Court of Appeal for Ontario
Date: May 27, 2019
Docket: C64803
Judges: Hourigan, Benotto and Huscroft JJ.A.
Parties
Between
Pita Royale Inc. o/a Aroma Taste of the Middle East
Plaintiff (Respondent)
and
Buckingham Properties Inc. and William Mandelbaum
Defendants (Appellants)
Counsel
David A. Weisman, for the appellants
Harvey S. Consky and Rana Nosratpanah Gashti, for the respondent
Hearing and Appeal
Heard: February 21, 2019
On appeal from: The judgment of Justice Carole J. Brown of the Superior Court of Justice, dated December 18, 2017, with reasons reported at 2017 ONSC 5976.
Decision
Hourigan J.A.:
Overview
[1] The appeal arises from an action by the respondent against Buckingham Properties Inc. ("Buckingham") and its principal, William Mandelbaum, for improper termination of a commercial lease of a restaurant and illegal distraint or conversion of the restaurant chattels. Buckingham counterclaimed for arrears of rent.
[2] The trial judge found that the lease termination was proper, but that Buckingham had illegally distrained the respondent's chattels. The first finding is not challenged on appeal. The trial judge awarded the respondent $58,190.74 in damages for conversion, $10,000 in punitive damages, and costs on a partial indemnity basis in the amount of $74,305.15. These amounts were offset by damages of $1,294 for unpaid rent awarded on the counterclaim. In addition, the trial judge found that Mr. Mandelbaum was jointly and severally liable for these damages with Buckingham.
[3] This appeal raises the following issues:
(i) Did the trial judge err in finding that the respondent's goods and chattels were illegally distrained or that they had a value of $58,190.74?
(ii) Did the trial judge err in awarding punitive damages in the amount of $10,000?
(iii) Did the trial judge err in finding Mr. Mandelbaum jointly and severally liable with Buckingham?
(iv) Did the trial judge err in her assessment of damages on the counterclaim?
(v) Did the trial judge err in awarding costs?
[4] For the following reasons, I would allow the appeal in part. I would reduce the damages for conversion to $18,539.71, but not interfere with the punitive damages or the damages awarded on the counterclaim. In addition, I would set aside the finding that Mr. Mandelbaum is jointly and severally liable with Buckingham, and order that the parties make written submissions regarding the trial costs if they cannot resolve that issue.
Analysis
Issue 1: Illegal Distraint
[5] The trial judge did not err in finding that Buckingham had to choose between the mutually exclusive remedies of termination and distress. Instead of making a choice, it attempted to do both. Thus, the distraint was illegal.
[6] The critical issue on distraint is the trial judge's calculation of damages. The appellants submit that there were a limited number of items left on the premises and that Buckingham paid for those by means of a $4,000 cheque that was delivered to the respondent after Buckingham retook possession. The trial judge found that the value of the goods distrained was far in excess of $4,000. However, she did not specifically identify which chattels had been distrained and did not provide any analysis of the quantum of damages. She simply noted, "[b]ased on the evidence adduced, I award damages for conversion in the amount of $58,190.74".
[7] At trial, the main evidence regarding the quantum of damages consisted of bank statements and cheque images relating to various items purchased for the restaurant. The respondent provided additional evidence in his viva voce testimony, explaining the purpose for each expense noted in those exhibits. He further testified to what he remembered to have paid for certain additional items.
[8] The respondent's counsel also prepared a list entitled "Schedule of Plaintiff's Capital & Renovation Costs" (the "C&R List"). The C&R List was provided to the trial judge "just for demonstrative purposes". It purported to summarize the relevant expenses documented in the cheque images and bank statements. The list had several flaws: it included some items that should have been excluded, and it excluded some items that likely should have been included. The respondent's counsel prepared an amended version of the list (the "Amended C&R List"), which decreased the amount claimed from $76,538.26 to $58,190.78.
[9] The appellants argue that the damages awarded were based on the Amended C&R List, and that the list included several items that should have been excluded. In particular, the appellants submit that certain items were fixtures, and that third party leasing companies owned certain other chattels. As a result, the appellants say, the quantum of damages should have been much lower.
[10] Although the respondent addresses some of the appellant's arguments, it does not specifically address every item on the list line-by-line, but generally submits that the trial judge's factual findings are owed deference. The respondent also argues that the trial judge did not rely solely on the Amended C&R List to calculate the damages, but on all of the evidence. Its position is that the trial judge did not include any listed fixtures in her award of damages, but included other items not on the list.
[11] Trial judges' assessments of damages are owed considerable deference by an appellate court: Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, [2001] 2 S.C.R. 943, at para. 80. The calculation of damages is often more of an art than a science, requiring the trial judge to make judgment calls. In this case, however, the trial judge has offered no guidance on how she calculated the damages. It therefore falls to this court to review the evidence and calculate the damages that should have been awarded.
[12] I start with the Amended C&R List. It includes claims related to leased equipment. The respondent filed several equipment lease documents, which generally provide that the respondent would have had an option after three years to purchase the equipment. In the meantime, however, the respondent would not have any title or right to the equipment beyond a right to maintain possession. Therefore, the respondent had accumulated no equity interest in the equipment at the time of the distraint. The equipment was subsequently returned to its owners. As a result, these items were not subject to distraint and should be excluded from the calculation of damages. These claims total $21,786.24.
[13] I would also disallow several claims in the Amended C&R List for items related to renovation costs. These claims, which consist of money paid to contractors and total $6,400.00, cannot be included in a claim for illegal distraint. Nor would I permit costs that are clearly related to fixtures (e.g., a fire door, drywall, tiles, and lights). These fixture claims total $7,758.29.
[14] The respondent made a claim for restaurant equipment originally purchased from Buckingham for $16,950. It is clear that many of the items purchased were no longer on the premises following a renovation of the property undertaken by the respondent. The purchase also seems to have included an element attributable to goodwill. However, the respondent's principal, Jcyk Josefsberg, testified that there remained on the premises a walk-in refrigerator and freezer that was part of this purchase. He valued that item at $5,000, and I would include that amount in the damages awarded under the Amended C&R List.
[15] In addition to the foregoing, I would reduce the amount awarded by $320.59 to reflect amounts that were erroneously referred to as debits to the respondent's bank account but were actually credits.
[16] In total, I would award damages pursuant to the Amended C&R List in the amount of $10,375.15.
[17] The respondent is correct that it was open to the trial judge to award damages for items that were not included in the Amended C&R List. Together with Mr. Josefsberg's testimony, the cheque images filed support the inclusion of certain other amounts in the damages award. They amount to $7,864.56 and include amounts paid for a cash register touch screen, a salad bar, a debit machine, dishes, and supplies.
[18] In addition to the C&R List, another list was also provided to the trial judge, titled "List of Inventory Being Claimed by Mr. Josefsberg" (the "Inventory List"). This list summarized the chattels that the respondent claimed in his viva voce testimony to have been distrained by the defendant. At para. 34 of her reasons, the trial judge mentioned many items on this list with implicit approval, and it was open to her to find that they were distrained by the appellant based on the respondent's testimony. Most of the items, such as a cutting board, a stereo system, and mirrors, did not appear on any other list already mentioned.
[19] The Inventory List filed on appeal does not include any monetary values for the chattels. It appears from the transcripts that a version of this list with monetary values was presented at trial. It was not, however, made an exhibit; it was only meant "to assist the court". The respondent did, however, provide testimony on what he remembered to have paid for a handful of the listed items. Specifically, he testified that he paid $300-$600 for a set of stainless steel shelves, $250 for a bistro set, and $750 for tables. Therefore, I would award $1,300 for items on the Inventory List.
[20] In a supplementary factum filed on appeal, the respondent includes two more lists, which were not provided at trial. Together, items on these lists add up to $59,178.30. The first list, the "Receipted Chattels List", purports to include items paid for by cheque, debit or credit card payment. The second list included in the respondent's supplementary factum is the "Unreceipted Chattels List", and it purports to include items paid for by cash or debit. Both lists consist almost entirely of items already discussed as part of other lists. The only new item from these lists open to the trial judge to add to the quantum of damages was $3,000 towards a sign. The appellants conceded in their analysis of the Amended C&R List that a partial payment of $1,000 for this sign would be properly included in the damages. Therefore, I would add $3,000 to the damages calculation for this item.
[21] Based on the foregoing, I would calculate damages to be $22,539.71. There is no evidentiary basis for additional damages.
[22] It is uncontroverted that Buckingham paid $4,000 to the respondent pursuant to a Bill of Sale for "assorted tables & chairs, assorted dishes, pots & pans." In the appellants' submission, the amounts properly included in the calculation of damages – which the appellants argue total $4,629.25 – were "covered" by that $4,000. The respondent argues that the appellants should not be allowed to "profit from their illegal distraint", and that it only accepted the $4,000 in dire financial circumstances.
[23] The trial judge did not reduce the amount of damages by $4,000. I find that she erred in not setting this payment off from the damages awarded. I would allow this set-off because the respondent did not establish that there was no overlap between the Bill of Sale and the items for which damages were awarded.
[24] In summary, I would calculate damages for conversion to total $22,539.71, but would reduce that amount by $4,000 to reflect the payment made pursuant to the Bill of Sale, so that the final figure for such damages is $18,539.71.
Issue 2: Punitive Damages
[25] The trial judge was satisfied that the actions of the appellants in distraining the chattels on the premises and converting them for use by a new tenant without providing Mr. Josefsberg with an opportunity to remove those items from the restaurant warranted an award of punitive damages. She also found that these actions caused injury to the respondent's credit and reputation.
[26] The appellants submit that if they are found not to have illegally distrained the respondent's property, there is no basis to award punitive damages. However, as noted above, the respondent's property was illegally distrained, albeit at a much lower amount than the trial judge found.
[27] Appellate courts will not lightly interfere with a trial judge's decision that punitive damages are appropriate in the circumstances of a given case, so long as they are a rational response to the facts: Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at paras. 76, 100. The findings made in support of the award were open to the trial judge on the record, and they rationally support the imposition of punitive damages in the amount ordered. I see no basis for appellate interference.
Issue 3: Personal Liability
[28] The trial judge found Mr. Mandelbaum personally liable. In so finding, she stated, "[t]he individual defendant cannot hide behind the corporate veil in the circumstances of this case." She also found that "the relationship of landlord-tenant was between Mr. Mandelbaum and Mr. Josefsberg." Further, the trial judge relied on a British Columbia Supreme Court decision for the proposition that "[d]irectors may be held responsible for the tortious acts of their company where those acts were expressly directed by them: Beaver Steel Inc. v. Skylark Ventures Ltd., [1983] B.C.J. No. 54 (S.C.)." Those statements represent the totality of the trial judge's analysis of Mr. Mandelbaum's personal liability. In my view, the trial judge erred in law in finding Mr. Mandelbaum personally liable.
[29] The trial judge erred in her analysis of the parties to the lease. Contrary to her statement, the lease was between the respondent and Buckingham, two corporate parties. There was no pleading that the corporate principals were the real parties to the lease. There was also no evidence to support such a finding. The fact is that corporations act through officers and directors. That does not change the nature of the contractual relationships they enter into, such as the commercial lease in this case.
[30] The trial judge also erred in failing to consider the nature of the allegations pleaded against Mr. Mandelbaum. In McDowell v. Fortress Real Capital Inc., 2019 ONCA 71, this court emphasized the need to plead the particulars of tortious conduct separate from that of the company when suing officers and directors. In the statement of claim, Mr. Mandelbaum was sued on the basis that he "was at all material times the director, president and controlling mind of Buckingham Properties Inc." There were no allegations of separate misconduct levelled against him. It is unconscionable to find an officer or director of a company liable in circumstances where they do not know the precise nature of the alleged malfeasance and how it leads to liability separate from that of the corporation.
[31] In addition, Beaver Steel was relied on by the trial judge without reference to the leading case in Ontario on officers and directors' liability, being ScotiaMcLeod Inc. v. Peoples Jewellers Ltd., 26 O.R. (3d) 481. That case was binding on the trial judge. In it, Justice Finlayson said the following about the personal liability of directors and officers for torts, at pp. 490-91:
The decided cases in which employees and officers of companies have been found personally liable for actions ostensibly carried out under a corporate name are fact-specific. In the absence of findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers, they are also rare. Those cases in which the corporate veil has been pierced usually involve transactions where the use of the corporate structure was a sham from the outset or was an afterthought to a deal which had gone sour... Additionally there have been attempts by injured parties to attach liability to the principals of failed businesses through insolvency litigation. In every case, however, the facts giving rise to personal liability were specifically pleaded. Absent allegations which fit within the categories described above, officers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own.
[32] More recently, in 642947 Ontario Ltd. v. Fleischer, 56 O.R. (3d) 417, at para. 68, Laskin J.A. stated as follows:
Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. But it can also be pierced if when incorporated "those in control expressly direct a wrongful thing to be done": Clarkson Co. v. Zhelka at p. 578. Sharpe J. set out a useful statement of the guiding principle in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., 28 O.R. (3d) 423 at pp. 433-34 (Gen. Div.), aff'd [1997] O.J. No. 3754 (C.A.): "the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct."
[33] In this case there was no evidence that Buckingham was incorporated as a sham or was being used as a shield for fraudulent or improper conduct. If the trial judge's analysis were accepted, then any time a corporation engaged in a tort its officers and directors would be personally liable. In summary, this is not one of those exceptional cases where the corporate veil should be pierced to impose liability on an officer or director.
Issue 4: Counterclaim
[34] In its counterclaim, Buckingham sought $9,879 for rental arrears in addition to $1,000 for work it alleges was done by its workers on the premises.
[35] The key issue in the claim for rental arrears was the date when the respondent was locked out. Buckingham took the position that it occurred in September and the respondents submitted that it took place in August. The trial judge preferred the evidence of the respondent on this point and calculated rental arrears accordingly. This was a finding open to her on the evidence.
[36] The trial judge also found that there was no evidence to support the claim for the work alleged to have been undertaken. Again this was a finding open to the trial judge on the record.
[37] In the circumstances, I would not interfere with the trial judge's calculation of damages in the counterclaim.
Issue 5: Costs at Trial
[38] As a result of the conclusions herein, the costs award made by the trial judge cannot stand. The parties are encouraged to reach an agreement on the issue of the trial costs. If they cannot do so, I would require written submissions to this court within 14 days of the issuance of these reasons.
Disposition
[39] I would allow the appeal in part and reduce the damages for conversion to $18,539.71, but I would not interfere with the punitive damages award. The damages awarded on the counterclaim are upheld and those damages should be set off against the conversion damages. In addition, I would set aside the finding that Mr. Mandelbaum is liable and order that the parties make written submissions regarding the trial costs if they are unable to agree on the issue.
[40] With respect to the costs of the appeal, I am of the view that there has been mixed success and would award no costs.
Released: May 27, 2019
"C.W. Hourigan J.A."
"I agree. M.L. Benotto J.A."
"I agree. Grant Huscroft J.A."