Ont. C.A.), refd to. [para. 89].

Lensen v. Lensen, [1987] 2 S.C.R. 672; 79 N.R. 334, refd to. [para. 91].

Long Lake School Division v. Shatz, [1986] 5 W.W.R. 355; 49 Sask.R. 244 (C.A.), refd to. [para. 91].

Hedley Byrne & Co. v. Heller & Partners Ltd., [1963] 2 All E.R. 575, refd to. [para. 112].

V.K. Mason Construction Ltd. v. Bank of Nova Scotia et al., [1985] 1 S.C.R. 271; 58 N.R. 195; 8 O.A.C. 381; refd to. [para. 112].

Donoghue v. Stevenson, [1932] A.C. 562, refd to. [para. 112].

Rivtow Marine Ltd. v. Washington Iron Works et al., [1974] S.C.R. 1189, refd to. [para. 112].

Haig v. Bamford, [1977] 1 S.C.R. 466; 9 N.R. 43; 72 D.L.R.(3d) 68, refd to. [para. 113].

Kamloops (City) v. Neilsen, [1984] 2 S.C.R. 2; 54 N.R. 1, refd to. [para. 113].

East Ham Corporation v. Bernard Sunly & Sons Ltd., [1966] A.C. 406 (H.L.), refd to. [para. 118].

Perry v. Sidney Phillips and Son, [1982] 3 All E.R. 705 (C.A.), refd to. [para. 118].

Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (1976), 59 D.L.R.(3d) 292 (Alta. C.A.), refd to. [para. 118].

British Westinghouse Electrical and Manufacturing Co. Ltd. v. Underground Electrical Rys. of London, [1912] A.C. 673 (H.L.), refd to. [para. 121].

Haviland v. Long, [1952] 2 Q.B. 80 (C.A.), refd to. [para. 126].

Authors and Works Noticed:

Hudson's Building and Engineering Contracts (10th Ed.), pp. 130-131 [para. 72].

McGregor on Damages (12th Ed.), pp. 168-169, [para. 121]; 325 [para. 123].

McLachlin and Wallace, The Canadian Law of Architecture and Engineering (1987), pp. 71-72 [para. 71].

Counsel:

James Ehmann and Diana Lee, for the appellants;

R.P. Rendek, Q.C., for the respondents;

Briggs & Associates Ltd., Reginald Briggs and Trevor Harle, E.R. Gritzfeld, Q.C., and M. Megaw, for respondents William Kelly Holdings Ltd., William Kelly Architect (1983) Ltd. and William Kelly.

This appeal was heard on March 13, 1989, by Cameron, Vancise and Sherstobitoff, JJ.A., of the Saskatchewan Court of Appeal. On March 19, 1990, Cameron J.A., delivered the following judgment for the Court of Appeal.