Court of Appeal for Ontario

Date: July 7, 2017 Docket: C62635 Judges: MacPherson, Cronk and Benotto JJ.A.

Parties

Between

The Estate of Henry Goldentuler Plaintiff/Appellant

and

Robert Crosbie, Olga Leyenson, Mark Koskie, Gail Yattavong and KLC Law Firm (Corporation) Defendants (Defence struck)

Counsel

Ray Thapar, for the appellant

No one appearing for the defendants (defence struck)

Hearing

Heard: July 4, 2017

On appeal from: The judgment of Justice C.A. Gilmore of the Superior Court of Justice, dated August 9, 2016, with reasons reported at 2016 ONSC 5071.

Reasons for Decision

[1] The appellant estate appeals from the trial judge's damages assessment at an undefended trial to prove damages conducted on June 17, 2016 in the Superior Court of Justice. The damages trial was undefended because the defendants' statement of defence and counterclaim was struck by order of Ferguson J. of the Superior Court, dated January 8, 2008. The defendants' pleading having been struck by court order, this appeal also proceeded on an undefended basis.

[2] The trial judge found that the defendants are liable to the appellant for damages arising from breaches by them of their duties of loyalty, good faith and avoidance of conflict of interest and self-interest during the course of their employment with Henry Goldentuler, a deceased lawyer (the "Deceased"). She awarded the appellant damages in the sum of $344,513.87, after various deductions, plus $145,662.19 prejudgment interest. The breaches arose from the defendants' wrongful removal and transfer to a competing law firm of 120 client files from the Deceased's law offices.

[3] The appellant argues, on various grounds, that the trial judge erred in her quantification of general and special damages, and by refusing to award punitive damages in the circumstances of this case.

[4] We agree that the trial judge erred in her damages assessment in three respects, as next described. In all other respects, the trial judge's calculation of damages was well within her domain and supported by the governing authorities and evidentiary record. Accordingly, save as set out below, we see no basis for appellate interference with it.

General Damages

[5] The trial judge's first error concerns her reduction, by 44 percent, of the general damages she found were otherwise appropriate to account for overhead expenses notionally attributed to the files wrongfully removed by the defendants. The trial judge did not explain the basis for this percentage reduction, although it appears to be the mid-point between the percentage reductions to general damages imposed in Edgar T. Alberts Ltd. v. Mountjoy, 16 O.R. (2d) 682 (50 percent reduction) and W.J. Christie & Co. v. Greer (1981), 121 D.L.R. (3d) 472 (Man. C.A.) (37 percent reduction).

[6] The difficulty with this reduction in this case is that, on the trial judge's findings, the agreed arrangement between the parties contemplated that any fees generated on completion or settlement on the disputed files were to be shared on an equal, 50/50 basis between the parties, with the appellant bearing sole responsibility for overhead expenses, the provision of the services of a receptionist and the furnishing of office space for two of the defendants and an assistant.

[7] Yet, the trial judge both reduced the general damages otherwise owed to the appellant by 44 percent on account of overhead expenses and further reduced the general damages awarded by an additional 50 percent to reflect the fees-sharing arrangement agreed by the parties. This resulted, in effect, in "double-counting" because the fees-sharing arrangement between the parties already took account of the appellant's responsibility for overhead expenses, including the costs of the services of lawyers and support staff. In other words, the agreed fees-sharing arrangement contemplated that the fees payable to the defendants were net of overhead expenses incurred to earn gross revenues.

[8] In these circumstances, we agree with the appellant that the 44 percent reduction in general damages imposed by the trial judge should be set aside. Given the agreement between the parties and on this evidentiary record, the proper reduction for overhead expenses should have been the sum of $120,000, on account of actual fixed costs (including proportionate rent). Based on the uncontradicted expert evidence at trial, this is the approximate amount that would have been incurred to progress the client files to completion or settlement.

[9] Adjusting the trial judge's general damages award for these factors yields the following (a – b – c = d):

(a)	Gross general damages of $14,204.22 per file (80 x $14,204.22) =
	$1,136,337.60
	MINUS
(b)	Proportionate fixed costs for progressing the files in question to completion or settlement
	- $120,000.00
	$1,016,337.60
	MINUS
(c)	50 percent of net general damages on account of agreed fees-sharing arrangement
	- $508,168.80
(d)	Net adjusted general damages =
	$508,168.80

Punitive Damages

[10] The trial judge declined to award punitive damages in this case primarily on the ground that the claim for these damages was based on the inordinate delay caused by the defendants in the progress of the litigation. With respect, this was an error. The appellant's punitive damages claim was not solely related to litigation delay caused by the defendants. Rather, it focused on the defendants' egregious pre-litigation behaviour in effecting the wrongful removal of the relevant client files from the Deceased's offices, the transfer of those files to a competing law firm, and the persistent failure to return the removed files.

[11] In our opinion, the compensatory damages awarded by the trial judge, as adjusted in accordance with these reasons, are insufficient to account for the defendants' misconduct.

[12] On the trial judge's findings, the defendants stole 120 client files from the Deceased, removing them from his offices surreptitiously, in the dead of night. Eighty of those files would have generated fees for the appellant, but for their wrongful removal prior to completion or settlement. In defiance of a court order, the defendants refused to return the files. Moreover, they attempted to alter the appellant's computer records to remove the information pertaining to each file.

[13] And there is more. As a result of the defendants' wrongful conduct and mismanagement of some of the removed files, the Deceased was named as a defendant in multiple solicitor's negligence suits. Throughout, he was deprived of access to the client files in order to reconstruct the files and properly defend himself.

[14] The trial judge found that the defendants acted in a high-handed manner, that their conduct went "far beyond anything that would be acceptable within the parameters of the administration of justice" (at para. 412), and that they breached foundational duties owed to the Deceased, including their duty of loyalty.

[15] These findings are fully justified on the evidentiary record. The defendants' conduct was indeed outrageous and high-handed. It reflects highly reprehensible misconduct that departs to a significant degree from the ordinary standard of decent behaviour. As a result, it cries out for sanction by the courts.

[16] For these reasons, compensatory damages alone are not sufficient to achieve the goals of deterrence and denunciation. In contrast, an award of punitive damages would serve the rational purpose of deterring and denouncing the defendants' egregious misconduct. We would, therefore, award punitive damages, fixed in the amount of $80,000.

Special Damages

[17] Finally, the trial judge awarded special damages equal to two-thirds of the disbursements incurred by the Deceased in respect of the disputed files ($26,339.32). In our view, the Deceased was entitled to payment of all disbursements actually incurred by him, as proven at trial, in the amount of $39,509.29. The disbursements were a real, out-of-pocket expense incurred by the Deceased, and established on the evidence at trial. On any successful completion or settlement of each of the stolen files, the applicable disbursements would have been fully recoverable by the Deceased.

[18] Accordingly, the appellant is entitled to the additional sum of $13,169.97 ($39,509.29 - $26,339.32) as special damages on account of disbursements paid.

Summary of Damages Award

[19] In the result, after adjustments for the three errors outlined above, the appellant is entitled to damages from the defendants as follows:

(a)	Net general damages:
	$508,168.80
(b)	Special damages (disbursements):
	$39,509.29
(c)	Punitive damages:
	$80,000.00
	Total:
	$627,678.09

[20] The appellant is also entitled to prejudgment interest on the general and special damages set out above (but not on the punitive damages), at the rate of 4.5 percent, as awarded by the trial judge.

[21] For the reasons given, the appeal is allowed in part, in accordance with these reasons. The appellant is entitled to its costs of this appeal, fixed in the amount of $5,000, inclusive of disbursements and all applicable taxes.

J.C. MacPherson J.A. E.A. Cronk J.A. M.L. Benotto J.A.