COURT FILE NO.: C-62-09
COURT FILE NO.: C-62A-09
DATE: 2013-07-15
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Marlene Florence Roth, Estate Trustee of the Estate of Harold Peter Roth, Deceased, and Marlene Roth
Plaintiffs
– and –
Roy Juschka, Cynthia Juschka and Roth-Juschka Holdings Ltd.
Defendants
– and –
Allan D. Brock
Third Party
Randy Thomson, for the Plaintiffs
T.J. Corbett and Paul Hendrikx, for the Defendants
Paul Strickland, for the Third Party
HEARD: June 10-14 and June 17, 2013
Glithero j.
REASONS FOR JUDGMENT
[1] This action stems from disagreements between family members in relation to what was a family owned grocery store in Corunna, Ontario. The claims in the main action are based upon the proper interpretation and enforceability of various documents entered into in September 1992. The documents were intended to accomplish an orderly transfer of the plaintiffs’ share of the business to the defendants, and to provide income payments to the plaintiffs. The third party claim is against the solicitor who acted for all parties at the time the various documents were created. The defendants claim contribution and indemnity for any amounts they are found to owe the plaintiffs, based on an alleged breach of duty owed to the defendants.
[2] Marlene Roth is the widow of Harold Roth and sues on her own behalf and as trustee of her deceased’s husband’s estate.
[3] Cynthia Juschka is the natural daughter of Marlene and Harold Roth. She is married to her co-defendant, Roth Juschka. The corporate defendant is a holding company created to hold the shares in the grocery business.
[4] The evidence in respect of the period of time preceding the impugned 1992 agreements is largely uncontroversial.
[5] Harold Roth spent his adult working life in the grocery business. He began at the Highway Market here in Kitchener, which was then taken over by Dominion Stores. He worked in the Kitchener store and built another store for that company in the Toronto area. He then went with The Knechtel Corp. (Knechtel’s). He worked his way up to the position of a vice-president of that organization. Part of his responsibility was to search out appropriate sites for expansion by that company and to supervise the building of the stores. In that capacity, he constructed a store in Corunna, Ontario. In his position with Knechtel, he would be advised of stores that were not doing well and required some expert assistance.
[6] Mr. Roth had always wanted to own his own grocery store. Through his responsibilities with Knechtel, he became aware that the Corunna store was not doing well financially and could be available.
[7] Roy Juschka had two years of university education, following which he then worked in the field of environmental studies as his full time employment and in the early 1980s worked part-time at a Knechtel store for some 10-20 hours per week.
[8] Cynthia Juschka is 52 years of age. She too worked part-time in a grocery store for approximately four years while attending school. After school, she worked for approximately six years for Mutual Life in their actuarial department on a full-time basis.
[9] Roy and Cynthia Juschka lived with Harold and Marlene Roth prior to moving to Corunna, Ontario following the acquisition of the grocery store there.
[10] It is clear from the evidence that Harold Roth was the family member with expertise and experience and knowledge in the grocery business. It is he who became aware of the opportunity to take over the grocery store in Corunna, and it is he who considered that possibility and concluded that it was a worthwhile venture. He introduced the idea to the Juschkas, who were immediately interested in the venture as well.
[11] The basic plan was that the store in Corunna would provide both families with an adequate living and would afford the opportunity for Harold Roth to educate and train Roy and Cynthia Juschka in the grocery business. The evidence is that Cynthia Juschka was Harold Roth’s favourite daughter. The evidence is that Harold Roth and Roy Juschka were very close, that Harold thought a great deal of Roy and his abilities to learn and advance in the grocery field.
[12] The arrangement was that Harold Roth would go to Corunna first, then to be followed by Roy and Cynthia, and lastly that Marlene would go. Harold Roth left for Corunna on April 1, 1985.
[13] The Juschkas followed soon after, and Marlene Roth followed them. All four individuals worked in the store to start with. The evidence does not disclose any written agreement initially, but indicates that the profits from the grocery store were to be split 51% for Harold Roth, and 49% for the Juschkas.
[14] Later in 1985, Roth-Juschka Holdings Ltd. was incorporated, with Harold Roth receiving 51% of the shares, and Roy and Cynthia Juschka receiving a total of 49% of the shares between them.
[15] It is the evidence of all parties that the arrangement proceeded amicably. The profits of the store were distributed in terms of income, sometimes supplemented by bonuses and sometimes by dividends, such that the monies received by each of the families approximated the 51% - 49% split each year, to everyone’s satisfaction. In addition, the expenses of all four family members were paid. On the evidence I have, there were no disagreements between the parties as to how the business was being run, or as to how its profits were being shared. From 1985 to 1992, Harold Roth essentially ran the store and taught Cynthia and Roy Juschka along the way. Marlene Roth only worked full time at the store for approximately the first two years. Cynthia Juschka left full-time employment to look after the children and part-time. On the evidence I have, Harold Roth started to cut back in early 1988. He was pleased with the way Roy and Cynthia Juschka had progressed so quickly in their knowledge and capabilities in the grocery store business.
[16] In early 1992 Harold Roth received a diagnosis of stage 4 bladder cancer and was advised that he required surgery, and that the outcome was not without doubt. He shared this news with Marlene and with Cynthia and Roy. He started to discuss his concerns about arranging his business affairs.
[17] Mr. Roth wanted to ensure that if anything happened to him, the business would go to Roy and Cynthia Juschka. He was also concerned that his affairs be organized such that the store would continue to provide an income for both he and his wife, for so long as each of them was still alive. He wanted to ensure that Roy and Cynthia would acquire the grocery store without interference from other family members and hence did not want his 51% of the shares left to be distributed as part of his estate.
[18] In 1988, prior to the 1992 agreements which are central to this case, the parties each incorporated separate holding companies to hold their respective shares of the original holding company, Roth-Juschka Holdings Ltd. The new Roth company was 776550 Ontario Limited and it held Harold’s 51 % of the shares in Roth-Juschka Holdings Ltd. The new Juschka company was 776551 Ontario Limited and it held the Juschka’s 49% of the shares in the original holding company.
[19] There are four documents that are central to the issues in this case which are to be found at Tabs B, C, D and E in Exhibit 1. I am going to postpone for now a review of the differing understandings testified to before me, and instead outline what the documentation provided.
[20] At Tab B is a share purchase agreement. The vendor is Harold Roth and the purchasers are Roy and Cynthia Juschka. The agreement provides that Harold Roth will sell to the Juschkas two common shares of 776550 Ontario Limited and 568,650 special shares in the same company for the sum of $408,001.00. The $1.00 was for the shares of Marlene Roth. All parties acknowledge that they were not dealing on an arm’s length basis and that the purchase price could be the subject of review by Revenue Canada, and agreed that their agreement could be varied to accord with any ruling made by Revenue Canada. The Juschkas agreed to retain the services of Harold Roth and Marlene Roth, who in turn agreed to be employed by Roth- Juschka Holdings Limited, carrying on business as Bluewater Foodmarket, under the terms of conditions specified in Schedules “A” and “B” to the share purchase agreement (the consulting contracts).
[21] The purchase price was to be paid by a promissory note in the amount of $408,000.00. The agreement provided that the duly endorsed share certificates transferred to the purchasers on closing would then on closing be delivered back to the vendors to hold as collateral security for the repayment of the promissory note with interest. The agreement provided that upon payment of the entire sum owing under the note with interest, the vendors would then re-transfer the shares to the purchasers.
[22] The promissory note is found at Tab D of Exhibit 1, and forms Schedule “A” to both Harold Roth’s and Marlene Roth’s consulting agreement.
[23] The promissory note is from Roy and Cynthia Juschka to Harold Roth, is in the sum of $408,000.00, and is due on demand in 40 years, being April 30, 2032, with interest at the preferred lending rate from time to time of the Royal Bank of Canada, calculated annually, not in advance, on each anniversary date. It provides that the interest rate can be reduced at the holder’s discretion. It provides that “the note shall also become due and payable on demand in the event of the sale of Bluewater Foodmarket or upon the transfer of shares in Roth-Juschka Holdings Limited such that Cynthia Juschka owns or controls the voting rights of less than fifty per cent (50%) of the outstanding voting shares in the said Roth-Juschka Holdings Limited”.
[24] The consulting agreement in favour of Harold Roth, and that in favour of Marlene Roth, found at Tabs B and D of Exhibit 1 respectively, are essentially identical other than in the name. Each agreement is between Roth-Juschka Holdings Limited, and either Harold or Marlene Roth as the case may be, and with Roy Juschka and Cynthia Juschka as guarantors. The agreements appoint Harold or Marlene to undertake the duties and exercise the powers of a management consultant of the company. In terms of compensation, the agreements provide that the profits of Roth-Juschka Holdings Ltd. are to be calculated in the ordinary course of business save and except for remuneration and benefits payable to any of the four, except that such remuneration and benefits shall not be deducted from net income. The agreement provides that from May 1, 1992 until February 11, 1996, Harold Roth (at Tab C), and Marlene Roth (at Tab E), shall receive by way of salary, or bonus or benefits, an amount equal to one-quarter of the profits of the holding company. Following February 11, 1996, Harold Roth, or in the other agreement, Marlene Roth, would receive remuneration in the amount of one-quarter of the profits after deducting as a business expense $12,500.00, payable to Roy or Cynthia Juschka. From February 11, 2001, Harold Roth’s share (or at Tab E, Marlene’s share) was to be one-quarter of the profits of the corporation less the sum of $25,000, deductible as an expense. The payment agreements were to terminate on the death of Harold Roth in the document at Tab C, or Marlene Roth, in the document at Tab E, or upon Mr. or Mrs. Roth becoming unable because of health to complete their duties. The agreement prohibited Mr. Roth from entering into competition for a period of 10 years. Mr. Roth contracted to assist the holding company in management functions of various named types. Roy and Cynthia Juschka guaranteed the obligations of the holding company towards Mr. and Mrs. Roth in each of their respective agreements.
[25] Harold Roth died in January 2008. Importantly, in his will attached to the Certificate of Appointment of Estate Trustee With a Will, found at tab A of Ex. 1, Mr. Roth forgives the promissory note as long as his wife has pre-deceased him.
The Evidence of Marlene Roth
[26] Mrs. Roth is 79 years of age. She completed a Grade 11 commercial level in high school and worked thereafter at various secretarial positions until she was married. When the family took over the grocery store in Corunna, she worked the first couple of years organizing the office operations. After 1986, she only worked sporadically when the need arose.
[27] It seems obvious to me, and she admits, that she left much of the 1992 business arrangements to her husband, Harold. Her perception is that Harold had the knowledge and Cynthia and Roy had the youth.
[28] Mrs. Roth agrees that from 1986 to 1992, although she was not working much at all, she continued to receive wages, bonuses or dividends. She testified that her husband, Harold, started to cut back the amount he was working in early 1988, but he too continued to receive wages, bonuses and dividends. In other words, the two of them continued to receive full compensation, equating to approximately 51% of the profit of the grocery business up to the new agreements in 1992.
[29] Her recollection is that all four of the 1992 documents were signed at one time, that they were signed in Mr. Brock’s office, and according to her recollection, all four of the principals were together in Mr. Brock’s office. She left much of the detail to her husband, but she understood that the arrangements were designed to be for the good of all four family members. The plan was to affect a turnover of the business to Roy and Cynthia, without any payment by them at the time, other than in the form of the promissory note. She and Harold had never worked after the signing of these documents, but they were to continue to receive payment by the company. Her recollection is that these payments to she and Harold continued, as contracted for, until approximately 2001 or 2002 at which time the amounts being paid to them were cut back. Her evidence is that payments to the two of them stopped in 2007. Up until the July 26, 2007 payment, payments were made by Roth-Juschka Holdings Ltd. Commencing in August 2007, the payments came from 1714714 Ontario Ltd., a new holding company formed by Roy and Cynthia Juschka. Beginning in November 2007, the payments ceased.
[30] Her evidence is that neither before nor after Harold Roth’s death on January 8, 2008 were any payments received on the promissory note. She testified that she has no recollection of any agreement to forgive the promissory note either by will or otherwise. As I will point out in reviewing the evidence of others, there was such an agreement and I conclude that she has just honestly forgotten this aspect of the 1992 discussions, if indeed she was privy to this aspect of them.
[31] Mrs. Roth identified the documents in a tax return brief marked as Exhibit 2 and confirmed that between 1992 and 2007, Harold Roth received payments from Roth-Juschka Holdings Ltd. in the amount of $940,222.00 and that Marlene Roth received $788,886.00.
[32] She testified that it was in October of 1991 that she and Harold moved to New Hamburg from Corunna. By that point in time, her evidence is that the expansion to the grocery store was underway. She also testified that it was six months after she and Harold moved to New Hamburg that Roy began to discuss reducing the amounts that she and Harold were to receive from the store. Her evidence is that neither she nor her husband were happy about the reductions imposed by the Juschkas.
[33] Mrs. Roth had some recollection of a meeting in the Summer of 2007 in Elginfield, Ontario at which Mr. Juschka explained Sobeys involvement as the head lessee and described the different procedures as between Knechtel’s and Sobeys. She recalls him explaining that Sobeys was owed a lot of money, in fact more than the contents of the store and equipment were worth. Part of that money was from the 2001 expansion of the store. She understood, as a result, assets of the grocery store were transferred to Sobeys. In response, the Juschkas went to see Mr. Brock. This resulted in a letter being drafted by Mr. Brock to Mr. Thomson, on behalf of the Juschkas, but this letter was never sent at Mr. Juschka’s request. Thereafter, the Juschkas obtained other counsel.
Evidence of Roy Juschka
[34] He testified that by 1985, he was interested in getting involved in a grocery store and was thinking of purchasing one in Ridgeway, Ontario. However, Harold Roth approached he and Cynthia in the Spring of 1985 asking if they were interested in going into partnership with him on a store in Corunna. They agreed. It was originally a loose partnership with no written agreement. On July 25, 1985, Roth-Juschka Holdings Limited was incorporated, with Harold holding 51% of the shares, Roy Juschka holding 25% and Cynthia Juschka holding 24%, and all were directors. Initially, all four family members worked full time. In 1986, Marlene stopped working there and Cynthia went on maternity leave. Mr. Roth stopped working full time in 1988. That same year, each family incorporated separate holding companies as described in paragraph 18. The purpose of those holding companies was to hold the 51% and the 49% respectively of the shares of the Roth-Juschka Holdings Ltd. This was done for tax reasons.
[35] Mr. Juschka confirmed that in late 1991, Mr. Roth approached he and Cynthia expressing concern over his health issues and indicating he was interested in transferring his shares to the Juschkas and that he was concerned that no other family members would have any claim on the shares. He said that he would be obtaining advice from Mr. Brock and from the accountants the grocery business had used.
[36] Mr. Juschka produced a letter from BDO Ward Mallett Chartered Accountants dated February 3, 1992 addressed to Mr. Roth, marked as Exhibit 5. Mr. Roth gave him a copy of the letter. The letter sets forth the accountant’s summary of ideas that had been discussed between he and Mr. Roth that day. The letter did not purport to outline any agreement that had been reached, but merely summarized some ideas that had been discussed. Mr. Juschka made some notes on his copy of the letter. As it was not an agreement, its evidentiary value is only to show that Mr. Juschka was aware of some of the ideas being discussed.
[37] Mr. Juschka testified that he largely deferred to Mr. Roth in terms of the drafting of the 1992 agreements. He did attend at the accountant’s on one occasion, and doesn’t recall being at a meeting with Mr. Brock until the meeting at which the documents were signed. He does not remember what was discussed at the accountant’s office. He agrees that he was provided with a draft of the agreements. He agrees that he was asked to read the agreements over before signing them, as was his wife. His evidence at one point in his examination in chief is that Mr. Brock told them that the promissory note was a legal requirement for tax reasons, but that it would be forgiven in the will. He also maintains that he understood that the consulting fees paid to Harold and Marlene Roth, under their two agreements, would go to paying off the $408,000.00 promissory note and that once the payments made reached an amount where the net (after tax) amount to the Roths reached $408,000.00, the note would be paid.
[38] Even before the completion of the 1992 Agreements, Mr. and Mrs. Roth were retired from active participation in the business, but the Juschkas worked full time. No issues arose between the families until approximately 1999. At that time, Mr. Juschka claims he and his wife started to consider an expansion of the store and also felt they had paid more than enough to Harold and Marlene Roth under the consulting agreements to have paid off the $408,000.00 promissory note.
[39] In terms of the expansion and modernization of the store, the Juschkas started negotiating with Sobeys, which had taken over the Knechtel chain . They purchased some land with the idea of building a new store but it proved to be impractical. They came to an agreement with Sobeys whereby part of the funding for the expansion and modernization of the store would be in the form of a forgivable loan from Sobeys, and the rest would be by way of bank financing.
[40] As Mr. Juschka testified in chief, the store expansion plans caused he and his wife to approach Mr. Roth to indicate that they had paid enough under the consulting agreements to have paid off the note. Mr. Roth did not agree. In 2001, there was a heated meeting between the three. Mr. Juschka and Cynthia felt they could not afford to keep paying the same amounts because their expansion costs were high. They met with Mr. Roth at Mr. Juschka’s office. Mr Juschka produced a written proposal marked as Exhibit 8. Mr. Juschka proposed that both the Roth and Juschka families would receive a $62,000 a year base salary, $3,000 a year expense monies, not including automobiles, $10,000 a year in car expense monies. The proposal continued that profits generated by the company would be applied to the loan until paid in full, after which $25,000 a year bonuses would resume. This proposal would then be reviewed in five years. It proposed that in the event of Harold’s death, Marlene’s yearly remuneration would decrease by 25%. The proposal also contemplated that if the business was sold within seven years, after debts had been satisfied, “in order to satisfy the declining asset agreement made between Harold, Cynthia and Roy, the remaining profit to be split at a 75% to 25% ratio in favour of Cynthia and Roy for years one through four, and 85% to 15% ratio in years five and six.” Mr. Roth was not pleased with this proposal, which was made at the meeting held in May or June of 2001. The reference to the loan, Mr. Juschka testified, was the loan with Sobeys. At the end of the meeting, Mr. Juschka told Mr. Roth that he and his wife were reducing the payments under the consulting agreements whether Mr. Roth agreed or not.
[41] After that meeting, the Juschkas went ahead with the expansion plans and the remodeled store opened at the end of July 2001.
[42] Following the opening of the remodeled store, the business was not performing satisfactorily from Sobeys perspective, and in particular Sobeys expressed concern about the labour costs at the store. As a result of the concerns voiced by Sobeys, Mr. Juschka conversed with Harold Roth in early 2002, showed him some of the communications with Sobeys and asked Mr. Roth to come to the store for a meeting. Such a meeting took place in the spring or early Summer of 2002. Mr. Juschka told Mr. Roth that there was going to be another downward adjustment in the amounts being paid to Harold and Marlene Roth. Mr. Roth threatened to demand payment on the note and indicated that the Juschkas’ issues with Sobeys were not his concern.
[43] Mr. Juschka testified that as a result he went to see Mr. Brock to find out what Mr. Roth meant by threatening to demand payment on the note and was told by Mr. Brock that the amounts paid so far were of no consequences in terms of the retirement of the note on that the amount owing on the note was the full amount.
[44] The Juschkas went ahead and made a second reduction in the amounts being paid to Harold and Marlene in 2002. Mr. Roth was not happy, but did not do anything about the reductions. Things proceeded in this manner from 2002 until 2007.
[45] However, in 2005, a competitor grocery store opened up in Corunna and hurt the defendants’ business. According to Mr. Juschka, Sobeys increased the pressure on him to change the financial arrangements between Sobeys and the store and wanted the Juschkas to sell their assets and then buy back their inventory under a new type of financial arrangement with Sobeys. He testified as well that Sobeys indicated that the consulting agreement payments to Harold and Marlene Roth had to stop.
[46] Mr. Juschka set up a June 12, 2007 meeting with he and his wife, Harold and Marlene Roth, at Elginfield. The Sobeys letters were discussed, including Sobeys direction that the payments to the Roths be stopped. Mr. Roth indicated he wanted payment on the note. The meeting became emotional. After this meeting, the Juschkas proceeded with the buyout of the grocery store by Sobeys, which was made effective as of May 2007. As part of the buyout, Sobeys required the Juschkas to incorporate a new holding company, 1714714 Ontario Ltd., under which the store business was to then be run. It was actually that company that made the last few consulting agreement payments to Harold and Marlene Roth, with the last payments being made in November 2007.
[47] Mr. and Mrs. Roth retained Mr. Thomson as counsel and by letter dated November 23, 2007, he requested a meeting to discuss the issues. The defendants did not take up this request.
[48] In cross-examination, Mr. Juschka admitted that he is currently a shareholder, officer and director, together with his wife, in the new holding company incorporated at the insistence of Sobeys, being the company that currently runs the grocery store. He is also a director and shareholder in another company owned by he and a friend who buy property and sell it for residential development. He also has been an officer, director and shareholder in three other corporations, going back to the original Roth-Juschka Holdings Limited. The store had sales of $4.88 million in 1986 and in 1992, this had increased to $8.3 million in gross sales, and to $9.4 million in gross sales by 2011. He makes the management decisions in the running of the company. Accordingly, Mr. Juschka is not without some experience and understanding of corporate commercial matters.
[49] In terms of the 1992 documentation, he agreed in cross-examination that he had received a draft of the documents and had reviewed his copy prior to attending at Mr. Brock’s office. He agrees that before attending at Mr. Brock’s office he knew the contents of the documents to be signed that day and he agrees there was nothing in the draft documents that he objected to. In attending at Mr. Brock’s office, he was comfortable in signing the documents as he had read them before and saw nothing objectionable in them. He agreed there was no pressure to sign the documents and that he voiced no concern in terms of thinking the documentation provided for an arrangement different from what he understood the deal to be. He expressly admitted in cross-examination that the documents he signed reflected what his understanding of the deal was.
[50] He then stated in cross-examination that he understood that the payments made to the Roths under the consulting agreements were to be applied to the principal owing on the promissory note, which in turn constituted the purchase price of the shares. When asked to look at Mr. Roth’s consulting agreement during his cross-examination, and to identify where it said that the consulting agreement payments were to be applied to the promissory note, Mr. Juschka was evasive. Rather than directly answering the question asked, he kept repeating a prepared answer about what his understanding of the deal was, rather than admitting that there is not such provision in the agreement. He had to be asked three times before he would admit that there was nothing in the agreement that so provided. Finally, on the third try, he admitted there was no such provision in either Mr. Roth’s or Mrs. Roth’s consulting agreement, but nevertheless, maintained that he understood that such was the arrangement. He finally admitted that it was the 2007 direction from Sobeys, prohibiting further payments to the Roths , which led to the end of such payments.
[51] He agreed in cross-examination that he first asked Mr. Brock about this professed understanding in 2002, 10 years after the documents had been signed. His evidence is that Mr. Brock so advised him in 2002 when Mr. Juschka went to Mr. Brock’s office to ask him that express question, to which Mr. Brock indicated they did not apply. The Juschkas continued to pay and then in 2007, Mr. Juschka again went to Mr. Brock to ask him about the letter from Mr. Thomson and again received the same advice.
[52] He reiterated in cross-examination that he and his wife felt that they had paid enough on the consulting contracts to have paid off the promissory note by the late 1990s.
[53] He confirmed on cross-examination that at the Elginfield meeting in June 2007 that Mr. Roth expressed the position that the promissory note was still outstanding and that no payments had been made, and that the sale of the store to Sobeys would trigger payment on the note. But Mr. Juschka maintained in evidence that he believed the note had been paid off through the consulting fee payments.
[54] He agreed in cross-examination that Roth-Juschka Holdings Ltd. still exists, and that it held a savings certificate in the approximate amount of $ 325,000 following the sale to Sobeys.
[55] He also agreed, when he received the direction from Sobeys in November of 2007, he sought advice not only from Mr. Brock, but from an accountant, who the company had dealt with for some time, but he declined the advice that the payments to the Roths continue from the assets of R.J. Holdings Ltd.
[56] Mr. Juschka was cross-examined on the share purchase agreement found at Tab B of Exhibit 1 and he agreed that it does not provide for a forgiveness of the note in the will ofeach of the Roths, and he maintained in cross-examination that Harold had never said that he would forgive the note on his death, even though his pleading claimed that any balance owing on the debt would be forgiven on the deaths of the Roths, and even though he admitted being told so at one point in his evidence in chief summarized at paragraph 37.
[57] It was pointed out to him in cross-examination that Mr. Roth’s will, found at Tab A in Exhibit 1, does contain a provision forgiving the note as long as Marlene Roth had predeceased Harold. Mr. Juschka’s answer to that was that he knew that anyone can change their will at any time. That is of course the risk which Mr. Brock claims to have advised the Juschkas of, which advice they deny.
[58] Mr. Juschka agreed that Exhibit 8, his memorandum to Mr. Roth containing proposals for ongoing payments was written at a time that was two years after Mr. Juschka said he thought the note had been fully paid off. He finally agreed that he thought that the death of Mr. and/or Mrs. Roth would bring about some change and that is why he wrote in to a decreasing level of payments in his proposal marked as Exhibit 8. When asked why he wrote these provisions at a time when he believed the note had all been paid off, he mentioned in his answer that it was so as to “satisfy” the debt obligation. He then became very evasive in terms of answering any further questions that tended to reflect negatively on his claim that he believed the note had been paid off.
[59] When cross-examined by Mr. Strickland, counsel for the third party, Mr. Juschka admitted that the original partnership with the Roths worked extremely well and that he and Cynthia were making more money under that arrangement than they had been previously.
[60] Mr. Juschka agreed that he had never told Mr. Brock what his objectives were in these 1992 dealings. Mr. Brock had done work for the two families in terms of the section 85 rollover to the two new holding companies, 77650 and 77651. It was the accountant who crunched all the numbers. Again, for the 1992 dealings, it was the accounting firm who did all the financial calculations, rather than the Roths, the Juschkas or Mr. Brock.
[61] Mr. Juschka agreed that the 1992 arrangement followed Mr. Roth’s advice to Mr. Juschka that he had health issues, that he might not survive, and that he wanted to make sure that the Juschkas got the shares without interference from Marlene or other family members such as might ensue if Mr. Roth’s shares formed part of his estate. Mr. Juschka also agreed that Mr. Roth had 51% of the shares and that Mr. Roth was not working by the time of the 1992 arrangements. He admitted that he understood Mr. Roth could have simply stayed on as a 51% shareholder and as such continued to receive 51% of the profits, even though he wasn’t working in the business. He also acknowledged that but for the 1992 arrangements, he understood that Mr. Roth’s 51% ownership would go on forever or so long at least as he continued to hold the shares or the 51% continued to be held by whomever Mr. Roth left them to.
[62] He agreed in cross-examination that he did go to a meeting at the accountant’s offices, with at least one of the accountants, perhaps both, and Mr. Roth.. He agreed he understood that his holding company would acquire the shares of Mr. Roth’s holding company, the shares would be paid for by a promissory note, and that the consulting fee agreements would be paid for by the corporation running the grocery store. When it was suggested to Mr. Juschka in cross-examination that he agreed that Mr. Roth understood he would continue to receive 51% of the profits of the business through the vehicle of the consulting agreements, Mr. Juschka disagreed and volunteered that he understood the arrangement would be that the Roths would receive 50% of the profits, rather than 51%, showing some understanding of the arrangement on his part.
[63] When questioned about the forgiveness of the note, Mr. Juschka agreed it was first mentioned as a possibility in the February 3, 1992 letter from the accountant, marked as Exhibit 5. He also testified that he remembered in Mr. Brock’s office that Mr. Brock indicated there had to be a promissory note in payment for the shares for tax reasons, but that the note would be forgiven. He made a point of indicating in his evidence that it was Mr. Brock who said that, rather than Harold Roth. Regardless of who said it, he understood it was part of the plan.
[64] He agreed that his proposals to Mr. Roth, as set out in Exhibit 8, would result in a higher level of taxable benefits to Mr. Roth, but he indicated they increased the salary to be paid to Mr. Roth so as to offset the extra taxes that would be paid on the increased benefits. He testified that the accountants had all his financial information. He agreed that all parties were in agreement with the contents of the 1992 agreements and that he had seen all this documentation at the accountant’s office earlier. He agreed in cross-examination that when he and the others attended at the office of Mr. Brock to sign the 1992 agreements, there was no disagreement between Mr. Roth and he or the others.
[65] He also agreed in cross-examination that when the promissory note refers to the sale of the business, it was referring to the sale as an ongoing business, a sale of equipment and inventory and hence was reflected in the deal with Sobeys.
[66] He also testified that as to his understanding about the forgiveness of the promissory note, at the time the documents were signed in 1992, he could not recall if there was conversation about Mr. Roth being able to change his mind about forgiving the note in his will. In conversations with Mr. Brock, he was told that the note would be forgiven.
[67] Mr. Juschka testified in chief that at no time during the entire history of the matter did Mr. Brock ever advise the Juschkas of any possible conflict of interest, or seek a waiver of a conflict of interest, and never advised them of the prospect of seeking independent legal advice. At the end of his examination in chief, Mr. Juschka restated that Mr. Brock had indicated that the promissory note was a legal requirement that had to be in the 1992 Agreement, but that it would be forgiven in the will, so the Juschkas did not need to be concerned with it.
[68] In my opinion Mr. Juschka was frequently evasive in his evidence when asked straightforward questions directed at the important issues in this case. In my opinion his actions were often at odds with his professed understanding of the 1992 arrangements.
Evidence of Cynthia Juschka
[69] She agreed in chief that she had little input into the corporate structuring and tended to leave these matters to her husband, Roy Juschka. It was not until she went to Mr. Brock’s office that she saw the documents. She agreed that she was there given an overview of the contract, the value of the shares and the explanation that the promissory note was put in the agreements for tax reasons. She maintained that she understood that the agreement was for a buyout of her father’s shares for $408,000, which was to be paid by means of the consulting agreement payments. She maintains that she received no independent legal advice or recommendation that she get any.
[70] Mrs. Juschka testified that the 1992 agreement included her understanding that the promissory note was not to be an issue because it was going to be forgiven in the Roths’ wills.
[71] She agreed with her husband that she thought by the late 1990s they had paid enough payments under the consulting agreements to have paid off the note. She also agreed that coincidentally, in the late 90s, she and her husband had decided they wanted to expand the store, which they eventually did in 2001. She agreed that they had discussions with Harold in 2001 and 2002 about their financial difficulties in paying the wages to the Roths.
[72] She described a 2002 meeting with Mr. Brock in which they told Mr. Brock that Mr. Roth had indicated that he may call the note and they sought Mr. Brock’s clarification as to what they meant. She verified Mr. Brock said they still owed on the note. She added that “we assumed” that the consulting agreement monies were going to pay off the note, but that Mr. Brock had said no.(emphasis added)
[73] In terms of her understanding that the consulting agreement payments would retire the note, she explained they knew it was not a dollar for dollar basis because the payments to the Roths would be taxable and accordingly, it would be the net payments, after taxes, that would have to reach $408,000 before the note would be retired.
[74] In cross-examination, she agreed that she trusted her husband to represent her interests in these dealings. She agreed that she read the 1992 documents over before she signed them, that she had no pressure on her to sign, and she agreed that when she read the documents over, there was nothing in them that was not in accordance with what she understood the deal to be. She was evasive in answering that question and at first answered that obviously she had not understood the deal or we wouldn’t be in court today. When asked a second time as to whether or not there was anything in the documents that was not in accordance with her understanding of the deal, she answered that she finds it very difficult to read legal documents, despite being employed in an actuarial office giving recommendations in that field. When asked for the third time whether there was anything in the documents that was not in accordance with her understanding of the deal, she finally answered “not really”.
[75] She begrudgingly admitted there was nothing in the consulting agreements to indicate that payments on those agreements were to be applied towards retiring the note. She agreed there was nothing in the promissory note saying that it was to be paid out of the consulting agreement payments.
[76] When questioned about her meeting at Mr. Brock’s office in 2007, as a result of receiving the letter from Mr. Thomson, she was again evasive in admitting that Mr. Brock had said the consulting agreement payments did not go to retirement of the note, instead wanted to give an explanation again as to her understanding of the whole agreement.
[77] She agreed in cross-examination that she understood the note was to be forgiven in the will and she agreed there was nothing in any of the 1992 agreements about that, but she repeated that she understood that was the agreement, namely that the note would be forgiven on the death of both of her parents. When questioned as to how that squares with her belief that the note would be paid out of the consulting fee agreements, she then took the position that the forgiveness of the note in the wills was irrelevant.
[78] She conceded that her father never agreed that the consulting agreement payments were to be used to pay off the note.
[79] When questioned about whether she understood the 1992 agreements provided that her father would be paid the consulting fees until he died, she added on her own volition that she understood it would stop if he was disabled – which was an additional remark by her, which is accurate, but inconsistent with a belief that the payments to him would stop upon retirement of the note.
[80] When it was suggested to Mrs. Juschka that if Sobeys had not stopped the Juschkas from making the payments, they would have continued to make them even after 2007. She answered that they kept paying them because they didn’t know how to stop them. This is a curious answer from a lady who admits to being in charge of the payroll of a company with several million dollars in gross sales.
[81] She confirmed that the amounts paid under the consulting agreements to Harold Roth and to Marlene Roth are reflected in the summary at Tab A in Exhibit 2. They reflect a decrease for Harold Roth from $65,000 in 2000 to $36,614 in 2001, and $26,147 in 2002. For Marlene Roth, they show payments in 2000 totalling $52,072, in 2001 in the amount of $36,439, and in 2002 in the amount of $26,219. These figures show the reductions made by the Juschkas in the payments to the Roths in 2001 and 2002. The payments to the Juschkas from the business increased during this time period.
[82] When cross-examined by Mr. Strickland, counsel for the third party, Mrs. Juschka confirmed that she and her husband wanted to get into the grocery business themselves, agreed to do so in partnership with her father on terms that he would have 51% of the profits and they would have 49%, whether he worked or not. She agreed that her father, in 1992, wanted to make sure that the salaries would go on to the death of he or his wife. While she was somewhat evasive in answering the question, she finally agreed that in 1992, her father wanted to make sure that she and her husband would have complete control of the business on the death of he and his wife, free from claims by anyone else.
[83] She could not remember whether she had ever discussed the promissory note with her father, and could not recall whether he had ever said the note would be forgiven. She agreed her father had never told her he did not expect to be paid the consulting fees. She testified that she had never discussed with her father, nor with Mr. Brock, as to whether her father would be able to change his mind about forgiving the note in his will.
[84] In cross-examination, it was suggested to her that she and her husband decided in about 1999 that it was unfair that they had to keep paying the Roths under the consulting agreements, when they were no longer working in the grocery store and she replied that she felt the $408,000 had been paid and that she did not understand that the consulting agreements were lifelong commitments to pay. She agreed that she and her husband, at that time, were making more money than they ever had, that her father had wanted the income to continue until the death of he or his wife. She agreed that it was her father who brought the idea to them, and the expertise, and that she and her husband benefited as a result and still are.
Keith Trussler
[85] Mr. Trussler was called by the defence to give opinion evidence in the field of corporate commercial law. He apparently wrote a report which was some 31 pages long, and which had attached appendices outlining his C.V., his instruction letter, and professional conduct materials relied upon by him. His report was not filed, so I have not seen that material. As he has practiced primarily in the fields of corporate commercial law and tax litigation for a number of years, having been called to the Bar in 1980, I ruled him to be qualified to give opinion evidence in the field of corporate commercial law.
[86] It became evident during Mr. Trussler’s evidence that he understandably formulated his opinion as to whether Mr. Brock met the required standard of care based upon assumptions he was asked to make, and did make, as detailed in his report. I don’t have that.
[87] He was asked at trial to make certain assumptions as the foundation for his opinion. As he began to explain his opinion, it became obvious that he had relied upon other assumed facts, beyond those given to him at trial. Court broke so that the assumptions as put to him here at trial could be reproduced in written form, and he was asked whether or not he would be able to give an opinion based upon these differing assumptions, or whether he would have to come back on a later date to give the matter appropriate consideration. He indicated that he would be able to give his opinion without a further adjournment.
[88] The assumptions he was asked to make at trial had been reduced to written form in Exhibit 21. It is clear that he is asked to assume what is essentially the evidence of Mr. and Mrs. Juschka to be true, including the position they have advanced here at trial to the effect that they understood the consulting agreement payments would only continue on until the net amount received by the plaintiffs satisfied the amount owing on the $408,000.00 promissory note. To the extent that my findings of fact differ from those Mr. Trussler was asked to assume to be true, the value of his opinion is diminished.
[89] After Mr. Trussler had been provided with what became Exhibit 21, and then asked again for his opinion as to whether Mr. Brock had met the required standard of care, Mr. Trussler began his answer by adding three additional assumptions to those put to him by counsel. Firstly, he assumed that Mr. Brock made no inquiries of the Juschkas’ understanding of the agreement before they signed it. Secondly, he assumed that Mr. Brock made no inquiries as to whether or not Mr. and Mrs. Juschka understood that the Roths would be providing no services under the consulting agreement. Thirdly, he assumed the Juschkas were not asked by Mr. Brock about their understanding of the valuation of the shares. In giving his opinion, Mr. Trussler opined that it was important to have asked what the role of the consulting agreement was. While he allowed that it’s not unusual for a vendor to remain involved in a business, so as to protect the customer base, or for other reasons, here the question was never asked. In his answer, he also stressed how important it was that the relationship between the promissory note and the consulting agreement.
[90] In chief, he suggested that the terms of the promissory note contain a triggering of the payment obligation if the business is sold. He suggested that that did not logically connect to the consulting agreement, which purports to go on for life, if the business is sold and hence is illogical. I don’t see it that way. I would have thought it clear that the clause triggering payment on the note if the business was sold was to protect the Roths so that they would be paid for the shares, and that the consulting agreement terms would end with the sale of the business because there would be no profits to the holding company, once it had sold the grocery store. As the consulting agreement payments were based on profit, the end of a profit meant the end of the payments.
[91] Mr. Trussler concluded that Mr. Brock did not meet the expected standard of care and seems to have based that primarily on what he assumed to be a lack of detailed inquiry as to the understanding of the parties, and their aims and objectives. He did allow that not every transaction requires independent legal advice and that it depends on the facts of the particular case but the need for independent legal advice does arise where the circumstances suggest that there is likely to be a “collision of interest” as between the clients. He finds such a collision to be likely here because the Roths expected to be paid for life, and the Juschkas expected to pay only so long as required to satisfy the principal sum of the note. That position of course, is based on his assumption that the Juschkas’ professed understanding is indeed factual.
[92] Mr. Trussler testified that the promissory note ought to have included within it a term that it was to be forgiven on death and that a failure to do that on Mr. Brock’s part was a shortcoming. With respect, a promissory note containing as a term that it is to be forgiven is not very likely to pass Revenue Canada muster.
[93] In cross-examination by counsel for the third party, Mr. Trussler agreed that the appropriate standard of care is one that would be applicable in 1992. At one point, he agreed that in the 1990s a lawyer had to be concerned about Revenue Canada’s acceptance of a promissory note as real consideration if within the note there is a term that it will be forgiven on death. I was unimpressed with his hesitation in responding to suggestions that a written term within the note forgiving the debt would be of concern.
[94] He agreed in cross-examination that the factual basis he was asked to assume to be correct contained no information about the state of the business relationship between the Roths and the Juschkas prior to 1992. He appeared at one point to agree that for Mr. Brock to give proper legal advice, he would have to know the pre-existing state of affairs, but he agreed he was asked to assume that Mr. Brock made no inquiries about the nature of the arrangements between the clients before the 1992 arrangement was documented.
[95] In what I see as being an entirely appropriate line of questioning, Mr. Trussler was asked by Mr. Strickland to assume that since 1985 the arrangement had been that Mr. Roth owned 51% of the shares and that the Juschkas between them owned 49%, and that prior to the 1992 agreements, it was known by all parties that the Roths were not providing any labour in return for the payments they were receiving of approximately 51% of the profits. He was also asked to assume that Mr. Brock was told that the purpose of the 1992 changes was so that there would be an end to the entitlement of 51% of the profits on the part of the Roths and an aim to ensure that Cynthia Juschka and her husband became full owners without contest from other family members. When asked for his opinion based upon those assumptions, Mr. Trussler answered by saying that his complaint was that Mr. Brock never asked about those things. There is no such evidence. He indicated he assumed that Mr. Brock did not understand that the agreements were to end upon the death of the Roths. The agreements say so, and Mr. Brock drew them. Mr. Trussler indicated he assumed Mr. Brock did not have all the information that he would have needed to give proper advice. Such an assumption essentially predicts the result, and is in my opinion not in keeping with the evidence in this case.
[96] In my opinion, Mr. Trussler was not prepared to provide the benefit of his opinion when asked to assume other facts more favourable to the plaintiff, and to Mr. Brock. In my opinion, an expert has an obligation to candidly admit the effect that differing assumptions, or the lack of certain assumptions, would have on his or her opinion. Mr. Trussler was not in my estimation prepared to fairly answer the questions put to him by Mr. Strickland based upon different facts arising out of the evidence.
[97] In my opinion the evidence is clear that at least the first 2 assumptions added by Mr. Trussler as conditions to his opinion, as set forth in paragraph 89, are shown to be inaccurate on the evidence of the other witnesses, including the defendants.
Joseph O’Rourke
[98] This gentleman is a retired accountant and former partner in BDO Dunwoody, previously Ward Mallett. He retired in 2005. He had some involvement in this matter, but really has no actual memory of it given the passage of so much time. He does remember giving some accounting advice on the sale of shares and recalls giving some instructions to Mr. Brock based on the direction he received from Mr. Roth, and possibly from Mr. Juschka. He identified Exhibit 22 as being notes made in his handwriting on February 13, 1992. This of course predates the actual signing by a number of months and may involve discussions about an earlier draft of documentation. These notes relate to a phone call from Mr. Brock and the notes suggest Mr. Roth wants the note forgiven at death and wants to continue to receive a share of the profits on a decreasing basis. Perhaps more importantly is Exhibit 25 identified by Mr. O’Rourke as being his notes made on July 7, 1992 when Mr. Roth and Mr. Juschka came in to review an agreement in anticipation of a meeting with Mr. Brock the following day. Mr. O’Rourke noted that there was a concern that the promissory note should not be a demand note because of possible problems of senility, etc. on the part of either Mr. or Mrs. Roth – this would seem to be a concern that would favour the Juschkas. The notes also reflect discussion about a concern that Marlene Roth may not be accepted as a consultant by Revenue Canada. There is also a note that there was discussion that the loan would not be paid back or reduced, but rather would be gifted or bequeathed to the Juschkas. There is also a note of discussion about the amount Marlene was to continue to receive under the consulting agreement after Harold’s death.
Exhibit 27 is a draft of the 1992 documentation on which Mr. O’Rourke made notes during his discussions. He testified that if Mr. Juschka had concerns and voiced them, then Mr. O’Rourke would have made notes. His evidence was that he had no knowledge of any disagreement between the Juschkas or the Roths with respect to the 1992 arrangements. Exhibit 29 was identified by Mr. O’Rourke as being some notes made by him. While he has no particular memory, the notes suggest that he met with Mr. Juschka on February 5, 1993 and during that discussion, he noted that the current intent was that the promissory note would be forgiven and accordingly he recommended that the note be retained by Roy and Cynthia rather than put in the company’s name. It must be remembered these are discussions early in 1992 and accordingly are not discussions based upon any finished versions of documentation. The notes are of some value in terms of evidencing the nature of alternatives being discussed.
Tom Perry
[99] Mr. Perry is a retired accountant and previously a partner of BDO Dunwoody. He retired in 2006. He was the tax partner in the local office. He has no real memory of the particulars but agrees that he probably reviewed these transactions.
[100] Even upon being shown some documentation which would appear to be his, Mr. Perry indicated did not cause him to remember events indicated therein.
Allen Brock
[101] Mr. Brock was called to the Bar in March of 1975 and opened his law practice in Corunna in April of 1975 and has practised as a sole practitioner in a general practice ever since. In 1992 he estimates that about half his practice involved commercial work. His office was about a block away from the grocery store. He acted for the Roths in the purchase of their home, and for the Juschkas in the purchase of a condominium. He acted for Mr. Roth and Mr. Juschka in bringing a successful plebiscite to enlarge the amount of floor space that could be operated without contravening the Lord’s Day Act.
[102] His evidence is that Mr. Roth would often tell him how impressed Mr. Roth was with Mr. Juschka’s progress in learning the grocery business and in his drive. Mr. Brock gave evidence about his knowledge of Mr. Roth’s background, Mr. Juschka’s background and how Mr. Roth had come to learn of the Corunna opportunity.
[103] He was retained by the Roths and the Juschkas to incorporate Roth-Juschka Holdings Ltd. , although most of his instructions as to how the corporation was to be structured came from the accountants, Ward Mallett, and specifically, Mr. O’Rourke. Mr. Brock knew that the shareholdings were to be 51% for Mr. Roth and 49% jointly by the Juschkas. Both men came in to sign the documentation before him. Subsequently he received instructions from both to incorporate separate holding companies under which each would hold their shares in Roth-Juschka Holdings Inc. and that it was done for income tax advantages so that each had control over their share of the income stream.
[104] Mr. Brock also set up a family investment corporation for Mr. Roth, and he met with these family members in that connection
[105] Mr. Brock testified that in the late Fall of 1991, Mr. Roth came to see him wanting to amend his will. Mr. Roth was concerned that if something happened to him he wanted to ensure that the shares in the business went to the Juschkas, and he was concerned about that because of difficulties between his wife, Marlene, and his daughter Cynthia Juschka, as well as between Mr. Roth and his other daughter. He explained that he wanted to ensure that the store would go to the Juschkas without any problems. Mr. Brock pointed out the family law concerns in terms of Marlene’s entitlements to support and the requirement that any dealings with the company had to be done in such a way as to honour those spousal obligations.
[106] Mr. Brock testified he then heard nothing further until January or early February of 1992 when Mr. Roth attended and brought with him Exhibit 5, the February 3, 1992 letter from Mr. Perry, the accountant. Mr. Brock testified that at that meeting, Harold was the one who gave him instructions but his understanding the instructions were on behalf of both Harold and Roy and Cynthia. The new proposal avoided problems inherent in passing the shares on by Will, as there was to be a purchase, but Harold was also to have beneficial entitlement in terms of income and when he died the shares would go to Cynthia and Roy.
[107] He testified that later in February they met again in his office with Mr. Perry present, and as well, Mr. O’Rourke and Roy Juschka in attendance, although he arrived a little late. He stood behind the others and was there for a majority of the meeting. Mr. Brock’s evidence is that Mr. Perry and he reviewed with Mr. Juschka what had been discussed at the meeting prior to his arrival. The new arrangement had now become a share transfer to the Juschkas, but an income stream would continue to the Roths. The figure was to be $408,000.00 for Mr. Roth’s shares, which Mr. Roth thought to be low, but wasn’t concerned in a major way because he was to continue to receive his income, and the note was to be forgiven by will. . Mr. Brock testified that the promissory note was to justify to Revenue Canada that there was a reasonable price being paid for the shares and it was in Mr. Roth’s interest to have the value of the shares at a low figure so as to attract less tax. The note was to be forgiven when the Roths died. His evidence is that at the meeting it was discussed that the purpose of the new arrangement was to freeze the value of the estate, to provide an income stream to the Roths and to get the shares into the hands of the Juschkas. Mr. Brock testified that the discussions were very clear and Mr. Juschka listened to what was going on. According to Mr. Brock, he asked all those at the meeting if they had any questions or if they needed anything further explained and no one indicated they did. He was satisfied everyone knew what the deal was and what was going on. Everyone at the meeting was friendly and agreeable with each other about the new proposal. There was no conflict between those in attendance and particularly none between Mr. Roth and Mr. Juschka as they appeared very comfortable with each other. There was a discussion about the income and agreement that there would be a reduction in what the Roths were paid over time. At that time, Mr. Brock understood Mr. Roth to have a heart problem and thought that was the catalyst to the concerns of Mr. Roth, and only later found out that it was the cancer and related surgery that prompted the wish to change.
[108] After that February meeting, Mr. Brock heard nothing until July. It was left that the parties would continue to work on some numbers.
[109] Mr. Brock’s next involvement was in late June or early July when Mr. Roth again attended and wanted to proceed with the new arrangement andwanted agreements drafted. Mr. Brock prepared draft agreements and sent them to Mr. Roth with a copy for Roy Juschka.
[110] In Mr. Brock’s assessment there was a substantial benefit being given to Cynthia and Roy as they were to receive 51% of the shares without payment in that the note was to be forgiven in the wills. The amount of the profits Mr. and Mrs. Roth were to receive was to be reduced slightly right away, and then in two stages over time thereafter.
[111] When it came time to sign the documents, Mr. Brock testified that he cannot be positive whether all four people came in together, or whether they came in separately. He believes they must have come in together. Regardless, his evidence is that he reviewed the documents with each of the four and explained to each that the promissory note was to be forgiven in the wills. His evidence is that he pointed out to Cynthia and to Roy Juschka particularly that there was no guarantee of the note being forgiven in the wills because a will can be changed. His evidence is that when he told Cynthia and Roy that there was that potential risk that they just laughed, indicating that they had no concerns that the Roths would do as had been discussed with respect to their Wills. His evidence is that the four signatories had gone over drafts previously, that there had been changes during the process. On his evidence, all four were familiar with the documents and he was satisfied all four knew what the new arrangement was. He had all four read the documents in his presence and he reviewed with them then what the documents provided for and asked each of the four if they had any questions. Neither Roy nor Cynthia asked for any changes or expressed any lack of understanding or concern. On his evidence it was discussed that the promissory note could not contain a clause indicating that it would be forgiven on death as that would diminish the value being paid for the shares so as to undermine the position that it was an arm’s length transfer at fair market value.
[112] Mr. Brock’s evidence is that shortly thereafter the signing meeting he then drew up new wills for Harold and for Marlene Roth in which each of them did forgive the promissory note in the event that the other had predeceased them.
[113] After the 1992 documents were signed the next thing Mr. Brock testified to hearing was that shortly thereafter Cynthia and Roy Juschka wanted him to incorporate a new holding company to hold the amalgamated previous holding companies. He did the articles of amalgamation.
[114] His next involvement was in 2002 when Cynthia and Roy came in and indicated they had cut the payments to the Roths because of financial problems at the store and that Mr. Roth had threatened to call payment on the note. Both of the Juschkas attended at his office. He testified that he explained to both of them that the documentation they had signed required them to make the payments to the Roths subject only to the step-down provisions in the agreements and that they need not worry about the note because it was to be forgiven in the wills. Mr. Brock’s evidence is that he was stunned by what now appeared to be a disagreement between the two families and he advised that if there was going to be litigation he would be unable to act for either. The Juschkas left and Mr. Brock thought the matter was resolved. The Juschkas wanted to build a larger store as a study done by Sobeys indicated that they were not enjoying sales in a sufficiently large proportion of the total grocery sales available within the market area. The Juschkas bought land, intending to build, and had Mr. Brock bring a zoning change application for them, which was successful. So then the owners of the mall where the grocery store was then located agreed to give the Juschkas the additional space they required. Mr. Brock testified that the Juschkas advised him that they had cut the amount of the payments to the Roths because the costs being incurred by the Juschkas for this expansion was more than what they had expected.
[115] Mr. Brock testified that he visited Mr. and Mrs. Roth to try and get all of this resolved as he did not like to see these people at odds with each other. Mr. Roth was upset that his income and that of his wife were being lowered while the incomes of the Juschkas were rising. Mr. Brock felt badly because Mr. Roth had told him he thought of Mr. Juschka as a best friend and he had also told Mr. Brock that Cynthia was his favourite daughter. In Mr. Brock’s analysis, the 1992 agreement had been good for both families, but particularly so for the Juschkas.
[116] Thereafter, Mr. Juschka was in to see Mr. Brock on various occasions having to do with signing the annual corporate documentation. No further problems were mentioned.
[117] Next, in about 2007, the Juschkas came to Mr. Brock’s office indicating that Sobeys had indicated they could no longer pay the consulting fees to the Roths. He advised the two of them to go and sit down with Mr. Roth and discuss it all. His understanding was that Sobeys was driving the store into receivership, in part by having opened a superstore in Sarnia that was out pricing the other stores in the area, including that of the Juschkas. The Juschkas wanted Mr. Brock’s advice indicating they were in a lot of debt and their option was to either go bankrupt or Sobeys would take over some of the debt but the store would be sold to them in return. He advised them they had little choice given that they had personal guarantees on the outstanding debt. The Juschkas chose to sell to Sobeys and to enter into the new arrangement which still earned them a decent salary. Mr. Brock testified that he advised them that they should sit down with the Roths and explain that on a sale of the business there were no profits to the business, and accordingly there were no consulting payments to be paid.
[118] Mr. Brock offered to write a letter to the Roths explaining the situation, and drafted the letter while the Juschkas were present, but then received instructions not to send the letter and so he did not.
[119] On cross-examination, Mr. Brock agreed that Mr. Roth thought his shares were worth more than the $408,000.00, and for that matter so did Mr. Brock given the income the grocery store was producing together with the benefits being paid for all four people. He went on to indicate however that the value placed on the shares was not that important as long as it was high enough to satisfy Revenue Canada of the arm’s length market value nature of the figure chosen, as it was going to be forgiven on death in any event.
[120] In cross-examination, Mr. Brock agreed that Mr. Juschka appeared to be very bright and it appeared to him that Mr. Roth and Mr. Juschka had discussed their affairs.
[121] He agreed that he knew both the Roths and the Juschkas, as one tends to do in small towns, but he indicated that none of the four were considered by him to be personal friends. They were acquaintances and clients. He agreed that Mr. Roth was the one who would tend to just drop into the office to chat more often than the others.
[122] On cross-examination, Mr. Brock testified that Harold Roth considered Roy Juschka to be his best friend and so indicated that to Mr. Brock. Mr. Roth indicated that he had mentored Mr. Juschka into the business, and that the two were very comfortable with each other. Mr. Brock never saw any disagreements or arguments between the two or heard about any. He never heard either man say anything disparaging about the other.
[123] In cross-examination, Mr. Hendrikx had Mr. Brock repeat that at the initial meeting with Mr. Roth, Mr. O’Rourke, and Mr. Perry that Mr. Juschka had arrived a little late and stood at the back but was there during the discussion of their being a promissory note in payment for the shares, and that it was to be forgiven in Mr. Roth’s will. They were concerned at the time, and discussed, the prospect of a new budget coming in which would do away with the capital gains exemption. He asked Mr. Juschka if he wanted a chair during the meeting, and remembers engaging Mr. Juschka in the conversation to see if he had any problems or if he had any issues with the proposal. Mr. Juschka was content and Mr. Brock could think of no reason why he would not be, given that he was getting 51% of the shares in the business without having to worry about any interference from other family members, and he was getting the 51% of the shares as a gift, in the sense of not having to pay for them, upon the death of the Roths. It was at the February 1992 meeting where Roy was in attendance during the discussion of the new arrangement. It was discussed that the intention was for Harold Roth to maintain his income flow while he was alive, and to accomplish a transfer of the shares to Cynthia and her husband free from any interference from other family members such as could ensue if the shares were left by Will as part of the estate. It was also discussed that the amount to be paid under the consulting agreements would be stepped down over time. It was discussed that the Juschkas would benefit in terms of having any growth in the value of the business for their own benefit given that they owned all the shares.
[124] As Mr. Brock indicated in cross-examination, if the 1992 arrangement had not come into being, Mr. Roth would have continued to own 51% of the shares of the holding company, and be entitled to 51% of the income for all of his life and still on death would own, through his estate, 51% of the shares. He testified that neither side contemplated the company becoming less profitable, but if it did it was covered by the agreement because the profits would be less and hence the Roths’ consulting fees would decrease accordingly.
[125] On cross-examination, he verified that he had pointed out to the Juschkas specifically that there was a risk that the Roths could call the note, rather than forgiving it in their will. He pointed out that there was a risk that Mr. Roth could change his will and not forgive the note but neither of the Roths were worried about that potential.
[126] Mr. Brock testified he was not privy to the amounts that had been paid to the parties. He knew the formula for payment but he was not privy to the financial statements. In his opinion, the Roths and the Juschkas ought to have been able to solve this problem because to him it was clear that the problems they were having in the store in the latter years were not foreseeable. No one foresaw that Knechtel would be taken over by Sobeys or that Sobeys would build a competing store and squeeze this and other stores by under pricing them on goods.
[127] Mr. Brock agreed in cross-examination that the note was never meant to be paid unless the business was sold or unless the Juschkas’ marriage went bad. He swore that there was never any discussion that the consulting fees would only be paid until such time as the note had been retired by virtue of those payments, as now claimed at trial by the Juschkas.
[128] During Mr. Brock’s cross-examination, Exhibit 31 was introduced. It is a compilation of several drafts of the agreements that were eventually signed and are contained in Exhibit 1, Tab B, C, D and E. Several items in these drafts is different from those contained in the signed versions. One version, found at page 382 of the numbering system used, suggested the concept of profits being paid towards retirement of the note. The payments were to be in the form of dividends. That was an early idea Mr. Brock had, he testified, but the clients did not accept that idea. He testified that this concept was one discussed back in February of 1992, but never survived past discussions at that time. Importantly, while it is suggested that this early draft was the foundation for the Juschkas’ belief that a share of profits was to be paid to the Roths only as a means of paying off the note, and for as long as it took to pay off the note, importantly these draft documents were never put to either Roy or Cynthia Juschka when they testified. Accordingly, while that’s the inference advanced, that this draft was the foundation for the Juschkas’ belief, it suffers from the problem that it was never put to the Juschkas and accordingly the principal in Browne v. Dunn comes into play. Mr. Brock’s evidence was that while he included that idea in an early draft agreement, it was never even discussed at a meeting because the clients rejected it.
[129] Mr. Brock confirmed on cross-examination that he had each of these signatories read the four documents signed in September of 1992 and that he reviewed each of those documents, on a clause by clause basis with everyone at the time of signing. He admitted that on examination for discovery he had thought that he had a signing meeting with the Roths separate from the Juschkas, but at trial he could no longer be sure and was not prepared to differ from the evidence of the others that everyone was there together.
[130] His evidence is that Marlene Roth was present when it was discussed along with all the others that the note was to be forgiven and Mr. Brock testified that he reminded both her and Mr. Roth of that when he met with them in 2002. He testified that Mrs. Roth had come in to sign her new Will in 1992 at the same time that Mr. Roth came in to sign his.
[131] The Certificate of Appointment of Estate Trustee with a Will, marked as Exhibit 1A, has attached a copy of Mr. Roth’s Will dated June 7, 2006, which does indeed forgive the note providing that Mrs. Roth predeceased him.
[132] Mr. Brock confirms that he did not advise any of them to get independent legal advice as he did not feel there was any conflict between them as all were in agreement, and the agreement was beneficial to all. He swore that there is no doubt in his mind that all four of them knew exactly what they were agreeing to in signing the documents founds in Exhibit 1.
[133] Mr. Brock admitted that at the 1992 signing meeting he did not tell the Roths to document the condition that the note would be forgiven on death, but he prepared new wills for the Roths which accomplished this, and noted that in his notes. He did not recommend to the Juschkas a separate collateral agreement documenting the promise to forgive the note because if Revenue Canada became aware of any such document the intent to minimize taxes to Mr. Roth would be defeated as the share sale would no longer be at fair market value.
[134] Mr. Brock’s evidence is that the first time the Juschkas ever told him that they felt they had paid the note off, by virtue of the consulting fees, was when they came to see him in 2007.
[135] In my assessment, Mr. Brock gave his evidence in a fair and straight forward fashion. He was not argumentative with counsel, nor did he appear defensive when asked about potentially harmful areas. When he could not be sure, he said so. In my opinion his evidence is consistent within itself, and with the documentation presented in this case. I accept his evidence.
Findings of Fact
[136] I find as a fact that Roy and Cynthia Juschka understood at the time the 1992 documentation was signed that the payments to Mr. & Mrs. Roth under their consulting agreements were independent of the Juschkas’ obligations on the promissory note. I reject the evidence of the Juschkas that they understood the consulting agreement payments were to be applied so as to retire the promissory note, and that the obligation to make payments on the consulting agreements was to cease when the net amounts paid equalled the amount owing on the note. In reaching those conclusions, I rely on the following factors:
(a) The wording of the documents found at Exhibit 1, Tabs B, C, D and E. In my opinion, the wording is clear and in no way suggests that the consulting agreement payments to the Roths are to be applied to retiring the promissory note.
(b) The Juschkas are intelligent and educated with experience in the business world. They read the documents, had the documents reviewed for them by Mr. Brock, and asked no questions. They agreed the documents as read by them and to them reflected their understanding of the arrangement that had been reached.
(c) I accept the evidence of Mr. Brock that there was no discussion of the concept that the consulting agreement payments would go towards retiring the note.
(d) While the Juschkas testified that by 1999 they felt they had paid enough payments to have paid off the note, common sense undermines this suggestion. On the defence evidence, by 1999 the payments to Mr. Roth totalled $712,626, and the payments to Mrs. Roth totalled $575,395, for a total of $1,288,021. Those amounts come from Exhibit 2. They are inclusive of tax. In my opinion the Juschkas had all the financial information and more than enough personal experience and business savvy to realize then that even allowing a generous discount for tax owing, the amounts that had been paid by 1999 so far exceeded the amount owing on the note and this undermines their contention.
(e) Even after 1999, the payments to the Roths continued for another eight years, although with the amounts being reduced towards the end of that period. This also demonstrates that the Juschkas understood that the consulting agreement payments were independent of the promissory note.
(f) The evidence indicates that in the same time period, 1999, the Juschkas had increasing debt obligations by reason of the expansion plans for the store. In my opinion, they developed the theory that the consulting agreement payments would go to retiring the note as a means of attempting to reduce the payments to the Roths and thereby free up more funding.
(g) Exhibit 8 is a page of proposals created by Roy Juschka and provided to the Roths. It proposed that payments continue in stipulated amounts and with certain terms. It was created in June 2001. If the Juschka’s believed the payments were to cease after the net amount of the payments sufficed to pay off the note, as they claimed, it would be inconsistent to then offer 2 years later to continue the payments according to amended proposed conditions.
(h) In her evidence Cythia Juschka testified that she and her husband assumed that the consulting agreement payments would apply so as to retire the promissory note( emphasis added).
(i) The document included in Ex. 31, suggested to be the source of the Juschka’s understanding, was not put to either of them when they testified. Pursuant to the principles of Browne v. Dunn, I reject the suggested inference that Mr. Brock’s early draft misled them.
[137] I find as a fact there was agreement and understanding between the Roths and the Juschkas that the promissory note was to be forgiven in the wills of both Mr. and Mrs. Roth in the sense that each will would provide that if the other spouse had predeceased the testator, the note would be forgiven. I rely on the following factors in support of that conclusion:
(a) I accept the evidence of Mr. Brock that this was discussed and accepted by all parties leading up to and at the September 1992 occasion when the documentation was signed.
(b) Both Mr. and Mrs. Juschka were inconsistent in the evidence they gave with respect to the forgiveness of the promissory note in the wills.
(c) Mr. Roth’s will as located in Exhibit 1, Tab A, contains the term.
(d) It makes sense that Mr. Roth would want the arrangements to be set up in this fashion as his intention was that the Juschkas would acquire the shares and hence control of the company without interference from other relatives as might ensue if the shares were left as part of his estate, and it also made sense that he wished a continuing source of income for both he and his wife, which income stream would cease if, as the Juschkas maintain, the payments went to retire the note and then ended.
[138] I find as a fact that Mr. Brock did in fact advise Mr. and Mrs. Juschka of the potential risk that Mr. and Mrs. Roth could change their mind and either refuse to sign a will forgiving the note on the death of the survivor, or could sign such a will but then change it later. I also find as a fact that in response the Juschkas simply laughed at the potential concern voiced to them by Mr. Brock. I accept his evidence in this regard, and I reject the evidence of the Juschkas. I remind myself that in 1992 all was amicable as between the Roths and the Juschkas. The Juschkas had been handed a very advantageous opportunity to get into the grocery store business, as they wished, and despite their lack of experience, had immediately become 49% shareholders and income participants. The 1992 arrangements were the idea of Mr. Roth and constituted a very advantageous development for the Juschkas in that they were going to become 100% owners, without cost as the note would be forgiven on death, and the income stream to the Roths in the form of consulting agreement payments were lower in amount than Mr. Roth had been receiving and was entitled to continue to receive indefinitely had he not formulated this plan. In light of these factors, it makes sense that at the time the Juschkas would have no concern in accepting that Mr. Roth, who was being so generous to them, would keep his word in 1999.
Defences Advanced in the Main Action
[139] It is submitted on behalf of the defendants that an interpretation of the 1992 agreements in a manner other than that proposed by the defendants would result in a commercial absurdity and would lead to an unconscionable result.
[140] Basically the argument is that the Roths received over the years an inordinate amount of money and that it is unconscionable as towards the Juschkas because they are the ones who ran the grocery store since before the 1992 agreements. As I see the situation, this entire situation was financially very favourable to both families, and perhaps in particular to the Juschkas. It is common ground that it was Mr. Roth who had the expertise in the business, who knew of the potential for the Corunna store, and that it was he who was able to come up with the idea of purchasing it and then offer to the Juschkas the opportunity to become involved. All the evidence is that everyone was happy with the original 51% - 49% division of profits, and very shortly thereafter, division of shareholdings on the same basis. Mr. Roth was under no obligation to change the arrangement as he proposed and was done in 1992. He could have and was entitled to simply carry on with his 51% of the share ownership, for the rest of his life, and then to pass the majority shareholding interest on to whomever he wished in accordance with his will. He would have remained the majority shareholder throughout his life and as such would be entitled to the larger share of the earnings.
[141] While Mr. and Mrs. Roth derived income and dividends totalling some $1.7 million after the 1992 agreements, the Juschkas appear from Exhibit 18 to have received approximately $2.2 million for the same period. In addition, on the sale to Sobeys, it appears that the Juschkas benefited by the forgiveness of $1.5 million in debt. From the evidence available to me, it would appear that debt was incurred by Roth-Juschka Holdings Ltd. after 1992, and hence while the company was being run by the Juschkas. In addition, the evidence is that the holding company, when all was said and done, continued to own one or more unencumbered investment certificates in the total amount of $325,000. At least to this moment, they have yet to pay anything on the promissory note, although that will change as a result of this action. The evidence of everyone is to the effect that the sale of the grocery business was unforeseen, and had the sale not taken place they would never have had to pay on the note as I am satisfied it would have been forgiven in the Wills of both of the Roths. In all of these circumstances, in my opinion there is no merit to the argument that to interpret the 1992 agreements in a manner differently than that urged by the Juschkas leads to a commercially absurd result.
[142] The opposite might well be true. The Juschkas’ interpretation of the 1992 agreements would suggest that the consulting agreement payments to Mr. and Mrs. Roth would satisfy the promissory note once those payments totalled $408,000 net of tax. On their interpretation, that would be the end of the payments, and hence the income stream to the Roths. In my opinion it would be absurd to suggest that Mr. Roth, the originator of the Corunna concept, the person with the expertise and knowledge, and most importantly the owner of 51% of the shares, which with the consent of all was producing 51% of the profits to him, would then give all this up for $408,000, when he was under absolutely no obligation or compulsion to do so.
[143] The defence relies upon the principle of non est factum. I believe my earlier findings of fact are enough to demonstrate that this principle is inapplicable in my judgment in this case. I have found that the Juschkas knew what the agreement was and were not mistaken. The Supreme Court of Canada has held in Marvco Colour Research Ltd. v. Harris, [1982] 2 S.C.R. 744 that the principle of non est factum is to be applied restrictively because of a need for certainty and security in commerce. I believe the documentation signed in 1992 is clear. The same case stands for the proposition that the principle of non est factum is restrictively applied because the party that was in a position to avoid the loss is the one that should bear the loss rather than the innocent party. Here, I find that the Juschkas were given every opportunity to question the documents, receive the documents in advance, had the documents reviewed in detail with them, were asked whether they had any questions or concerns and raised no concerns. If there was any lack of understanding on their part, which I find there was not, it ought to have been raised at the time and is the result of their own lack of diligence.
[144] On behalf of the defendants, it is submitted that I have the jurisdiction to intervene where it would be unconscionable to deny the defendants’ relief from the contractual obligations. In answer to this, I would simply repeat my observations with respect to the “commercial absurdity” submission.
[145] The defendants also submit by way of counterclaim that they are entitled to rectification of the transaction so as to reflect their understanding. I have already found as a fact that they did understand the agreements signed in 1992 and accordingly there is nothing to rectify. The submission seems to rest in part on the contention that the consulting agreement payments ought not to be allowed to continue for the lifetime of the Roths. In my opinion, the 1992 agreements do not require rectification in this sense. The consulting agreements call for payments based upon a calculation of the profits and the application of a formula to those profits. Once the company was sold and the business was carried on by a new different numbered company, there were no profits to Roth-Juschka Holdings Limited. As that company had no profits from the grocery business, application of the formula contained in the consulting agreements results in no payment owing.
[146] The next defence relied upon is under the Limitations Act. It is submitted that as no interest was ever paid on the promissory note, the purchase agreement was breached as of May 1, 1993 whereas the action was not commenced until January 20, 2009. I reject this argument as interest on the note can be reduced at the holder’s discretion. Also the note says otherwise, that interest is calculated annually, but it does not require it to be paid annually. In my opinion, the commencement period for the action on the note started in July 2007 when the business was sold to Sobeys and thereafter carried on under a new holding company. Accordingly, in my opinion, the action on the note is not statute-barred. Were it not for the sale of the business, the note was otherwise not due until April 30, 2032.
[147] It is also submitted that the consulting agreements were breached in 2002 because the Juschkas unilaterally ceased to apply the percentage of profit calculation as called for in the consulting agreements. I don’t know whether that is true based on the evidence available to me. I know the amount of the payments were reduced. What I do not have are any financial statements for the company and hence I am unable to apply the formula myself to see what the quantum of the payments ought to have been. I have evidence from the Juschkas indicating that the profitability of the company was adversely affected by the more restrictive policies applied to the company by Sobeys, and by the competition from the opening of another store, and by under pricing policies utilized by Sobeys at a relatively nearby store in Sarnia. The consulting agreements also call for in effect a reduction of $12,500 in what would otherwise be payable to each of the Roths for the period commencing February 11, 1996, and then provides for a further reduction in the amount of $25,000 to each of the Roths for the period commencing February 11, 2001. On the evidence I have, or the lack of evidence, I can’t calculate what the payments ought to have been.
[148] There is evidence that the Roths were not happy with the reduction in the size of the payments to them, and I have evidence that the Juschkas felt they had to reduce the payments because of the financial restrictions they were facing. I just can’t calculate what the amount ought to have been without evidence of the profits of the holding company.
[149] What is clear is that the Roth-Juschka Holdings Ltd. ceased to have any profit from the grocery business as of July 2007 because from that point on the grocery business was run by the new numbered company. As the action was started within two years of July 2007, any claim Mrs. Roth may have to further payments under the consulting agreement are not statute-barred.
Results in the Main Action
[150] The plaintiffs shall have judgement on the promissory note in the amount of $ 4008.00. The note became due when the grocery business was sold in July 2007 and was thereafter conducted by the newly incorporated numbered company 1714714 Ontario Ltd.
[151] At trial the plaintiffs abandoned the claim for interest on the prime lending rate of the Royal Bank of Canada as set out in paragraph 1(b) of the Statement of Claim and instead requested prejudgement interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. C-43. The plaintiffs shall have judgement for prejudgement interest from July 2007 on the sum of $4008.00 in accordance with sections 127 and 128 of that act.
[152] As I have found that the sale of the business triggered payment on the note, consistency requires that I recognize that the payments made to Mr. and Mrs. Roth after that sale ought not to have been paid. Such payments were made for August, September, October and November, 2007. That 4 month period equates to 1/3 of the annual payment of $ 20,000 amounting to $6,667 for each of them, for a total of $ 13,334. As that amount was already paid, the amounts due under paragraphs 150 and 151 shall be reduced by this amount.
[152] The claim for $ 3804.00 in favour of the Estate of Harold Roth is dismissed. This claim
Is based on the argument that the Roths entered into a contract with the defendants to
be paid $ 20,000 per annum by way of salary instead of receiving a percentage of profits. The
sum of $3804. is apparently the pro rata amount owing for the partial year from the last payment
to Mr. Roth to the date of his death. The plaintiffs argue that by accepting the reduced payments
in 2001-2, the new contract was formed. I reject that argument as it is clear that the Roths never
agreed to this---they just didn’t sue or take any other action. In these circumstances
acquiescence does not equate to acceptance. Also as explained above, I have no financial
information for the holding company such as would be needed to calculate whether the
$20,000 figure is a new figure pulled out of the air, or is a calculation under the contractual
formula. In addition the amounts paid in some years were not $20,000. The sale of the
business in July 2007 resulted in the Roth-Juschka Holdings Ltd. Having no profits from the
grocery business and accordingly when the contractual formula is applied, no payments were
owing on the consulting agreement after the sale.
[153] The claim on behalf of Mrs. Roth for $ 111,666.66 representing payments at the rate of
$ 20,000 per annum for 5 years and 7 months (November 2007 to trial) as ongoing consulting
agreement payments based on an alleged new contract of $20,000 per annum in place of the
percentage of profit formula is dismissed, for the same reasons as expressed in the above
paragraph.
[154] The claim for a declaration that Mrs. Roth is entitled to ongoing payments under her
consulting agreement at the rate of $ 20,000 for the rest of her life is dismissed for the reasons
indicated in paragraph 152.
The Third Party Claim
[155] The defendants allege that Mr. Brock acted in a position of conflict of interest and breached his fiduciary duty in acting for everyone during the 1992 agreements. The defendants rely on the Court of Appeal decision in Waxman v. Waxman, 2004 39040 (ON CA), [2004] O.J. No. 1765. In that case, at paragraph 646, the Court of Appeal is certainly critical of the actions of counsel there. However, in the preceding paragraphs the Court of Appeal upheld the findings of fact made by the trial judge to the effect that Morris Waxman did not know he was selling his shares during the period of time where the lawyer acted for both brothers. Accordingly, it is factually a much different case than the case before me, at least on my interpretation of the evidence. As I have already indicated, I am satisfied and find that all four principals understood the agreement that was being put in place and the documentation signed to give effect to that agreement. I find that all parties were, at the time, in a very amicable relationship and there were no conflicting positions between any of them.
[156] It is undoubtedly true that it is dangerous for a lawyer to act for both sides because there is always a potential for problems to arise. I have to look, however, at what the situation was in 1992 and what the prospect was for a “collision of interests”. In my assessment, there was not much potential for a problem developing, and further, no problem did develop, except that created by the Juschkas when they decided to try and renege on the agreement I found them to have made and understood.
[157] It is argued that Mr. Brock was required to ensure that the defendants understood “the full nature and effect of the transaction and were sensitive to the risks”. I find that Mr. Brock did so. I also reject the contention that Mr. Brock had no regard for the interests of the defendants in acting for everyone. As I have already indicated, in my opinion, the defendants were well served by the agreement in 1992.
[158] The appropriate standard is that of “reasonable care, skill and knowledge” expected of the lawyer who undertakes this type of work. In my opinion, the actions of Mr. Brock in this transaction reflected compliance with that standard.
[159] The decision in Upper Valley Dodge Chrysler Ltd. v. Cronier Estate, [2004] O.J. No. 2260, as affirmed by the Court of Appeal at 2005 44165 (ON CA), [2005] O.J. No. 5097 has some application to the circumstances of this case. There, the trial judge, on a relatively simple loan transaction found that in a small town, in 1988, it was not uncommon for lawyers to act for both sides of a transaction that was not complex. On the evidence, the trial judge also found that on a balance of probabilities the borrower would have gone through with the loan even if there had been independent legal advice. The Court of Appeal upheld the decision and also noted that the two parties had agreed on the terms of the transaction before going to the lawyer and the lawyer’s role was essentially to document an agreement. That is true here, to a degree, in that the 51% - 49% division of ownership and profits was agreed upon ahead of time by the parties here. The Court of Appeal also upheld the trial judge’s finding that even if the borrower had had independent legal advice she would likely still have signed the mortgage. I am satisfied in this case that the Juschkas would have signed the documentation in 1992 whether they had gone to another lawyer or not. They clearly were anxious to take advantage of the opportunity being afforded them by Mr. Roth.
[160] I think it relevant to ask what other advice could another lawyer have given to the Juschkas in 1992, at the time of signing the documents, that was not given to them. I can’t think of any. While the risk that forgiveness of the note would not be put in the wills, or would be put in but the wills could later be changed, was not put in writing, I have found as a fact that that risk was explained to the Juschkas. Regardless, that potential risk has caused no loss to the Juschkas here in that such a term was contained in Mr. Roth’s Will. More importantly, the surviving spouse, Mrs. Roth, will never have the ability to forgive the note or otherwise as in my analysis payment on the note was triggered by the sale of the business in 2007.
[161] The provisions of the note are straightforward. The term that a sale of the business would trigger payment of the note was an obvious term. As held in Michiels v. Kinnear, [2011] O.J. No. 2803, a claimant must prove that any negligent conduct or breach of duty by a solicitor caused the damages suffered. Here, the loss to the Juschkas is the $408,000, plus interest. They did not become liable for that amount because of any action on the part of Mr. Brock, or any failure on his part. They knew that’s what they were agreeing to. It’s not Mr. Brock’s fault that the grocery business ran up substantial debts and became so financially hampered that the defendants decided to sell to Sobeys in return for the forgiveness of a large amount of debt and that the grocery store was there after run under a separate new numbered company. The only advice a different lawyer could have provided to the Juschkas with respect to potential liability on the note, based on my findings of fact, is if that lawyer had advised them not to sign the note if you don’t want to risk having to make payment on it. That advice clearly would not have been heeded by the Juschkas, nor would it have been in their interests to do so.
[162] The expert evidence I have is that not every transaction requires independent legal advice. It depends on the facts of the particular case, and whether there is likely to be a “collision of interests”. Mr. Brock felt there was no such concern. On the evidence I have, I share his assessment, as of the time the documents were signed in September 1992. That is the time period that is germane, not some 21 years later during which time some of the parties have changed their mind.
[163] It may have been unwise to have acted for everyone, but in the circumstances as they existed at the time I am of the opinion that Mr. Brock did not fall below the required standard.
[164] Furthermore, in my opinion the defendants have not shown any damages attributable to any shortcoming in Mr. Brock’s discharge of his professional obligations.
[165] For the reasons, the Third Party claim is dismissed.
Costs
[166] Written submissions on costs may be submitted to my attention, Judges Chambers, Court House, 85 Frederick Street, 7th Floor, Kitchener, Ontario, N2H 0A7. Submissions should not exceed 10 typewritten pages exclusive of bills of costs and any relevant authorities. The submissions on behalf of the plaintiffs and on behalf of the third party should be received within 30 days of the release of these reasons (or any extension sought and granted), and the submission on behalf of the defendants on both the main action and on the third party claim should be received within 30 days thereafter. If no submissions are received within these time lines (or such extensions as may be requested and granted) the parties will be deemed to have settled the issue of costs and no costs will be ordered.
C. Stephen Glithero J.
Released: July 15, 2013
COURT FILE NO.: C-62-09
COURT FILE NO.: C-62A-09
DATE: 2013-07-15
ONTARIO
SUPERIOR COURT OF JUSTICE
Marlene Florence Roth, Estate Trustee of the Estate of Harold Peter Roth, Deceased, and Marlene Roth
– and –
Roy Juschka, Cynthia Juschka and Roth-Juschka Holdings Ltd.
– and –
Allan D. Brock
REASONS FOR JUDGMENT
C.S. Glithero J.
Released: July 15, 2013