





CITATION:
Alfano v. Piersanti, 2012
          ONCA 297





DATE: 20120509



DOCKET: C52738



COURT OF APPEAL FOR
          ONTARIO



OConnor
          A.C.J.O., LaForme J.A. and Cunningham A.C.J. (
ad hoc
)



BETWEEN



Bertina Alfano, Trustee of the Carmen Alfano Family
          Trust, Bertina Alfano, Italo Alfano, Trustee of the Italo Alfano Family
          Trust, Italo Alfano, Ulti Alfano, Trustee of the Ulti Alfano Family Trust,
          and Ulti Alfano



Plaintiffs (Respondents)



and



Christian Piersanti
,
Piersanti and Co.
          Barristers and Solicitors
,
Gold Financial Corp.
, Osler Paving Ltd.,
          758626 Ontario Limited now known as Diligent Financial Corporation,
1281111
          Ontario Limited, 1269906 Ontario Limited
,
1281632 Ontario Limited
,
          1212700 Ontario Limited,
Terry Piersanti also known as Terry Scatcherd
,
1281038 Ontario Limited
, and
3964400 Canada Inc.



Defendants (
Appellants
)

AND BETWEEN

Christian
          Piersanti
, Diligent Financial Corporation, and 1212700 Ontario Limited

Plaintiffs by Counterclaim (
Appellant
)

and

Bertina
          Alfano, Italo Alfano, Ultimino Alfano, Joe Alfano, 815748 Ontario Limited,
          Power Contracting Limited, Puslinch Investments Inc., and 1026864 Ontario
          Limited

Defendants by Counterclaim (Respondents)

AND BETWEEN

Gold Financial
          Corp.

Plaintiff (Appellant)

Puslinch
          Inv. Inc.
,
Invar Building Corporation
,
Invar Aggregates
          Limited, 1212700 Ontario Limited
,
1026864 Ontario Limited
,
Peter
          Lamanna
,
2016411 Ontario Limited
, Steven Bellissimo Barrister and
          Solicitor,
Ontario Power Contracting Limited
,
2012746 Ontario
          Limited
,
2026474 Ontario Limited
,
Bertina Alfano, Trustee of
          the Carmen Alfano Family Trust
,
Bertina Alfano
,
Italo Alfano,
          Trustee of the Italo Alfano Family Trust
,
Italo Alfano
,
Ulti
          Alfano, Trustee of the Ulti Alfano Family Trust
, and
Ulti Alfano

Defendants (Respondents)



V. Ross Morrison and Samantha Chapman, for the appellants



Kevin Sherkin and James F. Diamond, for the respondents



Heard:  November 8 and 9, 2011

On appeal from the judgment of
          Justice Ellen M. Macdonald of the Superior Court of Justice, dated September
          3, 2010, with reasons reported at 2010 ONSC 4853, [2010] O.J. No. 3787.



OConnor A.C.J.O.:

[1]

This is an
    appeal from the judgment of Ellen M. Macdonald J. of the Superior Court of
    Justice dated September 3, 2010.  The trial judge made a declaration that the
    respondents, the Alfano Family Trusts (the Alfano Trusts), owned 87 percent
    of the equity in 758626 Ontario Limited (758), which owned 100 percent of the
    shares in Osler Paving and Construction Limited (Osler).

[2]

The trial
    judge also ordered the appellants, Christian and Terry Piersanti, to pay the respondents
    $20 million in damages for improperly placing Osler in bankruptcy as part of a
    fraudulent scheme to deprive the Alfano Trusts of their interests in Osler.  In
    addition, she ordered Christian Piersanti to pay the respondents $250,000 in
    punitive damages.

[3]

The trial
    judge further ordered the appellant, 1281632 Ontario Limited (128), a
    Piersanti controlled company, to pay $2.5 million into court to the credit of
    the respondents.  Finally, the trial judge made a declaration that the
    respondent, Ulti Alfano, had a one-twelfth interest in the 1995 value of certain
    properties referred to as the MAP properties.

[4]

The
    overarching issue with respect to liability is whether the trial judges
    finding that the Piersantis improperly placed Osler in bankruptcy is supported
    by the evidence.

[5]

The
    appellants raise a number of issues with respect to damages.  The most
    significant issue is whether the trial judge erred in refusing to permit the
    appellants expert to testify on the ground that the expert lacked
    independence.

[6]

I would not
    interfere with the trial judges declarations that the Alfano Trusts indirectly
    owned 87 percent of the equity in Osler, nor with her finding of liability
    against the appellant, Christian Piersanti (Mr. Piersanti).  In my view, the
    trial judges finding of liability against Terry Piersanti (Ms. Piersanti) is
    not supported by the evidence and must be set aside.

[7]

I would not
    interfere with the trial judges decision to exclude the evidence of the
    appellants expert witness.  I would, however, make three adjustments to the
    damages award.  I discuss those below.

FACTS

[8]

I will set
    out a brief overview of the facts.  I will discuss the facts in more detail, as
    required, when I address the various grounds of appeal.

[9]

For years,
    the Alfano family owned and operated Ontario Paving Company Ltd. (Ontario
    Paving), a successful paving business.  Following the economic downturn in the
    early 1990s, Ontario Paving declared bankruptcy.  Between the years 1993 and
    1995, each of the four Alfano brothers involved in the business (Italo, Frank,
    Carmen and Ulti) declared personal bankruptcy.  In time, three of them were
    discharged.  Carmen, who died in 1996, had not been discharged at the time of
    his death.

[10]

In early 1993, the Alfanos, with the assistance of
    their lawyer, Mr. Piersanti, incorporated Osler to continue the paving
    business.  Mr. Piersanti was made president of Osler and was given a 10 percent
    ownership interest.  In 1993, with Mr. Piersantis assistance, the Alfano
    brothers established four family trusts, one for each brothers family.  The
    brothers were trustees and their family members were the beneficiaries of the
    trusts.  Each trust held a 22.5 percent interest in Osler.
[1]

[11]

Prior to his death in 1996, Carmen Alfano was primarily
    responsible for the management of Osler.  After Carmens death, Mr. Piersanti
    took over the management of Oslers financial affairs.  The remaining Alfano
    brothers were responsible for operations.

[12]

In 1997, Frank Alfano wished to withdraw from the
    business.  The trial judge found that his family trust transferred its shares
    of Osler to the others who had interests in Osler.  As a result, the remaining
    three family trusts each held 29 percent of the equity in Osler for a total of
    87 percent.  Mr. Piersanti owned the remaining 13 percent.

[13]

In 2001, the relationship between the Alfano family and
    Mr. Piersanti began to deteriorate.  Mr. Piersanti told Ulti and Italo Alfano that
    Osler was experiencing cash flow difficulties.  The Alfano brothers could not
    understand this given the amount of business that Osler had been generating in
    recent years.

[14]

In the first half of 2002, matters came to a head.  At
    a meeting on June 11, 2002, Mr. Piersanti asserted for the first time that he
    owned all of the businesses in which he was involved with the Alfano family. 
    This included Osler.  He said the Alfanos were just workers.  This came as a
    shock to the Alfanos who believed they owned the majority of the equity in
    Osler.

[15]

Mr. Piersanti then locked the Alfanos out of the
    businesses, including Osler.  He listed Oslers premises at 340 Bowes Road, Concord
    for sale.  Mr. Piersanti removed the hard drives and a computer from the Osler
    business premises.

[16]

On or about June 17, 2002, the respondents commenced
    this action seeking,
inter alia
, declarations that the Alfano Trusts
    owned 87 percent of Osler through their interests in 758.  They also sued Mr.
    and Ms. Piersanti for damages.  On June 17, 2002, Mr. Piersanti assigned Osler
    into bankruptcy without consulting the Alfano family members.

[17]

On June 18, the respondents brought a motion to set
    aside the assignment of Osler into bankruptcy.  The respondents also sought a
    Mareva injunction preventing Mr. and Ms. Piersanti from removing assets from
    Osler and other companies in which the Alfano family claimed an interest.  On
    June 18, Molloy J. granted the Mareva injunction.  The injunction remained in
    force at the time of the trial.  One of the grounds of appeal relates to an
    alleged breach of that injunction.

[18]

In response to the motions brought by the respondents
    on June 18, Mr. Piersanti took the position that he was the sole owner of
    Osler.  He appended to his affidavit a unanimous shareholders agreement (the
    Piersanti USA) dated June 17, 1993 relating to the shares of 758, the company
    that owned Osler.  Pursuant to the Piersanti USA, all of the issued shares of
    Osler were owned by Mr. Piersanti.  The Alfano Trusts were given options to
    purchase 90 percent of the shares at fair market value.  The options were
    exercisable within a period of five years and only upon fulfilling certain
    conditions, including having Mr. Piersanti released from guarantees of the
    debts of Osler and 758.  Mr. Piersanti took the position that because the Alfano
    Trusts had not exercised their options, he was the sole owner of Osler.

[19]

On July 12, 2002, the respondents efforts to have the
    bankruptcy stayed were unsuccessful.  Their action against the Piersantis
    proceeded.

[20]

At the time they commenced the action, the respondents
    did not have a copy of a unanimous shareholders agreement relating to 758 or Osler.
    In the autumn of 2002, the respondents obtained a copy of a different version
    of the unanimous shareholders agreement (the Alfano USA) from the lawyer who
    had acted for Frank Alfano in 1997 when his family trust sold its interest in
    Osler.

[21]

The parties to the Alfano USA were the same as the
    parties to the Piersanti USA.  The agreements were both dated June 17, 1993. 
    The signatures were also the same.  However, the content of the Alfano USA was
    different than the Piersanti USA in several important respects.  While both agreements
    contemplated that all of the issued shares of 758 would initially be held in Mr.
    Piersantis name, the Alfano USA provided the Alfano Trusts with options to
    purchase 90 percent of the shares from Mr. Piersanti at a price of $1 per
    share.  In the Piersanti USA, the option price was fair market value.  In
    addition, unlike the Piersanti USA, the Alfano USA did not contain any preconditions
    to the exercise of the options.  Nor did it set out a time limit within which
    the Alfano Trusts could exercise the options.

[22]

Between 1993 and 2002, Mr. Piersanti acted as legal
    counsel to Osler and to the Alfano family members.  Significantly, he advised
    the Alfano family members in the creation of the Alfano Trusts and in preparing
    a unanimous shareholders agreement with respect to 758 and Osler.

[23]

From 2002 until October 2008, when the trial of this
    matter began, Mr. Piersanti refused to take a position in this litigation as to
    which of the two versions of the USA was valid.  Moreover, he did not provide a
    credible explanation at trial as to why there were two significantly different
    agreements dealing with the shareholdings of 758 and Osler.

[24]

At trial, Mr. Piersanti accepted that the Alfano USA
    was probably the correct version.

[25]

This case has had a tortuous history.  The Piersantis
    brought many motions before the commencement of trial.  The flavour of the
    pre-trial proceedings can be gleaned from an order made by Spence J. on
    September 19, 2006.  He prohibited the Piersantis from bringing any further
    motions without first obtaining leave of the court.  The trial judge commented
    on this history saying in the disposition of these motions [the pre-trial
    motions], the Piersanti defendants were frequently admonished for the use of
    delaying tactics.

[26]

The Piersantis also failed to produce documents in a
    timely manner.  Mr. Piersanti had possession of most of the relevant
    documents.  He managed Oslers financial affairs.  The trial judge found that
    Mr. Piersanti was also Oslers lawyer as well the lawyer for the Alfanos.  He removed
    the hard drive and a computer from Oslers premises in June 2002 when the
    dispute underlying this action erupted.

[27]

In her reasons, the trial judge commented that shortly
    after the opening of the trial, I was advised that Mr. Piersanti had recently
    sworn a supplementary affidavit of documents  [t]here had been ample
    opportunity to deliver these documents prior to the commencement of trial.  Indeed,
    there had been six years.  The newly produced documents comprised approximately
    3,000 pages.  The trial judge observed:

This late delivery of this
    affidavit was one of many episodes throughout the trial wherein there were
    issues about the quality of disclosure from the Defendants.



The duty to make full disclosure
    was largely ignored by the Defendants in this case.  They chose the documents
    that they would disclose.

[28]

The trial lasted nine months with breaks for holidays
    and health issues.  There were 49 witnesses.  Ulti Alfano testified for 14 days
    and Mr. Piersanti for 22 days.  During the trial, there were many motions,
    including a three-day
voir dire
on the admissibility of the evidence of
    the Piersantis expert witness on damages and misappropriation.

[29]

The trial judge reserved judgment for 14 months and then
    released 41-page reasons for judgment.

THE REASONS FOR JUDGMENT

[30]

The trial judge made clear and strong findings of
    credibility adverse to the Piersantis.  She rejected the evidence of both Mr.
    and Ms. Piersanti.  She found that as the trial progressed, the Piersantis were
    on a path to deliberately confuse the court on relevant issues.  She did not
    believe the evidence of either of them.

[31]

The trial judge accepted, by and large, the evidence of
    Ulti and Italo Alfano and their witnesses.  She specifically found that Ulti
    was a credible and reliable witness.

[32]

The appellants do not challenge the trial judges findings
    of credibility.

[33]

The relevant findings of the trial judge with respect
    to liability arising from the bankruptcy of Osler are as follows:


i.

the Alfano Trusts owned 87 percent of 758, which
    owned 100 percent of Osler;


ii.

Mr. Piersanti engaged in a fraudulent scheme to
    deprive the Alfano Trusts of their interests in Osler;


iii.

as part of the fraudulent scheme, Mr. Piersanti concocted
    a unanimous shareholders agreement effectively eliminating the Alfanos
    interest in 758 and Osler;


iv.

also as part of the scheme, Mr. Piersanti improperly
    assigned Osler into bankruptcy;


v.

prior to the bankruptcy, the Piersantis
    misappropriated monies from Osler;


vi.

as a result of the bankruptcy, the respondents suffered
    damages; and


vii.

Mr. and Ms. Piersanti were liable to the respondents
    for damages resulting from the Osler bankruptcy.

[34]

The trial judge fixed damages in the amount of $20
    million.

[35]

The trial judge also ordered Mr. Piersanti to pay
    $250,000 as punitive damages because of his fraud with respect to the unanimous
    shareholders agreement.

[36]

In addition to her findings with respect to the
    bankruptcy of Osler, the trial judge made two additional orders that are challenged
    on appeal:


i.

she ordered 128, a Piersanti controlled company,
    to pay $2.5 million into court to the credit of the respondents; and


ii.

she made a declaration that Ulti Alfano has a
    claim to the 1995 value of a one-twelfth interest in the MAP properties.

ISSUES

[37]

I have organized the appellants arguments into seven
    issues:

1)

Did the trial judge err in finding Mr. Piersanti
    liable for damages resulting from the bankruptcy of Osler?

2)

Did the trial judge err in finding Ms. Piersanti
    liable for damages resulting from the bankruptcy of Osler?

3)

Did the trial judge err in excluding the
    evidence of the appellants expert witness on damages and misappropriation?

4)

Did the trial judge err in awarding $20 million for
    damages to the respondents caused by the Osler bankruptcy?

5)

Did the trial judge err in awarding punitive
    damages against Mr. Piersanti?

6)

Did the trial judge err in ordering 128 to pay
    $2.5 million into court to the credit of the respondents? and

7)

Did the trial judge err in concluding that Ulti
    Alfano had a claim to the 1995 value of a one-twelfth interest in the MAP
    properties?

ANALYSIS

[38]

As indicated above, the trial judge made strong
    findings of credibility adverse to Mr. and Ms. Piersanti.  She also made
    several findings of fact that go to the heart of the issues raised on appeal. 
    Although trite, it is important to observe that this appeal is not a second
    trial and this court will interfere with the trial judges findings of fact
    only if she has made a palpable and overriding error: see
Housen v.
    Nikolaisen
, [2002] 2 S.C.R. 235, at para. 10.

(1)

Osler
    Bankruptcy  Mr. Piersanti

[39]

I will address Mr. Piersantis arguments with respect
    to the trial judges finding of liability against him under four headings.

(a)

Sufficiency
    of evidence

[40]

Mr. Piersanti argues that there was insufficient
    evidence to found liability against him for damages arising from the Osler
    bankruptcy.  I disagree.  In my view, there was a strong case that Mr.
    Piersanti assigned Osler into bankruptcy as part of a fraudulent scheme to
    deprive the Alfano Trusts of their interests in Osler.

[41]

The trial judge made a number of findings that are
    directly relevant to this issue.  First and most critically, she found that the
    Alfano Trusts owned 87 percent of 758 and indirectly of Osler at the time of
    the bankruptcy in 2002.  She made declarations to that effect.

[42]

This finding was supported by the evidence of the two Alfano
    brothers, Ulti and Italo, who testified at trial.  This trial judge accepted
    their evidence.  This finding was also supported by the Alfano USA, which the
    trial judge found to be the true version of the agreement.  While the agreement
    is structured in the form of options to the Alfano Trusts to purchase 90
    percent of the shares of 758, those options are exercisable on the payment of
    $1 per share without conditions.  There is no time limit within which the Alfano
    Trusts were required to exercise the options.  This structure is consistent
    with and supports the evidence of Ulti and Italo Alfano that the intention
    throughout was that the Alfano Trusts were to be the owners of 90 percent of
    758 and Osler (87 percent after Frank Alfanos departure).

[43]

Mr. Piersanti argued that s. 8.05 of the Alfano USA
    contains preconditions to the exercise of the options.  Section 8.05 provides
    that a person acquiring shares in 758 must endeavour to obtain releases from
    all guarantees made by the vendor of the shares.  Mr. Piersanti argues that as
    the Alfano Trusts had not caused the Oslers creditors to release him from loan
    guarantees, their interests in the shares had not been realized.

[44]

I do not accept this argument.  In my view, a better
    interpretation of the Alfano USA is that s. 8.05 does not apply to shares
    acquired by exercising the options.  Even if the obligations contained in s.
    8.05 do apply to those shares, the section is not a precondition to the
    exercise of the options.

[45]

In my view there was ample evidence to support the
    trial judges conclusion that the Alfano Trusts owned 87 percent of 758 and
    therefore Osler in 2002.

[46]

The trial judges finding of liability against Mr.
    Piersanti was founded in an action for fraud.  In para. 2 of her reasons, the
    trial judge framed the claim as follows:

The Alfanos are claiming damages
    in excess of $25 million on the basis that Osler failed due to a series of
    dishonest and deceitful acts by the defendants Christian and Terry Piersanti.

[47]

Throughout her reasons, the trial judge made a number
    of findings that taken together reveal a series of fraudulent acts by Mr.
    Piersanti designed to appropriate for himself the interests of the Alfano Trusts
    in Osler.  These fraudulent acts culminated in Mr. Piersanti voluntarily
    assigning Osler into bankruptcy without authority or even the knowledge of the
    Alfano family members.
[2]


[48]

The most telling of Mr. Piersantis fraudulent acts was
    relying on the Piersanti USA to assert 100 percent ownership of 758 and
    therefore Osler.  In para. 60 of her reasons, the trial judge found that:

Mr. Piersanti created the second
    version of the USA to gain control of the Osler company when he knew that,
    particularly after Carmens death, the remaining brothers, Italo, Ulti and
    Frank had little or no interest in the details of the legal documentations such
    as the USA.

[49]

In relying on the Piersanti USA, Mr. Piersanti took
    advantage of his position as Oslers lawyer and the lawyer for the Alfano
    family.  He abused that position when he asserted that the Alfano Trusts no
    longer had any interest in 758 and Osler.

[50]

The trial judge found that Mr. Piersanti locked the
    Alfanos out of the Osler business premises and listed the Osler building for
    sale without informing the Alfanos.  Moreover, she found that Mr. Piersanti caused
    Osler to make a voluntary assignment into bankruptcy.

[51]

When the Alfanos moved to set aside the assignment into
    bankruptcy, Mr. Piersanti relied upon the Piersanti USA to assert that he was
    the sole owner of 758 and Osler.

[52]

In addition, on June 20, 2002, as part of his
    fraudulent scheme, Mr. Piersanti asked Oslers controller, Chriss Smith, to
    alter Oslers financial records for April 2002 to show a loss rather than a
    profit.  Mr. Smith refused, considering such a change to be unethical. 
    Notably, Mr. Piersanti solicited Mr. Smiths help after the Alfanos had challenged
    Piersantis assignment of Osler into bankruptcy.

[53]

Mr. Piersanti argues that there was no advantage for
    him personally from the Osler bankruptcy.  The difficulty with this argument is
    that it depends on what Mr. Piersanti knew or intended at the time he carried
    out the fraudulent acts described above.  He had access to all of Oslers
    financial records.  He was in the best position to determine what might occur
    in a bankruptcy and whether in the end there would be value for him if he was the
    sole owner of Osler. He might well have considered that the bankruptcy was an
    expedient way of getting rid of the interests of the Alfano Trusts.  In
    addition, he was the guarantor of some of Oslers debt.  If the Osler assets
    were to be liquidated for more than the outstanding debt, he stood to gain.  All
    of that said, it is not necessary to decide what Mr. Piersanti considered his
    upside to be.  The facts, as found by the trial judge and supported by the
    evidence, lead inevitably to the conclusion that Mr. Piersanti placed Osler in
    bankruptcy as part of his fraudulent scheme to deprive the Alfanos of their
    interest in Osler.

[54]

Mr. Piersanti also argues that Osler would have failed
    whether or not he placed it in bankruptcy.  Thus, he argues his actions did not
    cause the Alfano Trusts any damages.

[55]

I do not accept this argument.  There is evidence to
    support the trial judges conclusion that Osler would have continued as a
    profitable company if Mr. Piersanti had not placed it in bankruptcy.

[56]

In May 2002, Mr. Piersanti assured the Royal Bank of
    Canada (RBC), one of Oslers secured creditors, that Oslers affairs had been
    improving ahead of schedule for the past two years and that Osler had $6
    million work on hand for the coming year.

[57]

On June 11, 2002, Mr. Piersanti locked the Alfanos out
    of Osler and to their surprise took the position that he owned all of the
    company.  On June 14, in response to Mr. Piersantis unilateral action, the
    Alfanos counsel wrote RBC informing it of the ownership dispute and directing
    the bank to only accept cheques signed by the Alfanos.

[58]

Not surprisingly in these circumstances of disputed
    ownership, on June 17 RBC called its loan and began the process of appointing a
    receiver.  Later on the same day, Mr. Piersanti voluntarily assigned Osler into
    bankruptcy.
[3]


[59]

In his evidence, Tom Strezos, the Alfanos damages
    expert, opined that, assuming Mr. Piersanti had wrongfully misappropriated
    funds and assigned the company into bankruptcy, it appeared that Osler would
    have continued as a profitable going concern but-for Mr. Piersantis misconduct. 
    In reaching this conclusion, Mr. Strezos considered the history of Osler, its
    financial statements, and the state of the construction industry in the years
    following 2002.

[60]

Mr. Strezos pointed out that Osler had made significant
    investments in capital assets from 1996 to 2001 as a result of an optimistic
    outlook for its business.  The company was forecasting lower cash outlays for
    capital expenditures and moderate to high growth in the paving industry after
    2001, which would lead to significant annual net cash flows.

[61]

Moreover, Mr. Strezos said that Oslers financial
    statements did not present the picture of a failing company.  Oslers 2001
    financial statements showed a net profit of $216,684.  The 2011 statements
    showed equity of $2,693,800 and an EBITDA
[4]
of $1,219,313.
[5]

[62]

In 2002, Oslers monthly income statements showed net
    income increasing from a loss of $1,870 in the year to January 31, 2002 to a
    profit of $155,377 in the year to March 31, 2002.

[63]

The trial judge recognized that a number of economic
    factors could affect the profitability of Osler and that Ulti and Italo Alfano
    were responsible for the economic risks faced by Osler.  However, the trial judge
    accepted Mr. Strezos evidence.  Her findings of liability and damage were
    premised on a conclusion that but for the bankruptcy, Osler would have
    continued as a profitable growing concern.  This finding was open to the trial
    judge on the evidence.  I see no basis to interfere.

(b)

Misappropriation
    of Osler Funds

[64]

At trial, the Alfano Trusts asserted that over the
    years, Mr. Piersanti had misappropriated funds from Osler.  They did not sue
    for recovery of the misappropriated monies.  Rather, they alleged that the
    misappropriations were part of Mr. Piersantis fraudulent scheme to appropriate
    Osler to himself at their expense.

[65]

The allegations relating to Mr. Piersantis
    misappropriations were difficult to run to ground at trial because of the
    problems the respondents and the court experienced in requiring Mr. Piersanti
    to make full and timely production of documents.  Indeed, he continued to make
    disclosure as the trial progressed.  The result was that allegations of
    misappropriation evolved as documents were produced.

[66]

At one point prior to trial, Morawetz J. ordered that
    the respondents allegations of misappropriation should be confined to those
    being made at that point in time.  After that order, Mr. Piersanti made further
    productions, by then long overdue.  In these circumstances, it was open to the
    trial judge to consider all of the evidence with respect to the alleged
    misappropriations.  Given Mr. Piersantis disregard for his obligations to
    produce documents, it would have been unfair to limit the Alfano Trusts to the
    misappropriations referred to in Morawetz J.s order.

[67]

The trial judge found that Mr. Piersanti
    misappropriated funds.  Her reasons on this issue were brief.

[68]

In addressing the issues of misappropriation, the trial
    judge referred to one chart which detailed certain alleged misappropriations in
    the amount of $1,077,438.  She also referred to other calculations of alleged
    misappropriations by the Piersantis for their own purposes to the detriment of
    the financial stability of Osler.  The trial judge accepted these calculations
    noting they are supported by the various witnesses who testified on accounting
    matters.

[69]

In his evidence, Mr. Piersanti offered explanations for
    some, or perhaps all, of the transactions relating to the alleged
    misappropriations.  However, the trial judge did not accept any of his
    evidence.  Rather, she found that he had embarked upon a fraudulent scheme to
    deprive the Alfano Trusts of their interests in Osler.  Several of the impugned
    transactions resulted in a benefit to Mr. Piersanti or a company related to him
    and did not take into consideration the fact that the Alfano Trusts had an
    interest through 758 of 87 percent of the equity of Osler.

[70]

Although the trial judge did not address the impugned
    transactions individually, it is implicit in her reasons, read as a whole, that
    she was satisfied that the amount improperly appropriated by Mr. Piersanti
    exceeded $1 million.   I would not interfere with this finding.

[71]

Finally, it is worth repeating that the trial judges findings
    of liability and her damages award are not directed at compensating the respondents
    for misappropriated funds.  Rather, they are directed at Mr. Piersantis fraud
    in assigning Osler into bankruptcy.  Indeed, even if the trial judge had not
    found misappropriations, there was ample evidence to support the trial judges finding
    of liability with respect to the Osler bankruptcy.

(c)

The
    Order of July 12, 2002

[72]


On July 12, 2002, Epstein J.
    refused the respondents request to set aside the assignment of Osler into
    bankruptcy.  Mr. Piersanti argues that this order operates as a bar based on
res
    judicata
to the trial judges finding of liability with respect to the
    bankruptcy.

[73]

I do not accept this argument.  The order of July 12,
    2002 was based on incomplete and incorrect facts.  At the time Mr. Piersanti
    asserted he was the sole owner of Osler.  He had produced the fraudulent
    version of the USA.  While the respondents took the position that the Family
    Trusts were the majority shareholders, they had not yet found what turned out
    to be the true version of the USA.  On July 12, the court was not aware that
    the assignment into bankruptcy was part of Mr. Piersantis fraudulent scheme to
    deprive the Alfanos of their interests in Osler.

[74]

The order of July 12 cannot operate as a bar to a claim
    that the bankruptcy was the result of a fraud that had not been exposed at the
    time.

(d) The Personal
    Bankruptcies of the Alfanos

[75]

Mr. Piersanti argues that the Alfano brothers lost
    their interests in 758 and Osler because they failed to disclose those
    interests to their trustees in bankruptcy when they declared personal
    bankruptcy in the 1990s.

[76]

Osler was incorporated in 1993.  Mr. Piersanti was the
    sole shareholder.  Under the Alfano USA, the four Alfano Trusts each had an
    option to buy 22.5 percent of the shares of 758 for $1 per share.  After the
    transfers from the Frank Alfano Trust in 1997, the three remaining Alfano Trusts
    each had an interest in 29 percent of 758.

[77]

Carmen, Ulti and Italo Alfano each declared personal
    bankruptcy between 1993 and 1995.  Ulti and Italo were discharged in 1995 and
    1996.  Carmen was not discharged at the time of his death in 1996.  None of the
    Alfanos disclosed an interest in 758 or Osler during their personal bankruptcies.

[78]

Mr. Piersantis argument is based on the principle that
    all of the assets of a bankrupt person vest in the trustee whether disclosed or
    not: see
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B-3, ss. 40(1),
    71(2).  Thus, the argument goes, the Alfano brothers lost their interests in
    Osler at the time of their bankruptcies and therefore, had no basis on which to
    bring this action.

[79]

I would not give effect to this argument.

[80]

To start, the argument was not pleaded.  Had it been
    pleaded, the parties may have led evidence and conducted the trial differently.

[81]

Moreover, it does not appear that the Alfano brothers,
    in their personal capacities, had an interest in 758 or Osler at the time of
    their bankruptcies.  Their family trusts did.  The brothers were trustees of
    those trusts.  Section 67(1) of the
Bankruptcy and Insolvency Act
as it
    was at the time of the Alfanos personal bankruptcies provided that [t]he
    property of a bankrupt divisible among his creditors shall not comprise (a)
    property held by the bankrupt in trust for any other person: see
Bankruptcy
    and Insolvency Act
, R.S.C. 1985, c. B-3, as amended by S.C. 1992, c. 27. The
    trial judge did not make findings concerning the identity of the beneficiaries
    of the Alfano Family Trusts, and I am not prepared to conclude, on this record,
    that the property held by the trusts did not fall under s. 67(1)(a).

[82]

In any event, it seems counter-intuitive that if there
    is a problem, as Mr. Piersanti now asserts, that Mr. Piersanti should be the
    beneficiary of that problem.  If there is a problem, it was the creditors of
    the Alfano brothers at the time of their bankruptcies who were affected, not
    Mr. Piersanti.

[83]

That said, there is one matter with respect to this
    issue arising from the trial judges reasons that warrants comment.  Throughout
    her reasons, the trial judge repeatedly held that the Alfano Trusts owned 87
    percent of 758 and, therefore, of Osler.  She made declarations to that
    effect.  However, in para. 150 of her reasons she makes two comments that could
    be interpreted as being inconsistent with her core finding about the Alfano Trusts
    interests.  She said:

Even if the Piersantis stole
    monies from the Alfanos through the Osler company, the Alfanos claims would
    fail because their interest in Osler and MAP Properties vested in their
    trustees on bankruptcy.  The trustees acquired all legal and equitable rights
    of the Alfanos.



The Alfanos shares in Osler
    vested in their trustees on the day of bankruptcy.

[84]

It is important to consider the trial judges comments
    in para. 150 in the context in which she made them.  The comments were made in
    a section of the reasons in which the trial judge addressed Ulti and Italo
    Alfanos claims to an interest in the MAP properties.  Those claims were made
    by Ulti and Italo in their personal capacities, not as trustees.  Indeed, the
    trial judge began the discussion at para. 145 by saying:  These submissions
    are relevant to the claims of Ulti and Italo in their interest in the MAP
    properties.  Ulti and Italo Alfano did not disclose their interests in the MAP
    properties to their trustees in bankruptcy.  The trial judge found that their
    interests vested with the trustees.

[85]

In her reasons, prior to para. 150, the trial judge had
    clearly decided that the Alfano Trusts owned 87 percent of the shares of 758
    and, therefore, of Osler.  The trial judges comments about the Osler shares in
    para. 150 were made as an aside in the course of a discussion about the Alfano
    brothers personal interests in the MAP properties.  In para. 150, the trial
    judge did not analyze the issue of the interests of the Alfano Trusts in
    Osler.  Whatever prompted the trial judge to make the comments in para. 150, it
    is clear from her reasons, read as a whole, that she did not intend to find
    that the Alfano Trusts did not own 87 percent of the shares of 758 and Osler
    because of the personal bankruptcies of the Alfano brothers.

[86]

In the result, I would not give effect to Mr.
    Piersantis argument with regard to the effect of the Alfanos personal
    bankruptcies on the claim by the Alfano family trusts against him for fraud.

(2) Terry Piersanti

[87]

The trial judge found that Ms. Piersanti was liable for damages
    resulting from the Osler bankruptcy.

[88]

In my view, this finding cannot stand.  The trial judge made no finding
    linking Ms. Piersanti to the bankruptcy.

[89]

The
respondents
argue that the trial judge found
    Ms. Piersanti liable as a co-conspirator with her husband in the fraudulent
    scheme to place Osler into bankruptcy.

[90]

The difficulty is that the trial judge did not find a conspiracy.  Nor
    did she make any factual findings linking Ms. Piersanti to the fraudulent
    scheme that led to the bankruptcy.  She did not find that Ms. Piersanti was
    involved in concocting the fraudulent USA, in deciding to lock out the Alfanos
    from the Osler business, in asking the controller to alter the financial
    statements, or in making the assignment into bankruptcy.

[91]

The trial judge found that Ms. Piersanti was involved in
    misappropriating funds from Osler.  Accepting for the sake of discussion that there
    was evidence to support that conclusion, the trial judge does not find that Ms.
    Piersantis involvement in the misappropriations was part of a scheme or conspiracy
    by which Mr. Piersanti would place Osler in bankruptcy in June 2002.  Indeed,
    all but one of the alleged misappropriations took place in the 1990s, at a time
    well removed from the bankruptcy.  There is no evidence to suggest that Mr.
    Piersanti had formulated his scheme to put Osler in bankruptcy before June
    2002.

[92]

A finding that Ms. Piersanti was involved in misappropriations from
    Osler at some time prior to the Osler bankruptcy falls short of establishing
    that she was a co-conspirator in the fraudulent act of placing Osler into
    bankruptcy.

[93]

At trial, the respondents alleged that Ms. Piersanti was involved in
    using mortgage money from the MAP properties in violation of the Mareva
    injunction (an issue I will discuss below).  Even if the trial judge had found
    that this to be the case that finding had nothing to do with the Osler
    bankruptcy.

[94]

In summary, while the trial judge may have been of the view that Ms. Piersanti
    was liable to the respondents for certain causes of action, she did not make
    any findings that would link her actions to the bankruptcy of Osler which was
    the triggering event for the damages award.

[95]

Thus, I would set aside the trial judges finding that Ms. Piersanti is
    liable for damages based on the claim that she was a co-conspirator with her
    husband in placing Osler into bankruptcy.

(3) The Appellants Expert Witness

[96]

The appellants submit that the trial judge erred in her
    mid-trial ruling refusing to admit the evidence of their expert witness, Ronald
    Anson-Cartwright, on the basis that Mr. Anson-Cartwright lacked independence
    and objectivity.  The reasons for this ruling are reported at [2009] O.J. No.
    1224.

[97]

The appellants proposed to call Mr. Anson-Cartwright to
    give expert evidence with respect to issues of forensic accounting and the
    Alfanos damages claim.  Mr. Anson-Cartwright prepared two reports.

[98]

Shortly after receiving the first report, counsel for
    the
respondents
indicated that they would be objecting
    to the admissibility of Mr. Anson-Cartwrights evidence.  They alleged that Mr.
    Anson-Cartwright and his associate had assumed the role of advocates and were
    not acting independently or objectively in preparing the report.  When Mr. Anson-Cartwrights
    second report was delivered approximately four months later, counsel for the
respondents
raised the same objection.

[99]

During the course of the trial, counsel for the
respondents
requested production of certain parts of Mr. Anson-Cartwrights
    files.  The request was refused.  After a mid-trial motion, the trial judge
    ordered the production of email correspondence that had been referred to in Mr.
    Anson-Cartwrights time dockets.  The emails were largely exchanged between Mr.
    Anson-Cartwright and Mr. Piersanti.  After the emails were produced, the trial
    judge conducted a three-day
voir dire
to determine whether she would
    admit Mr. Anson-Cartwrights evidence.  Mr. Anson-Cartwright was called as a
    witness and cross-examined at length.  In a written ruling, the trial judge
    refused to admit his evidence.

[100]

In her ruling, the trial judge set out the legal principles that
    guided her decision.  She concluded that Mr. Anson-Cartwright based his
    analysis of the defense position on the theories advanced by Mr. Piersanti. 
    She said that Mr. Anson-Cartwright was committed to advancing the theory of
    the case of his client, thereby assuming the role of an advocate.  His role as
    an independent witness was secondary to the role of someone who is trying
    their best for their client to counter the other side.  She found that Mr. Anson-Cartwright
    became a spokesman for Mr. Piersanti.  She said Mr. Anson-Cartwrights reports
    were tainted by the lack of impartiality that is clearly apparent from the
    content of the e-mails.

[101]

The appellants argue that the trial judge erred in not admitting Mr.
    Anson-Cartwrights evidence.  They argue that any lack of independence goes to
    the weight of the evidence, not its admissibility.  They argue that Mr. Anson-Cartwrights
    reports were impartial and objective.  They submit that the reports properly outline
    the basis and sources on which his opinions were formed.

[102]

The appellants also argue that the trial judge erred in considering
    the email exchanges in coming to her conclusion that Mr. Anson-Cartwrights
    evidence lacked independence.  According to the appellants, the trial judge
    should have confined her analysis to Mr. Anson-Cartwrights reports and his
    evidence concerning the content of the reports.

[103]

Expert evidence is an exception to the general rule barring opinion
    evidence.  In
R. v. Mohan
, [1994] 2 S.C.R. 9,
    the Supreme Court of Canada set out the four criteria for the admissibility of
    expert evidence:  1) relevance, 2) necessity in assisting the trier of fact, 3)
    the absence of any exclusionary rule, and 4) proper qualification.  The party
    tendering expert evidence has the burden to satisfy the four
Mohan
criteria on a balance of probabilities.

[104]

In discussing the second criterion at pp. 23, 24 of
Mohan
,
    the Supreme Court referred to the concept of helpfulness to a trier of fact.
    The court concluded that the appropriate test for necessity is whether the
    expert is capable of assisting the trier by providing information likely to be
    beyond the triers knowledge and experience.

[105]

In determining whether an experts evidence will be helpful, a court
    will, as a matter of common sense, look to the question of the experts
    independence or objectivity.  A biased expert is unlikely to provide useful
    assistance.

[106]

Courts have taken a pragmatic approach to the issue of the
    independence of expert witnesses.  They have recognized and accepted that
    experts are called by one party in an adversarial proceeding and are generally
    paid by that party to prepare a report and to testify.  The alignment of
    interest of an expert with the retaining party is not, in and of itself, a
    matter that will necessarily encroach upon the independence or objectivity of
    the experts evidence.

[107]

That said, courts remain concerned that expert witnesses render
    opinions that are the product of their expertise and experience and,
    importantly, their independent analysis and assessment.  Courts rely on expert
    witnesses to approach their tasks with objectivity and integrity.  As Farley J.
    said in
Bank of Montreal v. Citak
, [2001] O.J. No. 1096, experts must
    be neutral and objective [and], to the extent they are not, they are not
    properly qualified to give expert opinions.

[108]

When courts have discussed the need for the independence of expert
    witnesses, they often have said that experts should not become advocates for
    the party or the positions of the party by whom they have been retained.  It is
    not helpful to a court to have an expert simply parrot the position of the
    retaining client.  Courts require more.  The critical distinction is that the
    expert opinion should always be the result of the experts independent analysis
    and conclusion.  While the opinion may support the clients position, it should
    not be influenced as to form or content by the exigencies of the litigation or
    by pressure from the client.  An experts report or evidence should not be a
    platform from which to argue the clients case.  As the trial judge in this
    case pointed out, the fundamental principle in cases involving qualifications
    of experts is that the expert, although retained by the clients, assists the
    court.

[109]

The report of the Goudge Inquiry,
Inquiry into Pediatric
    Forensic Pathology in Ontario
(Toronto: Ontario Ministry
    of the Attorney General: 2008), at p. 503, noted the importance of expert
    witness independence, quoting the principles described by the Court of Appeal
    of England and Wales in
R. v. Harris and others
, [2005] EWCA Crim 1980, at para. 271:

(1) Expert
    evidence presented to the court should be and seen to be the independent
    product of the expert uninfluenced as to form or content by the exigencies of
    litigation.

(2) An
    expert witness should provide independent assistance to the court by way of
    objective unbiased opinion in relation to matters within his expertise. An
    expert witness in the High Court should never assume the role of advocate.

...

[110]

In most cases, the issue of whether an expert lacks independence or
    objectivity is addressed as a matter of weight to be attached to the experts
    evidence rather than as a matter of the admissibility.  Typically, when such an
    attack is mounted, the court will admit the evidence and weigh it in light of
    the independence concerns.  Generally, admitting the evidence will not only be
    the path of least resistance, but also accord with common sense and
    efficiency.

[111]

That said, the court retains a residual discretion to exclude the
    evidence of a proposed expert witness when the court is satisfied that the
    evidence is so tainted by bias or partiality as to render it of minimal or no
    assistance.  In reaching such a conclusion, a trial judge may take into account
    whether admitting the evidence would compromise the trial process by unduly
    protracting and complicating the proceeding: see
R. v. Abbey
, 2009 ONCA
    624, 97 O.R. (3d) 330, at para. 91.  If a trial judge determines that the
    probative value of the evidence is so diminished by the independence concerns,
    then he or she has a discretion to exclude the evidence.

[112]

In considering the issue of whether to admit expert evidence in the
    face of concerns about independence, a trial judge may conduct a
voir dire
and have regard to any relevant matters that bear on the experts
    independence.  These may include the experts report, the nature of the
    experts retainer, as well as materials and communications that form part of
    the process by which the expert formed the opinions that will be the basis of
    the proposed testimony: see
R. v. INCO Ltd.
(2006), 80 O.R. (3d) 594, at p. 607 (S.C.).
[6]


[113]

An appellate court will accord deference to a trial judges decision
    to exclude evidence of an expert on the basis that the proposed evidence lacks
    independence.  On reviewing such a decision, an appellate court will look to
    whether the trial judge applied the proper legal principles and whether the
    trial judges conclusion was supported by the evidence.  Absent such an error,
    an appellate court will not interfere.

[114]

I would not interfere with the trial judges decision in this case. 
    The trial judge had regard to the appropriate legal principles and there was
    ample evidence to support her conclusion that Mr. Anson-Cartwrights proposed
    evidence lacked independence.

[115]

I have reviewed Mr. Anson-Cartwrights reports.  In general terms,
    they are repetitious and argumentative in tone.  Parts of Mr. Anson-Cartwrights
    reports read like the appellants counsels written argument.  In places, the
    reports go beyond the areas in which Mr. Anson-Cartwright is qualified to give
    expert evidence and address factual issues that properly fell within the
    purview of the trial judge.

[116]

In addition, the reports opine on matters of law.  By way of example,
    at p. 19 of his October 3, 2008 report, Mr. Anson-Cartwright concludes that the
    Alfanos counsels letter of June 14, 2002 interfered with contractual
    relations.  He also says, at p. 22, that the Alfanos claim for damages for
    loss of profits of Osler was derivative.  In addition, he says, at p. 43, that
    there is no evidence that the Alfanos owned 87 percent of the equity in Osler. 
    This latter conclusion involves questions of fact and law and was a central
    issue at trial.  In offering his opinion on the ownership of Osler, Mr. Anson-Cartwright
    did not have the benefit of all of the evidence at trial.  Indeed, the evidence
    to which he referred was not only incomplete, but inaccurate in some
    respects.

[117]

The trial judge reviewed the reports.  She also had the benefit of
    hearing Mr. Anson-Cartwright testify in the
voir dire
and of reviewing a
    series of emails between Mr. Piersanti and Mr. Anson-Cartwright that related to
    the preparation of Mr. Anson-Cartwrights first report.  I note that in
    exchanging emails, Mr. Piersanti was not acting as a lawyer.  He was a party
    and was represented by counsel.

[118]

The emails reveal a pattern of Mr. Anson-Cartwright attempting to
    craft his report to achieve Mr. Piersantis objectives in the litigation.  Each
    draft of Mr. Anson-Cartwrights report was delivered to Mr. Piersanti for
    review, revision and approval.  A few examples of the emails sent by Mr. Anson-Cartwright
    show the concern the trial judge had:

·

Further I wanted the plaintiff to admit that
    there is no executed lease with Ontario Power to bolster your position that the
    occupation rent should be a fair market rent not the rent paid by a non-arms
    length party  so yes, Im trying to make them look bad

·

Could you please explain how the Alfanos
    rationalize that they had an 87 percent interest in Osler and 87 percent
    interest in Puslinch?  Can you tell me succinctly why they are wrong?

·

I find the critique of Deloittes
[7]
cash flow analysis to
    be not as powerful as it could be.  Try to prioritize the killer points, otherwise
    a judge might be overwhelmed by a series of small technical points.  What are
    the three to five points which destroy or invalidate the Deloitte loss of cash
    flow estimate?

[119]

The purpose of this review is not to pick apart Mr. Anson-Cartwrights
    reports on an item-by-item basis.  Rather, it is to point out the problems with
    the reports and the flaws in the process that led to their preparation.

[120]

In my view, there was ample basis for the trial judge to conclude
    that Mr. Anson-Cartwrights evidence should not be admitted.  The trial judge
    was in the best position to determine the significance of the demonstrated lack
    of independence and the extent to which the benefit of that evidence was
    thereby diminished.  I would not interfere with her conclusion.









(4)  Damages

[121]

The trial
    judge awarded the respondents $20 million in damages resulting from the
    bankruptcy of Osler.  The appellants raise a number of arguments with respect
    to this award.

[122]

By way of
    background, after Mr. Piersanti placed Osler in bankruptcy, the respondents,
    either directly or through a newly incorporated company called Southview,
    purchased the security interests and assets of Osler from Oslers secured
    creditors in order to continue in the paving business.  In 2003, the respondents
    began operating the Osler business in Southview.  Between June 30, 2002 and
    June 30, 2008, the respondents and Southview incurred significant debt to
    purchase the assets and security from Oslers secured creditors and to finance Southviews
    capital and operating expenditures.  The transition of the business from Osler
    to Southview was expensive.  The Osler bankruptcy caused reputational damage to
    the Alfano family.  It was several years before Southview operated at a level
    of profitability similar to that which Osler would have achieved had it
    continued.  As part of their efforts to finance Southview, the respondents were
    required to dilute their interests in Southview by 25 percent.

[123]

The trial
    judge based her damage award on the report and evidence of Mr. Thomas Strezos, the
    respondents damages expert.  There is no issue about Mr. Strezos
    qualifications as an expert to give opinion evidence on the matters on which he
    testified.  The trial judge accepted Mr. Strezos report and his evidence, as
    she was entitled to do.

[124]

Mr. Strezos
    calculated the losses arising from the improper winding-up of Osler by [Mr.]
    Piersanti, on or about June 30, 2002.  The triggering event for Mr. Strezos
    damages calculation was the Osler bankruptcy.

[125]

Mr. Strezos
    assumed the Alfano Trusts held an 87 percent interest in Osler.  He also assumed
    that Mr. Piersanti had misappropriated $1.25 million from Osler prior to its
    bankruptcy.  He was not asked to comment on or verify the alleged
    misappropriation.

[126]

Mr. Strezos
    was asked to calculate damages for the period from July 1, 2002 (the
    approximate date of bankruptcy) until June 30, 2008, a date after which
    Southview was expected to increase its profitability.

[127]

Mr. Strezos
    overall approach to assessing the damages was to use the lost opportunity
    methodology in calculating the losses from the winding-up of Osler.  This
    methodology calculates the losses suffered by the respondents to be the amount
    that would place them in the same financial position they would have been but
    for the winding-up.

[128]

Mr. Strezos
    calculated the damages under four separate headings:


i.

Loss of net cash flows in Osler  the respondents loss of projected net
    cash flow in Osler for the period from July 1, 2002 to June 30, 2008.


ii.

Additional debt  the debt incurred by the respondents through Southview
    to finance the Southview operations and to carry the newly incurred debt.


iii.

Loss of 25 percent interest in the CN lands  the losses resulting from
    the respondents loss of a 25 percent ownership interest in the CN lands.  The
    lands had been owned by Osler and were acquired by Southview after the
    bankruptcy.


iv.

Loss of interest in proceeds from the sale of the Puslinch property  the
    loss of the Alfanos share of Oslers 50 percent interest in the Puslinch
    property.  The receiver/manager of this property sold it and allocated Oslers
    proportionate share of the proceeds to Southview.  The proceeds were used to
    pay down Southview debt.  Had Mr. Piersanti not placed Osler into bankruptcy,
    the respondents would have been entitled to the benefit of 87 percent of these
    proceeds.

[129]

Mr. Strezos
    calculated the economic losses suffered by the respondents as a result of the
    Osler bankruptcy to be in the range of $18,730,000 and $21,780,000 depending on
    the assumed projected growth of Osler after the bankruptcy.  His medium
    projected growth rate was 10 percent per annum.  The trial judge appeared to
    accept the medium growth forecast: it seems that her award of $20 million in
    damages was the result of rounding down Mr. Strezos medium calculation of
    $20,210,000.  That was reasonable and I will only refer to the medium
    projections in my discussion below.

[130]

In his
    report, Mr. Strezos calculated the components of loss for his medium projection
    as follows:

·

Loss of projected net cash flow in Osler - $6,353,000;

·

Additional debt resulting from Osler bankruptcy - $11,180,000;

·

Loss of 25 percent in the CN and lands - $1,562,000;

·

Loss of share from sale of Puslinch property - $766,000;

·

Total losses - $20,210,000.

[131]

Mr. Strezos
    pointed out that there should be deducted from the calculated damages the
    proceeds from the sale of Oslers assets that continue to be held by the
    receiver/manager.

[132]

I will
    address the appellants arguments with respect to the damages under seven
    headings.

(a)

Derivative
    Claim

[133]

Mr.
    Piersanti argues that the loss of projected net cash flow in Osler is a
    derivative claim and, as such, could only be asserted by Osler.  Thus, the respondents
    are not in a position to claim recovery of those losses.

[134]

I reject
    this argument.  First, the respondents claims were based in fraud.  The
    damages claim results from Mr. Piersantis fraudulent acts in depriving the
    Alfano Trusts of ownership interests in Osler. Significantly, Mr. Piersantis
    fraud was directed at the Alfano Trusts, not at Osler. His intent was to
    appropriate to himself the value, present and future, of the Alfano Trusts 87
    percent interest in Osler.

[135]

The Alfano
    Trusts are entitled to a damages award that would put them in the financial
    position they would have been had the fraud not occurred  in this case had the
    Osler bankruptcy not occurred.  In my view, it was open to the trial judge to
    calculate the loss of value of the Alfano Trusts interests in Osler by looking
    to the loss of projected cash flows that Osler would have realized had Mr.
    Piersanti not put it into bankruptcy.

[136]

It is also
    worth noting that if the Alfano Trusts had sought leave to bring a derivative
    claim in 2002, they would no doubt have encountered exactly the same argument
    from Mr. Piersanti that they did in this litigation.  He would have asserted
    that the Alfano Trusts did not have an interest in Osler as he, Mr. Piersanti,
    owned 100 percent of the equity.  Thus, in a derivative action, it would have
    been necessary to litigate the same ownership issue as arose in this
    litigation.

[137]

As it
    turned out, seven years after this litigation began, the court determined that
    the Alfano Trusts had an 87 percent interest in 758, which owned 100 percent of
    Osler.  By that time, Osler had been in bankruptcy for seven years, all of its
    assets had been liquidated and its creditors paid.  The practical effect was
    that there was no company left through which the Alfano Trusts could have asserted
    a derivative claim.

[138]

Thus, in
    my view, the respondents were entitled to assert a claim for damages based in
    part on the projected cash flows of Osler for the period following the
    bankruptcy.  I reject the derivative claim argument.

(ii)  Remoteness

[139]

Mr.
    Piersanti argues that the trial judges damage award for additional debts incurred
    by the respondents resulting from the Osler bankruptcy are too remote from the
    bankruptcy and, as such, are not properly recoverable as damages resulting from
    that bankruptcy.

[140]

The trial
    judges finding of liability giving rise to this head of damages is based in
    fraud.  In my view, there is ample evidence to connect these damages to Mr.
    Piersantis fraudulent acts of placing Osler in bankruptcy.

[141]

It was
    foreseeable that the respondents would take steps to recover the Osler business
    and continue operating what they considered to be their family business.  The
    Alfano family had a history of continuing their paving business after
    bankruptcy.  It makes sense, as Mr. Strezos pointed out, that given the
    bankruptcy of Osler, the costs of financing the operations of Southview would
    be higher than normal because the loss of reputation resulting from the
    bankruptcy would be a drag on the profitability of the ongoing business.

[142]

I see no
    basis to interfere with the trial judges award of damages with respect to the
    additional debt other than by making the adjustments that I will discuss below.

(iii)  Failure to Mitigate

[143]

Mr. Piersanti argues that the trial judge erred in not reducing the
    damage award because the
respondents
failed to mitigate
    their losses.  The nub of this argument is that some of the losses experienced
    by Southview after the bankruptcy resulted from poor management by the Alfano
    family.

[144]

The appellants made the same argument at trial.  This argument is
    entirely fact based.  The issue is whether the
respondents
took reasonable steps to mitigate their losses.  Implicitly, the
    trial judge concluded that they did.

[145]

There is evidence to support the trial judges conclusion.  Ulti and
    Italo Alfano testified at trial.  Their evidence explained the difficulty they
    encountered in operating the Osler business through Southview after the
    bankruptcy.  It was open to the trial judge to accept their evidence.  I see no
    error.

(iv)  Adjustments

[146]

During his testimony, Mr. Strezos made a number of adjustments to
    the calculations set out in his report.  However, in awarding damages in the
    amount of $20 million, the trial judge appears to have relied upon the
    calculations in the report without regard to the adjustments made by Mr. Strezos
    at trial.

[147]

After reviewing Mr. Strezos evidence, I would make the following three
    adjustments to the trial judges award of damages:

[148]

The first adjustment relates to Oslers projected net cash flows.  In
    his report, Mr. Strezos calculated this amount to be $6,700,000 in the medium
    scenario.  In his evidence, he said that this amount should be reduced to $6
    million because of a calculating oversight in relation to the projected EBITDA
    for Osler: see Strezos examination-in-chief, February 9, 2009, at pp. 57-70.  I
    note that this adjustment was made in handwriting to the typed report that was
    entered as an exhibit at trial.

[149]

The second adjustment is with respect to the debt resulting from the
    Osler bankruptcy.  In the summary of losses table included as Schedule 1 to his
    report, Mr. Strezos showed this amount to be $11,180,000.  This amount included
    $3,118,193 in additional debt incurred by the
respondents
and Southview to purchase the Osler security and assets.  Mr. Strezos
    listed this amount as debt incurred to purchase bank security and certain
    assets of Osler in Schedule 3 of his report.  However, in Schedule 3.1 to the
    report, entitled summary of the debt and carrying costs incurred by the Alfano
    family and related parties
as a result of the bankruptcy
 (emphasis
    added), Mr. Strezos backed out the amount $3,118,193 from the total debt
    incurred subsequent to the Osler bankruptcy.  On cross examination, Mr. Strezos
    agreed that the security and assets purchased by Southview after the bankruptcy
    were free and clear of debt.  Prior to the Osler bankruptcy, those assets had
    been encumbered.  Thus, the
respondents
did not incur
    additional debt for the purchase of those assets that could be reasonably
    viewed as a loss suffered as a result of the bankruptcy: Strezos
    cross-examination, February 10, 2009, at pp. 110-112.  Mr. Strezos therefore
    agreed that the Alfanos recovery for debt incurred after the bankruptcy should
    be reduced by $3,118,193.

[150]

The third adjustment also relates to Mr. Strezos calculation of the
    debt resulting from the Osler bankruptcy.  Mr. Strezos testified that the
    amount to be awarded for debt incurred after the bankruptcy set out in his
    report should be reduced by a further $2 million.  The basis for this reduction
    was that the $2 million was incurred to purchase an asset  a gravel pit near
    Orillia  that Osler had not owned before the bankruptcy.  Thus, he said, it is
    not fair to attribute this debt as a debt resulting from the bankruptcy.  This
    adjustment was reflected in a handwritten entry made to Schedule 3.1 of the
    typed report entered as an exhibit at trial.

[151]

On the basis of the above-mentioned adjustments, I would reduce the damage
    award as follows:

Medium Projection                                      $20,210,000

Adjustment to cash flow                             ($700,000)

Adjustment for debt repurchase                ($3,118,193)

Adjustment for gravel pit acquisition       ($2,000,000)

TOTAL:         ($5,818,193)

Amount of Award                                        $14,391,807















(v)  Credits

[152]

During the oral argument on appeal, the respondents conceded that
    the damage award should be credited with the
respondents
 share of the proceeds from the sale of the Bowes Street property. 
    It appears that the amount of $877,000, being proceeds from the sale of Bowes
    Street, was paid to the respondents solicitors as a result of a mid-trial
    ruling by the trial judge.  It is agreed by the parties that the damage award
    should be credited with that amount.

[153]

Although it is not entirely clear from the record, it appears that
    there may be an additional amount being held by the receiver/manager from the
    sale of Bowes Street.  If and when further monies are paid to Southview or the
respondents
, that amount should also be credited against the amount of the
    damage award.

[154]

Crediting these amounts against the damage award is consistent with Mr.
    Strezos report.  In that report, at p. 23, he indicated that there should be a
    deduction from any damage award for the expected proceeds after dissolution of
    the receiver manager (2016411 Ontario Ltd.).

[155]

To the same effect, the trial judge observed at para. 144 of her
    reasons that Mr. Strezos pointed out that once the case is decided, the
    Alfanos may receive money from the receiver.  This would be deducted from their
    losses calculated above.

(vi) CN Lands

[156]

Mr. Piersanti argues that the trial judge erred in awarding damages
    to the
respondents
for loss of interest in the CN lands.

[157]

Osler leased the CN lands and had an option to purchase for $1.  Southview
    purchased the lease from the secured creditors of Osler after the bankruptcy. 
    Southview then exercised the option.  However, because the
respondents
had to give up 25 percent ownership interest in Southview as part of
    its financing program after the bankruptcy, the
respondents
suffered a loss of 25 percent of the value of the CN lands that
    they would have had had it not been for the bankruptcy.  Mr. Strezos opined
    that this loss amounted to $1,562,000.  The trial judge accepted that
    evidence.  I see no basis to interfere.

(vii) Sale of Puslinch Lands

[158]

Mr. Piersanti argues that the trial judge erred in awarding $766,000
    as damages resulting in the loss of the
respondents
 share
    in the proceeds from the Puslinch property.  The Puslinch property was owned by
    Osler.

[159]

The receiver/manager sold the Puslinch property in 2006.  The
respondents
 share of the proceeds of the sale was $766,000.  Those proceeds
    were paid to Southview and used by Southview to pay down its debt.  That debt
    had been incurred by Southview to cover operating and capital losses as well
    for carrying costs for monies borrowed.  Mr. Piersanti argues that Southview
    and, therefore, the
respondents
received the benefit of
    this money and, therefore, this amount should not have been included in the
    damage calculation.

[160]

I do not accept this argument.  Mr. Strezos testified that the
    $766,000 was netted out of the loss calculation for additional debt incurred by
    the
respondents
and Southview after the Osler
    bankruptcy: Strezos cross-examination, February 10, 2009, at pp. 115-17.  Put
    another way, had Southview not received the $766,000 and paid down the debt,
    Mr. Strezos would have increased the recovery for a debt incurred after the
    bankruptcy by that amount.  In the result, I would not give effect to this
    argument.

(5)  Punitive Damages

[161]

Mr. Piersanti argues that the trial judge erred in awarding the
respondents
punitive damages in the amount of $250,000.  The trial judge made
    the award as the result of Mr. Piersantis fraud in altering the unanimous
    shareholders agreement.

[162]

Mr. Piersantis only challenge to the punitive damage award is on
    the basis that it was not pleaded in the Fresh as Amended Statement of Claim. 
    While that is correct, punitive damages were sought at trial.  The issue was joined
    and argued before the trial judge.  The evidence to support the punitive damage
    award was central to the
respondents
 claims of fraud
    and was pleaded with particularity.

[163]

Mr. Piersanti had adequate notice of the punitive
    damage claim; there was no surprise.  While it would have been preferable if the
respondents
had sought to amend their pleading to
    assert the claim when it was raised and argued, I see no prejudice.  As the
    Supreme Court of Canada noted in
Whiten v. Pilot Insurance Co.
, 2002 SCC 18, [2002] 1 S.C.R. 595, at para. 88, [w]hether or not a
    defendant has in fact been taken by surprise by a weak or defective pleading
    will have to be decided in the circumstances of a particular case.  In this
    case, Mr. Piersanti had an adequate opportunity to respond to the claim.

[164]

I would not interfere with the punitive damage award.

(6)

The
    Payment into Court of $2.5 Million

[165]

The appellants argue that the trial judge erred in ordering 128 (a
    Piersanti related company) to pay $2.5 million into court.

[166]

The
respondents
sought the payment into
    court on the basis that Ms. Piersanti had caused 128 to pay out approximately
    $2.5 million in breach of the Mareva injunction granted on June 18, 2002.

[167]

I would set aside this order.

[168]

The trial judge gave very brief reasons for making the
    order.  At para. 105, she said the following:

I
    have concluded that $2,500,000 shall be paid into court to the credit of the Plaintiffs
    within 30 days of the release of the reasons.
This will not cause any
    hardship to the Piersanti Defendants and will be some security for the Plaintiffs
who will most likely encounter great difficulty in enforcing any judgment given
    by this court in regard to their damages for losses in Osler. [Emphasis added.]

[169]

While it is not entirely clear, it appears that the trial judge made
    this order to provide security for the damages award she made against the
    Piersantis in favour of the respondents.

[170]

Her comment that this will not cause any hardship to the Piersanti
    defendants suggests that in her mind the $2.5 million is part of, not in
    addition to, the damages award. The purpose the trial judge made the $2.5
    million award was apparently so that that amount would be paid within 30 days,
    thereby providing some security for the overall damages award.

[171]

In para. 105, the trial judge did not link the award to the breach
    of the Mareva injunction.  Notably, she did not make any finding of contempt,
    nor give any indication that the $2.5 million award was being ordered for
    punitive or denunciatory purposes. On the contrary, she appears to have
    considered the payment of $2.5 million as a downpayment against her damage
    award.

[172]

128, the party ordered to pay the $2.5 million, was not a defendant
    in the claim for fraud related to the Osler bankruptcy that gave rise to the
    judgment against Mr. Piersanti.  The trial judge did not make any findings that
    would render 128 liable to pay the damage award for the fraud claim.

[173]

In the result, I would set aside this order.  To be clear, I do not
    conclude that there was no basis for a finding that the Piersantis breached the
    Mareva injunction.  Rather, I am not satisfied that the trial judge, in her
    reasons, made that finding.  That being the case, the trial judges reasons and
    these reasons should not be read as finally disposing of that issue.

(2)

Ulti
    Alfanos One-Twelfth Interest  MAP Properties

[174]

The trial judge found that Ulti Alfano had a claim to a one-twelfth
    interest in the MAP properties, limited to the 1995 value of these properties. 
    She directed a reference to determine the value of this interest, which she
    awarded to Ulti Alfanos personal bankruptcy trustee subject to the assignment
    agreement between Ulti Alfano and the trustee.  Ulti Alfano apparently obtained
    permission from his trustee to pursue this claim.

[175]

The Alfanos interest in the MAP properties was held through a
    holding company, CIFU safe. The appellants allege that CIFU Safe went bankrupt
    in 1993. The trial judge did not make any findings to explain why Ulti Alfano
    (or his trustee in bankruptcy) had a claim to an interest in the MAP properties
    14 years later.

[176]

With respect, I am not able to glean from the trial
    judges reasons why she made the order and structured it as she did.  Without
    more, I do not think that the order can stand.  I would set it aside.  I would
    not direct a new trial on this issue.  I would, however, say that in the event
    that there is other litigation that addresses this issue, these reasons should
    not be read as deciding the merits of this claim relating to the MAP
    properties.

DISPOSITION

[177]

I would allow the appeal in part as follows:

a.

I would set aside the judgment against Ms.
    Piersanti (para. 6 of the judgment);

b.

I would reduce the damage award to $14,391,807
    (para. 6 of the judgment);

c.

I would set aside the order that 128 pay $2.5
    million into court (para. 8 of the judgment); and

d.

I would set aside the order relating to Ulti
    Alfanos interest in the MAP properties (paras. 9, 10 and 11 of the judgment).

[178]

The damage award should be credited with the amounts discussed in
    paras. 151 to 154 of these reasons.

[179]

In all other respects, I would confirm the judgment below.

[180]

We are told that the trial judge has not yet made a costs order with
    respect to the costs of the trial.  Apparently, the trial court will address
    those costs after the release of this judgment.  I, therefore, make no comment
    on the issue of costs of the trial.

[181]

There has been mixed success in this appeal.  I would make no order
    as to costs.

RELEASED:  DOC  MAY 09 2012

D.
    OConnor A.C.J.O.

I
    agree H.S. LaForme J.A.

I
    agree J.D. Cunningham A.C.J.S.C.J.





[1]
The trusts interests were held by way of options to purchase shares at a price
    of $1 a share.  I will discuss the options structure in paras. 44 to 46 below.



[2]
The Alfano family trusts also plead a breach of fiduciary duty, conversion and
    conspiracy.  In addition, they argued at trial that the trial judge could find
    oppression under the
Ontario Business Corporations Act
, R.S.O. 1990, c.
    B-16, and fashion a remedy under that statute.  The trial judges findings of
    fact could support a finding of liability for breach of fiduciary duty,
    conversion and oppression.  However, her conclusions seem to focus most
    directly on a claim in fraud.  Accordingly, I will proceed to discuss the case
    on the basis of the fraud claim.



[3]
I do not think that anything turns on the fact that RBC called its loan before
    the assignment into bankruptcy.  RBC called the loan after the Alfanos lawyer,
    quite properly as it turns out, put RBC on notice of Mr. Piersantis improper
    conduct in attempting to appropriate all of the ownership of Osler to himself.



[4]
Earnings before income tax, depreciation and amortization.



[5]

I note that the financial statements did not take into account
    any monies Mr. Piersanti had misappropriated from Osler.



[6]

In making these comments, I do not suggest that matters
    subject to privilege need be disclosed or considered.



[7]
Deloitte & Touche LLP was the damages expert for the Alfanos.


