NEWMARKET COURT FILE NO.: CV-12-111817-SR

DATE: 20141210

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

1598223 Ontario Inc.
Plaintiff

– and –

The Behar Group Realty Inc.
Defendant

Bruce R. Jaeger, for the Plaintiff

David S. Steinberg, for the Defendant

HEARD: November 19, 2014

REASONS

EDWARDS j.:

Overview

[1] The plaintiff is the owner of commercial property located at 7533 Bathurst Street in Thornhill, Ontario (“The Property”). The majority shareholder of the plaintiff is a dentist, Doctor Boris Karlin. Doctor Karlin, on behalf of the plaintiff, entered into a listing agreement (“The agreement”) with the defendant in January 2012. The defendant is a real estate broker whose main responsibility under the agreement was to market and sell commercial condominiums that were to be built on the property. For various reasons the development of these commercial condominiums did not proceed. The plaintiff now seeks reimbursement for the marketing costs that the plaintiff incurred with respect to the marketing and advertising of the failed project.

The Facts

[2] The agreement that is the subject matter of this litigation was drafted by the defendant. It was sent to Doctor Karlin for his review on September 28, 2011. Doctor Karlin asked his lawyer, Les Fluxgold, to review the agreement. Mr. Fluxgold provided Doctor Karlin with his comments on the draft agreement on November 21, 2011. Amongst the various concerns raised by Mr. Fluxgold, were concerns with respect to the length of the agreement and if sales were not progressing what the advertising obligations were. More importantly, with respect to section five of the agreement Mr. Fluxgold suggested that the agent (the defendant) should provide a detailed list of all “in-house” creative, design and advertising services to be provided.

[3] Despite the concerns raised by Mr. Fluxgold, Doctor Karlin determined that he wanted to proceed with the original draft agreement that had been prepared by the defendant. The agreement was ultimately signed by Doctor Karlin on behalf of the plaintiff, and by Mr. Avi Behar on behalf of the defendant.

[4] The particular paragraphs of the agreement that are in issue are paragraphs five and eight, which I reproduce below:

5. The Seller (the plaintiff) shall provide all necessary purchase forms, floor plans and other normal sales materials and services, including preliminary space plans as required.

It is understood that all “in-house” creative, design and advertising services provided by the Agent shall be at no charge to the Seller.

Seller agrees to reimburse the Agent (the defendant) for direct external costs for selected elements which may include broker reception, architectural renderings and photography, subject to mutual agreement, and all such reimbursements shall be repaid to the Seller from any commissions of the Agent, but the Agent shall otherwise be responsible for all external costs including printing of all marketing and promotional material and placing and [sic] “For Sale” signs on the Site.

8. The duties of the Agent during the term of this agreement shall include but not be limited to the following:

a) To prepare for the approval of the Seller a marketing plan including a reasonable advertising program and budget for the promotion, sales of space on the Site;

b) To prepare, at the expense of the Agent and in consultation with the Seller, marketing materials for the promotion of the Site, subject to the Seller’s prior written approval;

c) To implement the marketing plan and the advertising program and to make a conscientious and diligent effort to sell all available space on the Site to suitable purchasers having regard to the uses intended for the Site.

[5] On April 9, 2012 Doctor Karlin, on behalf of the plaintiff, entered into a contract with a company called Sung Marketing. The purpose of this contract was to provide for the marketing, PR service, creative artwork and design as it relates to the property. The contract price with Sung Marketing was for approximately $26,000. The evidence at trial confirms that Doctor Karlin did not advise the defendant of his intention to enter into the contract with Sung Marketing, nor did Doctor Karlin at any time prior to the expiry of the agreement indicate to the defendant his intention to claim for the marketing costs incurred through his retainer of Sung Marketing. Part of the costs claimed by the plaintiff in this litigation relate to the contract costs with Sung. The defendant did, however, become aware of the involvement of Sung as representatives of Sung attended various meetings at which representatives of the defendant would have been in attendance.

[6] The defendant was involved in various sales activity relating to the possible sale of the commercial condominium units on the property between May and July 2012. The persons most directly involved in those activities were Igor Chouminov, and Greg Evans who was the Executive Vice-President of the defendant. Both of these individuals testified on behalf of the defendant. Both Mr. Evans and Mr. Chouminov stated that as a real estate broker they would have been involved with the development of a Feature Sheet which would be mailed out to the brokerage community. As well, the defendant would be responsible for the “For Sale” sign and marketing the property through the MLS system. Mr. Chouminov and Mr. Evans both indicated that, from their experience, a real estate brokerage company would not become involved in advertising through various media outlets such as radio, TV or direct marketing.

[7] Inevitably, the relationship between the plaintiff and the defendant soured to the point where the plaintiff, initially unbeknownst to the defendant, entered into a new listing agreement with another real estate brokerage company. The new listing agreement was entered into by the plaintiff on July 12, 2012. On July 24, 2012 Doctor Karlin advised the defendant that he would not be renewing the agreement with the defendant.

[8] Subsequent to the advice from Doctor Karlin of his intention not to renew the agreement, the defendant wrote to Doctor Karlin seeking reimbursement for the cost of the “For Sale” sign in the amount of $7,926.95. This request for payment by the defendant was responded to by correspondence from the plaintiff’s solicitors seeking the payment of the external marketing costs which are the subject matter of this litigation in the amount of $85,984.52. The letter from the plaintiff’s solicitor dated August 3, 2012 seeking payment of the aforesaid marketing cost was the first time that the defendant had any indication that the plaintiff was seeking repayment for these marketing costs.

Position of the Plaintiff

[9] Counsel for the plaintiff argues that the terms of the agreement as set forth in paragraphs five and eight are clear and unambiguous. The agreement was prepared by the defendant, and it is clear from the agreement that the defendant had the responsibility for the marketing and promotional expenses incurred for the property whether those costs were incurred by the defendant or the plaintiff.

Position of the Defendant

[10] Counsel for the defendant argues that the agreement must be interpreted in accordance with sound commercial principles and practice. It is suggested that the reasonable expectation of the parties, when viewed objectively, must lead to an interpretation that would reflect the reasonable expectations of the parties. Fundamentally, it is argued on behalf of the defendant, that the parties never could have reasonably been expected to require the defendant to underwrite all of the plaintiffs marketing and advertising expenses, particularly in a situation where the plaintiff had never consulted with the defendant with respect to the extent of the expenses that might be incurred for which the plaintiff would be seeking reimbursement.

Analysis

[11] This is not a case where one party or the other is an unsophisticated individual entering into a complex commercial relationship. The agreement that was entered into on behalf of the plaintiff by Doctor Karlin was executed with the benefit of independent legal advice. That legal advice raised concerns with respect to issues relating to the advertising and promotion contemplated by paragraphs five and eight reproduced above. Doctor Karlin is a well-educated individual. He is a dentist who also runs a dental supply company. Doctor Karlin is someone who would be quite familiar with business agreements. Doctor Karlin stated in his evidence that he understood the defendant was in the business of leasing real estate and was not a marketing consultant. Doctor Karlin, when confronted with evidence from his examination for discovery, confirmed that he knew that the defendant was not acting in the role of a marketing advisor. He agreed in cross-examination that the defendant’s primary expertise was with respect to the sales and leasing of real estate.

[12] Included in the evidence filed with the court was an affidavit of Marsha Karlin sworn April 14, 2014. Marsha Karlin is the wife of Doctor Karlin. Amongst the various facts referred to in Mrs. Karlin’s affidavit is her evidence with respect to the contract with Sung Marketing. In her affidavit Mrs. Karlin states:

Sung Marketing was being paid by the Owner (the plaintiff) to take the lead and run the balance of the marketing at that time. That marketing included development and arranging advertisements in newspapers, radio and television advertisements and the related creative work. They also did the creative work for the Launch Event.

[13] Doctor Karlin, in his cross-examination, stated that he had not read his wife’s affidavit prior to testifying in court but did acknowledge when confronted with his wife’s evidence, as reproduced above, that it was factually correct.

[14] Chronologically, it is significant that Doctor Karlin did not bring to the attention of the defendant the position that Doctor Karlin now asserts, that being the alleged responsibility of the defendant to reimburse the plaintiff for the marketing costs, which would include the marketing costs of Sung Marketing that were paid for by the plaintiff. It is hard to conceive of a business relationship where one party to a contract would enter into a contract with a third party, for which another party would be held responsible, without that other party being informed of the nature of the contract and the potential exposure under that contract. Mrs. Karlin deposes that Sung Marketing was paid by the plaintiff to “take the lead and run the balance of the marketing”. This suggests that the type of marketing that Sung Marketing was retained to do was well outside the scope of any advertising or promotion contemplated by the agreement for which the defendant would be responsible.

[15] It is also particularly significant that the plaintiff never asserted any claim for the advertising and promotional costs that are now sought in this litigation until the plaintiff received a demand from the defendant for reimbursement of the “For Sale” sign costs of just under $8,000. Only with the prompting for payment of the “For Sale” sign does it appear that the plaintiff responded with the claim that is now the subject matter of this litigation. This court can take into account the subsequent conduct of the plaintiff. As Laskin J.A. in Montreal Trust Company of Canada v. Birmingham Lodge Ltd., 1995 438 (ON CA), [1995] O.J. No. 1609 stated at paragraph 21:

Moreover, I think that the respondent’s subsequent conduct resolves any doubt about the extent of the appellants’ liability under art. 10.1. Subsequent conduct may be used to interpret a written agreement because “it may be helpful in showing what meaning the parties attached to the document after its execution, and this in turn may suggest that they took the same view at the earlier date”…

[16] To determine the intentions of the parties to the agreement, and particularly the intention of the parties with respect to paragraphs five and eight, this court must look at the factual matrix from an objective perspective. Listing agreements are to be interpreted in accordance with sound commercial principles and practice. The reasonable expectations of the parties must be determined on an objective basis. As Winkler C.J.O. indicated in Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, [2010] O.J. No. 4336 at para. 16:

The basic principles of commercial contractual interpretation may be summarized as follows. When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must have regard to the objective evidence of the “factual matrix” or context underlying in negotiation of the contract, but not the subjective evidence of the intention of the parties. The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity. If the court finds that the contract is ambiguous, it may then resort to extrinsic evidence to clear up the ambiguity.

[17] In order to give effect to the arguments of the plaintiff this court would have to accept that sound commercial practice of a real estate broker, looked at from an objective perspective, would lead the court to the conclusion that a real estate broker would commit itself to pay for the marketing costs of a developer without knowing in advance the extent of those costs. With the evidence of Doctor Karlin himself, that he recognized that the defendant was a real estate broker offering its expertise in the sale and or leasing of real estate, it is hard to reconcile the plaintiff’s position with the plaintiff’s subsequent conduct in retaining a marketing firm in the form of Sung Marketing. The plaintiff’s conduct in retaining Sung Marketing reflects Doctor Karlin’s own evidence that he was quite comfortable in dealing with business issues, with the assistance of professional advice. Doctor Karlin sought the professional advice of a marketing firm. Doctor Karlin sought the advice of a professional real estate brokerage. The roles of both were quite separate and distinct.

[18] Looked at objectively, and from a commercially reasonable perspective, it is difficult to accept the position of the plaintiff where the agreement was a non-exclusive listing agreement which could be terminated on 30 days’ notice. It is difficult to conceive that in such a business arrangement the defendant could be bound and agree to pay for substantial marketing costs of which it may have had no prior warning. It is also particularly telling that in paragraph five of the agreement reproduced above, which speaks to the obligations of the party with respect to various external costs of a marketing or promotional nature, that those costs would be “subject to mutual agreement”. I infer from the language used in paragraph five that if the plaintiff was going to look to the defendant for reimbursement of marketing and promotional costs that there would at least have to be consultation between the parties. Not only does the agreement in paragraph five contemplate such consultation, but commercial reality would suggest that such mutual agreement is required before one party can expect another party to pay for third party costs.

[19] The plaintiff’s claim against the defendant is dismissed. The defendant agreed during the course of the trial that the counterclaim would be abandoned without costs. If the parties cannot agree upon the costs of these proceedings I will entertain receipt of written submissions, limited to three pages in length, to be received no later than December 31, 2014. If costs submissions are not received within that time frame the court will assume that the issue of costs has been resolved.

Justice M.L. Edwards

Released: December 10, 2014