Imagine you lend your car to a friend but tell her she shouldn't drive it on the 401 Highway in Toronto. Contrary to your instructions, however, she does drive it on the highway and causes an accident. Are you (and your insurer) liable?

The answer to this question was recently provided by a 5-member panel of the Court of Appeal for Ontario in Fernandes v. Araujo. In that decision, the Court expressly overruled its 1953 decision in Newman and Newman v. Terdik. Since the Court rarely overrules itself, preferring if at all possible to uphold its prior rulings under the principle of stare decisis, Fernandes offers important insight into the circumstances where it will be done.

Background

The action arose out of an all-terrain vehicle accident on a highway. The ATV owner allowed the defendant to borrow the vehicle, but the owner's insurer contended that the defendant was expressly prohibited from driving the ATV off of the farm property. The insurer sought to absolve itself of liability by relying on the interpretation in Newman of section 192 of Ontario's Highway Traffic Act that an owner is not vicariously liable for damages sustained in a highway accident when that owner expressly prohibited the operation of the vehicle on a highway.

However, in the 2007 decision of Finlayson v. GMAC, the Court affirmed a contrary line of authorities going back to 1933, holding that an owner's vicarious liability rests on whether or not the owner consented to possession, even if the driver operated the vehicle in a way expressly prohibited by the owner.

Reasons for Overruling Newman

The Court relied upon David Polowin Real Estate Ltd v. Dominion of Canada General Insurance Co, as the guiding precedent as to when a court may overrule one of its prior decisions. The Court must consider the "advantages and disadvantages of correcting the error" by focusing on four things: the nature of the error; "the effect and future impact of either correcting it or maintaining it"; "the effect and impact on the parties and future litigants"; and the effect and impact "on the integrity and administration of our justice system."

Justice Sharpe, writing for the unanimous panel of five judges in Fernandes, held that the interests of certainty, clarity, coherence, and predictability in the law required the explicit overruling of Newman. Justice Sharpe emphasized the inconsistency between Newman and the earlier 1933 decision. He also highlighted the steady string of subsequent decisions weakening Newman's authority. He noted that Newman created "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." He observed that some trial judges have commented on the inconsistency, and refused to follow Newman, while others have felt compelled to follow it. Accordingly, he concluded that these cases suggest that Newman has "sown the seeds of confusion."

Although Justice Sharpe noted the role of the Supreme Court of Canada in settling conflicting interpretations of statutes, it usually does so on questions of national importance. As such, Justice Sharpe affirmed the responsibility of the Court of Appeal for Ontario to not shirk its responsibility and overrule Newman to ensure that Ontario law was consistent. Furthermore, Justice Sharpe noted that it was unlikely that any vehicle owner or any insurer would have relied on Newman in daily practice since insurers must still provide owners with coverage even where the vehicle is operated in a manner prohibited by the owner.

Key Take-Away

Since the doctrine of stare decisis ensures consistency and predictability, it is unusual for an appellate court to expressly overrule one of its prior decisions. However, as shown in Fernandes, it can occur when doing so eliminates a past inconsistency to enhance the fundamental interests of clarity, coherence, and predictability in the law.