Canada: Admission Or Admonishment? The Ontario Court Of Appeal Splits On Punitive Damages For Failing To Admit Liability

Recently in McCabe v. Roman Catholic Episcopal Corporation, the Ontario Court Appeal penned another chapter in the saga of when, why, and how, punitive damages should be awarded in Canadian law. The decision provides a pithy roadmap for the proper assessment of punitive damages. But it also grapples with a relatively novel issue before the Court, and one that could perhaps have wide-ranging implications for the disposition of contested civil litigation in Ontario and throughout Canada:  whether a failure to admit liability in a reasonable or timely manner in the circumstances can attract an award of punitive damages.

The underlying facts in McCabe concerned an action against the Roman Catholic Diocese of Toronto for historic sexual abuse perpetrated by a now-deceased priest. After years of denying liability, the Diocese admitted vicarious liability on the first day of the jury trial. The trial proceeded solely on the issue of damages. The jury awarded general and aggravated damages, damages for loss of income, and punitive damages.

The Diocese appealed on, among other grounds, the award of punitive damages, arguing it was unwarranted. It argued it could not be 'punished' for refusing to admit vicarious liability until trial. In its view, "[t]he admission of liability on the first day of trial was not conduct of a malicious, oppressive or high-handed nature", so as to attract punitive damages. Rather, it demonstrated an exercise of its right to engage in litigation strategy and consideration as it saw fit in the circumstances.

The full panel of the Court of Appeal largely found common ground and dismissed the appeal on all fronts but for the issue of punitive damages, on which it split. Writing for the majority on all other issues, but dissenting on punitive damages, Benotto J.A. neatly canvassed the nature of punitive damages and outlined the basic applicable principles for consideration:

  • Punitive damages are meant to punish the wrongful acts "that are so malicious and outrageous that they are deserving of punishment on their own";
  • To award punitive damages, an "independent actionable wrong" is required;
  • An "actionable wrong" does not require an independent tort, such that a breach of the contractual duty of good faith, or breach of a distinct and separate contractual provision, or other duty such as a fiduciary obligation can qualify as an independent wrong;
  • Punitive damages are awarded when the impugned conduct offends "the ordinary standards of morality or decent conduct";
  • Extreme power imbalance and vulnerability of the wronged party can be significant features when considering punitive damages;
  • "[P]unitive damages are the exception rather than the norm"; and
  • Conduct of the litigation has been held to be an independent actionable wrong that could give rise to punitive damages.

Benotto J.A. relied on these principles, in particular the role of punitive damages "to address conduct of the litigation deserving of condemnation", to find that in the case at bar, "the egregious behaviour was more nuanced ... the Diocese's strategic decision not to admit responsibility to a vulnerable victim of abuse – given these circumstances – is uniquely egregious". In her view, "the claim for punitive damages was based on the fact that the appellant's failure to admit liability caused the fragile respondent to suffer pain", for which there was supporting evidence. Accordingly, it was permissible that the jury had been charged on whether the failure of the Diocese to admit liability before the trial warranted an award of punitive damages. As Benotto J.A. put it:

In my view the jury's award was a symbolic condemnation of the Diocese's conduct in failing to admit liability despite knowledge of additional harm to Mr. McCabe.  To overturn the jury's determination would be to sanction the conduct.

Roberts J.A., writing for herself and Strathy C.J.O. in the majority, disagreed and allowed the appeal with respect to punitive damages. In Roberts J.A.'s view, by leaving this issue to the jury, "the trial judge created a new and unprecedented category of punitive damages arising out of the timing of the appellant's admission of liability", which Benotto J.A. had incorrectly blessed. Rather, according to Roberts J.A., "[t]here is no basis in law for such an award". Indeed, the misconduct of the defendant supporting the punitive damages award must be a continuation of the misconduct that gave rise to, and was the subject of, the action within the context of a particular relationship between the parties, which was absent in the case at bar. In this vein, Roberts J.A. posited that:

In determining whether punitive damages should be granted, the court must ask two threshold questions: first, what is the impugned conduct; and, second, whether the impugned conduct rises to the level of egregious misconduct warranting the exceptional award of punitive damages.

And in majority's view:

  1. "[T]he appellant's delay in admitting liability, alone, could not be characterized as egregious misconduct justifying an award of punitive damages. Rather, the appellant, as it was perfectly entitled to do, did not admit liability until the opening of trial. The appellant's exercise of its litigation rights cannot be characterized as egregious misconduct warranting punitive damages"; and
  2. "A defendant is under no obligation to admit liability and, subject to attracting the elevated costs consequences I refer to below, may put the plaintiff to the strict proof of his or her allegations, no matter how painful the litigation process proves to be for the plaintiff, without fear of invoking a punitive damages award".

However, Roberts J.A. was clear to state that "[w]hile I am of the view that a defendant's denial of liability, without more, does not attract an award of punitive damages, it may give rise to a considerable costs sanction", relying upon s. 131 of the Courts of Justice Act, Rule 57.01, and the fact that "the court's inherent jurisdiction to control its process to prevent an abuse of process allow for an award of costs up to full indemnity in response to egregious misconduct by a party in the course of the proceedings". Yet even so, "[i]t is important to note, however, that a defendant's failure or delay to admit liability that falls short of litigation misconduct or abuse of process may not even attract elevated costs." Indeed, in the end, there is no duty on a defendant to admit liability or settle an action, so a delay in doing so, if done at all, cannot typically be reprimanded.

Ultimately, this decision represents the reality that circumstances calling for punitive damages in Canadian law remain evolving and unsettled. The decision provides a helpful primer on what can be considered the established fundamentals relating to punitive damages. But it also highlights where and how courts can reasonably differ on their invocation. What can be discerned from the Court of Appeal's decision, however, regardless of the split, is that punitive damages remain exceptional, they require a "very high standard that is not easily reached", and they should be reserved only for the clearest of cases where compensation is insufficient to achieve deterrence and denunciation.

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