Johnson v. Sarty, 2019 NSSM 17

SMALL CLAIMS COURT OF NOVA SCOTIA Citation: Johnson v. Sarty , 2019 NSSM 17 Date: 2019-04-28 Docket: SCCH 483764 Registry: Halifax Between: AMANDA JOHNSON and DENNIS O’TOOLE Claimant s - and - STEVE SARTY Defendant Also: SMALL CLAIMS COURT OF NOVA SCOTIA ON APPEAL FROM AN ORDER OF THE DIRECTOR OF RESIDENTIAL TENANCIES Docket: SCCH 481823 Registry: Halifax Between AMANDA JOHNSON and DENNIS O’TOOLE Tenants (Appellants) - and – STEVE A. SARTY Landlord (Respondent) Adjudicator: Eric K. Slone Heard: In Halifax, Nova Scotia on January 22, 2019 and April 18, 2019 Appearances: For the Claimants (Tenants), Wayne Bacchus, counsel For the Defendant (Landlord), self-represented BY THE COURT :

BY THE COURT : [ 1 ] This case comes before the Court as two matters, both arising out of the same fact situation. One matter is an appeal by the Tenants from a decision of the Director of Residential Tenancies. The other is a separate civil claim brought by the Tenants against the Landlord (the “civil claim”).

Of course, in that civil claim the parties are referred to as Claimants and Defendant, but for sake of the narrative I will refer to them throughout this decision as the Landlord and the Tenants. [ 2 ] The Landlord is the owner of an attractive smallish house on Sandy Lake in the Hammonds Plains area of Halifax. In the fall of 2017, the house was listed for rent, and a number of interested parties (including the Tenants) came to see it.

According to the Landlord, everyone who came to see the house was shown an information sheet that revealed the fact that the water supply was direct from the lake, through a filtration system. It cautioned that although the water was safe to drink, nevertheless it was recommended that bottled water be used for drinking. The Tenants claim not to have been aware of this fact and based their claim against the Landlord in a small measure on this contention, suggesting that this entitled them to terminate the lease early.

I find it difficult to believe that they would not have expressed curiosity about the water supply before renting and find as a fact that they knew from the outset that it was lake water. Mr. O’Toole admitted that he knew about it very early in the tenancy, so even on that evidence it seems to me that if water quality was an issue, it ought to have been raised at the earliest opportunity. It was not raised until other events occurred giving rise to this dispute. The Tenants cannot sit on their rights indefinitely, assuming they had any such rights.

They would be taken to have accepted the water situation as it was. [3] However, this is not the main issue. [4] The house has a basement partly at ground level, connected to the garage. At the time the Tenants took occupancy, the basement level was in part a concrete floor (the garage) and partly a laminate floor over concrete in a recreation room and a bedroom, as well as in a laundry area off the bedroom. [5] The lease signed was in a standard form as prescribed by the Residential Tenancies Act. It called for rent of $1,400.00 per month, plus utilities.

The term was stated a bit unusually in that the form has a check box for “year to year”, which was checked, although there is handwriting (initialled by all parties) stating “2 year lease, beginning September 22, ‘17 ending Sept 21, 2019. To be renegotiated at that (end date) time.” [6] The Tenants point to this alleged ambiguity as perhaps shortening the term of the lease to one year. Again, though it was a minor point, I reject the contention that the lease is the slightest bit ambiguous.

The parties were at pains to state that the lease was for two years and simply missed the fact that the more appropriate way to fill out the lease would have been to check the box that refers to fixed-term leases. No one was misled, and the defect (if any) was technical only. [7] Another point that is important for this case is the question of insurance. Some leases expressly place an obligation on tenants to have tenants’ insurance. This lease does not have such a clause. However, according to the Landlord the question was raised verbally, and the Tenants assured him that they did have insurance.

The Tenants clearly felt that such insurance was important, in part because they had a sideline of buying and selling used items (such as game consoles, laptops and printers) and stored these items in their home. I will later have to consider the effect of the tenants’ insurance and the fact that the lease did not specifically require the Tenants to have it. [8] The problems began on April 8, 2019, during a time of heavy rains. The Tenants noticed water seeping through a crack in the foundation in the garage. They called the Landlord immediately, somewhat late in the evening.

He came out first thing the next morning, saw what was happening, and arranged for a company known as Ridge Basement Systems to come out and repair the crack by injecting a substance into it. This apparently stopped the water coming in. However, the parties were not in agreement as to how much water had entered into the basement during the “flood” and what became of it. [9] Mr. O’Toole testified that the water “flooded the garage” and travelled through the subfloor to the other rooms. He and Ms.

Johnson both testified that there was between 1 and 2 cm. of water on the floor, and that the laminate floor was squishy, meaning that there was water under it. [1] 1 They complained that the Landlord did nothing to remove the water and did not consider replacing the laminate flooring. The Tenants claimed that the water damaged some video game consoles that were stacked on the floor. [10] The Landlord says that he responded quickly to the event, and that after the crack was sealed, he did not see any standing water

apart from what he mopped up in the garage. He says that he never considered replacing the floor.

He assumed that any excess moisture would be dealt with by the dehumidifier that he kept in the basement and that he expected the Tenants to use. [11] The Landlord testified that the summer of 2018 was characterized by high humidity levels, and that he expected the Tenants to make consistent use of the dehumidifier to deal with the ambient humidity - quite apart from what residual humidity there might have been from the water event. [12] The dehumidifier that was in the house was a 25-pint capacity Danby model, which might be described as a domestic type, as opposed to an industrial- strength model.

The specs for the device suggest that it is suitable for areas up to 1,500 square feet “depending on conditions.” The basement area of the house was less than that, and it is difficult to be critical of the Landlord for not supplying something more powerful. The Tenants have argued that the Landlord should have supplied them with an industrial type of dehumidifier, or at least should have rigged the existing one such that it drained continuously through a hose.

Instead, this unit required the occupants of the house to empty it frequently. [13] There was some evidence by the Tenants about how well the dehumidifier functioned, and how often they emptied it. Obviously, the truth of the matter is only known to them. Mr. O’Toole testified that he only went downstairs infrequently and that he emptied the dehumidifier “once or twice a week.” At another point in his testimony he admitted that he really was not sure how often it was emptied. Ms. Johnson did not testify on this point. The implication of Mr.

O’Toole’s evidence was that he emptied the unit reasonably, as required. [14] Most people who have homes with basements are familiar with dehumidifiers and the fact that, during humid times, they can fill up quickly. When fitted with a hose for continuous emptying, they can safely be ignored unless they inexplicably stop working. When they have a reservoir that needs emptying, it is a thankless chore that requires some vigilance. [15] It strikes me as more probable than not, that the Tenants were not as diligent as they could have been about emptying the dehumidifier. It appears that the task fell to Mr.

O’Toole who, by his own admission, rarely had occasion to go down to the basement. [16] Given that it is the Tenants who have asserted a claim that the Landlord was negligent in not providing an adequate source of dehumidification, the onus of proof lies upon them to make out that claim. [17] I take judicial notice of the fact that the summer of 2018 was notoriously humid.

Not only did I experience this myself, but it was very much in the news, as was the fact that for most of the summer there were no dehumidifiers available in any of the stores in Halifax that regularly stock such items, such was the intensity of the demand for dehumidifiers. [18] All of this is important because at some point in early August 2018, a major growth of mold became visible in the basement, covering parts of the walls, furniture and contents - including items that the Tenants had stockpiled as part of their buy-and-sell sideline. [19] When the Tenants first noticed the mold growth, they notified the Landlord who called his insurance company, who in turn dispatched a company, Paul Davis, that specializes in remediation, including mold remediation.

The Tenants moved out, at least temporarily as it was not clear how severe the problem was. [20] Many of the contents of the basement were ruined, including items that the Tenants intended to sell. I will give more details of that later. [21] As part of the remediation effort, the basement was cordoned off with plastic sheeting.

The Landlord contends that the Tenants could have remained living on the upper floor, though one can hardly blame them for believing that it was prudent to be elsewhere, at least for a while. [22] To compound matters, when Paul Davis began working to remove the mold they found some asbestos which also had to be removed. Although it is not clear how significant an issue this really was, the Tenants learned about it, became concerned and by late August they made the decision that they would not be returning. It is of some significance that they never gave the Landlord any formal

notice that they intended to quit the tenancy. On September 11, 2018 they attended at Residential Tenancies and commenced an application seeking termination of the tenancy, return of their security deposit, compensation for expenses incurred and other relief. They served this document on the Landlord who says that this was the first indication that the Tenants were intending to terminate the lease. He filed documents counterclaiming for arrears of rent and future rent. [23] The matter came before Residential Tenancy Officer Chantal Desrochers on October 10, 2018. On October 24, 2018, she made her order.

The following are the salient points: a. She denied the Tenants’ claim for $3,357.00 (45 days of eating meals out), on the stated basis that the Tenants had already been compensated for this under their tenants’ insurance. b. She denied the Tenants’ claim for $6,750.00 (45 days of outside accommodations), also on the stated basis that the Tenants had already been compensated for this under their tenants’ insurance. c. She denied without explanation the Tenants’ claim for $250.00 for electricity which the Tenants contended had been used by the construction crew doing the remediation. d.

She denied the Tenants’ claim for a refund of their August rent of $1,400.00, because she was not satisfied that the premises were uninhabitable and because they had been indemnified for accommodations under their insurance. e. The Tenants’ claim to terminate the tenancy was denied because the Residential Tenancy Officer was not satisfied that the premises were uninhabitable. f.

The Landlord’s claim for rental arrears and future rent was allowed only up to the end of October 2018, resulting in an award of $2,800.00 minus the security deposit of $700.00, for a total award of $2,100.00 to the Landlord. [24] On October 30, 2018, the Tenants filed a Notice of Appeal in this court, which set an initial hearing date of November 13, 2018. On that date, the Tenants appeared with counsel who advised the court that he intended to bring a civil claim against the Landlord, and a special date was set to hear the appeal and claim at the same time. [25] The civil claim is for negligence.

Some of the allegations pleaded are these: The Claimant states that the Defendant owed a duty of care pursuant to contract and that the Defendant breached that duty of care by either, jointly or severally: 1. Not providing the correct dehumidifier for the size of the basement area or the amount of the humidity that was present in the basement area; 2. Did not provide a larger or an industrial strength dehumidifier when he knew or ought to have known that the existing dehumidifier was not adequate to the new conditions after the foundation leaked.’ 3.

By not effecting timely or proper maintenance to prevent the foundation leak, or

4. By not ensuring that the repairs to the foundation of the dwelling were properly completed and the foundation continued to allow excess humidity and moisture into the ill-equipped basement level. The Claimants ask the court to take judicial notice that excess humidity causes mold growth. The Claimant (sic) claims for full replacement costs of all contents lost due to mold or black mold as well as costs incurred to live elsewhere. [26] The amount claimed in damages is $25,000.00.

Although the evidence in support was a bit sketchy, it was broken down in counsel’s closing brief where the amounts for outside accommodation and food are broken down and a further amount of $15,849.81 is shown as replacement costs for contents. Total damages claimed are slightly more than $25,000.00, with the Tenants abandoning the excess to remain within the court’s monetary jurisdiction. [27] On their face, the claims raised in the civil claim are more or less the same as at least some of those raised in Residential Tenancies, and which accordingly arise in the appeal.

Recall that the Residential Tenancy Officer expressly denied the claims for outside meals and accommodation. It does not appear that the claims for replacement costs were raised before the Residential Tenancy Officer, although had they been, there is no reason why the Residential Tenancy Officer would not have taken jurisdiction to deal with them (and probably denied them on the same basis). These are claims that could have been raised in Residential Tenancies, which routinely hears claims by tenants for damages to their belongings.

Procedural issues [28] Quite apart from the factual merits of the claims, the way that these matters were brought before the court is unusual and needs to be examined. [29] Had the case never been brought by the Tenants in Residential Tenancies, and only been started as a civil claim, it would have been met with the argument that the case is fundamentally one that arises out of a landlord and tenant situation, and that the Residential Tenancies Act is applicable to the matter.

The Tenants have pleaded that a duty was owed to them, “pursuant to contract,” which contract can only be the lease. [30] Sections 3(1) and 13(1) of the Act state: 3

(1) Notwithstanding any agreement, declaration, waiver or statement to the contrary, this Act applies when the relation of landlord and tenant exists between a person and an individual in respect of residential premises. ... 13

(1) Where a person applies to the Director (

a) to determine a question arising under this Act; or (

b) alleging a breach of a lease or a contravention of this Act, and, not more than one year after the termination of the lease, files with the Director an application in the form prescribed by regulation, together with the fee prescribed by regulation, the Director is the exclusive authority , at first instance, to investigate and endeavour to mediate a settlement. (Emphasis added) [31] Approaching the civil claim at first instance would have brought us squarely into controversy about the jurisdiction of the

Small Claims Court. There are two interrelated questions: 1. Would these claims fall within the exclusive jurisdiction of the Director of Residential Tenancies? 2. Even if the Director of Residential Tenancies has jurisdiction that is not exclusive, is there any way that the Small ClaimsCourt could have original jurisdiction? [32] It is now settled law that the provisions of the Residential Tenancies Act giving jurisdiction to the Director of ResidentialTenancies, do not entirely oust the jurisdiction of the Nova Scotia Supreme Court.

After a long line of decisions holding to the contrary,the Nova Scotia Court of Appeal decided the case of Roumeli Investments Ltd. v Gish, 2018 NSCA 27 : Conclusion [47] I am satisfied that the NSSC has original jurisdiction to hear the claim advanced by the appellant and the RTA does not oustthat jurisdiction. There is only one provision in the RTA that specifically addresses the “exclusive” authority of the Director. Althoughset out above, it bears repeating: 13(1) Where a person applies to the Director (

a) to determine a question arising under this Act; or (

b) alleging a breach of a lease or a contravention of this Act, and, not more than one year after the termination of the lease, files with the Director an application in the form prescribed byregulation, together with the fee prescribed by regulation, the Director is the exclusive authority, at first instance, to investigate andendeavour to mediate a settlement. (Emphasis added) [48] There is nothing in the above provision, or any others in the RTA, which speak to the jurisdiction of the NSSC.

Although therespondent argues ss. 17(1) and 17A (see para. [9]) in combination with s. 13(1) demonstrates a clear intent to have the Directorexclusively hear residential tenancy matters, I disagree. In my view, there is an absence of clear language specifically expressing thelegislature’s intention to remove the NSSC’s original jurisdiction to hear matters arising from residential tenancies. There is certainlynothing to hint at an intention to have negligence claims where the parties also happen to be in a tenancy relationship, removed from theNSSC’s authority.

The motions judge erred in concluding otherwise. [49] It is not difficult to contemplate property claims, similar to this one, or personal injury claims which may arise in the contextof a residential tenancy. It would seem to me highly unlikely the legislature intended the Director to have exclusive jurisdiction to hearsignificant or complex claims that would normally require days or weeks of trial and perhaps competing expert evidence on issues ofcausation or quantification of damages.

Often these claims are advanced with the assistance of pre-trial motions, with the parties beingentitled to pre-trial disclosure and discovery. Should it have been the intention of the legislature to remove claims of this nature from thejurisdiction of the NSSC, it must explicitly declare such an objective. [50] For the above reasons, I would allow the appeal. In doing so, I would add that there may be circumstances where, given thenature of the claim, the matter is one more suited to be adjudicated by the Director. Others will be better suited to the procedural andevidentiary safeguards of a court proceeding.

When asked to make such a determination, a Weber analysis ought to be undertaken afterwhich a court will choose to exercise or decline jurisdiction.

[33] The decision speaks only to the concurrent jurisdiction of the Nova Scotia Supreme Court and Residential Tenancies to hear aresidential tenancy case. It rests on the constitutionally protected jurisdiction of the Superior courts of the provinces to deal with allmatters within their borders. The Small Claims Court, however, is a statutory court which does not enjoy the same constitutional statusthat applies to the Supreme Court. I do not consider that Roumeli leaves open the possibility for the Small Claims Court to begin to takeoriginal jurisdiction in residential tenancy matters.

It did not overrule any of the Small Claims cases that have expressly declined to takeon a residential tenancies matter at first instance. For example, in City Centre Property Management v. Al-khalifah, 2015 NSSM 3, Adjudicator Barnett wrote: [21] The question of jurisdiction arises because of

Section 3 of the Residential Tenancies Act that states that landlords and tenants ofresidential premises (contrasted with commercial premises) cannot avoid the provisions of the Residential Tenancies Act: Application of Act 3

(1) Notwithstanding any agreement, declaration, waiver or statement to the contrary, this Act applies when the relation of landlordand tenant exists between a person and an individual in respect of residential premises. [22] There is no question that the apartment in issue in this case falls within the meaning of “residential premises” as defined inSection 2(

h) of the Residential Tenancies Act, that the Claimant falls within the meaning of “landlord” as defined in

Section 2(

b) of theResidential Tenancies Act and that each of the Defendants falls within the meaning of “tenant” as defined in

Section 2(

j) of that samestatute. [23] I note that the stated purpose of the Residential Tenancies Act is to provide landlords and tenants with “an efficient and cost-effective means of settling disputes”:

Section 1A. [24] The dispute resolution mechanism in the Residential Tenancies Act is set out in the statute beginning at

Section 13.

The statutemakes it clear that a person can apply to the Director of Residential Tenancies in order to “determine a question arising under [theResidential Tenancies Act] or alleging a breach of a lease or a contravention of [the Residential Tenancies Act]: Section 13(1). [25] If a statutorily mandated mediation is unsuccessful, then the Director has a broad power to make a variety of orders pursuant toSection 17A, including an order for the payment of money by one party to another, the amount of which payment is not expresslylimited. [26] In this case, the parties did not tender any written lease agreements into evidence.

However, every residential tenancy lease isdeemed to contain various statutory conditions that cannot be altered by agreement or otherwise (see Section 9(1) of the ResidentialTenancies Act), including Statutory Condition No. 4 which states as follows: 4.

Obligation of the Tenant – The tenant is responsible for the ordinary cleanliness of the interior of the premises and for the repair ofdamage caused by wilful or negligent act of the tenant or of any person whom the tenant permits on the premises. [emphasis added] [27] In my view, the matters complained of in the within Claim fall within the scope of the matters covered by the ResidentialTenancies Act and there is an effective remedy available to the Claimant through the residential tenancies dispute resolution process. [28] One must then consider what jurisdiction the Court has where Section 13(1) of the Residential Tenancies Act states that where aperson applies to the Director of Residential Tenancies, “the Director is the exclusive authority, at first instance, to investigate andendeavour to mediate a settlement…” [emphasis added] failing which settlement the Director “shall…make an order in accordance withSection 17A”: Section 17(1) of the Residential Tenancies Act. [29] The Small Claims Court Act appears to specifically address this situation where the following is stated at

Section 10(d):

Exclusions from jurisdiction 10 Notwithstanding

Section 9 [that sets out the specific jurisdiction of the Small Claims Court], no claim may be made under this Act … (

d) which involves a dispute between a landlord and a tenant to which the Residential Tenancies Act applies, other than an appeal of anorder of the Director of Residential Tenancies made pursuant to

Section 17C of that Act; [34] As such, it is clear in my mind that the civil claim brought by the Tenants is not within the jurisdiction of the Small ClaimsCourt, by virtue of a proper reading of the Residential Tenancies Act and also because of s.10(

d) of the Small Claims Court Act. [35] But this is not the only jurisdictional problem that the Tenants face in their civil claim. It is also duplicitous. [36] The very issues that the action raises were before the Residential Tenancy Officer, even if not all of the heads of damages wereraised at the time. Duplicity is an instance of abuse of process: see for example Starratt v. MacFie, (NS SC). For thisreason alone, the civil action would have to be struck out. [37] But apart from the abuse of process, there is the question of res judicata.

Had the Tenants not appealed the ResidentialTenancies order and merely brought the civil action, they would have had to answer to the fact that they were attempting to re-litigate amatter that had already been decided (against them) in Residential Tenancies. The doctrine of res judicata is designed to prevent aplurality of actions for the same matter.

As stated by Justice Hamilton at para. 7 in Saulnier v Bain, 2009 NSCA 51 : When an issue has been the subject of previous adjudication or when a party had the opportunity to raise an issue in a previous actionand, in all the circumstances, should have raised that issue, it cannot be the subject of another action. [38] The fact that the very Residential Tenancies order is under appeal does not diminish the fact that the civil action is duplicitousand barred by res judicata. If anything, it underscores how inappropriate it would be to allow such a civil claim to continue, because it isunnecessary.

The Tenants’ claims are all squarely before the court on the appeal from the Director of Residential Tenancies. [39] I note that the Tenants through their counsel have argued that the civil claim is based upon a collateral contract which wasformed when the Landlord responded to the initial water incursion, by taking the steps that he did, and failing to take any additionalsteps. With respect, these facts do not give rise to any collateral contract.

Everything that the Landlord did or failed to do was pursuant tohis status as a landlord performing (or ignoring) his obligations under the lease. [40] It is trite law that a party alleging a collateral contract must prove that all parties intended that a new, separate contract wasintended, and that the terms thereof were understood: see eg. Skylink Express Inc. v. Innotech Aviation, 2018 NSCA 32.

Here the Tenantshave proved no such thing. [41] As such, and for all of these reasons I dismiss the civil claim and proceed to determine the appeal from Residential Tenancies. [42] I would be remiss not to mention that the Landlord brought a counterclaim in the civil action, seeking additional rent that he didnot get from the Residential Tenancy Officer. Though it is understandable that the Landlord, a self-represented party, might have thoughtit wise to assert his rights in the civil claim, that counterclaim is unsustainable in law for all of the same reasons that the claim isunsustainable.

The Residential Tenancies appeal

[43] The Residential Tenancy Officer had two matters before her: a claim by the Tenants alleging a breach of the Landlord’sobligation to keep the premises in good repair and in a fit state for habitation, as per Statutory Condition 1, as well as a claim by theLandlord seeking rent owing under the lease. [44] One of the questions that she had to consider was whether the Landlord’s (alleged) breach of that condition entitled the Tenantsto terminate the lease, on the theory that it amounted to a fundamental breach. [45] She also had to consider whether the Landlord was responsible for the Tenants’ financial losses, which in turn gave rise to thequestion whether the fact that the Tenants had already recovered some of the losses under their tenants’ insurance precluded them fromrecovery of those same heads of damage in the matter before Residential Tenancies.

On that point the Residential Tenancy Officerexpressly stated that she would not allow these items because they had already been compensated by insurance. In making such a findingshe sidestepped the factual question of whether or not the Landlord was in breach of his obligations under the lease.

Implicitly, she musthave believed otherwise, as she was receptive to the Landlord’s claim for rent and unreceptive to the Tenants’ claim to terminate thelease. [46] The Residential Tenancy Officer was likely unaware of the arguably counterintuitive case law that allows what may appear tobe double recovery in some cases where a claimant has collected on their insurance, and claims again for the same losses against theresponsible party.

To the extent that she treated it as a legal principle that one cannot ever have double recovery, she was mistaken. [47] Of course, one only gets to the issue of double recovery if the Tenants can establish that the Landlord is liable for their losses.Their recovery from their own tenants’ insurance is based on contract. It has nothing to do with whether or not the fault lay with theLandlord or the Tenant. [48] There is a great deal of jurisprudence on the subject, some of which is confusing, and much which may be consideredsurprising.

However, I am not aware of an example specifically involving tenants’ insurance. Many of the cases tend to be in the area ofpersonal injury, or wrongful dismissal. In the former situation, for example, an injured (and disabled) plaintiff may collect on a privatedisability policy and then claim for (what appear to be) those same income losses from the at-fault party. In wrongful dismissal cases,the question of apparent double recovery sometimes arises where early pension benefits become payable to the dismissed employee, whois also seeking damages against the employer.

It was in such a case that Cromwell J. of the Supreme Court of Canada in IBM CanadaLimited v. Waterman, [2013] 3 SCR 985, 2013 SCC 70 considered at some length the question of the “private insuranceexception” and the broader question of so called “compensating advantages” which are not deducted from a damage award. One of themis private insurance: [41] A second and more controversial exception relates to payments from the plaintiff’s private insurance. The core of the exception iswell established: benefits received by a plaintiff through private insurance are not deductible from damage awards.

However, both theprecise scope and the rationale of the exception have been the subject of judicial and scholarly debate. Its practical importance is limitedgiven the widespread use of subrogation, which avoids the compensating advantage issue altogether. While the exception more typically arises in tort cases, it has also been applied in contract actions, including actions for wrongfuldismissal: Jack Cewe Ltd. v. Jorgenson, (SCC), [1980] 1 S.C.R. 812.

The approach in both areas of law is the same inprinciple, although the terms of the contract and the dealings between the parties will inform the analysis in contract cases. [49] Cromwell J. went on to discuss the distinction between indemnity and non- indemnity benefits, where in the latter case moneyis payable simply upon the occurrence of a contingency: [62] Reliance on the distinction between indemnity and non-indemnity benefits is sound in principle.

As McLachlin J. pointed out inher dissenting reasons in Cunningham, if the benefit “is not paid to indemnify the plaintiff for a pecuniary loss, but simply as a matter ofcontract on a contingency”, the benefit cannot be seen as having compensated the plaintiff for that pecuniary loss: pp. 371-72. If that isthe case, the arguments in favour of deducting the benefit are weaker in the sense that IBM is asking to deduct apples from oranges. [50] He went on to conclude:

[76] From this review of the authorities, I reach these conclusions: (

a) There is no single marker to sort which benefits fall within the private insurance exception. (

b) One widely accepted factor relates to the nature and purpose of the benefit. The more closely the benefit is, in nature and purpose, an indemnity against the type of loss caused by the defendant’s breach, the stronger the case for deduction. The converse is also true. (

c) Whether the plaintiff has contributed to the benefit remains a relevant consideration, although the basis for this is debatable. (

d) In general, a benefit will not be deducted if it is not an indemnity for the loss caused by the breach and the plaintiff has contributed in order to obtain entitlement to it. (

e) There is room in the analysis of the deduction issue for broader policy considerations such as the desirability of equal treatment of those in similar situations, the possibility of providing incentives for socially desirable conduct, and the need for clear rules that are easy to apply. [51] The Tenants argue that the payments they received to compensate them for their lost goods, as well as for their housing costs and restaurant meals, are the fruits of private insurance and would qualify under the private insurance exception to be excluded from consideration.

They argue that they should be able to recover these losses again from the Landlord. They meet the concern that this may be unfair, by pointing out that their insurance rates have gone up. They say that they should not be penalized for their prudent use of tenants’ insurance, which they were not obliged to do under the lease, nor under any general law. [52] A complicating factor concerns the concept of subrogation. The insurer that indemnified the Tenants for their losses would be entitled under the concept of subrogation to pursue a wrongdoer and potentially recover the losses.

Such a subrogated claim would have to be brought in the name of the Tenants but would be for the benefit of the insurer. I asked counsel what would happen if this insurer sought to pursue its subrogation rights after the Tenants had already pursued the Landlord for their losses. The answer was that the Landlord would be protected by the concept of double jeopardy, and the insurer would have to pursue its own clients (the Tenants) to recover the loss. The answer is logical, though still somewhat unsatisfying. [53] This brings us to the broader concept of tenants’ insurance.

The reason that landlords sometimes insist on their tenants carrying such insurance, is to protect against this very scenario, among others. With proper wording in the lease, the landlord may be protected against any subrogated claim by the tenants’ insurance. In cases where something happens that is no one’s fault, such as an unexpected flood or fire, such insurance steps up where the landlord’s property insurance policy leaves off. [54] Following the analysis propounded in the IBM case, the typical tenants’ insurance policy is by its nature an indemnity policy.

It is not merely a contractual benefit like, for example, a private policy of disability insurance. Given the context of landlords and tenants looking to protect themselves from losses to the home and contents, it makes sense to regard the tenants’ policy as a true indemnity policy. It is useful to test the idea by considering the reverse situation, where the tenants accidentally cause damage to the landlord’s property, such as by carelessly starting a fire. Assume that the landlord recovered fully from his insurer and fixed his property. Would he be entitled to sue the tenants for that same loss?

I do not think such a suit would be seen as in the public interest, and I believe the private insurance exception would not be held to apply. [55] On the basis of the principles expounded by Cromwell J., I find that the tenants’ insurance does not fall within the private insurance exception. It is not for me to decide whether there are any rights under subrogation, as that is not directly before me. [56] Notwithstanding the creative arguments advanced by counsel for the Tenants, I hold that the Tenants are not able to sue the Landlord for losses that they have already recovered under their indemnity policy.

Was the Landlord responsible for the Tenants’ losses?

[57] Even if I am wrong about the applicability of the private insurance exception, I am not convinced that the Tenants have proved that the Landlord negligently caused their losses, or more accurately was in breach of his obligations as a landlord. [58] The Tenants’ case rests almost entirely on theories that the Landlord ought to have supplied a larger, better dehumidifier, and that he ought to have done more to repair the situation after the leak. In my opinion, neither of these theories stand up to scrutiny. [59] No one really knows how or why the mold developed, nor how it appears to have grown so quickly.

I can accept that the problem was excess humidity. But the Tenants seek to place all of the responsibility for this humidity at the feet of the Landlord, when they themselves were in a better position to monitor the state of the basement. As noted, this was a summer of great humidity everywhere. There was a dehumidifier in the basement. I am not convinced that the Tenants were diligent in emptying it, which meant that it was not working anywhere near its capacity.

The Landlord has an obligation under Statutory Condition 1 to keep the premises “in a good state of repair and fit for habitation during the tenancy.” However, in my view the Landlord cannot be held responsible for a condition that develops over time that the Tenants could reasonably have detected and perhaps prevented. [60] I am also not convinced that the Landlord acted irresponsibly after he had the basement crack filled. The Landlord impressed me as someone who was responsible and who cared about this house.

He made an assessment that whatever water was still in the basement could be removed by diligent dehumidification. While he may arguably have been wrong in his assessment, I do not believe his misjudgment would rise to the level of actionable negligence or breach of any other duty. [61] Not every situation involves fault. Things happen. The high humidity situation and mold growth simply happened. Saying that it could have been avoided is using the benefit of hindsight. In retrospect, if fault is to be found, I find that the Tenants themselves failed to notice the dangerously high humidity level.

They were the ones breathing the air and feeling the state of the basement. If the dehumidifier was not adequate to the task, they might have noticed.

If, for example, it was taking five or ten days to fill up a tank, even in the hot and humid conditions of the summer of 2018, they should have noticed and either taken steps to acquire another dehumidifier or demanded that the Landlord do so. [62] One of the main reasons you have insurance is to protect you for when bad things happen that are not necessarily anyone’s fault. [63] A finding of negligence, or a claim for breach of the Statutory Condition, brands the liable party as having failed to meet the standard of a reasonable person in that position, in this case a reasonable landlord.

I cannot conclude on the evidence that the Landlord failed to live up to that standard. [64] As such, I reject the claims that the Landlord was in breach of the condition to keep the premises “ in a good state of repair and fit for habitation during the tenancy .” That is different from finding that the premises became unfit for habitation, for reasons that were not the fault of the Landlord, i.e. not the result from any negligence on his part.

To illustrate with an analogy, had the house been consumed by a forest fire no one could say that the Landlord had failed to ensure that the premises were fit for habitation, though clearly, they were rendered unfit by causes unconnected to the diligence of the Landlord. The Landlord’s Claim for Rent [65] The Residential Tenancy Officer found that the Tenants’ obligation to pay rent was not affected by the mold event. With respect, I disagree. [66] The fact that the Landlord may be found blameless for the occurrence of mold does not equate with a finding that the premises were fit for habitation.

I find that the premises became unfit sometime in August 2018, and that the Tenants were within their rights to consider that the tenancy was finished. I base my finding on the concept of frustration of contract. [67] Nova Scotia does not have a specific statute defining frustrated contracts, as some other provinces do. For example, in Ontario,

the Frustrated Contracts Act applies to “any contract that is governed by the law of Ontario and that has become impossible of performance or been otherwise frustrated and to the parties which for that reason have been discharged.” The doctrine developed at common law to excuse parties from performing their contracts when performance has become impossible. It is a no-fault provision. Contracts which have been “frustrated” need not be performed.

The doctrine of frustration allows for the legal termination of a contract due to unforeseen circumstances that prevent the achievement of its objectives, render its performance illegal, or make it practically impossible to execute. [68] The mold outbreak, coupled with the finding of asbestos, amounted in my opinion to frustrating events. The Tenants cannot be expected to have waited indefinitely for the situation to resolve.

The matter appeared serious enough that the Tenants made the reasonable decision to live elsewhere. [69] I have already rejected the contention that the water supply, not being ideal for drinking, was a ground to label the premises unfit. [70] Frustration of contract does not occur unless one or both of the parties declare the contract frustrated. The Tenants did not communicate their position unequivocally until September 11, 2018 when they started their Residential Tenancies proceeding.

I find that this is the effective date that the contract became frustrated. [71] The Residential Tenancy Officer allowed rent until the end of October 2018. In my view, she was wrong to do so. I agree that the August rent was payable, but rent should have ended on September 11, 2018. The Tenant ought to be excused from paying more than 11 days of rent for September, which is $513.33.

The Residential Tenancy Officer overcompensated the Landlord by $2,286.66, and in place of an order requiring the Tenants to pay $2,100.00, an order should be made that requires the Landlord to refund to the Tenants the sum of $186.66 out of their security deposit. [72] Accordingly, there will be separate orders issued as follows: a. In the civil action (SCCH 483764) there will be an order dismissing the claim and counterclaim. b. In the Residential Tenancies matter (SCCH 481823) there will be an order allowing the appeal to the limited extent as set out in paragraph 71 above. Eric K. Slone, Adjudicator