CITATION: Panapers Inc. v. 1260539 Ontario Limited, 2007 ONCA 27

DATE: 20070119

DOCKET: C43053

COURT OF APPEAL FOR ONTARIO

RE:

PANAPERS INC., SIMINDOKHT SHAMS and NASER NASRI (Plaintiff/Respondents) – and – 1260539 ONTARIO LIMITED, MEHDI ALIKHANI, MAHNAZ GOLCHIN and EDWARD AVANESSY (Defendants/Appellants)

BEFORE:

MACPHERSON, SHARPE and JURIANSZ JJ.A.

COUNSEL:

Marshall Reinhart and

Deborah Templer

for the appellant

Roy Wise

for the respondent

HEARD & ENDORSED:

January 17, 2007

On appeal from the judgment of Justice Randall S. Echlin of the Superior Court of Justice dated December 30, 2004.

A P P E A L B O O K E N D O R S E M E N T

[1] The appellants appeal the judgment of Echlin J. dated 30 December 2004 whereby he held that the appellants made fraudulent misrepresentations that induced the respondents to purchase a restaurant business for $235,000. The trial judge ordered rescission of the contract and awarded the respondents general damages of $335,000, punitive damages of $30,000 and costs of $85,000 on a substantial indemnity basis. The appellants appeal all aspects of this judgment.

[2] In our view, there is no basis on which to attack the trial judge's central finding that the appellants’ conduct amounted to fraudulent misrepresentation that induced the respondents to enter into the contract to purchase the restaurant business. He carefully reviewed the testimony of the crucial witnesses. He rejected the testimony of the appellant Mahnaz Golchin and the appellants’ accountant, Edward Avanessy, concerning the false financial statements for the years 1998 and 1999. There is nothing in the trial judge’s reasons which comes close to being a palpable and overriding error which, the appellants concede, is the standard of review on this issue. It follows that the trial judge’s rescission of the contract and return, by way of damages, of the purchase price of $235,000 are entirely appropriate remedies.

[3] The additional $100,000 in damages is much more problematic, as the trial judge recognized: “While the evidence was imprecise”. In our view, there was no evidence to support the $70,000 management fee component of the claimed additional expenditures. Indeed, with respect to this amount, the respondent Nasir Nasri testified that “we put money from this pocket and put it in another pocket.”

[4] There is no basis for interfering with the trial judge’s award of punitive damages of $30,000. His description of the appellants’ conduct concerning the transaction with the respondents as “high‑handed, callous and outrageous” is amply supported by the record and his legal analysis is consistent with the framework set out in Whiten v. Pilot Insurance Co. (2002), 2002 SCC 18, 209 D.L.R. (4th) 257 (S.C.C.).

[5] The trial judge awarded costs of $85,000 on a substantial indemnity basis “having regard to the deceptive conduct of the defendants in attempting to commit a fraud upon the plaintiffs.” With respect, this is not a proper basis for awarding costs on a substantial indemnity scale. As stated by Weiler J.A. in Gerula v. Flores (1995), 1995 CanLII 1096 (ON CA), 83 O.A.C. 128 at para. 74: “[S]olicitor and client costs should relate to the conduct of the action and not to the conduct which might have been the subject of punitive damages”. Since the trial judge took account of the appellants’ conduct vis‑à‑vis the respondents in relation to the transaction in his award of punitive damages, to do so, explicitly, as the sole basis for awarding substantial indemnity costs amounts to double compensation and is an error.

[6] Accordingly, the appeal is allowed to this extent: general damages are reduced to $265,000 and costs are reduced from $85,000 to $55,000 (the costs component of $23,046 is maintained). In all other respects, the appeal is dismissed.

[7] Success on the appeal is divided. Accordingly, there will be no order for costs of the appeal. The appellants are entitled to costs of $2400 for the appeal hearing which failed to proceed in October 2006. The appellants sought the suspension of post‑judgment interest from October 3, 2006 to January 17, 2007. We do not accept this submission: the appellants have had the use of the money in this period.