A New Category of Punitive Damages, The Law Times (April 15, 2019, p 7)

By Nikolay Y. Chsherbinin

    Punitive damages are meant to punish malicious and outrageous acts that offend the ordinary standards of morality or decent conduct. Since they are not meant to be compensatory, their focus is on a wrongdoer’s misconduct, not a victim’s loss. In McCabe v. Roman Catholic Episcopal Corporation for the Diocese of Toronto in Canada, 2019 ONCA 213 (“McCabe”), the Court of Appeal for Ontario considered and rejected a new category of punitive damages arising out of the timing of an admission of liability. However, its judgment was split with Justice Benotto writing for the majority on all issues, but dissenting on punitive damages, thereby creating an opportunity for his novel theory of liability to be determined by the Supreme Court of Canada.

In McCabe, a 67-year old Robert McCabe sued the Diocese of Toronto for damages relating to his experience of sexual abuse by a now deceased priest, Father Robert, when he was 11 years old. After years of denying liability, the Diocese admitted it on the first day of trial. The only issue at trial was the amount of damages. At trial, the jury was asked: “does the failure of the Diocese to admit liability before the trial warrant an award of punitive damages.” Before a question can be put to a civil jury, a trial judge has a duty to determine whether there is reasonable evidence to support the claim. If it exists, the question can be rightly submitted to the jury, which had occurred in McCabe. The jury awarded $15,000 in punitive damages. The Diocese appealed on the basis that there was no basis for the trial judge to leave the issue of punitive damages with the jury. The ONCA agreed and set the punitive damages award aside.

The purpose of punitive damages is to punish an independent actionable wrong. The actionable wrong does not require an independent tort and a breach of a 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 actionable wrong. Egregious behaviour during litigation has been held to be an independent actionable wrong warranting punitive damages. In determining whether punitive damages should be granted, the court must ask two threshold questions, first: what is the impugned conduct; and, second, whether it raises to the level of egregious misconduct warranting punitive damages.

In McCabe, Justice Benotto found the Diocese’s strategic decision not to admit responsibility to a vulnerable victim of abuse until the morning of the trial to be “uniquely egregious,” because its refusal to admit was hurting McCabe and the ongoing litigation process was causing him to suffer pain. However, Justices Roberts and Strathy found that there was no evidence that the Diocese deliberately inflicted pain on McCabe. Nor did McCabe seek punitive damages on the basis of any misconduct on the Diocese’s part, but rather because of its vicarious liability for its employee’s wrongful actions. Curiously, McCabe raised the new theory of punitive damages based on the Diocese’s delay in admitting liability only after the trial judge had advised that there was no foundation for punitive damages on the basis of vicarious liability.

In his strong dissenting opinion, Justice Roberts found it to be procedurally unfair to allow McCabe to put forward a new basis for punitive damages that had not been pleaded or alleged until after the trial evidence was completed. His Honour noted that a defendant’s denial of liability, without more, does not attract an award of punitive damages, but it may give rise to a considerable costs sanction.

It is trite law that no defendant is required to admit liability or settle an action, because it is up to a plaintiff to prove his case no matter how painful the litigation proves to be. A delay to admit liability may give rise to an adverse costs award pursuant to subrules 57.01(1)(e) and (g) of the Rules of Civil Procedure, which explicitly include consideration of a party’s conduct that either shortened or lengthened the proceedings, and a party’s denial of or refusal to admit anything that should have been admitted. However, Justice Roberts reminded 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.”

Awarding punitive damages for conduct during litigation, while not common in employment cases, has a basis in precedent although rarely, if ever, as the sole basis for such awards. In McCabe, Justice Benotto attempted to extend this concept by adding the timing of the admission of liability as a novel ground for awarding punitive damages. On the one hand, this theory represents a troubling development, because it puts seemingly unjustified pressure on a defendant to expeditiously admit liability under the pain of punitive damages; while on the other, it could represent a welcome development, rooted in the duty of good faith and fair dealing, that a party’s vulnerability ought not to be exploited as a negotiation or delay tactic. When it comes to an award of punitive damages, it is this relationship of reliance and vulnerability that, if outrageously exploited, justifies such an award.

McCabe illustrates that the failure or delay of an employer in admitting liability does not serve as a standalone basis for the award of punitive damages. However, if a vulnerable employee could establish that the employer’s litigation behaviour (for example, lying, obfuscating, delaying, misleading etc.) was a continuation of its pre-litigation misconduct, which gave rise to the subject of the action, and had a profound effect on him and the litigation process, the novel theory of liability that Justice Benotto propounded could be cautiously invoked.