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Focus: Appeal court limits municipal liability

|Written By Marg. Bruineman

In overturning a trial court’s decision, the Ontario Court of Appeal has established limitations on liability for municipalities when it comes to their prior land holdings and their role in the building permit process.

The trial judge’s decision would have had a negative effect on municipalities,says Colin Stevenson.

In Biskey v. Chatham-Kent (Municipality), the trial judge had awarded Brian and Rita Biskey $386,000 after finding Chatham-Kent was liable for damages in connection to a house built on a former dump despite the fact they purchased the property from another couple who had bought it from the municipality 10 months earlier.

“The trial judge expanded the scope of the damages for municipalities under the powers of the Building Code Act,” says Jonathan de Vries, a civil defence litigator specializing in municipal liability. De Vries, an associate at Shillingtons LLP, presented a paper on the case prior to the Court of Appeal case.

“The municipality was basically put on the hook. It’s a nice little reminder of how it’s supposed to work,” he says in reference to the Court of Appeal ruling.

The Biskeys had bought the lot for $80,000 in 2002 in hopes of building their dream home and not knowing it had been a dump. But Benedykt and Grayna Kaminski, who had purchased it 10 months earlier from the Municipality of Chatham-Kent for $35,000, did know. They had received a report from the municipality but neither they nor Chatham-Kent passed it onto the Biskeys during the resale.

In 2003, the Biskeys’ contractor found problems with the soil conditions on the property. Before obtaining a building permit the following year, the Biskeys received the report. They also received a subsequent report through an access to information request. In addition, they commissioned an engineering report to support their application for a building permit.

The Biskeys launched a lawsuit seeking $350,000 in damages against Chatham-Kent for negligence, nuisance, and negligent misrepresentation, as well as $100,000 for aggravated, exemplary, and punitive damages. An amendment to the statement of claim increased the damages sought to $2 million and added two more causes of action: breach of contract and breach of the Environmental Protection Act.

At one point, the Kaminskis offered to buy the property back for the original $80,000 selling price, but the Biskeys refused, deciding instead to continue with the building project. The municipality issued the building permit in 2004 and required the Biskeys to comply with their own engineering report.

In 2007 after building the house, the Biskeys settled their claim for $100,000 against the real estate agent and the agency that acted on the purchase of the property from the Kaminiskis.

In awarding the Biskeys $386,000, the trial judge calculated the additional construction, environmental, and miscellaneous costs. The judge also considered costs for diminished property value based on the stigma resulting from the fact that the house was on a former dump.

Chatham-Kent appealed, arguing the trial judge erred in finding the municipality owed the Biskeys a duty of care, that it breached that duty, and that the Biskeys’ losses were due to negligence.

In its decision, the three-member Ontario Court of Appeal panel wrote that the basis for finding a duty of care wasn’t clear and focused on the issue of negligence.

In setting aside the trial judgement and dismissing the action, the appeal court found the Biskeys knew of the property’s history as a dump and the potential costs resulting from that before they started construction on the house. It referred to the fact they filed the statement of claim before they started building and that they had the three reports as well.

“We agree with Chatham-Kent’s submission that the trial judge erred in law by awarding damages for additional costs related to the condition of the site, added construction costs, and diminution in value attributable to the ‘stigma’ effect,” the three-judge panel stated.

“When the Biskeys decided to reject the Kaminski offer and to proceed with construction in the knowledge that they were building on a dump site and that they would incur added costs, any causal link with the alleged negligence of Chatham-Kent was broken.”

Colin Stevenson, who represented Chatham-Kent, says the trial judge’s decision resulted in a precedent he believed would negatively affect municipalities had it stood on appeal.

“His reasons were far from clear but they constituted a potential problem for all municipalities,” says Stevenson in reference to the trial decision.

For example, the trial judge didn’t establish whether the liability stemmed from the municipality’s position as the former owner of the land or its capacity as the building-permit authority, he notes.

The appeal court found the municipality couldn’t have caused any damages to the plaintiffs because they were aware of the condition of the land before they began building. In addition, they had received an offer from the prior owners of the land to take the property back for what they paid. There was also the $100,000 settlement from the real estate brokerage prior to the trial involving the municipality.

De Vries points to the Court of Appeal’s finding that the link broke when the Biskeys learned of the property’s status as a former dump.

“As soon as you know there’s something wrong, the onus is on you to bear the consequences of that,” he says.

Others see the issue differently. “I really do not believe that there was this great expansion of liability,” says Matthew Todd, counsel for the Biskeys.

“There were issues that only Chatham-Kent knew about. It’s unfortunate that they’ve been able to escape liability.”

  • Donald Duncan
    Obviously there was a total failure to mitigate damages (assuming a cause of action agains the vendors) - these people only paid $80,000 for the lot, and discovered the issue before building - so their damages would have been the net loss on the resale of the vacant lot.

    If they had any further loss, it was the result of their own decision to continue.
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