DATE: 20050525
DOCKET: C40055
COURT OF APPEAL FOR ONTARIO
CATZMAN, LABROSSE and MOLDAVER JJ.A.
B E T W E E N :
MARIA BOZZO and THE ABBAS GROUP INC., in its Capacity as
Trustee and its own Capacity
Allan Sternberg and
Katherine A. McEachern
for the appellant,
Plaintiffs
(Respondent, Appellant
by way of cross-appeal)
respondent by way of cross-appeal
Duncan C. Boswell and
Colin Johnston
- and -
for the respondents,
appellants by way of cross-appeal
MIKE GIAMPAOLO (aka MICHELLE GIAMPAOLO, aka MICHAEL GIAMPAOLO), 830460 ONTARIO LIMITED and 933408 ONTARIO LIMITED
Defendants
(Appellants, Respondent
by way of cross-appeal)
A N D B E T W E E N :
MIKE GIAMPAOLO (aka MICHELLE GIAMPAOLO, aka MICHAEL GIAMPAOLO), 830460 ONTARIO LIMITED and 933408 ONTARIO LIMITED
Plaintiffs by Counterclaim
(Appellant, Respondent
by way of cross-appeal)
- and -
ALBERT BOZZO, THE ABBAS GROUP INC., and MARIA BOZZO
Defendants to the Counterclaim
(Respondents, Appellants
by way of cross-appeal)
Heard: May 16, 2005
On appeal from the judgment of Justice Abraham Mandel of the Superior Court of Justice dated April 28, 2003.
BY THE COURT:
[1] The appellant Mike Giampaolo (“Giampaolo”) appeals the judgment of Mandel J., whereby Giampaolo was ordered to pay the Abbas Group (“Abbas”) damages for breach of contract in the sum of $3,800,000 ($3,040,000 to Abbas; and $760,000 to be paid in a trust account for persons yet undetermined), plus prejudgment interest and costs.
[2] Giampaolo appeals on the basis that Abbas should be disentitled from the damages, as the company traded in real estate without being a licensed realtor. Giampaolo also seeks the disgorgement of a $380,000 commission paid to the respondent, Albert Bozzo. Abbas cross-appeals on the issues of punitive damages and prejudgment interest.
[3] This 45-day trial dealt with the purchase and sale of 200 acres of land known as the Woodlands property. The action involved a convoluted series of dealings, some of which were described by the trial judge as “fast and loose”, relating to the acquisition and disposition of the property by Giampaolo. For the purpose of this appeal, it is sufficient to refer to the following summary of the facts.
[4] Abbas entered into a joint venture with Giampaolo dated March 3, 1989, to attempt to purchase the Woodlands property from its owner First Global Financial Corporation (“First Global”). Abbas was to own a 25% interest and Giampaolo a 75% interest in the property. On the basis of this agreement, Abbas entered into an agreement of purchase and sale for the property, dated March 29, 1989, in trust for a company to be incorporated.
[5] Giampaolo subsequently advised that he no longer wanted Abbas as a co-owner and would only agree to Abbas being a creditor with a 25% interest in the sale of the property. As Giampaolo threatened to withhold funds necessary to close the transaction, Abbas entered into a new agreement on April 25, 1989. Under this agreement, the purchaser became 830460 Ontario Limited (“830”), a company owned by Giampaolo. Giampaolo personally agreed to pay Abbas 25% of any sale of the property by 830, with a minimum payment of $3.8 million. The deal was closed two days later, on April 27, 1989.
[6] Unknown to Abbas, 830 subsequently transferred its interest in the Woodlands property to Giampaolo and his partner Luigi Buttarazzi, personally, on the basis of a “handshake agreement”. 830 became the bare legal trustee for the property. The terms of this transfer were contained in a co-tenancy agreement dated February 8, 1991, which became effective as of the date of closing of the purchase on April 27, 1989. This co‑tenancy agreement was not disclosed to Abbas until December 2000, and only pursuant to a court order.
[7] Abbas commenced this action in 1995, seeking a variety of relief. Giampaolo denied any obligation to Abbas claiming amongst other things that, as the property had not been sold, no money was owing. The trial judge found that there had been a partial sale of the Woodlands property by 830 in 1989 on the basis of the handshake agreement, and the remainder was sold in 1991, when Giampaolo disposed of the balance of his beneficial interest.
[8] We would dismiss the appeal and the cross-appeal for the following reasons.
Is Abbas disentitled to the payment of the $3,800,000 due to their lack of licensing as realtors under the Ontario Real Estate and Business Brokers Act, R.S.O. 1990, c. R.4, as amended (“REBBA”)?
[9] In our view, it is clear that Abbas was dealing with its own interest as of the April 25, 1989 agreement. Pursuant to s. 5(h), there is no requirement to register under REBBA when one is acting on one’s own behalf. See also McClure v. Backstein, [1985] O.J. 1052, affirmed 37 A.C.W.S. (2d) 447. This is the agreement upon which Abbas founded its action for breach of contract and upon which the trial judge made the $3.8 million award. Abbas received no funds and had no interest other than its 25% pursuant to the agreement. Accordingly, it fell under the exception provided for in s. 5(h) of REBBA.
The disgorgement of the $380,000 commission paid to Albert Bozzo
[10] In the sale from First Global, Robert Lackey, who brought Abbas’ principal, Albert Bozzo into the deal, was offered a 5% commission by First Global if the sale went through. Lackey agreed to split the commission with Bozzo (not Abbas).
[11] The trial judge made a finding of fact that Bozzo was not the agent for Giampaolo, who was a sophisticated purchaser with his own “forces” upon which he relied with respect to entering into the agreement, including his own real estate agent. When Bozzo dealt with First Global, he did so in his capacity as an officer and director of Abbas with the sole purpose to revive an earlier agreement between Abbas and First Global. Giampaolo was not bound by this agreement. Accordingly, Bozzo owed him no duty of disclosure as an agent.
[12] As for any duty to disclose to Giampaolo as a co-venturer, that duty ended when Abbas’ participation became solely that of a creditor under the April 25, 1989 agreement.
[13] In any event, the trial judge made a finding of fact that Giampaolo was told about the commission from First Global prior to Giampaolo disbursing any funds for the closing of the transaction and was content with the payment of the commission by First Global. This issue was essentially a factual one, and as such, deference is due the trial judge’s findings. The trial judge found that Giampaolo was not a credible witness and believed the testimony of Bozzo that he had disclosed the commission.
Entitlement to, and determination of prejudgment interest
[14] Giampaolo submits that the trial judge erred in awarding any prejudgment interest (and costs) to Abbas because the action succeeded on the basis of a cause of action that was, in part, first introduced into the case by way of amendment on the initiative of the trial judge. He submits that the amendment was suggested to the respondents following the completion of all the evidence and initial written argument, and in respect of a position never pleaded by Abbas.
[15] On the other hand, Abbas submits in its cross-appeal that the trial judge erred in his conclusion that there had been two sales of the property and submits that prejudgment interest should run from April 1989, at a higher rate than that awarded.
[16] The trial judge found that a partial sale of the property took place on April 27, 1989, on the basis of the sale by Giampaolo of 50% of his interest in the property to Buttarazzi (as pleaded in amendments to statement of claim) and the balance of the property was sold on March 8, 1991, when Giampaolo finally disposed of his remaining 50% beneficial interest. As such, he concluded that the whole sum of $3.8 million was not owing to Abbas from April 27, 1989, but rather a portion was due from that date (the amount found by the trial judge to be the proceeds of the first sale), and the remaining monies were not due until the final date of sale, being March 8, 1991 (the amount found to be in respect of the second sale).
[17] The question of whether there had been a sale of the property had clearly been an issue before the court from a point in time early in the proceedings. The position was taken in the statement of defence that there had been no sale. Bozzo, on his discovery, had taken the position on behalf of Abbas that there had been a sale, and this position was argued in Abbas’ written argument.
[18] The trial judge made certain that the case was decided on the basis of the pleadings and arguments made during the trial. In our view, the trial judge properly allowed Abbas to amend its pleadings to reflect the arguments being advanced on the issue of the sale. The amendment was not resisted by the opposing party. The trial judge also provided an opportunity to Giampaolo to amend and call further evidence. Giampaolo did not seek to call additional evidence and did not suffer any prejudice.
[19] There was a basis on the evidence to conclude that two sales had taken place. As the trial judge saw the situation, after the transaction with Buttarazzi in 1989, Giampaolo continued to retain a 50% beneficial interest in the property until he made certain transfers in trust, in 1991. It was logical, therefore, not to hold Giampaolo responsible for prejudgment interest on the whole amount as of April 1989.
[20] As the finding of the trial judge that there was at least one sale is not in dispute, it is not logical for Giampaolo to argue that the trial judge was in error when he found that prejudgment interest should not have been awarded. In determining the rate of interest applicable, the trial judge rejected the claim of Abbas to have the rate set at 13%, the rate of interest in effect as at April 1989, rather than the rate in effect as at the date of the commencement of the action in March 1995. The trial judge stated that there was no proper basis for such a high rate. He also concluded that the rates of interest applicable between 1989 and 2003 should be averaged. Accordingly, he awarded Abbas prejudgment interest at 6.2% per annum on the amount of $1,137,914.10 from April 1989 to the date of judgment and at the rate of 4.85% per annum on the sum of $1,902,085.90 from March 8, 1991, to the date of judgment.
[21] After the amendment to the pleadings was properly allowed, the trial judge enjoyed a wide discretion with respect to the issue of prejudgment interest (and costs). As the issue of sale had been alive throughout the action and the trial, the trial judge refused to exercise his discretion to deny the award of prejudgment interest (and costs).
[22] With respect to the rate of interest applicable, the trial judge gave detailed reasons in his supplementary reasons for averaging the rates of interest and for refusing to award a higher rate. He was entitled to find that although the difference between the statutory rate and average rate of prejudgment interest was slight, the amounts involved would result in a substantial difference in the payment of interest for Giampaolo. He accordingly used his discretion to average the rates. The trial judge also refused to award a higher rate of interest based on the conduct of the appellant.
[23] Abbas did not discharge the onus of justifying that a higher rate of interest was appropriate in the case. It appears that Abbas sought a higher rate of interest as a way to penalize Giampaolo for alleged misconduct. This is not the purpose of prejudgment interest. The purpose of prejudgment interest is to compensate for loss of use of money.
[24] In our view, on the facts of this case, it was open to the trial judge to find that the sales occurred on two separate dates and to dispose of the prejudgment interest as he did. We see no basis to interfere with those issues.
Punitive damages
[25] Abbas submits that the trial judge erred in failing to award punitive damages in this case.
[26] As set out by the Supreme Court in Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, punitive damages are to be awarded in exceptional cases. Generally speaking, they are imposed for high-handed, malicious, or oppressive conduct that offends the court’s sense of decency. The award is also given where misconduct would otherwise go unpunished and where compensatory damages are insufficient. Punitive damages are rarely awarded in breach of contract cases because the requirements to obtain such damages are onerous.
[27] Although the trial judge did not directly deal with punitive damages the issue was implicitly addressed. It is implicit from the trial judge’s reasons that he did not find the conduct of Giampaolo to be severe enough to meet the threshold for punitive damages.
[28] In the course of responding to Abbas’ submission that they were entitled to a rescission of the contract, on the basis of having signed the contract under duress, the trial judge found that Abbas acquiesced to the terms of the second agreement and did not seek redress in a reasonable period of time. Abbas cannot now use this finding to ground a claim for punitive damages.
[29] Nor can Abbas take the position that Giampaolo’s failure to disclose the terms of his agreement with Buttarazzi amounted to malicious, oppressive or high-handed conduct. The trial judge made a finding that the nature of the relationship between Abbas and Giampaolo did not give rise to any rights on the part of Abbas to rescind the contract. These actions were found not to be sufficient to ground a claim for rescission and, in our view, they likewise are insufficient to ground a claim for punitive damages. It is also important to note that the trial judge did not find that Giampaolo’s actions were intended to, or in fact, deprived Abbas of its interest in the sale of the property.
[30] Abbas was properly compensated by the damages and the prejudgment interest awarded by the trial judge.
[31] Although the trial judge erred in not addressing the issue of punitive damages, on the trial judge’s findings of fact, Abbas would not be entitled to such damages.
Costs of the trial
[32] The trial judge awarded Abbas partial indemnity costs to the date of an offer to settle served February 28, 2002, and substantial indemnity costs thereafter. His detailed reasons fully support his disposition of the costs and we see no basis to interfere.
DISPOSITION
[33] In the end, we think that the trial judge did justice as between the parties in this lengthy and complicated trial. Accordingly, we would dismiss the appeal and the cross-appeal.
[34] The appeal is dismissed with costs fixed at $60,000 and the cross-appeal is dismissed with costs fixed at $25,000, inclusive of disbursements and G.S.T.
Released: MAY 25 2005 Signed: “M.A. Catzman J.A.”
MAC “J.-M. Labrosse J.A.”
“M.J. Moldaver J.A.”