Hamilton v. Osborne, 2009 ONCA 684

CITATION: Hamilton v. Osborne, 2009 ONCA 684

DATE: 20090928

DOCKET: C49051

COURT OF APPEAL FOR ONTARIO

Winkler C.J.O., Feldman and Epstein JJ.A.

BETWEEN

Mary Faye Hamilton

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

and

1214125 Ontario Limited, Lou Lacivita, Jon Osborne, and Cornerstone Connections Inc., formerly Century 21 Cornerstone Graceville Realty Inc.

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

Louis A. Frapporti, for the appellant/respondent by way of cross-appeal

Jeffrey S. Klein, for the respondent/appellant by way of cross-appeal

Heard: June 9, 2009

On appeal from the judgment of Justice Cory A. Gilmore of the Superior Court of Justice dated June 10, 2008, with reasons reported at (2008), 71 R.P.R. (4th) 97.

Epstein J.A.:

I. INTRODUCTION

[1] The issue in this appeal is the relief, if any, to which Mary Faye Hamilton, the appellant/respondent by cross-appeal, is entitled as a result of problems she encountered when she purchased land and hired a builder to build a home for her. Jon Osborne, the respondent/appellant by cross-appeal, a co-worker in the real estate firm where Hamilton worked as an associate broker,[^1] had listed the property and recommended the builder.

[2] As the project progressed, problems developed. First, the builder, who was to purchase the property and then sell Hamilton a finished home on it, did not have enough money to close on the sale of the property. Second, the builder’s work was deficient. Third, for a number of reasons, it was not possible for the home to have a feature that was particularly important to Hamilton - a walk-out basement apartment. After a small amount of work had been completed in the construction of her new home, Hamilton was forced to replace the original builder and build a modified dwelling.

[3] Central to this appeal and cross-appeal is the way in which the trial judge dealt with the issues of damages and alleged misrepresentations and breach of fiduciary duty on the part of Osborne.

[4] For the reasons that follow, I would dismiss the appeal and allow the cross-appeal, in part.

II. FACTS

[5] Following separation from her husband, Hamilton wanted a home with a walk-out basement apartment that she could rent out to help defray expenses.

[6] In the spring of 1998, Hamilton’s colleague, Osborne, presented an exclusive listing of a vacant lot for which he had a builder; namely, Lou Lacivita, operating through his numbered company, 1214125 Ontario Limited (collectively “Lacivita”). The information in the listing included the opportunity to build a home with a walk-out basement.

[7] Hamilton investigated the proposal by viewing the lot and asking Osborne questions including about the possibility of a walk-out basement apartment and Lacivita’s qualifications.

[8] After deciding to proceed, Hamilton personally prepared an offer in the form of the agreement of purchase and sale. In the agreement, entered into on May 11, 1998, Hamilton agreed to pay Lacivita $320,000.00 for the home and lot, with a $15,000.00 initial deposit payable to Lacivita and a further $15,000.00 to be paid when the sale of her home closed. At the time the agreement was signed, Hamilton knew that Lacivita did not own the lot, but that he intended to buy it in advance of her purchase of the property and newly-built home, scheduled to close on August 28, 1998.

[9] In late June 1998, Lacivita’s lawyer told Hamilton that Lacivita did not have the $7,500 required to complete the acquisition of the land. Hamilton, in order to salvage the project, agreed to advance the money herself. On June 30, 1998, she purchased the lot and assumed a vendor take-back mortgage.

[10] Shortly after the land transaction closed, additional problems surfaced. Lacivita had not obtained building permits, trades people were not being paid, and the municipality had delivered a stop work order. Later, Hamilton found out from the Ontario New Home Warranty Program (“ONHWP”) that Lacivita’s membership had expired and that he owed them money. In addition, unbeknownst to Hamilton, Osborne had been in communication with Lacivita’s lawyer about Lacivita’s need for $150,000 to assist with construction financing.

[11] After completing only a small percentage of the construction, Lacivita stopped working on the home. Hamilton subsequently hired a new builder. Once familiar with the project, the new builder advised Hamilton that he would have to repair Lacivita’s mistakes and that a walk-out basement would be very expensive due to restrictions imposed by the Lake Simcoe Conservation Authority and the topography of the lot. Hamilton also learned that the property was not serviced by either hydro or gas.

[12] Hamilton’s agreement with the new builder was for a modified home to be built for $308,000, without a walk-out basement apartment. She spent additional money for legal fees and for her new builder to correct the deficiencies in Lacivita’s work.

[13] As a result of these various problems, Hamilton sued Osborne and others. Her claim against Osborne is for damages arising from, among other things, negligent misrepresentation and breach of fiduciary duty. Specifically, Hamilton claims that Osborne misled her in relation to Lacivita - his standing with ONHWP and his financial strength - and the feasibility of building a home on the property that included a walk-out basement apartment.

III. THE TRIAL JUDGE’S REASONS

[14] The trial judge’s reasons contain a detailed analysis of Hamilton’s claims against Osborne on the basis of negligent misrepresentation and breach of fiduciary duty.

1. Negligent Misrepresentation

[15] Relying on the principles established in Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465, adopted by the Supreme Court of Canada in Queen v. Cognos, 1993 CanLII 146 (SCC), [1993] 1 S.C.R. 87, the trial judge noted, at para. 39, that for a finding of misrepresentation to be made, Hamilton had to establish that:

i. there was a duty of care based on a special relationship; ii. the representation was untrue or inaccurate; iii. Osborne acted negligently in making the misrepresentation; iv. she relied on the misrepresentation; and v. the reliance on that misrepresentation was detrimental in that damages resulted.

[16] The trial judge found that a “special relationship” existed between Hamilton and Osborne based on “dual agency” – both parties worked for the same brokerage firm. Osborne was the vendor’s agent and Hamilton was both the purchaser and the purchaser’s agent.

(i) Lacivita’s reputation as a builder

[17] The trial judge found, at para. 44, that Osborne had described Lacivita to Hamilton as a “solid gold” builder. This finding notwithstanding, the trial judge rejected Hamilton’s claim that Osborne’s misguided endorsement of Lacivita as a builder was negligent. First, Hamilton had the opportunity to investigate the quality of Lacivita’s work on her own terms but made only minimal inquiries. Second, relying on Fraser v. Powell River Real Estate Ltd. (1998), 112 B.C.A.C. 276 (C.A.), the trial judge found, at para. 47, that the statements upon which Hamilton relied amounted to “broad exhortations” for which Osborne should not be held liable.

(ii) The walk-out basement

[18] The trial judge then proceeded to consider Hamilton’s claim that Osborne misled her about being able to build a walk-out basement. The trial judge rejected this aspect of the claim, at paras. 53-55, primarily because she found nothing in the evidence to support a conclusion that a walk-out basement was not possible. It would simply have cost more than originally anticipated.

(iii) The basement apartment

[19] With respect to Hamilton’s complaint that she was misled into believing that there was no legal impediment to her building a basement apartment, the trial judge found that Osborne told her that a basement apartment could be built. Based on this finding, the trial judge went on to conclude that Osborne was guilty of negligent misrepresentation as, to his knowledge, the relevant by-law prohibited basement apartments in that area. However, the trial judge, at para. 65, found Hamilton to have been contributorily negligent. Given her background and knowledge, Hamilton could have taken steps to satisfy herself as to the legality of a basement apartment and failed to do so. The trial judge therefore held Hamilton 50% responsible for any damages she incurred as a result of her not being able to build a basement apartment.

(iv) Lacivita’s financial strength

[20] Turning to the issue surrounding Osborne’s representation that Lacivita was financially strong, the trial judge found, at para. 89, that while Osborne was negligent in making representations to this effect, after June 1998 when evidence came to light indicating that Lacivita was in financial difficulty, Hamilton did not act reasonably in relying on those representations.

[21] The trial judge’s analysis of Hamilton’s response to becoming aware of Lacivita’s financial difficulties is contained in paras. 75-77 and 88 of the reasons, as follows. I set these paragraphs out in full as this analysis was pivotal to the trial judge’s assessment of the damages to which Hamilton was entitled.

[75] When Ms. Hamilton discovered that Mr. Lacivita could not come up with $7500.00 to buy the building lot, she did not terminate her contract with Mr. Lacivita. Instead, she told Mr. Osborne to prepare a new agreement related solely to the house construction which would be signed when Mr. Osborne brought her proof of Mr. Lacivita’s financial stability. With respect, it is difficult to understand why Ms. Hamilton adopted this course of action when she knew that her Builder was unable to come up with the sum of $7500.00.

[76] At this critical point in the timing of matters, Ms. Hamilton had good reason to believe that Mr. Lacivita had financial problems. However, rather than taking matters into her own hands, she sat back and waited for Mr. Osborne to prepare a new agreement. One must ask why Ms. Hamilton did not prepare a new agreement herself (since she was clearly capable of doing so) and make it conditional on Mr. Lacivita’s ability to provide adequate financial backing.

[77] If Ms. Hamilton had reasonably relied on Mr. Osborne’s representations up to this point, surely this was the moment when she would have had some realization that it was time for her to make her own enquiries. When she knew that her builder could not come up with $7500.00 clearly her level of reliance on any of Mr. Osborne’s past representations would have been shaken. I agree with the Defendant Osborne’s submissions that at this point had Ms. Hamilton stepped back and not closed the land transaction, or if she had closed the lot transaction and applied to the ONWHP to get back her deposit, her loss would have been minimal.

[88] I find that she would not have done anything differently. She already knew that Mr. Lacivita did not have the $7500.00 to close the lot transaction and so she proceeded to buy the lot. It would not have therefore surprised her to find out he needed financing to build her home if he did not have $7500.00. Once again, it must be kept in mind that Ms. Hamilton was very concerned about timing. The sale of her own home would close within a month of the date she bought the lot and she needed a place to live. Ms. Hamilton was intent on proceeding no matter what warning signs came her way.

2. Breach of fiduciary duty

[22] The trial judge next dealt with Hamilton’s claim for damages arising out of Osborne’s alleged breach of fiduciary duty to her.

[23] The trial judge started this part of her analysis, at para. 90, by quoting from Mark Vincent Ellis’s Fiduciary duties in Canada. She concluded that due to the dual agency relationship that existed between Hamilton and Osborne, each had an obligation to the other to “make full and fair disclosure of all material circumstances and of everything known to him or her respecting the subject matter of the contract which would be likely to influence the conduct of the principal”: Mark Vincent Ellis, Fiduciary duties in Canada, looseleaf (Toronto: Thompson Carswell, 2008), at p. 5-2.3.

[24] Relying on Laycock v. Lee & Fraser (1912), 17 B.C.R. 73 (C.A.), the trial judge held, at para. 91, that this duty includes an obligation to disclose all facts about the property’s value and suitability for the principal’s purpose.

[25] Against the background of this mutual obligation, the trial judge dealt with all aspects of Hamilton’s arguments essentially on the same basis as that involving Hamilton’s claims for damages arising from the various alleged negligent misrepresentations, reviewed above. The only aspect of the claim under breach of fiduciary duty for which the trial judge was prepared to hold Osborne responsible was with respect to his advising her as to the feasibility of being able to build a home with a basement apartment.

3. Damages

[26] The trial judge found that Hamilton’s damages claim against Osborne was limited by her failure to mitigate in relation to the $15,000 deposit she paid Lacivita and by her failure to establish causation in relation to damages incurred after June 1998 when Hamilton learned of Lacivita’s financial difficulties.

[27] Against this background, the trial judge awarded damages in favour of Hamilton in the amount of $15,005, calculated as follows.

[28] Osborne was ordered to pay Hamilton one-half of her costs associated with his negligent misrepresentation concerning the viability of a basement apartment. In arriving at the amount of $5,005, the trial judge relied on the work schedules in determining the cost of restoring the property to vacant lot status when the new builder was brought in to build a home without a basement apartment and took into account Hamilton’s costs of renting alternative accommodation over the additional time to completion resulting from the extra work involved restoring the property.

[29] To the $5,005, the trial judge added $10,000 in punitive damages based on her finding that Osborne breached his fiduciary duty owed to Hamilton and that he deliberately lied to her about the basement apartment.

IV. ISSUES

[30] In the appeal, Hamilton raises the following issues:

1. Did the trial judge err in not explicitly finding fraud or fraudulent misrepresentation on the part of Osborne?
2. Did the trial judge err in her analysis of Osborne’s misrepresentations?
3. Did the trial judge err in respect of her damages award?

[31] By way of cross-appeal, Osborne raises the following issue:

1. Did the trial judge err in any other respect with regard to her ruling on damages, especially punitive damages?

V. ANALYSIS

1. Did the trial judge err in not explicitly finding fraud or fraudulent misrepresentation on Osborne’s part?

[32] Hamilton argues that the trial judge erred in failing to find that Osborne’s conduct toward her amounted to fraud or fraudulent misrepresentation and in assessing the consequences of his conduct “without regard to the relevant legal principles.”

[33] Hamilton did not adequately plead fraud against Osborne and her failure to do so is fatal to this argument advanced for the first time on appeal.

[34] Rule 25.06(1) of the Rules of Civil Procedure requires that every pleading contain a concise statement of the material facts on which the party relies for the claim or defence, but not the evidence by which those facts are to be proved. Rule 25.06(8) further provides:

Where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred.

[35] In Lana International Ltd. v. Menasco Aerospace Ltd. (1996), 1996 CanLII 7974 (ON SC), 28 O.R. (3d) 343, at 350, Greer J. interpreted Rule 25.06(8) and adopted the following requirements from Rahn v. McNeill (1987), 1987 CanLII 2507 (BC SC), 19 B.C.L.R. (2d) 384 at 392 (S.C.), for pleading either innocent misrepresentation or deceit:

The pleading, even of innocent misrepresentation, must set out with careful particularity the elements of the misrepresentation relied upon, that is:

1. the alleged misrepresentation itself,
2. when, where, how, by whom and to whom it was made,
3. its falsity,
4. the inducement,
5. the intention that the plaintiff should rely upon it,
6. the alteration by the plaintiff of his or her position relying on the misrepresentation,
7. the resulting loss or damage to the plaintiff.

Of course, if deceit is alleged, then there must also be an allegation that the defendant knew of the falsity of his statement…. Each of the defendants must know the case that it has to meet.

[36] Since fraud was not raised in the pleadings and Hamilton did not seek to amend her claim, I would not give effect to this ground of appeal. This takes me to the claims that Hamilton did properly advance – negligent misrepresentation and breach of fiduciary duty.

2. Did the trial judge err in her analysis of Osborne’s statements based on negligent misrepresentation?

[37] I see no error in the trial judge’s reasoning that led to her rejection of most of Hamilton’s claim for damages based on negligent misrepresentation. With respect to the quality of Lacivita’s work, both Osborne and Hamilton acted as agents on the transaction and Hamilton was fully capable of performing her own due diligence. With respect to the feasibility of a walk-out basement, the trial judge found that a walk-out basement was feasible and therefore the information provided was not inaccurate or untrue. Whether such a basement could be provided at the price stipulated was an issue between Hamilton and Lacivita. With respect to Lacivita’s financial strength, I agree with the trial judge’s conclusion that Hamilton should be held responsible for the decisions she made once Lacivita’s financial difficulties became apparent. Hamilton knew in June 1998 that Lacivita could not come up with the relatively small amount - $7,500 - to close the land transaction; this fact is indicative of serious money problems for a builder who was by then building an expensive home for Hamilton. Notwithstanding this clear evidence that Lacivita was in financial trouble, Hamilton chose to proceed with the project with Lacivita as builder.

3. Did the trial judge err in respect of her ruling on damages?

[38] The most significant factor that restricts the damages to which Hamilton is entitled is the trial judge’s clear finding to the effect that Hamilton was determined to go ahead with the project, “no matter what”. This finding creates a barrier to the recovery of damages incurred after June 1998 when Hamilton first became aware of Lacivita’s financial difficulties. Any losses Hamilton incurred after June 1998 must be attributed not to Osborne’s misrepresentations but to Hamilton’s decisions.

[39] Aside from the costs associated with Osborne’s negligent misrepresentation concerning the viability of a basement apartment, Hamilton’s only loss incurred before June 1998 is the $15,000 she paid Lacivita for the initial deposit. Hamilton submits that the trial judge erred in relying on the duty to mitigate her damages in holding that because it was possible for her to seek repayment of the deposit from ONHWP, she could not recover the loss. According to Hamilton, her ONHWP claim is akin to a claim against an insurance policy. She relies on law to the effect that the existence of an available insurance policy does not obligate the wronged party to claim under it or disentitle the party who fails to make a claim under an available policy to compensation from the tortfeasor.

[40] I do not agree with this argument.

[41] The principle Hamilton cites, that insurance proceeds are not susceptible to the doctrine of mitigation, stems from the fact that they cannot be deducted from tortfeasor’s liability: Tetterborn, A. The Law of Damages (London, England: Butterworths LexisNexis-UK, 2004) at para. 5.50. This is a well-established principle in Canadian and English law. The history of this principle can be traced at least to Bradburn v. Great Western Railway Co (1874) LR 1 Ex 10, where the English House of Lords ruled that insurance is not deductible from tort liability. As Baron Bramwell put it,

One who pays premiums for the purpose of insuring himself, pays on the footing that his right to be compensated when the event insured against happens is an equivalent for the premiums he has paid; it is a quid pro quo, larger if he gets it, on the chance that he will never get it at all. (p.2)

[42] This principle was reiterated by the Supreme Court in Ratych v. Bloomer, 1990 CanLII 97 (SCC), [1990] 1 SCR 940. Cory J., writing in dissent (but not on this point), traced the issue of deductibility through Canadian law since Bradburn and concluded that “despite any confusion that may have beset this issue, no court in Canada or England has questioned the principle enunciated in Bradburn, that benefits awarded under a private insurance contract should not be deducted from damages awarded against a tortfeasor.” Ratych, para. 11.

[43] The rationale for this exception is that people should not lightly be deprived of the proceeds of their own thrift and foresight; therefore premiums paid for insurance should not be used to reduce a tortfeasor’s liability: Tetterborn, at para. 5.26. See also Ratych at para. 7. But this rationale is only applicable where insurance premiums are paid. Hamilton paid no premiums to ONHWP, nor did she demonstrate any foresight in gaining access to it. The guarantee fund was available to her by statute. While her contract with Lacivita included an indemnity clause for his registration under ONWHP upon completion of construction, it is clear that construction did not proceed to that stage and that this payment was never made. The ONWHP fund was therefore not “insurance” in the sense that warranted its exclusion from the doctrine of mitigation.

[44] I would dismiss Hamilton’s appeal as to damages.

4. Cross-appeal: Did the trial judge err in any other respect with regards to her ruling on damages, particularly punitive damages?

[45] In the cross-appeal, Osborne appeals two aspects of the damages award – the award for punitive damages, and the amount of $5,005, being one-half of the costs associated with restoring the property to vacant lot status.

[46] I start with the award of punitive damages.

[47] As previously mentioned, the trial judge ordered Osborne to pay $10,000 in punitive damages based on her finding that he breached his fiduciary duty to Hamilton by lying to her with respect to the legality of a basement apartment.

[48] With respect, I do not agree with the trial judge’s conclusion that Osborne had a fiduciary obligation to Hamilton. Although Osborne and Hamilton worked at the same agency – and in that sense there was “dual agency” – the listing agent and selling agent were not the same person. Osborne was the vendor’s agent and Hamilton served on her own behalf as agent for herself. Even though real estate agents fall within the traditional categories of fiduciaries, the real estate context alone does not give rise to a fiduciary relationship in this case since Osborne did not serve as Hamilton’s agent.

[49] Relationships in which a fiduciary obligation has been imposed are marked by the following three characteristics: (1) scope for the exercise of some discretion or power; (2) that power or discretion can be exercised unilaterally so as to effect the beneficiary's legal or practical interests; and, (3) a peculiar vulnerability to the exercise of that discretion or power: Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, at p. 408; Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574 at 599 per Sopinka J., and at 646 per La Forest J. In the context of real estate transactions, a fiduciary duty arises where a real estate agent has access to confidential information and can exercise discretion in a fashion that places the principal in a position of dependency or vulnerability: Valiquette v. Re/Max Realty Specialists, [1997] O.J. No. 2677 at para. 35(O.C.G.D.). None of those factors exist here. As stated above, the by-law prohibiting basement apartments was freely available to the public. Osborne possessed no discretion or power in relation to the transaction that left Hamilton vulnerable. Quite the contrary, Hamilton was an experienced agent and broker who had access to the same information as did Osborne. Finally, Osborne was not in a position of conflict with Hamilton; as the listing agent, he would have earned a commission whether the property was sold to Hamilton or to another purchaser.

[50] My conclusion that no fiduciary relationship existed between Osborne and Hamilton significantly erodes the basis upon which the trial judge awarded Hamilton punitive damages.

[51] The only other basis expressed by the trial judge is the nature of Osborne’s conduct. The worst that can be said of Osborne’s conduct, as found by the trial judge, is that he concealed from Hamilton the legality of building a basement apartment – in other words, he told her something that a search of the public records would have proven incorrect. This is not the type of “highly reprehensible” conduct sufficient to attract an award of punitive damages.

[52] For these reasons I would set aside the award for punitive damages.

[53] I now turn to the award of $5,005.

[54] The award of $5,005 based on negligent misrepresentation in relation to the legality of the basement apartment is arguably problematic due to the lack of evidence about the amount of work, if any, Lacivita had done in relation to the basement apartment as of June 1998. However, it has long been recognized that in the absence of an error of law, an award to damages is reviewable by a deferential standard. While the evidence is scant, it was for the trial judge to review and determine the award. I see no error of law or any palpable and overriding error on the facts on which the award was based. Therefore, I would not interfere with this award.

[55] Accordingly, I would allow the cross-appeal, in part, and set aside the order that Osborne pay $10,000 in punitive damage award.

VI. DISPOSITION

[56] For these reasons, I would dismiss the appeal and allow the cross-appeal, in part. The effect of this disposition is that I would reduce the award of damages payable by Osborne from $15,005 to $5,005.

[57] Based on the parties’ submissions at the conclusion of the hearing, I would award Osborne his costs of this appeal and cross-appeal, fixed in the amount of $20,000, including disbursements and Goods and Services Tax.

RELEASED:

“SEP 28 2009” “G.J. Epstein J.A.”

“GE” “I agree W. Winkler C.J.O.”

“I agree K. Feldman J.A.”

[^1]: The defendants, 1214125 Ontario Limited and Lou Lacivita were noted in default. The other defendants no longer exist as legal entities.