Carleton United Church, et al., 2022 ONSC 3413
COURT FILE NO. CV-18-64583
DATE: 20220607
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Niagara Regional Housing, Plaintiff
AND
Trustees of Carleton United Church and Bonnie Driver and Harland Young and Ross McCarthy and Ray Marshall and Jane Doe and Bill Leighfield and Carleton United Church and the United Church of Canada L’Eglise Unie Du Canada and Niagara Presbytery of the United Church of Canada and Hamilton Conference of the United Church of Canada and LEX Scientific Inc., Defendants
BEFORE: Justice L. Sheard
COUNSEL: Mark Abradjian and Greta Ladanyi, counsel for the Plaintiff/Responding Party
Gabrielle K. Kramer and Julie Lesage, counsel for LEX Scientific Inc. Defendant/Moving Party
Sean Murtha, counsel for the remaining Defendants/Responding Parties
HEARD: April 19 and 22, 2022, via Videoconference.
REASONS FOR JUDGMENT
Overview
[1] The defendant, LEX Scientific Inc. (“LEX”), moves for summary judgment to dismiss the claim of the plaintiff, Niagara Regional Housing (“NRH”) as against LEX, as well as the defendants’ crossclaim against LEX. The motion is brought pursuant to r. 20.04 (2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, on the basis that there is no genuine issue requiring a trial. Counsel for the other co-defendants attended the hearing but advised that his clients took no position on the motion.
[2] On June 17, 2016, NRH bought 527 Carleton St., St. Catharines, ON LXM 4X6 (the “Lands”) from the Carleton United Church (the “Church”). NRH purchased the Lands for the purpose of building social housing, which has been built.
[3] By Agreement of Purchase and Sale for the Lands signed on May 31 and June 1, 2016, the Church agreed to sell the Lands to NRH (the “APS”). At paragraph 22 of the APS, the Church makes representations and warranties that, to the best of its knowledge, information, and belief, there are no known environmental concerns pertaining to the Lands.
[4] After the purchase was closed, NRH commissioned an environmental assessment of the Lands that revealed contaminated soil that had to be remediated in order to construct residential housing. NRH sues the Church and LEX for $401,854, which is its estimated damages associated with the remediation of the Lands.
[5] In broad terms, NRH’s claims are based on negligent misrepresentation. The Church and LEX both defend the claim. As the issues on this motion relate to NRH’s claim against LEX, that is the focus of these reasons.
NRH’s Claim Against LEX
[6] Months prior to entering into the APS, the Church accepted LEX’s proposal to undertake a Phase I Environmental Site Assessment (a “Phase I ESA”) pursuant to the CSA to Z768-01 standards (the “Proposal”). The Phase I ESA was intended to provide the Church with “an overview of areas of possible environmental concern”[^1]. It entailed a review of historical records relating to the Lands and a site inspection, but no soil testing.
[7] LEX’s Standard Conditions formed part of the Proposal. The conditions included that the contents of any report were not to be published, used by, or disclosed to any party without LEX’s prior written consent and limited LEX’s liability to damages to the lesser of fees paid for the work ($1,950.00) or the actual damages.
[8] LEX completed a Phase I ESA report dated February 25, 2016 (the “LEX Report”), which was provided to the Church on March 16, 2016. The LEX Report identified no environmental concerns with respect to the Lands and did not recommend that a Phase II ESA be undertaken. A Phase II ESA is a more in-depth examination of the Lands, which includes testing of soil samples taken from boreholes made on the Lands.
[9] Without LEX’s knowledge or consent, in April 2016, the Church gave a copy of the LEX Report to NRH.
[10] NRH did not commission its own environmental assessment until after closing. NRH asserts that it relied on the LEX Report on its purchase of the Lands; that the LEX Report was prepared negligently; and that LEX is liable to NRH for the damages it suffered as a result.
[11] Broadly stated, LEX defends NRH’s claim on the basis that LEX was not negligent; the LEX Report was prepared for the sole use of the Church; LEX had no knowledge of NRH; LEX owes no duty of care to NRH; and, that LEX is protected from any liability by virtue of the limited liability or disclaimer clause contained in LEX Report (the “Disclaimer Clause”).
Issues to be Decided:
[12] The issues on this motion are:
(a) Does the Disclaimer Clause exclude the imposition of a duty of care by LEX to NRH?
(b) In the alternative, should NRH’s actions against LEX be dismissed because NRH’s alleged reliance on the LEX Report was unreasonable?
(c) Can NRH’s claim against LEX be decided on a motion for summary judgment?
(d) If so, has LEX established that, with respect to NRH’s claim, there is no genuine issue requiring a trial?
(e) If so, should the co-defendants’ crossclaim against LEX for contribution and indemnity also be dismissed?
[13] LEX asserts that, for the purposes of this motion, the court need not decide:
(i) whether the LEX Report was negligently prepared;
(ii) whether LEX knew the purpose for which the LEX Report was requested;
(iii) whether other evidence, not before the court on this motion, might be found or called at trial.
Background
The Parties
[14] NRH is a non-profit corporation, acting as service manager for the Region of Niagara and provides affordable housing in the Region. When acquiring properties, NRH works with the real estate department at the Niagara Region and must obtain approval from Regional Council for any acquisition of property.
[15] On this motion, NRH puts forth the affidavit of Donna Woiceshyn (“Woiceshyn”), the manager of housing operations at the time. NRH also puts forth the affidavit of Kyle Stewart, a law clerk with Ross & McBride, litigation counsel for NRH.
[16] In 2018, in the context of this litigation, Ross & McBride retained XCG Environmental Engineers & Scientists (“XCG”) to provide an opinion on whether LEX met the applicable standard of care when completing the Phase I ESA and the LEX Report. XCG reported to Ross & McBride that LEX did not meet the requisite standard (the “XCG Report”). NRH relies on the XCG Opinion in support of its assertion that LEX was negligent.
[17] Thomas Kolodziej (“Kolodziej”), Senior Project Manager for XCG, is a Licensed Professional Engineer and recognized as a Qualified Person for the purpose of conducting Environmental Site Assessments. Kolodziej signed the XCG Report. Kolodziej’s affidavit, sworn April 14, 2020, was submitted on behalf of NRH on this motion.
[18] The Church is an unincorporated religious association and held title to the Lands through its Trustees. The Church has put forth no evidence on this motion.
[19] LEX is a corporation that provided environmental consulting and laboratory services. On this motion, LEX relies on the affidavit of its principal, Michael Hoffbauer (“Hoffbauer”).
[20] Cross-examinations were conducted and the transcripts were available on this motion.
Chronology of Events
[21] In 2015, the church building on the Lands burned down. The Church decided to sell the Lands.
[22] NRH was interested in purchasing property on which to build residential social housing. In the fall of 2015, NRH and the Church entered into negotiations for the NRH’s purchase of the Lands. The negotiations ended without an agreement.
[23] In January 2016, LEX was contacted by a representative of the Church seeking environmental consulting services. LEX submitted the Proposal to the Church, estimating the cost would be no more than $1,950. The Proposal was accepted by Bill Leighfield (“Leighfield”) on behalf of the Church.
[24] The LEX Report was completed on February 25, 2016, and a copy provided to Leighfield via email on March 16, 2016. In the cover letter to Leighfield, and in the Executive Summary in the LEX Report, LEX states that the purpose of the Phase I ESA was “to satisfy the conditions of refinancing a bank loan”. However, at paragraph 6.1 of the LEX Report, it states that the purpose of the Phase I ESA was “to satisfy any conditions regarding the sale of the property”. Neither statement was accurate. In its email to LEX, the Church stated that it was “moving ahead with the process of preparing this property [the Lands] for further development.”
[25] When it accepted the Proposal, the Church was not intending to refinance the Lands nor was the Church subject to any conditions regarding the sale of the Lands; NRH did not make an offer to buy the Lands until April 2016, and the APS was not fully signed until June 1, 2016.
[26] When cross-examined on his affidavit, Hoffbauer acknowledged that it appeared to him that portions of the LEX Report had been taken from a precedent, which contained content not applicable to the circumstances.
Negotiations between NRH and the Church
[27] By email of April 8, 2016, Leighfield sent Woiceshyn the March 16, 2016 email he had received from LEX that attached the LEX Report. The LEX Report was reviewed by Woiceshyn, and by Willi Pankratz, NRH Project Manager, and Don White, NRH’s Manager of Housing Operations.
[28] On April 29, 2016, NRH made an offer to purchase the Lands.
[29] On May 19, 2016, Niagara Regional Council approved the purchase.
[30] On May 20, 2016, NRH retained exp Services Inc (“EXP”) to undertake a geotechnical investigation of the Lands. The purpose of this investigation was to determine the subsoil and groundwater conditions on the Lands. To do this, EXP was to dig six boreholes on the Lands and, based on an assessment of the data thereby obtained, to provide “an engineering report containing general geotechnical recommendations pertinent to the proposed construction” of a four to six storey building, with a full basement and associated paved parking area.
[31] On May 31 and June 1, 2016, the Church signed back its acceptance of the NRH offer. The closing date was set for June 17, 2016.
[32] The APS will be discussed in greater detail later in these reasons.
[33] On June 1, 2016, EXP provided its geotechnical report to NRH (the “EXP Geo Report”). EXP noted the discovery of “fill material”, which also contained charred wood. EXP made recommendations to NRH related to construction on “fill sections”. These included the removal of the fill, and chemical testing of it to ensure that the fill met with Ministry of the Environment (“MOE”) guidelines.
[34] Appendix “A” to the EXP Geo Report provides “Notes on Sample Descriptions”, which read, in part, as follows:
Some fill material may be contaminated by toxic/hazardous waste that renders it unacceptable for deposition in any but designated land fill sites; unless specifically stated the fill on this site has not been tested for contaminants that may be considered toxic or hazardous. This testing and a potential hazard study can be undertaken if requested. In most residential/commercial areas undergoing reconstruction, buried oil tanks are common and are generally not detected in a conventional geotechnical site investigation.
[35] In cross-examination, Woiceshyn acknowledged that NRH was aware that the church building had burned down in 2015 and that some wood would need to be removed.
[36] Woiceshyn also acknowledged that she was familiar with environmental site assessments, which were required for provincial funding. As NRH was planning to change the use of the Lands to residential housing, it was a requirement of provincial funding that a Record of Site Condition, prepared by a qualified person (“RSC”), be registered on title.
[37] In its claim and on this motion, NRH asserts that it relied on the LEX Report when it decided to purchase the Lands and to not retain its own consultant to conduct a Phase I ESA.
[38] By email of June 3, 2016, Pankratz contacted Hoffbauer to ask LEX to provide a quote for the registration of an RSC. That email made no mention of the LEX Report. There is no record of Hoffbauer responding to this email. On June 14, 2016, at 3:15 p.m., Pankratz reported to Woiceshyn that LEX had not replied to his email.
[39] After receiving the email from Pankratz, Woiceshyn telephoned, and emailed, Stephen Vanderhorst of LEX (“Vanderhorst”) to ask if LEX could register the LEX Report so that NRH could register an RSC. According to Woiceshyn, Vanderhorst indicated that he did not have the necessary certification to register an RSC and the person with the qualifications was not available.
[40] Vanderhorst is no longer with LEX and his evidence is not before the court. Also, if he made any notes related to the Lands or to his communications with NRH, his notes are no longer available as they were destroyed when LEX moved offices.
[41] Pankratz and Woiceshyn acknowledge that neither of them disclosed to Hoffbauer or Vanderhorst that NRH was relying on the LEX Report or that, at the time of their emails and telephone call to LEX, NRH was still in a conditional period under the APS.
[42] At 3:23 p.m. on June 17, 2016, Vanderhorst responded to Woiceshyn’s email. He advised her that LEX would not be able to assist NRH with the RSC. According to the property registration information, title to the Lands was registered to NRH at 2:51 p.m. on June 17, 2016. Thus, Vanderhorst’s email was sent after closing.
Events After NRH’s Purchase
[43] On June 20, 2016, Pankratz contacted EXP to ask what it would charge to register the LEX Report or an RSC on title to the Lands and that if EXP had to conduct a peer review (presumably of the LEX Report), to provide its cost for that service. EXP responded that, prior to registering an RSC, EXP would need to reproduce a Phase I ESA report that was compliant with “the more stringent O. Reg 153/04 standard” than was used to prepare the LEX Report which “was written to the less stringent CSA Z768-01 standard and did not appear to have been completed by a qualified person (P. Eng or P. Geo.)” [^2].
[44] EXP’s estimated its cost to complete a Phase I ESA to the O. Reg 153/04 standard would be $3000 + HST, plus an additional $2000 + HST to register the RSC. NRH retained EXP to do that work.
[45] On September 30, 2016, EXP provided NRH with its Phase I ESA report. It identified various areas of possible sources of contamination of the Lands, consequent to the historical use of the Property as an orchard; for a rail line; the fire in 2015 [that precipitated the sale of the Lands]; and the use of imported fill, brought in after the church building was demolished following the fire. None of these risks was identified in the LEX Report.
[46] NRH also retained EXP to undertake a Phase II ESA assessment and report, which confirmed that the presence of contaminants in the Lands required remediation. NRH completed the remediation, which included removing 5686 tonnes of soil from the Lands.
The APS
[47] The terms of the APS are relevant to the chronology of events.
[48] Under the APS, the Church agreed to sell the Lands for $1,050,000.000. The APS was irrevocable by NRH until 4:30 on June 6, 2016, and subject to funding by Council of the Regional Municipality of Niagara by June 10, 2016. The closing date was set for June 17, 2016.
[49] Paragraph 22 of the APS contains representations and warranties from the Church, including that the Church represents and warrants to NRH that to the best of its knowledge information and belief:
(a) there has been no release, deposit, spill, disposal, leakage or discharge of any contaminant, waste, pollutant, or hazardous substance on, from, under or to the Lands;
(b) there are no facts or conditions relating to the Lands that could give rise to any remedial obligations, claims, demands or orders;
(c) the Lands have not been used as a waste disposal site; and
(d) no storage tanks are or have been on, at or under the Lands.
[50] Paragraph 23 reads:
The Owner [the Church] shall provide NRH with all consents or authorizations (written or otherwise) necessary or desirable to enable NRH to obtain information as NRH may consider necessary or advisable in determining the environmental condition of the Lands within three (3) days after the request therefor.
[51] On this motion, there is no evidence that such a request was made.
[52] Among other things, paragraph 24 of the APS entitles NRH to rescind the APS at its sole option if, on the closing date, NRH is not satisfied with the results of any environmental test or any other examination permitted by paragraph 25.
[53] Paragraph 25 of the APS grants NRH the right of entry onto the Lands from the date of the acceptance of the APS “for the purposes of inspection, survey, geo-technical examinations, performing environmental testing and all such further testing as it deems necessary to determine the suitability of the site for its intended uses as a multi- unit residential building...including, but not limited to, obtaining soil samples and drilling test holes”.
[54] Paragraph 29 of the APS provides that the APS “constitutes the entire Agreement between the Owner [the Church] and NRH and there are no representations, warranties, collateral agreements or conditions affecting this Agreement or the Lands other than as expressed herein in writing.”
The Statement of Claim
[55] On February 23, 2018, NRH issued a claim against LEX and the Church. NRH asserts, among other things, that LEX is liable to NRH for negligent misrepresentation in that:
(a) LEX owed a duty of care to NRH in its preparation of the LEX Report;
(b) LEX breached its duty to conduct the LEX Report with the care and skill expected of a reasonably competent environmental assessment consultant;
(c) that LEX, in fact, knew that NRH was relying on the LEX Report or that Lex ought to have known that NRH or any potential purchaser would rely on the LEX Report; and
(d) that NRH relied on the LEX Report and suffered damages by reason of the negligent misstatement(s) in the LEX Report.
[56] In its statement of defence and crossclaim against the Church, among other things, LEX:
(i) denies that it was negligent;
(ii) asserts that pursuant to the Standard Conditions that form part of the Proposal, the LEX Report was not to be provided to any third party without LEX’s written consent and that the Church gave a copy of the LEX Report to NRH without LEX’s knowledge and without seeking or obtaining LEX’s consent;
(iii) states that the LEX Report contains a disclaimer noting that it was prepared for the benefit of Leighfield and that LEX accepted no responsibility for damages suffered by a third party who used or relied on the LEX Report;
(iv) states that LEX was never asked for a reliance letter from NRH, who, through the clear wording in the disclaimer, had notice that LEX had limited any duty of care or liability; and
(v) denies that NRH relied, or reasonably relied, on the LEX Report or suffered damages as a result.
[57] In its defence and crossclaim, the Church denies liability to NRH on the basis that it retained and relied upon LEX to perform a Phase I ESA.
The LEX Report
[58] The Disclaimer Clause is found at Section 16.0 of the LEX Report, and reads:
16.0 DISCLAIMER
This report is prepared exclusively for the purposes, project and site location outlined in the report. The report is based on information provided to, or collected and/or obtained by LEX as indicated in the report, and applies solely to site conditions existing at the time of sampling. LEX's report represents a reasonable analysis and interpretation of available information within an agreed scope of work, schedule and budget.
LEX prepared this report for the sole benefit of Bill Leighfield.; it reflects LEX's best judgement in light of the information available at the time of preparation. Any use which a third party makes of this report, or any reliance on or decisions made based on it, are the responsibilities of such third parties. LEX accepts no responsibility for damages, if any, suffered by any third party as a result of decisions made or actions taken based on this report. (emphasis added),
Evidence on this Motion
[59] From the cross-examination of Woiceshyn, evidence was given that:
(1) Niagara Regional Council approved the purchase of the Lands on May 19, 2016;
(2) NRH had familiarity with retaining environmental consultants. NRH did not retain LEX, nor was NRH aware that LEX was being retained by the Church to the LEZ Report, and NRH had no involvement in the Church’s decision as to which consultant to retain;
(3) the Church provided NRH with the LEX Report on April 8, 2016;
(4) Woiceshyn read the Disclaimer Clause and understood that it said that the only person entitled to rely on the LEX Report was Leighfield[^3];
(5) NRH did not request a reliance letter from LEX;
(6) apart from the voicemail message Woiceshyn left with LEX in early June 2016, which was not returned, the first communication that NRH had with LEX was on June 14, 2016. The purpose of this contact was to ask if NRH could retain LEX to register the LEX Report and/or an RSC on title;
(7) LEX advised NRH that it could not register the LEX Report;
(8) in Woiceshyn’s communications with LEX, she did not disclose that NRH was in a conditional period pursuant to the APS;
(9) Woiceshyn acknowledged that she was aware that when consultants are retained, their contracts typically have conditions attached to them;
(10) NRH has no evidence that the Church sought permission for NRH to rely on the LEX Report;
(11) the LEX Report was provided to NRH’s legal [real estate] counsel on June 14, 2016. NRH has refused to provide produce its lawyer’s purchase file or reporting letter on the purchase[^4];
(12) LEX had no knowledge of NRH, nor did LEX grant permission to the Church to provide NRH with the LEX Report; and
(13) in providing the LEX Report to NRH, without seeking or obtaining LEX’s written permission to do so, the Church breached the terms of the Proposal.
[60] When Kolodziej was cross-examined on his affidavit, he was asked about paragraph 5. of the XCG Report, entitled “Limitations”, which reads, in part, as follows:
…This letter is prepared for the sole benefit of the Ross & McBride LLP and may not be relied upon by any other person or entity without the written authorization of XCG Consulting Limited. Any use or reuse of this document by parties other than those listed above is at the sole risk of those parties.
[61] Set out below are questions asked of and answers given by Mr. Kolodziej taken from the transcript[^5]:
Q. So I take it that the inclusion of limiting conditions in an environmental consulting report is an industry standard, in your experience?
A. Yes, it is.
Q. And this is the way that the environmental consulting industry limits its liability to third parties that don't have a contract with it?
A. This is how XCG limits liabilities. I think it's used by everybody else
to an extent, yes.
Q. And in XCG's report, you provide in the limiting conditions that the letter is prepared for the sole benefit of Ross & McBride LLP and may not be relied on by any other person or entity without the written authorization of XCG Consulting Limited?
A. That's correct.
Q. And any use or reuse of the document by parties other than those listed above is at the sole risk of those parties. So your expectation would be that no other party would seek to rely on this report unless they specifically contacted XCG to request permission to use the report?
A. That's correct.
[62] Mr. Kolodziej was also asked about the Disclaimer Clause. The following is excerpted from the transcript[^6]:
Q. And in terms of the LEX report, if we go to the disclaimer -- the LEX report being Exhibit E to Ms. Woiceshyn's affidavit –
A. Okay.
Q. It provides under Section 16, "Disclaimer," in the second paragraph, that any use which a third party makes of this report or any reliance on or decisions made based on it are the responsibilities of such third parties. LEX accepts no responsibility for damages, if any, suffered by any third party as a result of decisions made or actions taken based on this report.
You'll agree with me, Mr. Kolodziej, that this disclaimer is reasonably similar to the disclaimer contained in your own report, yes?
A. Yes.
Q. And that this disclaimer is also consistent with industry standards?
A. Yes.
[63] The evidence of NRH’s expert is consistent with the position taken by LEX in this action and on this motion, that the Disclaimer Clause is standard in the industry and intended to limit liability to third parties.
[64] On this motion, NRH takes the position that the record before the court is incomplete in that there is no evidence from Vanderhorst, and that LEX’s internal notes and records were destroyed. NRH asserts that LEX is liable for spoliation in that it deliberately destroyed records after the litigation began and that the court should draw the adverse inference that the documents that were destroyed would have been detrimental to LEX in the litigation.
[65] LEX’s response to NRH’s assertions is that: Vanderhorst no longer works for LEX; Hoffbauer also signed the LEX Report and was an informed and appropriate witness, who was produced for cross-examination; and, any internal records that were destroyed were lost or destroyed through inadvertence, when LEX moved offices, such that the principle of spoliation does not apply.
Findings of Fact
[66] While I recognize that at trial each party might choose to lead evidence that was not put before the court on this motion, on the evidentiary record on this motion, and without recourse to the enhanced fact-finding powers available to the court under r.20.04 (2.1), I am able to make the following findings of fact:
NRH did not succeed in connecting with anyone at LEX until June 14, 2016, two days before the closing of the purchase of the Lands;
The Church did not consult with NRH as to who to it chose to complete a Phase I ESA, and NRH had no input into the Church’s choice of LEX;
When the Church provided NRH with the LEX Report, it did so without LEX’s knowledge or permission, and in violation of the Proposal;
At no time prior to the completion of the purchase of the Lands was LEX told that NRH was relying in any way upon the LEX Report;
Until June 14, 2016, LEX did not know that that the Church had provided NRH with a copy of the LEX Report;
There is no evidence that LEX knew that NRH was relying on the LEX Report in its purchase of the Lands;
At no time did NRH tell LEX that it was relying on the LEX Report or that the closing of the purchase was June 17, 2016, and that up to that date, NRH was able to rescind the APS (i.e. the “conditional period”);
NRH was aware of the LEX Report prior to entering into the APS but makes no mention of it in the APS, which, at paragraph 29, contains an “entire agreement” clause;
NRH was aware of and understood the Disclaimer Clause, by which LEX makes it clear that no third party may rely upon the LEX Report without the written permission of LEX;
The XCG Report contains a disclaimer clause similar to the Disclaimer Clause, the wording of which, Kolodziej testified, was in keeping with industry standards;
NRH never asked for LEX’s permission to rely on the LEX Report;
On June 14, 2016, some three days prior to closing, NRH requested LEX to register the LEX Report and/or an RSC on title, for which NRH expected to be charged a fee. LEX declined that retainer and never gave permission for NRH to use the LEX Report in any way; and,
There was no necessity for NRH to rely on the LEX Report: the APS granted NRH full access to the Lands, a right which NRH exercised so that EXP could conduct a geotechnical site investigation, and NRH could have obtained its own Phase I ESA.
[67] LEX submits that the EXP Report flagged a potential concern that some fill on the Lands “may be contaminated by toxic/hazardous waste” and had not been tested and that “a potential hazard study can be undertaken if requested.” In her evidence, Woiceshyn said she viewed EXP’s comments that the fill could be tested as EXP “looking for more business”.[^7]
The Law
Summary Judgment
[68] Rule 20.04(2)(a) of the Rules of Civil Procedure provides that the court shall grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.
[69] As set out in Hryniak v. Mauldin,[^8] there will be no genuine issue requiring a trial:
…when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.”[^9]
[70] To be appropriate, summary judgment must provide a “fair and just adjudication” that allows the judge to “find the necessary facts and resolve the dispute. [T]he standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.”[^10]
[71] Rule 20.04(2.1) of the Rules of Civil Procedure sets out the powers of the court on a motion for summary judgment:
(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
(1) Weighing the evidence.
(2) Evaluating the credibility of a deponent.
(3) Drawing any reasonable inference from the evidence.
[72] Hyrniak offers a “roadmap” for a summary judgment motion, at para. 66:
On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interests of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
[73] The principles set out in Hyrniak governing summary judgment motions were considered by the Court of Appeal in Broadgrain Commodities Inc. v. Continental Casualty Company, 2018 ONCA 438), at para 7:
On a summary judgment motion the parties are expected to put their best foot forward and the court will assume that all necessary evidence has been tendered. A motion judge is entitled to presume that the evidentiary record is complete and there will be nothing further if the issue were to go to trial. A motion judge is not required to resort to the summary judgment enhanced powers to remedy a party’s evidentiary shortcomings. (All citations omitted).
[74] NRH submits that if LEX is successful, the court would be granting partial summary judgment, which run counter to the principles set out by the Court of Appeal for Ontario in Butera et al v. Chown, Cairns LLP et al, 2017 ONCA 783.
[75] At para. 34 of Butera, the Court states about partial summary judgment that it:
“...should be considered to be a rare procedure that is reserved for an issue or issues that may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost-effective manner. Such an approach is consistent with the objectives described by the Supreme Court in Hryniak and with the direction that the Rules be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.”
[76] Later decisions of this court have applied the above principles. In reference to motions for partial summary judgment, in Nadeau v CBRE Limited, 2020 ONSC 1150, at para. 74, Emery J. stated:
These cases were reviewed by Sanfilippo J. in Joroga Real Estate Ltd. [74] v. State Farm Fire and Casualty Co., 2019 ONSC 2730. After reviewing these cases along with Butera and other appellate decisions where the court did not uphold partial summary judgment, Sanfilippo J. captured the distinction concisely at para. 34:
[34] The cases where partial summary judgments have been upheld have all shared certain common elements. First, the partial summary judgment resolved a discrete, standalone issue that could be severed from the other claims or parties in the surviving case. Second, the motion was capable of being adjudicated on factual findings that did not intersect or overlap with the factual findings required to determine the issues left for trial, on an evidentiary record that reflected the evidence expected at trial, such that there was no risk of duplication or inconsistent findings. Third, the summary motion could be dealt with expeditiously and in a cost effective manner and, fourth, the motion served the overarching objective of advancing the litigation as a whole.
[77] I repeat and adopt the above comments of Emery J. and the analysis of Sanfilippo J.
[78] On this motion, LEX seeks an order dismissing the action in its entirety as against it, including the Church’s crossclaim. LEX submits that this court need not determine whether LEX was negligent but, rather, whether the Disclaimer Clause is sufficient to protect LEX from liability to third parties. The Church has taken no position on this motion and, as drafted, its crossclaim can succeed only if LEX is found liable to NRH, as a joint and several tortfeasor.
Disposition: Summary Judgment is Appropriate
[79] In my view, summary judgment is appropriate in this case because:
(1) the determination of LEX’s liability is a “discrete, standalone issue” that is capable of being severed from NRH’s claim against the Church;
(2) for similar reasons, the facts that apply to a determination of LEX’s motion – whether the Disclaimer Clause protects it from NRH’s claim – does not intersect or overlap with the factual findings that may need to be made to determine the Church’s liability to NRH;
(3) the two-day hearing on this motion for summary judgment, which can resolve the claim against one defendant in its entirety, is more effective than a lengthy trial which, in this case, would require expert evidence on the standard of care that applied to the LEX Report; and
(4) determining NRH’s claim against LEX on this motion, will serve the overarching objective of advancing the litigation as whole: the issues left to be determined at trial would be limited to Church’s liability, if any, to NRH, and the quantification of NRH’s damages.
[80] Support for LEX’s position that this is an appropriate case for summary judgment can also be found in in Extreme Venture Partners Fund LLP. V. Varma, 2019 ONCA 446[^11], at para. 9, at which the Court stated:
The appellants argue that this was not a proper case for partial summary judgment. This was not a partial summary judgment as the claim against the respondent was dismissed in its entirety. The appellants’ claims against the other defendants did proceed to trial but, as the claim against the respondent could be determined on a discrete legal issue pertinent only to the liability of the respondent, the motion judge did not err in dismissing the claim on that basis.
[81] For the reasons set out above, I conclude that LEX’s motion is appropriately brought and heard by way of summary judgment.
Spoliation and Adverse Inference
[82] The following is excerpted from paragraph 73 of NRH’s factum, which relates to NRH’s claim of spoliation and the inference that should be drawn:
A finding of spoliation requires four elements to be established on a balance of probabilities:
the missing evidence must be relevant;
the missing evidence must have been destroyed intentionally;
at the time of destruction, litigation must have been ongoing or contemplated; and
it must be reasonable to infer that the evidence was destroyed in order to affect the outcome of the litigation.
[83] NRH submits that Hoffbauer’s evidence was that his and Vanderhorst’s notes from interviewing Leighfield and other individuals for the Phase I ESA were probably destroyed or disposed of when LEX moved offices in June 2017. NRH submits that when the notes were lost or destroyed, LEX was on notice of NRH’s claim and that Hoffbauer and Vanderhorst’s notes are relevant and would reasonably be expected to include additional information as to the purpose of the LEX Report and its intended use.
[84] NRH asserts that “LEX mishandled the documents in this file, resulting in their destruction or disposal” and submits that LEX either “intentionally destroyed the relevant evidence from its NRH file or was careless in allowing it to be disposed during its move” and that the court should draw an inference that the destroyed documents would have been unfavourable to LEX and would have supported the position taken by NRH on this motion.
[85] LEX submits that the evidence does not meet the test as articulated above: that there is insufficient evidence to find that the evidence was intentionally destroyed in order to affect the outcome of the litigation.
[86] I accept LEX’s submissions.
Disposition: Spoliation not Established
[87] If NRH believed the evidence of what was discussed between LEX and the Church to be relevant, it was open to NRH to examine a representative of the Church. However, on this motion, there is no evidence from the Church. Secondly, as explained in greater detail below, what LEX may have known about the purpose of the Phase I ESA is not determinative: I find that LEX had a right to limit its liability by way of the Disclaimer Clause and I find no basis in fact, or law, to interfere with that right.
Duty of Care
[88] There was no contract between LEX and NRH, whose claim is based in negligence. For it to succeed in its claim against LEX, NRH must establish both that LEX owed it a duty of care and that the duty was not effectively limited or waived by the Disclaimer Clause.
[89] That issue was addressed in Wolverine Tube (Canada) Inc. v. Noranda Metal Industries Ltd., 1994 CanLII 7346 (ON SC), affd. 1995 CanLII 785 (ON CA), a case referred to by both parties. The facts in Wolverine are strikingly similar to the facts in this case.
[90] The plaintiff, Wolverine, sued Arthur D. Little of Canada, Limited (“Little”) alleging that Little was negligent in completing environment compliance audits for Little’s client, Noranda Metal Industries Ltd. In the course of negotiating a sale of its properties, Noranda showed the Little reports to Wolverine. Wolverine had no dealings with Little, who had no knowledge of the sale to Wolverine until years later. Similar to the LEX Report, Little’s reports contained a disclaimer clause stating that Little accepted no responsibility for damages suffered by reliance on the report by any third party.
[91] Little moved for summary judgment to dismiss the action against it. For the purposes of Little’s motion, it was agreed that the court could assume that the Little reports contained negligent misstatements. The issue before the court was, as here, whether Little’s disclaimer clause excluded the imposition of a duty of care on Little. The motions judge determined that it did, and dismissed the action against Little. On appeal, the court upheld the motions judge’s decision, finding that he was correct to determine the issue on a motion for summary judgment and to dismiss the claim against Little:1995 CanLII 785 (ON CA).
[92] The Court of Appeal for Ontario adopted the analysis made by the motions judge, who had applied the principles found in Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465, 2 All E.R. 575 (H.L.), which remains a leading case on liability for negligent misstatement.
[93] The factual starting point on the motion judge’s decision is found at para. 12:
(a) the parties to the action are commercially sophisticated entities who knew or should have known what they were doing when they entered into the transactions at issue; and
(b) there was no privity of contract between Wolverine and Little so that any liability to Wolverine by Little arises in negligence.
[94] Similarly, in this case, the evidence supports a finding that each of NRH, the Church, and LEX, are sophisticated entities who knew or should have known what they were doing when they entered into the subject transactions; and, there is no privity of contract between NRH and LEX.
[95] The motions judge also considered Edgeworth Construction Ltd. v. N.D. Lea & Associates, 1993 CanLII 67 (SCC), [1993] 3 SCR 206, a case in which the Court found that a duty of care was owed by the defendant to an unknown third party. In Edgeworth, the plaintiff claimed to have lost money on a construction project because of errors in the specifications and construction drawings prepared by the defendant. The plaintiff sued the defendant on the basis of negligent misrepresentation.
[96] The Supreme Court of Canada overturned the lower courts’ dismissals of the action, and determined that, in the absence of a disclaimer clause, which would have protected the defendant engineering firm from liability to third parties, the firm was liable in tort.
[97] In Edgeworth, the Court cited both Hedley Bryne and its own decision in Haig v. Bamford, 1976 CanLII 6 (SCC) and stated;
Liability for negligent misrepresentation arises where a person makes a representation knowing that and other may rely on it, and the plaintiff in fact relies on the representation to its detriment.
[98] On the facts before it, the Court found that the engineers undertook to provide information for a tender package which was to be used by a definable group of persons with whom the engineers had no contractual relationship, and the engineers knew that the purpose of their information was to allow tenders to prepare a price and that reliance upon this information was reasonable and foreseeable.
[99] The Court then considered whether the engineering firm could claim the benefits of the disclaimer clause inserted by the province (with whom the plaintiff had contracted), which made it clear that the province did not assume the risk of error in the engineering firm’s work. The Court concluded that the engineering firm was responsible for its own misrepresentations, knowing that they would be relied upon, and “in the absence of any disclaimer of responsibility.” The Court stated that “as a matter of policy, good practical and economic sense required that the responsibility for the accuracy of the design be placed on the shoulders of the design engineering firm, assuming reasonable reliance and barring disclaimers”. (emphasis added).
[100] The appellate court in Wolverine, quoting from McLachlin J. in Edgeworth, provided a clear statement of the basis on which liability for misrepresentation is found and escaped:
[McLachlin J.] The responsibility of the engineering firm arises from its own misrepresentation, coupled with the knowledge that contractors will be relying on it and acting on it without practical opportunity for independent inquiry, in the absence of any disclaimer of responsibility.
McLachlin J.'s statements at pp. 217 and 220 also indicate that disclaimer clauses have the effect of avoiding liability to third parties:
[McLachlin J.] Moreover, the engineering firm, unlike the employees in London Drugs [London Drugs Ltd v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299], could have taken measures to protect itself from the liability in question. It could have placed a disclaimer of responsibility on the design documents.
[101] In upholding the motion judge’s decision, the Court of Appeal found that Little did not owe a duty of care to Wolverine because:
(1) The Little reports contained a disclaimer of liability to third parties. The disclaimer appeared on each report, and the evidence showed that Wolverine read the disclaimer and obtained legal advice on its meaning;
(2) Noranda was under a contractual obligation not to use the Little reports without Little’s written permission; and
(3) The Little reports were in Wolverine’s hands only because Noranda, without Little’s knowledge or consent, acted in breach of its contract with Little.
[102] The Court also found that, while the language in the disclaimer clause was broad enough to prevent the assumption of a duty of care to Wolverine and to preclude Wolverine from substantiating a claim in negligence against Little, the fact that the reports were given to Wolverine without Little’s knowledge or permission provided additional justification for a finding that a duty of care did not arise on the facts.
[103] The Court of Appeal upheld the decision of the motions judge that there was no genuine issue for trial.
[104] Wolverine and Edgeworth both stand for the principle that a disclaimer clause can extinguish any duty of care and defeat a claim in negligence, even when the plaintiff establishes actual negligence.
[105] It is difficult to imagine two cases whose facts could be more similar than those of Wolverine and the case before this court.
[106] The impact of a disclaimer clause contained in a Phase I ESA was recently considered in Community Mental Health Initiative Inc. v. Summit Lounge Ltd., 2014 NLCA 42 (“Stantec”).
[107] The language of the disclaimer clause in Stantec[^12] was substantially the same as that used in the Disclaimer Clause. Similar to the outcome in Wolverine, in Stantec the motions judge granted summary judgment, dismissing the claim brought by the third party purchaser against the consultant who had prepared a Phase I ESA report for the vendor.
[108] The facts in Stantec differ from the facts in this case. In Stantec, the vendor was contractually obligated to provide the purchaser with a Phase I ESA report and Stantec was told that its report was to facilitate the sale to an identified vendor.
[109] However, the disclaimer clause in Stantec is similar to the Disclaimer Clause and provided that: 1) third parties were barred from relying on Stantec’s report; 2) the report was prepared for the sole benefit of the vendor; 3) the report was not to be used by any other person without the written consent of the vendor and Stantec; and, 4) Stantec accepted no responsibility for damages suffered by any third party as a result of a decision made or actions taken based on the Stantec report.
[110] Notably, even though Stantec knew that the purpose of its Phase I ESA was to facilitate the sale of the property and knew who the buyer was, the court concluded that Stantec was entitled to rely on disclaimer clause, pursuant to Stantec’s agreement with its client.
[111] NRH asks the court to consider Terpstra Farms Ltd. et al v. Argue & Associates et al, 2010 ONSC 471, as providing support for a finding that LEX owes a duty of care to NRH.
[112] Terpstra is an endorsement made by the trial judge respecting the legal issues to be determined prior to the delivery of closing addresses to the jury. The claim related to damages for negligent construction of a barn. However, the endorsement makes no mention of a disclaimer clause, the impact of which is a key issue on this motion. I conclude that Terpstra is of little assistance on this motion.
[113] NRH submits that it is important to determine what LEX knew when it prepared the LEX Report. NRH submits that Wolverine is distinguishable from the case before this court in that, unlike in Wolverine, in this case, LEX was aware that the LEX report was prepared for the purposes of a sale and knew or ought to have known that its findings would be relied upon by a third party. I do not accept those submissions.
[114] Firstly, the evidence does not clearly establish that LEX knew why the Phase I ESA was required; neither reason given in the LEX Report for the Phase I ESA was accurate. More importantly, the evidence clearly shows that LEX was not aware that NRH was relying on the LEX Report and, as it turns out, NRH was not able to rely on the LEX Report for the RSC it required because, according to EXP, the LEX Report was not prepared in accordance with the appropriate standards. Finally, even if it could be assumed that LEX knew that the LEX Report was being used for the sale of the Lands – as was the case in Stantec – that would not preclude LEX from being able to limit its liability.
[115] NRH asks this court to consider and apply the principles found in Transamerica Life Insurance Co. of Canada v. Hutton, 2000 CarswellOnt 2090 (SCJ).
[116] Briefly, the facts in Transamerica relate to a claim brought on the basis of fraudulent misrepresentations respecting the income and market value of the mortgaged property, on which the plaintiff/lender relied. The defendant sought to rely on a disclaimer clause. The court held that the clause was insufficient to “absolve’ the defendant from a duty of care. In reaching that conclusion, the court noted that the defendant not only knew that its report was to be provided to the lender for the purpose of financing, the defendant’s cover letter was addressed to the lender. The court found that its facts were distinguishable from those in Wolverine in that Transamerica was not, in essence a “third party” but was, in fact, a party for whom the report was intended.
[117] I find that the facts in Transamerica are distinguishable from the facts in this case.
[118] LEX asks the court to consider and apply Kokanee Mortgage MIC Ltd. v. Burrell, 2018 BCCA 151, a case involving a claim brought by a lender against an appraiser for negligent misrepresentation.
[119] The appraisers moved successfully for summary judgment to dismiss that action on the basis that the appraisal was prepared for the borrower, not the lender, and that the disclaimer clause in the appraisal excluded liability to anyone else without the appraiser’s consent.
[120] In Kokanee, as in this case, the consultant’s report came into the possession of the plaintiff without the consultant’s knowledge or consent. In part, the court’s determination of whether the disclaimer clause excluded liability was based on an assessment of whether the plaintiff reasonably relied on the appraisal, in the face of the disclaimer clause. At paragraph 38, the court states:
[38] At this point, the case under appeal falls within the “more typical situation in
which the recipient of the information decides to rely on it rather than going to the
trouble or expense of obtaining it elsewhere”. Mr. Carson was fully aware of the disclaimer. He chose to rely on the appraisal regardless, based on the fact that its
intended use was for first or second mortgage financing. He was not captive to the
opinion expressed by Coast Appraisal and could have chosen to commission his
own appraisal. Alternatively, if he wanted to rely on Mr. Burrell’s appraisal, he could have respected the terms of the disclaimer and sought consent. He did not do so. Mr. Carson appears to have made a decision based on business efficacy, rather than seeking alternative information or paying for the right to rely on the opinion at hand. To treat Kokanee’s reliance as reasonable in these circumstances would be to permit Kokanee, through its otherwise reasonable reliance, unilaterally to impose a practically non-disclaimable duty on Coast Appraisal.
[121] Without adopting the analysis undertaken by the Court in Kokanee, the court’s comments above are consistent with key aspects of the evidence before the court on this motion. Among other things, there is no evidence that, had it chosen to do so, NRH was prevented from commissioning its own Phase I ESA prior to closing or asking LEX for permission to rely on the LEX Report. The APS not only did not require the Church to obtain a Phase I ESA but, by its terms, it permitted NRH to conduct its own investigation of the Lands, which NRH did, when it retained EXP to undertake a geotechnical investigation of the Lands.
Dismissal of the Church’s Crossclaim
[122] The Church’s crossclaim against LEX is for contribution and indemnity. Pursuant to s. 2. of the Negligence Act, R.S.O. 1990, c. N.1, a claim for contribution and indemnity may be made “from any other tortfeasor who is, or would if sued have been, liable in respect of the damage.”.
[123] If LEX is not found liable to NRH, then the Church’s crossclaim against LEX must also fail: see Dominion Chain Co. v. Eastern Construction Co., 1978 CanLII 39 (SCC), [1978] 2 S.C.R. 1346; see also, Hiram Walker & Sons Ltd. v. Shaw, Stone & Webster Canada L.P., 2011 ONSC 6869 at paras.44 and 63-65; and Nadeau v. CBRE Limited, 2020 ONSC 1150 at paras. 84-85.
Analysis and Conclusions
[124] While both parties have identified evidence that was not before the court on this motion, each had recourse available to them to obtain the “missing” evidence either through examination of witnesses and/or motions to obtain production of documents. On this, or any, motion for summary judgment, the court is entitled to assume that the parties have put their best foot forward and that the evidence led on the motion will be the evidence at trial.
[125] LEX submits that the court should draw an adverse inference from NRH’s refusal to produce its lawyers file or reporting letter on NRH’s purchase of the Lands, to which NRH submits that LEX could have brought a motion for those records. Both positions have merit. While it might be appropriate to infer that NRH’s refusal to produce even its lawyer’s reporting letter on the purchase, would allow me to infer that the evidence in that file would not be helpful to NRH, I find that I need not do so.
[126] The admissions and undisputed facts allow me to confidently conclude that there is no genuine issue requiring a trial as concerns NRH’s claim against LEX. I find that this process allows the court to fairly and justly adjudicate that issue and is a timely, affordable, and proportionate way to do so.
[127] The evidence before the court on this motion, and the application of the law to that evidence, is sufficient to permit the court to answer the following issues identified by NRH, which are determinative of the motion:
- Has LEX established that there is no genuine issue requiring a trial?
Answer: Yes.
- Did LEX provide sufficient evidence to allow the Court to make the necessary findings of fact?
Answer: Yes.
- Given the other facts and circumstances of this case known to date, does the Disclaimer Clause exclude the imposition of a duty of care by LEX to NRH?
Answer: Yes.
Disposition: Motion Granted
[128] For the reasons set out above, LEX’s motion for summary judgment is granted and the action is dismissed as against it. Also, as explained above, having dismissed the action as against LEX, the Church’s crossclaim against LEX is also dismissed.
Costs
[129] As the successful party on this motion, it is reasonable for LEX to expect to be awarded its costs of this motion and the action.
[130] The parties have delivered their Costs Outlines, which will not be read by the court until the release of this decision.
[131] I would urge the parties to attempt to reach an agreement on costs. However, if they are unable to do so, then costs submissions shall be made as follows:
Within 21 days of the date of the release of this decision, LEX shall serve its written costs submissions, not to exceed three pages, double-spaced, together with a draft bill of costs, and copies of any relevant offers to settle upon NRH and, if LEX seeks any costs from the Church, it shall also serve the Church. LEX’s costs submissions are to be submitted to me by filing them, via email, through the Trial Co-ordinator.
Within 14 days of the service upon it of LEX’s costs submissions, NRH, and, if applicable, the Church, shall serve and file their responding costs submissions, consisting of no more than three pages, double-spaced, together with their draft bill of costs, and copies of any relevant offers to settle.
If LEX seeks to deliver reply submissions, it may do so within 7 days of service upon it of the costs submissions served by NRH and, if applicable, by the Church. Reply submissions shall not exceed one page in length.
[132] If no submissions are received within 35 days of the date of the release of these reasons, the parties shall be deemed to have resolved the issue of the costs and costs will not be determined by the court.
L. Sheard J.
Date: June 7, 2022
Carleton Untied Church, et al., 2022 ONSC 3413
COURT FILE NO.: CV-18-64583
DATE: 20220607
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Niagara Regional Housing
Plaintiff
- and -
Trustees of Carleton United Church and Bonnie Driver and Harland Young and Ross McCarthy and Ray Marshall and Jane Doe and Bill Leighfield and Carleton United Church and the United Church of Canada L’Eglise Unie Du Canada and Niagara Presbytery of the United Church of Canada and Hamilton Conference of the United Church of Canada and LEX Scientific Inc.
Defendants
REASONS FOR JUDGMENT
L. Sheard J.
Released: June 7, 2022
[^1]: See, the Proposal.
[^2]: Woiceshyn Affidavit, at Ex. “K”.
[^3]: On this motion, LEX acknowledges that Leighfield was the contact person for the Church and that the LEX Report was prepared for the Church.
[^4]: LEX submits that the court should draw an adverse inference from this refusal.
[^5]: At Caselines pp. B-1-683-684.
[^6]: At Caselines pp. B-1-685- 686.
[^7]: Woiceshyn transcript, at Caselines Master B-1-228.
[^8]: 2014 SCC 7, [2014] 1 S.C.R. 87.
[^9]: Ibid, at para. 49.
[^10]: Ibid, at para. 50.
[^11]: See also Malik v Attia, 2020 ONCA 787 at para. 62; and Feltz Design Build Ltd. v Larson, 2022 ONCA 150, at para. 17.
[^12]: Stantec, at paras. 3-4.