DATE: 20011203
DOCKETS: C31790 and C31799

COURT OF APPEAL FOR ONTARIO

RE:

MARY DARRIGO, THE STEPHEN JOHN DARRIGO TRUST, THE EMANUELLA MARIE DARRIGO TRUST, THE JOHN EUGENE DARRIGO TRUST and THE PAUL CHRISTOPHER DARRIGO TRUST (Plaintiffs/Respondents) –and– 245042 INVESTMENTS LIMITED, 245039 INVESTMENTS LIMITED, 753148 ONTARIO LIMITED, HILDA DARRIGO, BRUNO HARTRELL and DELOITTE & TOUCHE INC. also known as DELOITTE, HASKINS & SELLS INC. (Defendants/Appellants)

AND RE:

DELOITTE & TOUCHE INC. (Plaintiff by cross-claim/Appellant) –and– 245042 INVESTMENTS LIMITED, 245039 INVESTMENTS LIMITED, 753148 ONTARIO LIMITED, HILDA DARRIGO and BRUNO HARTRELL (Defendants by cross-claim/Respondents)

BEFORE:

FINLAYSON, CATZMAN and BORINS JJ.A.

COUNSEL:

Alistair Riswick, for the appellants/defendants by cross-claim/ respondents) 245042 Investments Limited, 245039 Investments Limited, 753148 Ontario Limited and Bruno Hartrell

Aubrey E. Kauffman, for the appellant/plaintiff by cross-claim/respondent) Deloitte & Touche Inc.

Benjamin Salsberg, for the plaintiffs/respondents

HEARD:

November 29, 2001

On appeal from the judgment of Justice Sidney N. Lederman, sitting without a jury, dated February 22, 1999.

E N D O R S E M E N T

[1] The trial judge began his reasons for judgment by identifying two issues in this action: first, the interpretation of a share purchase agreement and whether an income tax refund in the amount of $130,642.16 received by 245039 Investments Limited (“039”) constituted an “account receivable” as of the closing date of the agreement; and second, the liability of the defendants in respect of the matter of distribution of a dividend payment, in which the plaintiffs had an interest, made by Deloitte & Touche Inc. (“Deloitte”) from the bankrupt estate of Darrigo Consolidated Holdings Limited (“Consolidated”).

[2] He resolved both issues in favour of the plaintiffs. In our respectful view, he erred in so doing.

[3] We deal first with the issue of the income tax refund. The share purchase agreement in question was entered into in June, 1987. Paragraph 3.01 of the agreement defined the three elements of the purchase price: (i) $650,112 in cash; (ii) all sums to be received by the company from the trustee in bankruptcy in respect of sums owed to it by the bankrupt; and (iii) the amount of all of the company’s “cash on hand and accounts receivable”. The agreement contained an “entire agreement” clause. Paragraph 5.06, entitled “Post Closing”, provided that, following determination of income taxes payable in accordance with para. 3.01(iii), money held in trust was to be paid out to the vendor in satisfaction of the purchaser’s obligations under that clause. There was no reference in the agreement to income taxes received or receivable after closing. The agreement closed in August, 1987.

[4] The financial statements and the income tax returns that resulted in the income tax refund in question, based upon an unexpected loss in respect of a loan made by 039 to Consolidated, were not prepared until 1988. The income tax refund claim for a business loss against current income was ultimately settled and allowed by the federal and provincial revenue departments in 1991. It is common ground that, at the time of the share purchase agreement in 1987, neither side anticipated the refund or even envisaged that it might be available. 039 was a holding company, not a trading corporation and not in the business of making loans, and even the accountant who claimed the refund considered that treatment to be “aggressive”. In asserting the claim, he did not take the share purchase agreement into account.

[5] In our view, the refund was not an “account receivable” of 039 within the contemplation of that term as it appeared in the share purchase agreement. We consider the agreement to be unambiguous in this respect. The agreement clearly considered and addressed the prospect that the purchase price might be reduced if there proved to be further income tax payable by the company, but not the converse. The trial judge was in error in seeking to interpret the agreement by having recourse to events in years subsequent to the closing of the agreement and to the treatment of income tax noted in the C.I.C.A. Handbook. Even if he had been entitled to consider such evidence, however, it does not unequivocally support the conclusion he drew from it.

[6] The trial judge should have decided the first issue in favour of the defendants.

[7] It follows from our decision on the first issue that the second issue should also have been decided in favour of the defendants. The portion of the bankruptcy dividend owing to the plaintiffs was paid to them:

(i) by deduction of $21,100, which was admittedly owing for legal and accounting fees;

(ii) by the payment by Mr. Saginur, pursuant to direction, of the sum of $80,000 then held by him in favour of the purchasers; and

(iii) by payment of $177,478 by bank draft.

[8] With this deduction and these payments, the portion of the dividend owing to the plaintiffs was paid in full, and no further sum was owed to them by any of the defendants.

[9] In addition to the plaintiffs’ claims regarding the income tax refund and the bankruptcy dividend, the trial judge granted judgment in their favour for “additional items not properly accounted for” totalling $20,759. That claim was asserted in para. 23 of the statement of claim. We accept Mr. Salsberg’s statement that he misspoke when he failed in his opening remarks at trial to draw the trial judge’s attention to the existence of that third claim. But, in any event, the “additional items” that made up that claim were not established by proper evidence during the trial. The one witness who was asked about them came on the scene years after the closing of the share purchase agreement and worked solely from schedules on which he recorded amounts of which he had no personal knowledge and into the origin of which he never inquired. The trial judge ought not to have granted judgment for the plaintiffs in respect of these “additional items”.

[10] For these reasons, the appeals are allowed, the judgment of Lederman J. is set aside and, in its place, judgment will go dismissing the plaintiffs’ action with costs. The costs of the action payable to Deloitte will be assessed on a party-and-party basis. The costs of the action payable to the defendants other than Deloitte will be assessed on a party-and-party basis to February 10, 1998, the date on which their offer to settle was served, and on a solicitor-and-client basis thereafter. The cross-claim made by Deloitte will be dismissed without costs. The appellants will have their costs of their respective appeals, payable forthwith after their assessment.

Signed: “G.D. Finlayson J.A.”

“M.A. Catzman J.A.”

“S. Borins J.A.”