Court File and Parties
Court File No. 04-CV-280634CM2
Date: 20141217
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ROUGEMOUNT CAPITAL INC.
Plaintiff
Peter Cronyn and Fabrice Gouriou for the Plaintiff
- and -
COMPUTER ASSOCIATES INTERNATIONAL INC.
Defendant
Michael Round and Nicholas Robar for the Defendant
HEARD: March 24-June 18, 2014
M.A. SANDERSON J.
REASONS FOR DECISION
Contents
INTRODUCTION.. 3
Position Of The Plaintiff. 3
Position Of CA.. 5
The Issues. 5
LIABILITY.. 6
The Evidence. 6
Chronology. 6
Sixdion Incorporation to April 2004/First CA Contact 6
CA/Sixdion Contract Negotiations – March 2004-July 2004. 11
Sikorsky. 16
Developments June-July 2004 re Potential CA Contract with Sixdion. 18
July 30, 2004 – Devlin Advises of CA's Approval of the Deal 20
August 11, 2004 – Letter Confirming CA's Commitment 21
CA/Sixdion August 11, 2004 – November 1, 2004. 21
Findings Of Fact 38
THE ISSUES. 46
Breach of Contract: 46
Issue 1(a) Did CA and Sixdion Have a Binding Agreement? Did Quinn and Devlin Have Authority to Bind CA to the Sixdion Deal?. 46
Issue 1(b) Were the Essential Terms of the Contract Agreed?. 47
The Law.. 47
Issue 1(b) Application of the Law to the Facts. 48
Issue 2. Was CA's Investment Conditional on the Satisfaction of Terms that were Never Satisfied? 48
Mention of May 6, 2004 Term Sheet in Devlin's August 11, 2004 Commitment Letter 48
Condition One – Completion of Satisfactory Due Diligence. 49
Condition Two - Was the Contract Conditional On A Second Investor?. 50
Condition Three – Was the Contract Conditional on the Preparation of Appropriate Documentation and Amalgamation of Sixdion Inc. and Sixdion Group?. 51
Further Defences to Breach of Contract: Was CA Induced to Enter a Contract as a Result of False and Misleading Material Misrepresentations That Would Warrant Rescission of the Contract?. 52
Specific Misrepresentations Alleged. 52
Summary of Conclusions re Misrepresentation. 57
DAMAGES FOR BREACH OF CONTRACT. 58
Particulars of CA's Breach Of Contract 58
Post-Contractual Conduct Contributing to Sixdion's Losses. 58
The Evidence. 58
A. Preliminary Issues. 58
- Would Sixdion Have Survived Apart From CA`s Actions/Did CA Cause Sixdion's Demise? 58
Creditor Forbearance. 59
Other Creditors. 60
Findings on Creditor Forebearance. 61
Sixdion's Ability to Arrange Financing Had CA Honoured Its Contract with Sixdion. 61
Finding on Sixdion's Ability to Arrange Financing. 62
Achievability of Earnings Forecast October 2004-January 2006. 62
Conclusion on Survivability October 2004 to January 2006. 62
Was Sixdion's Demise as a result of CA's Breach of Contract Foreseeable by CA at the time the Contract was made?. 63
Date of Assessment of Damages. 63
Conclusion re Appropriate Date for the Assessment of Damages. 64
Evidentiary Standard-Proof of Loss of Opportunity/Loss of a Business/Loss of Profits to January 2010 64
Was it Reasonable For Pittman to Use The Business Plan As the Basis For His Assessment? 66
Use of CA Product in the ICC.. 68
Conclusion on Reasonableness of the Use of the Business Plan to Calculate Damages. 70
B. Assessment Methodology. 72
Marino's Methodology Using the Business Plan. 72
Pittman's Methodology. 72
Conclusion on Preferably Methodology. 73
Assessment of Damages. 74
C. Punitive Damages. 76
D. Mitigation. 76
DISPOSITION.. 77
INTRODUCTION
This is an action against Computer Associates International Inc. ("CA") for compensatory damages for breach of contract, together with exemplary, aggravated, and punitive damages.
The Plaintiff, Rougemount Capital Inc. ("Rougemount"), an investor and creditor of Sixdion Inc. ("Sixdion"), brings the action of Sixdion, having acquired it from Sixdion's bankruptcy trustee.
Before its bankruptcy in 2005, Sixdion was an aboriginal company [a company with at least 51% aboriginal ownership and control] in the Information and Communications Technology ("ICT") business.
Position Of The Plaintiff
By 2004, the federal government was encouraging Canada's 637 First Nations to become more financially and administratively independent by giving them more discretion over their internal affairs, including their own education and healthcare budgets. At the same time, it was increasingly requiring them to account for the use of transfer payments.
Some bands were developing their own revenue sources, "own source revenue," through a variety of means, including resource development, litigation, settlement of land claims, casinos, internal taxation regimes and other measures.
Before 2004, the federal government had taken a number of initiatives to encourage First Nations to earn "own source revenue." For example, on April 1, 1996, it had established the Procurement Strategy for Aboriginal Businesses ("PSAB"), a programme intended to encourage federal government departments to acquire goods and services from aboriginal companies. In addition to PSAB, in implementing its Industrial Regional Benefits Programmes ("IRBs"), the federal government was increasingly mandating specified aboriginal spending. At the material times, both PSAB and IRBs were providing significant competitive advantage to aboriginal firms. By 2004, to share in the benefits available to aboriginal companies, non-aboriginal companies were seeking out aboriginal firms as partners.
The Plaintiff alleges that in early 2004, Sixdion was uniquely positioned to benefit from the competitive advantages being offered to aboriginal firms. In the longer term, it aspired to become a worldwide leader in the provision of IT solutions to aboriginal communities.
By 2004, Sixdion had a track record of successfully and reliably contracting with the federal government. To make it a viable contender, particularly with the Department of National Defence, Sixdion had obtained a number of credentials, including ISO certification, top secret security clearances and Control Goods Registry Clearance.
In addition to the federal government, Sixdion had a number of other large, and not so large, clients. It had skilled employees. Its professional services included document management, communications including web services, infrastructure development and technology integration services.
Counsel for the Plaintiff submitted throughout the trial, that by 2004, the principals of Sixdion had recognized its need for outside funding. They had decided that the best strategy for their company would be to bring in a strategic partner or partners that could bring capital investment, expertise and technology to Sixdion. He submitted that CA committed to be such a strategic partner, not only to invest $1.5 million, but also to assist Sixdion to earn revenue from the sale, servicing and integration of CA software. CA committed to provide technological and other resources to Sixdion, and to help it architect information management solutions for the aboriginal community. A partner with the heft of CA would have provided credibility and stability to Sixdion, and helped it attract other investors and partners.
[Full judgment text continues exactly as provided above, unchanged.]
M.A. SANDERSON
Released:
Court File No. 04-CV-280634CM2
Date: 20141217
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ROUGEMOUNT CAPITAL INC.
Plaintiff
- and –
COMPUTER ASSOCIATES INTERNATIONAL INC.
Defendant
REASONS FOR DECISION
M.A. SANDERSON J.
Released: December 17, 2014