Restoring the Duty of Care Analysis to Negligence Claims in Third-party Proceedings

by Bennett Jones LLP
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The Alberta Court of Appeal has provided some helpful guidance on the scope of third-party claims in O’Connor Associates Environmental Inc v MEC OP LLC, 2014 ABCA 140, narrowing the scope and application of the decision of Canadian Natural Resources Limited v Arceomittal Tubular Products Roman S.A., 2013 ABCA 279, regarding duties of care between third parties and defendants.

In O’Connor Associates, the third-party defendants moved to strike proposed amendments to the third-party claims against them on the basis that they disclosed no cause of action. The main action involved allegations by the plaintiff, NEP Canada ULC, that the defendant, Merit Energy Company LLC, deceived it with regard to the status of regulatory compliance of certain oil and gas assets purchased by NEP from Merit.

Merit commenced third-party proceedings against numerous consultants/agents hired by NEP as part of the transactions’ due diligence process, alleging originally that these consultants/agents were negligent in the performance of their due diligence of the assets and that their negligence and/or breach of contract contributed to/caused NEP’s loss. Subsequently, in an application to amend the third-party claims, Merit sought to add a claim that these consultants/agents breached a tort duty that they owed to Merit when performing their contracts with NEP. Merit relied upon comments in Arceomittal and suggested that the case stood for the proposition that a duty could be owed to the opposite party on a transaction and, at any rate, the Court could not strike pleadings alleging but rather that the claims had to be left to trial.

The Court of Appeal clearly put this issue to rest relying on the well-established duty of care analysis from Cooper v Hobart in finding that no such duty of care exists at law between a plaintiff’s agent/consultant and the defendant. Not only did the Court of Appeal find that there was no proximity between the plaintiff’s consultant/agent and the defendant, the Court of Appeal cited public policy concerns as a basis for refusing to recognize a duty of care, acknowledging the conflicting situation that a consultant/agent would face if it owed duties to parties on both side of the transaction. As a result, the Court of Appeal struck the proposed amendments.

This is a welcome decision which restores certainty and predictability to the case law and clarifies the scope of duties as between parties and their consultants/agents to commercial transactions.

 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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