Liability In Construction Contracts: Negligence + The Corporate Veil

• Law Firm: Field LLP
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Trials & Appeals & Compensation, Personal Injury, Professional Negligence, Construction & Planning
• Author: Ms Jill Bishop and Ben Civil
• Published date: 16 October 2023

A majority shareholder faced potential personal liability due to negligence during project oversight; however, the Alberta Court of Appeal clarified that such liability isn't easily established, emphasizing that the corporate veil isn't readily pierced.

This case underscores the importance of distinguishing between personal and corporate responsibilities in construction projects, shedding light on the rarity of personal liability, particularly in cases involving economic loss.

Will a director and majority owner of a limited liability construction company be liable for failures on a project? What if he is negligent in his oversight of the project and dealings with the owners?

This case demonstrates the difficulty in establishing personal liability where the construction contract is between the owners and a corporate entity, and where the individual's negligence occurs while that individual is engaged in the business of the corporation.

Facts

The defendant, James Metcalfe, owns 99% of the shares of the co-defendant corporation, Tru-Square Homes Ltd.

Metcalfe was contacted by the respondents, the Swanbys, to see if Tru-Square would be interested in acting as a general contractor for the construction of their house in Carstairs. After discussions, Metcalfe provided the Swanbys with a quote totalling $1,064,348 for the entire construction project.

The Swanbys entered into construction contracts with Tru-Square. Metcalfe signed the contracts as the principal of Tru-Square, not in his personal capacity. Construction began shortly after, and Metcalfe was absent for construction over significant periods of time during the first two years.

In year two of construction, an issue arose with respect to leaking windows and leaks through the soffits. Tru-Square took the position that fixing windows was not its responsibility and left the construction site and never returned. The Swanbys then filed a Statement of Claim against Tru-Square and Metcalfe. They alleged numerous deficiencies and stated the house was unsafe and not fit for habitation. They pleaded that Tru-Square was liable to them for breach of contract and alleged that both Tru-Square and Metcalfe were liable in negligence.

Trial Decision

The Trial Judge concluded that Tru-Square had breached its contract with the respondents. As for liability in tort, the trial judge found the defendants jointly and severally liable for breach of the duty of care owed to the plaintiffs in the construction of their residence...