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Newsletter > Spring 1998

1. S.C.C. Rules on Discoverability Rule

The Supreme Court has ruled in Haberman v. Peixeiro et al. that the discoverability principle applies to the two year limitation period under section 206 of the Highway Traffic Act, R.S.O. 1990, c. H.8. Applying the discoverability principle, the court ruled that the limitation period (the time for suit) begins running from the date the plaintiff should have reasonably known that he had sustained permanent and serious injuries.

The facts of the case are interesting in that it was conceded that the plaintiff had suffered a back injury after an initial accident in October 1990. The initial injury was severe enough that the plaintiff remained away from work for a period of 13 months. In January 1992 the plaintiff was involved in a second accident (being the subject of this case) and was diagnosed with soft tissue injuries. Following the second accident the plaintiff was able to work for three months between May and August 1992, but had not worked since. The plaintiff commenced the action three years and nine months after the second accident. Under Section 206(1) of the Highway Traffic Act, any action had to be brought within two years “from the time when the damages were sustained”. The injury also had to meet a “threshold” test under section 266 of the Insurance Act, R.S.O. 1990, c. I.8 before an action could be sustained.

The Ontario Court (General Division) held that it was not open to the Court to apply the discoverability principle because the limitation period applied from the moment the physical injury was sustained.* The Court of Appeal, (1995), 25 O.R. (3d) 1, reversed the trial judge, holding that the discoverability rule was a general rule and not limited to narrow classes of actions.

In dismissing the appeal from the Court of Appeal decision, Major J. for the Supreme Court, assumed that the plaintiff had been reasonably diligent but the plaintiff did not know that the injury met the threshold for an action under Section 266 of the Insurance Act.

The Supreme Court acknowledged that the common law on ignorance and mistake was clear, that the plaintiff need not know the exact extent of the loss for the cause of action to accrue, but held that the starting point of the running of the limitation period did not commence until the plaintiff was aware of damages that constituted “permanent and serious impairment” within the meaning of Section 266 of the Insurance Act.

Since section 266 of the Insurance Act effectively barred actions for recovery in tort unless there was a certain level of physical injury the Supreme Court found that the happening of the injury did not in itself give rise to the cause of action.

The Supreme Court stressed that whatever interests the defendant may have in the application of a limitation period must be balanced against the concern of fairness to the plaintiff who was unaware that his injuries met the conditions precedent to commencement of an action.

Haberman v. Peixeiro et al., (1997) 151 D.L.R. (4th) 429

*The Court had distinguished cases where the plaintiff was under a legal disability.

2. Contributory Negligence

In a landmark decision, the Supreme Court of Canada has removed the maritime contributory negligence bar in Canadian maritime law by expanding the common law. In Bow Valley Husky Ltd. v. Saint John Shipbuilding Ltd. the plaintiff at trial was found to be contributorily negligent for an accident on an oil rig. The trial judge applied Canadian maritime law and held that the plaintiff’s negligence was a complete bar to its claim.

The case involved a fire on an oil drilling rig started by arcing in a heat trace system. The fire caused major damage to the rig. The owner of the rig was contributorily negligent in operating the heat trace system without a ground fault circuit breaker in place. The trial judge held the plaintiff liable for sixty percent of the loss. The trial judge found that the case arose out of negligence at sea and was governed by Canadian maritime law. He precluded the application of the Newfoundland Contributory Negligence Act and made the contributory negligence of the plaintiff a bar to recovery. The claim was dismissed.

The Court of Appeal of Newfoundland agreed with the trial judge that maritime law applied but held that provincial negligence legislation applied to maritime cases in some situations.

The Supreme Court of Canada held that provincial negligence legislation did not apply even, where there was no federal negligence legislation in place. The court held that to apply provincial laws to maritime torts would undercut the uniformity of maritime law. The correct law to apply was the common law principles of Canadian maritime law. The application of this law meant that a plaintiff who was contributorily negligent (even to the extent of only one percent) would be barred from making a claim against a defendant. To avoid this “archaic” principle of law, the Supreme Court of Canada held that this was the appropriate case to make an incremental change to the common law in compliance with the requirements of justice and fairness. “The change is required to keep the maritime common law in step with the dynamic and evolving fabric of our society.”

The court noted that the principle of apportionment of liability for non-maritime torts is universally accepted in every part of Canada and around the world. Contributory negligence may reduce recovery but does not bar a plaintiff’s claim.

Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd. (1997), 153 D.L.R. (4th) 385 (S.C.C.)

3.Investigation Reports- Keeping Privilege

During the course of an investigation into a loss, independent adjusters often prepare a series of reports. These are usually prepared chronologically and are prepared in the same format using subheadings. They often refer to previous reports and there are often enclosures attached.

In virtually every case, these reports are prepared as part of the investigative process. Our Courts have held that these documents are properly not privileged and, therefore, they are producible in any litigation that arises in connection with the loss, including a subrogated action.

Unfortunately, many of these reports contain investigative results, enclosures, and opinions about legal issues that could be critical to any litigation. Because these comments are embodied in a report which is not privileged, there is a very real risk this information will be produced to adverse parties.

There are two things that flow from this. First, the entire problem could be avoided if all investigation conducted after the point where litigation is contemplated by the insurer was contained in a separate report to the insurer’s Counsel. The claim for privilege is enhanced where Counsel actually has retained the independent adjuster for that purpose alone.

Second, any opinions of the independent adjuster or others contained in a producible report almost always create problems at trial. It is possible to deal with the problems created but this represents extra time and expense and there is always the risk a trial judge will draw an adverse inference or conclusion. For example, it is always harder to present a convincing witness where the adjuster, who took a Statement, also indicates he was not too sure if the witness was forthcoming, or points out, with good intention, inconsistencies in the facts.

In the normal course, “investigative” findings are producible. The critical moment is when the insurer recognizes for the first time the possibility of litigation (obviously including subrogation). The insurer must then retain Counsel if it has not already done so. Counsel should then implement appropriate retainers for the insurer if they hope to have any possible success arguing for privilege thereafter.

4. Products Liability: Court Expands Test

In Privest Properties Ltd. et al. v. Foundation Co. of Canada Ltd. et al. the plaintiffs were owner/managers of the Spencer building (“the Building”) which formed part of a retail/commercial complex in downtown Vancouver. The plaintiffs made renovations to the Building between 1973 and 1975. During these renovations, a fireproofing material, Monokote (“MK-3”) was installed. In 1987, while renovating the 3rd and 4th floors of the Building, the MK-3 came to the attention of the Workers’ Compensation Board (“WCB”). The WCB closed the area to unprotected workers. The owners went about removing the MK-3 from the Building. The owners brought an action against the architects who undertook the renovations, the contractors who installed the material and against the manufacturer of the product for the cost of the removal and lost revenue. At trial, the judge dismissed the claim stating that the plaintiffs failed to prove that the material was dangerous.

The key question in the appeal became whether MK-3 was a dangerous product. In order to determine what dangerous meant in a hazardous building products suit, the court referred to Winnipeg Condominium Corp. No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85, which states that “a real and substantial danger” must be shown, that the plaintiff must prove “serious risk to safety” and further that “the danger was substantial and foreseeable.”

The appellate court turned to the decision of Toneguzzo-Norvell (Guardian ad Litem of) v. Burnaby Hospital, [1994] 1 S.C.R. 114, which held that the court must not overrule the trial judge’s decision on a finding of fact, unless there is a “palpable or overriding error.”

The appellants argued that in considering whether MK-3 was a dangerous product, the trial judge looked only at the danger or risk resulting from airborne exposure to the MK-3 and did not consider the harm to workers from exposure to MK-3 when they were involved in maintenance, repairs, or renovation. The appellate court could not determine from the trial record whether the trial judge had in fact overlooked this major aspect of the case. The court stated that it was not its mandate to reweigh the evidence put forward at trial, but rather it was to determine if the trial judge had made a palpable or overriding error in analyzing the evidence. Finding no such error, the court dismissed the appeal.

This case is of particular interest in the area of products liability. In Privest, the court continues to expand upon Winnipeg Condominium Corp. where the court held that the standard for bringing a claim in tort is not shoddy workmanship, but rather the test is whether it was foreseeable that the failure to take reasonable care would create defects posing substantial danger.

Privest Properties Ltd. et al. v. Foundation Co. of Canada Ltd. et al. (1997),143 D.L.R. (4th) 635 (B.C.C.A.)

5. Evidence Admissible Despite Intentional Destruction of Evidence

The British Columbia Supreme Court recently held that evidence obtained through destructive testing was admissible where the “spoliation” of evidence was intentional but was not done with a fraudulent or deliberate intent to suppress the truth. In Dyk v. Protec Automotive Repairs (1997), 151 D.L.R. (4th) 374, the plaintiff’s expert conducted destructive tests on a motor vehicle’s braking system. The vehicle was later destroyed. This deprived the defendants and third parties the opportunity to have alternative tests conducted by their experts. The third party moved for an order excluding the opinions of the expert who conducted the destructive testing. The expert stated that it was not his practice to advise other parties prior to doing similar testing on braking systems.

Burnyeat J. reviewed both American and Canadian jurisprudence in this area. He noted that there were relatively few Canadian cases dealing with the issue of spoliation of evidence. The learned justice concluded that mere negligence in the destruction of evidence is an insufficient basis for drawing an adverse inference or imposing sanctions. He was of the opinion that a party must demonstrate the following factors in order to invoke sanctions:

1. the evidence has been destroyed;

2. the evidence was relevant;

3. legal proceedings were pending; and,

4. the destruction was an intentional act of the party or the party’s agent, indicative of fraud or intent to suppress the truth.

The court also noted the development of the tort of spoliation. In some American jurisdictions, a party prejudiced by the destruction of evidence may sue the party who has created that prejudice through the negligent destruction.

There is not yet a reported Canadian case on this subject. However, Burnyeat J. noted that a recent British Columbia decision refused to strike out a statement of claim which sought damages for the tort of spoliation.

It appears that the parties in this case did not draw the courts attention to the standards provided by the American Society for Testing of Materials which has adopted a standard practice direction [Standard Practice E860-82] providing that any person intending to conduct testing which may preclude or adversely affect further meaningful examination or testing should recommend that other interested parties be given an opportunity to record such testing and to witness and record such tests. It is respectfully submitted that the reasonable standard of practice for engineers and other experts, should require that interested parties be given an opportunity to be involved in destructive testing.

It is clear that this area of law remains unsettled, and will continue to develop in the future. The Dyk decision demonstrates that defendants should take steps as early as possible to assert their right to participate in any destructive testing and avoid prejudice caused by the loss or destruction of evidence. A plaintiff’s failure to preserve evidence in the face of requests from another party will dramatically increase the likelihood of obtaining appropriate sanctions where a party is prejudiced by the loss of evidence or destructive testing.

Where a defendant knows that there is a potential claim, a request should be made for an opportunity to be involved in any such testing. A defendant should formally request the preservation of evidence at the earliest opportunity.

Dyk v. Protec Automotive Repairs (1997), 151 D.L.R. (4th) 374 (B.C.S.C.)

This newsletter is published to keep our clients and friends informed of new and important legal developments. It is intended for information purposes only and does not constitute legal advice. You should not act or fail to act on anything based on any of the material contained herein without first consulting with a lawyer. The reading, sending or receiving of information from or via the newsletter does not create a lawyer-client relationship. Unless otherwise noted, all content on this newsletter (the “Content”) including images, illustrations, designs, icons, photographs, and written and other materials are copyrights, trade-marks and/or other intellectual properties owned, controlled or licensed by Fernandes Hearn LLP. The Content may not be otherwise used, reproduced, broadcast, published,or retransmitted without the prior written permission of Fernandes Hearn LLP.

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