CITATION: BMW Canada Inc. v. Autoport Limited, 2019 ONSC 4299
DIVISIONAL COURT FILE NO.: DC-18-460-00
DATE: 20190719
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Backhouse, Charney and Favreau JJ.
BETWEEN:
BMW CANADA INC.
Plaintiff (Appellant)
– and –
AUTOPORT LIMITED
Defendant (Respondent)
Eric Machum, and Marc D. Isaacs for the Plaintiff (Appellant)
Robert B. Bell, Emily Y. Fan and Julia Boddy, for the Defendant (Respondent)
HEARD at Toronto: June 10, 2019
REASONS FOR JUDGMENT
Charney J.:
Overview
[1] This is an appeal from the decision of C. Brown J. dated July 11, 2018, (BMW Canada Inc. v. Autoport Airport Limited, 2018 ONSC 4208) allowing the appeal from the Order of Master Mills dated December 11, 2017. The appeal concerns the proper interpretation of the “Interim Preservation of Property” provision set out in Rule 45.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg 194.
[2] The underlying litigation involves a claim by BMW Canada Inc. (BMW) against Autoport Limited (Autoport) for losses relating to 2,966 BMW vehicles stored by Autoport when they were imported to Canada in 2015. BMW alleges that the vehicles were exposed to severe winter weather conditions as a result of Autoport’s negligence. As a result, the vehicles were potentially compromised and all of the vehicles were subject to recall and could not be sold. BMW claims $175 million dollars in damages representing the full value of all 2,966 automobiles.
[3] BMW has been storing approximately 2,500 of the recalled vehicles at three sites in Canada at an estimated cost of $10,000 per day. BMW takes the position that it does not require the vehicles for this litigation. As detailed below, BMW’s damages claim does not turn on proving actual harm to any particular vehicle. BMW takes the position that since none of the vehicles can be determined to be roadworthy, it cannot sell them and wants to destroy of them.
[4] Autoport takes the position that it wants to inspect the automobiles, but BMW has not disclosed to Autoport the results of its own inspections. As such, Autoport argues that it does not know what specific inspections are required or whether the inspections can be performed on only a small sample of the cars.
[5] BMW takes the position that Autoport can have as many of the 2,500 remaining vehicles as it wants, and perform whatever inspections or tests it may consider necessary in its defence.
[6] The underlying issue on this appeal is which of the parties should assume the financial obligation of storing and preserving the vehicles until Autoport has completed its inspections.
[7] The Master decided that Autoport should assume financial responsibility for the storage and preservation of the automobiles. On appeal, the appeal judge held that the plaintiff had a prima facie obligation to preserve the evidence, and ordered BMW to assume financial responsibility for the storage and preservation of the automobiles.
[8] BMW was granted leave to appeal on November 1, 2018.
Standard of Review
[9] The standard of review on this appeal from the Superior Court order is the same as on the original appeal from the Master’s order: a decision of a master will be interfered with only if the master made an error of law or exercised her discretion on the wrong principles or misapprehended the evidence such that there is a palpable or overriding error. Deference is owed to the master on findings of fact and the exercise of discretion. Zeitoun v. Economical Insurance Group, 2008 20996 (ON SCDC), aff’d. 2009 ONCA 415; Housen v. Nikolaisen, 2002 SCC 33.
[10] The question before this Court is whether the Court below erred in overturning the decision of the Master and ordering BMW to assume financial responsibility for the storage and preservation of the automobiles.
Facts
[11] Autoport is a vehicle storage and handling company with a large facility located in Halifax, Nova Scotia. BMW contracted with Autoport to provide protective storage facilities on behalf of BMW for BMW cars imported to Canada from Germany.
[12] The claim arises from severe winter weather events in Nova Scotia in 2015. BMW’s Statement of Claim alleges that 2,966 BMW and MINI vehicles stored by Autoport were exposed to excessive ice, water and corrosive substances as a result of Autoport’s negligence and in breach of Autoport’s contract with BMW.
[13] BMW asserts that the conditions to which the vehicles were exposed gave rise to serious potential safety risks, including the risk of latent damage, and that this has put the roadworthiness of all of the automobiles in doubt. The existence or extent of the harm to any particular vehicle can only be determined through extensive destructive testing, meaning that no vehicle can be shown to be roadworthy without effectively destroying it. Accordingly, BMW recalled all of the vehicles.
[14] The “Recall Details” set out in the Transport Canada Recall Notice dated July 30, 2017 provides:
Certain MINI models could have corrosion at the starter motor power supply cable connectors, which could lead to the inability to restart the engine following engine shutdown by the start-stop (MSA) system, increasing the risk of crash causing injury in a traffic situation. On certain BMW models, the lubrication of some internet components within the steering rack may have been exposed to excessive water or salt which could result in higher than normal steering effort or steering binding, increasing the risk of a crash causing injury and/or damage to property. In addition, electrical wires and/or connectors in all affected vehicles may have been exposed to water or salt, which could lead to increased electrical system resistance, and increase the risk of fire causing injury and/or damage to property.
[15] All affected vehicles were removed from service and, BMW takes the position that they cannot be sold and should be destroyed.
[16] BMW takes the position that its damages claim does not turn on proving actual harm to each vehicle, but, instead, involves demonstrating that it was reasonable to recall all of the vehicles because no vehicle can be given a clean bill of health and sold.
[17] Autoport denies any liability in contract or tort, and claims that damages are grossly excessive and that there has been a failure to mitigate. Autoport denies that most of the 2,966 automobiles were exposed to the severe winter weather conditions or corrosive salt, and disputes the weather’s effect on the vehicles that were exposed. Autoport disputes the reasonableness of the recall in these circumstances and BMW’s theory of damages. Autoport pleads that if any of the BMW vehicles were defective, the defect had nothing to do with the damage alleged to have occurred at the Autoport storage facility.
[18] Autoport has repeatedly requested information from BMW regarding the nature of the alleged damage and BMW’s own inspections of the vehicles. The subject vehicles comprise 17 different models and 3 different model years. Autoport has had 12 vehicles inspected by experts, but no damage was found and the tested vehicles operated normally.
[19] Autoport argues that without information from BMW about the nature of the alleged latent defects or how to find them, Autoport cannot identify the expertise required and cannot proceed with meaningful inspections of the vehicles. Without disclosure by BMW, Autoport cannot prepare an inspection and testing protocol. It cannot arrive at a sample size for testing or determine whether there are alternatives to destructive testing.
[20] Autoport maintains that BMW has not provided the necessary information, and that any inspection of the vehicles by Autoport without this information would be pointless.
[21] The Master and the appeal judge proceeded on the basis that the estimated cost of storing the vehicles was $10,000 per day. This estimate was contained in correspondence between counsel that was appended to the affidavit filed by Autoport when it brought its preservation motion under Rule 45.01. I will accept that estimate for the purposes of this analysis, although the decision does not turn on the accuracy of that figure.
Procedural History
[22] Autoport brought a motion seeking particulars of certain allegations in the Statement of Claim, inspection of documents under Rule 30.04(2), an order to permit the defendant to inspect the vehicles at issue pursuant to Rule 32.01, and an order for the interim preservation of the 2,966 motor vehicles which are the subject matter of the action pursuant to Rule 45.01(1).
[23] On the date the motion was brought before the Master, Autoport had not yet filed a Statement of Defence.
[24] Rule 32.01 provides:
The court may make an order for the inspection of real or personal property where it appears to be necessary for the proper determination of an issue in a proceeding.
[25] Rule 45.01provides:
(1)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, and for that purpose may authorize entry on or into any property in the possession of a party or of a person not a party.
(2) Where the property is of a perishable nature or likely to deteriorate or for any other reason ought to be sold, the court may order its sale in such manner and on such terms as are just.
The Order of the Master
[26] The Master dismissed the motion for particulars and production of documents. That decision was not appealed.
[27] The plaintiff consented to an order permitting the defendant to inspect the vehicles, but only on the basis that any such order will not delay the delivery of the statement of defence.
[28] The Master made the following order with respect to inspection:
The defendant shall be provided the opportunity to inspect any or all of the vehicles however, the exercise of such inspection shall not delay the delivery of the defendant’s pleading. If the parties are unable to establish a mutually agreeable process by which to facilitate inspection of the vehicles, they may return to this court for further direction.
[29] That order was not appealed.
[30] The plaintiff also consented to a preservation order, but on the condition that the defendant either takes custody of the vehicles or assumes liability for the ongoing storage costs.
[31] Citing Taribo Holdings Limited v. Storage Access Technologies Inc. (2002), 27 C.P.C. (5th) 194) (Ont. S.C.), the Master set out the following three part test for granting an interim preservation order under Rule 45.01(1) (at para. 23):
a. the assets sought to be preserved constitute the very subject matter of the dispute;
b. there is a serious issue to be tried regarding the plaintiff’s claim to that asset; and
c. the balance of convenience favours granting the relief sought by the applicant or moving party.
[32] It was conceded that the first prong of the three-part test was met: the vehicles in question are the very subject matter of the action.
[33] With regard to the second test, the Master stated:
The defendant however makes no claim to the assets and thus there is no serious issue to be tried in respect of a claim to the vehicles. Accordingly, the second prong of the three-part test as noted above cannot be met by the defendant. That being said, the plaintiff will consent to a preservation order on terms.
[34] Even though the Master concluded that the second prong of the three-part test had not been met, she still went on to consider the balance of convenience and concluded that the balance of convenience favoured BMW (at para. 26):
In examining the balance of convenience, the court may consider the issue of storage costs to be incurred in the ongoing preservation of the asset. In this case, counsel for the plaintiff represents the costs are amounting to approximately $10,000 per day, or $3.5 million per year. The vehicles have been held in storage for in excess of 10 months awaiting inspection by, and of pleading from, the defendant. This is unreasonable and it is manifestly unfair to require the plaintiff to continue to bear the financial burden in circumstances where the defendant wants preservation of the vehicles pending inspection and/or trial, but is unwilling to take possession of them. The balance of convenience in this case clearly favours the plaintiff.
[35] On this basis, the Master made the following order:
If the defendant wishes ongoing preservation of the vehicles, it may take either physical possession of the vehicles or assume the financial cost for their storage. The defendant shall have 10 business days from this order to make an election in this regard, failing which the plaintiff may deal with the vehicles as it deems appropriate.
The Order of the Superior Court
[36] Only the preservation order was appealed. On appeal, the appeal judge held, at para. 47, that the Master made two reversible errors. First, the Master’s application and interpretation of the three part test in Taribo was in error. Second, flowing from that interpretation of Taribo, the court found that the Master’s imposition of the conditions as imposed and requested by BMW in providing consent to the preservation order were in error.
[37] The appeal judge held that the Master erred in setting out the second prong of the three-part Taribo test. The Master, relying on the precise words of Taribo, held that the second prong was whether “there is a serious issue to be tried regarding the plaintiff’s claim to that asset”. The appeal judge held that this was the test used in Taribo because Taribo was a case about disputed ownership. There is, however, nothing in Rule 45.01(1) that would limit it to cases in which the plaintiff’s claim related to ownership of the asset. Accordingly, the proper, test under Rule 45.01(1) should be stated more generally as whether “there is a serious issue regarding the plaintiff’s claim”, and not whether there is a serious issue to be tried regarding the plaintiff’s claim to the asset.
[38] The appeal judge stated, at paras. 49 and 53:
In determining whether to order a preservation order, the Master applied the case of Taribo and the tests as set forth therein. She found that the tripartite test set forth therein had not been met, such that she could not grant the preservation order unless it was on consent. In applying the Taribo tests, she found that the second prong of the test was not made out, as the defendant had made no claim to the assets/property, such that there was no serious issue to be tried in respect of a claim to the vehicles. Accordingly, she held that the second prong of the three-part test could not be met by the defendant, such that she could not grant a preservation order, except if it were on consent of both parties. That consent was given by BMW on the condition that terms be established as regards payment by Autoport of the cost of preservation.
In a case such as this, the tripartite test as applied by the Master requiring a claim to the asset would not be applicable as there is no dispute over ownership or a possessory interest in or claim to the assets in question. If ownership or a possessory claim to the property or asset were to be applied as one of the factors in determining whether to grant a preservation order, many cases would be precluded from obtaining a preservation order given that many cases do not involve a dispute over ownership.
[39] Accordingly, the appeal judge found that the Master made an error of law in applying Rule 45.01(1) in the circumstances of this case.
[40] In addition, the appeal judge held that the Master failed to take into account the principle that, as the party in possession of the property, the plaintiff had a prima facie obligation to preserve the subject matter of the litigation. The Court stated, at para. 55:
Further, her decision as to the costs of preservation did not take into account the obligation to preserve the subject matter of the litigation commenced by the plaintiff. Such preservation is the prima facie obligation of the party in possession of the property. Further, the vehicles, which are the subject matter of the litigation and are the property of BMW, are alleged to be damaged beyond being roadworthy by the negligence or breach of contract of the defendant. In 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. Her entire decision in that regard is to be set aside.
[41] The appeal judge concluded, at paras. 56 and 57:
I am satisfied that the balance of convenience favours granting the relief sought by Autoport, as not to preserve the vehicles would mean that there would be no means for either of the parties or the court, in the eventuality that it granted a further order for testing of the vehicles, to inspect and test the subject vehicles.
I am satisfied that BMW should preserve the vehicles that are the subject of this appeal. I do not find that the fees associated with preservation and storage of the subject matter of the litigation should be borne by Autoport. BMW, as the party in possession of the subject matter of the litigation and as the party which has the obligation to preserve such property in the interest of justice and to ensure fairness of the trial process, will bear the cost of the preservation of the property. In the event that BMW is successful at trial, it may seek its costs, including the fees associated with preservation of the subject vehicles from Autoport.
Analysis
[42] While I agree that the Master erred in her analysis of the second step of the Taribo case, I find that the appeal judge erred in her analysis of the balance of convenience because she based her balance of convenience analysis on the premise that the party in possession of the property has a prima facie obligation to preserve the property. This premise is unsupported in law, and is inconsistent with the plaintiff’s duty to mitigate damages.
The Taribo test
[43] I agree with the appeal judge that the three-part test set out in Taribo was a reflection of the specific facts in that case. In Taribo, both the applicants and the respondents claimed certain rights to two million shares being held by a third company. The question before the court was whether the court should make any interim order concerning these shares pending trial. Sachs J. found that orders under Rule 45 are appropriate where the property at issue consists of shares or the proceeds of sale of shares where there is a dispute as to the rights to possession of the shares or to proceeds thereof.
[44] When read in context, it is clear that Sachs J. stated that the second prong of the three part test was whether “there is a serious issue to be tried regarding the plaintiffs’ claim to that asset” because the plaintiff’s claim to the asset was the specific allegation in the case before her. She was not purporting to hold that Rule 45.01 is applicable only in cases in which the plaintiff claims ownership of or rights in an asset.
[45] Rule 45.01 must be interpreted in accordance with the modern rule of statutory interpretation, which requires that the words of an Act “be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: Mason v. Mason, 2016 ONCA 725, at para. 69 and cases cited therein.
[46] There is nothing in the language of Rule 45.01 that would limit its application to cases in which the plaintiff claims ownership or rights in an asset. The broad language used by Rule 45.01 – “any property in question in a proceeding or relevant to an issue in a proceeding” – belies such a narrow interpretation. Certainly there is no language in the Taribo decision to suggest that Sachs J. intentionally narrowed the scope of Rule 45.01.
[47] While this case does not involve BMW’s claim to the assets in issue, there is no dispute that the property is “relevant to an issue in a proceeding”.
[48] The Taribo test has been relied upon in other cases in which the plaintiff claims ownership of or some other right in the property, see: Kotar v. Scheiner, 2011 ONSC 3188, at para. 16; Paradigm Shift Technologies Inc. v. Alexander Oudovikine, et al., 2012 ONSC 148, at para. 59; Levy v. Fitzgerald, 2012 ONSC 2105, at para. 41. Since the plaintiff’s claim to ownership or other right in the property was the issue in those cases, the courts in those cases simply repeated the Taribo test without having to consider whether that is the test that should be applied in other contexts.
[49] A similar test has been relied on in motions brought under Rule 45.02, which provides:
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.
[50] In News Canada Marketing Inc. v. TD Evergreen, a Division of TD Securities Inc., [2000] O.J. No. 3705 (S.C.), at para. 14, Nordheimer J. (as he then was), first put forward the following test for relief under Rule 45.02:
(a) the plaintiff claims a right to a specific fund;
(b) there is a serious issue to be tried regarding the plaintiff's claim to that fund;
(c) the balance of convenience favours granting the relief sought by the plaintiff.
[51] This test, which “faithfully reflects the language of rule 45.02”, has been adopted in other Rule 45.02 cases since, see: Sadie Moranis Realty Corporation v. 1667038 Ontario Inc., 2012 ONCA 475, at paras. 18 and 19; Directv, Inc. v. Gillott, 2007 4313 (ON SC), at para. 44; and S.W. Hospitality Inc. v. 1461486 Ontario Inc., 2012 ONSC 4433, at para. 18.
[52] The test used under Rule 45.01 appears to have been influenced by the language used in the test under Rule 45.02. That makes sense when the issue under Rule 45.01 also involves a dispute over ownership or other right to property, as in Taribo. But a claim to a right to a specific fund is an express requirement of Rule 45.02, and the cases under Rule 45.02 cannot be applied to Rule 45.01 without taking into account the very different wording of the two provisions.
[53] In my view, the test under Rule 45.01 should track more closely the actual wording of Rule 45.01, and I would restate the test as follows:
a. the property sought to be preserved is the property in question in a proceeding or relevant to an issue in the proceeding;
b. there is a serious issue to be tried with regard to the property;
c. the interim preservation or custody of the property is necessary to enable a party to advance or defend its claim; and
d. the balance of convenience favours granting the relief sought by the applicant or moving party.
[54] The test as set out in Taribo may still be the appropriate test in cases that involve a dispute over ownership of an asset, but it is not appropriate in cases that arise in other contexts to which Rule 45.01 may, on its face, apply.
[55] On this basis, I agree with the appeal judge that the Master erred in law when she concluded that: “the second prong of the three-part test … cannot be met by the defendant”. If the test is restated as above, the defendant meets the first three of the four prongs of the test.
Balance of Convenience
[56] The appeal judge found that while the Master undertook a “balance of convenience” analysis, this analysis was skewed by the Master’s reliance on the Taribo test. The appeal judge found, at para. 54, that the Master’s balance of convenience analysis was “premised on her application of Taribo and her finding that she could not grant the preservation order except on consent of BMW and its granting of consent on the condition that a determination should be made as to who was to bear the costs of the preservation.”
[57] I do not agree that BMW granted its consent to the preservation order “on the condition that a determination should be made as to who was to bear the costs of the preservation”. As I read the Master’s decision, BMW granted its consent on the condition that Autoport take custody of the automobiles or assumes liability for the ongoing storage costs.
[58] Even though the Master found that Autoport had not met the second prong of the Taribo test, the Master did not simply accede to the order proposed by BMW, but undertook an analysis of the balance of convenience. In her analysis, quoted above at para. 34 of these Reasons, the Master gave clear and concise reasons for finding that the balance of convenience favoured BMW, and exercised her discretion to make the preservation order on the basis that the defendant take possession of the vehicles or assume the financial cost for their storage.
[59] The appeal judge also rejected the Master’s balance of convenience analysis on the basis that the Master’s decision “did not take into account the obligation to preserve the subject matter of the litigation commenced by the plaintiff. Such preservation is the prima facie obligation of the party in possession of the property.” (para. 55).
[60] A central question in this appeal is whether the appeal judge erred in finding that the party in possession of property has a prima facie obligation to preserve it.
[61] In reaching her decision, the appeal judge relied on the decisions in Fox v. Fox, 2017 ONSC 6509, at para. 231, and Cheung (Litigation Guardian of) v. Toyota Canada Inc. (2003), 29 C.P.C. (5th) 267 (Ont. S.C.), at paras. 4-7, for the proposition that parties to a civil action are required to preserve evidence that they know, or reasonably should know, is relevant in an action.
[62] The relevant issue in Fox was whether the husband in a family law case “was a participant in the spoliation of evidence related to certain business records”. The Court concluded, at para. 242, that the husband “knew or ought to have known that all his business records might be necessary in the litigation. He was under an obligation, as a party involved in litigation, to maintain all potentially relevant documents in his possession”.
[63] The Court in Fox relied on the Alberta Court of Appeal decision in McDougal v. Black and Decker Canada Inc., 2008 ABCA 353, which set out the following summary of the Canadian law of spoliation:
Spoliation currently refers to the intentional destruction of relevant evidence when litigation is existing or pending.
The principal remedy for spoliation is the imposition of a rebuttable presumption of fact that the lost or destroyed evidence would not assist the spoliator. The presumption can be rebutted by evidence showing the spoliator did not intend, by destroying the evidence, to affect the litigation, or by other evidence to prove or repel the case.
Outside this general framework other remedies may be available -- even where evidence has been unintentionally destroyed. Remedial authority for these remedies is found in the court's rules of procedure and its inherent ability to prevent abuse of process, and remedies may include such relief as the exclusion of expert reports and the denial of costs.
The courts have not yet found that the intentional destruction of evidence gives rise to an intentional tort, nor that there is a duty to preserve evidence for purposes of the law of negligence, although these issues, in most jurisdictions, remain open.
Generally, the issues of whether spoliation has occurred, and what remedy should be given if it has, are matters best left for trial where the trial judge can consider all of the facts and fashion the most appropriate response.
Pre-trial relief may be available in the exceptional case where a party is particularly disadvantaged by the destruction of evidence. But generally this is accomplished through the applicable rules of court, or the court's general discretion with respect to costs and the control of abuse of process.
[64] The Court in Fox relied on the “spoliation inference” to draw an adverse inference that the destroyed documents would have produced documentary evidence that would not have been helpful to the husband’s case (para. 246).
[65] It is important to note that the Fox case was about one type of evidence: documents. The Court in Fox held, at para. 231, that there is “a duty on parties to preserve documents that may be needed in litigation” (Emphasis added). This conclusion is much narrower than the proposition that there is a duty on a party in possession of any property that is the subject matter of litigation to preserve that property.
[66] Indeed, it should be noted that the 4th principle quoted from McDougal above states that the “courts have not yet found…that there is a duty to preserve evidence for purposes of the law of negligence”.
[67] The Cheung case was also a case about spoliation of evidence. The case was a product liability claim against Toyota and other defendants in relation to a minivan that rolled-over on a highway in which the driver was killed and the passengers were injured. The driver’s estate was named as one of the defendants. One of the issues in the case was whether the roll-over was caused by a broken axel or because the nuts on the rear wheels were insufficiently tightened.
[68] The evidence at issue was two rear tires of the van that the court had previously ordered the estate deliver to the other defendants’ experts. The tires were missing, and no explanation was provided for why the estate had failed to preserve and deliver the tires in accordance with the court’s order. The defendants applied for sanctions against the estate for spoliation of evidence and breach of a preservation order. Hoy J. (as she then was) found (at para. 23) that while the court had the authority to impose sanctions for spoliation prior to trial, “such sanctions are more appropriately dealt with at trial, and I believe that is the case here”.
[69] Hoy J. did, however, exercise her authority under Rule 60.12, which permits the court to dismiss the party’s proceedings or strike a party’s defence, or “make such other order as is just” where a party fails to comply with an interlocutory order. She issued an order under Rule 60.12 (at para. 31) precluding the estate “from adducing or relying on any reports or other evidence to the extent that it relates to or is in any manner based upon the missing tires”.
[70] Neither Fox nor Cheung recognizes a prima facie obligation on the party in possession of property that is the subject of litigation to preserve that property. Fox dealt only with documents and Cheung dealt with property that was already the subject of a preservation order.
[71] Apart from the disclosure of documents under Rule 30, which, by necessary implication, requires the preservation of the documents disclosed, there is nothing in the Rules of Civil Procedure that imposes a prima facie obligation on the party in possession to preserve evidence. Nor could Autoport point to any case in which a court has recognized such a prima facie obligation to preserve property.
[72] The appellant argues that such a prima facie obligation is inconsistent with the existence of Rule 45.01 and would have serious and inappropriate consequences. I accept these arguments for the following reasons.
[73] The onus is on the moving party seeking a preservation order under Rule 45.01 to meet the test. The creation of a prima facie obligation to preserve evidence effectively reverses the onus, and would require the party in possession of the property to seek the court’s (or the opposite side’s) permission before repairing, altering or destroying any property that may be the subject matter of litigation.
[74] Moreover, an obligation to preserve evidence could run counter to the plaintiff’s duty to mitigate damages. A car owner involved in a motor vehicle accident is permitted to have the vehicle repaired. The owner is not expected to preserve the car in damaged condition. If the owner failed to repair the car in a timely way, they could not sue for incidental damages resulting from the failure to have the car repaired since such damages would be inconsistent with the duty to mitigate damages. Similarly, a person whose basement is flooded or house is damaged by fire is permitted to have the damage repaired as soon as possible. There is no prima facie obligation to preserve the damaged house until all parties involved in the litigation have had an opportunity to inspect it. Indeed, the car or home is often repaired before litigation is contemplated or commenced.
[75] Similarly, in the present case, Autoport argues that BMW had an obligation to mitigate its damages by reselling the cars or their components in the secondary market. BMW cannot have simultaneous obligations to both preserve the property and sell the cars or their components.
[76] That said, since the initial onus is on the plaintiff to prove its case, a plaintiff who repairs or destroys evidence without keeping some record of it is at risk of compromising its case. There is also the risk of a finding of spoliation of evidence, which gives rise to a rebuttable presumption that the evidence destroyed would have been unfavourable to the party who destroyed it (Fox, at para 228; Cheung, at para. 12). These are risks that BMW is prepared – and is permitted - to take given its theory of liability in this case.
[77] If the court were to develop a prima facie obligation to preserve evidence, it would have to do so in a “nuanced and incremental manner” that takes into account “the differing types of material… what subsequent use there may be for such material, questions of dangerousness and perishability, and questions of feasibility and cost” (Chaudhary v. Ontario (Attorney General), 2013 ONCA 615, at para. 11). An obligation to preserve 3,000 digitalized documents presents a very different issue than an obligation to preserve 3,000 automobiles.
[78] Moreover, any obligation to preserve property, like the obligation to produce documents, would have to be subject to the principle of proportionality set out in Rules 1.04(1.1) and 29.2.
[79] In the present case, the Master impliedly considered the principle of proportionality in her balance of convenience analysis. In her view, the cost of $10,000 per day to the plaintiff was disproportionate to the defendant’s continued need to preserve and test the automobiles. Her order met the principle of proportionality because it permitted the defendant, in consultation with its own experts, to decide for itself how many automobiles it actually needs to preserve and test. Placing the financial burden on the defendant gives the defendant an economic incentive to preserve and test only as many automobiles as it actually requires for its defence. In contrast, placing the financial burden on the plaintiff would give the defendant an economic incentive to delay its testing and exaggerate the number of vehicles to be preserved.
[80] Autoport argues that it cannot know how many vehicles it needs to preserve and test until it is given the results of BMW’s own inspections. As indicated above, BMW’s claim does not turn on proving actual harm to any particular vehicle, but, instead, involves demonstrating that it was reasonable to recall all of the vehicles because, absent extensive destructive testing, no vehicle can be given a clean bill of health and sold. BMW’s theory of liability is based on serious potential safety risks that put the roadworthiness of all of the automobiles in doubt.
[81] Whether BMW’s theory of liability will ultimately be successful is an issue for trial, but I am satisfied that Autoport’s own experts can determine how many vehicles they need to preserve and test in order to meet this theory of liability. Logic and the principle of proportionality suggest that it will be substantially fewer than the 2,500 vehicles currently in storage.
Conclusion
[82] The appeal judge erred in law by basing her balance of convenience analysis on the erroneous presumption that the party in possession had a prima facie obligation to preserve evidence and, on that basis, substituting her exercise of discretion for the Master’s exercise of discretion.
[83] Accordingly, this Court orders that:
a) The appeal judge’s order is set aside, and the Master’s order is restored.
b) Autoport shall have 10 business days from the date of this decision to make the election referred to at para. 5 of Master Mills’ Order.
c) Autoport is to pay to BMW the costs of storing the vehicles from December 28, 2017 to the date of the election or expiry of the time for the election pursuant to para. (b) above, with interest on such amounts.
d) Counsel advise that the parties have agreed to an all-inclusive costs award of $25,000 for the successful party. Accordingly, costs of $25,000 are awarded to the appellant, BMW, payable by the respondent, Autoport, within 30 days.
Justice R.E. Charney
I agree _______________________________
Justice N.L. Backhouse
I agree _______________________________
Justice L.G. Favreau
Released: July 19, 2019
CITATION: BMW Canada Inc. v. Autoport Limited, 2019 ONSC 4299
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Backhouse, Charney and Favreau JJ.
BETWEEN:
BMW CANADA INC.
Plaintiff (Appellant)
– and –
AUTOPORT LIMITED
Defendant (Respondent)
REASONS FOR JUDGMENT
Released: July 19, 2019