It is trite law that appellate courts are to give significant deference to trial judges’ assessments of damages, particularly when tied to questions of facts. But how much deference? The Ontario Court of Appeal’s February 12, 2014 decision in Pirani v. Esmail is the second occasion in four months in which the Court has been divided on this issue. (Pate Estate v. Harvey was previously discussed on the blog here (http://www.conductofanappeal.com/pate-estate-v-harvey-division-on-the-appropriate-standard-of-appellate-review-for-punitive-damages-amounts/). Pirani v. Esmail also provides specific direction regarding how to treat trial judges’ reliance on expert reports in assessing damages.
The case arose out of a dispute over the management and sale of a rental property that was subject to a trust. A lengthy trial judgment had to address many issues. This led to the Court of Appeal having to address four issues on appeal, and a fifth on cross-appeal. The Court of Appeal unanimously allowed the cross-appeal, and also unanimously dismissed most of the grounds of appeal.
However, there was division on the calculation of damages. Both sides had relied upon experts in this regard at trial. The appellants challenged the appropriateness of the trial judge relying on the respondent’s expert report. Rouleau J.A. (joined by Weiler J.A.) held that the trial judge erred in this regard:
 In my view, however, the trial judge erred in accepting and relying on the Zafar report. I acknowledge that a trial judge’s factual findings are entitled to deference: Housen v. Nikolaisen,  2 SCR 23. However, factual findings are not subject to appellate deference where they are “clearly wrong”: H.L. v. Canada (Attorney General),  1 S.C.R. 401. Although the assumptions underlying Mr. Zafar’s rental calculations may appear reasonable in the abstract, his conclusions with respect to rental income do not withstand scrutiny when tested against the evidence led at trial. Because the amount of rental revenue derived from the property is a critical factor in determining whether the property generated a profit, that figure must be carefully assessed.
 To start, Mr. Zafar accepted the rents listed in the Spagnuolo report for the property for 1989. He then assumed that the rents would increase, annually, by the maximum allowed by law. He discounted these increases by 25% in order to “be conservative” in his calculations. Mr. Zafar also applied publicly available vacancy data to account for the loss of rental revenue due to vacancies. Using this formula, he calculated the rental revenue for the property in each of the years from 1989 to 2002. Mr. Zafar estimated that the monthly rental revenue had reached $3,377.30 in 2002. According to Mr. Zafar, the annual rental revenue on the property was $40,527.60 in 2002.
 The evidence at trial demonstrates that the monthly rental revenue from the property was closer to $2,240 in 2002. Thus, even if we assume that there were no vacancies whatsoever in 2002, the annual rental revenue would total $26,880. The difference in rental income between this number and Mr. Zafar’s estimate is $14,000 per year by 2002. There is simply no way to reconcile these figures.
 The evidence showing that the rental revenue in 2002 was well below the $3,377.30 assumed by Mr. Zafar is overwhelming, uncontradicted and corroborated in large measure by the written record. The evidence is as follows … [Rouleau J.A. proceeded to list seven pieces of evidence that undermined Mr. Zafar’s assumptions.]
 Why the trial judge did not deal with this evidence in any substantive way is not clear. The fact is, however, that it is apparent from the record that Mr. Zafar’s estimate of the rental income from the property is grossly overstated. For the final year alone, the income appears to be overstated by $14,000. Given the large difference between Mr. Zafar’s rent estimates and the rents reported in the evidence led at trial, the results of Mr. Zafar’s analysis and his estimate of profit simply do not withstand scrutiny. As an expert’s report is only as good as the underlying data and assumptions, Mr. Zafar’s report is virtually valueless: See Di Martino v. Delisio (2008), 168 A.C.W.S. (3d) 870 (Ont. S.C.), at para. 127. In my view, the statement “expertise commands deference only when the expert is coherent” applies to Mr. Zafar’s calculations: R.P. Kerans, Standards of Review Employed by Appellate Courts (Edmonton: Juriliber, 1994), cited with approval in Canada (Director of Investigation and Research) v. Southam Inc.,  1 S.C.R. 748. I therefore conclude that the trial judge ought to have rejected Mr. Zafar’s report given that the critical underlying assumption as to the rental income in 2002 cannot be reconciled with the uncontradicted oral and documentary evidence led at trial.
Turning to remedy, Rouleau J.A. refused to order a new trial (as requested by the appellants), noting that the trial judge had made all the necessary credibility findings. Instead, he proceeded to assess the damages himself. In this regard, the case bears similarity to McLean v. Knox (discussed previously on the blog here (http://www.conductofanappeal.com/mclean-v-knox-finding-facts-at-first-instance-on-appeal/), which also held that an appellate court should assess damages when a new trial would not be in the “interests of justice”, notwithstanding an error in the courts below.
As a result of his rejecting the Zafar Report, Rouleau J.A. also reduced the size of the costs award at trial, though he did not interfere with the decision to award costs on a substantial indemnity scale.
In her dissent, Pepall J.A. appeared to question the proprietary of how this issue came before the Court, noting that “Assessment of damages was not one of the four issues identified” by the appellants (para. 123). That said, it appears to have been raised in the context of a broader attack on the appropriateness of relying on Mr. Zafar’s evidence. In this regard, Pepall J.A. instead based her dissent on how Rouleau J.A. approached his review of the evidence:
 A trial judge’s decision on the independence of an expert is entitled to deference, per O’Connor A.C.J.O. in Alfano v. Piersanti, 2012 ONCA 297, at paras. 113-114. Recently, this court stated in D.M. Drugs Ltd. v. Bywater, 2013 ONCA 356, at para. 47:
An appellate court will not interfere with the evidentiary findings of the trial judge unless they have no basis in the evidence: see Goodman v. Viljoen, 2012 ONCA 896, 299 O.A.C. 257, at para. 142. This standard is equally applicable for the admissibility and weight to be attached to expert opinion: see Piersanti, at para. 113.
 My colleague relies on seven particular pieces of evidence in support of his conclusion that the monthly rental was closer to $2,240 rather than $3,377.30 in 2002. He states that the evidence in this regard is overwhelming, uncontradicted and corroborated in large measure by the written record. With respect, I cannot agree. This case was characterized by a complete failure on the part of the appellants to produce comprehensive records of any kind. Their evidence on rental income was selective and wholly lacking. Moreover, the evidence relied upon by my colleague does not demonstrate that the trial judge’s findings of fact were “clearly wrong” or that there was palpable and overriding error.
Pepall J.A. proceeded to look at, and offer explanations for, the evidence which Rouleau J.A. relied upon to demonstrate that Mr. Zafar’s assumptions were clearly wrong.
 In my view, it was open to the trial judge to make the factual findings she did and to accept the evidence proffered by Mr. Zafar in the circumstances of this case. It is not for this court to reconstitute itself as the trial judge. As the Supreme Court stated in Canada (Attorney General) v. Bedford, 2013 SCC 72, at para. 49, although admittedly in an entirely different context, the first instance judge determines the facts, while appeal courts review the decision for correctness in law or palpable and overriding error in fact; this division of labour is basic to our court system. The trial court’s responsibility for findings of fact is “[t]he greatest functional distinction between a trial and an appellate tribunal”: John Sopinka and Mark A. Gelowitz, The Conduct of an Appeal, 3rd ed. (Toronto: LexisNexis, 2012), at p. 70.
 A palpable and overriding error is one that is plainly seen and clearly wrong: Housen v. Nikolaisen, 2002 SCC 33,  2 S.C.R. 235, at para. 6; H.L. v. Canada (Attorney General), 2005 SCC 25,  1 S.C.R. 401, at para. 69 The appellate court must be certain that the trial judge erred: H.L., at para. 70. The limited scope for appellate review of findings of fact by a trial court applies equally to findings based on expert testimony: N.V. Bocimar S.A. v. Century Insurance Co. of Canada,  1 S.C.R. 1247, at p. 1249. In my view, the trial judge made no error of law nor any palpable and overriding error in fact with respect to the Esmail action. Deference is owed to the trial judge’s considered findings. Moreover, an assessment of damages based on the written record before us demands speculation – an exercise that should be avoided.