Kamla’s Fashions Inc. et al v. Gykan Enterprises Inc. et al, 2017 ONSC 7083
CITATION: Kamla’s Fashions Inc. et al v. Gykan Enterprises Inc. et al, 2017 ONSC 7083
COURT FILE NO.: CV-11-434661
DATE: 20171129
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
KAMLA’S FASHIONS INC. and SWARSATI HARRADAN
Plaintiffs
– and –
GYKAN ENTERPRISES INC., GYAN C. JAIN, TJ FASHIONS INC., TRICIA JANE and JOHN DOE
Defendants
Peter I. Waldmann, for the Plaintiffs
Scott Hamilton, for the Defendants Gykan Enterprises Inc., and Gyan C. Jain
HEARD: September 25, 26, 27, 28, 29, October 2, 3, 4, 2017
LEDERER J.
[1] This trial took eight days. At the outset it was made apparent that the claim for damages totaled $200,000. At various times throughout the trial the Court raised the question of whether this was a reasonable use of the time and money of the parties. Nonetheless, it continued to the end. Even now I cannot help but wonder why it was thought to be appropriate or, given what the Court was asked to resolve, necessary to deal with this proceeding in this way.
[2] This case concerns the end of a tenancy. The plaintiff (Kamla’s Fashions Inc.) purchased the assets of a business. It began producing sportswear: T-shirts, sweatshirts and similar garments. The business came with a lease that covered the space where the garments were made and some were sold. The plaintiff was unable to pay the rent as it became due and fell behind on what it owed for the cost of hydro (additional rent). There was some question as to whether this latter concern arose because the plaintiff (the tenant) failed to pay or because the defendant (Gykan Enterprises Inc.) failed to respond when the plaintiff disputed the amounts it was being charged.
[3] The problem of the tenant failing to keep up with the rent had occurred at an earlier time. As a result the parties entered into a new arrangement. The lease was terminated. The tenant paid the outstanding rent. The landlord agreed to reduce the rent and was made free to terminate the tenancy on 30 days notice “as soon as a new tenant for the demised premises was found”. In effect the relationship became a month to month tenancy. The remainder of the arrangement was left as it had been. To that extent the terms of the lease continued to apply.
[4] This was the status of the relationship when, on September 8, 2009, the defendant, Gyan Jain, a principal of the landlord presented himself at the premises and spoke to the plaintiff, Swarsati Harradan, a principal of the tenant. Gyan Jain demanded that the arrears of rent and the late hydro charges be paid. Swarsati Harradan testified at the trial. She said that, in making this demand Gyan Jain advised that the tenant owed the landlord $20,000 and that she did not accept that the debt could be that high. Gyan Jain, when he gave evidence, denied that any amount was mentioned. Whatever occurred the information brought forward in the trial made clear that however much was outstanding, it was less than $20,000.
[5] The following morning, when the employees of the plaintiff came to work, there was no electrical power. It had been turned off at the instruction of Gyan Jain. He told the court that he assumed that the plaintiff would come to him in an effort to resolve their differences, maintain the tenancy and keep the business going. For her part Swarsati Harradan said that she telephoned Gyan Jain who told her that if she did not pay the $20,000 he would not turn the power back on. The plaintiff (those acting on its behalf) understood the relationship to be over. It never again operated at the premises. Within a few days some of the machines were taken to the home of Swarsati Harradan and a few days after that the landlord changed the locks. When this occurred is the subject of yet another dispute between the parties: Was it September 24, 2009 being the day the landlord hired a bailiff or was it, as the plaintiff suggests, 10 days earlier?
[6] It was clear early in the trial that there were two issues to be determined:
(1) had proper notice been given such that the tenancy had been terminated?
and
(2) if not, what were the damages to be paid by the landlord to the tenant?
[7] It was plain and by the time the final submissions began it was conceded by the defendant (the landlord) that proper notice had not been given. There was no notice in writing which was required by the lease as originally signed and as continued under the month to month tenancy.
[8] Thus the only issue left for the court to determine was the value of any damages to be paid. With the trial reduced to this single question I pause to say again that this proceeding should not have taken eight days. The frustration was exacerbated by the nature of evidence on which the assertion of damages relied. There were three heads of damages claimed by the plaintiff:
• the value of the material and machinery lost to the plaintiff when the locks were changed
• the opportunity lost to the plaintiff, and
• punitive damages
[9] It does not matter whether the locks were changed on September 14, 2009, or September 24, 2009. No notice was provided. Distress and forfeiture are mutually exclusive remedies available to a landlord. A landlord who distrains after forfeiture distrains illegally.[^1] A distress is wrongful when a landlord exercises the distress after terminating the lease agreement:
… The changing of the locks terminated the tenancy and the landlord cannot distrain for accelerated rent nor claim for rent after changing the locks: Country Kitchen Ltd., supra, p. 362; Beaver Steel Inc. v. Skylark Ventures Ltd. 1983 CanLII 500 (BC SC), (1983), 47 B.C.L.R. 99 (B.C. S.C.) at 110; Mundell v. 796586 Ontario Ltd. (1996), 3 R.P.R. (3d) 277 (Ont. Gen. Div.).[^2]
[10] The plaintiff having recovered the machines that were transported to the home of Swarsati Harradan, what was the value of those that remained? An appreciation of that value begins with the valuation of those assets made at the time the plaintiff purchased the business. William Duffy & Associates Inc. on behalf of TD Canada Trust undertook an appraisal in order to ascertain the value of any security the assets would provide in furtherance of a loan to be made to the plaintiff to allow it to complete the purchase. The appraisal considered approximately 54 machines (this is the number shown on Schedule A to the “Offer To Purchase the business), “Lot Smallwares”, “Lot Sewing Patterns” and assorted other items. These were valued at $130,000. The appraisal included a value for the lease being $70,000.
[11] It was acknowledged that the lease had no continuing value. This was the result of the reformulation of the relationship as a month-to-month tenancy. It could be terminated on 30 days notice.
[12] Among the difficulties in evaluating the damage and loss is the understanding of what of the various items (including machines) remained at the time the tenancy was terminated. During May 2009, Benaco Sales Ltd. did a further appraisal of the equipment then located at the premises. At that time there was said to be approximately 42 machines that were the subject of the valuation (this is the number listed in the appraisal of May 2009). No one provided conclusive evidence as to what happened to the approximately 14 machines that were not included in this second valuation. Swarsati Harradan testified that in the time between the first appraisal, September 28, 2007, and the subsequent valuation undertaken during May 2009 no machines or equipment were removed from the facility where the plaintiff operated its business. It was suggested that perhaps the second appraiser missed or did not see the machines in question. Perhaps they were located somewhere removed from the work area. There was some suggestion the machines were “cannibalized” so that their parts were utilized in repairing other pieces of equipment. The machinery located and identified by the second appraiser was valued by him at between $15,850 and $18,850. It was acknowledged that the basis for this valuation was substantially different than for the first one. On the second occasion the items were valued on the basis of immediate sale and liquidation rather than for the purposes of an ongoing operation. It was suggested that this represented a value which was 8 to 10 times less than it would have been for a continuing business. Understood in this way, the two valuations are not that dissimilar (8 X $15, 850 = $126,800) albeit there was less equipment for the second appraisal. Needless to say the parties rely on the different valuations: the plaintiff on the first (September 28, 2007: $130,000) and the defendant on the second (May 19, 2009: $15,850 to $18,850).
[13] Ultimately the machines that had been taken to the home of Swarsati Harradan were sold. She telephoned the bank. It arranged for the sale of those machines in order to realize their value to contribute to the payment of the debt that was owed to the bank as a result of the loan which had financed the purchase. The value of the machines as sold was $4,500. The plaintiff says the machines it lost should be valued based on the valuation of $130,000. Although some machines were retrieved and taken to the home of Swarsati Harradan, based on her evidence that no other machines were removed during the course of the plaintiff’s occupancy of the premises, there would be some, but not much of a reduction below that value. The defendant proposes that the correct valuation of the loss is the value of the second appraisal reduced by the amount collected from the sale of those machines that were taken to the home of Swarsati Harradan (for example $18,850 - $4,500 = $14, 350).
[14] There was also disagreement as to how the remaining assets on site should be valued. In particular, this refers to “Lot Smallwares”. This refers most significantly to fabric but also includes thread, zippers, buttons and the like. William Duffy, in the appraisal he undertook, appraised these items as worth $7,500. He noted, however, that the true value of the fabric would have been higher. The second valuation did not consider these items. Sometime during September 2009, the landlord retained a bailiff to assist him in dealing with the material and equipment on site. The bailiff attempted to effect a settlement that would allow the plaintiff to reclaim its goods. He failed. The bailiff advised the Landlord that the goods had little, if any value. It was suggested there was not much there. Amrit Harradan, a son of Swarsati Harradan provided photographs of the work area taken through a window during November 2009. They reveal a significant amount goods and material. This says little if anything about its value. For one thing this sort of material is difficult to sell unless it remains, as delivered, in unopened packages. Most of the fabric was no longer in its original packaging. Moreover, most of the material remained from the purchase of the assets of the business in 2007. The plaintiff had been required to buy new material to complete the work it had undertaken. This asks the question: If the material, particularly fabric, had not been used during the two years the plaintiff had been operating the business what practical value did it have? The plaintiff submitted that the loss of this material should be valued at $25,000. There was no particular rationale for this. It was just a number counsel thought appropriate. The defendant took the position that it should be given no value.
[15] The initial appraisal done in September 2007 valued the “patterns” used in the manufacture of the garments as a separate item. They were valued at $19,550. The patterns are not referred to in the subsequent appraisal of May 2009. Michael Clayton, a customer of the plaintiff, testified. He observed that often the patterns are not the property of third party manufacturers such as the plaintiff. The patterns are the property of the customer. The garments they purchase are made to their specifications. There is no evidence as to the extent to which this could apply in this case. On this basis the defendant would attribute no value to this part of the claim. Even if the patterns were the property of the plaintiff there are reasons to question the suggested value. Schedule A of the Offer To Purchase the business notes that there were 500 patterns. The appraiser (William Duffy) did not count them. This was a guess. Nonetheless it is all we have. He also said that each pattern should be valued at between $15 and $20. Clearly, this does not come near $19,550 ($20 X 500 = $10,000).
[16] I turn now to the value of the lost opportunity associated with the demise of the business that followed the termination of the tenancy. It is the position of the plaintiff that the business failed as a result of the actions of the defendant. On this basis it lost the opportunity to create a successful and profitable operation that would have paid off its debt to the bank, increased in value and provided income to its owners. The defendant points out that in the two years the plaintiff operated the business not only did it not make a profit, it had been unable to pay its rent. The bank had become sufficiently concerned that in May 2009 it had an appraisal done presumably out of concern for the value of its security for the outstanding loan. Moreover, there was evidence that the industry had consolidated over time with a concentration in larger operations and fewer small shops such as the plaintiff. The plaintiff submitted that it takes time to establish a business. It had been looking for smaller space in order to rationalize its costs. It relied on the evidence of Michael Clayton (the customer) who indicated satisfaction with the work of the plaintiff, to the point that he continued to work with it even after the move to the home of Swarsati Harradan. The plaintiff submitted that there was a 50% chance that the plaintiff would have succeeded and that accordingly it should be awarded one half of its original investment (50% of $200,000) being $100,000 on account of its lost opportunity. Again, there is no foundation provided for this value. It is what counsel for the plaintiff sees as fair. The defendant says nothing should be awarded for this asserted loss.
[17] Finally, the plaintiff claims punitive damages for what it says was the egregious action of the defendants, particularly Gylan Jain. This was founded on the discovery of some of the goods at another location described in the trial as “Nantucket” for the address at which they were located. The evidence was provided by Firas Haman, one of three individuals who, he said, sometime in the late fall, perhaps during December, at night, had moved material from the premises, some to Nantucket and the rest to a second location. Some of the material found at Nantucket was identified by Swarsati Harradan because she recognized it and some garments because they bore labels identifying them as having been manufactured by the plaintiff. This material was part of a lot that was for sale. The asking price was $50,000. There is no way of evaluating how much of that lot originated with the plaintiff and what the true value of it would have been. It was argued on behalf of the plaintiff that there is no way the material at Nantucket could have found its way there without the complicity of the defendant, Gylan Jain. The plaintiff made much of the fact that he was the only one who could have provided those who moved the goods and material with a key to get access to the premises. As the plaintiff sees it this was all part of an illegal scheme in which the defendants shut down the power, thus terminating the tenancy and then illegally holding onto (destraining) the goods in order to sell them and thereby realize on the lost rent and hydro charges. The problem is that there is no objective evidence to confirm any of this.
[18] Gylan Jain denies it. Firas Haman did not know of any involvement of Gylan Jain in the pick up or movement of the material from the premises to Nantucket. Gylan Jain said that, acting in the belief that the material was worthless (he had been so advised by the bailiff), he instructed some members of his staff to have it removed and thrown out as garbage. As ill-advised as this was it is not demonstrative of the sort of scheming depicted and suggested by the plaintiff.
[19] I am not prepared to award punitive damages on this basis.
[20] On the other hand, it was simply wrong for the defendant to turn off the power, refuse to turn it back on and then change the locks and hold the goods, all without notice to the plaintiff. It robbed the plaintiff of any ability to act in a fashion that would recognize its obligations and act in a manner consistent with its best interests. The plaintiff lost any opportunity to realize on the value of what it had. Gylan Jain said this was all done in the expectation that the plaintiffs would come to him and attempt to make a new arrangement. If that is what he wanted, what he did was not the right way to get there. Some punitive damages are in order.
[21] It should be apparent that this is a less than ideal way to prove or assess damage. There is too much uncertainty and too much speculation. The fact remains that it is difficult for the plaintiff to establish much of the value being claimed because the machinery, the fabric and other Lot Smallwares (buttons, thread and zippers) were taken and disposed of by the defendant. How much there was cannot be known with any level of precision. Is there any guidance?
[22] In this case the failure to give notice is a breach of the contract between the parties. However, the holding of the equipment and the goods and the disposition of them to whatever effect is conversion. I start with the fundamental premise that damages are to place the plaintiff where it would have been but for the breach:
The goal of assessing tort damages is to fix upon a monetary award that will restore the plaintiff, as closely as is possible, to the position in which he, she or it would have been had the tort not occurred.[^3]
[23] For conversion this, generally means that the assets involved are to be valued on the basis of their fair market value:
In conversion cases, this usually means awarding the plaintiff the market value of the converted asset as of the date that the tort took place. Normally, replacement value is not awarded because providing the plaintiff with the cost of a new version of the asset converted would, in most cases, result in betterment, and thus overpayment. Normally, market value is put into evidence by providing estimates from reliable suppliers of the same kind of asset that was converted, with such estimates taking into consideration the age and condition of the specific asset or assets lost.[^4]
And, to the same point:
In determining damages for the tort of conversion, the law as a fiction treats the assets as if they had been sold, and holds the tortfeasor liable for consequential losses: “The general rule is that a conversion will result in a “forced sale” requiring the defendent to pay the market value of the goods at the time of the conversion, with the possibility of both consequential and exemplary damages also being awarded”: Lewis N. Klar, Q.C., Tort Law (5th ed) (Carswell, Toronto, 2012) at p. 107. Thus, while the value of the award may be modelled on a property damage claim, this is a fiction which is meant to replicate the value for loss or interference with possessory rights, which is the essence of the tort.[^5]
[24] Where, as here, damages cannot be assessed because of the actions taken by the defendant, the case law suggests the highest value is presumed to be the appropriate calculation for an award of damages:
I keep in mind two principles: first, that the fact that damages cannot be assessed with certainty does not relieve the wrongdoer from paying the damages (see Chaplin v. Hicks, [1911] 2 K.B. 786 (Eng. C.A.) and second, that the presumption is that the highest value of the goods could have is the measure see Green v. Brampton Poultry Co. (1958), 1958 CanLII 388 (ON SC), 13 D.L.R., (2d) 279 (Ont. H.C.) and further that the value may be determined by reference to the cost of replacement.[^6]
And to the same effect:
In conversion, where there is doubt as to the value of a chattel converted the onus is on the liable defendant to either produce the converted chattel or account for its nonproduction. If he does not do so it is presumed against him that it was of the highest possible value based on the principle omia praesumuntur contra spoliatorem (Adler v. Jackson [1988] B. C. J. No. 2756 (B.C.Co.Ct.) citing Salmond on Torts (1987).[^7]
[25] I am unprepared to award damages associated with the loss of equipment and goods at replacement value. There is no indication as to what that value would be, particularly the equipment. Moreover, in circumstances where the business was failing to the point where the bank was inquiring as to the value of its security, it is more likely that the use the machinery was to be put to was the reduction of the debt. On the other hand, the defendant cannot rely on that possibility to argue the damage should be only the liquidation value. It should not benefit from its own wrong doing in that way. Such a result would encourage the wrongful distraining of physical assets. I accept that the machinery and goods should be valued at fair market value and the highest value reasonably assessed on that basis.
[26] The initial appraisal, the one done by William Duffy & Associates refers to and utilized “Current Market Value”. The report defines this as:
CURRENT MARKET VALUE (In Place – In Use) – a sum of money that any inventory and any pieces of equipment in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.
[27] Fair market value is generally understood to mean what a willing buyer would pay to a willing seller.[^8] As I perceive the definition of “Current Market Value” as utilized by William Duffy & Associates is essentially interchangeable with an understanding of “fair market value”. The equipment, goods and patterns as purchased were collectively valued at $130,000. No one questioned the methodology used by William Duffy to arrive at this valuation. He researched the value for each piece of machinery through manufacturers, dealers and the internet. He obtained three values. He averaged the three and used the average as the low value shown on his report. The high value was shown as such. I reduce the $130,000 by $30,000 on account of the “Lot Smallwares” (fabric, thread and zippers etc.) and the patterns. This is slightly higher than the total used by William G. Duffy. I note that in evidence he said this figure is not precise and that the fabric was undervalued. Initially there were approximately 54 machines. In its May 2009, appraisal Benaco Sales found only 42 machines. Whether the “missing” 12 machines were removed as proposed by the defendant, cannibalized for parts or hidden from plain view as suggested by the plaintiff is not something I can determine. In any case they were no longer actively in use by the business and I am not prepared to assess any value to them as damages. Eleven more were removed to the home of Swarsati Harradan leaving 31 machines or roughly 3/5 of the original total: 3/5 of $100,000 is $60,000. There is no reason for me to believe that, over the two years between the two appraisals, the fair market value changed in any significant way. For the purpose of assessing damages I include $60,000 as the value of the machines.
[28] There was a significant amount of fabric and other small wares. It is impossible to know what could have been sold. For one thing much of these goods had been opened and were outside of the original packaging. I note as well that very little of the Lot Smallwares were utilized by the plaintiff and repeat that William Duffy acknowledged that they had been undervalued in his appraisal. His high-value was $8,000. For the purpose of assessing damages I include $8,000 as the value of the fabric, thread and zippers and other small wares.
[29] Taking into account value per pattern and the number of patterns assumed by William G. Duffy, the patterns could not have been worth more than $10,000. Not all of them would have been owned by the plaintiff. For the purpose of assessing damages I include $5,000 as the value of the patterns.
[30] I award nothing for the loss of opportunity. There is virtually no evidence to suggest that this business was moving towards being profitable and successful and much to suggest that it was on the verge of failure. I prefer to consider and take into account the actions of the defendant. They were egregious, illegal and harmful. They were undertaken for the express purpose of bringing the plaintiff to the table in a weakened position, without leverage to negotiate a resolution. For the purpose of assessing damages I include $20,000 as punitive damages.
[31] Based on this assessment I would award damages in the amount of $93,000. There is, however, one further factor to take into account. At the time of the termination of the tenancy, the plaintiff owed rent and hydro charges. The rent being charged per month was $2,500. It is accepted that the rent for August was short $1,500. I find that the rent for May 2009 was not paid. I acknowledge that there was a withdrawal of $2,500 from the bank account of the plaintiff which took place during the month of June 2009. There is nothing which confirms the suggestion that this represents the payment of the rent for the preceding month. As counsel for the defendant pointed out, the bank statement for the preceding month (May 2009) shows three such withdrawals. On the evidence provided I am not prepared to find that any of these withdrawals represents the payment of the rent for the month for May 2009. This being so I deduct $4,000 from the award of damages as a set off for the arrears in rent.
[32] Finally, I accept that no payments were made for hydro following the conversion of the relationship between the parties to a month-to-month tenancy. The total cost of hydro from that time to the power being turned off on September 9, 2009, was $6,649.05. This should be deducted from the award of damages.
[33] Accordingly, I award damages in the amount of ($93,000 - $10,649.05) $82, 350.95 with both pre-judgment and post-judgment interest pursuant to the Courts of Justice Act. Judgement in this amount is to be entered against the defendant, Gykan Enterprises Inc. The action against the other defendants is dismissed
[34] If the parties are unable to agree as to costs I will consider written submissions on the following terms:
(1) On behalf of the plaintiff no later than 15 days after the release of these reason, such submissions be no longer than 4 pages, double spaced, excluding any Bill of Costs or Costs Outline and case law that may be provided.
(2) On behalf of the defendants no later than 10 days thereafter, such submissions be no longer than 4 pages, double spaced, excluding any Bill of Costs or Costs Outline and case law that may be provided.
(3) On behalf of the plaintiff, in reply if necessary, 5 days thereafter such submissions to be no longer than two pages double spaced.
Lederer J.
Released: November 29, 2017
CITATION: Kamla’s Fashions Inc. et al v. Gykan Enterprises Inc. et al, 2017 ONSC 7083
COURT FILE NO.: CV-11-434661
DATE: 20171129
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
KAMLA’S FASHIONS INC. and SWARSATI HARRADAN
Plaintiffs
– and –
GYKAN ENTERPRISES INC., GYAN C. JAIN, TJ FASHIONS INC., TRICIA JANE and JOHN DOE
Defendants
REASONS FOR JUDGMENT
Lederer J.
Released: November 29, 2017
[^1]: Falwyn Investors Group Ltd. V. GPM Real Property (6) Ltd., [1998] O.J. No. 5258, 22 R.P.R. (3d) 1 at para. 15. The Court held a landlord who change the locks on a tenant had terminated the lease and thereby committed a wrongful distress on the tenant's property locked inside the premises. [^2]: Novacrete Construction Ltd. Profile Building Supplies Inc. [2000] O.J. No. 3179, 35 R.P.R. (3d) 21 at para. 78 [^3]: Canada Forgings Inc. v. Riverside Excavating (Niagara) Ltd. 2104 ONSC 1183, 238 A.C.W.S. (3d) 256 at para. 34 [^4]: Ibid (This is a continuation of the quotation at fn. 3.) [^5]: Benedict v. Continental Casualty Co. 2016 ONSC 7205, 273 A.C.W.S. (3d) 855 at para. 40 [^6]: Kateri v. Sugarman, [1999] O.J. No. 7, 22 R.P.R. (3d) 38 (O.C.J. Gen. Div. at para. 59 [^7]: AVS Transport Inc. v. van Ravenswaay, 2016 A.C.W.S. (3d) 237 at para.76 [^8]: See for example: Prolink Broker Network Inc. v Rakesh (Rick) Jaitley, 2015 ONSC 6484 at para. 19 where the following is said: “fair market value” is usually defined in a manner substantially to the effect of the price that a seller is willing to accept and a buyer is willing to pay on the open market in an arm’s length transaction.”