DURHAM COURT FILE NO.: 53981/08
DATE: 20120803
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
STEVEN FOSTER PELESHOK, ESTATE TRUSTEE OF THE ESTATE OF STEVE PELESHOK
Plaintiff
- and -
HARRY PELESHOK, AUDREY HELEN PELESHOK and PELESHOK MOTORS LIMITED
Defendants
John W. Montgomery, for the Plaintiff
Howard Winkler, for the Defendants
HEARD: Written Submissions from the Plaintiff dated June 5, 2012, and from the Defendant dated July 3, 2012, and oral argument on August 2, 2012
REASONS FOR DECISION ON DAMAGES
LAUWERS J.
[1] The facts in this case are set out in the Reasons for Decision dated May 24, 2011. found at 2011 ONSC 3156, [2011] O.J. No. 2341. While the plaintiff was successful, the damages calculation was left for further submissions:
131 I fix equitable compensation as follows:
Half of all sums received by the defendants in respect of the 87 acre property, including the proceeds of any sales, mortgage interest payments and any revenues including rent payments;
LESS half of all amounts paid by Harry towards the 87 acre property, including mortgage payments, property tax payments and the BEF litigation costs and any other reasonable incidental costs, taking care to exclude a proportion of such payments properly attributable to the dealership parcel such as, for example, a proportion of the Barrett Mortgage;
LESS interest payments to be imputed to the defendants for paying Steve’s share of the amounts referred to above, calculated at the pre-judgment interest rate or rates prescribed under the Courts of Justice Act, R.S.O. 1990, c. C.43 in respect of the individual payments whenever made;
The balance to be paid by the defendants to the plaintiff together with pre-judgment interest calculated at the pre-judgment interest rate prescribed under the Courts of Justice Act…
133 If the parties are unable to agree on the actual amounts to be included in the calculation set out above, they are directed to arrange an appointment with me through the Trial Co-ordinator within the next three weeks.
[2] The parties were not able to agree, leading to written submissions exchanged in June and July 2012. The written submissions were massively divergent. The plaintiff submitted that the calculation results in an award of more than $5.1 million. The defendants submitted that the award properly calculated should be about $2.8 million. My conversancy with the case would have been much better had the submissions occurred three weeks after the decision was released in May 2011, as I expected. That said, I found both approaches to be inconsistent with my Reasons and requested counsel to appear on August 2, 2012. I spoke to them the day before by conference call to advise them of my concerns.
[3] The dispute between the parties revolves around two general issues. The first is the proportion of Harry Peleshok’s expenses for which Steve Peleshok was responsible, and the second is the calculation of interest owing by each of the parties to each other.
The proportionality issue
[4] This issue is raised by the following words in paragraph 131:
LESS half of all amounts paid by Harry towards the 87 acre property, including mortgage payments, property tax payments and the BEF litigation costs and any other reasonable incidental costs, taking care to exclude a proportion of such payments properly attributable to the dealership parcel such as, for example, a proportion of the Barrett Mortgage. (Emphasis added.)
[5] The proportionality issues between the parties are framed by the defendants as follows:
- Excluding interest, the Defendants propose to deduct $528,008.41 from the gross amount payable to the Plaintiff, representing one-half of amounts paid by the Defendants for:
(a) property taxes;
(b) mortgage principal and interest payments;
(c) income tax on amounts received from the sales of the 87 acre property;
(d) costs relating to the BEF litigation; and
(e) costs of sale, such as real estate commission.
- The Defendants accept the Plaintiff’s calculations for items (c) through (e) above. However, the amounts for items (a) and (b) remain in dispute.
[6] I consider the property taxes, the mortgage payments, and the rent receipts in turn.
Property taxes
[7] There is a large measure of agreement on the underlying numbers, as reflected in the defendants’ submissions:
There is no dispute that the Defendants should be credited annually with $766.22 in property taxes from 1967 to 1987.
The Defendants also submit that the Plaintiff should be responsible for 22% of the net property taxes for the years 1998 to 2003. This would reflect the Plaintiff’s 22% interest in the combined parcel on which property taxes were paid, as calculated by the Plaintiff at paragraph 9 of its submissions. The Defendants also agree with the Plaintiff that “[a]ll amounts received by PML from Ajax Jeep Eagle in respect of property taxes must be deducted from the property tax expenses before those expenses are apportioned and deducted from amounts owed to Steve.”
[8] The derivation of the plaintiff’s 22 per cent interest in the combined parcel is set out in the plaintiff’s submissions:
- The 2001 tax bill shows that the taxes are assessed on Parts 1 and 2, Plan 40R-10504. Part 1 is the dealership parcel. Part 2 is an 8 acre parcel that represents the remainder of the original 87 acres after the 1987 sale of 79 acres to John Boddy Developments. The defendants have attributed to Steve 25% of the taxes paid on Parts 1 and 2, on the basis of Steve’s one-half interest in Part 2. However, since Parts 1 and 2 are not equal in size, an attribution based on 50/50 split between PML and the brothers is improper: Part 2 is 8 acres, which is 44%, rather than 50%, of the whole 18 acre parcel. Therefore, Steve’s interest in the combined parcel consisting of Parts 1 and 2 is 22%.
[9] The plaintiffs submit, however, that leaving the contribution at 22 per cent would be unfair because:
- Steve should be responsible for his share of taxes at the farm or agricultural rate only. Though his proportionate ownership of Parts 1 and 2 on Plan 40R-10504 is 22%, he should be responsible for no more than 10.66% of the net property tax paid on Parts 1 and 2 from 1998 to 2003. This represents a reduction of 51.5% of Steve’s 22% proportionate share, which is based on the ratio of farm tax rates to commercial tax rates in 2012.
[10] The defendants describe the plaintiff’s approach this way:
- Despite its 22% interest, the Plaintiff further submits that it should be responsible for no more than 10.66% of the net property tax, because “[c]ommercial properties are taxed at higher rates than farm properties,” and “the 8 acres remaining after the sale to Boddy were taxed at a commercial rate ... entirely due to Harry’s unilateral decision to transfer this remaining 8 acre parcel to PML.” The Plaintiff then speculates what the difference between the property tax rates for commercial and agricultural properties would have been during the relevant years. Aside from being highly speculative, this exercise ignores the Reasons themselves, according to which the Defendants may deduct “half of all amounts paid by Harry towards the 87 acre property, including ... property tax payments ...” The enquiry is to determine what was actually paid, and it is completely irrelevant if the amounts arose from a unilateral decision or otherwise. (Emphasis in original.)
[11] There is no dispute that the defendants paid the taxes and are entitled to credit for having done so. The task was to calculate the credit on what was actually paid.
[12] I agree with the defendants that the differentials between commercial and agricultural rates over the years are somewhat speculative. Perhaps the commercial zoning assisted the defendant in up-zoning the balance of the property, thereby increasing its value, from which the plaintiff now benefits.
[13] I accept the defendants’ calculation, described below:
- The Plaintiff should be responsible for 22% of the property taxes paid during the period between 1998 and 2003, net of amounts received from Ajax Jeep Eagle, to reflect the Plaintiff’s 22% interest in the combined parcel, as calculated in the following table:
Year Gross Property Taxes Paid by Defendants Less: Amounts from Ajax Jeep Eagle Net Property Taxes Paid by Defendants Plaintiff’s 22% Share of Property Taxes 1998 $ 72,721.77 $ 0.00 $ 72,721.77 $ 15,998.79 1999 18,378.35 14,592.98 3,785.37 832.78 2000 49,159.60 6,463.35 42,696.25 9,393.18 2001 52,935.07 13,726.21 39,208.86 8,625.95 2002 55,786.76 0.00 55,786.76 12,273.09 2003 26,118.04 5,355.69 20,762.35 4,567.72 $ 51,691.51 This number must be added to the property taxes paid by the defendants from 1967 to 1987, and the parties agree that the defendants should therefore be credited with $67,782.13 in property taxes.
Mortgage principal and interest payments
[14] The defendants argue that the plaintiff should be responsible for $17,500.00 in principal and $8,500.00 in interest expenses on the Barrett Mortgage. They submit that “the evidence is incomplete in respect of these payments, and the mathematically-sound consensus has already been reached on how they should be apportioned between the parties.” In making this submission, the defendants rely on a letter sent by plaintiff’s counsel Mr. Montgomery to Mr. Winkler dated July 8, 2011:
The evidence is incomplete in respect of the interest paid under the Barrett Mortgage, the rental payments received by your client, and the amount of property taxes paid in respect of the 87 acre parcel.
With regard to the Barrett mortgage, it was your client’s evidence that he simply paid whatever the mortgage required. The mortgage itself provides for principal payments of $300 bi-annually on the 31st of January and July each year from January 31, 1967 to January 31, 1976, with the remaining principal to be paid on July 31, 1976. This amounts to $5,700 in total principal payments, with the result that $29,300 would be due on maturity. However, the letter from Barrett’s lawyer dated July 13, 1976, which is at Tab 4 of Volume 2 of Exhibit 3 at trial, indicates that the principal owing as of August 1, 1975 was $19,600. This indicates that additional principal payments were made; this, in turn, would reduce the amount of interest accrued.
Since the amount and timing of principal payments cannot be determined, it will be virtually impossible to establish the exact amount of interest paid on the Barrett Mortgage. Had no principal payments been made, interest at 6% for nine years would amount to $18,900. In order to resolve this matter, on a without prejudice basis my client is prepared to settle that aspect of the calculation based on a total interest figure of $17,000.
[15] The plaintiff, however, asserts that while the quantum was agreed, the proportion was not. On that issue, the plaintiff submits:
- The Barrett Mortgage covered the entire original 97 acres, including both the 87 acre property and the 10 acre dealership parcel. Consequently, only 87/97, or 89.7%, of the mortgage payments are attributable to the 87 acre property, while the remaining 10/97, or 10.3%, of the payments are attributable to the dealership parcel. To account for this, the principal and interest payments under the Barrett Mortgage must be multiplied by 0.897 before being divided in half to arrive at Steve’s share of these expenses. The result is that each interest payment shown in the defendants’ spreadsheet must be reduced from $850 to $762.45. With respect to the principal payments, each $300 payment must be reduced to $269.10; the $5,300 payment must be reduced to $4,754.10; and the $9,800 payment must be reduced to $8,790.60.
[16] I accept the adjustment proposed by the plaintiff as reasonable in the circumstances.
Rent receipts
[17] The plaintiff’s submission states:
- No records were kept regarding rent. Harry’s testimony at trial was that he collected rent at the rate of between $600 and $800 per year for 10 to 12 years. Since it is Harry who collected rent without accounting for it or keeping records, the plaintiff should be entitled to credit based on the upper end of these estimates: $800 per year for 12 years. Since there is no information available as to what years the property was rented, Steve should be entitled to credit for $400 per year from 1967 to 1979.
[18] The defendants submit in response:
The Defendants submit that the appropriate amount for half of all rent payments is $3,600, which reflects what the Plaintiff initially proposed in its correspondence dated July 8, 2011. This amount is consistent with a collection rate of between $600 and $800 per year (half of which is to be credited to the Plaintiff) over a period of 10 to 12 years.
The Plaintiff, after originally proposing an amount of $3,600, now seeks to obtain $4,800, claiming that, “[s]ince it is Harry who collected rent without accounting for it or keeping records, the Plaintiff should (sic) entitled to credit based on the upper end of these estimates: $800 per year for 12 years.” However, the Plaintiff had previously indicated that “[g]iven the lack of records, the fair way to deal with this item is to take a mid-range figure of $7,200.” Moreover, in its letter to the court, the Plaintiff did not identify rent payments as an outstanding issue. (Emphasis in original.)
[19] The defendants rely on Mr. Montgomery’s letter of July 8, 2011 which stated:
No records have been produced in respect of rent payments, and it is not likely that any such records exist. The payments were made decades ago. Harry Peleshok’s testimony at trial was that he collected rent at the rate of between $600 and $800 per year, for 10 to 12 years. This results in a range of $6,000 to $8,400 for rent collected. Given the lack of records, the fair way to deal with this item is to take a mid-range figure of $7,200.
[20] I view this matter as having been settled between the parties and accept the defendants’ position.
The interest issues
[21] This brings me to the most contentious set of issues between the parties. Under paragraph 131 of the Reasons, the plaintiff was to receive one-half of all sums received by the defendants in respect of the 87 acre property, subtracting half of all amounts paid by Harry towards the 87 acre property:
LESS interest payments to be imputed to the defendants for paying Steve’s share of the amounts referred to above, calculated at the pre-judgment interest rate or rates prescribed under the Courts of Justice Act, R.S.O. 1990, c. C.43 in respect of the individual payments whenever made;
The balance to be paid by the defendants to the plaintiff together with pre-judgment interest calculated at the pre-judgment interest rate prescribed under the Courts of Justice Act.
[22] According to the written submissions, three issues divide the parties. First, the plaintiff submits that an interpretation of the decision that prescribes the differential interest rates: “…operates to the substantial prejudice of the plaintiff and rewards the defendants for concealing their wrongdoing.” The nub of the issue is this: “If interest is calculated as described above, the defendants gain the benefit via interest rates on expenses that they are entitled to credit for, and were to be paid by them in high-interest years. On the other hand, Steve is entitled to pre-judgment interest at six per cent, so he is deprived of the same benefit, even though substantial amounts came due to him in high interest years.”
[23] The defendants submit that this: “is an attempt on the part of the plaintiff to re-litigate its case and argue why a certain compensation structure should be awarded. However, the purpose of submissions at the present stage is to calculate the compensation that has already been awarded (Emphasis in original).”
[24] I note that para 131 of the Reasons states: “This calculation accepts that the defendants are entitled to some recognition for the additional amounts they paid to preserve the opportunity to earn the windfall on the property that eventually materialised.” In paragraph 132 I declined to give the defendants an additional discount for risk.
[25] I agree with the defendants that this issue is a matter for the Court of Appeal to determine.
[26] The plaintiff identifies a second issue, which is that many of the payments were made by the defendants before the Courts of Justice Act came into existence; this theoretically “will result in there being no applicable interest rate for those payments made before 1984.” The defendants submit in response that: “The interest rate payable published by the Ministry of the Attorney General clearly indicates that the prime bank rate should be used in such a situation, which is what the defendants have used in the present case for payments made in 1984 and earlier.” I agree with the defendants’ approach on this issue.
The interest calculations
[27] There is, regrettably, no simple way to describe the morass that the parties have created on this issue. As noted above, the spread between them is massive at $2.3 million, with the plaintiff submitting that the calculation prescribed by the judgment results in an award of more than $5.1 million, and the defendants submitting that it results in an award of about $2.8 million. I repeat for convenience the relevant subparagraphs of paragraph 131 of the Reasons:
LESS interest payments to be imputed to the defendants for paying Steve’s share of the amounts referred to above, calculated at the pre-judgment interest rate or rates prescribed under the Courts of Justice Act, R.S.O. 1990, c. C.43 in respect of the individual payments whenever made;
The balance to be paid by the defendants to the plaintiff together with pre-judgment interest calculated at the pre-judgment interest rate prescribed under the Courts of Justice Act…
[28] In respect of its interest claim for amounts paid by Harry that Steve should have paid, the defendants’ approach to their interest entitlement from Steve is well explained in the plaintiff’s submission:
The defendants have calculated interest on the amounts in respect of which they are entitled to a credit… at rates applicable at the time that each amount became payable. For example, for the year 1990 the defendants claim $87,894.63 as Steve’s share of income taxes paid in that year in respect of the sale to John Boddy Developments. In the “Interest on Costs” column of their spreadsheet, the defendants claim $252,872.85 for interest accrued on this amount to the end of 2011. Divided evenly by the 21 years between 1990 and 2011, this amounts to $12,041.56 per year, which is a rate of 13.7%. This is the average of the pre-judgment interest rates prescribed under the Courts of Justice Act for the second and third quarters of 1990.
[29] I note that the determination of the applicable interest rates is consistent with the Reasons. But the defendants make this calculation in respect of each of the amounts paid by Harry from the date that they were made all the way through to December 31, 2011. Their spreadsheet calculates this amount at $1,159,823.99. Mr. Winkler argues that this is the appropriate approach because the Reasons do not specify a cut-off date for the interest calculations. As will be explained below, I do not agree with this approach.
[30] The plaintiff took a similar approach to the amounts that Harry should have paid to Steve, calculated at six per cent from the date that each payment should have been made all the way through to December 31, 2011. The defendants criticize the plaintiff’s calculation:
- The Plaintiff submits that it is entitled to receive $3,200,509.36 in pre-judgment interest, erroneously arriving at this figure by multiplying each of the gross amounts, prior to deductions, by the 6% interest rate and corresponding time periods. There is no basis for such a formula. Pre-judgment interest is to be calculated on the net balance owing, not on gross amounts prior to deductions. According to the Reasons, “[t]he balance [is] to be paid by the defendants to the plaintiff together with pre-judgment interest calculated at the pre-judgment interest rate prescribed under the Courts of Justice Act.” It would be an absurd reading of these Reasons to have the Defendants pay pre-judgment interest on a larger amount than they owe. (Emphasis by defendants.)
[31] The defendants argue that the use of the word “balance” in the singular in para. 131 of the Reasons means that only one balance can be calculated. This leads the defendants to generate a devilishly complicated weighted-average calculation that distributes the pre-judgment interest owed to the plaintiff over the years since 1967 and produces the ultimate figure of $1,423,071.25 in pre-judgment interest to be paid to the plaintiff: “This figure is obtained by multiplying the balance owed to the Plaintiff ($1,364,427.71) by the interest rate (6%) and the number of years outstanding for each individual payment (a weighted-average of 17.38 years).”
[32] The defendants calculated that balance of $1,364,427.71 by taking the gross amount owed to Steve ($3,052,260.10), deducting the share of the Steve’s expenses that Harry paid ($528,008.41), and further deducting the interest imputed to the defendants on the expenses ($1,159,823.99).
Disposition on the interest calculation
[33] I do not accept the reasoning behind the interpretation of paragraph 131 of the Reasons by either side as to its own interest entitlement, the other side’s interest entitlement, or the way that the entitlements are to be reconciled. Instead of applying Occam’s razor, the parties took a result-selective approach, and have overcomplicated things beyond reason, certainly beyond anything that I intended or would have prescribed. I set out below my much simpler view of how the calculation should be done. It is not the way that either side calculated their respective interest entitlements.
[34] It would perhaps be helpful to go back to first principles in relation to the payment of interest. These are set out in Morden & Perell, The Law of Civil Procedure in Ontario (Markham:LexisNexis, 2010) at page 646:
Delaying the payment of debt may be advantageous to the debtor, who can use the unpaid money to earn revenue. Where payment is delayed, there is a corresponding loss to the creditor who, pending payment, is unable to make use of the money that belongs to him or her. Awards of prejudgment and postjudgment interest are designed to take the advantage of delaying payment away from the debtor, to encourage the early payment of debts, to encourage early settlements and to discourage defendants resisting payment simply because of the financial advantage of delaying judgment.
Prejudgment interest and postjudgment interest are compensation to the plaintiff for the loss of the use of the money ultimately awarded by court order and are intended to put the plaintiff in the position it would have been in had it received the money when it was due for payment. [Internal footnotes omitted.]
[35] Steve owed interest to Harry on amounts paid by Harry on the property since 1967, required by paragraph 131 of the Reasons to be “calculated at the pre-judgment interest rate or rates prescribed under the Courts of Justice Act, R.S.O. 1990, c. C.43 in respect of the individual payments whenever made.”
[36] As the Reasons note, Harry Peleshok sold a considerable amount of the land in 1987:
33 The remainder of the property, then consisting of some 79 acres, was designated as Part 3 on the Plan. "Harry Peleshok (Trustee)" sold Part 3 to John Boddy Developments Ltd. for the sum of $3,555,000.00, consisting of cash on closing in the amount of $900,000.00 and a vendor take-back mortgage in the amount of $2,655,000.00 (the "Boddy Mortgage"). The mortgagees on the Boddy Mortgage were "Harry Peleshok and Audrey Helen Peleshok on joint account with right of survivorship". The Boddy Mortgage had a term of seven years and provided for interest at the rate of 9% per annum. It was discharged on December 23, 1994. The principal amount owing at the date of discharge was $2,455,000.00.
[37] As a result Harry owed money to Steve from the date that the deal with John Boddy Developments Ltd. closed in 1987. At that point, Harry’s entitlement to interest payments from Steve ended. Harry’s entitlement ended then because Harry could and did satisfy himself out of the proceeds of sale in respect of the expenses on the property and the interest payments owed to him at that point in time by Steve. There is no basis on which Harry’s interest entitlement should be calculated in respect of each of the amounts paid by Harry from the date that they were made all the way through to December 31, 2011. The appropriate date in 1987 when Harry started owing money to Steve is, with respect to Mr. Winkler, the cut-off date that is inherent in an interest entitlement and calculation under the Courts of Justice Act. Thereafter, Harry owed Steve his share of the net balance plus interest “calculated at the pre-judgment interest rate prescribed under the Courts of Justice Act.” That is stated in section 128 of the Act to be “calculated from the date that the cause of action arose to the date of the order.”
[38] I was aware that the balance owed to Steve, and therefore his interest entitlement, would change from time to time (to capture, for example, the 2004 sale to Ballymore) and expected that the interest calculation would adjust to take account of those changes. I do not see the reference to “balance” in paragraph 131 of the Reasons to preclude such adjustments. In short, the defendants’ reading of the language is excessively acute and result-selective; it is also inconsistent with the spirit of the judgment.
[39] Mr. Winkler submitted that I am functus and that any decision along these lines on the interest entitlement and calculation issue would effectively be an improper amendment of my decision. I do not agree.
[40] The parties have agreed that the calculation of the damages, taking account of these reasons, is accurately reflected in the attachments.
[41] Judgment in favour of the plaintiff accordingly for $4,976,925.32.
P.D. Lauwers J.
Released: August 3, 2012