OCA upholds $25,000 punitive damages award in commercial case

In a judgment that augurs well for the award of punitive damages in commercial cases, the Ontario Court of Appeal has upheld a $25,000 award in a case involving a landlord’s illegal conversion of abandoned chattels subject to the rights of a chattel mortgagee.

“It’s very unusual to see punitives awarded in commercial cases,” says Alf Kwinter, founding partner of Singer Kwinter in Toronto, the only Canadian firm to have obtained four punitive damages awards against insurers.

Particularly telling here is that the OCA upheld the punitive damages although the trial judge had awarded the mortgagee $215,000, the appraised market value of the goods, as compensatory damages for the conversion. The $215,000 was well beyond the amount owing under the chattel mortgage, some $120,000.

In 1027410 Ontario Inc. v. 2384589 Ontario Limited, the Court of Appeal rejected the argument that the award represented a “windfall” for the mortgagee, concluding that it put the mortgagee “in the position it would have been had the conversion not occurred.”

“Pursuant to both the terms of the chattel mortgage and s. 65(2) of the PPSA, the [mortgagee] was entitled to recover and retain the chattels upon the tenant’s default. The tenant abandoned the goods, and no other claims were asserted. A damage award equal to the full market value of the chattels therefore compensates the [mortgagee] for the goods it was entitled to retain.”

The case arose in June 2015 when a tenant abandoned a sports bar and grill it had been operating on leased commercial premises. The chattels in the restaurant were subject to a chattel mortgage held by 1027410 Ontario Inc.

The landlord took possession of the premises and the chattels and terminated the lease for non-payment of rent. 1027410 asserted its rights as chattel mortgagee and made several attempts to recover the chattels, which the landlord had moved to a storage area.

On July 27, 2015, the landlord demanded that the mortgagee remove the chattels within four days. The mortgagee responded that it could not meet the deadline. The parties arranged for the mortgagee to recover the items about a week later, but the landlord declined to release them.

Ultimately, the landlord disposed of some chattels and incorporated others into a restaurant it opened on the same premises.

1027410 sued for conversion. Superior Court Justice Kelly Gorman found in the mortgagee’s favour and awarded the plaintiff $215,000, pre-judgment interest of some $10,000, and $25,000 in punitive damages.

In awarding punitives, Gorman described the landlord’s conduct as “entirely blameworthy.” She found that 1027410 had asserted its rights and promptly provided proof of entitlement to the chattels, and that the landlord persisted in its actions despite being fully aware of their illegality.

Punitive damages, Gorman concluded, were necessary to address the landlord’s “high-handed” conduct, which was “intent on depriving the [mortgagee] of its own property.” She added that punitive damages were also necessary for specific and general deterrence.

The OCA refused to interfere with the punitives award: as there had been “no incorrect application of legal principles or misapprehension of relevant facts,” and the award represented a “rational response to the defendant’s misconduct,” the trial judge’s decision was entitled to deference.

So was the quantum of the punitives award.

“An appellate court will interfere with the quantum of punitive damages if it finds that no reasonable jury, properly instructed, could have concluded that an award in that amount, and not less, was rationally required to punish the defendant,” the court stated. “Appellate intervention is not required here.”

Kwinter welcomes the decision.

“What I’m glad to see is the court’s reasoning that if the trial judge had grounds to award punitives, his decision is not appealable.”

Still, Kwinter believes that predicting when a court might award damages remains a conundrum.

“Punitive damages are, like beauty, in the eyes of the beholder. The landlord’s behaviour may not have offended a different judge, and a different appeal panel might have set aside this award. This having been said, the decision does demonstrate that such awards are more likely to occur and more likely to be upheld on appeal.”

Paul Pape, the founder of litigation boutique Pape Chaudhury LLP in Toronto, who represented the landlord on appeal, declined comment.