Court of Appeal for Ontario

Citation: 2017 ONCA 971 Date: 2017-12-11 Docket: C63024

Judges: Sharpe, Epstein and van Rensburg JJ.A.

Parties

Between

Western Troy Capital Resources Inc. Plaintiff (Appellant)

and

Genivar Inc. and Patrick Giard Defendants (Respondents)

Counsel

Sara J. Erskine and Kristjan Surko, for the appellant

Howard B. Borlack and Stephen Barbier, for the respondent, Genivar Inc.

Hearing and Appeal

Heard: November 22, 2017

On appeal from: the judgment of Justice Graeme Mew of the Superior Court of Justice, dated November 1, 2016, with reasons reported at 2016 ONSC 6829.

Reasons for Decision

Facts

[1] The appellant, Western Troy Capital Resources Inc., ("Western Troy") retained the services of the respondent, Genivar Inc. ("Genivar"), an engineering consulting firm, to conduct a feasibility study to evaluate the amount of mineral resources and the economic viability of developing a property at MacLeod Lake in Northern Quebec. The trial judge found that in carrying out its work, Genivar had breached its duty of care toward Western Troy and had made negligent misrepresentations. This sole issue on this appeal is whether the trial judge erred in his assessment of damages.

[2] The trial judge made detailed findings of fact that we need not repeat here. The following outline highlights the facts essential to this appeal.

[3] In 2008, Western Troy obtained a positive preliminary economic assessment of the MacLeod Lake property from another consultant. In June 2008, it retained Genivar to conduct a feasibility study, which includes the development of a "mineral resources estimate" (also referred to as a "resource block model"), to determine whether the resource was economically viable. In early 2009, Genivar told Western Troy that preliminary results for the resource model were "better than expected". A few weeks later, due to the economic downturn following the sub-prime financial crisis, the study was suspended.

[4] In early 2010, Western Troy instructed Genivar to resume the study, but due to its failure to properly document the work done earlier and significant staff turnover, this took some time. In August 2010, Genivar reported that a proper feasibility study could not be undertaken until capital costs for road access and power supply were completed. Western Troy rejected that advice and asked Genivar to proceed with the study.

[5] The parties entered into a Revised Services Contract on July 20, 2011. At that time, the resources estimate was still not complete. Mr. Giard, the personally named defendant, took charge of the project for Genivar. He had serious concerns about the viability of the project because of capital costs, but he did not express these concerns to Western Troy at that time. He retained a third party to audit the reliability of the source data that would be used for the resources estimate. In April 2012, these third-party resource estimates revealed that the resource grade had declined by 19%. The project was deemed economically unviable and Western Troy decided to abandon the project.

Trial Judgment

[6] The trial judge gave detailed reasons finding that Genivar had breached its duty of care and made material misrepresentations to Western Troy. The trial judge found that but for Genivar's negligence, Western Troy would have terminated the project sooner and that Western Troy was therefore entitled to compensation for unnecessary expenses incurred. He found that the resources estimate should have been finalized "at least one year and maybe as much as two years" earlier than the actual completion date of April 2012.

[7] Western Troy submitted that it should be compensated for all expenses it had incurred from the date the study was resumed in 2010. It asserted that if the resource estimate indicating a substantial decline in grade had been received by then, it would have immediately halted the project. At trial, Western Troy provided copies of invoices itemizing actual expenditures between resumption in 2010 and the completion of the resource estimate in April 2012, in the total amount of $3,088,333.81.

[8] Genivar adduced expert evidence in support of its contention that the damages were $590,439. The expert testified that $1,416,028 of the damages claimed by Western Troy were either unrelated to the feasibility study or would have been incurred in any event. He also identified that Western Troy's losses were offset by the $454,995 it had received for mine tax credits.

[9] The trial judge found that the damages calculation in this case was inherently difficult and, to some extent, speculative. He noted that the question of when Genivar would have completed the study, had it met the standard of care, required conjecture. He accepted Genivar's contention that at least some of Western Troy's expenditures would likely still have been incurred, even if the resource estimate had been provided promptly after the project resumed. He was not persuaded that in the period between 2010 and 2012, Western Troy would have terminated the project immediately had the resources estimate been prepared on a timely basis.

[10] The trial judge concluded that, appreciating these difficulties and making the best of the evidence, $1.25 million was a fair figure. He dismissed Genivar's counterclaim for $322,432.71 for unpaid fees.

Issue

[11] The sole issue on appeal is whether the trial judge erred in his damages assessment.

Analysis

[12] Western Troy asks this court to increase the award to $2,967,144.55, the total of its expenses on the project after April 2010 less certain expenses that it concedes would have been incurred in any event or, alternatively, the total of its expenses from April 2011 ($2,151,365.08).

[13] Genivar does not cross-appeal the quantum of damages and asks this court to uphold the trial judge's award.

[14] Western Troy argues that the trial judge erred by failing to anchor his assessment of damages in the evidence and that he failed to adequately explain what expenses he rejected and what evidence he relied on in coming up with the figure of $1.25 million. Western Troy further submits that the trial judge's assessment cannot be reconciled with the balance of his reasons. As he found that the resources estimate should have been finalized "at least one year and maybe as much as two years" before April 2012, the damages should include all expenditures incurred before either April 2010 or 2011. The damages incurred after either date far exceed $1.25 million. Western Troy also argues that the damages award is inconsistent with the trial judge's determination that prejudgment interest should run from the date of the Revised Services Contract on July 20, 2011.

[15] The standard of review applicable to this case cited by both parties is set out in TMS Lighting Ltd. v. KJS Transport Inc., 2014 ONCA 1, at para. 60 (citations omitted):

… [A] trial judge's assessment of damages attracts considerable deference from a reviewing court. Appellate interference with a damages award at trial, particularly an award made by a trial judge sitting alone, is justified only where the trial judge made an error in principle, misapprehended the evidence, failed to consider relevant factors, considered irrelevant factors, made an award without any evidentiary foundation, or otherwise made a wholly erroneous assessment of damages…

[16] The court added, at para. 61: "Mathematical exactitude in the calculation of damages is neither necessary nor realistic in many cases."

[17] In our view, when the reasons are read as a whole, the trial judge provided an adequate explanation, firmly grounded in the evidence, for why he rejected the approach advocated by Western Troy and accepted Genivar's position that not all the expenses claimed by Western Troy would have been avoided if a timely resources estimate had been provided. In our view, his damages assessment is not vulnerable to review in this court on the applicable standard of review.

[18] The trial judge noted, at para. 148, that there were several matters bearing upon the damages assessment that were "speculative" when the evidence was considered as a whole.

[19] First, there was an element of speculation as to when, if Genivar had met the standard of care, the resources estimate would have been completed. He found, at para. 130, that the work "could have been done at least one year and maybe as much as two years before when it was actually done." The use of the word "maybe" indicates that the trial judge was not satisfied on a balance of probabilities that the work should have been completed by April 2010, two years before the completion of the April 2012 resource estimate. This meant that the earliest date from which damages could be calculated would be April 2011. That finding is, in our view, supported by the record and fatal to Western Troy's contention that damages should be awarded for all expenses incurred after April 2010.

[20] The second speculative question was what expenses Western Troy would have incurred in any event if the resources estimate had been completed in a timely manner. On this point, the trial judge accepted the evidence of Genivar's expert witness that feasibility studies typically proceed with all work happening concurrently rather than sequentially. He accepted the expert's evidence that some of the expenses Western Troy claimed would have been incurred to move the project forward while the feasibility study was being prepared. The trial judge did not accept the extent of the reductions proposed by Genivar's expert but he did accept, at para. 144, that there must be some reduction.

[21] As the trial judge put it at para. 131 of his reasons, "it seems to me unlikely that everything that was spent from the resumption of work in early 2010 would not have been spent had the resource estimate been completed at or shortly after the resumption." This finding meant that it would be wrong to take a strictly linear and sequential approach and assume that all the expenses incurred after April 2011 would have been avoided had the study be ready by that date.

[22] A third area of uncertainty identified at para. 148 was "exactly what the reaction of Western Troy would have been upon receipt of a timely feasibility study." The trial judge found that Rex Loesby, the president of Western Troy, took a very aggressive approach in promoting the MacLeod Lake project to his board and to investors and that he was a difficult and demanding client who often resisted Genivar's advice. For example, in August 2010, when Genivar suggested that the feasibility study should not be undertaken before certain infrastructure issues were resolved, Loesby instructed Genivar to proceed with the feasibility study. He asked Genivar to destroy a September 2010 letter cautioning that inappropriate assumptions were being made regarding road access and power transmission because of his fear that Quebec tax refunds secured by Western Troy would be reversed.

[23] There was also evidence that the decision whether or not to proceed with the project was contingent on commodity prices. Had the resources estimate been available earlier, when commodity prices were surging in 2010 and early 2011, the project may have appeared sufficiently viable to continue the feasibility study.

[24] The trial judge found, at para. 151, that "Western Troy had a strong desire for this project to succeed" and "that it is unrealistic to say that [Loesby] would simply have drawn a line and terminated the project" if the resources estimate had been completed earlier. Loesby did terminate the project when the report was completed in 2012, but the trial judge found that that was only because so much money had already been spent that Loesby had "no wiggle room left". Had he received the report at an earlier point, the trial judge found that "he would have looked for other ways to improve the project economics and that, accordingly, the project would not necessarily have died at that point."

[25] In our view, these findings were open to the trial judge on the evidence. In light of these findings, we do not agree with Western Troy's submission that the calculation could only have been accomplished on an invoice by invoice basis. There was a significant element of judgment required to assess the damages in this case. Western Troy's expert offered no alternative to simply awarding almost every dollar that Western Troy claimed. We agree with Genivar's submission and the trial judge's conclusion that there was an array of factors at play that made the assessment of damages speculative to a considerable degree.

[26] The trial judge candidly stated, at para. 152, that there was an element of "guesswork" in assessing the damages but that his assessment had not taken place in a vacuum. The trial judge was entitled, as he put it, to consider "not only the hard facts and the comments, but also the propensities of the individuals involved."

[27] The trial judge's decision to award prejudgment interest from the date of the Revised Services Contract, July 20, 2011, was made on the basis of determining a reasonable point of time from which to calculate interest on the damages he awarded. That is plainly distinguishable from a finding that all expenses incurred after that date were compensable as damages.

[28] In our view, the trial judge's rejection of the mechanical approach advocated by Western Troy of fixing damages on the basis of adding up all the expenses incurred after a specified date was justified on the record.

[29] Western Troy has not persuaded us that the trial judge ignored relevant evidence, or that he made any palpable and overriding error of fact or error of law that would justify this court in interfering with his decision. His findings that the earliest possible start date for the damages was April 2011, that not all expenses incurred after the report was delivered would have been avoided, and that it was not certain when Western Troy would have abandoned the project upon the earlier receipt of a report are firmly grounded in the evidence and his assessment of $1,250,000 in damages and his approach to prejudgment interest were reasonable.

Disposition

[30] For these reasons, the appeal is dismissed with costs to Genivar fixed in the amount agreed to by the parties, namely, $25,000 inclusive of disbursements and taxes.

"Robert J. Sharpe J.A."

"Gloria Epstein J.A."

"K. van Rensburg J.A."