COURT FILE NO.: CV-17-00568847

DATE: 20180711

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

BMW Canada Inc.,

Respondent/ Plaintiff

– and –

Autoport Airport Limited

Appellant/Defendant

D. Kent, for the Respondent/Plaintiff

R. Bell, for the Appellant/Defendant

HEARD: March 27, 2018

REASONS FOR DECISION

CAROLE J. BROWN, J.

[1] This is an appeal from the Order of Master Mills issued on December 11, 2017. Only portions of the Master’s Order are raised on appeal, namely (i) the Order regarding preservation of property pursuant to Rule 45.01(1), and (ii) the costs of preservation, and more particularly, which party should bear the fees associated with the preservation order, which may be substantial.

[2] Autoport Airport Limited (“Autoport”) seeks an order that the plaintiff, BMW Canada Inc. (“BMW”), preserve 2,966 BMW and MINI-brand vehicles. BMW states that it wishes to destroy the vehicles, which are stored in the Vancouver, Toronto and Montréal areas. The Master ordered that the vehicles be preserved but on condition that Autoport take physical possession of the vehicles or assume the costs of storage, otherwise BMW could deal with the vehicles as it saw fit.

[3] The action was commenced February 1, 2017 and is still at the pleadings stage.

Background

[4] The factual matrix underlying this appeal is as follows. The claim arises from severe weather events in Nova Scotia in 2015, such that 2,966 BMW vehicles were allegedly exposed to the weather, which damaged the BMWs and resulted in a recall of all of the vehicles. BMW claims damages in the amount of $175,000,000. BMW claims that the vehicles were exposed to excessive water and corrosive substances, as a result of Autoport’s negligence and in breach of Autoport’s contract with BMW.

[5] Autoport denies any liability in contract or tort, and claims that damages are grossly excessive and that there has been a failure to mitigate.

[6] It is the position of BMW as regards its damage theory that the cars were exposed to such adverse conditions and such adverse treatment that each of them is potentially severely compromised, such that the vehicles are not roadworthy unless they can be demonstrated to be roadworthy. Thus, the risk of their being unsafe is too great to put them on the road unless they can all be tested and found to be safe and roadworthy.

[7] BMW maintains that none of the cars can be found to be roadworthy without testing them which involves destructive testing, as BMW had to do with a few of the vehicles. It is the position of BMW that there is no viable way to test them to prove them roadworthy and, therefore, they all had to be recalled. Thus, BMW maintains that as regards its damage theory, no testing of vehicles is necessary, as it maintains that there is no viable way to test them as regards whether they are roadworthy and, as such, it is too risky to put them on the road, i.e. all cars are non-functional.

[8] BMW concedes that Autoport will have its own theory of the case and is entitled to inspect the vehicles for those purposes. As a result, BMW is storing vehicles at three locations across the country.

[9] As regards the cost of storage, it is the position of BMW that there was evidence of estimated storage costs contained in correspondence between counsel. That estimate was $10,000 a day. BMW notes that the Master, in her order, never ordered Autoport to pay $10,000 a day, but rather gave Autoport options, one of which was covering the cost of preservation.

[10] BMW states that, since early 2016, it has requested that Autoport inspect the subject vehicles, and that Autoport inspected 12 vehicles on October 30, 2017, which was described as a preliminary inspection.

[11] Correspondence from BMW dated May 2017 advised that they intended to arrange for disposal of the vehicles and requested that if Autoport wished to arrange for testing and inspection, they should contact BMW to advise which vehicles Autoport wished BMW to preserve. Subsequently, BMW demanded that Autoport confirm that it would pay the costs of storage or provide earlier dates for inspection. Subsequently, BMW indicated that they would turn the vehicles over to Autoport.

[12] It is the position of BMW that if Autoport declines to take possession of the subject vehicles, it is not obliged to keep storing the vehicles at its own expense.

[13] Autoport has repeatedly requested information from BMW regarding the nature of the alleged defect and BMW’s own inspections of the vehicles. Without information about the nature of the alleged latent defect or how to find it, Autoport cannot identify the expertise required and cannot proceed with meaningful inspections of the vehicles. Autoport maintains that BMW has not provided the necessary information.

The Order of the Master

[14] The portions of the Masters’s Order relating to the issues from which appeal is taken, are as follows:

[1] The defendant has brought this motion seeking [inter alia] the following relief:

d. 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).

[3] The plaintiff has consented to an order permitting the defendant to inspect the motor vehicles but only on the basis that any such inspection will not delay the delivery of the statement of defence. The plaintiff also consents to a preservation order but on the terms that the defendant take custody of the vehicles or, in the alternative, assume liability for the ongoing storage costs. Both these provisos are reasonable and are so ordered.

[5] The plaintiff commenced this action with the issuance of a statement of claim on February 1, 2017. …

[6] In the Statement of Claim, the plaintiff alleges it suffered damages in the amount of $175,000,000 plus interest, costs and taxes as a result of the defendant's alleged breach of the obligations it owed to the plaintiff pursuant to the provisions of a contract for terminal services, vehicle services, yard/inventory management and rail loading operations. It is alleged the defendant allowed certain BMW and MINI-branded vehicles to be exposed to excessive water, excessive standing water and/or corrosive substances, including salt and/or ice melting substances, and other contaminants. As a result of the alleged damage to the vehicles, the plaintiff requested Transport Canada publish a recall notice in July 2015, directing the affected vehicles to be returned to BMW for disposal.

[7] The recalled vehicles have been held in storage at various locations across the country for the past two years. The costs associated with the ongoing storage is stated to be approximately $10,000 per day.

[20] The plaintiff has invited the defendant since at least the commencement of these proceedings to conduct whatever inspections it felt was necessary and/or appropriate. The vehicles have been made available and indeed, a preliminary inspection has already been conducted by the defendant.

[21] There is no evidence before me to suggest the defendant cannot deliver its pleading in the absence of a full and complete inspection of the vehicles in question, and counsel confirmed in oral submissions that inspection of the vehicles was not required in order to plead. The defendant shall be provided the opportunity to inspect any and all of the vehicles however, the exercise of such inspection shall not delay delivery of the defendant’s pleading.

[22] If the parties are enabled [sic] to establish a mutually agreeable process by which to facilitate inspection of the vehicles they may return to this court for further direction.

Interim Preservation Order

[23] The court may, pursuant to Rule 40.01(1), grant an interim order for the custody or preservation of any property in question in a proceeding or relevant to an issue in a proceeding. There is a three-part test to be met:

a. the asset sought to be preserved constitutes 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.

[24] It is conceded that the vehicles in question are the very subject matter of this action. 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.

[25] The underlying purpose of the preservation request of the defendant is to ensure the vehicles are available for inspection purposes at a later date. This is, without a doubt, a legitimate concern. Who should bear the cost of the ongoing storage expenses is the fundamental question. The plaintiff has repeatedly offered to relinquish possession or custody of the vehicles to the defendant. This is not a case where the plaintiff is refusing access to the assets in dispute.

[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.

[26] 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 Issue

[14] The issues to be determined are:

1. Whether the Master made a reviewable error in her application of the law as regards granting an interim order for preservation of property; and

2. Whether the Master made a reviewable error in allocating the cost of storage of the vehicles pursuant to the preservation order to Autoport.

Standard of Review

[15] Appeals from a Master must be heard as appeals and not matters de novo. See Noranda Metal Industries Ltd. v. Employers Liability Insurance Corp., (2000) 2000 50967 (ON SC), 49 C.P.C. (4th) 336 (Ont. S.C.), at para 7.

[16] Moreover, an appeal from a Master’s decision is not a re-hearing. On questions of fact and mixed fact and law, deference applies and the role of the reviewing court is limited. The appellate court cannot substitute its interpretation of the facts or re-weigh the evidence simply because it takes a different view of the evidence from that of the Master: Wellwood v. Ontario Provincial Police, 2010 ONCA 386, 102 O.R. (3d) 555, at para. 28. Further, an appellate court is not free to interfere with a factual conclusion that it disagrees with where such disagreement stems from a difference of opinion over the weight to be assigned to the underlying facts: Housen v. Nikolaisen, 2002 SCC 33, 2 S.C.R. 235, at para. 23.

[17] The record that was before the Master is the only evidence to be used on appeal.

[18] The standard of review for Masters' orders is the same standard of review that applies to appeals of judges' orders. For questions of law, the appellate court applies the correctness standard. For questions of fact and mixed fact and law, the court should apply a more deferential standard and not intervene unless there is a palpable and overriding error: In-Store Products Ltd. v. Zuker, 2013 ONSC 7091, at para. 3.

[19] The standard of review on a question of law is correctness: Zeitoun v. Economical Insurance Group, (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131.

[20] Appellate interference will be warranted “only if the Master made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error”: Zeitoun, at para. 40.

[21] As regards findings of fact, the appellate court will not interfere with a Master's decision unless there has been a palpable and overriding error. This same standard applies to inferences of fact. Where there is some evidence upon which the Master could have relied to reach a conclusion, the appellate court will not interfere. It is not the role of the reviewing court to verify that inferences of fact can be reasonably supported by the findings of fact of the Master, but rather to determine whether the Master made a palpable and overriding error in coming to a factual conclusion based on accepted facts, which implies a stricter standard. Further, where evidence exists to support an inference, an appellate court will be hard-pressed to find a palpable and overriding error: Housen at paras. 1, 6, 10, 19, and 21-23.

Positions of the Parties

Position of the Appellant Autoport

[22] It is the position of Autoport that the Master erred in holding that because Autoport did not claim an ownership interest in or make a claim to the vehicles it could not meet the test for a preservation order under Rule 45.01(1). Autoport never asserted an ownership claim to the vehicles and one is not required under Rule 45.01(1).

[23] Autoport submits that the Master erred in principle in applying Taribo Holdings Limited v. Storage Access Technologies Inc. (2002), 27 C.P.C. (5th) 194) (Ont. S.C.), relied on by BMW, as that involved a dispute as to the ownership of the subject litigation, which is not the case here. Taribo deals with a dispute as to ownership of property, both parties claiming ownership of or a claim to the subject property in that case.

[24] It is the position of Autoport that Taribo is not applicable here, as there is no contest as to ownership or entitlement to the property. The applicable test is as set forth at Rule 45.01. On the plain wording of Rule 45.01, all that is required for a preservation order is that the subject matter of the claim be in question or in issue in the proceeding.

[25] Here, according to Autoport, BMW was intending to destroy the vehicles unless Autoport took possession of the vehicles or paid for their storage, which led to seeking the preservation order. Autoport argues that to impose the three-part test as set forth in Taribo would mean that ownership would be required in many cases where it would not be applicable, including product liability, family law cases and fire destruction cases. This would undermine the overarching obligation to preserve the evidence.

[26] Autoport maintains that the Master applied the Taribo tests in error and concluded that no preservation order could be granted, unless on consent of the parties. BMW ultimately provided its consent on terms that it stipulated as regards payment of storage fees, and the Master granted those terms.

[27] It is the position of Autoport that the Master erred in accepting BMW’s terms and in placing the burden of the substantial storage charges on the defendant as regards this preservation order to preserve the vehicles in the plaintiff’s possession, which are the subject of the plaintiff’s claim. They argue that Rule 45.01(1) permits the preservation of property relevant to an issue in the proceeding.

[28] Autoport maintains that the duty to preserve is central to the conduct of a fair trial and destruction of relevant evidence undermines the prospect of a fair trial. The obligation to preserve the subject matter of litigation in their possession is imposed on parties to litigation. The plaintiff contends that under Rule 45.01 or pursuant to the party’s obligation to preserve evidence which is the subject matter of the litigation, the preservation obligation is that of the party holding the property which is the subject matter of the litigation, not the obligation of the adverse party.

[29] It is the position of Autoport that the Master erred in law in finding that the adverse party, Autoport/defendant should pay the costs of preserving the subject matter of the litigation, or alternatively, the plaintiff could do with the property as it wished. It is the position of the applicant that the Master did not focus on the preservation of evidence. As a result, she held that she could only make a preservation order pursuant to/based on the consent of the parties, which the plaintiff gave with conditions to be imposed.

[30] Further, in determining who should bear the costs of storage, she applied the third prong of the tripartite Taribo test regarding balance of convenience.

[31] The Master held that the defendant was unreasonably not testing the vehicles. However, it is the defendant’s position that given the plaintiff’s position that the defects or damage in the BMWs are “latent”, it is not possible for Autoport to know what to look for.

[32] Further, the defendant maintains that an unknown number of the vehicles in BMW’s possession have undergone destructive testing and BMW wishes to destroy all of the evidence, constituting the subject matter of the litigation.

[33] As regards the preservation order sought to preserve 2,966 vehicles, I was advised at the hearing of the appeal that, pursuant to the Master’s Order, a schedule of the vehicles subject to the preservation order was to be provided by BMW to Autoport by April 16, 2018. The schedule was provided on April 27, 2018 and was forwarded to the court. The vehicles listed totalled 2,449, rather than 2,966 vehicles. Autoport contends that 517 vehicles were destroyed. BMW consented only to providing the court with the schedule but objected to any submission of any kind about implications or inferences to be drawn about the 517 vehicles not listed. I do not draw any inferences herein.

[34] Autoport submits that it is wrong, in law to impose on an adverse party the obligation to pay for the preservation of the subject matter of the litigation the plaintiff commenced. This amounts to execution before judgment. Autoport submits that the Master proceeded on two fundamentally incorrect presumptions: first, that there was a known cost of storage, namely $10,000, although this was not in evidence; second, the Master was advised that there had been destruction of vehicles, although this is not known, nor is it known how many vehicles were destroyed, if any. If the Master had known that vehicles had been destroyed, the issue may have been spoliation.

[35] Autoport relies on the cases of Fox v Fox, 2017 ONSC 6509, 143 W.C.B. (2d) 170, 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. It is important to the integrity of the administration of justice that the parties do not destroy or dispose of relevant evidence, nor of evidence which is the subject matter of the litigation. It is the position of Autoport that fairness calls for preservation pending trial in the face of a threat to destroy the subject of litigation and after actual destruction of some of it, and the consequence of any destruction is for the trial judge to determine on a full record. However, a preservation order is necessary to ensure fairness at both pretrial and trial: Cheung v Toyota, supra.

[36] Autoport maintains that BMW, as the plaintiff, has the duty to preserve the subject matter of the claim and has a prima facie obligation to pay for fulfilling that duty.

Position of the Respondent BMW

[37] It is the position of BMW that the only issue is whether the Master has made a reviewable error on an aspect of her decision, namely allocation of the costs of the preservation of the subject matter of the litigation.

[38] BMW contends that the appeal is not about spoliation, as there was no spoliation motion in front of the Master nor any spoliation of evidence led on the motion, and accordingly no spoliation found by the Master. Further, it is the position of BMW that spoliation is an issue for trial should spoliation occur.

[39] BMW takes the position that the Master granted a preservation order on terms, of which Autoport could select one, as follows: (i) Autoport could elect to take the vehicles; (ii) the vehicles could remain with BMW and Autoport would cover the cost of storage, or (iii) if Autoport did not select either of the previous alternatives, BMW could do with the vehicles as it wished.

[40] In the end, BMW consented to the preservation order but requested that it be on terms, namely that Autoport pay for the cost of storage, such that the issue on appeal is whether that order as to the cost of storage is correct or is a reversible error on the part of the Master. In this case, BMW submits that there is no rule or law, nor any jurisprudence that establishes that the cost of preservation must always be borne by the party in whose hands the property is found. There is, however, jurisprudence establishing that allocations of the financial burden of preservation are permissible. Whether an allocation should be made is an area of discretion open to the Master. Rule 1.05 states that any order contemplated by the Rules may be made on appropriate terms.

[41] BMW submits that the Master clearly had discretion to order financial terms and made no error of law in ordering financial terms. She exercised her discretion within the context of the balance of convenience which is the third and necessary part of the test for granting a preservation order per Taribo so she had discretion and exercised that discretion in a manner that was consistent with the proper principles and did not base her decision on improper principles. In determining the terms of the order and switching the interim burden of cost for preservation from BMW to Autoport, the Master was again within her discretion.

[42] BMW submits that it is equally open to Autoport to claim in the litigation the costs of preserving the vehicles for the purpose of inspection, as a litigation cost.

[43] It is the position of BMW that the Master’s exercise of discretion was within the normal bounds established by the jurisprudence and on the basis of balance of convenience which pursuant to the jurisprudence is a mandatory element of the analysis. It cannot be said that her exercise of discretion was so wrong as to give rise to a palpable or overriding error.

The Law

The Rules of Civil Procedure

[44] Rule 45.01 provides as follows:

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.

[45] Rule 45.01 does not create any substantive right in law, but rather is the framework within which substantive rights are enforced. The threshold question which gives a court jurisdiction to make an order is whether the applicant has a substantive right that may be enforceable under Rule 45.01. Such a right can arise by contract or otherwise by operation of law.

Analysis

[46] The issue to be determined is whether the Master made a reversible error in her decision.

[47] In this case, I find that the Master made two reversible errors. First, her application and interpretation of Taribo and the tests set forth therein to this case in determining whether a preservation order should be granted was in error. Second, flowing from that interpretation of Taribo, I find that her imposition of the conditions as imposed and requested by BMW in providing consent to the preservation order were in error.

[48] 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. The standard of “a serious issue to be tried” is a lower standard than that of showing a strong prima facie case: The Law of Civil Procedure in Ontario, Third Edition, Perell P.M. and Morden J.W.

[49] 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.

[50] As argued in this case by Autoport, Taribo was a very different case from the case on appeal. In Taribo, both parties disputed ownership, which is not the case here. In determining whether to grant the preservation order sought, a tripartite test, including the possessory claim and balance of convenience, was applied.

[51] However, the actual test to be applied is whether there is a serious issue to be tried regarding the plaintiff’s claim, and not whether there is a serious issue to be tried regarding the plaintiff’s claim to the asset.

[52] There is, indeed, a serious issue to be tried as regards the plaintiff’s claim concerning the alleged negligence and/or breach of contract of the defendant in storing the plaintiff’s vehicles.

[53] 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.

[54] I find that the Master made an error of law in applying the tests as set forth and applied in Taribo in the circumstances of this case, as indicated above. Her Order as regards which party should bear the costs of preservation pursuant to Rule 45.01 was also 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. I find that she also erred by imposing the conditions and terms sought by BMW.

[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.

[56] Based on all of the evidence before me, which was also before the Master, I find that a preservation order should have been granted. The consent of BMW was not necessary. The assets sought to be preserved, namely the vehicles, constitute the very subject matter of the dispute. There is a serious issue to be tried regarding the plaintiff’s claim. In this case, 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.

[57] 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.

[58] I further set aside the Master’s costs ruling and order that BMW pay the costs of the underlying motion as well as this appeal.

Costs

[59] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown, J.

Released: July 11, 2018

COURT FILE NO.: CV-17-00568847

DATE: 20180711

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

BMW Canada Inc.,

Respondent/ Plaintiff

– and –

Autoport Airport Limited

Applicant/Defendant

REASONS FOR DECISION

Carole J. Brown, J.

Released: July 11, 2018