Court of Appeal for Ontario

Date: 2019-05-28 Docket: C66181

Judges: Sharpe, Trotter and Harvison Young JJ.A.

Between

Extreme Venture Partners Fund LLP, EVP GP Inc., Ravinder Kumar Sharma, Imran Bashir, and Kenneth Teslia

Plaintiffs / Defendants by Counterclaim (Appellants)

and

Amar Varma, Sundeep Madra, Varma Holdco Inc., Madra Holdco Inc., Chamath Palihapitiya, El Investco I Inc., Extreme Venture Partners Annex Fund LLP, EVP GP Annex Fund I Inc., Cassels Brock & Blackwell LLP, and Seven Hills Group LLC

Defendants / Plaintiffs by Counterclaim (Respondent)

Counsel

Won J. Kim and Gigi van Leeuwen, for the appellant

C. Haddon Murray, for the respondent

Heard and released orally: May 27, 2019

On appeal from: the order of Justice Penny of the Superior Court of Justice, dated October 15, 2018.

Reasons for Decision

Overview

[1] The appellants appeal the dismissal of their claim against the respondent by way of summary judgment. The appellants' claim arises from a management buyout of Xtreme Labs. The appellants were directors and shareholders of Xtreme Labs. The respondent was engaged to provide a valuation of Xtreme Labs. The appellants allege that the valuation significantly undervalued Xtreme Labs and that they suffered a loss as a result of the management buyout.

[2] On the motion for summary judgment, the moving party respondent relied on the terms of their engagement letter for the valuation in support of their position that they owed no duty of care to the appellants. The appellants did not put forth any evidence in support of their claim.

[3] The motion judge ruled that the terms of the letter of engagement were inconsistent with the respondent owing the appellants a duty of care and he granted summary judgment on that basis.

[4] The appellants argue that the motion judge erred by (1) finding no duty of care; (2) failing to apply the proper evidentiary burden; and (3) failing to give adequate weight to the lack of credibility of the respondent's deponent. The appellants also argue (4) that this was not a proper case for partial summary judgment.

Duty of Care

[5] We do not agree that the motion judge erred with respect to the duty of care. The only evidence before the motion judge on this issue was the engagement letter. The engagement letter makes it clear that the respondent is not providing a fairness opinion in relation to any transaction. The engagement letter also makes it clear that the respondent is only providing advice to Xtreme Labs and that the opinion is not to be shown to, relied upon or discussed with any other party. It explicitly stated that the opinion "may not be disclosed to any third party or referred to publically, nor used for any purpose not related to the Board of Directors review". The engagement letter excludes any duty arising from non-contractual or fiduciary duties. It made clear that the respondent would be relying upon information provided by Xtreme Labs and that the respondent would not be independently verifying any of that information. Xtreme Labs undertook to provide the respondent with complete and accurate information.

[6] The appellants were directors of Xtreme Labs but their claim for damages arises from their interest as shareholders. The letter of engagement makes it clear that the opinion is for the Board of Directors, not the shareholders or to Board members in their personal capacity. In our view the motion judge made no error in concluding that, by its terms, the letter of engagement excluded any duty of care owed by the respondent to the appellants in their capacity as shareholders.

Evidentiary Burden

[7] The respondent's motion for summary judgment rested entirely on the letter of engagement. The appellants failed to advance any evidence in support of their claim that the respondent owed them a duty of care. In these circumstances, we fail to see how the motion judge could be criticized on the basis that he failed to apply the proper evidentiary burden. The respondent put forth evidence, namely the letter of engagement, sufficient to support their case that the claim should be dismissed. The appellants failed to answer that with competing evidence. They cannot now complain that the motion judge misapplied the evidentiary burden for summary judgment.

Credibility of the Respondent's Deponent

[8] The appellants argue that the motion judge erred by failing to give any weight to the fact that the respondent's deponent was unable to answer many questions when he was cross-examined. As we have noted, the respondent's case rested on the letter of engagement. We fail to see how inadequacies in the knowledge of the respondent's deponent had any bearing on the specific issue the motion judge was asked to decide.

Partial Summary Judgment

[9] The appellants argue that this was not a proper case for partial summary judgment. This was not a partial summary judgment as the claim against the respondent was dismissed in its entirety. The appellants' claims against the other defendants did proceed to trial but, as the claim against the respondent could be determined on a discrete legal issue pertinent only to the liability of the respondent, the motion judge did not err in dismissing the claim on that basis.

[10] We note as well that the appellants' claims against the other defendants have now proceeded to trial and the appellants achieved what counsel described as complete success and the award of all damages, including punitive damages. In these circumstances, it is not apparent to us that it would be appropriate to make an order that would require another trial.

Conclusion

[11] Accordingly, the appeal is dismissed, with costs to the respondent in the amount of $10,000, inclusive of disbursements and taxes.

"Robert J. Sharpe J.A." "G.T. Trotter J.A." "A. Harvison Young J.A."