Kingsway General Insurance Company v. Fekete Construction Co. Ltd., 2011 ABQB 815

Court of Queen ’ s Bench of Alberta Citation: Kingsway General Insurance Company v. Fekete Construction Co. Ltd., 2011 ABQB 815 Date: 20111222 Docket: 0903 13177; 1003 09130 Registry: Edmonton

Between: Kingsway General Insurance Company Plaintiff - and - Fekete Construction Co. Ltd. Defendant - and - CT & Associates Engineering Inc. Third Party - and - Renneberg Walker Engineering Associates Ltd. and Mr. R.J. Renneberg Fourth Parties Docket: 1003 09130 Registry: Edmonton And Between:

Greg Eitzen Plaintiff - and - Fekete Construction Co. Ltd., CT & Associates engineering Inc., Chih-Tsung Hwang and David Nedohin Defendants - and - Renneberg Walker Engineering Associates Ltd. and Mr. R.J. Renneberg Third Parties _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice B.A. Browne _______________________________________________________ [ 1 ] Renneberg Walker Engineering Associates Ltd. and Mr. R.J.

Renneberg (“Renneberg”) have been joined as a third party and fourth party in two respective lawsuits involving foundational repairs done to a residence owned by Greg Eitzen (“Eitzen”). [ 2 ] This is an application by Renneberg to have the third and fourth party Notices struck so that they are no longer parties to the court actions. [ 3 ] In Action No. 1003 09130, Eitzen sued Fekete Construction Co. Ltd. (“Fekete”), CT & Associates Engineering Inc. (“CT”), Chih-Tsung Hwang, and David Nedohin as a result of a number of structural defects in the Eitzen residence.

The Eitzen residence was built by Fekete relying on engineering opinions provided by CT. This action was defended and Renneberg was added as third parties. [ 4 ] In Action No. 0903 13177 Kingsway General Insurance Company sued Fekete regarding an insurance policy involving the same structural defects occurring to the Eitzen residence. Fekete joined CT as a third party based on the engineering opinions provided which it relied on during construction of the residence. CT joined Renneberg as fourth parties.

[ 5 ] It is useful to set out the timelines and the facts briefly. Facts [ 6 ] In March 2004, Eitzen hired Fekete to build a home on his property located at 986 Hollingsworth Bend in Edmonton, Alberta. Fekete based their construction on the professional engineering advice and direction provided by CT. [ 7 ] In August 2008, Eitzen notified Fekete of a number of structural defects in the house. Eitzen retained Renneberg to investigate and assess the foundational structural distress of the home.

As a result of the opinion and advice received from Renneberg, Eitzen retained Renneberg to carry out remedial work to correct the deficiencies. [ 8 ] CT alleges that these repairs were unnecessary and excessive and is concerned that they may be responsible for payment of some of those expenses even though they disagree with Renneberg’s opinion.

Summary Judgment [ 9 ] Rule 7.3 of the Alberta Rules of Court outlines the test for

summary judgment:

(1) A party may apply to the Court for

summary judgment in respect of all or part of a claim on one or more of the following grounds:

a) there is no defence to a claim or part of it;

b) there is no merit to a claim or part of it;

c) the only real issue is the amount to be awarded.

(2) The application must be supported by an affidavit swearing positively that one or more of the grounds described in subrule (1) have been met or by other evidence to the effect that the grounds have been met.

(3) If the application is successful the Court may, with respect to all or part of a claim, and whether or not the claim is for a single and undivided debt, do one or more of the following:

a) dismiss one or more claims in the action or give judgment for or in respect of all or part of the claim or for a lesser amount;

b) if the only real issue to be tried is the amount of the award, determine the amount or refer the amount for determination by a referee;

c) if judgment is given for part of a claim, refer the balance of the claim to trial or for determination by a referee, as the circumstances require. [ 10 ] The parties agree that the Alberta Court of Appeal in the case of Boudreault v Barrett , 1998 ABCA 232 at para 9 , [1998] AJ No 784 sets out the test for

summary judgment thus:

The test to be applied in an application for

summary judgment by a defendant was stated by Kerans J.A. in German v. Major et al (1985),30 Alta. L.R. (2d) 270 at 276, as whether “it is plain and obvious that the action cannot succeed.” In Zebroski v. Jehovah’s Witnesses(1988), 1988 ABCA 256 , 87 A.R. 229, this Court dismissed an action on the motion of the defendants pursuant to Rules 159and 162. At p. 232 the court said that “summary judgment is available to a defendant where the material clearly demonstrates that theaction is bound to fail”.

Later in the same judgment, the court said with reference to the matter before it, that “the action has no prospectof success.” The test was elaborated by O’Leary, J. (as he then was) in Allied-Signal Inc. v. Dome Petroleum Ltd. (1991), (AB KB), 81 Alta. L.R. (2d) 307 at 319:

Summary judgment may be granted to a defendant under R. 159 if the court is satisfied that there is no merit to the claim, that is, it doesnot raise a genuine issue for trial. The court must look at the merits of the claim and the defence and determine whether there is an issuerequiring a trial. A defendant must show more than a strong likelihood that he will succeed. To justify deciding the matter without a trialthe pleadings and evidence on the motion must show that the claim has no reasonable prospect of success.

Where the court is satisfiedthat there are no genuine issues of fact to be tried but that a question of law exists, it may decide the issue or direct its determination in asummary way. This court reversed the decision in Allied-Signal without comment on the test as set out above. [11] Specifically, in Northland Bank v Willson (1997), (AB KB), 201 AR 23 at para 45 (QB), former ChiefJustice Moore stated that: A Third Party Notice should only be struck or dismissed on a

Summary Judgment application in the clearest possible case. Any doubtmust be resolved in favour of the party issuing the Third Party Notice. It must be manifestly clear that there is no triable issue of fact orlaw and that the claim being challenged has no chance of success at trial. If there is a triable issue of fact or law,

Summary Judgmentshould be refused and the matter should proceed to trial: Leeds v. Alberta (Minister of the Environment) (1989), 1989 ABCA 208, 98 A.R. 178 (C.A.) and Cascade Development Corp. v.

Red Deer College (1992), (AB KB), 129 A.R. 55(Q.B.). [12] To maintain the third and fourth party Notices against Renneberg, CT must establish that they have a legal relationship withRenneberg upon which to base or claim a cause of action. [13] Laskin JA (as he then was) set out the ambit of third party proceedings in Allan v Bushnell TV Co Ltd; Broadcast News Ltd,Third Party, (ON CA), [1968] 1 OR 720, 67 DLR (2d) 499 at 723 (CA) where he said: What ... is central to resort to third party proceedings is that the facts upon which the plaintiff relies against the defendant should issueout of the relations between the defendant and the third party ... there must be a connection of fact or subject-matter between the cause ofaction upon which the plaintiff sued and the claim of the defendant for redress against the third party; and, such claim would ordinarilyarise out of relations between the defendant and the third party anterior to those between the plaintiff and the defendant whichprecipitated the main action. (emphasis added) [14] This test was applied to deny a third party claim where the third party was hired after the harm was done and failed to undothe harm: Pharmacie Belisle Pharmacy Ltd v Mineau; Gauthier, Third Party (1977), (ON CA), 15 OR (2d) 793 (CA), rev’d on facts in (ON CA), 17 OR(2d) 295 (CA).

The Ontario Court of Appeal in Pharmacie Belisle held that in cases where the facts demonstrate that the liability of thedefendant to the plaintiff was incurred before the third party was retained and the facts upon which the plaintiff relied did not issue out ofthe relationship between the defendant and the third party which was “anterior” to those between the plaintiff and the defendant, the thirdparty claim cannot stand. The Court suggested that in such circumstance, if the defendant has a valid claim against the third party, itcould be asserted in a separate action. CT’s Arguments

[ 15 ] The defendant CT argues that there is a triable issue as to whether Renneberg owed a duty of care to CT. It is clear from the material filed that CT does not agree with Renneberg’s remediation opinion based on the soil samples available. CT argues that Renneberg has a duty to them based on a combination of common law and statutory principles, and can therefore join Renneberg to ensure that an appropriate remedy can be sought against them for the breach of Renneberg’s duty to CT.

The defendant CT argues strenuously that Renneberg owed a duty of care to them as illustrated in Burnett v Took Engineering , 2000 BCSC 1630 [ Took Engineering ]. The quotation taken from that case is: [W]here a person provides a professional service, such as that of an engineer, in which it is reasonably foreseeable that a third party may suffer damage as a result of a negligent performance of that service, that professional person may owe a duty of care to the third party. That duty will be limited, however, by the application of the two part test in Anns v.

Merton London Borough Council ... (at para 39) ( emphasis added ) [ 16 ] CT argues further that although they have no direct relationship with Renneberg, they have legitimate expectations that CT could rely on the engineering advice given by Renneberg when working on the same project.

CT argues that the test it must meet is whether there is a triable issue - does Renneberg owe a duty to CT? [ 17 ] CT argues finally that Renneberg’s opinion was the foundation of the remediation work done at the Eitzen residence which directly impacts the liability of CT for the work originally done and the opinion originally given. Therefore, they argue, that Renneberg should be a defendant.

Fekete ’s Arguments [ 18 ] The defendant Fekete alleges that Renneberg was “in breach of their duty of care to the plaintiff and Fekete, the third parties were negligent in carrying out their assessment and recommendations, with the result that the repairs undertaken by the plaintiff were unnecessary and excessive.” Fekete alleges that the determination of this issue is a triable issue and therefore the application for

summary judgment must fail. Fekete argues that the claims in this action fall under the general categorization of economic loss proposed by Professor Bruce Feldthusen (cited in Took Engineering at para 27 ) as follows: 1. negligent misrepresentation, 2. independent statutory liability of public authorities, 3. negligent performance of a service, 4. negligent supply of shoddy goods or structures, and 5. relational economic losses. [ 19 ] Fekete argues that Renneberg has caused the defendants’ economic loss through negligent performance of a service.

Discussion [ 20 ] I have considered the defendants’ arguments carefully. They have been put before the Court in a most thorough and detailed manner. It is a troubling suggestion that an expert witness hired by the plaintiff could be added as a third or fourth party by the defendants in the normal course of litigation, thereby preventing the plaintiff from calling that expert witness to establish any negligence or breach of contract that may have occurred between the plaintiff and defendant. The proposal by the defendants would significantly change the course of litigation.

[ 21 ] I am unable to find any relationship between CT and Renneberg, whether it be agency or independent contractor, that creates a duty. This is not a case where Renneberg owes a general duty to the public or there is an alleged breach of a general duty to the public. The defendants argue that Renneberg owes a duty to them specifically. [ 22 ] The Supreme Court of Canada in Cooper v Hobart , 2001 SCC 79 , [2001] 3 SCR 537 reformulated the two-stage analysis in Anns v Merton London Borough Council , [1978] AC 728 (HL) that applies in establishing a duty of care.

The SCC suggested that: At the first stage of the Anns test, two questions arise: (1) was the harm that occurred the reasonably foreseeable consequence of the defendant’s act? and (2) are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here? The proximity analysis involved at the first stage of the Anns test focuses on factors arising from the relationship between the plaintiff and the defendant. These factors include questions of policy, in the broad sense of that word .

If foreseeability and proximity are established at the first stage, a prima facie duty of care arises.

At the second stage of the Anns test, the question still remains whether there are residual policy considerations outside the relationship of the parties that may negative the imposition of a duty of care ... (para 30). ( emphasis added ) [ 23 ] Aside the legal point that legitimate expectations of CT in respect of Renneberg’s engineering advice do not confer a substantive right on CT, it seems less obvious that the alleged original structural defects in the Eitzen house was a reasonably foreseeable consequence of the subsequent investigation and assessment of the foundational structural distress which resulted in Renneberg’s engineering opinion or advice.

I say this because based on the factual timelines which were set out earlier in this decision, it was after Eitzen notified Fekete (which based its construction work on CT’s opinion) of the original structural defects that Renneberg was hired to act. To conclude otherwise would be putting the cart before the horse.

In addition to this lack of proximity, broad judicial policy consideration in relation to the nature of litigation involving expert witnesses demands that Renneberg not be added as a party in order to enable the trial judge make appropriate findings on evidence that would be elicited at trial. [ 24 ] Similarly and with reference to Fekete’s position on this application, the alleged harm that occurred to the plaintiff Eitzen’s house and for which he claims against the defendant Fekete could not have been a reasonably foreseeable consequence of Renneberg’s act, being the investigation and assessment of the foundational structural distress.

In other words, the initial harm (i.e. the structural defect to the plaintiff’s residence) was already done and Eitzen had notified Fekete about this harm before Renneberg was invited by Eitzen to investigate and assess the harm. Renneberg had no

part in causing that harm and neither would the act of investigating and assessing an existing structural defect be the reasonable cause of the defect being investigated. Thus, in my view and based on the reformulated Anns test, the required elements of foreseeability and proximity are not established at the first stage and consequently, a prima facie duty of care does not arise. [ 25 ] There is a significant difference between the case of Took Engineering and the case at bar. All of the defendants in the Took Engineering case were individuals who worked originally on the construction of the house.

They should have been working together, they should have been sharing their information and if they did not, they did so at their own risk. It is not the same as the case at bar where the defendants are alleged to have made mistakes that caused the plaintiff damage, and the plaintiff hired a third party to determine the source of the damage and remediate the damage.

In my view, there is no basis for the argument that attempts to connect CT and Renneberg. [ 26 ] In the normal course of a trial the plaintiff would call his “expert” witness (in this case Renneberg) who would be challenged by the defendants in cross-examination on expertise, opinion, and the remediation work done. The Trial Judge at the end of the trial would make findings on all of those issues and could well find that Renneberg’s opinion was not properly based on facts available or that remediation work was unnecessary or unduly expensive.

Those findings will be made by the Trial Judge after hearing the evidence. To add Renneberg as a party strips the plaintiff of his expert and leaves the plaintiff in the unenviable position of having to hire yet another expert. [ 27 ] Further, allowing Renneberg to be added as parties would change the nature of litigation involving expert witnesses, potentially, creating a duty or legal relationship between opposing experts and allowing them to be added as parties.

[ 28 ] Despite the thorough and creative arguments made by counsel on behalf of the defendants, I am unable to find any legal relationship (contractual, negligence) between CT and Renneberg. Therefore, it is plain and obvious the action proposed by CT against Renneberg cannot succeed. There is no genuine issue for trial. The Notices issued against Renneberg will therefore be struck and Renneberg is no longer a party to the actions. Heard on the 27 th day of September, 2011. Dated at the City of Edmonton, Alberta this 22 nd day of December, 2011. B.A. Browne J.C.Q.B.A. Appearances: F.V.

Cox for the Plaintiff Greg Eitzen K.K. Kruse for the Defendant Fekete Construction Co. Ltd. D.J. Chernichen, Q.C. for the Third Party CT & Associates Engineering Inc. and the Defendants CT & Associates Engineering Inc., Chih-Tsung Hwang and David Nedohin J.R. Nickerson, Q.C. for the Third and FourthParties Renneberg Walker Engineering Associates Ltd. and Mr. R.J. Renneberg