Novakovic v. Kapusniak, 2008 ONCA 381

CITATION: Novakovic v. Kapusniak, 2008 ONCA 381

DATE: 20080514

DOCKET: C43917

COURT OF APPEAL FOR ONTARIO

DOHERTY, BORINS and ARMSTRONG JJ.A.

BETWEEN:

MILIVOJE NOVAKOVIC

Plaintiff (Respondent/Appellant by way of cross-appeal)

and

IRMA KAPUSNIAK, OXTON INVESTMENTS LTD. and BENTON APARTMENTS LIMITED

Defendants (Appellants/Respondents by way of cross-appeal)

Counsel:

Rodica David, Q.C. and Genevieve Plummer for the appellants

E. Lenkinski and C. Burrison for the respondent

Heard: January 8, 2008

On appeal from the judgment of Justice F. McWatt of the Superior Court of Justice, dated October 27, 2006, with reasons reported at [2005] O.T.C. 554.

DOHERTY J.A.:

I. OVERVIEW

[1] Milivoje Novakovic and Irma Kapusniak lived together in a common law relationship between 1993 and 2000. When they began living together, Ms. Kapusniak had an ownership interest, directly or through corporate vehicles, in three valuable properties: a home at 14 Cividale Court in Richmond Hill, a cottage in Bracebridge, and an apartment building at 50 Oxton Avenue in Toronto. She acquired an ownership interest in a fourth during their relationship: an apartment building at 64 Benton Street in Kitchener. Mr. Novakovic had virtually no assets but spent a great deal of time and effort maintaining and improving Ms. Kapusniak’s various properties while he was living with her.

[2] The parties separated in the fall of 2000. Mr. Novakovic sued Ms. Kapusniak claiming an interest in three of her properties,[^1] damages and spousal support. The claims were tried in 2004-2005. The trial judge held that Mr. Novakovic was entitled to compensation for work he had done on the Oxton Avenue property and to a 25 percent interest by way of a resulting trust in the net profits from the sale of the Benton Street property. The trial judge dismissed the remaining claims. Ms. Kapusniak appeals, and Mr. Novakovic cross-appeals.

[3] The appeal and, to a lesser degree, the cross-appeal are largely fact-centred. Counsels’ arguments depend to a significant extent on this court taking a different view of the facts than the trial judge did. The deference owed in this court to a trial judge’s findings of fact is well established. Given the operative standard of review applicable to findings of fact, I see no basis to interfere with any of the trial judge’s material findings of fact. To the extent that submissions made on the appeal and cross-appeal proceed on assumed facts that are different than those found by the trial judge, those arguments must fail.

[4] The appellant challenges the trial judge’s finding both with respect to Mr. Novakovic’s entitlement to compensation for work done on the Oxton Avenue property and her finding that he had a beneficial interest in the Benton Street property by way of a resulting trust. The appellant also challenges the award with respect to prejudgment interest. Finally, the appellant appeals costs.

[5] The cross-appeal relates to the Benton Street property. There is also a contingent cross-appeal from the trial judge’s refusal to award support to Mr. Novakovic. That part of the cross-appeal is pressed only if the appellant succeeds in convincing the court that the amounts awarded to the respondent in respect of his other claims should be reduced.

[6] I would dismiss the appeal except as it relates to one of the arguments involving the prejudgment interest calculation. I think the prejudgment interest should be varied in the manner outlined later in these reasons. I would dismiss the cross-appeal.

II. THE FACTS

[7] The trial judge had a difficult fact-finding task. Virtually every significant fact was in issue. Neither Mr. Novakovic nor Ms. Kapusniak was entirely believable or straightforward in their evidence. Ms. Kapusniak’s son, another important witness, was also less than entirely credible. The well-established principle of deference to fact-finding makes a lot of practical sense in a case like this one. My summary of the facts borrows heavily from the trial judge’s findings.

[8] Ms. Kapusniak and Mr. Novakovic met in August 1993. He was in his early fifties, and she was about ten years older. Mr. Novakovic was recently divorced and Ms. Kapusniak’s husband of over forty years had died in October 1992. Mr. Novakovic and Ms. Kapusniak initially met in a social setting and enjoyed each other’s company. Their relationship quickly developed into a romantic one. In October 1993, at Ms. Kapusniak’s suggestion, Mr. Novakovic moved out of his apartment and into her home on Cividale Court in Richmond Hill. By the spring of 2000, their relationship had soured and Ms. Kapusniak asked Mr. Novakovic to leave her home. He was finally removed from the home in October 2000.

[9] Mr. Novakovic did not pay rent during the seven years he lived at 14 Cividale Court. Up until the spring of 2000, he did almost all of the maintenance work on the home. Ms. Kapusniak paid the household bills and the two of them shared other costs such as groceries. The trial judge rejected Mr. Novakovic’s claim to a constructive trust interest in the Cividale property. That finding is unchallenged on appeal.

A. The Oxton Avenue Property

[10] Ms. Kapusniak and her late husband purchased a thirty-two-unit apartment building at 50 Oxton Avenue in Toronto in 1978 for $650,000. The property was purchased through Oxton Investments Ltd. As of 1993, Ms. Kapusniak held 80 percent of the shares of that company and her son, Edward, held the other 20 percent.

[11] Mr. Kapusniak had done all of the maintenance work on the Oxton property before his death in 1992. He was a capable, hardworking, frugal man who disliked hiring anyone else to do work on his properties. Ms. Kapusniak found it difficult to maintain the property and satisfy the maintenance problems of the tenants after her husband died. Edward lived in the building but did not have the ability, time or inclination to do the necessary maintenance work. By 1993, Ms. Kapusniak was worried that she might have to sell the Oxton property because of the difficulties maintaining the property.

[12] Shortly after Ms. Kapusniak and Mr. Novakovic began to see each other, he started to do odd jobs at the Oxton apartments, such as painting. He proved to be both hardworking and handy. As time went on, Mr. Novakovic spent a great deal of time working at the Oxton apartments. The trial judge heard conflicting evidence as to how much work he did at the apartments between 1993 and 2000. She reviewed that evidence and ultimately accepted that Mr. Novakovic “worked constantly” on the Oxton property and did the “lion’s share” of the work on that property. She concluded at para. 42:

It is not clear how many hours each day Mr. Novakovic spent working at Oxton. He maintains that it was about fifteen or sixteen hours per day, “not every day but many times it could be everyday for a given period”. Irma and Ed were not able to offer direct evidence on this point. Neither [was] around the complex to see Mr. Novakovic working most of the time he was there. I am satisfied that the plaintiff worked the hours he claimed to have worked and did so at Oxton continually over a period from October 1993 to July 15, 2000.

[13] In addition to testifying that Mr. Novakovic did not do the work he claimed he did at the Oxton apartment, Ms. Kapusniak testified that she paid Mr. Novakovic for the work he did. On her evidence, she paid him some $81,300 for the work he did at Oxton between 1993 and 2000. Mr. Novakovic testified that he received next to nothing for all the work he did at the Oxton apartments. As in other areas where the evidence conflicted, the trial judge did not fully believe either party. She ultimately concluded that Mr. Novakovic received $27,100 for the work he did at Oxton.

[14] The work done by Mr. Novakovic at Oxton benefitted Ms. Kapusniak as owner of the property in at least three ways:

• It allowed her to keep the property beyond 1993 and enjoy the increase in the value of the property which she eventually sold in 2004 for $3,275,000.

• It allowed Ms. Kapusniak to pay down the mortgage on the Oxton property more quickly because she was not paying for ongoing maintenance.

• It improved the property thereby directly increasing its value.

[15] There was no evidence of the value of the property in 1993 when Mr. Novakovic started doing the maintenance or in 2000 when the parties separated. The trial judge could not quantify the increase in the value of the property attributable to Mr. Novakovic’s work. There were other factors that contributed to the increase in the value after 1993, including the property’s prime location and the termination of the rent control laws in 1998.

[16] The trial judge concluded that Ms. Kapusniak and Oxton Investments Ltd. were unjustly enriched by the work done on the property by Mr. Novakovic for almost seven years. She also concluded that Mr. Novakovic would be adequately compensated for that unjust enrichment by a monetary award reflecting the value of that work. For reasons she explained, the trial judge valued that work at $126,000. From this amount she deducted the $27,100 she found had been paid to Mr. Novakovic, leaving a net amount of $98,900 owed to Mr. Novakovic in respect of the work he did on Oxton.

B. The Benton Street Property

[17] Mr. Novakovic had been a real estate broker before he met Ms. Kapusniak but he had let his licence lapse. After Mr. Novakovic and Ms. Kapusniak began living together, she encouraged him to reapply for his real estate licence. She suggested that if he had his licence, he could look for properties that they could purchase, develop and resell together. According to Mr. Novakovic, Ms. Kapusniak indicated that he could keep the real estate fees made on the purchase and the profits made on the resale.

[18] Mr. Novakovic renewed his real estate licence in 1995. Ms. Kapusniak paid the costs associated with this renewal. Mr. Novakovic found various properties and presented them to Ms. Kapusniak for potential investment. She declined to invest in the properties.

[19] In August 1997, Mr. Novakovic learned that a fifteen-storey apartment building on Benton Street in Kitchener was for sale. He spoke to Ms. Kapusniak about the possibility of purchasing the apartment. The building was somewhat rundown. Ms. Kapusniak suggested that they purchase it, fix it up, and resell it. Mr. Novakovic told her that he could work on the Benton Street apartments and still keep up the maintenance on the Oxton apartments.

[20] The Benton Street property was purchased in August 1997 for $3,375,000. Title to the property was taken in Benton Apartments Limited. Ms. Kapusniak owned 50 percent of the shares of that company and her son owned the other 50 percent of the shares. Mr. Novakovic was aware of the son’s involvement in the ownership of the property at the time it was purchased. He had no knowledge of how legal title in the property would be taken.

[21] One of the main factual disputes at trial centred around whether Mr. Novakovic contributed any part of the purchase price on the purchase of the Benton Street property. As the selling agent, he was entitled to a substantial commission. Mr. Novakovic took a $50,000 reduction on that commission and contributed that money towards the cash needed on closing. In total $210,000 was paid in cash on closing by Benton Apartments Limited. The remaining $160,000 came from Ms. Kapusniak and her son. Mr. Novakovic did not make any other financial contribution towards the purchase of the Benton Street property.

[22] Ms. Kapusniak acknowledged that Mr. Novakovic contributed $50,000 towards the cash needed on closing of the Benton property. She testified, however, that the $50,000 was a loan by Mr. Novakovic to Benton Apartments Limited and did not reflect any contribution by him as a purchaser towards the purchase of the property. The trial judge considered the evidence at some length and concluded that the $50,000 advanced by Mr. Novakovic was not a loan but was a contribution towards the purchase price. There was ample evidence to support this finding.

[23] The other crucial factual issue in respect of the Benton Street property was whether there was a common intention between Ms. Kapusniak and Mr. Novakovic that they would have a joint ownership interest in that property after it was purchased. Once again, the trial judge carefully reviewed the evidence. She concluded that Mr. Novakovic and Ms. Kapusniak formed a common intention to acquire properties together using her capital, renovate those properties through his efforts, and share in the proceeds of the resale. Initially, the plan was to purchase and renovate houses. When Mr. Novakovic brought the Benton Street property to Ms. Kapusniak’s attention, she thought that it would be a good project for their “joint venture”.

[24] In coming to the conclusion that it was intended that Mr. Novakovic would have an ownership interest in the Benton Street property, the trial judge accepted Mr. Novakovic’s evidence concerning his conversations with Ms. Kapusniak. She also referred to and relied on language in Schedule A to the agreement of purchase and sale in respect of that property. That schedule, prepared by Mr. Novakovic in his capacity as the agent on the sale, indicated that the “selling agent will have an interest in the above-mentioned property”. This disclosure, required by the agent, constituted direct support for Mr. Novakovic’s contention that he and Ms. Kapusniak had agreed that he would have an ownership interest in the Benton Street property. Ms. Kapusniak executed the Agreement of Purchase and Sale with Schedule A attached.

[25] The trial judge found that the agent referred to in Schedule A was Mr. Novakovic and that:

Ms. Kapusniak did not only know of the clause, but consented to it when she signed the documents to purchase Benton. [para. 66]

[26] In finding that Ms. Kapusniak and Mr. Novakovic had a common intention that he should have an interest in the ownership of the Benton Street property, the trial judge observed that Mr. Novakovic did considerable work maintaining and improving that property without receiving or expecting payment. She observed that, unlike the Oxton Avenue property, Ms. Kapusniak did not suggest that Mr. Novakovic was entitled to any compensation for the work he had done on the Benton Street property. The trial judge found that Mr. Novakovic’s actions, and Ms. Kapusniak’s attitude towards the work he did on the property, were consistent with Mr. Novakovic having an ownership interest in the property.

[27] The trial judge quantified Mr. Novakovic’s resulting trust interest as fifty percent of the net profit realized by Ms. Kapusniak on the sale of the Benton Street property in May 2001. The trial judge fixed Ms. Kapusniak’s share of the net profit at $420,019.75 (50 percent of the total net profit) and Mr. Novakovic’s interest at 50 percent of that amount or $210,009.87.

III. THE ARGUMENTS

A. Oxton Avenue

[28] As set out above, the trial judge found that Ms. Kapusniak and Oxton Investments Ltd. were unjustly enriched by the work done by Mr. Novakovic on the Oxton Avenue property. She imposed a constructive trust in favour of Mr. Novakovic and concluded that a monetary award would adequately compensate him. She quantified that award at $98,900.

[29] On my review of counsel’s submissions, both in her factum and orally, all of the arguments made in respect of the Oxton Avenue property challenge factual findings. For example, counsel for the appellant submits that Mr. Novakovic’s work on the property, if a contribution at all, was a “minor” contribution. She also submits that there was “no evidence” that the amount paid to Mr. Novakovic was insufficient to compensate him for the work that he had done on the property.

[30] These submissions and other similar ones fly in the face of the trial judge’s factual findings. Those findings must stand unless the appellant can demonstrate a palpable and overriding error. No such demonstration has been made by the appellant on this appeal. On the facts as found by the trial judge, as opposed to the facts as asserted by the appellant, the trial judge made no error in the order as it related to the compensation of Mr. Novakovic for the work done on the Oxton Street property.

[31] I do not understand any of the issues raised on the cross-appeal to challenge the trial judge’s disposition as it relates to the Oxton Avenue property.

B. Benton Street

[32] The appellant also contests many of the factual findings underlying the trial judge’s disposition of the claim as it relates to the Benton Street property. Those submissions, like the fact-based submissions made in respect of the Oxton Avenue property, run aground on the shoals of deference. I do not propose to examine those submissions individually.

[33] One submission advanced by the appellant in respect of the Benton Street property does require further examination. Counsel submits that even if the trial judge was correct in holding that Mr. Novakovic had a beneficial interest in the Benton Street property, she erred in holding that his interest was equal to that of Ms. Kapusniak’s interest. Counsel submits that any beneficial interest in the property awarded to Mr. Novakovic should reflect the proportion of the entire purchase price contributed by Mr. Novakovic. Counsel fixes Mr. Novakovic’s contribution of $50,000 at about 3.6 percent of the purchase price and submits that his beneficial interest should be about the same.

[34] Before I explain why I cannot accept this argument, I will outline one of the arguments made on the cross-appeal because, in my view, it fails for the same reason. Counsel for Mr. Novakovic on the cross-appeal contends that he was entitled by virtue of the presumption of resulting trust to a fifty percent interest in the entire Benton Street property. He contends that Ms. Kapusniak’s decision to split the ownership of the Benton Street property between herself and her son cannot affect Mr. Novakovic’s fifty percent interest. He contends that given the presumption of resulting trust arising from Mr. Novakovic’s contribution towards the purchase price, it must be presumed, absent evidence to the contrary, that Mr. Novakovic was a fifty percent owner.

[35] In my view, both arguments outlined above fail because they misconceive the basis of the trial judge’s award with respect to the Benton Street property. The trial judge did not impose a constructive trust on the property by virtue of Mr. Novakovic’s contribution to the purchase price and his work on the property. Had she done so, the proportionality of his contribution to the total value of the property would have been significant. Nor did the trial judge presume a resulting trust based on Mr. Novakovic’s contribution to the purchase price. Rather, the trial judge found that Mr. Novakovic was entitled to fifty percent of the profits based on her finding of a common intention to that effect between Mr. Novakovic and Ms. Kapusniak.

[36] On the trial judge’s finding, the trust in favour of Mr. Novakovic grew out of the express common intention between Mr. Novakovic and Ms. Kapusniak that they would share the profits upon resale. This intention did not and could not touch the son’s separate interest in the property. That interest was well known to Mr. Novakovic. Nor did the scope of Mr. Novakovic’s beneficial interest depend on any contribution he made either to the purchase price or to the maintenance of the property. The extent of his interest was the product of the agreement between himself and Ms. Kapusniak. The resulting trust was not by way of compensation to Mr. Novakovic but was rather a reflection of the parties’ intention.

[37] Counsel for Mr. Novakovic also argued on the cross-appeal that the trial judge should also have imposed a constructive trust with respect to the Benton Street property. Counsel submitted that Mr. Novakovic was entitled to a constructive trust to remedy the unjust enrichment flowing from Mr. Novakovic’s work on the Benton Street property for which he was not compensated.

[38] I cannot agree with this submission. Mr. Novakovic did the work pursuant to the agreement he and Ms. Kapusniak had reached. That agreement, which is the basis for his ownership interest in the property, required him to do the work to maintain and improve the properties for resale. Having agreed to a fifty percent interest in Ms. Kapusniak’s profits based on his monetary and non-monetary contributions, Mr. Novakovic cannot turn around and suggest that his non-monetary contribution entitles him to a further remedy.

[39] The trial judge dealt briefly with the constructive trust claim as it related to the Benton Street property. She declined to make any award by way of constructive trust having found that Mr. Novakovic had a resulting trust interest in the Benton Street property. She went on, however, to indicate that he would have been successful on a constructive trust claim in relation to the Benton Street property had he not succeeded with the resulting trust argument. While both kinds of trusts may co-exist, there was no basis, for the reasons outlined above, to find any unjust enrichment in respect of the Benton Street property. As a beneficial owner, Mr. Novakovic worked on the property and increased its value for the owners, including himself. The work was done pursuant to an agreement which provided that in exchange for that work, he would receive a beneficial interest in the profits of the resale. The trial judge was wrong to hold that Mr. Novakovic could have been successful on a constructive trust claim in respect to the Benton Street property. That error, however, had no effect on her ultimate judgment relating to the Benton Street property.

IV. THE PREJUDGMENT INTEREST AWARD

[40] The trial judge awarded prejudgment interest on the amounts awarded in respect of both the Oxton Avenue claim ($98,900.00) and the Benton Street claim ($220,009.87) from December 2000, the month when Mr. Novakovic commenced his action. She fixed the rate at six percent, the rate applicable to actions commenced in December 2000. Prejudgment interest ran to September 2005, the date of judgment.

[41] The appellant submits that the prejudgment interest award should be reduced to reflect Mr. Novakovic’s delay in bringing the matter to trial. This argument was made before the trial judge. She recognized that Mr. Novakovic was responsible for some delay in part because of his illnesses. She also recognized that Ms. Kapusniak’s intransigence throughout the proceedings and her control of the documentary material necessary to prosecute Mr. Novakovic’s claims affected the progress of the proceedings. In the end, the trial judge held that there was no reason to depart from the “presumption” of the entitlement to prejudgment interest as set out in s. 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43.

[42] A trial judge should consider the conduct of the proceedings and delays attributable to particular parties to those proceedings in determining the rate of prejudgment interest. Prejudgment interest is not, however, intended as a means of punishing or rewarding parties for the manner in which they have conducted the proceedings. Its role is compensatory. I see no basis to interfere with the trial judge’s finding that Mr. Novakovic’s conduct of the claim should not deprive him of the compensation due him under the Courts of Justice Act provisions relating to prejudgment interest.

[43] The appellant also argues that the rate of prejudgment interest should be modified to reflect the change in the rate between December 2000 and September 2005. The rate fluctuated between a high of six percent in December 2000 and a low of 2.3 percent in 2002. The average for the time period would appear to be about 3.4 percent.

[44] Trial judges sometimes average prejudgment interest rates over the time period between the commencement of the action and the obtaining of judgment. This is particularly appropriate where the prejudgment interest rates fluctuate widely. The onus is, however, on the parties seeking a different rate than that imposed by the statute to justify the imposition of that different rate. I do not think the fluctuations in issue in this case are sufficient to hold that some averaging of the prejudgment interest rates was essential. Clearly, the trial judge could have averaged the rate but, in my view, she did not err in not doing so.

[45] Next, the appellant argues that the award of prejudgment interest prior to the sale of the respective properties, Oxton Avenue in August 2004 and Benton Street in May 2001, represents “double dipping”. This submission presumes that by awarding a constructive trust in respect of the Oxton Avenue property and a resulting trust in respect of the Benton Street property, the trial judge already took into consideration any increase in the values of those properties.

[46] I agree with the appellant’s argument as it relates to the Benton Street property. The appellant was entitled to an interest in the profits on the sale of the property. That sale took place in May 2001. Prejudgment interest on the part of the award referable to Benton Street should run from May 2001 to September 2005 at the statutory rate of 5.8 percent.

[47] I do not agree with the argument as it applies to the Oxton Avenue property. The award to the appellant was by way of monetary recovery for unjust enrichment not a proprietary interest in the property. He was entitled to be paid when the work was done. There is no merit to the suggestion that his entitlement arose only upon the eventual sale of the Oxton Avenue property in 2004, some four years after Mr. Novakovic had stopped working on the property.

V. THE COST AWARD AT TRIAL

[48] The appellant seeks leave to appeal the costs order made at trial. There is no merit to any of the arguments made in support of that request. The trial judge was correct in holding that Mr. Novakovic was substantially successful at trial. The costs award was relatively modest given the length of the trial.

[49] The appellant also argues that Mr. Novakovic should not receive his costs because while the appellant’s offer was not better than the trial judgment, it was closer to the trial judgment than Mr. Novakovic’s offer. I am not aware of any support for this novel proposition. Certainly, it does not reflect the rules as they relate to the costs consequences of offers to settle.

VI. CONCLUSION

[50] I would dismiss the appeal save for the single variance in the prejudgment interest award as set out above. I would refuse leave to appeal the costs order made at trial. I would dismiss the cross-appeal.

[51] Counsel may make written submissions of no more than four pages as to the appropriate disposition of costs on the appeal. Those submissions should be filed within ten days of the release of these reasons.

RELEASED: “DD” “MAY 14 2008”

“Doherty J.A.”

“I agree S. Borins J.A.”

“I agree Robert P. Armstrong J.A.”

[^1]: While Mr. Novakovic visited and did some work on the cottage, he did not make any claim against it.