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BUSINESS LAWREPORTS

Fifth Series/Cinquieme serieRecueil de jurisprudence

en droit des affaires

[Indexed as: Alim Holdings Ltd. v. Tom Howe HoldingsLtd.]

Alim Holdings Ltd., Appellant (Plaintiff) and Tom HoweHoldings Ltd., R.S.H. Investments Ltd., Colliers, Macaulay,

Nicolls Inc. and Morgan Dyer, Respondents (Defendants) andMorgan Dyer, Sean Ogilvie and Colliers, Macaulay, Nicolls

Inc., Respondents (Third Parties)

White Spot Limited and Shato Ventures Ltd., Respondents(Plaintiffs) and Alim Holdings Ltd., Appellant (Defendant) and

Tom Howe Holdings Ltd. and R.S.H. Investments Ltd.,Respondents (Defendants)

British Columbia Court of Appeal

Docket: Vancouver CA42534, CA42546

2016 BCCA 84

Tysoe, Harris, Savage JJ.A.

Heard: January 20-21, 2016

Judgment: February 24, 2016

Real property –––– Sale of land — Option contracts — Exercise of option —Right of first refusal –––– Vendors owned adjacent parcels of land, leased to Wand C — Leases included right of first refusal — A offered vendors $10 millionfor both parcels with no allocation between parcels — C chose not to exerciseright of first refusal but W claimed to exercise right to purchase both parcels atsame price as A offered — A obtained injunction prohibiting further dealingswith properties until further order and sought specific performance of con-tract — Vendor sought dismissal of A’s application — A’s application for sum-mary judgment was dismissed — Trial judge found A chose to make unsegre-gated offer for both properties — Trial judge found offer included all ofproperty covered by W’s right of first refusal — Trial judge found W was enti-tled to waive vendor’s breaches and accept offer on basis that inclusion of otherlot was matter of consideration — Purchaser and vendor appealed — Appeals

BUSINESS LAW REPORTS 51 B.L.R. (5th)2

dismissed — A was correct in implicitly conceding W’s right of first refusal wastriggered by accepted offer — Offer to purchase property subject to right of firstrefusal, even if it offers to purchase other assets as well, is nevertheless offer topurchase that property — While holder of right of first refusal is entitled to re-quire provision of segregated, it does not follow, that owner has failed to giveproper notice by providing copy of offer to purchase multiple properties —Right of first refusal provided that upon receiving offer to purchase, vendorswere required to make advisement forthwith — Letter from W was proper exer-cise of right of first refusal, although W was incorrect that it had been givenoffer to buy other property as well — Trial judge did not err in not orderingspecific performance.

Contracts –––– Performance or breach — Obligation to perform — Suffi-ciency of performance — Duty to perform in good faith –––– Vendors ownedadjacent parcels of land, leased to W and C — Leases included right of firstrefusal — A offered vendors $10 million for both parcels with no allocation be-tween parcels — C chose not to exercise right of first refusal but W claimed toexercise right to purchase both parcels at same price as A offered — A obtainedinjunction prohibiting further dealings with properties until further order andsought specific performance of contract — Vendor sought dismissal of A’s ap-plication — A’s application for summary judgment was dismissed — Trialjudge found A chose to make unsegregated offer for both properties — Trialjudge found offer included all of property covered by W’s right of first re-fusal — Trial judge found W was entitled to waive vendor’s breaches and acceptoffer on basis that inclusion of other lot was matter of consideration — Pur-chaser and vendor appealed — Appeals dismissed — A was correct in implicitlyconceding W’s right of first refusal was triggered by accepted offer — Offer topurchase property subject to right of first refusal, even if it offers to purchaseother assets as well, is nevertheless offer to purchase that property — Vendorstook all reasonable steps to satisfy conditions precedent and did so in goodfaith — W was properly advised of accepted offer — Offer received from Acontained global price for two properties — No obligation on vendors to insistthat price be allocated between two properties — Not unreasonable for vendorsto refrain from providing segregated price to W, although W had right to insiston separate price.

Torts –––– Negligence — Miscellaneous –––– Vendors owned adjacent parcelsof land, leased to W and C — Leases included right of first refusal — A offeredvendors $10 million for both parcels with no allocation between parcels — Cchose not to exercise right of first refusal but W claimed to exercise right topurchase both parcels at same price as A offered — A obtained injunctionprohibiting further dealings with properties until further order and sought spe-cific performance of contract — Vendor sought dismissal of A’s application —A’s application for summary judgment was dismissed — Trial judge found A

Alim Holdings Ltd. v. Tom Howe Holdings Ltd. 3

chose to make unsegregated offer for both properties — Trial judge found offerincluded all of property covered by W’s right of first refusal — Trial judgefound W was entitled to waive vendor’s breaches and accept offer on basis thatinclusion of other lot was matter of consideration — Purchaser and vendor ap-pealed — Appeals dismissed — A was correct in implicitly conceding W’s rightof first refusal was triggered by accepted offer — Offer to purchase propertysubject to right of first refusal, even if it offers to purchase other assets as well,is nevertheless offer to purchase that property — Trial judge did not err in dis-missing claim in negligence — Amended notice of civil claim did not containproper allegations of negligence or negligent misrepresentation against ven-dors — Claim did not contain allegation that vendors owed duty of care to A orthat vendors breached duty of care, or made untrue representation.

Cases considered by Tysoe J.A.:

Adesa Auctions of Canada Corp. v. Southern Railway of British Columbia Ltd.(2001), 2001 BCSC 1421, 2001 CarswellBC 2258, 44 R.P.R. (3d) 260,[2001] B.C.T.C. 1421 (B.C. S.C.) — referred to

Apex Corp. v. Ceco Developments Ltd. (2005), 2005 ABQB 656, 2005 Carswell-Alta 1329, 36 R.P.R. (4th) 36, 9 B.L.R. (4th) 194, [2005] A.J. No. 1215, 387A.R. 211 (Alta. Q.B.) — followed

Apex Corp. v. Ceco Developments Ltd. (2008), 2008 ABCA 125, 2008 Carswell-Alta 416, 41 B.L.R. (4th) 1, 88 Alta. L.R. (4th) 26, 66 R.P.R. (4th) 188,[2008] 6 W.W.R. 393, 70 C.L.R. (3d) 184, 429 A.R. 110, 421 W.A.C. 110,[2008] A.J. No. 325 (Alta. C.A.) — referred to

Apex Corp. v. Ceco Developments Ltd. (2008), 2008 CarswellAlta 1514, 2008CarswellAlta 1515, [2008] S.C.C.A. No. 264, 391 N.R. 383 (note), 469 A.R.393 (note), 470 W.A.C. 393 (note) (S.C.C.) — referred to

Associated Graphic Supplies Ltd. v. B. & L. Properties Development Ltd.(1990), 12 R.P.R. (2d) 254, 1990 CarswellBC 563 (B.C. S.C.) — considered

Bhasin v. Hrynew (2014), 2014 SCC 71, 2014 CSC 71, 2014 CarswellAlta 2046,2014 CarswellAlta 2047, [2014] 11 W.W.R. 641, 27 B.L.R. (5th) 1, 464N.R. 254, 379 D.L.R. (4th) 385, 20 C.C.E.L. (4th) 1, [2014] S.C.J. No. 71,[2014] 3 S.C.R. 494, 584 A.R. 6, 623 W.A.C. 6, 4 Alta. L.R. (6th) 219(S.C.C.) — considered

Blaze Energy Ltd. v. Imperial Oil Resources (2014), 2014 ABQB 326, 2014CarswellAlta 884, 28 B.L.R. (5th) 111 (Alta. Q.B.) — considered

Budget Car Rentals Toronto Ltd. v. Petro-Canada Inc. (1989), 6 R.P.R. (2d)142, 46 B.L.R. 81, 34 O.A.C. 359, 69 O.R. (2d) 289, 60 D.L.R. (4th) 751,1989 CarswellOnt 137, [1989] O.J. No. 1362 (Ont. C.A.) — distinguished

Dynamic Transport Ltd. v. O.K. Detailing Ltd. (1978), 85 D.L.R. (3d) 19, [1978]2 S.C.R. 1072, 20 N.R. 500, 6 Alta. L.R. (2d) 156, 9 A.R. 308, 4 R.P.R. 208,1978 CarswellAlta 62, 1978 CarswellAlta 298, [1978] S.C.J. No. 52(S.C.C.) — considered


Peier v. Cressey Whistler Townhomes Ltd. Partnership (2012), 2012 BCCA 28,2012 CarswellBC 100, 14 R.P.R. (5th) 170, 315 B.C.A.C. 198, 535 W.A.C.198, 29 B.C.L.R. (5th) 65, [2012] 6 W.W.R. 270 (B.C. C.A.) — referred to

Southland Canada Inc. v. Zarcan Equities Ltd. (1999), 1999 CarswellAlta 1034,29 R.P.R. (3d) 146, 254 A.R. 59, [1999] A.J. No. 1283, 1999 ABQB 831(Alta. Q.B.) — distinguished

Statutes considered:

Property Law Act, R.S.B.C. 1996, c. 377s. 9 — referred to

APPEALS by plaintiff and defendant from judgment reported at Alim HoldingsLtd. v. Tom Howe Holdings Ltd. (2015), 2015 BCSC 71, 2015 CarswellBC 103,51 R.P.R. (5th) 13, [2015] B.C.J. No. 82, 37 B.L.R. (5th) 144 (B.C. S.C.), dis-missing application for summary judgment in action arising out of sale of land.

W.C. Kaplan, Q.C., E. Kassaris, for AppellantJ.D. West, S.K.H. Lam, for Respondents, Tom Howe Holdings Ltd. and R.S.H.

Investments Ltd.P.M.J. Arvisais, for Respondents, White Spot Limited and Shato Ventures Ltd.

Tysoe J.A.:

Introduction1 The respondents, Tom Howe Holdings Ltd. and R.S.H. Investments

Ltd. (the “Vendors”), entered into an agreement to sell two parcels ofland owned by them to the appellant, Alim Holdings Ltd. (“Alim”). Eachof the two parcels was subject to a lease containing a right of first refusalin favour of the lessee to purchase the lands. The sale agreement in-cluded conditions precedent that the Vendors receive notice that the les-sees had not exercised their rights of first refusal.

2 One of the lessees declined to exercise its right of first refusal. Theother lessee, White Spot Limited, took the position that it was entitled topurchase both parcels of land.

3 Alim commenced an action against the Vendors and their realtorclaiming that the Vendors breached the sale agreement and makingclaims in negligence and for negligent misrepresentation. White SpotLimited and its assignee, Shato Ventures Ltd., (together referred to as“White Spot”) commenced an action claiming that there was a bindingagreement for the sale of both parcels to White Spot and seeking specificperformance of this agreement.

Alim Holdings Ltd. v. Tom Howe Holdings Ltd. Tysoe J.A. 5

4 The Vendors and their realtor brought on summary trial applicationsfor the dismissal of the action commenced by Alim, and Alim brought ona summary trial application for specific performance of the sale agree-ment between it and the Vendors. The application by the realtor was ad-journed generally.

5 At the instance of the summary trial judge and with the consent of theparties, the action commenced by White Spot was heard by way of sum-mary trial at the same time as the applications in the Alim action. It ap-pears this was required by the judge in order to avoid the possibility ofinconsistent rulings in the two actions. There was no written applicationin the White Spot action, nor was there any evidence by way of affidavitsin the White Spot action.

6 The summary trial judge dismissed Alim’s application for summaryjudgment and dismissed its action as against the Vendors. He also or-dered that the Vendors specifically perform their obligation to sell bothparcels to White Spot on the terms of the agreement between Alim andthe Vendors.

7 Alim now appeals from the orders made in both actions.

Background8 The Vendors jointly own two adjacent properties having municipal

addresses of 5550 Kingsway (the “Kingsway property”) and 6679 Mac-Pherson Avenue (the “MacPherson property”), both in Burnaby, B.C.White Spot holds a lease of the Kingsway property, and a companycalled CIRP Management Ltd. (“CIRP”) holds a lease of the MacPhersonproperty.

9 White Spot’s lease contains a right of first refusal to purchase theKingsway property on the following terms (the “White Spot RFR”):

... the Lessor grants to the Lessee the right to purchase the whole orpart of the Lessor’s interest in the premises demised by the saidLease during the term granted in the said Lease, at the price and onthe terms which may be offered in good faith to the Lessor by anythird party, and which offer the Lessor is desirous of accepting. Uponthe Lessor receiving any offer to purchase the demised premises,which the Lessor is prepared to accept, the Lessor shall forthwith bynotice in writing advise the Lessee thereof, and the Lessee shall havethe right within the period of sixty (60) days from the receipt of suchnotice to elect to purchase on the terms of the said offer and to soadvise the Lessor.


10 The lease held by CIRP contains a similar right of first refusal exceptthat the time period for electing to purchase is 30 days, not the 60-dayperiod specified in the White Spot RFR.

11 In the summer of 2013, the Vendors decided to investigate selling thetwo properties. They engaged Colliers Macaulay Nicolls Inc. (“Colliers”)to facilitate the sale at an asking price of $11.5 million. The Vendorsdecided to sell the two properties together because they believed theywould receive a higher price than if they sold the properties separately.

12 In September 2013, Colliers approached White Spot about purchasingthe two properties. The president of White Spot told Colliers that he wasnot interested in making an offer at that time. The evidence is disputed asto whether White Spot told Colliers that it was not interested in exercis-ing its right of first refusal and whether Colliers subsequently said this toAlim, but it does appear that Colliers and Alim proceeded on the as-sumption that White Spot would not be exercising its right of firstrefusal.

13 Alim either owns or controls other properties within the same civicblock as the Kingsway and MacPherson properties. If Alim acquires theKingsway and MacPherson properties, it will own or control the entireblock of 5500 Kingsway and will have the opportunity to develop theentire block.

14 In October 2013, Colliers advised Alim that the Kingsway and Mac-Pherson properties were for sale. Colliers informed Alim about the rightsof first refusal and provided Alim with copies of the White Spot andCIRP leases.

15 Alim was interested in acquiring the Kingsway and MacPhersonproperties, and was prepared to submit an offer to purchase them. Col-liers prepared an offer to purchase in the amount of $9,250,000, whichAlim signed on October 16, 2013, and submitted to the Vendors throughColliers. The Vendors made a counter-offer in the amount of$10,500,000 by changing the purchase price in the offer by hand andinitialling the change. Alim made a further counter-offer in the amount of$10,000,000 by writing in the change and initialling it, and the Vendorsaccepted this counter-offer on October 18, 2013 (the “Accepted Offer”).


16 The Accepted Offer contained the following conditions precedent inrelation to the White Spot RFR and CIRP’s right of first refusal:

3.1 VENDOR CONDITIONS PRECEDENT

This Offer is subject to the following conditions precedent being sat-isfied or waived by the Vendor on or before the Sixtieth (60th) dayfollowing the Acceptance Date:

(d) The Vendor receiving legal notice regarding [the Mac-Pherson property] and the Lease ... which was assigned toCIRP Management Ltd., that the Tenant has not exercisedits right of First Refusal to Purchase as outlined on page 4of said lease; and,

(e) The Vendor receiving legal notice regarding [theKingsway property] and the Lease ... which was assignedto White Spot Limited, that the Tenant has not exercisedits right of First Refusal to Purchase as outlined on page11 of said lease.

If the Vendor fails to notify the Vendor [sic] in writing that the aboveconditions precedent have been satisfied or waived within the timespecified, or by such time as may be subsequently agreed, then thisAgreement will become null and void and the deposit, with accruedinterest will be returned in its entirely to the Purchaser.

The above conditions precedent are for the sole benefit of the Ven-dor. The Vendor has the right to waive one or all of the conditionsprecedent at its discretion within the time stipulated and proceed withthe transaction herein contemplated.

17 On October 24, 2013, Colliers emailed White Spot a copy of the Ac-cepted Offer. White Spot responded with an email to Colliers inquiringwhether it would be expected to pay $5,989,650 for the Kingsway pro-perty based on the respective square footages of the Kingsway and Mac-Pherson properties. Colliers replied on October 28 with an email pointingout that the offer was $10 million dollars for both properties. Colliersgenerally agreed with White Spot’s calculation based on a square footageapportionment, but expressed the view that, given the properties wereencumbered with leases, the value would be more in line with an analysisof the income generated by each property (resulting in a $7,031,431 ap-portionment to the Kingsway property).

18 Colliers then forwarded the email exchange to the Vendors and ad-vised that it would await White Spot’s response with respect to the formof valuation for each parcel. It appears White Spot never responded toColliers’ email.


19 On or about November 6, 2013, the Vendors delivered a letter datedOctober 22, 2013 to White Spot giving it formal notice pursuant to theWhite Spot RFR, as follows:

Re: 5550 Kingsway, Burnaby, B.C.

Pursuant to a Lease dated November 13, 1984 made between WhiteSpot Limited as lessee and Tom Howe Holdings Ltd. and RSH In-vestments Ltd. as lessor and regarding the above reference [sic] pro-perty (the “Lease”), this letter shall represent formal notice pursuantto the Right of First Refusal to Purchase (RFRP) as outlined on Page11 of the Lease that the Lessee [sic] has received and [sic] offer thatit is desirous of accepting (copy attached).

As described in the RFRP of the Lease, the Lessor has granted to theLessee the right to purchase in whole or part of the Lessor’s interestin the premises demised by the said Lease during the term granted inthe said Lease, at the price and on the terms which may be offered ingood faith to the Lessor by any third party, and which offer the Les-sor is desirous of accepting.

Please provide notification of your position relating to the enclosedOffer to Purchase [the Accepted Offer] and the RFRP. As noted inthe RFRP the Lessor [sic] has a period of sixty (60) days from receiptof such notice to elect to purchase on the terms of the said offer andto so advise the Lessor. While the provision for timing is established,should you have no interest in pursuing the Offer please provide for-mal notice at your earliest convenience of your decision not to exer-cise your rights hereunder.

20 The Vendors sent a similar notice to CIRP but it was directed to anincorrect address. The notice had to be resent to CIRP and, as a result,the Accepted Offer was amended to extend the date for satisfaction orwaiver of the Vendor’s conditions precedent from the date 60 days afterthe acceptance of the offer to the new date of January 8, 2014.

21 CIRP did not exercise its right of first refusal within the 30-day exer-cise period. On December 30, 2013, White Spot wrote the following let-ter to the Vendors:

Re: 5550 Kingsway and 6679 MacPherson Avenue, Burnaby, BC

We refer to your letter to us of October 22, 2013 with the enclosedOffer to Purchase the above properties as accepted by you as theVendor thereunder.

Further to your letter, we hereby give you formal notice that wehereby exercise our right of first refusal and elect to purchase the


above properties on the terms and conditions of the Offer to Purchasethat you forwarded to us.

Since your letter and your accepted Offer to Purchase included twoproperties for sale for one aggregate price, and since we understandthe holder of the right of first refusal to purchase the property onMacPherson Avenue has waived its rights under such right of firstrefusal, we take the position that your letter amounts to an offer tosell both of the two properties to us at the aggregate price for suchproperties, all on the terms of the Offer to Purchase that you providedto us. We hereby accept your offer to sell such properties to us onthat basis and we hereby agree to assume all of the obligations of thePurchaser under the Offer to Purchase that you provided to us.

22 Colliers advised the Vendors of White Spot’s letter. The reaction of arepresentative of one of the Vendors (expressed in an email to Colliers)was that White Spot’s interpretation of the October 22, 2013 notice wasflawed in thinking that the Vendors were offering both properties to it.

23 Colliers also advised Alim that White Spot was exercising its right offirst refusal. On January 8, 2014, Alim emailed to the Vendors a form ofagreement dated January 7, 2014, to amend the Accepted Offer to effec-tively apportion the $10,000,000 purchase price between the Kingswayproperty ($7,300,000) and the MacPherson property ($2,700,000). TheVendors declined to execute this amending agreement.

24 On January 9, 2014, Colliers sent Alim a letter dated January 2, 2014from the Vendors informing Alim that the conditions precedent in sec-tion 3.1 of the Accepted Offer had not been satisfied or waived by theVendors on or before the date stipulated and that the Accepted Offer wasnull and void. The deposit paid by Alim under the Accepted Offer wasreturned to it.

25 Despite the Vendors’ initial reaction to White Spot’s December 30letter, Colliers prepared an offer to purchase in the same form as the Ac-cepted Offer except it was dated January 9, 2014, the purchaser wasshown to be White Spot and the Vendor Conditions Precedent in section3.1 were removed. Colliers sent this offer to White Spot on January 10,2014 and White Spot executed it and returned it to Colliers on January13, 2014.

26 The affidavit material filed in the Alim action was incomplete to theextent of failing to explicitly disclose whether the Vendors executed theWhite Spot offer to purchase. The materials did contain a documentdated February 13, 2014, by which White Spot waived the purchaser’sconditions precedent set out in the White Spot offer; this document re-


cited that an agreement of purchase and sale was made between the par-ties as a result of White Spot “accepting the [Vendors’] offer to sell thetwo properties” and that the parties had “executed and delivered anAgreement of Purchase and Sale dated for reference December 30, 2013to evidence and confirm such agreement”. A representative of the Ven-dors also deposed in an affidavit in the Alim action that the Vendors hadentered into an unconditional agreement to sell the two properties toWhite Spot, but a copy of this agreement was not attached to theaffidavit.

27 The sale of the two properties to White Spot was scheduled to closeon March 17, 2014. White Spot tendered the adjusted purchase price tothe Vendors’ lawyer on that date but the sale did not complete becauseAlim, having commenced its action March 7, 2014, obtained an injunc-tion on March 14, 2014 restraining the Vendors from transferring theproperties. White Spot then commenced its specific performance action.

Decision of the Summary Trial Judge28 In his reasons for judgment (indexed as 2015 BCSC 71 (B.C. S.C.)),

the summary trial judge first set out the evidence and the positions of theparties. He then reviewed a number of authorities dealing with rights offirst refusal, including Adesa Auctions of Canada Corp. v. SouthernRailway of British Columbia Ltd., 2001 BCSC 1421 (B.C. S.C.); BudgetCar Rentals Toronto Ltd. v. Petro-Canada Inc. (1989), 69 O.R. (2d) 289(Ont. C.A.); Southland Canada Inc. v. Zarcan Equities Ltd., 1999 ABQB831 (Alta. Q.B.); and Associated Graphic Supplies Ltd. v. B. & L.Properties Development Ltd. (1990), 12 R.P.R. (2d) 254 (B.C. S.C.).

29 After referring to Associated Graphic Supplies, the judge posed theissue as:

[60] If it is a breach of the Right of First Refusal for a vendor totender such an [unsegregated] offer, and the holder of the Right ofFirst Refusal is in a position to demand a segregated offer, are theynevertheless in a position to waive the breach and accept the unsegre-gated offer?

[61] The question turns on whether the Right of First Refusal oper-ates not only as a right in respect of a particular legal description butalso as a strict limitation respecting any other property. ...

30 The judge observed that, if White Spot had asserted its right to re-quire the Vendors to tender a segregated price, then, even before theprice was settled, the Accepted Offer would be null and void because the


Vendors would not have been in a position to notify Alim that the Ven-dors’ conditions precedent had been satisfied.

31 The judge concluded that it seemed illogical that White Spot’s onlyrecourse was to resist the unsegregated offer and fight a potentially pro-tracted battle over attribution. He held that White Spot was entitled toaccept the unsegregated offer on the basis that the inclusion of the Mac-Pherson property was a matter of consideration.

32 The judge dismissed Alim’s application for summary judgment andallowed White Spot’s application for specific performance. In a subse-quent hearing, the judge confirmed that Alim’s action as against the Ven-dors was dismissed.

Positions on Appeal33 In its factum, Alim sets out what it asserts are four errors made by the

summary trial judge. The Vendors respond in their factum by saying thatthe framing of the issues by Alim “focuses on irrelevant and esoteric is-sues” and by setting out what they consider to be the real issue for deter-mination. In its factum, White Spot sets out the issues in its own way. Ido not think anything will be gained by repeating the various articula-tions of the issues. Instead, I will briefly summarize the positions of theparties.

34 It is the position of Alim that White Spot did not have the right toexercise the White Spot RFR with respect to the MacPherson property aswell as the Kingsway property. Alim says that as a result of White Spot’selection to exercise the right of first refusal with respect to both proper-ties, it did not properly exercise its right of first refusal with respect tothe Kingsway property or it waived its right of first refusal. As a result,the Vendors’ conditions precedent in the Accepted Offer were satisfied,and Alim has a binding agreement with the Vendors to purchase the twoproperties.

35 Alim also says that the summary trial judge failed to apply the duty ofgood faith owed by the Vendors to Alim in the performance of the Ac-cepted Offer. Finally, it is the position of Alim that the judge should nothave dismissed the Alim action as against the Vendors in its entirety be-cause there were outstanding claims of negligence and negligent misrep-resentation that had not been adjudicated upon.

36 The position of the Vendors is that White Spot properly exercised itsright of first refusal and, as a result, the Vendors’ conditions precedent in


the Accepted Offer were not satisfied or waived, and the Accepted Offerbecame null and void.

37 It is the position of White Spot that, in view of the manner in whichthe notice was given to it under the White Spot RFR, it was open toWhite Spot to accept the offer of the Vendors on the terms presented andelect to purchase both of the properties from the Vendors.

Discussion

(a) Exercise of the White Spot RFR38 Rights of first refusal are creatures of contract (although they can cre-

ate an interest in land: see Property Law Act, R.S.B.C. 1996, c. 377, s. 9).The rights of the grantor and the grantee are determined by the wordingof the right of first refusal. Although general statements can be madeabout rights of first refusal, it is dangerous to treat such statements asimmutable propositions. While the statements may be true with respectto most rights of first refusal, the wording of other rights of first refusalmay make the statements inapplicable to those rights. Each case turns onthe wording of the right of first refusal, the circumstances of the offermade to purchase the property subject to the right of first refusal, and theexercise of the right by its holder.

39 A threshold question in this appeal is whether the White Spot RFRwas triggered by the Accepted Offer in view of the fact that it covered aproperty (the MacPherson property) in addition to the property subject tothe White Spot RFR (the Kingsway property). Alim does not take theposition that the White Spot RFR was not triggered despite case authori-ties (Budget Car Rentals and Southland Canada) suggesting that rightsof first refusal are not triggered by package sales that include assets otherthan the property subject to the right of first refusal. In my view, Alim iscorrect in implicitly conceding that the White Spot RFR was triggered bythe Accepted Offer.

40 Each of Budget Car Rentals and Southland Canada is easily distin-guishable from the present case. Budget Car Rentals involved a sale ofall assets of a business in several provinces; Southland Canada involveda sale of an unsubdivided parcel, part of which was subject to a right offirst refusal. The case at bar is concerned with a proposed sale of twosubdivided parcels, one of which was subject to a right of first refusal infavour of White Spot. In my opinion, the Accepted Offer constitutes an“offer to purchase the demised premises” within the meaning of theWhite Spot RFR.


41 The correctness of Budget Car Rentals was questioned in Apex Corp.v. Ceco Developments Ltd., 2005 ABQB 656 (Alta. Q.B.), paras. 46 to 55(rev’d on other grounds 2008 ABCA 125 (Alta. C.A.), leave to appealref’d [2008] S.C.C.A. No. 264 (S.C.C.)). I share the reservations ex-pressed in that case. To the extent that Budget Car Rentals and SouthlandCanada stand for the proposition that a right of first refusal is not trig-gered by a package sale unless the right of first refusal specifically pro-vides that it applies when the property subject to the right of first refusalis being sold with other properties or assets, then I question the correct-ness of those decisions. In my view, a right of first refusal will be trig-gered by a package sale unless the wording of the right of first refusal isto the effect that it will only be triggered by an offer to purchase theproperty subject to the right of first refusal and no other assets. An offerto purchase a property subject to a right of first refusal, even if it offers topurchase other assets as well, is nevertheless an offer to purchase thatproperty: see, in addition to Apex, Associated Graphic Supplies andADESA Auctions.

42 The next question, which is also not contested on this appeal, iswhether the October 22, 2013 notice the Vendors gave to White Spotcomplied with the White Spot RFR. The decision in Associated GraphicSupplies suggests that it is a breach of the right of first refusal for theowner of the property to fail to set out in the notice a specific price forthe property when the offer has a global price for multiple properties.While the law is clear that the holder of the right of first refusal is enti-tled to require that it be provided with a segregated price for the propertysubject to the right of first refusal, it does not follow, in my view, that theowner has failed to give a proper notice by providing a copy of the offerto purchase the multiple properties to the holder of the right of firstrefusal.

43 In the present case, the White Spot RFR provided that upon receivingan offer to purchase the Kingsway property the Vendors were preparedto accept, the Vendors were required to “forthwith by notice in writingadvise [White Spot] thereof”. The Vendors did advise White Spot byproviding it with a copy of the Accepted Offer. If the Accepted Offertriggered the White Spot RFR, as I have held it did, then the Vendorsgave sufficient notice to White Spot by providing a copy of the AcceptedOffer to it.

44 The next question, which is the central issue on this appeal, iswhether White Spot’s December 30, 2013 letter was an effective exercise


of the White Spot RFR or whether it was ineffective or constituted awaiver as a result of White Spot claiming to have the right to purchasethe MacPherson property as well as the Kingsway property. I will firstconsider whether White Spot did have the right to purchase the MacPher-son property as well as the Kingsway property because, if it did have thatright, its December 30, 2013 letter would not have constituted a waiveror non-exercise of its rights.

45 The White Spot RFR gave White Spot a right of first refusal withrespect to the Kingsway property only. It did not give White Spot a rightof first refusal with respect to the MacPherson property. CIRP held theright of first refusal over the MacPherson property, and White Spot wasaware of this.

46 The October 22, 2013 notice from the Vendors to White Spot referredonly to a right of first refusal to purchase the Kingsway property. It wasnot an offer to sell the MacPherson property to White Spot as well.While the notice used the phrases “provide notification of your positionrelating to the enclosed Offer to Purchase” and “should you have no in-terest in pursuing the Offer”, the notice stated that it was being givenpursuant to the White Spot RFR and referred to White Spot’s right topurchase the “premises demised by the said Lease”. The notice did notacknowledge or give any right to White Spot to purchase the MacPher-son property.

47 Indeed, the Vendors had given a similar notice to CIRP with respectto the MacPherson property, and it is obvious that the Vendors would nothave simultaneously offered to sell both properties to two different par-ties. The fact that CIRP did not exercise its right of first refusal could nothave given greater rights to White Spot or changed the meaning of theOctober 22, 2013 notice.

48 My conclusion that White Spot did not have the right to purchase theMacPherson property is consistent with conclusions reached in similarcircumstances. In Southland Canada, the owner received an offer topurchase an unsubdivided parcel and the holder of the right of first re-fusal, a lessee of a portion of the unsubdivided parcel, purported to exer-cise a right to purchase the entire parcel. The Alberta Queen’s Benchheld that the right of first refusal related only to the leased portion of theparcel and that the lessee did not have the right to match the offer for theentire parcel.

49 In Blaze Energy Ltd. v. Imperial Oil Resources, 2014 ABQB 326(Alta. Q.B.), Blaze was a part owner of oil and gas interests in land and a


gas plant (together with land from which the gas for the plant was pro-duced). Blaze was party to an agreement with the other co-owners of theoil and gas interests, and the agreement contained a right of first refusal.There was also a right of first refusal in respect of the gas plant, but itwas held that the transaction in question fell within an exemption suchthat the right of first refusal in respect of the gas plant was not triggeredby the transaction.

50 The transaction was a sale of the partial ownership of Imperial Oil inthe oil and gas interests and the gas plant (and corresponding land) for aglobal price of $855,130,000. Imperial Oil gave notice of the sale of itsownership share of the oil and gas interests (but not the gas plant) toBlaze pursuant to the right of first refusal, and it appears that an amountof $17,000,000 of the total sale price was allocated in the notice to the oiland gas interests.

51 The Alberta Queen’s Bench rejected Blaze’s argument that it was en-titled to purchase Imperial Oil’s share of the gas plant as well as the oiland gas interests. Madam Justice Schutz held that the phrase “for theoffered price and upon the offered terms” in the right of first refusal didnot give Blaze the right to purchase any of the assets involved in thetransaction other than the oil and gas interests that were subject to thetriggered right of first refusal.

52 In view of my conclusion that White Spot did not have the right topurchase the MacPherson property pursuant to the White Spot RFR orthe October 22, 2013 notice, it is necessary to now consider whetherWhite Spot’s letter dated December 30, 2013 was a proper exercise of itsright of first refusal to purchase the Kingsway property. Alim says theletter was not an effective exercise of the right or White Spot waived itsright.

53 In its December 30 letter, White Spot referenced the October 22,2013 notice letter and stated “we hereby give you formal notice that wehereby exercise our right of first refusal and elect to purchase the aboveproperties”. The letter went on to explain that White Spot took the posi-tion that the October 22 letter amounted to an offer to sell both propertiesand that “[w]e hereby accept your offer”. In my view, White Spot wasdoing two things in its letter. First, it recognized that its right of firstrefusal related to the Kingsway property only, and it exercised that right.Second, it took the position that the October 22 letter also amounted toan offer to sell the MacPherson property and it accepted that offer. WhileWhite Spot was incorrect in the position it took, this did not detract from


the fact that it exercised its right of first refusal to purchase the Kingswayproperty.

54 Alim places emphasis on the word “and” in the phrase “we herebygive you formal notice that we hereby exercise our right of first refusaland elect to purchase the above properties”. I disagree with Alim’s argu-ment that the use of the word “and” means that White Spot was purport-ing to purchase the MacPherson property pursuant to the White SpotRFR. The sentence would not have made sense had White Spot used theword “or” rather than “and”. In my view, the use of the word “and” wasdisjunctive, not conjunctive (the use of the word “to” in place of “and”would have had a conjunctive meaning). The letter explained why WhiteSpot was taking the position that it was entitled to elect to purchase bothproperties, and its purported entitlement to purchase the MacPhersonproperty was independent of the White Spot RFR.

55 One way to test this conclusion is to look at the converse situation. IfWhite Spot had refused to complete the purchase of the Kingsway pro-perty and been sued by the Vendors, I have no doubt that White Spotwould have been unsuccessful in claiming that its December 30 letter didnot amount to an exercise of the White Spot RFR.

56 The Vendors take the position that there are no authorities standingfor the proposition that “by asking for more, you lose what you hadbefore”. Alim says that there is such an authority and points to Blaze and,in particular, the statement at para. 123 that “having failed to exercise itsrights to ROFR Lands [the oil and gas interests], Blaze has lost its rightof first refusal”.

57 The facts of Blaze are fairly complicated and they may not have beenfully set out in view of the time constraint on Schutz J. to provide herreasons for judgment within four days. I have already set out the fact thatImperial Oil was selling its share in the oil and gas interests and the gasplant. The purchaser was a company called Whitecap. After agreeing topurchase the assets, Whitecap then agreed to sell an 85% interest in theplant and corresponding land to a partnership called Keyera. Both Impe-rial Oil and Whitecap gave notices to Blaze under the right of first re-fusal relating to the oil and gas interests. Madam Justice Schutz definedImperial Oil’s notice as the “Lands ROFR Notice” (para. 30) and White-cap’s notice as the “Whitecap ROFR Notice” (para. 61).

58 On my reading of Blaze, Blaze did not exercise its rights in responseto the Lands ROFR Notice within the ten-day time limit specified in theright of first refusal. The Lands ROFR Notice was given to Blaze on


March 17, 2014 (para. 50) and Blaze simply sent an email to Imperial Oilon March 27, 2014 taking the positions that the Lands ROFR Notice wasinvalid and that it was entitled to purchase an interest in the gas plant,and requesting additional information relating to the gas plant (paras. 108and 109). There is nothing in the reasons to indicate that Blaze exercisedrights in response to the Lands ROFR Notice. Blaze did purport to exer-cise its rights in response to the Whitecap ROFR Notice within ten daysof receiving it (para. 64) but, in stating in para. 123 that Blaze failed toexercise its rights to ROFR Lands, I understand Schutz J. to be referringto the fact that Blaze did not exercise its rights pursuant to the LandsROFR Notice.

59 One could interpret Southland Canada as standing for the propositionthat if a holder of a right of first refusal purports to exercise the right inrespect of property not covered by the right, then the exercise is invalidwith respect to the property covered by the right. Mr. Justice Clark con-cluded that Southland did not properly exercise its right of first refusalfor two reasons. The first was that Southland sought to assert rights it didnot have by matching the offer for the entire unsubdivided parcel (para.93). The second was that the 20-day time period for exercising the rightof first refusal had expired before Southland attempted to exercise itsrights (para. 95).

60 These conclusions of Clark J. are obiter dicta in view of his earlierconclusion that, until subdivision occurred, the right of first refusal wasvoid for uncertainty and could not be triggered (para. 89). In addition,Southland’s response was different than White Spot’s December 30,2013 letter. Rather than exercising its right of first refusal and taking theposition that it was entitled to purchase the unsubdivided parcel as a re-sult of some other right, Southland simply purported to exercise its rightto purchase the unsubdivided parcel for the amount offered by the pro-spective purchaser (para. 39). Southland did not state that it was exercis-ing the right of first refusal contained in its lease. In this case, White Spotexercised its right of first refusal to purchase the Kingsway property and,in addition, took the position that the Vendors’ October 22, 2013 lettergave it the right to also purchase the MacPherson property.

61 I conclude that White Spot’s December 30, 2013 letter was an effec-tive exercise of the White Spot RFR. This means that the condition pre-cedent contained in clause (e) of section 3.1 of the Accepted Offer wasnot satisfied, and the Accepted Offer became null and void. It is unneces-sary to decide whether, even if White Spot’s exercise of the White Spot


RFR was ineffective, the condition precedent was still not satisfied be-cause the Vendors did not receive the notice required by clause (e) thatWhite Spot had not exercised its right of first refusal.

62 In the result, the summary trial judge did not err in dismissing Alim’sclaim for specific performance.

b) Duty of Good Faith/Reasonable Efforts63 The Supreme Court of Canada has recently recognized a new com-

mon law duty of honest performance applicable to all contracts, whichrequires the parties to be honest with each other in relation to the per-formance of their contractual obligations: Bhasin v. Hrynew, 2014 SCC71 (S.C.C.) at para. 93. This duty has been recognized for some time inconnection with the fulfillment of conditions precedent contained in con-tracts. In Dynamic Transport Ltd. v. O.K. Detailing Ltd., [1978] 2 S.C.R.1072 (S.C.C.) at 1084, the Court held that the vendor is under “a duty toact in good faith and to take all reasonable steps to complete the sale”.Also see Peier v. Cressey Whistler Townhomes Ltd. Partnership, 2012BCCA 28 (B.C. C.A.) at para. 23.

64 During the hearing of the appeal, Alim conceded that, although rightswere not accorded, “it wasn’t out of some nefariousness or bad faith”. Itake it from this concession that Alim’s complaint is limited to a failureby the Vendors to take all reasonable steps to satisfy the conditions pre-cedent and complete the sale.

65 Alim asserts that the duty of the Vendors required them to:

(a) structure the offer or draft the notice under the White Spot RFR sothat there was a segregated price for the Kingsway property;

(b) disclose to Alim when White Spot gave an indication that it mayexercise its right of first refusal; and

(c) inform White Spot that its December 30, 2013 letter was not aproper exercise of the White Spot RFR.

66 In my view, the Vendors took all reasonable steps in the circum-stances to satisfy the conditions precedent. The offer received from Alimcontained a global price for the two properties. There was no obligationon the Vendors to insist that the price be allocated between the twoproperties. The White Spot RFR required the Vendors to advise WhiteSpot of the Accepted Offer and it did so. It was not unreasonable in thecircumstances for the Vendors to refrain from providing a segregated


price to White Spot, although White Spot had the right to insist on aseparate price for the Kingsway property.

67 I fail to see how the failure to make disclosure to Alim that WhiteSpot had indicated that it may exercise its right of first refusal could beconsidered to be a breach of the obligation to take all reasonable steps tosatisfy the conditions precedent. White Spot had the contractual right topurchase the Kingsway property, and the obligation on the Vendors didnot extend to taking steps to prevent or persuade White Spot from exer-cising its contractual right. In the circumstances, the Vendors’ obligationwas to give proper notice under the White Spot RFR, and they did so.

68 As I have discussed, the December 30 letter was a proper exercise ofthe White Spot RFR. To the extent that White Spot did not have the rightto purchase the MacPherson property, the failure of the Vendors to takethat position had no impact on the conditions precedent because WhiteSpot’s exercise of its right of first refusal meant that they could not besatisfied and the Accepted Offer was bound to become null and void. Inits reply factum, Alim says that if only one of the tenants had exercisedits right of first refusal, it would still have had a commercial opportunityto purchase the other property. However, once the White Spot RFR wasexercised and the Accepted Offer was bound to become null and void,Alim had no enforceable right to have an opportunity to purchase theMacPherson property.

69 The final point I wish to make on this topic is that, even if the Ven-dors had somehow breached their obligation to take all reasonable stepsto satisfy the conditions precedent, the evidence does not support theconclusion that the conditions precedent would have been satisfied hadthe Vendors taken all such reasonable steps. There is no admissible evi-dence that White Spot would not have exercised its right of first refusalto purchase the Kingsway property had the purchase price beensegregated.

c) Claims of Negligence and Negligent Misrepresentation70 Alim complains that the summary trial judge dismissed its entire ac-

tion against the Vendors without adjudicating on its claims of negligenceand negligent misrepresentation. The Vendors respond that their noticeof application requested the dismissal of Alim’s claim and that the judgedid adjudicate upon all of the claims made against them in Alim’samended notice of civil claim. In order to determine which position iscorrect, it is necessary to review Alim’s amended notice of civil claim.


71 The amended notice of civil claim first sets out a description of theparties and the properties, followed by Alim’s allegations of the relevantfacts. Under the heading “Breach of Contract by the Defendants, TomHowe Holdings and R.S.H.”, the amended notice makes allegations thatthe Vendors wrongfully breached the Accepted Offer and that Alimthereby suffered damage. The next two headings in the amended noticeare “Negligence by Colliers and Mr. Dyer” and “Negligent Misrepresen-tation by Colliers and Mr. Dyer”, in which allegations are made as fol-lows:

Negligence by Colliers and Mr. Dyer

44. The Defendants, Colliers and Mr. Dyer (the “Real Estate Defend-ants”), owed a duty of care to the Plaintiff by virtue of the followingfacts:

(a) as realtors, the Defendants possessed special skill and judg-ment on which the Plaintiff was entitled to rely;

(b) the Defendants drafted the Offer on behalf of the Plaintiff;and

(c) the Defendants made representations to the Plaintiff which in-duced the Plaintiff to enter into negotiations for the InterimAgreement and to execute the Interim Agreement.

45. The Real Estate Defendants breached the duty of care owed tothe Plaintiff in that they failed to exercise the standard of care re-quired of a reasonable and careful person in the circumstances.

46. The Plaintiff suffered damages as a direct result of the negligenceof the Defendants.

Negligent Misrepresentation by Colliers and Mr. Dyer

47. The Real Estate Defendants represented to the Plaintiff that theyknew White Spot would not exercise its Right of First Refusal topurchase Parcel 1. Mr. Dyer made this statement after the Plaintifftold him that it was not interested in making an offer to purchase landthat was subject to rights of first refusal.

48. The Plaintiff reasonably relied on Mr. Dyer’s Representation thatWhite Spot would not exercise its Right of First Refusal and it wasinduced by it to pursue the purchase of the Parcels which it otherwisewould not have done.

49. Mr. Dyer ought reasonably to have foreseen that the Plaintiffwould rely on his Representation because the Plaintiff told Mr. Dyerthat he would have been interested in purchasing the Parcels if notfor the existence of the Rights of First Refusal.


50. Reliance by the Plaintiff on the Representation made by Mr. Dyerwas reasonable in the circumstances.

51. A reasonably prudent person in the Plaintiff’s position wouldhave been led by Mr. Dyer’s words to believe that Colliers and Mr.Dyer would take reasonable care in assuring the Plaintiff that WhiteSpot was not interested in purchasing Parcel 1.

52. By reason of the Defendants’ negligence, the Plaintiff has suf-fered loss and damage.

72 I agree with the Vendors’ submission that the amended notice of civilclaim does not contain proper allegations of negligence or negligent mis-representation against the Vendors. It does not contain an allegation thatthe Vendors owed a duty of care to Alim or that the Vendors breached aduty of care. Nor does it contain an allegation that the Vendors made arepresentation to Alim that was not true. I do not regard para. 52 of theamended notice to be a sufficient pleading of negligence against theVendors.

73 It was not inappropriate for the summary trial judge to have dismissedthe Alim action against the Vendors when Alim’s claims against Colliersand Mr. Dyer remained outstanding because Alim was asserting differentcauses of action against them.

74 In my view, the summary trial judge did not err in dismissing Alim’saction against the Vendors in its entirety.

d) White Spot Action75 The summary trial judge made an order for specific performance in

the White Spot action. This order was not appealed by the Vendors but itwas appealed by Alim, which was joined as a party in the White Spotaction because White Spot made a claim against Alim that it attempted toinduce the Vendors to breach contractual obligations with White Spot.

76 As I have explained above, White Spot did not have a legal right pur-suant to the White Spot RFR or the October 22, 2013 notice letter topurchase the MacPherson property. The initial reaction of the Vendorswas that White Spot was mistaken in believing that both properties hadbeen offered to it. Despite this, it was open to the Vendors to acceptWhite Spot’s position and to become legally obligated to sell bothproperties to it for the same price that Alim had offered.

77 As a result of the incompleteness of evidence due to the manner inwhich the White Spot action was tried and the fact that the evidence inthe Alim action suggested that the Vendors and White Spot did enter into


a written agreement for the purchase and sale of the two properties, weasked counsel for the Vendors at the hearing of the appeal to provide uswith written advice as to the position of the Vendors with respect to theirobligation to convey both properties to White Spot. Counsel for the Ven-dors has provided us with a memorandum dated January 25, 2016 con-firming that the Vendors and White Spot did enter into such a writtenagreement and acknowledging that the Vendors have a contractual obli-gation to convey both properties to White Spot.

78 In addition, I question whether Alim has standing to appeal the orderof specific performance in the White Spot action except to the limitedextent of requesting the order to be set aside in the event we concludedthat the Accepted Offer had not become null and void.

79 In these circumstances, I would not set aside the order of specific per-formance in the White Spot action despite my conclusion that WhiteSpot did not have a right to purchase the MacPherson property pursuantto the White Spot RFR or the October 22, 2013 notice letter.

Conclusion80 I would dismiss both appeals.

Harris J.A.:

I agree:

Savage J.A.:

I agree:

Appeals dismissed.

Hudson’s Bay Co. v. OMERS Realty Corp. 23

[Indexed as: Hudson’s Bay Co. v. OMERS Realty Corp.]

Hudson’s Bay Company and HBC CAN Real Property LP,Applicants (Respondents) and OMERS Realty Corporation,Yorkdale Shopping Centre Holdings Inc., OMERS RealtyHoldings (Yorkdale) Inc., ARI YKD GP Inc., ARI YKD

Investments LP, Square One Property Corporation, OMERSRealty Management Corporation, 156 Square One Limited,Scarborough Town Centre Holdings Inc., OMERS Realty

Holdings (STC One) Inc., ARI STC GP Inc. and ARI STCInvestments LP, Respondents (Appellants)

Ontario Court of Appeal

Docket: CA C60988

2016 ONCA 113

E.E. Gillese, J. MacFarland, K. van Rensburg JJ.A.

Heard: January 21, 2016

Judgment: February 10, 2016

Real property –––– Landlord and tenant — Term of lease — Miscellane-ous –––– Applicants including HB Co. leased space in shopping malls, in whichit was anchor tenant — Applicants wished to transfer leaseholdings to joint ven-ture — Landlord of shopping malls refused permission to transfer leasehold-ings — Applicants’ application for declaration that landlord’s permission wasnot necessary was granted — Trial judge found consent of landlord was not re-quired — Trial judge found leases were to be assigned to HB Co. as generalpartner of joint venture — Trial judge found limited partnership may not holdproperty and any property would be held by HB Co. in its capacity as generalpartner — Trial judge found affiliate exception in leases which allowed transferof leasehold to affiliate of applicants, was operative and meant that landlord’spermission was not required — Respondents appealed — Appeal dismissed —No reason to look beyond fact that leases were being assigned to general part-ner — Trial judge correctly concluded that leases would be assigned to HB Co.,as general partner — Not case of HB Co. holding bare title or being mere nomi-nee for true beneficial owner — Trial judge properly concluded that proposedassignments of leases would be to general partner and not to limited partnership,and characterization of “beneficial” or “effective” ownership did not directanalysis.

Business associations –––– Creation and organization of business associa-tions — Partnerships — Relationship between partners — General princi-


ples –––– Applicants including HB Co. leased space in shopping malls, in whichit was anchor tenant — Applicants wished to transfer leaseholdings to joint ven-ture — Landlord of shopping malls refused permission to transfer leasehold-ings — Applicants’ application for declaration that landlord’s permission wasnot necessary was granted — Trial judge found consent of landlord was not re-quired — Trial judge found leases were to be assigned to HB Co. as generalpartner of joint venture — Trial judge found limited partnership may not holdproperty and any property would be held by HB Co. in its capacity as generalpartner — Trial judge found affiliate exception in leases which allowed transferof leasehold to affiliate of applicants, was operative and meant that landlord’spermission was not required — Respondents appealed — Appeal dismissed —No reason to look beyond fact that leases were being assigned to general part-ner — Trial judge correctly concluded that leases would be assigned to HB Co.,as general partner — Not case of HB Co. holding bare title or being mere nomi-nee for true beneficial owner — Trial judge properly concluded that proposedassignments of leases would be to general partner and not to limited partnership,and characterization of “beneficial” or “effective” ownership did not directanalysis.

Cases considered:

Kucor Construction & Developments & Associates v. Canada Life AssuranceCo. (1998), 1998 CarswellOnt 4423, 114 O.A.C. 201, 167 D.L.R. (4th) 272,41 O.R. (3d) 577, 21 R.P.R. (3d) 187, 43 B.L.R. (2d) 136, [1998] O.J. No.4733, 70 O.T.C. 80 (Ont. C.A.) — considered

Lehndorff General Partner Ltd., Re (1993), 17 C.B.R. (3d) 24, 9 B.L.R. (2d)275, 1993 CarswellOnt 183, [1993] O.J. No. 14 (Ont. Gen. Div. [Commer-cial List]) — considered


Commercial Tenancies Act, R.S.O. 1990, c. L.7s. 23(2) — referred to

APPEAL by respondents from judgment reported at Hudson’s Bay Co. v.OMERS Realty Corp. (2015), 2015 ONSC 4671, 2015 CarswellOnt 11740, 58R.P.R. (5th) 224, 48 B.L.R. (5th) 110 (Ont. S.C.J.), granting application for dec-laration regarding leases.

Sheila Block, Molly Reynolds, for AppellantsJonathan Lisus, James Renihan, for Respondents

Hudson’s Bay Co. v. OMERS Realty Corp. Per curiam 25

Per curiam:

Background in Brief1 HBC CAN Real Property LP (“HBC CAN LP”) is a limited partner-

ship whose sole limited partner is Hudson’s Bay Company (“HBC”) andwhose sole general partner is HBC CAN Real Property Inc. (“HBC CANInc.”). HBC CAN Inc. is wholly owned by HBC.

2 HBC and HBC CAN Inc. are anchor tenants in three shopping malls:Yorkdale, Square One, and Scarborough Town Centre. They operateHudson’s Bay stores at each of these three leased locations.

3 The malls are owned and operated by the appellant landlords (the“Landlords”), represented in this matter by Oxford Properties Group(“Oxford”). HBC is the tenant under the Yorkdale lease. HBC CAN Inc.,as general partner of HBC CAN LP, is the tenant under the Square Oneand Scarborough Town Centre leases. HBC and HBC CAN LP are therespondents (“Respondents”) in this appeal.

4 HBC and RioCan Real Estate Investment Trust (“RioCan”) are enter-ing into a real estate joint venture. HBC is to transfer ten real estateproperties - five owned and five leased - to the joint venture. The fiveleases include its leases at Yorkdale, Square One, and Scarborough TownCentre (the “Leases”). RioCan is to contribute a 50% co-ownership inter-est in Georgian Mall and Oakville Place, as well as cash. Originally, theplan was that all of the real estate assets of the joint venture would betransferred to a limited partnership, the general partner of which wouldbe a corporation jointly controlled by HBC and RioCan.

5 HBC sought Oxford’s consent to assign and sublease the Leases forthe purposes of the joint venture (while not conceding that consent wasrequired). Oxford expressed concern about the degree of control that Ri-oCan - one of its main competitors - would have over the Leases.

6 After various meetings between the parties, a revised joint venturewas proposed. According to the Respondents, the changes were made toaddress Oxford’s concerns. The revised joint venture structure wouldconsist of two limited partnerships, with the second being formed specif-ically to hold the Leases. The structure would be as follows:

• Limited Partnership #1: RioCan-HBC LP

• There would be two limited partners: HBC and RioCan.HBC would initially hold approximately 90% of the part-nership units and RioCan would hold the remaining ap-proximately 10%;


• The sole general partner would be 2455034 Ontario Inc.(“245”), a company jointly controlled by HBC and RioCan;

• All of the assets to be contributed to the joint venture, otherthan the Leases, would be transferred to 245 (as the generalpartner) and, thus, be jointly controlled by HBC andRioCan.

• Limited Partnership #2: HBC YSS LP

• There would be a sole limited partner, RioCan-HBC LP,which would hold approximately 99.9999% of the partner-ship units;1

• The sole general partner would be HBC;

• The Respondents would assign the Leases to HBC in itscapacity as the general partner of HBC YSS LP. The leasedpremises would then be sublet to HBC on a full “passthrough” basis for the entire remaining terms of each lease,including renewals.2

7 The Respondents hoped that the revised structure would address Ox-ford’s concerns because the Leases would be assigned to HBC, in itscapacity as general partner of HBC YSS LP, rather than to 245, a com-pany jointly controlled by HBC and RioCan.

8 When Oxford refused to consent, the Respondents brought an appli-cation under s. 23(2) of the Commercial Tenancies Act, R.S.O. 1990, c.L.7, for a declaration that the Landlords’ consents were not required forassignment and sublease of the Leases or, alternatively, that the Land-lords were unreasonably withholding their consent to such assignmentsand subleases.

9 The application judge found in favour of the Respondents. She notedthat the Leases contain provisions that restrict their transfer or assign-ment. However, each of the Leases also contains an exception for an as-signment to an affiliate of the existing tenant (the “affiliate exception”).She concluded that because the Leases will be assigned to HBC, as gen-

1 This permits the economic benefits of the Leases to flow up to HBC andRioCan.2 The sublease rents will be higher than the rents under the Leases, which gener-ates the economic benefits to flow to RioCan-HBC LP as limited partner ofHBC YSS LP.


eral partner of HBC YSS LP, the assignments fall within the affiliateexception. She also concluded that because the subsequent subleases willbe to HBC, which is the same entity as the general partner (HBC), thesubleases are permitted under the affiliate exception. Therefore, the ap-plication judge found, no consent to the assignments and subleases isnecessary.

10 The application judge then considered whether, if consent to the as-signments were required, the Landlords had unreasonably withheld theirconsent. She found that the Landlords were entitled to withhold theirconsent under the Square One lease, which provides that consent to anassignment may be arbitrarily withheld. With respect to the Yorkdale andScarborough Town Centre leases, however, the application judge foundthat HBC had met its burden of proving that the Landlords were actingunreasonably in withholding their consent. She explained that becauseHBC would continue to be the operator of the stores and liable under theLeases, there was no reason to believe HBC’s interests would divergefrom those of Oxford, going forward.

11 Oxford appeals.

The Issues12 Oxford submits that the application judge erred by:

1. holding that the assignment “to a limited partnership through itsgeneral partner” is an assignment to an affiliated company or cor-poration and therefore exempt from the consent requirement;

2. finding, in the alternative, that the Yorkdale and ScarboroughTown Centre leases require the Landlords to exercise their consentrights reasonably; and

3. ignoring uncontested evidence and applying the wrong legal testto the evidence regarding the Landlords’ reasons for withholdingconsent.

Analysis

Issue #1: Assignment to an Affiliate13 Oxford’s major complaint in this appeal is that the application judge

failed to appreciate that the assignments of the Leases would result in thelimited partnership (HBC YSS LP) having beneficial and effective own-ership of the Leases. As the sole limited partner is RioCan-HBC LP, andreferring to the joint venture agreement, Oxford says that the assign-


ments will result in RioCan (its competitor), having decision-makingpower over certain significant actions that might be taken in connectionwith the Leases.

14 We do not accept Oxford’s characterization of the effect of the as-signments. This is not a case, as Oxford suggested, of HBC holding baretitle or being a mere nominee for the true beneficial owner. Furthermore,contrary to Oxford’s formulation of the first issue, the application judgedid not hold that “an assignment to a limited partnership through its gen-eral partner was an assignment to an affiliate”. Rather, she concludedthat the proposed assignments of the Leases would be to the general part-ner and not to the limited partnership. As such, what Oxford character-izes as the “beneficial” or “effective” ownership of the Leases cannotdirect the analysis.

15 In our view, the application judge correctly concluded that, based onthe unique legal nature of the limited partnership structure and the roleplayed by the general partner, the Leases will be assigned to HBC, asgeneral partner.

16 The application judge’s reasoning, which we adopt, can be summa-rized as follows.

17 A limited partnership is not a legal entity. It is required by law tohave a general partner through which it normally acts: KucorConstruction & Developments & Associates v. Canada Life AssuranceCo. (1998), 41 O.R. (3d) 577 (Ont. C.A.), 1998 CanLII 4236. A limitedpartnership cannot hold title to real property. It can hold title to real pro-perty only through its general partner.

18 Based on the description of limited partnerships given in LehndorffGeneral Partner Ltd., Re (1993), 17 C.B.R. (3d) 24 (Ont. Gen. Div.[Commercial List]), at paras. 17 and 20, which this court quoted withapproval in Kucor, the application judge drew three conclusions.

19 First, any property in which a limited partnership has an interest canbe held only by the general partner. In the case of a lease, there can be noassignment of the lease to the limited partnership - it must be assigned tothe general partner.

20 Second, it is not simply a matter of the general partner acquiring legaltitle to the property. The general partner has control over the propertyand is solely responsible for the operations of the limited partnership.The limited partner, as a passive investor, is restricted from taking part in


the control or management of the business. To do otherwise would je-opardise its limited partner status.

21 Third, from the perspective of the other contracting party, the generalpartner is solely liable for all payments under the contract and perform-ance of all obligations thereunder. The limited partners have no such lia-bility. In this case, once the Leases are assigned, the legal relationshipwill continue to be between the Landlords and HBC. There will be norelationship between the Landlords and the limited partner. HBC alonewill be liable for rents and all amounts owing under the Leases. HBCalone will be responsible for compliance with all obligations and cove-nants under the Leases. Thus, there will be no change in the legal rela-tionship between HBC and the Landlords following the assignments.

22 For these reasons, the application judge stated, in determining whowill be the assignee of the Leases, there is no reason to look beyond thefact that the Leases are being assigned to the general partner. HBC as thegeneral partner is the assignee, the affiliate exception applies and consentis not required. Because the subsequent subleases are to HBC, which isthe same entity as the general partner, the subleases are also permittedunder the affiliate exception.

23 We see no basis for interfering with the application judge’s determi-nation that, in light of the affiliate exception, the Respondents did notneed consent to assign the Leases to HBC as general partner of the lim-ited partnership. HBC is assigning the Leases to itself in its capacity asgeneral partner of HBC YSS LP.

24 Accordingly, this ground of appeal is dismissed.

Issues #2 and #3: Withholding Consent and Reasons Therefore25 In light of our conclusion on the first issue, it is unnecessary to ad-

dress these grounds of appeal.

Disposition26 For these reasons, the appeal is dismissed. No order is made as to

costs as the parties have resolved that matter between themselves.

Appeal dismissed.


[Indexed as: Gill v. CPNI Inc.]

Paramjit Gill, Mahamud Nadeem Khazi, and Ratan Chakraborty,Plaintiffs (Respondents) and CPNI Inc., Patrick Bird, Timothy

Price, and Michael Foulkes, Defendants (Appellants)


Docket: CA C59728

2015 ONCA 833

Alexandra Hoy A.C.J.O., R.A. Blair, C.W. Hourigan JJ.A.

Heard: November 20, 2015

Judgment: November 20, 2015

Business associations –––– Specific matters of corporate organization — Di-rectors and officers — Liabilities — Statutory liability for wages — Re-quirement for unsatisfied execution –––– Respondents were former employeesof appellant company — Employees brought action for unpaid wages — Com-pany claimed that wages were properly withheld because of alleged theft ofcompany computers by employees — Company brought counterclaim for con-version — Employees brought motion for summary judgment on their claim,which was successful — Motion judge would not stay enforcement of claimpending counterclaim, as these were not closely connected — Company ap-pealed from judgment of motion judge — Appeal dismissed — Under applica-ble employment standards law, there was no authorization for deduction madeby employer — Provision relied upon by employer made no reference to wages.

Civil practice and procedure –––– Practice on appeal — Staying of proceed-ings pending appeal — General principles –––– Respondents were former em-ployees of appellant company — Employees brought action for unpaid wages —Company claimed that wages were properly withheld because of alleged theft ofcompany computers by employees — Company brought counterclaim for con-version — Employees brought motion for summary judgment on their claim,which was successful — Motion judge would not stay enforcement of claimpending counterclaim, as these were not closely connected — Company ap-pealed from judgment of motion judge — Appeal dismissed — Stay was discre-tionary remedy and there was no failure by motion judge in declining to orderthis remedy — Motion judge did not fail to address any relevant issues.


Employment Standards Act, 2000, S.O. 2000, c. 41Generally — referred tos. 13 — considered

Gill v. CPNI Inc. Per curium 31

s. 13(3) — considered

APPEAL by company from judgment reported at Gill v. CPNI Inc. (2014), 2014ONSC 6500, 2014 CarswellOnt 15782, 35 B.L.R. (5th) 329 (Ont. S.C.J.), grant-ing summary judgment to respondent employees in claim for unpaid wages.

Patrick Bird, for himself and, for CPNI Inc.Chris McClelland, for Respondents

Per curium (orally):

1 The respondents were former employees of the appellant, CPNI Inc.,who sued the appellant for unpaid wages and brought a motion for sum-mary judgment.

2 The appellant argued on the motion that it was authorized under s. 13of the Employment Standards Act, 2000, S.O. 2000, c. 41, to deductamounts from the respondents’ unpaid wages, because the respondentsstole software and intellectual property when they failed to return a com-pany computer.

3 The appellant asserted that provisions in the respondent’s employ-ment contracts requiring them to return company property on requestconstituted a written authorization by the respondents that permitted suchdeductions in accordance with s. 13(3) of the ESA.

4 In addition, the appellant also commenced a counterclaim for the re-mainder of the damages it alleged that it suffered as result of the failureof the respondents to promptly return the company computer.

5 The motion judge held that the appellant had not established a validdefence to the respondents’ claim and granted summary judgmentagainst it. He found that, while it was common ground that the respon-dent Mahamud Khazi had the computer for a number of months, it wasnot entirely clear exactly when its return was demanded, what the conse-quences of its non-return were, and what losses, if any, were suffered byCPNI as a result. He also found that the evidence did not establish anyinvolvement on the part of the respondents Paramjit Gill and RatanChakraborty in the alleged wrongful conversion of the computer by Mr.Khazi. Moreover, the motion judge was not persuaded that the employ-ment contract between Mr. Khazi and CPNI contained an authorizationof the sort contemplated by s. 13(3) of the ESA.

6 The motion judge also refused to stay the enforcement of the respon-dents’ judgment while the appellant’s counterclaim for conversion in re-


lation to the unreturned computer proceeded. He held that the claim andcounterclaim were not closely connected factually, as the respondents’claims were for wages and the counterclaim related to an alleged conver-sion of the corporate asset occurring after the termination of the employ-ment relationship between the parties.

7 The appellant submits that the motion judge erred in dismissing theESA defence because the employment contracts establish that the em-ployer had the right to avail itself of the deduction if an employee failedto return property when requested. The motion judge is also alleged tohave erred in excluding Mr. Gill and Mr. Chakraborty from the s. 13defence.

8 We would not give effect to these arguments. Under s. 13 of the ESA,an employer is prohibited from making any deduction from an em-ployee’s wages unless it is authorized to do so under that section. Themotion judge was correct in concluding that there was nothing in respon-dents’ employment contracts that authorized deductions from the respon-dents’ wages pursuant to s. 13(3). The return of company property provi-sion relied upon by the appellant does not make any reference todeduction from wages nor does any other provision in the contract. Ac-cordingly, this defence did not raise a genuine issue requiring a trial.

9 The appellant also submits that the motion judge made a number oferrors in declining to order a stay pending a determination of the meritsof its counterclaim. These include a failure to address the existence oflanguage in the employment contracts concerning events subsequent toemployment, failure to recognize the “binary effect” of these contracts,and a failure to explore the issue of valuation of the intellectual property.

10 The issuance of a stay is a discretionary remedy. We are not per-suaded that the motion judge erred in the exercise of his discretion andthere is, therefore, no basis to interfere with his decision.

11 The appeal is dismissed.12 The respondent will have costs of the appeal fixed in the amount of

$6,927, inclusive of fees, disbursements, and HST.

Appeal dismissed.

York Realty Inc. v. Alignvest Private Debt Ltd. 33

[Indexed as: York Realty Inc. v. Alignvest Private Debt Ltd.]

York Realty Inc., Appellant (Applicant/Respondent) andAlignvest Private Debt Ltd., Respondent

(Applicant/Respondent/Plaintiff) and Surefire Industries Ltd.(Trustee of), Respondent (Respondent/Defendant)

Alberta Court of Appeal

Docket: Calgary Appeal 1501-0062-AC

2015 ABCA 355

Marina Paperny, Peter Martin, Patricia Rowbotham JJ.A.



Bankruptcy and insolvency –––– Priorities of claims — Claims by land-lord — Miscellaneous –––– Respondent company S sold its manufacturing fa-cility and surrounding land to appellant realty company Y — Final statement ofadjustments indicated $3,187,500 credit to Y for “Security Deposit”, reducingamount of cash Y required to pay — Lease executed at same time provided thatS would lease premises at minimum rent of $3,150,000 per year for first fiveyears — S required to pay “security deposit” of $3,187,500, to be held as “se-curity for the performance” of its obligations under lease — Lease provided forspecific amounts to be credited for certain months’ rent if S “not otherwise indefault” and provided Y would “retain the security deposit and advance rent (ifany) for its own use absolutely” — S declared bankrupt in December 2013 aftershort time in CCAA protection — Company A was secured creditor, holdingGeneral Security Agreement over S’s assets — When Trustee disclaimed lease,no rent was owing — Trustee took position that sum was intangible personalproperty in which S had interest and to which A’s security attached — Y arguedsum was prepaid rent and became its property upon execution of lease — Bank-ruptcy judge concluded sum was security deposit — He held that although leasecontemplated that Y would retain sum upon S becoming subject to insolvencystatute, CCAA and receivership proceedings stayed that remedy — Y appealedfrom this judgment — Appeal dismissed — While lease contained some indiciaof intention to treat sum as prepaid rent, provisions were expressly subject tocondition that tenant could not be in default — Reading lease as whole, charac-terization of sum as security deposit reflected parties’ dominant intention —Disclaimer of lease by trustee extinguishes all rights and obligations under leaseto pay rent — Right to disclaim arose on December 16, 2013 when, by courtorder, S was adjudged bankrupt — When trustee disclaimed lease on January 2,2014, there were no rent arrears and no rent obligations other than accelerated


rent — Pursuant to s. 136(1)(f) of Bankruptcy and Insolvency Act and ss. 3 and4 of Alberta Landlord’s Rights on Bankruptcy Act, landlord limited to acceler-ated rent and three months arrears of rent; no right to claim as debt anyunexpired term of lease — Y’s claim limited to three months accelerated rent —Parties requested bankruptcy court determine amount of set-off and matter re-mitted to bankruptcy court for that purpose.

Personal property security –––– Scope of legislation — Real property inter-ests — Charges, leases and mortgages –––– Surefire Industries sold its manu-facturing facility and surrounding land to York Realty — Final statement of ad-justments indicated $3,187,500 credit to York for “Security Deposit”, reducingamount of cash York required to pay (sum) — Lease executed at same time pro-vided that Surefire would lease premises at minimum rent of $3,150,000 peryear for first five years — Surefire required to pay “security deposit” of$3,187,500, to be held as “security for the performance” of its obligations underlease — Lease provided for specific amounts to be credited for certain months’rent if Surefire “not otherwise in default” and provided York would “retain thesecurity deposit and advance rent (if any) for its own use absolutely” — Surefiredeclared bankrupt in December 2013 after short time in CCAA protection —Alignvest Private Debt was secured creditor, holding General Security Agree-ment over Surefire’s assets — When Trustee disclaimed lease, no rent was ow-ing — Trustee took position that sum was intangible personal property in whichSurefire had interest and to which Alignvest’s security attached — York arguedsum was prepaid rent and became its property upon execution of lease — Bank-ruptcy judge concluded sum was security deposit — He held that although leasecontemplated that York would retain sum upon Surefire becoming subject toinsolvency statute, CCAA and receivership proceedings stayed that remedy —York’s appeal dismissed — While lease contained some indicia of intention totreat sum as prepaid rent, provisions were expressly subject to condition thattenant could not be in default — Reading lease as whole, characterization ofsum as security deposit reflected parties’ dominant intention — Disclaimer oflease by trustee extinguishes all rights and obligations under lease to pay rent —Right to disclaim arose on December 16, 2013 when, by court order, Surefirewas adjudged bankrupt — When trustee disclaimed lease on January 2, 2014,there were no rent arrears and no rent obligations other than accelerated rent —Pursuant to s. 136(1)(f) of Bankruptcy and Insolvency Act and ss. 3 and 4 ofAlberta Landlord’s Rights on Bankruptcy Act, landlord limited to acceleratedrent and three months arrears of rent; no right to claim as debt any unexpiredterm of lease — York’s claim limited to three months accelerated rent — Partiesrequested bankruptcy court determine amount of set-off and matter remitted tobankruptcy court for that purpose — Bankruptcy and Insolvency Act, RSC1985, c B-3, s. 136(1)(f) — Landlord’s Rights on Bankruptcy Act, RSA 2000, cL-5, ss. 3, 4.

York Realty Inc. v. Alignvest Private Debt Ltd. 35

Cases considered:

AMT Finance Inc. v. Saujani (2014), 2014 ABCA 385, 2014 CarswellAlta 2097(Alta. C.A.) — considered

Abraham, Re (1926), 7 C.B.R. 180 at 191, 59 O.L.R. 164 at 173, [1926] 3D.L.R. 971, 1926 CarswellOnt 257 (Ont. C.A.) — referred to

Alignvest Private Debt Ltd. v. Surefire Industries Ltd. (2015), 2015 ABQB 148,2015 CarswellAlta 485, 23 C.B.R. (6th) 66, 16 Alta. L.R. (6th) 1, [2015]A.J. No. 316, 3 P.P.S.A.C. (4th) 308, 39 B.L.R. (5th) 87 (Alta. Q.B.) —considered

Bradley, Re (1921), 2 C.B.R. 147, 21 O.W.N. 216, 1921 CarswellOnt 31 (Ont.Bktcy.) — referred to

Champion Machine & Tool Co., Re (1971), 15 C.B.R. (N.S.) 136, 1971 Cars-wellOnt 59, [1971] O.J. No. 1041 (Ont. S.C.) — considered

Creston Moly Corp. v. Sattva Capital Corp. (2014), 2014 SCC 53, 2014 CSC53, 2014 CarswellBC 2267, 2014 CarswellBC 2268, 373 D.L.R. (4th) 393,59 B.C.L.R. (5th) 1, [2014] S.C.J. No. 53, [2014] 9 W.W.R. 427, 461 N.R.335, 25 B.L.R. (5th) 1, 358 B.C.A.C. 1, 614 W.A.C. 1, (sub nom. SattvaCapital Corp. v. Creston Moly Corp.) [2014] 2 S.C.R. 633 (S.C.C.) —followed

Gallant v. Veltrusy Enterprises Ltd. (1980), 28 O.R. (2d) 349, 14 R.P.R. 117,110 D.L.R. (3d) 100, 1980 CarswellOnt 561 (Ont. Co. Ct.) — considered

Gallant v. Veltrusy Enterprises Ltd. (1981), 32 O.R. (2d) 716, 22 C.P.C. 267,123 D.L.R. (3d) 391, 1981 CarswellOnt 377 (Ont. C.A.) — referred to

North American Life Assurance Co. v. 312486 Alberta Ltd. (1986), 47 Alta. L.R.(2d) 303, 74 A.R. 203, 1986 CarswellAlta 199 (Alta. Q.B.) — referred to

Principal Plaza Leaseholds Ltd. v. Principal Group Ltd. (Trustee of) (1996), 41Alta. L.R. (3d) 248, [1996] 9 W.W.R. 539, (sub nom. Principal PlazaLeaseholds Ltd. v. Principal Group Ltd. (Bankrupt)) 188 A.R. 187, 1996CarswellAlta 676 (Alta. Q.B.) — referred to

Sills, Re (1956), 35 C.B.R. 217, [1956] O.R. 494, 4 D.L.R. (2d) 432, 1956 Cars-wellOnt 42 (Ont. C.A.) — considered


Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3s. 136 — referred tos. 136(1)(f) — considereds. 146 — referred to

Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36Generally — referred to

Landlord’s Rights on Bankruptcy Act, R.S.A. 2000, c. L-5s. 3 — considereds. 4 — considered


Personal Property Security Act, R.S.A. 2000, c. P-7Generally — referred tos. 1(1)(tt) “security interest” — referred tos. 4(f) — considereds. 4(g) — considered

APPEAL by company Y from order reported atAlignvest Private Debt Ltd. v.Surefire Industries Ltd. (2015), 2015 ABQB 148, 2015 CarswellAlta 485, 23C.B.R. (6th) 66, [2015] A.J. No. 316, 39 B.L.R. (5th) 87, 16 Alta. L.R. (6th) 1, 3P.P.S.A.C. (4th) 308, 608 A.R. 292 (Alta. Q.B.), declaring that sum paid oncommercial lease was security deposit.

R.T.G. Reeson, Q.C., C.T. Aitken, for AppellantS.F. Collins, P. Kyriakakis, for Respondent, Alignvest Private Debt Ltd.C. Prophet, for Respondent, Duff and Phelps Canada Restructuring Inc., in its

capacity as trustee in bankruptcy of Surefire Industries

Per curiam:

I. Introduction1 York Realty Inc. appeals an order made in a bankruptcy proceeding.

The order declared that $3,187,500 (Sum) paid pursuant to a commerciallease between York and Surefire Industries Ltd. (bankrupt) was a secur-ity deposit, not prepaid rent. In the result the Sum was a part of the estateof the bankrupt, and available for payment to the bankrupt’s securedcreditor, Alignvest Private Debt Ltd.

2 The bankruptcy judge did not err in characterizing the Sum as a se-curity deposit. Because a security deposit becomes part of the estate ofthe bankrupt, it is unnecessary to address the second ground of appealregarding registration of a “security interest” under the Personal Pro-perty Security Act, RSA 2000, c P-7 (PPSA), and whether the exceptionsin section 4 (f) and (g) apply. We do not endorse the bankruptcy judge’sreasons on this issue, nor were they necessary to the decision she wascalled upon to make.

3 The appeal is dismissed. The quantum of set-off is returned to theCourt of Queen’s Bench for determination.

II. Background4 On February 15, 2013, Surefire sold its manufacturing facility and 40

acres of surrounding land to York. The final statement of adjustments forthe property’s sale shows a $3,187,500 credit to York for “Security De-

York Realty Inc. v. Alignvest Private Debt Ltd. Per curiam 37

posit to be paid to Purchaser by Vendor”. The credit reduced the amountof cash York was required to pay Surefire for the property.

5 The lease was executed at the same time as the sale and provided thatSurefire would lease the premises from York at a minimum rent of$3,150,000 per year for the first five years.

6 After a short time in CCAA protection, Surefire was declared bank-rupt in December 2013. Alignvest is a secured creditor with a March 27,2013 General Security Agreement over Surefire’s assets.

7 When the Trustee disclaimed the lease on January 2, 2014, no rentwas owing.

III. Decision on Appeal - Alignvest Private Debt Ltd. v. SurefireIndustries Ltd., 2015 ABQB 148 (Alta. Q.B.)

8 While Surefire was in receivership, York applied for an order that itwas entitled to retain the Sum. Alignvest applied for an order directingYork to pay the Sum to the Trustee. Alignvest also applied for an orderdeclaring the Sum to be an unregistered security interest under the PPSAand subordinate to Alignvest’s perfected secured claim. The Trustee tookthe position that the Sum was intangible personal property as defined inthe PPSA in which Surefire had an interest and to which Alignvest’s se-curity attached.

9 York argued that the Sum was prepaid rent and became its propertyupon execution of the lease.

10 The bankruptcy judge looked primarily at the wording of the leaseand concluded that the Sum was a security deposit. She held:

[23] I am satisfied by the provisions of the lease that the deposit can-not be characterized as prepaid rent, that it is not non-refundable inany scenario and that it is properly characterized as security to guar-antee the performance by Surefire of its obligations under the lease,similar to the deposit described in Champion Machine & Tool Co.,Re (1971), 15 C.B.R. (N.S.) 136 (Ont. S.C.)].

11 The bankruptcy judge also concluded that although the lease contem-plated that York would retain the Sum upon Surefire becoming subject toan insolvency statute, the CCAA and receivership proceedings stayed thatremedy.

12 The bankruptcy judge also found that the Sum was subject to the pro-visions of the PPSA and not excluded by section 4(g), which providesthat the PPSA regime does not apply to “the creation of an interest in a


right to payment that arises in connection with an interest in land, includ-ing an interest in rental payments payable under a lease of land, but notincluding a right to payment evidenced by investment property or an in-strument”. She found that the Sum was not a “right to payment” but se-curity for Surefire’s performance of its obligations under the lease. Con-sequently, she concluded that the Sum is a “security interest” subject tothe PPSA and subordinate to Alignvest’s perfected security interest, andother interests with priority over an unperfected security interest.

IV. Grounds of Appeal and Standards of Review13 The appellant raises three grounds of appeal:

i. The bankrupcty judge erred in characterizing the Sum as a secur-ity deposit rather than prepaid rent.

ii. If the Sum is a “security interest”, the bankruptcy judge erred inconcluding that ss 4(f) and 4(g) of the PPSA did not apply, so asto exclude the Sum from registration under that Act.

iii. If ss 4(f) and 4(g) of the PPSA did not apply, then the bankruptcyjudge erred in not permitting York to exercise a right of set off,either legal or equitable, against the amount claimed to the extentof the amount of rent and other damages it is entitled to claim inthe bankruptcy of Surefire.

14 Interpretation of the lease involves issues of mixed fact and law. Ab-sent an extricable error of law, the standard of review is palpable andoverriding error. Extricable errors of law include “the application of anincorrect principle, the failure to consider a required element of a legaltest, or the failure to consider a relevant factor”: Creston Moly Corp. v.Sattva Capital Corp., 2014 SCC 53 (S.C.C.) at paras 49-55, [2014] 2S.C.R. 633 (S.C.C.). “The interpretation of the lease is reviewed on astandard of reasonableness ...”: AMT Finance Inc. v. Saujani, 2014ABCA 385 (Alta. C.A.) at para 14.

V. Analysis

Security Deposit or Prepaid Rent15 The appellant argues that it was the parties’ intention that the Sum

was a rental credit. It is common for lessors to demand the prepayment ofrent for the last month or months of a lease’s term: The Honourable Mr.Justice Lloyd W. Houlden, Mr. Justice Geoffrey B. Morawetz and Dr.Janis P. Sarra, Bankruptcy and Insolvency Law of Canada, 4th ed (To-


ronto: Carswell) at G§129 Prepaid Rent [Houlden and Morawetz]. Pre-paid rent is never repayable to the tenant and an assignee has no greaterright than the tenant: Bradley, Re (1921), 2 C.B.R. 147, 1921 Carswell-Ont 31 (Ont. Bktcy.); Abraham, Re, [1926] 3 D.L.R. 971, 7 C.B.R. 180(Ont. C.A.) at 191. Prepaid rent is consideration for future occupation,see generally North American Life Assurance Co. v. 312486 Alberta Ltd.(1986), 47 Alta. L.R. (2d) 303 (Alta. Q.B.) at paras 15-19.

16 By contrast, a security deposit is held by the lessor as security toguarantee the performance of covenants in the lease: Champion Machine& Tool Co., Re (1971), 15 C.B.R. (N.S.) 136, 1971 CarswellOnt 59 (Ont.S.C.). A security deposit is intended to “secure the landlord against atenant who steals away without paying the rent for the final period of histenancy, and it is to be returned to the tenant upon his payment of thatlast month’s rent”: Gallant v. Veltrusy Enterprises Ltd. (1980), 28 O.R.(2d) 349, 110 D.L.R. (3d) 100 (Ont. Co. Ct.); overturned for differentreasons, (1981), 32 O.R. (2d) 716, 123 D.L.R. (3d) 391 (Ont. C.A.).

17 Sattva instructs that “a decision-maker must read the contract as awhole, giving the words used their ordinary and grammatical meaning,consistent with the surrounding circumstances known to the parties at thetime of formation of the contract”: para 47.

18 The relevant provisions of the lease are Articles 6 and 10 (with em-phasis):

6. SECURITY DEPOSIT/RENT CREDIT

(a) The Tenant will pay to the Landlord on or before the commence-ment of the Term of this Lease a deposit of Three Million OneHundred Eighty Seven Thousand Five Hundred ($3,187,500.00)Dollars plus goods and services tax (the “Security Deposit”),which Security Deposit is to be held without interest by theLandlord as security for the performance by the Tenant of itsobligations under this Lease. The Landlord, in its sole discretion,may apply any portion or all of the Security Deposit during the Termon account of any sums outstanding or owing by the Tenant underthis Lease, including, without limitation, Minimum Rent or Addi-tional Rent or such sums resulting from the Tenant’s breach orbreaches of this Lease. After the Landlord has applied any portion ofthe Security Deposit as set out above, the Tenant, on demand, willpay such further money to the Landlord so that the Landlord is againholding the same amount in relation to the Security Deposit as theLandlord was holding immediately prior to the Landlord applyingsuch sums against such defaults or breaches. Subject to the forego-


ing, the Security Deposit will, provided that the Tenant has paid allamounts due to the Landlord under this Lease and is not otherwise indefault under the terms of the Lease, be applied during the Term, asfollows ...

[$262,500 plus GST towards rent for the 13th, 14th, 28th, 29th and 60th

months of the term]

(b) The Tenant shall be credited Five Hundred Thousand($500,000.00) Dollars towards its Rent obligations during the firsttwo (2) months of the term.

[...]

10. DEFAULT AND REMEDIES

In the event that:

a) the Tenant fails to pay any Rent or any other amount owingunder this Lease when due, whether or not demanded by theLandlord; or

b) the Tenant defaults or fails to observe or perform any of itsnon-financial obligations under this Lease ...; or

c) the Tenant makes a general assignment for the benefit ofcreditors, becomes bankrupt or insolvent, or takes the ben-efit of or becomes subject to any statute that may be in forcerelating to bankrupt or insolvent debtors; or

d) any creditor seizes of takes control of the Tenant’s property;...

the Landlord, immediately and without prior notice being re-quired, and without in any way restricting any of its other rightsor remedies, may:

a) retain the Security Deposit and advance rent (if any) forits own use absolutely;

b) terminate this Lease and re-enter into possession of theLeased Premises; and

c) claim greater damages for breach of this Lease ...

In addition to payment of the then current Rent, and withoutprejudice to the Landlord’s right to claim greater damages, the Rentfor the next ensuing three months shall immediately become due andpayable and be deemed to be in arrears upon such default, generalassignment, bankruptcy, insolvency or other event of default.

19 The lease contains some indicia of an intention to treat the Sum asprepaid rent. The appellant’s main submission is that, unlike a securitydeposit, at the end of lease term, there is nothing left to return to the


tenant. Notably, Articles 6(a)(i) through (vi) state that specific amountsshall be credited for the 13th, 14th, 25th, 49th, 60th and 175-180thmonths’ rent if the tenant is “not otherwise in default”. To this extent,Article 6 supports the appellant’s contention that the Sum could be char-acterized as prepaid rent. But, critically, the condition precedent to arental credit is that the tenant must have met all its obligations under thelease before such credit would apply.

20 The appellant contends that there is no possible event in which theSum could be returned to the tenant. The bankruptcy judge posited atleast one scenario: termination by the landlord in the event of the prem-ises being destroyed by fire (Clause 23).

21 The appellant also contends that the payment of GST is inconsistentwith the Sum constituting a security deposit. It says that security for anobligation to be performed is not a good or service which gives rise tothe payment of GST.

22 Other indicia support an intention that the Sum be treated as a secur-ity deposit. First, Article 6 defines the Sum as a “Security Deposit” andstates it “is to be held as ... by the Landlord as security for performanceby the Tenant of its obligations under this Lease”. Second, the leasemakes a distinction between the “Security Deposit” in Article 6(a) andthe “Rent Credit” in Article 6(b), indicating an intention to treat the con-cepts differently. This is supported by the Statement of Adjustments, pre-pared for the closing of the sale, which describes the $500,000 as “pre-paid rent” and the $3,187,500 as a security deposit. Thirdly, in the eventthe landlord is required to apply any portion of the Sum towards rentarrears or other defaults, the tenant is required to make a payment suchthat the landlord was “again holding the same amount in relation to theSecurity Deposit ...”. The notion of replenishing the Sum is inconsistentwith the concept of prepaid rent. Prepaid rent is generally a set sum towhich the landlord is entitled upon execution of the lease, and not anaccount that requires replenishment.

23 Parts of Article 10 are also relevant. It speaks of the right to retain the“Security Deposit and advance rent (if any)”. Again, the wording appearsto draw a distinction between the two concepts. Article 10(a), (b) and (e)permit the landlord to retain the “Security Deposit” if the tenant fails topay rent or other amounts owing, defaults or fails to perform its non-financial obligations or abandons or threatens to abandon the premises.In other words, the primary purpose evidenced by this Article is that the


Sum was intended to “secure the landlord against a tenant who stealsaway”, to borrow from Gallant.

24 In summary, while there are arguably some aspects of the lease thatsuggest prepaid rent, those provisions are expressly subject to the condi-tion that the tenant cannot be in default of its obligations. It is reasonableto conclude that the characterization of the Sum as a security deposit re-flects the parties’ dominant intention.

25 Cases which have considered this issue are helpful but not determina-tive as each lease is worded differently. The appellant submits that weought to apply two Ontario Court of Appeal decisions: Abraham, Re,[1926] 3 D.L.R. 971, 1926 CarswellOnt 257 (Ont. C.A.); and Sills, Re(1956), 4 D.L.R. (2d) 432, 1956 CarswellOnt 42 (Ont. C.A.). The bank-ruptcy judge stated that the terms of this lease were similar to those in themore recent decision in Champion Machine & Tool Co., Re and distin-guishable from those Abraham, Re, in part because of Abraham, Re’slease terms and because Abraham, Re predated the statutory ability of thetrustee to disclaim the lease. The appellant contends that this is an extri-cable error of law because the bankruptcy provisions regarding dis-claimer were enacted in 1921, in advance of the 1923 lease at issue inAbraham, Re. Although the bankruptcy judge was in error when she con-cluded that Abraham, Re predated the statutory ability of a trustee to dis-claim the lease, this is not an error which affected the result of her deci-sion. The lease at issue in Abraham, Re provided that the $1000 depositcould be used as a rebate of rent at the end of the term or that if thetenant was in default, the landlord had the option to declare the depositforfeit and retain entire amount as liquidated damages. In either event thetenant would not and could not receive any portion of the deposit. Thewording of the lease in Sills, Re is similar. In this case Article 10 pro-vides that, upon default, York is only entitled to retain a certain amountof the deposit and advance rent “if any”. In addition to the “then CurrentRent, and without prejudice to the Landlord’s right to claim greater dam-ages, the Rent for the next ensuing three months shall immediately be-come due and payable.” Moreover there is no indication that the lease inAbraham, Re contained language similar to that in the present lease forwhich the deposit is to “secure the performance of the tenant’sobligations.”

26 In contrast the lease in Champion Machine & Tool Co., Re providedthat the sum “shall be held by the Lessor as security to guarantee the dueperformance of each and all covenants herein contained on the part of the


Lessee; and said deposit shall be retained by the Lessor and become theproperty of the Lessor in the event of a breach by the Lessee of any ofthe covenants herein contained; in the absence of any such breach or de-fault by the Lessee, the deposit money shall be applied to rent for the lastmonth of the term herein.”. Although the language of the lease inChampion Machine & Tool Co., Re is not identical to this lease, thewording certainly bears a greater similarity. In any event, the bankruptcyjudge’s decision focussed primarily on the wording of the lease at issueand not on leases considered in other cases. We find no reviewable errorin her consideration of Champion Machine & Tool Co., Re.

27 In conclusion on this issue, there were some indicia in support of eachof the proposed characterizations; security deposit and prepaid rent.Reading the lease as a whole, the bankruptcy judge determined that theSum ought to be characterized as a security deposit. Our role is to deter-mine whether there was palpable and overriding error in the bankruptcyjudge’s conclusion. No reviewable error has been demonstrated.

28 Given the conclusion that the Sum is not prepaid rent and thereforenot the property of the appellant, it is unnecessary to address the secondground of appeal regarding registration of a “security interest” under thePPSA, and whether the exceptions in section 4 (f) and (g) apply. Thatsaid, however, we do not endorse the bankruptcy judge’s decision on thisissue, nor was it necessary to the decision she was called upon to make.

York’s Entitlement in the Bankruptcy - Set-Off29 The appellant’s third ground of appeal contends that the bankruptcy

judge erred in failing to consider its right of set-off. This argument wasnot raised in the court below. However, the parties made written and oralsubmissions on appeal, and invited us to address the issue. We do so.

30 Disclaimer of a lease by a trustee extinguishes all rights and obliga-tions under the lease to pay rent. After a lease is disclaimed, a landlordcannot claim damages for the rent for the balance of the term: PrincipalPlaza Leaseholds Ltd. v. Principal Group Ltd. (Trustee of) (1996), 188A.R. 187, [1996] 9 W.W.R. 539 (Alta. Q.B.). Subject to the rights ofsecured creditors, the proceeds realized from the property of a bankruptare applied in priority of payment: Bankruptcy and Insolvency Act, RSC1985, c B-3, s 136.

31 The right to disclaim arose on December 16, 2013 when by court or-der Surefire was adjudged bankrupt. When the Trustee disclaimed the


lease on January 2, 2014, there were no rent arrears. Consequently, as ofJanuary 2, 2014 there were no rent obligations (beyond accelerated rent).

32 The nature and extent of a landlord’s claim for rent and damages forthe unexpired term of a lease are determined by the law of the provincein which the leased premises are situated: Bankruptcy and InsolvencyAct, s 146; Houlden and Morawetz at G§141. The preferential claim ofthe landlord is determined by section 136(1)(f) of the Bankruptcy andInsolvency Act in association with sections 3 and 4 of the Landlord’sRights on Bankruptcy Act, RSA 2000, c L-5. Those sections provide thata landlord is limited to accelerated rent, arrears of rent three months im-mediately preceding the bankruptcy, and no right to claim as a debt anyunexpired term of the lease. As the appellant had not exercised its rightsunder Article 10 before the order was made, the statutory remedies setout above limit the appellant’s ability to enforce Article 10(c). In the re-sult the claim is limited to three months accelerated rent.

33 In addition, the landlord is entitled to damages incurred to repair theproperty. The parties expressed a preference for having the bankruptcycourt determine the amount of set-off and we so direct.

VI. Conclusion34 The appeal is dismissed. The appellant’s set-off claim is to be deter-

mined in accordance with our direction in the preceding paragraph.

Appeal dismissed.

James Bay Resources Ltd. v. Mak Mera Nigeria Ltd. 45

[Indexed as: James Bay Resources Ltd. v. Mak Mera NigeriaLtd.]

James Bay Resources Limited, Plaintiff (Respondent) and MakMera Nigeria Limited a.k.a. Mak Mera Limited and Adewale

Olorunsola a.k.a. Wale Sola, Defendants (Appellants)


Docket: CA C60321

2015 ONCA 781

Alexandra Hoy A.C.J.O., J. MacFarland, P. Lauwers JJ.A.



Conflict of laws –––– Contracts — Choice of law — Forum conveniens —Miscellaneous –––– Defendant company was based in Nigeria, and entered intoagreement with plaintiff Ontario corporation — Contractual dispute arose be-tween parties — Nigerian company sent letter to several recipients which waspotentially defamatory of Ontario corporation — Ontario corporation broughtaction in Ontario against Nigerian company — Nigerian company brought ac-tion against Ontario corporation in Nigeria — Ontario corporation made motionto Nigerian court to have Nigerian action struck, but was unsuccessful — Niger-ian company made motion to Ontario court to strike or stay Ontario action, forlack of jurisdiction — Ontario court dismissed this motion, stating that there wassubstantial connection to Ontario through formation of contract and choice oflaw clause — Ontario court also relied on Ontario corporation’s location andresidence of one of Nigerian company’s principals in Ontario — Nigerian com-pany appealed from judgment of motions court — Appeal dismissed — Niger-ian company had not rebutted presumption of jurisdiction in Ontario — Ontariocorporation’s defence to Nigerian action was not attorning to Nigerian jurisdic-tion, in absence of further evidence — Nigerian company could not use reasonsof Nigerian court as fresh evidence, as these had been released before Ontariomotion hearing — Motion judge’s conclusion as to balancing of factors was rea-sonable and was not to be disturbed.

Cases considered by J. MacFarland J.A.:

Amchem Products Inc. v. British Columbia (Workers’ Compensation Board)(1993), [1993] 3 W.W.R. 441, 14 C.P.C. (3d) 1, [1993] 1 S.C.R. 897, 150N.R. 321, 23 B.C.A.C. 1, 39 W.A.C. 1, 102 D.L.R. (4th) 96, 77 B.C.L.R.(2d) 62, 1993 CarswellBC 47, 1993 CarswellBC 1257, [1993] I.L.Pr. 689,EYB 1993-67099, [1993] S.C.J. No. 34 (S.C.C.) — distinguished


Lloyd’s Underwriters v. Cominco Ltd. (2009), 2009 SCC 11, 2009 CarswellBC358, 2009 CarswellBC 359, [2009] 3 W.W.R. 191, 40 C.E.L.R. (3d) 159, 88B.C.L.R. (4th) 1, 70 C.C.L.I. (4th) 1, 65 C.P.C. (6th) 199, (sub nom.Lombard General Insurance Co. of Canada v. Cominco Ltd.) 384 N.R. 351,303 D.L.R. (4th) 385, (sub nom. Teck Cominco Metals Ltd. v. Lloyd’s Un-derwriters) [2009] I.L.R. I-4811, (sub nom. Lombard General Insurance Co.of Canada v. Cominco Ltd.) 266 B.C.A.C. 32, 449 W.A.C. 32, (sub nom.Teck Cominco Metals Ltd. v. Lloyd’s Underwriters) [2009] 1 S.C.R. 321,[2009] S.C.J. No. 11 (S.C.C.) — followed

Van Breda v. Village Resorts Ltd. (2012), 2012 SCC 17, 2012 CarswellOnt4268, 2012 CarswellOnt 4269, 343 D.L.R. (4th) 577, 91 C.C.L.T. (3d) 1, 17C.P.C. (7th) 223, 10 R.F.L. (7th) 1, 429 N.R. 217, [2012] S.C.J. No. 17,[2012] A.C.S. No. 17, 291 O.A.C. 201, (sub nom. Club Resorts Ltd. v. VanBreda) [2012] 1 S.C.R. 572, (sub nom. Charron Estate v. Village ResortsLtd.) 114 O.R. (3d) 79 (note) (S.C.C.) — followed


Court Jurisdiction and Proceedings Transfer Act, S.B.C. 2003, c. 28s. 11 — referred to

APPEAL by Nigerian company from judgment reported at James Bay ResourcesLtd. v. Mak Mera Nigeria Ltd. (2015), 2015 ONSC 1538, 2015 CarswellOnt3145, 39 B.L.R. (5th) 313 (Ont. S.C.J.), dismissing company’s motion to strikeor stay action brought by plaintiff Ontario corporation.

Mark Crane, Niklas Holmberg, for AppellantsHilary Book, Nadia Chiesa, for Respondent

J. MacFarland J.A.:

1 This is an appeal from the motions judge’s order dismissing the ap-pellants’ motion to stay the within action on the grounds that the Ontariocourts lacked jurisdiction simpliciter and Ontario was not the convenientforum for the determination of the dispute between the parties.

2 The factual background is fully detailed in the motion judge’s reasonsat paras. 3-23. In short, the respondent entered into a Memorandum ofUnderstanding (MOU) with the appellant Wale Sola dated March 3,2011. The MOU was negotiated and signed in Ontario. It sets out anarrangement between the parties with respect to the acquisition of Niger-ian oil and gas assets.

3 On February 12, 2012, the respondent and the appellant Mak MeraLimited entered into a Letter Agreement (LA) which replaced the earlier

James Bay Resources Ltd. v. Mak Mera Nigeria Ltd. J. MacFarland J.A. 47

MOU. The LA is far more detailed than the MOU. Wale Sola signedboth the MOU and the LA.

4 A dispute arose between the parties in respect of their contractual ar-rangements and that dispute was fuelled by a letter sent by Mak Meraand Mak Mera Nigeria Limited to Royal Dutch Shell PLL on July 2,2014. The letter was copied to the respondent as well as many others,including the Nigerian Ambassador to Canada and a number of officialsof the Nigerian government. Absent truth, the statements made in theletter are quite clearly defamatory of the respondent.

5 By Statement of Claim issued September 4, 2014, the respondentcommenced proceedings against Mak Mera Nigeria Limited and WaleSola in Ontario.

6 On September 16, 2014 Mak Mera Nigeria Limited, Wale Sola andSola’s father-in-law (a Nigerian resident and chairman of Mak Mera)commenced an action in Nigeria against numerous parties including therespondent and its CEO, Stephen Shafsky. Some of the claims in theNigerian action are similar to those in the Ontario action.

7 The respondent moved in The Federal High Court of Nigeria to strikethe Nigerian action on grounds that the Nigerian court lacked jurisdictionand was unsuccessful. The respondent is appealing that order.

8 On March 2, 2015, the appellants moved to strike or permanently staythe Ontario action. In his reasons the motion judge concluded that On-tario had jurisdiction simpliciter and identified several presumptive fac-tors that would apply, including that Wale Sola is an Ontario resident andboth the MOU and the LA were negotiated and signed in Ontario. Heobserved that the latter provides that it is governed by Ontario law andcontains a choice of forum clause that names Ontario as the jurisdictionwhere any disputes would be resolved.

9 In para. 28 of his reasons he noted: Neither Mak Mera nor Mr. Sola has advanced any cogent argumentthat there is a rebuttal of the contractual connection as a presumptivefactor. Their arguments may be relevant to the issue of forum con-veniens, but jurisdiction simpliciter is not rebutted.

10 In this court the appellants made no oral submissions on this issue butrelied on their factum. I would echo the observation of the motion judgein relation to those submissions. The arguments raised go to the merits ofthe claims and the interpretive exercise that awaits the trial judge.Whether the agreements contemplated the payment of “success fees” on


the achievement of certain milestones or merely payments on account for“services rendered” go to the merits of the issues that will be litigated.They do not displace or challenge the fact that both agreements werenegotiated and signed in Ontario and that Mr. Sola is resident in Ontario- both strong, presumptive factors.

11 The appellants argue that the motion judge erred in law in failing tospecifically consider comity in his analysis, relying on the 1993 decisionof the Supreme Court of Canada in Amchem Products Inc. v. BritishColumbia (Workers’ Compensation Board) [1993 CarswellBC 1257(S.C.C.)]. That case dealt with anti-suit injunctions and is factually dis-similar to this case. Since Amchem the Supreme Court of Canada hasreleased its decision in Van Breda v. Village Resorts Ltd., [2012] 1S.C.R. 572 (S.C.C.) which has over-taken the prior jurisprudence dealingwith jurisdiction and forum conveniens issues. At para. 74 of Van Bredathe court had this to say in relation to comity:

The goal of the modern conflicts system is to facilitate exchangesand communications between people in different jurisdictions thathave different legal systems. In this sense it rests on the principle ofcomity. But comity itself is a very flexible concept. It cannot be un-derstood as a set of well-defined rules, but rather as an attitude ofrespect for and deference to other states and, in the Canadian context,respect for and deference to other provinces and their courts (cita-tions omitted) Comity cannot subsist in private international lawwithout order, which requires a degree of stability and predictabilityin the development and application of the rules governing interna-tional or interprovincial relationships. Fairness and justice are neces-sary characteristics of a legal system, but they cannot be divorcedfrom the requirements of predictability and stability which assure or-der in the conflicts system. In the words of La Forest J. in Morguard,“what must underlie a modern system of private international law areprinciples of order and fairness, principles that ensure security oftransactions with justice”...

12 Comity is not a stand-alone factor. It is part and parcel of the forumnon conveniens assessment in a given case. In Lloyd’s Underwriters v.Cominco Ltd., [2009] 1 S.C.R. 321 (S.C.C.) (which decision is quoted inVan Breda) the Chief Justice says at para 21:

The first argument is that s.11 of the [Court Jurisdiction and Pro-ceedings Transfer Act (CJPTA)] does not apply where a foreign courthas asserted jurisdiction. I cannot agree. The CJPTA creates a com-prehensive regime that applies to all cases where stay of proceedingsis sought on the grounds that the action should be pursued in a differ-

James Bay Resources Ltd. v. Mak Mera Nigeria Ltd. J. MacFarland J.A. 49

ent jurisdiction (forum non conveniens). It requires that in every case,including cases where a foreign judge has asserted jurisdiction in par-allel proceedings, all relevant factors listed in s. 11 be considered inorder to determine if a stay of proceedings is warranted. This in-cludes the desirability of avoiding a multiplicity of legal proceedings.But the prior assertion of jurisdiction by a foreign court does not oustthe s. 11 inquiry.

And further at para 23: Teck submits that the usual multi-factored test under s. 11 of theCJPTA must give way to a “comity-Based” test when a foreign courtpositively asserts jurisdiction. To the extent this argument impliesthat the usual test does not give due comity to foreign courts, it mustbe rejected. Section 11 is itself a comity-based approach.

13 While the court in Teck was dealing with a British Columbia case andin that province a statute — the CJTPA — is intended to codify the deter-mination of jurisdictional issues, a review of s.11 of the CJPTA revealsthat it is very much a codification of the factors set out by LeBel J. inVan Breda that a court should take into consideration when it considersthe issue of forum non-conveniens. All this to say, I would reject thesubmission that the motion judge failed to consider comity in his analy-sis. He did so implicitly when he outlined and considered all of the rele-vant factors in coming to his conclusion that Nigeria was not the moreconvenient forum.

14 In paras. 31 through 33 of his reasons, the motion judge reviews thelaw that applies and then considers the factual matrix of the specific mat-ter before him.

15 The motion judge was aware of the Nigerian litigation begun afterthis action had been started in Canada. He was aware that the respondenthad filed a statement of defence in that action, had brought an unsuccess-ful motion to strike the Nigerian action on the basis the Nigerian courtlacked jurisdiction, and was appealing the dismissal of his motion tostrike. The appellants argue that by filing a statement of defence the re-spondent has attorned to the jurisdiction of the Nigerian court. The appel-lants make this argument in the absence of any evidence as to what theNigerian law is on this point. Mr. Shafsky is his affidavit (para. 36) de-poses that he did not understand that by filing a defence he was attorningto the jurisdiction. His statement is borne out by the fact that the respon-dent brought its motion to strike before the Nigerian Court. I would notgive effect to this argument.


16 I turn next to the proposed “fresh evidence”. The appellants sought atthe hearing of the appeal, for the first time, to file the reasons of theFederal High Court of Nigeria for dismissing the respondent’s motion tostrike. Although the reasons were released February 2, 2015 and the mo-tion before Perell J. was heard March 2, 2015, the reasons were notbefore the motion judge. The appellants did not bring a motion to admitfresh evidence; counsel simply sought to file the reasons and rely onthem. The appellants argue that the motion judge erred in failing to con-sider these reasons, although they were not before him. The unfairness tothe motion judge in proceeding this way is self-evident. In any event, theappellants could not, in view of the availability of these reasons beforethe hearing of the motion, meet the Palmer test. I would decline to con-sider the fresh evidence.

17 In conclusion, I agree with the motion judge’s conclusion that “Bal-ancing all factors, Nigeria is not clearly the appropriate forum for thedispute, and Ontario is not forum non conveniens.” The motion judge didnot err in dismissing the appellant’s motion to stay this action.

18 I would dismiss this appeal. I would award costs to the respondentfixed in the sum of $7,500 inclusive of disbursements and HST.

Alexandra Hoy A.C.J.O.:

I agree

P. Lauwers J.A.:

I agree

Appeal dismissed.

1170987 Alberta Ltd. v. 1544361 Alberta Ltd. 51

[Indexed as: 1170987 Alberta Ltd. v. 1544361 Alberta Ltd.]

1170987 Alberta Ltd., Appellant and 1544361 Alberta Ltd.,Respondent


Docket: Edmonton Appeal 1503-0062-AC

2015 ABCA 351

Catherine Fraser C.J.A., Peter Martin, Frans Slatter JJ.A.



Business associations –––– Changes to corporate status — Winding-up —Under provincial Acts — Miscellaneous –––– Numbered corporation, C, wasowned by two other numbered companies, one of which was controlled by ap-plicant and other by respondent — Dispute arose about long-term future of C —Applicant brought unsuccessful application to have C wound up or liquidated —Applicant appealed — Appeal allowed — Chambers judge’s decision disclosedreviewable error — Observation that parties needed exit strategy was inconsis-tent with finding that liquidation was inappropriate — It was unreasonable toconclude that record did not disclose fundamental deadlock in operation of C —It was open to chambers judge to order liquidation on terms that were fair.

Cases considered:

Dominion Steel Corp., Re (1927), 59 N.S.R. 398, [1927] 4 D.L.R. 337, 1927CarswellNS 37, [1927] N.S.J. No. 11 (N.S. C.A.) — referred to

Housen v. Nikolaisen (2002), 2002 SCC 33, 2002 CarswellSask 178, 2002 Car-swellSask 179, [2002] S.C.J. No. 31, 286 N.R. 1, 10 C.C.L.T. (3d) 157, 211D.L.R. (4th) 577, [2002] 7 W.W.R. 1, 219 Sask. R. 1, 272 W.A.C. 1, 30M.P.L.R. (3d) 1, [2002] 2 S.C.R. 235, REJB 2002-29758, 2002 CSC 33(S.C.C.) — considered

Keho Holdings Ltd. v. Noble (1987), 52 Alta. L.R. (2d) 195, 78 A.R. 131, 38D.L.R. (4th) 368, 1987 CarswellAlta 107, [1987] A.J. No. 334, 1987 ABCA84 (Alta. C.A.) — referred to

APPEAL by applicant from judgment dismissing applicant’s application to havecorporation wound up or liquidated.

B.G. Doherty, for AppellantS. Wanke, for Respondent


The Court:

1 This appeal arises from an application to wind up a numbered corpo-ration (the “Condocorp”) which owns a business condominium unit,#105, and no other significant assets.

2 Condocorp is owned by two other numbered companies, one of whichis controlled by a chiropractor (Dr. Basi) and the other by a general prac-titioner (Dr. Rengan). Dr. Basi owned business condominium unit #106(through the appellant numbered company) and practised from it. Atsome point he invited Dr. Rengan to also practice from that location. Thetwo doctors originally practised from condominium unit #106, and theypurchased the adjacent Condocorp unit #105, indirectly through theirnumbered companies, with long-term plans to extend their practices intothat property. In the short term, the Condocorp property was rented to athird party doctor who is not involved in this litigation.

3 In November 2012, Dr. Rengan relocated his practice. Dr. Basi re-mained in unit #106, owned by his numbered company, and the thirdparty doctor remained the tenant in Condocorp unit #105. This disputethen arose about the long-term future of Condocorp. Dr. Basi wanted tobuy out Dr. Rengan, and continue his practice in that building. Dr. Ren-gan wanted to maintain the joint ownership of Condocorp, and alsowished to protect the tenancy of the third party doctor. In addition to thisfundamental dispute about the long-term future of the property, there wasalso a dispute about the proper rent to charge the third party doctor. Thetwo doctors were unable to resolve the dispute on their own.

4 Dr. Basi (through his numbered company) brought an application tohave Condocorp wound up or liquidated in such a way that he wouldretain ownership and control of Condocorp unit #105. Dr. Rengan’snumbered company resisted that application, arguing that the joint own-ership should continue, and that the third party doctor tenant should notbe disturbed.

5 The chambers judge dismissed the application, holding:

• Condocorp is profitable and solvent, and was “doing just fine”;

• The allegation of a loss of confidence between the two doctors didnot “cross the threshold of proof”;

• There was no indication of any loss of confidence in how Dr. Ren-gan was managing the property until the doctors’ relationshipsevered;

1170987 Alberta Ltd. v. 1544361 Alberta Ltd. The Court 53

• Not any dispute is a “deadlock”, and it was not clear that therewas a sufficient level of deadlock here to justify winding up thecompany.

However, after concluding that it was “inappropriate to order liquida-tion”, the chambers judge then suggested that the “parties should care-fully consider what exit strategies may be available to them”.

6 The standard of review for questions of law (including extricablequestions of law) is correctness. The standard of review for questions offact (including inferences drawn from a paper record) is palpable andoverriding error. Mixed questions of fact and law call for a “higher stan-dard” of review, because “matters of mixed law and fact fall along aspectrum of particularity”: Housen v. Nikolaisen, 2002 SCC 33 (S.C.C.)at para. 28, [2002] 2 S.C.R. 235 (S.C.C.). The exercise of a judicial dis-cretion, such as whether to order the winding up of a corporation, willonly be reviewed on appeal for an error of principle or law, or if thedecision is unreasonable.

7 Applying these standards of review, the decision under appeal dis-closes reviewable error. Firstly, the reasons are inconsistent. The reasonsfor decision recognized that the parties require an “exit strategy”. Theonly reason that they might require an exit strategy is because the contin-ued joint ownership of Condocorp has become untenable due to the dis-pute that has arisen. The “exit strategy” provided by law is an applicationto the Court to wind up the corporation on fair terms. The record dis-closes that the parties attempted to negotiate a solution to their difficul-ties, and failed. Resort to the statutory remedy of liquidation was reason-able in the circumstances. The observation that the parties need an exitstrategy is inconsistent with the finding that liquidation is inappropriate.

8 The finding that there was no sufficient “deadlock” also merits scru-tiny. It is unhelpful to say that there was no lack of confidence before thetwo doctors went their separate ways. This is a common feature of anyapplication for liquidation. People do not jointly enter into businesses un-less they believe that, in the long term, they will be able to work to-gether. When things do not work out as planned, the law must providesome method of corporate divorce to allow the parties to go their sepa-rate ways.

9 There is also clear evidence on this record that the original substratumof the business (that the unit would be occupied by the two doctors) hasbeen lost: Dominion Steel Corp., Re, [1927] 4 D.L.R. 337 (N.S. C.A.) at349; Keho Holdings Ltd. v. Noble, 1987 ABCA 84 (Alta. C.A.) at para.


47, (1987), 52 Alta. L.R. (2d) 195, 78 A.R. 131 (Alta. C.A.). Going for-ward, the two doctors cannot agree about the basic business strategy thatwill be involved in joint ownership of the business condominium. Onewishes to occupy the property himself, while the other wishes to rent it tothird parties for profit. In any event, they cannot agree on the proper rent.They had different views on the continued tenancy of the third party doc-tor. That was a recipe for “deadlock”. Further, reliance on the fact thatCondocorp is profitable and “doing fine” assumes that the long-term ob-jective of the shareholders was to rent out the condominium unit forprofit. As indicated, Dr. Basi does not agree with that business model. Itwas unreasonable to conclude that the record does not disclose a funda-mental deadlock in the operation of the corporation.

10 The respondent argues that this application is just an attempt by theappellant to impose an agreement for the sale of the condominium. Therespondent argues that the appellant’s offers to purchase the condomin-ium were rejected, that there is no agreement for purchase and sale, andthat this indirect method of enforcing a sale should not be permitted.These parties clearly need an exit strategy, and having one of the share-holders purchase the condominium unit was one possible “strategy”. Theappellant cannot be faulted for pursuing the exit strategy of winding up,after the initial exit strategy of offering to purchase the condominiumunit had failed. The respondent’s proposed continuation of the status quois not an exit strategy at all.

11 The trial judge concluded that Dr. Basi’s interest was in “obtainingthe property for a value that may or may not be reflected as a fair marketvalue”. It would obviously be inappropriate to allow the winding up ofthe corporation otherwise than at fair market value. However, just be-cause the remedy sought was inappropriate, does not mean that the basicclaim was invalid. It was always open to the chambers judge to order theliquidation of the company on terms that were fair.

12 For these reasons, and having regard to the standard of review, theappeal is allowed. An order will issue directing that Condocorp bewound up.

13 Each party has expressed an interest in winding up Condocorp in away that will permit itself to eventually have ownership of Condocorp’sunit. In order to give both parties a fair opportunity to purchase the pro-perty, while also ensuring that Condocorp maximizes the value it re-ceives for its property, a form of private auction is called for. Subject tothe agreement of the parties, or any further order:

1170987 Alberta Ltd. v. 1544361 Alberta Ltd. The Court 55

(a) To facilitate the winding up, Condocorp will sell its property(Condominium Plan 062-0553, Units 5, 21 and 22), free of all fi-nancial encumbrances, with the usual adjustments, risk, posses-sion, and closing to be on January 31, 2016.

(b) On or before noon on Tuesday, November 24, 2015, the appellant(Dr. Basi’s company) will make an unconditional offer to Con-docorp to purchase Condocorp’s property on the terms in para. (a),at any price at or over $700,000 that the appellant sets (the “FirstPrice”).

(c) The respondent (Dr. Rengan’s company) will then have until noonon Friday, November 27, 2015 to agree in writing that Condocorpwill sell its property to the appellant at the First Price, or alterna-tively by that same deadline the respondent may indicate in writ-ing the price (the “Second Price”), which must be at least $10,000greater than the First Price, at which the respondent is prepared tobuy the property from Condocorp.

(d) The appellant will have until noon on Tuesday, December 1, 2015to agree in writing that Condocorp will sell its property to the re-spondent at the Second Price, or alternatively by that same dead-line the appellant may indicate in writing the price (the “ThirdPrice”), which must be at least $10,000 greater than the SecondPrice, at which the appellant is prepared to buy the property fromCondocorp.

(e) The respondent will then have until noon on Friday, December 4,2015 to agree in writing that Condocorp will sell its property tothe appellant at the Third Price, or alternatively by that same dead-line the respondent may indicate in writing the price (the “FourthPrice”), which must be at least $10,000 greater than the ThirdPrice, at which the respondent is prepared to buy the propertyfrom Condocorp.

(f) This process will continue, with each party making alternating of-fers (by noon on the subsequent Tuesdays and Fridays), at pricesincreasing by not less than $10,000, until one party agrees thatCondocorp may sell the property to the immediately previous of-feror at the last price named.

(g) Should either party fail to respond to an offer as provided above,or fail to specify an alternative price as contemplated above, thenCondocorp will sell its property to the immediately previous of-feror at the last price named.


(h) All offers and communications can be made electronically to theappellant and the respondent in care of their counsel of record onthis appeal.

(i) The parties are strongly encouraged to complete the sale andwinding up in a reasonable and businesslike way, and to resolveany issues that arise by discussion and agreement, but if any of theprovisions of this process are unworkable or unclear, the partiesmay contact Justice Slatter for direction.

(j) Once Condocorp has sold its property, then the mortgage can bepaid off, the affairs of Condocorp can be concluded, and it can bewound up.

Appeal allowed.

Holland v. Hostopia.Com Inc. 57

[Indexed as: Holland v. Hostopia.Com Inc.]

Sean Holland, Plaintiff/Appellant and Hostopia.Com Inc.,Defendant/Respondent


Docket: CA C56448

2015 ONCA 762

G.R. Strathy C.J.O., H.S. LaForme, M.H. Tulloch JJ.A.

Heard: May 14, 2015

Judgment: November 10, 2015*

Labour and employment law –––– Employment law — Nature of employ-ment relationship — Elements constituting relationship between employerand employee — Existence of contract of employment — Miscellaneous ––––Validity and enforcement — Employee accepted written offer of employmentfrom employer, which did not refer to employee’s entitlement to notice of termi-nation — Nine months later, employee signed employment agreement, whichprovided for notice under Employment Standards Act, 2000 — Employee’s em-ployment was terminated without cause after seven years — Employer paid em-ployee amount at least equal to entitlement under Act — Trial judge dismissedemployee’s action for wrongful dismissal — Trial judge found that employeewas bound by terms of employment agreement and damages were limited tominimum amounts set out in Act — Employee appealed — Appeal allowed inpart — Offer letter and employment agreement were inconsistent and could notbe considered as single contract — Implied term of offer letter was that em-ployee was entitled to reasonable notice prior to termination of employment —Employment agreement introduced new, material term into existing employmentcontract, that limited employee’s entitlement to notice to statutory minimum setout in Act — Employee had not previously consented to term in new employ-ment agreement and he received no fresh consideration — Without fresh consid-eration, employment agreement could not supersede implied term of reasonablenotice that was contained in offer letter.

Labour and employment law –––– Employment law — Termination and dis-missal — Notice — Considerations affecting length of notice — Multiplefactors considered –––– Employee was national account manager for employer,earning $75,000 per year plus commissions — Nine months after being hired,

* A corrigendum issued by the court on November 12, 2015 is incorporatedherein.


employee signed employment agreement, which provided for notice under Em-ployment Standards Act, 2000 — Employee’s employment was terminated with-out cause after seven years and he was paid amount at least equal to entitlementunder Act — Employee found new job after three months — Trial judge dis-missed employee’s action for damages for wrongful dismissal — Trial judgefound that employee was bound by terms of employment agreement, but other-wise would have been entitled to reasonable notice period of eight months —Employee appealed — Appeal allowed in part — Employee was entitled to eightmonths’ notice — Employment agreement was not enforceable due to lack offresh consideration, so employee was entitled to common law notice — Trialjudge should not have considered speed at which employee found new employ-ment when determining reasonable notice, as that speed went to mitigation notlength of notice — Trial judge’s consideration of that factor did not have hugeimpact on conclusion regarding reasonable notice period — Although eightmonths was at low end of range, there was no basis to interfere with trial judge’sexercise of discretion.

Labour and employment law –––– Employment law — Termination and dis-missal — Remedies — Damages — Commissions –––– Employee was nationalaccount manager for employer and was entitled to commissions as part of hiscompensation package — Employee’s employment was terminated withoutcause after seven years — At time of termination, employee had been workingon finalizing agreement with potential new customer — Trial judge dismissedemployee’s action for damages for wrongful dismissal — Trial judge found thatemployee was not entitled to commissions respecting new customer — Em-ployee appealed — Appeal allowed in part — Trial judge did not make any pal-pable and overriding error in findings of fact respecting employee’s claim tocommission — Findings of fact supported conclusion that employee was not ef-fective cause of new contract — Employee was not entitled to compensation forcommission because revenue from new contract was not booked until more thanone year after employment was terminated and he was not employee of goodstanding when he claimed he commission.

Restitution and unjust enrichment –––– General principles — Requirementsfor unjust enrichment — Miscellaneous –––– Employee was national accountmanager for employer and was entitled to commissions as part of his compensa-tion package — Employee’s employment was terminated without cause afterseven years — At time of termination, employee had been working on finalizingagreement with potential new customer — Trial judge dismissed employee’s ac-tion for damages for wrongful dismissal — Trial judge found that employee wasnot entitled to damages based on unjust enrichment — Action was dismissed —Employee appealed — Appeal allowed in part — Employer was not unjustly en-riched by employee’s efforts respecting new account — Employee was compen-sated for work on new account through base salary and contractual agreement

Holland v. Hostopia.Com Inc. 59

that he would not receive further compensation until revenues had beenbooked — Employee suffered no deprivation and there was juristic reason foremployer’s enrichment.

Cases considered by G.R. Strathy C.J.O.:

BG Checo International Ltd. v. British Columbia Hydro & Power Authority(1993), [1993] 2 W.W.R. 321, [1993] 1 S.C.R. 12, 147 N.R. 81, 75 B.C.L.R.(2d) 145, 99 D.L.R. (4th) 577, 20 B.C.A.C. 241, 35 W.A.C. 241, 14C.C.L.T. (2d) 233, 5 C.L.R. (2d) 173, 1993 CarswellBC 10, 1993 Car-swellBC 1254, [1993] S.C.J. No. 1, EYB 1993-67096 (S.C.C.) —considered

Bardal v. Globe & Mail Ltd. (1960), [1960] O.W.N. 253, 24 D.L.R. (2d) 140,[1960] O.J. No. 149, 1960 CarswellOnt 144 (Ont. H.C.) — followed

Braiden v. La-Z-Boy Canada Ltd. (2008), 2008 ONCA 464, 2008 CarswellOnt3442, (sub nom. Braiden and Gorden Braiden Sales Inc. v. La-Z-BoyCanada Limited) 2008 C.L.L.C. 210-027, 294 D.L.R. (4th) 172, 238 O.A.C.71, [2008] O.J. No. 2314 (Ont. C.A.) — referred to


Francis v. Canadian Imperial Bank of Commerce (1994), 7 C.C.E.L. (2d) 1, 75O.A.C. 216, 120 D.L.R. (4th) 393, 21 O.R. (3d) 75, 95 C.L.L.C. 210-022,1994 CarswellOnt 995, [1994] O.J. No. 2657 (Ont. C.A.) — referred to

Garland v. Consumers’ Gas Co. (2004), 2004 SCC 25, 2004 CarswellOnt 1558,2004 CarswellOnt 1559, [2004] S.C.J. No. 21, 237 D.L.R. (4th) 385, 43B.L.R. (3d) 163, 319 N.R. 38, 186 O.A.C. 128, 9 E.T.R. (3d) 163, [2004] 1S.C.R. 629, 72 O.R. (3d) 80 (note), REJB 2004-60672, 42 Alta. L. Rev. 399,[2004] A.C.S. No. 21, 72 O.R. (3d) 80, 2004 CSC 25 (S.C.C.) — referred to

Harper v. Bank of Montreal (1989), 27 C.C.E.L. 54, 1989 CarswellOnt 759(Ont. Div. Ct.) — referred to

Hobbs v. TDI Canada Ltd. (2004), 2004 CarswellOnt 4989, 246 D.L.R. (4th) 43,37 C.C.E.L. (3d) 163, 192 O.A.C. 141, [2004] O.J. No. 4876, 2005 C.L.L.C.210-031 (Ont. C.A.) — considered

Housen v. Nikolaisen (2002), 2002 SCC 33, 2002 CarswellSask 178, 2002 Car-swellSask 179, [2002] S.C.J. No. 31, 286 N.R. 1, 10 C.C.L.T. (3d) 157, 211D.L.R. (4th) 577, [2002] 7 W.W.R. 1, 219 Sask. R. 1, 272 W.A.C. 1, 30M.P.L.R. (3d) 1, [2002] 2 S.C.R. 235, REJB 2002-29758, 2002 CSC 33(S.C.C.) — referred to

K.M.A. Caterers Ltd. v. Howie (1968), [1969] 1 O.R. 131, 1 D.L.R. (3d) 558, 69C.L.L.C. 14,160, 1968 CarswellOnt 284 (Ont. C.A.) — referred to


Kaufman v. Weston Bakeries Ltd. (1996), 18 C.C.E.L. (2d) 198, 1996 Carswell-Ont 114, [1996] O.J. No. 85 (Ont. Gen. Div.) — referred to

King v. Operating Engineers Training Institute of Manitoba Inc. (2011), 2011MBCA 80, 2011 CarswellMan 485, 270 Man. R. (2d) 63, 524 W.A.C. 63,[2012] 3 W.W.R. 269, 341 D.L.R. (4th) 520 (Man. C.A.) — referred to

Machtinger v. HOJ Industries Ltd. (1992), 40 C.C.E.L. 1, (sub nom. Lefebvre v.HOJ Industries Ltd.; Machtinger v. HOJ Industries Ltd.) 53 O.A.C. 200, 91D.L.R. (4th) 491, 7 O.R. (3d) 480n, (sub nom. Lefebvre v. HOJ IndustriesLtd.; Machtinger v. HOJ Industries Ltd.) 136 N.R. 40, 92 C.L.L.C. 14,022,1992 CarswellOnt 989, [1992] 1 S.C.R. 986, 1992 CarswellOnt 892, [1992]S.C.J. No. 41, 7 O.R. (3d) 480, 7 O.R. (3d) 480 (note) (S.C.C.) — referred to

McNevan v. AmeriCredit Corp. (2008), 2008 ONCA 846, 2008 CarswellOnt7512, 245 O.A.C. 28, 94 O.R. (3d) 458, [2008] O.J. No. 5081, 305 D.L.R.(4th) 233, 2009 C.L.L.C. 210-027 (Ont. C.A.) — considered

Minott v. O’Shanter Development Co. (1999), 1999 CarswellOnt 1, 99 C.L.L.C.210-013, 40 C.C.E.L. (2d) 1, 168 D.L.R. (4th) 270, [1999] O.J. No. 5, 117O.A.C. 1, 42 O.R. (3d) 321 (Ont. C.A.) — considered

Murrell v. Burns International Security Services Ltd. (1997), 1997 CarswellOnt4093, 33 C.C.E.L. (2d) 1, [1997] O.J. No. 4456 (Ont. C.A.) — referred to

Panimondo v. Shorewood Packaging Corp. (2009), 2009 CarswellOnt 1972, 73C.C.E.L. (3d) 99, [2009] O.J. No. 1519 (Ont. S.C.J.) — referred to

Prozak v. Bell Telephone Co. of Canada (1984), 46 O.R. (2d) 385, 10 D.L.R.(4th) 382, 4 O.A.C. 12, 4 C.C.E.L. 202, 1984 CarswellOnt 752 (Ont.C.A.) — referred to

Ryan v. Laidlaw Transportation Ltd. (1995), 15 C.C.E.L. (2d) 80, 86 O.A.C.150, 26 O.R. (3d) 97, 1995 CarswellOnt 1015 (Ont. C.A.) — referred to

Sharpe v. Computer Innovations Distribution Inc. (1994), 2 C.C.E.L. (2d) 157,146 N.B.R. (2d) 254, 374 A.P.R. 254, 1994 CarswellNB 179, [1994] N.B.J.No. 134 (N.B. C.A.) — referred to


Employment Standards Act, 2000, S.O. 2000, c. 41Generally — referred to

APPEAL by employee from judgment dismissing his action for damages forwrongful dismissal.

Craig Colraine, Chris Kalantzis, for AppellantGeorge Avraam, Jeremy Hann, for Respondent

Holland v. Hostopia.Com Inc. G.R. Strathy C.J.O. 61

G.R. Strathy C.J.O.:

A. Introduction1 The appellant accepted a written offer of employment, which con-

tained a statement that he would be required to sign an employmentagreement. He started work. Nine months later, he was presented with anemployment agreement, which he signed. That agreement provided fortermination by notice under the Employment Standards Act, 2000, S.O.2000, c. 41 (“ESA”).

2 His employment was terminated without cause seven years later. Theemployer paid him an amount that was at least equal to his ESA entitle-ment. The trial judge dismissed his action for wrongful dismissal, hold-ing that his damages were limited to the minimum amounts set out in theESA.

3 These reasons explain why, in my view, his damages were not con-fined to the ESA amounts and he was entitled to common law reasonablenotice or damages in lieu. While I would allow the appeal in part on thisbasis, I do not accept the appellant’s submissions that the trial judgeerred in rejecting some of his claims for commissions.

B. The Facts4 The appellant was hired by the respondent as a National Account

Manager, a sales position, pursuant to an offer of employment containedin a two-page letter dated May 13, 2003 (the “Offer Letter”).

5 The Offer Letter described the essential terms of employment, includ-ing salary ($75,000 per year), commissions, benefits and vacation. Theoffer could be accepted by returning a signed copy of the letter and “thesubsequent signing of an employment agreement.”

6 The letter said nothing about the appellant’s entitlement to notice oftermination. Nor did it contain details of his commissions.

7 The appellant signed the letter, indicating his acceptance of the offer,on June 9, 2003.

8 On the same date, the appellant signed a Code of Business Conductand a Proprietary Rights Agreement. The latter contained a 6-month non-competition provision and a 12-month non-solicitation provision. Neitherdocument dealt with termination or notice periods.

9 Some nine months later, the appellant was presented with a six-pageEmployment Agreement, dated February 18, 2004, which he signed onMarch 8, 2004 (the “Employment Agreement”).


10 The Employment Agreement recited that the respondent had agreedto employ the appellant subject to the terms and conditions set outtherein. The operative provisions were preceded by a recital that theagreement was made “in consideration of the Employee’s employmentby Hostopia and the compensation paid to the Employee from time totime while so employed”.

11 Much of the Employment Agreement was boilerplate. The conten-tious provision is clause 4.3, which allowed the respondent to terminatethe appellant without cause or notice, provided it paid him in lieu of no-tice in accordance with the ESA.

12 The Employment Agreement had two express terms that varied theterms of the two documents signed along with the Offer Letter. Thosenew terms doubled the non-competition period to one year and the non-solicitation period to two years.

13 In the Employment Agreement, the appellant acknowledged that hehad read the agreement, understood its terms, was under no duress andknew he had the right to obtain independent legal advice and had eitherobtained such advice or waived it.

14 In addition to the Offer Letter and the Employment Agreement, theappellant signed a series of annual commission plans. The validity ofthese agreements is acknowledged, but their interpretation is at issue. Atthe time of the termination of his employment, the appellant’s commis-sion entitlement was governed by a Non-Salary Compensation Memo-randum. It set out the commissions to which he was entitled if he attainedcertain sales figures.

15 The appellant was entitled to a “Strategic Account Bonus” if one ofhis new accounts generated more than a defined revenue threshold formore than three consecutive months. This bonus was payable only if theappellant was an “employee in good standing” at the time he claimed it.As well, he was entitled to commissions on revenue that was “booked”by the respondent on his accounts. Details of these commissions are setout below.

16 The appellant’s employment was terminated by the respondent onFebruary 28, 2010, nearly seven years after he was hired. At the time oftermination, he had been working on finalizing an agreement with a po-tential new customer, “EarthLink”. The customer had not been signed upas a new account at the time of his termination. Subsequently, the cus-tomer signed a non-binding letter of intent in July 2010 and a formalcontract on October 15, 2010, effective October 1, 2010.


17 On termination, the appellant was paid accrued vacation pay, com-missions for the months of January through March 2010, and the sum of$40,756.81 for “payments in lieu of notice.” The calculation of the latteramount is not entirely clear on the evidence. It was agreed at trial that itwas at least the amount of his ESA entitlement to severance and termina-tion pay.

18 About three months after his termination, the appellant found a newposition, with similar terms of employment, including the same salaryand a commission program. He did not receive commissions until sometime after he began the new job.

19 He sued the respondent, claiming damages for wrongful dismissal,including the loss of the commissions he said he was owed on theEarthLink contract. The trial judge dismissed his action in its entirety. Iturn to his reasons for doing so.

C. The Trial Judge’s Reasons20 There were two key issues at trial. The first was whether the appellant

was bound by the term of the Employment Agreement regarding noticeof termination. Was he limited to his rights under the ESA or was heentitled to reasonable notice at common law or damages in lieu? Theresolution of this issue would impact his entitlement to commissionsearned during the notice period.

21 The second key issue was his entitlement to commissions on sales hewas working on at the time of his termination, including in particular theEarthLink deal. There was conflicting evidence about the appellant’scontribution to securing the EarthLink account.

22 The key witnesses at trial were the appellant and his former supervi-sor (who had since left the respondent’s employ) on the one hand, andthe respondent’s former CEO on the other hand. The trial judge preferredthe evidence of the latter. He described him as the most credible andpersuasive witness, who had no interest in the outcome of the case andwhose evidence, unlike the appellant’s, was generally consistent with thedocumentary evidence.

23 The trial judge rejected the appellant’s argument that the EmploymentAgreement was void for lack of fresh consideration because he was al-ready bound by the employment agreement contained in the Offer Letter.He found that the two agreements were interrelated and together consti-tuted a single contract of employment. There was consideration for thecontract as a whole, which had contemplated the acceptance process to


which the plaintiff had agreed. The two agreements were consistent andone did not negate the other. The appellant admitted he had signed thesecond agreement after quickly reading it. The trial judge inferred that hedid so because he knew that the Employment Agreement was the secondpart of his acceptance of the offer of employment, a process to which hehad agreed when he signed and returned the Offer Letter. He made noattempt to clarify anything in the document, did not object to any part ofit, and simply signed it.

24 The trial judge distinguished this court’s decision in Hobbs v. TDICanada Ltd. (2004), 246 D.L.R. (4th) 43 (Ont. C.A.). There, this courtfound there was no consideration for an agreement entered into after thecommencement of employment, when the employee had already ac-cepted employment based on an offer letter. Unlike this case, the trialjudge said, in Hobbs the offer had not been presented to the employee as“the introductory part of the more extensive contract of employment thatwas to follow at a later date.” Nor was there anything in the offer letter inthat case suggesting that the employee would be required to sign anotherdocument that would form part of the agreement.

25 The trial judge found the facts of this case were different from Hobbs.Here, the Offer Letter was presented to the appellant as the introductorypart of the more extensive contract of employment, with another part tobe signed subsequently. Further, he held, both documents are consistent.One does not negate the other.

26 He concluded: The result is, I find, that there was valid consideration for both partsof the one contract of employment. Stated differently, considerationfor the contract as a whole is proven by reason of the communicatedand agreed acceptance process, which led to two closely interrelateddocuments comprising one contract of employment.

27 The trial judge accepted the respondent’s evidence that the appellantwas terminated for poor sales performance and for no other reason. Herejected the appellant’s assertion that the respondent terminated him toavoid paying the EarthLink commission. He found that there was no dealwith EarthLink at the time of the appellant’s termination and it would bemany months before a deal was finalized.

28 Much of the evidence at trial centred on the issue of whether the ap-pellant had secured the EarthLink contract before the termination of hisemployment and how much he had been responsible for securing thedeal. The trial judge found against the appellant on this critical issue. Not


only was there no documentary evidence of an agreement being in placeat the time of his termination, the evidence was inconsistent with thatclaim. Following his termination, the appellant attempted to negotiate anagreement with the respondent to permit him to continue to work on theEarthLink deal. As he said in an email to the respondent after his termi-nation, he would “hate to lose this deal knowing [he could] get it back ontrack.” This conduct was inconsistent with his assertion that there was a“done deal” at the time.

29 The trial judge found that the appellant’s contribution to theEarthLink deal was limited. He did not find the opportunity, he workedtogether with a large team on the deal, and much of the critical work tosecure the account was done after he was terminated. The appellant’swork probably contributed no more than 15 percent to the outcome andthis occurred during the preliminary stages of a protracted process.

30 Having found that the Offer Letter and the Employment Agreementwere part of one contract, the trial judge found that the termination provi-sion of the latter was sufficiently clear. Employers may referentially in-corporate the provisions of the ESA into an employment contract:Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986 (S.C.C.).

31 The parties agreed that if the ESA was applicable, the appellant wasentitled to 12.67 weeks of base salary and commissions. The trial judgefound that the amount paid by the respondent on termination was at leastas much as he was entitled to. Accordingly, having found the terminationprovision enforceable, and the appellant having been paid at least asmuch as he was entitled to, he dismissed the action.

32 For the sake of completeness, the trial judge stated his conclusions onthe other issues. I will discuss those conclusions later in these reasons.For now, the following summary will suffice.

33 First, but for the termination provisions of the Employment Agree-ment, the appellant would have been entitled to damages for the periodof reasonable notice, based on all aspects of his compensation package,including the loss of commission entitlement. He found that reasonablenotice was eight months, bearing in mind the factors from Bardal v.Globe & Mail Ltd., [1960] O.W.N. 253 (Ont. H.C.), the speed withwhich the appellant obtained equivalent employment, and that there wasa gap in respect of commission earnings at the new employer.

34 Second, the terms of the commission plan precluded a claim for com-missions on the EarthLink account because the contract was signed afterthe termination of the appellant’s employment, the revenues from the ac-


count were not “booked” until after the expiry of the notice period andthe appellant was not an “employee in good standing” when he claimedthe commissions.

35 Third, although the appellant would not be entitled to commissionsfor EarthLink, he would have been entitled to all aspects of his compen-sation package, including commissions booked in respect of other trans-actions during that period, but for the termination provision in the Em-ployment Agreement.

36 Fourth, the appellant was not entitled to damages based on unjust en-richment. The appellant suffered no deprivation because he received sal-ary for the work he did on the EarthLink account. In any event, the com-bination of the termination provision in the Employment Agreement andthe Commission Plan were juristic reasons for the enrichment.

37 Fifth, and finally, if the termination provision did not apply, damagesbased on eight months’ notice would be calculated as the salary, commis-sions and bonuses he would have received in that time, less the amountspaid by the respondent on termination and the earnings from his newemployer during that period.

D. The Issues38 The issues necessary to the determination of this appeal, and as

framed by the appellant, are as follows:

1) the enforceability of the termination provision in the EmploymentAgreement;

2) reasonable notice;

3) the appellant’s entitlement to commissions;

4) the appellant’s entitlement to compensation based on unjust en-richment; and

5) damages.39 Before addressing those issues, it is appropriate to consider the appli-

cable standards of review.

E. The Standards of Review40 The standard of review is particularly important because of the trial

judge’s significant findings of fact and his interpretation of the contract.There are, in my view, three applicable standards of review.


41 First, the issue of the enforceability of the Employment Agreement —an issue of contract formation — is reviewable on a standard of correct-ness as to questions of law and “palpable and overriding error” for ques-tions of fact: Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53,[2014] 2 S.C.R. 633 (S.C.C.); Housen v. Nikolaisen, 2002 SCC 33,[2002] 2 S.C.R. 235 (S.C.C.).

42 Second, the appellant’s entitlement to commissions is a question ofcontract interpretation. In Sattva, at para. 50, the Supreme Court estab-lished that contractual interpretation is reviewed by appellate courts as amixed question of fact and law: see also Housen. Absent an extricableerror of law, a trial judge’s interpretation of the contract attracts defer-ence, as it requires a court to apply the principles of contractual interpre-tation to the words of the contract, in the context of the factual matrix.

43 The appellant’s entitlement to commissions involved issues of mixedfact and law and is subject to review for palpable and overriding error,unless the trial judge made an extricable error in law, in which case thestandard of review is correctness: Sattva; Housen. An extricable legal er-ror in this context includes “the application of an incorrect principle, thefailure to consider a required element of a legal test, or the failure toconsider a relevant factor”: Sattva, at para. 53, referring to King v.Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA80, 270 Man. R. (2d) 63 (Man. C.A.), at para. 20. As the Supreme Courtcautioned in Sattva, at para. 54, an appellate court should not strive tofind extricable legal errors in what are essentially factual disputes overthe objective intention of the parties.

44 Third, a trial judge’s determination of reasonable notice in a wrongfuldismissal case is entitled to deference. As this court observed in Minott v.O’Shanter Development Co. (1999), 42 O.R. (3d) 321 (Ont. C.A.) at pp.343-344:

Determining the period of reasonable notice is an art not a science. Ineach case trial judges must weigh and balance a catalogue of relevantfactors. No two cases are identical; and, ordinarily there is no one“right” figure for reasonable notice. Instead, most cases yield a rangeof reasonableness. Therefore, a trial judge’s determination of the pe-riod of reasonable notice is entitled to deference from an appellatecourt. An appeal court is not justified in interfering unless the figurearrived at by the trial judge is outside an acceptable range or unless,in arriving at the figure, the trial judge erred in principle or made anunreasonable finding of fact. If the trial judge erred in principle, anappellate court may substitute its own figure. But it should do so


sparingly if the trial judge’s award is within an acceptable range, de-spite the error in principle.

45 The rule that the court should interfere sparingly on the issue of rea-sonable notice, even in the presence of an error in principle, has beenapplied by this court in McNevan v. AmeriCredit Corp., 2008 ONCA846, 94 O.R. (3d) 458 (Ont. C.A.).

46 Against that background, I turn to the issues raised by the appellant.

F. Analysis

(1) The enforceability of the Employment Agreement47 I turn first to the issue whether the termination provision in the Em-

ployment Agreement was enforceable, given that it was signed ninemonths after the appellant commenced employment pursuant to the OfferLetter, which said nothing about notice of termination.

48 As I have noted, the trial judge considered this court’s decision inHobbs, but found it distinguishable because here there was considerationfor a single contract made up from two closely related and consistentdocuments.

49 With respect, the two documents were not consistent. They differedin at least one very material respect. Once accepted, the Offer Letter con-stituted a complete contract of employment. The appellant was employedpursuant to the Offer Letter for some nine months before he signed theEmployment Agreement. It was an implied term of the Offer Letter thathe was entitled to reasonable notice prior to the termination of his em-ployment: Francis v. Canadian Imperial Bank of Commerce (1994), 21O.R. (3d) 75 (Ont. C.A.). As the Supreme Court of Canada observed inBG Checo International Ltd. v. British Columbia Hydro & Power Au-thority, [1993] 1 S.C.R. 12 (S.C.C.), at p. 31, “[t]he law has alwaystreated express and implied terms as being equivalent in effect.”

50 The Employment Agreement contained an inconsistent term. Insteadof providing for reasonable notice, it limited the appellant’s entitlementto notice of termination to the statutory minimum set out in the ESA.There was no evidence of any discussion of the subject prior to the ap-pellant’s acceptance of the Offer Letter, no evidence that he was told thatthe Employment Agreement would contain terms inconsistent with theOffer Letter and no evidence that he agreed to waive his right to reasona-ble notice of termination when he signed the Offer Letter. Accordingly,the Employment Agreement introduced a new, very material term, into


the existing contract of employment — a term to which the appellant hadnot previously consented and for which he received no consideration.

51 The common law entitlement to reasonable notice of termination hasbeen described by the Supreme Court as a “necessary consideration” ofan employment relationship: Machtinger, at p. 1024. This court has de-scribed an express term contradicting an implied term of reasonable no-tice as a “tremendously significant modification”: Francis, at p. 84; seealso Braiden v. La-Z-Boy Canada Ltd., 2008 ONCA 464, 294 D.L.R.(4th) 172 (Ont. C.A.), at paras. 48, 57.

52 It is well-settled that a promise to perform an existing contract is notconsideration: see e.g. K.M.A. Caterers Ltd. v. Howie (1968), [1969] 1O.R. 131 (Ont. C.A.); Hobbs; Braiden. Fresh consideration was required:Francis.

53 In my view, the law in this respect is a matter of simple fairness. It isalso a matter of sound employment practice. As Juriansz J.A. noted inHobbs, at para. 1:

Accepting an offer of employment and committing the next stage ofone’s career to a new employer is an important life decision that mostpeople make carefully. Instability in an individual’s life, and in theworkforce generally, is minimized when the decision is made on thebasis of complete and accurate information about the new position.

54 Juriansz J.A. noted the importance of fresh consideration where anemployer seeks to amend the employment agreement. He stated, at para.42:

The requirement of consideration to support an amended agreementis especially important in the employment context where, generally,there is inequality in bargaining power between employees and em-ployers. Some employees may enjoy a measure of bargaining powerwhen negotiating the terms of prospective employment, but oncethey have been hired and are dependent on the remuneration of thenew job, they become more vulnerable. The law recognizes this vul-nerability, and the courts should be careful to apply Maguire [v. Nor-thland Drug. Co, [1935] S.C.R. 32] and Techniform Products [v.Wolder (2001), 56 O.R. (3d) 1 (C.A.)] only when, on the facts of thecase, the employee gains increased security of employment, or otherconsideration, for agreeing to the new terms of employment.

55 Without fresh consideration, the Employment Agreement could notdisplace the implied term of reasonable notice contained in the Offer Let-ter. The result is that the appellant was entitled to reasonable notice oftermination at common law. This impacts, potentially, his damages in


lieu of notice and his entitlement to commissions that became payableafter his termination.

(2) Reasonable Notice56 The trial judge found that, had the Employment Agreement not ap-

plied, the appellant would have been entitled to eight months’ notice,having regard to the Bardal factors, the speed with which he found com-parable employment and the delay before he was able to generate com-missions at his new job.

57 This issue is significant, not to the damages for loss of salary, whichwere addressed through the ESA payments and the appellant’s own miti-gation efforts, but for lost commission earnings, which took time for theappellant to generate at his new job.

58 The appellant argues that the trial judge erred in principle by failingto give consideration to the non-competition and non-solicitation provi-sions of his employment contract. He says that, on a proper analysis, rea-sonable notice should have been 12 months. He relies on Prozak v. BellTelephone Co. of Canada (1984), 46 O.R. (2d) 385 (Ont. C.A.);Kaufman v. Weston Bakeries Ltd. (1996), 18 C.C.E.L. (2d) 198 (Ont.Gen. Div.); and Sharpe v. Computer Innovations Distribution Inc.(1994), 146 N.B.R. (2d) 254 (N.B. C.A.).

59 The appellant refers to John R. Sproat, Wrongful Dismissal Hand-book, 5th ed. (Toronto: Carswell, 2009), at pp. 6.34.8-6.34.9, to supportthe submission that a restrictive covenant may increase the reasonablenotice period. The learned author cites two cases of this court in whichnon-competition covenants increased the notice period: Murrell v. BurnsInternational Security Services Ltd. (1997), 33 C.C.E.L. (2d) 1 (Ont.C.A.) and Ryan v. Laidlaw Transportation Ltd. (1995), 26 O.R. (3d) 97(Ont. C.A.), per McKinlay J.A. (dissenting, but not on this point).

60 In both of those cases though, the non-competition provisions made itmore difficult for the employee to find comparable employment. Therewas no evidence in this case that the non-competition provisions werelikely to make it more difficult for the appellant to find comparable em-ployment. I see no error in principle in the trial judge’s failure to con-sider the impact of the non-competition covenants.

61 There is, however, merit to the appellant’s submission that the trialjudge should not have considered the speed with which he found newemployment in determining the period of reasonable notice. Notice is tobe determined by the circumstances existing at the time of termination


and not by the amount of time that it takes the employee to find employ-ment: see Panimondo v. Shorewood Packaging Corp. (2009), 73C.C.E.L. (3d) 99 (Ont. S.C.J.), citing Harper v. Bank of Montreal (1989),27 C.C.E.L. 54 (Ont. Div. Ct.). If two employees in identical circum-stances are terminated at the same time, they are entitled to the samenotice, regardless how long it takes each of them to find a new job. Onemay mitigate her damages by finding a comparable job shortly after be-ing dismissed. The other may be unable to find work for years. They areentitled to the same notice, regardless of the outcome. The time it takesto find a new job goes to mitigation of damages, not to the length ofnotice.

62 I am unable to find, however, that the trial judge’s consideration ofthis factor had a significant impact on his conclusion concerning theproper notice period. Having regard to the authorities cited by counselfor the appellant, the appropriate range in this case was between eightand twelve months. While the eight months awarded by the trial judgewas at the very low end of the range, I would not interfere with the exer-cise of his discretion, notwithstanding the error in referring to the time ittook the appellant to find new work: See McNevan v. AmeriCredit Corp.,at paras. 34-35.

(3) Entitlement to commissions63 The respondent’s Commission Plan, which appears to have been re-

issued and amended annually, was three pages long and covered six dif-ferent commissions or bonuses. It was not disputed that the plan itselfwas valid and there was consideration for it.

64 The plan had “General Terms”, apparently applicable to all forms ofcommission remuneration as well as specific terms applicable to eachparticular form. Some terms were defined and some were not. Its lan-guage could only be fully understood by someone who was familiar withthe respondent’s business. It is clear from his reasons that the trial judgefound the language challenging.

65 That said, as the trial judge observed, the Commission Plan was“written in the language of the defendant’s business for use between anemployer and its employee”. The trial judge had the benefit of hearingevidence about how the Commission Plan worked in practice. His de-tailed analysis and interpretation of the Commission Plan was informedby the factual matrix developed by the witnesses on both sides and the


historical application of the plan in the course of the appellant’semployment.

66 There are three commissions relevant to the EarthLink account. I willbegin by describing each commission and will summarize the trialjudge’s reasons for dismissing the appellant’s claims for these commis-sions. Under the heading “Analysis”, I will explain why the trial judge’sinterpretation of the Commission Plan contains no extricable error of lawand why I would defer to that interpretation.

Strategic Account Bonus67 The first commission is the Strategic Account Bonus. This was a bo-

nus payable on billings for new accounts that were identified as “strate-gic accounts”. EarthLink was a strategic account. The 2010 CommissionPlan provided that, among other things, the appellant was entitled to abonus, of up to $14,000, for new accounts with billings of no less than$10,000 per month for at least three consecutive months. In order to bepaid a bonus, the respondent had to collect the revenue, as opposed tosimply invoicing it. The commissions could be claimed by an employeeup to 18 months from the time of signing the account, provided the em-ployee was in “good standing” at the time.

68 The trial judge found that the appellant was not entitled to the Strate-gic Account Bonus for EarthLink. This was because he was not an em-ployee in good standing when EarthLink billings commenced in March2011 and had not proved that he had claimed the bonus within 18 monthsof the account being signed.

Variable Compensation Commission69 The second commission, the “Variable Compensation (Commis-

sion)”, was payable based on an employee’s attainment of a revenuequota. If the appellant reached 100 percent of his quota ($600,000 in2010) he was entitled to 16 percent of that revenue. The provisions appli-cable to this form of commission stated, “Commissions are paid on abooked basis, with adjustments as necessary for credits, charge-backsand other net amounts.”

70 The trial judge found he was not entitled to this commission forEarthLink because the EarthLink revenues were not booked and adjusteduntil March 2011, over a year after his termination and outside the rea-sonable notice period.


Minimum Monthly Revenue Bonus71 The third commission was described as a “Minimum Monthly Reve-

nue Bonus”. The Commission Plan described the entitlement to this “bo-nus” as follows: “Effective for 2012, any contract with a minimummonthly recurring revenue fee shall earn the sales representative a front-end commission payment equivalent to 100 percent of the 3rd month’sconsecutive billing — to a maximum of $20,000.” This commission, likeall commissions, was subject to the “General Terms” of the CommissionPlan, which provided, among other things, that the “Employee must beemployed in good standing by Hostopia to collect any trailing bonusamounts, which means that no trailing bonus survive employee termina-tion for any cause.” It also provided, “Any bonus amounts earned up totermination of employment must be paid within 30 days of terminationdate.”

72 The trial judge found that there was no Minimum Monthly RevenueBonus payable to the appellant because there was no minimum monthlyrecurring revenue payable on the EarthLink contract. In any event, al-though he did not expressly say so, he would have found that the bonuswas not payable because of the term requiring the employee to be ingood standing to collect it.

Analysis73 The trial judge made important findings of fact in relation to the ap-

pellant’s claims for commissions. These findings were based on his as-sessment of all the evidence, including conflicting testimony that re-quired him to make findings of credibility, which he resolved in favourof the respondent.

74 First, he found that the appellant was assigned the position of leadperson on the EarthLink account. He did not find the EarthLink opportu-nity. He worked with a large team of the respondent’s employees.

75 Second, he rejected the appellant’s evidence that he was responsiblefor obtaining a “deal in principle” with EarthLink prior to the terminationof his employment. This assertion was not confirmed by the documen-tary evidence and it was inconsistent with the appellant’s own words andconduct. He found that it was “very improbable that EarthLink decidedin late February 2010 to finalize a deal with [the respondent]” and thatthe appellant was aware of this.

76 Third, he found that the appellant’s contribution to getting theEarthLink deal to a finalized contract and converting it into revenue, was


no more than 15 percent. He said, “I find that the plaintiff’s work, in ateam context, probably contributed no more than 15 percent to that out-come, and that that 15 percent was in the preliminary stages of a pro-tracted process.” In coming to this conclusion, the trial judge acceptedthe respondent’s evidence that after the appellant’s departure the respon-dent put much detailed and important work into persuading EarthLink todeal with it. The appellant was only one of many of the respondent’semployees who brought the deal to fruition. The work done after his ter-mination was much more of a contribution.

77 Fourth, the trial judge found that the appellant’s employment was notterminated for the purpose of avoiding the payment of commissions onthe EarthLink deal. He was terminated due to poor sales performance.

78 These findings are grounded in the evidence and in the trial judge’sassessment of the credibility of witnesses and we cannot interfere in theabsence of palpable and overriding error. No such error has beendemonstrated.

79 The trial judge’s findings of fact support the conclusion that the ap-pellant was not the “effective” or “substantial” cause of the EarthLinkcontract: see Howard A. Levitt, The Law of Dismissal in Canada, loose-leaf, 3rd ed., (Aurora, Ont.: Canada Law Book, 2003), at pp. 9-39 to 9-40. Had he been, there might have been an argument that he had done allthat was necessary to earn the commissions and the commission planonly addressed the timing of payment.

80 But that argument is not available to the appellant. Not only was thereno contract signed with EarthLink at the time of his termination, the con-tract was not signed until after the expiry of the reasonable notice period.Moreover, the language of the commission plan precluded his recoveryof commissions. The appellant was not entitled to compensation for thecommission because the revenue from the EarthLink contract was not“booked” until more than a year after the termination of his employmentand he was not an “employee in good standing” when he claimed thecommission.

81 The appellant has failed to demonstrate any extricable legal error inthe trial judge’s interpretation of the challenging language of the Com-mission Plan. That interpretation was informed by the evidence of theway in which the respondent conducted its business and by the practicalmeaning given by the parties to the termination of the contract.


(4) Unjust Enrichment82 The appellant submits that the respondent has been unjustly enriched.

He “harpooned the whale” — brought the lucrative EarthLink contract tothe respondent — but received no compensation for his efforts.

83 To establish a claim for unjust enrichment, the appellant must demon-strate: (1) an enrichment of the defendant; (2) a corresponding depriva-tion of the plaintiff; and (3) an absence of juristic reason for the enrich-ment: Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 S.C.R.629 (S.C.C.), at para. 30.

84 The appellant’s submissions on this issue impugn the trial judge’sfindings of fact concerning his contribution to the ultimate securing ofthe EarthLink contract. The appellant asks us to re-evaluate the evidence,and the credibility of the witnesses and to substitute our opinion for thetrial judge’s. He has demonstrated no palpable or overriding error in thetrial judge’s assessment of the evidence on this issue. In my view, thereis simply no basis on which we can interfere.

85 On the trial judge’s findings of fact, the appellant did not throw thefirst harpoon, the whale was not firmly on the line when his employmentwas terminated, and there was much work still to be done to bring it toshore. This work was not accomplished during the appellant’s employ-ment and his entitlement to commission did not arise during the reasona-ble notice period.

86 As I have noted, the trial judge found that the appellant was compen-sated for his work on the EarthLink account through his base salary andhe had contractually agreed that he would not receive further compensa-tion for his work until revenues had been booked. Thus, the appellantsuffered no deprivation and there was a juristic reason for the enrichmentof the respondent.

87 In my view, the trial judge made no error in finding there was no rightto equitable compensation on unjust enrichment principles.

(5) Damages88 The respondent does not dispute that, if the appellant was entitled to

reasonable notice, he is entitled to be compensated for the commissionshe would have been paid in the ordinary course during the reasonablenotice period.


G. Disposition89 For these reasons, the appeal is allowed in part, and the judgment

below is varied by awarding damages assessed in the manner identifiedby the trial judge, as set out in paragraph 37 of these reasons. Counselindicated that they would likely be able to resolve quantum. If they areunable to do so they may make submissions in writing within 30 days ofthe release of these reasons.

90 Success on this appeal is divided. If counsel are unable to resolvecosts, they may make written submissions, limited to five pages, exclud-ing the costs outline, also within 30 days.

H.S. LaForme J.A.:

I agree

M.H. Tulloch J.A.:

I agree

Appeal allowed in part.

1891868 Alberta Ltd. v. Central Fund of Canada Ltd. 77

[Indexed as: 1891868 Alberta Ltd. v. Central Fund ofCanada Ltd.]

1891868 Alberta Ltd., Appellant (Applicant) and Central Fundof Canada Limited, Glenn C. Fox, Bruce D. Heagle, Ian M. T.

McAvity, Michael A. Parente, Jason A. Schwandt, Dale R.Spackman, Q.C. and J.C. Stefan Spicer, Respondents

(Respondents)


Docket: Calgary 1501-0204-AC

2015 ABCA 331

Catherine Fraser C.J.A., Jack Watson, Thomas W. WakelingJJ.A.

Heard: October 13, 2015


Business associations –––– Specific matters of corporate organization —Shareholders — Meetings — Pursuant to shareholder requisition –––– Cor-poration offered common shares and class A shares — Corporation was admin-istered by administrator corporation — Shareholder, who was competitor of cor-poration, owned certain class A shares — Shareholder claimed thatadministration agreement created personal benefit to board member of corpora-tion — Shareholder attempted to bring about shareholder’s meeting, to addressissues including administrative agreement — Board maintained meeting was im-properly called — Shareholder’s application for order that meeting be held wasdismissed — Trial judge found meeting was invalid — Trial judge found thatclass A shareholders could not initiate vote on issues which were subject ofmeeting — Shareholder appealed — Appeal dismissed — Articles of corpora-tion prevented class A shareholders from initiating votes on issues — Althoughshare structure of corporation may be unusual, legislative intent was to allowcorporation to organize self as desired — Nature of shares had been disclosed atrelevant times.

Cases considered:

Central GoldTrust v. Sprott Asset Management Gold Bid LP (2015), 2015ONSC 4888, 2015 CarswellOnt 16321 (Ont. S.C.J.) — considered


Business Corporations Act, R.S.A. 2000, c. B-9Generally — referred to


s. 26 — considereds. 26(4) — considereds. 136 — considereds. 136(1) — considereds. 139 — considereds. 139(1) — considereds. 142 — considereds. 143 — consideredss. 173-177 — referred tos. 242 — considered

APPEAL by shareholder from judgment dismissing application for order forshareholders meeting.

P.F.C. Howard, G.D. Holub, for AppellantP.T. Linder, Q.C., S.B.G. Matthews, J. Bolton, for Respondents, Central Fund of

Canada Limited, Ian M.T. McAvity, Michael A. Parente, Q.C., Dale R.Spackman and J.C. Stefan Spicer

R.W. Staley, M. Mysak, for Respondents, Glenn C. Fox, Bruce D. Heagle andJason A. Schwandt

The Court:

I. Introduction1 Because the proceedings below were in the nature of a chambers mo-

tion, the recital of facts set out below is based upon the allegations andmaterials of the parties. We emphasize that this is not an appeal from atrial decision, and so references to the circumstances are not references toformal findings after a trial but to the positions of the parties.

II. Evidential Context2 The appellant corporation 1891868 Alberta Ltd. (called “SAM” in the

materials, evidently linking it to a firm called Sprott Asset Management)is the beneficial owner of 1,586,000 of the issued Class A Shares of therespondent Central Fund of Canada Ltd (“CFCL”). CFCL is a publiccompany originally incorporated in Ontario in 1961 and as an Albertacorporation in 1990. CFCL deals in precious metals. The personal re-spondents are members of the current Board of Directors of CFCL. Theappellant says the respondent directors own approximately 100,000 ofthe Class A shares. The directors also own the 40,000 common shares.

3 CFCL’s Restated Articles of Incorporation are said to recognize theClass A shares which are publicly traded, and the 40,000 common shares

1891868 Alberta Ltd. v. Central Fund of Canada Ltd. The Court 79

which are not publicly traded. The common shares are voting shares. Asnoted below, the rights of the Class A shares are limited. The appellantcontends that the common shares are majority owned by the Spicer fam-ily, notably the respondent Stefan Spicer, the CEO and Board Chair ofCFCL.

4 The appellant says that this “anachronistic anomaly” share arrange-ment would be unacceptable under modern practices of public sharehold-ing. The appellant does not suggest that the shareholding is unlawful. Butit does contend that, in the marketplace, potential buyers would not findsuch shares to be a desirable acquisition, especially if the company’soverall management of its business is under attack. The appellant did of-fer a commentary article suggesting this type of dual share structure isuncommon.

5 CFCL is evidently required to publicly identify the common share-holding and Class A shareholding and their capital value annually. Thereappears to be no dispute that CFCL did so at the material time. In partic-ular, there is evidence that the participatory rights of the respectiveshares were known to the principals of SAM before they were acquired,and that any person buying Class A shares had access to thatinformation.

6 According to the appellant, the affairs of CFCL have since 1990 beenmanaged by Central Group Alberta Ltd (“CGAL”). The appellant assertsthat CGAL is also owned or controlled by the Spicers. The administra-tion agreement between CFCL and CGAL is said to be renewable forthree year terms with the renewal date being October 31, 2015. CFCLhas paid substantial fees to CGAL for its services over the years. Theappellant alleges that the respondent Ian McAvity, a member of theBoard of CFCL, has benefited personally from the contractual arrange-ments with CGAL. Whether other directors might be receiving benefitfrom CGAL’s continued management of CFCL business affairs is notgiven to this Court. The appellant expresses a desire to look into this.The appellant suggests that there has been some inquiry citing CentralGoldTrust v. Sprott Asset Management Gold Bid LP, 2015 ONSC 4888(Ont. S.C.J.).

7 The appellant acquired its Class A shareholding under an ex partesolicitation approved by the Alberta Securities Commission on May 19,2015. The appellant was at the time a competitor to CFCL. By June 16,2015, once the appellant concluded that it had sufficient support of ClassA shareholders, the appellant delivered a Requisition for a meeting under


s 142 of the Business Corporations Act RSA c B-9 (“BCA”) to the direc-tors of CFCL.

8 In this respect, the appellant asserts to this Court that it had garneredsupport from five other Class A shareholders, together holding approxi-mately 14,000,000 Class A shares, to proceed with this effort. The totalnumber of Class A shares as of the end of 2014 was 254,432,713 held bysome 80,000 shareholders. In other words, the appellant suggests it hasthe support of something over the 5% level required to proceed as theyare. Against this, it is said that only .015% of the Class A shares are heldby the common shareholders and that thus 99.85% of CFCL’s equity isowned by Class A shareholders. The appellant asserts that there is anintolerable voting power distortion in this shareholding structure, com-pared with many other publicly traded companies.

III. Procedural Context9 To this Court, the appellant explained that the Class A shareholders

by way of the Requisition under s 142 of the BCA wanted to have ashareholders’ meeting to “communicate” their views ultimately to thefollowing ends: (a) to terminate the CGAL role as administrator; (b) toappoint a new administrator; (c) to depose the incumbent Board and electnew directors; and (d) to amend the Articles to modify the redemptionfeatures and voting rights that should attach to Class A shares.

10 The Requisition reproduced to this Court included what the appellantcharacterized as advisory topics (which the appellant said could go for-ward if a valid voting topic was also in the Requisition) and also topicswhich either directly or indirectly would have affected the rights associ-ated with common shares. The appellant concedes to this Court, there-fore, that none of the matters in the Requisition could actually have bind-ing effect upon CFCL unless also endorsed by a vote of the necessarypercentage of the common shareholders. The appellant argues that if theClass A shareholders did have their separate meeting pursuant to theBCA, and garnered the necessary two thirds support of Class A share-holders in attendance, once publicized this would potentially put eco-nomic pressure on the common shareholders and, the Board to changetheir policy as to voting power, amongst other things.


11 Section 142 of the BCA provides as follows: Meeting on requisition of registered holders or beneficial owners

of shares

142(1) The registered holders or beneficial owners of not less than5% of the issued shares of a corporation that carry the right to vote ata meeting sought to be held may requisition the directors to call ameeting of shareholders for the purposes stated in the requisition, butthe beneficial owners of shares do not hereby acquire the direct rightto vote at the meeting that is the subject of the requisition.

(2) The requisition referred to in subsection (1), which may consist ofseveral documents in the same form, each signed by one or moreregistered holders or beneficial owners of shares, shall state the busi-ness to be transacted at the meeting and shall be sent to each directorand to the registered office of the corporation.

(3) On receiving the requisition referred to in subsection (1), the di-rectors shall call a meeting of shareholders to transact the businessstated in the requisition unless

(a) a record date has been fixed under section 133(2) and noticeof the record date has been given or waived under section133(4),

(b) the directors have called a meeting of shareholders and havegiven notice of the meeting under section 134, or

(c) the business of the meeting as stated in the requisition in-cludes matters described in section 136(5)(b) to (e).

(4) If the directors do not, within 21 days after receiving the requisi-tion referred to in subsection (1), call a meeting, any registeredholder or beneficial owner of shares who signed the requisition maycall the meeting.

(5) A meeting called under this section shall be called as nearly aspossible in the manner in which meetings are to be called pursuant tothe bylaws, this Part and Part 12.

(6) Unless the registered holders or beneficial owners of shares re-solve otherwise at a meeting called under subsection (4), the corpora-tion shall reimburse the registered holders or beneficial owners ofshares for the expenses reasonably incurred by them in requisition-ing, calling and holding the meeting.

[Emphasis added]

12 Although the appellant suggests that it is willing to pick up the costsfor holding such a meeting, the appellant did not point to any provisionwhereby a corporation could avoid at least upfront costs to the corpora-


tion of any requisitioning, calling and holding of the meeting. It alsoseems useful to note, as context to s 142, the content of s136(1) which isas follows:

Shareholder proposals

136(1) A registered holder of shares entitled to vote at an annualmeeting of shareholders, or a beneficial owner of shares, may

(a) submit to the corporation notice of any matter related to thebusiness or affairs of the corporation that the registeredholder or beneficial owner of shares proposes to raise at themeeting, referred to in this section as a “proposal”, and

(b) discuss at the meeting any matter in respect of which the reg-istered holder or beneficial owner of shares would have beenentitled to submit a proposal.

13 The appellant argues that s 136 would entitle Class A shareholder toaddress topics at the meeting even if they cannot vote there. Thus, ascontended by the appellant, the valid convening of a meeting might pro-vide an opportunity to raise advisory matters. We need not decide if thatinterpretation by the appellant is correct.

14 The appellant did not suggest that every one of the topics listed in theRequisition it gave to the directors was a topic on which the Class Ashareholders would have a right, under the current Articles of CFCL, toinitiate a vote, even a vote exclusively by Class A shareholders. The ap-pellant does assert strenuously, however, that the Requisition did identifymatters on which Class A shareholders had “the right to vote at a meet-ing sought to be held”. Essentially the authority for that right of Class Ashareholders was said to reside in Article 2 of the CFCL Articles, andwas bolstered by interpretation of ss 173 to 177 of the BCA. The CFCLdirectors rejected the validity of the Requisition.

15 On June 23, 2015, the appellant filed an application in the Court ofQueen’s Bench for an order pursuant to either s 143 or 242 of the BCAfor the Court to direct a meeting of shareholders of CFCL to be held asper the Requisition. Once again, the appellant explains to this Court thatits aim was to chart a course for CFCL, particularly in relation to theadministration agreement with CGAL. The appellant said it wanted tohave the meeting before the management agreement was renewed in fa-vour of CGAL effective October 31, 2015. The appellant’s notice of ap-plication also sought injunctive relief. The framing of that notice de-serves mention.


16 The appellant says in its materials before this Court that the actions ofthe Board of CFCL are and have been oppressive against the rights of theClass A shareholders. The appellant makes the allegations mentionedabove as to ownership and management of CFCL. The appellant assertsin its Factum before us at para 19 that its notice of application filed onJune 23, 2015, also sought “a final Order pursuant to s. 242 of the ABCAfor oppression”. In oral argument, however, the appellant conceded thatthe only form of “oppression” to which they were presently referring wasthe directors’ resistance to the holding of the meeting demanded by theRequisition.

17 This somewhat obscure position for the appellant about oppressionwas apparently taken before Strekaf J on September 24, 2015, being sub-sequent to the hearing before Horner J and subsequent to the launchingof the appeal to this Court from the decision of Horner J. Strekaf J ini-tially had carriage of what seemed to be a larger scope oppression appli-cation by the appellant against the Board of CFCL, and there is also ref-erence to an outstanding application for leave to bring a derivative actionin the Court of Queen’s Bench. The oppression motion on September 24,2015 appears to have been taken by Strekaf J to be restricted to the pointof whether the meeting sought by Requisition was being improperly re-sisted by the Board of CFCL. As such, Strekaf J appears to have con-cluded that such a narrow approach to oppression should have been ad-dressed by Horner J in the four corners of what was before Horner J.Stekaf J said that in light of what Horner J decided, the oppression rem-edy based thereon was denied. We were not told if any appeal was takenfrom that decision of Strekaf J.

18 Strictly speaking, what Horner J had before her was a motion by theappellant to compel a meeting and a motion by the respondents to havethe Requisition declared invalid as unsupported by s 142 of the BCA. Itseems evident that the positions taken by the appellant before Strekaf Jand Horner J have brought about some confusion. As to this, we note that(a) the appellant’s notice of application to compel a meeting set out aseries of assertions of fact said to justify action by the Court under s 242of the BCA, and (b) the words “oppressive or unfairly prejudicial” ap-pear in the averments at para 34 of that notice of motion. But there is noexpress reference in the notice of motion to a declaration of oppression inthe remedy provision at para 36 of the notice. In para 36, the appellantessentially describes the specific remedies sought in the Requisition al-though the appellant suggests therein that the basis for the Court so or-dering those remedies rested within s 242 of the BCA.


19 In any event, at this stage before this Court, we are driven to proceedon the basis that the only issue before this Court is whether Horner J wascorrect to find that the Requisition delivered by the appellant to CFCL,which was putatively pursuant to s 142 of the Act, and which was chal-lenged by the Board of CFCL before Horner J, was validly grounded inthat section. CFCL had raised its objections by way of a cross-applica-tion filed on July 14, 2015 to the application of the appellant. CFCLwould ordinarily be required to have a meeting every 15 months and alsoannounced its intention to do so prior to the hearing before Strekaf J. Insummary, CFCL argued to Horner J that Class A shareholders were notentitled to call a “meeting” of the shareholders of CFCL, even a meetingof only the Class A shareholders, under s 142 of the Act unless the ClassA shareholders were entitled to vote at that meeting. The respondentssaid that nothing in the Articles, notably Article 2, and nothing in theBCA says that Class A shareholders could initiate a vote to change thevoting rights of Class A shareholders, let alone to effectively change thevoting rights of the common shareholders.

IV. Analysis20 Under Articles 7 and 8, the Class A shareholders could withhold ap-

proval to certain actions by CFCL to re-configure the structure of thecompany. They also could withhold consent to CFCL itself terminatingthe CGAL contract or substituting for CGAL. Horner J held that thoseprovisions of the Articles do not set out any authority of the Class Ashareholders to initiate any action (a) in favour of termination of theCGAL agreement; (b) re-configuring the company; (c) altering the share-holding; or (d) changing the rights of any shareholders. Horner J notedthat under section 26(4) of the BCA the rights of shareholders are set bythe Articles. Section 26 provides:

Shares and classes of shares

26(1) Shares of a corporation shall be in registered form and shall bewithout nominal or par value.

(2) If a body corporate is continued under this Act, a share with nom-inal or par value issued by the body corporate before it was so con-tinued is, for the purpose of subsection (1), deemed to be a sharewithout nominal or par value.

(3) If a corporation has only one class of shares, the rights of theholders of those shares are equal in all respects and include the rights

(a) to vote at any meeting of shareholders of the corporation,


(b) to receive any dividend declared by the corporation, and

(c) to receive the remaining property of the corporation ondissolution.

(4) The articles may provide for more than one class of shares and, ifthey so provide,

(a) the rights, privileges, restrictions and conditions attaching tothe shares of each class shall be set out in the articles, and

(b) the rights set out in subsection (3) shall be attached to at leastone class of shares but all of those rights are not required tobe attached to one class.

(5) Subject to section 29, if a corporation has more than one class ofshares, the rights of the holders of the shares of any class are equal inall respects.

21 Horner J pointed out that under Article 2, the Class A shareholders“..... at any meeting of the shareholders of the Corporation ..... shall notbe entitled to vote”. Article 2 goes on to provide for an exception bysaying that CFCL is not entitled to change the essentials of the Class Ashareholder rights without approval of the Class A shareholders. It wassuggested to this Court that, accordingly, if the common shareholders at-tempted to change the Articles to alter the rights associated with Class AShares, then the Class A shareholders might be able to proceed by Requi-sition to demand a meeting of shareholders to formally object. We werenot asked to decide if that thesis is correct or not.

22 Horner J addressed the submission of CFCL as to Requisition validityonly. We find that is all she did. The later conception of the matter beforeHorner J by Strekaf J was triggered in the mind of Strekaf J by the posi-tion evidently taken before her. The suggestion of the appellant thatHorner J also made a legal declaration concerning the oppression claimis in our view unfounded. Indeed, it was not pursued in oral argument.Horner J merely declined to deal with oppression. She restricted herselfto the interpretation, in this factual context, of how s 142 of the Actapplied.

23 Horner J found that any prima facie right of each shareholder to voteas reflected in s 139 of the BCA had been supplanted under s 26 of theBCA by the different voting rights specified in the Articles of CFCL. Inthis regard, s 139(1) of the BCA provides that “Unless the articles other-wise provide, each share of a corporation entitles the holder of it to onevote at a meeting of shareholders”. Section 139(1) therefore accords withs 26(4) and evidences the policy of the Legislature that it is up to the


corporations through their articles to decide what shares have what vot-ing capacity. Contrary to the view urged for the appellant, we also seenothing in ss 173 to 177 of the BCA which is inconsistent with the sameview of the Legislature. It is not for this Court to re-jig the policy of theLegislature, whatever we might think about the wisdom of accepting un-equal share voting power.

24 In her conclusion, Horner J found that the rights specified in the Arti-cles of CFCL were limited for Class A shareholders, including to theextent one could characterize them as voting rights. She held that theClass A shareholders had issued a Requisition for a meeting where theClass A shareholders could not vote. Horner J noted that even John Wil-son, a key affiant for the appellant, conceded the limits on voting rights.In the result, the Requisition was invalid under s 142 of the Act and sheso declared.

25 The appellant contends that Horner J failed to have regard to the“fairness” of the situation where the nearly quarter of a billion Class Ashareholders had no ability to, in effect, initiate a takeover of CFCL byforcing a shareholders meeting and then voting at it to change the struc-ture of the company and the CGAL contract. Horner J was right to beunmoved by this cride coeur in light of the fact that the issue of oppres-sion was not before her. Nor was there any motion to challenge the BCA.As noted above, the 80,000 people who purchased Class A shares inCFCL had the ability to know the rights of such shares when they ac-quired them. The appellant did in fact know before they acquired theshares.

26 Be that as it may, the appellant also contends that the ability to with-hold consent to changes in shareholder rights, or as to the CGAL con-tract, should be read as an ability to “vote” on either topic even if theyare never raised by the common shareholders and no action is taken bythe Board or CFCL to vary those rights. This contention fails the firststep, the grammatical step, of statutory construction as Horner J correctlyfound. The appellant’s reading of Articles 2, 7 and 8 was rejected byHorner J and we do not detect error in her finding.

27 When asked by the Court to produce one case, or one learned article,or any statute, which supports the interpretation proposed for the appel-lant here, counsel for the appellant was unable to do so. This was againsta backdrop where the appellant claims the distortion of voting power isblatant and oppressive. As mentioned above, we are not suggesting thatsuch a shareholding arrangement is ideal or some sort of model to fol-


low. Indeed, it has attracted criticism in the corporate world. It is true, asthe appellant also says, that an enlightened marketplace can be expectedto ultimately decide whether shares with limited shareholder rights incertain companies in this country are worth purchasing. But this Court isnot in a position to invent a different legislative balance, or to createvoting rights that the Articles of the corporation do not envision.

28 Finally, the appellant also mentions that the Requisition proposed adiscussion of “advisory” resolutions. The appellant suggests that advi-sory resolutions would also be a beneficial element of internal corporatedemocracy in publicly traded companies. Whether that is so is not a mat-ter that this Court is called upon to decide on this appeal either. Horner Jwas asked to decide if the Requisition presented by the appellant in thiscase, and with these Articles was competent to force the holding of aspecial shareholders meeting when the Class A shareholders could notvote on the Requisition topics at such a meeting. The possibility that theappellant and its allies might want to “communicate” their position to thecommon shareholders by this means casts no light on the answer to thequestion given to Horner J.

V. Conclusion29 The appeal is dismissed.

Appeal dismissed.


[Indexed as: Felty v. Ernst & Young LLP]

Anita Felty, Appellant (Plaintiff) and Ernst & Young LLP,Respondent (Defendant)

British Columbia Court of Appeal

Docket: Vancouver CA40959

2015 BCCA 445

Newbury, Fenlon, Dickson JJ.A.

Heard: September 28, 2015

Judgment: October 28, 2015

Professions and occupations –––– Accountants — Relationship with cli-ent –––– F was U.S. citizen married in Canada to Canadian citizen — F hiredlaw firm to represent her in divorce proceedings — Settlement was reached withF’s husband and F’s lawyer hired defendant accountant firm to give U.S. taxadvice — F did not sign agreement with accountants — Accountant’s opinionwas that s. 1041 of U.S. Internal Revenue Code applied and that there was notax liability — Advice given was erroneous as s. 1041 contained exclusionwhere transferor was non-resident alien — Result was U.S. tax liability of$544,106 (U.S.) for F — Contract signed by lawyer with firm included limita-tion clause limiting damages to amount of fees paid — F brought action againstaccountants and was awarded $15,314.95 being amount of fees paid — Trialjudge held limitation clause enforceable against F and that it was not uncon-scionable — F appealed — Appeal dismissed — Retainer agreement for tax ad-vice was personal to F and of no interest to lawyer or her firm except insofar asthey were advising F — F was specifically referred to in agreement and heridentity and other circumstances were made known to third party — Lawyerbound F as principal to terms of agreement — Legislature had not chosen to baraccountants from limiting liability as it had for lawyers.

Contracts –––– Construction and interpretation — Disclaimer clauses –––– Fwas U.S. citizen married in Canada to Canadian citizen — F hired law firm torepresent her in divorce proceedings — Settlement was reached with F’s hus-band and F’s lawyer hired defendant accountant firm to give U.S. tax advice —F did not sign agreement with accountants — Accountant’s opinion was that s.1041 of U.S. Internal Revenue Code applied and that there was no tax liabil-ity — Advice given was erroneous as s. 1041 contained exclusion where trans-feror was non-resident alien — Result was U.S. tax liability of $544,106 (U.S.)for F — Contract signed by lawyer with firm included limitation clause limitingdamages to amount of fees paid — F brought action against accountants and wasawarded $15,314.95 being amount of fees paid — Trial judge held limitation

Felty v. Ernst & Young LLP 89

clause enforceable against F and that it was not unconscionable — F ap-pealed — Appeal dismissed — Lawyer bound F as principal to terms of agree-ment — Argument that public policy in favour of holding professionals to highdegree of diligence was not sufficiently overriding or powerful public objectivethat would justify declining to enforce clause.

Commercial law –––– Agency — Relationship between principal and thirdperson — Principal’s rights against third person –––– F was U.S. citizen mar-ried in Canada to Canadian citizen — F hired law firm to represent her in di-vorce proceedings — Settlement was reached with F’s husband and F’s lawyerhired defendant accountant firm to give U.S. tax advice — F did not sign agree-ment with accountants — Accountant’s opinion was that s. 1041 of U.S. InternalRevenue Code applied and that there was no tax liability — Advice given waserroneous as s. 1041 contained exclusion where transferor was non-residentalien — Result was U.S. tax liability of $544,106 (U.S.) for F — Contractsigned by lawyer with firm included limitation clause limiting damages toamount of fees paid — F brought action against accountants and was awarded$15,314.95 being amount of fees paid — Trial judge held limitation clause en-forceable against F and that it was not unconscionable — F appealed — Appealdismissed — Retainer agreement for tax advice was personal to F and of no in-terest to lawyer or her firm except insofar as they were advising F — F wasspecifically referred to in agreement and her identity and other circumstanceswere made known to third party — Lawyer bound F as principal to terms ofagreement.

Cases considered by Newbury J.A.:

Barnett v. Rademaker (2004), 2004 BCSC 1060, 2004 CarswellBC 1977, 47B.L.R. (3d) 159, [2004] B.C.J. No. 1785 (B.C. S.C.) — referred to

Bridges & Salmon Ltd. v. “Swan” (The) (1967), [1968] 1 Lloyd’s Rep. 5 (Eng.Adm. Ct.) — followed

Diligenti v. McAlpine (1978), 9 B.C.L.R. 153, 1978 CarswellBC 229, [1978]B.C.J. No. 754 (B.C. C.A.) — referred to

Hodgkinson v. Simms (1994), [1994] 9 W.W.R. 609, 49 B.C.A.C. 1, 80 W.A.C.1, 22 C.C.L.T. (2d) 1, 16 B.L.R. (2d) 1, 6 C.C.L.S. 1, 97 B.C.L.R. (2d) 1,117 D.L.R. (4th) 161, 171 N.R. 245, 57 C.P.R. (3d) 1, 5 E.T.R. (2d) 1,[1994] 3 S.C.R. 377, 95 D.T.C. 5135, 1994 CarswellBC 438, 1994 Car-swellBC 1245, [1994] S.C.J. No. 84, EYB 1994-67089 (S.C.C.) —considered

Knowles v. Whistler Ski Corp. (1991), [1991] B.C.J. No. 61, 1991 CarswellBC2286 (B.C. S.C.) — referred to

Lambur Scott Architects Ltd. v. 413643 Alberta Ltd. (1993), 9 C.L.R. (2d) 262,140 A.R. 85, 1993 CarswellAlta 538 (Alta. Master) — referred to

Loychuk v. Cougar Mountain Adventures Ltd. (2012), 2012 BCCA 122, 2012CarswellBC 520, 90 C.C.L.T. (3d) 181, 31 B.C.L.R. (5th) 23, 96 B.L.R.


(4th) 192, 318 B.C.A.C. 204, 541 W.A.C. 204, 347 D.L.R. (4th) 591, [2012]B.C.J. No. 504 (B.C. C.A.) — considered

Loychuk v. Cougar Mountain Adventures Ltd. (2012), 2012 CarswellBC 2932,2012 CarswellBC 2933, 440 N.R. 393 (note), 332 B.C.A.C. 320 (note), 569W.A.C. 320 (note), [2012] S.C.C.A. No. 225 (S.C.C.) — referred to

Maghun v. Richardson Securities of Canada Ltd. (1986), 58 O.R. (2d) 1, 34D.L.R. (4th) 524, 18 O.A.C. 141, 1986 CarswellOnt 799 (Ont. C.A.) — re-ferred to

Mayer v. Big White Ski Resort Ltd. (1998), 1998 CarswellBC 2005, 112B.C.A.C. 288, 182 W.A.C. 288, [1998] B.C.J. No. 2155 (B.C. C.A.) — re-ferred to

Merchant Law Group v. R. (2010), 2010 FCA 206, 2010 CarswellNat 2620, (subnom. R. v. Merchant Law Group) 2010 G.T.C. 1054 (Eng.), 2010 CAF 206,2010 CarswellNat 3934, (sub nom. Merchant Law Group v. Canada) 322D.L.R. (4th) 260, (sub nom. Merchant Law Group v. Canada RevenueAgency) 405 N.R. 148, [2010] G.S.T.C. 116, [2010] F.C.J. No. 990(F.C.A.) — distinguished

Niedermeyer v. Charlton (2014), 2014 BCCA 165, 2014 CarswellBC 1136,[2014] B.C.J. No. 763, 57 B.C.L.R. (5th) 71, [2014] I.L.R. I-5600, [2014] 7W.W.R. 753, 64 M.V.R. (6th) 183, 374 D.L.R. (4th) 79, 355 B.C.A.C. 136,607 W.A.C. 136, 11 C.C.L.T. (4th) 60 (B.C. C.A.) — referred to

Ochoa v. Canadian Mountain Holidays Inc. (1996), 1996 CarswellBC 2034,[1996] B.C.J. No. 2026 (B.C. S.C.) — referred to

Ontario Marble Co. v. Creative Memorials Ltd. (1963), 42 W.W.R. 315, 39D.L.R. (2d) 149, 1963 CarswellSask 35 (Sask. Q.B.) — referred to

Ontario Marble Co. v. Creative Memorials Ltd. (1964), 48 W.W.R. 239, 45D.L.R. (2d) 244, 1964 CarswellSask 33 (Sask. C.A.) — referred to

Plas-Tex Canada Ltd. v. Dow Chemical of Canada Ltd. (2004), 2004 ABCA309, 2004 CarswellAlta 1290, 245 D.L.R. (4th) 650, 27 C.C.L.T. (3d) 18,357 A.R. 139, 334 W.A.C. 139, 4 B.L.R. (4th) 194, 42 Alta. L.R. (4th) 118,[2005] 7 W.W.R. 419, [2004] A.J. No. 1098 (Alta. C.A.) — referred to

Q.N.S. Paper Co. c. Chartwell Shipping Ltd. (1989), 101 N.R. 1, [1989] 2S.C.R. 683, 62 D.L.R. (4th) 36, 26 Q.A.C. 81, [1989] S.C.J. No. 96, 1989A.M.C. 2798, 1989 CarswellQue 1778, 1989 CarswellQue 1779 (S.C.C.) —referred to

Shaw, Salter & Plommer v. Phipps & Cosgrove (1926), 37 B.C.R. 184, 1926CarswellBC 131, [1926] B.C.J. No. 15 (B.C. C.A.) — considered

Solway v. Davis Moving & Storage Inc. (2002), 2002 CarswellOnt 4257, [2002]O.J. No. 4760, 166 O.A.C. 370, 62 O.R. (3d) 522, 222 D.L.R. (4th) 251, 31B.L.R. (3d) 239 (Ont. C.A.) — referred to

Syncrude Canada Ltd. v. Hunter Engineering Co. (1989), [1989] 3 W.W.R. 385,(sub nom. Hunter Engineering Co. v. Syncrude Can. Ltd.) [1989] 1 S.C.R.426, (sub nom. Hunter Engineering Co. v. Syncrude Can. Ltd.) 57 D.L.R.

Felty v. Ernst & Young LLP 91

(4th) 321, (sub nom. Hunter Engineering Co. v. Syncrude Can. Ltd.) 92 N.R.1, (sub nom. Hunter Engineering Co. v. Syncrude Can. Ltd.) 35 B.C.L.R.(2d) 145, 1989 CarswellBC 37, 1989 CarswellBC 703, [1989] S.C.J. No. 23,EYB 1989-66979 (S.C.C.) — considered

Tercon Contractors Ltd. v. British Columbia (Minister of Transportation &Highways) (2010), 2010 SCC 4, 2010 CarswellBC 296, 2010 CarswellBC297, 100 B.C.L.R. (4th) 201, [2010] 3 W.W.R. 387, 86 C.L.R. (3d) 163, 65B.L.R. (4th) 1, 397 N.R. 331, 315 D.L.R. (4th) 385, [2010] S.C.J. No. 4, 281B.C.A.C. 245, 475 W.A.C. 245, [2010] 1 S.C.R. 69 (S.C.C.) — considered

Turf Masters Landscaping Ltd. v. T.A.G. Developments Ltd. (1994), 17 C.L.R.(2d) 5, 135 N.S.R. (2d) 105, 386 A.P.R. 105, 1994 CarswellNS 290, [1994]N.S.J. No. 421 (N.S. S.C.) — referred to

Turf Masters Landscaping Ltd. v. T.A.G. Developments Ltd. (1995), 24 C.L.R.(2d) 9, 143 N.S.R. (2d) 275, 411 A.P.R. 275, 1995 CarswellNS 223, [1995]N.S.J. No. 339 (N.S. C.A.) — referred to

Turf Masters Landscaping Ltd. v. T.A.G. Developments Ltd. (1996), 27 C.L.R.(2d) 229 (note), 151 N.S.R. (2d) 240 (note), 440 A.P.R. 240 (note), 201 N.R.400 (note) (S.C.C.) — referred to

Wakefield v. Duckworth & Co. (1915), [1915] 1 K.B. 218 (Eng. C.A.) — re-ferred to


Chartered Professional Accountants Act, S.B.C. 2015, c. 1Generally — referred to

Internal Revenue Code, 26 U.S.C.s. 1041 — referred tos. 1041(a) — referred to

Legal Profession Act, S.B.C. 1998, c. 9Generally — referred tos. 65(3) — considered

APPEAL by plaintiff from decisions reported at Felty v. Ernst & Young LLP(2013), 2013 BCSC 2083, 2013 CarswellBC 3487 (B.C. S.C.) and Felty v. Ernst& Young LLP (2013), 2013 BCSC 815, 2013 CarswellBC 1215, 50 B.C.L.R.(5th) 390, 16 B.L.R. (5th) 98 (B.C. S.C.), limiting plaintiff’s recovery in actionfor negligence.

B.G. Baynham, Q.C., J.A. Morris, for AppellantD.R. Brown, for Respondent


Newbury J.A.:

1 Ms. Felty appeals an order of Mr. Justice Truscott, made after trial,which awarded her damages of $15,314.95. This was the amount of feesshe had paid to the defendant Ernst & Young LLP (“EY”) for U.S. taxadvice it provided in connection with her divorce settlement. She hadrelied on the advice in reaching a “global” settlement with her formerhusband. After the settlement had been incorporated into a court order,however, it was discovered that the advice had been erroneous, and Ms.Felty had an unexpected liability for U.S. tax of more than $500,000. Shesued EY for negligence in giving the advice. The trial judge noted insupplemental reasons that negligence was effectively conceded by EY atthe start of trial.

2 The order followed from the trial judge’s conclusions that Ms. Feltywas bound by the terms of the retainer agreement with EY under whichthe advice had been rendered, even though Ms. Felty had not signed thecontract personally. Instead, it had been signed by and in the name of thelawyer and her Vancouver law firm who represented her in the divorcelitigation. The trial judge found that the firm had entered into the agree-ment not only “in its own right” but also as Ms. Felty’s agent. Second,the trial judge found that a clause in the agreement limiting EY’s possi-ble liability for negligence to the amount of fees it received for its ser-vices, was not unconscionable. He found it unnecessary to determine theamount of Ms. Felty’s actual damages in negligence against EY — i.e.,the amount that would have been required to place her in the position shewould have been in had the negligence not occurred. Causation andquantum remained to be decided in the event it was found that the limita-tion clause was not valid or binding on Ms. Felty.

3 For the reasons that follow, however, I conclude that the trial judgedid not err in ruling that Ms. Felty was bound by the agreement, includ-ing the limitation of liability clause. I would therefore dismiss the appeal.

Factual Background4 The factual background was set out in great detail in the trial judge’s

reasons and I will only summarize it here. Ms. Felty is a U.S. citizen whomoved to Canada after she married her former husband, Mr. Delesalle.His family owned a successful business and he was a shareholder in afamily holding company, “DHL”. Ms. Felty (who was then known asMrs. Delesalle) also received 10 common shares in DHL at some point

Felty v. Ernst & Young LLP Newbury J.A. 93

and became a party to a DHL shareholders’ agreement. Among otherthings, it gave DHL an option to acquire for their fair market value, allthe shares of any shareholder not related to the Delesalle family. (Para.9.) On her divorce, Ms. Felty would become such a person.

5 The Delesalles separated in 2002 and began a process of negotiationthrough their respective lawyers. Ms. Felty was represented by the lawfirm of Schuman Daltrop and in particular by Ms. Robin of that firm. Mr.Delesalle was represented by the firm of Scarbrough Herman and in par-ticular by then Mr. Harvey, now Mr. Justice Harvey.

6 Mr. Delesalle hoped not to have to pay spousal support and took theposition that if he was to transfer various assets to his wife, she wouldhave enough cash to support herself. In considering this possibility, Ms.Robin required up-to-date advice concerning the value of various assets.For this purpose, she entered into a retainer agreement on December 18,2003 with Ernst & Young Corporate Finance Inc. (“EYCF”), a corpora-tion related to the defendant Ernst & Young LLP. The trial judge re-counted:

EYCF required Ms. Robin to execute an Engagement Agreementdated December 12, 2003, which she did on December 18, 2003, onbehalf of the Schuman Daltrop firm, after registering her objection toa limitation of liability provision contained within the standard termsand conditions of the Agreement that limited EYCF’s total liability toits client for any claim arising out of the performance of its servicesto the total fees paid to EYCF, regardless of the form of the claim.

EYCF informed Ms. Robin that this issue was non-negotiable and ifshe didn’t wish to sign the Agreement as it was, EYCF would nottake on the engagement. Faced with this choice she says she signedthe Agreement. Ms. Robin says that EYCF wanted Schuman Daltropto be bound by the contract to ensure its fees would be paid. She saysEYCF billed her and she paid and charged the plaintiff in turn. [Atparas. 19-20.]

Ms. Felty testified that she was aware Ms. Robin was retaining EYCF onher behalf and for her benefit.

7 The divorce negotiations continued through 2004. In August of thatyear, Mr. Harvey wrote to Ms. Robin proposing a “global settlement” ofall outstanding matters. The material terms included the payment by Mr.Delesalle to his wife of $4 million, which was said to represent “an effort


to compromise the dispute in value as between the value of the [DHL]shares” and shares in other companies held by him. The letter explained:

To bridge this gap, the $4,000,000 which is tendered will be charac-terized, by agreement, not as payment to your client for her [DHL]shares, but rather as payment to your client for her interest in thecorporate assets (including all shares and shareholder loans not other-wise dealt with specifically) together with a lump sum settlementpayment. The valuation of [DHL] would include a minority discountat a level which, in the opinion of Mr. Delesalle’s advisors, would beacceptable to the U.S. tax authorities and significantly reduce yourclient’s exposure for tax on the gain which will result from sale.

Under the proposal, Mrs. Delesalle would give up all entitlement tospousal support.

8 The offer was open only for 21 days, but Ms. Robin required moretime in which to try to determine how Mr. Delesalle had arrived at the $4million figure. She also realized that she required U.S. tax advice giventhat her client was an American citizen. Accordingly, she contacted Ms.Jacob, the other defendant in this litigation, who was an accountant at EYin Vancouver. Ms. Jacob was unable to provide U.S. tax advice, but toldMs. Robin that a tax attorney in EY’s California office, Mr. Hobson,could do so. (Para. 33.)

9 Ms. Jacob provided a summary of the relevant facts to Mr. Hobson,including:

... a preliminary indication of value of the plaintiff’s ten shares of$4,000,000 and information about a recent buy-out of a family mem-ber with a value of that member’s shares at closer to $2,800,000.

She informed Mr. Hobson the plaintiff would sell her shares to Mr.Delesalle at a 30% discounted value of $2,800,000 to reflect a minor-ity share position and she would receive that money in cash for thetransfer of the shares along with another $1,200,000 in cash in settle-ment of any other financial entitlement the plaintiff may have on thedivorce. [At paras. 35-6.]

10 Mr. Hobson was asked to advise on the U.S. tax implications of theproposed share sale and whether there might be an alternative approachwith more favourable U.S. tax implications for achieving the proposedsettlement. Before giving the advice, however, EY required a written en-gagement agreement from Ms. Robin. Ms. Jacob prepared such an agree-ment, in letter form, dated March 2, 2005 and forwarded it for executionto Ms. Robin. I will refer to this agreement hereafter as the “Engagement


Agreement”. There was no suggestion by counsel that it should be con-strued according to any law but that of British Columbia.

11 The first paragraph of the Agreement provided: This letter will confirm our engagement to provide to Schuman Dal-trop Basran & Robin tax advice concerning the Canadian and U.S.income tax implications to Anita Delesalle with respect to the pro-posed settlement and her interest in [DHL]. Our performance of thisengagement will include working with you in developing an under-standing of the transaction.

The Agreement went on to state that all advice to be provided by EYwould be “intended to be solely for the benefit of your firm and AnitaDelesalle and ... not for the benefit of anyone else”. Attached to theAgreement was a copy of the firm’s “Standard Terms and Conditions”that were obviously drafted for situations in which a corporate client isseeking accounting services. There were various references to the “cli-ent”, but that term was not defined. Clause 15 of the standard terms con-tained the limitation of liability clause that lies at the heart of this case:

(a) Subject to the limits set out below in paragraphs (b) and (c), EY’Sliability shall be several and not joint and several, solidary or insolidum and EY shall only be liable for its proportionate share ofthe total liability based on degree of fault;

(b) Under no circumstances shall EY be liable for damages in respectof any incidental, punitive, special, indirect or consequential loss,even if EY has been advised of the possibility of such damagesincluding but not limited to loss of profits, loss of revenues, fail-ure to realize expected savings, loss of data, loss of business op-portunity, or similar losses of any kind; and

(c) EY’s total liability for any Claim arising out of the performance ofthe Services, regardless of the form of Claim, shall in no eventexceed an amount equal to the total fees paid to EY for the Ser-vices. This clause shall not limit EY’S liability for death, personalinjury or property damage caused by the negligent acts or omis-sions of EY and its partners and staff, or for loss or damagecaused by their fraud or wilful misconduct. [Emphasis added.]

This clause was identical to the one that had been contained in the earlieragreement with EYCF, about which Ms. Robin had inquired. This time,


she signed the Engagement Agreement, both in her own name and in herfirm’s name, without objection.

12 The trial judge described what happened next: On April 5, 2005, Mr. Hobson in California responded to the requestfor US tax advice. He provided his opinion from a tax standpoint thatthe plaintiff wanted s. 1041 of the Internal Revenue Code of 1986(“Code”) to apply to all transfers, including her sale of ten shares toMr. Delesalle, as Code s. 1041(a) provided that no gain or loss is tobe recognized on the transfer of property from an individual to or intrust for a spouse or a former spouse if the transfer is incident to adivorce.

With this opinion in hand, Ms. Robin and the plaintiff approachedsettlement thereafter on the basis that the plaintiff did not have to beconcerned about paying any US tax at all on the transfer of her tenshares and therefore did not have to be concerned about making anyminority share claim in order to discount the value of her shares forsale to Mr. Delesalle for the purpose of reducing her US taxes.

[At paras. 47-8; emphasis added.]

13 Unfortunately, as became clear later on, s. 1041 of the Internal Reve-nue Code contained a “special rule” to the effect that the exemption in s.1041(a) did not apply if the spouse of the transferor was a “non-residentalien”. Mr. Delesalle fell within this description.

14 Further negotiations took place between Ms. Robin and Mr. Harveyand finally an offer was made by the latter on July 25, 2005. The twosolicitors discussed it in correspondence and finally, on August 18, Ms.Robin wrote to Mr. Harvey stating in part:

... I am advised, accordingly, that your client proposes to pay Mrs.Delesalle $4,150,000 in after tax dollars. In return, Mrs. Delesallewill transfer the 10 common shares in [DHL] to Mr. Delesalle pursu-ant to Section 73 of the Income Tax Act. Your client is agreeable toassuming the latent tax liability associated with this transfer in orderthat Mrs. Delesalle will pay no tax on the $4,150,000 whatsoever.

This transaction will effectively resolve all issues pertaining to thecommon shares in [DHL]...

15 The error in Mr. Hobson’s tax advice did not surface until anotheraccounting firm (referred to throughout these proceedings as the “NAF”)was preparing Ms. Felty’s 2005 U.S. tax return. It contacted her with thebad news three days before the tax had to be paid. She immediately soldsome of her investments to come up with the funds. After some discus-sion among Ms. Robin, Ms. Jacob and the NAF, it was determined that


the amount payable was $544,106 (U.S.). Counsel calculates that whenthis amount is taken into consideration, the plaintiff’s share of the assetsdealt with in the consent order was reduced from 48.45% of the totalvalue to 45.8%.

16 As I have said, the trial judge described the facts in considerable de-tail and the parties’ positions on the various issues between them. Hebegan his analysis at para. 204 of his reasons. He found that Ms. Feltywould not have gone to trial on the issue of her shares in DHL even ifshe had been aware of her U.S. tax obligations. (Para. 209.) Mr.Delesalle, he noted, had been “resolute” from the beginning of negotia-tions that he was not going to bear responsibility for any of his wife’sU.S. tax obligations and “did not in fact move very far in final settle-ment.” Mr. Delasalle would not have moved any further than he had. TheCourt also rejected the notion that Mr. Delesalle had been aware Ms.Felty would have to pay U.S. tax on the share sale. In the trial judge’swords:

I am unable to accept this submission as the doctrine of unilateralmistake requires a finding that Mr. Delesalle knew that Ms. Felty hadto pay US tax regardless of the tax advice she was receiving that noUS tax was payable.

This finding is unlikely when Mr. Harvey had already declared thatthe US taxes were the plaintiff’s problem so that she was on notice ofthis, and it was not Mr. Delesalle’s problem, and the plaintiff wasreceiving her tax advice from a US tax expert.

There is no obligation on a party to take on risky litigation which Iconsider this would have been. [At paras. 217-9.]

Finally, the judge also found that the plaintiff’s tax loss could not havebeen mitigated by attempting to claim a “minority share tax benefit” afterSeptember 9, 2005. (Para. 221.) He did not, however, go on to express aconclusion as to the existence, or non-existence, of a causal link betweenEY’s negligence and the damages claimed by Ms. Felty.

17 As for who was party to the Engagement Agreement, the Court foundfirst that EY had not addressed the document to Ms. Felty directly be-cause it “had no information about [her] ability to pay their fees directlyor to honour the other obligations of the ‘client’ in the Agreement andthat the plaintiff had not sought to retain their services in the first place.”(Para. 232.) In the judge’s analysis, the word “client” in the Agreementcould refer only to Ms. Robin’s law firm. (Para. 233.) Thus, he con-cluded, the law firm was “one of the contracting parties in its own right.”


The onus rested on EY to show that the Engagement Agreement was alsobinding on Ms. Felty as “as a contracting party through the agency ofMs. Robin and her law firm.”

18 The judge noted, correctly, that there are very few cases in which anagent has contracted personally and the issue for determination iswhether the agent also contracted on behalf of a principal. (Para. 254.)He then concluded:

This is a close call as in my view this Agreement is not particularlywell- drafted.

On balance, however, with some reservation, I conclude that Ms.Robin also bound the plaintiff as her principal to at least some of therequirements in the Agreement including the limitation of liabilityprovision in the standard terms and conditions. I agree with the de-fence that this provision only makes sense if applied to the plaintiffas she is the only one who might have a claim against EY.


19 He also ruled (although the plaintiff had not argued specifically) thatClause 15 of the Engagement Agreement was not unenforceable by rea-son of unconscionability:

I also do not find the limitation of liability provision in the Engage-ment Agreement to be an unconscionable inclusion in the Agree-ment. The plaintiff was independently advised with legal advice fromMs. Robin and the evidence is that there was at least one other avail-able choice for Ms. Robin to retain and that was the plaintiff’s in-come tax accounting firm that had a different and less onerous limita-tion of liability provision in its Engagement Agreement.


20 Finally, the Court dismissed the plaintiff’s claim against Ms. Jacob,finding that she had not been negligent in her advice to Ms. Robin; norhad she had a duty to analyze or question Mr. Hobson’s opinion when itwas received. (Paras. 224-6.)

21 Shortly after the Court issued its reasons, counsel for the partiessought clarification of the final paragraph of the trial judgment, in whichthe judge had stated:

... I must limit the plaintiff’s claims to the amount of the fees paid toEY [for] its services of $15,314.95.


Plaintiff’s counsel pointed out that nowhere in his reasons had the judgefound that EY was negligent in providing its services.

22 In supplemental reasons indexed as 2013 BCSC 2083 (B.C. S.C.), thejudge clarified that there had been “no issue” at trial that EY’s Californiaoffice had been negligent in the tax advice given under the EngagementAgreement, a breach of the standard of care having been essentially con-ceded at the outset of trial. As well, he confirmed that the $15,314.95awarded in favour of the plaintiff “constituted damages equal to the feescharged for the negligent services of Mr. Hobson at [EY’s] Californiaoffice.” (My emphasis.)

On Appeal23 On appeal to this court, Ms. Felty submits that the trial judge erred in

finding that she was a party to the Engagement Agreement, in failing tofind Clause 15 unenforceable on public policy grounds, and in findingthat Ms. Felty’s damages were limited to the amount of fees paid to EY.It is important to note that the Court’s finding on the issue of unconscio-nability was not challenged; nor was the finding that Ms. Robin hadsigned the Engagement Agreement on behalf of her firm “in its ownright”. A cross appeal originally filed by EY was abandoned prior to thehearing of the appeal.

Agency24 I turn first to the question of whether, in signing the Engagement

Agreement, Ms. Robin bound only her own firm, or bound both her firmand the plaintiff — i.e., whether Ms. Robin or her firm had also signed asMs. Felty’s agent. It is clear that this ‘dual capacity’ is possible in law:see Bowstead & Reynolds on Agency (17th ed., 2001) at §9-002; Barnettv. Rademaker, 2004 BCSC 1060 (B.C. S.C.) at para. 41; and OntarioMarble Co. v. Creative Memorials Ltd. (1963), 39 D.L.R. (2d) 149(Sask. Q.B.), aff’d (1964), 45 D.L.R. (2d) 244 (Sask. C.A.).

25 There is no doubt that EY was aware of Ms. Felty’s existence as Ms.Robin’s client and, of course, of her personal circumstances — her citi-zenship, the nature of the shares in DHL, information relating to her fi-nancial circumstances, the value of her assets, etc. Thus, if Ms. Robinwas signing as Ms. Felty’s agent, Ms. Felty would have been a “dis-closed principal” — i.e., one whose existence is, in the words of Profes-sor Fridman, “revealed to the third party [EY] by the agent with whomthe third-party is transacting .... In such instances the third party knows


the person for whom the agent is acting.” (Gerald Fridman, CanadianAgency Law (2nd ed., 2012) at 142.) Professor Fridman goes on to statewith respect to contracts not under seal that:

If an agent has made a parol or a written contract with a third partyon behalf of a disclosed principal who actually exists and has author-ized the agent to make such a contract, the principal can sue and besued by the third party on such contract. A direct contractual relation-ship is thereby created between a principal and third-party by the actsof the agent, who is not, himself, a party to that relationship, “unlessthe agent expressly or by implication incurred or intended to incurpersonal responsibility under the contract.”

[At 143; emphasis added.]

26 In support, he cites Turf Masters Landscaping Ltd. v. T.A.G.Developments Ltd., [1994] N.S.J. No. 421 (N.S. S.C.), rev’d on othergrounds [1995] N.S.J. No. 339 (N.S. C.A.), lve. to app. refused (1996),151 N.S.R. (2d) 240 (note) (S.C.C.); Lambur Scott Architects Ltd. v.413643 Alberta Ltd. (1993), 9 C.L.R. (2d) 262 (Alta. Master); Maghun v.Richardson Securities of Canada Ltd. (1986), 34 D.L.R. (4th) 524 (Ont.C.A.). None of these cases, however, can be said to have applied theparticular ‘rule’ stated by the learned author or to have commented di-rectly on the contractual liability of a principal.

27 Fridman’s statement of the law is substantially adopted by C. Harveyand D. MacPherson in Agency Law Primer (4th ed., 2009), who write:

If the third party knows that s/he is dealing with an agent, but doesnot know the identity of the principal, then the principal is an un-named principal. When an agent acts with actual (or presumed) au-thority on behalf of a named or unnamed principal to make a contractwith a third party, subject to a couple of exceptions, the resultingcontract is between the third party and the principal. [At 103.]

and by Prof. S. Waddams in The Law of Contracts (4th ed., 1999), whowrites:

Where an agent in fact is expressly or impliedly authorized to con-tract with a third person on behalf of his principal, and the third per-son knows it and deals with the agent on that basis, there is no diffi-culty in concluding that a contract is formed between the principaland the third party. It is as though the principal were dealing directlywith the third party, an agent forming a mere means of communica-tion between two principle parties.

[At para. 257; emphasis added.]


28 Fridman also adds in his 2012 text that: The onus is on a third party seeking to make a principal liable on atransaction negotiated by an agent said to have acted with apparentauthority to prove that the agent had either real, that is, actual author-ity, or apparent or ostensible authority to enter into the transaction onbehalf of the principal. To discharge this onus the third party mustestablish that the principal, deliberately, or intentionally, “held out”the one dealing with the third party as his or her agent. Such a hold-ing may occur when the agent originally was expressly authorized toact as agent but later had such authority terminated or revoked butcontinued to act as an agent in the absence of any notification of suchtermination or revocation by the principal to the third party. [At 79.]

As I understand it, it is implicit in EY’s submission that Ms. Felty au-thorized the law firm to contract with EY specifically, or with a tax advi-sor generally, on her behalf and that Ms. Robin was acting within thescope of such authority when she retained EY.

29 In response to the foregoing authorities, counsel for Ms. Felty con-tends that whether an agent that has contracted “instead of or in additionto the principal,” is a question of contractual interpretation. Counsel citeda passage from Bowstead & Reynolds on Agency (17th ed., 2001), deal-ing with the personal liability of an agent:

(a) If the contract is signed by the agent in his own name withoutqualification, he is deemed to have contracted personally unless acontrary intention plainly appears from other portions of thedocument.

(b) The mere fact that the agent is described as an agent, director, sec-retary, manager, broker, etc., whether by words connected with orforming part of the signature, or in the body of the contract, andwhether the principal is named or not, raises no presumption thatthe agent did not intend to contract personally; but here again anintention to contract as agent only may be gathered from thewhole document and surrounding circumstances.

(c) But if the agent adds words to his signature, indicating that hesigns [as] agent, or for or on behalf or on account of a principal,he is deemed not to have contracted personally, unless it is plainfrom other portions of the documents that, notwithstanding suchqualified signature, he intended to bind himself. [At §9-037,


quoted at para. 42 of Barnett v. Rademaker, supra; emphasisadded.]

30 Counsel notes that in his 1996 text, Law of Agency (7th ed.), Profes-sor Fridman wrote:

[I]t is always possible for the agent to contract personally, so as tomake himself liable on the contract. Whether he has done so is amatter of the agent’s intention. To determine such intention involvesthe construction of the contract.


(In the same text, however, the learned author stated as a “basic rule” thepassage I have quoted at para. 25 above from his 2012 text, with littlealteration.)

31 In support of the proposition that the construction of the contract isthe focus of the enquiry, Fridman cited several cases, none of which boredirectly on the circumstances in which a principal and a third party (here,EY) were bound by a contract. The latter was the subject, however, ofthe seminal English case, Bridges & Salmon Ltd. v. “Swan” (The)(1967), [1968] 1 Lloyd’s Rep. 5 (Eng. Adm. Ct.). There, Brandon J. forthe Court stated in a well-known passage:

Where A contracts with B on behalf of a disclosed principal C thequestion whether both A and C are liable on the contract or only Cdepends on the intention of the parties. That intention is to be gath-ered from (1) the nature of the contract, (2) its terms, and (3) thesurrounding circumstances ... The intention for which the Court looksis not the subjective intention of A or of B. Their subjective inten-tions may differ. The intention for which the Court looks is an objec-tive intention of both parties, based on what two reasonable business-men making a contract of that nature, in those terms and in thosesurrounding circumstances, must be taken to have intended.


The Swan was referred to with approval in Q.N.S. Paper Co. c. ChartwellShipping Ltd., [1989] 2 S.C.R. 683 (S.C.C.).

Application to the Case32 Against this background, I proceed on the basis that the better — or at

least safer — course is to approach the issue of agency in this case asdepending on the parties’ “objective intention”, rather than as a matter ofa presumption applicable in cases involving disclosed principals.


33 Counsel for Ms. Felty contends that the trial judge’s finding that thelaw firm contracted “in its own right” with EY was consistent with thepurposes and commercial context of the Engagement Agreement; butthat the same is not true of his conclusion that the firm also entered theAgreement as Ms. Felty’s agent. In counsel’s submission, the Engage-ment Agreement “expressly indicates” that only the law firm and EYwere parties, and no further analysis is required. As stated in the appel-lant’s factum:

It was not open to the trial judge to find, as he did, that Ms. Felty is aparty in order to give effect to the limitation of liability provision.

When the trial judge concluded that “this provision only makes senseif applied to the plaintiff” he committed two errors: (i) he ignored theprinciples of contract law and agency that hold that the Law Firmalone contracted with EY and (ii) he read the provision “in isolation”and not in light of its purpose and commercial context.

34 I do not agree that what appears on the face of the EngagementAgreement is necessarily determinative of the parties’ “objective inten-tion”. The issue here is whether Ms. Robin had actual or apparent author-ity to act on behalf of Ms. Felty in connection with the formation of theAgreement. For this purpose, the terms of the Agreement are important,but so is the “factual matrix” of the relationship between Ms. Felty andthe law firm. It is for this reason that I also disagree with the plaintiff’scontention that in determining whether she was bound as principal to theEngagement Agreement, the court should apply the principle of contraproferentem. The existence of an agency relationship in this case doesnot turn on the construction of an ambiguous or uncertain term in theAgreement.

‘The Swan’ Factors35 Following the lead of the Court in The Swan, I note that the “nature of

the contract” in this case was a retainer agreement for tax advice personalto Ms. Felty and of no interest to Ms. Robin or her firm except insofar asthey were advising Ms. Felty. Thus it may be contrasted with the dis-bursements at issue in Merchant Law Group v. R., 2010 FCA 206(F.C.A.), discussed below, which in part were for the purchase of officesupplies and other items normally acquired by law firms for their ownuse. With respect to the remaining items — such as expert reports andexpert fees — there was apparently ‘no evidence’ to show that the firm’sclients were bound to the contracts with third-party suppliers. (Para. 26.)


36 As for the terms of the Agreement in this case, they are basically neu-tral on this point, although as already mentioned, the Agreement opensby confirming EY’s engagement to provide services to the firm “con-cerning the Canadian and U.S. income tax implications to AnitaDelesalle with respect to the proposed settlement and her interest in[DHL].”

37 With respect to the circumstances surrounding the making of thisAgreement, the trial judge found that:

...the plaintiff was given a copy of the March 2, 2005 EngagementAgreement by Ms. Robin before Ms. Robin executed it and she readthe standard terms and conditions and gave Ms. Robin authority toincur the fees quoted.

The plaintiff says that it would have been normal practice for her tohave seen these kinds of agreements and read these standard termsand conditions.

I find the plaintiff authorized Ms. Robin to retain EY for the US taxadvice and knew that it would be on her behalf and she acceptedresponsibility to pay those EY fees. She reimbursed Ms. Robin forthese fees and directly paid some of them herself.


These findings were not challenged on appeal.38 In my view, another very important factor in this case is the fact that

Ms. Felty was a client of the law firm. The solicitor-client relationshipoften gives rise to an inference of agency. Indeed in Shaw, Salter &Plommer v. Phipps & Cosgrove (1926), 37 B.C.R. 184 (B.C. C.A.),Chief Justice MacDonald stated that as a general rule, solicitors will betaken to be contracting on behalf of their clients in the course of theirpractice. In his words:

The principle involved is perfectly clear on the cases to which wehave been referred. Where a solicitor acts for his client to the knowl-edge of the other contracting party, he is in the same position as amere agent in a commercial transaction, speaks for his client andbinds his client and not himself. The plaintiff knew that Mr. Cos-grove was a solicitor of the plaintiffs in the Clausen v. Toba River lit-igation. In fact, Mr. Clausen, the principal business man of thoseplaintiffs, was present with Mr. Cosgrove at the time this statementwas ordered. There is, therefore, no question that the general rule ap-plies unless the solicitor has made himself, by contract, personallyresponsible. [At 185.]


Martin J.A. agreed with the “general rule” so stated, while Galliher J.A.was of the view that there was insufficient evidence to take the case outof that rule, “which seems to be laid down in the decided cases.” (Seealso Wakefield v. Duckworth & Co., [1915] 1 K.B. 218 (Eng. C.A.);Diligenti v. McAlpine [1978 CarswellBC 229 (B.C. C.A.)], 1978 CanLII411 at paras. 17-19).)

39 In response, the plaintiff relied on Merchant Law Group v. R., supra,in which a law firm challenged a GST assessment on its purchase of vari-ous goods and services — the costs of searches, couriers, office supplies,witness fees, recording services, various certificates, travel expenses andexpert reports — on the basis that it had incurred the expenses as agentfor its clients. The Tax Court ruled that because there was a solicitor-client relationship between the firm and its clients, it had met the onus onit to establish that it had incurred these disbursements as agent for itsclients. The Court of Appeal disagreed, noting that it does not followfrom the fact that the solicitor-client relationship is normally one ofagency, that all financial obligations incurred by a lawyer in providinglegal services are incurred as agents of his or her clients. (Para. 25.) TheCourt found no evidence to support the conclusion “that it was the re-spondent’s clients who were bound to the contracts with third-party sup-pliers” and allowed the appeal on that basis. Finally, the Court stated:

... it is an error in law to conclude that because the solicitor-clientrelationship is generally one of agency every action taken by a law-yer is taken as the agent of the client. To establish the lawyer was notthe recipient of a taxable supply at least some evidence must be ledwith respect to the particular transaction and the extent of the law-yer’s ability to bind his or her client to the transaction.


40 No one can disagree with the proposition that not every contract en-tered into by a law firm in the course of its business is undertaken as anagent for a client; but we are concerned here with a particular contractthat is different from those in Merchant. As we have seen, Ms. Felty wasspecifically referred to in the Engagement Agreement and her identityand other circumstances were made known to the third party. EY pro-vided its advice solely for her benefit as an individual, and with herknowledge and approval, as found by the trial judge. It was not con-tended that the law firm had lacked the authority to enter into the con-tract with EY on Ms. Felty’s behalf. The retainer seems to me to fallwithin the “general rule” applied in Shaw, Salter. Had Ms. Felty beensuing EY in contract, or had EY found it necessary to sue for its fees


thereunder, it is likely a court would have regarded them as contractuallybound to each other by means of the law firm’s agency.

41 At the end of the day, then, I agree with the trial judge that on bal-ance, Ms. Robin bound the plaintiff as her principal to the EngagementAgreement. Unlike the judge, I also conclude that Ms. Felty was a partyto the entire Agreement and not only to “at least some of the require-ments” therein.

42 I would not accede to the first ground of appeal.

Public Policy43 As we have seen, the trial judge did not expressly address the plain-

tiff’s contention that he should decline to enforce the limitation of liabil-ity clause in the Engagement Agreement on the grounds of public policy.The judge did find at para. 258 that Clause 15 was not “an unconsciona-ble inclusion” in the Agreement, given that that the plaintiff had beenindependently advised by Ms. Robin and that there had been at least “oneother available choice for Ms. Robin to retain and that was the plaintiff’sincome tax accounting firm that had a different and less onerous limita-tion of liability provision” in its form of retainer agreement. (Of course,Ms. Robin could have sought the advice of a law firm in the U.S., orperhaps in British Columbia, but evidently chose not to.)

44 As the plaintiff notes in her factum, she did not rely on unconsciona-bility but did argue public policy below; hence the trial judge erred infailing to consider the applicability of the latter doctrine. Counsel con-tends, and I agree, that we are therefore free to reach our own conclusionon the issue.

45 The plaintiff submits that the enforceability of a clause of this kind isdetermined according to the three-part test described by Binnie J. (writ-ing for the minority and majority on this point) in Tercon ContractorsLtd. v. British Columbia (Minister of Transportation & Highways), 2010SCC 4 (S.C.C.):

The present state of the law, in summary, requires a series of enqui-ries to be addressed when a plaintiff seeks to escape the effect of anexclusion clause or other contractual terms to which it had previouslyagreed.

The first issue, of course, is whether as a matter of interpretation theexclusion clause even applies to the circumstances established in evi-dence. This will depend on the Court’s assessment of the intention ofthe parties as expressed in the contract. If the exclusion clause does


not apply, there is obviously no need to proceed further with thisanalysis. If the exclusion clause applies, the second issue is whetherthe exclusion clause was unconscionable at the time the contract wasmade, “as might arise from situations of unequal bargaining powerbetween the parties” (Hunter, at p. 462). This second issue has to dowith contract formation, not breach.

If the exclusion clause is held to be valid and applicable, the Courtmay undertake a third enquiry, namely whether the Court shouldnevertheless refuse to enforce the valid exclusion clause because ofthe existence of an overriding public policy, proof of which lies onthe party seeking to avoid enforcement of the clause, that outweighsthe very strong public interest in the enforcement of contracts.


46 The question of the enforceability of so-called exclusion clauses(which term has been extended to limitation clauses like Clause 15), hasvexed Canadian courts for some time. The question is often encounteredin conjunction with arguments based on unconscionability (on which themajority in Solway v. Davis Moving & Storage Inc. (2002), 62 O.R. (3d)522 (Ont. C.A.) based its conclusion) and fundamental breach, and hasoften been overshadowed by those principles. Fundamental breach wasthe focus of the Supreme Court’s decision in Syncrude Canada Ltd. v.Hunter Engineering Co., [1989] 1 S.C.R. 426 (S.C.C.)., where Chief Jus-tice Dickson suggested that the doctrine should be “laid to rest” and that,as stated by Cromwell J. for the majority in Tercon, it could be “ad-dressed more directly and effectively through the doctrine of ‘unconscio-nability’, as assessed at the time the contract was made”. (At para. 108.)

47 As far as exclusion clauses were concerned, both Chief Justice Dick-son (with La Forest J. concurring) and Wilson J. (with L’Heureux-DubeJ. concurring) found in Hunter that there was “nothing inherently unrea-sonable” about such clauses and that they should be given effect to un-less there is a “compelling reason” not to give effect to the words se-lected by the parties. (See Tercon at para. 107.) Chief Justice Dicksonand Wilson J. disagreed, however, as to the circumstances in which thecourt should decline to enforce an exclusion clause, as described atlength by Binnie J. for the minority in Tercon at paras. 105-112. (Thefifth judge in Tercon, McIntyre J. agreed with the conclusion of WilsonJ. in respect of the exclusion clause and found it unnecessary to deal withfundamental breach.)

48 Ms. Felty submits that the desirability of holding professional advi-sors to a high standard of diligence constitutes an “overriding” public


policy that justifies the exercise of the court’s “ultimate power” to refuseto enforce exclusion clauses. Counsel noted s. 65(3) of the Legal Profes-sion Act, S.B.C. 1998, c. 9, which prohibits lawyers from limiting theirliability for negligence:

A provision in an agreement that the lawyer is not liable for negli-gence, or that the lawyer is relieved from responsibility to which thelawyer would otherwise be subject as a lawyer, is void.

A similar bar on the use of limitation clauses does not appear in the newChartered Professional Accountants Act, S.B.C. 2015, c. 1, but the plain-tiff notes that the advice she received was tax advice that could havebeen given as easily by a law firm as by an accounting firm, and that byimplication, it is unfair — and against public policy — to permit an ac-counting firm to limit its liability when a law firm may not.

49 The plaintiff also notes that in the standard terms and conditions in-cluded in the Agreement, EY represented that its professional liabilityinsurance exceeded the requirements established by institutes ofchartered accountants across Canada. (One might expect that if most ac-countants insist on limitation clauses in their contracts of retainer, theserequirements are lower than those applicable to lawyers.)

50 Finally, Mr. Morris contended for the plaintiff that the relationshipbetween her and EY was a fiduciary one very similar to that of solicitor-client, and that the risk of negligence should be ‘allocated’ to the fiduci-ary, EY. On this point, he referred to Hodgkinson v. Simms, [1994] 3S.C.R. 377 (S.C.C.) where both the majority (per La Forest J.) and mi-nority (per Sopinka and McLachlin JJ.) discussed the factors that willlead to a finding of fiduciary duty arising in relationships between pro-fessional advisers and their clients.

51 Regardless of whether EY owed a fiduciary duty or something akinthereto in the case at bar, I cannot agree that the public policy in favourof holding professionals to a high degree of diligence is a sufficiently“overriding” or powerful public objective that would justify our declin-ing to enforce Clause 15. The discretion is to be confined to cases thatare “compelling” or “overriding”. Leaving aside cases of statutory ille-gality (see Niedermeyer v. Charlton, 2014 BCCA 165 (B.C. C.A.)), thecases in which public policy (famously called an “unruly horse”) hasbeen successfully invoked have involved more extreme conduct — amanufacturer’s adulteration of baby formula with a toxic compound (seepara. 118 of Tercon), for example, or the “contemptuous” and “reckless”(see para. 119 of Tercon) supply of defective plastic resin which the sup-


plier knew would be used to fabricate natural gas pipelines. (See Plas-Tex Canada Ltd. v. Dow Chemical of Canada Ltd., 2004 ABCA 309(Alta. C.A.).)

52 Public policy has not been found to invalidate a limitation clause incases involving alleged negligence on the part of ski-lift operators orother persons whose activities make it highly important to adhere to highstandards of care: see Mayer v. Big White Ski Resort Ltd. (1998), 112B.C.A.C. 288 (B.C. C.A.); Knowles v. Whistler Ski Corp., [1991] B.C.J.No. 61 (B.C. S.C.); see also Ochoa v. Canadian Mountain Holidays Inc.,[1996] B.C.J. No. 2026 (B.C. S.C.) and Loychuk v. Cougar MountainAdventures Ltd., 2012 BCCA 122 (B.C. C.A.), lve. to app. refused,[2012] S.C.C.A. No. 225 (S.C.C.). In the latter case, this court stated thetest for invalidation of exclusion clauses on the basis of public policy asfollows:

What those examples have in common is that the party seeking torely on an exclusion clause either knew it was putting the public indanger by providing a substandard product or service, or was reck-less as to whether it was doing so. In other words, that party engagedin conduct that is so reprehensible that it would be contrary to thepublic interest to allow it to avoid liability. I am not convinced thatwhere a participant is injured through the negligence of an operator,there is such a difference between situations where participants havesome measure of control and those where they do not, that the latterrises to this high level of public policy. In both cases the injury wascaused by negligence which cannot itself be controlled by theparticipant.


53 As desirable as it might be to hold the accounting profession to a highstandard of care, I am not persuaded that an error in the giving of errone-ous tax advice in the circumstances of this case rises to the level of con-duct that is “so reprehensible that it would be contrary to the public inter-est to allow [the defendant] to avoid liability.” If the Legislature took adifferent view, it could of course enact a provision in the Chartered Pro-fessional Accountants Act similar to that contained in the Legal Profes-sion Act. Thus far, it has chosen to prohibit the use of limitation clausesonly by lawyers and law firms.

54 In the result, I conclude that the limitation of liability clause in theEngagement Agreement is not unenforceable as against public policy.

55 I would dismiss the appeal. The cross appeal is also dismissed asabandoned.


Fenlon J.A.:

I AGREE:

Dickson J.A.:

I AGREE:

Appeal dismissed.

Cordova Housing Holdings Inc. v. Wheeldon 111

[Indexed as: Cordova Housing Holdings Inc. v. Wheeldon]

Cordova Housing Holdings Inc., Appellant and Seth J.Wheeldon, Respondent

British Columbia Supreme Court

Docket: Vancouver S153573

2015 BCSC 2301

Ball J.

Heard: July 9, 2015

Judgment: December 9, 2015*

Contracts –––– Construction and interpretation — Implied terms — Miscel-laneous –––– Purchaser purchased condominium unit prior to construction ofbuilding — Pickets were on front of most balconies on north facing side ofbuilding, but few of balconies on top two floors, including balcony in front ofpurchaser’s living room window, had frosted glass — After moving into unit,purchaser realized negative impact that glass had on his view and sense of sizeof condominium — Purchaser brought claims against developers of building, in-cluding appellant — Trial judge awarded sum of $11,705 for cost of replacingfrosted glass on balcony in front of purchaser’s living room window with pick-ets — Appellant appealed — Appeal dismissed — Appellant submitted that trialjudge erred in law when he implied term that glass meant transparent glass un-less otherwise stated in agreement, since contract contained entire agreementclauses — Finding that specific entire agreement clauses at issue did not applyto bar implied term was entitled to considerable deference and was not clearlywrong — In face of clear, undisputed evidence that purchaser intended impliedterm because of premium he paid for his elevated unit and his desire to haveunobstructed view through window, and lack of any evidence that appellant’sintentions were inconsistent with such term, it was open to trial judge to findthat parties intended term that was implied as matter of business efficacy — Pur-chaser’s claims were broad enough to cover implied term found by trial judge.

Real property –––– Condominiums — Remedies –––– Damages.

* Reconsideration/rehearing refused at Cordova Housing Holdings Inc. v.Wheeldon (2016), 63 R.P.R. (5th) 166, 2016 CarswellBC 423, 2016 BCSC 280(B.C. S.C.).


Cases considered by Ball J.:


Energy Fundamentals Group Inc. v. Veresen Inc. (2015), 2015 ONCA 514,2015 CarswellOnt 10242, [2015] O.J. No. 3605, 388 D.L.R. (4th) 672, 336O.A.C. 230 (Ont. C.A.) — considered

Greyline Trucking Ltd. v. Fletcher Challenge Canada Ltd. (1997), 98 B.C.A.C.227, 161 W.A.C. 227, 1997 CarswellBC 2442, 45 B.C.L.R. (3d) 138 (B.C.C.A.) — considered

Housen v. Nikolaisen (2002), 2002 SCC 33, 2002 CarswellSask 178, 2002 Car-swellSask 179, [2002] S.C.J. No. 31, 286 N.R. 1, 10 C.C.L.T. (3d) 157, 211D.L.R. (4th) 577, [2002] 7 W.W.R. 1, 219 Sask. R. 1, 272 W.A.C. 1, 30M.P.L.R. (3d) 1, [2002] 2 S.C.R. 235, REJB 2002-29758, 2002 CSC 33(S.C.C.) — referred to

London Drugs Ltd. v. Kuehne & Nagel International Ltd. (1990), 31 C.C.E.L.67, 45 B.C.L.R. (2d) 1, [1990] 4 W.W.R. 289, 2 C.C.L.T. (2d) 161, 70D.L.R. (4th) 51, 1990 CarswellBC 74, [1990] B.C.J. No. 755 (B.C. C.A.) —followed

London Drugs Ltd. v. Kuehne & Nagel International Ltd. (1992), [1993] 1W.W.R. 1, [1992] 3 S.C.R. 299, (sub nom. London Drugs Ltd. v. Brassart)143 N.R. 1, 73 B.C.L.R. (2d) 1, 43 C.C.E.L. 1, 13 C.C.L.T. (2d) 1, (subnom. London Drugs Ltd. v. Brassart) 18 B.C.A.C. 1, (sub nom. LondonDrugs Ltd. v. Brassart) 31 W.A.C. 1, 97 D.L.R. (4th) 261, 1992 CarswellBC315, 1992 CarswellBC 913, EYB 1992-67042, [1992] S.C.J. No. 84(S.C.C.) — referred to

M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd. (1999), 170 D.L.R.(4th) 577, 237 N.R. 334, 44 C.L.R. (2d) 163, 232 A.R. 360, 195 W.A.C.360, 1999 CarswellAlta 301, 1999 CarswellAlta 302, [1999] 1 S.C.R. 619,[1999] 7 W.W.R. 681, 69 Alta. L.R. (3d) 341, 3 M.P.L.R. (3d) 165, 49B.L.R. (2d) 1, [1999] S.C.J. No. 17, 2 T.C.L.R. 235 (S.C.C.) — considered

Mann v. Bains (2006), 2006 BCSC 837, 2006 CarswellBC 1325, 53 C.L.R. (3d)91, 45 R.P.R. (4th) 257 (B.C. S.C.) — referred to

Moulton Contracting Ltd. v. British Columbia (2015), 2015 BCCA 89, 2015CarswellBC 446, 63 C.P.C. (7th) 221, 381 D.L.R. (4th) 263, 67 B.C.L.R.(5th) 314, [2015] 4 W.W.R. 467, 17 C.C.L.T. (4th) 224, 368 B.C.A.C. 127,633 W.A.C. 127, 37 B.L.R. (5th) 175 (B.C. C.A.) — considered

Power Consolidated (China) Pulp Inc. v. British Columbia ResourcesInvestment Corp. (1989), [1989] B.C.J. No. 114, 1989 CarswellBC 1705(B.C. S.C. [In Chambers]) — considered

Cordova Housing Holdings Inc. v. Wheeldon Ball J. 113

Vancouver (City) v. Wilson (2013), 2013 BCSC 92, 2013 CarswellBC 102,[2013] B.C.J. No. 105, 43 B.C.L.R. (5th) 167 (B.C. S.C.) — referred to


Small Claims Act, R.S.B.C. 1996, c. 430s. 12 — considereds. 12(b) — considereds. 13 — considered

APPEAL by appellant developer from judgment awarding specified sum to pur-chaser of condominium unit.

S.D. Coblin, for AppellantSeth Wheeldon, Respondent, for himself

Ball J.:

1 This is an appeal from a decision of the Provincial Court renderedMarch 27, 2015. The trial judge held the appellant, Cordova HousingHoldings Inc. (“Cordova”), liable for breaching an implied term of a con-tract for the sale of a condominium unit to the respondent, Mr. Wheel-don. The respondent was awarded $11,705 in damages, which repre-sented the cost of remedying the deficiency in the condominium unit, aswell as filing and service fees in the amount of $296.

2 Cordova appeals both the finding of liability on the basis of the im-plied term and the award of damages.

3 For the following reasons, I dismiss the appeal.

Background4 The reasons of the trial judge set out the facts giving rise to the ac-

tion: [1] Seth Wheeldon purchased a condominium situated at 1010, 66West Cordova Street in Vancouver on October 31, 2010. The condo-minium is on the 10th floor on the north side of the building. It isapproximately 540 square feet. It has a [Juliet] balcony which is situ-ated in front of his living room and bedroom windows. There is asmall space between the front of the balcony and the windows. Pick-ets are on the front of most of the balconies on the north facing sideof the building. A few of the balconies on the top two floors includ-ing the balcony in front of Mr. Wheeldon’s living room window hasfrosted glass affixed to it. The glass is not transparent.


[2] The frosted glass blocks approximately one half of Mr. Wheel-don’s living room window. Mr. Wheeldon testified as a result he can-not see through his living room window while seated in his livingroom. He said he can only see out of the upper portion of thewindow.

5 Mr. Wheeldon purchased the condominium unit prior to the construc-tion of the building. His undisputed evidence at trial was that he paid a$40,000 premium for a unit on an upper floor of the north side of thebuilding.

6 After construction was completed, Mr. Wheeldon inspected his con-dominium and did not raise any complaints in the walkthrough about thefrosted glass windows. After moving into the unit, however, he realizedthe negative impact that the glass had on his view and his sense of thesize of his condominium.

7 Because of these deficiencies, Mr. Wheeldon brought the followingclaims against the developers of the building:

[3] Mr. Wheeldon claims damages against Westbank Projects Corp.(“Westbank”) and Cordova Housing Holdings Inc. (“Cordova”) forbreach of contract, negligent misrepresentation, and breach of fiduci-ary duty. He claims $10,000 for breach of contract. In addition heclaims $11,705.00 which is the cost of replacing the frosted glass onthe balcony in front of his living room window with the picketswhich were installed on most of the balconies on the upper floors ofthe north side of the building.

8 In defence, Cordova relied on the language of the contract that Mr.Wheeldon had entered into when he purchased the unit, which excludedpre-contractual representations and included entire agreement clauses.

9 Cordova also argued, and Mr. Wheeldon agreed, that he was notguaranteed a specific view from his unit. But Mr. Wheeldon argued thathe did not agree to the developer purposely obscuring a substantial por-tion of his window, which would impair any view he otherwise mighthave had.

10 The court below dismissed the allegations of misrepresentation andbreach of fiduciary duty, and also dismissed the $10,000 claim for breachof contract. The court did, however, award the sum of $11,705 for thecost of replacing the frosted glass on the balcony in front of Mr. Wheel-don’s living room window with pickets, which were installed on most ofthe balconies on the upper floors on the north side of the building.


Issues on Appeal11 On appeal, Cordova argued that the trial judge erred in:

a. implying a term into the contract in the face of binding entireagreement clauses, which expressly prohibit implied terms;

b. applying the legal test applicable when determining if a termshould be implied into a contract;

c. finding an implied term fundamentally different from the one ad-vanced by the respondent, as set out in the pleadings, thereby de-nying the appellant its right to natural justice; and

d. applying the legal test applicable to determining the measure ofdamages.

Standard of Review12 Cordova submits that the standard of review for this appeal is correct-

ness and that the decision of the trial judge is not entitled to any defer-ence. Cordova further says that this Court is free to replace the opinion ofthe trial judge with its own.

13 Section 12 of the Small Claims Act, R.S.B.C. 1996, c. 430, sets outthe procedure for an appeal:

Hearing of appeal

12 An appeal to the Supreme Court under this Act

(a) may be brought to review the order under appeal on questionsof fact and on questions of law, and

(b) must not be heard as a new trial unless the Supreme Courtorders that the appeal be heard in that court as a new trial.

Decision

13 (1) On an appeal, the Supreme Court may do one or more of thefollowing:

(a) make any order that could be made by the Provincial Court;

(b) impose reasonable terms and conditions in an order;

(c) make any additional order that it considers just;

(d) by order award costs to any party to the appeal in accordancewith the Supreme Court Rules.

(2) There is no appeal from an order made by the Supreme Courtunder this section.

14 This appeal was not heard as a new trial under s. 12(b); but s. 13gives this Court considerable latitude with respect to what it may order


on appeal. That latitude does not include the ability to order a new trialback in the Provincial Court: Vancouver (City) v. Wilson, 2013 BCSC 92(B.C. S.C.) at para. 18.

15 The standard of review for an appeal from the Provincial Court SmallClaims Division is akin to the standards governing an appeal from thisCourt to the Court of Appeal. That is, findings of fact should not be re-versed unless the trial judge made a palpable and overriding error; buterrors of law are reviewed on a standard of correctness: Housen v. Niko-laisen, 2002 SCC 33 (S.C.C.) at para. 36; Wilson at para. 19.

16 The Supreme Court of Canada clarified the standard of review forcases involving contractual interpretation in Creston Moly Corp. v.Sattva Capital Corp., 2014 SCC 53 (S.C.C.). Rothstein J. stated at para.50:

... Contractual interpretation involves issues of mixed fact and law asit is an exercise in which the principles of contractual interpretationare applied to the words of the written contract, considered in light ofthe factual matrix.

17 The goal in such cases is to attempt to ascertain the objective intent ofthe specific parties through the application of legal principles: SattvaCapital Corp. at para. 49. Consequently, deference will be given to thefindings of a trial judge. They will only be interfered with if the trialjudge made a palpable and overriding error.

18 Where there is an extricable question of law, however, such as wherethe trial judge applies an incorrect principle, or fails to consider a re-quired element of a legal test or a relevant factor, the standard of correct-ness will apply: Sattva Capital Corp. at para. 53. The Supreme Court ofCanada cautioned that courts should be hesitant to identify extricablequestions of law; therefore, the cases where this standard will apply willbe rare: Sattva Capital Corp. at para. 53.

19 With these principles in mind, I will now address the grounds of ap-peal advanced by the appellant in this case.

Analysis

1. The Decision to Imply a Term in a Contract with Entire AgreementClauses

20 Cordova submits that the trial judge erred in law when he implied theterm that “glass means transparent glass unless otherwise stated in theagreement”, since the contract contained entire agreement clauses enti-


tled “Entire Contract/Representations”. The trial judge set out part ofthese clauses in the following portion of his reasons:

[22] Article 9 of Schedule “A” states the Contract constituted the en-tire agreement between the parties. The written terms of the Contractsuperseded any “prior agreements, negotiations, or discussions,whether written or oral, of the Vendor or the Purchaser”. The list ofexcluded items is exhaustive and are defined collectively as “Market-ing Materials” which includes sales brochures, models, websites, rep-resentative view sets, showroom displays, photographs, illustrationsor renderings or other marketing materials provided to the Purchaseror made available for his viewing.

21 The trial judge found that the entire agreement clauses precluded Mr.Wheeldon from relying on pre-contractual representations, such asbrochures, images, or promotional materials, as negligent misrepresenta-tions of the exterior of the building that may have induced him to enterinto the contract. On this basis, the claim for negligent misrepresentationwas dismissed.

22 Cordova argues that it was an error for the trial judge to find that Mr.Wheeldon was bound by the entire agreement clauses and thereby pre-cluded from making a claim for negligent misrepresentation, but then goon to imply a term into the contract. They say, in effect, that the sameclauses barred both claims.

23 In support, Cordova relies on the general rule against giving effect toterms outside of a contract when this would contradict an entire agree-ment clause, as expressed by McLachlin C.J.S.C. (as she then was) inPower Consolidated (China) Pulp Inc. v. British Columbia ResourcesInvestment Corp., [1989] B.C.J. No. 114 (B.C. S.C. [In Chambers]) atpara. 15:

Applying these principles, the question is whether the intention of theparties in the case at bar was that the written contract together withthe specified appendices would constitute the whole of the contract.That intention, as in all matters relating to contractual construction,must be determined objectively. Here the parties expressly agreedthat the contract documents constituted the whole of their agreement.While in most cases such an agreement is only a presumption basedon the parol evidence rule, in this case it has been made an expressterm of the contract. A presumption can be rebutted; an express termof the contract, barring mistake or fraud, cannot. I have no alternativebut to conclude that the parties intended the contract documents to bethe whole of their agreement and the plaintiffs cannot rely on collat-eral contract against Westar.


24 Given this general rule, Cordova submits that there was no basis forthe trial judge to find an implied term. Cordova characterizes this as alegal error that should be determined on a correctness standard.

25 Cordova’s submission amounts to the suggestion that, because thetrial judge did not explicitly apply the entire agreement clauses to bar theapplication of an implied term, he ignored the clauses in that context.Reading the reasons as a whole makes it clear that this is not the case.

26 The trial judge thoroughly canvassed the provisions of the entireagreement clauses at the outset of his decision (at paras. 20-24). Hefound, at para. 20, that these clauses excluded pre-contractual representa-tions. Accordingly, the clauses prevented the claim in negligent misrep-resentation from succeeding. The trial judge stated:

[35] The contractual language in this case specifically addressed pre-contractual representations. Mr. Wheeldon was not an unsophistica-ted purchaser. He would have or should have understood the contrac-tual language precluded his reliance on the pre contractual represen-tations ...

27 The trial judge then went on to consider the claim for breach of con-tract. Under this heading, he made the following finding:

[39] The defendants rely on Mr. Wheeldon’s admission in cross ex-amination that the Developer did not guarantee any specific view ormake promises regarding the view. This however does not addressMr. Wheeldon’s claim. Mr. Wheeldon acknowledged he was notguaranteed a specific view but on the other hand, he submits, the De-veloper did not have the contractual right to obscure a large portionof the living room window which significantly impaired any view hemight otherwise have had. Mr. Wheeldon’s submission has merit andis not inconsistent with the provisions of the Contract.

[Emphasis added.]

28 He therefore found that the plaintiff’s claim for breach of contractwas not inconsistent with the written wording of the contract.

29 From the outset, Mr. Wheeldon’s claim for breach of contract reliedon the breach of an implied term. Indeed, one of Cordova’s grounds ofappeal is that the trial judge did not imply the term that Mr. Wheeldonpleaded, but instead implied a different term. Against this backdrop, it isapparent that the trial judge found that the entire agreement clause didnot prevent an implied term. That is the only meaning to be ascribed tohis finding that Mr. Wheeldon’s submission on the breach of contractissue had merit and was not inconsistent with the contract’s provisions.


30 The crucial portion of the entire agreement clause that Cordova seeksto rely on was set out, in part, in para. 23 of the trial judge’s reasons:

[23] Article 9 also excludes from the Contract “any representations,warranties, conditions or collateral contracts, expressed or implied,statutory or otherwise...made by the vendor, its agents or employeesor any other person on behalf of the Vendor other than those con-tained herein and in the Disclosure Statement only to the extent suchthat the representations, warranties, [or conditions if any as containedin the Disclosure Statement are] mandated by law to [form a] parthereof.

31 One manner of construing the clauses, apparent from the way theclauses were set out and dealt with by the trial judge, is that the clausesonly apply to preclude “representations, warranties, conditions or collat-eral contracts, expressed or implied” that are made by any person con-nected to Cordova; but do not apply to preclude terms that the partiespresumably would have intended to form part of their agreement. Theseterms would not have arisen from Cordova’s “representations, warran-ties, conditions or collateral contracts, expressed or implied”, but wouldbe implied as a matter of business efficacy. Such an interpretation makessense, given that terms are implied as a matter of business efficacy “tomake the contract as the parties intended”: Moulton Contracting Ltd. v.British Columbia, 2015 BCCA 89 (B.C. C.A.) at para. 55.

32 The finding that the specific entire agreement clauses at issue in thiscase did not apply to bar an implied term is entitled to considerable def-erence. To be set aside, it must be clearly wrong. That standard has notbeen met here.

33 I would not accede to this ground of appeal.

2. Applying the Test to Imply a Term in a Contract34 Cordova’s second ground of appeal is that the trial judge misapplied

the test for implying a term in a contract. They do not take issue with thelegal test he employed, set out in London Drugs Ltd. v. Kuehne & NagelInternational Ltd. (1990), 45 B.C.L.R. (2d) 1 (B.C. C.A.), aff’d [1992] 3S.C.R. 299 (S.C.C.). Rather, Cordova says that the trial judge fell intoerror by examining the intentions of reasonable parties, rather than theintentions of the actual parties, which is what the test requires.


35 In M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd.,[1999] 1 S.C.R. 619 (S.C.C.) at para. 29, Iacobucci J. cautioned againstsuch an approach:

As mentioned, LeDain J. stated in Canadian Pacific Hotels Ltd.,supra, that a contractual term may be implied on the basis of pre-sumed intentions of the parties where necessary to give business effi-cacy to the contract or where it meets the “officious bystander” test.It is unclear whether these are to be understood as two separate testsbut I need not determine that here. What is important in both formu-lations is a focus on the intentions of the actual parties. A court,when dealing with terms implied in fact, must be careful not to slideinto determining the intentions of reasonable parties.

[Emphasis in original.]

36 In its submissions relating to the application of the test to imply aterm into the contract the appellants also relied upon Levine J.A.’s judg-ment in Moulton Contracting Ltd. at para. 55, as follows:

55 The key element is that the implied term is more than just reason-able; it is necessary to make the contract as the parties intended. Thatis, without the term, the contract, as intended by the parties, wouldnot be effective.

37 The Ontario Court of Appeal recently dealt with a similar issue inEnergy Fundamentals Group Inc. v. Veresen Inc., 2015 ONCA 514 (Ont.C.A.). As part of his decision to imply a contractual obligation on a partyto disclose information to allow the other party to determine whether ornot to exercise an option, the trial judge in that case had stated that, “Noone would ever invest several hundred million dollars in this Projectwithout performing detailed due diligence on the value of the stake in theProject being acquired”: Energy Fundamentals Group Inc. at para. 41.On appeal, the appellant argued that the trial judge had used the inten-tions of the reasonable parties to imply the term.

38 In determining that, despite the trial judge’s comments, he did notdepart from the correct legal test, the Ontario Court of Appeal stated:

[43] As observed in John D. McCamus, The Law of Contracts, 2nded. (Toronto: Irwin Law, 2012), at 781, reasonableness is an ines-capable part of determining whether to imply a contractual term:

Thus, it is plainly the case that the implied terms mustthemselves be reasonable. One would not expect a courtto imply terms into an agreement that it considered to beunreasonable. Further, keeping in mind that the implied infact term rests on the presumed intentions of the parties,


courts quite understandably presume intentions of the par-ties that are reasonable. In other words, in attributing tothe parties hypothetical intentions as to what they wouldhave agreed to if the matter had been raised at the time ofcontracting, courts assume that the parties would behavereasonably and would agree to a reasonable term. Indeed,in the absence of actual but unexpressed intentions it isinescapable that courts would apply a reasonable inten-tions standard. In other words, although necessity appearsto be the threshold that must be met before engaging inthe exercise of implying the term, the formulation of theterm to be implied is very much an exercise that rests on aconcept of reasonableness. At the same time, however,the implied term is tailored to the needs of the actualtransaction of the actual parties rather than to some hypo-thetical reasonable transaction; accordingly, to the extentthat relevant actual intentions of the parties are manifestin the transaction, they must form a basis for the impliedterm.

[44] The court’s warning in M.J. B. Enterprises about the need to be“careful not to slide into the intentions of reasonable parties,” man-dated an analysis rooted in the actual relationship between the partiesand the specific contractual context, rather than a detour into an ab-stract analysis of what in general, a reasonable person might haveagreed. In M.J.B. Enterprises itself the court went on to assess thereasonableness of the proposed implied term in the specific context,but also relied on the general reasonableness of such a term, saying,at para. 30, “...I find it difficult to accept that the appellant, or any ofthe other contractors, would have submitted a tender unless it wasunderstood by all that only a compliant tender would be accepted.”

[45] In my view the application judge did not depart from the propertest cited by him in the immediately preceding paragraph of his rea-sons. His analysis is in no way abstracted from an analysis of thespecific relationship between these parties.

[46] The finding that no reasonable person would have embarked onan exercise of the option without disclosure, supports a finding of thenecessity of the implied term for purposes of business efficacy.

39 These remarks are particularly instructive in the context of the presentcase. Although at times he adverted to the reasonable expectations ofpurchasers or developers in general, the trial judge’s analysis of the testfor implied terms was grounded in important factual findings regardingthe actual parties.


40 As Mr. Wheeldon points out, the trial judge found that he paid a pre-mium for his elevated unit, as it made sense and was not contradicted byother evidence. He knew he was not guaranteed a specific view, but thetrial judge pointed out at para. 38 that:

... There is nothing in the Contract or otherwise which could be rea-sonably interpreted as Mr. Wheeldon requesting or agreeing to re-ceiving half a view or that he agreed to the application of the frostedglass to his balcony which blocked the transparency of approxi-mately half of his living room window.

41 I accept Mr. Wheeldon’s submission in this regard, that the trial judgefound that not only would a reasonable person desire a transparent win-dow, but so did the respondent. To the extent that the trial judge referredto “the reasonable expectation of any purchaser”, he clearly also intendedthis to be an indication of Mr. Wheeldon’s specific intentions.

42 The trial judge also made findings in respect of Cordova. He pointedout that Cordova led no evidence about why the frosted glass was in-stalled, or whether Cordova considered the effect that this decision mighthave on the units (at para. 42). This lack of evidence undoubtedly limitedthe extent to which the trial judge was able to make specific findingsabout Cordova’s intentions. Nonetheless, the trial judge looked to thewording of the contract and determined (at para. 41) that nothing indi-cated that the window would not be transparent. He could find nothingthat indicated that Cordova’s intentions were inconsistent with the im-plied term.

43 Implication of a term does not require finding that a party actuallythought about it or expressly agreed to it: Energy Fundamentals GroupInc. at para. 35. In the face of clear, undisputed evidence that Mr. Wheel-don intended the implied term because of the premium he paid for hiselevated unit and his desire to have an unobstructed view through thewindow, and the lack of any evidence that Cordova’s intentions wereinconsistent with such a term, it was open to the trial judge to find thatthe parties intended the term that was implied as a matter of businessefficacy.

3. Implying a Different Term than the One in the Pleadings44 Cordova also argues that the trial judge erred in finding Cordova lia-

ble for breaching an implied term that had not been pleaded. Cordovasubmits that, “Nothing in the pleadings suggests the sort of broad sweep-


ing implied term that the trial judge ultimately found.” Cordova says thisresulted in a denial of their right to natural justice.

45 Cordova’s argument relies on Greyline Trucking Ltd. v. FletcherChallenge Canada Ltd. (1997), 45 B.C.L.R. (3d) 138 (B.C. C.A.). In thatcase, the BC Court of Appeal overturned a trial judge’s decision that animplied term that was neither plead nor argued had been breached. EssonJ.A. found at para. 27:

27 In this case, as in Vogler, the case was decided against the defen-dant on a basis which was never pleaded, which was inconsistentwith the evidence adduced by the plaintiff and, going beyond Vogler,of which the parties never heard until judgment was delivered ... Butthe terms of the contract on which judgment was given, if capable ofconstituting a binding agreement, were so substantially differentfrom those pleaded and sworn to by the plaintiff as to result in theaction having been decided “on a point which the parties have not putin issue and on which they have been given no opportunity to callevidence”.

46 Mr. Wheeldon’s Notice of Claim specifically mentioned the frostedglass applied to his window in multiple places. It further stated, “An im-plied term of the Contract was that the Home would be constructed in amanner consistent with the promotional information like the Image”. Italso stated Cordova did not have the right to make an alteration that “un-dermines the basis for the sale price”, and that Mr. Wheeldon “did notreceive what he was sold as he is unable to enjoy his view.” Finally, Mr.Wheeldon submitted that “denying Wheeldon access to his view amountsto breach of contract.”

47 Mr. Wheeldon’s claims were broad enough to cover the implied termfound by the trial judge. Not only do those claims specify the cause ofaction upon which the case was ultimately decided, they put the frostedglass on the window squarely in issue. It was not necessary for Mr.Wheeldon to have pleaded the exact term that was implied. To hold oth-erwise would be to so strictly apply the pleadings “as to preclude the trialjudge from finding an agreement which is not precisely that which wasalleged by the plaintiff”, an approach that the court in Greyline TruckingLtd. declined to suggest: at para. 28.

4. Applying the Legal Test to Determine the Measure of Damages48 Lastly, Cordova argues that the trial judge erred in assessing damages

based on the cost of replacing the frosted glass with picket railing.


49 As stated by Cordova, there are two manners of assessing damages toreal property: the cost of repair; and the diminution in the value of theproperty: Mann v. Bains, 2006 BCSC 837 (B.C. S.C.) at para. 31. Thecost of repair is generally not an appropriate measure of damage where itexceeds the diminution in value of the property, or where the aggrievedparty does not intend to, or cannot, complete the repairs.

50 Cordova submits that Mr. Wheeldon was required to lead evidence ofboth the cost of repairs and the property’s diminution in value. Cordovasubmitted that Mr. Wheeldon’s evidence that he paid a $40,000 premiumfor his unit was not sufficient for this purpose. Rather, they say Mr.Wheeldon was required to submit expert opinion evidence on the differ-ence in the market value of his unit because of the frosted glass window.Further, they argue that because Mr. Wheeldon admitted on cross-exami-nation that he could not replace the frosted glass without obtaining thenecessary approval from the City and the Strata Corporation, which hehas not done, he cannot be said to be in a position to complete therepairs.

51 Mr. Wheeldon led evidence, based on estimates he obtained, that thecost of replacing the frosted glass with the picket railing would be$11,705. He also testified that he intends to have the work done. Withrespect to diminution in value, as stated, Mr. Wheeldon gave undisputedevidence that he paid $40,000 extra for his higher unit, which was “con-sistent with common sense that much of the premium he paid was attrib-uted to being able to see through the entire window from the higher van-tage point on the 10th floor” (at para. 59). The trial judge accepted theevidence of Mr. Wheeldon on these points.

52 Although Mr. Wheeldon did not submit evidence on the market valueof his unit with and without the frosted glass window, it would not havebeen appropriate to require Mr. Wheeldon to tender expert evidence in aSmall Claims matter when his evidence on the premium he paid for aview from his unit was not contradicted.

53 Further, the same argument about Mr. Wheeldon’s lack of approvalfor the repairs was made at trial and expressly rejected by the trial judge,as follows:

[60] The defendants submit that Mr. Wheeldon would need the StrataCouncil Approval to effect the change, however, the Strata Councilhad approved this when Mr. Wheeldon asked previously and there isnothing to suggest they would not approve it now. The defendantsalso say Mr. Wheeldon needs permits from the City of Vancouver


[to] make the change. It is difficult to conceive of the City refusingpermission, and there is no evidence it would, to remediate this de-sign feature which has such a disproportionate negative impact onMr. Wheeldon as opposed to his neighbours.

54 This Court will not revisit those conclusions on appeal.

Conclusion55 Cordova has failed to demonstrate a reviewable error in the trial

judge’s reasons. Based on the foregoing the appeal is dismissed.56 Costs will follow the event.

Appeal dismissed.


[Indexed as: 600500 Alberta Ltd. v. Oil Sands One Ltd.]

600500 Alberta Limited, Plaintiff and Oil Sands One Limited,Defendant

Alberta Court of Queen’s Bench

Docket: Calgary 1401-13958

2015 ABQB 772

Master J. Farrington, In Chambers


Judgment: December 7, 2015

Personal property security –––– Practice and procedure — Summary pro-ceedings –––– Plaintiff obtained judgment against defendant for $105,996.48and filed writ of enforcement — Garnishee proceedings were initiated and$105,996.48 was paid into court — Parties agreed to open up default judgmententered against defendant and $87,000 of money held in court was to be paid toplaintiff’s counsel, with balance being paid to defendant’s counsel — Uponcompletion of payments, action was to be discontinued — Master approved con-sent order and clerk proposed draft distribution in reliance on consent order —However, creditor raised objection and sought declaration that funds did notform distributable fund under Civil Enforcement Act and that it had priority —Ruling was made — Declaration was granted that $105,996.48 did not form partof distributable fund and money should be paid to creditor — Objection processunder s. 101 of Act was sufficient to allow for review of matter and determinepriorities — Section 96(4) of Act applied and creditor was entitled to priority tofunds — Forbearance agreement between creditor and defendant did not operateto postpone or waive creditor’s rights under its security — Plaintiff did not pleadtrust obligations on part of defendant, and plaintiff’s attempt to recharacterizefunds failed — If Master had been made aware that there was security interestregistered against defendant then she would likely have required that notice begiven to creditor before releasing funds.


Civil Enforcement Act, R.S.A. 2000, c. C-15Generally — referred tos. 35 — considereds. 96(4) — considereds. 101 — considereds. 101(1)(b) — considered

600500 Alberta Ltd. v. Oil Sands One Ltd. Master J. Farrington 127

Rules considered:

Alberta Rules of Court, Alta. Reg. 124/2010R. 9.15 — considered

ADDITIONAL REASONS to decision reported at 600500 Alberta Ltd. v. OilSands One Ltd. (2015), 2015 ABQB 352, 2015 CarswellAlta 1031 (Alta. Q.B.).

Peter T. Linder, Q.C., for Plaintiff, 600500 Alberta LimitedAllan L. Holme, for Claimant, Charterhouse Capital Inc.

Master J. Farrington, In Chambers:

1 This matter was returned to the ordinary chambers list before me onNovember 27, 2015. It is a continuation of 600500 Alberta Limited v. OilSands One Limited, 2015 ABQB 352 in which I issued a set of prelimi-nary reasons on June 3, 2015. The general background of the applicationis contained in those reasons. These reasons deal with the merits of thepriority dispute.

2 On June 3, 2015 I indicated that further material was necessary inorder to have a proper factual background for determination of entitle-ment to the funds. An affidavit of Sam Hirji was filed June 19, 2015 inaccordance with my earlier reasons, and it addresses the outstandingissues.

The Funds3 600500 Alberta Limited (“600500”) obtained a judgment in the

amount of $105,996.48 against Oil Sands One Limited (“Oil Sands”) onFebruary 13, 2015. It filed a writ of enforcement on February 19, 2015,and it then filed an amended writ of enforcement claiming the$105,996.48 that was owing on February 23, 2015. Pursuant to thatamended writ of enforcement, garnishee proceedings were initiated and$105,996.48 was paid into Court to the credit of this action by CanadianWestern Bank.

4 A further $39,872.67 was paid into Court by Acme Energy MarketingLimited. No proposed distribution appears to have been issued on thelatter funds as there is a note on the Court file indicating that there wasno proof of service upon the debtor. These reasons relate to the paymentin by Canadian Western Bank.

5 A Consent Order was presented by 600500 and Oil Sands to MasterHanebury for her approval on March 25, 2015 and that Order was


granted. 600500 and Oil Sands agreed to open up the default judgmentwhich had been entered against Oil Sands, and they further agreed thatthe Clerk was to pay to 600500’s counsel $87,000 out of the monies heldin Court, with the balance of the funds to be paid to Oil Sands’ counsel.Upon completion of the payments, the action was said to be discontinuedwithout costs. I have listened to the recording of the appearance beforeMaster Hanebury, QC and it does not appear that the possibility thatthere might be other interested creditors was brought to her attention. Itwas presented as a typical application without notice at the beginning ofa morning chambers list.

6 The Clerk proposed a draft distribution in reliance upon the ConsentOrder. The distribution required objections to be made within 15 days inaccordance with section 101(1) (b) of the Civil Enforcement Act RSA2000, c. C-15.

The Objection7 When the matter came to the attention of Charterhouse Capital Inc.

(“Charterhouse”) it raised an objection and brought an application beforeme seeking a declaration that the funds did not form a “distributablefund” under the Civil Enforcement Act and that it has priority to thefunds.

8 The objection of Charterhouse is based upon section 96(4) of theCivil Enforcement Act which provides:

96(4) Where a distributing authority receives money in which a per-son has a security interest or other interest that has priority over theclaims of enforcement creditors, the distributing authority must payto that person the money to which the person is entitled, and anymoney paid under this section does not form part of a distributablefund.

9 The security agreement is a demand debenture. It has a chargingclause and the materials and evidence show proper registration. No argu-ment was made to the effect that the security of Charterhouse was in anyway defective or improperly registered. Without more, s. 96(4) of theCivil Enforcement Act applies and Charterhouse is entitled to priority tothe funds.

The Forbearance Argument10 600500 raises two arguments in opposition. The first argument is

based upon a forbearance agreement between Charterhouse and Oil


Sands. The forbearance agreement is in evidence and it declares OilSands to have defaulted under its security arrangements withCharterhouse in its preamble. Paragraphs 1 and 3 of the forbearanceagreement provide in part:

1. For good and valuable consideration, and subject to Section 2 ofthis Forbearance, Forbearance (sic) and Consent, Charterhouseagrees to: (a) forbear from demanding payment of...the OS1 Indebt-edness and in taking any steps to realize upon its Security until May31, 2015 (the “Payment Date”) at which time...the OS1 Indebtednessshall automatically become due and payable...(b) permit...OS1... tocontinue to operate in the ordinary course of business between thedate hereof and the Payment Date...

. . .

3. This Forbearance and Consent shall not constitute an agreement,waiver or consent to any other event, circumstance, matter or thingand is without prejudice to any of the rights or remedies ofCharterhouse...

11 As the Forbearance Agreement also involves other related debtors,only the portions pertinent to this debtor are set out. “OS1” in the for-bearance agreement is, of course, Oil Sands.

12 600500 submits that a payment out of Court by agreement with OilSands would be a payment in the ordinary course of business to it by OilSands that is permitted under the forbearance agreement. It further ar-gues that as Oil Sands was not in default under the forbearance arrange-ments, it was not in default under its security agreement withCharterhouse.

13 While the forbearance arrangements may well have affected the abil-ity of Charterhouse to commence its own enforcement proceedings asagainst Oil Sands, they did not operate as a postponement or waiver ofthe rights of Charterhouse under its security. 600500 is not a party to theforbearance agreement, and it is not entitled to be elevated to a priorityposition to which it is not otherwise entitled by relying upon the forbear-ance agreement and any accommodations that Charterhouse may havemade toward Oil Sands. Charterhouse wished to give time to Oil Sandsto resolve its payment issues and the forbearance arrangements allowedthat to happen. There is nothing in the forbearance agreement to suggestthat Charterhouse was waiving its security position in relation to thirdparties other than for payments in the ordinary course of business.


14 In that regard, it is difficult to conceive as to how a payment to600500 out of Court funds could be regarded as a payment in the “ordi-nary course of business”. 600500 commenced an action because it wasnot paid. It then obtained judgement and commenced garnishee proceed-ings. It then participated in a Court application to obtain payout of thefunds. In my view, commencing actions and pursuing enforcement stepsare things that one does when payment is not happening in the ordinarycourse of business. I find that a payment out of the garnishee fundswould not be a payment in the ordinary course of business as contem-plated by the forbearance agreement.

The Trust Argument15 600500 also argues that its claim is in fact a trust claim, and that it

ought to prevail on that basis. While its Statement of Claim does pleadtrust obligations on the part of Oil Sands, the judgment that it obtainedmakes no mention of declarations of trust as against a particular piece ofproperty, or with respect to a particular fund or account such as the Cana-dian Western Bank account. With respect to the Canadian Western Bankgarnishee summons, there is no evidence of tracing, or anything connect-ing the Canadian Western Bank funds to a specific trust interest held by600500 in those funds. The garnishee summons indicates an intent on thepart of the creditor to attach deposit accounts of Oil Sands at CanadianWestern Bank. Deposit accounts would typically hold comingled fundsand there is no evidence to the contrary in this case. In addition, the writof enforcement under which the garnishee monies were attached is a typ-ical unsecured writ of enforcement and the remedy of garnishee proceed-ings is an unsecured creditor’s remedy.

16 While a royalty claim may certainly constitute a trust claim against aparticular fund or property when proven, in this case an unsecured rem-edy was pursued against a deposit account on the basis of a writ of en-forcement. With respect, the trust reference is an afterthought. As be-tween a writ of enforcement and properly registered and enforceablesecurity, the security interest prevails by virtue of s. 35 and s. 96(4) ofthe Civil Enforcement Act.

Re-characterization of the Funds17 Finally, I will address one argument that was not made orally, but

was made in Exhibit E to the affidavit of Sam Hirji filed June 19, 2015.It was formulated by counsel for Oil Sands although Oil Sands took no


position at the hearing of this application. An argument was made to theeffect that since Master Hanebury’s Order set aside the default judge-ment, the funds were no longer writ and enforcement related funds, andinstead it was simply a matter of parties settling their differences by pay-ing funds out of Court. The difficulty with that argument is that the fundscame into Court as writ related enforcement funds. The rights of partiescrystallized insofar as priorities are concerned, and the priorities must bedetermined based upon what the funds are, not based upon what the par-ties seeking to make the settlement wish that they were. In fact, if the600500 judgement is set aside, it is questionable what status it wouldhave to receive funds in Court in the face of registered competing claimsin any event. At the very least, any attempt to re-characterize the fundspartway through the enforcement process would need to be done uponnotice to affected third parties.

Conclusion18 While no specific application under Rule 9.15 was made to set aside

or vary Master Hanebury’s Order, I find that the objection process unders. 101 of the Civil Enforcement Act is sufficient for me to review thematter and determine priorities. I also believe that had Master Haneburybeen made aware of the fact that there was a security interest registeredagainst Oil Sands, she likely would have required that notice be given tothe secured party before releasing enforcement funds to an enforcementcreditor and the debtor.

19 In all of the circumstances, I grant the relief sought by Charterhouse,namely a declaration that the funds held by the Clerk of the Court in theamount $105,996.48 plus any interest accrued thereon do not form partof a distributable fund. Those funds shall be paid to counsel forCharterhouse. I make no findings on any other funds held in Court to thecredit of this action.

20 If the parties wish to speak to costs they may do so at the end of oneof my normal morning chambers lists within a reasonable period of time.

Order accordingly.


[Indexed as: Suncor Energy Inc., Re]

Canadian Oil Sands Limited Take-over Bid by Suncor EnergyInc.

Alberta Securities Commission

Docket: None given.

2015 ABASC 984

Stephen Murison, Fred Snell Members



Securities –––– Takeover bids — What constituting takeover bid –––– Oiland gas company S Inc. wished to take over C Ltd. — In response to takeoverbid, C Ltd. adopted new shareholder protection plan so that permitted bids wereto be outstanding for 120 days, instead of 60 days as in old plan — S Inc. ap-plied for orders respecting new plan — New plan ordered to remain in placeuntil specified date — Adoption of new plan by board of C Ltd. was not im-proper — Old plan received near-unanimous approval by C Ltd. shareholders,while new plan was never presented to C Ltd. shareholders for their approval —It was not established that adoption of new plan was improper — C Ltd.’s ownoperation was comparatively modest, but it provided its investors with opportu-nity to participate in Syncrude, large operation — Complexity of takeover targetargued for allowing some additional time for bid process to operate — Therewas no evidence of any formal takeover defences affecting bid other than oldplan and new plan, but C Ltd. suggested that S Inc. was abusing its position asinsider of Syncrude — Vigorous efforts at public persuasion by C Ltd. or itsboard directed against S Inc.’s bid did not constitute sort of defence that wouldargue one way or other in respect of continuation of new plan — While therewas modest universe of third parties who might realistically be expected to havecapacity and interest sufficient to generate alternative to S Inc.’s bid in any rea-sonable time, that did not prove that bid process was futile or that new planshould be immediately ended — C Ltd. had taken important steps to identifyviable alternatives, and it was not apparent that serious participants in bid pro-cess lacked access to information necessary to generate value-maximizing pro-posals — There were some genuine uncertainties facing C Ltd., Syncrude, andthird parties who might consider proposing transaction with C Ltd. — Allowingbid process to continue beyond scheduled bid expiry under protection of newplan offered real and substantial possibility or reasonable possibility of viablealternative to S Inc.’s bid being generated — There was no evidence that SInc.’s bid was coercive, unfair, or in any other way improper — Should applica-

Suncor Energy Inc., Re 133

tion be declined on terms sought by S Inc., C Ltd. shareholders might find them-selves with no alternative to ordinary-course transactions on exchange at pre-vailing prices for C Ltd.’s shares — Potential upside existed for C Ltd.shareholders from continued operation of bid process under protection of newplan — It was in public interest to issue orders in nature sought by S Inc. thatwould bring new plan effectively to end insofar as it related to S Inc. bid afterspecified date.

Cases considered:

Canadian Jorex Ltd., Re (1992), 15 O.S.C.B. 257, 4 B.L.R. (2d) 1, 1992 Cars-wellOnt 127 (Ont. Securities Comm.) — referred to

MDC Corp., Re (1994), 17 O.S.C.B. 4971, 5 C.C.L.S. 118, 1994 CarswellOnt1098 (Ont. Securities Comm.) — followed

Neo Material Technologies Inc., Re (2009), 2009 CarswellOnt 5084, 32O.S.C.B. 6941, 63 B.L.R. (4th) 123 (Ont. Securities Comm.) — considered

Pulse Data Inc., Re (2007), 2007 ABASC 895, 2007 CarswellAlta 1667, 39B.L.R. (4th) 138 (Alta. Securities Comm.) — considered

Royal Host Real Estate Investment Trust, Re (1999), 8 A.S.C.S. 3672, 1999CarswellAlta 1808 (Alta. Securities Comm.) — followed

Samson Canada Ltd., Re (1999), 8 A.S.C.S. 1791 (Alta. Securities Comm.) —considered


Securities Act, R.S.A. 2000, c. S-4Generally — referred tos. 198(1) — considereds. 198(1)(a) — considereds. 198(1)(b) — considereds. 198(1)(c) — considered

APPLICATION by oil and gas company for orders respecting shareholder rightsplan adopted by board of directors of another company in connection with take-over bid by applicant.

David Tupper, R. Seumas Woods, Chad Schneider, Michael O’Brien, for SuncorEnergy Inc.

Tristram Mallett, Lawrence Ritchie, Shawn Irving, Noralee Bradley, for Cana-dian Oil Sands Limited

Orestes Pasparakis, Steven Leitl, for Board of Directors of Canadian Oil SandsLimited

Denise Weeres, Tracy Clark, for Commission Staff


Per curium (orally):

I. Introduction1 Suncor Energy Inc. (Suncor) applied to the Alberta Securities Com-

mission (the ASC) on 6 November 2015 for orders in respect of a share-holder rights plan (the New Plan) quite recently adopted by the board ofdirectors (the COS Board) of Canadian Oil Sands Limited (COS). BothSuncor’s application (the Application) and the New Plan arose in connec-tion with a take-over bid launched by Suncor on 5 October 2015 and setto expire (unless withdrawn or extended) on 4 December 2015 (Sched-uled Bid Expiry), under which Suncor offered to purchase all outstandingCOS shares in consideration for Suncor shares (the Suncor Bid, whichwas varied on 12 November 2015 but not in any manner relevant to theApplication).

2 We heard the Application on 26 and 27 November 2015. We receivedaffidavit evidence and testimony from four individuals: Stephen Reynish(Reynish), an executive vice president with Suncor; David Harrison(Harrison), a managing director with J.P. Morgan Securities Canada Inc.,financial advisor to Suncor; Arthur Korpach (Korpach), a director ofCOS; and Jamie Anderson (Anderson), deputy chairman of RBC CapitalMarkets (RBC), financial advisor to COS and the COS Board. We alsoreceived submissions (written, oral or both) from counsel for Suncor,COS, the COS Board and ASC staff (Staff). We stated at the hearing, andreiterate here, that we were impressed both by the witnesses — all ofwhom we found credible — and by the submissions of all counsel.

3 In view of the looming expiry of the Suncor Bid, we delivered ourdecision on the Application orally on Monday 30 November 2015(shortly after the close of exchange trading that day, at the parties’ sug-gestion), and advised that our written decision would follow in the ensu-ing weeks. This is that written decision.

II. Factual Background

A. The Companies4 Suncor is an integrated oil and gas company headquartered in Cal-

gary. Reynish described Suncor as “focused on developing” theAthabasca oil sands but also engaged in a range of other activities inCanada and elsewhere. Among Suncor’s assets is a 12% interest (througha wholly-owned subsidiary) in the Syncrude joint venture (Syncrude), de-scribed by Reynish as “the largest producer of light, sweet synthetic oil

Suncor Energy Inc., Re Per curium 135

from Canada’s oil sands”. Suncor is a reporting issuer under the Securi-ties Act (Alberta) (the Act), and its shares are publicly traded.

5 COS is also a Calgary-headquartered reporting issuer, and its sharesare publicly traded. Korpach’s evidence was that COS’s “only producingasset” is its 36.74% interest in Syncrude.

6 Suncor’s proposed acquisition of COS through the Suncor Bid wouldrepresent a sizeable transaction by any measure. While its value changedwith the trading price of Suncor shares (the consideration offered), it wasunderstood to be in the order of $7 billion.

B. Chronology of Certain Key Facts7 Key facts derived from the evidence before us included (in chrono-

logical order):

• In April 2013 COS shareholders voted overwhelmingly — in per-centage terms, not far short of unanimously — in favour of ashareholder rights plan (the Old Plan) which, among other things,would (unless waived) effectively thwart any take-over bid out-standing for less than 60 days.

• Suncor made overtures to COS early in 2015 concerning a possi-ble combination, but the overtures were deflected and no formalbid ensued at that time.

• The Suncor Bid was launched on 5 October 2015 (as noted). Sub-ject to earlier withdrawal or extension, it was to remain open foracceptance for 60 days, until 17:00 (Calgary time) on the Sched-uled Bid Expiry date.

• On 6 October 2015, in response to the Suncor Bid, the COS Boardmet with legal advisors and RBC. That same day, the COS Boardadopted the New Plan to operate in addition to the Old Plan. Therewas no dispute that the New Plan can fairly be described as “tacti-cal”, having been adopted specifically in response to the SuncorBid.

• The only difference between the Old Plan and the New Plan perti-nent to the Application was that, for a take-over bid to qualify as a“Permitted Bid”, the New Plan specified a minimum 120-day pe-riod for the bid to remain outstanding, whereas the Old Plan speci-fied a minimum 60-day period. (Suncor asserted that the SuncorBid was carefully crafted to bring it within the “Permitted Bid”definition under the Old Plan.)


• On 9, 15 and 18 October 2015 the COS Board met and receivedvarious updates from COS management, legal advisors and RBCconcerning the Suncor Bid and possible alternatives to it.

• On 18 October 2015 RBC opined to the COS Board that the Sun-cor Bid was financially inadequate, and the COS Board concludedthat the Suncor Bid “substantially undervalued” its target. TheCOS Board considered that COS did not need to be sold, but di-rected COS management and advisors “to initiate contact withthird parties which could be interested in a potential strategictransaction” — something which, for simplicity, we will refer toas the Process.

• In a directors’ circular dated 19 October 2015 (the COS Circular)the COS Board recommended that COS shareholders reject theSuncor Bid, and stated that the COS Board “is considering a rangeof strategic alternatives consistent with [COS’s] focus on maxi-mizing value” for the shareholders.

• The Process was ongoing at the time of the hearing. By that timeno formal proposal for any “strategic transaction” had been re-ceived, but “more than 25 parties” had been involved in the Pro-cess, four having signed confidentiality agreements (presumablygiving access to data-room or other pertinent information) and twoof those having received presentations by COS management.

• Through the Application, Suncor sought cease-trade and denial-of-exemptions orders under section 198(1) of the Act that would,in effect, nullify the New Plan and thus enable Suncor to take upCOS shares tendered to the Suncor Bid by the Scheduled BidExpiry.

III. Argument and Analysis

A. Parties’ Positions, Generally8 Suncor argued, in essence, that implementation of the New Plan was

improper; that the 60-day period made available to COS (and its share-holders) under the Suncor Bid (in conformity to the terms of a PermittedBid under the shareholder-approved Old Plan) was sufficient for COS toexplore alternative transactions (none of which Suncor thought likely toemerge) and for COS shareholders to make an informed response to theSuncor Bid; and that operation of the New Plan on top of the Old Planwould deprive COS shareholders of the ability to exercise a fundamental


shareholder right (the right to sell their shares, should they so choose, toSuncor). Suncor submitted that it was therefore appropriate for us tobring the New Plan to an effective end, immediately.

9 COS and the COS Board argued that the New Plan was a reasonableand justifiable response to a financially inadequate and “opportunistic”Suncor Bid — a response, moreover, that was working in the interests ofCOS shareholders, not to their detriment, and therefore one that ought tobe allowed to continue in operation.

10 Staff were of the view that the circumstances justified orders in thenature sought by Suncor, bringing the New Plan effectively to an endafter not more than a modest delay (they alluded to something on theorder of the 10 days prescribed for certain tender withdrawal rights).

B. Analysis

1. The Applicable Law11 Our attention was drawn to published proposals of the Canadian Se-

curities Administrators (the CSA) reflecting significant reconsideration ofaspects of the law and practice governing take-over bids and take-overbid defences, and to some associated commentary in the public domain.We noted, and the parties acknowledged, that none of this has been en-acted. Apart from COS submitting that an element of the more recent ofthe CSA proposals — a prescribed bid period of not less than 120days — “ought to be informative” for our deliberations, the parties alsoacknowledged that the law relevant to the Application was that applied invarious oft-cited decisions, and that key factors to be considered herewere enumerated by the ASC, with its counterparts in British Columbiaand Ontario, in Royal Host Real Estate Investment Trust, Re (1999), 8A.S.C.S. 3672 (Alta. Securities Comm.) #08/48, in which in turn wascited the test set out by the Ontario Securities Commission in MDCCorp., Re (1994), 17 O.S.C.B. 4971 (Ont. Securities Comm.) [hereinafterRegal].

12 The parties also pointed us to the underlying principles set out in Na-tional Policy 62-202 Take-Over Bids — Defensive Tactics. These in-clude:

(1) The Canadian securities regulatory authorities recognize thattake-over bids play an important role in the economy by act-ing as a discipline on corporate management and as a meansof reallocating economic resources to their best uses. ...


(2) The primary objective of the take-over bid provisions of Ca-nadian securities legislation is the protection of the bona fideinterests of the shareholders of the target company. A secon-dary objective is to provide a regulatory framework withinwhich take-over bids may proceed in an open and even-handed environment. The take-over bid provisions should fa-vour neither the offeror nor the management of the targetcompany, and should leave the shareholders of the targetcompany free to make a fully informed decision. ...

(3) ... [T]he Canadian securities regulatory authorities ... are pre-pared to examine target company tactics in specific cases todetermine whether they are abusive of shareholder rights.Prior shareholder approval of corporate action would, in ap-propriate cases, allay such concerns.

. . .

(6) The Canadian securities regulatory authorities appreciate thatdefensive tactics ... may be taken by a board of directors of atarget company in a genuine attempt to obtain a better bid.Tactics that are likely to deny or limit severely the ability ofthe shareholders to respond to a take-over bid or a competingbid may result in action by the Canadian securities regulatoryauthorities.

13 The cited decisions, and the underlying principles, reflect the ultimatesecurities regulatory objective of ensuring that shareholders targeted by atake-over bid are given the opportunity to make their own informed deci-sion about tendering to a bid, with defensive measures (such as share-holder rights plans) implemented by the target issuer being constrainedor dismantled — typically through exercise of the regulatory public-in-terest authority — if, when and to the extent that the prospects of suchdefences serving the interests of the target shareholders were found to beoutweighed by the impediment they presented to shareholders’ exerciseof choice. These decisions make clear that there will almost invariablycome a time at which a shareholder rights plan must go (Canadian JorexLtd., Re (1992), 15 O.S.C.B. 257 (Ont. Securities Comm.)).

14 As noted, factors frequently considered by a securities regulatory au-thority in determining whether constraining or dismantling a defensivemeasure is warranted were enumerated in Royal Host:

In applying these principles to the determination of the public interestin a particular case, the challenge we face is finding the appropriatebalance between permitting the directors to fulfill their duty to maxi-mize shareholder value in the manner they see fit and protecting the


right of the shareholders to decide whether to tender their shares tothe bid. We can make this determination only after considering all ofthe relevant factors in that particular case. While it would be impossi-ble to set out a list of all of the factors that might be relevant in casesof this kind, they frequently include:

• whether shareholder approval of the rights plan was obtained;

• when the plan was adopted;

• whether there is broad shareholder support for the continuedoperation of the plan;

• the size and complexity of the target company;

• the other defensive tactics, if any, implemented by the targetcompany;

• the number of potential, viable offerors;

• the steps taken by the target company to find an alternativebid or transaction that would be better for the shareholders;

• the likelihood that, if given further time, the target companywill be able to find a better bid or transaction;

• the nature of the bid, including whether it is coercive or unfairto the shareholders of the target company;

• the length of time since the bid was announced and made;

• the likelihood that the bid will not be extended if the rightsplan is not terminated.

2. Applying the Law15 We considered the Royal Host factors in the sequence in which they

were stated, mindful that certain of the factors overlapped others, andthat the ordering of the factors did not necessarily imply any correspond-ing significance.

(a) Shareholder Approval16 As noted, the Old Plan received near-unanimous approval by COS

shareholders in April 2013.17 The New Plan has never been presented to the COS shareholders for

their approval, and no such approval was therefore obtained.18 Suncor placed considerable emphasis on these facts, and urged that

we draw certain inferences from them. In essence, as we understood it,we were to conclude that COS shareholder approval of the Old Plan ex-pressed a wish by them to have unimpeded access (through the tender


process) to any 60-day (and otherwise “Permitted” under the terms of theOld Plan) take-over bid like the Suncor Bid, and that this would (orshould) bind COS and the COS Board. Suncor suggested that any depar-ture from the Old Plan could properly be achieved only by formallyamending it, which would (according to paragraph 5.4 thereof) requireprior COS shareholder consent.

19 In respect of shareholder approval, Suncor also drew our attention tothe decisions of the ASC in Pulse Data Inc., Re, 2007 ABASC 895 (Alta.Securities Comm.) and of the Ontario Securities Commission in NeoMaterial Technologies Inc., Re (2009), 32 O.S.C.B. 6941 (Ont. Securi-ties Comm.). In both decisions, shareholder rights plans were allowed tocontinue to operate, despite factors suggesting that they should bebrought to an end, because they had received shareholder approval in theface of particular take-over bids.

20 We were not persuaded by Suncor’s arguments on this factor.21 The inference we were asked to draw from COS shareholder approval

of the Old Plan was not the only one that might reasonably be drawn.The Old Plan appeared to have been robust by the standards of 2013(when COS shareholders approved it). Arguably, and consistent with evi-dence before us, the Old Plan’s definition of “Permitted Bid” reflectedthe most rigorous terms — specifically including the 60-day minimumperiod in which a bid must initially be open for acceptance — likely atthe time to withstand critiques, or to accord with voting recommenda-tions and practices, of investor advisory services and Canadian institu-tional investors.

22 From this we considered that COS shareholder approval of the OldPlan might reasonably indicate a more general shareholder intention: thattheir company be assured of as much time as could reasonably be de-manded to respond to, and develop alternatives to, a take-over bid. In theatmosphere of April 2013, that might specifically mean a period not to beless than 60 days. It did not, however, rule out a longer period; to reiter-ate, the “Permitted Bid” definition in the Old Plan excluded a bid with aninitial tender period less than 60 days, but it did not mandate (as somesimple drafting could have done) an initial tender period of precisely 60days.

23 More broadly, it was not obvious that in approving this robust-for-2013 take-over defence, COS shareholders in any way ruled out addedrobustness should the atmosphere change. Certainly, and despite no asso-ciated change having made its way into any securities laws, thinking


about the topic has evolved and some observers have at least expressedpublicly views concerning imperfections in the current regime and anopenness to considering alternatives, including that targets should havemore time than has historically been available to consider and respond totake-over bids. None of that dictated any particular outcome for the Ap-plication, but it did underscore the obvious point that views as to whatmight constitute a robust (yet still reasonable) take-over bid defence maysimilarly have evolved since 2013.

24 Suncor’s position also seemed to suggest that the COS Board’s abilityto respond to an actual take-over bid was profoundly constrained by the2013 shareholder approval of the Old Plan. In part this reflected what wejust discussed: the inference (which we found unpersuasive) that COSshareholders favoured a defence that would block take-over bids open forless than 60 days, but no others. In part, though, we were also invited toconclude that by approving the Old Plan COS shareholders somehow de-nied the COS Board recourse to other, supplementary tools, irrespectiveof the COS Board’s appreciation of shareholder interests and of the COSdirectors’ own fiduciary obligations. Such a conclusion we also rejected.

25 Clearly, as noted, the Old Plan included provision for amendment.There was nothing surprising in that — many agreements expressly, andsensibly, contemplate amendment. However, we did not draw from suchprovision the significance suggested here. In particular, we did not dis-cern any prohibition, or restriction, on recourse to other measures thatmight properly (and legally) be implemented, even to address the sametopics as did the Old Plan. It would not have been difficult to set out sucha prohibition or restriction in writing at the time, but that apparently wasnot done.

26 In short, we did not infer from the 2013 COS shareholder approval ofthe Old Plan that the COS Board was precluded from implementing, in2015, such additional new take-over defences as it might consider con-sistent with the COS directors’ fiduciary obligations and (of course) withthe law. The evidence (notably that of Korpach) was that the COS direc-tors — experienced and with the benefit of capable legal and financialadvisors — well understand (and did so on 6 October 2015) their fiduci-ary obligations. We were satisfied that the COS Board acted with fullcognizance of the COS directors’ fiduciary obligations when theyadopted the New Plan in October 2015, which adoption was not obvi-ously inconsistent with — let alone contrary to — express wishes of


COS shareholders. It was therefore not established that the COS Board’sadoption of the New Plan was improper.

27 Concerning Pulse and Neo, we considered that their significance liesin the proposition that, despite other factors that might militate in favourof terminating a particular shareholder rights plan, the plan might survivegiven clear evidence that its defensive effect in the face of a live take-over bid had the endorsement of the targeted shareholders. We did notread those decisions as dictating an opposite conclusion in the absence ofsuch endorsement (namely, that an absence of shareholder approval isfatal to a tactical shareholder rights plan).

28 Suncor suggested that the absence of a shareholder vote on the NewPlan reflected an expectation, on the COS Board’s part, that such a votewould not favour the New Plan, something that we in all the circum-stances were not prepared to infer. It was noted that the New Plan would(by its own terms, specifically paragraph 5.15) effectively expire if COSshareholder approval were not obtained within six months of its imple-mentation (that is, by early April 2016, which we were given to under-stand reflected the ordinary-course timing of COS annual shareholdermeetings). Asked why a shareholder meeting was not called to vote onthe New Plan by the time of hearing, Korpach’s response was somewhatequivocal, to the effect (as we understood it) that the COS Board’s atten-tion and resources might better be directed to the Process. Be that as itmay, there was also evidence (what there was, we considered in respectof another Royal Host factor) of COS shareholder support for the NewPlan.

29 In the result, we considered this factor essentially neutral here. Theabsence of shareholder approval for the New Plan certainly did not arguein its favour. However, in all the circumstances, the absence of share-holder approval for the New Plan and the earlier shareholder approval ofthe Old Plan told us little about whether the time had now come for theNew Plan to go.

(b) When the New Plan Was Adopted30 The New Plan was adopted on 6 October 2015, the day after the Sun-

cor Bid was launched. That timing naturally coloured the New Plan astactical, but (as noted) this was not in dispute. As an impediment to theonly offer currently open to COS shareholders (apart from ordinary-course selling of their publicly-traded COS shares over an exchange),and an impediment raised specifically in response to that offer, the tacti-


cal New Plan merited careful scrutiny, with perhaps a heightened onuson its defenders to demonstrate that it served shareholder interests. Apartfrom that, this timing factor did not dictate any particular outcome for theApplication.

31 The timing of the New Plan also had a bearing on the prospects thatits continuation would actually deliver value for COS shareholders (atopic addressed in respect of another Royal Host factor).

(c) Shareholder Support for Continuing the New Plan32 Evidence (even if falling short of voting approval) that targeted share-

holders support the continued operation of a shareholder rights plan canplay an important part in a panel’s assessment of the public interest.

33 COS suggested that there was broad and significant shareholder sup-port for the New Plan. Suncor suggested the opposite.

34 The main evidence on this point consisted of letters to the COS Boardchairman from 79 COS shareholders (the Support Letters). Korpachstated that these were “many of [COS’s] most significant[s]hareholders”. The Support Letters appeared to be, by and large, formletters, but they were also clear and unambiguous expressions of supportgiven with apparent understanding of the context (the Suncor Bid, theadoption of the New Plan in response, and the Application were all refer-enced). A few of the signatories were institutions; the great majoritywere individuals. It appeared to be common ground that the signatoriesof the Support Letters collectively accounted for approximately 12% ofthe outstanding COS shares.

35 Korpach also told us that he and COS’s chief executive officer metwith over 30 COS institutional shareholders (a few of these perhaps be-ing Support Letter signatories) holding over 30% of the outstanding COSshares, and that these shareholders “indicated broad support for the ap-proach that the [COS Board] was taking”. Suncor contended that weshould read nothing significant — certainly nothing significantly favour-ing the New Plan — from this evidence. Suncor suggested, for example,that people informally asked their position on a proposition are often re-luctant to disappoint the inquirer, even if they actually reject the proposi-tion. More tangibly, Suncor noted a dearth of Support Letters from theseinstitutional shareholders.

36 We concluded from the evidence only that some COS shareholders,holding in total some 12% of the outstanding COS shares, have ex-pressed support for the New Plan and opposition to the Application. We


did not discount their views; to the contrary, this confirmed that the COSBoard was not alone in perceiving that the New Plan could operate in theinterests of COS shareholders. That said, the numbers hardly amountedto a groundswell of tangible shareholder support for the New Plan’scontinuation.

37 Concerning this factor, limited evidence was simply that. We knewnothing about the views of the majority of COS shareholders concerningthe New Plan. This factor therefore provided little guidance to any partic-ular conclusion concerning the Application.

(d) Size and Complexity of the Take-over Target38 Past decisions have recognized that it can be reasonable to accord a

take-over target more time to respond to a take-over bid (and, thus, moretime to operate under a shareholder rights plan defence) the larger ormore complex its affairs, on the ground that third parties are likely torequire more time to analyze and understand the target before determin-ing whether to propose an alternative transaction. (Common sense alsosuggests that decision-makers may want more time to make a decisionthe larger its financial implications.)

39 There can be differing interpretations of “complexity”, some in ourview likely more relevant to the Application than others.

40 COS is somewhat unusual, in that its own discrete operation is com-paratively modest (we were told it has approximately 30 employees), butit provides its investors an opportunity to participate in a large opera-tion — Syncrude. COS argued, and we agreed, that this factor (size andcomplexity) must be considered in respect also of Syncrude.

41 Syncrude is undeniably a large operation, involving a range of physi-cal facilities and processes and employing several thousand directly andunder contract. We were told that Syncrude recently completed a majorcapital program, which presumably did not diminish the technical sophis-tication of the operation.

42 Korpach testified that a senior official with a large oil and gas com-pany described Syncrude as perhaps “the most complex operation in theworld”. We did not know in what sense that official used the term (ac-cepting that he did use it), but a technical sense seemed entirelyplausible.

43 Syncrude apparently focuses on production of oil from a single(large) location. This did not appear to be a particularly diversified oper-ation, in the sense of some conglomerates with multiple lines of business


in multiple jurisdictions. In this sense, the complexity was less than COSsuggested.

44 Syncrude, a joint venture, has its own governance structure. We heardevidence about its budget process, which involves more than one com-mittee representing the several joint venturers, with one of those commit-tees having authority to approve a final budget. COS cited this as an ex-ample illustrating the complexity at issue. In fact, this decision-makingarrangement might (or might not) have added a step or two to what mightbe typical of a corporation, but it did not appear to us as particularlysurprising — or complex.

45 An assessment of complexity — and the amount of time reasonablynecessary to grapple with it — will naturally vary with the party doingthe assessing. Understanding Syncrude and deciding whether to proposea transaction with COS might therefore be a bigger challenge to an entitythat has never been involved in a joint venture, never operated in theAlberta oil sands, or in Canada, or in the oil business — and which lacksadvisors familiar with any of those characteristics of COS and Syncrude.That fact of life — albeit with different characteristics at play — wouldapply to almost any take-over bid dispute; it did very little to indicate anyparticular outcome here.

46 We could, however, draw some conclusions less wholly dependent onthe character of any particular sort of third party.

47 Any transaction with COS likely to be material in respect of the Pro-cess and the Suncor Bid would be a large one, with a large value. Thatwould reasonably call for careful (and therefore not with undue haste)consideration and decision-making, perhaps also involving others such aslenders or business partners. This tended to support COS’s position thatmore time to develop alternatives to the Suncor Bid would beappropriate.

48 On the issue of complexity, COS’s position was compelling only to apoint. Its business structure — and Syncrude’s — clearly needed to beunderstood, but they did not appear particularly complicated. Nor, de-spite its large scale and what we accepted to be its technical complexity,were we persuaded that the Syncrude operation (and therefore alsoCOS’s) was so complex in terms of business decision-making that anyunusual amount of time would be required for the Process.

49 In all, we concluded that this factor argued for allowing some addi-tional time for the Process to operate — but not much more time.


(e) Other Defensive Tactics50 In determining what (if anything) ought to be done in the public inter-

est in respect of a shareholder rights plan, it can be useful to consideradditional take-over defences also operating. In the right circumstances,such other defences might be thought to diminish or offset any benefitotherwise perceived in allowing a shareholder rights plan to continue.

51 There was no evidence of any formal take-over defences affecting theSuncor Bid other than the Old Plan and the New Plan.

52 That said, Suncor directed our attention to certain communications byCOS or the COS Board suggesting that Suncor was abusing its positionas an insider of Syncrude; we were directed specifically to the followingstatement by the COS Board in the COS Circular (urging rejection of theSuncor Bid):

... In the view of management and the Board, Suncor took unfair ad-vantage of its position as a co-owner in Syncrude by relying on un-disclosed inside information relating to the Syncrude Joint Ventureand formulated its offer in a manner that takes advantage of Share-holders by failing to reflect these expected positive financial resultsand by deliberately timing the Suncor Offer to expire prior to thetime that Canadian Oil Sands would be expected to publicly discloseinformation derived from any update to Syncrude’s 2015 budget andoutlook for 2016.

53 Suncor suggested that the COS Board was here suggesting seriousimpropriety on Suncor’s part, hinting (albeit not stating) at possible mis-use of material undisclosed inside information, something that in somecircumstances is banned by the Act. We understood Suncor’s concern,and trusted that the COS Board would understand why the quoted state-ment was found offensive.

54 We observed that both Suncor and COS seemed at times to have usedsome forceful terms when communicating publicly their competing opin-ions and positions on the Suncor Bid or the response by COS and theCOS Board. Despite the strong language (even if at times it appearedincautious) and what we accepted to be genuinely held (but opposing)opinions, nothing in the evidence persuaded us that any person or com-pany, on the Suncor or the COS side, has acted improperly. The mattersat stake were serious, with important consequences. They were matterson which intelligent and reasonable parties could — and obviouslydid — differ. Both sides were involved in a serious contest, with bothplaying hardball — Suncor by launching a hostile take-over bid open for


the minimum period permitted under the Old Plan, COS and the COSBoard by responding tactically with the New Plan. Hardball is allowed insuch contests; the mere fact that it was being played here did not arguefor any particular outcome to the Application.

55 Returning specifically to the present factor (other defences imple-mented), we did not consider the vigorous (to say the least) efforts atpublic persuasion by COS or the COS Board — efforts obviously di-rected against the Suncor Bid — to constitute the sort of defence thatwould argue one way or the other in respect of continuation of the NewPlan.

56 We considered this factor neutral in respect of the Application.

(f) Number of Other Potential, Viable Offerors57 COS argued that the Process ought to be given considerable time

under the protection of the New Plan, whereas Suncor argued the oppo-site. Both relied in part on competing views as to the number of otherpotential, viable offerors.

58 Harrison, representing Suncor’s financial advisor, cited his experi-ence with other transactions and his understanding of COS to concludethat “[t]here are very few entities worldwide that are financially capableof, or seriously interested in, proposing a meaningful alternative to theSuncor [Bid]”. He placed such entities into three categories: (i) “strate-gic” buyers already holding an interest in Syncrude; (ii) “strategic” buy-ers in the oil business but not holding an interest in Syncrude; and (iii)“financial” buyers (such as equity funds and pension plans). He ulti-mately concluded that “if any entity of any kind was interested in acquir-ing COS it would be expected to have come forward with an alternativeproposal by now”. Concerning the first two groups, he opined that “thereare no serious potential alternative strategic bidders for COS”, other thanone of the entities from the first group, which “has had a substantialamount of time to evaluate and launch a bid for COS if it was inclined todo so”. Concerning the third group, Harrison was pointed to the sugges-tions of numerous commentators that various financial buyers had accessto large sums of money and an openness to investing in the energy sec-tor — despite the drop in oil prices, and indeed precisely because thatmight offer some bargains. Harrison’s view was that share-trading priceshad not declined to the extent that oil-price forecasts suggested theyought, meaning that the sector was currently overpriced, and that thiswas a distinct deterrent to investment by financial buyers.


59 In contrast, the evidence of Anderson (for the financial advisor on theCOS side) was that “among the parties that are participating in the[P]rocess are entities that [Harrison] identified as in his opinion likely tohave no interest in COS. Others include strategic and financial partiesthat [Harrison] does not identify in his listing of interested parties withthe capability to consummate a transaction.”

60 We accepted Suncor’s position that there was a rather modest uni-verse of third parties who might realistically be expected to have capac-ity and interest sufficient to generate an alternative to the Suncor Bid inany reasonable time.

61 We were not, however, persuaded that this proved that the Processwas futile or that the New Plan should be brought to an immediate end.

62 Nor were we persuaded that such conclusions were supported by thefact of just four confidentiality agreements having been signed in respectof the Process, or management presentations having been made to justtwo of those signatories.

63 COS observed that not all interested third parties would have to sign aconfidentiality agreement. Implicitly this suggested the possibility thatthere might already be active Process participants in addition to the men-tioned four, with any such extra participant presumably already havingaccess to the information it would need through existing membership inSyncrude. This suggestion was supported by no evidence of active par-ticipation in the Process by more than the four confidentiality agreementsignatories, and we gave it very little weight.

64 Far more important to us was Suncor’s own argument: there beingonly a rather small universe of third parties who might realistically makea meaningful proposal under the Process, it would not be surprising ifonly a relatively small number of parties went as far as signing confiden-tiality agreements. That four such agreements were signed suggested thatthe Process was in fact operating as it ought. (We also bore in mind thatthe point of such a process is to generate one or more actual proposals,and that it does not necessarily require a large number of participants toachieve that. Nor, on the other hand, would any number of participantsensure that an actual proposal would ensue.)

65 We concluded from the evidence indicated that there were some — afew, not many — participants actively engaged in the Process, and thatthis was consistent with the Process operating as it should in a contextwhere a large number of participants was unlikely.


66 As to whether the New Plan should be halted at all, this factor told usrather little. Knowing essentially nothing about the small number of ac-tively-engaged Process participants, we did not know where they stoodin their analysis and thinking, although the evidence of Anderson thatthey were at a rather early stage was plausible. We inferred nothing fromthat. Those involved in the Process likely knew that the New Plan on itsface offered a good deal of further time for the Process to continue, whileconversely they may well have been aware that the outcome of the Ap-plication could bring the Process to a rapid end; either or both of thesethoughts might prompt a third party temporarily to defer serious work.

67 In the result, this factor persuaded us only that the Process was oper-ating, that it was real, that some third parties were actively engaged, andthat this would be consistent with the Process operating as it should. Wetherefore concluded that this factor argued against an immediate termina-tion of the New Plan.

68 Our acceptance that there was a limited universe of third parties whomight realistically make a viable alternative proposal suggested that theProcess need not continue indefinitely. At some point it must reasonablybe assumed that interested third parties would make their interest known,and, given that the viable prospects here were likely sizeable and sophis-ticated, we thought it more likely than not that genuine expressions ofinterest would materialize sooner rather than later. While that did not tellus how long interested parties would need before formulating actual pro-posals, it did indicate that not much more time should be necessary toidentify those at least interested in the Process.

69 This factor therefore argued against immediate termination of theNew Plan, but tended to support its termination in the not-too-distantfuture.

(g) Steps Taken by the Target to Find Alternatives70 Suncor suggested that the Process was tardily launched and imper-

fectly run. Pointing to Suncor’s early-2015 approaches to COS, Suncorsuggested that COS should have done more advance work so as to beready to launch a formal search for alternatives as soon as it learned ofthe Suncor Bid. Suncor also suggested that the establishment of the COSdata room, as part of the Process, began late and remained incomplete(specific reference was made to COS not seeking Syncrude’s permissionto disclose certain technical information). Harrison’s evidence — draw-


ing on his experience with other transactions — tended to support Sun-cor’s position on this.

71 COS (and the COS Board) rejected Suncor’s criticisms as quibbles,and asserted (in effect) that the Process was, and remained, timely, pro-fessional and productive.

72 We considered that the evidence as a whole tended to support someof Suncor’s criticisms of the Process — particularly concerning the time-liness of its launch and other Process steps — and we would not be in-clined to regard those criticisms as mere quibbles. That said, our focus inthe Application was on the current state of affairs, and prospects for thefuture.

73 In short, COS and the COS Board had, through the Process, takenimportant steps to identify viable alternatives, and it was not apparentthat serious participants in the Process lacked or would lack access toinformation necessary for the generation of value-maximizing proposals.(The evidence did not suffice for us to determine the significance of thenoted technical-information issue.). We were satisfied that the Process asoperating was and remained real and active, that there were some — notmany, but some — parties actively engaged in the Process, and that theirinvolvement in the Process appeared, at the time of the hearing, to offerwhat might be termed either a “real and substantial possibility” or a “rea-sonable possibility” (in the words of Regal and Royal Host) of generatingan alternative proposal in the interests of COS shareholders.

74 This factor argued in favour of allowing the Process to continue underthe protection of the New Plan, for at least some further time. It did notassist us in determining how long that further time should be.

(h) Likelihood that More Time Will Generate a Better Alternative75 COS’s position was that the Process — and third parties who might

be interested in proposing alternatives to the Suncor Bid — required agood deal more time, and that this required the protection of the NewPlan. This was consistent with, and partly reflective of, COS’s position(already discussed) concerning the size and complexity of COS and Syn-crude, which third parties required time to understand and assess. Thiswas also consistent with COS’s position that the Process was workingproductively, with active participants.

76 COS also suggested that there were significant uncertainties on whichthird parties were likely to want clarity before making decisions — clar-ity unlikely to be delivered before the Scheduled Bid Expiry. Specific


reference was made to anticipated changes in government policies (spe-cifically in relation to royalties and climate change) and Syncrude’sbudget for the coming year.

77 Suncor contended that allowing the New Plan to continue to operatewas unlikely to generate a viable alternative. Some of Suncor’s positionon this point has already been discussed: a small universe of potential,viable offerors; a small number of confidentiality agreements signedunder the Process; deficiencies in the Process itself; and COS not being acomplex entity and thus there being no need for a long period to analyzeit. Suncor (in argument, and in a supplementary affidavit of Reynish)disputed the significance or relevance of various purported uncertainties.In respect of government policy, the general suggestion was that the pos-sibility of policy changes is always present, that some of the specific pol-icy uncertainties suggested by COS were neither new nor particularly un-certain, and that we ought not to regard this as a significant issue in ourdeliberation. Concerning the 2016 Syncrude budget, Suncor suggestedthat the essential information had already been disclosed in June, and thatany modifications reflected in the final version were not going to be sig-nificant or (in Reynish’s words) likely to “deviate materially from whatCOS has already disclosed [publicly]”. Testifying to current discussionof an operating cost reduction of “something like 2 to 4 percent” fromthe June budget proposal, Reynish said that was “not particularly mate-rial on a 43-year asset”, and commented that any savings would in anyevent be “held in a separate account in case ... subsequently needed”. Healso characterized as “typically very poor” the Syncrude budget’s “trackrecord ... [as] a predictor of the next year’s performance”. Still, he agreedin “overall terms” that changes to the budget could have a greater impacton COS than on Suncor.

78 COS portrayed the Syncrude 2016 budget process as more fluid, itsoutcome more uncertain, and its potential impact greater than suggestedby Suncor. (COS’s counsel even alluded, when cross-examining Reyn-ish, to an “emergency” budget meeting just two days before the hearing,but Reynish was not aware of it.) Korpach testified that “[o]ne of the keypoints of input was just a week or so ago”, with “substantial input pro-vided back to Syncrude”; he believed that the finalized budget informa-tion “will be critical to the third parties’ value analysis”.

79 Finally, there was discussion concerning the time required for newinformation to be absorbed. It seemed to have been common ground that“sophisticated research analysts that cover COS” (Suncor counsel’s


description) can digest new information very quickly (“same-day ornext-day”). A comparable one-or-two-day absorption period was alsosuggested for “sophisticated investors, which would include most institu-tions”, a proposition to which Korpach agreed. Noting that share pricesare driven by trading activity, Suncor suggested that this activity canvery quickly respond to research reports; Harrison cited an example ofthis from Suncor’s own experience, earlier in 2015. In the context of theSyncrude budget, the implication was that little time would be requiredfor the final budget to be digested by Process participants (and by thecapital market), obviating any need for the New Plan. COS’s positionwas that considerably more time was needed under the protection of theNew Plan.

80 We need not repeat our observations on the parties’ positions alreadydiscussed above in respect of other factors beyond noting that, on bal-ance, they were either neutral on the issue of allowing the New Plan tooperate, or tended to favour allowing it to operate for at least some pe-riod (not necessarily a long period) after the Scheduled Bid Expiry date.

81 The evidence persuaded us that there were some genuine uncertain-ties facing COS, Syncrude, and third parties who might consider propos-ing a transaction with COS. In particular, these included the outcome of apublicly-announced review of Alberta’s oil royalty regime, as well as (acontrary assertion by Reynish notwithstanding) specific implications forparticular industry players of recently-announced climate-change policychanges. That third parties potentially interested in proposing a transac-tion with COS would prefer certainty on such matters seemed to us areasonable, even obvious, proposition. On the other hand, the evidencedid not suggest that perfect certainty was assured even were the NewPlan to operate without constraint. Nor, of course, could new uncertain-ties in respect of other policies or proposals from various levels of gov-ernment be ruled out; such matters simply are not static, and a degree ofuncertainty is almost inevitable. That does not preclude businesspeoplefrom making significant business decisions; Suncor’s position on thiswas persuasive. In the result, we concluded that although there were un-certainties in the policy areas cited, they did not constitute a basis forrejecting the Application, and they were of essentially no assistance indetermining when the New Plan ought to be terminated in the publicinterest.

82 Concerning the Syncrude budget, we were prepared to accept Reyn-ish’s view that the anticipated budget changes might not be particularly


significant — from Suncor’s perspective. We did not find this view in-formative as to the significance to third parties. Suncor, after all, is alarge and diversified entity with many activities beyond its current inter-est in Syncrude. Moreover, Suncor already knows Syncrude intimately asa joint venturer, and it has been actively engaged in the current Syncrudebudgeting process (indeed, according to Reynish, Suncor was a leaderamong the joint venturers in seeking cost reductions).

83 Given COS’s narrower business focus, however, we considered thatthe Syncrude budget could reasonably be considered significant to anythird party contemplating a transaction with COS, and that anything shortof an approved final budget could reasonably be regarded as a significantuncertainty, at least by any third party not currently a Syncrude joint ven-turer. This would be so, in our view, even if (as was suggested) resultshad departed from Syncrude budgets in years past. In short, we consid-ered that the then-current state of the Syncrude budget represented a sig-nificant uncertainty, and as such plausibly an impediment — tempora-rily — to the generation of alternatives to the Suncor Bid.

84 Unlike broader uncertainties relating to government policy, however,this Syncrude budget uncertainty appeared capable of resolution, andsoon. As mentioned, formal approval of the final Syncrude budget, andits reflection in public announcement of COS’s budget, were anticipatedearly in the week that would end with the Scheduled Bid Expiry.

85 The topic of information absorption thus became highly relevant. Weaccepted that sophisticated research analysts and institutions already fa-miliar with COS might absorb the approved final Syncrude budgetchanges quickly — plausibly, by or before the Scheduled Bid Expiry.We were not, however, persuaded that the same timing would necessarilyapply to the analysis and decision-making of third parties involved in theProcess. Given the significance of any decision to propose a substantialtransaction with COS, it was reasonable to anticipate that those third par-ties (however sophisticated) might require more time — until after theScheduled Bid Expiry — to first factor the final Syncrude budget intotheir assessments, analyses and plans.

86 Harrison’s evidence was that “[h]istorically, in Canada, alternativesto unsolicited take- over bids for very large capitalization companieshave generally taken less than 60 days to emerge”, and he cited someexamples. Although COS challenged the pertinence or persuasive valueof some of those examples, and some of the circumstances were clearlydistinguishable from the present case, we did accept that Harrison had


observed transactional results from processes shorter in duration thanwhat COS was seeking, and indeed shorter than the term of the SuncorBid.

87 Anderson, however, deposed to the firm belief “that with more timeto run our [P]rocess, there is a good prospect for one or more counterpar-ties to make a proposal”. He deposed that 60 days in his opinion “is sim-ply insufficient in these circumstances” and “it is not reasonable to ex-pect that other interested parties [in circumstances different fromSuncor’s] can begin from a standing start and arrive at a multi-billiondollar investment in COS within only 60 days”. He termed 120 days “amore realistic time period”. Under cross-examination Anderson main-tained the utility of allowing the Process more time after the ScheduledBid Expiry. He stated that the four signatories to confidentiality agree-ments were still at an “early” stage of their work, that “for sure” theywould not be ready in the next week, and that “[s]ome might, somemight not” be ready to make a decision within 20 to 30 days.

88 Both financial advisors were credible witnesses. The plain fact,though, was that Anderson and his firm were directly involved with theProcess; Harrison (however interested in it he and his client might be)was not. Therefore (and without discounting Harrison’s experience inother transactions), we preferred the evidence of Anderson as it con-cerned the operation of the Process, the progress of work within it, andits prospects going forward.

89 In the result, we were persuaded that allowing the Process to continuebeyond the Scheduled Bid Expiry under the protection of the New Planoffered a real and substantial possibility or a reasonable possibility of aviable alternative to the Suncor Bid being generated. On balance, thisfactor argued against granting the Application.

(i) Nature of the Suncor Bid90 There did not at first appear to be any challenge to the bona fides of

the Suncor Bid. COS did not argue before us that it was coercive (some-thing that might warrant upholding a tactical defensive measure).

91 That said, COS (and the COS Board in the COS Circular) character-ized the Suncor Bid as “opportunistic”, and we heard submissions onthis, which warrant comment here.

92 COS’s position was that the timing and pricing of the Suncor Bidtook advantage of such factors as significant oil price declines and a cor-responding material drop in the COS share price (that the two were


closely correlated was not disputed). It was pointed out to us that Sun-cor’s early-2015 approaches to COS (rebuffed) included mention of anapproximate 1-for-3 share exchange (roughly one Suncor share for eachthree COS shares), whereas with the Suncor Bid the ratio dropped to 1-for-4. It seemed obvious that market events had their effect.

93 Quite what we should draw from that was unclear. In the context of acapital market where prices affect decisions, it would be difficult to per-ceive any impropriety in a bidder having acted accordingly. In the ordi-nary course one would not reasonably criticize a consumer for waitingfor a sale day to make a purchase, and then offering to pay only the saleprice. If acting in response to market movements and perceived opportu-nities is “opportunistic” — as perhaps it was in this case — we discernedno basis for concluding that it (without more) was also unfair in a sensenecessitating a response on our part. A somewhat similar view was ex-pressed by the ASC in Samson Canada Ltd., Re (1999), 8 A.S.C.S. 1791(Alta. Securities Comm.) #08/25:

Highridge alleged that the Samson Offer was coercive. The only evi-dence presented in support of that allegation came from Mr. Budd inresponse to a question from the Chair. Mr. Budd suggested that theSamson Offer was “opportunistic in timing” and, therefore, coercivein the sense that, although it offered a premium over the trading priceof the Highridge shares, Highridge was so undervalued that the offerwas still a “low-ball bid”.

We agree that the Samson Offer was opportunistic. In our view, thereis nothing improper about that. It is normal for hostile take-over bidsto be opportunistic but that, in itself, does not make them coerciveand in this case we find that the Samson bid was not coercive.

94 In short, there was no evidence that the Suncor Bid was coercive,unfair or in any other way improper in any sense that would have a bear-ing on our decision. This factor was neutral in respect of the Application.

(j) Length of Time Since the Suncor Bid Was Announced95 We have already addressed the substance of this Royal Host factor in

our consideration of other factors.

(k) Likelihood of the Suncor Bid Not Being Extended96 Expiry of the Suncor Bid on its Scheduled Bid Expiry (a date fast

approaching at the time of the hearing) would obviously remove an op-tion from COS shareholders. Although we accepted from the evidencethat the Process (given more time) offers a real and substantial possibility


(or a reasonable possibility) that a viable alternative will be generated,there was no assurance. It followed that, should we decline to grant theApplication on the terms sought by Suncor, COS shareholders might findthemselves with no alternative to ordinary-course transactions on an ex-change at whatever prices there prevail for COS shares. We thereforeconsidered carefully such evidence as there was concerning the likeli-hood (or otherwise) of Suncor voluntarily extending the Suncor Bid.

97 We were told by Reynish, and we accepted, that were we not to grantthe Application, there was a “very real and distinct possibility” that Sun-cor would not extend the Suncor Bid. Reynish’s evidence was also un-ambiguous, and we accepted, that Suncor definitely would not extend theSuncor Bid were the New Plan to be allowed to operate unimpeded forits full term.

98 That, of course, left open the question of how Suncor would respondwere we to allow the New Plan to operate, but for a period of less than120 days. We lacked evidence that any particular response was probable(there was, for example, no suggestion that its all-share offer was expos-ing Suncor to crushing financing fees of a sort that might make a bidextension unrealistic). COS argued that, Suncor having “been workingon [the Suncor Bid] for over a year”, it was unreasonable to fear “thatafter 60 days its interest will disappear”, but given the evidence beforeus, this remained supposition.

99 In the result, this factor argued against allowing the New Plan to op-erate for a full 120 days, but it otherwise offered little guidance for ourresponse to the Application.

IV. Conclusion100 To summarize, the evidence as a whole, assessed in the context of the

Royal Hostfactors, persuaded us that there was potential (albeit not as-sured) upside to COS shareholders from continued operation of the Pro-cess under the protection of the New Plan. For that reason, we deter-mined that it would not be in the public interest to cease-trade the NewPlan immediately.

101 This then compelled an assessment of whether, and if so when, theNew Plan should be effectively terminated. In all the circumstances, no-tably including the evidence of a financial advisor (Anderson) directlyinvolved with the Process, we were persuaded that operation of the NewPlan for a period as short as the 10 days suggested by Staff would beinsufficient. Indeed, we were prepared to accept Anderson’s suggestion


that even 20 more days (that is, from the date of our oral decision, until20 December 2015) could be inadequate.

102 That said, we were unable to understand — in the absence of any spe-cific evidence — why the Process would require much more time beyondthat. By 20 December 2015, close to three weeks would have elapsedfrom anticipated approval of the Syncrude budget and COS’s corre-sponding budget announcement. Taking into account the views and evi-dence canvassed above on the issue of information absorption as well asour own experience, we also knew that business people and professionalscan and do operate effectively and quickly when important decisionsmust be made.

103 There being no certainty about any of this, our task was to identifyand strive appropriately to balance the risks associated with (and thecompeting interests in) different potential outcomes, with a view to thepublic interest. In the result, and absent any other consideration, our in-clination would have been to permit the New Plan to continue in opera-tion, but only until a date around the latter part of the week beginning onMonday 21 December 2015.

104 There was, however, another consideration. That week would endwith Christmas, and the next week with the New Year. Between thosedates, as is common knowledge, many individuals take considerable timeoff. This would not, in our view, be a serious concern in respect of theProcess itself. As stated, business people and professionals can and dowork quickly and effectively when necessary, and they are well able todo so through and around holidays. Our concern, rather, was for the COSshareholders — in particular, what we were given to understand wasCOS’s large base of retail shareholders — and their ability to respond toinformation that might arise from the Process or in in respect of the Sun-cor Bid (if extended).

105 We considered that the Christmas-to-New Year interval couldforeseeably interfere with retail shareholders’ receipt of any such infor-mation that might arise in or shortly before that holiday period, their abil-ity to obtain guidance about such information, or their ability to imple-ment any resulting decision as a shareholder. With our focus on enablingshareholders to make (and act on) informed decisions relating to theirholdings, we determined that the New Plan should be left in place forroughly one further week, until the holidays were well and truly over.

106 For these reasons, we considered it to be in the public interest to issueorders under sections 198(1)(a), (b) and (c) of the Act in the nature


sought by Suncor that would bring the New Plan effectively to an endinsofar as it related to the Suncor Bid, but only from 18:00 (Calgarytime) — after the close of business — on Monday 4 January 2016. Ac-cordingly, on 30 November 2015 we signed and issued a document tothat effect, and so informed the parties.

Order accordingly.

McKercher v. Renovation Store Ltd. 159

[Indexed as: McKercher v. Renovation Store Ltd.]

Barry McKercher and Jeri McKercher, Plaintiffs and TheRenovation Store Ltd and Randall Edward Keehn, Defendants

Alberta Court of Queen’s Bench

Docket: Edmonton 0903-04274

2015 ABQB 748

S.J. Greckol J.



Construction law –––– Contracts — Breach of terms of contract — Breachby contractor — Defective workmanship — Renovations –––– Homeownershired contractor to perform extensive renovations — Contractor prepared three-page contract specifying scope of project, which totalled $96,000, and whichrequired homeowners to relocate for 30 days — Homeowners relocated on De-cember 16, 2007, did not return to home until March 8, 2008, and work was stillnot completed — Bathroom did not contain counter or shower, kitchen appli-ances and washer and dryer had not arrived, and when washer and dryer weredelivered, they were wrong ones — Homeowners lived in garage while workcontinued — Wrong stone flooring and windows were installed, and fridge, cup-boards, and kitchen sink were also wrong size — Building inspector issued vio-lation tickets — Contractor stopped working on August 25, 2008, by which timehomeowners had paid $72,000 — Expert for homeowners noted various defi-ciencies, including structural problems — Homeowners brought action againstcontractor and its principal for damages for breach of renovation contract — Ac-tion allowed — Homeowners proved on balance of probabilities that contractorsbreached contract by failing to provide various elements of renovation as prom-ised, and by providing others in substandard fashion — Contractor and principalalso breached oral term of contract by using persons who were not duly licensedor skilled and who failed to perform work in good and workmanlike manner —Contractor and principal also failed to obtain necessary building permits —Contractor and principal had breached various representations about quality ofpersons and materials, time required, and scope of work.

Construction law –––– Contracts — Breach of terms of contract — Dam-ages — Calculation and measure of damages –––– Homeowners hired con-tractor to perform extensive renovations — Contractor prepared three-page con-tract specifying scope of project, which totalled $96,000, and which requiredhomeowners to relocate for 30 days — Homeowners relocated on December 16,2007, did not return to home until March 8, 2008, and work was still not com-


pleted — Homeowners lived in garage while work continued — Contractorstopped working on August 25, 2008, by which time homeowners had paid$72,000 — Expert for homeowners noted various deficiencies, including struc-tural problems — Homeowners brought action against contractor and its princi-pal for damages for breach of renovation contract and breach of Fair TradingAct — Action allowed — Homeowners were awarded $39,035 to remedy defi-ciencies, $20,000 for general damages for mental distress, and $10,000 for puni-tive damages against contractor and principal jointly and severally — Contractorand principal breached contract by failing to provide various elements of reno-vation as promised and by providing others in substandard fashion — Contractorand principal also breached oral term of contract by using persons who were notduly licensed or skilled and who failed to perform work in good and workman-like manner — Contractor and principal failed to obtain necessary building per-mits, and breached various representations about quality of persons and materi-als, time required, and scope of work — Representations were therefore unfairpractices — Homeowners made reasonable efforts to minimize damage resultingfrom unfair practices — Female homeowner suffered anxiety and stress forwhich she received treatment, and she missed almost two years of work asteacher.

Construction law –––– Contracts — Breach of terms of contract — Dam-ages — Mental or emotional distress –––– In 1978, homeowners moved intohome that had been built in 1947 — After living in home for almost 30 years,homeowners hired contractor to perform extensive renovations — Homeownerswere required to relocate for 30 days — Contractor agreed to cover accommoda-tion costs if longer time was required — Homeowners relocated on December16, 2007, and did not return to home until March 8, 2008, when work was stillnot completed — Homeowners lived in garage while work continued — Con-tractor stopped working on August 25, 2008, by which time homeowners hadpaid contractor $72,000 — Expert for homeowners noted various deficiencies,including structural problems — Owners brought action against contractor andits principal for damages for breach of contract and breach of Fair TradingAct — Action allowed — Homeowners were awarded $39,035 to remedy defi-ciencies, $20,000 for general damages for mental distress, and $10,000 for puni-tive damages against contractor and principal jointly and severally — Object ofrenovation contract was to secure psychological benefit, and breach had broughtmental distress within reasonable contemplation of parties — Further, degree ofmental distress was of sufficient degree to warrant compensation — Renova-tions were not completed on time, and even after delay of several months, home-owners were required to live in their garage over course of summer withoutshower and appliances — Female homeowner suffered anxiety and stress forwhich she received treatment, and she missed almost two years of work asteacher.

McKercher v. Renovation Store Ltd. 161

Construction law –––– Contracts — Breach of terms of contract — Dam-ages — Exemplary and punitive damages –––– Homeowners were awardedpunitive damages of $10,000 against contractors — Contractors’ conduct to-wards homeowners represented marked departure from ordinary standards of be-haviour — Contractors’ irresponsible actions in failing to get proper buildingpermits, and misrepresenting to city type of work they were doing in getting onepermit for window replacement offended court’s sense of decency — Actionwas not one of disagreement over finishing touches or extra expenses — Con-tractors left home in state of shambles.

Civil practice and procedure –––– Costs — General principles –––– Home-owners hired contractor to perform extensive renovations — Homeowners wererequired to relocate for 30 days — Homeowners relocated on December 16,2007, did not return to home until March 8, 2008, and work was still not com-pleted — Homeowners lived in garage while work continued — Contractorstopped working on August 25, 2008, by which time homeowners had paid con-tractor $72,000 — Expert for homeowners noted various deficiencies, includingstructural problems — Owners brought action against contractor and its princi-pal for damages for breach of contract and breach of Fair Trading Act — Actionallowed — Contractor and principal did not attend trial — Homeowners wereawarded $39,035 to remedy deficiencies, $20,000 for general damages formental distress, and $10,000 for punitive damages against contractor and princi-pal jointly and severally — Homeowners were awarded double Column 2 costson joint and several basis — Contractor and principal had engaged in litigationmisconduct to sufficient degree to attract such costs, and had participated in pro-ceeding but then refused to set matter down for trial — This resulted in delayand necessity for additional court proceedings — Parties who engaged in litiga-tion could not simply ignore part of process, especially when that part wastrial — Solicitor-client costs were denied since there was already order for puni-tive damages.

Cases considered by S.J. Greckol J.:

Bortolussi v. Busselton Construction Ltd. (2013), 2013 BCSC 475, 2013 Car-swellBC 714 (B.C. S.C.) — followed

Fidler v. Sun Life Assurance Co. of Canada (2006), 2006 SCC 30, 2006 Car-swellBC 1596, 2006 CarswellBC 1597, [2006] 8 W.W.R. 1, 2006 C.E.B. &P.G.R. 8202 (headnote only), [2006] S.C.J. No. 30, (sub nom. Sun LifeAssurance Co. of Canada v. Fidler) [2006] I.L.R. 1-4521, 39 C.C.L.I. (4th)1, 350 N.R. 40, 227 B.C.A.C. 39, 374 W.A.C. 39, 57 B.C.L.R. (4th) 1, 53C.C.E.L. (3d) 1, (sub nom. Sun Life Assurance Co. of Canada v. Fidler) 271D.L.R. (4th) 1, [2006] 2 S.C.R. 3, (sub nom. Sun Life Assurance Company ofCanada v. Fidler) 2007 C.L.L.C. 210-015, [2006] R.R.A. 525, EYB 2006-107056 (S.C.C.) — followed


Hill v. Hill (2013), 2013 ABCA 313, 2013 CarswellAlta 1785, [2013] A.J. No.1016, (sub nom. Hill v. Hill Family Trust) 561 A.R. 50, (sub nom. Hill v.Hill Family Trust) 594 W.A.C. 50, 3 Alta. L.R. (6th) 302 (Alta. C.A.) —referred to

Lameman v. Alberta (2011), 2011 ABQB 532, 2011 CarswellAlta 1518, 54 Alta.L.R. (5th) 417, 521 A.R. 112 (Alta. Q.B.) — referred to

Malton v. Attia (2015), 2015 ABQB 430, 2015 CarswellAlta 1240, 19 C.C.L.T.(4th) 217, 19 Alta. L.R. (6th) 1, 76 C.P.C. (7th) 161 (Alta. Q.B.) — referredto

Patel v. W.G. Housing Ltd. (2012), 2012 ABQB 734, 2012 CarswellAlta 2365,[2013] 9 W.W.R. 128, 82 Alta. L.R. (5th) 49 (Alta. Q.B.) — considered

Stagg v. Condominium Plan 882-2999 (2013), 2013 ABQB 684, 2013 Carswell-Alta 2393, [2013] A.J. No. 1306, 3 Alta. L.R. (6th) 219, (sub nom. Stagg v.Owners-Condominium Plan No. 882-2999) 574 A.R. 363 (Alta. Q.B.) — re-ferred to

Taylor v. Gill (1991), [1991] 3 W.W.R. 727, 78 Alta. L.R. (2d) 349, 113 A.R.38, 16 R.P.R. (2d) 238, 1991 CarswellAlta 28, [1991] A.J. No. 133 (Alta.Q.B.) — followed

Tucci v. City Concepts Construction Ltd. (2000), 2000 CarswellOnt 1753, 2C.L.R. (3d) 291, [2000] O.J. No. 1723 (Ont. S.C.J.) — followed

Whiten v. Pilot Insurance Co. (2002), 2002 SCC 18, 2002 CarswellOnt 537,2002 CarswellOnt 538, [2002] I.L.R. I-4048, 20 B.L.R. (3d) 165, [2002]S.C.J. No. 19, 209 D.L.R. (4th) 257, 283 N.R. 1, 35 C.C.L.I. (3d) 1, 156O.A.C. 201, [2002] 1 S.C.R. 595, REJB 2002-28036, 58 O.R. (3d) 480(note), 2002 CSC 18 (S.C.C.) — followed


Fair Trading Act, R.S.A. 2000, c. F-2Generally — referred toPt. 1 — referred toPt. 2 — referred toPt. 10 — referred tos. 1(1)(b) “consumer” — considereds. 1(1)(k) “services” — considereds. 1(1)(l) “supplier” — considereds. 6 — considereds. 6(4) — considereds. 6(4)(e) — considereds. 6(4)(n) — considereds. 6(4)(p) — considereds. 7 — considereds. 7(1)-7(3) — referred tos. 7.1 [en. 2005, c. 9, s. 6] — considereds. 7.2(1) [en. 2005, c. 9, s. 6] — considered

McKercher v. Renovation Store Ltd. S.J. Greckol J. 163

s. 7.2(2) [en. 2005, c. 9, s. 6] — considereds. 7.2(3) [en. 2005, c. 9, s. 6] — considereds. 7.3 [en. 2005, c. 9, s. 6] — considereds. 13 — considereds. 13(1) — considereds. 13(2)(c) — considereds. 13(3) — considered

Judgment Interest Act, R.S.A. 2000, c. J-1Generally — referred to

Safety Codes Act, R.S.A. 2000, c. S-1Generally — referred to

Rules considered:

Alberta Rules of Court, Alta. Reg. 124/2010Generally — referred toPt. 10, Div. 2 — consideredR. 4.24 — consideredR. 4.29 — considered

Tariffs considered:

Alberta Rules of Court, Alta. Reg. 124/2010Sched. C — referred to

Regulations considered:

Fair Trading Act, R.S.A. 2000, c. F-2Designation of Trades and Businesses Regulation, Alta. Reg. 178/99

s. 5(2) — considered

ACTION by homeowners against contractor and its principal for damages forbreach of renovation contract and for breach of Fair Trading Act.

Neil Fenna, for PlaintiffsNo one for Defendants

S.J. Greckol J.:

I. Introduction1 The McKerchers embarked on a dream home renovation with that

went badly awry. They have sued the corporate Defendant and its princi-pal, Randall Keehn, for breach of contract, and invoked the terms of theFair Trading Act, RSA 2000 c F-2 (FTA), to gain redress from the own-ers and proprietors of the business.


II. The Claims2 Jeri McKercher and Barry McKercher are married and own a home at

[...] 105 Street in Edmonton, Alberta. The Renovation Store Ltd (TheRenovation Store) is a limited company carrying on business inEdmonton and elsewhere in Alberta. Randall Edward Keehn (Mr.Keehn) is a Shareholder and Director of The Renovation Store and actedon behalf of The Renovation Store in all dealings and communicationswith the Plaintiffs.

3 The McKerchers filed a Statement of Claim on March 24, 2009, al-leging breach of a renovation contract. They filed an Amended Statementof Claim on August 29, 2013, further alleging breach of contract, as wellas breach of the FTA. In particular, they plead the provisions of Parts 1,2, and 10 of the FTA.

4 They state that The Renovation Store and Mr. Keehn represented tothem that they were experts in performing renovations to residentialpremises. They also represented that the work would be completed in atimely fashion, and in a good and workmanlike manner using superiormaterials and highly skilled workers. Relying on the representations, thecouple entered into an agreement with the Defendants for the construc-tion of improvements to their home (the contract), on September 27,2007. The McKerchers allege that a term of the contract was that theworkers would be skilled in their trade or calling, and that un-skilledlabourers would not be used in the performance of the contract.

5 Mr. and Ms. McKercher allege that The Renovation Store and Mr.Keehn breached the terms of the contract or alternatively, engaged in un-fair practices, by inter alia:

(a) Engaging agents, employees, sub-contractors and labourers whowere not duly licensed or skilled;

(b) Failing to perform work in a good and workmanlike manner usingsuperior materials and highly skilled workers;

(c) Failing to obtain the necessary permits before commencing therenovation, or at all;

(d) Proceeding with replacement of the wiring system in the housewhen such replacement was not needed or desirable;

(e) Removing a load-bearing wall without a permit or approval;

(f) Supplying and installing goods which were different than thosereferenced in the Contract;


(g) Failing to complete the scope of work referenced in the Contract;

(h) Failing to remedy deficiencies; and

(i) Stating that the goods and services would be supplied within astated period when the Defendants knew that they would not.

6 They contend that the Defendants neglected and refused to correct thedeficiencies and shoddy workmanship, or complete the contract in agood and workmanlike manner, notwithstanding that the Defendants arein possession of a report outlining the deficiencies and the corrective ac-tion required.

7 The McKerchers contend that they paid costs of accommodation priorto moving into their uncompleted home, suffered inconvenience and sig-nificant mental distress because the Defendants failed to complete therenovations, and that they will be required to retain the services of anengineer and contractor to complete the renovations to their home as wellas to rent accommodations for approximately one to three months in or-der to have the renovations completed.

8 The Defendants initially filed a Statement of Defence and Counter-claim on May 22, 2009. They then filed an Amended Statement of De-fence and Counterclaim on January 3, 2014. In their Amended Counter-claim, the Defendants allege that the McKerchers failed to pay theamounts agreed to under the contract and must pay damages for the un-paid sums together with interest, as well as solicitor-client costs underthe terms of the contract. Alternatively, they claim that the McKerchershave been unjustly enriched by the work of the Defendants or owe dam-ages on a quantum meruit basis.

9 Although properly served, the Defendants did not attend this trial norwere they represented by counsel. Their Counterclaim is dismissed forwant of prosecution.

III. Facts10 Ms. McKercher works for the Edmonton Catholic School Division

teaching and helping blind children. Mr. McKercher is a tradesman.They have lived at [...] 105 Street since 1978. Their home was built in1947. They had done few improvements over the years, and were look-ing to renovate and update their home. They imagined an open conceptdesign on the main floor and a bay window with a window seat in theliving room.


11 I found Ms. McKercher to be a very capable and credible witness.She gave her evidence clearly and had a strong memory for details. Shehad appropriately high expectations that the job would be completed aspromised and done well. While a self-confessed perfectionist, it is alsoclear that she planned carefully for the changes she would make to thishouse that they loved over many years, electing to renovate it so that theycould remain there the balance of the years of independent living, ratherthan move to a new or different home. In short, I accept all of her evi-dence as to the failure of The Renovation Store and its principal, Mr.Keehn, to meet the contractual obligations.

12 Mr. Keehn came to the McKercher home five or six times to discussthe vision for the project, then drafted a written contract, which he pre-pared. This written contract consists of three pages. The first two pagesdetail the work, services, and materials that The Renovation Store wouldprovide. Additional terms are typed into the “Comments” section. Thereis some handwriting on the first page referencing a deposit of $24,000and, on the second page, Ms. McKercher printed her name, and signedand dated it. The third page contains approximately 17 bulleted itemsunder the heading “Description and Terms”. Notably, this page does notcontain what is typically called an “Entire Agreement Clause”.

13 The written contract set out all the specific supplies and installationsto be provided and identifies various appliances by model number. Thecontract states that the price was based on the client leaving the home for30 days; accommodation would be covered for any longer period. A war-ranty extended to labour for one year. All permits were to be included.

14 Ms. McKercher gave evidence of additional terms that she says werepart of the contract, but which are not expressly stated in the written doc-ument. She specifically required that licensed tradespeople be used forthe job. She also testified of Mr. Keehn’s representations that the workwould be completed in a timely fashion and in a good and workmanlikemanner using superior materials and highly skilled workers. I find thatthe written document was not the entire agreement between the partiesand that the requirement to use skilled tradespeople and Mr. Keehn’sother representations were also terms of the contract.

15 The Plaintiffs gave Mr. Keehn a down payment cheque in the sum of$24,000, a further cheque of $24,000 when the hardwood was installed,and eventually, sums totalling $72,000. The balance was to be providedupon completion.


16 Mr. and Ms. McKercher moved out of the home on December 16,2007 and did not move back in until March 8, 2008. Mr. McKercherworked nearby. He visited the site on many occasions in that period, butfound that neither the workers nor Mr. Keehn were there for periods ofup to a week. When they moved back into the home, the renovation wasnot close to being finished.

17 The bathroom contained neither a counter nor a shower. There wereno kitchen appliances nor washer and dryer. When the washer and dryerdid arrive, they were not the correct models. The house was not com-pleted by the summer of 2008, and the McKerchers lived in their garagewhile the work continued. The installation of the plumbing and hot waterwas still underway. Mr. McKercher made fruitless requests to see thebuilding permits.

18 A building inspector from the City of Edmonton visited. Through dis-cussions with him, Ms. McKercher learned that The Renovation Storehad obtained a permit for an existing window rather than a new bay win-dow. The permit had been obtained based on a misrepresentation. Theinspector issued orange violation tickets that stated “unacceptable”.

19 About August 25, 2008, The Renovation Store workers stopped com-ing to work on the project.

20 Ms. McKerchers particularly wanted natural stone flooring and a win-dow box in the kitchen as well as the bay window. The stone that arrivedat the home was not the stone she had ordered and was not the rightcolour; the merchant from the tile store was summoned and confirmedthe tile was not from his store. The tile was flat brown, rather than natu-ral, glazed orange. Despite Ms. McKercher’s objections, the wrong tileswere installed. The cost to remove and replace the tiles is $11,380.52.

21 The Renovation Store told Ms. McKercher that window boxes to fither kitchen windows could not be found and so it installed smaller win-dows. Award Windows has provided an estimate for replacement of win-dows to the correct specifications at a cost of $3,711.75.

22 All of the problems remain. It will cost more money to repair themistakes than to begin work afresh; and the family cannot afford it. Thebathroom has no functioning shower and Ms. McKercher must wash herhair in the laundry room. The bathroom counter is too low, with thebacksplash being too short to be effective. The shower rod does not holdweight.


23 In the kitchen, the plan called for a narrow and deep fridge to fit theallotted space. The Defendants ordered a fridge of the wrong size, so thatthe door cannot open completely. The cupboards are the wrong depth.Where Ms. McKercher formerly had a set of double stainless steel sinks,she now has a sink and one half as the renovators miscalculated and im-properly cut the space for the installation.

24 The McKerchers commissioned an expert report concerning the ma-jor deficiencies from Eldon Schechtel who has over 49 years’ experiencein residential, commercial and industrial construction and has been in-volved in building inspection since 1983. Mr. Schechtel was qualified asan expert to testify at trial, and his report was accepted in evidence.

25 He inspected the McKercher home for the purpose of collecting infor-mation on the quality of workmanship provided by the contractor incompleting renovations and to provide cost estimates for necessary re-pairs. In his report of September 6, 2012, Mr. Schechtel concluded thatThe Renovation Store did not meet the requirements of the AlbertaSafety Code Act and permit requirements of the City of Edmonton thatwere necessary to complete a renovation. He found that The RenovationStore performed substandard and shoddy workmanship in numerous ar-eas and billed for extra work that was unnecessary and inappropriate.

26 The report prepared by Mr. Schechtel lists a host of deficiencies, in-cluding ruined hardwood floors, wall damage, and a slope in the floor asa result of two support walls having been removed. He notes deficiencieswith the electrical junction box at the base of the stairs, the hallwaycloset, the bathroom, the master bedroom, the living room, the front en-trance, the dining room, the kitchen, the basement, the paint job through-out the house, as well as faulty repairs on the exterior of the house.

27 He summarizes some of the issues at page 6 of his report: I reviewed the report addressed to Jeri McKercher from Quinn’sPlumbing dated June 1, 2009 and, based on what I found in place, Ibelieve this report provides an accurate description of what wasneeded to rectify the problems associated with the gas supply linesand venting for the water heater.

I am of the opinion that the structural concerns with the floor of thebedroom above the kitchen area, where the walls supporting thisfloor were altered, can be corrected by installing engineered joists inthe affected area. This will, however involve a considerable amountof work which will include removing and replacing the drywall ceil-ing over the entire kitchen area. It is important to note that the City ofEdmonton building inspection department advised me that this is a


significant deficiency and must be corrected for which a buildingpermit will be required, as there has never been a permit issued forstructural alterations. The only record they have on file, as far asbuilding permits are concerned, is for installing a bay window, whichwas issued on August 22, 2008. Confirmation of that is attached.

With regard to the electrical rewiring of the house, I am of the opin-ion that the service amperage to the house should have been assessedby the person(s) who quoted and recommended the installation of theelectric water heater. My understanding of the proposal/contract isthat all of the electrical work needed to accommodate the appliances,lights, and rerouting of wires, is included in the total price. It is un-derstandable that some unforeseen issues often come about with elec-trical wiring as renovations progress resulting in additional costs;however it is normal practice when quoting installation of appliancesthat will require more electricity than that of current components inuse, the amount of available power (volts/amps) must be determinedand compared with the added demand modifications such as replac-ing a gas fired hot water heater with the electric type described in theproposal/contract.

It appears that The Renovation Store failed to take into considerationthat the electrical service needed to be upgraded from 70 amps to 100amps for the added power demanded by the electric water heater andpresented the McKerchers with a change order in the amount of$11,948.49, dated February 29, 2008. It should be noted that thechange order states that the house must be rewired, which is false anddeceiving. The only changes needed for operating the electric waterheater was the service entrance at an average cost of $3,500.00 and,since it has been removed, the added cost of upgrading the serviceentrance was unnecessary as well.

28 Mr. Schectel’s estimated costs to rectify the major deficiencies isfound at page 8 of his report:

• Repair second floor structures over the kitchen $ 12,000.00area in compliance with Alberta Safety Code re-quirements and complete all casing and trim• Install handrail to basement stairs $ 400.00• Supply heat duct to bay window area of living $ 800.00room• Install bracket support under bay window of din- $ 1,000.00ing room• Install flashing and proper trim to south facing $ 700.00windows


• Reinforce electrical service mast $ 400.00• Provide backing support for shower curtain rod $ 600.00

TOTAL $ 15,900.00• Add quote from Quinn’s Plumbing to rectify $ 564.00plumbing

29 The McKerchers retained Quinn’s Plumbing & Heating Ltd to repairthe plumbing issues. This company was called to the home on May 4,2009 to look at the water heater as there was no hot water. The reportprepared by Quinn’s details installation problems such that it was neces-sary to shut the gas-fueled heater down for safety reasons and replace theheater. Though the initial quote was $564.00, the invoices dated May 4,2009 amount to $6,611.85 ($2,262.75 plus $4,349.10).

30 Of the many deficiencies that Mr. Schechtel attested to, he was partic-ularly concerned about the lack of any building permits from the City;about the improper installation of the water heater that was repaired byQuinn’s; about the removal of supporting walls on the main floor thatresulted in structural problems including a sagging floor in the bedroom;and the installation of the bay window installed without a permit properexterior supports, or a heating vent. He also testified that the change or-der purporting to require the rewiring the house was excessive and un-necessary. He noted that the report from the City of Edmonton buildinginspector dated August 25, 2008, directed a new building permit to detailall construction components, and a report from a structural engineer.

31 In questioning, Mr. Keehn agreed that he did not obtain permits forthe McKercher renovation, and that he did not have an inspection by theCity of Edmonton. He also agreed that the walls were not primed so as toseal them before painting. He acknowledged not fixing cracks in thestone floors or dealing with the issues about the stone flooring.

32 Mr. Schechtel testified that the costs to rectify the problems wouldincrease by 3% each year after his report was completed. Presumably thisis due to inflation.

IV. Law33 The common law of contract and the FTA apply in this action. The

FTA is comprehensive legislation aimed at protecting consumers. Asnoted by Jeffrey J in Patel v. W.G. Housing Ltd., 2012 ABQB 734 (Alta.Q.B.), “The legislative purposes of the FTA have been found to ‘protectunsuspecting consumers from unconscientious suppliers of goods and


services’” (at para 170, citations omitted). This Act contains significantconsequences for unconscientious suppliers, including punitive or exem-plary damages.

V. Analysis34 The Plaintiffs claim breach of contract. They also claim breach of the

FTA. I will address each separately.

A. Breach of the Contract35 The original contract was for the sum of $96,000. The written part of

the contract does not specify who the parties of the contract are, thoughThe Renovation Store is on the letterhead. Because of my findings thatthe contract consisted of oral terms in addition to the written terms andthat Mr. Keehn’s representations formed part of the contract, I find thatthe parties to the contract are Barry McKercher, Jeri McKercher, TheRenovation Store, and Mr. Keehn. I further find the contract to be a validand enforceable agreement.

36 The McKerchers paid the Defendants $72,000 of the total amount.The promised renovation was not provided and not completed. Simplystated, the Defendants did not fulfill their part of the bargain.

37 The Counterclaim for the balance of the contract price was not prose-cuted and hence, this Court dismisses it. The Renovation Store and Mr.Keehn failed to attend at trial and did not defend against the Plaintiffs’claims.

38 I am satisfied that the McKerchers have proved on a balance ofprobabilities that the Defendants breached the contract by failing to pro-vide the below elements of the renovation as promised. Alternatively,where the elements were provided, they were done in a substandard fash-ion, with deficient and poor workmanship:

• the appliances as agreed, with a narrow and deep refrigerator to fitthe renovated space; a two-bowl stainless steel sink, and windowboxes;

• the open concept living space as agreed; instead, removing twosupport walls so that the structure of the second floor was compro-mised and the bedroom floor slopes;

• a usable shower in the bedroom or a suitable counter space andbacksplash around the bathroom sink;


• a stone floor of a quality and colour agreed upon between theparties;

• a functional water heater, such that necessarily the heater was re-placed; and

• a bay window with proper exterior supports and a heating duct.39 The McKerchers have also proved that the Defendants used agents,

employees, sub-contractors, and labourers who were not duly licensed orskilled and failed to perform work in a good and workmanlike mannerusing superior materials and skilled workers. The Defendants furtherfailed to obtain the necessary permits before commencing the renovation;indeed, the permits were never obtained.

40 I conclude that the McKerchers have proved their claims with respectto the breach of contract.

41 The Plaintiffs claim costs for remediation of the deficiencies and theDefendants’ various errors in performing the contract. Of the costs thatare claimed for remediation, as listed at para 28 above, I conclude that allhave been proved except the amount of $564 included in the Quinn’squote. I find that amount to be subsumed in the Quinn’s account that waspaid in full.

42 I also conclude that the costs to replace the tiles and the wrongly-sized windows have been proved.

B. Breach of the Fair Trading Act43 The McKerchers have also brought a claim for breach of the FTA.

Under the s 1 definitions, I find that the McKerchers are consumers, andThe Renovation Store and Mr. Keehn are each suppliers of services. Ifurther find that the contract is a transaction for the provision of servicesthat involved the “alteration of a residential dwelling”.

44 By the terms of s 6(4), unfair practices include “a supplier’s represen-tation that goods or services are of a particular standard, quality, grade,style or model if they are not” (s 6(4)(e)); “a supplier’s representationthat goods or services will be supplied within a stated period if the sup-plier knows or ought to know that they will not” (s 6(4)(n)); and “a sup-plier’s representation that a part, replacement, repair or adjustment isneeded or desirable if it is not” (s 6(4)(p)).

45 Section 7 allows consumers to cancel the contract if a supplier en-gaged in unfair practices. This section specifically entitles consumers toany remedy that is available at law, including damages. Section 7.1 re-


quires the consumer to “give notice within one year of a supplier havingbeen found to have engaged in an unfair practice” to be able to access theremedies outlined in ss 7(1)-(3). If the consumer does not do this withinthe one-year period, the Court may, nonetheless, disregard the s 7.1 re-quirement “if the Court considers that it is in the interest of justice to doso” (s 7.2(3)).

46 Under s 7.2(1), the Court may award exemplary or punitive damagesas well as any other remedy it considers proper. Section 7.2(2) permitsoral evidence respecting the unfair practice despite the existence of awritten agreement, and though it pertains to a representation concerninga term not provided for in the agreement. Under s 7.3, each “... personwho engages in an unfair practice is jointly and severally liable with thesupplier who entered into a consumer transaction that was subject to theunfair practice with a consumer for any amount to which the consumerfor any amount to which the consumer is entitled under section 7 or 7.2.”

47 Additionally, s 13 provides that a consumer may commence an actionin this Court for relief from damage or loss against any supplier or anyprincipal, director, manager, employee or agent of a supplier who en-gaged in or acquiesced in the unfair practice that has caused the damageor loss. This section also delineates that the Court may declare that apractice is an unfair practice; award damages for damage or loss suf-fered; award punitive or exemplary damages, grant any relief the Courtconsiders proper, and award costs in accordance with the Alberta Rulesof Court, AR 124/2010 (Rules).

48 Section 13(3) mandates that when determining whether to grant anyrelief under s 13, the Court must consider whether the consumer made areasonable effort to minimize any damages resulting from an unfair prac-tice and to resolve the dispute with the supplier before commencing anaction.

49 I find that The Renovation Store and its principal, Mr. Keehn,breached s 6(4) of the FTA. The Defendants made representations thatthe goods or services would be provided by skilled tradesmen, and thoseparticular models of appliances, fixtures, and flooring would be pro-vided, but they failed to do so. They made representations to the McK-erchers that the work would be done within a reasonable time, but ex-ceeded the time frame by many months, causing great inconvenience tothem and disruption to their lives, and for some of the contracted renova-tions, did not ever complete them. Finally, they represented to the McK-erchers that a particular alteration — the re-wiring of the house — was


needed, rather than a more modest electrical upgrade. I am satisfied onthe whole of the evidence that the re-wiring of the entire house was un-necessary. I find that the Defendants’ representations were unfair prac-tices. Since both Defendants engaged in unfair practices, both are jointlyand severally liable under s 7.3. Even if I am wrong that Mr. Keehn per-sonally engaged in unfair practices, because he is the principal and direc-tor of The Renovation Store, he is liable by virtue of s 13(1).

50 What is not clear on the evidence is whether the McKerchers satisfiedthe notice requirement under s 7.1. The problems with the renovation(and incidentally, an awareness of the problems with the Defendants’representations about the renovations) surfaced in the spring and summerof 2008. They would have known of significant issues when the Defend-ants or their agents, sub-contractors, employees or labourers stoppedworking at their home on or about August 25, 2008.

51 The McKerchers’ original Statement of Claim was filed on March 24,2009 and the Defendants filed their original Statement of Defence onMay 22, 2009. This was likely within the one-year period contemplatedby s 7.1. However, the original Statement of Claim makes no mention ofunfair practices or the FTA. This leaves me with some doubt as towhether the s 7.1 notice requirement was met. However, given the seri-ousness and magnitude of the deficiencies, together with the Defendants’complete abrogation of responsibilities to fulfill the contract I concludethat it is in the interests of justice for this Court to disregard the noticerequirement as authorized by s 7.2(3).

52 Turning now to the s 13(3) considerations, I find that the McKerchersmade reasonable efforts to minimize damage resulting from the Defend-ants’ unfair practices. They did so by living in their garage in the summerof 2008, and repeatedly asking the Defendants to remedy the deficien-cies. They sought an opinion from Mr. Schechtel as to the cost of repair-ing the major deficiencies and received quotes to replace the tiles andwrongly-sized windows. Unfortunately for them, they have been unableto remediate much of the damage the Defendants caused due to a lack offunds. However, the FTA does not require them to remediate the damage,just to make reasonable efforts to minimize it. I am satisfied that theyhave fulfilled their responsibility. The McKerchers also undertook manyefforts to resolve their dispute with the Defendants before commencingthis action. They have satisfied their obligations under s 13(3).


C. Damages53 The McKerchers have proven their claims in breach of contract and

breach of the Fair Trading Act. Therefore, they are entitled to damages.Having made these findings, I must now determine the quantum of dam-ages available to the McKerchers.

i. Special Damages54 In his oral evidence, Mr. Schechtel testified that the cost to repair the

major deficiencies outlined in his September 2012 report (and repeated atpara 28 above) should be increased by 3% per year to reflect the in-creased costs in today’s dollars. I accept this. Therefore, the sum of$15,900 is to be increased by 9% (i.e. 3% per year for each of the threeyears from the date of his report to the commencement of the trial). TheMcKerchers are entitled to special damages for the deficiencies outlinedin Mr. Schechtel’s report in the total sum of $17,331.

55 The McKerchers are entitled to be recompensed for the amount paidto Quinn’s for the plumbing and heating services required to repair andcomplete some of the deficiencies, which I have found to total $6,611.85.They are further entitled to the cost to replace the tiles in the sum of$11,380.52 and the cost to replace the wrongly-sized windows in the sumof $3,711.75.

ii. General Damages56 Counsel for the McKerchers argued that in this case, given the ex-

treme problems with the renovation, and given the mental distress causedparticularly to Ms. McKercher, an award of $25,000 damages for mentaldistress ought to be awarded.

57 The evidence shows that the McKerchers lived in their modest homefor almost four decades without notable improvements. As they ap-proached retirement, rather than move to a newer home, they decided tobring a contemporary new design to their home by doing an extensiverenovation. Ms. McKercher invested a great deal of time and energy inthe project and had agreed to pay a large amount of money ($96,000) toachieve her dream home.

58 The evidence also shows that Ms. McKercher is a woman of taste andhas certain style standards. She was not content with low quality substi-tutes for the design elements that she had been promised and was entitledto receive. Instead, The Renovation Store and its principal failed to pro-


vide the appliances, fixtures, structural improvements, and finishing’s aspromised or in some cases, at all.

59 The renovation was to be completed within a month of the McK-erchers leaving the home for that purpose in December of 2007; instead,they moved back in March of 2008, having to pay rent while the housewas under construction. Even then, it was not finished. There continuedto be problems: the upstairs bathroom was without a shower or counterand there were no appliances in place. These problems resulted in themstaying in their garage over the summer of 2008.

60 Ms. McKercher has proved that she suffered anxiety and stresscaused by the failure of Mr. Keehn and/or The Renovation Store to ob-tain building permits from the City of Edmonton. The Defendants keptpressing for more money though the renovation was proceeding so badlyor not at all. The work was never completed, and the structural, as wellas finishing, deficiencies remain to this day.

61 Ms. McKercher loved her home. I find that she did not want to buyanother home when the time arrived to plan for improvements that wouldsee the couple into retirement. She takes great pride in being a home-maker and in ensuring that her home is in order, clean and ready forfamily activities. Her home has not been in order now for eight years.The renovation and its aftermath affected Ms. McKercher’s job. She be-came increasingly anxious and was diagnosed with an anxiety disorder.She saw a psychologist for a period of three years, three times a week atthe outset and then once a week. Her physicians, a family doctor and apsychiatrist, prescribed Xanax. She missed almost two years of work.Ms. McKercher’s work involves helping blind children, an occupationthat undoubtedly requires patience and focus.

62 Ms. McKercher provided convincing evidence of her mental distressand frustration occasioned by her dealings with the Defendants. She didnot obtain the workmanship or the product that was promised to her bythe terms of the contract. She presented as a fastidious and conscientiousperson with reasonable expectations for her version of a dream home.Instead, she had a nightmare renovation where the Defendants providedsubstandard and wrong services and products. Moreover, The Renova-tion Store and its principal caused substantial damage that remains. Thecouple has not been able to afford repairs of the damage and rectificationof the deficiencies.

63 Though damages for mental distress were traditionally not recover-able in contract, that principle began to change by the innovation of Lord


Denning. The Supreme Court of Canada traces the history of the rule inFidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30 (S.C.C.), atparas 27 to 44. Specifically at paras 44-47, the Supreme Court stated:

44 We conclude that damages for mental distress for breach of con-tract may, in appropriate cases, be awarded as an application of theprinciple in Hadley v Baxendale: see Vorvis. The court should ask“what did the contract promise?” and provide compensation for thosepromises. ... The measure of these damages is, of course, subject toremoteness principles. There is no reason why this should not includedamages for mental distress, where such damages were in the reason-able contemplation of the parties at the time the contract was made.This conclusion follows from the basic principle of compensatorycontractual damages: that the parties are to be restored to the positionthey contracted for, whether tangible or intangible.

45 It does not follow, however, that all mental distress associatedwith a breach of contract is compensable. In normal commercial con-tracts, the likelihood of a breach of contract causing mental distress isnot ordinarily within the reasonable contemplation of the parties. It isnot unusual that a breach of contract will leave the wronged partyfeeling frustrated or angry. The law does not award damages for suchincidental frustration. The matter is otherwise, however, when theparties enter into a contract, an object of which is to secure a particu-lar psychological benefit. In such a case, damages arising from suchmental distress should in principle be recoverable where they are es-tablished on the evidence and shown to have been within the reason-able contemplation of the parties at the time the contract was made....

. . .

47 This does not obviate the requirement that a plaintiff prove his orher loss. The court must be satisfied: (1) that an object of the contractwas to secure a psychological benefit that brings mental distress uponbreach within the reasonable contemplation of the parties; and (2)that the degree of mental suffering caused by the breach was of adegree sufficient to warrant compensation. These questions requiresensitivity to the particular facts of each case.

64 In Bortolussi v. Busselton Construction Ltd., 2013 BCSC 475 (B.C.S.C.), Weatherill J awarded damages for breach of contract in respect ofa construction contract for a pool, spa, and back yard improvements. Thecompany did not defend. The Court described the company’s perform-ance as a disaster, the workers inept, the project delayed, the foreman


incompetent, and the shoddy. He awarded Ms. Bortolussi general dam-ages in the sum of $20,000, stating, at para 34:

34 The law is also well-settled that non-pecuniary losses arising frombreach of contract are compensable, including complaints of physicalinconvenience or emotional distress, so long as that loss is foresee-able: Fidler at para. 31. Here, the complaints of the plaintiff go be-yond mere disappointment. She must live with permanent deficien-cies in what was intended to be her dream backyard pool and spa.General damages have been awarded in such circumstances: Mundellv Wesbild Holdings Ltd, 2007 BCSC 1326 at para 86; Erskine vMacArthur, [2000] OJ No 462, 2000 CarswellOnt 431 at para 20,cited with approval by Mr. Justice Cullity in Tucci v City ConceptsConstruction Ltd, [2000] OJ No 1723, 2000 CarswellOnt 1753 atpara 15.

65 As noted in Bortolussi, another case of an unfortunate renovation isTucci v. City Concepts Construction Ltd. (2000), 2 C.L.R. (3d) 291,[2000] O.J. No. 1723 (Ont. S.C.J.). The work was to be completed byJuly 1999 but was not yet finished by the date of hearing, May 2000. Abuilding inspector testified as to the long list of deficiencies that wouldcost $66,000 to repair. The company did not defend and was noted indefault. Considering the degree of inconvenience, loss of enjoyment andemotional distress caused by the company’s substandard performance,and the period of months it continued, the court awarded $15,000 formental distress damages for the renovation gone wrong.

66 In Taylor v. Gill [1991 CarswellAlta 28 (Alta. Q.B.)], 1991 CanLII5817, Deyell J awarded mental distress damages for a real estate transac-tion where the vendors relied on an unconditional offer to enter anotherreal estate transaction. The Court set out a number of considerations atpara 44. There, the Court considered that the claimant suffered more than“vexation, frustration, distress and anxiety”; rather she was too ill to at-tend work on a number of occasions. She broke out in hives, and exper-ienced facial swelling, all evidence of mental distress caused by thebreach of contract of the proposed purchasers. The Court awarded $7,500for mental suffering in that case.

67 I note parenthetically that the considerations that Deyell J laid out inTaylor have been overtaken by the Supreme Court ruling in Fidler. How-ever, in my view the principles described continue to apply, as does theavailability of general damages for mental distress.

68 Adverting to the considerations set out in Fidler at para 47, I am sat-isfied that an object of this renovation contract was to secure a psycho-


logical benefit that brought mental distress upon breach within the rea-sonable contemplation of the parties and the degree of mental distresscaused by the breach was of a degree sufficient to warrant compensation.

69 The McKerchers are entitled to be recompensed for the damagecaused to their home and deficiencies in the performance of the renova-tion contract, as well as damages for the emotional harm occasioned bythe breach of contract.

70 As a result of this renovation fiasco, the mental distress suffered byMs. McKercher should be recompensed by a general damages award of$20,000.

iii. Punitive or Exemplary Damages71 Under s 13(2)(c) of the FTA, the Court may award punitive or exem-

plary damages in addition to any other remedy available.72 In Whiten v. Pilot Insurance Co., 2002 SCC 18 (S.C.C.), the Supreme

Court of Canada described the test for punitive damages at para 36: 36 Punitive damages are awarded against a defendant in exceptionalcases for “malicious, oppressive and high-handed” misconduct that“offends the court’s sense of decency”: Hill v Church of Scientologyof Toronto, [1995] 2 SCR 1130 (SCC), at para 196. The test thuslimits the award to misconduct that represents a marked departurefrom ordinary standards of decent behaviour...

73 On the whole of the evidence, the Defendants’ conduct towards theMcKerchers and their approach to the renovations represent a markeddeparture from the ordinary standards of behaviour that this Court ex-pects from renovation contractors. I am particularly troubled by the De-fendants’ removal of a load-bearing wall without any consideration ofthe effect of that act or consultation with engineers or other experts.Moreover, the Defendants’ irresponsible actions in failing to get properbuilding permits and, in fact, misrepresenting to the City of Edmontonthe type of work they were doing in getting the one permit for windowreplacement offends the Court’s sense of decency.

74 This action is not one of disagreement over finishing touches or extraexpenses. The Defendants have left the McKerchers’ home in a state ofshambles. They have spent significant sums of money and are left withan unfinished home, requiring further major and costly repairs.

75 Accordingly, I award punitive damages in the sum of $10,000 againstthe Defendants.


76 Another possible basis for awarding punitive damages has to do withthe Defendants requiring the McKerchers to pay some of the constructioncosts up front, which I find they did. This type of contract is referred toas a “prepaid contract” in s 5(2) of the Designation of Trades and Busi-nesses Regulation, AR 178/99. Part 10 of the FTA requires any prepaidcontracting business to be licensed. The FTA also provides consequencesfor failure to hold the proper license.

77 In this case, the evidence is not clear whether the Defendants held theproper license for a prepaid contracting business. Therefore, I decline toaward additional punitive or exemplary damages on that basis. Evidencethat they did not hold the requisite license likely would have resulted inincreased punitive damages.

VI. Non-compliance with the FTA78 On the strength of this Court’s decision, and in particular the Court’s

findings of the Defendants’ non-compliance with s 6 of the FTA, theCourt encourages the McKerchers to notify the Director of Fair Tradingat Service Alberta. This might spare other unsuspecting homeownersfrom finding themselves in a similarly unfortunate mess.

VII. Conclusion and Costs79 The McKerchers are entitled to damages for breach of contract and

breach of the FTA, as set out in this decision. They are also entitled topre-judgment interest under the Judgment Interest Act, RSA 2000 c J-1.The Renovation Store and Mr. Keehn are jointly and severally liableunder the provisions of the FTA.

80 Part 10, Division 2 of the Rules governs costs. Trial judges have awide discretion to award costs: Stagg v. Condominium Plan 882-2999,2013 ABQB 684 (Alta. Q.B.) at para 20. That discretion must be exer-cised judicially and in accordance with established principles: Lamemanv. Alberta, 2011 ABQB 532 (Alta. Q.B.) at para 6. Often, costs areawarded in accordance with Schedule C of the Rules, though as the Al-berta Court of Appeal noted, “Schedule C is a purely-optional rubberstamp for a judge, who may use it or not, or amend it, as he or she seesfit”: Hill v. Hill, 2013 ABCA 313 (Alta. C.A.) at para 38. Litigation mis-conduct may be the basis for elevated costs: r 10.33(2)(g); Malton v. At-tia, 2015 ABQB 430 (Alta. Q.B.).

81 The McKerchers advanced a formal offer of settlement in the sum of$100,000 on August 8, 2013 under r 4.24. They did not best that offer.


Therefore, they do not qualify for double costs under r 4.29. They alsoseek costs on a solicitor-client basis. I decline to do so since there isalready an order for punitive damages.

82 However, the Defendants’ refusal to set this matter down for trial af-ter they filed a Statement of Defence and Counterclaim and participatedin questioning resulted in delay and the necessity for additional courtproceedings. Moreover, they did not participate in this trial. Parties whoengage in litigation cannot simply ignore part of the process, especiallywhen that part is trial. In my view, this is litigation misconduct and it isto a sufficient degree so as to attract double Column 2 costs, on a jointand several basis.

Action allowed.


[Indexed as: Nasjjec Investments Ltd. v. Nuyork InvestmentsLtd.]

Nasjjec Investments Limited, Applicant and Nuyork InvestmentsLimited, Nuyork Trust and 20 King West Investments,

Respondents

Nuyork Investments Limited Nuyork Trust, Applicants andNasjjec Investments Limited, Nasjjec Trust, 20 King West

Investments and 1597180 Ontario Inc., Respondents

Nasjec Investments Limited and 1597180 Ontario Inc.,Applicants and Nuyork Investments Limited, Nuyork Trust and

20 King West Investments, Respondents

Ontario Superior Court of Justice [Commercial List]

Docket: CV-15-10916-00CL, CV-15-10914-00CL, CV-15-11083CL

2015 ONSC 4978

L.A. Pattillo J.

Heard: March 25; August 6; October 19, 2015

Judgment: November 6, 2015*

Alternative dispute resolution –––– Appeal from arbitration awards — Gen-eral principles –––– Partnership agreement between parties contained arbitrationclause — Parties agreed that partnership could no longer continue and partiesretained arbitrator to determine terms on which partnership should be dis-solved — Arbitrator held hearings and issued awards — Applicant sought to setaside arbitration awards — Respondent sought to enforce arbitrator’s awardsand to seal portion of record — Applicant’s application dismissed; respondent’sapplication granted — Applicant failed to establish arbitrator breached obliga-tions in ss. 19 and 46 of Arbitration Act (“Act”) concerning fairness, equalityand jurisdiction — Applicant had notice of issues and was given full opportunityto present its case and make submissions — There was nothing in award thatraised concern that arbitrator treated applicant unfairly or unequally — Appli-cant did not establish any jurisdictional error arising from award — Raising lostopportunity issue without request of either party did not exceed arbitrator’s ju-risdiction — Arbitrator raised issue of lost chance with parties and requested

* A corrigendum issued by the court on December 1, 2015 has been incorpo-rated herein.

Nasjjec Investments Ltd. v. Nuyork Investments Ltd. 183

submissions from them on it, he review submissions and determined lost chanceapplied — Having regard to wording of arbitration clause, awards were all finaland binding and no appeals lay pursuant to s. 45 of Act — Applicant failed toestablish there was procedural unfairness or breach of natural justice by arbitra-tor in determining costs — Applicant sought to reargue its costs submissions,which it was not permitted to do — Arbitrator’s decision not to admit fresh evi-dence was procedural decision and was immune from review under Act —There was no reasonable apprehension of bias on part of arbitrator.

Business associations –––– Changes to corporate status — Loss of corporatestatus — Dissolution — Property of dissolved corporation.

Cases considered by L.A. Pattillo J.:

Committee for Justice & Liberty v. Canada (National Energy Board) (1976),[1978] 1 S.C.R. 369, 68 D.L.R. (3d) 716, 9 N.R. 115, 1976 CarswellNat 434,1976 CarswellNat 434F, [1976] S.C.J. No. 118, [1976] A.C.S. No. 118(S.C.C.) — followed

Credifinance Securities Ltd., Re (2011), 2011 ONCA 160, 2011 CarswellOnt1218, 74 C.B.R. (5th) 161, (sub nom. DSLC Capital Corp. v. CredifinanceSecurities Ltd.) 277 O.A.C. 377, [2011] O.J. No. 894 (Ont. C.A.) —considered

Folland v. Reardon (2005), 2005 CarswellOnt 232, [2005] O.J. No. 216, (subnom. G.F. v. Reardon) 194 O.A.C. 201, 249 D.L.R. (4th) 167, 28 C.C.L.T.(3d) 1, 74 O.R. (3d) 688 (Ont. C.A.) — followed

Hercus v. Hercus (2001), 2001 CarswellOnt 452, [2001] O.J. No. 534, [2001]O.T.C. 108 (Ont. S.C.J.) — considered

Inforica Inc. v. CGI Information Systems & Management Consultants Inc.(2009), 2009 ONCA 642, 2009 CarswellOnt 5276, 97 O.R. (3d) 161, 254O.A.C. 117, 97 Admin. L.R. (4th) 159, 80 C.P.C. (6th) 197, 311 D.L.R. (4th)728, [2009] O.J. No. 3747 (Ont. C.A.) — considered

Kucyi v. Kucyi (2005), 2005 CarswellOnt 7579, 206 O.A.C. 113, 25 R.F.L. (6th)49, [2005] O.J. No. 5626 (Ont. Div. Ct.) — referred to

L.I.U.N.A., Local 183 v. Carpenters & Allied Workers, Local 27 (1997), 101O.A.C. 230, 34 O.R. (3d) 472, 97 C.L.L.C. 220-057, 1997 CarswellOnt2605, [1997] O.J. No. 2649 (Ont. C.A.) — considered

Law Society of Upper Canada v. Mazzucco (2009), 2009 CarswellOnt 4698, 50E.T.R. (3d) 203 (Ont. S.C.J.) — considered

National Ballet of Canada v. Glasco (2000), 2000 CarswellOnt 1974, 186D.L.R. (4th) 347, 49 O.R. (3d) 230, 3 C.C.E.L. (3d) 141, [2000] O.J. No.2083 (Ont. S.C.J.) — considered

New Brunswick (Board of Management) v. Dunsmuir (2008), 2008 SCC 9, 2008CarswellNB 124, 2008 CarswellNB 125, D.T.E. 2008T-223, [2008] S.C.J.No. 9, (sub nom. Dunsmuir v. New Brunswick) 2008 C.L.L.C. 220-020, 64C.C.E.L. (3d) 1, 69 Imm. L.R. (3d) 1, 69 Admin. L.R. (4th) 1, 372 N.R. 1,


(sub nom. Dunsmuir v. New Brunswick) 170 L.A.C. (4th) 1, (sub nom.Dunsmuir v. New Brunswick) 291 D.L.R. (4th) 577, [2008] A.C.S. No. 9,329 N.B.R. (2d) 1, (sub nom. Dunsmuir v. New Brunswick) [2008] 1 S.C.R.190, 844 A.P.R. 1, (sub nom. Dunsmuir v. New Brunswick) 95 L.C.R. 65,2008 CSC 9 (S.C.C.) — considered

Piazza Family Trust v. Veillette (2011), 2011 ONSC 2820, 2011 CarswellOnt3061, 279 O.A.C. 175 (Ont. Div. Ct.) — referred to

Senjule v. Law Society of Upper Canada (2013), 2013 ONSC 2817, 2013 Cars-wellOnt 6668, 309 O.A.C. 1 (Ont. Div. Ct.) — considered

Sierra Club of Canada v. Canada (Minister of Finance) (2002), 2002 SCC 41,2002 CarswellNat 822, 2002 CarswellNat 823, (sub nom. Atomic Energy ofCanada Ltd. v. Sierra Club of Canada) 211 D.L.R. (4th) 193, (sub nom.Atomic Energy of Canada Ltd. v. Sierra Club of Canada) 18 C.P.R. (4th) 1,44 C.E.L.R. (N.S.) 161, 287 N.R. 203, 20 C.P.C. (5th) 1, 40 Admin. L.R.(3d) 1, (sub nom. Atomic Energy of Canada Ltd. v. Sierra Club of Canada)93 C.R.R. (2d) 219, [2002] S.C.J. No. 42, 223 F.T.R. 137 (note), [2002] 2S.C.R. 522, REJB 2002-30902, 2002 CSC 41 (S.C.C.) — followed

Volochay v. College of Massage Therapists of Ontario (2012), 2012 ONCA 541,2012 CarswellOnt 10146, 40 Admin. L.R. (5th) 307, 111 O.R. (3d) 561, 295O.A.C. 164, 355 D.L.R. (4th) 518, [2012] O.J. No. 3871 (Ont. C.A.) —considered

Webster v. Wendt (2001), 2001 CarswellOnt 519, 3 C.P.C. (5th) 378, [2001]O.T.C. 117, [2001] O.J. No. 622 (Ont. S.C.J.) — considered

Weisz v. Four Seasons Holdings Inc. (2010), 2010 ONSC 4456, 2010 Carswell-Ont 6404, 103 O.R. (3d) 783 (Ont. S.C.J.) — considered


Arbitration Act, 1991, S.O. 1991, c. 17Generally — referred tos. 3 — considereds. 5(4) — considereds. 17(3) — considereds. 17(5) — referred tos. 19 — considereds. 19(1) — considereds. 19(2) — considereds. 45 — considereds. 45(1) — considereds. 46 — considereds. 46(1) ¶ 3 — considereds. 46(1) ¶ 6 — considereds. 50 — considereds. 54 — referred to

Nasjjec Investments Ltd. v. Nuyork Investments Ltd. L.A. Pattillo J. 185

Courts of Justice Act, R.S.O. 1990, c. C.43s. 137(2) — considered

Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)Generally — referred tos. 98(2) — considereds. 98(3) — considereds. 98(4) — considereds. 98(5) — considereds. 98(5)(g) — considereds. 245 — considered

Partition Act, R.S.O. 1990, c. P.4Generally — referred to

Partnerships Act, R.S.O. 1990, c. P.5Generally — referred tos. 35(1)(f) — considered

Rules considered:

Rules of Civil Procedure, R.R.O. 1990, Reg. 194R. 49 — referred toR. 49.13 — consideredR. 57.01 — consideredR. 57.01(1) — consideredR. 57.01(1)(e) — referred to

APPLICATION by applicant seeking to set aside arbitration awards; APPLICA-TION by respondent to enforce arbitrator’s awards and to seal portion of record.

Gregory M. Sidlofsky, for ApplicantAaron Blumenfeld, Robert Wood, Ewa Krajewska, for Respondents

L.A. Pattillo J.:

Introduction1 The Applicant, Nasjjec Investments Limited (“Nasjjec”) has com-

menced two applications seeking, pursuant to s. 46 of the ArbitrationAct, 1991, S.O. 1991, c. 17 (the “Act”) to set aside various awards issuedby the Honourable Coulter Osborne, sitting as an arbitrator (the “Arbitra-tor”) and in the alternative, leave to appeal on a question of law pursuantto s. 45 of the Act.

2 In turn, the Respondent Nuyork Investments Limited (“Nuyork”) hascommenced a cross-application for an order enforcing the Arbitrator’sawards pursuant to s. 50 of the Act and sealing portions of the record.


3 For the reasons that follow, Nasjjec’s applications are dismissed intheir entirety and Nuyork’s application seeking enforcement of theawards and sealing of part of the record is allowed.

4 Nasjjec has failed to establish that there was any breach by the Arbi-trator of the obligations contained in ss. 19 and 46 of the Act concerningfairness, equality and jurisdiction. Further, having regard to the wordingof the arbitration clause, the awards in issue are all final and binding andno appeal lies pursuant to s. 45 of the Act.

Overview5 The arbitration took place pursuant to an arbitration clause in a Part-

nership Agreement dated October 30, 2001 between Nasjjec and Nuyork(the “Partnership Agreement”).

6 The Partnership Agreement provides, among other things, that Nasj-jec and Nuyork are equal partners in the respondent 20 King Street WestInvestments, (the “Partnership”) which operates a commercial officebuilding located at 20 King Street West, in Toronto (the “Property”).

7 In 2012, Nasjjec and Nuyork agreed that the Partnership could nolonger continue. Pursuant to the arbitration clause in the PartnershipAgreement, the parties agreed to retain the Arbitrator in the fall of 2012to determine the terms upon which the Partnership should be dissolved.

8 Following his appointment, the Arbitrator held a number of hearingsdealing with the central issue as to how the Partnership should be dis-solved along with a number of “miscellaneous” interlocutory and proce-dural issues raised by the parties. The result has been the issuance of anumber of awards. At issue in the applications before the court are nineawards, briefly outlined as follows:

1. The award dated March 22, 2013 dealing with confidentiality is-sues (the “March 2013 Interlocutory Award”);

2. The award dated September 11, 2013, in which the Arbitrator de-termined that Nasjjec’s 50% interest in the Property should besold to Nuyork for $44.22 million (the “September 2013 Award”);

3. The award dated December 2, 2014 in which the Arbitrator con-cluded that Nasjjec reneged on an agreement with Nuyork that anytransfer of its interest in the Property to Nuyork would occurunder s. 98(3) of the Income Tax Act (“ITA”). Because the saletransaction would now close under s. 98(5) of the ITA, which wasnot as favorable to Nuyork from a tax point of view, the Arbitrator


determined that there should be a $1.5 million purchase price ad-justment in favour of Nuyork (the “December 2014 Award”);

4. The reference procedural order dated March 24, 2015 addressingthe steps to be taken in respect of Nuyork’s purchase of Nasjjec’s50% interest in the Property as previously ordered (the “March2015 Procedural Award”);

5. The supplementary award dated July 16, 2015 awarding costs ofthe arbitration proceedings to date to Nuyork fixed at $1,007,026(the “Costs Award”);

6. The supplementary award (miscellaneous issues) dated July 16,2015 addressing Nuyork’s motion for an order authorizing it toappoint counsel for the 20 King Partnership to defend a third partyclaim commenced by 159 and for a declaration the Arbitrator hasjurisdiction over the third party claim and Nasjjec’s motion tovary the amount of the purchase price for its 50% interest in theProperty (the July 2015 Miscellaneous Issues Award”);

7. The supplementary award dated July 22, 2015 vacating that partof the July 16, 2015 miscellaneous issues award that dealt withNuyork’s jurisdiction motion (the July 2015 SupplementaryAward”);

8. The supplementary award (miscellaneous) dated July 28, 2015dealing with closing adjustments and clarification of the costsaward; and

9. The supplementary award (recusal and jurisdiction) dated August5, 2015 dismissing Nasjjec’s recusal motion and grantingNuyork’s jurisdiction motion (the August 2015 Recusal and Juris-diction Award”).

The Applications9 On December 30, 2014, Nasjjec commenced application CV-14-

518982 seeking an order setting aside both the September 2013 Awardand the December 2014 Award or in the alternative, leave to appeal. Thatapplication was subsequently transferred to the Commercial List and isnow file number CV-15-10916-00CL.

10 On March 20, 2015, Nuyork commenced application CV-15-10914-00CL seeking, among other things, an order recognizing and enforcingthe Arbitrator’s awards of March 22, 2013, the September 2013 Awardand the December 2014 Award.


11 Finally, Nasjjec along with 1597180 Ontario Inc. (“159”) commencedapplication CV-15-11083-00CL on August 20, 2015 seeking a review ofthe August 2015 Recusal and Jurisdiction Award, an order setting it asideand, in the alternative, a declaration that there was a reasonable appre-hension of bias on the part of the Arbitrator.

12 Nasjjec and Nuyork’s initial application (CV-15-10916-00CL) camebefore me for hearing on March 26, 2015. At the conclusion of the argu-ment, given that the parties had just received the March 24, 2015 proce-dural award and were awaiting the Arbitrator’s cost award, I adjournedthe hearing to be resumed on a date to be set once the Arbitrator hadreleased all of his decisions in order that all of the issues arising from thearbitration could be dealt with in effectively one proceeding rather thanin multiple appeals before different judges.

13 Following the release by the Arbitrator of the Cost Award and theJuly 2015 Miscellaneous Issues Award, the hearing resumed on August6, 2015. At that time, Nasjjec sought to set aside those Awards. As theAugust 2015 Recusal and Jurisdiction Award had just been issued theprevious day, it was not addressed at that time. Nuyork also brought amotion to amend application CV-15-10914-00CL to include the subse-quent awards issued by the Arbitrator.

14 Finally, Nasjjec and 159’s application CV-15-11083-00CL whichseeks to set aside the August 2015 Recusal and Jurisdiction Award wasargued before me on October 19, 2015.

15 These reasons address the issues raised by the parties in each of theapplications.

Background16 In order to provide context for the issues raised in these applications,

I begin by setting out the background facts which are not in dispute.17 Chaim Neuberger came to Canada in the 1940’s after surviving the

Holocaust. He became a very successful property developer, builder andowner of real estate. Mr. Neuberger had two daughters, Edie Neubergerand Myra York, both of whom are married and have children.

18 Mr. Neuberger acquired the Property on October 30, 2001. At thetime of purchase, title to the Property was divided evenly between Nasj-jec and Nuyork, both Ontario companies.

19 In 2002, as a result of a corporate reorganization, Nasjjec becamebeneficially owned by the Nasjjec Trust. Ms. Neuberger is the trustee of


the trust and her five children are the beneficiaries. At the same timeNuyork became beneficially owned by the Nuyork Trust. Ms. York andher husband Joel York are the trustees and the beneficiaries are theirthree adult children.

20 Ms. Neuberger, who is a lawyer, acted on the purchase of the Pro-perty and, as part of her retainer, prepared the Partnership Agreement.From the outset, the Property has been managed by Mr. York through hiscompany RW Management. Mr. York worked with Mr. Neuberger foryears.

21 In 2004, Mr. Neuberger divided his holdings, which were substantial,between two companies, Nuberg & Dale Construction Limited (“Nuberg& Dale”) and 159.

22 Mr. Neuberger died on September 25, 2012.23 In his wills, Mr. Neuberger provided, among other things, for Ms.

Neuberger to have voting control of 159 and Ms. York to have votingcontrol of Neuberg & Dale.

24 A number of disputes arose between Nasjjec and Nuyork concerningthe partnership and the Property. The Arbitrator dealt with a few of themin the September 2013 Award to the extent necessary to deal with hisdecision but noted he did not consider it necessary to itemize all of thedisputes given that the parties had agreed that the Partnership “is irrepa-rably damaged and cannot be repaired.”

Application CV-15-10916-00CL25 As noted, initially Nasjjec sought in this application to set aside the

Arbitrator’s awards of September 11, 2013 and December 2, 2014. Theapplication was subsequently expanded to include the Arbitrator’s sup-plementary awards up to July 16, 2015.

26 In addition, on August 6, 2015, Nasjjec brought a motion in the appli-cation for an order that funds be released to the parties from the Partner-ship or alternatively be distributed to the partners or used to pay inter-company loans.

27 Nasjjec submits that the awards in issue should be set aside on thegrounds that the Arbitrator made errors of jurisdiction (the Act, s. 46(1)3); did not treat Nasjjec equally or fairly (the Act, s. 19 and s. 46(1) 6). Inthe alternative, Nasjjec seeks leave to appeal the awards on a question oflaw (the Act, s. 45(1)).


Preliminary Objection28 Nuyork raises a preliminary objection to Nasjjec’s alternate relief

sought, leave to appeal on a question of law. It submits that an appeal ona question of law is not available to Nasjjec given the wording of thearbitration clause in the Partnership Agreement.

29 Section 45(1) of the Act provides: 45(1) If the arbitration agreement does not deal with appeals on ques-tions of law, a party may appeal an award to the court on a questionof law with leave, which the court shall grant only if it is satisfiedthat,

(a) the importance to the parties of the matters at stake in the ar-bitration justifies an appeal; and

(b) determination of the question of law at issue will significantlyaffect the rights of the parties.

30 The arbitration clause is set out in paragraph 15 of the PartnershipAgreement and provides as follows:

If, at any time during the continuance of the partnership, any dispute,difference or question shall arise between any of the partners or anyof their representatives, touching any transaction of the partnership,or if a dispute difference or question shall arise as to anything con-tained in this Agreement, or as to the rights or liabilities under thisAgreement or otherwise, then every such dispute, difference or ques-tion shall be referred to a single arbitrator, if the said partners agreeon one, otherwise to three arbitrators, one to be appointed by eachparty in writing and the third to be chosen by the first two namedarbitrators before they enter upon the business of the arbitration. Theaward or determination shall be made by the said arbitrator or arbi-trators, which award or determination shall be final and bindingupon the parties hereto, their successors and assigns. The partieshereto agree that they shall resort to this arbitration provision as acondition precedent to commencing an action or application or otherproceeding in a court of competent jurisdiction.

[Emphasis added.]

31 Section 3 of the Act permits parties to an arbitration agreement tovary or exclude any provision in the Act except for certain specific sec-tions. Section 45(1) of the Act is not one of the enumerated sections.Accordingly, the parties can agree to exclude an appeal from an arbitra-tor’s decision on a question of law.

32 In L.I.U.N.A., Local 183 v. Carpenters & Allied Workers, Local 27(1997), 34 O.R. (3d) 472 (Ont. C.A.), the Court held that the parties use


of the words “final and binding” in an arbitration clause, indicates anintention that there would be no right of appeal.

33 Similarly in Weisz v. Four Seasons Holdings Inc. (2010), 103 O.R.(3d) 783 (Ont. S.C.J.), Morawetz J., following L.I.U.N.A., held that thewords “final and binding” in an arbitration clause implicitly excluded aright to appeal the arbitrator’s decision on a question of law pursuant tos. 45 of the Act. See too: Kucyi v. Kucyi, [2005] O.J. No. 5626 (Ont. Div.Ct.) at pars. 12 to 14.

34 Nasjjec submits that the last sentence of paragraph 15 which requiresarbitration before resort to the court reflects the parties intent to proceedto arbitration first and then to the court thereby supporting that there wasno intention to exclude an appeal. As Nuyork points out, however, thelast sentence of paragraph 15 is what is referred to as a Scott v. Av-ery clause and pursuant to s. 5(4) of the Act; such a clause is deemed tobe an arbitration agreement. In my view, it does not support Nasjjec’ssubmission.

35 Having regard to the provisions of the Partnership Agreement as awhole therefore and particularly the arbitration provision at paragraph15, I conclude that the parties intended to exclude the right of appealpursuant to s. 45 of the Act. Accordingly, Nasjjec’s alternative reliefseeking leave to appeal the awards is dismissed.

36 As noted by Finlayson J.A. in L.I.U.N.A. at para. 22, the use of thewords “final and binding” does not necessarily preclude judicial review.In that regard, given ss. 3 and 19 of the Act, an application for judicialreview may be brought pursuant to s. 46 of the Act.

Equality and Fairness37 In the absence of an appeal, Nasjjec’s applications are restricted to

setting aside the various awards of the Arbitrator it complains of pursu-ant to s. 46 of the Act. Specifically, Nasjjec relies on s. 46(1) 3 and 6 aswell as s. 19(1) and (2). Those sections provide:

19(1) In an arbitration, the parties shall be treated equally and fairly.

(2) Each party shall be given an opportunity to present a case and torespond to the other parties’ case.

46(1) On a party’s application, the court may set aside an award onany of the following grounds:

3. The award deals with a dispute that the arbitrationagreement does not cover or contains a decision on a mat-ter that is beyond the scope of the agreement.


6. The applicant was not treated equally and fairly, wasnot given an opportunity to present a case or to respond toanother party’s case, or was not given proper notice of thearbitration or of the appointment of an arbitrator.

a) Equally and Fairly38 The obligation to treat the parties “equally and fairly” in both s. 19(1)

and s. 46(1) 6 of the Act incorporates the requirements of natural justiceand procedural fairness into arbitrations. See: National Ballet of Canadav. Glasco (2000), 49 O.R. (3d) 230 (Ont. S.C.J.). At a minimum, as pro-vided by those sections, it includes the opportunity to present a case andrespond to the other party’s case as well as the right to have notice of thearbitration and the appointment of the arbitrator (s. 19(2) and s. 46(1) 6).

39 In Hercus v. Hercus, [2001] O.J. No. 534 (Ont. S.C.J.), which in-volved an application to set aside an award of a mediator/arbitrator in afamily matter, the court addressed what the Act’s requirement of treatingthe parties equally and fairly consists of. At para. 75 of the decision, thelearned judge stated:

It is settled law that the right to a fair hearing is an independent andunqualified right. Arbitrators must listen fairly to both sides, giveparties a fair opportunity to contradict or correct prejudicial state-ments, not receive evidence from one party behind the back of theother and ensure that the parties know the case they have to meet. Anunbiased appearance is, in itself an essential component of procedu-ral fairness.

40 While the requirements of natural justice extend beyond the basicprinciples set out in the Act, it is important to remember that an arbitra-tion is a more informal process than a court proceeding. Furthermore, itis usually final. In such circumstances, the issue of fairness and equalitymust be considered having regard to the context of the proceeding. Fur-thermore, it is important to ensure that the integrity of the arbitration pro-cess is maintained.

41 The Divisional Court in Senjule v. Law Society of Upper Canada,2013 ONSC 2817 (Ont. Div. Ct.) at para 20 noted that where there is anallegation of a denial of natural justice or procedural fairness, the stan-dard of review does not apply in the usual sense. Rather the court mustdetermine whether the applicant has been denied procedural fairness ornatural justice. If the court determines that has occurred then any result-ing award must be set aside. Accordingly, the standard of review is akinto one of reasonableness.


b) Jurisdiction42 Section 46(1) 3 of the Act concerns the jurisdiction of the arbitrator.

That subsection deals with the authority of the arbitrator as provided bythe arbitration agreement.

43 Nasjjec submits that a breach of the rules of natural justice amountsto an excess of jurisdiction by the Arbitrator. In support of its submis-sion, it relies on National Ballet at para. 21 which was followed inWebster v. Wendt, [2001] O.J. No. 622 (Ont. S.C.J.) at para. 61.

44 In New Brunswick (Board of Management) v. Dunsmuir, 2008 SCC 9,[2008] 1 S.C.R. 190 (S.C.C.) at para. 59, the Court stated that the issue of“jurisdiction” is intended in the narrow sense of whether or not the tribu-nal had the authority to make the inquiry.

45 In the subsequent case of Volochay v. College of Massage Therapistsof Ontario (2012), 111 O.R. (3d) 561 (Ont. C.A.), Laskin J.A. on behalfof the Court, pointed out at para. 58, that a question of procedural fair-ness or natural justice is not a true question of jurisdiction in the narrowsense used in Dunsmuir.

46 In my view, based on its plain wording, s. 46(1) 3 of the Act dealswith jurisdiction in its narrow sense.

47 I turn next to consider each of the Arbitrator’s awards Nasjjec seeksto set aside in application CV-15-10916-00CL and its submissions in thatregard.

The September 2013 Award48 The September 2013 Award addresses the issue of how the Partner-

ship is to be dissolved.49 As a preliminary matter, the Arbitrator held that the Partnership Act

and not the Partition Act govern the remedy related to the issues arisingfrom the dissolution of the Partnership.

50 The Arbitrator then went on to consider the most “just and equitable”way to dissolve the Partnership pursuant to s. 35(1)(f) of the PartnershipAct. At the hearing the following options were submitted by the parties:

1. Nuyork would purchase Nasjjec’s 50% interest in a private sale, ata price to be determined based on the appraised value of 50% orbased on Nuyork’s offer at $44.22 million.

2. Nasjjec’s 50% interest would be put on the market for a publicsale with Nuyork being able to bid on Nasjjec’s 50% interest.


3. Both Nasjjec’s 50% interest and 100% of the Property would beput on the market for public sale. If the bid price for the 50% ofthe Property is lower than half the bid price for 100% of the Pro-perty then Nuyork would have the option of buying Nasjjec’s 50%by paying Nasjjec the difference between the two values.

4. Nasjjec would purchase Nuyork’s interest in the Property for $50million.

5. An auction between the parties.51 The Arbitrator considered the background behind each of the above

proposals. He also considered the reasonable expectations of the parties,assessed in the context of the history of the purchase of the Property, theprovisions of the Partnership Agreement and the reasons for the dissolu-tion of the Partnership. In the end, the Arbitrator concluded that Nuyorkshould not be required to sell its 50% interest in the Property and thatNuyork can maintain its ownership position in the Property without com-promising Nasjjec’s right to receive fair market value for its interest inthe Property.

52 The Arbitrator then proceeded to determine the fair market value ofNasjjec’s 50% interest in the Property. At the hearing, Nuyork called theevidence of Mr. Bruce Andrews, an expert appraiser, that in his opinion,based on an income approach, the fair market value of the Property for a100% interest was $80.4 million and $40.2 million for a 50% interest.Mr. Andrews was further of the opinion that a minority discount was notwarranted. Nuyork also called the evidence of Mr. Peter Senst, a realestate broker with experience in investment properties, who also statedthat a minority discount was not warranted. In response, Nasjjec filed areport from Mr. Vincente Gamboa, also an expert appraiser, valuing theProperty at $104,400,000, also on an income appraoch. Mr. Gamboa didnot testify at the hearing.

53 In addressing the issue of how to value of Nasjjec’s 50% interest, theArbitrator stated at paras. 45 to 48 as follows:

45. What remains to be considered is how to determine the value ofNasjjec’s 50% interest. One obvious option is to expose Nasjjec’sinterest to the market through a reputable broker such as Mr. Senst.Another is an auction. Nasjjec’s clear preference relates to its rela-tively late blooming buy/sell proposal, based on a $100 million fairmarket value for all of the property. In brief, under that proposal,Nasjjec is prepared to buy or sell its interest in 20 King for $50 mil-lion. Mr. Teplitsky described his proposed buy/sell solution to the


remedy issue as the ‘gold standard’ which passes the test of fairnessoverall. In the alternative, Nasjjec proposes that the property be ex-posed to the open market to be sold in the ordinary course, or byauction.

46. In his submissions Mr. Teplitsky contended that a buy/sell resolu-tion (based on a 100% $100 million valuation) or a sale in the openmarket are both preferable to a sale based on the opinions of valua-tors, i.e. appraisers. This may or may not be true in the abstract.However, this is an arbitration in which the fair market value of100% and 50% of 20 King were put in issue. Both sides retained dulyaccredited appraisers, Mr. Andrews for Nuyork and Mr. Gamboa forNasjjec. Both appraisers opined on 20 King’s fair market valuethrough their reports. As noted Mr. Andrews testified at the hearingand was cross-examined. Mr. Gamboa did not testify.

47. In my opinion, both Nuyork and Nasjjec tendered expert ap-praisal evidence as evidence from which I could determine the fairmarket value of 20 King. Indeed, that is why Mr. Andrews and Mr.Gamboa were retained.

48. I think I can take judicial notice of the fact that appraisers arefrequently engaged to determine the fair market value of land. Thatcomes within the ambit of their specialized experience and expertise.There cannot be anything unfair in resort to appraisal evidence. As isthe case with any appraisal evidence, it is open to me to accept all,part or none of the evidence of Mr. Andrews and Mr. Gamboa. It isalso open to me to attach what weight that I think appropriate to theAndrews/Gamboa evidence. What is not open to me is to pretend thatthe appraisal evidence does not exist.

54 The Arbitrator then briefly reviewed Mr. Andrews’ evidence. Hefound Mr. Andrew’s review of his appraisal reports and Mr. Gamboa’sreport to be fair and thorough. The Arbitrator concluded by stating thathe agreed with Mr. Andrews’ central conclusions and preferred his fairmarket value analysis to that of Mr. Gamboa (para. 52).

55 Having concluded that the value of Nasjjec’s 50% interest in the Pro-perty was $40.2 million, the Arbitrator ordered that it would be “just andequitable” for Nuyork to pay Nasjjec $44.8 million for its 50% interest inthe Property given that was what it had offered Nasjjec to purchase itsinterest in the Property.

56 Having concluded that Nuyork should purchase Nasjjec’s 50% inter-est in the Property for $44.8 million, the Arbitrator directed that a refer-ence be held within 30 days from release of the Award to deal with is-sues pertaining to the most efficient way to complete the sale to Nuyork.


Nasjjec’s Position57 Nasjjec submits that the Arbitrator failed to treat it equally and fairly

in respect of the September 2013 Award as follows:

1. In permitting Nuyork to privately buy Nasjjec’s interest in theProperty for $42,750,000 rather than ordering a public sale;

2. By disregarding Nasjjec’s offer to purchase Nuyork’s interest inthe Partnership for $50,000,000;

3. By prohibiting Nasjjec from freely soliciting arm’s length pur-chasers for the Property;

4. By determining, in the absence of any evidence, that Nasjjec couldnot finance the purchase of Nuyork’s interest in the Property for$50 million.

Discussion58 Nasjjec submits that the Arbitrator disregarded its submission that the

fair way to determine the fair market value of the Property should bedetermined by public sale.

59 As can be seen from the above quoted excerpt from the September2013 Award, however, the Arbitrator did not disregard Nasjjec’s submis-sion in that regard. To the contrary, he considered it, along with Nasj-jec’s other submissions concerning how best to determine fair marketvalue and rejected it in favour of determining the fair market value basedon the appraisal evidence from both Nuyork and Nasjjec. He was clearlyentitled to take such an approach.

60 Nasjjec’s submission of utilizing a public sale is based on the caselaw under the Partition Act and Nasjjec’s submission that the PartitionAct applies to the dissolution remedy. That point was argued by it at thehearing and rejected by the Arbitrator who held that the provisions of thePartnership Act governed the dissolution.

61 Similarly, the Arbitrator did not “disregard” Nasjjec’s offer topurchase Nuyork’s interest for $50 million. Rather, he considered it “aspart of the factual matrix” and rejected it for a number of reasons whichhe listed. After setting out the reasons, he stated “it seems to me thatNasjjec’s $50 million offer was an offer that was made for tactical rea-sons...”. In my view, there was more than enough evidence to supportthat finding.

62 One of the reasons the Arbitrator relied on in not accepting Nasjjec’soffer to purchase was his “serious reservations as to Nasjjec’s capacity to


finance the proposed transaction.” In reaching that conclusion, the Arbi-trator referred to evidence of other financial obligations not met by Ms.Neuberger and her failure to provide sufficient evidence of her ability tofinance Nasjjec’s proposed purchase and discharge other financialobligations.

63 Once again, there was evidence before the Arbitrator to support hisfinding concerning Nasjjec’s capacity to finance its offer including Ms.Neuberger’s evidence. It was not a finding based on no evidence.

64 Nuyork’s purchase of Nasjjec’s interest was one of a number of op-tions the parties put before the Arbitrator. In accepting that option, theArbitrator reviewed each of the options proposed by Nasjjec and rejectedthem for the reasons given. In the end, based on the evidence before him,he considered that the most just and equitable way to dissolve the Part-nership was by having Nuyork purchase Nasjjec’s interest. In my view,that decision was reasonable.

65 Nasjjec’s complaint regarding not being permitted by the Arbitratorto freely solicit arm’s length purchasers arises from the March 2013 In-terlocutory Award ordering, among other things, that, except as agreedby the parties in respect of one third party, Nasjjec was prohibited fromdisclosing confidential information about the Property to third parties forthe purpose of soliciting offers on the Property. Nasjjec has not sought toset aside that award. Apart from that, the issue was argued before theArbitrator and his decision was based on the Partnership Agreementwhich contains a confidentiality provision prohibiting the use or disclo-sure of confidential information about the Property to third parties.

66 The Arbitrator considered the evidence before him and rejected Nasj-jec’s submission that the partners had agreed to disclose confidential in-formation about the Property to third parties generally. Contrary to Nasj-jec’s submission that it was the Arbitrator that prohibited Nasjjec fromfreely soliciting arm’s length purchasers, it was the parties that did so bytheir agreement.

67 Based on the above therefore, Nasjjec has failed to establish that theArbitrator breached his obligation to treat Nasjjec equally and fairly asprovided by the Act. Properly characterized, Nasjjec’s submissionsamount to no more than it saying the Arbitrator did not treat it equally orfairly because he found against it on the issues before him. Losing, byitself, does not equate to unfair or unequal treatment.

68 Nasjjec had notice of the issues and was given a full opportunity topresent its case and make submissions. Further, there is nothing in the


September 2013 Award that raises the slightest concern the Arbitratortreated Nasjjec unfairly or unequally within the meaning of those termsin ss. 19 and 46 of the Act in any way whatsoever.

69 Nor has Nasjjec established there are any jurisdictional errors arisingfrom the September 2013 Award. The dissolution of the Partnership andthe issues arising out of it were all issues encompassed by the arbitrationclause in the Partnership Agreement. The Act provides that issues of ju-risdiction must be raised with the arbitrator as soon as the matter is al-leged to be beyond his or her jurisdiction (s. 17(5)). There is no evidencethat Nasjjec raised any jurisdictional issues before the Arbitrator.

The December 2, 2014 Award70 The December 2014 Award addressed a number of issues arising out

of the September 2013 Award ordering the sale to Nuyork of Nasjjec’s50% interest in the Property, including the most efficient way to com-plete the sale under the Income Tax Act (ITA).

71 Nuyork’s position was that while Nasjjec had agreed at the outset toeffect the sale using s. 98(3) of the ITA, after release of the September2013 Award, Nasjjec reneged on the agreement.

72 Nasjjec’s position was that the transaction must be effected using s.98(5)(g) of the ITA. It submitted there was no agreement to use s. 98(3)and that if there was, it could not and should not be enforced either be-cause s. 98(3) does not apply or access to it is foreclosed by s. 98(4) ofthe ITA. Nasjjec also relied on s. 245 of the ITA which deals with theGeneral Anti-Avoidance Rule (GAAR).

73 Section 98(2) of the ITA provides in part that, subject to ss. 98(3) and98(5), where a partnership disposes of property to a taxpayer who was apartner, the partnership is deemed to have disposed of the property andthe partner to have acquired it at fair market value. Sections 98(3) and98(5) are tax deferral sections that provide a measure of tax relief from s.98(2). Utilizing s. 98(3) is more advantageous on a tax consequence ba-sis to purchasers than to vendors.

74 As s. 98(3) requires a joint election by the partners, Nuyork initiallysought a remedy for Nasjjec’s breach of agreement that Nasjjec providethe election required by s. 98(3) or an order authorizing Nuyork to filethe election on behalf of both itself and Nasjjec. Later, Nuyork changedits position and agreed with Nasjjec that the transaction should be donethrough s. 98(5)(g) of the ITA. Because s. 98(5) (g) gives rise to a greatertax liability for Nuyork, it sought damages from Nasjjec’s breach of


agreement of $3.25 million representing the increased tax liability, paya-ble as a reduction in the purchase price determined in the September2013 Award.

75 After reviewing the evidence of the parties and emails exchanged be-tween counsel, the Arbitrator stated at para. 46:

46. I am satisfied beyond a reasonable balance of probability thatNasjjec did agree with Nuyork to use s. 98(3). I am also satisfied thatNuyork relied upon Nasjjec’s agreement in relation to the use of s.98(3) in framing its $44.22 million offer to purchase 50% of the prin-cipal partnership asset, 20 King. This is consistent with Mr. York’sevidence which I accept.

76 The Arbitrator then went on to consider Nuyork’s claim for a reducedpurchase price given Nasjjec’s breach of agreement. He noted that accessto s. 98(3) to effect the transaction, even with Nasjjec’s cooperation, wasproblematic such that s. 98(3) may not have worked even if Nasjjec con-sented. Because the benefits which would have accrued to Nuyork if s.98(3) was used were “far from certain”, the Arbitrator concluded that alost chance approach to the determination of damages was appropriate.

77 Because the lost chance approach had not been raised by the partiesduring the hearing, the Arbitrator raised the issue with counsel and askedfor further submissions.

78 Nuyork submitted that because there was no chance that the CRAwould reject the use of s. 98(3), it is entitled to 100% of the financialimpact it will suffer because Nasjjec failed to honour its commitment touse s. 98(3).

79 Nasjjec submitted that the chance of s. 98(3) surviving CRA’s scru-tiny was zero.

80 The Arbitrator rejected the positions of both parties. He concludedthat what Nuyork lost as a result of Nasjjec’s breach of agreement wasthe chance or opportunity to engage s. 98(3) for its purchase of Nasjjec’s50% interest. While the chance was real, it was not certain. The Arbitra-tor then determined that the constituent elements of lost chance as set outby Doherty JA in Folland v. Reardon (2005), 74 O.R. (3d) 688 (Ont.C.A.) had been met.

81 At para. 64 of the December 2014 Award, the Arbitrator stated: In quantifying a lost chance, triers of fact must make the best esti-mate that they can. Taking all of the circumstances into account, in-cluding counsel’s comprehensive written submissions, I would quan-tify the chance of a s. 98(3) survival at 50%. There remains to be


considered 50% of what. On that subject Nuyork submits that thebase calculation should involve the difference between the tax impli-cations to Nuyork of a s. 98(3) transaction and one through s.98(5)(g). Nasjjec has a different view on that subject. In my viewNuyork’s position should prevail.

82 The Arbitrator then went on to consider the evidence as to the taxdifferential based on a comparison of the tax implications accruing fromthe use of either s. 98(3) or s. 98(5)(g). Despite what the Arbitrator char-acterized as a “broadly based attack” on the evidence and credibility ofNuyork’s forensic accounting expert by counsel for Nasjjec, the Arbitra-tor found the expert to be credible, his evidence reliable and his tax dif-ferential opinion sound. Based on that opinion, he further found that theoperative tax differential between the use of s. 98(3) and s. 98(5)(g) was$3 million, rounded down. Finally, applying the 50% lost chance deter-mination to the operative tax differential, the Arbitrator held that thepurchase price to be paid by Nuyork to Nasjjec should be reduced by$1.5 million to reflect the value to Nuyork of not being able to uses.98(3) to effect the purchase due to Nasjjec’s breach of agreement.

83 The Arbitrator then went on to determine “other issues” raised byNasjjec in its written submissions. In particular, Nasjjec sought an ad-journment to permit it to secure an expert witness to counter the evidenceof Nuyork’s forensic accounting expert on the tax differential. The Arbi-trator denied the request, noting that as it had been apparent for monthsthat Nuyork’s expert would be giving evidence on the tax differential, itwas too late to embark on another round of expert reports and perhaps afurther hearing.

84 The Arbitrator also rejected Nasjjec’s request to reopen the hearing topermit it (and Nuyork) to lead further evidence as to the current fair mar-ket value of the Property. At para. 80 he stated, in part: “I see no need torepeat the history of this matter or to ascribe blame for the lengthy delayin bringing this matter to a conclusion. It will suffice to say that anyuntoward delay in this matter was not Nuyork’s fault. In my view it istoo late now to reopen a hearing, that for all practical purposes closed, atthis late stage. The purchase price has been determined.”

85 The Arbitrator also addressed the date of dissolution of the Partner-ship (not the date of the September 2013 Award); the date of closing (assoon as practicable); interim distribution of cash (partnership debts toboth 159 and Neuberg and Dale to be paid before dissolution); and dis-


missed Nasjjec’s motion to permit it to buy Nuyork’s interest in the Pro-perty (already decided).

86 Finally the Arbitrator addressed the issue of whether the parties arerelated for tax purposes. Nasjjec says they are, Nuyork says they are not.The Arbitrator found that the evidence of who were the owners of Nasj-jec’s shares was not clear and that Nasjjec was not forthcoming in mak-ing productions relevant to that issue. He further noted that the relatedparty issue was not “late blooming” in that Nuyork’s forensic tax experthad prepared his report on the basis that Nuyork and Nasjjec were deal-ing at arms length with each other. As a result, the Arbitrator stated thatfor the purpose of quantifying Nuyork’s lost chance, he proceeded on thebasis that the parties were not related for tax purposes.

Nasjjec’s Position

a) Equally and Fairly87 Nasjjec submits that the Arbitrator failed to treat it equally and fairly

in respect of the December 2014 Award as follows:

1. By failing to determine whether the sale transaction was requiredby law to be carried out utilizing s. 98(5)(g) of the ITA rather thans. 98(3) but ordering that the purchase price for Nasjjec’s 50%interest be reduced by $1,500,000 for lost opportunity damagessuffered by Nuyork;

2. By refusing to permit Nasjjec to lead accounting evidence con-cerning the tax impact of utilizing s. 98(5)(g) of the ITA ratherthan s. 98(3) after the Arbitrator put the quantum of the tax impactin issue by raising lost chance;

3. By deciding the tax impact of using s.98(5)(g) based on the as-sumption Nasjjec and Nuyork were not related for tax purposesunsupported by any evidence and contrary to evidence that theywere related;

4. By refusing to permit Nasjjec to lead evidence of the increase inmarket value of the Property from January 2013 to August 2014;and

5. By disregarding Nasjjec’s request to purchase Nuyork’s interest inthe Property for the same purchase price as previously determinedby the Arbitrator.


Discussion88 Nasjjec submits that the Arbitrator failed to determine which section

of the ITA was required by law to be implemented to govern the transac-tion between the parties — s. 98(3) or s. 98(5)(g).

89 In my view, given the evidence and the issues before him, it wasneither necessary nor appropriate for the Arbitrator to decide which sec-tion of the ITA was required. As pointed out by Nuyork, the issue ofwhat section applied depended on factors in the transaction which hadnot yet crystallized. Further Nasjjec’s tax law expert gave evidence as tothe various risks that might arise if the transaction was done utilizing s.98(3). Given that the final determination of which section governs willbe determined by a third party (CRA), I am satisfied that the Arbitratorapproached the issue in the appropriate manner.

90 Nor do I accept Nasjjec’s submission that raising the lost opportunityissue without the request of either party exceeded the Arbitrator’s juris-diction. The Arbitrator’s mandate was to determine the disputes betweenthe parties. Nuyork alleged that Nasjjec had breached its agreement touse s. 98(3) of the ITA to close the sale. It further alleged that it hadsuffered damages as a result of Nasjjec’s breach. In dealing with the lat-ter issue, based on the evidence and the issue before him, the Arbitratorwas correct to raise the issue of lost chance and to give the parties anopportunity to make submissions in respect of that issue. I am at a loss tounderstand how his actions in that regard have anything to do withjurisdiction.

91 The Arbitrator raised the issue of lost chance with the parties and re-quested submissions from them on it. He then reviewed those submis-sions, determined, based on the authorities, that lost chance applied andthen quantified the lost chance and determined the tax differential basedon the evidence. Finally, he applied the lost chance amount to reduce thepurchase price Nuyork is required to pay Nasjjec. In my view, the Arbi-trator’s conclusions were reasonable and did not give rise to any issue oflack of fairness or equality.

92 Nasjjec submits that the Arbitrator was not fair in preventing it fromleading evidence concerning the tax impact of utilizing s. 98(5)(g) as op-posed to s. 98(3). In support of that submission, Nasjjec further submitsthat the issues of the quantum of taxes payable and the tax differentialbetween using s. 98(3) and s. 98(5)(g) only became relevant after theArbitrator raised the lost chance issue. The record does not support thatsubmission. The issue of the tax implications was addressed by both par-


ties long before the hearing. Nuyork provided an expert’s report in ad-vance of the hearing dealing with those issues. Nasjjec had the opportu-nity to respond with its own expert but chose not to. Further, Nasjjeccross-examined Nuyork’s expert at the hearing at length on the tax dif-ferential issue.

93 In my view, Nasjjec had more than sufficient opportunity to call evi-dence in response to Nuyork’s evidence concerning the tax differential.The Arbitrator was correct in observing that to permit such evidence inthe circumstances was not appropriate and would only serve to furtherdelay the arbitration. In my view, the Arbitrator’s refusal to adjourn thehearing to permit Nasjjec to call such evidence was not only reasonablein the circumstances, it was correct.

94 Nasjjec takes issue with the Arbitrators quantification of Nuyork’slost chance on the assumption that the parties are not related. It submitsthat that decision is based on no evidence and constitutes an error injurisdiction.

95 Once again, I do not consider that the issue gives rise to an error ofjurisdiction as provided in s. 45 (1) 3 of the Act. The Arbitrator clearlyhad jurisdiction to determine the tax differential issue. The “relatedparty” issue affected both the quantum of the tax impact, as well asNuyork’s future tax filing position. It turned on who were the owners ofNasjjec and Nuyork. Nuyork filed evidence that the parties were not re-lated. Further, Nuyork’s forensic tax expert based his opinion on the as-sumption the parties were not related. Although Nasjjec produced trustdeeds (after directed to by the Arbitrator), they were not conclusive onthe issue of beneficial ownership.

96 In accepting that the parties were not related for tax purposes, theArbitrator referred to the lack of clarity as to who owned Nasjjec’sshares. In my view, he was entitled to take that position based on theevidence and the lack of evidence before him. Nasjjec had more thansufficient notice of the issue and ample opportunity to put proper evi-dence before the Arbitrator. It failed to do so.

97 Nasjjec takes issue with the Arbitrator’s refusal to permit it to leadevidence of the increase in value of the Property since his determinationin the September 2013 Award.

98 The Arbitrator determined the market value of the Property in theSeptember 2013 Award in connection with deciding how the Partnershipwas to be dissolved. Nasjjec’s request to re-open the issue came morethan one year after the September 2013 Award and 20 months after the


effective dates of the appraisals. Further, it was raised by Nasjjec in asubsequent hearing addressing issues as to the most efficient way toclose the sale of Nasjjec’s interest. The Arbitrator noted that the delaywas not Nuyork’s fault.

99 The jurisdiction to permit a party to reopen the hearing on an issuethat has already been decided is discretionary. In my view, the Arbitratorconsidered the relevant factors in exercising his discretion to not permitNasjjec to reopen the issue of the fair market value of the Property. Thatissue had been decided between the parties by the September 2013Award.

100 Finally, I do not consider that the Arbitrator disregarded Nasjjec’smotion for an order that it be permitted to buy Nuyork’s interest in theProperty. In dismissing the motion the Arbitrator noted that the issue hadalready been decided.

101 For the above reasons, therefore, and as with the September 2013Award, Nasjjec has failed to satisfy me that the Arbitrator breached hisobligations of fairness and equality as set out in s. 46 of the Act in re-spect of the December 2014 Award.

102 Nor in my view, is there any issue concerning jurisdiction. The Arbi-trator had jurisdiction under the arbitration clause in the PartnershipAgreement to deal with the issues determined in the December 2014Award.

The Costs Award103 The Costs Award addressed costs to its date, July 16, 2015. It was

further clarified in the July 28, 2015 award. The Arbitrator held thatNuyork, as the successful party in the arbitration, was entitled to its costsfixed on a partial indemnity basis to April 15, 2013 (the date of Nuyork’soffer to settle) and on a substantial indemnity basis thereafter. After de-ducting amounts of $20,000 to reduce an expert’s fee for corrective workand $18,703 in respect of time spent on matters outside the scope of thearbitration, the Arbitrator awarded Nuyork a total of $1,007,026 in costs.The award included disbursements of $206,840.

104 In reaching his decision, the Arbitrator considered the positions ad-vanced on behalf of both Nuyork and Nasjjec. He outlined the principlesinvolved in determining costs awards and the factors to be considered,including those set out in Rule 57.01(1); considering the fairness and rea-sonableness of costs in respect of both their constituent elements and


their total; and proportionality. He also considered and determined that adistributive costs order was not appropriate in the circumstances.

105 In reaching his costs determination, the Arbitrator specifically ad-dressed Nasjjec’s submissions which took issue with the overall quantumclaimed as well as costs claimed for certain aspects of the proceedings.Nasjjec also sought costs in respect of several interlocutory proceedings.While the Arbitrator rejected most of Nasjjec’s submissions for reduction(for reasons stated), the Arbitrator did allow reductions of the expert’sfee and for time spent on other matters as noted above.

Nasjjec’s Position106 Nasjjec submits that in the Costs Award exceeded the Arbitrator’s ju-

risdiction or failed to treat it equally and fairly in that:

1. It awarded Nuyork substantial indemnity costs based on an offerto settle which contained a term that had nothing to do with theissues in the arbitration and involved a party who was not part ofthe arbitration;

2. It awarded costs for various steps in the arbitration where therewas divided success;

3. The Arbitrator made statements in respect of Nasjjec’s conductwhich were “incredibly unfair and unjustified.”

Discussion107 Nuyork submits that Nasjjec requires leave to appeal the Costs Award

which is granted sparingly and only in obvious cases due to the fact costsdecisions are discretionary and are accorded a very high degree of defer-ence: Credifinance Securities Ltd., Re, 2011 ONCA 160 (Ont. C.A.) atpara. 47.

108 Nasjjec submits that it is not appealing the Costs Award but ratherseeking to set it aside pursuant to s. 46 of the Act and therefore leave isnot necessary. On that basis, I agree that leave is not required.

109 Nasjjec submits that the Arbitrator exceeded his jurisdiction and wasnot fair in considering Nuyork’s offers of April 15, 2013 and July 31,2014 because the offers contained a term which required repayment of aloan to a third party, not party to the arbitration.

110 The Arbitrator clearly had jurisdiction to deal with the issue of costs(the Act, s. 54). Further, he reviewed the principles involved and the fac-tors to be considered as set out in Rule 57.01. In response to Nasjjec’s


submission that the offers “cannot be considered”, the Arbitrator statedthat fact that the offers contained terms outside the scope of the arbitra-tion did not foreclose him from taking the offers into account.

111 While the offers did not comply with Rule 49, Rule 49.13 providesthat in exercising its discretion with respect to costs, a court may takeinto account any offer to settle made in writing.

112 In Law Society of Upper Canada v. Mazzucco (2009), 50 E.T.R. (3d)203 (Ont. S.C.J.) at para. 20, D.M. Brown J. (as he then was) stated:

As to quantum of the award of costs, in my view it is appropriate togive considerable weight to the Offer to Settle, even if it does notqualify as a formal Rule 49 offer. The offer was a very reasonableone, made by one commercial party to another. In fixing costs courtsshould give due recognition to reasonable efforts by parties to settle adispute.

113 In my view, the Arbitrator clearly had jurisdiction to considerNuyork’s offers in determining costs. Nor do I consider it was unfair ofhim to do so in the circumstances. Nasjjec submitted that he shouldn’tconsider them. The Arbitrator rejected that submission, based onNuyork’s Reply Submissions. Nasjjec was able to make submissions onthe issue and was aware of the reasons why the Arbitrator rejected them.

114 Nuyork’s April 15, 2013 offer was for approximately $3 million morethan Nasjjec was awarded to receive by the Arbitrator. In the July 2014offer, which was after the September 2013 Award, Nuyork proposed toforego $500,000 in costs claims if the parties proceeded to close the realestate transaction. While the offers contained a term requiring repaymentof a loan to a third party, it was a company controlled by Ms. Neuberger.In my view, the offers were very reasonable and coupled with the Arbi-trator’s findings regarding Nasjjec’s conduct during the arbitration, sup-ported an award of substantial indemnity costs from the date of the firstoffer.

115 Nasjjec further submits that in dealing with costs, the Arbitrator failedto consider its offer to settle of $50,000,000. Given that the Arbitratorhad earlier concluded that Nasjjec’s offer was made for tactical reasons,in my view there was no reason for the Arbitrator to consider it in assess-ing Nuyork’s costs.

116 Nasjjec complains that the Arbitrator awarded Nuyork costs for vari-ous steps in the arbitration where there was divided success. In particu-lar, it cites the s.98 (3) tax issue, the costs in respect of the APS andcertain procedural motions where Nuyork was unsuccessful.


117 The Arbitrator considered whether a distributive costs order should bemade and determined that such an order was not appropriate in the cir-cumstances of the arbitration. Further, all of Nasjjec’s complaints whichit now raises concerning the Arbitrator’s failure to not award costs toNuyork for various steps in the arbitration were argued before the Arbi-trator and, except for some excess costs of one of Nuyork’s experts andfor some time spent on matters outside the arbitration, were rejected byhim for reasons given.

118 In my view, Nasjjec has failed to establish that there was some proce-dural unfairness or breach of natural justice by the Arbitrator in deter-mining costs. Rather, Nasjjec seeks to reargue its costs submissionswhich it is not permitted to do.

119 Nasjjec’s final submission in respect of the Costs Award is that theArbitrator made statements in respect of Nasjjec’s conduct which were“incredibly unfair and unjustified.”

120 In the Costs Award and in response to submissions by Nuyork con-cerning Nasjjec’s conduct during the arbitration, the Arbitrator noted thathe had no doubt that Nasjjec’s post-September 2013 Award strategy “hadthe effect of delaying the proceedings” relating to the actual transfer oftitle of the Property (para. 24). He also referred to Nasjjec’s “lack ofcooperation (para. 32) and the parties inability to be reasonable in deal-ings with each other which was “particularly a deficiency displayed byNasjjec.”

121 The conduct of the parties which “tended to shorten or to lengthenunnecessarily the duration of the proceeding” is one of the factors to beconsidered in assessing costs (Rule 57.01(e)). The Arbitrator’s commentswere specific to the allegations raised by Nuyork and were not gratui-tous. Further, they were not, in my view, without substance. The Arbitra-tor had been dealing with the parties and issue of the dissolution of thePartnership for more than two and a half years at that point. Based on thenumerous matters that had come before him, there is no question that hewas in a position to make assessments of the parties conduct during thearbitration. Accordingly, I do not consider the Arbitrator’s commentsconcerning Nasjjec’s conduct to be unreasonable.

122 For the above reasons, therefore I do not consider that the Arbitratorexceeded his jurisdiction. Further, and as noted in Credifinance, costs arehighly discretionary. In my view, in determining costs, the Arbitratortook into account the relevant factors in balancing the competing inter-


ests of both Nuyork and Nasjjec. I do not consider that he exercised hisdiscretion in an unreasonable or non-judicious fashion.

The July 2015 Miscellaneous Award123 In the July 2015 Miscellaneous Award, the Arbitrator, among other

things, dismissed Nasjjec’s motion to vary the fair market value determi-nation of its 50% interest in the Property.

124 In the September 2013 Award, the Arbitrator determined the fair mar-ket value of the Property based on the evidence of Bruce Andrews, anexpert appraiser. The Arbitrator rejected the opinion of Vincente Gam-boa, Nasjjec’s expert appraiser. Both Mr. Andrews and Mr. Gamboa de-termined value utilizing an income approach. At the time, the renewal ofthe lease with the major tenant of the Property was being negotiatedwhich required certain assumptions to be made with respect to future in-come. The Arbitrator recognized that establishing fair market value giventhe lease negotiations was “complicated” (September 2013 Award, para.40).

125 On May 4, 2015, Nasjjec was advised by Nuyork that a new lease hadbeen negotiated with the tenant in respect of a portion of the Propertyand provided the terms of the lease.

126 As a result, Nasjjec brought a motion before the Arbitrator seeking toincrease the purchase price of Nasjjec’s interest in the Property from theSeptember 2013 Award amount of $44.22 million to $52.85 million. Theincrease was based on the increase in the amount of the square foot rentsin the new lease compared to the assumptions in Mr. Andrews’ valuationand a change in the capitalization rate. By agreement of the parties andthe Arbitrator, Nasjjec’s motion was done in writing.

127 In support of its motion, Nasjjec submitted that the assumptions forthe valuation originally done by Mr. Gamboa more closely reflected theactual rental rate agreed upon than Mr. Andrews. Further, Nasjjec filed aletter from Mr. Gamboa which updated his original report utilizing theactual rental numbers. Mr. Gamboa’s opinion was that the value of theProperty had increased to $105,700,000. Finally, Mr. Gamboa also re-vised Mr. Andrew’s model using the actual rental numbers and arrived ata value of $87,650,000 for the Property.

128 The Arbitrator dismissed Nasjjec’s motion to vary the price at whichNuyork should purchase its interest in the Property for two reasons:


1. The law values both certainty and finality. The fair market valueof the Property was determined in the September 2013 Award af-ter both sides had a full opportunity to lead fair market value ap-praisal and other evidence. Further, Nasjjec had already broughttwo other motions to vary the price for the Property which weredismissed;

2. Nasjjec did not meet the test to admit fresh evidence. The Arbitra-tor reviewed the fresh evidence and concluded that there was noevidence of a sudden or substantial change in the fair market valueof the Property that would justify re-opening the hearing on thematter.

129 Nasjjec submits that the Arbitrator’s decision to dismiss its motionwas unfair and treats the parties unequally. It submits its new evidencedemonstrates that Nuyork’s evidence of value relied on by the Arbitratorwas wrong and that Nasjjec’s valuation as determined by Mr. Gamboawas fair.

130 In my view, the Arbitrator’s decision not to admit the fresh evidenceis a procedural decision. As such, it is immune from review under theAct.

131 In Inforica Inc. v. CGI Information Systems & ManagementConsultants Inc., 2009 ONCA 642 (Ont. C.A.) at para. 18, the Courtstated:

A significant feature of the modern approach limiting access to thecourts to review decisions of arbitrators is that there are no appealsfrom procedural or interlocutory orders. In Environment Export In-ternational of Canada Inc. v. Success International Inc., [1995] O.J.No. 453 (Gen. Div.), at para. 14, MacPherson J. held: ‘There is noth-ing in the Arbitration Act providing for appeals from, or applicationsto set aside, decisions of arbitrators on procedural points. It would bewrong ... for the courts to invent such a remedy and inject it into thearbitration process’. This principle is reiterated in Tescor Energy Ser-vices Inc. v. Toronto District School Board, [2002] O.J. No. 74(S.C.J.), at para. 30, where Lane J. held: ‘there is nothing in the Actto permit appeals from or the setting aside of decisions of arbitratorson procedural points’. This is a deliberate policy, ‘not a lacuna in ourlaw’, to protect the autonomy of the arbitral process. The creation ofa power by the courts to intervene on interlocutory rulings by arbitra-tors ‘would constitute a most serious reproach to the ability of oursystem of arbitration to serve the needs of users of the arbitral pro-


cess’: [page 171]K/S A/S Biakh v. Hyundai Corp., [1988] 1 Lloyd’sRep. 187 (Q.B. Comm. Ct.) at p. 189, Steyn J.

132 Even if I am wrong in my assessment that the Arbitrator’s decisionwas procedural, I consider that it involved an exercise of his discretion.In that regard, I am satisfied that he took into account the proper factorsin exercising that discretion. There was no denial of procedural fairnessor natural justice.

Motion for Distribution of Funds133 As part of its submissions on August 6, 2015, Nasjjec brought a mo-

tion in application CV-15-10916-00CL for an order that the Partnershipdistribute funds to itself and Nuyork to pay taxes on income allocated tothem from the Partnership and that the balance of the cash held by thePartnership be distributed to the partners or alternatively be used to paydown inter-company loans.

134 The motion has, in my view, subsequently become moot in that theparties have since agreed to distribute funds held by the Partnership to re-pay intercompany loans.

135 That said, and even if the issue Nasjjec seeks to resolve remains, I donot consider that the court has any jurisdiction to deal with it. It is amatter concerning the Partnership and, in accordance with the arbitrationclause in the Partnership Agreement, must be dealt with by theArbitrator.

136 The issue of the distribution by the Partnership of available cash priorto dissolution of the Partnership has already been raised by Nasjjec in thearbitration and dealt with by the Arbitrator (see: para. 93 of the Decem-ber 2014 Award and para. 9 of the March 2015 Procedural Award).

137 Nasjjec’s concerns, if they still exist, will be resolved by closing thereal estate transaction and finalizing the dissolution of the Partnership. Itsmotion is therefore dismissed.

Application CV-15-11083-00CL138 As noted, in Application CV-15-11083-00CL, Nasjjec and 159 seek a

review of the Arbitrator’s August 2015 Recusal and Jurisdiction Award,an order setting the Award aside and, in the alternative, a declaration thatthere was a reasonable apprehension of bias on the part of the Arbitrator.

139 The Arbitrator dealt with two issues in the August 2015 Recusal andJurisdiction Award:


1. Nuyork’s motion to determine whether the Arbitrator had jurisdic-tion to deal with a third party claim that had been commenced by159 against, among others, the Partnership and to authorizeNuyork to appoint and instruct counsel for the Partnership to re-spond to the third party claim (the “Jurisdiction Motion”) and

2. Nasjjec’s motion that the Arbitrator recuse himself from hearingNuyork’s motion on the ground that he had demonstrated a rea-sonable apprehension of bias (the “Recusal Motion”).

Jurisdiction Motion140 Nasjjec submits that in assuming jurisdiction over a third party action

commenced by 159 against the Partnership in a separate proceeding, theArbitrator exceeded his jurisdiction and the August 2015 Recusal andJurisdiction Award should be set aside.

141 Shortly after Nasjjec and Nuyork agreed to arbitrate their disputesbefore the Arbitrator in October 2012, 159 demanded that the Partnershiprepay a debt of over $24 million to 159.

142 As a result, Nuyork added 159 as a party to the arbitration and soughtan order prohibiting 159 from taking any steps in furtherance of its de-mand pending the final disposition of the arbitration and an order that theintercompany debts including the one to 159 be paid on the closing of thesale of either party’s 50% interest in the Property.

143 In its statement of defence and counterclaim in the arbitration, Nasj-jec sought, at paragraph 25(c) “An Order compelling the Partnership torepay all debts upon the sale of the Property including the 159...demandloan...of $24 million.”

144 During the course of the arbitration, the Partnership paid off a signifi-cant portion of the $24 million loan owing to 159. As of November 15,2013, the amount owing on the loan was $4,134,721.

145 In the March 2015 Procedural Award dealing with finalizing theMOU and APS, the Arbitrator, in addressing the disputed portions of theAPS, directed, among other things, that the balance of 159’s loan to thePartnership as at September 15, 2013 plus applicable interest at the loanrate of 7.53% per annum should be repaid on closing with a reduction of$410,000 in the loan amount as of September 19, 2010.

146 On November 12, 2014, Nuspor Investments Partnership (“Nuspor”),a partnership between Nuberg & Dale and Anspor Construction Limitedcommenced an action against 159 for repayment of a loan. 159 filed a


defence to the claim and admitted the loan. As part of its defence, itpleaded that it was owed more from companies related to Nuspor than itowed to Nuspor and sought to have all the intercompany loans dealt withtogether. As a result, on June 18, 2015, 159 commenced a third partyclaim against Nurit Construction Partnership (“Nurit”) and the Partner-ship claiming repayment of the amounts outstanding on loans from bothNurit and the Partnership and contribution and indemnity of any amountsfound to be owing by 159 to Nuspor (the “Third Party Claim”).

147 By notice of motion in the arbitration dated June 23, 2015, Nuyorksought, among other things, an order from the Arbitrator authorizing it toappoint and instruct counsel for the Partnership to defend the Third PartyClaim.

148 In the August 2015 Recusal and Jurisdiction Award, the Arbitratorfound that there was ample evidence on which to conclude that he hadjurisdiction over the claims made by 159 against the Partnership in theThird Party Claim. After reviewing the pleadings in the arbitration insome detail, the Arbitrator made the following findings: 159 is named asa defendant; 159 and its $24 million loan to the Partnership were exten-sively referred to in the pleadings of both parties; 159 was not a party tothe Partnership Agreement requiring arbitration; no steps were taken byor on behalf of 159 to get it out of the arbitration; 159 issues, includingits $24 million loan to the Partnership, were manifestly part of the arbi-tration issues; the Third Party Claim against the Partnership mirrored insubstance Nasjjec’s claim in the arbitration and was duplicative.

149 At para. 27 of the August 2015 Recusal and Jurisdiction Award, theArbitrator stated:

It seems to me that in accepting 159’s presence in the arbitration as aparty, Nasjjec cannot credibly assert that 159 was a mere bystanderor placeholder. Manifestly, the repayment of 159’s loan was an issuein the arbitration. In the end, the parties appear to have agreed thatthe debts of the partnership would be addressed in this arbitration(see Nasjjec’s Counterclaim paragraph 25(c)).

150 He then addressed the issue before him on the Jurisdiction Motionwhich was the need to retain counsel on behalf of the Partnership to re-spond to the Third Party Claim. After noting that Ms. Neuberger wasconflicted, the Arbitrator authorized Nuyork to retain and instruct coun-sel for the Third Party Claim on behalf of the Partnership and stated thatif there were any other third party/159 issues, he could be spoken to.


151 Having regard to the Arbitrator’s reasons, I am satisfied, based on hisfindings of fact, that he was correct in assuming jurisdiction over theThird Party Claim against the Partnership. It is clear from the record that159 was a party to the arbitration from the outset and repayment of 159’sloan to the Partnership was an issue in the arbitration.

152 In my view, the fact that 159 was not party to the Partnership Agree-ment containing the arbitration clause is not determinative. It was a partyto the arbitration from the outset. Nasjjec (or 159) submits that 159 tookno steps to appear in the arbitration or make submissions. While that maybe so, it was entitled to. Section 17 (3) of the Act creates a positive dutyto deal with jurisdiction issues before the arbitrator. By not addressingthe question of jurisdiction at the outset, in my view, 159 has submittedthe issue of its loan to the Partnership to the Arbitrator. See: PiazzaFamily Trust v. Veillette, 2011 ONSC 2820 (Ont. Div. Ct.) at para. 69-73.

153 Nuyork submits that the issue raised by Nasjjec concerning jurisdic-tion is now moot because subsequent to the August 2015 Recusal andJurisdiction Award, the Partnership, on the agreement of the parties, haspaid off the balance of 159’s loan.

154 Nasjjec submits that $410,000 of the loan still remains owing and it isentitled to have that issue determined by a court in the Third Party Claim.

155 In the March 2015 Procedural Award, the Arbitrator held, amongother things, that the Partnership would repay on closing the balance of159’s loan as of November 15, 2013 with interest at 7.53% per annum(with a $410,000 reduction in the loan amount owed to 159 as of Sep-tember 19, 2010). Nasjjec does not seek to set aside that Award.

156 The $410,000 amount was referred to by the Arbitrator in the Sep-tember 2013 Award as one of the issues between the parties that causedthe breakdown in the Partnership. Nasjjec took that sum from the Part-nership without Nuyork’s knowledge or consent. In ordering that the$410,000 be deducted from 159’s loan repayment, the Arbitrator wassimply trying to even the accounts between the partners.

157 In paying off 159’s loan, the Partnership paid it the amount owing asdirected by the Arbitrator less $410,000. It is that amount that 159 sub-mits it is still entitled to be repaid by the Partnership and that that issueshould be decided by a court in the Third Party Claim.

158 In my view, the Arbitrator has decided the issue of the repayment of159’s loan and the deduction of the $410,000. He clearly had the juris-


diction to do so. As a result, a court has no jurisdiction to decide theissue (again). I therefore agree with Nuyork that 159 has been repaid itsloan from the Partnership rendering the issues raised in the Third PartyClaim moot.

Recusal Motion159 Nasjjec’s Recusal Motion before the Arbitrator was based on certain

comments the Arbitrator made in the Costs Award as well as his com-ments and conclusions in the July 16, 2015 Miscellaneous Issues Awardconcerning the Jurisdiction Motion.

160 In the July 16 Miscellaneous Issues Award, the Arbitrator addressedNuyork’s Jurisdictional Motion concerning 159 and concluded that hehad jurisdiction.

161 Following issuance of the July 16, 2015 Miscellaneous Issues Award,counsel for Nasjjec contacted the Arbitrator and took issue with his deci-sion in the Jurisdiction Motion on the grounds that while the date forhearing the motion had been set, the parties had not yet made theirsubmissions.

162 On July 22, 2015, the Arbitrator released brief supplementary reasonsnoting that when he dealt with the issues in the Jurisdictional Motion, hewas under the “misapprehension that counsel wanted me to deal withthose issues.” The Arbitrator then went on to state he was in error in thatregard and that his conclusions on those issues were accordingly “prema-ture”. The Arbitrator vacated that portion of the July 16, 2015 Miscella-neous Issues Award dealing with the Jurisdictional Motion and stated itwas of no force and effect.

163 When the Jurisdictional Motion came before the Arbitrator for hear-ing on July 31, 2015, Nasjjec brought the Recusal Motion at the outsetbased on the Arbitrator’s premature conclusions on the Jurisdiction Mo-tion in the July 16, 2015 Miscellaneous Issues Award as well as certaincomments the Arbitrator made in the Costs Award. Following submis-sions, the Arbitrator dismissed the Recusal Motion with reasons to fol-low and proceeded to hear the Jurisdiction Motion. The Arbitrator’s rea-sons for dismissing the Recusal Motion were set out in the August 2015Recusal and Jurisdiction Award.

164 Nasjjec seeks an order setting aside the August 2015 Recusal and Ju-risdiction Award and a declaration that the Arbitrator shall be recusedfrom hearing any further matters concerning the issues. Nasjjec submits


that the obligation of fairness was breached by the reasonable apprehen-sion of bias of the Arbitrator.

165 The obligation of procedural fairness requires that there be no bias orreasonable apprehension of bias on the part of the decision maker.

166 The test for reasonable apprehension of bias was initially set out by inCommittee for Justice & Liberty v. Canada (National Energy Board)(1976), [1978] 1 S.C.R. 369 (S.C.C.) at para. 40 as follows:

... the apprehension of bias must be a reasonable one, held by reason-able and right minded persons, applying themselves to the questionand obtaining thereon the required information... [T]hat test is ‘whatwould an informed person, viewing the matter realistically and prac-tically — and having thought the matter trough — conclude. Wouldhe think that it is more likely than not that [the decision maker],whether consciously or unconsciously, would not decide fairly.”

167 The parties agree that the above test is applicable. The Arbitrator re-ferred to it in his reasons dismissing the Recusal Motion. He concludedthat “a reasonable person, fully informed, would not conclude that I can-not deal with the third party/159 issues de novo and fairly.”

168 Nasjjec submits that the Arbitrator’s premature determination to as-sume jurisdiction of the third party claim against the Partnership consid-ered in combination with disparaging comments against Nasjjec in theCost Award, would cause an informed person, viewing the matter realis-tically and practically to conclude that it is more likely than not that theArbitrator would not decide the issue fairly.

169 The review of the Arbitrator’s decision on the recusal motion arisesunder Section 46(1) 6 of the Act, which, as already noted, provides thatthe court may set aside an award where, among other things, the appli-cant was not treated equally or fairly.

170 It is clear from the July 22 Award which withdrew the portion of theJuly 16, 2015 Miscellaneous Issues Award dealing with jurisdiction overthe Third Party Claim against the Partnership that the Arbitrator wasunder the impression that he was to deal with the issue at that time asopposed to on the hearing date scheduled for August 11, 2015. Once theerror was brought to his attention, the Arbitrator immediately retractedthat portion of his decision. He then heard detailed submissions (85pages of transcript) from both sides on the Recusal Motion on July 31,2015.

171 In my view, the fact that the Arbitrator released reasons in respect ofthe jurisdiction issue prior to hearing argument does not, by itself, give


rise to an informed person concluding the Arbitrator would “more likelythan not” decide the issue unfairly. Judicial decision makers almost al-ways receive written submissions in advance of oral argument which,when reviewed, often result in preliminary views being reached on theissues raised. That does not mean, however, that the decision maker can-not thereafter decide the issue fairly. The decision maker is required, de-spite any preliminary views, to keep an open mind until all submissionsare received. Oral submissions are important. The Arbitrator is a formertrial and Court of Appeal judge with many years of judicial decisionmaking experience. There is no indication in the record before me thatthe Arbitrator did not maintain an open mind on the issue of jurisdictionover 159 until conclusion of the oral argument on July 31, 2015.

172 The material in respect of the Jurisdiction Motion had been filed withthe Arbitrator. He was under the impression that the parties wished himto decide the matter. Once his error was brought to his attention, he im-mediately withdrew the portion of the award dealing with jurisdictionover 159. There is nothing in the transcript of the submissions on July31, 2015 that give any indication that the Arbitrator had pre-determinedthe issue. In my view, a reasonable person, properly informed of the cir-cumstances, would not conclude that there was a likelihood of a reasona-ble apprehension of bias based on the premature release of a decision inthe Jurisdiction Motion.

173 Nor do I consider that the Arbitrator’s comments in the Costs Awardconcerning the conduct of Nasjjec during the arbitration either by them-selves or in conjunction with the premature release of reasons in the ju-risdiction issue give rise to any issue of reasonable apprehension of biason the Arbitrator’s part. The costs determination was a separate proceed-ing. As I have already noted, the parties conduct during the proceedingsis a relevant factor for the Arbitrator to consider when fixing costs (seeRule 57.01(1) (e)). Further, the comments complained of were in directresponse to submissions made by either Nuyork or Nasjjec. They werenot gratuitous.

174 Accordingly, for the above reasons, I do not consider that there was areasonable apprehension of bias on the part of the Arbitrator.

Application CV-15-10914175 Initially, Nuyork’s application CV-15-10914 sought orders enforcing

the March 2013 Interlocutory Award, the September 2013 Award and the


December 2014 Award and an order sealing certain of the documentsfiled in the applications as confidential.

176 At the hearing on August 6, Nuyork brought a motion to amend itsnotice of application to add the subsequent awards released by the Arbi-trator subsequent to March 20, 2015 (the date the application was com-menced). I granted that amendment save and except for the August 2015Recusal and Jurisdiction Award which had just been released the daybefore and which Nasjjec indicated it wished to move to set aside.

177 In light of the fact that Nasjjec and 159 have subsequently broughtapplication CV-15-11083-00CL seeking to set aside the August 2015Recusal and Jurisdiction Award which was argued on October 19, 2015,it is appropriate to further amend Nuyork’s notice of application to in-clude the August 2015 Recusal and Jurisdiction Award in the awardsseeking to be enforced.

178 Having dismissed Nasjjec’s applications seeking to set aside the vari-ous awards of the Arbitrator, I am satisfied that Nuyork’s application foran order to enforce the awards in Ontario pursuant to s. 50 of the Actshould be allowed. The awards which shall be enforced are the nineawards listed in paragraph 1(a) of Nuyork’s notice of application, asamended. If there is an issue as to the form of the order I may be spokento.

179 Nuyork also seeks an order pursuant to s. 137(2) of the Courts ofJustice Act, R.S.O. 1990, c. C.43 sealing documents filed in the applica-tions as confidential and listed in Schedule “A” to Nuyork’s notice ofapplication.

180 Nuyork’s request is tailored only to commercially sensitive mate-rial — i.e. valuation and financial information concerning the Partner-ship. There is no impact from non-disclosure beyond the parties. Accord-ingly, I am satisfied that the requirements for a sealing order as set out inSierra Club of Canada v. Canada (Minister of Finance), [2002] 2 S.C.R.522 (S.C.C.) at para. 53 have been met. The requested documents shallbe sealed.

Conclusion181 For the above reasons, therefore, Nasjjec’s applications CV-15-

10916-00CL and CV-15-10914-00CL are dismissed in their entirety.Further, its August 6, 2015 motion in application CV-15-10916-00CLconcerning payment out of Partnership funds is also dismissed. Nuyork’s


application is allowed as noted. If there is any issue with respect to theform of the order I may be spoken to.

182 In the July 28 Award, the Arbitrator dealt with two issues involvingconcerns with respect to closing adjustments and clarification of theCosts Award. After dealing with those issues, he stated at para. 11:

In my view the time has come to complete the real estate transactionreferred to in the September 2013 award. The parties should executethe MOU and APS on or before August 4, 2015. The purchase/saleshould close on or before August 13, 2015. If the parties agree, thesedates may be changed.

183 Needless to say, in light of Nasjjec’s applications, the dates set by theArbitrator have passed. At the conclusion of the argument on August 6,2015, the parties agreed that I could set the dates for signing the MOUand the APS and for closing of the real estate transaction given that thedates set by the Arbitrator could not be met.

184 I agree with the Arbitrator’s intent expressed in the dates he set whichwas to conclude the real estate transaction as quickly as possible. Morethan two years has transpired since the September 2013 Award and allthe issues concerning the closing, including the wording of the MOU andAPS, have been resolved by the Arbitrator. Nuyork has indicated that ithas had the closing funds available for some time. It is appropriate in myview and in the circumstances, to set a reasonably short time period tocomplete the real estate transaction.

185 At the conclusion of the August 6th argument, Nasjjec requested aperiod of time following release of my reasons to consider its positionand next steps. I indicated I would grant that. At the same time, as I haveindicated, I consider it important as the Arbitrator did, that the real estatetransaction be completed as soon as possible. Accordingly, as part of theenforcement order, I order that the parties shall execute the MOU and theAPS on or before November 27, 2015. The purchase/sale shall close onor before December 4, 2015. As the Arbitrator noted, the dates may bevaried by agreement of the parties in writing.

Costs186 Nuyork has been entirely successful both in respect to its application

and Nasjjec’s applications. It is therefore entitled to its costs of theapplications.

187 Notwithstanding that I have concluded there is no merit to Nasjjec’sapplications, it was entitled to bring them. Further, it has cooperated in


bringing matters forward expeditiously. Accordingly, I do not considerthat substantial indemnity costs are appropriate. In my view, costs shouldbe assessed on a partial indemnity basis.

188 I have received costs outlines from both parties for all matters up toand including the August 6, 2015 hearing and then separately for the Oc-tober 19, 2015 hearing.

189 With respect to the hearings on March 26, 2015 and August 6, 2015(applications CV-15-10916-00CL and CV-15-10914-00CL), Nuyorkclaims total partial indemnity costs of $94,212.61 made up of fees of$81,099.60, HST of $10,542.94 and disbursements of $2,570.07.

190 With respect to the October 19, 2015 hearing (application CV-15-11083-00CL), Nuyork claims total partial indemnity costs of $12,434.39made up of fees of $10,580.10, HST of $1,375.41 and disbursements of$478.88.

191 Having regard to the factors to be considered in determining costs asset forth in Rule 57.01and the expectations of Nasjjec as indicated by itscosts outlines, in my view the total costs claimed by Nuyork are fair andreasonable.

192 The issues between the parties were significant. In my view, the hoursclaimed and the rates charged were not unreasonable. Nuyork was re-quired to respond to all of Nasjjec’s submissions, which were numerous.

193 Accordingly, Nuyork is entitled to its costs on a partial indemnity ba-sis in applications CV-15-10916-00CL and CV-15-10914-00CL fixed at$94,212.61 inclusive of taxes and disbursements.

194 Further, Nuyork is entitled to its costs of a partial indemnity basis inapplication CV-15-11083-00CL payable by the applicants and fixed at$12,434.39 inclusive of taxes and disbursements. Both amounts are paya-ble forthwith.

Applicant’s application dismissed; respondent’s application granted.


[Indexed as: Cote v. Milltown Marina & Boatyard Ltd.]

Matthew Cote and Cascadia Marine Group Inc., Petitioners andMilltown Marina & Boatyard Ltd., Milltown Marina MoorageCompany Ltd., Bastion Maritime Holdings Ltd., Hugh Tangye,

Kim Maust and Milltown Marina Limited Partnership andMusqueam Marina Limited Partnership, d.b.a. Milltown Marina

& Boatyard Joint Venture, Respondents

British Columbia Supreme Court

Docket: Vancouver S145621

2015 BCSC 2033

N. Smith J.

Heard: September 28, 2015


Business associations –––– Specific matters of corporate organization —Shareholders — Shareholders’ remedies — Relief from oppression —Standing to apply — Miscellaneous –––– Personal petitioner wished to createmarina facility — Personal petitioner and others entered into joint venture agree-ment for financing and construction, and personal petitioner was to act as man-ager of day to day operations — Personal petitioner was sole shareholder of cor-porate petitioner — Petitioners owned 12.5 per cent of marina faciltiy — Partieshad falling out and petitioner was terminated from management role at marina,and removed as director — Petitioners brought application for relief under op-pression remedy — Petition dismissed — Petitioners failed to show they hadreasonable expectations that were violated regarding corporate arrangement —Petitioners had standing to bring petition — Petitioners were members of limitedpartnership that held one half of shares in corporation which owned all shares ofcompany which held water lease in marina.

Business associations –––– Specific matters of corporate organization —Shareholders — Shareholders’ remedies — Relief from oppression — Mis-cellaneous –––– Personal petitioner wished to create marina facility — Personalpetitioner and others entered into joint venture agreement for financing and con-struction, and personal petitioner was to act as manager of day to day opera-tions — Personal petitioner was sole shareholder of corporate petitioner — Peti-tioners owned 12.5 per cent of marina faciltiy — Parties had falling out andpetitioner was terminated from management role at marina, and removed as di-rector — Petitioners brought application for relief under oppression remedy —Petition dismissed — Petitioners failed to show they had reasonable expecta-tions that were violated regarding corporate arrangement — Section 227 of Bus-

Cote v. Milltown Marina & Boatyard Ltd. 221

iness Corporations Act does not allow for orders requiring disposition of anyproperty other than shares in company, and cannot be applied to force sale ofunits in limited partnership — No just and equitable grounds to wind up partner-ship — No evidence of deadlock or that partnership unable to carry on businessfor which it was set up — Personal petitioner had only limited authority underagreements — Limited partnership agreement specifically contemplated thatlimited partners might wish to end relationship and provided buy/sell procedureto achieve that result.

Business associations –––– Specific matters of corporate organization —Shareholders — Shareholders’ remedies — Relief from oppression — Op-pressive conduct — Corporate governance –––– Personal petitioner wished tocreate marina facility — Personal petitioner and others entered into joint ventureagreement for financing and construction, and personal petitioner was to act asmanager of day to day operations — Personal petitioner was sole shareholder ofcorporate petitioner — Petitioners owned 12.5 per cent of marina faciltiy — Par-ties had falling out and petitioner was terminated from management role at ma-rina, and removed as director — Petitioners brought application for relief underoppression remedy — Petition dismissed — Petitioners failed to show they hadreasonable expectations that were violated regarding corporate arrangement —Relationship between parties was set out in agreements — Management agree-ment did not guarantee that management function would be permanent, and itspecified breaches that would result in termination — Whether termination wasproper would be determined in wrongful dismissal proceedings, but was notbreach of rights as shareholder, and was within majority shareholder’s rights.

Cases considered by N. Smith J.:

BCE Inc., Re (2008), 2008 CarswellQue 12595, 2008 CarswellQue 12596, 71C.P.R. (4th) 303, 52 B.L.R. (4th) 1, (sub nom. Aegon Capital ManagementInc. v. BCE Inc.) 383 N.R. 119, (sub nom. Aegon Capital Management Inc.v. BCE Inc.) 301 D.L.R. (4th) 80, 2008 SCC 69, [2008] S.C.J. No. 37, (subnom. BCE Inc. v. 1976 Debentureholders) [2008] 3 S.C.R. 560 (S.C.C.) —followed

Dia-Kas Inc. v. Virani (1995), [1995] B.C.J. No. 1747, 1995 CarswellBC 2907(B.C. S.C. [In Chambers]) — considered

Dia-Kas Inc. v. Virani (1997), 88 B.C.A.C. 26, 144 W.A.C. 26, 1997 Car-swellBC 524, [1997] B.C.J. No. 608 (B.C. C.A.) — referred to

Diligenti v. RWMD Operations Kelowna Ltd. (1976), 1 B.C.L.R. 36, 1976 Car-swellBC 3, [1976] B.C.J. No. 38 (B.C. S.C.) — considered

Ebrahimi v. Westbourne Galleries Ltd. (1972), [1973] A.C. 360, [1972] 2 AllE.R. 492, [1972] 2 W.L.R. 1289 (U.K. H.L.) — followed

Elliott v. Opticom Technologies Inc. (2005), 2005 BCSC 529, 2005 CarswellBC843, 4 B.L.R. (4th) 103, 41 B.C.L.R. (4th) 97, [2005] 9 W.W.R. 505, [2005]B.C.J. No. 782 (B.C. S.C.) — considered


Hui v. Hoa (2015), 2015 BCCA 128, 2015 CarswellBC 743, [2015] 5 W.W.R.80, 369 B.C.A.C. 213, 634 W.A.C. 213, 74 B.C.L.R. (5th) 251, 40 B.L.R.(5th) 1 (B.C. C.A.) — distinguished

N’Quatqua Logging Co. v. Thevarge (2006), 2006 BCSC 1122, 2006 Car-swellBC 1818, 20 B.L.R. (4th) 275, [2006] 4 C.N.L.R. 141, 59 B.C.L.R.(4th) 26 (B.C. S.C.) — considered

PWA Corp. v. Gemini Group Automated Distribution Systems Inc. (1993), 101D.L.R. (4th) 15, 8 B.L.R. (2d) 221, 1993 CarswellOnt 170 (Ont. Gen. Div.[Commercial List]) — considered

R.B.L. Management Inc. v. Royal Island Development Ltd. (2007), 2007 BCSC960, 2007 CarswellBC 1561, 34 B.L.R. (4th) 61 (B.C. S.C.) — considered

Safarik v. Ocean Fisheries Ltd. (1995), 12 B.C.L.R. (3d) 342, 22 B.L.R. (2d) 1,64 B.C.A.C. 14, 105 W.A.C. 14, 1995 CarswellBC 578, [1995] B.C.J. No.1979 (B.C. C.A.) — distinguished

Village Gate Resorts Ltd. v. Moore (1997), 99 B.C.A.C. 87, 162 W.A.C. 87,1997 CarswellBC 2295, 47 B.C.L.R. (3d) 153, [1998] 8 W.W.R. 586, [1997]B.C.J. No. 2478 (B.C. C.A.) — considered

Walker v. Betts (2006), 2006 BCSC 128, 2006 CarswellBC 169, 15 B.L.R. (4th)114, [2006] B.C.J. No. 161 (B.C. S.C.) — considered


Business Corporations Act, S.B.C. 2002, c. 57Generally — referred tos. 1(1) “shareholder” — considereds. 227 — considereds. 227(1) “shareholder” — considereds. 227(2) — considereds. 227(2)(b) — considereds. 227(3)(a) — considereds. 227(3)(b) — considereds. 227(3)(e) — considereds. 227(3)(f) — considereds. 227(3)(g) — considereds. 227(3)(h) — considereds. 227(3)(k) — considereds. 227(3)(o) — considereds. 232 — considereds. 324 — considered

Canada Business Corporations Act, R.S.C. 1985, c. C-44s. 241 — considered

Partnership Act, R.S.B.C. 1996, c. 348Generally — referred toPt. 3 — referred tos. 38 — referred to

Cote v. Milltown Marina & Boatyard Ltd. N. Smith J. 223

s. 38(1)(d) — considereds. 38(1)(e) — considereds. 38(1)(f) — considered

PETITION by petitioners for relief from oppression.

J.P. Sullivan, A.D. Brine, for PetitionersT.M. Cohen, G. Cameron, for Respondents, Bastion Maritime Holdings Ltd.,

Hugh Tangye and Kim Maust

N. Smith J.:

I. Introduction1 The Milltown Marina opened in the fall of 2013 on the north arm of

the Fraser River, near Vancouver International Airport. The petitionerMatthew Cote says it is the product of his idea and his efforts but he hasnow been frozen out of the business. Mr. Cote and his company, the peti-tioner Cascadia Marine Group Inc. (“Cascadia”), seek relief under theoppression remedy in s. 227 of the Business Corporations Act, S.B.C.2002, c. 57 (the “BCA”).

2 The petitioners apply for a declaration that oppressive conduct hasoccurred in the affairs of three companies and for an order that some ofthe respondents buy out their interest at a price of $4.3 million. They alsoseek Mr. Cote’s re-appointment as a director of those companies, eitherpermanently or until their interest is bought out.

II. The Parties3 The marina was developed as a joint venture of two limited partner-

ships — the named respondents Milltown Marina Limited Partnership(“Milltown LP”) and Musqueam Marina Limited Partnership (“Mus-queam LP”). Cascadia, of which Mr. Cote is the sole shareholder, is alimited partner in Milltown LP, holding a 25 per cent interest. The otherlimited partner, with a controlling 75 per cent interest, is the respondentBastion Maritime Holdings Ltd. (“Bastion”).

4 The respondent Hugh Tangye is the principal of Bastion and Bas-tion’s parent company, Bastion Development Corporation (“Bastion De-velopment”), which is not a party to this proceeding. The respondentKim Maust is the Vice-President of Bastion Development.

5 Musqueam LP a limited partnership created by the Musqueam FirstNation. The petitioners have settled their claim against Musqueam LP,


leaving Bastion, Mr. Tangye, and Ms. Maust as the respondents who ac-tively oppose this petition. Further references to “the respondents”should be read as referring to them.

6 The alleged oppression is said to have occurred in the affairs ofMilltown Marina Holdings Ltd. (“Holdings Ltd.”), Milltown Marina andBoatyard Ltd. (“Boatyard Ltd.”), and Milltown Marina Moorage Com-pany (“Moorage Ltd.”). Cascadia owns 25 per cent of the shares in Hold-ings Ltd., which is the general partner in Milltown LP. It is the only oneof the three companies in which either respondent directly owns shares.The limited partnerships each own 50 per cent of the shares in BoatyardLtd., which in turn owns all of the shares in Moorage Ltd.

III. The Marina and the Corporate Structure7 Mr. Cote is a master mariner who also has experience in property

development. On a sailing trip to New Zealand, he saw for the first timewhat he calls a modern “dry-stack” marina facility — a large warehouse-type structure where power boats are stored in vertical steel racks. Ma-rina staff use purpose-built forklifts to put the boats into the water andreturn them to storage at the request of their owners. Mr. Cote believedthere would be a demand in the Vancouver area for such a dry-stack /boat valet facility, combined with an in-water marina.

8 In 2009, Mr. Cote identified a site on Richmond Island, which is actu-ally a peninsula connected to the Vancouver side of the Fraser River.While Mr. Cote had the idea, he had no ability to fund or finance theproject. He approached Mr. Tangye in late 2009 and later approached theMusqueam First Nation. Both of them ultimately agreed to become in-volved and provide the necessary capital.

9 The first formal agreement was a Memorandum of Understanding(the “MOU”) between Bastion Development Services Ltd. (a relatedcompany which is not a party to this proceeding) and the MusqueamFirst Nation. The MOU was finalized on July 12, 2010, and documentedthe intention to develop the Marina project. It provided that a companywould be incorporated to hold title to the project property. (Boatyard Ltd.was ultimately created for that purpose.) Each party to the MOU named arepresentative “to co-ordinate seek and negotiate the requisite approvals”for the project. Mr. Cote was named as the Bastion representative.

10 On or about December 16, 2010, Bastion and Cascadia entered intothe “Milltown Marina Limited Partnership Agreement”. Bastion Mari-time received 749 partnership units (74.9 per cent of the total) and Cas-


cadia 249 (24.9 per cent). Holdings Ltd., with two units, became the gen-eral partner. Bastion Maritime owns 75 per cent and Cascadia 25 per centof the shares in Holdings Ltd. Partnership units were acquired for onedollar each, with additional funds to be either borrowed from third par-ties or advanced by Bastion.

11 The agreement gives Holdings Ltd., as general partner, exclusive au-thority to manage the affairs of the partnership and says, “The LimitedPartners, in their capacity as Limited Partners, will not take any part inthe management or control of the Partnership Business.” Major deci-sions, such as disposal of partnership assets or replacement of the generalpartner, could be made by a resolution approved by partners holding atleast 75 per cent of the partnership units. The agreement and ownershipstructure therefore gave Bastion — through its partnership units and itsmajority interest in the general partner — full control over the activitiesof the limited partnership.

12 The partnership agreement also includes a detailed “shotgun” buy /sell mechanism under which either limited partner may deliver a noticeto the other, stating a price at which it is prepared to either sell its part-nership units or buy those of the other. The partner receiving that offerthen has 30 days to decide if it will buy or sell. The process could beinvoked by either limited partner no earlier than two years after the issu-ance of an occupancy permit for the marina. As matters proceeded, thefirst day on which the process may be invoked is January 15, 2016.

13 Land and water leases had to be obtained from North Fraser Termi-nals Ltd., a subsidiary of the Vancouver Fraser Port Authority. Thoseleases were finalized in October 2012, with Boatyard Ltd. holding theland lease and Moorage Ltd. holding the water lease. Bastion Develop-ment is a party to both leases as guarantor.

14 Milltown LP and Musqueam LP then entered into a joint ventureagreement, dated November 20, 2012. Each agreed to make a capitalcontribution of $3 million, with Milltown LP permitted to deduct whatthe Bastion companies had already spent. All Milltown LP’s financialcontribution came from Bastion. Neither Mr. Cote nor Cascadia put inany money.

15 The joint venture agreement said the capital contributions were sub-ject to the management company (Boatyard Ltd.) entering into a manage-ment contract with Mr. Cote or Cascadia “on terms and conditions satis-factory to the Joint Venturers.” It also provided for creation of a four-member joint venture management committee, with each limited partner


appointing two members. That committee had exclusive authority tomanage and control the joint venture’s business.

16 The limited partnerships also signed an ancillary agreement that,among other things, directed Boatyard Ltd. to enter into a five-year con-tract with Mr. Cote or Cascadia to provide management services for$90,000 per year.

17 At the same time Milltown LP, Musqueam LP, and Boatyard Ltd.entered into a Shareholders’ Agreement. It confirmed that Boatyard Ltd.was incorporated to manage the project on behalf of the Joint Venture,that it would retain Bastion Development to manage construction of themarina, and that it would retain Cascadia as project manager. MilltownLP and Musqueam LP were each entitled to appoint two of BoatyardLtd.’s four directors.

18 The management agreement between Cascadia and Boatyard Ltd. wassigned on or about January 9, 2013. In addition to the salary of $90,000 ayear, Mr. Cote was to have use of an on-site residence. Cascadia wasrequired to obtain approval from Boatyard Ltd. before entering into anycontract over $1,000 and to rent dock slips and dry-land storage at ratesset by Boatyard Ltd. The agreement also set out circumstances underwhich Boatyard Ltd. would be entitled to terminate it.

6. It shall be an event of default entitling Milltown to terminate thiscontract should any of the following events occur:

(a) The Project Manager becomes insolvent or is petitioned intobankruptcy or makes an assignment into bankruptcy;

(b) The Project Manager neglects or is unable to perform the Ser-vices for a period of 30 days; or

(c) The Services are not performed in a manner consistent withgood and reasonable commercial practice.

19 In a separate action that is not before me, Mr. Cote and Cascadia seekdamages for wrongful termination of the management agreement.

20 Mr. Cote became a director of Holdings Ltd., Boatyard Ltd., andMoorage Ltd. and one of Milltown LP’s two appointees to the joint ven-ture management committee.

21 The effective net result of these agreements and somewhat complexstructure is that the petitioners indirectly own a 12.5 per cent interest inthe marina business through Milltown LP, although they were not re-quired to invest any money. They also obtained the contract to manage


the day-to-day marina operations, subject to certain restrictions on theirauthority.

22 Part of Mr. Cote’s concept for the marina was that it would sell long-term (40-to 50-year) leases of 85 moorage slips. Mr. Cote was to conductthese “slip sales” for a 1.5% commission.

23 An appraisal report dated December 11, 2012 — before construc-tion — estimated that a short-term rental marina would be worth $32million, but sale of moorage slips would add at least $13 million to thatvalue. The petitioners’ claim to $4.3 million as the value of their interestis based on calculations flowing from that appraisal.

24 The sale of moorage slips has not taken place. The respondents say adecision to defer the idea was based on legal advice about the difficultiesand potential risk associated with that approach, as well as the need forsubstantial further work to determine the legal basis on which it could bedone.

25 The respondents rely on a business valuation report dated July 4,2015. Based on a much lower appraised property value than what wascontained in the pre-construction appraisal and after considering liabili-ties, the report says that Cascadia’s interest is worth at most between$50,000 and $100,000.

IV. Development and Conflict26 Mr. Cote says that he was primarily responsible for obtaining the nec-

essary regulatory and environmental approvals for the marina and negoti-ating the leases. That required extensive representations to and negotia-tions with a number of federal, provincial, and municipal agencies, aswell as neighboring residents and businesses. Mr. Cote says he beganthat work in 2009, even before Bastion became involved.

27 John Moonen, a professional lobbyist, has provided an expert opinionon the difficulty and complexity of what Mr. Cote did.

The Project required permits and other approvals from three levels ofgovernment, making it more complex than many other lobbying as-signments, and from two municipalities (which is rare). Furthermorewithin each government there were several different decision-makersinvolved, some with overlapping mandates. And several elements ofeach permit and other approval required were interdependent.

The magnitude and complexity of this government relations effortwere also greater because this was a start-up operation and govern-ment decision-makers had no track record of history for the business


upon which to base their decisions. Furthermore, there have been ex-tremely few requests to the relevant government decision-makers forthe permits and other approvals required for a new marina in recentyears so some of the government decision-makers would have littleor no experience with projects of this type.

Mr. Moonen said that if Mr. Cote had consulted him at the outset, hewould have said that “the odds of securing all of the required permits andother approvals in a timely manner were very low.”

28 The respondents don’t dispute the work Mr. Cote did to get the pro-ject approved, but say that Bastion paid Cascadia, as an independent con-tractor, approximately $140,000 for that work between October 2010 andDecember 2012. They also say that Mr. Cote did not do that work alone,but was assisted by consultants, whom Bastion paid separately.

29 Construction began in the spring of 2013. Mr. Cote said he was re-sponsible for construction of the in-water portions of the Marina, whileBastion built the land facilities. Mr. Tangye says that Mr. Cote was “as-sisting” with project management and marketing and that Cascadia waspaid a further $98,000 during construction.

30 Conflicts between Mr. Cote and other members of the ownershipgroup, particularly Mr. Tangye, developed during construction. Mr. Cotebelieved he was being undermined and ignored, although he had the mostmarine knowledge and experience, and that Bastion Development wasfailing to comply with terms under which the project had been approved.The respondents say they came to believe that Mr. Cote’s involvementwas more of an impediment than it was of assistance and that he was atleast partly responsible for delays and cost overruns.

31 A great deal of detailed, often conflicting affidavit evidence has beenput forward about specific disputes that arose. Even if it were possible toresolve these issues solely on the basis of affidavit evidence — and inmost cases it is not — it is neither necessary nor appropriate to makethose factual findings here. Most of these issues go to the question ofwhether the respondents had cause to terminate the management agree-ment and will be relevant to the separate action alleging wrongful termi-nation. I should not make findings of fact on affidavit evidence that mayturn out to be inconsistent with findings made after examination andcross-examination at trial of that action.

32 However, some examples of these disputes are necessary to providecontext to what ultimately happened.


33 At one point, Mr. Cote believed that a dredging contractor had re-moved more material than was necessary or contracted for and was op-posed to paying an extra $160,000 that the contractor demanded. He saysMr. Tangye unilaterally wrote a cheque to the contractor. Mr. Tangyesays he was directed by the management committee to negotiate a settle-ment because a lien filed by the contractor was jeopardizing the project.

34 Mr. Cote says that Bastion put the project at risk by starting construc-tion before receiving a building permit, but his concerns were “scoffedat.” The respondents say that Mr. Cote was, at around the same time,complaining about slow progress of the work. They also say that an ap-plication for a building permit had been made to the Vancouver FraserPort Authority, which was also the landlord, and the port authority neverraised any concern about the work proceeding.

35 In the summer of 2013, Bastion’s construction manager, who hadbeen responsible for the on-land construction, was also put in charge ofthe in-water works that had been under Mr. Cote’s direction. Mr. Cotesaid he was given no warning of that change. The construction manager,Ryan Lomas, says in an affidavit that he was asked to take over becauseof delays and problems in the construction, many of which were the re-sult of Mr. Cote’s poor relationship with subcontractors and frequentchanges to plans.

36 Mr. Cote says he was forced to personally pay for a City of Rich-mond business license because his requests that Bastion and/or BoatyardLtd. pay it were ignored. He says he had worked very hard to obtainapproval for the Marina from Richmond City Council — a result thatwas not guaranteed at the time — and he believed it important to meetthe city’s requirements. Mr. Tangye says he didn’t believe it had yet be-come necessary to apply for the license and doing so at that point wouldhave had adverse property tax consequences. He says Mr. Cote appliedfor the license in direct contravention of the management committee’sinstructions.

37 Leases of marina slips and dry-stack spaces had been made effectiveSeptember 2013, but the Marina was only about half-completed at thatpoint. Mr. Cote said he promised clients who did not yet have a boat inthe Marina that they would not be billed, but Bastion billed those cus-tomers contrary to his instructions. Mr. Tangye says that the decision tobill those customers at a reduced rate until completion of their spaceswas one made by the management committee, and Mr. Cote had no au-thority to make contradictory promises to clients.


38 Because some boats began using the marina while some of the dockswere still being installed, those boats had to be frequently moved to ac-commodate construction. Mr. Cote says he had to personally pay for thelease of a suitable boat to do that. Mr. Tangye says Mr. Cote’s decisionto lease the boat was contrary to management committee directions thathe obtain a less-expensive one.

39 The respondents say that Mr. Cote was rude to workers and contrac-tors on site, that he alienated commercial tenants, and that at least threethird parties threatened legal proceedings against the Marina as a resultof his dealings with them.

40 Whatever the merits of these and other allegations and counter-allega-tions, it is clear that by the fall of 2013 the business relationship hadbecome strained. Matters came to a head when Mr. Cote sent an email toMr. Tangye and the other members of the Management Committee onOctober 24, 2013. That email referred to the costs Mr. Cote had incurredin leasing the boat mentioned above, and to additional housing costs hesaid he had incurred because his on-site apartment was not yet finished.He said he needed $14,000 by the end of the month to cover these out-of-pocket expenses.

41 Having received no response, he sent a further invoice for $25,800,including some anticipated future expenses. That invoice was attached toan email he sent to Bastion’s lawyer on November 2, 2013, stating thathe would be commencing action and sending notice of a lien early in thefollowing week. He did not follow through on those threats but, in re-sponse, Mr. Tangye and the two Musqueam directors of Boatyard Ltd.signed a letter to Mr. Cote, dated November 6, 2013. That letter deniedthat anything was owed and told Mr. Cote that all arrangements with himand Cascadia were being terminated. The letter stated, in part:

It is our position that your stated intention to sue Milltown and file alien against Milltown’s development project is fundamentally incon-sistent with your duty as a director of this company and a member ofthe Joint Venture Management Committee and as a key contractor tothe project to act in the best interests of the project.... [Y]ou are veryaware that the filing of a lien would constitute a breach of the leasesunder which Milltown holds the project lands and you are furtheraware of the impact that can result from the filing of a lien during thedevelopment phase of a project. That is to say you have demonstrateda willingness to put the entire project at risk in order to expedite col-lection of an account.


42 Mr. Cote did not receive that letter until later in the month, but Mr.Tangye told him of the termination on November 7, 2013. Mr. Tangyesays that by then he and the Musqueam members of the Joint VentureManagement Committee had agreed that Mr. Cote could not continue asa member of the Management Committee or as a director of BoatyardLtd. and Moorage Ltd.

43 After being verbally told of his termination, Mr. Cote apologized forthreatening legal action and said in a letter that “in a normal state of mindI would not have taken the action I did.... My only excuse being over-work.” He also sent an email to a number of bastion employees apologiz-ing for “my irritable behaviour towards many of you these past 6 or somonths.”

44 On or about November 13, 2013, notice was sent to Mr. Cote of anAnnual General Meeting for Holdings Ltd. to be held on December 9.The notice stated that one purpose of the meeting was “to fix the numberof and elect directors for the ensuing year.” Mr. Cote did not attend thatmeeting, which was then adjourned to December 16. When he did notattend or send a representative on that date, the number of directors ofHoldings was set at one, and Mr. Tangye was elected as the sole director.

45 Mr. Cote says that because of his recent termination he was sufferingfrom depression, anxiety, and panic attacks. He says he contacted Bas-tion’s lawyer, who also acted as secretary of Holdings Ltd., to ask ifthere were any resolutions that would affect him and was told the onlymatters to be dealt with were those set out in the notice.

46 Mr. Cote says he was not aware that he was in danger of being re-moved as a director. In view of the events that had just occurred and thelanguage of the meeting notice, I do not understand how Mr. Cote couldhave failed to recognize that possibility. Of course, even if he had at-tended the meeting he could not have prevented that result because Mr.Tangye controlled 75 per cent of the voting shares.

47 On December 17, 2013, special resolutions of the shareholders ofBoatyard Ltd. and Moorage Ltd. removed Mr. Cote as a director of thosecompanies and appointed Ms. Maust to replace him. On December 20,2013, Milltown LP formally notified Musqueam LP that Mr. Cote hadbeen removed as a representative of Milltown LP on the ManagementCommittee and replaced by Ms. Maust.

48 In the result, Mr. Cote says he was left with no role in the develop-ment, operations, or policies of the marina that he had conceived and


spent four years working full time to develop. Cascadia continues to holdits indirect 12.5 per cent ownership interest in the business.

49 Mr. Cote also says that the business is being mismanaged in his ab-sence. He says that even after being terminated he has continued to warnMr. Tangye and the management committee that they are operating in anumber of ways that threaten the marina’s success, including actions thatviolate commitments made to regulators. He also says that he was notinformed of the decision to defer sale of long-term slip leases.

V. The Oppression Remedy50 This petition is brought pursuant to s. 227 of the Business Corpora-

tions Act, which reads: 227 (1) For the purposes of this section, “shareholder” has the samemeaning as in section 1 (1) and includes a beneficial owner of a shareof the company and any other person whom the court considers to bean appropriate person to make an application under this section.

(2) A shareholder may apply to the court for an order under this sec-tion on the ground

(a) that the affairs of the company are being or have been con-ducted, or that the powers of the directors are being or havebeen exercised, in a manner oppressive to one or more of theshareholders, including the applicant, or

(b) that some act of the company has been done or is threatened,or that some resolution of the shareholders or of the share-holders holding shares of a class or series of shares has beenpassed or is proposed, that is unfairly prejudicial to one ormore of the shareholders, including the applicant.

51 Section 227(3) permits the court to make a variety of orders “with aview to remedying or bringing to an end the matters complained of,”including:

(a) directing or prohibiting any act,

(b) regulating the conduct of the company’s affairs,

. . .

(e) appointing directors in place of or in addition to all or any of thedirectors then in office,

(f) removing any director,

(g) directing the company, subject to subsections (5) and (6), topurchase some or all of the shares of a shareholder and, if required,to reduce its capital in the manner specified by the court,


(h) directing a shareholder to purchase some or all of the shares ofany other shareholder,

. . .

(k) varying or setting aside a resolution,

. . .

(o) directing that the company be liquidated and dissolved, and ap-pointing one or more liquidators, with or without security,

52 In Walker v. Betts, 2006 BCSC 128 (B.C. S.C.) at para. 81, the courtheld:

[81] In order to maintain a personal action for oppression, an appli-cant shareholder must establish harm to his interests as a shareholder,as distinct from his interests as a director, officer or employee. Hemust also establish harm peculiar to his shareholder interests as dis-tinct from the other shareholders’ interests.

A. Standing53 The respondents say the petitioners do not have standing to seek relief

in relation to two of the three companies named in the petition. Cascadiaowns shares in Holdings Ltd., but neither petitioner owns shares in Boat-yard Ltd. or Moorage Ltd. They also say that the parties have chosen tocarry on business through a limited partnership, which is not governed bythe BCA.

54 The definition of “shareholder” in s. 227 includes a beneficial ownerof shares and “any other person whom the court considers to be ... appro-priate.” In N’Quatqua Logging Co. v. Thevarge, 2006 BCSC 1122 (B.C.S.C.), Pitfield J. said at para 19:

[19] The reference to an appropriate person is intended to provide aremedy for persons who are not shareholders but who, by virtue oftheir relationship to, or dealings with, the company, have an interestthat is not dissimilar to that of a shareholder.

55 In that case, the sole shareholder of a company was the chief of a firstnation, who later transferred the share to a society but remained the com-pany’s sole officer and director. The petitioners were dissident membersof the first nation. Pitfield J. found that the society existed and operatedfor the benefit of all band members, and the dissidents therefore hadstanding to invoke s. 227. At para 25, he said:

[25] Section 227(1) makes it clear that the court is granted discretionto determine whether an applicant is an “appropriate person”. Thediscretion must be exercised judicially. The overriding concern must


be whether an applicant should be afforded the benefit of the remedyconferred by s. 227 in order to achieve justice and equality in thecircumstances of a particular case....

56 In R.B.L. Management Inc. v. Royal Island Development Ltd., 2007BCSC 960 (B.C. S.C.), the petitioner was the sole shareholder of a com-pany that owned a 30 per cent interest in the company at issue. In hold-ing that the petitioner had an interest “not dissimilar” to that of a share-holder, Romilly J. said at para. 14:

[14] In Ginther v. Rainbow Management Ltd., [1989] B.C.J. No. 636(B.C.S.C.), the court held that a shareholder of a shareholder is a per-son with a direct financial interest in how a company is managed andcan be a proper person to make an application for an order that theaffairs of a company are being conducted in an oppressive manner.

57 In this case, the petitioners clearly have standing in relation to Hold-ings Ltd. — Cascadia is a shareholder, and Mr. Cote is the sole share-holder in Cascadia. They also are members of the limited partnership thatholds one half of the shares in Boatyard Ltd., which in turn owns all ofthe shares in Moorage Ltd. In that sense, I find that they have an interest“not dissimilar” to that of shareholders.

58 The BCA refers to oppression in the conduct of the “affairs” of acompany. The “affairs” of Holdings Ltd., in which Cascadia is a directshareholder, include management of the limited partnership. While theBCA gives the petitioners no direct rights against the limited partnership,the manner in which Holdings Ltd. operates the limited partnership mayaffect the petitioners’ rights as shareholders in Holdings Ltd. or as partieswith “not dissimilar” rights in Boatyard Ltd. and Moorage Ltd.

59 Having said that, cases such as N’Quatqua Logging and R.B.L. Man-agement deal only with standing to make the application. Nothing inthose cases expands the substantive remedies available or changes whatthe petitioner must prove.

60 In particular, I fail to see where the court has jurisdiction, on an appli-cation under the BCA, to order that the respondents purchase the peti-tioners’ limited partnership units in Milltown LP, the relief sought by thepetitioners. A limited partnership is a distinct form of business organiza-tion created and governed by Part 3 of the Partnership Act, R.S.B.C.1996, c. 348.

61 Some of the relief available under s. 227 of the BCA might indirectlyapply to a limited partnership through orders directed to a corporationthat is a limited or general partner. For example s. 227(3)(a) permits the


court to make an order directing or prohibiting any act. Arguably, a cor-poration that is the general partner in a limited partnership may be di-rected to cause the limited partnership to do or not do certain things.

62 But the court’s jurisdiction to order purchase of a party’s interest isfound in 227(3)(h), which the petitioner apparently relies on. That refersspecifically to a shareholder being ordered to purchase the shares of an-other shareholder. A “shareholder” is defined in s. 1 of the BCA as “aperson whose name is entered in a securities register of a company as aregistered owner of a share of a company.”

63 Although s. 227 allows the Court to hear an application from a personwith an interest other than that of a direct shareholder, it does not, in myview, permit the court to make orders requiring disposition of any pro-perty other than shares in a company. It cannot be applied to force sale ofunits in a Limited Partnership. If the legislature had intended the court tomake such orders it would have included such a provision in the Partner-ship Act. (Section 38 of the Partnership Act does empower the Court toorder dissolution of a partnership and the petition includes a claim forthat relief, which will be addressed later in these reasons.)

B. Reasonable Expectations64 Apart from an order that their limited partnership units be purchased,

some of the other relief sought by the petitioners, such as a declarationthat oppression has occurred and orders that Mr. Cote be restored to hisdirectorships, may still be available under s. 227.

65 The leading authority on the oppression remedy is the decision of theSupreme Court of Canada In BCE Inc., Re, 2008 SCC 69 (S.C.C.). Thatcase dealt with the equivalent provision in the Canada Business Corpo-rations Act, R.S.C. 1985, c. C-44, s. 241, which protects not only share-holders but also creditors, officers, and directors. The court thereforeuses the term “stakeholder,” but the use of that general term cannot betaken as authority for extending the application of the provincial statutebeyond what is contemplated by s. 227.

66 However, the court confirmed a number of general principles,including:

• The court has a “broad, equitable jurisdiction to enforce not justwhat is legal but what is fair.” Courts considering claims for op-pression “should look at business realties, not merely narrow le-galities”: para. 58;


• The remedy is concerned with the reasonable expectation ofshareholders and is subject to a two-part inquiry: whether the evi-dence supports “the reasonable expectation asserted by the claim-ant” and whether it establishes “that the reasonable expectationwas violated by conduct falling within the terms ‘oppression’ or‘unfair prejudice’: para. 68;

• The petitioner “must identify the expectations that he or sheclaims have been violated by the conduct at issue and establishthat the expectations were reasonably held”: para. 70;

• The existence of a reasonable expectation is to be determined ob-jectively, based on the circumstances. The actual or subjective ex-pectations of the petitioner are not determinative: para. 62;

• Factors that may be relevant to determining whether a reasonableexpectation exists include: “general commercial practice; the na-ture of the corporation; the relationship between the parties; pastpractice; steps the claimant could have taken to protect itself; rep-resentations and agreements; and the fair resolution of conflictinginterests between corporate stakeholders”: paras. 72-81; and

• Oppression is conduct that is “burdensome, harsh and wrongful,”a “visible departure from standards of fair dealing,” and an “abuseof power.” It is a wrong of the most serious sort. “Unfairprejudice” may involve less offensive conduct, such as squeezingout a minority shareholder, preferring some shareholders withmanagement fees, or failing to disclose related party transactions:paras. 92-93.

67 In Hui v. Hoa, 2015 BCCA 128 (B.C. C.A.), the Court of Appeal saidat para. 51:

[51] In my view, the corporate structure of a company is the frame-work within which the oppression remedy must be considered. Therights of the parties cannot be considered without reference to thecorporate structure. The oppression remedy is a corporate law rem-edy directed toward incorporated entities. Nothing in BCE suggeststhe contrary.

68 That echoes Safarik v. Ocean Fisheries Ltd. [1995 CarswellBC 578(B.C. C.A.)], [2005] 9 W.W.R. 505, where Southin J.A. said at para. 15that “the legal framework of a company must always be the starting pointfor consideration of whether the ‘equitable’ rights of a shareholder havebeen infringed.” Unlike Hui or Safarik, this is not a case where a com-pany existed against the background of a family relationship among the


parties. Nor was there a pre-existing business relationship between Mr.Cote and Mr. Tangye or their companies.

69 The expectation the petitioners rely on is an expectation to be in-volved in management of the marina, as contemplated by the joint ven-ture and other agreements and confirmed by the management agreement.Paragraphs 43 to 46 of the amended petition read:

43. At all times prior to November 7, 2013, Cote had expected thathe would be fully involved in the development, management and op-erations of the Marina. This was, because (a) Cote was the one whoconceived of the Marina; (b) Cote had worked very hard on the pro-ject and had been heavily involved at every stage; and (c) Cote wasthe only one in the ownership group who had the knowledge requiredto run a marina. Cote’s expectation was reflected in the documents.

44. Clause 4.8 of the Joint Venture Agreement states that the obliga-tion of the joint venturers to make their capital contributions weresubject to and conditional upon Boatyard Ltd. entering into a man-agement contract as agent for the joint venturers with Cote or hiscompany, Cascadia. Also, the Shareholders Agreement states atClause C that the Joint Venture intends for Boatyard Ltd. to retainCascadia pursuant to a Management Agreement.

45. Milltown LP and Musqueam LP also entered into an ancillaryagreement by means of a letter agreement dated November 20, 2012.The ancillary agreement contains a variety of clauses, including thefollowing:

The Joint Venturers hereby irrevocably authorize and di-rect Boatyard Ltd. to enter into a contract with MathewCote or his company, Cascadia Marine Group Ltd. to pro-vide management services as outlined in Schedule “A” at-tached hereto and to pay Mathew Cote or CascadiaMarine Group Ltd. the sum of $90,000 per annum byequal monthly installments for such services. The term ofthat contract shall be five years commencing on April 1,2013.

46. In accordance with the above, on January 9, 2013, Cote’s com-pany, Cascadia, entered into the Marina Management Agreementwith Boatyard Ltd. on its own behalf and as trustee and agent forMilltown LP and Musqueam LP as joint venturers in the Joint Ven-ture (the “Management Agreement”). As outlined therein, the Man-agement Agreement is a “five-year minimum commitment” duringwhich time Milltown Boatyard Ltd. agreed to pay $90,000 per annum


plus accommodation for Cote and his immediate family in the Ma-rina apartment.

70 The petitioners rely particularly on Diligenti v. RWMD OperationsKelowna Ltd. (1976), 1 B.C.L.R. 36 (B.C. S.C.), and Elliott v. OpticomTechnologies Inc., 2005 BCSC 529 (B.C. S.C.).

71 In Diligenti, the petitioner was one of four persons who agreed toestablish a restaurant business. They purchased property in their ownnames, and a corporation was ultimately incorporated for each of twolocations, with all four individuals serving as directors of the companies.The petitioner was subsequently removed as a director and relieved of allmanagement functions, with the remaining three directors then payingmanagement fees to a company in which they were the only sharehold-ers. Fulton J. said at 43:

On the face of it it would appear to me that, particularly in a com-pany of the nature of those involved here — private companies,closely held, formed to take over the operations of four individualswho have been equal founders and proprietors of a venture and inwhich companies each of the four holds the same number ofshares — each of its members has a very real interest and concern inthe management of the affairs of the company.

72 Fulton J. found at 49 that the business had been formed as an equalpartnership on which the corporate structure had been superimposed. Itwas against the background of that fact that Fulton J. said at 51:

.... [I]n circumstances such as exist here there are “rights, expecta-tions and obligations inter se” which are not submerged in the com-pany-structure, and these rights are enjoyed by a member as part ofhis status as a shareholder in the company which has been formed tocarry on the enterprise: amongst these rights are the rights to con-tinue to participate in the direction of that company’s affairs. Second,although his fellow-members may be entitled as a matter of strict lawto remove him as a Director, for them to do so in fact is unjust andinequitable, and is a breach of equitable rights which he in fact pos-sesses as a member. And third, although such breach may not “op-press” him in respect of his proprietary rights as a shareholder, suchunjust and inequitable denial of his rights and expectations is un-doubtedly “unfairly prejudicial” to him in his status as member.

73 In the result, Fulton J. declined to dismiss the petition on a prelimi-nary application because, although the petitioner’s removal from his di-rectorship could not amount to oppression as that term is defined in the


authorities, it might be unfairly prejudicial within the meaning of what isnow s. 227(2)(b).

74 Diligenti was considered by the Court of Appeal in Safarik, where theplaintiff, who was not a director, was removed from his management rolein a family company. Southin J.A. said at para. 87 that the oppressionremedy did not apply in those circumstances. The plaintiff succeededunder what is now s. 324 — winding up of a company when it is “justand equitable to do so.” The court made clear that that result flowed fromthe family nature of the company:

[102] But, in my opinion, it is not erroneous to take a more liberalapproach to the words “just and equitable” in the case of a familycompany in which one of the family after many years of service is nolonger permitted to participate in the business.

[103] Taking such an approach, I am of the opinion that it is just andequitable to wind up this company. I do not found this conclusion onany of the learned judge’s findings which may be said to amount tofindings of “wrongdoing”.

75 In Elliott, the plaintiffs had joined an existing company as employeesand acquired shares. Their employment was later terminated. Tysoe J., ashe then was, found at para. 67 that it was an implied term of the agree-ment under which the plaintiffs joined the company that they were enti-tled to remain employees “unless there was cause to terminate their em-ployment or unless their continued employment was not otherwise in thebest interests of the [c]ompany.” He found, after a nine day trial, thatthere was no cause for termination and that the termination was not in thebest interests of the company. He also said at para. 85:

[85] I have held that the reasonable expectations of the Plaintiffs re-garding their continued employment with the Company were also aterm of the agreement in relation to them becoming shareholders inthe Company. As the termination of their employment violated theirreasonable expectations, it follows that the termination was also abreach of the agreement. The Plaintiffs abandoned their claim forwrongful dismissal (which itself is properly classified as a breach ofthe employment contract) because they found alternate employmentin a relatively short period of time, and they are not entitled to anydamages in respect of lost salary.


76 Both Fulton J., in Diligenti, and Tysoe J., in Elliott, referred toEbrahimi v. Westbourne Galleries Ltd., [1972] 2 All E.R. 492 (U.K.H.L.), at 500, where Lord Wilberforce said:

It would be impossible, and wholly undesirable, to define the circum-stances in which these considerations may arise. Certainly the factthat a company is a small one, or a private company, is not enough.There are very many of these where the association is a purely com-mercial one, of which it can safely be said that the basis of associa-tion is adequately and exhaustively laid down in the articles. Thesuper-imposition of equitable considerations requires somethingmore, which typically may include one, or probably more, of the fol-lowing elements:

(i) An association formed or continued on the basis of a personalrelationship, involving mutual confidence — this element willoften be found where a pre-existing partnership has been con-verted into a limited company;

(ii) An agreement, or understanding, that all, or some (for theremay be ‘sleeping’ members), of the shareholders shall partici-pate in the conduct of the business;

(iii) Restriction on the transfer of the members’ interest in thecompany — so that if confidence is lost, or one member isremoved from management, he cannot take out his stake andgo elsewhere.

All three of those conditions were found to exist in Diligenti and the firsttwo were found to be present in Elliott.

77 When a minority shareholder seeks relief from oppression, his or herlegal rights are usually set out in the company articles that permit themajority to do what they have done. I take from the above authorities thatif the minority shareholder has additional equitable rights based on rea-sonable expectations, they must usually be found in an implied agree-ment, the dealings and relationships between the parties, or something ina company’s history or organization that makes it analogous to apartnership.

78 In this case, the parties chose to define their relationship not only inthe articles but also in a series of other agreements. One or other of thepetitioners was a party to some of those agreements. Other agreements towhich the petitioners were not a party explicitly referred to the role thepetitioners would play in the organization. That makes it unnecessary tolook for such things as implied agreements.


79 There can be no doubt that the petitioners had a reasonable expecta-tion to be involved in management, but that expectation arose from anexpress agreement that also defined and limited the expectation. Themanagement agreement did not guarantee that the petitioners’ manage-ment function would be permanent, and it specified breaches that wouldresult in termination. Having entered into that express agreement, the pe-titioners cannot assert they had a reasonable expectation of rights that theagreement does not give them.

80 Boatyard Ltd. purported to terminate the management agreement inreliance on an alleged breach or breaches coming within clause (c) ofparagraph 6 of that agreement. As said earlier, the question of whetherthere was cause for termination can only be determined in the separateaction where the petitioners expressly seek damages for breach of thatagreement. Unlike the plaintiffs in Elliott, the petitioners have not aban-doned that claim, and the possibility of inconsistent findings in two sepa-rate proceedings should be avoided.

81 Mr. Cote asserts that he and Mr. Tangye were effectively partners.They were in fact partners, through their respective companies, but theychose to define the terms of their partnership in a limited partnershipagreement. That agreement expressly excludes Cascadia, as a limitedpartner, from any role in the management or control of the partnershipbusiness. It also gives Bastion a majority interest sufficient to give it con-trol over all partnership decisions.

82 The petitioners were also aware of, although not parties to, the jointventure agreement, which provides for Milltown LP to appoint two rep-resentatives to the joint venture management committee. It does not iden-tify Mr. Cote or anyone else as one those representatives, leaving it com-pletely in Milltown LP’s discretion. This is the same agreement thatspecifically contemplates a management agreement with Mr. Cote orCascadia. If it had been anyone’s intention to permanently guarantee Mr.Cote a seat on the management committee, it could easily have beenwritten into the joint venture agreement.

83 Mr. Cote certainly considered the marina to be his idea and consid-ered himself to be essential to making it happen. He undoubtedly had asubjective belief that he would continue in a management role. But thereis no evidence that the respondents, expressly, impliedly, or by conduct,recognized or affirmed that expectation beyond what the managementagreement provided. In particular, there is nothing in the circumstances


to suggest that Mr. Cote reasonably expected Mr. Tangye or Bastion towaive or refrain from exercising the rights of a majority shareholder.

84 Having found that the petitioners have failed to demonstrate a reason-able expectation, beyond the express agreements, of being involved inmanagement of the marina, it is unnecessary to consider whether thatexpectation was violated by oppressive or unfairly prejudicial conduct.

85 In any event, the removal of Mr. Cote from a management position isnot a violation of Cascadia’s rights as a shareholder. Cascadia continuesto hold its shares and partnership units, and there is no evidence that themajority shareholder has taken financial benefits, as a shareholder, notmade available to Cascadia. The minority shareholder has not been“squeezed out” as I understand that term to be used in BCE.

86 It is not really necessary to deal with the petitioners’ complaint aboutMr. Cote being removed as a director of the three companies because thepetition does not plead that. However, I note that BCE identifies generalcommercial practice as one of the factors to consider in determining rea-sonable expectations. I agree with the respondents that there is no evi-dence suggesting it would be normal commercial practice for a minorityshareholder to be able to insist on becoming or appointing a directorwhen the other shareholder holds a controlling 75% interest. Any expec-tation the petitioners had would, in these circumstances, not have beenreasonable.

87 It is also not necessary to deal with Mr. Cote’s complaints about howthe marina is currently run. If the current management, in his absence, ismaking decisions that are not in the best interest of the business, or causeit to not be profitable, those actions would have the same negative impacton the value of Bastion’s investment as on the value of the petitioners’holdings. The remedy would not be one of oppression but derivative ac-tion under s. 232 of the BCA. The distinction is that the derivative actionis a remedy for breach of duties owed to the company while the oppres-sion remedy relates to breach of duties owed to an individual shareholderin his or her capacity as a shareholder.

VI. The Partnership Act88 In the alternative, the petitioners seek winding up of the limited part-

nership. Paragraphs 38(1)(d) and (f) of the Partnership Act read: 38 (1) On application by a partner, the court may decree a dissolutionof the partnership in any of the following cases:

. . .


(d) when a partner, other than the partner suing, wilfully or persist-ently commits a breach of the partnership agreement or otherwise soconducts himself or herself in matters relating to the partnership busi-ness that it is not reasonably practicable for the other partner or part-ners to carry on the business in partnership with him or her;

. . .

(f) whenever circumstances have arisen that, in the opinion of thecourt, render it just and equitable that the partnership be dissolved.

In Dia-Kas Inc. v. Virani, [1995] B.C.J. No. 1747 (B.C. S.C. [In Cham-bers]), rev’d in part on other grounds, [1997] B.C.J. No. 608 (B.C. C.A.),the court said at para. 78:

[78] The court has the power to dissolve a partnership where trustand confidence between the partners is irrevocably lost and the part-nership can no longer continue on the basis the partners intendedwhen they formed the partnership. In Harrison v. Tennant, (1856) 21Beav. 482, 52 E.R. 945, at page 949 the court said:

In this state of things, the result appears to me to be thatthe confidence mutually reposed in each other, when thepartnership was originally formed, must have ceased, andthat it is now impossible that the business can be con-ducted as it was originally contemplated...

89 The chambers judge referred to Ebrahimi and found that the partner-ship was founded at least as much on “[the parties’] personal trust andconfidence in each other as it was on cold business principles”: para.109. The decision to dissolve the partnership in Dia-Kas was upheld bythe Court of Appeal.

90 However, in Village Gate Resorts Ltd. v. Moore (1997), [1998] 8W.W.R. 586 (B.C. C.A.) at para. 43 the Court of Appeal said that thegrounds for dissolution in s. 38(1)(d) will rarely apply to a limited part-nership:

Obviously, this structure involves different dynamics than an ordi-nary partnership, where the partners truly carry on business “with”each other. In a limited partnership, only the general partner is per-mitted to manage the partnership’s business, making it (I would havethought) rather more difficult for a limited partner to succeed in anapplication for dissolution under s. 38(1)(d). On the other hand, asnoted in the most recent edition of Lindley & Banks on Partnership(17th ed., 1995), the “just and equitable” ground represents a “finalcatch-all” that permits the court to take a broad view of the partners’relationship:


91 The court also referred to the following passage in PWA Corp. v.Gemini Group Automated Distribution Systems Inc. (1993), 101 D.L.R.(4th) 15 (Ont. Gen. Div. [Commercial List]), at 62 -65:

In asserting whether or not the alleged loss of confidence is justified,a court must examine whether there is a valid basis to establish a lackof probity, good faith or other improper conduct on the part of theother partners. Indeed there must be a serious departure from theproper conduct or management of the enterprise’s affairs. Loch v.Blackwood Limited, [1924] 3 W.W.R. 216 at 225, and Re R.J. JowseyMining Co. Ltd., [1969] 2 O.R. 549 at 558. There is no evidence of adeadlock of the partnership on an operational day to day level. Themere fact that the partners may not be able to agree on a restructuringplan is not evidence of deadlock.

Furthermore, it is clear that the parties in the Limited PartnershipAgreement contemplated that the General Partner would be able tooperate in the absence of consensus. Very few matters in that agree-ment require unanimous consent....

. . .

Deadlock is not established by the mere assertion that a minority in-terest has been outvoted by a majority. Where a business with une-qual control is constituted on the basis that decisions may be taken bythe majority as in this case it would be neither just nor equitable topermit a disgruntled minority or one acting in its own self-interest tobe able to dismantle the business and to frustrate the substantial in-vestments of the other Partners.

92 In this case, there is no evidence of a deadlock or any evidence thatthe partnership is unable to carry on the business for which it was set up.Mr. Cote disagrees with the way business is conducted, but the limitedpartnership agreement gives the limited partner exclusive authority, andthere is no evidence that the marina is anything other than a goingconcern.

93 In regard to the “just and equitable” ground in s. 38(1)(e), the court inVillage Gate at para. 44 referred to Ebrahimi as the leading case andreferred to the following statement:

.... The ‘just and equitable’ provision does not, as the respondentssuggest, entitle one party to disregard the obligation he assumes byentering a company, nor the court to dispense him from it. It does, asequity always does, enable the court to subject the exercise of legalrights to equitable considerations; considerations, that is, of a per-sonal character arising between one individual and another, which


may make it unjust, or inequitable, to insist on legal rights, or to ex-ercise them in a particular way.

94 As Ebrahimi is treated as a leading case both in regard to partnershipand corporate oppression, it follows that the same test — that of reasona-ble expectations — must apply. I have already found that the petitionershave failed to prove a reasonable expectation of being involved in man-agement, beyond what could be expected to follow from the managementagreement. The reasonable expectations could be no different when thelimited partnership is looked at in isolation. I find that there are no justand equitable grounds to wind up the partnership.

95 In Village Gate, the court found that there was a loss of trust andconfidence because the general partner had acted in breach of the part-nership agreement. That is not the case here. But even when it foundthere were grounds to wind up the partnership, the court did not makethat order because the limited partnership agreement included provisionsunder which the limited partners could call an extraordinary generalmeeting for that purpose. The court said at para. 47:

[47] If it were necessary, then, I would be willing to grant a judicialdecree of dissolution in this case. But it is not necessary to do so andin my view, it is vastly preferable for the Limited Partners, who afterall are the ones who will be affected financially by whatever decisionis taken at the Partners’ meeting, to make their own decision accord-ing to their own interests and views. For this reason I would exercisemy discretion against a court-ordered dissolution of the Partnershippursuant to s. 38, on the assumption that the Limited Partners willhave the opportunity to vote on dissolution in the near future.

96 In this case, the limited partnership agreement specifically contem-plated that one or both of the limited partners might wish to end the rela-tionship and provided a buy/sell procedure to achieve that result. Mr.Cote says he and Cascadia should not be bound by that provision becausethey are at a commercial disadvantage, given the far superior resourcesof Bastion and Mr. Tangye. They say that disadvantage has been madeworse by the fact that allegations made by the respondent in this litiga-tion have become well-known in the Vancouver business and marinecommunities, making it impossible for them to obtain financing.

97 The difference in economic strength of the parties was well known toMr. Cote when he caused Cascadia to enter into the limited partnershipagreement. As to the submission that knowledge of this litigation and theconduct of the respondents have put him at a further disadvantage, I findthat to be speculation unsupported by evidence.


98 Therefore, even if I had found there were grounds to wind up thelimited partnership, which I did not, I would have exercised my discre-tion against making that order and left it to the parties to end the partner-ship by the mechanism they chose.

VII. Summary and Conclusion99 The petitioners have failed to prove that they had reasonable expecta-

tions that were violated and have therefore failed to prove oppression inthe operation of any company. They have also failed to show grounds forwinding up of the limited partnership.

100 The petition must be dismissed with costs.

Petition dismissed.

Barejo Holdings ULC v. R. 247

[Indexed as: Barejo Holdings ULC v. R.]

Barejo Holdings ULC, Appellant and Her Majesty the Queen,Respondent

Tax Court of Canada [General Procedure]

Docket: 2014-4290(IT)G, 014-353(IT)G

2015 TCC 274, 2015 CCI 274

Patrick Boyle J.

Heard: April 21-22; May 20, 2015


Tax –––– Income tax — Administration and enforcement — Practice andprocedure on appeals — Miscellaneous –––– Taxpayer was shareholder inopen ended investment company located in Virgin Islands — As part of restruc-turing, non-Canadian shareholders of investment company exchanged shares forshares in similar company, so that investment company was wholly-owned byCanadians and held Canadian shareholder’s pro-rata share of underlying assets,and then company was renamed — Renamed company sold all assets to non-resident affiliates of Canadian banks, and proceeds were used to purchase notesfrom two other non-resident affiliates — Notes were intertwined with former as-set pool of renamed company, and investment company’s investment managerwas required to manage asset pool — Minister assessed taxpayer for 2004 and2010 taxation years, and taxpayer appealed — Parties jointly referred for deter-mination question of whether contracts related to notes held by renamed com-pany constituted debt for purposes of Income Tax Act — Contracts constituteddebt for purposes of Act — Notes and relevant agreements were clearly and ex-pressly designed to track value of underlying assets transferred from renamedcompany — Underlying assets remained investment fund that continued to beactively managed by investment company’s investment manager — Core essen-tial characteristics of debt for purposes of Act are that amount of credit is ad-vanced between parties, and that fixed amount is to be paid at future point, withinterest — All core essentials need not be met in particular circumstances — In-struments were referred to as notes — Notes had maturity date and payment ob-ligation, and payment could be triggered early — Documents related to notesdescribed amount for which notes were issued as principal amount, advanced bynote holder to purchase note from issuer — At maturity, amount payable wasreadily ascertainable — Interest rate was stipulated in notes — Interest of zerowas acceptable as rate — Notes were intended to rank pari passu with otherdebt — Guarantours existed for notes.


Cases considered by Patrick Boyle J.:

Backman v. R. (2001), 2001 SCC 10, 2001 CarswellNat 246, 2001 CarswellNat247, 2001 D.T.C. 5149, [2001] 2 C.T.C. 11, 196 D.L.R. (4th) 193, (sub nom.Backman v. Canada) [2001] S.C.J. No. 12, (sub nom. Backman v. Ministerof National Revenue) 266 N.R. 246, 11 B.L.R. (3d) 165, (sub nom. Backmanv. Canada) [2001] 1 S.C.R. 367, REJB 2001-22777, 2001 CSC 10(S.C.C.) — followed

Beament v. Minister of National Revenue (1968), [1969] 1 Ex. C.R. 407, [1968]C.T.C. 558, 69 D.T.C. 5016, 1968 CarswellNat 310 (Can. Ex. Ct.) —considered

Beament v. Minister of National Revenue (1970), [1970] S.C.R. 680, 70 D.T.C.6130, [1970] C.T.C. 193, 11 D.L.R. (3d) 237, 1970 CarswellNat 247, 1970CarswellNat 327 (S.C.C.) — referred to

British Columbia v. Bowen (2013), 2013 BCPC 322, 2013 CarswellBC 3809(B.C. Prov. Ct.) — considered

Canada Deposit Insurance Corp. v. Canadian Commercial Bank (1992), 5 Alta.L.R. (3d) 193, (sub nom. Canada Deposit Insurance Corp. v. CanadianCommercial Bank (No. 3)) 131 A.R. 321, (sub nom. Canada DepositInsurance Corp. v. Canadian Commercial Bank (No. 3)) 25 W.A.C. 321,[1992] 3 S.C.R. 558, 16 C.B.R. (3d) 154, 7 B.L.R. (2d) 113, 97 D.L.R. (4th)385, (sub nom. Canada Deposit Insurance Corp. v. Canadian CommercialBank (No. 3)) 143 N.R. 321, 1992 CarswellAlta 298, 1992 CarswellAlta790, EYB 1992-66961, [1992] S.C.J. No. 96, 16 C.B.R. (3d) 14 (S.C.C.) —followed

Central Capital Corp., Re (1996), 38 C.B.R. (3d) 1, 26 B.L.R. (2d) 88, 132D.L.R. (4th) 223, 27 O.R. (3d) 494, (sub nom. Royal Bank v. Central CapitalCorp.) 88 O.A.C. 161, 1996 CarswellOnt 316, [1996] O.J. No. 359 (Ont.C.A.) — considered

Coast Capital Savings Credit Union v. British Columbia (2011), 2011 BCCA20, 2011 CarswellBC 87, [2011] 3 C.T.C. 32, 15 B.C.L.R. (5th) 214, 298B.C.A.C. 268, 505 W.A.C. 268, 330 D.L.R. (4th) 430 (B.C. C.A.) —considered

Diewold v. Diewold (1940), 22 C.B.R. 329, [1941] S.C.R. 35, [1941] 1 D.L.R.561, 1940 CarswellSask 22, [1940] S.C.J. No. 48 (S.C.C.) — considered

Fingold v. Minister of National Revenue (1992), 92 D.T.C. 2011, [1992] 2C.T.C. 2393, 1992 CarswellNat 395 (T.C.C.) — considered

GRH Ventures Ltd. v. De Neve (1987), [1987] 4 W.W.R. 122, 46 Man. R. (2d)100, 24 C.L.R. 237, 37 D.L.R. (4th) 155, 1987 CarswellMan 189, [1987]M.J. No. 137 (Man. C.A.) — referred to

Gillette Canada Inc. v. R. (2001), 2001 CarswellNat 2256, [2001] 4 C.T.C.2884, 2001 D.T.C. 895, 2001 CarswellNat 4871 (T.C.C. [General Proce-dure]) — referred to


James McTamney & Co. v. Minister of National Revenue (1989), 89 D.T.C. 194,[1989] 1 C.T.C. 2318, 1989 CarswellNat 256 (T.C.C.) — considered

Noble v. Lashbrook (1918), [1918] 1 W.W.R. 918, 11 Sask. L.R. 98, 40 D.L.R.93, 1918 CarswellSask 41, [1918] S.J. No. 98 (Sask. C.A.) — considered

Pizzolati & Chittaro Manufacturing Co. v. May (1971), [1971] 3 O.R. 768, 21D.L.R. (3d) 656, 1971 CarswellOnt 773 (Ont. H.C.) — considered

Placer Dome Canada Ltd. v. Ontario (Minister of Finance) (2006), 2006 SCC20, 2006 CarswellOnt 3112, 2006 CarswellOnt 3113, (sub nom. Ontario(Minister of Finance) v. Placer Dome Canada Limited) 266 D.L.R. (4th)513, 348 N.R. 148, 210 O.A.C. 342, 2006 D.T.C. 6532 (Eng.), [2006] 1S.C.R. 715, [2006] S.C.J. No. 20 (S.C.C.) — considered

Reano v. “Jennie W” (The) (1997), 221 N.R. 223, 1997 CarswellNat 2376, 1997CarswellNat 3657, [1997] F.C.J. No. 1719 (Fed. C.A.) — referred to

Reference re Securities Act (Canada) (2011), 2011 SCC 66, 2011 CarswellNat5243, 2011 CarswellNat 5244, 339 D.L.R. (4th) 577, (sub nom. ReferenceRe Securities Act) 424 N.R. 1, [2011] 3 S.C.R. 837, 519 A.R. 63, 539W.A.C. 63, 97 B.L.R. (4th) 1 (S.C.C.) — considered

Rocovitis v. Argerys Estate (1988), 28 E.T.R. 191, 26 C.P.C. (2d) 302, 63 O.R.(2d) 755, 27 O.A.C. 300, 1988 CarswellOnt 380, 63 O.R. (3d) 755 (Ont.Div. Ct.) — considered

Senza inc. c. Quebec (Sous-ministre du Revenu) (2007), EYB 2007-124634,2007 CarswellQue 9022, [2007] R.J.Q. 2408, 2007 QCCA 1335 (C.A.Que.) — considered

Shoemaker v. Olson (1942), [1942] 3 W.W.R. 620, [1942] 4 D.L.R. 430, 1942CarswellSask 66 (Sask. C.A.) — considered

Technologies industrielles SNC inc. c. Quebec (Sous-ministre du Revenu)(2002), 2002 CarswellQue 15, (sub nom. Quebec (Sous-ministre du Revenu)c. Technologies industrielles S.N.C. inc.) [2002] R.D.F.Q. 5, REJB 2002-27561, [2002] J.Q. No. 7 (C.A. Que.) — considered

Vancouver Society of Immigrant & Visible Minority Women v. Minister ofNational Revenue (1999), 1999 CarswellNat 18, 1999 CarswellNat 19, 99D.T.C. 5034, 234 N.R. 249, 169 D.L.R. (4th) 34, (sub nom. VancouverSociety of Immigrant & Visible Minority Women v. Canada (Minister ofNational Revenue)) 59 C.R.R. (2d) 1, [1999] 2 C.T.C. 1, [1999] 1 S.C.R. 10,[1999] S.C.J. No. 5 (S.C.C.) — considered

Will-Kare Paving & Contracting Ltd. v. R. (2000), 2000 SCC 36, 2000 D.T.C.6467 (Eng.), 2000 D.T.C. 6479 (Fr.), (sub nom. Will-Kare Paving &Contracting Ltd. v. Canada) 188 D.L.R. (4th) 242, [2000] 3 C.T.C. 463, (subnom. Will-Kare Paving & Contracting Ltd. v. Minister of National Revenue)255 N.R. 208, (sub nom. Will-Kare Paving & Contracting Ltd. v. Canada)[2000] 1 S.C.R. 915, (sub nom. Will-Kare Paving & Contracting Ltd. v.Canada) [2000] S.C.J. No. 35, 2000 CarswellNat 3691, 2000 CarswellNat3700, 2000 CSC 36 (S.C.C.) — followed


207053 Alberta Ltd., Re (1998), 1998 CarswellAlta 860, (sub nom. 207053Alberta Ltd. (Bankrupt), Re) 233 A.R. 313, 7 C.B.R. (4th) 32, [1998] A.J.No. 1010, 1998 ABQB 757 (Alta. Q.B.) — considered


Code civil du Quebec, L.Q. 1991, c. 64art. 1425 — considered

Farmers’ Creditors Arrangement Act, 1934, S.C. 1934, c. 53Generally — referred to

Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)Generally — referred toPt. XIII — referred tos. 12(3) — considereds. 12(9) — considereds. 14 — considereds. 14(5) “eligible capital expenditure” (f) — considereds. 15.1(3) “qualifying debt obligation” — considereds. 15.2(3) “qualifying debt obligation” — considereds. 16(2) — considereds. 16(3) — considereds. 18(13)(e) — considereds. 20(1)(f) — considereds. 39(6) “Canadian security” — considereds. 40(3.13) [en. 1995, c. 3, s. 12(2)] — considereds. 47(2) — considereds. 51(1)(b) — considereds. 51.1 [en. 1995, c. 21, s. 50] — considereds. 53(1)(g) — considereds. 53(2)(c) — referred tos. 53(2)(c)(i.3) [en. 1995, c. 3, s. 14(4)] — considereds. 61.3 [en. 1995, c. 21, s. 20] — considereds. 80(1) “excluded obligation” (b) — considereds. 80.1(1) — considereds. 80.02 [en. 1995, c. 21, s. 27] — considereds. 80.02(2)(a) [en. 1995, c. 21, s. 27] — considereds. 80.4(1) — referred tos. 81(1)(m) — considereds. 87(6) — considereds. 87(6.1) [en. 1995, c. 21, s. 30(4)] — considereds. 88(1)(c.4)(ii) [en. 2013, c. 34, s. 224(1)] — considereds. 90(8) — considereds. 91(4.4) [en. 2013, c. 34, s. 226(2) ] — considereds. 94(1) “resident portion” — considereds. 94(15)(c)(ii) — considered


s. 94.1 — considereds. 94.1(1)(a) — considereds. 94.1(1)(b) — considereds. 95(1) — considereds. 95(2.43) “eligible Canadian indebtedness” [en. 2014, c. 39, s. 25(21)] —considereds. 96(2.2)(d) — considereds. 108(1) “testamentary trust” (d)(iii)(A) — considereds. 108(1) “testamentary trust” (d)(iii)(B) — considereds. 111(12) — considereds. 116(6)(d) — considereds. 122.1(1) “qualified REIT property” [en. 2007, c. 29, s. 13(1)] —considereds. 127.3(2) “scientific research and experimental development tax credit”(A)(d) — considereds. 135.1(4)(b) [en. 2006, c. 4, s. 80(1)] — considereds. 137.1(1)(b) — considereds. 137.1(1)(b)(i) — considereds. 137.1(1)(b)(ii) — considereds. 137.1(3)(b) — considereds. 137.1(5) “investment property” (a)(v) — considereds. 137.2 — considereds. 139.1(18)(b)(iii) [en. 2000, c. 19, s. 38] — considereds. 142.2(1) “specified debt obligation” (a) — considereds. 142.2(1) “tracking property” [en. 2009, c. 2, s. 46(4)] — considereds. 143.2 [en. 1998, c. 19, s. 168] — considereds. 143.2(2) [en. 1998, c. 19, s. 168] — considereds. 143.2(7) [en. 1998, c. 19, s. 168] — considereds. 143.2(9) [en. 1998, c. 19, s. 168] — considereds. 143.2(11) [en. 1998, c. 19, s. 168] — considereds. 143.2(13) [en. 1998, c. 19, s. 168] — considereds. 144.1(8) [en. 2010, c. 25, s. 34] — referred tos. 146.2(4) [en. 2008, c. 28, s. 24] — considereds. 148(9) “cash surrender value” — considereds. 181.2(3)(d) — considereds. 181.2(4)(c) — considereds. 181.2(4)(d.1) [en. 1994, c. 7, Sched. VIII, s. 106(2)] — considereds. 181.2(6) [en.1994, c. 7, Sched. VIII, s. 106(3)] — considereds. 204 “debt obligation” [en. 2007, c. 29, s. 26(4)] — considereds. 204 “qualified investment” — considereds. 204.4(2)(a)(viii)(B) — considereds. 206.3 [en. 2007, c. 35, s. 120] — considereds. 207.05 et seq. — referred to


s. 212(1)(b) — considereds. 212(3) “fully exempt interest” (a) — considereds. 212(3) “participating debt interest” — considereds. 212(15) — considereds. 212.3(18) [en. 2012, c. 31, s. 49(1)] — considereds. 214(6) — considereds. 214(7) — considereds. 214(8) “excluded obligation” — considereds. 214(15) — considereds. 237.1 — considereds. 248(1) “disposition” (l) — considereds. 248(1) “lending asset” — considereds. 248(12) — considereds. 248(34) — considereds. 260 — considereds. 260(1) “qualified security” — considered

Mining Tax Act, R.S.O. 1990, c. M.15Generally — referred to

Pawnbrokers Act, R.S.O. 1980, c. 372Generally — referred to

Rules considered:

Tax Court of Canada Rules (General Procedure), SOR/90-688R. 58 — pursuant to


Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)Income Tax Regulations, C.R.C. 1978, c. 945

s. 7000 — considereds. 7000(1)(a) — considereds. 7000(2)(a) — considered

Words and phrases considered:

debt

It is not clear that there is a federal meaning of the concept of debt...

HEARING regarding nature of obligation under contract regarding notes, in ap-peal by taxpayer from assessment by Minister of National Revenue.

Guy Du Pont, Brandon D. Wiener, John J. Lennard, for AppellantSimon Petit, Philippe Dupuis, Marie-Andree Legault, for Respondent

Barejo Holdings ULC v. R. Patrick Boyle J. 253

Patrick Boyle J.:

I. The Referred Question1 The question referred to the Court by the parties pursuant to Rule 58

is whether two contracts, entitled Notes and issued for US $998 millionby affiliates of two Canadian banks and guaranteed by those banks,which are held by St. Lawrence Trading Inc. (“SLT”), an open-endedinvestment fund incorporated under the laws of the British Virgin Is-lands, constitute debt for purposes of the Income Tax Act (the “Act”).

2 This question was referred to the Court by joint application of theparties. The parties were each of the view that the determination of thisquestion prior to a full hearing and trial could dispose of all or part oftheir dispute, or result in a substantially shorter hearing or in a substantialsavings of costs. It appears clear that this question is a mixed question oflaw and fact, which is permitted under Rule 58. The evidence in thisRule 58 reference went in by way of an Agreed Statement of Facts(“ASF”), a copy of which is attached, together with two volumes of JointDocumentary Evidence, the Table of Contents of which is attached.1

3 The Appellant advocates a negative answer to the question; the Re-spondent is seeking an affirmative answer.

II. Contextual Background

The Appeals:4 The Appellant’s appeals are in respect of its 2004 through 2010 taxa-

tion years. By way of broader background context only, the issue raisedby the Notices of Appeal that are relevant to this reference concernwhether Barejo is required to include its share of SLT’s foreign accrualproperty income or FAPI pursuant to the section 94.1 offshore invest-ment fund or OIF rules or the subsection 95(1) deemed interest accrualrules for “prescribed debt obligations” by virtue of SLT being a “con-trolled foreign affiliate” of Barejo. These provisions can apply only if theNotes in question constitute “debt obligations” in the case of subsection95(1) or “debt” in the case of section 94.1. The French version of the Actuses the word “creance” for both of these terms. Prior to the hearing ofthis reference motion, the Crown abandoned its subsection

1 During the hearing, several additional documents relating to the EAO Notesreferenced in the principal Notes in question were also provided to the Courtjointly by the parties.


95(1)/12(3)/12(9)/Regulation 7000 prescribed debt obligation argument.It is understood that there are also a number of other Canadian sharehold-ers in SLT with significant ongoing tax disputes which are proceedingseparately from the Appellant’s tax appeals.

Constraints, Limitations and Qualifications:5 The Court’s answer will only address whether the Notes in question

are debt for the purposes of the Act. There are certain limitations, con-straints and qualifications which need to be clearly set out beforecontinuing.

6 The key constraint, limitation or qualification on the Court’s ability toanswer the reference question as framed is that it asks if the Notes aredebt for purposes of the Act.

7 Firstly, to answer such a broad question it would be necessary to pre-sume or to be satisfied that the word debt, and similar words such asindebtedness, debtor, debt obligation, et cetera, has the same meaning ineach of the many provisions of the Act in which it is used without beingdefined. That is not necessarily the case. It is certainly possible that theremay be some differences to the meaning of the term, depending upon thesurrounding text and overall context of a particular provision or regimein the Act. The Court does not herein propose to preclude that as apossibility.

8 Secondly, as a general principal, the provisions of the Act apply totransactions, contracts and relationships that are most often the subject ofprovincial legislative jurisdiction. The proper characterization of a com-mercial, contractual, business, work, or family relationship for purposesof the application of the federal Act will generally need to be determinedin accordance with, or least after considering, the provincial law applica-ble to the relationship or transactions.

9 This limitation is compounded by the fact that Canada is a bijuralcommon-law/civil law country and, in this case, the Appellant has somedirect or indirect connections to the province of Quebec.

10 It is not clear that there is a federal meaning of the concept of debt,and neither of the parties asked the Court to adopt one. There is arguablysome support in the Supreme Court of Canada decision in VancouverSociety of Immigrant & Visible Minority Women v. Minister of National


Revenue, [1999] 1 S.C.R. 10 (S.C.C.)2 for the proposition that a com-mon-law term used in the Act, like “charity” in that case, could or shouldperhaps be recognized to have a uniform federal meaning that may notaccord precisely with provincial meanings. I was not asked to and do notpropose to take that route in this reference.

11 The Court’s answer to the question therefore does not preclude thepossibility that in different or more particularized circumstances, thecharacterization of an obligation or relationship as debt could be furtherinfluenced by applicable provincial law.

12 This last limitation would be even further compounded by the factthat, in this particular case, the Notes themselves are expressly to be gov-erned by and interpreted and enforced in accordance with the laws ofEngland, as are the two Note Purchase Agreements. No expert evidencewas provided to the Court on the English law applicable to the Notes orother agreements, or their interpretation or enforcement. This generallymeans that the Court is to assume that English law thereon is the same asCanadian law.3

13 In short, the Court in this case is answering the particular questionreferred to it as best it can. However, the general meaning ascribed to theterm debt herein will not necessarily apply in all cases. In the hearing ofany other particular case, this Court may give a somewhat different ormore nuanced meaning to the term debt depending upon the text andcontext of a particular provision or regime in the Act, specific provincialor other applicable laws that are relevant to the interpretation of a con-tract or the characterization of a relationship, or the possible relevance ofpurpose, objective or intention to the application of the provision or theinterpretation or characterization of the contract or relationship, amongother things.

2 See Justice Gonthier’s dissenting reasons at paragraph 28.3 To the extent that applicable Canadian law might be Quebec provincial law, itcan be noted that Article 1425 of the Civil Code of Quebec suggests that ininterpreting a contract, the common intention of the parties may be more signifi-cant than adherence to the literal meaning of the words of the contract chosen bythe parties.


The FAPI and OIF Rules:14 A brief general summary of the contextual background for the exis-

tence of the Notes should be set out as this will assist the parties andother readers to situate this reference within the pantheon of Canadianlegislation, jurisprudence and ongoing litigation involving offshore in-vestment income.

15 The taxation years in question were all during the decade in Canadain which the Canadian tax rules relating to foreign-sourced income wasin a most unsettled and unclear state. Changes to the Act’s approach tothe taxation of foreign sourced non-business income were announced, re-leased in draft, revised, and replaced, sometimes with and sometimeswithout full grandfathering rules, and sometimes seemingly retroac-tively — or at least retrospectively. Indeed, witty tax observers wereknown to note that the announced rules in some form or another mightbecome statute-barred in advance of being passed by Parliament. Otherswould observe that this did not reflect well on Canada and might be moreexpected of a banana republic or a tin-pot dictatorship than a first worldG7 OECD parliamentary democracy. At times, it appeared that the nec-essary clarity, consistency and predictability of Canadian tax legislationmight fall victim to seemingly inexplicable machinations, contortionsand disingenuities.4

The Reorganization:16 The Appellant was a shareholder in GAM Diversity Inc. (“GAM Di-

versity”), a British Virgin Islands open-ended investment company,along with other Canadian and non-resident investors. The assets ofGAM Diversity consisted primarily of interests in hedge funds and mu-tual funds. GAM Diversity’s investment manager was Global AssetManagement (“GAM”), an independent third party Bermuda corporation.

17 GAM Diversity was reorganized in anticipation of announced Cana-dian tax changes to come into effect in 2002 that would have had sub-stantial adverse tax consequences for Canadian shareholders of GAM Di-versity, and which could in turn have led to redemption and liquidity

4 Greater cynics posited that another possible contributor to this saga was thefact that the failure to pass a fiscal or money bill by Parliament could be consid-ered a motion of confidence.


issues for the fund itself as Canadians held approximately 49% of itsshares.

18 In essence, in late 2001 the non-Canadian shareholders of GAM Di-versity exchanged their shares for shares of a new similar investmentcompany which ended up holding the non-resident shareholders’ pro-ratashare of GAM Diversity’s underlying assets. GAM Diversity was leftwholly-owned by Canadians and continued to hold the Canadian share-holders’ pro-rata share of GAM Diversity’s underlying assets. GAM Di-versity was then renamed St. Lawrence Trading Inc.

19 SLT then sold all of its assets to non-resident affiliates of The Bankof Nova Scotia (“BNS”) and The Toronto-Dominion Bank (“TD”). Eachof Scotiabank (Ireland) Limited and TD Global Finance purchased one-half undivided co-ownership interests in SLT’s assets.

20 SLT then used the sales proceeds of US $996 million5 to purchaseone of the Notes from each of two other non-resident affiliates of BNSand TD, Bank of Nova Scotia International Limited and Toronto Domin-ion International Inc. TD and BNS guaranteed the obligations of theiraffiliates under the Notes.

21 As described in greater detail below and in the ASF, the Notes pur-chased by SLT from the TD and BNS affiliates remained very much in-tertwined, legally and economically, with the former SLT asset pool soldto the other TD and BNS affiliates. Further, the former SLT asset poolwas required by the agreements entered into between SLT, the Canadianbanks6 and the bank affiliates, to continue to be managed by GAM.

22 This reorganization summary is set out only by way of backgroundfactual and contextual history to the transactions giving rise to the Notes.While it may or may not be relevant if the appeals proceed to trial, it isnot directly relevant to the Court’s answer to the reference question.

23 Since the reorganization, the Notes have been SLT’s principal, andonly material, assets.

5 It can be noted this would have been the equivalent of approximately CAD$1.5 billion at that time. It can also be noted that between that time and the endof the years in question, the value of the Canadian dollar to the US dollar rangedremarkably.6 One or more of the Canadian banks’ affiliates may themselves have been aforeign bank.


III. The Notes and the Former SLT Assets24 The two Notes each bear the same features, terms and conditions.25 Each Note was issued pursuant to a Note Purchase Agreement be-

tween SLT and the bank affiliate issuer of the Note, and the Notes arecross-defaulted to the Note Purchase Agreements. In the Note PurchaseAgreement, SLT represents and warrants that the reconstruction of GAMDiversity (SLT) (which included the reorganization described above, thesale of the SLT assets to the bank affiliates, and the issuance andpurchase of the Notes) had been duly completed in the manner set forthin the Circular issued by GAM Diversity (SLT) proposing and recom-mending it. That Circular describes the Notes as Total Return LinkedNotes. A Term Sheet for the Notes is attached thereto. It describes theissue price of the Notes7 as their Principal Amount. It specifies that nointerest will be payable (except in the case of default); it does not carryon to specify that no other forms of distributions will be made. It speci-fies that the Notes are to rank pari passu with all unsecured obligationsof the issuer.8 The Circular describes the amount payable to settle theNotes upon maturity or termination as the value (or realized proceeds) ofthe underlying pool of assets acquired by the other bank affiliate fromSLT upon the reorganization. The Circular called for both a Note and aNote Indenture to be part of the closing documents. Note Indentures werenot put in, or addressed in, evidence on this reference.9

26 The terms of the Notes themselves describe them as Notes “issued”that the bank affiliate “issuer” “promises to settle”. Unlike the Circularand the term sheet for the Notes, the Notes do not refer to a PrincipalAmount but to an Issuance Amount. The provision in the Notes allowingfor Additional Notes refers to “additional principal being available underthe Notes and Additional Notes”. The Notes specify that no interest ispayable prior to maturity or default; they do not use any non-debt lan-guage respecting the absence of distributions.

7 The Notes’ issue price varies somewhat in amount between the Circular andthe Notes themselves, which appears to reflect changes in values of SLT’s un-derlying assets during the interim period.8 The 2004 SLT Prospectus in evidence similarly describes the Notes’ non- in-terest bearing nature and pari passu ranking.9 The Circular also required SLT’s counsel to provide a legal opinion to thebanks and their affiliates that “in its reasonable judgment, the primary purposeof the transaction is not a scheme to illegally avoid paying tax”.


27 The Notes specify that they rank pari passu with the issuers’ “otherunsecured obligations”. The definition of pari passu in the Notes onlydeals with debts and the word “debt” is used six times in that definition.

28 The Notes are by their terms to be “guaranteed” by the banks them-selves as “guarantors”. Under the terms of the Guarantee Agreements,the guarantor “will be liable ... as if it were the sole principal debtor andnot merely as surety”. The Guarantee Agreement provides an indemnityin addition to the Guarantee, which indemnity provides that if anyamount is not recoverable under the Guarantee it will “nevertheless berecoverable from [the Guarantor] as if it were the sole principal debtor”.The Guarantor’s obligations are to rank pari passu with the Guarantor’sother unsecured and unsubordinated obligations; and pari passu is giventhe same meaning in the Guarantee Agreements as its definition in theNotes themselves.

29 The Canadian banks had capital adequacy regulatory concerns withrespect to the possibility of the underlying reference assets including in-vestments in any single fund exceeding specified percentages. The trans-actions did not impose a blanket restriction but set out a parallel work-around structure integrated into the transactions that involved anotherspecial purpose entity becoming the excluded assets owner. For thesepurposes, the terms of the Notes define the excluded assets owner’s par-allel notes as EAO Notes, being “a debt obligation issued by” that entity.The workaround transaction agreements described the parallel notes as a“debt obligation, the value of which is linked to the reference assets ac-quired and held by” the special purpose entity. They also title any paral-lel note as an equity-linked note and describe it as having a principalamount that reflects underlying asset values.

30 The Notes include specific provisions that give the bank affiliate issu-ers of the Notes early termination rights that may be triggered upon anydirection from the Office of the Superintendent of the Financial Institu-tions (OSFI) or other bank regulatory authority directing the banks, theissuers, or the bank affiliate holding the assets to adopt a capital treat-ment for the transaction that is different than that the bank and their affil-iates intended. It is not known by the Court how these transactions wererecorded for bank regulatory purposes. For financial statement purposes,the issuers recorded them on their balance sheet under current liabilitiesas equity-linked notes. In the notes to these financial statements, they are


further described as non-interest bearing equity-linked notes issued bythe bank affiliate.10

31 SLT, in its financial statements, records the Notes under assets on itsbalance sheet. In the first year following the reorganization, they are re-corded as Notes.11 In the later years’ financial statements in evidence,they are described as available for sale investments.

32 The Notes have a maturity date of November 30, 2016, 15 years aftertheir issue. Maturity could be earlier in the event of termination events.SLT had the right to terminate at any time for any reason whatsoever,however, that was only upon 367 days’ notice. The other early termina-tion rights of the issuers and SLT were triggered by adverse changeswhich included, in the case of the issuers, the value of the reference as-sets dropping below specified tolerances, and included in the case ofSLT, the other issuer’s Note being terminated early. These other earlytermination rights when exercised, subject to thirty-day cure periods forissuer-triggered terminations, resulted in an immediate early maturitydate requiring settlement of the Notes. The Notes and related agreementsalso had limited redemption rights, put rights and a line a credit to pro-vide a limited degree of liquidity to SLT.

33 There is no stated or fixed amount payable when the Notes are to besettled upon maturity or termination. Nor is there a formula or a methodset out for ascertaining the amount payable when due to be settled uponmaturity or termination that can produce an ascertainable amount prior tothose events happening. The method for fixing the amount payable bythe issuer of the Notes to SLT as purchaser and holder of the Notes tosettle the Notes is, in essence, simply the value of the underlying Refer-ence Assets. Under the relevant agreements, the Reference Asset value isrequired to be calculated and communicated to SLT weekly. Appellant’scounsel acknowledged that, in accordance with the provisions of theNotes and related agreements, the amount payable to settle the Notes will

10 It goes on to disclose that this is hedged with a total return swap with itsaffiliate that holds the assets. The total return swaps and related documents arenot in evidence.11 The notes to these financial statements describe the reorganiza tion and de-scribe the Notes as consideration paid for the transferred assets.


be wholly ascertainable and able to be precisely determined by arithmeticcalculation whenever payment of the Notes may be required.12

34 The Notes and relevant related agreements are clearly and expresslydesigned to track the value of the underlying assets transferred from SLTat the outset as those assets effectively remain an investment fund thatcontinues to be actively managed by GAM. The make-up of these Refer-ence Assets is not any way fixed or static; they are actively managed, andtheir make-up and their value can be expected to differ significantly, butnot predictably, upon maturity or other payment obligation arising ascompared with the assets originally transferred from SLT to the issuers’affiliates when the Notes were issued.

35 The terms of the Notes are such that they derive their value through-out from the performance of the underlying Reference Assets (and ofcourse the creditworthiness of the two Canadian banks involved). Theamounts payable under the Notes are clearly directly derived from anddirectly linked to the performance and values of the underlying Refer-ence Assets.

36 The Notes require that, until the Notes’ maturity, the Reference As-sets shall be managed by GAM (or its successor appointed by SLT) inaccordance with the Reference Assets Management Agreement(“RAMA”). The Notes and the RAMA permit the investment manager todispose of Reference Assets and acquire new Reference Assets. Whilethere are certain specific restrictions on permitted investments, the in-vestment manager generally has broad discretionary scope to trade theReference Assets. The Reference Assets could be described as a multi-manager fund with GAM investing in other managed investment funds.

37 The composition of the Reference Assets would therefore constantlyfluctuate over time. The value of the Reference Assets will also con-stantly fluctuate depending upon the performance of the individual fundscomprising the Reference Assets from time to time.

38 The Notes specify how the value of the Reference Assets is calculatedfor this purpose and requires GAM to calculate that amount each Mon-day throughout the term of the Notes and on any maturity date. This ispresumably used for a number of purposes including the manager’s fees,the banks’ fees, monitoring compliance with investment restrictions and

12 However, it was the Appellant’s position that the obligations under the Notesonly “crystallized” as debt once payment was actually due.


potential events of default, and considering put rights and terminationrights. Most importantly it is used to determine the amount payable tosettle the Notes.

39 The Notes provide that the amount payable by the issuers to settle theNotes upon maturity (including early maturity arising from termination)is cash in an amount effectively reflecting either (i) the value of the Ref-erence Assets at that time, or (ii) in certain cases, the sale proceeds of anorderly disposition of the Reference Assets.

IV. Analysis40 The question posed jointly in this Rule 58 reference motion is:

Whether the two contracts held by SLT, a non-resident entity, consti-tute debt for the purposes of the Income Tax Act?13

41 It is clear from the terms of the Notes and related documents thatthese Notes evidence what can be called a hybrid investment and theNotes to be characterized are themselves hybrid contracts or obliga-tions.14 They have some of the characteristics of debt, such as a stipu-lated interest rate which in this case is nil. At the same time, the amountpayable or repayable upon maturity to the Note holders is described interms that are quite far along the continuum of what one might generallyexpect in a common debt instrument. The Notes’ value is, like most con-tracts, including debt, dependent upon the creditworthiness of thecounter-party issuers as well as the guarantors. Distinct from credit orperformance risk, the value of the Notes at any time clearly derives fromthe value of the underlying Reference Assets. The value of the ReferenceAssets is calculated weekly. However, one cannot compute the value ofthe Notes at any time other than scheduled or early maturity directly byreference to the underlying asset values. SLT’s assets prior to the reor-ganization giving rise to the Notes were its investments in a GAM-man-aged fund of funds, or more specifically a GAM-managed fund of multi-manager funds. The reorganization gave rise to the Notes which, from aneconomic investment perspective, appear to create a synthetic GAM-managed fund of funds.

13 The two contracts referred to are the Notes. SLT is St. Lawrence Trading Inc.14 It was acknowledged that the Court could take judicial notice of the existenceof hybrids and derivatives in capital markets.


42 It is not at all immediately clear that the Notes constitute a debt obli-gation in the way a typical or traditional bond, debenture or promissorynote does. The Notes require further review analysis and consideration.

43 The Notes are carefully crafted documents in a complicated, complexseries of steps or transactions. One would think that there was a desireand intention that the Notes either be debt or be something other thandebt. It could also be possible that it was intentionally unclear. I do notknow from the evidence on this reference. Similarly, one might think thatunder whatever variation of the then-proposed new tax changes, it mighthave been important to be debt or to not be debt and thus perhaps be ableto infer an intention not provided. However, the information regardingwhich iteration or variation of the proposed tax changes, or which ones,were announced to be applicable or under consideration at the time of theSLT reorganization was not provided to the Court, nor was such a posi-tion put forward by either party.

44 The question is therefore left to be answered by first identifying whatthe general meaning of debt is when used in the Act without being de-fined. The second step will be to decide whether the Notes sufficientlymeet that meaning or definition.

The Interpretation of Undefined Terms in the Act:45 The first step in this analysis should begin with identifying the essen-

tial elements of the established and accepted legal meaning of the termdebt under applicable Canadian law.

46 The Supreme Court of Canada in Will-Kare Paving & ContractingLtd. v. R., 2000 SCC 36 (S.C.C.) wrote:

28 From the legislative material accompanying the manufacturingand processing incentives, it is clear that Parliament’s objective wasto encourage the manufacturing and processing sector’s ability to ad-dress foreign competition in the domestic and international marketsand foster increased employment in that sector of the Canadian econ-omy. Furthermore, it is clear that Parliament did not wish to defineexhaustively the scope of manufacturing or processing, words whichdo not have distinct legal meanings, but left it to the courts to inter-pret this language according to common commercial use. The lan-guage in Hansard is not helpful as to the meaning which Parliamentintended to subscribe to the words “for sale or lease”. It neither dic-tates, nor precludes, the application of common law sale of goodsdistinctions.


29 Notwithstanding this absence of direction, the concepts of a saleor a lease have settled legal definitions. As noted in Crown Tire andHawboldt Hydraulics, Parliament was cognizant of these meaningsand the implication of using such language. It follows that the availa-bility of the manufacturing and processing incentives at issue must berestricted to property utilized in the supply of goods for sale and notextended to property primarily utilized in the supply of goodsthrough contracts for work and materials.

30 It is perhaps true, as Will-Kare submitted and as noted in Halli-burton, supra, at p. 5338, that the use of sale of goods law distinc-tions sometimes yields the anomalous result that the provision of ser-vices in connection with manufactured and processed goods willdisqualify property that would, but for the services, qualify for theincentives. Nevertheless, it remains that in drafting the manufactur-ing processing incentives to include reference to sa le or lease, Parlia-ment has chosen to use language that imports relatively fine privatelaw distinctions. Indeed, the Act is replete with such distinctions. Ab-sent express direction that an interpretation other than that ascribedby settled commercial law be applied, it would be inappropriate to doso.

31 To apply a “plain meaning” interpretation of the concept of a salein the case at bar would assume that the Act operates in a vacuum,oblivious to the legal characterization of the broader commercial re-lationships it affects. It is not a commercial code in addition to a tax-ation statute. Previous jurisprudence of this Court has assumed thatreference must be given to the broader commercial law to give mean-ing to words that, outside of the Act, are well-defined. SeeContinental Bank Leasing Corp. v. Canada, [1998] 2 S.C.R. 298. Seealso P. W. Hogg, J. E. Magee and T. Cook, Principles of CanadianIncome Tax Law (3rd ed. 1999), at p. 2, where the authors note:

The Income Tax Act relies implicitly on the general law,especially the law of contract and property. ... Whether aperson is an employee, independent contractor, partner,agent, beneficiary of a trust or shareholder of a corpora-tion will usually have an effect on tax liability and willturn on concepts contained in the general law, usuallyprovincial law.

32 Referring to the broader context of private commercial law in as-certaining the meaning to be ascribed to language used in the Act isalso consistent with the modern purposive principle of statutory in-


terpretation. As cited in E. A. Driedger, Construction of Statutes (2nded. 1983), at p. 87:

Today there is only one principle or approach, namely,the words of an Act are to be read in their entire contextand in their grammatical and ordinary sense harmoniouslywith the scheme of the Act, the object of the Act, and theintention of Parliament.

See Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 21.The modern approach to statutory interpretation has been applied bythis Court to the interpretation of tax legislation. See 65302 BritishColumbia Ltd. v. Canada, [1999] 3 S.C.R. 804, at para. 5, per Bas-tarache J., and at para. 50, per Iacobucci J.; Stubart Investments Ltd.v. The Queen, [1984] 1 S.C.R. 536, at p. 578.

33 The technical nature of the Act does not lend itself to broadeningthe principle of plain meaning to embrace popular meaning. Theword sale has an established and accepted legal meaning.

34 Will-Kare’s submissions essentially advocate the application of aneconomic realities test to the interpretation of what constitutes a salefor the purpose of the manufacturing and processing incentives.However, as noted above, in the absence of express legislative direc-tion to the contrary, I view the incentives’ reference to the conceptsof sale and lease as importing private law distinctions. As such, theprovisions at issue are clear and unambiguous and reference to eco-nomic realities is not warranted. See Shell Canada Ltd. v. Canada,[1999] 3 S.C.R. 622, at para. 40.

35 It would be open to Parliament to provide for a broadened defini-tion of sale for the purpose of applying the incentives with clear lan-guage to that effect. Given, however, the provisions merely refer tosale, it cannot be concluded that a definition other than that whichfollows from common law and sale of goods legislation wasenvisioned.

[Emphasis added]

47 Further, the Supreme Court of Canada wrote the following year inBackman v. R., 2001 SCC 10 (S.C.C.):

17 The term “partnership” is not defined in the Act. Partnership is alegal term derived from common law and equity as codified in vari-ous provincial and territorial partnership statutes. As a matter of stat-utory interpretation, it is presumed that Parliament intended that theterm be given its legal meaning for the purposes of the Act: N. C.Tobias, Taxation of Corporations, Partnerships and Trusts (1999), atp. 21. We are of the view that, where a taxpayer seeks to deduct Ca-


nadian partnership losses through s. 96 of the Act, the taxpayer mustsatisfy the definition of partnership that exists under the relevant pro-vincial or territorial law. This is consistent with Interpretation Bulle-tin IT-90, “What is a Partnership?” dated February 9, 1973. It is alsoconsistent with the approach taken to the interpretation of the Act bya majority of this Court in Will-Kare Paving & Contracting Ltd. v.Canada, [2000] 1 S.C.R. 915, 2000 SCC 36, at para. 31. It followsthat even in respect of foreign partnerships, for the purposes of s. 96of the Act, the essential elements of a partnership that exist underCanadian law must be present: for a similar approach, see EconomicsLaboratory (Canada) Ltd. v. M.N.R., 70 D.T.C. 1208 (T.A.B.).

[Emphasis added]

The Appellant’s position:48 The Appellant’s principal position is that the generally accepted com-

mercial law meaning of debt is (i) an obligation to pay a sum certain orsum reducible to a certainty, and (ii) that a debt cannot exist unless anduntil the amount to be paid is certain or can be made certain from factswhich are known or knowable.

49 There is considerable support for the first part of the Appellant’s posi-tion. While helpful, it is not determinative. The supporting case law de-veloped out of procedural rules not substantive concerns, namelywhether an amount claimed in the court was an action for liquidateddamages, sometimes referred to as an action for debt, or required an as-sessment of damages and was therefore an action in damages. That is,these cases largely characterize claims under contracts and do not charac-terize contracts. It can be noted in the case of the Notes in question that itis very clear that, at any time that a payment obligation could arise uponmaturity, termination or default, or that an action for payment could betaken by the holder against the issuer, the amount payable under theterms of the Notes was ascertainable and would not require any furtherassessment by a Court.

50 As described below, some of this case law is capable of being read ina manner that is unhelpful to the Appellant.

51 The Court does not find the Appellant’s arguments in support of itsposition well-supported or persuasive. There was little persuasive sup-port put forward by the Appellant for the second proposition that a debtcannot exist until the amount payable is ascertainable to a specificamount. In the circumstances of these Notes, if the Appellant’s positionis correct, it would mean that the Notes are not debt prior to maturity


even though they would clearly be debt for purposes of this test uponmaturity. There is little to no support for an instrument, obligation orcontract that is not debt prior to maturity becoming debt upon maturity.This is different than a claim under a contractual obligation that is not adebt being a claim in debt. None of the cases referred to by the Appel-lant, including the tax cases, set out or applied the rule in such circum-stances or to such an extent.

52 In Noble v. Lashbrook, [1918] S.J. No. 98, 40 D.L.R. 93 (Sask.C.A.) the Court was characterizing the action as being a debt or an actionin damages for purposes of determining whether, after finding for theclaimant provider of a threshing machine in respect of its use by a farmerprior to return, the judge was correct to have awarded costs using theCourt’s Small Debt Scale rather than the greater District Court scale. Itwas not characterizing the note issued by the farmer in payment of thethreshing machine; indeed that note was invalid which is what gave riseto the claim of compensation for use of the machine. The authors andcases relied upon by the Saskatchewan Court of Appeal are also onlyaddressing the characterization of actions before a court. In paragraph 14,the Court wrote:

A sum is considered certain when it can be made certain. By this, Itake it, is meant where it can be determined by computation. If, forinstance, the contract of the parties furnishes a specific mode or ruleof payment, or if its terms furnish the means of ascertaining the exactamount due, an action for debt will lie. But where no specific sum isclaimed, and neither the contract nor the averments furnish data fromwhich the defendant can determine the amount he owes, the action,in my opinion, cannot be said to be for a “debt,” within r. 4.

53 In Shoemaker v. Olson, [1942] 4 D.L.R. 430 (Sask. C.A.) the trialjudge hearing an action on an assigned loan held that the assigned obliga-tion was not a loan but an amount recoverable by the assignee by reasonof the defendant’s failure to supply the assignor, in accordance with theterms of their agreement, the horses and equipment to work six acres ofland once it was cleared and broken. The Court of Appeal’s decisionturned solely on the fact that the assignment in question was only anassignment of debt and that the trial judge was incorrect to allow it tooperate as an assignment of the claim for damages notwithstanding that aclaim for damages was a chose in action that was capable of being as-signed. The Court of Appeal wrote:

In the present case however it is to be observed that the language ofthe above assignment is directed only to a debt and in my opinion is


not sufficiently apt to convey to the plaintiff the assignor’s right ofaction arising out of the defendant’s breach of contract, for as LordDavey says in Ogdens Ltd. v. Weinberg (1906), 95 L.T. 567, “I de-sire, however, to say that in my opinion the word ‘debts,’ no doubt,means something recoverable by an action for debt, and nothing canbe recovered in an action for debt except what is ascertained or canbe ascertained. A claim for an amount which is uncertain, and cannotbe adjusted in an account, cannot, I think, be justly called a ‘debt’.

[Emphasis added]

54 Indeed, in this case, the broad words of Lord Davey may be read inan unhelpful manner to the Appellant as a claim under the Notes whetherupon default, termination or maturity would be recoverable by way of anaction for an amount which was ascertained or could then be ascertained.

55 The Supreme Court of Canada decision in Diewold v. Diewold(1940), [1941] S.C.R. 35 (S.C.C.) does not go any further. It arose subse-quent to an action on, among other things, unpaid amounts of principaland interest owing by the purchaser of an $8,000 Saskatchewan farm.The trial judge ordered possession of the farm to revert to the vendor,and provided the defaulted purchaser with the right to restore his positionas purchaser upon payment of the arrears along with the right to acquirethe land upon payment of the balance. The defaulted purchaser thereafterhad his former debt reduced under the Farmers’ Creditors ArrangementsAct to $3,000 by the relevant tribunal. The Supreme Court of Canada wascalled upon to decide whether, at the time of the decision under theFarmers’ Creditors Arrangements Act, there remained a debt to be com-promised or rearranged under that Act. The Supreme Court held therewas not, with the result that the decision under that Act subsequent to thetrial judgment was of no effect in the event the purchaser sought to re-store his rights as purchaser in accordance with the trial judgment. TheSupreme Court of Canada wrote:

The word “debt” is not defined by the Farmers’ Creditors Arrange-ment Act or the Bankruptcy Act, but subsection 2 of section 2 of theFarmers’ Creditors Arrangement Act provides that expressions in theAct shall be given the same meaning as in the Bankruptcy Act, un-less it is otherwise provided or the context otherwise requires. Theword “debt” is defined in Stroud’s Judicial Dictionary as “a sum pay-able in respect of a liquidated money demand, recoverable by ac-tion,” and I think that this definition can be accepted as applicablehere.


Note again, the breadth of the quoted definition in the last sentence canbe read as accurately describing the Notes, as it appears that virtually anysum payable under the Notes would be recoverable by way of an actionfor a liquidated money demand. There is no timeframe necessarily im-plied in this passage that takes the reader to a point in time prior to anaction for recovery.

56 In British Columbia v. Bowen, 2013 BCPC 322 (B.C. Prov. Ct.),which is the Appellant’s “modern era” case, the Court was called on todecide whether an action by the Province of British Columbia for over-payments of disability benefits to the individual was a claim for a debtfor purposes of the Court’s small claims rules relating to default orders.In finding that it was, the Court wrote:

12 The apposite definition of “debt” provided by the Canadian Ox-ford Dictionary is “... a sum of money owed ...”. The word has beenjudicially defined as: “... a sum payable in respect of a liquidatedmoney demand, recoverable by action ...”: Diewald vs Diewald[1941] SCR 35; Walsh Estate vs British Columbia (Minister of Fi-nance) [1979] 4 WWR 161; 13 BCLR 255. Unless the claimant al-leges that a specific sum of money, capable of arithmetic calculation,is owing, the claim is not one for a debt.

This decision does not add anything to the above and is again clearlyaddressing the characterization of a claim for an amount owing as a debtfor purposes of the rules of the small claims court.

57 All of these cases concern the characterization of claims for recoveryof an amount owing under contracts, not the contracts themselves. Noneof them apply the approach to characterize the contract prior to, or ab-sent, the court action. Nor does their language necessarily suggest thatthe same characterization analysis should or would apply to the contractprior to the court claim.

58 In Technologies industrielles SNC inc. c. Quebec (Sous-ministre duRevenu) [2002 CarswellQue 15 (C.A. Que.)], 2002 CanLII 41088 theQuebec Court of Appeal reviewed a decision of the Cour du Quebec ad-dressing whether bankers’ acceptances constituted debts, loans or ad-vances included in taxable capital for purposes of the province’s capitaltax. In contrasting the meanings of bankers’ acceptances with debt, theCourt referred to the definition referred to in Diewold as comparingfavourably to the civil law definition of “dette” before them. The QuebecCourt of Appeal went on to overturn the Cour du Quebec’s decision andheld that bankers’ acceptances gave rise to a debtor/lender relationship.


None of the eight reasons set out for doing so even suggested any appli-cation or reliance on the Diewold passage or approach or on the civil lawdefinition of “dette”.

59 The Appellant was able to point to two federal tax cases which referfavourably to the Diewold passage above. In Beament v. Minister ofNational Revenue (1968), 69 D.T.C. 5016 (Can. Ex. Ct.) (reversed(1970), 70 D.T.C. 6130 (S.C.C.)), the Exchequer Court consideredwhether, for federal estate tax purposes, valuable shares had a lesservalue at death as a result of contractual obligations which required themto be converted into substantially less cash. One argument considered byPresident Jackett was whether the resulting difference in value consti-tuted a debt or encumbrance as those two types of obligations were per-mitted statutory deductions in computing the aggregate net value of anestate. The Exchequer Court held that these contractual obligations withthe deceased’s children, which limited the amount the deceased wouldreceive for the shares, to be neither a debt nor an encumbrance. In revers-ing the Exchequer Court, the then Chief Justice of the Supreme Court ofCanada wrote in the majority reasons that the contractual obligations re-duced the arm’s length value of the shares themselves. Both the majorityreasons and Pigeon J.’s concurring reasons specify that it was not evenargued before the Supreme Court of Canada that the obligations wereeither a debt or an encumbrance.

60 In Fingold v. Minister of National Revenue (1992), 92 D.T.C. 2011(T.C.C.), Rip J. had to decide whether amounts advanced to, or paid tothird parties for the benefit of, the shareholders were loans to which sub-section 80.4(1) applied, or were advances against future reductions ofcapital. In the course of deciding that they were not amounts advanced orpaid in respect of reductions of capital, the judge wrote:

A debt is a sum payable in respect of a liquidated money demand. Itdoes not include an unliquidated claim for damages.

He then footnoted Diewold . Rip J. paraphrases Diewold by referenceonly to liquidated demands and unliquidated claims. He did not consider,or need to consider, the issue any further as there were no terms to theadvances and, if they were to be recovered at any point in time, it wouldhave been by way of a demand or claim for the specific sum advanced.

61 Reference was also made by the Appellant to the decision of thisCourt in James McTamney & Co. v. Minister of National Revenue,[1989] 1 C.T.C. 2318 (T.C.C.). McTamney equates the terms “debt obli-gation” and “creance” in Regulation 7000 with an obligation to pay a


debt. It does not provide any helpful substantive guidance to the questionin this reference as it was decided on the basis that no interest couldaccrue for tax purposes in respect of the stated interest rate on an amountloaned under a pledge that was a pawn covered by the Pawn Brokers Actof Ontario. Given the Ontario statutorily mandated pawn regime, thisCourt began from the premise that the transaction was a sum lent withinterest charged therefor. The only question before the Court was howRegulation 7000 applied to such a loan at interest, if at all.

62 In conclusion on the Appellant’s principal submission, I am of theview that upon a fair reading of Diewold and the other cases referred toabove,15 Justice Bowlby of the Ontario Divisional Court in Rocovitis v.Argerys Estate (1988), 63 O.R. (2d) 755 (Ont. Div. Ct.) and JusticeHoulden of the Ontario High Court in Pizzolati & ChittaroManufacturing Co. v. May, [1971] 3 O.R. 768 (Ont. H.C.) accuratelysummarize the correct legal proposition which Diewold and similar casessupport. In Rocovitis, Justice Bowlby wrote:

12 The cases advanced by counsel for the bank appear to me to es-tablish conclusively that “debt” is a term which has a well-estab-lished judicial meaning in Canada that does not include an unliqui-dated claim for damages. For example, in the case of Diewold v.Diewold, [1941] 1 D.L.R. 561 at p. 564, [1941] S.C.R. 35, 22 C.B.R.329, cited in Master Peppiatt’s decision, Hudson J. adopts the defini-tion of “debt” found in Stroud’s Judicial Dictionary as “a sum paya-ble in respect of a liquidated money demand, recoverable by action”.In Pizzolati v. May, [1971] 3 O.R. 768 at p. 770, 21 D.L.R. (3d) 656(H.C.J.), Houlden J. states that “[t]he word ‘debt’ has a well-definedjudicial meaning as a sum payable in respect of a liquidated moneydemand. It does not include an unliquidated claim for damages ...”.

[Emphasis added]

63 Properly understood as such, this line of cases and reasoning cannothelp the Appellant since, once the right to payment arises under theNotes, the amount owing thereon is a debt from then on. This was ac-knowledged by the Appellant’s counsel.

15 As well as the other cases relied on by the Appellant at the hearing: 207053Alberta Ltd., Re, 1998 ABQB 757 (Alta. Q.B.); Gillette Canada Inc. v. R., 2001D.T.C. 895 (T.C.C. [General Procedure]); GRH Ventures Ltd. v. De Neve(1987), 37 D.L.R. (4th) 155 (Man. C.A.); and Reano v. “Jennie W” (The),[1997] F.C.J. No. 1719 (Fed. C.A.).


64 It can be noted that if the Appellant’s position were correct, reducedto its simplest form, a Canadian dollar denominated loan of the CAD $equivalent of US $1,000 on the advance date, requiring payment on ma-turity in CAD $ of the then CAD $ equivalent of US $1,000 would not bea debt. The example is not extreme; the Appellant’s position is.

The Courts’ Approach and Analysis:65 There is not a single all purpose, all encompassing, and all limiting or

circumscribing legal definition of debt in Canada. Nor does one appear tobe either necessary or desirable. See Dunlop, C.R.B, Creditor-DebtorLaw in Canada, Toronto: 2nd ed., Carswell, 1995, Chapter 2 especiallyat pages 11 through 16, discussed below in greater detail.

66 Similarly, when considering a hybrid financial instrument that has aduality of characteristics, some typically features or indicia of debt andothers typically features or indicia of capital or equity or investment, Ca-nadian courts have been able to decide whether it in substance reflects adebt relationship or another relationship, such as equity, whose features italso exhibits. In approaching a hybrid instrument in this manner, it is notnecessary to deny its hybrid nature and decide it is wholly and solely aparticular type of relationship between the parties, say debt or equity.Rather, the Court is to look to and weigh the language chosen by theparties, the parties’ intentions, the surrounding circumstances, and thelegislative regime in order to identify the characterization in favour ofwhich the balance clearly tilts as being the substance or main thrust ofthe transaction to which the contrary indicia remain only incidental orsecondary in nature. As discussed in greater detail below, this is the ap-proach to characterizing hybrids expressly set out in the unanimous Su-preme Court of Canada in Canada Deposit Insurance Corp. v. CanadianCommercial Bank, [1992] 3 S.C.R. 558 (S.C.C.). This was followed andapplied by the B.C. Court of Appeal in Coast Capital Savings CreditUnion v. British Columbia, 2011 BCCA 20 (B.C. C.A.) in deciding when“non-equity shares” were evidences of indebtedness “of the creditunion”, not an equity interest therein. A similar approach was essentiallyadopted by the Quebec Court of Appeal in Senza inc. c. Quebec (Sous-ministre du Revenu), 2007 QCCA 1335 (C.A. Que.) in deciding that ataxpayer’s obligations under a sale-leaseback financing transaction couldbe characterized as a form of debt included in taxable capital for provin-cial capital tax purposes even though not yet due and payable.


67 Moreover, in trying to reconcile references to derivatives in fiscal leg-islation with the specifics of a particular derivative entered into by a tax-payer, the Supreme Court of Canada in Placer Dome Canada Ltd. v.Ontario (Minister of Finance), 2006 SCC 20 (S.C.C.) unanimously en-dorsed first analyzing the legislative regime, the meaning of the particu-lar derivative (a hedge in that case) in business and accounting, and theterms of the specific derivative contract the taxpayer entered into.

68 Dunlop in Creditor-Debtor Law in Canada begins by usefully tryingto define what is meant by the term “debt”. Five pages later, he con-cludes:

The above discussion indicates that the word “debt” is not today aterm of art with a clear, never changing denotation. Instead of tryingto define a core meaning, it would seem better to agree with the edi-tors of the Corpus Juris Secundum “[the word] takes shades of mean-ing from the occasion of its use, and colour from accompanying use,and it is used in different statutes and constitutions and senses vary-ing from a very restricted to a very general one.

[Emphasis added]

69 Dunlop is unable to set out a common core Canadian meaning.70 In Canadian Commercial Bank, Justice Iacobucci writing for the

Court wrote at page 588: 51 As in any case involving contractual interpretation, the characteri-zation issue facing this Court must be decided by determining theintention of the parties to the support agreements. This task, perplex-ing as it sometimes proves to be, depends primarily on the meaningof the words chosen by the parties to reflect their intention. When thewords alone are insufficient to reach a conclusion as to the true na-ture of the agreement, or when outside support for a particular char-acterization is required, a consideration of admissible surroundingcircumstances may be appropriate.

And at page 589: 53 It is evident from reviewing the agreements in question that char-acteristics associated with both debt and equity financing are present.The most obvious examples are, on the one hand, ss. 8 and 13 of theParticipation Agreement pertaining to CCB’s indemnity towards theParticipants and their ranking in the event of a winding-up and, onthe other hand, the provisions of the Equity Agreement concerningthe warrants granted by CCB to the Participants. Such a duality isapparently quite common in loan participation agreements. ...


And at page 590: 54 As I see it, the fact that the transaction contains both debt andequity features does not, in itself, pose an insurmountable obstacle tocharacterizing the advance of $255 million. Instead of trying to pig-eonhole the entire agreement between the Participants and CCB inone of two categories, I see nothing wrong in recognizing the ar-rangement for what it is, namely, one of a hybrid nature, combiningelements of both debt and equity but which, in substance, reflects adebtor-creditor relationship. Financial and capital markets have beenmost creative in the variety of investments and securities that havebeen fashioned to meet the needs and interests of those who partici-pate in those markets. It is not because an agreement has certain eq-uity features that a court must either ignore these features as if theydid not exist or characterize the transaction on the whole as an invest-ment. There is an alternative. It is permissible, and often required, ordesirable, for debt and equity to co-exist in a given financial transac-tion without altering the substance of the agreement. Furthermore, itdoes not follow that each and every aspect of such an agreementmust be given the exact same weight when addressing a characteriza-tion issue. Again, it is not because there are equity features that it isnecessarily an investment in capital. This is particularly true when, ashere, the equity features are nothing more than supplementary to andnot definitive of the essence of the transaction. When a court issearching for the substance of a particular transaction, it should nottoo easily be distracted by aspects which are, in reality, only inciden-tal or secondary in nature to the main thrust of the agreement.

[Emphasis added]

71 In conclusion on the characterization question, Justice Iacobucciwrote at 598:

... While indicia supporting both conclusions are present, the overallbalance clearly tilts in favour of the characterization put forward bythe respondents.

72 Justice Iacobucci considered the words chosen by the parties in theiragreements, the surrounding circumstances to the agreements, features orindicia or characteristics supporting a particular characterization, thewording of the specific statute in question, and the accounting treatment


for the transactions.16 He does not even consider the Diewold v. Diewoldapproach advocated by the Appellant as it principal position.

73 In Placer Dome Justice LeBel wrote about the proper interpretationof tax statutes in deciding what was meant by a statutory reference to“hedging” in paragraphs 21 through 24. In looking at the taxpayer’s par-ticular hedging transaction, the Court wrote in paragraph 29:

The transactions at issue in the present case are financial derivatives.Generally speaking, financial derivatives are contracts whose value isbased on the value of an underlying asset, reference rate or index.

The Court continues on to describe the reasons parties enter into finan-cial derivative contracts.17

74 With respect to business and accounting understandings he wrote atparagraph 49:

It is certain that well accepted business and accounting principles arenot rules of law. They should not be used to displace rules of law, aslegislatures are not bound by them and may modify them as they seefit for tax purposes. They must therefore play a subsidiary role toclear rules of law. However, this Court has readily acknowledgedthat “it would be unwise for the law to eschew the valuable guidanceoffered by well-established business principles” where statutory defi-nitions are absent or incomplete. See Canderel Ltd. v. Canada,[1998] 1 S.C.R. 147at paragraph 35.

75 Finally, the Court rejected the argument that the absence of a brightline test for identifying hedging transactions for purposes of the MiningTax Act would lead to intolerable uncertainty and taxpayers’ inability toeffectively predict their tax situations and order their affairs intelligentlyas not compelling because taxpayers can and do make such determina-tions on a principled basis.

76 In Coast Capital Savings Credit Union, the BC Court of Appeal spe-cifically relied upon the Supreme Court Canada’s approach in CanadianCommercial Bank. It noted that the Ontario Court of Appeal did the same

16 Although in the particular case he chose not to place as much weight on theaccounting treatment, he specifically went on to confirm there may be othercases where the accounting treatment could be helpful in determining the natureof a given transaction.17 A very good discussion of the derivatives and their nature and uses can befound in Boyle, P. et al, Derivatives: The Tool that Changed Finance, London:Risk Books, 2001, beginning at p. xi, and again beginning at p.1.


in Central Capital Corp., Re (1996), 27 O.R. (3d) 494 (Ont. C.A.), andhad similarly determined the substance of the relationship in accordancewith Canadian Commercial Bank .

77 In Coast Capital the BC Court of Appeal wrote: 54 The term “indebtedness” and its root “debt” may be used nar-rowly or broadly. Thus whether they appear in the BIA (InterclaimHoldings v. Down, 2001 BCCA 65at paras. 29-32), the Companies’Creditors Arrangement Act (Re Canadian Airlines Corp. (2001) 92Alta. L.R. (3d) 140 at paras. 20-27), the Treaties of Peace Act, S.C.1919 (2nd sess.), c. 30, (The Custodian v. Passavant, [1928] S.C.R.242 at 249-54), or the Court Order Enforcement Act, (TaxsaveConsultants Ltd. v. Pacific Lamp Corp. (1990) 52 B.C.L.R. (2d) 128at 132-33) to name but a few, they will be given meaning consistentwith their context: see Barrette v. Crabtree Estate, [1993] 1 S.C.R.1027 at 1048-9.

[Emphasis added]

78 The Court in Coast Capital looks at the legislation in question andfollows the Canadian Commercial Bank mandated approach in determin-ing the transaction’s legal substance.

79 In La Senza, the Quebec Court of Appeal looked at the use of thewords loans and advances in the definition of taxable capital from a uni-fied textual, contextual and teleological approach. The Court specificallylooked to the objective of the tax on taxable capital (described in theliterature as the total internal and external financing of the company) ininterpreting the phrase loans and advances extended directly or indirectlyto the company. The Court looked at thirteen pages of dictionary andlegal dictionary definitions of the terms.18

18 Another Supreme Court of Canada decision was relied upon by the Respon-dent. In Reference re Securities Act (Canada), 2011 SCC 66 (S.C.C.) at para-graph 40 the Court wrote: The term “securities” designates a class of assets thatconventionally includes shares in corporations, interests in partnerships, debt in-struments such as bonds and financial derivatives ....” In French; Le terme“valeurs mobilieres” designe une classe d’actifs qui comprend, par convention,les actions de societes, les interets dans des societes par actions, les titres decreance comme les obligations et les instruments financiers derive ....” The Re-spondent urged the Court to treat the phrase “debt instruments such as bonds andfinancial derivatives”, in French “les titres des creances comme les obligationset les instruments financiers derives”, as a statement by the Supreme Court ofCanada that financial derivatives are debt instruments just as much as bonds are.


V. The Undefined Use of the Term Debt or Debt Obligation et ceterain the Act

80 The Act does not contain a general definition of debt for purposes ofthe Act. Counsel for both parties each referred to a number of specificprovisions of the Act which use debt-related terms. Consistent with theexisting Canadian approach to determining whether an apparently hybridfinancial instrument19 meets the meaning of a term used in a statute, inanswering the reference question I will begin by considering the use ofdebt and debt-related terms in the Act.

81 However, answering the reference question requires a considerationof the meaning of debt for purposes of the Act as a whole. The text of thedefinitions of debt-related terms for specific purposes or a specific provi-sion can only be of some assistance. It can be noted most of these spe-cific provisions use the concept of debt, debtor or indebtedness in thedefinition and thus raise the same question.

82 The proper context for the Court to consider in interpreting the use ofthe term debt in the Act must logically be the Act as a whole. Thus, thenature of the reference question essentially largely melds the textual andcontextual analysis, and the Court will look to the texts and context ofthe provisions of the Act which use debt-related terms. Similarly, the pur-poses of the Act are many and range from raising revenue to implement-ing particular economic or social policies. A purposive analysis canlargely only be done in a helpful way when considering specific provi-sions or regimes within the Act and does not lend itself very practicallyto the broad scope and mandate of the reference question.

83 A review of the provisions of the Act for the terms debt, indebtedness,principal (used as a noun), principal amount, interest (used as a return nota holding) and note turns up literally hundreds of uses.

The Court is not prepared to answer the reference question based on the preva-lence or acceptance of the “Oxford comma” by the Supreme Court of Canada,certainly not absent a clear style guide mandating or negating its use, and cer-tainly without an understanding of the Oxford comma issue in written French,whatever it may be called in that language.19 Which a derivative can be: see Boyle et al. Derivatives, above, Footnote 17 atpage 1 paragraph 1.


Indebtedness:84 There are numerous provisions of the Act which use the term indebt-

edness. It is most often used in a very broad sense.85 The phrase “loan or any other form of indebtedness” appears in para-

graph 96(2.2)(d) dealing with partnership at-risk amounts and in subsec-tions 143.2(2) and (9) dealing with tax shelters and limited-recourse debt.

86 The phrase “loan or other indebtedness” is used in subsection 91(4.4)dealing with series of transactions for FAPI purposes in section 94 deal-ing with non-resident trusts in the definition of “resident portion”, and insubsection 146.2(4) dealing with tax-free savings accounts or TFSAs.

87 Paragraph 135.1(4)(b) dealing with cooperatives and section 206.3dealing with disability savings plans both refer to “indebtedness of anykind”.

88 The use of the term “indebtedness” in subsection 122.1(1) dealingwith “qualified REIT property” is clearly broad enough to include bank-ers’ acceptance financings.

89 There are several sections of the Act which use “indebtedness” to de-scribe an unpaid purchase price or other extension of credit, in contrast toa loan describing an advance of money. See for example, section 207.05et seq dealing with advantages extended by financial institutions. Whilethe Act generally speaks of indebtedness being “issued”, as in subpara-graph 88(1)(c.4)(ii) dealing with amalgamations, when used in this moredistinctive fashion indebtedness “arises” or “is incurred”: see subsection40(3.13) dealing with artificial transactions and subsection 90(8) dealingwith foreign affiliate loans.

90 Indebtedness has a “principal amount” in subparagraph 53(2)(c)(1.3)dealing with the adjusted cost base (acb) of partnership interests, and insubsection 248(34) dealing with limited-recourse debt.

Principal/Principal Amount:91 It appears from a review of the Act that, with limited exceptions, the

words “principal amount” and “principal” are only ever used in connec-tion with circumstances involving debts.

92 As mentioned above, paragraph 53(2)(c) and subsection 248(34) referto the “principal amount” of “indebtedness”. In addition, subsections143.2(7), (11) and (13) dealing with tax shelters and limited recoursedebts refer to the “principal of an indebtedness”, and subsection 143.2(9)refers to both the “principal amount” of an “indebtedness” and the “prin-


cipal amount” of a “loan or any other form of indebtedness”. Subsection111(12) refers to the “principal” owed under a “foreign currency debt”with respect to the computation of capital losses.

93 Subsections 16(2) and (3) dealing with original issue discounts referto the “principal amount” of a “bond, debenture, bill, note, mortgage orsimilar obligations”.

94 Paragraph 20(1)(f) dealing with the deductibility of shallow dis-counts, and subsection 214(8) dealing with Part XIII non-resident with-holding tax on interest, refer to the “principal amount” of any “bond,debenture, bill, note, mortgage, hypothecary claim or similar obligation”.

95 Subsection 47(2) dealing with identical properties refers to the “prin-cipal amount” of identical “bonds, debentures, bills, notes or similarobligations”.

96 Section 51.1 dealing with convertible debt obligations refers to the“principal amount” of a “bond, debenture or note”.

97 Section 80.1 dealing with expropriations refers to the “principalamount” of “bonds, debentures, mortgages, hypothecary claims, notes orsimilar obligations”.

98 Paragraphs 137.1(1)(b) and (3)(b) and subparagraph (a)(v) of the def-inition of “investment property”, as well as section 137.2, all dealingwith deposit insurance corporations, refer to the “principal amount” of“bonds, debentures, mortgages, hypothecary claims, notes or other simi-lar obligations”.

99 The limited exceptions in which the Act refers to the principal amountof something other than a debt are:

(i) with respect to distress preferred shares, which are generallytreated like debt and not equity in the context of the Act, in section61.3 and section 80.02. It can be noted that paragraph 80.02(2)(a)deems the amount for which the share was issued to be its princi-pal amount; that is, the share is not otherwise presumed to have aprincipal amount;

(ii) subparagraph 94(15)(c)(ii), part of an anti-avoidance provision fornon-resident trusts (NRTs), refers to the “principal amount out-standing” of a “liability of the trust”. It can be noted that in Frenchthis provision refers to “le principal impaye ... d’une dette de lafiducie”; and

(iii) subparagraph (d)(iii)(B) of the definition of “testamentary trust” insection 108 of the Act refers to the “principal amount” of a trust’s


“debt or other obligation”; however it is clear from subparagraph(A) that such a debt or other obligation had to arise because of apayment made on behalf of the trust by the person to whom thedebt or other obligation is owed.

100 It is clear from the Act’s use of the terms “principal” and “principalamount” that their use in an obligation is highly suggestive and indica-tive of a debt obligation for purposes of the Act.

Interest:101 It does not appear that the Act uses the term “interest”, or “interest

payable”, or “interest on” to describe a distribution or return except inprovisions dealing with debt relationships, or deemed to be debt-like re-lationships such as the term preferred share provisions, or with respect toamounts payable or owing under the Act. These terms are used in a largenumber of provisions of the Act in precisely such contexts.20

102 The only exceptions appear to be:

(i) with respect to “any interest” payable on “any life insurance pol-icy dividends” in the definition of a policy’s “cash surrendervalue” in subsection 148(9) as a function of policy loans and pol-icy dividends. It can be noted that insurance policy dividends are aunique form of dividend and a particular type of obligation, andthat once declared a dividend is a debt; and

(ii) in recognizing that amounts may be paid as, on account of, or inlieu of, interest on “debts or obligations” owed to a non-residentunder paragraph 212(1)(b) of Part XIII of the Act dealing withnon-resident withholding tax. This appears to contemplate thepossibility that foreign financial instruments other than debt mightprovide for interest or something akin to interest.

103 It is clear from the Act’s use of the terms “interest”, “interest on” and“interest payable” that an interest provision in an obligation is highlysuggestive and indicative of a debt obligation for purposes of the Act.

20 It can also be observed from the definition of “participating debt interest” insubsection 212(3) for purposes of Part XIII non-resident withholding tax andinterest paid by Canadians to nonresidents that interest under the Act is not lim-ited to amounts described as a percentage rate return on the principal amount ofthe debt. Interest on debt can, in fact, track any number of things and can be afunction of the price of a commodity or dividends paid to shareholders.


Notes:104 The term “note” as a noun appears only to ever be used in the Act to

denote debt. It appears many, many times throughout the provisions ofthe Act. It is first used in section 14 and its final use is in section 260, thevery last provision of the Act. It is most commonly used in a string withtwo or more other debt-related terms. In several provisions a “note” isexpressly considered indebtedness or a debt obligation. Where it so ap-pears elsewhere and otherwise, the listing appears to denote “note” asejusdem generis with other forms of indebtedness — bonds, bills, deben-ture, mortgages et cetera.

105 It is occasionally used as part of a longer string that includes the word“shares” at the start and at times includes “units”. This appears to be anintentional distinction between a listing of a broader range of securitiesthan just debt securities. This appears from those provisions to be inten-tional. When used in such provision, the word “note” is within the listingof debt securities.

106 The Act also refers to “promissory notes” as particular “evidences ofindebtedness”.21 There is no suggestion that the Notes are promissorynotes evidencing indebtedness (however, as noted above, Note Inden-tures separate from the Notes were to be part of the reorganization butnone were put in evidence).

107 Paragraph 18(13)(e) dealing with money lenders refers to “or a loan,bond, debenture, mortgage, hypothecary claim, note, agreement for saleor any other indebtedness”.

108 Paragraph (a) of the definition of “fully exempt interest” in subsec-tion 212(3) for purposes of Part XIII non-resident withholding tax oninterest refers to “a bond, debenture, note, mortgage, hypothecary claimor similar debt obligation”.

109 Paragraph (d) of the definition of “scientific research and experimen-tal development tax credit” in subsection 127.3(2) refers to “a bond, de-benture, bill, note, mortgage or similar obligation (in this section referredto as a “debt obligation”)”.

110 Paragraph (a) of the definition of “specified debt obligation” in themark-tom-arket rules refers to “a loan, bond, debenture, mortgage, hy-pothecary claim, note, agreement of sale or any other similarindebtedness”.

21 Subsection 144.1(8) dealing with employee life and health trusts.


111 Paragraph 181.2(3)(d) dealing with capital tax on large corporationsrefers to “the amount of all indebtedness of the corporation at the end ofthe year represented by bonds, debentures, notes, mortgages, hypothe-cary claims, bankers’ acceptances or similar obligations”.

112 The definition of “lending assets” in section 248(1) for purposes ofthe Act refers to “a bond, debenture, mortgage, hypothecary claim, note,agreement of sale or any other indebtedness”.

113 The phrase “bonds, debentures, or notes” is used in paragraph51(1)(b) dealing with convertible property, in section 51.1 dealing withconvertible debt, in paragraph (b) of the definition of “excluded security”in subsection 80(1) dealing with debt forgiveness, and in subsection212.3(18) dealing with convertible debt upon a foreign affiliatereorganization.22

114 The phrase “bonds, debentures, notes or similar obligations” is usedin the definition of “eligible Canadian indebtedness” in subsection95(2.43) dealing with FAPI of bank affiliates, in subparagraph139.1(18)(b)(iii) dealing with acquisitions of control, in the definition of“debt obligation” in section 204 dealing with revocation tax on deferredprofit sharing plans (DPSPs), and in the definition of “qualified security”in section 260 dealing with securities lending.

115 The phrase “bond, debenture, bill, note or similar obligation issued bya debtor” is used in subsection 248(12) dealing with identical properties.

116 The phrase “bond, debenture, bill, note, mortgage or similar obliga-tion” appears in subsections 16(2) and 16(3) dealing with original issuediscounts. Subparagraph 81(1)(m) dealing with certain non-taxable in-come amounts refers to “interest ... on bonds, debentures, bills, notes,mortgages or similar obligations”.

117 The phrase “the principal amount of any bond, debenture, bill, note,mortgage, hypothecary claim or similar obligation ... on which interestwas calculated to be payable ...” appears in paragraph 20(1)(f) dealingwith original issue discounts. Paragraph 53(1)(g) dealing with adjust-ments to adjusted cost base (acb) lists the same obligations, “bond, de-benture, bill, note, mortgage, hypothecary claim or similar obligation”and refers to the principal amount thereof. The same listing of obliga-tions is used in subsection 80.1(1) dealing with expropriation assets, in

22 I am treating the singular and plural of the terms as the same, and ignoringthe ordering of types of obligations in lists.


subsection 87(6) and subsection 87(6.1) dealing with corporate amalga-mations, in paragraph 116(6)(d) dealing with non-resident purchaserclearance certificates, in section 137.2 dealing with deposit insurancecorporations, and in subsection 214(7) dealing with Part XIII non-resi-dent withholding tax on the sale of debts with accrued interest. Subsec-tion 214(6) refers to “interest ... on a bond, debenture, bill, note, mort-gage, hypothecary claim or similar obligation”. Subsection 214(15)refers to the “principal amount of a bond debenture, bill, note, mortgage,hypothecary claim or similar obligation”.

118 The phrase “principal amount ... of a bond, debenture, mortgage, hy-pothecary claim, note or other similar obligation” is used in subpara-graph 137.1(1)(b)(ii) dealing with deposit insurance corporations. Thesame listing of obligations appears in subparagraph 137.1(1)(b)(i) and inparagraph 137.1(3)(b). The same listing of obligations “bond, debenture,note, mortgage, hypothecary claim or similar obligation” is used in para-graph 181.2(4)(c) dealing with the investment allowance for large corpo-ration tax (LCT) purposes.

119 Subparagraph 181.2(4)(d.1) refers to “a loan or advance to, or a bonddebenture note, mortgage, hypothecary claim or similar obligation”. Par-agraph 181.2(6) uses the phrase “any bond, debenture, note, mortgage,hypothecary claim or similar obligation” twice. Subsection 212(15) re-fers to “interest on a bond, debenture, note, mortgage, hypothecary claimor similar obligation” in the exemption from Part XIII non-resident with-holding tax for interest on CDIC insured obligations.

120 Paragraph (l) of the definition of “disposition” in subsection 248(1)uses the phrase “bond, debenture, note, certificate, mortgage or hypothe-cary claim”.

121 The definition of “qualified debt obligation” in subsection 15.2(3)dealing with interest on small business development bonds (SBDBs) re-fers to “a bill, note, mortgage, hypothecary claim or similar obligation”and refers to the principal amount of such obligations.

122 The definition of “qualified debt obligation” in subsection 15.1(3)dealing with interest on SBDBs refers to “a bond, debenture, bill, note,mortgage, hypothecary claim or similar obligation” and refers to the“principal amount” of such obligations.

123 In contrast, when such debt-related terms appear together with theword shares, as they do in paragraph 14(5)(f), paragraph 18(13)(e), sub-section 39(6), article 204.4(2)(a)(viii)(B) and in paragraph (b) of the def-inition of “disposition” in subsection 248(1), it is clear either from the


express text or apparent from the context, that this is where the Act isdescribing a broader group of securities and including reference to debtsecurities as well as equity, or where the Act is distinguishing betweendebt securities and other securities. See, for example, paragraph18(13)(e) which uses the phrase “the particular property is a share, or aloan, bond, debenture, mortgage, hypothecary claim, note, agreement forsale or any other indebtedness” in which this is clearly expressed. It isalso clear from the definition of “Canadian security” in subsection 39(6)which refers to “a security ... that is a share of the capital stock of acorporation ..., a unit of a mutual fund trust or a bond, debenture, bill,note, mortgage, hypothecary claim or similar obligation ...”

124 It appears clear from the Act’s use of the term “note” that a note isused to describe a form of debt or indebtedness:

Debt and Derivatives:125 Paragraphs 94.1(1)(a) and (b) expressly contemplate that a “debt”

may derive its value primarily from investments of the issuer or anotherperson in other securities, commodities, real estate or currency. This isconsistent with the concept of derivatives. A debt can be a derivative ascan many other securities and obligations, including hybrid financial in-struments. The concepts of debt and derivatives are not mutuallyexclusive.

126 The use of the concept of “limited recourse debt” in section 143.2,237.1 and subsection 248(34) of the Act confirms that the amount paya-ble to satisfy a debt obligation may be less than the amount advanced.23

This appears to have been the case with the debt in CanadianCommercial Bank.

127 The definition of “tracking property” in subsection 142.2(1) for pur-poses of the mark-to-market rules is property the value of which is deter-mined primarily by reference to other property owned by another person.There is nothing that would exclude debt owned by a financial institutionfrom being such tracking property.

23 It is similarly not uncommon for a lender, under the terms of the loan and therelated documents, to not get fully repaid depending upon what the other partydoes with the money, unless it has other assets from which to make repayment.An example of this would be a financing transaction of a special purpose entityto acquire a single leveraged asset.


128 In contrast, it can be seen in the definition of “qualified investment”in section 204, that the Act for that purpose specifically excludes certain“derivative investments” from being qualified securities.

VI. Conclusions129 Having reviewed the Canadian jurisprudence on the meaning of debt

and indebtedness, and having reviewed the use of debt and debt-relatedterms in the provisions of the Act, the Court concludes that the core es-sential characteristics of debt generally for purposes of the Act are:

(i) an amount or credit is advanced by one party to another party;

(ii) an amount is to be paid or repaid by that other party upon demandor at some point in the future set out in the agreement in satisfac-tion of the other party’s obligation in respect of the advance;24

(iii) the amount described in (ii) is fixed or determinable or will beascertainable when payment is due; and

(iv) there is an implicit, stipulated, or calculable interest rate (whichcan include zero).

130 All of these core essentials may not need to be perfectly met in partic-ular circumstances. A weighing of the degree to which these characteris-tics are exhibited is appropriate and may be required in particularcircumstances.

131 Other evidence such as supportive or contradictory wording or inten-tion is very much part of the overall weighing process when consideringhybrid or special purpose financial instruments. A provision in respect ofinterest, the use of the term principal or principal amount, and/or securityrankings relative to other debt liabilities will generally be indicative of adebt.

132 As stated at the outset, it is possible that the meaning of debt in aparticular provision of the Act may textually and contextually identifyother aspects of the term for purposes of that section.25 However, the

24 This amount may be payable to that other party or to a successor, assignee orbearer. That there is the possibility that the amount once ascertained may be anil amount need not disqualify the obligation.25 For example, the Respondent has dropped its claim that in applying subsec-tion 95(1), subsections 12(3) and (9) and Regulations 7000 apply to the Notes. Ican therefore use these interest accrual rules as an example where it would ap-pear to be reasonable to conclude that a particular provision requires something


reference question does not ask about any specific sections; it asks forpurposes of the Act as a whole.

133 In the case of the Notes, the reference question must be answered inthe affirmative — that the Notes are debt for purposes of the Act:

(i) They are entitled Notes. In the Act the word notes is described as adebt obligation or indebtedness. It is also used ejusdem generis asa type of debt such as bonds, debentures and notes et cetera. Anote is commonly used to describe a debt in business, commercialand financial markets.

(ii) They have a maturity which can be triggered early in the event ofdefault or at the Note holder’s option. Upon maturity there is apayment obligation that relates clearly, though in a complex fash-ion, to the amount for which the Notes were issued, and this pay-ment satisfies the obligation in respect of the issue price.

(iii) The documents giving rise to and referred to in the Notes describethe amount for which they are issued as a Principal Amount that isthe amount advanced by the Note holder to purchase the Notefrom the issuer in each case, being US $499 million.

(iv) At maturity, however and whenever triggered, that is wheneverpayment is required to be made, the amount payable by the issuerunder the Notes to the Note holder is readily ascertainable withexact precision. Not only is the method of arriving at the amountclear and certain, the person responsible to the parties for arrivingat that precise figure is also clearly set out.

further to be debt for the specific purposes of that provision. Regulations7000(1)(a) and 2(a) make it clear that the debt that those provisions will apply tocontemplate that the amount to be repayable on maturity must be somehow as-certainable before maturity. Though, importantly, Regulation 7000 does contem-plate debt whose amount payable upon final maturity is not fixed and may notbe known with certainty or precision prior to reaching maturity. It just does notcontemplate anything quite this broad, ranging through all positive numbersfrom zero through infinity. In contrast, for other provisions, a particular provi-sion may well work without that earlier ascertainability if the provision wouldbe workable by substituting the amount advanced, or the amount payable if itwere matured at the particular relevant time, or some other amount relating tothe debt. Still other provisions may not require one to turn their mind to theamount payable on maturity prior to the year of maturity. This will depend uponthe textual, contextual and purposive review of particular provisions.


(v) The interest rate is stipulated in the Notes as it was in the TermSheets. It is reasonable to consider zero to be an amount for thesepurposes; loans are often described as “no interest” or “interest-free”. This was presumably set out to make it clear to the partiesthat there would be no current returns earned or payable. How-ever, the parties did not choose to describe this by reference todistributions of any sort, but limited it to interest.

(vi) The parties agreed in the Notes that they were to rank pari passuwith other debt. The Notes evidence that the parties’ intention wasthat this be treated like other debt of the issuers. The Notes do notdescribe this ranking to apply only upon maturity of the Notes.

(vii) The EAO Notes, which are also equity-linked notes, are acknowl-edged in the Notes to be debt for purposes of permitted invest-ments in Reference Assets.

(viii) The Guarantees provide that the Guarantors would be liable as ifthey were the primary debtors. The Notes and related agreementsdo not suggest this is only effective upon maturity of the Notes.

VII. Answer134 The Court determines for purposes of these two appeals that the two

Notes held by SLT constitute debt for purposes of the Act.

VIII. Costs135 Costs are left to the trial judge, subject to the Court exercising its

discretion if written submissions requesting otherwise are received fromthe parties within 30 days.

Order accordingly.

Appendix A

Agreed Statement of Facts, August 8, 2014

2014-353(IT)G Tax Court of Canada Between: Barejo Holdings Inc.Appellant - and - Her Majesty the Queen Respondent

Agreed Statement of Facts

The parties agree, through their undersigned counsel, for the purposes ofthis motion only, to admit the truth of the following facts and the authen-ticity of the following documents mentioned herein.


A. The Appellant

1. At all relevant times, the Appellant was a Canadian-controlled privatecorporation for purposes of the Income Tax Act1 and the sole shareholderof Vetements Peerless inc. / Peerless Clothing Inc., a corporation carry-ing on a men’s clothing manufacturing business.

2. St. Lawrence Trading (“SLT”) is an open-ended investment company,organised in a similar manner to an open-ended unit trust or mutual fund,incorporated under the laws of the British Virgin Islands (“BVI”).2

3. The Appellant first became a shareholder of a predecessor corporationof SLT on 30 September 1997.

4. At the end of SLT’s taxation years ending on 31 December, 2003,2004, 2005, 2006, 2007 and 2008, the Appellant directly held 190,589.93shares in SLT. The Appellant also had a 0.01% interest in ASP PartnersLP, through which, as at the end of SLT’s 2006, 2007 and 2008 taxationyears, it indirectly held an additional 2.935 shares in SLT.

5. SLT is a non-resident of Canada and was a “foreign affiliate” and a“controlled foreign affiliate” of the Appellant within the meaning ofthose terms as defined in subsection 95(1) at the end of each of SLT’staxation years ending in the Appellant’s taxation years under appeal,namely 30 September 2004, 2005, 2006, 2007, 2008 and 2009.

B. SLT and its History

6. Global Asset Management (“GAM”) is a corporation governed by thelaws of Bermuda carrying on an independent, active investment manage-ment business.3

7. GAM Diversity Inc. (“GD”)4 was an open-ended investment com-pany, organised in a similar manner to an open-ended unit trust or mutual

1 RSC 1985 (5th Supp), c 1 (the “ITV”). Unless otherwise stated, all statutoryreferences in this document refer to the ITA.2 Prospectus of St. Lawrence Trading for 2004, JDE, Vol. I, Exhibit 6 ii., p. 1873 Excerpt from GAM website, JDE, Vol. I, Exhibit 1, p. 1.4 On 1 January 1995, two funds managed by GAM, GAMCAN Limited andGAM Multi-Global US$ Fund Inc., merged to become GAM Multi-Global US$Fund Inc. On 15 November 1995, GAM Multi-Global US$ Fund Inc. changedits name to GD.


fund, governed by the laws of the BVI.5 The assets owned by GD weremanaged by GAM and consisted primarily of interests in hedge funds ormutual funds.6

8. On 30 October 2001, GD recommended to its shareholders proposalsfor its reorganization for the following reasons:7

(a) legislative changes in Canada were scheduled to come into effectin 2002 which would have, in principle, rendered Canadian share-holders of GD, as it was constituted, subject to substantial Cana-dian taxes with respect to post-2001 operations of GD;

(b) as at 30 October 2001, Canadian shareholders held approximately49% of GD’s common shares; and

(c) GD may have been subject to potential pecuniary disadvantage ifthere were significant redemptions by Canadian shareholders, re-quiring a large portion of the underlying portfolio to be disposedof, which would have possible consequences for the net assetvalue of GD.

9. Pursuant to the recommended proposals, GD underwent a reorganiza-tion (the “Reorganization”). As part of the Reorganization on 30 Novem-ber 2001:

(a) Non-Canadian shareholders exchanged their shares in GD forshares in a new corporation, GAM Global Diversity Inc.(“Global”), thereby leaving GD with only Canadian shareholders.The GD assets notionally attributable to the common shares heldby non-Canadian shareholders were transferred to Global8 whichhad similar characteristics and investment objectives to GD priorto the reorganization.9

5 Prospectus of GAM Diversity for 1996, JDE, Vol. 1, Exhibit 3 i., p. 29; Pro-spectus of GAM Diversity for 2001, JDE, Vol. 1, Exhibit 3 ii., pp. 54-55.6 Financial Statements of GAM Diversity Inc. for the year ended on 30 Septem-ber 2001, JDE, Vol. 1, Exhibit 4, p. 100. Note 1(c)7 Circular of GAM Diversity Inc.: Recommended Proposals for the Reconstruc-tion of the Company, JDE, Vol. 1. Exhibit 5, p. 115.8 Global reclaimed the name of “GAM Diversity Inc.”, under which it is knownto this day.9 Circular of GD, Recommended Proposals for the Reconstruction of the Com-pany, JDE, Vol. 5, Exhibit 5, pp. 115-116.


(b) GD’s name was changed to SLT.

(c) SLT sold a one-half undivided co-ownership interest in the re-maining assets (the “Residual Pool-Related Assets”) to each ofScotiabank (Ireland) Limited (“SIL”), a non-resident affiliate ofThe Bank of Nova Scotia (“BNS”). and TD Global Finance(“TDGF”), a non-resident affiliate of The Toronto-DominionBank (“TD”).10

(d) Using the proceeds of the aforementioned sale, SLT acquired twoinstruments, styled by the parties as “Notes”: one from each ofBank of Nova Scotia International Limited, a non-resident subsid-iary of BNS (“BNSI”)11 and Toronto Dominion International Inc.,a non-resident subsidiary of TD (“TDII”)12 (each an “Issuer”)(each a “Note”13).

(e) Each Note was purchased for a price of USD 498 million for atotal of USD 996 million, representing the Reference Assets NetAsset Value, as defined below, on 30 November 2001.14 The Ref-erence Assets, as defined below, as at that date were those identi-fied in the Reference Assets Schedule to each Note.15

10. SLT, as successor of GD, remained an open-ended investment com-pany, organised in a similar manner to an open-ended unit trust or mutualfund, governed by the laws of the BVI.

10 Transfer Agreement, JDE, Vol. 1, Exhibit 7, p. 230. par. 1.1.1.11 Note Purchase Agreement between BNSI and SLT, JDE, Vol. 1, Exhibit 10,p. 329, ss. 2.1.12 Note Purchase Agreement between TDII and SLT, JDE, Vol. II, Exhibit 11,p. 415, ss. 2.1.13 BNSI Note, JDE, Vol. 1, Exhibit 8, pp. 237 and ff.; TDII Note, JDE, Vol. 1,Exhibit 9, pp. 279 and ff..14 Note Purchase Agreement between BNSI and SLT, JDE, Vol. 10, Exhibit 1,p. 329, ss. 2.2; Note Purchase Agreement between TDII and SLT, JDE, Vol. II,Exhibit 11, p. 415, ss. 2.2.15 BNSI Note, JDE, Vol. 1, Exhibit 8, pp. 255-256, par. 4.1(1) and pp. 277-278.Schedule 4.1; TDII Note, JDE, Vol.1, Exhibit 9, pp. 297-298, par. 4.1(1) and pp.319-320. Schedule 4.1.


C. The Notes

11. Since the Reorganization, SLT’s principal assets have been the twoNotes.16

12. Each Note bears the same features, terms and conditions. The Issuerunder each Note is required to settle all obligations on the “MaturityDate”17 in either of the manners described at subsection 2.7 of the Note,elected at its sole discretion.18

13. More specifically, the Issuer may elect to settle all obligations undera Note (i) by payment to SLT of an amount in cash equal to the Refer-ence Assets Net Asset Value of the Note19 or (ii) by payment to SLT ofan amount realized in connection with an actual liquidation of the Refer-ence Assets.20

14. The “Reference Assets” comprise a group of professionally-managedhedge fund investments employing a variety of investment techniquesand strategies. The Reference Assets are identified in the Reference As-sets Schedule to each Note, as amended from time to time by GAM toreflect adjustments to the Reference Assets.21 The initial Reference As-sets Schedule reflected the Residual Pool-Related Assets.22

16 Financial Statements of SLT for 2002, JDE, Vol. II, Exhibit 12 i., p. 501;Financial Statements of SLT for 2005, JDE, Vol. II, Exhibit 12 ii., p. 510; Fi-nancial Statements of SLT for 2009, JDE, Vol. II, Exhibit 12 iii., p. 528.17 BNSI Note, JDE, Vol. I, Exhibit 8, p. 242, par. 1.1(2) “Maturity Date”; TDIINote, JDE, Vol. I, Exhibit 9, p. 284, par. 1.1(2) “Maturity Date”.18 BNSI Note, JDE, Vol.1, Exhibit 8, pp. 253-254, ss. 2.7; TDII Note, JDE,Vol.1, Exhibit 9, pp. 295-296, ss. 2.719 BNSI Note, JDE, Vol. I, Exhibit 8, p. 253, s.par. 2.7(a)(i); TDII Note, JDE,Vol. I, Exhibit 9, p. 295, s.par. 2.7(a)(i).20 BNSI Note, JDE, Vol. I, Exhibit 8, p. 253, s.par. 2.7(a)(ii) and pp. 273-274,Schedule 2.7(a)(ii); TDII Note, JDE, Vol. I, Exhibit 9, p. 295, s.par. 2.7(a)(ii)and pp. 315-316, Schedule 2.7(a)(ii).21 BNSI Note, JDE, Vol. I, Exhibit 8, pp. 255-256, par. 4.1(1) and pp. 277-278.Schedule 4.1; TDII Note, JDE, Vol. I, Exhibit 9, pp. 297-298, par. 4.1(1) and pp.319- 320, Schedule 4.1.22 Schedule A of the Transfer Agreement, JDE, Vol. I, Exhibit 7, pp. 235-236.


15. The Reference Assets, regardless of the actual owner thereof, are re-quired to be managed by GAM23 pursuant to the terms of a “ReferenceAssets Management Agreement”24 dated 30 November 2001 betweenBNSI, SIL, TDII, TDGF and GAM (the “RAMA”).

16. In essence, the “Reference Assets Net Asset Value” is equal to theamount by which the actual value of the Reference Assets exceeds cer-tain specified liabilities, which are chargeable against the Reference As-sets. There is no stated minimum or maximum Reference Assets Net As-set Value.

17. GAM calculates the Reference Assets Net Asset Value on each Mon-day, with the exception of public holidays, on an aggregate and per in-vestment basis.25

18. The obligations of the Issuer under each Note are guaranteed, respec-tively, by BNS and TD (the “Guarantors”).26

19. As defined in each Note,27 the “Maturity Date” of each Note is the“Stated Maturity Date” of 30 November 2016 or, if applicable, the“Early Termination Date”.28

20. The “Early Termination Date” is the date on which any cure period,notice period or extension period expires in connection with an “EarlyTermination Event”, being certain prescribed circumstances when eitherSLT or the Issuer have the right to terminate the Note.

21. For example:

23 BNSI Note, JDE, Vol. I, Exhibit 8, pp. 255-256, par. 4.1(1); TDII Note, JDE,Vol. I, Exhibit 9, pp. 297-298, par. 4.1(1).24 Reference Assets Management Agreement, JDE, Vol. II, Exhibit 15, pp. 628and ff.25 Reference Assets Management Agreement, JDE, Vol. II, Exhibit 15, pp. 632,par. 1.1.33 and p. 634, par. 5.1.1, p. 651, Exhibit B of RAMA, ss. 1.1 and ss.2.1. Example of a Crillon Report, JDE, Vol. II, Exhibit 18, p. 679.26 Guarantee Agreement of BNS, JDE, Vol. II, Exhibit 16, p. 664, s. 2; Guaran-tee Agreement of TD, JDE, Vol. II, Exhibit 17, p. 672, s. 2.27 BNSI Note, JDE, Vol. I, Exhibit 8, p. 242, s. 1.1(2) “Maturity Date”; TDMNote, JDE, Vol. I, Exhibit 9, p. 284, s. 1.1(2) “Maturity Date”.28 BNSI Note, JDE, Vol. I, Exhibit 8, pp. 250-253, ss. 2.5 for Early Terminationby BNSI and ss. 2.6 for Early Termination by SLT; TDII Note, JDE, Vol. I,Exhibit 9, pp. 292-295, ss. 2.5 for Early Termination by TDII and ss. 2.6 forEarly Termination by SLT.


(a) SLT may, upon providing not less than 367 days prior written no-tice to the Issuer, terminate the Note.29

(b) The Issuer may terminate the Note if, at any time, the ReferenceAssets Net Asset Value less the “Purchaser Put Shares Value” isless than USD 300 million according to four consecutive weeklyreports.30

In each such case, the Issuer must fulfill its obligations under section 2.7of the Note as described above as at the date on which the relevant noticeperiod expires.

22. Under the terms of each Note,

(a) SLT may redeem portions of the Note to fund its operating ex-penses, payable within thirty (30) days of SLT’s request, providedthat in any twelve-month period, the cumulative amount of all re-demptions does not exceed 0.2% of the “Reference Assets Net As-set Value”;31

(b) SLT may subscribe additional amounts in respect of the Note.Amounts so paid by SLT are added to the Reference Assets;32 and

(c) treasury issuances of shares by SLT may result in additional sub-scriptions to the Notes.33

23. At no time did SLT receive any amounts in respect of the Notes,other than amounts needed to fund certain operating expenses.

29 BNSI Note, JDE, Vol. I, Exhibit 8, pp. 252-253, par. 2.6(1) for Early Termi-nation by SLT; TDII Note, JDE, Vol. I, Exhibit 9, pp. 294-295, par. 2.6(1) forEarly Termination by SLT.30 BNSI Note, JDE, Vol. I, Exhibit 8, p. 251-252, par. 2.5(2); TDM Note, JDE,Vol. I, Exhibit 9, p. 293-294, par. 2.5(2).31 BNSI Note, JDE, Vol. I, Exhibit 8, pp. 254-255, ss. 3.1; TDII Note, JDE,Vol. I, Exhibit 9, pp. 296-297, ss. 3.1.32 BNSI Note, JDE, Vol. I, Exhibit 8, pp. 254-255, s. 3; TDII Note, JDE, Vol. I,Exhibit 9, pp. 296-297, s. 3.33 Note Purchase Agreement between BNSI and SLT, JDE, Vol. I, Exhibit 10,pp. 330-331, 338, s.par. 3.2(2)(iii) and ss. 8.3; Note Purchase Agreement be-tween TDII and SLT, JDE, Vol. II, Exhibit 11, pp. 416-417. 424, s.par.3.2(2)(iii) and ss. 8.3.


24. Each Issuer accounts for its respective Note as a liability on its finan-cial statements.34

25. Since 2005, SLT has classified the Notes for financial statement pur-poses as available for sale (“AFS”) investments. AFS investments are in-tended to be held for an indefinite period of time and may be sold inresponse to needs for liquidity or changes in interest rates, exchange ratesor equity prices.35

26. The Notes are not transferable and neither SLT nor the Issuer shallsell, transfer, pledge, assign, or otherwise dispose of all or any portion ofits obligations or rights in or under the Notes, without the prior writtenconsent of the other party.36

D. The Rama

27. Pursuant to the RAMA, SIL and TDGF (and any future owner of theReference Assets) appoint GAM to actively manage the Reference As-sets and maintain the Reference Assets schedule,37 with the overall ob-jective of achieving long-term capital appreciation together with diversi-fication of risk.38

28. The composition of the Reference Assets constantly fluctuates overtime, reflecting, inter alia, dispositions and acquisitions of hedge fundinvestments by GAM. The Reference Assets Net Asset Value, in turn,constantly fluctuates over time, depending on both the composition andthe performance of the individual hedge fund investments.

29. There can be no assurance that appreciation will occur or that losseswill not be realised in respect of the Reference Assets.

34 Consolidated Financial Statements of BNSI for 2002, JDE, Vol. II, Exhibit 13i., p. 546; Non-Consolidated Financial Statements of BNSI for 2009, JDE, Vol.II, Exhibit 13 ii., p. 576; Non-Consolidated Financial Statements of TDII for2002, JDE, Vol. II, Exhibit 14 i., p. 598; Non-Consolidated Financial Statementsof TDII for 2009, JDE, Vol. II, Exhibit 14 ii., p. 61035 Financial Statements of SLT for 2005, JDE, Vol. II, Exhibit 12 ii., p. 514 and516; Financial Statements of SLT for 2009, JDE, Vol. II, Exhibit 12 iii., p. 532.36 BNSI Note, JDE, Vol. I, Exhibit 8, p. 250, ss. 2.4; TDII Note, JDE, Vol. I,Exhibit 9, p. 292, ss. 2.4.37 Reference Assets Management Agreement, JDE, Vol. II, Exhibit 15, pp. 632-633, s. 3.38 Prospectus of St. Lawrence Trading 2004, JDE, Vol. I, Exhibit S ii., p. 187.


30. SLT has no right to direct or otherwise influence the composition ofthe Reference Assets under any of the governing instruments.

31. The Issuers are not required to own any of the Reference Assetsunder any of the governing instruments and SLT has no claim on theReference Assets.

32. In order to maintain liquidity for the shareholders of SLT as if theReorganization had not taken place,39 SIL provides the shareholders witha put facility as follows:40

(a) On the last Monday of every month, a SLT shareholder may re-quire SIL to purchase all or a portion of its shares.

(b) The purchase price of the shares payable by SIL is equal to the netasset value of SLT determined on a per share basis, calculated forthe applicable “dealing date”, according to a formula set out in theRAMA.

(c) The proceeds are payable to the shareholder in USD.

DATED IN MONTREAL, this 8 August 2014

DAVIES WARD PHILLIPS & VINEBERG LLP

__________

Guy Du Pont, Ad.E.

Stephen S. Ruby

John J. Lennard

Counsel for the Appellant

DATED IN TORONTO, this 8 August 2014

THORSTEINSSONS LLP

__________

Brandon D. Wiener

Counsel for the Appellant

DATED IN MONTREAL, this 8 August 2014

William F. Pentney

39 In a bundle, request and decision relating to the Application for ExemptiveRelief Pursuant to the Mutual Reliance Review System for Exemptive ReliefApplication, JDE, Vol. II, Exhibit 19, pp. 685-686, par. 32 and 38.40 Reference Assets Management Agreement, JDE, Vol. II, Exhibit 15. pp. 638-640, s. 11.


Deputy Attorney General of Canada

__________

Marie-Andree Legault

Simon Petit

Philippe Dupuis

Valerie Messore

Counsel for the Respondent

Appendix B

TABLE OF CONTENTSJoint Documentary Evidence Page

Volume IExhib- Excerpts from GAM websiteit 1 . . . . . . . . . . . . . . 1Exhib- Circular for shareholders of GAMCANit 2 Limited re Proposed Merger with . . . . . . . . . . . . . 13

GAM Multi-Global US$ Fund Inc., 8November 1994

Exhib- Prospectus of GAM Diversity Inc.it 3 (GD)

i. dated 20 December 1996. . . . . . . . . . . . . 28

ii. dated 20 April 2001. . . . . . . . . . . . . 51

Exhib- Financial Statements of GD for theit 4 year ended 30 September, 2001 . . . . . . . . . . . . . 93Exhib- Circular of GD Recommended Propos-it 5 als for the Reconstruction of the Com- . . . . . . . . . . . . 109

pany, 30 October 2001Exhib- Prospectus of St. Lawrence Tradingit 6 Inc. (SLT)

i. dated 31 January 2001 Intentionally omit-ted

ii. dated 31 January 2004. . . . . . . . . . . . 185


TABLE OF CONTENTSJoint Documentary Evidence PageExhib- Transfer Agreement dated as of 30 No-it 7 vember 2001 between SLT, Scotiabank . . . . . . . . . . . . 229

(Ireland) Limited, TD Global Financeand Global Asset Management Limited

Exhib- Bank of Nova Scotia Internationalit 8 Limited (BNSI) Note . . . . . . . . . . . . 237Exhib- Toronto Dominion International Inc.it 9 (TDII) Note . . . . . . . . . . . . 279Exhib- Note Purchase Agreement betweenit 10 BNSI and SLT dated 30 November . . . . . . . . . . . . 321

2001Volume II

Exhib- Note Purchase Agreement betweenit 11 TDII and SLT dated 30 November . . . . . . . . . . . . 407

2001Exhib- Financial Statements of SLTit 12

i. for the year ended 31 December2002 . . . . . . . . . . . . 494ii. for the year ended 31 December2005 . . . . . . . . . . . . 504iii. for the year ended 31 December2009 . . . . . . . . . . . . 521

Exhib- i. Consolidated Financial Statements ofit 13 BNSI for the year ended 31 October . . . . . . . . . . . . 543

2002ii. Non-consolidated Financial State-ments of BNSI for the year ended 31 . . . . . . . . . . . . 572October 2009

Exhib- i. Non-Consolidated Financial State-it 14 ments of TDII for the year ended 31 . . . . . . . . . . . . 595

October 2002ii. Non-Consolidated Financial State-ments of TDII for the year ended 31 . . . . . . . . . . . . 607October 2009


TABLE OF CONTENTSJoint Documentary Evidence PageExhib- Reference Assets Management Agree-it 15 ment dated 30 November 2001 . . . . . . . . . . . . 628Exhib- Guarantee Agreement of BNS dated 30it 16 November 2001 . . . . . . . . . . . . 662Exhib- Guarantee Agreement of TD dated 30it 17 November 2001 . . . . . . . . . . . . 670Exhib- Example of Crillon Reportit 18 . . . . . . . . . . . . 679Exhib- In a bundle, request and decision relat-it 19 ing to the Application for Exemptive . . . . . . . . . . . . 680

Relief Pursuant to the Mutual RelianceReview System for Exemptive ReliefApplications

Exhib- Financial Statements of SLT for theit 20 year ended 31 December 2013 . . . . . . . . . . . . 710

Circor International Inc. v. Valvsource Equipment Ltd. 299

[Indexed as: Circor International Inc. v. ValvsourceEquipment Ltd.]

Circor International Inc. and Spence Engineering Co., Inc.,Plaintiffs and Valvsource Equipment Limited and Valtrol

Equipment Ltd., Defendants

Ontario Superior Court of Justice

Docket: CV-14-512016

2015 ONSC 6435

Diamond J.



Contracts –––– Mistake — As grounds of rescission –––– Parties executed as-set purchase agreement — Defendants agreed to purchase assets relating toplaintiffs’ specific valve product line — Agreement provided for potential ad-justment to purchase price based upon further valuation, on closing, of plain-tiffs’ inventory to be included in purchase of assets — Prior to closing defend-ants certified minimum value of inventory and purchase price was notadjusted — Transaction closed as scheduled — Within one week of closing de-fendants asserted plaintiffs misrepresented actual value of inventory and claimedthey overpaid for assets — Plaintiffs demanded payment of balance of purchaseprice and brought action — Plaintiffs brought motion for summary judgment —Motion granted — Agreement was not ambiguous — Defendants were trying toresile from their contractual obligations by seeking to re-write terms of agree-ment — There was no presence of any misrepresentation on part of plaintiffs —Defendants were seeking to re-write terms of agreement — Once agreement wassigned, defendants did or said nothing to lead plaintiffs to believe defendantssigned agreement under any misapprehension — In absence of evidence that de-fendants were in fact mistaken and not at fault, and that plaintiffs knew or oughtto have known of defendants’ mistake, defence of mutual mistake failed.

Cases considered by Diamond J.:

ABN Amro Bank N.V. v. BCE Inc. (2003), 2003 CarswellOnt 2890, 44 C.B.R.(4th) 1, [2003] O.J. No. 5418 (Ont. S.C.J. [Commercial List]) — considered

Hryniak v. Mauldin (2014), 2014 CarswellOnt 640, 2014 CarswellOnt 641, 37R.P.R. (5th) 1, [2014] S.C.J. No. 7, 46 C.P.C. (7th) 217, 27 C.L.R. (4th) 1,(sub nom. Hryniak v. Mauldin) 366 D.L.R. (4th) 641, 2014 CSC 7, 453 N.R.51, 12 C.C.E.L. (4th) 1, 314 O.A.C. 1, 95 E.T.R. (3d) 1, 21 B.L.R. (5th) 248,[2014] 1 S.C.R. 87, [2014] A.C.S. No. 7, 2014 SCC 7 (S.C.C.) — followed


McLean v. McLean (2013), 2013 ONCA 788, 2013 CarswellOnt 17995, 118O.R. (3d) 216, (sub nom. McLean Estate v. McLean) 313 O.A.C. 364, 39R.P.R. (5th) 181, 370 D.L.R. (4th) 167, [2013] O.J. No. 5956 (Ont. C.A.) —followed

McLean v. McLean (2014), 2014 CarswellOnt 5954, 2014 CarswellOnt 5955,[2014] S.C.C.A. No. 76 (S.C.C.) — referred to

Siskinds LLP v. Canadian Imperial Bank of Commerce (2014), 2014 ONSC3211, 2014 CarswellOnt 7133, [2014] O.J. No. 2548 (Ont. S.C.J. [Commer-cial List]) — considered

Siskinds LLP v. Canadian Imperial Bank of Commerce (2015), 2015 ONCA265, 2015 CarswellOnt 5424, [2015] O.J. No. 1987 (Ont. C.A.) — referredto

Rules considered:

Rules of Civil Procedure, R.R.O. 1990, Reg. 194R. 20 — consideredR. 20.04(2)(a) — considered

MOTION by plaintiffs for summary judgment in action for payment of balanceof purchase price.

Neil A. Paris, for PlaintiffsGeorge Limberis, for Defendants

Diamond J.:

Overview1 The plaintiffs are related companies incorporated pursuant to the laws

of the State of Delaware, and carry on business collectively as designersand manufacturers of valves and other high engineered products used inthe energy and aerospace industry.

2 The defendants are, respectively, related Alberta and Ontario corpora-tions carrying on business in the sale and distribution of valves to the oil,gas and mining industries.

3 After approximately four months of negotiations, on February 20,2014 the plaintiffs and defendants executed an Asset Purchase Agree-ment (“the Agreement”) which contemplated a very quick closing date.Pursuant to the Agreement, the defendants agreed to purchase variousassets relating to the plaintiffs’ specific valve product line. The purchaseprice was set at $650,000.00 USD.

Circor International Inc. v. Valvsource Equipment Ltd. Diamond J. 301

4 The Agreement provided for a potential adjustment to the purchaseprice based upon a further valuation, on closing, of the plaintiffs’ inven-tory to be included in the purchase of assets.

5 Payment of the purchase price was to be made by way of (a) an initialdeposit of $50,000.00 USD; (b) a payment of $450,000.00 USD on clos-ing; and (c) 12 post-dated monthly cheques in the amount of $12,500.00USD each month, totaling $150,000.00 USD.

6 Prior to closing, the defendants certified that the value of the inven-tory was, at a minimum, $650,000.00 USD. As such, the purchase pricewas not adjusted. The transaction closed as scheduled.

7 Within one week of closing, the defendants took the position that theplaintiffs had misrepresented the actual value of the inventory (and inparticular the slow moving inventory), and claimed that they had over-paid for the plaintiffs’ assets. The defendants stated that the wording ofthe clause in the Agreement relating to the adjustment of the purchaseprice supported the defendants having made this overpayment.

8 The plaintiffs disagreed and demanded payment of the balance of the$650,000.00 USD purchase price. When the defendants held firm in theirposition, the plaintiffs commenced this proceeding.

9 The plaintiffs have now brought a motion for summary judgmentclaiming that there are no genuine issues requiring a trial of this proceed-ing. The defendants resist the motion and submit that a trial is required inorder to determine the presence of the following issues: (a) contractualambiguity, (b) misrepresentation, and (c) unilateral mistake.

Preliminary Issue10 In their factum, the defendants raised an additional issue of the “ap-

plicability of foreign law” given that clause 7.1 of the Agreement man-dated it to be construed under the laws of the State of New York.

11 As held by Justice Farley in ABN Amro Bank N.V. v. BCE Inc. [2003CarswellOnt 2890 (Ont. S.C.J. [Commercial List])], 2003 CanLII 64276,absent proof of a foreign law by expert evidence, the foreign law is pre-sumed to be identical to the Ontario law. On this motion for summaryjudgment, if the defendants were relying upon the law of the State ofNew York, they had an obligation to put their best foot forward and pre-sent expert evidence to that effect.


12 The defendants failed to do so, and as such the motion proceededupon the legal presumption that the relevant law of the State of NewYork was identical to the Ontario law.

The formation of the Agreement13 Negotiations between the parties commenced in the fall of 2013, and

took place primarily between Ryan Nelson (“Nelson”, the plaintiffs’manager of business development) and David Terry (“Terry”, the presi-dent of the defendants). The defendants were interested in purchasingsome of the plaintiffs’ businesses and product lines.

14 The assets being discussed between the parties included the plaintiffs’inventory. If the parties could come to an agreement, the plaintiffswanted the defendant to purchase all existing inventory on closing. In anemail dated November 20, 2013 from Nelson to Terry, Nelson attached a“detailed inventory list” which Terry had previously requested. It is im-portant to recognize that this inventory list provided the following partic-ulars: item number, item descriptions (product number and name), quan-tity on hand, and unit cost (acquisition cost, both per item and in total).There was no information on this inventory list as to the date of purchaseof any of the listed items.

15 By around mid-December 2013, the parties had begun discussing thepresence of slow moving inventory. In an email dated December 11,2013 from Nelson to Terry, Nelson asked for Terry to send over the de-fendants’ working list of inventory which the defendants had identifiedas “unsellable”, as Nelson believed that the defendants’ valuation of thatunsellable inventory (approximately $250,000.00 USD) was too high.While Nelson agreed that the plaintiffs did have slow moving inventory,he estimated its value to be 50% of the defendants’ valuation.

16 In that same email, Nelson stated as follows: Also, we would assume that you wouldn’t want that inventory as partof the transaction? I’ve attached an excel version of the inventorylisting to make it simpler to mark up.

17 This “excel inventory list” essentially contained the same informationas the original inventory list.

18 Terry responded to Nelson later that same afternoon. In Terry’semail, he reiterated that the defendants believed the slow moving inven-tory to total approximately $250,000.00 USD, and even expressed con-cern that the slow moving inventory may be part of a “larger pool” ofslow moving inventory “likely in the $400,000.00 USD range”. Terry


claimed it was impossible for the defendants to separate the $250,000.00USD from the total, but that their “offered amount involves purchasingthe entire inventory”.

19 The next day, Nelson provided Terry with a different inventory listknown as an “aged inventory report”, which considered the on handquantity of inventory and estimates, based on the last two years’ usage,when the plaintiffs expected the inventory to ship. The aged inventoryreport set out any inventory which was in stock for up to 24 months.Nelson described those items to Terry as “reserved and considered slowmoving”.

20 According to Terry’s evidence, the aged inventory report valued theslow moving inventory at $145,717.04 USD, while the balance of the onhand inventory was valued at $634,505.13 USD. This, and not the de-fendants’ own analysis of the slow moving inventory, is what Terryclaims to have relied upon in causing the defendants to offer and ulti-mately agree to purchase the plaintiffs’ assets for $650,000.00 USD.

The Agreement21 Both parties were represented by counsel during the negotiations and

the time leading up to and including the Agreement, which was signedon February 20, 2014. The scheduled closing date was February 28,2014. For the purposes of this motion for summary judgment, I rely uponthe following portions/sections of the Agreement which I summarize asfollows (emphasis underlined):

Clause 1.1

The defendants agreed to purchase more than just the plaintiffs’ in-ventory. Included in the list of purchases assets were the plaintiffs’stock in trade, finished goods and raw materials, machines, drawings,manufacturing fixtures, equipment used to manufacture the productlines, customer lists, supplier lists and common law rights in theplaintiffs’ non-stylized “SSI” trademark.

Of importance is the fact that the purchased inventory is identified as“more specifically listed on Schedule 1.1(a)(i), and that Schedule isthe same format as the original inventory list (and not the aged inven-tory report). The Schedule was updated to list the inventory on handas at February 19, 2014.

Clause 1.5

The parties acknowledged that the $650,000.00 USD purchase pricewas based, in part, on the value of the on hand inventory as at closing


being transferred as reflected in the plaintiffs’ books and verifiedpursuant to the process set out in clause 1.6 (described below) to be aminimum of $650,000.00 USD.

At closing, the plaintiffs agreed to present the defendants with an up-dated inventory schedule in the same format as Schedule 1.1(1)(a)(ie. the original inventory list) updating the actual value of the inven-tory on hand on closing as reflected in the plaintiffs’ books excludingAccounting Reserves (this updated schedule is referred to as the “Ac-tual Inventory Value”). The term “Accounting Reserves” is not de-fined or explained anywhere in the Agreement.

If, on closing, the Actual Inventory Value is less than $650,000.00USD, the purchase price is to be reduced by the amount by which theActual Inventory Value is less than the inventory value as at Febru-ary 19, 2014.

Clause 1.6

For the purpose of determining the Actual Inventory Value, on orimmediately prior to closing, the parties were to conduct a joint,complete count of the on hand inventory. Of note, the Actual Inven-tory Value was to be determined at the plaintiffs’ cost.

Clause 2.6

The plaintiffs provided the limited warranty that the inventory set outin Schedule 1.1(a)(i) complies with the descriptions and specifica-tions therein.

Clause 4.1

All representations and warranties, including clause 2.6, may be re-lied upon the party receiving them and shall survive closing for aperiod of one year.

Clause 7.3

The Agreement is subject to an “Entire Agreement” clause. TheAgreement supersedes all prior oral or written negotiations and re-flects the entire agreement of the parties.

The defendants sign off22 As contemplated and mandated by clause 1.6, on February 28, 2014

(the closing date) the defendants sent over their authorized representativeRichard Yin (“Yin”, described as a “Business Improvement Specialist”)to review and verify the Actual Inventory Value.

23 The plaintiffs provided Yin with an updated inventory list as of Feb-ruary 28, 2014 in the same format as Schedule 1.1(a)(i). Together withthe plaintiffs’ authorized representative Stephen Gross, Yin conducted


the physical inspection of the on hand inventory, and signed a Memoran-dum of Agreement confirming (a) the plaintiffs’ inventory as at closingis accurately and completely described in the updated inventory list, and(b) the Actual Inventory Value was $670,503.13 USD.

24 The transaction then closed on February 28, 2014 as scheduled.

Post-closing issues25 According to Terry, shortly after the transaction closed, the defend-

ants discovered that due to the presence of slow moving inventory valuedat $154,410.00 USD, the Actual Inventory Value was in fact$495,590.00 USD and thus the defendants overpaid as the purchase priceought to have been reduced in accordance with clause 1.5.

26 Through their counsel, the defendants advised the plaintiffs of theirposition, namely that the defendants were not going to honour the bal-ance of the purchase price and would seek reimbursement of what theyclaimed to be an overpayment described above.

27 The plaintiffs commenced this proceeding on September 11, 2014.The defendants delivered their Statement of Defence and Counterclaimon November 25, 2014. While the plaintiffs move for summary judgmenton their claim, there is no formal request for an order dismissing the de-fendants’ Counterclaim (although the Counterclaim would presumablyprove to be moot in the face of the plaintiffs’ being awarded summaryjudgment based upon the parties’ joining of issues).

Summary judgment28 Rule 20.04(2)(a) of the Rules of Civil Procedure provides that the

Court shall grant a summary judgment if the Court is satisfied that “thereis no genuine issue requiring a trial with respect to a claim or defence”.As a result of the amendments to Rule 20 introduced in 2010, the powersof the Court to grant summary judgment have been enhanced to include,inter alia, weighing the evidence, evaluating the credibility of a deponentand drawing any reasonable inference from the evidence.

29 In Hryniak v. Mauldin, 2014 SCC 7 (S.C.C.), the Supreme Court ofCanada held that on a motion for summary judgment the Court must firstdetermine whether there is a genuine issue requiring a trial based onlyupon the record before the Court, without using the fact-finding powersset out in the 2010 amendments. The Court must review the factual re-cord and only grant summary judgment if there is sufficient evidence to


justly and fairly adjudicate the dispute, and summary judgment would bean affordable, timely and proportionate procedure.

30 If the Court determines the presence of a genuine issue requiring atrial, the inquiry does not end there as the analysis proceeds to whether aCourt can determine if a need for a trial may be avoided by use of theaforesaid fact-finding powers.

31 The overarching principle is proportionality, and summary judgmentought to be granted unless the added expense and delay of a trial is nec-essary for a fair and just adjudication of the case. For the reasons whichfollow, and on the record before me, I am able to find the necessary factsand apply the relevant legal principles to conclude that there are no genu-ine issues requiring a trial.

Contractual ambiguity32 The defendants’ argument on this purported issue is very focused. In

Clause 1.5, the calculation of the Actual Inventory Value includes a stepto determine the value of the on-hand inventory at closing excluding Ac-counting Reserves, and that term is not only undefined but capable ofmultiple meanings. As a result, the defendants contend that the subjectclause is ambiguous and a trial is necessary to resolve that ambiguity.

33 The defendants submit that in order to establish the existence of acontractual ambiguity, the Court may examine and admit extrinsic evi-dence. I disagree. As summarized by Justice Brown (as he then was) inSiskinds LLP v. Canadian Imperial Bank of Commerce, [2014] O.J. No.2548 (Ont. S.C.J. [Commercial List]) affirmed [2015] O.J. No. 1987(Ont. C.A.), the Court is to bear the following relevant principles in mindwhen interpreting commercial contracts:

i) a commercial contract is to be interpreted as a whole, in a mannerthat gives meaning to all of its terms and avoids an interpretationthat would render one or more of its terms ineffective,

ii) the Court must determine the intention of the parties in accordancewith the language they have used in the written document andbased upon the “cardinal presumption” that they intended whatthey said,

iii) a contract should be interpreted in a fashion which accords withsound commercial principles and good business sense, and thatavoids a commercial absurdity,


iv) where the language of a written contract is unambiguous, extrinsicevidence is not admissible to alter, vary, interpret, or contradictthe words used in the contract, and

v) the Court should interpret a commercial contract with regard toobjective evidence of the circumstances underlying the negotia-tion of the contract, but without reference to the subjective inten-tion of the parties.

34 It is thus clear that, if possible, the Agreement is to be interpreted as awhole so as to give meaning to all of its terms. As well, I must first besatisfied on the construction of the Agreement itself that Clause 1.5 isambiguous before I am to admit and consider any potential relevant evi-dence of the parties.

35 There is no doubt that at some point during the negotiations, the par-ties were discussing the presence of slow moving inventory and how tofactor that into the Agreement (if at all, as Terry was clear that the de-fendants wanted to purchase “all the inventory”). However, in my view,clause 1.5 does not render the Agreement ambiguous. The inventory wasone of several assets being purchased by the defendants, and was explic-itly listed on the accompanying Schedule which was based on the origi-nal inventory list. Whatever the Actual Inventory Value was at closing, itwas to be determined at the plaintiffs’ cost. This is exactly what was setout in the Schedule (both the February 19, 2014 version and the updatedversion on closing).

36 If the valuation of the inventory was to be based upon the plaintiffs’cost, and Terry gave evidence that the defendants allegedly relied uponthe plaintiffs’ valuation of the slow moving inventory, why would Clause1.6 be inserted into the Agreement at all? More importantly, if Clause 1.6was purportedly inserted into the Agreement to permit the defendants toassess the value of the inventory, including the slow moving inventory,how would that have been accomplished using the agreed upon Schedulewhich was not the aged inventory report? The plaintiffs were under nocontractual obligation to provide the defendants with an aged inventoryreport, which never formed part of the Agreement in any event.

37 The defendants have not provided much evidence to support howthey arrived at the $154,410.00 USD post-closing valuation of the slowmoving inventory. It appears from Terry’s evidence that the $154,410.00USD figure was calculated by the defendants after the transaction closed.The Agreement does not permit such a step. The Agreement mandatedthe parties to assess the Actual Inventory Value at closing at the plain-


tiffs’ cost. The defendants are trying to resile from their contractual obli-gations by seeking to re-write the terms of the Agreement.

38 In my view, the term “excluding Accounting Reserves” is to be inter-preted in its simplest meaning, namely to exclude them from the analy-sis. Inventory at the plaintiffs’ cost means what the plaintiffs paid for theinventory.

39 Further, the defendants have not filed any evidence on behalf of Yin.It is trite to state that on a motion for summary judgment, a respondingparty has an onus to “lead trump or risk losing”. If the defendants be-lieved that Clauses 1.5 and 1.6 meant that they were entitled to excludethe slow moving inventory from their valuation on closing, why wouldthe Agreement not have insisted upon an aged inventory report? Whywould Yin not have demanded a copy of the aged inventory report, andwhen he received something different why did he not object? Why didYin sign the Memorandum of Agreement?

40 While the legal onus to show the absence of genuine issues requiringa trial rests on the plaintiffs, the defendants are still under an evidentiaryonus as described above. I must assume that the parties have put theirbest foot forward and placed all relevant evidence in the record. As such,I draw an adverse inference against the defendants that Yin’s evidencewould have not supported their position on this motion. This defencefails.

Misrepresentation41 The defendants submit that the Agreement was induced by a misrep-

resentation, and thus is subject to rescission. Their Statement of Defenceand Counterclaim does not seek rescission of the Agreement, and such aremedy would not be available on the facts before me in any event.

42 While I agree with the defendants that a misrepresentation need nottake the form of an explicit statement, even a vague statement on the partof the offending party must still be untrue, inaccurate or misleading. Thedefendants point to the November-December 2013 emails between Nel-son and Terry as amounting to representations that the “slow moving in-ventory would not be included in the sale”.

43 To begin, Terry’s own email confirms that the defendants wanted topurchase all of the inventory, including the slow moving inventory. TheAgreement contained an entire agreement clause, and such clauses areinserted into contracts for a reason. While the existence of an entireagreement clause does not preclude the recognition of implied terms into


a contract, there are no such implied terms and the defendants do notadvance such an argument.

44 I do not find the presence of any misrepresentation on the part of theplaintiffs. Negotiations culminated into a formal Agreement betweenparties represented by lawyers. The plaintiffs delivered the Schedule inthe form of an updated inventory list, and not any aged inventory report,because that is what the Agreement mandated. Once again, the defend-ants are seeking to re-write the terms of the Agreement, and this defencefails.

Unilateral Mistake45 In McLean v. McLean, [2013] O.J. No. 5956 (Ont. C.A.), leave to

appeal refused [2014] S.C.C.A. No. 76 (S.C.C.), the Court of Appeal forOntario summarized the doctrine of unilateral mistake as follows:

With respect to unilateral mistake, the question as set out in SylvanLake, at para. 31, is whether one party knew or ought to have knownof the other party’s mistake, sought to take advantage of it, andwhether permitting that party to take advantage of the mistake wouldamount to unfair dealing.

46 Terry’s evidence is that the defendants were unilaterally mistakenwhen they entered into the Agreement. As stated, they were representedby legal counsel and there is no evidentiary basis to support the defend-ants’ contention other than Terry’s self-serving statement. The defend-ants cannot show that they were not at fault. As set out above, there is noevidence form Yin explaining how or why he accepted the inventory listand signed the Memorandum of Agreement on closing.

47 However, more importantly, there is no evidence that the plaintiffsknew or ought to have known about the defendants’ alleged mistake.Once the Agreement was signed, the defendants did or said nothing(other than Yin’s confirmation of the Actual Inventory Value at$670,503.13 USD) which could have led the plaintiffs to believe that thedefendants had signed the Agreement under any misapprehension. In theabsence of evidence that (a) the defendants were in fact mistaken and notat fault, and (b) the plaintiffs knew or ought to have known of the de-fendants’ mistake, this defence fails.

48 Accordingly, for the reasons set out herein, I grant the plaintiffs’ mo-tion for summary judgment.


Costs49 I would urge the parties to agree upon the costs of this motion. In the

event that such an agreement cannot be achieved, I would ask that theplaintiffs serve and file their written submissions, limited to four pages inlength including a Costs Outline, within ten business days of the releaseof these Reasons. The defendants shall have a further ten business daysto serve and file their responding costs submissions again limited to fourpages in length including a Costs Outline.

Motion granted.

Sandoff v. Loblaw Companies Ltd. 311

[Indexed as: Sandoff v. Loblaw Companies Ltd.]

Jason Sandoff and Cindy Retallick, Plaintiffs and LoblawCompanies Limited and Loblaws Inc., Defendants

Saskatchewan Court of Queen’s Bench

Docket: Regina QBG 1907/13

2015 SKQB 345

T.J. Keene J.


Commercial law –––– Trade and commerce — Consumer protection — Mis-leading advertising — Untrue statements — Practice and procedure ––––Summary judgment — Plaintiff consumers brought claim alleging misleadingand deceptive advertising of low sodium beverages sold by defendant grocerystores — Consumers admitted that low sodium products had minimal sodiumcontent, but claimed that they were not lower in sodium than other non-low so-dium products — Stores brought application for summary judgment dismissingclaim — Application granted — There was no genuine issue for trial — Con-sumers did not prove low sodium label was inaccurate — Consumers couldcheck nutritional labels to read sodium levels and use their common sense tomake informed decision — There was no evidence that consumers suffered anydamages as result of purchasing stores’ low sodium beverages — Claims couldnot succeed under Food and Drugs Act, Consumer Packaging and Labelling Act,or Competition Act — Sodium content met requirements to be properly calledlow sodium, and label was not misleading representation or deception — Noreasonable person could have relied on low sodium label to conclude that stores’low sodium beverages had characteristics different from those that product actu-ally had — Claims for waiver of tort, unjust enrichment and punitive and exem-plary damages could not be sustained.

Cases considered by T.J. Keene J.:

Clark v. Energy Brands Inc. (2014), 2014 BCSC 1891, 2014 CarswellBC 2970,60 C.P.C. (7th) 57, [2015] 1 W.W.R. 137, 72 B.C.L.R. (5th) 383 (B.C.S.C.) — referred to

Filson v. Canada (Attorney General) (2014), 2014 SKQB 164, 2014 Carswell-Sask 387, [2014] S.J. No. 344, 112 L.C.R. 257, 447 Sask. R. 219 (Sask.Q.B.) — followed

Filson v. Canada (Attorney General) (2015), 2015 SKCA 80, 2015 Carswell-Sask 399, 388 D.L.R. (4th) 66, 75 C.P.C. (7th) 227 (Sask. C.A.) — referredto


Harvey v. Western Canada Lottery Corp. (2015), 2015 SKQB 102, 2015 Car-swellSask 208, [2015] 9 W.W.R. 391 (Sask. Q.B.) — referred to

Hryniak v. Mauldin (2014), 2014 CarswellOnt 640, 2014 CarswellOnt 641, 37R.P.R. (5th) 1, [2014] S.C.J. No. 7, 46 C.P.C. (7th) 217, 27 C.L.R. (4th) 1,(sub nom. Hryniak v. Mauldin) 366 D.L.R. (4th) 641, 2014 CSC 7, 453 N.R.51, 12 C.C.E.L. (4th) 1, 314 O.A.C. 1, 95 E.T.R. (3d) 1, 21 B.L.R. (5th) 248,[2014] 1 S.C.R. 87, [2014] A.C.S. No. 7, 2014 SCC 7 (S.C.C.) —considered

Jackson v. Canadian National Railway (2013), 2013 ABCA 440, 2013CarswellAlta 2549, 91 Alta. L.R. (5th) 401, [2014] 4 W.W.R. 427, 566 A.R.247, 597 W.A.C. 247 (Alta. C.A.) — referred to

Magill v. Expedia Canada Corp. (2010), 2010 ONSC 5247, 2010 CarswellOnt7160, [2010] O.J. No. 4051, 1 C.P.C. (7th) 129 (Ont. S.C.J.) — referred to

P. (W.) v. Alberta (2014), 2014 ABCA 404, 2014 CarswellAlta 2152, 378D.L.R. (4th) 629, 7 Alta. L.R. (6th) 319, 62 C.P.C. (7th) 111, [2015] 5W.W.R. 430, 588 A.R. 110, 626 W.A.C. 110, [2014] A.J. No. 1320 (Alta.C.A.) — referred to

Player Estate v. Janssen-Ortho Inc. (2014), 2014 BCSC 1122, 2014 CarswellBC1799, 11 C.C.L.T. (4th) 104 (B.C. S.C.) — referred to

Roberts Properties Inc. v. Saskatchewan Power Corp. (2014), 2014 SKQB 245,2014 CarswellSask 524, [2014] S.J. No. 474, 58 C.P.C. (7th) 296, 28M.P.L.R. (5th) 64, 453 Sask. R. 115 (Sask. Q.B.) — followed

Stewart v. Enterprise Universal Inc. (2010), 2010 ABQB 259, 2010 Carswell-Alta 711, 32 Alta. L.R. (5th) 134, 489 A.R. 153, 99 C.P.C. (6th) 375 (Alta.Q.B.) — considered

Tchozewski v. Lamontagne (2014), 2014 SKQB 71, 2014 CarswellSask 149,[2014] 7 W.W.R. 397, 24 B.L.R. (5th) 141, 440 Sask. R. 34 (Sask. Q.B.) —followed

Wakelam v. Johnson & Johnson (2014), 2014 BCCA 36, 2014 CarswellBC 203,54 B.C.L.R. (5th) 7, [2014] 5 W.W.R. 7, 350 B.C.A.C. 70, 598 W.A.C. 70(B.C. C.A.) — followed


Business Practices Act, S.M. 1990-91, c. 6Generally — referred to

Business Practices Act, R.S.P.E.I. 1988, c. B-7Generally — referred to

Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2Generally — referred tos. 171 — considereds. 172 — considereds. 172(3) — considereds. 172(3)(a) — considered

Sandoff v. Loblaw Companies Ltd. 313

Class Actions Act, S.S. 2001, c. C-12.01Generally — referred to

Competition Act, R.S.C. 1985, c. C-34Generally — referred tos. 36 — considereds. 36(1) — considereds. 36(1)(a) — considereds. 52 — considereds. 52(1) — considered

Consumer Packaging and Labelling Act, R.S.C. 1985, c. C-38Generally — referred tos. 7(1) — considered

Consumer Product Warranty and Liability Act, S.N.B. 1978, c. C-18.1Generally — referred to

Consumer Protection Act, S.S. 1996, c. C-30.1Generally — referred to

Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. AGenerally — referred to

Consumer Protection and Business Practices Act, S.N. 2009, c. C-31.1Generally — referred to

Fair Trading Act, R.S.A. 2000, c. F-2Generally — referred to

Food and Drugs Act, R.S.C. 1985, c. F-27Generally — referred tos. 5(1) — considered

Protection du consommateur, Loi sur la, L.R.Q., c. P-40.1Generally — referred to

Rules considered:

Queen’s Bench Rules, Sask. Q.B. RulesR. 173(a) — consideredR. 173(c) — consideredR. 173(e) — considered

Queen’s Bench Rules, Sask. Q.B. Rules 2013R. 7-2 — consideredR. 7-5(1)(a) — considered


Food and Drugs Act, R.S.C. 1985, c. F-27Food and Drug Regulations, C.R.C. 1978, c. 870

Generally — referred to

APPLICATION by defendant grocery stores for summary judgment dismissingclaim by plaintiff consumers.


E.F. Anthony Merchant, Q.C., for PlaintiffsRobert Leurer, Q.C., Markus Kremer, for Defendants

T.J. Keene J.:

I. The Claim, Defence and Applications1 The original plaintiff, Mr. Sandoff, issued his claim under The Class

Actions Act, SS 2001, c C-12.01 on October 8, 2013. This claim wassubsequently amended and I will refer to the amended paragraph num-bers. The claim seeks damages against the defendants, Loblaw Compa-nies Limited and Loblaws Inc. [Loblaws]. The claim in part states:

10. This claim concerns the misleading and deceptive advertising of“Low Sodium” beverages by Loblaws and seeks to recover damageson behalf of those who purchased the Defendants’ “Low Sodium”beverages (the “Class” or “Class Members”) but ultimately receivedbeverages which were no lower or not appreciably lower in sodiumthan other, non-“Low Sodium” products.

. . .

17. The Low Sodium Products do in fact have minimal sodium con-tent; however, their sodium content is equivalent to, or greater than,that of comparable alternative products, and not “low” in a relativesense.

18. The application of the Low Sodium Label to Low Sodium Prod-ucts is deceptive and misleading in that it implies the presence of areduced, healthier amount of sodium when, in fact, the sodium con-tent of the Low Sodium Products is similar to, if not greater than, thesodium content of other, regularly packaged products who do not in-clude a Low Sodium Label (the “Misrepresentation”).

19. On August 29th, 2013 at approximately 6:53 p.m., the Plaintiffpurchased a Low Sodium Product, and more specifically, a PC DietCola (Caffeine-Free) (UPC code 6038309182) drink, from the “Inde-pendent” (Your Independent Grocer) store located at 1341 BroadwayAvenue in Regina, Saskatchewan (“Plaintiff Sandoff’s PurchasedProduct”) was purchased on the Plaintiff, Jason Sandoff’s, behalf.The packaging of the Plaintiff Sandoff’s Purchased Product indicatedthat it was a Low Sodium Product, and the Plaintiff believed he waspurchasing a Low Sodium Product.

20. On December 12th, 2014 at approximately 3:55 pm, Cindy Retal-lick purchased a Low Sodium Beverage, specifically PC Diet Cola(Caffeine-Free) (UPC code 6038378705) drink, from the Real Cana-dian Superstore located at 4450 Rochdale Boulevard in Regina, Sas-katchewan (“Retallick’s Purchased Product”).

Sandoff v. Loblaw Companies Ltd. T.J. Keene J. 315

21. The packaging of Retallick’s Purchased Product indicated thatthey were Low Sodium Products.

[Alterations as they appear on amended claim]

2 By way of clarification “PC” is a brand manufactured and sold byLoblaws. Ms. Retallick was added as a plaintiff in the amendment.

3 The claim goes on to make claims of negligence, breach of warranty,violations of the Competition Act, RSC 1985, c C-34, violations of vari-ous provincial consumer protection legislation, other statutory violations(i.e. the Consumer Packaging and Labelling Act, RSC 1985, c C-38 andthe Food and Drugs Act, RSC 1985, c F-27), unjust enrichment, waiverof tort and exemplary and punitive damages.

4 Loblaws served its statement of defence and application for summaryjudgment (with supporting affidavit of Ms. Sherry Casey) on September24, 2014. The defendants deny any liability to the plaintiffs or any mem-ber of the proposed class on the basis that the “low sodium” label is fac-tually correct and that no reasonable person would have assumed that the“low sodium” label meant that the PC Low Sodium Beverages are lowerin sodium than other alternate products.

5 The plaintiffs abandoned their claims under negligence, sale of goodslegislation, and breach of warranty after hearing the oral submissions ofdefence counsel.

6 The original plaintiff, Mr. Sandoff, filed his notice of application forcertification on September 16, 2015. This notice was amended during thehearing held before myself. The parts of the notice that were amended(save for some minor changes) are as follows:

(b) defining the class as “Individuals who purchased “Low Sodium”beverages “all persons in Canada who, on or after October 8th, 2011,purchased Diet Cola, Low Sodium, Caffeine Free or PC Club Soda,Low Sodium (“Low Sodium Beverages”) from Loblaws in Canada.”

. . .

(d) stating the nature of the claims asserted on behalf of class mem-bers for breach of consumer protection and sale of goods legislation,breach of warranty, negligence the Competition Act, and waiver oftort on the grounds that:

(1) T the Defendants made deceptive and misleading ad-vertisement and representation by selling “Low the LowSodium” b Beverages which the Defendants knew orshould have known were no lower or appreciably lower insodium than other, non-“Low Sodium” beverages.


. . .

(f) certifying the following issues as common issues:

(1) Are “Low Low Sodium” b Beverages from Loblawslower or appreciably lower in sodium than other, non-“Low Sodium” beverages [soft drinks]?

(Amended a third time by consent post hearing.)

(2) Did the Defendants engage in conduct that constitutesdeceptive acts or practices contrary to the application ap-plicable consumer protection or sale of goods legislation,by marketing or selling the Low Sodium Beverages thatwere advertised as “Low Sodium” but we no lower or notappreciable lower in sodium than, non-“Low Sodium”beverages?

[Alterations as they appear on amended application]

7 The plaintiffs have filed the affidavit of Ms. Retallick, David Landryand two affidavits of Rhonda Harper (which are essentially the same). Asstated above, the defendants rely on the affidavit of Ms. Casey.

II. The Facts as Pled and Admitted8 As set out above, the plaintiffs admit that the “Low Sodium Products”

do in fact have minimal sodium content (See para. 17 of the amendedclaim).

9 Controversy arose during the hearing as to the extent of the defend-ants’ admission of para. 16 of the plaintiffs’ amended claim (See para. 2,statement of defence). Paragraph 16 of the amended claim states:

16. PC incorporates messaging on the packaging of some itemswhich denotes them as having “Low Sodium” (the “Low SodiumLabel”), including but not limited to the following items (“Low So-dium Products”):

Product Example UPC SodiumContent

a) Diet Cola Low Sodium, Caffeine 6038309182 15 mgFree (2L)

b) Diet Cola Caffeine Free (2L) Caf- 6038364532 15 mgfeine Free (can)

c) Diet Cola Caffeine Free (12 pk) 6038364574 15 mgCaffeine Free (can)

d) PC Club Soda — Low Sodium (2L) 6038312518 15 mg

e) PC Club Soda — Low Sodium (can) 6038309391 15 mg


Product Example UPC SodiumContent

f) PC Club Soda — Low Sodium (12 6038308736 15 mgpk)

[Emphasis Added]

10 It appears that when defence counsel drafted the statement of defencethey understood this paragraph to mean that all of the listed items wereindeed labelled “Low Sodium”. Unfortunately, the draftor of the state-ment of claim did not add the PC brand name to each listed drink nor didhe add the description “Low Sodium”. Somehow this led counsel for theplaintiffs to believe there had been an admission by the defendants thatthe listed drinks were “identical” except one drink was labelled “LowSodium” and another drink was not. This resulted in the plaintiffs argu-ing in their brief on summary judgment:

1. The Defendants acknowledge that they have put identical productson the market but labelled these identical products differently. Thereis expert evidence submitted by the Plaintiffs explaining how this ismisleading to consumers. The expert evidence of the Plaintiffs inuncontroverted.

2. The facts are undisputed. A manufacturer put two identical prod-ucts on the market but labelled them differently. Intuitively, it is clearthat this is misleading. The only reason to label and market identicalproducts differently is to create the illusion that the identical productsare different.

3. While the Defendants have gone to great length to try and confusethe issue, the issue is simple. It is misleading to label identical prod-ucts differently.

(Plaintiffs’ brief re: summary judgment dated August 24, 2015)

11 The reply brief on the summary judgment application filed by the de-fendants challenged this assertion (paras. 20-23). In my opinion at thatstage it should have been apparent to the plaintiffs that no such admis-sion had been made. Despite this the plaintiffs persisted in this interpreta-tion of their para. 16 of the claim and continued to rely on the supposedadmission.

12 Clearly the defendants did not intend to make any such admission.The wording used by the plaintiffs in para. 16 of their claim is plain andobvious. Paragraph 16 can only be interpreted to mean all of the drinks(no matter how the plaintiffs chose to describe them) are labelled “LowSodium”. Again, the wording is: “the packaging of some items which


denotes them as having “Low Sodium” (the “Low Sodium Label”), in-cluding...”. This can only mean the items listed have the low sodium la-bel. I note there are only two types of beverages listed here, Diet ColaLow Sodium Caffeine Free and PC Club Soda that are packaged in dif-ferent sized beverage containers. This accords with Ms. Casey’s affidavitevidence (See: para. 5 of her affidavit) that there are only two productssold by Loblaws with the low sodium label namely Diet Cola CaffeineFree and PC Club Soda labelled low sodium (although as set out above -packaged in different sized containers). Ms. Kendall Lee Mackay’s affi-davit supports this as well (see para. 4 of her affidavit).

13 Further, because of this turn of events I granted counsel for the plain-tiffs 14 days to provide evidence that my understanding is not correct. Ireceived nothing. Therefore, I am confident that defence counsels’ read-ing of para. 16 is correct and a proper admission was made (i.e. all thelisted beverages have the “Low Sodium” label) and the plaintiffs’ argu-ment set out in their brief has no factual basis.

III. Affidavit Evidence

Ms. Casey’s Evidence14 Ms. Casey’s affidavit provides the following uncontroverted

evidence:

• Loblaws produces and markets two “low sodium” products: PCClub Soda Low Sodium and PC Diet Cola Caffeine Free/Low So-dium (para. 5);

• The Canadian Food Inspection Agency [CFIA] regulates the com-positional and labelling standards for all foods sold in Canada.CFIA is governed by the regulations under the Food and DrugsAct, RSC 1985, c F-27, the Food and Drugs Regulations, CRC c870 [Food and Drug Regulations] and the Consumer Packagingand Labelling Act, RSC 1985, c C-38 (para. 16);

• Loblaws, using the labelling requirements provided on the CFIAwebsite, ensures all of its food products are correctly labelled inaccordance with the Food and Drugs Regulations (para. 17);

• Labelling food “low sodium” is considered to be a “nutrient con-tent” claim under the Food and Drugs Regulations. Nutrient con-tent claims are statements which describe, directly or indirectly,the level of a nutrient in a specific food or beverage that will per-mit the manufacturer to make a particular claim. Nutrient content


claims are permitted, provided that the product meets certain com-positional and labelling requirements. The CFIA website specifieslabelling requirements for nutrient content claims and also speci-fies the placement and content of all advisement on food (para.18);

• The Food and Drugs Regulations allow manufacturers to labelsoft drinks as “Low Sodium” if the drinks contain less than 140mg of sodium per 355 ml. PC Low Sodium Beverages contain ap-proximately 20 mg per 355 ml or 14% of the sodium limit set outby the Food and Drugs Regulations for products labelled as “lowsodium”. This amounts to 1/7 of what would be permissible (paras.19-21);

• Loblaws requires its vendors to conduct nutrient testing on theirproducts to validate the label information. This is to ensure thatthe compositional requirements of PC products continue to meetthe requirements imposed by the Food and Drugs Regulations(para. 22);

• The packaging of PC Low Sodium Beverages not only indicatesthe products are “low sodium” but also includes a nutritional factslabel that describes the actual amount of sodium in each product.All PC Low Sodium Beverages and all other beverage productssold in Canada by Loblaws’ competitors have such labels/and orpackaging (para. 23, exhibit c);

• Loblaws has never branded or represented PC Low Sodium Bev-erages as being lower in sodium than other beverages even thoughthey are lower in sodium than many other products made by Lob-laws’ competitors. PC Low Sodium Beverages (containing 20 mgof sodium/355 ml) are lower in sodium than many competitors(paras. 26, 28-29, exhibit D);

• On average the PC Low Sodium Beverages are no more expensivethan comparable products and Loblaws does not charge extra forlow sodium soft drinks (paras. 32-33).

15 I note that Ms. Casey has reviewed the claim. She has a senior posi-tion at Loblaws that appears directly connected to the type of issues andallegations set forth in the claim. She details her background and indi-cates her education, employment and oversight role regarding the PCproduct line. Overall, her evidence was direct, useful and on point. Asstated, I do not see any of her evidence as being contradicted or dimin-ished in any fashion.


Mr. Sandoff16 Mr. Sandoff did not file an affidavit in response to either the sum-

mary judgment application or the certification application. I note (as setout above) that para. 19 of the claim states that Mr. Sandoff did not actu-ally buy the soft drink. It appears an unnamed person did. Perhaps that iswhy we heard nothing more from Mr. Sandoff.

Ms. Retallick17 Ms. Retallick did file an affidavit ostensibly to support the certifica-

tion application (see para. 32 of her affidavit). She describes purchasing(four days before the amendment to the claim was made) the PC LowSodium Beverage as follows:

• She states she purchased a Low Sodium Beverage, PC Diet Cola(Caffeine Free) (UPC code 6038378705) confirming para. 20 ofher claim (para. 4 of her affidavit);

• Ms. Retallick goes on to depose (paras. 5-7 of her affidavit): 5. The packaging of the beverage indicated that it was a “LowSodium” Beverage, which suggested that I was purchasing abeverage that was lower in sodium than beverages that werenot labelled as “Low Sodium”.

6. Other similar beverages sold by PC and other manufactur-ers, available at that store, did not claim to be Low SodiumBeverages. Purchasers would reasonably understand based onthe Defendants difference in labelling, that the PurchasedBeverage contained less sodium than other PC beverages thatdid not advertise that they were Low Sodium beverages.

7. I did not obtain a beverage which was materially lower insodium content than other beverages that did not have theLow Sodium Label.

18 Defence counsel points out in their brief filed July 27, 2015: 18. It is important to note that Ms. Retallick does not allege that:

(a) She purchased the PC Low Sodium Beverages because it waslabelled “low sodium”;

(b) She was misled by the “low sodium” label;

(c) The PC Law Sodium Beverage was higher in sodium thanshe expected it to be; or

(d) The attributes of the product she obtained (as opposed to therelative attributes of competing products) were in any waydifferent from those she had been led to expect.


[Emphasis in original]

Ms. Harper19 Ms. Harper provided two affidavits for the plaintiffs. The affidavits

are essentially the same and I need only consider the September 18, 2015affidavit.

20 Defence counsel critically describes the content of Ms. Harper’s affi-davit as follows:

19. The Plaintiffs also rely upon a purported expert report fromRhonda Harper. It is important to note that Ms. Harper conducted noindependent research or surveys in order to prepare her report. Thereis no indication that she had spoken to either Plaintiff or a singlemember of the proposed class. The majority of her affidavit summa-rizes the contents of academic articles about marketing and consumerbehaviour.

Affidavit of Rhonda Harper, sworn February 20, 2015 (“HarperAffidavit”).

20. In only one paragraph of her affidavit does Ms. Harper purport togive an expert opinion:

18. In the case at hand, it is my expert opinion that theDefendant knowingly leveraged the national awarenesscampaign for sodium-reduction among Canadians, mis-represented its product as “low-sodium” versus the otherin its category and misled consumers into purchasing itsproduct based on this claim. Consumers collectivelywould expect a difference in a “low sodium” productfrom others in the line as being meaninfully [sic] higher insodium. The messaging is not that it is low, and so areother similar products, but that it is meaninfully [sic]lower.

Harper Affidavit, para 18

[Defendants brief filed July 27, 2015]

21 I find myself in agreement with this criticism. A reading of her exhib-ited report supports the conclusion that she did not specifically direct hermind in a meaningful fashion to the claim, the Canadian statues or regu-lations or in short, the matters at hand. Her conclusion set out in para. 18of her affidavit seems to be without proper foundation or basis. Again,defence counsel properly sums this up in their brief:

21. The first sentence of the paragraph quoted above represents aconclusion with respect to the ultimate issue in this case, whether


Loblaws misled consumers. The closer an expert opinion comes toexpressing a view with respect to the ultimate issue in a case, themore stringently the criteria of reliability and necessity must be ap-plied, as it risks usurping the role of the trier of fact. In this case, Ms.Harper has provided no basis for her conclusion. She has no knowl-edge of Loblaws’ intentions, yet states that it “knowingly” misrepre-sented its product. She has not spoken to a single consumer of the PCLow Sodium Beverages, yet states that they have been misled. Inthese circumstances, her opinion can be given no weight.

R v Sekhon, 2014 SCC 15 at paras 43 to 48 and at paras 74 to76 (dissenting on other grounds)

22. Like the affidavit of Ms. Retallick, however, the balance of thisparagraph is significant for what it does not state. Specifically, Ms.Harper does not claim that:

(a) Loblaws has made any statement that is not factuallyaccurate;

(b) Loblaws has ever stated that the PC Low Sodium Productsare “lower” in sodium than any other products or are the“lowest sodium” products available; or

(c) Consumers who buy PC Low Sodium Beverages are misledas to the sodium content of the product that they are purchas-ing, as opposed to mistakenly assuming that certain otherproducts are higher in sodium.

[Emphasis in original]

22 Therefore, I place little weight in her opinion. There is no evidencethat the plaintiffs were misled about the sodium content of the drink theypurchased, nor did they rely upon the low sodium label when making thepurchase and I find they did not suffer any damages.

IV. The Issues and Analysis

Is Summary Judgment Appropriately Heard Before Certification?23 Since there are two applications (the defendants’ application for sum-

mary judgment and the plaintiffs’ application for certification) I amcalled upon to determine which application should be considered first.

24 The defendants submit that this case is suitable for summary judg-ment prior to certification because the facts are not disputed and the de-termination of a single legal issue will decide whether the plaintiffs havea tenable cause of action.


25 The defendants state that a pre-certification summary judgment appli-cation is appropriate if there is no genuine issue for trial because:

a. The plaintiffs have failed to show a genuine ability to prove one ormore factual elements to a legal cause of action;

b. The complaint lacks legal merit; or

c. The defendants have an obvious defence to the claim.

[para. 26 of the defendants’ brief on summary judgment dated July27, 2015]

26 It seems that the plaintiffs are in agreement that this case is suitablefor summary judgment and I note from their brief filed in response to thesummary judgment application:

7. It is very unusual for summary judgment to be suitable in the classaction context. This is the one in a hundred class action case wheresummary judgment is suitable.

8. The test for summary judgment is met in this case because theapplication turns on a straight forward question of law and the rele-vant facts are undisputed. In Hryniak v. Mauldin, 2014 SCC7[Hryniak] the Supreme Court of Canada sets out two separate issuesto address when considering if summary judgment is appropriate

(i) whether a genuine issue exists; and

(ii) if a genuine issue does exist, whether its resolution requires aconventional trial.

9. Here there is a genuine issue. The genuine issue is whether or notit is misleading to label identical products differently. Although agenuine issue exists, its resolution does not require a conventionaltrial....

[Emphasis Added]

27 Unfortunately (for the plaintiffs) it seems they have simply miscon-strued their own pleadings and seized upon what they believed (but asstated above, incorrectly) was an admission that then emerged as the sin-gular plank in their case.

28 However, dispute the deflation of this argument, the plaintiffs contin-ued with their defence to summary judgment and with the certificationhearing. I will quickly add at this point that the plaintiffs’ submissionthat they should receive summary judgment in favour of their claim isclearly without merit. There is no evidence to support this. I will con-tinue with the consideration of the defendants’ application for summaryjudgment to dismiss the claim.


29 I agree with defence counsel that there is considerable authority forthis Court to hear a summary judgment application prior to the certifica-tion application. At this point, I wish to note that it is only the namedplaintiffs that would be subject to this dismissal. There is no applicationbefore me with respect to the claims as a class as a whole. It would bepotentially open for other representative plaintiffs to come forward, byissuing a new claim under The Class Actions Act.

30 In Roberts Properties Inc. v. Saskatchewan Power Corp., 2014SKQB 245, 453 Sask. R. 115 (Sask. Q.B.) [Roberts], Justice Dawsongranted the defendants’ application to strike a claim brought under TheClass Actions Act pursuant to former Queen’s Bench Rule 173(a), (c) and(e) prior to certification. The plaintiffs in our case argue that Roberts andFilson v. Canada (Attorney General), 2014 SKQB 164, 447 Sask. R. 219(Sask. Q.B.) [Filson], affirmed 2015 SKCA 80 (Sask. C.A.), relied on bythe defendants, should be distinguished because there are different Rulesin play in those cases than here. I agree that the Rules may be differentbut the principle is the same (i.e. the request to dispose of a claim beforecertification). Accordingly, I find Roberts and Filson support the defend-ants request to have the summary judgment application heard and deter-mined before the certification application is determined.

31 Additionally, I note other jurisdictions have allowed summary appli-cations to precede the certification hearing. I note Justice Martin’s com-ments in Stewart v. Enterprise Universal Inc., 2010 ABQB 259, 489A.R. 153 (Alta. Q.B.) where the court stated:

36 While it may be preferable to deal with most applications at thecertification hearing, there are sometimes good and compelling rea-sons for them to be addressed earlier. Efficiency and judicial econ-omy are important, but they are not the only values. Further, motionstaken before the certification hearing may in fact contribute to effi-ciency, judicial economy by narrowing and streamlining the issuesand reducing the number of parties. The Alberta Court of Appeal inTottrup v. Alberta (Minister of Environment), 2000 ABCA 121, 255A.R. 204at para. 9 emphasized that robust rules are required for pre-trial applications that seek to resolve claims. While that case did notinvolve the CPA, robust rules ensure plaintiffs have valid causes ofaction that are properly plead, which both operate to conserve courtresources.

37 In addition, it is essential that the process is fair to all parties. InDutton at para. 26 the Supreme Court noted the important role classactions play in today’s world, but also stated that “[t]he class action


offers a means of efficiently resolving such disputes in a manner thatis fair to all parties.”

. . .

39 Numerous factors will bear on the exercise of discretion and theassessment of efficiency, economy and fairness. Among them is howquickly the matter is proceeding and whether the certification hearingis being pursued in accordance with the presumptive time lines in thelegislation. Defendants in a potential class-action have at least thesame interest as defendants in individual actions in the timely resolu-tion of disputes. The Rules of Court provide defendants with a vari-ety of tools to address claims made against them and defendantsought to remain free to choose the timing of their applications as partof their general ability to advance their case. While a first past thepost system is not the answer, as it values form and speed over sub-stance, a plaintiff concerned with litigation by instalments may helpforestall that possibility by making an application for certificationwithin the suggested time frame.

(See also: Jackson v. Canadian National Railway, 2013 ABCA 440,[2014] 4 W.W.R. 427 (Alta. C.A.); Player Estate v. Janssen-Ortho Inc.,2014 BCSC 1122 (B.C. S.C.) at para 174; and P. (W.) v. Alberta, 2014ABCA 404, [2015] 5 W.W.R. 430 (Alta. C.A.)).

32 Accordingly, I am quite comfortable in following this judicial author-ity and determining the defendants’ summary judgment application priorto having to decide the plaintiffs’ application for certification.

Defendants’ Application for Summary Judgment33 The applicable Queen’s Bench Rules are:

7-2 A party may apply, with supporting affidavit material or otherevidence, for summary judgment on all or some of the issues raisedin the pleadings at any time after the defendant has filed a statementof defence but before the time and place for trial have been set.

. . .

7-5(1) The Court may grant summary judgment if:

(a) the Court is satisfied that there is no genuine issue requiring atrial with respect to a claim or defence

34 Regarding Rule 7-5(1)(a) (i.e. genuine issue) Justice Karakatsanis inHryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 (S.C.C.) stated:

49 There will be no genuine issue requiring a trial when the judge isable to reach a fair and just determination on the merits on a motionfor summary judgment. This will be the case when the process (1)


allows the judge to make the necessary findings of fact, (2) allowsthe judge to apply the law to the facts, and (3) is a proportionate,more expeditious and less expensive means to achieve a just result.

35 Justice Barrington-Foote in Tchozewski v. Lamontagne, 2014 SKQB71, 440 Sask. R. 34 (Sask. Q.B.) [Tchozewski] writes:

30 The central question posed on a Rule 7-2 application, accordingly,is whether summary judgment will achieve what Karakatsanis J. calls(at para. 28) the “principal goal”, and Popescul C.J.Q.B calls “theoverarching consideration” (at para. 49, Pervez): that is, a fair pro-cess that results in a just adjudication of the dispute before the court.The answer to this question calls for an analysis of the affidavit andother evidence presented and the issues raised by the application, inthe context of the litigation as a whole. In Hyrniak, Karakatsanis J.breaks that analysis down into discrete steps and key principles — a“roadmap” — based on the various elements of the summary judg-ment rules. In brief, the key elements of that roadmap, in the contextof a Rule 7-2 application, are as follows:

. . .

3. The issue is not whether the summary judgment pro-cess is as thorough or the evidence is as complete as attrial. It is whether the judge is confident he or she can findthe facts and apply the relevant legal principles so as tofairly resolve the dispute. If the judge has that confidence,proceeding to trial is generally not proportionate, timelyor cost effective. A process that does not give the judgeconfidence in his or her conclusions, on the other hand, isnever proportionate. (Hryniak, paras. 50 and 57)

36 The Tchozewski case provides a “roadmap” to be used in summaryjudgment cases (see para. 30).

37 I find the following facts are not in dispute (i.e. the plaintiffs have notprovided contrary evidence and I accept evidence provided by thedefendants):

i. The plaintiffs acknowledge that the PC Low Sodium Beveragescontain minimal sodium (Ms. Casey’s evidence is that they con-tain 14% of the sodium permitted);

ii. The plaintiffs have not provided evidence that Loblaws made anycomparative claims stating that its PC Low Sodium Beverageswere lower in sodium than any other beverages whether they weremade by Loblaws or competitors;


iii. The plaintiffs have not contradicted or challenged Ms. Casey’s ev-idence that all PC Low Sodium Beverages sold in Canada (as wellas any competing beverages) have a nutritional label setting outthe amount of sodium the beverage contains for the consumer toread.

38 Loblaws correctly submits (p. 12 of the defendants’ brief of law forsummary judgment):

(d) The Plaintiffs have led no evidence that:

(i) The Plaintiffs personally were misled in any way by the “lowsodium” label;

(ii) Any consumers were misled as to any of the attributes of thePC Low Sodium Beverages (as opposed to the relative attrib-utes of competing products);

(iii) The Plaintiffs relied upon the “low sodium” representationwhen purchasing the PC Low Sodium Beverages; or

(iv) The Plaintiffs have suffered any damages.

39 I have come to the same conclusion as the defendants when theystate:

41. In light of this substantial agreement between the parties, the onlyissue in this action, and on this application, is whether a reasonablecustomer would be misled by a “low sodium” label about the attrib-utes of a product so labelled. This is a legal question to be decided onan objective standard.

[Defendants’ brief dated July 27, 2015]

40 Defence counsel in their brief examined this issue and submit: 42. While the Plaintiffs assert several different causes of action in theStatement of Claim, there is considerable overlap among the ele-ments required to establish each claim. In particular, each one re-quires the Plaintiffs to prove one or more of the following:

(a) That the “low sodium” label is inaccurate (i.e. that Loblawshas made a “False Representation”);

(b) That a reasonable customer would have been misled by the“low sodium” label into believing that the PC Low SodiumBeverages were lower in sodium than competing productsand that this would have caused the customer to be misledabout the attributes of the PC Low Sodium Beverages (i.e.that Loblaws has made a “Misleading Representation”); and


(c) That the Plaintiffs relied upon the “low sodium” label to theirdetriment and suffered damages as a result (i.e. that the Plain-tiffs have suffered “Damages”).

43. Based upon uncontroverted evidence on this motion, the Plain-tiffs cannot establish any of these elements and the Statement ofClaim raises no genuine issue requiring a trial.

[Defendants’ brief dated July 27, 2015]

41 Again, I agree with and come to the same conclusion as defencecounsel that:

• The plaintiffs have not proven the “low sodium” label isinaccurate;

• There was no misleading representation about PC Low SodiumBeverages. It appears plaintiffs’ counsel offers the novel argumentthat because Loblaws competitors do not label their beverages as“low sodium” that results in consumers being misled by Loblaws.I cannot accept this premise. Surely truthfully and accurately la-belling your product (even though your competitor chooses not to)does not mean you are misleading anyone. Again, I note it was thecornerstone of the plaintiffs’ claim that identical products were la-belled differently (i.e. one saying low sodium and the other identi-cal product not so labelled). I can envision how that may poten-tially be misleading, but this is not the case before me (see abovepara. 12). I find that there was nothing misleading about the pack-aging complained of;

• Consumers could have checked the nutritional labels in any eventto read the sodium levels and used their own common sense tomake informed decisions; and

• There is no evidence that either plaintiffs (or for that matter anymember of the proposed class) suffered any damages as a result ofpurchasing the PC Low Sodium Beverages. The plaintiffs boughtwhat they expected (or could reasonably expect) to receive: a lowsodium beverage at essentially the same price as other soft drinks.

42 I have set out above my finding that there is no genuine issue regard-ing a trial. However, because the plaintiffs pled a broad range of statu-tory breach allegations (although perhaps reducing their claim in theamended notice of application for certification) I will go through theseclaims.


Alleged Breach of the Food and Drugs Act or the ConsumerPackaging and Labelling Act

43 The plaintiffs alleged that Loblaws breached the Food and Drugs Act,the Food and Drugs Regulations and the Consumer Packaging and La-belling Act.

44 The Food and Drugs Act states in s. 5(1): 5. (1) No person shall label, package, treat, process, sell or advertiseany food in a manner that is false, misleading or deceptive or is likelyto create an erroneous impression regarding its character, value,quantity, composition, merit or safety.

45 The Consumer Packaging and Labelling Act provides in s. 7(1): 7. (1) No dealer shall apply to any prepackaged product or sell, im-port into Canada or advertise any prepackaged product that has ap-plied to it a label containing any false or misleading representationthat relates to or may reasonably be regarded as relating to thatproduct.

46 I find that the plaintiffs’ claims cannot succeed under the above stat-utes. The “low sodium” label on the PC Low Sodium Beverages isneither a false representation, a misleading representation or a deception.As found above: the sodium content meets the requirements to be prop-erly called “low sodium” and in fact is about 1/7 of the maximum level.

Alleged Breach of the Competition Act47 The plaintiffs plead s. 36 and 52 of the Competition Act. In reverse

order, the statue provides: 52. (1) No person shall, for the purpose of promoting, directly or in-directly, the supply or use of a product or for the purpose of promot-ing, directly or indirectly, any business interest, by any meanswhatever, knowingly or recklessly make a representation to the pub-lic that is false or misleading in a material respect.

. . .

36. (1) Any person who has suffered loss or damage as a result of

(a) conduct that is contrary to any provision of Part VI, or...

may, in any court of competent jurisdiction, sue for and recover fromthe person who engaged in the conduct or failed to comply with theorder an amount equal to the loss or damage proved to have beensuffered by him, together with any additional amount that the courtmay allow not exceeding the full cost to him of any investigation inconnection with the matter and of proceedings under this section.


48 Accordingly, s. 52(1) creates a quasi-criminal offence and s. 36(1)creates a civil right of action. To be successful, the plaintiffs must show:

i. Loblaws committed the offence described in s. 52 of the Competi-tion Act;

ii. The plaintiffs reasonably relied upon their misrepresentation; and

iii. The plaintiffs suffered damages as a result (See Magill v. ExpediaCanada Corp., 2010 ONSC 5247 (Ont. S.C.J.) at para 108).

49 I find that the plaintiffs claim under the Competition Act cannot suc-ceed because:

• As set out above the “low sodium” label when attached to PC LowSodium Beverages is neither a false representation nor a mislead-ing representation;

• Ms. Casey’s evidence establishes that Loblaws carefully informsitself of the regulations and indeed follows these directions. Thereis no evidence that the defendants acted “knowingly or recklessly”in labelling the PC Low Sodium Beverages as “low sodium”.Therefore, any claim arising out of s. 52 of the Competition Actwould be dismissed;

• Reasonable reliance is a requirement for a successful claim unders. 36 of the Competition Act. The plaintiffs seem to concede therewas no “reliance” in this case and thereby dropped their claim innegligence. However beyond that, I find that no reasonable personcould have relied upon the “low sodium” label to conclude thatthe PC Low Sodium Beverages had characteristics different fromthose that the product actually has. Therefore, there is no prospectthat a claim under s. 36 of the Competition Act could havesucceeded;

• As set out above the plaintiffs have not proven they have sufferedany damages which is also required under s. 36 of the CompetitionAct;

• Additionally, Wakelam v. Johnson & Johnson, 2014 BCCA 36(B.C. C.A.) at paras 90-92, [2014] 5 W.W.R. 7 (B.C. C.A.), estab-lishes that s. 36 of the Competition Act provides the exclusiveremedy for breaches of s. 52 of the Competition Act. Therefore,the plaintiffs have no right to seek restitutionary remedies (such asunjust enrichment) for breaches of the Competition Act.


Alleged Breaches of Consumer Protection Legislation50 The plaintiffs claim that Loblaws has violated a number of pieces of

consumer protection legislation (See paras. 43-51 of the amended claim).These statutes are listed in para. 43 of the claim as:

43. The Plaintiffs pleads and relies rely on the provisions of con-sumer protection legislation in jurisdictions across Canada (collec-tively, “Consumer Protection Legislation”) including”

a. Business Practices and Consumer Protection Act, S.B.C.2004, c.2 (“BC BPCPA”);

b. Fair Trading Act, R.S.A. 2000 c. F-2, as am (“AB FTA”);

c. The Consumer Protection Act, SS 1996, c. C-30.1, as am.(“SK CPA”);

d. The Business Practices Act, C.C.S.M., c B-120, as am. (“MBBPA”);

e. Consumer Protection Act, 2002, S.O. 2005, c. 30, Sched. A.,as am. (“ON CPA”);

f. Consumer Protection Act, R.S.Q. c. P-40.1, as am. (“QCCPA”);

g. Consumer Product Warranty and Liability Act, S.N.B. 1978,c. C-18.1 (“NB CPWLA”);

h. Business Practices Act, R.S.P.E.I. 1988, c. B-7, as am. (“PEIBPA”); and

i. Consumer Protection and Business Practices Act, SNL 2009,c C-31.1 (“NFLD CPBPA”).

[Alteration as it appears in amended claim]

51 I find that all of the above statutes require the plaintiffs to prove thatthe supplier has made a representation that was untrue, deceptive or mis-leading. For the reasons already provided, these claims under these Actscannot succeed. Additionally, a reading of the cited British Columbia,Alberta, Saskatchewan and Newfoundland and Labrador statutes revealsthe plaintiffs would have to establish that they have suffered damages ora loss as a result of the violation of the applicable Acts. I have alreadyfound that the plaintiffs have not provided any evidence of this.

52 The plaintiffs seem to cling to the Business Practices and ConsumerProtection Act, SBC 2004, c 2 of British Columbia arguing “reliance” isnot required in British Columbia under s. 172 of that Act (See tab 8 of theplaintiffs’ extracts of argument). However, that argument fails. Defencecounsel skilfully took the court through a series of cases in oral argument


regarding this issue. I accept the answer to this issue as set out in thedefendants certification brief at para. 81:

81. A similar requirement applies under sections 171 and 172(3)(a)of British Columbia’s Business Practices and Consumer ProtectionAct. It has been held in a number of cases that claims under section171 require proof of individual reliance, causation and loss. Claimsunder section 172(3), by contrast, are of a public nature, and not in-tended primarily to provide individual remedies. While section172(3)(a) of the Act permits a court to order a supplier to restoremoney to a person in the case of certain contraventions of that Act orits regulations, such order are only available if the plaintiff can estab-lish: (i) the existence of a constructive trust over an identifiable fundof money; or (ii) that they have personally suffered loss or damagecognizable in law. The Plaintiffs in this case cannot establish eitherrequirement. Any revenues earned by Loblaws from the sale of PCLow Sodium Beverages will have been comingled with other funds,and the Plaintiffs have failed to plead that they have suffered com-pensable damages as a result of the marketing of these products as“low sodium”.

Clark v. Energy Brands Inc., 2014 BCSC 1891 (B.C. S.C.), at paras41, 47 and 126.

Ileman at paras 52 and 60 to 61; Wakelam at para 69.

53 Therefore, I have concluded that there is no genuine issue requiring atrial regarding:

i. Any alleged breach of the Food and Drugs Act, or the ConsumerPackaging and Labelling Act by Loblaws;

ii. Any alleged breach of the Competition Act by Loblaws; and

iii. Any alleged breach of any applicable consumer protection legisla-tion by Loblaws.

Waiver of Tort, Unjust Enrichment, and Punitive and ExemplaryDamages

54 I have grouped these claims here and find that none would apply orcould be sustained in this claim. I particularly note the claim for punitiveor exemplary damages has no basis. Ms. Casey’s affidavit sets out thatLoblaws mindfully followed the regulations as prescribed. I cannot seehow they could be held accountable for punitive or exemplary damages.


Conclusion Regarding Summary Judgment Application55 The plaintiffs seem to have placed all of their eggs in one basket

when they boldly declared: “it is misleading to label identical productsdifferently”. This was not in any way supported by their pleadings or anyaffidavit evidence. On that basis alone the summary judgment dismissingtheir claim should be granted. There is simply no genuine issue requiringa trial. However, I have gone through the claim of the plaintiffs andfound that none of the claims pled or found in the notice of applicationfor certification ultimately produce a genuine issue for trial. FollowingJustice Barrington-Foote’s comments in Tchozewski, I find that I am con-fident that I have found the facts and applied the relevant legal principlesand can fairly resolve the dispute on the basis of the materials before me.Proceeding to trial is not necessary and would not be proportionate,timely or cost effective. Therefore, I grant the defendants’ application forsummary judgment dismissing the plaintiffs’ entire claim.

Application for Certification56 Since I have granted the defendants’ summary judgment application,

I do not need to decide the plaintiffs’ application for certification. Tocomplete this matter, because the plaintiffs’ claim is dismissed, I musttherefore dismiss the application for certification as well and so order.

V. Costs57 The defendants claim costs for their summary judgment application.

They have been successful. The parties have made extensive comment intheir briefs regarding costs. This seems to have been top of mind for allcounsel. I recognize the cost issue applies to both the summary judgmentapplication and the dismissed certification application that I heard.

58 I am guided by the recent decision of Justice Schwann in Harvey v.Western Canada Lottery Corp., 2015 SKQB 102, [2015] 9 W.W.R. 391(Sask. Q.B.)where she states:

64 There is strong appellate authority in support of the propositionthat s. 40 of the CAA does not prohibit an award of costs on pre-certification applications. (Alves 116; Englund v. Pfizer Canada Inc.,2007 SKCA 62, 299 Sask. R. 298 (Sask. C.A.))

65 Roberts Properties Inc. v. Saskatchewan Power Corp., 2014SKQB 245 (Sask. Q.B.) is the most recent decision where this issuearose. Following a thorough overview of appellate level cases on thisissue, Dawson J. reaffirmed the principle that s. 40 of the CAA does


not preclude an award of costs on a motion to strike which she foundnot directly connected to the certification application. Instead, the ap-plication to strike was subject to the general rules in relation toawarding costs. She said at para. 92:

92 Although the reasoning in Campbell, supra, is interest-ing, the Saskatchewan jurisprudence establishes that s. 40of The Class Actions Act does not operate to prohibit anaward of costs, where a separate application is consideredby the court prior to certification, even if they are arguedat the same time. In the Alves trilogy (2011 SKCA 116,2011 SKCA 117 and 2011 SKCA 118), there were severalapplications in the larger context of a class action pro-ceeding that were heard before the certification applica-tion, but after the motion or certification was filed andserved, and while the certification motion was before thecourt. Justice Richards made it clear that s. 40 did notconstitute a bar to awarding costs in such circumstances.

[Emphasis added]

66 The within application is clearly pre-certification and not directlytied to the certification hearing. Accordingly, applying the prevailingjurisprudence, s. 40 of the CAA is not an impediment to an award ofcosts.

59 Accordingly, I see no reason why the defendants (Loblaws) shouldnot receive their costs for their successful summary judgment applicationand I so order. In regards to the certification hearing, I prefer not to orderany costs although that application was heard in its entirety. I do notethat the plaintiffs abandoned a major plank in their claim (negligence)after hearing the oral presentation of defence counsel. However, despitethis, I have decided not to order costs for the certification application.

Application granted.

Computershare Trust Co. of Canada v. Gandhi 335

[Indexed as: Computershare Trust Co. of Canada v. Gandhi]

Computershare Trust Company of Canada, (Plaintiff) andSanjay Gandhi and Hafiz Mohammad Masood, (Defendants)

Ontario Superior Court of Justice

Docket: 6012/12

2015 ONSC 6516

H.A. Rady J.



Guarantee and indemnity –––– Practice and procedure — Guarantee —Pleadings –––– Plaintiff sued defendants on guarantee — Defendant G defendedaction by filing statement of defence — Default judgment was obtained againstdefendant M — G wished to add paragraph to statement of defence that stated,inter alia, that prior to execution of guarantee, plaintiff’s representative repre-sented that personal guarantee being sought by plaintiff would be limited to$1,450,000.00 — G relied on certain email — G brought motion to amend hisstatement of defence — Motion granted — It was troubling that motion wasbrought on eve of trial and more than six months after pre-trial when allegedrepresentation was first raised — Evidence was that G had independent legalrepresentation when guarantee was signed — Email in issue was of sufficientconcern that interests of justice required that allegation be adjudicated at trial —Court had no evidence about G’s level of sophistication or what his understand-ing of guarantee was when he executed it in light of email communication.

Cases considered by H.A. Rady J.:

Antorisa Investments Ltd. v. 172965 Canada Ltd. (2006), 2006 CarswellOnt5160, 41 C.C.L.T. (3d) 275, 20 B.L.R. (4th) 211, 47 R.P.R. (4th) 256, [2006]O.J. No. 3427, 82 O.R. (3d) 437 (Ont. S.C.J.) — considered

Armstrong Baum Plumbing & Heating v. Toronto Dominion Bank (1994), 15B.L.R. (2d) 84, 1994 CarswellOnt 236, [1994] O.J. No. 331 (Ont. Gen.Div.) — considered

Armstrong Baum Plumbing & Heating v. Toronto Dominion Bank (1997), 1997CarswellOnt 1910, 32 B.L.R. (2d) 230 (Ont. C.A.) — considered

Bauer v. Bank of Montreal (1980), [1980] 2 S.C.R. 102, 32 N.R. 191, 10 B.L.R.209, 110 D.L.R. (3d) 424, 33 C.B.R. (N.S.) 291, 1980 CarswellOnt 141,1980 CarswellOnt 638, [1980] S.C.J. No. 46 (S.C.C.) — referred to

Hawrish v. Bank of Montreal (1969), [1969] S.C.R. 515, 2 D.L.R. (3d) 600, 66W.W.R. 673, 1969 CarswellSask 9, [1969] S.C.J. No. 17 (S.C.C.) — re-ferred to


Kuban v. Royal Bank (1996), 2 O.T.C. 128, 1996 CarswellOnt 1660, [1996] O.J.No. 1817 (Ont. Gen. Div.) — considered

Machias v. Mr. Submarine Ltd. (2002), 2002 CarswellOnt 1176, 24 B.L.R. (3d)228, [2002] O.J. No. 1261 (Ont. S.C.J.) — considered

Tudale Explorations Ltd. v. Bruce (1978), 20 O.R. (2d) 593, 88 D.L.R. (3d) 584,1978 CarswellOnt 778 (Ont. Div. Ct.) — considered

7326246 Canada Inc. v. Ajilon Consulting (2014), 2014 ONSC 28, 2014 Cars-wellOnt 1374, [2014] O.J. No. 538 (Ont. Div. Ct.) — considered

Rules considered:

Rules of Civil Procedure, R.R.O. 1990, Reg. 194R. 26 — referred toR. 26.01 — considered

MOTION by moving defendant to amend his statement of defence.

Jennifer J. Quick, for PlaintiffMark A. Klaiman, for Defendant, Gandhi

H.A. Rady J.:

Introduction1 The plaintiff has sued the defendants on a guarantee by way of a

claim issued January 3, 2012. Mr. Gandhi defended the action by filing astatement of defence served February 24, 2012. Default judgment wasobtained against Mr. Masood on September 11, 2012. Examinations fordiscovery were completed on June 3, 2013. A pre-trial conference washeld on March 27, 2015. The matter is on the running list for this week.Mr. Gandhi brought a motion originally returnable October 13, 2015seeking to amend his statement to defence. The plaintiff opposes.

The Proposed Amendment2 The defendant wishes to add the following paragraph to his statement

of defence: 2a. This Defendant pleads that prior to execution of the Guaranteethe Plaintiff’s representative represented that a personal guaranteebeing sought by the Plaintiff be limited to $1,450,000.00. The repre-sentative represented to this Defendant that in the event that the pro-perty sells for more than $1,450,000.00 then the obligation of thisDefendant would be fulfilled. On the strength of the said representa-tion this Defendant executed the Guarantee. This Defendant pleadsthat if the Plaintiff’s position is that if the Plaintiff is obligated to pay

Computershare Trust Co. of Canada v. Gandhi H.A. Rady J. 337

the amount over and above sale price of the property if it exceeded$1,450,000.00, then this Defendant pleads that the Plaintiff misrepre-sented its obligation in executing the Guarantee. Further, and withoutin anyway limiting the foregoing this Defendant pleads and reliesupon the doctrine of the promissory estoppel.

3 The defendant relies on a communication from an agent or represen-tative of the plaintiff dated March 23, 2007 that reads:

Sanjay, just got your message concerning the personal guarantee, andI have confirmed with my legal department incase of default, theguarantee in the commitment letter for $1,450,000.00 of the loan willonly be payable to the lender in case the subject property ever sellsless than $1,450,000.00. If it sells for more than $1,450,000.00 thenyour obligation will be fulfilled. Best Regards,

4 The author of the email is said to have no recollection of sending it.However, for the purposes of the motion, the plaintiff conceded it wassent.

The Parties’ Positions5 The defendant notes that the language of Rule 26 is mandatory and an

amendment shall be granted, absent non-compensable prejudice.6 The plaintiff counters that the amendment is plainly untenable at law

and has no prospect of success. It points out that with the benefit of inde-pendent legal advice, Mr. Gandhi signed a “Full Recourse Guarantee”dated April 11, 2007. Its key provisions are as follows:

FULL RECOURSE GUARANTEE

1.01 Guarantee. The Guarantor hereby unconditionally and irrevoca-bly guarantees payment and performance by the Borrower to theLender of all the debts, liabilities and obligations, present or future,direct or indirect, absolute or contingent, matured or not, at any timeowing by the Borrower to the Lender or remaining unpaid or unsatis-fied by the Borrower to the Lender (...“Obligations”)...;

1.02 Indemnity. If any or all of the Obligations are not duly per-formed by the Borrower ... for any reason whatsoever, the Guarantorwill ... indemnify and save harmless the Lender from and against alllosses resulting from the failure of the Borrower to perform suchObligations;

1.03 Primary Obligation. If any or all of the Obligations are not dulyperformed by the Borrower ..., for any reason whatsoever, such Obli-gations will ... be performed by the Guarantor as primary obligor;


1.04 Guarantee Absolute. The liability of the Guarantor hereundershall be absolute and unconditional... The liability of the Guarantorhereunder shall be limited to the sum of $1,450,000 plus interest andCosts as herein provided, without apportionment, limitation or re-striction of any kind.

2.01 No Release. The liability of the Guarantor hereunder shall notbe released, discharged, limited or in any way affected by anythingdone, suffered or permitted by any Lender Entity in connection withany duties or liabilities of any Borrower Entity to any Lender Entityor any security therefor including any loss of or in respect of anysecurity received by the Lender. Without limiting the generality ofthe foregoing and without releasing, discharging, limited or other-wise affecting in whole or in part the Guarantor’s liability hereunder,the Lender ... may ... both before and after an Event of Default:

1. . . .

2. . . .

3. take or abstain from taking or enforcing securities or collat-eral from any Borrower...;

4. . . .

5. apply all money at any time received from any Borrower En-tity or from securities upon such part of the Obligations as theLender may see fit...; and

6. otherwise deal with any Borrower Entity and all other Per-sons and securities as the Lender may see fit.

3.01 Continuing Guarantee. This Guarantee shall be a continuingguarantee of the Obligations and shall apply to and secure any ulti-mate balance due or remaining due to the Lender and shall not beconsidered as wholly or partially satisfied by the payment or liquida-tion of any time of any sum of money for the time being due or re-maining unpaid to the Lender...;

4.01 Demand and Interest. The Lender shall be entitled to make de-mand upon the Guarantor at any time upon the occurrence of anyEvent of Default ... and upon such Event of Default the Lender maytreat all Obligations as due and payable and may forthwith collectfrom the Guarantor the total amount guaranteed hereunder whetheror not such Obligations are yet due and payable at the time of de-mand for payment hereunder. ... The Lender shall not be bound orobligated to exhaust its recourse against any Borrower Entity or otherPersons or any securities or collateral it may hold or take any otheraction being entitled to demand payment from the Guarantor hereun-der. ...;


6.02 Entire Agreement. This Guarantee constitutes the entire agree-ment between the Guarantor and the Lender with respect to the sub-ject matter hereof and cancels and supersedes any prior understand-ings and agreements between such parties with respect thereto. Thereare no representations, warranties, terms, conditions, undertakings orcollateral agreements, express, implied or statutory, between the par-ties with respect to the subject matter of this Guarantee except asexpressly set forth herein. ... [P]ossession of this Guarantee by theLender shall be conclusive evidence against the Guarantor that theGuarantee was not delivered ... pursuant to any agreement that itshould not be effective until any condition precedent or subsequenthas been complied with.

The Law7 Rule 26.01 provides as follows:

On motion at any stage of an action the court shall grant leave toamend a pleading on such terms as are just, unless prejudice wouldresult that could not be compensated for by costs or an adjournment.

8 The defendant relies on a number of cases where after trial, entireagreement clauses were held not to be enforceable by reason of misrepre-sentations made by one party to the other. He also relies on cases where apromissory estoppel was established.

9 The recurrent theme in the cases is expressed in Tudale ExplorationsLtd. v. Bruce (1978), 20 O.R. (2d) 593 (Ont. Div. Ct.) quoting Snell inhis work on Equity, 27th ed.p.563:

Where by his words or conduct one party to a transaction makes tothe other an unambiguous promise or assurance which is intended toaffect the legal relations between them (whether contractual or other-wise), and the other party acts upon it, altering his position to hisdetriment, the party making the promise or assurance will not be per-mitted to act inconsistently with it.

10 In 7326246 Canada Inc. v. Ajilon Consulting, [2014] O.J. No. 538(Ont. Div. Ct.) Justice Himel commented on entire agreement clauses:

58 Similarly, entire agreement clauses found in contracts induced bya negligent misrepresentation have generally been found to be unen-forceable in the context of an unsophisticated party unless notice ofthe clause, or even notice of the clause’s intended effect, was broughthome to the unsophisticated party during bargaining: see Beer v.Townsgate I Ltd. (1997), 152 D.L.R. (4th) 671 (Ont, C.A.), at para.29; Zippy Print Enterprises Ltd. v. Pawliuk (1994), 100 B.C.L.R.


(2d) 55 (B.C. C.A.), at para 45; Roberts v. Montex DevelopmentCorp. (1979), 100 D.L.R. (3d) 660 (B.C.S.C.).

11 The same kind of reasoning informed the analysis in AntorisaInvestments Ltd. v. 172965 Canada Ltd., [2006] O.J. No. 3427 (Ont.S.C.J.) and Machias v. Mr. Submarine Ltd., [2002] O.J. No. 1261 (Ont.S.C.J.), the latter case involving the inequality of bargaining power be-tween a franchisor and franchisee.

12 The defendant also relied on Kuban v. Royal Bank, [1996] O.J. No.1817 (Ont. Gen. Div.); Armstrong Baum Plumbing & Heating v. TorontoDominion Bank, [1994] O.J. No. 331 (Ont. Gen. Div.); aff’d (1997), 32B.L.R. (2d) 230 (Ont. C.A.). The first case involved a plaintiff whosigned a guarantee in blank on the strength of assurances made by thebank’s manager as to its import. The second involved a bank that ac-tively contributed to its customer’s misunderstanding of the document.

13 The plaintiff relies on the well settled line of authority that establishesthat an alleged collateral agreement cannot stand where it is inconsistentwith or contradicts the terms of a subsequent written guarantee. SeeHawrish v. Bank of Montreal, [1969] S.C.R. 515 (S.C.C.) and Bauer v.Bank of Montreal, [1980] 2 S.C.R. 102 (S.C.C.).

14 The plaintiff’s position is captured at paras 20 and 23 of its factum: 20. Mr. Gandhi is attempting to introduce and rely on an alleged rep-resentation which, he says, would discharge his liability. Such a de-fence has no chance of success: the alleged representation pre-datesthe execution of the Guarantee, is completely inconsistent with it, asper the provisions set out above (not the least of which is the “EntireAgreement” clause), and contradicts the Guarantee’s very title as a“Full Recourse Guarantee”. The evidence upon which he is relying toattempt to escape liability is inadmissible under the parol evidencerule; his new defence pursuant to the proposed amendment will failand cannot be raised.

23. Mr. Gandhi’s proposed amendment and new defence with respectto promissory estoppel is not capable of success. The alleged repre-sentation, if true, came before the execution of the Guarantee. Thelegal relationship between the parties vis-a-vis the Guarantee did notoccur until the execution of it; thus, the alleged representation did notaffect a legal relationship and the required elements of promissoryestoppel cannot be fulfilled.


Analysis and Disposition15 It is troubling that this motion was brought on the eve of trial and

more than six months after the pre-trial when the alleged representationwas first raised.

16 This is not a situation of an imbalance of power or where someonehas signed a document in blank. On the contrary, the evidence is that Mr.Gandhi had independent legal representation when the guarantee wassigned.

17 Nevertheless, I am prepared to permit the amendment to be made.While I have reservations about the merits of the defence, the email is ofsufficient concern to me that the interests of justice require that the alle-gation be adjudicated at a trial. I have no evidence about Mr. Gandhi’slevel of sophistication or what his understanding of the guarantee waswhen he executed it in light of the email communication.

18 If the parties cannot agree, I will receive brief written submissions oncosts, first from Mr. Gandhi by October 30, 2015 and from the plaintiffby November 6, 2015.

Motion granted.

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