ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-09-391349

DATE: 20131009

BETWEEN:

PROLINK BROKER NETWORK INC.

Plaintiff/Defendant by Counterclaim

-and-

RAKESH (RICK) JAITLEY, MY INSURANCE BROKER CORP. and MY INSURANCE BROKER CANADA CORP.

Defendants

AND BETWEEN:

MY INSURANCE BROKER CORP.

Plaintiff by Counterclaim

-and-

PROLINK BROKER NETWORK INC.

Defendant by Counterclaim

Richard Quance, for the Plaintiff, Defendant by Counterclaim

Earl Altman, for the Defendants, Plaintiffs by Counterclaim

HEARD: October 3, 2013

goldstein j.

BACKGROUND

[1] On July 2, 2013 I released my reasons for judgment in this matter: Prolink Broker Network Inc. v. Jaitley, 2013 ONSC 4497, [2013] O.J. No. 3065. I granted judgment to the Plaintiff Prolink. I found that there had been a contract formed between Prolink and the Defendants, and that Prolink was entitled to damages. I asked counsel for further submissions on the issue of damages and encouraged them to settle on a quantum.

[2] On October 3, 2013 counsel attended and made very helpful submissions, advising me that they had resolved all but one of the outstanding damages issues. The only issue requiring resolution is the value of the shares of MIB as of the crystallization date. That issue in turn requires a determination of the meaning of fair market value as set out in the draft agreements.

ISSUE

[3] How is fair market value to be defined for the purpose of awarding damages?

ANALYSIS

[4] The standard Prolink partnership agreement was sent to Mr. Jaitley by Mr. Roberts on March 18, 2008. The clause relating to the value of the shares stated that a qualified business valuator would be retained at the cost of the purchasing shareholder in order to determine “fair market value”.

[5] In the draft agreement sent by Mr. Jaitley to Mr. Roberts on August 1, 2008 the language of the standard clause was modified to read as follows:

After the Startup Period, if the majority Shareholders wish to purchase the shares held by PBN or if PBN wishes to sell its shares to the majority shareholders, then it is agreed that a Two Times Annual Earnings represents Fair Market Value (FMV) which has been established mutually, should the parties decide to sell its shares with the understanding that a minimum of $2.5 million of premium volume will have been achieved by the corporation.

[6] It should be noted that Mr. Jaitley or his associate, Rita Lee, had sent earlier draft versions to Mr. Roberts with slightly different language, but the August 1, 2008 agreement was the one that Mr. Roberts agreed to.

[7] Mr. Quance, for Prolink, argues that the terms of the August 1, 2008 agreement (which were drafted by Mr. Jaitley) make it clear that “earnings” mean commissions earned, or gross earnings. He points to language in a revised version of the agreement sent by Mr. Jaitley to Mr. Roberts on March 19, 2009, when the parties were attempting to re-negotiate:

It is agreed that a Two Times Annual Earnings of Commissions earned on the Written Premium represents Fair Market Value so long as a minimum of $2.5 million dollars of Written Premium Production Volume has been achieved by the Corporation.

[8] Mr. Altman, for My Insurance Broker, argues that the term “earnings” must mean net earnings, rather than gross earnings, or commissions. He argues that it makes no sense for Fair Market Value to mean earnings without taking expenses into account. He argues that if Mr. Quance’s definition were to be accepted, it would mean that a company with $100,000 of commissions but $200,000 of expenses would have a fair market value of $100,000, whereas in reality the true value of the company would be negative.

[9] The parties agree that during the period at issue My Insurance Broker Corp. earned commissions totalling $178,666.67.

[10] If I accept Prolink’s submission then damages owing will be $89,333.35, based on the following calculation:

Commissions:

$178,666.67

Twice Commission:

$357,333.34

25%:

$89,333.35

[11] My Insurance Broker accepts the formula, but argues that net earnings for the period were actually $25,312.76 which means that the following calculation applies:

Total Earnings:

$25,312.76

Twice Commission:

$50,625.52

25%:

$12,656.38

[12] There is no definition of “earnings” or “fair market value” in any of the draft agreements.

[13] Black’s Law Dictionary defines “Fair Market Value” as:

The price that a seller is willing to accept and a buyer to pay on the open market and in an arm’s length transaction.

[14] There are innumerable cases in which fair market value is considered. There are few cases in which the concept or meaning of the term is considered. Many cases consider statutory or contractual definitions of the term. Those contractual definitions are generally consistent with the definition in Black’s Law Dictionary. For example, in Quorum Development Corp. v. MacKenzie M.E.F. Management Inc., 1996 635 (ON CA), [1996] O.J. No. 1512, 91 O.A.C. 46 (C.A.) Osborne J.A. considered a development agreement where the definition of “fair market value” was “the all cash price that an arms length purchaser would have paid therefor on such date.” See also Saputo Inc. v. Dare Holdings Ltd., 2012 ONSC 4981, [2012] O.J. No. 4104, 111 O.R. (3d) 733 (Sup.Ct.). In Barrick Gold Corp. v. Goldcorp Inc., 2011 ONSC 3725, [2012] O.J. No. 2927, 99 B.L.R. (4th) 1 (Sup.Ct.) one of the many issues before Wilton-Siegel J. was the valuation of shares of a copper mine in Chile. There had been an actual contractual price arrived at by the parties for the value of the shares based on the price of copper. The plaintiff argued that this amount represented the fair market value of the shares. The defendant, however, argued that the price agreed to did not actually represent fair market value because the price would have yielded a rate of return that was less than the cost of capital for the project. Wilton-Siegel J. stated:

[947] In other words, in BDO’s opinion, the outcome of the Xsastra Chile auction process was not a price that represented the fair market value of the Xastra Interest but a price that exceeded the fair market value. This conclusion is surprising given the traditional definition of fair market value.

[15] Since there is no definition of “fair market value” or “earnings in any of the agreements, it is necessary to reference other indicia. This case is complicated by the fact that the parties did not actually sign an agreement. That said, in my original judgment I found that the agreement dated August 1, 2008 (and agreed to by Mr. Roberts on August 4, 2008) was the one actually agreed to by the parties.

[16] In Fairview Donut Inc. v. The TDL Group Corp., 2012 ONSC 1252, [2012] O.J. No. 834 (Sup.Ct.) Strathy J. (as he then was) noted that:

448 Terms may be implied in a contract:

(a) based on custom or usage;

(b) as the legal incidents of a particular class or kind of contract; or

(c) based on the presumed intention of the parties:

where the implied term is necessary to give "business efficacy" to the contract; or

where the implied term otherwise meets the "officious bystander" test - that is, a term that the parties would say, if questioned, "of course" that would be understood to be a term of the contract.

[17] The Court must determine what the parties actually intended, and give effect to that intention, rather than the intentions of reasonable parties: Fairview Donut Inc., at para 459.

[18] There is no doubt that the customary meaning for “fair market value” is the one set out in Black’s Law Dictionary, that of a price agreed to on the open market by arms-length parties. Does that customary meaning reflect the intentions of the parties?

[19] In my view the traditional definition meets both the “business efficacy” test and the “officious bystander” test. There may well be situations where gross earnings, as opposed to net earnings, reflect fair market value but in this case the agreement of August 2008 speaks of fair market value being “established mutually”. It seems unlikely that the purchaser of the shares, in this case My Insurance Broker, would have agreed to pay two times earnings on gross commissions when the business was barely profitable. I find, therefore, that on the business efficacy test it makes sense that the definition of fair market value be the traditional one. The traditional definition also meets the officious bystander test simply by virtue of the fact that it is the one that most people would understand applies.

[20] I therefore find that the traditional definition of fair market value applies. Given that there was no serious dispute about the actual amounts put forward by the parties, I award damages of $12,656.38 plus pre-judgment interest to Prolink in relation to the value of the shares.

COSTS

[21] As noted, encourage the parties to settle on quantum. If they are unable to do so, they may submit brief (no more than two pages) submissions and a costs outline.

Goldstein J.

Released: October 9, 2013

COURT FILE NO.: CV-09-391349

DATE: 20131009

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

PROLINK BROKER NETWORK INC.

Plaintiff/Defendant by Counterclaim

-and-

RAKESH (RICK) JAITLEY, MY INSURANCE BROKER CORP. and MY INSURANCE BROKER CANADA CORP.

Defendants

AND BETWEEN:

MY INSURANCE BROKER CORP.

Plaintiff by Counterclaim

-and-

PROLINK BROKER NETWORK INC.

Defendant by Counterclaim

SUPPLEMENTARY REASONS FOR JUDGMENT

Goldstein J.