Court File and Parties
Court File No.: CV-17-71608 Motion Heard: 20190613 Superior Court of Justice - Ontario
Re: Robert Cuthbertson and Andrew Coles, Plaintiffs / Moving Parties And: Caseware Idea Inc. and Caseware International Inc., Defendants / Responding Parties
Before: Master Kaufman
Counsel: Duncan A. W. Ault and Laura E. Robinson, Counsel for the Plaintiffs / Moving Parties Martin Mendelzon, Counsel, for the Defendants / Responding Parties
Heard: June 13, 2019
Reasons for Decision
[1] This was a refusals and undertakings motions combined with a motion for leave to amend the Statement of Claim. The defendants did not oppose that last request and an Order shall issue granting the plaintiffs leave to amend the Statement of Claim in the form found at Tab 1 of the motion record.
[2] The plaintiffs are former employees of Caseware Idea Inc. (“IDEA”). They held the positions of Chief Operating Officer and Chief Software Architect. IDEA is in the business of developing sophisticated data analysis software used for complex financial audits. The underlying action is an oppression action pursuant to section 248 of Ontario’s Business Corporations Act, R.S.O. 1990, c.B-16. Among the relief claimed is a valuation of IDEA and full compensation for the plaintiffs’ respective equity interest in the shares they hold in that company.
[3] The plaintiffs have requested certain information to enable them to value IDEA. While the Statement of Claim initially sought an Order requiring a valuation of IDEA as of April 30, 2016, the amendment they seek as part of this motion (referred to above) is for an Order requiring a valuation at a date determined appropriate by the Court.
[4] The defendants oppose the motion on the basis that the relevant time period for the purposes of any valuation is the date the action was commenced. They argue that the scope of discoveries is defined by the pleadings, and that none of the allegations in the claim post-date February 1, 2017. They add that the plaintiffs’ position requires them to make disclosure until the date of trial, and is disproportionate. The defendants also argue that the plaintiffs should not benefit from IDEA’s growth after they left the company because they had no involvement in its operation after they were terminated. Mr. Mendelzon conceded that many of the documents the plaintiffs requested were relevant to IDEA’s valuation, and that the defendants’ main argument concerned the valuation date.
[5] I find that the plaintiff’s request for documents relating to the value of IDEA after the commencement of this proceeding are relevant to matters in issue for the following reasons.
[6] Firstly, the plaintiffs have amended their Statement of Claim to specifically request an Order for a valuation at a date determined appropriate by the Court. That amendment was not opposed. The plaintiffs remain shareholders in IDEA. Should the Court determine that they should benefit from the continued growth in the corporation (a matter on which I express no opinion) the documents sought would be required to establish a valuation at a different date.
[7] Secondly, in Hu v. Song, [2009] OJ No 3373, 63 BLR (4th) 286, 76 CCEL (3d) 179, 2009 CarswellOnt 4778, 179 ACWS (3d) 833, D.M. Brown J. (as he then was) rejected the argument that there is a general practice in an oppression application to select the date of commencement of the proceeding as the valuation date for a share buy-out. He held that the Courts have discretion to select the date that is fairest on the particular facts of the case:
81 As to his first submission, I disagree that such a general rule exists. As Markus Koehnen points out in his text, Oppression and Related Activities, at page 372, the valuation date chosen by courts "is that which is fairest on the particular facts of the case", which may be the date of commencement of the proceeding or the date of judgment. Who should bear the risk of a decline in value of a corporation between the date of commencement and date of judgment falls to be decided on the specific facts and equities of each case. [1]
[8] The defendants concede in their factum that there is validity to the approach of conferring on minority shareholders the benefit of the continued growth of the company in certain situations, but they argue that “in the present case the plaintiffs have no involvement with the company at all”. [2] These are arguments that could properly have been made on a motion for summary judgment, not in refusals and undertakings motion. In circumstances where the plaintiffs argue that they were foundational to IDEA’s creation, it would be inappropriate to bar them from making the argument that they should be entitled to benefit from the future growth of the company they helped to create.
[9] The defendants also opposed a number of questions on the basis that they were questions arising from responses to undertakings, and that the plaintiffs should have scheduled further discoveries or delivered written interrogatories. Strictly speaking, the defendants are correct that in a refusals and undertakings motion, the parties are required to file a chart (form 37C) which sets out the issue that is the subject of the refusal or undertaking and its connection to the pleadings or affidavit, the question number and a reference to the page of the transcript where the question appears and the exact words of the question. Here, the plaintiffs asked additional questions arising from the defendants’ answers to the undertakings given.
[10] Nevertheless, I agreed to rule on these questions in this motion because the alternative suggested by the defendants is to require the plaintiffs to either schedule a continued examination of the defendants or to send written interrogatories, have the defendants refuse to answer these questions on the ground that they are not relevant, and schedule another motion to rule on these refusals. Proceeding in the manner suggested by the defendants would result in a colossal waste of the parties’ - and judicial - resources. In effect, I treated the plaintiffs’ questions as if they had been questions asked in written interrogatories and were met with refusals. I am guided by Rule 1.04, which provides that the Rules of Civil Procedure shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.
[11] My rulings on this motion are contained in the chart attached as annex “A” to these reasons.
Costs
[12] The success was divided on this motion because I ruled that some of the questions asked were too broad and I narrowed their scope. That said, the plaintiffs were mostly successful. Both parties presented costs outlines. The plaintiffs sought $15,525.52 on a partial indemnity basis whereas the defendants’ costs, also on a partial indemnity basis, were $7,921.14.
[13] I fix costs in the amount of $13,000 all-inclusive, payable to the plaintiffs within 30 days. I find that the issues in this motion were important for the plaintiffs and that the level of effort and the number of hours dedicated to the motion were reasonable. I have reduced the plaintiffs costs slightly in light of the divided success on the motion and also because the motion to amend the Statement of Claim was unopposed.
Master Kaufman Date: June 14, 2019