DATE: 20041119

DOCKET: C40024

COURT OF APPEAL FOR ONTARIO

DOHERTY, LASKIN and FELDMAN JJ.A.

B E T W E E N:

ALABAK HOLDINGS INC. and 603736 ONTARIO INC.

Plaintiffs/Appellants

• and -

Gerald A. Swaye, Q.C. and NICHOLAS PALIOS

Defendant/Respondent

COUNSEL:

Graydon Sheppard for the appellants

Stephen H. Fay for the respondent

Heard: May 4, 2004

On appeal from the judgment of Justice Barry H. Matheson of the Superior Court of Justice dated April 16, 2003, reported at [2003] O.J. No. 1750.

DOHERTY J.A.:

I

[1] The appellants sued their lawyer, the respondent Nicholas Palios (“Palios”), claiming that he entered into a settlement with the appellants’ insurer without proper authority and alternatively, that he failed to properly protect the interests of the appellant in negotiations that led to a settlement with their insurer.

[2] The appellants also claimed that Palios had breached his fiduciary duty to them by providing counsel for the insurer with a statement to the effect that the appellants had settled their claims with the insurer. This statement was provided to counsel to support the insurer’s motion for summary judgment after it was sued by the appellants.

[3] The trial judge dismissed the action. He found that the appellants had made an informed decision to settle their claims under the policy with the insurer and had agreed to do so on the terms described in the evidence of Mr. Regan, the insurer’s lawyer and Mr. Dreyer, the adjuster. In coming to this conclusion, the trial judge specifically rejected the evidence of Dimitrios and Stephanie Alabakopoulos, the individuals who controlled the corporate appellants. The trial judge further found that even if Palios had been negligent in advising the appellants with respect to the settlement, the appellants suffered no damages as the amount agreed upon in the settlement was greater than the amount that the appellants could have reasonably expected to recover under the policy.

[4] The trial judge also held that Palios had breached his fiduciary duty in providing a statement to counsel for the insurer after the appellants had sued the insurer. He concluded, however, that the appellants suffered no damages in that the information provided by Palios was accurate and the insurers were entitled to that information in the course of the litigation.

[5] On appeal, the appellants challenged the findings of fact made at trial. At the conclusion of oral argument, the court reserved judgment so that it could review the trial record in the light of the submissions that had been made by counsel. Having conducted that review, I am satisfied that there is no basis upon which to interfere with the material findings of fact made by the trial judge.

II

[6] A commercial building owned by the appellants in Hamilton, Ontario was destroyed by fire on July 5, 1999. The property was insured by a policy issued by CGU Insurance Company of Canada (“CGU”). The policy insured the building to the maximum of $750,000.00 and also provided insurance in various amounts for the contents of the building, lost revenues, and professional and consequential costs associated with the fire. The total coverage provided by the policy was about $1.1 million.

[7] The day after the fire, the City of Hamilton issued work orders requiring that certain demolition work be done immediately to eliminate the hazardous conditions at the fire site. A contractor, Triple M, was hired to do the work. Triple M completed the work by the end of July and billed CGU and the appellants approximately $79,000.00. This bill came as a surprise in that Triple M had provided a “guesstimate” of approximately $20,000.00 before the work started. Triple M sued CGU and the appellants for payment in the fall of 1999.

[8] The appellants negotiated with CGU throughout the summer and early fall of 1999. CGU made two advance payments referable to the contents of the building totalling $75,000.00. Palios became directly involved in the negotiations in September.

[9] On December 10, Mr. and Mrs. Alabakopoulos, Palios, Mr. Regan and Mr. Dreyer met at Palios’s office. According to Mr. Regan, Mr. Dreyer and Palios, the purpose of the meeting was to discuss settlement. They testified that after a day-long negotiating session, a settlement was reached. The appellants agreed to take $700,000.00 in addition to the $75,000.00 that they had already been paid as payment for their claims under the policy. The appellants also agreed to assume responsibility for the outstanding litigation that had been commenced by Triple M. Triple M was claiming approximately $79,000.00.[^1]

[10] The Alabakopouloses denied that any agreement was made. The Alabakopouloses testified that the meeting ended with CGU offering $700,000.00 on the condition that the appellants would assume responsibility for the Triple M litigation. The Alabakopouloses said that they agreed to consider this offer. Following the meeting, they spoke with their accountant, decided to reject that offer and provided Mr. Palios with a counter-offer early the next week. According to Mr. Palios, he advised the Alabakopouloses that the matter had been settled and he would not negotiate any further with CGU. The Alabakopouloses fired Mr. Palios about two weeks later and subsequently sued CGU. CGU moved for summary judgment relying on the settlement that had been reached on December 10. Part of the material in the CGU motion was a statement from Mr. Palios to the effect that a settlement had been reached. The appellants discontinued their lawsuit against the insurer and started this lawsuit.

III

[11] The trial judge made the following findings of fact:

• as of December 10, 1999, the appellants had decided not to rebuild, but to obtain the best monetary settlement they could from the insurer;
• as of December 10, the Alabakopouloses, particularly Stephanie, were very familiar with the insurance policy and the issues that had arisen subsequent to the fire;
• the Alabakopouloses had retained an accountant, Mr. Phillips, to advise them on their negotiations with CGU. Unfortunately, he was ill and was unable to attend the meeting on December 10, 1999. The Alabakopouloses decided to go ahead with the meeting in his absence;
• the purpose of the meeting, as known to everyone who attended, was to try and settle the Alabakopouloses’ claims under the policy;
• the meeting went on all day and several proposals and counter-proposals were made. The value of the appellants’ first party claims under the policy as well as responsibility for the Triple M litigation, which the insurer regarded as a first party claim, were discussed in the course of the day-long meeting;
• a firm agreement was eventually reached. Under that agreement, the appellants would receive $700,000.00 for their claims. This was in addition to the $75,000.00 they had already received. The appellants would also assume responsibility for the Triple M litigation;
• the parties shook hands on the agreement and Mr. Dreyer indicated that the cheque would be provided to the Alabakopouloses as soon as possible. Mr. Regan had to go to another meeting and he left immediately. It was agreed that Mr. Palios would prepare the necessary documentation; and
• shortly after the meeting, the Alabakopouloses spoke to Mr. Phillips, their accountant. They decided that they had not been properly compensated in the agreement that had been reached in the meeting. They decided to renege on the agreement and returned to Palios’s office on December 14 with a counter-offer for CGU that had been prepared by their accountant. Palios told them that they could not make any counter-offer as a firm agreement had been made the previous Friday.

[12] The trial judge was critical of some aspects of Palios’s performance on behalf of the appellants. He ultimately concluded that Palios was not negligent.

[13] In addition, he made certain findings of fact in respect of the damages claim, which in and of themselves doomed the appellants’ lawsuit. The trial judge found that the appellants had no intention to rebuild, thereby rendering the replacement cost endorsement to the policy irrelevant in determining the value of the building for the purposes of recovery under the policy. The trial judge also found as a fact that for the purposes of recovery under the policy, the building should be valued “in the range of $350,000”. Taking this as the value of the building, the trial judge concluded that the settlement entered into by the appellants was better than the recovery they could reasonably have expected to make under the policy had there been no settlement with CGU. On this view, the appellants had suffered no damages even if Palios was negligent.

IV

[14] Most of the appellants’ submissions ignored the findings of fact made by the trial judge and asked this court to assess the merits of the appellants’ claims as though the trial judge had not made any findings of fact. This court cannot consider the appellants’ allegations de novo. The findings of fact stand unless the appellants demonstrate that they are the product of clear and palpable error.

[15] The central findings of fact concerned the meeting of December 10, 1999. The trial judge found that it was agreed as part of the settlement that the appellants would be responsible for the Triple M litigation. He reached this conclusion based on the evidence of Palios, Regan and Dreyer. Relying on the same evidence, he found that the appellants, after extensive negotiation, agreed to accept an additional $700,000.00 in settlement of their claims against the insurer. He specifically rejected the appellants’ evidence to the contrary and gave reasons for doing so. The appellants have not provided any basis upon which this court could interfere with those crucial findings of fact.

[16] Apart from a general attack on the findings of fact at trial, the appellants did address specific submissions to certain findings of fact. They argued that the trial judge fell into clear and palpable error when he found that the appellants and CGU had reached a firm agreement to settle the appellants’ claims at the December 10, 1999 meeting. Counsel for the appellants argues that, even on the evidence of Palios, Regan and Dreyer, there was no agreement. Palios testified that the agreement covered all third party claims that could be made against the appellants. Regan and Dreyer testified that the agreement addressed first party claims, and the Triple M litigation which, as indicated above, the insurer regarded as a first party claim chargeable against the amount of the policy allocated to the building. Regan and Dreyer testified that the settlement did not address potential third party claims that might be made against the appellants and to which the policy was otherwise required to respond.

[17] This submission has merit. The trial judge specifically found that the evidence of Regan and Dreyer was to be preferred over the evidence of the others who attended the meeting. He went on, however, to find:

There was an agreement arrived at, that was for the amount of $700,000 and the Plaintiffs [appellants] would be responsible for the Triple M claim and any other third party claims (at para. 43).

[18] This finding is consistent with the evidence of Palios, but inconsistent with the evidence of Regan and Dreyer.

[19] The misapprehension of the evidence of Regan and Dreyer does not detract from the trial judge’s acceptance of their evidence as to the nature of the agreement. On their evidence, the appellants agreed to settle their claims under the policy and assume responsibility for the Triple M litigation. I see no merit to the appellants’ contention that because Palios understood that the agreement extended to third party claims, the agreement as it applied to the appellants’ claims and the Triple M litigation became “unenforceable”. It is noteworthy that potential claims, other than the Triple M litigation, played no significant role in the discussions that resulted in the settlement. There were no outstanding third party claims and none has ever been brought. The question of whether the agreement made between the appellants and CGU was intended to extend to third party claims never took on any practical significance. The trial judge’s misapprehension of this aspect of the evidence of Regan and Dreyer does not detract from his acceptance of their evidence to the effect that the appellants agreed to settle their claims under the policy and assume responsibility for the Triple M litigation.

[20] The appellants also made specific submissions directed at the trial judge’s findings that the appellants had no intention to rebuild and that the value of the building for the purposes of the policy was “in the range of $350,000”. The appellants contend that the trial judge ignored relevant evidence in making these findings.

[21] The trial judge’s finding that the appellants had no intention of rebuilding was supported by the evidence. The mere fact that the appellants adduced some evidence capable of supporting their contention that they intended to rebuild does not render the trial judge’s finding that they had no such intention unreasonable. His finding is supported by the evidence of Regan and Dreyer. They testified that the appellants made it clear that they had no intention to rebuild. The trial judge’s conclusion that the appellants had no intention to rebuild was also consistent with their financial inability to rebuild. On the evidence, it would have taken several hundred thousand dollars beyond the maximum available under the policy ($750,000.00) to rebuild a similar building on the same location.

[22] The appellants submit that in fixing the value of the building at $350,000.00 for the purposes of the policy, the trial judge ignored the evidence that CGU valued the building at $750,000.00. This was not the evidence at trial. CGU’s representatives testified that there were three ways of approaching the actual cash value of the building for the purposes of the policy. On one of these approaches, the cost approach, the building was worth more than $750,000.00. On the other two approaches, the direct comparison approach, and the income approach, the building was worth much less than $750,000.00. In fact, an appraiser using the direct comparison approach estimated the value of the building at $260,000.00 as of the date of the fire. The appellants did not offer any conflicting appraisal evidence at the trial.

[23] In finding as a fact that the property had a value of about $350,000.00 for the purpose of the policy, the trial judge considered not only the appraisal proffered by CGU, but also the evidence that the appellants had offered the property for sale at $549,000.00 about six months before the fire. There were no takers and no counter-offers.

[24] It was open to the trial judge to find that the building was worth substantially less than the maximum amount recoverable for the building under the policy ($750,000.00). His selection of the figure of $350,000.00, while somewhat speculative, was not unfair to the appellants. The finding does not constitute palpable and overriding error. As indicated earlier in these reasons, this finding on its own defeats the appellant’s claim. If the building was properly valued at $350,000.00, the settlement ($775,000.00) was favourable.

[25] I also see no basis upon which to question the trial judge’s finding that the appellants suffered no damages as a result of Palios’s communication with the lawyers for CGU. The appellants sued CGU. CGU defended on the basis that the claims had been settled. The question of what settlement, if any, was made at the December 10 meeting was central to that litigation. CGU would have been entitled in the discovery process to be informed by the appellants that it was Palios’s position that a settlement had been reached at that meeting. Palios should not have volunteered information “against” his former clients. However, as that information would inevitably have been available to CGU, no damage resulted.

[26] The appeal is dismissed and Palios is entitled to his costs on a partial indemnity basis fixed at $18,000.00, inclusive of costs and disbursements.

RELEASED: "DD" NOV 19 2004"

"Doherty J.A."

"I agree John I. Laskin J.A."

"I agree K. Feldman J.A."

[^1]: Triple M was successful in its action against Alabak. See R. MacNamara & Sons Services Ltd. (c.o.b. Triple M Services) v. Alabak Holdings Inc., [2001] O.J. No. 1298.