Bowman v. Martineau, 2020 ONCA 330
In Bowman v. Martineau, the Ontario Court of Appeal clarified an important principle in professional negligence and real estate litigation: where a negligent real estate professional causes purchasers to enter into a transaction they otherwise would have avoided:
damages are generally measured
- by the purchaser’s overpayment or
- diminution in value,
- not by the full cost of repairing the property.
The case arose from the purchase of a residential home that suffered from significant and ongoing water infiltration and mould problems. The vendors had concealed the defects, and the respondent purchasers relied upon representations made during the transaction, including information contained in the Seller Property Information Statement (“SPIS”). The appellant real estate agent, Suzanne Martineau, acted for both the vendors and the purchasers in the transaction.
The Trial Judge found that the vendors were liable for non-disclosure and concealment of the water damage. The Court also found that Ms. Martineau and the brokerage, Re/Max Hallmark Realty Limited, were professionally negligent in the performance of their duties to the purchasers.
The negligence findings arose primarily from Ms. Martineau’s
- handling of the SPIS and
- her failure to investigate obvious concerns relating to the condition of the property.
The Trial Judge concluded that she
- failed to properly review and verify the information contained in the SPIS with the vendors and
- then failed to adequately discuss or verify that information with the purchasers.
Had she done so, the Court found that she would have discovered evidence of ongoing roof leakage and water penetration issues. Instead, the purchasers were deprived of the opportunity to learn of the true condition of the property before completing the transaction.
The Trial Judge determined that, but for the negligence of the real estate defendants, the purchasers would not have entered into the agreement of purchase and sale.
At trial, damages totaling approximately $450,000 were awarded, including the estimated cost of repairing the home, remediation expenses, alternative accommodation costs, wasted carrying expenses, and general damages.
Liability was apportioned 70% against the real estate agent and brokerage and 30% against the vendors. The vendors and purchasers had previously entered into a proportionate share agreement regarding the vendors’ responsibility.
On appeal, the real estate defendants did not challenge the findings of negligence or the apportionment of liability. Instead, the appeal focused primarily on the proper measure of damages.
The Court of Appeal accepted the trial judge’s finding that the negligence of the real estate professionals caused the purchasers to enter into a transaction they otherwise would have avoided. However, the Court held that the Trial Judge made a critical legal error by characterizing the purchasers’ loss as the loss of a “defect-free home.”
Writing for the Court, Roberts J.A. emphasized that the negligence of the real estate professionals did not cause the water and mould damage itself. The defects already existed before the transaction. Rather, the negligence caused the purchasers to buy a property burdened with those defects. That distinction was central to the damages analysis.
The Court carefully reviewed earlier authorities dealing with negligent solicitors, real estate professionals, and defective properties, including Krawchuk v. Scherbak, Messineo v. Beale, and Jarbeau v. McLean. The Court explained that in some cases professional negligence either creates the defect itself or deprives the plaintiff of the ability to recover against the party who caused the defect. In those situations, repair costs may properly reflect the plaintiff’s true loss.
This case was different. Even if the appellants had acted competently, the purchasers would never have acquired a mould-free house. They simply would have avoided the transaction altogether.
As a result, awarding the full cost of repairs would place the purchasers in a better position than they would have occupied absent the negligence and would therefore amount to overcompensation.
The Court held that the proper measure of damages was
- the diminution in value of the property
- namely, the difference between the purchase price paid and
- the actual value of the home in its defective condition.
The Court also confirmed that consequential damages flowing from the negligent advice, such as certain carrying costs and related losses, could still be recoverable where properly connected to the negligence.
Importantly, the Court rejected the appellants’ argument that the purchasers failed to mitigate their damages by abandoning or selling the property. The evidence demonstrated that the purchasers were in difficult financial circumstances, could not afford alternative housing or extensive remediation, and remained bound by mortgage obligations. In those circumstances, their decision to retain the property and pursue legal remedies was found to be reasonable.
The Court also upheld the Trial Judge’s conclusion that frost-heave damage that later developed in the vacant property was reasonably foreseeable. Once the home became uninhabitable because of the mould and water problems, it was foreseeable that an unheated house exposed to winter conditions could suffer additional structural deterioration.
Ultimately, the Court allowed the appeal in part. The repair-cost component of the damages award was set aside, along with the related costs award, and the matter was returned to the Trial Judge for a reassessment of damages based upon
- diminution in value
- rather than reinstatement costs.
Bowman v. Martineau remains an important Ontario authority on the duties owed by real estate professionals, the proper use and verification of SPIS disclosures, and the distinction between repair-cost damages and diminution-in-value damages in professional negligence cases involving defective real estate transactions.
Brian Madigan LL.B., Broker