The Duties of Contractors Involved in Design and Construction

Posted on January 27, 2015 by Irvin Schein

The recent decision of the Ontario Court of Appeal in O’Dowda v. Halpenny et al. is a useful reminder of the duties of contractors, subcontractors, architects and engineers who take part in the design and construction of buildings.

In this case, the plaintiffs purchased a house in 2003 from the defendants. They discovered structural problems soon afterwards. They obtained an expert report in late 2003. One of the problems disclosed by the report had to do with the load bearing ability of the roof.

They sued the vendors and commissioned a further report, which was prepared in early 2005, identifying further problems and raising safety concerns about the roof.

In March 2006, at his examination for discovery, one of the vendors testified that the house had been designed by G.S. Morton & Associates Ltd. The Morton firm also prepared the working drawings. Later that year, the purchasers added the Morton firm as an additional defendant alleging that it had been negligent in designing the house, causing it to be a danger to safety.

The Morton firm moved for summary judgment dismissing the action on the basis that it had been added as a defendant more than two years after the cause of action arose. The judge granted the motion, concluding that the purchasers knew or should have known that the negligent design of the house had created a condition of danger to safety after they reviewed the first report, even though the words “danger” and “safety” were not used in it. The judge also ruled that the purchasers should have known that it was the Morton firm that had designed the home because soon after taking possession, they had received the plans to the home stamped with the Morton firm’s name on it. As a result, the judge ruled that the purchasers knew of the problem, and who had caused it through faulty design work, more than two years earlier.

The purchasers appealed to the Court of Appeal.

The Court of Appeal very usefully reviewed the law in this area. It referred to a 1995 Supreme Court of Canada case making it clear that contractors involved in the design and construction of buildings will owe a duty in tort to subsequent purchasers of the building if it can be shown that it was foreseeable that a failure to take reasonable care in constructing the building would create defects that pose a substantial danger to the health and safety of the occupants. If the negligence is established and the defects become clear before any damage occurs, such contractors are liable for the reasonable cost of repair.

In this case, there was no question that the Morton firm was potentially liable to the purchasers in tort, even though there was no direct contractual connection between the purchasers and the Morton firm. The question before the court in this case was whether or not the judge had made a mistake determining that the purchasers missed the two-year limitation period in adding the Morton firm as a defendant.

The Court of Appeal determined that the judge had indeed made a mistake. The court pointed to an affidavit that had been sworn on the summary judgment motion, which was never challenged, indicating that the purchasers were not aware that the house might be dangerous by design until they received the second report in 2005. The court found that it had been an error of law for the motion judge to ignore that uncontested sworn evidence without giving any reasons for doing so. The court considered that the motion judge had the discretion to reject that evidence but felt that the judge could only do so if he explained why he was doing so. One could reasonably suggest that the sworn evidence was rejected because the judge interpreted the first report as suggesting that the house had a design defect. However, there was no explicit statement made by the motion judge rejecting the sworn affidavit evidence for that reason. As a result, presumably the Court of Appeal could not be certain that the judge had taken the affidavit into account.

Accordingly, the summary judgment order was set aside and the matter was ordered to proceed to trial to deal with the limitation issue.

This case is a useful reminder to both contractors involved in design and construction, and purchasers of newly constructed properties, of their respective obligations and rights. It is also a useful warning to purchasers becoming aware of potential design problems of the need to obtain expert advice and act on that advice as quickly as possible.

Municipal Liability For Road Maintenance

Posted on December 17, 2014 by Irvin Schein

The recent decision of the Court of Appeal in Fordham v. The Municipality of Dutton-Dunwich provides some useful guidance on the duty of a municipality to maintain its roads, and particularly signage, for the safety of its citizens. The case is also interesting for its discussion on the differences, if any, in urban and rural settings.

In January 2007, a 16-year-old drove his car from one friend’s house to another. He took a route through the Municipality of Dutton-Dunwich on rural roads that were unfamiliar to him. He came to an intersection with a stop sign. As he saw no approaching cars, he ignored the stop sign and drove through the intersection at about 80 km per hour. Unfortunately for him, the road curved to his right just after the intersection. In trying to navigate the curve, he lost control of his car and crashed into a concrete bridge abutting the road. He suffered brain damage.

He sued the Municipality claiming that it breached its duty to keep the road in good repair by failing to post a checkerboard sign warning of the change in the road’s alignment.

At trial, the young man was successful. The trial judge indicated that it was clearly a local practice in the rural area for drivers to go through stop signs if they considered it safe. As a result, the change in the road’s alignment was a hidden hazard and the Municipality should have provided more than a stop sign to give ordinary rural motorists reasonable notice of the hazard ahead. However, the judge also found the young man contributorily negligent because he had failed to stop at the stop sign. As a result, the trial judge apportioned liability for the damages equally between the young man and the Municipality.

The Municipality then appealed.

The Court of Appeal found in favour of the Municipality. As far as it was concerned, a municipality has no duty to keep roads safe for those who drive negligently. Running a stop sign at 80 km per hour is negligent driving. The turn in the road would have represented no hazard to a driver stopping at the stop sign or even one slowing down to perhaps 50 km per hour at the intersection.

In the court’s view, the finding of the trial judge that in rural areas, drivers go through stop signs at or near the speed limit is legally irrelevant. There is only one standard of reasonable driving and not a separate standard for rural as opposed to city drivers. That standard requires drivers to obey traffic signs. As a result, the Municipality had no duty to install an additional sign on the road.

As an interesting side note, the court went on to explore the cause of action that an individual might have for damages against a municipality failing to keep a road in a reasonable state of repair. As the court pointed out, merely proving that a road was not kept in good repair is not sufficient to justify a damage award. In fact, there is a four-step test involved under the legislation:

Firstly, the plaintiff has to prove that the Municipality failed to keep the road in a reasonable state of repair.

Secondly, the plaintiff has to prove that the non-repair caused the accident.

Thirdly, the Municipality then has three available defences to rely on:

The Municipality could not reasonably have been expected to know about the state of repair of the road;
The Municipality took reasonable steps to prevent the problem from arising; or
At the time of the incident, minimum standards established elsewhere in the legislation applied and had been met.

Finally, even if it fails on any of the first three tests, the Municipality can show that the plaintiff’s driving caused or contributed to the plaintiff’s injuries.

In this case, the real question was as to whether or not the road had been kept in a reasonable state of repair given the absence of a checkerboard sign. As the court pointed out, a municipality has a duty to prevent or remedy conditions on its roads that create an unreasonable risk of harm for ordinary drivers exercising reasonable care. Ordinary reasonable drivers are not perfect. They make mistakes. However, they are not negligent. The duty of reasonable repair does not extend to making roads safe for negligent drivers. In terms of signage, they are required only if without them, an ordinary driver driving without negligence would be exposed to an unreasonable risk of harm. Therefore, the mere presence of a hazard does not require that a sign be put up. The hazard must be one that puts reasonable drivers at risk. In this case, as the young man had not been reasonable in his operation of his vehicle, the road was considered safe without a checkerboard sign.

The story of this young man is sad, which is an observation also made by the Court of Appeal. However, that fact alone will not result in liability.

Just Cause For Termination of Employment: Can the Pendulum Swing Any Further?

Posted on November 17, 2014 by Irvin Schein

The recent case of Fernandes v. Peel Educational & Tutorial Services Limited provides a useful insight into an issue which has had employers gnashing their teeth for years.

In this case, a teacher who had been employed by what is known as the Mississauga Private School for over ten years was terminated for cause on April 17, 2009.

The evidence indicated that until the spring of 2008 he had been a good and dedicated teacher. Differences began to appear between him and his superiors towards the end of the 2007/2008 year.

By the date of his termination, the school was of the view that the teacher was sloppy and inconsistent in his record keeping and calculations which impacted student marks, he was contravening school policy by attributing a mark of zero for any missed assignments, he had allowed distorted marks to appear on report cards, he had fabricated marks on a number of occasions by entering marks for assignments that he had not marked, and entering marks before the work had been done or submitted by the students, and he had failed to mark or return assignments. In the school’s view, this was tantamount to academic fraud. This conclusion led to a decision to terminate the teacher’s employment for cause.

The teacher sued for wrongful dismissal. The trial took place over ten days.

During the course of trial, the teacher admitted a number of these transgressions including his violation of school policy by giving full marks to students who had not completed their assignments. He admitted giving students a zero mark in breach of the school policy that no student can get a zero for anything other than plagiarism (interestingly the judge expressed the opinion that this policy seemed astonishing to him). Astonishing or not, this was a rule of the school and the teacher was aware of it and decided not to follow it.

The court made a number of findings damaging to the teacher’s case. The court found that he gave incorrect marks, marks that he did give were late, he allowed students to submit overdue assignments, and even though he was the computer teacher, his own computer program did not provide accurate marks. The court found that when he met with his superiors immediately prior to his dismissal, he lied to them about how marks were calculated. He then was found to have lied to the court about how student presentations were marked. The court found that he had admitted to falsifying marks on the student records.

The court reviewed the law relating to dishonesty as a basis for termination. The court observed that as indicated by the Supreme Court of Canada, in dealing with the topic of dishonesty, a contextual approach is required rather than a hard line. According to the Supreme Court of Canada, just cause for dismissal exists where the dishonesty violates an essential condition of the employment contract, breaches the faith inherent to the work relationship, or is fundamentally or directly inconsistent with the employee’s obligations to the employer.

Accordingly, it is not true that dishonest conduct always amounts to cause for dismissal notwithstanding the surrounding circumstances. Underlying this approach is the principle of proportionality. In other words, there has to be a balance struck between the severity of the misconduct and the sanction imposed.

In this case, the court found that notwithstanding all of the transgressions proven at trial, immediate termination was not the appropriate sanction for the teacher’s misconduct. The court found that the school could have provided a reprimand and a warning that if such conduct was repeated, it would lead to termination. The fact that the teacher’s professional behavior had changed so abruptly after years of satisfactory service should have led the school to make more of an effort and inquiry to assist the teacher rather than to terminate his employment without notice. At the end of the day, the court found that the punishment outweighed the seriousness of the infraction.

This is another useful reminder of how far the pendulum has swung in employment cases. Employers simply have to take every possible step to analyze and assess every aspect of an employee’s behavior before making a decision to terminate without notice. Short of outright fraud on an employer resulting in personal financial gain to the employee, or repeated transgressions in the face of a series of warnings, cases in which just cause will be found appear to be entering the realm of an endangered species.

When Will the Court Refuse to Enforce an Arbitration Clause?

Posted on October 17, 2014 by Irvin Schein

The recent Ontario Court decision in Hargraft Schofield LP v. Fluke provides some interesting reminders as to problems that can arise when one attempts to enforce an arbitration clause in a contract.

In this case, the plaintiff sued its former employer for an alleged breach of a variety of clauses in the employment agreement that had existed between them.

The parties had entered into an employment agreement in June 2000 with a three-year fixed term. The agreement included an arbitration clause that required that all disputes relating to the agreement would have to be referred to arbitration.

After the first employment agreement expired, the parties entered into a second employment agreement for another fixed term. That document did not include an arbitration clause. It did include a clause providing that it represented the entire agreement between them.

Over the ensuing years, the parties entered into further employment agreements as the terms of each one expired. Eleven years after the first agreement had been entered into, the defendant resigned.

Several months after the defendant’s resignation, the plaintiff sued in Ontario Court. Over the course of the next two years and ten months, the dispute proceeded through the litigation process. The parties exchanged pleadings, negotiated a discovery plan, agreed to a timetable for the balance of the steps in the action, exchanged sworn affidavits of documents, scheduled examinations for discovery, and conducted a mediation (which failed). The defendant then raised the argument that the matter should be proceeding by way of arbitration. The plaintiff refused to change its course of action and the defendant brought a motion for an order staying the action and referring the issues to arbitration.

The first question that the court dealt with had to do with whether or not there even existed an arbitration clause in the agreement between the parties. The initial employment agreement had contained such a clause but the court found that it had been superseded by the second employment agreement which did not include such a clause. Even though one of the subsequent employment agreements specifically indicated that the defendant’s employment would continue on the same terms and conditions as had been contained in all of the previous agreements, so that they were deemed to be incorporated in the most recent agreement, the court determined that as the first agreement had been superseded by the second, and the second included an “entire agreement” clause, there did not exist a valid arbitration clause upon which the defendant could rely.

One of the interesting points in this respect had to do with whether or not the court even had the jurisdiction to make this decision. The Ontario Arbitration Act provides that:

“An arbitral tribunal may rule on its own jurisdiction to conduct the arbitration and may in that connection rule on objections with respect to the existence or validity of the arbitration agreement.”

It was suggested that based on that provision, where there is an issue as to whether or not there even exists a valid arbitration clause, an arbitrator would have to be appointed to make that determination. Fortunately, in this case, the court took a more common sense approach and considered that this provision in the Act was not mandatory and that the court had the jurisdiction to determine whether or not an arbitration clause was in existence.

Secondly, the court went on to consider whether or not, if there did exist an arbitration clause, there was a valid basis for refusing to refer the matter to arbitration. The court pointed out that while the Arbitration Act requires the court to stay a proceeding that has been commenced in the face of a valid arbitration clause, there are exceptions. One of the exceptions arises where a motion for a stay of the proceeding is brought with undue delay.

The court pointed to the fact that almost three years had elapsed since the law suit had started. During that time, there had been a substantial amount of progress made along the litigation path. The court seemed to suggest that the defendant had either forgotten about the arbitration clause, or deliberately refrained from insisting on arbitration until after the mediation had failed. While not stated in the court’s decision, the idea that the defendant was now raising this argument merely to delay may also have been a concern.

In any event, the court dismissed the motion and the matter was ordered to proceed to trial in the usual course.

Among other things, this is an important reminder to parties to a contract with an arbitration clause that if they do not address the arbitration clause promptly but rather proceed by way of a legal action, they may lose the ability to insist on arbitration at a later date.

Can a Mediated Settlement Agreement Be Set Aside?

Posted on October 10, 2014 by Irvin Schein

Mediators and lawyers go to great lengths to protect themselves from parties who agree to settlements at mediation and later have a change of heart. The courts are just as vigilant in preserving the settlement agreements themselves and requiring parties to abide by them. Under what circumstances would a court agree to set aside a mediated settlement agreement? The recent case of Rawlins v. Rawlins provides us with some guidance.

In this case, two brothers were the estate trustees for the estate of their late mother. Disputes arose between them with respect to the administration of the estate. Their lawyers attended a mediation to try to settle those disputes.

Before the mediation, and in accordance with usual practice, the parties and their lawyers signed a mediation agreement that outlined such terms of the role of the parties and the mediator, the ability of the parties to terminate the mediation, and the fees and indemnity issues relating to the mediation.

The mediation was successful. It concluded with the parties and their lawyers signing a settlement agreement. The settlement agreement was clearly intended to resolve all of the disputes between the brothers regarding the estate.

The minutes of settlement involved the appointment of an appraiser to value certain assets. The appraiser was specifically named in the agreement.

Several months after the mediation, one of the parties expressed a concern about the appraiser named in the agreement. Subsequently, and a total of 9 months after the mediation, the same party announced that he had been coerced into signing the agreement by the lawyer who had acted for him at the mediation and by the mediator. As a result of this alleged coercion, he refused to abide by it. He took no action to move to set the agreement aside but the other party brought an application to enforce the agreement.

The applicant’s position was that the agreement had been signed with all parties represented by experienced counsel and with no fraud, mistake, bad faith or coercion. The language in the settlement agreement was clear, concise and unambiguous and it was obvious that the parties intended to create a legally binding agreement resolving their disputes.

The party trying to get out of the deal insisted that he had not understood that he could terminate the mediation at any time. He stated that he felt obliged to remain at the mediation because if he left, a decision could be made in his absence. He complained that the mediator was biased against his interests and aggressive towards him and that he was not given a fair “hearing”. As a result, he signed the settlement agreement under duress because he believed that he had no choice.

As the court observed, a settlement agreement is a contract. The contract will be enforceable if the parties mutually intended to enter into a contract and had agreed on all of the essential terms of the settlement.

The question of agreement on essential terms is not dependent on an inquiry into the actual state of mind of either of the parties or their subsequent evidence as to what they intended on a subjective basis. It is to be measured by an objective reading of the language used in the contract. The law will then impute to each party an intention that corresponds to the reasonable meaning of that language.

The court found that this particular agreement was very detailed and used language that was specific and indicated that there had been extensive negotiations and discussions. Based on that language and the lack of any evidence to support any claim of coercion, the court found that a binding contract had been reached.

There is a basis to say that where a contract is signed under duress, it will not be enforceable. However, not all pressure is recognized as constituting duress. According to the case law, it “must be a pressure which the law does not regard as legitimate and it must be applied to such a degree as to amount to a coercion of the will”. In other words, it “must place the party to whom the pressure is directed in a position where he has no realistic alternative but to submit to it”.

In the result, the court granted judgment enforcing the settlement agreement. The court made it clear that it will set aside settlement agreements only in the clearest of cases and in exceptional circumstances, such as where there was clear evidence of fraud, bad faith or mistaken instructions.

It did not help, of course, that the issue of duress was only raised many months after the agreement was signed and probably as a consequence of the fact that the party raising the issue had changed his mind about the identity of the appraiser agreed upon at the mediation. When his preference for a different appraiser was unacknowledged, that party may have simply come up with a more significant complaint in the hope of avoiding the agreement entirely. Perhaps his ultimate objective was simply to proceed under the terms of the settlement agreement but with a different appraiser. That is only my own speculation, and we will never know for sure, but that may well have been a factor in the judge’s thinking.

There may be the oddball case of a settlement agreement entered into under duress. In that type of case, however, one would expect the complaint to be raised almost immediately after the conclusion of the mediation. A delay of the type seen in this case will almost always extinguish the miniscule possibility of success of such an argument.

What is Alternative Dispute Resolution?

Posted on October 2, 2014 by Irvin Schein

As the sidebar panel to my blog indicates, I now have my Master of Laws in Alternative Dispute Resolution and I have begun to work as a mediator as part of my practice. It occurs to me, however, that there may be some readers of this blog who aren’t clear on the meaning of the phrase.

Alternative dispute resolution, or ADR, refers to methods of resolving disputes without litigating them through to a trial. The most common methods of ADR are arbitration and mediation.

Arbitration is a process which has a number of similarities to litigation. In arbitration, however, the parties choose an individual to act in the role of a judge. The parties will usually make up their own procedural rules, which may or may not reflect the types of procedural rules that govern litigation proceedings, and the arbitrator chosen by the parties will conduct a hearing and render a decision in a way that is similar to what a judge would do.

There are a number advantages and disadvantages to arbitration compared to litigation. I have commented on this in a video I prepared some time ago which you can find at http://www.youtube.com/watch?v=Y_mZnOUmnhs.

I have been trained as an arbitrator and I am on the roster of the Canadian Commercial Arbitration Centre. So if you are involved in an arbitration, either because you are a party to a contract containing an arbitration clause and a dispute has arisen, or because you are involved in a dispute with someone who has agreed with you to refer the matter to arbitration as opposed to litigation, I would be happy to assist.

Mediation is completely different. A mediator is a non-party neutral who is hired by parties to a dispute, to try to help them settle their dispute without going through a lengthy and expensive trial. Unlike an arbitrator, a mediator does not conduct a hearing and has no power whatsoever to make decisions or require anyone to do anything.

In Toronto, where I practice, and in a few other cities in Ontario, mediation is a mandatory part of the litigation process. Cases commenced in this jurisdiction must go through mediaion before they can be called for trial. In other jurisdictions, mediation during the course of a lawsuit is voluntary.

Naturally, there is no rule that prohibits parties from mediating a dispute even before a lawsuit has started.

Most of the training that I received in my LLM course related to mediation. One of the papers that I authored during the course, which I entitled “The Role of Anger in Mediation”, was published in September 2013 in a publication called the Advocate’s Quarterly (Vol. 41, No. 4). If anyone is interested in reading the article and cannot locate it online, please feel free to e-mail me.

As the sidebar notes, I am open for business as a mediator. My available dates for mediation can be found at http://www.mediatordates.com/mediators.php?m=836.

Powers of Attorney for Personal Care: What Happens When the Attorneys Disagree?

Posted on September 25, 2014 by Irvin Schein

The recent Superior Court decision in McNutt v. Draycott illustrates what can happen when an elderly person nominates a number of his adult children as his attorneys for personal care, and a disagreement arises among them as to what is in their father’s best interests.

In this case, Peter Draycott was a 94 year old man living in his own home with two of his children, Geoffrey and Yolis. His other two children, Daphne and Anthea, did not live with him. They were unhappy with the quality of care that he was receiving from Geoffrey and Yolis. They wanted Peter to be placed in a long term care facility. Geoffrey and Yolis disagreed.

All four adult children were named as attorneys in Peter’s power of attorney for personal care.

Daphne applied to the court for an order appointing her as Peter’s guardian, thereby terminating the power of attorney and giving her the right to move her father to a care home.

In her application, Daphne alleged that Peter was suffering from neglect and abuse while under the care of Geoffrey and Yolis. Daphne alleged that Geoffrey had no assets and was not working, and was taking advantage of Peter by living in his house rent-free. She and Anthea insisted that he would be better off in a long-term care facility.

In response, Geoffrey swore that he and Yolis had adequately cared for Peter in his own home and that Peter preferred to be in his own home rather than in an institution. The allegations of neglect and abuse were denied.

The material before the court included a capacity assessment of Peter which indicated that he was incapable of his personal care.

A report prepared by the Mississauga Halton Community Care Access Centre was filed indicating that while there was obvious family discord, the evidence as to Peter’s condition was inconclusive. He appeared to be fit and agile for his age, usually well dressed and clean. However, occasionally he appeared unkempt and the clothing and other items in his room were found to be in disarray.

At one point Daphne called the police to attend at the house, which they did. The policeman’s notes indicated that while Peter was obviously not mentally capable, he appeared to be happy with the arrangements. The policeman indicated that he had no concerns.

As a result, the court was faced with conflicting evidence.

As she was the applicant, the onus was on Daphne to satisfy the court not only that Peter was incapable of making his own decisions, but also that there was no appropriate alternative course of action other than a guardianship. A power of attorney for personal care is considered to be an appropriate alternative course of action provided, of course, that there was no reason for the court to prefer a guardianship arrangement. A court would do so, for example, if the court was satisfied that the named attorney or attorneys were not doing their job properly.

In this case, the court had little problem finding that Peter was incapable of personal care. However, the court was not satisfied that the existing power of attorney was not adequate to provide for that care. As far as the court was concerned, based on the conflicting evidence, Daphne had not met the onus upon her to satisfy the court that Peter’s needs were not being addressed adequately under the current arrangements. The court felt that while he was not being cared for to a standard of perfection, such a standard was not required. What was required was that Peter be reasonably cared for and the court felt that this was taking place.

The court pointed out that it was Peter’s wish that his children be responsible for his care. His wishes should be observed unless it was clear that his interests were being harmed. Since there is evidence that he was doing reasonably well in his own home, it was not shown to the court’s satisfaction that his interests were being harmed. Furthermore, the court observed that there were advantages to Peter being able to live in his own home and in comfortable surroundings with his children.

The court did make reference to the existence of a conflict between the children. The court felt that the conflict by itself was not adversely affecting his interests because on a practical level, day to day decisions were made by Geoffrey and Yolis and there was no satisfactory evidence that those decisions were causing harm to Peter.

This is one of those sad cases of a dysfunctional family going to war over a parent who probably would have been appalled by these events, if he had been capable of appreciating them. To parents, this is a valuable lesson as to the care that has to be taken in deciding to whom to grant a power of attorney. To lawyers, this is an important lesson in the quality of evidence that needs to be brought forward in order to displace a parent’s wishes as expressed in a power of attorney.