Court of Appeal Decision of the Week

Newman & Newman Overruled: Court of Appeal Clarifies the Law of Vicarious Liability

Case: Fernandes v. Araujo, 2015 ONCA 571 

Keywords: Vicarious Liability; Personal Injury; Insurance litigation; Finlayson v. GMAC Leaseco Ltd., 2007 ONCA 557 (CanLii); Newman and Newman v. Terdik, 1952 CanLii 97 (ONCA); Myers-Gordon (Litigation Guardian of) v. Martin, 2013 ONSC 5441 (CanLII), Stare Decisis; Highway Traffic Act

Synopsis:

Ms. Sara Fernandes sustains serious personal injuries as passenger of an ATV operated by Ms. Eliana Araujo. The vehicle is owned by Mr. Carlos Almeida and insured by Allstate. Almeida tells Araujo and Fernandes that they can try the ATV; Mr. John Paul Almeida explains its use and warns Araujo not to leave farm property.

Araujo and Fernandes leave farm property. On their return, the pair is involved in a single-vehicle accident. The ATV rolls over and Fernandes is injured.

Allstate denies Araujo third-party coverage and brings two motions for summary judgment: one to dismiss Fernandes’ claim as against Almeida (based on a theory of vicarious liability), the other to dismiss Araujo’s claim on the ground she was not entitled to coverage (as she drove the ATV without a proper licence).

The motion judge grants Allstate’s latter motion but refuses the former on two grounds. First, the motion judge determines, as a finding of fact, that Almeida permitted Araujo “to possess and drive the ATV and did not impose any restrictions…” (John Paul Almeida’s statements could not be attributed to Carlos Almeida as he did not expressly forbid the ATV being taken off the property and did nothing to prevent that from occurring). Second, citing Finlayson v. GMAC Leaseco Ltd., 2007 ONCA 557, the motion judge found that because Almeida consented to Araujo’s possession, any restrictions (including John Paul Almeida’s instructions), “would not exculpate him from vicarious liability”.

Allstate raises the following issues on appeal:

1) Did the motion judge err by concluding that in the absence of an express prohibition against taking the ATV off the farm property, the owner must be taken to have consented to possession at the time of the accident?

2) Did the motion judge err by failing to follow the C.A. decision in Newman and Newman v Terdik, 1952 CanLii 97 (ONCA)?

The Chief Justice directed the appeal be heard by a panel of five judges, and the parties were directed to address the following issue: should the decision of this court in Newman be overruled?

The Ontario Court of Appeal dismisses Allstate’s appeal and, on the authority of David Polowin Real Estate Ltd. v. Dominion of Canada General Insurance Co. (2005), 2005 CanLII 21093 (ON CA), explicitly overrules Newman.

Importance:

This is a case about the vicarious liability of a vehicle owner for the negligence of persons who have possession of the vehicle with consent. The Ontario Court of Appeal overruled its earlier decision in Newman in favour of an approach more in step with the Highway Traffic Act and Finlayson.

Sharpe J.A., referred to s. 192(2) of the Highway Traffic Act which provides as follows:

The owner of a motor vehicle or street car is liable for loss or damage sustained by any person by reason of negligence in the operation of the motor vehicle or street car on a highway, unless the motor vehicle or street car was without the owner’s consent in the possession of some person other than the owner or the owner’s chauffeur

Based on Finlayson v. GMAC Leaseco Ltd., 2007 ONCA 557 (CanLII), the Court of Appeal found this provision gives an owner the right to give possession of their vehicle to another person, but also encourages the careful exercise of that right. How? By placing legal responsibility on them for any loss caused to others by the negligent operation of the vehicle on a highway.

In Finlayson, the Court held that the vicarious liability of an owner rests on possession rather than operation of the vehicle. In other words, an owner is responsible where they consent to possession – even if the driver operated the vehicle in a manner prohibited by the owner.

Prior to Fernandes, an alternative view could be found in the case of Newman. There, the Ontario Court of Appeal held there is no vicarious liability when a negligent driver violates the express conditions of consent given by the vehicle’s owner. In Newman, where an owner gives permission to drive on private property but not the highway, the owner is not liable for damages sustained as the result of a highway accident.

Sharpe J.A. referred to David Polowin in defence of the position that it is “permissible for this court to overrule one its prior decisions if it is satisfied that the error should be corrected after considering ‘the advantages and disadvantages of correcting the error’”.

The advantages of overruling Newman outweighed any disadvantages examined. The Court was unimpressed with the notion that Mr. Almeida or any other vehicle owner relied on Newman when deciding whether to grant possession to another. Furthermore, since insurers like Allstate must provide owners with coverage even where the vehicle is operated in a manner prohibited by the owner, the Court found it unlikely they would rely on Newman in the management of their affairs.

Concluding Remarks:

Fernandes provides a fascinating illustration of the Ontario Court of Appeal’s decision in David Polowin – referring to the common law’s capacity to evolve and improve with the times and reminding future courts that stare decisis is not an absolute principle.

Question: does the effect of the Court’s choice of language protect its decision from appeal to the Supreme Court? Sharpe J.A., states in clear language that the issue in Fernandes is not a matter of national importance. If a trial judge says ‘I don’t think this decision should be appealed/ this is not worth appealing’ – how much weight should one give to that statement?

It is thought-provoking to consider whether the Ontario Court of Appeal would find differently in the event the accident occurred inside Almeida’s property (and the Highway Traffic Act was not directly implicated in the analysis). For example, it is not difficult to imagine a scenario in which the owner of an ATV vehicle consents to possession within a property boundary; imposing limits such as ‘keep the vehicle below a certain speed’ or ‘don’t go over large jumps’. In the event these hypothetical instructions were disobeyed, and an accident followed, what would the result be? It falls to future Courts to clarify the boundaries and test the limits of Fernandes.

Counsel for the Appellant: Sheldon Gilbert, Q.C. (Gilbert Kirby Stringer LLP, Toronto)

Counsel for the Respondent Sara Fernandes: Leslie Brown and Stacey Stevens (Thomson Rogers, Toronto)

Counsel for the Respondent Eliana Araujo and The Superintendent of Financial Services: Lorraine Takacs (Hughes Amys LLP, Toronto)

Discuss on CanLii Connects

Posted: Wednesday, September 02, 2015