COURT OF APPEAL FOR ONTARIO DATE: 20210122 DOCKET: C67818

Feldman, van Rensburg and Thorburn JJ.A.

BETWEEN

BMW Canada Inc. Plaintiff (Respondent)

and

Autoport Limited Defendant (Appellant)

Counsel: Robert B. Bell, Emily Y. Fan, and Julia Boddy, for the appellant Eric Machum, Kyle Ereaux, Marc D. Isaacs and Michelle Staples for the respondent

Heard: July 14, 2020 by video conference

On appeal from an order of the Divisional Court (Justices Nancy L. Backhouse, Robert Charney and Lise G. Favreau), dated July 19, 2019, with reasons reported at 2019 ONSC 4299, 35 C.P.C. (8th) 141, setting aside the order of Justice Carole J. Brown of the Superior Court of Justice dated July 11, 2018, with reasons reported at 2018 ONSC 4208, 23 C.P.C. (8th) 23, and restoring the order of Master Janet E. Mills of the Superior Court of Justice dated December 11, 2017, and reported at 2017 ONSC 7379.

van Rensburg J.A.:

A. Introduction

[1] At issue in this appeal is which of the parties is to bear the cost of the interim preservation of vehicles in an action where the respondent claims damages for their total loss, but wishes to destroy them, and the appellant seeks their preservation for the purpose of inspection. The appeal originated with a Master’s order in a motion under r. 45.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. This court must determine whether there was a palpable and overriding error in the Master’s order (which was restored by the Divisional Court) requiring the appellant to assume the cost to preserve the vehicles.

[2] The parties are engaged in litigation in which the respondent BMW Canada Inc. (“BMW”) claims damages in respect of 2,966 vehicles it alleges were exposed to adverse weather conditions while being stored by the appellant, Autoport Limited (“Autoport”). After the action was commenced, and before Autoport had delivered its statement of defence, BMW informed Autoport of its intention to dispose of the vehicles.

[3] BMW contends that, although it claims damages for the total loss of all of the vehicles, it does not need the vehicles to prove its claim. BMW asserts that its damages claim does not turn on proving actual harm to any of the vehicles, but on the fact that they were all exposed to adverse weather conditions and recalled because of safety concerns. BMW seeks to avoid the cost of the ongoing storage of the vehicles by turning over custody of the vehicles to Autoport, continuing to store the vehicles at Autoport’s expense, or destroying the vehicles. Autoport denies liability and, among other things, challenges BMW’s decision to recall the vehicles and its damages theory. Autoport sought an order for interim preservation of the vehicles, asserting that, until it received information from BMW about the defects BMW had identified and BMW’s own testing and inspection of the vehicles, it was unable to develop and implement a testing protocol that is appropriate and necessary for its defence of the action.

[4] The Master held that BMW should not have to bear the financial burden of continuing to store the vehicles and ordered Autoport to elect within ten business days whether to take physical custody of the vehicles or to assume the financial responsibility for their storage and preservation, failing which BMW could deal with the vehicles as it deemed appropriate. The Appeal Judge reversed the Master’s order and required BMW to preserve the vehicles and to pay the ongoing storage costs, which it could recover from Autoport if successful at trial. On further appeal with leave, the Divisional Court restored the Master’s order and required Autoport to pay BMW the costs of storing the vehicles from ten business days after the date of the Master’s order to the date of its election.

[5] Autoport appeals to this court, with leave. For the reasons that follow, I would allow the appeal.

[6] Briefly, the courts below erred in attempting to articulate and apply a “one-size-fits-all” test for r. 45.01 motions. The situations in which such a motion may be brought are varied. The court must consider all relevant circumstances, including the nature of the property and its materiality to the issues in the litigation, as well as the purpose of the preservation order and its proposed duration. The court should seek to craft an order that is based on and responsive to the evidence before it, including evidence of the potential benefit and harm or prejudice to each party. Where, as here, the condition of the property is at issue in the action, and its preservation is sought for the purpose of inspection, the goal is to best ensure fairness in the litigation process. In making an interim preservation order, the court can impose conditions which might include provision for the financial obligations to be assumed by the parties, time limits, and in appropriate circumstances, a mechanism for further directions or review of the order.

[7] In this case the Master erred when, in assessing the relative prejudice to the parties (which she characterized as “balance of convenience”), she considered only the cost to BMW of storing the vehicles. The Divisional Court, in restoring the Master’s order, erred in its articulation of the test, in deferring to the Master’s balance of convenience assessment, and in concluding that Autoport’s own experts could determine how many vehicles they needed to preserve and test “to meet [BMW’s] theory of liability.” This conclusion was contrary to Autoport’s uncontroverted evidence, and instead prematurely gave credence to the damages theory BMW advanced at the motion.

[8] Taking into consideration the evidence on the motion and the factors that are relevant in this case to best ensure fairness in the litigation process, I conclude that an order for the interim preservation of the subject vehicles is warranted. I would allow the appeal and grant an order substantially in the terms of the order sought by Autoport in argument on this appeal.

B. Facts

(1) BMW’s Claim

[9] Autoport, a subsidiary of Canadian National Railway Company (“CN”), operates vehicle processing and transloading facilities at several locations across Canada, including in Eastern Passage, Halifax, Nova Scotia (the “Autoport facility”). BMW contracted with Autoport to provide vehicle handling and storage services for BMW vehicles imported to Canada from Germany.

[10] BMW commenced its action by statement of claim dated February 1, 2017. BMW alleges that, as a result of Autoport’s negligence and breach of contract, 2,966 BMW and MINI-branded vehicles (the “BMW vehicles”) sustained damage due to exposure to excessive water and corrosive substances, including salt, while stored at the Autoport facility during the winter of 2015. BMW claims $175 million in damages, which includes the full value of the 2,966 vehicles that were stored by Autoport.

[11] The statement of claim states that BMW seeks damages arising from its recall of the BMW vehicles. The statement of claim refers to its inspection of vehicles when they were in the possession of Autoport (at para. 19) and to inspections between May 2015 and July 2016 that revealed “latent and severe damage to the Vehicles” (at paras. 21, 22 and 24). BMW pleads that the resulting damage includes but is not limited to (a) MINI models: damage to the starter motor power supply cable connectors; (b) BMW models: damage to internal components within the steering rack; and (c) BMW and MINI models: damage to electrical wires and/or connectors (at para. 24).

[12] BMW pleads that the vehicles were recalled beginning in July 2015 (at para. 25), and were to be returned to BMW for disposal (at para. 27). BMW claims damages that include its loss in respect of the vehicles, the costs of transportation and storage of the vehicles, the costs of investigating the source, nature, and extent of the damage, and disposal or destruction costs (at para. 40).

(2) The Motion to Preserve the Vehicles

[13] In November 2017 Autoport brought a motion under r. 45.01 for an interim preservation order, for particulars of certain pleadings in the statement of claim and inspection of documents (including particulars of the results of the inspections referred to in the statement of claim and production of the inspection reports), and for an order under r. 32.01 for a court-supervised inspection process.

[14] The evidence on the motion consisted of the affidavit of Daniel Steedman, National Claims Manager at CN, sworn November 3, 2017. Mr. Steedman noted that BMW had alleged defects to all of the vehicles, but it had refused to provide documentation detailing the alleged defects and its own inspection results. In seeking interim preservation of the vehicles, Mr. Steedman referred to the request by Autoport’s counsel that BMW propose vehicles for inspection since it was the party claiming defects/damage and it already had detailed information from its own previous inspections, to BMW’s refusal to do so, and to BMW’s demand instead that Autoport propose the vehicles it required for inspection. Mr. Steedman noted that Autoport had conducted a preliminary inspection of 12 vehicles (which it had chosen as a sample without BMW’s input) that had not identified issues that assisted in responding to the defects claimed by BMW. He referred to the fact that destructive testing might be required, that Autoport would require different types of experts for subsequent inspections, and that Autoport did not have sufficient information to determine the type of expertise required. Autoport was seeking a preservation order because the vehicles would require further inspection.

[15] The Steedman affidavit attached BMW’s responses to the demand for particulars and the request to inspect documents (which were mostly refusals on the basis that the particulars and documents were unnecessary for pleading and sought evidence), as well as some email exchanges between counsel indicating that BMW intended to dispose of the vehicles which it was continuing to store at an estimated cost of $10,000 per day.

[16] BMW did not file evidence on the motion. In its factum before the Master (which was before this court on appeal), BMW acknowledged that the motion was to preserve evidence. It argued that it had no use for the vehicles and referred to the ongoing estimated cost of their storage. BMW set out the theory underlying its claim for the loss of all of the vehicles (what I refer to as “BMW’s damages theory”) at para. 11:

BMW takes the position that all of the Vehicles were exposed to unacceptable conditions giving rise to serious risk of material damage, but that the extent of such damage to any particular Vehicle cannot viably be determined without extensive destructive testing. Thus, the recall was for all Vehicles. On this basis, BMW claims in respect of all Vehicles, on the basis of exposure, and without regard for which Vehicles actually incurred what damage.

[17] BMW accepted that it would be up to the trial judge to determine which party should pay the storage costs after trial, but it claimed that the interim obligation to pay storage costs was a burden it should not continue to bear. BMW offered to relinquish custody of the vehicles to Autoport and asserted that alternatively, Autoport should assume the ongoing storage costs because it was the party that wanted the vehicles preserved.

C. Orders Below

(1) The Decision of the Master

[18] In determining whether to grant an interim preservation order under r. 45.01, the Master referred to and purported to apply the three-part test set out in Taribo Holdings Ltd. v. Storage Access Technologies Inc., [2002] O.J. No. 3886 (S.C.), at para. 5: (1) the asset sought to be preserved constitutes the very subject matter of the dispute; (2) there is a serious issue to be tried regarding the plaintiff’s claim to that asset; and (3) the balance of convenience favours granting the relief sought by the applicant or moving party.

[19] The Master concluded that because Autoport was not making a claim to the vehicles, it could not meet the second prong of the Taribo test. Noting that BMW was willing to consent to the preservation order so long as Autoport took custody of the vehicles or assumed liability for the ongoing storage costs, the Master went on to consider appropriate terms for such an order. She observed that the underlying purpose of the preservation request by Autoport was to ensure the vehicles were available for inspection purposes at a later date, something she characterized as “without a doubt, a legitimate concern.” She noted that the fundamental question was who should bear the cost of the ongoing storage expense. She concluded that the balance of convenience favoured BMW, after referring to the daily storage costs while BMW was awaiting a pleading from Autoport and observing that it was “unreasonable and … manifestly unfair to require [BMW] to continue to bear the financial burden in circumstances where [Autoport] [wanted] preservation of the vehicles pending inspection and/or trial, but [was] unwilling to take possession of them”: at para. 26.

[20] Accordingly, the Master made an order that provided for the interim preservation of the vehicles that were in BMW’s power, possession, and control, subject to terms that Autoport, within ten business days of December 11, 2017, was to elect whether to take physical custody of the vehicles or to assume the financial costs associated with their ongoing storage, failing which BMW could deal with the vehicles as it deemed appropriate. The Master’s order required BMW to provide a list of such vehicles to Autoport within 30 days.

[21] The Master dismissed Autoport’s motion for further and better particulars and for inspection of certain documents. She ordered Autoport to deliver its statement of defence within ten days. She also ordered, on consent of BMW, that Autoport have the opportunity to inspect any or all of the vehicles, that any such inspection not delay the delivery of the statement of defence, and that, if the parties were unable to establish a mutually agreeable process to facilitate inspection, they could return to the court for further directions.

[22] Autoport delivered its statement of defence on January 10, 2018. The statement of defence denies liability in contract and negligence and asserts that BMW did not suffer any loss or damage, that if BMW did suffer any loss or damage the damages are nominal, and that BMW has failed to mitigate its damages. It also alleges that most of the BMW vehicles were not exposed to severe winter weather conditions and none were exposed to corrosive salt, and it disputes the weather’s effect on the vehicles that were exposed. Finally, Autoport pleads that BMW’s recall of the vehicles was not reasonable and it contests BMW’s theory of damages. Autoport pleads that if any of the vehicles were defective, the defects had nothing to do with the damage alleged to have occurred at its storage facility.

(2) The Decision of the Appeal Judge

[23] Autoport appealed the Master’s order with respect to the denial of an interim preservation order, to a single judge of the Superior Court, Brown J. (the “Appeal Judge”).

[24] The Appeal Judge held that the Master erred in her articulation of the test for an interim preservation order by misinterpreting Taribo to require a serious issue to be tried regarding the plaintiff’s claim to an asset. She referred to Autoport’s argument that the Taribo test was not applicable because there was no contest in this case as to ownership or entitlement to the property. The Appeal Judge nevertheless articulated a similar test, stating that, to obtain an order for interim preservation of property, the moving party must establish that: (1) the assets sought to be preserved constitute the subject matter of the dispute or a right to a specific fund or are relevant to an issue in the proceeding; (2) there is a serious issue to be tried regarding the plaintiff’s claim; and (3) the balance of convenience favours granting the relief sought by the applicant or moving party: at para. 48.

[25] The Appeal Judge concluded that the Master’s order was premised on her erroneous application of Taribo and her conclusion that she could not grant the preservation order except on consent of BMW. Moreover, according to the Appeal Judge, the Master failed to take into account BMW’s prima facie obligation, as the party in possession, to preserve the vehicles as the subject matter of the litigation. The Appeal Judge noted that the vehicles that were the property of BMW and the subject matter of its action were alleged to have been damaged beyond being roadworthy by the negligence or breach of contract of Autoport and “[i]n such a case, it is paramount that the property be preserved, inter alia, for the benefit of further testing by both parties, or for any other testing which may be ordered by the Court, prior to trial”: at para. 55.

[26] The Appeal Judge concluded that based on the evidence that was before her, which was also before the Master, the vehicles constituted the very subject matter of the dispute, there was a serious issue to be tried with respect to BMW’s claim concerning Autoport’s alleged negligence and/or breach of contract in storing BMW’s vehicles, and the balance of convenience favoured granting the relief sought by Autoport. The balance of convenience favoured granting the relief sought by Autoport because if the vehicles were not preserved, there would be no means for either party or the court to inspect and test the subject vehicles. The Appeal Judge was also satisfied that BMW, as the party in possession of the subject matter of the litigation and as the party with the obligation to preserve such property in the interest of justice and to ensure fairness of the trial process, ought to bear the cost of the preservation of the property, subject to BMW seeking recovery of such expenses if successful at trial.

(3) The Decision of the Divisional Court

[27] The Divisional Court allowed the appeal and restored the Master’s order.

[28] Charney J., writing for a three-judge panel, agreed with the Appeal Judge that the Master had erred in her analysis when she said that Autoport failed to meet the second step of the Taribo test. He accepted that the Taribo test might apply to cases involving a dispute over ownership of an asset, but concluded that it was not appropriate in cases arising in other contexts to which r. 45.01 might apply. Instead, he proposed a test consisting of the following elements: (1) the property sought to be preserved is the property in question in a proceeding or relevant to an issue in the proceeding; (2) there is a serious issue to be tried with regard to the property; (3) the interim preservation or custody of the property is necessary to enable a party to advance or defend its claim; and (4) the balance of convenience favours granting the relief sought by the applicant or moving party.

[29] The Divisional Court disagreed with the Appeal Judge that the Master’s error in interpreting Taribo had informed her analysis. While BMW had consented to the preservation order on the condition that Autoport take custody of the vehicles or assume liability for their ongoing storage costs, the Master had not simply acceded to the order sought by BMW, but had assessed the balance of convenience. The Master had provided clear and concise reasons in finding that the balance of convenience favoured BMW and had exercised her discretion to make the order on those conditions. The court concluded that the Appeal Judge erred in substituting her exercise of discretion for that of the Master, and in basing her balance of convenience analysis on the presumption that the party in possession has a prima facie obligation to preserve property that is the subject matter of litigation or evidence.

[30] The Divisional Court rejected the premise that there is a prima facie obligation to preserve property that is the subject matter of litigation, which it characterized as “unsupported in law”: at para. 42. Among other things, the court distinguished cases relied on by Autoport before the Appeal Judge, which dealt with the obligation to preserve documents and property already the subject of a preservation order. The court noted that there is nothing in the Rules of Civil Procedure that imposes such an obligation, and posited that the recognition of a prima facie obligation to preserve evidence would effectively reverse the onus in r. 45.01, and could run counter to a plaintiff’s duty to mitigate its damages. While recognizing that a plaintiff who repaired or destroyed evidence without keeping some record of it would risk compromising its case or a finding of spoliation of evidence, the court concluded that these were risks that BMW was prepared – and was permitted – to take, given its theory of liability in this case.

[31] The Divisional Court referred to the principle of proportionality set out in rr. 1.04(1.1) and 29.2. The court deferred to the Master’s balance of convenience analysis, concluding that she had impliedly considered that the cost of $10,000 per day to BMW was disproportionate to Autoport’s continued need to preserve and test the vehicles. The court concluded that the Master’s order met the principle of proportionality because it permitted the defendant, Autoport, in consultation with its own experts, to decide for itself how many automobiles it actually needed to preserve and test. Moreover, placing the financial burden on Autoport created an economic incentive to preserve and test only as many vehicles as it actually required for its defence. In contrast, placing the burden on BMW would give Autoport an incentive to delay its testing and exaggerate the number of vehicles needed to be preserved. The Divisional Court noted that, although Autoport argued that it could not know how many vehicles it needed to preserve and test without the results of BMW’s own inspections, the court was satisfied that Autoport’s own experts could determine how many vehicles they would need to preserve and test in order to meet BMW’s theory of liability, and that “[l]ogic and the principle of proportionality suggest[ed] that it [would] be substantially fewer than the 2,500 vehicles currently in storage”: at para. 81.

[32] In the result, the Divisional Court set aside the Appeal Judge’s order and restored the Master’s order. Autoport was given ten business days in which to make the election referred to in the Master’s order with respect to the vehicles, and it was to pay to BMW the costs, plus interest, of storing the vehicles from December 28, 2017 to the date of its election or expiry of the time for the election.

D. Issues

[33] The parties identify the following issues on this appeal:

• What is the test for making an order under r. 45.01 when the property to be preserved is evidence? What factors should be considered? What is the role of balance of convenience? Is there a prima facie obligation or presumption in favour of preservation of property that may be required for evidentiary purposes?
• Did the Master err in refusing to make an interim order requiring BMW to preserve the subject vehicles until BMW discloses details of its inspections and the results of its destructive testing?
• If the Master erred, and applying the proper test, should such an order be made?

E. Positions of the Parties

[34] Autoport submits that the Divisional Court erred in restoring the order of the Master. It seeks an order requiring BMW to continue to preserve the remaining vehicles until BMW discloses information that would permit it to develop its own testing protocol and to identify the vehicles it wishes to inspect. In oral argument on this appeal Autoport confirmed that it would be sufficient for BMW to disclose the details of the destructive testing it has carried out. [1]

[35] Autoport asserts that the Master applied the wrong test. First, she erred in applying a balance of convenience test when there is nothing in r. 45.01 that mandates such a test and in her balance of convenience analysis by focussing solely on the cost of storage. Second, the Master ought to have recognized that there is a prima facie obligation for a party to litigation to preserve evidence in its possession. The evidence may not have to be preserved until trial, but the other party must have a reasonable opportunity to inspect the evidence. Finally, Autoport argues that a consideration of the relevant circumstances and evidence in this case warranted an interim preservation order, to prevent the destruction of the vehicles until it has sufficient information – which is in the hands of BMW – to be able to develop and implement an appropriate testing protocol.

[36] BMW asserts that the balance of convenience is a proper consideration, which in this case clearly favoured the conclusion that Autoport should take custody of the vehicles or pay their ongoing storage costs. Agreeing with the analysis of the Divisional Court, BMW contends that there is no obligation on a party to preserve evidence, which is inconsistent with its duty to mitigate damages. Moreover, it argues that such an obligation would be contrary to its right to deal with its own property as it sees fit. Even if there were such an obligation, it was discharged when BMW offered up the vehicles to Autoport for inspection. BMW contends that Autoport’s complaints about needing disclosure of BMW’s documents and test results are a collateral attack on those parts of the Master’s order that were not appealed. BMW asserts that there was no reversible error in the Master’s decision, or in the decision of the Divisional Court upholding that decision.

F. Discussion

[37] In the discussion that follows I will begin by addressing some of the relevant principles. I will then identify the errors in the Master’s analysis and that of the Divisional Court. Finally, I will explain why, on a proper consideration of the evidence, and having regard to the relevant factors, the order sought by the appellant must be granted.

(1) The Relevant Principles

[38] The parties invited the court on this appeal to address the test for r. 45.01 motions, clarifying the role of balance of convenience and whether there is a presumption in favour of the preservation of evidence in a proceeding. As I will explain, it is inappropriate to prescribe a single test for r. 45.01 motions, including a Taribo-type test that focusses on “balance of convenience”, having regard to the variety of circumstances in which such motions can be brought. In a case such as the present, where the condition of the property is at issue in the action and its preservation is sought for the purpose of inspection, the goal is to best ensure fairness in the litigation process. I will also explain why it is unnecessary to determine whether there is a presumption in all cases in favour of preserving evidence for litigation, but that r. 45.01 permits the court to address trial fairness concerns that would arise before evidence is destroyed.

(a) What is the Appropriate Test for Interim Preservation of Property in this Case?

[39] Rule 45.01 is available to parties as an interim measure during litigation. Rule 45.01(1) provides that the court may make an interim order for the custody or preservation of “any property in question in a proceeding or relevant to an issue in a proceeding”. The order is discretionary. Although the rule provides that the court “may authorize entry on or into any property in the possession of a party or of a person not a party”, and r. 45.01(2) permits the court to order the property to be sold in such manner and on such terms as are just, there are no criteria prescribed by the rule for the exercise of the court’s discretion under r. 45.01 and there is no limitation on the terms and conditions that can be imposed.

[40] Rule 45.01 is available in a wide variety of circumstances in which interim preservation of property may be sought. The court, in considering whether to make such an order and on what terms, will take into consideration the evidence on the motion and make the order that best responds to the circumstances. The only precondition for preservation or custody is that the property is “in question in a proceeding or relevant to an issue in a proceeding”. As I will explain, it is inappropriate to attempt to prescribe and apply a single test (such as that set out in Taribo or a derivation of such test) to all r. 45.01 motions.

[41] In some cases a r. 45.01 motion will seek to preserve the very property the plaintiff or applicant is pursuing in its litigation. In Taribo, for example, the litigation involved a dispute about shares that former employees of the respondent corporation had tendered in consideration for a reduction of their obligations under promissory notes. The shares were pledged and deposited with a third party. The moving parties’ motion for an interim preservation order sought what was essentially a form of injunctive relief – to prevent the corporate respondent from having the shares released from deposit to it and then converting or cancelling the shares.

[42] The motion judge in Taribo articulated and applied a three-part test requiring that: (1) the assets sought to be preserved constitute the very subject matter of the dispute; (2) there is a serious issue to be tried regarding the plaintiff’s claim to that asset; and (3) the balance of convenience favours granting the relief sought by the applicant or moving party. She relied on two cases involving r. 45.02, which provides that where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just: News Canada Marketing Inc. v. TD Evergreen, [2000] O.J. No. 3705 (S.C.); Sun v. Ho (1998), 18 C.P.C. (4th) 363 (Ont. Gen. Div.). The Taribo test has been applied in other cases involving r. 45.01 where the moving party is seeking to preserve property that it seeks to recover in the litigation: see e.g., Progressive Moulded Products Ltd. v. Great American Group; Meade v. Nelson Resources Limited (2005), 14 B.L.R. (4th) 244 (Ont. S.C.).

[43] I accept that the Taribo three-part test is appropriate where a r. 45.01 motion is brought to preserve property that the moving party is claiming in its litigation. In such cases, the moving party seeks to limit or constrain what the responding party may do with property that is in its possession, and to preserve the property for the benefit of its claim. Factors such as whether the property is unique and whether damages claimed in the alternative would be an adequate remedy are also relevant and can fit within the “balance of convenience” analysis: see Auto Enterprise Ltd. v. Oakville Motors Sales & Leasing Inc., [1995] O.J. No. 716 (Gen. Div.), at paras. 10-14. And, where an interim preservation order would “tilt the scales in favour of a plaintiff on the basis of unproven allegations” the court must exercise caution before making such an order: see Stearns v. Scocchia (2002), 27 C.P.C. (5th) 339 (Ont. S.C.) involving a motion under r. 45.02.

[44] While the Taribo test is appropriate for r. 45.01 motions where the moving party claims an interest in property, or for r. 45.02 motions where the claim is to a specific fund, it is not required to be applied or adapted for all motions for interim preservation of property. This is apparent from the wording of the rule itself. Rule 45.01(1) authorizes the court to make an order for entry into any property, including the property of third parties, for the purpose of an interim order under the rule. Likewise, r. 45.01(2) permits the court to order the sale of property. The test articulated in Taribo, even as modified by the Divisional Court, would be insufficient and would not account for the range of factors that would need to be considered where entry into property, third party interests, or sale of property arises in a r. 45.01 motion.

[45] Similarly, a Taribo-type test focussing on “serious issue to be tried” and “balance of convenience” is neither necessary nor appropriate in a case like the present, where the r. 45.01 motion sought to preserve evidence to permit inspection. In my view, the overall consideration in such motions is to make an order that is consistent with a fair litigation process. In making or refusing the order, and in establishing terms, the court should have regard to the issues in dispute in the litigation, the relevance and materiality of the property as evidence, the purpose for which interim preservation is sought and its proposed duration (whether for the entirety of the proceeding or for an interim period to permit the evidence to be documented, inspected, tested, and the like), and the benefits and harm or prejudice to the interests of each party in the litigation.

(b) Is There a Prima Facie Obligation to Preserve Evidence?

[46] The parties joined issue in the courts below and in this appeal on whether there is a prima facie obligation in all cases to preserve property that is the subject matter of litigation, or more narrowly, to preserve evidence for trial. It is unnecessary to determine that issue in this appeal. First, any attempt to delineate the scope of such a rule would be met by a range of factors, which could be characterized as exceptions to or limitations on such a rule, such as considerations of the importance of the evidence to the proceeding, the perishability of the property, the feasibility of its preservation, and the like. Second, the determination of the relatively narrow issue on the r. 45.01 motion in this case and accordingly on appeal would not turn on any such obligation or presumption. Autoport seeks interim preservation of the vehicles for a limited time and purpose, and BMW characterizes the question as simply one of cost.

[47] While it is unnecessary to determine whether there is a prima facie obligation to preserve evidence, and its scope, I do not agree with the Divisional Court’s unqualified rejection of the duty of litigants to preserve evidence, and BMW’s assertion in this court that parties must be free to deal with their property as they see fit. The principle advanced by BMW, articulated so broadly, would apply whether or not the property is evidence and whether or not its temporary preservation or pre-trial destruction would affect trial fairness.

[48] The courts have long recognized the doctrine of spoliation of evidence: see McDougall v. Black & Decker Canada Inc., 2008 ABCA 353, 302 D.L.R. (4th) 661 for a useful summary of the case law and principles. Underlying the doctrine is the trial fairness principle that parties to litigation are expected not to destroy important evidence, at least until the opposing party has had a fair opportunity to examine that evidence. The remedies are informed by considerations of trial fairness: the imposition at trial of a rebuttable presumption of fact that the missing evidence, had it been preserved, would have been unfavourable to the party who destroyed it, and other possible remedies to “level the playing field”, such as the exclusion of expert reports: see Gutbir v. University Health Network, 2010 ONSC 6752, at para. 13; McDougall, at paras. 18, 29; Stilwell v. World Kitchen Inc., 2013 ONSC 3354, 47 C.P.C. (7th) 345, at para. 55; and Endean v. Canadian Red Cross Society (1998), 157 D.L.R. (4th) 465 (B.C.C.A.), at para. 32, leave to appeal granted but appeal discontinued, [1998] S.C.C.A. No. 260. The debate in the cases about whether there is a standalone tort of spoliation, and whether remedies are available for negligent spoliation (the cases are summarized at paras. 19 to 22 of McDougall), does not undermine the animating principle: that the destruction of evidence can be harmful to trial fairness.

[49] Rule 45.01 permits the court to address trial fairness concerns that would arise if property constituting evidence were to be destroyed prior to its destruction, and so avoid the kind of harm in the litigation process that spoliation remedies address.

(2) Application of the Considerations of Trial Fairness to This Case

[50] As I have already observed, it is not appropriate to apply the Taribo test, or a derivation of that test, to the motion that underlies this appeal. The focus here should have been on trial fairness – that is, on the parties’ ability to prosecute and defend the proceeding, and ought to have considered the relevant factors, including the nature of the property and its materiality to the issues in the litigation, as well as the purpose of the preservation order and its proposed duration. In considering the r. 45.01 motion the court ought to have attempted to craft an order that was based on and responsive to the evidence before it on the motion.

[51] I agree with the appellant that the Master erred in concluding that she had to apply the Taribo test and that the balance of convenience in determining who should bear the cost of interim preservation of the vehicles favoured BMW. The Master considered only the cost of continued storage of the vehicles and Autoport’s delay in inspecting when she concluded that the balance of convenience clearly favoured BMW: at para. 26. The Master referred to the fact that BMW had repeatedly offered to relinquish possession or custody of the vehicles to Autoport, and she concluded that it was manifestly unfair to require BMW to continue to bear the financial burden of storage when Autoport wanted preservation of the vehicles, but was unwilling to take possession of them. In arriving at this conclusion the Master failed to consider Autoport’s evidence that it needed information from BMW about the defects it had identified and BMW’s own inspections and testing before Autoport could conduct the appropriate inspections.

[52] The Divisional Court erred in its articulation of the applicable test, in deferring to the Master’s balance of convenience assessment, and in concluding, in the absence of evidence, that BMW’s storage cost was disproportionate to Autoport’s continued need to preserve and test the vehicles. In requiring Autoport to assume the cost of preservation of the vehicles, the Divisional Court determined, at para. 81, that Autoport, in consultation with its own experts, could decide for itself how many automobiles it actually needs to preserve and test in order to meet BMW’s theory of liability. This conclusion failed to give effect to Autoport’s evidence about the need to first receive information about the defects BMW had identified and the results of BMW’s own inspections and testing before embarking on its own destructive testing program, and instead gave credence to the damages theory BMW advanced at the motion.

[53] It therefore falls to this court to determine, on a proper consideration of the context of the action, the evidence, and the relevant factors, the appropriate disposition of Autoport’s r. 45.01 motion.

[54] The evidence consists of the Steedman affidavit, filed by Autoport. Although BMW cross-examined Mr. Steedman, it did not file a transcript of the cross‑examination, and it did not provide its own affidavit. Autoport sought to file fresh evidence in the appeal before this court, which BMW opposed and countered with a cross‑motion for fresh evidence if Autoport’s evidence were admitted. The fresh evidence, which is unnecessary for the determination of this appeal, consists of affidavits that speak to two issues: the fact that BMW had already disposed of 517 vehicles before the Master’s motion; and a procedural update to the effect that as of March 2020, documentary production had not yet taken place and the parties were continuing to negotiate a discovery plan. BMW’s disposition of 517 of the vehicles was known to the parties but not argued in the courts below; [2] as such, while the facts and circumstances surrounding a party’s destruction of evidence in another case might be relevant to a r. 45.01 motion, it would be inappropriate to consider such evidence in the determination of this appeal. The other fresh evidence simply confirms that the relevant status quo has continued – Autoport continues to require the vehicles to be preserved pending disclosure of information which it has not yet received.

[55] In the discussion that follows, I will address the following factors: the issues in dispute in the action, and the relevance of the vehicles as evidence; the purpose and proposed duration of the interim preservation order; hardship or prejudice to the respondent; and the impact of a preservation order on the duty to mitigate damages. After considering these factors, I conclude that an order requiring BMW to continue to preserve the vehicles for the purpose of permitting Autoport to conduct an informed inspection of the vehicles was and is warranted, in the interests of trial fairness, and I address the terms of the order that are appropriate at this time.

(a) The Issues in Dispute in the Action and the Vehicles as Evidence

[56] BMW’s action is for damage to vehicles alleged to have been caused by Autoport’s negligence and breach of contract in storing the vehicles. BMW claims damages for the total loss of all of the vehicles that were stored by Autoport. All of the vehicles are alleged to have been affected to the extent that they cannot be repaired and have no resale or salvage value.

[57] Autoport denies liability and asserts that the damages are excessive and that there has been a failure to mitigate. It also denies that most of the BMW vehicles were exposed to severe winter weather conditions, or to corrosive salt, and it disputes the weather’s effect on the vehicles that were exposed. Autoport pleads that BMW’s recall of the vehicles was not reasonable and that if any of the vehicles were defective, the defects had nothing to do with the damage alleged to have occurred at its storage facility.

[58] In light of the issues in dispute in the litigation, the vehicles themselves are relevant as evidence. Damaged property itself may be in evidence; more often, the parties’ witnesses and their experts will testify about the extent of the damage, how it was caused, and the cost of repair or replacement. The parties may rely on photographs, inspection reports, test results, and the like to support their respective positions.

[59] BMW does not dispute the fact that the vehicles are evidence, although BMW says that, because of its damages theory, it does not need the vehicles as evidence to support its claims. That conclusion however is based on information BMW already has in its possession. Only BMW knows at this stage what inspections and testing have already taken place (including destructive testing, according to BMW’s counsel), what defects it has already documented, and the basis for its conclusion that it is entitled to damages for the loss of all of the vehicles that were recalled for safety reasons, irrespective of whether a specific vehicle has sustained damage. I will return to BMW’s damages theory later in my discussion. At this point it is sufficient to note that BMW’s contention that it does not need the vehicles to support its damages theory does not detract from Autoport’s claim that it needs to inspect the vehicles as part of its defence, nor does it automatically shift the burden to Autoport to pay for their preservation.

[60] It can safely be assumed that in the present case, but for the cost of continued storage, the vehicles would have been preserved, at least until both parties were satisfied that they had sufficiently documented and investigated the nature and extent of the damage, and that the vehicles themselves were not needed for trial. BMW preserved the vehicles for almost two years before it commenced its action, and it invited Autoport to complete its inspections when it gave notice of its intention to destroy the vehicles. BMW’s actions are consistent with the recognition that it could not simply destroy all of the vehicles because it had no further use for them, and that Autoport should have access to the vehicles for the purpose of inspection.

(b) The Purpose and Proposed Duration of the Interim Preservation Order

[61] Autoport seeks an interim preservation order for the purpose of its own informed inspection of the vehicles before they are destroyed. The r. 45.01 motion for interim preservation was accompanied by a r. 32.01 motion.

[62] According to the Steedman affidavit, Autoport was notified of BMW’s intention to destroy the vehicles some eight months after the action was commenced on the basis of the estimated cost of continued storage of $10,000 per day. Mr. Steedman referred to BMW’s refusal to provide documentation detailing the alleged defects in the vehicles and its own inspection results, and that Autoport’s preliminary inspection of 12 vehicles (selected without BMW’s input) had not identified any issues of the nature claimed by BMW. Mr. Steedman referred to the fact that destructive testing might be required, that Autoport would require different types of experts for subsequent inspections, and that Autoport did not have sufficient information to determine the type of expertise required.

[63] Essentially, Autoport’s evidence on the motion was that it could not conduct an informed inspection of the vehicles before it received information from BMW about the defects BMW had identified and the inspections it had already undertaken.

[64] BMW did not provide any evidence to challenge this assertion. Rather, BMW argued, and continues to assert, that Autoport has unreasonably delayed in deciding what vehicles to inspect, and that Autoport has all the information it requires to be able to decide which vehicles to inspect to respond to BMW’s damages theory. BMW also argues that Autoport’s request for disclosure of information and documents before it determines which vehicles it needs to inspect is a collateral attack on the parts of the Master’s order that were not appealed. I consider each argument in turn.

[65] First, BMW’s damages theory does not appear in BMW’s statement of claim, nor was it set out in an affidavit, where it could have been tested through cross‑examination. It is simply a theory that was advanced in argument in response to the interim preservation motion as an “explanation for the recall of all of the vehicles, and for BMW’s position on the motion.”

[66] The assertion that was accepted by the Divisional Court at para. 81 of its reasons, that “Autoport’s own experts can determine how many vehicles they need to preserve and test in order to meet [BMW’s] theory of liability”, ignores Autoport’s evidence about needing to receive information from BMW about its inspection results. Moreover, it prematurely gives credence to BMW’s damages theory, a theory that is based on information in BMW’s possession and that may well change in the course of the proceedings.

[67] Second, the uncontroverted evidence in this record supports the contention that Autoport cannot develop and implement an appropriate inspection and testing protocol for its defence without first obtaining certain information from BMW. Autoport’s continued request for such information is not, as BMW submits, a collateral attack on the Master’s dismissal of the motion for particulars and inspection of documents. The Master concluded only that the particulars and documents sought by Autoport were not required for the purpose of pleading, and Autoport complied with the order to deliver its statement of defence. The Master did not consider Autoport’s need for the information for the purpose of inspection of the vehicles, as set out in the Steedman affidavit, when she concluded that it was “manifestly unfair” for BMW to bear the financial burden of storing the vehicles when Autoport was “unwilling” to take possession of them. Indeed, as I have already observed, it was an error for the Master to fail to consider Autoport’s evidence to this effect.

(c) Hardship or Prejudice to BMW

[68] As BMW emphasized before this court, it never objected to the making of an interim preservation order; its concern was having to bear the ongoing cost to store the vehicles.

[69] I accept that it may be inappropriate for a party to preserve property where the cost of doing so is disproportionate to the value of the evidence to the party seeking its preservation (an argument ultimately accepted by the Divisional Court). In this case however the evidence is that Autoport cannot proceed with an informed inspection of the vehicles until it has certain information that BMW has refused to provide until discovery, and BMW seeks recovery of its ongoing storage costs as part of its $175 million damages claim.

[70] While this matter has proceeded on the assumption that BMW has been paying for the storage of the vehicles across Canada at an estimated cost of $10,000 per day, BMW filed no evidence about the actual cost of storage, the location of the vehicles, the terms of their storage, and the like. Nor did BMW provide evidence of hardship if it were to continue to pay the storage expenses until Autoport receives the information it requires in order to carry out its inspections and testing. Arguably, BMW might have avoided or limited the ongoing storage costs by developing a joint testing protocol, as Autoport had requested, or if it was unwilling to do so, by providing the information Autoport requested so that Autoport could proceed with its testing. In these circumstances and on this record, I am not persuaded that the ongoing cost of preserving the vehicles in the context of BMW’s $175 million damages claim would constitute hardship or prejudice to BMW that would reasonably justify shifting the interim cost of preservation to Autoport.

(d) Impact of a Preservation Order on the Duty to Mitigate Damages

[71] BMW contends that an order requiring its preservation of the vehicles would be inconsistent with its duty to mitigate damages, an argument that the Divisional Court accepted. I am not persuaded that BMW’s duty to mitigate damages would justify its destruction of the vehicles before Autoport has had the opportunity to develop its testing protocol. BMW is not seeking to mitigate its damages by repairing the vehicles, salvaging their parts, or selling them at discounted prices. Rather, it plans to dispose of the vehicles which it says (and Autoport denies) are all worthless. Only BMW’s claim for storage costs would be avoided if the vehicles were destroyed, but at the cost of the loss of the vehicles before Autoport has the opportunity to conduct an informed inspection.

[72] In any event, Autoport has its own concerns about mitigation. Autoport is entitled to seek and to develop evidence through expert testing and appraisal that, contrary to BMW’s total loss theory of damages, some or all of the vehicles could have been repaired and sold or their parts salvaged. Destruction of the vehicles before informed inspections take place would impair Autoport’s ability to advance this type of failure to mitigate argument.

[73] I am not persuaded that BMW’s duty to mitigate damages is a factor that would weigh in favour of Autoport’s assumption of the cost to preserve the vehicles.

(3) Conclusion that BMW Must Bear the Costs of Interim Preservation

[74] Considering all of the relevant factors in light of the central concern of fairness of the litigation process – the role of the vehicles in the context of the issues in the litigation, the need for interim preservation for Autoport’s informed inspection of the vehicles in its defence, BMW’s ability to claim recovery of the interim storage costs in its action, the lack of evidence of hardship or prejudice to BMW sufficient to shift the costs to Autoport, and its ability to avoid further costs, the Master ought to have made an order for the interim preservation of the vehicles until BMW provided the information Autoport required for its own inspection. To the extent that there was any disagreement about the information BMW provided, the parties could have returned to the Master for further directions.

[75] In oral argument before this court, Autoport’s counsel was asked to specify the terms of the order Autoport is now seeking, at this stage in the litigation, if successful in the appeal. Autoport’s counsel proposed that on receipt of full disclosure of BMW’s destructive testing to date it would provide BMW with a methodology and sample size. BMW’s counsel made it clear that BMW is not interested in a joint inspection or testing protocol, or the ability to be present at or involved in any inspections conducted by Autoport. Autoport’s counsel then proposed an order that would require BMW to preserve the vehicles until a reasonable time following its receipt of the results of BMW’s destructive testing, at which time Autoport would pick up the vehicles it required, and BMW could then dispose of the remainder of the vehicles.

[76] Accordingly, in allowing the appeal I would set aside the order of the Divisional Court and I would make the following order: (1) BMW shall continue to preserve the vehicles set out in Schedule “A” to the order of the Divisional Court dated July 19, 2019 until 90 days after it provides to Autoport the details of any and all destructive testing it has performed; (2) within that 90-day period, unless extended on motion, Autoport shall notify BMW of the vehicles it wishes to preserve for its own purposes and take custody of such vehicles; (3) after Autoport has taken custody of the vehicles it has identified BMW shall be at liberty to dispose of the remaining vehicles as it sees fit; (4) the cost of the interim preservation of the vehicles by BMW and subsequently by Autoport will remain an issue for trial; and (5) any further directions that may be required to give effect to this order may be obtained from a case management judge or Master in the Superior Court.

G. Conclusion

[77] For these reasons I would allow the appeal, set aside the order of the Divisional Court and make the order referred to in the preceding paragraph. If the parties are unable to agree on the costs of this appeal they may serve and file at coa.e-file@ontario.ca their costs submissions of up to three pages each, with Autoport providing its costs submissions within 30 days of the release of these reasons and BMW providing its submissions within 15 days thereafter.

Released: January 22, 2021 “K. van Rensburg J.A.” “I agree. K. Feldman J.A.” “I agree. Thorburn J.A.”

[1] BMW’s counsel, in the course of the proceedings below and in oral argument on this appeal, confirmed that it had destructively tested a number of vehicles.

[2] See para. 33 of the Appeal Judge’s reasons, which refers to the fact that the schedule of vehicles provided by BMW pursuant to the Master’s order (which schedule was eventually attached to the order of the Divisional Court under appeal) listed 2,449 vehicles rather than 2,966 vehicles, and that BMW objected to any submissions about implications or inferences to be drawn about the 517 vehicles not listed. The Appeal Judge did not draw any such inferences, nor did the Divisional Court address the prior destruction or disposal of some of the vehicles by BMW.