COURT FILE NO.: CV-04-266546CM3
DATE: 20120222
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
BARKATALI NAZARALI PIRANI,
Plaintiff
– and –
YASMIN ESMAIL, TAJDIN ESMAIL and ALNAZ JIWA,
Defendants
Nicholas J. Cartel, Counsel for the Plaintiff for days 1-4 and
Amir Fazel for days 5-11
Yasmin Esmail – self-represented for days 1-4
Tajdin Esmail – self-represented for days 1-4
Alnaz Jiwa – self-represented throughout the Trial
Morris Cooper, Counsel for Yasmin and Tajdin Esmail for days 5-11
HEARD: April 26, 27, 28, 29 and
October 17, 18, 19, 20, 21 and
November 4 and 24, 2011
JUDGMENT: greer j.:
[1] The Plaintiff, Barkatali Nazarali Pirani (“Pirani”), and the Defendant, Tajdin Esmail (“Esmail”), knew each other socially approximately 20 years ago. They entered into a business/Trust relationship with one another in 1989. Yasmin Esmail, a second Defendant (“Yasmin”), is the wife of Esmail. The third Defendant, Alnaz Jiwa (“Jiwa”) is a Barrister and Solicitor who acted in a real estate transaction involving a property, which is an asset of the Trust. The Trust and the asset form the basis of this litigation.
[2] The litigation commenced by Pirani in 2004 languished in the court system for 7 years before coming to Trial. None of the parties did anything to move the matter forward. I am told that some attempts were made in the parties’ community to settle their differences without success.
[3] The Trial itself commenced on April 26, 2011. There was a series of delays as the Trial proceeded. Firstly, Esmail, at the end of Pirani’s case, on day 4 of the Trial, decided that he and Yasmin could no longer represent themselves. He asked for an adjournment to allow them to retain counsel. Once counsel was retained, there were further delays in obtaining a transcript of the proceeding to the date of the adjournment. By the time a date could be agreed upon by counsel, in October, Pirani’s counsel had left his firm to take a position in government. Pirani’s new counsel had to review all exhibits, documents and transcripts in order to properly prepare himself. What was originally scheduled as a 4-day Trial became an 11-day Trial heard sporadically over different months, in the 6 month delay.
Pirani’s Claims
[4] Pirani’s Statement of Claim is dated April 5, 2004. It names Esmail, Yasmin and Jiwa as Defendants. Pirani claims damages as follows:
(a) Damages for breach of contract, breach of trust and breach of fiduciary duty in the amount of $100,000;
(b) Compensation for out-of-pocket expenses, full particulars of which will be provided on or before the Trial of the action;
(c) Punitive damages in the further amount of $50,000 (this claim was withdrawn before Pirani’s legal submissions were made);
(d) Aggravated and exemplary damages in the further amount of $50,000.
Pirani also asks for certain mandatory Orders. He asks that the funds collected by the Defendants be kept in an interest-bearing account or paid into Court; that the Defendants retain auditors to prepare a full accounting regarding the administration of the property from 1989, and he asks for a tracing of the funds or an appointment of a Receiver/Manager of the funds.
[5] The Trial Record before me shows no Orders having been made with respect to the request for mandatory orders. Esmail’s and Yasmin’s Statement of Defence is dated May 10, 2004, and Jiwa’s dated May 31, 2004.
[6] No reply to these Statements of Defence was made until January 29, 2008. The Amended Trial Record was not filed with the Court until after the Trial began due to inadvertency on the part of all parties.
[7] The Amended Trial Record contains an Amended Statement of Defence of Esmail and Yasmin dated December 30, 2010. It amends certain paragraphs of the Defence to delete reference to “Defendants”, changing it to the singular “Defendant, Tajdin Esmail”. It also amends certain paragraphs to say there was an “arrangement” between the Pirani and Esmail that he was required to make equalization payments to Esmail on a monthly basis and to share responsibilities for the property. The Defendants further amend their pleading to deny that they were “jointly and severally responsible for any obligation and fiduciary duties owed to the Plaintiff”.
[8] They also amend their pleading to claim that the transfer of the property to Yasmin was never intended to benefit her in any way whatsoever and that she would not be assuming any trust obligations.
[9] Although Esmail and Yasmin were self-represented at the time they amended their Statement of Defence, it appears to me they had some legal help in the drafting of the document.
[10] Pirani clearly alleges in para. 3 of his Claim on P.5 that both Yasmin and Esmail were trustees of the Trust of which he was a beneficiary. He further alleges that all three Defendants are jointly and severally liable to him and all had obligations to him with respect to the Trust. He alleges Jiwa knowingly assisted Yasmin and Esmail in their breach of trust and breach of fiduciary relationship.
[11] The Defendants, Yasmin and Esmail, say that Pirani paid $54,666.66 “as consideration for a one-third ownership of Winlock.” [emphasis added]
[12] Jiwa says he was not informed of nor did he have notice that the property was subject to a trust. He says his only involvement was as the solicitor acting on the sale of the property.
Some background facts
(a) The property at 2 Winlock Park, Toronto
[13] Esmail met Pirani at a social function in their community. Esmail had purchased the property at 2 Winlock Park (“the property”) before he met Pirani that day. The property was a free-standing house, unregistered as a rooming house. It had 5 tenancies when Esmail purchased it from a relative, Hassan Ramadan, on March 31, 1989 for $367,500. It was subject to a mortgage of $250,000.
[14] Esmail, after meeting Pirani, was looking for an investor, to help him keep the property. He approached Pirani, who says he took $54,666.66 from another investment, to invest in the property. It was Pirani’s understanding that he would receive 1/3 of the rental income and 1/3 of the proceeds of sale and Esmail would receive 2/3. The amount Pirani invested was 1/3 of $164,000. No one gave evidence as to how that number was arrived at. Pirani seemed to think that the property was worth $395,000 when he made the investment and if so, the $164,000 figure is the difference between $395,000 and the mortgages assumed by Esmail of $250,000.
(b) The Declaration of Trust
[15] Pirani and Esmail entered into a Declaration of Trust dated November 24, 1989, naming Esmail as sole Trustee, respecting the Winlock property. Esmail agrees in the Declaration that he received the $54,666.66 from Pirani and agrees he holds the property:
…in trust for the following in the percentages set forth opposite their respective names:
Tajdin Esmail – in trust as to 2/3 interest or share;
Barkat Pirani – in trust as to 1/3 interest or share.
Esmail agrees as Trustee, to “…convey, transfer and deal with or dispose of the property and any income or capital paid in respect thereof…in accordance with the percentage of ownership above set forth…”
[16] The last paragraph of the Declaration is handwritten by Esmail setting out the details of 3 payments to be made on specified dates by Pirani. Both agree all payments were made.
[17] Nizar Fakirani (“Fakirani”) gave evidence at Trial. He is an Ontario barrister and solicitor called to the Bar in 1983. He says he acts only as a solicitor, with real property law as his predominate area of practice. He acknowledges that he had dealings with both Pirani and the Esmails. He was retained by Esmail to act on the purchase of Winlock and in connection with the assumption of 2 mortgages connected with it. His Reporting letter on the purchase is dated April 8, 1989, showing 2 mortgages totalling $247,420.32.
[18] Fakirani also prepared the Declaration of trust entered into by Esmail. Fakirani says Esmail approached him to draft it. He says he had no discussion with Pirani at this time, as he did not know him. He was not a witness to the signed Declaration but acknowledges that he saw a signed copy of it at some point. Fakirani confirms that Esmail did not raise the issue of having Pirani’s name also on title to the property.
(c) The administration of the Trust
[19] Esmail gave Pirani a copy of the Declaration of Trust. On Esmail’s instructions the Declaration was drafted by Fakirani.
[20] It is Pirani’s evidence that Esmail told him that the property had a positive cash flow and that the investment was “decent” in these circumstances. When asked by Esmail on cross-examination why he made the investment, Pirani said, “I took you at your word and thought it looked (like) a sound investment for my money.” Pirani says Esmail told him that he would account verbally to him on a monthly basis. Pirani recognized that Esmail was the Trustee and both were beneficiaries of the Trust. Pirani saw himself as having no role other than as a passive beneficiary. He understood it was Esmail’s task to administer the Trust.
[21] While at times during the Trial, Esmail referred to his relationship with Pirani as a “partnership” and to the Trust Declaration as a “contract”, legally it was neither. It was a Trust and Esmail’s relationship was one of a Trustee/beneficiary.
[22] The Trust Declaration is the only document governing the administration of the Trust and there are no oral agreements that affect the Trust. I do not accept Esmail’s statement that he told Pirani that he had problems with the tenants. All the evidence before me points, after the fact, that Esmail had financial problems and needed an influx of cash to keep the investment afloat.
[23] After the Declaration of Trust was entered into, Esmail ran into financial problems and arranged in 1990 to refinance the property. Pirani assisted Esmail with the Application. One Application for a remortgage of the property shows a first mortgage as $175,000 and a secondary one as $76,000 encumbering the property. Both were at 11%. Since the property was registered in Esmail’s name, the financial details on one Application for re-financing were his and Yasmin’s, his wife.
[24] Fakirani acted on the refinancing of the property. His legal file on the matter contained 3 documents dated August 10, 15 and September 9, 1990. His Reporting Letter dated April 8, 1989 to Esmail on the original purchase, shows the two mortgages as follows:
First Mortgage $176,799.58 (as of March 1, 1989) at 11% payable $1,726 monthly – due August 1, 1990 with Bayshore Trust.
Second Mortgage $70,620.74 (as of March 31, 1989) at 11% payable $683.41 monthly – due July 30, 1990, with Seel Corporation.
Thus, Esmail had one year within which to raise the money to pay off these mortgages totalling $257,420.42 when assumed. The monthly payments totalled $2,409.41, all of which was the responsibility of Esmail to pay.
[25] When the refinancing came up a little over a year later, Bayshore Trust wrote to Fakirani that the balance due on August 1, 1990 was $174,666.01 plus interest of $781.94 to August 15 plus a discharge fee of $150. Seel Corporation wrote him on August 15, 1990 about the refinancing for $250,000, setting out the discharge of its own mortgage of $70,304.69 plus interest to date of $1,685.15 plus the “balance of commitment fee of $325. This left $177,685.15 from which to pay off the Bayshore mortgage. Mr. Fakirani’s Trust Ledger Sheet of September 9, 1990 sets out how those funds were disbursed, including his fees, a fee payable for independent legal advice (presumably for Yasmin) and the payment of $801.71 for realty tax arrears. The balance of $175,597.95 went to discharge the Bayshore Trust Company mortgage.
The Accounts of the Trust
[26] Esmail, as Trustee, kept no accounts of his administration of the Trust on any regular basis. He did not, on the evidence before me, ever tell Pirani that there was no expectation that the rental property would ever operate at a profit. Esmail tried to say that he knew the rent could not carry the property. He says he put about $100,000 of his own money into the property, yet he gave no actual accounting of where that money came from when he purchased it.
[27] Since Esmail purchased the property from a relative, there is a reasonable inference he knew it was an illegal rooming house. It was located in a residential North York area close to the Finch subway stop. It was a 3-bedroom bungalow with an attached 2-car garage. The garage was already illegally divided into 2 rooms when it was purchased by Esmail.
[28] Pirani was kept totally in the dark about the property’s operation and who lived there. He was never given a list of the tenants or the rents they paid. He was never given an outline of a budget or monthly expenses or any of the basics about the operation of the trust property.
[29] All of Esmail’s evidence regarding the various tenancies in the property came long after the property became the Trust asset, and after it was sold. The issue of the lack of a trust accounting escalated between the parties but had always been an issue from the beginning.
[30] Pirani was, at the time the Declaration of Trust was signed, familiar with the area where the property was located, since he lived nearby. Both parties were businessmen and no novices about property ownership. I do not, however, accept Esmail’s evidence at Trial, that Pirani knew that there was a shortfall of rent to meet the expenses, when Pirani made his investment. There were absolutely no records given or kept by Esmail until trouble arose. He did say he had agreed that he would provide Pirani with the monthly expenses but this never took place.
[31] I also do not accept Esmail’s evidence that he waited until Pirani’s last cheque cleared in February 1990 when Esmail mentioned the cash flow issue to Pirani and asked for money, to assist with expenses. Such a discussion did not take place until January 17, 1991, when Esmail says he went to Pirani’s house, “with my records”. The “records” Esmail spoke of were not proper accounts for a Trust, nor would they have been acceptable to Revenue Canada at that time if an Income Tax Trust Return had been filed. None was ever filed.
[32] Even in his examination-in-chief, when he was represented by counsel, Esmail gave no clear evidence about the “accounts”. He claims Pirani had a shortfall of $2,400 at end of 1990. The hand-written notes produced by Esmail, were, in my view, incomprehensible. He was never able, with any certainty, to say what the rental income was each year, or even monthly, nor how it was calculated or where it was deposited.
[33] Pirani acknowledges that Esmail came to him in early 1991 and brought a piece of paper on which Esmail said the property showed a loss of $9,000 and that Pirani therefore owed $3,000 as a 1/3 beneficiary. Pirani’s evidence is that the paper was a “loose sheet” with “numbers here and there”. Pirani says he told Esmail that this was not acceptable but he would pay the money on condition that Esmail give him an accounting. He said Esmail told him “I will kick you out” if the money is not paid.” Pirani gave the $3,000 cheque dated January 17, 1991, to Esmail but says he never saw any evidence that Esmail put his $6,000 in. Esmail never produced any evidence at Trial to prove that he had paid his share. Pirani did produce cancelled cheques to show payments made by him.
[34] By April 1, 1991, there was a shortfall in the payment of property taxes. Pirani produced copies of cancelled cheques he made payable to Esmail. One cheque dated February 28, 1992 was in the amount of $3,055.80. Smaller cheques for 2x $1,000, $1,143.70 were written in 1991. On August 5, 1992, a further cheque for $10,000 was also written to Esmail, plus four cheques of 4500 in August and September 1992. Pirani marked these as payments for “Re: 2 Winlock Dr./Mortg. Payment etc.” By 1993, Pirani was paying the City of North York directly and monthly for the property tax payments on the property. This continued until the property was sold in 2002.
[35] Pirani, in my view, agreed to this, as the Bailiff was at Esmail’s door about the arrears of property taxes.
The 1994 Transfer of the property to Yasmin
[36] The property was registered in Esmail’s name alone, when the Declaration of Trust was signed by him. It is Fakirani’s evidence that Esmail approached him in 1994 to have the property transferred from him to his wife, Yasmin, together with the transfer of 2 other properties he owned either jointly with her or in his name alone. Esmail was in financial difficulties with Revenue Canada (“CRA”). Fakirani then first learned that the Declaration of Trust had been signed by Pirani. He called Pirani to obtain his consent to the transfer. At that point, says Fakirani, there was no discussion about the 2 beneficiaries of the Trust sharing the legal costs of the transfer.
[37] The transfer involved no real remuneration other than $2 and natural love and affection. Fakirani admits he knew Esmail had income tax issues at that time but said he was not aware of the amount owing. On cross-examination of Esmail, he admitted that in 1994 he owned CRA $174,161.49 in income tax arrears.
[38] The Declaration of Trust was never amended to show that Yasmin had the ownership of the property registered in her name. The ownership on the property tax roll and utilities’ records were all changed to Yasmin’s name. Esmail remained the Trustee, as set out on the face of the Declaration.
[39] Pirani had begun paying the property taxes directly to the City, since Esmail had allowed them to fall into arrears. All expenses to operate the property were to have been paid out of the rentals. Esmail never operated a bank account in the name of the Trust, nor did he keep any records. Pirani saw his payments as being a third of the overage and he expected that Esmail was paying two-thirds of the overage.
[40] Between 1994 and 1996, Esmail again allowed the property taxes to go into arrears without telling Pirani. A statement in the name of Yasmin showed taxes owing as $8,976.33 including interest. No taxes were ever paid for the years 1994 to 1996 when $3,253.76 was owed, including interest.
[41] Neither Esmail nor Yasmin, after she was on title of the property, ever kept receipts for payments made for any of the expenses for operating the property. Not one bank book or bank statement was ever produced by Esmail or Yasmin during the 7 years of litigation. I accept Pirani’s evidence that he off and on asked for an accounting but never received a proper set of accounts or banking records.
[42] I find Esmail’s evidence, about what took place in 1991 regarding the expenses and overdue taxes, to be confusing. He agrees Pirani made payments to him for property tax arrears, as well as extra payments for other arrears, but never kept records of it. The monies Esmail received from Pirani went directly into Esmail’s personal bank account(s) and were co-mingled with his own money. He admits he was having his own financial problems in 1993 and said he paid nothing on account of the property taxes between 1992 and 1999. I do not accept Esmail’s evidence that Pirani told him “not to worry” about these arrears as he would “take care of them”.
[43] Esmail admits that in 1994 he was having income tax problems as he had failed to file his Returns for 1990, 1991, 1992, 1993 and 1994. Thus, he was facing not only tax arrears but penalties for late filing plus interest on overdue taxes. He and Yasmin then sought the services of Fakirani to transfer the property into her name.
[44] When Esmail was cross-examined on what took place between him and Pirani after the Declaration of Trust was signed by them and before the property was transferred to Yasmin in 1994, he finally admitted that Pirani had paid him $13,550, on account of shortfall. Pirani has cancelled cheques to support all these payments. He also admits that they met around 6 times during this period. No further meetings between them took place after February 1993. Esmail admits he made no further accounting of the operation of the Trust after that date.
[45] At some point, Esmail received an insurance payment of $5,000 for damages to the property by “vandals”. He says he credited Pirani with $1,666.66 of it but there is no evidence of it having been done except an entry on a ledger sheet produced by Esmail after the property was sold.
[46] On cross-examination, Esmail claims he cannot remember where the rental monies were deposited, although he agrees he had a personal account at the Royal Bank and an account for his Petro Can business. He admits that in 2005 on his discoveries he agreed to write to the Bank of Montreal about a bank account. Whatever information he received back, there is no evidence he gave it to his counsel or to Pirani’s counsel.
[47] When questions from Esmail’s transcript were put to him, he admits he has not complied with his Undertaking to provide a list of names of each of the tenants and their last telephone numbers between 1989-2002, with dates moved or abandonment of the premises. He failed to do so during the 6 years thereafter to Trial. He also failed to prepare for the forensic accounting that eventually had to be done.
[48] Esmail admits he did not provide Yasmin with a copy of the Declaration of Trust before the property was transferred into her name but admits she was present with him when they went to see Fakirani, so she found out then.
[49] Yasmin is a retired 27-year employee of the Provincial Ministry of Finance where she last worked as an assessment clerk. She is therefore not a stranger to income tax, business records, math and accounting.
[50] Yasmin met Pirani through Esmail but claims he never discussed the Trust with her. She admits she knew Pirani was a “1/3 partner”. In 1994, Yasmin admits she signed some legal documents saying Esmail told her if he dies she should give Pirani a 1/3 of the property. She says she does not recall much about the transfer to her name, yet all rent and bills later came to the home in her name so someone informed the authorities and tenants.
[51] Yasmin recalls Pirani giving her some cheques and confirms Pirani was making some payments on account of property taxes. She, however, was responsible to pay all other bills in connection with the operation of the property. In both her examination-in-chief and on cross-examination, Yasmin tried to distance herself from admitting that she made any decisions regarding the administration of the property for the next 8 years before it was sold in 2002. I do not accept her evidence, in this regard as truthful. She paid all of the bills over those years, yet never said from what account. The rent cheques received were in her name so she had to deposit them. She dealt with The Toronto Star in advertising the tenancies available. She admits she had several bank accounts in her own name but claims to have no banking statements and says she requested none, despite the fact that she is a Defendant in this proceeding.
[52] Yasmin says she saw the Declaration of Trust in Fakirani’s office but claims she did not read it. If she did not read it, in my view this is now a deliberate attempt at distancing herself from the litigation, which she cannot do after administering the Trust asset for 8 years.
[53] A few documents were eventually produced by Esmail and Yasmin (as they were in her name), relating to Bailiff’s Notice to a Tenant in arrears of rent, The Toronto Star for advertising (unpaid between February and April 1993), some 1996 notices by a tenant and a copy of a rent cheque, a 1996 Landlord and Tenant Notice, a 1996 Lease of one tenant and some NSF tenant cheques. That was the extent of documentation.
The sale of the property in 2002
[54] Esmail and Yasmin decided in 2002 that the property must be sold. Pirani was involved with the choice of a real estate agent. It was Yasmin, however, who signed the listing agreement. Yasmin had received notification from the city on March 14, 2002, that the property taxes were $7,949.51 in arrears. The taxes had been constantly in arrears since January 1997 when a zero balance is shown. In May 2002, a payment of $2,971.29 brought the balance back to zero.
[55] The property was listed for sale at $409,000 through ReMax. Pirani said Fakirani was asked to act on the sale. Esmail, instead, decided to choose Alnaz Jiwa, (“Jiwa”), barrister and solicitor, to act. In my view, Esmail did this deliberately to try to hide the existence of the Declaration of Trust from Jiwa, since the property was now in Yasmin’s name. She also signed the Deed of Transfer when the property was sold. The closing date was to have been September 30, 2002 for a sale price of $395,000.
[56] Pirani says he and Esmail agreed they would each have a lawyer and so he retained Fakirani to act for him. It is Pirani’s evidence that he told Fakirani he was to do the closing and the money was to be held in escrow until a proper accounting was made. Pirani says Esmail told Fakirani he was not to do the closing. Fakirani confirms this. Jiwa therefore acted on the real estate sale. Jiwa, never called or wrote to Pirani during the sale and closing of the property.
[57] On September 6, 2002, Fakirani wrote to Jiwa and said he acted for Pirani, “…who has a 1/3 beneficial interest/share in this property under a Trust Declaration dated, November 24, 1989, a copy of which is enclosed.”
[58] Jiwa never acknowledged receipt of either that letter or the Declaration sent to him by fax other than a fax cover which reads: “We have your instructions to pay your client 1/3 of the net proceeds.” There is no mention of the Declaration of Trust or its significance in the sale of the property. Further, in his own testimony, Jiwa acknowledges that he never read the Declaration after receiving it. Fakirani called several times about the delay in closing but Jiwa did not keep him informed.
[59] Esmail tries to distance himself regarding certain aspects of the sale but is front and centre in instructing Jiwa. Esmail had known all along from his original purchase of the property in 1989, that it was an illegal five-plex. It was therefore not a surprise that the purchaser discovered, before closing, that it was an illegal rooming house. The purchaser asked for a reduction to close. Esmail discussed nothing with Pirani about a reduction because he says, “I was the majority shareholder.”
[60] Esmail’s evidence, when given about the status of the debts attached to the property on closing, waffled back and forth between not being able to remember whether he and Pirani discussed the settling of accounts between them to telling Pirani that the realty taxes were in arrears. The water bill was also in arrears.
[61] Esmail agrees that he instructed Jiwa to accept a $10,000 reduction in the closing sale price.
[62] The purchaser knew there were tenants in the property from the listing agreement and attached schedule of chattels.
[63] On September 19, 2002, the purchaser’s solicitor Sanwalka sent Jiwa a Letter of Requisitions. In paragraphs 4, 6 and 7, thereof, the Planning Act compliance is mentioned as well as “restrictions” and compliance with all by-laws. Later, a copy of the Water Certificate showing $1,831.61 due and owing was sent by Sanwalka to Jiwa. On September 24, 2002, Allstate informed the purchaser it could not insure the property because, part of the garage had been converted to an apartment. Sanwalka wrote to Jiwa about this on September 24, 2002 and also said the “financial institution” refused to advance funds.
[64] Counsel wrote back and forth about the issue of the closing. Jiwa claimed the purchaser was told that the property was “not warranted for a triplex.” Jiwa did not attend personally to tender on Sanwalka at his office. He sent someone from his office. There was no formal tender documentation or covering letter. A hand-written document signed by Sanwalka and Jiwa’s representative purports to effect the tender.
[65] On October 2, 2002, Sanwalka wrote to Jiwa saying the closing could take place if his client is allowed “a rebate of $10,000.” On October 11, 2002, Jiwa writes to Sanwalka that his client “reluctantly” agrees to the reduction in the price. On October 15, 2002, Sanwalka faxes Jiwa about the arrears of taxes owing. It was agreed that the closing would take place on November 1, 2002.
[66] Jiwa, on November 1, 2002, gave Sanwalka a Direction Re Funds which has numbers not previously referred to. By then, MCAP Service Corporation appears to be a first mortgagee and was owed $184,201.92. This is confirmed on the Trust Ledger Statement of same date. The tax arrears were $7,143.20, water arrears $1,962.58, Jiwa’s legal fees $615.25, Esmail received $114,300.63 and Pirani $57,150.32. The mortgage amount included interest from September 16, 2002 plus a prepayment penalty plus a processing fee. ReMax refunded Yasmin $1,028.34 and Pirani $514.16 out of the deposit on commission.
[67] There is no evidence in either Esmail’s, Yasmin’s or Jiwa’s productions to show when the mortgage was assigned to MCAP or at rate of interest. Yasmin must have signed it.
[68] On November 5, 2002, Jiwa wrote to Fakirani that the closing had taken place and said:
I am enclosing herewith one-third of the net proceeds of the sale transaction. My client, Tajdin Esmail would like to advise your client that this amount if (sic) subject to expenses incurred over the past years to maintain the property.
This letter is so badly written that it fails to say that a cheque payable to Pirani is enclosed or what the amount is. There is no mention that it is the proceeds from the sale of the Trust asset. There is no mention that Yasmin is his client also. There is no description of how the proceeds are “subject to expenses incurred over the years,” or what that meant.
[69] Fakirani immediately wrote back to Jiwa and said:
My client is eager to settle all outstanding matters with your client with respect to this property and request that he be provided with a full and proper accounting for the period this property was administered by him as a “partnership” property so that all remaining issues between them can be resolved to satisfaction of both.
Fakirani’s evidence, which I accept, is that he wrote several times to Jiwa with no response from him.
[70] On November 15, 2002, the City sent Yasmin her detailed tax payment history 1989 to 2000, for which Pirani paid $180 to her to cover his position of the payment to have these records produced. The Court exhibit only shows those from 1993 onward.
[71] Jiwa on February 25, 2003, sent Fakirani’s letter to “Yasmin Esmail”, not Tajdin Esmail who he earlier referred to as his client. He asked Yasmin to respond. Yasmin had corresponded directly to Jiwa about the overdue accounts to be paid out of the proceeds of the sale. Jiwa’s Productions never contained a copy of a letter to either Yasmin or Esmail about the 2/3 of the net proceeds.
[72] Fakirani again wrote to Jiwa on June 3, 2003, saying he had received no response to his letter of February 19, 2003 requesting that Esmail provide a “full and proper accounting and disclosure of all aspects of his management of the subject property”. No replies were sent by Jiwa to this correspondence.
[73] Having waited patiently for over a year for Esmail or Jiwa to respond to his solicitor’s letters about an accounting, Pirani instructed his then counsel, Norman Epstein, to issue a Statement of Claim. It is dated April 5, 2004 and names Yasmin, Esmail and Jiwa as Defendants.
The Accounting Issues
[74] After Esmail made his one-page accounting back in 1993, he kept no further accounts. While Pirani was not as persistent as others may have been in asking for an accounting, he asked for one each time a financial crisis arose in the administration of the property. Pirani kept accurate records and documentation supporting the payments he made as demanded by Esmail. It culminated in Pirani making payments directly to the City on account of property taxes. He did not, however pay each instalment in full. Until 1994, the property and mortgage were both registered in Esmail’s name. He collected the rent and paid the bills, so Pirani assumed that all these were the responsibility of Esmail and were being paid out of the rents received.
[75] Pirani prepared 2 outlines of the money he paid over the years 1991-92. That total is $13,050.14. He then paid from 1993 to May 14, 2002 to the City of Toronto on account of taxes $32,397.42. On October 13, 2002, he gave Yasmin an additional $500 in order to have the City of Toronto produce statements of property taxes and payments from 1989 onwards. Yasmin paid $180 of that to the City for the statements.
[76] Esmail, having kept no proper records at all and having produced no cancelled cheques and few receipts for any expenses or records of rent received by him, was forced to try to reconstruct his accounts. At some point after the closing of the sale of the property, he produced 2 spread sheets with no back-up vouchers to prove anything. He produced no mortgage statements to back up his calculations, gave no estimates of rental income, maintenance expenses, insurance. The water expenses were verified by the City, after the fact.
[77] Some vouchers for advertising were finally produced by Yasmin along with some data relating to termination of tenancies. Yasmin’s signature and/or name appears on all legal documents and on the utilities’ bills and property tax bills after the property was transferred to her in 1994.
[78] Although Yasmin admits having dealt with the Bank of Montreal during the period she is shown as then owner of the property, she, like her husband, Esmail, did not produce any cancelled cheques nor bank statements nor bank books to prove any of the expenses except payments to The Toronto Star for advertising.
[79] Some bits and pieces of documents relating to the tenancies were eventually produced by Esmail and Yasmin show that in the basement apartment rented for $550 per month and required repairs not done, another rented for $850 by the Leskies, a third apartment in 1992 rented for $575. Another document showed $850 rent being paid in 1996. None were in any sequence or proof of the full tenancies.
[80] Esmail, long after the closing of the sale of the property, produced some hand-written ledgers, 4 pages in length for the years 1989, 1990, 1991 to July, 1992. Some had notations, some cross-outs, some added dates. None had vouchers to substantiate the figures used. None were done simultaneously written when payments were incurred or made. Given that no Trust accounts were ever kept, Pirani retained an Accountant, M.J. Zafar, C.A., (“Zafar”) to prepare an unaudited report by reconstructing accounts from the limited information available.
The Accountants’ Reports
[81] Esmail’s daughter, Hafsa Esmail, CMA, assisted her parents throughout in coming up with 5 economic accounts between 2004 and 2008, the latter two being “revised”. She, in fact, thought she could be an expert witness at Trial, for her parents, using the accounts she prepared. None of the Esmails seemed to understand that Hafsa was in a position of conflict. The Trial was to have commenced on February 14, 2001. The date was adjourned to April 25, 2011, with the Pirani’s expert report to be served and filed by January 29, 2011 and Esmail’s by February 28. A Pretrial was set for March 31, 2011.
[82] The Esmails, however, on February 12, 2011 hired their own accountant, Michael Spagnuolo, CGA, (“Spagnuolo”) who works with their daughter at The Law Society of Upper Canada, as a forensic auditor/investigator. He produced a report dated February 28, 2011, in response to Zafar’s Expert Report dated January 29, 2011. Zafar did a Revised Report dated March 24, 2011 and Spagnuolo did a Sur-reply Report to Zafar’s Second report.
[83] Both Zafar and Spagnuolo were qualified at Trial as experts. Each gave evidence. Esmail admits that Spagnuolo works with his daughter, that he came to their home to meet with her and says he could not remember if Spagnuolo personally delivered his report to him. Esmail finally admitted, on cross-examination, that Spagnuolo actually gave his first report to the Esmails’ daughter, who then gave it to Esmail.
[84] Given this background respecting Spagnuolo’s Report, I cannot see how he could have independently produced the report during the 16-day period he did and serve and file it by February 28, 2011.
[85] The two experts met on April 13, 2011, at the direction of the Pre-Trial Judge, to see if they could resolve some of their differences. Both agree there was a lack of source documents provided by the Esmails and both agree that major records such as annual financial returns, bank records and copies of rental cheques all were missing.
[86] Zafar is a chartered Accountant and is licensed as a Public Accountant and can therefore issue audited statements. He has taken courses in fraud. Spagnuolo has also taken courses in fraud and forensic accounting. Both, however, were faced with a dirth of financial vouchers from which to begin reconstruction of accounts.
[87] I see the experts as differing in their approaches. While both examined the daughter’s various attempts at reconstruction over a period of more than 3 years, Zafar’s evidence is that while he read her report, he said, “I could not rely on it as there is a lack of independence.” Further, the documents given them to rely on did not meet the accounting principles nor provide an “accounting trail” to be used for reconstruction. Spagnuolo, on the other hand, in my view, heavily relied on the daughter’s numbers in his reconstruction schedules.
[88] Zafar says he never received any cancelled cheques supporting the few invoices received by the parties before the closing of the sale of the property. Zafar says there were about 15-20 cancelled cheques over 13 years involving 5 rental units. Pirani gave Zafar all documents and information he had in his possession or recalled.
[89] The issue of rental income received is one place where the experts differ. Zafar says that Spagnuolo used almost the same numbers that the daughter put in her calculations. They also differed on the property tax issue; where Spagnuolo assumed Pirani was responsible for all property tax payments. They also differ on how Jiwa should have dealt with the property taxes and water bill outstanding at the time of sale.
[90] Zafar did not accept that there were “oral agreements” between Esmail and Pirani about expenses, whereas Spagnuolo did. On the evidence before me, where Esmail’s and Pirani’s evidence differs, I accept Pirani’s evidence in preference to Esmail’s.
[91] Both experts agreed that as a starting point for the reconstruction, they had to accept Esmail’s figures, as to 1989, when the Declaration of Trust was signed. They disagree, however, on which units were vacant and when, and what vacancy rate should be used, and what rental rate increases should be used.
[92] One key piece of missing evidence was where Esmail deposited Pirani’s 3 cheques after he received them when the Declaration was signed. It is clear that none of it ever went to pay down the mortgage at any time during the 13 years the Trust existed.
[93] Neither expert had access to source documents, which are the basis of any accounting exercise. Entries should be made on a timely basis in ledgers, showing rental income and expenses. What these experts had were copies of water, hydro, and property tax bills that were finally obtained in 2004 and 2005 after the closing took place.
[94] General accounting principles support the keeping of source documents such as banking records and cancelled cheques. Zafar points this out where as Spagnuolo, on cross-examination when asked whether the total absence of these documents raised any “red flags”, he said “No.” He even said as a fraud examiner it did not really raise questions with him. In my view, the absence of these records points to Esmail and Yasmin destroying their own banking records to prevent Pirani and the Court from knowing the following information:
(a) What were the actual rents received?
(b) What rental income was in cash and what was by cheque?
(c) Where monies were deposited?
(d) Where Pirani’s $54,666.66 influx of capital was deposited or was used for?
(e) Why were banking records hidden from Revenue Canada, now C.R.A., given that no rental income was ever reported by Esmail from the date the property was purchased to the date of the sale?
(f) Whether expenses were being debited from accounts as pre-authorized or not?
Analysis
- Breach of Trust
[95] The November 24, 1989 Declaration of Trust entered into by Pirani and Esmail is a valid trust. The operation of the Trust is therefore governed by all principles of trust law. As is set out in Waters’ Law of Trusts in Canada, Donovan W.M. Waters; Mark R. Gillen and Lionel D. Smith, 3rd ed. 2005, at p. 132, a trust must have three essential characteristics, namely:
(1) the language of the alleged settlor must be imperative;
(2) the subject-matter or trust property must be certain;
(3) the objects of the trust must be certain.
The document is labeled a “Declaration of Trust”, was drafted by a lawyer and has the language saying that the property, being transferred is being held “in trust” for the benefit of Pirani and Esmail in the percentages as set out. It further states that Esmail is the “Trustee” and holds it in trust to be dealt with either on transfer or on disposition in accordance “…with the percentage of ownership set forth.” It also takes into account the parties’ “heirs, executors, administration, successors and assigns.” In other words, it provides for the trust property to be passed on to others in the event of the death of a beneficiary. The interest in the trust can also be assigned.
[96] Despite Esmail’s position that there was a “contract” and/or a “partnership”, I find this not to be the case based on the evidence before me. A trust relationship gives rise to a fiduciary relationship between the Trustee and the beneficiary. Here Esmail is both the Trustee and a beneficiary but as Trustee he owes a fiduciary obligation to Pirani, as a beneficiary. As is said in Waters, supra, at p. 9:
But the essential fiduciary relationship remains; the trustee may indeed have two hats, that of trustee and of beneficiary, but he is bound to wear only the hat of trustee when he carries out any duty of the trustee.
[97] Esmail had the ownership of the property in his name before the Trust was created. The Declaration describes the property being held so Esmail has declared himself the trustee and equity holds him to that change. See: Waters, supra, p. 172.
[98] When Esmail transferred the property to Yasmin in 1994, he was in breach of trust in so doing. There was no consideration given, not even the fictional $2, nor was it for love and affection. The transfer was done to protect Esmail’s interest in the Trust from being seized by C.R.A. for the taxes owed by him or from being seized or attached by other creditors.
[99] Esmail was also in breach of trust for his failure to prepare and keep proper accounts of his administration of the Trust. In order to do this, Esmail would have had to keep all the vouchers, books of record, bank books and statements, copies of receipts for rent received and copies of paid bills, whether utilities, taxes, maintenance and repairs. Since no banking data except copies of 21 cheques over 13 years, was never produced, there is a reasonable inference that Esmail deliberately destroyed it, hid it or failed to produce it on discovery. Since he kept no records, he also failed to report the transfer of the property to the Trust and failed to file any Income Tax Trust Returns. It matters not whether the Trust made a profit, broke even or lost money on the investment, it must be reported for income tax purposes.
[100] When the property was transferred to Yasmin, there was a deemed disposition of a trust asset. This must also be reported as a capital disposition on the Income Tax Trust Return.
[101] Yasmin is a third party and not a bona fide purchaser of a legal interest for value. She knew of the Trust arrangement and knew she was receiving trust property. She therefore held it as a not-named trustee and the property can be traced into her hands. Esmail remained the beneficial owner of the property for trust purposes.
[102] Yasmin took on the administrative duties of operating the Trust. The utility bills and property tax bills were transferred into her name. The mortgage remained registered, in Esmail’s name, yet Yasmin had the rent paid to her. There is no evidence to show how mortgage payments were made on the MCAP mortgage from 1992 to 2002. The statement, which appears to have been produced after the fact, addresses the mortgage statement to both Esmail and Yasmin.
[103] Although the Defendants attempted to distance Yasmin from being found to be in breach of trust, she cannot be shielded from the fiduciary duty she owed to Pirani to keep accounts and keep him informed. She also failed to produce any of her bank statements for the years 1994 to 2002 to show what rent was received and what it was spent on. I find on the evidence before me that Esmail and Yasmin jointly and severally owe Pirani damages for their breaches of trust and breach of fiduciary duty to him.
- The role of Jiwa as solicitor
[104] I have outlined in some detail, in these Reasons, the hiring of Jiwa to act on the sale of the property. Again, Esmail and Yasmin acted in concert on this. Esmail continued to make certain decisions regarding the administration of the trust property. He hired Jiwa, instead of Fakirani, in my view, because he knew Fakirani was a much more careful solicitor. They all acknowledge they knew one another over a number of years. When Esmail went against using Fakirani, who had been their first choice, Pirani asked Fakirani to act for him on the sale.
[105] Pirani did ask Esmail for accounts on a number of occasions between 1989 and 1994. He continued throughout the years in making partial payments directly to the City on account of property taxes and paid the $500 to Yasmin to obtain the records after the closing.
[106] Jiwa was less than a careful solicitor in acting on the sale of the property. He essentially ignored it and left everything up to his Law Clerk, Ms. Bennett. One of the few pieces of paper in the file, was an undated fax sheet, not a letter, in response to Fakirani’s letter of September 6, 2002, with which he enclosed a copy of the Declaration of Trust. Instead of acknowledging its receipt, an undated fax sheet was sent, which reads:
We have your instructions to pay your client 1/3 of the net proceeds.
From that date forward, whatever it was, no mention is ever made of the Declaration.
[107] Jiwa’s own evidence is that he never read the Declaration of Trust. “I read the letter not the agreement.” His excuse for this is that he was, “no retained to deal with a Trust.” He refused to answer how long it took him to read Fakirani’s letter and the Declaration. Instead, Jiwa said, “if he (Esmail) told you the deal, that was good enough so I don’t need to read the document.” There was a reasonable inference that he may not have read either document, simply leaving it all to the Law Clerk to deal with. He claims to have asked Esmail if he should forward “1/3 of the property to Pirani” and he said “yes”. He then added, “It wasn’t up to me to decide if it was right or wrong.” He also did not inquire about how the property was registered, eventually learning it was in Yasmin’s name alone.
[108] Jiwa further admitted on cross-examination that “I’ve even now not read it in full.” He also says it is not an important document in the Trial, since the Trial is about “money and an accounting issue.”
[109] Jiwa represented himself at Trial and drafted his own Statement of Defence. In it he says that he was retained by Yasmin to complete the sale of the property, “…in accordance with accepted procedures established by the real estate bar…”. He claims he was not informed “by anyone” (See Para. 6 of the Statement of Defence) that this property was subject to any trust agreements. This statement is completely untrue. A copy of the Declaration of Trust was sent to Jiwa by Fakirani with his September 6, 2002 letter. In my view, no careful real estate/property lawyer would choose to simply ignore the document. Neither would such a lawyer choose to also ignore Fakirani’s letter of February 19, 2003 requesting that his client provide a “full and proper accounting and disclose all aspects of his management of the subject property.” Neither Esmail nor Yasmin responded to that letter. Further, Jiwa also ignored Fakirani’s letter of June 3, 2003, when he asked for a response to his earlier letter, asking for an early reply. Jiwa provided no evidence that he followed up with his clients nor sent them a copy of this letter. Fakirani’s letter indicates that Pirani was hoping for an “amicable and expeditious” way to resolve the issues.
[110] The only response came nearly a year later on April 23, 2004, after the Claim was issued by Pirani. Esmail wrote that he and Yasmin were “shocked” to receive it. He then tried to say that Pirani knew he was “very sloppy at keeping records”. It is Esmail’s view that things would “even out” between them and so he says Pirani received all he was entitled to. Esmail suggested that they try to resolve their issues through “our own Conciliation and Arbitration Board’s mediation process”. If it took place, it was not successful.
[111] Mr. Justice Cummings, in CC&L Dedicated Enterprise Fund (Trustee of) v. Fisherman et al., 2001 CarswellOnt 4204, 1814 L.R. (3d) 240, said in para. 74:
There are exceptional situations where a cause of action for negligence against a lawyer has been sustained on the basis that the solicitor has placed himself or herself in a relationship of sufficient proximity to a third party so as to owe that party a duty of care.
[112] Pirani’s Reply to Jiwa’s Statement of Defence points out how Jiwa put himself in the position of owing a duty of care to Pirani. Jiwa did not answer Pirani’s solicitor’s letters about the closing, nor did he keep Fakirani in any way informed about the delay in the closing of the sale. At Trial, none of Esmail, Yasmin and Jiwa presented any evidence on how a $10,000 reduction of the sale price was calculated. One-third of that amount or $3,333.33 represented Pirani’s share of the reduction. Pirani’s consent to the reduction was therefore required and his solicitor should have been kept informed and committed about the reduction and agreed or disagreed.
[113] Jiwa also failed to consult with Fakirani about the arrears of property taxes and the water bill before he arbitrarily deducted all arrears and paid his own solicitor’s bill from the proceeds before sending what he said was one-third of the remaining proceeds to Pirani. Jiwa, on no instructions simply deducted 50% of these debts from Pirani’s share rather than one-third.
[114] Jiwa also failed to make any inquiries of Esmail, Pirani or Fakirani with respect to his own statement in writing that Esmail provided management services. In my view, it was a provocative statement that left the 3 other parties, as well as Fakirani wondering what the impact of such statement was.
[115] Pirani was relying on Jiwa to deal civilly with his solicitor, Fakirani, so he could properly advise Pirani on his legal rights on the closing. This did not take place. As a beneficiary of the Trust, Pirani was entitled to have the solicitor chosen by the Trustee to act on the sale of act in the best interest of all the beneficiaries. This did not take place. See: Linsley v. Kirstiuk, 1986 1292 (BC SC), 1986 CarswellBC 652, 28 D.L.R. (4th) 495.
[116] The standard of care of a lawyer has been articulated as follows in Ristimaki v. Cooper, 2006 12415 (ON CA), 2006 CarswellOnt 2373, (O.C.A.) in para. 59:
A solicitor must bring reasonable care, skill and knowledge to the professional service which he or she has undertaken; see Central & Eastern Trust Co. v. Rafuse, 1986 29 (SCC), [1986] 2 S.C.R. 147 (S.C.C.) at 208.
[117] In Ristimaki, supra, the Court also set out that a solicitor who holds himself or herself out as having particular expertise in a given area of the law, is to be held to a higher standard of care. Further, a solicitor who does not adequately or diligently protect the client’s interests will be found negligent.
[118] Jiwa, on his own carelessness, let himself be put in a hybrid position, where he refers to Esmail as his client, deals with Yasmin to sign all legal documents and provide the data regarding property tax and water bill arrears, but charging Pirani for one-half of all expenses, including his own legal fees, by deducting all from the net proceeds.
[119] Jiwa, of course, did not hold himself out as a real estate expert, but he left all decisions on the sale file to Ms. Bennett, the Law Clerk. She presumably, also, did not read the Declaration of Trust, nor did she or he acknowledge receipt of it when a fax was sent to Fakirani.
[120] Jiwa did not attend at the tendering, when the purchaser refused to close on the sale. No formal tender documents were delivered, nothing was put in writing about how the $10,000 reduction in the price was arrived at. Finally, Jiwa did not attend at the closing, as he was in Vancouver at that time. Ms. Bennett, when preparing the cheques for Pirani and Esmail, must have acted on Jiwa’s instructions. No Statement of Adjustments was drafted, and only a copy of a Trust Ledger was sent to Pirani’s solicitor.
[121] It is also Pirani’s position that Jiwa, if found to have no actual knowledge, can also be found liable by “willfully shutting his eyes to the obvious”. See: Air Canada v. M&L Travel Ltd., 1993 33 (SCC), [1993] 3 S.C.R. 787 at p. 16. This is the willful blindness doctrine. Jiwa certainly closed his eyes on the fact that he had received a very important document, a Declaration of Trust, which he failed to read and failed to acknowledge receipt of. That willful blindness certainly carried on during the seven years of litigation. He admits on cross-examination that he still has not bothered to read the document.
[122] Jiwa is, therefore liable to Pirani in damages on a number of counts, namely breach of trust, breach of fiduciary duty, negligence and willful blindness to his duties as a careful solicitor. In fact, Jiwa did not even bother to bring his real estate file with him to the Trial. He simply left it at the office.
[123] Jiwa says Pirani is a non-client and a third-party and therefore he owes no duty to him. See: Kamahap Enterprises Ltd. v. Chu’s Central Market Ltd. (1984), 1989 242 (BC CA), 64 D.L.R. (4th) 167 (B.C.C.A.). Pirani reasonably relied on Jiwa to act carefully and keep him and Fakirani informed. They sent him a copy of the Declaration of Trust, which he ignored at his peril. While Jiwa could not force Esmail and Yasmin to prepare accounts, he had an obligation to notify them both in writing about this. He further had a duty to follow-up with Yasmin after he sent a copy of Fakirani’s letter to her in February 2003, which he did not do. Had those steps been taken, Jiwa may not have been sued.
- The Accounting
[124] Esmail kept no proper accounts in his role as the Trustee under the Declaration of Trust. At the beginning of the Trust, the trust property on Winlock should have been transferred into his name as Trustee, from his sole ownership of it. That would have been a starting point to the Trust accounts. A separate bank account should have been set up to receive the rent payments and to be used to pay the Trust’s expenses.
[125] If there was to have been an agreement that the two beneficiaries were to pay and expenses over-and-above the rent received, a document in writing should have been created setting it out, with Esmail paying 2/3 and Pirani 1/3, or the term should have appeared in the Declaration of Trust. This did not happen.
[126] I cannot, with any certainty, rely on any document prepared by Esmail, which, purports to be an accounting of the Trust’s administration. I have said in these Reasons that where Esmail’s evidence differs from Pirani’s, I accept that of Pirani. Esmail was not a credible witness. He deliberately destroyed or withheld all banking information and documents that may have shed light upon what actually took place during the years the Trust was in existence.
[127] Esmail was in breach of Trust in transferring the trust property to Yasmin in order to defeat his creditors. It was a fraudulent preference that remained in place for the balance of the trust administration, which was then taken over by Yasmin. She kept no accounts and also was not a credible witness. On cross-examination, she obfuscated in her testimony as Esmail had. She either destroyed or withheld producing all the banking documents from the years she was the registered owner of the property, a property she also held in trust for the beneficiaries.
[128] Any of the monies received by Esmail on the sale of the property, if Jiwa had been a careful solicitor, should have been held in trust until the issues of legal and beneficial ownership was sorted out. They were not. Therefore, if Esmail transferred them to Yasmin, after he received them, they can be traced into her hands. In Gold v. Rosenberg, 1997 333 (SCC), [1997] 3 S.C.R. 767, the Supreme Court held on pp. 11 and 12, that where a stranger to a trust receives trust property in his or her own right, and uses it, the Court may order restitution. There is no evidence that Yasmin received the property as agent for Esmail, the Trustee. Yasmin paid nothing for the property, accepted the rents in her name, did some administration but in the end took on the position of Trustee by allowing, (not directing, as no Direction was signed by her as to the disposition of the funds after the sale) Esmail to say how the funds should be dispersed. She knowingly assisted Esmail in his breach of trust and put herself in the position of being a fiduciary to Pirani along with Esmail.
[129] Mr. Justice D.M. Brown, in Harris v. Leiken Group Inc., 2011 ONSC 3556, [2011] O.J. No. 2667 (O.S.C.J.), outlines in paras. 293 and 294, where a stranger to a trust has actual knowledge of the misconduct or is wilfully blind to a breach, he or she can be found liable. In para. 294 he states:
In sum, to recover damages for knowingly assisting in a breach of fiduciary duty, a claimant must demonstrate that:
(i) A fiduciary relationship existed;
(ii) the fiduciary perpetrated a dishonest and fraudulent breach of trust; and
(iii) the defendant stranger participated in and had had actual knowledge of the trustee’s dishonest and fraudulent breach of fiduciary duty.
[130] While Yasmin was Esmail’s wife, for purposes of the Trust she was a “stranger” as he had no legal or beneficial interest in the Trust. They both became fiduciaries. If Esmail’s trust proceeds are now in her hands, they can be followed into her hands. There is a reasonable inference that Esmail may have diverted the proceeds to protect himself once the lawsuit was begun by Pirani. He took the same step when he transferred the trust property out of his name to Yasmin’s name to defeat his creditors.
[131] The Declaration of Trust states that on any transfer or conveyance of the property, it shall be in accordance “with the percentage of ownership above set forth, in such manner as the above named shall from time to time direct in writing.” All three Defendants, Esmail, Yasmin and Jiwa ignored this directive in the Trust document. Esmail knew it was there, Yasmin knew about the trust relationship, and had Jiwa read the document, as a careful solicitor would have, he would also have know. They are all in breach of trust.
- The Experts’ Views
[132] Each expert filed two Reports. They differed in certain assumptions each made, and came to different conclusions. They met with each other at the Pre-Trial Judge’s request. That meeting helped to narrow certain issues and changed their figures somewhat.
[133] The result of the Reports are far apart as follows:
I: The Zafar Reports
Report dated January 29, 2011 says that Esmail and Yasmin owe Pirani $207,494 based on the outline in Schedule 1 to the Report. More than one-half of that amount is interest on monies accrued and owing to Pirani but not paid.
Report dated March 24, 2011 says it “supercedes” the earlier Report but no changes “in our independent approach have been made.” The amount calculated in Schedule 1 is $174,986, again with more than one-half of that amount being interest.
[134] In each instance, Zafar notes that the amount is payable by both Esmail and Yasmin.
II. The Spagnuolo Reports
Report undated but served and filed by February 28, 2011 says that Esmail owes Pirani $7,203 if Esmail was responsible for all expenses other than property taxes. If they were to share expenses equally, Spagnuolo says Pirani owes Esmail $30,327.
Rebuttal Report dated May 11, 2011. This in most respects mirrors the first report but now includes a 5% management fee for Esmail applied to Revenue. Doing this, Spagnuolo concludes that Pirani owes Esmail $45,549. He says again, if Esmail is responsible for all expenses except property taxes, which Pirani was to pay in full, Esmail owes Pirani $7,203.
III. Analysis of Reports
[135] Such two diverse experts’ reports leaves the Trial Judge in a very difficult position in determining which evidence used by each is accurate or reasonable in the circumstances.
[136] I do, however, have a problem with Spagnuolo’s Reports for the following reasons:
(a) I do not see his Reports as being unbiased and independent. I do not mean that he was deliberately biased in what he did. It was, in my view, impossible for him to do his first report in 16 days and have it be independent of Hafsa’s various reports, which he read.
(b) He interviewed both Esmail and his daughter Hafsa. Neither are independent sources of information. He also examined Hafsa’s Report, which I have said was not unbiased. Hafsa may have dealt with various institutions on behalf of her father to obtain copies of documents after-the-fact, but these were not the key documents. No one knows whether or not she saw the bank statements and banking documents.
(c) He assumed that Pirani was responsible for the payment of all property taxes. I have found that there was no contract or agreement to that effect made between Esmail and Pirani.
(d) He assumed Esmail was entitled to a “management fee” for collecting the rent. If Esmail had not been in breach of trust, and if the trust had been properly administered, such a fee may have been awarded to him. There is no independent right to it. If the Trust, in writing, says a management fee, is to be paid, it still is not necessarily paid if there is a breach of trust.
(e) On p. 2 of his Report, Spagnuolo says he relied on the ledger sheets prepared by Esmail and “reviewed and accepted by Pirani”. There is no evidence to support this statement. Pirani never “accepted” what Esmail wrote and kept asking for accounts. Spagnuolo also accepts Esmail’s statement that he and Pirani entered into a “verbal agreement”. Again, I found this not to be the case, based on Pirani’s evidence.
(f) He refers to “standard operating expenses” and respective shares of “funding”. Pirani’s capital put into the Trust disappeared into a netherworld of no banking documents. Why did not Esmail pay down the mortgage with that money? All mortgage payments were legally those of Esmail from start to finish. Such a payment of capital would have substantially reduced the interest he had to pay each year.
(g) There was a dirth of mortgage materials (at least in the Court documents) to show mortgage payments monthly, to show all renewal statements over the years, and to determine if the various mortgages and/or renewals ever went into arrears. In the end, however, both he and Zafar agree that the mortgage principal paid must be deducted from revenues. I accept this.
(h) He is critical of Zafar’s analysis in coming up with an amount owed by Esmail to Pirani. He consistently says that Zafar did not provide any evidence that he relied on independent analysis. In my view, Zafar used all sources available to him and examined personally all documents available. While he had to rely on Esmail’s statement as to rents, as a beginning point, so did Spagnuolo.
[137] In examining Zafar’s second Report, which supercedes or replaces his first Report, he notes that he is completely independent of the client and no relationship exists, which could impair independence in fact or appearance. I agree with that statement. In presenting his evidence, Zafar was in no way trying to be an advocate for Pirani’s position. He notes that his position is to establish the net funds owed by one either litigant to the other. He read the Declaration of Trust and mentions it. He says, as a result of his investment, “Mr. Pirani assumed position of stakeholder in the capital and non-capital gains and losses of the property.” He also notes that each of Esmail and Pirani is a “beneficiary” of the property, and speaks of Esmail’s “fiduciary duties” in managing the property. Spagnuolo ignored this aspect of the relationship.
[138] Zafar says he relied on “realistic assumptions” where actual evidence was not available. He assumes that rents would have been increased over the years according to reliable and independent websites.
[139] Zafar also points out that Spagnuolo does not hold a public accounting license, which is required under the Ontario Public Accounting Act, 2004, to reconstruct financial information. Given Spagnuolo’s other qualifications and practical experience as a forensic accounting for The Law Society of Upper Canada, I qualified him as an expert.
[140] While Zafar also examined some of Hafsa’s 5 reports (as all were not in the Court documents), he says each differs from the previous ones, and says that Hafsa is not an independent source that can be relied upon.
[141] Zafar properly listed the income tax implications on para. 2 of his “Observations” of Esmail’s failure to keep accounts, his failure to file Income Tax Trust Returns and his failure to provide Pirani with proper tax information each year.
[142] Zafar, in my view, properly used the vacancy rates from Canadian Mortgage and Housing (“CMHC”) for the years 1989-1998. Since CMHC did not provide statistics for 1999-2002, Zafar used research conducted by Sauder School of Business to determine those rates. I accept those calculations as reasonable.
[143] As for Esmail’s evidence that separate rooms in the house itself were combined as one rental unit, there is no clear evidence as to when and where it happened, and why Pirani was not told or consulted if it did take place. Zafar therefore, for rental purposes, used the original separate unit rental income to calculate gross rental income.
[144] I accept Zafar’s reasoning in para. 5 about the rentals and why he does not accept that rental figures went down, or that there was a decrease in rentals, which Spagnuolo says in his Report, took place.
[145] Zafar has also pointed out that Mr. Pirani is owed $2,522 from the sale proceeds because of the property taxes and water account arrears being duplicated in those expenses already calculated in the computation of these expenses for the Trust administration period. I agree with him that Pirani is owed this amount.
[146] I accept Zafar’s calculations regarding the interest rates on the various mortgages in question during the 13 years. The lowering of the rate in October 1992 to 7% and downward over the later years meant that the property operated at a profit from 1992 onward.
[147] Zafar did not have the benefit of Fakirani’s evidence nor access to his legal file when he compiled his Reports. That file was only located by Fakirani shortly before the Trial commenced.
[148] Exhibit 13 shows how the refinancing took place when the Bayshore mortgage was discharged and the Seel refinancing of the $250,000 took place on August 15, 1990. The Bayshore Trust was paid $175,597.95 as of August 15, 1990. Seel then discharged the second mortgage it held at $72,314.84, leaving net proceeds of $177,685.16. There is a reference to “balance of commitment fee”, being $325 but no reference to what had previously been paid to hold the commitment.
[149] Fakirani’s Trust ledger statement shows how the $177,685.16 of new mortgage money was dispersed. The realty taxes were $801.71 in arrears, at that point, and $85 was paid for Yasmin’s independent legal advice. Fakirani’s fee with disbursements and taxes was $1,200.50. Since the original Sell mortgage was only $70,304.69, the interest charge of $1,685.15 means the mortgage was in arrears. The interest rate was 11% per month so the per diem rate on that amount is approximately $21 per day for the 15 days to August 15, or $315.
[150] Based on these calculations, I find that Esmail should have personally paid, on that transaction, the following amounts:
(a) $801.71 for taxes in arrears
(b) $85.00 for Yasmin’s ILA fees
(c) $1,370.15 for mortgage arrears owing
(d) $1,200.50 for the legal fees
These total $3,457.46, which is the excess amount Esmail added to the mortgage principal. Pirani is therefore owed 1/3 of that amount.
[151] Fazar, in Schedule 3.1 of his Report sets out how he adjusted the rent figures by a discount for vacancies based on vacancy rates as noted earlier and adding the rent increase guideline. I accept these calculations as being reasonable in the circumstances of this reconstruction of what took place during the 13 years. I also accept his calculations on expenses deducted, to come to the figure of $12,873 owing to Pirani from rents.
[152] The evidence shows that Pirani contributed the total sum of $45,948 as a further infusion when he gave monies as requested by Esmail together with the property taxes he paid. He is entitled to be reimbursed for this amount.
[153] Fazar says that Pirani is owed $109,751 in interest on the amounts owing, as per Schedule 2 of his final Report. The interest rates used have been computed by him by taking an average prime rate for each year plus 2% added to it to come to what he says is a reasonable amount. He says Pirani borrowed from lending institutions at these rates, which are 15.26% in 1989 to a low of 4.42% in 2009 and 5% in 2011.
[154] The problem I have with the interest calculation is that it is unrealistic in the circumstances of this case. There is no evidence before me that Pirani borrowed money to fund the $45,948 he paid towards the expenses and taxes. Even if he did, he chose to make the investment. Further, interest on damages is not based on “borrowing” rates. It is more closely related to what one might receive on a low-risk investment.
[155] The Court system has developed a system for calculating interest on a pre-judgment and a post-judgment basis. These rates are posted and change on a quarterly basis. Pirani claims both in his Statement of Claim.
- Exemplary or Aggravated Damages
[156] Pirani has made a claim for aggravated or exemplary damages. He asks for compensatory damages taking into full account his intangible injuries, such as distress and humiliation, aggravation, upset and inconvenience. He asks for $50,000 in exemplary or aggravated damages.
[157] While Pirani, also made a claim for punitive damages, this claim was dropped by him on the last day of Trial.
[158] Since the claim for aggravated and exemplary damages remained outstanding at the end of the Trial, counsel for Pirani argued he was entitled to some. There was no case law submitted in Pirani’s Book of Authorities on it, nor were there any in Jiwa’s Book of Authorities. Esmail and Yasmin submitted no Book of Authorities, relying somewhat on Jiwa’s authorities.
[159] Given that the Trial took place over a period of 8 months from April to November 2011, even though the actual Trial time was 12 days, it seems to me that all counsel inadvertently failed to turn their minds to the cases on this issue.
[160] If Pirani still wishes to pursue this claim, his counsel shall prepare brief legal submissions accompanied by case law on the claim. It shall be served on the Defendants before April 1, 2012, and sent to me at Osgoode Hall. The Defendants shall have 7 days after service thereof to serve their written arguments, and send them to me. Pirani shall have 5 days thereafter to serve any Reply, if necessary.
Conclusions and Judgment
[161] In these Reasons, I find that Esmail and Yasmin owed a fiduciary duty to Pirani. Both breached that duty. In addition, I find that both are in breach of trust for their lack of administration of the trust property and in their failure to keep proper accounts and vouchers to support all expenses. In addition, they failed to keep or destroyed all their banking records, which is also a breach of trust. Esmail was in breach of trust in transferring the property into Yasmin’s name. As the Trustee, Esmail had no authority in trust law to do this nor did the Declaration given him that right.
[162] I find that the damages arising out of these breaches and owing to Pirani are as follows:
From the refinancing of the mortgage in 1990 $1,152.68
From the net rental income $12,873.00
Pirani’s infusion of capital for expenses $45,958.00
Owed from Yasmin taking the $500 contribution
after closing $320.00
- Owed from Esmail taking the $5,000 insurance
proceeds received by him and not paid into the Trust $1,666.66
- Owed from Esmail taking the net proceeds of the
sale for Jiwa and Esmail allowing full payment of the
arrears of property tax and water account $2,522.00
- Owed from the reduction of the sale price of the
property without Pirani’s permission and failure
to consult him at all $3,333.33
$67,815.67
[163] I find that the damages owed jointly and severally to Pirani by Esmail and Yasmin is the sum of $67,815.67. A Judgment shall go that they forthwith pay this sum to Pirani, together with pre-judgment interest from April 5, 2004 to today’s date. That rate shall be calculated by Pirani’s counsel using the pre-judgment rates of interest under the Courts of Justice Act over the years in question, based on each year’s average, with that year’s interest added to the principal sum cumulatively each year. That interest calculation shall be circulated to counsel for Esmail and Yasmin, and to Jiwa before it is added to the principal sum for purposes of having this Judgment issued and entered. If there is an issue on the calculation, counsel may speak to me.
[164] I find that Jiwa allowed himself to become a fiduciary, in relation to Pirani, Jiwa failed to take proper care as the solicitor acting on the sale of the Trust property. I have set out Jiwa’s failure in these Reasons. He further placed himself in a quasi-trust position to Pirani, with his failure to properly communicate with Esmail and Yasmin regarding the Declaration of Trust sent to him by Pirani and by his failure to properly put them on notice of Pirani’s requests for an accounting.
[165] The damages arising out of these breaches I set at $15,000 as a reasonable amount in these circumstances. The delays by Jiwa for over a year resulted in Pirani finally having to issue a Statement of Claim. An accounting was delayed over several years, at a cost to Pirani. He is now left having to perhaps trace the funds taken by Esmail on the closing. Further, if Jiwa thought he was just acting on a “simple sale of a property”, he should have immediately consulted a lawyer who knew something about trusts, if Jiwa felt uncomfortable about receiving the document. All of this hurt Pirani.
[166] Jiwa cannot be held responsible for the failure of Esmail and Yasmin to keep an accounting over their years of the administration of the Trust. A judgment shall issue that Jiwa forthwith pay that sum together with pre-judgment interest at the Courts of Justice Act rate calculated in the same way as the interest on damages is calculated for Esmail and Yasmin. The damages are awarded to Pirani for Jiwa’s breach of fiduciary duty to him as a beneficiary of the Trust.
[167] Pirani shall have post-judgment interest as the Courts of Justice Act rate on all such amounts from the date hereof to the date of payment.
[168] In the event that the claim for aggravated and exemplary damages is pursued by Pirani, I will deal with it in a separate set of Reasons and in a separate Judgment.
[169] In the event that the parties cannot agree on Costs, since Pirani was successful as the Plaintiff, he shall serve and file his Bill of Costs, and make written submissions no longer than 3 pages plus case law and dockets by April 15, 2012. The Defendants shall have 7 days thereafter to respond, with Pirani having 5 days after that to Reply, if necessary. All briefs shall be sent to me at Osgoode Hall.
[170] Judgment to issue accordingly.
Greer J.
Released: February 22, 2012
COURT FILE NO.: CV-04-266546CM3
DATE: 20120222
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
BARKATALI NAZARALI PIRANI,
Plaintiff
– and –
YASMIN ESMAIL, TAJDIN ESMAIL and
ALNAZ JIWA,
Defendants
JUDGMENT
Greer J.
Released: February 22, 2012