COURT FILE NO.: 12-32479 DATE: 2019/01/02 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Harry Pohl Plaintiff – and – Walter Palisca, Palcam Technologies Ltd., Karen Palisca, 1401763 Ontario Inc., and Palcam Solutions Inc. Defendants

Marc A. Munro, for the Plaintiff Hedy L. Epstein, for the Defendants Walter Palisca, Palcam Technologies Ltd., 1401763 Ontario Inc., and Palcam Solutions Inc.

AND BY COUNTERCLAIM BETWEEN: Walter Palisca and 1401763 Ontario Inc. Plaintiffs by Counterclaim – and – Harry Pohl Defendant by Counterclaim

HEARD: October 10, 11, 12, 15, 16, 17, 18, 22, 23, 24 and 26, 2018

Turnbull J.

Overview of the Case

1Harry Pohl, the plaintiff, owned and operated a successful machining and production facility out of two separate buildings located at 10 and 11 Brockley Drive in Stoney Creek, Ontario, for over 20 years. It was called Die-Metric Tool Inc. (hereinafter “DMT”). Mr. Pohl and his wholly-owned holding company 2012636 Ontario Inc. (hereinafter “201 Ontario Inc.”) owned all of DMT’s issued and outstanding shares. He was the sole director and officer of both companies. He was the sole shareholder of 201 Ontario Inc. which was the registered owner of the properties.

2In 2010, the defendant Walter Palisca approached Mr. Pohl and offered to buy his company. Mr. Palisca himself operated a machining business in Newmarket called Palcam Technologies Ltd (“PTL”) and so he understood the industry. PTL did machining work in relation to moulds. DMT did precision tooling. Both companies used some of the same machines but did different work on those machines. In very general terms, DMT produced large numbers of the same steel products on one machine while PTL worked on creating one steel mould which then would be used by the customer to create many reproductions.

3The plaintiff’s company was in some financial difficulty due to the loss of a major customer in 2009 and partially due to the after effects of a stroke Mr. Pohl suffered in 2008. Mr. Pohl decided to sell his business to corporations controlled directly or indirectly by Mr. Palisca. After their initial agreement fell apart and ended up in litigation, they struck a second deal after a successful mediation. In due course, difficulties arose between Mr. Pohl and Mr. Palisca and the second transaction ended up in trouble. By November 2010, Mr. Palisca had DMT and 201 Ontario Inc. voluntarily file a Notice in Bankruptcy.

4Mr. Pohl has sued the defendants for damages for breach of contract and breach of the duty of good faith in dealing with the assets of DMT after closing. Mr. Palisca and PTL have counterclaimed for the damages they allege they have suffered due to the breach of contract by the plaintiff.

Chronological Review of Relevant Events

5Harry Pohl decided in January or February 2010 to sell some of the milling machines used by DMT to free up cash and to reduce expenses. He had planned to sell 11 Brockley Road, to move the machines in that building to 10 Brockley, and to sell some of his milling machines to make room for the equipment. He listed the property for sale with a realtor. To facilitate the sale of some of the equipment he used a broker. The broker he retained contacted Mr. Palisca at PTL to see if he had any interest in a possible acquisition. Mr. Palisca was the President and CEO of PTL and at all material times was a director and officer.

6Hence, on or about February 16, 2010, Mr. Palisca and another staff employee made their way to the Stoney Creek office of DMT at 10 Brockley Road in Stoney Creek. The office and some machines were located in that building. The CNC 5 axis milling machines which interested Mr. Palisca were in DMT’s other business location across the road at 11 Brockley Road.

7Mr. Palisca testified that when he entered the shop at 11 Brockley, he noticed that the machines which interested him were in reasonable shape. He also remarked that even though they visited on a Sunday when the shop was closed, it was evident that the shop was not busy as the trash bins beside several machines were empty. During their conversation, he sensed that Mr. Pohl was somewhat depressed and disinterested in his business. At that point, he asked the plaintiff if he was interested in selling his business and Mr. Pohl responded affirmatively. When asked what he wanted for his business, Mr. Pohl said $1,500,000. Mr. Palisca indicated that he would see if that was feasible and their meeting ended.

8During the next four or five weeks, Mr. Palisca and Mr. Pohl had several meetings and phone conversations. In that time, Mr. Palisca was provided with financial information related to DMT including the June 30, 2009, comparative financial statements prepared by Robert Phillips, the long-time accountant of DMT. Mr. Palisca testified that after a detailed analysis of the company, he felt that unless immediate action was taken, it was going to fail. Despite what was shown in the financial statements, he felt the company had negative value with negative retained earnings. That being said, he felt it was a business he could save by purchasing it at low value and improving it.

9He testified that between February 16 th and March 19 th , he contacted the Business Development Bank of Canada (BDC) to start putting plans in place for a refinancing of DMT. Subsequently, he described efforts he made with Claudine Johns of the Royal Bank of Canada in Newmarket to obtain financing. He had several meetings and email exchanges with Robert Phillips, DMT’s accountant, about providing documents, including a financial statement for the period ending March 31, 2010, to provide to potential funders. I have no doubt that Mr. Palisca was trying to find alternative financing for DMT and was acting in good faith in trying to do so at that time.

10After negotiating with Mr. Pohl for approximately a month, Mr. Palisca drafted a document entitled Memorandum of Understanding which both parties signed on or about March 19, 2010. Mr. Pohl stated that it was signed at a local Kelsey’s after a meeting and discussion during which they had “a few beers.” Mr. Pohl indicated that he did not understand all of the agreement but he knew that Mr. Palisca and PTL were going to take over lease payments on a DMU 80 milling machine and two other pieces of equipment to alleviate the financial burden of DMT. After signing that memorandum, Mr. Pohl indicated that Mr. Palisca wanted to attend at DMT as soon as possible to take over operations of DMT. Thus, Mr. Pohl advised his staff the next day that he was going to be selling the company.

11A week later, on March 26, 2010, Mr. Palisca presented Mr. Pohl with another document entitled Memorandum of Agreement which he testified had been prepared by his lawyers to incorporate and refine the details agreed to in the Memorandum of Understanding. Mr. Palisca testified that he had created the form of the agreement in three parts. First, he laid out an assessment of the financial position of the company in Part A. At the bottom of that page, he wrote that the company was losing an estimated $50,000 per month. The second section consisted of a recovery plan to be implemented for the business. And finally, part three spelled out how the business could be purchased and paid for.

12In essence, this agreement provided that Mr. Palisca and PTL would take control of DMT and 201 Ontario Ltd. by acquiring all the outstanding shares of the companies. Mr. Pohl was to be paid his $1,500,000 from the profits of DMT. Until Palisca could arrange new financing, Mr. Pohl would remain liable for his personal guarantee on DMT’s operating line of credit loan with the Royal Bank of Canada (RBC). Mr. Pohl would remain the sole signing officer for all cheques issued by either company. This would allow him to keep an eye on the finances of the company and to not alert RBC of the fact that he was selling his interest in the company, which might cause the bank to call its loan. Mr. Palisca stated that the plaintiff was assuming the risk and he was bringing the talent to the table.

The First PTL Takeover

13On March 27, 2010, Mr. Palisca came into DMT and began running the company. In his testimony, Mr. Palisca emphasized his ability to co-ordinate a turn-around of DMT due to his prior business experience in building up PTL and his successful completion of an executive MBA at the Rotman School of Business at the University of Toronto. He felt that four or five priorities had to be established to succeed in this “triage operation.” They included a restructuring of human resources including a better email communication system for employees, setting daily production goals and benchmarks, analysis and improvement of the operational capability of equipment on the shop floor, financial analysis of the profitability of each part being manufactured and reduction of inventory, and strategic expansion into the military and aerodynamics industry as well as manufacturing camera components and accessories for Westcam Industries.

14He felt that it was essential to bring the experience of some reliable employees from PTL to DMT. He involved his long time plant operations manage Peter Polyak as an on-site supervisor. He placed two experienced machinists, Derek Ferris and Adam Jamieson in the machine shop at 11 Brockley to operate two of the 5 axis milling machines. They hired Mo Jalali to be the operations manager of DMT and he was trained by Peter Polyak who was the operations manager for PTL.

15To improve sales, Mr. Palisca brought in Glen Paterson and assigned DMT’s existing purchasing agent to sales where his skills could be better used. He was replaced by Andre Lochan who was to manage purchasing in the shop and make all the appropriate entries in the JobBoss software program which monitored all orders, shipping and invoicing.

16Mr. Palisca noted that total revenue for DMT from July 1, 2009, to the end of its third fiscal quarter on March 31, 2010, was approximately $600,000 per quarter [1] but in the final quarter of the year after his strategies had been put in place, revenues rose to $800,000. [2] He felt that this one third increase in quarterly sales was a direct result of the implementation of his planning and getting in alignment with the staff. He neglected to qualify that assertion by acknowledging that he and Palcam employees had been ordered out of DMT on or about May 6 th , 2010, by Mr. Pohl and therefore were on site for only about 36 days of that final quarter of the fiscal year.

17Mr. Palisca testified that Messrs. Ferris and Jamieson were the top operators employed by PTL to work on the 5 axis machines. He felt that the efficient use of these machines was the greatest opportunity to make DMT profitable. Not only were they participating in production work for DMT, he recalled that PTL subcontracted one job to DMT for the production of ten form heads. [3]

18After March 27 th , Mr. Pohl asserted that his role was essentially the same as it had always been. He agreed he was not working 40 hours per week and it appears that Mr. Pohl was not regularly in the DMT offices. However, he asserted he was there more often than Mr. Palisca. That is confirmed by the evidence of Judy Francioso, his trusted bookkeeper and office manager who said that she did not see much of Mr. Palisca at DMT. She stated that at most she saw him for perhaps one hour on three occasions in the period leading up to May 6 th . The plaintiff had to come in to sign blank cheques which would then be used by Ms. Francioso to remit accounts payable. He testified that when he was into the Brockley Road locations, he would visit the shops and see how production was moving along.

Loan Payment to Quality Graphics

19When he was the principal of DMT, Mr. Pohl had arranged to borrow $38,000 from his common law spouse Wanda Wilson through her company Quality Graphic Supplies Ltd. Scraps of material not used in the manufacturing process were sold to scrap dealers; Mr. Pohl had planned to service the debt to Quality Graphics by directing the proceeds of sale of scraps to Quality Graphics. In April 2010, DMT received a payment cheque for approximately $13,000 from one of the scrap dealers. The cheque was made payable to DMT and deposited in the company’s bank account. This greatly upset Mr. Pohl. He sent an email to Mr. Palisca expressing his upset that Mr. Palisca had directed the scrap metal dealer to re-issue a cheque in the name of DMT instead of having it payable to Quality Graphics. Mr. Pohl said the payment related to a transaction which occurred before March 19, 2010, and was received after that date. He directed Judy Francioso to make a cheque for $38,000 to Quality Graphics to pay off that full loan, without consulting with Mr. Palisca prior to doing so. Mr. Palisca testified that he was in India on business when this incident occurred and as a result, he had no direct communication with Mr. Pohl. However, it is apparent that this incident was the beginning of the deterioration of the relationship between Messrs. Pohl and Palisca.

The Fake Invoice

20Ms. Francioso testified that shortly after his return to Canada, Mr. Palisca attended at the DMT office on April 30 th . He called a staff meeting and congratulated everyone on the progress that was being made and commented on the improved financial performance of the company which had resulted in a purported $170,000 profit. Ms. Francioso could not understand that latter comment because it was not reflected in the books of the company. In fact, she recalled they were having trouble making payroll.

21After the staff meeting, Mr. Palisca asked her to step inside Mr. Pohl’s former office adjacent to her work area. He said that he was going to create a fake invoice and that she was to write a cheque for that sum. She recalled protesting that the funds on hand were for the next payroll due on May 7 th . She felt that Mr. Palisca wanted this cheque written so that Mr. Pohl could not touch the money again as he had previously done in taking the $38,000 cheque. Mr. Palisca initially wanted two cheques to be issued, one for March and one for April. [4] When she indicated that for most of March, PTL was not on site, he then directed his staff in Newmarket to generate a second invoice for about $109,000 with all services shifted to reflect that the work and services were provided in April. [5] Ms. Francioso testified that she was then directed to enter that invoice in the books. She recalled that originally, Mr. Palisca was going to have her issue a cheque for $60,000 but when he learned that RBC had increased DMT’s line of credit to $475,000, he directed her to issue a cheque for $75,000. [6] This amount, according to his evidence, was the cash flow of DMT could handle at that time. This caused her considerable concern because as she testified, she felt that it was a “fake invoice.”

22Mr. Palisca testified that she issued the cheque as payment of invoices rendered to DMT for PTL’s services. He stated that the invoice was prepared by PTL’s bookkeeper Cathy who was charged with keeping track of the costs and the apportioning of the costs. However, Cathy was not called as a witness to confirm that evidence and to testify about work done and the services provided with respect to the invoices she received, the jobs to which they were attributable, and the circumstances under which the $109,000 invoice was created. There was no evidence provided as to how the figures making up the invoice were justified by the production of time sheets, dockets, invoices, or other appropriate documentation.

23Ms. Francioso said that she made a memo of everything which had transpired with respect to this cheque and the events of the succeeding days. She stated that in her former job, she was nicknamed “the scribe” because of her ability to keep detailed notes of relevant meetings and events. She testified that her typewritten memo dated May 7, 2010 [7] was written on that day and reflected what she knew had transpired.

24She was emphatic that most of the alleged work and services for March were arbitrarily moved into the invoice for April. From looking at those documents, it is clear that was the case. She stated that PTL was renting one of the 5 axis machines at DMT. She further stated that the fixturing referred to in the invoice related to work which PTL employees Derek Ferris and Adam Jamieson were doing on a DMT machine. Mr. Palisca rejected that assertion and testified the fixtures were attached to the 5 axis machines to increase the efficiency of the machines by as much as thirty per cent. She recalled that Messrs. Ferris and Jamieson were never on DMT’s payroll.

25I was very impressed with the evidence of Judy Francioso. She was forthright in her testimony and when she did not know the answer to a question, she readily indicated so. She clearly had sympathy for Mr. Pohl’s situation but she did not become adversarial or argumentative in giving her evidence. Her detailed memos prepared contemporaneously or shortly after the relevant events were helpful and consistent with her evidence. When there is any conflict between her evidence and that of Mr. Palisca or Mr. Pohl, I unreservedly accept her version of events.

26I have serious doubts that the work and services articulated in that invoice for $109,000 were provided by PTL to DMT and even if they were, it was not part of the agreement between DMT and PTL that the latter would invoice DMT for work and services done to save DMT. Mr. Palisca repeatedly testified that he thought that DMT was a good potential acquisition and worth saving. His efforts to get financing and to implement certain changes to make the company sustainable and profitable were consistent with the agreement to pay Mr. Pohl $1,500,000 from profits. However, nowhere in the agreement between the parties was it envisaged that revenues from DMT would be forwarded to PTL for services allegedly provided to DMT. PTL has provided no detailed breakdown of materials provided, the cost of those materials, the mark up charged, the docketed hours of each employee working at DMT and the job number etc. The hourly rates charged to DMT are arbitrarily chosen, without any explanation of how those rates were chosen and without evidence of the charge out rate of those employees for other jobs. This same system of unsupported invoicing of DMT for alleged services rendered was again used by Mr. Palisca and PTL just before putting DMT into bankruptcy.

The Incident of May 6, 2010

27Mr. Palisca testified that the formal closing of the transaction was to occur on May 1, 2010. He recalled that he had not been able to contact Mr. Pohl in last few days of April. While the lawyers for each party were involved in discussions, he and Mr. Pohl were not. He stated that when he learned that Mr. Pohl now wanted a personal guarantee, he signed it and returned it immediately to his lawyer. [8] The closing was delayed and ultimately did not occur because on May 6 th , Mr. Pohl came into the DMT office and escorted Mr. Palisca and his staff out of the building. He recalled no conversation between them at that time.

28That evening, at 9:34 p.m., Mr. Palisca sent an email to the staff explaining to them what had transpired between the staff meeting of April 30 th and May 6 th . [9]

29Mr. Palisca testified that he still hoped the transaction would close in the next day or two but such was not the case. As a result, he initiated legal proceedings later in May seeking among other remedies, specific performance of the contract. [10] He stated that if he did not think DMT was viable, he would not have sought such a remedy.

The August 9th, 2010 Agreement

30Pleadings were exchanged [11] and in due course, the parties agreed to mediation. On July 28, 2010, the parties successfully negotiated a resolution of their litigation and their lawyers wrote up a document entitled “Amending Agreement”. [12] It was subsequently reduced to a typewritten form by the lawyers. [13] Mr. Palisca stated that it was essentially a restatement of the March 26 th agreement with some minor modifications.

31The closing was scheduled for August 9, 2010, with the effective date of closing to correspond with the fiscal year end of DMT of June 30 th . Mr. Pohl was to be hired as an employee of DMT for two years at a salary of $60,000 per year. Mr. Pohl specifically agreed in paragraph 5(a)(iii) that he would have no decision making powers with respect to DMT or 201 Ontario Inc. It was further agreed that upon the sale of 11 Brockley, 201 Ontario Inc. would receive all the net proceeds of sale. The operating line of credit which DMT had with RBC was to remain in place with Mr. Pohl remaining as the personal guarantor of that obligation. Mr. Palisca was not permitted to sign cheques on behalf of DMT. Mr. Pohl was to be paid $1.5 million for his shares from profits of DMT. The payments were not to commence until March 1, 2011, at which time payments were to begin at a rate of 13% of Net Profits. [14] In the event that one half of the purchase price of $1.5 million ($750,000) was not paid to the vendor within five years of closing, the unpaid balance of one half of the purchase price was to be paid to the vendor forthwith. [15]

32The agreement further stated at paragraph 11 that “it is understood and agreed that this is a binding agreement subject to the terms and conditions contained herein.” I will deal with this paragraph more fully below in my analysis of this case but it is my view, particularly as both parties were represented by counsel, that the terms of the agreement are as stated. This was essentially a deal between Harry Pohl and Walter Palisca whereby Walter was purchasing Harry’s interest in DMT and 201 Ontario Ltd. If there were going to be charges for management fees, for a sub-lease, for moving equipment to Toronto, or any other expenses out of the ordinary course of business, it was incumbent on the parties to specify them at the time this transaction was negotiated and signed. The unilateral and after the fact imposition of expenses on DMT by PT, PS, or Mr. Palisca was never part of the intention in this deal and it is not reflected at all in the agreement signed.

33On August 6, 2010, Mr. Pohl signed a cheque for $20,000 made payable to PTL with respect to part of the balance owing under the April 30 th invoice of $109,000. Mr. Palisca said that Mr. Pohl knew what it was for and he just gave him the cheque with no questions asked. In cross examination, Mr. Palisca agreed that this cheque was not made payable to PTL or Palscam Solutions Inc. (PS) but asserted that it was Judy Francioso’s mistake that it was made payable to 131 Ontario Ltd . (the holding company which held the lease on the PT and PS manufacturing lands and building).

34The transaction did close as scheduled on August 9 th . Many of the usual documents associated with such a closing such as resignation as director, resignation as an officer, etc. were signed by the parties. [16] Of import, both parties signed a consent to assignment of the rights and obligations under the agreement from PTL to the defendant Palcam Solutions Inc. (“PS”) which was another company controlled by Mr. Palisca and affiliated with PTL. PS ultimately changed its name to 1401763 Ontario Inc. just before the bankruptcy of DMT. I refer to that company throughout as PS, unless otherwise specifically indicated. All parties were represented by lawyers. Mr. Palisca personally signed as a guarantor of PTL and PS with respect to their obligations under the contract.

35In response to specific questions from me, Mr. Palisca candidly acknowledged that the agreement did not envisage PT charging management fees to DMT. He agreed that the issue of his compensation was agreed not to be in excess of $100,000 per year. [17]

August 11th Meeting re Moving Machines

36Within 48 hours of the ink drying on the contract, Mr. Palisca held a meeting with the management team at DMT on August 11, 2010. He prepared minutes of that meeting and had all present sign the minutes. [18] In them, it was agreed that four of the CNC 5 axis milling machines would be moved to PTL’s manufacturing facility in Newmarket. Mr. Palisca explained this would result in a more efficient use of labour. Furthermore, he felt the move was necessary because the property at 11 Brockley Road was to be sold on September 1, 2010. He did not feel there would be enough room at 10 Brockley Road to house all the equipment and that the cost to add air compressors, air conditioning, and the appropriate wiring at a rental facility would exceed the costs of moving the machines to Newmarket. He testified that they would then be used in Newmarket for the manufacturing of jobs obtained by DMT. When they were not being used for jobs for DMT, PT would be able to use them for its own jobs and reimburse DMT for such use.

37Mr. Pohl was not present at that meeting. The next day, August 12, 2010, Mr. Palisca met with Harry Pohl and reviewed the notes of the meeting. He had Mr. Pohl sign the minutes. Mr. Pohl stated that in a previous meeting with GE Capital (the lessor of the machines), he and Mr. Palisca were advised that GE did not want the equipment moved. After five minutes of considering the minutes of the meeting, Mr. Pohl signed the document. He understood that DMT work would be done on the machines. However, he also understood that PTL work would also be done on the machines and stated that he understood that PTL would pay DMT $20,000 per month rental. In that respect, he referred to his handwritten notes which indicate $20,000 was to be paid as rent. Mr. Pohl testified that the ultimate reason why he agreed to moving the machines was because Mr. Palisca assured him that PTL or PS would pay rent to DMT to help with the burden of the lease payments. He was not aware that DMT was going to be responsible for the costs of moving the four machines, their installation and wiring and other associated costs. The invoices for all these expenses were not created by PTL or PS until October when the RBC bank account had been frozen. Mr. Pohl denied knowing about the sub-lease agreement signed by Mr. Palisca on behalf of 131 Ontario Ltd. as landlord and on behalf of DMT as a tenant. [19] He testified that he only became aware of it during the course of this litigation. Mr. Palisca testified that the rental price of $10,000 per month was discussed with Mr. Pohl ($2500.00 per machine), which would include electricity, compressed air, and other amenities required to make the machines operational.

38I accept Mr. Pohl’s testimony on that issue. It is significant that in the meeting with staff on August 11 th , Mr. Palisca made no mention of the rental costs which would be charged to DMT on a monthly basis. Unlike the Minutes of that meeting, he did not have Mr. Pohl agree that such rent was fair and reasonable and that the other terms contained the sub-lease agreement were reasonable. That document provided that DMT had to pay $10,000 of monthly rental to 131 Ontario Ltd. for having its machines situated on the floor of the PT manufacturing location. Not surprisingly, Mr. Pohl was not asked to review it or agree to its terms. It was signed by Mr. Palisca on behalf of both parties to the lease.

39When I asked Mr. Palisca why 201 Ontario Inc. did not close the sale of 11 Brockley on September 1, 2010, his response was vague other than saying there was an environmental problem. As the president and sole director, I would have expected him to know precisely why it did not close. It further begs the question of why the machines had to be moved to Toronto, with significant moving and set up costs incurred. It also does not escape me that these charges were invoiced well after the fact to the account of DMT.

40Mr. Pohl stated that he was working regularly in August and September as he wanted to make sure the business at DMT was profitable so that he could be paid pursuant to the terms of the August 9 th agreement. He noted that he had the right to look at the financial statements of the company at any time and to know what expenses were being incurred by the company at any time. However, I find that because the financial obligations of the sub-lease were not signed by him or discussed with him, and the moving expenses related to the machinery not being invoiced in a timely way, he had no way of realizing these charges were being applied to DMT.

41Mr. Palisca stated that when he and his management team went back on-site at DMT in early August, many of the changes he had implemented in March and April had been set aside or ignored. The company felt as if it was still in the same condition as when he had originally started there in March. In the interim, his previous manager of operations Mo Jalali had been lost and so Peter Polyak was assigned to manage DMT and to train a new manager. Mr. Palisca stated that it was their objective to get DMT operating profitably and independently within four months. In this period, he asserted that he had difficulty contacting Mr. Pohl.

42Mr. Polyak testified and was an impressive witness. Unlike Mr. Palisca, he recalled that most of the systems that had been initiated by PTL at DMT in March and April were still in place. He noted that Andre Lochan, who was in charge of scheduling and purchasing, was still employed at DMT. This made his job to get all the reporting systems corrected was much easier. He stated that DMT had consistent orders for jobs to be done on their turning machines but there was a shortage of work for the CNC 5 axis machines and a 9 axis lathe. Production wise, he did not find it much different from the spring as a lot of the orders were repeating orders from the same customers.

43He recalled that when the closing for 11 Brockley Street was approaching, he determined that there was not enough room in 10 Brockley for all the equipment to be installed on the shop floor. He helped co-ordinate the move of the four CNC 5 axis machines to PTL. Once they were installed at PTL, he remembered that there was not much work done on the machines. He emphasized that they wanted to keep the two businesses separate and in that respect, a qualified operator for the machines, Darmesh Dodhia, came over to Newmarket to do some jobs for DMT for two or three weeks.

Refinancing Efforts

44In August and September 2010, Mr. Palisca testified that he was attempting to obtain financing from other banks to assist DMT. In particular, he was in contact with another RBC branch located in Newmarket and a branch of the Business Development Bank of Canada (BDC). He felt that the best chance of getting refinancing was with RBC as it was the bank with which PTL dealt and they already had his personal guarantee in place. He felt that if that was not satisfactory to RBC, they could just carry on with Mr. Pohl’s guarantee in place.

45Mr. Palisca referred to an email chain with Carmine DiMatteo, an account manager of BDC. It indicated that the bank was seeking certain information from Mr. Palisca to consider the possible refinancing of DMT. [20] The series of emails extends from August 30 th to September 9, 2010. In that material, the bank wanted Mr. Palisca as a personal guarantor and they wanted a consolidated financial statement for DMT and 201 Ontario Inc. to be provided. Mr. Palisca sent the bank a statement of his net worth and an application of his net worth among other documents. [21] The ultimate decision of the bank was never presented to this court nor the documentation confirming the reason for accepting or not accepting the application.

Financial Statements of September 3, 2010

46Mr. Palisca asked Phillips to expedite the production of the June 30 th 2010 fiscal year end financial statements. This was related to his efforts to obtain refinancing of DMT’s debt. Mr. Phillips was encouraged to provide statements which would show the financial situation in the best light possible. Hence, the retained earnings were reflected more positively on the statement ultimately released largely because the SR and ED income tax recovery was shown as an asset, the recovery of bad debts (from Gandi Innovations) was shown as an asset, and the capitalization of the equipment which was subject to a lease was included using an 8 per cent amortization rate rather than having the large annual rental payments shown as an annual expense. After Mr. Pohl extracted a promise from Mr. Palisca that he would not immediately demand repayment of his outstanding $80,000 shareholder’s loan, Mr. Phillips was able to release the financial statements to Mr. Palisca on or about September 13, 2010. [22]

47During September, Mr. Palisca recalled that Mr. Pohl asked him several times about how the refinancing was progressing.

48During negotiations with his own branch of the RBC in April 2010, the manager Claudine Johns noted that if a refinancing was approved, it would be best to have it go through a holding company because, as she noted, PTL had just come through a couple of tough years and that company might not be ready for such a move. [23]

49Lori Troisi was called as a witness by the defendant. She is a senior manager of business operations at RBC and was the account manager for DMT in 2010. During her examination in chief, she was led line by line through an internal bank memo which she authored on October 18, 2010. It related to the notice that RBC had received about the transfer of ownership of DMT and the concerns of the bank with respect to its outstanding line of credit with DMT. In that document, she noted that she had been in touch with other representatives of RBC and that PTL had been denied credit by RBC on two prior occasions.

50That is of some significance, part of the problem in refinancing may have been due to a less than stellar financial picture for PTL in 2010. Mr. Palisca did not provide the responses from either RBC or the BDC for approving or rejecting the refinancing application either in his evidence nor in documentation provided to this court.

51There is no evidence before the court that Mr. Palisca ever advised Mr. Pohl that the refinancing had been refused by RBC or BDC.

Financial Picture at end of September

52Mr. Palisca testified that up to the middle of September, things seemed to be turning out positively at DMT and he noted some progression in the business. Mr. Pohl stated that everything seemed to be reasonably normal until early in October. In fact, things were not as they seemed despite the fact that the DMT payroll was being met every week.

53Mr. Pohl identified a significant number of unpaid bills owing to suppliers around the end of September. [24] He also referred to a DMT income statement as of September 30, 2010, which showed that as of the end of the company’s first quarter, the quarterly sales were approximately the same as in the period ending March 31, 2010. [25] It showed that the company only suffered a minor loss of $662.78 for the first quarter of the year but showed a net income for the month of September of $6,338.58.

54However, it does not reflect the $10,000 monthly rental costs being imposed by 131 Ontario Inc. nor the $40,000 management charges being accrued by PTL.

55Judy Francioso testified that she left the employ of DMT on or about September 29, 2010. She said it was a hostile work environment and that she was being urged to lie to customers about payment of their bills. She recalled that in March when PTL came into DMT, she was told to not advise RBC that DMT was being sold. She was also instructed to not let any vendors know of the transaction. She felt that everything was very secretive and that the constant criticism of Mr. Pohl was unfair. She felt that some of the activity was fraudulent and it just became too stressful for her. She learned in due course from emails received from suppliers that once they learned of the sale, they would not provide credit to DMT. She recalled that due to non-payment of its bill, Bell was threatening to terminate internet service to DMT. After leaving her job at DMT, she agreed to assist PTL’s bookkeeper Cathy in October as she worked to learn to operate the bookkeeping program used by DMT called Business Vision.

56The October 31, 2010, monthly income statement for DMT disclosed significantly reduced sales of $98,000. [26] In light of the events that occurred that month, it is hardly surprising.

57On Thursday September 30, 2010, Mr. Pohl had his lawyer Donald Hawkins write a letter to counsel for PTL and Mr. Palisca. [27] It alleged a number of things which the defendants had failed to do as promised. These included beginning the “take-out” financing process, failing to generate promised revenues from the move of the equipment to the PTL manufacturing facility, failing to provide monthly accounting as required by their agreement of August 9 th , and not paying DMT’s bills. It concluded by Mr. Pohl threatening not to sign any more DMT cheques and requesting RBC to freeze the DMT operating line of credit.

58Counsel for PTL and Mr. Palisca replied in a timely manner by letter dated Monday October 4, 2010. [28] She noted that PTL was working to prepare the appropriate financial information to present to four different banks on October 13 and 14, and her client was confident that by the first week of November one of those banks would agree to participate in a refinancing. She suggested that the fact that PTL was not paying bills of DMT from their newly consolidated accounting system in Newmarket was irrelevant. She replied to the other concerns expressed in Mr. Hawkins’ letter.

59The reality is that by that time, the genie was already out of the bottle. The RBC account had been frozen on October 1, 2010.

October 1, 2010: RBC freezes the account

60On October 1, 2010, RBC did freeze the DMT account. As Ms. Troisi explained, that meant that deposits could be made to the account but not withdrawals, and no cheques would be honoured.

61Mr. Pohl denied that he had contacted the bank to freeze the account. His then common-law partner Wanda Wilson testified that she had loaned $51,000 to DMT in May 2010 after Mr. Pohl had removed PTL and Mr. Palisca from the operation of the business. As part of the August 9, 2010 agreement, the parties acknowledged the existence of this debt and provided for monthly repayment of that debt commencing on October 1, 2010.

62Ms. Wilson testified that she was furious when she learned that Mr. Pohl had signed the August 9 th agreement transferring control of DMT to the defendants. When it appeared after six weeks that Mr. Palisca’s refinancing of the business was not going to occur, she was fearful that the bank would call on her loan which was secured by a mortgage against her home. Thus, on October 1, 2010 she called a lady named Theresa at RBC and told her that Mr. Palisca did not yet have his refinancing in place with respect to the sale to PTL. Ms. Wilson recalled that Theresa was upset and said that she did not know that the business had been sold.

63On October 4, 2010, Ms. Troisi and her manager invited Mr. Pohl to the bank for a meeting. Her memo indicates that “the client contacted us October 1/10 and asked the AM (account manager) to place a deposit only on the account.” [29] Ms. Troisi could not say that it was Mr. Pohl who called and because she was a client of the bank, Ms. Wilson may have been the person who called. She agreed that if the client had contacted her personally, she would have written “the client contacted me” rather than “us”. As she was the account manager, she also agreed she would have written “and asked me” to freeze withdrawals from the account. In her cross examination, she agreed that it in reading the memo, it made more sense that someone called the bank and made the request. Thereafter, she contacted Mr. Pohl for the meeting of October 4, 2010. I accept the evidence of Mr. Pohl that he did not contact the bank and ask them to freeze the account and that he was unaware that Ms. Wilson had contacted the bank.

64Mr. Palisca was shocked to learn that the account had been frozen. In October, there were a number of deposits to the account totalling approximately $31,000 to reduce the outstanding line of credit to approximately $310,000. [30] From the evidence, it appears that these were effected by Mr. Pohl who simply deposited the cheques as they were received at the Brockley Road office of DMT.

65On or about October 7, 2010, Mr. Pohl was fired as an employee of DMT. Mr. Palisca believed he had contacted the bank to freeze the account. He considered it a breach of the August 9 th agreement which required Mr. Pohl to promote the goodwill of DMT with suppliers, vendors and bankers. [31]

66Mr. Palisca opened a new bank account for DMT at a branch of the Bank of Montreal in Newmarket where deposits and withdrawals could be made without the signature of Mr. Pohl.

67Mr. Palisca directed personnel at DMT to actively collect outstanding accounts receivable. Mr. Polyak indicated that he was directed to make this a priority so DMT could pay staff and suppliers. He recalled that during October, the work carried on at DMT and the employees had little awareness of the disruption in the company. He identified a series of invoices all dated October 29 th which were consistent with work being done at DMT at that time. Of interest, that was the same day that he attended with Mr. Mooradian at DMT to lock up the premises, before handing the keys to the Trustee in Bankruptcy.

68Mr. Mooradian testified that he had extensive experience in the automotive manufacturing industry and as a result, he had ultimately started his consulting business called Core. In October 2010, he was retained by Mr. Palisca to assist with strategizing how DMT could be saved. He recalled spending approximately two weeks considering the alternatives. He attended at DMT once or twice. He was present for meetings with the Bank of Montreal and with BDC. Ultimately, he advised Mr. Palisca that he did not think DMC could be saved. I found him to be a credible witness who did not try to advocate for PTL or Mr. Palisca. He was clearly very experienced in the automobile component manufacturing industry and I accept his view that the situation was not salvageable.

69The accounts payable of DMT as of September 8, 2010, were approximately $346,708. Approximately $91,000 of those accounts were outstanding beyond 90 days. As of October 5, 2010, they had grown to $424,000 with almost $139,000 beyond 90 days. [32] It is clear that in this period of time, accounts were not being paid in a timely way.

October 11, 2010: Gandi Innovations payout

70In 2009, one of DMT’s the major customers, Gandi Innovations, filed an assignment in bankruptcy. It was a major financial blow to DMT as they owed DMT in excess of $600,000 at the time. That bankruptcy also meant that sales of DMT dropped dramatically, which is evidenced in looking at the comparative year end statements for 2008 and 2009. [33] Those same financial statements show a reduction in accounts receivable of almost $800,000.

71On June 8, 2010, Mr. Pohl filed a proof of claim in the Gandi Innovations bankruptcy for $640,804 of goods shipped to Gandi Innovations. It also included a claim for $813,258 for all parts manufactured for Gandi to have product on hand to fill their orders in a timely manner. That latter claim was not accepted by the Trustee.

72Mr. Palisca submitted another Proof of Claim on October 8 th , 2010, at or about the time that Argo Partners approached DMT about buying out the DMT claim. Argo Partners was an investment firm specializing in the buying and selling of claims of creditors in Bankruptcies and Receiverships. They offered to buy out the DMT claim for fifteen cents on the dollar. [34] Mr. Palisca accepted the offer and on or about October 11, 2010, a wire payment for $245,475.75 was received and deposited to the account of DMT at the Bank of Montreal. [35] Mr. Palisca then explained that on October 13, 2010, he had a draft made payable to PTL for $176,000 to pay PTL for some of the goods and services due to it from DMT. [36]

73Mr. Palisca explained that when he learned that the RBC had frozen the DMT account, he knew that he was in a precarious position with respect to PTL and DMT. He realized that PTL was about to get a bad debt of approximately $170,000 because he had had a lot of people focus on DMT at the expense of PTL. He explained that PTL had fallen behind on its billing and they therefore created and backdated a series of bills in early October for these expenses which he attributed to DMT. [37] They amounted to $204,120.87. They consist of the following:

• Management fees for August, [38] September, [39] and October [40] for a total of $135,600.
• Rental charges for machines: August, September and October for a total of $33,900.
• Charges for moving equipment to Newmarket for a total of $23,097.20. [41]
• Charges for goods supplied and shipped to DMT for a total of $11,523.67. [42]

74The supporting invoices from contractors for the moving and installation of the machines from Hamilton to Newmarket were not provided to the court. A breakdown in detail of how the management fees were calculated was not provided. Mr. Palisca simply stated that it was the cost for three of his management team and himself being involved with DMT.

75Mr. Palisca further agreed that he had $44,000 withdrawn from the Bank of Montreal account on October 29, 2010, to pay outstanding invoices owing by PTL or himself to the law firm of Torkin Manes. [43] There has been no detail provided with respect to those accounts and how they are for the benefit of DMT. I do not find it a co-incidence that this last payment cleaned out the Bank of Montreal account on the same day as the doors were locked and just a few days before Mr. Palisca caused DMT to make a voluntary assignment into bankruptcy.

76Upon receipt of the Gandi Innovations funds, Mr. Palisca also arranged for $61,890 to be remitted to the Receiver General for arrears of payroll taxes attributable to DMT and for which he, as the sole officer and director, most probably would have been held personally liable. He further caused Process Products Ltd. to be paid $50,697.72 by cheque dated October 21, 2010, without offering any explanation for that payment such the supporting contract or an invoice for services or goods provided and verification as to whose account they were provided.

77Mr. Palisca stated that when the RBC account was frozen and other financing evidently was not going to come available, he knew the situation was grave. In that period, he hired the Core group, whose principal was Mr. Mooradian, to analyze the business and eventually to advise him how to handle putting the company into bankruptcy. Ultimately, he approached Mr. Pohl about possibly taking over the company again. Mr. Pohl arranged to have his accountant Robert Phillips look at the financial situation of DMT before making a decision.

October 21, 2010 Review of DMT Financial Records

78On October 21, 2010, Mr. Pohl and his accountant Mr. Phillips went into the offices of DMT and spent approximately three hours looking at the books and records.

79When he was there, Mr. Phillips testified that he looked at the information which had been posted to Business Vision to confirm what source deductions had been remitted and what cash was on hand. A summary of the information he put together for Mr. Pohl was entered as evidence. [44] At page 415 of Exhibit 3, he summarized on the right side of the page that the company had approximately $581,000 of obligations. When he concluded his assessment, he estimated the shortfall to be approximately $420,000. In the end, he advised Mr. Pohl that he would need at least $500,000 of financing to cover the line of credit at RBC, Revenue Canada remittances, payment of the most overdue accounts from suppliers, and immediate lease payments due on the equipment. [45]

80Mr. Pohl decided not to proceed with the re-acquisition of the business.

81On October, 29, 2010, the solicitors for GE Canada Equipment Leasing forwarded a demand letter to Mr. Pohl and Mr. Palisca for immediate payment of $1,183,190.27 under the equipment leases financed by it. The demand was based upon non- payment of the monthly lease payments in October 2010 and by virtue of their failure to maintain the equipment at 10 Brockley Drive in Hamilton.

82On November 4, 2010, Mr. Palisca caused DMT to file an assignment in bankruptcy. [46]

83The Trustee, in his final report, noted that a dividend of 40 per cent could be paid out to all unsecured creditors when all the assets were liquidated.

84At the end of his testimony, I specifically asked Mr. Palisca if PTL or any company related to him had purchased any of the DMT machines at the auction held on the floor of his manufacturing shop in Newmarket. He said no.

85At the conclusion of the testimony of Mr. Polyak, I asked the same question. He stated that PTL had purchased one of the machines. It confirmed my belief during this trial that Mr. Palisca’s testimony was altogether too self-serving. I simply do not think he has been forthright with respect to what occurred in this transaction.

Position of the Plaintiff

86The plaintiff contends that the defendants breached the terms of the agreement dated August 9 th and as a result, he seeks damages in the amount of $1.5 million. Mr. Munro submits that the defendants were bound by an implied duty of good faith in this contractual arrangement and only acted in their own best interest at the expense of the plaintiff, contrary to the implied terms of the agreement. Alternatively, he contends that the actions of the defendants were oppressive and section 245 of the Business Corporations Act , R.S.O. 1990 cB.16 (“the OBCA ”) gives the court discretion to award damages and to appoint a receiver over the affairs of PTL. He further argued that based on the principles of equitable fraud, the court could award damages and punitive damages.

87The plaintiff was fired from DMT on or about October 7, 2010. He seeks damages for wrongful dismissal representing the remaining twenty two months on his contract which assured him an annual salary of $60,000.

Position of the Defendants

88Ms. Epstein submitted that DMT was in perilous financial condition when Mr. Palisca became involved and he exercised reasonable and appropriate attention to trying to turn the company’s financial situation around. She noted that numerous factors pointed to a company headed for bankruptcy before Mr. Palisca decided to try to apply Palcam’s talent and expertise to confront those problems. The fact that he was not successful was, in Ms. Epstein’s submission, ultimately not due to a lack of effort or good will on the part of the defendants, but due to the fragile financial state of DMT which was ultimately crushed when Mr. Pohl asked RBC to freeze the line of credit. She argued that it was evident from the contract, which did not require any payments to be made by the defendants on the purchase price until March 1, 2011, that it was going to take some time to increase the cash flow of DMT and reduce its costs. The contract was less than two months into its term when RBC froze the line of credit.

Analysis

Plaintiff’s Claim for Breach of Contract:

89Counsel were agreed that the contract of August 9 th was the document governing the relationship of the parties in this litigation. They had difficulties prior to that date but they were resolved at the mediation of July 28 th and the settlement reached that day was incorporated by counsel in the August 9 th agreement and other closing documentation.

90I accept the position of the defendants that they have not breached the contract dated August 9, 2010. Mr. Pohl clearly wanted to sell the company. It is evident from the evidence of Judy Francioso and Walter Palisca that Mr. Pohl was not functioning at a high level, possibly due to the after effects of his stroke in 2008. He appeared to be depressed, part of which undoubtedly was caused by his concern over the sharp drop in sales of the company from 2008 to 2010 and by the loss of over $600,000 of receivables due from Gandi Innovations.

91The agreement that Mr. Pohl signed was very favourable to the purchaser. The purchaser did not have to put down any money. The purchase price was to be paid from the profits of the company. The purchaser was given a carte blanche to manage the company as it felt best and Mr. Pohl gave up his right to exercise any control over the management of the company. Both parties were represented by counsel and presumably knew and understood their rights and obligations under the contract. Our courts have long recognized the principle that the wishes of two contracting parties, bargaining on equal terms with legal representation and which are reflected in a contract signed by both parties, will be respected.

92There are many indicators supporting the fact that DMT was in serious financial condition when Mr. Palisca arrived on the scene in February and March 2010. Ms. Epstein helpfully outlined some of them in her submissions to the court. Some of those are listed below:

1. Harry Pohl recognized his company was in financial difficulty when he decided to sell it. He had caused his personally owned company 201 Ontario Inc. to list 11 Brockley Drive for sale. That property was subject to a blanket mortgage of approximately $850,000 to GE Equipment Financing which also secured the amounts due for milling equipment subject to leases. That is reflected under long term liabilities in the June 30 th year end financial statements of DMT. [47]
2. Mr. Pohl wanted to sell at least two of DMT’s CNC 5 axis milling machines and had retained a broker to facilitate their sale.
3. DMT had lost one of its major customers when Gandi Innovations made a proposal under the Creditors Relief Act . It constituted a double blow for DMT. First, between accounts receivable and customer inventory on hand, a claim was made by DMT of $1.444 million. [48] Second, the sales to a significant customer were lost.
4. The annual revenues of DMT had fallen from $4.8 million in 2008, to $3.7 million in 2009 [49] to $2.6 million in 2010. [50]
5. In 2008, DMT had to start to use its operating line of credit with RBC to help meet expenses. Mr. Phillips did suggest that in looking at the financial statements of DMT that the company could afford for a short while to lose up to $150,000 per year but he agreed that at some point the bank would become concerned with the debt to equity relationship.
6. Mr. Pohl had cut the salaries of employees by ten per cent and employee benefits had been eliminated.
7. DMT had to borrow $38,000 from Absolute Quality Graphics. [51]
8. DMT had to again borrow $55,000 from Absolute Quality Graphics in May 2010. [52]
9. When the opportunity arose, Mr. Pohl agreed to sell the company even though he was not going to get any cash payment at the outset and despite knowing all managerial decisions would be in the hands of the defendants.
10. Mr. Palisca clearly indicated in writing to Mr. Pohl that upon his review of the financial statements, he felt the retained earnings were not accurate and that the company in fact had a negative value due to the overvaluation of obsolete inventory.

93In my view, this was not a nefarious scheme hatched by Mr. Palisca and his companies to strip DMT of its assets and to simply allow it to go into bankruptcy. There is ample evidence of the very significant efforts made by them to try to make the company once again viable and profitable. Some of those are as follow:

1. Mr. Palisca had his operations manager at PTL, Peter Polyak, take over that position at DMT after they re-entered DMT in August 2010. Mr. Polyak was an impressive witness and answered questions in a forthright and honest manner. He was emphatic that every effort was being made to keep operations going at DMT right up to the date of October 29 th when he was directed to lock the doors and to turn the keys over to the Trustee in Bankruptcy.
2. Mr. Palisca transferred four of the CNC 5 axis machines to PTL’s Newmarket factory in August with a view to reducing costs and allowing 11 Brockley Road to be closed.
3. He made certain the procedures put in place by PTL earlier in the year remained in place and were functioning effectively.
4. The employees of DMT were paid in a timely manner virtually up to the day the doors were locked. When they learned that the DMT line of credit had been frozen by RBC, Mr. Polyak was directed to have staff ramp up efforts to collect outstanding accounts receivable payable to DMT.
5. Mr. John Mooradian was retained to act as a consultant to PTL and Mr. Palisca to see how DMT could be saved. In due course, he assisted Mr. Palisca with attempting to wind things up in an orderly way so that DMT could make an assignment in bankruptcy.
6. Mr. Palisca committed a considerable amount of his time and that of his accounting department to try to reduce costs and centralize the accounting operations of both companies. Judy Francioso was retained to work with and train Cathy of PTL in using the Business Vision accounting system of DMT.
7. Mr. Palisca did attempt, albeit unsuccessfully, to obtain refinancing for DMT.

94There was no contractual obligation on the part of the defendants to try to get refinancing. Clearly it would be better for DMT if it could be obtained, but failure to succeed would not constitute a breach of contract. I have no hesitation in saying that it was implied that Mr. Palisca would try to get refinancing. Mr. Pohl made his concerns about the delays in refinancing well known to Mr. Palisca in late September, 2010.

95I find on the evidence that Mr. Palisca did try to get additional financing to replace that in place with RBC. Mr. Palisca testified to those efforts and I accept his evidence on that issue. These efforts are evidence by Mr. Palisca’s request to Mr. Phillips to provide his May 8 th letter; the emails with BDC evidence an effort in the month of September to obtain financing; and the push to get the June 30 th 2010 year-end financial statements of DMT was part of that initiative. Mr. Mooradian confirmed that he sat in on one or two meetings with banks in October 2010. Clearly, those efforts were unsuccessful, but not from any evidence of lack of effort and good faith on the part of the defendants.

96As the plaintiff was to be paid from the profits of DMT and clearly the company failed before that could occur, I find that the defendants did not breach the contract as alleged by the plaintiff. The plaintiff’s claim for $1,500,000 representing the sum for which he agreed to sell his shares in the two corporations is dismissed.

Claim for Wrongful Dismissal

97I am satisfied on the evidence that Mr. Pohl did not contact RBC to ask them to freeze the DMT operating line of credit. Ms. Wilson testified she called RBC without realizing that the bank was unaware of the sale of the shares to PTL. I accept her evidence in that respect. Ms. Troisi of the RBC confirmed that her memo of October 18, 2010, suggested that someone other than Mr. Pohl may have contacted the bank and alerted them that Mr. Pohl had sold his shares in the company contrary to the terms of his guarantee with the bank. [53]

98I am satisfied on a balance of probabilities that Mr. Pohl did not breach his employment contract as asserted by the defendant. Hence, he was wrongfully dismissed as an employee of DMT by Mr. Palisca. However, he did not prove a claim in the bankruptcy of DMT for the amounts he was entitled to under the contract. His contract of employment was with DMT. [54] Mr. Palisca’s personal guarantee was with respect to the contractual obligations of PS and not DMT. He cannot in law enforce that breach of employment contact against the named defendants. That claim is dismissed.

99In her opening statement to the court, Ms. Epstein indicated that her client’s counterclaim was founded upon alleged wrongdoing on the part of Mr. Pohl in freezing the RBC line of credit. In light of my finding that it was not the fault of Mr. Pohl that the account was frozen, the counterclaim is dismissed.

100I am satisfied on all the evidence that the defendants did try to do all reasonable possible to save DMT up to the end of September, 2010. The DMT monthly cash sheet for September 30, 2010, showed it was just breaking even. [55]

101When the RBC account was frozen, the situation became much more precarious for DMT because the lease payments for various pieces of equipment were not remitted and not long afterwards, enforcement proceedings were commenced by GE Capital Leasing and by RBC.

The Gandi Innovations Funds

Duty as a Director:

102When the Gandi Innovations settlement funds were received in the amount of $245,000, Mr. Palisca as an officer and director of DMT owed a duty to the company to apply those funds to the benefit of DMT. Section 134 of the OBCA imposes a statutory duty on a director to act honestly and in the best interests of the corporation. I find that Mr. Palisca breached that duty when he applied most if not all of the funds for the benefit of PTL and PS, to the detriment of DMT and ultimately the plaintiff personally.

Implied Term of the Contract

103G.H.L. Fridman wrote in The Law of Contract in Canada (3 rd ed. 1994) at p. 476:

In determining the intention of the parties, attention must be paid to the express terms of the contract in order to see whether the suggested implication is necessary and fits in with what has clearly been agreed upon, and the precise nature of what, if anything, should be implied.

104I find that within the ambit of the August 9 th contract between the parties, there was an implied term that the defendant, Mr. Palisca, would not lie to or mislead the plaintiff with respect to the financial situation of DMT. As part of the duty of honest performance imposed on PTL and PS, and on Mr. Palisca as the operating and controlling mind of those companies, I find that there was an implied contractual duty to not compromise the interests of DMT to those of PTL and PS. I find there was an implied term of the contract that the financial operations and accounting of DMT would be kept separate from the financial dealings of PTL and PS so the plaintiff would be able to ascertain the basis upon which he was to be paid under the terms of the August 9 th agreement. Paragraph 3(e)(i) of the contract reinforces that opinion. It provided that “effective March 1, 2011, payments against the debt will begin at a rate of 13% of net profits excluding SR&ED, calculated quarterly in arrears.” Subparagraph (ii) stipulated that “the purchaser shall provide Vendor a monthly internal income statement for DMT and an annual unaudited year- end financial statement.” Mr. Palisca himself agreed that his staff had to be trained on the Business Vision software used by DMT. The only logical conclusion is that the financial operations of DMT were to be separate and distinct from those of PTL and PS so that proper accounting to Mr. Pohl could be effected as required by the contract. I am further reinforced in this conclusion by the fact that Mr. Palisca opened an account in the name of DMT at the Bank of Montreal in Newmarket once the RBC account was frozen.

105I find that as the sole director and operating mind of DMT, upon receiving the Gandi Innovation funds, Mr. Palisca had a duty to approach RBC, pay down the line of credit and attempt to re-negotiate with the bank. That would have been in the best interests of DMT and ultimately Mr. Pohl as the personal guarantor of the line of credit. I recognize that it is not clear on the evidence before this court that the bank would have considered such a move, in light of the significant outstanding accounts payable and the breach of the prior agreement by the sale of the company to PTL without RBC’s consent. Nevertheless, it was Mr. Palisca’s duty as a director of DMT to have tried all possible to keep DMT operational. Instead, he put his own interests and those of PTL and PS first.

106As Mr. Palisca stated, he realized DMT’s situation was grave. He realized that PTL and PS may suffer a loss of income for purported management services and rental expenses payable by DMT. Hence, he caused invoices to be created to justify payment of those amounts.

Payment of Management Fees:

107I find that Mr. Palisca breached his duty as an officer and director of DMT in making payments of $135,600 to PTL for management fees. The agreement of August 9 th specifically limited the amount payable to Mr. Palisca as salary to $100,000 per year. It contained no provision for management fees. There was no explanation provided for how those fees were calculated, other than as a notional figure pulled out of the air by Mr. Palisca. He did not provide supporting documentation outlining what hours were involved, what employees were involved, nor the precise nature of the work being done.

Payment of Leasing Costs:

108The justification for the payment of $33,900 to PTL for rent from the DMT funds was never properly proved. Again, Mr. Palisca appears to have picked a figure out of the air and determined that $10,000 per month plus HST would be appropriate. While the minutes of the August 11 th meeting indicated a rent would be charged for having the machines on the floor of PTL, the monthly charge was not specified. Evidence was not led to show how much PTL was paying per square foot for rent, how many square feet were used to house the DMT machines, or the costs attributed to the DMT machines for compressed air and electricity. The latter two charges would have to be minimal based on the testimony of Mr. Palisca and Mr. Polyak who indicated the machines were not used very much. Like the nicely rounded figure of $40,000 for management fees, another nicely rounded figure of $10,000 was pulled out of the air by Mr. Palisca for rents. The defendants had already leased space for its Newmarket manufacturing location and were paying rent. The charges to DMT for rent have not been proved on the balance of probabilities as being reasonable or payable.

Payment of Torkin Manes Account:

109Mr. Palisca’s payment of $44,000 to Torkin Manes was simply not justifiable. He did not provide the detailed invoices rendered by that firm identifying the client and the nature of the work done. I can only conclude that the invoices against which the funds were applied and had nothing to do with DMT. This was just another example of Mr. Palisca putting his own interests and those of PTL and PS ahead of those of DMT and Mr. Pohl. Those funds constituted the last withdrawal from the DMT Bank of Montreal Account on October 29 th, at or about the very time the doors to DMT were being locked.

Payment of Moving Costs of Equipment:

110Mr. Palisca paid PTL $23,097.20 for the costs of moving the 5 axis machines to Newmarket. Absolutely no breakdown of those charges was provided to Mr. Pohl or to the court. One would expect that a director of DMT would want to know how that figure was reached. It simply has not been proven properly as a fair and reasonable price. I recognize that DMT would have had a responsibility for some of the moving costs, but in the absence of proof and recognizing how the other invoices created by Mr. Palisca and PTL have been inflated, I reduce that charge to $10,000 plus HST for a total of $11,300. The amount overcharged by PTL is therefore $11,797.20.

111I find that Mr. Palisca caused the sum of $225,297.20 to be improperly paid to PTL from the funds of DMT.

112Mr. Palisca and the defendants owed the plaintiff a duty of honest dealings in this contractual matrix. The misappropriation of funds to the benefit of the defendants was a clear breach of the contract of August 9 th and the implied duty of good faith and fair dealing.

113I find that the defendants have improperly misappropriated to their own benefit the following amounts:

$133,900 for management fees. $44,000 for payment of legal fees to Torkin Manes. $33,900 for sub-lease rental payments. $11,797.20 for equipment moving costs.

Total misappropriated: $225,297.20

114Mr. Palisca was wearing two hats in October 2010. He was the operating mind and sole officer and director of DMT and the Palcam companies (PTL and PS). When the Gandi distribution funds were received, he had a statutory duty to apply those funds for the best benefit of DMT and not for the benefit of PTL or PS. He breached that duty. In doing so, he caused damage to Mr. Pohl in that the line of credit of DMT was not paid down and Mr. Pohl was left with the resulting increased indebtedness to RBC.

115I find him personally liable as the President, sole director and the operating mind of DMT to pay the sum of $225,297.20 to Mr. Pohl to indemnify him for the obligation he has incurred as guarantor of the DMT line of credit.

116I also find that based on the same facts Mr. Palisca caused a breach of the implied term of fair and honest dealing in the contract between PTL and PS and Mr. Pohl. As a result, PTL, which received the funds or the benefit of the funds, has been unjustly enriched and is liable jointly and severally with Mr. Palisca for the payment of $225,297.20 to Mr. Pohl to indemnify him for the obligation he incurred for the DMT line of credit.

117Ms. Epstein noted that the payments authorized from the Bank of Montreal account to PTL and PS were not challenged by the Trustee of DMT as improper preferences in the bankruptcy proceedings. That may well have been the case, but this court is not bound by that decision of the Trustee in these circumstances.

The Common Law Duty of Honest Performance

118I found Mr. Palisca to be somewhat unreliable and untrustworthy in his testimony. He clearly misstated the facts, which undoubtedly he knew to be untrue, when he denied that he or his companies had purchased any of the CNC 5 axis machines during the auction in the Palcam facility. I have no doubt that the invoice he created at the end of April for $109,000 was not properly justified. He just made up the figures and adjusted the month in which they would be charged in order to exhaust the RBC line of credit and keep Mr. Pohl from writing any more unauthorized cheques. Mr. Palisca made it a point to have documents signed by Mr. Pohl when it suited his interest (the Minutes of the August 11 th meeting). However, when it did not, he just proceeded and after the fact tried to justify his actions. This is best evidenced by the creation of backdated invoices on October 9, 2010, justifying funds taken by PTL from the Gandi Innovation funds. The “sublease” for $10,000 plus HST is another example. I have no doubt that Mr. Pohl would never have signed such a document. It is not lost on me that the decision to move the machines and to charge a rent of $10,000 per month was not discussed by the parties and reflected in their agreement of August 9 th . Mr. Palisca clearly had considered this in advance and chose to simply attempt to justify his actions a day or two after the transaction had closed. When I asked him about the sum of $61,000 paid from the Gandi funds to the Receiver General of Canada, he agreed that these payments would have been his personal responsibility as sole director and officer of the company, if in fact they were paid on behalf of DMT. However, he did not provide any proof that all of those payments were attributable solely to DMT and not also to PTL or PS.

119Mr. Palisca evidently did not have the same concern for the personal liability of Mr. Pohl (to RBC) who had spent the better part of his professional career building DMT. In its most basic form, the contract in this case was an agreement between Mr. Pohl and Mr. Palisca. They were the operating and directing minds of their respective corporations. Mr. Pohl was relying on Mr. Palisca’s ostensible experience and business acumen to improve the operations of DMT and pay him $1,500,000 from the profits. Both parties understood that reality. In Bhasin v. Hrynew, 2014 SCC 71, at para 65 , the Supreme Court of Canada stated:

The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner. While “appropriate regard” for the other party’s interests will vary depending on the context of the contractual relationship, it does not require acting to serve those interests in all cases. It merely requires that a party not seek to undermine those interests in bad faith.

120In Bhasin v. Hrynew, at paras. 73, 80 and 93 , the court made several comments relevant to the issue of the new common law duty of honest performance:

I would hold that t here is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. … The requirement to act honestly is one of the most widely recognized aspects of the organizing principle of good faith.

A reasonable commercial person would expect, at least, that the other party to a contract would not be dishonest about his performance.

It is appropriate to recognize a new common law duty that applies to all contracts as manifestations of the general organizing principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.”

121Both parties knew that Mr. Pohl’s personal guarantee secured DMT’s operating line of credit at RBC. That was a legitimate contractual concern of Mr. Pohl’s which Mr. Palisca ignored. The essence of this transaction was that Mr. Pohl was selling his shares to Mr. Palisca or his designate with the promise that Mr. Palisca would use his purported expertize do all possible to make DMT profitable so Mr. Pohl could be removed from his personal guarantee and be paid for his shares. Mr. Palisca’s decision to apply the Gandi Innovation funds to the benefit of PTL and PS to the detriment of DMT undermined the legitimate contractual interests of Mr. Pohl. On the evidence I have heard and considered, there was simply no legal basis for making the impugned payments.

122On that basis, I would also hold that Walter Palisca breached the common law duty of good faith as the directing and controlling mind of PTL and PS by failing to be honest with Mr. Pohl in the performance of their contractual obligations. PTL and PS should not be entitled to the benefit of those funds in this contractual matrix.

123By the time of DMT’s bankruptcy, the line of credit had been paid down with various deposits made by Mr. Pohl from DMT receivables to approximately $310,000. I have no difficulty inferring that it was secured by a mortgage on the home that he and Wanda Wilson owned in Smithville, Ontario. [56] Within four weeks of the DMT’s bankruptcy, RBC began proceedings against Ms. Wilson and Mr. Pohl by way of Notice of Sale under Charge in which the bank was claiming approximately $312,000. [57] If those funds had been applied by Mr. Palisca to reduce the RBC line of credit, regardless of the Bank’s decision to reinstate the DMT line of credit, Mr. Pohl’s exposure on the guarantee would have been reduced accordingly. The funds from Gandi were owing for work done and delivered to Gandi long before the arrival of Mr. Palisca and PTL or PS.

124Ms. Wilson agreed in cross examination that Mr. Pohl had not been required to directly pay any of the funds owing on the DMT line of credit. The bank had accepted a payment from them of $10,000 for the sum owing under the company credit card. That is verified by the Statement of Affairs of DMT in its bankruptcy proceeding in which the Royal Bank is shown as an unsecured creditor for the amount of $9,624.38. [58] The outstanding balance on the line of credit remained secured as a mortgage against their home.

125I therefore find that, alternatively to the remedy granted for breach of Mr. Palisca’s duty as a director of DMT, the plaintiff is entitled to judgment against Walter Palisca and PTL and PS and 1041763 Ontario Inc. jointly and severally for breach of the duty of honest performance in the sum of $225,297.20.

Claim for Oppression under s. 248(2) of the OBCA

126The plaintiff alternatively has made a claim for damages or the appointment of a receiver over the affairs of PTL and PS under the OBCA . In light of the fact that I do not feel that the plaintiff is entitled to payment of $1,500,000 representing his sale price, I do not feel that the appointment of a receiver is appropriate and that head of relief sought is dismissed. I do find, largely based on the facts articulated above with respect to the improper payment of the PTL invoices to the detriment of Mr. Pohl, that the plaintiff is entitled to a remedy under s. 248(2) of the OBCA in the amount of $225,297.20. The relevant provisions of the OBCA read: (emphasis is mine)

245 - In this Part, “complainant” means, (a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates, (b) a director or an officer or a former director or officer of a corporation or of any of its affiliates, (c) any other person who, in the discretion of the court, is a proper person to make an application under this Part.

248 (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section. (2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates, (a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result ; (b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or (c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner, that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor , director or officer of the corporation, the court may make an order to rectify the matters complained of.

(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing , (j) an order compensating an aggrieved person;

134 (1) Every director and officer of a corporation in exercising his or her powers and discharging his or her duties to the corporation shall, (a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances

127Where the court is satisfied that, in respect of a corporation, an act or omission of the corporation or any of its affiliates effects a result that is oppressive, unfairly prejudicial to or unfairly disregards the interests of a creditor (among other stakeholders) the court may make an order to rectify the matters complained of.

128The oppression remedy focuses on harm to the legal and equitable interests of a range of stakeholders affected by oppressive acts of a corporation or its directors. It “gives a court a broad jurisdiction to enforce not just what is legal but what is fair”: See BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 58 . Oppression is fact specific, and what is just and equitable “is to be judged by the reasonable expectations of the stakeholders in the context and in regard to the relationships at play”: BCE Inc., at para. 59 .

129Before addressing the substantive elements of an oppression claim there is a threshold question of whether Mr. Pohl qualifies as a “complainant” within the meaning of s. 245 of the OBCA.

130As a creditor, Mr. Pohl could qualify as a complainant under s. 245(c) of the OBCA. That provision gives the court discretion to grant standing to any person it considers a “proper person.” It has been established that a creditor can be a “proper person” to bring an oppression application: See Sidaplex-Plastic Suppliers Inc. v. Elta Group Inc. (1995), 131 D.L.R. (4th) 399 (Ont. Gen. Div.) at para. 12 , rev’d (1998) 162 D.L.R. (4 th ) 367 (ON CA) [not on this point]. Our courts have generally been reluctant to convert simple debt actions into oppression proceedings but there is a greater openness with regard to oppression actions by creditors when the creditor’s interest in the affairs of the corporation is not remote. Mr. Pohl’s interest as a creditor, by virtue of being owed $1,500,000 by PTL and its assignee PS and also being the guarantor on the DMT line of credit, satisfies me that he is a proper person to bring an oppression claim. Creditors are one of the types of stakeholder interests specifically contemplated by s. 248(2) of the OBCA and whose interest should be considered by the corporation and its directors.

131A court must answer two questions when assessing an oppression claim: See Mennillo v. Intramodel Inc., 2016 SCC 51, [2016] 2 S.C.R. 438, at para. 9 .

(1) The claimant must set out their reasonable expectations with regard to the corporation that he or she claims have been violated.

(2) The claimant must then show that those reasonable expectations were “violated by conduct falling within the statutory terms, that is, conduct that was oppressive, unfairly prejudicial to or unfairly disregarding of the interests of any security holder.”

132As the personal guarantor on the corporation’s line of credit, Mr. Pohl had a reasonable expectation that the corporation would pay down the line of credit when possible. The presumed intention between the parties was that Mr. Pohl would be relieved as a guarantor as soon as refinancing was arranged by Mr. Palisca or when funds were available to do so. Mr. Pohl’s expectation is also evidenced by his repeated questions regarding the status of refinancing. This expectation is also supported by general commercial practice. It is evident that applying funds to the DMT line of credit account was likely an immediate and high priority for DMT to possibly be able to continue operating.

133Mr. Palisca’s decision to apply the $225,297.20 from the Gandi Innovations settlement funds for the benefit of PTL and PS, to DMT’s detriment, was a breach of his duty as a director to act honestly and in the best interests of DMT. This decision, as well as Mr. Palisca’s repeated drawing of invoices from DMT for PTL, without details, demonstrate repeated misdirection of funds to the detriment of DMT. These decisions violated Mr. Pohl’s reasonable expectations as a guarantor for DMT. Mr. Palisca failed to apply available funds to the operating line of credit when reasonably possible and absolutely necessary for the continued operation of DMT, thereby exposing Mr. Pohl to personal liability.

134For the second question, a claimant must show that the failure to meet the reasonable expectation involved unfair conduct and prejudicial consequences. I have no difficulty finding that the payment of $225,297.20 to constituted such conduct. There was no valid corporate purpose proved in this trial for DMT to make such payments and there was a lack of good faith in doing so on the part of the corporation’s director Mr. Palisca.

135Looking specifically at creditors, the court in First Edmonton Place Ltd. v. 315888 Alberta Ltd. (1988), 40 B.L.R. 28 (Alta. Q.B.), at para. 40 , var’d, 1989 ABCA 274, found the following considerations inform an analysis of unfair prejudice: “the protection of the underlying expectation of a creditor in its arrangement with the corporation, the extent to which the acts complained of were unforeseeable or the creditor could reasonably have protected itself from such acts, and the detriment to the interests of the creditor.”

136Several considerations outlined above are relevant to this case. In this case, default on the line of credit and Mr. Pohl’s personal liability were not unforeseeable. Mr. Palisca was aware of the dire financial situation of DMT highlighted by RBC freezing the account. Mr. Palisca had $225,297 to provide RBC (a creditor) to try to have the Bank re-open or “unfreeze” the Line of Credit and in doing so, reduce Pohl’s exposure on his guarantee. Mr. Palisca was the leading mind and controlling mind of PTL and PS, and prioritized those corporations over the interests of DMT and its creditors including Mr. Pohl. Mr. Palisca’s actions lacked good faith and breached his duty to DMT to act honestly and in DMT’s best interests. In my view, he had a duty to do all he could to remove the freeze on the RBC line of credit to allow DMT to continue to try to function.

137Furthermore, Mr. Pohl as a creditor, was limited in his ability to protect himself from liability as a guarantor as he could not direct DMT to pay down the line of credit. Due to his personal liability, the detriment to Mr. Pohl is high.

138Taken together, Mr. Palisca’s decision to direct funds towards corporations affiliated with and directed by him, to the detriment of DMT, unfairly prejudiced and disregarded the interests of Mr. Pohl, leaving him personally liable for DMT’s debt obligation on the line of credit. Therefore, oppression is established.

139Section 248(3) of the OBCA sets out a list of remedies a court may order if oppression is found. Because the corporation in this case is wound up, and Mr. Pohl was not a shareholder of the corporation at the time of the oppressive action, I find that the legislative remedy most appropriate in the circumstances is likely s. 248(3)(j), namely an “order compensating an aggrieved person.”

140The purpose of the oppression remedy is corrective. “In seeking to redress inequities between private parties”, the oppression remedy seeks to “apply a measure of corrective justice”: See Wilson v. Alharayeri, 2017 SCC 39, 1 S.C.R. 1037, at para. 27 . Some of the remedies enumerated in s. 248(3) of the OBCA , in particular (f) and (g), contemplate liability not only for the corporation but also for other parties. Section 248(3)(j) does not specifically identify against whom an order can be made.

141In Wilson v. Alharayeri, the Supreme Court of Canada addressed the equivalent remedial provision in the Canada Business Corporations Act . The Court found that to impose personal liability under that provision, courts must undertake a two-pronged analysis.

142First, the oppressive conduct must be properly attributable to the director because he or she is implicated in the oppression: Wilson, at para. 47 . Second, the imposition of personal liability must be fit in all the circumstances: Wilson, at para. 48 . The Supreme Court outlined four considerations when analysing “fitness” of a personal liability remedy: overall fairness, that the order should not go further than necessary, vindication of the reasonable expectations of stakeholders, and the corporate law context. The Court noted that “personal benefit and bad faith remain hallmarks of conduct properly attracting personal liability” however, personal liability in the absence of both of these elements is possible: Wilson, at para. 50 .

143In this case, the oppressive conduct is properly attributable to Mr. Palisca as a director. At the time, Mr. Palisca was the directing mind of DMT and PS and was personally involved in all of the relevant decisions. Mr. Palisca controlled the direction of settlement funds as well as the timing and particulars of the invoices drawn from DMT’s account. Finally, the imposition of personal liability is fit in the circumstances because of the bad faith underlying Mr. Palisca’s direction of funds, i.e. the prioritization of affiliated corporations, as well as the disregard for Mr. Pohl’s expectation that he would be relieved as guarantor on the line of credit.

144It is ordered that in the alternative to the findings against the defendants for breach of director’s duty and breach of the common law duty of honest performance, the defendant Walter Palisca and/or PTL and or PS and/or 1041762 Ontario Inc. shall pay to the plaintiff the sum of $225,297.20 as damages for their oppressive conduct under s. 248 of the OBCA .

Claim of Punitive Damages

145The plaintiff also sought punitive damages against the defendants. Based on the findings made by me in this judgment, I do not feel that punitive damages are appropriate as the defendant’s conduct falls short of the high handed, harsh, vindictive, reprehensible and malicious conduct required to found such an action: See Whiten v. Pilot Insurance Co., 2002 SCC 18, [2001] 1 S.C.R. 595.

Management Salary of Mr. Palisca

146As noted above, the August 9 th agreement contained no provisions for the payment of management fees to PTL or PS. In fact, a provision was explicitly included limiting the annual salary of Mr. Palisca to $100,000. In the circumstances, he should have been entitled to a salary of $25,000 for his personal efforts in managing and directing DMT for three months from August 9, 2010 to November 4, 2010. However, he did not make a claim to the Trustee.

PTL Invoices for Work Done

147A sum of money was owing from PTL to DMT for outstanding invoices and work done on its behalf and for which it was not paid. The Trustee was made aware of those claims and they were dealt with in the bankruptcy. I have insufficient evidence proving that the claims for work and services rendered by PTL referred to in para. 72 above for the amount of $11,573.67 were not valid claims. The Trustee must have considered them to be valid and did not challenge them as unfair preferences.

The $109,000 Fake Invoice:

148Mr. Munro urged the court to order repayment of the $75,000 payment made to PTL on April 30 th , 2010 as described in detail by Ms. Francioso. I agree with Ms. Epstein’s submission that it should not be considered by me bearing in mind the mediation and the negotiated settlement which resulted in the August 9 th agreement. That agreement provides in the preamble as follows: [59]

Whereas the parties wish to amend and restate the Memorandum of Agreement and the Amending Agreement to read as set forth herein

149In my view, the parties entered into a new agreement in August 2010, after reflecting on the previous agreements and all that had transpired in the interim. That included litigation which was settled with the execution of the Amending Agreement to the Memorandum of Agreement dated March 26, 2010. In that period of time, Mr. Pohl knew that part of the “fake invoice” for $109,000 had been paid from DMT funds. He had the opportunity to insist that any wrongdoing in that respect be rectified in the August 9 th agreement. It is not addressed in the agreement and I find that the principle of issue estoppel applies to this issue.

Conclusion:

150The plaintiff shall have judgment against the defendants Walter Palisca and Palcam Technologies Ltd. and Palcam Solutions Inc. and/or 1401763 Ontario Inc. jointly and severally in the amount of $225,297.20 with pre-judgment and post judgment interest thereon from November 1, 2010 to the date of payment at the same rate of interest charged to Mr. Pohl by the Royal Bank of Canada or any successor financial institution on the secured line of credit for which DMT was liable and which the plaintiff had personally guaranteed.

151The plaintiff’s claims against all other defendants are dismissed.

152The counterclaim is dismissed without costs.

153The plaintiffs shall have their costs against the defendants Walter Palisca and Palcam Technologies Ltd and Palcam Solutions Inc. If the parties are unable to reach an agreement on costs, counsel may each make brief submissions in writing, not longer than three single-spaced pages. Those submissions plus any offers to settle, case law authorities and costs outline on which they seek to rely shall be served and filed in accordance with the following schedule. The plaintiff’s submission are due by January 12 th , 2019, the defendants’ by January 20 th , 2019 and any reply by January 25, 2019. All submissions are to be directed to the office of the judicial assistants at the John Sopinka Courthouse, suite 626.

Released : January 2, 2019. “Turnbull J.” Turnbull, J.

[1] Exhibit 3, p. 363 [2] Exhibit 3, p. 437 [3] Exhibit. 2, tab 35, p. 186. [4] The first invoice is Exhibit A to the document found at ex. 1, page 141. [5] The second invoice is Exhibit B to the document found at ex. 1, page 142. [6] Exhibit. 2, tab 44. [7] Exhibit. 1, page 138. [8] Exhibit 1, tab 7. [9] Exhibit 1, tab 25. [10] Exhibit 4, tab 4. [11] Exhibit 4, tab 5 is the Statement of Defence and Counterclaim of DMT and Mr. Pohl. [12] Exhibit 1, tab 6. [13] Exhibit 1, tab 7. [14] Exhibit 1, tab 10, p. 94 para. 3(e). [15] Exhibit 1, tab 10, p. 96, para 9. [16] See exhibit 1, tab 8. [17] Exhibit 1, tab 10, p. 111. [18] Exhibit 2, tab 26. [19] Exhibit 2, tab 27, p. 166. [20] Exhibit. 4, tab 13. [21] Exhibit 4, tab 13, p. 7. [22] Exhibit 4, tab 18. [23] Exhibit 4, tab 12, p.1. [24] Exhibit 2, tab 54. [25] Exhibit 3, tab 66, p. 377. [26] Exhibit 3, tab 73. [27] Exhibit 4, tab 20. [28] Exhibit 4, tab 21. [29] Exhibit 20. [30] Exhibit 5, tab 26, second section. [31] Exhibit 1, tab 10, page 95, para. 5.(a)(iii). [32] Exhibit 5, tab 30. [33] Exhibit, tab 74, p. 424. [34] Exhibit 3, tab 68, p. 393. [35] Exhibit 2, tab 50, p. 264. [36] Exhibit 2, tab 50, p. 265 and 258. [37] Exhibit 2, tab 51. [38] Exhibit 2, p. 285 [39] Exhibit 2, p. 293 [40] Exhibit 2, p. 292. [41] Exhibit 2, p. 272 to p.280 [42] Exhibit 2, p. 281 to 284. [43] Exhibit 19. [44] Exhibit 3, tab 71, p. 414. [45] Exhibit 3, tab 72. [46] Exhibit 3, tab 81. [47] Exhibit 3, tab 76, p. 444. [48] Exhibit 3, tab 67. [49] Exhibit 3, tab 74, p.428. [50] Exhibit 3, tab 75, p.437. [51] Exhibit 3, tab 55, p. 341. [52] Exhibit 3, tab 75, p. 436. [53] Exhibit 20. [54] Exhibit 1, tab 10, p. 95 at para. 5(a)(iii) and Exhibit 4, tab 8, p. 20. [55] Exhibit 3, tab 66, p. 377. [56] Exhibit 1, tab 3, p. 9, under the heading “Security”. [57] Exhibit 14. [58] Exhibit 5, Tab 36, p. 6 of 15, entry 101. [59] Exhibit 1, tab10, p. 93.