Canada: Back To Basics On Betterment: A Primer On Recent Judicial Decisions Pertaining To The Issue Of Betterment

The long established principle applicable to damages in tort actions is best captured by the Latin maxim restitutio ad integrum, which means that the damages shall be such as will, so far as money can, put the plaintiff in the same position as he would have been had the tort not occurred. Unfortunately, when dealing with a situation where a tortious act leads to damage of real property, the courts have had difficulty calculating how in fact a plaintiff should be compensated for their loss to coincide with the above maxim.

Where real property is damaged, the normal measure of damages is the diminution in value. This is typically described as the value lost due to a circumstance or set of circumstances that caused the loss. Specifically, it measures the value of something before and after the causative act or omission creating the lost value in order to calculate compensatory damages.

An alternative measure of damages for real property, is based on the cost of repair reduced by the amount to which those repairs will better the property; a concept known as betterment. Betterment denotes an addition to or enhancement of real property that increases its capital value and is designed to make the property more useful or have an increased market value. Betterment involves the expenditure of labour or money and is designed to make the property more useful or valuable as distinguished from ordinary repairs.

Betterment and the Court's Interpretation

The leading case discussing the legal principle of betterment is James Street Hardware v Spirrizi.1 In James Street Hardware, the Court of Appeal of Ontario provided the following:

The answer lies in compensating the plaintiff for the loss imposed upon him or her in being forced to spend money he or she would not otherwise have spent - at least as early as was required by the damages occasioned to him by the tort. In general terms, this loss would be the cost (if he has to borrow) or value (if he already has the money) of the money equivalent of the betterment over a particular period of time.

In general terms, the Court in James Street Hardware intended that a plaintiff should recover the amount by which the property was improved deducted from the award but should also be compensated to the extent that he or she was required to improve the property prematurely. The Court in James Street Hardware, also pointed out that each case turns on its own facts and the process of assessing damages should be a practical one designed to do justice between the parties. The process should not be unnecessarily complicated or rule-ridden. The rules applied should be responsive to the particular facts of the case.2

A few years following James Street Hardware, the British Columbia Court of Appeal dealt with issues pertaining to the calculation of damages in a tortious action for real property in Nan v Black Pine Manufacturing Ltd.3 In Nan, the Court provided the following:

[D]amages shall be such as will, so far as money can, put the plaintiff in the same position as he would have been had the tort not occurred. The second is that the damages awarded must be reasonable both to the plaintiff and to the defendant. [emphasis added].

The result of the application of these principles, in most cases involving the tortious loss of or damage to property, will be that replacement costs will at least be the starting point for the assessment of damages. Whether or not the damages based on such costs should then be adjusted, either for pre-loss depreciation or post-reinstatement betterment, will depend on what is reasonable in the circumstances. No rules can be fashioned by which it can invariably be determined when such allowances should be made. It must, in all cases, turn on the facts peculiar to the case being considered.4

The Court of Appeal reasoned that the key factor in calculating damages in a tortious act against real property was the reasonableness of rebuilding the property. If same was reasonable, then the plaintiffs would be entitled to the full amount of the costs of replacing the real property, without deduction for either pre-loss depreciation or post re-instatement betterment.

Following Nan, the British Columbia Court of Appeal, in Laichkwiltach Enterprises Ltd. v. "Pacific Faith" (The)5 further addressed the issue of betterment by providing:

Betterment is a question of fact to be determined on the evidence and with regard to what is reasonable in the particular case. The starting point is the cost of repair. In some cases, that cost will also be the end point. In other cases, betterment will be proven and it will fall to the trier of fact to assess the extent of the betterment.

The above cases provide that cases where betterment may arise should be dealt on a case-by-case basis, led by evidence with regard to what is reasonable in the particular case and the starting point for an assessment of a deduction for betterment should start at the cost of repair for the real property. A trier of fact will take the above and make a determination as to the extent of betterment in each specific case.

Recent Ontario Decisions Pertaining to the Issue of Betterment

In Fors v. Overacker,6 the Plaintiff commenced an action for damages arising out of the Plaintiff's purchase of a house from the Defendants. The Plaintiff experienced significant water problems with the home relating to the sump pump system as well as deficiencies in the septic field, moisture in the basement and leaking from a skylight. The issue of betterment was raised by the Defendants and Third Party with respect to replacing the subject roof and the septic field. The parties contended that replacement of same would constitute betterment as the home was 23 years old and that a reduction between 50% to 75% was appropriate.

Justice Shaw writing for the Ontario Superior Court provided that the Defendant and Third Party did not lead evidence that the value of the subject house would have been enhanced if the skylight and septic systems were remediated or that if the remedial work had been done prior to the Plaintiff's purchase of the home that he would have paid a higher price for same as the purchase was completed under the assumption that these items were operating properly. In addition, the court provided that these expenses were as a result of the misrepresentation by the defendants and it would be inequitable to reduce the damages by some amount for betterment that was speculative.

In Gemeinhardt v. Babic,7 the Plaintiff purchased a farm property from the Defendants and discovered latent defects in the home and property, including flooding in the basement, a failed furnace and major structural defects among others. The Plaintiff commenced an action claiming damages for breach of the Agreement of Purchase and Sale. When turning to the issue of betterment, the Defendants argued that the Plaintiff was entitled to a new home and garage, which was to be constructed at extravagant cost, which resulted in betterment to the property.

Justice Di Tomaso writing for the Ontario Superior Court disagreed with this argument as the buildings on the property were determined to be a complete write-off and worth nothing due to the latent defects, which had to be replaced. The Court provided that there was no reasonable basis for granting any allowance for betterment since the claim was speculative and opined that the Plaintiff was entitled to the full cost of reinstatement. In addition, the Court provided that it was inequitable for the Plaintiff to suffer such a loss if a deduction from her damages for betterment were allowed. It was noted that no evidence was brought forward to demonstrate that the value of the house the Plaintiff purchased would have been enhanced if the basement water and septic problems were remediated or if the remedial work had been done before the Plaintiff had purchased the house or that she would have paid a higher price.

In Scaffidi-Argentina v. Tega Homes Developments Inc.,8 the owners of a five-unit residential rental property commenced an action following their property being rendered uninhabitable following the construction of a multi-unit condominium complex on the abutting property built by the Defendant. This case dealt with assessing pre-loss depreciation opposed to issues with betterment following remediation efforts as the subject property had yet to be remediated. Justice Sheard, writing for the Superior Court of Justice concluded that, in this specific case, the appropriate measure of damages was the diminution in the value of the property rather than the cost of replacement.

In Justice Sheard's reasons, it was noted that the Plaintiffs did not show that they intended to rebuild their property and it was not reasonable for them to do so. It was the onus of the Plaintiffs to lead evidence on the cost of rebuilding. The evidence led by the Plaintiffs, through their experts, was based on the construction of a building that did not resemble the pre-damage design. Further, the evidence was unclear as to what changes would be required to a new building to meet the current building standards or as to what additional costs were associated with meeting those new standards. The lack of evidence led by the Plaintiffs was their ultimate downfall in establishing that their damages should be assessed on a replacement value absent any deduction for pre-loss depreciation.

Other Recent Canadian Decisions Pertaining to the Issue of Betterment

In Yi v. Varadi,9 following the purchase of a home, a few potential problems with same were identified. The most important were relating to pillars located in front of the house, which were missed on inspection prior to purchase. Remedial work was carried out to ensure the pillars were safely installed in the ground following purchase of the house. The Provincial Court Civil Claims awarded damages to the Appellant for the Respondent's negligence.

On appeal, the Alberta Court of Queen's Bench upheld the trial judge's decision with respect to the deduction for betterment conferred by the remedial work on the Appellant's house. First, the Court provided that it was reasonable to use the cost of repair as the starting point for the determination of the value of betterment, as provided for in Laichkwiltach. Second, the Court agreed with the trial judge using "one quarter of the cost of repair" as the formula for deduction and assessed this calculation as reasonable and appropriate.

In Hik v. Redlick,10 a summary trial was held to assess damages caused to the Plaintiff's land by the Defendants. This summary trial as held following the Court of Appeal of British Columbia's reversal of the initial trial judge's dismissal of the action. In assessing a possible deduction for betterment, the British Columbia Supreme Court concluded that the Plaintiff's land resulted in a considerable betterment as rock was removed that would have otherwise formed part of the soil on the land in any event. The Plaintiff's claim for rockpicking, scraping and stockpiling was deducted in the sum of $20,000 to reflect what the Court considered work done beyond that which was probably necessary and to the betterment of the land. In addition, the Court also deducted $8,200 to reflect the betterment to the land that resulted from the construction of a block wall beyond what was probably strictly required to remediate the damages caused by the Defendant. In Hik, Justice Melnick writing for the British Columbia Supreme Court calculated a deduction for betterment by applying Laichkwiltach and Nan.

Conclusion

The above recent cases provide that betterment issues pertaining to real property will be determined on a case-by-case scenario and must be evidence driven. It is not fair for a defendant to simply speculate on the extent that a property may have been bettered without providing adequate evidence to substantiate the claim for a deduction. In addition, the above cases demonstrate situations where a court will likely refrain from apportioning a deduction for betterment on a Plaintiff's award for real property damages. As the cases provide, courts are hesitant to make a deduction for betterment when it would be inequitable to the Plaintiff to do so. This was evidenced in circumstances when an at-fault party has engaged in some form of misconduct that caused or contributed to the incident requiring the remediation efforts in the first place or where replacement of the property was made out of necessity with no alternative avenue for recourse at the time.

Ultimately, each case will be adjudicated on its individual merits. Nonetheless, counsel and adjusters a like should be aware of the nuances associated with seeking or defending a claim for deduction of a damages award based on betterment. The above cases are illustrative of situations in recent years where a claim for deduction have been successfully advanced or denied.

Footnotes

1. [1987] 2 O.R. (2d) 385 (Ont.C.A.) at para. 63. [James Street Hardware].

2. James Street Hardware, at para. 64.

3. 1991 CarswellBC 75, [1991] 5 W.W.R. 172, [1991] B.C.W.L.D. 1245, [1991] B.C.J. No. 910, 55 B.C.L.R. (2d) 241, 80 D.L.R. (4th) 153. [Nan].

4. Nan, at paras. 19-20.

5. 2009 BCCA 157, 2009 CarswellBC 869.

6. 2014 ONSC 3084, 2014 CarswellOnt 8909.

7. 2016 ONSC 4707, 2016 CarswellOnt 11908.

8. 2016 ONSC 5448, 2016 CarswellOnt 13960. [Scaffidi-Argentina].

9. 2013 ABQB 201, 2013 CarswellAlta 557. [Yi].

10. 2014 BCSC 1532, 2014 CarswellBC 2388.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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