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Case Summary: Fernandes v. Araujo
Defence + Indemnity

Where an owner consents to possession of a vehicle to the driver, conditions on that consent do not bind third parties who are injured or suffer loss.    

Fernandes v. Araujo, 2015 ONCA 571 [4179]    


Eliana Araujo (“Araujo”), John-­Paul Almeida (“John-Paul”) and Sara Fernandes (“Fernandes”) were visiting a farm owned by Carlos Almeida (“Carlos”). Carlos owned an ATV which he used around the farm. During the visit, he gave Fernandes and Araujo permission to use the ATV. John-­Paul expressly told Araujo and Fernandes that they should only use it within the farm limits. Despite this warning, Fernandes and Araujo took the ATV out on the highway to visit Carlos’s cousin on a neighbouring farm. On the return journey, the ATV was hit by a car on the highway and Fernandes was injured. At the time of the accident, Araujo did not have a license that allowed her to operate an ATV. Allstate (the owner’s insurer) was third­-partied into the main action against the owner and, although it initially denied coverage for Araujo, was third-­partied in by the Motor Vehicle Assurance Fund.

Allstate brought two motions for summary judgement. In its first motion, it asked for the third party claim against it in the Araujo action to be dismissed on the grounds that the statutory conditions of the Ontario policy limited coverage to a driver with the appropriate class of license. Allstate was successful in this first motion, with the court agreeing that Araujo fell outside of the policy limits.

In its second motion, Allstate asked for the claim against it in the “main action” to be dismissed, arguing that Araujo was not driving with Carlos’s consent at the time of the accident, a prerequisite pursuant to section 192(2) of Ontario’s Highway Traffic Act, RSO 1990, c H.8 [the “Highway Traffic Act”]. This motion was unsuccessful.

The motion judge first found as a fact that Carlos had given Aruajo unconditional permission to use the ATV. Although the judge recognized that John-Paul had warned Araujo not to take the ATV off of the farm, he found that this did not affect the owner of the vehicle’s unconditional grant. In addition, the motion judge interpreted the law to hold that once Carlos consented to Araujo’s use of the ATV, he became liable for any use of that vehicle even if such use exceeded the terms she was given permission under. In other word, even if Carlos had specifically prohibited Araujo from taking the ATV off of the farm, he would be liable. Allstate appealed the Court’s decision on this second motion.

At issue on appeal was the interpretation of section 192(2) of the Highway Traffic Act, which reads as follows:

192(2) The owner of a motor vehicle or street car is liable for loss or damage sustained by any person by reason of negligence in the operation of the motor vehicle or street car on a highway, unless the motor vehicle or street car was without the owner’s consent in the possession of some person other than the owner or the owner’s chauffeur.

II. HELD: Appeal dismissedÍž Allstate liable under the owner’s policy

1. The motion judge was held to be in finding that Aruajo was driving the vehicle with the owner’s consent. Allstate is liable under the owner’s policy. The Court first noted that s. 192(2) is there to protect the public, and acts to encourage owners to be careful about who they lend their cars to (para 20).

2. The Court then turned its mind first to whether there the motion judge was correct in finding that Carlos had not expressly prohibited Araujo’s use of the vehicle on the highway. Relying on Myers­-Gordon (Litigation Guardian of) v. Martin, 2013 ONSC 5441, Allstate argued that “the test for consent essentially turns on the subjective belief of the party in possession of the vehicle.” The Court rejected this argument, holding that this “would be inconsistent with the language and purpose of s. 192(2).” It added

It cannot be the case that if the person in possession subjectively believes that he or she has the owner’s consent, that alone is sufficient to determine the liability of the owner. That would allow anyone with actual possession of the vehicle to fix the owner with liability even where the owner had not consented to that person having possession of the vehicle. The focus of the language and purpose of the provision are on the actions of the owner who is charged with the responsibility of exercising appropriate caution when giving another person possession of the vehicle (para 25).

3. Although the Court accepted that there is a “subjective component to the test,” it is just that – a component, and will not be determinative in the absence of other corroborative evidence (para 28).

4. The Court then moved on to address the decision in Newman v. Terdik (1952), [1953] O.R. 1, a decision relied upon by Allstate. In Newman, the driver was specifically told by the owner not to take the car onto the highway. Although the Court in Newman acknowledged that the driver was initially given permission to use the vehicle, it found that “possession can change from rightful possession to wrongful possession or from possession with consent to possession without consent.” The Court found that permission to drive on private property did not equate to permission to drive on the highway, and that by taking the vehicle off of private property, the driver lost the consent of the owner such that the owner was no longer liable.

5. Although the motion judge in this case found that Carlos did not expressly prohibit the use of the vehicle on the highway in the same way as the owner in Newman, the Court recognized that if the motion judge had found otherwise, Newman would act as “authority for the proposition that Carlos is not vicariously liable as the owner of the ATV.” For that reason, it was necessary to address the correctness of that decision.

(a) To that end, at para 36, the Court noted first, relying on the 2008 Court of Appeal decision in Finlayson v. GMAC Leaseco Ltd., 2007 ONCA 557, that

[i]t is fundamental to th[e] purpose, and to the operation of s. 192(2), that the owner’s vicarious liability is triggered by consenting to possession and that the concepts of possession and operation are distinct” “[C]onsent to possession of a vehicle is not synonymous with consent to operate it. Public policy considerations reinforce the importance of maintaining that distinction” Finlayson, at para. 3.

The Court then referenced the weight of other authorities supporting the decision in Finlayson, which have consistently held that “where the owner has consented to possession, the owner will be liable pursuant to s. 192(2) even if the vehicle is operated in a manner forbidden by the owner” (para 37). 

(b) Allstate argued that the decision in Newman represents a narrow carve­-out from that general rule, noting that the statute “refers to the owner’s liability for “negligence in the operation of the motor vehicle...on a highway” and arguing that “where the owner did not consent to the vehicle being taken on the highway, the consent required by the statue is absent” (para 42). However, the Court of Appeal readily rejected that argument, finding that

the reference to “negligence in the operation of the motor vehicle...on a highway” means nothing more than that the owner’s liability will only be triggered where the place of the negligence and injury is on a highway. That does not qualify the general proposition that the owner’s liability turns on consent to possession, and consent to possession is not vitiated by violation of a condition attached by the owner to his or her consent to possession. If the owner cannot escape liability where the person with possession violates a condition that he or she not drive the car at all, it is difficult to see why the result should be different where the condition is that the car not be driven on a highway. I see nothing in the language of s. 192(2) capable of justifying treating a stipulation by an owner that his or her vehicle not be taken on the highway differently from any other stipulation restricting the use or operation of the vehicle (para 43).

As a result, although the Court recognized that it is normally bound to follow decisions from the same level of court, it found that this was a circumstance where it warranted a departure from that general rule, stating at paras 47­49:

The common law has long prided itself in its capacity to evolve and improve with the times. The rule of stare decisis is not absolute. There comes a point at which the values of certainty and predictability must yield to allow the law to purge itself of past errors or decisions that no longer serve the interests of justice. Moreover, decisions that rest on an unstable foundation tend to undermine the very values of certainty and predictability that stare decisis is meant to foster.

In my view, the advantages of overruling Newman and correcting the error it made outweigh the disadvantages. I think it highly unlikely that Carlos or any other vehicle owner would have relied on Newman when deciding to grant possession of a vehicle to another party. Nor do I think it likely that insurers such as Allstate, who must provide owners with coverage even where the vehicle is operated in a manner prohibited by the owner, have placed any significant reliance on Newman in the management of their affairs.

To leave Newman intact would not serve the interests of certainty and predictability in the law. The court’s reasoning was inconsistent with the earlier 1933 decision in Thompson, and its authority has been severely attenuated by a steady string of subsequent decisions. It creates an anomaly that cannot be supported in principle, one that undermines the coherence of this area of law and that is likely to lead to confusion. 

Given the weight of jurisprudence against Newman, the Court rejected it as a precedent, and dismissed Allstate’s appeal.