Important Court of Appeal Decision – Legal Malpractice

Factual Background

In 2007, Darren and Lillian Jarbeau (hereafter ‘Jarbeau’) purchased a new home in North Bay, built by Thermolith Homes, for $270,000.00. The home was a pre-fabricated structure built in Belgium and assembled on site. It leaked (due to improper water barrier installation), was defective and did not meet Ontario’s building code. Jarbeau then retained lawyer Ian McLean to recover damages, which ran to several hundred thousand dollars. On Jarbeau’s behalf, McLean brought suit against the city, Tarion Warranty Corporation and Thermolith Homes. That action was subsequently settled for $75,000.00, (evidently over concerns about the ability to collect from Thermolith Homes). Unfortunately, McLean did not sue the engineer who negligently certified the design and construction of the home (hired by the builder) within the applicable limitations period.

The Legal Malpractice Action

Jarbeau then brought suit against his former lawyer, Ian McLean, for failing to sue the engineer within the applicable limitations period. That case went to trial, and the jury returned a verdict of $265,000.00 (before deductions). Both sides appealed, which you can read here.

The Legal Test For Causation in Ontario

On appeal, the Court of Appeal affirmed that in all but the rarest of cases (including in legal malpractice actions), the test for showing causation is the ‘but for’ test. This requires that the:

“plaintiff must show on a balance of probabilities that “but for” the defendant’s negligent act, the injury would not have occurred.”

Calculating Damages for Injury to Real Estate

The Court of Appeal then analyzed the two potential methods to calculate damages to real estate, diminution in value and cost to repair. The ‘diminution in value approach’ requires the trier of fact to first calculate the fair market value of the property assuming no defects and then to subtract the value of the property on an ‘as is’ basis, with its defects. In this case, the evidence before the jury was that the diminution in value due to improper construction was between $230,000.00 and $285,000.00. As the damages assessed by the jury ($265,000.00) fell within that range, there was no basis for it to be set aside by the Court of Appeal as perverse, as requested by McLean.

Jarbeau presented two witnesses to testify as to the cost of repair. The first was a professional engineer, who testified that it would cost $277,000, which included $50,000.00 for on site security. Jarbeau also called a contractor, who testified the repairs would cost $362,334.50, excluding on site security or temporary accommodations for Jarbeau. Were the jury to have accepted the contractor’s evidence, and added the amount for on site security, the Court held it would have been open to the jury to conclude that the cost to repair the property totaled $433,000, as the jury had in fact done.

Choosing the Appropriate Measure of Damages

The Court was then faced with determining the appropriate measure of damages. To decide between adopting the ‘diminution in value’ or the ‘cost to repair’ approach, the Court cited the general proposition that:

“the damages awarded to a plaintiff should put him or her in the same position as they would have been in had they not sustained the wrong for which they are receiving compensation or reparation.”

As Jarbeau purchased a new home, the Court held he was entitled to the amount necessary to repair or rebuild the home ($433,000.00), and substituted that amount in place of the lessor jury award. On a significant note, the Court of Appeal determined that McLean was not entitled to a set off for the $75,000.00 recovered, as the majority of that amount was consumed by legal fees.

Implications for Clients

The Jarbeau case shows that clients may have legal recourse after being the victim of legal malpractice. Legal malpractice may arise when your lawyer provides incorrect legal advice, loses your case at trial, or mishandles a transaction.

If you feel that you have suffered financial losses as a result of your lawyer’s legal malpractice, fill out our Free Case Evaluation Form or call our GTA legal malpractice lawyers at 1-647-495-8995 for your free and confidential legal malpractice case evaluation. We have law offices in Hamilton and Toronto, and our Ontario malpractice lawyers will meet you where it’s most convenient.

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