Court of Appeal for Ontario
Date: February 13, 2017
Docket: C61681
Judges: Simmons, LaForme and Pardu JJ.A.
Between
Darren Jarbeau and Lilian Jarbeau Plaintiffs (Respondents)/Appellants by Cross-Appeal
and
Ian McLean Defendant (Appellant/Respondent by Cross-Appeal)
Counsel
For the Appellant: Paul J. Pape, Shantona Chaudhury and Justin H. Nasseri
For the Respondents: Mark H. Arnold, Chris G. Paliare and Alex Young
Heard: September 27, 2016
Appeal Information
On appeal from the judgment of Justice R. Dan Cornell of the Superior Court of Justice, dated January 21, 2016, and from the costs order, dated June 9, 2016, with reasons reported at 2016 ONSC 3789.
Decision
Pardu J.A.:
Introduction
[1] The respondents, Darren and Lillian Jarbeau, had the misfortune to purchase a leaky new home from Thermolith Homes Limited ("Thermolith"). The home did not meet the standards set by Ontario's building code. Their troubles might have been avoided if the engineer hired by Thermolith, Larry Nelson, (the "engineer") had not negligently certified the design and construction of the home.
[2] Unfortunately, the lawyer the Jarbeaus hired to sue those responsible for building and selling them a defective home was also negligent. Their lawyer, Ian McLean, sued Thermolith, the City of North Bay and Tarion Warranty Corporation, but he failed to sue the engineer within the limitation period. Mr. McLean negligently advised the Jarbeaus that they did not have a cause of action against the engineer because they did not have a contract with him.
[3] After the Jarbeaus settled the first action, they sued Mr. McLean. The claim pleaded against Mr. McLean was that "but for" his negligence, the Jarbeaus would have successfully sued the engineer and recovered all of their losses from him. On the eve of trial, Mr. McLean admitted his advice was negligent.
[4] In light of Mr. McLean's admission, the trial of the action against him focused on whether his negligence caused the Jarbeaus any damages. Following a "trial within a trial" of the cause of action that could have been brought against the engineer, a jury found in the Jarbeaus' favour.
[5] The jury assessed the cost to repair the home at $433,000 and the diminution in value of the home because of the defects at $265,000. The jury then deducted the $75,000 the Jarbeaus received in the settlement of the first action, for a net amount of $190,000.
[6] The trial judge characterized the cost of repair finding as perverse and granted judgment for $190,000, representing the lesser of the cost to repair and the diminution of value. Ultimately, he slashed over $100,000 from the costs claimed by the Jarbeaus, even though they had bettered a settlement offer before trial pursuant to r. 49.10 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, explaining that the jury's diminution in value finding was also perverse.
Issues on Appeal
[7] Mr. McLean appeals from the judgment on two grounds:
The trial judge erred in his instructions on causation by failing to instruct the jury that the Jarbeaus' claim should be framed as a claim for a loss of the chance to have the engineer present at the settlement table in the first action. This would entitle the Jarbeaus to damages in proportion to the probability that their action against the engineer would have succeeded – an amount that Mr. McLean submits is necessarily less than 100%.
The award for diminution in value was perverse, as the jury must have attributed zero value to the home and concluded that only the land had value, despite the absence of evidence to support this conclusion.
[8] The Jarbeaus also appeal and seek leave to appeal, on three bases:
Neither of the jury's assessments of damages was perverse and the trial judge ought to have given judgment for the cost to rebuild the home rather than diminution of the value of the home due to the defects.
The trial judge erred by refusing to allow the Jarbeaus to advance a claim for legal costs incurred in the first action as damages in the proceeding against Mr. McLean on the ground it was not pleaded in the statement of claim.
The trial judge erred by reducing the Jarbeaus' claim for legal costs in circumstances where they recovered judgment exceeding the amount for which they offered to settle pursuant to r. 49.10.
[9] Neither party is asking for a new trial.
[10] Mr. McLean asks this court to reduce the damages to $50,000 or $60,000 if we agree that the jury's assessment of damages on both diminution in value and cost to repair was perverse. In the alternative, if this court agrees that the trial judge should have framed the Jarbeaus' claim as one for the loss of a chance, Mr. McLean asks that we reduce the damages by 10-20%. This would reflect the contingency that an action against the engineer may not have succeeded or may have settled for an amount less than the total loss.
[11] The Jarbeaus ask that we grant judgment for the costs to repair or rebuild, without deducting the amount recovered from the parties in the first action because those funds were consumed almost entirely by legal fees. They also ask that we award them their trial costs pursuant to r. 49.10.
[12] For the reasons that follow, I would dismiss the appeal and allow the cross appeal.
A. Loss of Chance
[13] It is common ground that the jury's verdict means that the jury accepted the claim pleaded by the Jarbeaus that "but for" their lawyer's negligence, they would have recovered their losses from the engineer.
[14] Mr. McLean submits that the trial judge erred in his instructions on causation:
[T]he fourth element I mentioned to you is causation. For the defendant to be liable in damages to the plaintiff it is necessary for the plaintiffs to prove that [the engineer] Nelson's conduct caused the plaintiffs' loss. The test that you should apply is called the quote, unquote "but-for test". But-for Nelson's conduct would the plaintiffs have suffered any loss? If the answer is yes but the plaintiffs would have suffered a loss anyway then Nelson's conduct did not cause the plaintiffs damages and the claim in negligence must be dismissed. But if on all of the evidence the plaintiffs would not have suffered loss but for Nelson's conduct then you must find that Nelson caused damages and the defendant, Ian McLean is liable for them. You do not need to be satisfied that there was causation on the basis of scientific precision or proof. Science may not have an answer, causation is essentially a practical question of fact that can best be answered by ordinary common sense on a balance of probabilities.
[15] Mr. McLean argues that the trial judge should have structured the Jarbeaus' claim as one for the loss of the chance to successfully sue the engineer or for the loss of the chance of having the engineer at the settlement table. He submits that this chance, being hypothetical, must necessarily be valued at less than 100%. The trial judge's charge to the jury improperly invited them to find that the Jarbeaus could recover full damages.
[16] I disagree.
[17] The "but for" test set out in the trial judge's charge is the appropriate test for causation in negligence in all but rare cases. The test was set out in Clements v. Clements, 2012 SCC 32, [2012] 2 S.C.R. 181, at para. 8, as follows:
The test for showing causation is the "but for" test. The plaintiff must show on a balance of probabilities that "but for" the defendant's negligent act, the injury would not have occurred. Inherent in the phrase "but for" is the requirement that the defendant's negligence was necessary to bring about the injury ― in other words that the injury would not have occurred without the defendant's negligence. This is a factual inquiry. If the plaintiff does not establish this on a balance of probabilities, having regard to all the evidence, her action against the defendant fails. [Emphasis in original.]
[18] Mr. McLean's submission misunderstands the nature of the Jarbeaus' claim. If the Jarbeaus' claim against the engineer had been litigated, it would have been assessed on a balance of probabilities: but for the engineer's negligence, would they have suffered their loss? If they had persuaded a judge or jury on this standard, they would have been entitled to full recovery. Mr. McLean's negligent advice precluded them from litigating that claim.
[19] Fortunately for the Jarbeaus, they were able to reproduce the evidence they would have led at that unrealized trial through the device of a "trial within a trial". In doing so, they were able to prove that they would have recovered 100% of their loss against the engineer.
[20] In some cases of solicitor's negligence, where it is practically impossible to determine what would have happened but for the solicitor's negligent conduct, courts have allowed a plaintiff to advance a claim for loss of the chance to recover.
[21] Mr. McLean relies on two such cases: Kitchen v. Royal Air Force Association, [1958] 2 All E.R. 241 (C.A.), and Henderson v. Hagblom, 2003 SKCA 40, 232 Sask. R. 81, leave to appeal refused, [2003] S.C.C.A. No. 278.
[22] In Kitchen, the plaintiff sued lawyers who missed a limitation period. There was a "trial within a trial" to determine what would have happened if the plaintiff had been able to sue. Lord Evershed did not accept that it must be "always all for the plaintiff or nothing" and posited three potential scenarios, at pp. 574-575:
If, in this kind of action, it is plain that an action could have been brought, and if it had been brought that it must have succeeded, of course the answer is easy. The damaged plaintiff then would recover the full amount of the damages lost by the failure to bring the action originally. On the other hand, if it be made clear that the plaintiff never had a cause of action, that there was no case which the plaintiff could reasonably ever have formulated, then it is equally plain that the answer is that she can get nothing save nominal damages for the solicitors' negligence.
But the present case falls into neither one nor the other of the categories which I have mentioned. There may be cases where it would be quite impossible to try "the action within the action", as [counsel] asks. It may be that for one reason or another the action for negligence is not brought till, say, twenty years after the event and in the process of time the material witnesses or many of them may have died or become quite out of reach for the purpose of being called to give evidence.
In my judgment, what the court has to do (assuming that the plaintiff has established negligence) in such a case as the present, is to determine what the plaintiff has by that negligence lost. The question is, has the plaintiff lost some right of value, some chose in action of reality and substance? In such a case, it may be that its value is not easy to determine, but it is the duty of the court to determine that value as best it can.
[23] In Hagblom, Mr. Hagblom was sued for negligent construction of a chimney in a home destroyed by fire. His lawyer was negligent in defending him, and the Saskatchewan Court of Appeal had to decide whether to allow Mr. Hagblom to advance a claim that, by reason of the lawyer's negligence, he lost the chance to successfully defend the homeowners' lawsuit. The court concluded that it was not feasible to send the case back for a trial within a trial and accordingly conducted a loss of chance analysis of Mr. Hagblom's chances of success on the underlying action. It held that while Mr. Hagblom had a "potentially winnable" case, he could he not be assured of success because the cause of the fire remained a mystery even after examining the expert evidence.
[24] The court assessed the chances that Mr. Hagblom would have successfully defeated the homeowners' action at 75%, and accordingly set his damages at that percentage.
[25] Mr. McLean also relies on Folland v. Reardon, 74 O.R. (3d) 688 (C.A.). In that case, Mr. Folland claimed that he would have been acquitted of a criminal offence, but for the negligence of defence counsel.
[26] In Folland this court discussed the elements of a cause of action for breach of contract based on solicitor's negligence. I extract the following principles from that decision, using the language used by Doherty J.A., at paras. 72-76:
In most cases of solicitor's negligence, liability rests on both a tort and contractual basis.
The imposition of liability grounded in the loss of a chance of avoiding a harm or gaining a benefit is controversial in tort law, particularly where the harm alleged is not purely economic.
Whatever the scope of the lost chance analysis in fixing liability for torts claims based on personal injuries, lost chance is well recognized as a basis for assessing damages in contract. In contract, proof of damage is not part of the liability inquiry. If a defendant breaches his contract with the plaintiff and as a result the plaintiff loses the opportunity to gain a benefit or avoid harm, that lost opportunity may be compensable.
A plaintiff can recover damages for lost chance in an action for breach of contract if four criteria are met:
a. The plaintiff must establish on the balance of probabilities that but for the defendant's wrongful conduct, the plaintiff had a chance to obtain a benefit or avoid a loss.
b. The plaintiff must show that the chance lost was sufficiently real and significant to rise above mere speculation.
c. The plaintiff must demonstrate that the outcome, that is, whether the plaintiff would have avoided the loss or made the gain, depended on someone or something other than the plaintiff himself or herself.
d. The plaintiff must show that the lost chance had some practical value.
[27] Where a plaintiff in a tort action arising out of solicitor's negligence can establish on the balance of probabilities that but for the negligence he or she would have avoided the loss, he or she should be fully compensated for that loss.
[28] Where a plaintiff can only establish that but for the solicitor's negligence he or she lost a chance to avoid a loss, a claim for breach of contract may permit recovery for the value of that chance.
[29] The case law is clear that a plaintiff in a solicitor's negligence case can fully recover her loss in appropriate circumstances. The British Columbia Court of Appeal expressed it this way, in Nichols v. Warner, Scarborough, Herman & Harvey, 2009 BCCA 277, 95 B.C.L.R. (4th) 133, leave to appeal refused, [2009] S.C.C.A. No. 355, at para. 26:
In a case of this kind, the court is required to essentially conduct a trial within a trial to the extent possible: the first to determine whether the solicitor has been negligent in respect of the litigation undertaken; the second to determine, if so, what loss the solicitor's negligence has caused the client. In some instances, whether there has been a loss and what it was can be readily established. In others, however, the prospect of success and recovery may not be easily shown due to uncertainties of proof and perhaps legal consequences inherent in any given case. Indeed, the mere passage of time may render the conduct of a trial within a trial virtually impossible. What the court must do in such circumstances where the prospect of recovery in the original action is inconclusive is to quantify as best it can the value of what the authorities regard a lost opportunity. The Alberta Court of Appeal summarized the approach to be taken in Fisher v. Knibbe, 1992 ABCA 121, 3 Alta. L.R. (3d) 97, at pp. 7-8:
After conducting the "trial within a trial" to determine what damages, if any, a negligent solicitor is liable for missing a limitation period, three results are possible. First, the trial judge could find that had the case gone to trial the plaintiff would have been successful and in such case 100 per cent of the lost damages would be awarded against the solicitor. Second, the trial judge could find that the plaintiff would not have been successful therefore only nominal damages may be awarded against the solicitor. Finally, where time has passed to such an extent that a "trial within a trial" would be impossible, then the court must to the best of its ability calculate the value of the opportunity lost to the plaintiff and award damages against the solicitor on that basis.
[30] In Folland, this court rejected the appellant's alternative loss of chance claim for several reasons, including that public policy would not countenance a damage award based on a lost chance in a criminal case. If Mr. Folland could only establish a less-than-50% chance of acquittal, by implication the trier of fact would have found that it was more likely than not that he had been properly convicted: at para. 92.
[31] Where a plaintiff advances a tort claim for damages founded on the "but for" causation test, Folland does not support Mr. McLean's argument that some degree of probability between 50% and 100% should reduce a defendant's liability.
[32] In short, none of the cases cited to us involved a defendant attempting to reframe a plaintiff's case as a loss of chance, where the loss the plaintiff claims is the opportunity successfully litigate or settle a claim in full and the "trial within a trial" approach allows the plaintiff to test that claim. In such circumstances the plaintiff is entitled to advance the trial within a trial on the balance of probabilities standard, and to fully recover if that standard is met.
[33] In this case, the Jarbeaus were entitled to frame their case on an all-or-nothing basis by asserting that the engineer was negligent, and that they would have made full recovery had the engineer been sued.
[34] The trial judge's instructions collapsed treatment of Mr. McLean's negligence and the engineer's negligence, and were consistent with the notion of a trial within a trial in a solicitor's negligence case, particularly where the lawyer's negligence is admitted.
[35] This is not to say that some contingencies will not affect the assessment of damages. A jury could, in its assessment of damages, properly be invited to consider future contingencies in assessing the losses that properly flow from the lawyer's negligence.
[36] For example, if a plaintiff successfully recovered judgment against an at-fault party but there was no possibility of collection of that judgment, the plaintiff may recover nominal damages against a negligent solicitor who caused the loss of the opportunity to sue the at-fault party: see Melanson v. Cochrane, Sargeant, Nicholson & Paterson, 63 N.B.R. (2d) 91 (Q.B.), aff'd , 68 N.B.R. (2d) 370 (C.A.); Islington Investments Ltd. v. Day, Ault & White, [1978] O.J. No. 1322 (H.C.). As noted by Sean Campbell, Stephen Grant and Linda Rothstein in Lawyers' Professional Liability, 3d ed. (Toronto: LexisNexis, 2013), at p. 222:
In Page v. Solicitor, [1971] N.B.J. No. 65, 3 N.B.R. (2d) 773, 20 D.L.R. (3d) 532 (N.B.C.A.), aff'd , [1972] S.C.J. No. 24, [1972] S.C.R. vi, 29 D.L.R. (3d) 386n, the Court held that in the absence of any evidence as to any other funds available to satisfy the hypothetical judgment against the original tortfeasor, the maximum loss proven was the sum for which the original tortfeasor had been insured.
[37] This trial was focused on whether or not the Jarbeaus would have obtained judgment against the engineer if they had sued him. Mr. McLean did not suggest to the jury that the Jarbeaus would have settled the first action for less than the amount of their losses or that there was any other contingency that would have impacted the assessment of the amount necessary to put the Jarbeaus in the same position they would have been but for Mr. McLean's failure to sue the engineer. For example, no one called evidence about whether the engineer had liability insurance or the limits of any such policy, perhaps for good reason.
[38] In this case, there was a "trial within a trial" on the issue of the engineer's negligence. The jury found that the engineer failed to meet the standard of care expected of a reasonable and competent professional engineer, and but for his negligence and Mr. McLean's negligence, the Jarbeaus would not have suffered the harm. If I were to adopt Lord Evershed's categorization from Kitchen v. Royal Air Force, I would say that, given the jury's finding regarding the engineer's negligence and Mr. McLean's admission of negligence in advising the Jarbeaus not to sue the engineer, it is plain that an action could have been brought against the engineer and would have succeeded. At trial, the engineer admitted he had erred.
B. Assessment of Damages
(1) Diminution in Value of the Home
[39] To calculate the diminution of value in a home, the trier of fact must first calculate the difference between the fair market value of the home assuming no defects and the value of the home on an "as is" basis, with its defects.
[40] At trial, the Jarbeaus called an expert real estate appraiser who testified that without construction defects, the fair market value of the home was $345,000 or $350,000. His appraisal reports, which were filed in evidence, indicated that the lot alone was worth $65,000 or $75,000.
[41] The Jarbeaus' realtor testified that there would be a stigma attached to the Jarbeaus' home because of the defects and that he would not recommend the home to a buyer, except with full disclosure of the defects. He testified that, in his opinion, the property was not worth anything above the value of the lot.
[42] Mr. McLean's real estate appraiser testified that the value of the property was $320,000 without defects, which included a land value of $90,000. He agreed that the property was stigmatized, but that the stigma could be removed once the problems with the home were fully remediated.
[43] The Jarbeaus tried to sell their home. They listed it in 2015 for $319,090 and repeatedly reduced the asking price. They ultimately received an offer for $220,000, conditional on an independent inspection and financing. The Jarbeaus did not accept this offer. It was insufficient to pay out the mortgage outstanding on the property.
[44] Mr. McLean argues that this single, conditional offer established the fair market value of the home on an "as is" basis, with the home's defects. He argues that the diminution in value was therefore $130,000 (the highest appraisal of the fair market value of the home without defects of $350,000, minus the value of the home on an "as is" basis of $220,000) and that, when the $75,000 recovered as part of the settlement of the first action is deducted, the net judgment should have been for $55,000.
[45] Given that the house did not comply with Ontario's building code, it was open to the jury to conclude that the single offer, conditional on inspection and financing, was not sufficient to establish that the home itself had any value, particularly where the costs to repair arguably approach or exceed the value of the home.
[46] Mr. McLean's and the Jarbeaus' experts appraised the fair market value of the property without defects between $350,000 and $320,000. The value of the land was appraised between $90,000 and $65,000. The house itself was therefore worth between $230,000 (the lowest property appraisal, less the highest land appraisal) and $285,000 (the highest property appraisal, less the lowest land appraisal). If the jury concluded that the home itself had no value because of its defects, they had before them appraisal evidence supporting a diminution in value between $230,000 and $285,000. The jury's assessment of diminution of value at $265,000 falls within this range.
[47] The jury's conclusion that the diminution of value of the property is not so plainly unreasonable and unjust as to satisfy the stringent test for setting aside a jury verdict as perverse – that no jury reviewing the evidence as a whole and acting judicially could have come to that conclusion: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 30; McCannell v. McLean, [1937] S.C.R. 341, at p. 343.
(2) Cost to Repair the Home
[48] The Jarbeaus called the evidence of a professional engineer, Gerald Genge, to provide expert opinion evidence about the cost to repair their home. In his expert report dated January 28, 2011, which was filed as an exhibit and provided to the jury, he stated:
It is unclear at this point whether or not any repairs can be effective. Since the building does not comply with the Ontario Building Code, it is our opinion that the building either should not have been constructed or that, prior to construction, more extensive assessment of the materials and the design should have been completed.
[49] He updated his cost to repair estimate to $240,690 in a report dated June 19, 2012, but expressly indicated that the repairs needed were subject to actual contractor pricing, which would be based on detailed design following on-site exploratory work. At trial, he adjusted this estimate by adding $50,000 for on-site security during construction and by accounting for re-roofing the home, resulting in an estimate of the cost to repair the home at $277,000.
[50] The Jarbeaus also obtained a contractor's pricing estimate from Fry's Construction Limited. This estimate, dated September 18, 2013, was filed in evidence and placed before the jury. It contemplated razing the house to the foundations and rebuilding it for a total cost of $362,334.50. The estimate did not include a component for on-site security or an allowance for temporary accommodation for the Jarbeaus during construction. The Fry's Construction estimate went to the jury without objection and without any request for a limiting instruction. The Jarbeaus' counsel expressly clarified with the trial judge that he could refer the jury to this pricing calculation.
[51] The combination of the Fry's Construction estimate to rebuild the home and Mr. Genge's security estimate suggests that it was open to the jury to conclude that at least $412,000 would be required to raze and rebuild the home. Therefore, on the evidence before the jury, there was a basis for the jury to assess the cost to repair and related costs at $433,000. The jury's assessment of the cost to repair was not unreasonable or unjust. It follows that the trial judge erred when he characterized this assessment as perverse.
(3) Should Damages Be Assessed on a Diminution of Value or Cost to Repair Basis?
[52] The trial judge characterized both jury assessments of diminution of value and cost to repair as perverse, and reluctantly gave judgment for the lesser amount. As shown above, there was evidence before the jury justifying both assessments. Absent a reasoned basis for deciding whether to grant judgment for diminution in value or cost to repair, it falls to this court to make that decision.
[53] The general rule for resolving a question as to the measure of damages was set out in James Street Hardware and Furniture Co. v. Spizziri, 62 O.R. (2d) 385 (C.A.). At para. 54, this court held that the general proposition is that the damages awarded to a plaintiff should put him or her in the same position as they would have been in had they not sustained the wrong for which they are receiving compensation or reparation.
[54] The Jarbeaus purchased a new home in 2007. They ended up with a home with many deficiencies that is not building code compliant and should never have been built. The fairest measure of damages is that which would provide the Jarbeaus with what they bargained for – a home free of defects.
[55] Accepting the jury's assessment that the home itself had no value, damages should not be awarded on the lesser diminution in value basis because this does not take into account the very real difficulty of selling this home and the cost of demolition, if the property were to be sold as vacant land.
[56] In the context of this case, there is no issue of a windfall or betterment if the cost to repair is awarded. Many courts have concluded that the measure of damages may properly be fixed at the cost to repair the deficiencies in a home or rebuild a home: Nan v. Black Pine, [1991] B.C.J. No. 910 (C.A.); Fors v. Overaker & Mallon, 2014 ONSC 3084, [2014] O.J. No. 3108; Galan v. Finch, 2015 ONSC 2455, [2015] O.J. No. 2275; Gemeinhardt v. Babic, 2016 ONSC 4707, [2016] O.J. No. 3883.
[57] I would set aside the verdict entered by the trial judge, and substitute judgement in favour of the Jarbeaus in the sum of $433,000, as assessed by the jury.
[58] I would not deduct the $75,000 recovered by the Jarbeaus in settling the first action. Of that, $25,000 represented an undertaking to repair the roof, which was ultimately of no value to the Jarbeaus. The remaining $50,000 was consumed almost entirely by legal fees. The Jarbeaus settled because they had concerns about their ability to collect from the builder. Darren Jarbeau testified that the principal of Thermolith had liquidated all of his Ontario assets.
C. Costs
[59] Rule 49.10(1) provides that where a plaintiff makes an offer to settle at least seven days before the start of the trial and obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs up to the date the plaintiff served the offer to settle and substantial indemnity costs thereafter, unless the court orders otherwise.
[60] In this case, the Jarbeaus offered to settle for $225,000 plus costs about 11 months before trial and offered to settle for $175,000 plus costs about one month before trial.
[61] Although the judgment was more favourable than the Jarbeaus' offer to settle, the trial judge refused to grant the Jarbeaus costs in accordance with r. 49.10(1). He departed from rule 49.10(1) and deprived the Jarbeaus of their costs on two bases: first, that the jury's damage awards were perverse, and second, that the conduct of their counsel at trial contributed to the perversity of the verdict. The trial judge went on to find that the Jarbeaus were only entitled to partial indemnity costs and reduced their costs by over $100,000, citing proportionality as the basis for this reduction.
[62] Early on in the trial, the trial judge repeatedly expressed the view that the diminution of value was the correct measure of damages and that those damages were in the $40,000 to $60,000 range. He warned of dire cost consequences since this action had not been brought under the simplified procedure rules. He made remarks suggesting he was critical of the Jarbeaus for having chosen a jury trial, stating:
THE COURT: Why have a jury, I've never in my legal practice or judicial practice had a jury in a lawyer's negligence case.
MR. DOOLEY: Neither have I, Your Honour.
THE COURT: Have you?
MR. DOOLEY: No, I never have. And it's my client's policy not to have them and I was grilled a little bit on how we got a jury, but we have a jury because Mr. Arnold had the right to serve a jury notice and he did.
THE COURT: And I have the right to strike it out if I think it's too complicated for the jury.
[63] In finding that the Jarbeaus were entitled to partial indemnity costs, the trial judge stated, at paras. 29-32:
It has already been mentioned that the trial was unduly delayed by virtue of plaintiffs' counsel repeatedly attempting to admit evidence that I had ruled was inadmissible and by pursuing claims that had not been pleaded or had been otherwise disallowed by me. There was an effort by plaintiffs' counsel to introduce into evidence minutes of settlement from the first action that contained within them an attempt to set the stage for certain findings to be made in this negligence action. It also involved an effort on behalf of the plaintiffs to introduce evidence of pre-trial settlement discussions.
When plaintiffs' counsel was thwarted in his efforts to introduce this evidence, he attempted to do so during his closing submissions to the jury. As a result, I was required to interrupt counsel at that time, excuse the jury, and review plaintiffs' counsel's closing submissions in order to remove the improper parts.
In view of the fact that there was no evidence whatsoever to support the finding of the jury with respect to the repair/rebuild costs or the diminution in value, I can only come to the conclusion that the jury used some of plaintiffs' counsel's statements during the course of the trial and during the course of closing submissions in order to come to their conclusions.
After taking all of these facts into account, I am of the opinion that this is an appropriate case where I should depart from the prima facie cost consequences in Rule 49.10 as the interests of justice dictate this course of action. The conduct of plaintiffs' counsel is to be taken into consideration when awarding costs. See Rodas v. Toronto Transit Commission, 2012 ONSC 5662 (ONSC) at para. 23.
[64] These criticisms of counsel's conduct were largely unwarranted.
[65] Before his closing submissions to the jury, counsel addressed the trial judge:
[I]n my closing, I would like to go through some of the trial exhibits. I trust that that is not an issue for Your Honour? … And I'd like to read portions of those exhibits, if I may?
[66] The trial judge indicated that counsel was free to refer the jury to the evidence before it.
[67] Further, before making his closing submissions to the jury, the Jarbeaus' counsel also stated:
The last thing I want to do is run afoul of your ruling… and the last thing I want is to give an interruption and I assure you I will try my best.
[68] In response, the trial judge explained that his practice is not to interfere with closing submissions absent egregious improprieties. The trial judge explained that if counsel's closing submissions do cross the line, he would deal with those issues in his charge to the jury.
[69] The trial judge interrupted the Jarbeaus' counsel and excused the jury during his closing submissions. He raised the following five improprieties with counsel that arose during his closing:
A reference to mold and mildew associated with the deficiencies in the building when there was no mold or mildew claim;
An appeal to the jury's sympathy;
A misstatement of Mr. McLean's counsel's position;
Reference to the corporation that failed to honor the Jarbeaus' home warranty claims and the inability to recover from them even though that corporation was not a defendant in the second action; and
A statement that both Darren and Lillian Jarbeau were nurses, when in fact the evidence was that only one was a nurse.
[70] These criticisms of the Jarbeaus' counsel's closing submissions were largely unjustified.
[71] First, a report filed as an exhibit and read into the record by Darren Jarbeau, referred to the risks associated with exposure to mold. The Jarbeaus' engineer's evidence referred to mold in the roof of their home. It was not improper for trial counsel to refer the jury to this evidence.
[72] Second, there was nothing in counsel's address that suggested an undue appeal to sympathy, or that suggested in any way that the jury should ignore the law or evidence and decide the case on the basis of sympathy.
[73] Third, Mr. McLean's counsel suggested to the jury that any negligence by the engineer did not cause the Jarbeaus any loss because the City of North Bay did not rely on the engineer's certification in any event. In his closing, the Jarbeaus' counsel stated, "if I understood him correctly [he] told you that the City did not rely on Nelson [the engineer] and that they did their own inspections." The trial judge wrongly accused him of taking liberties with what Mr. McLean's counsel said and asked him if he had a hearing problem. The Jarbeaus' counsel's submissions were not unreasonable and his interpretation was borne out by the transcript.
[74] Fourth, references to exhibits containing references to the corporation that denied the Jarbeaus' warranty claim were not inappropriate.
[75] Finally, although only Darren Jarbeau had testified that he was a nurse and there was no evidence as to the occupation of Lillian Jarbeau, this was a minor matter, which could have been easily corrected in the final instructions to the jury, if necessary.
[76] After the trial judge's interruption of counsel's closing address, it was counsel, not the trial judge, who took the precaution of asking the trial judge to vet the remainder of documents which were in evidence to which he intended to refer the jury so as to avoid running afoul of any ruling.
[77] Despite the interruption of counsel's closing address and his criticism of counsel, the trial judge did not find it necessary to give any correcting instruction to the jury arising out of his expressed concerns.
[78] The trial judge refused to allow the Jarbeaus to advance a claim for the costs of the first action on the ground that it was not pleaded. A claim for those costs was in fact made in the statement of claim, and particulars of the amounts were given on discovery and in answer to undertakings. The trial judge was repeatedly critical of the Jarbeaus' counsel for attempting to advance an unpleaded claim. Counsel was, admittedly, not of much help to the trial judge on this issue.
[79] The trial judge criticized counsel's treatment of the minutes of settlement from the first action. However, counsel vetted his approach with the trial judge in advance in the absence of the jury and reasonably believed he was adopting the appropriate course.
[80] It serves no purpose to highlight the many inappropriately derisive comments made by the trial judge directed at plaintiff's counsel. The purpose of the foregoing is to set out the context for the trial judge's reduction of the Jarbeaus' costs. There were some slips by counsel, but they were modest, and might have added an hour to a two-week trial. The conduct of counsel did not warrant penalizing the Jarbeaus to such a significant extent.
[81] Whether a jury verdict is or is not perverse or unreasonable is a matter for an appellate court, not an issue to be dealt with by the trial judge: Lang v. McKenna, [2000] O.J. No. 2983, at para. 24. I have already concluded that the jury's assessments of damages were not perverse. There was a significant punitive element in the trial judge's reduction of costs, and that punitive element was not warranted.
[82] In any event, I conclude that the trial judge erred by failing to give effect to the purposes of r. 49.10(1). As pointed out in Niagara Structural Steel (St. Catharines) Ltd. v. W.D. Laflamme Ltd., 58 O.R. (2d) 773 (C.A.), at p. 777, this rule is intended to be an incentive to settlement and, to ensure that the objective of this rule is fulfilled, the rule should be applied in the vast majority of cases:
While rule 49.10(1) does not set forth the basis for resorting to the exception to it, it is reasonable to assume that the occasions for the application of the exception should not be so widespread or common that the result would be that the general rule is no longer, in fact, the general rule. If this were to happen, the presumption in favour of the general rule and the resulting reasonable degree of predictability respecting the incidence of costs would disappear and the incentive policy of the rule would be substantially frustrated. Another consequence would be a more uneven application of the rule in litigation generally.
[83] Nowhere does the trial judge discuss the purposes of r. 49.10(1).
[84] While proportionality might affect the amount of costs, in circumstances like these, proportionality should not be used to deprive a plaintiff bettering his or her offer of the scale of costs to which r. 49.10(1) entitles them – substantial indemnity costs from the date of the offer.
[85] Mr. McLean's own costs were not in a range significantly different from those claimed by the Jarbeaus. Mr. McLean made no r. 49.10 offer. Mr. McLean admitted that he was negligent at the opening of trial, without prior warning to the Jarbeaus. In the two weeks before trial, Mr. McLean served a motion to remove the Jarbeaus' counsel, but did not proceed with that motion. Mr. McLean's counsel refused to communicate with the Jarbeaus' counsel, except in writing. This was a bare-knuckle battle. There was no reason why the Jarbeaus should not have recovered their costs pursuant to r. 49.10(1).
[86] I would set aside the trial judge's decision on costs and substitute a cost award of $231,000, inclusive of disbursements and taxes, in favour of the Jarbeaus.
[87] Counsel may make brief written submissions on the costs of the appeal, due within 30 days of the release of this decision.
Released: February 13, 2017
"G. Pardu J.A."
"I agree Janet Simmons J.A."
"I agree H.S. LaForme J.A."