Citation and Court Information

CITATION: Chen v. Lin, 2016 ONSC 1255

DIVISIONAL COURT FILE NO.: 295/14 DATE: 20160218

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

BETWEEN:

YU YING CHEN (a.k.a. JENNY CHEN), KIMONO JAPANESE GRILL AND SUSHI INC. and WAIPARK INVESTMENTS INC.

Appellants/Defendants

– and –

JIN ZHONG LIN and 8455082 CANADA LTD.

Respondents/Plaintiffs

COUNSEL:

M. Truong, for the Appellants/Defendants

Jason Huang, for the Respondents/Plaintiffs

HEARD at Toronto: February 18, 2016

PATTILLO J. (ORALLY)

Reasons for Judgment

[1] This is an appeal by Kimono Japanese Grill and Sushi Inc. (“Kimono”) and Yu Ying Chen (a.k.a. Jenny Chen) (“Chen”) from the May 23, 2014 judgment of Deputy Judge Richardson of the Small Claims Court in Brampton (the “Trial Judge”) which granted judgment against Kimono for breach of contract in the amount of $12,927.18; against Chen for punitive damages of $2,000 and costs against both Kimono and Chen of $4,200.00.

[2] In their factum, the appellants raise a number of issues:

(i) The Trial Judge erred in granting judgment against Kimono for breach of contract;

(ii) The Trial Judge failed to apply the test for fraudulent misrepresentation;

(iii) The Trial Judge erred in misconstruing the facts and failing to consider the relevant evidence;

(iv) The Trial Judge erred in failing to pursue the issue of when the assignment of the lease was executed;

(v) The Trial Judge erred in holding that the plaintiffs had no duty to do due diligence in respect of the actual amount of the monthly rent;

(vi) The Trial Judge erred in failing to consider the plaintiffs’ obligation to mitigate their damages; and

(vii) The Trial Judge erred in awarding punitive damages having regard to the facts and the law.

[3] In argument before me, counsel for the appellant also argued that the trial judge erred in not disallowing the claim based on the entire agreement clause in the agreement of purchase and sale and that he further erred in awarding punitive damages against Chen personally in the absence of piercing the corporate veil. Neither issue was raised in the appellant’s factum.

Background

[4] Chen owns Kimono which is a sushi restaurant in Toronto. In the spring of 2013, Chen put the restaurant up for sale. On March 8, 2013, the plaintiff Jin Zhong Lin (“Lin”) met with Chen to discuss the purchase. Chen advised Lin that the monthly rent for the restaurant consisted of a base rent of $3,500 plus TMI (taxes, maintenance and insurance) in the amount of $1,200 a year. In fact, for the prior four years it was in the neighbourhood of $1,900 per year.

[5] Lin, in trust for a corporation to be formed as purchaser and Kimono as seller entered into an agreement of purchase and sale on March 12, 2013 (the “Agreement”). Lin paid a deposit of $10,000 and the scheduled closing date was April 29, 2013.

[6] Subsequently, the plaintiff 8455082 Canada Ltd. (“8455”) was incorporated.

[7] On the evening of April 28, 2013, Lin learned from the landlord that the TMI was not $1,200 per year as represented by Chin, but rather in the neighbourhood of $1,900. Lin advised Chen that he was not prepared to close, terminated the Agreement and requested the return of his deposit. Kimono and Chen refused.

[8] The Trial Judge found, on the evidence, that Chen had knowingly misrepresented the amount of TMI to Lin on purpose knowing that he would rely on it. He found the information not disclosed “crucial” and that Lin relied on it in entering into the Agreement. He found that the fraudulent misrepresentation was material and constituted a fundamental breach of contract entitling Lin and 8455 to terminate the Agreement. He awarded the plaintiffs damages against Kimono in the amount of $12,927.18 made up of the deposit, legal fees incurred, the cost to transfer the liquor licence and one half of the landlord’s costs which the parties agreed to share.

[9] The Trial Judge further awarded punitive damages against Chen based on her conduct which he referred to as “deceptive and fraudulent, dishonest, only for the purpose of manipulating the plaintiff in a very high-handed way …”.

Standard of Review

[10] The standard of review is set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at paras. 8, 10 and 36. For questions of law, the standard is correctness; for questions of fact, the standard is palpable and overriding error; and for questions of mixed law and fact there is a spectrum between correctness (extricable legal principle) and palpable and overriding error (application of fact to the correct legal principle).

Fraudulent Misrepresentation

[11] The essential elements of fraudulent misrepresentation are set out in McCreight v. The Attorney General, 2012 ONSC 1983 (SCJ) at para. 77 referring to the Ontario Court of Appeal decision of Mariani v. Lemstra. They are:

(i) The defendant made a false representation of fact;

(ii) The defendant knew the statement was false or reckless as to its truth;

(iii) The defendant made the representation with the intention that it would be acted upon by the plaintiff;

(iv) The plaintiff relied on the statement and acted upon it; and

(v) The plaintiff suffered damages as a result.

[12] The appellants submit that the Trial Judge erred in not setting out the essential elements of fraudulent misrepresentation. While he didn’t do that, I do not consider that to be an error. A reading of the Trial Judge’s reasons makes it clear that he was alive to the essential elements of the claim and his factual findings dealt with each of the requirements. Further, there was evidence to support those findings.

[13] In my view, given that the Trial Judge applied the correct legal principal, the standard of review is palpable and overriding error. In that regard, counsel for the appellant has not identified any palpable and overriding error by the Trial Judge. The evidence and the Trial Judge’s findings arising therefrom clearly support his finding of fraudulent misrepresentation on the part of Chen.

[14] As noted in argument, counsel for the appellant raised the entire agreement clause (Clause 16) in the Agreement to submit that the plaintiffs cannot rely on the misrepresentation. I have reviewed the trial transcript and that argument was not raised before the Trial Judge. Nor is it raised in the appellants’ factum. On that basis alone, I would not entertain it. In addition however, it has no merit legally. Entire agreement clauses do not exclude claims for damages based on fraudulent misrepresentation. See: 1018429 Ontario Inc. v. Fea Investments Ltd. (1999), 125 O.A.C. 88, [1999] O.J. No. 3562 (C.A.) at paras. 50-54 and 1721789 Ontario Inc. v. 985091 Ontario Ltd., [2009] O.J. No. 3049 (S.C.J.) at paras. 30-33.

[15] Fea Investments is also authority for the proposition that a contract resulting from a fraudulent misrepresentation may be avoided by the victim of fraud. See: paras. 50-51. Accordingly, I do not consider the Trial Judge erred in determining there was a breach of contract in this case which entitled the plaintiffs to rescind or terminate the contract.

Failure to Pursue Evidence

[16] The appellants submit that the Trial Judge failed to pursue the issue of when the assignment of the lease was executed. The issue arises out of some questions the Trial Judge asked the landlord during his testimony. The respondents submit that the position is not supported by the evidence. In my view, I do not have to decide that as I agree with the respondents’ submission that there is no basis to submit that the Trial Judge failed to pursue any line of questioning. The presentation of the case is the responsibility of counsel. The Trial Judge may ask questions to clarify certain issues that he or she may have questions about but is under no duty or obligation to assist any party in the presentation of evidence in support of their respective positions. If there was a line of inquiry that ought to have been pursued, it is up to counsel to pursue it, not the Trial Judge.

Due Diligence

[17] The appellants submit that the respondents had a duty to do due diligence concerning the rent. The Trial Judge rejected that submission. In my view, he was correct. The duty is alleged to arise pursuant to s. 20 of Schedule “A” to the Agreement. That section contains a condition in favour of the buyer (respondents) to obtain a new lease with the landlord within 10 days of the Agreement. Once again, I agree with counsel for the respondents. That clause is for the benefit of the buyer and can be waived by it at any time. It creates no duty of due diligence. The Trial Judge was correct in rejecting it.

Mitigation

[18] The appellants submit that the respondents failed to mitigate. The duty to mitigate arises when the respondents knew that there was a breach. In this case that was on April 28, 2013, on the eve of the closing. The respondents’ damages had already been incurred. No issue of mitigation arises.

[19] What the appellants are really saying, in my view, is that the respondents failed to inquire about the rent. That argument is encompassed in the appellants’ due diligence argument which I have rejected. The Trial Judge held that the respondents first learned about the actual amount of the TMI portion of the rent on April 28, 2013. There is evidence to support that finding.

Punitive Damages

[20] Turning to punitive damages, the appellants agree that the Trial Judge correctly set out the essential elements concerning a claim for punitive damages. What they submit is that he erred in concluding that punitive damages should be awarded on the facts. The standard of review is palpable and overriding error. In my view, having regard to the Trial Judge’s findings concerning Chen’s conduct in respect of the misrepresentation, he committed no palpable and overriding error. Punitive damages require reprehensible conduct and he clearly found that.

[21] The appellants submit that in order to award punitive damages in a breach of contract case, there must be an “independent actionable wrong.” See: Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595 (S.C.C.) at para. 31. Apart from breach of contract, the finding of fraudulent misrepresentation is also tort which is an independent actionable wrong. In my view, therefore, punitive damages are not precluded in this case.

[22] As noted, in argument before me, counsel for the appellants submitted that the Trial Judge erred in awarding punitive damages against Chen personally in the absence of piercing the corporate veil. That argument was not made before the Trial Judge (although the representative for the appellants did request that the breach of contract damages be against Kimono and the Trial Judge agreed). Nor was it raised in the factum. As a result, I am not prepared to entertain it. It is simply not fair or appropriate to raise an argument for the first time on appeal without giving opposing counsel an opportunity to properly respond.

Conclusion

[23] For the above reasons, therefore, the appeal is dismissed.

Costs

[24] I have endorsed the Amended Appeal Book, “For oral reasons given in Court today, the appeal is dismissed. Costs to the respondent on a partial indemnity basis fixed at $6,000 inclusive of disbursements and taxes.”

___________________________ PATTILLO J.

Date of Reasons for Judgment: February 18, 2016

Date of Release: February 26, 2016

CITATION: Chen v. Lin, 2016 ONSC 1255

DIVISIONAL COURT FILE NO.: 295/14 DATE: 20160218

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BETWEEN:

YU YING CHEN (a.k.a. JENNY CHEN), KIMONO JAPANESE GRILL AND SUSHI INC. and WAIPARK INVESTMENTS INC.

Appellants/Defendants

– and –

JIN ZHONG LIN and 8455082 CANADA LTD.

Respondents/Plaintiffs

ORAL REASONS FOR JUDGMENT

PATTILLO J.

Date of Reasons for Judgment: February 18, 2016

Date of Release: February 26, 2016