Court File and Parties

COURT FILE NO.: CV-09-394437 DATE: 20180308

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: LUXTERIOR DESIGN CORP, Plaintiff – AND – JANNA GELFAND, MARK GELFAND and THE TORONTO DOMINION BANK, Defendants

BEFORE: Justice E.M. Morgan

COUNSEL: Vanessa Ibe, for the Plaintiff Kevin Sherkin and Jeremy Sacks, for the Defendants, Janna Gelfand and Mark Gelfand

HEARD: March 2-3, 2018

REASONS FOR JUDGMENT

I. The motion to oppose confirmation

[1] The Defendants, Janna Gelfand and Mark Gelfand, bring this motion under Rule 54.09 of the Rules of Civil Procedure to oppose confirmation of the Report of Master Wiebe issued August 6, 2015. The Report is premised on the Master’s reasons for decision dated November 12, 2014, Luxterior Design Corp v Gelfand, 2014 ONSC 6539 (“Luxterior”), and the Master’s decision on costs and interest dated February 13, 2015: Luxterior Design Corp v Gelfand, 2014 ONSC 990 (“Luxterior Costs”).

[2] The action has been discontinued as against The Toronto Dominion Bank. It took no part in either the motion before me or the trial before the Master.

[3] Following a 29-day trial, the Master found that the Plaintiff was entitled to a lien and payment by the Defendants in the amount of $243,325.20. In a separate endorsement, the Master ordered costs against the Defendants in the all-inclusive amount of $485000, and pre-judgment interest on the lien payment amount at the rate of 3.1% per annum, or $37,364.08. The Defendants oppose confirmation of both rulings.

[4] The approach of the court on this motion is not to rehear the evidence that was considered by the Master. Unlike a reference to a Master for a simple calculation of value, the Master here conducted a full trial of all of the issues. Accordingly, I am to approach this motion as an appellate court would approach the findings of a trial judge: Conrad v Feldbar Construction Co., 2004 CanLII 34354 (ON SC), [2004] OJ No 1290, at paras 13-16 (SCJ).

[5] The Court of Appeal has established that a court hearing a motion to oppose the confirmation of a report on a construction lien reference ought not interfere with the results unless there is: (a) an error in principle demonstrated by the Master’s reasons, (b) an absence or excess of jurisdiction, or (c) a patent misapprehension of the evidence: Jordan v McKenzie (1987), 26 CPC (2d) 193, at paras 1, 10 (Ont HC), aff’d (1989), 39 CPC (2d) 217 (Ont CA); Zeitoun v Economical Insurance Group (2008), 2008 CanLII 20996 (ON SCDC), 91 OR (3d) 131, at para 33 (Div Ct), aff’d 2009 ONCA 415.

[6] The Defendants challenge six different findings of the Master. Their opposition to the Master’s ruling is based on the argument that the Master misapprehended the evidence in a way that caused him to doubt the credibility of Mr. and Ms. Gelfand, and that misapprehension led him to such serious errors in assessing the evidence as to create doubts about all of his substantive findings. The specific findings that are challenged here are the Plaintiff’s entitlement to:

a) extra fees in the amount of $72,000 for design work;

b) 10% commission for builder upgrades;

c) 10% commission for price reductions;

d) 10% commission for items that post-dated the termination of the parties’ relationship;

e) full payment for services rendered under the contract between the parties in the face of the Plaintiff’s failure to supervise the project; and

f) a disproportionate award of costs.

II. The credibility finding

[7] The Master found that Mr. Zallan, the principal of the Plaintiff, was a credible witness, and that Ms. Gelfand, the primary witness for the Defendants, was not. After setting out the litigation history, the Master spent a number of paragraphs detailing the inconsistencies and problems with Ms. Gelfand’s testimony. Thus, for example, at the outset of his review of the evidence, he indicated:

Mrs. Gelfand was the main witness. I found her evidence on the key issues largely unsubstantiated, contradictory and self-serving. First, she insisted that she was nothing but a housewife without the capacity to make hiring and managing decisions. She said she just “cooked and cleaned.” Yet, the evidence came out that she had leading positions in many of the Gelfand companies, and that she was an active manager of her own company, Nefertiti Inc., an owner of a spa… Mr. Gelfand stated that he always consulted his wife before making payments concerning renovations. In fact, at one point he admitted authorizing the $80,000 payment simply because Mrs. Gelfand wanted it made. The picture that emerged from the evidence in total was that Mrs. Gelfand was a business person with the confidence and ability to make her own hiring and managing decisions. [Luxterior, at para 82]

[8] The learned Master went on to doubt Ms. Gelfand’s story about an Italian designer named Baldo, whom she had consulted about the possibility of designing and supplying flooring and millwork for the project. His doubts led him to draw an adverse inference from the Defendants’ failure to call Balbo from Italy to corroborate Ms. Gelfand’s story. The Master also doubted Ms. Gelfand’s evidence about payments made to Acra, a supplier also based in Italy who replaced Baldo in producing decorative millwork once Baldo’s proposal was rejected by the Gelfands. The Master also suggested that the invoices that Ms. Gelfand produced from another supplier, Tarzali, were introduced by her in a way that “cast their bona fides into doubt”. Ultimately, the Master was highly critical and dismissive of Ms. Gelfand’s evidence regarding the termination of the Plaintiff by the Defendants:

There were other aspects of Mrs. Gelfand’s evidence that undermined her credibility. There was her insistence that her October 7, 2009 email to Mr. Zallan was a termination notice. She said she used sarcasm to effect the contract termination. I do not believe this. She had enough business experience to realize that formal contract termination required clear language. [Luxterior, at para 88]

[9] For his part, Mr. Gelfand did not fare much better in the Master’s eyes:

Mr. Gelfand equally lacked credibility, if not more so. His evidence was also self-serving, contradictory and unreasonable. The focus of his evidence was on the contract issue. While he gave his evidence in Russian, the translators impressed me as quite competent and clear in their work. They were accepted by both parties. [Luxterior, at para 89]

[10] It is clear from the Master’s reasons for judgment that the credibility findings impacted on the outcome of the trial. Although many issues in the trial were accompanied by ample documentary evidence, the Master approached much of the controversy as one of ‘he said, they said’. Since a number of the financial issues at trial could be reduced to a credibility contest, the assessment that one of the sides was honest and the other were liars was central to a number of the Master’s conclusions. As the Master himself put it: “In conclusion, due to my assessment of credibility, I preferred in general the evidence of the [Plaintiff’s] witnesses to that of the Gelfands whenever the two conflicted.” [Luxterior, at para 96]

[11] Ordinarily, I would not interfere with any of these findings. Credibility of witnesses is generally a determination that the trial judge makes and to which an appellate court is bound to defer. It was the Master who saw and heard the viva voce evidence, and it is not for me to retry the case or to second guess the Master: Pagebrook Inc. v Lawson, 2009 ONCA 371, at paras 8-9. I am only to interfere with the findings of credibility in the case of a “palpable and overriding error” – i.e. one that is plain and obvious to see and that effects the entire judgment: Homewood Development Inc. v 2010999 Ontario Inc., 2014 ONSC 4437, at paras 5-6, 21.

[12] As the Master explained it, the catalyst for his finding of non-credibility of the Defendants was Ms. Gelfand’s explanation of the role played by Baldo. She testified that Baldo had submitted a design proposal for millwork and flooring to her, but that she had not accepted the proposal and did not expect to be invoiced for it. She went on to blame the Plaintiff for having prompted Baldo to submit an invoice in the first place, and accused him of being a malicious intermeddler in this regard. As proof, Ms. Gelfand pointed to an email exchange between the Plaintiff and Baldo in November 2009 which had been previously undisclosed by the Plaintiff. In those emails, Mr. Zallan appears to be expressly egging Baldo on to submit a bill to the Defendants even though Baldo’s work to that point was just a proposal, and standard practice among suppliers and trades is that one does not bill for a proposal that is ultimately not accepted by a prospective client.

[13] The Master did not accept Ms. Gelfand’s rendition of this story. Despite its inherent logic, and in face of the fact that Mr. Zallan had apparently tried to hide the email trail between himself and Baldo, the Master and rejected Ms. Gelfand’s account of the Baldo episode for one important reason: the invoice submitted by Baldo was dated April 2009, some six months prior to his November 2009 email exchange with Mr. Zallan:

[M]ost importantly, the documentary evidence showed that Baldo himself did not behave in accordance with this story. He billed the Gelfands for his work on April 11, 2009 without any input from Mr. Zallan. The subsequent email exchange in November, 2009 did not change this fact. Baldo also expended considerable effort in producing two design catalogues for the improvement, something no reasonable supplier would have done for free. He travelled to Toronto to observe the site in detail. This is not the conduct of a family friend performing a favour. I discounted Mrs. Gelfand’s evidence on this point entirely and began doubting her overall credibility. [emphasis added] [Luxterior, at para 84]

[14] The payment arrangement between the Defendants and the Plaintiff was that the Plaintiff earned a 10% commission on everything the Defendants ordered under the Plaintiff’s overall supervision. When Baldo finally submitted his invoice, it was substantial one – 120,000 Euros – and that, in turn, would have added a tidy sum to the commissions earned by the Plaintiff. As it turned out, Mr. Zallan decided quite strategically not to pursue a commission in respect of the Baldo invoice. Nevertheless, the Master may well have suspected that Ms. Gelfand was trying to suggest that Mr. Zallan was out to inflate the Plaintiff’s commission by having Baldo submit an invoice.

[15] In any case, one can understand the Master’s conclusion that Ms. Gelfand was simply lying by blaming the November 2009 emails from Mr. Zallan for having prompted the April 2009 invoice from Baldo. No amount of ex post facto communication can explain the issuance of an invoice dated 6 months previously.

[16] The problem, however, is that the Master inadvertently misread the date of the invoice. As Defendants’ counsel points out, the invoice from Baldo is dated 4.12.09. The Master’s reasons for judgment contain a typo where the middle number was transcribed as 11 rather than 12. More importantly, however, Baldo’s invoice is dated in the European style rather than the North American style; that is, the day comes before the month, and not vice versa. Thus, the invoice that the Master read as dated April 12, 2009 (month-day-year: 4.12.09) was, in fact, dated December 4, 2009 (day-month-year: 4.12.09). It did not pre-date the email exchange between the Mr. Zallan and Baldo, but rather came a week or so after that exchange and was obviously prompted by Mr. Zallan. Ms. Gelfand turns out to have been right. Baldo only billed the Gelfands for his rejected proposal after Mr. Zallan interfered and encouraged him to do so.

[17] The finding that Ms. Gelfand lacked all credibility was based on a palpable and overriding error; indeed, there can be no better example of a palpable error than a misreading of the date on an invoice. It was not an analytic error, but rather a simple, inadvertent reversal of the numbers making up the invoice date. But it had a distinct impact. The Master himself indicated in his reasons that this bit of evidence was the point that broke his confidence in much of what the Defendants had to say.

[18] Based on this negative view of the Gelfands’ evidence, the Master went on to draw adverse inferences about the Defendants’ liability for various other billings by the Plaintiff, all based on the supposed fabrication told by Ms. Gelfand regarding the nature of the Defendants dealings with Baldo – inferences which might be perfectly understandable had the date of Baldo’s invoice really proved that Ms. Gelfand was lying instead of telling the truth about her dealings with Baldo. As the Master put it, “the Gelfands did not produce Baldo as a witness to corroborate this story. This story was vitally important to the Gelfands’ defence that Mrs. Gelfand had no general contracting responsibility for the improvement, and was not responsible for delay. I draw the adverse inference from their decision not to call Baldo as a witness that Baldo would not have corroborated Mrs. Gelfand on this point.” [Luxterior, at para 84]

[19] Had it been understood by the Master that Baldo’s bill came only on the heels of Mr. Zallan’s urging, he doubtless would not have required Baldo’s corroboration. The need for corroboration arose because, in the Master’s (mis)understanding, Ms. Gelfand’s evidence was contrary to the documentary evidence represented by the invoice.

III. The contract dispute

[20] Counsel for the Gelfands submits that the adverse finding with respect to the Gelfand’s credibility permeated all of the specific monetary disputes at issue in the trial. Counsel for the Plaintiff submits that the specific disputes must each be analyzed on their own since each billing controversy between the parties raises factually specific issues.

[21] It is clear to me that the Master’s misapprehension of Ms. Gelfand’s evidence about Baldo’s invoice caused him to interpret the Baldo episode against the Defendants. It would be an overstatement to say, however, that the negative view he formed about the Glelfands’ evidence caused him to decide every aspect of the dispute incorrectly; the Gelfands could be incorrect in their positions and Mr. Zallan could be correspondingly correct in his position despite the overall negative view that the Master took of the Gelfands. Nevertheless, the palpable nature of the Master’s erroneous conclusion about the Baldo evidence, and the adverse finding with respect to the Gelfands’ credibility that flowed from that error, prompts me to examine the monetary disputes one-by-one.

[22] As a preliminary matter, it is worth noting that the entire dispute turned on the interpretation and application of an unsigned contract between the parties dated December 15, 2006 (the “Contract”). The Contract called for work to be done by the Plaintiff on two properties owned by the Defendants that were in the process of being constructed or renovated, one in the Yorkville area of Toronto and the other in Miami, Florida. The Plaintiff is described in the Contract as a consultant, and by the terms of the Contract is required to perform services for the Defendants that include design work, supervision, project management and administration, and selection of fixtures and furnishings. In return, the Plaintiff was to earn a 10% commission on “the total price of all new improvements/upgrades made to the above-mentioned properties on top of the Purchase price, exclusive of any sales taxes and inclusive of all enhancements, interior design, cost of labour, service, supplies, goods and materials purchased, delivered, or installed on site.”

[23] Although the Contract was never signed, the Master found that it was discussed and agreed upon by the parties. He therefore held that it was enforceable and binding on them, and treated the Contract as governing their relationship. Although the Gelfands denied that they negotiated the Contract with Mr. Zallan in any substantive or meaningful way, and they claimed that the language of the Contract was entirely that of Mr. Zallan, I see no reason not to accept the Master’s finding. For the purposes of this motion, I consider the Contract to be binding and enforceable as against both parties. It is the document that defines their business relationship.

[24] It is trite but nevertheless worth repeating what the Supreme Court of Canada said about contract interpretation in Sattva Capital Corp v Creston Moly Corp, [2014] 2 SCC 633 – the court may use evidence of surrounding circumstances to interpret the Contract, but to be relevant the surrounding circumstances must inform the actual text. They cannot be adduced in order to change the text of the Contract. Moreover, any extraneous evidence must be in the nature of objective evidence. It cannot be simply one side’s subjective view of the meaning of any given clause or of the Contract as a whole.

a) The ‘extra’ design work

[25] The Plaintiff rendered invoices to the Defendants on a periodic basis during the course of the Contract. These invoices presumably represented work done by the Plaintiffs in respect of the two Gelfand properties, and the amount of each invoice was based on a calculation of 10% of the value of improvements, upgrades, and enhancements in the properties. As counsel for the Plaintiff pointed out in argument, the 10% figure on all purchases, labour, etc. was meant to reflect not just the value of those items which the Plaintiff was responsible for acquiring and installing, but also included within it the cost of the Plaintiff’s time and effort in designing the improvements, administering the projects and supervising the purchase, delivery, and installation of all items making up these improvements.

[26] On July 15, 2008, the Plaintiff issued an invoice in the amount of $72,000. The description of the work provided by the Plaintiff on the invoice reads: “Our fees for professional services rendered and as per contract dated December 15, 2006.” On its face, this invoice appears to be one more in a series of invoices rendered by the Plaintiff in accordance with the terms of the Contract – i.e. reflective of 10% of the value of the improvements done during the invoice period.

[27] It was the Plaintiff’s position at trial that these services were over and above the services for which the Plaintiff was to be compensated under the Contract. Therefore, according to Mr. Zallan, the $72,000 did not refer to any 10% commission.

[28] The Master conceded that Mr. Zallan’s view was contrary to what appeared on the face of the invoice. That is, if this invoice were to be taken as reflecting an ‘extra’ that was not part of the Contract, it was odd that the work being billed for was described on the invoice as “per contract dated December 15, 2006”. This, however, did not sway the Master away from accepting the Plaintiff’s unlikely view. Rather, as he put it, “While puzzling, I do not consider this point fatal to the credibility of the claim.” [Luxterior, at para 226]

[29] Rather, the central credibility issue in the Master’s mind was, once again, the Defendants’ dealings with Baldo. The Master did not believe anything that Ms. Gelfand said about Baldo, including the fact that from his workplace in Italy Baldo was not expected to design the Gelfands’ properties or to arrange for and supervise the installation of the flooring and millwork in the properties.

[30] It was the Defendants’ view that Baldo was asked to design and supply the millwork and flooring in conjunction with the Plaintiff’s overall designs for and supervision of the properties. Indeed, this was the coordinated effort between the Plaintiff and Baldo that was specifically described in the Contract. The Master, however, sided with Mr. Zallan’s view that the Plaintiff was not obliged to do anything in relation to the flooring and millwork. He therefore held that the $72,000 worth of design work was an ‘extra’ because it was work that the Plaintiff only had to do once the Gelfands rejected Baldo’s design.

[31] It is clear from his reasons for decision that the Master laid his interpretation of the $72,000 invoice directly at the feet of his own credibility finding. Under the subheading, “11. Was the design extra proper and agreed upon?”, the Master referred directly to the fact that he did not believe the Gelfands’ description of their relationship with Baldo: “As discussed in my review of the credibility of the witnesses, I do not accept the Gelfands’ position that Baldo’s work was included in the Plaintiff’s contract scope…” [Luxterior, at para 225]

[32] It is beyond doubt that the Master pinned his finding in respect of the $72,000 invoice on his view that nothing the Gelfands said was credible. No other way of looking at the ruling on this point would make sense.

[33] In the first place, the terms of the Contract expressly called for all extras to be in writing and ‘signed off’ by the Gelfands. But no such written approval was ever given for the Plaintiff’s supposed $72000 of extra design work. Furthermore, the Plaintiff was already required under the Contract to do the design work that accompanied the flooring and millwork. Phase I, article 7 of the Contract made the Plaintiff responsible for “Concept Design for all Architectural Custom Millwork, including library and wine cellar, custom build fine cabinetry (prepared and coordinated with P. Campana [i.e. Baldo]).” It is virtually impossible to see how the Plaintiff could be paid extra for designing the millwork when the Contract called for him doing just that as part of the Contract price.

[34] Plaintiff’s counsel explains that once Baldo dropped out of the picture, the Plaintiff had to fill in the portion of the design work that Baldo had been expected to do. With respect, however, that is not logical and is lacking in evidentiary support. The Plaintiff was responsible for architectural design of the millwork in the sense of locating it within the property and coordinating it with other design features of the property. Baldo was responsible for designing the details of the product and providing it from the manufacturer.

[35] Once Baldo’s concept drawings were rejected, the Defendants hired another Italian millwork designer and manufacturer, Arca, to do the work that Baldo was to do. Arca invoiced the Defendants directly for its design and supply of the millwork; the Plaintiff’s $72,000 invoice did not refer to work that the ultimate manufacturer did. It obviously referred to the concept work that the Plaintiff was responsible for all along and that was not ‘extra’ to the Contract.

[36] Early in his reasons for decision, the Master made the point that the Plaintiff’s 10% commission was on all improvements, including those that required relatively little work. The reason for that is, as noted above, that the commission structure was meant to compensate the Plaintiff for all of the services he provided under the Contract, and not just the acquisition of upgrades and accoutrements for the properties. Thus, the Master indicated, “The nature of the work done by [he Plaintiff] was only indirectly linked to the supply and installation of material. What [the Plaintiff] supplied was design and project administration.” [Luxterior, at para 199] It therefore cannot be the case that the $72,000 invoice for design services was outside of the compensation scheme of the Contract.

[37] In so thoroughly disbelieving the Defendants’ view of the Contract terms, and especially the Defendants’ view of Baldo’s involvement in the projects, the Master awarded the Plaintiff a $72,000 ‘extra’ payment that instead should have been part of the Contract. Unfortunately, the palpable error with respect to the Baldo invoice led to a patently erroneous interpretation of the Contract. That, in turn, led to a patently erroneous understanding of the July 15, 2008 invoice from the Plaintiff.

[38] The work reflected on that invoice was part of the Contract payments to the Plaintiff. It was not payable as an ‘extra’. Accordingly, the amount of that payment is to be deducted from the award to the Plaintiff.

b. The builder upgrades

[39] The Yorkdale property was comprised of two adjacent condominiums units which were purchased to be merged into one large unit. The units were purchased by the Gelfands from the builder prior to construction being complete. As part of the purchase agreement, the builder allocated to the Gelfands a $300,000 credit for upgrades to the combined unit.

[40] The Plaintiff charged its usual 10% commission on the builder upgrades. The overall value of these upgrades was somewhat more than the builder had allowed, totaling $339,485.04.

[41] The Defendants’ objection to the Plaintiff’s commission on this amount is based on two arguments. In the first place, counsel for the Defendants submits that the Plaintiff had little to do with these upgrades to the Yorkville condominium. He states that they were done prior to the Defendants actually taking possession of the units they purchased, and that as a consequence the Plaintiff was never even in the units at the time the upgrades were being completed.

[42] Secondly, counsel for the Defendants relies on the clause in the Contract which stipulates that commission can be charged by the Plaintiff on “all new improvements/upgrades made to the above-mentioned properties on top of the Purchase price . . .” The Defendants argue that the $300,000 allowance was part of the purchase price, and so therefore the upgrades cannot be said to be improvements acquired “on top of the purchase price”.

[43] The Master rejected the Defendants’ characterization, and I see no reason to interfere with that holding. It was based on facts in the record and on a logical reading of the Contract. Most importantly, it appears to me to be unrelated to the credibility issues with respect to the Defendants’ evidence. The evidence showed that although the Plaintiff may not have had physical access to the Yorkville units during the relevant period, they had ample access to the plans for those units and to the builder.

[44] The Master specifically found that although the builder did the construction work during the pre-closing phase, “The builder worked from [the Plaintiff’s] designs and the evidence shows that [the Plaintiff] worked closely with the builder on the builder upgrades.” [Luxterior, at para 113] There is no reason to exclude the work done by the Plaintiff from the overall commission structure of its compensation under the Contract.

[45] In terms of Contract interpretation, the Master discounted the clause that restricted the improvements to which commission attached to those made “on top of the purchase price”. By contrast, he weighed in on the side of a separate clause that defined the improvements as “all upgrades and/or improvements…based on the design…by the [Plaintiff]…are subject to the 10% commission and shall be payable to the [Plaintiff] upon written approval of such upgrades, improvements, purchasing or ordering, not the physical completion of the tasks or orders by the trades or the suppliers.”

[46] The Master found that, as a rational reading of the two clauses together, this latter clause “expressly embraces the builder upgrades which were done in accordance with [the Plaintiff’s] concept drawings and related designs.” [Luxterior, at para 108] In doing so, he made reference to the Court of Appeal’s judgment in Canada (Attorney General) v Chomy, 2002 CarswellOnt 302, at para 13 (Ont CA), which indicated that where an agreement appears to contain contradictory clauses, the court must strive for consistency and interpret the Contract in a commercially reasonable way. Since no one would agree to do $30,000 worth of work (i.e. 10% of the $300,000 builder’s allowance) for free, the Master’s interpretation that the commission is payable on the upgrades can be seen to take commercial reasonableness into account. The Plaintiff’s inclusion of 10% commission on the value of the builder upgrades was therefore properly included in the amounts payable by the Defendants.

c) The price deductions

[47] The builder of the Yorkville condominium agreed to a number of price deductions based on savings attributable to the combining of two units into one. Thus, for example, the builder only had to supply one kitchen instead of two; and although the Gelfands may have ordered more expensive finishings than the standard builder-supplied items, someone had to note the savings that the builder incurred in consolidating two units and ensure that the Gelfands got credit for those savings. That someone was the Plaintiff, and, as a matter of course, the Plaintiff charged its usual 10% commission on the value of those savings.

[48] At trial, counsel for the Defendants took issue with the commission charges on builder price deductions. His argument, both before the Master and before me, is based on the clause of the Contract that requires that the Defendants get the full benefit of all savings, or discounts, negotiated on their behalf: “All the discounts the [Plaintiff] is eligible for or may negotiate on behalf of the [Defendants] will be passed directly to the [Defendants] without any deductions.” It is the Defendants’ position that the builder’s deductions are in the nature of discounts that must be flowed through to them without any commission being deducted.

[49] The Master disagreed with counsel for the Defendants on this point. Speaking of both the builder’s upgrades and the builder’s deductions, he indicated that the Defendants would not have benefited from either of them had it not been for the efforts and design expertise of the Plaintiff:

They would also need their own consultant’s guidance as to what price deductions needed to be made on account of the conversion of the two units into one. The evidence indicates that they got both from [the Plaintiff]. [Luxterior, at para 75]

[50] It was the Master’s considered view that nothing in the discount clause spoke to the concept of builder deductions. The point was not a credibility point, but rather one of straightforward Contract interpretation. The Master was of the view that the Defendants received ample value in consideration for the commission charged on the builder deductions.

[51] I agree with the Master in this respect, and see no reason to interfere with his decision to award the 10% commission on the upgrades. Price deductions from the builder are not the same as discounts acquired by the Plaintiff on items ordered on the Defendants’ behalf.

[52] The Contract calls for discounts to be passed on to the Defendants in order to prevent the Plaintiff from profiting on a hidden markup on items for which the Plaintiff was already collecting a 10% commission. The builder’s deductions do not fall into this category. They are simply items which the Plaintiff identified and which added value to the Defendants’ project. They are therefore akin to improvements under the Contract, and the Plaintiff’s usual commission attaches to them; the Contract must be presumed to make sense, and this is the only interpretation of builder’s deductions that is compatible with common sense: 3869130 Canada Inc. v ICB Distribution Inc., 2008 ONCA 396.

[53] Accordingly, the Master was correct that the builder’s deductions arranged or identified by the Plaintiff are properly subject to the Plaintiff’s usual 10% commission charge.

d) Post-termination items

[54] On November 19, 2009, the Defendants terminated the Plaintiff’s services and barred his further access to the two premises. The Master took note that the Contract had required that any termination be given with 30 days’ notice in writing. He appears to have faulted the Defendants for terminating the Plaintiffs “for no cause”, although he elsewhere conceded that the Contract allowed for termination without cause. [Luxterior, at para 197] In any case, both sides came to accept that the Contract was at an end despite the lack of formal written notice.

[55] At the time of termination, neither project was finished. There were any number of improvements that were in process, fixtures and other items that had been ordered but not delivered, structures that had been designed but not yet constructed or installed, etc. One of the more hard-fought aspects of this dispute concerned the commission charged by the Plaintiff on a variety of post-termination items. The Master set out the parties’ competing positions succinctly in his reasons for decision, as follows:

In discussing the termination clause Mr. Zallan stated that [the Plaintiff] expected to receive on contract termination 10% commission on all improvements it ‘was involved with’ or ‘touched,’ not just commission on improvements ordered, approved of, delivered or installed as of the date of termination… The Gelfands, on the other hand, argued that this was much too broad in scope and…what made commercial sense was to have the commission apply to only what had been delivered to the improvement as of the date of contract termination, even if the material had been ordered and approved of by Gelfands prior to contract termination. [Luxterior, at para 198]

[56] As between these two positions, the Master preferred that of the Plaintiff. He set out five distinct reasons for coming to this interpretation, placing his reasoning about termination within the context of the Contract as a whole. In short, he opined that (a) commission entitlement was designed to capture a broad spectrum of work done by the Plaintiff, and was not connected to any one specific service; (b) commission was to be paid bi-weekly under the Contract, which disconnected its entitlement to delivery or installation of any item; (c) design and selection of improvements and furnishings was more important to the Contract than supply and installation; (d) the ‘being involved with’ or ‘touched’ standard argued for by the Plaintiff captured the design consultant function which was the most important part of the Contract; and (e) to limit commission entitlement to items delivered and installed prior to termination would artificially deprive the Plaintiff of compensation for significant value it had added to the Defendants’ project.

[57] Applying the Plaintiff’s standard to the post-termination items in dispute, the Master sided with the Plaintiff and allowed a 10% commission on 14 of the controversial 16 items or improvements. He heard evidence about the specific work done on all of the items at issue, and required that the Plaintiff prove that it had indeed designed, ordered, or otherwise been consulted regarding the ones for which commission was payable. On two of the items – a sink designed by Canorama International and custom door trim supplied by Art For Everyday Inc. – the Plaintiff was unable to establish that it had done any work that would entitle it to commission, while on the balance of the items the Plaintiff proved to the Master’s satisfaction that it was responsible for the design or selection of the item.

[58] If I were trying this case de novo, I would be inclined to be more skeptical of the position taken by the Plaintiff regarding commissions on post-termination items. It seems to me that taking delivery of the items and supervising their installation would have been a time-consuming, labour-intensive part of the Plaintiff’s work, and that the Plaintiff’s level of compensation would be different if it did not have to perform this aspect of the service.

[59] That said, I am not trying this case de novo. Unless there is a palpable and overriding error, the Master’s interpretation of the Contract and assessment of the evidence is entitled to deference. Just because I might conclude differently on any one issue does not mean that the Master’s ruling on that issue should be overturned. I therefore find that while there is scope to disagree with the Master’s view of the post-termination items, his interpretation of the Contract and application of the commission clause to these specific items was within the bounds of commercial reasonableness.

[60] I therefore defer to the Master’s findings with respect to the entitlement to commission on the post-termination improvements and items.

e) Failure to supervise

[61] The Contract specified that the Plaintiff was to supervise the projects. Term 1 states that, “The [Plaintiff] will assign a knowledgeable person to provide day-to-day supervising, to insure [un]interrupted work progress.”

[62] It was the Defendants’ position that this term required someone on behalf of the Plaintiff to be on site every day, regardless of whether there was anything in particular happening on site on a given day. It was the Plaintiff’s position that this term required someone on behalf of the Plaintiff to be on site when other trades were working there and to be available in the sense of being ‘on call’ at other times.

[63] The Master reasoned that, “These duties have to be examined within the context of the Contract as a whole. Viewed as such, I find that the Contract was for the services of a project manager ‘not at risk,’ namely a pure project manager.” [Luxterior, at para 132] With this overall characterization in mind, the Master went on to find that the Plaintiff’s responsibilities were to assist the Gelfands, who were responsible for many of the decisions made on site, and that the requirement of day-to-day supervision was to be read with that assistance function in mind. The Plaintiff did not have to treat the projects as if they were its own; rather, it had to treat them as a contractual supervisor, and be available whenever there was actually something to supervise.

[64] I find nothing to criticize in the Master’s reasoning here. He reached his conclusion by putting together the key clauses of the Contract. He did not reach outside the Contract to apply extraneous evidence. The Master made specific reference to the clause of the Contract that provided that, “The [Plaintiff] will make all reasonable efforts to assist [the Defendants] to achieve desired results within planned budget and time frame by providing an appropriate project management and administration services.” [Luxterior, at para 133] In view of this context, he concluded that the Plaintiff was not a slave to the project sites, but rather had to be of assistance when required, within reason.

[65] This interpretation makes commercial sense. It also conforms with the way the parties acted from the very outset of the projects. The Master declined to award the Defendants any deduction based on the Plaintiff’s method of fulfilling its day-to-day supervision duty. I, in turn, decline to interfere with that decision.

f) Disproportionate costs award

[66] In total, the Master found that the Plaintiff was owed $243,325.20 in commissions, plus pre-judgment interest. On top of that, he awarded the Plaintiff $485,000 in costs.

[67] Counsel for the Defendants submits that awarding costs that are double the award on the merits is disproportional and should be reduced. He argues that proportionality is an overriding principle that guides costs awards. The Court of Appeal in England has made this point, Home Office v Lounds, [2002] EWCA Civ 365, and in Ontario it is embodied in Rule 57.01(1)(a) which lists as a factor in fixing the quantum of costs “the amount claimed and the amount recovered in the proceeding”.

[68] Defendants’ counsel further submits that the costs award was partly based on the Master’s erroneous use of a full indemnity scale for the portion of costs incurred subsequent to an offer to settle served by the Plaintiff. The compensation awarded the Plaintiff was slightly more than what the Plaintiff would have received had the Defendants accepted their settlement offer, and so under Rule 49 the Master raised the scale of costs for the period subsequent to the offer. The problem, according to Defendants’ counsel, is that he raised it to full indemnity rather than to substantial indemnity as specified by Rule 49(1)(c).

[69] It may be that the Master’s costs ruling needs to be re-visited, but I am not yet in a position to do so. I have been advised by counsel that the Defendants also made an offer to settle prior to the trial below, and that their offer may change the calculus under Rule 49 depending whether, and by how much, I reduce the award to the Plaintiff. As it turns out, I have reversed the Master on one point – the $72,000 ‘extra’ for design services – and, as a consequence, the award to the Plaintiff will be correspondingly reduced. This will have to be addressed in further submissions, as described below.

IV. Disposition

[70] The amount awarded to the Plaintiff by the Master is hereby reduced by $72,000. The Defendants shall therefore pay the Plaintiff a total of $171,325.20, plus pre-judgment interest on this amount. For the reasons that follow, pre-judgment interest shall be at the rate stipulated under the Courts of Justice Act, RSO 1990, c. C 43 (“CJA”)

[71] The Master ordered pre-judgment interest at the rate of 3.1% per annum. This is less than the Contract rate (which the Master found would violate the Interest Act, 1985, c. I-5, if applied), but more than the rate under section 128 of the CJA, which was 0.5% for the same period. [Luxterior Costs, at paras 57, 59]

[72] The Master relied on section 130 of the CJA in deviating from the standard rate. This decision was discretionary, and was based on the conduct of the parties. In his follow-up costs and interest ruling, the Master explained: “As stated in my judgment, I found both of the Gelfands to have much less credibility than the [Plaintiff’s] witnesses. I found their positions on key issues not only unreasonable, but downright perplexing… For instance, Mrs. Gelfand’s evidence concerning Baldo was, quite simply, incredible.” [Luxterior Costs, at paras 36-37]

[73] The rate of 3.1% is neither the Contract rate nor the statutory rate. The Master cited counsel for the Plaintiff as stating that this was the prevailing bank rate during the relevant time. But his sole rationale for deviating from the standard Courts of Justice Act rate is the lack of credibility of the Gelfands – especially surrounding the Baldo relationship.

[74] As already indicated, this negative view was adopted by the Master pursuant to a misapprehension of the evidence. Were it not for this negative view of the Gelfand’s credibility regarding their relationship with Baldo, the Master would likely have imposed the standard CJA rate of pre-judgment interest. The very purpose of having a standard statutory rate is to provide a default interest rate in the event that the parties do not stipulate their agreed upon rate or, as here, if the agreed upon rate of interest is not enforceable.

[75] As a result of the palpable and overriding error in assessing the Gelfands’ credibility, the Master imposed an interest rate that was higher than called for. Pre-judgment interest on this judgment shall run at the rate provided under section 128 of the CJA.

[76] In view of my having reduced the amount payable to the Plaintiff, I invite written submissions on the costs awarded by the Master. I would ask that counsel each provide me with written submissions of no more than 3 pages in length addressing the Master’s costs award in light of my reduction of the Master’s overall judgment. Counsel for the Defendants should email the Defendants’ submissions to my assistant within one week of the date of this judgment, and counsel for the Plaintiff should email the Plaintiff’s submissions to my assistant within one week thereafter.

V. Costs

[77] The result of this motion has been mixed. The Defendants managed to reduce the award to the Plaintiff from $243,325.20 to $171,325.20. In very rough figures, this represents a 1/3 reduction of the Master’s ruling.

[78] Counsel for the Defendants seeks costs on a partial indemnity scale in the all-inclusive amount of just over $57,600. One-third of this amount comes to just over $19,000.

[79] Counsel for the Plaintiff seeks costs on a partial indemnity scale in the all-inclusive amount of just over $20,000. Accordingly, while there is a discernable discrepancy between the two costs requests, it is not the case that the Plaintiff would be surprised at the quantum of costs that the Defendants seek relative to the results here. Rule 57.01(1)(0.b) authorizes me to take these expectations of the parties into account in fixing costs.

[80] The Plaintiff shall pay the Defendant a total of $19,000 in costs of this motion, inclusive of all fees, disbursements, and HST.

Morgan J.

Date: March 8, 2018