Ontario Realty Corporation v. P. Gabriele & Sons Limited, 2010 ONCA 642

CITATION: Ontario Realty Corporation v. P. Gabriele & Sons Limited, 2010 ONCA 642

DATE: 20101005

DOCKETS: C50050 & C50052

COURT OF APPEAL FOR ONTARIO

Doherty, Feldman and Rouleau JJ.A.

BETWEEN:

Ontario Realty Corporation and Her Majesty The Queen in right of the Province of Ontario as represented by the Attorney General

Plaintiffs (Respondents)

and

P. GABRIELE & SONS LIMITED, GABBRO CONSTRUCTION LTD., GABRIEL ENVIRONMENTAL SERVICES INC., 1331679 ONTARIO LIMITED, PIERINO GABRIELE, FRANK ANGELO GABRIELE, ANTONIO GABRIELE, SIRMAN ASSOCIATES LIMITED, IV AN A. SIRMAN, PROGRESSIVE ENVIRONMENTAL INC., CYNTHIA D. 1. STILES, 1287512 ONTARIO LIMITED, INTEGRATED PROPERTY SOLUTIONS INC., ROBERT W. ALLAN, ENVIRONMENTAL AND DEVELOPMENT SOLUTIONS LTD., RICHARD C. BENSON, 780551 ONTARIO LIMITED c.o.b. MASTER ENVIRONMENTAL SERVICES, 1331989 ONTARIO LIMITED, 981602 ONTARIO INC. c.o.b . . TRI-SPADE, VINCENT CATALFO, ROSS FAREWELL, KENT BANTING, TATE STREET CAPITAL INC., POPLAR OAKS LAND DEVELOPMENT CORPORATION, VALLEY FORD HOMES INC., MA TEUS VILLAGE INC., VALLEYFORD DEVELOPMENT CORPORATION, ST. STEPHEN'S ESTATES INC., McLEVIN PROPERTIES LTD., LAWSON MEADOWVALE DEVELOPMENTS INC., ROSEBURY HOLDINGS INC., MAYFAIR ELECTRIC LIMITED, ZENAT HOLDINGS LTD., NIMA INVESTMENTS INC., 1331237 ONTARIO LIMITED c.o.b. SOUTHEASTERN ENVIRONMENTAL SERVICES, DAMIAN SPADAFORA, MARY SPADAFORA, MICHAEL ZENTIL, MAURO TONIETTO, SANDRA TONlETTO, JOHN PERDUE, JOHN PERDUE c.o.b. LEGENDS CONSULTING, JOHN F ALCIONI, NEW BELFRIE HOLDINGS INC., ROSEMARY DICARLO, KLEINFELDT CONSULTANTS LIMITED, 1022635 ONTARIO INC.

STEPHEN J. BLANEY, H. SUTCLIFFE LIMITED, H. JAMES HAWKEN, L&B CONTRACTING, LARRY D. BELLMORE, MARTINDALE PLANNING SERVICES and ROBERT MARTINDALE

Defendants (Appellants)

Enzo Di Iorio, for the appellants in C50050, P. Gabriele & Sons Ltd., Gabriel Environmental Services Inc. and Frank Angelo Gabriele

Ronald B. Moldaver, for the appellants in C50052, Frank Angelo Gabriele, Rosebury Holdings Inc., Michael Zentil and Mauro Tonietto

James Morton, for the respondents on the cross-appeal, John Falcioni, John Perdue and John Perdue c.o.b. Legends Consulting

Ronald Carr, for the respondents

Heard: September 28-29, 2010

On appeal from the judgment of Justice Frank Newbould of the Superior Court of Justice dated January 23, 2009.

By The Court:

[1] The Ontario Realty Corporation (“ORC”) and the Crown sued Frank Angelo Gabriele (“Gabriele”), a number of Gabriele controlled corporations, certain of his business partners, and several former employees of ORC. The claims were far-reaching, involving allegations of fraud, conspiracy, bribery, breach of fiduciary duty and bid rigging in over 40 transactions involving ORC and one or more of the defendants.

[2] ORC alleged that Gabriele, primarily through compromising the loyalty of various ORC employees, dishonestly acquired several properties from ORC. ORC further alleged that he dishonestly obtained abatements in the purchase prices of some of those properties. In addition, ORC contended that Gabriele had used various dishonest means to obtain contracts with ORC involving the environmental clean-up on some of ORC’s properties. ORC maintained that while Gabriele (or associated companies) had billed and been paid for work described in the contracts, the work had not been done.

[3] The lengthy trial eventually focused on seven transactions. The trial judge found no liability on two of the transactions. On a third transaction (the “Aurora transaction”), the trial judge allowed a counterclaim and awarded damages to one of Gabriele’s corporations in the amount of $50,000. The ORC was successful on the remaining four transactions.

[4] There are two appeals and a cross-appeal. Gabriele is an appellant on both appeals. The other appellants are entities controlled by Gabriele.

THE FIRST APPEAL

[5] The first appeal (C50050) involves the “Markham/Pickering” transaction and the “Aurora” transaction. On the Markham/Pickering transaction, the appellants challenge the trial judge’s finding that the appellants did not perform the work for which they were paid by ORC. On the Aurora transaction, the appellants contend that the trial judge erred in failing to order a reference to determine the quantum of damages suffered by the appellants as a result of ORC’s failure to close the sale of the property to one of the appellants.

[6] The court did not require argument from the respondents on either submission and both can be addressed briefly.

[7] The trial judge found that the environmental clean-up work for which the Gabriele-related companies had been paid was not done. The argument made on appeal is that the trial judge improperly reversed the onus of proof on that issue and required the appellants to prove that the work was done. The appellants argue that had the trial judge applied the proper onus to the totality of the evidence, he would not have concluded that ORC had established that the contracted work was not performed.

[8] We see no reversal of the onus of proof in the trial judge’s reasons. The trial judge fully canvassed the relevant evidence and made clear findings of fact. There was abundant evidence to support ORC’s contention that the work was not done. The mere fact that the trial judge did not draw inferences favourable to the appellants that may have been available from some part of the evidence does not suggest any reversal of the burden of proof. There is no basis upon which this court can or should interfere with the trial judge’s findings.

[9] In respect of the Aurora transaction, the trial judge found that ORC was required to close the transaction with the Gabriele corporation. He found, however, that the corporation had not proved any damages beyond its $50,000 deposit. The trial judge carefully considered whether the Gabriele corporation had demonstrated any loss of potential profits through the potential development of the property. The trial judge concluded that the appellants had not demonstrated that the property could not have been developed and sold at a profit. Once again, his analysis of the evidence is careful and detailed.

[10] The appellants contend that even if the evidence did not admit of a precise quantification of the potential lost profits, the trial judge was required to either do his best in quantifying that loss or alternatively direct a reference. This submission misses the crucial distinction between a finding that there was some loss of profit, albeit one that could not be easily determined, and the finding actually made – that the appellants had failed to prove any lost profit. On that finding, there was nothing to quantify and no reason to direct a reference.

THE SECOND APPEAL

[11] The second appeal (C50052) involves three transactions, referred to as “Britannia Tomken”, “Bowmanville” and “Kings Highway 2A”, and the trial judge’s award of compound interest.

Britannia Tomken

[12] With respect to the Britannia Tomken transaction, the appellants submit that the trial judge made two errors: (1) in finding that the appellants had been unjustly enriched as a result of a price abatement of $300,000.00 agreed to by the ORC prior to closing; and (2) in ordering the appellants to disgorge a profit they made on the resale of the property less than one year later.

[13] We disagree. The trial judge found that the appellants had conspired with John Falcioni, an ORC employee and fiduciary, and the marketing coordinator for the sale of the property. As part of that conspiracy, Falcioni breached his fiduciary duty owed to ORC. The trial judge also found that, as a consequence of that agreement, the appellants obtained the property despite having made a bid that did not comply with the request for proposals and obtained a $300,000 unjustified abatement to the purchase price.

[14] The appellants argued that the ORC lost nothing because the appellants had tendered the highest bid, that amendments made to the bid by the appellants were contemplated by the bid terms and that the abatement was negotiated with the ORC. These submissions ignore the trial judge’s finding of the unlawful conspiracy set out above. The trial judge’s findings in respect of the unlawful conspiracy are fully supported by the evidence accepted by the trial judge. Further, the trial judge made very strong credibility findings against Gabriele and Falcioni, findings which the appellants acknowledge are subject to deference by this court.

[15] The appellants also submit that the trial judge was not entitled to impose as a remedy the disgorgement of profits on the resale of the Britannia Tomken property, based on the principles set out in Soulos v. Korkontzilas, 1997 346 (SCC), [1997] 2 S.C.R. 217, on which the trial judge relied. First, the appellants argue that Soulos does not apply where the plaintiff has suffered no damages. We disagree. Soulos has application even where there has been no loss. (see para. 42 of Soulos) In any event, as found by the trial judge, the ORC did suffer a loss as a result of the conspiracy. The loss was the $300,000 improper abatement to the purchase price and the improper award of the contact to the appellants.

[16] The appellants also submit that Soulos cannot apply to the appellants as the appellants were not fiduciaries. This submission misconstrues the effect of Soulos. As the appellants were co-conspirators with the fiduciary and were knowing recipients of the wrongful benefit, the principles in Soulos apply equally to them. (see Ontario Wheat Producers’ Marketing Board v. Royal Bank of Canada (1984), 1984 2004 (ON CA), 9 D.L.R. (4th) 729 (Ont. C.A.) and MacMillan Bloedel Ltd. V. Binstead (1983), 14 E.T.R. 269 (B.C.S.C.), both cited with approval by the Supreme Court of Canada in Soulos at paras. 41 and 42)

[17] The appellants further submit that the trial judge erred in treating the resale of the property as a “flip” of the property for a higher price when the evidence was that the appellants had added value to the property before its resale. We do not agree. The appellants were effectively constructive trustees of the property for the ORC and were not entitled to profit from it. As the trial judge allowed the appellants to have a reference to establish any expenses they may have incurred, they will not be penalized for their expenditures on the property.

Bowmanville

[18] The appellants argued that the trial judge erred in finding that two abatements to the price they paid for the purchase of the Bowmanville property unjustly enriched the appellants. The appellants state that there was no unjust enrichment because the reductions were negotiated between the parties and the negotiated agreements constituted a juristic reason for the reductions. One reduction was made before closing and the second was made well after closing.

[19] We disagree. The trial judge did not find that the abatements were the product of bona fide negotiations. Rather he found that Gabriele secured the abatements through the compromised loyalties of ORC employees. Agreements achieved through that compromised loyalty could not amount to a juristic reason for the enrichment of the appellant purchaser. The trial judge referred to several aspects of the evidence in support of his finding in respect of the true nature of the abatements. These included:

1. the reductions were contrary to the agreement of purchase and sale which provided that the sale was to be “as is”;

2. there was no consideration for the reductions;

3. there was no need to compromise on the price in order to complete the transaction or after closing;

4. the first price reduction was tainted by the involvement of John Perdue, an ORC employee who was found to be in a conflict of interest as result of his employment with both the ORC and the appellants; and

5. the trial judge found that there was no evidence that the appellants thought they were entitled to such reductions.

[20] In our view, these findings of fact entitled the trial judge to conclude that there was unjust enrichment and to exercise his discretion to order the repayment of the amounts by which the appellants were unjustly enriched.

King’s Highway 2A

[21] The appellants submit that the trial judge erred in ordering them to disgorge the profits they made on the development and resale of the Kings Highway 2A property. The trial judge granted this relief as well as a reference to calculate their profit on the development. He did so on the basis that the appellants’ purchase of the property from the ORC was tainted by two alleged wrongdoings in connection with the appellants’ bid for the property.

[22] The first was that the appellants received confidential evaluation information from the ORC shortly before making their bids. Second, by submitting two bids in different names, the appellants deceitfully created the false appearance of a competitive market.

[23] In respect of the first finding, the trial judge could make no determination as to how the information came into the appellant’s possession. Although he inferred that it was done in a wrongful manner by someone at the ORC, there was no evidence that it was and no evidence that the appellants, as opposed to all other perspective bidders, were the only ones to receive it.

[24] In respect to the second finding of wrongdoing, although the trial judge concluded that the manner in which the two bids were made was deceitful, he also found that the ORC did not suffer any loss on the transaction.

[25] In our view, the trial judge erred in awarding the remedy of disgorgement of profits on this property. There was no proven breach of fiduciary duty by any ORC employee or conspiracy involving ORC employees and the appellants. In these circumstances, the principles in Soulos do not apply.

[26] Further, as there were no damages suffered by the ORC, there was no fraud proven against the appellants, acting on their own, in the submission of the two bids. Therefore, the remedy of disgorgement could not be imposed in the circumstances of this transaction.

Compound Interest

[27] We see no error in the exercise of the trial judge’s discretion to award compound interest in the circumstances of this case.

CROSS APPEAL

[28] The respondents appeal the decision of the trial judge to dismiss the claims against Messrs. Falcioni and Perdue.

[29] With respect to Mr. Falcioni, the Crown claimed damages for the loss suffered as a result of the improper abatement of $300,000 in the purchase price of the Britannia Tomken Road property. There was no claim for unjust enrichment made against him.

[30] In our view, this part of the cross-appeal must be allowed. The trial judge found that he was a co-conspirator with Mr. Gabriele to injure the ORC as described earlier. Having made those findings, the trial judge gave no reasons for dismissing the claim against Mr. Falcioni. Those findings compel a finding of liability against Mr. Falcioni in respect of the $300,000 abatement in the purchase price. As a result, we would vary the judgment to provide that Mr. Falcioni be jointly and severally liable with the defendants named in paragraphs 3 to 6 of the trial judgment in respect of the amount of $300,000.

[31] As to Mr. Perdue, it was alleged that he was a party to the improper abatement of the purchase price for the Bowmanville property. The trial judge found that he was in a conflict of interest but did not find that he was in breach of any fiduciary duty or a party to any conspiracy. In these circumstances, the trial judge made no error in dismissing the claim against Mr. Perdue.

COSTS

[32] The results of the appeals are mixed. For the purposes of costs, in our view, the two main appeals can probably be treated as one. Given the mixed success, it would seem to us that an order of no costs would be appropriate. With respect to the cross-appeal which occupied a small portion of the appeal, it would seem to us that, if asked, modest costs would follow the event.

[33] If the parties are unable to agree on costs and if any party to the main appeal or cross-appeal seeks costs, they are to provide written submissions not exceeding 3 pages within 14 days of this decision. Any reply to be filed within 7 days thereafter and not to exceed 2 pages

RESULT

[34] The appeal and cross-appeal are allowed in part, in accordance with these reasons.

Signed: “Doherty J.A.”

“K. Feldman J.A.”

“Paul Rouleau J.A.”

RELEASED: “DD” October 5, 2010