Walter Davies v Davies Smith Developments Partnership, 2017 ONSC 3796

Court File and Parties

COURT FILE NO.: CV-12-462900 DATE: 20170619 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

WALTER DAVIES and CITYGATE (WD) MANAGEMENT CORP. Plaintiffs – and – DAVIES SMITH DEVELOPMENTS, PARTNERSHIP NELSON REIS and PM CONSTRUCT INC. Defendant

COUNSEL: John E.F. Gibson, for the Plaintiffs Evan Tingley, for the Defendant, Davies Smith Developments Partnership

HEARD: March 30, 2017 Mr. Justice P.J. Cavanagh

REASONS FOR JUDGMENT

Introduction

1The plaintiffs Walter Davies (“Davies”) and CityGate (WD) Management Corp. (“CityGate WD”) bring this action against Davies Smith Developments Partnership (“DSDP”) for damages for breach of an agreement in the amount of $3,063,370 together with pre-judgment and post-judgment interest on this amount from April 30, 2011 at the contractual rate of 14 per cent compounded monthly.

2This agreement addressed, among other things, the payout of Davies’ equity in DSDP (held through CityGate WD) and his share of profits on existing condominium projects undertaken by DSDP in the years following his withdrawal from DSDP.

3As of March 27, 2017, just before the commencement of the trial, the plaintiffs’ claim was $6,973,171.

4The action as against Nelson Reis and PM Construct Inc. was settled.

5For the following reasons, I have concluded that the plaintiffs’ claim for damages for breach of the agreement was commenced after the second anniversary of the day on which the claim was discovered and, therefore, the plaintiffs’ claim is statute barred.

6If I had not concluded that the plaintiffs’ claim is statute barred, I would have allowed credits to the balance of the capital account of the plaintiff CityGate WD with DSDP in respect of three separate items in the aggregate amount of $1,427,726.58. I would have granted judgment in favour of CityGate WD in an amount that reflects this overall adjustment, together with pre-judgment interest under the Courts of Justice Act from the date the cause of action arose, July 1, 2008.

Factual Background

7In or about 1999, Walter Davies (“Davies”) and Ian Smith (“Smith”) incorporated 2077 Lakeshore Boulevard W. Ltd. (“2077”). 2077 was wholly owned by Davies Smith Developments Inc. (“DSDI”). Davies and Smith held DSDI as equal shareholders.

8CityGate WD is Davies’ holding company. CityGate (IS) Management Corp. (“CityGate IS”) is Smith’s holding company. In November 2002, CityGate WD and CityGate IS entered into a partnership agreement (the “Partnership Agreement”). The Partnership Agreement established DSDP.

9The Partnership Agreement, in section 3.1, provides that no partner shall be entitled to interest on the amount of its capital account.

10On September 24, 2003, holding companies owned by Graham Chalmers, Nelson Reis and Michael Kulback became partners of DSDP pursuant to the first partnership amendment agreement. From 2003 to 2006, Davies’ shares in DSDI were sold to Chalmers, Nelson Reis and Michael Kulback for $1,150,000. This amount represented 50 percent of the historic cost for the land for Grenadier 2, one of the projects being developed by DSDP.

11On April 1, 2005, DSDP’s partners executed the third partnership amendment agreement that, among other things, provided in Schedule “A” for profit/loss allocations for various projects.

12On June 21, 2005, Davies, Smith, Chalmers and Reis signed an agreement entitled “Davies Smith Developments Partnership Meeting Notes & Agreement June 21st 2005” (the “June Agreement”). The June Agreement refers to a partners meeting held on June 15, 2005 and reads that “the following items were reviewed and resolved as noted”. There are seven items in the June Agreement. The parties agree that the June Agreement was an amendment to the Partnership Agreement. The plaintiffs plead that the June Agreement was made to address the payout of Davies’ equity in DSDP and his share of profits on existing condominium projects in the years following his withdrawal from DSDP effective April 1, 2005.

13The June Agreement, in item 4, contains a provision headed “Interest cost allocations for internal inter-project loans & external borrowing”. The plaintiffs submit that pursuant to this provision of the June Agreement, DSDP agreed that all of the monies owing to Davies and CityGate WD would bear interest at the mezzanine financing rate of 14 percent calculated daily and compounded monthly.

14The June Agreement, in item 7, includes a provision that reads “Based on the above, a revised profit distribution summary, edit date June 21st, 2005, is attached to and forms part of this Agreement”. A schedule is attached to and forms part of the June Agreement that is headed “Ian/Walter Profit Payments” with a summary of net distributions and a list of 26 items with dollar amounts for each item shown under columns for “Walter”, “Ian”, “Other”. The schedule also includes a column headed “Comments” and one headed “When”. Each of the 26 line items has a month and year listed in the “When” column, with the earliest dates being June 2005 and the latest dates being June 2008. The amount shown to be payable to Davies at that date was $6,125,890. Both Davies and Smith agreed that the amounts in this schedule were estimated amounts that could change.

15The June Agreement was signed by Davies, Smith, Chalmers and Reis on signature lines over their typed names. The names of the companies that were partners in DSDP were not shown below the signatures of the four individuals. Davies’ evidence is that the June Agreement was drafted by Smith. His evidence is that the June Agreement was personally signed at his insistence by himself, Smith, Chalmers and Reis. Davies’ evidence is that this was important to him as he understood that each of these individuals was making a commitment which was binding upon them personally. Smith evidence was that the individuals did not sign at Davies’ insistence, but signed as partners.

16After the June Agreement, CityGate WD received a monthly draw of $25,000 and occasional capital distributions. The plaintiffs plead that DSDP was unable to make the payments in accordance with the schedule contemplated by the Profit Distribution Summary and that the amounts owing to Davies [through CityGate WD] continued to accrue interest at the mezzanine rate of 14 percent. Davies’ evidence is that Smith periodically presented him with Partners Equity/Cash Position Statements showing fluctuating amounts owing to him, but without providing any cash flow spreadsheets detailing receipts, expenditures and accruals of interest.

17According to Davies, Smith presented three such statements dated July 31, 2010 to him without cash flow spreadsheets attached showing vastly different amounts owing to him as of July 31, 2010. After meeting with the partnership’s internal accountant, on September 2, 2010 Davies sent Smith an email showing his calculation of the amount owing to him as of July 31, 2010 in the amount of $1,465,594.

18On November 4, 2010, Smith submitted to Davies a Payout Summary dated October 31, 2010 purporting to show monies owing to Davies in the amount of $563,404. There was no cash flow spreadsheet attached to the Payout Summary. According to Davies, he asked Smith to provide him with a detailed calculation of the interest accrued on amounts owing to him since 2005 because it had become apparent to him that there must have been significant items which had not been included in the accruals of interest.

19On February 1, 2011 Smith forwarded the interest calculation which the partnership’s internal accountant had prepared on Smith’s instructions. According to Davies, this enabled him to see specific receipts and expenditures, their dates, and their interest accruals. This statement also enabled him to ascertain that Smith had failed to accrue interest to his credit on a number of major items, and had improperly charged other items against his capital account.

20Davies evidence is that after obtaining an Excel version of the interest calculation spreadsheet which Smith had forwarded, on February 24, 2011, he forwarded to Smith his calculation of the amount owing to him of $2,746,606, after correcting mistakes in Smith’s calculations.

21On March 16, 2011 Smith sent to Davies an email with revised interest calculations and a Partners Equity/Cash Position as of February 28, 2011 which showed Davies in a deficit position. In his email, Smith said:

The updated value summary, with an assumption of RIMI being paid, now shows WD in a negative final net position which we can leave as-is until the RIMI situation is finalized, but it does mean that there will be no net payment to WD out of ONYX proceeds and monthly draws beyond this month need to stop.

22DSDP terminated the monthly draws to CityGate WD effective April 30, 2011 and DSDP has made no further payments to CityGate WD since that date.

23Davies sent an email to Smith and Chalmers dated July 21, 2011 enclosing his cash flow spreadsheets. Davies’ spreadsheets show that DSDP owed him $2,248,391 as of July 31, 2011. In his email, Davies specifically advised that interest is payable on the “land uplift”, one of the items addressed in the June Agreement.

24In response, on August 10, 2011 Smith presented Davies with a Partners Equity/Cash Position and Final Payout Distribution Statement dated May 31, 2011 and a revised cash flow spreadsheet. The spreadsheet still presented Davies as having overdrawn his capital account by $248,606. Davies evidence is that Smith’s cash flow spreadsheet records approximately 40 entries where interest is accrued at the end of the month to his capital account at the rate of 14 percent.

25On September 29, 2011, Davies sent an email to Smith and Chalmers forwarding a cash flow spreadsheet which was based on Smith’s spreadsheet dated August 10, 2011. In this email, Davies set out what he considered to be fundamental errors in Smith’s calculations of the amounts owing to him.

26Smith responded by email dated October 26, 2011 and presented a Partners Equity/Cash Position and Final Payout Distribution Statement dated May 31, 2011 and cash flow spreadsheet. The spreadsheet showed that Davies had overdrawn his capital account by $294,043. In this email, Smith provided comments with his position with respect to the errors identified by Davies.

27Davies and CityGate WD claim damages for breach of the June Agreement based upon (i) the failure of DSDP to pay interest to CityGate WD on the balance owing in its capital account with DSDP at the rate of 14 percent, calculated daily and compounded monthly, in respect of four major items, and (ii) adjustments in the form of credits to the capital account of CityGate WD with DSDP to correct improper charges to this account in respect of four other items.

28The plaintiffs commenced this action on September 6, 2012. They plead that DSDP has refused to honour its contractual commitments under the June Agreement and they claim damages for breach of contract in the amount of $3,063,370 together with interest at the mezzanine rate of 14% from April 30, 2011. According to Davies, when interest is accrued on that amount at the rate of 14 percent per annum calculated daily and compounded monthly, the amount owing to CityGate WD as of March 27, 2017, just before the commencement of trial, is $6,973,171.

Analysis

29There are four issues raised in this action:

a. Whether the claims of Davies and CityGate WDs are statute barred.

b. Whether (i) the Partnership Agreement was amended by the June Agreement to provide that CityGate WD was entitled to charge and be paid interest on amounts owing to it and recorded in its capital account with DSDP at the rate of 14 percent per annum calculated daily and compounded monthly and, if so, (ii) DSDP breached the June Agreement by failing to pay interest to CityGate WD on amounts credited to its capital account and payable to it in respect of four major items.

c. Whether the balance of CityGate WD’s capital account with DSDP should be changed to reflect amounts claimed by CityGate WD in respect of the four other items.

d. Whether DSDP is entitled to judgment on its counterclaim.

Is the plaintiffs’ claim for damages for breach of the June Agreement statute barred?

30DSDP submits that the plaintiffs’ claim against DSDP for damages for breach of the June Agreement is statute barred because the plaintiffs discovered the claim more than two years before the action was commenced on September 6, 2012.

31The Limitations Act, 2002, S.O. 2002 c. 24, Sch. B (the “Act”) reads, in part, as follows:

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

5. (1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

32DSDP submits that the June Agreement expressly provides that the plaintiffs will be paid the amounts owing to them in respect of the 26 items shown on the schedule to the June Agreement, which exceeded $6 million excluding interest, between June 2005 and June 2008. DSDP submits that this did not happen and, therefore, the plaintiffs knew, or should have known, that they had a claim. DSDP submits that the evidence supports a finding that Davies knew that DSDP was in default in payment of amounts owing to CityGate WD under the June Agreement and that he made a conscious decision to wait.

33DSDP relies upon the following question and answer from the examination for discovery of Davies that was read into evidence at trial:

650. Q. But is it fair to say, starting in, I think you said the end of 2009, Ian mentioned something about getting paid out. But even from looking at the flow of the emails, it appears there is more emails, more meetings in the late 2009, 2010 time period and in the years prior, because you are getting to the short strokes.

A. That’s exactly right. As I said all along, I didn’t ever agree with his calculation methodology, and therefore I didn’t agree with his numbers, but it didn’t really matter. There was no point in having an argument, a bust-up in 2006, 2007, because he had no money to pay out. It’s only worth fighting the fight when he had money to pay out. At that point, we would get the calculations right.

So, he, having announced that he would have money at the end of 2009 from Onyx, that was when I started trying to get the spreadsheets resolved properly and get some sanity and get the correctness into them. And that then progressed from 2009, 2010 into 2011, and all the time he was scaling back his payments, projected payment to me until he got to nothing. And then, eventually, he then stopped the monthly draw.

34DSDP also relies upon the following statement made by Davies in an email dated December 17, 2008 that he sent to Smith:

We discussed this at the time, and as I knew you were keen to bring Nelson and Graham forward, and as I thought that I’d have enough to live comfortably on anyway, I didn’t object too much and agreed to move out of DSDI. We had agreed pay-out terms that would have seen me fully repaid by May 2008, but I still believe that there is around $1.2 m owing to me as of today’s date, and you are paying me a monthly draw of$25K, being roughly$14K interest and $11K loan repayment a month. (Emphasis added)

DSDP submits that this email from Davies is evidence that he knew that he had a claim for payment of money owed to him under the June Agreement by December 17, 2008.

35DSDP also relies upon Davies’ email to Smith dated February 18, 2010. The subject line of this email is “Outstanding Payments” and, in this email, Davies writes:

I realize that this is a very difficult time for you, but as you are aware, I have some very large tax bills to pay this year that is acting as a spur to resolve the outstanding payment issues once and for all. So even though this may not be the best time, I would like to try to agree the outstanding sums and a payment schedule that can be adhered to.

In my mind, there are 2 outstanding payments due to me - unpaid sums outstanding from completed developments and payment for the Hearthstone Land and Car Parking. I’d like to review each in turn below and give you my rationale. I’d then like to propose a meeting where we can discuss this email and work out a payment schedule.

DSDP submits that this email is evidence that Davies knew in February 2010 that amounts itemized in the schedule to the June Agreement were still outstanding and he was seeking agreement on the sums outstanding and a payment schedule.

36DSDP submits that the following questions and answers from Davies’ examination for discovery that were read into evidence at trial show that Davies knew in February 2010 that Smith, acting on behalf of DSDP, was refusing to credit the capital account of CityGate WD with interest on the amount to be paid in respect of the land uplift:

375. Q. Okay. At the very bottom of this page, just below the numbers there, you will see a sentence which begins:

“… First, as a basic principle, I think we should establish the start of construction as the date of the valuation for the land…”

A. Yes.

376. Q. Were you at that stage, at the time of writing this e-mail on February 2010, looking to have a different value for the land lift or uplift, as opposed to $750,000?

A. No. I was looking to start the interest calculation under the terms of the agreement on the 21st of June, 2005.

377. Q. Okay. At this stage, had you had any discussions … obviously … you have told me there should be interest, or Mr. Smith has … I wouldn’t say respectfully disagreed, but he has disagreed with your view, correct?

A. Yes.

37The plaintiffs submit that the June Agreement was not breached by DSDP until it stopped making payments to DSDP on April 30, 2011 and that Davies only discovered that this breach would occur on March 16, 2011 when he received an email from Smith advising that “the monthly draws beyond this month need to stop”. The plaintiffs submit that before this date, they were not aware of a claim for breach of contract and that there was no reason for them to believe that DSDP was not honouring the June Agreement.

38The plaintiffs submit that Davies had not received a cash flow spreadsheet so he did not know what items were credited with interest and what charges were made to his capital account and, therefore, he had no way of knowing whether DSDP had failed to accrue interest on the four major items. The plaintiffs point to Smith’s November 4, 2010 email that included a statement of the “Payout summary for Walter” as at end October 2010 and that, at note 2, expressed that “[i]nterest will be paid on the value owing from November 1st, 2010 at a rate of 14 % per annum, compounded monthly …”. In his email, Smith wrote that “… My conclusion is that I don’t agree on the 2 biggest areas of discussion - that your share of the Hearthstone land value and the logic and timing for calculating interest should be changed”. The plaintiffs submit that it was not until receipt of this email that Davies knew that there was a dispute about payment of interest on the land uplift.

39The plaintiffs submit that it was not until February 2011, when Davies received from Smith the Excel spreadsheet showing the interest calculations, that he could see for the first time the specific amounts credited to his capital account, the specific charges to his capital account, that he was not being credited for interest on the four major items and that his capital account was improperly being charged for the four other items. The plaintiffs submit that only upon receipt of the Excel spreadsheet was Davies able to create his own calculation, that he acted promptly to do so, and that he sent this calculation to Smith on February 24, 2011.

40The plaintiffs submit that only upon receipt of Smith’s March 16, 2011 email was Davies notified that DSDP, acting through Smith, intended to breach the June Agreement. They submit that the cause of action was only complete on April 30, 2011 when the last payment was made by DSDP.

41The plaintiffs’ claim for breach of contract, as pleaded, is founded entirely on DSDP’s alleged breach of the June Agreement. In their Amended Statement of Claim, the plaintiffs plead, among other things:

9. Furthermore, on June 21, 2005 the partners of DSDP entered into an Agreement with respect to the payout of Davies’ equity in the partnership and his share of profits on existing condominium projects in the years following his withdrawal from the partnership effective April 1, 2005. The partners of DSDP signed the Agreement dated June 21, 2005 and agreed as follows:

(a) DSDP would continue to distribute profits to Davies and WD on existing condominium projects in accordance with a payment schedule detailed in a Profit Distribution Summary which formed part of the Agreement dated June 21, 2005. The Profit Distribution Summary provided that DSDP would distribute payments to Davies and WD in the total amount of $6,125,890 in instalments between June 2005 and June 2008.

(d) Since DSDP was not in a position to pay out all of the monies owing to Davies and WD at the time the partners signed the Agreement dated June 21, 2005, it was agreed that outstanding amounts would bear interest at the mezzanine financing rate of 14%.

DSDP’s Breach of the Agreement dated June 21, 2005

10. Pursuant to the Agreement dated June 21, 2005 Davies MWD received regular monthly payments commencing effective April 1, 2005 from DSDP in respect of his equity in the partnership and his share of profits on condominium projects. However, DSDP was unable to make the payments in accordance with the schedule contemplated by the Profit Distribution Summary, and the amounts owing to Davies continued to accrue interest at the mezzanine rate of 14%. The monthly draws paid by DSDP to Davies and WD were substantially exceeded by the interest accruing on the outstanding balance of the monies owing to Davies and WD. Davies met with Smith two or three times a year to inquire whether the partners of DSDP wished to pay off the balance owing to him, and was consistently met with the response that DSDP did not have sufficient cash flow to permit them to do so and that the payment of interest at the mezzanine rate would continue.

11. Davies was content to allow the debt owed to him by DSDP to accrue for a period of time as he was earning interest on the outstanding amount at the mezzanine financing rate of 14%. As of June 2008 the amount owed to Davies by DSDP was in excess of $2,000,000. However, towards the end of 2010 Davies pressed Smith for a final payout. Smith indicated that he expected that DSDP would have sufficient funds in February 2011 and that he believed that DSDP owed Davies and WD approximately $600,000. Davies informed Smith that he believed that DSDP owed him in excess of $2,500,000. On November 4, 2010 Smith submitted to Davies a payout summary dated October 31, 2010 purporting to show monies owing by DSDP to Davies and WDC in the amount of $563,404.

12. In breach of the Agreement dated June 21, 2005 referred to in paragraph 9 above, on April 30, 2011 DSDP made a final payment of Davies’ monthly draw and unilaterally terminated Davies’ monthly draws from his capital and interest account, notwithstanding the fact that DSDP owed Davies as of April 30, 2011 outstanding profit distributions with accumulated interest in the amount of $3,063,370.

13. Thereafter Smith presented a spreadsheet of calculations which included a double counting of interest charges against Davies and WD and multiple errors which purported to show Davies’ capital and interest accounts in a deficit position. After Davies brought these errors to Smith’s attention, on August 10, 2011 Smith presented Davies with a revised spreadsheet of calculations which purported to correct the double counting of interest but presented Davies and WD as having overdrawn their capital and interest account by $278,850. Finally, on October 24, 2011 Smith presented a spreadsheet of calculations which purported to show Davies’ capital and interest account in a deficit position of $294,043 as of May 31, 2011.

14. Despite repeated demands by Davies and his counsel for payment of the outstanding amount owing to him pursuant to the Agreement dated June 21, 2005 since April 30, 2011, DSDP has refused to honour its contractual commitments. Accordingly, the Plaintiff’s claim damages for breach of contract in the amount of $3,063,370 together with interest at the mezzanine rate of 14% from April 30, 2011.

42The plaintiffs’ pleading is clear that the June Agreement provides that the amounts owing to them were contractually required to have been paid by June 2008. This payment schedule is provided for in the schedule to the June Agreement. The plaintiffs’ pleading is clear that DSDP was not able to honour its contractual obligation to pay the full amount owing by June 2008. The plaintiffs, in their pleading, acknowledge that they allowed the debt owing by DSDP to continue, without steps being taken to enforce payment, because interest was accruing on the debt at the rate of 14%.

43In his affidavit sworn September 21, 2016, Davies deposed, at paras. 12(e)(i) and 13:

(e) Under the terms of the June 21, 2005 Agreement it was agreed that:

(i) Pursuant to paragraphs 1 and 7 of the Agreement, the partnership would continue to distribute profits to me in accordance with a payment scheduled (sic) detailed in a Profit Distribution Summary which formed part of the Agreement dated June 21, 2005. The Profit Distribution Summary provided that the partnership would distribute payments to me in an estimated amount of $6,125,890 in instalments between June 2005 and June 2008.”

The Breach of the Agreement dated June 21, 2005

13. The Profit Distribution Summary attached to the Agreement dated June 21, 2005 was not followed, and instead, I received a monthly draw and occasional capital distributions. These monthly draws paid by DSDP to me were substantially less than the interest accruing on the outstanding balance of the monies owing to me. I met with Smith two or three times a year to inquire whether the partners wished to pay off the balance owing to me, and was consistently met with the response that DSDP did not have sufficient cash flow to permit them to do so and the payment of interest at the mezzanine rate would continue. I informed Smith that when DSDP had sufficient funds to pay out the balance of my equity in the partnership and my share of profits on condominium projects, I would conduct a detailed review of Smith’s calculations and the amounts owing to me. I was content to allow the debt owed to me by my partners to accrue for a period of time as I was earning interest on the outstanding amount at the mezzanine finance rate of 14%, and because my monthly draws were less than the interest accruals, so the total amount owing to me was increasing each month.

Smith gave affidavit evidence that Davies asked him once whether he could be paid the entire balance owing and that Smith responded that DSDP lacked the cash flow to do so. Smith denies that he said that payment of interest at the mezzanine rate would continue.

44These passages from Davies’ affidavit evidence are consistent with the plaintiffs’ Amended Statement of Claim and make it clear that, from Davies’ perspective, the amounts owing to him, through CityGate WD, in respect of the balance of his equity in DSDP and his share of profits on the condominium projects, were due under the June Agreement by June 2008. Davies chose to defer taking action to enforce payment of the debt owed to him because, from his perspective, he was earning interest on the indebtedness at the rate of 14% per annum which exceeded the monthly draws that he was receiving.

45The answers given by Davies on his examination for discovery that were read into evidence at trial are also consistent with the plaintiffs’ pleading and show that Davies chose to allow the default by DSDP in payment of the amounts owing in respect of the 26 items listed in the schedule to the June Agreement to continue because, as Davies said, “[t]here was no point in having an argument, a bust-up in 2006, 2007, because he had no money to pay out. It’s only worth fighting the fight when he had money to pay out. At that point, we would get the calculations right”.

46There is evidence that not only did Davies know that by June 2008 DSDP had breached its contractual obligation to make the payments called for by the June Agreement, he had also quantified the amount owed to him by DSDP by September 2, 2010.

47After receiving Smith’s three spreadsheets on July 31, 2010 showing varying amounts, Davies sent an email to Smith on September 2, 2010 attaching a calculation that showed that Davies was instead owed $1,465,594. In his email, Davies wrote “we (Nick and I) have concluded what the financial situation should be - subject to further discussions between you and I on Loan Interest and on the whole analysis anyway. … Just FYI, the answer we come to is significantly different to your last calculations.”

48When he was cross-examined at trial about his September 2, 2010 emails and his schedule sent that day, Davies said that the schedule (that showed the amount of $1,465,594 as the “NET DUE TO WD”) represented his correction of errors made by Smith in Smith’s analysis. Davies’ evidence was that he did not agree with the approach Smith was following or with the figures in his own schedule, but if Smith was going to follow this unconventional approach, he should do it right, and that Davies’ schedule was sent to help Smith define his (Smith’s) starting point for the negotiations. Davies evidence at trial was that he put this caveat in his email to Smith transmitting the schedule. Davies said in re-examination that his email was based upon Smith’s numbers that were provided to him by DSDP’s accountant.

49The explanation offered by Davies on his cross-examination at trial for the September 2, 2010 emails and the schedule he sent that day differs materially from the evidence that Davies gave in his September 21, 2016 affidavit. In his affidavit, Davies simply wrote:

After meeting with the partnership’s internal accountant, Nick Marincic, on September 2, 2010 I sent Smith an email showing my calculation of amounts owing to me as of July 31, 2010 in the amount of $1,465,594, a copy of which is attached as Exhibit “M”.

The explanation that Davies gave under cross-examination at trial about his reason for sending the September 2 emails and schedule is not supported by any objective evidence. Davies did not say in his emails that he disagreed with the amount in the schedule that he, Davies, sent that day. To the contrary, Davies wrote that “the answer” that he and the accountant had come to was significantly different than Smith’s last calculations. The schedule showed only one item that was disputed (“Loan Interest”), with a note that reads “ THIS IS DISPUTED – WD/IS TO DISCUSS ”. In his first email sent on September 2, 2010, Davies suggested to Smith that it was time for them to “get together and agree this finally” so that they could then “produce a short agreement on the amount an (sic) payment terms that we can both sign”.

50In respect of the emails and the supporting schedule that Davies sent to Smith on September 2, 2010, I find that Davies intended to communicate to Smith his calculation of the amount that was owing by DSDP (based upon data provided by DSDP’s accountant) with a view to negotiating with Smith a settlement of the precise amount to be paid and the payment terms. Therefore, by September 2, 2010, Davies was not only aware that CityGate WD had a claim for breach of the June Agreement, as he had been for some time, but he had quantified the amount of that claim as of that date.

51Under the Act, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. The plaintiffs correctly submit that the cause of action for breach of contract accrues, and the limitation period begins to run, on the date of the breach of the contract: Schwebel v. Telekes, 1967 CarswellOnt 236 (C.A.) at para. 7.

52The evidence is clear that Davies knew that the payments that were required to have been made under the June Agreement by no later than June 2008 were not all made then and that, at least by the end of June 2008, DSDP owed CityGate WD money pursuant to the June Agreement. The plaintiffs have pleaded that there was a balance owing by DSDP under the June Agreement as of June 2008 that was in excess of $2 million. Davies confirmed on his examination for discovery and in his evidence at trial that he knew that DSDP owed money to CityGate WD after June 2008. With full knowledge that he had a cause of action against DSDP for damages for breach of the June Agreement, Davies chose to wait. His explanation for waiting was that DSDP did not have the money to discharge its obligations and, from his perspective, interest was accruing on the amount that was owing at the rate of 14 percent per annum, calculated daily and compounded monthly, so the total amount owing was increasing monthly.

53I do not accept the submission made on behalf of the plaintiffs that there was no breach of the June Agreement until April 30, 2011 when DSDP stopped making monthly payments, or any further payments, to CityGate WD. I do not accept the plaintiffs’ submission that Davies only discovered that there would be a breach of the June Agreement on March 16, 2011 when Smith advised him by email that the monthly draws beyond March 2011 month would stop. Although the plaintiffs submit that, before this date, there was no reason for them to believe that DSDP was not honouring the June Agreement, the Amended Statement of Claim and Davies’ evidence on examination for discovery and in his affidavit filed at trial are clear that Davies knew that there had been a breach of the June Agreement by the end of June 2008, which continued thereafter.

54The fact that payments were made by DSDP towards the amount owing under the June Agreement until April 30, 2011 does not affect the commencement of the running of the limitation period. The Act provides in subsection 13(1) that if a person acknowledges liability in respect of a claim for payment of a liquidated sum, the act or omission on which the claim is based shall be deemed to have taken place on the day on which the acknowledgement was made. However, the amount that was owing by DSDP pursuant to the June Agreement was not a liquidated sum. This was acknowledged by the plaintiffs during the closing submissions made by counsel for DSDP at trial. This acknowledgement was correctly made. The plaintiffs’ claim is for an unliquidated amount because extraneous evidence is required to fix the amount owing: Holden Day Wilson v. Ashton.

55Whether Davies did or did not receive from Smith information before February 2011 in the form of a cash flow spreadsheet, in Excel format or otherwise, showing Smith’s position on items upon which interest was accruing and charges to the capital account of CityGate WD in respect of items listed in the June Agreement, does not affect the date upon which the limitation period begins to run. The position advanced by the plaintiffs, that there would be no breach of the June Agreement so long as DSDP was crediting the capital account of CityGate WD with interest on the balance owing at 14% compounded monthly is incorrect. The plaintiffs are not entitled to wait indefinitely to commence an action for damages for breach of the June Agreement while they allow the amount of their claim to grow rapidly because of accrual of interest that they claim is owed. Knowledge of the fullest extent of the loss, all possible grounds of culpability, and whether or not the proceeding may be met with a defence are not required to be known before the limitation period begins to run: Re Edwards, 2010 ONSC 5718 at para. 69 (rev’d 2011 ONSC 1573; rev’d 2011 ONCA 497).

56I find that the plaintiffs first knew by July 2008 (when the last month for payments to be made under the June Agreement had passed) that they had suffered injury, loss or damage that was caused by the failure of DSDP to make payments to CityGate WD in respect of the items referenced in the June Agreement. I find that the plaintiffs first knew by July 2008 that it was legally appropriate for an action to be commenced to seek to remedy DSDP’s breach of the June Agreement but, for their own reasons, they did not commence this action until September 6, 2012.

57In any event, I conclude that a reasonable person with the abilities and in the circumstances of Davies first ought to have discovered a claim against DSDP for damages for breach of the June Agreement, and that it was legally appropriate for an action to be commenced to seek to remedy DSDP’s breach of the June Agreement, by July 2008.

58The plaintiffs’ claim for damages for breach of the June Agreement was commenced after the second anniversary of the day on which the claim was discovered and, therefore, the plaintiffs’ claim is statute barred.

59In the event that I am held to have erred in my conclusion that the plaintiffs’ claim is statute barred, I make findings and reach conclusions in respect of the other two issues that arise in this action in respect of the plaintiffs’ claim in my reasons that follow. I also address the counterclaim.

Was the Partnership Agreement amended by the June Agreement to provide that CityGate WD is entitled to charge and be paid interest on the four major items at 14% calculated daily and compounded monthly?

60The plaintiffs’ position is that since DSDP was not in a position to pay out all of the monies that were owed to CityGate WD at the time the June Agreement was signed (because DSDP wished to use monies from existing condominium projects on which CityGate WD was entitled to receive profit distributions to finance new projects) Davies agreed to become a lender to DSDP. The plaintiff’s position is that, as such, pursuant to the June Agreement, CityGate WD was entitled to be paid interest on amounts owing to it by DSDP at the mezzanine financing rate, the prevailing rate to borrow from an equity lender, which was 14 percent. The plaintiffs rely upon language in the June Agreement by which the parties agreed that “interest costs for inter-project and external loans will be allocated to the individual or project receiving the benefit”. According to Davies, the reference to “the individual” specifically contemplated him.

61The position of DSDP is that paragraph 4 of the June Agreement listed all items that would bear interest, that the parties intended that list to be exhaustive and that it was never the parties’ intention that any other amounts owing would bear interest. DSDP’s position is that if the parties had intended interest to apply to other items than the ones listed in paragraph 4 they would have explicitly said so. DSDP points to the land uplift as an example, and submits that the amount agreed upon for Davies’ share of the increase in the value for the Grenadier 2 land was specifically referenced in item 2 of the June Agreement as being $750,000, but this amount does not appear in item 4 as one that bears interest, nor is there a reference to payment of interest on this amount in the Comments column of the schedule.

62The interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine the intent of the parties and the scope of their understanding. To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement. The evidence that can be relied upon under the rubric of “surrounding circumstances” should consist only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting: Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633 at paras. 47, 57, and 58.

63The starting point of the analysis is the Partnership Agreement. As noted, section 3.01 of the Partnership Agreement provides that no partner shall be entitled to interest on the amount of its capital account. Section 13.05 of the Partnership Agreement provides that it may not be modified or amended except by an instrument in writing signed by all the parties.

64The parties agree that the Partnership Agreement was validly amended by the June Agreement. The first sentence of the June Agreement reads: “At a Partner’s meeting held on June 15th, 2005, the following items were reviewed and resolved as noted”. There are seven items that follow.

65The June Agreement bears the signatures of Davies, Smith, Chalmers and Reis on signature lines above each of their typewritten names. The names of the holding companies through which Davies, Smith, Chalmers and Reis held their partnership interests in DSDP do not appear in the June Agreement. The June Agreement does not provide that the individuals are personally liable. There was no other evidence that proved that the individuals agreed to be personally liable for amounts owed by DSDP. I do not accept the plaintiffs’ submission that, through their signatures on the June Agreement, the individuals agreed to be personally liable for payments required to be made to CityGate WD. I accept Smith’s evidence that the individuals signed the June Agreement as representatives of the holding companies through which their respective partnership interests in DSDP were held.

66As noted, the Profit Distribution Summary is a schedule that is attached to and forms part of the June Agreement. In addition, there are three schedules each headed “Ian/Walter Profit Payments” for “Grenadier”, “CityGate 1”, and “CityGate 2”. The numbers in these three schedules correspond with the numbers in the Profit Distribution Summary under the heading “Summary of Distributions” for these three projects.

67Item 4 in the June Agreement reads:

4. Interest cost allocations for internal inter-project loans & external borrowing

It was agreed that interest costs for inter-project and external loans will be allocated to the individual or project receiving the benefit, with the following specific allocations already identified by the profit distribution summary:-

• Solstice 1 to pay interest to CityGate 1 for the $1,000,000 equity invested in Solstice. (Interest rate of 14%)

• Grenadier 1 to pay interest to Grenadier 2 for the $2,758,426 borrowed as part of the Grenadier 2 financing and used to retire Grenadier 1 debts and liabilities. (Interest rate of 14%)

• CityGate 1 to pay interest costs associated with the $1,960,000 inventory loan placed on CityGate 1 unsold units. (Interest rate per loan agreement)

• Grenadier 2 to pay interest to Grenadier 1 for the deferred payment of the $846,000 value of the unsold parking spaces transferred to Grenadier 2. (Interest rate of 14%)

The interest rate paid /charged for the inter-project loans, as indicated above, is tied to the interest rate charged for the project for mezzanine financing or the rate charged for the specific facility.

68The circumstances surrounding the June Agreement that were known to the parties at the time that it was made included:

a. The Partnership Agreement provides in Article 3.01 that no partner shall be entitled to interest on the amount of its capital account. This provision was not modified or amended by the three amendment agreements that were made before the June Agreement.

b. The Partnership Agreement originally provided in article 5.01 that profits and losses in each fiscal year of the partnership shall be allocated equally between the partners.

c. In anticipation of Davies projected retirement from the partnership by age 60 in August 2006, Chalmers, Reis and Kulback, through their respective holding companies, were admitted to DSDP as partners on September 24, 2003. At that time, Davies held 50 percent of the shares in DSDI which held title to the Grenadier Landing property. At that time, Davies sold 15 percent of his shares to Chalmers, Reis and Kulback, reducing his interest to 35 percent.

d. Kulback left the partnership in June 2004, and on April 1, 2005 Davies sold 15 percent of his shares to Chalmers and Reis, reducing his interest in DSDI to 20 percent.

e. The partners of DSDP agreed that Davies would sell his interest in the partnership and would retire. Accordingly, on March 31, 2005, Davies resigned effective July 1, 2004 as a director and officer of DSDI.

f. The partners of DSDP entered into a Third Partnership Amendment Agreement dated April 1, 2005. Pursuant to article 3.01, they agreed to allocate the profits and losses in each fiscal year of the partnership on a project by project basis in accordance with a schedule which stipulated that Davies, through CityGate WD, was entitled to receive 50 percent of the profits on the CityGate 1 project, 40 percent of the profits on the CityGate 2 project, and would not share in the profits of any projects which commenced after April 1, 2005.

g. The partners of DSDP met on June 15, 2005 and they discussed and agreed upon the matters that are reflected in the June Agreement.

h. The June Agreement was drafted by Smith after the June 15 partners’ meeting.

69In his reply affidavit, Davies wrote that prior to entering into the June Agreement he offered Smith a choice of: (a) as soon as the DSDP received funds for profit distribution it could immediately pay out his share, or (b) at Smith’s option, DSDP could retain his share of the profits received and pay him interest on those funds at the mezzanine financing rate of 14% until such time as they were eventually paid out to him. In his affidavit, Davies states that Smith agreed that the option to retain the funds and pay him interest at the mezzanine financing rate was appropriate and that Smith’s agreement is reflected in paragraph 4 of the June Agreement.

70On cross-examination, it was put to Davies that he does not have an independent recollection of his discussions with Smith other than what is in the emails. He responded that he remembers the major issues that were discussed. When Davies was asked specifically whether he has a recollection of the discussion with Smith referenced in Davies reply affidavit about payment of interest at 14%, he responded that the discussion was in the board meeting, and that he can’t recall what went on in there other than that the partners agreed to the terms of an agreement that was signed a few days later.

71Based upon Davies viva voce evidence at trial, I find that Davies has no recollection of a discussion with Smith at the June 15 board meeting in which Smith agreed on behalf of DSDP to pay interest to Davies on amounts owing to him from his capital account at the rate of 14%. I find that Davies does not have a recollection of what was discussed at the June 15 board meeting including, specifically, any oral commitment made by Smith that Davies or CityGate WD would be paid interest on amounts in his capital account. Smith denies that he agreed on behalf of DSDP to pay interest to Davies on his capital account, other than to the extent that he would receive interest as a partner in respect of the items listed in the four bullets in paragraph 4 of the June Agreement.

72Davies explained in his reply affidavit that DSDP benefited from retaining his share of the profits and that this lessened its need to resort to other mezzanine lenders to finance new projects and that it could also avoid fees and other costs charged by mezzanine lenders. Davies explained that, accordingly, the June Agreement provided that he was entitled to be paid interest on amounts owing at the mezzanine financing rate which at that time was 14%.

73Smith’s affidavit evidence is at paragraph 4 of the June Agreement listed all items that would bear interest and that the list was intended to be exhaustive. His evidence was that the amounts that were owing from DSDP to the plaintiffs, and the amounts that were owing from the plaintiffs to DSDP, were typically six or even seven figure amounts and were typically owing for several years at a time. Consequently, any amounts for interest, particularly at the 14% compounded rate the plaintiffs seek, would have been sizable. Smith’s evidence is that, as result, if the partners had intended interest to apply to other items as listed in paragraph 4 of the June Agreement, they would have explicitly said so in the June Agreement.

74It was put to Smith on cross-examination that one of his spreadsheets sent to Davies on October 26, 2011 showed interest accruing to Davies at 14% on 36 items to which Davies had an interest as a partner of DSDP that were not on the bulleted list in paragraph 4 of the June Agreement, all in respect of payments received from third parties. Smith responded that these items were all in respect of development projects that fit within the scope of the June Agreement. His evidence was that the June Agreement was not intended to re-write Article 3.01 of the Partnership Agreement that provides that no partner shall be entitled to interest on the amount of its capital account.

75In his evidence, Smith confirmed that the agreement to pay Davies for the land uplift ($750,000) was made at the June 15, 2015 partners’ meeting and recorded in the June Agreement. When it was put to Smith on cross-examination that in his spreadsheet sent to Davies on October 26, 2011 he had accrued interest in favour of Davies for his interest in profits from parking spaces that were transferred from Grenadier 1 to Grenadier 2 ($423,000), but not for the land uplift to be paid to Davies ($750,000), he responded that this was because there was no agreement to pay interest on the land uplift. Smith’s evidence was that the items listed in the four bullets in paragraph 4 were intended to be exhaustive, and that if it had been agreed that the land uplift amount, that had just been agreed upon, would accrue interest, it would have been listed in the bulleted list in paragraph 4, and it was not.

76The ordinary and grammatical meaning of the words used in paragraph 4 of the June Agreement is that costs for inter-project and external loans will be allocated to the individual or project receiving the benefit, with “the following specific allocations already identified by the profit distribution summary”, and listed in the bullet points in paragraph 4. Each of the “specific allocations” references a project that receives the benefit of borrowed money, and each of the specific allocations specifies the rate of interest or, in the case of one of the bulleted items, a reference to the interest rate “as per loan agreement”, to be used to calculate the cost of borrowing to be allocated.

77The ordinary and grammatical meaning of the last sentence of paragraph 4 is that the interest rate to be used to calculate interest to be paid (by the entity that receives the benefit of a loan) to the entity entitled to charge for allocation of its interest costs for the inter-project loans, “as indicated above” (meaning in the four bullet points), is tied to the interest rate charged for the project for mezzanine financing or the interest rate charged for the specific facility. The four bullet points specify the interest rates, 14% for the allocation of interest costs identified in the first, second and fourth bullets, and the interest rate in the actual loan agreement for the interest cost allocation referenced in the third bullet.

78An agreement that provides for allocation of the costs of loans, that is, the interest that is payable, is fundamentally different from an agreement by which a lender is contractually entitled to charge interest to a borrower and the borrower is obliged to pay interest to the lender. In my view, the words used by the parties in the June Agreement cannot be read to provide that a partner is entitled to charge interest to DSDP on the amount in its capital account and that is owed to such partner. To read the words used in paragraph 4 of the June Agreement as the plaintiffs submit they should be read, that is, to provide that DSDP agrees to pay interest to CityGate WD on amounts owing to it from its capital account at the rate of 14 per cent, compounded monthly, would be to so deviate from the text of the June Agreement as to effectively create an new agreement. This, according to the decision of the Supreme Court of Canada in Sattva, is impermissible.

79My interpretation of the words used in the June Agreement, giving them their ordinary and grammatical meaning, is supported when I consider the surrounding circumstances that existed when the June Agreement was made. There was an existing Partnership Agreement that expressly provided that no partner is entitled to interest on the amount of its capital account. If the partners had intended to modify this provision, it would have been easy to do so using clear language. There is no language in the June Agreement that refers to section 3.01 of the Partnership Agreement. There is no language in the June Agreement that even refers to a partner’s capital account. There is no language in the June Agreement that reads that CityGate WD, or any other partner, is entitled to charge and be paid interest on amounts payable to a partner from its capital account. Further, the fact that the partners had just agreed on the amount of the land uplift to be credited and paid to CityGate WD would make the exclusion of the land uplift from the bulleted list in paragraph 4 of the June Agreement inexplicable, if the partners truly intended that interest would be charged by and paid to CityGate WD on the amount of the land uplift, particularly at the mezzanine rate of 14 per cent.

80The plaintiffs submit that because the June Agreement was drafted by Smith, if I were to find that it is ambiguous and capable of two meanings that are equally consistent with the language employed, I should apply the doctrine of contra proferentem and construe the June Agreement against Smith and DSDP. I do not find it necessary to use the doctrine of contra proferentem to construe the June Agreement.

81The reason that I have concluded that the June Agreement does not provide for payment of interest to CityGate WD for amounts owing to it by DSDP in respect of the four major items is not because the June Agreement is ambiguous. I have reached this conclusion because the June Agreement, when read as a whole and giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time the June Agreement was made, does not provide for payment of interest by DSDP to CityGate WD on the four major items claimed by the plaintiffs.

82I therefore conclude that the June Agreement did not amend the Partnership Agreement to provide that CityGate WD is entitled to charge DSDP and be paid interest by DSDP on the four major items at 14% calculated daily and compounded monthly.

Is CityGate WD entitled to credits to its capital account with DSDP to reverse improper charges in respect of the four other items?

83The plaintiffs also claim that DSDP breached the June Agreement by improperly charging the capital account of CityGate WD in relation to the following four items, resulting in an underpayment to CityGate WD of the amount properly owing to it:

a. An improper charge in the amount of $285,897 to recapture CityGate WD’s share of retained earnings of DSDI (the “Recapture of Retained Earnings” item).

b. An improper charge of an adjustment amount in respect of what the parties called the “Parliament Square Project” in the amount of $152,565 (the “Parliament Square” item).

c. An improper charge made by DSDP to CityGate WD of interest on CityGate WD’s 50 percent share of an inventory loan from MCAP that, after Davies’ retirement, was repaid through a refinancing with Dominion Bond without Davies and CityGate WD having been given an opportunity to pay off their share of the MCAP loan that was charged to CityGate WD in its capital account. The Dominion Bond loan was retired in January 2007 and replaced with a construction financing loan at a lower interest rate, 8 percent, without Davies having been notified and given an opportunity to have CityGate WD’s share of the original MCAP loan repaid. This item is referred to as the “MCAP Loan” item.

d. An improper charge in the amount of $335,165 representing 50 percent of an inter-company loan in respect of which Davies claims that Smith failed to provide any detailed explanation or documentation despite several requests from him (the “Inter-Company Loan” item).

a. Recapture of Retained Earnings Item

84This item relates to a charge to the capital account of CityGate WD in the amount of $285,897 to reflect the recapture of its share of retained earnings of DSDI. The position taken by Davies is that, because he sold his interest in DSDI to Chalmers and Reis and at the time of his retirement he did not, directly or indirectly, own an equity interest in DSDI, the charge is improper.

85Smith’s position is that when the final payout distribution for 2077 was calculated in May 2011, 2077’s available cash was less than its retained earnings. Consequently, the amount of retained earnings was adjusted downward by $571,795 to reflect this reality. This adjustment was shown in the statement that Smith sent to Davies on August 10, 2011 which reflected that each of Davies and Smith shared equally in this adjustment.

86In response, Davies’ position is that CityGate WD should not have an adjustment charged against its capital account in 2006 that resulted from 2077’s unavailability of cash in 2011 arising from events that occurred after Davies no longer had an interest in 2077.

87In my view, the entry for retained earnings in the financial statements of 2077 is prima facie evidence of the accuracy of this entry. I agree with the plaintiffs that they should not be held responsible for losses suffered by 2077 after Davies was no longer involved with the operations of this company that resulted in a cash shortfall. Without evidence that the unilateral adjustment made by Smith to the retained earnings entry properly reflects an adjustment for which the plaintiffs should be held liable, I do not accept that this is a proper adjustment to the capital account of CityGate WD.

88CityGate WD is entitled to a reversal of the charge to its capital account in the amount of $285,897.

b. Parliament Square Adjustment Item

89This item relates to an adjustment in the amount of $152,565 in respect of what is called the Parliament Square project. This item relates to services provided by Smith through his company, Construction Consultancy Services (“CCS”) to Davies’ company Walter Davies Construction Inc. (“WDCI”) which became DSDI in 1999. According to the evidence of Davies, WDC I undertook the construction management of a condominium building at 39 Parliament Street and he agreed with Smith that WDCI would pay CCS a basic monthly fee and 25 percent of the surplus from the project. The adjustment amount relates to the final bonus calculation for this project.

90In his evidence, Davies refers to a statement provided by Smith entitled “39 Parliament Financial Reconciliation” showing the balance at July 31, 2006 of $90,357.77. According to Davies, the charge to the capital account of CityGate WD should have been reduced from $152,565 to $90,357, upon which it would owe interest to DSDP at the rate of 14 percent.

91Smith’s evidence is that the correct amount of the adjustment is $152,565.04 (the sum of $140,625.50 and $11,939.54 shown on the reconciliation statement) and that the reference to $19,357.77 is for management fees earned by CCS for work that it did for WDCI. Smith’s evidence is that Davies is simply mistaken in his belief that the $90,357 figure is relevant to this item. It is clear from the reconciliation statement that the amounts used to calculate the $90,357 are separate from the amounts used to calculate the Parliament Square adjustment.

92I accept Smith’s evidence and conclude that no adjustment to the capital account of CityGate WD should be made in respect of this item.

c. MCAP Loan Item

93With respect to the MCAP loan, the position taken by Smith on behalf of DSDP is that the MCAP loan was taken out to release funds from the Grenadier 1 project for DSDP to use on other projects, and it was retired using proceeds of a loan from Dominion Bond to finance the Grenadier 2 project. Smith’s position is that CityGate WD continued to be responsible for interest on one half of the money that was used to retire the inventory loan from MCAP.

94I do not accept this position. In my view, CityGate WD was responsible for interest on its share of the MCAP loan but, after the Dominion Bond loan was replaced with construction financing in January 2007 (after Davies’ retirement), the capital account of CityGate WD for its half of the original MCAP loan obligation should have been credited in the amount of $1,395,291, and it should not have been charged for interest on this amount thereafter.

95I therefore agree that DSDP breached the June Agreement by not paying CityGate WD an amount that reflected correction of an improper charge to the capital account of CityGate WD for the MCAP loan after January 17, 2007, when Davies was entitled to direct payment to discharge his share of this obligation. CityGate WD is entitled to a credit to its capital account to reverse the incorrect charge for interest on the amount of $1,395,291 after January 17, 2007. This would have resulted in a reversal of interest charges to the capital account of CityGate WD for the period from October 2005 through December 2010 in the amount of $952,724.58.

d. Inter-Company Loan Item

96With respect to the Inter-Company Loan item, this relates to a loan from DSDI to 2077 in the amount of $670,329. According to the evidence of Davies, Smith failed to provide any detailed explanation or documentation for this loan despite several requests. Smith’s evidence is that the loan is comprised of numerous cash advances and accounting entries between DSDI and 2077 throughout the course of the Grenadier 1 development and that Davies always had access to the same records. Davies denies that he was provided with evidence of this inter-company loan.

97The email that was sent by Davies to Smith dated September 2, 2010 includes a statement that refers to Davies’ share of “DSDI Inter Co.” in the amount of $334,265. As well, Davies included this item in a spreadsheet that he sent to Smith on July 21, 2011. A detailed statement of the intercompany loan was sent by Smith to Davies in a spreadsheet that accompanied an email dated October 26, 2011 that showed a loan balance as of July 31, 2010 of $670,329.95.

98I accept the submission made on behalf of the plaintiffs that CityGate WD should not be charged for intercompany loans between DSDI and 2077 after Davies retired. As of July 31, 2005, the loan balance was $300,211 according to the statement sent by Smith on October 26, 2011. Therefore the capital account of CityGate WD should be credited with $185,059 (the difference between $335,164 actually charged and the correct charge of $150,105).

99I have concluded that CityGate WD should have been given credits to its capital account with DSDP to reverse improper charges in respect of the four “other” items in the amounts of (i) $285,897 for the Recapture of Retained Earnings item, (ii) $0 for the Parliament Square Adjustment, (iii) $952,724.58 for the MCAP Loan item, and (iv) $189,105 for the Inter-Company Loan item. These amounts total $1,427,726.58.

Is DSDP entitled to judgment on its Counterclaim?

100DSDP counterclaims against CityGate WD for payment of $1,557,076 or, alternatively, $807,076 or such other amounts as may be found after a proper accounting.

101I have concluded that there was not an overpayment by DSDP to Citygate WD of the amount owing to it from its capital account with DSDP. DSDP has not proven that any amount is owing to it by CityGate WD.

Disposition

102For the foregoing reasons, the plaintiffs’ claim for damages for breach of the June Agreement is dismissed.

103The counterclaim by DSDP is dismissed.

104If the parties are unable to resolve costs, DSDP shall make written submissions within 30 days (not to exceed 10 pages, excluding costs outline and any offers to settle). The plaintiffs shall make responding submissions within 20 days thereafter (also not to exceed 10 pages).