COURT FILE AND PARTIES
COURT FILE NO.: CV-12-9879-00CL
DATE: 20131010
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
BETWEEN:
ALLAN GUTTMAN, JON SCHACHTER, LEAPINGCROFT ENTERPRISES INC. and SCHACHTER AND ASSOCIATES INC.
Applicants
– and –
WILLIAM E. DUBÉ JR. and TALKING ROCK HOLDINGS LTD.
Respondents
Daniel F. Chitiz and Erica Young, for the Applicants
Rahul Shastri and David Winer, for the Respondents
HEARD: October 7, 2013
Newbould J.
[1] The parties are in dispute over a post-closing adjustment regarding obsolete inventory following the sale of a business from some of the applicants to the respondent Talking Rock Holdings Ltd., owned by the respondent William Dubé. The applicants say there should be no adjustment, as the time for asserting the adjustment has expired under the agreement of sale. The respondents say there should be an adjustment.
[2] For the reasons that follow, I accept the position of the applicants and the draft final closing statements prepared by the applicants’ accountant should now be finalized by the accountants.
Relevant facts
[3] By agreement dated the 10th day of February, 2012 (the “Agreement”) the corporate applicants, Leapingcroft Enterprises Inc. (“Leapingcroft”) and Schachter and Associates Inc. (“Schachter”), sold their shares in Matrix Technology Ltd. (“Matrix”) to the corporate respondent, Talking Rock Holdings Ltd. (“Talking Rock”) and the individual applicants, Allan Guttman and Jon Schachter, assigned loans owing to them by Matrix to Talking Rock.
[4] The purchase price was $3,500,000, subject to adjustment for (a) outstanding bank overdraft, and (b) any reduction in the retained earnings of Matrix below $420,429. Prior to closing, in an effort to leave exactly $420,429 of retained earnings in Matrix, Guttman caused approximately $110,000 to be paid out to the shareholders as a small repayment of the shareholders’ loans, which he believed to be permitted under the Agreement.
[5] The provisions in the Agreement regarding adjustments provided that the accountants for the applicants were to provide draft closing statements to the parties within 120 days after the closing and the parties were to comment within 15 days of receiving them. The accountants for both sides were to amend the draft closing statements to the extent they considered appropriate in light of the comments received, and if they could not agree, a third accountant was to be appointed to determine the final closing statement.
[6] More particularly, the Agreement provided:
- PURCHASE PRICE AND PAYMENT
(6) Draft Statements
Before issuing the Final Closing Statements in final form, the Matrix Accountants shall submit final drafts to the parties to this Agreement for consideration and comment, which shall be completed within 120 days after the Closing Date. The parties to this Agreement agree to comment promptly on the draft Final Closing Statements and, in any event, within 15 days of receiving them.
(7) Preparation of Final Closing Statements
The Accountants shall amend the draft Final Closing Statements to the extent they consider appropriate in light of the comments of the parties hereto. If the Accountants fail to reach agreement as to their reports on the draft Final Closing Statements, a third chartered accountant (who shall be selected by the Vendor’s Accountants and the Purchaser’s Accountants”) shall, with all reasonable dispatch, finally determine the Final Closing Statements. If Accountants are unable to agree as to the third chartered accountant, he or she shall be selected by lot from the two nominees proposed by the Accountants. In making his or her determination, the third chartered accountant shall act as an expert and not as an arbitrator. The resulting Final Closing Statements, including as finally determined by the third chartered accountant, are binding on the Matrix Shareholders and the Purchaser and all other interested Persons.
[7] SBLR were the “Matrix Accountants” in the Agreement. They had been the accountants for Matrix and the shareholders of Matrix for many years. Sacks Partnership were the accountants for the purchaser. They, together with SBLR were “the Accountants” in the Agreement. Mr. Shawn Rosenzweig of SBLR was the partner in charge for Matrix and Mr. David Reine of SBLR was the manager on the file reporting to Mr. Rosenzweig.
[8] SBLR, the Matrix accountants, prepared draft statements using financial information received from Mr. Andrew Quick, the financial/operations manager at Matrix. They provided the statements to Talking Rock and Mr. Dubé by email on May 10, 2012.
[9] Mr. Dubé did not involve his accountants Sacks partnership. On May 22, 2012, Mr. Rosenzweig and Mr. Reine met with Mr. Quick and Mr. Dubé to receive Mr. Dubé’s comments on the draft statements. There is a difference between the parties as to what was said at the meeting regarding obsolete inventory. A finding as to what was said at the meeting by Mr. Dubé is critical to this case. As will be seen, I prefer the evidence of Messrs. Rosenzweig and Reine to that of Mr. Dubé.
[10] Shortly after the meeting of May 22, 2012, Mr. Reine of SBLR e-mailed to Mr. Dubé draft financial statements that were the same as the earlier draft e-mailed to Mr. Dubé on May 10, 2012. The e-mail stated “As per our meeting earlier today…” and concluded “Please let me know if you have any questions on the above”.
[11] On June 13, 2012 Mr. Reine e-mailed Mr. Dubé saying he had not heard back from him and asked “Do you have any questions related to the draft statements or can I go ahead and finalize.”. On the same day Mr. Dubé replied that he did have comments and would reply shortly.
[12] On June 19, 2010, Mr. Guttman met Mr. Dubé for lunch. He had heard from Mr. Quick that Mr. Dubé had some issues regarding the repayment of shareholder loans and obsolete inventory. He raised this with Mr. Dubé and there was some discussion. On the following day on June 20, Mr. Dubé sent an e-mail to Mr. Reine, Mr. Guttman and Mr. Rosenzweig raising those issues and he enclosed schedules of what he said was obsolete inventory of around $670,000. On June 26, 2012, Mr. Guttman e-mailed his responses to Mr. Dubé asserting that there was nothing incorrect in the draft financial statements.
[13] There followed correspondence between Mr. Guttman and Mr. Dubé and then between the lawyers for each side.
[14] On July 29, 2012 Mr. Dubé e-mailed Mr. Rosenzweig saying Matrix would be moving forward with an inventory audit and he asked Mr. Rosenzweig for an engagement letter so he could retain Mr. Rosenzweig to do the audit. On July 30, 2012 Mr. Rosenzweig replied saying that as the accountants for the vendor, SBLR could not be viewed as an independent representative to resolve the dispute over the inventory valuation and that it would create a conflict of interest. He declined the request.
[15] On September 20, 2012 Mr. Dubé’s lawyers wrote to Mr. Guttman’s lawyers stating that pursuant to section 6(7) of the Agreement “our client’s accountants nominate” Linda Brent of Brent Valuations Inc. “to resolve the remaining issues as between our respective clients on the Closing Financial Statement”. On September 12, 2012 Mr. Guttman’s lawyers replied and took the position that Mr. Dubé and his company had no right to have a third accountant nominated.
[16] There are a number of issues, the first being what was said at the meeting of May 22, 2012 and what flows from that.
Meeting of May 22, 2012
[17] The meeting was attended by Mr. Rosenzweig and Mr. Reine of SBLR, Mr. Quick of Matrix whose information had been used to prepare the draft financial statements, and Mr. Dubé. No one appears to have made any notes of the meeting.
[18] Mr. Reine and Mr. Rosenzweig both testified that at the meeting, Mr. Dubé raised an issue of obsolete inventory, saying that there was a cost of around $4,000 regarding some obsolete inventory. Mr. Reine testified that Mr. Dubé said it was not an issue he wanted to press or would change the financial statement for. Mr. Rosenzweig testified that Mr. Dubé said that the amount was not material enough to make an adjustment.
[19] Mr. Dubé testified that he raised the $4000 inventory issue and that he told them he was reviewing the inventory and would get back to them. He said he did not know the extent of the inventory problem at the time. In his affidavit sworn November 8, 2012, Mr. Dubé said that at the meeting, he commented on two areas of concern which he asked SBLR to review, one relating to the $110,000 reduction in the shareholders loan and the other relating to the inventory figure in the draft closing statement of $2,126,904 which he said was “significantly overstated” because of obsolescence. He said that the $4,000 potential closing adjustment was not material and too small to pursue. On cross-examination at the hearing, Mr. Dubé acknowledged that he could not say that the overstatement of inventory was “significant” as he did not know by how much it was overstated at the time of the meeting of May 22, 2012.
[20] I do not accept Mr. Dubé’s evidence that he raised the issue of obsolete inventory other than the $4,000 issue. The context of the meeting is important.
[21] A letter of intent was signed by Mr. Guttman and Mr. Dubé on November 15, 2011. Before then, there had been lengthy discussions and a good deal of financial information had been provided to Mr. Dubé, enough to permit Mr. Dubé to have agreed on a purchase price in the letter of intent. The letter of intent provided for a period of 60 days for Mr. Dubé to undertake due diligence, which he did. The Agreement was signed on February 10, 2012. After the draft financial statements were sent to Mr. Dubé on May 10, 2012, Mr. Dubé on May 12, 2012 e-mailed Mr. Rosenzweig and said that the statements had to reflect a reduction of the shareholder loans on account of the retained earnings being lower than called for in the Agreement. No mention was made of any inventory concern. Two days later Mr. Rosenzweig e-mailed Mr. Dubé to say additional schedules to reflect the information he required would be provided shortly. On May 16, 2012 Mr. Reine e-mailed Mr. Dubé a draft of the purchase price allocation that broke down total shareholder balances, and said Mr. Dubé should let him know if he had any further questions. Nothing further was received from Mr. Dubé prior to the meeting of May 22, 2012.
[22] That is, at no time after all of the due diligence did Mr. Dubé raise any inkling of a concern about obsolete inventory before the meeting of May 22nd. If Mr. Dubé was of the view that there was a serious inventory obsolescence problem, he most likely would have raised it before the meeting. What he raised before the meeting was of far less significance, being an issue of some $66,000. When he was cross-examined on his affidavit prior to the hearing, Mr. Dubé said that before the meeting he did not make any reference to the inventory issue because he did not understand the magnitude of it and “whether it was or it wasn’t an issue”. If he did not understand if it was an issue, I cannot accept his evidence that at the meeting of May 22 he said that the inventory was “significantly overstated” because of obsolescence.
[23] Shortly after the meeting, Mr. Reine e-mailed to Mr. Dubé another set of draft financial statements “As per our meeting today” and said “please let me know if you have any questions on the above”. If Mr. Dubé had raised a concern about a substantial inventory obsolescence problem, it would have been likely that Mr. Reine would have said something about it in his e-mail. He did not. Mr. Reine e-mailed Mr. Dubé on June 13, 2012 and asked if he had any questions regarding the draft statements or could he go ahead and finalize them. Again, if Mr. Dubé had raised a concern about a substantial inventory obsolescence problem, it would have been likely that Mr. Reine would have said something about it in this e-mail. He did not.
[24] Both Mr. Reine and Mr. Rosenzweig denied on cross-examination that at the May 22 meeting Mr. Dubé raised any concern about with the value of the inventory on the financial statements. It was also put to Mr. Reine on cross-examination that Mr. Dubé had said at the meeting that he was having someone within Matrix review the inventory. Mr. Reine denied it. The only thing Mr. Reine and Mr. Rosenzweig testified was raised by Mr. Dubé about inventory was the small $4,000 issue which he said was not material and not to be pursued.
[25] Mr. Dubé e-mailed Mr. Reine and the others on June 20, 2012 saying he had identified obsolescent inventory of some $670,000. Mr. Reine said he was surprised to receive it because that had not been discussed at the May 22 meeting. Mr. Rosenzweig said he was shocked by it as it had not been raised at the May 22 meeting.
[26] I accept the evidence of Mr. Reine and Mr. Rosenzweig. It is consistent with the contemporary documentation and they were quite clear in their testimony. I find that Mr. Dubé did not raise any problem of obsolete inventory at the meeting of May 22, 2012 other than the $4,000 issue that he did not want to pursue. Nor did he do so after the meeting up to June 6, 2012 when the 15 day period for comments on the draft closing statements contained in paragraph 6(6) of the Agreement expired.
Appointment of third accountant
[27] Mr. Dubé and his company assert that a third accountant should be appointed under paragraph 6(7) of the Agreement, described in paragraph 3 of their factum as a dispute resolution provision. For ease of reference, the relevant parts of the provision are:
(6)… The parties to this Agreement agree to comment promptly on the draft Final Closing Statements and, in any event, within 15 days of receiving them.
(7) The Accountants shall amend the draft Final Closing Statements to the extent they consider appropriate in light of the comments of the parties hereto. If the Accountants fail to reach agreement as to their reports on the draft Final Closing Statements, a third chartered accountant (who shall be selected by the Vendor’s Accountants and the Purchaser’s Accountants”) shall, with all reasonable dispatch, finally determine the Final Closing Statements. If Accountants are unable to agree as to the third chartered accountant, he or she shall be selected by lot from the two nominees proposed by the Accountants.
[28] The comments referred to in the first sentence of paragraph 6(7) of the Agreement are the comments to be made within 15 days as provided in paragraph 6(6). The applicants say that as no such comments were made regarding obsolete inventory within 15 days, there was nothing for the “Accountants” (the accountants for both sides) to do and nothing for a third accountant to consider. I agree with the applicants. That is the effect of paragraphs 6(6) and (7) of the Agreement.
[29] Mr. Dubé in his affidavit says that there are two outstanding issues, one being the obsolete inventory issue and the other being an issue he did raise at the May 22 meeting. The second relates to his concern that prior to closing, there was a $110,000 reduction in the shareholder loan account. He raised this in the meeting and said that for the past five years, any payment to shareholders had been by way of a dividend rather than by repayment of a shareholder loan. He says that had the $110,000 repayment been “characterized” as a dividend instead of a repayment of a shareholder loan, the retained earnings of Matrix would have been reduced by that amount, which would have had an impact on the purchase price.
[30] At the meeting Mr. Rosenzweig and Mr. Reine explained to Mr. Dubé that the issue was not an accounting issue but a legal issue that would not affect the financial statement. Mr. Rosenzweig explained that in fact the shareholder loan had been reduced and so the financial statement had to reflect that. If there had been a dividend, there would have had to be the appropriate resolutions passed. Mr. Dubé testified that he told them at the meeting that they were wrong.
[31] It is unclear from the factum on behalf of Mr. Dubé if this point about the reduction of shareholder loans rather than a dividend being declared is being pursued. In my view, if the reduction of the shareholder loans was a breach of the Agreement, which Mr. Guttman denies, that would be something for Mr. Dubé to take up in another forum, whether under the arbitration clause or in the courts. I agree however with Mr. Rosenzweig that the financial statements must reflect what happened and not what Mr. Dubé would like to have happened. Mr. Dubé may have asserted that SBLR was wrong in its view, but what he should have done, and did not, was have his accountants the Sacks Partnership contact SBLR to see if the issue could be agreed.
[32] It is entirely possible that if the Sacks Partnership was contacted about this issue of the reduction of the shareholder loans, they would agree with SBLR. However, the respondents have refused to produce their correspondence with the Sack Partnership, one inference of which is that the correspondence would not have been helpful to the respondents.
[33] So far as wanting a third accountant to deal with this issue, it is entirely outside the purview of an accountant. It is a legal issue. No evidence has been filed on behalf of the respondents that it is not a legal issue. Paragraph 6(7) provides “In making his or her determination, the third chartered accountant shall act as an expert and not as an arbitrator”. An accountant is not an expert in legal matters. The position of Mr. Dubé is a claim calling for a hearing in the nature of a judicial inquiry requiring evidence and hearing the respective cases of the parties, which is not the purview of an expert or valuator but the purview of an arbitrator. See Pfeil v. Simcoe & Erie General Insurance Co. [1986] 2.W.W.R. 710 at para. 10; Sport Maska Inc. v. Zittrer, 1988 68 (SCC), [1988] 1 S.C.R. 564 at para. 61 and Cummings v. Solutia SDO Ltd. (2008), 2008 42017 (ON SC), 49 B.L.R. (4th) 307; aff’d (2009), 2009 ONCA 510, 59 B.L.R. (4th) 23 (O.C.A.).
[34] The applicants also say that the respondents never appointed the Sacks Partnership, their accountant under the Agreement and, together with SBLR, the “Accountants”. The Sacks Partnership never contacted anyone at SBLR at any time to discuss the draft final closing statement issued by SBLR. There was therefore never any disagreement between SBLR and the Sacks Partnership that would trigger the need for a third chartered accountant to be selected. Again, I agree with the applicants. That is the effect of paragraph 6(7) of the Agreement.
[35] Although it was not asked for in his factum, Mr. Shastri in argument said he was requesting an order that the two accountants be directed to now meet with each other to consider the outstanding issues. If they disagreed on an appropriate amendment to the draft final closing statement, a third accountant would then need to be chosen. This position is contrary to the position taken by Mr. Shastri in his letter of September 20, 2012 in which he said that his “client’s accountant” nominated Linda Brent under paragraph 6(7) of the Agreement to resolve the issues. He asserted that SBLR was at fault for not contacting the Sacks Partnership to meet with them.
[36] I have difficulty with this argument. There was no reason for SBLR to contact the Sacks Partnership, as no comment on the obsolete inventory was made within the 15 day period. In any event, it was up to Mr. Dubé to engage his accountants if he thought that something was to be done, and to have them contact SBLR. In late July, Mr. Dubé tried unsuccessfully to retain SBLR to do an audit on the inventory. When, if ever, Mr. Dubé retained the Sacks Partnership is quite unclear. On his cross-examination on his affidavit, Mr. Dubé said he spoke to someone at the Sacks Partnership sometime in June, July or August, exactly when he could not remember. A request to produce correspondence between Mr. Dubé and the Sacks Partnership was taken under advisement and later refused.
[37] Paragraph 6(7) provides that the two accountants “shall, with all reasonable dispatch” finally determine the Final Closing Statements. It is clear from the short 15 day period to make comments and the direction for the two accountants to act with all reasonable dispatch, that the parties intended that the process in settling any adjustments was to take place expeditiously. To now order the two accountants to get together is hardly what the agreement contemplated. Even if all of the pre-conditions for the application of paragraph 6(7) were applicable, which they were not, I would not make an order at this late date that the two accountants are to get together.
Waiver
[38] The respondents contend that if there was a failure to make comments on the draft financial statements within the 15 day period provided for in paragraph 6(6) of the Agreement, there was a waiver of that time limit by the applicants. They rely on an e-mail of Mr. Reine of June 13, 2013 asking Mr. Dubé if he had any questions related to the draft statements or could Mr. Reine go ahead and finalize them and an e-mail of Mr. Guttman of June 26, 2013 explaining his position to Mr. Dubé.
[39] In Saskatchewan River Bungalows Ltd v Maritime Life Insurance Co, 1994 100 (SCC), [1994] 2 SCR 490, Major described the concept of waiver and the test for it as follows:
19 Waiver occurs where one party to a contract or to proceedings takes steps which amount to foregoing reliance on some known right or defect in the performance of the other party: Mitchell and Jewell Ltd. v. Canadian Pacific Express Co., 1974 ALTASCAD 18, [1974] 3 W.W.R. 259 (Alta. S.C.A.D.); Marchischuk v. Dominion Industrial Supplies Ltd., 1991 59 (SCC), [1991] 2 S.C.R. 61 (waiver of a limitation period). The elements of waiver were described in Federal Business Development Bank v. Steinbock Development Corp. (1983), 42 A.R. 231 (C.A.), cited by both parties to the present appeal (Laycraft J.A. for the court, at p. 236):
The essentials of waiver are thus full knowledge of the deficiency which might be relied upon and the unequivocal intention to relinquish the right to rely on it. That intention may be expressed in a formal legal document, it may be expressed in some informal fashion or it may be inferred from conduct. In whatever fashion the intention to relinquish the right is communicated, however, the conscious intention to do so is what must be ascertained.
20 Waiver will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of rights; and (2) an unequivocal and conscious intention to abandon them. The creation of such a stringent test is justified since no consideration moves from the party in whose favour a waiver operates. An overly broad interpretation of waiver would undermine the requirement of contractual consideration.
[40] Mr. Reine is not a party to the Agreement and no step taken by him could be considered to be a waiver by the applicants unless it was authorized by the applicants. There is no evidence that at the time the applicants authorized or knew of Mr. Reine’s e-mail of June 13, 2012. In any event, asking if Mr. Dubé had comments on the draft statements and asking if he could go ahead and finalize the statements was not any waiver of the 15 day period. It was really a courtesy of following up on the meeting of May 22, 2012 and Mr. Reine’s e-mail of that date to Mr. Dubé. In any event, Mr. Reine did not know of any concern of Mr. Dubé that had not been resolved at the May 22 meeting and he could have had no intention to waive a time limit for something of which he was not aware.
[41] Regarding Mr. Guttman’s e-mail of June of June 26, 2012 to Mr. Dubé explaining his position, that e-mail simply gave Mr. Guttman’s views on the two issues raised by Mr. Dubé in his e-mail to Mr. Guttman and others on June 20, 2012, including the obsolete inventory issue raised by Mr. Dubé for the first time. He did not ask Mr. Dubé for anything or take any position on the terms of the Agreement, nor was anything in the e-mail inconsistent with the 15 day requirement suggesting in any way a waiver of it. Explaining a position is not any waiver of legal rights.
[42] In his evidence, Mr. Guttman acknowledged that he was aware of the 15 day time limit when he wrote his e-mail of June 26, and said that he thought that it was better to deal with it as he did rather than simply say Mr. Dubé was out of time. But he also said he never discussed any waiver of rights with Mr. Dubé. As stated by Laycraft J.A. and quoted by Major J. in Saskatchewan River Bungalows, the intention to waive must be communicated. In this case it is clear that an intention to waive was not in any way, either expressly or impliedly, communicated to Mr. Dubé, who testified that he did not understand that Mr. Guttman was waiving any legal rights.
[43] I find that there was no waiver by the applicants of the 15 day time period in paragraph 6(6) of the Agreement for raising the issue of obsolete inventory that is now being pursued by the respondents.
Relief from forfeiture
[44] The respondents assert that if they did not comply with the requirement to make comments within 15 days as required by paragraph 6(6) of the Agreement, they should be granted relief from forfeiture such that their right to pursue their claim should not be forfeited by reason of their failure to comply with the Agreement.
[45] Section 98 of the Courts of Justice Act provides that a court may grant relief against forfeitures on such terms as to compensation or otherwise as are considered just. The power to grant relief against forfeiture is an equitable remedy and is purely discretionary.
[46] In Saskatchewan River Bungalows, a case involving a failure to make an insurance premium within the time provided for in the policy, Major J. adopted as the factors to be considered in relief for forfeiture claims the factors considered by McKinlay J. (as she then was) in Liscumb v. Provenzano (1985), 1985 2051 (ON SC), 51 O.R. (2d) 129. He stated:
32 The power to grant relief against forfeiture is an equitable remedy and is purely discretionary. The factors to be considered by the Court in the exercise of its discretion are the conduct of the applicant, the gravity of the breaches, and the disparity between the value of the property forfeited and the damage caused by the breach: Shiloh Spinners Ltd. v. Harding, [1973] A.C. 691 (H.L.); Snell's Equity (29th ed. 1990), at pp. 541-42.
33 The Ontario High Court in Liscumb v. Provenzano (1985), 1985 2051 (ON SC), 51 O.R. (2d) 129, aff'd 1986 2595 (ON CA), 55 O.R. (2d) 404 (C.A.), relying on the Shiloh decision, summarized the governing principles as follows (at p. 137, per McKinlay J.)
I consider that the following are the appropriate questions to consider in determining whether there should be relief from forfeiture in this case: first, was the conduct of the plaintiff reasonable in the circumstances; second, was the object of the right of forfeiture essentially to secure the payment of money, and third, was there a substantial disparity between the value of the property forfeited and the damage caused the vendor by the breach?
[47] In my view, the respondents have not established grounds for relief from forfeiture.
[48] The first factor to consider is the conduct of the applicant and whether it was reasonable. In Ross v. The T. Eaton Co. Ltd. (1992), 1992 7470 (ON CA), 11 O.R. (3d) 115 (C.A.), a case involving the failure of a tenant to give notice of renewal of a lease in the manner prescribed in the lease, Morden J.A. in dealing with a request for relief for forfeiture stated that the jurisdiction to grant such relief is narrow and further that the tenant had to establish that it had tried to comply with the lease. He stated:
- … It appears to be clear that at least one condition necessary for the jurisdiction to be exercised in favour of a tenant who seeks to be relieved from the consequences of failure to comply with the requirements of the lease respecting the exercise of the option of renewal is that the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own.
[49] In Saskatchewan River Bungalows the issue raised by Morden J.A. did not arise because the premium payment had been made on time but it never arrived at the insurer’s office. Nor did it arise in Liscumb as it was the plaintiff’s estranged husband who was supposed to make the payment under the contract in question. In this case, the issue was not raised within 15 days by the very party required to do it, namely Mr. Dubé and his corporation Talking Rock. The respondents have thus failed to meet the test set by Morden J.A. that they tried to comply with the 15 day requirement of paragraph 6(6) of the Agreement.
[50] Moreover, their actions were not reasonable in that they failed to instruct their accountant the Sacks Partnership to meet with SBLR once Mr. Dubé later asserted his claim of obsolete inventory. Trying to retain SBLR to do an audit of the inventory was not reasonable. SBLR was obviously in a conflict, a fact that could not have escaped the notice of someone of Mr. Dubé’s abilities. On September 28, 2012, a little more than two months after Mr. Dubé’s letter of June 20 setting out his assertion of obsolete inventory, Mr. Shastri wrote to Mr. Chitiz saying that no attempt had been made by Mr. Guttman to have its accountants meet Mr. Dubé’s accountants to attempt to reconcile these matters, and that Mr. Dubé remained open to this process. I do not think it lies in the mouth of Mr. Dubé to complain that Mr. Guttman was at fault for not instructing his accountants to meet with Mr. Dubé’s accountants. That is putting the shoe on the wrong foot. Even at that late stage, Mr. Dubé was not saying he had instructed his accountants to look at the issue or to meet with SBLR, and there is no concrete evidence that he did.
[51] The second factor is the gravity of the breach. In this case, the 15 day period was there for a purpose. The parties wanted the issue of any post-closing adjustment to be dealt with quickly, including wanting the issue dealt with “all reasonable dispatch”. Mr. Dubé had had access to the books and records for many months and had conducted at least one due diligence exercise under the letter of intent preceding the Agreement. He had done enough work on the inventory to discover an issue worth only $4,000. In the scheme of things, what he failed to do by raising a far larger problem was relatively grave.
[52] The third factor is the damage caused by the breach (per Saskatchewan River Bungalows) or the disparity between the value of the property forfeited and the damage caused by the breach (per Liscumb). In this case the property forfeited was the right to claim an adjustment to the purchase price by reason of obsolete inventory. The damage is the value of the claim for an adjustment.
[53] In this case, there is no cogent evidence as to the value of the claim, i.e. whether the claim is valid and if so for how much. Mr. Dubé delivered to Mr. Guttman and SBLR ten pages of a schedule said to be of obsolete inventory, and said the total was approximately $670,000. Mr. Dubé in his affidavit says the schedule was prepared by Matrix. Mr. Guttman testified that he looked at the schedules but he had no criteria as to how the numbers had been derived and he saw that some numbers were absolutely incorrect. No accountant or anyone on behalf of the respondents testified as to validity of the schedules.
[54] Thus I am in no position to make any finding as to the validity of the claim, and the respondents have not established any value to it, i.e., they have not established any damage.
[55] In all of the circumstances I am not prepared to grant any relief from forfeiture.
Conclusion
[56] The application is granted and a judgment shall go ordering that SBLR LLP is permitted to finalize the draft Final Closing Statements attached as Schedule A to the notice of application.
[57] The applicants are entitled to their costs of this application. If costs are not agreed, the applicants may make brief written submissions along with a proper cost outline within 10 days and the respondents will have a further 10 days to make brief written reply submissions.
Newbould J.
Released: October 10, 2013
COURT FILE NO.: CV-12-9879-00CL
DATE: 20131010
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
BETWEEN:
ALLAN GUTTMAN, JON SCHACHTER, LEAPINGCROFT ENTERPRISES INC. and SCHACHTER AND ASSOCIATES INC.
Applicants
– and –
WILLIAM E. DUBÉ JR. and TALKING ROCK HOLDINGS LTD.
Respondents
REASONS FOR JUDGMENT
Newbould J.
Released: October 10, 2013