Ivaco Inc. (Re)

87 O.R. (3d) 561

Court of Appeal for Ontario,

Doherty, Sharpe and Blair JJ.A.

November 2, 2007

Contracts -- Purchase and sale of business -- Valuation -- Vendor and purchaser of businesses disagreeing as to method of calculating working capital adjustments and as to interpretation of certain provisions of asset purchase agreements -- Accounting firm directed to calculate working capital adjustments according to two approaches advocated by purchaser and vendor -- Accounting firm doing so -- Vendor bringing motion for order requiring purchaser to make payment to Monitor in accordance with amount calculated by accounting firm using purchaser's approach -- Motion granted -- Purchaser failing to establish that accounting firm exceeded its jurisdiction, failed to follow or misinterpreted valuation instructions -- Leave to appeal denied.

The vendor and purchaser of certain businesses disagreed as to the method of calculating working capital adjustments and as to the interpretation of certain provisions of the asset purchase agreements. On a motion by the Monitor, an accounting firm, KPMG, was directed to calculate the working capital adjustments according to two approaches advocated by the purchaser and the vendor. KPMG did so and issued a report setting out its calculations. A trial of issues was ordered to determine which approach was the correct one to use in calculating the working capital adjustment. The vendor brought a motion for an order requiring the purchaser to make a payment to the Monitor in accordance with the amount owing according to KPMG's calculation using the purchaser's approach. The purchaser took the position that KPMG had exceeded its jurisdiction and that its report was of no force or effect. The motion was granted. The purchaser applied for leave to appeal.

Held, the application should be dismissed.

There was no dispute as to the applicable law. The issues were complicated, idiosyncratic and essentially factual. If KPMG went beyond its mandate, the report could not stand. However, KPMG did not exceed its mandate.

APPLICATION for leave to appeal from the orders of Ground J. (2007), 2007 29663 (ON SC), 86 O.R. (3d) 450, [2007] O.J. No. 2941 (S.C.J.).

Cases referred to Glaister v. Amalgamated Dairies Ltd., [2002] NZLR LEXIS 84 (Auk. H.C.); Jones v. Sherwood Computer Servs. Ltd. v. Sherwood Computer Services. Ltd., [1992] 1 W.L.R. 277; [1992] 2 All E.R. 170 (C.A.); Shinkaruk Enterprises Ltd. v. Commonwealth Insurance Co., 1990 7738 (SK CA), [1990] S.J. No. 317, [1990] I.L.R. Â1-2648, 71 D.L.R. (4th) 681, 85 Sask. R. 54 (C.A.)

William Burden and David S. Ward, for appellants, Heico. Peter Howard and Alex Rose, for Ivaco/Monitor. David Rainsberry, for Informal Committee of Noteholders. Geoff R. Hall, for QIT-Fer et Titane Inc. R. Graham Phoenix, for National Bank of Canada. Norman Emblem and Tiffany Soucy, for KPMG. [page562]

[1] Endorsement by THE COURT: -- Given the following, we would not grant leave to appeal:

-- there appears to be no dispute as to the applicable law;

-- the issues are complicated, idiosyncratic and essentially factual; and

-- the advantaged position of Ground J., who had addressed these issues on an ongoing basis over many months.

[2] We did, however, have the benefit of full oral argument by counsel on both sides and in deference to that argument, we will address the merits briefly.

[3] By the end of argument, it was clear to us that there was no real dispute about the underlying legal principles. If the expert (KPMG) went beyond the mandate given to it in the agreements, the report prepared by the expert cannot stand. Equally, if the expert stayed within its mandate, its report is final and binding and not subject to judicial review: Jones v. Sherwood Computer Services, [1992] 1 W.L.R. 277, [1992] All E.R. 170 (C.A.); Glaister v. Amalgamated Dairies Ltd., [2002] NZLR LEXIS 84 (Auk. H.C.); Shinkaruk Enterprises Ltd. v. Commonwealth Insurance Co., 1990 7738 (SK CA), [1990] S.J. No. 317, 71 D.L.R. (4th) 681 (C.A.).

[4] On our review of the agreements, the written submissions provided to the expert by the parties pursuant to the protocol developed by the court, and the relevant orders made by the court, the expert performed the task assigned to it and contemplated by the parties. In preparing its review of Exhibits "B" and "C" based on the position advanced to the expert by the appellant, Heico, the expert applied what it deemed to be the appropriate GAAP principles. The expert determined upon its understanding of those principles that CICA 4250 was not applicable to Exhibit "B". That decision was squarely a matter within the accounting expertise of the expert and did not engage any question of law.

[5] The expert's determination was directly responsive to the position advanced by Heico in its submissions to the expert and the position taken by Heico before Ground J., namely, that Exhibit "B" was a forecast to which CICA 4250 applied. The expert rejected that claim as unsound from an accounting perspective. In our view, that is precisely the expertise that he was obligated to bring to bear on that question.

[6] Leave to appeal will be refused.

[7] Costs to Monitor in the amount of $35,000, all inclusive.

Application dismissed.[page563]