NEWMARKET COURT FILE NO.: CV-15-00124898-00 DATE: 20160525 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

OLEG RASSOLOV and SVETLANA RASSOLOVA Applicants – and – AMIR MIZRAHI, BRIDLEPATH and PROGRESSIVE REAL ESTATE INC. and MARK LATHEM Respondents

Counsel: Jason R. Cherniak, for the Applicants Jeremy K. Sacks, for the Respondent Amir Mizrahi and Bridlepath

HEARD: April 26, 2016

REASONS FOR DECISION

DOUGLAS, J.

[1] On this Application the Applicants seek the following:

a. A declaration that Bridlepath and Progressive Real Estate Inc. (hereinafter “Bridlepath”) and Amir Mizrahi (hereinafter “Mizrahi”) were only entitled to commission of 2.75% from the sale pursuant to the Agreement of Purchase and Sale for 156 Old Surrey Lane, Richmond Hill, Ontario dated May 5, 2015 between the Applicants and Kais Mestiri; b. An order that Bridlepath and Mizrahi, jointly and severely, pay $16,557.15 to the Applicants; c. A declaration that the $3,189.60 held in trust by Mark Lathem (hereinafter “Lathem”) pursuant to the agreement belongs to the Applicants; d. An order that Lathem release the funds he holds in trust as directed by the Applicants; e. An order that Bridlepath and Mizrahi pay the substantial indemnity costs of this Application to the Applicants.

[2] At commencement of argument of this Application counsel for the Applicants confirmed that Lathem takes no position with respect to the issues before the court and that no costs are being sought against him.

[3] The Respondents Mizrahi and Bridlepath submit that the Application ought to be dismissed with costs.

The Issues

[4] The Applicants identify the following issues:

a. Did the Mizrahi breach his fiduciary duty to the Applicants? b. Was this a dual agency? c. Did Mizrahi know that the Applicants believed commission would be reduced to 2.75% in the event of a dual agency? d. If Mizrahi breached his fiduciary duty and this was a dual agency, to what damages are the Applicants entitled?

[5] The Respondents submit the following additional issues:

a. What is the agreement between the Applicants and Bridlepath with respect to the commission? b. Should the court draw an adverse inference against the Applicants for their failure to adduce any evidence from Mr. Kais Mestiri (hereinafter “Mestiri”)? c. Is this an appropriate subject matter for an Application under Rule 14.05(3) of the Rules of Civil Procedure?

Background

[6] Many of the foundational facts of this proceeding are not in dispute.

[7] The Applicants were the owners of 156 Old Surrey Lane, Richmond Hill, Ontario (hereinafter “the property”).

[8] Bridlepath is a registered Real Estate Brokerage firm.

[9] Mizrahi at all material times worked as an agent for Bridlepath.

[10] Margaret Stawarz (hereinafter “Stawarz) was a real estate agent working at Bridlepath at all material times.

[11] On May 5, 2015, the Applicants executed a listing agreement with respect to the property, identifying Bridlepath as the “brokerage” and the Applicants as “sellers”.

[12] The listing agreement included the following clauses:

a. Subparagraph 2: Commission: In consideration of the listing brokerage listing the property, the seller agrees to pay the listing brokerage a commission of 4.0% of the sale price of the property… b. Subparagraph 3: Representation: …The seller authorizes the listing brokerage to cooperate with any other real estate brokerage (cooperating brokerage), and to offer to pay the cooperating brokerage a commission of 2.5% of the sale price of the property… c. Subparagraph 13: Conflict or Discrepancy: …This agreement, including any schedule attached hereto, shall constitute the entire agreement between the seller and the listing brokerage. There is no representation, warranty, collateral agreement or condition which effects this agreement other than as expressed herein.

[13] Mizrahi signed on behalf of Bridlepath.

[14] It is to be noted that the references to commissions of 4.0% and 2.5% above were inserted in handwriting in a standard Ontario Real Estate Association Listing Agreement.

[15] The Applicants allege that they both understood that the real estate commission on their transaction in the event of dual agency (i.e. Mizrahi representing both buyer and sellers) would be 2.75%. This allegation is based upon discussions with Mizrahi in their home less than an hour prior to execution of the Listing Agreement.

[16] The Respondents acknowledge that Mizrahi advised the Applicants that he had two clients in mind that he thought would be interested in the property and that Mizrahi knew that if he could complete a transaction with either of these clients before listing the property on MLS the deal could be done more quickly and at a lower cost than if it was listed. For that reason, it is alleged by the Respondents, Mizrahi advised the Applicants that if either of his clients were interested in entering into an Agreement for the property he would only charge a commission of 2.75% for the dual representation of both the buyer and seller. Mizrahi says that this was only to be the case if a deal could be completed with one of those two clients, and if he could get the deal done prior to the property being listed on MLS as once the property is so listed the Brokerage takes a portion of the commission and there are additional expenses associated with advertising, marketing and listing the property.

[17] The Broker organized two open houses for the property.

[18] Stawarz was in attendance on both occasions. She was assisting Mizrahi.

[19] Mestiri attended at one of the open houses and expressed interest in buying the property.

[20] Stawarz later met separately with Mestiri at Bridlepath offices and it was agreed that Stawarz would be Mestiri’s agent for purchase of the property.

[21] Mestiri’s offer was presented to the Applicants on May 15, 2015 and ultimately the Applicants and Mestiri agreed upon a price for the property of $1,398,000.00.

[22] On May 15, 2015 the Applicants and Mestiri executed a “Confirmation of Cooperation and Representation Agreement” stating that Bridlepath would be representing both the Applicants and Mestiri and that the RECO Rules associated with a dual agency would apply.

[23] The form of this agreement executed by the Applicants included a blank section to be filled in for the amount of commission payable by the listing broker to a cooperating broker. Mizrahi acknowledges that he filled in this blank without the knowledge of the Applicants and after the execution of the document to confirm his agreement to pay Stawarz 2.5% from the 4.0% commission he was to receive on the sale. Mizrahi indicates that he did this so that Bridlepath’s office would know how to pay the commission once the sale closed. It appears this change in the agreement had no impact upon the amount of commission payable by the Applicants.

[24] According to the listing agreement at 4.0% the commission owing to Bridlepath is $55,920.00 plus HST. At 2.75% the commission owing to Bridlepath is $38,445.00 plus HST.

[25] On June 5, 2015 Bridlepath delivered an invoice to the Applicants in the amount of $55,920.00 plus HST representing commission at 4.0%

[26] The Applicants disputed the commission owing over and above 2.75% and Bridlepath only released 2.75% commission and held back the remaining 1.25% that was being disputed by the Applicants. Bridlepath released the sum of $29,620.12 to Stawarz as payment of her commission (2.5% plus HST), and the remaining .25% to Mizrahi.

[27] The balance of 1.25% was paid out to Mizrahi on December 9, 2015 (before the Respondents were served with the Applicant Record), in accordance with the 4.0% specified in the listing agreement.

Analysis

Did Mizrahi breach his fiduciary duty to the Applicants?

[28] The Applicants submit that Mizrahi breached his fiduciary duty to the Applicants in the following respects:

a. He knew that the Applicants believed the commission would be reduced to 2.75% in the event of a dual agency; b. He cannot rely on the written word of a contract when he knew at the time of signing that the Applicants were confused about what had been agreed; c. Even if he did not realize the Applicants were confused until after the fact, such a realization proves that he did not fulfill his obligation to ensure that the Applicants were fully informed; d. He did not write down the terms of the agreement regarding the 2.75% commission, contrary to the Real Estate Council of Ontario’s Code of Ethics, a regulation pursuant to the Real Estate and Business Brokers Act, 2002; e. If Stawarz was the buyer’s agent, then Mizrahi also breached his fiduciary duty by presenting the offer from the buyer to the Applicants showing Mizrahi as agent for the buyer.

[29] Mizrahi denies the Applicants’ allegations. He says the discussion regarding the 2.75% ended upon his determining that the two potential buyers he had in mind were not interested. Thereafter the parties signed the Listing Agreement. There was no agreement regarding the 2.75% to reduce to writing as the contemplated conditions of that potential agreement did not crystalize. Stawarz inadvertently inserted Mirahi’s name in the Confirmation of Co-operation and Reprentiation as agent for the buyer, he asserts.

[30] There is no dispute between the parties regarding the fiduciary relationship between a Real Estate Agent and a client. An agent owes a client a duty of “scrupulous good faith and candor” (see: Hodgkinson v. Sims, 1994 3 SCR 377 para. 42, and D. E. M. Corp. v. Skinner, 2004 PEIJ 90 para. 28).

[31] In D’Atri v. Chillcot, 1975 OJ 2208 (HSJ) para. 39, the court described the duty in these terms:

It is in the interest of equity that persons upon whom members of the public rely for advice, knowledge and trust must act with the best good faith and if any dispute arises must be able to demonstrate unequivocally that they did so act. Any doubt must be resolved in favour of the person who relied upon them.

[32] In S.G. Investment Group Ltd. v. Avison Young, 2016 OJ 1734 SCJ para. 67, Justice Perell cited D’Atri, among others, in concluding:

Real estate agents have a fiduciary relationship with their principal owing the highest obligation of full disclosure and fair dealing with the vendor who pays the commission.

[33] Even if the agreement of the parties is consistent with the Listing Agreement at 4.0%, if I find that Mizrahi breached his fiduciary duties to the Applicants the Respondents may be denied their commission entitlement (see: S.G. Investment Group Ltd. v. Avison Young, at para. 67 and 68).

[34] The parties’ evidence in relation to this issue, summarized in part above, is inconsistent. This is an Application argued on a paper record and without my having had an opportunity to receive viva voce testimony and thus assess the credibility of the parties.

[35] In the Applicant’s Factum it is argued that Mizrahi “seems to have known that his clients believed the commission would be reduced to 2.75% in the event of a dual agency.” I have reviewed the evidence presented and I can find no evidence to support the contention of this awareness on the part of Mizrahi before this dispute arose. This submission appears to be based upon speculation.

[36] It is further submitted in the Applicant’s Factum that an agent cannot rely on the written word of a contract “when he knew full well at the time of signing that the client was confused about what had been agreed.” Again, there is no evidence to support this allegation in relation to Mizrahi. In cross-examination Mizrahi was asked whether it was possible that the Applicants were confused and he conceded that it was possible. He was not pressed about when he was of the view that it was possible that there was confusion on the part of the Applicants regarding the terms of agreement regarding commission. Conceding the possibility of the Applicant’s confusion does not amount to evidence of awareness from Mizrahi’s perspective at a material time, without more clear evidence on the point. The evidentiary record thus does not assist the Applicants on this point. Suffice to say there are significant inconsistencies in the evidence to lead me to conclude that these issues cannot be resolved without a trial.

What is the agreement between the Applicants and Bridlepath with respect to the commission?

[37] This issue involves consideration of the admissibility of discussion between the parties prior to execution of the listing agreement.

[38] The Respondents submit that evidence of such discussions in admissible. In this regard the Respondents rely upon Creston Moley Corp. v. Sattva Capital Corp., 2014 SCC 53, in which the Supreme Court of Canada held:

a. The Parol Evidence Rule precludes admission of evidence outside of the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly written… To this end, the Rule precludes, among other things, evidence of the subjective intentions of the parties… The purpose of the Parol Evidence Rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack a written contract… b. The Parol Evidence Rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.

[39] In response the Applicants refer to MacDonald v. Chicago Title Insurance Co. of Canada, 2015 ONCA 842, as authority for the submission that a fiduciary relationship is an exception to the Parol Evidence Rule. In this regard the Applicants cite para. 32 of this decision which reads in part as follows:

…the relative importance of the surrounding circumstances is largely dependent on the nature of the contract. The circumstances surrounding the formation of a contract negotiated by arms-length parties may be very important in understanding the parties’ objective intent. Similarly, the determination whether the parties are in a special relationship, such as a fiduciary relationship, may also be an important factor in determining the parties’ objectively intended obligations under a contract.

[40] Svetlana, in cross-examination, described the process by which the listing agreement was negotiated and executed. She described discussion of the 2.75% commission rate in the hour or less prior to execution of the Listing Agreement. She described observing Mizrahi inserting “4.0%” as the applicable commission in the Listing Agreement. She indicated there was conversation about the 4.0%:

a. Question 38: “We discussed this 4.0%, so that would be commission and we put it here. So, we discussed for cooperation part will be 2.5%.” b. Question 41: “So, 4.0% would be in total.” c. Question 43:”…it was verbal agreement that in case he will represent buyer and seller, he will have…2.75% commission.”

[41] Svetlana confirmed having read the entire agreement, every term, before signing.

[42] Oleg described the 2.75% commission being discussed in the 10 minutes preceding execution of the Listing Agreement. He understood that if Mizrahi “does everything by himself the commission will be 2.75%.” Oleg did not read all of the agreement before signing it, but he did read “most” of it. The Listing Agreement he says represents the agreement of the parties except with respect to the absence of the 2.75%. According to Oleg, Mizrahi specifically drew his attention to the 4.0% and told the Applicants: “That is normal practice, that 4.0% in total, 2.5% and 1.5% to both sides but if he represents both sides, he will take 2.75%.”

[43] Oleg testified that he understood that the agreement regarding the 2.75% would not apply if Bridlepath as brokerage was representing the buyer but it was a different agent. In other words, the 2.75% would only apply if Mizrahi himself was acting for both the sellers and the buyer. This is why Mizrahi is trying to make it look like Stawarz is the agent for the buyer according to Oleg.

[44] Both Applicants gave evidence that they trusted Mizrahi.

[45] Mizrahi’s position is set out in paragraph 17 above. As indicated above, the parties are agreed that a fiduciary relationship exists between a real estate agent and a client.

[46] In accordance with MacDonald (supra) this fiduciary relationship allows consideration of evidence of discussions between the parties surrounding execution of a written agreement to assist in understanding the parties’ objective intent. As the evidence is inconsistent it cannot be properly assessed without trial.

Was this a dual agency?

[47] The Applicants submit that the evidentiary record supports the conclusion that this was a dual agency. Such a finding would trigger, in their view, Mizrahi’s commitment to reduce commissions to 2.75%.

[48] The Applicants cite the following evidence in this regard:

a. The marketing material for the sale showing Stawarz as a listing agent; b. The sale agreement showed Mizrahi as the agent for both the buyer and the seller, even though it was drafted by Stawarz; c. The confirmation that both the buyer and the seller signed showed that there was a dual agency, until it was amended by Mizrahi after it was executed.

[49] While the documentary evidence above may tend to support the Applicant’s position, the balance of the evidence in the form of Affidavits and cross-examinations is inconsistent and I am not satisfied that I can make the necessary factual findings required to dispose properly of this issue.

Did Mizrahi know that the Applicants believed commission would be reduced to 2.75% in the event of a dual agency?

[50] Again, the evidentiary record is not sufficiently clear to support the necessary findings of fact.

If Mizrahi breached his fiduciary duty and this was a dual agency, to what damages are the Applicants entitled?

[51] As I have not made any finding regarding breach of fiduciary duty, it is not necessary to address this issue.

Should the court draw an adverse inference against the Applicants for their failure to adduce any evidence from Mestiri?

[52] The Respondents argue that Mizrahi was in reality the buyer’s agent and therefor the commission owing is only 2.75%.

[53] Stawarz is no longer employed by Bridlepath. She is not a party to this Application. It is submitted by the Respondents that she is an independent third party witness and is the only individual who can provide direct evidence on the issue of who was the buyer’s agent other than the buyer himself (i.e. Mestiri).

[54] In Goldstein v. Davidson, 1994 OJ 1018 para. 41, Justice Ground of the Ontario Superior Court of Justice held that if a witness could reasonably be expected to testify in favour of one party and against the other the party, an adverse inference may be drawn from the fact that the witness was not called by the first mentioned party.

[55] In this regard I must first consider what Mestiri could reasonably be expected to say in his testimony. The evidentiary record is muddy on this point and I do not feel confident in coming to any conclusion as to what Mestiri might reasonably be expected to say in his testimony. That being the case, I cannot draw an inference adverse to either party.

Do the issues raised by the parties lend themselves to resolution by Application under Rule 14.05(3) of the Rules of Civil Procedure?

[56] This Application is brought under Rule 14.05(3)(b) and (g) of the Rules of Civil Procedure. While the relief sought does touch on trust issues (as referred in Rule 14.05(3)(b)) and on declaratory relief (as referred in Rule 14.05(3)(g)) at the heart of this proceeding are the contractual intentions of the parties and whether Mizrahi’s actions as alleged by the Applicants amount to a breach of his fiduciary duties to the Applicants.

[57] In these circumstances there are two other provisions of Rule 14.05(3) that relate to the issues raised in the Application. Subrule 14.05(3)(d) authorizes the Court to address matters by Application where the relief claimed is “the determination of rights that depend on the interpretation of a… contract of other instrument…”. In Seguin v. Pharmaphil Division, R. P. Scherer Canada Inc., (1995) 5 W.D.C.P. (2d) 119 (Ont Gen Div) the Court found that this subrule applies only to written contracts. Subrule 14.05(3)(h) authorizes the Court to address matters by Application where the relief claimed is “in respect of any matter where it is unlikely that there will be any material facts in dispute.”.

[58] As indicated above at the heart of this Application is an issue regarding the terms of the parties’ agreement. The Applicants argue there were verbal terms that were not reduced to writing. In my view, such a claim is not easily susceptible to resolution except following trial with viva voce testimony. My view in this regard is bolstered by the provision of subrule (h) which recognizes the shortcomings of the application procedure where material facts are in dispute, as they are here.

[59] Pursuant to Rule 38.10(1) of the Rules of Civil Procedure:

1. On the hearing of an application the presiding judge may, a. grant the relief sought or dismiss or adjourn the application, in whole or in part and with or without terms; or b. order that the whole application or any issue proceed to trial and give such directions as are just.
2. Where a trial of the whole application is directed, the proceeding shall thereafter be treated as an action, subject to the directions in the order directing the trial.
3. Where a trial of an issue in the application is directed, the order directing the trial may provide that the proceeding be treated as an action in respect of the issue to be tried, subject to any directions in the order, and shall provide that the application be adjourned to be disposed of by the trial judge.

[60] I find that the subject matter of this Application and the material facts in dispute can only be resolved through a trial. I arrive at this conclusion in light of my analysis below of the issues raised by the parties and the factual inconsistencies relating to those issues. These inconsistencies include the content of the parties’ discussions preceding execution of the listing agreement (assuming such evidence is found to be admissible), who was in reality acting as the buyer’s agent, what were the parties intentions regarding commission, what did Mizrahi know about the Applicants’ understanding of the agreement.

Conclusion

[61] For the foregoing reasons, I order as follows:

a. The issues raised upon this application shall proceed to trial. b. Given the fiduciary relationship between the parties, evidence of verbal discussion surrounding execution of the written agreement will be admissible to assist in determining the parties’ objective intent. c. The parties shall provide brief written submissions regarding desired additional orders of a procedural nature in furtherance of the trial objective. d. The parties shall provide written submissions regarding costs, limited to 3 pages excluding Bills of Costs and Offers, delivered to my assistant in Barrie, upon the following schedule: i. Applicants, within 3 weeks; ii. Respondents, within 4 weeks; iii. Applicants, in reply, within 5 weeks.

Douglas, J. Released: May 25, 2016