



COURT OF APPEAL FOR ONTARIO

CITATION:

Hav-A-Kar Leasing
    Ltd. v. Vekselshtein, 2012 ONCA 826

DATE: 20121128

DOCKET: C54392

Cronk, Epstein and Pepall JJ.A.

BETWEEN

Hav-A-Kar Leasing Ltd.

Plaintiff (Respondent)

and

Zinovi Vekselshtein also known as Zorik Vekselshtein

Defendant (Appellant)

and

Prestige Toys Ltd. and Ghasem Gil

Third Parties

W.A. Kelly, Q.C., for the appellant

M.S. Martin, for the respondent

J.W. Chidley-Hill, for the third parties

Heard: September 4, 2012

On appeal from the judgment of Justice Sidney N. Lederman
    of the Superior Court of Justice, dated February 8, 2011.

Cronk J.A.:

[1]

This appeal concerns the enforcement of the terms of an automobile lease
    agreement entered into by the appellant, Zinovi Vekselshtein, also known as
    Zorik Vekselshtein (ZV), with the respondent, Hav-A-Kar Leasing Ltd. (HAK),
    for the lease of a used BMW vehicle.  At issue is the trial judges ruling that
    ZV is liable to HAK for accelerated rent under the lease and for damages on
    account of HAKs loss on the sale of the BMW, as well as for various costs and expenses
    incurred by HAK in connection with its recovery and disposition of the car.

I.        Facts

(1)

The Lease
[1]

[2]

In the spring of 2008, ZV negotiated an agreement for the lease of a BMW
    automobile with Ghasem Gil (Gil), a manager and salesperson with Prestige
    Toys Ltd. (Prestige), a vendor of luxury used cars.  As Prestige was not in
    the vehicle-leasing business, it was arranged that HAK, a lease financing
    company, would purchase the BMW from Prestige for the sum of $73,000 in order
    to lease the vehicle to ZV.

[3]

On March 15, 2008, ZV entered into an automobile lease agreement with
    HAK for the rental of the BMW (the Lease).  ZV is described in the Lease as
    the lessee and HAK is described as the lessor.  Prestige and Gil are not
    parties to the Lease.

[4]

Under the Lease, ZV agreed to pay HAK a total monthly rental payment of
    $1,263.34 for the BMW during the four-year term of the Lease (clause 2).  He
    also agreed to insure the BMW (clause 6).

[5]

In the event of the lessees breach of the Lease, clause 16 provided that
    the lessor was entitled: (1) to the return or the re-taking of the BMW, (2) to
    re-lease or sell the vehicle at private or public sale, and (3) to payment of
    liquidated damages by the lessee.  Clause 16 stated, in part:

After deducting Lessors expenses incurred in connection with
    such sales or leasing, the total proceeds of (i) such sale or sales, less the
    value of the Vehicle at the end of the term provided for herein, as determined
    by an independent appraiser selected by the Lessor, and (ii) such leasing with
    respect only to the balance of the term provided for herein, shall be
    subtracted from the total rentals provided for herein then remaining unpaid.  The
    remainder shall be liquidated damages for the breach hereof by Lessee and shall
    be payable by Lessee to Lessor upon demand.

[6]

Clause 16 further stipulated:

The retaking by Lessor of the Vehicle and the sale or leasing
    of the Vehicle shall not affect the right of the Lessor to recover from Lessee
    any and all damages which Lessor may have sustained by reason of the breach by
    Lessee of any of the terms or provisions of this Lease.  In the event of any
    default, Lessee will pay to Lessor any solicitors reasonable fees incurred in
    enforcing or attempting to enforce its rights under this Lease and any other
    costs and expenses incurred by Lessor in connection therewith.

[7]

Clause 12 of the Lease provided that all right, title and ownership of the
    BMW would remain vested in the lessor for the duration of the Lease.  Under
    this provision, ZV agreed not to do or perform any act prejudicial thereto,
    and ... not to do any act to encumber, convert, pledge, sell, assign, rehire,
    underlet or lease, lend, conceal or abandon, give up possession of or destroy
    the Vehicle.

[8]

The delivery and return of the BMW to HAK was addressed in clause 14 of
    the Lease.  Under this provision, ZV agreed to forthwith redeliver the BMW to
    HAK upon the cancellation or the expiration of the Lease, or upon the
    cancellation of the insurance coverage for the BMW by the insurer.  He also agreed
    that upon redelivery:

[t]he Vehicle ... shall, except for normal and reasonable wear
    and tear, be in the same order and condition as it was when it was originally
    delivered to the Lessee.  The Lessee shall pay to the Lessor as additional rent
    the Lessors cost of repairing any damage or replacing any parts to the Vehicle
    not required only by reason of normal wear and tear.

[9]

Clause 9 of the Lease concerned risk and indemnity.  It read:

The Lessee further covenants and agrees to indemnify the Lessor
    for, and hold the Lessor free and harmless from any and all claims,
    liabilities, costs, expenses and damages, including legal expenses on a
    solicitor and client basis arising out of or connected with the ownership, possession,
    use, rental, leasing or operation of the Vehicle which may be made against or
    incurred by the Lessor, on [
sic
] which the Lessor may be obligated to
    pay or suffer.

[10]

The
    Lease made no provision for the substitution of the BMW, by the lessee, for
    another vehicle during the term of the Lease.

(2)

Guaranteed Residual Contract

[11]

Also
    on March 15, 2008, ZV and HAK executed a document entitled Guaranteed Residual
    Contract No. 9137 and Guaranteed Residual Value Letter, under which ZV guaranteed,
    in favour of HAK, the residual value of the BMW upon expiration of the Lease,
    in the sum of $39,500, plus certain costs and applicable taxes.  As with the
    Lease, Prestige and Gil are not signatories to this document.

(3)

Return of the BMW to Prestige

[12]

Within
    about one month of executing the Lease, ZV contacted Gil, indicating that he
    wished to exchange the BMW for another car.  Gil testified at trial that he
    told ZV that he had just leased the car and could not return it, and that HAK
    would not permit ZV to switch his vehicle.

[13]

Several
    months later, in September 2008, in the course of other vehicle-related
    dealings with Gil, ZV learned of a 2007 Mercedes automobile that was available
    for purchase from Prestige.  On September 25, 2008, without any prior notice to
    or communication with HAK, ZV returned the BMW to Prestige and purchased the
    Mercedes for the sum of $79,900.

[14]

ZV
    made all monthly lease payments due on the BMW to HAK until September 2008.  Upon
    ZVs purchase of the Mercedes, Prestige provided ZV with cheques for the BMW
    lease payments for the next three months.  The lease payments were remitted to
    HAK up to and including the month of December, 2008.

(4)

HAKs Recovery Attempts

[15]

In
    October 2008, HAK learned from the insurer of the BMW that the insurance
    coverage on the car that ZV was required by the terms of the Lease to maintain,
    had been cancelled effective October 31, 2008.  Terry Green, the principal of
    HAK, testified at trial.  The trial judge accepted his evidence that, on
    learning of this development, Green promptly called ZV and spoke to his wife. 
    During their discussion, ZVs wife confirmed that ZV had purchased a new car
    from Prestige and had left the BMW with Prestige, which would look after it. 
    Green told ZVs wife that HAK owned the BMW, asked why the car had been
    returned to Prestige, and warned that ZV was responsible for insuring the BMW. 
    This was the first notice to HAK that the BMW was no longer in ZVs possession.

[16]

Green
    then called Gil at Prestige.  Gil acknowledged that ZV had delivered the BMW to
    Prestige and had purchased a new car from it.  He also informed Green that
    Prestige intended to find a new lessee to assume the Lease.  Green told Gil
    that Prestige had no right to take possession of the BMW and demanded the
    immediate return of the car to HAK.

[17]

The
    BMW remained in Prestiges possession for several months.  During this period, Gil
    proposed the names of several prospective new lessees to HAK.  However, these
    candidates were unacceptable to HAK as successor lessees because they had poor
    credit ratings.

[18]

In
    March 2009, Green again demanded the return of the BMW to HAK.  Gil took the
    position that if HAK wanted possession of the car, it was required to pay
    storage fees for six and one-half months.  The following month, HAK retained a bailiff
    to recover the BMW.  However, Prestige refused to return it.

[19]

On
    April 1, 2009, HAK sued ZV for damages and the return of the BMW.  ZV defended
    the action on the sole ground that the Lease was subject to an alleged
    collateral agreement with HAK, whereby the parties agreed that if ZV entered
    into the Lease, he would be entitled to return the BMW if he were dissatisfied
    with it and, in that event, he would have no further obligations under the
    Lease (the Oral Agreement).

[20]

In
    May 2009, HAK applied to the Superior Court for an order compelling the return of
    the BMW.  No relief was specifically sought on the application as against ZV
    and he took no position on the application.

[21]

HAK
    and Prestige resolved their dispute.  HAK paid Prestige $2,205 for storage fees
    in exchange for the return of the BMW.  HAK maintained that, on its return, the
    BMW was in poor condition, with serious electronic problems.  It repaired the
    vehicle, at a cost of approximately $5,000, and eventually sold the car at
    public auction for $32,000.

II.       The Trial

[22]

HAKs
    action against ZV proceeded to trial in January 2011.  HAK maintained that ZV
    had breached the Lease by failing to make the post-December 2008 monthly rental
    payments for the BMW, by defaulting on his obligation to insure the BMW, and by
    delivering possession of the car to Prestige without HAKs consent.  HAK claimed
    accelerated rental payments and damages for the costs and expenses incurred by
    it in recovering and disposing of the BMW, as well as for its loss on the sale
    of the vehicle.

[23]

As
    I have said, ZV defended the action and denied any liability to HAK based on
    the alleged Oral Agreement.  He also commenced third party proceedings against
    Prestige and Gil, claiming contribution and indemnity from them for any damages
    found owing by him to HAK.

[24]

Although
    not pleaded in his statement of defence, ZV also challenged, on several
    grounds, HAKs entitlement to and the quantum of the damages claimed.  Among
    other matters, he argued that: (1) the accelerated rent provision of the Lease
    (clause 16, quoted above) constituted a penalty clause rather than an agreement
    on liquidated damages and, hence, that it was unenforceable; (2) HAK had failed
    to mitigate its damages; and (3) he had no responsibility for various costs and
    expenses incurred by HAK to recover the BMW, or for HAKs loss on the sale of
    the BMW.

[25]

The
    trial judge rejected ZVs assertion that there was an Oral Agreement between ZV,
    HAK and Prestige.  He held that there was no evidence of such an agreement
    between HAK and ZV directly.  Moreover, there was no evidence of an agency or
    any actual authority given by HAK to Prestige to enter into a collateral agreement
    of the type asserted by ZV on HAKs behalf.  Further, there was no evidentiary
    basis for any claim that HAK held out or represented an agency relationship
    between HAK and Prestige to ZV.  Consequently, the trial judge held that HAK
    was not bound by any representations made to ZV by Gil or Prestige.

[26]

The
    trial judge also rejected ZVs challenges to HAKs damages claims, including his
    assertion that HAK failed to mitigate its damages and incurred recovery costs
    or expenses for which ZV was not responsible.

[27]

However,
    the trial judge accepted ZVs claim that he had concluded an arrangement with Prestige
    whereby Prestige assumed responsibility under the Lease for the BMW in
    consideration for ZVs purchase of the Mercedes.

[28]

Accordingly,
    by judgment dated February 8, 2011, the trial judge held that ZV was liable to
    pay HAK the amount of $72,358.80 on account of the accelerated rental payments
    due under the Lease and damages for the difference between the agreed
    guaranteed residual value of the BMW and the sale proceeds realized by HAK on
    its disposition, plus damages for various costs and expenses incurred by HAK in
    recovering and disposing of the BMW.  The trial judge also granted ZVs third
    party claim as against Prestige, but not as against Gill, for the full amount
    of ZVs liability to HAK.

III.      Discussion

[29]

Before
    this court, ZV challenges the trial judgment in two respects.  First, he attacks
    the trial judges liability finding, arguing that the trial judge erred by
    concluding that Gil or Prestige had no authority from HAK to negotiate the Oral
    Agreement with ZV, in addition to the Lease.

[30]

Next,
    ZV renews his attack on the trial judges holding that he is liable to HAK for
    certain of the damages claimed, namely, the damages associated with HAKs loss
    on the sale of the BMW and those damages related to the storage fees, repair
    costs and legal fees incurred by HAK in recovering and disposing of the BMW.

[31]

In
    my view, absent the alleged agency relationship between HAK and Prestige and/or
    Gil, the trial judges liability finding against ZV is unassailable.  In other
    words, if, as the trial judge found, the claim that Gill and/or Prestige had
    HAKs authority to negotiate the terms of the Oral Agreement is unsustainable,
    it follows that ZV is bound by the terms of the Lease.  Accordingly, I turn
    first to ZVs assertion that the Oral Agreement was entered into by ZV with Gil
    and/or Prestige, with HAKs authority.

(1)

Liability: Alleged Agency Relationship

[32]

ZVs
    argument on appeal concerning the Oral Agreement proceeds as follows.  First, he
    contends that the trial judge did not reject the existence of the Oral
    Agreement.  Rather, in effect, the trial judge erred by misapprehending or
    ignoring the evidence of Gils and/or Prestiges authority from HAK to enter
    into the Oral Agreement.  ZV argues that as Gil and/or Prestige had HAKs
    authority to negotiate the Oral Agreement, HAK is bound by that contract.  As
    the Oral Agreement was performed  ZV returned the BMW to Prestige  HAK has no
    claim against ZV for any payment or damages under the Lease.

[33]

I
    would reject this argument.

[34]

I
    note, first, that ZV continued to pay monthly rental payments on the BMW for at
    least three months after he returned the car to Prestige in September 2008. 
    The fact that Prestige provided ZV with the funds necessary to make these
    payments does not alter the fact that they were made by and to the credit of
    ZV.  These payments are inconsistent with ZVs claim that his obligations under
    the Lease came to an end once he returned the BMW to Prestige and purchased the
    Mercedes as a substitute.  The trial judge does not comment on this
    inconsistency in his reasons.

[35]

That
    said, it is true that the trial judge did not reject the existence of the Oral
    Agreement, as between ZV and Gil and/or Prestige.  He held that there was no
    evidence of the existence of any collateral agreement entered into between [ZV]
    and [HAK]
directly
 (emphasis added).  Later in his reasons, when
    addressing ZVs third party claim against Gil and Prestige, the trial judge
    also held:

[52]    It is more likely than not that an arrangement was made
    directly between Prestige and [ZV] that if [ZV] was unhappy with the BMW it
    could be exchanged for another vehicle and that [ZVs] obligations under the
    Lease would be taken over initially by Prestige and then passed over to one of
    its customers.

...

[54]    Even with some minor inconsistencies in [ZVs]
    testimony, I accept [ZVs] evidence over Gils that an arrangement was entered
    into between him and Prestige whereby Prestige would take responsibility for
    the BMW under the Lease in return for his purchasing a newer Mercedes.  It does
    not make sense that [ZV] would continue with his obligations under the BMW
    Lease and at the same time purchase a newer Mercedes, both vehicles for his own
    personal use, unless Gil, in fact, made the representations in question and
    [ZV] relied upon them.

[36]

Thus,
    on my reading of his reasons, the trial judge found that while Prestige (acting
    through Gil) agreed, in its own interests, to step into ZVs shoes under the
    Lease, HAK was not a party to that agreement or arrangement.  I did not
    understand ZV to attack this finding on appeal.  Indeed, ZV acknowledged in his
    trial testimony that he never discussed the Oral Agreement with HAK and that
    Green, on HAKs behalf, never said anything to him similar to what ZV alleged
    Prestige had committed to under the Oral Agreement.

[37]

That,
    however, does not end the matter.  In his statement of defence, ZV alleged that
    HAK entered into the Oral Agreement with him.  He did not allege that an agent
    of HAK concluded, and thereby bound HAK to, the Oral Agreement.  Nonetheless,
    the trial judge expressly considered ZVs assertion that Prestige and/or Gil
    entered into the Oral Agreement with the authority of HAK.  This constituted a
    claim of agency between Prestige and/or Gil and HAK.

[38]

The
    trial judge noted, correctly, that the burden of proof to establish agency
    rests with the party who asserts its existence.  He then made the following
    factual findings:

[41]    There is no evidence of an agency or that any actual
    authority was given to Prestige by [HAK].  Moreover, there is no evidence that
    [HAK] ever held out to [ZV] that there was an agency relationship.  In the
    circumstances of this case, there was no conduct or statements of [HAK], the
    alleged principal, that clearly and unequivocally establish that the alleged
    agent, Prestige, was represented to [ZV] as possessing [HAKs] authority in respect
    of the lease transaction in issue.

[39]

There
    is nothing in the record before us, and ZV was unable to point to any evidence,
    establishing that these findings are tainted by palpable and overriding error
    or that the trial judges appreciation of the evidence was flawed.

[40]

On
    the contrary, the trial judges rejection of the alleged agency relationship
    between HAK and Prestige and/or Gil is supported by the following:

(1)

HAK and ZV were the only parties to the Lease and the Guaranteed
    Residual Contract. Neither Prestige nor Gill is mentioned in either document;

(2)

clause 12 of the Lease stated, in unambiguous and clear language, that
    HAK was the owner of the BMW.  Under the same provision, ZV expressly
    covenanted and agreed not to give up possession of or abandon the BMW;

(3)

on the trial judges uncontested findings, ZV knew that Green was the
    President of HAK, that HAK and Prestige were separate entities, and that HAK,
    rather than Prestige, owned the BMW and leased it to ZV;

(4)

according to Green, ZV never suggested to him that the BMW could be
    returned if ZV was unhappy with the car, or that ZV could be released from his
    obligations under the Lease; and

(5)

ZV did not plead any agency relationship between HAK and Prestige and/or
    Gil, or any representations by any party indicating that ZV was entitled, in
    effect, to unilaterally cancel the Lease and exchange the BMW for another
    vehicle if he were dissatisfied with it. These allegations appear to have first
    been raised at the close of trial, after HAK had presented its case and all
    evidence had been tendered.  At no time did ZV seek to amend his statement of
    defence to advance an agency or misrepresentation defence to HAKs claims.

[41]

ZV
    argues that Prestige and Gil, with HAKs knowledge and authority, negotiated
    the purchase price for the BMW, the monthly rental payments and the guaranteed
    residual value of the BMW with ZV.  ZV also emphasizes that he had no contact
    with HAK until the day the Lease was signed.  In these circumstances, he submits,
    Prestige and/or Gil had the authority to negotiate the Lease and the Oral
    Agreement on behalf of HAK.

[42]

I
    disagree.  It is well-established that the actual authority of an agent requires
    a manifestation of consent by the principal to the agent that the agent
    should act for or represent the principal:
Monachino v. Liberty Mutual Fire
    Insurance Co.
(2000), 47 O.R. (3d) 481 (C.A.), at para. 33.  Further,
    apparent or ostensible authority in favour of an agent only arises where the
    alleged principal has impliedly represented that another person has the
    authority to act on the principals behalf.  The implied representation must be
    that of the principal, not that of the agent.  See
Monachino
, at
    paras. 35-36;
Hunters Square Developments Inc. v. 351658 Ontario Ltd.
(2002), 60 O.R. (3d) 264 (S.C.), at para. 23, affd (2002), 62 O.R. (3d) 302
    (C.A.), at para. 9.

[43]

There
    is no evidence in this case that HAK authorized Prestige  impliedly or
    otherwise  to act on its behalf in respect of any collateral agreement with ZV
    concerning the Lease, or the rental of the BMW.  The absence of such evidence
    is fatal to ZVs agency claim.  ZV failed to establish at trial the legal
    requirements for a finding of agency, on any basis, between HAK and Prestige
    and/or Gil with respect to the Oral Agreement.

[44]

I
    therefore see no justification for appellate interference with the trial
    judges holding that HAK is not bound by any representations made to ZV by Gil and/or
    Prestige.  In my view, the appellants arguments to the contrary are designed
    to displace the trial judges factual findings on appeal.  As I have already
    said, the challenged findings are firmly anchored in the evidentiary record.

[45]

I
    would dismiss ZVs appeal from the trial judges liability finding.

(2)

ZVs Attack on the Damages Awards

[46]

In
    the absence of the alleged Oral Agreement binding HAK, it is my view that the
    trial judges damages awards are unassailable.  The provisions of the Lease
    govern the relations between ZV and HAK and ZV is bound by its terms.  I will
    comment briefly on ZVs grounds of appeal from the damages awarded to HAK.

[47]

In
    his factum, ZV renewed his argument, advanced at trial, that the accelerated
    rent provision of the Lease constitutes a penalty clause and, consequently,
    that it is unenforceable as against ZV.  Again, I disagree.

[48]

I
    note that this defence to HAKs claim for accelerated rent was not pleaded by
    ZV.  Nonetheless, as with the other unpleaded defences raised by ZV at trial, the
    trial judge fully considered, and rejected, this argument.  In doing so, the
    trial judge properly identified the controlling legal principles and applied
    them to the terms of the Lease entered into by the parties.  As he observed,
    there is considerable contemporary precedent for the enforcement of contractual
    rent acceleration clauses upon default of automobile leases: see for example,
Keneric
    Tractor Sales Ltd. v. Langille
, [1987] 2 S.C.R. 440;
Peachtree II
    Associates  Dallas LP

v. 857486 Ontario Ltd.
(2005), 76 O.R.
    (3d) 362 (C.A.), leave to appeal to S.C.C. refused, [2005] S.C.A.A. No. 420. 
    This reflects the reluctance of the courts to interfere with freedom of
    contract, including the right of contracting parties to agree on the
    consequences of a contractual breach.

[49]

The
    trial judge concluded in this case that the accelerated amount provided for in
    the challenged provision of the Lease, clause 16, is not excessive or
    unconscionable and that it merely puts [HAK] in the position it would have
    been in if [ZV] had performed his obligations under the contract (at para. 48). 
    These findings accord with the standard measure for compensatory damages in
    contract, under which the plaintiff is entitled to the value of the promised
    performance of the contract.  As held in the seminal case of
Wertheim v.
    Chicoutimi Pulp Co.
, [1911] A.C. 301, at p. 307, the damages awarded to
    the plaintiff for breach of contract should place the plaintiff in the same
    position as if the contract had been performed.

[50]

That
    is what occurred in this case.  The accelerated rent provision in clause 16 of
    the Lease reflects the parties bargain at the time the Lease was entered into regarding
    the reasonably anticipated damages that HAK would probably suffer if ZV were to
    breach the terms of the Lease.  This is consistent with the basic principles
    underlying expectation damages in contract set out in
Hadley v. Baxendale
(1854), 9 Exch. Rep. 341, 156 E.R. 145 (Eng. Ex. Div.), at p. 151.

[51]

I
    note that ZV pointed to no evidence at trial suggesting that the accelerated rent
    provision of the Lease was unfair or unconscionable, or that it did not reflect
    the parties reasonable estimate, at the time the Lease was executed, of the probable
    damages that would arise upon ZVs breach of the Lease.

[52]

I
    therefore agree with the trial judge that the challenged provision is
    enforceable as against ZV.

[53]

ZV
    next contends that the trial judge erred by finding that HAK attempted, acting
    reasonably, to mitigate its damages.  I would not accede to this contention.

[54]

ZV
    complains that HAK sold the BMW at a loss instead of re-leasing the vehicle to
    a prospective lessee identified by Gil or another lessee.  He also complains
    that HAK allowed the BMW to remain in Prestiges possession for many months
    after HAK learned, in October 2008, that ZV had returned the vehicle to
    Prestige in breach of his obligations under the Lease and also defaulted on his
    contractual obligation to maintain insurance on the BMW.  ZV says that in the
    months prior to HAKs recovery of the BMW, the market value of the vehicle
    diminished, a loss that HAK could have avoided if it had recovered the BMW
    earlier and re-leased it.

[55]

There
    are several difficulties with this failure-to-mitigate argument.  First, although
    ZV did not advance these complaints in his statement of defence, the trial
    judge addressed ZVs failure-to-mitigate argument on its merits.  He held, at
    para. 50, that on the evidence HAK took reasonable steps to mitigate its
    damages when it first learned that the BMW was no longer insured by [ZV] and in
    the possession of Prestige.  He found that HAKs mitigation efforts included
    repeated demands for the return of the BMW, investigation of the
    creditworthiness of the prospective successor lessees proposed by Gil, and the
    expenditure of appropriate costs in recovering, repairing and selling the BMW
    at a commercially reasonable price.  The trial judge also found that HAK took
    reasonable steps in disposing of the BMW at public auction, as it was entitled
    to do under clause 16 of the Lease, and that HAK realized the most reasonable
    return on its disposition.  The trial judge put it this way, at para. 49: [HAK]
    took reasonable steps in disposing of the automobile at a reputable auction
    house that exposed the vehicle for sale on the market and achieved the most
    reasonable return on its disposition.

[56]

Second,
    and importantly, as the trial judge noted, there was no evidence at trial that
    re-leasing the BMW would have been more favourable than selling it.

[57]

These
    findings by the trial judge were open to him on the evidence.  They attract
    deference from this court.  In particular, whether HAKs mitigation efforts
    were reasonable in all the circumstances was a question squarely within the
    trial judges adjudicative domain.  Absent palpable and overriding error, there
    is no basis for appellate interference with the trial judges mitigation
    findings.

[58]

Third,
    I emphasize that this is not a case where the respondent was inactive and
    failed to take any reasonable steps to mitigate its losses.  Rather, on the
    trial judges findings, HAK took reasonable, proactive steps to recover the
    BMW, to repair it for resale and to obtain a commercially reasonable sale price
    in the open market, all as permitted by the agreed terms of the Lease.

[59]

As
    the Supreme Court recently confirmed in
Southcott Estates Inc. v. Toronto
    Catholic District School Board
, 2012 SCC 51, at para. 24, where it is
    alleged that a plaintiff failed to mitigate, the defendant bears the burden of
    establishing that the plaintiff failed to make reasonable efforts to mitigate
    and that mitigation was possible.  See also
Red Deer College v. Michaels
,
    [1976] 2 S.C.R. 324, at p. 331;
Asamera Oil Corporation Ltd. v. Sea Oil
    & General Corporation
, [1979] 1 S.C.R. 633, at pp. 647-648
;
and
Evans v. Teamsters Local Union No. 31
, 2008 SCC 20, [2008] 1 S.C.R. 661,
    at para. 30.  ZV failed to discharge his burden under both branches of this
    test.

[60]

Accordingly,
    I would reject ZVs claim that the trial judge erred in his mitigation analysis
    and findings.

[61]

Finally,
    ZV submits that certain of the other losses suffered by HAK, for which it was
    awarded damages at trial, were not caused by ZV.  He points to the $7,500 loss
    sustained by HAK on the sale of the BMW (measured against its residual value as
    agreed by the parties), the legal fees incurred by HAK to recover the vehicle
    ($7,852.31), and the costs incurred by HAK to repair the car before it was sold
    at auction ($4,946.30).  I would reject these submissions.

[62]

As
    I have indicated, it was open to the trial judge to conclude, as he did, that
    HAKs conduct in selling, rather than re-leasing, the BMW was reasonable in the
    circumstances.  Clause 16 of the Lease expressly confirmed HAKs right to re-lease
    or sell the BMW at public sale on its return to HAK, at HAKs option.

[63]

Clause
    16 also provided that ZV would pay HAKs reasonable legal fees incurred in
    enforcing or attempting to enforce its rights under the Lease, as well as any
    other associated costs and expenses incurred by HAK in that regard.  Clause 9
    of the Lease imposed liability on ZV for HAKs legal expenses arising out of or
    connected with the ownership or possession of the BMW.  As I have said, the
    Lease also prohibited ZV from relinquishing possession of or abandoning the BMW
    (clause 12).

[64]

Moreover,
    under clause 14 of the Lease, ZV agreed to return the BMW to HAK in the same
    condition as it was on delivery of the car to him, save for normal wear and
    tear, and to pay HAKs costs of repairing any damage or replacing any parts to
    the BMW not required only by reason of normal wear and tear.

[65]

Thus,
    it was well within the contemplation of the parties at the time of the
    formation of the Lease that, in the event of ZVs default under the Lease, he
    would be responsible for the types of losses that he now disputes.

[66]

Nor,
    in the circumstances, can any complaint regarding the quantum of HAKs
    challenged losses succeed. The trial judge addressed the reasonableness of
    HAKs damages claims for its loss on resale of the BMW, legal fees incurred to
    recover the vehicle, and the costs of repairs to the BMW prior to resale.  He
    held that the losses in question were reasonably sustained and that the terms
    of the Lease permitted HAK to recover those losses from ZV.  I see no basis on
    which to disturb these factual findings.

[67]

In
    all the circumstances, I conclude that ZVs challenges to the trial judges
    damages awards must fail.  It remains open to ZV, in accordance with the trial
    judges ruling in the third party proceeding, to seek full reimbursement from
    Prestige for all damages owed by ZV to HAK.

(3)

The Pleadings Issue

[68]

In
    light of my proposed disposition of this appeal, it is unnecessary to consider
    whether ZV is precluded from relying on defences that he failed to plead. 
    However, as this matter was fully argued, I make the following observations.

[69]

The
    failure to raise substantive responses to a plaintiffs claims until trial or,
    worse, until the close of trial, is contrary to the spirit and requirements of
    the
Rules of Civil Procedure
and the goal of fair contest that
    underlies those Rules.  Such a failure also undermines the important principle
    that the parties to a civil lawsuit are entitled to have their differences
    resolved on the basis of the issues joined in the pleadings.  I endorse in this
    regard, the concerns expressed by MacPherson J.A. of this court in
Strong
    v. M.M.P.
(2000), 50 O.R. (3d) 70 (C.A.), at paras. 33-40.

[70]

Thus,
    in my opinion, where a defence to a civil action is not pleaded and no
    pleadings amendment is obtained, judges should generally resist the inclination
    to allow a defendant to raise and rely on the unpleaded defence if trial
    fairness and the avoidance of prejudice to the plaintiff are to be achieved.

IV.     Disposition

[71]

For
    the reasons given, I would dismiss the appeal.  I would award HAK its costs of
    the appeal, fixed in the amount of $10,000, inclusive of disbursements and all
    applicable taxes.  I would award no costs to the third parties, who took no
    position on this appeal.

Released:

Nov 28 2012                                    E.A.
    Cronk J.A.

EAC                                                I
    agree Gloria Epstein J.A.

I
    agree S. Pepall J.A.





[1]
The materials filed on appeal include several written riders to the Lease.  The
    parties were unable to confirm whether these riders formed part of the Lease,
    they placed no reliance on the riders on appeal, and the trial judges reasons
    contain no mention of the riders.  In these circumstances, my interpretation of
    the Lease does not extend to the riders, the pertinent contents of which
    appear, in any event, to be consistent with the relevant terms of the Lease.


