COURT OF APPEAL FOR ONTARIO
2016 ONCA 90
DATE: 20160202
DOCKET: C58937
Gillese, MacFarland and van Rensburg JJ.A.
BETWEEN
410784 Ontario Limited
Plaintiff by Counterclaim (Appellant)
and
Little Zinger Inc. carrying on business as Corktown Esso,
Zafar Khokhar, James Stonley and
Jet Transportation Limited
Defendants to the Counterclaim (Respondents)
P. James Zibarras and Adam N. Weissman, for the appellant
Wendy Greenspoon-Soer, for the respondents
Heard: January 19, 2016
On appeal from the judgment of Justice Victoria R. Chiappetta of the Superior Court of Justice, dated May 16, 2014, with reasons reported at 2014 ONSC 2510.
MacFarland J.A.:
[1] The appellant appeals from the judgment of Chiappetta J. dismissing its counterclaim with costs on the basis that the appellant’s claims were statute barred. For the reasons that follow, I would dismiss the appeal.
BACKGROUND IN BRIEF
[2] The appellant, referred to throughout these proceedings as City Gas, operated a gasoline station from leased premises at 176 Front Street East in Toronto for a number of years.
[3] City Gas leased the premises on which it operated the gas station from the respondent Jet Transportation Limited (“Jet”), the owner of the property. Other parts of the property were leased to other tenants, including a hair salon and a framing business.
[4] On November 7, 2004 the lease for City Gas expired. At this point in time and for a number of years before, the daily operations of City Gas had been run by the respondents Khokhar and Stonley, both long time trusted employees of City Gas. The principal of City Gas, Selby Wemyss, was getting older and was in poor health.
[5] Selby’s efforts to renew the lease were sporadic and not urgent. He first discussed renewal of the lease with Mr. Winch, Jet’s solicitor, in or around November 2004. Winch advised him that the lease had expired on November 7, 2004. Selby indicated that he wanted a five year renewal on the same terms as the expired lease. Winch told him that Jet was looking for a head tenant to lease the entire building and for a significant increase in the base rent. The principals of Jet, Leonard Nefsky and Sam Wagman, were also getting older and their company’s offices had moved to a different location. They wanted a head lease so that the head tenant would be responsible for the care and maintenance of the property and to deal with the other tenants. At the time Leonard Nefsky’s son, Neal, was looking after the property for his father.
[6] At a subsequent meeting at Jet’s offices among Neal and Leonard Nefsky, Sam Wagman and Selby Wemyss, Neal offered to renew the lease if Selby would agree to a significant increase in base rent and a head lease for the premises – the same terms which had been earlier conveyed. Selby Wemyss turned down the offer – he refused to take on a head lease and said he couldn’t afford a rent increase. The parties agreed to continue the tenancy on a month to month basis.
[7] Selby again attempted to renew the lease in May 2005. He called Winch and offered a five percent increase in base rent, all other terms to remain the same. Jet rejected the offer and made no counteroffer.
[8] Stonley was aware in 2005 that the tenancy of his employer was month to month from conversations he had with Selby.
[9] On November 22, 2005 Dorothy Wemyss (Selby’s wife), in the presence of her husband, told Stonley and Khokhar that City Gas had a 10-year lease for the premises and that they should buy the business for $500,000. Selby agreed.
[10] Dorothy’s assertion that they had a ten-year lease did not ring true.
[11] Stonley, from his discussions with Selby, thought that the tenancy was month to month. Stonley and Khokhar called Neal Nefsky and told him about their conversation with Dorothy. Neal told them that City Gas did not have a ten-year lease and that the tenancy was month to month. In the words of the trial judge, Neal “sarcastically” said “why don’t you give me $500,000 and I will sell you the business”. He also told Stonley and Khokhar that Jet would not renew the lease with City Gas because Selby’s health was poor, he didn’t know Dorothy and did not wish to deal with Stephanie Silver (Selby’s daughter). Neal further explained that Jet was seeking a head tenant and the reasons why. He asked Stonley and Khokhar to make Jet an offer to lease the premises as head tenant.
[12] Stonley and Khokhar consulted with their lawyer and in December 2005 sent an offer to Winch to lease the premises as head tenant. Stonley and Khokhar had in September 2004 incorporated Little Zinger Inc., a company in which they each had a fifty percent interest. The offer was from Little Zinger to Jet.
[13] Also in December 2005, Silver became involved in the lease negotiations on her father’s behalf and spoke with Winch about renewing the lease. The trial judge accepted Winch’s evidence that Silver called him and offered to renew the expired lease on primarily the same terms but with a twenty-five per cent increase in the base rent and that he told her the offer was not acceptable to Jet.
[14] Winch responded to Little Zinger’s offer on February 7, 2006. After some negotiations, the lease between Jet and Little Zinger was finalized on February 28, 2006.
[15] Meanwhile, on February 24, 2006, Jet served City Gas with a Notice to Vacate, giving the company a little over 60 days’ notice to vacate the premises.
[16] On February 27, 2006 Silver, on behalf of City Gas, fired all employees of City Gas and paid severance to all employees except Khokhar and Stonley. Silver testified that they were not paid severance because she fired them with cause for stealing. On their records of employment the cause for Khokhar’s and Stonley’s dismissal was noted as “misconduct”. The notation caused them to be unable to collect EI benefits.[^1]
[17] The evidence of Silver about how the terminations of Khokhar and Stonley came about that day is very different from their version of what happened.
[18] The trial judge rejected Silver’s evidence finding it to be incredible. She accepted the evidence of Khokhar and Stonley that on February 27, 2006 Silver said to them both words to the effect:
You guys went behind my father’s back and got yourselves a sweet deal – you’re out of here.
[19] She then told them to turn in their keys and credit cards and leave.
[20] The trial judge accepted that evidence and found that Silver/City Gas knew on February 27 that it was Khokhar and Stonley who had replaced them as tenants of the premises and concluded:
It can be reasonably inferred therefrom that as of February 28, 2006, the Plaintiff knew that Stonley and Khokhar had acquired the lease with Jet for the premises and this was the reason for their termination.
[21] However, City Gas, despite its knowledge that its two trusted senior long-time employees had “gone behind its back” and obtained a lease from Jet, did nothing about it. It fired all its employees and vacated the premises within 30 days. In the course of closing out the station, it removed the gas tanks and pumps as well as a canopy.
[22] After City Gas had vacated and in the course of preparations to re-open, Little Zinger learned that there were contamination issues with the site and remediation would be necessary. The re-opening of the station was delayed for over a year and on February 26, 2009 Little Zinger sued City Gas, Silver and Dorothy Wemyss. Selby Wemyss had died by this time. On March 27, 2009, City Gas counterclaimed against Little Zinger, Jet, Khokhar and Stonley advancing the claims that are the subject of this appeal.
[23] Little Zinger subsequently agreed to dismiss/discontinue its action. The counterclaim proceeded to trial.
[24] The trial judge dismissed the claims of City Gas as against all the defendants on the basis that they were statute barred. She went on to analyze the various claims, in the event that her conclusion regarding the limitation period was wrong. She would have found that City Gas had proven its claim against Stonley and Khokhar for breach of fiduciary duties and would have awarded $150,000 in damages. She would have dismissed the other claims.
ANALYSIS
The limitations period and the claim that Jet induced Stonley and Khokhar to breach their employment contract with and fiduciary duty to City Gas
[25] The appellant submits that in concluding that its claims were statute barred the trial judge erred in law and made palpable and overriding errors in her underlying factual determination.
[26] After reviewing the evidence and making her findings of fact the trial judge concluded that the appellant knew that Stonley and Khokhar had entered into a lease with Jet prior to March 2007.
[27] She then considered s. 5 of the Limitations Act, S.O. 2002, c. 24, Sch. B, in the face of the appellant’s argument that it did not discover its cause of action until February 26, 2009 when Little Zinger’s statement of claim was served on it.
[28] The appellant’s statement of defence and counterclaim was issued March 27, 2009. The argument the appellant advanced at trial and in this court was that because the negotiations between Stonley and Khokhar and Jet were conducted “in secret”, the appellant could not have known it had a claim until the process was served.
[29] The trial judge rejected this argument. She found that City Gas knew before March 2007 that it was Stonley and Khokhar who had entered into a lease with Jet and accordingly its claims against those individuals were statute barred.
[30] The appellant says that in doing so the trial judge made “an inference based on pure speculation” that was not supported by any evidence.
[31] In my view, the trial judge’s finding is amply supported in the record. Both Khokar and Stonley testified that they had a conversation with Silver on February 27, 2006, in which she said words to the effect of “you went behind my father’s back”, “looks like you guys got a lease” and “you got yourselves a sweet deal”. The trial judge accepted this evidence and rejected Silver’s evidence as incredible. Her finding is entitled to deference in this court and I would not interfere with it. Accordingly, I reject this ground of appeal.
[32] This was a difficult trial in the sense that there were directly contradictory versions of the events that had occurred among the witnesses. Selby Wemyss had died and his wife Dorothy was unable to attend the trial.
[33] Mr. Zibarras, counsel to the appellant, had also been its solicitor during the negotiations about the lease. He was unavailable as a witness and cross-examination in the circumstances was made more difficult. In addition, all of the respondents were represented by the same lawyer.
[34] The appellant further submits that the trial judge erred in law by dismissing the appellant’s claims for inducing breach of contract against Jet as statute barred without engaging in any independent analysis of that claim.
[35] At the conclusion of the evidence, the trial judge asked counsel to settle a list of the legal and factual issues she had to decide and they did so. At para. 37 of her reasons she set out in full the “agreed” legal and factual issues. She stated the first issue as follows:
- Is the claim brought by City Gas barred by the Act?
(a) When did City Gas know that Stonley and Khokhar had entered into a lease with Jet, that City Gas had suffered damages, and that a proceeding was the appropriate means to remedy it?
(b) When ought City Gas to have known that Stonley and Khokhar had entered into a lease with Jet, that City Gas had suffered damages, and that a proceeding was the appropriate means to remedy it?
[36] Although the agreed list of issues is some two and one-half pages in length, there is no question or issue specifically set out that asks whether the claim for inducing breach of contract or any of the other claims against Jet were statute barred.
[37] It is apparent from the record, the reasons of the trial judge and from how the appeal was argued in this court that the focus of the appellant’s claim was on Stonley and Khokhar and their “secret negotiations” to obtain the lease for the premises.
[38] In the circumstances, the trial judge can be forgiven for not specifically dealing with whether the claim against Jet for inducing breach of contract was statute barred.
[39] In this court almost the entirety of the appellant’s argument focused on the actions of Stonley and Khokhar and why the trial judge’s credibility findings should be set aside. Comparatively little time was spent on the inducing breach of contract claim either on the merits of the claim or the related limitation issue.
[40] That said, counsel agree that the point was argued and the trial judge did not deal with it. To properly determine the limitation issue would involve an evidentiary review of conflicting evidence and related fact finding. An exercise this court is not equipped to make. However, in this case, in my view, it is unnecessary.
[41] Assuming for present purposes that the claim was not statute barred, the trial judge concluded that Jet did not induce Stonley and Khokhar to breach their fiduciary duties to City Gas. The trial judge reviewed the evidence related to the timing of the negotiations between Stonley, Khokhar and Jet and concluded that Jet’s “interference” was neither intentional nor deliberate. At paras. 180-181 of her reasons she noted:
[180] On November 22, 2005, [Neal] Nefsky invited Stonley and Khokhar to make Jet an offer to lease the premises. The Defendants submit that [Neal’s] invitation should be excused as he was only contacted by Stonley and Khokhar after Dorothy offered to sell them the business. It was [Neal’s] invitation, however, on November 22, 2005 that was the first step of a dance that ultimately ended in the Plaintiff’s eviction.
[181] Having said that, I am unable to conclude that Jet’s interference was deliberate and intentional. In inviting the trusted employees to make an offer for a head lease, [Neal] was pursuing the interests of Jet. Jet wanted a head lease on the premises and [Neal] exploited an opportunity presented to him to secure it. He could not have known, at the time he invited the offer, however, that Stonley and Khokhar would choose to pursue the opportunity without disclosing it to their employer or without receiving their employer’s consent. The evidence does not demonstrate that at the time of the invitation, [Neal] was or could be certain that a head lease of the sort he proposed would inevitably result in the Plaintiff’s eviction. It cannot be said therefore that Jet intended the breach.
[42] In addition it will be remembered that City Gas had been a month to month tenant since November 2004. It had made a couple of sporadic efforts to renew the lease since that time but no sustained effort to do so. Its last offer to the landlord Jet had been rejected in December 2005. Jet was insisting on a head lease and City Gas was refusing that term. Dorothy and Selby Wemyss had offered to sell the business to Stonley and Khokhar for $500,000 on the representation (untrue though it was) that City Gas had a ten-year lease. It was due to their interest in determining whether a lease in fact existed that Stonley and Khokhar came into contact with Jet who was looking for a head tenant. From Jet’s perspective, City Gas was trying to sell the business and was not interested in a head lease. In all the circumstances, the trial judge’s finding of a lack of the necessary intention element of the tort is supported by the evidence.
[43] Thus, it is unnecessary to deal with whether this claim was statute barred because it fails on the merits in any event. This ground of appeal is rejected.
Damages
[44] The appellant argues that the trial judge “got the damages wrong” when she rejected the evidence of the appellant’s expert.
[45] There were serious problems with the two scenarios underlying the calculations advanced by Mr. Kerztman, the expert witness called by the appellant, and the trial judge rejected both of them. She properly instructed herself on the law in relation to the calculation of damages for breach of fiduciary duty and relied on GasTOPS Ltd. v. Forsyth, 2009 CanLII 66153 (Ont. S.C.), at para. 1479, aff’d 2012 ONCA 134, for the proposition that:
A precise calculation, therefore, is not required. Rather an estimate of what may have been lost by the plaintiff due to the defendant’s breach, subject to a reduction for contingencies, is the proper approach … .
[46] The trial judge considered the evidence before her and particularly the evidence that Dorothy and Selby Wemyss had offered to sell the business to Stonley and Khokhar for $500,000, which price was represented to include a ten-year lease.
[47] She concluded that $450,000 would be a reasonable price and from that deducted usual costs that would be associated with a sale and fixed damages for breach of fiduciary duty at $400,000. I see no error in this conclusion.
Mitigation
[48] The trial judge concluded that City Gas had failed to mitigate its damages. Professor Waddams in The Law of Contracts, 6th ed. (Aurora, Ontario: Canada Law Book, 2010), at para. 753 notes:
A further restriction on recoverable damages lies in the principle that a plaintiff cannot recover for losses that could reasonably have been avoided.
[49] The trial judge concluded that the appellant failed to take reasonable steps to mitigate and set out in some detail her reasons for doing so.
[50] In coming to her conclusion the trial judge relied on four factors:
The appellant vacated the property within 30 days rather than waiting a further 30 days (as it would have been permitted to do). Thus, it forfeited 30 days of revenue as there was evidence that the monthly revenue exceeded the base monthly rent.
The appellant failed to respond to an email from Little Zinger’s lawyer, Korman, offering to sublet the premises to the appellant or buy its equipment.
Korman’s file disclosed that Little Zinger would start negotiations to buy the equipment at $100,000 or go up to $250,000.
Silver’s own evidence that she ignored offers from many others that called her and attempted to buy the equipment.
[51] A trial judge’s finding that a party has or has not taken reasonable steps to mitigate is entitled to deference in this court absent a finding of palpable and overriding error: see Hav-A-Kar Leasing Ltd. v. Vekselshtein, 2012 ONCA 826, at para. 57.
[52] Misapprehension of evidence amounts to a palpable and overriding error and in my view the trial judge did misapprehend the evidence on the four points she relied upon.
[53] Firstly, the fact that the monthly revenue exceeded the base rent proves nothing. There were expenses the business would incur in addition to the base rent.
[54] Secondly, the failure of the appellant to respond to Korman’s email cannot be considered a failure to mitigate in light of the evidence that City Gas was moving the equipment to another of its properties for the purpose of selling the equipment.
[55] Thirdly, there is no evidence that the appellant had any idea at the time that Little Zinger was prepared to pay between $100,000 and $250,000 for the equipment.
[56] Fourthly, Silver’s evidence was that the “many other” offers she refused were ones that offered only rock bottom prices.
[57] I would set aside the trial judge’s finding that the appellant failed to mitigate its damages. In the circumstances, however, where the appeal is otherwise dismissed, it makes no difference, unless this matter were to go further.
DISPOSITION
[58] For all these reasons the appeal is dismissed.
[59] Costs to the respondents fixed in the sum of $14,000 inclusive of disbursements and HST.
[60] Funds are standing in court to the credit of this matter pursuant to an order of this court. I would direct that those monies be paid out to the respondents so far as necessary to satisfy this costs award.
Released: February 2, 2016 “EEG”
“J. MacFarland J.A.”
“I agree E.E. Gillese J.A.”
“I agree K. van Rensburg J.A.”
[^1]: Although all employees were fired on that day, every other employee, including Helen, who was alleged along with Khokhar and Stonley to have been robbing City Gas “blind” for years, were paid their separation benefits. Only Stonley and Khokhar were not.