Court File and Parties

COURT FILE NO.: CV-11-438466

DATE: 2020-04-02

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: NISAR AHMED and 1492480 ONTARIO INC., Plaintiffs

AND:

ALBINA DePAULIS also known as ALBINA DE PAULIS, CLAUDIO DePAULIS also known as CLAUDIO DE PAULIS and WASHMAX (WESTON) LTD., Defendants

BEFORE: Sossin J.

COUNSEL: S. Michael Citak and Dara Hirbod, Counsel, for the Plaintiffs

Claudio DePaulis, for himself, as co-Defendant

HEARD: January 20-24, 2020

REASONS FOR JUDGMENT

OVERVIEW

[1] This case concerns a dispute between the owners and operators of a coin laundromat and the landlords who owned the premises. That dispute culminated in the landlords taking possession of the laundromat and terminating the lease. As a result, the plaintiffs brought this action for damages.

[2] Nisar Ahmed (“Ahmed”) owns and is the directing mind of 1492480 Ontario Inc. (“149”).

[3] Ahmed and 149 (collectively, the "plaintiffs") claim that, on September 28, 2011, Claudio De Paulis (“Claudio”) and his mother, Albina De Paulis ("Mrs. De Paulis") (collectively, the "defendants") illegally distrained the laundromat owned and operated by the plaintiffs, located at 2296 Islington Avenue Toronto, Ontario (the "premises").

[4] The plaintiffs further allege that the defendants wrongfully terminated the lease and sub-lease in relation to these premises.

[5] The plaintiffs also claim damages for defamation arising from the notices published by the defendants informing the public of its distraint of the premises.

[6] Mrs. De Paulis and her husband, Walter De Paulis, owned the premises. Walter De Paulis died in 2008 and Claudio took over his role with respect to the premises after that time.

[7] The defendant, Mrs. De Paulis, is 94, and was not well enough to participate in this trial, though her evidence through examination for discovery was referred to by both parties at trial.

[8] The defendant Washmax (Weston) Ltd. (“Washmax”), led by Mr. Michael Churchill (“Churchill”) held the head lease with Albina and Walter De Paulis in 2000, and entered into a sub-lease with the plaintiffs, which included the sale of the laundromat, in 2002.

[9] The plaintiffs issued their statement of claim on November 1, 2011

[10] Claudio and Mrs. De Paulis delivered their statement of defence, counterclaim, and crossclaim on December 28, 2011.

[11] Washmax filed a statement of defence and counterclaim in this action in March, 2012, but otherwise has not participated, and chose not to attend the trial, though served with the trial notice.

[12] Various replies and amendments followed, with the last pleading delivered on October 30, 2013.

[13] The trial of the action was heard January 20-24, 2020.

[14] Claudio, who represented himself, had sought a longer trial, of at least two weeks. The pre-trial judge concluded that five days was sufficient.

[15] Claudio initially stated that he may call several witnesses, and also stated that he may wish to amend the defendants’ pleadings, but in the end no witnesses were called by the defendants beyond Claudio’s own testimony, and no motion to amend the pleadings was brought.

[16] Nonetheless, to accommodate the parties in this limited time-frame, I directed that closing submissions could be in writing, so that the trial time could be used to ensure all witnesses were heard from. I am satisfied that the time for the trial evidence was sufficient.

[17] Further, with the consent of the parties, the order for closing arguments was reversed. Closing arguments from the plaintiffs were received on February 3, 2020, while closing arguments from the defendants were received on February 10, 2020.

[18] Subsequent correspondence later in February, 2020, was received from Claudio, but not copied to plaintiffs’ counsel. I replied by email and regular mail on March 9, 2020 that I was unable to respond in these circumstances, as the time-frame for submissions had closed and it was not possible to respond to one party without including the other party in these circumstances.

[19] It is clear that Claudio struggled in his dual roles as the sole witness for the defendants, and the person making submissions and arguments on his behalf. I provided guidance where possible as to relevant trial procedures, rules of evidence and court decorum.

[20] I am convinced that Claudio did his best to respond to this guidance, though his capacity was clearly limited with respect to obtaining and organizing documents, distinguishing between the discovery process and the trial evidentiary process, and differentiating between giving evidence and making arguments. Claudio stated on several occasions that he simply did not have adequate time to prepare the necessary documentation to enter into evidence.

[21] I wish to commend Claudio for his efforts. Notwithstanding the challenges Claudio raised, I believe at the end of this trial, I was left with a clear understanding of his positions on the key issues, as well as an appreciation of the evidence on which his positions were based.

[22] I also wish to commend counsel for the plaintiffs. Mr. Citak and Mr. Hirbod discharged their duties as officers of the court, including certain accommodations in light of the difficulties Claudio faced, without compromising their responsibilities to their clients.

[23] For the reasons that follow, I find the plaintiffs are entitled to damages arising from the defendant’s unlawful termination of the lease, wrongful distraint and conversion of the plaintiffs’ property, as well as for defamation against the plaintiff, Ahmed.

FACTS

[24] While some material facts are disputed and examined below, the parties agree on some important aspects of the events giving rise to this litigation, including the following facts:

(a) On July 25, 2000, Washmax leased the premises from Albina De Paulis and Walter De Paulis, as landlords;

(b) The premises were operated by Washmax as a laundromat between 2000-2002;

(c) On July 17, 2002, Churchill, Washmax's representative, sent

a letter to Walter De Paulis, seeking the landlords' consent to sublet the premises and advising that Washmax may sell the laundromat business, but would remain on covenant as per the original terms of the Lease;

(d) The landlords executed a consent to sublease, dated November 5, 2002 and the plaintiffs entered into the sub-lease that same date;

(e) 149 Ontario also entered into an Agreement of Purchase and Sale with Washmax dated August 28, 2002, to purchase the laundromat business operating at the

premises;

(f) The landlords executed an extension agreement, extending the lease & sub-lease

to July 2012, dated August 1, 2007; and

(g) The landlords took action to distrain the premises on September 28, 2011, including the posting of notices on the window of the laundromat.

[25] The key issues on which the plaintiffs and defendants diverge is with respect to:

a. whether the defendants were entitled to terminate the lease and sub-lease, and distrain the laundromat premises on September 28, 2011, and

b. whether the notices posted at the laundromat on September 28, 2011, and thereafter, were defamatory.

[26] I turn now to addressing these two issues.

1. Was the distraint and termination of the lease and sub-lease unlawful?

[27] The plaintiffs seek damages both for the unlawful termination of the lease and the conversion of the plaintiffs’ business and property.

[28] The plaintiffs substantiate their claim that the distraint and termination of the lease and sublease were unlawful with the following evidence:

a. Ahmed and 149 paid Washmax $80,000 upfront for the laundromat business, and agreed to repay Washmax a loan of $150,000 at 7% interest, within 7 years of the APS by 2009 (the “loan”). The total purchase price for the laundromat business was $230,000, and therefore approximately $270,000 (inclusive of interest);

b. Under this arrangement, Ahmed and 149 paid approximately $4,206.58/month to Washmax, which included

i. base rent (which was $1,700/month), repayment of the loan (being $2,256.58/month pursuant to an amortization schedule and additional amounts of approximately $200 to $250 for additional expenses;

c. Ahmed and 149 rely on cheque stubs confirmed the total amounts paid including repayment of the loan, base rent, and additional expenses;

d. Ahmed and 149 rely on bank records from January 1, 2006-September 30, 2016, to confirm the amounts deposited by them into their bank account, and the amounts withdrawn; verifying payment of the base rent, loan, and additional expenses;

e. The defendants were aware of the fact that Ahmed was operating the laundromat business at the premises. Ahmed testified that shortly after purchasing the laundromat in 2002, he called Mrs. De Paulis directly and had a discussion in English with her, during which he advised that he was the new tenant and owner of the laundromat business.

f. In addition to the laundromat business, Ahmed subsequently operated a dry-cleaning business, key-cutting business, watch repair business, alterations business and a wash & fold business from the premises;

g. Ahmed's son, Asad Ahmed ("Asad") testified that he and his family worked and assisted in operating the laundromat and related business;

h. In a letter dated September 1, 2011, Claudio wrote to Ahmed and stated that contractual arrears were owed under the sub-lease in the amount of $107,907.17, and if not paid within 15 days, punitive measures would be taken;

i. Ahmed and Asad each testified that they met with Claudio a few days before September 28, 2011, at a library, where Claudio demanded payment of approximately $30,000 made payable to him directly, and if payment was made there would be no further issues. Ahmed refused to pay the demand without supporting documentation of arrears and required his lawyer's involvement; and

j. No specific notice indicating a date of distraint was ever provided by Claudio to Ahmed.

[29] Claudio takes the position that it was the plaintiffs and Washmax who breached the lease. He relies on the following evidence:

a. Churchill, principal of Washmax, signed a head lease agreement with the Walter and Albina De Paulis on July 25, 2000;

b. That head lease required that notice be provided to the landlords should a sub-lease be entered into by Washmax;

c. On October 18, 2002, Washmax and Ahmed and 149 entered into a sublease, and separately entered into another agreement that same day transferring the laundromat from Washmax to Ahmed and 149; and

d. No prior notice to the landlords was provided by Washmax or Ahmed and 149, nor was the landlords’ prior agreement obtained for this sub-lease arrangement.

[30] While Ahmed testified that he informed Mrs. De Paulis of the transaction with Washmax purchasing the laundromat shortly after the transaction, the first written evidence of notice provided by Washmax to the landlords is a letter from Churchill, dated July 10, 2007.

[31] Claudio gave evidence that this was the first time the landlords received written notice of a sale of the laundromat.

[32] Claudio acknowledged, however that at the time the plaintiffs purchased the laundromat, the landlords' lawyers at the time, Bratty and Partners, provided a letter dated October 21, 2002, enclosing a “Consent to Sub-Lease” by the landlords, Walter De Paulis and Albina De Paulis. In that letter, Ahmed is referred to by counsel for the landlords as “the person who would be taking over the business.”

[33] Claudio testified that he did not see this letter at the time it was sent. He conceded that his parents were the landlords at the time and he was less involved with the premises at the time. That said, his evidence was that a decision as significant as consent for the purchase of the laundromat would have been discussed as a family.

[34] The head lease between the landlords and Washmax contains the following provisions:

7.01 Assignment

(a) Prior Consent of Lessor Required: The Lessee agrees not to assign or sublet this Lease without first obtaining the written consent of the Lessor. The consent of the Lessor will not be unreasonably withheld providing, however, that the Lessor will be entitled to withhold consent if the Lessor has reasonable grounds to believe:

(1) the assignee or sublessee is not credit worthy;

(2) the assignee or sublessee is not of good moral or ethical character of reputation

(b) Details Regarding Assignee: The Lessee further undertakes and agrees to provide to the Lessor full particulars with respect to any proposed assignment or sublease, including full details with respect to the party to whom the lease is to be assigned or sublet.

(c) Lessee to Remain Liable: In the event of any assignment, the Lessee continues to remain liable for the observance and performance of all of the Lessee’s obligations hereunder.

7.02 No Relief from Condonation: Any condoning, excusing or overlooking by the Lessor of any default, breach or non-observance by the Lessee at any time or times in respect of any covenant, proviso, condition or obligation contained in this Lease shall not operate as a waiver of the Lessor’s rights hereunder in respect of any continuing or subsequent default, breach or non-observance, nor so as to defeat or affect in any way the rights of the Lessors hereunder in respect of any such continuing or subsequent default, breach or non-observance and all rights and remedies herein contained of the Lessor shall be deemed to be cumulative and not alternative.

7.03 Reimbursement: Whenever the Lessor shall have paid or expended any moneys, which under the terms of the Lease it is the obligation of the Lessee to pay, but which the Lessee has refused or neglected so to pay, then upon the Lessor giving written notice to the Lessee of such payment, the moneys to be paid or expended shall be collectible as rent.

7.05 Distress

(a) All goods, chattels and inventory (the “Goods”) from time to time on the Leasehold Premises shall be subject to distress for rent in arrears or rent to become due as contemplated by Article 7.05(c) below pursuant to the terms of the Lease and for the fulfillment of all of the Lessee’s obligations under the Lease.

(b) In the event that the Lessee fails to pay any basic rent or other sums due hereunder on the day or dates appointed for payment thereof, or fails to observe or perform any other of the terms, covenants or conditions of this Lease to be observed or performed by the Lessee and such failure is not cured within seven (7) days of notice of same by the Lessor, the Lessor without further notice to the Lessee exercise any right of distress on the Leasehold Premises for the protection of the Goods and for the Lessor’s right of distress, may enter the Leasehold Premises…

[35] Claudio argues that because Washmax breached article 7.01(a) of the lease, Washmax had no authority at that point to enter into the sub-lease with Ahmed. As a result, Ahmed was an “illegal trespasser” who was “fraudulently occupying: the landlords’ property for nine years (2002-2011).

[36] On this basis, Claudio argues that he was entitled, acting as landlord, to take the steps constituting the termination of the lease and distraint in September, 2011.

[37] The evidence at trial as to precisely when the landlords were notified of the sale of the laundromat by Washmax to the plaintiffs is inconclusive.

[38] In any event, while the landlords may have had recourse to remedies for a potential breach of the notice provisions of the head lease with Washmax (subject to limitation period constraints), it is undisputed that they took no steps to pursue such remedies. In the absence of taking steps to pursue this issue, Claudio cannot rely on a breach of the notice provision of the head lease to justify the unilateral termination of the sub-lease and distraint in September, 2011.

[39] It should be emphasized that for most of this period, the landlords had legal representation (though it appears that the landlords switched lawyers on several occasions due to dissatisfaction with their representation).

[40] While the landlords did not raise any breach of the notice provision of the head lease, they did pursue the issue of potential rental arrears. On August 18, 2009, there is correspondence from Enio Zeppieri, then representing the landlords, to Dallas Nairne, the accountant for the landlords, initiating an investigation into the amount of rental arrears by Washmax in relation to the premises.

[41] When arrears were raised with Washmax by Mr. Zeppieri in a letter dated August 24, 2009, Churchill replied that the landlords had failed to provide timely invoices, as required under the lease, and take the position no arrears could be confirmed until and unless such invoices were produced.

[42] Additionally, in this letter, Churchill states that amounts over and above the base rent were provided by Washmax, against which any arrears, if established, could be offset.

[43] The plaintiffs were made aware of this concern over arrears as well. In a letter dated, August 25, 2009, Marvin Ellison, counsel to the plaintiffs at the time, stated that the plaintiffs had been paying rents to Washmax in accordance with the sub-lease and were not aware of any arrears owing under the head lease.

[44] By 2011, the tensions between Claudio, Churchill and Ahmed had intensified.

[45] On February 5, 2011, Claudio wrote to Churchill to state that there would be no lease extension in July, 2012 and that he was “assessing further legal options.” He added:

After ten years of outright lies and complete non compliance to your contractual obligations. Be assured we will not be as easy prey, as my trusting frail father was.

Furthermore, and in conjunction, by virtue of section 7.01(b) of the original lease. We have the right to know, (with documented substantiation), who is the present majority owner of the “Coin Laundry” business leasing our Islington Ave. premises. As well as the date when a full discharge of the business to Mr. Nisar Ahmed will be effected.

[46] On February 26, 2011, Claudio wrote Mr. Ellison, then counsel to the plaintiffs, and again referenced rental arrears:

I have told you that I wish to come to an equitable solution in regards to the arrears owing to us from Mr. Ahmed. I’m willing to be as flexible as humanly possible to allow Mr. Ahmed stay [sic] as proprietor of the Coin Laundry, but only with a realistic repayment plan. However, not if the stonewalling and non disclosure which has become historical footnotes, continue… if I feel we’re back sliding down familiar old territory, I’ll have no compunction in exercising the option of taking the property back under distress, at my leisure. I’m not waiting another 8 years to resolve this matter. SO PLEASE TELL YOUR CLIENT HE’S NOW BEEN OFFICIALLY NOTIFIED! (Emphasis in original.)

[47] Negotiations, of a sort, continued in writing through the Spring of 2011.

[48] In a letter to Claudio and Albina De Paulis, dated May 9, 2011, counsel for the plaintiffs provided requested documentation of the agreements between the plaintiffs and Washmax and repeated the plaintiffs’ view of the dispute: “We did not understand that there was any dispute with respect to the amount of rents paid by our client to Washmax but only as to what was paid by Washmax to the Landlord.”

[49] In a letter to Ahmed dated September 1, 2011, Claudio calculated the arrears owing from Ahmed for unpaid property tax, business insurance and plaza cleaning to be $75,005.80. Claudio also asserted that Ahmed is liable for his legal bills ($6,714.75) and another $20,000.00 owing to Claudio “in personal time and effort.” On this basis, Claudio demanded payment of $107,907.17 in “Overall Arrears Owing” from Ahmed.

[50] In further letters to Mr. Ellison dated September 18, 2011 and September 19, 2011, Claudio purported to reference a settlement based on a meeting between himself and Ahmed, at which Ahmed agreed to pay specified arrears as well providing documentation in support of Claudio’s lawsuit against one of his former lawyers.

[51] There is no evidence of a response from Ahmed acknowledging this alleged agreement or consenting to the payment of arrears.

[52] In this litigation, Claudio claims that the landlords received “only a fraction” of the rent owed to them. He submits that as landlords, the defendants are owed $4,630.00 for every month of the plaintiffs’ “occupation,” which totals approximately $500,000.00.

[53] No supporting documentation was ever provided by the landlords with respect to the alleged arrears owed, despite requests being made by Washmax and Ahmed. According to Claudio, such documentation exists, but could not be produced given the time constraints of the trial.

[54] By contrast, Ahmed produced a range of cheque stubs covering the period in question, showing monthly payments to Washmax covering the base rent and other expenses required under the lease (in addition to repayments of the debt he owed Washmax).

[55] In his testimony, Claudio denied that he ever personally sought $30,000 from Ahmed as settlement of the arrears.

[56] It is not necessary to reach a finding on whether this offer was ever made by Claudio, and rejected by Ahmed and Asad. Clearly, the meeting, which both parties gave evidence took place, did not settle the deepening dispute between them.

[57] On September 28, 2011, without notice, Claudio terminated the lease and sub-lease and distrained the Premises. He changed the locks, and posted a notice on the windows of the laundromat (the "notice"), which stated that Ahmed was implicated in "co-embezzlement", "fraud", and "misrepresentations." The notice is examined in more detail below as it is the foundation of Ahmed’s allegation of defamation against Claudio.

[58] The September 28, 2011 distraint created an irreparable rift between the parties.

[59] On September 30, 2011, McLean & Kerr as counsel for the plaintiffs, sent a letter to the landlords advising that the distraint was illegal, and requesting that Ahmed be allowed back into the premises.

[60] In that correspondence, the plaintiffs also state their position denying the entirety of the alleged arrears.

[61] On September 30, 2011, Claudio sent a letter by way of reply to McLean & Kerr stating that the tenant must sign a new lease of $500,000/month with a six-year minimum occupancy and 6 month deposit, and an agreement to provide free “smoothies” at the beginning of each month.

[62] It is difficult to know what motivated this letter, but it demonstrates Claudio’s state of mind at the time, and the fact that he did not seriously consider a resolution to the dispute with Ahmed over the lease or the laundromat.

[63] Generally, I found Ahmed and Asad to be credible witnesses, whose testimony was consistent with the documentary records.

[64] I found Claudio’s evidence to reflect a genuine account of his beliefs, but those beliefs in some cases were at odds with the documentary records.

The applicable law

[65] The plaintiffs argue that the distraint was illegal. They submit, at law, a landlord cannot both terminate the lease and distrain. They rely on a well-accepted line of cases, including 911 Priority Corporation v. Murray, 2019 ONSC 3585, at para. 54; Pita Royale Inc. v. Buckingham Properties Inc., 2017 ONSC 5976 at para. 129; Malka v. Vasiliadis, 2011 ONSC 5884, para. 133; and Mundell v. 796586 Ontario Ltd., [1996] O.M. No. 2532 (Gen. Div.) 131).

[66] When a landlord purports both to distrain and terminate the lease, as in this case, the plaintiffs argue that the landlords are liable to the tenant for damages for wrongful distraint and for wrongful termination of the lease.

[67] In Sigrist et al. v. Keri McLean et al., 2011 ONSC 7114 (“Sigrist”), in somewhat analogous circumstances, the landlords distrained the premises, with no previous warning of action and no invoices of alleged arrears owing provided to the tenants. At trial, the landlords conceded that the amount posted and allegedly owed was incorrect. The landlords changed the locks and prevented the tenants from operating their restaurant, distraining both the plaintiff's business assets and personal belongings. The landlord admitted at trial that the distraint was a way to intimidate the tenant.

[68] In Sigrist, the Court determined that both the eviction and the distraint were unlawful. Justice Carole Brown stated (at para. 116):

The right of distraint (also known as distress) is a common law right available to landlords for recovery of arrears of rent under a lease. It allows landlords to seize goods and chattels on the leased land in question and owned by the tenant. The remedies of forfeiture and distress are mutually exclusive at law and, therefore, the landlord must choose between the right of forfeiture or the right of distraint. Where the landlord elects forfeiture, a simultaneous distress is illegal and will result in the landlord being liable to the tenant for the full extent of the tenant’s damages: See: Falwyn Investors Group Ltd. v. G.P.M. Real Property (6) Ltd., [1998] O.J. No. 5258 (Gen. Div.). (Emphasis added.)

[69] Further, plaintiffs submit that a distraint will be characterized as irregular where the landlord acts in breach of the technical requirements pertaining to a distress. In this case, Article 7.05(b) of the lease required that notice of arrears be provided seven days prior to any distraint. Claudio provided no such notice.

[70] Additionally, the Commercial Tenancies Act, R.S.O. 1990, c.L.7, s.55(1) provides that “A distrainor who takes an excessive distress, or takes a distress wrongfully, is liable in damages to the owner of the goods or chattels distrained.”

[71] Claudio does not rely on case law to justify the distraint. Rather, he relies on his belief that that Washmax breached the head lease, and in so doing, deprived the plaintiffs of any legal entitlement as a sub-lessee to the property or the laundromat.

[72] In light of the applicable legislation and case law, I find Claudio’s termination of the lease and simultaneous distraint were not justified under the law and were invalid.

[73] The defendants, therefore, are liable to the plaintiffs for damages arising from the unlawful termination of the lease and wrongful distraint.

[74] The plaintiffs also allege Claudio is liable for the tort of conversion in light of his appropriation of the laundromat business, as well as the machinery and equipment within the laundromat.

[75] As this Court set out in Murray v. Toth, 2012 CarswellOnt 12711 (Ont. S.C.J.) at para. 22, the elements of tort of conversion are as follows:

a) The plaintiff has a possessory interest in the property;

b) The personal property is identifiable or specific;

c) The defendant intentionally committed a wrongful act in respect of the property inconsistent with the plaintiff's right of possession; and

d) The plaintiff suffered damages.

[76] In 1694879 Ontario Inc. v Krilavicius, 2017 ONSC 2396, at para. 111, Kristjanson J. confirmed that an action for damages for conversion exists in all cases of wrongful distress, whether illegal, excessive or irregular, citing S. Graff and B. Kenworthy, in H. Haber, ed., Tenant’s Rights and Remedies in a Commercial Lease, A Practical Guide, 2nd ed. (Toronto: Canada Law Book, 2014) at p. 304.

[77] In this case, after the distraint, Claudio took over and continued to run the plaintiffs’ laundromat, and eventually sold the business.

[78] I find the actions of Claudio meet the threshold for the tort of conversion.

[79] The plaintiffs had a possessory interest in the property as a sub-lessee. The property seized was identified by the plaintiffs, including the specific number of machines, equipment and personal property. The defendants committed the wrongful act of distraint, including changing the locks and taking over the laundromat. The plaintiffs suffered damages as a result of the distraint.

[80] Therefore, Claudio also is liable to the plaintiffs for losses flowing from the wrongful appropriation of the laundromat.

Damages from the termination of the lease, wrongful distraint and conversion

[81] I turn now to the calculation of damages for which Claudio is liable as a result of the unlawful termination of the lease, the wrongful distraint and conversion of the plaintiffs’ laundromat.

[82] Because of the nature of the laundromat business, with most of the transactions taking place in cash and without documentation, assessing the appropriate quantum of damages for Claudio’s breach of contract and conversion is difficult.

[83] The plaintiffs seek damages of $100,000.00 for the breach of the sublease, and $250,000.00 for conversion of their business and property.

[84] In Pita Royale Inc. v. Buckingham Properties Inc., 2017 ONSC 5976, Justice Carole J. Brown described the approach to calculating damages in the context of wrongful distraint (at paras. 134-5):

Where distress is excessive, damages are normally special damages. In extreme cases, such as where wrongful distress causes a business to fail, expectation or reliance damages may be appropriate. The approach to calculating these damages is set forth in Grant Equipment Corp.:

In general, the plaintiff in an action for breach of contract is entitled to recover the amount of money that will place him or her in the position that he or she would have been in had the contract not been breached. This is referred to as the expectation interest. Where it is not possible to award the expectation interest, a party may elect to have damages that protect the reliance interest, that is, those expenditures made in reliance on the contract being performed.

In order to award damages for lost investment, the Court must be satisfied that the business would have generated sufficient revenue to recover that investment had the contract not been wrongfully terminated. The onus is on the defendant to establish that the business would not have generated revenue sufficient to recover its investment. As noted by Prof. Waddams in The Law of Damages (Looseleaf (Aurora: Canada Law Book Inc., 2005) at paragraph 5.230), and cited with approval by Blair J in Angoss II Partnership v Trifox Inc., at para 219:

Nevertheless, the result of the case may be supported on the basis that, in the absence of proof one way or the other of the profitability of the [enterprise], it is to be assumed against the wrongdoer that the enterprise would at least have broken even, that is, that the expenses would at least have been covered by revenue. It is suggested that it is not unjust to make such a presumption against the defendant who is the party in breach of contract. It would still be open, on this approach, for the defendant to prove, if possible, that the expenses would not have been recovered from revenues, and on proof of that fact, the defendant ought not to be liable to pay for the expenses.

[85] On this basis, Courts will attempt to estimate the value of the lost chance and award damages on a proportionate basis.

[86] Ahmed’s evidence with respect to the laundromat’s revenues at the time of the distraint was as follows:

a. The laundromat machines were generating approximately $8,000 - $9,000/month

b. The dry-cleaning business was generating approximately $1,000 - $1,500/month;

c. The key cutting business was generating approximately $150 - $200/month;

d. The wash &fold business was generating approximately $800 - $900/month;

e. The watch battery business was generating approximately $100 - $150/month;

f. The alteration business was generating approximately $200 - $300/month;

[87] Claudio takes issue with these figures, pointing to the lower level of income claimed by Ahmed and 149 on tax filings over the relevant period. Tax filings take into consideration expenses and other deductions which make a precise correlation between revenues alleged and income reported difficult to ascertain.

[88] Tax filings are relevant evidence of income but must also be considered in the context of the other evidence in this case, including the cash nature of certain types of income. Even if not fully reported in tax filings, such income may still form part of a damages award; Cowles v. Balac, 2005 CanLII 2038 (ON SC), at paras. 98-108.

[89] In this case, the plaintiffs submitted evidence of the deposits made on a monthly basis by Ahmed with revenues from the laundromat. In the month of July, 2011, for example, Ahmed made deposits of $8,000, while in August, 2011, the amount was $7,5000. For both months, Ahmed testified the business generated another $2000-$2500 which was not deposited but rather used directly for family expenses.

[90] Additionally, there are certain amounts of cash that the plaintiffs allege were in the laundromat at the time of the distraint. Ahmed testified that there was $3,000 in the change machine at the time the Landlords distrained the premises. There was also $3,000 in change kept in the basement at that time, plus the soap machine had approximately $150-$200 inside it, and the machines had about $1500 in change in them. There were numerous personal belongings, including groceries, clothing and family belongings contained in the basement of the premises, which were never returned. Ahmed valued the personal belongings to be worth approximately $1,000.

[91] With respect to the machinery and equipment in the laundry, on February 3, 2012, on behalf of the plaintiffs, Adam Burnett conducted an Appraisal Report of the Fair Market Value of the assets at the premises as at that date which amounted to $30,000 - $40,000. At the time of the distraint, all machines/equipment were fully functional (save for one machine being repaired). However, and at the time of the Appraisal Report, a number of machines were listed "out-of-order" by Claudio which the plaintiffs submit may have depressed the assessed value of the laundromat at that time.

[92] According to Ahmed’s testimony, the value of the laundromat business and equipment was worth substantially more than the $30,000 - $40,000 contained in the February 3, 2012 Appraisal Report.

[93] Claudio took over the laundromat business, began operating it, and sold the premises on November 18, 2014 for $480,000 for the building and goodwill, and $220,000 for the value of the chattels in the premises.

[94] Ahmed also gave evidence of significant investments made by the plaintiffs in the laundromat. In 2009, for example, Ahmed completed renovations at the premises, including new tiling, painting, new dryers/washer, laundry-cleaning room/office, for approximately $10,000.

[95] Ahmed also testified that new washers were purchased in 2009 at a cost of approximately $32,000.

[96] As the defendants sold the building for $480,000 and the assets for $220,000, the plaintiffs submit that the delta between the plaintiffs' purchase price of $270,000.00 (including interest) and the defendants’ sale price of $220,000 for equipment provides a reasonable and proportionate range of damages for the conversion and sale of their business.

[97] According to the plaintiffs, a further amount of $40,000 from the $480,000 real property sale is reasonable for the purposes of valuing the goodwill.

[98] The plaintiffs' position is that the best indicator of a fair market value is the price that an individual was willing to pay for the assets and goodwill of their business. The price paid by the plaintiffs in addition to the landlords' subsequent sale of their business provides a reasonable range of the overall value of the Laundromat business.

[99] In light of these factors, I find that a reasonable award of damages is $250,000 for the conversion and sale of their business and assets.

[100] Additionally, I accept Ahmed’s evidence that a further $3,000 in change was in the basement, and the change machine had $3,000 inside it, the soap machine had approximately $175 inside it, and the machines had about $1500 in change in them, for a total of damages relating to the conversion of the laundromat of $257,675.00.

[101] Ahmed also gave testimony that he and his family had personal belongings stored in the basement which were lost.

[102] Asad's testimony was that in addition to the tangible items kept in the basement, there were a number of sentimental items that had irreplaceable intrinsic value to him and his family. Claudio confirmed that he hired “some kids” to dispose of Ahmed's family's personal belongings.

[103] Ahmed's testimony was that the personal belongings had a value of approximately $1,000. The plaintiffs argue that, considering the sentimental value and irreplaceable personal contents that were disposed of, it is within a reasonable range of quantum that the damages would be $10,000.

[104] The plaintiffs rely on the Newfoundland Court of Appeal’s decision in Country Kitchens Ltd. v. Wabash Enterprises Ltd, [1981] N.J. No. 3 (Nfld. C.A.), where the Court emphasized that a landlord has a special privilege of paying himself by seizing a tenants goods, and where he takes the proceeding in a way that is not authorized, he is a trespasser, and the injured party shall recover their full value.

[105] While assigning a monetary quantum to sentimental value is never a precise science, I find that an award of $5000 is reasonable in light of the evidence in this case.

[106] Therefore, the damages for breach of contract, wrongful distraint and conversion total: $262,675.00

2. Were the notices posted at the laundromat that day were defamatory?

[107] Ahmed alleges that the notice posted by Claudio informing the laundromat customers and the public of the distraint was defamatory.

[108] The test which a plaintiff must meet in an action for defamation was set out in Grant v. Torstar Corp., 2009 SCC 61, at para. 28:

[28] A plaintiff in a defamation action is required to prove three things to obtain judgment and an award of damages: (1) that the impugned words were defamatory, in the sense that they would tend to lower the plaintiff’s reputation in the eyes of a reasonable person; (2) that the words in fact referred to the plaintiff; and (3) that the words were published, meaning that they were communicated to at least one person other than the plaintiff. If these elements are established on a balance of probabilities, falsity and damage are presumed, though this rule has been subject to strong criticism: see, e.g., R. A. Smolla, “Balancing Freedom of Expression and Protection of Reputation Under Canada’s Charter of Rights and Freedoms”, in D. Schneiderman, ed., Freedom of Expression and the Charter (1991), 272, at p. 282. (The only exception is that slander requires proof of special damages, unless the impugned words were slanderous per se: R. E. Brown, The Law of Defamation in Canada (2nd ed. (loose-leaf)), vol. 3, at pp. 25-2 and 25-3.) The plaintiff is not required to show that the defendant intended to do harm, or even that the defendant was careless. The tort is thus one of strict liability.

[109] The notices were posted on September 28, 2011. The evidence is unclear as to how long the notices remained up, but photos taken in mid-October showed the notices had not yet been taken down at that time.

[110] Claudio testified that he made different versions of the notice and replaced them approximately 3-4 times, as they were taken down by various individuals. He gave evidence that a second, "milder" version of the notice was posted a few days after September 28, 2011, and the word "co-embezzlement" was removed, but the notice kept the reference to Ahmad engaging in "fraud.”

[111] The content of the original notice read (in part):

DISTRESSED SEIZURE OF ASSETS OF COIN LAUNDRY UNDER ONTARIO COMMERCIAL PROPERTY LAWS ACT

INACTED [sic] BY: (lessor) ALBINA PROPERTY ASSET CORPORATION

EXECUTED AGAINST: (Tenant) WASHMAX WESTON LIMITED (Sub lessee) NISAR AHMED

All assets of the business known as COIN LAUNDRY at 2296 Islington Ave are now in seizure and security to property LANDLORD; ALBINA PROPERTY ASSET CORPORATION. By legal authority of the Ontario Commercial Property laws Act and in accordance with distraint protocols of said act

The tenant known on the original lease agreement as WASHMAX WESTON LIMITED and their current subtenant, NISAR AHMED, are in default of sections 2.09, 2.14, 7.03 2.05, 2.12, 2.13. 7.03 and 3.07 of the original Head Lease, resulting in termination of the 2000 original lease, and 2007 sublease. Also these corporate principles [sic] are implicated in co-embezzlement, fraud and mismanagement resulting in default of arrears listed below to ALBINA CORP.

… (Emphasis in original.)

[112] The notice purported to list rental arrears amounting to $107,907.17 between 2002-2008, and $24,161.34 between 2000-2001.

[113] The distraint caused Ahmed immediate distress.

[114] Ahmed was confronted by individuals, customers, and others throughout the community, about the language contained in notice.

[115] Ahmed gave evidence that he stopped going to his local mosque and was reluctant to be seen in public in his community for a number of months due to people confronting him about the allegations in the notice.

[116] Ahmed and his family emigrated to Canada in 1997. He bought a dollar store in 1998 at which the whole family worked to pay for family expenses. The family similarly played roles at the laundromat. The family relocated to an apartment in Etobicoke, in the same plaza as the laundromat in 2003, and were living in a house nearby in 2011.

[117] Given Ahmed’s close association with many in the community, the effect of the distraint and the reference to fraud and embezzlement in relation to Ahmed was particularly severe. Ahmed testified that he was deeply embarrassed about the allegations in the notice. Asad testified that Ahmed became withdrawn, and avoided going out as much as possible.

[118] In his evidence, Claudio acknowledged that the notice was not accurate in some respects. For example, he testified that he invented the corporate entity, “Albina Property Asset Corporation,” and the legislation, the “Ontario Commercial Property Laws Act” so as to make the notice appear more “official” after some discussions with a friend who was a bailiff.

[119] With respect to the description of Ahmed, however, Claudio testified that the content of the notice was essentially correct.

[120] According to Claudio, Ahmed and Washmax “defrauded” his parents by not informing them of the sale of the laundromat as required under the lease, and therefore the alleged arrears were “embezzled” by Washmax and Ahmed.

[121] This characterization must be rejected. Whether or not Ahmed and Washmax were in breach of a term of their leases, Claudio referred to no evidence of actions or conduct by Ahmed that could be construed as fraud, much less embezzlement. Consequently, I find these references by Claudio to serious offences by Ahmed to be completely unjustified and false.

[122] I find the plaintiffs have established that: (1) the notice contained statements which would tend to lower the reputation of Ahmed in the eyes of a reasonable member of the community; (2) the statement referred specifically to Ahmed; and (3) the statement was published for customers of the laundromat and the broader community to see by affixing it to the window of the laundromat for an extended period.

[123] I reject the defence to defamation advanced by Claudio, which is that the notice accurately “defined the legal reality.” The notice may have defined Claudio’s belief, but this belief is not supported by any evidence.

[124] Therefore, I find Claudio is liable to Ahmed for damages arising from defamation.

Damages from defamation

[125] The standard factors to consider in determining damages for defamation are summarized by the SCC in Hill v. Church of Scientology 1995 CanLII 59 (SCC), [1995] 2 S.C.R. 1130 They include:

1. the plaintiff s position and standing;

2. the nature and seriousness of the defamatory statements;

3. the mode and extent of publication;

4. the absence or refusal of any retraction or apology;

5. the whole conduct and motive of the defendant from publication through judgment; and

6. any evidence of aggravating or mitigating circumstances.

[126] With respect to the notice, Claudio conceded in his testimony that he had keys to access the premises and did so for purposes of the distraint, including posting the notices on the windows of the laundromat.

[127] In Hill, the SCC acknowledged that an award of general damages should allow for the fact that no apology, retraction or withdrawal can ever be guaranteed to completely undo the harm that a defamatory statement has done or the hurt it has caused.

[128] The SCC, in Hill, confirmed that the assessment of damages in a libel case flows from a particular confluence of the following elements: the nature and circumstances of the publication of the libel, the nature and position of the victim of the libel, the possible effects of the libel statement upon the life of the plaintiff, and the actions and motivations of the defendants.

[129] The Supreme Court, in Saadati v. Moorhead, 2017 SCC 28 at para. 38-40, confirmed that expert evidence is not necessary on the issue of emotional or psychological harm. A court can be satisfied on the basis of the evidence of the plaintiff if that evidence is persuasive.

[130] An application of the factors from Hill leads to the conclusion that this case warrants an award of damages on a higher-scale.

[131] In respect of the first Hill factor, Ahmed was a well-known, reputable businessman in the local community, where Ahmed and his family also lived.

[132] I find that the business reputation of Ahmed and his family and their entire livelihood was impacted by the statements included in the notice.

[133] With respect to the second factor, the false implication of Ahmed in crimes such as embezzlement and fraud is a serious accusation; Clark v. East Sooke Rural Association, 2004 BCSC 1120. These allegations were harmful to the character and reputation of Ahmed and his family.

[134] With respect to the third factor, the notices were placed on the plaintiffs' place of business, and were posted for all customers, tenants, and individuals across the community to observe. There was no restriction on who could see the notices. I find that the notices were published to the local community at large.

[135] With respect to the fourth factor, the landlords failed to make a retraction or apology for the defamatory statements, and maintained these allegations in their pleadings and through trial.

[136] With respect to the fifth factor, it is clear that the landlords' motive for publishing the notice was to diminish Ahmed’s standing in the community, and to lend credibility to the distraint.

[137] With respect to the sixth factor, it is clear that Claudio’s conduct throughout the distraint, including the fact that the notices were left up at the premises for a substantial period of time, the personal belongings of Ahmed and his family were discarded, all reflect an intentionality and callousness that is an aggravating factor.

[138] While Claudio acknowledged in his testimony that the notice contained factual errors with respect to the company listed and the legislation, he did not accept that the characterization of Ahmed was unfair or inaccurate. At no point has Claudio apologized for his conduct, the notice or its content.

[139] I find Claudio was not under an honest but mistaken belief with respect to Ahmed’s activities, but rather sought to malign his reputation with customers of the laundromat and the broader community through the notices posted at the laundromat.

[140] Given the above factors, the plaintiffs argue that there is clear justification to warrant general damages for defamation at the higher end of the scale, and seek $50,000.

[141] I agree. I find that damages for defamation are justified in the amount of $50,000.

Punitive, aggravated and exemplary damages

[142] The plaintiffs claim $75,000.00 in punitive, aggravated and exemplary damages.

[143] In Senator Enverga v. Balita, et. al., 2016 ONSC 4512, the Court provided a summary of the principles behind general, aggravated and punitive damages for defamatory cases, as follows (at paras. 39-42):

Schedule "C" — assessment of defamation damages.

Factors in considering aggravated damages include whether the defendants' motives and conduct aggravate the injury done to the plaintiff and whether there is malice or spite. Further, pleading the defence of justification without clear and sufficient evidence of the truth of the imputation has consequences when assessing damages. An unsuccessful plea of justification may be taken into account in aggravating the plaintiff’s damages: This is particularly true where there is no expectation that the plea can be supported by proof and no evidence is offered at all: Brown on Defamation, supra, at 10.10.

[144] The Court in McNairn v. Murphy 2017 ONSC 1678 (“McNairn”), at para. 43, confirmed that aggravated damages may be awarded in defamation cases in circumstances where the defendant's conduct has been particularly high-handed, malicious or oppressive, thereby increasing the plaintiff's humiliation and anxiety arising from the defamatory comments.

[145] The Court in McNairn stated the following factors were relevant to assessing aggravated damages (at para. 44-5):

a) whether the defendant retracted the defamatory statement or tendered apology;

b) whether there was a repetition of the defamatory statement;

c) whether the defendant's conduct was calculated to deter the plaintiff from proceeding with the defamation action;

d) whether the defendant conducted a prolonged or hostile cross-examination or pleaded a justification which the defendant knew was bound to fail;

e) the general manner in which the defendant presented his case; and the conduct of the defendant at the time of the publication of the defamatory statement.

[146] In McNairn, the Court further found that the failure to retract the defamatory statement, or failing to acknowledge it was false, and the continued and repeated allegations in the statement of defence warranted aggravated damages to be awarded

[147] The Court in Bains v. 1420546 Ontario Inc. 2011 ONSC 3686, stated that based on the significant impact of the defamatory remarks, which were made within a tight-knit ethnic community, it warranted awarding aggravated damages, in the amount of $25,000.

[148] In addition to aggravated damages, in Whiten v. Pilot Insurance Co. 2002 SCC 18, the SCC summarized the purpose of punitive damages (at para. 36):

Punitive damages are awarded against a defendant in exceptional cases for "malicious, oppressive and high-handed" misconduct that "offends the court's sense of decency": Hill v. Church of Scientology of Toronto, 1995 CanLII 59 (SCC), [1995] 2 S.C.R. 1130, at para. 196. The test thus limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour. Because their objective is to punish the defendant rather than compensate a plaintiff (whose just compensation will already have been assessed), punitive damages straddle the frontier between civil law (compensation) and criminal law (punishment).

[149] The Court in Sigrist et al v. Keri McLean et al, awarded punitive and exemplary damages as the landlord's conduct in its exercise of the distress was oppressive and therefore was an aggravating circumstance. In that case, the Court awarded aggravated and punitive damages of $50,000, based on the fact the landlord used it as an intimidation tactic, illegally locked the tenant out and distrained the tenant's personal property and business records without any accounting regarding alleged arrears of rent. (at paras. 122-3)

[150] Similar to the case above, the landlords in this case acted in an oppressive manner in executing the distraint of the premises. Claudio used the power imbalance between landlord and tenant to appropriate the laundromat. He further attempted to intimidate the plaintiffs by stating that a new lease of $500,000/month “and a smoothie” would be required to regain access to the premises.

[151] The fact that Claudio appeared on the street where Ahmed and his family lived on several occasions after the distraint caused them further distress. While Claudio offered an explanation that he was visiting (unnamed) friends on the street, and happened to run into members of Ahmed’s family, I find his conduct exacerbated the anxiety experienced by Ahmed and his family.

[152] In the circumstances, an award of $25,000.00 for aggravated damages, and a further $25,000.00 for exemplary and punitive damages is warranted, for a total of $50,000.00.

The defendants’ counterclaim

[153] The defendants counterclaim for general and special damages of $150,000.00 and damages for breach of contract for $150,000.00.

[154] Specifically, the defendants allege that the plaintiffs breached the lease by not paying outstanding rental payments, common expenses, insurance premiums and realty taxes, which were approximately $107,000.00.

[155] However, as noted above, the defendants have not provided documentation of these alleged arrears. There is no evidence that the plaintiffs failed to pay base rent or additional expenses, as required under the sub-lease.

[156] Ahmed testified that rent was paid every month (which was $2,700/month at the time of the distraint). Additionally, Ahmed gave evidence that $250/month was paid to cover any and all additional expenses.

[157] The plaintiffs also argue that the defendants’ counterclaim is statute-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B. Section 4 of this Act states that a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim is discovered.

[158] The Court of Appeal has emphasized that a plaintiff is expected to act diligently and not to "sleep on their rights". In addition, once a limitations defence is raised, the onus is on the plaintiff to show that its claim falls within the applicable limitation period; Joseph v. Paramount Canada's Wonderland, 2008 ONCA 469, at paras. 8-9,13, and 29.

[159] Claudio's testimony was that his parents were aware of alleged arrears since the first year of the lease, and knew about the alleged deficiencies in payment each year by no later than January of the following year.

[160] I am satisfied that the counterclaim for any arrears for the period prior to December 28, 2009 (i.e. two years prior to their counterclaim) are statute-barred. While arrears after December 28, 2009 could be subject to the counterclaim, no evidence of such arrears was adduced by Claudio beyond his own testimony to that fact.

[161] Claudio’s testimony, moreover, is contradicted by the cheque stubs produced by the plaintiffs as evidence of their payment of the rent to the landlords.

[162] In light of the evidence, I find that no arrears were owing by the plaintiffs and that the counterclaim must therefore be dismissed.

Claims involving Washmax

[163] The plaintiffs claim against Washmax damages arising out of a breach of the sub-lease. Given the findings above, however, and the absence of evidence of any steps Washmax took to breach the sub-lease, this claim is dismissed.

[164] The defendants also cross-claim against Washmax.

[165] The defendants do not seek indemnity for any liability which may be found against them, but rather claim damages from Washmax in the amount of $150,000 for misrepresentation, fraud and breach of contract as well as $150,000 for aggravated, exemplary and punitive damages.

[166] Finally, the defendants also seek arrears from Washmax for unpaid rent in the amount of $142,000.

[167] The defendants have not produced evidence of wrongdoing by Washmax beyond the issue of entering into the sub-lease and sale of the laundromat business without complying with the notice provisions in the head lease.

[168] The defendants have produced no evidence to establish misrepresentation or fraud and no evidence of damages of any kind with respect to arrears or other losses. There is additionally no basis for aggravated, exemplary or punitive damages.

[169] Claudio testified that Churchill intentionally deceived his parents, the landlords, by not disclosing the sub-lease between Washmax and the plaintiffs. Additionally, he gave evidence that this conduct led to anxiety and stress for Walter De Paulis which was a contributing factor in his illness and death in 2008.

[170] This bald allegation, not supported by any documentary, medical or expert evidence, cannot support a finding of liability on the part of Washmax.

[171] The defendants’ cross-claim against Washmax therefore must be dismissed.

[172] Washmax, in its pleadings, also counterclaims against the defendants for damages for potential double-payments of rent to the landlords (i.e. by Washmax and the plaintiffs) and $100,000 in damages for defamation.

[173] As Washmax has not participated in discoveries or the trial, there is no evidence on which to find Washmax entitled to damages.

[174] Therefore, the counterclaim by Washmax is dismissed.

CONCLUSION

[175] For the reasons set out above, I find that the defendants are liable to the plaintiffs for damages for the unlawful termination of the lease, wrongful distraint and conversion, in the amount of $262,675.00.

[176] The defendants are also liable to Ahmed for defamation damages in the amount of $50,000.00.

[177] The plaintiffs, finally, are awarded $50,000.00 in aggravated, exemplary and punitive damages.

[178] Therefore, the total quantum of damages which the defendants must pay the plaintiffs is $362,675.00, together with accrued pre-judgment interest from September 28, 2011, the date of the distraint and the notice, at the rate set out in the Courts of Justice Act.

[179] The defendants’ counterclaim is dismissed.

[180] The claims, counterclaims and cross-claims involving Washmax are dismissed.

[181] In light of the findings above, the plaintiffs are entitled to costs. The plaintiffs shall provide costs submissions of no more than three pages, together with a bill of costs, by April 30, 2020.

[182] While I have received submissions from Claudio relating to costs along with his closing arguments, he may wish to respond to the plaintiffs’ submissions, and so will have an additional period to do so. Further submissions from Claudio in response to the plaintiffs, if any, are to be limited to three pages and may be received by May 14, 2020.

Sossin J.

Released: April 2, 2020