Court File and Parties

COURT FILE NO.: CV-11-440420 DATE: 20160602

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

DOBARA PROPERTIES LIMITED and EZZAT F. GINDI Plaintiffs – and – GINO ARNONE, ERICKSON & PARTNERS, BARBARA HICKS, SELWYN HICKS and HICKS & HICKS PROFESSIONAL CORPORATION Defendants

Counsel: Ezzat F. Gindi, for himself and Dobara Properties Limited Arnie Herschorn and Jane Yoo, for the Defendants Barbara Hicks, Selwyn Hicks and Hicks & Hicks Professional Corporation

HEARD: May 24, 2016

M. D. FAIETA, J.

REASONS FOR JUDGMENT

INTRODUCTION

[1] The Plaintiffs bring this action against their former solicitors for damages arising from their purchase of contaminated land. The Plaintiffs retained the Defendants Barbara Hicks, Selwyn Hicks and Hicks & Hicks Professional Corporation (the “Hicks Defendants”) to commence an action against the Defendant Gino Arnone and Erickson & Partners (the “Arnone Defendants”) who acted as the solicitors for the Plaintiffs on the purchase of the contaminated land. The action against the Arnone Defendants was dismissed by Justice Lederman on the basis that it had been commenced after the expiration of the limitation period. Justice Lederman dismissed the Plaintiffs’ motion for summary judgment against the Hicks Defendants on the basis that it raised genuine issues requiring a trial, such as whether the Hicks Defendants had been retained to commence an action against the Arnone Defendants: Dobara Properties Limited et al.v. Arnone et al., 2014 ONSC 5418.

[2] At trial, which was held on May 24, 2016, the Hicks Defendants admitted liability but denied that the Plaintiffs had suffered any compensable damages. [1]

[3] For the reasons described below, I award the Plaintiffs damages in the amount of $57,712.31 plus interest and costs.

BACKGROUND

[4] The Plaintiff, Ezzat F. Gindi (“Gindi”), is the President and sole shareholder of the co-Plaintiff, Dobara Properties Limited (“Dobara”). Since 1987, Gindi has bought and sold residential and commercial investment properties.

[5] In late 2004, the Plaintiffs retained the Arnone Defendants in connection with the purchase of a strip mall located in Marathon, Ontario (the “Property”). The Property was the sole asset of 1383754 Ontario Ltd. (“Vendor”). On December 15, 2004, Gindi purchased the Property by purchasing all of the shares of the Vendor for the sum of $575,000.00. The Arnone Defendants acted for both the Vendor and the Plaintiffs on this sale.

[6] A few months after he purchased the Property, Gindi learned from his insurer that the Property had been used as a gasoline station. The Arnone Defendants confirmed that a lease to Shell Oil had been registered on title to the Property at the time of sale. Gindi testified that he would not have purchased the Property had he known that it had been a former gasoline station.

[7] The Plaintiffs conditionally sold the Property in 2008 however that purchase was not completed: the purchaser did not arrange mortgage financing as a result of the requirement of its lender to assess the environmental condition of the Property.

[8] In late 2010 and early 2011, the Plaintiffs arranged for an environmental study of the Property. The study confirmed that the soil beneath the parking lot of the Property was contaminated with gasoline and, through borehole testing, also delineated the area of the contamination. By mid-2011, the Plaintiffs had arranged and paid for the removal of the contaminated soil from the Property.

[9] The Plaintiffs retained the Hicks Defendants to, amongst other things, preserve their right of action against the Arnone Defendants. The Plaintiffs commenced this action against the Arnone Defendants on November 25, 2011.

[10] The Statement of Claim makes the following allegations:

7. Unbeknownst to the Plaintiffs at the time of the purchase, from about the early 1980s until about the early 1990s, the Property was used as a retail gas station with underground storage tanks for automobile fuel and an automobile service shop.

8. None of (i) the past use of the Property as a retail gas station; (ii) the existence of underground storage tanks; or (iii) evidence of any environmental contamination or remedial work was apparent from a visual inspection of the Property. The past use of the Property was readily apparent, however, on the land registration records for the Property at the time of the purchase of the Property by the Plaintiffs. In particular, at that time, the land registry for the Property showed the registration of a lease to a gas station operator (the “Shell Lease”). On May 6, 2005 the Arnone Defendants registered a Notice of Determination/Surrender of Lease that removed the Shell Lease from the register. The Arnone Defendants first acknowledged to the Plaintiffs in September 2005, many months after the closing of the transactions, that the Shell Lease had been on title at the time of closing. This acknowledgement was made only after Mr. Gindi advised the Arnone Defendants that the Plaintiffs’ insurer had raised an issue about a service station having previously been located on the Property. Prior to September 2005, the Arnone Defendants did not draw the existence of the Shell Lease, its registration, or its discharge to the attention of the Plaintiffs either verbally or in writing.

9. The Arnone Defendants acted for both the Vendor of the Property and for the Plaintiffs as purchaser on the transaction but did not advise the Plaintiffs of the potential conflict of interest or of the desirability for independent legal advice.

10. In breach of contractual, tort and fiduciary duties owed to the Plaintiffs, the Arnone Defendants:

a. negligently failed to advise the Plaintiffs of the Shell Lease which indicated that the Property had in the past been used as a gas station and a motor vehicle maintenance facility;

b. negligently failed to advise the Plaintiffs to perform additional searches or testing of the Property to determine whether or not past use of the Property might have caused environmental contamination of the Property;

c. negligently failed to advise the Plaintiffs that the former use of the Property could adversely affect the value and marketability of the Property; and

d. negligently failed to conduct or report to the Plaintiffs on the results of proper searches of the liabilities of [the Vendor] or to inform the Plaintiffs of potential liabilities that they could (and in fact did) incur as owners of the Property.

15. Had the Plaintiffs been advised of the matters referred to in paragraph 12 above, the Plaintiffs: (i) would not have completed the transactions; or in the alternative, (ii) would have conducted, or had the Vendor conduct, testing and searches to determine whether or not the Property was contaminated. In any case, the Plaintiffs would not have completed the transactions if testing showed that the Property was contaminated. Because of the negligence and breach of duty of the Arnone Defendants, the Plaintiffs lost the ability to exercise these options.

[11] The action against the Arnone Defendants was dismissed by Justice Lederman on September 26, 2014 on the basis that the action had been commenced after the expiry of the limitation period. The Statement of Claim asserts a claim for solicitors’ negligence against the Hicks Defendants for missing the limitation period. The Plaintiffs allege, at paragraph 16.9 of the Statement of Claim, that:

… the failure of the Hicks Defendants to advise about potential limitations issues and to commence an action when instructed by the Plaintiffs to do so has caused the Plaintiffs to lose valid claims against the Arnone Defendants for the relief claimed in this action. Accordingly, the Hicks Defendants would be liable for the damages caused to the Plaintiffs that could have otherwise been recovered against the Arnone Defendants.

[12] The Hicks Defendants admit liability; however, they deny that the Plaintiffs have suffered any resulting recoverable damages.

[13] The assessment of the Plaintiffs’ damages was the subject of this trial. Gindi was the only witness to testify.

[14] Gindi claims the following damages:

1. Environmental Remediation Costs: $56,712.31
2. Loss of Property Value: $82,000.00
3. Commission on the Failed Sale of the Property in 2008: $34,750.00
4. Cost of Replacing the Property’s Roof in 2009: $30,500.00
5. Excess Mortgage Interest Cost: $28,908.00
6. Mental Distress: $150,000.00

[15] The Plaintiffs also claim a management fee of 15% on the environmental remediation costs and roof replacement costs.

ANALYSIS

[16] The Hicks Defendants submit that the Plaintiffs are not entitled to damages unless they prove that the Property is worth less than the amount that Dobara paid for the Property. They rely upon the Ontario Court of Appeal’s decision in Messineo v. Beale (1978), 20 O.R. (2d) 49, 86 D.L.R. (3d) 713 (C.A). [2]

[17] In Messineo, the plaintiff purchased a large swath of recreational property. The defendant solicitor searched title and closed the sale without discovering that the vendor did not have title to a large part of the property (“Murch’s Point”) that the vendor purported to convey to the plaintiff. The purchaser submitted that he was entitled to compensation for the value of Murch’s Point. Although the purchaser’s solicitor had negligently performed his services, the claim against him was dismissed. The Ontario Court of Appeal, at para. 17, held that the proper measure of damages was “… the difference in money between the amount paid by the client to the vendor, and the market value of the land to which the client received a good title.” The purchase was a “pretty good buy” given that the market value of what the plaintiff received was greater than what he had paid (indeed, he had tried to sell the property for approximately three times the purchase price shortly after closing). As a result, the Ontario Court of Appeal upheld the trial judge’s finding that the plaintiff had suffered no actual loss.

[18] The Plaintiffs have not led any expert evidence to show that Dobara overpaid for the Property. Specifically, the Plaintiffs have not led evidence to show that the purchase price of the Property was greater than the market value of the Property in light of its contaminated condition.

[19] Nevertheless, even if the Plaintiffs do not establish that they overpaid for the Property, they are still entitled to compensation for all reasonably foreseeable damages resulting from the loss of opportunity to avoid the consequences of the Arnone Defendants' negligence. In Kienzle v. Stringer (1982), 35 O.R. (2d) 85, leave to appeal refused (1982), 38 O.R. (2d) 159 (S.C.C.), the defendant solicitor failed to ensure that title being transferred to the plaintiff was good or marketable because title had not been transferred by its owner. Justice Zuber stated, at paras. 10 - 13:

The learned trial judge was of the view that he was bound by the case of Messineo v Beale and that his award of damages was therefore limited to the difference between the contract price and the market price of what was received. …

In my respectful view, Messineo v. Beale is not authority for such a broad proposition. …

In my respectful opinion, Messineo v. Beale decides only that the defendant did not cause the plaintiff any damage. …

It appears that in many of the cases, as a matter of fact, the damages amount to no more than the difference between the purchase price and the market value of what is received, but I find no case binding on this Court compelling the acceptance of such a measure as a rule of law.

In my view the law should not support a rule which gives exceptional protection to solicitors from the general principles of damages which flow from either contractual or tortious responsibilities. …

[20] In Toronto Industrial Leaseholds Limited v. Posesorski et al. (1994), 21 O.R. (3d) 1 (C.A.), Justice Doherty stated:

61 I begin with the proposition that damages should, to the extent possible, restore the clients to the position they would have been in had the solicitor properly discharged his duty. I take this to be the aim regardless of whether the claim is for breach of contract or negligent performance of a professional service. …

85 … I do not regard Kienzle as a departure from Messineo. As indicated above, the two cases demonstrate that the initial measure of damages will depend in part on the nature of the solicitor's error. If the error caused the client to lose an interest in property he or she otherwise would have had, Kienzle is the appropriate starting point. If the error did not cause the client to lose an interest in property, but instead caused the client to enter into a transaction he or she would otherwise not have entered into, then Messineo is the appropriate starting point in the assessment of the client's damages. Further, as the Court of Appeal in Kienzle indicates, even where Messineo is the appropriate starting point, that measure of damages does not necessarily exhaust the client's claim. Consequential damages are recoverable if they were reasonably foreseeable. The Court of Appeal judgments in Messineo and Kienzle work together to describe the client's measure of damages. Messineo addresses the loss suffered by the initial overpayment, and Kienzle speaks to the solicitor's liability for reasonably foreseeable consequential losses caused by the solicitor's negligence and occurring subsequent to the ill-advised purchase. There are consequential damages in this case and I will address those later in these reasons. …

[Emphasis added.]

[21] In Tabata v. McWilliams (1982), 40 O.R. (2d) 158, the Ontario Court of Appeal held that the costs of replacing the defective conditions of a new house (basement wall and weeping tile) were recoverable where the defendant solicitor who had acted for the plaintiff on the purchase of the house had failed to advise the plaintiff that an occupancy permit was required prior to occupying the house. The court found had the permit been required then the defects would likely have been discovered. The plaintiff would have had the right to refuse to close or to require the vendors to obtain an occupancy permit.

Issue #1: Environmental Remediation Costs

[22] Gindi decided to remediate the Property in 2010.

[23] The Plaintiffs incurred the following expenses that total $56,712.31:

1. TBT Engineering: $19,653.00 (from November 2010 to June 2011) for drilling and analysis of soil samples, delineation of soil contamination, soil remediation;
2. Payne’s Driveway Sealing: $423.75 (June 2011) for patching thirteen holes drilled in the parking lot;
3. John Cress Contracting: $21,540.06 (from June 2011 to September 2011) for soil replacement and paving the excavated portion of the parking lot;
4. Town of Marathon: $3,402.00 (July 2011) for the fee to dump contaminated soil at its landfill.

[24] The reasonableness of these expenses was not challenged.

[25] In my view, these remediation expenses are a reasonably foreseeable consequence of the Arnone Defendants negligence. [3] There is no dispute that the Plaintiffs purchased a contaminated property that they would not have purchased if they had known that the Property was a former gasoline station. There is also no dispute that had they purchased the property in any case, they would have required the Vendor to inspect the Property to determine whether it was contaminated. Further, in cases involving contaminated land, the trend is for the courts to award damages for environmental remediation costs rather than damages for diminution of property value. See Midwest Properties Ltd. v. Thordarson et al., 2015 ONCA 819, 128 O.R. (3d) 81, at paras. 60-64.

[26] Gindi also claims a management fee of 15% in relation to the above expenses. Gindi testified that he did not attend the site but rather managed the project by phone and email from his home in Hanover, Ontario. He did not keep any records of the time that he spent managing the remediation project. Gindi submits that it is commercially reasonable to charge a 15% administration fee. In my view, a 15% administration charge may be reasonable between a landlord and tenant in a commercial lease but it has no application in these circumstances. I am satisfied that Gindi spent some time to arrange the remediation of the Property. I award Gindi the sum of $1,000.00 for the inconvenience of managing the remediation of the Property.

Issue #2: Loss of Property Value

[27] As noted above, the Plaintiffs did not advance a claim or provide any expert appraisal evidence, for their overpayment of the Property resulting from the Arnone Defendants' failure to alert them to the Property’s use as a gasoline station. However, the Plaintiffs advance a claim for loss of profit related to a sale in 2012. The Plaintiffs sold the Property on May 29, 2012, following its remediation, for $685,000.00. The Plaintiffs claim the sum of $82,000.00 for loss of property value. This amount represents the difference between the sale price and the property’s value of $767,000.00, as assessed by the Municipal Property Assessment Corporation (“MPAC”) effective January 1, 2009.

[28] The MPAC assessment is an insufficient evidentiary basis for the assessment of loss of property value. A claim for loss of property value resulting from the stigma of contamination that has been remediated is recoverable only if there is expert appraisal evidence to support that conclusion: Tridan Developments Ltd. v. Shell Canada Products Ltd. (2002), 57 O.R. (3d) 503, 154 O.A.C. 1, at paras. 13-18 (C.A.). The Plaintiffs have not provided opinion evidence of an appraiser to show that the Property’s value was diminished at the time of sale in 2012 by the fact that it had previously been contaminated.

[29] For these reasons, I dismiss Dorbara’s claim for loss of property value related to the sale in 2012.

Issue #3: Real Estate Commission

[30] In 2008 Gindi marketed the Property for sale himself without the use of a real estate agent. On August 20, 2008, Dobara entered into an agreement to sell the Property for $695,000.00. The agreement provided that the purchase was conditional upon the purchaser arranging financing. A prospective lender required a Phase 1 and Phase 2 Environmental Study Assessment. The prospective purchaser decided not to proceed with the purchase in December 2008.

[31] Gindi claims $34,750.00 on the basis that it is 5% of the sale price of $695,000.00. He explains this claim as follows:

I acted as a real estate agent and did all what a real estate agent would do. I believe I should be paid commission as what a real estate agent would be normally paid for the following professional services:

(1) To advertise and market the property in newspapers and on commercial properties web sites; (2) To produce a marketing package …; (3) To negotiate with buyers and real estate agents; (4) To draft Agreements of Purchases and Sale …; (5) For reviewing and accepting reviewed offer …

[32] Section 9 of the Real Estate and Business Brokers Act, 2002, S.O. 2002, c. 30, Sched. C., states:

No action shall be brought for commission or other remuneration for services in connection with a trade in real estate unless at the time of rendering the services the person bringing the action was registered or exempt from registration under this Act and the court may stay any such action upon motion.

[33] A person is prohibited by section 4 of the Act from performing any of the functions of a real estate salesperson unless he or she is registered under the Act. Gindi was not a registered salesperson at the time of the 2008 sale. As a result, pursuant to section 9 of the Act, Gindi is prohibited from bringing an action for “commission or other remuneration” for services provided in relation to the sale of the Property. Accordingly, I dismiss Gindi’s claim for a commission.

Issue #4: Cost of Roof Replacement

[34] Dobara claims $30,500.00 for the cost of a new roof placed on the Property pursuant to a contract dated September 8, 2009. Old shingles were removed and replaced with new shingles that have a 25 year life expectancy. Gindi submits that this expense would not have been incurred if he had sold the Property in 2008 as he testified that the roof had only began to leak extensively, and interfere with his tenants' use of their premises, in 2009.

[35] The Hicks Defendants submit that the roof had a life expectancy of seven years when Gindi purchased the Property in late 2004. They submit that the claim should be reduced on the basis of betterment. I agree. I reduce this aspect of the claim by 18/25 to $8,540.00. Nevertheless, it is my view that the repair of the roof is not a reasonably foreseeable consequence of the Arnone Defendants’ negligence. In my view the Arnone Defendants should not be responsible for normal maintenance and repair expenses associated with the Plaintiffs’ continued ownership of the Property several years after its purchase. In any event, these expenses were, at least to some degree, offset by the rental income generated by the continued ownership of the Property. However, there was no evidence provided regarding the income and expenses associated with the Property during the Plaintiffs’ seven year period of ownership.

[36] Accordingly, I dismiss this aspect of the Plaintiffs’ claim.

Issue #5: Excess Mortgage Interest Costs

[37] Dobara financed the purchase of the Property with a mortgage with a seven year term at a rate of 8.24% per annum. The mortgage became an open mortgage on March 1, 2010. Gindi testified that he could have arranged a mortgage at a rate of 5.74% per annum at that time had the Property not been contaminated. For this lost opportunity, the Plaintiffs claims $26,437.00 which Gindi states is the difference of 2.5% per annum in mortgage interest for the period from March 1, 2010 to the date of sale on June 1, 2012 as applied against the principal amount of the mortgage.

[38] The Plaintiffs have provided no evidence that a mortgage commitment was available at a rate of 5.74% or any other amount at any time after March 1, 2010. The Plaintiffs rely upon an email from a representative of the Business Development Bank of Canada, dated February 28, 2011, which states:

Further to our conversation I have taken a look at your forecasts and would be interested in preparing a proposal but likely for an amount below $500K. If interested to formalize a proposal there are a few more items which are required and listed below. Once the vacant space is leased up we could consider additional funding at that time. As discussed our current base rate is 6.2% but there would be a variance on top which I cannot quote until I receive Dobara Properties financial statements for 2010. In addition there is a 1% processing fee and the amortization will likely be 15-20 years. Please keep in mind that the Bank would only consider authorizing upon full due diligence by our underwriters and funding once the property is properly remediated supported by a Phase 3 ESA.

To formalize a proposal the following is required.

1. Complete our application forms which I can forward by separate email if you are interested;
2. Draft financial statements from BDO for Dobara Properties as at Dec 31 2010;
3. Copies of lease agreements for all existing tenants;
4. Any recent appraisals you may have on file for the property.

Please call if you have any questions.

[39] The above email does not commit the bank to provide mortgage financing on the Property at the rate of 5.74%. In fact, it makes no commitment to provide a mortgage at any rate to the Plaintiffs. The email describes several obstacles to obtaining a mortgage commitment. The remediation of the Property is only one of those obstacles. Accordingly, given the lack of supporting evidence, I dismiss the Plaintiff’s claim for excess mortgage interest expense.

Issue #6: Mental Distress

[40] Gindi claims $150,000 for “mental distress” that he suffered as a consequence of discovering that the Property was a former gasoline station the soil of which was contaminated. Mr. Gindi testified that the financial consequences of discovering that the Property was contaminated added to the depression that he was experiencing as a result of financial difficulties. These difficulties resulted in the loss of his other investment properties. Even so, Gindi stated that he did not seek or obtain medical or other professional care. He further stated that his depression did not affect his normal activities of life.

[41] Gindi was unable to explain why $150,000 for mental distress was an appropriate amount. In Szarfer v. Chodos, [1986] O.J. No. 256, at para. 37, Callaghan A.C.J.H.C., as he then was, awarded the sum of $30,000.00 for “nervous shock, mental anguish and a loss of memory as a result of the defendant's conduct” as the plaintiff “required hospitalization on two occasions, extensive psychiatric care, medication and psychotherapy. There is no doubt that he has sustained considerable loss of enjoyment of life and will continue to do so for some time.” Fortunately, Gindi has not suffered mental distress anywhere near this degree as a result of the Arnone Defendants’ negligence. In any event, I am not satisfied that Gindi suffered any mental distress as a result of the negligence of his solicitors.

CONCLUSIONS

[42] I award Judgment to the Plaintiffs in the amount of $57,712.31. I award pre-judgment interest on the remediation costs of $56,712.31 in accordance with the Courts of Justice Act from July 1, 2011.

[43] Gindi claims costs of $64,325.00 comprised of $24,325 that he has incurred in hiring lawyers, plus $40,000 for representing himself. He calculates the latter figure on the basis of $10,000 per year, although he did not keep track of how much time he spent working on the matter. In 2011 and 2012, the Plaintiffs were charged a total of $15,382.54 by the law firm Koch Thornton LLP primarily to draft the Statement of Claim and an amended Statement of Claim. Dobara paid $1,117.00 to the law firm Snider Litigation for litigation advice. Dobara also paid a further $2,000.00 to WeirFoulds LLP for litigation services, which primarily addressed the issue of the expiry of the limitation period. I ask that the parties deliver any further submissions on costs, along with any offers to settle that were exchanged, within one week of the date of this decision. These submissions need only be delivered by email to my assistant.

M. D. FAIETA, J.

Released: June 2, 2016

Footnotes

[1] The Hicks Defendants’ admission of liability includes the admission that the Arnone Defendants would have been found liable if the Plaintiffs’ action against them had been commenced before the expiry of the limitation period.

[2] For a good discussion of the scope of damages in solicitor’s negligence cases see Jamie Cassels & Elizabeth Adjin-Tettey, Remedies: The Law of Damages, Third Edition (Toronto: Irwin Law, 2014) at 32-34; S.M. Grant, L. Rothstein and S. Campbell, Lawyers' Professional Liability, Chapter 7, 3rd ed. (Markham: LexisNexis Canada, 2013); Arnie Herschorn, "On the Measure of Damages in Solicitor’s Negligence Cases” (2011), 90 Can. Bar Rev. 151.

[3] 6048212 Canada Inc. v. 1230367 Ontario Ltd., 2014 ONCA 415, [2014] O.J. No. 2389; aff’d 2013 ONSC 3022, 76 C.E.L.R. (3d) 115. The trial judge dismissed the action against the purchaser’s solicitor and others however she would have awarded damages of $240,000.00 for remediation costs. The Court of Appeal upheld the trial judge’s decision on liability and did not consider the question of damages.