BC Court of Appeal rules surveyor hired by one neighbour didn't owe duty of care to other neighbour

If a surveyor hired by one property owner in a boundary dispute gets it wrong, does the neighbouring owner have a claim in negligence against that surveyor?

In 2002, Owner B purchased a property and was aware that a fence at the back of the property might not align with the actual boundary line.  In 2007, Owners K bought the property directly behind B's property.  The Ks disputed the location of the fence, arguing that it was 12 feet inside their property line.  The Ks had hired a surveyor.  He'd already surveyed the property in 1990 and surveyed it again in 2007.  In both surveys, he found that the fence was 12 feet inside the property line.

In 2008, under cover of darkness, Mr. K tore down the fence.  B immediately commenced an action in trespass against the Ks.  Following a summary trial, the B.C. Supreme Court found that the Ks' surveyor was correct (that the fence was within the Ks property) and dismissed the trespass claim.  However, that decision was overturned on appeal.  A second trial took place and the Supreme Court this time ruled in favour of B.  The Court concluded that the Ks' surveyor was not correct and that the boundary was actually in the location of the fence.  That decision was upheld on appeal.

As is usually the case, B was awarded part of her costs payable by the Ks, leaving her out of pocket the difference between the costs awarded and her actual legal costs.  So B commenced an action against the Ks' surveyor, arguing that his errors resulted in her financial loss.  In response to B's action, the surveyor made an application to strike the claim on the basis that B had no cause of action against the surveyor.  That application was dismissed by the Supreme Court and the case ended up again before the Court of Appeal.

The Court of Appeal reversed the lower court decision and allowed the surveyor's application to strike B's claim on the basis that it failed to disclose a reasonable cause of action.  In summary, the Court wrote: "[B]'s pleading is fundamentally flawed. It fails to advance facts that reveal the necessary relational proximity to establish a duty of care. It does not allege that she had direct dealings with [the surveyor] or relied on his representations. Nor does it set out facts that would reasonably support a conclusion that [the surveyor] inferentially assumed responsibility for her beneficial interests. [B]’s claim must therefore be struck."

To recover damages in a negligence claim, it's not only necessary for the claimant to prove that the defendant (in this case, the surveyor) fell below the required standard of care and was negligent, but the claimant must also show that there was a relationship between the claimant and the defendant that created a "duty of care".  Making a mistake doesn't mean that someone will be liable to everyone in the world for any sort of loss that might somehow result from the mistake.  In this case, B had not hired the surveyor.  The Ks hired the surveyor in the context of an adversarial dispute with B, and the Court found that the surveyor did not assume responsibility for B's interests and did not owe her a duty of care.  

Read the decision at: Burke v. Watson & Barnard (A Firm).

Divisional Court comments on positive covenants

Property owners may covenant with one another in connection with their lands.  They may agree to negative covenants, which prevent certain things from being done on or with the land. For example, a negative covenant may prohibit certain uses that can be made of land or require that only certain types of building materials or colours can be used in buildings, etc.  Owners may also agree to positive covenants, which are promises to do something.  For example, a positive covenant may require one neighbour owner to pay something toward the costs of maintaining shared facilities or actually to carry out the maintenance activities, etc. 

The distinction between negative and positive covenants is important because, in Ontario and traditionally at Common Law, positive covenants do not generally run with the land.  That is, although a covenant may somehow be registered on title to a property (in a deed or easement, etc.), it does not necessarily follow the land when ownership changes.  Negative covenants will bind future owners, but positive covenants will not normally bind future owners.  Positive covenants are treated as agreements between the individual owners that attach to the owners, rather than to the land.

However, there are exceptions to the general rule.  In a 2016 appeal from a Small Claims Court decision, the Ontario Divisional Court reviewed the law on positive covenants and the exceptions to the general rule that positive covenants do not run with the land.  Statutory exceptions to the rule include: positive covenants granted by public authorities (Planning Act, R.S.O. 1990, c. P.13); positive covenants concerning condominiums (Condominium Act, 1998, S.O. 1998, c. 19); and positive covenants between the Crown and private landowners concerning the installation of survey monuments (Surveys Act, R.S.O. 1990, c. S.30, s. 61(1)).

There are also Common Law (non-statutory) exceptions to the general rule, including chain of covenants, the doctrine of benefit and burden, and conditional grants.  

The chain of covenants exception applies when successors-in-title (the future owners) agree to the same positive covenants.  That is, each time a property subject to the original positive covenant is transferred, the new owner(s) would agree to be bound by the covenant.  In reality, this is arguably the creation of a new covenant at the time of each transfer rather than a true exception to the rule.

In the 2016 appeal case, the Divisional Court described the other two Common Law exceptions as follows:

•  Conditional Grant Exemption. When being asked to enforce a positive obligation, the courts will first look at the transaction between the parties to see if a benefit was clearly made on the conditional acceptance of a positive obligation. If such an intention can be made out on the face of the transaction, the conditional grants exception is engaged
•  Benefit and Burden Exemption: If a conditional connection between the obligation and the benefit is not clear, the courts will then consider whether the benefit and burden exception applies. By looking at the circumstances of the transaction, the intentions and relationship of the parties, and the nature of the benefits and burdens at issue, the courts will determine if there is an implicit and necessary connection between formally separate obligations and advantages. Or, to repeat the words of Professor Ziff, this second exception looks to whether the courts should “tether previously separate promises”.

Both of those exceptions happen in circumstances where the Court determines that a future property owner should not escape the obligations of a previously-made positive covenant (on account of the positive covenant not running with the land) where that property owner is receiving a benefit connected with the covenant.  The Divisional Court summarized: "In a fulsome, pragmatic approach, as confirmed in Wilkinson, the courts must look to the substance of the relationship between the benefit and the burden to determine if the positive covenant continues to apply. As noted by Vice-Chancellor Megarry in Tito, when there is a sufficient degree of correlation between the obligation to pay and the grant of benefits, the burden and benefits exception applies."

Read the Divisional Court's decision at: Black v Owen.

Title Insurance and the costs of defending title to your property

Most real estate transactions in Ontario today involve title insurance.  Purchasers obtain title insurance to protect against unknown defects in title that crop up after the closing of the transaction, and title insurance policies generally include coverage for legal costs associated with defending title to a property.  As an example, if you purchase a property and then a neighbour commences a claim for adverse possession of part of the property (i.e. a claim that the neighbour is the true owner of something you thought you purchased), the title insurance coverage may include payment of the costs of defending the claim.

The issue of what legal costs may be covered by a title insurance policy, or what other costs may be covered, is normally a matter of interpretation of the contract as between the insured property owner and the title insurer.  However, Ontario courts have recently looked at what effect cost recovery under a title insurance policy should have on the awarding of costs in litigation.  If a property owner receives a payment from his or her insurer pursuant to a title insurance policy, should the owner also be entitled to a costs award against the other party in a dispute?  Is there a risk of double recovery?  Should that matter?

In 2011, the Ontario Court of Appeal ruled in Krawchuk v. Scherbak that a private insurance exception can apply to permit double recovery: "where a plaintiff recovers under an insurance policy for which he has paid the premiums, the insurance monies are not deductible from damages payable by the tortfeasor".  In that case, Ms. Krawchuk had purchased a house with serious latent defects based on misrepresentations by the vendors.  She had made a claim for coverage under her title insurance policy and settled that claim with the title insurer in exchange for a payment.  The defendants in the action argued that Ms. Krawchuk's recovery in the court action (which did not involve the title insurer) should be reduced in relation to the payment received under the title insurance policy.  Otherwise, they argued, Ms. Krawchuk would receive a windfall - double recovery.  The Court of Appeal found that double recovery was permitted in that case because it would be inequitable to allow the vendors (the tortfeasors or wrongdoers) to gain an advantaged based on benefits earned by Ms. Krawchuk through the payment of insurance premiums.

But what about a case where there is no tort or wrongdoing?  In a case decided in 2016, a judge of the Ontario Superior Court of Justice found that there was no wrongdoing and, on that basis, deducted title insurance proceeds from an award of costs to the successful parties.  The case involved use by one neighbour of a roadway that ran through another neighbour's property.  The road was not a public highway, and the owners of the road made an application to the Court for a ruling that the road was not an "access road" as defined by the Road Access Act and for an order closing the road.  The neighbours made a counter-application seeking the opposite orders.

The Court agreed with the road owners that the road was not an "access road" and issued an order preventing the neighbours from using it.  Not surprisingly, the road owners had looked to their title insurance policy for coverage in the matter, which affected title to their property.  They received a payment of roughly $25,000 from their title insurer.  The application judge found that the road owners used "those fund[s] to defend the application ... rather than accepting payment in compensation for the inconvenience of providing ... access."  That is, the road owners could have simply kept the $25,000 as disturbance compensation and allowed use of the road to continue (in which case they would not have incurred litigation costs).  Instead, the road owners used the funds received to fund the litigation and were successful in avoiding the disturbance that would have been caused by ongoing use of the road.

Based on that distinction, the application judge deducted the $25,000 title insurance payment from the overall costs awarded to the successful road owners in the case.  He distinguished the case from the Krawchuk v. Scherbak case heard by the Court of Appeal on the basis that there was no tort or wrongdoing involved.  This was simply a case about whether an "access road" under the Road Access Act did or did not exist.  In the absence of a tort or wrongdoing, the application judge was not prepared to allow a double recovery by the road owners through an award of costs.

Read the decision at: Gouett v Mullins.

Compensation for Injurious Affection: Impact on remaining land or impact on financial position of owners?

AltaLink expropriated a right-of-way over a strip of land from an Alberta couple for an electrical transmission line.  In a compensation hearing before the Alberta Surface Rights Board (the "Board"), the owners were denied compensation for injurious affection.  The injurious affection they claimed was a loss in value of the remainder of their property that was not taken by AltaLink.  The owners appealed the Board's decision to the Alberta Court of Queen's Bench and, on appeal, the Court reversed the decision of the Board and awarded the owners $125,780 in lost value plus interest.

The land in question consisted of two adjacent parcels containing approximately 230 acres, of which approximately 121 acres were cultivated.  The owners had purchased the land in February, 2013 for $511,500, and they were aware at that time that AltaLink had received approval from the Alberta Utilities Commission to construct and operate the transmission line across the property.  Prior to the purchase of the property, the new owners had rented the property for approximately 27 years, and it appears from the decision that they were able top purchase the property at below market value.  The Board found that the market value at the time of the expropriation in 2014 (the date of valuation for the purpose of calculating compensation) was somewhere between $902,000 and $930,000.

The owners argued that the taking of the right-of-way resulted in a loss of value to the balance of the property that was not taken as right-of-way related to the presence of the right-of-way and the transmission line.  They argued that their loss was not limited to the loss of value to the land as they were currently using it, but should be calculated based on their loss of ability to subdivide the property for new residential lots.  But for the AltaLink right-of-way, the owners could subdivide and sell the individual lots.  They put the value of their loss at 30% of the market value of the property.

The Court disagreed with the owners that the right-of-way would prevent the development of multiple residential lots, but accepted that the right-of-way would result in a loss in the value of the lots that could be created.  On that basis, the Court would have calculated the compensation to be paid to the owners based on  a market value loss of 15% (half of the 30% proposed by the owners), or approximately $131,000.  The Court then ended by making a finding that the $125,780 that would have been awarded by the minority dissenting member of the Board (in the original hearing) was therefore reasonable and set compensation at that amount.

Taken on its own, the Court's ruling on loss of value to the remainder of the property based on loss of value of prospective subdivision lots is not remarkable.  However, what is noteworthy is the Court's rejection of AltaLink's argument that no injurious affection compensation was payable at all because the market value of the property never fell below the amount the owners paid for the property.  AltaLink argued, and the majority of the Board had agreed, that an award of injurious affection would result in a windfall for the owners because they had paid substantially less than market value for the property.

But the Board had incorrectly "focused on the financial loss to the landowners and not the loss in value of the remaining land ... they were suspicious that the negative impact of the transmission line had already been factored into the sale price."  The Court ruled that "the fact that the Appellants purchased the land after the Respondent obtained a permit and license to build the line is of no consequence.  The payment for injurious affection is based on the impact on the value of the remaining land, not the impact on the financial position of the owners.  This does not result in a windfall or unjust enrichment to the Appellants because, until the line is removed, it will have a negative impact on the Land's value, which is an economic loss."

Read the decision at: Koch v Altalink Management Ltd.

Read CAFA's latest Cultivating Business magazine

The Canadian Association of Farm Advisors ("CAFA") has published its 2017 Cultivating Business magazine.  In addition to articles of interest to farmers and farm businesses, the magazine includes a directory of farm advisors from across Canada.  

Click HERE to read the full magazine.