Everyone is affected by chance. In Jarbeau v. Maclean 2017 ONCA 115, a lawyer appealed a judgment and took a chance on a position, which contended that his clients’ damages were not 100% of their losses but, rather, a lesser amount representing the “loss of a chance.”
Clients purchased from a builder a leaky new house, not constructed or designed according to Code. The clients retained the lawyer to sue those responsible for building and selling them a defective house. The lawyer sued the builder, the municipality, and Tarion. Unfortunately, the lawyer did not sue the engineer who negligently certified the design and construction of the house. The lawyer incorrectly thought that, because the clients did not have a contract with the engineer, there was no cause of action against the engineer.
The clients settled the action for $50,000 and the builder’s promise, worth $25,000, to replace the roof. Unfortunately, the legal fees in the first action were approximately $50,000.
The clients then sued the lawyer who had acted for them. The limitations period for an action against the engineer had expired and the clients argued that “but for” the lawyer’s negligence, the clients would have successfully sued the engineer and recovered all of their losses from him. On the eve of the 2nd trial, the lawyer admitted that he was negligent. Further, the engineer admitted that he was negligent.
The action was unusual because the plaintiffs served a jury notice. The jury assessed two values: (a) the cost to repair the house at $433,000 and (b) the diminution in value of the house, because of the defects, at $265,000.
The trial judge felt that the award to repair the house was perverse and decided that the appropriate amount of damages would be the diminution in value, assessed at $265,000. He reduced this amount by the $75,000 (in money and value) the clients had received in the settlement of the first action for a net amount of $190,000.
Further, even though the award exceeded the clients’ offer to settle, the judge criticised the trial conduct of the clients’ lawyer and reduced the costs that would ultimately have been awarded from $231,000 to $131,000.
The lawyer decided that the amount awarded was still too high and appealed. The lawyer hoped to have the damages reduced to about $60,000, which would have significantly affected the costs award. The clients cross-appealed.
Loss of a Chance
The lawyer argued that the trial judge should have instructed the jury that the damages arose out of a loss of a chance, the chance to successfully sue the engineer and the chance to have the engineer at the settlement table. In effect, the lawyer postulated that the clients may have had a good cause of action against the engineer, but good causes of action do not necessarily mean full success. Parties often settle for less than 100% of their damages, particularly when the quantum of damages is very much in dispute.
The Court noted that the jury’s verdict meant that the jury accepted the clients’ claim that “but for” the lawyer’s negligence, the clients would have recovered their losses from the engineer. The Court also noted that, in all but rare cases, the “but for” test is the appropriate test for causation in negligence. Once a trier of fact concludes that an injury would not have occurred but for the defendant’s negligence, we have causation.
The concept of a “loss of chance” can be used “when it is practically impossible to determine what would have happened but for the solicitor’s negligent conduct.” However, when, after a trial within a trial, one can determine what would have happened, then the loss of chance concept has no application.
The Court explained the two concepts as follows:
“Where a plaintiff in a tort action arising out of solicitor’s 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. Where a plaintiff can only establish that but for the solicitor’s 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.”
Finally, the Court noted that the “but for” test does not necessarily result in a 100% recovery of damages. Future contingencies could still affect the assessment of damages. For example, if the engineer had no insurance and was bankrupt, the clients would have received nominal damages at best because they had no chance to collect a judgment against the engineer.
In almost every case dealing with negligence resulting in property damage, a tension arises between two possible measures of damages: (i) reduction in the value of the property because of the damage and (ii) the cost to repair the property.
In this case, not only was the measure of damages in issue, the quantification of each measure was in issue. We will not discuss the Court’s analysis to determine the quantum of each measure. However, after review of the evidence, including engineering and appraisal evidence, the Court determined that the jury’s awards for both measures of damages were within the range suggested by the evidence and that the jury’s awards were not perverse.
In general, damages should put plaintiffs in the same position they would have been in had they not sustained the compensable wrong. In this case, the clients bought a house that, in effect, should never have been built. The Court concluded that the clients ought to have received a house for which they bargained, one without defects.
The Court accepted the jury’s assessment, based on the evidence, that the house itself had no value because of the many defects. It then concluded that damages should not be awarded based on diminution of value because this diminution did not account for the difficulty in selling the property and the cost of demolition if the property were to be sold as vacant land.
The Court preferred to award damages based on the cost to repair the property, including the demolition and re-building of the house.
Accordingly, the Court awarded the clients the assessed amount of $433,000. Further, the Court did not reduce that amount by anything that the clients received on the settlement of the first action. The monetary amount of $50,000 was consumed entirely by legal fees. The clients had accepted this low amount because they had valid concerns about their ability to collect from the builder. The $25,000 value of a new roof was of no benefit to the clients because the entire building had to be demolished.
Accordingly, the trial damages were increased from $190,000 to $433,000 after appeal.
Worse yet, the Court analysed the behaviour of the clients’ counsel at trial and strongly disagreed with the trial judge that the behaviour was untoward. The Court actually criticised the trial judge for making “many inappropriately derisive comments … directed at plaintiff’s counsel.”
The Court noted that the plaintiffs bettered their offer to settle and held that the clients should receive the full $231,000 costs award. It held that proportionality should not be used to deprive plaintiffs, who have beaten their offer to settle, of the scale of cost to which the Rules entitle them (i.e. partial indemnity to, and substantial indemnity from, the date of the offer).
The award for damages and costs of the trial increased from $321,000 to $664,000 before interest. Appeal costs were fixed at $75,000. Not a good result for the lawyer. It was a chance that misfired.
Image courtesy of Alvimann.
Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.