Bulut v. Walker-Fairen, 2010 ONSC 706

CITATION: Bulut v. Walker-Fairen, 2010 ONSC 706

DIVISIONAL COURT FILE NO.: 564-09

DATE: 20100129

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

McCOMBS, LEDERMAN and MOLLOY JJ.

BETWEEN:

NICHOLAS BULUT, 1091369 ONTARIO INC., STEVEN BULUT, 1112618 ONTARIO INC. and MARKO BULUT

Appellants (Defendants)

– and –

SUZANNE WALKER-FAIREN

Respondent (Plaintiff)

Peter Jervis, for the Appellants

A. Patrick Wymes, for the Respondent

HEARD: January 27, 2010

By THE COURT

REASONS FOR DECISION

Introduction

[1] This is an appeal from the decision of Loukidelis J. dated July 31, 2008 awarding damages to the plaintiff in the amount of $20,653.00, payable by the defendants Nicholas Bulut, Steven Bulut, Marko Bulut, 1091369 Ontario Inc.(“109”) and 1112618 Ontario Inc. (“111”) and ordering the defendants to pay costs on a substantial indemnity basis. The trial proceeded for over seven weeks of evidence between January 7 and June 5, 2008. The trial judge reserved his decision and released written reasons for judgment on July 31, 2008. Those reasons dealt with both the substantive issues at trial and costs, although there had not been any argument with respect to costs at the end of the trial. The defendants brought a subsequent motion seeking to argue the issue of costs, but the trial judge refused to reopen the issue. This appeal is brought by all defendants except Nicholas Bulut and is in respect of one aspect of the judgment in the amount of $15,653.00. In addition, leave is sought to appeal the award of costs.

[2] Nicholas Bulut was a friend of the plaintiff and entered into a number of business dealings with her. He is appropriately described by the trial judge as the “main defendant” in the action. Steven Bulut and Marko Bulut are the sons of Nicholas Bulut. Steven Bulut is the sole shareholder and director of 109; Marco Bulut is the sole shareholder and director of 111.

[3] In 1994 the plaintiff and her husband were in serious financial distress and she turned to her friend Nicholas Bulut for help. She and Nicholas Bulut entered into two written agreements dated December 21 and December 22, 1994. The plaintiff commenced this action in 1995 seeking rescission of the December 22, 1994 agreement, which involved the assignment of a vendor take back mortgage from the plaintiff to 109 on a farm property in Innisfil (“the mortgage assignment agreement”). The plaintiff alleged the mortgage assignment agreement was unconscionable. The plaintiff also alleged in the action that the two written agreements were part of a larger oral agreement which required Nicholas Bulut to enter into a joint venture partnership with her and to start a hog farming operation involving the investment of millions of dollars (“the joint venture agreement”). The Innisfil property at the heart of the plaintiff’s claim, and which she sought to recover in the action, was valued at between $5 to $10 million as at the time of trial.

[4] The trial judge dismissed both claims in their entirety. He found that the mortgage assignment agreement was understood by the plaintiff and was not unconscionable and that the plaintiff failed to discharge her onus of proving the existence of an oral joint venture agreement.

[5] However, the trial judge found all of the defendants to be liable on the second agreement, which was a handwritten agreement between the plaintiff and Nicholas Bulut dated December 21, 1994 (“the equipment sale agreement”). There are two aspects to that liability: (1) $15,653 for breach of an agreement by Nicholas Bulut to pay tax arrears of the plaintiff; $5000 in respect of equity remaining in a truck transferred to Nicholas Bulut in exchange for his having paid a repair account. There is no appeal from the latter amount.

The Judgment for $15,653

[6] The contact giving rise to the $15,653 judgment against the defendants was entered into between the plaintiff and Nicholas Bulut. This claim was not specifically pleaded by the plaintiff, but it was the subject of evidence at trial and the trial judge ruled on it. None of the defendants other than Nicholas Bulut were parties to the equipment sale agreement. They submit that there is no legal basis to impose liability on them.

[7] The trial judge found that the purpose of the equipment sale agreement was to remove the plaintiff’s farm equipment and livestock from the reach of her creditors. Under the agreement, the equipment and cattle were transferred to Nicholas Bulut and he agreed to pay “real estate taxes and mortgage statements for November, December 1994, and January, February and March 1993.” The trial judge found that the plaintiff received fair value for her goods and that Nicholas Bulut paid out approximately $35,000 under the agreement. However, of that sum, $15,653 was paid to discharge tax arrears on the Innisfil property which, to the knowledge of Nicholas Bulut, was either going to be sold to another party or remain with 109. This payment therefore did not benefit the plaintiff, but was a direct benefit to 109. The trial judge found this to be a “rather dishonest manoeuvre.”

[8] It seems clear from the reasons of the trial judge that the cause of action against Nicholas Bulut on this claim is in breach of contract. It is unclear how he found any of the other defendants to be liable for this breach of contract. There is no evidence that they had knowledge of the equipment sale agreement, much less that they had knowledge of, or were in any way involved in, the breach of that agreement.

[9] The trial judge made findings elsewhere in his reasons that Nicholas Bulut created and was the driving force behind 109 and 111; that he used those companies as his own whenever it suited his purposes; that his sons either knew about his use of the companies in that regard or were willfully blind to it; and that “all 5 defendants acted as one, led by Nicholas.” Such determinations could conceivably form a basis for piercing the corporate veils of 109 and 111 and making Nicholas Bulut liable for actions taken by the companies. However, none of these defendants were “used” by Nicholas Bulut in connection with this particular equipment sale agreement.

[10] There is some reference in the evidence and in the trial judge’s reasons to 109 having received a benefit based on a $15,653 payment by Nicholas Bulut towards tax arrears on the Innisfil property. There is no challenge to the fact that this payment was not for the benefit of the plaintiff and could not be relied upon by Nicholas Bulut to discharge any liability he had under the equipment sale agreement. However, even accepting that this was a benefit to 109, there is nothing to tie the specific sums used by Nicholas Bulut to pay these taxes to either the plaintiff or to the equipment sale agreement. Neither is there any evidence of conduct by any of the defendants that could provide a basis for their being vicariously liable for the breach of contract by Nicholas Bulut.

[11] The trial judge did not refer to principles of unjust enrichment to support his findings of liability against the defendants other than Nicholas Bulut. However, we have considered whether those principles would have any application here and have concluded they do not. The Supreme Court of Canada held in Pettkus v. Becker, 1980 22 (SCC), [1980] 2 S.C.R. 834 at 848, 117 D.L.R. (3d) 257, 19 R.F.L. (2d) 165 that there are three requirements to be satisfied before an unjust enrichment can be said to exist: “an enrichment, a corresponding deprivation and absence of any juristic reason for the enrichment.” In this case, the plaintiff may have been deprived of $15,000 to which she was entitled under the equipment sale agreement, and 109 may have been enriched in the same amount when the tax arrears on its property were paid. However, there is no causal connection between the enrichment and the deprivation, such that 109 could be said to have been enriched at the expense of the plaintiff. It is not a “corresponding” deprivation as is referred to in the case authority.

[12] In short, we see no legal basis for imposing liability on any defendant other than Nicholas Bulut for this $15,653 breach of contract claim. The trial judge erred in law in so finding. Accordingly, that aspect of the judgment is set aside as against these appellants.

The Trial Judge’s Costs Award

[13] At the conclusion of the trial on June 5, 2008, the trial judge reserved his judgment. He did not ask for submissions as to costs and none were made. The trial judge issued written reasons for decision on July 31, 2008. He awarded substantial indemnity costs to the plaintiff throughout. The entirety of his reasons in respect of costs are set out in the final paragraph of the reasons as follows:

[117] I am not asking for submissions on costs. Even without any award, the conduct of the defendants, in particular Nicholas, requires this court’s sanction. Costs therefore go to the plaintiff payable by all the defendants jointly and severally on a substantial indemnity basis throughout.

[14] On August 27, 2008, counsel for the defendants contacted the trial judge in writing, on notice to plaintiff’s counsel, seeking an opportunity to be heard on the issue of costs, enclosing motion material in respect of costs and requesting an appointment to argue the point. Counsel pointed out that there had not been a previous opportunity to make such submissions and that there were serious issues to be addressed, including a number of offers to settle made by the defendants, one of which was ten times greater than the judgment the plaintiff recovered.

[15] In response, counsel for the plaintiffs faxed a letter to the trial judge at 10:36 am on the morning of September 8, 2008, taking the position that the defendant’s motion was “an attempt to appeal just costs” and that the trial judge had no jurisdiction to hear the defendants on costs as his judgment was final and binding.

[16] The trial judge replied in writing on September 8, 2008, stating, “I have made my ruling giving brief reasons. Whether I am functus or not, I do not intend to reopen the issue.”

[17] We are of the view that the trial judge’s ruling with respect to costs in the absence of submissions and unsupported by reasons is a breach of procedural fairness and natural justice and cannot stand.

[18] This was a seven week trial. We note that in April 2008, the trial judge heard a motion for security for costs in the middle of the trial in which defence counsel estimated his solicitor and client bill had already reached $485,000 and would likely reach $800,000 by the end of trial. It could certainly be anticipated that substantial indemnity costs for the plaintiff could easily be in the range of half a million dollars or more. This was a serious issue affecting the rights of the defendants and upon which the affected parties were entitled to be heard.

[19] The trial judge’s ruling against the defendants without giving them the opportunity to file evidence and make submissions was a breach of the duty of procedural fairness and principles of natural justice: Melloul-Blarney Construction Ltd. V. Schleiss Development Co. (2003), 1 C.P.C. (6th) 352 (Ont. S.C.J.-Div.Ct.); Sliwinski v. Marks, [2006] O.J. No. 2180 (C.A.). Such a breach completely vitiates the decision.

[20] Further, this was an extraordinary costs award, both in respect of the scale of costs, the parties liable for the costs and the quantum of costs (particularly given the amount of the plaintiff’s judgment). In these circumstances, it was incumbent upon the trial judge to provide reasons supporting his decision. The reasons provided were not adequate to satisfy the requirements of natural justice and procedural fairness. The absence of meaningful reasons for the award makes appellate review impossible and is another basis, in and of itself, that the costs award cannot stand: Baker v. Canada (Minister of Citizenship and Immigration), 1999 699 (SCC), [1999] S.C.J. No. 39; R. v. Sheppard, [2002] S.C.R. 869.

[21] It is not clear whether leave to appeal the costs order is required since there was also an appeal from the substantive judgment. However, if leave is required, it is granted, and the costs order against these appellants is set aside.

Disposition on Costs of the Action

[22] The trial judge has since retired and the costs issue cannot be returned to him, even if that were appropriate. Counsel for the plaintiff argued that if we set aside the costs awarded by the trial judge, we should order an entirely new trial on all of the substantive causes of action, with the new trial judge then in a position to determine costs based on the evidence at the second trial. There is no merit whatsoever to that submission. In these circumstances, we consider it appropriate to substitute our own determination as to the proper costs award, based on the trial record and factual findings made by the trial judge, as well as the material submitted by the defendants which the trial judge had wrongly refused to consider.

[23] The awarding of costs is an exercise of discretion, but is informed by relevant factors ser out in Rule 57 of the Rules of Civil Procedure. In particular, it is relevant to consider the result in the proceeding, the positions taken by the parties with respect to settlement, the amount claimed and the amount recovered in the proceeding, the conduct of any party that tended to shorten or lengthen unnecessarily the duration of the proceeding, and whether there was any improper steps taken in relation to the conduct of the litigation.

[24] The plaintiff’s claim essentially was for the recovery of a piece of property valued at between $5 and $10 million and for damages in respect of an alleged joint venture agreement. She has been completely unsuccessful in respect of those claims. The only points upon which the plaintiff was successful at trial was in respect of the equipment sale agreement, which was not pleaded and which was found by the trial judge to have been entered into for the purposes of defeating creditors. The total judgment awarded by the trial judge was for approximately $20,000, of which we have set aside $15,000.00. Thus, after seven weeks of trial in 2008, the plaintiff’s sole recovery on an action commenced in 1995, was $5000.00, and that was on a claim that had never been pleaded. Given the nature of the claims asserted by the plaintiff and the amount recovered, this is the equivalent of a completely unsuccessful outcome.

[25] There were submissions before us about conduct by the plaintiff that unduly lengthened the proceeding, e.g. extensive similar fact evidence with respect to other wrongdoing by Nicholas Bulut. Since that evidence is not referred to at all in the trial judge’s findings, it is arguable that it was not relevant to any issue in the trial. However, in all the circumstances, we are not in the best position to determine that point and we have not considered it as a negative factor against the plaintiff.

[26] Apart from the result at trial, the most significant factor affecting costs is the offers of settlement. The appellants made four offers to settle; the plaintiff made none.

[27] Rule 49(10)(2) applies to offers made by a defendant at least seven days before the commencement of trial, that are not withdrawn and does not expire before the commencement of the hearing and is not accepted by the plaintiff. If an offer falls within this provision, and the plaintiff obtains a judgment less favourable than the offer, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.

[28] The first offer to settle was at an early stage in the litigation, on February 2, 1996. The appellants offered to reassign the vendor take back mortgage and the Innisfil land to the plaintiff in exchange for the costs they had incurred to clear the property of encumbrances in the amount of $450,000. This essentially reverses the results of the mortgage assignment agreement which had been alleged by the plaintiff to be unconscionable. The offer was never withdrawn. Clearly, the plaintiff has not beaten that offer. However, it is a difficult offer to assess because of the fluctuating value of the property over time. Therefore, while the existence of such an offer at an early stage in the litigation is a relevant consideration under Rule 57, we have not considered it to fall within Rule 49 for purposes of our analysis.

[29] Two offers to settle were made on November 18, 2005; one that falls within Rule 49 and one which does not. One of those offers was open only for one week and expired on November 25, 2005. It offered the plaintiff $200,000 all inclusive. Like the 1996 offer, the fact this offer was made is relevant to the overall assessment of costs, but does not trigger the terms of Rule 49. The other offer was for payment of $100,000 to the plaintiff for damages and interest, plus costs on a partial indemnity scale to the date of the offer, with a further provision that the costs payable would decline on a sliding scale with the passage of time until acceptance. The offer is stipulated to remain open until two minutes after the commencement of trial. This is a Rule 49 offer that is better than the judgment obtained. Presumptively, this would entitle the plaintiff to partial indemnity costs up to November 18, 2005 and the appellants to partial indemnity costs thereafter.

[30] On December 21, 2007, a few weeks before the commencement of trial, the appellants made a further offer to settle by paying $200,000 plus partial indemnity costs to the date of the offer. This also was stipulated to be open until two minutes after the commencement of trial. This offer was more than twice as advantageous to the plaintiff as the previous offer, and approximately 40 times better than the judgment recovered by the plaintiff.

[31] We see no reason to depart from the norm under Rule 49 with respect to the appellants’ entitlement to partial indemnity costs for the period after the November 18, 2005 offer to settle for $100,000.00. A consideration of all of the relevant factors under Rule 57, as well as the operation of Rule 49 support such an award.

[32] However, we do not see any basis for awarding costs to the plaintiff for the period of time leading up to November 18, 2005. The only recovery at all by the plaintiff was in respect of a $5000.00 claim that was never asserted in her pleadings and which the appellants could have had no opportunity to address until trial when it was first raised. Given that result, we would not award any costs with respect to the period from the commencement of the action to November 18, 2005.

[33] It follows that we have completely rejected the argument before us that the plaintiff should be entitled to substantial indemnity costs for the entire period of the action based on the alleged misconduct of the defendants. Nicholas Bulut did not appeal any portion of the trial judge’s rulings and was not before this Court. We therefore make no comment as to any conduct by him that would warrant such a scale of costs, save to point out that whatever his conduct, it was apparently not unlawful and did not support a cause of action beyond a breach of contract with damages of $20,000.00.

[34] The situation with respect to the other defendants, however, is quite different. There was no finding of wrongdoing against any of them and no adverse credibility findings. The only critical comment from the trial judge was that they either were not interested in, or were willfully blind to, the use of their corporations by their father. Although the trial judge found that all five defendants had acted in concert with respect to the mortgage assignment agreement, he also found that the agreement was fully understood by the plaintiff and was not unfair or unconscionable. There was no misconduct by these defendants or their counsel in respect of this litigation that even approaches the type of reprehensible conduct that would attract costs on a substantial indemnity scale: Foulis v. Robinson, (1978) 1978 1307 (ON CA), 92 D.L.R. (3d) 134 (Ont.C.A.); DiBattista v. Wawanesa Mutual Insurance Co. , 2005 41985 (ON SC), [2005] O.J. No. 4865 (S.C.J.); Homelife Realty Services Inc. v. Homelife Performance Realty Inc. , [2005] O.J. No. 4125 (S.C.J.); Wallace v. Allen, 2007 31445 (ON SC), [2007] O.J. No. 3025 (S.C.J.). The only criticism the trial judge had as to the conduct of litigation by these appellants was with respect to a 1996 motion for summary judgment brought by 111 in a related action, but that resulted in a $5000.00 cost award against 111 in that proceeding, which was paid. We see no other conduct by the appellants or their counsel that would warrant any adverse costs award against these parties.

[35] Both counsel agree that this court is not in the best position to determine the quantum of costs. Accordingly, we do not propose to fix costs, but rather will refer them for assessment.

Costs of This Appeal

[36] Both counsel agreed that an appropriate costs disposition for the appeal would be $10,000.00 to the successful party. The appellants has been wholly successful and shall have their costs of this appeal fixed at $10,000.00.

Conclusion and Order

[37] In the result:

• the judgment of Loukidelis J. dated July 31, 2008 is varied to provide that the award of damages in paragraph 1 shall be in the amount of $15,653.00 payable only by the defendant Nicholas Bulut and an additional $5000.00 payable by all defendants;

• the cost order in paragraph 4 of the judgment is set aside as against the defendants Steven Bulut, Marko Bulut, 1091369 Ontario Inc. and 1112618 Ontario Inc.;

• the judgment is further varied by adding a provision that the plaintiff shall pay to Steven Bulut, Marko Bulut, 1091369 Ontario Inc. and 1112618 Ontario Inc. one set of costs on a partial indemnity basis from November 18, 2005 to the conclusion of the trial, payable after assessment;

• the respondent (plaintiff) shall pay to Steven Bulut, Marko Bulut, 1091369 Ontario Inc. and 1112618 Ontario Inc. their costs of this appeal fixed at $10,000.00.

McCOMBS J.

LEDERMAN J.

MOLLOY J.

Released: January 29, 2010

CITATION: Bulut v. Walker-Fairen, 2010 ONSC 706

DIVISIONAL COURT FILE NO.: 564-09

DATE: 20100129

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

McCOMBS, LEDERMAN and MOLLOY JJ.

BETWEEN:

NICHOLAS BULUT, 1091369 ONTARIO INC., STEVEN BULUT, 1112618 ONTARIO INC. and MARKO BULUT

Appellants (Defendants)

– and –

SUZANNE WALKER-FAIREN

Respondent (Plaintiff)

REASONS FOR JUDGMENT

The Court

Released: January 29, 2010