



COURT OF APPEAL FOR ONTARIO

CITATION: Jarbeau v. McLean, 2017 ONCA 115

DATE: 20170213

DOCKET: C61681

Simmons, LaForme and Pardu JJ.A.

BETWEEN

Darren Jarbeau and Lilian Jarbeau

Plaintiffs (Respondents)/
Appellants by Cross-Appeal

and

Ian McLean

Defendant (Appellant/
Respondent by Cross-Appeal

Paul J. Pape, Shantona Chaudhury and Justin H. Nasseri,
    for the appellant

Mark H. Arnold, Chris G. Paliare and Alex Young, for the
    respondents

Heard: September 27, 2016

On appeal from the judgment of Justice R. Dan Cornell of
    the Superior Court of Justice, dated January 21, 2016, and from the costs
    order, dated June 9, 2016, with reasons reported at 2016 ONSC 3789.

Pardu J.A.:

[1]

The respondents, Darren and Lillian Jarbeau, had the misfortune to
    purchase a leaky new home from Thermolith Homes Limited (Thermolith). The
    home did not meet the standards set by Ontarios building code. Their troubles
    might have been avoided if the engineer hired by Thermolith, Larry Nelson, (the
    engineer) had not negligently certified the design and construction of the
    home.

[2]

Unfortunately, the lawyer the Jarbeaus hired to sue those responsible for
    building and selling them a defective home was also negligent. Their lawyer,
    Ian McLean, sued Thermolith, the City of North Bay and Tarion Warranty
    Corporation, but he failed to sue the engineer within the limitation period. Mr. McLean
    negligently advised the Jarbeaus that they did not have a cause of action
    against the engineer because they did not have a contract with him.

[3]

After the Jarbeaus settled the first action, they sued Mr. McLean. The
    claim pleaded against Mr. McLean was that but for his negligence, the
    Jarbeaus would have successfully sued the engineer and recovered all of their
    losses from him. On the eve of trial, Mr. McLean admitted his advice was
    negligent.

[4]

In light of Mr. McLeans admission, the trial of the action against him
    focused on whether his negligence caused the Jarbeaus any damages. Following a
    trial within a trial of the cause of action that could have been brought
    against the engineer, a jury found in the Jarbeaus favour.

[5]

The jury assessed the cost to repair the home at $433,000 and the
    diminution in value of the home because of the defects at $265,000. The jury
    then deducted the $75,000 the Jarbeaus received in the settlement of the first
    action, for a net amount of $190,000.

[6]

The trial judge characterized the cost of repair finding as perverse and
    granted judgment for $190,000, representing the lesser of the cost to repair
    and the diminution of value. Ultimately, he slashed over $100,000 from the
    costs claimed by the Jarbeaus, even though they had bettered a settlement offer
    before trial pursuant to r. 49.10 of the
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194, explaining that the jurys diminution in value finding
    was also perverse.

[7]

Mr. Mclean appeals from the judgment on two grounds:

·

The trial judge erred in his instructions on causation by failing
    to instruct the jury that the Jarbeaus claim should be framed as a claim for a
    loss of the chance to have the engineer present at the settlement table in the
    first action. This would entitle the Jarbeaus to damages in proportion to the
    probability that their action against the engineer would have succeeded  an
    amount that Mr. McLean submits is necessarily less than 100%.

·

The award for diminution in value was perverse, as the jury must
    have attributed zero value to the home and concluded that only the land had
    value, despite the absence of evidence to support this conclusion.

[8]

The Jarbeaus also appeal and seek leave to appeal, on three bases:

·

Neither of the jurys assessments of damages was perverse and the
    trial judge ought to have given judgment for the cost to rebuild the home
    rather than diminution of the value of the home due to the defects.

·

The trial judge erred by refusing to allow the Jarbeaus to
    advance a claim for legal costs incurred in the first action as damages in the
    proceeding against Mr. McLean on the ground it was not pleaded in the statement
    of claim.

·

The trial judge erred by reducing the Jarbeaus claim for legal costs
    in circumstances where they recovered judgment exceeding the amount for which
    they offered to settle pursuant to r. 49.10.

[9]

Neither party is asking for a new trial.

[10]

Mr.
    McLean asks this court to reduce the damages to $50,000 or $60,000 if we agree
    that the jurys assessment of damages on both diminution in value and cost to
    repair was perverse. In the alternative, if this court agrees that the trial
    judge should have framed the Jarbeaus claim as one for the loss of a chance, Mr.
    McLean asks that we reduce the damages by 10-20%. This would reflect the
    contingency that an action against the engineer may not have succeeded or may have
    settled for an amount less than the total loss.

[11]

The
    Jarbeaus ask that we grant judgment for the costs to repair or rebuild, without
    deducting the amount recovered from the parties in the first action because
    those funds were consumed almost entirely by legal fees. They also ask that we award
    them their trial costs pursuant to r. 49.10.

[12]

For
    the reasons that follow, I would dismiss the appeal and allow the cross appeal.

A.

Loss of chance

[13]

It
    is common ground that the jurys verdict means that the jury accepted the claim
    pleaded by the Jarbeaus that but for their lawyers negligence, they would
    have recovered their losses from the engineer.

[14]

Mr.
    McLean submits that the trial judge erred in his instructions on causation:

[T]he fourth element I mentioned to you is causation. For the
    defendant to be liable in damages to the plaintiff it is necessary for the
    plaintiffs to prove that [the engineer] Nelsons conduct caused the plaintiffs
    loss. The test that you should apply is called the quote, unquote but-for test.
    But-for Nelsons conduct would the plaintiffs have suffered any loss? If the
    answer is yes but the plaintiffs would have suffered a loss anyway then Nelsons
    conduct did not cause the plaintiffs damages and the claim in negligence must
    be dismissed. But if on all of the evidence the plaintiffs would not have
    suffered loss but for Nelsons conduct then you must find that Nelson caused
    damages and the defendant, Ian McLean is liable for them. You do not need to be
    satisfied that there was causation on the basis of scientific precision or
    proof. Science may not have an answer, causation is essentially a practical
    question of fact that can best be answered by ordinary common sense on a
    balance of probabilities.

[15]

Mr.
    McLean argues that the trial judge should have structured the Jarbeaus claim
    as one for the loss of the chance to successfully sue the engineer or for the
    loss of the chance of having the engineer at the settlement table. He submits
    that this chance, being hypothetical, must necessarily be valued at less than
    100%. The trial judges charge to the jury improperly invited them to find that
    the Jarbeaus could recover full damages.

[16]

I
    disagree.

[17]

The
    but for test set out in the trial judges charge is the appropriate test for
    causation in negligence in all but rare cases. The test was set out in
Clements
    v. Clements
, 2012 SCC 32, [2012] 2 S.C.R. 181, at para. 8, as follows:

The test for showing causation is the but for test. The
    plaintiff must show on a balance of probabilities that but for the
    defendants negligent act, the injury would not have occurred. Inherent in the
    phrase but for is the requirement that the defendants negligence was
necessary
to
    bring about the injury ― in other words that the injury would not have
    occurred without the defendants negligence. This is a factual inquiry. If the
    plaintiff does not establish this on a balance of probabilities, having regard
    to all the evidence, her action against the defendant fails. [Emphasis in
    original.]

[18]

Mr.
    McLeans submission misunderstands the nature of the Jarbeaus claim. If the
    Jarbeaus claim against the engineer had been litigated, it would have been
    assessed on a balance of probabilities: but for the engineers negligence,
    would they have suffered their loss? If they had persuaded a judge or jury on
    this standard, they would have been entitled to full recovery. Mr. McLeans
    negligent advice precluded them from litigating that claim.

[19]

Fortunately
    for the Jarbeaus, they were able to reproduce the evidence they would have led
    at that unrealized trial through the device of a trial within a trial. In
    doing so, they were able to prove that they would have recovered 100% of their
    loss against the engineer.

[20]

In
    some cases of solicitors negligence, where it is practically impossible to
    determine what would have happened but for the solicitors negligent conduct,
    courts have allowed a plaintiff to advance a claim for loss of the chance  to
    recover.

[21]

Mr.
    McLean relies on two such cases:
Kitchen v. Royal Air Force Association
,
    [1958] 2 All E.R. 241 (C.A.), and
Henderson v. Hagblom
, 2003 SKCA 40,
    232 Sask. R. 81, leave to appeal refused, [2003] S.C.C.A. No. 278.

[22]

In
Kitchen
, the plaintiff sued lawyers who missed a limitation period. There
    was a trial within a trial to determine what would have happened if the
    plaintiff had been able to sue. Lord Evershed did not accept that it must be
    always all for the plaintiff or nothing and posited three potential scenarios,
    at pp. 574-575:

If, in this kind of action, it is plain that an action could
    have been brought, and if it had been brought that it must have succeeded, of
    course the answer is easy. The damaged plaintiff then would recover the full
    amount of the damages lost by the failure to bring the action originally. On
    the other hand, if it be made clear that the plaintiff never had a cause of
    action, that there was no case which the plaintiff could reasonably ever have
    formulated, then it is equally plain that the answer is that she can get
    nothing save nominal damages for the solicitors negligence.



But the present case falls into neither one nor the other of
    the categories which I have mentioned. There may be cases where it would be
    quite impossible to try the action within the action, as [counsel] asks. It
    may be that for one reason or another the action for negligence is not brought till,
    say, twenty years after the event and in the process of time the material
    witnesses or many of them may have died or become quite out of reach for the
    purpose of being called to give evidence.



In my judgment, what the court has to do (assuming that the
    plaintiff has established negligence) in such a case as the present, is to
    determine what the plaintiff has by that negligence lost. The question is, has
    the plaintiff lost some right of value, some chose in action of reality and
    substance? In such a case, it may be that its value is not easy to determine,
    but it is the duty of the court to determine that value as best it can.

[23]

In
Hagblom
, Mr. Hagblom was sued for negligent construction of a chimney
    in a home destroyed by fire. His lawyer was negligent in defending him, and the
    Saskatchewan Court of Appeal had to decide whether to allow Mr. Hagblom to
    advance a claim that, by reason of the lawyers negligence, he lost the chance
    to successfully defend the homeowners lawsuit. The court concluded that it was
    not feasible to send the case back for a trial within a trial and accordingly
    conducted a loss of chance analysis of Mr. Hagbloms chances of success on the
    underlying action. It held that while Mr. Hagblom had a potentially winnable
    case, he could he not be assured of success because the cause of the fire
    remained a mystery even after examining the expert evidence.

[24]

The
    court assessed the chances that Mr. Hagblom would have successfully
    defeated the homeowners action at 75%, and accordingly set his damages at that
    percentage.

[25]

Mr.
    McLean also relies on
Folland v. Reardon
(2005)
, 74 O.R. (3d) 688 (C.A.). In that case, Mr. Folland
    claimed that he would have been acquitted of a criminal offence, but for the
    negligence of defence counsel.

[26]

In
Folland
this court discussed the
    elements of a cause of action for breach of contract based on solicitors
    negligence. I extract the following principles from that decision, using the
    language used by Doherty J.A., at paras. 72-76:

1.

In most cases of solicitors negligence,
    liability rests on both a tort and contractual basis.

2.

The imposition of liability grounded in the loss
    of a chance of avoiding a harm or gaining a benefit is controversial in tort
    law, particularly where the harm alleged is not purely economic.

3.

Whatever the scope of the lost chance analysis
    in fixing liability for torts claims based on personal injuries, lost chance is
    well recognized as a basis for assessing damages in contract. In contract,
    proof of damage is not part of the liability inquiry. If a defendant breaches
    his contract with the plaintiff and as a result the plaintiff loses the
    opportunity to gain a benefit or avoid harm, that lost opportunity may be
    compensable.

4.

A plaintiff can recover damages for lost chance
    in an action for breach of contract if four criteria are met:

a.

The plaintiff must establish on the balance of
    probabilities that but for the defendants wrongful conduct, the plaintiff had
    a chance to obtain a benefit or avoid a loss.

b.

The plaintiff must show that the chance lost was
    sufficiently real and significant to rise above mere speculation.

c.

The plaintiff must demonstrate that the outcome,
    that is, whether the plaintiff would have avoided the loss or made the gain,
    depended on someone or something other than the plaintiff himself or herself.

d.

The plaintiff must show that the lost chance had
    some practical value.

[27]

Where a plaintiff in a tort action arising out
    of solicitors negligence can establish on the balance of probabilities that
    but for the negligence he or she would have avoided the loss, he or she should
    be fully compensated for that loss.

[28]

Where a plaintiff can only establish that but
    for the solicitors negligence he or she lost a chance to avoid a loss, a claim
    for breach of contract may permit recovery for the value of that chance.

[29]

The case law is clear that a plaintiff in a
    solicitors negligence case can fully recover her loss in appropriate
    circumstances. The British Columbia Court of Appeal expressed it this way, in
Nichols
    v. Warner, Scarborough, Herman & Harvey
,
2009 BCCA 277, 95
    B.C.L.R. (4th) 133, leave to appeal refused, [2009] S.C.C.A. No. 355, at para.
    26:

In a case of this kind, the court is required to essentially
    conduct a trial within a trial to the extent possible: the first to determine
    whether the solicitor has been negligent in respect of the litigation
    undertaken; the second to determine, if so, what loss the solicitors
    negligence has caused the client. In some instances, whether there has been a
    loss and what it was can be readily established. In others, however, the
    prospect of success and recovery may not be easily shown due to uncertainties
    of proof and perhaps legal consequences inherent in any given case. Indeed, the
    mere passage of time may render the conduct of a trial within a trial virtually
    impossible. What the court must do in such circumstances where the prospect of
    recovery in the original action is inconclusive is to quantify as best it can
    the value of what the authorities regard a lost opportunity. The Alberta Court
    of Appeal summarized the approach to be taken in
Fisher v. Knibbe
,
1992 ABCA 121
3 Alta.
    L.R. (3d) 97, at pp. 7-8:

After conducting the trial within a trial to determine
    what damages, if any, a negligent solicitor is liable for missing a limitation
    period, three results are possible. First, the trial judge could find that had
    the case gone to trial the plaintiff would have been successful and in such
    case 100 per cent of the lost damages would be awarded against the solicitor. Second,
    the trial judge could find that the plaintiff would not have been successful
    therefore only nominal damages may be awarded against the solicitor. Finally,
    where time has passed to such an extent that a trial within a trial would be
    impossible, then the court must to the best of its ability calculate the value
    of the opportunity lost to the plaintiff and award damages against the
    solicitor on that basis.

[30]

In
Folland
, this court rejected the appellants alternative loss of
    chance claim for several reasons, including that public policy would not
    countenance a damage award based on a lost chance in a criminal case. If Mr.
    Folland could only establish a less-than-50% chance of acquittal, by
    implication the trier of fact would have found that it was more likely than not
    that he had been properly convicted: at para. 92.

[31]

Where
    a plaintiff advances a tort claim for damages founded on the but for
    causation test,
Folland
does not support Mr. McLeans argument that
    some degree of probability between 50% and 100% should reduce a defendants liability.

[32]

In
    short, none of the cases cited to us involved a defendant attempting to reframe
    a plaintiffs case as a loss of chance, where the loss the plaintiff claims is
    the opportunity successfully litigate or settle a claim in full and the trial
    within a trial approach allows the plaintiff to test that claim. In such
    circumstances the plaintiff is entitled to advance the trial within a trial on
    the balance of probabilities standard, and to fully recover if that standard is
    met.

[33]

In
    this case, the Jarbeaus were entitled to frame their case on an all-or-nothing
    basis by asserting that the engineer was negligent, and that they would have
    made full recovery had the engineer been sued.

[34]

The
    trial judges instructions collapsed treatment of Mr. McLeans negligence and
    the engineers negligence, and were consistent with the notion of a trial
    within a trial in a solicitors negligence case, particularly where the
    lawyers negligence is admitted.

[35]

This
    is not to say that some contingencies will not affect the assessment of
    damages. A jury could, in its assessment of damages, properly be invited to
    consider future contingencies in assessing the losses that properly flow from
    the lawyers negligence.

[36]

For
    example, if a plaintiff successfully recovered judgment against an at-fault
    party but there was no possibility of collection of that judgment, the
    plaintiff may recover nominal damages against a negligent solicitor who caused
    the loss of the opportunity to sue the at-fault party: see
Melanson v.
    Cochrane, Sargeant, Nicholson & Paterson
(1985), 63 N.B.R. (2d) 91
    (Q.B.), affd (1986), 68 N.B.R. (2d) 370 (C.A.);
Islington Investments Ltd.
    v. Day, Ault & White
, [1978] O.J. No. 1322 (H.C.). As noted by Sean
    Campbell, Stephen Grant and Linda Rothstein in
Lawyers Professional
    Liability,
3d ed. (Toronto: LexisNexis, 2013), at p. 222:

In
Page v. Solicitor
, [1971] N.B.J. No. 65, 3 N.B.R.
    (2d) 773, 20 D.L.R. (3d) 532 (N.B.C.A.), affd [1972] S.C.J. No. 24, [1972]
    S.C.R. vi, (
sub nom. Pelletier v. Page
) 29 D.L.R. (3d) 386n (S.C.C.),
    the Court held that in the absence of any evidence as to any other funds
    available to satisfy the hypothetical judgment against the original tortfeasor,
    the maximum loss proven was the sum for which the original tortfeasor had been
    insured.

[37]

This
    trial was focused on whether or not the Jarbeaus would have obtained judgment
    against the engineer if they had sued him. Mr. McLean did not suggest to the
    jury that the Jarbeaus would have settled the first action for less than the
    amount of their losses or that there was any other contingency that would have
    impacted the assessment of the amount necessary to put the Jarbeaus in the same
    position they would have been but for Mr. McLeans failure to sue the engineer.
    For example, no one called evidence about whether the engineer had liability insurance
    or the limits of any such policy, perhaps for good reason.

[38]

In
    this case, there was a trial within a trial on the issue of the engineers
    negligence. The jury found that the engineer failed to meet the standard of
    care expected of a reasonable and competent professional engineer, and but for
    his negligence and Mr. McLeans negligence, the Jarbeaus would not have
    suffered the harm. If I were to adopt Lord Eversheds categorization from
Kitchen
    v. Royal Air Force
, I would say that, given the jurys finding regarding the
    engineers negligence and Mr. McLeans admission of negligence in advising the
    Jarbeaus not to sue the engineer, it is plain that an action could have been
    brought against the engineer and would have succeeded. At trial, the engineer
    admitted he had erred.

B.

Assessment of damages

(1)

Diminution in value of the home

[39]

To
    calculate the diminution of value in a home, the trier of fact must first
    calculate the difference between the fair market value of the home assuming no
    defects and the value of the home on an as is basis, with its defects.

[40]

At
    trial, the Jarbeaus called an expert real estate appraiser who testified that without
    construction defects, the fair market value of the home was $345,000 or $350,000.
    His appraisal reports, which were filed in evidence, indicated that the lot
    alone was worth $65,000 or $75,000.

[41]

The
    Jarbeaus realtor testified that there would be a stigma attached to the Jarbeaus
    home because of the defects and that he would not recommend the home to a buyer,
    except with full disclosure of the defects. He testified that, in his opinion, the
    property was not worth anything above the value of the lot.

[42]

Mr.
    McLeans real estate appraiser testified that the value of the property was
    $320,000 without defects, which included a land value of $90,000. He agreed
    that the property was stigmatized, but that the stigma could be removed once
    the problems with the home were fully remediated.

[43]

The
    Jarbeaus tried to sell their home. They listed it in 2015 for $319,090 and repeatedly
    reduced the asking price. They ultimately received an offer for $220,000,
    conditional on an independent inspection and financing. The Jarbeaus did not
    accept this offer. It was insufficient to pay out the mortgage outstanding on
    the property.

[44]

Mr.
    McLean argues that this single, conditional offer established the fair market value
    of the home on an as is basis, with the homes defects. He argues that the
    diminution in value was therefore $130,000 (the highest appraisal of the fair
    market value of the home without defects of $350,000, minus the value of the
    home on an as is basis of $220,000) and that, when the $75,000 recovered as part
    of the settlement of the first action is deducted, the net judgment should have
    been for $55,000.

[45]

Given
    that the house did not comply with Ontarios building code, it was open to the
    jury to conclude that the single offer, conditional on inspection and financing,
    was not sufficient to establish that the home itself had any value,
    particularly where the costs to repair arguably approach or exceed the value of
    the home.

[46]

Mr.
    McLeans and the Jarbeaus experts appraised the fair market value of the
    property without defects between $350,000 and $320,000. The value of the land
    was appraised between $90,000 and $65,000. The house itself was therefore worth
    between $230,000 (the lowest property appraisal, less the highest land
    appraisal) and $285,000 (the highest property appraisal, less the lowest land
    appraisal). If the jury concluded that the home itself had no value because of
    its defects, they had before them appraisal evidence supporting a diminution in
    value between $230,000 and $285,000. The jurys assessment of diminution of
    value at $265,000 falls within this range.

[47]

The
    jurys conclusion that the diminution of value of the property is not so
    plainly unreasonable and unjust as to satisfy the stringent test for setting
    aside a jury verdict as perverse  that no jury reviewing the evidence as a
    whole and acting judicially could have come to that conclusion:
Housen v.
    Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 30;
McCannell
    v. McLean
, [1937] S.C.R. 341, at p. 343.

(2)

Cost to repair the home

[48]

The
    Jarbeaus called the evidence of a professional engineer, Gerald Genge, to
    provide expert opinion evidence about the cost to repair their home. In his
    expert report dated January 28, 2011, which was filed as an exhibit and
    provided to the jury, he stated:

It is unclear at this point whether or not any repairs can be
    effective. Since the building does not comply with the Ontario Building Code,
    it is our opinion that the building either should not have been constructed or
    that, prior to construction, more extensive assessment of the materials and the
    design should have been completed.

[49]

He
    updated his cost to repair estimate to $240,690 in a report dated June 19,
    2012, but expressly indicated that the repairs needed were
subject to actual contractor pricing
, which would be
    based on detailed design following on-site exploratory work. At trial, he adjusted
    this estimate by adding $50,000 for on-site security during construction and by
    accounting for re-roofing the home, resulting in an estimate of the cost to
    repair the home at $277,000.

[50]

The
    Jarbeaus also obtained a contractors pricing estimate from Frys Construction
    Limited. This estimate, dated September 18, 2013, was filed in evidence and
    placed before the jury. It contemplated razing the house to the foundations and
    rebuilding it for a total cost of $362,334.50. The estimate did not include a
    component for on-site security or an allowance for temporary accommodation for
    the Jarbeaus during construction. The Frys Construction estimate went to the
    jury without objection and without any request for a limiting instruction. The
    Jarbeaus counsel expressly clarified with the trial judge that he could refer
    the jury to this pricing calculation.

[51]

The
    combination of the Frys Construction estimate to rebuild the home and Mr. Genges
    security estimate suggests that it was open to the jury to conclude that at
    least $412,000 would be required to raze and rebuild the home. Therefore, on
    the evidence before the jury, there was a basis for the jury to assess the cost
    to repair and related costs at $433,000. The jurys assessment of the cost to repair
    was not unreasonable or unjust. It follows that the trial judge erred when he
    characterized this assessment as perverse.

(3)

Should damages be assessed on a diminution of value or cost to repair
    basis?

[52]

The
    trial judge characterized both jury assessments of diminution of value and cost
    to repair as perverse, and reluctantly gave judgment for the lesser amount. As
    shown above, there was evidence before the jury justifying both assessments. Absent
    a reasoned basis for deciding whether to grant judgment for diminution in value
    or cost to repair, it falls to this court to make that decision.

[53]

The
    general rule for resolving a question as to the measure of damages was set out in
James Street Hardware and Furniture Co. v. Spizziri
(1987), 62 O.R. (2d)
    385 (C.A.). At para. 54, this court held that the general proposition is that the
    damages awarded to a plaintiff should put him or her in the same position as they
    would have been in had they not sustained the wrong for which they are receiving
    compensation or reparation.

[54]

The
    Jarbeaus purchased a new home in 2007. They ended up with a home with many
    deficiencies that is not building code compliant and should never have been
    built. The fairest measure of damages is that which would provide the Jarbeaus with
    what they bargained for  a home free of defects.

[55]

Accepting
    the jurys assessment that the home itself had no value, damages should not be
    awarded on the lesser diminution in value basis because this does not take into
    account the very real difficulty of selling this home and the cost of
    demolition, if the property were to be sold as vacant land.

[56]

In
    the context of this case, there is no issue of a windfall or betterment if the
    cost to repair is awarded. Many courts have concluded that the measure of
    damages may properly be fixed at the cost to repair the deficiencies in a home or
    rebuild a home:
Nan v. Black Pine
, [1991] B.C.J. No. 910 (C.A.);
Fors
    v. Overaker & Mallon,
2014 ONSC 3084, [2014] O.J. No. 3108;
Galan
    v. Finch
, 2015 ONSC 2455, [2015] O.J. No. 2275;
Gemeinhardt v. Babic
,
    2016 ONSC 4707, [2016] O.J. No. 3883.

[57]

I
    would set aside the verdict entered by the trial judge, and substitute
    judgement in favour of the Jarbeaus in the sum of $433,000, as assessed by the
    jury.

[58]

I
    would not deduct the $75,000 recovered by the Jarbeaus in settling the first action.
    Of that, $25,000 represented an undertaking to repair the roof, which was ultimately
    of no value to the Jarbeaus. The remaining $50,000 was consumed almost entirely
    by legal fees. The Jarbeaus settled because they had concerns about their
    ability to collect from the builder. Darren Jarbeau testified that the principal
    of Thermolith had liquidated all of his Ontario assets.

C.

Costs

[59]

Rule
    49.10(1) provides that where a plaintiff makes an offer to settle at least
    seven days before the start of the trial and obtains a judgment as favourable
    as or more favourable than the terms of the offer to settle, the plaintiff is
    entitled to partial indemnity costs up to the date the plaintiff served the
    offer to settle and substantial indemnity costs thereafter, unless the court
    orders otherwise.

[60]

In
    this case, the Jarbeaus offered to settle for $225,000 plus costs about 11
    months before trial and offered to settle for $175,000 plus costs about one month
    before trial.

[61]

Although
    the judgment was more favourable than the Jarbeaus offer to settle, the trial
    judge refused to grant the Jarbeaus costs in accordance with r. 49.10(1). He
    departed from rule 49.10(1) and deprived the Jarbeaus of their costs on two
    bases: first, that the jurys damage awards were perverse, and second, that the
    conduct of their counsel at trial contributed to the perversity of the verdict.
    The trial judge went on to find that the Jarbeaus were only entitled to partial
    indemnity costs and reduced their costs by over $100,000, citing
    proportionality as the basis for this reduction.

[62]

Early
    on in the trial, the trial judge repeatedly expressed the view that the
    diminution of value was the correct measure of damages and that those damages
    were in the $40,000 to $60,000 range. He warned of dire cost consequences since
    this action had not been brought under the simplified procedure rules. He made
    remarks suggesting he was critical of the Jarbeaus for having chosen a jury
    trial, stating:

THE COURT: Why have a jury, Ive never in my legal practice or
    judicial practice had a jury in a lawyers negligence case.

MR. DOOLEY: Neither have I, Your Honour.

THE COURT: Have you?

MR. DOOLEY: No, I never have. And its my clients policy not
    to have them and I was grilled a little bit on how we got a jury, but we have a
    jury because Mr. Arnold had the right to serve a jury notice and he did.

THE COURT: And I have the right to strike it out if I think
    its too complicated for the jury.

[63]

In
    finding that the Jarbeaus were entitled to partial indemnity costs, the trial
    judge stated, at paras. 29-32:

It has already been mentioned that the trial was unduly delayed
    by virtue of plaintiffs counsel repeatedly attempting to admit evidence that I
    had ruled was inadmissible and by pursuing claims that had not been pleaded or
    had been otherwise disallowed by me. There was an effort by plaintiffs counsel
    to introduce into evidence minutes of settlement from the first action that
    contained within them an attempt to set the stage for certain findings to be
    made in this negligence action. It also involved an effort on behalf of the
    plaintiffs to introduce evidence of pre-trial settlement discussions.

When plaintiffs counsel was thwarted in his efforts to
    introduce this evidence, he attempted to do so during his closing submissions
    to the jury. As a result, I was required to interrupt counsel at that time,
    excuse the jury, and review plaintiffs counsels closing submissions in order
    to remove the improper parts.

In view of the fact that there was no evidence whatsoever to
    support the finding of the jury with respect to the repair/rebuild costs or the
    diminution in value, I can only come to the conclusion that the jury used some
    of plaintiffs counsels statements during the course of the trial and during
    the course of closing submissions in order to come to their conclusions.

After taking all of these facts into account, I am of the
    opinion that this is an appropriate case where I should depart from the
prima
    facie
cost consequences in
Rule
49.10 as the interests of
    justice dictate this course of action. The conduct of plaintiffs counsel is to
    be taken into consideration when awarding costs. See
Rodas v. Toronto
    Transit Commission
, 2012 ONSC 5662 (ONSC) at para. 23.

[64]

These
    criticisms of counsels conduct were largely unwarranted.

[65]

Before
    his closing submissions to the jury, counsel addressed the trial judge:

[I]n my closing, I would like to go through some of the trial
    exhibits. I trust that that is not an issue for Your Honour?  And Id like to
    read portions of those exhibits, if I may?

[66]

The
    trial judge indicated that counsel was free to refer the jury to the evidence
    before it.

[67]

Further,
    before making his closing submissions to the jury, the Jarbeaus counsel also
    stated:

The last thing I want to do is run afoul of your ruling and
    the last thing I want is to give an interruption and I assure you I will try my
    best.

[68]

In
    response, the trial judge explained that his practice is not to interfere with
    closing submissions absent egregious improprieties. The trial judge explained
    that if counsels closing submissions do cross the line, he would deal with those
    issues in his charge to the jury.

[69]

The
    trial judge interrupted the Jarbeaus counsel and excused the jury during his
    closing submissions. He raised the following five improprieties with counsel
    that arose during his closing:

1.

A reference to
    mold and mildew associated with the deficiencies in the building when there was
    no mold or mildew claim;

2.

An appeal to the jurys sympathy;

3.

A misstatement of Mr. McLeans counsels position;

4.

Reference to the corporation that failed to honor the Jarbeaus home
    warranty claims and the inability to recover from them even though that
    corporation was not a defendant in the second action; and

5.

A statement that both Darren and Lillian Jarbeau were nurses, when in
    fact the evidence was that only one was a nurse.

[70]

These
    criticisms of the Jarbeaus counsels closing submissions were largely
    unjustified.

[71]

First,
    a report filed as an exhibit and read into the record by Darren Jarbeau,
    referred to the risks associated with exposure to mold. The Jarbeaus engineers
    evidence referred to mold in the roof of their home. It was not improper for
    trial counsel to refer the jury to this evidence.

[72]

Second,
    there was nothing in counsels address that suggested an undue appeal to
    sympathy, or that suggested in any way that the jury should ignore the law or
    evidence and decide the case on the basis of sympathy.

[73]

Third,
    Mr. McLeans counsel suggested to the jury that any negligence by the engineer
    did not cause the Jarbeaus any loss because the City of North Bay did not rely
    on the engineers certification in any event. In his closing, the Jarbeaus counsel
    stated, if I understood him correctly [he] told you that the City did not rely
    on Nelson [the engineer] and that they did their own inspections. The trial
    judge wrongly accused him of taking liberties with what Mr. McLeans counsel
    said and asked him if he had a hearing problem. The Jarbeaus counsels
    submissions were not unreasonable and his interpretation was borne out by the
    transcript.

[74]

Fourth,
    references to exhibits containing references to the corporation that denied the
    Jarbeaus warranty claim were not inappropriate.

[75]

Finally,
    although only Darren Jarbeau had testified that he was a nurse and there was no
    evidence as to the occupation of Lillian Jarbeau, this was a minor matter, which
    could have been easily corrected in the final instructions to the jury, if
    necessary.

[76]

After
    the trial judges interruption of counsels closing address, it was counsel,
    not the trial judge, who took the precaution of asking the trial judge to vet
    the remainder of documents which were in evidence to which he intended to refer
    the jury so as to avoid running afoul of any ruling.

[77]

Despite
    the interruption of counsels closing address and his criticism of counsel, the
    trial judge did not find it necessary to give any correcting instruction to the
    jury arising out of his expressed concerns.

[78]

The
    trial judge refused to allow the Jarbeaus to advance a claim for the costs of
    the first action on the ground that it was not pleaded. A claim for those costs
    was in fact made in the statement of claim, and particulars of the amounts were
    given on discovery and in answer to undertakings. The trial judge was
    repeatedly critical of the Jarbeaus counsel for attempting to advance an
    unpleaded claim. Counsel was, admittedly, not of much help to the trial judge
    on this issue.

[79]

The
    trial judge criticized counsels treatment of the minutes of settlement from
    the first action. However, counsel vetted his approach with the trial judge in
    advance in the absence of the jury and reasonably believed he was adopting the
    appropriate course.

[80]

It
    serves no purpose to highlight the many inappropriately derisive comments made
    by the trial judge directed at plaintiffs counsel. The purpose of the
    foregoing is to set out the context for the trial judges reduction of the Jarbeaus
    costs. There were some slips by counsel, but they were modest, and might have
    added an hour to a two-week trial. The conduct of counsel did not warrant
    penalizing the Jarbeaus to such a significant extent.

[81]

Whether
    a jury verdict is or is not perverse or unreasonable is a matter for an
    appellate court, not an issue to be dealt with by the trial judge:
Lang v.
    McKenna
, [2000] O.J. No. 2983, at para. 24. I have already concluded that
    the jurys assessments of damages were not perverse. There was a significant
    punitive element in the trial judges reduction of costs, and that punitive
    element was not warranted.

[82]

In
    any event, I conclude that the trial judge erred by failing to give effect to
    the purposes of r. 49.10(1). As pointed out in
Niagara Structural Steel
    (St. Catharines) Ltd. v. W.D. Laflamme Ltd.
(1987), 58 O.R. (2d) 773 (C.A.),
    at p. 777, this rule is intended to be an incentive to settlement and, to
    ensure that the objective of this rule is fulfilled, the rule should be applied
    in the vast majority of cases:

While rule 49.10(1) does not set forth the basis for resorting
    to the exception to it, it is reasonable to assume that the occasions for the
    application of the exception should not be so widespread or common that the
    result would be that the general rule is no longer, in fact, the general rule.
    If this were to happen, the presumption in favour of the general rule and the
    resulting reasonable degree of predictability respecting the incidence of costs
    would disappear and the incentive policy of the rule would be substantially
    frustrated. Another consequence would be a more uneven application of the rule
    in litigation generally.

[83]

Nowhere
    does the trial judge discuss the purposes of r. 49.10(1).

[84]

While
    proportionality might affect the amount of costs, in circumstances like these, proportionality
    should not be used to deprive a plaintiff bettering his or her offer of the
    scale of costs to which r. 49.10(1) entitles them  substantial indemnity costs
    from the date of the offer.

[85]

Mr.
    McLeans own costs were not in a range significantly different from those
    claimed by the Jarbeaus. Mr. McLean made no r. 49.10 offer. Mr. McLean admitted
    that he was negligent at the opening of trial, without prior warning to the Jarbeaus.
    In the two weeks before trial, Mr. McLean served a motion to remove the Jarbeaus
    counsel, but did not proceed with that motion. Mr. McLeans counsel refused to
    communicate with the Jarbeaus counsel, except in writing. This was a
    bare-knuckle battle. There was no reason why the Jarbeaus should not have
    recovered their costs pursuant to r. 49.10(1).

[86]

I
    would set aside the trial judges decision on costs and substitute a cost award
    of $231,000, inclusive of disbursements and taxes, in favour of the Jarbeaus.

[87]

Counsel
    may make brief written submissions on the costs of the appeal, due within 30
    days of the release of this decision.

Released: J.S. February 13, 2017

G. Pardu J.A.

I agree Janet
    Simmons J.A.

I agree H.S. LaForme
    J.A.


