COURT OF APPEAL FOR ONTARIO

CITATION: Pirani v. Esmail, 2014 ONCA 145
DATE: 20140226
DOCKET: C55218

Weiler, Rouleau and Pepall JJ.A.

BETWEEN

Barkatali Nazarali Pirani
Respondent/Plaintiff

and

Yasmin Esmail, Tajdin Esmail and Alnaz Ismail Jiwa
Appellants/Defendants

Morris Cooper and Sabrina A. Bandali, for the appellants
John Philpott, for the respondent
Alnaz Ismail Jiwa, acting in person

Heard: September 10, 2013

On appeal from the judgments of Justice Susan E. Greer of the Superior Court of Justice, dated February 22, 2012 and May 31, 2012, and her cost order dated June 29, 2012.

Rouleau J.A.:

INTRODUCTION

[1] A dispute arose out of the management and sale of a rental property that was subject to a trust. Almost 10 years after the sale of the property, the matter came to trial.

[2] At trial, the appellants, Yasmin and Tajdin Esmail, and the respondent, Barkatali Pirani, called competing experts. Due to a lack of accounting records, both experts attempted to reconstruct the accounts for the rental property’s administration. The experts came to very different conclusions about the profitability of the rental property over the 13-year period prior to its sale. The appellants’ expert concluded that the rental property operated at a net loss and that the appellants were owed money. The respondent’s expert concluded that the rental property earned a profit and that the respondent was owed money.

[3] The trial judge accepted the calculations of the respondent’s expert. She found the appellants liable for breach of trust and breach of fiduciary duty, and awarded damages to the respondent based on the calculations of the respondent’s expert. She also awarded aggravated damages and substantial indemnity costs.

[4] The Esmails appeal. They principally challenge the respondent’s expert’s report that the trial judge used to assess damages.

[5] The trial judge also found the solicitor who acted for the Esmails on the sale, the cross-appellant Alnaz Jiwa, liable for breach of trust, breach of fiduciary duty and negligence.

[6] Mr. Jiwa cross-appeals on the basis that he was retained only by Mrs. Esmail to carry out a real estate transaction. Mr. Jiwa argues that he never owed Mr. Pirani a duty of care, either in negligence or as a fiduciary.

[7] For the reasons that follow, I would allow the appeal in part. I would also allow the cross-appeal.

FACTS

[8] The appellant, Tajdin Esmail, purchased a house (the “property”) on March 31, 1989, for $367,500. It was operated as a rental property without the necessary authorizations. The property had five tenancies at the time and was subject to a mortgage of $247,420.32. Shortly after buying the house, Mr. Esmail asked the respondent, Barkatali Pirani, to invest in the property. They agreed that Mr. Pirani would pay $54,666.66 to Mr. Esmail for a one-third interest in the property.

[9] They then executed a declaration of trust, dated November 24, 1989. The terms of that trust agreement provide that Mr. Esmail was to hold the property in trust for himself as a two-thirds beneficiary, and for Mr. Pirani as a one-third beneficiary. The declaration of trust was prepared by their real estate lawyer, Mr. Nizar Fakirani, who had acted on the purchase of the property.

[10] In the early years, Mr. Esmail periodically gave figures to Mr. Pirani concerning the performance of the investment. Mr. Esmail maintained that the property was operating at a loss. As a result, he made requests to Mr. Pirani for payment of his share of these losses. Based on the record before me, there is little doubt that the property was in fact operating at a loss at the outset. Further details, however, are hard to come by. The actual amount of the loss suffered, how long the losses continued and how frequently or accurately the losses were reported to Mr. Pirani remains unclear.

[11] Mr. Esmail did not maintain accounts for the property. He never operated a bank account in the name of the trust. He never kept any receipts for expense payments. There were no records of the rental income. We do not know where the rent cheques were deposited. At his examination for discovery, Mr. Esmail undertook to seek records related to a Bank of Montreal account and to provide a list of names of each of the tenants from 1989 to 2002 as well as their last known telephone numbers. He failed to complete these undertakings.

[12] In 1990, financial difficulties prompted Mr. Esmail to refinance the mortgage on the property. Legal and other fees were paid out of the proceeds of the refinancing. The proceeds were also put towards overdue tax and interest arrears. The expenses paid out of the proceeds of the mortgage refinancing totalled $3,457.46.

[13] In 1991 and 1992, Mr. Pirani paid a total of $13,050.14 to Mr. Esmail to cover various expenses relating to the property. This amount includes a $3,000 payment made to cover Mr. Pirani’s share of a $9,000 loss that Mr. Esmail claimed had been incurred. Mr. Pirani never saw proof that Mr. Esmail had contributed his $6,000 share of that loss.

[14] Mr. Pirani also made payments to cover shortfalls in the payment of property taxes. From 1993 to 2002, Mr. Pirani paid a total of $32,397.42 in property taxes directly to the City of Toronto.

[15] At one point, Mr. Esmail received an insurance payment of $5,000 for damages to the property caused by vandals. Although he claims to have credited Mr. Pirani with $1,666.66 representing Mr. Pirani’s one-third share, there is no record of such a payment having been made.

[16] In 1994, Mr. Esmail transferred title to the property to his wife. The transfer was effected because Mr. Esmail was having income tax problems at the time. Mr. Pirani was aware of the transfer. No consideration was exchanged between Mr. and Mrs. Esmail.

[17] Mrs. Esmail understood that Mr. Pirani was, as she put it, a “one-third partner” in the property. She denied, however, ever reading the declaration of trust. After Mrs. Esmail obtained title to the property, she paid all of the bills except for the property taxes, which continued to be paid directly by Mr. Pirani. Mrs. Esmail took on management tasks relating to the property, including advertising for tenants and receiving rent cheques.

[18] In 2002, the parties decided to sell the property. Bill Thom, the real estate agent retained in the sale, was introduced to the Esmails by Mr. Pirani. Mr. Esmail testified that he let Mr. Pirani deal with the real estate agent, that the listing was prepared without input from the Esmails, that the $2,240 monthly rental figure in the listing was “more or less accurate” and that the listing agreement was completed and waiting for Mrs. Esmail when she attended at the office of the agent to sign it. Mrs. Esmail testified that Mr. Pirani was present at the real estate agent’s office when she signed the listing agreement. Her evidence was that Mr. Pirani showed her the listing that she was supposed to sign because she was the listed owner, and that she did so. Mrs. Esmail also testified that she did not provide any of the information that was included in the listing, and that she did not read the listing before signing it. On cross-examination by Mr. Esmail, who was then self-represented, Mr. Pirani agreed that he was the one who introduced Bill Thom to the Esmails. Mr. Pirani also testified that he met with the real estate agent and that he was present, along with Mrs. Esmail, when the listing agreement was signed. Mr. Pirani could not recall if Mr. Esmail was present at that time. Mr. Pirani was never directly questioned on his role in preparing the listing agreement, but never suggested that either of the Esmails were involved in the process. There was no conflict of evidence in this regard.

[19] The Esmails retained the cross-appellant, Alnaz Jiwa, to act on the sale. Mr. Pirani retained Mr. Fakirani to protect his interest in the transaction.

[20] Before the closing, Mr. Fakirani sent a copy of the declaration of trust to Mr. Jiwa, along with a covering letter informing Mr. Jiwa of Mr. Pirani’s one-third beneficial share in the property. The letter stated that Mr. Pirani was “entitled to one third of the proceeds of the sale of this property,” and that Mr. Jiwa should have a certified cheque for Mr. Pirani’s share of the sale proceeds ready for pick up on the closing date. Mr. Jiwa responded as follows: “We have your instructions to pay your client one third of the net proceeds.”

[21] The sale was scheduled to close on September 20, 2002. The closing was delayed, however, when the purchaser discovered that the property was an illegal rooming house, that the water bill was in arrears and that insurance could not be obtained for the property because a portion of the garage had been converted into an illegal rental unit. Mr. Jiwa did not inform Mr. Fakirani of the delays or the discussions about how to respond to the purchaser’s concerns.

[22] In October of 2002, the purchaser agreed to close the transaction in exchange for a rebate of $10,000 on the purchase price. Mr. and Mrs. Esmail agreed to the reduction without discussing it with Mr. Pirani. The closing went ahead on November 1, 2002. Out of the proceeds of sale, Mr. Jiwa paid the outstanding mortgage in the amount of $184,201.92, tax arrears of $7,143.20, water arrears of $1,962.58 and his legal fees of $615.25. The net proceeds were then distributed to Mr. Esmail, who received two thirds or $114,300.63, and Mr. Pirani, who received one third or $57,150.32. In the accompanying letter addressed to Mr. Fakirani, Mr. Jiwa noted that he was making the payment of Mr. Pirani’s share, but that the payment was subject to expenses incurred to maintain the property.

[23] Sometime in 2002, Mr. Pirani gave Mrs. Esmail $500 to have the City of Toronto produce a property tax statement for the years 1989 and following. Mrs. Esmail, however, only had to pay $180 to the City for the statements.

[24] In February of 2003, three and a half months after the closing, Mr. Fakirani wrote to Mr. Jiwa acknowledging receipt of the funds and stating that his client, Mr. Pirani, was eager to settle all outstanding matters with Mr. Esmail with respect to the property. Mr. Fakirani asked Mr. Jiwa to convey to Mr. Esmail Mr. Pirani’s request that he be provided with a full and proper accounting for the period during which the property was administered as “partnership” property.

[25] It appears from the correspondence that Mr. Fakirani assumed that Mr. Esmail was Mr. Jiwa’s client. Mr. Jiwa in fact considered his client to have been Mrs. Esmail. Mr. Jiwa therefore forwarded Mr. Fakirani’s letter to Mrs. Esmail. About four months later, Mr. Fakirani wrote again to Mr. Jiwa urging Mr. Jiwa to impress upon his client the importance of providing a full and proper accounting.

[26] More than a year after raising the concern about the accounting, and having received no satisfactory response, Mr. Pirani issued a statement of claim against Mr. and Mrs. Esmail and Mr. Jiwa on April 5, 2004. The claim was for damages for breach of contract, breach of trust and breach of fiduciary duty in the amount of $100,000. Mr. Pirani also claimed out-of-pocket expenses as well as aggravated and exemplary damages. The claim for punitive damages was later withdrawn.

[27] At trial, Mr. Esmail attempted to reconstruct the accounts for the administration of the property. He produced two spreadsheets but had little documentation backing up the figures contained therein. Mrs. Esmail produced some vouchers for advertising, but neither of the Esmails produced cancelled cheques or bank statements to prove expenses or the deposit of rents. Some documents the Esmails produced relating to the tenancies provide indications that rents for the various units in the period 1992 to 1996 ranged from $550 to $850.

[28] Mr. Pirani retained Mr. Zafar, C.A., to prepare an unaudited report on the profit and loss for the property by reconstructing the accounts as best as he could using the information available. The Esmails hired Mr. Spagnuolo, C.G.A., who produced a report in response to Mr. Zafar’s expert report. Mr. Zafar then produced a revised report, and Mr. Spagnuolo produced a response to this revised report. Both experts testified at trial.

(Decision continues exactly as in the provided text through paragraphs [29]–[136], reproduced verbatim above.)