COURT OF APPEAL FOR ONTARIO
CITATION: Pirani v. Esmail, 2014 ONCA 145
DATE: 20140226
DOCKET: C55218
Weiler, Rouleau and Pepall JJ.A.
BETWEEN
Barkatali Nazarali Pirani
Respondent/Plaintiff
and
Yasmin Esmail, Tajdin Esmail and Alnaz Ismail Jiwa
Appellants/Defendants
Morris Cooper and Sabrina A. Bandali, for the appellants
John Philpott, for the respondent
Alnaz Ismail Jiwa, acting in person
Heard: September 10, 2013
On appeal from the judgments of Justice Susan E. Greer of the Superior Court of Justice, dated February 22, 2012 and May 31, 2012, and her cost order dated June 29, 2012.
Rouleau J.A.:
INTRODUCTION
[1] A dispute arose out of the management and sale of a rental property that was subject to a trust. Almost 10 years after the sale of the property, the matter came to trial.
[2] At trial, the appellants, Yasmin and Tajdin Esmail, and the respondent, Barkatali Pirani, called competing experts. Due to a lack of accounting records, both experts attempted to reconstruct the accounts for the rental property’s administration. The experts came to very different conclusions about the profitability of the rental property over the 13-year period prior to its sale. The appellants’ expert concluded that the rental property operated at a net loss and that the appellants were owed money. The respondent’s expert concluded that the rental property earned a profit and that the respondent was owed money.
[3] The trial judge accepted the calculations of the respondent’s expert. She found the appellants liable for breach of trust and breach of fiduciary duty, and awarded damages to the respondent based on the calculations of the respondent’s expert. She also awarded aggravated damages and substantial indemnity costs.
[4] The Esmails appeal. They principally challenge the respondent’s expert’s report that the trial judge used to assess damages.
[5] The trial judge also found the solicitor who acted for the Esmails on the sale, the cross-appellant Alnaz Jiwa, liable for breach of trust, breach of fiduciary duty and negligence.
[6] Mr. Jiwa cross-appeals on the basis that he was retained only by Mrs. Esmail to carry out a real estate transaction. Mr. Jiwa argues that he never owed Mr. Pirani a duty of care, either in negligence or as a fiduciary.
[7] For the reasons that follow, I would allow the appeal in part. I would also allow the cross-appeal.
FACTS
[8] The appellant, Tajdin Esmail, purchased a house (the “property”) on March 31, 1989, for $367,500. It was operated as a rental property without the necessary authorizations. The property had five tenancies at the time and was subject to a mortgage of $247,420.32. Shortly after buying the house, Mr. Esmail asked the respondent, Barkatali Pirani, to invest in the property. They agreed that Mr. Pirani would pay $54,666.66 to Mr. Esmail for a one-third interest in the property.
[9] They then executed a declaration of trust, dated November 24, 1989. The terms of that trust agreement provide that Mr. Esmail was to hold the property in trust for himself as a two-thirds beneficiary, and for Mr. Pirani as a one-third beneficiary. The declaration of trust was prepared by their real estate lawyer, Mr. Nizar Fakirani, who had acted on the purchase of the property.
[10] In the early years, Mr. Esmail periodically gave figures to Mr. Pirani concerning the performance of the investment. Mr. Esmail maintained that the property was operating at a loss. As a result, he made requests to Mr. Pirani for payment of his share of these losses. Based on the record before me, there is little doubt that the property was in fact operating at a loss at the outset. Further details, however, are hard to come by. The actual amount of the loss suffered, how long the losses continued and how frequently or accurately the losses were reported to Mr. Pirani remains unclear.
[11] Mr. Esmail did not maintain accounts for the property. He never operated a bank account in the name of the trust. He never kept any receipts for expense payments. There were no records of the rental income. We do not know where the rent cheques were deposited. At his examination for discovery, Mr. Esmail undertook to seek records related to a Bank of Montreal account and to provide a list of names of each of the tenants from 1989 to 2002 as well as their last known telephone numbers. He failed to complete these undertakings.
[12] In 1990, financial difficulties prompted Mr. Esmail to refinance the mortgage on the property. Legal and other fees were paid out of the proceeds of the refinancing. The proceeds were also put towards overdue tax and interest arrears. The expenses paid out of the proceeds of the mortgage refinancing totalled $3,457.46.
[13] In 1991 and 1992, Mr. Pirani paid a total of $13,050.14 to Mr. Esmail to cover various expenses relating to the property. This amount includes a $3,000 payment made to cover Mr. Pirani’s share of a $9,000 loss that Mr. Esmail claimed had been incurred. Mr. Pirani never saw proof that Mr. Esmail had contributed his $6,000 share of that loss.
[14] Mr. Pirani also made payments to cover shortfalls in the payment of property taxes. From 1993 to 2002, Mr. Pirani paid a total of $32,397.42 in property taxes directly to the City of Toronto.
[15] At one point, Mr. Esmail received an insurance payment of $5,000 for damages to the property caused by vandals. Although he claims to have credited Mr. Pirani with $1,666.66 representing Mr. Pirani’s one-third share, there is no record of such a payment having been made.
[16] In 1994, Mr. Esmail transferred title to the property to his wife. The transfer was effected because Mr. Esmail was having income tax problems at the time. Mr. Pirani was aware of the transfer. No consideration was exchanged between Mr. and Mrs. Esmail.
[17] Mrs. Esmail understood that Mr. Pirani was, as she put it, a “one-third partner” in the property. She denied, however, ever reading the declaration of trust. After Mrs. Esmail obtained title to the property, she paid all of the bills except for the property taxes, which continued to be paid directly by Mr. Pirani. Mrs. Esmail took on management tasks relating to the property, including advertising for tenants and receiving rent cheques.
[18] In 2002, the parties decided to sell the property. Bill Thom, the real estate agent retained in the sale, was introduced to the Esmails by Mr. Pirani. Mr. Esmail testified that he let Mr. Pirani deal with the real estate agent, that the listing was prepared without input from the Esmails, that the $2,240 monthly rental figure in the listing was “more or less accurate” and that the listing agreement was completed and waiting for Mrs. Esmail when she attended at the office of the agent to sign it. Mrs. Esmail testified that Mr. Pirani was present at the real estate agent’s office when she signed the listing agreement. Her evidence was that Mr. Pirani showed her the listing that she was supposed to sign because she was the listed owner, and that she did so. Mrs. Esmail also testified that she did not provide any of the information that was included in the listing, and that she did not read the listing before signing it. On cross-examination by Mr. Esmail, who was then self-represented, Mr. Pirani agreed that he was the one who introduced Bill Thom to the Esmails. Mr. Pirani also testified that he met with the real estate agent and that he was present, along with Mrs. Esmail, when the listing agreement was signed. Mr. Pirani could not recall if Mr. Esmail was present at that time. Mr. Pirani was never directly questioned on his role in preparing the listing agreement, but never suggested that either of the Esmails were involved in the process. There was no conflict of evidence in this regard.
[19] The Esmails retained the cross-appellant, Alnaz Jiwa, to act on the sale. Mr. Pirani retained Mr. Fakirani to protect his interest in the transaction.
[20] Before the closing, Mr. Fakirani sent a copy of the declaration of trust to Mr. Jiwa, along with a covering letter informing Mr. Jiwa of Mr. Pirani’s one-third beneficial share in the property. The letter stated that Mr. Pirani was “entitled to one third of the proceeds of the sale of this property,” and that Mr. Jiwa should have a certified cheque for Mr. Pirani’s share of the sale proceeds ready for pick up on the closing date. Mr. Jiwa responded as follows: “We have your instructions to pay your client one third of the net proceeds.”
[21] The sale was scheduled to close on September 20, 2002. The closing was delayed, however, when the purchaser discovered that the property was an illegal rooming house, that the water bill was in arrears and that insurance could not be obtained for the property because a portion of the garage had been converted into an illegal rental unit. Mr. Jiwa did not inform Mr. Fakirani of the delays or the discussions about how to respond to the purchaser’s concerns.
[22] In October of 2002, the purchaser agreed to close the transaction in exchange for a rebate of $10,000 on the purchase price. Mr. and Mrs. Esmail agreed to the reduction without discussing it with Mr. Pirani. The closing went ahead on November 1, 2002. Out of the proceeds of sale, Mr. Jiwa paid the outstanding mortgage in the amount of $184,201.92, tax arrears of $7,143.20, water arrears of $1,962.58 and his legal fees of $615.25. The net proceeds were then distributed to Mr. Esmail, who received two thirds or $114,300.63, and Mr. Pirani, who received one third or $57,150.32. In the accompanying letter addressed to Mr. Fakirani, Mr. Jiwa noted that he was making the payment of Mr. Pirani’s share, but that the payment was subject to expenses incurred to maintain the property.
[23] Sometime in 2002, Mr. Pirani gave Mrs. Esmail $500 to have the City of Toronto produce a property tax statement for the years 1989 and following. Mrs. Esmail, however, only had to pay $180 to the City for the statements.
[24] In February of 2003, three and a half months after the closing, Mr. Fakirani wrote to Mr. Jiwa acknowledging receipt of the funds and stating that his client, Mr. Pirani, was eager to settle all outstanding matters with Mr. Esmail with respect to the property. Mr. Fakirani asked Mr. Jiwa to convey to Mr. Esmail Mr. Pirani’s request that he be provided with a full and proper accounting for the period during which the property was administered as “partnership” property.
[25] It appears from the correspondence that Mr. Fakirani assumed that Mr. Esmail was Mr. Jiwa’s client. Mr. Jiwa in fact considered his client to have been Mrs. Esmail. Mr. Jiwa therefore forwarded Mr. Fakirani’s letter to Mrs. Esmail. About four months later, Mr. Fakirani wrote again to Mr. Jiwa urging Mr. Jiwa to impress upon his client the importance of providing a full and proper accounting.
[26] More than a year after raising the concern about the accounting, and having received no satisfactory response, Mr. Pirani issued a statement of claim against Mr. and Mrs. Esmail and Mr. Jiwa on April 5, 2004. The claim was for damages for breach of contract, breach of trust and breach of fiduciary duty in the amount of $100,000. Mr. Pirani also claimed out-of-pocket expenses as well as aggravated and exemplary damages. The claim for punitive damages was later withdrawn.
[27] At trial, Mr. Esmail attempted to reconstruct the accounts for the administration of the property. He produced two spreadsheets but had little documentation backing up the figures contained therein. Mrs. Esmail produced some vouchers for advertising, but neither of the Esmails produced cancelled cheques or bank statements to prove expenses or the deposit of rents. Some documents the Esmails produced relating to the tenancies provide indications that rents for the various units in the period 1992 to 1996 ranged from $550 to $850.
[28] Mr. Pirani retained Mr. Zafar, C.A., to prepare an unaudited report on the profit and loss for the property by reconstructing the accounts as best as he could using the information available. The Esmails hired Mr. Spagnuolo, C.G.A., who produced a report in response to Mr. Zafar’s expert report. Mr. Zafar then produced a revised report, and Mr. Spagnuolo produced a response to this revised report. Both experts testified at trial.
DECISION BELOW
[29] The trial judge held that the declaration of trust had created a valid trust, and that Mr. Esmail was both a trustee and a beneficiary of the trust. As a trustee, he owed a fiduciary duty to Mr. Pirani. Mr. Esmail breached this duty by failing to prepare and keep proper accounts of his administration. Mr. Esmail committed a further breach of trust when he transferred the property to Mrs. Esmail in 1994 for no consideration.
[30] The trial judge also found that Mrs. Esmail was not a bone fide purchaser for value, that she knew of the trust arrangement and that she therefore held the property in trust even though she was not a named trustee. Mrs. Esmail had taken on the administrative duties of operating the trust property from 1994 to 2002 but failed to produce any related bank statements for this period. There were no records of the rents received or of the expenses incurred in the operation of the property.
[31] The trial judge concluded that the Esmails were jointly and severally liable to Mr. Pirani for damages for breach of trust and breach of fiduciary duty.
[32] In her reasons, the trial judge explained that she was unable to rely on any of the financial reconstructions prepared by Mr. Esmail and found that Mr. Esmail was not a credible witness. From the total absence of records, the trial judge drew the inference that Mr. Esmail had either destroyed or deliberately withheld his banking records. The trial judge determined that the transfer of the property to Mrs. Esmail was a fraudulent preference, and that like Mr. Esmail, Mrs. Esmail had obfuscated in her testimony and had destroyed or withheld relevant banking documents.
[33] The trial judge drew the inference that after receiving the proceeds of sale, Mr. Esmail likely diverted the funds to Mrs. Esmail to protect himself from Mr. Pirani’s lawsuit. If Mr. Esmail indeed transferred the proceeds to Mrs. Esmail, the funds could be traced into her hands.
[34] The trial judge determined that the proceeds of sale should have been held in trust by Mr. Jiwa until the issues of legal and beneficial ownership had been settled. She held Mr. Jiwa liable to Mr. Pirani in damages for breach of trust, breach of fiduciary duty and negligence in carrying out his duties as a solicitor. She found that Mr. Jiwa had placed himself in a relationship of sufficient proximity to Mr. Pirani so as to owe him a duty of care. This followed from the fact that Mr. Pirani had relied on Mr. Jiwa to act carefully and to keep him and Mr. Fakirani informed as to how the sale of the property was proceeding. Mr. Jiwa, however, had simply ignored the declaration of trust he had received from Mr. Fakirani, and did not keep Mr. Fakirani or Mr. Pirani informed about the delay in closing. Mr. Jiwa did not obtain consent from Mr. Pirani for the $10,000 reduction in the sale price. In addition, Mr. Jiwa did not consult with Mr. Fakirani or Mr. Pirani about paying the arrears of property taxes and water accounts out of the proceeds of sale. Rather, Mr. Jiwa improperly deducted the cost of 50% of these arrears from Mr. Pirani’s share of the proceeds of sale. As a one-third owner, Mr. Pirani ought only to have paid one third of these debts. Finally, Mr. Jiwa also charged Mr. Pirani for 50% of the legal fees rather than one third in keeping with Mr. Pirani’s one-third ownership interest.
[35] The trial judge also faulted Mr. Jiwa for having totally ignored Mr. Fakirani’s request that Mr. Pirani be provided with a full and proper accounting of the administration of the trust property.
[36] With respect to the expert reports and the testimony of the experts, the trial judge found that Mr. Spagnuolo was not an independent witness. In preparing his report, Mr. Spagnuolo had relied on information provided by the Esmails’ daughter despite the fact that there was little or no documentation to support the figures she provided. Further, Mr. Spagnuolo accepted Mr. Esmail’s assertion that Mr. Pirani had agreed to be responsible for the payment of all property taxes despite the absence of any contract or agreement to that effect. The trial judge rejected Mr. Esmail’s testimony alleging such an agreement along with those parts of Mr. Spagnuolo’s reports based on the assumed existence of any such agreement.
[37] As to Mr. Pirani’s expert, Mr. Zafar, the trial judge accepted Mr. Zafar’s reconstruction of the accounts for the operation of the property from 1989 to 2002. She found Mr. Zafar to be an independent witness well qualified to carry out the work. She considered Mr. Zafar’s estimates of the rental increases and the vacancy rates to be drawn from reliable sources and reasonable in the circumstances. The trial judge also accepted Mr. Zafar’s calculations regarding the mortgage payments made over the 13-year period, and his calculation of the profits that would have been earned from rents. However, she rejected Mr. Zafar’s calculation of the appropriate amount of interest to be paid on the profits assumed to have been earned from rent but as yet unpaid to Mr. Pirani. In the trial judge’s view, there was no basis for Mr. Zafar’s assumption that Mr. Pirani had borrowed money for the investment at prime plus two per cent. As a result, she rejected the $109,751 in interest calculated by Mr. Zafar and concluded that Mr. Pirani would not be entitled to such a high rate of return. The trial judge considered that the more appropriate rate would be the prejudgment interest rate.
[38] The trial judge awarded damages to Mr. Pirani as follows:
a) $1152.68 representing 1/3 of the $ 3,457.46 in fees incurred in transacting for, and arrears paid out of, the refinancing of the mortgage in 1990;
b) $12,873 representing Mr. Pirani’s 1/3 share of the profits that would have been earned from the operation of the property based on Mr. Zafar’s reconstruction of the accounts;
c) $45,958 representing the return to Mr. Pirani of property expenses he paid together with the return of the contribution he made to the losses incurred in the early years of the property’s operation. The trial judge reasoned that because, according to Mr. Zafar’s calculations, the property had ultimately generated a net profit of $38,619, Mr. Pirani’s contribution to the losses incurred and to the payment of taxes should have been reimbursed to him;
d) $320 representing the over-payment made by Mr. Pirani to Mrs. Esmail to obtain the property tax statement from the City of Toronto;
e) $1,666.66 representing 1/3 of the insurance proceeds relating to property damage received by Mr. Esmail that was never paid to Mr. Pirani;
f) $2,522 representing the amount of expenses improperly paid by Mr. Jiwa out of Mr. Pirani’s share of the proceeds of sale of the property. As noted earlier, the trial judge concluded that he was charged for 50% of the arrears of property taxes and water bills as well as of the legal fees, rather than one third of these costs; and
g) $3,333.33 representing one third of the $10,000 reduction of the sale price in the property.
[39] To this the trial judge added pre-judgment interest in the amount of $15,215.11.
[40] The trial judge also ordered Mr. Jiwa to pay damages of $15,000 together with pre-judgment interest in the amount of $3,155.40.
[41] In her reasons, the trial judge stated that because of the delays in the trial, counsel had inadvertently failed to provide the court with case law relevant to the claim for aggravated damages. As a result, she invited both counsel to prepare brief legal submissions on this issue.
[42] Following receipt of these submissions, the trial judge issued supplementary reasons. She found that Mr. Pirani had experienced distress as a result of the delay in getting to trial. She also found that the Esmails had ignored their legal and fiduciary obligations throughout the administration of the trust. The trial judge considered the Esmails’ conduct highhanded and egregious. In her view, delays caused by the Esmails also kept the action in the legal system for seven years. The Esmails caused further delays by deciding to retain legal representation mid-trial.
[43] As a result, the trial judge awarded Mr. Pirani $15,000 in aggravated damages, to be paid jointly and severally by the Esmails.
[44] The claim for aggravated damages as against Mr. Jiwa was dismissed.
ISSUES
[45] The appellants raise four issues:
i. Did the trial judge err in her assessment of damages and in relying on the report of the respondent’s expert?
ii. Should the award of aggravated damages be set aside?
iii. Should Mrs. Esmail be jointly and severally liable for both the compensatory and aggravated damages awarded at trial? and
iv. Should the award of substantial indemnity costs be set aside?
[46] On the cross-appeal, the issue is whether a fiduciary duty or a duty of care existed between the cross-appellant and the respondent.
ANALYSIS
[47] At the outset, it is worth noting that the trial judge faced significant challenges in this case. The appellants were self-represented. Mid-trial, they made the decision to retain counsel. The respondent changed lawyers twice. Moreover, the trial judge was called upon to settle the accounts of a trust in the almost total absence of records for the 13 years of the trust’s operation. Further complicating the judge’s task was the fact that the trust’s sole assetthe propertyhad been sold 10 years before trial.
[48] With this in mind, I now turn to the issues on appeal.
i. Did the trial judge err in her assessment of damages and in relying on the report of the respondent’s expert?
[49] Many of the trial judge’s findings are not challenged on appeal. The existence of a trust and the appellants’ failure, as trustees, to maintain records and properly account for the administration of the trust were findings well supported in the evidence. Further, the trial judge’s findings that the appellants were not credible, and that they likely destroyed or failed to produce banking and other records, were reasonable and available on this record.
[50] The trial judge properly rejected the Esmails’ expert’s report. It is based primarily on information provided by the Esmails. The trial judge found this information unreliable. The accuracy of the Spagnuolo report was therefore undermined, rendering it of little or no value.
[51] The Esmails’ principle submission is that the trial judge ought to have rejected Mr. Pirani’s expert’s report as well. The Esmails’ argue that the trial judge “erred in relying upon [Mr. Zafar’s report] as the basis for her calculations as to damages” for two reasons. First, they argue that Mr. Zafar is not impartial and that his conclusions “were a pure exercise in advocacy, not expert opinion.” Second, they also argue that his report should be rejected as it created profits where none had been earned. Specifically, in their factum, the Esmails argue that Mr. Zafar:
· “failed or deliberately refused to consider the 2002 MLS Listing regarding the rental income…”
· “constructed an elaborate projection of rental income from one single piece of evidence, namely, the rent received during the month of November, 1989…”
· “applied his revenue formula on a straight-line basis, and did not adjust his rental calculations of light [sic] of the known rental income in 2002” and
· made “no attempt to compare the end result to the actual rents paid 11 years later when the property sold in 2002.”
On this basis, the Esmails argue that “[t]here is no evidence to substantiate Zafar’s conclusion that in 2002 the rental income would have been anywhere near $3,377 per month, which is the ultimate conclusion of his damage calculation, as accepted by Justice Greer in awarding damages”.
[52] Mr. Pirani argues that his expert, Mr. Zafar, was well qualified, impartial and based all of his calculations on assumptions that the trial judge found to be reasonable. The trial judge assessed Mr. Zafar’s testimony and found that he was “in no way trying to be an advocate for Pirani’s position.” The trial judge carefully reviewed the assumptions used by Mr. Zafar in preparing his report and these were found to be realistic and reasonable. As a result, Mr. Pirani submits that the trial judge’s reliance on the Zafar report was well founded and entitled to deference.
[53] The Esmails also argue that the trial judge erred in rejecting Mr. Esmail’s evidence as to the existence of an oral agreement between him and Mr. Pirani to the effect that Mr. Pirani was responsible for the payment of realty taxes for the property, and that Mr. Esmail was responsible for the payment of all other expenses.
[54] With respect to the Esmails’ allegation of an oral agreement as to the payment of taxes, I see no basis to interfere with the trial judge’s finding in this regard. Mr. Pirani denied the existence of such an agreement. Only Mr. Esmail testified to its existence. The trial judge rejected Mr. Esmail’s evidence and accepted the testimony of Mr. Pirani. As noted earlier, these findings of credibility are well supported and entitled to deference on appeal. In any event, it makes little sense that Mr. Pirani, who received none of the rental revenue, would agree to pay all of the property taxes without receiving any accounting from Mr. Esmail as to what he did with the rental income he was receiving.
[55] In my view, however, the trial judge erred in accepting and relying on the Zafar report. I acknowledge that a trial judge’s factual findings are entitled to deference: Housen v. Nikolaisen, [2002] 2 SCR 23. However, factual findings are not subject to appellate deference where they are “clearly wrong”: H.L. v. Canada (Attorney General), [2005] 1 S.C.R. 401. Although the assumptions underlying Mr. Zafar’s rental calculations may appear reasonable in the abstract, his conclusions with respect to rental income do not withstand scrutiny when tested against the evidence led at trial. Because the amount of rental revenue derived from the property is a critical factor in determining whether the property generated a profit, that figure must be carefully assessed.
[56] To start, Mr. Zafar accepted the rents listed in the Spagnuolo report for the property for 1989. He then assumed that the rents would increase, annually, by the maximum allowed by law. He discounted these increases by 25% in order to “be conservative” in his calculations. Mr. Zafar also applied publicly available vacancy data to account for the loss of rental revenue due to vacancies. Using this formula, he calculated the rental revenue for the property in each of the years from 1989 to 2002. Mr. Zafar estimated that the monthly rental revenue had reached $3,377.30 in 2002. According to Mr. Zafar, the annual rental revenue on the property was $40,527.60 in 2002.
[57] The evidence at trial demonstrates that the monthly rental revenue from the property was closer to $2,240 in 2002. Thus, even if we assume that there were no vacancies whatsoever in 2002, the annual rental revenue would total $26,880. The difference in rental income between this number and Mr. Zafar’s estimate is $14,000 per year by 2002. There is simply no way to reconcile these figures.
[58] The evidence showing that the rental revenue in 2002 was well below the $3,377.30 assumed by Mr. Zafar is overwhelming, uncontradicted and corroborated in large measure by the written record. The evidence is as follows:
1. The MLS listing for the sale of the property in 2002 was made an exhibit at trial. It states: “Ideal for investors/users*apprx. $2,240/month (includes utilities).” At trial, it was clear that Mr. Pirani selected the real estate agent, met with him to discuss the sale of the property and was present, along with Mrs. Esmail, when the listing agreement was signed. According to Mrs. Esmail’s testimony, it was Mr. Pirani who “showed me the real estate listing that I am supposed to sign because I am the owner, so I signed it”. She also testified that she did not provide any of the information that was included in the listing and that she did not read the listing before signing it.
2. Mr. Esmail testified that the $2,240 monthly rental figure in the MLS listing was “more or less” accurate. Although the trial judge preferred Mr. Pirani’s evidence over the evidence of the Esmails, there was no conflict in their evidence with respect to the listing agreement. From the evidence, it is apparent that Mr. Pirani would have been most familiar with the contents of the listing agreement. Moreover, because the listing agreement was prepared well before the dispute arose, there would have been no reason for the Esmails or Mr. Pirani to misstate the rental income. In fact, both the Esmails and Mr. Pirani had an interest in reporting higher rental figures because rental revenue would be a significant factor in the purchase price of the property.
3. Two “acknowledgment from tenant” forms dated October 31, 2002 were filed as exhibits. One lists the rent for the upstairs unit at $1,065. The other lists the rent for the basement unit at $623. Together, these figures total $1,688 in rent per month. There is no similar form for the garage unit. From the various records filed at trial, and accepted by both experts, it appears that the rent for the garage unit was similar to the rent being charged for the basement unit. This would put the monthly rental income for the entire property at approximately $2,311 per month.[1] Although neither of the “acknowledgement from tenant” forms is signed by the tenants, Mrs. Esmail’s signature appears on both forms, and the forms were accompanied on closing by a declaration made by Mrs. Esmail confirming the rent figures. The forms provided the tenants’ names should anyone have wished to confirm the rental rates.
4. Mr. Jiwa, the lawyer who handled the closing of the sale of the property in 2002, testified that there were two tenants in the property, and that the only other unit, the unit in the garage was vacant at the time. He also confirmed that the “acknowledgement from tenant” documents and accompanying declaration by Mrs. Esmail were provided to the purchaser’s solicitor as part of the closing.
5. Mr. Shaikh, who purchased the property in 2002, confirmed that he was provided with a copy of the closing documents. He testified that after purchasing the property he was making between $1,200 and $1,300 per month in rental income. This included rental income from the three bedroom unit upstairs and the basement unit. Mr. Shaikh testified that he was not collecting rent from the illegal garage unit because he had kicked out the tenants who were living there. This evidence suggests that the total monthly rental revenue from the property was even lower than the $2,240 shown in the MLS listing.
6. The fact that, at the time of the sale in 2002, the property had only three tenancies rather than the five reported in Mr. Zafar’s report is supported by correspondence produced from Mr. Jiwa’s file. In the file was a copy of a letter from Standard Insurance and a letter from Mr. Sanwalka, the solicitor for the purchaser. Both letters comment on the fact that the property was “not warranted for a triplex.”
7. The copies of rental cheques dated in 2002 that were produced by the Esmails confirm the names of some of the tenants and provide support for the rental income figures shown on the listing agreement and the information set out in the “acknowledgement from tenant” documents given to the purchaser on closing.
[59] Why the trial judge did not deal with this evidence in any substantive way is not clear. The fact is, however, that it is apparent from the record that Mr. Zafar’s estimate of the rental income from the property is grossly overstated. For the final year alone, the income appears to be overstated by $14,000. Given the large difference between Mr. Zafar’s rent estimates and the rents reported in the evidence led at trial, the results of Mr. Zafar’s analysis and his estimate of profit simply do not withstand scrutiny. As an expert’s report is only as good as the underlying data and assumptions, Mr. Zafar’s report is virtually valueless: See Di Martino v. Delisio (2008), 168 A.C.W.S. (3d) 870 (Ont. S.C.), at para. 127. In my view, the statement “expertise commands deference only when the expert is coherent” applies to Mr. Zafar’s calculations: R.P. Kerans, Standards of Review Employed by Appellate Courts (Edmonton: Juriliber, 1994), cited with approval in Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748. I therefore conclude that the trial judge ought to have rejected Mr. Zafar’s report given that the critical underlying assumption as to the rental income in 2002 cannot be reconciled with the uncontradicted oral and documentary evidence led at trial.
ii. Should the award of aggravated damages be set aside?
a. The Functus Issue
[60] The Esmails argue that after issuing her initial judgment, the trial judge ought not to have sought further submissions on the issue of aggravated and exemplary damages. By the time the submissions on aggravated and exemplary damages were received by the trial judge, Mr. Pirani’s lawyer had already had the initial judgment issued and entered. In these circumstances, the Esmails argue, the trial judge was functus.
[61] I disagree. The Supreme Court of Canada has explained the origin of the functus doctrine as follows:
The general rule that a final decision of a court cannot be reopened derives from the decision of the English Court of Appeal in In re St. Nazaire Co. (1879), 12 Ch. D. 88. The basis for it was that the power to rehear was transferred by the Judicature Acts to the appellate division: Chandler v. Alberta Association of Architects, [1989] 2 S.C.R. 848, at para. 19).
[62] The underlying purpose of the functus doctrine is to “allow finality of judgments from courts which are subject to appeal.” If such courts could continually alter their decisions, they “would assume the function of an appellate court and deny litigants a stable base from which to launch an appeal”: Doucet-Boudreau v. Nova Scotia (Minister of Education), 2003 S.C.R. 3, at para. 79. Thus, where a “trial judge does not purport to alter a final judgment,” the doctrine does not apply: Doucet-Boudreau v. Nova Scotia, at para. 76.
[63] In the present case, the trial judge did not purport to alter or revisit her initial judgment. No additional evidence was called. The trial judge simply sought and received additional submissions on one issue, the issue of aggravated and exemplary damages. This was an issue that she had explicitly held open in her initial reasons. Her supplementary reasons dealt only with that outstanding issue. In other words, the supplementary reasons did not disturb the finality of the initial judgment.
[64] In rejecting this ground of appeal, however, I should not be taken as encouraging such practices by trial judges. Issuing more than one judgment in a matter can place the parties in difficult situations and can give rise to additional costs. The losing party is called upon to decide whether to appeal the judgment without knowing the complete result and is also in the awkward position of having to decide whether to appeal even though the trial judge has yet to resolve all of the issues in dispute. Further, the losing party may, as in this case, have to incur additional costs because the original notice of appeal would have to be amended to add an appeal of the supplementary judgment. There is also a risk that, knowing the outcome on one or more of the issues, one of the parties may be at an advantage in formulating the supplementary submissions. Dividing judgment in this way should, therefore, be avoided. If doing so gives rise to real prejudice to a party, it may well constitute reversible error.
[65] In the present case, however, the Esmails suffered no real prejudice as a result of the trial judge’s decision to seek supplementary submissions after issuing her initial judgment. The only consequence is that the Esmails incurred some small additional costs. As a result, I would dismiss this ground of appeal.
b. The Aggravated Damages Award
[66] The Esmails further argue that there was no legal or factual basis for the award of aggravated damages. I disagree. Aggravated damages are compensatory in nature, and take “full account of the intangible injuries, such as distress and humiliation that may have been caused by the defendant’s insulting behaviour”: S.M. Waddams, The Law of Damages, 2nd ed. (Toronto: Canada Law Book, 1983) at p. 562, cited with approval in the judgment of McIntyre J. in Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085, at para. 16.
[67] The trial judge found the Esmails responsible for delaying and extending the length of the trial. Further, the trial judge viewed their conduct in administering the trust to be highhanded and egregious. They transferred the trust property without consent, ignored their duty to properly administer the trust and did not keep proper accounts. These findings were open to the trial judge and fully supported the award of aggravated damages in this case.
iii. Should Mrs. Esmail be jointly and severally liable for both the compensatory and aggravated damages?
[68] The appellants argue that Mrs. Esmail should not be liable for any damages as she had nothing to do with the trust arrangements between Mr. Esmail and Mr. Pirani. The Esmails also maintain that Mr. Pirani never asked Mrs. Esmail for an accounting and never considered her to be in a fiduciary relationship with him.
[69] I disagree. The record supports the trial judge’s finding that, in 1994, when she received title to the property, Mrs. Esmail would have become aware of the declaration of trust and that the property being transferred was trust property. Her knowledge of the trust, her acceptance of title to the trust property and her administration of the property for eight years fully justify the trial judge’s conclusion that Mrs. Esmail owes a fiduciary duty to Mr. Pirani. Mrs. Esmail’s failure to maintain proper records and her failure to account to Mr. Pirani for her administration of the trust property constitute breaches of her trust obligations.
[70] I do not, however, see any basis for making Mrs. Esmail liable to Mr. Pirani for damages incurred before she became involved with the property in 1994. Nothing suggests that she was aware of or participated in any of the breaches committed by Mr. Esmail before 1994. As a result, I would find Mrs. Esmail jointly and severally liable only for those damages incurred after the 1994 transfer to her of the trust property.
[71] As to the aggravated damage award, I would not interfere with the trial judge’s finding that Mrs. Esmail is jointly and severally liable. These were awarded as a consequence of the conduct of both Mr. and Mrs. Esmail.
iv. Should the award of substantial indemnity costs be set aside?
[72] The trial judge awarded substantial indemnity costs of $87,655.14, four fifths to be paid by the Esmails and one fifth by the cross-appellant, Mr. Jiwa. The Esmails submit that the trial judge erred in awarding substantial indemnity costs, and that the costs award was excessive and well beyond the reasonable expectations of the parties. The Esmails explain that they could not have expected to pay such a large costs award because Mr. Pirani’s statement of claim contained no claim for costs, let alone a claim for costs on a substantial indemnity basis. The Esmails also argue that the trial judge was penalizing them twice for their breaches of trust and their conduct at trial. They argue that the award of aggravated damages was made to compensate Mr. Pirani for this conduct, and that the award of substantial indemnity costs on the same basis represents double recovery for Mr. Pirani.
[73] In my view, the trial judge was entitled to rely on what she considered to be highhanded and egregious conduct on the part of the Esmails as the basis for both the award of aggravated damages and for the award of costs on a substantial indemnity basis. The same conduct may properly be the origin of both an award of aggravated damages and an award of substantial indemnity costs: Leenen v. Canadian Broadcasting Corp., 54 O.R. (3d) 621 (C.A.); see also Hughes v. Gemini Food Corp. (1997), 97 O.A.C. 147, 27 C.C.E.L. (2d) 204 (Ont. C.A.). The trial judge also properly considered the principles of fairness and reasonableness and proportionality.
[74] The Esmails’ complaint that they could not have reasonably expected to pay such a high costs award because Mr. Pirani did not claim costs on a substantial indemnity basis in his statement of claim is also of no moment. In his written submissions on costs Mr. Pirani claimed substantial indemnity costs, giving the Esmails ample opportunity to argue against such an award, which they did. In their written submissions on costs, the Esmails do not appear to have raised Mr. Pirani’s failure to plead substantial indemnity costs in his statement of claim. It is raised for the first time on appeal. Such an argument “should only be entertained if the court of appeal is persuaded that all of the facts necessary to address the point are before the court as fully as if the issue had been raised at trial”: 767269 Ontario Ltd. v. Ontario Energy Savings L.P., 2008 ONCA 350, at para. 3, citing Ross v. Ross, 1999 NSCA 162, at para. 34. Had this argument been raised at trial, Mr. Pirani may have sought to amend his pleading or led evidence as to the Esmails’ knowledge or understanding with respect to costs. In the circumstances, therefore, it is not a ground that this court should entertain on appeal. In any event, the trial judge received comprehensive submissions on costs and properly considered and weighed the reasonable expectations of the parties. I would not give effect to this argument.
[75] However, because I would reject the Zafar report and reduce the amount of the damages award, the basis on which the trial judge fixed the amount of costs has changed. It is appropriate, therefore, that I revisit the quantum of costs.
[76] I would not interfere with the trial judge’s determination that substantial indemnity costs should be awarded. She reached that conclusion based on several factors, including her finding that the Esmails lied under oath and destroyed or secreted away every single bank statement each had received over the lifetime of the trust, the Esmails’ breach of their trust and fiduciary obligations and their egregious conduct during the trial. These are appropriate bases for awarding substantial indemnity costs: see 1505986 Ontario Inc. v. Surma, 2010 ONSC 6956, at paras. 17-20; see also Prinzo v. Baycrest Centre for Geriatric Care (2002), 60 O.R. (3d) 474 (C.A.), at para. 76.
[77] In setting the amount, however, I have to consider that I am reducing the damages award, which serves to make the Esmails’ $50,000 offer to settle somewhat more reasonable. In addition, the reduction in the amount recovered by Mr. Pirani has to be weighed in assessing what the parties would reasonably expect to incur and pay in costs. Those expectations will be determined with reference to the factors historically referred to in determining costs and may include the factors outlined in Rule 57.01(1): Hague v. Liberty Mutual Insurance Co., 138 A.C.W.S. (3d) 804, at para. 15. I note one further consideration. Although the Esmails were responsible for delays, so was Mr. Pirani. The case was dismissed for delay by the registrar in 2007, and Mr. Pirani changed counsel several times, including during the trial. Both parties, therefore, contributed to the escalation in costs.
[78] Given all of this, I would not interfere with the trial judge’s award of costs on a substantial indemnity basis, but would revise the amount awarded. The trial judge effected some small adjustments reducing the amount awarded to Mr. Pirani. I would make a more substantial adjustment for the reasons outlined. In my view, the award of substantial indemnity costs should be reduced to $60,000.
THE CROSS-APPEAL
[79] The trial judge found that Mr. Jiwa owed a duty to the respondent on several bases, including that Mr. Jiwa:
a) ignored the declaration of trust sent to him by Mr. Fakirani and therefore breached his duty to act in the best interest of the beneficiaries of trust;
b) ignored Mr. Fakirani’s letter requesting that the Esmails provide a full and proper accounting;
c) did not consult Mr. Pirani before accepting instructions to complete the sale after effecting a $10,000 reduction in the sale price; and
d) charged Mr. Pirani for 50% of the arrears of taxes and water accounts for the property and 50% of the legal fees even though Mr. Pirani only owned a one third interest.
[80] Mr. Jiwa argues that there is simply no basis for the trial judge’s finding that he is liable to Mr. Pirani. He explains that he was retained to act only on the sale of the property and that he took instructions from the registered owner of the property, Mrs. Esmail, as he was required to. Further, all of these instructions were confirmed by the trustee named in the trust document, Mr. Esmail. Mr. Jiwa submits that he neither participated in nor was aware of any breach of trust.
[81] I agree. A solicitor owes a duty to his client. Here, the owner was Mrs. Esmail, and the trust document indicated that the trustee was Mr. Esmail. Mr. Jiwa was retained by the owner, Mrs. Esmail, and took instructions from her, as is proper. Those instructions were confirmed by Mr. Esmail. Mr. Jiwa was never told that Mrs. Esmail was not authorized to sell the property nor that either Mr. or Mrs. Esmail was in breach of their trust obligations.
[82] Mr. Fakirani’s letter advised Mr. Jiwa that Mr. Pirani had an interest in the property as a beneficiary of the trust. That letter, however, simply requested that all monies payable in respect of the said property be distributed in accordance with the percentages set forth in the terms of the trust agreement. As stated by Mr. Fakirani: “[a]ccordingly, my client is entitled to one third of the proceeds of the sale of this property. Please have a certified cheque for my client’s share ready for pickup by my office on closing.” There was no suggestion that the sale had not been authorized, that the Esmails were in breach of trust or that Mr. Pirani, as beneficiary, was somehow entitled to give instructions or to be consulted on the sale or its terms.
[83] Mr. Jiwa fully complied with Mr. Fakirani’s request, and one third of the proceeds of sale of the property were forwarded to Mr. Fakirani after the sale.
[84] Several months following the sale of the property, and long after Mr. Pirani’s share of the proceeds had been sent to Mr. Fakirani, Mr. Fakirani wrote again to Mr. Jiwa advising that:
My client is eager to settle all outstanding matters with your client with respect to this property and request that he be provided with a full and proper accounting for the period this property was administered by him as a partnership’ property so that all remaining issues between them can be resolved to satisfaction of both.
Kindly convey this request to your client with instructions to comply promptly.
[85] At this stage Mr. Jiwa had no retainer from either Mr. or Mrs. Esmail. Nonetheless, Mr. Jiwa did not, as the trial judge suggested in her reasons, ignore Mr. Fakirani’s letter. Within five days of receipt of the letter, he wrote to his former client, Mrs. Esmail, stating as follows:
Enclosed please find letter received from Mr. Fakirani. Would you be so kind as to respond to the issues outlined in this letter? Thank you.
[86] Although it may have been wiser for Mr. Jiwa to simply advise Mr. Fakirani that he no longer acted for the Esmails, his actions do not, in my view, give rise to any duty to Mr. Pirani, nor to any breach thereof. As for the trial judge’s suggestion that Mr. Jiwa improperly charged Mr. Pirani for 50% of the overdue taxes and water accounts and 50% of the legal fees, it appears that the trial judge misunderstood the way in which the payments were made. The payment of overdue taxes and water bills and the payment of the legal fees were disbursements deducted from the proceeds of sale of the property before distribution to Mr. Jiwa and Mr. Esmail of their respective shares. Because these payments reduce the amount available for distribution to the owners, the impact is as to two thirds to the Esmails and one third to the respondent, and not 50% to each as found by the trial judge.
[87] As a result, I would allow the cross-appeal and dismiss Mr. Pirani’s claim against Mr. Jiwa.
REMEDY
[88] I turn now to the issue of the appropriate remedy. The Esmails argue that a new trial should be ordered. In my view, little is to be gained by ordering a new trial. The trial judge made all of the necessary credibility findings and I see no basis for interfering with them. The Esmails’ liability to Mr. Pirani was clearly established. The only issue remaining is the determination of the proper amount of damages to be awarded given that I have rejected the Zafar report.
[89] A new trial should not be ordered “unless some substantial wrong or miscarriage of justice has occurred”: Courts of Justice Act, R.S.O. 1990, Chapter C. 43, s. 134(6). If a new trial is ordered here, there is no reason to expect that additional records of the administration of the trust will be available. In the absence of proper records, and given that the trial judge rejected the Esmails’ reconstruction of the accounts, there is simply no solid basis upon which a new expert could build an accurate accounting should a new trial be ordered. Further, the amounts involved are relatively small and do not warrant the very significant costs that a new trial would involve for both parties. In my view, therefore, it is in the interest of justice that this court set the amount of damages based on the record before us and the largely unchallenged findings of the trial judge: Courts of Justice Act, s. 134(1)(c).
[90] With respect to the quantum of damages, the most difficult issue is the determination of whether a net profit was generated by the rental of the property. Mr. Pirani alleges that the property turned a profit. Mr. Esmail alleges that the property generated a loss. Both seem to agree that the property was operating at a loss at the outset. The interest rate on the mortgage was very high, and the market had suffered a significant reversal. Within a few years, however, following the refinancing of the mortgage at a substantially lower interest rate, the annual deficit would certainly have been reduced and possibly erased. Rental rates would then likely increase somewhat over the years, although not at the rate assumed by Mr. Zafar for the reasons discussed above. The property would, therefore, likely have become profitable at some point. This suggests to me that it is reasonable to conclude that over the 1989 to 2002 period, the income matched the expenditures, and that there was neither a net loss nor a net gain. In other words, Mr. Pirani has not proven that a net profit was generated, and the Esmails have not shown that the property was operated at a loss.
[91] The Esmails, as trustees, owed a duty to Mr. Pirani to account to him on their administration of the trust. They received money from Mr. Pirani but cannot show that it was needed to cover losses in the operation of the trust property.
[92] Taking all of these factors into account, I would make no award to Mr. Pirani for profits from the rental property. Rather, I would order the Esmails to repay Mr. Pirani for the contributions he made to cover losses. This is consistent with my conclusion that the property generated no overall loss or profit during the relevant period of ownership.
[93] At trial, it was established that Mr. Pirani made several payments directly to Mr. Esmail to cover losses that had been accumulated in the early years. From 1993 onwards, Mr. Pirani also made several realty tax payments directly to the municipality. Based on my conclusion that the overall income generated by renting the property would have equalled the overall costs of operating the property, Mr. Pirani ought to have been reimbursed by the Esmails for his contribution to losses in the early years and for his tax payments.
[94] These amounts are well documented. $13,050.15 was paid directly to Mr. Esmail and $32,397.77 was paid to the municipality. The total is $45,447.86.
[95] Mr. Esmail produced no records showing that he had to make cash contributions to cover shortfalls in the operation of the property. Nor did Mr. Esmail account for the rental revenues he and Mrs. Esmail received. There is also no suggestion that the Esmails reimbursed Mr. Pirani for the tax payments he made, or for his payments made to Mr. Esmail in the early years. I would, therefore grant judgment to Mr. Pirani for the $45,447.86.
[96] I now turn to the other elements of the damage award made by the trial judge and apply the same assumption that the property generated neither an overall gain nor an overall loss during the period at issue.
[97] With respect to the 1990 refinancing of the mortgage, the trial judge awarded $1,152.68 to Mr. Pirani. This represents one third of the $1,285.50 in legal costs incurred to effect the refinancing of the mortgage as well as one third of the $2,171.86 paid out of the refinancing proceeds for tax and mortgage interest arrears. I do not consider the costs of refinancing the property an ordinary expense. The refinancing resulted in a lower interest rate and benefitted both parties. As a result, it was appropriate to deduct the $1,285.50 in legal costs from the proceeds of the refinancing. However, the arrears of taxes and mortgage interest are operating expenses and ought to have been paid out of the rental revenues. They should not have been paid out of the proceeds of the refinancing. As a result, I would award Mr. Pirani $723.95 representing one third of the $2,171.86 paid for tax and mortgage interest arrears. Had the Esmails not allowed the arrears to accumulate, these expenses would not have been paid out of the refinancing proceeds.
[98] The trial judge awarded $12,873 representing Mr. Pirani’s share of net rental income. As I conclude that there was neither a profit nor a loss in the operation of the property, I would reduce this amount to zero.
[99] The next award made at trial was of $45,958, representing the amount Mr. Pirani had contributed to expenses. It appears that the trial judge made a small mathematical error and, as I have set out earlier, the proper amount should be $45,447.86.
[100] The trial judge awarded $320 on account of Mr. Pirani’s overpayment to Mrs. Esmail to cover the cost of obtaining realty tax payment records from the municipality. I see no basis to interfere with the amount of that award.
[101] The trial judge then awarded $1166.66 representing Mr. Pirani’s share of an insurance payment made to Mr. Esmail to cover the costs of repairing damage suffered by the property due to vandalism. Applying my finding that there was no profit or loss, I would set aside this award. The insurance proceeds were used to cover the cost of carrying out the repairs. The repairs would have been paid by the Esmails and so they should receive the recovery.
[102] The next amount awarded was $2,522 for money improperly deducted by Mr. Jiwa from Mr. Pirani’s share of the proceeds of sale in 2002. As I have explained, this figure appears to result from the trial judge’s belief that Mr. Pirani was charged for half rather than one third of the expenses paid on closing. I would recalculate this award applying my finding that the property experienced neither profit nor loss overall. On this basis, the overdue realty taxes of $7,143.20 and the overdue water charges of $1,962.58 paid out of the proceeds of sale should have been paid out of the rental revenue received by the Esmails. These arrears ought not to have been paid out of the proceeds of sale. As a result, I would award Mr. Pirani $3,035.26 representing his one third interest. The balance of the payments made on closing was attributable to the sale of the property and properly deducted.
[103] The final amount awarded is $3333.33, which is one third of the $10,000 reduction effected to the purchase price in response to the purchaser’s concerns that the property was being operated as an illegal rooming house. I would set aside this award. The Esmails were authorized to carry out the sale and the reduction in the purchase price was necessary to allow the closing to go ahead.
[104] In summary, therefore, I would substitute the trial judge’s award of $67,815.67 with an award of $49,527.07 made up of the awards of $45,447.86, $723.95, $320 and $3035.26 as I have explained.
[105] The failure to pay Mr. Pirani the sums he was entitled to receive cannot be attributed to the breach by either Mr. or Mrs. Esmail alone. They both owed Mr. Pirani a duty to reimburse him for advances he made to cover operating deficits in the early years and, in later years, realty taxes. Although I have concluded that Mrs. Esmail should not be jointly and severally responsible for damages flowing from breaches of trust committed by Mr. Esmail before 1994, the damages I am awarding to Mr. Pirani do not fall neatly into the pre or post 1994 periods. For example, the advances made by Mr. Pirani to Mr. Esmail before 1994 to cover deficits would logically be repaid to him from profits made in later years when Mrs. Esmail was receiving the rents and paying expenses. As a result, I would, as the trial judge did, hold Mr. and Mrs. Esmail jointly and severally liable for the full $49,527.07.
[106] To this award I would add $48,000 representing four fifths of the $60,000 in trial costs I have set.
[107] I have allowed Mr. Jiwa’s appeal and dismissed the action against him. Mr. Jiwa is entitled to his trial costs. He represented himself at trial and submits that because serious allegations were made against him, substantial indemnity costs are warranted. I disagree. Although he is entitled to his costs because he has ultimately succeeded, I see no basis to award substantial indemnity costs. The allegations were serious but not of such a nature as to attract a substantial indemnity award. If the parties cannot agree on appropriate amount, brief submissions not exceeding three pages are to be submitted within 14 days of these reasons.
[108] I now turn to the costs of this appeal. Mr. Jiwa represented himself and was totally successful. He seeks substantial indemnity costs of $23,369.53. In my view, he is entitled to his costs, but I see no basis for awarding these on a substantial indemnity basis. As to the amount, this was a relatively straightforward appeal, and Mr. Jiwa’s role was fairly limited. In my view, the appropriate award of costs is $7,000 inclusive of disbursements and applicable taxes.
[109] As between Mr. Pirani and the Esmails, the Esmails had some success on appeal but they remain liable for significant sums. As a result, I would award costs to Mr. Pirani but in a reduced amount. Mr. Pirani claims $18,143 in costs for the appeal. I would award costs on a partial indemnity basis fixed at $12,000 inclusive of disbursements and applicable taxes.
CONCLUSION
[110] I would allow the Esmails’ appeal in part, and amend the judgement to show the Esmails jointly and severally liable to Mr. Pirani for $49,527.07. I would not interfere with the award of aggravated damages to Mr. Pirani of $15,000. I would also award Mr. Pirani costs as against the Esmails in the amount of $48,000 for the trial, and $12,000 for the appeal. Both are inclusive of disbursements and taxes.
[111] I would allow Mr. Jiwa’s cross-appeal and set aside the judgment made against him. I would award him costs of the appeal as against Mr. Pirani fixed at $7,000 inclusive of disbursements and taxes.
[112] If the parties cannot agree on the appropriate amount of trial costs to be awarded to Mr. Jiwa, I would have Mr. Pirani and Mr. Jiwa submit brief written submissions not exceeding three pages within 14 days of the date of this judgment.
“Paul Rouleau J.A.”
“I agree K.M. Weiler J.A.”
Pepall J.A. (Dissenting):
[113] I have read my colleague’s reasons and I agree with his disposition of the Jiwa cross-appeal. With respect, I am unable to agree with his disposition of the Esmails’ appeal. He determined that while the trial judge properly rejected the report of the Esmails’ expert, she committed a reversible error in relying on the report of the respondent’s expert on damages. Accordingly, my colleague set aside the trial judge’s damages award of $67,815.67 and conducted his own assessment of damages. This resulted in an award of $49,527.07 and an attendant reduction of the substantial indemnity costs awarded by the trial judge.
[114] For the reasons that follow, I would dismiss the Esmails’ appeal in its entirety.
[115] Following a 12-day trial, the trial judge rendered detailed reasons for the decision (170 paragraphs in length) in which she found that the Esmails (Tajdin and Yasmin) were in breach of trust and had breached their fiduciary duties to the respondent. As mentioned, she ordered them to pay the respondent $67,815.67 in damages.
Findings of Fact
[116] The trial judge made numerous findings of fact.
- The appellant, Tajdin Esmail, purchased and operated an illegal rooming house with five tenancies. It was a three bedroom bungalow with an attached two car garage illegally divided into two rooms.
- The respondent invested in the property, and, with Tajdin, executed a trust declaration. Tajdin became a trustee for the respondent.
- Tajdin kept no accounts of his administration of the trust on any regular basis. He never operated a bank account in the name of the trust, nor did he keep records. At para. 41, the trial judge found that “[n]either [Tajdin] nor Yasmin, after she was on title of [sic] the property, ever kept receipts for payments made for any of the expenses for operating the property.” Additionally, “[n]ot one bank book or bank statement was ever produced by [Tajdin] or Yasmin during the seven years of litigation.”
- Tajdin agreed to provide the respondent with the monthly expenses but this never took place. The trial judge accepted the respondent’s evidence that he often asked for an accounting but never received a proper set of accounts or banking records.
- The respondent “was kept totally in the dark about the property’s operation and who lived there. He was never given a list of the tenants or the rents they paid.” He was also never given an outline of a budget or monthly expenses or any of the basics about the operation of the trust property.
- All of Tajdin’s evidence regarding the various tenancies in the property came long after the property became the trust asset, and after the property was sold. At trial, Tajdin was never able to say with any certainty what the rental income was each year or even monthly, nor how it was calculated or where it was deposited. Indeed, on cross-examination, Tajdin could not remember where the rental monies were deposited.
- The rent cheques were received in Yasmin’s name and she had to deposit them. She had several bank accounts in her own name but claimed to have no banking statements and requested none from the bank. Yasmin failed to produce any of her bank statements for the years 1994 to 2002 to show what rent was received.
- Tajdin kept no proper records and produced no cancelled cheques and few receipts for any expenses or records of rent received by him. Some bits and pieces of documents relating to the tenancies were eventually produced by the appellants and show that the basement apartment rented for $550 per month and required repairs not done, another rented for $850, and a third apartment in 1992 rented for $575. Another document showed $850 in rent being paid in 1996. None of the documents produced was in any sequence or constituted proof of the full tenancies.
- Tajdin failed to comply with an undertaking he gave on his examination for discovery to provide a list of the names of each of the tenants and their last telephone numbers. He failed to do so during the six years thereafter through and including the conduct of the trial.
- The absence of records pointed to the appellants’ destruction of their own banking records so as to prevent the respondent and the court from knowing, among other things, the actual rents received, how much was in cash and how much was paid by cheque. Tajdin deliberately destroyed or withheld all banking information and documents that may have shed some light on what actually took place. Yasmin also either destroyed or withheld producing all of the banking documents.
- The trial judge accepted the respondent’s evidence in preference to that of the appellants where their evidence differed.
- Tajdin was not a credible witness.
- Yasmin was not a credible witness.
- The appellants’ expert, Mr. Spagnuolo, and the respondent’s expert, Mr. Zafar, both agreed that there was a lack of source documents produced by the appellants and that major records such as annual financial returns, bank records and copies of rental cheques all were missing.
- The trial judge considered the appellants’ expert, Mr. Spagnuolo. She noted that he was critical of Mr. Zafar’s analysis in coming up with an amount owed by the appellants to the respondent. At para. 136, she wrote: “He consistently says that Zafar did not provide any evidence that he relied on independent analysis. In my view, Zafar used all sources available to him and examined personally all documents available.” Although Zafar “had to rely on [Tajdin’s] statement as to rents, as a beginning point, so did Spagnuolo.”
- Mr. Zafar was completely independent and was in no way trying to be an advocate for the respondent’s position.
- Mr. Zafar properly used the vacancy rates from Canada Mortgage and Housing Corporation (“CMHC”) for the years 1989 to 1998 and, as CMHC did not provide statistics for the years 1999 to 2002, he used research conducted by the Sauder School of Business to determine rates for those years, which the trial judge accepted as reasonable.
- As for the Esmails’ evidence that rooms which had been rented separately were combined as one rental unit, the trial judge found that there was no clear evidence as to when and where this happened, and why the respondent was not told or consulted if this did take place. For rental purposes, Mr. Zafar therefore used the original separate unit rental income to calculate gross rental income. The trial judge accepted Mr. Zafar’s reasoning in para. 5 of his report about why he did not accept that rental figures went down or that there was a decrease in rentals, as Mr. Spagnuolo had asserted.
- The trial judge accepted Mr. Zafar’s reasoning about the rentals. As noted by my colleague, the trial judge considered Mr. Zafar’s estimates of the rental increases and the vacancy rates to be drawn from reliable sources and reasonable in the circumstances.
- Mr. Zafar adjusted the rent figures by applying a 25% discount to rental increase rates which the trial judge considered reasonable and a further discount for vacancy rates. She determined that $12,873 was owing to the respondent for rents.
[117] Absent palpable and overriding error, a trial judge’s findings of fact are entitled to deference.
Discussion of Grounds of Appeal
[118] The appellants outlined the grounds they intended to advance in their factum and the respondent responded to each of the issues in his factum. There are four in number.
[119] First, the appellants submitted that the trial judge’s conclusion regarding a 1993 agreement between the parties was an error and undermined her findings as to damages, aggravated damages and substantial indemnity costs. I agree with my colleague that effect should not be given to this ground of appeal.
[120] Secondly, the appellants submit that Mr. Zafar was not an impartial expert and was an advocate for the respondent. I agree with my colleague that no effect should be given to this ground of appeal.
[121] Thirdly, the appellants submit that there was no proper basis in fact and in law for aggravated damages and for Yasmin being jointly and severally liable to the respondent for both the compensatory damages and aggravated damages. Again, I agree with my colleague that no effect should be given to this ground of appeal.
[122] Lastly, the appellants submit that the trial judge erred by improperly inviting further submissions after rendering her judgment. Again, I agree with my colleague that this argument has no merit.
[123] Assessment of damages was not one of the four issues identified. That said, under the heading “Was Mr. Zafar an Impartial Expert or Was he an Advocate”, the appellants do question Mr. Zafar’s revenue projections and the absence of a consideration of the 2002 listing agreement by him. They state that his conclusions were a pure exercise in advocacy and not expert opinion. They also state that the trial judge erred in relying on them. The appellants did not assert that there were any palpable and overriding errors arising as a result of the trial judge’s reliance on Mr. Zafar’s report.
[124] The second ground of appeal raised Mr. Zafar’s independence and the trial judge found him to be independent. At para. 137, she found that he was “in no way trying to be an advocate for Pirani’s position.” She also said that Mr. Spagnuolo was not independent.
[125] A trial judge’s decision on the independence of an expert is entitled to deference, per O’Connor A.C.J.O. in Alfano v. Piersanti, 2012 ONCA 297, at paras. 113-114. Recently, this court stated in D.M. Drugs Ltd. v. Bywater, 2013 ONCA 356, at para. 47:
An appellate court will not interfere with the evidentiary findings of the trial judge unless they have no basis in the evidence: see Goodman v. Viljoen, 2012 ONCA 896, 299 O.A.C. 257, at para. 142. This standard is equally applicable for the admissibility and weight to be attached to expert opinion: see Piersanti, at para. 113.
[126] My colleague takes issue with Mr. Zafar’s reconstruction of the rental revenue. However, I note that:
- this would not be an issue had the appellants not withheld or destroyed the source documents on rental revenue;
- the production of records reflecting rental income, including banking records, was in the control of the appellants, not the respondent;
- the two experts had identical starting points for rental revenue;
- in the absence of records, there is no basis to conclude, as my colleague does, that there was neither a net loss nor a net profit between 1989 and 2002;
- Mr. Zafar discounted the rates by 25%, as discussed;
- the maximum rental increase allowed by Mr. Zafar ranged between 2.6% and 6% during the relevant time period; and
- the trial judge accepted Mr. Zafar’s methodology and conclusions with the exception of his conclusions on an appropriate rate of interest on the amounts owing to the respondent, which she rejected.
[127] My colleague relies on seven particular pieces of evidence in support of his conclusion that the monthly rental was closer to $2,240 than $3,377.30 in 2002. He states that the evidence in this regard is overwhelming, uncontradicted and corroborated in large measure by the written record. With respect, I cannot agree. This case was characterized by a complete failure on the part of the appellants to produce comprehensive records of any kind. Their evidence on rental income was selective and wholly lacking. Moreover, the evidence relied upon by my colleague does not demonstrate that the trial judge’s findings of fact were “clearly wrong” or that there was palpable and overriding error.
[128] Firstly, my colleague makes much of the listing agreement. The trial judge was alive to the 2002 MLS listing, referring to it twice in her reasons. Furthermore, the record is largely devoid of evidence on the listing agreement. Significantly, there is no evidence on who provided the rental information contained therein or on its accuracy. The trial judge made numerous findings to the effect that the Esmails never provided the respondent with proper, intelligible accounts and those findings are not in issue on this appeal. As such, there is no explanation as to how the respondent would have known the monthly rental income in 2002 which knowledge my colleague in essence now purports to attribute to him.
[129] Secondly, my colleague relies on the evidence of the appellants regarding the accuracy of the rental figures in the listing agreement. The trial judge not only found that she preferred the respondent’s evidence to that of Tajdin, she also made separate and independent findings that each of Tajdin and Yasmin was not a credible witness. In oral argument, counsel for the Esmails stated that he did not seek to reverse these multiple adverse findings of credibility.
[130] Thirdly, my colleague relies on the respondent’s presence when the listing agreement was signed and suggests that he would have been familiar with its contents. However, as mentioned, the respondent had no way of knowing whether the rental figures in the listing agreement were correct. Further, I do not agree that the parties had no reason to misstate the rental income in the listing. As the property was operated as an illegal rooming house with five tenancies, understated monthly rental revenue would not be surprising. For their part, the Esmails would have had an incentive to understate the rent given that net profits had not been paid to the respondent.
[131] Fourthly, nothing should be properly drawn from the mere two “acknowledgement of tenant” forms in circumstances where the appellants undertook and failed to produce tenants’ names and contact information so that rental information could be confirmed.
[132] Fifthly, unlike the appellants, the new purchaser did not lease the two illegal units in the garage. Mr. Jiwa, as solicitor for the vendor, wrote to Mr. Sanwalka, the solicitor for the purchaser, stating: “The property has been in the same state since purchased by my clients about 14 years ago.” As noted by my colleague in para. 8 of his reasons, the property had five tenancies. This reflected the facts outlined in the appellants’ factum and the trial judge’s findings of fact.
[133] Sixthly, Mr. Zafar was not questioned on the 2002 listing agreement that contained the $2,240 monthly rental figure relied upon by my colleague. He was never asked whether that document was relied upon and if not, why not. In these circumstances, with respect, it cannot be said that his conclusions with respect to rental revenue do not withstand scrutiny. Moreover, he did explain why he did not consider the few monthly rental cheques produced by the appellants (15 cheques in 13 years) to be reliable indicators of rental revenue.
[134] In my view, it was open to the trial judge to make the factual findings she did and to accept the evidence proffered by Mr. Zafar in the circumstances of this case. It is not for this court to reconstitute itself as the trial judge. As the Supreme Court stated in Canada (Attorney General) v. Bedford, 2013 SCC 72, at para. 49, although admittedly in an entirely different context, the first instance judge determines the facts, while appeal courts review the decision for correctness in law or palpable and overriding error in fact; this division of labour is basic to our court system. The trial court’s responsibility for findings of fact is “[t]he greatest functional distinction between a trial and an appellate tribunal”: John Sopinka and Mark A. Gelowitz, The Conduct of an Appeal, 3rd. ed. (Toronto: LexisNexis, 2012), at p. 70.
[135] A palpable and overriding error is one that is plainly seen and clearly wrong: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 6; H.L. v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401, at para. 69 The appellate court must be certain that the trial judge erred: H.L., at para. 70. The limited scope for appellate review of findings of fact by a trial court applies equally to findings based on expert testimony: N.V. Bocimar S.A. v. Century Insurance Co. of Canada, [1987] 1 S.C.R. 1247, at p. 1249. In my view, the trial judge made no error of law nor any palpable and overriding error in fact with respect to the Esmail action. Deference is owed to the trial judge’s considered findings. Moreover, an assessment of damages based on the written record before us demands speculation – an exercise that should be avoided.
[136] For all of these reasons, I would dismiss the Esmails’ appeal. I would allow Mr. Jiwa’s cross-appeal on the terms proposed by my colleague.
Released:
“FEB 26 2014” “S.E. Pepall J.A.”
“W”
[1] The upstairs had originally been rented as three separate rooms but had been consolidated into one rental unit sometime before 2002.