1. S.C.C. Rules on Discoverability Rule
The Supreme Court has ruled in Haberman v. Peixeiro
et al. that the discoverability principle applies to the two
year limitation period under section 206 of the Highway Traffic
Act, R.S.O. 1990, c. H.8. Applying the discoverability principle,
the court ruled that the limitation period (the time for suit) begins
running from the date the plaintiff should have reasonably known
that he had sustained permanent and serious injuries.
The facts of the case are interesting in that it was
conceded that the plaintiff had suffered a back injury after an
initial accident in October 1990. The initial injury was severe
enough that the plaintiff remained away from work for a period of
13 months. In January 1992 the plaintiff was involved in a second
accident (being the subject of this case) and was diagnosed with
soft tissue injuries. Following the second accident the plaintiff
was able to work for three months between May and August 1992, but
had not worked since. The plaintiff commenced the action three years
and nine months after the second accident. Under Section 206(1)
of the Highway Traffic Act, any action had to be brought within
two years "from the time when the damages were sustained".
The injury also had to meet a "threshold" test under section
266 of the Insurance Act, R.S.O. 1990, c. I.8 before an action could
The Ontario Court (General Division) held that it
was not open to the Court to apply the discoverability principle
because the limitation period applied from the moment the physical
injury was sustained.* The Court of Appeal, (1995), 25 O.R. (3d)
1, reversed the trial judge, holding that the discoverability rule
was a general rule and not limited to narrow classes of actions.
In dismissing the appeal from the Court of Appeal
decision, Major J. for the Supreme Court, assumed that the plaintiff
had been reasonably diligent but the plaintiff did not know that
the injury met the threshold for an action under Section 266 of
the Insurance Act.
The Supreme Court acknowledged that the common law
on ignorance and mistake was clear, that the plaintiff need not
know the exact extent of the loss for the cause of action to accrue,
but held that the starting point of the running of the limitation
period did not commence until the plaintiff was aware of damages
that constituted "permanent and serious impairment" within
the meaning of Section 266 of the Insurance Act.
Since section 266 of the Insurance Act effectively
barred actions for recovery in tort unless there was a certain level
of physical injury the Supreme Court found that the happening of
the injury did not in itself give rise to the cause of action.
The Supreme Court stressed that whatever interests
the defendant may have in the application of a limitation period
must be balanced against the concern of fairness to the plaintiff
who was unaware that his injuries met the conditions precedent to
commencement of an action.
Haberman v. Peixeiro et al., (1997) 151 D.L.R.
*The Court had distinguished cases where the plaintiff
was under a legal disability.
2. Contributory Negligence
In a landmark decision, the Supreme Court of Canada
has removed the maritime contributory negligence bar in Canadian
maritime law by expanding the common law. In Bow Valley Husky Ltd.
v. Saint John Shipbuilding Ltd. the plaintiff at trial was found
to be contributorily negligent for an accident on an oil rig. The
trial judge applied Canadian maritime law and held that the plaintiff's
negligence was a complete bar to its claim.
The case involved a fire on an oil drilling rig started
by arcing in a heat trace system. The fire caused major damage to
the rig. The owner of the rig was contributorily negligent in operating
the heat trace system without a ground fault circuit breaker in
place. The trial judge held the plaintiff liable for sixty percent
of the loss. The trial judge found that the case arose out of negligence
at sea and was governed by Canadian maritime law. He precluded the
application of the Newfoundland Contributory Negligence
Act and made the contributory negligence of the plaintiff a bar
to recovery. The claim was dismissed.
The Court of Appeal of Newfoundland agreed with the
trial judge that maritime law applied but held that provincial negligence
legislation applied to maritime cases in some
The Supreme Court of Canada held that provincial negligence
legislation did not apply even, where there was no federal negligence
legislation in place. The court held that to apply provincial laws
to maritime torts would undercut the uniformity of maritime law.
The correct law to apply was the common law principles of Canadian
maritime law. The application of this law meant that a plaintiff
who was contributorily negligent (even to the extent of only one
percent) would be barred from making a claim against a defendant.
To avoid this "archaic" principle of law, the Supreme
Court of Canada held that this was the appropriate case to make
an incremental change to the common law in compliance with the requirements
of justice and fairness. "The change is required to keep the
maritime common law in step with the dynamic and evolving fabric
The court noted that the principle of apportionment
of liability for non-maritime torts is universally accepted in every
part of Canada and around the world. Contributory negligence may
reduce recovery but does not bar a plaintiff's claim.
Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding
Ltd. (1997), 153 D.L.R. (4th) 385 (S.C.C.)
3.Investigation Reports- Keeping Privilege
During the course of an investigation into a loss,
independent adjusters often prepare a series of reports. These are
usually prepared chronologically and are prepared in the same format
using subheadings. They often refer to previous reports and there
are often enclosures attached.
In virtually every case, these reports are prepared
as part of the investigative process. Our Courts have held that
these documents are properly not privileged and, therefore, they
are producible in any litigation that arises in connection with
the loss, including a subrogated action.
Unfortunately, many of these reports contain investigative
results, enclosures, and opinions about legal issues that could
be critical to any litigation. Because these comments are embodied
in a report which is not privileged, there is a very real risk this
information will be produced to adverse parties.
There are two things that flow from this. First, the
entire problem could be avoided if all investigation conducted after
the point where litigation is contemplated by the insurer was contained
in a separate report to the insurer's Counsel. The claim for privilege
is enhanced where Counsel actually has retained the independent
adjuster for that purpose alone.
Second, any opinions of the independent adjuster or
others contained in a producible report almost always create problems
at trial. It is possible to deal with the problems created but this
represents extra time and expense and there is always the risk a
trial judge will draw an adverse inference or conclusion. For example,
it is always harder to present a convincing witness where the adjuster,
who took a Statement, also indicates he was not too sure if the
witness was forthcoming, or points out, with good intention, inconsistencies
in the facts.
In the normal course, "investigative" findings
are producible. The critical moment is when the insurer recognizes
for the first time the possibility of litigation (obviously including
subrogation). The insurer must then retain Counsel if it has not
already done so. Counsel should then implement appropriate retainers
for the insurer if they hope to have any possible success arguing
for privilege thereafter.
4. Products Liability: Court Expands Test
In Privest Properties Ltd. et al. v. Foundation Co.
of Canada Ltd. et al. the plaintiffs were owner/managers of the
Spencer building ("the Building") which formed part of
a retail/commercial complex in downtown Vancouver. The plaintiffs
made renovations to the Building between 1973 and 1975. During these
renovations, a fireproofing material, Monokote ("MK-3")
was installed. In 1987, while renovating the 3rd and 4th floors
of the Building, the MK-3 came to the attention of the Workers'
Compensation Board ("WCB"). The WCB closed the area to
unprotected workers. The owners went about removing the MK-3 from
the Building. The owners brought an action against the architects
who undertook the renovations, the contractors who installed the
material and against the manufacturer of the product for the cost
of the removal and lost revenue. At trial, the judge dismissed the
claim stating that the plaintiffs failed to prove that the material
The key question in the appeal became whether MK-3
was a dangerous product. In order to determine what dangerous meant
in a hazardous building products suit, the court referred to Winnipeg
Condominium Corp. No. 36 v. Bird Construction Co.,  1
S.C.R. 85, which states that "a real and substantial danger"
must be shown, that the plaintiff must prove "serious risk
to safety" and further that "the danger was substantial
The appellate court turned to the decision of Toneguzzo-Norvell
(Guardian ad Litem of) v. Burnaby Hospital,  1 S.C.R. 114,
which held that the court must not overrule the trial judge's decision
on a finding of fact, unless there is a "palpable or overriding
The appellants argued that in considering whether
MK-3 was a dangerous product, the trial judge looked only at the
danger or risk resulting from airborne exposure to the MK-3 and
did not consider the harm to workers from exposure to MK-3 when
they were involved in maintenance, repairs, or renovation. The appellate
court could not determine from the trial record whether the trial
judge had in fact overlooked this major aspect of the case. The
court stated that it was not its mandate to reweigh the evidence
put forward at trial, but rather it was to determine if the trial
judge had made a palpable or overriding error in analyzing the evidence.
Finding no such error, the court
dismissed the appeal.
This case is of particular interest in the area of
products liability. In Privest, the court continues to expand upon
Winnipeg Condominium Corp. where the court held that the standard
for bringing a claim in tort is not shoddy workmanship, but rather
the test is whether it was foreseeable that the failure to take
reasonable care would create defects posing substantial danger.
Privest Properties Ltd. et al. v. Foundation Co.
of Canada Ltd. et al. (1997),143 D.L.R. (4th) 635 (B.C.C.A.)
5. Evidence Admissible Despite Intentional Destruction
The British Columbia Supreme Court recently held that
evidence obtained through destructive testing was admissible where
the "spoliation" of evidence was intentional but was not
done with a fraudulent or deliberate intent to suppress the truth.
In Dyk v. Protec Automotive Repairs (1997), 151 D.L.R. (4th)
374, the plaintiff's expert conducted destructive tests on a motor
vehicle's braking system. The vehicle was later destroyed. This
deprived the defendants and third parties the opportunity to have
alternative tests conducted by their experts. The third party moved
for an order excluding the opinions of the expert who conducted
the destructive testing. The expert stated that it was not his practice
to advise other parties prior to doing similar testing on braking
Burnyeat J. reviewed both American and Canadian jurisprudence
in this area. He noted that there were relatively few Canadian cases
dealing with the issue of spoliation of evidence. The learned justice
concluded that mere negligence in the destruction of evidence is
an insufficient basis for drawing an adverse inference or imposing
sanctions. He was of the opinion that a party must demonstrate the
following factors in order to invoke sanctions:
1. the evidence has been destroyed;
2. the evidence was relevant;
3. legal proceedings were pending; and,
4. the destruction was an intentional act of the party
or the party's agent, indicative of fraud or intent to suppress
The court also noted the development of the tort of
spoliation. In some American jurisdictions, a party prejudiced by
the destruction of evidence may sue the party who has created that
prejudice through the negligent destruction.
There is not yet a reported Canadian case on this
subject. However, Burnyeat J. noted that a recent British Columbia
decision refused to strike out a statement of claim which sought
damages for the tort of spoliation.
It appears that the parties in this case did not draw
the courts attention to the standards provided by the American Society
for Testing of Materials which has adopted a standard practice direction
[Standard Practice E860-82] providing that any person intending
to conduct testing which may preclude or adversely affect further
meaningful examination or testing should recommend that other interested
parties be given an opportunity to record such testing and to witness
and record such tests. It is respectfully submitted that the reasonable
standard of practice for engineers and other experts, should require
that interested parties be given an opportunity to be involved in
It is clear that this area of law remains unsettled,
and will continue to develop in the future. The Dyk decision demonstrates
that defendants should take steps as early as possible to assert
their right to participate in any destructive testing and avoid
prejudice caused by the loss or destruction of evidence. A plaintiff's
failure to preserve evidence in the face of requests from another
party will dramatically increase the likelihood of obtaining appropriate
sanctions where a party is prejudiced by the loss of evidence or
Where a defendant knows that there is a potential
claim, a request should be made for an opportunity to be involved
in any such testing. A defendant should formally request the preservation
of evidence at the earliest opportunity.
Dyk v. Protec Automotive Repairs (1997), 151 D.L.R.
(4th) 374 (B.C.S.C.)
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