COURT OF APPEAL FOR ONTARIO
MACPHERSON, JURIANSZ JJ.A. and SPEYER J. (ad hoc)
B E T W E E N :
ABE KAGAL and SAVION GATES DEVELOPMENTS LTD.
Evert Van Woudenberg and Jane E. Sirdevan for the respondents
Plaintiffs (Respondents)
- and -
MANLEY TESSLER, TERM CONSTRUCTION LIMITED, LDASK MBC CORPORATION and MARILYN REITER-NEMETZ, Trustee
Kevin R. Aalto, Christopher Stanek and Lindsay Cader for the appellants
Defendants (Appellants)
Heard: September 13, 2004
On appeal from judgment of Justice John G. J. O’Driscoll of the Superior Court of Justice dated October 16, 2002.
MACPHERSON J.A.:
1The appellants appeal from the judgment of Justice John O’Driscoll dated October 16, 2002, in which, following a nine day trial, he award the respondents compensatory damages of $1,173,960, principally on the basis of the appellants breach of a written contract and oral amendments thereto. The trial judge also awarded punitive damages of $150,000 to the respondents.
2The core of the dispute was a contract under which the respondent Abe Kagal (“Kagal”) was to provide construction management services to the appellants (“Tessler”) with respect to a commercial development project at the corner of Highways 7 and 10 in Brampton.
3Kagal worked on the project from March 1998 to August 17, 1999. He was paid nothing during this period. However, under the terms of the written contract, Kagal would receive seven per cent of the cost of labour and material in developing the property. He would be paid under the contract only as the construction progressed.
4On August 17, 1999, after the development had received the relevant municipal approvals, after the property had been serviced, and on the cusp of construction of the first building on the site (the Medical Building), Tessler abruptly terminated Kagal.
5The appellants do not challenge the trial judge’s conclusion that Tessler breached his contract with Kagal. However, they assert that the trial judge erred in his assessment of damages in three respects: (1) the compensatory damages award of $1,173,960 is based on erroneous interpretations of several provisions in the contract; (2) the trial judge did not take proper account of Kagal’s failure to mitigate his damages; and (3) the trial judge should not have awarded punitive damages.
6Before turning to a consideration of the legal arguments advanced by the appellants, I want to make one preliminary observation. The centrepiece of the trial was the conflicting testimony of Kagal and Tessler about their relationship over a 17 month period. The trial judge made strong findings about the credibility of both men. He concluded that Kagal was honest, reliable and sensible. On the other hand, his assessment of Tessler’s testimony was very harsh indeed; his testimony was “contrary to common sense and the vast body of evidence on the record, both oral and written, which I accept.” In my view, the trial record amply supports the trial judge’s assessments. They provide an essential backdrop to the legal issues to which I now turn.
(1) Compensatory damages
7This is the appellants’ principal ground of appeal. They make a number of separate submissions relating to the trial judge’s award of compensatory damages of $1,173,960. The appellants’ bottom line is that a proper measure of damages is either approximately $238,000 (Kagal’s work for 17 months on a quantum meruit basis) or, at most, $350,000 (for breach of the contract, interpreted correctly).
8First, the appellants contend that the assessment of damages should be done on a quantum meruit basis (71 weeks x 40 hours x $100 minus 10 per cent for non-Tessler work minus vacation = approximately $238,000).
9I disagree. In their factum, the appellants state:
The validity of the Contract was a central issue at trial. Justice O’Dirscoll found there was an enforceable contract. The Appellants do not challenge that finding on this appeal.
10One of the terms of the enforceable contract dealt with Kagal’s compensation:
MT agrees to pay AK an amount equal to seven percent (7%) of the total costs of labour and material according to the bills of sub trade and suppliers labour and other expenses in connection with the operation of the construction.
It follows that the calculation of Kagal’s damages should be based, as the trial judge held, on the interpretation of this provision, not on a quantum meruit calculation unrelated to the contract.
11Second, the appellants contend that Kagal should be compensated for only his efforts relating to the first building on the site (the Medical Building). The basis for this submission is the singular of the word “building” in one of the “Whereas” clauses in the agreement: “… to employ AK as a property manager to manage the construction of the commercial building.”
12I disagree. As the trial judge found, both parties understood from the start that this commercial development would be a multi-building project. Indeed, this reality is specifically recognized in paragraph 4 of the contract (“a future … self standing building”, which would not be the already contemplated Medical Building”).
13Third, the appellants submit that the trial judge erred by concluding that Kagal and Tessler made an oral agreement to amend the written contract to remove, in effect, the exclusion in paragraph 3:
- The cost of engineering, architect, planners, landscaping architect, underground services, paving is not included and no payment for AK for management, however AK will attend wherever is required for consultation and planning.
14I disagree. The trial judge accepted Kagal’s testimony on this issue. He was entitled to do so.
15Fourth, the appellants submit that the trial judge erred by concluding that the initial contract was expanded, by oral agreement between Kagal and Tessler, to include Kagal’s management of the residential development adjacent to the commercial development.
16I disagree. Once again, the trial judge accepted Kagal’s testimony on this issue. The fact that Kagal was the purchaser of the 47 lots in the residential project does not change the analysis. As the trial judge noted: “A.K. … had no obligation to get the subdivision approvals nor to attend at the Committee of Adjustment. Those responsibilities rested with M.T.”. Accordingly, it was open to the trial judge to conclude, as he did, that Kagal and Tessler agreed that Kagal would manage the construction development of the residential project under the umbrella of the compensation provisions of the written agreement.
17Fifth, the appellants assert that Kagal provided no consideration for the oral agreement expansion of the contract to include the services initially excluded from the contract (paragraph 3) and the residential development project across the road.
18I disagree. In return for the higher compensation he would receive, Kagal agreed to perform a substantial amount of new work, namely, additional professional services on the commercial project and entirely new services to a different (the residential) project.
19Sixth, the appellants contend that the trial judge erred by including the Reno Depot building in the damages calculation ($385,0000). The appellants point out that Kagal did not manage the construction of this building (he had been fired) and rely on paragraph 4 of the contract:
- In the event AK enter[s] [in]to an agreement with a future tenant to construct self standing building within this commercial project, then the management fee will be charged to the new tenant.
The appellants submit that this provision absolves Tessler from paying Kagal for a building in the project for which he was not the construction manager.
20I disagree. The trial judge interpreted this provision:
As was stated during the evidence, this clause is to prevent “double dipping”. However, the primary obligation to pay A.K. rests with the defendants. If the defendants arrange with the tenant for A.K. to be its construction co-ordinator, then the fees otherwise payable by the defendants to A.K. are to be paid/charged to the tenant. In other words, the defendants are obliged to pay A.K. but may negotiate subrogation from the tenant. The defendants cannot refuse to pay A.K. his fees if the tenant builds for itself.
21In my view, this is the better interpretation of the contract. Moreover, the evidence established that a good deal of Kagal’s work in the 17 month period before he was terminated was valuable in a generalized way to the entire project (municipal approvals, services, etc.).
22Seventh, the appellants submit that the trial judge erred by awarding Kagal $17,000 on a quantum meruit basis for his work on three other Tessler properties. I agree with the trial judge that this work was “separate and apart” from his work on the two properties at the corner of Highway 7 and 10. Accordingly, Kagal deserved to be compensated.
23Eighth, the appellants submit that the trial judge’s quantification of damages is inconsistent with the ratio of the Supreme Court of Canada’s recent decision in Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2003] S.C.J. No. 72 at para. 20: “The assessment of damages required only a determination of the minimum performance the plaintiff was entitled to under the contract, i.e., the performance which was least burdensome for the defendant.” The appellants assert that under this approach Kagal should receive damages on either a quantum meruit basis or, at best, $350,000, being Kagal’s expected compensation pursuant to the contract.
24I disagree. As discussed earlier, a quantum meruit calculation is inappropriate in the face of a contract with explicit provisions dealing with compensation. As for the $350,000 ceiling for compensation pursuant to the contract, it is grounded, as also discussed earlier, in an erroneous interpretation of the compensation provisions of the contract. In short, the trial judge’s quantification of damages is consistent with Open Windows; it properly takes into account Kagal’s actual work and Tessler’s contractual obligations.
(2) Mitigation
25The appellants submit that the trial judge failed to consider whether Kagal took appropriate steps to mitigate his losses after he was terminated. The appellants contend that Kagal in fact mitigated his losses by building 47 homes on the lots he had purchased adjacent to the commercial development project.
26I disagree. The appellants did not plead this issue. This court has repeatedly underlined the importance of pleading, and pursuing, issues at trial, and not raising them for the first time on appeal: see, for example, Kalkinis (Litigation Guardian of) v. Allstate Insurance Co. of Canada (1998), 41 O.R. (3d) 528 (C.A.) and Vanek v. Great Atlantic & Pacific Co. of Canada (1999), 48 O.R. (3d) 228 (C.A.). Nor was there any evidence before the trial judge to serve as a foundation for the consideration of this issue. In the absence of pleadings and evidence before the trial judge, it would be unfair and undesirable for this court to entertain the issue.
(3) Punitive Damages
27The appellants contend that the trial judge erred by awarding punitive damages of $150,000. They submit that punitive damages are rarely awarded in commercial contract cases and that Tessler’s conduct, both in his dealings with Kagal throughout their relationship and in the litigation, was not so reprehensible as to warrant the severe punishment of punitive damages.
28I disagree. The trial judge applied the principles relating to punitive damages enunciated in Whiten v. Pilot Insurance Co. (2000), 2002 SCC 18, 209 D.L.R. (4th) 257 (S.C.C.). He catalogued a litany of terrible conduct on the part of Tessler. He recognized that the relationship between Tessler and Kagal was not a straightforward commercial one; rather it was an employer-employee relationship where Kagal was in a vulnerable position. Tessler took advantage of this by paying Kagal nothing for 17 months and then terminating him on the eve of his entitlement to substantial compensation.
29The appellants contend that the trial judge erred by taking account of the fact that Tessler had been the subject of a previous award of punitive damages in an unrelated civil case. I disagree. A central purpose of an award of punitive damages is deterrence. If a previous award of punitive damages does not appear to have changed a person’s approach to societal relations and to the conduct of litigation, it is entirely appropriate for a trial judge to include this as a factor in his consideration of whether to award punitive damages in a subsequent case.
DISPOSITION
30I would dismiss the appeal with costs fixed at $30,000, inclusive of disbursements and GST.
RELEASED: September 20, 2004 (“JCM”)
“J. C. MacPherson J.A.”
“I agree R. G. Juriansz J.A.”
“I agree C. Speyer J. (ad hoc)