Written by Scott H.D. Bower and Russell J. Kruger
A recent decision of the Alberta Court of Appeal has opened the door for defendants in contract cases to implicate other would-be contract-breakers, thereby potentially reducing the defendants' exposure to liability while increasing the size and complexity of breach of contract claims.
In Petersen Pontiac Buick GMC (Alta) Ltd v Campbell, 2013 ABCA 251 [Petersen Pontiac], the Alberta Court of Appeal considered an appeal in which a defendant lawyer (Campbell) was found liable in both contract and tort to certain plaintiffs, while another defendant (Petersen Pontiac) was likewise found liable for breaching a separate contract with the plaintiffs. Each defendant's fault had caused the same loss to the plaintiffs. On appeal, the Court considered who had to pay for the plaintiffs' loss when both defendants independently caused it. First, the Court confirmed that the liability of the defendants was several and not joint since the causes of action brought against Campbell and Petersen Pontiac were separate and distinct. That is, Campbell's fault was independent of Petersen Pontiac's breach of contract. After reviewing academic commentary on contribution in contract and finding some support for its view in the case law, the Court concluded that it saw "no impediment in contract law to dividing liability between two parties who have breached two different contracts, causing the same damages to a plaintiff." The Court also justified its conclusion on the basis of equitable principles relating to contribution. In the result, the Court equally apportioned the damages between the defendants, since nothing in the trial judge's reasons indicated that one was more or less to blame than the other. The result is something that would be common in tort cases, like a negligence case, but is novel for a contract matter.
While the boundaries of Petersen Pontiac remain to be seen, the case is significant for its potential impact on claims involving more than one prospective defendant in a contractual relationship with a plaintiff. In these cases, a defendant may now consider bringing a third-party claim against another person contractually obliged to the plaintiff, where that contract may also be implicated in the plaintiff's loss. That means that a contract-breaker is now at risk of being sued not only by its actual counterparty, but also by anyone else the counterparty has sued for a breach of contract giving rise to the same loss. While it has been surmised that such separate breaches of contract leading to the same damage are likely to be relatively rare, it is not clear that this is the case. Take, for example, a homeowner who has suffered damage from faulty construction, where the actions of both a contractor and architect are implicated. The homeowner may choose to sue the builder, but the builder can third-party the architect into the lawsuit. Or the case of a sale of a company that turns out to be less profitable than expected, contrary to representations contained in the sales agreement, and where due diligence contracted for and conducted by the purchaser's accountants and lawyers fails to discover the problem. Again, the purchaser may choose to sue the vendor, but the vendor might third-party the purchaser's lawyers and accountants. Other construction examples abound, including cases where separate breaches of contract lead to the same delay of a construction project. Petersen Pontiac thus increases the potential for large, multi-party contract litigation, akin to similar tort cases seen in recent years, where defendants are motivated to creatively point the finger at other would-be contract-breakers in order to increase contribution to the settlement pot.