COURT OF APPEAL FOR ONTARIO

DATE: 20221007 DOCKET: C69625

van Rensburg, Pardu and Copeland JJ.A.

BETWEEN

1027410 Ontario Inc. Plaintiff (Respondent)

and

2384589 Ontario Limited Defendant (Appellant)

Counsel: Paul J. Pape and Cristina Senese, for the appellant Justin Bozzo, for the respondent

Heard: September 20, 2022

On appeal from the judgment of Justice Kelly A. Gorman of the Superior Court of Justice, dated June 3, 2021, with reasons at 2021 ONSC 4036.

REASONS FOR DECISION

A. Introduction

[1] The appellant, 2384589 Ontario Limited, was the landlord of commercial premises where its tenant operated a sports bar and grill. The chattels used in the restaurant were subject to a chattel mortgage in favor of the respondent, 1027410 Ontario Inc. In June 2015, there was a fire at the premises and the tenant abandoned the premises and the chattels. The appellant took possession of the premises and the chattels and then terminated the lease for non-payment of rent. The respondent asserted its rights as chattel mortgagee. Ultimately, the appellant disposed of some of the chattels and incorporated others into a restaurant business it opened in the same premises. The respondent sued the appellant, claiming damages for conversion. The trial judge found the appellant had illegally converted the chattels and awarded the respondent damages of $215,000 plus pre-judgment interest of $10,033.33 and punitive damages of $25,000.

B. Issues on Appeal

[2] The appellant challenges only the damages awarded by the trial judge. The appellant asserts that the trial judge made two errors: first, in awarding compensatory damages based on the market value of the converted property instead of on the outstanding balance owing under the respondent’s chattel mortgage; and second, in awarding $25,000 in punitive damages.

C. DISCUSSION

Issue One: Damages for Conversion

[3] The appellant contends that it was an error for the trial judge to base the award of compensatory damages for conversion on the market value of the converted goods rather than on the amount owing on the chattel mortgage. The trial judge accepted the evidence that the respondent had a chattel mortgage registered under the Personal Property Security Act, R.S.O. 1990, c. P.10 (the “PPSA”), and at the date of the fire was owed $120,419.62. There was also evidence that the goods had an appraised market value of $215,000 — evidence that was contested by the appellant, and ultimately accepted by the trial judge. That appraisal amount is not in dispute on appeal. The appellant contends the trial judge made a palpable and overriding error in failing to deal with the ownership interest it had acquired in the chattels once they were abandoned by the tenant, and that, in turn, the appropriate measure of damages was the amount owed under the chattel mortgage.

[4] We do not give effect to the first ground of appeal. First, the argument made on appeal was not advanced in the court below, and it is unfair for a new theory to be advanced at this stage. Second, the appellant’s argument cannot succeed in any event, based on the findings of the trial judge, the evidence at trial, and the respondent’s rights under the chattel mortgage and the PPSA.

[5] The fire occurred on June 9, 2015. The appellant took possession of the premises shortly thereafter and terminated the lease. A principal of the respondent company toured the premises soon after the fire with the appellant’s representative and showed him the chattel mortgage. The trial judge accepted the evidence that the respondent attempted on several occasions to recover the chattels, some of which had been moved to a storage area. Ultimately, on July 27, 2015, the appellant provided a letter demanding that the respondent remove the chattels by July 31 and requiring written evidence of the respondent’s security interest supporting its entitlement to seize the chattels. After informing the appellant that the July 31 deadline could not be met, the respondent arranged with the appellant’s representative to recover the items on August 4 but was subsequently told the items could not be released.

[6] At trial the appellant argued that the respondent, by not complying with the July 31 deadline in the July 27 letter, had abandoned its claim to the chattels. On appeal, the appellant asserts a new theory: that once the tenant had abandoned its interest in the chattels, it had become the owner of the chattels, and was entitled to deal with them subject to the respondent’s claim to the amount outstanding under the chattel mortgage.

[7] Appellate courts are reluctant to entertain new issues on appeal for reasons related to fairness. To obtain leave to advance a new theory to support its defence, the appellant must demonstrate that all facts necessary to address the point are before the court as fully as if the issue had been raised at trial: Kaiman v. Graham, 2009 ONCA 77, 75 R.P.R. (4th) 157, at para. 18; Sorbam Investments Ltd. v. Litwack, 2022 ONCA 551, at paras. 2, 23.

[8] The appellant did not seek leave to raise a new issue. Instead, the appellant’s counsel, relying on the closing submissions at trial, asserts that trial counsel had in fact put forward the very argument that is made on appeal. We have carefully considered the closing submissions, including the passages relied on by the appellant’s counsel, and we disagree that this argument was made at first instance.

[9] The central issue at trial, according to the closing submissions of the appellant’s counsel, was whether the chattels had been abandoned by the respondent before some were disposed of and others were incorporated into the appellant’s business. There was no argument that the appellant had become the owner of the chattels, or importantly, that for this reason the respondent’s damages claim was limited to the amount it was owed under the chattel mortgage. Instead, the appellant’s trial counsel suggested that the damages claim was limited to the outstanding mortgage amount because, had the chattels been retrieved by the respondent, it would have sold the goods and only realized an amount approximating what was owed under the chattel mortgage following the sale. The argument was not based on an alleged ownership interest held by the appellant.

[10] The trial judge did not err by failing to address an argument that was not advanced before her, and it would be unfair for this court at this stage to consider a new theory to reduce the damages that were awarded for the appellant’s conversion of the chattels.

[11] In any event, the evidence at trial and the trial judge’s findings do not support, and, in fact, contradict the claim that the appellant had an ownership interest in the chattels.

[12] The letter of July 27 advised that the appellant was renovating the premises and required that the “chattels belonging to the former Tenant” be removed by July 31, failing which the appellant would “treat [the chattels] as abandoned and dispose of them in any manner as it [deemed] appropriate”. Subsequently, in communications between the parties’ lawyers, the appellant’s counsel advised that the chattels were being treated as abandoned, but that the appellant was prepared to allow access to the chattels provided that certain payments were made for their storage and alleged damage to the premises. We agree with the respondent that the evidence demonstrates that the appellant acted inconsistently with its current claim of ownership.

[13] In the absence of an ownership interest held by the appellant, the appropriate damage award on the facts established in this case was the fair market value of the chattels at the time of their conversion. Such an award does not represent a “windfall” for the respondent; rather, it places the respondent in the position it would have been had the conversion not occurred. Pursuant to both the terms of the chattel mortgage and s. 65(2) of the PPSA, the respondent was entitled to recover and retain the chattels upon the tenant’s default. The tenant abandoned the goods, and no other claims were asserted. A damage award equal to the full market value of the chattels therefore compensates the respondent for the goods it was entitled to retain.

[14] For these reasons, we do not give effect to the appellant’s arguments on appeal concerning the award of compensatory damages. The appellant has not established that there was any error in the trial judge’s determination that the respondent was entitled to the market value of the converted goods, $215,000.

Issue Two: Punitive Damages

[15] The trial judge concluded that the appellant was entitled to punitive damages after considering the factors identified by the Supreme Court in Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at paras. 112-26. She found that the respondent had asserted its rights over the chattels at its first opportunity and provided proof of its entitlement to the chattels, and the appellant knew what it was doing was wrong in law, persisting and profiting from its conduct. She described the appellant’s conduct as “entirely blameworthy”. She concluded that punitive damages were required to adequately address the wrongdoing of the appellant who “acted in a high-handed manner, intent on depriving the [respondent] of its own property”. She also found that the punitive damages were necessary to satisfy the need for general and specific deterrence. She awarded punitive damages of $25,000, considering this an appropriate amount to address the principles in Whiten.

[16] The appellant argues in its factum that the trial judge’s finding that punitive damages were appropriate was underpinned by the same error that caused her to award the respondent the full value of the chattels: she did not appreciate that the appellant had an ownership interest in the chattels. In oral argument, the appellant asserted that the trial judge erred by not considering whether punitive damages were necessary, in view of the fact that the respondent was awarded damages that exceeded the amount of its loss. The appellant argued that the quantum of punitive damages was not a “measured response” and exceeded the bounds of rationality.

[17] Provided that there is no incorrect application of legal principles or misapprehension of relevant facts, a trial judge’s decision to award punitive damages and the quantum of damages awarded will be accorded deference: Armstrong v. Moore, 2020 ONCA 49, 15 R.P.R. (6th) 200, at para. 35; Grand Financial Management Inc. v. Solemio Transportation Inc., 2016 ONCA 175, 395 D.L.R. (4th) 529, at para. 103, leave to appeal refused, [2016] S.C.C.A. No. 183; and Pate Estate v. Galway-Cavendish and Harvey (Township), 2013 ONCA 669, 117 O.R. (3d) 481, at paras. 197, 219. A trial judge’s decision to award punitive damages will be respected if they are a rational response to the defendant’s misconduct: Armstrong, at para. 35; Whiten, at paras. 100-1. An appellate court will interfere with the quantum of punitive damages if it finds that no reasonable jury, properly instructed, could have concluded that an award in that amount, and no less, was rationally required to punish the defendant: Whiten, at para. 107.

[18] Appellate intervention is not required here.

[19] As we have rejected the appellant’s argument that the trial judge erred in failing to recognize its ownership interest in the chattels, there is no basis for the argument asserted in the appellant’s factum.

[20] Nor do we consider the quantum of punitive damages awarded by the trial judge as exceeding the bounds of rationality. We do not agree with the appellant’s argument that the compensatory damages would have served the purpose of punitive damages in this case. The amount of the compensatory damages was based on the market value of the goods illegally converted by the appellant. Requiring the appellant to pay the market value of the goods wrongfully converted – the appropriate measure of compensatory damages in this case – would not have addressed the different objective of punitive damages, which is to punish the appellant for its misconduct. As in Pita Royale Inc. (Aroma Taste of the Middle East) v. Buckingham Properties Inc., 2019 ONCA 439, 1 R.P.R. (6th) 1, leave to appeal refused, [2019] S.C.C.A. No. 307, which involved an appeal in a case of conversion by a landlord and a claim by the tenant, “[t]he 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”: at para. 27.

D. Disposition

[21] For these reasons the appeal is dismissed. Costs are awarded to the respondent in the sum of $20,000, inclusive of HST and disbursements.

“K. van. Rensburg J.A.”

“G. Pardu J.A.”

“J. Copeland J.A.”