DATE: 20041112

DOCKET: C39623

COURT OF APPEAL FOR ONTARIO

DOHERTY, WEILER and LASKIN JJ.A.

B E T W E E N:

PETER KASLIK, IBOLYA KASLIK

Douglas G. Garbig

for the appellants and third party

Plaintiffs/Appellants

• and -

Michael R. Kestenberg

JACK M. FUTERMAN, FUTERMAN & FUTERMAN, Barristers, ZORAN SAMAC and SNEATH, WILKINS, Barristers

for the respondents

Defendants/Respondents

• and -

ZOLTAN KASLIK

Third Party

Heard: October 22, 2004

On appeal from the judgment of Justice Sandra Chapnik of the Superior Court of Justice dated January 7, 2003, reported at [2003] O.J. No. 113, and the cost order dated March 12, 2003, reported at [2003] O.J. No. 1231.

DOHERTY J.A.:

[1] The appellants (the “Kasliks”) sued the respondents, Jack M. Futerman and Futerman & Futerman (“Futerman”), alleging that Futerman, a solicitor, was negligent in his representation of the Kasliks in a lawsuit brought by them against several parties, including a former solicitor.

[2] The trial judge dismissed the claim. She awarded costs to Futerman on a partial indemnity basis to the date of an offer to settle made by Futerman, and on a substantial indemnity basis from that date forward. The trial judge also dismissed without costs a third party claim brought by Futerman against Zoltan Kaslik, the Kasliks’ son.

[3] The Kasliks appeal the dismissal of their claim against Futerman. In the event that their appeal is unsuccessful, they seek leave to appeal the costs order made by the trial judge. They submit that Futerman should not have been awarded costs on a substantial indemnity basis after the date of the offer. Zoltan Kaslik also seeks leave to appeal the costs order made in the third party claim. He contends that he was entitled to costs.

[4] For the reasons that follow, I would:

• dismiss the appeal from the order dismissing the Kasliks’ claim against Futerman;
• allow the Kasliks’ costs appeal and direct that Futerman is entitled to his costs at trial on a partial indemnity basis throughout; and
• dismiss Zoltan Kaslik’s appeal.

The Negligence Action

[5] In August 1988, the Kasliks entered into an agreement to purchase a unit in a co-operative multiple residential building for $122,000.00. They purchased the unit as an investment. The Kasliks eventually sold the unit in March 1994 for $62,000.00.

[6] In September 1991, the Kasliks sued their real estate agent and the broker alleging negligence and breach of contract in relation to the purchase of the unit. The agent and broker brought third party proceedings against the solicitor who acted for the Kasliks on the closing. I will refer to this as the real estate litigation.

[7] Futerman assumed carriage of the real estate litigation in 1993. He commenced an action against the Kasliks’ solicitor in negligence, alleging a failure to carry out appropriate searches and a failure to properly advise the Kasliks in relation to the purchase. In brief, the claims against the solicitor alleged a failure to advise the Kasliks of relevant considerations that significantly decreased the value of the property. It was the Kasliks’ position that they would not have purchased the unit had they been properly advised.

[8] The real estate litigation was scheduled to proceed to trial in January 1997. About one week prior to the trial date, the parties attended at a mediation held before the Honourable David Griffiths, Q.C.

[9] Prior to the mediation, Futerman had provided counsel for the solicitor with an expert’s report on liability. While counsel for the solicitor was not prepared to admit liability at the mediation, he did not have a report to counter the report provided by Futerman. Futerman and counsel for the solicitor had also exchanged reports on damages prior to the mediation. By the date of the mediation, the reports provided to Futerman suggested damages of about $200,000.00 and the report supplied to counsel for the solicitor suggested damages of about $40,000.00.

[10] The mediation proceeded for a full day. The mediator, Mr. Griffiths, Q.C., a respected former judge with extensive experience in civil litigation, discussed the case with the Kasliks at length. He expressed the view that the Kasliks had failed to mitigate their damages when they took the unit off the market in about September 1991 and did not attempt to sell the property until about June 1993, some 22 months later. Mr. Griffiths recommended that the Kasliks accept an offer of $60,000.00 plus costs.

[11] Negotiations continued and eventually counsel for the solicitor increased the offer to an all-inclusive sum of $106,000.00. This represented $80,000.00 for damages, $20,000.00 for costs and $6,000.00 for disbursements.

[12] Zoltan, by all accounts, was the driving force behind the litigation against Futerman. He recommended that his parents not accept the offer. The Kasliks, however, chose to accept the offer. Minutes for settlement were drafted and signed by the Kasliks. They subsequently executed releases and received the cheque for the settlement funds. They later unsuccessfully attempted to resile from the settlement. The Kasliks commenced this lawsuit against Futerman in July 1998.

[13] The Kasliks made numerous allegations against Futerman in their statement of claim and at trial. The trial judge rejected all of these allegations. In doing so she made clear findings of fact, many of which were premised on her assessment of the Kasliks’ credibility. In her view, they were not credible.

[14] The trial judge also concluded that even if the negligence claims were made out, the Kasliks had suffered no damages. She said:

In the result, given the exigencies, risks of trial and the circumstances of this case, I do not think, assuming a finding of liability, that the Kasliks would have obtained an award of damages from a trier of fact, in this case a jury, which would have exceeded the amount of the settlement (at para. 54).

[15] The notice of appeal repeated many of the allegations made against Futerman at trial. Several of these allegations were developed in the appellant’s factum. In oral argument, however, Mr. Garbig, counsel for the appellants, wisely in my view, focused his attention on the one issue that had merit. He contended that Futerman did not understand the legal basis upon which the Kasliks’ damages should be calculated and consequently did not adequately prepare the Kasliks’ case, properly advise them, or adequately represent them in the mediation proceedings. Counsel argued that on a proper analysis of the Kasliks’ damages, they would have recovered substantially more than the amount for which they settled. He submitted that the trial judge failed to appreciate Futerman’s negligence because, like Futerman, she fundamentally misunderstood the manner in which the Kasliks’ damages in the real estate action should be calculated.

[16] I find it unnecessary to decide whether Futerman misunderstood the law applicable to the Kasliks’ damages claim and, if so, whether that failure amounted to negligence. In my view, even if the approach to damages forcefully advanced on the appeal is accepted, the amount of the settlement represents an eminently fair compromise of the appellants’ claim. The Kasliks could not reasonably have expected a greater recovery after trial.

[17] Counsel for the appellants submits that the Kasliks’ damages in the real estate action fell to be assessed under the principles set out in Toronto Industrial Leaseholds Limited v. Posesorski et al. (1994), 21 O.R. (3d) 1 (C.A.) (“TILCO”). This approach provides for recovery under three heads of damage:

• the overpayment, that is the difference between the price paid for the unit and the actual value of the unit at the time of purchase;
• the monetary value of the loss of the use of the funds represented by the overpayment; and
• consequential damages such as financing and carrying costs.

[18] Counsel for the Kasliks accepts that their losses under the first two heads of damage identified in TILCO were accurately accounted for in the settlement. According to the respondent’s expert at trial, whose evidence the trial judge preferred, these damages amounted to about $22,000.00. Counsel submitted, however, that Futerman was unaware of the Kasliks’ entitlement to consequential damages and that the settlement does not address the Kasliks’ potential recovery under that head. Counsel calculates the Kasliks’ potential recovery for consequential damages, which arise out of the costs associated with the mortgage, at about $102,000.00. This calculation assumes an entitlement to consequential damages for the entire period from the purchase until the Kasliks sold the property in May 1994.

[19] I do not accept that the Kasliks would have been entitled to consequential damages under the approach set out in TILCO for the entire period up to the sale of the unit. Consequential damages would not have been available after September 1991, when the Kasliks, fully apprised of the situation, decided to delist the unit and wait for an improvement in the real estate market. From that point forward, the carrying and financing costs became the responsibility of the Kasliks.

[20] The settlement agreed to by the Kasliks attributed a global amount of $80,000.00 to compensate the Kasliks for their damages. Subtracting the $22,000.00 referable to the first two heads of damage identified in TILCO, an amount of some $58,000.00 remained. Having regard to the value of the property in September 1991, the actual mortgage costs to that date and also the rents paid to the Kasliks to that date, which all agree served to reduce the consequential damages, $58,000.00 was at least adequate compensation for the Kasliks’ consequential damages up to September 1991.

[21] The trial judge (like the mediator) spoke of the Kasliks’ failure to mitigate their damages in assessing their potential recovery in the real estate action. She said:

Every investor knows that the real estate market involves risk. Nobody can expect a guaranteed profit. Mr. Kaslik testified that he was waiting for an increase in market prices in 1991. Instead of selling, the Kasliks chose to rent the property to Zoltan and take a chance that market values would increase. Did the Kasliks act reasonably? In the view of the mediator, Mr. Griffiths, they failed to mitigate their damages after they discovered the “defects”. They could have re-listed the property for sale. That was their responsibility. They made that choice. They took the risk (at para. 52).

[22] It may be a misnomer to speak of the Kasliks’ failure to mitigate when describing the effect of the Kasliks’ decision to delist the unit on their entitlement to the recovery of consequential damages under the TILCO approach. Semantics aside, however, the Kasliks’ decision did serve to limit their damages. The defendants in the real estate litigation could not reasonably be expected to assume the risk of the adverse consequences of business decisions made by the Kasliks after they were fully aware of the alleged problems with the property. Consequential damages could not run beyond the date when the Kasliks made an informed decision to keep the property and wait for a better market.

[23] The Kasliks failed to prove any damages flowing from the alleged negligence of Futerman. Not only did they not demonstrate on the balance of probabilities that they would have received damages in excess of the settlement amount, they did not demonstrate any substantial chance that they would have received damages in excess of that amount: see Acton v. Graham Pearce and Co., [1997] 3 All. E. R. 909 at 930-33 (Ch. Div.); Hagblom v. Henderson (2003), 2003 SKCA 40, 232 Sask. R. 81 at paras. 121-132, 187-206 (C.A.), leave to appeal to S.C.C. refused, [2003] S.C.C.A. No. 278.

[24] In holding that the Kasliks failed to demonstrate damages flowing from the alleged negligence, I should not be taken as implicitly accepting the contention that Futerman negligently failed to appreciate the nature of the Kasliks’ damages claim. Given my conclusion that the Kasliks suffered no damages, I need not address that issue.

The Costs Order

[25] Counsel for Futerman submitted a written offer to settle the action on a dismissal without costs basis about a month before the trial. The trial judge awarded Futerman costs on a partial indemnity basis up to the date of the offer and on a substantial indemnity basis from that date. In doing so, the trial judge recognized that Futerman’s offer did not trigger the costs consequences set out in Rule 49.10. She was, however, satisfied that the making of the offer was a factor that could be considered in determining the scale on which to award costs to Futerman. In addition to the offer, the trial judge took into consideration the nature of the allegations made by the Kasliks at trial, which she described as a “direct attack” on Futerman’s integrity and competence. The trial judge’s reference to Fellowes, McNeil v. Kansa General International Insurance Co. (1997), 37 O.R. (3d) 464, further suggests that she considered the Kasliks’ action frivolous. Finally, the trial judge described the Kasliks’ action against Futerman as a direct attack on the strong policy favouring finality in the settlement process. As the trial judge observed, respect for the settlement process is essential to the effective operation of the civil administration of justice.

[26] I cannot agree with the trial judge’s reasons for ordering costs on a substantial indemnity basis after the date of the offer. The claims made by the Kasliks were the kind of claims made in negligence actions. They do not constitute misconduct for the purposes of determining the scale of costs. Nor would I describe the action as frivolous. I also agree with counsel for the Kasliks’ submission that an attack on counsel’s conduct of a lawsuit prior to its settlement is not an attack on the settlement process itself. No doubt, strong public policy favours the finality of settlements. That policy does not, however, immunize negligent lawyers from lawsuits.

[27] I would grant leave to appeal on the costs issue, set aside the order made at trial, and substitute an order granting Futerman his costs on a partial indemnity basis throughout the proceedings. Those costs should be assessed based on the material provided to the trial judge.

The Costs in the Third Party Action

[28] There is no merit in Zoltan Kaslik’s claim that he should have received his costs in the third party action. Zoltan was, for all intents and purposes, the force behind the suit brought against Futerman. The third party action added nothing to the costs of the proceeding. I would refuse leave to appeal.

Conclusion

[29] Counsel have provided written submissions as to costs. In my view, Futerman is entitled to his costs on a partial indemnity basis taking into consideration that the Kasliks did enjoy some success on the costs issue. I would award costs to Futerman in the amount of $15,000.00, inclusive of disbursements and GST.

RELEASED: “DD” “NOV 12 2004”

“Doherty J.A.”

“I agree K.M. Weiler J.A.”

“I agree J.I. Laskin J.A.”