Court File and Parties
COURT FILE NO.: CV-10-00406761-0000 DATE: 20190718 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
1426505 ONTARIO INC., ROY MAIERO AND MARIA PIA MAIERO Plaintiffs – and – JOVIAN CAPITAL CORPORATION, JOVFUNDS MANAGEMENT INC., AND JOVIAN ASSET MANAGEMENT INC. Defendants
Counsel: Joseph Figliomeni and Junaid Malik, for the Plaintiffs Lawrence Thacker, Christopher Trivisonno, and Zachary Rosen, for the Defendants
Before: GANS J.
Heard: April 8, 9, 10, 11, 12, 15, 16, 17, 18, 23, 24, 25, 26, 29, 30 and May 1, 2, 3, 6, 22
REASONS FOR JUDGMENT
Introduction
[1] In the last five months of 2008, the North American financial markets plummeted markedly. The world was on fire as far as the securities industry was concerned, with no end in sight. All players were looking around frantically for ways to staunch the bleeding, which would not take place until the end of the second quarter of the next year. The carnage, to mix metaphors, was almost legendary, spawning no end of essays, commentaries and treatises attempting to explain what had happened and how it could possibly be avoided yet again in the future as the rollercoaster resumed its ascent into its now stratospheric levels.
[2] All manner of financial institutions and securitized instruments and vehicles were doomed for failure, even those that were thought to be “too big to fail”. [^1] One such casualty was the Accumulus North American Momentum Fund, or the “Momentum Fund”, as it was commonly referred to throughout the trial, which in its then incarnation, was terminated by its fund manager in early January 2009.
[3] The events giving rise to the creation of the Momentum Fund, the decision leading to its winding-up and the consequences thereafter formed the foundation of the instant action.
Background facts
[4] In 2002, Roy Maiero (“Maiero”), a financial planner and licensed mutual fund salesman, operating in the Hamilton area, founded the Momentum Fund with his long-time friend, David Passalent (“Passalent”). Originally, it was intended that Maiero, with the assistance of a professional mutual fund marketing firm, would market the fund to his financial planning clients and others. Passalent, who was a registered portfolio manager and certified financial analyst, would act as the investment strategist.
[5] Additionally, Maiero and his wife provided the initial seed capital for the Momentum Fund by way of shareholder loans (the “Maiero Shareholder Loans”).
[6] The Momentum Fund was managed by Accumulus Management Limited (“AML”), a company beneficially owned by Maiero through the plaintiff, 1426505 Ontario Inc. (“142”) and Passalent.
[7] While I was told that Passalent’s investment strategies would be tied to a complex proprietary trading model and algorithm, the results of the Momentum Fund to the end of the first calendar year of operation, for what it is worth, belie that notion. The Statement of Investment Portfolio as at December 31st, 2002 shows that the Momentum Fund held almost all “near cash” investments in the form of “Bankers’ acceptance certificates” and limited other investments. [^2], [^3]
[8] In early 2003, Passalent resigned his position as the investment strategist for the Momentum Fund and transferred his interest in AML to Maiero through 142. At that moment in time, the Momentum Fund as a passive investor in, primarily, cash-related instruments, was in need of a registered investment manager, if not the additional infrastructure necessary to manage its modest net assets under management (“NAV”), [^4] which then totaled something less than $4 million.
[9] Sometime in early April 2003, Maiero was introduced to Philip Armstrong (“Armstrong”), a successful and well-respected “player” in the Canadian mutual fund field, who was the Chairman and a director of Jovian Asset Management Inc. (“JAMI”). The discussions between Maiero and Armstrong, and others in the Jovian group of mutual fund industry companies, [^5] took place over the next several months.
[10] Originally, Maiero was interested in retaining JAMI not only for its portfolio management capabilities, but to provide services for what is referred to as the “front and back office” operations, which included fund marketing to investment advisors, trading and ancillary “paper” records keeping and other custodial matters routinely generated and attended to in the operation of a mutual fund. While I was shown a series of letters of intent that covered various fee for service agreements between the Jovian parent company and AML prepared during the spring and early summer of 2003, none were finalized.
The Agreements
[11] A completely different letter of intent (the “July Letter of Intent”) was executed at the end of July, which provided for, among other things, the following:
(a) JAMI would, on closing, purchase 100 percent of the shares of AML from 142 for a nominal amount of $10 and would “repay” $50,000 of the Maiero Shareholder Loans;
(b) 142 would enter into a “consulting fee” agreement in respect of which it would receive fees equal to “9% of all gross fees payable to” AML by the Momentum Fund, calculated and payable quarterly;
(c) The Maiero Shareholder Loan was capped at $150,000 and a formula for its repayment was established that was tied to the assets under management (“AUM”) of the Momentum Fund;
(d) JAMI or any of its affiliates would not launch “any investment fund with substantially the same investment objectives as” the Momentum Fund;
[12] In addition, and as will be discussed later in these reasons, the parties agreed to the following, which I have excerpted in its entirety:
In the event that the Fund is merged with another investment fund or any other Arrangement or transaction is completed whereby the Fund is being reorganized with, or its assets are being transferred to, another investment fund or the Fund is wound-up and a significant amount of the investment by unitholders of the Fund is to be re-invested in one or more funds managed by Jovian or its affiliates, then appropriate amendments will be made (including, if applicable, through additional agreements with affiliates of Jovian) in respect of rights to Consulting fees and loan payments so as to allow a proportionate continuation of such rights. [^6]
[13] Prior to the execution of the July Letter of Intent, Felcom Management Corp. (“Felcom”), a Jovian affiliate, was appointed the manager of the Momentum Fund, which it managed all through the fall of 2003. For reasons that were never made clear to me, the July Letter of Intent was not converted into a formal share purchase agreement (the “SPA”) until mid-January 2004, which itself did not close until April 1, 2004. [^7]
[14] Two more agreements of note were executed contemporaneously with the closing of the SPA, namely a royalty agreement that memorialized, with modification, the consulting payment provisions contained in the July Letter of Intent (“Royalty Agreement”) [^8] and a promissory note, which effectively, but for one significant exception, tracked the language found in the July Letter of Intent (“Promissory Note”). [^9] Both documents will be referred to extensively throughout these reasons as they feature prominently in the dispute between the parties.
Post-SPA Events
[15] In March 2004, Jovian, in addition to the Momentum Fund, created four separate “garden variety” funds marketed under the “Accumulus” banner, which included an equity fund, a balanced fund (a mix of stocks and bonds), a fixed income fund, and a money market fund (collectively referred to as the “Accumulus Funds”). [^10] Each of the four funds was launched through and fell under the AML stewardship.
[16] Although all the Accumulus Funds, including the Momentum Fund, had as a primary objective the achievement of long-term growth, while “focusing on the preservation of and reduced volatility of returns”, [^11] the Momentum Fund was designed to and ultimately employed an investment methodology quite different from the other Accumulus Funds.
[17] As best as I understood the evidence, a momentum fund is an investment fund that invests in companies based on current trends in such things as revenue, earnings or price movements. It is a fund that requires a high level of monitoring, if not fund manager dexterity, as the variable movements upon which a manager may focus can turn dramatically and suddenly, thereby effecting its NAV. [^12]
[18] The Momentum Fund objectives were modified in early 2005 to accord with the investment strategies of its newly hired fund manager, Robert Davies. It moved markedly away from investments in derivatives and into shares, primarily, of Canadian companies where the Momentum investment philosophy was undertaken in earnest.
[19] Notwithstanding the active management engendered by the Davies-run fund, the Momentum Fund formally reduced its management expense ratio (“MER”) from 2.25 percent to 2 percent and received unitholder approval to permit limited short selling, in an effort to further limit the Fund’s volatility.
[20] The Accumulus Funds experienced rapid and substantial growth in the years immediately following the execution of the SPA. By the end of 2006, the Accumulus Funds had a NAV of in excess of $75 million, with the Talisman Fund, the flagship fund, leading the pack at more than $58 million. The Momentum Fund, although a distant second in the family, enjoyed more than just reasonable growth, topping out at almost $10 million by the end of June 2007. [^13]
[21] In the fall of 2007, through a series of mergers and amalgamations, the Jovian Group grew significantly. Armstrong ceased to be as actively involved, as the day to day management of the funds, now known as the JovFunds, was assumed by Steven Hawkins and Adam Felesky, although the division of labour between the two of them was not made clear to me.
[22] Suffice to say that by early 2008, Jovian owned and operated more than 60 mutual funds, exchange-traded funds (“ETFs”), and various flow-through limited partnerships that it had acquired through the take-over of other fund companies and managers or established organically. [^14] While all the Jovian products could be sold through investment advisors associated with brokerage firms, mutual fund advisors, such as Maiero, were restricted to selling mutual fund securities only through the firms with which they were associated. Jovian was fast becoming a fund operator and manger and financial services company juggernaut, controlling in excess of $10 billion in managed and administered assets.
[23] In January 2008, Robert Davies took a medical leave of absence. While I heard that the Momentum Fund’s day to day management was passed on to another of his colleagues thereafter, I was not sure that the management and investment decisions were not for at least a portion of 2008 taken over by Hawkins.
[24] There is no doubt from the evidence that the Momentum Fund suffered a 25 percent drop in NAV in the first six months of 2008. What is unclear is whether that significant diminution in value was caused by the lack of active management in the wake of Davies’ medical leave (if that conclusion can be drawn), redemption of units by non-Maiero clients, a turn in the market or some combination of these and other factors. Again, interestingly, the NAV of the Talisman Fund dropped by the same percentages. [^15]
The Momentum Fund Wind-up
[25] In a press release dated November 4th, 2008, Jovian announced (the “Announcement”) that it intended to wind-up the Momentum Fund as of January 5th, 2009 (the “Termination Date”). Unitholders were not provided with any reason for the intended winding-up. They were basically just informed that their units would be redeemed for the then “unit value” of the fund as at the Termination Date. They were also advised to contact their investment advisors if they wished to “switch” their investment out of the Momentum Fund prior to the final redemption date. [^16]
[26] Maiero was not given a heads-up about any pending decisions to wind-up the Momentum Fund. The best that could be said about any advance notice of the wind-up was that two representatives from a Jovian-affiliated marketing company came to Hamilton, perhaps just prior to the Announcement, to tell Maiero about the decision and to canvass with him the possibility of his clients moving into another fund managed by JovFunds, before or upon redemption. Again, no rationale for the winding-up decision was provided to Maiero by these fund salesmen.
[27] Needless to say, Maiero was not pleased with the decision since it brought to a precipitous halt all payments he and his wife were receiving under the Promissory Note, which then had an outstanding balance of $134,501.43, and put into question any further payments under the Royalty Agreement, which had yielded, plus or minus, a shade over $42,000 from the execution of the SPA to the date of the Announcement.
[28] The Announcement brought into focus, blurred as it appeared to be, the operation of section 2.5 of the Royalty Agreement, which provides as follows:
In the event that the Fund is merged with another investment fund or any other arrangement or transaction is completed whereby the Fund is being reorganized with, or its assets are being transferred to, another investment fund or the Fund is wound-up and a significant amount of the investment by unitholders of the Fund is to [sic] re-invested in one or more funds managed by Accumulus or its Affiliates (a "Successor Fund") then appropriate amendments will be made (including, if applicable, through additional agreements with Affiliates of Accumulus) to allow for a proportionate continuation of rights to Royalty Payments, so as to provide to 1426505 the right to 9% of the gross fees payable from time to time to the manager of the Successor Fund allocable to the securities of the Successor Fund acquired directly or indirectly from such re-investments by unitholders of the Fund. (“Section 2.5”)
[29] There are two other provisions of the Royalty Agreement that in my view warrant excerption even though neither party referenced them, as I recall, in their respective arguments:
Section 5.3 Entire Agreement
Except as otherwise set out herein, this Agreement constitutes the entire agreement between the parties relating to royalties granted hereby and supersedes all previous writings and understandings. No term or provision of this Agreement shall be varied or modified by any prior or subsequent statement, conduct or act of either of the parties, except that the parties may amend this Agreement by written instrument specifically referring to and executed in the same manner as this Agreement.
Section 5.5 Further Assurances
The parties agree that they will execute all necessary or desirable documents and generally provide such further assurances as may be required in order to enable compliance with all obligations hereunder.
[30] Thereafter, there was a flurry of activity and phone calls about which I heard and saw, the latter in the form of email correspondence and draft agreements exchanged between Maiero and representatives from Jovian, including Felesky and Duriya Patel, Jovian’s senior in-house counsel. There were also email exchanges between Maiero and his then solicitor, Gary Litwack, and Felesky and Messrs. Hawkins and Armstrong, all of which shed some light on the events as they unfolded during the several weeks after the Announcement, if not the meaning of Section 2.5, and their interplay with the above-excerpted other sections upon which I will comment later in these reasons.
[31] Suffice it to say that no amending agreement was settled upon between Maiero for and on behalf of 142 and the Jovian representatives for and on the part of AML or its affiliates. What transpired after an exchange of correspondence and at least one further draft agreement prepared and delivered in early December to a July 2009 meeting between Maiero and his then litigation counsel and some of the Jovian players was not clearly established or countered by the evidence. I was left to guess and speculate upon whom the fault ultimately lay for the lack of an amending agreement, neither of which I am permitted nor inclined to do in the circumstances. [^17]
[32] What I do know is that the plaintiffs commenced this action in early January 2010 without any amending agreement having been concluded, which is more than regrettable since a deal was there for the making had the parties not demonstrated their intransigence and gone to their respective battle stations. [^18]
Issues
[33] In my experience, lawsuits are very much an evolving process. Unfortunately, the parties get fixated on a particular cause or causes of action or defence or defences that should never have seen the light of day or at least should not have been pursued through to the end of trial.
[34] In the instant case, the plaintiff mounted a frontal attack on the actions of Jovian in the manner in which the Momentum Fund was operated after the SPA was signed to its ultimate winding-up. Because these issues occupied significant trial time, I will, with some reluctance, attempt to speak to them throughout the balance of these reasons.
[35] The defendants, from the get-go, set out the liability issues differently, if not more succinctly, which I have appropriated from their closing:
(a) Does Section 2.5 of the Royalty Agreement contemplate and permit a wind-up of the Accumulus Fund?
(b) Were the defendants obligated to continue to pay a “proportionate continuation” of the Royalty Payments to 142 under the Royalty Agreement? If so, what amount and for how long?
(c) Did the defendants breach the duty of honest performance or any duty of good faith?
(d) Did the defendants’ decision to wind-up the Accumulus Fund require a review by Jovian’s IRC?
My analysis will focus on these points.
Analysis: The Winding-up
[36] The interpretive background against which my conclusions are drawn is the decision of the Supreme Court of Canada in Sattva Capital Corp v. Creston Moly Corp. [^19] The oft-cited principles distilled from that case are as follows:
(1) When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said.
(2) The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective.
(3) In interpreting the contract, the court may have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties.
(4) The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity.
(5) If the court finds that the contract is ambiguous, it may then resort to extrinsic evidence to clear up the ambiguity.
(6) While the factual matrix can be used to clarify the intention of the parties, it cannot be used to contradict that intention or create an ambiguity where one did not previously exist. [^20]
[37] The events just prior to the first meetings between Maiero and Armstrong in 2003 suggest that at least Passalent was of the view that AML could wind-up the fund and force unitholder redemptions based upon market conditions. Such is evident from a letter to unitholders prepared over Passalent’s signature in March 2003 in which he indicated that the fund was being wound-up since it was then not economically viable. [^21] While the evidence of what transpired in the wake of the preparation of that letter was murky, to say the least, it underscores the principle that a winding-up was a permitted event, a fact that should have been known to Maiero.
[38] In any event, I am of the opinion that the language of Section 2.5 makes it clear that the Momentum Fund could be reorganized during the currency of the Royalty Agreement, which I am satisfied could include a winding-up. What consequences arise from that decision is clearly at the heart of the issues in the action and are explored in the following sections.
The Royalty Agreement and Proportionate Continuation of Royalties
[39] I now return to the second question posed above and its relationship to the interpretive principles gleaned from Sattva:
Were the defendants obligated to continue to pay a “proportionate continuation” of the Royalty Payments to 142 under the Royalty Agreement? If so, what amount and for how long?
[40] As a backdrop to the interpretation of the section, I would note that the parties are in agreement that it, or its predecessor section, first found in the July Letter of Intent, came into existence at the insistence or request of Maiero’s lawyer, Gary Litwack. Reduced to its simplest, I was told that Litwack wanted to ensure that if the Momentum Fund was merged or otherwise reorganized or wound-up, 142 would still be entitled to receive a “proportionate right to Royalty Payments”, if certain pre-conditions were met. The questions to be decided are: what preconditions had to be met in order for the payments to continue and what amounts or percentages constitute a “proportionate continuation”?
[41] Both parties submit, for different reasons, that Section 2.5 is clear and unambiguous. The defendants submit that the only pre-condition for the continuation of payments is that the parties enter into an amending agreement in writing, having conceded that “a significant amount” of the original Accumulus investors had reinvested in the Successor Fund, as defined, so that the first threshold had been met, factually.
[42] The defendants further argue that if no amending agreement is concluded to comport with the Entire Agreement provision excerpted above, then what the parties are left with is an agreement to agree, which at law is unenforceable.
[43] The defendants argue, in the alternative, that if the plaintiffs’ proposed interpretation of the proportionate payments term is correct, then the section is itself ambiguous and otherwise equally unenforceable. To round this argument off for a moment, the plaintiffs argue, as Maiero repeated in his testimony, that 142 was entitled to a fixed percentage of the Successor Fund based on the proportion of former Momentum Fund unitholders who initially reinvested with Jovian after the Termination Date, which percentage would continue throughout the term of the agreement, regardless of the size of the Successor Fund.
[44] I make the following findings in respect of the interpretation and operation of Section 2.5:
- The section is clear and unambiguous;
- As long as a “significant amount” of Accumulus investors reinvest (the “Successor Investors”) in the Successor Funds, 142 is entitled to a “proportionate continuation” of its Royalty Payments for the entirety of the term of the agreement as defined;
- Once the number of Successor Investors is reached, the proportionate continuation ratio is thereby established for so long as the Royalty Payments are payable;
- The right to the proportionate continuation is not contingent upon the execution of an amending agreement;
- If it were so contingent, then the parties have provided further assurances to enter into “all necessary…documents” to enable compliance with their respective obligations; [^22] and
- The section is certain, contains all the essential elements and is not dependent on a further contract. [^23]
[45] In my opinion, the term ‘proportionate continuation’ is defined by the words “allocable to the securities of the Successor Fund acquired directly or indirectly from such investments by unitholders of the Fund”. In this respect, I agree with Maiero that the percentage to be used in calculating the proportionate continuation is the rate set once the number of Successor Investors is reached, and not the “average” ratio employed by the defendants “during each quarter of the loss period”. [^24]
[46] I also hold that 142 is only entitled to nine percent of the gross fees payable to the manager of the Successor Fund, the proportion in respect of which is set on the date that a significant amount of Successor Investors is determined.
[47] Conversely, since I find the above phrase to be clear and unambiguous, which in any event is to be read in the context of the rest of the section, in my opinion an amending agreement would therefore be necessary to permit the interpretation of proportionality that the defendants now urge upon me. That ship has regrettably left the harbour.
[48] I would also observe that under the terms of the Promissory Note, the payment and repayment provisions were tied to the management fees paid by the Momentum Fund to the manager. There was no clause akin to the successor fund clause applicable to the Promissory Note to which the parties could have regard once the Momentum Fund was merged, reorganized or wound up. Interestingly enough, as excerpted above, the July Letter of Intent contemplated the conclusion of an amending agreement to the Promissory Note even though there was no “further assurances” clause as there was in the Royalty Agreement. For reasons not explained in evidence, the terms of the July Letter of Intent did not make their way into the final version of the Promissory Note.
[49] But, as actually turned out to be the case, the Maieros apparently could only collect on the outstanding balance on the note itself at the moment of winding-up so long as the Promissory Note was in default at that moment in time. While curious, although not relevant to my deliberations, the parties resolved the balance outstanding under the note on the eve of a motion for summary judgment for roughly 88 percent of value, well before the commencement of trial.
[50] As a further aside, it is interesting to note that Maiero queried Litwack in an email of the need to amend the Promissory Note as part of an amending agreement, for what that might be worth in all the circumstances. [^25]
[51] Simply put, on my interpretation of Section 2.5, the defendants were obliged to continue with the quarterly payments under the Royalty Agreement until the conclusion of its Term. The last payments were made in February 2009. Hence, the defendants were in breach of the Royalty Agreement as of that month, which gives rise to a claim for damages.
Bhasin - The Duty of Good Faith Contractual Performance [^26]
[52] The plaintiffs also argued that the principles of good faith contractual performance and the companion duty to perform contracts honestly, recently expressed by Cromwell J. in Bhasin v. Hrynew [^27], apply to the instant case. It is their position that the defendants in winding-up the Momentum Fund precipitously, without consultation and without considering alternative methods of ensuring the fund’s continuation, minimally, demonstrated bad faith. In the alternative, they argued that this decision was capricious and arbitrary.
[53] They further suggest that the winding-up in and of itself was an action that engaged the principles expressed in Bhasin since it “substantially nullifies the contractual objectives or causes significant harm to the other contrary to the original purposes or expectations of the parties”. [^28]
[54] While I do not agree with the defendants that the general organizing principle of good faith contractual performance did not apply to the Royalty Agreement and Promissory Note, I am not persuaded on the facts of this case that there was any breach of the duty as the plaintiffs would urge me to find.
[55] The starting point for that observation is found in the qualifier to the Mesa decision cited above and to which Cromwell J. made reference in Bhasin.
[56] He made the following observations at paragraphs 65 and 70 of the reasons for judgment that bear repeating:
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. This general principle has strong conceptual differences from the much higher obligations of a fiduciary. Unlike fiduciary duties, good faith performance does not engage duties of loyalty to the other contracting party or a duty to put the interests of the other contracting party first.
The principle of good faith must be applied in a manner that is consistent with the fundamental commitments of the common law of contract which generally places great weight on the freedom of contracting parties to pursue their individual self-interest. In commerce, a party may sometimes cause loss to another — even intentionally — in the legitimate pursuit of economic self-interest … Doing so is not necessarily contrary to good faith and in some cases has actually been encouraged by the courts on the basis of economic efficiency … The development of the principle of good faith must be clear not to veer into a form of ad hoc judicial moralism or “palm treeˮ justice. In particular, the organizing principle of good faith should not be used as a pretext for scrutinizing the motives of contracting parties.
[57] While admittedly the evidence of the defendants’ actions in the year leading up to the Announcement was concerning, made all the more curious by the less than candid, if not pat, evidence of Steven Hawkins, if not of Adam Felesky, in light of the absence of supporting documentation and the late production of other documents at the trial, I am not satisfied that this conduct reaches the necessary level of bad faith, as was argued. Without doubt, the defendants could have given Maiero a heads-up about their intention to wind-up the Momentum Fund, if only as a matter of courtesy, since to do so would not have put them off-side the Securities Act as was suggested. The insider trading provisions of that act do not support that last suggested notion. [^29]
[58] That said, I am not persuaded that the decision was undertaken simply to avoid the payments called for under the Royalty Agreement or Promissory Note. Put otherwise, the cost-benefit of that decision based on the annual payments made and to be made to 142 and Maiero did not outweigh the other reasons articulated by the Jovian witnesses for the ultimate decision to wind-up the Momentum Fund. The absence of supporting paper does not undercut the cogency of that decision.
[59] As previously indicated, the markets were in absolute turmoil in 2008. Momentum funds were particularly vulnerable to the vicissitude of the market. While I had some doubt about how difficult a process it was to change the objectives of the Momentum Fund and merge it with the other funds in the original Accumulus group, the evidence did not quite meet the necessary burden of proof for me to conclude that the decision of management should be called into question. In any event, the case law is clear that a court is not to second guess the business judgment of management in the absence of mala fides or dishonesty. [^30]
[60] In my view, the recent decision of the Ontario Court of Appeal CM Callow Inc. v. Zollinger [^31] is of assistance in articulating the “disquiet” that I had in respect of the defendants’ actions in the manner in which the Momentum Fund was wound-up: while the defendants did not act dishonestly, they did not act completely honourably throughout, having regard to the nature of the relationship with Maiero. That conclusion, however, does not place the defendants at odds with the duty to act honestly, which is best summarized in Bhasin:
[The duty] means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. [^32], [^33]
[61] In Zollinger, the respondent provided maintenance services to various condominium corporations. The respondent performed “freebie work”, hoping that this would lead to additional contracts in the future with the appellants. The appellants accepted this freebie work without informing the respondent that they would be terminating the contract. The respondent was not contractually required to disclose that it had decided to terminate the contract prior to the ten-day formal notice period specified in the contract.
[62] In the current case, when the defendants wound-up the Momentum Fund, their conduct was arguably less reprehensible than the conduct of the respondents in Zollinger. While the defendants’ conduct is not commended by the court, I find that they did not lie to Maiero and did not mislead him about the contractual performance of the Royalty Agreement. Hence, the aforementioned Bhasin principles are not engaged.
The IRC
[63] At its simplest, the plaintiffs also attempted to portray the defendants’ decision to wind-up the Momentum Fund as one that was not only made without contractual or legislative authority, but was undertaken simply to avoid the obligations and payments created by the Royalty Agreement and Promissory Note. In that regard, the plaintiffs attempted to show that a wind-up, per se, was not only an unusual, if not unorthodox, procedure rarely undertaken in the mutual fund world, but was one that should not be undertaken without unitholder approval or, at a minimum, without a review by Jovian’s IRC.
[64] The starting point for this analysis, the plaintiffs argue, is s. 116 of the Securities Act, which provides:
Every investment fund manager,
(a) shall exercise the powers and discharge the duties of their office honestly, in good faith and in the best interests of the investment fund; and
(b) shall exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.
[65] The aforesaid statutory obligation of investment fund managers has recently formed the subject matter of judicial interpretation in Pushka:
a. that they act with utmost good faith and in the best interest of the investment fund and put the interests of the fund and its unitholders ahead of their own;
b. that they generally avoid material conflicts of interest and transactions that give rise to material conflicts of interest on the part of the IFM, including self-interested and related-party transactions;
c. where a conflict of interest cannot be avoided, or where a material self-interested or related party transaction is proposed, ensure that the conflict of interest or transaction is appropriately addressed as a matter of good governance and in compliance with National Instrument 81-107; [^34]
d. that they make full disclosure to the board of directors, the independent review committee and unitholders, as the circumstances may dictate, in respect of all the circumstances surrounding the material conflict of interest or self-interested or related party transaction;
e. that they obtain the informed consent of unitholders where a conflict of interest or self-interested or related party transaction is sufficiently material to warrant obtaining such consent; and
f. that they ensure compliance in all material respects with the terms of the declaration of trust governing the relationship between the investment fund manager and the investment fund. [^35]
[66] The plaintiff further argues that one must then have regard to s. 5.1 of NI 81-107, which provides that when a conflict arises between the interests of an investment fund manager and the interests of the investment fund, the investment fund managers must refer the matter, along with its proposed action, to the funds’ IRC for a review and decision.
[67] NI 81-107 defines, in part, a conflict to mean:
[A] situation where a reasonable person would consider a manager, or an entity related to the manager, to have an interest that may conflict with the manager's ability to act in good faith and in the best interests of the investment fund.
[68] In its annual report to unitholders for the period ending December 31, 2008, JFMI’s IRC noted that:
When a conflict of interest matter arises, the Manager of the Funds must refer the matter, along with its proposed action, to the IRC for its review and decision. These are the conflict of interest matters that have been identified by the Manager for the IRC to consider as at December 31, 2008.
Launching, Merging, Converting, Closing or Re-organizing Funds: These actions have the potential to place the Manager in a conflict of interest with the best interests of the funds that are affected. [^36]
[69] There is no doubt that the winding-up of the Momentum Fund was not formally referred to the IRC before or after the Announcement although the minutes of the IRC reflect that it was discussed at a meeting prior to the Termination Date.
[70] The plaintiffs argued that because the redemption of the Momentum Fund units creates a potential tax consequence for the unitholders, about which it led no specifics, coupled with the fact that the investment fund manager would derive an immediate benefit by ridding itself of “unwanted” expenses, namely the payments called for under each of the Royalty Agreement and the Promissory Note, an obligation for a referral to the IRC was triggered.
[71] While I accept the fact that “on paper” there were potential benefits inuring to AML in, perhaps, not having to continue with certain of its contractual obligations to the plaintiffs, I am not satisfied that such results in a benefit to the fund manager of a material nature sufficient to overcome the consequences the fund manager would suffer from a wind-up.
[72] First and foremost, the manager must give up the assets the fund itself generates as part of its overall AUM, a fact which is anathema to fund managers. Secondly, because a wind-up is such a rare breed in the fund management arsenal of activities, to undertake such an extreme measure cannot do much for a fund manager’s reputation.
[73] In my view, the evidence of Venkat Kannan, a former fund manager and operator whom the defendants called as an expert on the obligations and activities of fund managers and their interaction with IRCs, puts this issue to rest. He testified, inter alia, as follows:
At the time that a fund manager looks at a proposed transaction, they consider two aspects. The first is, does the proposed action result in a benefit to the manager and if the answer to that is yes, then the next question that is asked is does the proposed action result in a negative impact or is it to the detriment of the fund or the investors in the fund. And if the answer to that is yes, then it is referred to the IRC. [^37]
[74] While not dispositive of the issue, the Jovian witnesses, by and large, took the position that the wind-up did not present a conflict between the manager and the unitholders and was accordingly not something that would or should have been referred to the IRC. While I have my doubts about the accuracy of the evidence of Adam Felesky in this regard, I am persuaded that the evidence of Mr. Kannan on this point, as well as others, is persuasive.
[75] Furthermore, as indicated above, the evidence of a detriment to unitholders was speculative, at best. I did not hear that any one of them suffered a tax consequence as a result of the Momentum Fund redemption. While no doubt mutual fund advisors, such as Mr. Maiero, were more than modestly inconvenienced in having to ensure that their clients were fully invested as a consequence of their coming into sudden cash, I am not persuaded that this was a situation that otherwise engaged the operation of NI 81-107.
[76] I am also not persuaded that a conflict as defined arises when the decision to wind-up might put an end to third party contracts. In my view that is not a consequence that NI 81-107 contemplates.
[77] Furthermore, the declaration of trust that created the Momentum Fund and constituted AML as trustee specifically permitted the trustee to mandate the unitholders to redeem their units for the then NAV. [^38] However, I do not agree with the defendants that the declaration of trust gave the trustee “an absolute right to wind up and terminate the Momentum Fund at any time and for any reason”. [^39] In my opinion, the best that can be said about the mandate is that the trustee has an overarching right to wind-up the fund if the exigencies of the marketplace warrant such a drastic action. In my opinion, that action must be undertaken as part of an overall business decision.
[78] If I am wrong in my conclusion that the winding-up of the Momentum Fund need not have been referred to the IRC because it did not fall within the ambit of NI 81-107, I am nevertheless of the view that the evidence of Julie Dublin, the then chair of the Jovian Funds IRC at the relevant time, is of some moment. Ms. Dublin, whose testimony I accept unqualifiedly, was clear in her evidence that an IRC does not have as part of its mandate an investigatory role or was created to otherwise act in the place and stead of a board of directors.
[79] It was her opinion, as a securities lawyer and former OSC staffer, that had the Momentum Fund winding-up been referred to the IRC for review, it would not have undertaken a separate review of the decision-making process of management, nor queried, in any event, the effect of the decision on third party contracts.
[80] In fact, while no one could testify to the genesis of the note, the Minutes of the IRC in December 2008, before the Termination Date, indicate that the Momentum Fund winding-up was discussed at an IRC meeting of December 2nd. While the minutes speak to another matter picked up by one of the IRC members, I am satisfied from the evidence that the IRC was advised of the pending wind-up and apparently took no issue with management’s intended course of action. [^40]
Damages
[81] The fixing of damages in a breach of contract case is a bit of a mug’s game. This task is made all the more difficult in the instant action because of the dramatic disparity in the methodology employed by each side. Simply put, the theories of damages are so markedly different that the bottom-line numbers are but miles apart.
[82] Each side attempted to buttress its position by setting out what it considered to be an applicable judicial bromide that should or could act as the underpinning for its respective economic theory. [^41] In my opinion, the damages are left to be determined in accordance with the terms and provisions of the Royalty Agreement, a task which, in and of itself, regrettably, does not lead to a conclusion that can be arrived at with any mathematical certainty. [^42]
[83] The plaintiffs held steadfastly to the view that the starting point to the damage calculation was the fact that the Momentum Fund could not or would not be wound-up or terminated. Accordingly, their calculation was premised on the theory that the Royalty Agreement would continue, over the life of the term, as defined, or the balance of 99 after the Termination Date (“Term”). These instructions, which went unchallenged, were undertaken by its business valuator, Vince Conte, in his complex damages model.
[84] The root of the complexity of the Conte Model was the fact that it was based on a hypothesis, namely that the Momentum Fund was not wound-up, would continue in existence for the Term and would continue to grow organically, if not dynamically. In that respect, so the theory goes, an opening AUM would be assumed as the starting position, to which would be added, or subtracted, variables to reflect growth based on fund performance, net subscriptions and fund expenses.
[85] The model called for projections of growth, if not expenses, based on industry comparators which bore, in my opinion, little relevance or resemblance to the Momentum Fund’s track record to the Termination Date. Furthermore, the starting AUM numbers and suggested projections for growth did not withstand the defendants’ challenges during cross-examination and the evidence opposite expressed by the defendants’ expert, Farley Cohen. All this underscored the hypothetical nature of the Conte Model, which although “logical” from a number-crunching perspective, left me guessing as to its cogency and overall value.
[86] Furthermore, as I indicated, the Conte Model assumed the Momentum Fund’s continued existence over the balance of the Term, for a period of just less than 88 years, which went unchallenged at first instance and was not made any more realistic by the utilization of a low discount rate, which Conte was told was mandated by the Rules of Civil Procedure [^43]. Indeed, Mr. Conte himself observed in evidence that his instructions on the use of the suggested prescribed discount rate did not reflect reality and was something he should have rejected going into the analysis. [^44] In that respect, he was quick to modify or increase his discount rate exponentially, without push coming to shove, which resulted in a marked drop in his bottom line loss calculation had I been inclined to accept his theory—or at least the theory that formed the bulk of his marching orders.
[87] Finally, I am not persuaded that the plaintiff’s theory of damages, which would yield a net present value that mathematically would exceed several million dollars, accords with the ‘expectation damages’ discussed in the plaintiffs’ foundational case referred to above i.e. place the plaintiff in the same position had the contract been performed. In my opinion, this proposition fails to take into account the reality of the situation, which must be viewed through the lens circumscribed by the amount Jovian paid 142 under the SPA at first instance, the royalty stream generated to the Termination Date and the quantum of management fees charged to the Successor Funds thereafter. Simply put, the amounts paid and payable to 142, even if one includes the amounts paid under the Promissory Note to the Maieros, do not support the plaintiffs’ theory and are at variance to it.
[88] In contrast, the defendants’ damages model does not, in the main, rely on a hypothetical, although it does assume the applicability of annualized results to a quarterly calculus. [^45] It purports to trace the investment of every former Momentum Fund unitholder, as described in evidence, [^46] who reinvested in the Successor Funds, against which it calculated a nine percent quarterly royalty fee on that portion of the management fees attributable to those unitholders who invested in the Successor Funds. In calculating the management fees, it used the actual management fee rates applicable and charged to the Successor Funds.
[89] The defendants’ model, in its original form, used, however, an average ratio of Successor Investors to the estimated quarterly outstanding units of all investors in the Successor Funds rather than a fixed ratio calculated on the Maiero theory of proportionate continuation, which I accepted above.
[90] The defendants provided me with a modified version of the tracking analysis that used the Maiero ratio of “proportionate continuation of rights” as the fixed “estimated percentage” of outstanding units as the multiplier in arriving at the “gross fees payable to (the) Manager from prior fund investors”. In my opinion, that analysis as it is first expressed in Exhibit 40 and summarised in Exhibit 41A is a better reflection of my interpretation of Section 2.5 and more accurately captures the damages the plaintiff’s assert.
[91] That having been said, while there is little doubt that the work undertaken by the defendants’ expert Farley Cohen was rooted, principally, in ‘hard numbers’ provided to his team by Jovian staffers (at least from the Termination Date to 2013), there was a lacuna in the information after 2013, in respect of which Cohen did a work-around, which I accept resulted in, perhaps, a modest bump-up in the plaintiffs’ favour. [^47]
[92] In the final analysis, Cohen’s calculations, as described in greater detail in tables contained in exhibits 40 and 41, yielded a ‘loss’ of roughly $40,000, rounded, for the period from and after the termination date to the end of September 2015 (the date the last of the Successor Funds was terminated). [^48]
[93] As stated in footnote 33 above, Jovian considered its obligations under the Royalty Agreement, if not the Promissory Note, at an end on the Termination Date. Although there was some question as to whether or not a formal notice of termination had been sent to Maiero evidencing the Jovian position, there is no issue that the Jovian payments to 142 and the Maieros stopped in early February 2009.
[94] Having regard to my interpretation of Section 2.5 that the Royalty Agreement was still in force and effect after the Termination Date even though no amending agreement had been concluded, in my view, the calculation of damages should not end with the termination or winding-up of the Successor Funds. Some reckoning should have been undertaken for the ‘future’ revenue stream, if only on a theoretical basis as if the Funds continued, notionally, until the end of the Term.
[95] I put this proposition to Mr. Cohen after hearing Mr. Conte testify that as part of his early work experience, he had calculated the net present value of a royalty stream generated under a fund management contract, in other circumstances. [^49] If I understood that evidence correctly, with which methodology Mr. Cohen was seemingly in agreement, the calculation effected is based on an actual, albeit historic, and an anticipated future revenue stream, which latter number is then refined on a net present value through the application of a discount rate.
[96] I digress to observe that the evidence of each of Messrs. Cohen and Conte underscores the fact that a valuator’s choice of a discount rate is based as much on art as it is on science. While I could not persuade Cohen and Conte to reach a consensus on an agreed-upon discount rate, based on the evidence that I did hear and assimilate, it is my view that for purposes of the exercise that Mr. Cohen undertook at my request, a discount rate for present value calculation purposes of 9.5 percent is fair and reasonable in the circumstances.
[97] In order to calculate the future stream of payments, Cohen extrapolated the management fee paid to the end of September 2015 to the end of that calendar year, which he rounded up to $3,600. He then ‘multiplied’ that number by the years remaining in the Term, and calculated the net present value of that multiplicand using a discount rate of 9.5 percent, which yielded an economic loss of $47,917, adjusted to account for inflation.
[98] In my opinion, based on the numbers with which I was presented, the aggregate damages to which 142 is therefore entitled are $87,917, a number which no doubt the Maieros will find totally unacceptable. I will leave it to counsel to contact me on the issue of whether or not there should be a further adjustment to reflect the question of pre-judgement interest on some or all of the total damages set out above.
[99] I will also leave it to counsel to resolve, if possible, the issue of costs that flow from this decision. I may be contacted by email to arrange a conference call to set a timetable for the delivery of the necessary material for this purpose.
GANS J. Released: July 18, 2019
COURT FILE NO.: CV-10-00406761-0000 DATE: 20190718 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
1426505 ONTARIO INC., ROY MAIERO AND MARIA PIA MAIERO Plaintiffs – and – JOVIAN CAPITAL CORPORATION, JOVFUNDS MANAGEMENT INC., AND JOVIAN ASSET MANAGEMENT INC. Defendants
REASONS FOR JUDGMENT
GANS, J. Released: July 18, 2019
Footnotes
[^1]: My apologies to Andrew Ross Sorkin for appropriating the title of his book, Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves (New York: Penguin Books, 2009). [^2]: JBD-258/327: Statement of Investment Portfolio contained in 2002 Financial Statements. [^3]: Indeed, the same mix of investments existed at the end of calendar year 2003 (JBD 258/357). [^4]: From time to time in these Reasons, I will use the term “AUM” and “NAV” interchangeably although technically the latter is defined as the total market value of all the investments in fund (AUM) less all outstanding indebtedness and payables. Counsel and several of the witnesses used the terms interchangeably which suggests to me that the dollar differential between the two bundles of assets was not significant. [^5]: From time to time in these reasons for judgment, I will refer to the Jovian Capital Corporation, JAMI and Jovfunds Management Inc. and their various affiliates, collectively, as “Jovian” or the “Jovian Group”. [^6]: JBD-028: July Letter of Intent. [^7]: JBD-048: Share Purchase Agreement. [^8]: JBD-067: Royalty Agreement. [^9]: JBD-093: Promissory Note. [^10]: I refer to them as ‘garden variety’ funds since the evidence suggests that every fund manager operating in North America seems to market a whole array of such funds as part of their core investments. [^11]: JBD-004/3: Momentum Fund Marketing Pamphlet. [^12]: I was told, as well, that it is a fund not well suited for a rapidly declining market. [^13]: From a review of JBD-214: Jov Financial Statements, June 30, 2008, it is apparent that Accumulus Family of Funds, renamed as the Jov Family of Funds at the end of 2007, had a marked diminution in NAV. Interestingly enough, the fund experiencing the largest proportionate drop to the end of June 2008 was the Talisman Fund. [^14]: JBD-254: Report of the Independent Review Committee, March 13, 2009. [^15]: A similar comparison cannot be drawn for the other three Accumulus funds since they were merged and continued under another Jovian fund, namely the Leon Frazer Dividend Fund. [^16]: JBD-233: Winding-up Press Release. [^17]: Maiero took the position, vociferously throughout his evidence, and as was highlighted in the plaintiff’s written closing, that the ‘fault’ lay with Jovian in, somehow, insisting that under any amending agreement he would be obliged to solicit his financial planning clients to transfer their redemptions into unidentified successor funds in order to meet the requirements of Section 2.5. He took the position that this kind of requirement would put him qua- investment advisor offside with the mutual fund regulators. Without detailing the concerns he expressed, suffice it to say, based on the evidence of his “expert”, Steven Kelman, I am persuaded that his concerns fall into the ‘much ado about nothing’ category and, as a minimum, could have been worked around, as they were when the Momentum Fund was first created. I am not persuaded on the evidence that this issue, such as it is, buttresses the plaintiffs’ arguments on bad faith. [^18]: Gary Litwack was not called to testify, a situation about which I queried during the trial. While the defendants urged me to draw an adverse inference about his ‘non-attendance’, particularly since he could have provided some background on the history of Section 2.5, if not the events after the Announcement, having regard to my conclusion expressed later in this judgment, I find this issue to be moot. [^19]: 2014 SCC 53, [2014] 2 S.C.R. 633 (“Sattva”). [^20]: The root of the principles set out above can be found in the decision of Newbould J. in Nortel Networks Corp., Re, 2015 ONSC 2987, 27 C.B.R. (6th) 175, at paras. 52-57, leave to appeal refused, 2016 ONCA 332, 130 O.R. (3d) 481, which I repeated, shamelessly, in RBC Dominion Securities Inc. v. Crew Gold Corp., 2016 ONSC 5529, 62 B.L.R. (5th) 151, affirmed, 2017 ONCA 648, 73 B.L.R. (5th) 173. [^21]: JBD-013: Letter dated March 10, 2003 from Passalent to Accumulus Fund Unitholders. Maiero would not admit that this letter was sent to unitholders on or about the date shown on the face of the letter notwithstanding the Agreement as to authenticity that the parties executed as part of the trial management upon which I insist in the normal course. He did, grudgingly, acknowledge that Passalent had authority to prepare and send out such a letter. [^22]: Royalty Agreement, s. 5.3. As I observed above, the defendants acknowledged in argument that “a significant amount” of the original Accumulus investors reinvested in the Successor Fund, thereby triggering the continuing Royalty Payment obligations under Section 2.5. That concession, in my view, obviated the need to import a term into the Section to describe with greater particularity the time period after wind-up that it would take to identify the Successor Investors so as to assess whether a significant amount of reinvestment had been achieved and the arithmetic proportionate continuation. In my opinion, this Court has authority to import such a term where the implied term is necessary to “give business efficacy to a contract”. See M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., , [1999] 1 S.C.R. 619, at para. 27. [^23]: Cdn. Northern Shield v. 2421593 Canadian Inc., 2018 ONSC 3627. [^24]: Cohen Report, Exhibit 37, at para. 44. [^25]: JBD-245: E-mail from Maiero to Gary Litwack, Dated December 2, 2008. [^26]: Although I have found that the defendants were in breach of the Royalty Agreement for failure to continue the payments to the end of Term, I intend to address the other arguments advanced by the plaintiffs, although in retrospect, perhaps unnecessarily. [^27]: 2014 SCC 71, [2014] 3 S.C.R. 494 (“Bhasin”). [^28]: Mesa Operating Ltd. Partnership v. Amoco Canada Resources Ltd., 1994 ABCA 94, 149 A.R. 187, at para. 22, leave to appeal to S.C.C. refused (1994), 162 A.R. 318 (“Mesa”). [^29]: R.S.O. 1990, c. S.5, Part XXI. [^30]: Laxey Partners Ltd v. Strategic Energy Management Corp., 2011 ONSC 6348, 108 O.R. (3d) 440; Pushka v. Ontario Securities Commission, 2016 ONSC 3041, 130 O.R. (3d) 721 (Div. Ct.), at paras. 126-128 (“Pushka”). [^31]: 2018 ONCA 896, 429 D.L.R. (4th) 704 (“Zollinger”). [^32]: Bhasin, at para. 73. [^33]: While I do not believe that plaintiffs advanced this argument under the duty to act honestly rubric, I am not persuaded that the events after the Termination Date that speak to the fact that no amending agreement was concluded reach the level of “dishonest performance”. The evidence on this topic is anything but clear and convincing and hardly leads me to conclude where the impasse lay and who was to blame. I only mention this issue since it was covered in the defendants’ written submissions. [^34]: Plaintiffs’ counsel correctly set out in their closing argument the history of the National Instruments, to which I introduced at trial s. 143 of the Securities Act, which gives the Ontario Securities Commission (“OSC”) the authority to enact rules. The OSC works together with securities commissions in other provinces and territories through the Canadian Securities Administrators (the “CSA”) to achieve a harmonized set of rules. Over time, the CSA has issued several sets of rules or “National Instruments” to regulate the mutual fund industry. The plaintiff referenced several National Instruments in its closing, some of which had been put to witnesses throughout the trial. I will reference in these reasons, in particular, NI 81-105 (Mutual Fund Sales Practice) and NI 81-107 (Independent Review Committee for Investment Funds). [^35]: Pushka, at para. 120. [^36]: JBD-254: IRC Annual Report for 2008, dated March 13, 2009. [^37]: DE Venkat Kannan, April 26, 2019, p. 36, lines 10-32, p. 37, lines 1-3. [^38]: JBD-258: Declaration of Trust, s. 5.5. [^39]: Defendants’ Argument, at para. 78. [^40]: I was not impressed with the overall level of document production undertaken by the Jovian Group throughout the litigation. The “late” production of documents that were in the possession of witnesses leads me to conclude that the efforts in corralling relevant material was wanting, particularly since Jovian has in-house lawyers. Case in point is the above-referenced minute and a purported Notice of Termination, exhibit 28, that was seemingly in the possession of Steven Hawkins, JMI’s then managing partner, until he came to testify in the waning moments of the trial. Such late production not only offends the Rules of Civil Procedure, is manifestly unfair and came within a hair’s breadth of leading me to draw an adverse inference (to what end, I am not decided). That said, no doubt the late production of documents, some of which was undertaken at my insistence during the course of the trial, cast a cloud over the evidence of the Jovian witnesses. [^41]: The plaintiffs relied on the expectation damages principles set out in Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601, at para. 26. The defendants sought to pigeonhole their theory in the expression of relative damages found in Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303. [^42]: Part of the problem in respect of the performance of an accurate accounting for the Royalty Payments, even for the defendants, stems from the facts that neither expert was provided with quarterly financial statements. They were each given the annualized numbers from which they had to estimate the quarterly results in order to calculate the Royalty Payments for the Royalty Payment Period, two defined terms in the agreement. [^43]: R.R.O. 1990, Reg. 194, Rule 53.09. [^44]: The last observation in respect of Mr. Conte’s ‘concession’ on the use of what he was told was a legislated mandate behooves me to comment on his evidence, overall. This case was Mr. Conte’s first formal foray into the SCO as an expert witness. While no doubt he has training and experience that underscored his qualifications as a certified business valuator and CPA, and acquitted himself in testifying in difficult circumstances, having undertaken detailed revised calculations at the court’s request overnight, I was less than pleased with his attempt to overstate his qualifications in his C.V. and was concerned that he had not challenged his client or instructing solicitor on some of the variables that he was asked to assume as correct and unassailable. [^45]: As indicated above, the two experts were provided with annualized results from the annual statements. The defendants’ expert accordingly could not perform an accurate Royalty Payment calculation for the quarterly payment periods and had to rely on ‘averages’. Since that arithmetic was not challenged in cross, I assume it did not yield a marked variance, but a variance, nevertheless. [^46]: JBD-432: Spreadsheet on Unitholder Investments (“Tracing Spreadsheet”). [^47]: I was told that the Tracing Spreadsheet was prepared under the stewardship of Adam Davies, a Jovian in-house lawyer. It was prepared in December 2013 presumably at the request of outside counsel. It was not ‘updated’ to the date that the Successor Funds were themselves wound-up in September 2015 since I was also told that the ‘cost’ did not warrant the time and effort necessary to complete the task. While I am reluctantly prepared to accept Mr. Davies’ rationale for this situation, tenuous as it seems, I cannot help but observe that I was less than impressed with the Jovian efforts to discharge their collective obligations under the Rules of Civil Procedure to produce documents relevant to the matters in issue. Too many documents were produced during the trial that clearly should have been produced during the discovery process. While none of the late-produced documents was a smoking gun, as it were, such lack of diligence, particularly when there are in-house counsel, is unacceptable and may factor into any award of costs associated with the conduct of the litigation. [^48]: Cohen Report, Exhibit 37, at para. 47. [^49]: If memory serves, Mr. Conte, ironically, actually performed this task for Jovian or a Jovian-related company when he was working at Deloitte.