Recently, in Nelson v British Columbia (Environment), 2020 BCSC 479 (“Nelson”), the BC Supreme Court examined and ultimately approved a broad exclusion of liability clause contained in a restrictive covenant registered on title to property pursuant to section 219 of the Land Title Act, RSBC 1996, c. 250 (the “LTA”).
Under the LTA, an Approving Officer may, as a condition of approving a subdivision, require that a restrictive covenant be registered on title to the lands being subdivided “if the approving officer considers that the land is, or could reasonably be expected to be, subject to flooding, erosion, land slip or avalanche”. Under the LTA, such covenants may contain terms “of a negative or positive nature”. The LTA also makes express provision for the inclusion of indemnity provisions whereby the subdividing party, and the successors in title to that party, may be obliged to indemnify the subdividing authority for matters addressed in the covenant.
Though not expressly addressed in the LTA, the widespread practice in British Columbia for many years on the part of both the Province and municipalities has been to include liability waivers in such covenants.
In Nelson, the BC Supreme Court held that the waiver contained in the restrictive covenant registered on title to the subject lands pursuant to sections 86(1)(d) and 219 of the LTA (the “219 Covenant”) was a complete answer to the plaintiff’s claims against the Province.
The Provincial Approving Officer had required the plaintiff to register the 219 Covenant containing a liability exclusion clause related to flooding (the “Waiver”) on title to the subject property as a condition of the Province approving the plaintiff’s subdivision (the “Subdivision”). The Province required the 219 Covenant because the subject property had a history of flooding.
In April 2012, a culvert at a Provincially-owned crossing of a creek (the “Crossing”) failed. A portion of an embankment at the Crossing collapsed and deposited large amounts of soil into the creek (the “Debris Flood”).
The plaintiff claimed against the Province in negligence, nuisance and under the Water Act for damages to his property and damage to the community’s water and power intakes which serviced the Subdivision and which the plaintiff alleged were caused by the Debris Flood.
The Required Framework for Interpretation of Waivers in 219 Covenants
The court in held that the three-step approach set out by the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 (“Tercon”), was the required framework to determine the applicability and enforceability of exclusion clauses contained in 219 covenants which were required as conditions for approval under section 86(1)(d) of the LTA. The three-step approach in Tercon is as follows (emphasis added):
- As a matter of ordinary contractual interpretation, does the limitation clause apply to the circumstances establishing by the evidence, considering the parties’ intentions as expressed in the contract;
- If the exclusion clause applies, was it unconscionable at the time the contract was made; and,
- If the limitation clause is valid and applicable, should the court nevertheless refuse to enforce it because of an overriding public policy, proof of which lies on the party seeking to avoid its enforcement.
The court determined that it was not restricted in its analysis to the test in Canada Steamship Lines Ltd. v. The King,  2 D.L.R. 786 (“Steamship”), which presumes that negligence is only intended to be excluded from liability if it is expressly set out in waiver clauses. However, the court stated that the Steamship test may serve as helpful guidance.
General Interpretation Approach to section 219 Covenants
In order to determine the first part of the Tercon test as applied to section 219 covenants, the court in Nelson applied the standard approach to contractual interpretation:
- absent ambiguity, words in the contract should be given their literal meaning;
- words of ordinary use must be construed in their ordinary and natural sense;
- the paramount test is the intention of the parties; and,
- the court should determine the objective intention of the parties by looking to the surrounding circumstances at the time the contract was signed.
Despite the implied guidance of Steamship in determining what the parties intended to exclude from liability, the court gave more weight to the legal proposition that as long as the language in the limitation clause is broad enough to exclude liability generally, the parties can freely allocate risk and need not name each tort or cause of action specifically.
The Court’s Application
Ultimately, the court in Nelson concluded that the parties intended to exclude liability of the Province in relation to the Debris Flood including the claims based in negligence, nuisance and under the Water Act based on the following considerations:
- the Waiver was given as a condition to approval of the Subdivision and the parties allocated risk accordingly;
- the Waiver included clear and unambiguous language that excluded all claims the plaintiff may have against the Province related to damages from flooding;
- the 219 Covenant contained the plaintiff’s express acknowledgement of flood risk; and
- the 219 Covenant contained restrictions on the placement of construction to avoid damages from flooding.
In finding that the Waiver applied to more than damages caused by natural hazards, the court specifically considered the fact that the plaintiff was granted the right to subdivide in exchange for waiving the right to sue the Province:
Despite the absence of an express reference to claims of negligence and nuisance, the Waiver was worded broadly enough to encompass all claims against the Province. Based on the clear wording and the fact that the plaintiff received a right to subdivide in exchange for waiving the right to sue, the Court held that it was clear that the parties intended that the Waiver exclude all claims the plaintiff may have against the Province in relation to damages caused by flooding or erosion.