May, 2011 1

Insert any additional information here.

Helping to create windows of opportunity

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ASTTBC / BCIPI HOME INSPECTION

CONTRACT

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Today’s Discussion

• Law 101 for Applied Science Technologists

• Written Contracts and Limitations of Liability

• How to do it wrong – Salgado v. Toth

• How to limit liability and make it stick!

• BCIPI Contract

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The Law

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Contract

• Implied term of “adherence to professional standards” (no negligence)

• Establish the mutual obligations between parties

• Opportunities to define and limit liability

• Cannot govern your obligations to third parties

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• Primary bases for most claims:

• Investigation

• Reports/ opinions

Negligence

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Standard of Care in the Provision of Professional Services

Negligence:

The failure to adhere to the standard of care expected of a reasonable and prudent Professional in the provision of services to one to whom you owe a duty of care.

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• Third persons to whom the law says the Professional owes a duty of care• Reasonable Foreseeability• Public Policy

Negligence

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Negligence Who Relies on your Inspection Report?

• Client

• Vendor

• Realtors

• Municipal Authorities having jurisdiction

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• There must be a duty of care based on a “special relationship” between the representor and the representee.

• The representation must be untrue, inaccurate or misleading.

• The representor must have acted negligently in making the misrepresentation.

Negligent Misrepresentation

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• The representee must have relied, in a reasonable manner, on the negligent misrepresentation.

• The reliance must have been detrimental to the representee, i.e., damages resulted.

• The representation must have been made for the purpose that the representee would rely upon it in the way that he did.

Negligent Misrepresentation

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Protection?

• No written contract to protect you from third party liability

• Define in your contract and your work product the limited scope and purpose of your work product

• Clearly set out that it can only be relied upon by the client

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Disclaimer

“This report was prepared for the exclusive use of [ Client ] and may not be used or otherwise relied upon by any third person without our written consent. We accept no liability to any third person whatsoever.”

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B.C. Limitation Periods

• Two years for physical damage or injury to person;

• Six years for economic loss;

• Ten years for breach of trust in the mishandling of trust property; and

• Thirty-year ultimate rule.

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B.C. Limitation Periods

• Section 6(3) postpones starting time of the limitation period until “a reasonable man would have had within his possession sufficient facts that he should have recognized he had a right to sue with a reasonable prospect of success.”

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B.C. Limitation Periods

• No prohibition against any term in an engagement letter reducing the limitation period!

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Limitation Periods

• May 2011 – Investigation and Report and Removal of “Subject to Inspection”

• October 2013 – Dry Rot discovered on SE Walls

• February 2014 – Opinion from lawyer to sue house inspector and previous owners

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Limitation Periods

Time to Sue Would Not Run Out Until February 2020 in British Columbia

• Unless you contract out of the Limitation Act time frame

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Vicarious Liability

A Home Inspection Corporation or Proprietorship can be vicariously liable for:

• Employees

• Agents and Sub-consultants whose services they contract to provide

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Individual Liability

“Limited companies cannot exercise professional functions except through qualified individual employees. Those employees must realize it is their skill and experience the clients are engaging and will rely upon….

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Individual Liability

They therefore owe a concomitant duty of care to those clients and are potentially liable in tort if they fail to meet that duty.”

Strata Plan No. VR1720 v. Bart Developments, [1999] B.C.J. No. 382

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Contract Language

• Essential to have a written contract for every engagement

• Limit your liability

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Salgado v. Toth 2009 BCSC 1515

• A study in how to NOT limit your liability:

• Do not draw the limitation of liability language to the attention of the client

• Present the contract for signature after the services have been largely performed

• Do not give the client time to read the contract

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Salgado v. Toth

• Don’t have all the clients sign the contract

• Have the limitation of liability language unclear and ambiguous

• Limit liability to your fees

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Protect Yourself from Disaster

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Do It Right!

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Limitations that Work

• So how do you do it right?• Let’s review general principles• Then let’s get specific

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Limitations that Work

• The limitation language must be clear and unambiguous to avoid the argument of “contra proferentum”

• Limiting liability should still provide some compensation for loss

• Limiting the time in which to sue must be reasonable

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Limitations that Work

• Establish a clear intent of the client to be bound

• Promote the client’s freedom to contract

• Evidence a willingness to negotiate specific terms

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Key Limitation Terms

• Establish a published policy within your business based upon risk factors and amount of fees

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Key Limitation Terms

• Limit Liability to a specific amount that will be substantially greater than your fees

• Permit the Client to increase the limit of liability

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Key Limitation Terms

• Require agreement that client cannot sue you or employees individually - will work if you have insurance

• Not vicariously liable for other consultants

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Key Limitation Terms

• Limit time in which to sue to two (2) or more years from:• Last invoice• Substantial Completion• Suspension or Termination

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The Right Way

• Use email and fax to deliver written contract and terms to client when contacted, and before you do the work

• Draw to the potential client’s attention that there are limitations of liability clauses in the contract and ask them to review the clauses before signing

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The Right Way

• Properly complete the form

• Ideally, do it in type face, large font

• Don’t leave any blanks

• Send it in PDF or via fax so that it cannot be changed

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The Right Way

• The model contract requires the client to acknowledge that they have had adequate time to read

• You want to ensure that you ask them to read the contract and advise you of any concerns

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The Right Way

• Do not begin work until the client has indicated in writing, either by fax or by an email, that he/ she will accept the terms

• Preference: Get them to sign the contract and either scan and return, or fax it back to you

• Make sure the client hasn’t deleted, crossed out or made any changes

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Scope of Services

• 1.1 - Sets the appropriate standard, I.e. no negligence

• 1.2 - Reinforces that inspection is visual

• 1.3 - You will provide a report

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Limitation of Liability

• Note that the section contains a bold warning

• 2.1 - all one claim, not a claim for every error

• 2.2 - $50,000 limit of liability

• 2.2 - willing to negotiate a higher limit

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Limitation of Liability

• 2.3 - Can’t sue employees or staff if incorporated

• 2.4 - Liability is several to your proportion of fault

• 2.5 - 2 year limitation period starting on first of four events

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Limitation of Liability

• 2.6 - You own the Report

• 2.6 - Client or Beneficiary, latter can be a person or a class of persons, e.g. in a pre-listing report, possible purchasers

• 2.6 - indemnification if client distributes the report and the recipient then sues you

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Dispute Resolution

• 4.1 - Have to give you notice about defects so that you can see them

• 4.2 - Failure to give notice can prejudice you and if so, void any claim

• 4.3 - Arbitration Clause

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The Right Way

• Charge more

• Do it right the first time