Court upholds partial indemnity cost award to mental injury claimants for irresponsible AI use

Ruling finds psychological harm due to loss of cat that pet sitter refused to return

Court upholds partial indemnity cost award to mental injury claimants for irresponsible AI use

In a case arising from a contract to babysit a cat, the Ontario Divisional Court affirmed an order finding an appellant and his co-defendant liable for total damages of $35,000 and partial indemnity costs of $12,000. 

In Nady v. Al Sadi, 2026 ONSC 3760, the parties’ contract required the appellant to babysit the two respondents’ cat. 

In a judgment dated Aug. 30, 2024, a deputy judge of the Small Claims Court determined that the appellant breached the contract by refusing to return the cat at the term’s end and committed the tort of conversion by wrongfully retaining the pet for around four years without lawful authority. 

The judge ruled that the appellant – who knew about the first respondent’s post-traumatic stress disorder (PTSD) – engaged in highly reprehensible and “particularly egregious” conduct, including a deliberate plan to mislead the respondents, a reckless disregard for their feelings, cruel remarks, and death threats to the first respondent. 

The judge held that the respondents gave credible evidence about the intentional harm the appellant caused and the mental injury, emotional pain, psychological harm, suffering, and distress they experienced due to the loss of their cat. 

The judge accepted the respondents’ evidence that the appellant: 

  • told the first respondent the cat was dead when she called him, said profanities, and threatened to kill her 
  • mocked the second respondent when she called him and said the cat was dead 
  • called the respondents sociopaths and made other disparaging remarks about them in emails to their lawyer 

The judge noted that the first respondent, who described the situation as hitting her “rock bottom,” submitted: 

  • receipts for her consultations with her therapist during the pertinent period 
  • her psychotherapist’s letters, which supported her statements about PTSD symptoms and their impacts on her life

The judge ordered the appellant and his co-defendant to pay the respondents general damages of $10,000 and punitive damages of $20,000. The judge found the appellant responsible for 90 percent, or $31,500, and his co-defendant responsible for 10 percent, or $3,500. 

At the hearing of his appeal, the appellant admitted that he had used artificial intelligence (AI) to prepare his factum, which included references to nonexistent cases, references to cases that did not support the propositions for which the factum cited them, and citations lacking references to specific paragraphs or page numbers. 

Appeal grounds rejected

The Divisional Court of the Ontario Superior Court of Justice dismissed the appeal upon finding no palpable or overriding errors and no merit in the appeal grounds. 

First, the court rejected the appellant’s argument that the deputy judge erred in determining that “Zarmina K.” was a fabricated or fictitious individual and erred in concluding that the appellant had demonstrated deception. The court found that the judge could reach her findings based on the matter’s history and the evidence. 

Second, regarding the appellant’s general allegations of misapprehension of evidence, the court ruled he could not establish a palpable and overriding error on the judge’s part without transcripts of the respondents’ evidence. 

Third, the court disagreed with the appellant’s argument that the judge relied on a letter from a psychotherapist who was not a licensed physician, which amounted to an unqualified expert’s opinion evidence. 

The court said the appellant based this argument on a mischaracterization of the decision. The court found that the respondents did not present – and the judge did not treat – the letter as expert evidence. 

The court explained that the judge determined that the letter supported the first respondent’s expenses for psychological harm. The court found the judge entitled to see proof of the respondents’ mental injury, without requiring expert evidence. 

Fourth, the court rejected the appellant’s argument that the judge awarded disproportionate damages without a legal basis or a connection with any proven loss. The court discerned no specific legal error in the decision on damages, which identified the relevant legal authorities. 

Finally, the court ordered the appellant to pay the respondents partial indemnity costs of $12,000.

Given “irregularities” in the appeal’s conduct and the appellant’s failure to use AI responsibly, the court deemed a higher amount of partial indemnity costs appropriate and proportionate in this case than what would have been appropriate and proportionate in an appeal from a Small Claims Court judgment without the vexing circumstances here.