DATE: 20060609

DOCKET: C40959

COURT OF APPEAL FOR ONTARIO

GILLESE, ARMSTRONG and LANG JJ.A.

B E T W E E N :

VINCE LOMBARDO and SYLVIA LOMBARDO

Joseph C. Vieni and L. Paul Shenton

for the appellants

Plaintiffs (Appellants)

• and -

Alistair Riswick

for the respondents

FRANK CAIAZZO, CRESCENZO ROMANO, GIANCARLO APPUGLIESI, FABRIZIO APPUGLIESI, NADIA ROMANO and SUSAN CAIAZZO

Frank and Susan Caiazzo Marco Drudi for the respondents

Giancarlo and Fabrizio Appugliesi

Defendants (Respondents)

Heard: May 31, 2006

On appeal from the judgment of Justice David Salmers of the Superior Court of Justice dated October 23, 2003.

GILLESE J.A.:

OVERVIEW

[1] In 1987, Vince Lombardo and Sylvia Lombardo hired Progressive Drywall and Interior Systems to renovate their home. Difficulties arose between the Lombardos and Progressive and, on September 24, 1987, an agreement was reached that Progressive would be released from the contract. The renovation was to be completed by L & F Contractors Co. The Lombardos were to pay no more than $141,600, plus extras, for the complete renovation. On completion of the work by L & F, if the total paid by the Lombardos exceeded $141,600, plus agreed-upon extras, Progressive was to refund the excess to the Lombardos.

[2] There is no need to recite the lengthy litigation that then ensued. Suffice to say that for legitimate business reasons, in the summer of 1990, the decision was made to wind down Progressive. Frank Caiazzo and Crescendo (“Enzo”) Romano incorporated Ritin Construction Inc. on October 23, 1990, in order to continue in the drywall business. Beginning in November 1990, Progressive and Ritin operated out of Ritin property. The intent was that Progressive would complete remaining jobs, collect its accounts receivable, pay its creditors and cease operating. The Lombardos used this information to successfully move for an order in April 1991 requiring Progressive to post security for costs in a lien action it had commenced against the Lombardos.

[3] On July 8, 1993, the Lombardos obtained default judgment against Progressive for alleged defects in the renovation. The default judgment was for approximately $550,000.00.

[4] The Lombardos began this action in August 1996. They alleged that the respondents, who were former officers, directors, shareholders or employees of Progressive, had conspired to cause Progressive to divest itself of its assets so as to prevent them from realizing on the default judgment.

[5] By judgment dated October 23, 2003, Salmers J. dismissed the Lombardos’ claim. They appealed.

[6] At the conclusion of the oral hearing of the appeal, the panel advised the parties that the appeal was dismissed and that reasons would be forthcoming for that decision. The following reasons explain why I would dismiss the appeal.

THE ISSUES

[7] The appellants raise a large number of issues, the most central of which are:

1. was the only cause of action raised on the pleadings that of the tort of conspiracy?
2. in light of the trial judge’s finding that Frank Caiazzo and Enzo Romano had acted unlawfully in relation to one or more of the conveyances of Progressive assets, were the appellants entitled to damages?
3. was there a reasonable apprehension of bias in respect of the trial judge?
4. did the trial judge err in failing to find the Appugliesis, Nadia Romano and Susan Caiazzo liable?
5. are the appellants entitled to punitive damages?

[8] The respondent Frank Caiazzo took issue with the trial judge’s finding that he committed intentional wrongful acts during the windup of Progressive but his counsel advised the court at the oral hearing of the appeal that he was no longer pursuing that matter since the issue made no difference to the result. Consequently, that issue is not addressed in these reasons.

1. ONE CAUSE OF ACTION OR MORE?

[9] In oral argument, the appellants acknowledged that the only cause of action expressly pleaded in their Statement of Claim is that of the tort of conspiracy. They also acknowledged that only the tort of conspiracy was argued below. Nonetheless, they maintain that the elements necessary to maintain a claim of fraudulent preferences can be found in the Statement of Claim. Therefore, they contend, it was incumbent on the trial judge to have determined which transactions involving assets of Progressive contravened the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 and it was an error for him to have failed to do so.

[10] I accept that the Fraudulent Conveyances Act is mentioned in paragraph 28 of the Statement of Claim. However, a plain reading of paragraph 28 shows that the Act is referred to for the purpose of advancing a claim based on the tort of conspiracy and not as an independent cause of action. Paragraph 28 of the Statement of Claim reads as follows:

28. The Plaintiff states that the object of the conspiracy pleaded in paragraph 27 herein namely to defeat, hinder, delay and defraud the Plaintiffs of monies to which the Plaintiffs were entitled was in itself unlawful. Furthermore and in any event the Plaintiffs state that the overt acts referred to in paragraph 25 herein and specifically as pleaded in paragraphs 8, 9, 10, 11, 14, 17, 18, 19, 20, 21 and 26 of the Statement of Claim were in themselves unlawful and in this connection the Plaintiffs plead and rely upon the provisions of Sections 20 and 38 of the Business Corporations Act, the provisions of the Fraudulent Conveyance Act and the Assignment and Preferences Act. Furthermore the Plaintiffs state that each of the said conspirators are bound by all acts and omissions pleaded herein as against each of the other co‑conspirators, all liability being joint and several. In any event the Plaintiffs state that each of the defendants were aware of, acquiesced in, and aided and abetted the over acts as pleaded herein.

[11] The appellants did not plead or argue below any cause of action apart from conspiracy; it is not open to them to raise the Fraudulent Conveyances Act, as a cause of action, at this stage of the proceeding. See Rodaro v. Royal Bank of Canada (2002), 59 O.R. (3d) 74 (C.A.).

[12] Having said that, the Fraudulent Conveyances Act would not have assisted the appellants in their claim for damages as, even if successful, the remedy available under the Act is limited to declaring improper transactions to be void.

2. ENTITLEMENT TO DAMAGES

[13] The appellants say that the trial judge erred because he failed to calculate damages after finding that Frank Caiazzo and Enzo Romano had “fraudulently and conspiratorially” divested Progressive of its assets.

[14] I begin by noting that the trial judge did not find that Frank Caiazzo and Enzo Romano had committed fraud. Rather, he found that they had engaged in unlawful conduct contrary to the provisions of the Fraudulent Conveyances Act.

[15] In any event, I do not accept the appellants’ assertion that the trial judge so erred.

[16] The trial judge correctly articulated the law when he stated that proof of damages by the appellants is an essential element of the tort of conspiracy. A conspiracy that does not result in damages is not actionable. See Canada Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983] 1 S.C.R. 452.

[17] Unlike the cases relied on by the appellants in which a determination of liability is made and there are difficulties in proving the quantum of damages, because the tort of conspiracy was the only cause of action pleaded, the appellants had to prove that they suffered damage as a result of the respondents’ conduct before liability could be found. The appellants did not prove special damages resulting from the unlawful conduct of Mssrs. Caiazzo and Romano, as found by the trial judge. Instead, they relied on the default judgment they had obtained in July 1993. They led no evidence to show that they would have been in any different position had the wrongful acts not occurred.

[18] In this regard, I would adopt the reasons of the trial judge at para. 124 of his judgment:

As previously stated, the accounting and financial evidence was very complicated, convoluted, and conflicting. When Progressive’s affairs were finalized, the evidence indicated that as between the various defendants, there were many trade-offs and balancing of interests and/or payments and other benefits received. Also, some acts were lawful and others were unlawful. Payments, including over $360,000 by the Appugliesis, were made to Progressive and to others for various reasons. Certain accounts receivable were not collected either because of compromise or simply because the debtor could not pay. To determine the sum made unavailable to the plaintiffs because of unlawful conduct would have required evidence analyzing all of these facts and all of the other relevant evidence. There was no evidence of this type other than that of Mr. Ross and his evidence was insufficient for me to find that the plaintiffs have proven that any amount was made unavailable to them as a result of unlawful conduct of the defendants. Accordingly, I find that the plaintiffs have not proven their damages as against Mr. Caiazzo and Mr. Romano.

[19] The appellants acknowledged that the evidence at trial did not demonstrate that special damages had been proved to have resulted from the unlawful conduct of Mssrs. Caiazzo and Romano. This concession, in my view, ends the debate. However, I will briefly comment on the appellants’ arguments as to why the failure to prove special damages should not be fatal to their case.

[20] First, they say that the matter could be sent back for a new trial in which the trial judge would decide which of Progressive’s transactions were unlawful. Armed with those findings, the appellants would then be in a position to attempt to prove that special damages flowed from the wrongful transactions. This argument amounts to permitting the appellants to have a second trial solely because they failed to discharge their burden of proof at the first trial. While I accept that there are difficulties in proving such damages so many years after the events occurred, this is not a basis in law for ordering a new trial. The burden of proof in this regard clearly lay on the appellants. Having failed to discharge it at the first trial, absent an error of law requiring a new trial, they are not permitted to “try again”.

[21] Second, the appellants seek to rely on the doctrine of res ipsa loquitur to attack the bona fides of all of Progressive’s transactions. For the reasons already given, as this doctrine was not pleaded or argued below, we decline to allow the appellants to raise it now. In any event, it is not clear to me how it might apply to the tort of conspiracy. That said, the crux of this argument appears to be that the trial judge was obliged to find that all transactions between Progressive and the respondents were tainted and must be treated as void, given the trial judge’s finding that Mr. Caiazzo and Mr. Romano transferred one, or possibly more, assets of Progressive with the intent to defeat creditors.

[22] I disagree. I know of no principle of law that requires such a presumption. In any event, the trial judge made findings that militate against such a presumption including that: the Appugliesis decided in June or July 1990 to leave Progressive for lawful reasons, Frank Caiazzo and Enzo Romano could not buy them out, the windup of Progressive followed as a consequence, and, the demise of Progressive and the related corporations was the result of the split in the ownership groups and the ongoing recession in the construction industry in the early 1990s.

[23] Accordingly, I would dismiss this ground of appeal.

3. REASONABLE APPREHENSION OF BIAS

[24] In paragraph 20 of his reasons, the trial judge notes that the vast majority of the evidence on which the motion judge relied when granting default judgment in favour of the Lombardos were deemed admissions as a result of an unanswered request to admit. He also noted that the request to admit was sent to an address for Progressive that both Mr. Lombardo and his counsel knew was no longer occupied by Progressive. In para. 117 of the reasons, he notes again the issue in respect of the address and in para. 120 he says, “Further, having regard to the manner in which the facts were found in the summary judgment…”. Based on these statements, the appellants argue that the test for disqualifying a judge based on a reasonable apprehension of bias has been met.

[25] I see nothing in this argument. The trial judge’s observations are accurate since, to the knowledge of the appellants, Progressive no longer occupied the premises. In any event, the method of service of the request to admit had no impact on the outcome and was not used by the trial judge for any improper purpose.

[26] There is no suggestion by any party that the trial was conducted in anything but a fair and impartial manner and the trial judge’s reasons are exemplary. They carefully and correctly set out the governing legal principles. They canvas the evidence in a thorough, well-organized manner so that it is clear what the trial judge found and why. Given the morass of detailed evidence and the way that it was introduced, this was no small feat.

[27] I would dismiss this ground of appeal.

4. LIABILITY OF THE APPUGLIESIS, NADIA ROMANO AND SUSAN CAIAZZO

[28] The appellants did not press their submission that the trial judge erred in failing to find the Appugliesis, Nadia Romano and Susan Caiazzo liable for unlawful acts. Counsel indicated that this ground of appeal was advanced in order to “leave the door open” in the event that the court was inclined to entertain an argument based on the new cause of action of “knowing receipt”.

[29] As previously indicated, the court is not prepared to permit the appellants to raise a new cause of action at this point in the proceeding. In any event, the doctrine of “knowing receipt” appears to have no place in this case given that it relates to the misappropriation of trust funds and there has been no allegation or finding that any funds paid out by Progressive were trust funds.

[30] Little more need be said in relation to this issue apart from observing that it amounts to an invitation to retry the case. The trial judge’s findings in respect to these persons are entitled to a high degree of deference. He made no palpable and overriding error in this regard. The trial judge was fully justified on the record to conclude that neither of the Appugliesis were directors of Progressive and that they did not have the knowledge or intent required to sustain a finding of unlawful conduct. On the contrary, his findings lead to the conclusion that the Appugliesis conducted themselves properly, in good faith and in accordance with their legal obligations.

[31] Similarly, the trial judge was fully justified in his findings in respect of Ms. Romano and Ms. Caiazzo.

[32] Accordingly, I would dismiss this ground of appeal.

5. PUNITIVE DAMAGES

[33] In their factum, the appellants argue that the trial judge should have awarded punitive damages rather than require them “to pay the costs award of the perpetrators of the fraud”. It bears repeating that the trial judge found the conduct of Mssrs. Caiazzo and Romano to be unlawful rather than fraudulent.

[34] In any event, I see no basis on which the appellants are entitled to punitive damages. In Whiten v. Pilot Insurance Company, [2002] S.C.C. 18, the Supreme Court of Canada explained that punitive damages are awarded in situations where compensatory damages are insufficient and are to be imposed only if there has been highly reprehensible behaviour. In the present case, no order of compensatory damages was made and there was no finding of the type of reprehensible behaviour that might attract the sanction of punitive damages. Consequently, punitive damages are not available and I would dismiss this ground of appeal.

DISPOSITION

[35] Accordingly, I would dismiss the appeal with costs to the Caiazzos fixed at $17,500 and to the Appugliesis fixed at $10,000, both sums are inclusive of disbursements and GST.

RELEASED: June 9, 2006 (“EEG”)

“E. E. Gillese J.A.”

“I agree Robert P. Armstrong J.A.”

“I agree S. E. Lang J.A.”