Imminence of Harm is Not Required for Recovering Pure Economic Loss for Dangerous Defects

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Lack of “imminent risk” does not bar recovery for economic loss arising from a dangerously defective structure, the Alberta Court of Appeal recently held. Typically, courts are reluctant to award lost profits or other economic damages in a negligence or other tort case unless those damages are causally consequent on an injury to a person or property. Thus recovery for “pure economic loss”, as these damages are known, is generally limited to certain recognized categories of cases. One such category is the negligent supply of defective products or structures that are dangerous. In Winnipeg Condominium Corporation No 36 v Bird Construction Co, [1995] 1 SCR 85 [Winnipeg Condo], the Supreme Court of Canada indicated that recovery of pure economic loss in cases of this nature requires the presence of a defect that poses a “real and substantial danger” to the occupants of the building. In Vargo v. Hughes, 2013 ABCA 96 [Vargo], the Alberta Court of Appeal considered whether recovery in such cases necessitates that the risk of harm be classified as “imminent” and decided, contrary to its previous indication, that imminence of harm is not required for recovery in cases of dangerous defects.

At trial (2011 ABQB 649), Hawco J. allowed an action in negligence against a builder for pure economic loss suffered by subsequent purchasers of a house as a result of the builder’s negligent construction that had resulted in dangerous defects. On appeal, the Court of Appeal affirmed Hawco J.’s finding of negligence against the builder and his rejection of an imminence requirement proffered by the builder based on an earlier non-binding statement by the Court of Appeal in Blacklaws v Morrow, 2000 ABCA 175 [Blacklaws]. In Blacklaws, the majority of the Court stated in passing that Winnipeg Condo required “physical harm to the plaintiffs or their chattels, or imminent risk of it”. In rejecting an imminence requirement, the Court in Vargo reasoned that the policy justifications given in Winnipeg Condo for allowing subsequent purchasers to recover the cost of repairing dangerous defects would not be served by imposing such a requirement. The policy justifications given in Winnipeg Condo were: 1) to encourage subsequent owners to take preventative steps before physical damage to persons or property results; and 2) to encourage the timely repair of defects before the occurrence of damage, when costs of repair tend to be lower. To the extent that Blacklaws suggested that the risk must always be imminent, the Court in Vargo disagreed, and noted that a similar result was reached by appellate courts in Ontario and Saskatchewan.

Finally, the Court of Appeal reiterated that an employer is generally not vicariously liable for the negligent actions of an independent contractor (based on the Supreme Court of Canada’s decision in 671122 Ontario Ltd v. Sagaz Industries Canada Inc, 2001 SCC 59). The Court of Appeal held that the builder was an independent contractor rather than an employee of the original home owner, and as a result, allowed the original owner’s appeal from the trial judge’s determination of negligence, which had been based on a finding of vicarious liability for the builder’s actions.