COURT FILE NO.: CV-09-385780
MOTION HEARD: 20160525
REASONS RELEASED: 20170120
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
DIANE HELEN HANSON AND BARBARA GAIL HANSON IN THEIR CAP A CITIES AS ADMINISTRATORS OF THE ESTATE OF GEORGE ERIC HANSON, DECEASED, OPERATING AS G. ERIC HANSON DESIGNS AND
G. ERIC HANSON ASSOCIATES LIMITED
Plaintiffs
- and-
BRENDA BENNIE, PAT CHERAK, AND GREG BAUM IN THEIR CAPACITIES AS EXECUTORS OF THE ESTATE OF ARTHUR GORDON STOLLERY, DECEASED, ANGUS GLEN HOLDINGS INC., ANGUS GLEN DEVELOPMENT LTD., AND ANGUS GLEN DEVELOPMENT (2003) LTD.
Defendants
BEFORE: MASTER D. E. SHORT
COUNSEL: Sara J. Erskine, Fax: (416) 869-3411 Garett Schromm,
- for moving Plaintiffs
Charles F. Scott Fax: (647) 793-9741 Jesse R. Harper Fax: (416) 364-7813
- for the Defendants,
REASONS RELEASED: January 20, 2017
Reasons for Decision
“When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master – – that’s all.”
Through the Looking Glass, Chapter 6
I. Overview
1This is an action relating to the proper meaning of the words “net profit share” in a letter agreement entered into in 2004 between two individuals, both of whom are now deceased.
2Two individuals were involved in land development over the course of their careers. Mr. Stollery owned the land and his family’s longtime business associate, Mr. Eric Hanson was responsible for significant elements of the development of those lands.
3Regrettably, both Mr. Hanson and Mr. Stollery are now dead. This action was commenced while Mr. Stollery was still alive but is now being conducted by their respective executors.
4This presents difficulties with respect to the nature of the evidence available to assist the court in deciding the various issues raised in this litigation.
5At this stage it is for this master to determine what materials ought to be produced, to enable the ultimate trier of this case, to establish the intended meaning of the parties.
6On my reading of the materials filed, I have determined, that based upon proportionality, further productions need to be made by the defendants. However, I do not believe that the full extent of production sought, is necessary at this stage, and so I have come to a decision which reflects divided success for both sides.
II. History
7In or about 1957, Arthur W. Stollery (the "late Mr. Stollery'') purchased farm land at the corner of Kennedy Road and Major Mackenzie Drive in the Town of Markham. This land was to be used to raise Black Aberdeen Angus cattle and champion thoroughbreds. At that time, the late Mr. Stollery named the property “Angus Glen Farm”.
8The background history preceding this litigation set out in the pleading, which it does not appear to be contested and may be helpful in appreciating the context surrounding the present issues between the parties.
9Subsequent to his initial purchase of the Angus Glen Farm in 1957, the late Mr. Stollery purchased additional farmland in and around the original Angus Glen Farm. Through these purchases, the Angus Glen Farm grew to 1800 acres.
10Sometime in the late 1980s or early 1990s, the late Mr. Stollery began to develop sections of the Angus Glen Farm into golf courses and residential subdivisions. The first golf course was completed in 1995, the year following the late Mr. Stollery's passing. It was named the “Angus Glen Golf Course”. This first golf course developed on the Angus Glen Fann property is today known as the “Angus Glen South Course”.
11In addition to the development of a golf course, prior to the late Mr. Stollery's passing in 1994, he also began the process of converting various parts of the Angus Glen Farm property that surrounded the Angus Glen South Course into a residential development. The first residential subdivision development is today known as the "Angus Glen East Village" or "East Village" (being located to the east of the Angus Glen South Course).
12The Statement of Claim asserts:
“[14] In 1994, the late Mr. Stollery approached Mr. Hanson regarding providing services to redesign the plan of design and development that then existed for the East Village to improve the development's profitability and land usage. Mr. Hanson had over 40 years of extensive experience and success in the engineering and planning consulting practice in the land development and residential housing industry, totalling over 5,000 homes in the greater Toronto area. This experience particularly focused on the design and development of residential developments surrounding golf courses (generally known as "golf and country estate" design), including the design of the central golf courses…”
13Throughout the relevant period, Mr. Hanson provided services personally and operating as G. Eric Hanson Designs, as well as through the Plaintiff G. Eric Hanson Associates Ltd. Mr. Hanson, G. Eric Hanson Designs, and G. Eric Hanson Associates Ltd. are collectively referred to as "GEH" in the Statement of Claim and these reasons.
III. The 1995 Agreement
14The Statement of Claim, addresses the first contractual agreement with respect to the Angus Glen project involving the parties:
15Although sought out by the late Mr. Stollery regarding redesign of the East Village, GEH only began to provide expertise and services to the East Village development after the late Mr. Stollery's passing. More particularly, subsequent to the late Mr. Stollery's passing in March 1994, his son, the Defendant, Arthur Gordon Stollery, met with Mr. Hanson and asked GEH to provide expertise to the East Village and the Angus Glen South Course and for Mr. Hanson to join Angus Glen Development Ltd. as its Chairman. Stollery was, and continues to be, a director, officer, and principal shareholder of Angus Glen Development Ltd., which, at the time, was the primary corporation involved in the development of the Angus Glen Farm property.
16In April 1995, GEH and Stollery came to an agreement whereby GEH would provide, amongst others services, engineering, planning, and design services to the East Village and Angus Glen South Course in exchange for 10% of the net profits resulting from GEH’s re-designs and designs plus $6,500 per month in expenses (the "1995 Agreement"). As part of the 1995 Agreement, Mr. Hanson took on the title of Chairman of Angus Glen Development Ltd.
15The Statement of Claim asserts that, pursuant to the agreement, Mr. Hanson presented redesigns to Gordon Stollery (“AGS”) which were implemented. The claim asserts that it as a result of the GEH designed and redesign plans for the East Village, “net revenue for the project was increased by an estimate of $38 million.” It is further asserted that at the time, AGS thanked Mr. Hanson for the profitability improvements.”
IV. The 1998 Agreement
16The claim asserts that in the spring of 1998, Stollery wanted to resolve the outstanding amount of GEH’s remuneration. More particularly, Stollery wanted to resolve the final calculation of GEH’s net profits interest on the East Village development. Mr. Stollery also wanted to negotiate a per diem consulting fee to retain GEH on an "as needed basis" in the future.
17The Claim continues:
23By an agreement reached on or about June 3 and 5, 1998 (the "1998 Agreement"), it was agreed by Stollery and Mr. Hanson that GEH' s outstanding remuneration and continuing involvement in the development of the Angus Glen Farm property were as follows:
a) GEH had a continued interest in the East Village and the Angus Glen South Course and was owed 7.5% net profit on the East Village development for services provided for the East Village and the Angus Glen South Course, up to and including June 1, 1998;
b) GEH was to continue to prepare designs for the West Village;
c) Stollery would put together a proposal for GEH's continuing services that would have GEH in a consulting role, operating from GEH's own office with a monthly retainer; and
d) GEH would be free to do other projects in addition to projects related to the development of the Angus Glen Farm property.
18Following the 1998 Agreement, Mr. Hanson continued to be Chairman of Angus Glen Development Ltd. and GEH continued to provide engineering, planning, design, and development services to the development of the Angus Glen Farm property. Apparently pursuant to the 1998 Agreement, GEH periodically invoiced Stollery for services rendered, and Stollery made various payments to GEH on account of those invoices.
19The pleading then sets out the plaintiffs’ position concerning the preamble to the 2003 contract which is the subject of this motion:
26On or about November 25, 2002, Mr. Hanson sent Stollery a letter that outlined the work done by GEH between April 1995 and October 2002. In the letter Mr. Hanson requested payment for GEH's share of the net profits for the East Village of $1,643,345.00 plus service fees for professional services rendered for the West Village development.
27Between November 2002 and May 1, 2003, Mr. Hanson and Stollery continued to work towards an integrated agreement between GEH and Stollery and the Angus Glen Group.
V. The 2003 Contract
20The letter agreement entered into between Eric Hanson and Gordon Stolery, in trust for Corporation to be incorporated by the name of Angus Glen Development (2003) Ltd. (“AGD03”) was dated May 1, 2003 and took the form of a five page letter from Gordon Stollery which had the salutation “Dear Eric”. I have emphasized portions of the extracts from this document in the paragraphs that follow.
21In simple terms, Mr. Hanson and his related companies were to provide design and design advice on projects being undertaken by AGD03 or projects are related corporations, as designated by Mr. Stollery. More specifically, Mr. Hanson’s duties included ;
“(c) direction and administration of the West Village plan or plans of subdivision, their registration and servicing, in co-operation and consultation with staff and management of AGD03 and related corporations, and AGS
22As well, the contemplated duties included consultation administration and sale of lots to builders or otherwise (“if and as requested”). There is also reference to “assistance in other designated projects.” The letter can contained this provision in that regard:
“The other projects may include, amongst others, East Village, North Village, AGS lands elsewhere, Goodwood and Montréal. In the case of Montréal, it is expected only occasional services would be required. And in such case, travel expenses, accommodation costs will be fully reimbursed.”
23Following its outline of the expected future involvement of GEH, the letter contemplated retroactive and continuing monthly payments, commencing in January 1, 2002, to run until December 31, 2004. In particular, it was noted that with with respect to these fees that:
“Retainer fees received by you for the period subsequent to January1, 2002, shall be set off against the amounts to be received by you from your net profit share, below.”
24The now key paragraphs of letter then set out the salient elements which give rise to the problem now under consideration. With my highlights added, the terms read in part:
(b) Net Profit Share. You will be entitled to a 6% net profit share in respect of the West Village, on the terms and conditions herein. This share of net profits may, in the discretion of AGS, be represented by a 6% equity in AGD03 or such other entity or corporation as may purchase the West Village lands, but the final structure of the investment has not been determined should AGS proceed with purchase and development off the West Village.
Net profits will be determined by the company's auditors, currently Kraft, Berger, Grill. Schwartz, Cohen & March, according to commonly accepted accounting principles. Their determination shall be final except in the case of manifest error. The cost of the land shall be the amount actually paid for the 100% interest in the land, … together with all costs and expenses of purchase, development and sale of the lands, and adjusted for taxes if a share purchase agreement is concluded with [a previous owner]. You acknowledge that the acquisition of [that] interest …, is currently under negotiation and will be deemed to be concluded at an arm's length price. From the effective date of the land purchase, interest will accrue on the aggregate land cost, appropriate development and predevelopment costs incurred and closing expenses. Interest will accrue at cost, for the portion represented by third party financing, or at a deemed rate of Royal Bank Prime plus 2%, if internal equity or related party debt is used. Interest shall be calculated monthly, not in advance. Interest will accrue on any development expenses from the date the expense is incurred at the rate set out above.
It is important to clarify that for all purposes of our relationship your right to a share of net profits is a claim for payment against AGD03 or such other entity or corporation as may become the owner of the West Village lands. In no case and in no event do you have any interest, equity in or claim to any of the lands themselves, nor any claim against any person, entity or corporation other than AGD03 or its assignee.
25From these extracts it appears unclear to me at what point in time the net profits “in respect of the West Village” were to be determined.
26With the profits to be the ultimate net profits of the entire project or where the profits to be determined as they would have been had the project been terminated at a specific point in time. Is it appropriate to reconstruct profit and loss. At that point in time or was it the ultimate net profits earned as a result of his efforts, prior to his death in which Mr. Hanson was entitled to share?
27Regardless, it seems to be reasonable to have available to the accounting experts on both sides, sufficient data to permit establishing the appropriate net profit values at various potential determination points.
28The affidavit provided from the plaintiffs’ accounting expert raises many concerns including the following which I find somewhat persuasive:
“[The] Kraft Berger report is based on projections, not actual results. The application of “Commonly Accepted Accounting Principles
for net profit is reflected by the preparation of an income statement that reflects actual financial results, not projections. The scope of the review of the Kraft Berger report does not include any financial statements. This, amongst among other things, is, is a fundamental this efficiency in scope and results in a incomplete analysis. Financial statements would reflect (or at least be a fundamental document) in an assessment of net profits, according to commonly accepted accounting principles.”
29Ultimately, a trial judge may need to determine whether it there is a need to account for the overall profits of the project and then work backwards or is it appropriate to simply look at what would have been the projected profits based on the circumstances at a point in time, rather than actually looking at what ultimately happened and what steps were taken to improve the profitability of the project. It seems odd that if there was a net loss of millions of dollars in 2005 or six or seven, that the project was not abandoned, but rather carried on. Regardless of these ultimate concerns, the determination of the matters before me, require requires further analysis of the factual background.
VI. Termination Provisions
30The letter put forward by Mr. Stollery which became the letter agreement was subject to conditions:
- Conditions
The period of retainer subsequent to this date, as contemplated in th.is letter including your net profit share is conditional upon AGS concluding an agreement … by which AGS, AGD03 or a related party or corporation may proceed to acquire and develop the West Village lands. Should such an agreement not have been concluded by December 31, 2003, AGD03 may at any time terminate your retainer, and upon such notice, its obligation to pay the monthly retainer will cease ten days thereafter and your net profit share will terminate as well.
31The lands described were acquired and so this condition became moot. However it does contain an indication of when an entitlement to a share of the net profit might have terminated.
32The letter agreement also contained a specific termination provision. The meaning of that paragraph is key:
- Termination
Your retainer shall end upon the earliest of: notice pursuant to Section 7, December 31, 2004 or, at the option ofAGD03, the sale of the West Village lands to a third party .
In the event of termination of your retainer, provided payments have been made which are due to the date of such termination, you shall be entitled to no other notice or payment.”
33Arguably the draftsman was describing two different scenarios. One where the agreement ended in accordance with its terms and the other where the services of the Hanson entities were brought to an end for other reasons. Which brings me to the paragraph dealing with Mr. Hanson’s possible death. The section read:
- Death or Disability
If you should die or become incapacitated so as to be unable to perform your duties for a period of 120 days, this Agreement shall be terminated upon payment of all retainer fees due to the date of death or incapacity. Your net profit share shall be valued as of the date of death or incapacity by the company's auditors with the benefit of such appraisal information they may seek, The amount determined to be the value of your interest shall be paid to you, dollar for dollar, with net profits first distributed to AGS (or to the entity in which he holds his interest).
34This section would seem to have been drafted with the initial two-year term in mind, Mr. Hanson continued to work on the projects. However, as noted above, Mr. Hanson continued working up to the date of his death in September on September 1, 2007.
VII. Variation of the 2003 Agreement
35Subsequent to the December 2004 expiration date for the May 2003 Agreement, GEH and the Defendants mutually agreed to continue acting under the terms of that agreement. In August 2005, GEH submitted an invoice for consulting fees due and payable pursuant to the 2003 Agreement in an amount of $127,330.00. This invoice was for various services from April 2003 to August 2005. The plaintiff’s pleading sets out a number of steps which apparently were taken over the subsequent years:
35After receipt of GEH's August 2005 invoice, Stollery purported to terminate the 2003 Agreement effective August 31, 2005 but inquired whether GEH wished to continue on a reduced time basis, provided they could come to a mutually satisfactory agreement. Notwithstanding this purported termination by Stollery, GEH and Stollery and the Angus Glen Group continued acting under the terms of the 2003 Agreement. Mr. Hanson, on behalf of GEH, and Stollery, however, continued to work towards a revised agreement.
36During this time of working towards a revised agreement, Stollery continually represented to Mr. Hanson that a revised agreement would be worked out and that GEH would be compensated for any and all work done subsequent to August 31, 2005. In reasonable reliance upon these representations by Stollery, GEH continued to provide engineering, planning, design, and management services to Stollery and the Angus Glen Group for various projects under the 2003 Agreement, including the West Village development as well as the Country Club of Quebec.
37Furthermore, in reliance to upon Stollery's representations, GEH periodically provided interim invoices for services provided after August 31, 2005.
36The plaintiffs assert that in or about March 2006, GEH. And Stollery agreed to a variation of the 2003 Agreement. In particular, they assert that GEH and Stollery agreed (a) to reduce GEH's monthly advance fee from $15,000.00 to $12,000.00, but (b) this change was to apply only to services rendered after March 2006. Other than this change, however, all of the terms of the 2003 Agreement were continued and all amounts for services rendered between August 31, 2005 and this variation date were due under any interim invoices previously provided, including advance fees of $15,000 per month.
37It is further asserted that:
39Pursuant to this 2006 variation of the 2003 Agreement, GEH continued to provide engineering, planning, design, and management services to Stollery and the Angus Glen Group, including the West Village development as well as the Country Club of Quebec.
40Furthermore, under the 2006 variation to the 2003 Agreement, GEH provided periodic interim invoices for the services rendered, including for the West Village development as well as the Country Club of Quebec project. Stollery and the Angus. Glen Group made partial payments of the invoices provided by GER in the amounts of $100,000.00 and $64,000.00. These payments related to work done for three relevant periods, namely before August 31, 2005, between August 31, 2005 and March 2006, and post-March 2006.
VIII. The Unexpected
38On September 1, 2007, Mr. Hanson unexpectedly passed away. The plaintiffs assert that as a result of the passing of Mr. Hanson, various amounts owed to the Plaintiffs, relating to the East Village development, the West Village development, as well as other projects for which GEH provided services “have crystallized”.
39Arthur Gordon unexpectedly passed away on December 12, 2011, more than two years after this action was commenced in August 2009. The action has been continued against the executors of Mr. Stollery' s estate.
40By letter dated April 19, 2010, the plaintiffs agreed to have Kraft Berger make its calculation of the net profits of the West Village as specified in the Retainer Agreement, prior to proceeding further with the litigation.
41That evaluation was that there were no profits and in fact a significant net loss such that the plaintiffs had no entitlement with respect to the West Village project.
42The plaintiffs retained an expert to review the opinion of Kraft Berger and that expert has requested extensive documentation with regard to preparing a responding opinion.
IX. Plaintiffs’ Claim
43The plaintiffs claim that pursuant to the 2003 Agreement, as well as the 2006 variation to the 2003 Agreement, the Plaintiffs are owed 6% of the net profits of the West Village development, currently estimated by them at $139,496,760.00, less any advances received by GEH as a result of any interim invoices that were paid by the Defendants, which total $164,000.00. “This 6% net profit amount is to be determined as of the date of Mr. Hanson's death. This amount is currently estimated to be $8,205,805.60.”
X. The Valuation Obtained by the Defendants
44The 2003 letter agreement provided: “Net profits will be determined by the company's auditors”. The report on that determination take the form of a seven page letter signed on behalf of the company’s auditors together with schedules including one headed in part, “Revenue estimate as of June 2004”.
45I set out below portions of that letter with the emphasis added being mine, throughout.
“INTRODUCTION
You have requested our independent professional opinion as to the net profits in respect of West Village at December 31, 2004 and August 31, 2005, as described in the contract between Angus Glen Developments (2003) Ltd. ("Angus Glen") and G. Eric Hanson, dated May 1, 2003 ("Mr. Hanson's contract").
We understand that you have requested this opinion in order to assist you in connection with the valuation referred to in the contract.
Definitions
The term "net profits" is defined herein as "net increase in the Fair Market Value of West Village lands as a result of the development activities undertaken by Angus Glen." The cost of the land shall be calculated in accordance with the provision of clause 3(b) of the contract.
For the purpose of this assignment, the fair market value is defined as the highest price available in an open and unrestricted market between informed and prudent parties under no compulsion to act and acting at arm's length, expressed in terms of money or money's worth.
We understand that clause 3(b) of Mr. Hanson's contract specifies that net profits should be determined by the company's auditors according to commonly accepted accounting principles. Accounting principles are usually used in determination of operating net profits, which would not have been available at dates specified. Therefore, we used definitions as described above to determine the net profits.
46I interpret this paragraph as indicating the somewhat unusual circumstances facing the Auditors in conducting their review. Applying their definitions the report concludes:
VALUE
Based upon our review of the documents provided to us, the explanations received and subject to the assumptions, qualifications and restrictions noted herein, we determine the net profits in respect of West Village at December 31, 2004, calculated utilizing discounted cash flows, to be a loss in the range of $(4,761,000). By extension, a 6% net profit is determined to be a loss in the range of $(286,000).
At August 31, 2005, we determine the net profits in respect of West Village, calculated utilizing discounted cash flows, to be a loss in the range of $(9,154,000). By extension, a 6% net profit is determined to be a loss in the range of $(549,000).
47With respect to the Scope of the Review, the auditors state that in determining the net profits, they reviewed and relied upon information and data contained in the following documents or representations as provided to them by Angus Glen management:
a) Development plans and pro-formas prepared in June, 2004 and 2005,as provided by Angus Glen;
b) Servicing Capacity Allocations by Markham updated November 11, 2004 and January 25, 2005;
c) Copy of unsolicited offer from the Monarch Group, dated May, 21, 2002;
d) Copy of Draft Plan of Subdivision, signed February 27, 2003 by G.E. Hanson, designer;
e) Lot values for the period ending November 15, 2004 and 2005, as prepared by MCAP Financial Corporation;
f) Letter of Opinion of West Village land as prepared by Avison Young on November 24, 2004;
g) The parties are agreed that on or about December 10, 2004, the value of the West Village lands was determined to be $32 million. This $32 million value established the base value for Mr. Hanson's net profit share in the West Village development.
h) Other pertinent commercial and economic information as was relevant to our assignment;
i) Discussions with Mr. Frank Spaziani, P. Eng., Vice President of Kylemore Communities.
48The calculations take into account in particular issues relating to the availability of services which were being dealt with at the time. These problems understandably brought into question the manner of proceeding with the project in those circumstances. The valuation notes:
“In April 2002, town of Markham allocated water to 641 West Village lots. On November 11, 2004, that allocation was reduced to 400 units. As of that date, no sanitary services has been approved. Angus Glen submitted its Draft Site Plan for 524 lots, as designed by Angus Glen with the assistance of Mr. Hanson in February 2003. By December 31, 2004, the public meeting has been completed. By then, the lack of services to the property had become a serious issue affecting the start of development. In January 2005, the Town of Markham proposed a change of water allocation, reducing West Village's allocation to 75 lots.
49The calculations would appear to have been made based upon that restriction by the town. What is unclear is whether or not a subsequent resolution to return to a number closer to the original contemplated total took place. Hypothetically, if it did, one can see how there might be a difference of opinion as to the appropriate method of calculating the net profit amount.
50However, I do not see the resolution of that issue requiring anything approaching a full forensic audit of all the records relating to the project.
51That does not mean that I do not feel that a more complete financial picture would not assist in considering the proper interpretation. Were that to take place and the eventual gross profit were to appear to be much higher, there might well be support for a finding that the present calculation was inappropriate. In turn, that requires a consideration of what is a “manifest error”.
XI. What is “Manifest” ?
52In Bryars Estate v. Toronto General Hospital, 1997 CanLII 2381 (ON CA), [1997] O.J. No. 3727;152 D.L.R. (4th) 243; 103 O.A.C. 53; 73 A.C.W.S. (3d) 1054; theOntario Court of Appeal found that the trial judge misapprehended the expert evidence on the appropriate medical procedure in a malpractice action.
53Justice John Laskin considered whether or not it was appropriate for the appellate court to interfere with a finding of fact by a trial judge:
This appeal does not raise any point of law. Instead, the appellants seek to overturn findings of fact. A trial judge's findings of fact are, of course, entitled to great deference from an appellate court. An appellate court should not interfere unless the trial judge has committed "a palpable and overriding error", or a "manifest error", or a "clear error." These adjectives, some of them colourful, are used to signal deference, to ensure that an appeal court reviews factual findings on a standard of unreasonableness, not on a standard of correctness: Canada (Director of Investigation and Research) v. Southam Inc., 1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748. This deferential standard applies as well to a trial judge's finding in a negligence action that a defendant did or did not meet the required standard of care: Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377 at 425-26.
What kind of error amounts to a "manifest error" justifying appellate intervention? An appellate court may intervene if the trial judge misapprehends or disregards relevant evidence, fails to appreciate the evidence, makes a finding not reasonably supported by the evidence, or draws an unreasonable inference from the evidence: Joseph Brant Memorial Hospital v. Koziol, 1977 CanLII 6 (SCC), [1978] 1 S.C.R. 491; Geffen v. Goodman Speight, 1991 CanLII 69 (SCC), [1991] 2 S.C.R. 353; and Schwartz v. Canada, 1996 CanLII 217 (SCC), [1996] 1 S.C.R. 254. If an appellate court finds such an error, it must then consider whether the error affected the trial judge's decision. The appellants submit that the trial judge did make "manifest errors" and that these errors undermined his conclusion….”
54It seems to me that in this case, the court will ultimately have to determine whether or not the auditor misapprehended or disregarded relevant evidence. In coming to its conclusion as to the net profit to be paid under the agreement in issue. To fairly deal with that issue it is necessary to consider what the plaintiffs’ expert has requested.
XII. Proportionality and Production
55Effective January 1, 2010, the scope of documentary discovery was narrowed by the replacement of the broad "semblance of relevance" test with a narrower test calling for actual relevance. As described in Stewart v. Kempster, [2012] O.J. No. 6145, this change was intended to inject a sense of restraint into the discovery process.
56The proportionality principle's importance to the discovery process cannot be overstated. Indeed, the concept of proportionality is connected to all documentary production issues.
57This requires a consideration of the factors listed in rule 29.1.03(3) and The Sedona Canada Principles Addressing Electronic Discovery which were reflected in the new Rules.
58In determining whether to order a party or another person to produce a document under those rules the court must consider the list of proportionality factors set out The Sedona Canada Principles. Principle 2, which I have endeavored to follow in this decision, states:
In any proceeding, the parties should ensure that steps taken in the discovery process are proportionate, taking into account
(i) the nature and scope of the litigation, including the importance and complexity of the issues, interest and amounts at stake;
(ii) the relevance of the available electronically stored information;
(iii) its importance to the court's adjudication in a given case; and
(iv) the costs, burden and delay that may be imposed on the parties to deal with electronically stored information."
59Clearly the amendments to the rules resulted in the favouring of a less onerous and costly approach to discovery in which proportionality is the driving factor. For instance, in Foster v. Prince, [2012] O.J. No. 89 my colleague Master MacLeod, as he then was, discussing the permissible scope for examination for discovery, held that those amendments, including the "overriding principle of proportionality", require "a more focused surgical approach to proportionality than was previously the case".
60In my 2010 decision in Warman v. National Post Co., 2010 ONSC 3670, [2010] O.J. No. 3455; 103 O.R. (3d) 174, 77 C.C.L.T. (3d) 122 I confirmed the need to modify the previous broad and liberal rules of discovery:
The time has come to recognize that the 'broad and liberal' default rule of discovery has outlived its useful life. It has increasingly led to unacceptable delay and abuse. Proportionality by virtue of the recent revisions has become the governing rule. To the extent that there remains any doubt of the intention of the present rules I see no alternative but to be explicit.
Proportionality must be seen to be the norm, not the exception -- the starting point, rather than an afterthought. Proportionality guidelines are not simply 'available'. The 'broad and liberal' standard should be abandoned in place of proportionality rules that make 'relevancy' part of the test for permissible discovery, but not the starting point. [my emphasis added]
61At the time I wrote the foregoing there was still a question in my mind as to whether proportionality was a “two-way street.” If large sums were in play should greater discovery be granted?
That question was answered by Justice Perell in his decision on the appeal of my decision in the Province’s action seeking to recover health care expenses alleged to have resulted from tobacco products. In Ontario v. Rothmans Inc., 2011 ONSC 2504, [2011] O.J. No. 1896, his honour held that this is a principle of “frugality and parsimony” which is intended to enable the court to downsize the scope of documentary production and still do justice for the parties. Following extracts contain my added emphasis:
The proportionality principle is a manifestation of the policy of frugality that led to the introduction of the simplified procedure to the Rules of Civil Procedure. To use a metaphor, the normal Rules of Civil Procedure are the Cadillac of procedure, an expensive vehicle with all the accessories. However, not all actions or applications require such an expensive vehicle, and a Chevrolet, a serviceable, no frills vehicle, will do just fine for many cases, and it will provide access to justice and judicial economy.
In my opinion, an expansionary approach to proportionality is wrong. A parsimonious proportionality principle provides a useful tool for cases large and small. The base line is that the Rules of Civil Procedure are designed for cases of all sizes, but the proportionality principle allows the court to downsize the procedure and still do justice for the parties. If downsizing is not procedurally fair then the normal rules should apply to the proceedings without augmentation.
If adopted as a precedent, the Master's approach of treating proportionality as having an expansionary influence destroys the parsimony of the proportionality principle and allows the argument that because a case is important or the claim large, there should be more procedure, not less procedure.
62Clearly Justice Perell confirmed his view that the intent of the rule changes was “to 'improve access to justice by reducing the inequities, cost, delay, and complexity of civil litigation.” Similarly in Abrams v. Abrams, 2010 ONSC 2703, Justice D.M. Brown, observed: 'Proportionality signals that the old ways of litigating must give way to new ways which better achieve the general principle of securing the 'just, most expeditious and least expensive determination of every proceeding on its merits.
63In Hryniak v. Mauldin, 2014 SCC 7, Justice Karakatsanis was discussing the test for summary judgment, but what she had to say is thematically applicable to the development and settling of a discovery plan. At paragraphs 27 and 28 of her judgment for the Supreme Court of Canada, she stated:
There is growing support for alternative adjudication of disputes and a developing consensus that the traditional balance struck by extensive pretrial processes and the conventional trial no longer reflects the modern reality and needs to be re-adjusted. A proper balance requires simplified and proportionate procedures for adjudication, and impacts the role of counsel and judges. This balance must recognize that a process can be fair and just, without the expense and delay of a trial, and that alternative models of adjudication are no less legitimate than the conventional trial.
This requires a shift in culture. The principal goal remains the same: a fair process that results in a just adjudication of disputes. A fair and just process must permit a judge to find the facts necessary to resolve the dispute and to apply the relevant legal principles to the facts as found. However, that process is illusory unless it is also accessible - proportionate, timely and affordable. The proportionality principle means that the best forum for resolving a dispute is not always that with the most painstaking procedure.
64Against this background I turn to a consideration of the information sought, which the defendants assert, “is simply out of all proportion to the obligations of the defendants, set out in the Retainer Agreement.”
XIII. “on the merits”
65Rule 1.04, requires that the court should strive to have matters resolved on the merits. Hryniak encourages an approach that avoids lengthy trials.
66The issue before me, in part, is whether or not there is any thing to fight about at trial. That will perhaps turn on the information available to both sides. It seems to me that there ought to be nothing hidden between the parties in the circumstances of this case. The two deceased protagonists worked together and I believe would have wanted the result to reflect the reality, and not a limited information base. I am of this view notwithstanding that Mr. Stollery was alive when the defence was originally filed, which would seem to suggest that he was happy with his continuing firm accountants’ assessment.
67It may well be that their assessment is correct, based upon the approach they took. However it seems to me that the approach they took is at least subject to some doubt and that it would be the fairest approach to have an assessment made with a “full deck”.
XIV. Information Sought
68Understandably, the expert retained by the plaintiffs, is seeking as much information as possible in order to endeavor to ensure a complete evaluation is made. The affidavit filed sets out, at paragraphs 39 through 56 an extensive list of materials including, for example, a copy of Angus Glen’s tax returns from the project from project inception to completion.
69There is also a request for copies of all externally prepared, reviewed or audited financial statements of Angus Glen and for any other entity that accounted for the West Village, East Village, the Country Club of Québec (the “Projects”) from project inception to completion. Also requested was “all land purchase and sale documents pertaining to the Projects” and an “accounting of profits of the Projects from the date of project inception to completion”.
70The most onerous request in many ways was a request for “all land purchase and sale documents pertaining to the Projects.” In an affidavit filed in response, the defendant estimated that by working seven hours per day, assembling the information for the East Village would take you. You will you you you you you by now. It is a very helpful in yet about 322 hours for 643 lots and the West Village would take about 188 hours for 375 lots for a total of about 509 hours, which in other words, totaled more than 70 days. It was asserted that it would be unduly onerous to locate, identify, separate, copy and organize these documents. It was particularly asserted that the defendants “simply do not have the capacity in their accounting department to handle this request at this time. If it could be done, the costs of the terms of lost time would be in the order of $40-$50,000, plus costs of printing supplies, etc.”
71I do not find that degree of involvement in additional productions to meet the test of proportionality at this point in time.
72Fortunately, the plaintiff’s expert prioritized the documents that would be most helpful at this point. With respect to that list, I do not feel that all the documents requested in paragraphs 39 through 56 of her affidavit need to be produced at this time. I am directing that many of the items which she identified as critical be produced, but only with respect to the West Village Project. I am not satisfied that East Village documentation will add enough to the issues at hand to justify their production at this time.
XV. Disposition
73Applying proportionality and considering the nature of the dispute I am therefore directing that the Defendants provide an Amended Affidavit of Documents which will reflect any documents resulting from my direction that the Defendants produce:
a) Copies of all externally prepared, reviewed or audited financial statements that account for the West Village from project inception to completion.
b) Accounting of Profits for the West Village projects from project inception to completion
c) Copies of the general leger accounting detail related to the West Village project.
d) Make appropriate arrangements with Defendants’ counsel for access to the external auditors of Angus Glen to clarify any concerns relating to West Village matters.
e) Copies of any invoices from Mr. Hanson or related entities to Angus Glen or Mr. Stollery as related to the West or East Village projects which have not already been disclosed by the defendants.
74If there is any doubt as to the purport of these directions I may be contacted through my Assistant Trial Co-ordinator and will convene a case conference with counsel.
75Whether there was any value in these additional productions is not known at this time. . In the circumstances, since the determination of whether or not this data is relevant, turns upon the trial judge’s finding as to the meaning of the clause, and especially since success was somewhat divided, I feel the most fair result is to award costs of this motion in the cause of the main action.
Master D. E. Short
DS/ R.172