Union Square Apartments Ltd v Academy Contractors Inc (Abalon Construction), 2016 ABQB 575

Court of Queen’s Bench of Alberta Citation: Union Square Apartments Ltd v Academy Contractors Inc (Abalon Construction), 2016 ABQB 575 Date: 20161012 Docket: 1303 06105 Registry: Edmonton Between: Union Square Apartments Ltd Plaintiff - and - Academy Contractors Inc (Abalon Construction), and Academy Contractors Inc. operating as Abalon Construction, Randy Bylyk, Ptarmigan Engineering Ltd, Richard Imai, Ayre & Oxford Inc, and Paul Jones Defendants _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.E.

Topolniski _______________________________________________________ I. Introduction [ 1 ] The defendants, Ptarmigan Engineering Ltd. and Richard Imai appeal Master W. Breitkreuz’s decision in Union Square Apartments Ltd v Academy Contractors Inc (Abalon Construction), 2015 ABQB 380 , denying their

summary dismissal application in which they alleged that the plaintiff’s claim was statute barred. [ 2 ] The narrow issue before the Master and on this appeal is whether the ultimate limitation period in the Limitations Act , RSA 2000 c L-12 was suspended by Ptarmigan’s fraudulent concealment. Ptarmigan and Imai confirmed in oral submissions they did not and are not now pursuing their other defence, lack of privity of contract as a ground for

summary dismissal.

[ 3 ] For the reasons that follow, I grant Ptarmigan and Imai’s appeal, concluding that they would likely succeed at trial because the claim is barred by the limitation period. Accordingly, they are entitled to

summary dismissal of the plaintiff’s claim and costs. II. The Standard of Review [ 4 ] The standard of review of an appeal from a Master’s decision is correctness: Bahcheli v Yorkton Securities Inc , 2012 ABCA 166 at para 20 ; Boyd v Cook , 2013 ABCA 27 at para 24 . [ 5 ] Appeals from a Master are hearings de novo : Bahcheli at para 3 . III.

Factual Matrix [ 6 ] The plaintiff entered into negotiations with a vendor (not a party in this action) to buy the apartment building in question, including an agreement that the vendor would first underpin and stabilize the building’s foundation and perform necessary associated work like backfilling. As a result, in August 2002, the vendor retained the defendant, Academy Contractors Inc operating as Abalon Construction, to underpin and stabilize the building’s faulty foundation.

Abalon’s principal is the defendant, Randy Bylyk. [ 7 ] Sometime in 2002, Abalon retained Ptarmigan to design piles to underpin a portion of the building and to conduct periodic inspections. Ptarmigan’s principal and only professional employee is Imai. [ 8 ] Between August 23 and September 2, 2002, Imai created a design for the piles, using “a standard drawing”, not an “engineered drawing”. Under the agreement between Ptarmigan and Abalon, Ptarmigan and Imai expected Abalon to “work to their own standards”.

On September 2, 2002, Ptarmigan sent a standard form letter to Abalon confirming its retainer (September 27, 2002 letter).

In part, it reads: Based on our observations during visits to the site, review of test reports , and all knowledge gained during the exercise of our construction review duties of the project we believe that the foundation repairs to the building have been completed in compliance with the Alberta Building Code and, subject only to approved deviations, in compliance with the recommendations provided by our office. (Emphasis added) [ 9 ] In fact, there were no test reports, but the statement to the contrary remained in the standard form letter. [ 10 ] The plaintiff finalized the purchase of the apartment building on May 31, 2003. [ 11 ] By June or July 2010, the plaintiff had repeatedly advised Abalon that it suspected the work was inadequate and the foundation was moving.

In response, Abalon said that its surveys showed no movement. [ 12 ] A sewer backup in April 2011 caused the plaintiff to investigate matters further. [ 13 ] By October 2011, the plaintiff knew of building movement and an inadequate foundation disclosed by excavations. [ 14 ] Next, on June 5, 2012, the plaintiff retained Russ Renneberg to “investigate possible reasons for ongoing settlement of the Union Square Apartment complex and moisture problems associated with the same”. [ 15 ] Further excavations conducted on February 15, 2013 revealed that the piles were not supporting the foundation and the cause of the 2011 sewer backup was building movement.

Shortly thereafter, Ptarmigan and Imai were informed of the plaintiff’s allegations against them. It was their first contact with anyone involved with the project since the September 2002 Letter. [ 16 ] On April 29, 2013, the plaintiff filed its Statement of Claim. [ 17 ] In the spring of 2014, Renneberg delivered his report to the plaintiff (Renneberg Report). IV. Preliminary Matters a. New Evidence [ 18 ] The plaintiff proffered an affidavit deposed to by its lawyer’s legal assistant as additional evidence.

It attached as an exhibit an expert’s report entitled “Computer Rendering of Foundation Engineering Drawings Completed by Sharpe Consulting dated January 12, 2015” and an “Executive

Summary” explaining it is a visual aid (Sharpe Report). [ 19 ] I ruled that the parties could reference the Sharpe Report in their oral submissions, subject to my reserved decision as to whether the material meets the threshold for consideration. Ultimately, no one referenced the report, but I must nevertheless determine whether I should allow the affidavit as part of the court record. I find that the affidavit is improper, and in any event, the Sharpe Report is neither relevant nor material to the issues before me. Accordingly, I decline to allow this new evidence.

This is why. [ 20 ] The Court may consider additional evidence on an appeal of this nature if, in the presiding judge’s opinion, the evidence is

relevant and material: Alberta Rules of Court, Alta Reg 124/2010, r 6.14(3); Bahcheli at para 16; Gudzinski Estate v Allianz GlobalRisks US Insurance Co Ltd, 2012 ABCA 5 at paras 23-24. [21] The proposed new evidence would be relevant and material if this proceeding concerned the substantive issues of breach ofcontract and negligence. It does not. Rather, it is about whether the limitation period passed and, if so, whether the ultimate 10-yearlimitation was suspended because of fraudulent concealment.

The affidavit and exhibit have no relevance to those issues as there isnothing in the Sharpe Report that assists in that regard. [22] There is another problem with the affidavit. An affidavit may be sworn on two bases: personal knowledge, or informationknown to the person swearing the affidavit and that person’s belief: r 13.18(1). It is trite that affidavits must be sworn by people whohave some knowledge of the issues deposed to because it is only they who can be questioned on their affidavits: r 3.13.

As an example,while it is appropriate for lawyers’ clerical staff to swear affidavits deposing to having made a search of a government registry andappending the search result, it is inappropriate to go beyond that by identifying documents and attaching them as exhibits of which theyhave no personal knowledge: Firemaster Oilfield Services v Safety Boss (Canada)

(1993) Ltd, (1996), (AB KB), 37Alta LR (3d) 317, 183 AR 155 (Alta QB) at para 7. b. Old Evidence [23] With he (somewhat reluctant) agreement of counsel for Ptarmigan, the parties referenced the Renneberg Report; a documentthey then thought was not part of the evidence. In a subsequent file review, I learned that the document was exhibited to an affidavit filedin advance of the hearing below. Like that exhibiting the Sharpe Report, the affidavit was made by plaintiff’s counsel’s legal assistant.For the reasons discussed above, this is improper.

However, since both parties relied upon the Renneberg Report (and were apparentlyunaware of or forgot about the affidavit to which it is attached), I have considered it. c. Sufficiency of the Pleadings [24] Ptarmigan asserts that the plaintiffs cannot allege fraudulent concealment because they did not expressly plead “fraud”. Thisargument is misdirected. [25] Generally, the failure to plead and particularize fraud prevents a party from later relying upon it: r 13.6 and r 13.7; TerraceConsulting Inc v Jackson, 2011 ABQB 1, at para 15.

However, fraud is raised here in response to a Limitations Act defence. [26] Milavsky v Milavsky, 2011 ABCA 231, is instructive. There, the Court of Appeal held that failing to plead fraudulentconcealment or unconscionable conduct was unnecessary as the matter was put in issue in the hearing below and because the pleadingstated that alleged gifts were made to defeat legitimate claims.

The Court noted that the better practice is to plead fraudulent concealmentin a Reply to a limitations defence, but found the failure to do so would not affect the outcome. [27] As in Milavsky, the plaintiff here did not file a Reply to the Statement of Defence alleging fraudulent concealment, but didallege dishonest conduct (Statement of Claim paras 16-18) and made oral submissions on the subject. Following the Court of Appeal inMilavsky, I find that is sufficient. V. Legal Matrix:

Summary Dismissal, Suspension of the Ultimate (10-year) Limitation, and Fraudulent Concealment a.

Summary Dismissal [28] Rule 7.3(1)(

b) provides that

summary judgment is available to a defendant if “there is no merit to a claim or part of it”. Asexplained in WP v Alberta, 2014 ABCA 404 at para 26:

Summary judgment is therefore no longer to be denied solely on the basis that the evidence discloses a triable issue. The question iswhether there is in fact any issue of "merit" that genuinely requires a trial, or conversely whether the claim or defence is so compellingthat the likelihood it will succeed is very high such that it should be determined summarily. (Emphasis in original) [29] This assessment requires a holistic analysis of whether the claim has merit: WP v Alberta at para 25.

A position is withoutmerit if the facts and law make the moving party’s position unassailable and entitle it to the relief it seeks. To be unassailable, themoving party’s position must be so compelling that the likelihood of success is very high: Access Mortgage Corporation

(2004) Limitedv Arres Capital Inc, 2014 ABCA 280 at para 45; 776826 Alberta Ltd v Ostrowercha, 2015 ABCA 49 at para 13; Pyrrha Design Inc vPlum and Posey Inc, 2016 ABCA 12 at para 19, citing WP v Alberta at para 26. [30] Courts are obliged to resolve legal disputes in the most cost-effective and timely method available, provided the processselected ensures fairness between the parties.

Key is that a timely, final resolution of litigation must be fair and just to the parties:Hryniak v Mauldin 2014 SCC 7; Windsor v Canadian Pacific Railway Ltd, 2014 ABCA 108; 776826 Alberta Ltd v Ostrowercha. [31] The question, therefore, is whether the issue can fairly be decided on the existing record before the court: Tottrup vClearwater (Municipal District No 99), 2006 ABCA 380, at para 11. Suppositions about what might be pleaded or proved in the futureare impermissible: Canada (Attorney General) v Lameman, 2008 SCC 14, at paras 10 and 19. b. Suspension of the Ultimate (10-year) Limitation Period

[32] Under the Limitations Act, a claim must be filed within the earlier of two years after the date the injury is discovered (s.3(1)(a)) or ten years from the date the claim arose (s. 3(1)(b)). This ten year limitation is referred to as the ultimate limitation period. Ifthe claimant does not file within that period, the defendant is entitled to rely on the limitation period as a defence and is immune fromliability. [33] Section 3(3)(

b) of the Limitations Act provides that, for the purposes of the ultimate limitation period, “a claim based onbreach of a duty arises when the conduct, act or omission occurs”. In other words, discoverability is not relevant to the ultimate limitationperiod.

The ultimate limitation period, however, will be suspended during any period of time the defendant fraudulently conceals theinjury (s. 4(1)(a)). [34] In this case, the limitation started to run when Ptarmigan’s involvement in the project ended with the September 2, 2002 letter.As will be detailed later, the plaintiff first knew of the injury in October 2011 when the investigatory excavations revealed buildingmovement and inadequate foundations. Therefore the limitation period from the date of discovery would be October 2013, while theultimate limitation period tolled on September 2, 2012.

The Statement of Claim was filed April 29, 2013. Without more, the plaintifffiled out of time, which is after the earlier of the two potential limitation periods. [35] However, since the plaintiff alleges that Ptarmigan fraudulently concealed the injury, s. 4(1) of the Limitation Act isbrought into play. c. Fraudulent Concealment [36] Fraudulent concealment is conduct which, having regard to some special relationship between the parties, is anunconscionable thing for one party to do towards the other: M(

K) v M(H), [also cited as KM v HM], (SCC), [1992] 3SCR 6, citing Kitchen v Royal Air Forces Association, [1958] 2 All ER 241 (Eng CA) at p 249; Halsbury’s Laws of England at p 413;Guerin v The Queen, (SCC), [1984] 2 SCR 335. [37] In M(

K) v M(H), the Supreme Court of Canada explains the threshold for finding fraudulent concealment (at p 54): “What isclear from Kitchen and Guerin is that “fraud” in this context is to be given a broad meaning, and is not confined to the traditionalparameters of the common law action” [38] The Court goes on to address the “important restriction to the scope of fraudulent concealment” noted in Halsbury’s Laws ofEngland at p 413: In order to constitute such a fraudulent concealment as would, in equity, take a case out of the effect of the statute of limitation, it was notenough that there should be merely a tortious act unknown to the injured party, or enjoyment of property without title, while the rightfulowner was ignorant of his right; there had to be some abuse of a confidential position, some intentional imposition, or somedeliberate concealment of facts. (Emphasis added) [39] In short, to ground a claim of fraudulent concealment there must be an unconscionable act arising from any number of thingsincluding a deliberate or passive failure to inform and recklessness.

However, not any act will do. As the term implies, some type ofconcealment is necessary. [40] An unknown tortious act or breach of contract cannot be considered to be fraudulent concealment: King v Victor Parsons &Co, [1973] 1 All ER 206 (Eng CA), a p 209-210: If the defendant was, however, quite unaware that he was committing a wrong or a breach of contract, it would be different.

So if, by anhonest blunder, he unwittingly commits a wrong (by digging another man's coal), or a breach of contract (by putting in an insufficientfoundation) then he could avail himself of the Statute of Limitations. [41] Our Court of Appeal in Ambrozic v Burcevski, 2008 ABCA 194, adopts Lord Denning’s statement, at para 23, noting “Adefendant who is unaware that he has committed a wrong is protected by statutory limitations”.

The Court also describes therequirements for fraudulent concealment (para 21): (1) the defendant perpetrated some kind of fraud; (2) the fraud concealed a material fact; and (3) the plaintiff exercised reasonable diligence to discover the fraud [42] The first requirement has since been clarified to mean a fraud perpetrated upon the plaintiff by the defendants or their agentsand servants: WP at para 34. [43] Here, the Master elected not to expressly consider this test in determining if fraudulent concealment was established as he wassatisfied that the case was on all fours with a decision of Lord Denning in Archer v Moss, [1971] 1 All ER 747 (Eng CA).

Respectfully, Ifind that the approach and conclusion is incorrect. VI. Analysis i. Did Ptarmigan (or their agents and servants) perpetrate some kind offraud upon the plaintiff?

[ 44 ] Among other things, the plaintiff alleges that Ptarmigan, Imai, Abalon and Bylyk: [A]cted unconscionably when they conspired together by creating a design for the underpinning of the Union Square Apartments which Abalon would not follow and did not follow and which Ptarmigan and Imai were fully aware of. [ 45 ] Further, the plaintiff alleges that despite this, Ptarmigan wrote the September 2002 letter to Abalon, which it knew others like the plaintiff would rely upon, saying its design was followed, when it was not.

Finally, Ptarmigan and Imai literally concealed their fraud by backfilling and covering the piles so they were no longer visible without excavation. [ 46 ] The Statement of Claim contains some allegations of potential relevance to the issue: i. Ptarmigan and Imai ought to have known that inadequate or improper design and supervision would result in damage to the plaintiff (para 13); ii.

Ptarmigan and Imai deliberately misled the vendor and the Plaintiff for financial gain “ and/or alternatively to escape performing the necessary remedial work at a later date and/or to escape the warranty provided with the Abalon Contract” (para 16) ; and iii. With the intention of increasing profits or avoiding doing the necessary remedial work, Ptarmigan and Imai conspired with Abalon and Bilyk, including giving the plaintiff correspondence and reports saying the work was in accordance with the design when it was not (paras 17-18). [ 47 ] Imai’s uncontroverted evidence includes: i.

His retainer was to create the drawings and conduct periodic inspections; ii. At the last of his two site inspections (when 6.5 of the 11 piles were placed) the piles were the correct size, depth and dimension, and were placed “within acceptable limits. Although he was not present when the last footings were poured or the backfilling was done, he did not need to be there; iii.

Pursuant to Ptarmigan’s arrangement with Abalon the drawings were subject to Abalon using their own “standard pike detail” which is different to the extent that the pile is a “little more offset” and the exterior footing is broken off; and iv.

He had no communication with anyone about the project after writing the September 2002 letter, and the first he heard of it since was when he learned of the plaintiff’s allegations in February 2013. [ 48 ] Ptarmigan and Imai also point to the Renneberg Report, which states (among other things) that the support “as designed would have probably been adequate for the exterior walls if the piles had been installed as noted on the drawings.” [ 49 ] The plaintiff also relies on aspects of the Renneberg Report to support its allegation that Imai is untruthful about what he did. This is a difficult argument to follow.

As one example, it is hard to draw the sought-after connection between the opinion that the piles were not installed according to the drawings and that the cost and work involved would have been greater if Abalon followed the drawings to Imai lying about his work and/or his arrangement with Abalon on how it would use the drawings or his fraudulently concealing Abalon’s purportedly shoddy work. [ 50 ] While I am satisfied that the Renneberg Report could potentially defeat

summary dismissal of the substantive claims of breach of contract or negligence, I fail to see how it helps the Plaintiff on this limitations issue. [ 51 ] The plaintiff must establish deliberate or passive concealment, or recklessness to discharge its onus. Recklessness is the more difficult concept. King v Victor Parsons & Co describes recklessness in the context of fraudulent concealment (of a right of action) at p. 209: Like the man who turns a blind eye. He is aware that what he is doing may well be a wrong, or a breach of contract, but he takes the risk of it being so.

He refrains from further enquiry lest it should prove to be correct; and says nothing about it. The court will not allow him to get away with conduct of that kind. [ 52 ] More recently, Phillips J held that knowing of a potential breach of duty and failing to inquire further constituted recklessness in the context of Limitations Act s 4(1): Atlanta Industrial Sales Ltd v Emerald Management & Realty Ltd, 2006 ABQB 255 at para 230 . The pleadings and evidence in this case do not establish deliberate or passive concealment or recklessness.

Rather, they show that rightly or wrongly, Imai (and hence, Ptarmigan), did what he thought he was supposed to do, and did nothing to hide or turn a blind eye to his conduct. His uncontroverted evidence is that he had no knowledge of the alleged deficiencies until February 2013. Like the hypothetical defendant in King v Parsons & Co who by “an honest blunder” commits a wrong or breaches a contract, Imai and Ptarmigan are entitled to the protection of the Limitations Act . [ 53 ] Practically, this finding ends the enquiry.

However, even if I had found otherwise, the plaintiff cannot meet the third arm of the analysis– the exercise of reasonable diligence to discover the fraud. For completeness, I will review the remaining parts of the WP analysis. ii. Did the fraud conceal the fact of the plaintiff’s injury? [ 54 ] The Limitations Act defines “injury” as personal injury, property damage or economic loss as well as non-performance of an obligation or, in the absence of any of these things, the breach of a duty: s 1(e).

These cover all the allegations advanced by the plaintiff. [ 55 ] Were a fraud committed, I would have had no difficulty finding that it concealed the fact of the plaintiff’s “injury”. The plaintiff did not witness the work. Although its suspicions first arose in the summer of 2010, unearthing the full extent of the “injury”

required excavation of the site. iii. Did the plaintiff exercise reasonable diligence to discover the fraud? [ 56 ] The third stage of the WP analysis is to determine whether the plaintiff exercised reasonable diligence to discover the fraud: WP at para 34 ; Ambrozic v Burcevski at para 25 ; Guerin at 390; Huet v. Lynch , 2001 ABCA 211 at para 29 .

What constitutes reasonable diligence will depend on the specific facts of the case, and requires an objective assessment: Ambrozic at para 25 ; Huet at para 29 . [ 57 ] Many authorities addressing reasonable diligence involve fraudulent concealment of a “right of action”; the predecessor (s 57) of today’s Limitations Act s 4. That said the analysis is still helpful. [ 58 ] King v Victor Parsons & Co concerned estate agents intentionally installing an inadequate house foundation for the soil conditions.

There, it was reasonable for the purchaser to assume the foundation was properly constructed as it was covered up prior to inspection: p 210. Similarly, in Archer v Moss , reliance on the builder’s representations of a properly constructed foundation was sufficient.

The plaintiff’s having attributed cracks in the walls to settlement before the ultimate limitation period expired was irrelevant. [ 59 ] Like cracks in the walls being insufficient to put the plaintiff on notice of his right of action of a defective foundation in Archer v Moss , noting cracks in exterior bricks was not enough to signify the need to investigate a faulty foundation in Pinewood Apartments Ltd v Haakonson , 2003 ABQB 443 . [ 60 ] In Ambrozic , a husband fraudulently concealed the fact that his former wife was a joint owner of several properties with him and did not give her any money when they were sold.

It was a second marriage. The husband unsuccessfully argued want of reasonable diligence because the wife had past experience with divorce proceedings. The Court of Appeal disagreed and rejected the notion that the wife’s subsequent training as a realtor would have put her on notice: para 40. [ 61 ] Assuming for this discussion that there was a fraudulent concealment (which I have found there was not), the plaintiff did not take reasonable measures to discover its injury.

The Statement of Claim clearly states the plaintiff knew the foundation work was “inadequate and that the foundation of the building was moving and cracking and that water was gaining entry into the building” in June or July of 2010, and that excavations conducted in October 2011 revealed deficiencies in the underpinning and stabilization work. There is no evidence from or on behalf of the plaintiff to contradict what it alleges in the Statement of Claim, and Imai’s evidence is uncontradicted. iv.

Special Relationship [ 62 ] The plaintiff contends that it had a special relationship with Ptarmigan and Imai because they “owed the Plaintiff a duty as the Plaintiff was closely and directly affected by their acts and omissions”.

Ptarmigan and Imai argue that the elements of fraudulent concealment, including a “special relationship”, are not pled in the Statement of Claim, and that, in any event, there was simply no relationship. [ 63 ] There is some debate about whether a “special relationship” is an essential element of fraudulent concealment: Atchison v Manufacturers Life Insurance Co , 2002 ABQB 1121 , 11 Alta LR (4th) 25 at para 81 . The parties did not raise that concern, and given my finding that there was no fraud perpetrated on the plaintiff, the debate need not be resolved today.

Suffice to say that on the assessment of whether fraudulent concealment is established, the court must consider the unique facts of every case. VII. Disposition [ 64 ] The appeal is allowed. [ 65 ] Ptarmigan and Imai are entitled to costs of this appeal and before the Master Heard on the 21 st day of September, 2016; Additional Written Submissions Received on the 27 th and 28 th day of September Dated at the City of Edmonton, Alberta this 12 th day of October, 2016.

J.E. Topolniski J.C.Q.B.A. Appearances: Rioth Jomha Jomha Skrobot LLP for the Plaintiff/Respondent Sigurd Delblanc Bryan & Company LLP for the Defendants/Appellants Ptarmigan Engineering Ltd. and Richard Imai