The duty of an insurer to defend a claim and the duty of an insurer to indemnify a claim are two different concepts.  The duty to defend is a broad concept, and is triggered if there is a possibility that the policy will cover the claim in question.  The Supreme Court of Canada, in a 2010 case called Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada [Progressive Homes], provided a succinct summary of when an insurer must defend a claim:

“An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim … It is irrelevant whether the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy. Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to defend…”

As can be gleaned from this passage, the duty to indemnify is a much narrower concept than the duty to defend, and applies in more limited circumstances.  To trigger the duty to indemnify, the insured must prove that the claim in question is, in fact, covered under the policy in question, thereby requiring the insurer to pay the claim.

While these concepts may seem easy enough to understand, the disputes that arise over the interpretation of policies in this area demonstrate that it can be a very complex process.  Two recent cases show that the resolution of disputes over whether an insurer has a duty to defend the insured can centre on the interpretation of a single word (in these cases, “owned” and “own”).

In Hector v. Piazza, 2012 ONCA 26, Piazza bought a building, redeveloped it and sold it to Hector.  Four years later, Hector sued Piazza for faulty construction because the building’s foundation had settled improperly.  Piazza had a commercial general liability (CGL) policy with Axa for a period of time while he owned the building and was renovating it, though it had lapsed several years before Piazza sold the building to Hector.  Piazzo brought Axa into the action as a third party, and sought to have Axa defend him in the action by Hector.

Axa denied that it was responsible to defend the action because it alleged that the CGL policy excluded coverage in these circumstances.  It is important to note that a CGL policy is third-party liability coverage, and thus does not cover losses designed to be covered by first party liability coverage, nor does it cover intentional conduct by the insured.  Furthermore, in this case, the basis for Axa’s position stemmed from the wording of the policy, which read that damage to property owned by the insured was excluded from coverage.  Because of this, the insurer argued that the policy clearly meant “owned” in the past tense and thus it applied in this case to exclude coverage because Piazza no longer owned the property in question at the time of the damage.

Axa lost this argument.  Generally, the duty to defend is triggered unless a policy can be said to “clearly and unambiguously” exclude coverage.  If the alleged exclusion clause is ambiguous, the insurer will be required to defend the claim.  In this case, the Court of Appeal found that the the word “owned” could either mean the past tense or the present tense, and thus it was not “clear and unambiguous” that coverage was excluded.  As such, Axa had to defend Piazza against Hector’s claim.

A similar dispute over the word “own”, again in the construction context, arose in the case of McGrimmon v. The Personal Insurance Company, 2010 ONSC 108.  There, the plaintiffs purchased a home from the defendants, McGrimmon and Sholea, and subsequently found significant defects in its construction.  The case settled and McGrimmon and Sholea turned to their homeowners insurance company, the Personal Insurance Company, for coverage and indemnification.    The homeowners policy, which included third-party liability coverage, covered the time the defendants lived in the home, but expired upon the sale of the home to the plaintiffs.  The relevant portion of the exclusion clause in the policy read that the defendants were not covered for damage to any property they “own”.

Justice McKinnon used part of his decision to review the law on the duty of an insurer to defend, some of which has been reviewed above and which need not be further restated here.  Among other arguments, Personal argued that, if there was negligence, the negligence occurred at the time the defendants sold the home to the plaintiffs (i.e by misrepresenting the state of the home’s construction), a time at which any property damage was specifically excluded based on the wording of the policy that denied coverage for damage caused to any propertythe defendants “own” (in its present tense).  On this issue, McGrimmon and Sholea countered that the negligence in this case only occurred at the time the claim was made, and thus, since the property was no longer owned by McGrimmon and Sholea at that time, the exclusion in the policy (namely, damage to property the defendants “own” in the present tense) did not apply.

Similarly to Hector, Justice McKinnon found that there was a duty on Personal to defend the defendants.  Justice McKinnon explained the basis for this decision in the following manner:

“The insurance contract covers third party liability. It is very broad and portable. It covers occurrences anywhere in the world. It is obvious that claims upon a policy will invariably be brought after an “occurrence”. The only bar to the lawsuit would be any applicable limitation period with respect to the cause of action being asserted. If the occurrence took place within the applicable policy period of the contract of insurance, a duty to defend arises, even though the policy is no longer in force. The duty to defend is subject to express exclusions. In this case there is no express exclusion for property that was “owned, used or occupied or sold.” As stated, had the past tense been employed in the exclusionary words, the Defendants would be denied coverage.”

In Jones v. Tsige, 2012 ONCA 32, Jones and Tsige worked at the same bank (BMO).  At some point, Tsige began a relationship with Jones’ former husband but when the relationship soured over a financial issue, she used her position to access Jones’ bank account purportedly to confirm that Jones was receiving child support.  In all, Tsige looked at Jones’ bank records 174 times over the course of 4 years.  When Jones confronted Tsige about her suspicions, Tsige admitted the snooping and was disciplined by BMO.  Jones sued Tsige for invasion of privacy and breach of fiduciary duty.  She claimed $70,000 in damages and $20,000 in punitive damages.

Both Tsige and Jones brought motions for summary judgment, Tsige for the claim to be dismissed and Jones for it to be granted.  The motion judge found for Tsige and dismissed the claim.

The Ontario Court of Appeal overturned the motion judge’s decision.  It began by reviewing over 100 years of caselaw and commentary on the law of privacy.  It identified various bases on which the tort of invasion of privacy could be grounded and, for the particular facts of this case, the court settled on intrusion upon seclusion, which it defined as:

“One who intentionally intrudes, physically or otherwise, upon the seclusion of another or his private affairs or concerns, is subject to liability to the other for invasion of his privacy, if the invasion would be highly offensive to a reasonable person.”

Importantly, the Court specifically addressed whether privacy legislation, such as PIPEDA (the federal Personal Information Protection and Electronic Documents Act), was sufficient to protect people from invasions of privacy.  Tsige tried to argue that privacy legislation provided Jones with sufficient protection, and it was therefore not for the courts to create an independent claim.  The Court rejected this argument, however, citing the fact that, amongst other reasons, neither federal nor provincial legislation governed relations between private litigants nor did it provide for a civil cause of action.  Furthermore, under PIPEDA, only BMO in this case was subject to its reach.  Jones would therefore be required to file a complaint against her employer who had done nothing wrong, while leaving Tsige untouched. 

As a result, the Court concluded that the time had come to recognize a tort of invasion of privacy based on the intrusion upon seclusion.  The ability of a person to bring a civil cause of action in this regard was all the more important in light of the significant and exponential development of the internet and digital technology, which allows our private information to be stored and retrieved in manners that make it vulnerable to access and dissemination by unauthorized parties.  Further, the Court concluded that the facts of this case cried out for a remedy.  Tsige deliberately intruded Jones’ privacy in a prolonged and shocking fashion.  Speaking for the Court, Justice Sharpe noted, “In my view, the law of this province would be sadly deficient if we were required to send Jones away without a legal remedy.”

The Court concluded that the elements of the tort of invasion of privacy based on an intrusion upon seclusion are:

1) The Defendant’s conduct must be intentional, which includes recklessness;

2) The Defendant must have invaded without lawful justification, the plaintiff’s private affairs or concerns; and,

3) that a reasonable person would regard the invasion as highly offensive causing distress, humiliation or anguish.

Importantly, the Court concluded that economic harm need not be proven.

The Court went out of its way, however, to confirm that people who are simply sensitive will not succeed.  It restricted successful claims to those that represent a deliberate and significant invasion of personal privacy, including into one’s financial or health records, sexual practices and orientation, employment, diary or private correspondence that, viewed objectively on the reasonable person standard, can be highly offensive. 

While the Court’s analysis on the issue of privacy is enlightening and welcomed, it represented the easy (and long overdue) part of the case.  Determining damages for invasions of privacy, however, is much more difficult.  Since economic harm does not have to be proven to establish a claim for invasion of privacy (though it certainly helps), the Court had to consider how to calculate “symbolic” or “moral” damages.

After reviewing caselaw from Ontario and the rest of Canada, the Court settled on a range of damages depending on several factors, including the nature and frequency of the wrongful act, the effect of the wrongful act on the plaintiff’s health, and any relationship between the parties.  Where no financial loss has been proven, the Court fixed the range at up to $20,000.  In this case, the Court set Jones’ damages at $10,000, or the mid-point of the range, with no punitive or aggravated damages.  While the Court specifically kept open the possibility that cases such as these could attract punitive or aggravated damages, by not awarding them in this case, one wonders what facts will be required to establish such damages in future cases.

The range of damages set by the Court for these type of cases may strike the reader as being low, but was consistent with previous similar caselaw.  While the case is only one week old, thereby making it too early to give predictions on the future of the tort of invasion of privacy, litigants with limited financial means may want to consider restricting privacy claims without economic damages or facts giving rise to punitive damages to the Small Claims Court, whose jurisdiction extends to claims under $25,000.

If the fraudulent activity involved the passing of cheques, a potential (and interesting) way out of this unenviable situation for the defrauded party is to go after the institution who cashed the cheque(s) in question (usually a bank) for conversion.  The Bills of Exchange Act, however, provides significant defences to banks in these circumstances, which were reinforced by a decision of the Ontario Court of Appeal released earlier this week, Rouge Valley Health System v. TD Canada Trust, 2012 ONCA 17.

Generally, the issuer of a cheque (the payor) does so from their bank account, thereby instructing their bank to pay a particular amount to the person listed on the cheque (the payee).  The payee then deposits the cheque at their bank, which can collect the funds from the payor’s bank.  Conversion (or, the tort of wrongful interference with the goods of another) occurs where the collecting bank credits someone other than the intended payee with the funds listed on the cheque.  It is not a defence to conversion to say that the funds were innocently transferred to the wrong payee.  Where the payee is either fictitious or non-existent, however (as is often the case in fraud schemes), the Act provides a defence to the bank by presuming that the person who cashed the cheque is the proper payee.  In these circumstances, the rationale behind that presumption is that the payor is in a better position to detect the fraud in question than the bank.

In Rouge Valley, a high-ranking manager of Rouge Valley Health System had the authority to issue cheques up to $10,000 without approval from his superiors.  His fraud was perpetrated by issuing cheques to a fictitious company (“S.M.R.”) for services it had never actually provided to Rouge Valley.  The director of S.M.R. was one of the manager’s cohorts.   In total, the manager  issued 78 cheques (each less than $10,000) for $688,511. 

Rouge Valley discovered the fraud and brought suit against TD Canada Trust.  TD defended the suit on the basis that the payee, S.M.R., was a non-existent and fictitious person under the Act, thereby absolving it from liability. 

Since the facts of the case were not in dispute, the case was decided on a summary judgment motion.  The Court of Appeal decided the case in favour of TD Canada Trust.  Basing its decision largely on the Supreme Court of Canada’s decision in Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce, it confirmed 4 general propositions in cases such as these:

1. If the payee is not the name of any real person known to the payor, but is merely that of a creature of the imagination, the payee is non-existing, and is probably also fictitious;
2. If the payor inserts as payee the name of a real person who was known to him but whom he knows to be dead, the payee is non-existing, but is not fictitious;
3. If the payee is the name of a real person known to the payor, but the payor names him as payee by way of pretence, not intending that he should receive payment, the payee is fictitious, but is not non-existing; and,
4. If the payee is the name of a real person, intended by the payor to receive payment, the payee is neither fictitious nor non-existing, notwithstanding that the payor has been induced to draw the bill by the fraud of some other person who has falsely represented to the payor that there is a transaction in respect of which the payee is entitled to the sum mentioned in the bill.

Rouge Valley’s lawyers argued that this case fell under proposition #4 (i.e. that the payee was neither fictitious nor non-existent), while TD Canada Trust argued that it fell under proposition #1 (and thus fictitious and non-existent).

In Boma, the Plaintiff company had been defrauded by its bookkeeper who issued a series of cheques to a non-existent company.  That company’s name, however, bore a resemblance to an existing client of the Plaintiff company.  The SCC held that the Plaintiff honestly believed that the cheques in question were being issued to a legitimate payee.  In these circumstances, therefore, the payee was not, in fact, non-existing and thus not fictitious, since it was plausible that the Plaintiff company believed it was paying a legitimate debt.  The cheques therefore fell under proposition #4 (above). 

Rouge Valley tried, but failed, to use a similar argument in this case.  It argued that the payee, S.M.R., was actually another existing person (“Delisle”, with whom the above-mentioned manager had performed previous frauds).  The Court of Appeal found, however, that S.M.R. bore no resemblance to Delisle, or any other existing client or service provider to Rouge Valley.  There could be no way, therefore, that Rouge Valley could have plausibly believed it was paying a legitimate debt.  Further, Delisle was a fraudster, and thus, even if his name bore resemblance to S.M.R., he was not a legitimate payee.  Finally, in Boma, the signor of the cheque actually considered the legitimate payee when signing the cheque.  There was no such similar evidence in Rouge Valley’s case.  Rouge Valley was therefore liable for the loss of almost $700,000.

As the plaintiff, you have to first establish that you actually have a legal basis for your claim.  In other words, does the wrong that you allege was done to you by the defendant constitute an actionable claim in law?  Can you identify and particularize your damages and establish that the defendant (or defendants) is responsible for them?  What witnesses or documents will you require to prove your case?  These are but some of the questions you will need to discuss with your lawyer before starting the action.

If you are satisfied that you have a case, then you need to decide the court in which, and the procedure under which, your claim will be filed.  Cases in which the damage amount is $25,000 or less, for example, fall under the jurisdiction of the Small Claims Court.  Cases over $25,000 are filed in the Superior Court of Justice but, depending on the amount claimed, can be filed under either the simplified rules (generally, $100,000 or less) or ordinary rules ($100,000 or more).

The next step is to draft the Statement of Claim.  The Statement of Claim should be concisely written, should lay out the important facts, should identify the legal basis for your claim, and should identify the damages you have suffered  to the extent that they are known.

Once complete, the claim needs to be filed with the relevant Court.  Once that is done, the Court clerk will ‘issue’ your claim so that it can be served on the defendant.  After having your claim is issued, you have  six months to serve it on the defendant in the manner specified in the Rules of Civil Procedure.

As a defendant receiving a claim, you generally have twenty days to respond with your Statement of Defence, though that deadline can be extended by filing a Notice of Intent to Defend.  Similarly to the Statement of Claim, the Statement of Defence should be concisely written, should state those facts in the Statement of Claim with which you agree and disagree, lay out facts important to your defence, and lay out the legal grounds for your defence, if any.  Along with the Statement of Defence, the defendant has the option of filing a claim of its own if the facts and legal basis to support it exist, as either a counter-claim against the plaintiff, a cross-claim against another defendant or a third party claim against a party not yet involved in the litigation.

Assuming there are no further claims to be filed, and no reply is filed by the plaintiff, then pleadings close and the case moves to the discovery phase.  Discovery generally falls into two categories, oral discovery (called examinations for discovery) and document discovery.  Examinations for discovery allow all parties to the litigation to orally examine key witnesses for the other party in an effort to discover the strengths and weaknesses of a particular case.  These generally occur at a court reporter’s office, and involve the witnesses giving recorded testimony under oath.  There are rules on the number of witnesses that each party is allowed to examine and length of the examinations.  Document discovery requires each party to disclose the existence of all documents in their possession that may be potentially relevant to the case.  Documents can take almost any form, including reports, business records, e-mails, etc.

After the discovery phase is complete, the parties must then contemplate bringing any motions they feel are necessary to ensure the orderly prosecution or defence of their case.  The type of motions that can be brought are too numerous to list here, but common ones include motions arising out of the discovery process, motions to add further parties to the litigation and motions for summary judgment (the law for which was recently changed by the Ontario Court of Appeal).

If a case fails to settle after the discovery phase, it can be set down for trial (actually, it can be set down for trial anytime after the pleadings close but since this can have significant consequences on the discovery phase, it is rarely done).  Depending on your jurisdiction, you can be forced to wait months or even a year for your trial.  In the meantime, the court can schedule a pre-trial conference, at which each parties’ lawyer attends before a judge to discuss possibilities for settlement, the narrowing of issues for trial and trial length, among other things.  Importantly, discussions held at a pre-trial conference are kept confidential from the trial judge.

The trial takes place if no settlement is reached.  While there are many procedural nuances to a trial, especially in a jury trial (and, again, books have been written on this subject), generally speaking, a plaintiff leads its case first by calling all of the witnesses it deems necessary to prove the elements of its case.  These include fact witnesses, expert witnesses, character witnesses, etc.  When calling these witnesses, the plaintiff’s lawyer must ask them open-ended questions in a process called ‘examination in chief’.  The defending lawyer(s) is then entitled to cross-examine each witness.  When the plaintiff is finished its case, the defendant has the right to call any witness it feels is necessary to defend its case and prove any claim of its own.  Similarly, the plaintiff’s lawyer is entitled to cross-examine any witnesses called by the defendant.  When the case is complete, including any reply evidence called by the plaintiff, each party’s lawyer must then make his or her closing submissions to the judge (or jury).  Depending on a case’s complexity, a judge may give a judgment immediately after the close of a case, or may reserve judgment for a period of time (weeks, or in rare cases, months).

The winning party in a civil action is generally awarded a portion of their legal costs as part of their victory.  Depending on the financial status of the losing party, however, recovering damage and cost awards can be a difficult and cumbersome process.  The losing party may further choose to appeal the judgment, thereby further delaying the recovery of any award.

Finally, it is important to note that, at almost any time during a civil case, the parties can choose to attend mediation sessions in an effort to settle their disputes.  If both parties are committed to the process, mediation can be a cost-effective method to settle lawsuits in a timely fashion.

In R v. Castonguay Blasting Ltd., Castonguay was working on a construction project commissioned by the Ministry of Transportation (MOT) to widen Hwy 7 near Marmora.   Castonguay’s job included blasting a portion of limestone rock known as the “Marmora Cut”.  During a particular blast, parts of rock flew unexpectedly beyond the blast area.  It traveled some 90 metres, hitting a nearby house and car. Thankfully, no one was hurt.  Castonguay and its contractor immediately notified the MOT and the Ministry of Labour (MOL) (as it was required to do under the Occupational Health and Safety Act).  The MOL conducted an investigation.   After further precautionary steps were implemented by Castonguay, the MOL was satisfied and blasting resumed.  Castonguay reimbursed the impacted homeowners ~$15,000 for property damage.  No one involved in the project (including the MOL) advised the Ministry of the Environment (MOE) at that time.   The MOE found out about the incident roughly 6 months later, when the MOT informed them.   Almost 1 ½ years later, the MOE charged Castonguay with failing to report the fly-rock incident under section 15(1) of the Environmental Protection Act (EPA).   

Section 14(1) of the EPA states:

• Subject to subsection (2) but despite any other provision of this Act or the regulations, a person shall not discharge a contaminant or cause or permit the discharge of a contaminant into the natural environment, if the discharge causes or may cause an adverse effect.

 Section 15(1) of the EPA states:

• Every person who discharges a contaminant or causes or permits the discharge of a contaminant into the natural environment shall forthwith notify the Ministry if the discharge is out of the normal course of events, the discharge causes or is likely to cause an adverse effect and the person is not otherwise required to notify the Ministry under section 92, [2005] c.12, s.1 (6).

Contaminant and adverse effect are defined in section 1(1) of the Act:

• “contaminant” means any solid, liquid, gas, odour, heat, sound, vibration, radiation or combination of any of them resulting directly or indirectly from human activities that causes or may cause an adverse effect;

 ”adverse effect” means one or more of,

1. impairment of the quality of the natural environment for any use that can be made of it,
2. injury or damage to property or to plant or animal life,
3. harm or material discomfort to any person,
4. an adverse effect on the health of any person,
5. impairment of the safety of any person,
6. rendering any property or plant or animal life unfit for human use,
7. loss of enjoyment of normal use of property, and
8. interference with the normal conduct of business.

Castonguay was acquitted at trial.  Justice Hunter of the Ontario Court of Justice felt, among other things, that it would be “inconceivable” that the EPA could be interpreted to have this type of event deemed “environmental”.  Undaunted, the MOE appealed that decision and Justice Ray of the Superior Court allowed the appeal, convicted Castonguay, and sentenced it to $25,000 (including the mandatory Provincial Offences Act surcharge, which raised the sentence above $30,000).  Justice Ray felt that, on a plain reading of the section (the main portions of which are listed above), section 15 covered this type of event.  There was thus no need to limit its application in the manner suggested by Justice Hunter. 

For Castonguay, the frustrating thing about this case is that the MOT’s contract set out notice provisions for “incidents” of this nature.  They included a requirement to notify the contract supervisor, the MOT and the MOL, but not the MOE.  In this regard, part of Justice Hunter’s decision dealt with what he called the “equities” of the case.  He felt it was unfair that Castonguay be convicted, not for discharging a contaminant (which it arguably could have been charged with, if you accept the MOE’s logic), but for failing to report it, when that’s exactly what it did, though simply to the wrong government body!  One can forgive Castonguay for thinking that it had done what it was supposed to do.

The Ontario Court of Appeal recently granted Castonguay the right to appeal Justice Ray’s decision.  The Court has characterized the issue as follows: whether there could be a duty to report [under section 15] where there was an adverse effect [as defined above] but negligible or no effect on the environment.  In granting leave to appeal, Chieft Justice Winkler noted quite poignantly:

“In my view the relative breadth of the duty to report is an issue that is potentially relevant to a broad range of activities beyond blasting.  Moreover, the duty to report is a proactive duty imposed on members of the public requiring direction from the statute as interpreted by the court, as to when this duty will be triggered.  The respondent’s suggestion of an after-the-fact prosecutorial discretion would not provide adequate guidance to members of the public on how they can meet the regulatory requirements of the EPA.  In other words, if a member of the public makes a conscious decision not to report on the assumption that the ministry would view the incident as inconsequential and that decision differed ultimately from the subjective assessment of the crown, that person would only learn of this when they were charged.  This approach is unacceptable.  The public must be able to make a more informed decision as to their obligation to report.  I cannot accede to the respondent’s contention that prosecutorial discretion alone is a sufficient answer to any uncertainty in the scope of the duty to report.  The interpretation of the duty to report is thus an issue with great importance to the public.”

Stay tuned, but in the meantime, be aware that your duty to report incidents of this nature may be broader than you thought.

Normally, if a party obtains a judgment against another party, and seeks to enforce that judgment through the sale of the party’s home, the sheriff will require a mortgage discharge statement for any outstanding mortgage on that home from the relevant mortgagee.  Some mortgagees disclose these statements as a matter of course, while some do not.

In Citi Cards Canada Inc. v. Pleasance, 2011 ONCA 3, Citi Cards had obtained a small judgment (~$11,000) against the Defendant, and sought to enforce that judgment against him by forcing the sale of his home.  The Sheriff required mortgage discharge statements for the two outstanding mortgages on the home, but the relevant mortgagees, the Canada Trust Company and the TD Bank, refused to disclose them on the basis of section 7 of the Personal Information and Electronic Document Act (PIPEDA).  Citi Cards therefore brought an application in court for a declaration that the banks had to disclose the statements. 

Unfortunately for Citi Cards, they were unsuccessful at every step of the proceedings, including, most importantly, at the Court of Appeal.  The Court noted that Citi Cards had other remedies available to it, namely the option of examining the Defendant’s wife who still lived in the house (since the Defendant’s whereabouts were unknown) under Rule 60.18 of the Rules of Civil Procedure (called an “Examination in Aid of Execution”).  This would have provided Citi Cards with the information they needed but without violating PIPEDA.  While the Court of Appeal agreed with Citi Cards that such a process would add length and cost to their recovery, that added length and cost were not legal bases upon which the principles of section 7 of PIPEDA could be cast aside.  

As to the substantive merits of the case, the Court found that “…PIPEDA seeks to balance the privacy rights of individuals in their own personal information with the needs of organizations to collect, use or disclose personal information for reasonable purposes.”   In this case, the information about a borrower contained within a mortgage discharge statement was undoubtedly “personal information” that did not fall within any of the relevant exemptions under section 7 of PIPEDA.  It could therefore not be disclosed without the consent or knowledge of the borrower.

In Canada, a building’s “greenness” is generally measured through “LEED” (Leadership in Energy and Environmental Design) , a third-party classification system based on five different categories: Sustainable Sites, Water Efficiency, Energy and Atmosphere, Material and Resources, and Indoor Environmental Quality.  A sixth category, Innovation in Design, addresses other factors not covered under the five main environmental categories.  Bonus points are also awarded regionally, depending on location design and local construction practices.  In Canada, the responsibility for administering the LEED certification falls on the Canadian Green Building Council (CaGBC).  According to the CaGBC’s website, the classification systems are, “[b]ased on existing and proven technology, they evaluate environmental performance from a whole building perspective over a building’s life cycle, providing a definitive standard for what constitutes a green building in design, construction and operation”.  In an assessment, points are given for LEED credits, and buildings can then be classified as either Certified, Silver, Gold or Platinum.

From a legal perspective, construction projects seeking LEED certification can be vulnerable to litigation.  While still rare, lawyers have suggested that “LEED-igation” will only heat up as more and more green buildings are constructed, especially if (or when) projects are delayed because of the builder’s failure to obtain the desired LEED rating.  In the US, the first known LEED-igation case was in Maryland, in Southern Builders Inc. v. Shaw Development.  In that case, a condominium project was completed late, which prompted the developer to withhold payment from the builder, which in turn prompted the builder to register a lien.  As part of its defence to the lien, the developer argued that the builder failed to construct the building in accordance with LEED specifications, causing the developer to forfeit a significant sum of state tax credits.  The case settled, and we therefore do not have the benefit of a judgment on this case, but research has shown that one of the main issues in the case was who, as between the developer and builder, was responsible for obtaining the LEED certification.  It appears that the contract failed to allocate clearly that responsibility.

In Canada, there have been no reported decisions on this issue, but at least one lawsuit has been filed by a disgruntled group of condominium buyers in Ontario alleging, among other things, that the builder failed to construct the building in accordance with the LEED-related promises it outlined in its marketing material.  The writer will keep readers posted on any developments.

As LEED-rated construction projects rise, so too will the risks of litigation.  As always, builders can minimize risk by using contracts that outline and define the specific LEED rating they intend to obtain (and ensuring that they do, in fact, obtain it!) and by delineating in their contracts who is responsible for, and the procedure involved in, obtaining certification.

A condensed version of this article was published in the January 2012 edition of the Kingston Home Builders Association Newsletter.

The defendant in RBC v. Rastogi was alleged to have orchestrated a complex scheme of currency trading transactions using various RBC and TD accounts.  RBC alleged that he took advantage of a loophole in their online banking system along with an employee preferred exchange rate to make hundreds of transactions on his own behalf before the opening of trading each day.  RBC alleged that he wrongly deprived them of approximately $700,000 using this scheme, and started an action against him on various grounds to recover those funds.

At the time of the lawsuit, the defendant had three RBC accounts, an RBC Direct Investing account, and a TD account.  Rather than obtain orders to freeze his accounts by way of an injunction under the Rules of Civil Procedure, RBC simply went ahead and it did so via its internal relationship with RBC Direct and via the Bank Act with TD.  The defendant, by way of a motion, acknowledged that RBC could freeze their accounts because of their set-off claim against the funds in those accounts, but challenged their ability to freeze the RBC Direct and TD accounts.  He argued, and the Court of Appeal ultimately agreed, that RBC was doing an end-run around the rules regarding injunctive relief simply because they had the ability, by virtue of their position, to freeze his extraneous accounts without a court order.

The Court of Appeal found that RBC did not have the right to freeze the RBC Direct account merely because RBC Direct was its subsidiary.  The funds in the RBC Direct account were being held by them for the defendant.  In other words, RBC Direct was indebted to the defendant and RBC, as a separate corporate entity, could not claim a set-off against the funds held by RBC Direct.  Similarly, while certain provisions of the Bank Act allowed TD to freeze the defendant’s account by virtue of the lawsuit, those provisions did not grant RBC any proprietary right to those funds (TD stayed out of the motion).

In the end, the Court of Appeal ordered the release of all funds held by RBC Direct and TD in favour of the defendant.  In doing so, the Court of Appeal acknowledged that, practically, the release of those funds to the defendant would make it much harder for RBC to recover them should they ultimately be successful in their lawsuit.  However, this only meant that RBC was like any other plaintiff in their position who failed to seek proper injunctive relief pending the outcome of the lawsuit.

The Court decided that if a seller decides to fill out an SPIS, he/she has a duty to do so honestly, accurately and completely, and can be found liable for any damages arising out of misrepresentations in the SPIS (though these damages generally arise out of the concealment of latent defects). 

The Court also placed a noteworthy and significant onus on real-estate agents to not only properly advise their clients when filling out the SPIS but also, and on the flip-side, to be appropriately skeptical of the information provided.  In Krawchuk, the sellers failed to complete their SPIS completely and accurately, and were found liable for significant defects to the house’s structure.  However, the real-estate agent (who acted for both the seller and buyer) was also found liable because she: a) did not properly advise the sellers when they filled out the statement, and b) did not take appropriate steps to verify the information provided by the sellers for the purchaser.  [As a side-note, later in this case, the Court of Appeal rightly stated the obvious, i.e. that SPIS forms are ripe with problems and should only be completed after consultation with one's real-estate lawyer]

If your new home is no longer covered by the Ontario New Home Warranty Plan Act, upon whom liability will fall for defects in a newly-purchased house largely depends on the nature of the defect itself.  Defects can be either latent or patent, and how (or if) liability flows from the presence of such depends largely on this classification.  The recent Ontario case of Ricchio v. Rota, 2011 CarswellOnt 11043 (S.C.J.), quoting in part from prior decisions, provided a useful summary of these terms:

• “Latent defect” … is in effect some fault in the structure that is not readily apparent to an ordinary purchaser during a routine inspection. And ordinarily, if a vendor actively conceals a latent defect, the rule of caveat emptor no longer applies and the purchaser is entitled, at their option, to ask for a [rescission] of the contract or compensation for damages.
• Patent defects are such as may be discovered by inspection and ordinary vigilance on the part of the purchaser, and with respect to them the primary rule is caveat emptor.

If the defects are patent ones, then the principle of caveat emptor (buyer beware) will generally apply.  In these circumstances, the homebuyers will generally not be successful in any suit against the sellers, and may only have recourse against their home inspector (if they obtained one) or their real-estate agent [discussed in a separate, but related post], depending on circumstances of the purchase.  Home inspectors can be liable for damages arising from defects which could have reasonbly been discovered by visual inspection using appropriate skill and care.  

If the defects are latent ones, then liability can extend to the sellers, home builders or even municipalities.  In such cases, the onus remains on the purchasers to prove on a balance of probabilities that:

1. There were latent defects in the property;
2. That these defects were known to the vendors; and,
3. That they intentionally concealed them to sell their house (or were reckless in their disregard of the truth or falsity of any representations made regarding any defects known to them).

Where the homebuyer satisfies these criteria, he/she will generally be entitled to damages fixed largely on the (reasonable) costs associated with fixing the defects.  The Ontario Court of Appeal recently confirmed in Cotton v. Monaghan, 2011 ONCA 697, that the second and third criteria require intentional concealment, and not accidental or ignorant concealment.  In that case, the purchasers sued the sellers of their new home for damages for latent defects in some of the electrical, plumbing and structural elements of renovations done by the sellers.  The sellers appeared to be the normal “DIY’er”-type, and performed the renovations without expert help and without permits.  The purchasers were aware of this but did not seek assurrances that the work was done to Code.  The trial judge found that the sellers were genuinely unaware that they had created, and concealed, significant latent defects with their work.  In these circumstances, the sellers were not liable.

If the homebuyer cannot satisfy the above-noted criteria, they may nonetheless be able to recover damages from the initial homebuilder or the municipality that passed the inspections associated with the house’s construction.  In Wood v. Hungerford (Township), 2004 CarswellOnt 4432 (S.C.J.), the homebuyers were awarded damages against the Township who passed the building inspection on the house in question 18 years before the purchase, despite obvious defects such that the home was clearly in violation of the Building Code in place at that time.