Are You Sure You’re Covered by the Release? Alberta Court Finds a Subcontractor Not to Have Been Released From an Action

Releases are agreements where one party agrees not to sue another party or parties. However, even where a party is named in a release, the potential claim against them may not necessarily be covered by the agreement. In these cases, the party will remain liable.

How is a named party to be sure whether they are covered by the terms of a release? The following case provides an example of a subcontractor who was not covered by a release, thereby remaining liable in the action.

Facts

Parks v McAvoy concerned the construction of an individual’s (the “Plaintiff’s”) residential home in Calgary by a general contractor.[1] Following the home’s construction, the Plaintiff and his family noticed various mold issues upon moving in. These issues led to the Plaintiff bringing a claim against the general contractor and its principal (collectively, the “Defendants”).

Consequently, the Defendants issued third-party notices against several subcontractors, including a subcontractor who claimed to have settled directly with the Plaintiff (the “Subcontractor”). The Subcontractor argued that they had paid the Plaintiff $96,340.65 for its possible liability, and in return received an executed release discharging it from any further liability in the action (the “Release”). Accordingly, the Subcontractor brought a summary dismissal application to set aside the Defendants’ third-party notice.

The Court’s Analysis

As a general rule, where a third party has no liability to the plaintiff for particular damage, it can have no liability to a defendant in a claim respecting that “same damage”.[2] In other words, one must determine whether the person asked to contribute to a third party claim is liable to pay the plaintiff, or whether they are immune to the plaintiff’s lawsuit.[3]

Here, the Subcontractor argued that, per the Release, it was entitled to be indemnified by the Plaintiff and thus no claim for contribution lay against it. The Alberta Court of Queen’s Bench[4] confirmed that such an argument has been recognized as valid in the past, including in cases where the defendant's ability to recover from the third party was limited or extinguished by common law or a pre-existing contract between the third party and plaintiff.[5] Further, the Court confirmed these principles may apply when the bar to a suit by the plaintiff against the third party is the terms of its settlement with the third party.[6]

Given these principles, the main issue before the Court was whether the Release covered the “same damage” as claimed against the Subcontractor by the Defendants. The Defendants argued that the Release was inadequate to cover all possible damage for which they might be held liable, arguing, amongst other things, that the damage covered by the Release did not cover personal injury damages, which formed part of the Plaintiff’s claims against them. Here, the Plaintiff had claimed $1,000,000.00 in damages for stress resulting from having to abandon the family home and then, allegedly, losing the entire value of the construction.

The Court found that, while the body of the Release referenced “injury” or damage, this was not enough to overcome the express indication at the top of the page that the Release was not intended to cover personal injury damages.[7] Fundamentally, the Release did not cover the same damage for which the Defendants were liable.[8] As a result, the Subcontractor’s application to strike the third party notice against it was dismissed. Notwithstanding, the Court noted that the parties were still free to negotiate a proper settlement agreement that covered “the same damage” sought against the Defendants, likely by including a covenant not to sue the Defendants for any damage for which the Subcontractor might be liable.[9]

Takeaways

Parties must be careful to turn their minds to not only the issues between themselves but also other types of damages and claims that may relate to the same subject matter. The main takeaway from Parks is not new information; parties should always strive to be clear in their drafting language including in a release. The parties to a release must be clear in the claims intended to be addressed by the release. Where a party is trying to eliminate all possible liability, such as a third party claim, a release must cover all possible claims.

McLennan Ross can provide legal advice to individuals as it relates to the drafting of releases in the construction industry. Please reach out to our Construction Law Group with any questions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.